Woolcock Street Investments Pty Ltd v CDG Pty Ltd & Anor B19/2003 [2003] HCATrans 823 (24 June 2003)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B19 of 2003

B e t w e e n -

WOOLCOCK STREET INVESTMENTS PTY LTD

Appellant

and

CDG PTY LTD (FORMERLY CARDNO & DAVIES AUSTRALIA PTY LTD)

First Respondent

JOHN CAMERON JOHNSON

Second Respondent

GLEESON CJ

McHUGH J

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON TUESDAY, 24 JUNE 2003, AT 10.18 AM

(Continued from 23/6/03)

Copyright in the High Court of Australia

__________________

GLEESON CJ: Yes, Mr Keane.

MR KEANE: Your Honours, yesterday we concluded by taking your Honours to the decision in D & F Estates [1989] 1 AC. Might your Honours be given that decision again? We had taken your Honours to 194, the reference to the Law Commission report. Your Honour Justice Kirby asked what was the basis of the decision - - -

GUMMOW J: Now, can you just look at 194?

MR KEANE: Yes, your Honour.

GUMMOW J: Who were these parties? I would have thought the principal player in all of this was mortgagees and financiers:

the parties are normally in a position -

Mortgagees certainly are. At the top of 194.

MR KEANE: Yes:

the parties are normally in a position to protect their own interests - - -

GUMMOW J: Yes. Any reference to mortgagees in Bryan v Maloney?

MR KEANE: I do not think so, your Honour, no.

GUMMOW J: No.

CALLINAN J: You see, Mr Keane, it is almost commonplace, I would have thought, now for mortgagees to insist upon professional surveys of some kind before advancing money to purchasers of residences.

MR KEANE: And mortgage protection insurance.

KIRBY J: Because that is for the protection of their interests.

MR KEANE: Yes.

CALLINAN J: But it inevitably also - well, no, it is also for the protection of the purchaser because the purchaser gets a benefit for it and protects the purchaser in respect of the repayments and the capacity to pay out the mortgage if the purchaser wants to sell.

MR KEANE: Yes, your Honour. It is a lively appreciation by those involved in lending and borrowing the purchase price to ensure that they get what they are paying for.

KIRBY J: But if we are to take this into account, where is the evidence? Where is it referred to in the stated case? I would not take that on judicial notice. I just do not know these things.

CALLINAN J: Well, if the Court took judicial notice of the fact that it is the most significant purchase in a lifetime of most people, of a house. There was not any evidence of that.

MR KEANE: Your Honour, that is right.

KIRBY J: It is the great Australian dream. We can take notice of our dreams. It is when we get down to mortgagee's practices that I find it a little more difficult. They are not part of the dream. They are just part of a necessity.

GUMMOW J: Well, the dream is to find the finance, amongst other things, with a good interest rate, but - - -

CALLINAN J: "I have got my mortgage", some people now say, not "I've got my house", "I've got my mortgage".

KIRBY J: These are very unromantic people.

McHUGH J: Are you talking about your colleagues or - - -

MR KEANE: Your Honour, to the extent that Bryan v Maloney proceeds on the basis of assumptions about the investment habits of the citizenry, one can, in our respectful submission, invite the Court, at the least, to confine the case to the classes of persons about whom those broad assumptions are being made. It may well be that some might think those assumptions are without warrant, but if one is looking to fix liability on parties on the basis of a view of the manner in which affairs are conducted, then ultimately, with respect, the onus is on those who would fix the liability, not on those who would say that loss lies where it falls. Your Honours, what we - - -

KIRBY J: I am not hearing you now, Mr Keane. You are whispering.

MR KEANE: I beg your Honour's pardon.

KIRBY J: It is a long way up here and I am a bit on the side here, so I do not hear you. I have to hear everything you say.

MR KEANE: I will try to speak louder, your Honour. What we wanted to take your Honours to D & F again for was to take your Honours to the basis that we apprehend is the reason for that decision because we apprehend, with respect, that it informs the reasoning of Justice Brennan's dissent in Bryan v Maloney and because, in our respectful submission, it reflects an appreciation of a principle which denies, or at least controls, tortious liability in circumstances such as the present. If your Honours go to page 202, your Honours will see at the top of page between A to C Lord Bridge focusing upon the dissenting speech of Lord Brandon on Junior Books. Can we invite your Honours to read what is excerpted from Lord Brandon's speech on 202, where his Lordship is referring to Donoghue v Stevenson, the fundamental case, and making the point at E to F that the:

duty to exercise such reasonable care in their manufacture [of goods] as to ensure that they can be used or consumed in the manner intended without causing physical damage to persons or their property.

Then, if your Honours would go over to page 203, in the passage that is set out, his Lordship there refers to considerations which limit the scope of the duty which exists. The first consideration is set out between B and C. It is that:

it has always been either stated expressly, or taken for granted, that an essential ingredient in the cause of action relied on was the existence of danger, or the threat of danger, of physical damage to persons or their property, excluding for this purpose the very piece of property from the defective condition of which such danger, or threat of danger, arises. To dispense with that essential ingredient in a cause of action of the kind concerned in the present case would, in my view, involve a radical departure from long-established authority. The second consideration is that there is no sound policy reason for substituting the wider scope of the duty of care put forward for the respondents for the more restricted scope of such duty put forward by the appellants. 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.

KIRBY J: Can I just ask you to pause there. One policy - I mean buildings are put up, buildings are intended to last for a time, perhaps indefinitely, certainly for decades. Buildings have, sometimes, structural faults that are not immediately apparent. People who purchase them would normally be entitled to assume - at least in certain buildings - that they have been the subject of engineers or other experts ensuring that they are safe and built to a proper standard, and to act on that assumption and to invest their money on that assumption.

These people are professional people. If they make a mistake that is the cause of what I will call for a moment a hidden defect that manifests itself later, why does not the purpose of the law of torts uphold the entitlement of a person who then suffers to recover, both to ensure compensation to the person who suffers a loss, that may not be recoverable from anyone else, and to engender in those who do their professional work appropriate levels of skill so that they do not cause harm to others later down the track, which the others were entitled to assume was not there. I mean, they are the policy considerations of the law of torts.

MR KEANE: Your Honour, fundamentally, of course, the policy consideration of the law of torts is not to harm others.

KIRBY J: And to provide compensation where you do.

MR KEANE: Quite. So that we start with the proposition, as Justice Brennan said in Sutherland Shire:

that a postulated duty of care must be stated in reference to the kind of damage that a plaintiff has suffered and in reference to the plaintiff or a class of which the plaintiff is a member.

So that we proceed from the harm that is suffered to consider whether the defendant owed a duty to avoid that harm. The harm that is suffered here is not having one's property damaged. The harm that is suffered here is having property that is not as valuable as it would have been if it had been as it appeared.

KIRBY J: And that will require new footings and new engineering surveys and people to go in and fix things up that you, by your negligence, have caused in the first place. Just assuming, for the moment, that that could be established, that is the assumption of the case.

MR KEANE: What we would have to say, I think, your Honour, is that we, by our breach of contract to those who had engaged us, may have caused.

KIRBY J: Yes, but you want to go back to the breach of contract, but it is 40 years or 30 years since, with lawyers, we moved away from contract only liability to also negligence liability in tort.

MR KEANE: Yes, your Honour, but if we are looking at liability in tort as fundamentally concerned, with compensation for harm done, what is the harm? The harm, as the jurisprudence both in England and America indicates, is that the buyer of the property has something which is worth less than it was thought to be worth, that is to say, something which we call pure economic loss.

KIRBY J: Just like the beneficiary who gets a will that is less valuable, although he had no contract with the lawyer, and suffers the loss as the consequence of the failure of the lawyer to act carefully and to carry out the instructions of the testator.

MR KEANE: Well, of course, in such a case, the relevant loss is a loss that flows from the lawyer's failure to carry out the very duty that was owed to the principal, the client.

KIRBY J: The client, not the beneficiary?

MR KEANE: Quite. In a case such as the present the difficulties which arise in trying to shoehorn these kind of cases, these cases where the relevant loss is the loss in terms of the financial loss to the purchaser who was paid more than he should have, or has got something which is worth less than it should have been, had it been as it appeared, is loss which is essentially concerned with the quality of that which he has bought. As Lord Bridge points out, it is not about it being dangerous, because the loss is only suffered when the problem becomes manifest, and once it is manifest, it is no longer dangerous, and your Honour will see that at page 206, lines D to F.

GLEESON CJ: I would not be passing over pages 204 and 205.

MR KEANE: Your Honour, I had not intended to. I was really just trying to answer the question directly.

GLEESON CJ: On page 205, three-quarters of the way down the quote from Justice Blackmun, you will find a precise formulation of the proposition you are putting, I would have thought.

MR KEANE: Yes, I had intended to actually go to that case separately, your Honour, because we would wish to spend just a moment on the American jurisprudence, and it is a good place to start. But simply dealing with, trying to answer your Honour Justice Kirby's question, in point of principle, law of tort concerned with compensating for harm, start by identifying harm. The harm is to financial loss resulting from property not being worth what it should have been. This is an area in relation to which, if we are to be liable - if the engineer or the builder or the painter or the plumber is to be liable because the property which a subsequent buyer buys is not worth what it should have been or what it was expected to be, that is, in the heartland of contract. We are not drawing categories just for the sake of drawing them. It is because one is concerned with the level of performance.

Your Honour, what one requires, as Lord Bridge points out in his citation from Lord Brandon at 203 - what Lord Brandon is saying at 203 from about D to C on the next page is that one is concerned with warranties as to quality, because it is only by identifying an expectation about the quality of what one is buying that one can identify the loss.

They are two sides of the one coin, your Honour. The point is that in a case like the present, where one has an investor, for the common law to invent the kind of warranty that Lord Bridge and Lord Brandon are speaking of, that Justice Brennan was speaking of in Bryan v Maloney, is to create a warranty in favour of the commercial investor, who did not seek it and, most importantly, did not pay for it.

KIRBY J: That is one way to put it. You love the law of contract. You want to get back to the warranties and the contractual arrangements, but there is a big law of tort out there.

MR KEANE: Your Honour, we have agreed, with respect. The law of tort is about compensating people for wrongs that have been done to them and compensating - - -

GLEESON CJ: .....is a different thing from compensating people for harm that has been done to them.

MR KEANE: Quite. Compensating them for loss that they have suffered as a result of a wrong done to them - and the first step is to identify the loss.

GUMMOW J: Now, your theory, Mr Keane, accommodates cases like Perre v Apand, does it not?

MR KEANE: Your Honour, with respect, we go a little further than that. Our submission would be that the work the Court has done in informing the discussion of liability for economic loss in cases like Perre v Apand would actually, with respect, be thrown away if one were to allow a claim like the present, because it is to throw away the improvement in the debate which has followed from identifying vulnerability as a touchstone, and the other side of vulnerability, the ability to protect oneself.

GUMMOW J: There was no such capacity in Apand, really.

MR KEANE: No, your Honour. As Justice McHugh pointed out, there was no contract which the plaintiffs could have made in that case which would have protected them. And as your Honour pointed out, the position of the plaintiffs was different in radical degree from the plaintiffs in Hungerfords v Esanda, because in the latter case, in making their decision to invest, Esanda were able to call upon their own assessment of the prospects of their investment, which is what investors do.

To come back to your Honour Justice Gummow's point, not only do we say that our approach is accommodated by Perre v Apand, and we do submit that, but we also submit, with Justice Thomas in the court below, that Perre v Apand actually is an indicator that one should resist the suggestion that people in the position of our learned friend's clients, commercial investors, should have a free ride. To come back to conclude what I was saying to your Honour Justice Kirby, that is really the vice of this kind of case, where it is sought to make the painters and the plumbers and the engineers and the builders liable to underwrite the risk, the ever present risk, in a context which is a caveat emptor. The ever present risk of defects in quality, your Honour - - -

KIRBY J: I understand the way you are putting it, but the other way to explain the claim is that it is in the nature of the work you do that is relevant to the claim in negligence that it will create risks of hidden defects that will only come to light later; that in these circumstances you should be encouraged by the law of tort to perform your duty, knowing that there will be people down the track, apart from contractual arrangements, who will be dependent on you; that this extension of Bryan v Maloney, Justice McHugh's third class, with which the debate began, is really an extension of the vulnerability principle in Perre v Apand, because people who depend on you are vulnerable. If this Court reconceptualises Bryan v Maloney into a Perre-type vulnerability, that is both providing appropriate compensation and instilling good standards of professional care in people like yourself.

MR KEANE: But what it is also doing is failing to encourage - indeed, it is sending the very worst sort of signal to the community, because it is saying that venture capital gets a free ride without having to seek to protect itself. It is also doctrinally difficult to identify the basis for a conclusion of dependence.

GLEESON CJ: Perhaps we need to be clear about what we mean by vulnerability. By hypothesis, all plaintiffs are vulnerable, if "vulnerable" means you have suffered harm. You would not be a plaintiff if you had not suffered harm. Vulnerability I understand to relate to the capacity of an injured or potentially injured person to take protection, for example, by contractual or other stipulations.

MR KEANE: Yes, and, your Honour, in our respectful submission, that is distinctly what Perre v Apand holds.

GUMMOW J: And Hill v Van Erp, too.

MR KEANE: And, indeed, Hill v Van Erp, because that was a case where Mrs Van Erp could have done nothing to protect herself.

GLEESON CJ: If vulnerability just meant exposure to harm as the result of the conduct of the defendant, then it is even wider than foreseeability.

MR KEANE: It is at least as open-textured as that, your Honour.

KIRBY J: But the suggestion here is that the vulnerability is that the nature of the defect in the professional work is hidden. It is not easily discoverable and it lies in wait as a trap. I mean, if you just stand back from the case and say, should an engineer who designs a building which has a fundamental flaw from the beginning and manifests itself later and does damage to a person later - should that person be liable only in contract or also by the duty of care to those who are dependent upon that person's skill? It is not a big step to say, "Well, you are liable for your defective professional work".

MR KEANE: Your Honour, we would not have a difficulty with what your Honour is putting to us, save for the leap that is being made in relation to this notion of dependence. There are many ways in which dependence can be established - assumption of responsibility, actual reliance - but what is not, in our respectful submission, demonstrative of dependence, in the case of a commercial investor interested in getting what he is paying for, is to simply buy a property where there is the ever present risk of defects as to quality; where "the very nature of the venture" - to use Justice Gaudron's words from Tepko - the very nature of the transaction is such that the purchaser is to be alert, caveat emptor; where the very nature of the transaction is that there is no assurance as to the quality of the property which is being bought; and where a purchaser in that context buys, knowing that, absent a contractual warranty from someone, or absent their own investigation, they are taking the risks of defects in quality, is, in our respectful submission, as plain a denial of dependence on those who have gone before as you could get.

McHUGH J: But what about a person buying at auction? Now, they have the dilemma at an auction, particularly with respect to a domestic premises, of spending a considerable sum of money, pre-auction, on a building report which may be absolutely useless. They are not in a position to negotiate any contractual terms - usually, anyway. What are they to do? Walk away?

CALLINAN J: Or they can get together and say - the potential bidders - that they are not prepared to bid at auction unless the vendor provides a warranty or a condition in the contract.

KIRBY J: Goodbye auctioneering in Australia.

McHUGH J: It might be a common law conspiracy.

MR KEANE: In enlightened - - -

KIRBY J: You had better not let the auctioneers hear this.

MR KEANE: Your Honour, I do not want to give evidence from the Bar table, but in enlightened States the standard form of contract may well provide, as a standard condition, a get-out clause in respect of inspections that occur afterwards.

HAYNE J: There may then be, in some cases, a particular question raised about whether notions of vulnerability are to be resolved by reference to what is formally available - that is, is it formally open to a party to obtain a warranty - or whether the real question is what is actually available. Is it realistic that warranties would be obtained? One view of Bryan v Maloney is that it proceeds on the assumption that warranties of quality are not realistically available in the purchase of domestic properties, but, as I understand it, you say whether the search is for what is formally available or realistically available, here it was realistically available in a commercial transaction. Is that right?

MR KEANE: Yes, your Honour.

HAYNE J: These matters are taken up by Professor Stapleton in her piece in 50 UCLA Law Review 531 (2002). Particularly at 558 or thereabouts, she discusses these matters.

MR KEANE: Yes, your Honour. In the conclusion in that article at 583, Professor Stapleton, without becoming overly enthusiastic, expresses a view that the Commonwealth jurisprudence has limited the availability of recovery appropriately, by recognising that a plaintiff may recover where:

the plaintiff could not have secured appropriate self-protection; and that the plaintiff was especially vulnerable, for example by being exclusively dependent on the defendant using care.

HAYNE J: That is the Perre v Apand situation, is it not?

MR KEANE: It is. She says at 553, point 8:

there are situations in which the plaintiff is a powerful commercial party quite able to extract the relevant contractual protection from the defendant or a middle party in a way that would appropriately internalize the loss to the careless party.

McHUGH J: The courts have not really proceeded on the basis of the vulnerability of the particular individual, have they? I mean, take Esanda. The reasoning does not distinguish between the fund manager, the sophisticated investor or what is rather irritatingly called "the mum and dad investor", who would lack the expertise to do his or her own investigation of the affairs of the company. They are all out.

MR KEANE: That is quite right, your Honour. In Esanda, of course, it was decided on the footing - as it seems to us, with respect, it being a strike-out case on the pleadings - that no duty of care had been pleaded, or no factual basis to give rise to a conclusion of a duty of care had been pleaded, because there were no facts pleaded to suggest that the auditors knew or ought to have known that the finance provider would rely on their audited statement of accounts to make a purchase without further inquiry by their own advisers. It is the want of facts, whether one is a mum and dad or whether one is a commercially powerful investor - it is the want of facts which suggest dependency which in that case led to the court striking out the allegations.

The passages we have in mind, in saying that to your Honours, in Esanda 188 CLR 241 are 252 in the judgment of Chief Justice Brennan, 256 to 258 in the judgment of Justice Dawson, 261 to 262 in the joint judgment of Justices Toohey and Gaudron and 291 in your Honour Justice McHugh's judgment. So, true it is that, in terms of principle, one does not ordinarily distinguish between the rich and the poor, in accordance with the judicial oath to do justice equally to rich and poor, to do justice according to law. It may be that in identifying vulnerable classes those considerations may inform the drawing of lines between those who are vulnerable and those who are not.

KIRBY J: Your re-conceptualisation of the principle would have the effect of taking away a protection to homeowners in Australia which they were entitled to rely on for 10 years since Bryan's Case.

MR KEANE: With the greatest respect, it would not. The legislatures have not been entirely supine in this, your Honour. In our appendix we have given your Honours reference to all the legislative regimes which protect purchasers of dwellings.

CALLINAN J: Mr Keane, in Bryan v Maloney, is there any discussion at all of the doctrine of caveat emptor?

MR KEANE: No.

CALLINAN J: I do not understand that. It does not even seem to have been referred to in argument. Where will I find the best modern exposition of that topic? You might not be able to - - -

MR KEANE: Your Honour, I cannot give it to you now, but we will - - -

McHUGH J: Cavalier v Pope back in 1906 - - -

MR KEANE: - - - give it to your Honours.

KIRBY J: That has come a bit of a cropper since Northern Sandblasting v Harris.

MR KEANE: Your Honour, I was just going to say that I think even in Northern Sandblasting, I do not think there is any suggestion that as between vendor and purchaser the document caveat emptor - - -

CALLINAN J: I just find it surprising that the case can go into this area, all the judgments, but yet there is no discussion.

KIRBY J: It is not surprising if you think of the law of obligations as including the law of contract and the law of torts, the law of contract being the bargains that people strike between each other, the law of torts being a protective law which the common law gives to fill the gaps that the law of contract.....I mean, they live together, and have for centuries.

MR KEANE: They do.

KIRBY J: You seem to want to get back to warranties and what they can extract by way of contract and banish the law of tort.

MR KEANE: Not at all, with respect, your Honour.

KIRBY J: I realise the law of tort is in a period of retreat, but it is still there and if it is to retreat, it must retreat according to doctrine.

CALLINAN J: The less diligent you are in your own interests in making a contract, the better off you are going to be later.

MR KEANE: Not only that, your Honour, you are going to be better off at the expense of someone on whom you are putting the risk in circumstances where you have not actually asked them to carry that risk, or paid them for it.

GUMMOW J: Yes, now that brings one back to the starting point in tort, really, which is to work out what are the interests of the plaintiff for which remedy or protection is sought.

MR KEANE: Yes, and that is where we had started originally in referring to Justice Brennan's fundamental point in Sutherland Shire. Might we mention that it was taken up by your Honour Justice Hayne in Modbury Triangle v Anzil, 205 CLR 290, that is the shopping centre car park assault case, and in the same vein, we would submit, with respect, your Honour Justice Gummow in Perre. At 251 in Perre at paragraphs 192 to 193 - - -

GUMMOW J: There is a reference to Justice McPherson in "Fiji Gas".

MR KEANE: Quite, that it is essential to identify the interest of the plaintiff that is said to attract the protection and, on that fundamental basis, that fundamental identification of function of the law of tort, we come back to your Honour Justice Kirby's question and submit, with respect, that we are not trying to whittle away or retreat from the - - -

KIRBY J: Your notice of contention says it in terms. You say it should be overruled.

MR KEANE: In Bryan v Maloney - - -

KIRBY J: I can read; it is the notice of contention.

MR KEANE: Yes, your Honour.

KIRBY J: You want to take away rights that have been enjoyed by home owners in this country for 10 years.

CALLINAN J: For the first time for a couple of hundred years.

KIRBY J: It is one thing to.....take it away.

MR KEANE: And, your Honour, they continue to enjoy them and most of them did enjoy them. The Tasmanians did not. Tasmania was in a virtually unique position of not having the kind of home owner protection provision that the other States and Territories enjoy, so that the point your Honour puts to us is that it would be accurate if one said, "For a couple of years and in Tasmania".

GLEESON CJ: Mr Keane, I may be only repeating a question that Justice Brooking asked in the Victorian case that we were referred to yesterday, but has anyone ever suggested that the principle in Bryan v Maloney is limited to fundamental flaws? Why would it not apply to any defective workmanship?

MR KEANE: In a decision in the New South Wales Court of Appeal decided in December 2002 called Goulding v Kirby, the New South Wales Court of Appeal in a case of commercial construction did express the view that they were not disposed to expand Bryan v Maloney to cases which were other than structural defects, but in our respectful submission - - -

HAYNE J: Have you a reference to the case?

MR KEANE: It is [2002] NSWCA 393, your Honours. Justice Heydon will recall it, no doubt.

GLEESON CJ: What about inadequate paintwork?

MR KEANE: Quite, that was a case. Goulding v Kirby was a case of inadequate paintwork where the New South Wales Court of Appeal declined to extend Bryan v Maloney to such a case, but where the nature of the loss in question is a defect in the quality of the structure that is being created, that is precisely the sort of loss with which Bryan v Maloney is concerned. It is loss arising because the property either requires repair and money to be spent on it or is worth less than it would have been had the defect not emerged.

GLEESON CJ: In that American case that is quoted in D & F Estates, Justice Blackmun referred to the intriguing question whether injury to a product itself may be brought in tort, identifying as the problem whether or not the fact that defective workmanship has produced a product, whether it is a chattel or a dwelling house, that is of lesser quality than it would otherwise have been, gives rise to a right of action in.....of any subsequent owner of the chattel or the dwelling house. But the only injury to property that is involved is a defect in the quality of the product.

MR KEANE: Quite. That being the case, the answer that the Supreme Court gave is that there is no remedy in tort for a deficiency in the quality of that which is being bought because it is simply worth less than it otherwise ought to be. We will take your Honours to that in a moment, I just want to conclude our reference to D & F Estates.

GUMMOW J: So, the interest of the plaintiff is the interest in getting value for money.

MR KEANE: Quite, which is why at the end of the day our ultimate answer to your Honour Justice Kirby - - -

GUMMOW J: And where money is not necessarily the plaintiff's money anyway.

MR KEANE: It may be someone else's.

GUMMOW J: Yes.

MR KEANE: The answer we have been getting to in a long way around is we are not saying that tort should not have full reign to do what tort does, but where the relevant interest that is being addressed is the interest in getting what you pay for, tort has nothing to do with it, your Honour.

KIRBY J: I can see the way the tide is flowing.

McHUGH J: Yes, but can I just put this to you. Why should liability not be imposed on your client in these circumstances? If everybody did what they should have done, the original purchaser would get a warranty from you; the subsequent purchaser would get a warranty from the first purchaser; the subsequent purchaser could sue on its warranty and no doubt its vendor could then sue you, so you would have two contractual claims. Why can the court not directly impose a tort liability on you to the later purchaser? Let me say, that was the reasoning, if I remember rightly, that Chief Judge Traynor used in the Californian case of Escola v Coca- Cola Bottling Co, to make the direct liability from manufacturer through to ultimate purchaser.

MR KEANE: Your Honour, the first reason is that it usually, or at least in many cases, this being one of them, it will not work because if all you are doing is assigning the original owner's rights of action against the builder or the painter or whoever, then those rights are no better than the rights the original owner had. In this case, as in so many cases, where a job will be built down to a price, where advice is given to do soil tests, which is rejected, the original owner will not have a cause of action. In this case, for example, it is not alleged that we breached any obligation to the original owner, so that in many cases, the kind of case your Honour puts to us, will not do the job.

What might do the job is if a purchaser goes to the engineer and says, "Will you warrant the property free from risks of this kind for a particular period?", and in such a case, certainly not far-fetched or fanciful, the builder or the painter or whoever is likely to say, "Yes, I will, but I am insured, you know, and I am in business and I do these things for money and I will underwrite your risk if you want me to, for a price", particularly where the vendor is not being paid to give a warranty for which it would no doubt require payment as well, absent in the case of a refusal to give a warranty, a bargaining down by the purchaser in respect of price to cater for the risk.

CALLINAN J: Mr Keane, Bryan v Maloney does not take any account of the fact that for many Australian people not only is the house the most significant outlay, but also a very important financial investment because of the exception under the capital gains tax regime, for dwelling houses that are lived in for 12 months. It is a commercial investment these days if we can make assumptions, look at house prices.

MR KEANE: Your Honour is, with respect, echoing the point made by Justice McPherson in Fangrove v Tod, which is that on the basis of Bryan v Maloney residential houses occupy a protected place in Australian jurisprudence.

CALLINAN J: Mr Keane, I wanted to ask you something else. Nobody has mentioned limitations periods in this argument so far. What is the limitations period, when does it begin to run in this sort of situation?

MR KEANE: Your Honour, the reason it has not been mentioned is that the limitation - there is a defence pleaded.

CALLINAN J: It may be relevant to the question.

MR KEANE: Certainly, the problem with time, indeterminacy as to time is a problem. At the technical level the cases seem to suggest, do suggest, establish, that cause of action arises when the defect becomes manifest and the property either requires repair or has lost value. That is another way of saying that the loss is to the financial interest, so that it is only when the problem becomes manifest that time begins to run, and that, of course, can be many, many years after the builder has - - -

CALLINAN J: And the question may be or the position may be that there has been a great deal of temporal utility derived from a defective building and how do you apportion the loss.

MR KEANE: Your Honour, one of the ways in which one can see that it is about financial interests that are in issue is that so many properties are bought for demolition.

CALLINAN J: Yes, thank you, Mr Keane. The other thing I wanted to ask you, Mr Jackson conceded the possibility, I do not think I am overstating it, that there may have been an action or there may be an action against the Council here if one looks at annexure F to the stated case. What is your submission about that?

MR KEANE: It may be so, your Honour.

CALLINAN J: That is probably sufficient for present purposes. One does not have to demonstrate the - - -

MR KEANE: It may be so as a fact. Resort to someone else to inspect where that inspector is inspecting with a view to seeing whether premises are dilapidated or sound, where that inspector does not say, "We cannot inspect because . . .".

CALLINAN J: It can be much less than that. "Prejudicial", I think, is the word that is used in section 53. It does not have to be tumbling down or anything like that.

MR KEANE: No. It is a fact which tells against the difficulty in inspection. The answer that comes back from the Council is, "We cannot inspect", but also, insofar as there is reliance on others, that is inconsistent with any notion of exclusive dependency.

KIRBY J: But the existence of claims against B does not exclude the liability of A.

MR KEANE: No, your Honour. As we say, there is no suggestion that what we did was in any way a breach of our contract with the party who engaged us, and in relation to the council's work the point is that the council do not respond by saying, "We can't carry out the inspection. We can't see - - -

KIRBY J: You keep coming back to contract. It may not be alleged that there is a breach of contract to the first purchaser, but there is alleged to be a breach of proper standards of care in the performance of your professional duties.

MR KEANE: Sorry, your Honour. The second point we were making then, the second sentence, was concerned with the notion of dependency and in circumstances where it is said that in some vague, unarticulated way, and certainly unpleaded way, there is some dependency to be imputed as between us and the other side. All we are simply saying is that the inspection carried out by the council is not consistent with that. An inspection report by the council which does not say, "We can't tell you whether there are section 53 problems" is at least consistent with the plaintiff taking the risk, and, with respect, a consistency amplified by the agreed fact that the plaintiff did not obtain a warranty from the vendor.

KIRBY J: It seems to me, as a matter of general legal doctrine, both of you point to the instability of the domestic home as a criterion, and I can understand that point. The question is whether, to find a new foundation for the principle, one says, "Well, the attempt of Bryan v Maloney failed and therefore no one has the liability beyond the first purchaser" and we retreat from Bryan v Maloney, or whether we try, as per Justice McHugh's third thesis, to find a new basis on which to protect certain homeowners who are - I will use a general word - vulnerable, and also any other investors who, in the particular circumstances, can show vulnerability, or whether we just say, "Well, Bryan v Maloney was a mistake and we should get rid of it".

MR KEANE: With respect, your Honour, the answer is in the cases which show all the various ways in which my side might have been liable. It might have been liable if it had been asked to give an assurance; if it had given an assurance; if it had even done something which led the purchasers not to make inquiries they would otherwise have made. All those things are ways in which our conduct might have involved an assumption of responsibility or created some sort of dependence of the kind that can be described as a situation of vulnerability. That is going back to Heyman v Sutherland Shire Council in the judgments of Justices Mason, Brennan and Deane.

KIRBY J: Assumption of responsibility is very close to contractual and giving assurances. These are inter-partes contractual-type dealings, as distinct from the duty owed in tort to the neighbour.

MR KEANE: With respect not, your Honour. Hedley Byrne v Heller, MLC v Evatt - they are tort cases, and they are tort cases where the defendant can escape liability simply by a disclaimer. In this case, the contact with us was non-existent. We did not even have the opportunity to disclaim. This is, with respect - - -

KIRBY J: It is highly likely that you would have accepted a responsibility.

MR KEANE: If someone had asked us.

KIRBY J: Yes.

MR KEANE: And, your Honour, with the greatest respect, one could not put the injustice of seeking to fix us with liability when no one has asked us stronger than your Honour has just put it.

KIRBY J: What about the injustice of you having - just assume you have committed the egregious engineering/architectural mistake, just a fundamental mistake. The injustice then of denying those who suffer from your mistake is at least as strong as the injustice of which you complain, if not stronger. Just assume there is no other source of recovery.

MR KEANE: Your Honour says egregious mistake. One is not talking about fraud and deceitful cover-ups.

KIRBY J: No, not fraud. Just a serious professional mistake of an engineer or architect. Serious, really serious, and on your theory no redress. The common law shuts its doors. The tide has gone out.

MR KEANE: Well, to recover in respect of what loss, though, your Honour, with the greatest respect. If the loss is that there is a buyer who pays more for this than he should have, and that is all the loss is - there is no injury to anyone, no one's property is harmed - if that is all it is, if the complaint is that they paid too much for it, then we would say that, unless there are some more facts, we are not liable to people who did not rely on us, who did not ask us to assume some responsibility, who did not seek a warranty from us. Your Honour, we do say that.

KIRBY J: That does not seem to be the law in Canada, New Zealand, Singapore and Malaya.

MR KEANE: Well, your Honour, it is not the law in those countries, but it does seem to be the law in the United Kingdom and in the United States.

KIRBY J: The United States, if we read this case of Justice Blackmun.

MR KEANE: And some other cases, that we want to take your Honours to. I notice that I have not made a great deal of progress. I do want to take your Honours to those.

KIRBY J: I think you have made a lot of progress.

MR KEANE: Can I just take your Honours to the conclusion of the speech in D & F Estates. We were taking your Honours to 206D to F, where his Lordship identifies the nature of the loss suffered, and where his Lordship makes the point that once the defect in the structure becomes manifest then the loss is "purely economic". We want to take your Honours to the concluding passage in Lord Bridge's speech, at 207 just below the letter F:

It seems to me clear that the cost of replacing the defective plaster itself, either as carried out in 1980 or as intended to be carried out in future, was not an item of damage for which the builder of Chelwood House could possibly be made liable in negligence under the principle of Donoghue v. Stevenson or any legitimate development of that principle. To make him so liable would be to impose upon him for the benefit of those with whom he had no contractual relationship the obligatio of one who warranted the quality of the plaster as regards materials, workmanship and fitness for purpose. I am glad to reach the conclusion that this is not the law, if only for the reason that a conclusion to the opposite effect would mean that the courts, in developing the common law, had gone much farther than the legislature were prepared to go in 1972, after comprehensive examination of the subject by the Law Commission, in making builders liable for defects in the quality of their work to all who subsequently acquire interests in buildings they have erected. The statutory duty imposed by the Act of 1972 was confined to dwelling-houses and limited to defects appearing within six years. The common law duty, if it existed, could not be so confined or so limited. I cannot help feeling that consumer protection is an area of law where legislation is much better left to the legislators.

The point his Lordship is there making is that the kind of distinction drawn, we submit, in Bryan v Maloney, between residential dwelling and commercial investment is a distinction which we are conventionally used to seeing drawn by the exercise of the sovereign prerogative choice, rather than the judicial development of the common law. As we have mentioned a couple of times in our appendix, we have given your Honours reference to the various legislative regimes whereby that has been done.

KIRBY J: Yes, there is a little resonance of that in Northern Sandblasting and Harris, concerning the imposition of duties on landlords.

MR KEANE: Yes.

GUMMOW J: Sandblasting has been reconsidered, has it not, in Jones v Bartlett, or whatever that case was.

MR KEANE: Yes. There is not a lot to be got from Northern Sandblasting - - -

GUMMOW J: No.

MR KEANE: - - - or the debate about that, your Honour. We did then wish to take your Honours to East River Steamship v Transamerica Delaval Inc [1986] USSC 130; 476 U.S. 858. Your Honours have seen the reference to some passages in that case in D.&F. Can we take your Honours to page 871. At page 871 under the heading "C", where the United States Supreme Court:

Exercising traditional discretion in admiralty . . . we adopt an approach similar to Seely -

Now, Seely is a case which draws the line between loss caused by a product to personal property and loss subsisting in the lesser value of a property by reason of defects in it. We invite your Honours to read what is set out about that distinction in the next paragraph.

McHUGH J: I am sorry, I just do not understand this statement, "When a product injures only itself". What does that mean?

MR KEANE: When the product fails.

GLEESON CJ: It is a reference to a defect in the quality of the product.

MR KEANE: Yes.

CALLINAN J: Inherent physical defect.

MR KEANE: Yes. Well, your Honour, it could be inherent physical defect or it could be that it is not fit for the purpose. His Honour goes on after the reference to Seely:

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.

The tort concern with safety is reduced when an injury is only to the product itself.

Then, after the reference to authority that your Honour Justice McHugh referred to earlier:

In contrast, when a product injures itself, the commercial user stands to lose the value of the product, risks the displeasure of its customers who find that the product does not meet their needs, or, as in this case, experiences increased costs in performing a service. Losses like this can be insured -

there is reference to authority -

Society need not presume that a customer needs special protection. The increased cost to the public that would result from holding a manufacturer liable in tort for injury to the product itself is not justified.

Then, if we can draw your Honours' attention to the passage at the bottom of 872:

Contract law, and the law of warranty in particular, is well suited to commercial controversies of the sort involved in this case because the parties may set the terms of their own agreements. The manufacturer can restrict its liability, within limits, by disclaiming warranties or limiting remedies. In exchange, the purchaser pays less for the product. Since a commercial situation generally does not involve large disparities in bargaining power . . . we see no reason to intrude into the parties' allocation of the risk.

GLEESON CJ: This concept of injury to the property itself is the same as Justice Brennan was referring to on page 634 of Bryan v Maloney, is it not? 182 CLR 609 page 634, the first complete paragraph on the page.

MR KEANE: Yes it is, your Honour. And the point that is made in East River in respect of chattels is made in respect of buildings in a number of American cases. The first is Casa Clara Condominium v Charley Toppino & Sons (1993) 620 So. 2d 1244 Fla 1244 - that is the last case on our list. .

KIRBY J: Is the criterion - and I can understand this reasoning - is the criterion of the US Supreme Court a criterion of excluding commercial controversies of this sort or trying to find cases where the parties are, to put it in a non-legal term, big guys, who can and should look after themselves?

MR KEANE: That was the context of the East River decision, but it has been applied in respect of buildings in relation to residential construction.

GLEESON CJ: The interesting thing is that the existence of this possible problem was the reason given by Lord Buckmaster in dissent in Donoghue v Stevenson for his dissent.

MR KEANE: Yes.

KIRBY J: Surely we are not going to reopen Donoghue v Stevenson.

GLEESON CJ: No.

KIRBY J: Even you are not going to open - - -

GLEESON CJ: No, but we are not going to pretend that it is a new problem.

MR KEANE: No.

GLEESON CJ: It was wonderfully identified in Donoghue v Stevenson.

MR KEANE: And it is a problem which, in the highest courts in England and the United States, for what are articulated as, in our respectful submission, compelling reasons, is a problem which has not been resolved by treating loss in respect to one's financial interests as if they had been fictionally the subject of a warranty.

KIRBY J: We have the problem, but what is the concept of the United States Supreme Court offers if it is not that it is commercial or it is not that they are big guys? How does one say, "Cut this class out of the.....we'll draw the line in the sand."

MR KEANE: Your Honour, it is the nature of the loss that is suffered is such, being that one does not get what one has paid for and nothing more than that is not apt to sound in tort. Can we show your Honour that in these couple of cases that I have taken your Honour to. In Casa Clara your Honours will see the issues stated at page 1245 in the left-hand column about halfway down:

The issue is whether a homeowner can recover for purely economic losses from a concrete supplier under a negligence theory.

If your Honours then go to 1246, at the top of the left-hand column there is reference to Seely which your Honours have seen in the East River Case:

Seely sets out the economic loss rule, which prohibits tort recovery when a product damages itself, causing economic loss, but does not cause personal injury or damage to any property other than itself . . . The rule is "the fundamental boundary between contract law, which is designed to enforce the expectancy interest of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others."

GLEESON CJ: The law never set out to encourage citizens to avoid causing financial harm to others.

MR KEANE: No.

GLEESON CJ: On the contrary, competition law encourages them to engage in activity which necessarily causes financial harm to others.

MR KEANE: Yes, and we would take a further step, your Honour. The law has never suggested that parties are bound to attend to and protect the financial interests of others where one is not either asked or paid to do so.

GUMMOW J: That is true of the law of negligence, but there are a number of - - -

MR KEANE: Subject to the law of trusts - - -

GUMMOW J: No, subject to economic torts.

MR KEANE: Well, in economic torts, of course, one sets out and deliberately does things that interfere with interests that the law protects against potential interference. We are, we would emphasise, speaking of negligence. At 1246 in the right-hand column in paragraph [1], we invite your Honours to read what is set out there, noting particularly at about point 8 on the page:

The purpose of a duty in tort is to protect society's interest in being free from harm . . . Contractual duties, on the other hand, come from society's interest in the performance of promises. When only economic harm is involved, the question becomes "whether the consuming public as a whole should bear the cost of economic losses sustained by those who failed to bargain for adequate contract remedies."

Then their Honours say:

We are urged to make an exception to the economic loss doctrine for homeowners. Buying a house is the largest investment many consumers ever make . . . and homeowners are an appealing, sympathetic class. If a house causes economic disappointment by not meeting a purchaser's expectations, the resulting failure to receive the benefit of the bargain is a core concern of contract, not tort, law. East River, 476 US at 870, 106 SCt at 2301. There are protections for homebuyers, however, such as statutory warranties, the general warranty of habitability, and the duty of sellers to disclose defects -

your Honours, that case, Johnson v Davis, we have looked at; it is actually a case of active misrepresentation, not an exception to caveat emptor -

as well as the ability of purchasers to inspect houses for defects. Coupled with homebuyers' power to bargain over price, these protections must be viewed as sufficient when compared with the mischief that could be caused by allowing tort recovery for purely economic losses. Therefore, we again "hold contract principles more appropriate than tort principles for recovering economic loss without an accompanying physical injury or property damage."

KIRBY J: Homeowners might have been appealing, but they were not as appealing to these judges as they were to the High Court of Australia.

MR KEANE: Quite, and - - -

GLEESON CJ: Was this case referred to an argument in Bryan v Maloney?

MR KEANE: Your Honour, I will have to have that checked. It is certainly referred to by Justice Thomas in the decision below in this case. At 1247 in the paragraph that begins about point 5, about halfway down that paragraph it is said:

Because an injury has not occurred, its extent and the identity of injured persons is completely speculative. Thus, the degree of risk is indeterminate, with no guarantee that damages will be reasonably related to the risk of injury, and with no possibility for the producer of a product to structure its business behaviour to cover that risk.

We would rely, with respect, on those observations in answer to the points that your Honour Justice Kirby was putting to us earlier as to the justice - - -

KIRBY J: It seems to confirm your notice of contention. You say Bryan v Maloney was a big mistake and the Court should now solve this problem in your case by removing it and it is to put the protection that the law has given for a decade to a very large number of people who are participants in the Australian dream out of the law books.

MR KEANE: Your Honour understands that we have two submissions. The first is - - -

KIRBY J: Of course, but it seems at the heart of your argument that the law took a wrong turning in Bryan v Maloney and we solve the problem in your case by removing that and thereby removing the protection which the common law has given to a lot of people.

MR KEANE: Your Honour, we submit that the decision in Bryan v Maloney, if it is to stand, stands on a footing that means that in this case the question on the agreed facts, "Does the statement of claim disclose a cause of action?", permits of a simple answer and the answer is no.

The next case we wanted to take your Honours to is a decision of the Supreme Court of Utah in American Towers Owners v CCA Mechanicals 930 P 2d 1182. If we could take your Honours to 1190, in the left-hand column, the first full paragraph:

The policy reasons supporting the economic loss rule are sound. When a product does not perform or last as long as the consumer thinks it should, the claim pertains to the quality of the product as measured by the buyer's and user's expectations - expectations which emanate solely from the purchase transaction.

Then in the next paragraph, just before the citation of Seely:

The law of torts imposes no standards on the parties' performance of the contract; the only standards are those agreed upon by the parties.

Your Honours, that can be seen in the ellipsis for saying that in tort there is a duty to exercise reasonable care. More fully expressed and therefore more accurately expressed, the duty is to exercise reasonable care in and about the performance of one's contractual obligations. That is begging the question as to what those contractual obligations are. Going to the right-hand column, the first full paragraph:

These rationales are particularly applicable to claims of negligent construction. Construction projects are characterised by detailed and comprehensive contracts that form the foundation of the industry's operations. Contracting parties are free to adjust their respective obligations to satisfy their mutual expectations.

There is reference to Keeton in Prosser & Keeton:

For example, a developer can contract for low-grade materials that meet only minimum requirements of the building code. When the developer sells those units, a buyer should not be able to turn around and sue the builder for the poor quality of construction. Presumably the buyer received what he paid for or he can bring a contract claim against his seller.

There is a reference again to Keeton.

Meanwhile, if the developer has a problem with the builder, he too will have a contract remedy. A buyer can avoid economic loss resulting from defective construction by obtaining a thorough inspection of the property prior to purchase and then by either obtaining insurance or by negotiating a warranty or reduction in price to reflect the risk of any hidden defects.

Finally, if we can take your Honours to a decision of the Supreme Court of Washington, Berschauer/Phillips v Seattle School District No 1 881 P 2d 986.

GUMMOW J: Have you got anything from a jurisdiction in the State of New York, for example, or Connecticut or Massachusetts?

MR KEANE: We have one from California, your Honour, which we have not given your Honours, but we will, which is to the same effect. It is a decision called AS v The Superior Court (2000). But your Honour will see that these decisions are referring to earlier decisions in the same courts and affirming - - -

GUMMOW J: I am very reluctant to embark on looking at one US case or a second US case. There would be hundreds of these cases.

MR KEANE: That is true, your Honour.

GLEESON CJ: Does East River Steamship still represent the law in the United States?

MR KEANE: Yes, it does, but, your Honour, of course - - -

McHUGH J: That statement needs qualification because there is no general common law in the United States. It is the common law of each State unless it is concerned with admiralty jurisdiction.

MR KEANE: Quite, and I was about to make the second of those qualifications, but I acknowledge the first as well.

GLEESON CJ: Has East River Steamship, since it was decided in 1986, been doubted or qualified in the United States, either in federal jurisdiction or in State jurisdiction?

MR KEANE: We certainly have not seen any evidence of that, your Honour.

GUMMOW J: What does it say in the leading treatises - that is the best place to go - on tort?

MR KEANE: We will check that. I think - - -

GUMMOW J: Check Harper Gray and so forth.

GLEESON CJ: I think we would like to know - I think we ought to know the current status of East River Steamship.

MR KEANE: Yes, we will check that and if we may give your Honours a note, we will do that.

GUMMOW J: I do not think the editors of Harper Gray sit up at night worrying about what the Supreme Court of Utah said.

MR KEANE: No, the relevance of these cases, though, is really in response to Justice McHugh's observation that there is not a common law of the United States, but what has happened in the States - - -

GUMMOW J: No, there is a balance of educated opinion and the question is how you find it.

MR KEANE: Yes, and these cases are common law cases which are applying the East River view, which itself applied the view in Seely, which was a Californian case. If we could just refer your Honours to 992 in the last of these cases, to the right-hand column, the first full paragraph on the page, and draw particular attention to what is said halfway down the page:

The fees charged by architects, engineers, contractors, developers, vendors, and so on are founded on their expected liability exposure as bargained and provided for in the contract.

Then there is reference to Justice Cardozo's observations in Ultramares v Touche:

A bright line distinction between the remedies offered in contract and tort with respect to economic damages also encourages parties to negotiate toward the risk distribution that is desired or customary. We preserve the incentive to adequately self-protect during the bargaining process . . . If we held to the contrary, a party could bring a cause of action in tort to recover benefits they were unable to obtain in contractual negotiations.

Furthermore, it would be incongruous to deprive the unsophisticated consumer of economic damages under the [Washington Products Liability Act] yet allow recovery to a sophisticated consumer, eg, a general contractor, particularly when the sophisticated consumer is privy to the economic risks associated with their business. We therefore align the common law rule on "economic loss" with the Legislature's decision to limit purely economic damages under the [Washington Products Liability Act] to contract claims under the Uniform Commercial Code.

Your Honours, the point of these authorities, in our respectful submission, is to indicate, at the least, that where the loss that is suffered is the failure of the investor to receive what it expected from its investment, then one must ask, what is the relationship between the acts or omissions of the builder or engineer or plumber or painter with the making of the bargain? That is where the loss comes from.

HAYNE J: And further, as may perhaps emerge were there to be a trial of this action, what significance, if any, is to be attached to a circumstance where the engineer is positively instructed by his then client not to conduct a particular form of test and is positively instructed to adopt a particular form of footing arrangement?

MR KEANE: In circumstances where, your Honour, it is not alleged that there was any condition of any building approval or any relevant building by-law that was breached.

GUMMOW J: Now, can I ask you about that. In Moorgate, the Court were asked to embrace.....competition. We bear in mind, in looking at that, what regulatory regimes there are and the sufficiency of those. In Jones v Bartlett 205 CLR 166 at 215, paragraph 172, we said that:

the Court should be slow to hold that the content of a common law duty rises above that which has been imposed by statute in various Australian jurisdictions.

How do those thoughts square with what is in your appendix?

MR KEANE: Our submission is that, so far as the first limb of our submission is concerned - which is that Bryan v Maloney, if it is to stand, should not be extended to this sort of case - the observations your Honour puts to us support the proposition that the Court should not develop the common law in a way that goes beyond the development of the legislature into an area where the legislature has distinctly chosen not to go.

GUMMOW J: Is it significant that the Queensland Act is 1991, when these events, on one view of it, took place in the 1980s? Or is it enough that one looks - - -

MR KEANE: As Justice Thomas's judgment points out, there was an analogous statute - - -

GUMMOW J: In the 1970s.

MR KEANE: - - - in 1979.

KIRBY J: There is a view that the common law develops in a sort of symbiosis with legislation, and your theory seems to postulate the common law as a very puny instrument where Parliament has acted. Now, that has not always been the way this Court has dealt with cases. The common law has its own life and its own doctrine and principles. We all know that Parliaments do not always choose not to deal with matters, including matters that have been the subject of law reform reports. Sometimes they are so busy with their own political concerns that they leave areas of legal responsibility to the courts.

MR KEANE: Well, no, with respect. What we say about that is that what one has is a deliberate policy choice by the legislature to extend liability in an area where it did not previously exist on the part of builders.

KIRBY J: Well, that is an affirmative decision to extend it. It is not necessarily an affirmative decision not to extend it in another area.

MR KEANE: Except, your Honour, in the words of Antigone, "thus far and no farther".

KIRBY J: But did the Minister say that?

MR KEANE: He did not, with respect, need to, because the legislature is explicit that it extends only in relation to residential construction.

KIRBY J: That is because, Mr Keane, as the judges in America said, homeowners are a very lovely class.

GLEESON CJ: And voters.

KIRBY J: And therefore the Ministers and governments and Parliaments act to protect them. But, as you observed, the courts stand neutral. They protect everyone, not just lovely categories. Therefore we have to consider, when we are asked to, to deal with the doctrine that applies to everyone, including investors.

MR KEANE: Your Honour, that is why, in relation to our second submission, where we do attack Bryan v Maloney, we draw your Honours' attention to what Lord Bridge said in D & F Estates, where his Lordship makes the point that the kind of choice made to develop rules that protect the poor but not the rich is not the kind of development that the courts engage in.

GLEESON CJ: When Parliament enacts consumer protection legislation, it can means-test plaintiffs.

MR KEANE: Exactly.

GLEESON CJ: But courts cannot do that.

MR KEANE: No, and this is a point that both Justice Thomas and Lord Bridge make, that this kind of legislation, which is balancing the extra costs that people will incur for the extra protection of the insurance scheme that covers them, which finds its way into the cost of houses, balanced against the statutory warranties and protection that homeowners get, is precisely the sort of law reform that Parliaments can do and can do well because they can choose to make nice adjustments which the court cannot.

GLEESON CJ: Did we not have to deal with this problem in that case concerning vicarious liability for chattels, in which we looked at the question whether you could have a rule relating to motor cars different from a rule relating to aeroplanes?

GUMMOW J: Scott v Davis.

GLEESON CJ: I thought that we said that is the kind of distinction that the legislature can make, but there is no basis upon which courts can make that kind of distinction.

MR KEANE: No.

CALLINAN J: The real danger of courts making factual assumptions about matters not in evidence, about what is happening in society and what motivates people to buy and who should do what - courts should be very careful to act on evidence.

MR KEANE: And, your Honour, not only about matters that are not in evidence, but matters that could never be facts relevant to what we understand to be the function of courts deciding cases.

KIRBY J: And that includes what mortgagees do and what people can get from mortgagees and how they can negotiate the position of mortgagees.

MR KEANE: Well, your Honour, one is forced to look at those things as a reality check against assumptions about how the citizenry behave when they are buying houses.

McHUGH J: But that makes it all the more important that common law courts proceed according to principle. A lot of what you have been saying about legislature assumes that legislation always reflects the public interest, whereas modern analysis shows fairly conclusively that much legislation is the result of a compromise between various interest groups and it does not necessarily represent the public interest.

It is who has the best lobbyist, who has the most political pressure, and compromises are made. Sometimes they have to be because in certain jurisdictions the government does not control both Houses of Parliament. So I do not know that the courts ought to hold their hand simply because legislation has been enacted on a particular subject matter if principle requires a particular result. In fact, Lord Scarman said that in one of the nervous shock cases.

MR KEANE: Yes, your Honour, and the point that Lord Bridge, and I think also Lord Oliver, was making in D & F Estates was that the principle did not demand, much less permit, the kind of extension that, as a matter of social policy, was probably quite desirable in respect of dwelling houses.

McHUGH J: Yes, but if you look at Bryan v Maloney, it is pitted with the doctrine of proximity, which this Court has now basically rejected. Now, it may be that the "salient features" doctrine which has come to fore in recent years covers much the same ground as the matters that are taken into account under proximity, but it is open to look at Bryan v Maloney again, and Crimmins' Case, Perre v Apand and other cases indicate that we are now looking at these issues in a different light to what we were even 7 or 10 years ago. So it may be that if you look at the Perre v Apand type principles, you may be able to, in principle, find for the particular appellants here. I am not saying you will but if that is the case, if principle requires such a result, why should we worry about what the legislature has done?

MR KEANE: If principle requires it, your Honour, I cannot deny what your Honour puts to us.

GLEESON CJ: But the United States cases proceed on a principle that is not the law here, do they not? Do they not proceed upon a principle of rejecting claims for pure economic loss, full stop?

MR KEANE: Well, they have an economic loss rule, but your Honours have seen in the cases we have given you the debate which seeks to circumvent the rule. In our law of course, with respect, until The Dredge "Willemstad", we had, or at least thought we had - subject to what your Honour Justice Gummow said about Cattle v Stockton - a similar bright line exclusionary rule, but we do not any more.

GLEESON CJ: We thought we had a bright line exclusionary rule before Hedley Byrne v Heller and Evatt v MLC.

MR KEANE: Yes. I am reminded that the Californian case that we have mentioned, Aas is itself not a rigid rule with no recovery for economic loss. It is - - -

GUMMOW J: They would be the most liberal though, I imagine.

MR KEANE: It proceeds by reference to identifying what is very closely akin to the "salient features".

KIRBY J: What is the name of that Californian case?

MR KEANE: We will get your Honours copies. It is Aas in the Superior Court, 12 P 3d 1125.

McHUGH J: It did not go to the Supreme Court of California? It is a superior court, is it?

MR KEANE: It is in the Supreme Court of California, directing its remedies to the Superior Court.

Your Honours, just a couple of further things, if we may. In relation to Perre, earlier we said Perre not only is consistent with our argument but supports it and carries the debate beyond Bryan v Maloney in our favour. Can we just take your Honours to the various passages we rely on. It is Perre v Apand [1999] HCA 36; (1999) 198 CLR 180.

Could we refer your Honours, without reading in detail, to page 192 in the judgment of your Honour the Chief Justice, paragraph 5, the last three lines on that page and the first two lines on the next; at 194, paragraph 10, the last sentence, and paragraphs 11 to 12. In your Honour Justice McHugh's judgment, page 226, paragraph 120 and page 236, paragraph 149. In your Honour Justice Gummow's judgment, the passages that we mentioned earlier, at page 251, paragraphs 191 to 192; 254, paragraphs 201 to 202 - - -

GUMMOW J: There is that phrase, "salient features".

MR KEANE: Yes. We take particular comfort from the reference to Esanda v Peat Marwick in 202, your Honour, and at 259, where your Honour comes back to contrast the situation of the plaintiffs in that case with the plaintiff in Esanda at paragraph 216. We mentioned earlier that the debate has come a long way since Bryan v Maloney. As to the decision of the Full Court of the Supreme Court of Queensland in 1990 in National Mutual v Coffey, on which our learned friends relied so heavily, the debate has moved on very substantially since then.

Decisions including Bryan v Maloney and, more importantly, Perre v Apand have recognised that those in a position to protect themselves are not relevantly vulnerable or dependent and, perhaps equally as important, that, unlike in the Full Court in 1990, as one sees from page 405, line 8, proximity is no longer vital. The pursuit and the conclusion about proximity is no longer regarded as a necessary, or even, perhaps, appropriate, course.

In that case, the issue was whether the question of the existence of a duty was arguable. That question in the 13 years that followed has now been answered by two decisions of the Queensland Court of Appeal in the negative. The question in the present case is whether the answer that has been given is correct. It would, in our respectful submission, be lamentable if the state of our jurisprudence in this area of the law was such that one could not look at the agreed facts in the statement of claim and answer the question whether they show a cause of action - not whether they might show, but whether they show a cause of action - it would be lamentable if one could not answer that question in the negative because we would be in a situation where, as your Honour Justice Gummow has said, no case is hopeless and no case is certain.

In the present case, one looks at the absence of the identification of any factors that could constitute the situation of vulnerability, a situation where there was exclusive dependency or an absence of ability to self-protect. If one looks at this case and the facts in this case that are before the Court, there is, in our respectful submission, a very simple answer whether or not Bryan v Maloney continues to stand.

GLEESON CJ: Mr Keane, if the first owner of a dwelling house built for the owner by a builder takes out a contract of insurance covering the dwelling house, and, as a result of the builder's negligence, there is a defect in the dwelling house which causes it to crack or even to collapse, it is clear that the owner of the dwelling house can sue the builder in negligence, as well, perhaps, as contract.

MR KEANE: Yes.

GLEESON CJ: Can the insurer of the dwelling house sue the builder in the insurer's own name?

MR KEANE: The insurer of the original owner?

GLEESON CJ: Yes, the insurer of the dwelling house.

MR KEANE: I would think the answer would be yes, your Honour.

GLEESON CJ: But the insurer has suffered only economic loss. Does not the insurer have to sue in the name of the insured?

MR KEANE: I am sorry, your Honour, by virtue of the rights of subrogation?

GLEESON CJ: Yes. My question to you is, why, as a matter of principle, cannot the insurer sue in its own name? Is the answer to the question, "Because it has suffered purely economic loss"?

MR KEANE: In our respectful submission, it is. Those are our submissions, if it please the Court.

KIRBY J: If one looks at the orders, Mr Keane, in the case, the Court of Appeal has dealt with the matter on the footing that Bryan laid down a bright line about domestic dwellings as against other developments. If that falls with your contentions in this case, what is the result then, the disposition on the matter? I suppose it depends on how the Court deals with the matter, but, in terms of principle, would it not have to go back to the Court of Appeal?

MR KEANE: No, your Honour. If either of our two submissions is accepted, then the order is appeal dismissed, because the answer which has been given to the question, "Do the agreed facts in the statement of claim disclose a cause of action?" is "No", because Bryan v Maloney is confined. If Bryan v Maloney is wrong, there is no other basis for sustaining it, no basis for sustaining any cause of action at all.

KIRBY J: It really depends on how it is reconceptualised, if in fact it is. At least one possibility is Justice McHugh's third point, in which event the criteria will not have been applied by the courts below, and it would have to go back for those criteria to be applied.

MR KEANE: In our respectful submission, not, because the consequence of applying them would lead to the same conclusion that, on the facts that have been pleaded and agreed, one would not identify the situation of vulnerability, of exclusive dependency, of an inability to self-protect. It is simply not there. So that, even on that view, the answer would be the same, in our respectful submission. Your Honours, we will give your Honours a note about the references to the US cases in Bryan v Maloney.

CALLINAN J: And some reference to caveat emptor.

MR KEANE: Yes, caveat emptor, and a note as to the current status of East River.

GLEESON CJ: Yes, Mr Jackson.

MR JACKSON: Thank you, your Honours. In relation first to the question your Honour the Chief Justice last raised, the ability of the insurer to sue would, of course, be a significant change in the law. I will not use the word "extension", but it would involve a number of different questions because in the past the insurer's right, absent statutory intervention, has been thought to be one that is allowed to be utilised by subrogation. On the other hand, there are other issues that arise in relation to the desirability of allowing such claims, bearing in mind the alternatives that are open to insurers of reinsurance. It is a difficult question.

GLEESON CJ: I am just having a little difficulty understanding the difference between the nature of the harm suffered by the insurer and the nature of the harm suffered by the second owner.

MR JACKSON: Your Honour, they are both, in one sense, economic loss, of course, but the economic loss in the case of the second homeowner is one in relation to which one can see a direct relationship with the very thing that the engineer was employed to do. I do not say it is physical, but it is very close to it.

There is a number of matters with which I wish to deal. May I mention first Invercargill City Council v Hamlin [1996] UKPC 56; [1996] AC 624. Your Honour Justice McHugh mentioned a passage in that. The relevant passage is at page 641F going through to page 642E. At 641F, as part of a review of decisions in various jurisdictions, your Honours will see the passage that uses the expression "changed tack" between 641G and H. The discussion goes through page 642D to E, with the Privy Council noting particularly that there are "divergent views in different common law jurisdictions". One of the points made in the reasons for judgment in the Privy Council is that one may well see different results in similar cases arising in different common law jurisdictions.

GUMMOW J: Is it right to say, on 642B to C:

In Bryan v Maloney 69 ALJR 375 the majority decision was based on the twin concepts of assumption of responsibility and reliance - - -

MR JACKSON: Your Honour, that is a short view of it. It is one view, I suspect, of what is really said about Bryan v Maloney, but it does not seem to exhaust it. May I mention next the provision of the Building Act 1992 that was referred to by your Honour Justice Callinan, section 53. The Court will see that its provisions, and in particular 53(2), entitle a local authority to take steps if a building is in a condition referred to in that or one of the other subsections. In the particular case, the council was asked by us to provide reports on the matters the subject of those provisions.

Your Honours will see the request for the report at page 55 of the application book. There are two requests, one for a town planning certificate and one for a report. We obtained such a report, which your Honours will see at page 60. If I could take your Honours to about line 8, the council said:

The property has been inspected under the following headings . . .

2. Unsafe or dilapidated buildings or structures. (Section 53)

Then the result of that appears at the bottom of that page. Your Honours see a line across "ITEM" and "REQUIREMENTS" and item 2 says "Nil". So the council's inspection resulted in there being nothing that, to the council's mind, brought into play section 53. That is hardly surprising in the case of defects which are latent and which did not appear until two years later.

Your Honour Justice Hayne suggested in the course of argument that a purchaser could adequately protect its position or inform itself about the structure by searching the plans. That does not, with respect, take into account the fact that these cases are normally concerned with defects which are latent at the time of purchase. The defects which will give rise to the building suffering substantial distress or structural distress usually will not be apparent on reasonable inspection, and looking at the plans will ordinarily tell one what foundations should have been built and were designed, as distinct from what was in fact done. The deficiency may be because of negligence in the construction, negligence in supervision, or a combination of both.

HAYNE J: It is for here, it is said, because of the choice of the then owner about what would and would not be done by the engineer.

MR JACKSON: That is put forward, of course. The ultimate relevance of that is something that in the end would have to be determined by a trial, in our submission. Could I turn then, your Honours, to the question of procedure and the observations that were made about the appropriateness of the procedure that was adopted. The position, of course, was that after the decision of the Court of Appeal in Tod Group v Fangrove, the law in Queensland which bound the parties was that a subsequent owner of commercial premises could not recover against a builder or building professional unless and until something happened to Bryan v Maloney.

In a sense, it would have, with respect, been very difficult and impractical to have run a trial, for some weeks, perhaps, with a panoply of engineering experts, in the teeth of Tod Group v Fangrove. There would have been considerable expense to the parties, and, in a sense, a waste of court resources, because, in accordance with the decision of the Court of Appeal, the answer would have to be no, in any event, and there would be something to be said for the other side being able to strike out the statement of claim, in any event.

Your Honours, there is no demurrer procedure available since the introduction of the uniform civil procedure rules in July 1999, and that is why the case stated procedure was no doubt seen as being the most efficient way to get the matter to court. That was done by consent.

HAYNE J: Are we to proceed on the assumption that your side has put its best foot forward and tendered all material which you say bears upon the existence of a duty?

MR JACKSON: Your Honour will see that the facts really consist of two things: one, the allegations in the statement of claim, on the one hand, and on the other hand, the additional facts that are referred to in the list of facts set out by the judge. Now, some of the allegations that are made are expressed, of course, in the broad form one would expect in a statement of claim. In that sense, your Honour, that is as far as one can go. Whether there might or might not be further detail that would emerge at a trial after there had been discovery, interrogatories, matters of these kind, your Honour, I cannot really say.

HAYNE J: But do I read the statement of claim correctly at pages 10 and 11 as referring only to the fact that the building was intended as:

a permanent structure to be used indefinitely.

Plus some assertions about foreseeability followed by a conclusory plea on page 11, paragraph 7 of the existence of duty?

MR JACKSON: Yes, your Honour, I think so.

HAYNE J: And there is no fact, I think, in the agreed facts which relevantly seeks to supplement those as the essential foundation of the plea of duty, are there?

MR JACKSON: No, your Honour, except that if one goes back to page 7, your Honours will see the allegations in paragraph 2 about the role of the defendants. Your Honours will see also allegations about the role of the defendants in the statement of facts and it is something that derives in part from the activity which they undertook as a professional activity.

GLEESON CJ: A difference between a demurrer procedure and a stated case procedure in a case like this is that under a demurrer procedure a court would have to face up to the question of whether there should be leave to replead or whether there should be judgment for the defendant and that would require somebody deciding whether there was any amendment that could be made to the statement of claim that would disclose a cause of action.

MR JACKSON: Yes.

GLEESON CJ: That issue just does not arise in the way this procedure is conducted, does it?

MR JACKSON: Your Honour, the possible answers to the question are yes, yes, no, or impossible to answer at this point, in effect, or unnecessary to answer at this point.

HAYNE J: Inappropriate.

MR JACKSON: Inappropriate, I am sorry, to answer at this point.

McHUGH J: But the case stated asks a curious question: does the further amended statement of claim disclose a cause of action in negligence?

HAYNE J: I will take it is yes.

McHUGH J: It takes the statement of claim and adds the facts and gets an answer, no, however, on its face it does appear to.

MR JACKSON: Your Honour, I do not know that I can say any more about that, but it is capable of being answered in the ways I indicated. Could I just say something in relation to what your Honour the Chief Justice said about the demurrer. Of course, where there is provision for proceedings in demurrer there are usually, of course, two other preliminary things, one brought about by rules of court and the other brought about by professional considerations. The rule of court limits the extent to which there can be an amendment without leave once the demurrer has been delivered. The other is that because of that the common and professional obligation to notify the other side before one does it.

GLEESON CJ: Yes, quite.

MR JACKSON: So there are then two considerations that arise in deciding whether to allow repleading, one content and the other the stage at which it occurs. Your Honours, could I come to the phrase that has been used, "transmissible warranty of quality". That argument was advanced to the Court in Bryan v Maloney and the question arose about whether that was ever - was that dealt with by the Court. Your Honours will see that argument being advanced in the argument for the appellant.

McHUGH J: It comes from an American case, does it not,.....?

MR JACKSON: Yes, it does. Your Honours will see at the bottom of page 611, about point 8 on the page, the argument "To impose liability on the builder" and then there is a reference to an additional warranty. That goes over to the top of the next page. Could I invite your Honours to note that although the Housing Indemnity Act (Tas) was not in force at the time of the events that gave rise to the cause of action there, reliance was placed on the existence of the statutory provisions in the argument as militating against the existence of a duty of care, so it is not an issue that was not agitated in that case.

I will come back to the statutory aspect in just a moment, if I may, but could we invite your Honours to note, also, that in Bryan v Maloney at page 612 at the bottom of the page the cases to which I referred yesterday, including the Queensland Full Court decision, were not challenged. What was said about them was that that decision involved a professional and, thus, proximity existed on established grounds.

Your Honours, coming back to the issue of warranty, could we just say this. If it is treated as being a "transmissible warranty of quality", to use that jargon expression, the first thing is, what is its extent? Its extent is no more than that a professional person has used reasonable care in the performance of professional tasks. If one looks to see to whom is the so-called warranty given, what one sees is that the persons to whom it is given are those who are most likely to be affected by their failure to use reasonable care, namely, those who are owners of the building in the construction of which the reasonable care was required to be used. So, we are not talking about things that are in the abstract.

Your Honours, if one asks - and your Honour Justice Gummow referred to it earlier - "What is the interest to be protected?" Well, the interest to be protected is that of persons who may become the owners of the very thing that the professional was engaged in the design of. If I could go back to Bryan v Maloney 182 CLR 628 for just a moment, particularly at about point 7 on the page, your Honours will see the passage commencing:

It is difficult to see why, as a matter of principle, policy or common sense -

I will not read it out but we would refer your Honours to that passage, going through the whole of that paragraph. Finally, your Honours, in relation to the warranty, the duration of any such warranty is not in the sort of never-never. What one sees, if I could take your Honours back for just a moment to Invercargill City Council v Hamlin [1996] AC at 648 between C and D:

The plaintiff's loss occurs when the market value of the house is depreciated by reason of the defective foundations, and not before. If he resells the house at full value before the defect is discovered, he has suffered no loss. Thus in the common case the occurrence of the loss and the discovery of the loss will coincide.

Could we refer in that regard also to our reply submissions at paragraph 5. Could I move then, your Honours, to the relevance of statutory schemes. The statutory schemes which have come into being, some before and some after Bryan v Maloney, were a partial recognition, in our submission, of the inadequacy of the general law in relation to rights against those responsible for defects in the buildings.

They gave to the owners of residential premises statutory entitlements in addition to any rights that might exist under the general law. They do not exclude rights under the general law. They give rights in addition. One can understand the legislature's view that such rights should be given in relation to residential premises. As, your Honours, one notes - your Honour the Chief Justice - their owners vote.

There have been, your Honours, many scandals large and small over the years in relation to house builders, on the one hand, doing shoddy work, disappearing when they have the money but not done the work, or, in relation to insurance schemes, going broke without finishing the work that has been undertaken. One can understand that parliaments might well say, "We will give the owners of proposed residential buildings rights in addition to those under the general law", but on the other hand say, "For other buildings and structures we will leave people to their rights under the general, whatever that may be".

It does not follow, your Honours, that because there has been legislation in relation to an aspect of residential premises that the general law stops in its tracks and is thereafter immutable or, as the respondents would say, goes back the other way. Your Honours, could I come then to some observations about D & F Estates [1989] 1 AC. I was going to take your Honours to page 203, quoting a passage from Lord Brandon. Your Honours will see about 10 lines into the passage from Lord Brandon between C and D, what was said:

it has always been either stated expressly, or taken for granted, that an essential ingredient in the cause of action relied on was the existence of danger, or the threat of danger, of physical damage to persons or their property, excluding for this purpose the very piece of property from the defective condition -

et cetera. Now, of course, your Honours, what about the cause of action in negligent misstatement? That does not satisfy those tests at all because the cause of action in negligent misstatement is quintessentially one where the most frequent kind of damage is pure economic loss. Could we also say, your Honours, that if one goes a little further down, about point 6 on the page, what is said is that:

The effect of accepting the respondent's contention . . . would be, in substance, to create . . . 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.

GUMMOW J: The problem are the words "only really appropriate" which obscure the decision-making process.

MR JACKSON: Your Honour, what I was about to say about it was if one is looking to see a value judgment expressed as a reason for arriving at it, that is where one sees it, and Australian views, in our submission, might well be different. Could I come, then, your Honours, to the question of the ability, as it were, to self-protect. That is, no doubt, in some respects, ultimately a question of fact. One sees that illustrated, for example, in the National Mutual Case [1991] 2 Qd R at 406 to 407. Your Honours will see that aspect dealt with commencing at about line 34 where Justice Connolly was saying:

strongly contend that there can be no reliance . . . on the skill and judgment of the engineers, it being plain on the face of the pleading that the foundations were defective and that the very contract of sale and purchase made provision for the cost of remedying -

Now, your Honours will see the observations that were made through the remainder of that page and going through to about halfway down the next page. His Honour expressed the view that did not necessarily completely deprive it of a cause of action - that is between lines 5 and 10 on page 407 and going on a little further from that.

Your Honours, on the question of caveat emptor, could I just say that your Honour Justice Callinan said, was this dealt with by the Court in Bryan v Maloney? It is right to say, I think, that one does not see the expression "caveat emptor" used there, but what one does see from the top of page 620 to the bottom of page 622 is a discussion of the relationship between contract and tort in the area. We would refer your Honours to that.

GLEESON CJ: A possible point of view is that caveat emptor is a bit like proximity. It may announce a conclusion.

MR JACKSON: Well, your Honour, that is so. Of course, the doctrine of caveat emptor is one that really derives, in a sense, from a time when there were areas of negligence, as it were, but before there had been the commencement of the larger growth of negligence in Donoghue v Stevenson. Now, one has to bear in mind that caveat emptor is a phrase which says "Let the buyer beware of things for which the law does not provide a remedy". It is a question of what other remedies may exist in particular circumstances.

Our learned friends referred to the position in the United States, but it is clear that in the United States economic damages are not recoverable in negligence, absent physical property damage or bodily injury. One sees that referred to specifically in the decision from Utah and the decision from Washington. Your Honours will see in the Utah case, it is 930 P 2d 1182 and in the other decision at page 989, paragraphs 1 to 2.

Our learned friends referred to some aspects of Perre v Apand [1999] HCA 36; (1999) 198 CLR 180. Could I go to that case for just a moment? Reference was made to what was said by your Honour the Chief Justice at page 192. If I could go first of all to paragraph 5, your Honour referred to:

three considerations which have been, and will remain, influential in restraining acceptance of such a duty of care in particular cases, or categories of case.

Your Honour referred to the first one as there being a need to have constraint:

by "some intelligible limits to keep the law of negligence within the bounds of common sense and practicality".

Well, your Honours, in the present case, the limits are clear. They already exist, in terms of Bryan v Maloney, and the only question is one, really, of the type of property.

The second aspect your Honour referred to there, six lines from the bottom of the page:

to permit recovery of foreseeable economic loss, which may or may not occur in a commercial setting, for any negligent conduct -

et cetera. Your Honour, we are not referring, in this case, to any negligent conduct, but rather to identifiable conduct which may cause damage to person, property or pocket. The damage to pocket is expenditure on physical property, not just dealings in money. The third aspect to which your Honour referred, at the bottom of page 192 - this aspect is one which really has been recognised since Voli v Inglewood Shire Council.

If I could go on to paragraph 6, your Honour raises "Another matter of concern". There is no difficulty in identification or quantification of the loss; at least, no difficulty greater than that which occurs in any such case. Could I move, your Honours, to Justice McHugh's observations at page 204, paragraph 50. We have referred to this in our written submissions, and, in our submission, this is a case which would satisfy the various tests that are set out there.

If I could go finally in this regard to page 254, paragraphs 201 and 202, your Honour Justice Gummow. At paragraph 201, your Honour referred to the "salient features" notion, but could we also say, in paragraph 202, your Honour was referring to Esanda Finance and said in the fifth line there:

the potential for foreseeable but indeterminate and possibly ruinous loss by a large class of plaintiffs -

et cetera. It is not this sort of case. As the Court in Bryan v Maloney indicated, the ultra mares notion was one that did not apply to this class of liability. It does not apply in the present type of case any more than it did in Bryan v Maloney. They are clearly identifiable people, not even classes anywhere near as large as the classes that were involved in Perre v Apand.

Your Honours, if there is anything arising from the submission our learned friends are going to put in, may we have leave to reply?

GLEESON CJ: Yes, certainly. We will reserve our decision in this matter and we will adjourn for a short time to reconstitute.

AT 12.26 PM THE MATTER WAS ADJOURNED