Articles

By Justin Cotton, Director, co-authored by Jordan Davies, Paralegal, Lovegrove & Cotton – Construction and Planning Lawyers

Torts are an odd bunch of civil actions that include defamation, assault, battery, nuisance, conversion, fraud, trespass to land, negligence – the list goes on. In the construction law space we most commonly come across negligence, nuisance and trespass to land. The most significant of these is the tort of negligence. This article aims to shed light on the common law rights of consumers and duties owed by building practitioners under the tort of negligence, and is separated into two parts.

An example of an important construction case centring upon the tort of negligence was the recent “Lacrosse Decision”. Negligence is very important for consumers in circumstances where they wish to receive compensation for loss when there are no contractual or statutory warranties available.

A claim in negligence may arise in circumstances where a builder, building surveyor, engineer, architect or statutory authority (such as a council) has breached a duty to take care by not satisfying the standard of care expected of a reasonable person (or authority) in their position. This want of care must cause damage or harm.[1]

Duty of Care

One of the first aspects to be established in a claim in negligence is whether the defendant owed a duty of care. The term ‘duty of care’ is often thrown around loosely, but is a rather complex and case-by-case issue drawing largely on the facts of the case at hand. The following features, known to lawyers as ‘salient features’, are typically necessary to establish a duty. A duty of care may exist if:-

• The actions of the defendant directly or closely impacted the plaintiff;
• The plaintiff was a foreseeable type of person that would suffer harm from the carelessness of the defendant;
• The carelessness and associated harm occurred in circumstances where the plaintiff had relied on the defendant;
• The plaintiff was vulnerable to the defendant’s actions and unable to help themselves avoid harm;
• The defendant had control over the situation; and
• A reasonable person in the position of the defendant would have had knowledge of the likely harm.

These are only a sample of the fundamental and most common salient features, and key case law authorities have noted that there is no exhaustive list of features to be considered for the determination of whether a duty of care exists.[2]

Building Matters and Economic Loss

Negligence claims in building matters typically involve pure economic loss. Severe building calamities such as Grenfell Tower where there was physical harm, death and, no doubt, mental harm are fortunately very rare. Largely, building cases concern financial loss due to rectification costs and consequential loss such as reduction of property value. For a duty of care to be found in circumstances where the loss or damage is purely economic, there is a substantial emphasis placed on the vulnerability of the plaintiff, the defendant’s knowledge of the likely risk of harm and reliance of the plaintiff on the defendant.

A substantial hurdle for a finding of a duty of care in circumstances of pure economic loss is ‘indeterminacy of liability’, which essentially means that if the recognition of a duty gives rise to a whole manner of claims by an endless amount of people for any sort of amount of money, then that duty ought not be recognised. The liability must be confined somewhat to an identifiable limit of plaintiffs, and not ‘the world at large’.

A claim for pure economic loss is different to a claim where economic loss is a consequence of say physical or mental harm (i.e. associated medical fees etc.). In pure economic loss cases, the economic loss is not the consequence of harm, but rather the originating harm giving rise to the claim itself. A pure economic loss claim may arise when negligent conduct has transpired, such as poor workmanship.

These sorts of claims are relevant in instances where there are latent building defects or compromised product makes its way into buildings, and owners and/or subsequent owners seek compensation.

Another important kind of pure economic loss claim is one pertaining to negligent misstatements. These sorts of claims are relevant with respect to the likes of building certification and the likes of council planning and building approval decisions.

Negligent Conduct – Potatoes, Buildings and Vulnerability

The key Australian High Court authority pertaining to pure economic loss arising from negligent conduct is Perre v Apand 198 CLR 180. That case involved a supplier of potato seeds (the defendant) and a grower of potatoes (the plaintiff). The defendant supplied infected potato seeds to a neighbour of the plaintiff. The plaintiff unfortunately exported potatoes to Western Australia and that State had a ban on imports from farms within 20kms of a bacterial infection outbreak.

A key element in Perre was that the defendant supplier had knowledge of the existence of other farms in the area, and had specific knowledge of the plaintiff’s farm and the fact they exported their potatoes to WA where the ban was in place. It followed that the supplier was profoundly aware of the risk of harm to the plaintiff. The plaintiff was also extremely vulnerable in that there was no way for them to avoid the harm by protecting themselves – the supplying of potato seeds occurred totally outside the realm of control of the plaintiff. There was also no problem of indeterminate liability, as the defendant was liable to the farmers it supplied potato seeds to and other farmers within close vicinity (i.e. 20km) – a rather specific kind of claimant, then.

A similar test would be deployed in building matters where, for instance, latent building defects arose as a result of careless workmanship and a negligence claim was being made in the alternative to a claim under contract. The plaintiff owner would have to establish that the builder had knowledge of the likely harm, which in most circumstances would be established by virtue of the fact that the builder as a professional is intimately involved with the building process and is knowledgeable of the likely consequences of compromised as-built product.

The test regarding vulnerability may be more complex, however, and this is where the existence of a contract could undermine a claim in negligence as the plaintiff may not be considered sufficiently ‘vulnerable’ in circumstances where they can avail themselves of statutory warranties or builder warranties.

In Brookfield Multiplex Ltd v Owners Corporation Strata Plan No 61288[3], a New South Wales case, the Owners Corporation who represented the owners of units in a commercial/residential mixed use serviced apartment building tried to avail itself of common law remedies under negligence for defects in the common property. The commercial nature of the building ousted the provisions of the NSW equivalent of the Domestic Building Contracts Act 1995 (Vic) [i.e. the Home Building Act 1989 (NSW)].

The High Court was loath to impose obligations over and above those set out in contract. The Court considered that building contracts with provisions that expressly concern quality of work avoid vulnerability on the part of commercial building owners to lack of care on the part of builders. The idea being that a savvy consumer in negotiating a building contract would be able to avail themselves of the likes of contractual warranties, expert inspections and reports by local authorities. Similarly, subsequent owners could avail themselves of warranties by vendors. It followed that the Court considered there was no duty owed by Brookfield to the Owners Corporation.

One key take out from Brookfield was this: owners of commercial buildings are most often sufficiently able to afford themselves protection via contractual means and are therefore not vulnerable, whilst owners of residential buildings are typically adequately protected via legislation such as the Domestic Building Contracts Act and statutory warranties.

A potential exception highlighted in Brookfield was that of domestic home building projects, where subsequent residential owners are unaware of how to avail themselves of contractual protections and are therefore vulnerable to breach of duty of care. This reflects an interesting presumption common in case law, namely that parties contracting in a domestic context do not possess the level of contractual know-how and sophistication as those contracting in commercial circumstances.

Residential buildings in certain jurisdictions may fall outside the ambit of statutory warranties – for instance, where a residential building exceeds, say, three storeys in height. This would be particularly disadvantageous in circumstances where the party suffering loss was a subsequent owner with no contractual agreement with the builder and no warranties provided by the vendor.

A key point of contention would be, in such circumstances, whether the reasonable owner would have availed themselves of contractual warranties from the vendor prior to purchase. If it was found that it was not unreasonable for the owner to not have protected themselves via the likes of contractual warranties, the owner may be considered sufficiently vulnerable and more akin to the potato growers in Perre than the Owners Corporation in Brookfield.

If you or your company has suffered loss as a result of the negligent conduct of a building practitioner, it is imperative you seek sound legal advice from practitioners experienced with litigation. Similarly, if a building practitioner is alleged to have acted negligently, it behoves them to seek expert legal advice to defend against such a claim.

Part 2 – Negligent Misstatements, Claims against Councils, Breach of Duty, Causation and Defences to Negligence Claims

In part 2 of this article, pure economic loss arising from negligent misstatements will be considered. This is relevant for claims against certifying authorities. Claims against Councils and public authorities will also be discussed. Lastly, the breach of duty and causation requirements for a negligence claim will be summarised, along with common defences to negligence claims.

Footnotes

[1] See eg Jaensch v Coffey (1984) 155 CLR 549

[2] In Caltex Refineries (Qld) Pty Limited v Stavar (2009) 75 NSWLR 649, the Court set out the ‘salient features test’ and considered a manner of different salient features

[3] (2014) 254 CLR 185