Bryan v Maloney [1995] HCA 17;

Bryan v Maloney [1995] HCA 17; - HCA 1995 case summary — Zoe

[32]

17. The only factor which arguably precludes the recognition of a relevant relationship of proximity between builder and subsequent owner for the purposes of the present case is the kind of damage involved, namely, mere economic loss. As has been seen, a relevant relationship of proximity would have existed between the builder and Mrs Maloney with respect to ordinary physical injury to her person or other property caused by a partial collapse of the house due to its inadequate footings even if she had not been the owner. Here again, it is important to bear in mind the particular kind of economic loss involved. As has been said, the distinction between that kind of economic loss and ordinary physical damage to property is an essentially technical one. Indeed, the economic loss sustained by the owner of a house by reason of diminution in value when the inadequacy of the footings first becomes manifest by consequent damage to the fabric of the house is, at least arguably, less remote and more readily foreseeable than ordinary physical damage to other property of the owner which might be caused by an actual collapse of part of the house as a result of the inadequacy of those footings. Again, the policy considerations underlying the reluctance of the courts to recognize a relationship of proximity and a consequential duty of care in cases of mere economic loss are largely inapplicable to the relationship between builder and subsequent owner as regards that particular kind of economic loss. There can be no question of inconsistency with the builder's legitimate pursuit of his or her own financial interests since, as has been seen, the builder owed a duty of care to the first owner with respect to such loss. In circumstances where the particular kind of economic loss is that sustained by an owner of the house on the occasion when the inadequacy of the footings first becomes manifest, there is no basis for thinking that recognition of a relevant relationship of proximity between builder and that owner would be more likely to give rise to liability "in an indeterminate amount ... to an indeterminate class" than does recognition of such an element of proximity in the relationship between builder and first owner. It is true that, in so far as "an indeterminate time" is concerned, the time span in which liability to a subsequent owner might arise could be greater than if liability were restricted to the first owner. Nonetheless, the extent of that time span would be limited by the element of reasonableness both in the requirement that damage be foreseeable and in the content of the duty of care (30). In any event, it would prima facie correspond with that applicable to the relationship of proximity which clearly exists as regards physical injury to person or other property. Moreover, any difference in duration between liability to the first owner and liability to a subsequent owner is likely to do no more than reflect the chance element of whether and when the first owner disposes of the house.

[34]

19. Ultimately, it seems to us that, from the point of view of proximity, the similarities between the relationship between builder and first owner and the relationship between builder and subsequent owner as regards the particular kind of economic loss are of much greater significance than the differences to which attention has been drawn, namely, the absence of direct contact or dealing and the possibly extended time in which liability might arise. Both relationships are characterized, to a comparable extent, by assumption of responsibility on the part of the builder and likely reliance on the part of the owner. No distinction can be drawn between the two relationships in so far as the foreseeability of the particular kind of economic loss is concerned: it is obviously foreseeable that that loss will be sustained by whichever of the first or subsequent owners happens to be the owner at the time when the inadequacy of the footings becomes manifest. In the absence of competing or intervening negligence or other causative event, the causal proximity between negligence on the part of the builder in constructing the footings and consequent economic loss on the part of the owner when the inadequacy of the footings becomes manifest is the same regardless of whether the owner in question is the first owner or a subsequent owner. In the case of both relationships, the policy considerations which ordinarily militate against the recognition of a relationship of proximity and a consequent duty of care with respect to pure economic loss are insignificant. Moreover, there are persuasive policy reasons supporting the recognition of a relationship of proximity between the builder and a subsequent owner of an ordinary dwelling house with respect to the particular kind of economic loss. As Wright J pointed out, at first instance, a number of those policy considerations were identified in the judgment of the Supreme Court of New Hampshire, delivered by Thayer J, in Lempke v. Dagenais (31). They include the consideration that, by virtue of superior knowledge, skill and experience in the construction of houses, it is likely that a builder will be better qualified and positioned to avoid, evaluate and guard against the financial risk posed by latent defect in the structure of a house (32). In all the circumstances, the relationship between builder and subsequent owner as regards the particular kind of economic loss should be accepted as possessing a comparable degree of proximity to that possessed by the relationship between builder and first owner and as giving rise to a duty to take reasonable care on the part of the builder to avoid such loss.

[43]

5. The cases dealing with an architect's or builder's liability in negligence for carelessly designing or constructing a building have been concerned to distinguish between two general categories of damage. The first category consists of physical damage to person or property for which a defendant is, and always has been, liable under the paradigm application of Donoghue v. Stevenson (46); the second category consists of pure economic loss for which a defendant may be liable in negligence under principles that have been developed from Lord Atkin's original conception in that case, especially since Hedley Byrne and Co. Ltd. v. Heller and Partners Ltd. (47) It is not the pecuniary character of damages or even the manner of their calculation which is significant but the kind of loss or damage suffered by the plaintiff in respect of which an award of damages is sought. The distinction between the two categories of damage has served to distinguish cases where, in the absence of any contrary factor (48), reasonable foreseeability of the kind of damage actually suffered is sufficient to give rise to the defendant's duty of care from cases where reasonable foreseeability alone does not give rise to such a duty (49). The distinction is important. The tort of negligence imposes liability on a defendant for doing something which causes loss to another even though the thing done is otherwise lawful. If liability were to be imposed for the doing of anything which caused pure economic loss that was foreseeable, the tort of negligence would destroy commercial competition (50), sterilize many contracts and, in the well-known dictum of Cardozo CJ (51), expose defendants to potential liability "in an indeterminate amount for an indeterminate time to an indeterminate class". For those reasons, the tort of negligence has not offered a remedy for the recovery of pure economic loss from a defendant against whom no more is proved than that his or her actions caused that loss and the loss was reasonably foreseeable. In Murphy v. Brentwood District Council (52), Lord Oliver of Aylmerton said:

[99]

37. Once it is accepted that the damage essential to the tort of negligence may consist in pure economic loss and that a duty of care outside of contract is imposed on a builder to take reasonable care in doing his work to avoid foreseeable risks of danger to the person, there is much to be said for the views of La Forest J and Lord Brandon. The damage which may found an action in negligence against a builder or other person (whom I shall include in the term "builder") who is responsible for dangerous defects in a building can be seen as true economic loss consisting of the pecuniary liability imposed upon the owner (a term I use to describe the owner, occupier or other person responsible for the condition of a building) for physical damage to person or property suffered by a third person and caused by the defects attributable to the builder's negligence or consisting of money outlaid to rectify those defects before actual physical damage occurs. An owner who knows that defects in the building pose a substantial risk of physical damage to person or property of another - that is, defects which are "likely" to cause such damage - is under a duty to take any reasonable means to remove the risk (118). Indeed, an owner of a building may sometimes be liable to persons entering on the premises for damage caused by defects in the building attributable to the builder even though the owner was unaware of the defects (119). If the owner rectifies the defects in order to remove the risk of damage to person or property, the expense of removal can be seen as an economic loss incurred to remove the risk, rather than the consequence of the physical defects. If expense is reasonably incurred in removing the risk, it is right that the party incurring it should be indemnified by the party who, if the risk had materialised and physical damage had occurred, would have been primarily liable to the third party suffering that damage. So to hold would be merely to extend the liability of a builder to compensate the owner for taking the remedial action which the builder would have been bound to take in discharge of the builder's duty to prevent or avoid physical damage if the builder had been in occupation of the building.

At a glance

Court

Decision date

Before

Source

Judgment (262 paragraphs)

Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609 (23 March 1995)

Parties

Cases Cited (22)