Woolcock Street Investments Pty Ltd v CDG Pty Ltd & Anor B26/2002 [2003] HCATrans 646 (14 March 2003)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B26 of 2002

B e t w e e n -

WOOLCOCK STREET INVESTMENTS PTY LTD

Applicant

and

CDG PTY LTD (formerly Cardno & Davies Australia Pty Ltd)

First Respondent

JOHN CAMERON JOHNSON

Second Respondent

Application for special leave to appeal

McHUGH J

KIRBY J

HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 14 MARCH 2003, AT 10.36 AM

Copyright in the High Court of Australia

MR A.M. DAUBNEY, SC: May it please the Court, I appear with my learned friend, MR G.D. BEACHAM, for the applicant. (instructed by Gilshenan & Luton)

MR P.A. KEANE, QC: May it please the Court, I appear with my learned friends, MR P.D.T. APPLEGARTH, SC and MS M.A. HOCH, for the respondents. (instructed by Thynne & Macartney)

McHUGH J: Yes, Mr Daubney.

MR DAUBNEY: Your Honours, the drawing of a distinction between the case of a subsequent purchaser of a commercial building - - -

McHUGH J: Mr Daubney, I think we will call on your opponent.

MR DAUBNEY: Thank you, your Honour.

McHUGH J: Well, Mr Keane, there are some very important points here. Why should the Court not grant special leave to appeal in this case?

MR KEANE: Your Honour says there are some important points. There always are in - - -

KIRBY J: No, there are not. You can take it from us, it is not so.

MR KEANE: - - - cases that have engaged the attention of four courts of intermediate appeal, all of which have come to the same answer in our favour. Could we say, as briefly as we may, that this application proceeds on the dual footing that this Court is invited to take the case up on the basis that Bryan v Maloney is a pointer to a wider liability than the case established, and that subsequent cases, particularly Perre v Apand, call for the creation of a more extensive liability. Our submission is that both bases are erroneous, and demonstrably so. It will take a moment to say why. Bryan v Maloney itself stands for a liability explicitly based on the nature of the property involved, namely, a permanent dwelling house, and that - - -

KIRBY J: It does not seem a very strong conceptual principle to distinguish one recovery from another's failure. Why, in terms of legal concept, should the nature of the building or its use alter recoverability?

MR KEANE: Your Honour, because, as their Honours made explicit in Bryan v Maloney itself, there is the difference in policy consideration between the position of the relatively commercially unsophisticated and the commercially less powerful consumer, the dwelling house, and the position of a commercial purchaser of commercial premises.

KIRBY J: Now, I think you were here a few months back in a very large residential development in Brisbane on the river. How would one then draw a line between a problem that arose in a very large residential development which was still residential, but had its commercial element? The one would merge into another.

MR KEANE: Your Honour, applying Bryan v Maloney, one would look at the position of the party claiming to have suffered economic loss. In the kind of case your Honour postulates, that party is likely to be a party able to bargain for, and commercially sophisticated enough to seek, warranties in relation to the structural adequacy of the property being purchased.

KIRBY J: Even if it is a tiny one-bedroomer at the back of the flats?

MR KEANE: Well, your Honour, if it is a tiny one-bedroomer at the back of the flats being purchased as a commercial enterprise, yes. The policy considerations we are talking about - we are talking about a line that is recognised explicitly in Bryan v Maloney itself and explicitly again in cases like Hungerfords v Walker and Perre v Apand. It is the difference between the protection afforded by the law of torts to those who are vulnerable and the refusal of the law of torts to enter into a field where parties can be expected to bargain either for a reduction in price or for warranties.

McHUGH J: But the case may throw up whether or not Bryan v Maloney ought not to be overruled, for example. If you cannot extend it to commercial buildings, then arguably its rationale is flawed. On the other hand, the applicant says it ought to be extended to commercial buildings. So there are some very important points lurking in the case, and the fact that the Victorian Court of Appeal and the New South Wales Court of Appeal have refused to extend Bryan v Maloney to commercial buildings is beside the point.

MR KEANE: Your Honour, as to the proposition that this case might be a vehicle for reconsidering the correctness of Bryan v Maloney, obviously, if leave were to be granted, we would seek to agitate that question. In that regard, we should draw the Court's attention to an aspect which may render the case perhaps not an appropriate vehicle in that regard, in that your Honours will recall that Bryan v Maloney is concerned about defects that are not reasonably discoverable by inspection. In this case, there is no finding of fact, or, indeed, no agreed fact, that the defects were, or were not, reasonably discoverable at the time of purchase.

McHUGH J: I know. In fact, one of the things that troubles me and I think other members of the Court about this case is that it was decided on a statement of agreed facts together with the facts in the pleadings. I would have thought if you were going to seek to develop the law then you ought to have a trial and call evidence on all these matters.

MR KEANE: Well, your Honour, as to the appropriateness of the case as a vehicle for the Court, that is a matter in relation to which, of course, we are in the Court's hands.

McHUGH J: Yes. Anyway, you are going to submit that - - -

MR KEANE: We were going to submit in response to Justice Kirby's suggestion that the basis for the distinction that is recognised is a flimsy one. We were simply going to take your Honours briefly to the passages in Bryan v Maloney which make it explicit that the distinction has been drawn. The distinction is critical - not incidental, but essential - to the decision. That is to say, an identification of a difference, as a matter of policy, or, indeed, as a matter of pragmatic law-making, between the position of purchasers, consumers, of dwelling houses, and those who buy property by way of investment. The passages in Bryan v Maloney (1995) 182 CLR 609 commence at 625 at about point 5, where in the joint judgment it is said:

Nonetheless, the relationship between them -

that is to say, builder and buyer -

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.

KIRBY J: Could I just pause there. My trouble with that is that for some small investors the investment may be the most significant they will ever make in their lifetime - for some small commercial investors. It seems to me an unstable factual element to elevate into a legal principle. I am not saying that in the end you would not say for pragmatic reasons, "Well, let us stick with this. It works well, and it is sensible, and it draws a line, and it has a basis in principle, in vulnerability". I am not saying you would not come to that conclusion, but I just think we ought to look at it, because it does not seem very powerful a fact masquerading as a legal principle.

McHUGH J: The passage also has the dreaded term "proximity" in it.

MR KEANE: Quite, your Honour. We cannot say anything about that. To return to Justice Kirby's point, what your Honour puts to us may be a good reason for overruling the case. What we are concerned with in this application is not whether the case should be overruled but rather whether there is some beating heart of principle that is leading us to a more extensive liability. The point we are simply making is that Bryan v Maloney is not a case which, in our respectful submission, ought to be extended, or the liability which it reflects ought to be extended. We are simply making the point that it can stand as authority, not causing any mischief, it would seem, until an appropriate vehicle comes along to decide whether it should be overruled.

KIRBY J: Yes. I am sorry, I interrupted. You were going to take us to the other passages where these points are made.

MR KEANE: Yes, your Honour. The next passage is at 627 at about point 5, where, speaking of:

the similarities between the relationship between builder and first owner and the relationship between builder and subsequent owner -

at about point 5, their Honours say:

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 -

Then if one goes to the last sentence on the page:

Moreover, there are persuasive policy reasons supporting the recognition of a relationship of proximity -

the dreaded word again, your Honours -

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. 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.

KIRBY J: Now, that is not a very good point, because you can get builders who are specialists in building small commercial developments.

MR KEANE: True, but if we are talking about a purchaser from such a builder, who is buying for the purposes of investment, we are talking about someone who could be astute to be bargaining, to be interested in price, to be interested in warranties and so forth, because what they are concerned with is the bargain - not necessarily just simply having the dwelling out of ordinary social need. Your Honours, the last passage is at 630 - this is the last passage in the majority - where, in the first full paragraph on the page, their Honours say:

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 -

and their Honours go on to say in the next sentence:

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.

Finally, the final passage in the case, your Honours, the other member of the majority, Justice Toohey, at 665. In the second sentence, his Honour says:

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.

So, once again, the point is made explicitly. When we said to your Honours that the line that has been drawn is between cases of the commercially unsophisticated and less powerful - obviously there are discrepancies and obviously there will be the kind of discrepancy your Honour Justice Kirby has pointed out - drawn as a general matter, in the broad, one sees the difference between such a case and this case, highlighted as it is, in our respectful submission, in the judgments in Perre v Apand [1999] HCA 36; (1999) 198 CLR 180. If I could take your Honours to that and take your Honours to three passages very briefly.

Firstly, at 225, in the judgment of your Honour Justice McHugh, the general observations your Honour makes in paragraph 118 we would adopt, with respect, and submit that they apply a fortiori to this case. We would also emphasise paragraph 119, the reference to Esanda v Peat Marwick, where your Honour noted:

an important factor in denying a duty of care was that the plaintiffs were sophisticated investors well able in the circumstances to protect themselves.

Your Honour goes on to elaborate that point, the point being that the protection question is one which is available under the law of contract. Your Honour makes the point in paragraph 120 in the first couple of sentences, where the relevant loss is pecuniary loss on the investment - we pause to say here the loss that has been suffered is a bad bargain. How the engineers went about doing their job has absolutely nothing to do with the bargain that the applicants made. Your Honours, in the judgment of Justice Gummow, with whose reasons the Chief Justice agreed generally, at page 254 paragraph 202, where his Honour refers to Esanda Finance v Peat Marwick and then cites the passage from Justices Toohey and Gaudron, at the bottom of the page:

"there is nothing to suggest Esanda was not itself able to have accountants undertake the same task on its behalf as a condition of its entertaining the possibility of entering into financial transactions -

Your Honours, that is this case. At 259, in Justice Gummow's judgment, paragraph 216, where his Honour contrasts the position of the plaintiffs in Perre v Apand with the position of the plaintiff financier in Esanda Finance v Hungerfords who, his Honour points out:

had the power to deal from a position of strength in ordering its commercial relationship with the party to whom it provided financial accommodation.

So, in our submission, the position is Bryan v Maloney stands expressly upon ground which assumes reasons for vulnerability on the part of the plaintiff that do not apply in a case such as the present. Subsequent cases do not encourage an extension of that liability. In terms of whether or not Bryan v Maloney is doing some mischief, we draw your Honours' attention to the circumstance that, in Queensland at least, as appears from page 76 of the record, paragraph [35], there is a statutory regime in Queensland which provides for statutory protection for purchasers of dwelling houses but not for purchasers of commercial property. We submit that what the legislature has done, and chosen not to do, is a proper indication that the line that has been drawn is sound in terms of policy.

So far as the decision in Bryan v Maloney is concerned, in our respectful submission, it can stand until an appropriate vehicle comes along to challenge it. The prospect of its being extended in accordance with the invitation to do so either because it suggests some principle that is reflected in the decision of a wider application or because subsequent authority invites a wider application is a contention which, in our submission, enjoys little prospect of success.

KIRBY J: What was the decision in the Northern Territory? Is it Jiniess, is it?

MR KEANE: Yes, your Honour. That was a decision at first instance of what were mixed commercial and residential property.

KIRBY J: Does the fact that it was mixed indicate the instability of the residential criteria?

MR KEANE: Your Honour, as we say, it may be an unstable discrimen, but it is nonetheless the discrimen that is distinctly insisted upon in the case, and there is, in our respectful submission, no reason to think that the discrimen should be removed, with the result that a wider liability will be created.

KIRBY J: In Zumpano in Victoria, they followed the limitation to residential property, did they?

MR KEANE: Yes, your Honour. The intermediate appellate courts in Victoria, New South Wales and Queensland twice have all taken that course.

KIRBY J: Yes. Of course, they are bound by Bryan v Maloney, so they have to.

MR KEANE: That is true, your Honour. What your Honour says is true. On the other hand - - -

KIRBY J: Why do you say this would not be a suitable vehicle? Why is this not an appropriate matter in which to test, if we have a party that is willing to risk all, come to the High Court and test the proposition that the principle should be extended?

MR KEANE: Because, your Honour, that is precisely the point. What they are inviting the Court to do is extend the principle in circumstances where it is demonstrable that there is no basis for regarding the decision as one which would command an extension, or is likely to. Rather, the kind of consideration your Honour is raising with us is whether the case should be overruled.

McHUGH J: Well, not necessarily. It may be that it can stand but be re-rationalised. For instance, it is difficult to distinguish between the small commercial investor and the person building the $20 million house in Vaucluse in Sydney or Hamilton in Brisbane. Why should you draw a distinction?

MR KEANE: What your Honour says is quite true. Just as Justice Kirby has said, the distinction is an unstable one, is an unsatisfactory one. The point is, though, that as a matter of authority, the case draws it. To the extent that one says the distinction is unsatisfactory, that is a very good reason for not extending it. That is the question that this Court is being invited to determine today, whether it should be or whether there is a prospect of it being extended. The question is not whether the case should be overruled. As we say, it can stand. There is no suggestion it is doing any mischief and, to the extent that the distinction drawn is one that is pragmatic, as the Chief Justice said recently, it is none the worse for that.

McHUGH J: Thank you, Mr Keane.

MR KEANE: May the Court please.

McHUGH J: Yes, Mr Daubney.

MR DAUBNEY: Thank you, your Honours. The supposed existence of a bright line distinction between residential premises and commercial premises in the present context ought not, in our submission, be perpetuated, for a number of reasons. First, in fact, no such distinction was drawn in Bryan v Maloney. Second, consistent with the law being applied at the time, the Court in Bryan v Maloney was concerned with the overriding requirement of a relationship of proximity.

It was expressly in the context of identifying whether the relationship of the builder and the subsequent owner possessed the requisite degree of proximity such as to give rise to a duty to avoid economic loss that the fact that it was a permanent dwelling house assumed prominence. Needless to say, the centrality of the concept of proximity as the test for the existence of a duty has since been displaced, but the importance of the notion has not been discarded. For example, again, Perre v Apand at paragraph 330, his Honour Justice Hayne referred to the term "relationship of proximity" as being:

a useful description of the result of the decision whether, in particular circumstances, the defendant owed a duty to the plaintiff not to cause pure economic loss -

Two further points arise out of that, your Honours - - -

KIRBY J: I think I also referred to proximity as one of the three aspects of the Caparo test, before I ultimately gave up on that endeavour to keep us in line with the rest of the common law world.

MR DAUBNEY: I think you are right, your Honour. There are two further points that arise out of that. Firstly, Bryan v Maloney nowhere excludes the possibility, even in the context of a relationship of proximity, of a case being maintained in respect of commercial premises in appropriate circumstances. Secondly, subsequent decisions of this Court, particularly, in our submission, Perre v Apand, would permit of such a case in appropriate circumstances. For example, the incremental approach favoured by your Honour Justice McHugh emphasises such matters as vulnerability, which we address in our written outline. Can we take your Honours to paragraph 105 of Perre v Apand, where your Honour Justice McHugh said:

The principles concerned with reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant's knowledge of the risk and its magnitude are, I think, relevant in determining whether a duty exists in all cases of liability for pure economic loss. In particular cases, other policies and principles may guide and even determine the outcome. But I do not think that a duty can be held to exist in any case of pure economic loss without considering the effect of the application of these general principles.

Similarly, your Honours, the approach preferred by his Honour Justice Gummow, to identify and isolate a number of salient features, which combine to constitute a sufficiently close relationship to give rise to a duty of care, is apposite to the present case. Indeed, in our submission, the imposition of a bright line distinction between residential premises and commercial premises would fall foul of his Honour's warning at paragraph 200, that:

The emergence of a coherent body of precedents will be impeded, not assisted, by the imposition of a fixed system of categories in which damages in negligence for economic loss may be recovered.

The third reason why an arbitrary distinction should not be perpetuated, in our submission, is that it is unworkable. We adopt, with respect, the examples that have already fallen from your Honours. May we ask, rhetorically, what of premises built as a home but later converted into a doctor's surgery, or a warehouse converted into trendy apartments, or mixed use properties, whether they be old-fashioned shops with living quarters above or high-rise apartments with retail sections?

KIRBY J: Well, I raised this and I accept that there are conceptual problems, but the fact is that the law is drawing lines all the time, and this has certain merits. One, it is said that in commercial dealings, you are in a much better position to achieve contractual protection. Secondly, it protects people like the respondent from really being run out of business years and years later in respect of a building, in a relationship which it never had, because of some alleged fault that it committed many years before, and that that could have a very devastating effect on builders and their professional advisers. Now, what are your answers to those two points which are said to underlie the policy that does seem to be reflected in Bryan v Maloney?

MR DAUBNEY: Your Honour, those points and the points raised by your Honour before really highlight, in our submission, matters of confusion, with respect, that appear both in the judgment in the Court of Appeal below, in the judgment of his Honour Justice Thomas, and in our learned friends' submissions. There is a melding or a confusion between the notion of "commercial premises" and a "commercial purchaser". This case stated was about the nature of the premises, not whether the applicant was a commercial purchaser - whatever that means.

The distinction in the cases, said to be drawn from Bryan v Maloney, arises, as our learned friends have already pointed out, from the nature of the premises. In Bryan v Maloney itself, the majority referred to the nature of the property involved. Talking about "commercial premises" and a "commercial purchaser" are quite distinct notions. That is not to say that questions of commercial expertise or naivety of one party may not be salient features for the purposes of determining whether a duty was owed, or go to questions of vulnerability or reliance, but those are questions of fact in the circumstances of the case which do not, in our submission, arise on the case stated, nor do they properly go to the question whether there is a bright line distinction between purchasers of commercial premises and purchasers of residential premises.

Your Honours, that leads to the further answer, namely, that the maintenance of a distinction between residential and commercial premises in this context gives rise, in our submission, to an inappropriate disqualifying criterion for the existence of a duty of care. There is, in our submission, nothing in any of the cases to support the view that a duty of care should be excluded simply because of the nature of the premises. Again, that is not to say that the nature of the premises in the facts of a particular case may not be relevant to findings of proximity, or constitute one of the salient facts, but that is a far cry from imposing, as the respondents seek to do, a bright line exclusion of the existence of a duty of care.

It is like saying, with respect, a person injured in a motor vehicle accident can recover damages if they are in a small car, but not if they are in a large car. The sort of policy that would underlie that sort of distinction would be, if you are in a small car, you are more vulnerable to being injured; if you are in a large car, you are surrounded by two tonnes of metal and better protected. It is, with respect, a distinction that serves no proper purpose.

KIRBY J: Its only purpose is to limit recovery, to put a common law cap. We live in the age of caps. If you look at the trend of authority in intermediate courts and in this Court you will, I think, see that there is a bit of a tendency to be putting limits on recovery by plaintiffs.

MR DAUBNEY: Yes, of course, we understand that, your Honour, but I was about to come to the second question that your Honour had posed, which addresses the proposition that the extension of liability, as we contend for, might impose a liability far beyond that which financial and other proper policy considerations should encounter.

KIRBY J: Well, Justice Thomas called it the Santa Clause attitude of the courts. I think he said that in his retirement and he hinted at it in a couple of decisions. What is the answer?

MR DAUBNEY: The answer, with respect, is on page 628 of Bryan v Maloney, your Honours, where their Honours said, at about point 5 of the page:

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.

KIRBY J: There was a suggestion that the engineers specifically and expressly advised that certain steps be taken in the building, and that that was rejected by the then builder - the construction company. Your point is that, at this stage, you have been knocked out at the threshold. That would be a matter that would have to be litigated further down the track, if you can get over the threshold. Is that the point?

MR DAUBNEY: That is right, your Honour, yes.

McHUGH J: Yes, we do not want to hear anything further from you, Mr Daubney. Yes, Mr Keane.

MR DAUBNEY: Thank you, your Honours.

MR KEANE: Your Honour, briefly to respond to the last point that was made, the difference is the difference between vulnerability to physical harm and damage to property which the plaintiff cannot avoid and the loss, being economic loss, which arises because of the nature and terms of the bargain which the plaintiff chooses to make, then sues because that bargain was not as good as it ought to have been. That is the difference, with respect, and that is our submission.

McHUGH J: Thank you, Mr Keane. There will be a grant of special leave in this matter.

AT 11.09 AM THE MATTER WAS CONCLUDED