Woolcock Street Investments Pty Ltd v CDG Pty Ltd - [2004] HCA 16

HIGH COURT OF AUSTRALIA
GLEESON CJ,
McHUGH, GUMMOW, KIRBY, HAYNE, CALLINAN AND HEYDON JJ
WOOLCOCK STREET INVESTMENTS PTY LTD APPELLANT
AND
CDG PTY LTD (formerly Cardno & Davies
Australia Pty Ltd) & ANOR RESPONDENTS
Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16
1 April 2004
B19/2003
ORDER
Appeal dismissed with costs.

On appeal from the Supreme Court of Queensland
Representation:
D F Jackson QC with A M Daubney SC and G D Beacham for the appellant (instructed by Gilshenan & Luton Lawyers)
P A Keane QC with P D T Applegarth SC and M A Hoch for the respondents (instructed by Thynne & Macartney)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS
Woolcock Street Investments Pty Ltd v CDG Pty Ltd
Negligence – Duty of care – Where pure economic or financial loss – Whether engineer owed duty of care to subsequent owner of commercial premises – Salient features of relationship giving rise to duty – Vulnerability – Assumption of responsibility – Known reliance (or dependence) – Relevance of latent defects and structural defects.
Negligence – Duty of care – Where pure economic or financial loss – Whether engineer owed duty of care to subsequent owner of commercial premises – Construction of dwellings and construction of other buildings – Relevance of the contract with the original owner – Relevance of statutory protection.
Practice and procedure – Whether cause of action on agreed facts – Sufficiency of pleading – Limitations on determining separate questions.
Words and phrases – "salient features", "vulnerability", "assumption of responsibility", "known reliance (or dependence)", "construction of dwellings and construction of other buildings".
Home Building Act 1989 (NSW), ss 18A-18G, 90-99.
House Contracts Guarantee Act 1987 (Vic), ss 5-8.
Domestic Building Contracts Act 1995 (Vic), ss 8-10.
Building Work Contractors Act 1995 (SA), ss 32-35.
Building Act 1975 (Q), ss 52-53.
Queensland Building Services Authority Act 1991 (Q), ss 68-69, Sched 2.
Home Building Contracts Act 1991 (WA), ss 25A-25D.
Housing Indemnity Act 1992 (Tas), ss 7-9, 11-14.
Building Act 1972 (ACT), ss 62, 64-65.
GLEESON CJ, GUMMOW, HAYNE AND HEYDON JJ.
The issue

In 1987, the first respondent, a company carrying on the business of consulting engineers, designed foundations[1] for a warehouse and offices in Townsville. The land on which this building (referred to in the pleadings as "the Complex") was to be built was owned by the trustee of a property trust. Some years after the building was finished it was sold by the then trustee of the property trust to the appellant. The contract for the sale of the land did not include any warranty that the building was free from defect and there was no assignment by the vendor of any rights that the vendor may have had against others in respect of any such defects.
[1]The Case Stated generally spoke of the structure on which the building stood as its "foundations" rather than "footings" and of the material on which those structures sat as material "below the foundations" rather than "foundations". We adopt the language of the Case Stated in these reasons.
More than a year after the appellant bought the land, it became apparent that the building was suffering substantial structural distress. It is agreed that the distress was and is due to the settlement of the foundations of the building, or the material below the foundations, or both. The appellant alleges that the first respondent and its employee, the second respondent, each owed it a duty to take reasonable care in designing the foundations for the building. The respondents deny that they owed the appellant any duty of care; they deny that they acted in breach of any such duty; they say that despite advising the then owner of the land to allow them to obtain soil tests, the then owner instructed them to proceed without soil tests and to use structural footing sizes provided by the builder. Did the respondents owe the appellant a duty of care?
The procedural context
The appellant commenced proceedings in the Supreme Court of Queensland. After it had delivered a further amended statement of claim and each respondent had filed a defence to that pleading, the parties consented to an order stating a case for the opinion of the Court of Appeal. The question asked in the Case Stated was: "On the agreed facts, does the further amended statement of claim delivered on 11 April 2000 disclose a cause of action in negligence against the defendants?" The Case Stated set out some agreed facts, but those added little to the exiguous allegations of fact made in the pleadings.
The critical paragraphs of the appellant's statement of claim asserted that the respondents had owed it a duty of care but said very little about why that was so. It is as well to set out those paragraphs:
"6(a)The Complex was, at all material times, to be a permanent structure to be used indefinitely.
(b) It was, at all material times, foreseeable that:
(i)failure to design the structure of the Complex properly;
(ii)failure to design the foundations of the Complex properly;
(iii)failure to take any or any proper account of the sub‑soil conditions under the Complex; and/or
(iv)failing to construct the foundations properly,
would result in an owner of the Complex suffering loss and damage of the kind pleaded in paragraphs 3, 4 and 5 herein.
7The said loss and damage to the Plaintiff has been caused by reason of the negligence of the First Defendant and/or the Second Defendant in discharge of their respective duties to the Plaintiff."
Particulars were given under par 7 of the respects in which it was alleged that there had been a failure to discharge the duties.
The appellant's statement of claim took a form that is common enough in claims for negligence. The allegation of duty was rolled up with the allegation of breach. The pleading did allege that the respondents had been engaged to perform engineering work in connection with the construction of the building, a "permanent" structure, and alleged that the adverse consequences of which the appellant complained were foreseeable but it alleged no other matter bearing upon the existence of the asserted duty of care.
The question reserved for the opinion of the Court of Appeal could have been understood as inviting attention only to the sufficiency of the appellant's pleading. In both the Court of Appeal and this Court, however, the Case Stated has been treated as requiring an answer to a substantive question of law. That is, argument proceeded on the basis that this Court, and the Court of Appeal, were to assume that whether either respondent owed the appellant a duty of care was a question which could be resolved having regard only: first, to the facts set out in the Case Stated; secondly, to any inference that might reasonably be drawn from those facts; and thirdly, to the facts alleged in the appellant's statement of claim.
If a plaintiff is willing to have a point determined by reference only to the facts which that plaintiff chooses to put before the court, and the parties join in seeking determination of the issue, there may appear to be little reason to refuse to decide the point tendered by the parties. It is important, however, to recognise that there may be difficulty in using such procedures in cases in which it is necessary to consider developing, as distinct from applying, common law principles. The dangers of developing common law principle against an artificially constricted body of fact are self‑evident. That is why, in some cases, even if the parties join in asking a court to determine a question separate from trial of the facts, it may be prudent for the court to decline to answer the question presented as being one which it is inappropriate to answer[2]. Indeed, as Bass v Permanent Trustee Co Ltd illustrates[3], in some circumstances to answer a question may be contrary to the judicial process. If the question is answered, it is important to identify any limitations which the procedure adopted may impose on the breadth of any principle that is to be identified as having been established or applied.
[2]Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 357‑358 [51]-[53].
[3](1999) 198 CLR 334 at 359 [56]. See also Malika Holdings Pty Ltd v Stretton (2001) 204 CLR 290 at 308‑309 [61].
The Court of Appeal
The Court of Appeal answered the question reserved: "On the agreed facts, does the further amended statement of claim delivered on 11 April 2000 disclose a cause of action in negligence against the defendants?", "No"[4]. Both McMurdo P[5] and Thomas JA[6] (with whose reasons Douglas J[7] agreed) concluded that Bryan v Maloney[8] established that the builder of a dwelling may owe a duty of care to a remote purchaser. Their Honours concluded[9], however, that those who built or designed commercial buildings did not owe any duty of care to subsequent purchasers. As Thomas JA put the matter[10], "there is no good reason, in terms of principle or policy, to extend the decision in Bryan v Maloney to cases other than residential dwellings" (footnote omitted). McMurdo P was of the view that in Fangrove Pty Ltd v Tod Group Holdings Pty Ltd[11] the Court of Appeal had earlier considered and rejected what her Honour described[12] as "[t]he extension of the Bryan v Maloney principle to commercial buildings" and concluded that there was no reason to depart from that earlier decision[13].
[4]Woolcock St Investments Pty Ltd v CDG Pty Ltd (2002) Aust Torts Reports ¶81‑660.
[5](2002) Aust Torts Reports ¶81-660 at 68,793 [3].
[6](2002) Aust Torts Reports ¶81-660 at 68,795 [24].
[7](2002) Aust Torts Reports ¶81-660 at 68,799 [43].
[8](1995) 182 CLR 609.
[9](2002) Aust Torts Reports ¶81-660 at 68,794 [8] per McMurdo P, 68,799 [40] per Thomas JA.
[10](2002) Aust Torts Reports ¶81-660 at 68,799 [40].
[11][1999] 2 Qd R 236.
[12](2002) Aust Torts Reports ¶81-660 at 68,793 [5].
[13](2002) Aust Torts Reports ¶81-660 at 68,794 [8].
What did Bryan v Maloney decide?
Bryan v Maloney
In Bryan v Maloney, the Court (Mason CJ, Deane, Toohey and Gaudron JJ, Brennan J dissenting) decided that the builder of a dwelling house owed a subsequent purchaser, Mrs Maloney, of the house a duty to take reasonable care to avoid the economic loss which the subsequent purchaser suffered as a result of the diminution in value of the house when the fabric of the building cracked because the footings were inadequate. Both Mason CJ, Deane and Gaudron JJ in their joint reasons[14], and Toohey J in his separate reasons[15], noted that there was no direct relationship between the builder and the subsequent purchaser, but concluded[16] that the necessary relationship of proximity existed to warrant finding that the builder had owed the subsequent purchaser a duty of care.
[14](1995) 182 CLR 609 at 617, 619.
[15](1995) 182 CLR 609 at 663.
[16](1995) 182 CLR 609 at 628 per Mason CJ, Deane and Gaudron JJ, 665 per Toohey J.
It is important to identify the reasoning that underpinned this conclusion. It is convenient to do that by reference to the joint reasons of Mason CJ, Deane and Gaudron JJ. The reasons of Toohey J, although differently expressed, did not depend upon the application of any principles different from those applied in the joint reasons.
The joint reasons began by examining the relationship between the appellant (the builder) and the first owner of the house (Mrs Manion). They, of course, were the parties to the contract in performance of which the builder had built the house. That contract was said[17] to be "non‑detailed and [to contain] no exclusion or limitation of liability". Accordingly, the content of the contract was said not to preclude the existence of a duty of care owed by the builder to Mrs Manion, not only to take reasonable care to avoid injury to her person or property[18] but also to avoid "mere economic loss by Mrs Manion of the kind ultimately sustained by Mrs Maloney when the inadequacy of the footings became manifest"[19]. That was because
"the ordinary relationship between a builder of a house and the first owner with respect to that kind of economic loss is characterized by the kind of assumption of responsibility on the one part (i.e. the builder) and known reliance on the other (i.e. the building owner) which commonly exists in the special categories of case in which a relationship of proximity and a consequent duty of care exists in respect of pure economic loss."[20]
There was said[21] to be nothing to suggest that the relationship between the builder and the first owner was not characterised by such an assumption of responsibility and reliance.
[17](1995) 182 CLR 609 at 622.
[18](1995) 182 CLR 609 at 622‑623.
[19](1995) 182 CLR 609 at 623.
[20](1995) 182 CLR 609 at 624.
[21](1995) 182 CLR 609 at 624.
Four considerations were then identified as warranting the conclusion that a relationship of proximity also existed with the subsequent owner. First, the house was identified[22] as a "connecting link", it being a permanent structure and a significant investment for a subsequent owner like the respondent. Secondly, it was pointed out[23] that it was foreseeable that economic loss would likely result from negligent construction of the house. Thirdly, it was said[24] that there was no "intervening negligence or other causative event". Finally, the similarities with the relationship between the builder and the first owner as regards the particular kind of economic loss were said[25] to be "of much greater significance than the differences to which attention has been drawn, namely, the absence of direct contact or dealing and the possibly extended time in which liability might arise".
[22](1995) 182 CLR 609 at 625.
[23](1995) 182 CLR 609 at 625.
[24](1995) 182 CLR 609 at 625.
[25](1995) 182 CLR 609 at 627.
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.
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[26] 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.
[26](1995) 182 CLR 609 at 624.
Criticisms of Bryan v Maloney
The decision in Bryan v Maloney has not escaped criticism[27]. Some of those criticisms found reflection in the series of questions posed by Brooking JA in Zumpano v Montagnese[28]. It is not necessary, in this case, to attempt to deal with all of those criticisms, or to attempt to answer all of the questions posed in Zumpano. Rather, two points should be made.
[27]See, for example, I N Duncan Wallace, "Murphy Rejected: The Bryan v Maloney Landmark", (1995) 3 Tort Law Review 231; Allsop, "Bryan v Maloney and Other Developments in Relation to the Duty of Care in Tort", (1996) 7 Insurance Law Journal 81; Mead, "The Recovery of Economic Loss Arising from Defective Structures – Policy, Principle and the Amorphous Notion of Proximity as a General Concept", (1996) 12 Building and Construction Law 9; Brooking, "Bryan v Maloney – Its Scope and Future", in Mullany and Linden (eds), Torts Tomorrow – A Tribute to John Fleming, (1998) 57.
[28][1997] 2 VR 525 at 528‑536.
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[29], 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.
[29]For example, Zumpano v Montagnese [1997] 2 VR 525 at 528‑529 per Brooking JA.
Secondly, the decision in Bryan v Maloney depended upon the view[30] 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 recognizes 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[31] reveal that proximity is no longer seen as the "conceptual determinant" in this area.
[30](1995) 182 CLR 609 at 619.
[31]Hill v Van Erp (1997) 188 CLR 159 at 176‑179 per Dawson J, 189 per Toohey J, 210 per McHugh J, 237‑239 per Gummow J; Pyrenees Shire Council v Day (1998) 192 CLR 330 at 360‑361 [76] per Toohey J, 414 [238] per Kirby J; Perre v Apand Pty Ltd (1999) 198 CLR 180 at 209‑210 [74]‑[76] per McHugh J, 284 [281]‑[282] per Kirby J, 302 [333] per Hayne J; Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at 13 [3] per Gleeson CJ, 32‑33 [73], 33‑34 [77] per McHugh J, 56 [149] per Gummow J, 80 [222] per Kirby J, 96‑97 [270]‑[274] per Hayne J; Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254 at 275 [61] per Kirby J; Brodie v Singleton Shire Council (2001) 206 CLR 512 at 630‑631 [316] per Hayne J; Sullivan v Moody (2001) 207 CLR 562 at 578‑579 [48] per Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ; Tame v New South Wales (2002) 211 CLR 317 at 355‑356 [104]-[107] per McHugh J, 409 [268] per Hayne J; Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 at 583 [99] per McHugh J, 624‑625 [234]‑[236] per Kirby J.
Economic loss
The damage for which the appellant seeks a remedy in this case is the economic loss it alleges it has suffered as a result of buying a building which is defective. Circumstances can be imagined in which, had the defects not been discovered, some damage to person or property might have resulted from those defects. But that is not what has happened. The defects have been identified. Steps can be taken to prevent damage to person or property.
A view was adopted for a time in England[32] that, because there was physical damage to the building, a claim of the kind made by the appellant was not solely for economic loss. That view was questioned in Sutherland Shire
[32]Dutton v Bognor Regis Urban District Council [1972] 1 QB 373 at 396 per Lord Denning MR; Anns v Merton London Borough Council [1978] AC 728 at 759 per Lord Wilberforce.
[33](1985) 157 CLR 424 at 446‑447 per Gibbs CJ, 466 per Mason J, 471 per Wilson J, 490 per Brennan J, 504 per Deane J.
[34](1995) 182 CLR 609 at 617 per Mason CJ, Deane and Gaudron JJ, 657 per Toohey J; cf at 643 per Brennan J.
[35][1991] 1 AC 398.
Council v Heyman[33] and rejected in Bryan v Maloney[34]. It was subsequently also rejected by the House of Lords in Murphy v Brentwood District Council[35]. There is no reason now to reopen that debate and neither side in the present matter sought to do so. The damage which the appellant alleges it has suffered is pure economic loss.

Claims for damages for pure economic loss present peculiar difficulty. Competition is the hallmark of most forms of commercial activity in Australia. As Brennan J said in Bryan v Maloney[36]:
"If liability were to be imposed for the doing of anything which caused pure economic loss that was foreseeable, the tort of negligence would destroy commercial competition[37], sterilize many contracts and, in the well‑known dictum of Chief Judge Cardozo[38], expose defendants to potential liability 'in an indeterminate amount for an indeterminate time to an indeterminate class'."
That is why damages for pure economic loss are not recoverable if all that is shown is that the defendant's negligence was a cause of the loss and the loss was reasonably foreseeable.
[36](1995) 182 CLR 609 at 632.
[37]See per Lord Reid in Dorset Yacht Co v Home Office [1970] AC 1004 at 1027.
[38]Ultramares Corporation v Touche 255 NY 170 at 179 (1931) [174 NE 441 at 444].
In Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad"[39], the Court held that there were circumstances in which damages for economic loss were recoverable. In Caltex Oil, cases for recovery of economic loss were seen as being exceptions to a general rule, said to have been established in Cattle v Stockton Waterworks[40], that even if the loss was foreseeable, damages are not recoverable for economic loss which was not consequential upon injury to person or property. In Caltex Oil, Stephen J isolated a number of "salient features" which combined to constitute a sufficiently close relationship to give rise to a duty of care owed to Caltex for breach of which it might recover its purely economic loss[41]. Chief among those features was the defendant's knowledge that to damage the pipeline which was damaged was inherently likely to produce economic loss[42].
[39](1976) 136 CLR 529.
[40](1875) LR 10 QB 453.
[41]Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 576‑578. See also Hill v Van Erp (1997) 188 CLR 159 at 233‑234; Pyrenees Shire Council v Day (1998) 192 CLR 330 at 389 [168]; Perre v Apand Pty Ltd (1999) 198 CLR 180 at 254 [201] per Gummow J.
[42](1976) 136 CLR 529 at 576.
Since Caltex Oil, and most notably in Perre v Apand Pty Ltd[43], 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[44]. 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[45], 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[46], 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.
[43](1999) 198 CLR 180.
[44]Stapleton, "Comparative Economic Loss: Lessons from Case‑Law‑Focused 'Middle Theory'", (2002) 50 UCLA Law Review 531 at 558‑559.
[45](1997) 188 CLR 159.
[46](1997) 188 CLR 241.
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[47] and Shaddock & Associates Pty Ltd v Parramatta City Council [No 1][48] 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[49], 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.
[47](1968) 122 CLR 556; (1970) 122 CLR 628; [1971] AC 793.
[48](1981) 150 CLR 225.
[49](2002) 50 UCLA Law Review 531 at 558‑559.
The appellant's claim
On the facts set out in the Case Stated and alleged in the pleadings neither respondent owed the appellant a duty to take reasonable care to avoid the appellant suffering the economic loss which it alleges it suffered. As counsel for the respondents submitted, it was not alleged that the respondents breached any obligation to the original owner. Unlike Bryan v Maloney, it cannot be said, in this case, that the respondents owed the original owner of the land a duty to take reasonable care to avoid economic loss of the kind of which the appellant now complains. It was agreed in the Case Stated that, despite the first respondent obtaining a quotation for geotechnical investigations, the original owner of the land, by its manager, refused to pay for such investigations. (The respondents go further in their pleadings and allege that the original owner directed the adoption of particular footing sizes.) The relationship between the respondents and the original owner of the land was, therefore, not one in which the owner entrusted the design of the building to a builder, or in this case the engineer, under a simple, "non‑detailed" contract. It was a relationship in which the original owner asserted control over the investigations which the engineer undertook for the purposes of performing its work.
In its pleading the appellant did not allege that the relationship between the respondents and the original owner was characterised by that assumption of responsibility by the respondents, and known reliance by the original owner on the respondents, which is referred to in the joint reasons in Bryan v Maloney[50]. Such further facts as are agreed, far from supporting any inference that this was the nature of the relationship between the respondents and the original owner, point firmly in the opposite direction. There was not, therefore, what was referred to in Bryan v Maloney[51] as "an identified element of known reliance (or dependence)" or "the assumption of responsibility".
[50](1995) 182 CLR 609 at 624.
[51](1995) 182 CLR 609 at 619.
It follows that the appellant's contention that the respondents owed it a duty of care cannot be supported by the reasoning which was adopted in Bryan v Maloney. What we earlier referred to as the anterior step of demonstrating that the respondents owed a duty of care to the original owner is not made out.
The relevance of the contract with the original owner
In this case, as in Bryan v Maloney[52], it is not necessary to decide whether disconformity between the obligations owed to the original owner under the contract to build or design a building and the duty of care allegedly owed to a subsequent owner will necessarily deny the existence of that duty of care. However, as Windeyer J said in Voli v Inglewood Shire Council[53], the terms of the contract between the original owner and the builder (or, in this case, the respondents) "is not an irrelevant circumstance" in considering what duty a builder or engineer owed others[54]. At the least, that contract defines the task which the builder or engineer undertook. There would be evident difficulty in holding that the respondents owed the appellant a duty of care to avoid economic loss to a subsequent owner if performance of that duty would have required the respondents to do more or different work than the contract with the original owner required or permitted[55].
[52](1995) 182 CLR 609 at 624‑625.
[53](1963) 110 CLR 74 at 85.
[54]See also Hill v Van Erp (1997) 188 CLR 159 at 167 per Brennan CJ.
[55]cf Woollahra Municipal Council v Sved (1996) 40 NSWLR 101 at 120 per Priestley JA.
In Bryan v Maloney, it was found that there was no disconformity between the duty owed to the original owner and the duty owed to the subsequent owner. As Toohey J said[56], that case was "uncomplicated by anything arising from the contract between the appellant and Mrs Manion" (the original owner).
[56](1995) 182 CLR 609 at 665.
This case can be determined without deciding whether disconformity of the kind we have mentioned would always deny the existence of a duty of care to a subsequent owner. There are other reasons for concluding that the respondents owed no duty of care to prevent the economic loss of which the appellant complains.
No vulnerability
Neither the facts alleged in the statement of claim nor those set out in the Case Stated show that the appellant was, in any relevant sense, vulnerable to the economic consequences of any negligence of the respondents in their design of the foundations for the building. Those facts do not show that the appellant could not have protected itself against the economic loss it alleges it has suffered. It is agreed that no warranty of freedom from defect was included in the contract by which the appellant bought the land, and that there was no assignment to the appellant of any rights which the vendor may have had against third parties in respect of any claim for defects in the building. Those facts describe what did happen. They say nothing about what could have been done to cast on the respondents the burden of the economic consequences of any negligence by the respondents. The appellant's pleading and the facts set out in the Case Stated are silent about whether the appellant could have sought and obtained the benefit of terms of that kind in the contract.
It may be accepted that the appellant bought the building not knowing that the foundations were inadequate. It is not alleged or agreed, however, that the defects of which complaint now is made could not have been discovered. The Case Stated records that, before completing its purchase, the appellant sought and obtained from the relevant local authority a certificate that the building complied with the Building Act 1975 (Q) and some subordinate legislation. That the defects now alleged were not discovered by a local authority asked to certify whether the building was "a ruin or so far dilapidated as to be unfit for use or occupation or [was] ... in a structural condition prejudicial to the inhabitants of or to property in the neighbourhood"[57] says nothing about what other investigations might have been undertaken or might have revealed.
[57]Building Act 1975 (Q), s 53(2).
Finally, if it is relevant to know, as was assumed to be the case in Bryan v Maloney, whether buying the building represented a very significant investment for the appellant[58], there is nothing in the Case Stated or the appellant's pleading which bears on that question.
[58](1995) 182 CLR 609 at 625.
Overseas authorities
Similar questions to the one which is raised in this case have been considered by the courts of other jurisdictions. Some reference has already been made in these reasons to some decisions of the English courts. In addition, we were referred to Canadian[59], New Zealand[60], Malaysian[61] and Singaporean[62] authorities and, as well, to a number of decisions of United States State courts. Once it is recognised that foreseeability of negligently caused economic loss is a necessary but not sufficient condition for recovery of such loss, the critical question is: what more must be shown? The core of the appellant's contention in this Court was that because there is no difference in principle between a residential house and a purely commercial development like the one now in issue, the appellant was entitled to recover, just as the plaintiff in Bryan v Maloney had been held entitled to recover. The appellant did not contend that the Court should adopt any new or different principles for dealing with claims for negligently inflicted economic loss. In particular, it did not contend that principles of a kind which have found favour in other jurisdictions should now be adopted in Australia. It is, therefore, not necessary to discuss those decisions in these reasons.
[59]Winnipeg Condominium Corporation No 36 v Bird Construction Co [1995] 1 SCR 85; Martel Building Ltd v Canada [2000] 2 SCR 860; Cooper v Hobart [2001] 3 SCR 537.
[60]Invercargill City Council v Hamlin [1996] AC 624.
[61]Arab‑Malaysian Finance Bhd v Steven Phoa Cheng Loon [2003] 1 MLJ 567.
[62]RSP Architects Planners & Engineers (Raglan Squire & Partners FE) v Management Corporation Strata Title Plan No 1075 [1999] 2 SLR 449.
Conclusion and orders
The present case arises in a different factual context from that considered in Bryan v Maloney and can be decided without determining whether doubt should now be cast upon the result at which the Court arrived in that case. The actual decision in Bryan v Maloney has now been overtaken, at least to a significant extent, by various statutory forms of protection for those who buy dwelling houses which turn out to be defective. Reference is made to those provisions in the reasons of Callinan J. No doubt, as recognised earlier in these reasons, the principles applicable in cases of negligently inflicted pure economic loss have evolved since Bryan v Maloney was decided. Neither the principles applied in Bryan v Maloney, nor those principles as developed in subsequent cases, support the appellant's contention that on the facts agreed in the Case Stated and alleged in its statement of claim the respondents owed it a duty of care to avoid the economic loss which it alleged it suffered.
The appeal should be dismissed with costs.
McHUGH J. The question in this appeal is whether it is a principle of the Australian law of torts that those involved in the design or construction of commercial premises owe a duty to subsequent purchasers of the premises to take reasonable care to ensure that the building is free from defects so as to prevent pure economic loss to those purchasers. In my opinion, the Australian law of torts imposes no such duty. Moreover, although the point does not arise directly for decision, it must follow that, in the absence of a contract, those involved in the design or construction of commercial premises do not owe such a duty in tort to the first owner of the premises. Where there is a contract between the first owner and those involved in the design or construction of the building, notions of assumption of responsibility and reliance may be sufficient to create a duty in tort as well as obligations in contract. Without re‑introducing the discarded doctrine of proximity, no distinction can be drawn between the case of a first owner and the case of a subsequent purchaser in the absence of a contract with the defendant.
Statement of the case
Woolcock Street Investments Pty Ltd ("Woolcock") brings this appeal against an order of the Court of Appeal of Queensland. The effect of the order was that the respondents, in providing services concerning the construction of a building complex, did not owe Woolcock, as a subsequent purchaser of the building, a duty to take care to protect it from pure economic loss.
The building consists of warehouses and offices and has no dwellings. It was built for a company that was the trustee of a property trust and owned the land on which the building was erected. By late 1987, construction of the building was substantially completed. Woolcock purchased the building in September 1992 from a company that was the successor trustee of the property trust. The contract for sale of the building contained no warranty that it was free of defects. Nor did it assign to the purchaser any rights that the vendor might have against those involved in the design and construction of the building. Before entering into the contract for sale, Woolcock did not retain an expert to inspect the building and did not inquire of the tenants or their agents whether the premises had any structural defects.
Substantial structural distress to the building became apparent in 1994. The distress was caused by the settlement of the foundations or the material below the foundations. Woolcock claims that the damage that it suffered from the subsidence was caused by the negligence of the first and second respondents to the appeal. It claims that it is entitled to damages from the respondents under the principle propounded by this Court in Bryan v Maloney[63]. In Bryan, the Court held that the builder of a dwelling house owes a duty to a subsequent purchaser of the house to take reasonable care to avoid reasonably foreseeable decreases in its value resulting from latent defects in the house.
[63](1995) 182 CLR 609.
The first respondent to the appeal is a company that carries on business as a consulting engineer. It designed the building and provided supervision services in respect of its construction. The second respondent is a qualified civil engineer who was employed by the first respondent and acted as the project manager in respect of the design and construction of the building. In the performance of its services, the first respondent obtained a quotation from another company as to the cost of investigating the sub-soil conditions under the proposed building. Investigation would have required the digging of auger holes at locations on the site and the testing of samples of soil. However, the company undertaking the development of the site for the owner refused to pay for these investigations. Consequently, the construction proceeded without testing the suitability of the sub-soil for the building that was to be constructed.
After discovering the subsidence, Woolcock sued the respondents in the Supreme Court of Queensland for damages claiming that it had suffered economic loss as a result of the respondents' negligent design or negligent supervision during the construction of the building. Subsequently, Atkinson J stated a Case for the Court of Appeal of the Supreme Court of Queensland. The Case Stated asked a single question:
"On the agreed facts, does the Further Amended Statement of Claim ... disclose a cause of action in negligence against the defendants?"
The Court of Appeal (McMurdo P, Thomas JA and Douglas J) held that that question should be answered "No". Their Honours held that the principle formulated in Bryan v Maloney did not extend and should not be extended to the purchasers of commercial premises. If change in the law is to be made, this Court or the legislature should make it.
Subsequently, this Court gave Woolcock special leave to appeal against the order of the Court of Appeal.
The action in tort for damages for pure economic loss
Since the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd[64], confusion approaching chaos has reigned in the law of negligence. At all events, it has reigned in that branch of negligence law concerned with a plaintiff suffering economic loss that does not result from injury to the plaintiff's person or property. Hedley Byrne held that a banker might owe a duty to take care to a plaintiff who had requested a credit reference concerning a third party with whom the plaintiff was proposing to deal. On the facts of that case, the House of Lords held that the defendant owed no duty to the plaintiff. But the recognition that, in the absence of a contractual or fiduciary obligation, a person could owe a duty to take reasonable care to prevent pure economic loss to another person has had a dramatic effect on the development of the common law.
[64][1964] AC 465.

Until Hedley Byrne, the accepted rule of the common law was that, absent a contractual, fiduciary or statutory duty, persons such as a banker owed no duty to prevent a plaintiff from suffering economic loss not resulting from injury to their person or property[65]. This was known as the "exclusionary" rule. The principal reason for the common law's reluctance to impose a duty of care in such cases was the fear that imposing liability on the defendant would result in an indeterminate liability in an indeterminate amount to an indeterminate number of persons[66]. The common law was particularly fearful of the consequences that might flow from permitting actions to be brought in respect of negligent statements because they were likely to cause economic losses more often than they would cause physical injury. Haunting the corridors of the common law was the spectre of the cartographer being held liable to all the passengers and all the owners of a ship and its cargo that had been sunk by the cartographer's negligence in omitting to mark a reef on a map.
[65]Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] AC 1 at 15-17.
[66]Ultramares Corporation v Touche 174 NE 441 at 444 (1931).
Not only might a defendant be liable to an indeterminate number of persons who directly suffered pure economic loss as the result of the defendant's negligence but in many cases that negligence might have indirect economic consequences for those involved with those directly injured. Were these secondary victims also to be compensated for losses that the defendant had caused and ought reasonably to have foreseen? Fear of this "ripple" effect[67] of the defendant's negligence played its part in inducing the common law to hold that, absent a contractual duty, a person owed no common law duty to prevent pure economic loss to others. In some cases, the common law and statute – Lord Campbell's Act, for example – allowed a person to recover "pure" economic loss in a derivative action based on a breach of a duty owed to a physically injured person. The action per quod servitium amisit was perhaps the best known example of such a common law cause of action[68]. But otherwise the common law set its face against a claim for pure economic loss that did not arise from a breach of contract or a fiduciary or statutory duty.
[67]Perre v Apand Pty Ltd (1999) 198 CLR 180 at 221 [106].
[68]Commissioner for Railways (NSW) v Scott (1959) 102 CLR 392.
One can be sure that the Law Lords who decided Hedley Byrne did not foresee the consequences that their decision would have for the law of negligence. Although their Lordships' reasons differ, they appear to have believed that, in the case of negligent statements, a claim for economic loss would lie only where the defendant had or could be supposed to have assumed responsibility for the statement. But, once the Law Lords indicated that the so-called exclusionary rule concerning economic loss was no longer exclusionary, actions for "pure" economic loss could not be confined to claims of negligent statement. As a result, appellate courts in the United Kingdom, Canada, New Zealand and Australia have spent much time deciding whether or not defendants owed a duty of care to prevent pure economic loss to plaintiffs. It is not unfair to say that the results have been less than successful. Not only have the courts of different jurisdictions formulated different principles and rules for determining the issue of duty but ultimate appellate courts have reached conflicting decisions in cases where the material facts were similar, if not identical. Nowhere has the conflict in the ultimate appellate courts of various jurisdictions been more obvious than in the law of negligence concerning defective premises.
United Kingdom case law concerning defective premises
In England, judicial opinion has varied both as to the nature of the loss suffered by a purchaser of premises who subsequently discovers that they are defective and as to the circumstances that may or may not give rise to a cause of action in respect of the defects. In Anns v Merton London Borough Council[69], the House of Lords held that in some circumstances an action might be brought where the plaintiff has suffered financial loss as the result of purchasing a defective building. Lord Wilberforce, who gave the leading speech, formulated a two-stage test of duty that for a time proved influential and is still substantially followed in New Zealand and Canada. He said[70]:
"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".
[69][1978] AC 728.
[70][1978] AC 728 at 751-752.
His Lordship went on to say that, in the case of buildings, the cause of action "can only arise when the state of the building is such that there is present or imminent danger to the health or safety of persons occupying it"[71]. Lord Wilberforce classified the defect in that case – cracks in the walls and sloping floors – as "material, physical damage"[72]. In Pirelli General Cable Works Ltd v Oscar Faber & Partners[73], the House of Lords confirmed the proposition that the damage in such cases was physical damage. On this classification of the damage, an action brought in respect of defective premises was a straightforward action for damages for injury to property. Accordingly, such a case fell under the principle formulated by the House of Lords in Donoghue v Stevenson[74]. Classifying the damage as physical, however, created problems for the purchasers of buildings. Such a claim suffered from the difficulty that the cause of action was complete when the damage occurred. If the defect was not discovered until many years after the plaintiff had acquired the premises, the plaintiff might be met with the defence that the action was statute barred.
[71][1978] AC 728 at 760.
[72][1978] AC 728 at 759.
[73][1983] 2 AC 1 at 16.
[74][1932] AC 562.
In an earlier decision – Junior Books Ltd v Veitchi Co Ltd[75] – however, the House of Lords had classified a claim for the cost of replacing defective flooring as one of pure economic loss. This classification was approved in D & F Estates Ltd v Church Commissioners for England[76]. There, the House of Lords held that, where a claim is based upon the defective condition of the building, the claim is one of pure economic loss. The House held that such a case is distinguishable from an action where the claim is that the defective premises caused physical injury to the plaintiff or damaged other tangible property of the plaintiff. These latter claims fall under the Donoghue v Stevenson principle. In Murphy v Brentwood District Council[77], the House of Lords confirmed that a claim based on loss arising out of the discovery that premises were defective was a claim for pure economic loss. In D & F Estates Ltd, the House held that the cost of replacing the defective plaster work of a sub-contractor was not an item of damage for which a builder "could possibly be made liable in negligence under the principle of Donoghue v Stevenson or any legitimate development of that principle"[78]. In Murphy, the House held that neither a builder nor a council that had approved the building plans could be liable for the cost of repairing a defect in a building discovered by a subsequent purchaser before the defect had caused any injury to person or other property. Such a claim was one for pure economic loss.
[75][1983] 1 AC 520.
[76][1989] AC 177.
[77][1991] 1 AC 398.
[78][1989] AC 177 at 207.
Canadian case law concerning defective premises
Canadian courts have reached a diametrically opposed view to that prevailing in the United Kingdom since Murphy. In City of Kamloops v Nielsen[79], the Supreme Court of Canada held that an action by a subsequent purchaser of premises to recover the cost of repairing dangerously defective foundations was a claim for pure economic loss but could be maintained. Two years later in Central Trust Co v Rafuse[80], the Supreme Court of Canada held that Kamloops had formulated:
"a general rule that a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence".
[79][1984] 2 SCR 2.
[80][1986] 2 SCR 147 at 224.
This principle was again confirmed by the Supreme Court of Canada in Winnipeg Condominium Corporation No 36 v Bird Construction Co[81]. In a unanimous judgment, the Supreme Court held that, if defective premises constitute a "real and substantial danger to the inhabitants of the building"[82], the cost of repairing the building is recoverable in an action in negligence from those involved in its construction.
[81][1995] 1 SCR 85.
[82][1995] 1 SCR 85 at 116. Other suggested criteria were: "a substantial danger to the health and safety of the occupants" at 121 and "foreseeable and substantial danger to the health and safety of the occupants" at 129.
New Zealand case law concerning defective premises
New Zealand courts have been the most liberal of the courts in common law jurisdictions in permitting an action in negligence for economic loss caused by defective premises[83]. In Bowen v Paramount Builders (Hamilton) Ltd[84], three members of the Court of Appeal regarded the common law as recognising a cause of action on the part of a purchaser who later discovered a defect in premises. The Court treated the case as one of physical damage. Then in Mount Albert Borough Council v Johnson[85], Cooke and Somers JJ held that the purchaser of a defective building was entitled to sue "in tort for economic loss caused by negligence, at least when the loss is associated with physical damage"[86]. However, their Honours held that the right of action accrued only when the defect became apparent or manifest[87].
[83]Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394; Mount Albert Borough Council v Johnson [1979] 2 NZLR 234; Stieller v Porirua City Council [1983] NZLR 628; [1986] 1 NZLR 84; Brown v Heathcote County Council [1986] 1 NZLR 76; Chase v de Groot [1994] 1 NZLR 613; Invercargill City Council v Hamlin [1994] 3 NZLR 513.
[84][1977] 1 NZLR 394 at 410, 414, 417, 422-423.
[85][1979] 2 NZLR 234.
[86][1979] 2 NZLR 234 at 239.
[87][1979] 2 NZLR 234 at 239.
After a series of cases where plaintiffs successfully sued councils in negligence over the presence of defects in premises, the issue came before the New Zealand courts again in Invercargill City Council v Hamlin[88]. A majority of the Court of Appeal held that the plaintiff's cause of action arose when the plaintiff (the first owner) first discovered or ought reasonably to have discovered the defect[89] and that the plaintiff could recover against the Council, which had inspected the foundations but negligently failed to note that they were not in accordance with the plans. The Court of Appeal held that there was sufficient proximity between the Council and the first owner because the Council had assumed responsibility for the inspection and the plaintiff had relied on the Council. The Judicial Committee of the Privy Council upheld the majority's decision. So far as the nature of the damage was concerned, Lord Lloyd of Berwick said[90]:
"In other words, the cause of action accrues when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert. Since the defects would then be obvious to a potential buyer, or his expert, that marks the moment when the market value of the building is depreciated, and therefore the moment when the economic loss occurs."
His Lordship thought that the Court of Appeal's perception of the prevailing circumstances in New Zealand justified it taking a different view of the law from that taken in Murphy[91]. The Judicial Committee held, therefore, that in New Zealand a subsequent purchaser could sue a council that had negligently approved a building that was not in accordance with the approved plans.
[88][1994] 3 NZLR 513.
[89][1994] 3 NZLR 513 at 522-524.
[90][1996] AC 624 at 648.
[91][1991] 1 AC 398.
Australian case law concerning defective premises
Australian courts have long held that a person who suffers physical injury as the result of the defective design or execution of building work may sue in tort for the injury[92]. In Sutherland Shire Council v Heyman[93], however, this Court held that the Council owed no duty to the second owners of a house to take reasonable care to ensure that the house had been constructed in accordance with plans that it had approved so as to prevent them suffering economic loss from defects in the house. After buying the house, the owners were forced to expend money to repair cracking and other problems resulting from faulty foundations. No member of the Court was willing to apply the general principle formulated by Lord Wilberforce in Anns v Merton London Borough Council. Gibbs CJ and Wilson J held that the evidence did not establish that the Council had acted negligently in exercising its discretionary power to inspect the premises. Mason, Brennan and Deane JJ held that the Council owed no relevant duty of care to the plaintiffs because they had not relied on any inquiry of the Council concerning the foundations or inspection. Mason, Wilson and Brennan JJ made no finding as to whether the damage giving rise to the action was physical damage or pure economic loss. However, Gibbs CJ held[94] that the damage was physical damage. Deane J held that it was economic, not physical, damage. He held[95] that, as a result of the defective foundations, the owners suffered pure economic loss upon the market value of the house falling when the defect was "first known or manifest". By "manifest", Deane J meant "discoverable by reasonable diligence"[96]. The view of Deane J as to the nature of the damage has prevailed[97]. It is economic loss, not physical damage.
[92]Voli v Inglewood Shire Council (1963) 110 CLR 74; Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588.
[93](1985) 157 CLR 424.
[94](1985) 157 CLR 424 at 447.
[95](1985) 157 CLR 424 at 505.
[96]Hawkins v Clayton (1988) 164 CLR 539 at 588.
[97]Bryan v Maloney (1995) 182 CLR 609 at 617.
In Bryan v Maloney[98], a majority of this Court reached the opposite conclusion from that reached by the House of Lords in D & F Estates Ltd and Murphy v Brentwood District Council. Expressly or inferentially, the Court approved the decisions – but not necessarily the reasoning – in the Canadian and New Zealand cases to which I have referred. The majority (Mason CJ, Deane, Toohey and Gaudron JJ) held that the builder of a house owed a duty to a subsequent purchaser to take reasonable care to avoid reasonably foreseeable decreases in its value arising from the consequences of latent defects caused by the house's defective construction. Brennan J dissented.
[98](1995) 182 CLR 609.
The ratio decidendi of Bryan v Maloney
The first issue in this appeal is whether the ratio decidendi of Bryan v Maloney covers the present case. If it does, Woolcock must succeed. If it does not, a further issue arises as to whether this Court should hold that those involved in the building of commercial premises owe a duty to subsequent purchasers that is similar to the duty owed by a builder to a subsequent purchaser of a dwelling house.
The common law distinguishes between the holding of a case, the rule of the case and its ratio decidendi. The holding of a case is the decision of the court on the precise point in issue – for the plaintiff or the defendant. The rule of the case is the principle for which the case stands – although sometimes judges describe the rule of the case as its holding. The ratio decidendi of the case is the general rule of law that the court propounded as its reason for the decision.
Under the common law system of adjudication, the ratio decidendi of the case binds courts that are lower in the judicial hierarchy than the court deciding the case. Moreover, even courts of co‑ordinate authority or higher in the judicial hierarchy will ordinarily refuse to apply the ratio decidendi of a case only when they are convinced that it is wrong.
Prima facie, the ratio decidendi and the rule of the case are identical. However, if later courts read down the rule of the case, they may treat the proclaimed ratio decidendi as too broad, too narrow or inapplicable[99]. Later courts may treat the material facts of the case as standing for a narrower or different rule from that formulated by the court that decided the case. Consequently, it may take a series of later cases before the rule of a particular case becomes settled. Thus for many years, courts and commentators debated whether the landmark case of Donoghue v Stevenson[100] was confined to manufacturers and consumers and whether the duty formulated in that case was dependent upon the defect being hidden with the lack of any reasonable possibility of intermediate examination[101]. If later courts take the view that the rule of a case was different from its stated ratio decidendi, they may dismiss the stated ratio as a mere dictum or qualify it to accord with the rule of the case as now perceived.
[99]See generally Llewellyn, The Case Law System in America, (1989) at 14-15, based on lectures given by Karl Llewellyn in 1928-1929 at the Leipzig Faculty of Law while on leave from Columbia University.
[100][1932] AC 562.
[101]cf Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49 at 62-68.
What then is the ratio decidendi of Bryan v Maloney? That question can be answered only by examining their Honours' reasoning, which I will summarise.
The reasoning in Bryan v Maloney
The starting point of the reasoning in the joint judgment[102] in Bryan v Maloney was that the builder, Mr Bryan, had constructed a house for a Mrs Manion on land that she owned. Later, she sold the land and the house to another couple who, seven years after the house was built, sold it to the plaintiff, Mrs Maloney[103]. The trial judge – who found in the plaintiff's favour – had awarded an amount of damages which "would necessarily be expended in remedying the inadequate footings and the consequential damage to the fabric of the house"[104]. Thus, the only damage sustained by the plaintiff "was mere economic loss in the sense that it was distinct from, and not consequent upon, ordinary physical injury to person or property"[105].
[102]Mason CJ, Deane and Gaudron JJ. (Toohey J in a separate judgment reached the same result.)
[103](1995) 182 CLR 609 at 615.
[104](1995) 182 CLR 609 at 616.
[105](1995) 182 CLR 609 at 617.
Their Honours said that two policy considerations could militate against recognition of a relationship of proximity in a case involving mere economic loss. First, the law was concerned to avoid the imposition of liability "in an indeterminate amount for an indeterminate time to an indeterminate class"[106]. Second, the common law feared that a duty to take care to avoid economic loss might be inconsistent with community standards in relation to what was ordinarily legitimate in the pursuit of personal advantage[107].
[106](1995) 182 CLR 609 at 618 citing Ultramares Corporation v Touche 174 NE 441 at 444 (1931).
[107](1995) 182 CLR 609 at 618.

The builder and Mrs Manion were parties to a contract, but the existence of the contract did not preclude a relationship of proximity between them under the law of negligence[108]. That did not mean that the existence of a contractual relationship was irrelevant to the existence of proximity or the content of a duty of care under the ordinary law of negligence[109]. However, the contract between the builder and Mrs Manion "was non-detailed and contained no exclusion or limitation of liability"[110]. Accordingly, neither the existence nor the content of the contract precluded the liability of Mr Bryan to Mrs Manion or Mrs Maloney under the law of negligence[111].
[108](1995) 182 CLR 609 at 619-620.
[109](1995) 182 CLR 609 at 621.
[110](1995) 182 CLR 609 at 622.
[111](1995) 182 CLR 609 at 622.
Their Honours said that a relationship of proximity clearly existed between the builder and Mrs Manion with respect to ordinary physical injury to her person or property. Accordingly, the builder was under a duty to exercise reasonable care in relation to the building work to avoid any reasonably foreseeable risk of such injury. While the relationship between the builder and Mrs Manion concerning physical injury had to be distinguished from the relationship between them concerning mere economic loss, the significance of the distinction varied according to the particular kind of economic loss. The distinction between physical damage to a house by external cause and mere economic loss in the form of diminution in its value when the inadequacy of its footings became manifest by consequent damage to its fabric was "an essentially technical one"[112].
[112](1995) 182 CLR 609 at 623.
"Moreover", said their Honours, "the policy considerations underlying the reluctance of the courts to recognize a relationship of proximity and a consequent duty of care in cases of mere economic loss are inapplicable to a relationship of the kind which existed between Mr Bryan and Mrs Manion as regards the kind of economic loss sustained by Mrs Maloney."[113] To the contrary, there were strong reasons for acknowledging the existence of a relevant relationship between the builder and the first owner with respect to that kind of economic loss[114]. Their Honours said[115]:
"In particular, the ordinary relationship between a builder of a house and the first owner with respect to that kind of economic loss is characterized by the kind of assumption of responsibility on the one part (i.e. the builder) and known reliance on the other (i.e. the building owner) which commonly exists in the special categories of case in which a relationship of proximity and a consequent duty of care exists in respect of pure economic loss."
[113](1995) 182 CLR 609 at 623.
[114](1995) 182 CLR 609 at 624.
[115](1995) 182 CLR 609 at 624.
Prima facie, a relationship of proximity also existed between the builder and persons such as Mrs Maloney who might sustain physical injury to person or property as a consequence of inadequate footings of part of the house while they or their property were lawfully in the house or in its vicinity[116].
[116](1995) 182 CLR 609 at 624.
Whether the relationship that existed between the builder and a subsequent owner possessed the relevant degree of proximity to give rise to a duty to take reasonable care to avoid economic loss had to be considered in the context of the relationships of proximity to which their Honours referred[117]. Although the only connection between the builder and the subsequent owner was likely to be the house itself, their relationship was marked by proximity in a number of respects[118]:
.the house was a permanent structure which was to be used indefinitely and was likely to represent one of the most significant and possibly the most significant investment which the subsequent owner would ever make;
.it was foreseeable by the builder that the negligent construction of a house with inadequate footings was likely to cause economic loss when the inadequacy became manifest; and
.no intervening negligence or other causative event would occur between the construction and the sustaining of the economic loss.
[117](1995) 182 CLR 609 at 624-625.
[118](1995) 182 CLR 609 at 625.
Their Honours concluded[119]:
"Upon analysis, the relationship between builder and subsequent owner with respect to the particular kind of economic loss is, like that between the builder and first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss. In ordinary circumstances, the builder of a house undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners. Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the footings of the house than the first owner. Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment. Any builder should be aware that such a subsequent owner will be likely, if inadequacy of the footings has not become manifest, to assume that the house has been competently built and that the footings are in fact adequate."
[119](1995) 182 CLR 609 at 627.
I do not think that the ratio decidendi of Bryan v Maloney applies to the case of commercial premises. The ratio can be put no higher than that the builder of a dwelling house owes a duty to a subsequent purchaser to take reasonable care to avoid reasonably foreseeable decreases in its value arising from the consequences of latent defects caused by the house's defective construction. Neither the stated reasons of the Court nor the material facts of the case justify any wider conclusion. Certainly, they do not justify the conclusion that the ratio of the case covers commercial premises. That is not to say that the reasoning in Bryan v Maloney – or by analogy its material facts – may not lead to the conclusion that the common law recognises an identical or similar duty in respect of the builder of commercial premises. That requires further analysis. But it does mean that the ratio decidendi of Bryan v Maloney does not automatically determine the result of this appeal.
Moreover, a conclusive reason for finding that the ratio of Bryan v Maloney does not cover this case is that the Court decided it when the doctrine of proximity governed the Australian law of negligence, and its reasoning is based on that doctrine. Thus, Mason CJ, Deane and Gaudron JJ said[120]:
"The cases in this Court establish that a duty of care arises under the common law of negligence of this country 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."
[120](1995) 182 CLR 609 at 617.
It is unnecessary to determine whether the majority Justices would have reached the same result even if the doctrine of proximity was not regarded as binding. The decisive rejection of that doctrine by this Court in Sullivan v Moody[121] is sufficient reason for holding that the material facts of Bryan v Maloney cannot be used – even by way of analogy – as persuasive. Facts that are regarded as material for the purpose of one legal doctrine are not necessarily material for another doctrine. The materiality of facts depends on the principle or principles that is or are applied to them. Once the stated principle of a case is rejected or distinguished, the materiality of the particular facts of the case must depend on the new principle or doctrine that governs the case. Since the doctrine of proximity was rejected in Sullivan, the only ratio decidendi that can be extracted from Bryan v Maloney is one based on its principal facts and assumptions. Its ratio is that the builder of a dwelling house owes a duty to a subsequent purchaser who relies on the skill of the builder to protect that person from reasonably foreseeable decreases in value resulting from latent defects in the house. Bryan v Maloney does not govern this case.
The indicia of a duty to prevent pure economic loss as the result of constructing commercial premises
[121](2001) 207 CLR 562.
In Perre v Apand Pty Ltd[122], I listed five principles that I thought were "relevant in determining whether a duty exists in all cases of liability for pure economic loss". They were principles concerned with:
.          reasonable foreseeability of loss,
.          indeterminacy of liability,
.          autonomy of the individual,
.          vulnerability to risk, and
[122](1999) 198 CLR 180 at 220 [105].
.          knowledge of the risk and its magnitude.
I went on to say that, in particular cases, other policies and principles may guide and even determine the outcome of the case, but the principles concerning these five categories must always be considered. Accordingly, I turn to consider them and other relevant matters in the context of this case.
Reasonable foreseeability
The loss that Woolcock suffered in the present case was clearly foreseeable by the respondents. Consulting engineers like the respondents would clearly have foreseen that, if the foundations for the complex were liable to subsidence, the current owner of the building would be put to expense in repairing the damage caused by the subsidence. Courts have long held that engineers engaged in connection with the design of a building have a duty to examine the site to see whether the nature of the sub-soil is adequate for the proposed building[123]. Reasonable foreseeability of damage, however, is a necessary but not sufficient condition of a cause of action in negligence[124].
[123]Moneypenny v Hartland (1826) 2 Car & P 378 [172 ER 171]; Columbus Company v Clowes [1903] 1 KB 244; cf Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513 at 518, 519.
[124]Sullivan v Moody (2001) 207 CLR 562 at 576 [42].
Indeterminacy of liability
Indeterminacy of liability is a factor that will ordinarily defeat a claim that the defendant owed a duty of care to persons such as the plaintiff. But it is not likely to be a significant issue in cases concerned with economic loss suffered by the subsequent purchaser of a commercial building that is or becomes defective by reason of negligent design or construction. Liability will ordinarily be restricted to the owner of the building when damage manifests itself. Indeterminacy of liability may be a relevant factor where occupants of the building claim damages for economic loss arising out of the defective design or construction of the building. But when the first owner or a subsequent purchaser of a commercial building claims damages for pure economic loss, indeterminacy of liability is not an issue.
Autonomy of the individual
In Hill v Van Erp[125], I pointed out that "Anglo-Australian law has never accepted the proposition that a person owes a duty of care to another person merely because the first person knows that his or her careless act may cause economic loss to the latter person". Speaking generally, a person owes no duty to prevent economic loss to another person even though the first person intends to cause economic loss to that other person. This particular immunity from liability reflects the common law's concern with the autonomy of the individual and its desire to give effect to the choices of the individual by not burdening his or her freedom of action. Thus, as long as a person is legitimately protecting or pursuing his or her commercial interests, the common law does not require that person to be concerned with the effect of his or her conduct on the economic interests of other persons[126].
[125](1997) 188 CLR 159 at 211.
[126]Perre v Apand Pty Ltd (1999) 198 CLR 180 at 224 [115].
Questions concerning the autonomy of individuals do not seem relevant in the context of claims for damages for pure economic loss arising out of the defective design or construction of a building. Those involved in the building are already under a duty to the first owner to avoid physical injury to the owner's person and property. Consequently, imposing a duty to avoid economic loss to the first or a subsequent owner is not inconsistent with the pursuit of the legitimate interests of those who design or construct the building[127].
[127]Bryan v Maloney (1995) 182 CLR 609 at 623-624.
Vulnerability to risk
Whether or not the plaintiff was vulnerable to the risk of injury from the defendant's conduct is a key issue in determining whether the defendant owed a duty of care to the plaintiff. Indeed, the issue of the purchaser's vulnerability to economic loss is the critical issue in determining whether those involved in the construction of commercial premises owe a duty of care to the purchaser. In this context, vulnerability to risk means not that the plaintiff was exposed to risk but that by reason of ignorance or social, political or economic constraints, the plaintiff was not able to protect him or herself from the risk of injury.
Subject to the express terms of the contract, the first owner or purchaser has extensive contractual remedies open to him or her in respect of the negligent construction of the building. The ordinary building contract contains an implied term that the work will be done in accordance with the contractual stipulation, with proper materials[128], in a workmanlike manner and that the building will be reasonably fit for its purpose. Similar terms will be implied in the contracts made with other persons who are involved in the design or construction of the building. These contractual remedies will lie against those involved even in cases where sub-contractors have carried out the work or services. Such remedies usually provide sufficient protection against the problems that are likely to be encountered during the first few years of the building's life.
[128]Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454.
But extensive as contractual protection may be – it is unlikely to be narrower than in tort – it suffers from one shortcoming. A cause of action in contract arises upon breach. In the case of a defective building, the breach will frequently occur before the loss-causing defect manifests itself. Hence, the first owner of a commercial building may find that his or her claim in contract is outside the relevant limitation period and statute barred. Nevertheless, by insisting that the construction contract be made under seal, the first owner can ordinarily protect him or herself against most problems concerning a defective building that were reasonably foreseeable.
Still, even when the contract is under seal, the first owner may be left with a remedy that is unenforceable. When the defect does not manifest itself for some time, the first owner may find that the builder is insolvent[129] or in liquidation, or has gone out of business. If, as is often the case, the defect in the premises results from a sub‑contractor's negligence, holding that there is no duty in tort to guard against economic loss arising from the negligent design or construction of a building deprives the first owner of a valuable remedy against the sub-contractor. No doubt it may be possible in some cases for the first owner to enter into contractual indemnities or warranties with the sub-contractor. In other cases, the first owner may be able to sue the sub-contractor on any warranty given by the sub-contractor to the builder.
[129]Invercargill City Council v Hamlin [1996] AC 624 at 634.
The present case proceeded by way of Case Stated. There is no agreed fact as to whether it is a common practice for builders and their sub-contractors to agree to obligations concerning the condition of premises that might be enforced by the first owner of the premises. Leading writers on Australian construction law suggest a prudent principal should enter into a collateral contract with sub-contractors that contains appropriate warranties[130]. In Australia, professional institutions have endorsed particular contractual warranties whose purpose is to make the sub‑contractor liable to the principal[131].
[130]Dorter and Sharkey, Building and Construction Contracts in Australia: Law and Practice, 2nd ed (looseleaf service) at [5.630].
[131]Bailey, Construction Law in Australia, 2nd ed (1998) at 156.
A subsequent purchaser of a commercial building also has means of protecting him or herself against economic loss arising from the condition of the building. That person can obtain warranties from the vendor. The subsequent purchaser can also have the building examined by relevant experts. But even expert examination may not reveal the presence of latent defects. Moreover, some areas of concern – such as the stability of the foundations of the building – may be examined and tested only at considerable expense.
Although the first and subsequent owners may take steps to protect themselves contractually, it is clear that in some cases contractual remedies may not be sufficient to protect an owner against pure economic loss. In these cases, the owner will be compensated for economic loss only if the law of torts provides a cause of action.
The defendant's knowledge of the risk and its magnitude
The case for imposing a duty is always strengthened if the defendant actually knew of the risk. It is strengthened further if the defendant knew the magnitude of the risk. The significance of the defendant's knowledge of the risk of loss and its magnitude will depend on the facts of each case. However, it would be a rare case where those involved in the construction of commercial premises would not be aware of the risks arising from particular defects and their potential magnitude. In the present case, the respondents were fully aware of the risk – they asked for the site to be tested for the purpose of determining whether there were risks of subsidence. And the inference is irresistible that, as consulting engineers, they were well aware of the magnitude of the damage that the owner of the building would suffer if the risk should eventuate.
Other policy factors
In addition to the factors that I referred to in Perre v Apand Pty Ltd as relevant, other factors are also relevant in determining whether a duty of care is owed in respect of the negligent design or construction of commercial premises. They include:
Responsibility to control third parties
The common law has always been reluctant to impose a duty to control others[132]. In the area of defective building work, the issue of controlling third parties usually arises in respect of sub-contractors. In D & F Estates Ltd[133], for example, it was on this ground that the House of Lords refused to hold a builder liable for the negligence of a plasterer who was a sub‑contractor. But if, as is usually the case, there is a contract between the owner and builder, the builder will already be under a practical, if not legal, obligation to supervise the work of any employed sub-contractors. Clause 9.5 of the Australian Standard General Conditions of Contract AS 4000‑1997 makes the contractor liable to the principal "for the acts, defaults and omissions of subcontractors" unless the contract otherwise provides. Despite the decision in D & F Estates Ltd, issues concerning the control of third parties do not seem significant in the present context in Australia.
[132]Smith v Leurs (1945) 70 CLR 256 at 262; Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254 at 263-264 [18]-[21], 291-293 [108]-[113].
[133][1989] AC 177.
Outflanking the law of contract

A finding that a duty of care is owed is efficient and encourages responsible commercial and professional behaviour. As to the respondents' suggestion that the appropriate way for a buyer to protect itself is to obtain a contractual warranty, the appellant's answer is that a vendor who is liable would almost certainly join the negligent professional responsible for the defect: in consequence, the loss would ultimately be borne by the same party, but only after additional legal costs (incurred by the seller) are expended.
Reasoning
I am unable to accept the appellant's submissions for several reasons. The joint judgment of Mason CJ, Deane and Gaudron JJ in Bryan v Maloney repeatedly emphasized that it was because the Court was concerned with a dwelling house and purchaser of it[287] that their Honours were drawn to the conclusion that they reached. Their Honours also made assumptions including that a purchaser, in buying a dwelling house in this country is probably making the most significant investment that he or she will make in a lifetime[288]. Others were that "a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment."[289]
[287](1995) 182 CLR 609 at 625-627.
[288](1995) 182 CLR 609 at 625.
[289](1995) 182 CLR 609 at 627.
With respect, I think that what was said by Brennan J in Bryan v Maloney is more persuasive[290]:
"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[291]. 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 is 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."
[290](1995) 182 CLR 609 at 644.
[291]See Winnipeg Condominium Corp No 36 v Bird Construction Co (1993) 101 DLR (4th) 699 at 711. The observation of Huband JA with reference to "caveat emptor" is apposite to a remote purchaser's rights in respect of mere defects in a building. The decision of the Manitoba Court of Appeal was reversed by the Supreme Court which considered the defects to be a substantial danger to the health and safety of the occupants: [1995] 1 SCR 85.
I regard myself as free to adopt that passage in this, a case of a commercial structure, to which it has in my opinion, a particular relevance, even though his Honour's judgment was a dissenting judgment. This case is distinguishable from Bryan v Maloney, and, if the appellant's claim here were to be allowed, would represent a marked and unwarranted extension of it.
There is in my respectful opinion, in any event, reason to question the correctness of Bryan v Maloney itself. It was decided at a time when the jurisprudence of this Court in cases of tort was more heavily influenced by notions of proximity[292] than it currently is. But it is not for that reason only that I would question its correctness.
[292]See for example (1995) 182 CLR 609 at 625 per Mason CJ, Deane and Gaudron JJ.
Neither the appellant here, nor indeed a purchaser of any premises, whether a dwelling or otherwise, is especially vulnerable, and unable to protect itself as the appellant contends. Here the appellant chose to seek an inspection and report by the local authority under s 53 of the Building Act 1975 (Q) which provided as follows:
"Building etc dangerous, neglected or unfit for use or occupation
53 (1) If in the opinion of a local authority formed on reasonable grounds any building or other structure or any part of a building or other structure is dangerous, the local authority may, subject to section 54, by notice in writing, require the owner of the building or structure to do any 1 or more of the following:-
(a)shore‑up or otherwise secure such building or structure or part;
(b)erect a proper hoarding or fence for the protection of persons using any road, path or way upon which the building or structure or part abuts;
(c)demolish or take down the building or structure or part;
(d)      repair the building or structure or part;
(e)      remove the building or structure or part;
as the local authority directs within the time specified in the notice.
(2) If in the opinion of a local authority formed on reasonable grounds any building or other structure or any part of a building or other structure is a ruin or so far dilapidated as to be unfit for use or occupation or is, from neglect or other cause, in a structural condition prejudicial to the inhabitants of or to property in the neighbourhood, the local authority may, subject to section 54, by notice in writing, require the owner of the building or structure to do any 1 or more of the following:-
(a)      demolish the building or structure or part;
(b)      repair the building or structure or part;
(c)      remove the building or structure or part;
(d)fence the land on which the building or structure or part stands;
(e)repair any fence that encloses or is on that land;
(f)secure the building or structure or part;
within the time specified in the notice.
(3) If in the opinion of a local authority formed on reasonable grounds any building or other structure or any part of a building or other structure is in a filthy or dilapidated condition, or is infected with disease, or is infested with lice, bugs, rats or other vermin, or is improperly constructed, or from any other cause is unfit to be used or occupied, the local authority may, subject to section 54, by notice in writing, require the owner of the building or structure to do any 1 or more of the following:-
(a)      demolish the building or structure or part;
(b)cleanse, purify and disinfect the building or structure or part so as to make it fit to be used or occupied;
(c)repair the building or structure or part so as to make it fit to be used or occupied;
(d)alter the building or structure or part so as to make it fit to be used or occupied;
(e)remove the building or structure or part;
within the time specified in the notice.
(4) If an owner of a building or other structure to which a notice given to the owner under any provision of this section relates fails to comply with such notice, then:-
(a)the local authority may itself cause such steps to be taken and such things to be done as it has, by the notice, required the owner of the building or structure to take or do; and
(b)the owner commits an offence against this Act.
(5) A notice under this section must state that the person to whom it is given has a right of objection under section 57."
It may be, as counsel for the appellant accepts, that the failure of the Council here to discover the defective state of the foundations, could arguably give rise to a right of action against the local authority. The real point however is that a purchaser does have several means of protecting itself, one only of which may be by the obtaining of a report by a local authority. Insistence on a warranty, or condition of fitness or soundness, or the seeking of an inspection and report by an expert, who by making them, will become liable if negligent in not discovering and reporting relevant defects, are others.
It is true, as both Brooking JA in Zumpano[293] and Thomas JA in this case[294] pointed out, that some cases will involve buildings of mixed residential and commercial uses, that the purchase of a small commercial building with or without a dwelling attached, may itself be a major, indeed the most significant investment by a purchaser in his or her lifetime, and that therefore lines of demarcation of cases of liability may not be able tidily and without anomaly to be drawn. The law is not in other areas[295] without anomalies. The guarded, incremental approach of the courts to cases of economic loss will inevitably give rise to apparent and perhaps temporary anomalies as principle is developed.
[293][1997] 2 VR 525 at 528-529.
[294](2002) Aust Torts Reports ¶81-660 at 68,797 [32].
[295]For example, see Meagher, Heydon and Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies, 4th ed (2002) at 417 which outlines that the equitable doctrine of marshalling may be invoked where one claimant has the right to satisfy a claim from two funds and another claimant has the right to resort to one only of the two funds. In such a situation equity may intervene so that the double claimant must exercise its security over the fund to which the single claimant has no claim.
The better view may however be that abstention from extending the operation of Bryan v Maloney to structures other than residences is not anomalous, but that it is the decision in Bryan v Maloney itself that is the anomaly. I mentioned that there were reasons to question its correctness in addition to those mentioned by Brooking JA in Zumpano and Brennan J in his dissenting judgment in Bryan v Maloney.
What degree of seriousness of defect must exist before liability can be established; a defect in paintwork[296], a departure from one or more of the Australian Standards, and which standards, the presence of ten, twelve, fifty or a hundred loose tiles on a roof, or a crumbling but repairable foundation in one corner only? This is another question to be added to those to which I elsewhere refer and to which Bryan v Maloney gives rise.
[296]Goulding v Kirby [2002] NSWCA 393.
In Bryan v Maloney the majority made the assumption, it may or may not be correct – no evidence about it was given in the case – that for most people in Australia the purchase of a dwelling will be the most significant investment that a person will make in his or her lifetime. Reliance essentially on assumptions of this kind is fraught with risk. Quite apart from dangers of misapprehension by judges in the absence of evidence, of what is happening in the community, there is also a serious risk of incompleteness[297].
[297]cf Woods v Multi-Sport Holdings Pty Ltd (2002) 208 CLR 460 at 512-513 [166] per Callinan J.
Another, in my view equally reasonable assumption may be that most purchasers will need to borrow to buy, and that any prudent lender will insist, before lending, for the lender's and the buyer's protection, upon a professional survey of the structure. And as to the assumption that all, indeed most buyers of houses are seeking merely to put a roof over their heads under circumstances of vulnerability, two matters should be noted. The first is that most sellers of residences will shortly become buyers, that therefore, they will at some time be as much in need of a relevant warranty or condition as the buyers to whom they have sold. The second matter is that the majority in Bryan v Maloney failed to have regard to the capital gains tax regime[298], which since 1985 has provided for exemptions from capital gains tax on a profitable sale of a principal place of residence, occupied for no fewer than twelve months by the seller, and which almost certainly encourages de facto business investment in houses. Another equally valid assumption in more recent times may be that house ownership for future investment purposes has increased because of cash grants made under the First Home Owner Grant Act 2000 (Q), an enactment forming part of a co-operative endeavour by State and federal governments. It is unnecessary to explore the validity and completeness of the assumptions made by the majority in Bryan v Maloney any further. Nor is there any need to express any final opinion as to the correctness or otherwise of that decision in order to resolve this case, of a purchase of commercial premises.
[298]See now Pt 3-1, Div 118, sub-div 118-B of the Income Tax Assessment Act 1997 (Cth).
For the purposes of this appeal it is unnecessary to decide when any relevant period of limitation commenced and whether any limitations enactment could be invoked here. The best position for the purchaser would be that time would not begin to run until the defect manifested itself. If that be the correct position, there may still be problems of indeterminacy, indeterminacy of time, and if not actual indeterminacy of damages, at least uncertainty as to their correct measure. Take the case of a structure, even a dwelling house, theoretically built to last, say forty or fifty years. Assume a buyer acquires the property with the structure erected on it fifteen years into its lifetime. A serious structural defect manifests itself three years later[299]. I do not say that the law necessarily lacks the ingenuity to devise a means of assessing the loss or damage to the buyer, but any formula for doing so is bound to be complicated, and to involve a large number of imponderables themselves further complicated by such considerations as the need to take account of changes in value of the land in its unimproved state, the relative values of the land and the structure, whether the first eighteen years of life of a structure have an intrinsically greater value than the balance of its life during which the need to provide for natural wear and tear may be greater and more costly, other matters referred to by Brooking JA in Zumpano and the prospect that the structure, even if it had remained sound, would have been demolished or altered in response to changing fashions, diminishing utility or otherwise. All of these matters, and no doubt others that a purchaser's ingenuity may devise, could fall to be considered in litigation against the builder, brought many, many years after the events forming the basis of the action.
[299]cf D & F Estates Ltd v Church Commissioners for England [1989] AC 177 where the defect manifested itself 17 years after the construction.
In Bryan v Maloney, in their Honours' joint judgment, Mason CJ, Deane and Gaudron JJ sought to explain their divergence from the decisions of the
House of Lords in D & F Estates Ltd v Church Commissioners for England[300] and Murphy v Brentwood District Council[301] on the ground that[302]:
"[t]heir Lordships' view … seems to us … to have rested upon a narrower view of the scope of the modern law of negligence and a more rigid compartmentalization of contract and tort than is acceptable under the law of this country."
[300][1989] AC 177.
[301][1991] 1 AC 398.
[302](1995) 182 CLR 609 at 629.
Contrary to their Honours' view however, the subsequent case of Astley v Austrust Ltd[303] demonstrates that a clear compartmentalization remains a live, indeed a flourishing plant in Australian jurisprudence.
[303](1999) 197 CLR 1.
Perre v Apand Pty Ltd was referred to extensively in argument. The respondents' submission in relation to it is generally correct. The plaintiffs there were in a very exceptional and vulnerable position in which they had no opportunity of protecting themselves by a contractual term or condition. It was the combination of foresight of the likelihood of harm, knowledge of an ascertainable class of vulnerable persons, the latter's helplessness in the circumstances, the control exercised by the defendant, and the causal link between the control and the damage that proved decisive there. The appellant's attempt to rely on Perre v Apand Pty Ltd here was ill-founded in many respects. I will deal with each of the matters relied on by the appellant.
That damage might be suffered as a result of defective design was plainly foreseeable, but little in human affairs is not. Foreseeability, that is reasonable foreseeability, although a necessary element, is of itself not enough to establish liability. Purchasers of a building are members of an identifiable class, but not all of them would have the same use in mind of the building purchased, and over its lifetime the numbers of purchasers could vary greatly.
It is quite wrong however to assert that the appellant or indeed any purchaser is vulnerable. Means of protection are readily to hand as I have already indicated. Furthermore, vulnerability alone does not suffice to ground liability.
The appellant denies an indeterminacy of liability. "Indeterminacy" had three elements in its famous first formulation by Cardozo CJ[304]:
"an indeterminate amount for an indeterminate time to an indeterminate class."
[304]Ultramares Corporation v Touche 174 NE 441 at 444 (1931).
The appellant's submissions selectively focus on one only of these, of determinacy of class.
Commercial freedom may well be put at risk by the imposition of liability on the respondents here. The contract that was freely made between the first respondent and the first owner was one under which the latter chose to take such risks as flowed from its decision not to have a geotechnical investigation made. Parties to a contract between themselves are entitled to allocate risks, obligations and rights as they choose. They should not be obliged to do so in order to give some unknown person in the future rights against one or other of them. If commercial freedom is to be impaired in this way it is better done by statutory intervention. In the meantime the rule of caveat emptor, which is little more than a rule that people should act diligently, prudently and carefully in their own interests should apply. As Stonham in The Law of Vendor and Purchaser puts it[305]:
"The rule of caveat emptor applies to contracts of sale of land. The purchaser takes that which he sees, or which, as a prudent and diligent purchaser, he ought to have seen, and is not entitled to have anything better."
[305]Stonham, The Law of Vendor and Purchaser, (1964) at 228 [355].
Everyone knows that the durability of a building depends upon the soundness of its foundations. The fact that they are below ground does not mean that they cannot be professionally examined and tested. Their state is relevantly there to be seen and assessed.
The appellant resorted to social policy. This is a matter for parliament rather than the courts to weigh. In my view, the social considerations which the appellant invoked are probably outweighed in any event by the other matters to which I have referred. The same may be said of the appellant's claims of economic efficiency, an end which is likely to be just as well served by personal prudence by all purchasers as by obligations imposed after the event by the courts.
In Perre v Apand Pty Ltd, McHugh J contrasted the position of the plaintiffs there with that of plaintiffs in other situations[306]:
"If the plaintiff has taken, or could have taken steps to protect itself from the defendant's conduct and was not induced by the defendant's conduct from taking such steps, there is no reason why the law should step in and impose a duty on the defendant to protect the plaintiff from the risk of pure economic loss."
[306](1999) 198 CLR 180 at 225 [118].
To put the matter another way, the appellant has failed to point to a sufficiency of the kind of factors which need to be present and which I thought most relevant in Perre v Apand Pty Ltd[307]. They need no repetition here. In this area of claims, for economic loss, an evolving area of the law, cases will in practice only be resolved by closely and carefully examining the facts to ascertain whether a sufficiency of factors of a sufficient degree of relevance and importance has been demonstrated. It is better I think to acknowledge and apply that reality than to attempt to state an inflexible principle which is bound, at this stage at least, to fail to meet the justice of the cases which are likely to arise in the future.
[307](1999) 198 CLR 180 at 326-329 [406]-[422].

It is unnecessary to deal with cases in other jurisdictions in any detail. They are summarized in the judgment of Brennan J in Bryan v Maloney. That summary indicates that the question for decision here has been given different answers in different jurisdictions at different times.
What the debate in this appeal does show however is that this particular area is better regulated, as it has already in many respects and places been, by legislators[308].
[308]Statutory warranties that enure for the benefit of owners and successors in title are implied in contracts for residential building work in New South Wales (Home Building Act 1989 (NSW), ss 18A-18G), Victoria (Domestic Building Contracts Act 1995 (Vic), ss 8-10), South Australia (Building Work Contractors Act 1995 (SA), s 32), Tasmania (Housing Indemnity Act 1992 (Tas), ss 7‑9) and the Australian Capital Territory (Building Act 1972 (ACT), s 62). Further, statutory insurance or guarantee schemes for residential building work enure for the benefit of owners and successors in title in all States and the Australian Capital Territory: see Home Building Act 1989 (NSW), ss 90‑99; House Contracts Guarantee Act 1987 (Vic), ss 5‑8; Building Work Contractors Act 1995 (SA), ss 33-35; QueenslandBuilding Services Authority Act 1991 (Q), ss 68-69 and Sched 2; Home Building Contracts Act 1991 (WA), ss 25A-25D; Housing Indemnity Act 1992 (Tas), ss 11-14; Building Act 1972 (ACT), ss 64-65.
The appeal should be dismissed with costs.