Tod Group Holdings Pty Ltd v Fangrove Pty Ltd
[1998] QCA 404
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- Tod Group Holdings Pty Ltd v Fangrove Pty Ltd[1998] QCA 404
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Tod Group Holdings Pty Ltd v Fangrove Pty Ltd[1998] QCA 404
Tod Group Holdings Pty Ltd v Fangrove Pty Ltd[1998] QCA 404
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5790 of 1998
Brisbane
[Tod Group Holdings P/L v Fangrove P/L]
BETWEEN:
TOD GROUP HOLDINGS PTY LTD ACN 009 941 155
(Defendant) Appellant
AND:
FANGROVE PTY LTD ACN 010 746 344
(Plaintiff) Respondent
de Jersey CJ
McPherson JA
Chesterman J
Judgment delivered 1 December 1998
Separate reasons for judgment of each member of the Court each concurring as to the orders made.
APPEAL ALLOWED. JUDGMENT ENTERED IN THE DISTRICT COURT SET ASIDE. ENTER JUDGMENT FOR THE APPELLANT AGAINST THE RESPONDENT. ORDER RESPONDENT TO PAY THE APPELLANT'S COSTS OF AND INCIDENTAL TO THE APPEAL AND THE TRIAL TO BE TAXED.
| CATCHWORDS: | NEGLIGENCE - whether damages can be awarded where no finding of "necessary relationship of proximity" - appropriateness of distinction between "pure economic loss" and "ordinary physical injury to person or property" - defects in building design - whether tortious liability can be extended to a builder for defects in a commercial building causing loss to subsequent owners - extension of liability province of the High Court. Bryan v. Maloney (1995) 182 C.L.R. 609 Caltex Oil (Australia) Pty Ltd v. The Dredge "Willemstad" (1976) 136 C.L.R. 529 Murphy v. Brentwood District Council [1991] 1 A.C. 398 Winnipeg Condominium Corporation (No.36) v. Bird Construction Co. (1995) 121 D.L.R. (4th) 193 Voli v. Inglewood Shire Council (1963) 110 C.L.R. 74 Council of the Municipality of Wollahra v. Sved (1996) 40 N.S.W.L.R. 101 Zumpano v. Montagnese [1997] 2 V.R. 525 |
| Counsel: | Mr P. Keane QC, with him Mr R. Oliver for the appellant. Mr P. McMurdo QC, with him Mr W. Cochrane for the respondent. |
| Solicitors: | Thynne & McCartney for the appellant. Baker Johnson & Partners for the respondent. |
| Hearing Date: | 18 November 1998 |
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5790 of 1998
Brisbane
| Before | de Jersey CJ McPherson JA Chesterman J |
[Tod Group Holdings P/L v Fangrove P/L]
BETWEEN:
TOD GROUP HOLDINGS PTY LTD ACN 009 941 155
(Defendant) Appellant
AND:
FANGROVE PTY LTD ACN 010 746 344
(Plaintiff) Respondent
REASONS FOR JUDGMENT - de JERSEY CJ
Judgment delivered 1 December 1998
- The appellant was responsible, as structural engineer, for the design in 1985 of a parapet for a commercial building at Eagle Farm, Brisbane. The parapet collapsed in January 1995. The learned trial judge found the cause to have been the appellant’s inadequate design. The respondent is the present owner of the building. It purchased the building in 1989. The respondent sued the appellant in the District Court for damages for negligence.
- The respondent’s claim was in two parts. $75,037.85 represented the cost of repairing a western wall damaged directly by the collapse of the parapet above, and the amount of rental lost because the building consequently could not be fully occupied. The second component was $18,851, the cost of remedial work to the undamaged eastern part of the parapet and to strengthen the eastern and internal walls of the building.
- The learned judge considered Bryan v Maloney (1995) 182 C.L.R. 609, concluding that there was “no relevant assumption of responsibility and no express or known reliance such as would give rise to the necessary relationship of proximity” between the appellant and the respondent. There is no challenge to those findings.
- His Honour went on, however, nevertheless to award damages of $75,037.85, which he characterised as “damages resulting directly from the collapse of the parapet”. He declined to allow the additional $18,851, which he styled “pure economic loss, in the sense that it is distinct from and not consequent upon the damage that was actually occasioned to the warehouse through the collapse”. The appellant contends that his Honour erred in allowing any damages at all.
- The learned judge’s approach, discriminating in that way between the two components of loss, appears to rely on this passage from Bryan v. Maloney (pages 622-623) to which he expressly referred in his judgment:
“Clearly enough, a relationship of proximity existed between Mr Bryan and Mrs Manion with respect to ordinary physical injury to Mrs Manion or her property with the consequence that Mr Bryan was under a duty to exercise reasonable care in relation to the building work, including the footings, to avoid a foreseeable risk of such injury. A more difficult question is whether that relationship of proximity and consequent duty of care with respect to the building work extended to mere economic loss by Mrs Manion of the kind ultimately sustained by Mrs Maloney when the inadequacy of the footings became manifest. In our view, it did.
While the relationship between Mr Bryan and Mrs Manion with respect to physical injury to Mrs Manion’s person or property must be distinguished from the relationship between them with respect to mere economic loss, the significance of such a distinction varies according to the particular kind of economic loss which is involved in the relevant category of case. Here, the distinction is between ordinary physical damage to a house by some external cause and mere economic loss in the form of diminution in value of a house when the inadequacy of its footings first becomes manifest by consequent damage to its fabric.”
To aid understanding of that passage, one notes that Mr Bryan was the builder, Mrs Manion the original owner for whom the construction was carried out, and Mrs Maloney a subsequent purchaser two transactions down the line. The $34,000 damages awarded in Mrs Maloney’s favour by the trial judge, and ultimately upheld by the High Court, was the cost of repairing cracks in the house and underpinning the footings. Consistently with the last sentence of the passage extracted above, the High Court characterised that $34,000 as all amounting to “pure economic loss”, as effectively confirmed at p 616(.7).
- The term pure economic loss has been described, and the significance of the concept explained, in the pivotal cases of Caltex Oil (Australia) Pty Ltd v. The Dredge “Willemstad” (1976) 136 C.L.R. 529, 574 and Murphy v. Brentwood District Council [1991] 1 A.C. 398, 479B, and Bryan v. Maloney itself, at page 617. The court there described the “diminution in value of the house when a latent and previously unknown defect ... first becomes manifest”, being the “damage” suffered in that case, as “mere economic loss in the sense that it was distinct from, and not consequent upon, ordinary physical injury to person or property”. (Property, I interpolate, I would take to embrace only property other than the defective property itself.) Their Honours continue:
“... damage to the fabric of the house could not properly be treated as ordinary physical injury to property by reference to a `complex structure theory’ of the kind adverted to by Lord Bridge of Harwich in D & F Estates Ltd v. Church Commissioners [1989] A.C. at page 207. At least in a case such as the present where the whole building has been erected by the one builder, `the complex structure theory offers no escape from the conclusion that damage to a house itself which is attributable to a defect in the structure of the house ... represents purely economic loss’ (Murphy v. Brentwood District Council [1991] 1 A.C. at page 479 per Lord Bridge of Harwich).”
The whole of the passage from the judgment of Lord Bridge in Murphy v. Brentwood District Council (page 479) reads:
“... the complex structure theory offers no escape from the conclusion that damage to a house itself which is attributable to a defect in the structure of the house is not recoverable in tort on Donoghue v. Stevenson principles, but represents purely economic loss which is only recoverable in contract or in tort by reason of some special relationship of proximity which imposes on the tortfeasor a duty of care to protect against economic loss.”
That authority warrants the conclusion that all of this loss is properly styled “pure economic loss”. Indeed, on the hearing of the appeal, Mr McMurdo QC who appeared for the respondent conceded that.
- His Honour excluded any such “special relationship of proximity” as referred to by Lord Bridge, such as justified recovery in Bryan v. Maloney for example. The judge did so by reference to the character of these premises, which are commercial, and the absence of evidence of reliance or assumption of responsibility, and as I have said, his findings in that regard were not challenged. The basis on which the judge ultimately determined the matter cannot stand. All of the relevant loss was pure economic loss. There was no justification for his discriminatory approach. Having found the approach which led to liability in Bryan v. Maloney inapplicable - because these were commercial premises and because of the absence of reliance or assumption of responsibility - then absent some other basis for liability, and apparently none was agitated before his Honour, judgment should have been given in favour of the appellant (defendant).
- Before this court, however, Mr McMurdo relied on two submissions which, if upheld, would not only sustain the judgment given at trial, but warrant increasing the award of damages to include the sum of $18,851 which the learned judge excluded. The respondent filed a notice of contention seeking that variation. The two new submissions were as follows.
- These defects were potentially dangerous, not merely reflecting shoddy or sub-standard workmanship. As current owner, the respondent could recover the cost of making the building safe, as damages for negligence, from the appellant as the engineer responsible for the defective design. On a Donoghue v. Stevenson approach, the appellant was subject to a duty of care to the respondent as subsequent owner of the premises, to design the premises so as to avoid potentially dangerous defects, such that upon breach, the respondent could recover its loss, albeit a loss relating to damage to the subject premises themselves. The submission drew on the decision of the Supreme Court of Canada in Winnipeg Condominium Corporation (No. 36) v. Bird Construction Co. (1995) 121 D.L.R. (4th) 193, to which Brennan J referred in his dissenting judgment in Bryan v. Maloney at pages 649-651; and Voli v.Inglewood Shire Council (1963) 110 C.L.R. 74, 84 as referred to at page 624 of Bryan v. Maloney.
- Allowing recovery of damages in respect of this economic loss would not offend against any of the policy considerations raised in Bryan v. Maloney. The requisite proximity exists here simply because of the dangerous nature of the defects. Issues of reliance and assumption of responsibility, which featured in Bryan v. Maloney, do not necessarily arise.
- The circumstance that the basis of neither of those submissions was pleaded, or agitated at the trial, is significant. I will return to that aspect. For the moment, I analyse the substance of each submission in turn.
- The first submission gains no support from the majority judgment in Bryan v. Maloney. Other courts have emphasised the limits of that decision: Council of the Municipality of Woollahra v. Sved (1996) 40 N.S.W.L.R. 101 and Zumpano v. Montagnese [1997] 2 V.R. 525. The passage at page 624 of Bryan v. Maloney on which Mr McMurdo relied, bringing in Voli, is in these terms:
“At least prima facie, a relationship of proximity also existed between Mr Bryan and persons other than Mrs Manion, including Mrs Maloney, who might sustain physical injury to person or property as a consequence of a collapse, as a result of inadequate footings, of part of the house while they or their property were lawfully in the house or in its vicinity. The relationship between Mr Bryan and such persons corresponded with the relationship between the architect and the injured plaintiff in Voli v. Inglewood Shire Council.”
As I have suggested, however, that is to be read as not embracing damage to the defective house itself.
- Mr McMurdo relied substantially on the decision of the Supreme Court of Canada in Winnipeg, and to Brennan J’s endorsement of that court’s approach in his dissenting judgment in Bryan v. Maloney. That it was a dissenting judgment is of course significant, as is the circumstance that what his Honour said on the subject amounted to obiter dicta, because the defects in Mrs Maloney’s house created no danger (page 651).
- There is no Australian authority supporting this contention. On the other hand, there is strongly persuasive authority in the House of Lords to the contrary. That is Murphy v. Brentwood District Council (supra) especially 477, 479 per Lord Bridge of Harwich and 487-8 per Lord Oliver of Aylmerton. It is useful to quote the last mentioned passage:
“Anyone, whether he be a professional builder or a do-it-yourself enthusiast, who builds or alters a semi-permanent structure must be taken to contemplate that at some time in the future it will, whether by purchase, gift or inheritance, come to be occupied by another person and that if it is defectively built or altered it may fall down and injure that person or his property or may put him in a position in which, if he wishes to occupy it safely or comfortably, he will have to expend money on rectifying the defect. The case of physical injury to the owner or his licensees or his or their property presents no difficulty. He who was responsible for the defect - and it will be convenient to refer to him compendiously as ‘the builder’ - is, by the reasonable foreseeability of that injury, in a proximate “neighbour” relationship with the injured person on ordinary Donoghue v. Stevenson principles. But when no such injury has occurred and when the defect has been discovered and is therefore no longer latent, whence arises that relationship of proximity required to fix him with responsibility for putting right the defect? Foresight alone is not enough but from what else can the relationship be derived? Apart from contract the manufacturer of a chattel assumes no responsibility to a third party into whose hands it has come for the cost of putting it into a state in which it can safely continue to be used for the purpose for which it was intended. Anns, of course, does not go so far as to hold the builder liable for every latent defect which depreciates the value of the property but limits the recovery, and thus the duty, to the cost of putting it into a state in which it is no longer an imminent threat to the health or safety of the occupant. But it is difficult to see any logical basis for such a distinction. If there is no relationship of proximity such as to create a duty to avoid pecuniary loss resulting from the plaintiff’s perception of non-dangerous defects, upon what principle can such a duty arise at the moment when the defect is perceived to be an imminent danger to health? Take the case of an owner-occupier who has inherited the property from a derivative purchaser. He suffers, in fact, no “loss” save that the property for which he paid nothing is less valuable to him by the amount which it will cost him to repair it if he wishes to continue to live in it. If one assumes the parallel case of one who has come into possession of a defective chattel - for instance, a yacht - which may be a danger if it is used without being repaired, it is impossible to see upon what principle such a person, simply because the chattel has become dangerous, could recover the cost of repair from the original manufacturer. The suggested distinction between mere defect and dangerous defect which underlies the judgment of Laskin J in Rivtow Marine Ltd v. Washington Iron Works [1973] 6 W.W.R. 692 is, I believe, fallacious. ”
- It is difficult to reconcile the second submission with the apparently carefully circumscribed limitation on the probable extension of tortious liability effected by Bryan v. Maloney. Mr McMurdo contended that finding the requisite proximity in this case, which concerns a commercial building, would not tend towards the imposition of liability “in an indeterminate amount for an indeterminate time to an indeterminate class”, the concern to which the court adverted in Bryan v. Maloney at page 618. That is because, he asserted, this case is limited, depending on the dangerous nature of the defects. That feature would, if recognised in this way, arguably nevertheless inject considerable uncertainty into the field of liability. Whether defects become dangerous may be subject to a wide range of considerations. Apparently benign deficiencies could become potentially dangerous - even the foundations in Mrs Maloney’s house in certain circumstances. Allowing this albeit incremental addition to the field of liability could lead to considerable undesirable uncertainty. Mr Keane QC who appeared for the appellant, mentioned, on the other hand, the relevance of “community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage” (Bryan v. Maloney page 618). It could reasonably be argued that imposing this extensive duty on a builder, for example, being paid for the construction much less than would be warranted were he fully to discharge such a duty, would go beyond reasonable community expectations.
- Bryan v. Maloney represented an extension to the availability in this country of recovery for pure economic loss. There is strong reason for thinking that any further extension should lie within the province of the High Court. To allow this claim would involve further extension. The House of Lords authority I have mentioned sufficiently indicates that. It would be inimical to certainty, and responsibility, for this court to accede to the claim, even if otherwise persuaded that it would be socially desirable to do so. Policy considerations regulate the development of the law in this general area. They are multifarious. To my mind, the relevant considerations have to this point been sufficiently considered by the High Court to warrant the rejection of this claim: to resolve otherwise would involve this court’s adopting an unduly legislative role. Following the law which binds us, and the trends which should influence us, I believe the claim must be rejected. Neither of the submissions agitated by Mr McMurdo should be upheld.
- I return to the significance of the circumstance that the matters founding those submissions were not pleaded or agitated at the trial. While the prospect of collapse, damaging other parts of the building and possibly persons were they within it, might well be the subject of reasonable inference, the appellant did not explore the issue at trial, and to determine the case now on such an assumption would consequently be unfair to the appellant. Among other things, there was no evidence that the respondent would, had it been alerted to this deficiency, have considered it potentially dangerous and therefore been moved to rectify it. See the reference in Rivtow Marine Ltd v. Washington Iron Works (1973) 40 D.L.R. (3d) 530, 552 to an “alert avoidance of such harm (giving) rise to economic loss”.
- I would allow the appeal, set aside the judgment entered in the District Court, enter judgment for the appellant against the respondent, and order the respondent to pay the appellant’s costs of and incidental to the appeal and the trial to be taxed.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5790 of 1998
Brisbane
| Before | de Jersey C.J. McPherson J.A. Chesterman J. |
[Tod Group Holdings P/L v. Fangrove P/L]
BETWEEN:
TOD GROUP HOLDINGS PTY. LTD.
ACN 009 941 155
(Defendant) Appellant
AND:
FANGROVE PTY. LTD.
ACN 010 746 344
(Plaintiff) Respondent
REASONS FOR JUDGMENT - McPHERSON J.A.
Judgment delivered 1 December 1998
- I agree with what the Chief Justice has written and with the orders he proposes for disposing of this matter. There is only one point on which I wish to add a comment of my own. It concerns the submission on behalf of the plaintiffs that, on the part of the defendant, a liability was capable of arising because of what was said to be the dangerous condition of the premises.
- It is, I think, useful to begin by contrasting the position of the plaintiff with that of the defendant. If the defect in the wall had been known to the plaintiff, and it had done nothing to correct it, it is difficult to avoid the conclusion that it would in law have been liable to someone whose person or property was injured by the collapse of the wall. That is, however, because as occupier the plaintiff would have been liable for defects in the premises of which it knew or ought to have known, and which it failed to use reasonable care to rectify. See Sedleigh-Denfield v. O'Callaghan [1940] A.C. 880; Hargrave v. Goldman (1963) 110 C.L.R. 40, affirmed in Goldman v. Hargrave [1967] 1 A.C. 645; 115 C.L.R. 458. That is so, even if as those decisions show, the defects were the product of some act of nature or third party not authorised by or attributable to the plaintiff. The reason is that, in such circumstances, liability in law attaches to the plaintiff by virtue of its control of the premises. Control of property gives rise to legal duties and responsibilities.
- The defendant here had no such control. Its liability, if any, depended on ordinary principles of negligence. If it put into circulation a defective product, it would on the principle in Donoghue v. Stevenson [1932] A.C. 562 be liable for damages for personal injuries resulting from failure on its part to take reasonable care. The decision in Voli v. Inglewood Shire Council (1963) 110 C.L.R. 74 suggests that the defendant might well have been liable for such injuries resulting from defective design of the wall in this case. It seems rather artificial in such circumstances to speak as if the wall were a defective product that the defendant put into circulation. It is true that it was part of a commercial building, and, in that limited sense, it might be regarded as a “circulating” subject or object of commercial enterprise. But the underlying reason for the distinction must surely be that the law values the physical integrity of a person at a level well above the interests of commerce. The former is protected by the law even when, in similar circumstances, the latter is not.
- Part of the explanation no doubt also lies in the capacity of those who engage in commerce to protect themselves against the kind of loss that the plaintiff sustained here. Before acquiring a commercial building of this kind, they can ordinarily be expected to employ expert assistance to ascertain the condition of the premises. Statute apart, a vendor of land has at common law ordinarily not been considered as impliedly warranting to the purchaser the physical quality or suitability for any purpose of the land sold. See Voumard on Vendor and Purchaser §350, at 219. A landlord of residential premises may for some purposes, such as liability for personal injuries, now be in a different position: Northern Sandblasting Pty. Ltd. v. Harris (1997) 188 C.L.R. 313. It is another matter to hold an engineering designer liable in negligence for design defects that produce economic loss, rather than personal injury, to a person like the plaintiff here, with whom the designer was never in any contractual relationship. The decision in Bryan v. Maloney (1995) 182 C.L.R. 609 suggests that residential buildings may occupy a specially favoured place in Australian jurisprudence; but, as the Chief Justice observes in his reasons in the present appeal, any extension of the present boundaries of the liability marked out by that decision is a matter which is for the High Court rather than this Court to determine.
- The appeal should be allowed and judgment given in accordance with the orders propounded by de Jersey C.J.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5790 of 1998
Brisbane
| Before | de Jersey CJ McPherson JA Chesterman J |
[Tod Group Holdings P/L v Fangrove P/L]
BETWEEN:
TOD GROUP HOLDINGS PTY LTD ACN 009 941 155
(Defendant) Appellant
AND:
FANGROVE PTY LTD ACN 010 746 344
(Plaintiff) Respondent
REASONS FOR JUDGMENT - CHESTERMAN J
Judgment delivered 1 December 1998
- I have read the reasons for judgment prepared in draft by the Chief Justice and agree with them. It follows that the appeal must be allowed, the judgment of the District Court set aside, and that there be an order that the respondent pay the appellant’s taxed costs of the trial and appeal.
- It was accepted by both parties that the judgment of the District Court contained an irreconcilable inconsistency. Either the whole of the cost incurred by the respondent in rectifying the defective parapet was recoverable as damages or none was. There was no basis in principle for dissecting the cost between the restoration of that part of the wall which collapsed and strengthening the remainder so that it did not collapse in the future. Both components of expenditure were incurred because of the structural inadequacy of the wall. As well, both were “economic loss” as the Chief Justice has explained. If it is needed, reference may be added to the judgment of Deane J in Sutherland Shire Council v. Heyman (1985) 157 CLR 424 at 503-5 which was adopted with approval by Lord Keith (with whom Lords Mackay, Brandon, Ackner and Oliver agreed) in Murphy v. Brentwood District Council [1991] 1 AC 398 at 468.
- The crux of the reasoning in Bryan v. Maloney (1995) 182 CLR 609 appears in the joint judgment of Mason CJ, Deane and Gaudron JJ at 627:
“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.”
Their Honours had earlier said (at 624):
“... there are strong reasons for acknowledging the existence of a relevant relationship of proximity between a builder such as Mr. Bryan and a first owner such as Mrs. Manion with respect to the kind of economic loss sustained by Mrs. Maloney. In particular, the ordinary relationship between a builder of a house and the first owner with respect to that kind of economic loss is characterised 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. There is nothing to suggest that the relationship between Mr. Bryan and Mrs. Manion was not characterized by such an assumption of responsibility and such reliance.”
- It emerges from these passages that the assumption of responsibility by the builder and reliance upon the careful discharge of his building contract which together give rise to the relationship of proximity from which the law imposes a duty of care are imputed or presumed rather than actual. The reason for the imputed assumption of responsibility and reliance is founded upon considerations of policy. This was expressly recognised in the joint judgment at 618 and 628 where policy issues were identified as including:
“... the consideration that, by virtue of superior knowledge, skill and experience in the construction of houses, it is likely that a builder will be better qualified and positioned to avoid, evaluate and guard against the financial risk posed by latent defect in the structure of a house.”
- The expressed basis of the imputation admits of many discrepancies. It cannot be supposed that all builders are wealthier and more worldly wise than all persons who might subsequently buy a house constructed by the builder. Nor is it realistic to assume that every house built and then sold will be comparatively modest and/or will represent the only substantial investment made in the purchaser’s lifetime. The imputation is made universal because both assumptions hold true for a large number of home purchases in this country.
- In Municipal Council of Woollahra v. Sved (1996) 40 NSWLR 101, Clarke JA, having analysed the reasons of the joint judgment in Bryan, concluded that there were four factors which led the High Court to decide that there existed between the builder and a subsequent owner of the house a relationship of proximity giving rise to a duty of care. The factors were:-
- builders ordinarily undertake the responsibility of erecting a structure on adequate foundations for periods in which the building will be owned by successive proprietors;
- a subsequent owner will ordinarily have no realistic opportunity to discover the defects in the house prior to purchase and will rely on the builder to have built carefully;
- the absence of any specific term in the contract bearing on the relationship of proximity such as limitations of liability or an obligation to build in accordance with the original owner’s specifications; and
- the absence of any intervening negligence.
- Clarke JA thought (at 133) liability would not be imposed on a builder to pay damages to a subsequent owner to compensate him for the diminution in value of the building by reason of its defective construction where the four factors were not present.
“... the authority of the decision does not extend to, for instance, the construction of a commercial building ... . Nor does it extend to the case of damage which, although discoverable on a reasonable inspection, was not in fact discovered until after the plaintiff had purchased the property.”
- The judgment of Cole JA in the same case at 152 shows that where the evidence establishes positively that the subsequent purchasers did not rely upon the builder to construct with reasonable care and skill or in accordance with designated specifications, there is no scope for the imputation to operate and the relationship of proximity which is essential to the duty of care will not exist.
- Bryan represents a difference between the law in this country and that in England as laid down by the House of Lords in Murphy. For reasons which cannot be called unpersuasive, the House of Lords (on which sat seven Law Lords) held that a local authority (and by implication a builder) was under no duty to protect subsequent owners of a building which he constructed against the expense incurred in rectifying defects whether or not those defects were such as to pose an imminent danger to life or health of the occupant.
- In the narrow category of case considered in Bryan, the High Court disagreed with the approach taken by the House of Lords. The debate between the two approaches which, as the Chief Justice has pointed out, involves the intrusion of policy considerations should be conducted only at the highest judicial level. In my opinion this court should not extend the category of cases in which a builder will be under a duty of care towards subsequent purchasers of his construction and so increase the difference between the law applied here and that applied in the United Kingdom.
- Brooking JA in Zumpano v. Montagnese [1997] 2 VR 525 has identified in chilling detail the difficulties that one can expect to encounter should the decision in Bryan become an abstract principle of law concerning the liability of those who build or design structures to those who subsequently own or occupy them.
- For these reasons it is my view that the decision in Bryan should be confined to the particular circumstances which gave rise to liability in that case and that any extension of the principle should be undertaken only by the High Court.
- As I mention later, the House of Lords in Murphy chose to accept the criticism of Anns found in the judgments of the High Court in Heyman. Their Lordships preferred that approach to the Canadian experience which was, according to the speeches, one of accepting and enlarging the Anns principle. It should be noted that in Bryan, Mason CJ, Deane and Gaudron JJ referred to Winnipeg Condominium ((1995) 182 CLR 609 at 629, footnote 84) to support their Honours’ departure from what the House of Lords said in Murphy. It will be recalled that Winnipeg Condominium is a product of the Anns principle.
- This observation reinforces my view that any further extension to the principles on which a builder should be held liable to subsequent purchasers of his handiwork is properly the province of the High Court.
- This case involves the design (and construction in accordance with the design) of a commercial building. Moreover the defective design of the parapet was discoverable by visual inspection and, probably, (this matter was not addressed in argument) by a perusal of the design and the applicable building codes. On both points the case is distinguishable from Bryan. The first point of distinction calls into question the very basis for the imputation of assumption of responsibility and reliance which underpins the decision in Bryan. The purchaser of a substantial commercial building acquired for profit does not fit the description of a purchaser of a modest suburban house who “is likely to be unskilled in building matters and inexperienced in the niceties of real property investment”.
- The submissions advanced by the respondent for the first time when the appeal was argued do not seem to me a sufficient basis for holding the appellant liable for the cost of restoring the parapet to a state of structural adequacy. The point suffers the disadvantage of never having been litigated. I agree, moreover, with the Chief Justice that its provenance, remarks made obiter dicta in a dissenting judgment, calls for its close scrutiny.
- The foundation for Brennan J’s remarks appears to be the decision of the Supreme Court of Canada in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co Ltd (1995) 121 DLR (4th) 193. It appears from Brennan J’s discussion of the case ((1995) 182 CLR 609 at 649) that it depends upon an acceptance of the law as propounded in Anns v. Merton London Borough Council [1978] AC 728. The reasoning which underlaid the decision in Anns was disapproved in express terms by the High Court in Heyman (see at 465 per Mason J; 481 per Brennan J and 505 per Deane J). The House of Lords, having, perhaps, for some time been embarrassed by Anns, disapproved it in Murphy.
- It should be recalled that Anns was a case in which the defects in the building were dangerous. They were categorised by Lord Wilberforce, who used the description to justify the imposition of liability, as posing a present or imminent danger to health or safety. See Murphy at 470H per Lord Keith.
- If this were the basis for Anns and if Anns has been disapproved, then it seems to me that the categorisation of defects as dangerous, that is, as likely to lead to injury or damage to other property, is an unwarranted basis for the imposition of liability.
- There is no doubt that the House of Lords disapproved Anns. The Lord Chancellor, Lord Mackay, said ([1991] 1 AC 398 at 457F):
“In these circumstances I have reached the clear conclusion that the proper exercise of the judicial function requires this House now to depart from Anns in so far as it affirmed a private law duty of care to avoid damage to property which causes present or imminent danger to the health and safety of owners, or occupiers, resting upon local authorities in relation to their function of supervising compliance with building byelaws or regulations, that Dutton v. Bognor Regis Urban District Council should be overruled and that all decisions subsequent to Anns which purported to follow it should be overruled.”
- Lord Keith expressed the same conclusion at 472 and noted, at 473, that the High Court in Heyman had declined to follow Anns though it had found favour in both Canada and New Zealand. Lord Bridge at 474 agreed that Anns should be disapproved, describing the choice confronting the House of Lords to be:
“... between following Australia and rejecting Anns altogether or following Canada and New Zealand in carrying the Anns doctrine a large, legislative step forward to its logical conclusion and holding that the scope of the duty of care, imposed by the law on local authorities for the negligent performance of their functions under the relevant statutes, embraces all economic loss sustained by the owner or occupier of a building by reason of defects in it arising from construction in breach of building byelaws or regulations.”
- Apart from this general consideration, there are passages in the judgments in Murphy which to my mind demonstrate that the distinction between defects which are “dangerous” and those which are innocuous save to the structure itself is not a valid basis for imposing liability in one case but not the other. Lord Keith said (at 469):
“If the builder of the house is to be so subject, there can be no grounds in logic or in principle for not extending liability upon like grounds to the manufacturer of a chattel. That would open up an exceedingly wide field of claims, involving the introduction of something in the nature of a transmissible warranty of quality. The purchaser of an article who discovered that it suffered from a dangerous defect before that defect had caused any damage would be entitled to recover from the manufacturer the cost of rectifying the defect, and presumably, if the article was not capable of economic repair, the amount of loss sustained through discarding it. Then it would be open to question whether there should not also be a right to recovery where the defect renders the article not dangerous but merely useless. The economic loss in either case would be the same. ... A similar problem could arise, if the Anns principle is to be treated as confined to real property, where a building collapses when unoccupied.”
- Lord Bridge said (at 479-80):
“A necessary element in the building owner’s cause of action ... is that the state of the building is such that there is present or imminent danger to the health or safety of persons occupying it. Correspondingly the damages recoverable are said to include the amount of expenditure necessary to restore the building to a condition in which it is no longer such a danger, but presumably not any further expenditure incurred in any merely qualitative restoration. ... [T]here are ... two insuperable difficulties arising from the requirement of imminent danger to health or safety as an ingredient of the cause of action which lead to quite irrational and capricious consequences ... . The first difficulty will arise where the relevant defect ..., when it is first discovered, is not a present or imminent danger ... . What is the owner to do if he is advised that the building will gradually deteriorate, if not repaired, and will in due course become a danger to health and safety, but that the longer he waits to effect repairs the greater the cost will be? ... A second difficulty will arise where the latent defect is not discovered until it causes the sudden and total collapse of the building, which occurs when the building is temporarily unoccupied and causes no damage to property except to the building itself. The building is now no longer capable of occupation and hence cannot be a danger to health or safety. It seems a very strange result that the building owner should be without remedy ... if he would have been able to recover from the local authority the full cost of repairing the building if only the defect had been discovered before the building fell down.”
- Lord Oliver said at 488 (in the passage following that set out in the judgment of the Chief Justice):
“The argument appears to be that because, if the defect had not been discovered and someone had been injured, the defendant would have been liable to pay damages for the resultant physical injury on the principle of Donoghue v. Stevenson it is absurd to deny liability for the cost of preventing such injury from ever occurring. But once the danger ceases to be latent there never could be any liability. The plaintiff’s expenditure is not expenditure incurred in minimising the damage or in preventing the injury from occurring. The injury will not now ever occur unless the plaintiff causes it to do so by courting a danger of which he is aware and his expenditure is incurred not in preventing an otherwise inevitable injury but in order to enable him to continue to use the property or the chattel.”
- The difficulties, perhaps, come down to two. The first is that whether a defect is dangerous can depend upon chance events unconnected with the acts or omissions which constitute the builder’s carelessness. Thus a builder may misjudge the carrying capacity of the ground in which he lays his footings and the structure moves and cracks. Whether the movement causes only cosmetic blemishes or whether it imperils the integrity of the structure itself may depend upon characteristics of the soil which are not apparent, or even climatic phenomena. The imposition of a duty of care will depend upon the affects of such chance events or conditions, but in each case what the builder did or did not do would have been the same. Moreover, the existence of the duty will not be known until after the defects have occurred and they can be confidently categorised as dangerous. If a building deteriorates over time, the duty will not exist until defects, perhaps imperceptibly, cross the line from cosmetic to dangerous. When that happens the duty will be imposed retrospectively.
- The other point concerns the measure of damages. What a plaintiff seeks is the diminution in value of the building caused by reason of the defects. If the basis for imposing liability is to compensate the “rescuer” for averting injury to others the measure ought to be the cost of preventing injury. The obligation of a plaintiff to mitigate his loss might in some circumstances suggest that the building owner should close it down and prevent its use or occupation. This might be cheap enough but would not give the plaintiff the desired compensation. It seems illogical to award the cost of making good all defects, or the diminution in value, when the basis for liability is the prevention of harm.
- For these reasons and those expressed by the Chief Justice I think the appeal should be allowed.