[1994] FCA 1198; (1994) 51 FCR 378, (1994) 84 LGERA 225

Negligence - duty of care - proximity - pure economic loss - negligence alleged against a city Council which (a) recommended a change of zoning from industrial to residential; (b) approved development applications for residential subdivisions, without taking any steps or imposing any conditions in respect of chemical contamination in the soil from a known prior industrial use - whether each decision was a "policy" or an "operational" decision - liability of local authorities for zoning and development decisions - Council's positive action as a cause of potential harm requiring care, contrasted with mere omission - reliance by purchasers of land on Council - evidence of specific reliance - Council's position of advantage to assess risks and achieve a remedy - statutory obligation under s. 90(1)(g) of Environmental Planning and Assessment Act 1979 (NSW) - knowledge of Council re relevant matters through its officers.

Limitations - discussion of when damage is suffered in a case of pure economic loss by reason of hidden defect in land.

Practice and Procedure - application to amend defences to plead Limitation Act 1969 (NSW) - circumstances in which application should be refused - prejudice to applicant and public interest in adherence to the Rules of Court.

Environmental Planning and Assessment Act 1979 (NSW), s. 90(1)(g) Limitation Act 1969 (NSW)

The Council of the Shire of Sutherland v. Heyman [1985] HCA 41; (1985) 157 CLR 424

San Sebastian Proprietary Limited v. Minister Administering the Environmental Planning and Assessment Act 1979 [1986] HCA 68; (1986) 162 CLR 340

Voli v. Inglewood Shire Council [1963] HCA 15; (1963) 110 CLR 74

Bird v. Pearce; Ex parte Somerset County Council (1979) 77 LGR 753

City of Kamloops v. Nielsen (1984) 10 DLR (4th) 641

Yuen Kun Yeu v. Attorney-General of Hong Kong (1988) AC 175

Canadian National Railway Co. v. Norsk Pacific Steamship Co. Ltd. (1992) 91 DLR (4th) 289

Barnes v. Irwell Valley Water Board (1939) 1 KB 21

H.R. Moch Co., Inc. v. Rensselaer Water Co. (1928) 159 NE 896

Parramatta City Council v. Lutz (1988) 12 NSWLR 293

Indian Towing Co., Inc. v. United States [1955] USSC 74; (1955) 350 US 61

Home Office v. Dorset Yacht Co. Ltd. [1969] UKHL 2; (1970) AC 1,004

Mid Density Developments Pty Limited v. Rockdale Municipal Council [1993] FCA 408; (1993) 44 FCR 290

Pullen v. Gutteridge Haskins and Davey Pty Ltd [1993] VicRp 4; (1993) 1 VR 27

Bomanite Pty Ltd v. Slatex Corp Aust Pty Ltd [1991] FCA 536; (1991) 104 ALR 165

State Pollution Control Commission v. Australian Iron and Steel Pty Ltd (No. 2) (1992) 75 LGRA 327

Ketteman v. Hansel Properties Ltd (1987) AC 189

Commissioner of Taxation v. Brambles Holdings Limited (1991) 28 FCR 451

Solicitors for the Applicant : Messrs Hunt and Hunt

Counsel for the First Respondent : Mr P.D. McClellan QC with

Mr P.W. Taylor

Solicitors for the First

The Court orders that:

the applicant bring in on a date to be fixed short minutes of orders

appropriate to be made pursuant to the reasons of the Court.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BURCHETT J The applicant sues Armidale City Council upon a cause of action in negligence. (The case has not proceeded against the second respondent Basia Holdings Pty Limited, which may be in liquidation.) The negligent acts and omissions alleged relate to the circumstances in which the Council re-zoned certain land, formerly in an industrial zone, as residential land; subsequently granted development applications for subdivisions of the land for dwelling purposes; and thereafter approved plans of subdivision and building applications. It is claimed that, as a result, the applicant, a building company which had purchased some of the land and carried out subdivisional works and construction of cottages on it, suffered loss when it was revealed that areas within the subdivisions were seriously contaminated with a combination of creosote (which contains polycyclic aromatic hydrocarbons, toxic organic compounds known as PAHs or simply as PAH) and copper chrome arsenate (which, as the name implies, is a complex salt containing arsenic). By consent, the hearing was concerned only with the question of liability, the assessment of any damages to be awarded being deferred.

2. Before I set out the issues raised in more detail, I shall go back to the beginning of the story of the Council's involvement with this land. In 1967, a substantial area of land at Armidale, between a street known as Martin Street (on which it had a frontage) and the northern railway line to its west, was zoned for industrial uses. That year, the Council approved plans for the building of structures on the land in order to accommodate the operation of a timber treatment plant in which telephone poles, and some other timber items as well, were to be impregnated with creosote, under heat and pressure. The application was made by Arthur H. Hasell and Company Pty Ltd (Hasell). The plan submitted showed that it was intended to make use of the whole of the area of the land, partly for sheds, storage tanks, plant and equipment, and partly for storage racks for the poles. Provision was also made for an office and amenities, and the total area of the land to be utilized was shown as ten acres. The approved specification dated 2 May 1967 provided for the laying of drainage lines "to the open street channel", with three ground sumps to "drain the whole of the surface area to the east of the main rail siding to the open street through a common line". It was noted that this "will allow for installation of a creosote arrestor if required in future by the Council". The sumps were to be constructed of reinforced concrete or brickwork, and it was noted that the "base of sumps will be 12" below inverts to form a silt arrestor".

3. The focus of these plans, and of the intended activity, was a pressure cylinder 72 feet long, having an inside diameter of six feet, designed to withstand full vacuum and 200 p.s.i.g. working pressure. It was to have hydraulically operated doors at each end, and was to be equipped with bogies to carry logs, poles or other pieces of timber into it, on rails, and out of it at the other end after impregnation. There was to be 140 feet of external track at each end of the pressure cylinder to carry the poles. Two creosote tanks, one of 10,000 gallons capacity and the other of 12,000 gallons capacity, were to be provided. There was, of course, a boiler, and there were pumps, piping, fork loaders, and various machines and pieces of equipment. There were pole reception racks, seasoning racks, and other racks, and macadamized access roadway was required to be constructed. Quite close to the area of the cylinder, the evidence shows, there was also a rail siding utilised for the transport of logs. What was envisioned was a substantial industrial undertaking.

4. The works were carried out, and the Council's final inspection took place on 7 June 1968. The plant commenced operation in that year, apparently immediately. However, on 22 July 1968, the Council wrote to Hasell, referring to a visit by its officers that day, and advising "it will be necessary to provide a creosote arrestor as stated in Council's building permit of 24th October, 1967 to prevent creosote from entering any water course or private lands". On 22 August 1968, there was a conference involving Mr Crawford, the Council's Health and Building Inspector, and representatives of Hasell and the construction company. Minutes of this meeting record that "Mr Crawford spoke of the creosote finding its way onto a grassed area on the opposite side of the street, and the need to prevent a (recurrence)"; that "a site inspection indicated that creosote spillage from either end ... of the cylinder was finding its way into the storm water system"; that further inspection showed "surface water was mixing with creosote spillage"; and that Hasell's representative "indicated that there had been a considerable spillage of creosote as a result of an error when handling the impregnation equipment". It was agreed that 500 gallon concrete tanks were to be fitted to the surface water sumps, designed to enable creosote to be skimmed off the surfaces of the water in the tanks. The ground level was to be graded (plainly, it had not been concreted, and I think it was probably already gravelled, as it certainly was later), and work was to be done at the southern end of the cylinder "to prevent surface water coming in contact with creosote laying (sic) under and at the end of the cylinder".

5. Unfortunately, either this work was not all carried out, or it proved inadequate. At a meeting of Council on 26 May 1969, a report was requested "concerning the escape of creosote". It was furnished on 30 June 1969. It indicated that in February "creosote was finding its way to the creek", and that this had been attributed to the original escape when the treatment works started operating. That might have been thought alarming, since the evidence indicated that this creek, known as Martin's Creek, was some two to three hundred metres away, and the original escape had been many months earlier. Undoubtedly, it must have been a major spillage. The report indicated that saw dust was being used to absorb the creosote and stop it from spreading. On 24 June, the creek had been found free of creosote.

6. However, shortly after 14 August 1969, the Council received a letter of that date advising there was "a pool of creosoty water in the unmade road ... east of Martin Street". This was an unmade road which extended, from a point in Martin Street about opposite the treatment works, down the slope in the direction of the creek. At a committee meeting of Council held on 1 September 1969, attended by the Mayor, it was recommended that the city health surveyor report to Council. A report followed on 22 September, which asserted that "the waste disposal from the pole impregnation plant is continually under review and that further attempts are being made to prevent even the smallest quantity of creosote entering the main watercourse". A letter sent by the Town Clerk, following the meeting, stated that "further steps and modification to the plant are again being taken (to prevent creosote getting into the water course)".

7. But Council's file shows that the situation was not in fact rectified. There were complaints again, in August 1970, that whenever it rained "creosote flowed into the creek". An inspection by Mr Crawford on 16 September 1970 was noted as showing "creosote oil not removed from pond since last told to do work". Mr Crawford noted the presence of "creosote in creek and globules remaining over surface". He specifically noted that Hasell was responsible.

8. It was also in September 1970 that the question was raised of the proposed use in the plant of copper chrome arsenate, and Hasell was advised to make an application to the Council.

9. On 12 October 1970, Council again wrote to Hasell advising that "(c)reosote was entering the water course", and requiring pits and ponds to be cleared "at least twice a week so that creosote does not enter the water course".

10. On 28 October 1970, the Council approved plans for the installation of two new tanks to contain Tanalith (described as copper chrome arsenic salt). It is not easy to tell from the documents of the Council which were tendered what the contemplated capacity of these tanks was to be, but the plans suggest that one of them was considerably larger than the larger of the creosote tanks. Council's approval was given subject to the condition that "(d)etails of the disposal of the excess water and salts (be) supplied to Council for approval". The imposition of this condition gave rise to a letter from Hasell of 13 November 1970, in which it was stated:

"Excess water and salts will not pose any problems. This

preservative is totally different to creosote in that it

does not require heat, so no fumes are released, and it

becomes fixed in the wood cells so it cannot 'run off' or

leach out. The only free solution released is when the

cylinder doors are opened and approximately 15 gallons runs

out into the cylinder door sumps and is pumped back to the

storage tank."

With this letter, Hasell enclosed what purported to be an expert assessment by a chemist, which concluded: "(P)rovided the plant is maintained and operated in the normal proper manner then there is no reason to fear any pollution problem." Of course, the terms of the letter implicitly concede that creosote (use of which was not to be discontinued - Tanalith was to be used on some poles and creosote on others) does run off and leach out, while there is no statement of how long a time is required before Tanalith "becomes fixed", so that it cannot do so. The evidence suggests that may take a day, whereas creosote can run off or leach out over a longer period.

11. Once again, any anticipation which may have been engendered of pollution free operations was soon dissipated by the reality. In February 1971, an inspection of the pond on the other side of the road from the treatment works resulted in a letter from the Town Clerk to Hasell of 12 February 1971, which referred to "a small quantity of creosote oil on the surface" and stated that "maintenance was needed to the area". Hasell was asked to "take the necessary steps to ensure that the area is cleared and maintained so that no creosote enters the small water course". In fact, on 26 January 1971, the Medical Officer of Health of the New South Wales Department of Public Health at Tamworth had written to the Town Clerk referring to samples of water collected from Dumaresq Creek and Martins Gully on 8 April 1970 which, he said, "were highly polluted by waste water discharged from the Armidale City Gas Works and Hasell's Timber Impregnation Works". A government analyst's report had previously been forwarded to the Council. It should be pointed out that Martins Creek (which, as I have said, is some two to three hundred metres from the plant) runs into Dumaresq Creek at a point some one to one and a half kilometres away. Dumaresq Creek is the major stream of the city of Armidale. Minutes of a meeting of a Council Committee include the recommendation "that the Medical Officer of Health be advised that Hasell Impregnation Ltd intend to take action regarding their waste products and the Gasworks will cease making coal gas in six (6) months time". The letter sent by the Town Clerk, following this recommendation, referred to Council's hope "to have a firm proposal on the method they intend to adopt in the near future". Plainly, the problem was seen as still unsolved.

12. On 16 March 1971, the Town Clerk wrote to Hasell indicating no advice had been received, and stating that a "recent inspection of the area revealed that insufficient maintenance was given to the collection of the creosote in the small ponding area". Hasell replied that it was "waiting on further advice from (its) Company Engineer regarding further effluent control".

13. An inspection report signed by Mr Crawford and dated 6 May 1971 states: "Large pond opposite not given maintenance for some time. Creosote on surface to outlet. Old 44 gallon drum nearby - water dark brown to black." The Town Clerk sent a letter to Hasell of 10 May 1971, referring to these and other matters, and directing Hasell "to tidy up the area, maintain the premises to prevent creosote spillage ... ."

14. In November 1972, Hasell (now under the control of Allen Taylor and Company Limited) applied for Council's approval to use an area of about eight acres, on the other side of Martin Street from the plant, as an "Air Seasoning yard" for hardwood poles. The application contained the statement: "It is not proposed to store any treated timber on the area." This application resulted in petitions being presented to Council, which were said (without denial) to be supported by 227 signatures, objecting to the expansion of the plant and referring (inter alia) to "the seepage of industrial waste into Martins Gully, which eventually finds its way into Dumaresq Creek (as) a problem which should be of paramount importance". The Council granted the development consent requested by the company, on 29 November 1972, "for a period of two years". In the event, the use simply continued for the life of the timber treatment works.

15. On 14 May 1973, there was submitted to the Town Clerk a report of the Town Planner concerning a proposed Interim Development Order No. 2 (I.D.O. No. 2). This report indicated that land including the site of the treatment works was being considered for re-zoning as residential land. On 24 August 1973, the Mayor and the Town Planner (Mr D Hegarty) and other representatives of Council met with an officer of the then State Planning Authority, and it was noted that the proposed I.D.O. No. 2 would have to be publicly exhibited before report to the Minister. At that stage it had not yet been considered by the State Planning Authority. Consideration of I.D.O. No. 2 dragged on for some time. On 16 April 1974 there was a meeting with a Mr Nichols, a representative of the State Planning Authority, attended by members of the Council and by Mr Hegarty, at which Mr Nichols stated (according to the minutes) that he

"considered that area for rezoning to residential from

industrial in vicinity of Hassels (sic) Impregnation

appeared not to be suitable for area. He doubted whether he

could recommend re-zoning unless evidence available that

industrial concerns established in area were planning to

relocate. A more detailed submission would be required from

Council in this regard."

Mr Nichols, as Divisional Planner (North) of the State Planning Authority of New South Wales wrote a minute dated 22 April 1974, which he forwarded to the Council, including the statement: "Council should seek further discussions with the owners of land proposed to be changed from industrial to residential in Beardy and Martin Street."

16. On 1 October 1974, the then Minister for Planning and Environment of New South Wales issued a document entitled "Principles and Procedures for Environmental Impact Assessment in New South Wales". The purpose was said to involve the bringing about of "better planning and design of proposals from the environmental point of view" and "proper consideration of environmental factors by public authorities when determining the acceptability or otherwise of proposals". Reference was made to "the significance of the impact of an activity on the environment", and the "potential for pollution or misapplication of land by its use in ways which are inconsistent with or incompatible with the needs or uses of the environment, by its use in ways which inhibit or pre-empt more desirable use ... ." It spoke of the responsibility of developers and public authorities with reference to "the safeguards necessary to prevent pollution and protect the environment". There was a definition of the word "environment" as including "the conditions or influences under which any person or thing exists or is developed"; and of "pollution" as meaning "the contamination or making of any feature of the environment harmful or offensive to human, animal or plant life ...."

17. On 14 October 1974, the Council made formal application to the State Planning Authority of New South Wales, asking it to recommend to the Minister, for gazettal, the proposed new I.D.O. No. 2 for the city of Armidale, including the proposed change of zoning of land in the vicinity of Martin Street to residential. Minutes and reports which are in evidence show that this was regarded by the State Planning Authority as controversial in view of the existing industrial use. As at 28 February 1975, according to the documents, it was understood the land on the opposite side of Martin Street from the treatment works was being used "for storage of treated poles", notwithstanding that permission to use this area had been based on an assurance the use would not involve treated poles. It is quite clear that Council's attention was firmly drawn to the implications for the proposed change of zoning of the presence of the impregnation plant on the land in question. At a meeting of Council held on 21 April 1975, Mr Nichols

"explained to Council that careful consideration would have to

be given to future consequences of rezoning area to

residential in view of existing industrial development and

implications of their future compatibility with residential

development."

This is not to say that anyone drew attention, in express terms, to the need to ensure that residential land was not seriously contaminated by pollutants before its development for dwelling purposes could be undertaken. There is no advertence to that question in the report of the Council's Town Planner, Mr Hegarty, of 14 April 1975. But this report does indicate the extensiveness of the pole impregnation operations, of which it says: "Almost certainly the pole impregnation plant couldn't operate effectively on their own site. Presently their operations are spread over adjacent land as well as their own." (The second sentence is a reference to the land across Martin Street.)

18. The Minister's "Principles and Procedures for Environmental Impact Assessment in New South Wales" received mention in an Industrial Development Code issued by the Council on 21 April 1975. That Code contained the statement: "Environmental impact of all industrial development proposes (sic) shall be considered in relation to current legislation." Specific reference was made to minimum requirements "in all industrial developments" in relation to pollution control.

19. On 22 April 1975, the Council wrote to the New South Wales Planning and Environment Commission, which by then had replaced the State Planning Authority, reaffirming its proposal to re-zone the land in question. A minute of the Planning and Environment Commission refers to discussion with the Council and records: "Council was firmly of the opinion that residential development should be permitted" in this area. On 5 September 1975, I.D.O. No. 2 was finally gazetted. As gazetted, the interim development order provided for the land in the vicinity of Martin Street to be included in a residential zoning. Clause 30 of I.D.O. No. 2 set out:

"In respect of any application under this Order for consent to

carrying out any development the Council shall take into

consideration -

(a) The character of the proposed development in relation

to the character of the development on the adjoining

land and in the locality;

. . .

(g) The existing and future amenity of the neighbourhood;

(h) Whether any environmental issues are involved in or

raised by the proposed development, and if so, whether

adequate safeguards have or will be made to prevent

pollution and protect the environment of the locality;

. . . ."

20. On 26 September 1975, there was forwarded to the Council a petition by residents of the area near the impregnation works, signed by a very large number of people, which referred to the "smell which pervades our houses when the wind blows in our direction for if we ... leave our windows open our homes are impregnated and it is a very nauseating odour which also has an action on nose and throat", and as well to problems of noise and dust. The result was an inspection of the plant by Mr Crawford with a representative of the State Pollution Control Commission. The Commission wrote on 12 December 1975 to the Council. A statement was made in the letter conceding it had been "agreed that the odour emanating from the premises could be a nuisance at times to residents in the vicinity", and the letter added:

"Run-off from the premises drains into Dumaresq Creek through

a waste water treatment system installed on the premises.

However, the Commission is currently investigating the

quality of this surface water emanating from the premises,

and should it be found to be unsatisfactory, action will be

taken by the Commission to ensure that the quality is

upgraded to an acceptable standard."

It was suggested there had been improvement because of a recent decline in output as well as improvement in the company's operations. The petitioners were assured by Council on 11 February 1976 that "Council will be keeping the matter under review, particularly in respect of the disposal of waste water."

21. But on 13 December 1976, there was an escape, attributed by the Council's City Health and Building Surveyor, Mr Crawford, to vandalism, of about 3,000 gallons of copper chrome arsenate. This occurred when the cylinder was opened after it had been about half filled with the solution by some person unknown. The doors could not be closed against the rush of such a large quantity of liquid, and it poured out, entered the drainage system, and heavily contaminated a section of Martins Creek. The incident was investigated at the time by Mr Crawford, who arranged for pumping out of the pond across the road from the treatment works and disposal in the Council's waste disposal area. The top 18 inches of sediment left after the pumping out of the pond was also removed by backhoe and transported to the city dump.

22. At the hearing, Mr Crawford was not called. Mr Hegarty, who did give evidence, insisted that the Tanalith did not flood the plant site, except perhaps to a minor extent, but flowed directly through the drainage system. I found it quite impossible to accept that evidence. It was directly opposed to an eye-witness account, which I shall discuss later in these reasons. The drainage system was not designed to cope with a flow of 3,000 gallons from a cylinder of a diameter of six feet, and I am quite satisfied there must have been an extensive flow of the solution over the gravelled surface in the vicinity of the cylinder. Of course, it is plain that a very large quantity of the solution eventually found its way into the pond, and even into Martins Creek. I am able the more confidently to draw the inference that there was considerable flooding of the area, which I think clearly arises upon the evidence, because the Council failed to call Mr Crawford. That failure is of importance on a number of factual issues. The evidence was clear that he was the officer of Council mostly concerned, over a long period, with the operations of the treatment works; he was a very senior officer; he was relied upon by the Town Planner in respect of the re-zoning and other decisions taken later which are in question in this case; the evidence shows that he is in good health and living in Armidale; and there was no explanation whatever for the Council's failure to call him.

23. Although the records of the Council which were tendered do not disclose any concern about continuing pollution from the treatment works during the months leading up to the spillage of the 3,000 gallons of Tanalith, a minute of the State Pollution Control Commission dealing with that incident contains the statement:

"An inspection of the premises had been carried out by Mr

McNally (an officer of the Commission) approximately a week

before the incident, as a result of which it was proposed to

serve a notice under the Clean Waters Act on the Company to

improve the drainage system."

It is apparent, therefore, that pollutants had in fact been continuing to escape prior to the disaster on 13 December 1976. Indeed, there is no indication at all in the evidence that either the hope expressed by the Council in 1971 or the assurance it had given the petitioners on 11 February 1976 had ever been more than empty words.

24. On 31 December 1976, the State Pollution Control Commission sent a formal notice to Hasell requiring it (inter alia) to do the following things:

"(a) Within 60 days of the date of this notice construct a

bund around the impregnation and storage facilities,

with a capacity to hold the total volume of treatment

liquids stored on the premises. The bund shall be

fitted with a pump well and shall not contain drainage

valves.

. . .

(d) Within 60 days of the date of this notice cease

discharging wastes, other than uncontaminated

stormwater, from your premises to any waters."

Earth bunds were constructed in 1977 in response to this notice. It would appear that the completion of the bund walls probably effectively prevented further spillages escaping from the treatment works. However, there is nothing to suggest that the features of the operations which had produced these spillages in the past were remedied in any way, and the inference is that continuing spillages were absorbed in the treatment area, being unable to flow past the bund walls.

25. So far, I have been recounting the history of the operation of the plant, and the actions of the Council in relation to it, with particular reference to the matter of the escape of pollutants, as revealed by documents which were held in the Council's records. Evidence was also given at the hearing by a Mr A.R. Bracken, now a security officer at the University of New England, who was employed by Hasell during the period from early in 1972 until May of 1977. I accept Mr Bracken as a truthful witness who was in a very good position to know what happened. For much of the time, he was employed as one of three fork-lift operators, but he also operated the pressure cylinder. He described the treated poles as "dripping" after they came out of the process, and as continuing to do so for a considerable time. By reason of that and other things, the area occupied by Hasell received a quantity of creosote as well as some Tanalith. Black staining apparent in photographs which were tendered in evidence was identified by Mr Bracken as creosote, and I believe him. He said also that when the doors of the cylinder were opened, the creosote or Tanalith would run out into little sumps at either end. It was not pumped back out of the sumps. As far as Mr Bracken knew, the liquid used to seep out and ended up in the pond, which he described as a "little dam across the street".

26. Mr Bracken described the filling of the creosote storage tanks from tankers. Creosote was pumped from tanker to storage tank, and sometimes the pumping would continue after the tank was full so that there was an overflow. It was different with Tanalith, which used to come in 44 gallon drums in powder form. The drums were then lifted onto a platform, to be tipped into the mixing tank which contained water. Sometimes, Tanalith powder was spilled, particularly if there was a heavy breeze.

27. One of the jobs done by Mr Bracken, although it was also done by others, was the getting rid of waste creosote and Tanalith. The waste came from the cylinder. It was tipped into 44 gallon drums stored nearby. Mr Bracken described a process of washing the cylinder with detergent, when there was a change-over from use of creosote to use of Tanalith, and vice-versa. The sludge, when the drums were full, was picked up by a fork-lift and dumped elsewhere on the plant site. He personally used four or five different locations on the site where he frequently tipped out the drums, but he noticed that other workmen tipped drums elsewhere on the site as well as in the spots he used. Asked to mark the various areas on a plan, Mr Bracken said:

"It was rampant, you know, they used to tip out in various

places here and there, just odd drums. I wouldn't say it

was exactly tipped out in those five locations. There was

different places where I used to get a drum when that area

was mostly full, I used to just drop a drum in between

wherever I could."

He used to drive in between the stacks of poles to tip drums. Eight or nine drums were used, and when they were all full they were tipped, about three or four times a month. The drums usually contained both Tanalith and creosote. This went on throughout the time he worked at the plant. As he said, "that is the only way they got rid of the liquid". Creosote was also cleaned from the pond across the road into the 44 gallon drums.

28. Mr Bracken described how the logs which had been treated continued to drip. It depended somewhat on the species of timber. Blackbutt, in particular, absorbed a considerable quantity of liquid, and then dripped. He used to stack logs with the fork-lift. To do that, he might transport them several hundred yards across the site while they were still dripping. Some of the poles had holes in them, which would fill with liquid, and when the pole was turned during stacking the liquid would run out. Rain, of course, would also wash some of the liquid off if it had not completely dried. Mr Bracken said you would see the colouring around the stacks. The creosote was observable on the ground. From time to time, when the operation of the fork-lifts had made holes in the ground, truck loads of gravel would be spread over the inequalities to restore the working surface. This, of course, would result in the burying of creosote and copper chrome arsenate previously lying on or near the surface.

29. Mr Bracken identified an aerial photograph, which I was informed without objection was dated in 1979, as showing "a lot more treated timber on the lot across the road". Some time before he left, treated timber had started to be stacked over there. Scientific evidence of the presence of contaminants in this area suggests that probably some dripping from the treated timber did occur. It was not suggested any drums of waste were tipped out on that side of the road.

30. In answer to specific questions, Mr Bracken made it clear that he did not know anything about creosote arrestors in the drainage system of the plant site. Having regard to the length of time that he worked there, I think the most probable conclusion from this is that the creosote accumulated in the arrestors installed when the plant was originally commissioned was not skimmed off, and the result must have been that over a period of time they ceased to function effectively. That fact would help to explain why the pond or dam across the road was hardly ever free of creosote. It must also have received quantities of arsenic, which would have been less obvious. It is, indeed, not suggested that the arrestors, designed as they were upon the principle that creosote floats on the surface, would have been effective against arsenic contained in the water.

31. Mr Bracken was the workman who opened the southern door of the cylinder on the occasion when there was an escape of some 3,000 gallons of Tanalith. He said "it just gushed out" and "flooded the whole area". He described it as "an enormous amount", the force of which almost knocked him over. Of course, if the statement in the contemporary records that the cylinder was "half fill(ed)" is correct, there would, as a matter of simple calculation have been over 6,000 gallons in it, and the figure of 3,000 gallons estimated as the quantity which escaped, despite Mr Bracken's eventually successful attempts to re-close the cylinder, does not seem to be at all exaggerated. Asked where the liquid escaped to, Mr Bracken said:

"Well, it went wherever the ground was level, I suppose, it

just went all over the place, all that area there and up

through, up along the cylinder, in through the workshop,

over the road, in and around those poles. But they did not

go up hill because there was a grade off the slope, it

wouldn't have went up the slope."

32. The evidence of Mr Bracken received confirmation, not only from the Council's records to which I have already referred, but also from scientific evidence of the presence of creosote and arsenic in various parts of the site which have been tested. It was demonstrated that in some areas the contamination was very heavy. On at least two of the allotments into which the site has now been divided, it has been found necessary to lay a membrane in the soil in an attempt to contain the contaminants. After rain, a creosote scum has been observed on the surface of the ground. The odour of creosote has given a resident headaches, and caused other residents and visitors to the area to complain of the "terrible" smell and of a burning sensation in the back of the nose. Digging, on one lot in particular, revealed significant quantities of visible creosote.

33. Because the issues to be determined at the hearing were confined to those relating to liability, the scientific evidence identifying the extent of the contamination and discussing the measures which might be taken to alleviate it was not fully explored. However, a number of things were made clear. Contamination of the site is patchy, and is particularly heavy at various places in the vicinity of where the cylinder was, and where it is assumed sumps were located. There are also patches of contamination corresponding with areas where the dumping of the contents of 44 gallon drums filled with waste creosote and Tanalith may have occurred. It is probable that some of these patches of contamination were in fact caused in this way. Arsenic and PAH are present, in the main, in the upper layer of gravelly ground, which could have been removed and replaced before the land was subdivided. Once houses were erected, the problem was magnified. Arsenic and PAH are carcinogenic as well as toxic, and where both are involved there may be a synergistic effect, presenting a particular hazard in areas in which young children may play. It is known that some young children eat significant quantities of dirt (the phenomenon has a name - it is called pica, from the Latin word for a magpie); young children generally absorb dirt to an extent which was estimated in one scientific paper tendered in evidence at 100 mg. per day (but an elaborate study by John K. Hawley, of the Bureau of Toxic Substance Assessment, New York State Department of Health, put the figure at 160 mg. per day for children aged 2 1/2 years - and that is in the harsh climate of New York, where children might be expected to be outdoors less than in Australia); and vegetables grown in backyard gardens may take up substances from the soil. Of course, in sufficient quantities, pollutants may inhibit the growth of plants, and there was evidence that in some of the areas in question here grass and trees would not grow, or the grass was patchy and the trees were stunted. As I have said, there is also evidence that turning over of the soil has revealed visible creosote, and the offensive smell of creosote has invaded homes on the land. One of the problems for any remediation is that the contamination varies greatly in intensity from spot to spot, so without removal of the entire upper layer of the ground in the area, it would be difficult to be confident that strong concentrations of PAH or arsenic or both had not been bypassed. Grid pattern testing may not be adequate to exclude the existence of such concentrations.

34. Although the scientific evidence was not explored in full detail, and the Council called none, because of the deferral of the issue of the quantum of damages, it was accepted the applicant was obliged to show some damage had been sustained by it. Also, the extent of the contamination was clearly relevant to any consideration of what (if anything) the Council ought reasonably to have done. I accept, particularly having regard to the reports of A.G.C. Woodward-Clyde Pty Limited, Dr I.C. Swane, and Mr E.T. Johnstone, and in the light of the facts I have recounted, that a careful Town Planner, who had ascertained those facts, would not have permitted the development of any of the land in question in this case for residential purposes without prior investigation and remediation. He would have borne in mind that children wander throughout the vicinity of their homes, so as to be exposed to contaminants on neighbouring properties and in parks; and therefore remediation could not properly be delayed until after subdivision, when work on one part of the area could be rendered useless because similar work had not been done elsewhere.

35. At some stage in or shortly after 1979 or 1980, the timber treatment works was relocated in a different area of Armidale, and the operations which had been carried on upon the site since 1968 came to an end. On 29 October 1982, the land was conveyed for a consideration of $65,000 to the second respondent, Basia Holdings Pty Limited. On 3 May 1983, permission was sought of the council for the use of the land as an overnight truck storage depot. Consent was granted on 14 July 1983, apparently on the basis that the application conformed with an existing industrial use. The documentary evidence suggests that, at that time, re-zoning for light industrial purposes was under serious contemplation.

36. Then, on 4 July 1984, after some discussions with officers of the Council in the early part of that year, Basia Holdings Pty Limited submitted a development application, under s. 77(3) of the Environmental Planning and Assessment Act 1979 (NSW), in relation to the land being the former site of the timber treatment works. The development for which consent was sought was described as: "Subdivision into 9 Lots of (sic - scilicet as) part of an overall proposal to subdivide the property." The proposed development was described in an accompanying document, submitted by a consulting surveyor on behalf of the company Basia Holdings Pty Limited as a "STATEMENT OF ENVIRONMENTAL EFFECTS", as providing "a residential area for 40 home sites together with an internal roading system and a Public Park." It was stated: "The soil appears to be clay based and through previous industrial use has nearly a full cover of consolidated gravel. There are no unique features associated with the land and there are no known reserves of minerals." The surveyor also stated, under the heading "Engineering",

"The land is considered physically suitable for residential

living. ...

Drainage will be out of the subdivision and into the natural

watercourse of Martin Gully and there will be no detrimental

effect to other properties."

The Council was informed a few days later that the use by a transport company of a galvanized iron shed on the property as a depot would cease, and the shed would be removed. A note was made on the file by Mr Hegarty that

"the continued use of the Shed (presumed to be the old

'Hassal' (sic) timber impregnation plant site shed)

employing existing site gravelled roadways would not

represent any problem. These were the basis of operation of

the impregnation plant which used high axle load log

skidders. Such activity though on unsealed roads would have

to be of limited duration ... ."

37. The development application was submitted to the relevant departments of the Council, including the Department of the City Health Surveyor, Mr Crawford, and no objection was raised to it. On 9 August 1984, the Council gave its consent in the following terms:

"The Development Application has been determined by:-

Granting of consent subject to the nine (9) conditions

specified (these were normal conditions, except that there

was a specific requirement that the previous development

consent for the truck storage depot was to terminate within

12 months)".

38. On 23 October 1985, Basia Holdings Pty Limited sold to the applicant the residue of the land which was the former plant site, after excision therefrom of the first stage of the subdivision (by which nine lots and a public reserve had been created). The contract was in consideration of the sum of $90,000, and there was a special condition as follows:

"This Contract is subject to the registration of a Plan of

Subdivision as is envisaged by this Contract within a period

of six (6) months from the date hereof.

The Plan of Subdivision shall be registered at the expense

of the Vendor and without expense to the Purchaser and the

Vendor warrants that it will use its best endeavours to

register the Plan of Subdivision as soon as possible.

In the event of the Plan not being registered within the

said period then either party may by notice in writing to

the other rescind this Contract in which case the provisions

of Clause 19 shall apply."

Clause 19 was the usual printed clause in the 1982 Law Society of New South Wales and Real Estate Institute of New South Wales copyright form of contract for the sale of land.

39. A further development application was lodged on 31 October 1985, referring to the earlier approval, and seeking development approval for the second stage of the subdivision. Again no objection was raised by any department of the Council. A recommendation was prepared which stated: "This matter was referred to Council's Health/Building and Engineering Departments from which no objections were raised." It was also noted:

"The overall subdivision concept of this parcel of land was

previously dealt with by Council in 1984 when the Owners of

the Land, Basia Holdings Pty Ltd proposed a 40 lot

subdivision which was tacitly approved by Council. Basia

Holdings only proceeded with Stage 1 of that proposal by

subdividing 9 lots fronting Martin Street, a Public reserve

to the west and creating lot 11 being the residue of the

site. The proposal is for the subdivision of proposed lot

It is not considered that the subdivision will create any

undue impact on the locality and will result in an

acceptable useage of the site which has in the interim being

(sic) occupied by non-conforming activities."

It was recommended that the Council approve the proposal conditionally, and this recommendation was initialled by Mr Hegarty. Development consent was given on 29 November 1985, and notified on 4 December 1985, for what was described as "the 27 lot subdivision", the second stage of the original proposal, which was itself to be carried out in two stages. The conditions were unremarkable. Neither in relation to the earlier development application, in which the whole project was envisaged, nor in relation to this application which finalized approval for its second stage, was there any mention of any problem of contamination of the site or possible contamination of the site by creosote or Tanalith.

40. In very general terms, the nature of the previous use of the land, including the fact that it had involved the application of creosote to timber, was known to the director of the applicant, Mr Finlayson, but the details were not known to him, and he had no reason to suspect that the site itself had been contaminated. Development of this land for residential purposes had already been the subject of final development approval, so far as the nine lots of the first stage, which fronted Martin Street, were concerned, and tacitly the development of the whole area, subject to a suitable subdivisional plan, had already been approved, before Mr Finlayson was introduced to the site. On the basis of his evidence, it is clear that he assumed the land was suitable for residential use, that is, suitable for human habitation, because Council had approved of its development as a residential subdivision and subsequently approved the subdivisional plans and the building plans. Each of these approvals, coming on top of the zoning as residential land, successively confirmed to him that, subject to ordinary building and engineering problems, the land was suitable for the erection of houses. It did not occur to him there could be any doubt about that. As a builder of considerable experience, who had also done a certain amount of development work, he was aware that such applications were referred to all sections of the Council before approval. In buying the land, he had the purpose of erection of cottages in mind, and relied on the development approval which Basia Holdings Pty Limited had obtained as demonstrating that this was a feasible and appropriate use of the land. His knowledge that the land had previously been used for a timber treatment works did not contradict this, since he had no knowledge of the details of that use, and he was unaware of the contaminating properties of creosote. I accept his evidence to this effect and, indeed, having heard him cross-examined, I accept his evidence generally.

41. Following the approval of the second development application, the plan of subdivision was also approved, and it was registered on 9 December 1985. Thereafter, settlement of the purchase of the land took place on 3 February 1986. Subdivisional works proceeded during the latter half of the year and into the following year, their completion to the Council's satisfaction being notified by it on 15 April 1987.

42. On 27 November 1987, the applicant made a further development application to re-subdivide lot 14 of the subdivision so as to create new lots 14 and 26. This was approved on 15 December 1987.

43. On 22 October 1987, the applicant had contracted to purchase what was called in the evidence "the East Martin Street property" for a price of $48,000. This was the property on the other side of Martin Street, which had been used for the drying of poles during part of the period of operation of the treatment works. Settlement of this contract took place on 26 June 1988. The land was bought for the purpose of further residential development.

44. The applicant constructed and sold homes on three of the lots in the first stage of the 27 lot subdivision. The sales of these three lots all took place in the period April to July 1988. Other lots in the first stage of the subdivision were sold as land, and building contracts were entered into in respect of the construction of housing upon ten of the lots. On 21 September 1988, a development application was approved to subdivide lot 22 into two building blocks which became known as lots 30 and 40. From about October 1988, the applicant commenced selling blocks of land in the second stage of the 27 lot subdivision. Seven of the 12 lots were sold. The applicant has been unable to sell the balance of the blocks.

45. During the period between 6 September 1988 and 20 February 1989, the applicant purchased a further five lots from Basia Holdings Pty Limited, being lots 1, 2, 5, 6 and 7 of the first stage of the subdivision which had been carried out by Basia Holdings Pty Limited. Four of those lots were resold. Three duplexes and a house were built on them under contract by the applicant.

46. Mr Finlayson, the applicant's director, first became aware that the site of the former treatment works was affected by contamination in February 1990, when a statement was made on television by the Mayor of Armidale. On 1 March 1990, a letter was received from the Council stating that, in order to determine the extent of the contamination, soil sampling would have to be undertaken at one of the lots. The applicant authorized this to be done, and it also terminated a building contract on which it had expended approximately $8,000, entering into a fresh contract with the client to build an identical residential building elsewhere.

47. During the hearing, there was admitted into evidence a formal admission by the Council, expressed in the following terms:

"Subject to the reservation in paragraph 4 below Armidale City

Council, for the purposes of the determination of the

proceedings, (other than the matters the subject of the

orders for separate determination - the damages questions)

admits:

1. That at all times since 1 January 1973 some of the

parcels of land referred to in the Schedule below were

potentially contaminated with PAH's (sic) from

creosote and arsenic from CCA at levels that-

(a) exceeded background levels;

(b) required some action - either of investigation,

evaluation, or remediation - in connection with

any residential use of the land.

2. That at the time of the subdivision applications in

1984 and 1985 some of the parcels of land in the

Schedule that were the subject of the residential

subdivisions were in fact contaminated with PAH's from

creosote and arsenic from CCA at levels that-

(a) required some action - either of investigation,

evaluation, or remediation - in connection with

any residential use of the land,

(b) would have been discoverable at the time.

3. The Armidale City Council admits that, if the issues

of duty and breach are determined against it, the

admissions in 1 and 2 above are sufficient to

establish that Alec Finlayson Pty Ltd suffered some

damage sufficient to complete a cause of action.

4. The Armidale City Council reserves-

(a) its denial of the existence of any relevant duty

of care owed by it to Alec Finlayson Pty Ltd in

respect of the loss claimed;

(b) its ability to contend that any failure by it to

consider the potential contamination of the land

was not a breach of any such duty of care; and

(c) its denial of any reliance by Alec Finlayson

upon either, any action taken by the Council, or

any omission or inaction by the Council.

SCHEDULE

(i) Lot B in DP161700 (the former plant site)

(ii) Lot 2 in DP774911 (the East Martin Street land)".

48. There is no doubt that the applicant has suffered considerable losses. Not surprisingly, it has been unable to sell a number of lots since the contamination of the site became public. Claims have been made against it in respect of sales it had previously made. It has on its hands land at East Martin Street which has probably been substantially devalued, both by reason of actual contamination of that land and also by reason of the impact upon it of the greater contamination existing in its near vicinity. But the major question in the case is whether the Council owed to the applicant a duty of care the breach of which gave rise to the losses sustained. Before I turn to that question, it is appropriate to give some further consideration to a salient aspect of the facts. That aspect is the extent of the knowledge which is attributable to the Council at the time of the change of zoning and, particularly, at the time of the approval of the first development application in respect of the subdivision for residential purposes.

49. In my opinion, there is powerful circumstantial evidence to show that the Council, through its officers, was well aware of the contamination of the site at both these times, and that those officers simply failed to apply their minds to the question whether the contamination ought to be investigated, in order to ascertain its extent and to determine whether it required remediation. Time and again, the Council had received complaints about pollutants emanating from the site. At meetings of the Council, and of its committees, reports had been presented, particularly by Mr Crawford, detailing the consequences for the land and waters, up to a kilometre or a kilometre and a half away, of the spread of creosote and copper chrome arsenate from the treatment works. It is not believable that the Council's officers thought the pollution only began outside the boundary of the land. Unfortunately, it is all too believable that they gave no consideration to its implications in relation to the site itself, since, over a period of many years, they did nothing effective about its implications for the adjoining land, the residential environment, Martins Creek and Dumaresq Creek.

50. My conclusion that no serious attempt was made to remedy the situation is supported by a number of considerations. First, the fact is that the pollution went on for years until the State Pollution Control Commission (SPCC) issued a directive; it then ceased in respect of the area outside the site, so far as the evidence goes, immediately and permanently. In other words, effective measures were perfectly possible. The bund which the SPCC required the operator to construct was a simple and obvious measure. Secondly, there is no indication in the Council's own documents which were tendered in evidence that anything was done during the previous years to insist that the situation be truly remedied. The picture presented by the Council's own documents is of a series of defensive reactions to complaints. Assurances were given, but were not followed up. The continuous pollution of the pond across the road from the treatment works demonstrated that something was wrong, but not only was it allowed to go on for years; more significantly, there is no indication from the Council's records of a serious attempt to ensure that the problem was actually remedied, rather than palliated. Even palliation was only reactive to complaints. Thirdly, the Council was made unmistakably aware of the serious potentialities of the operations carried on upon the site on at least two occasions when very major spillages of, in the first case, creosote, and, in the second case, copper chrome arsenate, occurred.

51. As a matter of inference from these circumstances, and in the light of the evidence which provides their setting, it seems to me overwhelmingly probable that the officers of the Council knew that the substances used in the treatment of the poles and other timber regularly escaped from the supposedly closed system involving the cylinder; they knew that the operations were not being conducted with appropriate care to avoid the escape of contaminants; and they knew that waste materials were disposed of on the site. As to the last matter, the evidence is that Hasell was instructed by Mr Crawford to skim off creosote from the pond regularly, and that it in fact did so from time to time. The scum of creosote and water must have been disposed of somewhere. Similarly, the sumps were designed to be skimmed off. It must have been obvious that either the scum from the sumps also required to be disposed of or, if the work was not being done, as I believe it was not, creosote was accumulating in the area of the site in and about the sumps. Mr Crawford must have known that the waste was not being dumped at the Council's dump. There was really only one other likely mode of disposal. Its likelihood was not diminished by any consideration that it may have infringed some regulation; the Council specifically submitted (and I agree, subject to any possible question of nuisance which may have arisen) that: "If Hasell did dump materials on site that conduct was not unlawful." Mr Hegarty, in cross-examination, suggested waste creosote may have been sold off as weed killer or for some other domestic or industrial purpose; but that did not happen in fact, so Mr Crawford would have been aware, being in Armidale over those many years, that such sales were not being advertised. In any case, Hasell's carelessness about the constant flow of spillages out of the site would have been a clear indication that it was not preserving the substances for some form of recycling. The suggestion is fanciful, but the fact that it was made indicates an appreciation by Mr Hegarty that, without some such explanation, the situation must have forced upon Mr Crawford and himself a knowledge of the pollution of the site.

52. So far as Mr Crawford is concerned, as the city's responsible Health Surveyor, who was called upon repeatedly to report to committees and to the Council concerning complaints of contamination emanating from the site, he spoke to employees of Hasell on numerous occasions; he assisted in the cleaning up of the site after major spillages; he must have visited the site on other occasions over the years in the ordinary course of dealing with complaints; he must have learned details about the operations upon the site from surrounding residents who were complaining of the pollution caused by the operations; and it seems very unlikely that over a period of so many years he did not on some occasion or occasions, when visiting the site, personally see the physical evidence of the methods of disposal of waste which were in fact being adopted. Indeed, the eight 44 gallon drums must have been plainly in evidence near the cylinder, partly filled with waste material, and it would be extraordinary if he never satisfied himself how their contents were disposed of; the disposition of waste was plainly relevant to the very reason for his visits to the site. It would also be extraordinary if, over that long period, none of his visits coincided with an occasion when the cylinder was being cleaned out upon a change-over from a creosote impregnation to a Tanalith impregnation or vice-versa, when the creation of a quantity of waste residue would have been forcibly brought home to him. Apart from that source of pollutants, it would again be extraordinary if Mr Crawford never observed the removal of dripping logs from the cylinder or the transport of dripping logs by fork-lift across the site, since these were every day operations, performed several times a day. In any case, he must have seen the results of that dripping, as well as of spillages, in creosote staining of the gravel surface. Those stains in silence, yet loudly, told their own tale.

53. If the ineffectiveness of Mr Crawford's responses to the many complaints about the operations at the site might cast doubt on the extent to which he carried out his duty to investigate the problem, it should be remembered that ultimately, though at the initiative of the State Pollution Control Commission, effective steps were taken, and they were steps based upon an understanding of what was happening to produce spillages in the vicinity of the cylinder itself. Mr Crawford must have been involved in this matter, and there is direct evidence that he was in fact involved in the cleaning up of the spillage which provoked this final remedy. And, however ineffective his earlier investigations may have been, it is clear, as I have said, that he did attend at the site on numerous occasions.

54. When all the threads of decision upon this question are drawn together, in my view it is open to the Court to infer, on the probabilities, that Mr Crawford was well aware of the general position at the plant site as it was described by Mr Bracken. In deciding whether I should in fact draw that inference, I am entitled to take account of the Council's failure to call Mr Crawford to give evidence. He was the man most concerned with the question, among the Council's officers, and the re-zoning and the development applications in respect of the subdivisions received the imprimatur of his statement that there were no objections to them. He was available to be called, and indeed the evidence showed that a statement had been obtained from him. Yet he was not called. It is a clear case for the application of the principle in Jones v. Dunkel [1959] HCA 8; (1959) 101 CLR 298. I confidently conclude that Mr Crawford was aware that regular spillages and dumping of copper chrome arsenate and creosote occurred at the site, as well as of the fact that the operations were so conducted as to allow the regular escape of contaminants both onto the site and extending out of it.

55. I have also formed the view that if Mr Hegarty had applied his mind to the question whether the site had become contaminated, his knowledge would have required him to conclude that it had to some extent, and that there was a serious risk that it might be extensively contaminated. I formed an unfavourable view of Mr Hegarty as a witness. He appeared to me to be distorting the truth in order to excuse himself.

56. Mr Hegarty did concede, however, in cross-examination that the operators of the plant "did not appear to have (an) adequate attitude to the creosote interception". Asked whether their attitude was consistent "with them simply regarding it as a waste product or a waste solution", he replied: "It could be consistent with that." Mr Hegarty also conceded that he understood, in 1975, that if the spillages "had exceeded some level which Council did not specify then they would have rendered the land unsuitable for residential use as it then was". He did not know "precisely what that level was but would have had to defer to somebody with the necessary expertise". He had not investigated "the precise extent of those spillages", i.e. the spillages at the plant, and he did not suggest he had ever asked Mr Crawford to investigate their extent, but he conceded that he "relied on Mr Crawford to bring to (his) attention any problem in relation to the extent of such spillages if there was a problem". He "considered that if it was a problem it was a matter which Mr Crawford would bring to (his) attention". At some level which was not within his knowledge, "spillages could have rendered the land not suitable for use for residential purposes".

57. In particular, Mr Hegarty did not know to what extent the gravel surfaces on the site might have been subjected to spillages of creosote and Tanalith. When he had conceded that, he was asked:

"So, as far as you were concerned if you had thought about it

they could have still been there under a fairly thin layer

of soil in 1982?"

"Given that the earth work had been removed that formed the

foundation for the plant and the tracks and whatever had

gone or appeared to have gone and the plant had gone and

responsible people had been involved in that I believed that

everything had gone."

I do not believe this answer. Mr Hegarty had every reason to know that the people involved had not been "responsible people", so far as the handling of contaminants was concerned. To the contrary, they had been wholly irresponsible, and had caused serious pollution to Armidale's main stream over a period of many years. Nor did Mr Hegarty believe that any major clean up had occurred below the surface of the land. His own note about the continued existence of the gravelled roadways on the site, to which I have already referred, shows this. (The terms of the note, with its reference to the use of "high axle load log skidders", also suggest he had a closer knowledge of the operations at the treatment plant than he was willing to acknowledge in evidence.)

58. Mr Hegarty claimed in cross-examination that in 1985, in connection with the development application, he considered "the previous use of the site and the consequences of that". He said he had a visual inspection. I certainly accept that he saw the site, but I do not accept his evidence that he considered the consequences of the prior use, so far as contamination of the land is concerned. I think he ignored that question. He made no investigation to see what had happened to the sumps, and all that his visual inspection would have shown him was that the bunds had been removed, as well as surface structures, and the surface where they had been had been levelled. The internal roads remained undisturbed, which must clearly have shown him that nothing like a removal of the top layers of polluted gravel and soil had taken place. Indeed, under further cross-examination, Mr Hegarty conceded that his inspection was wholly inadequate to determine whether the sumps had been removed, that they could have been a source of concentration of creosote or Tanalith, and that he "left that up to the Health Department to consider". In re-examination, Mr Hegarty said that on his inspection "it looked like there had been some trimming and there was some loose surface in evidence. What went on at depth I don't know." Actually, as I have already noted, the Statement of Environmental Effects accompanying the first development application had told him the land had "through previous industrial use ... nearly a full cover of consolidated gravel". That did not suggest it had been disturbed by any removal of polluted layers of gravel and soil, and it certainly did not suggest that a new surface of unconsolidated gravel had been laid down. A "trimming" was indeed all that the site had received, as Mr Hegarty knew.

59. In the applicant's case, evidence was given by a Mr F.J. Hanson, who was a most impressive witness. Mr Hanson is now retired, but continues to work as a part time town planning consultant. He is a civil engineer, certificated town and country planner, and building surveyor. From 1952 until 1973 he worked with the Sydney City Council, eventually becoming Deputy Head of the City Building Surveyor's Department. From 1973 to 1986, when he returned to the Sydney City Council as Director of Planning, he was a member of the Local Government Appeals Tribunal and its successor the Land and Environment Court, of which he became a senior assessor. Mr Hanson gave evidence concerning his own knowledge and experience before 1973, while he was working with the Sydney City Council. His evidence was that "where a non-industrial use was proposed of industrial land or quasi-industrial land, such as an ex garbage tip, questions of contamination were well known and considered". He said that "Council officers were well aware because of the original of those controls (he was speaking of a 19th century provision referring to material from a cess pit) of the need to look at pollution and contamination." He was also "aware that the question of pollution or contamination of sites had arisen in other Council areas." Afterwards, during his period with the Tribunal and the Court, he was aware of two cases prior to 1984, one in the mid 1970s, where the question of contamination of a site proposed to be redeveloped required specific consideration. Part of one site "was specifically excluded by consent from the application because it had been contaminated with asbestos". Referring to earlier periods, back to the 1950s and 1960s, he said: "(O)ur knowledge of what contaminates has certainly increased but the concern about contamination would have been there." Asked about the practice of competent town planners, as at 1984, when required to make a recommendation to a Council on a development application to subdivide land for residential use, the previous use of the land having been for an industrial purpose involving the use of chemicals, he said:

"It would have been to investigate what that use was, what the

chemicals were, the manner of the use and the history of the

site because we're dealing now with specific sites or a

specific application, although I realize the question is

general, and in the light of that knowledge and assessment

against the heads of consideration (he was referring to

legislative requirements) to either require the submission

of further information or if the planner was satisfied that

he had sufficient information to assess the application

against all relevant heads, then to report the relevant

facts to the Council."

60. Apart from the specific evidence of Mr Hanson, and other evidence such as that of Dr Swane, the idea that in 1984 or 1985 the possible effects on a site of industrial pollution would not have been present to the mind of a reasonable town planner is directly contrary to obvious inferences raised by the passing of the Environmentally Hazardous Chemicals Act, 1985 (NSW), which was assented to on 29 March 1985. Such an Act must have had a substantial gestation period, and expert awareness of problems must have preceded it. Section 33 refers to "contaminated" premises, "unsafe or unfit for habitation or occupation by persons" by reason of their being "affected by a chemical or any chemical waste". And s. 34 contemplates that "adjacent premises may become contaminated".

61. A number of assumptions as to the facts were put to Mr Hanson by counsel. Those assumptions were generally in accordance with the facts as I have found them, and with the knowledge which I have found the Council had. Mr Hanson said:

"Assuming these facts I would expect the Council's planner, a

competent planner, to have required the applicant to

demonstrate that the land was in fact suitable for

subdivision for residential occupation by the erection of

residences."

Asked the question, "Suitable in what sense?" he replied:

"Suitable in the sense of being safe from the dangerous or

adverse effects of this contamination because assuming these

facts quite clearly both creosote and copper chrome arsenate

had spilled on to the land during the course of operation of

this industry and I would have expected the planner to

ensure that there was no residual chemical on the site and

that particularly goes of course to assumption number one

(i.e. that the site contained grassed or bare ground or

unsealed gravel surfaces) where it could be absorbed by the

site and not to recommend the development of the land by

subdivision for subsequent erection of dwellings until he

had that surety either from submission by the applicant's

experts and, if necessary, and it is normal practice of

course in my experience for that then to be referred to an

expert retained by the Council."

"Well again, I repeat what I said, I don't think that 1984 is

so long ago that the question of the danger of these

substances would not have been known, and also the practice

even at that time, and I can refer to practice in the Sydney

City Council with which I was aware, was quite common that

if expert knowledge or expert opinion was required which was

not available within the Council, and quite often that's the

case, then it is sought from experts outside."

He made it clear that these answers did not depend upon the precise details of the assumed facts, provided the overall impression remained the same. He said:

"The basic facts are that the site was used industrially for

this purpose, secondly, that the process or the purpose for

which the site was used involved the use of creosote and

copper chrome arsenate and, thirdly, that it is established

as a fact that both of those materials, in fact either/or,

but we can leave it as both because there seems to be in the

facts that they both were spilled on the site in varying

degrees, but in at least one case and possibly more in very

large quantities. Now, on these three facts alone I could

form the opinion that further investigation was required."

62. Mr Hanson made it clear that, in his view, the requirement to investigate was not dependent upon any detailed knowledge concerning the operations which had taken place on the site. He said:

"Just the use of the materials alone would itself raise

serious doubts, certainly in my mind, and I would expect in

the mind of any competent town planner, because the

materials used are such that this industry obviously becomes

(of) an offensive or hazardous nature, whether or not you

can divorce from that consideration knowledge of the fact of

spillage. But if the Council officer had positive knowledge

that the process was such that there not only had never been

a spillage but also could not have been a spillage, I would

think he would still be imprudent to ignore what materials

were used on the site, but I could understand that he might

say, well, he was perfectly satisfied, but even that, even

that shows that he has thought about it and formed an

opinion."

Asked specifically: "You say he was bound to form an opinion, do you?" he replied:

"I think he would have had - knowing the previous use of the

site, I think he had to consider whether or not there had

been any contamination."

"And contamination in the sense of materials that might have

been spilt during the operation of the plant and its

associated operations around the site and which would have

simply soaked into the site?"

"Even if there had been no percolation by any means of these

materials to the other side of the road or anywhere off the

site, he should still have been aware that dangerous

materials were used on that site and satisfied himself as to

the safety of the site from the view-point of human

occupation."

64. When the Council's officers came to consider the development applications, not only were they bound by the obligations of ordinary proper practice to act in the manner indicated by Mr Hanson; they had an obligation under s. 90 of the Environmental Planning and Assessment Act 1979. That section relevantly provides:

"(1) In determining a development application, a consent

authority shall take into consideration such of the

following matters as are of relevance to the development the

subject of that development application:-

. . .

(g) whether the land to which that development application

relates is unsuitable for that development by reason

of its being, or being likely to be, subject to

flooding, tidal inundation, subsidence, slip or bush

fire or to any other risk;

(h) the relationship of that development to development on

adjoining land or on other land in the locality;

... ." (Emphasis added.)

I am satisfied that, in fact, the risk of persisting chemical contamination was not taken into consideration at any stage of the determination of any of the development applications. If it had been, some action would certainly have followed, given the known history of the site.

65. In considering the duty of the Council, in these circumstances, when it came to deal, firstly, with the re-zoning, and later with the various development applications, weight must be given to the knowledge of its responsible officers, and in particular, to the knowledge of Messrs Crawford and Hegarty. The Council can be vicariously liable for their negligence. It can also be directly liable in consequence of their knowledge, which must be imputed to it. It was their duty, in performing their respective roles as senior officer of the Health Department and senior Town Planner, to make their knowledge available to the Council, and it must be treated as having the knowledge of its senior officers. Cf. Minister for Aboriginal Affairs v. Peko-Wallsend Limited [1986] HCA 40; (1986) 162 CLR 24 at 31, per Gibbs CJ.

66. Putting to one side the re-zoning, the central question is whether the Council, when it came to consider the initial and subsequent development applications, owed a duty of care to the owner of the land, to a known prospective purchaser of parts of the land, or to other persons who might acquire parts of the land or lots into which it was to be subdivided pursuant to the Council's approval of the particular development application. A number of features of the situation must be borne in mind. In the first place, there is the knowledge which I have held the Council had, through its officers, of the potential danger. In the next place, the Council must have appreciated that ordinary persons in the community, who might buy the land or some of it, would not have the same knowledge. The Council had detailed records extending over a lengthy period of years; it had the detailed plans of the impregnation plant which had been submitted to it for approval at the outset of the industrial use of the land; its officers had been intimately concerned with the control of the pollution emanating from the plant; its officers had carried out inspections over the years and had been involved in at least two of the clean up operations after major spillages of contaminants. By contrast, ordinary persons might be expected to have no relevant records, no prior acquaintance with the site, no knowledge that the treatment works had been conducted in such a manner as to contaminate the surrounding area, and possibly no understanding that the activity which had formerly been carried on upon the land carried even a risk of contamination.

67. So far as relevant knowledge was concerned, the Council was in a position of dominating advantage compared with the persons to whom it is alleged to have owed a duty of care. The Council also had a statutory duty under s. 90, to which I have referred, to take into consideration "whether the land to which that development application relates is unsuitable for that development by reason of its being, or being likely to be, subject to ... any other risk". In considering whether the Council stood in the appropriate relationship of proximity to persons such as the applicant, so as to raise a duty of care, it is relevant to bear in mind that it was the Council upon which that statutory duty was imposed in relation to the development application. Additionally, of course, the requirements of professional practice, of which Mr Hanson gave evidence, lay upon its town planner, for whom it was responsible in negligence: Voli v. Inglewood Shire Council [1963] HCA 15; (1963) 110 CLR 74 at 100. When Mr Finlayson gave the evidence, which I have accepted, of his reliance upon the Council's approval as indicating that the land was appropriate to be built upon for residential purposes, it seems to me he was justified by the Council's statutory obligation. He could not quote the provision of the statute, any more than many people who justifiably rely upon the performance by others of their legal obligations can formulate those obligations as accurate propositions of law, but I think the basis of his reliance really lay in the practice of councils and those who deal with them, which was itself firmly grounded in legal obligations. Finally, it is an important feature of the situation that the Council took an active part in the creation of the situation from which the applicant's losses came. It was the Council which insisted upon the re-zoning of the land as residential, despite the initial opposition of the State Planning Authority; but if that matter be set to one side, it was still a positive decision of the Council to approve the development application originally submitted by Basia Holdings Pty Limited, and tacitly to approve the proposed further development application foreshadowed in it, which made the subdivision possible, and made the land available to purchasers including the applicant for the purpose of residential construction upon it.

68. The question is whether, when all those aspects of the circumstances are taken into account, the necessary relationship of proximity is made out. In the joint judgment of Gibbs CJ, Mason, Wilson and Dawson JJ in San Sebastian Proprietary Limited v. Minister Administering the Environmental Planning and Assessment Act 1979 [1986] HCA 68; (1986) 162 CLR 340 at 355, the law is expounded as follows:

"The relationship of proximity is an integral constituent of

the duty of care concept. We refer to that relationship in

its broader sense, namely, as embracing a general limitation

upon the test of reasonable foreseeability, this being the

sense in which it has been discussed and applied in recent

judgments in this Court (Caltex (1976) 136 CLR, at pp 574-576;

Jaensch v. Coffey [1984] HCA 52; (1984) 155 CLR 549, at pp 552-553;

Sutherland Shire Council v. Heyman [1985] HCA 41; (1985) 157 CLR 424, at

pp 461-462, 506-507; Stevens v. Brodribb Sawmilling Co.

Pty. Ltd. (1986) 160 CLR 16). The notion of proximity,

because it limits the loss that would otherwise be

recoverable if foreseeability were used as an exclusive

criterion of the duty of care, is of vital importance when

the plaintiff's claim is for pure economic loss. When the

economic loss results from negligent misstatement, the

element of reliance plays a prominent part in the

ascertainment of a relationship of proximity between the

plaintiff and the defendant, and therefore in the

ascertainment of a duty of care. But when the economic loss

results from a negligent act or omission outside the realm

of negligent misstatement, the element of reliance may not

be present. It is in this sphere that the absence of

reliance as a factor creates an additional difficulty in

deciding whether a sufficient relationship of proximity

exists to enable a plaintiff to recover economic loss."

See also Gala v. Preston [1991] HCA 18; (1991) 172 CLR 243 at 253.

69. For the Council, heavy reliance was placed upon the decision of the majority of the High Court (Mason, Brennan and Deane JJ) in The Council of the Shire of Sutherland v. Heyman [1985] HCA 41; (1985) 157 CLR 424, who held that, in the circumstances of that case, the Sutherland Shire Council owed no duty of care to the purchasers of a house in which defects developed because its footings were defective and not in accordance with the approved plans, the Council having failed to inspect, or possibly inspected carelessly, those footings during the carrying out of the building work. Mason J said (at 458):

"It is now well settled that a public authority may be subject

to a common law duty of care when it exercises a statutory

power or performs a statutory duty."

(See also, per Gibbs CJ, with whom Wilson J agreed generally, at 445.) Mason J then said (at 459-460):

"Generally speaking, a public authority which is under no

statutory obligation to exercise a power comes under no

common law duty of care to do so ... . But an authority may

by its conduct place itself in such a position that it

attracts a duty of care which calls for exercise of the

power. A common illustration is provided by the cases in

which an authority in the exercise of its functions has

created a danger, thereby subjecting itself to a duty of

care for the safety of others which must be discharged by an

exercise of its statutory powers or by giving a warning ...."

He cited a number of authorities for this proposition, including the decision of the English Court of Appeal in Bird v. Pearce; Ex parte Somerset County Council (1979) 77 LGR 753, to which I shall refer later.

"And then there are situations in which a public authority,

not otherwise under a relevant duty, may place itself in

such a position that others rely on it to take care for

their safety so that the authority comes under a duty of

care calling for positive action. Such a relationship has

been held to arise where a person, by practice or past

conduct upon which other persons come to rely, creates a

self-imposed duty to take positive action to protect the

safety or interests of another or at least to warn him that

he or his interests are at risk ... . ...

Reliance has always been an important element in

establishing the existence of a duty of care. It has been

suggested that liability in negligence is largely, if not

exclusively, based on the plaintiff's reliance on the

defendant's taking care in circumstances where the defendant

is aware or ought to be aware of that reliance ... . Be

this as it may, the concept of proximity as explained by

Stephen J in Caltex Oil (Australia) Pty Ltd v. The Dredge

'Willemstad' [1976] HCA 65; (1976) 136 CLR 529, at pp 574-575 and Deane J

in Jaensch v. Coffey [1984] HCA 52; (1984) 155 CLR 549, at pp 586-587 (but

cf. Leigh and Sillivan Ltd v. Aliakmon Shipping Co Ltd

[1985] UKHL 10; (1985) QB 350, at pp 395-396) involves in most cases a

degree of reliance: see Junior Books Ltd v. Veitchi Ltd

[1982] UKHL 4; (1983) AC 520, at p 546. And it has certainly been an

influential factor in setting limits to the far-ranging

effect of the foreseeability doctrine and in confining the

class of persons to whom a duty of care may be owed."

71. At pp 462-463, Mason J discussed certain American authorities concerning the effect of general reliance which persons may place on a public authority in cases "where the government has supplanted private responsibility, as in the case of air traffic controllers". He concluded (at 463):

"The American experience therefore furnishes support for the

view that a public authority is liable for negligent failure

to perform a function when it foresees or ought to foresee

that: (a) the plaintiff reasonably relies on the defendant

performing the function and taking care in doing so, and (b)

the plaintiff will suffer damage if the defendant does not

take care."

He referred to the distinction between general and specific reliance by the plaintiff upon the defendant and commented (at 463-464):

"It is positive conduct on the part of the defendant or the

plaintiff's acting to his detriment which gives rise to

specific, as distinct from general, reliance or dependence.

... However, there is no a priori reason why the existence

of a duty of care should necessarily be conditioned on the

defendant's positive conduct. The same comment may be made

about detriment. ... In the case of a public authority,

the foreseeability of the plaintiff's reasonable reliance is

a sufficient basis for finding a duty of care, subject to

such dispensations as may arise from the special character

of a public authority exercising statutory functions ... .

If this be accepted, as in my opinion it should be, there

will be cases in which the plaintiff's reasonable reliance

will arise out of a general dependence on an authority's

performance of its function with due care, without the need

for contributing conduct on the part of a defendant or

action to his detriment on the part of a plaintiff."

72. Mason J accepted (at 468-469) the proposition that a public authority's policy-making decisions cannot be the subject of a duty of care. He said:

"Anns (Anns v. Merton London Borough Council [1977] UKHL 4; (1978) AC 728)

decided that a duty of care cannot arise in relation to acts

and omissions which reflect the policy-making and

discretionary elements involved in the exercise of statutory

discretions. It has been said that it is for the authority

to strike that balance between the claims of efficiency and

thrift to which du Parcq LJ referred in Kent v. East

Suffolk Rivers Catchment Board (1940) 1 KB 319, at p 338

and that it is not for the court to substitute its decision

for the authority's decision on those matters when they were

committed by the legislature to the authority for decision

... . Although these injunctions have compelling force in

their application to policy-making decisions, their cogency

is less obvious when applied to other discretionary matters.

The standard of negligence applied by the courts in

determining whether a duty of care has been breached cannot

be applied to a policy decision, but it can be applied to

operational decisions. Accordingly, it is possible that a

duty of care may exist in relation to discretionary

considerations which stand outside the policy category in

the division between policy factors on the one hand and

operational factors on the other."

The same distinction between policy and operational decisions has been accepted by the Supreme Court of Canada: City of Kamloops v. Nielsen (1984) 10 DLR (4th) 641 at 661-662, 674, per Wilson J (Ritchie and Dickson JJ concurring). The consequence was put succinctly by her Honour, when she said (at 674) that "in the operational area, i.e., in implementing their policy decisions, public officials will be exposed to the same liability as other people if they fail in discharging their duty to take reasonable care to avoid injury to their neighbours".

73. This distinction, established in England, Canada and Australia, has application in the present case. A development approval, to use words which Mason J used in Sutherland Council v. Heyman (at 469), is "the product of administrative direction, expert or professional opinion, (and) technical standards". It is an operational decision. And it is not perplexed by the kind of "very delicate choice" which forbad the application of the ordinary law of negligence in Yuen Kun Yeu v. Attorney-General of Hong Kong (1988) AC 175 at 195. Indeed, in this particular case, the evidence does not suggest that any policy considerations intruded in any way into the development approvals which were granted. But a decision to re-zone an industrial area of Armidale, in order to concentrate industrial activity in a particular quarter of the city, although that involves relocation of some industries, is plainly a policy decision; and the extent to which resources are committed or not committed to the investigation of the suitability of every part of the land involved to be utilized for the purposes to be permitted by the new zoning, without the imposition of some, perhaps stringent, conditions, is also a policy decision. Accordingly, I think the applicant's case fails, so far as it fastens upon the decision to re-zone the area including the subject land for residential purposes.

74. In Sutherland Council v. Heyman, the High Court was concerned with a decision which was certainly operational. It related to the inspection of the footings of a house under the council's powers to control building. In the view of Mason J, the plaintiffs failed because, in the particular circumstances, as his Honour made clear at 470, they could only have shown a duty of care on the basis of a reliance or dependence on the council "having investigated the building and having satisfied itself that the building complied with the Act and ordinances". That they could not show. Had they in fact placed a specific reliance on the council's exercise of its power, they could have sought a certificate under s. 317A of the Local Government Act 1919 (NSW), but they had not done so. Nor had they sought to make a case of general reliance. Even had they relied on such a case, the existence of s. 317A and the nature of the subject matter, which they could have investigated for themselves by the taking of the quite ordinary step of having the building inspected before purchase, would have made the task difficult. Fundamental to the reasoning by which Mason J so limited the scope of the plaintiffs' possible case, and then dismissed it on the facts, was the passage I have already quoted, in which he distinguished between an authority's mere failure to exercise a statutory power, which it is under no statutory obligation to exercise, and a case where the authority, by the exercise of its functions, has actually created the danger. In the latter case, it may come under a duty of care because of the positive part it has played. Similarly, it may do so because it has placed itself in a position where others depend upon its exercise of care in relation to functions it has accepted, or which it is incumbent upon it to perform.

75. The distinction between a mere omission, on the one hand, and an omission to consider, and if necessary guard against, a consequence of positive action, on the other, was also vital, to the decision in Sutherland Council v. Heyman, upon the view taken by Brennan J. His Honour said (at 479):

"Where a person, whether a public authority or not, and

whether acting in exercise of a statutory power or not, does

something which creates or increases the risk of injury to

another, he brings himself into such a relationship with the

other that he is bound to do what is reasonable to prevent

the occurrence of that injury unless statute excludes the

duty. An omission to do what is reasonable in such a case

is negligent whether or not the person who makes the

omission is liable for any damage caused by the antecedent

act which created or increased the risk of injury. ...

There is a distinction between a case where the repository

of a statutory power does something which creates or

increases the risk of foreseeable damage and that damage

occurs and a case where a person is able to foresee that

damage might occur but does nothing to cause it. In the

first case, if he takes no reasonable steps to prevent the

occurrence of the damage, he is negligent; in the latter, he

is not."

"But a public authority is under a duty to take some action

(whether in exercise of a statutory power or not) to prevent

injury only if its antecedent acts (whether in the exercise

of its statutory functions or not) have created or increased

a risk of injury of that kind."

"The Council did not design what the builder constructed, nor

was it under a duty to supervise the construction. ... The

Council's actions did nothing to minimize the risk of

defective footings, but they did not create or increase that

risk. The Council's omission to exercise its powers of

inspection more rigorously (does) not make it liable for the

consequences of the builder's negligence."

"The common law imposes no general duty to avoid loss or

injury to another merely because it is reasonably

foreseeable that one's actions or omissions are likely to

cause it. ... It will subsequently be seen that the

ultimate question in the present case is whether the

relationship between the Council and the respondents

possessed the requisite degree of proximity to give rise to

a relevant duty of care on the part of the Council to the

respondents."

He elaborated (at 497-498) the notion of proximity, as capable of satisfaction in a variety of circumstances - by a relationship such as that of employer and employee or professional person and client, by a closeness of causal connection or relationship between the impugned conduct and the loss or injury, by the assumption by one party of a responsibility to take care in relation to another, or by the reliance of one party upon another to take such care where the party relied upon knew or ought to have known of that reliance. He continued (at 498):

"In the present case, the Council's active connexion with the

erection of the house was limited to the exercise of some of

its statutory powers and functions with respect to buildings

within its local government area. Those statutory powers

and functions and their partial exercise provide the context

and the essential content of the only relevant relationship

between the Council and the respondents with respect to the

house."

He made it clear (at 500) that the council was not immune from "liability under the ordinary principles of the common law of negligence". But he said (at 501):

"At the outset, one must distinguish between a positive act or

misfeasance and an omission or non-feasance and between

physical damage and mere or pure economic loss. In the

absence of some contrary express or implied statutory

mandate or special common law right, there will ordinarily

be little difficulty in discerning that a defendant, whether

public instrumentality or private person, was under a duty

to take reasonable care to avoid causing ordinary physical

injury to the person or property of a plaintiff by the

direct impact of its, his or her positive action. In such

cases, as pointed out previously, the reasonable

foreseeability of such damage being caused will ordinarily

suffice to establish the requisite proximity of relationship

and there will also ordinarily be no difficulty in the

operation of the rule that a cause of action will arise when

the physical damage is sustained. The position is different

in cases where the alleged negligence is constituted by a

mere failure either to act or to prevent another from acting

or where the alleged loss or damage is pure economic loss."

In the ensuing discussion, his Honour was careful to make it plain that the plaintiffs' case should not fail simply because it was limited to "mere economic loss". He said (at 502):

"In accordance with a clear trend of recent authority, the

general principles of the common law of negligence should

also be recognized as extending to cases involving mere

economic loss, that is to say, economic loss which is not

consequential upon ordinary physical injury to one's person

or property."

"Again, however, the distinction between mere economic loss

and ordinary physical loss or injury remains important in

determining whether the requisite proximity of relationship

exists in a particular case or category of case."

77. Deane J made it clear (at 508) that he took a similar view to that of Mason J on the question of the nature of the case the plaintiffs, in Sutherland Council v. Heyman, were required to make out if they were to succeed. And, on that matter, he came to the same conclusion. There was nothing in the circumstances to show reliance, and the council could not be under a duty, as his Honour put it at 511, "of protecting an owner of premises from mere economic loss sustained by reason of the negligent erection, by someone other than the council, of a building upon his or her land." However Deane J sounded a note of caution (at 512) that the result turned "to no small extent on the particular combination of factors involved in the case including the nature of the damage sustained by the respondents". He added:

"That conclusion could not be directly applied to a case where

the building owner established that the damage sustained was

caused by his reliance upon some particular course of

conduct being or having been pursued by the Council in

(e.g.) circumstances where the Council had encouraged such

reliance."

78. It is thus apparent that all three of the majority in Sutherland Council v. Heyman, in rejecting the proposition that the council owed a duty of care to the plaintiffs, placed reliance upon the nature of the case as one where no more was proved against the council than a failure or omission to take some step to avert the consequences of the builder's negligence. The council had done nothing itself, of which complaint could be made. (That is to say, it was not proved to have done any such thing, though it was possible it had inspected negligently - in this state of the findings of fact, the court could only proceed on the lesser basis that it had omitted to inspect at all, being under no statutory obligation to do so.)

79. The present case is quite different, if only because the Council itself was responsible for the granting of the development approvals. Its responsibility is not for a mere omission, but for a positive act. Of course, in performing that act, it omitted precautions which the applicant says were plainly essential. The question, then, is whether, in performing that act, and in all the circumstances, it owed the applicant a duty of care, notwithstanding that the nature of the loss suffered by the applicant may be categorized as economic.

80. To answer this question, it is necessary to have regard to those principles discussed by the majority of the High Court in Sutherland Council v. Heyman which are applicable to the instant situation. These principles do not in all cases yield an automatic answer. Rather, they inform the mind of the court in general terms as to those features that may be found in a given situation which would point to a relationship between a plaintiff and a defendant of such a nature as to give rise to a duty of care. Sometimes, one of these features will be sufficient. Sometimes the presence of one or more may be negatived by the position with regard to another; as, for example, in those cases where pure economic loss has been held not to be recoverable, notwithstanding that in the same circumstances a different form of loss might be recoverable. The application of the principles relating to proximity in untried circumstances may be far from easy. The differing approaches taken, in the various judgments delivered in the Supreme Court and the High Court in Sutherland Council v. Heyman, are illustrative.

81. In the particular circumstances of Sutherland Council v. Heyman, a characterization of the nature of the loss as purely economic was regarded as significant by Deane J in passages which I have quoted. (See also Hawkins v. Clayton (1988) 164 CLR 539 at 576.) On the other hand, Brennan J said (at 493):

"I do not wish to found my opinion on a rejection of the

classification of the damage adopted in Anns [1977] UKHL 4; (1978) AC 728.

The question is, as I have said, whether the appellant was

under a duty to avoid the damage actually suffered and the

answer to that question does not depend upon correct or

incorrect classification in pleading or in argument. It is

necessary to identify what is the event, circumstance or

liability that is said to constitute the plaintiff's damage

and, having regard to its nature and the circumstances of

the case, to determine whether the defendant was under a

duty to avoid or prevent it. The nature of the damage is

relevant to the existence and scope of the duty when a

special element restricts the cause of action for damage of

that kind: see Jaensch v. Coffey [1984] HCA 52; (1984) 155 CLR 549, at pp

575-576."

In his ensuing discussion of the point, Brennan J appeared to take the view that it would have been a proper legal basis for a claim, had the facts supported it, for the plaintiffs "to show that the structural damage and the defective footings which produced (the) economic loss were attributable to the Council's negligence". This approach appears to me to be quite close to that of Mason J, who said (at 466):

"In this case it matters not whether the damage sustained by

the respondents is characterized as being economic loss or

physical damage. It is how the affair stands, viewed from

the appellant's perspective, that is important in relation

to a duty of care. The foreseeable consequences of a

failure to inspect were physical damage to a particular

building resulting from faulty foundations and the incurring

of expenditure by a subsequent owner in rectifying the

defects. To deny the existence of a duty of care solely by

reason of the legal characterization of the respondents'

loss as economic - because the structure was flawed before

they acquired property in it - is to ignore the significance

of other circumstances in which the loss was sustained,

circumstances which the appellant could readily foresee.

One of the circumstances is that the respondents' loss

reflects expenditure which averts personal injury to those

who occupy the building."

82. The view expressed by Mason J is pertinent to the present case. The applicant's loss reflects, in large measure, the cost of remediation aimed at the removal of the hazards of toxicity and carcinogenicity to persons (and particularly children) who might live upon or in the vicinity of lots in the various subdivisions. The validity of taking account of this aspect of the loss suffered by the applicant would not be affected by an acceptance of the conclusion of Deane J that the loss should correctly be characterized as economic. Like a finding of causation in the eye of the law (cf. March v. E and M.H. Stramare Pty. Limited [1991] HCA 12; (1991) 171 CLR 506), the assignment by the law of a duty of care to a party occupying a particular position should reflect a common sense evaluation of the situation, in the light of human experience, rather than a nice assessment of how a legal taxonomy might categorize the plaintiff's loss. In Sutherland Council v. Heyman, all three judges of the majority lent some support to what Deane J, in a passage I have already cited, called "a clear trend of recent authority" recognizing that the general principles of negligence normally extend to cases involving mere economic loss, although in some particular situations they may not do so. A widening of the categories of cases in which claims for pure economic loss may be sustained is also supported by the more recent decision of the Supreme Court of Canada in Canadian National Railway Co. v. Norsk Pacific Steamship Co. Ltd. (1992) 91 DLR (4th) 289.

83. A fundamental feature of the present case is that the Council took positive steps out of which the loss ultimately arose. Not only did it lay the ground for subsequent actions by its decision to recommend a change of zoning of the area; it approved each of the development applications which made the land available for subdivision for residential building. When it took those steps, it seems to me that, in the words of Mason J, it "created a danger, thereby subjecting itself to a duty of care for the safety of others". (Cf. Barnes v. Irwell Valley Water Board (1939) 1 KB 21 at 36, per Greer LJ) An interesting example of a duty of care arising in this manner is provided by Bird v. Pearce (supra), which was cited by Mason J. In that case, a highway authority established a priority road system, one aspect of which was the placing of white lines on minor roads to warn drivers that they were entering a major road. Unfortunately, the white lines were allowed to be obliterated temporarily during the re-surfacing of some of the roads. When there was an accident, the authority pointed out that it had been under no obligation to provide the white lines in the first place. The Court of Appeal rejected a defence on this basis. Eveleigh LJ said (at 758-759):

"While foreseeability is necessary to found a duty, it does

not follow that a duty will inevitably arise. However, a

duty is more readily to be imposed where the defendant has

actively involved himself in the situation. ...

In the present case the highway authority had, in my

opinion, created a potential source of danger that did not

exist before they placed white lines upon the roads. Up to

that moment drivers had no justification for relying upon

anything other than their own appreciation of the road

situation. Once the highway authority in the exercise of

their power created a pattern of traffic flow, drivers could

be expected to rely in some degree upon it. Thereafter the

authority were under a duty of care to all road users to

take reasonable care to see that the system they had imposed

would not be allowed to deteriorate so as to create a

hazard."

"It is well established that, where a body exercises a

statutory power, it must use reasonable care to exercise it

in such a manner as not to cause avoidable damage or injury

to those who it can reasonably foresee may be affected by

such exercise."

In the judgment of Eveleigh LJ, reference is made to what was said by Cardozo CJ in H.R. Moch Co., Inc. v. Rensselaer Water Co. (1928) 159 NE 896 at 898. Extending the quotation a little, Cardozo CJ said:

"If conduct has gone forward to such a stage that inaction

would commonly result, not negatively merely in withholding

a benefit, but positively or actively in working an injury,

there exists a relation out of which arises a duty to go

forward. ... The query always is whether the putative

wrongdoer has advanced to such a point as to have launched a

force or instrument of harm, or has stopped where inaction

is at most a refusal to become an instrument for good."

84. Applying these statements to the present case, it may be said that had the Council done nothing about the land, it might not have laid itself open to liability. It might not have been under any legal duty to do anything. But once it took steps, and particularly once it decided to grant the first development application, it came under a duty of care in relation to the very action that it was taking. If that action created a hazard, it was the Council's duty to take reasonable care so that the threatened injury or damage might be avoided.

85. The impact upon the Council's situation of the aspect of the matter I have just been considering is enhanced by the statutory requirement made by s. 90 of the Environmental Planning and Assessment Act. In City of Kamloops v. Nielsen (supra, at 679-681) Wilson J, speaking for the majority of the Supreme Court of Canada, treated a statutory obligation of this kind as requiring the court to hold a duty of care was imposed in relation to a claim for pure economic loss.

86. The Council's action in granting the development applications, the statutory obligation that that engendered, and the requirements of good practice which attended the consideration of the applications (the exercise of the statutory power to consider them necessitated the observance of good practice, because such a power must be exercised with reasonable care: Caledonian Collieries Limited v. Speirs [1957] HCA 14; (1957) 97 CLR 202 at 220), all pointed also to another of the principles mentioned by Mason J in Sutherland Council v. Heyman. This is the principle of reliance, whether particular or general. The principle was discussed by McHugh JA (as he then was) in Parramatta City Council v. Lutz (1988) 12 NSWLR 293 at 330-331. His Honour treated the concept of general reliance as depending upon "authority to control the harm-causing event and a general consent to the exercise of that authority for the benefit of individuals". He saw that authority as depending "upon the existence of a statutory power". In the Supreme Court of the United States, reliance has also been seen as engendered by the taking of a positive step by an authority. A leading case is the judgment of the Supreme Court of the United States, delivered by Frankfurter J, in Indian Towing Co., Inc. v. United States [1955] USSC 74; (1955) 350 US 61. That case involved the failure of the US coastguard to maintain the efficient operation of a lighthouse. Frankfurter J said (at 69):

"The Coast Guard need not undertake the lighthouse service.

But once it exercised its discretion to operate a light on

Chandeleur Island and engendered reliance on the guidance

afforded by the light, it was obligated to use due care to

make certain that the light was kept in good working order;

and, if the light did become extinguished, then the Coast

Guard was further obligated to use due care to discover this

fact and to repair the light or give warning that it was not

functioning."

The effect of the case was summarized in Clemente v. United States [1977] USCADC 365; (1977) 567 F 2d 1,140 at 1,148, as being "that when the government gratuitously undertakes to perform a service upon which members of the public justifiably rely, it will be held to an appropriate standard of care in carrying the service out". (Emphasis original.)

87. The concept of general reliance, as McHugh JA pointed out in Parramatta Council v. Lutz, in a passage to which I have referred, is closely related to that of control. The great difference between the water authority's ability to deal with the situation and the customer's impotence was also seen by Slesser LJ as important in Barnes v. Irwell Valley Water Board (supra, at 45), where the untreated water became poisonous in the customer's lead pipe because the Board failed to take preventive action. Where a public authority knows or should know, when taking some action, that it is in a distinctly superior position to appreciate or to assess a consequential threat, which is foreseeable, of injury damage or loss, or to avoid the materialization of injury, damage or loss, compared with the position of some individual or class of individuals, it is likely that the situation will also involve the concept of reliance, by those who may be affected, upon the public authority to take reasonable care. If that proposition is correct, it undoubtedly applies in the present case, for reasons I have already pointed out. To see this aspect of the matter as a highly relevant factor is perhaps simply to extend somewhat the well-recognized proposition that control may impose responsibility: cf. Home Office v. Dorset Yacht Co. Ltd. [1969] UKHL 2; (1970) AC 1,004 at 1,055, per Lord Pearson. Of course, where the plaintiff is aware of the defendant's superior position in this sense, specific reliance is apt to be cemented.

88. The complexity of modern life continually places citizens in situations where, in a practical sense, they have to rely on the due performance of functions by authorities in circumstances in which lack of care may create or permit hidden hazards. In City of Kamloops v. Nielsen (supra, at 674), Wilson J described the citizen's "ever-increasing reliance on public officials" as "a feature of our age". Applying this consideration to the present case, the applicant, buying part only of the land, had no practical means either of investigating or of remedying the contamination of the whole area. Yet the applicant would be affected by contaminants both on the land it acquired and on adjacent parcels. It had to rely on the Council to have approved the development with due care. Indeed, it had no means of knowing or reason to suspect what was in the soil to excite a particular need for that care. According to Mr Hegarty, the signs were actually covered over by the gravel in 1985. The Council's officers knew that covering was deceptive, but the ordinary purchaser would not, and the Council should have taken the position of potential purchasers into account: cf. Mid Density Developments Pty Limited v. Rockdale Municipal Council [1993] FCA 408; (1993) 44 FCR 290 at 300. Nor could the Council have thought a purchaser would obtain, at great expense, chemical analyses of land in a residential subdivision. It is a situation where, of necessity, the functions of the Council, in approving development of the subdivision, must be seen as supplanting private responsibility, to use Mason J's phrase.

89. In my opinion, the existence of a relevant duty of care has been established in respect of each of the decisions upon the development applications involved in this case.

90. If the Council owed a relevant duty of care, I do not think there can be any doubt that, on the facts as I have found them, it was guilty of a breach of that duty of care. On these facts, the position of the Council was completely different from that of the borough council involved in the New Zealand case relied on by the respondent, Dancorp Developers Ltd v. Auckland City Council (1991) 3 NZLR 337. Both Mr Crawford and Mr Hegarty were careless in relation to the approvals of the various development applications, having regard to the knowledge which they had. They did nothing at all, whether by way of the imposition of any condition, by the giving of any warning, or by any other means, to avert the harm which they could reasonably foresee might be a consequence of the approval of each development application. Damage resulted which should be regarded as materially caused by the breaches of duty. See Bennett v. Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 at 420, per Gaudron J.

91. Although contributory negligence was pleaded, nothing was advanced in argument to justify a finding against the applicant.

92. There remain some further issues with respect to the first development approval. The hearing of this matter commenced as a hearing of three proceedings against the Council together, of which the applicant's application was one. The other two proceedings were actions brought by two couples who had purchased lots in the first subdivision, upon which they had had homes erected. The applicant was joined as a respondent in one of those cases. During the course of the hearing, the other two actions were settled. While all three actions were still being heard together, on the afternoon of the first day of the hearing, I was informed by senior counsel appearing for the Armidale City Council, Mr McClellan QC, that he wished to amend the statement of defence filed in the present application to plead a bar under the Limitation Act 1969 (NSW). Counsel for the applicant objected that he had only received the proposed amended statement of defence that morning, and I deferred the question of allowing the amendment until the next day. In the discussion, counsel for the applicant claimed that allowance of the amendment would involve an adjournment. In fact, the matter was not raised again on the following day, as I understand because, the question of adjournment having been aired, those advising the Council were seeking instructions as to whether the matter should be pressed. Just before lunch on the third day of the hearing, counsel for the applicant was advised that the application to amend would be pressed. He informed me, immediately after the luncheon adjournment, that the application would be opposed, and that his client submitted that, if the amendment were allowed, there would need to be an adjournment to enable it to join another party. Mr McClellan QC indicated that, in the circumstances, he would have an affidavit prepared for the purposes of his application to amend, which he would wish to deal with on the next hearing day, the following Monday. In fact, the application got under way on the following Tuesday, when the hearing was already well advanced.

93. Counsel for the applicant contended that, if the defence had been raised in due time, his client would have joined a former solicitor and, if necessary, that solicitor's insurer, on the basis that the solicitor had permitted the situation upon which the proposed defence was based to arise. He argued that the allowance of the amendment would necessitate an adjournment, since, unless the solicitor were joined in this proceeding, he would not be bound by any findings I might make, so that separate proceedings against the solicitor would impose an undue burden on his client, as well as the risk of inconsistent findings. I took the view that I should not, in the circumstances of this case as they then stood, including the involvement of other parties, and the potentiality for disruption of the Court's lists, accede to an application for an adjournment. Rather, the matter should be decided on the basis that the real issue was whether the prejudice of inability to join the solicitor in the same action, so that he would be bound, with the inevitable concomitant risks of delay and further expense for the applicant, amounted, in all the circumstances, to a sufficient reason for refusing the application to amend the defences.

94. Mr McClellan QC put his application on the footing that it only arose in one of the three actions I was then hearing, that is, in the present case, and only affected the claim made in this case in respect of seven of the lots. The defence was based on the proposition that the cause of action arose, in respect of those lots, upon entry by the applicant into the contract of 23 October 1985, which was, by about three months, more than six years prior to the institution of the proceedings. In support of the application to amend, Mr McClellan QC relied on the fact that a draft defence, sent at one stage to the solicitors for the applicant, did raise this defence. However, a formal defence, subsequently filed, omitted it. I accept the evidence of the solicitor for the applicant to the effect that she did not understand the defence would be relied upon. In the special circumstances which obtained, when the question of amendment was finally argued quite late in the hearing, I decided to defer a decision as to whether the leave would be granted until the time of delivery of judgment in the matter. I heard full argument on the issues raised by the proposed defence. It is now necessary to decide the question whether the amendment should have been permitted.

95. The defence sought to be raised is certainly arguable. At the same time, it may not ultimately succeed, even if I allow the amendment sought. In Sutherland Council v. Heyman at 505, Deane J expressed a view which, translated to the present case, would mean that the preferable approach is that any loss or injury involved in the contamination was sustained only at the time when that contamination was first known or manifest. "It is only then that the actual diminution in the market value of the premises occur(red)." This part of the judgment of Deane J was cited by Gaudron J in Hawkins v. Clayton (supra) at 601, where she said:

"If the interest infringed is the value of property, it may be

appropriate to speak of a cause of action in negligence for

economic loss sustained by reason of latent defect as

accruing when the resultant physical damage is known or

manifest, for as was explained by Deane J ... it is only

then the actual diminution in market value occurs."

The Full Court of the Supreme Court of Victoria considered the question in Pullen v. Gutteridge Haskins and Davey Pty Ltd [1993] VicRp 4; (1993) 1 VR 27, where (at 71) it was held the view of Deane J should be followed. See also Wardley Australia Limited v. The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 527, 529.

96. However, it is unnecessary to pursue this discussion since I have come to the conclusion that the amendment ought not to be allowed. It would subject the applicant to real prejudice, if the defence does apply to this situation, since pursuit of its claim for compensation against its former solicitor in a separate action would involve the incurring of additional expense, over and above that which would have been involved if the matter had been raised timeously, as well as additional delay and loss of time from its own business and the other burdens of fresh litigation. Issues fought before me might have to be fought again, and the respondent or his insurer in the new action might call different evidence, and achieve a different result. All these matters go to the applicant's prejudice. The matter must also be considered from the point of view of the public interest in adherence to the rules designed to achieve a speedy resolution of litigation. While the Council has a right to have defences upon which it can fairly rely dealt with, it does not have a right to raise them out of time and in circumstances which impose unfair burdens upon other parties and unreasonably disrupt the conduct of litigation in the Court for the benefit of all litigating parties.

97. Some of these considerations were applied by a full court, in rejecting an appeal from a decision refusing to allow the filing of evidence out of time, in Bomanite Pty Ltd v. Slatex Corp Aust Pty Ltd [1991] FCA 536; (1991) 104 ALR 165. French J (at 176) assumed the decision was "dispositive of a substantial cause of action in the proceedings". Nevertheless, in a passage too lengthy to be here set out, he expressed (at 177-178) a number of significant considerations in favour of dismissal of the appeal. Those considerations are also applicable here. Similarly, in State Pollution Control Commission v. Australian Iron and Steel Pty Ltd (No. 2) (1992) 75 LGRA 327, Gleeson CJ (with whom Sheller JA and Badgery-Parker J agreed) dismissed an appeal against a refusal by a judge to permit evidence to be called, to the prejudice of the respondent, in contravention of pre-trial directions. Gleeson CJ (at 333) referred to "the requirements of the efficient dispatch of the business of the Court" as a proper consideration to be taken into account. He cited the remarks of Lord Griffiths in Ketteman v. Hansel Properties Ltd (1987) AC 189 at 220, which were also cited (and with approval) by Sheppard J in Commissioner of Taxation v. Brambles Holdings Limited (1991) 28 FCR 451 at 455-456. The defence sought to be set up in Ketteman was, it may be observed, a time bar.

98. There was an application to amend made by the applicant, too, which sought to rely upon new paras. 9A and 10AA as set out in its Third Further Amended Statement of Claim. This application was resisted by the Council. I do not think any part of these reasons turns upon the allegations in those paragraphs, but they were allegations made without objection in the opening of counsel for the applicant, and I see no reason to think the respondent would be prejudiced by the allowance of the amendments. Accordingly, they are allowed.

99. For these reasons, I disallow the amendment sought to be made to the Council's defences in order to raise a defence under the Limitation Act, and I find that the applicant has established a case in negligence against the Council in respect of each of the development applications in question. The case pleaded under the Trade Practices Act was not pursued at the hearing, and will be dismissed. I direct the applicant to bring in short minutes, on a date to be fixed, of the orders which it is appropriate to make pursuant to these reasons. The Council must pay the costs.