Ritchie v Mosman Municipal Council

[2000] NSWSC 143

Reported Decision: 107 A Crim R 187

New South Wales

Supreme Court

CITATION:	Ritchie & Anor v Mosman Municipal Council [2000] NSWSC 143
CURRENT JURISDICTION:	Common Law
FILE NUMBER(S):	SC 12628/96
HEARING DATE(S):	6-7 March 2000
JUDGMENT DATE:	10 March 2000
PARTIES :	Malcolm Dundas Ritchie and Jan Ritchie v Mosman Municipal Council
JUDGMENT OF:	Michael Grove J at 1

COUNSEL :	N. Cotman SC (Plaintiff) M.T. McCulloch (Defendant)
SOLICITORS:	Searle & Associates (Plaintiff) Phillips Fox (Defendant)
CATCHWORDS:	Negligence - Content of Communication to Another - Whether Mis-statement in Fact - Reliance - Causation - Local Government Body - Liability
LEGISLATION CITED:	Trade Practices Act Fair Trading Act
CASES CITED:	Mid Density Development Pty Ltd v Rockdale Municipal Council 1992 39 FCR 579 Somasundaram v Melchior & Co 1988 1 WLR 1394 Walpole v Partridge & Wilson 1994 QB 106 Perre v Apand Pty Ltd 1999 164 ALR 606 Esanda Finance Corp v Peat Marwick Hungerford 1997 188 CLR 241 Pyrenees Shire Council v Day 1998 192 CLR 330
DECISION:	Judgment for Defendant

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MICHAEL GROVE J

Friday 10 March 2000

12628/96 - MALCOLM DUNDAS RITCHIE and JAN RITCHIE v MOSMAN COUNCIL

JUDGMENT

1    HIS HONOUR : The plaintiffs are the owners of a residential property situate within the municipality of Mosman. In 1989 they contracted with a builder (Bryson) to execute work on that property. Dispute arose between them. The claim advanced in the current action can be described by reference to chronology, much of which is extracted from the second defendant’s (Mosman Council or the Council) file, No 121/88 and annexures to an affidavit of Andrew Capelin, solicitor, sworn 10 September 1998 which were, by consent, received in evidence.

2    The sum payable by the plaintiffs to Bryson pursuant to the contract was $200,000. Progress payments totalling $190,000 were made. Claims for additional work were made and anticipated and the plaintiffs were seeking completion and rectification of some of the works when the dispute arose.

3    In about May 1990, Bryson sought a further progress payment which was declined but it was agreed between him and the plaintiffs that payment would be made when the Council’s building inspector passed the work as satisfactory.

4    Requests for progress payment continued to be made during the months until December 1990 but the plaintiffs withheld payment, seeking first rectification of allegedly defective work. In December, Bryson sued the plaintiffs in the District Court. Eventually his claim was articulated in an Amended Statement of Liquidated Claim filed on 11 April 1995 which included particulars of the agreement to make progress payments upon the obtaining of a satisfactory final inspection of the works by the Council. It further particularized that such a satisfactory inspection had taken place on 17 August 1990. On 3 May 1995, the plaintiffs filed a Defence to this pleading responding, inter alia, that they denied that the Council had given final approval to the works.

5 In the meantime, pursuant to District Court Rules, the matter had been referred for inquiry and report to a referee. Hearing before the referee took place initially on 15 and 16 November 1994 and was then adjourned. Obviously, contradiction about satisfactory inspection, as is manifest in the abovementioned later pleadings, had become an issue then. The content of some correspondence on the Council file should be recited. Under date 29 November 1994 there is a letter to the Council from Bryson:

“Due to a dispute which I am involved currently being heard in the National Disputes Centre. I require written documentation of when a renovation done by me to 95 Middle Head Road Mosman was officially passed by Mosman Council. My records say May 1990.
Could you confirm this date with your records. If able I do require this information quite urgently. ”

6    There is also a letter from Bryson’s solicitors, Constantine Christopher and Associates dated 2 December 1994 the text of which is:

“We act for Mr Bryson, the Builder in respect of the above Building Application, and refer to telephone conversation on 30 November 1994 between Mr Christopher and Helen Strachan.
We confirm our client’s instructions that he forwarded to your Council a written request for information in respect of the completion of the works pursuant to the above Building Application relating to the above property and Helen Strachan’s advices that there was no record of receipt of our client’s request.
We shall be pleased if you were to provide us with your written advices as to the date(s) of inspection by Council of the works made pursuant to the above Building Application and, in particular, the final inspection in respect of such works.
Copies of any council records in respect of inspections, particularly the final inspection, would be greatly appreciated.
As the information requested is required urgently, your co-operation and assistance would be greatly appreciated.
We undertake to pay the reasonable fees of Council, if any, for the information requested and await your urgent advices.”

7    The Council despatched a reply dated 13 December 1994. This letter is at the centre of current litigation and the text of it is:

“Constantine Christopher & Associates
DX 1235

SYDNEY

Dear Sirs,

Attention: Mr Christopher

Re:Building Application No 121/88
95 Middle Head Road, Mosman.

I refer to the above and your letter dated 2 December 1994 requesting information concerning a final inspection of these building works and advise that Council’s records indicate that a satisfactory final inspection of this work was carried out on 17 August, 1990.
Yours faithfully,
V.H.R. MAY

GENERAL MANAGER

Per:

(A. Hardy, Manager of Approvals)”

8    This lastmentioned letter was tendered at the resumed hearing before the referee which took place on 20 and 21 December 1994. It became Exhibit 21 in those proceedings and was described in his report as a certificate. It was not suggested that the letter could be or that it purported to be a certificate pursuant to s 317AE of the Local Government Act then in force. The referee noted that he received evidence from the plaintiffs’ solicitor that that solicitor had inspected the Council’s file on 24 November 1994 and, on that inspection, found no evidence of a final inspection having been carried out. The content of the Council’s letter was treated as evidence of fact and the referee ruled that, in the light of it, practical completion of the works had been achieved by 17 August 1990.

9    The referee also ruled that, as the plaintiffs had declined to make progress payments for variations many of which were agreed, they had repudiated the contract. He further ruled that repudiation had been accepted by Bryson by commencing litigation.

10    He reported that the plaintiffs should pay Bryson $44,870.51 plus interest dating from 17 August 1990 and $9,250 the costs of the reference.

11    The matter was returned to the District Court and came before Wall DCJ. The plaintiffs resisted the adoption of the referee’s report. His Honour indicated that he would permit the relitigation of the issues of repudiation and substantial performance and he delivered an interlocutory judgment on preliminary issues on 29 May 1995. He noted that it was common ground that the existence of either one of these (repudiation or substantial performance) was a condition precedent to Bryson making a quantum meruit claim. By this time the amended pleadings to which I have made reference had been filed.

12    The learned judge found that the work was not wholly or substantially performed by December 1990 and the contract was therefore not discharged by substantial performance. He found however that there had been repudiation by the plaintiffs and acceptance of it by Bryson. He found as a fact:

“On 17 August 1990 the building work was inspected by a Council inspector as agreed by the parties and the work was passed by the inspection as being done in compliance with the Council’s building approval conditions.”

And, based upon that and other findings of fact, he found:

“The defendants (the present plaintiffs) were in continuing breach of a fundamental term of the agreement by refusing to pay any money on account of the demand of the plaintiff to pay a progress payment made at least twice monthly in the period August to December 1990 in respect of work performed by him under the agreement.”

13    In a file note dated 21 July 1995 there is record of discussion with Mr Keith Hone, a senior building surveyor in the Council’s employ, by then retired. Mr Hone is stated to have recalled visiting the plaintiffs on or about 17 August 1990 but did not recall whether the work was then completed. He had revisited the site a few days before 21 July 1995 at the request of one of the plaintiffs. As he confirmed in testimony the initials apparently “K.H.” on an endorsement of completion on the front of the Council file were not written by him. This enquiry and investigation led to the despatch under date 24 July 1995 of a letter to the solicitors acting for Bryson, the content of which was:

“I refer to Council’s letter of 13 December, 1994, in relation to Council’s record of final inspection of work under the above Building Application.
It has been brought to the attention of Council that the notation on Council’s file which was relied upon to advise you previously of the completion date of works, was not made by the officer handling the matter, but by a person or persons unknown.
The officer that is purported to have signed off the application (Mr K. Hone) has inspected the file and been interviewed by Council officers. Mr Hone recalls an inspection of the property on or about the 17 August, 1990, however he does not recall the extent of the completion work and advises that the signature on the file is not his signature.
This matter highlights an administration concern in relation to Mosman Council’s open file policy and an issue of falsifying of Council’s records which is to be referred to the Police.
On the information before Council on 13 December, 1994, I suggest that to rely on the notation on Council’s file was reasonable.
In the light of discussions with Mr Hone, Council’s records are inconclusive as to the date of the final inspection at 95 Middle Head Road, Mosman in relation to Building Application 121/88. There is no record of a final inspection report, and a Building Certificate has not been issued for of the work.”

14    It also appears from the file that on that day one of the plaintiffs delivered a draft of a letter intended to be sent by Council to their own solicitors but it was not engrossed or sent in that form and, in lieu thereof, a letter was despatched to that plaintiff the text of which was:

“In view of discussions with Mr K. Hone regarding the notation on Council’s file and his recollection of the inspection of the property 17 August, 1990, it is confirmed that Council’s file is inconclusive as to the final inspection of the property.
In responding to Mr Bryson’s solicitor in our letter dated 13 December, 1994, Council relied upon the notation on the file.
It is confirmed that there is no proper record of a final inspection, that there is no record of a final inspection report, computer record or the issue of a Building Certificate for the building. There is only a notation on the building file which now appears to have been made by a person or persons unknown. This aspect is being dealt with separately and is to be referred to Mosman Police for further investigation.
A copy of Council’s letter to Constantine Christopher and Associate Solicitors is enclosed for your information.”

15    It is convenient to make reference now to the evidence of Mr Hone. I accept his evidence. As at 1990 various inspectors adopted one of two procedures to report and record inspections. Information was endorsed on yellow A4 pro forma which were in due course attached into the file. Alternatively the inside cover of the file was printed with a checklist which could be ticked and/or endorsed.

16    As I have mentioned, the Council file was received in evidence. There are no yellow sheets of the type described within the file and the final inspection printed endorsement on the inside cover remains entirely unfilled.

17    I am satisfied that the content of the letter of 13 December 1994 was sourced from endorsements in red ink on the front of the file. Mr. Hone explained that it was the Council practice to obtain a security deposit from builders and that, when building work was complete, reference was made to the engineering department which would check whether the deposit or part of it should be retained to indemnify the Council for making any necessary repair to, for example, footpaths damaged in the course of works. If there was no such requirement, the deposit could be returned and the final dealing with the file would fall to the accounts department who would attend to any appropriate refund. Some person unknown has filled in the date 17-8-90 next to the word Completed and under the heading Accountant, ticks have been made next to Building Work Complete and Refunds in Order and the initials “K.H.” next to Signed by Inspector.

18    It would be reasonable in my view for someone versed in the system to conclude that those endorsements signified that there had been completion in accordance with Council’s requirements of the work which was subject of the application.

19    The next relevant event revealed by the evidence is the making of consent orders by Wall DCJ on 24 October 1995 by which the plaintiff agreed to pay Bryson $90,000 in three instalments and the parties agreed equally to share the burden of payment of the referee’s fees. It was further agreed that an appeal to the Court of Appeal be dismissed. As I understand it, it has been presumed in the present litigation that this was an appeal against the judgment delivered in May 1995. A challenge to that judgment would appear to have required leave but I have no information other than the agreement to dismissal of appeal and a reference number.

20    The plaintiffs commenced these proceedings in 1996. The first defendant comprised the partners of the firm of solicitors formerly acting for the plaintiffs in the dispute with Bryson. I was informed by counsel that that part of the litigation had been resolved and I note a notice of discontinuance filed on 28 February 2000, a few days prior to commencement of the hearing.

21 The plaintiffs continued their claim against the second defendant named as Mosman Council. The causes of action are specified in the Second Further Amended Statement of Claim filed on 1 February 1999. The action is framed in common law negligence or in the alternative, for misleading and deceptive conduct in contravention of either or both the Trade Practices Act and the Fair Trading Act.

22    Senior counsel for the plaintiffs expressly did not abandon the claims founded upon statutory breach but did not address them in final submission. I understood him to wish to preserve his clients’ position in this regard. I am of opinion that those claims must fail in limine. There was no evidence called concerning the activities of the Council save in respect of the current dispute and nothing establishes that it was a trading or financial corporation or that it was in the requisite sense engaged in trade or commerce. I would respectfully adopt the analysis of Davies J in Mid Density Development Pty Limited v Rockdale Municipal Council 1992 39 FCR 579 @ 583-585.

23    At the outset, the Council in effect demurred to the plaintiffs’ pleading, contending that the action of its very nature was a collateral attack upon a previous final decision in the sense that the plaintiffs would not have been held to have repudiated unless the condition precedent of satisfactory inspection had been fulfilled and an award of damages in their favour would necessarily require a finding contradicting that made by Wall DCJ exercising competent jurisdiction. I noted the contention but declined to stay the proceedings as an abuse of process, expressly reserving the defendant’s position in this regard. I was referred to Somasundaram v Melchior & Co 1988 1 WLR 1394 and Walpole v Partridge & Wilson 1994 QB 106. In the latter case Ralph Gibson LJ observed @ 115:

“Mr Parker, of course, acknowledged the existence of exceptions to the principle, which forbids a collateral attack upon a previous final decision, made by another court of competent jurisdiction, in which the plaintiff had a full opportunity of contesting the decision of the court by which it was made. If the plaintiff introduces fresh evidence, that is evidence which was not available, or could not by reasonable diligence have been obtained at the first trial, which ‘entirely changes the aspect of the case’ (see Hunter’s case [1982] A.C. 529, 545) he may pursue his claim ……..”

24    Putting to one side the question of due diligence, an issue of new evidence does arise in the sense that examination of the file does offer a possible conclusion of facts different from those found by acceptance of the content of the letter of 13 December 1994. Although I considered that there was force in the Council’s contention, I concluded that the trial should not be summarily terminated as an abuse of process nor, after trial, should judgment be entered against the plaintiffs upon this basis.

25    Apart from the documentation, short oral evidence was called. The plaintiff Malcolm Dundas Ritchie confirmed that he had been requested by Bryson to make progress payments which were declined; that he had not himself inspected the Council file until June 1995 but he acknowledged that his solicitor had made such an inspection in June 1994; and that he had entered the “compromise” effected by the consent orders made on 24 October 1995 after being advised by his lawyers. Mr Hone gave the evidence already mentioned.

26    The cause of action propounded by the plaintiff is based upon alleged liability for negligent mis-statement by the Council in its letter to Bryson’s solicitors of 13 December 1994. No statement was made to the plaintiffs and this is not a case of their acting upon any alleged negligent mis-statement being made to them.

27    The Council contested the assertion that the letter was in any event a mis-statement. By reference to the endorsements on the front of the file which I have earlier described, the Council contended that it was not inaccurate to state “Council’s records indicate that a satisfactory final inspection of this work was carried out on 17 August 1990.” In the context of the front file endorsements, that statement was accurate. It can only be regarded as inaccurate in the context of the absence of other expected documentation in the file which would support it. Mr Hone’s evidence that he in fact made an inspection on or about the specified date was not challenged. What is inconclusive is whether the work was adjudged satisfactory to Council or not and this arises from the absence of record but, insofar as any record does exist it is manifest on the front file cover endorsement which is inconsistent with inspection having been unsatisfactory. It follows that the content of the letter of 13 December 1994 ought not be categorized as a mis-statement. It was not argued that the Council was liable for failing to detect the now apparent forgery involved in the creation of that endorsement.

28    The plaintiffs have failed to prove mis-statement and the action must therefore in any event fail. Even assuming that I am wrong in that conclusion, I would for other reasons reach the same result.

29    The basis of the plaintiffs’ claim is that the Council was in breach of a duty of care to protect them from financial harm arising out of its postulated negligent conduct towards another, that is in tendering misinformation to Bryson.

30    In Perre v Apand Pty Limited (1999) 164 ALR 606 Gaudron J observed (@ 615) that

“So far as concerns negligent misstatement, the circumstances which attract a duty of care are ‘known reliance (or dependence) or the assumption of responsibility or a combination of the two’ the word ‘known’ including circumstances in which reliance or dependence ought to be known. ”

31    Her Honour concluded that it was also possible to discern another category for which the circumstances that attract a duty of care could now be articulated. She summarized her view @ 618:

“In my view, where a person knows or ought to know that his or her acts or omissions may cause the loss or impairment of legal rights possessed, enjoyed or exercised by another, whether as an individual or as a member of a class, and that that latter person is in no position to protect his or her own interests, there is a relationship such that the law should impose a duty of care on the former to take reasonable steps to avoid a foreseeable risk of economic loss resulting from the loss or impairment of those rights.”

32    I am conscious that there are other articulations in the other judgments but it is convenient to refer to her Honour’s epitome and I would respectfully adopt her comment @ 615:

“It seems to me that much judicial effort has been devoted to, but little gained by, criticising the approaches that have been advanced or theories propounded in this area of the law.”

33    In applying her Honour’s expression of test, it could scarcely be said on any view that the plaintiffs were not in a position to protect their own interests. In addition the plaintiffs inevitably fail any test of reliance. Not only did they not rely upon the statement in the letter to Bryson’s solicitors, they called evidence to contradict it. The reality of their complaint is that they seek to challenge the findings of the referee and Wall DCJ that there had been a satisfactory inspection as stated in the letter. It does not appear that there was any inhibition on requiring production of the Council file to bolster their contradictory argument but the absence of that possible evidence is a matter of potential relevance to the relationships between the plaintiffs and their solicitors rather than with the Council.

34    Although I recognize that the particular case was limited to issues as pleaded and in that case it was not pleaded that the defendant auditors knew or ought to have known that a finance provider would rely upon their audited statement of accounts, I consider that Esanda Finance Corporation Limited v Peat Marwick Hungerford 1997 188 CLR 241 is authority for a requirement to sustain the cause of action of the plaintiffs, that the Council ought to have foreseen their reliance upon the letter. Not only is that not the case but the fact was, as I have pointed out, that the plaintiffs relied not at all upon the Council’s communication to Bryson’s solicitor. At most, they took into account that it was an item of evidence available to a tribunal of fact wherein they were engaged in litigation when they elected to consent to orders terminating that litigation.

35    Counsel for the plaintiff referred to a remark by Gummow J in Pyrenees Shire Council v Day 1998 192 CLR 330 @ 385 where his Honour observed that reliance is not always an essential requirement for the plaintiff in a negligence case. It should be observed that his Honour added:

“The primary significance of reliance is in cases of alleged negligent provision of advice or information where reliance aids the formulation of a duty of care and detrimental reliance enters into the question of causation of loss. ”

36    Causation presents a further obstacle to the success of a plaintiff’s action. The plaintiff elected to terminate the litigation on terms requiring payment of money by them thereby suffering the claimed loss. The evidence does not establish that the existence of the letter caused the loss; at most, it was the acceptance of the facts contained in the letter by the tribunal of fact which might be inferred to have provoked the advice tendered to and acted upon by the plaintiffs.

37    The vulnerability of the plaintiffs’ position was neatly demonstrated by an analogy offered by counsel appearing for the Council.

38    In the ultimate, the complaint of the plaintiffs is that factual evidence tendered by means of the content of the letter was preferred by the tribunal to evidence called on their behalf. That the preferred evidence was presented in that form was a matter of apparent convenience but if the evidence had been given in a more conventional fashion, no cause of action would lie against the witness who gave it. The legal remedy open to the plaintiffs was appeal but they agreed to abandon that remedy in terms of the orders of 24 October 1995. It is true that the plaintiff would have faced procedural barriers concerning the tender of new or fresh evidence on appeal especially in circumstances which suggest that such evidence could have been obtained and tendered at trial. It was the plaintiffs’ election to assume, at least such may be implied, that such barriers would not be overcome.

39    The evidence does not satisfy me that there is any causal link between the financial loss alleged by the plaintiffs and the letter written by the Council to the solicitors for their opponent in then current litigation.

40    I direct entry of judgment for the second defendant and, subject to application, I order the plaintiffs to pay the defendant’s costs of action.

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Last Modified: 09/25/2000