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Olindaridge Pty Ltd v Tracey QCATA 23
Olindaridge Pty Ltd and Anors v Tracey and Anor  QCATA 23
OLINDARIDGE PTY LTD
MARTHA-LEE JOELYN TRACEY
TODD ANTHONY TRACEY
30 September 2015
2 March 2016
THE APPEAL TRIBUNAL ORDERS THAT:
APPEAL – APPLICATION FOR LEAVE TO APPEAL – BUILDING DISPUTE – NEGLIGENCE – Whether a professional builder trading as a licenced construction company owes the same common law duty of care in negligence for pure economic loss as the company – whether Tribunal determined a duty was owed.
Queensland Civil and Administrative Tribunal Act 2009, s 147(2)
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 and Anor (2014) 254 CLR 185
Bryan v Maloney (1995) 182 CLR 609
Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1996) 136 CLR 529
Caltex Refineries (Qld) Pty Ltd v Satavar  NSW CA 254
Commissioner of Police v Al Shakarji  QCA 319
Council of the Shire of Noosa v JE Farr Pty Ltd  QSC 060
Fangrove Pty Ltd v Todd Group Holdings Pty Ltd  2 Qd R 236
Kondis v State Transport Authority (1984) 154 CLR 672
Moorabool Shire Council v Taitapanui (2006) 14 VR 55
Perre v Apand Pty Ltd (1999) 198 CLR 180
Proprietors Units Plan No 95/38 v Jiniess Pty Ltd  NTSC 89 (unreported, Riley J, 31 October 2000)
Sullivan v Moody (2001) 207 CLR 562
White v Commissioner of Police  QCA 121
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
Zumpano v Montagnese  2 VR 525
Chapman, "Liability for the negligence of independent contractors” (1934) 50 LQR 71
APPEARANCES and REPRESENTATION (if any):
Russell Ensbey instructed by CBP Pty Ltd.
Martha-Lee Tracey and Todd Tracey self-represented.
REASONS FOR DECISION
- The issue raised in this application for leave to appeal is whether, and when, a professional builder trading as a licenced construction company (in this case, Olindaridge) owes the same common law duty of care in negligence for pure economic loss as the company.
- The applicant contends that, as a matter of both legal policy and principle, directors of small one man companies, who incorporate for the very purpose of limiting personal liability and protecting their financial interests, should not be identified with, and be held accountable for, any substandard work performed on the company’s behalf.
- To satisfy the ‘gateway criterion’, the applicant claims that the Member misstated the correct legal test at  –  of his published reasons.
- The applicant submits that liability for consequential economic loss caused by negligent building design or construction is restricted to ‘special cases’, such as Bryan v Maloney. In that appeal, the High Court held that proximity and foreseeability are necessary, but not sufficient, conditions for the establishment of a duty of care for economic loss between otherwise distant parties, such as subsequent owners of defective premises.
- On the applicants’ argument, because the respondent home owners (the Traceys) do not belong to the limited class of (vulnerable) claimants recognised as lacking the ability to protect their rights and interests against negligent building design or construction, the Member erred in finding that he owed them a personal duty of care.
- The Traceys were typical first home owners.
- They contracted with Olindaridge in 2001 to design and construct them a family home in the seaside town of Woodgate on the central coast.
- The Traceys filed a claim for compensation in the Tribunal against both the company and its directors (including the applicant) in 2008 for structural defects in the slab and an infestation of termites.
- The claim against the directors was dismissed in 2012 because neither was a party to the contract. The applicant was held not to owe any other specific duty of care outside his obligations as nominee for the company.
- An appeal against that finding was upheld in early 2013 and the directors were reinstated as respondents.
- In August 2013, the company and the applicant were ordered to pay partial compensation of $98,600. A subsequent appeal was settled by consent orders against the company and the applicant. In the meantime, however, the Traceys had their initial application amended to include a claim for rectification of inadequate external plumbing work, which was the subject matter of BDL276-12 and gives rise to this application. The compensation issue has been adjourned pending its outcome.
- It was not alleged or proved that the damage complained of was reasonably discoverable during the building process and there is no suggestion of any intervening negligence causing it.
The “pure economic loss” principles
- In established categories damage, such as personal injury or property damage, a relationship of ‘proximity’ between the parties implied by the foreseeability of harm is often sufficient to indicate the existence of a tortious duty of care.
- However, as a matter of policy courts have been reticent to compensate for pure economic loss (such as diminution in property value or the cost of rectification) caused by negligent conduct.
- The reasons typically given for this reluctance are an unwillingness to:
- (a)impose a liability that is indeterminate in class, amount and time;
- (b)disappoint community standards and expectations about pursuing private interests and personal gain; and
- (c)create disharmony between different fields of law determining the allocation of risk and responsibility, such as contract and tort.
- In the modern era, however, a more incremental, analogical, multifactorial approach has developed for determining liability in cases pure economic loss, claims based more on ‘salient’ features and less on the concept of proximity. The change is not because the proximity test was legally wrong, but in the belief that it was ‘conclusory and unhelpful.’ This new method of assessing liability has the advantage of giving the abstract notion of proximity some practical content.
- In Caltex Refineries (Qld) Pty Limited v Satavar, for instance, the New South Wales Court of Appeal considered the common law liability of an employer to the wife of an employee who contracted asbestosis by washing her husband’s contaminated work clothes at home.
- Allsop P (Simpson J agreeing) held that the proper approach called for a detailed analysis of the relationship between the parties, by reference to the interrelated, and sometimes overlapping, ‘universe of considerations’ affecting the appropriateness of imputing a legal duty to take reasonable care. His Honour identified seventeen potentially relevant factors that might assist in determining the existence of a novel duty of care, but does not suggest that it was compulsory to make specific findings about each consideration, or that the list was mandatory or exhaustive.
- In Perre v Apand Pty Ltd the ‘vulnerability’ of the plaintiff emerged as an important criterion in cases involving the establishment of a duty of care to avoid pure economic loss. ‘Vulnerability’, in this context, does not mean that the plaintiff was likely to suffer damage if reasonable care was not taken, but refers to the practical inability of the plaintiff to protect his or herself against the consequences of negligent conduct.
- In two recent commercial building cases, Woolcock Street Investments Pty Ltd v CDG Pty Ltd(Woolcock) and Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 and Anor (Brookfield Multiplex), the vulnerability of the claimant to risks of negligence was considered by the High Court to be a critical, but not decisive, indicator of liability.
- The Traceys rely on Bryan. The applicant, by contrast, contends that the issues arise in a different factual context than Bryan, and are better resolved by reference to Woolcock and Brookfield Multiplex.
- Bryan, decided in 1995, held that a builder of a dwelling house owed a duty of care to a subsequent purchaser for loss of market value caused by latent defects in construction by extending the duty owed to the original owner.
- It is authority for the (then novel) proposition that a tortious duty of care, existing independently of any contract, for pure economic loss, based on a relationship of proximity in ‘special’ cases, may arise from ‘the ordinary relationship between a builder of a house and the first home owner’.
- The majority found that the contract between the builder and the first home owner gave rise to a relationship based on an assumption of responsibility for risk by the builder and imputed reliance by the homeowners on his superior skill and expertise, which entitled them to assume, in the absence of contrary evidence, that the house was competently built.
- The relationship was held to run with the land for the benefit of the subsequent homeowner at the time the defect was discovered. There was no valid policy objection standing in the way of extending the relationship of proximity, and affording similar protection to subsequent owners, regardless of the availability of statutory warranties, was identified.
- Extending recovery to the subsequent purchaser was not regarded as inconsistent with the builder’s pursuit of his legitimate financial interests. Nor was it unfair for him to remedy the defect at his own cost when it was discovered, irrespective of who owned the house at the time.
- The action could only be maintained by the owner at the time the defect was discovered, or was discoverable by reasonable enquiry. Liability was limited to the cost of rectification or lost value, and therefore the liability was sufficiently determinate.
- The Court also relied on other factors to find the existence of such a duty of care, including:
- (a)the close nexus between defectiveness and the purpose and cost of the house;
- (b)the significant financial investment of the owners in the property;
- (c)that the builder was better positioned to identify, and mitigate, any defective building work which might cause future economic loss;
- (d)the real, but highly technical, distinction between the nature of the loss, and the failure of the contract between the builder and the original owner to exclude or limit liability for defects which the recognition of a duty of care in negligence would defeat.
- While the High Court did not expressly limit the relevant duty of care to non-commercial buildings, Bryan has often been limited to residential buildings constructed under a contract with the owner. This (debatable) distinction was premised on the assumption that investors are likely to have a higher degree of self-reliance and control by reason of their skill and experience, and that they have greater capacity to engage experts to review the property and bargaining power to negotiate warranties protecting against latent defects. As commercial investors were well-positioned to protect their interests, it was unnecessary to include them in the expanded duty of care.
- In Woolcock a commercial warehouse subsided due to structural defects resulting from the negligent design or construction of its footings seven years after it was completed, and two years after being purchased by Woolcock as an investment.
- On a case stated, a 6:1 majority of the High Court rejected a claim against the engineer founded on the principles in Bryan, mainly because the original owner had asserted a significant degree of control over the decision making regarding the foundations of the property, thus a characteristic feature of the ordinary relationship between professional builders and owners was absent.
- Whilst in the case of domestic construction the High Court was prepared to presume or infer responsibility and reliance on the basis of what ‘ordinarily occurs’, there was no positive evidence that Woolcock had taken any steps to protect its financial interests against structural defects or retained an expert to inspect the building before purchase. Since the builder was not liable to the first owner, the engineer could not be held accountable to its successor under the Bryan principles.
- In Brookfield Multiplex the High Court considered whether a builder of serviced apartments owed a duty of care to the body corporate to avoid economic loss caused by latent defects in the common property.
- The Court concluded that no duty of care was owed to either the original or subsequent owners of the apartments because the relationship between the parties was more analogous to, although not identical with, the position of the purchaser in Woolcock than the parties in Bryan.
- All members of the court emphasised the centrality of the plaintiff’s ‘vulnerability’ and competing policy considerations in determining liability.
The current legal position
- Accepting that vulnerability is a, if not the, most important ‘criterion of liability’, does not mean that the Traceys cannot rely on Bryan based on the ordinary builder/client relationship. If there is no material factual difference, analogical reasoning should produce the same result based on the expectation that like cases will be treated alike.
- It is clear that what ultimately determined the existence of a duty of care for economic loss in Bryan was the character of the relationship between the plaintiff and the defendant. That did not turn only on proximity or foreseeability, but depended on all relevant circumstances and policy considerations, such as the particular kind of economic loss involved (the decreased value of a house with inadequate footings), the nature of the property (a family home), the uncontradicted inference of reliance (or dependence) of the home owner and assumed responsibility (or control) of the builder, the discrepancy between their respective levels of knowledge, skill and experience in housing and construction, the lack of any ‘complication’ in the original building contract, which meant that finding liability in negligence did not allow the plaintiff to avoid or escape the operation of exclusionary clauses, and the inability to detect any significant signs of defect by reasonable inspection.
- The Traceys were investing in a first home for an undefined period of time. It is not suggested that the relationship between the parties was any different to what usually exists between builder and client or that the contract excluded or limited liability for latent defects. Nor is it claimed that the Traceys were sophisticated clients with special acumen or experience allowing them to exercise any real control over the applicant or company in performing the works.
- Without some supporting evidence, it is unrealistic to argue that they did not belong to a class of home owners generally unware of the need for, and how to obtain, adequate contractual protections that were against structural weakness that may have been undiscoverable for years.
- It was reasonable for them to expect that their likely permanent dwelling would be built without substantial defects.
- The relationship between the parties to this litigation, and its legal consequences, are not differentiable from Bryan solely by the fact that the applicant performed but was not a party to the agreement between the Traceys and Olindaridge whereas the builder of the defective house in Bryan contracted personally.
- As a matter of both principle and policy, the applicant is answerable for his own defaults and cannot escape them by pointing to the company’s separate legal personality.
- The relevant defect was admittedly the result of negligent work carried out by the applicant. It is no answer to say that he is just a subcontractor or employee immune from liability because Olindaridge failed in its own obligations to properly supervise him.
- There are strong reasons for concluding that the applicant was better qualified and positioned than the Traceys to avoid, evaluate and safeguard against the financial risk posed by latent defects of the structure. This supports the existence of the applicants’ legal liability for breaching a personal duty of competence.
- On this basis the Tribunal did not apply the wrong test of liability.
The proposed grounds of appeal
- The applicants’ written submissions assert at  that the ‘assumption of responsibility’ finding was unsupported by evidence.
- It is argued that the combination of indicia, such as the nature of the applicants’ involvement in negotiating, redrafting, executing, and performing the building contract, arranging for architectural drawings, direct responsibility for elements of the building work, and supervising subcontractors, referred to in support of the finding at  of the Tribunal’s reasons are no more than what a director or agent of a company would ordinarily do on its behalf and, in truth, more consistent with a refusal to accept personal responsibility than a willingness to assume it.
- Acting on no evidence is a legal error, but here the inference of assumption of responsibility was amply supported by the primary facts referred to by the Tribunal. Error is not shown just because the same facts were open to alternative interpretations.
- Fact finding is not a science but a level of persuasion based on probability and cogency. In cases where as here the appellate tribunal is in the same positon as that of the primary decision-maker in evaluating the evidence adduced in the original proceedings, if it reaches a different conclusion to that of the primary decision-maker it should give effect to its own findings.
- However, there is no basis for interfering with the facts as found by the tribunal on this issue.
- In any event, as the High Court explained in Bryan, assumption of risk is a common but not essential feature of this special category of duty of care, and is readily implied, if needs be, into the ordinary relationship of builder and client.
- The applicant also complains at  of his written submissions that the Tribunal erred by failing to ‘properly consider’ whether there was ‘known reliance’. The Tribunal was satisfied ‘that the nature of the applicants’ involvement as described at  (of the reasons) created a very different understanding of his involvement in the Traceys’ minds. This should have been really apparent to (the applicants)’. However, the applicant claims that while it was open to the Tribunal to find actual reliance, there was no evidence that the applicants knew the Tracey’s were relying on him and that it was not open to the tribunal ‘to readily draw that conclusion’ or ‘reasonable to assume on the evidence available, and in the circumstances,’ that the applicant knew, or even ought to have known, that the Traceys were relying on him.
- There is no substance to this ground of appeal. The facts as found plainly support an inference of reliance or dependence.
- In any case, very little, if any, direct evidence was needed in Bryan to establish the element of dependence. Like the salient feature of assumed responsibility, ‘known’ reliance is not an essential element of liability.
- The applicants’ final complaint at  of his written submissions is that the Tribunal erred in giving too much weight to the concepts of ‘reliance’ and ‘assumption of responsibility’ in finding that the Traceys were ‘vulnerable’ in the required sense. This argument too is devoid of merit.
- The High Court did not consider it ‘necessary or profitable to attempt to define what does or does not constitute vulnerability’ in Brookfield Multiplex beyond observing that making contracts expressly providing for the quality of work expected, demonstrated the ability of the apartment owners, who ultimately controlled the body corporate, to protect against, and denies their vulnerability to, any lack of care by the builder and the non-performance of its contractual obligations.
- Despite confirming the primacy of vulnerability of subsequent purchasers of dwellings in a post-Woolcock environment, the Supreme Court of Victoria nonetheless held itself bound to follow Bryan in Moorabool Shire Council v Taitapanui holding a surveyor who wrongly certified a defective building as sound liable to subsequent owners in possession when the defects became apparent, because of the claimant’s reliance, dependency, and limited ability to self-protect.
- It is not reasonably arguable, therefore, that the Tribunal’s finding that the Traceys were vulnerable to the negligence of the applicant is plainly wrong.
- As there is no justification for the appeal tribunal to conduct a full hearing on the merits under section 147(2) of the Queensland Civil and Administrative Tribunal Act 2009. The application for leave is refused.
 cf Council of the Shire of Noosa v JE Farr Pty Ltd  QSC 060 at  per Chesterman J. See too, Kondis v State Transport Authority (1984) 154 CLR 672 at 688; Chapman, “Liability for the negligence of independent contractors” (1934) 50 LQR 71.
 That is, a reasonably arguable case of substantial injustice due to legal, factual or discretionary error in need of correction on appeal: see White v Commissioner of Police  QCA 121 at ; Commissioner of Police v Al Shakarji  QCA 319 at  per Margaret Wilson J.
 (1995) 182 CLR 609 (Bryan) at 619; see also Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1996) 136 CLR 529, 555.
Caltex at 550.
 Bryan at 618-619, 623, 626-628, Caltex at 552 and Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 529-530.
Sullivan v Moody (2001) 207 CLR 562, 580-582; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 555.
 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 546-547, 562, 574, 579 and 589.
 See Sullivan v Moody (2001) 207 CLR 562 and Caltex Refineries (Qld) Pty Ltd v Satavar  NSW CA 254 at .
  NSW CA 254.
 Ibid, at .
 (1999) 198 CLR 180.
 (2004) 216 CLR 515.
 (2014) 254 CLR 185.
Bryan at 624.
 Ibid, at 627-8, 663.
 Zumpano v Montagnese  2 VR 525, 545 cf Fangrove Pty Ltd v Todd Group Holdings Pty Ltd  2 Qd R 236 and Proprietors Units Plan No 95/38 v Jiniess Pty Ltd  NTSC 89 (unreported, Riley J, 31 October 2000).
 Cf Kondis v State Transport Authority (1984) 154 CLR 672 at 687.
 Brookfield Multiplex at  per Hayne and Keifel JJ.
 (2006) 14 VR 55.
- Published Case Name:
Olindaridge Pty Ltd, Rodney Wagner and Carla Wagner v Martha-Lee Joelyn Tracey and Todd Anthony Tracey
- Shortened Case Name:
Olindaridge Pty Ltd v Tracey
 QCATA 23
02 Mar 2016