Sutherland Shire Council v Heyman

[1985] HCA 41

HIGH COURT OF AUSTRALIA

Gibbs C.J., Mason, Wilson, Brennan and Deane JJ.

THE COUNCIL OF THE SHIRE OF SUTHERLAND v. HEYMAN

(1985) 157 CLR 424

4 July 1985

Negligence—Local Government (N.S.W.)

Negligence—Public authority—Duty of care—Foreseeability and proximity—Reliance—Character of loss—Municipal council regulating construction of buildings—Whether duty to ensure construction in accordance with statute and plans—Power to inspect—Negligence in inspection—Failure of subsequent purchaser to inquire—Local Government Act 1919 (N.S.W.), Pt XI. Local Government (N.S.W.)—Building control—Inadequate footings—Whether negligence in inspection—Failure of subsequent purchaser to obtain certificate of compliance—Local Government Act 1919 (N.S.W.), Pt XI.

Decisions

GIBBS C.J.: This is an appeal from a decision of the Court of Appeal of the Supreme Court of New South Wales, affirming a decision of Robson D.C.J. given in favour of the respondents, the plaintiffs in an action brought against the appellant, the Council of the Shire of Sutherland ("the Council"). The appeal raises for decision the important questions whether a local authority in New South Wales which gives approval to the erection of a dwelling house owes to persons who subsequently become the owners and occupiers of the house a duty to take reasonable care to ensure that the building is constructed in conformity with the plans and specifications which it has approved, and what duty, if any, it owes to such persons in deciding whether to make inspections, and in carrying out such inspections as are made, during the construction of the building. The special leave to appeal which was granted by this Court was limited to prevent the appellant from raising a further question regarding the limitation period in an action of this kind.

2. In January 1975 the respondents purchased a house at 14 Bridgeview Road, Engadine, in the Shire of Sutherland, and went into occupation. The land on which the house was built fell very steeply away from the front to the rear of the allotment, and the house was supported by nine brick piers and three steel columns, as well as by the brick walls of a laundry which was underneath the rear of the house. Some of the ground in which the piers and columns stood consisted of unstable rock and soil, and this fact made it particularly necessary that the foundations of the piers and columns should be secure. In fact some of the footings were quite inadequate; a number of them were founded on material which did not afford them proper support and they allowed the piers and columns resting on them to subside, causing damage to the house - particularly distortion of beams and supports, and cracking in many places. The respondents first became aware of the damage during 1976, and then necessarily incurred expense to remedy the damage already done and to strengthen the foundations. The judgment which they obtained represented the amount of this expense plus interest.

3. By s.311 of the Local Government Act 1919 (N.S.W.), as amended, ("the Local Government Act") a building may not be erected unless the approval of the council is first obtained. An application to erect a dwelling house at 14 Bridgeview Road, Engadine, was made to the Council on 26 August 1968 on behalf of Mr R. Sloan and Miss L. Makin, who then owned the land. A building permit, which was issued on 17 September 1968, notified that approval was given by the Council to the erection of the building described in the attached plans and specifications subject to conditions which included the following:

"1. Forty-eight hours' notice in writing shall be given to the Council prior to the following works being carried out:-

(a) Commencement of the building.

(b) When foundation trenches are open and before foundations are laid.

(c) When steels are in place and before concrete is poured (foundations, lintels beams, floors).

(d) When drain lines are laid and before covering in.

2. Notice in writing shall be given within 24 hours of completion of the following works:-

(a) When foundation walls and piers are complete (fibro and weatherboard).

(b) When in brick buildings walls are up to dampcourse and then up to square.

(c) When (in fibro and weatherboard) frame work is completed.

(d) When building is completed, but before occupation.

...

4. ...

(c) The Council prohibits occupation without its permission of any building within the Shire until it has been completed in accordance with the approved plans and specifications and the building has been inspected and passed following Notice as required under Clause 2(d) of this Permit.

The above conditions are imposed by the

Council to ensure that the whole of the work is in accordance with the approved plans and

specifications, the building ordinances and Council's and Water Board requirements."

4. The attached plans did not show the footings, but the specifications required excavations for footings to be made to "a depth necessary to secure solid bottoms and even bearing throughout" and provided that all brick walls and piers were to be on footings the nature of which was described.

5. Before the building permit was issued, the Council had, on 5 September 1968, received a report from one of its inspectors, Mr Pollard. The report recommended approval of the application, subject, inter alia, to "Submission to Council of check survey when brick footings commenced." The permit, when issued, did not contain a condition requiring the submission of a check survey, but the Council wrote to the building owners advising them that a further condition, requiring the submission of a check survey, had been imposed.

6. The learned trial judge rejected a contention that the Council was negligent in giving its approval to the plans and specifications submitted to it. He held that "the plans as approved were adequate protection to ensure compliance with the (Local Government) Act if all the conditions were fulfilled including an inspection being carried out". In argument before us, counsel for the respondents did not challenge this finding, but submitted that the Council was negligent either in carrying out such inspections of the building as were made by its officers while the building was in the course of construction or in failing to make the inspections that ought to have been made. Clause 1(b) of the conditions of the building permit appears to have been designed to give the Council an opportunity to inspect the foundation trenches before the foundations were laid. The learned trial judge inferred that an inspection was made after the trenches had been dug and before the footings were constructed and held that the inspection was carried out negligently. The evidence clearly established that if the trenches had been inspected, it would have been readily apparent that the excavation had not been made "to a depth necessary to secure solid bottoms", as the specifications required, and that the footings proposed to be erected were inadequate. If an inspection was made at that time it was made very carelessly. However, there is no direct evidence whether or not any such inspection was made. The learned trial judge said that it was probable that the builder would have given the notice required by cl.1(b) of the conditions, and that Mr Pollard, who later checked the framework, appears to have said or done nothing about the failure to supply a survey report or to inspect the trenches, although his recommendation that a check survey should be submitted indicated the importance that he attached to the footings. The learned judge was more ready to draw the inference that Mr Pollard had inspected the trenches because Mr Pollard was not called as a witness; although he had retired from employment with the Council, he was still living in New South Wales. A search of the files of the Council revealed only one document which refers to any inspection of the building; that was a standard form of document used for recording the result of inspections ("the inspection card") and it bore one endorsement: "Frame O.K. 3.12.69 F.W.P.". The initials were apparently those of Mr Pollard.

7. In the Court of Appeal Hope and Reynolds JJ.A. held that the finding that an inspection was made while the foundation trenches were open was unjustified, and that only one inspection was made, namely on 3 December 1969, after the frame of the house had been constructed. On the balance of probabilities, this conclusion was correct. It would be mere speculation to hold either that the builder had given notice under cl.1(b) of the conditions or that, if notice was given, the Council had then arranged an inspection. It was probably not right to suggest that the recommendation made by Mr Pollard that a check survey be submitted when the footings were commenced shows that he was aware of the importance of the footings, since the intended purpose of a check survey may have been to fix the position of the building rather than the nature of the footings. The failure to call Mr Pollard as a witness loses some of its significance because it is unlikely that after the lapse of time that had occurred he would have been able to do more than refresh his memory from the inspection card. In any case, the evidence afforded by the inspection card - a business record whose genuineness was not open to doubt - strongly supports the conclusion reached by Hope and Reynolds JJ.A.

8. However, the learned members of the Court of Appeal held that the Council failed to exercise reasonable care in conducting the inspection of 3 December 1969, and that this constituted a breach of a duty of care which it owed to the respondents. The evidence does not reveal whether the officer of the Council who made the inspection did inspect the foundations and the footings on that day. It does appear, however, that such an inspection would have presented no great difficulty and that, as Reynolds J.A. said, even a cursory examination would have shown that the foundations were inadequate. Hope J.A. held that in these circumstances the Council was in a dilemma. If the officer did inspect the footings, he did so without exercising reasonable care and the Council would be vicariously liable for his negligence. If, on the other hand, the Council failed to have any inspection of the footings made on 3 December 1969 it failed to exercise reasonable care to ensure that the footings had been laid or constructed to its satisfaction in accordance with the approved plans and specifications. The nature of the site made obvious the importance of solid foundations and the Council knew that no inspection had been carried out at any earlier stage. It is true that the officer making the inspection on 3 December 1969 may not have known whether or not there had been an earlier inspection but the Council could easily have ensured, by adopting a reasonably efficient system, that the relevant inspection card was seen by any officer about to make an inspection. Hope J.A. accordingly held that whether or not the Council's officer assumed the duty of inspecting the footings on 3 December 1969 the negligence of the Council was established. Reynolds J.A. inferred that on that date no thought or attention was paid to the supports and that this failure constituted a breach of the Council's duty.

9. To enable an answer to be given to the question whether the Council owed a duty of care to the respondents, it is first necessary to consider its relevant statutory powers and duties. By s.305(1) of the Local Government Act the council of a municipality may control and regulate the erection of buildings in the municipality and by s.306(1) a building shall not be erected or used in contravention of the provisions made by or under that Act. Division 4 of Pt.XI of the Local Government Act contains provisions which relate to applications, plans and specifications for proposed buildings. Section 310 provides:

"Subject to the provisions of this Act and of

any ordinance every building hereafter erected in the area shall be erected to the satisfaction of the council -

(a) in conformity with this Act and the ordinances; and

(b) in conformity with the application, plans, and specifications in respect of which the council has given its approval for the erection of the building."

As I have mentioned, s.311 makes it necessary to obtain the approval of the Council before a building is erected. Sections 312-314 deal with applications for approval and with the functions of the Council in considering such applications. Section 316(1) empowers the Council to prohibit the use or occupation, without its permission, of any building until it has been completed in accordance with the approved plans and specifications. The Council exercised that power in the present case by cl.4(c) of the conditions of the building permit. However, there is no evidence that the building owner gave the notice required by cl.2(d) of the permit when the building was completed or that the building was inspected and passed by the Council. Section 317 makes it an offence to do or cause work to be done in connexion with the erection of a building without the approval of the council or not in conformity with such approval. Section 317A, as in force at the material date, provided as follows:

"(1) Any person may at any time apply for a certificate to the effect that in the opinion of the council a building in all respects complies with the Act, the ordinances, and the plans and specifications, if any, approved by the council or if there has been any contravention of the Act or ordinances or any departure from the approved plans and specifications that such contravention or departure is not such as need be rectified.

...

(4) The production of the certificate shall for all purposes be deemed conclusive evidence in favour of a bona fide purchaser for value that at the date thereof the building complied with the requirements of the Act and ordinances."

The respondents did not apply to the Council at any time for a certificate under s.317A.

10. Neither the Local Government Act nor the Ordinances contained any requirements to which the footings of the building had to conform. The Ordinance then in force, Ordinance No.71, did contain, in cl.20, detailed provisions as to footings for walls made of brick, stone, concrete or the like, but it appears to have been common ground that those provisions were not applicable to the present case where the footings were for piers and pipes rather than for walls. By cl.82 of Ordinance No.71, the Council had power to order (inter alia) the pulling down of any work done in contravention of the Act or Ordinances. Clause 83 of that Ordinance provided that forthwith upon completion of any unoccupied building notice should be given to the Council and that "forthwith upon receipt of notice as aforesaid" the Council should arrange for an inspection and a report on whether or not the building had been erected "in accordance with this Ordinance and without material deviation from the approved plans and specifications". No notice of completion was given to the Council in accordance with the requirements of this provision. Clause 83(f) of Ordinance No.71 provided as follows:

"Any person who, without the permission of the

Council, uses or occupies a building which has not been completed in accordance with the approved plans and specifications shall be liable to a penalty not exceeding ten dollars for each day during which such use or occupation continues after notice from the Council."

11. It is convenient to dispose immediately of one argument submitted on behalf of the Council, namely that s.317A of the Local Government Act sets the limits of the duties owed by the Council to private citizens when it is acting under Pt.XI of that Act. The respondents' action is founded on negligence, and not on breach of statutory duty, and the statutory provisions to which reference has been made are relied on not as the source of the Council's obligations, but as the setting in which its acts and omissions have to be considered. It may be true that if the respondents had sought a certificate under s.317A their present difficulties would not have arisen, but that section is not decisive of the questions which fall for decision in the present case. The provisions of the section have created difficulties to which attention has been drawn in articles by Professor K.E. Lindgren in 47 A.L.J., at p.617 et seq. and Professor Peter Butt in 55 A.L.J., at p.293 et seq. Although sub-s.(1) of s.317A speaks of a certificate that the building "complies with the Act, the ordinances, and the plans and specifications", sub-s.(4) states that the production of the certificate shall be evidence that "the building complied with the requirements of the Act and ordinances" - no mention is made of the plans and specifications. It has been said that the purpose of s.317A was to overcome difficulties between vendors and purchasers when an intending purchaser made requisitions concerning the failure of a building to comply with the Act and ordinances (see 47 ALJ, at p 622 and Seeto Constructions Pty. Ltd. v. Snowy River Shire Council (1982) 47 LGRA 199, at p 206). However, the main effect of the section appears to be to protect a bona fide purchaser for value who has obtained a certificate from action which a local authority might otherwise take in respect of events that occurred prior to the issue of the certificate. For example, a council could not, as against such a purchaser, exercise its power to order demolition under cl.82 of Ordinance No.71 if the work which allegedly contravened the Acts and ordinances had been done before the certificate was issued and it could not successfully launch a prosecution under cl.83(f) of Ordinance No.71 against the purchaser in respect of the use or occupation of a building which had been completed before the certificate was issued. It has been recognized in the decisions that the section has this effect: see Hayes v. Cable (1962) SR(NSW) 1, at p 9 and Crompton v. Lane (1983) 3 NSWLR 189, at p 194. It is unnecessary for present purposes to consider those cases further. It is enough to say that s.317A is not directed to the questions whether the Council owes a duty of care in exercising its statutory functions and if so to whom and in what circumstances such duty is owed.

12. It will be seen that the statutory provisions to which reference has been made did not impose on the Council any duty, whether owed to the public or to particular persons, to make an inspection of the footings in the circumstances of the present case. Section 310 cannot possibly be construed as imposing any such duty on the Council - the requirement that buildings shall be erected to the satisfaction of the Council may entail an obligation on the part of the Council to decide, when called on to do so, whether it has the requisite satisfaction, and to act in accordance with law in making its decision, but it does not require the Council to make any inspection at any particular stage of the work of construction. It is true that cl.83 of Ordinance No.71 does impose a duty on the Council, but that duty arises only when a notice of completion has been given, and none was given in the present case. The relevant statutory provisions conferred powers on the Council but did not place the Council under any statutory duty which was required to be performed in the circumstances of this case.

13. In Miller &Croak Pty. Ltd. v. Auburn Municipal Council (1960) SR(NSW) 398, where the defendant council demurred to a declaration in an action in which the plaintiff claimed damages arising from an alleged negligent failure by the council to carry out certain obligations imposed on it by an ordinance, and alleged positive acts of negligence as well as mere inaction, the Full Court of the Supreme Court of New South Wales said, at p.400:

"The submission made in support of the

demurrer is that whatever duties and powers are imposed upon or given to a local council by the planning ordinance are imposed and given for the benefit of the public generally and not for the benefit of individuals or particular classes of individuals, and that for a negligent performance of those duties or a negligent exercise of those powers an action for damages will not lie at the suit of an individual thereby affected. We agree that this is so."

With all respect, if this statement was intended to express a general principle it was not then, and is not now, correct. The fact that a statutory provision, which confers powers or duties on a public authority, is enacted for the benefit of the public generally, and confers no private right upon an individual, does not mean that the individual has no right of action at common law if the council is negligent. In East Suffolk Rivers Catchment Board v. Kent (1941) AC 74, at pp 88-89, Lord Atkin said:

"But apart from the existence of a public duty to the public, every person whether discharging a public duty or not is under a common law obligation to some persons in some circumstances to conduct himself with reasonable care so as not to injure those persons likely to be affected by his want of care. This duty exists whether a person is performing a public duty, or merely exercising a power which he possesses either under statutory authority or in pursuance of his ordinary rights as a citizen."

Although Lord Atkin dissented in that case, that statement is supported by the authorities which his Lordship cited, and is not contrary to the views expressed by those of their Lordships who were in the majority: see at pp.85, 95 and 99-102. In Caledonian Collieries Ltd. v. Speirs (1957) 97 CLR 202, at p 220, Dixon C.J. and McTiernan, Kitto and Taylor JJ. referred to "the well-settled principle" that "when statutory powers are conferred they must be exercised with reasonable care". The decision of this Court in Birch v. Central West County District Council (1969) 119 CLR 652 provides a further example, if one is necessary, of a case in which an action for negligence lay against a statutory authority for damage negligently caused in the course of the exercise of functions conferred on it for the benefit of the public. Long before the decisions in Dorset Yacht Co. v. Home Office (1970) AC 1004 and Anns v. Merton London Borough (1978) AC 728 the law recognized that persons acting under statutory powers (as well as persons performing statutory duties) might at common law be under a duty of care towards persons likely to suffer damage as a result of their carelessness. What was thought, however, until Anns v. Merton London Borough decided the contrary, was that "where a statutory authority is entrusted with a mere power it cannot be made liable for any damage sustained by a member of the public by reason of a failure to exercise that power": per Lord Romer in East Suffolk Rivers Catchment Board v. Kent, at p 102. The general rule was said to be that the public authority was liable for misfeasance but not for non-feasance.

14. In the present case, the Court of Appeal, in deciding that the Council owed a duty of care to the respondents and that there was a breach of that duty, relied heavily on Anns v. Merton London Borough, a decision which is indeed of great significance in the development of the law of negligence. In that case the plaintiffs were lessees under long leases granted by the owners (who were also the builders) of a block of flats after the completion of the building. The defendant Borough Council had taken over the liabilities of a local authority which had passed building plans for the block. The case was decided on the pleadings, without a determination of the facts, but on the basis of the plaintiffs' allegations, which were substantially as follows. The builders had constructed the building to a depth of 2'6" below ground level only, instead of 3 feet or deeper as required by the plans. Structural movement in the building began to occur because of the inadequacy of the foundations, causing cracks in the walls, sloping of the floors and other damage. The local authority had failed to carry out an inspection of the foundations or, alternatively, an inspection was made by an inspector who failed to use reasonable care and skill and therefore failed to discover the inadequacy of the foundations. It was held by a majority of the House of Lords (Lord Wilberforce, Lord Diplock, Lord Simon of Glaisdale, and Lord Russell of Killowen) - (i) "that the defendant council would not be guilty of a breach of duty in not carrying out inspection of the foundations of the block unless it were shown (a) not properly to have exercised its discretion as to the making of inspections, and (b) to have failed to exercise reasonable care in its acts or omissions to secure that the byelaws applicable to the foundations of the block were complied with"; and (ii) "that the defendant council would be liable to the respondents for breach of duty if it were proved that its inspector, having assumed the duty of inspecting the foundations, and acting otherwise than in the bona fide exercise of any discretion under the statute, did not exercise reasonable care to ensure that the byelaws applicable to the foundations were complied with". The Court also rejected an argument that the actions were barred by the Limitation Act 1939 (U.K.) but we are not concerned with that aspect of the matter. Lord Salmon agreed that the Borough Council would be liable if an inspection was made without the exercise of reasonable care and skill, but held that if no inspection was made the plaintiffs' claim should fail.

15. The judgment of Lord Wilberforce (with whom the members of the House other than Lord Salmon agreed) is authority for a number of propositions, each of which involves questions of more or less difficulty. First, Lord Wilberforce stated, at pp.751-752, a fundamental principle of the law of negligence in a passage that has had great influence on subsequent cases. I need not quote the whole of the well-known passage. After saying that the question whether a duty of care arises in a particular situation has to be approached in two stages, Lord Wilberforce continued:

"First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter - in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise ..."

16. Secondly, in considering the duty of a public authority to avoid harm to those likely to be affected by the exercise of a power or a duty, Lord Wilberforce drew a distinction between policy decisions and decisions made to execute policy - "operational" decisions. He pointed out that the distinction was one of degree, since many "operational" powers and duties have in them some element of discretion, but said that "the more 'operational' a power or duty may be, the easier it is to superimpose upon it a common law duty of care": see at p.754. In the case which Lord Wilberforce was considering, the local authority was exercising functions under statutory provisions designed to ensure the health and safety of the owners and occupiers of buildings. Its decision on such matters as how many inspectors should be appointed and how many inspections should be made were within an area of policy and might require the local authority "to strike a balance between the claims of efficiency and thrift": see at p.754. Nevertheless, although the local authority had no statutory duty to inspect, it had a duty at common law to give proper consideration to the question whether it should inspect or not: see at pp.754-755. The judgment thus recognized that a local authority exercising statutory functions might be liable for mere inaction or non-feasance. If an inspection was made, the duty was "heavily operational" but there might nevertheless be a discretionary element in its exercise and in that case, as Lord Wilberforce said, at p.755:

"A plaintiff complaining of negligence must prove, the burden being on him, that action taken was not within the limits of a discretion bona fide exercised, before he can begin to rely upon a common law duty of care."

17. Thirdly, it was held that since a reasonable person in the position of an inspector must realize that if foundations that did not comply with the by-laws were covered in, injury to safety or health might be suffered by owners or occupiers of the house, the duty was owed to the owners or occupiers, but "not of course to a negligent building owner, the source of his own loss": see at p.758. It was further held that "a right of action can only be conferred upon an owner or occupier, who is such when the damage occurs": see at p.758.

18. Fourthly, the nature of the duty, which was related closely to the purpose for which the powers of inspection were granted, was to take reasonable care to secure that the builder did not cover in foundations which did not comply with by-law requirements. It was said (at p.758) that the allegations in the statements of claim, in so far as they were based upon non-compliance with the plans, were misconceived. No doubt the reason why the local authority in that case had no duty to ensure that the building was constructed in accordance with the plans was because the statutory provisions in question were regarded as requiring the local authority to ensure that the work was done in conformity with the by-laws. In the present case, on the other hand, if there was a duty on the part of the Council, it was to take reasonable care to be satisfied that the building conformed to the plans and specifications as well as to the ordinances: see s.310 of the Local Government Act.

19. A fifth aspect of the decision concerned the nature of the damages recoverable. It was held that those damages might include damages for personal injury and damages to property as well as damage to the dwelling house itself. The damages recoverable in respect of the dwelling house were held to be represented by "the amount of expenditure necessary to restore the dwelling to a condition in which it is no longer a danger to the health or safety of persons occupying and possibly (depending on the circumstances) expenses arising from necessary displacement": see at p.759.

20. Finally, although Lord Wilberforce does not discuss the question of causation, it seems to be implicit in the judgment that the failure of the Council to take reasonable care to secure compliance with by-laws (on one view, simply by inaction) could be a cause of the damage to the house. Lord Salmon (who, of course, would have limited liability to the case in which the Council made an inspection but did so negligently) touched on the question. He said, at p.769:

"In the present case, however, the loss is

caused not by any reliance placed by the plaintiffs on the council or the building inspector but by the fact that if the inspection had been carefully made, the defects in the foundations would have been rectified before the erection of the building was begun. ... In the present case reliance is not even remotely relevant."

21. The general statement by Lord Wilberforce as to the circumstances in which a duty of care arises has been frequently cited with approval in the United Kingdom, New Zealand, Canada and Australia. However, there is some difference of opinion as to what Lord Wilberforce intended when he said that one first has to ask "whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter". One view is that this passage means that "the relationship of proximity or neighbourhood" exists if the alleged wrongdoer ought reasonably to have foreseen that carelessness on his part might be likely to cause damage to the other. In other words, if it is reasonably foreseeable that carelessness on the defendant's part will cause damage to the plaintiff, the defendant is the plaintiff's neighbour and prima facie owes the plaintiff a duty of care, which may, however, be negatived on grounds of policy in the second stage of the exercise.

22. This view, that Lord Wilberforce meant to "test the sufficiency of proximity simply by the reasonable contemplation of likely harm" has been accepted by Woodhouse J. in Scott Group Ltd. v. McFarlane (1978) 1 NZLR 553, at p 574, by Sir Robert Megarry V.-C. in Ross v. Caunters (1980) 1 Ch 297, at p 310 and by McGarvie J. in his dissenting judgment in Seale v. Perry &Anor. (1982) VR 193, at p 227, and acceptance of it may have been implicit in other judgments. However, it was rejected by Lush J. in a clear and persuasive judgment in Seale v. Perry &Anor., at pp 193-198 and I rejected it in Jaensch v. Coffey (1984) 58 ALJR 426, at pp 427-428; 54 ALR 417, at pp 419-420. It is quite clear that "foreseeability does not of itself, and automatically, lead to a duty of care", as Lord Wilberforce himself said in McLoughlin v. O'Brian (1983) 1 AC 410, at p 420, and in my opinion he did not mean to say, in Anns v. Merton London Borough, that foreseeability alone is sufficient to establish proximity or neighbourhood, and consequently to establish the existence of a duty of care, subject to any considerations which might negative, reduce or limit the duty at the second stage of the inquiry. I rather think that he meant the expression "proximity or neighbourhood" to be a composite one, and to refer to the relationship described by Lord Atkin in Donoghue v. Stevenson (1932) AC 562, at p 580. It has often been said that it is a mistake to treat the words of a judgment as though they have the force of a statutory enactment and it may be that the two different interpretations of the judgment of Lord Wilberforce in Anns v. Merton London Borough will in many cases lead to the same result, the difference being one of emphasis. However, in my respectful opinion the principle was correctly stated by the House of Lords in Peabody Fund v. Sir Lindsay Parkinson Ltd. (1984) 3 WLR 953, at p 960; (1984) 3 All ER 529, at p 534, as follows:

"The true question in each case is whether the particular defendant owed to the particular plaintiff a duty of care having the scope which is contended for, and whether he was in breach of that duty with consequent loss to the plaintiff. A relationship of proximity in Lord Atkin's sense must exist before any duty of care can arise, but the scope of the duty must depend on all the circumstances of the case."

In deciding whether the necessary relationship exists, and the scope of the duty which it creates, it is necessary for the court to examine closely all the circumstances that throw light on the nature of the relationship between the parties. The judgment of Lord Roskill in Junior Books Ltd. v. Veitchi Ltd. (1983) 1 AC 520, at p 546, provides an example of the process. If a relationship of neighbourhood or proximity is found to exist, then it will be necessary to proceed to the second stage of the inquiry. None of this process will be necessary if the facts fall into a category which has already been recognized by the authorities as attracting a duty of care, the scope of which is settled - e.g. no trial judge need inquire for himself whether one motorist on the highway owes a duty to another to avoid causing injury to the person or property of the latter, or what is the scope of that duty.

23. I turn then to the second group of propositions for which Anns v. Merton London Borough is authority. There was no novelty in holding that the ordinary principles of negligence apply to public authorities exercising statutory functions - powers as well as duties. The distinction between the area of policy and the operational area is a logical and convenient one. There is no doubt that a public authority may be liable for the negligent acts of its servants or agents in carrying out their duties, or exercising their powers, within the operational area, although if the performance of their duties or the exercise of their powers involves the exercise of a discretion, an act will not be negligent if it was done in good faith in the exercise of, and within the limits of, the discretion. In accordance with the principles stated in Anns v. Merton London Borough, a local authority has been held liable for damage resulting from negligence in passing building plans submitted for approval (Dennis v. Charnwood Borough Council (1983) QB 409) and from the negligent inspection of the foundations of a building while the work of construction was in progress (Mount Albert Borough Council v. Johnson (1979) 2 NZLR 234; see also Dutton v. Bognor Regis Urban District Council (1972) 1 QB 373, a case decided before Anns v. Merton London Borough). Similarly a council has been held liable for negligently granting a planning permission that was defective (Port Underwood Forests Ltd. v. Marlborough County Council (1982) 1 NZLR 343) and the Housing Corporation of New Zealand has been held liable for negligence in approving a house built by a novel method of construction as one in respect of which a loan could be made (Bruce v. Housing Corporation of New Zealand (1982) 2 NZLR 28). The decision of this Court in Voli v. Inglewood Shire Council (1963) 110 CLR 74 is consistent with, but distinguishable from, this line of decisions, because although it was said, at p.100, that the Council was liable for the failure of its officers, who examined and approved the plans and specifications, to ascertain whether the by-laws had been complied with, the liability of the Council was based on the fact that it owned the building whose collapse injured the plaintiffs.

24. The decision that a public authority carrying out statutory functions may be liable in negligence for taking no action, or for failing to exercise its discretion as to whether it should take action, may appear to go beyond previous authority. In a learned article in 46 Modern Law Review 147, in the course of which Anns v. Merton London Borough is criticized, Professors Smith and Burns go so far as to assert, at p 155, "that nonfeasance is not an exception to Donoghue v. Stevenson, because it does not even fall within the rule". The learned authors go on to say, at pp 155-156:

"All the discussion in the cases is in terms of causing harm through action, with the one exception in Lord Atkin's famous statement of the 'neighbour principle':

'Who, then, in law is my neighbour? The answer seems to be - persons who are so closely and directly affected by my act that 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.' (Emphasis added.)

The 'acts or omissions which are called in question,' however, must be taken to refer to the specific allegations of negligence in the context of the conduct which caused the harm. This would cover omissions such as failing to apply one's brakes while driving, failing to unload a gun which is placed in the vicinity of children or failing adequately to inspect a product that is negligently manufactured and placed on the market. The word 'omissions' in the context of the 'neighbour principle' refers to omissions as part of an action, and not to merely letting something happen."

With all respect, I cannot agree that non-feasance does not come within the rule of Donoghue v. Stevenson. The famous definition of "negligence" given by Alderson B. in Blyth v. The Birmingham Waterworks Company (1856) 11 Ex 781, at p 784 (156 ER 1047, at p 1049) (and followed and developed in Overseas Tankship (U.K.) Ltd. v. Morts Dock &Engineering Co. Ltd. (The Wagon Mound.) (1961) AC 388, at p 426) includes omissions as well as acts. It was in the following terms:

"Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. The defendants might have been liable for negligence, if, unintentionally, they omitted to do that which a reasonable person would have done, or did that which a person taking reasonable precautions would not have done."

25. However, as a general rule, a failure to act is not negligent unless there is a duty to act. The duty may arise because of the conduct of the defendant himself or it may be created by statute. In Sheppard v. Glossop Corporation (1921) 3 KB 132, where a local authority was held not liable for damage resulting from its failure to keep a street lighted, Scrutton L.J. said, at p.145, that "it is not negligent to abstain from doing a thing unless there is some duty to do it". He went on to explain the words of Lord Blackburn in Geddis v. Bann Reservoir Proprietors (1878) 3 App.Cas. 430, at p 456:

"... an action does lie for doing that which the Legislature has authorized, if it be done negligently."

Scrutton L.J. said, at pp.145-146:

"Lord Blackburn's words are addressed to negligence in the direct operation of the powers conferred and undertaken; for instance if the appellants chose to light by electricity and laid defective wires near to the main gas pipes in their district and so caused an explosion, that would be a negligent exercise of their powers; or if they placed a refuge in a crowded street and omitted to light it properly, that might be doing negligently that which the Legislature authorized. But it is going far beyond Lord Blackburn's dictum to say that because, when an option is given by statute to an authority to do or not to do a thing and it elects to do the thing and does it negligently, it is liable, therefore it is liable if it elects not to do the thing, which by the statute it is not bound to do at all."

(See also Burton v. West Suffolk County Council (1960) 2 QB 72 and Gorringe v. The Transport Commission (Tas.) (1950) 80 CLR 357.) Similarly, there is no general duty to warn another who is running into a position of danger (Gautret v. Egerton (1867) LR 2 CP 371, at p 375) or to assist a person who is in peril or distress (Hargrave v. Goldman (1963) 110 C.L.R 40, at p 66; Dorset Yacht Co. v. Home Office, at p 1027), and "the general rule is that one man is under no duty of controlling another man to prevent his doing damage to a third": Smith v. Leurs (1945) 70 CLR 256, at p 262.

26. Anns v. Merton London Borough is not inconsistent with the principle underlying those authorities, if it is understood as holding that the statutory provisions in question conferred on the Borough Council powers which it was intended should be exercised in the interests of public health and safety, and that the Borough Council should therefore be regarded as under a duty to give proper consideration to the question whether it should exercise the powers: see at p.755. The case appears to have been understood in that way in City of Kamloops v. Nielsen (1984) 10 DLR (4th) 641, a decision of the Supreme Court of Canada which provides a rather striking example of liability for inaction. In that case the defendant Council was aware that a house was being constructed on defective foundations and in fact issued a stop work order, which was ignored. As the Council knew, the building was then completed and the building owner entered into occupation without obtaining an occupancy permit. The house was later sold to the plaintiff who knew nothing of its history. It was held, by a majority, that the Council was in breach of its duty to the plaintiff in that it failed to give proper consideration to the question whether it should take legal proceedings or action of some other kind to prevent the completion of the house. One reason why the Council took no action was because one of its aldermen was involved. The decision that the Council was liable was based on the fact that it had made a by-law which imposed on the inspector a duty to enforce its provisions: see at pp.664, 671-672. Wilson J. said, at p.673:

"I do not think the appellant can take any comfort from the distinction between non-feasance and misfeasance where there is a duty to act or, at the very least, to make a conscious decision not to act on policy grounds. In my view, inaction for no reason or inaction for an improper reason cannot be a policy decision taken in the bona fide exercise of discretion. Where the question whether the requisite action should be taken has not even been considered by the public authority, or at least has not been considered in good faith, it seems clear that for that very reason the authority has not acted with reasonable care."

Once it is accepted, as it must be, that the ordinary principles of the law of negligence apply to public authorities, it follows that they are liable for damage caused by a negligent failure to act when they are under a duty to act, or for a negligent failure to consider whether to exercise a power conferred on them with the intention that it should be exercised if and when the public interest requires it.

27. Where a public authority has decided to exercise a power, and has done so negligently, a person who has acted in reliance on what the public authority has done may have no difficulty in proving that the damage which he has suffered has been caused by the negligence. Where the damage has resulted from a negligent failure to act there may be greater difficulty in proving causation. The question was not discussed at any length in Anns v. Merton London Borough and indeed did not directly arise on the preliminary issue in that case. As at present advised, I am disposed to agree that there is a basic difference between causing something and failing to prevent it from happening: see 46 Modern Law Review, at p.154. Thus it has been held that damage resulting from tick infestation was not caused by a negligent failure to eradicate the ticks: Administration of Papua and New Guinea v. Leahy (1961) 105 CLR 6, at pp 10, 12, 21. In City of Kamloops v. Nielsen it was held, at pp 664-666, that the Council's negligence caused the plaintiff's damage, but with the greatest respect I am not sure that the distinction between causing damage and failing to avert it was fully examined. If a building inspector negligently fails to carry out an inspection which, if properly made, would have revealed defects, and the building is completed, it does not seem right to say that the inspector's negligence caused the defects, although had the inspector not been negligent he might have prevented the building from being completed in a defective state. The question of causation was not fully argued in the present case and for reasons which will appear I need not discuss it further.

28. The third of the propositions in Anns v. Merton London Borough to which I have referred was criticized in Peabody Fund v. Sir Lindsay Parkinson Ltd., at p 961 (p.535 of All ER) where it was said that "it is difficult to see how, having regard to the scope of the duty held to exist, a non-resident owner could fall within the ambit of it ...". It was further said, at p.961 (p.535 of All E.R.) that "the reference to 'a negligent building owner, the source of his own loss' to some extent begs the question whether a duty is owed to the owner since negligence on the part of the claimant does not necessarily, since the Law Reform (Contributory Negligence) Act 1945, preclude recovery of damages against a negligent defendant, though it may reduce them". Those difficulties do not exist in the present case where the plaintiffs were both owners and occupiers at the time when the damage occurred.

29. In relation to the fourth aspect of the decision in Anns v. Merton London Borough, I have already pointed out that in the present case the powers of the Council were granted for the purpose of securing compliance with the plans and specifications, as well as with the provisions of the Local Government Act and ordinances, and that any duty extended accordingly.

30. The fifth matter arising out of the judgment in Anns v. Merton London Borough is the question of damages. Lord Wilberforce regarded the damages in that case as damage to physical property rather than as damage for economic loss: see at p 759 and see Junior Books Ltd. v. Veitchi Ltd., at p 542. Before us it was argued that the damages suffered by a person who purchases a house in a defective condition must be purely economic. In the present case, however, the house in fact suffered physical damage. The hidden defect in the foundations caused cracking and bowing to the building and that damage manifested itself only after the plaintiffs had become owners and had gone into occupation. In this respect, the case resembles Dutton v. Bognor Regis Urban District Council, Anns v. Merton London Borough and Batty v. Metropolitan Realisations Ltd. (1978) QB 554, at pp 571-572 and is distinguishable from Junior Books Ltd. v. Veitchi Ltd., where the floor was defective from the very time when the plaintiffs in that case acquired it.

31. I now turn to apply to the present case the principles which I have been discussing. The powers conferred by Div.4 of Pt.XI of the Local Government Act and by Ordinance No.71 were intended to ensure that buildings are properly constructed in the interests of health and safety and, I should think, also in the interest of achieving or maintaining a standard of building appropriate to the municipality or area of the municipality concerned. In those circumstances, although no relevant statutory duty was imposed on the Council, it owed to the plaintiffs, as owners and occupiers of a house erected subject to its approval and under its control, a duty at common law to give proper consideration to the question whether it should exercise its powers, including its powers of inspection. The Council will therefore be liable to the plaintiffs for the damage which they have suffered if that damage is caused by a failure of the Council to perform that duty. However, the duty was not as extensive as that suggested by Hope J.A. - it was not a duty to take reasonable care that the footings were inspected - and it involved a large element of policy or discretion. The Council had no statutory duty to inspect the building at any time before completion, and there was nothing in the relationship between the Council and the building owners, or in the circumstances, that gave rise to a duty to make an inspection. The Council had a discretion as to how and when it should exercise its powers, and it could not be rendered liable for negligence unless it were shown that it had not properly exercised that discretion. The difficulty which faces the respondents in the present case is that attention was not directed to this question at the trial. The evidence shows that the municipality was a large one, with an area of 184 square miles. In each of the years 1968 and 1969 more than 4,000 building applications were made. In 1968 the Council employed seventeen inspectors in its health and building department, of whom ten were employed in the field; in 1969 the number of inspectors in the field was reduced to eight. The evidence does not show, and these figures by themselves do not indicate, whether the number of inspectors was adequate to enable all necessary inspections to be made, and if not whether it was financially practicable to appoint more inspectors. What is more important is that it does not appear that the Council failed to give proper consideration to the question what inspections should be made, either generally or in this case. The Council did of course have a system whose object was to ensure that buildings were constructed in accordance with (inter alia) the approved plans and specifications. It is true that the evidence discloses a weakness in that system - when a notice was received under cl.2(c) of the conditions in the form used in the present case, the inspector sent out to inspect the framework would probably be unaware whether any earlier inspection had been made. It may be surmised that this system might have been improved with little expenditure of money or effort, but the evidence does not establish that this was so. In any case, the evidence does not show that the Council failed to give proper consideration to the question what procedures of inspection should be followed when the system was first introduced, or that it subsequently became aware that the system was defective and failed to give consideration to its improvement. The onus of proving that a public authority is negligent in failing to consider the exercise of a statutory power, when the decision whether or not the power should be exercised is discretionary, is not a light one. Unfortunately for the respondents, they have not discharged it in the present case.

32. The question then is whether the inspection actually made on 3 December 1969 was negligently carried out. If the inspection was of the foundations, there is no doubt that it was negligently made. But there is no evidence that the foundations were inspected. The record simply reads "Frame O.K." and the natural inference is that only the frame was inspected, no doubt on receipt of a notice under cl.2(c). It is not known, and indeed may have been impossible to discover, why no notice was given in accordance with cl.1(b) and whether Mr Pollard gave consideration, on 3 December 1969, to the question whether he should inspect the foundations and, if so, what his reasons were for not doing so. Although he was going about a task which could properly be called "operational", there was in what he had to do an element of discretion. There is no evidence that Mr Pollard acted other than in the bona fide exercise of his discretion in inspecting the frame only, if that is what he did. It is not established either that Mr Pollard inspected the foundations, and did so negligently, or that it was negligent of him to inspect only the frame and not the foundations.

33. For these reasons I am unable to hold that it has been proved that the Council was guilty, either directly or vicariously, of any breach of duty owed to the respondents and do not need to consider whether, if it had been proved that the failure to inspect, or properly to inspect, the foundations had been negligent, it would have been right to hold that such negligence caused, rather than merely failed to avert, the damage later suffered by the respondents.

34. I would allow the appeal.

MASON J. This appeal raises an important question concerning the liability in negligence of a local authority, which has statutory power to make inspections of buildings in the course of erection, for its failure to inspect, or its failure to detect on inspection, defects in the foundations of such buildings. The appeal, brought by the appellant council against a judgment of the New South Wales Court of Appeal, arises out of an action in the District Court of New South Wales brought by the respondents, who are husband and wife, for damages for negligence. The respondents are the registered proprietors for an estate in fee simple of land known as 14 Bridgeview Road, Engadine, near Sydney, which they purchased in January 1975 from the previous owners, Mr R. Sloan and Miss L. Makin, who caused a house to be erected on the land between 1968 and 1970. The respondents saw the house for the first time in December 1974. They did not then discern any defects in the house. It seems that they did not notice that anything was seriously amiss until 20 January 1976 when bad leaks occurred in the house during heavy rain and serious defects began to appear. These defects took the form of cracking in many places and distortion of the beams and other supports under the house. Remedial work was in due course carried out, including remedial work to the footings, which turned out to be quite inadequate and had led to an instability in the structure of the house.

2. The appellant was the local government authority for the area under the Local Government Act 1919 (N.S.W.) ("the Act") and as such was charged with the responsibility of implementing the provisions of the Act and ordinances made thereunder, a matter to be discussed in more detail later. The respondents' claim in negligence begins with the appellant's approval on 17 September 1968 of certain plans and specifications for the erection of the house submitted on behalf of Mr Sloan and Miss Makin by a building company. The respondents' case was that the appellant was negligent in two respects: (1) in approving plans for the erection of the house, the foundations of which were inadequate and unstable and did not comply with the Act and ordinances; and (2) in failing to ensure that the foundations were inspected properly or at all.

3. Robson D.C.J., by whom the action was tried, found that the appellant was not negligent in approving the plans and this finding was not challenged on appeal. However, his Honour found on the balance of probabilities that an officer of the appellant had inspected the site after the foundation trenches were open and before the foundations were laid and that the appellant was negligent in the manner in which this inspection was carried out. He held that it was liable in damages for this negligence to the respondents and entered judgment in their favour in the sum of $5,625.75 damages and interest amounting to $2,297.18, making a total of $7,922.93.

4. His Honour's finding that there had been an inspection after the trenches were open and before the foundations were laid seems to have been based on the conditions contained in the building approval, the practice of the appellant in making inspections and the failure of the appellant to call a witness, Mr Pollard, who, although no longer employed by it, had been employed as a building inspector at the relevant time and would have been able to give relevant evidence. The Court of Appeal concluded that on the evidence a finding that an inspection had been carried out at that time was not justified. Hope and Reynolds JJ.A. found that the only inspection which was made by the appellant was made on 3 December 1969 after the framework of the house was constructed. This finding was based on the existence of a card kept as a record by the appellant, which established that an inspection was carried out by a building inspector on 3 December 1969 at which time the framework of the house had been constructed. Their Honours concluded that on the evidence an inference could be drawn that no other inspection was carried out by the appellant. However, their Honours held that the appellant had been negligent in inspecting or failing to inspect the footings on 3 December 1969. In the result the Court of Appeal affirmed the judgment of the primary judge.

5. It is convenient at this point to recount some of the material facts, as stated by Hope J.A., so that the conclusion reached by the Court of Appeal may be appreciated. The application to the appellant for building approval was accompanied by plans showing brick pier and pipe supports for a large part of the floor area. At its front the building stood at or near ground level, but the land ran down very sharply to the rear so that the floor level at the back of the house was very high above the ground. The accompanying specifications stated under the heading "EXCAVATOR - TRENCHES":

"Excavate for all footings for walls, piers, etc., to a minimum depth of 9 in. or to a depth necessary to secure solid bottoms and even bearing throughout, bottoms to be level and stepped as necessary."

Later under the heading "BRICKLAYER - FOOTINGS", it was stated:-

"All brick walls and piers are to be on footings as described below. Footings are to be on level foundations and be stepped and lapped as required. Footings are to be two courses of 9 in. work under walls 4! in. thick, up to 5 ft. high; add one course of 14 in. work where height of wall exceeds 5 ft."

The specifications also contained other provisions as to footings which were applicable in special circumstances. The plans showed the existence of piers and pipe supports, but no details were shown as to what was required in respect of their footings.

6. Much of the land that sloped down to the rear and over which the house was to be built contained floating rocks and was made up of rubble or other filling, although at places there was "parent" rock which would provide a solid basis for the piers or other foundations. The evidence established, as would be quite obvious, that the combination of the need for piers and pipes to support the building where the land dropped away, and the instability or other unsatisfactory nature of much of the ground on which those supports would have to stand, necessitated care being taken with the footings for the supports, and would give any person with building knowledge or skills a warning that the building might be at risk if the footings were not adequately supported.

7. The building approval was set out in a printed form. So far as it is relevant it provided:

"Approval has been given by the Council of the Shire of Sutherland to the erection of the building(s) described in the attached plans and specifications and numbered as above subject to observance of the provisions of Part XI of the Local Government Act, 1919, as amended, and the ordinances made thereunder, and also subject to the following conditions:-

1. Forty-eight hours' notice in writing shall be given to the Council prior to the following works being carried out:-

(a) Commencement of the building.

(b) When foundation trenches are open and before foundations are laid.

(c) When steels are in place and before concrete is poured (foundations, lintels beams, floors).

(d) When drain lines are laid and before covering in.

2. Notice in writing shall be given within 24 hours of completion of the following works:-

(a) When foundation walls and piers are complete (fibro and weatherboard).

(b) When in brick buildings walls are up to dampcourse and then up to square.

(c) When (in fibro and weatherboard) frame work is completed.

(d) When building is completed, but before occupation.

.....

4. .....

(c) The Council prohibits occupation without its permission of any building within the Shire until it has been completed in accordance with the approved plans and specifications and the building has been inspected and passed following Notice as required under Clause 2(d) of this Permit.

The above conditions are imposed by the

Council to ensure that the whole of the work is in accordance with the approved plans and specifications, the building ordinances and Council's and Water Board requirements."

Further conditions were stamped on the annexed plans. One such condition was expressed as follows:

"This plan is approved subject to a surveyor's certificate being produced when the foundations have been laid and walls commenced."

8. In a letter from the appellant to Mr Sloan and Miss Makin dated 17 September 1968 which evidently accompanied the plans, it was stated that two additional conditions had been imposed of which the second was:

"2. Submission to Council of check survey when brick footings have commenced."

9. The card to which reference has already been made was the only record held by the appellant in respect of the construction of the building or of any inspection relating to it. The card referred to the premises, the serial number of the building approval and contained an endorsement:-

"Frame O.K. 3.12.69. F.W.P."

The initials are those of Mr Pollard who was then employed by the appellant. It seems that it was the appellant's practice to give a builder cards of this type so that he could send a card to the appellant when an inspection could be conveniently carried out and that it was only on receipt of such a card that an inspection would be carried out.

10. There is no direct evidence that the appellant carried out any inspection when the house was completed or before its occupation. The respondents did not apply for or obtain any certificate in respect of it under the provisions of s.317A of the Act, and there is no record that the previous owners applied for or obtained a certificate under that section.

11. The Court of Appeal inferred that the inspection on 3 December 1969 was carried out following notice by the builder that the framework had been completed, but rejected the submission that the only purpose of that inspection was to examine the framework. Hope J.A. observed that it was not known whether the officer who made the inspection did anything to check the foundations. In response to the submission that there was no practicable check that could have been made by the officer since the piers and pillars had already been erected, as well as other parts of the building, and the base for the footings of the piers and the pillars would have been covered by soil, his Honour considered that despite the lapse of time and the changes that may have occurred in the surrounding surface between December 1969 and the time when the respondents and their advisers were able to carry out tests, it was apparent from the evidence that it would have been practicable in December 1969 by removing part of the soil or by other means, to see how the footings were supported. He observed that such a test would not have involved any major work. And he then went on to hold that on the assumption that the officer of the appellant assumed the duty of inspecting the footings he must have failed to exercise reasonable care to see that they were properly supported if he failed to discover the inadequacy of that support. He pointed out that if on the other hand the appellant, having been notified that the building was constructed up to the framework stage, knowing that no earlier inspection had been carried out, failed to have any inspection of the footings and their support carried out, it failed to exercise reasonable care to ensure that the footings had been laid or constructed to its satisfaction in accordance with the approved plans and specifications.

12. His Honour pointed out that the appellant had express power under the Act to impose conditions on any approval and those conditions might relate to the stability of the building. The conditions actually imposed in the instant case made provision for the giving of the notice to the appellant at various stages of construction. The purpose of the conditions was to ensure that the whole of the work was carried out in accordance with the approved plans and specifications. He regarded the conditions as having been validly imposed because s.310 of the Act requires every building to be erected to the satisfaction of the council in accordance with both the Act and the ordinances and with the approved plans and specifications, the council having a duty to ensure that it is so satisfied.

13. Having found that the appellant had failed to take reasonable care in one or other of the two respects already mentioned, Hope J.A. considered that the appellant was liable in negligence in accordance with the principles enunciated by Lord Wilberforce in Anns v. Merton London Borough Council (1978) AC 728. Reynolds J.A, who delivered a separate judgment, adopted a similar approach to that taken by Hope J.A. Mahoney J.A. agreed with the orders proposed by the other members of the court but neglected to give any reasons for so doing.

14. At the trial the respondents' case, so far as it related to inspection, was that the appellant was liable either because it failed to inspect the footings before the trenches were closed or because it negligently inspected them. Negligent inspection of the footings, or negligent omission to inspect the footings, at the stage when the framework of the house had been erected, which was the basis of the Court of Appeal's finding of negligence, was not a matter put forward by the respondents at first instance. However, on appeal, the respondents were entitled to sustain the judgment which they had obtained on another ground, even a ground not argued at the trial, so long as there was no possibility that the ground might have been answered by evidence not actually called. It was not suggested that the appellant is in a position to call additional evidence on the issue found against it by the Court of Appeal. The result is that the issue, once raised before that Court, had to be determined on the evidence. The appellant submits that the determination was erroneous. But, if it be accepted, as I consider it should be, that the practice of the appellant was to inspect only upon submission by the builder of a card and that there was no record in the appellant's files of an inspection before 3 December 1969, the officer who made the inspection of the framework on that day knew or ought to have known that the footings had not been inspected previously.

15. The principal relevant provision in Pt XI of the Act dealing with "BUILDING REGULATION" is s.305(1) which confers general power on the council of a municipality to "control and regulate the erection of buildings in the municipality". A building may not be erected or used in contravention of provisions made by or under the Act (s.306(1)). Division 4 of Pt XI contains a series of provisions amounting to an entire scheme of regulation which is designed to ensure that buildings will be erected in accordance with the Act, the ordinances and the applications, plans and specifications approved by the council. Section 310 provides:

"Subject to the provisions of this Act and of any ordinance every building hereafter erected in the area shall be erected to the satisfaction of the council-

(a) in conformity with this Act and the ordinances; and

(b) in conformity with the application, plans, and specifications in respect of which the council has given its approval for the erection of the building."

A building may not be erected without the prior approval of the council (s.311) and an application for approval must be made in the prescribed form and be accompanied by the plans and specifications (s.312(1)). The council is required to take into consideration in dealing with an application for approval of the erection of a building the long list of matters specified in s.313 which relate, amongst other things, to the safety of the building and its suitability for human habitation - see especially pars.(a), (b), (d), (l) and (m). The council may approve, approve subject to conditions, or disapprove the application, subject to the proviso that the council shall not approve unless it is satisfied that a building erected in accordance with the application, plans and specifications as approved would be in accordance with the provisions of the Act and the ordinances (s.314(1)). The council is given power to prohibit the use or occupation, without its permission, of any building until it has been completed in accordance with the approved plans and specifications (s.316(1)). And the council is required, on application, to issue a certificate to the effect that in the opinion of the council a building in all respects complies with the Act, the ordinances and the plans and specifications approved by the council or stating that any contravention of the Act or ordinance or any departure from the approved plans and specifications is not such as need to be rectified (s.317A). The production of the certificate is for all purposes deemed conclusive evidence in favour of a bona fide purchaser for value that at the date of the certificate the building complied with the requirements of the Act and ordinances (s.317A(4)).

16. With the exception of cl.83 of Ordinance No. 71, neither the provisions of the Act nor those of the ordinances explicitly impose an obligation, or confer power, on a council to make inspections of buildings in course of erection. Clause 83 requires the Clerk to instruct "the proper servant" of the council to make an inspection of a building upon receipt of notice in writing by the person by or in consequence of whose order the building has been erected, there being a requirement to give such notice before any person uses or occupies the uncompleted building and forthwith upon completion of any unoccupied building. The servant so instructed must inspect and report to the council whether or not the building has been erected in accordance with the ordinance and without material deviation from the approved plans and specifications. The evidence did not establish that an inspection was made pursuant to cl.83 or that the circumstances were such as to oblige the appellant to make an inspection under the clause.

17. Independently of cl.83, the effect of the general scheme of regulation contained in Pt XI and the ordinances is to impose on a council a duty to satisfy itself that a building is erected in conformity with the Act and the ordinances (O'Carroll v. Potter (1928) 29 SR(NSW) 393, at p 398), and this necessarily extends to the matters mentioned in par.(b) of s.310. The words "to the satisfaction of the Council" in s.310 indicate that it is for the council in the exercise of its discretion to determine what steps it will take in order to satisfy itself that the relevant requirements have been complied with in relation to the erection of the building. But it is difficult to understand how a council could discharge its responsibility without making inspections. Indeed, the evidence demonstrates that the appellant adopted the practice of making inspections of buildings in course of erection according to a procedure the object of which was to ensure, though it may not have been achieved in this case, that the foundations were checked. We should proceed therefore on the footing that the making of an inspection or inspections of a building in course of erection was a necessary element in the performance by a council of its duty to satisfy itself of the matters already mentioned.

18. As the evidence does not support a finding that the footings were inspected and merely supports the finding that the appellant was careless either in failing to inspect or in inspecting, the respondents must establish that the appellant was liable in negligence whether it inspected or failed to inspect. The critical question then is whether the appellant is liable on either basis. The answer depends on the general principles of the common law regulating the liability of a public authority in negligence in respect of its act or omission in the course of performing its statutory responsibilities. The application of the law of negligence, itself in course of evolutionary development, to public authorities has presented special problems. These problems are referable mainly to the character of a public authority as a body entrusted by statute with functions to be performed in the public interest or for public purposes. Some adjustment therefore needs to be made to accommodate the application of the principles and concepts of negligence to the acts and omissions of such a body. In what circumstances, if at all, does a public authority come under a common law duty of care in relation to the performance or non-performance of its functions? Can a cause of action for breach of a common law duty of care co-exist with a cause of action for breach of statutory duty? In what circumstances, if at all, is a public authority liable in negligence for loss or damage suffered by another through the fault of a third party, when the authority fails to perform a statutory function which has as its object the prevention or mitigation of loss or damage of that kind? To what extent are these questions affected by the circumstance that a public authority exercises policy-making and discretionary functions? These are the major issues of principle which lie behind the present appeal.

19. The myriad of decided cases do not furnish clear and unqualified answers to these issues. This is partly because the decided cases on some occasions distinguish unnecessarily between a statutory power and a statutory duty and on other occasions distinguish insufficiently between a common law duty of care and a statutory duty. And it is partly because the unsatisfactory dichotomy between misfeasance and non-feasance has had a significant influence in this branch of the law of negligence. It is not surprising that this has been so - the duties imposed by statute on public authorities are generally positive or affirmative duties. When a duty of care arises in relation to a statutory duty or power having as its object the prevention of danger or the avoidance or minimization of loss or damage to the public, a section of the public or a class of individuals, linking breach of that duty of care to an individual's loss or damage inevitably raises questions of causation.

20. Except in so far as a statute creates a civil cause of action for breach of duty, the distinction between a statutory power and a statutory duty, generally speaking, has limited relevance to civil liability arising out of performance or non-performance of statutory functions. When a statute sets up a public authority, the statute prescribes its functions so as to arm it with appropriate powers for the attainment of certain objects in the public interest. The authority is thereby given a capacity which it would otherwise lack, rather than a legal immunity in relation to what it does, though a grant of power may have this effect when the infliction of damage on others is the inevitable result of its exercise. In framing such a statute it is inconvenient to describe the intended activities of the authority in terms of a series of positive duties. It is preferable to express those activities as functions or powers so that the authority is free to make policy-making decisions and discretionary judgments with a view to attaining the statutory objects. Decisions and judgments of this kind will be involved as a preliminary to exercising, or declining to exercise, a power and, subsequently, in determining how it is to be exercised. Viewed in this light statutory powers are not in general mere powers which the authority has an option to exercise or not according to its unfettered choice. They are powers conferred for the purpose of attaining the statutory objects, sometimes generating a public expectation having regard to the purpose for which they are granted that they will be exercised. There is, accordingly, no reason why a public authority should not be subject to a common law duty of care in appropriate circumstances in relation to performing, or failing to perform, its functions, except in so far as its policy-making and, perhaps, its discretionary decisions are concerned. And, despite possible indications to the contrary in Anns (at pp.755, 757-758, 760), there is no compelling reason for confining such a duty of care to situations in which a public authority or its officers are acting in excess of power or authority.

21. It is now well settled that a public authority may be subject to a common law duty of care when it exercises a statutory power or performs a statutory duty. The principle 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 (Caledonian Collieries Ltd. v. Speirs (1957) 97 CLR 202, at pp 219-220; Benning v. Wong (1969) 122 CLR 249, at pp 307-308) has been applied mainly to private Acts. However, it has been frequently applied in Australia to public authorities, notably public utilities, exercising powers under public statutes (Sermon v. The Commissioner of Railways (1907) 5 CLR 239, at pp 245, 254; Essendon Corporation v. McSweeney (1914) 17 CLR 524, at p 530; Metropolitan Gas Co. v. Melbourne Corporation (1924) 35 CLR 186, at pp 193-194, 197; South Australian Railways Commissioner v. Barnes (1927) 40 CLR 179; Cox Bros. (Australia) Ltd. v. Commissioner of Waterworks (1933) 50 CLR 108; The South Australian Railways Commissioner v. Riggs (1951) 84 CLR 586, at pp 589-590; Voli v. Inglewood Shire Council (1963) 110 CLR 74, at pp 88, 89, 100; Birch v. Central West County District Council (1969) 119 CLR 652). While some early statements of the principle suggest that the power given by statute is conditioned upon it being exercised without negligence so that negligent exercise amounts to an excess of authority (McSweeney, at p.530; Metropolitan Gas Co., at p.197), the better view has always been that the cause of action in negligence arises under the principle by virtue of a breach of a duty of care existing at common law (Geddis v. Proprietors of Bann Reservoir (1878) 3 App Cas 430, at pp 455-456; London and Brighton Railway Co. v. Truman (1885) 11 App Cas 45, at p 61; Fullarton v. North Melbourne Electric Tramway and Lighting Co. Ltd. (1916) 21 CLR 181, at pp 199-200; East Suffolk Rivers Catchment Board v. Kent (1941) AC 74, at pp 88-89; Riggs, at pp 589-590). And, at least since the decision in Fisher v. Ruislip-Northwood Urban District Council and Middlesex County Council (1945) KB 584, esp. at pp 592-593, 615, 619-620, it has been generally accepted that, unless the statute manifests a contrary intention, a public authority which enters upon an exercise of statutory power may place itself in a relationship to members of the public which imports a common law duty to take care.

6. In the present case, the Council's active connection with the erection of the house was limited to the exercise of some of its statutory powers and functions with respect to buildings within its local government area. Those statutory powers and functions and their partial exercise provide the context and the essential content of the only relevant relationship between the Council and the respondents with respect to the house. They are to be found in the provisions of the Local Government Act 1919 (N.S.W.) ("the Act") and of the Ordinances made thereunder which were in force at the time when the plans of the house were approved (subject to conditions) by the Council and when the building was erected. They forbade the erection or alteration of a building without the prior approval of the local council (Act, s.311). They provided that applications to a local council for approval must be in the prescribed form (s.312). They specified the matters which a local council should take into consideration in dealing with such applications (s.313). They required that a local council consider each application and the plans and specifications accompanying it and, subject to the provisions of the Act, approve, approve subject to conditions or disapprove the application (s.314). Among the matters which were required to be taken into consideration were the stability of the proposed building and whether subsidence of the site was likely (s.313(1)(b) and (m)). The doing of any work in connection with the erection of a building otherwise than in conformity with the approval was made an offence (s.317) as was a failure to comply with the provisions of Ordinance 71 which was the then Building Ordinance (see Ord.71, cll.83(f) and 84). Section 310 of the Act provided that, subject to the provisions of the Act and Ordinances, every building "hereafter erected in the area" shall, to the satisfaction of the Council, be erected in conformity with the Act, the Ordinances and with the application, plans and specifications in respect of which the Council gave its approval for the erection of the building. Clause 83 of Ordinance 71 required that "the person by or in consequence of whose order the building is being erected" give notice in writing to the local council "forthwith upon completion" and that "forthwith" upon the receipt of such notice there be an inspection by "the proper servant" of the Council who "shall inspect and report to the Council whether or not the building has been erected in accordance with this Ordinance and without material deviation from the approved plans and specifications". In some cases, such as where it appears that reliance was in fact placed by a plaintiff upon the content of such a report, the provisions of cl.83 may assume particular importance. They are of but background relevance in the present case however since the evidence indicates that no such report was made for the reason that neither the then owners nor the builder gave the requisite notice of completion to the Council and there is no suggestion in the evidence that the respondents adverted to, let alone relied upon, any assumption that such a report would have been made to the Council.

7. At relevant times, the Council has exercised and discharged the above statutory powers and functions generally in relation to buildings in its area. As has been said, it exercised and discharged some of them in relation to the house involved in the present case: the plans and specifications of the particular house were approved by the Council and there was subsequently an inspection, by a Council building inspector, of the house in course of erection when the building inspector failed to observe either that the foundations of the building being erected were inadequate and unsafe or that there was considerable discrepancy between the foundations of what was being built and the foundations indicated in the approved plans. There is not to be discerned in the statutory provisions conferring and defining the Council's powers and functions any legislative intention that the Council should enjoy immunity from liability under the ordinary principles of the common law of negligence. Nor is it suggested that those provisions imposed upon the Council any special statutory duty or liability to the respondents, enforceable by action for damages, independently of those ordinary principles. If the distinction between rights under public law and rights under private law, which is well recognized in civil law systems, be relevant (cf. Harlow, "'Public' and 'Private' Law: Definition Without Distinction", Modern Law Review, vol. 43 (1980), 241; Samuel, "Public and Private Law: A Private Lawyer's Response", Modern Law Review, vol. 46 (1983), 558), the respondents' claim is propounded as an ordinary action in negligence for the alleged breach of their private law rights. The existence of liability on the part of a public governmental body to private individuals under those principles will commonly, as a matter of assumed legislative intent, be precluded in cases where what is involved are actions taken in the exercise of policy-making powers and functions of a quasi-legislative character (see, generally, Welbridge Holdings Ltd. v. Metropolitan Corporation of Greater Winnipeg (1970) 22 DLR (3d) 470, at pp 476ff.; Anns v. Merton London Borough Council (1978) AC 728, at pp 754ff.; Takaro Properties Ltd. v. Rowling (1978) 2 NZLR 314, at pp 325ff. and 333ff.). No such legislative intent can be assumed however in a case, such as the present, where the relevant powers and functions are of a routine administrative or "operational" nature. In such a case, the mere fact that a public body or instrumentality is exercising statutory powers and functions does not mean that it enjoys immunity from liability to private individuals under the ordinary law beyond the extent that there can be actually discerned in the relevant legislation an express or implied intent that the private rights of individuals be displaced or subordinated. Nor does it mean that the existence of the statutory powers and functions, the assumption of responsibility which may be involved in their exercise, or any reliance which may be placed upon a presumption that they have been or are being properly exercised is to be ignored or discounted in determining whether there existed in the relationship between public body or instrumentality and private citizen a degree of proximity which was adequate to give rise to a duty of care under the principles of common law negligence.

8. At the outset, one must distinguish between a positive act or misfeasance and an omission or nonfeasance and between physical damage and mere or pure economic loss. In the absence of some contrary express or implied statutory mandate or special common law right, there will ordinarily be little difficulty in discerning that a defendant, whether public instrumentality or private person, was under a duty to take reasonable care to avoid causing ordinary physical injury to the person or property of a plaintiff by the direct impact of its, his or her positive action. In such cases, as pointed out previously, the reasonable foreseeability of such damage being caused will ordinarily suffice to establish the requisite proximity of relationship and there will also ordinarily be no difficulty in the operation of the rule that a cause of action will arise when the physical damage is sustained. The position is different in cases where the alleged negligence is constituted by a mere failure either to act or to prevent another from acting or where the alleged loss or damage is pure economic loss.

9. There is much to be said for the view that Lord Atkin's inclusion of "omissions" in his formulation of the requirement of proximity in Donoghue v. Stevenson (at p 580) was intended to be read as referring not to mere failure to act to prevent injury to another but to an omission in the course of positive conduct, such as a failure to apply the brakes of a motor vehicle while driving it on a public road or a failure adequately to inspect a product in the course of manufacturing it for sale on the open market, which results in the overall course of conduct being the cause of injury or damage (see Professor J.C. Smith and Professor Peter Burns, "Donoghue v. Stevenson - The Not so Golden Anniversary", Modern Law Review, vol.46 (1983), 147, at pp 155-156). Be that as it may however, the clear trend of authority has been to accept the principles of common law negligence enunciated in cases such as Donoghue v. Stevenson as being of general application (see, generally, the more recent cases cited by Professor Smillie in "Principle, Policy and Negligence", New Zealand Universities Law Review, vol.11 (1984), 111 and, in this Court, Jaensch v. Coffey; Hackshaw v. Shaw (1984) 59 ALJR 156, 56 ALR 417; Papantonakis v. Australian Telecommunications Commission (1985) 59 ALJR 201, 57 ALR 1). In my view, that trend should continue to be accepted in this Court and those principles should be recognized as governing liability in negligence for omissions as well as for acts of commission. That does not mean that the distinction between mere omission and positive act can be ignored in identifying the considerations by reference to which the existence of a relationship of proximity must be determined in a particular category of case. To the contrary, the distinction between a failure to act and positive action remains a fundamental one. The common law imposes no prima facie general duty to rescue, safeguard or warn another from or of reasonably foreseeable loss or injury or to take reasonable care to ensure that another does not sustain such loss or injury (cf. per Windeyer J., Hargrave v. Goldman (1963) 110 CLR 40, at p 66). That being so, reasonable foreseeability of a likelihood that such loss or injury will be sustained in the absence of any positive action to avoid it does not of itself suffice to establish such proximity of relationship as will give rise to a prima facie duty on one party to take reasonable care to secure avoidance of a reasonably foreseeable but independently created risk of injury to the other. The categories of case in which such proximity of relationship will be found to exist are properly to be seen as special or "exceptional" (cf. per Dixon J., Smith v. Leurs (1945) 70 CLR 256, at p 262 and Dorset Yacht Co. Ltd. v. Home Office, at pp 1038-1039, 1045-1046, 1055 and 1060ff.). Apart from those cases where the circumstances disclose an assumption of a particular obligation to take such action or of a particular relationship in which such an obligation is implicit, they are largely confined to cases involving reliance by one party upon care being taken by the other in the discharge or performance of statutory powers, duties or functions or of powers, duties or functions arising from or involved in the holding of an office or the possession or occupation of property.

10. In accordance with the clear trend of recent authority, the general principles of the common law of negligence should also be recognized as extending to cases involving mere economic loss, that is to say, economic loss which is not consequential upon ordinary physical injury to one's person or property. Again, however, the distinction between mere economic loss and ordinary physical loss or injury remains important in determining whether the requisite proximity of relationship exists in a particular case or category of case. The field of liability for pure economic loss is a comparatively new and developing area of the law of negligence. Again, the reasonable foreseeability of a real risk of such loss does not of itself suffice to give rise to a prima facie duty to take reasonable care to avoid it (see, e.g., The Dredge "Willemstad", at pp.549ff., 572ff. and 590ff.). That being so, the circumstances in which the relationship between the parties will be such as to impose a duty to take care to avoid pure economic loss are also properly to be seen as special. Indeed, in a competitive society, the infliction of pure economic loss upon another will commonly be a concomitant of the successful pursuit of personal advantage by way of lawful conduct in that there can be discerned, in many commercial and financial transactions, a correlation between the attainment of personal gain for one's self and the sustainment of economic loss by another.

11. In the present case, the respondents do not now argue that the operative cause of their loss or damage was some positive act on the part of the Council. The positive actions involved in the erection of the house with inadequate foundations were those of the builder. The Council gave its approval to the plans and specifications of the house but those plans and specifications (in the context of the conditions of approval) disclosed no deficiency in the foundations and it has not been argued in this Court that the Council was in breach of any duty in that regard. The Council had received no notice of completion of the house and had not given its permission to the commencement of its use or occupation. No certificate that the building complied with the requirements of the Act, the Ordinances, and any approved plans and specifications was sought by the then owners or, subsequently, by the respondents or was furnished by the Council. It is true that the respondents complain both that the Council's inspector negligently conducted the inspection which was carried out and that the Council's system of inspecting buildings in the course of erection was negligently inadequate. Upon analysis however, the respondents' claim against the Council is essentially about what it failed or omitted to do in that the act or omission of the Council which they must identify as an operative cause of their loss is the failure or omission, by reason of careless inspection or inadequate system, to secure that the house was not erected with unsafe foundations. The fact that a third party is careless in not observing negligent conduct by another may mean that a failure or omission to protect, warn or rescue the person put at risk by that negligent conduct is itself careless. It does not alter the fact that the relevant operative act or omission is the failure or omission to protect, warn or rescue and not the mere failure to observe which will be relevantly operative only to the extent that it is reflected in the failure or omission to protect, warn or rescue.

12. Nor is the respondents' claim in the present case for ordinary physical damage to themselves or their property. Their claim, as now crystallized, is not in respect of damage to the fabric of the house or to other property caused by collapse or subsidence of the house as a result of the inadequate foundations. It is for the loss or damage represented by the actual inadequacy of the foundations, that is to say, it is for the cost of remedying a structural defect in their property which already existed at the time when they acquired it. In Anns v. Merton London Borough Council, it was held by the House of Lords that a local government authority owed a relevant duty of care, in respect of inspection of the foundations of a building, to persons who subsequently became long term lessees (either as original lessees or as assignees) of parts of the building. Lord Wilberforce, in a speech with which three of the other four members of the House of Lords agreed, expressed (at p.759) the conclusion that the appropriate classification of damage sustained by the lessees by reason of the inadequacy of the foundations of the completed building was "material, physical damage, and what is recoverable is the amount of expenditure necessary to restore the dwelling to a condition in which it is no longer a danger to the health or safety of persons occupying and possibly (depending on the circumstances) expenses arising from necessary displacement". While, in a case where a subsequent purchaser or long term tenant reasonably elects to retain the premises and to reinforce the foundations, one possible measure of the damages involved in the actual inadequacy would (if such damages were recoverable) be that suggested by his Lordship, I respectfully disagree with the classification of the loss sustained in such circumstances as "material, physical damage". Whatever may be the position with respect to consequential damage to the fabric of the building or to other property caused by subsequent collapse or subsidence, the loss or injury involved in the actual inadequacy of the foundations cannot, in the case of a person who purchased or leased the property after the inadequacy existed but before it was known or manifest, properly be seen as ordinary physical or material damage. The only property which could be said to have been damaged in such a case is the building. The building itself could not be said to have been subjected to "material, physical damage" by reason merely of the inadequacy of its foundations since the building never existed otherwise than with its foundations in that state. Moreover, even if the inadequacy of the foundations could be seen as material, physical damage to the building, it would be damage to property in which a future purchaser or tenant had no interest at all at the time when it occurred. Loss or injury could only be sustained by such a purchaser or tenant on or after the acquisition of the freehold or leasehold estate without knowledge of the faulty foundations. It is arguable that any such loss or injury should be seen as being sustained at the time of acquisition when, because of ignorance of the inadequacy of the foundations, a higher price is paid (or a higher rent is agreed to be paid) than is warranted by the intrinsic worth of the freehold or leasehold estate that is being acquired. Militating against that approach is the consideration that, for so long as the inadequacy of the foundations is neither known nor manifest, no identifiable loss has come home: if the purchaser or tenant sells the freehold or leasehold estate within that time, he or she will sustain no loss by reason of the inadequacy of the foundations. The alternative, and in my view preferable, approach is that any loss or injury involved in the actual inadequacy of the foundations is sustained only at the time when that inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs. On either approach however, any loss involved in the actual inadequacy of the foundations by a person who acquires an interest in the premises after the building has been completed is merely economic in its nature.

13. In the courts below, the learned trial judge and the members of the Court of Appeal understandably relied upon Anns as a basis of their conclusion that the Council was liable to the respondents under the ordinary principles of common law negligence. Indeed, in the subsequent case of Minister Administering the Environmental Planning and Assessment Act 1979 v. San Sebastian Pty. Ltd. (1983) 2 NSWLR 268, at p 332, Mahoney J.A, having indicated his awareness of difficulties posed by Lord Wilberforce's judgment, expressed the view that the Court of Appeal's decision in the present case was "based on the fact that the legislation in question was not distinguishable in principle from that in Anns" which it was the Court of Appeal's "duty ... to follow". In this Court however, it is necessary that the reasoning in Anns be more closely and critically scrutinized. For my part, the result of such scrutiny is that I derive little assistance from that case in the resolution of the present appeal. The main reason is that it appears to me that Lord Wilberforce used the terms "proximity" and "neighbourhood" in Anns with a different connotation from that which is, in my respectful view, appropriate to their use as a touchstone of the existence of a prima facie duty of care in a case in which the alleged negligence lies in an omission or failure to act or in which the alleged damage is mere economic loss. The point would probably be unimportant if all that was involved was a bare question of abstract principle since the wider notion of proximity that had and has, in my view correctly, been recognized and applied in previous and subsequent cases (see, e.g., Hedley Byrne, at pp.524-525, 529-532; Peabody Fund v. Parkinson, (1984) 3 WLR, at pp 959-960, (1984) 3 All ER, at pp 533-534) could be accepted as overlaying Lord Wilberforce's exposition of principle. The point cannot be so readily disposed of in the present case however since it appears to me that it was only by reference to his narrower (in the sense explained below) notion of proximity in Anns that Lord Wilberforce could properly discern the existence of a relevant prima facie duty of care.

14. In the oft-cited passage of his judgment in Anns (at pp.751-752), Lord Wilberforce expressed the view that the question whether a duty of care arises in a particular situation must be approached in two stages. The first stage is that one must ask whether, as between the alleged wrongdoer and the person who has suffered damage, there is "a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter - in which case a prima facie duty of care arises". The second stage is that one must ask whether "there are any considerations which ought to negative, or to reduce or limit the scope of (any such prima facie) duty or the class of person to whom it is owed or the damages to which a breach of it may give rise".

15. Lord Wilberforce's use of the terms "proximity" and "neighbourhood" must be distinguished from the notion of proximity of relationship which was developed in Donoghue v. Stevenson. Notwithstanding an element of uncertainty introduced by the use of the words "reasonable contemplation", it would seem, from an overall reading of his judgment and from the description and the examples given of the second stage, that the first stage test of "a sufficient relationship of proximity or neighbourhood" is to be understood as effectively connoting no more than the circumstance that there is reasonable foreseeability of injury to another. That view of the first stage is supported by his Lordship's subsequent reference, in McLoughlin v. O'Brian (1983) 1 AC 410, at p 420, to the examples which he gives in his judgment in Anns (at p 752) in explaining the second stage as "examples" of circumstances where "foreseeability does not of itself, and automatically, lead to a duty of care". In other words, the thesis of the first stage is that there is a prima facie duty of care whenever, in the reasonable contemplation of a person in the sense of what can be reasonably viewed or foreseen, carelessness on his or her part may be likely to cause damage to another: "he would test the sufficiency of proximity simply by the reasonable contemplation of likely harm" (per Woodhouse J., Scott Group Ltd. v. McFarlane (1978) 1 NZLR 553, at p 574 and see the cases cited by Professor Smillie, supra, at p 132,n.2). In contrast, Lord Atkin's notion of a relationship of neighbourhood or proximity was formulated as a separate and general limitation upon the test of reasonable foreseeability (see, generally, Jaensch, 58 A.L.J.R., at pp.439ff., 54 A.L.R., at pp.439ff.). It designated a broad and flexible requirement of nearness or closeness in the relationship between plaintiff and defendant which must be satisfied before a relevant duty of care to avoid reasonably foreseeable damage to the plaintiff will have arisen. It should be mentioned that, in McLoughlin v. O'Brian (at p 420), Lord Wilberforce himself moved away from what appears to me to have been his position in Anns by referring, with apparent approval, to Lord Atkin's judgment in Donoghue v. Stevenson as saying "that foreseeability must be accompanied and limited by the law's judgment as to persons who ought, according to its standards of value or justice, to have been in contemplation".

16. The approach in Anns may be a convenient one in cases involving ordinary physical injury to a plaintiff or his or her property as a consequence of the direct impact of a positive act of the defendant. It may be that Lord Wilberforce saw Anns as such a case though his references to the "primary fault" of the builder (at p.758) and to the Council's duty being "a duty to take reasonable care to secure compliance with the bye-laws" (at p.759; underlining added) must raise doubt that that was so. In such cases, it is likely to be settled that, if the risk of injury was reasonably foreseeable, any proximity requirement is satisfied (see Jaensch, 58 A.L.J.R., at pp.440-441, 54 A.L.R., at pp.442-443). That approach is, however, inappropriate in cases in the less developed areas of the law of negligence such as where what is alleged is a negligent omission or failure to act or where the damage sustained has been merely economic in its nature. In such cases, as has been said, the mere fact that it is reasonably foreseeable that carelessness on the part of a person may be likely to cause damage to another person is not in itself sufficient to give rise to a prima facie duty of care: a relevant duty of care will only arise if the requisite element of "proximity", in the broad sense in which Lord Atkin used the term in Donoghue v. Stevenson, is satisfied. In any general formulation of the ingredients of a cause of action in negligence which is intended to encompass cases involving mere omission or mere economic loss, "proximity" of relationship in this broader sense should be seen as a distinct general requirement which must be satisfied before any duty of care to avoid reasonably foreseeable injury will arise (cf. Jaensch, 58 A.L.J.R., at p.442, 54 A.L.R., at pp 445-446; Peabody Fund v. Parkinson, (1984) 3 WLR, at pp 959-960, (1984) 3 All ER, at pp 533-534). In such cases, as Mason J. demonstrates in his judgment in this appeal, it is likely that the existence of the requisite element of proximity will reflect, among other things, reliance by the plaintiff upon care being taken by the defendant to avoid or prevent injury, loss or damage to the plaintiff or his property in circumstances where the defendant had induced or encouraged such reliance or (depending upon the particular combination of factors) was or should have been aware of it.

17. As I read Lord Wilberforce's judgment in Anns, there were two essential steps or "stages" involved in his conclusion that the local council was under a duty of care to the plaintiff in that case. The first step or stage was the conclusion that there was, between local council and owners and occupiers of the premises, "a sufficient relationship of proximity or neighbourhood" in the sense "that, in the reasonable contemplation of the (council), carelessness on (its) part may be likely to cause damage" to such an owner or occupier. The second step or stage was his Lordship's conclusion (at p.754) that the "essential factor ... that the local authority is a public body, discharging functions under statute" did not, in light of the particular statutory powers and functions, preclude the implication of a relevant duty of care in relation to acts or omissions not falling within the proper ambit of its discretion. In other words, his Lordship, in conformity with his general statement of principle, treated reasonable foreseeability ("contemplation") of the likelihood of injury as sufficing to give rise to a prima facie duty of care and concluded that that prima facie duty of care was not negatived by the nature of the local council's powers and functions and was only reduced or limited in scope by the exclusion of acts or omissions which, under the relevant statutory provisions, came within the ambit of the local council's discretion. It follows from what has been said that I respectfully disagree with this process of legal reasoning at least in cases, such as the present, involving omissions or mere economic loss. That being so, I am unable to accept either the decision in Anns or the general statements in Lord Wilberforce's judgment as offering acceptable guidance in relation to the outcome of the present case. In circumstances in which there was no contact between the respondents themselves and the council prior to the respondents' purchase of the house, the existence of any relevant prima facie duty of care on the part of the Council in the present case depends, as a matter of ordinary principle, primarily upon whether there existed in any relationship between the council and the class of persons comprising future owners of the house of which the respondents were members the requisite element of proximity in the broader sense of that term explained above.

18. One can discern in the relevant provisions of the Act and Ordinances a number of purposes for which a local council's powers and functions with regard to the erection of buildings within its area were conferred. Those purposes included the advancement and maintenance of the general amenity of the neighbourhood, protection of health and the prevention of injury to the person or property of those within the area. The last-mentioned purpose, namely the safety of the person and property of those within the area, was obviously of particular relevance where the foundations of a building were involved. The conferral upon a local government council of those powers and functions represented a restraint upon the freedom of action of owners of land and their builders. It was a restraint which was enforceable by penal sanction and which had been imposed for, among other reasons, the protection of the general public within the area from actions of the owners of land and their builders which might have a detrimental effect upon the advancement of the purposes for which the powers and functions in relation to the erection of buildings were conferred. A local government council may well, in certain circumstances, be under a duty of care to an owner or prospective owner of land within its area in relation to information provided or positive acts done in the exercise and performance of those powers and functions (cf. L. Shaddock &Associates Pty. Ltd. v. Parramatta City Council (No. 1) (1981) 150 CLR 225). It may, in some circumstances, be under a duty to take reasonable care in that exercise and performance to avoid placing unnecessary restrictions or requirements upon such an owner's or prospective owner's freedom to use and develop his land. It is however, in my view, impossible to discern in the relevant provisions of the Act and Ordinances anything which would warrant the conclusion that there had been included among the purposes for which those powers and functions were conferred a general purpose of protecting owners of premises from sustaining economic loss by reason of defects in buildings which they or their builders might erect or which they might purchase after erection.

19. It is in the light of the foregoing that one must approach the question whether the requirement of proximity in the relationship between the parties with respect to the relevant act or omission and the injury sustained was satisfied in the circumstances of the present case. Once the foundations of a building have been completed and covered, there will commonly be no occasion for subsequent inspection unless and until any deficiency begins to cause consequential damage. It was, no doubt, reasonably foreseeable that a failure or omission by the Council adequately to inspect the house in the course of erection resulting in a failure to take action to prevent the house being erected with inadequate foundations might result in a builder erecting the house with unsafe foundations and consequential economic loss to the class of persons consisting of subsequent owners of the house. As has been said however, there is no prima facie general duty of care to take positive action to prevent reasonably foreseeable injury being sustained by another or to avoid causing mere economic loss. It is therefore necessary to examine the additional factors involved in the relationship between the Council and the respondents to ascertain whether, by reference to decided cases or general principle, any one or more of them should properly be seen as giving rise to a relevant duty of care. Such examination makes clear that none of them, alone or in combination with others, can properly be seen as so supplementing foreseeability of damage as to have that effect. Reference has been made to the more important of those other factors in the course of what has been written above. At the cost of some repetition, it is desirable that they be identified and brought together at this stage. They are essentially of a negative character.

20. There was no contact at all between the Council and the respondents prior to the respondents' purchase of the house. Nor is there anything in the circumstances which could warrant the conclusion that there was some special element in the relationship between the Council and the previous owners, their builder or the respondents or that the Council had assumed any special duty or obligation to any one or more of those persons. The approach of the previous owners, their builder and the respondents was, plainly enough, to ignore rather than to rely upon the Council with respect to the erection or the condition of the house: only one of the notices indicating that a particular inspection stage had been reached was returned to the Council by the previous owners or their builder; no notice of completion of the building was given to the Council as required by Ord. 71, cl.83; at the time of their purchase, the respondents made no inquiry about what the Council's records disclosed in relation to the house; the respondents neither applied for nor obtained a certificate of compliance under s.317A of the Act. There is nothing in the evidence to suggest that the Council made any particular representation to the respondents or anyone else about the exercise of its statutory powers and functions in relation to the house. Nor is there anything in the evidence to suggest that the respondents or anyone else placed any reliance upon the actual or assumed exercise by the Council of those statutory powers or functions. In so far as what I have referred to earlier as causal proximity is concerned, the causal relationship between any carelessness on the part of the Council and the damage sustained was indirect in the sense that any such carelessness on the part of the Council would have been inconsequential were it not for the builder's negligent construction of the house which was the cause of the inadequacy of its foundations. As has been seen, protection of the owner of land from the mere economic loss which might be sustained by reason of a defect in a building erected upon his or her land is no part of the purpose for which the relevant legislative powers and functions were conferred upon the Council. The provisions of the Act and Ordinances have traditionally never been seen as intended to place upon a local government council the duty or burden of protecting an owner of premises from mere economic loss sustained by reason of the negligent erection, by someone other than the council, of a building upon his or her land. Nor is there any readily discernible reason in principle, policy or justice why the general body of ratepayers within an area should bear the economic loss sustained by such an owner of land.

21. Each of the above additional factors tends to indicate an absence - rather than a presence - of physical, circumstantial or causal proximity. They do not, by reference to any acceptable process of legal reasoning, supplement the existence of reasonable foreseeability of economic loss in a way which would warrant a conclusion that there existed in the relationship between the Council and the respondents the element of proximity necessary to give rise to a duty on behalf of the Council to take reasonable care to ensure that the respondents did not sustain economic loss by reason of a defect in the foundations of the building which they were purchasing. It follows that the respondents' action against the Council should have been dismissed. The present appeal must be upheld and the judgment and orders in the respondents' favour must be set aside.

22. There are three further matters to which brief reference should be made. The first is that the evidence indicated that consequential damage was sustained by the fabric of the respondents' house by reason of movement resulting from the inadequate foundations. While the damages awarded and upheld in the courts below were confined to the cost of remedying the inadequacy of the foundations and to interest thereon, it would seem appropriate that I indicate that I do not consider that the outcome of the present appeal turns upon any distinction between the inadequacy of the actual foundations and consequential damage to the fabric of the building. It seems to me, as at present advised, that any such consequential damage to the building itself resulting from inherent defect in the foundations is properly to be seen as falling within the same category as the damage involved in the inadequacy of the actual foundations, that is to say, as economic loss sustained by reason of the erection or purchase of the unsound building. The second matter is that it should be apparent that my conclusion that no relevant duty of care was owed by the Council to the respondents in the present case is based to no small extent on the particular combination of factors involved in the case including the nature of the damage sustained by the respondents. That conclusion could not be directly applied to a case where the building owner established that the damage sustained was caused by his reliance upon some particular course of conduct being or having been pursued by the Council in (for example) circumstances where the Council had encouraged such reliance. Nor is that conclusion directly applicable to a case where ordinary physical injury to person or property (other than the inadequately constructed building) has been sustained as a consequence of a collapse or partial collapse of a building caused by its inadequate foundations. The third matter is that, since the other members of the Court are divided in relation to it, it would seem desirable that I indicate that I have formed a firm view about the finding in the courts below of carelessness on the part of the Council. Like Mason J. and Brennan J., I consider that, on the evidence, there was some carelessness in the inspection of the house while it was under construction. If, contrary to my conclusion, the Council had been under a relevant duty to the respondents to take reasonable care, in the exercise of its powers of inspection, to prevent economic loss being sustained by the respondents by reason of the house being erected with inadequate foundations, I would have been of the view that the finding of negligence by the learned trial judge, which was confirmed by the Court of Appeal, was correct and could not properly be disturbed.

Orders

Appeal allowed. In accordance with the condition imposed on the grant of special leave, order that the costs of proceedings in this Court be paid by the appellant.

Order that the judgment and order of the Court of Appeal (other than the order for costs) be set aside. In lieu thereof, order that the appeal from the District Court be allowed, that the judgment of the District Court be set aside and that there be judgment for the defendant in the action and that the defendant pay the plaintiffs' costs.