Central Highlands Regional Council v Geju Pty Ltd

This case concerned the duty of care owed by the appellant council to the subsequent purchaser of a property. The council had provided a misleading certificate as to the correct zoning of the property, which had the effect of making it appear more valuable. The court considered the usual factors which go to a duty of care owed for pure economic loss, and in particular, the questions of indeterminacy and vulnerability, ultimately finding that the Council did not owe a duty of care to the subsequent purchaser.

Fraser and McMurdo JJA and Brown J

16 March 2018

This matter concerned an appeal from a judgment that the appellant council pay the respondent $852,205.50. [1]. The primary judge had awarded damages for loss sustained by the respondent in purchasing vacant land (“Lot 70”) in reliance upon a negligent misrepresentation in a limited planning and development certificate. [1]. The certificate was not issued to the respondent, but to the owner of Lot 70, who subsequently sold the lot to the respondent. [1]. The appellant council appealed on the ground, among others, that the primary judge erred in deciding that the appellant owed the respondent a duty of care. [3].

In March 2007, the owners of a lot of land contracted to sell that lot to the Mayfair Group. [6]. The lot was in a rural zone. [6]. As part of the arrangement, the owners applied to reconfigure the lot into two lots and for a material change of use from Rural Zone to Industrial Use. [6]. The council approved that application. [6]. Lot 70 was one of the two lots created upon the registration of the survey plan in October 2007. [6].

In December 2007, the Mayfair Group settled their purchase of Lot 70 and their solicitors applied to the appellant for a limited planning and development certificate. [7]. The certificate issued by the appellant to the Mayfair Group wrongly stated that the Lot 70 was “Zone: TOWN Precinct: INDUSTRIAL”. [9]. The trial judge concluded that the certificate was relevantly misleading, and that Lot 70 would have been more valuable if it had been zoned industrial (as stated in the certificate) instead of being in the rural zone with the benefit of the approved material change of use. [10].

In June 2008, the respondent entered into a contract to purchase Lot 70 from the Mayfair Group. [14]. At an unknown time between February and June 2008, one of the principals of the Mayfair Group gave the limited planning and development certificate to the real estate agent for Mayfair Group, who in turn gave a copy of the certificate to the principal of the respondent. [15].

The primary judge held that the appellant owed a duty of care to the respondent and rejected the appellant’s argument that this was not one of the categories of case in which a duty of care has traditionally been imposed. [18]. The primary judge held that a duty of care is owed not only to a person who requests information but also to a person dealing with the recipient of the information. [18].

Fraser JA, with whom McMurdo JA and Brown J agreed, disagreed with the primary judge and held that the appellant did not owe the respondent a duty of care. His Honour referred to statements from various High Court authorities dealing with liability for negligent misstatements. [20]–[21]. His Honour explained that “[n]one of those statements support the existence of a duty of care in the quite different circumstances of this case, in which the duty of care is alleged to be owed to a person other than the person to whom the appellant gave the certificate”. [21].

Fraser JA disagreed with the primary judge’s conclusion that the respondent was a member of an identified class to whom it was likely that the certificate would come and that the certificate would be very likely to lead it to enter into a transaction of the kind it did enter into. [26]. His Honour noted that, as the appellant had submitted, “there was no rational way to define a class of which the respondent was a member other than in very broad terms”. [26]. Although it was foreseeable that Mayfair Developments might pass on the zoning information in the certificate to one or more of the people in the broad class of persons, who might in turn rely upon that information, “there [was] no basis in the evidence for concluding that the appellant knew or ought to have known that Mayfair Developments would do so, much less that the appellant intended, knew, or ought to have known, that a person would buy Lot 70 in reliance upon the zoning information in the certificate”. [26].

As Fraser JA explained, the primary judge had also held that “the vulnerability of the respondent, arising from the circumstance that the appellant was the only potential source of the information the certificate was supposed to contain, justified the imposition of a duty of care”. [35]. However, Fraser JA considered that “[t]he argument for vulnerability [was] weaker in this case because the respondent did not establish that the appellant was the only reliable source of the relevant zoning information”. [39]. Moreover, vulnerability was “not established on the facts of this case merely if it was reasonable for the respondent to rely upon the certificate without taking any other steps”. [41].

Finally, while noting that reliance has been regarded as an “indicator of vulnerability”, Fraser JA said that:

“the High Court has so far not held that a duty of care arises in negligent misstatements cases merely because it is foreseeable that a plaintiff unknown to the defendant falls within a broadly defined class of persons who might suffer economic loss by reasonably relying upon a statement made by the defendant.” [41].

In the result his Honour did not consider that the collection of features upon which the respondent relied justified a conclusion that the appellant owed the respondent a duty of care. [43]. The appeal was allowed on this ground. [44]. His Honour also would have allowed the appeal on the basis that the primary judge erred in declining to make a finding of apportionment against the solicitors of the respondents, in circumstances where it was conceded that a duty of care was owed, that it had been breached, and that the breach was a cause of the loss. [47]–[54].

M J Hafeez-Baig