Builders of dwelling houses owe a duty of care in negligence to subsequent purchasers to avoid latent defects in footings and structure, and are liable for the cost of remedying such defects when they first become manifest, even absent any contractual relationship with the subsequent purchaser.
Later decisions that cite Bryan v Maloney
Decisions cited by Bryan v Maloney
BRYAN v MALONEY
F.C. 95/011
Number of pages - 45
Negligence
(1995) 182 CLR 609
HIGH COURT OF AUSTRALIA
MASON CJ(1), BRENNAN(2), DEANE(1), TOOHEY(3) AND GAUDRON(1) JJ
Negligence - Duty of care - Proximity - Economic loss - Defective construction of dwelling house - Liability of builder to subsequent purchaser - Damages - Diminution in value of house.
HEARING
HOBART, 1994, March 23, 24; CANBERRA, 1995, March 23ORDER
Appeal dismissed with costsDECISION
MASON CJ, DEANE AND GAUDRON JJ The appellant, Mr Bryan, is a professional builder. In 1979, he built a house for a Mrs Manion on land in Launceston which Mrs Manion owned. Subsequently, Mrs Manion sold the land and the house to a Mr and Mrs Quittenden. In 1986, Mr and Mrs Quittenden sold the land and house to the respondent, Mrs Maloney.
2. Mrs Maloney inspected the house three times before purchasing it. She
noticed no cracks or other defects. She said that she
specifically looked for
cracks on the outside walls and found none. Apparently, she neither knew nor
inquired about the identity
of the builder. Her evidence was that the house
suited her needs, that she thought "it was a good solid house", that she
"couldn't
find anything wrong with it" and that she "thought it would be built
properly ... so I bought it". About six months after the purchase,
cracks
began to appear in the walls of the house. The damage to the fabric of the
house became extensive. The reason for the cracks
and subsequent damage was
that the house had been built by Mr Bryan with footings which were inadequate
to withstand the seasonal
changes in the clay soil.
3. Mrs Maloney instituted proceedings in negligence against Mr Bryan in the
Supreme Court of Tasmania. The learned trial judge (Wright
J) found in Mrs
Maloney's favour and awarded damages of $34,464.68, that being the amount
which his Honour found would necessarily
be expended in remedying the
inadequate footings and the consequential damage to the fabric of the house.
Mr Bryan appealed to the
Full Court of the Supreme Court of Tasmania. His
appeal was unanimously dismissed. He now appeals to this Court from the
judgment
and order of the Full Court. It is appropriate at the outset to
acknowledge the assistance we have received from the carefully researched
and
reasoned judgments of the trial judge and of Underwood J and of Crawford J
(with whom Cox J agreed) in the Full Court.
4. Both in this Court and in the Full Court, the case has been argued on the
basis that, in accordance with the findings and conclusions
of the trial
judge, a number of matters are now common ground, namely, that Mr Bryan was
negligent in building the house with inadequate
footings; that the damage
sustained by Mrs Maloney was the loss involved in the decrease in the value of
the house resulting from
the inadequacy of the footings and its consequences;
that that damage was sustained by Mrs Maloney when the inadequacy of the
footings
first became manifest by reason of the cracks appearing in the walls
of the house after she had purchased it; and, that that damage
was a
foreseeable consequence of Mr Bryan's negligence. Moreover, it is not in
issue that, in the circumstances of this case, the
economic loss involved is
the amount which would necessarily be expended in remedying the inadequate
footing and their consequences
as assessed by the trial judge. In the result,
the sole remaining issue is whether Mr Bryan owed Mrs Maloney, as a subsequent
purchaser
of the house, a relevant duty of care under the law of negligence.
5. The evidence disclosed that Mrs Manion, for whom the house was originally
built on what was described in argument as a "cost
plus a margin (of profit)"
basis, was Mr Bryan's sister-in-law. It is not, however, suggested that the
relationship between them
was other than an ordinary business relationship
between a professional builder and his client or that the contract between
them
contained any relevant exclusion or limitation of liability. Nor is it
now argued that there was any competing or intervening negligence
by any other
person or entity such as an architect or the local council. That being so,
the case falls to be decided on the basis
that it gives rise to a question
which can be stated in abstract terms, namely, whether, under the law of
negligence, a professional
builder who constructs a house for the then owner
of the land owes a prima facie duty to a subsequent owner of the house to
exercise
reasonable care to avoid the kind of foreseeable damage which Mrs
Maloney sustained in the present case, that is to say, the diminution
in value
of the house when a latent and previously unknown defect in its footings or
structure first becomes manifest. As the trial
judge recognized, that damage,
which was the only damage sustained by Mrs Maloney, was mere economic loss in
the sense that it was
distinct from, and not consequent upon, ordinary
physical injury to person or property (1). In that regard, 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. and F. Estates Ltd. v. Church Commissioners
(2). 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" (3).
6. 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. In more
settled areas of the law of negligence concerned with ordinary physical injury
to the person or property
of a plaintiff caused by some act of the defendant,
reasonable foreseeability of such injury will commonly suffice to establish
that
the facts fall into a category which has already been recognized as
involving a relationship of proximity between the parties with
respect to such
an act and such damage and as "attracting a duty of care, the scope of which
is settled" (4). In contrast, the field
of liability for mere economic loss
is a comparatively new and developing area of the law of negligence. In that
area, the question
whether the requisite relationship of proximity exists in a
particular category of case is more likely to be unresolved by previous
binding authority with the consequence that the "notion of proximity ... is of
vital importance" (5). As Stephen J indicated in
Caltex Oil (Australia) Pty.
Ltd. v. The Dredge "Willemstad" (6), it is the "articulation", in the
different categories of case, "of
circumstances which denote sufficient
proximity" with respect to mere economic loss, including "policy
considerations", which will
gradually provide "a body of precedent productive
of the necessary certainty". Inevitably, the policy considerations which are
legitimately
taken into account in determining whether sufficient proximity
exists in a novel category will be influenced by the courts' assessment
of
community standards and demands (7).
7. One policy consideration which may militate against recognition of a
relationship of proximity in a category of case involving
mere economic loss
is the law's concern to avoid the imposition of liability "in an indeterminate
amount for an indeterminate time
to an indeterminate class" (8). Another
consideration is the perception that, in a competitive world where one
person's economic
gain is commonly another's loss, a duty to take reasonable
care to avoid causing mere economic loss to another, as distinct from
physical
injury to another's person or property, may be inconsistent with community
standards in relation to what is ordinarily legitimate
in the pursuit of
personal advantage (9). The combined effect of those two distinct policy
considerations is that the categories
of case in which the requisite
relationship of proximity with respect to mere economic loss is to be found
are properly to be seen
as special. Commonly, but not necessarily, they will
involve an identified element of known reliance (or dependence) or the
assumption
of responsibility or a combination of the two (10).
8. As was pointed out in the recent majority judgment in Burnie Port
Authority v. General Jones Pty. Ltd. (11), 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. There is no decision of the
Court which directly determines the question whether the relationship between
Mr Bryan,
as the builder of the house, and Mrs Maloney, as a subsequent owner
of it, possessed the requisite degree of proximity to give rise
to a duty, on
the part of Mr Bryan, to take reasonable care to avoid the kind of economic
loss sustained by Mrs Maloney. Necessarily,
as has been indicated, the
resolution of that question requires the articulation of both the factual
components of the relevant category
of relationship and the identification of
any applicable policy considerations. Ultimately, however, it is a question
of law which
must be resolved by the ordinary processes of legal reasoning in
the context of the existence or absence of the requisite element
of proximity
in comparable relationships or with respect to comparable acts and/or damage.
Accordingly, it is appropriate to approach
the question through a
consideration of some related situations.
9. Mr Bryan and Mrs Manion were the parties to a contract in relation to the
building of the house. Whatever may have been the
position in earlier times
(12), the existence of such a contractual relationship between builder and
client did not preclude the
existence either of a relationship of proximity
between them in relation to that work or of a consequent duty of care under
the ordinary
law of negligence (13). That was made clear by Windeyer J, with
the concurrence of the other members of the Court (Dixon CJ and Owen
J), in
Voli v. Inglewood Shire Council (14) when explaining the liabilities of an
architect to his or her client:
"He is bound to exercise due care, skill and diligence. He is not required to
have an extraordinary degree of skill or the highest
professional attainments.
But he must bring to the task he undertakes the competence and skill that is
usual among architects practising
their profession. And he must use due care.
If he fails in these matters and the person who employed him thereby suffers
damage,
he is liable to that person. This liability can be said to arise
either from a breach of his contract or in tort."
Subsequently, when dealing with the question of liability to a third party,
Windeyer J commented (15):
"Whatever might have been thought to be the position before the broad
principles of the law of negligence were stated in modern form
in Donoghue v.
Stevenson (16), it is now beyond doubt that, for the reasonably foreseeable
consequences of careless or unskilful
conduct, an architect is liable to
anyone whom it could reasonably have been expected might be injured as a
result of his negligence.
To such a person he owes a duty of care quite
independently of his contract of employment."
Those passages were quoted by Deane J in Hawkins v. Clayton (17), in a part of
his judgment with which Mason CJ and Wilson J expressed
their agreement (18),
as support for the proposition that there are no acceptable grounds for
refusing to recognize the liability
of a solicitor in tort for negligence in
the performance of professional work for a client. As Windeyer J himself
recognized in
Voli v. Inglewood Shire Council (19), they are applicable to
define "the ordinary liabilities of any man who follows a skilled calling".
10. The fact that the law recognizes the existence of concurrent duties in
contract and tort does not mean that the existence of
a contractual
relationship is irrelevant to either the existence of a relationship of
proximity or the content of a duty of care
under the ordinary law of
negligence. In some circumstances, the existence of a contract will provide
the occasion for, and constitute
a factor favouring the recognition of, a
relationship of proximity either between the parties to the contract or
between one or both
of those parties and a third person. In other
circumstances, the contents of a contract may militate against recognition of
a relationship
of proximity under the ordinary law of negligence or confine,
or even exclude the existence of, a relevant duty of care. The position
in
those regards was helpfully and correctly explained in the following extracts
from the judgment of Le Dain J, speaking for a unanimous
Supreme Court of
Canada, in Central Trust Co. v. Rafuse (20):
"1. The common law duty of care that is created by a relationship of
sufficient proximity ... is not confined to relationships that
arise apart
from contract. Although the relationships in Donoghue v. Stevenson, Hedley
Byrne and Anns (21) were all of a non-contractual
nature and there was
necessarily reference in the judgments to a duty of care that exists apart
from or independently of contract,
I find nothing in the statements of general
principle in those cases to suggest that the principle was intended to be
confined to
relationships that arise apart from contract. Indeed, the dictum
of Lord Macmillan in Donoghue v. Stevenson concerning concurrent
liability ...
would clearly suggest the contrary. ... Junior Books Ltd. v. Veitchi Co. Ltd.
(22), in which an owner sued flooring
subcontractors directly in tort, is
authority for the proposition that a common law duty of care may be created by
a relationship
of proximity that would not have arisen but for a contract.
2. What is undertaken by the contract will indicate the nature of the
relationship that gives rise to the common law duty of care,
but the nature
and scope of the duty of care that is asserted as the foundation of the
tortious liability must not depend on specific
obligations or duties created
by the express terms of the contract. It is in that sense that the common law
duty of care must be
independent of the contract. The distinction, in so far
as the terms of the contract are concerned, is, broadly speaking, between
what
is to be done and how it is to be done. A claim cannot be said to be in tort
if it depends for the nature and scope of the
asserted duty of care on the
manner in which an obligation or duty has been expressly and specifically
defined by a contract. Where
the common law duty of care is co-extensive with
that which arises as an implied term of the contract it obviously does not
depend
on the terms of the contract, and there is nothing flowing from
contractual intention which should preclude reliance on a concurrent
or
alternative liability in tort. The same is also true of reliance on a common
law duty of care that falls short of a specific obligation
or duty imposed by
the express terms of a contract.
3. A concurrent or alternative liability in tort will not be admitted if its
effect would be to permit the plaintiff to circumvent
or escape a contractual
exclusion or limitation of liability for the act or omission that would
constitute the tort. Subject to
this qualification, where concurrent
liability in tort and contract exists the plaintiff has the right to assert
the cause of action
that appears to be most advantageous to him in respect of
any particular legal consequence." The dictum of Lord Macmillan in Donoghue
v.
Stevenson to which Le Dain J referred in the first paragraph of the above
extract reads as follows (23):
"The fact that there is a contractual relationship between the parties which
may give rise to an action for breach of contract, does
not exclude the
co-existence of a right of action founded on negligence as between the same
parties, independently of the contract,
though arising out of the relationship
in fact brought about by the contract. Of this the best illustration is the
right of the injured
railway passenger to sue the railway company either for
breach of the contract of safe carriage or for negligence in carrying him."
Lord Macmillan went on to add (24):
"And there is no reason why the same set of facts should not give one person a
right of action in contract and another person a right
of action in tort."
It follows that, in the circumstances of this case where the contract between
Mr Bryan and Mrs Manion was non-detailed and contained
no exclusion or
limitation of liability, neither the existence nor the content of the contract
precluded the existence of liability
to Mrs Manion or Mrs Maloney under the
ordinary law of negligence. To the contrary, the case was of the kind
referred to by Le Dain
J at the end of the first paragraph of the above
extract, namely, a case where the relationship of proximity arises by virtue
of
the contract and the work to be performed under it.
11. 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.
12. 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. Obviously, that distinction, which has
only recently
attained general acceptance25, is an essentially technical one. Indeed, even
now, it is arguably inapplicable in circumstances
where a latent defect in the
work of one builder or contractor causes damage to a part of the building
constructed by a different
builder or contractor (26).
13. Moreover, 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. Thus, there is no basis for thinking that
recognition of a
relationship of proximity between builder and first owner
with respect to that particular kind of economic loss would give rise to
the
type of liability "in an indeterminate amount for an indeterminate time to an
indeterminate class" which the courts are reluctant
to recognize. Again, in
circumstances where the builder is, in any event, under a duty of care to the
first owner to avoid physical
injury to that owner's person or property by
reason of inadequacy of the footings, there can be no real question of
inconsistency
between the existence of a relationship of proximity with
respect to that particular kind of economic loss and the legitimate pursuit
by
the builder of his or her own financial interests. Nor, as has been seen, is
it legitimate to assert that, as a matter of policy,
the sanctity of contract
or the compartmentalization of the law dictates that liability under the
ordinary principles of negligence
in respect of either damages generally or a
particular kind of damage must be excluded as between parties in a contractual
relationship
notwithstanding the absence of any actual agreement between the
parties to that effect. Whatever may have been or may be the position
in
other times or in other places, the law of this country knows no such policy.
14. On the other hand, 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 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. 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.
15. 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 (27). 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
(28). It is unnecessary, for the purposes of the present case, to consider
whether such a relationship of proximity or any
consequent duty of care can be
excluded or modified by the terms of the contract between the builder and the
first owner. As has
been mentioned, it is not suggested that there was any
special feature of the contract or agreement between Mr Bryan and Mrs Manion
that had that effect in the present case. There is, however, obvious force in
the conclusion expressed by Windeyer J in Voli v.
Inglewood Shire Council (29)
to the effect that, while such a contractual exclusion would be relevant to
identifying the task upon
which the architect had entered, it could not
directly operate to discharge the architect from a duty of care which would
otherwise
exist "to persons who are strangers" to the contract.
16. It is in the context of the above-mentioned relationships of proximity
that one must determine whether the relationship which
exists between a
professional builder of a house, such as Mr Bryan, and a subsequent owner,
such as Mrs Maloney, possesses the requisite
degree of proximity to give rise
to a duty to take reasonable care on the part of the builder to avoid the kind
of economic loss
sustained by Mrs Maloney in the present case. It is likely
that the only connection between such a builder and such a subsequent
owner
will be the house itself. Nonetheless, the relationship between them is
marked by proximity in a number of important respects.
The connecting link of
the house is itself a substantial one. It is a permanent structure to be used
indefinitely and, in this
country, is likely to represent one of the most
significant, and possibly the most significant, investment which the
subsequent owner
will make during his or her lifetime. It is obviously
foreseeable by such a builder that the negligent construction of the house
with inadequate footings is likely to cause economic loss, of the kind
sustained by Mrs Maloney, to the owner of the house at the
time when the
inadequacy of the footings first becomes manifest. When such economic loss is
eventually sustained and there is no
intervening negligence or other causative
event, the causal proximity between the loss and the builder's lack of
reasonable care
is unextinguished by either lapse of time or change of
ownership.
17. The only factor which arguably precludes the recognition of a relevant
relationship of proximity between builder and subsequent
owner for the
purposes of the present case is the kind of damage involved, namely, mere
economic loss. As has been seen, a relevant
relationship of proximity would
have existed between the builder and Mrs Maloney with respect to ordinary
physical injury to her
person or other property caused by a partial collapse
of the house due to its inadequate footings even if she had not been the
owner.
Here again, it is important to bear in mind the particular kind of
economic loss involved. As has been said, the distinction between
that kind
of economic loss and ordinary physical damage to property is an essentially
technical one. Indeed, the economic loss sustained
by the owner of a house by
reason of diminution in value when the inadequacy of the footings first
becomes manifest by consequent
damage to the fabric of the house is, at least
arguably, less remote and more readily foreseeable than ordinary physical
damage to
other property of the owner which might be caused by an actual
collapse of part of the house as a result of the inadequacy of those
footings.
Again, the policy considerations underlying the reluctance of the courts to
recognize a relationship of proximity and a
consequential duty of care in
cases of mere economic loss are largely inapplicable to the relationship
between builder and subsequent
owner as regards that particular kind of
economic loss. There can be no question of inconsistency with the builder's
legitimate
pursuit of his or her own financial interests since, as has been
seen, the builder owed a duty of care to the first owner with respect
to such
loss. In circumstances where the particular kind of economic loss is that
sustained by an owner of the house on the occasion
when the inadequacy of the
footings first becomes manifest, there is no basis for thinking that
recognition of a relevant relationship
of proximity between builder and that
owner would be more likely to give rise to liability "in an indeterminate
amount ... to an
indeterminate class" than does recognition of such an element
of proximity in the relationship between builder and first owner.
It is true
that, in so far as "an indeterminate time" is concerned, the time span in
which liability to a subsequent owner might
arise could be greater than if
liability were restricted to the first owner. Nonetheless, the extent of that
time span would be
limited by the element of reasonableness both in the
requirement that damage be foreseeable and in the content of the duty of care
(30). In any event, it would prima facie correspond with that applicable to
the relationship of proximity which clearly exists as
regards physical injury
to person or other property. Moreover, any difference in duration between
liability to the first owner and
liability to a subsequent owner is likely to
do no more than reflect the chance element of whether and when the first owner
disposes
of the house.
18. 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.
19. Ultimately, it seems to us that, from the point of view of proximity, the
similarities between the relationship between builder
and first owner and the
relationship between builder and subsequent owner as regards the particular
kind of economic loss are 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. Both
relationships are characterized, to a comparable extent, by
assumption of
responsibility on the part of the builder and likely reliance on the part of
the owner. No distinction can be drawn
between the two relationships in so
far as the foreseeability of the particular kind of economic loss is
concerned: it is obviously
foreseeable that that loss will be sustained by
whichever of the first or subsequent owners happens to be the owner at the
time when
the inadequacy of the footings becomes manifest. In the absence of
competing or intervening negligence or other causative event,
the causal
proximity between negligence on the part of the builder in constructing the
footings and consequent economic loss on the
part of the owner when the
inadequacy of the footings becomes manifest is the same regardless of whether
the owner in question is
the first owner or a subsequent owner. In the case
of both relationships, the policy considerations which ordinarily militate
against
the recognition of a relationship of proximity and a consequent duty
of care with respect to pure economic loss are insignificant.
Moreover, there
are persuasive policy reasons supporting the recognition of a relationship of
proximity between the builder and
a subsequent owner of an ordinary dwelling
house with respect to the particular kind of economic loss. As Wright J
pointed out,
at first instance, a number of those policy considerations were
identified in the judgment of the Supreme Court of New Hampshire,
delivered by
Thayer J, in Lempke v. Dagenais (31). They include 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 (32). In all the circumstances, the relationship
between builder and subsequent owner as regards the particular kind of
economic loss should be accepted as possessing a comparable
degree of
proximity to that possessed by the relationship between builder and first
owner and as giving rise to a duty to take reasonable
care on the part of the
builder to avoid such loss.
20. The conclusion that a relationship of proximity existed between Mr Bryan,
as the builder, and Mrs Maloney, as subsequent owner,
with respect to the
particular kind of economic loss is also supported by analogy with the
relationship which would have existed
between Mr Bryan, as the builder, and
any person who suffered physical injury to person or property in the event
that the house or
part of the house had collapsed at the time when the
inadequacy of the foundations first became manifest (33). It is difficult to
see why, as a matter of principle, policy or common sense, a negligent builder
should be liable for ordinary physical injury caused
to any person or to other
property by reason of the collapse of a building by reason of the inadequacy
of the foundations but be
not liable to the owner of the building for the cost
of remedial work necessary to remedy that inadequacy and to avert such damage.
Indeed, there is obvious force in the view expressed by Lord Denning M.R. in
Dutton v. Bognor Regis Urban District Council (34) that,
as a rational basis
for differentiating between circumstances of liability and circumstances of no
liability, such a distinction
is an "impossible" one.
21. One cannot but be conscious of the fact that the conclusion that Mr Bryan
is liable in damages to Mrs Maloney in the present
case is contrary to the
views expressed by the members of the House of Lords in D and F Estates Ltd.
v. Church Commissioners (35)
and Murphy v. Brentwood District Council (36).
The D and F Estates Ltd. Case was concerned with the liability of a building
contractor
to a subsequent leaseholder (37) of a flat. Murphy v. Brentwood
District Council was concerned with the liability of a local council.
It is,
however, apparent that, in each case, their Lordships considered that a
negligent builder's liability under the law of negligence
did not extend to
compensating either the first or a subsequent owner for economic loss
sustained when the inadequacy of the footings
of a building first becomes
manifest by reason of consequent damage to the fabric of the building (38).
Their Lordships' view in
that regard seems to us, however, 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.
22. On the other hand, the conclusion that such a duty of care existed is
supported by persuasive Canadian (39) and New Zealand
(40) authority and by
the weight of recent decisions in the Supreme Courts of this country (41). It
is also supported by some United
States cases (42). The United States courts
have not, however, spoken with concordant voices and the trend in that country
would
seem to be to recognize liability to a subsequent purchaser but to base
it upon a transferable warranty of habitability (not requiring
privity) rather
than on ordinary negligence (43).
23. It should be apparent from what has been written above that the decision
in this case turns, to no small extent, on the particular
kind of economic
loss involved, namely, the diminution in value of a house when the inadequacy
of its footings first becomes manifest
by reason of consequent damage to the
fabric of the house. In particular, the nature of the property involved,
namely a building
which was erected to be used as a permanent dwelling house,
constitutes an important consideration supporting the conclusion that
a
relevant relationship of proximity existed between Mr Bryan, as the builder,
and Mrs Maloney, as a subsequent owner. That being
so, the decision in this
case is not directly decisive of the question whether a relevant relationship
of proximity exists in other
categories of case or as regards other kinds of
damage. In particular, the decision in this case should not be seen as
determinative
of the question whether a relationship of proximity can, in some
circumstances, exist between the manufacturer and the purchaser
or subsequent
owner of a chattel in respect of the diminution in the value of the chattel
which is sustained when a latent defect
in it first becomes manifest (44).
24. The appeal should be dismissed.
BRENNAN J Mrs Manion engaged her brother-in-law Mr Bryan, a builder, to build a house for her at 2 Wintercole Court, Launceston. She had a set of plans for the house, but there were no specifications other than what was written on the plans. Mr Bryan undertook to build the house on a "do and charge" basis, that is, he was paid for the work he actually did and for the materials he actually supplied. The house was built between August and December 1979. Subsequently Mrs Manion sold 2 Wintercole Court to Mr and Mrs Quittenden. In May 1986, they sold to Mrs Maloney, the plaintiff respondent.
2. Mrs Maloney made three cursory inspections of the house before she bought
it. She did not notice any cracks at that time. She
bought the house
thinking "that it was properly built". About six months later, Mrs Maloney
noticed a crack in the concrete slab
in the carport. Later, other cracks
appeared in the house. Wintercole Court is in an area containing reactive
clays which require
special precautions to be taken against failure of
building footings. The cracks were caused by failure of the footings. Mrs
Maloney
sued Mr Bryan, the defendant appellant, for damages for negligence and
recovered a judgment in the Supreme Court of Tasmania. Although
the building
inspector of the Local Authority had inspected and passed the trenches and
reinforcing for the footings before the concrete
was poured, Wright J found
that the footings were not fabricated to a standard to be expected of a
reasonably competent builder in
1979. An appeal to the Full Court was
dismissed. Mr Bryan submits that he owed no relevant duty of care to Mrs
Maloney and that,
in substance, is the ground of his appeal to this Court.
Mrs Maloney's damage
3. An architect, Mr Newman, furnished an estimate in March 1989 of the cost
of underpinning the footings and repairing the defects
that had appeared in 2
Wintercole Court. By the time of the trial, that estimate had increased by
$3,780 to $35,280.68. Wright
J disallowed two of the items in Mr Newman's
list and assessed Mrs Maloney's damages at $34,440.68. There was no evidence
as to
the price which Mrs Maloney had paid for 2 Wintercole Court, nor as to
the effect of the appearance of cracking on its value. Her
damages were
assessed as being the cost at the time of trial of making the footings sound
and repairing the physical defects caused
by the inadequacy of the footings.
4. The facts which attracted the award and in respect of which damages were
assessed were the physical defects of the house at 2
Wintercole Court. The
damages assessed represent a pecuniary outlay which Mrs Maloney would have to
make to have those defects rectified
and in that sense she can be said to have
suffered economic loss. It is not suggested that Mrs Maloney was bound to
expend the amount
recovered or, indeed, any amount on rectifying the
inadequate footings and the physical defects caused thereby. Although it was
conceded on appeal that the damage suffered by Mrs Maloney was pure economic
loss, that concession cannot conceal the facts by reference
to which this case
must be decided. Pure economic loss means economic loss that is not
consequent on physical damage to a person
or to property. Mrs Maloney's
damage consisted of the defects in her house and the measure of the damages
awarded for those defects
was the cost of their rectification. As the duty of
care that is in issue is a duty to avoid or prevent the damage for which the
damages were awarded (45), the question is whether Mr Bryan owed Mrs Maloney
as a future owner of the house a duty of care to prevent
the existence of the
inadequate footings and the occurrence of the physical defects caused by the
inadequacy of the footings.
5. The cases dealing with an architect's or builder's liability in negligence
for carelessly designing or constructing a building
have been concerned to
distinguish between two general categories of damage. The first category
consists of physical damage to person
or property for which a defendant is,
and always has been, liable under the paradigm application of Donoghue v.
Stevenson (46); the
second category consists of pure economic loss for which a
defendant may be liable in negligence under principles that have been
developed from Lord Atkin's original conception in that case, especially since
Hedley Byrne and Co. Ltd. v. Heller and Partners Ltd.
(47) It is not the
pecuniary character of damages or even the manner of their calculation which
is significant but the kind of loss
or damage suffered by the plaintiff in
respect of which an award of damages is sought. The distinction between the
two categories
of damage has served to distinguish cases where, in the absence
of any contrary factor (48), reasonable foreseeability of the kind
of damage
actually suffered is sufficient to give rise to the defendant's duty of care
from cases where reasonable foreseeability
alone does not give rise to such a
duty (49). The distinction is important. The tort of negligence imposes
liability on a defendant
for doing something which causes loss to another even
though the thing done is otherwise lawful. 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
(50),
sterilize many contracts and, in the well-known dictum of Cardozo CJ (51),
expose defendants to potential liability "in an
indeterminate amount for an
indeterminate time to an indeterminate class". For those reasons, the tort of
negligence has not offered
a remedy for the recovery of pure economic loss
from a defendant against whom no more is proved than that his or her actions
caused
that loss and the loss was reasonably foreseeable. In Murphy v.
Brentwood District Council (52), Lord Oliver of Aylmerton said:
"The infliction of physical injury to the person or property of another
universally requires to be justified. The causing of economic
loss does not.
If it is to be categorised as wrongful it is necessary to find some factor
beyond the mere occurrence of the loss
and the fact that its occurrence could
be foreseen. Thus the categorisation of damage as economic serves at least
the useful purpose
of indicating that something more is required and it is one
of the unfortunate features of Anns that it resulted initially in this
essential distinction being lost sight of."
6. Personal injury is the primary example of damage which a defendant is
under a duty to take reasonable care to avoid where it
is reasonably
foreseeable that the defendant might cause damage of that kind if reasonable
care be not exercised. Thus, in Voli
v. Inglewood Shire Council (53), an
architect was held liable in negligence when, in designing a building, he
failed to use the competence
and skill in design usual among architects
practising their profession and, as a reasonably foreseeable result, the
building collapsed
and injured a plaintiff. In that case, Windeyer J said
(54):
"Whatever might have been thought to be the position before the broad
principles of the law of negligence were stated in modern form
in Donoghue v.
Stevenson, it is now beyond doubt that, for the reasonably foreseeable
consequences of careless or unskilful conduct,
an architect is liable to
anyone whom it could reasonably have been expected might be injured as a
result of his negligence. To such
a person he owes a duty of care quite
independently of his contract of employment."
Similarly, damage to property is damage which a defendant is under a duty to
take reasonable care to avoid where it is reasonably
foreseeable that the
defendant might cause damage of that kind if reasonable care be not used (55).
Although a plaintiff who is entitled
to recover damages in negligence for
personal injury or for damage to property is entitled to compensation for the
economic sequelae
of the personal injury or the damage to property (56), mere
foreseeability of pure economic loss has been rejected as a sufficient
criterion of the existence of a duty of care to avoid it (57).
7. In the present case, we may put to one side for the moment consideration
of the circumstances in which a duty of care to avoid
pure economic loss
arises and examine Mr Bryan's duty to prevent the physical defects in the
house at 2 Wintercole Court for which
Mrs Maloney's damages were awarded. The
question is whether, by the law of negligence, a builder of a building (or an
architect
who designs the building) is under a duty of care to avoid the
creation or development of defects in the building, the rectification
of which
would involve the incurring of expenditure. A similar question is whether the
manufacturer of a chattel is under a duty
of care to avoid the creation or
development of defects in the chattel, the remedying or repair of which would
involve the incurring
of expenditure. The question is not whether the builder
or manufacturer might be liable for personal injury or damage to property
resulting from the defect produced by negligent building or manufacture, but
whether the builder or manufacturer might be liable
for defects in the
building or chattel itself. It is the defective quality of the building or
chattel, not the results external
to the building or chattel, that is
postulated as the damage in respect of which the question of the builder's or
manufacturer's
duty of care arises.
8. In Dutton v. Bognor Regis Urban District Council (58), Lord Denning M.R.
propounded the proposition that unseen defects in the
original construction of
a building which caused other defects to become apparent are physical damage
to the building which the persons
responsible for the condition of the
building were under a duty of care to avoid under the principles stated in
Donoghue v. Stevenson.
In Dutton, his Lordship held the defendant Council
liable for breach of a duty of care to ensure that an inspection of the
foundations
of the house at the time of its construction was properly carried
out. Lord Denning said (59):
"The damage done here was not solely economic loss. It was physical damage to
the house. If (the Council's) submission were right,
it would mean that if
the inspector negligently passes the house as properly built and it collapses
and injures a person, the council
are liable: but if the owner discovers the
defect in time to repair it - and he does repair it - the council are not
liable. That
is an impossible distinction. They are liable in either case."
His Lordship thus conflated, in determining the existence of a duty of care,
defects in the house and physical damage to the person
of a third party caused
by defects in the house.
9. Similar views were stated in New Zealand in Bowen v. Paramount Builders
(60), where the Court of Appeal held that an action would
lie at the suit of a
purchaser of a house against the builder whose negligent workmanship results
in a latent defect that causes
actual physical damage to the structure. The
Court saw no ground for distinguishing between negligence causing foreseeable
personal
injury or damage to property and negligence in construction causing
defects in the structure of the house (61). In his partially
dissenting
judgment in Rivtow Marine Ltd. v. Washington Iron Works (62) Laskin J held
that a defendant who was negligent in the manufacture
of a crane for a log
barge was liable in negligence for the cost of rectifying the crane's defects
that threatened physical damage
to property or person. His Lordship equated
the liability of a negligent builder with the liability of a negligent
manufacturer
of chattels (63). In Anns v. Merton London Borough Council (64),
Lord Wilberforce found both Bowen v. Paramount Builders and the
judgment of
Laskin J in Rivtow Marine to be of assistance. In Anns, Lord Wilberforce
classified defects in a house that were a danger
to health or safety as
"material, physical damage" (65). His Lordship there proposed the influential
two-stage test of liability
(66):
"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".
In Murphy v. Brentwood District Council (67), Lord Oliver commented:
"The two-stage test propounded by Lord Wilberforce in Anns was at first
interpreted as indicating as a universal proposition that
the relationship
between defendant and plaintiff encapsulated in the word 'proximity' arose
from the foreseeability of damage alone
regardless of whether the case was one
of direct physical injury or of pure pecuniary loss. Both Dutton and Bowen v.
Paramount Builders
(Hamilton) Ltd. are examples of the application of Lord
Atkin's principle as a universal."
So long as this interpretation prevailed, structural defects in a building
could be classified as physical damage where the defects
posed a danger to
health and safety and foreseeability of such defects was sufficient to cast a
duty of care on the builder.
10. Then, in Junior Books Ltd. v. Veitchi Ltd. (68) a majority of the House
of Lords admitted a claim in negligence by a building
owner against a
sub-contractor whose negligence in laying a floor of the building resulted not
in a danger to health or safety but
in additional costs in maintaining the
floor during the life of the building or, alternatively, the cost of remedial
work to rectify
the floor's defects. In this case, the majority treated the
pursuer's loss or damage as pure economic loss. Lord Roskill was of
the
opinion that there was no physical damage (69). He stated the question for
decision to be whether the law "extends the duty
of care beyond a duty to
prevent harm being done by faulty work to a duty to avoid such faults being
present in the work itself".
Lord Wilberforce's two-fold test was advanced as
the means of controlling the extent of tortious liability. Lord Roskill
looked
for (70)
"reasons why, it being conceded that the appellants owed a duty of care to
others not to construct the flooring so that those others
were in peril of
suffering loss or damage to their persons or their property, that duty of care
should not be equally owed to the
respondents. The appellants, though not in
direct contractual relationship with the respondents, were as nominated
sub-contractors
in almost as close a commercial relationship with the
respondents as it is possible to envisage short of privity of contract. Why
then should the appellants not be under a duty to the respondents not to
expose the respondents to a possible liability to financial
loss for repairing
the flooring should it prove that that flooring had been negligently
constructed?"
In this passage, his Lordship seems to endorse the proposition that prima
facie a builder is under a duty of care to avoid faults
in the building work
whenever the builder is under a duty to prevent personal injury or property
damage caused by faults in the building
work. Further, if the relationship
between the sub-contractor and the building owner is closely analogous to that
of contracting
parties, the tort of negligence prima facie offers to the owner
compensation for the cost of rectifying defects - the same relief
as the law
of contract provides for breach of warranty. With respect, I would not accept
either proposition.
11. Lord Roskill treated Lord Wilberforce's first limb test of "proximity" as
encompassing factors in addition to foreseeability.
His Lordship identified
eight factors as being of crucial importance to "proximity" (71) including
reliance by the building owner
upon the skill and experience of the
sub-contractor. By reference to those factors, he held the sub-contractor
liable in negligence,
but on the footing that the facts averred by the
pursuers satisfied the criteria of liability which, in Hedley Byrne and Co.
Ltd.
v. Heller and Partners Ltd.(72), had been held to give rise to a duty of
care where damages were sought for pure economic loss (73).
Reliance by the
pursuers on the skill and knowledge of the sub-contractor was an important
factor in the reasoning of Lord Fraser
of Tullybelton (74) which led him to
uphold the pursuer's averments. Lord Keith's concurrence was based on other
considerations
but he found (75) that he was -
"unable to regard the deterioration of the flooring which is alleged in this
case as being damage to the respondents' property such
as to give rise to a
liability falling directly within the principle of Donoghue v. Stevenson. The
flooring had an inherent defect
in it from the start. The appellants did not,
in any sense consistent with the ordinary use of language or contemplated by
the majority
in Donoghue v. Stevenson, damage the respondents' property. They
supplied them with a defective floor. Such an act can, in accordance
with the
views I have expressed above, give rise to liability in negligence in certain
circumstances. But it does not do so merely
because the flooring is defective
or valueless or useless and requires to be replaced."
Lord Brandon of Oakbrook dissented, saying (76):
"It is, however, of fundamental importance to observe that the duty of care
laid down in Donoghue v. Stevenson was based on the existence
of a danger of
physical injury to persons or their property. That this is so, is clear from
the observations made by Lord Atkin
(77) with regard to the statements of law
of Brett M.R. in Heaven v. Pender (78). It has further, until the present
case, never
been doubted, so far as I know, that the relevant property for the
purpose of the wider principle on which the decision in Donoghue
v. Stevenson
was based, was property other than the very property which gave rise to the
danger of physical damage concerned.
12. My Lords, I have already indicated my opinion that the wider principle on
which the decision in Donoghue v. Stevenson was based
applies to the present
case. The effect of its application is that the appellants owed a duty to the
respondents to exercise reasonable
care so to mix and lay the flooring as to
ensure that it did not, when completed and put to its contemplated use,
constitute a danger
of physical damage to persons or their property, other
than the flooring itself." (Emphasis added.)
13. The proposition of the majority that the pursuer's damage was pure
economic loss was essential to escape the established principle
that defects
in the quality of the building are not compensable under the law of
negligence. If the pursuer's claim was to be allowed
to proceed, the damage
had to be treated as pure economic loss. The decision in Junior Books was
subjected to sustained criticism
(79) and the dissenting speech of Lord
Brandon has subsequently been regarded in England as containing the sounder
statement of principle
(80). If the majority decision is supportable, it can
be supported only on the footing that the building owner suffered economic
loss in reliance on the advice of the sub-contractor that the work had been
properly done. The Hedley Byrne doctrine of reliance
is the only foundation on
which, on one view of the facts, Junior Books might have rested (81), but it
seems that in England Junior
Books now lacks authority (82).
14. In Junior Books (83) Lord Brandon advanced cogent reasons of policy for
rejecting the pursuers' allegation of the sub-contractor's
duty of care to
prevent or avoid non-dangerous defects in the concrete floor which it had
mixed and laid. He said:
"The effect of accepting the respondents' contention with regard to the scope
of the duty of care involved would be, in substance,
to create, as between two
persons who are not in any contractual relationship with each other,
obligations of one of those two persons
to the other which are only really
appropriate as between persons who do have such a relationship between them.
15. In the case of a manufacturer or distributor of goods, the position would
be that he warranted to the ultimate user or consumer
of such goods that they
were as well designed, as merchantable and as fit for their contemplated
purpose as the exercise of reasonable
care could make them. In the case of
sub-contractors such as those concerned in the present case, the position
would be that they
warranted to the building owner that the flooring, when
laid, would be as well designed, as free from defects of any kind and as
fit
for its contemplated purpose as the exercise of reasonable care could make it.
In my view, the imposition of warranties of this
kind on one person in favour
of another, when there is no contractual relationship between them, is
contrary to any sound policy
requirement.
16. It is, I think, just worth while to consider the difficulties which would
arise if the wider scope of the duty of care put forward
by the respondents
were accepted. In any case where complaint was made by an ultimate consumer
that a product made by some persons
with whom he himself had no contract was
defective, by what standard or standards of quality would the question of
defectiveness
fall to be decided? ... In the case of sub-contractors such as
the appellants in the present case, it could hardly be the standard
prescribed
by the contract between the sub-contractors and the main contractors, for,
although the building owner would probably
be aware of those terms, he could
not, since he was not a party to such contract, rely on any standard or
standards prescribed in
it. It follows that the question by what standard or
standards alleged defects in a product complained of by its ultimate user or
consumer are to be judged remains entirely at large and cannot be given any
just or satisfactory answer."
17. It was, of course, no answer to the plaintiff's claim in Donoghue v.
Stevenson that the quality of the ginger beer was the subject
of contract
between the defendant and the cafe proprietor. Nor did the architect's
contract with the building owner in Voli v. Inglewood
Shire Council affect the
injured plaintiff's right to recover in that case. But these were cases where
the duty imposed by law,
in addition to any contractual duty, was a duty to
avoid or prevent physical injury. It is another question whether the law
should
impose, in favour of a remote purchaser, a duty on a builder or
manufacturer to build buildings or manufacture chattels of a certain
quality
when the building or chattel will be sold in an open market in which price
reflects, or may be negotiated to reflect, the
quality of the thing to be
sold. Absent any risk of damage to person or property, why should the law
impose a duty to protect the
purchaser's financial interests? The financial
interests of a house purchaser are not protected against the immediate vendor
except
by such terms as are agreed between them in striking their bargain:
caveat emptor.
18. As Lord Bridge of Harwich noted in D and F Estates Ltd. v. Church
Commissioners (84), Lord Brandon's reasons for refusing to
impose on builders
a duty of care to remote purchasers receives powerful support from the
judgment of Blackmun J, delivering the
opinion of the Supreme Court of the
United States in East River Steamship Corp. v. Transamerica Delaval Inc. (85),
in which his Honour
observed that -
"the failure of the purchaser to receive the benefit of its bargain (is)
traditionally the core concern of contract law."
His Honour subscribed (86) to "the need to keep products liability and
contract law in separate spheres and to maintain a realistic
limitation on
damages", observing that -
"When a product injures only itself the reasons for imposing a tort duty are
weak and those for leaving the party to its contractual
remedies are strong."
I respectfully agree, else any tortious duty owed to a remote purchaser would
be affected by a contract to which the purchaser was
not a party.
19. A duty to take reasonable care in constructing a building to avoid or
prevent personal injury is cast upon a builder "not because
he made a
contract, but because he entered upon the work" (87). If the same approach
were taken to the definition of a builder's
duty to a remote purchaser to
prevent the occurrence of defects in the building, the builder would not be
liable to the purchaser
for defects arising from work which had not been done
and which the builder had not been required to do. The purchaser, however,
would probably know nothing of the extent of the contract works or the
financial constraints which dictated their limits (88). If
the financial
interests of the remote purchaser were to be protected by the law of
negligence rather than by the law of contract,
those interests could be
affected by the scope of the building contract to which the purchaser was not
a party. In the present case,
for example, it would have been critical to
determine whether Mrs Manion gave Mr Bryan authority to commission - and was
willing
to pay for - the soils investigation that would have revealed the
presence of reactive clays at 2 Wintercole Court or to carry out
the "special
precautions" that would be needed if Mr Bryan had proceeded, as Wright J found
he ought to have proceeded, "on the assumption
that it was likely that
Wintercole Court was an area of moderate to high reactivity". If the law were
to admit the postulated tortious
duty of care owed to a remote purchaser to
prevent or avoid any defects in the building, the builder's contract with the
building
owner would not only affect the standard of care in doing the work
within the scope of the contract (as Lord Brandon pointed out)
but also
determine which defects are outside the scope of the contract and hence
outside the postulated tortious duty and which defects
are within the scope of
both the contract and the postulated duty.
20. The acceptance of Lord Brandon's view in Junior Books marked the
abandonment as a forensic failure of the notion that a builder
is liable in
negligence for physical defects in the building itself. Even before Anns was
overturned in the House of Lords (89),
their Lordships held in D. and F.
Estates (90) that no action lies in negligence where the relevant damage
consists only of physical
defects in a building caused by carelessness in its
construction. In that case, Lord Bridge observed that economic loss caused by
a latent defect in a chattel is recoverable in contract by a buyer or hirer of
the chattel entitled to the benefit of a warranty,
but is not recoverable in
tort by a remote buyer or hirer. He added (91):
"If the same principle applies in the field of real property to the liability
of the builder of a permanent structure which is dangerously
defective, that
liability can only arise if the defect remains hidden until the defective
structure causes personal injury or damage
to property other than the
structure itself. If the defect is discovered before any damage is done, the
loss sustained by the owner
of the structure, who has to repair or demolish it
to avoid a potential source of danger to third parties, would seem to be
purely
economic. Thus, if I acquire a property with a dangerously defective
garden wall which is attributable to the bad workmanship of
the original
builder, it is difficult to see any basis in principle on which I can sustain
an action in tort against the builder
for the cost of either repairing or
demolishing the wall. No physical damage has been caused. All that has
happened is that the
defect in the wall has been discovered in time to prevent
damage occurring."
21. In Sutherland Shire Council v. Heyman (92), this Court declined to follow
Anns. In reference to the classification of defects
in a building as
"material, physical damage", Deane J, in a passage (93) with which Lord Keith
expressed his agreement in Murphy
v. Brentwood District Council (94), said:
"Whatever may be the position with respect to consequential damage to the
fabric of the building or to other property caused by subsequent
collapse or
subsidence, the loss or injury involved in the actual inadequacy of the
foundations cannot, in the case of a person who
purchased or leased the
property after the inadequacy existed but before it was known or manifest,
properly be seen as ordinary physical
or material damage. The only property
which could be said to have been damaged in such a case is the building. The
building itself
could not be said to have been subjected to 'material,
physical damage' by reason merely of the inadequacy of its foundations since
the building never existed otherwise than with its foundations in that state.
Moreover, even if the inadequacy of the foundations
could be seen as material,
physical damage to the building, it would be damage to property in which a
future purchaser or tenant
had no interest at all at the time when it
occurred."
With so much of his Honour's analysis of the nature of the damage arising from
inadequacy of a building's foundations, I respectfully
agree (95). It follows
that, if there be no physical damage of the kind to which Lord Atkin was
directing his speech in Donoghue
v. Stevenson, no duty of care to prevent or
avoid it arises from the basic principles of negligence expressed by his
Lordship in
that case.
22. When Anns was overturned in Murphy v. Brentwood District Council, the
notion that damages in tort were recoverable from the
builder or manufacturer
for defects in the construction of a building or of a chattel was rejected
(96). Lord Oliver said (97):
"(A)lthough the 'damage' was described, both in the Court of Appeal in Dutton
and in this House in Anns, as physical or material
damage, this simply does
not withstand analysis. To begin with, it makes no sort of sense to accord a
remedy where the defective
nature of the structure has manifested itself by
some physical symptom, such as a crack or a fractured pipe, but to deny it
where
the defect has been brought to light by, for instance, a structural
survey in connection with a proposed sale. Moreover, the imminent
danger to
health or safety which was said to be the essential ground of the action was
not the result of the physical manifestations
which had appeared but of the
inherently defective nature of the structure which they revealed. They were
merely the outward signs
of a deterioration resulting from the inherently
defective condition with which the building had been brought into being from
its
inception and cannot properly be described as damage caused to the
building in any accepted use of the word 'damage'."
23. However, it is artificial to classify defects in a building as pure
economic loss. Defects in a building are physical defects
and the cost of
their rectification is consequential on their existence. The defects are not
physical damage the foreseeability
of which gives rise to a prima facie duty
of care, but it does not follow that the cost of rectifying such physical
defects in order
to improve the quality of the building is pure economic loss
which may attract an award of damages for negligence.
24. Where the question is whether a duty of care relating solely to the
quality of the building or chattel bought by a purchaser
should be imposed by
the law of tort or the law of contract, the answer, in my opinion, is that the
interests to be protected are
appropriately to be governed by the law of
contract (98). As between a builder and the original owner of a building, any
claim between
them relating to the condition of the building is properly to be
determined by the contract which governs their relationship, not
by the law of
tort (99). The doing of work for reward is a matter governed by the agreement
between the party doing the work and
the party requesting that the work be
done. They fix their own rights and liabilities on issues of purely economic
significance.
The work to be performed, the quality and value of that work
and the cost of repairing defects in work ill-done are thus properly
the
concerns of the law of contract. A claim by a remote purchaser against a
vendor relating to the condition of the building is
also properly to be
determined by the law of contract. But physical damage to person or property
arising from the construction of
a building or the manufacture of a chattel is
properly the concern of the law of tort. That is not to say that damage to
person
or property might not be produced by breach of contract nor to say that
pure economic loss cannot be recovered in certain circumstances
in tort. In
Voli v. Inglewood Shire Council (100), Windeyer J spoke of an architect's
liability as arising "either from a breach
of his contract or in tort", but
his Honour was there speaking of a liability in respect of physical damage to
person or property.
25. 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 (101). 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.
26. The absence of a builder's duty of care to a remote purchaser in respect
of defects in the quality of the building is attributable
not so much to the
rejection of the classification of such defects as physical damage but to the
exclusion of those defects from
any category of damage for which damages in
negligence might be awarded.
Builder's liability for pure economic loss
27. As we have seen, the majority in Junior Books held a sub-contractor
liable in negligence to the building owner on the footing
that the building
owner suffered economic loss. Although Junior Books is not now of authority
in England, there is no reason in
principle why some kinds of economic loss
suffered by the purchaser of a building should not be regarded as damage which
can sustain
an action in negligence. If the purchaser of a building suffers
economic loss in consequence of paying an excessive price for the
building, an
action for damages for negligence might lie against a defendant on whose
representation the purchaser relied in paying
that price. Such a case might
fall within the principles discussed in Hedley Byrne and Co. Ltd. v. Heller
and Partners Ltd. (102)
and Mutual Life and Citizens' Assurance Co. Ltd. v.
Evatt (103). Thus a builder who negligently and falsely represents to a
prospective
purchaser of the building that there are no latent defects in it
might be held liable for the pure economic loss suffered by payment
of an
excessive purchase price in reliance on the representation. In such a case,
the foundation of the builder's liability would
be the making of a
representation in circumstances in which the law casts on the representor a
duty to be careful in making it (104).
In such a case, the plaintiff's loss is
a consequence of the plaintiff's reliance on the defendant's representation,
reliance being
"a cornerstone of liability for negligent misstatement" (105).
That is not the present case.
28. Mrs Maloney knew nothing about Mr Bryan before she bought the house. She
did not know who the builder was and, in consequence,
she had no grounds for
relying on the builder's possession of any special skill or quality of
workmanship. Clearly Mr Bryan made
no representations, expressly or
impliedly, to Mrs Maloney about his skill or the quality of his workmanship.
No more appears than
that Mrs Maloney thought the house "was properly built"
by whomsoever was the builder. Unless it be right to say that any purchaser
of a house that has a latent defect is presumed to rely upon an implied
representation by the builder that the house is constructed
with reasonable
care and skill (106), there is no evidence in this case of representation or
reliance. For my part, I would not
so presume. Nor is there any evidence of
economic loss incurred in reliance on Mrs Maloney's belief that the house was
properly
built whether that belief was induced by an imputed representation or
not. There was no evidence of the price Mrs Maloney had paid
for 2 Wintercole
Court or whether that price was greater than the value of the property either
before or after the tell-tale cracks
appeared. The only damage to which Mrs
Maloney pointed was the inadequacy of the footings and the consequent
appearance of cracks.
The damages awarded to her were not for pure economic
loss.
29. Of course, the physical defects no doubt diminish the market value of 2
Wintercole Court. Such a diminution in market value
was evidently seen by
Deane J in Sutherland Shire Council v. Heyman to constitute economic loss for
which damages in negligence might
be recoverable. His Honour said (107):
"Loss or injury could only be sustained by ... a purchaser or tenant on or
after the acquisition of the freehold or leasehold estate
without knowledge of
the faulty foundations. It is arguable that any such loss or injury should be
seen as being sustained at the
time of acquisition when, because of ignorance
of the inadequacy of the foundations, a higher price is paid (or a higher rent
is
agreed to be paid) than is warranted by the intrinsic worth of the freehold
or leasehold estate that is being acquired. Militating
against that approach
is the consideration that, for so long as the inadequacy of the foundations is
neither known nor manifest,
no identifiable loss has come home: if the
purchaser or tenant sells the freehold or leasehold estate within that time,
he or she
will sustain no loss by reason of the inadequacy of the foundations.
The alternative, and in my view preferable, approach is that
any loss or
injury involved in the actual inadequacy of the foundations is sustained only
at the time when that inadequacy is first
known or manifest. It is only then
that the actual diminution in the market value of the premises occurs. On
either approach, however,
any loss involved in the actual inadequacy of the
foundations by a person who acquires an interest in the premises after the
building
has been completed is merely economic in its nature."
30. If diminution in market value be identified as the relevant loss for
which damages are claimed, to what cause can that loss
be attributed so as to
sheet home liability to the builder if there has been no reliance on a
representation by the builder? The
only relevant cause of the defects
becoming "known or manifest" is carelessness in the initial construction of
the building containing
the defects. Diminution in market value thus caused
is, on analysis, no more than the economic consequence of the physical
condition
of the building, indistinguishable in nature and prima facie the
same in amount as the cost of rectifying the actual defects. If
it be
erroneous to treat those defects as damage which the builder was under a duty
of care to prevent, neither the diminution in
market value attributable to
those defects nor the cost of rectifying those defects can be recovered in
negligence.
31. If a remote purchaser of a building were to be entitled to damages in
negligence against the builder for the cost of rectifying
defects (or
substantial defects) in the building attributable to the builder's negligence,
in whom would the cause of action vest?
For reasons which I stated in
Sutherland Shire Council v. Heyman (108), if the physical defects in the
building as constructed by
a negligent builder were to be treated as relevant
damage, it could be suffered only by a person who has an interest in the
building
at the time when the damage is done. Ordinarily that person is the
first owner of the building whose relationship with the builder
and whose
right to damages against the builder are governed by the building contract.
32. If diminution in market value consequent on the defects being discovered
or becoming patent were treated as the relevant damage,
an anomaly would be
created. A vendor who discovers latent defects but who sells in an uninformed
market would produce no damage.
Absent fraud on the part of the vendor, the
purchaser would be bound by the maxim caveat emptor. If the defects were
known to the
vendor, would the purchaser be denied relief? Conversely, would
a purchaser who knew of the defect at the time of purchase acquire
a cause of
action if the vendor did not then know of it? If damage were treated as
occurring only when the diminution in value occurs
in an informed market, and
the measure of damages were calculated by reference to what the building would
have fetched if the defects
were not in existence, would those damages be
recoverable by a vendor who had bought the building at an undervalue? These
questions,
which may admit of satisfactory answers, indicate the difficulty of
ignoring the fact that the economic loss which is said to constitute
the
relevant damage is in truth merely the consequence of the existence of the
building defects. Unless there be a tortious duty
of care on the part of the
builder to prevent or avoid those defects, no action in negligence will lie.
33. In my respectful opinion Lord Brandon in Junior Books (109) and Blackmun
J in East River Steamship Corp. (110) were correct
in holding it to be wrong
in principle to confer on remote purchasers a cause of action in tort for
latent defects caused by negligence
in construction of a building or
manufacture of a chattel when that negligence merely affects the quality of
the building or chattel.
The Canadian doctrine: defects that are dangerous
34. A remedy in negligence against a builder whose carelessness in
construction manifests itself in defects after the building has
been acquired
by a purchaser subsequent to the original owner has been allowed in certain
circumstances in Canada.
35. In Rivtow Marine (111) the Supreme Court upheld the making of a claim by
a demise charterer of a log barge for lost profits
when it was taken out of
service during the logging season for the repair of a barge crane which had
proved to be defective. The
repairs were necessary because of serious
structural defects resulting from the crane's design and manufacture. The
loss could have
been avoided by the manufacturer's giving of a timely warning
to the charterer so as to allow the repairs to be carried out during
the slack
season. The plaintiff's claim against the manufacturer to recover its lost
profits was allowed to stand on the footing
that the manufacturer was in
breach of its duty to give a timely warning to users of the crane of its
dangerous defects. But the
majority endorsed the view (112) that "liability
for the cost of repairing damage to the defective article itself and for the
economic
loss flowing directly from the negligence, is akin to liability under
the terms of an express or implied warranty of fitness and
as it is
contractual in origin cannot be enforced against the manufacturer by a
stranger to the contract". However, Laskin J, to
whose judgment Lord
Wilberforce referred in Anns, would have allowed a claim against the
manufacturer for the cost of actually repairing
the crane. His Lordship said
(113):
"The case is not one where a manufactured product proves to be merely
defective (in short, where it has not met promised expectations),
but rather
one where by reason of the defect there is a foreseeable risk of physical harm
from its use and where the alert avoidance
of such harm gives rise to economic
loss. Prevention of threatened harm resulting directly in economic loss should
not be treated
differently from post-injury cure."
36. The minority view has now become the accepted view of the Supreme Court
of Canada. Adhering to that Court's acceptance of Lord
Wilberforce's approach
in Anns, albeit subject to some modification (114), it was held in Winnipeg
Condominium Corporation No.36
v. Bird Construction Co. Ltd. and Smith Carter
Partners (115) that a builder responsible for the construction of a building
may be
held liable in negligence to a subsequent purchaser of the building for
the cost of repairing defects arising from negligence in
construction where
the defects resulting from the negligence pose "a real and substantial danger
to the occupants of the building"
(116). La Forest J, in whose judgment the
other Justices concurred, concluded (apparently in reference to the second
limb of the
Anns test of liability) that there are "no adequate policy
considerations ... to negate a contractor's duty in tort to subsequent
purchasers of a building to take reasonable care in constructing the building
and to ensure that the building does not contain defects
that pose foreseeable
and substantial danger to the health and safety of the occupants" (117). It
will be remembered that Lord Brandon's
dissent in Junior Books also
acknowledged that in mixing and laying the floor that proved to be defective
the sub- contractors owed
to the building owner a duty of care in order "to
ensure that it did not, when completed and put to its contemplated use,
constitute
a danger of physical damage to persons or their property, other
than the flooring itself".
37. Once it is accepted that the damage essential to the tort of negligence
may consist in pure economic loss and that a duty of
care outside of contract
is imposed on a builder to take reasonable care in doing his work to avoid
foreseeable risks of danger to
the person, there is much to be said for the
views of La Forest J and Lord Brandon. The damage which may found an action
in negligence
against a builder or other person (whom I shall include in the
term "builder") who is responsible for dangerous defects in a building
can be
seen as true economic loss consisting of the pecuniary liability imposed upon
the owner (a term I use to describe the owner,
occupier or other person
responsible for the condition of a building) for physical damage to person or
property suffered by a third
person and caused by the defects attributable to
the builder's negligence or consisting of money outlaid to rectify those
defects
before actual physical damage occurs. An owner who knows that defects
in the building pose a substantial risk of physical damage
to person or
property of another - that is, defects which are "likely" to cause such damage
- is under a duty to take any reasonable
means to remove the risk (118).
Indeed, an owner of a building may sometimes be liable to persons entering on
the premises for damage
caused by defects in the building attributable to the
builder even though the owner was unaware of the defects (119). If the owner
rectifies the defects in order to remove the risk of damage to person or
property, the expense of removal can be seen as an economic
loss incurred to
remove the risk, rather than the consequence of the physical defects. If
expense is reasonably incurred in removing
the risk, it is right that the
party incurring it should be indemnified by the party who, if the risk had
materialised and physical
damage had occurred, would have been primarily
liable to the third party suffering that damage. So to hold would be merely
to extend
the liability of a builder to compensate the owner for taking the
remedial action which the builder would have been bound to take
in discharge
of the builder's duty to prevent or avoid physical damage if the builder had
been in occupation of the building.
38. An action by the owner for damages in negligence against the builder for
the cost of rectifying the defects is not, of course,
a claim for indemnity by
a concurrent tortfeasor (120): ex hypothesi, no physical damage has been
suffered; no tort has been concurrently
committed. However, the policy of the
law is consistent with the sheeting home of loss to the negligent builder.
Such an action is
a remedy analogous to the remedy available to a rescuer who
protects a potential victim from damage threatened by the defendant's
negligence (121). The duty which the builder breaches is, at base, a duty of
the Donoghue v. Stevenson kind owed to prevent or avoid
personal injury or
damage to property, but the owner is within the area of contemplation as one
who is at risk of suffering loss
if the builder's duty of care to third
parties is not discharged. I venture to suggest that the rescuer analogy may
afford the "logical
basis" which Lord Oliver found difficult to see (122) for
distinguishing dangerous from non-dangerous defects.
39. As the damage postulated in a case where the builder's duty to the owner
is in question is neither personal injury nor property
damage but actual
economic loss, a remedy in tort is available only to a plaintiff who actually
incurs expense by removing, paying
for the removal or incurring a liability
for the cost of removal of the defects which pose the substantial risk of
physical damage
to person or property. That was the position in the Winnipeg
Case where the "negligently supplied structure ... was not merely shoddy;
it
was dangerous" (123). It was the position to which Lord Denning referred in
Dutton v. Bognor Regis and with which Lord Wilberforce
was concerned in Anns.
It was not the position in Junior Books. Nor is it the position in the
present case. Here there is no evidence
that the defects in 2 Wintercole
Court pose any risk of danger to any person or to any property.
Decisions of American State courts
40. In some States of the United States, remote purchasers of a building have
been allowed to recover damages against a negligent
builder, but the basis of
the remedy allowed is not uniform. In some instances, an action for
negligence in circumstances similar
to the Winnipeg Case has been allowed
(124); in others, the court has admitted claims for damages simply for latent
defects that
have become manifest, the remedy being either an action for
negligence (125) or an action for breach of what is termed an "implied"
warranty of fitness for habitability (126). In my respectful opinion, neither
of these latter categories should be adopted into
the law of this country.
Our law does not imply a contractual warranty where there is no contract. Nor,
generally speaking (127),
does our law impose a contractual obligation on a
person who is not a party to the contract or a privy of a party. To admit a
cause
of action for economic loss resulting to a remote purchaser merely from
the appearance of latent defects in a building would raise
problems that are
difficult to resolve in the light of other currently accepted principles of
the law.
Proximity
41. This case was argued as though the existence of a duty of care owed by Mr
Bryan to Mrs Maloney depended on whether there was
a "relationship of
proximity" between them. That approach follows the statement in the majority
judgment in Gala v. Preston (128)
"that a relevant duty of care will arise under the common law of negligence
only in a case where the requirement of a relationship
of proximity between
the plaintiff and the defendant has been satisfied ... The requirement of
proximity constitutes the general
determinant 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 and real risk of injury. In
determining whether the requirement is satisfied in a particular
category of
case in a developing area of the law of negligence, the relevant factors will
include policy considerations."
If the critical question is, as I would hold it to be, whether Mrs Maloney
suffered damage compensable under the law of torts, I
am respectfully unable
to see how the question whether Mr Bryan owed Mrs Maloney a duty of care can
be resolved by reference to the
notion of proximity in what has been called
"its broader sense" (129), that is, embracing more than foreseeability. If
Mrs Maloney
suffered damage compensable in tort and if that damage consisted
of pure economic loss, her entitlement to recover damages for negligence
would
require proof of some element further than mere foreseeability (130). There
is no error of principle involved in describing
such a further element as a
requirement of proximity but, as Lord Oliver observed in Murphy v. Brentwood
District Council (131),
proximity "is an expression which persistently defies
definition". Unless proximity has an ascertainable meaning, it cannot provide
a working criterion of liability (132).
42. I have elsewhere stated my opinion that to treat proximity as a criterion
of liability without an a priori definition of the
elements it contains is to
create a judicial discretion (133). If the elements be not defined, the
question whether proximity exists
in cases out of the mainstream can be
answered confidently only by the judgment of a court, perhaps involving "value
judgments on
matters of policy and degree" (134). This was precisely the
course followed by Lord Roskill in Junior Books in applying Lord Wilberforce's
two-stage test (135). But the law of negligence should be capable of
application in solicitors' offices. It should not have to await
definition in
litigation. Of course, when a court decides that, in the particular
circumstances of a case, the requirements of proximity
were or were not
satisfied and that a duty of care did or did not exist, the case can be a
precedent for following cases that are
not distinguishable from it, so that
such cases will form a category and the requirements of proximity as defined
in the precedent
will serve as a determinant of the duty of care in that
category of case. And when it is seen that there are many different
categories
of case in which different requirements of proximity have been
defined, the existence of proximity can be said to have been a feature
of all
categories. In Burnie Port Authority v. General Jones Pty. Ltd. (136), Mason
CJ, Deane, Dawson, Toohey and Gaudron JJ said
of the requirement of
proximity:
"As a general conception deduced from decided cases, its practical utility
lies essentially in understanding and identifying the
categories of case in
which a duty of care arises under the common law of negligence rather than as
a test for determining whether
the circumstances of a particular case bring it
within such a category, either established or developing".
43. If the only role for proximity in the broader sense were to provide an
umbrella of terminology to cover the different requirements
for the existence
of different categories of duties of care (137), and thereby assist in
understanding and identifying them - in
other words, if the requirement of
proximity were not invoked as a working criterion of liability in particular
cases - it would
have little practical significance. As Dawson J observed in
Gala v. Preston (138), the notion of proximity would not then afford
any great
help in deciding whether, in a case distinguishable from cases already
decided, a duty of care exists. His Honour pointed
out (139) that -
"it is the identification of the underlying principle which is the important
thing. Merely to describe it as a matter of proximity
is to mask the
problem."
Where a case falls within a category governed by a precedent, the category is
necessarily constituted not by reference to the notion
of proximity but by
reference to the elements which it had been defined to include.
44. In his seminal judgment in Jaensch v. Coffey (140), Deane J referred to
the "identification of the content of the criteria or
rules which reflect that
requirement" of proximity which in developing areas of the law should not be
"divorced from the considerations
of public policy which underlie and
enlighten it". The requirement of proximity was seen to operate in that case
by imposing "particular
criteria which must be satisfied by a plaintiff before
a duty of care in respect of a reasonably foreseeable injury in the form of
nervous shock will be held to have arisen in her or his favour" (141). In
subsequent cases, however, the requirement of proximity
has worn the
appearance of a criterion of liability, rather than as the terminological
description covering different working criteria
of liability (142). In novel
cases in which the question is whether a tortious duty of care should be
expanded, the appropriate
approach, in my respectful opinion, is to attempt to
identify "the content of the criteria or rules" which might thereafter be
applied
in determining cases falling within the category then under
consideration.
45. If proximity in the broader sense be invoked as a criterion of liability
in particular cases without a priori definition of
its content, the certainty
which analysis of the different elements of tortious liability in different
categories of case can produce
will be lost (143), and the definition of
elements which might constitute and distinguish a new category of case will
give way to
a mere evaluation of the circumstances favouring or not favouring
recovery. Such a notion of proximity would be a juristic black
hole into
which particular criteria and rules would collapse and from which no
illumination of principle would emerge.
46. Unless attention is focused on "the content of the criteria or rules
which reflect (the) requirement" of proximity rather than
on the amorphous
notion of proximity as a general concept, the approach in Anns which this
Court rejected in Sutherland Shire Council
v. Heyman will be re-introduced.
The question "is there a sufficient relationship of proximity (in the broader
sense)?" will comprehend
not only Lord Wilberforce's first test but also the
policy question (144). Lord Wilberforce's second test: are there "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"? will be included in the answer to the question:
is there a sufficient relationship of proximity?
47. In the present case, I would address questions differently framed,
namely, what damage did Mrs Maloney suffer? and, given foreseeability,
was Mr
Bryan under a duty to use reasonable care to prevent or avoid that kind of
damage? The answer to the first question is: physical
defects in the house
which she bought are the only items of damage advanced in support of Mrs
Maloney's claim and, as they posed
no substantial risk of damage to person or
to property, she suffered no damage in respect of which an action lies in
negligence.
The answer to the second question is: no.
48. I would therefore allow the appeal, set aside the judgments in the courts
below and in lieu thereof order that judgment be entered
for the defendant.
TOOHEY J The issue in this appeal is whether the appellant, a builder, owed a duty of care to the respondent, a subsequent purchaser of a house built by the appellant, in respect of loss arising from the inadequacy of the footings in the construction of the house.
2. It is possible to identify the issue in this way because the findings of
the trial judge, Wright J, were not challenged. Thus
the appellant accepted
that he was negligent in failing to provide footings of sufficient depth; that
the respondent suffered loss
by reason of that negligence and consequent
damage to the house in the form of cracks in the walls; that the measure of
that loss
was the decrease in the value of the house; and that the damage was
reasonably foreseeable by the respondent.
Proximity
3. The weight of authority in this Court is that for an action to lie in
negligence there must be a relationship of proximity between
plaintiff and
defendant. In Burnie Port Authority v. General Jones Pty. Ltd. (145), where
the earlier decisions are noted, Mason
CJ, Deane, Dawson, Toohey and Gaudron
JJ said of proximity:
"As a general conception deduced from decided cases, its practical utility
lies essentially in understanding and identifying the
categories of case in
which a duty of care arises under the common law of negligence rather than as
a test for determining whether
the circumstances of a particular case bring it
within such a category, either established or developing."
4. The question whether the appellant is liable turns upon the degree of
proximity between the negligent act (strictly speaking,
the class of negligent
act) relied upon by the respondent and the kind of damage sustained by her
(146). Gibbs CJ observed in Sutherland
Shire Council v. Heyman (147):
"In deciding whether the necessary relationship exists, and the scope of the
duty which it creates, it is necessary for the court
to examine closely all
the circumstances that throw light on the nature of the relationship between
the parties."
If the facts fall into a category which the authorities already recognise as
attracting a duty of care, then, as Gibbs CJ acknowledged
(148), this process
will not be necessary. But in the present case the facts do not fall into a
category which this Court, at any
rate, has recognised as attracting a duty of
care.
The type of loss suffered
5. One relevant circumstance is that the present case has been approached on
the footing that the loss for which the respondent
seeks to be compensated is
pure economic loss. The appellant argued that any such loss was not
recoverable by the respondent.
6. The qualifying adjective "pure" is used to distinguish financial loss
which is not "causally consequent" upon physical injury
to the plaintiff's own
person or property from economic loss which is causally consequent upon such
injury (149). For example, in
Burnie damages were awarded against the
occupier of premises from which a fire spread to adjoining premises,
destroying a quantity
of frozen vegetables. Applying the classification, this
loss was economic loss which was causally consequent upon physical injury
to
the plaintiff's property rather than pure economic loss.
7. The distinction has been the subject of criticism, not least by Sir Robin
Cooke in the Law Quarterly Review (150). It is made
all the more difficult to
maintain because economic loss may take several forms. Mr Duncan Wallace QC
has written at length on the
subject of defective buildings. In one of his
more recent contributions (151) he comments that "the presence of physical
damage
may be technically as well as legally entirely irrelevant to the
existence of even the most serious physical defects in a building,
or indeed
of non-compliance with bye-laws". And he points out (152) that in the case of
inadequate foundations there may be, on
the one hand, superficial cracking and
settlement which ceases, requiring no more than superficial redecoration, and
on the other
hand, progressive deterioration which may require radical
solutions, perhaps new foundations, in order to prevent structural failure.
8. In the present case the damages awarded by Wright J reflected the cost of
underpinning the footings around the whole perimeter
of the house and removing
and replacing damaged brickwork (153). In these circumstances, to describe
the respondent as having suffered
pure economic loss is debatable though it
must be recognised that some of this cost was aimed at averting future damage.
In Anns
v. Merton London Borough Council (154) Lord Wilberforce described
cracks in the walls and sloping of floors as a result of structural
movements
in a building as "material, physical damage" and the measure of damages as
"the amount of expenditure necessary to restore
the dwelling to a condition in
which it is no longer a danger to the health or safety of persons occupying
and possibly (depending
on the circumstances) expenses arising from necessary
displacement".
9. However, the respondent did not seek to argue against the classification
and the Court was asked to dispose of the appeal on
the footing that it was
pure economic loss which she had sustained. It is therefore unnecessary to
discuss the "complex structure"
theory enunciated by Lord Bridge in D and F
Estates Ltd. v. Church Commissioners (155) and later rejected by him in Murphy
v. Brentwood
District Council (156) or to pursue further the viability of the
traditional classification (157). In the end the question is one
of
recoverability in particular circumstances, rather than the allocation of the
circumstances to a particular classification.
Recovery for pure economic loss
10. There is no decision of this Court directly in point, where a purchaser
of premises has sued the builder in respect of pure
economic loss in the sense
referred to earlier in this judgment. The area of the law relating to
recovery of pure economic loss
has been one of development, with the courts
conscious of the need to strike a balance between compensating an injured
party for
economic loss but at the same time confining liability within
manageable limits. The law began by limiting liability to cases of
physical
loss or injury (158). Later in Hedley Byrne and Co. Ltd. v. Heller and
Partners Ltd. (159) liability was extended to pure
economic loss in an action
for negligent misstatement. But reliance was at the heart of the decision in
that case.
11. In England there were attempts to widen the scope of the action in
negligence when physical injury was not involved. However,
the high water
mark reached in Anns was rejected in D. and F. Estates Ltd. and was not
followed in Murphy or in Department of the
Environment v. T. Bates Ltd. (160)
In D and F Estates Ltd. the lessees of a flat sought damages for the cost of
remedying defective
plaster work. The House of Lords held that the loss
sustained by the lessees in renewing plaster work in the flat was pure
economic
loss and not recoverable in an action for negligence against the
builders.
12. In Murphy the House of Lords reaffirmed the principle that economic loss
could be recovered in negligence only where the plaintiff
had sustained
physical damage or where there had been reliance on the part of the plaintiff.
Likewise, the present appellant contended
that, in the absence of any special
relationship between a subsequent purchaser and the builder and, in the
absence of reliance by
the purchaser on the builder, there was no sound reason
for fixing him with a duty of care to prevent economic loss to a subsequent
purchaser, in particular for fixing him with liability in the present case.
The reference to reliance is an echo of the negligent
misstatement which
attracted liability in Hedley Byrne. "(T)he absence of reliance as a factor
creates an additional difficulty in
deciding whether a sufficient relationship
of proximity exists to enable a plaintiff to recover economic loss" (161).
13. In Australia, at least since Caltex Oil (Australia) Pty. Ltd. v. The
Dredge "Willemstad" (162) there has been a recognition
(albeit in a different
context) that it may be possible to recover economic loss where no physical
damage is involved, even though
there has been no reliance on the part of the
plaintiff (163). However, the emphasis in the judgments in that case is on
foreseeability
that a particular person will be likely to suffer damage as a
result of the negligence. Mason J said (164):
"The problem is to yield compensation to the individual who suffers financial
loss not necessarily consequential upon damage to his
property when that loss
is closely connected with the failure to take care and yet at the same time to
deny compensation 'in an indeterminate
amount ... to an indeterminate class',
in particular, to a large class of persons whose loss arises because their use
of a public
utility or facility has been interrupted."
Stephen J thought that recovery for pure economic loss must depend upon
"policy considerations" (165). His Honour went on to say
(166):
"But in the general realm of negligent conduct it may be that no more specific
proposition can be formulated than a need for insistence
upon sufficient
proximity between tortious act and compensable detriment. The articulation,
through the cases, of circumstances which
denote sufficient proximity will
provide a body of precedent productive of the necessary certainty; the gradual
accumulation of decided
cases and the impact of evolving policy considerations
will reflect 'the courts' assessment of the demands of society for protection
from the carelessness of others'".
14. It will be necessary to consider such policy considerations as may be
relevant but, first, it is helpful to see how the law
has developed in some
other jurisdictions.
Canadian and United States decisions
15. The position in Canada is reflected in the decision of its Supreme Court
in Canadian National Railway Co. v. Norsk Pacific Steamship
Co. Ltd. (167)
where a majority (McLachlin J, with L'Heureux-Dube and Cory JJ concurring, and
Stevenson J) held the defendants liable
in negligence for economic loss.
McLachlin J held pure economic loss to be prima facie recoverable when, in
addition to negligence
and foreseeable loss, there was sufficient proximity
between the negligent act and the loss. Stevenson J held the defendants
liable
because they could reasonably foresee and actually foresaw that a
specific individual, as distinct from a general class of persons,
would suffer
financial loss as a consequence of their conduct.
16. It is unnecessary to canvass the United States authorities. In any case
the plenitude of jurisdictions makes such an exercise
unprofitable. In
Canadian National Railway McLachlin J classified the cases in the United
States where damages have been awarded
for economic loss as: those where the
economic loss is closely related to physical damage; pollution cases where, on
grounds of
public policy, economic loss has been awarded to commercial
fisherman and others; and certain products liability cases, at least
where the
defective product creates an unreasonable risk of harm to persons or property
and such harm materialises (168). I gladly
accept McLachlin J's analysis and
do not elaborate upon it. Its relevance, for present purposes, is to indicate
that at least in
some jurisdictions in the United States there is no absolute
prohibition against the recovery of economic loss. However, many American
decisions are concerned with warranty claims and do not provide direct
assistance in the area with which this appeal is concerned.
In any event, the
problem remains of arriving at a legal formulation which will allow recovery
of economic loss in appropriate cases,
while rejecting it in the case of loss
which is too distant.
Definitive or incremental approach?
17. The dilemma is posed by McLachlin J by reference to the decision of the
House of Lords in Murphy, where the search was for a
definitive rule, and the
decision of the Supreme Court of Canada in City of Kamloops v. Nielsen (169)
where the Court was content
to hold that, in the case in hand (170), recovery
for economic loss should be allowed. The former approach is likely to prove
unavailing;
the latter necessarily leads to some uncertainty in the evolving
process. I respectfully agree with McLachlin J when she says (171):
"(T)he incremental approach of Kamloops is to be preferred to the insistence
on the logical precision of Murphy. It is more consistent
with the
incremental character of the common law. It permits relief to be granted in
new situations where it is merited. Finally,
it is sensitive to dangers of
unlimited liability."
18. Nevertheless, acceptance of the incremental approach does not of itself
provide an answer to the question of liability in the
present case. Indeed
the very term "incremental" invites inquiry because what is incremental is to
an extent in the eye of the beholder.
To answer the question, it is necessary
to look more closely at the circumstances in which the appellant was held
liable to the
respondent.
Relevant circumstances
19. The appellant built a house for Mrs Manion in 1979. The respondent is
the third owner of the house. Although some emphasis
was placed by the
appellant on his relative lack of experience as a builder, the trial judge
saying that he "was a comparatively
inexperienced builder at the time", the
fact is that he was a member of the Northern Tasmanian Master Builders
Association. Mrs
Manion was the appellant's sister-in-law but the house was
built under what was accepted by the parties to this appeal as an ordinary
commercial transaction. Importantly, there was no suggestion made by the
appellant that he was to build other than in accordance
with standard building
practice; in that regard it may be noted that the contract was on a cost plus
basis. The appellant accepted
that he had to conform to the standard of a
reasonably competent builder. In particular, it was not denied that he agreed
to build
a house with footings that were adequate. The fact that any
inadequacy in the footings might not manifest itself for some years is
significant because, in effect, the appellant was responsible for a structure,
the defects of which might not readily be ascertained
by a subsequent
purchaser of the house.
20. If a subsequent purchaser of a house seeks to recover damages from the
builder by reason of inadequacies in the building work,
other considerations
may intrude, such as the terms of the contract between the builder and the
building owner, and the terms of
the contract between building owner and
purchaser. It may be important to determine, one day, the implications for
liability had
a building owner agreed that, as a cost saver, the house should
be built in some respects that did not conform to accepted building
practice.
For instance he or she may have required the builder to build according to
unusual specifications. The terms of the builder's
contract are, to use
Windeyer J's words in Voli v. Inglewood Shire Council (172), "not an
irrelevant circumstance" in that they may
help to determine the task upon
which the builder entered. These matters are not directly material in the
present case but they
serve to identify the principles to be applied in
determining the liability of the builder.
21. Since reference has been made to the contract between the appellant and
Mrs Manion, it is as well to emphasise that the obligation
on the appellant to
exercise due care, skill and diligence in the building of the house arose not
only in contract but in tort.
The approach taken in Voli that the liability
of an architect for failure to exercise due care, skill and diligence may
arise either
from a breach of contract or in tort and that liability to a
third person may exist independently of the contract of employment applies
equally in the case of a builder. Clearly, the existence of a contract
between the appellant and Mrs Manion is of itself no barrier
to an action in
tort by the respondent based upon the failure to build according to reasonable
standards (173), though the duty of
care must not depend upon specific
obligations arising from the express terms of the contract (174).
Policy considerations
22. Whether the appellant is in law liable to the respondent must depend upon
whether the necessary relationship of proximity exists,
recognising however
that there was no direct association between the parties. In this regard
guidance may be had from the judgment
of Thayer J of the Supreme Court of New
Hampshire in Lempke v. Dagenais (175). The case concerned an action by
subsequent purchasers
of property against the builder of a garage. The Court
rejected the claim in negligence as involving economic loss but upheld the
claim for breach of implied warranty of workmanlike quality. Thayer J
identified as relevant the following policy considerations
(176): that latent
defects will not manifest themselves for a considerable time, often after the
property has been sold to an unsuspecting
purchaser; that in a mobile society
a builder must expect that the house will be sold within a relatively short
time; that a subsequent
purchaser has little opportunity to inspect and little
experience and knowledge about construction; that the builder already owes
a
duty to the building owner to build in a workmanlike manner; and that
confining recovery to the first purchaser might encourage
sham first sales as
a means of insulating builders from liability.
23. These considerations are equally applicable in the present case even
though the action is one in negligence, not for breach
of warranty. I would
add to them the importance of a house to any buyer, something which is well
recognised and would certainly
be understood by a builder. Furthermore, there
is a very direct relationship between the negligence of the appellant and the
loss
sustained by the respondent. It is only a matter of timing that the
cracks in the wall appeared while the respondent was the owner
rather than Mrs
Manion.
24. This approach accords with the very recent decision of the Supreme Court
of Canada in Winnipeg Condominium Corporation No.36
v. Bird Construction Co.
Ltd. (177) where the builder of an apartment building was held liable to a
subsequent owner of the land
and building for the cost of replacing cladding
that was defective. La Forest J, delivering the judgment of the Court,
rejected
the reasoning in D. and F. Estates Ltd.; held that the builder owed a
concurrent contractual and tortious duty to the subsequent
owner; was
satisfied that the losses claimed satisfied the two-part test for
recoverability of economic loss established in Anns
and Kamloops; and
concluded that there was a strong underlying policy justification for allowing
recovery.
25. Two features of Winnipeg Condominium should be noted. The first is that
the judgment emphasises that the duty in tort arises
if there is a danger to
the health and safety of the occupants which is foreseeable. However, in that
respect the judgment emphasises
the relationship between the negligent act and
the damage sustained. Secondly, liability was imposed in a situation where the
defect
"poses a real and substantial danger to the inhabitants of the
building". La Forest J said: "I do not find it necessary to consider
whether
contractors should also in principle be held to owe a duty to subsequent
purchasers for the cost of repairing non-dangerous
defects in buildings." In
that significant respect the decision is distinguishable from the present case
where the trial judge,
in referring to another decision of the Supreme Court
of Tasmania, said:
"His Honour concluded that the water was a danger to inhabitants of a home
unit unless repaired (a feature not necessarily established
in the present
case)."
26. However, La Forest J made reference to several decisions, including that
of the Full Court in the present case, where a more
general duty owed by
builders to subsequent purchasers was recognised. While his Honour was at
pains to confine his remarks to dangerous
defects, he referred with approval
to the policy considerations identified in Lempke. In that sense the judgment
is supportive of
the conclusion reached by the Full Court in the present
case.
Conclusion
27. The various considerations to which reference has been made give rise to
sufficient proximity between the parties to render
the appellant liable to the
respondent. That conclusion is based on the findings of the trial judge
mentioned earlier. It relates
to the building of a house that is a
non-commercial building. It is uncomplicated by anything arising from the
contract between
the appellant and Mrs Manion. It is also uncomplicated by
any question of when the cause of action vested in the respondent or any
issue
of limitation of actions arising therefrom. The appellant does not rely upon
these considerations as an answer to the respondent's
claim. The view of the
trial judge was that no further cause of action would vest in owners following
the respondent because, at
the time of purchase, a reasonable examination
would disclose the defect in the footings. While this seems an appropriate
approach,
it is unnecessary to express any concluded view on this aspect.
28. One thing to be said, particularly in the area of non-dangerous defects,
is that as time goes on it may be more difficult to
show that the defect was
the result of negligence and not of wear and tear or factors not associated
with the standard of construction.
Another is that clearly there is a range
of situations, including liability for defective products, with which this
judgment does
not purport to deal.
29. It follows from what has been said that the appeal should be dismissed.
Footnotes
1 See Sutherland Shire Council v. Heyman [1985] HCA 41; (1985) 157 CLR 424 at 503-505; D and
F Estates Ltd. v. Church Commissioners
[1988] UKHL 4; (1989) AC 177
at 206, 213, 216; Murphy
v. Brentwood District Council [1991] UKHL 2; (1991) 1 AC 398 at 466-468,
475, 484-485,
492-493; Department of the Environment
v. T. Bates Ltd. (1991) 1 AC 499 at
519.
2 (1989) AC at 207.
3 Murphy v. Brentwood District Council (1991) 1 AC at 479 per Lord Bridge of
Harwich; and see also at 470, 484, 497; Sutherland
Shire Council v. Heyman
(1985) 157 CLR at 512.
4 Sutherland Shire Council v. Heyman (1985) 157 CLR at 441 per Gibbs CJ and
see also at 495, 501; Caltex Oil (Australia) Pty. Ltd.
v. The Dredge
"Willemstad" [1976] HCA 65; (1976) 136 CLR 529 at 572-574; Jaensch v. Coffey [1984] HCA 52; (1984) 155 CLR
549 at
581-582.
5 San Sebastian Pty. Ltd. v. The Minister [1986] HCA 68; (1986) 162 CLR 340 at 355 per Gibbs
CJ, Mason, Wilson and Dawson JJ
6 (1976) 136 CLR at 575.
7 See, e.g., Hedley Byrne and Co. Ltd. v. Heller and Partners Ltd. [1963] UKHL 4; (1964) AC
465 at 536; Dorset Yacht Co. v. Home
Office [1970] UKHL 2; (1970)
AC 1004 at 1038-1039,
1058; Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976) 136
CLR at 575; Sutherland
Shire
Council v. Heyman (1985) 157 CLR at 497.
8 Ultramares Corporation v. Touche (1931) 174 NE 441 at 444 per Cardozo CJ;
Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad"
(1976) 136 CLR at
568, 591; Hedley Byrne and Co. Ltd. v. Heller and Partners Ltd. (1964) AC at
537; and see also Sutherland Shire
Council v. Heyman (1985) 157 CLR at 465.
9 Jaensch v. Coffey (1984) 155 CLR at 578; Sutherland Shire Council v.
Heyman (1985) 157 CLR at 503.
10 See, generally, Sutherland Shire Council v. Heyman (1985) 157 CLR at
466-468, 501-502; Hawkins v. Clayton (1988)
164 CLR 539
at 545, 576, 593.
11 [1994] HCA 13; (1994) 179 CLR 520 at 543 per Mason CJ, Deane, Dawson, Toohey and Gaudron
JJ; and see also Stevens v. Brodribb
Sawmilling Co.
Pty.
Ltd. (1986) 160 CLR
16 at 53.
12 See, generally, Midland Bank v. Hett, Stubbs and Kemp (1979) Ch 384 at
405-411; Central Trust Co. v. Rafuse (1986) 31 DLR (4th)
481 at 489-499;
Hawkins v. Clayton (1988) 164 CLR at 574-575.
13 See, e.g., National Mutual Life Association of Australasia Ltd. v. Coffey
and Partners Pty. Ltd. (1991) 2 Qd R 401 at 406; Opat
v. National Mutual Life
[1992] VicRp 19; (1992) 1 VR 283 at 291-295; Lowden v. Lewis (1989) Tas R 254 at 266-267;
Brumby v. Pearton (1991) 10 BCL
291 at 294-295 (Supreme
Court of Tasmania);
Dutton v. Jalapen Pty. Ltd. (unreported, Supreme Court of Queensland, 14 March
1991);
Miell v. Hatjopoulos (1987)
4 BCL 226 (Supreme Court of South
Australia); Bowen v. Paramount Builders (1977) 1 NZLR 394.
14 [1963] HCA 15; (1963) 110 CLR 74 at 84.
15 ibid.
16 (1932) AC 562.
17 (1988) 164 CLR at 575.
18 ibid. at 543.
19 (1963) 110 CLR at 84.
20 (1986) 31 DLR (4th) at 521-522. And see Winnipeg Condominium Corp. No.36
v. Bird Construction Co. Ltd. (unreported, Supreme
Court of Canada, 26 January
1995).
21 Anns v. Merton London Borough Council [1977] UKHL 4; (1978) AC 728.
22 [1982] UKHL 4; (1983) 1 AC 520.
23 (1932) AC at 610.
24 ibid.
25 cf. Lord Wilberforce's comment in Anns v. Merton London Borough Council
(1978) AC at 759 to the effect that the correct classification
of the damage
in a case such as the present was not economic loss but "material, physical
damage".
26 See Murphy v. Brentwood District Council (1991) 1 AC at 470, 497.
27 The qualification "lawfully" is added merely for greater caution; cf.
Benning v. Wong (1969) 122 CLR 249 at 320;
Burnie Port
Authority v. General
Jones (1994) 179 CLR at 546.
28 [1963] HCA 15; (1963) 110 CLR 74. And see also Hawkins v. Clayton (1988) 164 CLR at 578;
AC Billings and Sons Ltd. v. Riden
[1957] UKHL 1; (1958) AC 240;
Gallagher v. N. McDowell
Ltd. (1961) NI 26; Clay v. A J Crump and Sons Ltd. (1964) 1 QB 533; Sharpe
v. E T Sweeting
and Son Ltd.
(1963) 1 WLR 665; Rimmer v. Liverpool City
Council (1984) 1 All ER 930; Pantalone v. Alaouie (1989)
18 NSWLR 119;
Murphy v. Brentwood
District Council (1991) 1 AC at 475; Department of the
Environment v. T. Bates Ltd. (1991) 1 AC
at 519.
29 (1963) 110 CLR at 85. And see also Bowen v. Paramount Builders (1977) 1
NZLR at 407.
30 cf. Askin v. Knox [1988] NZCA 94; (1989) 1 NZLR 248.
31 (1988) 547 A 2d 290 at 294-295; see, also, Sir Robin Cooke, "An
Impossible Distinction", (1991) 107 Law Quarterly Review 46
at 61-63.
32 Lempke v. Dagenais (1988) 547 A 2d at 295, quoting Whichard J in George v.
Veach (1984) 313 SE 2d 920 at 923.
33 See note 28.
34 (1972) 1 QB 373 at 396.
35 (1989) AC 177.
36 [1991] UKHL 2; (1991) 1 AC 398.
37 Under a 98 year lease.
38 See D and F Estates Ltd. v. Church Commissioners (1989) AC at 210,
216-217; Murphy v. Brentwood District Council (1991) 1 AC
at 475, 480,
488-489, 494-498; Department of the Environment v. T. Bates Ltd. (1991) 1 AC
at 519.
39 See Winnipeg Condominium Corp. No.36 v. Bird Construction Co. Ltd., an
unreported decision of the Supreme Court of Canada. There,
the Supreme Court,
in a judgment delivered by La Forest J, did not accept the approach to the
relationship between contract and tort
adopted by the House of Lords in D. and
F. Estates and Murphy but adopted a similar approach to that accepted in this
country. La
Forest J referred to the decision of the Full Court of the Supreme
Court of Tasmania in this case with approval.
40 See, in particular, Bowen v. Paramount Builders (1977) 1 NZLR 394; Mt
Albert Borough Council v. Johnson [1979] NZCA 46; (1979) 2 NZLR 234; Askin
v. Knox [1988] NZCA 94; (1989) 1
NZLR 248.
41 See National Mutual Life Association of Australasia Ltd. v. Coffey and
Partners Pty. Ltd. (1991) 2 Qd R 401; Opat v. National
Mutual Life [1992] VicRp 19; (1992) 1
VR 283; Lowden v. Lewis (1989) Tas R 254; Brumby v. Pearton (1991) 10 BCL
291 (Supreme Court of Tasmania);
Miell v.
Hatjopoulos (1987) 4 BCL 226.
42 See, e.g., Coburn v. Lenox Homes Inc. (1977) 378 A 2d 599; Brown v.
Fowler (1979) 279 NW 2d 907; Terlinde v. Neely (1980) 271
SE 2d 768 at 770;
Drexel Properties Inc. v. Bay Colony (1981) 406 So 2d 515; Cosmopolitan Homes
Inc. v. Weller (1983) 663 P 2d 1041;
McMillan v. Brune-Harpenau-Torbeck
Builders (1983) 455 NE 2d 1276; Huang v. Garner (1984) 203 Cal Rptr 800.
43 See, e.g., Barnes v. Mac Brown and Company Inc. (1976) 342 NE 2d 619;
Moxley v. Laramie Builders Inc. (1979) 600 P 2d 733; Terlinde
v. Neely (1980)
271 SE 2d at 768-769; Blagg v. Fred Hunt Co. Inc. (1981) 612 SW 2d 321;
Redarowicz v. Ohlendorf (1982) 441 NE 2d
324; Gupta v. Ritter Homes Inc.
(1983) 646 SW 2d 168; Lempke v. Dagenais (1988) 547 A 2d 290.
44 cf. Rivtow Marine Ltd. v. Washington Iron Works (1973) 40 DLR (3d) 530.
45 Overseas Tankship (U.K.) Ltd. v. Morts Dock and Engineering Co. Ltd. (The
Wagon Mound (No.1)) [1961] UKPC 1; (1961) AC 388 at 425; Sutherland
Shire Council v. Heyman
[1985] HCA 41; (1985) 157 CLR 424 at 487; Murphy v. Brentwood District Council [1991] UKHL 2; (1991) 1
AC
398 at 485-486.
46 (1932) AC 562.
47 (1964) AC 465.
48 See, for example, Gala v. Preston [1991] HCA 18; (1991) 172 CLR 243.
49 San Sebastian Pty. Ltd. v. The Minister [1986] HCA 68; (1986) 162 CLR 340 at 367.
50 See per Lord Reid in Dorset Yacht Co. v. Home Office [1970] UKHL 2; (1970) AC 1004 at
1027.
51 Ultramares Corporation v. Touche (1931) 255 NY 170 (174 NE 441 at 444).
52 [1991] UKHL 2; (1991) 1 AC 398 at 487. Lord Oliver described the "something more" as
"that elusive element comprehended in
the expression 'proximity'".
I prefer a
more definitive statement of "some special principle" (to use the words of
Robert Goff LJ
in Leigh and Sillivan Ltd.
v. Aliakmon Ltd. [1985] UKHL 10; (1985) QB 350 at
396) to warrant recovery of pure economic loss. See the discussion
of
"proximity" below.
53 [1963] HCA 15; (1963) 110 CLR 74.
54 ibid. at 84.
55 See, for example, Vaughan v. Webb [1902] NSWStRp 73; (1902) 2 SR(NSW) 293.
56 Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR
529 at 544.
57 ibid. at 555, 572-574, 590-592; cf. Leigh and Sillavan Ltd. v. Aliakmon
Ltd. [1985] UKHL 10; (1986) AC 785 at 813-820 and the
dissenting judgment
of Robert Goff LJ in
(1985) QB at 392-394, 396.
58 (1972) 1 QB 373 at 396.
59 ibid.
60 (1977) 1 NZLR 394.
61 ibid. at 410, 417-418, 425.
62 (1973) 40 DLR (3d) 530 at 549-552.
63 ibid. at 551.
64 (1978) AC 728 at 759-760.
65 ibid. at 759.
66 ibid. at 751-752.
67 (1991) 1 AC at 487.
68 [1982] UKHL 4; (1983) 1 AC 520.
69 ibid. at 545.
70 ibid. at 542.
71 ibid. at 546.
72 (1964) AC 465.
73 (1983) 1 AC at 546.
74 ibid. at 533.
75 ibid. at 536.
76 ibid. at 549.
77 (1932) AC at 581-582.
78 [1883] UKLawRpKQB 117; (1883) 11 QBD 503 at 509.
79 Noted by May J in his judgment in Nitrigin Eireann Teoranta v. Inco Alloys
Ltd. (1992) 1 WLR 498 at 504; (1992) 1 All ER 854
at 860.
80 D and F Estates Ltd. v. Church Commissioners [1988] UKHL 4; (1989) AC 177 at 202-204,
215; Murphy v. Brentwood District Council
(1991) 1 AC
at 469.
81 D and F Estates (1989) AC at 215; Murphy v. Brentwood District Council
(1991) 1 AC at 466, 481; Nitrigin Eireann Teoranta v.
Inco Alloys Ltd. (1992)
1 WLR at 504-505; (1992) 1 All ER at 860.
82 Simaan Contracting Co. v. Pilkington Ltd. (No.2) [1988] UKHL 4; (1988) QB 758 at 784.
83 (1983) 1 AC at 551-552.
84 (1989) AC 177 at 204.
85 [1986] USSC 130; (1986) 476 US 858 at 870, referred to also by Lord Keith in Murphy v.
Brentwood District Council (1991) 1 AC at 469.
86 (1986) 476 US at 871.
87 Voli v. Inglewood Shire Council (1963) 110 CLR at 85.
88 See Simaan Contracting Co. v. Pilkington Ltd. (No.2) (1988) QB at
782-783.
89 Murphy v. Brentwood District Council [1991] UKHL 2; (1991) 1 AC 398; Department of the
Environment v. T. Bates Ltd. (1991) 1
AC 499.
90 (1989) AC 177. The complex structure theory which was provisionally
advanced (at 207, 214) to account for the recovery of damages
for structural
defects in Anns v. Merton London Borough Council was abandoned in Murphy v.
Brentwood District Council (1991) 1 AC
at 470, 478-479, 484 and 497.
91 (1989) AC at 206.
92 [1985] HCA 41; (1985) 157 CLR 424.
93 ibid. at 504; see also at 490 and cf. at 446-447, 466, 471.
94 (1991) 1 AC at 466-468.
95 See Sutherland Shire Council v. Heyman (1985) 157 CLR at 490-491.
96 (1991) 1 AC at 457, 464, 475, 480, 489, 498.
97 ibid. at 484.
98 But cf. Fleming, "Tort in a Contractual Matrix", (1993) 5 Canterbury Law
Review 269.
99 See Tai Hing Ltd. v. Liu Chong Hing Bank [1985] UKPC 22; (1986) AC 80 at 107.
100 (1963) 110 CLR at 84.
101 See Winnipeg Condominium Corp. No.36 v. Bird Construction Co. Ltd. (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: see below.
102 (1964) AC 465.
103 [1968] HCA 74; (1968) 122 CLR 556 (HC); (1970) 122 CLR 628 (PC); (1971) AC 793 (PC).
104 As discussed in Mutual Life and Citizens' Assurance Co. Ltd. v. Evatt
(1968) 122 CLR at 571; Shaddock and Associates Pty. Ltd.
v. Parramatta City
Council (No.1) [1981] HCA 59; (1981) 150 CLR 225 at 251; San Sebastian Pty. Ltd. v. The
Minister (1986) 162 CLR
at 371-372.
105 San Sebastian Pty. Ltd. v. The Minister (1986) 162 CLR at 356- 357; cf.
Hawkins v. Clayton (1988) 164 CLR 539
at 576.
106 See National Mutual Life Association of Australasia Limited v. Coffey and
Partners Pty. Ltd. (1991) 2 Qd R 401 at 406.
107 (1985) 157 CLR at 504-505, cited in Murphy v. Brentwood District Council
(1991) 1 AC at 467-468.
108 (1985) 157 CLR at 490-493; see also the judgment of Deane J first cited
above.
109 (1983) 1 AC at 551-552.
110 (1986) 476 US at 870.
111 (1973) 40 DLR (3d) 530.
112 ibid. at 541-542.
113 ibid. at 552.
114 City of Kamloops v. Nielsen (1984) 10 DLR (4th) 641 at 662-663; Canadian
National Railway Co. v. Norsk Pacific Steamship Co.
(1992) 91 DLR (4th) 289 at
371, 387.
115 Unreported, Supreme Court of Canada, 26 January 1995.
116 ibid. at 15.
117 ibid. at 43-44.
118 Sedleigh-Denfield v. O'Callaghan [1940] UKHL 2; (1940) AC 880 at 894-895, 899, 904-905,
913, 920; Overseas Tankship (U.K.)
Ltd. v. The Miller
Steamship Co. Pty. (The
Wagon Mound
(No.2)) [1966] UKPC 1; (1967) 1 AC 617 at 639; Cartwright v. McLaine and
Long
Pty. Ltd. [1979] HCA 16; (1979) 143 CLR 549 at
553, 568; Montana Hotels v. Fasson (1986) 69
ALR 258 at 262.
119 Voli v. Inglewood Shire Council was such a case.
120 The order in Voli v. Inglewood Shire Council ((1963) 110 CLR at 101)
apportioned liability equally between the Council and the
architect.
121 The position of Dr Cherry in Chapman v. Hearse [1961] HCA 46; (1961) 106 CLR 112; the
police officer in Haynes v. Harwood (1934)
2 KB 240;
or the station master in
Videan v. British Transport
Commission (1963) 2 QB 650.
122 Murphy v. Brentwood District Council (1991) 1 AC at 488.
123 Unreported, Supreme Court of Canada, 26 January 1995 at 9.
124 Council of Co-owners v. Whiting-Turner (1986) 517 A 2d 336.
125 Cosmopolitan Homes, Inc. v. Weller (1983) 663 P 2d 1041; Oates v. Jag,
Inc. (1985) 333 SE 2d 222; McMillan v. Brune-Harpenau-Torbeck
Builders (1983)
455 NE 2d 1276.
126 Barnes v. Mac Brown and Company, Inc. (1976) 342 NE 2d 619; Terlinde v.
Neely (1980) 271 SE 2d 768; Richards v. Powercraft Homes,
Inc. (1984) 678 P 2d
427.
127 See Trident General Insurance Co. Ltd. v. McNiece Bros. Pty. Ltd. [1988] HCA 44; (1988)
165 CLR 107.
128 [1991] HCA 18; (1991) 172 CLR 243 at 252-253.
129 San Sebastian Pty. Ltd. v. The Minister (1986) 162 CLR at 355.
130 Sutherland Shire Council v. Heyman (1985) 157 CLR at 481.
131 (1991) 1 AC at 487.
132 Leigh and Sillivan Ltd. v. Aliakmon Ltd. (1985) QB at 395.
133 San Sebastian Pty. Ltd. v. The Minister (1986) 162 CLR at 368; see also
Hawkins v. Clayton (1988) 164 CLR at 555-556; Gala v.
Preston (1991) 172 CLR
at 260-263.
134 Jaensch v. Coffey [1984] HCA 52; (1984) 155 CLR 549 at 585.
135 (1983) 1 AC at 546-547.
136 [1994] HCA 13; (1994) 179 CLR 520 at 543.
137 Caparo Plc v. Dickman [1990] UKHL 2; (1990) 2 AC 605 at 617, 618; Barker, "Are We up to
Expectations? Solicitors, Beneficiaries
and the Tort/Contract
Divide", (1994)
14 Oxford Journal of Legal Studies 137 at 147.
138 (1991) 172 CLR at 276.
139 ibid. at 277.
140 [1984] HCA 52; (1984) 155 CLR 549 at 585.
141 ibid. at 592-593.
142 Cook v. Cook [1986] HCA 73; (1986) 162 CLR 376 at 381-382; Gala v. Preston (1991) 172
CLR at 252-254; San Sebastian Pty. Ltd.
v. The Minister
(1986) 162 CLR
at 355;
Hawkins v. Clayton (1988) 164 CLR at 545, 576.
143 Thus in the present case Underwood J, noting "the emergence of a separate
test of proximity additional to that of foreseeability,
satisfaction of which
will give rise to a duty of care not to expose the other party to the risk of
economic loss alone", encountered
the difficulty "that the content of, or test
for ascertaining the requisite proximity is unclear". See Christopher v. The
Motor
Vessel "Fiji Gas" [1993] QCA 22; (1993) Aust Torts Rep 81-202 at 61,964-61,965.
144 Jaensch v. Coffey (1984) 155 CLR at 585, 590; Sutherland Shire Council v.
Heyman (1985) 157 CLR at 498; Gala v. Preston (1991)
172 CLR at 253; cf. Cook
v. Cook (1986) 162 CLR at 385-386.
145 [1994] HCA 13; (1994) 179 CLR 520 at 543.
146 Jaensch v. Coffey [1984] HCA 52; (1984) 155 CLR 549 at 581-582; Hawkins v. Clayton
(1988) 164 CLR 539 at 576.
147 [1985] HCA 41; (1985) 157 CLR 424 at 441.
148 ibid.
149 See Feldthusen, Economic Negligence, 2nd ed. (1989) at 1.
150 Cooke, "An Impossible Distinction", (1991) 107 Law Quarterly Review 46.
151 Duncan Wallace, "Negligence and Defective Buildings: Confusion
Confounded?", (1989) 105 Law Quarterly Review 46 at 57.
152 ibid. at 58.
153 Wright J appears to have treated this cost as the measure of the decrease
in the value of the house.
154 (1978) AC 728 at 759.
155 (1989) AC 177.
156 [1991] UKHL 2; (1991) 1 AC 398.
157 See generally Markesinis and Deakin, "The Random Element of Their
Lordships' Infallible Judgment: An Economic and Comparative
Analysis of the
Tort of Negligence from Anns to Murphy", (1992) 55 Modern Law Review 619.
158 Cattle v. Stockton Waterworks Co. (1875) LR 10 QB 453.
159 (1964) AC 465.
160 (1991) 1 AC 499.
161 San Sebastian Pty. Ltd. v. The Minister [1986] HCA 68; (1986) 162 CLR 340 at 355.
162 [1976] HCA 65; (1976) 136 CLR 529.
163 cf. Opat v. National Mutual Life [1992] VicRp 19; (1992) 1 VR 283.
164 (1976) 136 CLR at 591. See also Sutherland Shire Council (1985) 157 CLR
at 466, 493, 502.
165 ibid. at 574.
166 ibid. at 575.
167 (1992) 91 DLR (4th) 289.
168 ibid. at 362-363.
169 (1984) 10 DLR (4th) 641.
170 The action was one against the City by the purchaser of a house for the
cost of repairs resulting from subsidence where the
City, though aware through
its building inspector of the defective foundations, failed to prevent the
construction of the house.
171 (1992) 91 DLR (4th) at 367. See also Sutherland Shire Council (1985) 157
CLR at 481 per Brennan J
172 [1963] HCA 15; (1963) 110 CLR 74 at 85.
173 Central Trust Co. v. Rafuse (1986) 31 DLR (4th) 481 at 522; Winnipeg
Condominium Corporation No.36 v. Bird Construction Co.
Ltd. (unreported,
Supreme Court of Canada, 26 January 1995).
174 Hawkins v. Clayton (1988) 164 CLR at 544 per Mason CJ and Wilson J;
Central Trust Co. (1986) 31 DLR (4th) at 521-522.
175 (1988) 547 A 2d 290.
176 ibid. at 295.
177 Unreported, Supreme Court of Canada, 26 January 1995.