Allen v Tweed Shire Council [2008] NSWSC 937 | Case summary

JUDGMENT 1 HIS HONOUR: The plaintiff is a registered civil engineer. He was engaged by the owners of land in Condong ("the land") in relation, inter alia, to both a rezoning and a subdivision thereof. In such capacities, there was an involvement with the defendant that commenced in the 1990s. In respect of such processes, whether by way of statute or otherwise, the defendant had a role which required it to consider a variety of matters (including matters such as flooding and subsidence affecting the land). In the performance of that role it was in the position to address questions of steps that may be taken to deal with such matters. 2 The rezoning took place in 1994. Later an application for subdivision was made. The proposed subdivision was rejected by the defendant. An appeal to the Land and Environment Court brought about a result whereby there was an approval subject to conditions that were suitable to the defendant. 3 There were 42 such conditions. The conditions included the following: "5. The subdivision is to be carried out in accordance with Development Control Plan No 16 - Subdivisions Manual. 20. The earthworks shall be carried out in accordance with AS 3798-1990, 'Guidelines on earthworks for commercial and residential development'. In general, material shall be placed in layers not exceeding 300mm in depth, watered and compacted to achieve the specified density ration as monitored in Table 5.1 - Guidelines for Minimum Relative Compaction. 21. The earthworks program shall be monitored by a Registered Geotechnical Testing Consultant to a level 2 standard in accordance with Appendix 6, AS 3798. 41. Certification by a qualified Engineer that the works have been performed under his/her supervision in accordance with the approved engineering plans and specifications." 4 The works were completed. A Certificate was given by the plaintiff in purported compliance with condition number 41 (it was dated 27 February 1998). I should add that a certificate was also supplied in respect of condition 21. The subdivision was registered. This vested certain of the land in the defendant. 5 Some years later, ponding was noticed on roads forming part of the land vested in the defendant. Investigations found that subsidence in road works had been caused because they had been built on soft alluvial soils The defendant incurred expense in respect of repair work. It sued the plaintiff for the repair costs (in the order of $40,000). The alleged cause of action was one of negligence. 6 The defendant proceeded on an amended statement of claim. The duty of care alleged to be owing to it was pleaded as follows: "The Engineer employed by the owner of the land was under a duty of care to the Plaintiff to carry out the work with reasonable competence and skill. PARTICULARS OF DUTY OF CARE The duty arises from the proximity between the Plaintiff and the Defendant in the creation and supervision of the subdivision. This proximity exists because of the following matters: (a) the Defendant being a Chartered Engineer or Registered preferred Engineer, was obligated to carry out the development of the subdivision in a proper manner; (b) the Defendant was a local engineer and should have been aware of the obligations of Engineers associated in subdivision on a flood plain; (c) the Defendant was specifically required to adhere to the conditions of consent, which drew the Defendant's attention to DCP 16, AS 3798.1990. AS 1726 - 1993." 7 The case propounded by the defendant, as seen by the Magistrate, was one of the plaintiff being in breach of Development Control Plan 16 and Australian Standards AS 3798 - 1990 and AS 1726 - 1993 in that he did not himself conduct geotechnical testing or retain an appropriate expert prior to constructions. The stance taken by the plaintiff was said to be that the Conditions of Approval did not require geotechnical testing and that he as a civil engineer had complied with his professional responsibilities. 8 A defended hearing took place in the Local Court. Judgment was delivered on 16 April 2008. The defendant was successful in the action. 9 The plaintiff now brings an appeal in this Court against the decision of the Local Court. It is contended that there was error in point of law that was material to the decision of the Local Court. 10 One of the matters that the Local Court was required to find was that the plaintiff owed a duty of care to the defendant. The decision was considered by the Magistrate in the context of a group of cases (the most recent of which is Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515) dealing with claims for damages for pure economic loss. 11 In Woolcock the majority observed that: "23 Since Caltex Oil , and most notably in Perre v Apand Pty Ltd , the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. 'Vulnerability', in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, 'vulnerability' is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre , the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp , the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords , the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company." 12 Accordingly, the defendant could only succeed in its claim if it could demonstrate vulnerability on its part. The Local Court found that certain facts made out the requirement for vulnerability. 13 Generally speaking, the one issue ventilated by the plaintiff is that the Magistrate both applied the wrong test and failed to address all of the relevant circumstances in approaching her task in dealing with the matter of vulnerability. In my view, the contentions of the plaintiff are well founded. 14 In Perre v Apand [1999] HCA 36; 198 CLR 180, McHugh J observed as follows: " Vulnerability 118 Cases where a plaintiff will fail to establish a duty of care in cases of pure economic loss are not limited to cases where imposing a duty of care would expose the defendant to indeterminate liability or interfere with its legitimate acts of trade. In many cases, there will be no sound reason for imposing a duty on the defendant to protect the plaintiff from economic loss where it was reasonably open to the plaintiff to take steps to protect itself. The vulnerability of the plaintiff to harm from the defendant's conduct is therefore ordinarily a prerequisite to imposing a duty. If the plaintiff has taken, or could have taken steps to protect itself from the defendant's conduct and was not induced by the defendant's conduct from taking such steps, there is no reason why the law should step in and impose a duty on the defendant to protect the plaintiff from the risk of pure economic loss. … 129 The degree and the nature of vulnerability sufficient to found a duty of care will no doubt vary from category to category and from case to case. Although each category will have to formulate a particular standard, the ultimate question will be one of fact. The defendant's control of the plaintiff's right, interest or expectation will be an important test for vulnerability. That test was applied by Gummow J in Pyrenees where his Honour noted that like the situation in Hill v Van Erp , there was no evidence of actual reliance." 15 In Woolcock, McHugh J observed as follows: "80 Whether or not the plaintiff was vulnerable to the risk of injury from the defendant's conduct is a key issue in determining whether the defendant owed a duty of care to the plaintiff. Indeed, the issue of the purchaser's vulnerability to economic loss is the critical issue in determining whether those involved in the construction of commercial premises owe a duty of care to the purchaser. In this context, vulnerability to risk means not that the plaintiff was exposed to risk but that by reason of ignorance or social, political or economic constraints, the plaintiff was not able to protect him or herself from the risk of injury." 16 The judgment of the Magistrate contains the following: "On the issue of vulnerability the majority in the Woolcock case were of the view that the facts in that case did not show that the appellant could not have protected itself against the economic loss it alleges it suffered. For example, a provision or warranty could have been inserted into the contract for sale or inspections could have been undertaken prior to contract. Again this case is factually different from the Woolcock case. Most importantly there was no 'sale' to the Council and the usual conveyancing protections were not available. There was no opportunity for the Council to draft warranties into any contract for sale. The infrastructure vested in the Council on registration of the subdivision. To protect itself in relation to geotechnical issues the Council required a certificate of construction be filed with the application for registration. In this case the certificate was signed by Mr Allen. To require the Council to conduct its own geotechnical tests and enquiries would make the certificate redundant. The evidence of Mr Musgrave was to the effect that the Council did not have the resources to undertake these tests and enquiries in relation to every subdivision. Mr Allen knew that the infrastructure was to vest in the Council on registration and that the filing of the Certificate was a necessary pre-requisite to registration. I am satisfied that the requirement for the certificate and the vesting of the infrastructure in Council satisfied the requirement that the Council was 'vulnerable' within the terms of the Caltex case and Perre v Apand Pty Ltd. … The Court's view is that in this case the Council was in a different position to that of a first owner or purchaser. It did not have the conveyancing protections of a purchaser, the infrastructure vested in the Council upon registration of the sub-division. Council was not acquiring the infrastructure to make money, but rather to discharge its public duty to provide and maintain services. To protect itself from incurring economic loss of this type the Council could have engaged sufficient experts to conduct the geo-technical testing themselves. The Council contends that to do so was not economically viable. The Council therefore required the filing of a certificate that all the requirements had been complied with prior to registration. Mr Allen provided that certificate. As discussed in relation to the majority judgment the Court is satisfied that these facts make out the requirement for vulnerability." 17 It can be seen from these extracts from the judgment that the Magistrate first approached her task by distinguishing this case from those cases in which a plaintiff was a first owner or purchaser and could have easily protected itself against the risk of loss by obtaining contractual warranties. She appears to have concentrated on the matter of the defendant not having such conveyancing protections and evidence had as to lack of resources on the part of the Council to conduct its own testing. This latter matter was seen as being causative of the defendant requiring the certification from the plaintiff. 18 Counsel were unable to assist on the question of whether or not a local council had been held to be vulnerable in any other decided case. There appeared to be no knowledge of any such case and the present one was said to be novel. 19 It seems to me to be erroneous to approach the test of vulnerability in the manner adopted by the Magistrate. Each case has to be considered having regard to its own particular facts. This case falls into a different category to those involving a first owner or a purchaser of land. 20 The question to be addressed is that of the relative inability of a plaintiff to protect itself from the economic loss. The cases seem to have regard to matters of ignorance or social, political or economic constraints that render a plaintiff unable to protect itself. 21 The context of this case was that the plaintiff was an applicant and the defendant was the relevant local government authority. There had been involvement for some years concerning the processes of rezoning and subdivision. The role of the defendant required it to consider, inter alia, matters such as flooding and subsidence affecting the land. 22 It seems to me that, in addressing the matter of its vulnerability, the Magistrate should have had regard to what the defendant could have done to protect itself against the economic loss claimed by it. Without intending to be exhaustive I will mention certain matters. There may have been inquiries or investigations that could have been made. There may have been steps that could have been taken to bring about testing at the expense of the plaintiff (or the owners). 23 In my view, the Magistrate has erroneously applied the test of vulnerability and has not taken into account all of the relevant circumstances. 24 Therefore, I consider that there has been error in point of law that justifies the disturbing of her decision. 25 The judgment and orders of the Local Court are set aside. The matter is remitted back to the Local Court for determination according to law. The defendant is to pay the costs of the appeal. If so entitled, it is to have a certificate under the Suitors' Fund Act 1951. The exhibits may be returned. **********

Allen v Tweed Shire Council

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