Moorabool Shire Council v Taitapanui

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 5501 of 2003

MOORABOOL SHIRE COUNCIL AND WALLY MELLIS	Appellants
v
JUSTIN BRYAN TAITAPANUI LISA ANN TAITAPANUI AND	First Respondent
HIA INSURANCE SERVICES PTY LTD AND	Second Respondent
WATSON CONSTRUCTIONS PTY LTD (IN LIQUIDATION)	Third Respondent

---

JUDGE:	SMITH J
WHERE HELD:	Melbourne
DATE OF HEARING:	8, 9 and 10 December 2003
DATE OF JUDGMENT:	1 July 2004
CASE MAY BE CITED AS:	Moorabool Shire Council & Anor v Taitapanui
MEDIUM NEUTRAL CITATION:	[2004] VSC 239

---

Negligence – duty of care of private building surveyor to subsequent purchaser of dwelling – apportionment of damages under s 131 Building Act 1993.

Appeal – VCAT decision – alleged errors of law – duty of care – apportionment of danger.

---

APPEARANCES:	Counsel	Solicitors
For the Appellants	Dr C. Pannam QC & Mr M. Wilson	Phillips Fox
For the First Respondents	Mr C. Northrop	Harwood Andrews
For the Second Respondent	Mr D. Aghion	Richmond & Bennison

TABLE [L1]OF CONTENTS

Background to the Proceedings....................................................................................................... 1

Notice of Appeal................................................................................................................................ 2

Duty of care – Tribunal reasons – statutory scheme................................................................... 3

Duty of care - factual basis of the Tribunal decision and its findings.................................... 7

Duty of care - the Tribunal’s analysis.......................................................................................... 12

Duty of care - submissions as to the approach to be taken...................................................... 21

Duty of care - the argument of the Taitapanuis –Bryan v Maloney....................................... 24

Duty of care – the argument of the appellants........................................................................... 30

Duty of care – applying the reasoning of Bryan v Maloney.................................................... 36

Other issues raised by the appellants.......................................................................................... 38

Developments since the hearing – Woolcock St Investments Pty Ltd v CDG Pty Ltd & Anor (Woolcock)......................................................................................................................................... 41

Application of Woolcock to the present case.............................................................................. 46

Duty of care - Conclusion............................................................................................................... 50

The Issue of Apportionment – Tribunal analysis...................................................................... 56

Issue of apportionment - submissions......................................................................................... 58

Issue of apportionment - Conclusion........................................................................................... 59

Conclusion......................................................................................................................................... 60

HIS HONOUR:

Background to the Proceedings

The first respondents, Mr and Mrs Taitapanui (the Taitapanuis), are the registered proprietors of a property at 6 The Mews, Torquay in the Surf Coast Shire. The third respondent, Watson Constructions Pty Ltd (Watson Constructions) constructed a residential building at the property. It was also responsible for the design of the building. At the time of design and construction, Stephen Watson and Leanne Watson, (Watsons) were the registered proprietors of the property and Stephen Watson controlled Watson Constructions.

In August 1996, the second appellant Wally Mellis (Mellis) a building surveyor employed by the first appellant, Moorabool Shire Council (Moorabool), was engaged by Stephen Watson as private building surveyor for the project. On 21 August 1996, Mellis issued a building permit number B 482/96 to Stephen Watson as “Agent Of Owner”. On 28 January 1997 Mellis issued an occupancy permit.

In about July 1997, the Watsons transferred ownership of the property to Kathleen and Joseph Pozman (Pozmans). In about April 1999 the Pozmans transferred ownership of the property to the Taitapanuis.

On 27 April 2001, the Taitapanuis issued proceedings in VCAT seeking damages from Moorabool, as Mellis’ employer, and from Mellis himself, for negligence in the issuing of the building permit and for the manner in which the stump hole, framework and final inspections were conducted. They also sought damages from HIA Insurances Services Pty Ltd trading as the Home Owners Warranty (the insurer) pursuant to a certificate of insurance for losses arising out of alleged defective building work by Watson Constructions. On 11 October 2002, an order was made joining Watson Constructions to the VCAT proceeding.

Notwithstanding the joinder of Watson Constructions, apparently none of the parties specifically addressed the Tribunal in relation to it. The Watsons did not appear at the hearing nor did Mellis.

In its decision handed down on 8 April 2003, VCAT found that Mellis owed a duty of care to the Taitapanuis in respect of pure economic loss. It also found that liability should be apportioned pursuant to section 131 of the Building Act 1993 (“the Act”) as to 50% of the cost of rebuilding the Taitapanui's house between Moorabool and Mellis on the one hand and the builder’s insurer on the other.

On 8 April 2003, VCAT ordered the appellants to pay the first respondents the sum of $96,596. The second and third respondents were ordered to pay the first respondents $99,250.[1] By order made 19 June 2003, the appellants were granted leave to appeal the order made against them.
[1]The sums were different principally because the appellants were held not to be responsible for one item of defective work – the garage.

Notice of Appeal

The notice of appeal raises the following questions of law and specifies the following grounds:

“D. That the question of law upon which the appeal is brought is:
(i)Whether the Tribunal erred in finding that Wally Mellis, as a private building surveyor exercising statutory functions under the Building Act 1993, owed a duty of care to Justin and Lisa Taitapanui who were not the owners of the property at the time when the building permit was issued and the statutory inspections were performed and who only suffered economic loss as a result of damage to the building caused by his issuing of the building permit and his failure to properly carry out the statutory inspections.
(ii)In apportioning the total amount of damages between the respondents in a building action pursuant to the provisions of section 131 of the Building Act 1993 is it legally correct to limit the basis on which such an apportionment is made to an evaluation of the legal obligations undertaken by each of the respondents in relation to the building works in question; or, should at least the following further matters be taken into account:
(a)the relative causal significance or potency of the breach of such obligations to the loss and damage suffered;
(b)the relative degree of blameworthiness of or culpability associated with the breach of such obligations;
(c)the relative importance of the acts or omissions of the respondents in causing the damage; and,
(d)the relative seriousness of the breach of such obligations.

E. The grounds of appeal are as follows:
(i)Senior Member Young erred in law in finding that Mellis, a private building surveyor exercising statutory functions under the Building Act 1993, owed a duty of care to the Taitapanuis who were not the owners of the property at the time that the building permit was issued and statutory inspections were performed and who suffered pure economic loss.
(ii)Senior Member Young erred in law in determining that the apportionment of liability, pursuant to s 131 of the Building Act 1993, was limited to only an evaluation of the legal obligations undertaken by each of the respondents in relation to the building works.”

Thus there are two areas of dispute – the duty of care decision and the apportionment of liability decision. I will first consider the challenge to the duty of care decision. In analysing that decision it is necessary to consider the factual basis of the Tribunal’s decision and its reasoning.
Duty of care – Tribunal reasons – statutory scheme

The Tribunal attached great weight to the statutory scheme under which Mellis acted and discussed the scheme at some length.[2] It noted that the statutory control for building control, including domestic building was to be found in the Building Act 1993 (the Act) and the Building Regulations 1994, (the Regulations) together with the Domestic Buildings Contract Act 1995 which dealt with matters specific to domestic building contracts. It also noted that the Act was introduced in 1993 following a major review of the earlier legislation. Referring to the Minister’s second reading speech it stated that the aims of the Act were to “free up the regulatory process and to produce legislation compatible with current and future requirements of the construction industry”. It then referred to the express provisions in the Act that state that its purposes included regulating, establishing, maintaining and improving standards for the construction and maintenance of buildings.[3] The Tribunal noted that the legislation required the registration of all building practitioners, which concept included private building surveyors.[4] It referred again to the Minister’s second reading speech in which he commented that the introduction of private building surveyors was expected to expedite the issuing of building permits and enable competition for business to occur with municipal building surveyors. It noted that the Minister said that he expected that the new competitive environment would result in improvements in skill in building surveyors as well as faster issuing of building permits.[5] The Tribunal also noted the Minister’s observations that:

•private building surveyors would be required to work in a professional and impartial manner and would be regulated by scrutiny of the Building Control Commission and the legislation which included significant penalties;
•there would be other safe guards such as peer group scrutiny from other builders and building surveyors and the scrutiny of the insurer;
•insurers would not maintain insurance cover required under the legislation by a private building surveyor to practice[6] without a good professional record and acceptable standard of professional practice.

[2]Para 3.5 – 3.24.

[3]Section 1 and 4(a).

[4]Section 169 of the Act and Part 15 of the Building Regulations 1994.

[5]Para 3.9.

[6]Para 3.13.

The Tribunal referred to the statutory definition of the functions of a private building surveyor set out in s 6 of the Act, namely:

“(a) the issuing of building permits;
(b)the carrying out of inspections of buildings and building work under Part IV;
(c) the issuing of occupancy permits and temporary approvals under Part V.”

The Tribunal noted that the Act introduced insurance reform in the building permit industry. It observed that there was already a requirement that residential builders carry insurance but that, again referring to the second reading speech, the introduction of compulsory insurance for all building practitioners would put them all on the same footing and provide building owners with more certainty. The Tribunal then stated the following:
“3.15I consider this demonstrates that the legislature was setting out to provide a comprehensive scheme of overall building regulation with the registration of building practitioners and the need for professional indemnity insurance for practitioners such as building surveyors.”

The Tribunal then referred to s 131 of the Act which it stated was intended to complement the insurance scheme and ensure that contribution to damages awards was equitable and did not involve an uncertain risk for the insurers. Section 131 of the Act provides:

“(1)After determining an award of damages in the building action, the Court must give judgment against each defendant to that action who is found to be jointly or severally liable for damages for such a proportion of the total amount of damages as the Court considers to be just and equitable having regard to the extent of that defendant’s responsibility for the loss or damage.
(2)Despite any Act or Rule of Law to the contrary, the liability for damages of a person found to be jointly or severally liable for damages in a building action is limited to the amount for which judgment is given against that person by the Court.
(3)In this section –
‘Court’ includes the Victorian Civil and Administrative Tribunal.”

The Tribunal commented that the effect of this section was to limit the liability of persons jointly or severally liable in building actions to their apportioned share of the liability. The Tribunal also noted that s 134 introduced a limitation period of 10 years after the date of issue of an occupancy permit in respect of the building work or, where an occupancy permit is not issued, the date of issue of certificate of final inspection.

The Tribunal also referred to another aspect of the legislative scheme which was a statement of professional standards in Regulation 15.2 of the Regulations. So far as is relevant to these proceedings, it provides:

“A registered building practitioner must –
(a)perform his or her work as a building practitioner in a competent manner and to a professional standard; . . .”

The Tribunal also noted that the Act set out the specific functions of a private building surveyor when considering the issuing of a building permit. In particular s 19 of the Act which identified three options; issuing the permit, issuing the permit with conditions or refusing the permit. It referred also to section 24 of the Act which, so far as relevant, provides that:

“(1)Subject to Division 4, the relevant building surveyor must not issue a building permit unless he or she is satisfied that –
(a)the building work and the building permit will comply with this Act and the Building Regulations; and”[7]
[7]Division 4 does not have relevance in this instance.

The Tribunal also referred to s 34 of the Act which requires the private building surveyor to carry out inspections at mandatory notification stages. The latter are defined, as the Tribunal noted in Regulation 7.1 “Inspection of Building Works”. In particular it provides:
“(1)For the purposes of Part 4 of the Act the mandatory notification stages are –
(a)prior to placing a footing; and
(b)completion of frame work; and
(c) prior to pouring an in situ reinforced concrete member nominated by the relevant building surveyor; and
(d)final, upon completion of all building work.”

Duty of care - factual basis of the Tribunal decision and its findings

On 20 August 1996, Mellis notified the Surf Coast Shire by notice under the letterhead of the Moorabool Shire Council, that he had been appointed as the private building surveyor to carry out the functions of municipal building surveyor pursuant to s 76 of the Act for the erection of a dwelling at Lot 9 The Mews, Torquay. Mellis was paid a fee by Mr Watson. There was in evidence a receipt from Mellis for his fee. The “payee” (sic) was marked as Stephen Watson. The Tribunal noted that there was “no evidence whether Watson paid in his own personal capacity or on behalf of Watson Constructions”.[8] It did not, however, make a finding as to the person with whom Mellis contracted. The Tribunal took the view that that question did not affect its decision.[9] The Tribunal subsequently analysed the questions raised on the assumption that the private building surveyor did not have a contract with the original building owners.[10]
[8]Para 3.27.
[9]Para 6.3.
[10]Para 6.34. For reasons discussed below I have come to the conclusion that the contract was between Mellis and Mr and Mrs Watson.

Mellis received the building permit application. The application form also bore the Shire of Moorabool letterhead. It stated that the building in question was a two storey building. There was no indication in the application form of the nature of the building work. The areas for the building practitioner’s name, category and registration number were struck through and no information provided.[11] The section directed to “owner/builder” was not completed.
[11]Cf Regulation 2.1.

On the same day, 21 August 1996, Mellis issued a building permit, number B482/96. It noted the inspection requirements as follows –

"the mandatory notification stages are stump hole - foundation - frame and final".

It was issued to Mr Watson as owner and Mr Watson was nominated as builder but no registration number was recorded. The building classification was “1(A)” and was described as a two storey dwelling. The permit left blank the identification of the materials for roofing, the frame and external walls. The Tribunal presumed, however, that at the time of the issuing of the building permit, Mellis approved four plans marked “design and construct: Watson Constructions Pty Ltd” which it described as "rough and undetailed". The Tribunal also found that in relation to inspection, the records showed that Mellis approved the stump holes on 23 August 1996, the frame construction on 18 December 1996 and made his final inspection on 22 January 1997. He issued an occupancy permit under Regulation 9.5 on 28 January 1997.

The Tribunal recorded the fact that the Shire of Moorabool acknowledged that, if Mellis was found liable, it was vicariously liable.

An application for builder’s insurance dated 18 August 1996 was produced. It had a signature on the builder’s declaration but no signature on the client declaration. It stated that Watson Constructions was the builder. A Certificate of Insurance was issued on 13 July 1998. The certificate nominated Watson Constructions as the builder and the Pozmans as the owners under a fixed price contract dated 10 July 1998. No such contract was produced. The Tribunal commented that the precise identity of the builder was not clear, but the registered domestic building practitioner was Mr Watson who controlled Watson Constructions. The Tribunal, in the end, concluded on the basis of the plans, the insurance application and the Certificate of Insurance, that the most likely identify of the builder was Watson Constructions.

The Tribunal also noted that the insurer accepted liability in respect of the owner’s claim and did so by a letter of 21 December 2001 in which it made an open offer of $56,100. I note that the insurer took issue with liability for garage works, it not being referred to in the building permit on the endorsed plans. The Tribunal ultimately held that the private building surveyor had no liability for that work but that the Certificate of Insurance covered the garage.[12]
[12]Para 4.6 – Not an issue in these proceedings.

In its findings, the Tribunal noted that the house was built on land with a slope of approximately 1 in 20 and with a substantial uphill catchment resulting in substantial overland flow on to the subject property and through the house site.[13] The soil was classified as Class H for the purpose of the relevant Australian Standard with respect to likely surface movement due to soil moisture changes. Class H soil is soil that is highly susceptible to changes in volume thereby generating relatively large surface movements with changes in soil moisture regime.
[13]Para 3.1.

The Tribunal noted that the house constructed was a two-storey house. The footings were a stump and pad footing system.[14] The external walls were clad with the CSR "Powerpanel". This was a 75 mm thick reinforced panel made from CSR "Hebel" autoclaved aerated concrete . The Powerpanels were a veneer over a wooden frame. The internal lining was plaster board. Timber and blue board was used on most of the external walls of the first floor.
[14]Para 3.4.

On 23 June 1997, Mr and Ms Pozman entered a contract to purchase the dwelling, by then constructed, from the Watsons. A special condition provided for the completion of work for the garage then under construction.

On 7 January 1999, the Pozmans sold the property to the Taitapanuis. The Tribunal noted that after they took possession, they became aware of defects in the building. Mrs Taitapanui initially noticed water leaking from the extremities of the en-suite shower recess, with the tiles lifting. She also became aware that the dishwasher leaked. The Tribunal also noted that tradesmen who came to rectify those problems observed substantial non-conforming plumbing work. In September 1999, there was major water entry above the French doors in the main bedroom, water was pooling on the balcony and the kitchen tiles were lifting. Towards the end of 1999, significant quantities of water entered the downstairs meal, living and kitchen areas from the balcony and upstairs areas. This resulted in the Taitapanuis seeking expert help. They contacted a Mr Hamill, a former municipal building surveyor for the Surf Coast Shire. He reported a number of serious construction defects and arranged for an inspection by a CSR representative, Mr Nunn. He found the exterior Powerpanel work to be unsatisfactory and advised the owners to obtain the advice of a structural engineer, Mr Evans. He identified very serious structural inadequacies starting with the incorrect footings systems - the use of stumps which were too flexible and too susceptible to settlement in a Class H soil to support satisfactorily the Powerpanel external walls. He reported that the "CSR Powerpanel" users guide required, as a minimum requirement, footings which complied with conventional masonry veneer construction as specified in Australian standard: AS 2870.1 - 1998 "Residential Slabs and Footings". This standard required a reinforced concrete strip footing. The same requirement was in force in 1996. The Tribunal noted that a stump footing system was entirely inappropriate to support the Power panel walls. Mr Evans also identified a stump in the meals area which had settled excessively. It had surface soil and loose material beneath the sole plate, a serious defect. The Tribunal also noted that the structural support for the garage was completely inadequate. An attempt had been made to support the north side of its roof by brackets attached to the Powerpanel which was not designed to be a load bearing element.

The Taitapanuis sought the advice of a building consultant, Mr Setford. The Tribunal noted that his advice was that the building structure was so compromised by the wrong type of footing system that it was cheaper to demolish and rebuild rather than try to rectify the inadequacies in defects. It also noted that the insurer’s expert, Mr Browning, agreed with Mr Setford about the identity and extent of the items of defective works and that it would be very costly to rectify them but considered demolition and rebuilding unnecessary as the cladding could be replaced with Hardieplank, although he acknowledged that this would breach the restrictive covenant applying to the property which required 75 percent masonry.

The Tribunal noted that all parties accepted that there were very serious deficiencies in the construction of the house, the most significant being the inadequate footings. It also noted that all experts agreed that the use of stumps would result in an unacceptable deformation to the Powerpanel resulting in cracking of joints and unacceptable deterioration of the panels to the point that they would permit water penetration and render the house uninhabitable. The Tribunal noted that there was already significant cracking at the joints of the Powerpanels and differential displacement and deterioration and that this was becoming gradually worse with time. The Tribunal found that there had also been a large amount of water penetration to the house through other defective work, such as defective tanking, and the house was suffering continuing deterioration from water penetration. The Tribunal found that water penetration of the external walls due to cracking and deterioration contravened the Building Code of Australia which was incorporated into the Regulations. The Tribunal then turned to the evidence about the performance of Mr Mellis.

The Tribunal noted that Messers Hamill , Evans and Browning agreed that there were substantial deficiencies in the issuing of the permit. The deficiencies listed by the Tribunal were:

•no specification had been provided describing materials and methods to be used in construction as required by Regulation 2.1.
•the plans did not identify the external wall material, but did show a wall thickness of 250 mm which should have alerted Mellis to the fact that a masonry product was likely to be used. The Tribunal also accepted that Mellis was Mr Watson' s building surveyor of choice and that Mr Watson was well-known in the area for using “Powerpanel”.

The Tribunal also held that Mellis had failed his basic functions as set out in Regulation 2.1(1)(b) of ensuring that the application contained sufficient information to ensure that the building work would comply with the Regulations. The Tribunal described his conduct as "gross carelessness and incompetence".[15] The Tribunal was highly critical of the documentation produced, for the purposes of compliance with the relevant legislation and regulations. Inter alia, the plans were described as “completely inadequate and appear in effect to have been done by a thumb nail tipped in tar.”[16]These conclusions were plainly justified.
[15]Para 3.50.
[16]Para 4.2.

The Tribunal also noted that Mr Browning in his report identified 20 construction defects that he considered Mr Mellis should have picked up in his inspections. The Tribunal mentioned in particular:

•         subfloor defects in the bearers and joists together with subfloor ventilation;
•         numerous defects in the roof framing;
•         the more blatant shortcomings in the flashings;
•the failure to provide the correct safety glass in the lower panels to windows and doors.

Duty of care - the Tribunal’s analysis

The Tribunal rejected Mellis’ argument that the issue was whether the private building surveyor owed a duty of care to prospective purchasers. It defined the issue as being whether a private building surveyor owed a duty of care to subsequent owners, who were in possession when substantial defects allegedly due to the building surveyor’s default became apparent.[17] It approached that question on the basis that it must first be established whether a duty of care was owed by the building surveyor to the building owner at the time of erection of the building.[18]
[17]Para 6.4.
[18]Para 6.5.

The Tribunal referred to the leading authorities. It expressly adopted the incremental approach of reasoning “by analogy with established categories” stated by Brennan J in Shire of Sutherland vHeyman[19] and expressed the view that the correct approach was to look at the “salient features” of the relationship between the relevant parties. Referring to Callinan J in Graham Barclay Oysters Pty Ltd v Ryan[20] and Gillard J in Johnson Tiles Pty Ltd & Anor v Esso Australia Pty Ltd[21] it identified as possible salient features the following:
[19](1985) 157 CLR 424 at 481.
[20](2002) 211 CLR 540, para 321.
[21][2003] VSC 27 para 755.

“reliance, undertaking of responsibility, a chain of contracts between the parties, a statutory regime regulating the supply of a service, whether imposing a duty would result in indeterminate liability or be inconsistent with normal business standards, the knowledge of the tortfeasor and vulnerability.”[22]

The Tribunal also noted that it was obvious that not all of the above salient features would be “of equal significance in each case”[23] and that it was not necessary that each be present in some degree to establish a duty.[24] The Tribunal indicated it would proceed on the basis of the need to carefully analyse and assess each relevant feature and to assess its significance and weight in the process of assessment.[25] The Tribunal stated that it should stand back and look at the reasons why the courts take care in this area of economic loss – namely concerns about the possibility of “liability for an indeterminate amount for an indeterminate time to an indeterminate class” and a concern not to establish a rule that would “render ‘ordinary’ business conduct tortious.[26] The Tribunal also noted Brennan J’s observation in Heyman[27] that:
“A private purchaser in the market place cannot look to public funds to underwrite the information on which he makes his purchase, except in circumstances which may attract the operation of the principle in Shaddock & Associates Pty Ltd v Paramatta City Council (1981) 150 CLR 225.”

The Tribunal stated its intention to keep the observations referred to above “as touch-stones in assessing the significance and weight of a salient feature”.

[22]Para 6.9.

[23]Citing Callinan J in Barclay Oysters at para 321.

[24]Referring by way of example to Gummow J in PyreneesShire Council v Day & Another (1998) 151 ALR 147 para 170.

[25]Relying upon McHugh J in Crimmins v Stevedoring Committee (1999) 200 CLR 1 and Gillard J in Johnson Tiles, para 756.

[26]Citing Hayne J in Perre v Apand Pty Ltd (1999) 198 CLR 180, para 329.

[27]At 494.

Before turning to what it saw as the salient features in this case, the Tribunal referred to Heyman’s case and distinguished it on the basis that the private building surveyor in the circumstances of the present case had a mandatory obligation to inspect the foundations prior to any footings being constructed unlike the municipal officers in Heyman who did not have a statutory obligation to carry out an inspection of the foundations prior to footing construction.

The Tribunal first considered whether the statutory functions of the private building surveyor indicated that a common law duty was owed to the building owner at the time the dwelling was constructed.[28]
[28]Para 6.16.

The Tribunal referred to the statement in Caledonian Collieries Ltd v Speirs[29] that:
[29][1957] 97 CLR 202.

“On the assumption stated the well settled principle applies that when statutory powers are conferred they must be exercised with reasonable care, so that if those who exercise them could by reasonable precaution have prevented an injury which has been occasioned and was likely to be occasioned, by their exercise, damages for negligence may be recovered.”

The Tribunal stated that it considered that as a statement of principle this would apply both to a private and municipal building surveyor. It then noted that all building practitioners including private building surveyors were required under the legislation to be registered and to have professional insurance. Further, Regulation 15.2 of the Building Regulations 1994 required all building practitioners to carry out their duties competently and to a professional standard. It concluded that private building surveyors needed insurance to indemnify the quality of their work presumably to the standard required in Regulation 15.2 and to ensure the building owners received an acceptable product.[30] The Tribunal then noted that the building owner who engaged the private building surveyor would have a cause of action in contract for the negligent performance of surveyor’s duties. Otherwise,[31] the Tribunal reasoned, it would be without remedy unless there was a remedy in tort. The Tribunal considered it,
“Therefore … a significant feature that if it was held no duty existed, a building owner would have no redress against a private building surveyor in circumstances where the statutory structure required that building surveyor to have professional insurance to cover the eventuality of the private building surveyor failing to perform its functions satisfactorily competently.”

Reference was then made to s 131 of the Act which requires a respondent to pay only its apportioned liability. The Tribunal reasoned that the result was that a building owner could not recover for the private building surveyor’s degree of liability unless a duty was established. The Tribunal concluded that:
“To ensure that the 1993 statutory structure for building control operates satisfactorily for all owners, including those whose claims were in negligence, it is necessary that private building surveyors be under a duty to building owners.”[32]

[30]Para 6.19.

[31]Presumably, if the owner had not contracted with the building surveyor; but under the Act the building surveyor has to be engaged by or on behalf of the building owner (s 79 & 17). A subsequent owner will be confined to tortious remedies.

[32]Para 6.20. In this paragraph the Tribunal was not suggesting that the owner could not recover full compensation but was making the point that it could not recover compensation from all persons responsible. Later in paragraph 6.22 the Tribunal stated that the consequence of holding that a duty of care did not arise where there was no contractual obligation was that either the proportion could not be recovered or it would be borne by the practitioner who had some liability.

The Tribunal then asked whether there were any indications that a duty of care should not be found.[33] It referred first to the issues of indeterminacy. It stated that liability could not be in an indeterminate amount because s 131 only required payment of the apportioned amount of liability.[34] Further, it could not be for an indeterminate time because s 134 of the Building Act required the action to be brought within 10 years of the date of issue of the occupancy permit. It also stated that the class was not indeterminate because it could only be a class of persons noted on the Register as owners of the property. The Tribunal stated, assuming that normal community behaviour was that there was not a high turn-over of private dwellings, the class could not be regarded as large or indeterminate over a 10 year period.
[33]Para 6.21.
[34]It may be more accurate to say that s 131 limits liability to a proportionate share of whatever amount is assessed. The amount will not be indeterminate because of the nature of loss and damage for which compensation is given.

On the issue of avoiding impediments to ordinary business conduct, the Tribunal stated that the statutory structure was designed to protect home builders and to ensure they could achieve a satisfactory standard of house construction. The Tribunal held that to find a duty of care would enhance ordinary building conduct. In particular, incompetent private building surveyors would not escape the liability of their incompetence. If no duty of care existed, the Tribunal argued that either the home owner would be unable to recover the defaulting private building surveyor’s proportion or such proportion would have to be carried by any other building practitioner who had some liability.[35]
[35]Para 6.22.

The Tribunal then turned to the observation of Brennan J quoted above about private purchasers not being permitted to look to public funds to underwrite the consequences of incorrect or faulty information on which a purchase was based. The Tribunal, again referring to the statutory scheme, noted that under the scheme no public funds would be called upon in claims against them.

Finally, the Tribunal noted, but in the end rejected, any concern about a possible different liability between a private building surveyor and a municipal building surveyor in light of authorities such as Heyman and Barclay Oysters. The Tribunal did not consider that this would act as a bar to finding a duty to exist on the part of a private building surveyor although it might be inconvenient and appear inconsistent. It went on to suggest that it may be that in light of the particular statutory structure, however, a municipal building surveyor carrying out similar functions to that of a private building surveyor would be held to owe a duty of care but that there may be a distinction to be drawn where an exclusive discretionary judgment was to be exercised by a municipal building surveyor - for example, in issuing emergency orders.[36]
[36]Para 6.24.

It concluded this part of its analysis by pointing out that the issue of the allocation of municipal resources had no bearing on the question of whether a private building surveyor owed a duty of care to a dwelling owner.

The Tribunal then turned to consider the issues of vulnerability, control and professional competence as matters relevant to a decision whether a duty of care arose they, as the Tribunal put it, providing the elements additional to foreseeability “to establish a duty of care that is now required in the case of claims for economic loss”.[37]
[37]Para 6.26.

The Tribunal again referred to the statutory scheme. It had earlier stated that the purpose of the scheme was “one of the most important salient features”.[38] It referred to the creation of private building surveyors, and the provisions, to argue that the building surveyor is required to exercise specific professional skills in examining plans and specifications and carrying out inspections to ensure that the building work, for which he has been appointed the building surveyor, conforms with the Act and Regulations. The Tribunal stated “this is his sole function”. The Tribunal commented that this required a certain amount of skill and knowledge and was done for a commercial fee.[39] The Tribunal commented that home owners have no knowledge as to whether building work complies with the Act and Regulations and are required to hire a professional private building surveyor for which they pay the appropriate fee. The Tribunal then commented:
[38]Para 6.13.
[39]Para 6.29.

“Where the private building surveyor has the professional knowledge and understands his function, he is the only party that can ensure that the builder carries out his obligations in accordance with the Act and Regulation. I consider these circumstances to be a strong indicator that a duty should exist.”

As I read the Tribunal’s reasons, the Tribunal is here referring to the question of a duty of care owed to the owner of the premises at the time the building is being constructed. The Tribunal then went on to endorse the comments of Gummow J in Perre v Apand[40]:
“But where the defendant has actual knowledge of the risk and its consequences for an ascertainable class and it is not legitimately pursuing or protecting its interests, I see no reason why that actual knowledge should not be an important factor in deciding the duty issue. Furthermore, because fault remains the basis of negligence liability, I see no reason why recklessness or gross carelessness should not be a relevant factor in determining whether a duty of care was owed.”

The Tribunal noted that no party disagreed that in this case there was a gross falling short of the professional competence required but then stated that it did not consider that the degree of fault could be any more than a gloss in the assessment and could not be decisive. The Tribunal concluded that, notwithstanding the private building surveyor exercised the statutory function to ensure that the Act and Regulations and their objects and purposes were achieved, it could see no reason why he and Moorabool should be treated any differently from other professionals and should not be liable for professional negligence to third parties like other professionals such as lawyers in Hill v Van Erp[41] and Hawkins v Clayton.[42] The Tribunal also stated that if there was to be no duty owed by the private building surveyor to the original building owner, the position should be abolished.

[40]At para 132.

[41](1997) 188 CLR 159.

[42](1988) 164 CLR 539.

The Tribunal then turned to the position of the subsequent owners. It asked if there were any differences or alterations in the relationship between any subsequent owner and the building surveyor that would indicate that if a duty existed to the building home owner it should not to a subsequent owner.

The Tribunal accepted, as a prima facie conclusion, the proposition that any duty should not extend beyond what were the terms of the contract between the building surveyor and the building home owner. It noted the criticism of the majority decision in Brian v Maloney in this area. The Tribunal noted, however, that that issue did not arise here because any contractual relationship with the building owner would have to impose the same duties and obligations as the Act and Regulations imposed because the scope for the contract was the same. The Tribunal concluded there could not be any substantial differences between the scope of the terms of the contract with the building owner and the width of the duty owed to any subsequent purchaser.

The Tribunal then noted that it did not see anything that changed “the extent of the duty” when considering subsequent purchasers except that the question of vulnerability may change.[43] The Tribunal referred to submissions made for the building surveyor that subsequent purchasers could obtain a pre-purchase inspection and report and that in doing so had some control over the quality of the item they were purchasing and were therefore not vulnerable, as discussed in Perre v Apand, or lacking control, as discussed in Hill v Van Erp. The Tribunal concluded, however, that the ability to obtain a pre-purchase report did not weaken the need for finding a duty existed. The Tribunal accepted that that opportunity made a subsequent purchaser less vulnerable than the original building owner and gave the subsequent owner more control. Against that, however, the Tribunal noted the availability of pre-purchase inspectors and that the number of inspections carried out suggest that there remains a concern that domestic dwellings do not meet regulations and that:

“A cause of this, must in part, be a failure of private building surveyors to competently carry out their functions.”[44]

The Tribunal expressed the view that these matters indicated that as a matter of policy a duty should be found to exist.

[43]Para 6.36.

[44]For my part, I would have thought more evidence would be needed before that conclusion could be drawn. Inspections may be carried out for a variety of reasons; e.g., to quantify the cost of rectifying visible defects or to assess the feasibility and cost of renovations and extensions.

In the end, however, the Tribunal took the view that subsequent owners were in fact more vulnerable. It commented that it was the structural elements of building work that could cause the most substantial and lasting damage and once they are covered they are not available for inspection without intrusive and expensive investigation. The Tribunal stated that this was the reason for mandatory statutory inspections except for the final inspection. In relation to structural defects, therefore, the Tribunal considered a subsequent purchaser was in a more vulnerable position than the building owner.

The Tribunal then turned to submissions advanced for the building surveyor that the Taitapanuis had not given any evidence of reliance upon the Council or the private building surveyor. The Tribunal saw the position of the private building surveyor as being different in that, if a municipal building surveyor issued the building permit, then the assessment would be on the Council’s building file. With a private building surveyor, however, any prospective purchaser has no right to obtain access to that person’s assessments. The Tribunal also commented that the subsequent owner could not obtain the name of the private building surveyor without obtaining the vendor’s permission to access the municipality’s building file. The Tribunal expressed the opinion that the impracticality of obtaining information had lead to a substantial increase in the demand for pre-purchase inspections.[45]
[45]Para 6.40; it is not clear on what this conclusion is based. The Tribunal does not cite evidence in support of the proposition.

The Tribunal also rejected an argument that actual reliance was essential and that this required direct contact between the parties. It noted that in Hill v Van Erp there was none - nor in Pyrenees, as noted by Gummow J.[46]
[46]Para 70.

The Tribunal then concluded by directing its attention to the categories of cases in which a duty has been held to exist and not to exist. It suggested that the most applicable category was the field of professional negligence. The Tribunal could see no reason why the tort of professional negligence should not include the performance of a private building surveyor in carrying out his statutory functions. It then suggested that the nearest and most appropriate category of case where no duty had been held to exist was that of a municipal building surveyor to a subsequent owner, referring to Heyman’s case. It asked the question whether the boundary should be moved to include that of the private building surveyor to a subsequent owner. The Tribunal stated that it considered that a duty of care should be borne by private building surveyors. It referred in particular to them having a duty of care where personal injury is involved.[47] It identified as the main salient feature the comprehensiveness of the statutory scheme, one designed to protect domestic building owners, and one that created a new profession of private building surveyor as part of that comprehensive scheme. The Tribunal did not consider that just because the private building surveyor was carrying out statutory functions there could be no duty and referred to its earlier reasons for distinguishing Heyman.
[47]Toomey v Scolaro’s Concrete Constructions & Ors [2001] VSC 279.

I have set out the reasons of the Tribunal in some detail. I have done so not merely because the parties’ submissions will require reference to them but because they provide a thorough analysis of the issues. As will be seen, I agree with most but not all aspects of that analysis. I note, in particular, the Tribunal’s approach of determining first whether a duty of care was owed to the original building owners and then considering whether to extend the duty so found to subsequent purchasers. This approach accords with the majority analysis in Bryan v Maloney and in Woolcock St Investments Pty Ltd v CDG Pty Ltd & Anor (Woolcock)[48]. In considering the question of law raised about whether a duty of care arose, as I am obliged to do, I have taken an approach[49] that, while incremental, is arguably less so than the approach of the Tribunal. Its approach may prove to be the approach that receives the ultimate approval in cases of this kind. Both approaches, however, lead to the same conclusion.
[48][2004] HCA 16; (2004) 78 ALJR 628.
[49]Para 116 ff below.

Duty of care - submissions as to the approach to be taken

The major question in this appeal is whether, in the circumstances of the case the alleged duty of care arose. If it did arise, there is no dispute between the parties that Mellis had been negligent, particularly in relation to the footings that he approved and that the necessary causal link existed between the negligent conduct and the loss or damage. There is also no dispute that to rectify that problem it is necessary to demolish the house.

In considering the parties’ submissions on the appeal, it is appropriate and convenient to commence with the submissions made by the Taitapanuis in support of a conclusion that such a duty of care existed. I will consider first the submissions directed to the approach to be taken in determining that question.

Counsel commenced by emphasising that the question of the existence of a duty of care arose in a situation where the alleged negligence consisted of positive acts - the issue of building permit and the negligent conduct of inspections. Counsel also emphasised, that Mellis had voluntarily entered into his engagement as private building surveyor and done so for profit. Counsel argued that this case was, therefore different from the two leading High Court cases relied upon by the Council and Mellis as the authorities most in point - Sutherland Shire Council v Heyman and Another[50] and Pyrenees Shire Council v Day[51]. Counsel submitted that those authorities raised the issue of the duty of care of a municipal authority in circumstances where it had not taken discretionary steps which it was empowered to take. Counsel argued that this was a critical point of distinction.[52] I accept that submission.
[50]Above.
[51]Above.
[52]Heyman's case, 430 -1, 447; also Alec Finlayson Pty Ltd v Armidale City Council (1994) 51 FCR 378, Pyrennes, above.

Counsel also submitted that it was clear from the Tribunal’s findings that the critical problem was the deficient footings and that even if the house had been constructed in accordance with the approved plans, the footings would be inadequate and damage was not just foreseeable, it was inevitable. Counsel relied on their obvious criticality but also on a comparison with rectification costs of the other defects. This analysis should also be accepted.

There being no authority precisely in point, counsel submitted that the answer was to be found by considering analogous situations where the Courts have accepted that a duty of care has arisen and argued that to find a duty of care in the present situation was to do no more than develop the law by permissible increments. Counsel referred to a passage in a judgment of McHugh J[53] where His Honour posed the question of how to approach the issue of duty of care when the case falls outside an established category. His Honour commented that where the defendant should reasonably have foreseen that its conduct would cause harm to the plaintiff

"we have only to ask whether the reasons that called for or denied a duty in other (usually similar) cases require the imposition of a duty in the instant case. No doubt that may sometimes mean that, whether or not a duty is imposed at a particular time, will depend on the extent to which the case law has progressed to that time. But that is the way of the common law, the judges preferring to go 'from case to case like the ancient Mediterranean mariners, hugging the coast from point to point, and avoiding the dangers of the open sea of system or science'. [54] It is not an approach that appeals to grand theorists who prefer to decide cases by general principles applicable to all cases. But in an area of law such as awarding damages for negligently inflicted economic loss, which is still developing and which has recently been cast adrift from any unified principle, there is no alternative to a cautious development of the law on a case by case basis.[55]…Until a unifying principle again emerges, however, the best solution is to proceed incrementally from the established cases and principles."

[53]Perre v Apand Pty Ltd above.

[54]Citing Lord Wright, "The Study of Law", Law Quarterly Review, Vol 54 185, 186.

[55]Citing Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstead" (1976) 136 CLR 529 at 555, per Gibbs J; at 576, per Stephen J.

Counsel submitted that the alternative approach was to adopt the analysis of Gillard J, in Johnson Tiles Pty Ltd and Another v Esso Australia Pty Ltd[56] - a three step approach in which what became critical was the identification and weighing up of the "salient features" in the relationship. The three tiered test identified involved the issues of reasonable foresight of risk of harm, “proximity” and “salient features”.[57] In referring to “proximity”, his Honour was referring to Lord Atkin’s definition of the neighbour:

“Persons who are so closely and directly affected by my act I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.”[58]

[56]Above 81-692.

[57]Above at para 794.

[58]Above, quoted in para 841.

Counsel for the appellants, however, argued that to find a duty of care in the present case would be inconsistent with the common-law incremental approach. They argued that the question was to be resolved by applying the three tiered test of Gillard J in Johnson Tiles and that the circumstances of the present case did not satisfy that test.

Generally, the recent High Court decisions have not put forward any tiered approach of general application. Rather they have required an incremental approach drawing upon analogous situations. That, however, does not mean that a structured approach cannot be taken in the circumstances of a particular case – as was done by Gillard J.

The recent decisions refer to the issues listed by the Tribunal and consideration of the features of the alleged relationship forms part of the consideration of “salient features”.[59] Further, they make clear, if it was not already, that the reluctance to impose a duty of care to avoid economic loss derives from concerns about indeterminate liability, the inappropriate interference in acceptable commercial activities and possible inconsistency with or intrusion into other areas of the law. If a case raises any of those concerns, it will be difficult, if not impossible for a plaintiff to establish a duty of care to avoid economic loss even though reasonable foreseeability of such harm can be established. If none arise and reasonable foreseeability of harm can be established, the major hurdles facing a plaintiff claiming damages for economic loss will usually be removed. But more is still required in applying an incremental approach. A particular additional feature[60] that has been identified is “vulnerability”. In the present case that and other issues need to be considered – notably the statutory scheme.
[59]Gillard J lists some 8 potentially relevant salient features – Johnson para 755.
[60]One that is an aspect of the relationship.

The parties developed more detailed arguments in support of their positions on the duty of care issue. Before turning to them, I note that counsel for the insurer, the second respondent, adopted and relied upon the arguments advanced by counsel for the Taitapanuis.

Duty of care - the argument of the Taitapanuis –Bryan v Maloney

Counsel for the Taitapanuis submitted that the present case was analogous to those cases where the defendant accepted a retainer to provide services or performed a statutory function.[61] Each case involved economic loss. In each case the defendant had done work for a person pursuant to a contract. Each concerned the question whether a duty of care was owed to a third party. In two cases, the defendant was a solicitor and it was held that the solicitor owed a duty of care to persons other than the client[62]. In one case, the defendant was a builder who was held to owe a duty of care to a subsequent purchaser of the property in question.[63] The fourth case concerned the granting of a development application by a municipal Council in which it was held that a duty of care was owed by the Council to a subsequent purchaser of part of the property in question.[64]
[61]Hawkins v Clayton above; Bryan v Maloney (1995) 182 CLR 609; Hill v Van Erp above at 166-8, 170-1, 180-4, 195-6; Alec Finlayson Pty Ltd v Armidale City Council (1994) 51 FCR 378.
[62]Hawkins and Hill above.
[63]Bryan above.
[64]Alec Finlayson above.

Counsel submitted that, in the present case, Mellis was engaged by the original owners of the property for a fee to carry out various statutory obligations.[65] Counsel submitted that in accordance with the above authorities and general principle, Mellis owed a duty of care to the original owners[66] and to a subsequent purchaser of the property.
[65]Which was consistent with s 17 and Part 6 Building Act 1993.
[66]Voli v Inglewood Shire Council (1963) 110 CLR 74; Pullen v Gutteridge [1993] 1 VR 27 at 39-40; Bryan v Maloney (1995) 182 CLR 609; Caledonian Collieries Ltd v Speirs above at 220; Heyman at 436, 458, 484, 487-8, 503; Alec Finlayson above; Pyrenees Shire Council above at 391, 422-3.

Counsel for the Taitapanuis placed particular emphasis on Brian v Maloney, as the most analogous case. It will be recalled that in that case the High Court held that a builder, Bryan, who negligently constructed the foundations of a home, owed a duty of care to a subsequent purchaser of that home, Mrs Maloney. Counsel referred to a number of passages which it was said were significant in identifying the circumstances giving rise to a duty of care.

Counsel referred to the majority’s[67] statement about an established relationship of proximity between the builder and the first owner. Counsel commented that it was in the context of that relationship that one must determine whether the necessary relationship existed between a builder such as Mr Bryan and a subsequent owner such as Mrs Maloney.
[67]Mason CJ, Deane J and Gaudron J.

At that time, of course, discussion centred on the issue of "proximity". In considering whether there was the requisite degree of proximity the majority commented:

"It is likely that the only connection between such a builder and such a subsequent owner will be the house itself. Nonetheless, the relationship between them is marked by proximity in a number of important respects. The connecting link of the house is itself a substantial one. It is a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime. It is obviously foreseeable by such a builder that the negligent construction of the house with inadequate footings is likely to cause economic loss, of the kind sustained by Mrs Maloney, for the owner of the house at the time when the inadequacy of the footings first becomes manifest. When such economic loss is eventually sustained and there is no intervening negligence or other causative event, the causal proximity between the loss and the builder's lack of reasonable care is unextinguished by the lapse of time or change of ownership."[68]
[68]At 625.

Their Honours then raised the question of whether mere economic loss might preclude recognition of the requisite relationship. After referring to the fact that the relevant relationship would have existed between the builder and Mrs Maloney with respect to ordinary physical injury to her or other property caused by a partial collapse of the house, their Honours commented that it was important to bear in mind the particular kind of economic loss involved.
"As has been said, the distinction between that kind of economic loss and ordinary physical damage to property is an essentially technical one. Indeed, the economic loss sustained by the owner of a house by reason of diminution in value when the inadequacy of the footings first become manifest by consequent damage to the fabric of the house is, at least arguably, less remote and more readily foreseeable than ordinary physical damage to other property of the owner which might be caused by an actual collapse of part of the house as a result of the inadequacy of those footings. Again, the policy considerations underlying the reluctance of the courts to recognise a relationship of proximity and a consequential duty of care in cases of mere economic loss are largely inapplicable to the relationship between builder and subsequent owner as regards that particular kind of economic loss."[69]

[69]At 626.

The majority went on to point out that there was no inconsistency between the builder's legitimate pursuit of his or her own financial interest because the builder owed a duty of care to the first owner. They also commented that where economic loss is sustained by an owner when the inadequacy of footings first becomes manifest, there is no basis for concluding that finding a duty of care would give rise to liability in an indeterminate amount to an indeterminate class more so than would occur by recognition of a duty of care as between the builder and the first owner. After considering the issue of indeterminacy of time, the majority then went on to consider the issues of assumption of responsibility and reliance. They commented:
"Upon analysis, the relationship between builder and subsequent owner with respect to the particular kind of economic loss is, like that between the builder and first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss. In ordinary circumstances, the builder of a house undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners. Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the footings of the house than the first owner. Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment. Any builder should be aware that such a subsequent owner will be likely, if inadequacy of the footings has not become manifest, to assume that the house has been competently built and the footings are in fact adequate."[70]

Their Honours went on to say that they could see no difference of significance between the relationship between the builder and first owner and builder and subsequent owner in relation to the particular kind of economic loss in question. They commented that:
"Both relationships are characterised, to a comparable extent, by assumption of responsibility on the part of the builder and likely reliance on the part of the owner. No distinction can be drawn between the two relationships insofar as the forseeability of the particular kind of economic loss is concerned: it is obviously forseeable that the loss will be sustained by whichever of the first or subsequent owners happens to be the owner at the time when the inadequacy of the footings becomes manifest. In the absence of competing or intervening negligence or other causative event, the causal proximity between negligence on the part of the builder in constructing the footings and consequent economic loss on the part of the owner when the inadequacy of the footings become manifest is the same regardless of whether the owner in question is the first owner or a subsequent owner."[71]

Their Honours commented that the policy considerations militating against recognition of a relationship of proximity and a consequent duty of care with respect to pure economic loss were insignificant and that there were persuasive policy reasons to recognise such a relationship and duty. They drew attention in particular to the superior knowledge skill and experience in the construction of homes of the builder who would be “better qualified and positioned to avoid, evaluate and guard against financial risks posed by latent defects”.[72]

[70]At 627.

[71]At 627.

[72]At 628.

It should be noted that the majority had stated the question before it in the following terms:

" … whether under the law of negligence, a professional builder who constructs a house for the then owner of the land owes a prima facie duty to a subsequent owner of the house to exercise reasonable care to avoid the kind of forseeable damage which Mrs Maloney sustained in the present case, that is to say, the diminution in value of the house when a latent and previously unknown defect in its footings was structure first became manifest."[73]

[73]At 617.

In concluding their reasons the majority cautioned that the decision turned:

" … to no small extent on the particular kind of economic loss involved, namely the diminution in value of a house when the inadequacy of its footings first became manifest by reason of consequent damage to the fabric of the house. In particular, the nature of the property involved, namely a building which was erected to be used as a permanent dwelling house, constitutes an important consideration supporting the conclusion that a relevant relationship of proximity existed between Mr Bryan, as the builder, and Mrs Maloney, as a subsequent owner."[74]

Their Honours then went on to caution that the decision was not directly decisive of other questions concerning other relationships and referred in particular to the question of the relationship between manufacturer and purchaser of chattels which contain a latent defect.

[74]At 630.

Counsel for the Taitapanuis, referring to the liability of the builder in the present case, submitted that there existed a contract between the original owners and the builder imposing duties, the damage was of a kind similar to that in Bryan v Maloney, and the purchasers had similarly looked at the premises but made no express inquiries about the premises and had assumed a satisfactory condition. Counsel also submitted that the relationships between the original owner and the builder were similar – the builder in Bryan was a brother-in-law of the owner and in the present case a related company. Also, the foundations were unsuitable and one needed plans, expertise and technical knowledge of the relevant Australian Standard or the manufacturer's specification, or both, before the problem would be seen. Counsel also submitted that the negligence of Mellis did not constitute intervening negligence which might result in the negation of a duty of care of the builder or a break in the chain of causation; Mellis was in control but his negligence permitted the builder to go ahead in accordance with the negligent design and plans.

Turning to the position of the private building surveyor, Mellis, counsel submitted that he was also intimately connected with the construction of the home - in particular, the construction of the foundations. He had undertaken to determine whether a building permit should be issued and to inspect the premises at various critical stages of construction. He had undertaken the responsibility of ensuring compliance with the Building Regulations and the standards they require. He had the power and responsibility to require further information and plans, to refuse to grant the permit and to halt construction if the construction works did not comply with the permit or the building regulations. Counsel submitted that not only was he closely involved in the construction of the building, he had ultimate control of its construction. I note that counsel for the appellants emphasised that Mellis was not required to supervise the construction. This is true, but it must be accepted that Mellis was a key figure involved in the construction of the building and did exercise ultimate control, particularly in the area that ultimately mattered the most - the foundations of the property.[75]
[75]I note that counsel for the Taitapanuis sought to rely on the fact that Mellis and the builder were "building practitioners" for the purpose of the Act and that this was relevant to the issue of duty of care. It does not seem to me, however, that that title is relevant. The consequences of being a "building practitioner", are relevant and the content and purpose of the statutory scheme may be.

Council for the Taitapanuis submitted that the decision in Brian v Maloney had been cited with approval in Hill v Van Erp[76] and in Proprietor’s Units Plan Number 95/98v Jiniess Pty Ltd.[77]
[76]Above at, 180-4, 188, 196, 234-5.
[77][2000] NTSC 89.

Duty of care – the argument of the appellants

Counsel for the appellants examined the evidence and reasons of the Tribunal at some length. They submitted that to find a duty of care in the present case involved an extension of law which was more than incremental and one which, in light of the authorities since Bryan v Maloney, cannot properly be made.

Counsel referred to and relied on the criticisms of Brooking JA in Zumpano and Another v Montagnese.[78] His Honour raised some twelve substantial questions,[79] and a number of subsidiary questions, as to the scope of the decision of Bryan v Maloney. Most do not arise in this case. The following warrant mention.
[78](1997) 2 VR 525.
[79]At first reading they can cause alarm. Some reassurance may be found, however, by reflecting on the list of questions that could have been formulated after Donoghue v Stevenson. Case by case, the issues can and will be sorted out – as is the way of the common law.

•The second question raised by his Honour concerned whether Bryan v Maloney is confined to the situation where there is a contract between the building owner on the one hand and the builder on the other. It does arise in this case.
The Tribunal did not reach a conclusion on the question whether there was an initial relationship between the private building surveyor and the owners. But under the Building Act[80] only the owner can appoint a private building surveyor and the limited evidence adduced was consistent with such a relationship. Further, the appellants led no evidence before the Tribunal to contradict that conclusion. Any legal analysis in this case, therefore, should proceed on the basis that there was a contract between the owners and Mellis under which he had contractual and common law duties which were owed to both owners. The question of contributory negligence on the part of Mr Watson and whether Mrs Watson would have been affected as principal are other matters.[81]
[80]S 78 and s 17.
[81]In any event, I question whether more is required than a deliberate assumption of responsibility on the part of the private building surveyor with knowledge or reasonable foresight of the existence of, and likely assumption of competence, by at least one owner.
•The twelfth question raised by Brooking JA related to whether the statutory scheme then in existence bore on the question whether a duty of care should be imposed. The legislative scheme now in place is different.[82] I refer to and repeat the Tribunal’s analysis summarised above and my comments. To them I add the following points.
[82]See Building Act 1993; Domestic Building Contracts Act 1995; Building Regulation 1994.
Under the present statutory scheme, potentially any professional involved in the design and construction of a house could be subject to a “building action”[83] because of the width of the definition of “business practitioner”. [84] They are required to take out insurance.[85] At the same time, the legislative scheme does not purport to alter common law or statutory liability of building practitioners save for:
[83]“Building action” is defined as “an action (including counterclaim) for damages for loss or damage arising out of or concerning defective building works.”
“Building work” is defined to include “the design, inspection and issuing of a permit in respect of building work”.
[84]“Building practitioner” is defined in s 3 of the Act to mean, inter alia, a building surveyor, building inspector, quantity surveyor, engineer engaged in the building industry, draftsperson, builder including domestic builder.
[85]Building Surveyor, Building Act 1993 s 135; Building Practitioners Ministerial Order, Victorian Government Gazette s 52 16 May 1996.
•the limitation period of 10 years[86] which will allow actions to be brought in respect of latent defects that emerge at a time when properties are likely to be in the hands of subsequent owners;
[86]Building Act 1993 s 134.
•limiting liability of those responsible, who are found jointly or severally liable, to a just and equitable proportion of the loss or damage having regard to his or her “responsibility” for the loss,[87] and
[87]Building Act 1993 s 131.
•removing any liability to contribute, when jointly or severally liable, to the damages apportioned to any other person in the same action or to indemnify any other person in respect of those damages notwithstanding anything to the contrary in the Wrongs Act 1958.[88]
[88]Building Act 1993 s 132, 133.

It may fairly be said that the intention of the legislation was to deal comprehensively with compensation arising out of or concerning defective building works and to spread liability equitably between all those “responsible” for the design, construction, and approval of buildings - and their insurers. Not all building practitioners at fault will necessarily be linked contractually with other building practitioners or the original building owner and none will be so linked with subsequent owners – the class of people directly affected by any defective design, construction or approval. If building practitioners are not liable in negligence to other building practitioners or to owners, including subsequent owners the above objectives will not be achieved.
·Application to building practitioners. Unless those at fault can be held liable in tort for loss and damage resulting from their want of care, the provisions limiting liability could operate unfairly against other building practitioners and their insurers; for those in breach of contract will bear more than the proportion of the loss and damage attributable to their fault.
·Application to building owners. Where there is no contractual connection with the owner who suffers the loss, and no duty of care, that owner will not recover any compensation in respect of defective design, construction or approval where the defects emerge within the 10 year prescribed period. If, however, liability to the building and subsequent owners in negligence also exists, all “responsible” for defects in design or construction will be liable to the owner who suffers the loss if they failed to perform their tasks with reasonable care – but only to the extent of their responsibility.

Thus to impose a duty of care on the private building surveyor in the circumstances of this case would assist the scheme to apply comprehensively and fairly.

The following issues raised by his Honour are also relevant and will be addressed below:

•The issue of the significance of “reliance”.[89]
•The factual components of the relevant category of relationship. I will return to that issue.[90]

[89]Question 8.

[90]Question 9. As to the significance of the terms of the contract, in the present case the terms of the contract do not raise any issues; Question 10.

Counsel for the appellants also referred to subsequent decisions of intermediate Courts of Appeal which declined to extend the application of Bryan v Maloney[91]. In some instances, the Courts of Appeal went so far as to state that Bryan v Maloney should not be subject to an “extension” except by the High Court. This may prove to be the high water mark of the present cycle of judicial analysis on the issue of duty of care.[92] I assume, however, that the Courts of Appeal were referring to something more than incremental development. I do not accept the argument of counsel for the appellant that these authorities forbid a cautious incremental development beyond Bryan v Maloney, Heyman and Perre v Apand. I suggest that, consistently with the principles of the common law, the distinction to be drawn is between judicial legislation on the one hand and incremental development on the other. The superior courts, and, in particular, their intermediate Courts of Appeal, have an important role to play in that incremental development. Nonetheless, it is clear, from statements at intermediate appellate level and in the High Court, that great caution must be exercised in considering any incremental development of the law in this area. I turn to the issue of reliance.
[91] Fangrove Pty Ltd v Tod Group Holdings Pty Ltd (1999) 2 QdR 236 at 241 (De Jersey CJ), 242 (McPherson J)
Woolcock Street Investments Pty Ltd v EDG Pty Ltd (2002) QCA 88; Woolahra Municipal Council v Zved (1996) 40 NSWLR 101 at 133 (Clarke JA); see also Goulding v Kirby [2002] NSW CA, 9 December 2002
[92]While the common law was in an expansive phase, the precise definition of limits was not critical. With it now in a retractive phase, the definition of limits has become critical.

Counsel for the appellants submitted that the majority decision in Bryan v Maloney appeared to rely in part on what has come to be described as "general reliance". Counsel referred to statements in the majority’s reasons about the likely reliance of the subsequent purchaser on care having been taken by the builder.[93] Counsel submitted that general reliance had been decisively rejected as a relevant concept or principle in Pyrenees Shire Council[94]. Counsel submitted that it was clear from the statements in Bryan v Maloney[95] that the majority in that case required, as a feature of the relationship of proximity, a known reliance or dependence and an assumption of responsibility. Counsel submitted that the references to “known reliance” were reference to the concept of “general reliance” which was relied upon by Mason J in Sutherland Shire Council v Heyman.[96]
[93]Above 619, 624, 625, 627
[94]Above 344, 3 85-8, 408-- 11
[95]Above 619, 624 and 627.
[96]Above, 463-4.

There are two aspects to counsel’s argument. The first is the proposition that the majority in Bryan required “known reliance” before the necessary relationship could arise.

It is true that on several occasions, the majority in Bryan refers to the assumption of responsibility and “known reliance” in combination but it did so in dealing with the particular class of relationship. On the facts of the particular case, it in essence was saying that both factors were present. In formulating the principle to be applied, however, they made it quite clear that what was required was one or the other.

They referred to the policy considerations that militate against recognition of proximity to give rise to a duty of care, namely, the problem of an indeterminate amount for an indeterminate time to an indeterminate class on the one hand and the consideration that in a competitive world one person's economic gain is commonly another's loss and that to find a duty of care may be inconsistent with what is ordinarily legitimate in the pursuit of personal advantage. They then commented that the combined effect of those two distinct policy considerations was that:

"The categories of case in which the requisite relationship of proximity with respect to mere economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, they will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two."[97] (my emphasis)

In later passages the majority clearly indicate that they regarded both as being present as between builder and building owner and builder and subsequent purchaser. In referring to the situation of the subsequent purchaser, they commented as noted above that a builder would be aware that a subsequent owner would be likely to assume that the house had been competently built and that the footings were in fact adequate unless the inadequacy of the footings had become manifest. They also commented that the situation was one where there was a likely reliance on the part of the owner.[98] It is clear, however, that known reliance was not regarded as the essential factor in identifying the class of person to whom a builder would owe a duty of care - assumption of responsibility or known reliance or both would be relevant. This is consistent with other High Court decisions involving alleged negligence by persons with expertise who undertake to perform some service using that expertise.[99]

Kirby J also attempted to identify the ratio of Bryan v Maloney stating that it:

“is concerned, and concerned only, with the duty of a builder (or like person) to subsequent purchasers of a dwelling house.”[117]

His Honour noted that Bryan v Maloney both had its critics and its defenders, the latter viewing Bryan as:
“conformable with other developments of the law of negligence as elaborated by this Court including the protection of the vulnerable. Indeed the decision in Bryan is one of those described by Professor Stapleton as ‘fit[ting] well within the Atkinian mould of successful tort law making [which is] the envy of tort commentators abroad’. She has suggested that reversals of such decisions can be left to legislators on the basis of reports of inquiries rather than ‘judicial activism’ instituting what she terms the ‘dramatic pro defendant era in tort decisions’ in this country in recent times.”[118]

His Honour went on to discuss the case further and would seem to have some reservations about Bryan v Maloney. While he rejected expressly the application to overrule it, he appeared to favour modification or at least reconsideration.

[117]Para 145.

[118]Para 150 citing Stapleton, “The Golden Thread at the Heart of Tort Law: Protection of the Vulnerable”, (2003) 24 Australian Bar Review 135 at 140 referring to Luntz, “Torts Turnaround Downunder” (2001) 1 Oxford University Commonwealth Law Journal 95.

Callinan J, expressed grave reservations about Bryan v Maloney but decided the appeal by reference generally to the salient features that have been identified in other authorities including Perre v Apand Pty Ltd.[119]
[119]Para 193 ff.

The result appears to be that Bryan v Maloney still stands but, as a precedent for lower courts, should be strictly confined to its facts.

In applying the Bryan v Maloney reasoning in Woolcock, the majority took the view that the relationship between the respondent and the original owner was not one in which the original owner entrusted the design of the building to the engineer under a simple contract but one where the owner asserted control over the performance of the engineer’s work. It also noted that the appellant did not allege an assumption of responsibility by the respondents and did not allege known reliance by the original owner on the respondents.[120] They held that a duty of care to the original owner had not been made out.[121] The majority also concluded that the appellant was not:

“in any relevant sense vulnerable to the economic consequences of any negligence of the respondent in their design of the foundation for the building.”[122]
[120]Para 26.
[121]Para 27.
[122]Para 31.

They also referred to the fact that there was no warranty of freedom from defect included in the contract when the appellant bought the land and no assignment of any rights by the vendor that it might have had against third parties and the absence of any facts about whether such terms could have been sought and obtained. They also noted that it was neither alleged nor agreed that the defects complained of could not have been discovered.[123] McHugh J identified vulnerability as the key issue in the case and explored the opportunities open to first owner and purchasers of commercial buildings to protect themselves against economic loss arising from the condition of the building. The discussion focussed on contractual protection and protection by expert examination.[124] This reasoning would appear to apply to all subsequent purchasers of commercial premises. Plainly, Callinan J took the view that the subsequent purchasers were not a vulnerable class.
[123]Para 32.
[124]Para 80 and following.
Application of Woolcock to the present case

As I have stated, the narrow ratio of Bryan v Maloney still stands and binds. In addition, the reasoning identified from it by the majority in Woolcock appeared to receive its approval.[125] It is therefore relevant to be considered in analysing the duty of care question in this case. As to that, counsel for the Tatapanuis submitted that the four factors referred to by the majority as relied on to establish the requisite relationship apply in the present case. Counsel further argued that whether the approach of the majority or that of McHugh or Kirby JJ was followed, the present case fell within Bryan v Maloney as analysed in Woolcock. Counsel submitted that what was ultimately critical to the majority judgment in Woolcock was the absence of a duty between the defendants and the original owner, the original owner having refused to pay for additional investigation. Secondly, there was the lack of vulnerability of subsequent purchasers in what was a commercial dealing.
[125]Including the relevance of assumption of responsibility and “known reliance”.

I agree that these matters appear to be critical to the decision of the majority but it seems to me that the second point had particular, and probably overriding, significance because of the fact that the parties involved were commercial organisations engaged in purely commercial activities.

Counsel for the appellants submitted that the majority in Woolcock distinguished Bryan v Maloney on the basis that in Woolcock there was no suggestion that the consulting engineers owed a relevant duty of care to the original owner and that subsequent purchasers were not vulnerable – being able to protect themselves. Counsel submitted in relation to the judgment of McHugh J that his Honour distinguished Bryan v Maloney on the basis that it did not apply to commercial premises and further held there was no duty, principally because of the capacity of subsequent purchasers to protect themselves with the result that they were not vulnerable.

Counsel went on to submit that the decision had left it uncertain as to whether Bryan v Maloney might be decided in the same way. As to that point, it appears to me that the argument is taken too far. Rather it seems to me that the majority, and McHugh and Kirby JJ, in Woolcock gave cautious approval to the narrow ratio of Bryan v Maloney. Counsel also argued, in light of the Queensland Court of Appeal decision in Woolcock, that any extension of Bryan v Maloney was a matter for the High Court alone. They submitted that the High Court decision in Woolcock appears to confirm that view. I am unable to identify any support in that decision for that proposition.[126]
[126]Cf, Woolcock, para 43 and 139.

The appellants submitted that the majority judgment in Woolcock made it clear that consideration of the rights and liabilities between the original building owner and the alleged tortfeasor was a critical consideration in determining whether a duty of care was owed. They submitted that in this instance the original owners of the house were Mr and Mrs Watson and a company associated with them, Watson Constructions, was the builder. It was further submitted that the contract under the terms of which Mellis acted as building surveyor was between the Shire and Watson Constructions. Counsel submitted that if Mr and Mrs Watson as original owners had sued the Shire they would have failed. Alternatively it was put that the existence, nature and scope of the liability of the Shire to the original owners is one of the relevant or salient features.[127]
[127]Referring to paras 28 to 30 of the majority judgment in Woolcock.

As I read the majority decision in Woolcock, it identified as a significant part of the reasoning in Bryan v Maloney the relationship between the alleged tortfeasor respondent and the original owner which was characterised by the assumption of responsibility by the respondent and “known reliance” by the original owner on the respondent.[128] It also had regard to that relationship in reaching its own decision. It expressly left open, however, the issue of the precise significance of

“disconformity between the obligations owed to the original owner under the contract to build or design a building and the duty of care allegedly owed to a subsequent owner . . .”[129]

It referred to the fact that the original contract would be a relevant circumstance at least to the extent that it defines the task which the builder or engineer undertook and referred to the difficulty in holding that the respondent owed the appellant a duty of care to avoid economic loss to a subsequent owner if the performance of that duty would have required the respondents to do more or different work than that specified in the contract with the original owner.[130] Their Honours also noted that in Bryan v Maloney there was no disconformity between the duty owed to the original owner and the duty owed to the subsequent owner.

[128]Para 26.

[129]Para 28.

[130]Para 28.

The issue is a difficult one. Can it be that at common law, a builder could avoid any liability to third parties by entering into a contract with the property developer to erect dwellings for a cheap price where both parties are aware that that price can only be achieved by building defective buildings, and the contract expressly excludes any liability on the part of the builder to the developer?[131] Bryan v Maloney, of course, was a simpler case in the sense that it was clear that there was an assumption of responsibility by the builder towards the original owner. It may be, however, that the duty of care can still arise in relation to a subsequent purchaser notwithstanding that the builder by agreement with the original owner obtained exemption from any duties of care owed to that owner.
[131]See the discussion of this problem by Kirby J in Woolcock paras 133, 134.

These issues do not need to be resolved in the present case. The argument advanced for the appellants proceeds on the assumption that the contract was between Mellis and Watson Constructions. The Tribunal did not make an actual finding on this point. As counsel for the Taitapanuis, however, pointed out, under the Building Act, ss 17 and 78, the application for a permit is to be made to a surveyor appointed by or on behalf of the owner. As I have already indicated, what little evidence there is points to the contract being between the owners and Mellis. Assuming that the appointment of the surveyor was made in compliance with the Act, and Mellis and Watson were not called to give evidence to the contrary, Mellis was appointed by or on behalf of the owner. They were the parties to the contract.

Further there is no disconformity between the obligations arising out of the relationship with the original owners and those alleged to arise in relation to the subsequent owners. I accept the submission made on behalf of the Taitapanuis that there was nothing limiting or qualifying the scope of Mellis’ duties to the Watsons. There was also no evidence to suggest that the Watsons did not rely on his expertise as a building surveyor.

Counsel for the insurer, the second respondent, advanced additional argument. He submitted that Mellis would have known that his certification role provided the only independent checking mechanism to ensure the house complied with minimum construction standards and to prevent the builder from cutting corners. It was put that this was a salient feature that added to the need to impose a duty of care on the building surveyor to subsequent purchasers. Further, the closeness of the relationship between the owners and the builder made the Taitapanuis even more vulnerable to harm because of the risk that Watson Constructions would cut corners and the house might be defectively constructed. Counsel submitted that the building surveyor had the power to prevent or reduce that risk. There is much force in these submissions.

Duty of care - Conclusion

Proceeding on the basis that Bryan v Maloney is still good law and a binding precedent, the similarities between it and the present case are, as noted above, striking.

In Tame v New South Wales; Ansett's v Australian Stations Pty Ltd[132], McHugh J commented:

"Negligence law will fall - perhaps it has already fallen - into public disrepute if it produces results that ordinary members of the public regard as unreasonable."[133]

Assuming Bryan v Maloney to be good law, it seems to me that ordinary members of the public would regard it as unreasonable that a building surveyor, not only closely involved in, but ultimately responsible for allowing negligent design and construction of the building, should not find himself liable for breach of duty of care to a subsequent purchaser when the builder would be so liable.

[132](2002) 76 ALJR 1348.

[133]Paragraph 101.

We are concerned, however, with a new situation. In light of current authority the question whether a duty of care arose must be resolved by considering the principles and issues that have emerged from the recent High Court authorities. The way they are to be applied and the order of their application will vary from case to case.[134]
[134]Cf structures suggested by McHugh J in Perre v Apand, above, [133]; McHugh J and Kirby J in Woolcock (para [74]ff and [165]ff); Professor Stapleton “Duty of Care Factors” in “The Law of Obligations” Cane and Stapleton at 91; and Gillard J in Johnson.

In the present case, it seems to me that it would be consistent with that authority to commence by considering the fundamental threshold question – was economic loss of the kind suffered by the subsequent purchasers reasonably foreseeable?[135] The answer is clear. Economic loss by subsequent purchasers of the kind suffered was reasonably foreseeable by the building surveyor should he fail to exercise reasonable care in the manner alleged.
[135]Cf, McHugh J and Kirby J in Woolcock, above.

Turning to the other issues (or “factors” or “salient features” or “concerns” [136]) identified in the authorities, those that arise in this case can be categorised into two broad groups:[137]
[136]Professor Stapleton, “The Golden Thread At The Heart Of Tort Law: Protection Of The Vulnerable” (2003) 24 ABR 135.
[137]Cf, List of McHugh J in Perre v Apand, para 105 and Woolcock, para 74 and the list of Gillard J in Johnson para 755. I suggest they too can be divided in this way.

•issues as to the consequences of imposing a duty of care in the circumstances of the case in question (“impact of duty issues”), including the issues of indeterminacy, the effect on individual autonomy (particularly commercial autonomy) and the operation of other areas of the law;
•issues as to the features required in the relationship between the defendant and the class of persons to whom the plaintiff claims to belong before a duty of care will be imposed (“relationship issues”) including “vulnerability” and its subsets.

Impact of duty issues appear to be critical issues which generally control and guide resolution of the duty of care question. They may
•prove decisive in the circumstances of the case and require denial of a duty of care;
•raise concerns that may affect the definition of the features of the relationship that are required before a duty of care will be imposed, or
•be of no concern, with the result that imposition of a duty of care can be contemplated with comparative equanimity.[138]

[138]McHugh, J in Perre v Apand, above, paras [102] to [104].

Turning to the impact of duty issues in this case, clearly the imposition of a duty of care would not cut across other areas of the law. The opposite is the case. Importantly, for reasons discussed above, the imposition upon a private building surveyor of a duty of care to subsequent purchasers would help to secure the intended comprehensive and fair operation of the statutory scheme. It would also reinforce the statutory and regulatory obligations. That is of particular importance in relation to private building surveyors where the profit motive, while encouraging the desired efficiency, will also tempt the cutting of corners. I turn to the other two impact of duty issues.[139]

(a)Would the imposition of a duty of care to subsequent purchasers impose indeterminate liability? This concern does not arise in the circumstances of this case. I merely make the point that apart from the narrowness of the class of person involved and the limited nature of the loss and damage for which damages might be awarded, legislation has also introduced a time limit of 10 years.[140] It is also relevant to this issue that the economic loss is closely connected to physical damage and risk of injury.
(b)Would the imposition of a duty of care to subsequent purchasers unreasonably interfere with individual autonomy, particularly legitimate commercial competition? Again, there is no relevant disconformity and therefore no interference. I note that McHugh J in Woolcock[141] stated:
“Questions concerning the autonomy of individuals do not seem relevant in the context of claims for damages for pure economic loss arising out of the defective design or construction of a building. Those involved in the building are already under a duty to the first owner to avoid physical injury to the owner’s person and property. Consequently, imposing a duty to avoid economic loss to the first or a subsequent owner is not inconsistent with the pursuit of the legitimate interests of those who design or construct the building.”[142]
The same reasoning applies to the present case.

[139]E.g. Perre v Apand Limited at 192, 199, 219, 267; listed by Gillard J in Johnson as the 4^th, 5^th and 8^th salient features – para 755.

[140]Building Act 1993 s 134.

[141]Para 79.

[142]Citing Bryan v Maloney at 623-624.

Thus the threshold forseeability requirement and the major policy concerns recognised in the impact of duty issues do not stand in the way of a duty of care to avoid economic loss of the kind proposed. Rather to impose such a duty of care would help to secure the intended operation of the statutory scheme.

As the law continues to develop, it may become accepted that where the above three policy concerns do not arise, a duty of care to avoid economic loss should, prima facie, be imposed. Present authorities, however, make it clear that the question, whether a duty of care should be imposed, remains to be answered. The authorities require that, in addition to reasonable foresight of loss, a feature or features need to be identified special to the relationship between the class of plaintiff to which the plaintiff belongs and the defendant that will justify the imposition of a duty of care. I turn, therefore, to the relationship issues.

In the present case, Mellis voluntarily accepted, for a fee, appointment under the statutory scheme to carry out the statutory and regulatory role of issuing a building permit and carrying out inspections for the particular building.[143] He voluntarily assumed the responsibilities of that role and purported to carry it out. Before he could issue a building permit, he had to be satisfied that the building work and the building permit would comply with the Act and Regulations – and so comply with all relevant standards.[144] He was also required, subsequently, to satisfy himself that critical aspect of the work complied with those standards. In performing these functions he was expressly required to work in a competent manner and to a professional standard.[145] He also knew, or ought to have known, that if he was negligent there was a significant risk of heavy economic loss and damage to whoever happened to own the house when any defect emerged and that the house was likely to be a very significant investment for each person who owned it.
[143]Section 76 Building Act 1993.
[144]Section 19, 24 Building Act 1993.
[145]Building Regulation 1994 15.2.

Consistently with the analogous authorities on the liability of those who embark upon the exercise of statutory powers[146] and those who undertake professional services,[147] these features would, in my view, warrant the imposition of a duty to take reasonable care to avoid economic loss to those likely to be directly affected by want of care on his part. The building owner and subsequent purchasers plainly come within that class. In my view, this case is in fact a stronger case than those dealt with in such authorities. The private building surveyor was required to do more than provide information or advice or to exercise statutory powers should facts that came to his attention warrant action. The statutory powers he voluntarily assumed and exercised were intended to ensure that the builder did its work in accordance with the Act and Regulations and the standards they imposed. He was required to look for problems and deal with them. His role was critical. He was the gatekeeper and watchdog and the only one. He was, or should have been, well aware of his responsibilities and the critical nature of them.
[146]Caledonian Collieries v Speirs above, particularly at 220; Pyrenees Shire Council, above, particularly at 391, 422-3; Alec Finlayson Pty Ltd v above; Heyman, above, at 436 – 7, 458.
[147]Hawkins v Clayton, Hill v Van Erp, Bryan v Maloney, above.

If more is required before a duty of care can be imposed, however, the following additional features of “vulnerability” in subsequent purchasers are relevant.

(a)Known reliance. A building surveyor in the position of Mellis would be or ought to have been aware that subsequent purchasers would be likely to assume that the house had been competently built and that the footings were in fact adequate.[148]
(b)Dependency. Subsequent purchasers are a class of people linked to and dependent upon the building surveyor in the sense that there is nothing that they can do to undo the defective design or defective work. The building surveyor is in fact intended under the statutory scheme to ensure that standards are met[149] and so give protection to building owners – initial and subsequent. The most they can do is to take additional steps to try to protect themselves after the event, from possible want of care on the part of the person intended to give protection, by informing themselves about the building, attempting to renegotiate the contract or refusing to proceed with the purchase.
(c)Limited ability of the class of plaintiffs to secure protection.
(i)Practical protection. For most purchasers of dwellings, the only way they can inform themselves of structural deficiencies is by engaging another expert to inspect thoroughly the premises and all plans and specifications and, to a large extent, repeat the work the building surveyor undertook to perform. A detailed inspection of the kind needed is likely to be costly. Much depends on what a purchaser can afford to pay and a significant proportion of purchasers of dwellings will have difficulty funding a complete inspection by experts. Many, if not most purchasers will rely upon a visual inspection and an assumption that the original work has been done properly. Such an assumption is reasonable (and to be expected) when there is, as here, a comprehensive system of building regulation under which building surveyors undertake to monitor the design and critical aspects of the construction.
I note also, the Tribunal’s finding about the problems of gaining access to the private building surveyor’s file compared with the situation where the relevant Council officer did the work. It may be said that engagement of the private building surveyor increases the vulnerability of a subsequent purchaser.
(ii)Legal protection. It is unrealistic to expect purchasers of dwellings as a class generally to be able to obtain, let alone know about, contractual protections. Further, there can be no guarantees that such action will provide adequate protection.

For these additional reasons subsequent purchasers form a class of people that is “vulnerable” to the negligence of the private building surveyor.

[148]If it be necessary that it be established that there was a duty of care owed to the original owners, the same considerations apply. As to “known reliance” there was no evidence that Mellis had any basis for thinking that the original owners would not be relying upon him, particularly Mrs Watson.

[149]Building Act 1993 s 1, 4, 76 and Part 3 and Part 4.

To return to the classic definition of the “neighbour”, the question to be answered is whether subsequent purchasers of a dwelling are people who are so closely and directly affected by the acts or omissions of the building surveyor that he ought reasonably to have them in contemplation as being affected when he directed his mind to his approval of the design and construction of the dwelling.

I am persuaded that the above features, particularly in the relationship between the private building surveyor and the subsequent purchasers of the dwelling, establish the required relationship. They justify the imposition of a duty of care on a private building surveyor to take reasonable care to avoid causing economic loss to subsequent purchasers.[150] Accordingly, the alleged error of law is not made out.
[150]If the ultimate guiding principle is that it be “fair, just and reasonable” to impose a duty, that principle is satisfied – see the discussion of Hayne J in “Restricting Litigiousness” (2004) 78 ALJR 381; Nettle J (as he then was) “Commentary on ‘Restricting Litigiousness’” (2004) 78 ALJR 389, 395.

In conclusion, it should be emphasised that imposing a duty of care in circumstances where the plaintiff might have but did not take action to secure protection does not put an end to the potential effect of that issue. The defendant can always raise the issue by raising the defence of contributory negligence. In cases such as the present, a fair just and reasonable outcome can be achieved in that way – a duty is imposed upon the building surveyor but the building surveyor can seek a reduction in the damages awarded on the basis that the subsequent owner failed to take reasonable care of his or her own interests.

The Issue of Apportionment – Tribunal analysis

The Tribunal, having found against the defendants, was required to apportion the damages between the defendants under s 131 of the Act. The Tribunal assessed damages on the basis that the house would have to be demolished and rebuilt at a cost of $207,193.00 including the rebuilding of the garage. The Tribunal held that the builder’s insurer should be liable for 50% of the damages including the rebuilding of the garage – which it assessed at $104, 346. The limit of the policy was $100,000 and there was an excess of $750. As a result, the Tribunal ordered the insurer to pay $99, 250. As to the building surveyor, the Tribunal formed the view that he could not be liable for the damages associated with the garage but should bear 50% of the cost of rebuilding and consequential damages. It assessed his share of those costs and damages at $96, 596.

The Tribunal in its reasons, noted that there were no decisions in relation to section 131 and few decisions on similar types of provisions in other jurisdictions. It referred to several decisions but it is relevant to note that it did not refer to decisions on the contributory negligence provision in the Wrongs Act, in which the critical phrase also appears – “just and equitable having regard to the extent of that defendant’s responsibility for the loss or damage”. The Tribunal commented that

"This indicates an apportionment based on percentages of perceived degrees of responsibility. Generally, I do not consider that such an assessment can be too fine; I consider I should stand back and look at both parties with respect to the obligations they undertook when assessed against what are major shortcomings in the design and construction that resulted in the damage. Assessed from this viewpoint it is obvious that the crucial default is the preparation of the design without nominating the exterior wall material and with the stump footings by the builder, followed by the subsequent approval of the defective plans by the private building surveyor."[151]

[151]Para 8.3.

The Tribunal then commented on the many errors in construction which resulted in significant defects and accepted the evidence of Mr Browning that a number should have been identified by the private building surveyor during his mandatory inspections. The Tribunal then stated

"8.5An argument can be made that the builder has the primary obligation to satisfactorily design and construct the dwelling in accordance with the assumed terms of any building contract and definitely in accordance with the statutory warranties ……and, the failure to do so is the substantial causes of the damage.
8.6.However, equally, the view can be taken that the private building surveyor's sole participation in the design and construction of this property is a statutory role set out under the Act and Regulations to ensure that the Act and Regulations are complied with, for this he takes a professional fee. The private building surveyor failed in both his roles of issuing the building permit and carrying out the mandatory inspections.
8.7.In both the case of the builder and private building surveyor they fell far short of the competence required of them. Given their areas of responsibility and the importance of both their roles I consider they are equally liable for the damage sustained by the owners."

Issue of apportionment - submissions

The appellants submitted that the Tribunal erred in assessing the builder and building surveyor as having equal " responsibility" for the works. The appellants also submitted that the Tribunal had focused solely on legal responsibilities and failed to take account properly or at all other relevant factors including:

(a)       the respective degree of blameworthiness of each defendant;
(b)      the relative importance of the acts or omissions of each defendant;
(c)       the relative seriousness of each of the breaches found against each defendant.

Counsel submitted that it was significant that there was no reference to leading High Court authorities on contributory negligence and no reference to the concepts referred to in those cases. A detailed submission was also made highlighting the responsibility of the builder for the design and the construction and arguing that while the building surveyor could be responsible for some but not all of the items the builder should not be relieved of its primary responsibility for the design and construction of the building. Reference was made to the major water problem and the poor workmanship that gave rise to that and how it was not the responsibility of the building surveyor to check the fall of the balcony. A similar point was made about the problems caused by the defectively installed stump under the meals area which was also a significant cause of problems affecting the house. Counsel submitted that this was held by the Tribunal not to be the responsibility of the building surveyor. Counsel also referred to some of the evidence that the workmanship was so deficient that a responsible builder would be reluctant to carry out any repair on rectification work quite apart from the problems associated with the foundations. Counsel submitted that the culpability attaching to the defective building works themselves was much greater in the builder then the building surveyor and the defective workmanship would have required reconstruction even if the design had been adequate.

Issue of apportionment - Conclusion

I am not persuaded that the Tribunal erred in law in reaching the conclusion it did on apportionment. True it did not refer to the above-mentioned authorities but it had regard to and applied the test in the Act. Further, while a more detailed analysis along the lines advanced on this appeal could have been made, the reasons of the Tribunal indicate that it had regard to the issues identified in submissions before me; looking at the obligations each undertook and assessing them against the major shortcomings in the design and construction, considering the fact that many errors in construction occurred as well as errors in design and that not all of those errors of construction came within any responsibility of the private building surveyor and weighing up the significance in respect of the design and construction of the obligations of each. The Tribunal in fact weighed up, albeit briefly, the degree of blameworthiness and the relative importance and seriousness of the breaches.

In the end, it seems to me that the appellants, to demonstrate error of law, need to be able to demonstrate that the conclusion reached by the Tribunal was erroneous in light of its other findings. In my view this cannot be demonstrated. It is a situation where views could differ and it seems to me that the conclusion reached was reasonable and cannot be said to be wrong.

Conclusion

The appellants have failed to demonstrate error of law. The appeal shall be dismissed.

---

[L1]

[2004] VSC 239

1 July 2004