The Owners Strata Plan 78622 v Kingston Building Pty Ltd
[2012] NSWDC 224
•17 December 2012
District Court
New South Wales
- Amendment notes
Medium Neutral Citation: The Owners Strata Plan 78622 v Kingston Building PTY LTD [2012] NSWDC 224 Hearing dates: 2 October, 7 November 2012 Decision date: 17 December 2012 Before: Acting Judge F Marks Decision: (1) Verdict for the defendant on the plaintiff's claim.
(2) Verdict for each of the cross defendants on the cross claims
(3) Costs reserved with liberty to apply
Catchwords: TORTS - duty of care - plaintiff became owner of apartment building on registration of strata plan-claim for economic loss against builder-strike out motion by cross defendant alleging no cause of action-held no cause of action applying judgment of Judge of Supreme Court STARE DECISIS held bound to follow judgment of Judge of Supreme Court Legislation Cited: Strata Schemes Management Act 1996 (NSW) Cases Cited: Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
Bryan v Maloney (1995) 182 CLR 609
Astley v Austrust Ltd (1999) 197 CLR 1
Central Trust Co V Rafuse (1986) 31 DLR 521-522
Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC712
Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSW SC 1219Category: Principal judgment Parties: Plaintiff: P Gray SC and D Hand
Defendant: G Carolan
1st Cross Defendant (SKE) A J McInerney SC and G O'Mahoney
2nd Cross Defendant (Tyco) D JuryRepresentation: Plaintiff: P Gray SC and D Hand
Defendant: G Carolan
1st Cross Defendant (SKE) A J McInerney SC and G O'Mahoney
2nd Cross Defendant (Tyco) D Jury
Plaintiff: Harris Wheeler Defendant: McDonald Johnson
1st Cross Defendant Wilson& Co
2nd Cross Defendant HBLEbsworth
File Number(s): 2010/248371
Judgment
The plaintiff in these proceedings is The Owners - Strata Plan 78622. The plaintiff claims damages from the defendant Kingston Building Pty Ltd (Kingston) arising out of an asserted breach of a duty of care owed to it. The defendant entered into a contract to design and construct a building in Nelson Bay, NSW for the owner of the property, Grosvenor Australia Nominees Pty Ltd (Grosvenor). The building project consisted of a five-storey block of 58 apartments with a basement carpark, swimming pool, exterior curtain walls and associated facilities. The building works commenced in about May 2006 and were completed in about February 2007.
On 14 March 2007 the property on which the development had been erected was subdivided by reason of the registration of strata plan 78622. The common property and the 58 lots comprised in the strata plan vested by law in the plaintiff.
The statement of claim contained a number of assertions describing the duty of care owed by the defendant, firstly to Grosvenor and secondly to the plaintiff. I set out below paragraphs 9 to 17 inclusive of the statement of claim;
Duty of care owed by the defendant to Grosvenor Australia
9. At all material times, in carrying out the Works, the defendant was aware, or ought reasonably to have been aware, that Grosvenor Australia relied on its skill and expertise as a builder
10. Further, at all material times, in carrying out the Works, the defendant was aware or ought reasonably to have been aware that Grosvenor Australia was vulnerable to the risk of economic loss if the defendant failed to exercise reasonable care and skill in its performance of the Works.
11. It was reasonably foreseeable that any failure by the defendant to exercise reasonable care and skill in its performance of the Works would cause Grosvenor Australia, as owners of the Premises, to suffer economic loss.
12. In the circumstances, the defendant, in carrying out the Works, owed Grosvenor Australia a duty to exercise reasonable care and skill to protect it against the risk of economic loss.
Duty of care owed to the Plaintiff
13. At all material times, in carrying out the Works, the defendant was aware or ought reasonably to have been aware, that upon completion of the Works and the registration of the strata plan:
the plaintiff, being the body corporate known as 'The Owners Strata Plan 78622', would come into existence;
the Common Property would vest in the plaintiff; and
the plaintiff would have the power and responsibility to control, manage and administer the Common Property for the benefit of the owners pursuant to section 61(1) of the Strata Schemes Management Act 1996 (NSW)
14. The plaintiff was vulnerable to a risk of economic loss if the defendant did not exercise reasonable care and skill in carrying out the Works, in circumstances where:
(a) the plaintiff was not in existence:
(i) when the defendant contracted with Grosvenor Australia to carry out the Works; and
(ii) when the defendant carried out the Works;
(b) the plaintiff came into existence, and the Common Property was vested in it by operation of statute, when the strata plan was registered; and
(c) the plaintiff was unable to take any steps to protect itself against the risk of economic loss.
15. Further, at all material times, in carrying out the Works, the defendant was aware, or ought reasonably to have been aware, that the plaintiff was vulnerable to the risk of economic loss if the defendant failed to exercise reasonable care and skill in carrying out the Works.
16. Further, it was reasonably foreseeable that the plaintiff would suffer economic loss if the defendant did not exercise reasonable care and skill in carrying out the Works.
17. In the circumstances, in carrying out the Works, the defendant owed the plaintiff, as a subsequent owner of the Common Property, a duty to exercise reasonable care and skill to protect the plaintiff against a risk of economic loss.
The defendant issued cross claims against SKE Contractors Pty Ltd (SKE). SKE issued a cross claim against Tyco Australia Pty Ltd, the second cross defendant.
SKE has sought by motion that the cross-claim brought against it be dismissed or struck out and in the alternative that the statement of claim be dismissed or struck out. The motion seeks a further alternative order that a separate question be determined as to whether the defendant and/or the first cross defendant and/or the second cross defendant owe a common law duty of care to the plaintiff as alleged in the statement of claim. Because of events which I shall later describe, this judgment deals with the substantial separate question whether in the circumstances of these proceedings the defendant owed a duty of care to the plaintiff. Put shortly, a recent judgment of McDougall J in the Supreme Court of NSW has created a situation whereby these proceedings will necessarily need to be dealt with by the NSW Court of Appeal. In these circumstances, it is necessary to create the most appropriate basis as is possible for the determination of the appeal proceedings so as to minimise costs. This is why the parties have co-operated in facilitating the determination of the more substantial question of law.
When the hearing of the motion commenced, SKE sought and the plaintiff resisted a determination of whether a duty of care existed between the builder Kingston and Grosvenor as a preliminary question. Because, as I shall later discuss the more recent judgment of McDougall J was said to be binding on me, all parties now submit that it is appropriate to determine this matter as a preliminary question. I intend acceding to these submissions, for reasons which I shall shortly state.
The Factual Matrix
There are a number of factual matters which are established by the documentary evidence tendered in these proceedings. This included the relevant building contract between the defendant and Grosvenor. Clause 17 deals with "Damage to Persons and Property." In essence the clause provides that the defendant shall be liable for and shall indemnify Grosvenor "against any liability, loss, cost, expense, damage, claim or proceeding...." in respect of any injury, loss or damage suffered to any property or in respect of personal injury to or the death of any person arising out of or in the course of or caused by the carrying out of the work under the contract. Thus, the defendant became liable for and indemnified Grosvenor against almost every conceivable damage or loss whether to property or by way of personal injury or death arising out of or under the building contract. Furthermore, by Clause 18 the defendant became liable to effect extensive insurance cover against its liabilities under the building contract. SKE sought to rely on these provisions cast in these wide terms as indicating an intention on the part of the contracting parties to exclude any tortious liability by SKE to Grosvenor.
Two documents clearly established that as at 2 September, 2005 and 6 May, 2008 that the defendant knew that a strata plan would be registered upon completion of the building works.
The Separate Question
In determining this matter, I rely substantially on the helpful written submissions of Mr McInerney, senior counsel for SKE, to the following effect;
SKE submits that the court should find that (see McDougall J in Owners Corporation Strata Plan 61288 v Brookfield Multiplex[2012] NSWSC 1219 at [21]-[32]):
(a) there is no overlap between the evidence relied upon to support (or negate) the existence of the duty of care on the one hand, and that relevant to the question of breach on the other;
(b) the evidence on the question of the existence (or not) of the duty of care is entirely documentary;
(c) thus, there is no question of credibility arising in relation to the duty of care question, and (a) fortiori no risk of inconsistent views as to credibility;
(d) preparation of the case by the defendant, and each of the cross defendants, would require experts in a number of different disciplines who would be required to consider and respond to the various reports and affidavits on which the plaintiffs rely, as identified in paragraph 20 of the affidavit of Aleesha Bajcarz sworn 7 September 2012, including the following:
(a) Stephen Grubits Report dated 17 August 2011;
(b) Stephen Grubits Report dated 27 October 2011;
(c) Report of Izzat Consulting Engineers dated 16 December 2011;
(d) Report of Northcroft Quantity Surveyors dated 23 December 2011;
(e) Allpipe Engineering quotes of 31 January 2012 concerning removal of a proportion of the concrete wall in the car park and the engagement of a fire services consultant to assess and report upon the location of the sprinkler heads in the car park sprinkler system;
(f) MBM Quantity Surveyors Report dated 29 February 2012;
(g) Affidavit of Warwick King dated 17 May 2012;
(h) Report of Stephen Grubits dated 30 May 2012;
(i) Scott Schedule;
(j) Report of MBM Quantity Surveyors dated 3 July 2012;
(k) Report of Izzat Consulting Engineers dated 18 July 2012; and
(l) Report of MBM Quantity Surveyors Report dated 24 July 2012.
There is very significant utility in considering first, and separately, the question of whether Kingston owed any duty of care to the plaintiff as alleged. If that question is answered in favour of Kingston, then Kingston (directly), each of the cross defendants (directly), and the plaintiff (indirectly) are spared the costs of preparation, and of a lengthy hearing, on the defects question. Conversely, consideration of the duty of care question will not be improved if it is undertaken in the light of all of the evidence, specifically that which is relevant only to the question of defects;
Taking into account s56 of the Civil Procedure Act 2005 (NSW), the circumstances suggest very strongly that the just, quick and cheap resolution of the real issues in dispute favours separate and prior determination of the duty of care question.
I adopt these submissions as applying to the circumstances of these proceedings, and find accordingly.
The Case For SKE
The primary submission advanced on behalf of SKE was that Kingston, as the builder, did not owe any duty of care to the plaintiff which was a successor in title to Grosvenor and was not in any contractual relationship with Grosvenor. In aid of this submission, a number of propositions were advanced;
a. It was a precondition to any liability in tort by the defendant to the plaintiff that there be liability in tort by the defendant to Grosvenor
b. The building contract excluded any liability in tort by reason of the extensive nature of its terms concerning liability for damage to persons and property and by reason of the insurance provisions.
c. In any event, no liability in tort arose against the defendant at the suit of the plaintiff.
I shall now deal with each of these propositions in turn.
It was a precondition to any liability in tort by the defendant to the plaintiff that there be liability in tort by the defendant to Grosvenor.
This submission was based upon reasoning of the High Court of Australia in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515. A claim for damages based on a breach of a duty of care was taken by the purchaser of a commercial building against an engineering company which had designed the foundations for the original owner. The High Court held that in the circumstances the engineering company did not owe a duty of care to the original owner because, on the facts, it was not demonstrated that the original owner had relied upon the engineering company with respect to certain relevant design features, nor had the engineering company assumed responsibility to the owner for this aspect of the design. In these circumstances, there could be no liability for any breach of duty of care which extended to a purchaser of the building. It was not contended that that the factual circumstances in Woolcock were relevantly similar to the factual circumstances in these proceedings. However, the plaintiff relied on observations in the joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ which supported the proposition contended for by it..
The joint judgment relevantly discussed an earlier decision of the High Court of Australia in Bryan v Maloney (1995) 182 CLR 609, which I shall return to in greater detail. For present purposes it is sufficient to note that in Bryan the High Court had allowed a claim for breach of duty of care to be brought by a purchaser of a residential building against the builder who had contracted with a previous owner. In discussing the decision in Bryan, the High Court in Woolcock observed that that decision was "dependent upon equating the responsibilities which the builder owed to the first owner with those owed to a subsequent owner." (At[15]). Earlier, the joint judgment in Woolcock observed that the decision in Bryan "depended upon the anterior step of concluding that the builder owed the first owner a duty of care to avoid economic loss ..." of the kind being sought by the subsequent owner. (At [14]). It may be assumed that an essential precondition for the maintenance of a claim for economic loss based on a breach of duty of care brought by a purchaser of a property against a builder who contracted with an earlier owner may only be maintained if it can be established that the builder owed the original owner of the land a duty to take reasonable care to avoid economic loss of the kind of which the subsequent purchaser complains. (See also the observations in [25] of the joint judgment).
I accept the validity of this proposition in general terms.
The building contract excluded any liability in tort by reason of the extensive nature of its terms concerning liability for damage to persons and property and by reason of the insurance provisions.
In support of this proposition SKE relied on a portion of the joint judgment of Gleeson CJ, McHugh, Gummow and Hayne JJ in the High Court of Australia in Astley v Austrust Ltd (1999) 197 CLR 1. In essence, the court was considering, inter-alia, whether the doctrine of contributory negligence applied to a cause of action framed in contract rather than tort. In that context the joint judgment came to consider circumstances where concurrent liability might arise under contract law and in tort. Their Honours observed that concurrent liabilities in both contract and tort might arise, especially in cases of professional negligence, with which those proceedings were concerned. In the course of their discussion thereon it considered those circumstances in which concurrent causes of action might arise and, at paragraphs 46 to 48 said;
46. The reasoning of Deane J on this point was rejected by the House of Lords in Henderson v Merrett Syndicates Ltd 63. In Henderson, their Lordships held that an action could be brought for professional negligence against underwriting agents both in contract and in tort.
Lord Goff of Chieveley, with whom Lord Keith of Kinkel, Lord Browne-Wilkinson, Lord Mustill and Lord Nolan agreed, after referring to the view expressed by Deane J, said 64:
"It is however my understanding that by the law in this country contracts for services do contain an implied promise to exercise reasonable care (and skill) in the performance of the relevant services; indeed, as Mr Tony Weir has pointed out 65 in the nineteenth century the field of concurrent liabilities was expanded "since it was impossible for the judges to deny that contracts contained an implied promise to take reasonable care, at the least, not to injure the other party". My own belief is that, in the present context, the common law is not antipathetic to concurrent liability, and that there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy. The result may be untidy; but, given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded."
47. History and legal principle combine to indicate that the conclusion of the House of Lords in Henderson is the correct view. The implied term of reasonable care in a contract of professional services arises by operation of law. It is one of those terms that the law attaches as an incident of contracts of that class 66. It is part of the consideration that the promisor pays in return for the express or implied agreement of the promisee to pay for the services of the person giving the promise. Unlike the duty of care arising under the law of tort, the promisee in contract always gives consideration for the implied term. And it is a term that the parties can, and often do, bargain away or limit as they choose. Rather than ask why the law should imply such a term in a contract for professional services, it might be more appropriate to ask why should the law of negligence have any say at all in regulating the relationship of the parties to the contract? The contract defines the relationship of the parties. Statute, criminal law and public policy apart, there is no reason why the contract should not declare completely and exclusively what are the legal rights and obligations of the parties in relation to their contractual dealings. The proposition that, in the absence of express agreement, tort and not contract regulates the duty of care owed by a professional person to a person hiring the professional services is inconsistent with the historical evolution of professional duties of care which, until recently, could be the subject of action only in contract. Moreover, the conceptual and practical differences between the two causes of action remain of "considerable importance"67. The two causes of action have different elements, different limitation periods, different tests for remoteness of damage and, as will appear, different apportionment rules.
48. The theoretical foundations for actions in tort and contract are quite separate. Long before the imperial march of modern negligence law began, contracts of service carried an implied term that they would be performed with reasonable care and skill. Persons who give consideration for the provision of services expect that those services will be provided with due care and skill. Reliance on an implied term giving effect to that expectation should not be defeated by the recognition of a parallel and concurrent obligation under the law of negligence. The evolution of the law of negligence has broadened the responsibility of professional persons and requires them to take reasonable care and skill even in situations where a contractual relationship cannot be established. But given the differing requirements and advantages of each cause of action, there is no justification in recognising the tortious duty to the exclusion of the contractual duty.
(citations omitted).
Counsel for SKE fastened on the comments in paragraph 47 relating to the ability of the parties to a contract to define their relationship, and especially the words "The contract defines the relationship of the parties. Statute, criminal law and public policy apart, there is no reason why the contract should not declare completely and exclusively what are the legal rights and obligations of the parties in relation to their contractual dealings." It was submitted that the contract dealt comprehensively with all aspects of possible liability, and should be taken to have set out completely and exclusively the legal rights and obligations of the parties. Accordingly, there was no room for any concurrent action to be taken in tort.
It seems to me that the words upon which SKE has fastened need to be considered in their context. In Astley, the plaintiff had sued both in contract and in tort. The applicable legislation permitting reduction in damages by reason of contributory negligence was confined to actions in tort and did not apply to actions for breach of contract. The discussion in the passages cited in the joint judgment needs to be considered in this context. Immediately prior to be the sentences relied upon by SKE there appears a question in the following terms; "Rather than ask why the law should imply such a term in a contract for professional services, it might be more appropriate to ask why should the law of negligence have any say at all in regulating the relationship of the parties to the contract?" The sentence which follows, and upon which SKE seeks to rely so heavily is postulated in response to this rhetorical question. It seems to me that this sentence should not be read in the manner contended for by SKE. The sentence is stated as a proposition leading up to the ultimate conclusion, as contained in [48], that "....there is no justification in recognising the tortious duty to the exclusion of the contractual duty." Indeed, the decision in Astley should be seen as confirming concurrent rights of action under both contract and tort, rather than restricting a right to maintain an action in tort as contended for by SKE on the basis of restrictive contractual terms.
Obviously, there will be cases where the provisions in a contract between the parties may affect an entitlement to maintain a concurrent action in tort. So much is alluded to in the judgment of the High Court of Australia in Bryan v Maloney, previously referred to. The joint judgment of Mason CJ, Deane and Gaudron JJ recognises that there will be circumstances where the contents of a contract may, "exclude the existence of, a relevant duty of care." (at 621). Their Honours cited with approval extracts from a judgment of the Supreme Court of Canada in Central Trust Co V Rafuse (1986) 31 DLR 521-522. I set out the following portion from this judgment;
"Where the common law duty of care is coextensive with that which arises as an implied term of the contract it obviously does not depend on the terms of the contract, and there is nothing flowing from contractual intention which should preclude reliance on a concurrent or alternative liability in tort. The same is also true of reliance on a common law duty of care that falls short of a specific obligation or duty imposed by the express terms of a contract. A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence."
There would be merit in the proposition put forward by SKE if the building contract contained exclusions or limitations of liability, so that it could be argued that in those circumstances no tortious liability arose. However, in the circumstances of these proceedings the reverse is true. That is, as I have said, the contract creates extensive and wide ranging obligations and liabilities on the part of the defendant. In these circumstances I would have concluded that this is indicative that the parties did not intend to restrict the existence of a concurrent duty in tort in addition to the contractual duties. For these reasons I would reject the second proposition relied upon by SKE..
In any event, no liability in tort arose against the defendant at the suit of the plaintiff.
In support of this proposition SKE relied upon two judgments of McDougall J in the Supreme Court of New South Wales. The first is Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC712. Those proceedings concerned a large residential unit development. Proceedings were brought against the developer and builder arising out of defects in the common property which vested in the plaintiff on registration of the strata plan. As is the case in these proceedings, the plaintiff was not a party to the building contract. However, those proceedings differed from these proceedings because it was held that the Owners Corporation had the benefit of certain statutory warranties implied by section 18 B of the Home Building Act 1989 (NSW). It is agreed between the parties to these proceedings that those statutory warranties do not apply here.
Before considering the decision in Brookfield I must first return to the High Court decisions in Bryan and Woolcock. Bryan concerned an action in negligence brought by a subsequent purchaser of a house against the builder who had constructed the house under a contract with a previous owner, arising out of cracks and subsequent damage due to inadequacy of the footings. The joint judgment of Mason CJ, Deane and Gaudron JJ observed that "a duty of care arises under the common law of negligence.... only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage." (at page 617). Their Honours described the categories of case in which the requisite relationship of proximity with respect to mere economic loss as being properly seen as "special". It is not necessary for the purpose of this judgment that I discuss in any detail the concept of proximity or engage in a detailed analysis of the reasoning of the High Court in Bryan. Suffice to say that the Court, by majority determined that there was a sufficient similarity of the proximity between the builder and the first owner with the proximity between the builder and the subsequent purchaser in the context of the particular kind of economic loss which was the subject of the claim as to warrant the imposition of a duty of care on the builder in favour of the subsequent purchaser. Their Honours said; "both relationships are characterised, to a comparable extent, by assumption of responsibility on the part of the builder and the likely reliance on the part of the owner. No distinction can be drawn between the two relationships in so far as the foreseeability of the particular kind of economic loss is concerned: it is obviously foreseeable that that loss will be sustained by whichever of the first or subsequent owners happens to be the owner at the time when the inadequacy of the footings becomes manifest....." (at 627). Their Honours were careful to say that the decision in that case turned "to no small extent" on a number of matters including the fact that the building was a permanent dwelling house (at 630).
I should add for completeness that Toohey J agreed generally in their Honours' reasoning. Brennan J dissented.
Bryan was considered by the High Court in Woolcock. In their joint judgment Gleeson CJ, Gummow, Hayne and Heydon JJ made the following observations about the joint judgment in Bryan;
14 It is evident, then, that the conclusion that the builder owed a subsequent owner a duty to take reasonable care to avoid the economic loss which that subsequent owner had suffered depended upon conclusions that were reached about the relationship between the first owner and the builder. In particular, the decision in the case depended upon the anterior step of concluding that the builder owed the first owner a duty of care to avoid economic loss of that kind.
15. Both this anterior step, and the conclusion drawn from it, were considered in the context of the facts of the particular case - in which the building in question was a dwelling house. The propositions about assumption of responsibility by the builder and known reliance by the building owner were said to be characteristics of "the ordinary relationship between a builder of a house and the first owner" (emphasis added). At least in terms, however, the principles that were said to be engaged in Bryan v Maloney did not depend for their operation upon any distinction between particular kinds of, or uses for, buildings. They depended upon considerations of assumption of responsibility, reliance, and proximity. Most importantly, they depended upon equating the responsibilities which the builder owed to the first owner with those owed to a subsequent owner.
Importantly, their Honours made two points of criticism about the decision in Bryan, in the following terms;
17. First, for the reasons given earlier, it may be doubted that the decision in Bryan v Maloney should be understood as depending upon drawing a bright line between cases concerning the construction of dwellings and cases concerning the construction of other buildings. If it were to be understood as attempting to draw such a line, it would turn out to be far from bright, straight, clearly defined, or even clearly definable. As has been pointed out subsequently, some buildings are used for mixed purposes: shop and dwelling; dwelling and commercial art gallery; general practitioner's surgery and residence. Some high-rise apartment blocks are built in ways not very different from high-rise office towers. The original owner of a high-rise apartment block may be a large commercial enterprise. The list of difficulties in distinguishing between dwellings and other buildings could be extended.
18. Secondly, the decision in Bryan v Maloney depended upon the view that "the overriding requirement of a relationship of proximity represents the conceptual determinant and the unifying theme of the categories of case in which the common law of negligence recognises the existence of a duty to take reasonable care to avoid a reasonably foreseeable risk of injury to another". It was the application of this "conceptual determinant" of proximity that was seen as both permitting and requiring the equation of the duty owed to the first owner with the duty owed to the subsequent purchaser. Decisions of the Court after Bryan v Maloney reveal that proximity is no longer seen as the "conceptual determinant" in this area.
I note by way of emphasis that in the first point of criticism their Honours refrained from confining the decision in Bryan to residential premises. Secondly by way of criticism their Honours rejected notions of proximity. As was acknowledged by the parties in these proceedings, a determining feature is now described in terms of "vulnerability".
In Woolcock, the joint judgment described the concept of vulnerability in the following terms;
23. Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company.
24. In other cases of pure economic loss (Bryan v Maloney is an example) reference has been made to notions of assumption of responsibility and known reliance. The negligent misstatement cases like Mutual Life & Citizens' Assurance Co Ltd v Evatt and Shaddock & Associates Pty Ltd v Parramatta City Council [No 1]can be seen as cases in which a central plank in the plaintiff's allegation that the defendant owed it a duty of care is the contention that the defendant knew that the plaintiff would rely on the accuracy of the information the defendant provided. And it may be, as Professor Stapleton has suggested, that these cases, too, can be explained by reference to notions of vulnerability. (The reference in Caltex Oil to economic loss being "inherently likely" can also be seen as consistent with the importance of notions of vulnerability.) It is not necessary in this case, however, to attempt to identify or articulate the breadth of any general proposition about the importance of vulnerability. This case can be decided without doing so.
I now return to consider the judgment of McDougall J in Brookfield. His Honour's reasoning in concluding that the builder in those proceedings did not owe any duty of care to the Owners Corporation was stated succinctly. Rather than attempt to summarise his Honour's reasons for judgment I shall set them out in full;
143. I do not think that the decision in Bryan authorises the conclusion, in this case, that a duty of care is owed by Brookfield to the Owners Corporation. There are three reasons for coming to this view.
144.The first reason is that I have concluded that the Owners Corporation has the benefit of the statutory warranties. It may enforce those warranties against Brookfield under s 18D of the HB Act. In circumstances where the legislature has considered, and made clear provision for, the extent to which a builder is liable to a subsequent owner, I think that the courts should be slow to substitute their own judgment for that of the legislature. Certainly, I do not think that it is open to a trial judge to hold that some additional common law duty of care should be imposed. In this context, the concerns expressed by Brennan J in Bryan at 644 are of particular relevance:
It would be anomalous to have claims relating to the condition of the building by an original owner against the builder determined by the law of contract if the relief claimed by the remote purchaser against the builder would be determined by the law of tort. Such a situation would expose the builder to a liability for pure economic loss different from that which he undertook in constructing the building and would confer a corresponding right on the remote purchaser which the purchaser had not sought to acquire from the vendor (45). It would be tantamount to the imposition on the builder of a transmissible warranty of quality. In some jurisdictions, Parliament has provided such a remedy by statute. The social question whether building costs should be inflated to cover the builder's obligation under such a transmissible warranty in an appropriate question for parliaments to consider but, in the absence of compelling legal principle or considerations of justice reflecting the enduring values of the community, the courts should not decide to extend remedies not hitherto available to remote purchasers of buildings without considering the cost to builders and the economic effect of such an extension. Those are questions which the courts are not suited to consider. The extension of remedies in that direction is properly a matter for Parliament.
145. I accept that Brennan J was in dissent. But nonetheless, what his Honour said focuses attention on the critical questions to be considered in deciding whether, as a matter of policy, the law should impose, on a builder in the position of Brookfield, a duty of care (over and above the statutory warranties) in favour of a successor in title to developer, such as the Owners Corporation.
146. Secondly, the actual decision of the majority in Bryan depended on the conclusion that there was a sufficient relationship of proximity between Mr Maloney and Mr Bryan to warrant the imposition of a duty of care. The concept of proximity has since been discarded as the basis of imposition of a duty of care. See Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street at [18].]
147. Thirdly, the conclusion that Mr Bryan owed a duty of care to Mrs Maloney depended on the anterior conclusion that he had owed a duty of care to the owner (Mrs Maloney's remote predecessor in title). See the analysis of Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street at [14], [15]. There is no ground for concluding, in this case, that Brookfield owed any common law duty of care to Hiltan. They had negotiated, on what seems to be an equal footing, a detailed contract in which each bargained for what it would give as the price for what it would receive. There is no basis on which the court should usurp the parties' bargain. See Gleeson CJ, McHugh, Gummow and Hayne JJ in Astley v Austrust Ltd (1999) 197 CLR 1 at [47].
148. If a duty of care is to be imposed on Brookfield for the benefit of the Owners Corporation, it would require consideration of the concept of "vulnerability", in the sense of the Owners Corporation's inability to protect itself from the consequences of want of reasonable care (see Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street at [23]). I have set out earlier in these reasons the basis on which the Owners Corporation submitted that it was relevantly vulnerable. To the extent that this depended on questions of fact, the facts are non-contentious.
149. Whether the Owners Corporation should be considered as vulnerable, in the light of my conclusion that it does have the benefit of the statutory implied warranties, is questionable. Since I have concluded that it is not appropriate, at the trial level, to impose some duty of care over and above the available measure of protection afforded by statute, in an area where the legislature has intervened expressly to protect the rights of parties such as the Owners Corporation, I do not propose to go further.
150.To my mind, the consideration that the legislature has intervened, and afforded successors in title in the position of the Owners Corporation a remedy against developers in the position of Hiltan - is sufficient to dispose of the claim that Hiltan owed to the Owners Corporation the duty of care alleged. Accordingly, I see no point in attempting to deal with the questions of vulnerability and duty of care.
151.I would, however, observe that the duty of care alleged is one that would require a principal under a design and construct contract to retain a small army of professional and otherwise qualified staff to supervise every aspect of the design and construction work undertaken by the builder. To my mind, the law should be slow to impose such an onerous and expensive requirement on developers.
It will be seen that a significant part of his Honour's reasoning was based on the existence of the statutory warranty which militated against finding the existence of a duty of care as a matter of policy. That situation does not exist in the context of these proceedings. It was submitted by SKE that I was bound to follow the decision in Brookfield. In my opinion Brookfield is significantly and clearly distinguishable, because of the existence of the statutory warranty and the part that it played in his Honour's reasoning. Accordingly, I do not regard myself as being bound by it, although I acknowledge that it must be accorded the respect appropriate to a superior court.
McDougall J emphasised the policy considerations created by the existence of the statutory warranties. A contrary position is that common law principles of duty of care should not necessarily be modified or qualified by reason of what the legislature has determined not to do in a particular set of circumstances. There may be many reasons why the legislature has seen fit to create implied statutory warranties for certain residential developments, and has not extended those warranties to developments which contain some commercial flavour. Whatever those reasons, and I do not think they can be discerned with any confidence, they play no part in my opinion in determining whether a duty of care recognised for many years by the law should not be applied in circumstances where they would otherwise be applicable.
The obverse side of the policy considerations espoused by McDougall J is that the plaintiff is only seeking a remedy as against latent building defects negligently created by the builder. It is not a case of imposing some unnecessary financial burden on the builder, but one, as a matter of policy, of providing relief for the plaintiff where firstly it was not a party to the building contract, secondly its existence immediately on completion of the building works and registration of the strata plan could clearly have been anticipated by the builder and thirdly its cause of action is based on breach of a duty to take reasonable care.
The second reason given in Brookfield for declining to follow Bryan was that Bryan was based on proximity, a concept overtaken by a consideration of matters such as vulnerability. The joint judgment in Woolcock, in a passage which I have earlier reproduced attempted to explain Bryan in terms of vulnerability. The mere fact that Bryan was based on proximity would not, per se, give cause to decline to follow that decision if the proceedings fell within permitted concepts of vulnerability. Indeed, McDougall J acknowledged as such in [149], but had no need to consider that matter for the purpose of those proceedings.
In these proceedings, the plaintiff , in written submissions asserted that it was "particularly vulnerable' as to the risk of economic loss. I reproduce paragraph 25 of those submissions;
25. As to vulnerability, the Owners Corporation here was particularly vulnerable to the risk of economic loss, in circumstances where the uncontroversial facts include the following:
(1) it did not exist when Kingston contracted with Grosvenor to carry out the work;
(2) it did not exist when the works were being carried out;
(3) it only came into existence when the Strata Plan was registered, after the works had been completed, at which time the common property vested in it and it (not the developer) was forthwith burdened with the responsibility of maintaining and repairing that common property;
(4) it was unable to take any steps to protect itself against the risk of economic loss from the work carried out on the common property by Kingston; and,
(5) it is not protected against such loss by the statutory warranties that might otherwise inure to its benefit as a successor in title to Grosvenor, or under any other mechanisms employed by the Home Building Act to protect property owners, including the 'implied' contracts that arise by operation of sections 18B and 18C of the Home Building Act.
The third reason advanced by McDougall J for denying the existence of a duty of care is based on the lack of a duty of care between the builder and the owner because of the existence of a detailed building contract. For reasons which I have earlier set out I have respectfully come to a different view about the application of the material contained in [47] of the decision of the High Court in Astley.
For completeness I should also refer to the plaintiff's primary submission that the duty of care upon which it relies is well recognised by the authorities, and clearly applies to the circumstances of in these proceedings.
It relied, inter alia, on a classic statement on the circumstances in which the courts will recognise the existence of a duty of care to avoid causing economic loss, as contained in the judgment of Deane J in Hawkins v Clayton (1988) 164 CLR 539. At 577 - 8 Deane J said;
25. The identity and relative importance of the factors which are determinative of the existence of a relevant relationship of proximity vary in different categories of case (see, e.g., Jaensch v. Coffey, at p 585; Heyman, at pp 497-498). It is so with respect to the factor of physical nearness, in the sense of space and time. In the case of an activity which involves a foreseeable risk of causing direct physical injury to those nearby, physical nearness will ordinarily suffice to create a relevant relationship of proximity (see per Lord Esher M.R., Le Lievre v. Gould (1893) 1 QB 491, at p 497). On the other hand, it is not necessary for the existence of a relationship of proximity in some other categories of case for there to have been any physical proximity between the parties concerned. Indeed, a relationship of proximity can exist with, and a duty of care can be owed to, a class of persons which includes members who are not yet born or who are identified by some future characteristic or capacity which they do not yet have. Cases involving damage by reason of a latent defect in property demonstrate the point. Thus, a relationship of proximity ordinarily exists between the architect or builder of a residential building (e.g. a maternity hospital) and the members of the class of persons who will in future years be born or housed in it. That relationship of proximity is such as to give rise to a duty of care to avoid a real risk of injury by reason of faulty design of the building. The duty of care is owed to each member of the class. If, by reason of the negligence of architect or builder, the building subsequently collapsed and a particular baby was injured, that baby would have a cause of action for the damage sustained by reason of the breach of the duty of care which may have been owed to him, and broken, by a person who has died before he was born. Cases, such as the present, involving economic damage which is, and was likely to be, sustained by the estate of an immediate party to the relationship provide examples where a relationship of proximity can exist with a person (perhaps unborn) by reason of some future characteristic or capacity which he does not yet have. If, for example, a professional man is in a relationship of proximity with a client which gives rise to a present duty of care to avoid future economic loss of a kind which obviously might be sustained either by the client or by his estate after his death, the relationship of proximity will ordinarily exist with a class which includes both the client, in respect of loss sustained during his life, and his legal personal representative in respect of injury sustained after his death. In such a case, the resultant duty of care will be presently owed both to the client and to the future legal personal representative (in his capacity as such).
Of course, the above extract needs to be considered in the context that notions of vulnerability have replaced those of proximity, as I have previously referred to.
The plaintiff also relied on the judgment of Allsop P in Precision Products (NSW) Pty v Hawkesbury City Council (2008) 74 NSW LR 102 at [105]
105 The duty is to prevent or avoid economic loss, beyond that which it is reasonably necessary to cause in the proper administration of the PEO Act. The circumstances in which the common law will impose a duty of care to avoid causing pure economic loss have been the subject of considerable debate and uncertainty in Australia since Caltex Oil (Australia) Pty Limited v The Dredge "Willemstad" [1976] HCA 65; 136 CLR 529. Since then, in a series of cases in the High Court culminating in Woolcock Street Investments v CDG (Bryan v Maloney [1995] HCA 17; 182 CLR 609; Hill v Van Erp [1997] HCA 9; 188 CLR 159; Esanda Finance Corporation Limited v Peat Marwick Hungerfords [1997] HCA 9; 188 CLR 241; Pyrenees Shire Council v Day; and Perre v Apand) the High Court has identified an approach based on the presence, in the particular circumstances, of "salient features" that, when combined, constitute or reflect a sufficiently close relationship to give rise to a duty of care. Such salient features include the inherent likelihood of the production of economic loss (Caltex at 576) and assumption of responsibility and known reliance (Bryan v Maloney and the negligent misrepresentation cases). The most important of these features, however, is vulnerability, in the sense discussed in the joint reasons of Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street Investments v CDG at 530 [23]:
"Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.
(Citations omitted)
Furthermore, as I understand the judgments in the High Court of Australia in Woolcock and Bryan, these are supportive of the existence of a duty of care of the kind relied upon by the plaintiff in these proceedings, as applying to someone who suffers economic loss by virtue of subsequent ownership of a building. The High Court has expressly declined to confine Bryan to residential premises. The plaintiff submitted that it was seeking to bring itself within a well established body of law, recognised by the High Court of Australia, consistent with the principles enunciated in that court.
The plaintiff also pointed out that it sought to apply this duty of care to itself claiming a determinate amount, for a determinate time to a determinate class, namely itself. Thus there were no policy reasons which would otherwise inhibit its entitlement to claim economic loss for breach.
Brookfield Multiplex and Stare Decisis
On the morning of 12 October 2012, shortly before I was due to deliver judgment that day in these proceedings, I was informed by the parties that McDougall J had handed down judgment in Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSW SC 1219. The facts in those proceedings were similar to those applying in his Honour's earlier judgment in Brookfield, save that in Brookfield Multiplex the statutory warranties implied under the Home Building Act 1989 (NSW), which were a feature in Brookfield, did not apply. Accordingly, the factual circumstances in Brookfield Multiplex are relevantly indistinguishable from the factual circumstances in these proceedings.
McDougall J applied His Honour's reasoning in his earlier decision of Brookfield, albeit that any consideration of the existence of statutory implied warranties was no longer relevant. His Honour first noted that the duty of care upon which the plaintiff relied is "one to avoid causing economic loss."
His Honour then commented that the duty of care in the circumstances of those proceedings was "novel". He said that senior counsel for the plaintiff had not been able to point to any case establishing a duty of care "of the kind alleged." In essence, his Honour's reasons for determining that the duty of care was novel were set out in paragraph 80 (4) of the judgment, which is in the following terms;
"(a) the conclusion that the builder owed a duty of care to a successor in title for the person for whom the house had been constructed depended on the anterior conclusion that the builder owed a duty of care to that earlier proprietor
(b) in circumstances where Brookfield and Chelsea had carefully negotiated out, in detail, the terms of their bargain there was no reason for imposing some separate duty of care as between Brookfield and Chelsea; and
(c) in any event the conclusion in Bryan depended on the proposition that there was a relationship of proximity between the builder and the subsequent owner; and the concept of proximity as a determinate of the existence of a duty of care has since been "discarded." .
McDougall J then went on to conclude that there was no room for the imposition of a duty of care in the circumstances of those proceedings because of the existence of the contractual terms which he considered established the respective rights and obligations of the parties in full. His Honour again referred to the extract from [47] in Astley.
McDougall J then referred to the implied statutory warranties and commented that they were, in effect, restricted to residential developments. His Honour said that it may be discerned from the restricted nature of this legislation that the legislature has not seen fit to create these implied statutory warranties beyond purely residential developments, and in particular to developments containing commercial apartments.
His Honour said;
103. Thus, a decision to impose a common law duty of care on a builder such as Brookfield that undertakes to construct such a development involves a conscious decision to extend, through the imposition of a common law duty of care, a benefit that the legislature appears to have withheld as a matter of deliberate policy choice.
104. It must be clear, I think, that contractors in the position of Brookfield price their work, and more generally undertake contractual obligations, with reference, among other things, to the contractual and statutory warranties by which they are bound. A decision to impose additional duties on such a contractor is, as Brennan J pointed out in Bryan, a serious matter. It requires attention to a range of factors, including the additional costs that would be imposed on contractors and the corresponding benefits to those in whose favour the duty of care might extend. That, in my view, is something to be undertaken by the legislature.
105. Even if the matter were not one to be dealt with only by the legislature, nonetheless the factors to which Brennan J referred, which focus attention on key policy considerations, show why it is appropriate that any principled extension of the law of negligence, of the kind that the Owners Corporation says it seeks in this case, is something to be undertaken a higher level in the curial hierarchy.
It was submitted by SKE, the defendant and the other cross defendant that I am bound by this more recent decision of McDougall J and must apply it.
The plaintiff submitted that on the basis of authority this court was not obliged to follow the decision of McDougall J, if I were to conclude that it was "plainly wrong." The decisions relied upon by the plaintiff were carefully analysed in submissions in reply by Mr McInerney. The thrust of those submissions is that the authorities relied upon by the plaintiff were appropriate when a court was considering a judgment of another court at the same level, whether a single instance judge or at appellate level. Without discussing these authorities in any detail, I am able to conclude that as a judge of an inferior court, I am bound to follow and apply a judgment of a judge of the Supreme Court of New South Wales. There is ample authority at appellate level to support this conclusion. If it were otherwise, the doctrine of stare decisis would be rendered nugatory, injecting even greater uncertainty into the administration of the common law.
I conclude that I am bound by the judgment of McDougall J in Brookfield Multiplex. The effect of that decision is that the defendant in the circumstances of these proceedings does not owe the plaintiff a duty of care. Accordingly, I am bound to dismiss the plaintiff's claim.
The question of costs was not argued before me. This matter may or may not be complicated by the fact that the carriage of the motion was conducted substantially by and at the suit of SKE, and it will be necessary to consider the costs implications on the cross claims. I shall reserve costs.
ORDERS
(1) Verdict for the defendant on the plaintiff's claim.
(2) Verdict for each of the cross defendants on the cross claims
(3) Costs reserved with liberty to apply
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Amendments
15 January 2013 - cases cited, solicitors and counsel added
Amended paragraphs: coversheet
Decision last updated: 15 January 2013
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