Chan v Acres

Chan v Acres - [2015] NSWSC 1885 - NSWSC 2015 case summary — Zoe

Judgment

HIS HONOUR: The plaintiffs (Ms Chan and Mr Cox) own a house situated at Roland Avenue, Wahroonga. They bought it from the first defendant (Mr Acres) and his then wife in March 2010. Mr Acres' former wife played no part in these proceedings. No one took the point that she should have been, but was not, a party. I shall refer to activities in fact undertaken by Mr Acres and his then wife as though he alone had undertaken them.
Mr Acres, as an owner-builder, carried out significant renovations and extensions to the house in 2008 and 2009. He had obtained a development consent issued by the fourth defendant (the Council) on 22 April 2008, and a construction certificate issued by the Council on 6 May 2008. He engaged the Council as Principal Certifying Authority (PCA) for the purposes of Part 4A of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act) and Part 8 of the Environmental Planning and Assessment Regulation 2000 (NSW) (the EPA Regulation).
Mr Acres engaged what he called an architect, but what appears in fact to have been a design or drafting company, called Actron Design Pty Ltd (Actron). Actron is not a party to these proceedings.
On the advice of Actron, Mr Acres retained the third defendant (MHE) to prepare certain structural drawings, and to carry out inspections of the structural work as requested from time to time.
Mr Elliott of Counsel, for MHE, submitted that the retainers were each ad hoc, not all effected by the one contract. I think that this is correct, but in the event, nothing seems to turn on it.
Before the plaintiffs bought the house, they procured a pre-purchase inspection report from the second defendant (Alpha). The claim against Alpha has been settled.
Essentially, the plaintiffs' case is that, based on the pre-purchase report prepared by Alpha and other matters, they decided to buy the house knowing of some defects (relating principally to water damage to the ceiling and walls in a bedroom located in the extension that Mr Acres had constructed, at the rear, or west, of the house). There were some other problems relating to surface water, drainage and subfloor ventilation, and some cosmetic matters. However, the plaintiffs say, after they moved into the property, they discovered that there were very serious structural and other defects, particularly in the work that Mr Acres had carried out.

[5]

Brief description of the building works

Roland Avenue runs generally North-South at the point where the house is located. The house is on the western side of the street. The extensions were constructed at the rear, or western side, of the house. There were however some works carried out to the front, or eastern, side. In addition, there were works carried out in the grounds of the property.
The plaintiffs' principal complaints relate to the extension at the rear of the house. There are also complaints in respect of a "Dincel" retaining wall on the northern boundary of the property, and in respect of other matters.
To explain the general nature of the works at the rear of the house, I shall adopt the parties' somewhat confusing terminology: particularly their use of the phrases "lower ground floor" and "ground floor" to designate respectively the lower and upper levels of the extension.
The works were executed on a slab laid on the ground that was supposed to be founded on shale. The approximate dimensions of the slab were 15m x 7m. The new slab was to be tied into the slab under the existing house, with provision for a drainage channel (formed by a set-down in the new slab at the point of intersection) from which water that gathered could be carried away into the stormwater system.
As designed by Actron, the northern and southern walls of the rear extensions were to be built of cavity brick, apparently for the full height of the extensions to roof level. The rooms facing to the west, or rear, of the property were to have windows or glazed doors.
The Actron design provided also for balconies to be constructed at the ground floor level, again facing west. One of those balconies was reduced in area, to comply with a condition of the development approval.
The whole of the rear extensions were to be covered by a metal skillion roof. Mr Acres said that after the works were completed, a tree fell onto the skillion roof, causing substantial damage. That damage was repaired at the expense of an insurer, and by a contractor arranged by the insurer. This aspect of Mr Acres' evidence was not challenged.
The works as constructed were somewhat different to the Actron design. MHE prepared a structural design which provided for the southern wall of the rear extension to be constructed of blockwork rather than cavity brick work. To the extent that this wall continued around to the west, it was likewise to be constructed in blockwork. MHE's design provided for a system of vertical bond beams in the blockwork walls, and for a horizontal bond beam to be constructed at the top of the south wall blockwork, for the purpose of taking the loads imposed by the ground floor floor joists and the works above.
In this context, a bond beam is constructed in blockwork by installing steel reinforcing bars into blocks (arranged horizontally or vertically) and then filling those blocks with concrete. MHE's design provided, among other things, for the vertical bond beams to be "cogged in" to the horizontal bond beam which they supported. That was to be achieved by taking lengths of reinforcement from the top of the vertical bond beams and bending them into the blocks from which the horizontal bond beam would be constructed. The effect would be to tie the horizontal bond beam into the vertical bond beams that support it.
For the first floor, the MHE design specified a wall of single skin brickwork with plasterboard interior walls: a brick veneer construction. The design provided for columns in various locations to support the roof, and specifically for steel columns, called the "C2 columns", to be located at the western face of the extensions, to support a steel beam running above the large glazed opening at the lower ground floor level.
On 22 April 2008, an engineer (the inspecting engineer) employed by MHE inspected the site "to review the underpinning requirements". He observed a test hole which disclosed hard shale about 500mm below natural ground level, and gave an instruction that "the underpinning [be installed] to hard shale, subject to final approval once the full excavation has been carried out". This appears to have related to the underpinning for the new slab.

[6]

The development approval, the PCA agreement and the construction certificate

Mr Acres lodged an application for development consent. The plans that he lodged with his application were the Actron plans. It was those plans (with a modification, as to the size of the balcony at the south-western corner) that became the approved plans.
It is not at all clear why the plans submitted to the Council did not include the structural drawings prepared by MHE. The first version of those drawings was prepared and made available to Mr Acres on 14 February 2008. On the same date, MHE gave a certificate of structural adequacy. The effect of that certificate was to certify that the existing building was structurally adequate to accept the loads that would be imposed by the proposed alterations and additions, provided that they were carried out in accordance with MHE's drawings of the same date.
On about 5 May 2008, the Council accepted appointment as PCA. The next day, 6 May 2008, the Council issued a construction certificate. That certificate referred only to the Actron drawings that were the subject of the development approval. It certified that if the work were carried out in accordance with those drawings, it would comply with relevant provisions of the EPA Regulation.
When the PCA agreement was signed, the Council sent a copy to Mr Acres under cover of a letter dated 6 May 2008. That letter stated that some eleven "critical stage inspections" were to be carried out before Mr Acres could commence the next phase of the works. It also stated that certain documents, including "engineering details for retaining wall, footing & slab reinforcement, structural steel & timber beams and posts" were to be provided to the Council "prior to the commencement of works".
The condition relating to submission of engineering drawings was not complied with. Mr Acres did have a copy of the engineering drawings on site. The Council officer who carried out the majority of the inspections (the certifier) was unable to give any satisfactory explanation as to why he had not required compliance with this condition.

[7]

Progress of the works

Mr Acres retained a number of contractors (none of whom gave evidence) to carry out the construction work. One contractor, Mr Dowell, held a licence to work as an excavator. He performed other tasks including excavation, forming up the slab, placing the slab steel and pouring the concrete, and many other matters. Other contractors were retained to perform other work. In particular, a Mr Pintaric was retained to undertake the blockwork.
Mr Acres said, in effect, that as he engaged each contractor, he showed the contractor numerous documents, including a copy of the Actron drawings, the MHE drawings, the development approval (including a presently irrelevant modification pursuant to s 96 of the EPA Act), and informed the contractor that he would need to carry out his trade work in accordance with those documents. If that practice were followed, it failed in very important respects to achieve the stated object of compliance with the drawings.
On 20 June 2008, a council building surveyor inspected the works. The subject of inspection was said to be the "steel slab", which was clarified to mean the "slab to rear lower ground". It is I think common ground that the inspection was of the steel reinforcing for that slab. The surveyor stated that what he inspected was "satisfactory subject to engineer's certification". He required the submission of a number of documents including "engineer's certificate for underpinning to existing rear wall" and "engineer's details".
From time to time, Mr Acres requested the Council, in its capacity as PCA, to inspect the works. That was done, and "compliance certificates" were issued.
Also from time to time, the inspecting engineer attended site for the purpose of making inspections. When this was done, he issued site inspection (SI) reports. Mr Acres said that, in addition, the inspecting engineer would call in from time to time, unrequested and unannounced, because he was "doing a number of jobs in your area so it's easy for me to pop in and check on the progress of the job". Mr Howes, the principal of MHE, gave evidence of system and documents intended to suggest that this would not have happened. The inspecting engineer, who was said to have called in, was not called. Although he is no longer employed by the engineer, there was no explanation given for the failure to call him. In those circumstances, to the extent that it matters, I accept this aspect of Mr Acres' evidence.
The works progressed, with inspections by the certifier, for the Council in its capacity as PCA, and issue of compliance certificates, and inspections by the inspecting engineer, and issue of SI reports. Ultimately, so far as the Council was concerned, the works were completed by 10 July 2009. On that date it issued a final occupation certificate pursuant to s 109H of the EPA Act.
The plaintiffs' pleaded case against MHE and the Council alleges breach of duty in respect of specific inspections carried out by each. As to MHE, the complaints are directed to inspections carried out on 20 June and 1 December 2008. The former related to the raft slab reinforcement, and the latter to the underpinning and "ground floor structural framing". As to the Council, the specific inspections of which complaint is made are those conducted on 8 July and 15 December 2008. The former related to the blockwork walls - specifically, to the requirement for vertical and horizontal bond beams. The latter related to the inspection of the ground floor framing, including the floor joists, columns and beams, and the roof frame.

[8]

The defects

The parties have procured inspections and investigations by building consultants and engineers. As a result, there is substantial agreement on the defects that presently exist. Those defects were summarised in a Scott Schedule, to which the building consultants and engineers all contributed. I take what follows from the version of the Scott Schedule, with the comments of those experts included, that was attached to the joint expert report of building experts (Mr Iskowicz, called for the plaintiffs and Mr Hall, called for MHE). Messrs Iskowicz and Hall said that Mr Ransley, a building consultant who had been retained to give expert evidence on behalf of Mr Acres, had contributed to the preparation of the joint report. However, he did not sign it.
The joint report annexes a schedule which is based on the plaintiffs' Scott Schedule. The comments of the experts I have identified, and of the engineering experts (Mr Stubbs, called for the plaintiffs and Mr Joannides, called for MHE) are also recorded. The individual experts did not comment on every item. I am prepared to assume that where comments are attributed to Mr Ransley in that schedule, they do reflect views expressed by him at the conference that led to the production of the joint report.
Messrs Iskowicz, Hall, Stubbs and Joannides were cross-examined extensively. Mr Ransley was required to attend for cross-examination, but Mr Acres (who was representing himself) had not arranged for Mr Ransley to appear. I take it, from what Mr Acres said on this topic, that he could not afford the fees that Mr Ransley would charge. In those circumstances, bearing in mind that Mr Acres was self-represented, I permitted him to adduce evidence of Mr Ransley's views, as expressed in his report of 5 November 2012. However, I stated that where those views were contentious, and were controverted by relevant opinion evidence of other experts, the weight to be attributed to Mr Ransley's views could be diminished because they had not been tested in cross-examination. That is of particular relevance where, as here, the experts gave evidence concurrently (Messrs Iskowicz and Hall in one session, Messrs Stubbs and Joannides in another) so that each was able to comment on views expressed by the other.
Following the order, and adopting the numbering, of the experts' schedule, the agreed defects were:

[26]

The case against Mr Acres

As I have said, the plaintiffs' claim against Mr Acres is based on breach of the statutory warranties contained in s 18B of the HB Act.
There is no doubt that Mr Acres was an "owner-builder", and that the work he did was "residential building work", as those expressions are defined in s 3 of the HB Act. Nor is there any doubt that the plaintiffs were the immediate successors in title to Mr Acres, for the purposes of s 18C of the HB Act. As I have said, there was no point taken that Mr Acres' former wife was a necessary party, or that the claim against him under the HB Act was unavailable because she had not been joined. In case it be thought that this reflected Mr Acres' inexperience, and his difficulties as a self-represented litigant, I should make it quite clear that his list response was drafted and settled by lawyers then retained by him, as indeed were his affidavits.
The effect of s 18C is to create what might be called a deemed or statutory contract between the (in this case) owner-builder and his immediate successors in title, for the purpose of the former giving to the latter the statutory warranties in s 18B.
I set out ss 18B and 18C: 18B Warranties as to residential building work (1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work: (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment. (2) The statutory warranties implied by this section are not limited to a contract to do residential building work for an owner of land and are also implied in a contract under which a person (the "principal contractor") who has contracted to do residential building work contracts with another person (a "subcontractor" to the principal contractor) for the subcontractor to do the work (or any part of the work) for the principal contractor. 18C Warranties as to work by others (1) A person who is the immediate successor in title to an owner-builder, a holder of a contractor licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the owner-builder, holder, former holder or developer were required to hold a contractor licence and had done the work under a contract with that successor in title to do the work. (2) For the purposes of this section, residential building work done on behalf of a developer is taken to have been done by the developer.
Of the six warranties for which s 18B provides, those of particular relevance are paras (a) and (e).
There is a limited defence provided by s 18F: 18F Defences (1) In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from: (a) instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work, being advice given in writing before the work was done, or (b) reasonable reliance by the defendant on instructions given by a person who is a relevant professional acting for the person for whom the work was contracted to be done and who is independent of the defendant, being instructions given in writing before the work was done or confirmed in writing after the work was done. (2) A relevant professional is independent of the defendant if the relevant professional was not engaged by the defendant to provide any service or do any work for the defendant in connection with the residential building work concerned. (3) A relevant professional is not independent of the defendant if it is established that the relevant professional: (a) was engaged on the basis of a recommendation or referral of the defendant to act for the person for whom the work was contracted to be done, or (b) is, or was within 3 years before the relevant instructions were given, a close associate of the defendant. (4) In this section, "relevant professional" means a person who: (a) represents himself or herself to be an architect, engineer or surveyor, or (b) represents himself or herself to have expert or specialised qualifications or knowledge in respect of residential building work or any particular aspect of residential building work, or (c) represents himself or herself to be engaged in a profession or to possess a qualification that is recognised by the regulations as qualifying a person as a relevant professional.
It is a little difficult to see how s 18F can be relevant to an owner-builder. In any event, Mr Acres did not plead the section by way of defence.
In my view, the defects that have been proved, as I have summarised them in the preceding section of these reasons, are such that the case of breach is made good. It could not possibly be said that the work that was done was performed in a proper and workmanlike manner. In many respects, it was not done in accordance with the relevant plans and specifications, although given that there was no written contract, that may be nothing more than a reason why the work was not done in a proper and workmanlike manner.
Nor could it be said that work, as defective as that which was done, resulted in the creation of a dwelling (in this case, extensions to a dwelling) reasonably fit for occupation as a dwelling. On the contrary, it is the view of all the relevantly qualified experts that the extensions are structurally unstable and dangerous, to the point that they ought be used as little as possible. The engineers agree that it is important for the remedial structural work to be carried out as soon as possible. Effectively, the plaintiffs have paid for extensions that they cannot use.
Nor is it only the structural defects that support the conclusion of breach of para (e). Other defects, including specifically the waterproofing defects, lead inevitably to the same conclusion.
In my view, it follows that, to the extent that Mr Acres was responsible for the execution of the works, he has breached the warranties under s 18B(a) and (e) of the HB Act.
Mr Acres said that some of the works that had been the subject of complaint were not works done by him as owner-builder. The works that Mr Acres said fell into this category were (by reference to the list set out above) items 12, 15 and 16. In addition, as to item 20, Mr Acres said that he did not carry out or arrange for the carrying out of any work on the existing roof or skylight. Finally, as I have noted, Mr Acres said that if there were defects in the skillion roof over the western extension, he was not responsible because that roof had sustained storm damage when a tree fell on it, and had been repaired by tradesmen retained by his insurer.
Those aspects of Mr Acres' evidence were not challenged. Accordingly, I accept them. It must follow that Mr Acres cannot be held liable for those defects. But he is liable for the others.
I return later in these reasons to the question of the cost of repairs, and to the question of apportionment (or proportioning) between the parties.

[27]

Common law duty of care: relevant principles

The plaintiffs' claims against MHE and the Council relied on common law duties of care. Since the analysis as to whether either of those defendants owed such duties of care proceeds upon the same basis, I propose to deal with the principles before turning to the individual claims.
It was common ground between the plaintiffs, MHE and the Council that the loss that the plaintiffs claimed to have sustained (and as will be apparent from what I have said, they have sustained) is "pure economic loss".
Accordingly, the principles bearing on the imposition of a common law duty of care to avoid such loss are those developed in cases such as (starting from the most recent) Brookfield Multiplex Ltd v Owners - Strata Plan 61288 (2014) 88 ALJR 911 and Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2003) 216 CLR 515. I should add that the cases cited by Counsel ranged well beyond those two.
To say that one person owes another a duty of care is to make a statement about a legal aspect, or incident, of the relationship between those two people. See Barwick CJ in The Mutual Life and Citizens' Assurance Company Limited v Evatt (1968) 122 CLR 556 at 565-566. The statement is a conclusion, based on all the salient features of the relationship.
Where the duty is said to be one to use reasonable care to avert the risk of economic loss that the second person might suffer from want of due care on the part of the first, foreseeability of loss is not sufficient. At a level of very general principle, it may be said that the common law does not recognise that mere foreseeability of the risk of economic loss, flowing from the want of due care on the part of someone, is sufficient to warrant the imposition on that person of a duty of care to take reasonable care to avert that loss.
Knowing that the other person may suffer loss is saying, in different words, that the other is, in the general sense of the word, "vulnerable" to that loss. What is required to convert vulnerability from its generally accepted English meaning to the more limited and precise meaning that it has in this field of discourse? The answer is to be found, not at some abstract level of principle, but through detailed examination of the relationship.
What, then, are the detailed features of the relationship that create vulnerability in this special sense? Again, in my view, the question is not capable of answer at a high level of abstraction. Again, it requires analysis of all salient features of the relationship, with that analysis informed analogically, by reference to precedent.

[28]

A brief survey of some of the authorities

Ms Painter of Senior Counsel, who appeared with Mr Walsh of Counsel for the plaintiffs, submitted that the decision in Bryan v Maloney (1995) 182 CLR 609 remained relevant. I am not sure that this is correct: at least, not in any way of present utility. Although the decision in Bryan was not overruled in either Woolcock Street or Brookfield (nor in any other decision of the High Court), it is clear that it remains authority only for the very precise and limited principle stated in it. As McHugh J put it in Woolcock Street at [71]: The ratio [of Bryan] can be put no higher than that the builder of a dwelling house owes a duty to a subsequent purchaser to take reasonable care to avoid reasonably foreseeable decreases in its value arising from the consequences of latent defects caused by the house's defective construction. Neither the stated reasons of the Court nor the material facts of the case justify any wider conclusion.
His Honour's statement of the principle decided by Bryan was picked up by Gageler J in Brookfield, who said at [185]: The continuing authority of Bryan v Maloney should be confined to a category of case in which the building is a dwelling house and in which the subsequent owner can be shown by evidence to fall within a class of persons incapable of protecting themselves from the consequences of the builder's want of reasonable care.
If I may say so with respect, his Honour's statement of the ratio in Bryan appears to be even narrower than the statement of McHugh J in Woolcock Street. Nothing turns on this, except (obviously enough) the need, particularly at the trial level, to proceed with care in seeking to apply the reasoning in Bryan beyond the precise proposition for which it is authority.
By contrast, Mr Elliott submitted that: … by virtue of changes in the underlying jurisprudence concerning the law of negligence since Bryan v Maloney [was decided], this Court is [not] bound to follow the ratio in Bryan and is instead obliged to follow current jurisprudence [which] would "trump" any competing obligation to follow the ratio in Bryan.
I note that submission, but cannot accept it. The High Court has considered Bryan at least twice, in cases dealing with building defects: Woolcock Street and Brookfield. It has twice affirmed that the decision in Bryan must be confined to its own facts; but it has twice declined to overrule Bryan. It seems to me that if the decision in Bryan is to be overruled, that is a matter for the High Court. It follows, I think, that unless and until the High Court does overrule Bryan, courts lower in the hierarchy would be bound to apply the ratio of Bryan if a case arose on materially indistinguishable facts. Thus, one matter of key significance is: are the facts in this case materially distinguishable from those in Bryan? I deal with this at [205] to [209] below.
Of course, the common law develops through analogical reasoning. However, the extension by analogy of settled categories where a duty of care has been owed must be performed in a principled way. That task requires the identification of the salient features of the relationship that were found to justify the imposition of duty in the decided case, and analysis of the facts of the case to be decided, to see the extent (if at all) to which equivalent salient features may be present.
Bryan was decided in the days when the imposition of a common law duty of care was thought to be governed by the notion of proximity. Proximity has been discarded, at least as a definitive label. Nonetheless, in my view, it is clear that the factors underlying the label "proximity", namely the salient features of the relationship between the defendant and the plaintiff, remain critical in the analysis. McHugh J made this plain in Perre v Apand Pty Ltd (1999) 198 CLR 180 at [105]. His Honour said: The principles concerned with reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant's knowledge of the risk and its magnitude are, I think, relevant in determining whether a duty exists in all cases of liability for pure economic loss. In particular cases, other policies and principles may guide and even determine the outcome. But I do not think that a duty can be held to exist in any case of pure economic loss without considering the effect of the application of these general principles.
McHugh J reiterated that analysis in Woolcock Street at [74]. At [75], His Honour repeated that other policies and principles may be determinative in particular cases. In short, as I understand it, the relevant principles that his Honour identified were not to be taken as the only principles. And, as his Honour said at [80], vulnerability: … is a key issue in determining whether the defendant owned 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.
McHugh J appears to have concluded that the appellant in Woolcock Street was not relevantly vulnerable: see his Honour's reasons at [96], [114]. However, the conclusion to which his Honour came was expressed not just in terms of the particular plaintiff, but more widely. His Honour said at [115]: In my opinion, the law of negligence is best served by leaving it to the market and the law of contract to determine who should bear the economic loss that arises as the result of a fall in the value of a commercial building consequent upon the discovery of latent defects in the building.
McHugh J considered other relevant policy factors at [89] to [105]. Those factors related to the responsibility of the defendant to control third parties; whether the imposition of the duty would outflank the law of contract; the floodgates argument; the problem of disproportionate liability; the lack of a measurable standard of care; and whether (more accurately, the extent to which) imposing the duty would circumvent the policy of limitation legislation.
In the joint judgment in Woolcock Street, Gleeson CJ, Gummow, Hayne and Heydon JJ pointed out at [14] that the conclusion in Bryan, that the builder owed a duty to subsequent owners to take reasonable care to avoid economic loss, depended "upon the anterior step of concluding that the builder owed the first owner a duty of care to avoid economic loss of that kind".
At [27] of Woolcock Street, the joint judgment concluded that the appellant's contention that the respondents owed it a duty of care could not be supported by the reasoning in Bryan. That was so, their Honours said, because "the anterior step of demonstrating that the respondents owed a duty of care to the original owner is not made out".
I emphasise this point because some of the submissions put for MHE and the Council appeared to take the statement at [27] beyond what I think is its intended operation. Those submissions, based on the joint judgment at [27], appeared to suggest that no duty of care could be imposed in favour of a subsequent owner unless the person on whom that duty was sought to be imposed had owed an equivalent duty to the first owner.
In my view, that submission overstates what their Honours said. They said that, absent demonstration of the existence of the anterior duty of care, the reasoning in Bryan would not support the imposition of the duty alleged in the facts before the Court. In short, as I understand it, their Honours suggested that the precise ratio of Bryan was even narrower than as stated by McHugh J in Woolcock Street, because it was restricted further by the requirement that the builder should be shown to have owed a duty of care to the original owner.
What is apparent from the joint judgment in Woolcock Street at [31] is that a common law duty of care to avoid economic loss will not be imposed unless it can be shown that the plaintiff is "vulnerable" in the sense explained by their Honours. In this context, "vulnerability" refers to the inability of the plaintiff to protect itself against the economic loss that it (alleges it) has suffered.
On the plurality's view, the appeal failed for two reasons. First, the appellant could not succeed, simply by application of the reasoning in Bryan, because an essential step in that reasoning - demonstration of the existence of the anterior duty of care - was lacking. Second, the appellant could not succeed otherwise because it had not shown that it was relevantly vulnerable. In those circumstances, it was unnecessary for the plurality to go further.
That analysis of the significance, or relevance, of the anterior duty of care is, I think, supported by the reasoning of French CJ in Brookfield at [28]. His Honour said that the Court in Woolcock Street did not decide that the absence of any anterior duty of care would always deny the existence of a duty of care to a subsequent purchaser. It was, his Honour said, an important factor, but (my words, not his Honour's) not decisive.
Before I leave the decision in Woolcock Street, I should refer to the reasons of Callinan J at [227]. His Honour there pointed out the importance of risk allocation between the parties to the original contract. As his Honour said, such parties should not be obliged to allocate risks and rights "in order to give some unknown person in the future rights against one or other of them". His Honour added: If commercial freedom is to be impaired in this way it is better done by statutory intervention. In the meantime the rule of caveat emptor, which is little more than a rule that people should act diligently, prudently and carefully in their own interests should apply.
The judgments in Brookfield reinforce the importance of examining "the salient features of the relationship" (to quote French CJ at [30]). It is only by doing so, as the Chief Justice said in the same paragraph, that the Court can determine whether one party was vulnerable, in the relevant sense, and whether the other owed it a duty of care.
Although French CJ emphasised the need to look at all the salient features of the relationship, I think it is fair to observe that the reasoning in the four judgments that were given (French CJ; Hayne and Kiefel JJ; Crennan, Bell and Keane JJ; and Gageler J) focused on vulnerability, in the sense of "the inability of the plaintiff to take steps to protect itself from the risk of loss" (Crennan, Bell and Keane JJ at [130]).
One important matter that emerges from the judgments in Brookfield is the relevance, particularly in any consideration of vulnerability, of known reliance and assumption of responsibility. French CJ at [33] thought that there was no reliance, nor any assumption of responsibility. Likewise, Crennan, Bell and Keane JJ stated (at [150]) that there was no basis for finding either "an assumption of responsibility by the appellant in favour of the respondent, or known reliance on the appellant on the part of the respondent, in relation to the quality of the common property of the serviced apartment complex".
Hayne and Kiefel JJ took a slightly different approach. At [56], their Honours said that it might be "assumed, without deciding, that the developer and the purchaser of a lot from the developer relied on the builder to do its work properly". At [57], their Honours stated that "[r]eliance, in the sense just described, may be a necessary element in demonstrating vulnerability, but it is not a sufficient element".
I return at [142] and following to the significance of reliance and assumption of responsibility, in this case, as either determinants or indicators of the existence of a duty of care.
The judgment of Crennan, Bell and Keane JJ identified another important matter: the potential for disproportion between the liability that the suggested duty of care would impose on the builder, compared to the liability imposed on the builder by its contract with the developer. Their Honours said at [69]: To impose upon a defendant builder a greater liability to a disappointed purchaser than to the party for whom the building was made and by whom the defendant was paid for its work would reduce the common law to incoherence.
Their Honours picked up on this point at [139]: In this case, by contrast, there was no substantial equivalence between the obligations of the appellant to the developer and the duty propounded by the respondent. That may be seen by a consideration of the terms of the contract between the appellant and the developer to which reference will be made in the next section of these reasons.
To my mind, the reasoning in Brookfield shows that, in determining whether to impose a common law duty of care to avoid pure economic loss, in facts for which there is no precise authority (that is, where the precise duty of care has not been recognised in decided cases), the Court must look at the relevant features of the relationship between the plaintiff and the defendant. An essential feature is that the plaintiff must be shown to have been "vulnerable" in the sense explained. Reliance on the defendant, and knowledge by the defendant of that reliance, will be at least an important, and perhaps a necessary, condition of vulnerability.
However, in undertaking the analysis by reference to decided cases (in the performance of the process of analogical reasoning to which I referred earlier in these reasons) it is important to bear in mind the warning given by McHugh J in Woolcock Street at [73]. His Honour said, among other things: Facts that are regarded as material for the purpose of one legal doctrine are not necessarily material for another purpose. The materiality of facts depends on the principle or principles that is or are applied to them. Once the stated principle of a case is rejected or distinguished, the materiality of the particular facts of the case must depend on the new principle or doctrine that governs the case.
In the same paragraph, his Honour pointed out the importance of reliance. He explained the decision in Bryan as being: [T]hat the builder of a dwelling house owes a duty to a subsequent purchaser who relies on the skill of the builder to protect that person from reasonably foreseeable decreases in value resulting from latent defects in the house.
The submissions of Counsel ranged far more widely. I do not wish to be disrespectful either to those submissions or to the cases on which they relied, if I do not refer to every single decided case to which I was referred. However, two, on which Ms Painter relied, do require mention.
The first decision is that of Victorian Court of Appeal in Moorabool Shire Council v Taitapanui (2006) 14 VR 55. The judgments in that case (Maxwell P giving one judgment and Ormiston and Ashley JJA giving a joint judgment) emphasised the importance of identifying relevant features of the relationship between the parties. Although in my view the ultimate decision in that case depended very substantially on particular features of Victorian legislation which are not found in equivalent legislation in this State, one point that Ormiston and Ashley JJA made at [154] is significant. Their Honours pointed out, of the certifier Mr Mellis, that: [I]t is of critical importance that Mellis was a person who voluntarily agreed to perform important statutory functions and duties bearing upon the soundness of the premises which were to be constructed. The performance of those functions and duties could readily be seen to impact not only upon the owners of the premises at the time of their construction but also upon any subsequent owners in the seven year period after the permit was issued. Further, for the performance of such functions and duties, Mellis' employer, at least, was remunerated.
The significance of that, their Honours said, included the following (at [156]): Further, it should be noted that the work which Mellis was obliged to perform, once he assumed the role of building inspector in respect of the particular premises, gave effective authority - if a building permit was issued, inspections were satisfactory and an occupancy permit was issued - for the building and occupation of a home. It need hardly be said that for most people the purchase of a home is a major personal decision, that the structural soundness of the home is of first importance, and that homes are often enough the subject of resale.
An application for special leave to appeal to the High Court was refused ([2006] HCATrans 328). I acknowledge that reasons given for dismissing applications for special leave create no precedent (Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 at [112], [119]). Nonetheless, it is interesting to note that Hayne J pointed out, in the course of giving the Court's decision to refuse special leave, that "in important respects the decision of the Court of Appeal turns on the particular nature of the obligations owed under applicable Victorian statutes… ."
If I may say so, his Honour's observation encapsulates the reason why, in my respectful view, the decision in Moorabool is of little assistance in this case.
The other case to which I wish to refer specifically is the decision of the Court of Appeal of this state in Western Districts Developments Pty Ltd v Baulkham Hills Shire Council (2009) 75 NSWLR 706. In that case, the appellants asserted that the respondent Council owed them a duty of care. The respondent, acting as a PCA, had issued a subdivision certificate without being satisfied that a relevant condition of development consent had been met. The consequence was that the appellants were required to pay a sum of money to procure satisfaction of that condition.
The Court of Appeal held that the respondent did owe the duty of care alleged. Their Honours concluded, among other things, that the respondent had acted not as a Council (i.e., in its administrative or consent capacity) but as the PCA appointed by contract under s 109E of the EPA Act. In those circumstances, they said, the question of liability was not to be examined as though it were being asserted that a public authority acting as such were subject to a common law duty of care (see, in particular, Preston CJ of LEC, with whom relevantly Giles JA agreed, as did Campbell JA, at [66]).
Moving to the question of duty of care, Giles JA noted at [10] that: [W]hile vulnerability is an important factor in whether or not a duty of care to guard against economic loss is owed, it is not the sole consideration. On current jurisprudence, the decision that a duty of care is owed or is not owed is arrived at in novel circumstances upon a "multi-factorial" approach with a close analysis of the facts bearing on the relationship between the plaintiff and the defendant and regard to "salient features"… .
Preston CJ of LEC dealt with the concept of vulnerability from [77]. It is clear, I think, that his Honour's conclusion that the appellants were relevantly vulnerable depended very much on the particular statutory scheme. His Honour held that, because the issue of the subdivision certificate meant that the plan of subdivision could be registered and lots sold and transferred to purchasers, the economic consequences of any non-compliance with conditions of consent would be transmitted to, and could be visited upon, those purchasers. That, his Honour said at [82], was something from which purchasers could not protect themselves.
His Honour then said, at [85] to [89]: [85] Prospective purchasers who have entered a conditional contract to purchase an allotment to be created by the subdivision, such as the applicants in this case, cannot withhold from purchasing the subdivided allotment once the plan of subdivision has been registered if they discover that the principal certifying authority issued the subdivision certificate without being satisfied that each of the applicable requirements in s 109J(1) and (2) had in fact been met. They are obliged to complete the contract upon registration of the plan of subdivision. They cannot renegotiate the price or the terms of the contract. [86] It is also not reasonable to expect that prospective purchasers should protect themselves, before the principal certifying authority exercises the statutory power to issue a subdivision certificate, against the consequences of any potential misexercise of the power. [87] In theory, prospective purchasers could seek to protect themselves by insisting upon a provision in the contract for sale entitling them to decline to complete the contract or to be compensated by the vendor if the principal certifying authority misexercises the statutory power. But in practice, this would not happen. A prospective purchaser would not anticipate that the principal certifying authority might misexercise the statutory power and, therefore, would not seek inclusion of a contractual provision to protect itself against loss from such unanticipated conduct. [88] Even if a contractual provision entitling non-completion were to be included, such a provision would provide inadequate protection against economic loss for prospective purchasers. If they do not complete the purchase of the property, they will suffer the loss of the property and the benefits that it might have yielded to them. Hence, this step only changes the loss to them, not protect [sic] them against any loss. [89] Moreover, including a contractual provision entitling non-completion by the purchaser or compensation by the vendor does not cast the consequences of loss on the principal certifying authority. The burden remains either on the purchaser or the vendor of the lot.
Those paragraphs of his Honour's reasoning show a very important point of distinction between the facts of that case and the facts with which I am concerned (quite apart from the relevant features of the statutory scheme that his Honour had examined). The purchasers had agreed to buy lots in land to be subdivided. Completion of the contract was conditional upon registration of the plan of subdivision. However, once that plan was registered, the purchasers could not resist completion on the basis that there had been some defect in the exercise of the power to issue a subdivision certificate. And as his Honour had said in effect at [84], purchasers should not be forced to contract on the basis that the PCA has exercised its powers improperly, or to make inquiries about the propriety of the exercise of power.
In short, the appellants in that case were held to have been vulnerable because the factual situation that caused their loss did not arise until after they had bound themselves to purchase, and was not something against which (on his Honour's view) they should reasonably have been expected to protect themselves. It is not immediately obvious that those considerations apply where (as here) people decide to buy a house as their residence, knowing that it has recently been renovated under the "supervision" (an inaccurate but convenient term) of a PCA.
The decision in Western Districts does however illustrate that purchasers of land may be found to have relied on the proper performance of functions by PCAs, where it is obvious that those functions had to be and were performed. This somewhat general observation is given particular point in the present case by the evidence of the certifier (who appears to have been a very experienced building surveyor). I shall return to this aspect of his evidence at [358] to [360] below. For present purposes, the point of it is that he accepted that the owner for whom residential building work was undertaken, or the owner/builder who performed it, would rely upon the occupation certificate, and likewise that subsequent purchasers would look at it "to satisfy themselves… that the work had been inspected and that it had been passed".
I should note that when Giles JA, in the passage I have quoted at [135] above, referred to the importance of identifying the salient features of a relationship for the purpose of determining whether a duty of care should be imposed, his Honour cited the judgment of Allsop P in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649 at [101] to [108]. I shall return to one aspect of what Allsop P there said.

[29]

Reliance and assumption of responsibility

Whether known reliance (or assumption of responsibility) is an essential (but not sufficient) requirement for the existence of vulnerability in the relevant sense, or whether it falls to be considered more generally, is not clear. As I noted at [121] above, Hayne and Kiefel JJ suggested the former.
I am not sure that the judgment of Hayne and Kiefel JJ in Brookfield at [57] should be taken to establish conclusively that reliance (in the sense their Honours used that word) is a necessary element of vulnerability. I observe, first, that their Honours used reliance in the sense they described at [56]: … that the developer and the purchaser of a lot from the developer relied on the builder to do its work properly.
None of the other judgments in Brookfield went so far as to say that reliance, in that (or any other) sense, was a necessary condition for the existence of vulnerability. Further, there are statements in other decisions of the High Court which strongly suggest the contrary.
In Perre v Apand Pty Ltd (1999) 198 CLR 180, McHugh J considered "concepts of reliance and assumption of responsibility" at [124] and following. His Honour said at [124] that neither was either necessary or sufficient to justify the imposition of a duty of care to avoid economic loss. He referred to the plurality judgment in Bryan at 619, and to the judgment of Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 576. McHugh J said (at [124] of Perre) that: Like proximity, reliance and assumption of responsibility are neither necessary nor sufficient to found a duty of care.
McHugh J said at [125], [126] that reliance and assumption of responsibility were indicators of vulnerability, and that it was vulnerability rather than its evidentiary indicators which determined whether a duty of care exists. However, his Honour said (at [126]), in some circumstances "reasonable reliance" could show that the plaintiff was relevantly vulnerable. I set out those paragraphs: [125] In my view, reliance and assumption of responsibility are merely indicators of the plaintiff's vulnerability to harm from the defendant's conduct, and it is the concept of vulnerability rather than these evidentiary indicators which is the relevant criterion for determining whether a duty of care exists. The most explicit recognition of vulnerability as a possible common theme in cases of pure economic loss is found in the judgment of Toohey and Gaudron JJ in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords. [126] Reliance may therefore be seen - for the purposes of duty of care - as an indicator of vulnerability: the plaintiff is specially vulnerable to the words and/or conduct of the defendant because he or she reasonably relied on the defendant. Reliance may also, of course, be relevant to causation. In terms of a duty of care, however, it is not reliance that is relevant, but its consequence, vulnerability. That is so, even though in certain situations "reasonable reliance" will be the appropriate test for determining whether the plaintiff was vulnerably exposed to harm from the defendant's acts or omissions.
To similar effect, Meagher JA (with whom Leeming JA agreed) said in Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1 at [172] that known reliance may indicate vulnerability: The presence of reliance is also an indication of "vulnerability" as that notion is understood: Perre at [10] (Gleeson CJ); Woolcock at [24] (Gleeson CJ, Gummow, Hayne and Heydon JJ). The vulnerability arises because of the recipient's known reliance on the defendant as the source of advice or information.
The decision of the High Court in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 would seem to show also that neither reliance nor assumption of responsibility is a necessary condition for the imposition of a common law duty of care. The majority in that case (Gibbs, Stephen and Mason JJ, in separate reasons) concluded that the defendants did owe a duty of care to the plaintiff to avoid causing it economic loss. There was no question in that case of the defendants' having assumed responsibility to protect the plaintiff's interests. Nor was there any question of the plaintiff's having relied on the defendants to protect its economic interests.

[30]

Some tentative conclusions

There are very many circumstances in which negligent acts or omissions of one party will cause economic loss to another, but where the latter party may not recover the amount of that economic loss from the former. Take, for example, the case of a vehicle constructed to carry goods. Whilst the vehicle is being so employed to deliver goods to A for the purposes of A's business, it breaks down, because it was defectively manufactured or negligently serviced. As a result, A does not get the goods, and loses the profit that it would have gained by deploying them in its business. The negligent manufacturer or repairer would not be held liable to A.
What, then, is the test that must be satisfied if liability is to be established? At the risk of over-simplifying what is a complex question, the authorities make it clear that the question, whether a defendant owes a plaintiff a duty of care to prevent the plaintiffs' suffering economic loss, depends in the first instance on whether the plaintiff is relevantly "vulnerable" to the defendant's acts and omissions. In this context, "vulnerable" does not mean only that the plaintiff is susceptible to harm as a result of the defendant's acts or omissions. There is the added requirement that the plaintiff must be unable (perhaps, "reasonably" unable) to take steps to protect itself from that risk of harm.
However, to say that someone is in that sense "vulnerable" is the end, not the beginning, of the inquiry. Whether or not a person is relevantly vulnerable to the acts or omissions of another depends on a close examination of all relevant features of the relationship between them.
Identification of the relevant features will depend very much on the nature of the relationship: what it is that connects one person (the plaintiff) to the other (the defendant). Thus, in Evatt, the connecting factor was seen by the High Court to be the defendant's quasi-contractual assumption of a responsibility to advise the plaintiff, in circumstances where the plaintiff had reason to believe that the defendant possessed the means of knowledge - or broadly, expertise - as to the subject-matter of the advice.
In Caltex Oil, the High Court saw the connecting factor as being the defendants' knowledge that the pipeline in question, although not the property of the plaintiff, was used to carry the plaintiff's oil from tankers to the plaintiff's refinery, so that an obvious consequence of damage to the pipeline was interruption of the supply to the refinery.
In Bryan (although the High Court's conclusion was expressed in terms of "proximity", not in terms of vulnerability), the connecting factor was seen to be primarily the house that the defendant built and the plaintiff purchased (from the person for whom the defendant had built it).
In some cases, as Deane J recognised in Perre at [126], the dominant and dispositive connecting factor might be the defendant's assumption of responsibility to the plaintiff, either of itself or coupled with the plaintiff's known reliance on that assumption of responsibility.
A number of policy factors intrude upon the analysis. Those factors include the common law's historical aversion to indeterminate liability; and the common law's policy to encourage individual economic freedom. They include, also, recognition of the proposition that, when a defendant undertakes obligations pursuant to a contract, it would ordinarily be unjust to visit upon the defendant consequences in negligence, at the suit of a party with whom the defendant had no contractual relationship, greater than the consequences of that negligence as between the defendant and the party with whom it contracted.

[31]

The pleaded case

The starting point, as ever, is to be found in the pleadings. The plaintiffs' amended list statement (ALS) asserted that MHE owed them a common law duty. That case was articulated at [65] to [67] as follows: [65] The Third Defendant as a design engineer and as an inspecting engineer was under a common law duty to: a. asses the Site in the context of the Design Drawings; b. design the footings, slab and structural components of the Dwelling to be compliant with the relevant provisions of the Building Code of Australia ("the BCA") and Australian Standard 2870-1996 ("AS 2870-1996") c. inspect the as built footings, slab and structural components of the Dwelling to be complaint with Engineers Design Drawings (as revised), the relevant provisions of the Building Code of Australia ("the BCA") and Australian Standard 2870-1996 ("AS 2870-1996"); [66] In the performance of its duties as the design engineer, and inspecting engineer, of residential building works, as defined under the HBA , the Third Defendant had in contemplation that in the event that the Works were not designed and carried out in a proper and workmanlike manner the Plaintiffs would be a member of a class of persons who would suffer loss and damage as a consequence. [67] As a consequence of matters pleaded in the paragraphs above, and in all the circumstances of the case, including without limitation: a. The fact that the Third Defendant in its capacity as the design engineer of residential building work would or ought to have been aware of the implication that upon completion of the Works, the Plaintiffs would suffer loss and damage as a result of defectively designed, constructed and/or inspected works which did not comply with the relevant laws and approvals; b. That there was reliance by the Plaintiffs on the Third Defendant; c. The fact that the Plaintiffs were in no position to protect themselves against the Third Defendants [sic] default; d. The fact that the Works were being supervised by an owner builder with limited experience in the construction of dwelling and structures generally; and e. The fact that, as between the parties, construction of the Dwelling as compliant with AS 2870-1996 was particularly within the Third Defendants control; The Third Defendant owed the Plaintiffs a duty of care.
Presumably, the content of the duty of care alleged at [67] is to be found in [65].
The first and obvious point to make is that there is no possible basis for imposing a duty of care in the terms alleged at [65]. There was no express written contract between MHE and Mr Acres. Thus, the terms of MHE's retainer or retainers (see at [5] above) were, at most, that it would perform the services required for the fee agreed, and would exercise reasonable professional care, skill and diligence in the performance of those services. I do not understand the basis on which it could be said that some wider and more detailed duty of care is imposed on MHE in favour of subsequent purchasers, with whom it had no contractual relationship.
The second point about the pleaded duty of care is that although it asserts duties in relation to assessment of the site and design of the structural components, there is no asserted breach of any such duty.
The third point is that, as to the asserted duty in relation to inspection, breach is alleged only in respect of two inspections: the inspection of the works as they stood at 20 June 2008, and the inspection of the works as they stood at 1 December 2008.
The allegations of breach are contained in [68] of the ALS: [68] In breach of the duty of care owed by it to the Plaintiff the Third Defendant: a. Failed to carry out the engineering inspection works in a proper and workmanlike manner, in that at the inspection on 20 June 2008, they failed to; I. Identify that the First Defendant had not installed starter bars for the specified vertical bond beams in the location of the external walls, as shown on drawing SO3; II. Instruct the Frist Defendant to install starter bars for the specified vertical bond beams in the location of the external walls, as shown on drawing SO3; III. Identify that the First Defendant had not installed cogged reinforcing bars in the slab step-down for the drain along the eastern edge of the lower ground floor stab; IV. Instruct the First Defendant to install cogged reinforcing bars in the slab step-down for the drain along the eastern edge of the lower ground floor slab; V. Identify that the First Defendant had not constructed the edge of the Ground Floor Slab as per detail "EB3" with drainage detail for seepage; VI. Identify that the First Defendant had not constructed the edge of the Ground Floor Slab as per detail "EB3" with drainage detail for seepage; [sic] VIII. Identify that the First Defendant had not installed starter bars that had been specified as N16; and IX. Instruct the First Defendant to install starter bars that had been specified as N16. b. Failed to carry out the engineering inspection works in a proper and workmanlike manner, in that at the inspection on 1 December 2008, they failed to: i. Identify that the First Defendant had not installed Columns C2 as detailed on Drawing SO5 to support Beam B4 on the Western rear elevation; ii. Instruct the Frist Defendant to install Columns C2 as detailed on Drawing SO5 to support Beam B4 on the Western rear elevation; iii. Identify that the First Defendant had not constructed any of the horizontal bond beams it had designed to be installed at the top of the block work walls forming the lower ground floor walls; iv. Instruct the First Defendant to construct any of the horizontal bond beams it had designed and specified to be installed at the top of the block work walls forming the lower ground floor walls or ground floor walls; v. Identify that the First Defendant had not constructed any of the vertical bond beams it had designed and specified to be installed as part of the block work walls forming the lower ground floor walls and ground floor walls; vi. Instruct the First Defendant to construct any of the vertical bond beams it had designed to be installed as part of the block work walls forming the lower ground floor walls and ground floor walls; vii. Identify that the First Defendant had installed floor joists for the ground floor by cutting into hollow core block work walls; viii. Instruct the First Defendant to install floor joists for the ground floor by mechanically fixing them to a horizontal bond beam as designed and specified; ix. Identify that the Frist Defendant had not adequately tied down the roof to the supporting wall structure; x. Instruct the First Defendant to tie down the roof structure to the supporting all structure in accordance with the relevant Australian Standard; xi. Identify that the First Defendant had not used 20MPA concrete to core fill specified parts of the otherwise hollow block work walls to construct vertical and horizontal bond beams; xii. Instruct the First Defendant to remove any non-specified material purporting to act as core filing material and replace such material with 20MPA concrete as specified in General Note B2 dated 14 February 2008; xiii. Identify the First Defendant had not used 16mm diameter reinforcing bars in the vertical bond beams installed but rather had used 10mm and 12mm diameter reinforcing bars; xiv. Instruct the First Defendant to replace any 10mm or 12mm diameter reinforcing bars with 16mm reinforcing bars where specified; xv. Identify that the 200mm high retaining wall on the northern boundary to the property had not been constructed by the First Defendant in accordance with a Site Instruction and detail issued by the Third Defendant on 20 June 2008; xvi. Obtain adequate or any information from the First Defendant in order to ascertain how the retaining wall had been constructed and issue certification, if appropriate, of the retaining wall as constructed. c. Failed to issue any site instructions in its Site Inspection Report dated 2 December 2008 detailing the deficiencies in the work as constructed as detailed initialled the preceding sub paragraph. d. Failed generally to ensure that the work as executed complied with Engineering Design Drawings Revision B and/or would result in the Dwelling being built in accordance with the statutory warranties contained in section 18B of the HBA (NSW); e. Failed generally to ensure that the works as executed complied with the Engineering Design Drawings (including Revisions A&B) and/or that the works as executed were built in accordance with the Building Code of Australia; f. Failed generally to ensure that the works as executed complied with the Engineering Design Drawings (including Revisions A & B) and/or wold result in the Dwelling being built in accordance with Australian Standard 2870 - 1996.
There is no testimonial evidence of those two inspections, save for some very general references in Mr Acres' affidavits, and some passages in his cross-examination to which I shall return. As I have noted, MHE, presumably as a deliberate choice, did not call the inspecting engineer - the employee who had carried out the inspections. The primary evidence of those inspections is found in the SI reports that the inspecting engineer prepared, after discussing the inspection, his observations and directions with Mr Howes.
The inspection of 20 June 2008 is recorded in the SI report (No. 4) of that date. It stated that the purpose of the inspection "was to review the raft slab reinforcement", and that the inspection was carried out by reference to the then current version of the structural drawings prepared by MHE. The certificate then stated: The results of the site inspection are summarised below: The raft slab beams were founded off shale. At the time of inspection, not all of the underpinning had been completed. A site instruction was given to install 2-N12 trimmers (1200mm long) at all re-entrant corners in accordance with the above documentation. A site instruction was given to install 2-N12 bars (1800mm long) to extend 1200mm into the slab where slab beams terminate in accordance with the above documentation. A site instruction was given to install N12 corners [sic] bars to trench mesh in accordance with the above documentation. A site instruction was given to install the retaining wall in accordance with MLH Civil & Structural Engineers sketch plan 3261-SK01 dated 20th June 2008. A site instruction was given to maintain cover to reinforcement. Based on the above rectification work being carried out, the raft slab was approved to be poured. Please feel free to contact me if you require any additional information at this stage.
The primary evidence of the inspection of 1 December 2008 comes from the SI report (No. 5) of the next day. It stated that the purpose of the inspection "was to review the completed underpinning & ground floor structural framing for the above project". Again, it states that the inspection was carried out in accordance with the then current version of the structural drawings.
The certificate then stated: The results of the site inspection are summarised below: Underpinning: The underpinning was found to be in accordance with the above documentation. Ground floor structural framing: A site instruction was given to nail laminate 1 / 190 deep x 45 wide MGP10 Pine joist adjacent to the existing joists in place of floor joists 'J1' as required. All other ground floor structural framing was found to be in accordance with the above documentation. Based on the above rectification work being carried out, the completed underpinning & ground floor structural framing were approved. Please feel free to contact me if you require any additional information at this stage.

[32]

The expert evidence

In respect of the inspection on 20 June 2008, the expert engineers, Messrs Stubbs and Joannides, (who used the acronym "MLH" to identify MHE) agreed that there were the following defects in the work at that time: a. The engineers DS and NJ agree that the specified N16 starter bars to the external block walls were not installed in accordance with the MLH design. b. The engineers DS and NJ agree that the EB3 detail has not been constructed in accordance with the structural design prepared by MLH in that the edge rebate set down/drain is not 170 mm deep. c. The engineers DS and NJ agree that the drainage pipework to the EB3 edge beam rebate set down/drain is not constructed in accordance with the MLH design, in that the drainage outlets are interconnected.
Based on SI report No. 4, the engineers agreed further that the inspecting engineer did not detect the following non-compliances with the structural drawings: a. The engineers DS and NJ agree that the following were non-compliance with the MLH drawings to the Lower Ground Floor slab: i. The installation of N12 starter bars in lieu of the specified N16. ii. The incorrect detailing of the EBS edge beam detail.
The engineers were asked what steps should have been taken had those non-compliances been noted. They said: a. DS considers the missing starter bars and the incorrect EB3 formwork should have been identified at the inspection and noted on the Site Inspection Report. Then MLH should have ensured that the omissions were included in the construction which may have involve a further inspection. b. NJ considers that if the edge formwork was not installed at the time of the slab reinforcement inspection by MLH then MLH may not have observed the non-compliances. If this was the case NJ considers MLH should have noted the omissions and ensured they were included in the completed construction.
As to the inspection on 1 December 2008, the engineers agreed that there were the following structural deficiencies in the work at that time: a. The engineers DS and NJ agree that the floor joist framing of the ground floor level have [sic] not been installed in accordance with AS-1684.2 in regard to the fixing of the floor joists to the support block wall, in that they have not been fitted with continuous solid blocking or another method of fixing the joists to walls. b. DS is of the opinion that the defects also include omitting the brickwork and supporting steel beams, as shown on the MLH drawings, and installed laminated timber beams and timber framed balustrades to the three balconies, that are subjected to water and do not have adequate durability. c. NJ accepts that the balconies have an altered beam and balustrade construction from the MLH drawings, but considers they would not be a structural defect provided they [sic] the balconies were fully waterproofed. Further NJ is of the view that the construction of the balconies are not included in the Scott Schedule. d. The horizontal bond beam supporting the ground floor framing has been addressed in Scott Schedule item 2 as part of the lower ground floor level external block walls.
Based on SI report No. 5, the engineers agreed that the inspecting engineer should have noted the following non-compliances: a. The engineers DS and NJ agree that that [sic] MLH should have identified and noted on his Site Inspection Report that the supporting block walls on the lower ground floor bond beams were not constructed as shown on the MLH drawings. b. The engineers DS and NJ agree that that [sic] MLH should have identified and noted on his Site Inspection Report that the balconies brickwork balustrade and steel beams were not constructed as shown on the MLH drawings.
Had those matters been noted, the engineers said, there were steps that could have been taken: a. The engineers DS and NJ agree the non-compliance should have been identified at the inspection, and noted on the Site Inspection Report. b. The engineers DS and NJ agree that MLH should have ensured that the horizontal bond beams were constructed and the floor joists mechanically fixed to the beam. c. DS considers MLH should have ensured that the timber balcony beams and balustrade framing would have adequate durability if they could be exposed to water. d. NJ considers the timber balcony beams and balustrade framing would be adequate provided they were protected by an adequate waterproofing.
The engineers then turned their attention to the construction of the lower ground floor walls. They said that there were the following defects as at 1 December 2008: a. The engineers DS and NJ agree that the vertical bond beams specified in the MLH structural design drawings are constructed with defects, in that they have been constructed with missing vertical reinforcement or are N12 bars instead of N16 bars, and they have not been fully grouted. b. The engineers DS and NJ agree that there is a defect in the constructed horizontal bond beams specified in the MLH structural design drawings intended to support the ground floor framing. The defect is that the horizontal bond beams were constructed with no reinforcement and no core filing concrete.
The engineers agreed that the inspecting engineer should have identified during the 1 December 2008 inspection, and noted, "that the supporting block walls on the lower ground floor level were to be concrete core filled".
Based on that, the engineers said: a. The engineers DS and NJ agree that that MLH should have identified and noted on his Site Inspection Report that the supporting block walls on the lower ground floor level were to be concrete core filled. Then MLH should have ensured that the omissions were included in the construction which may have involved a further inspection.
Next, the engineers considered the defective state of the ground floor blockwork walls as at 1 December 2008. They agreed that the work was defective in the following way: a. The engineers DS and NJ agree that the ground floor level external walls are defective in that have been [sic] constructed as single skin block walls, without vertical and horizontal bond beams. b. The engineers DS and NJ note that the MLH structural drawings show cavity brick veneer walls on the northern and southern elevations, and on the western elevation cavity brick veneer walls shown on the Roof Plan with reinforced block walls above the window and door steel beams, shown on the Sections.
The engineers did not agree on what should have been observed. This appears to have reflected their differing assumptions as to the state of the works as at 1 December 2008. They said: a. NJ is of the opinion that the structural engineer, MLH did not miss any non-compliance at the 2 December 2008 [sic] Site Inspection as the external block walls were most probably not constructed at that time, based on the information provided. b. DS considers that the missing four steel columns C2 should have been noted on the MLH Site Inspection Report. c. DS also is of the opinion that the missing reinforcing bars to the blockwall shown above beam B4 and B14 on the Ground Floor Framing plan MLH drawing no S05B, should have been noted on the MLH Site Inspection Report.
It follows that they could not agree as to the consequences: a. NJ is of the opinion that the structural engineer, MLH did not miss any non-compliance at the 2 December 2008 [sic] Site Inspection as the external block walls were most probably not constructed at that time, based on the information provided. b. DS considers the missing four steel columns C2 and the missing reinforcing bars to the blockwall shown above beam B4 and B14 should have been identified at the inspection, and noted on the Site Inspection Report. Then MLH should have ensured that the omissions were included in the construction which may have involve a further inspection.
A similar position emerged in relation to the ground floor structural steel framing (specifically the C2 columns and the RB1 and RB2 roof beams). The engineers agreed that the work was defective: a. The engineers DS and NJ agree that the steel columns C2 documented on the MLH structural drawings under roof beams were not installed and that the roof beams RB1 & RB2 are not mechanically fixed (bolted) to the block walls.
However, they could not agree on whether this should have been noticed: a. NJ is of the opinion that the structural engineer, MLH did not miss any non-compliance at the 2 December 2008 [sic] Site Inspection as the external block walls were most probably not constructed at that time. b. DS considers that the missing four steel columns C2 should have been noted on the MLH Site Inspection Report.
Nor (for obvious reasons) could they agree on what should have been done had the non-compliances been noted: a. NJ is of the opinion that the structural engineer, MLH did not miss any non-compliance at the 2 December 2008 [sic] Site Inspection as the external block walls were most probably not constructed at that time. b. DS considers the missing four steel columns C2 should have been identified at the inspection, and noted on the Site Inspection Report. Then MLH should have ensured that the omissions were included in the construction which may have involve a further inspection.
Similarly, as to the defective roof framing, the engineers agreed that it was defective as at 1 December 2008, but did not agree that the inspecting engineer should have noticed it.
As to the defects, they agreed: a. The engineers DS and NJ agree that the roof framing is defective, in that the mechanical connection of the roof framing to the external walls has been omitted.
As to whether that defective work should have been noted, they said: a. NJ is of the opinion that the structural engineer, MLH did not miss any non-compliance at the 2 December 2008 [sic] Site Inspection as the roof was most probably not constructed at that time based on the information provided. b. DS is of the opinion MLH should have inspected the roof framing and the supporting blockwalls.
As to steps that should have been taken, they said: a. NJ is of the opinion that the structural engineer, MLH did not miss any non-compliance at the 2 December 2008 [sic] Site Inspection as the roof was most probably not constructed at that time. b. DS is of the opinion that if MLH did not inspect the roof he could not take any steps to address any non-compliance or omissions.
Passing over items for which MHE had no design or inspection responsibility, the next (and last) relevant item of defective work relates to the Dincel retaining wall. The engineers agreed: a. The engineers DS and NJ agree that the Northern boundary retaining wall has not been constructed in accordance with the MLH structural design 'SK01'.
The engineers appear to have assumed that the Dincel wall had been constructed as at 1 December 2008. For the reasons I give at [309] to [311], I am not prepared to find that it was. Thus, the factual premise for the engineers' conclusions is lacking. However, on their view of the facts, they agreed that the defective construction could have been observed: a. The engineers DS and NJ agree that during the inspection of the Ground Floor Framing on the 2 December 2008 [sic] MLH could have observed the constructed Dincel retaining wall and non-compliance with the reinforced block on the MLH drawing.
As to the consequences of (on my view, hypothetical) observation of non-compliance, the engineers said: a. The engineers DS and NJ agree if MLH did observe the constructed Dincel retaining wall he should have undertaken an investigation of the wall and footing/slab to determine whether they were structurally adequate, and if not structurally adequate MLH should have issued instructions for the appropriate rectification works. b. NJ considers that based on the documents provided MLH did not inspect the reinforcement for the retaining wall and so considers MLH would not be responsible for any defect.

[34]

Did MHE owe the plaintiffs a duty of care? Summary of submissions

Ms Painter relied heavily on the analysis of the plurality (Mason CJ, Deane, Gaudron JJ) in Bryan at 625-627. Their Honours referred to the fact that there was a substantial connection between the builder (in that case) and the subsequent owner, namely the house itself: a permanent structure, intended to be used indefinitely. Their Honours seem to have taken notice of, or to have assumed, the fact that in Australia houses are "likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make" (their Honours' emphasis).
Their Honours noted what they considered to be specific features of purchasers of dwelling houses, at 627: Upon analysis, the relationship between builder and subsequent owner with respect to the particular kind of economic loss is, like that between the builder and first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss. In ordinary circumstances, the builder of a house undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners. Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the footings of the house than the first owner. Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment. Any builder should be aware that such a subsequent owner will be likely, if inadequacy of the footings has not become manifest, to assume that the house has been competently built and that the footings are in fact adequate.
Those considerations apply equally, Ms Painter contended, between the engineer and the plaintiffs.
Ms Painter submitted, correctly, that there was no intervening negligence occurring between the acts and omissions that she characterised as MHE's negligent performance of its obligations of inspection, and the defects described in the schedule. There was, she submitted, "an unbroken chain of causation from [those acts and omissions] and the loss claimed by [the plaintiffs]".
Mr Elliott submitted that the facts of this case, as against his client, were distinguishable from the facts in Bryan. Undoubtedly, that is correct, although the significance of the factual distinctions is a matter that requires examination. In those circumstances, Mr Elliott submitted the ratio in Bryan did not apply to decide the outcome of the case against his client. Again, that is correct. The question is, rather, whether the reasoning in Bryan can be applied by justifiable analogy to the facts of this case insofar as they concern the relationship between the plaintiffs and MHE.
Mr Elliott submitted that, unlike Bryan, there was no relevant reliance. The Court in Bryan had relied on the proposition (or assumption) that the subsequent owner could be taken to have relied on the skill of the builder. There was no evidence, he submitted, that the plaintiffs had relied on anything done (or not done) by MHE in the performance of its retainer. On the contrary, Mr Elliott submitted, the plaintiffs, after what should be taken to have been sufficient consideration for their purposes, decided to buy the property, including on the basis of special condition 1. It followed, Mr Elliott submitted, that the plaintiffs had made a considered decision to buy the property on a basis that included their accepting the risk of latent defects.
Special condition 1 read: Condition of Premises 1. The Purchaser acknowledges that she/he is purchasing the property;- (a) In its present condition and state of repair; (b) Subject to all defects latent or patent; (c) Subject to any encroachment by or upon the property; (d) Subject to any infestations and dilapidations; (e) Subject to all existing services; and (f) As a result of his own enquiries and inspections and not as a result of any representations made by or on behalf of the Vendor. Subject to the rights of the Purchaser pursuant to the Conveyancing (Sale of Land) Regulation 2005, the Purchaser shall not make any objection requisition claim for compensation or be entitled to delay completion by reason of anything arising out of any of the matters referred to in this Special Condition.
Ms Painter submitted that special condition 1 fell foul of s 18G of the HB Act. That section reads: 18G Warranties may not be excluded A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void.
The submission may or may not be correct. Were it necessary to decide, I would reject it, on the basis that special condition 1 is concerned with rights under the contract for sale, and says nothing as to the statutory warranties, which spring from a different source: the deemed or statutory contract between the plaintiffs and Mr Acres pursuant to s 18C of the HB Act. (That may explain why Mr Acres did not rely on special condition 1 by way of defence.) But, correct or incorrect, the submission does not answer the present point. That point is, that the plaintiffs negotiated for a particular provision as to defects, and otherwise accepted (or were content to accept, if special condition 1 be unenforceable) that they brought the property "as is" and without any warranty of quality.
Mr Elliott submitted, correctly, that the plaintiffs had obtained a pre-purchase inspection report from Alpha. He noted that Mr Cox had discussed the contents of that report closely with the representative of Alpha who prepared the report. As a result of those discussions, the plaintiffs sought and obtained the insertion of a special condition into the contract (special condition 18), dealing with a water penetration problem in the ceiling of the lower bedroom (on the south western corner) that had been observed. There were other problems notified in the inspection report. Mr Cox agreed that the plaintiffs decided to accept the property with those problems.
Mr Elliott submitted that it had been open to the plaintiffs to bargain for the degree of protection they thought they required. It had been open to them to buy, or to decline to buy. They decided to buy, knowing that the property had been extended by the work of an owner-builder, and knowing that there was at least one significant defect in the work done by that owner-builder. Anterior duty
The starting point must be that MHE could not have owed the plaintiffs a duty of care wider or more onerous than the contractual duty it owed Mr Acres. To impose a wider duty of care would be disproportionate, would introduce disconformity of obligations, and, in the words of Crennan, Bell and Keane JJ in Brookfield at [69], "would reduce the common law to incoherence".
At the same time, and despite Mr Elliott's submission to the contrary, I see no reason for declining to hold (to the extent that it may be relevant) that MHE owed Mr Acres concurrent duties in tort and contract. It seems to me to follow from the decision in Astley v Austrust Ltd (1999) 197 CLR 1 that the common law recognises that concurrent liability may exist in contract and tort: see the analysis in the joint judgment of the majority (Gleeson CJ, McHugh, Gummow and Hayne JJ) from [44] to [48].
Thus if it were necessary to show, for the purpose of finding that MHE owed the plaintiffs a duty of care, that it owed an anterior duty of care to Mr Acres, that requirement is satisfied. Since in my view the duty owed to Mr Acres was owed concurrently in tort and in contract, it is unnecessary to consider whether a contractual duty alone would suffice to satisfy any necessity for the existence of anterior duty in this context. To the extent that the existence of an anterior duty is necessary, the crucial factor is that the duty sought to be imposed is no wider or more onerous than that anterior duty. The decision in Bryan is distinguishable
To my mind, there are distinctions between the factual situation in this case and the factual situation in Bryan. One is that in this case, the alleged negligent work was undertaken by an independent professional engineer, retained to provide specified services to the owner-builder, and not by a builder. Another is the concurrent scheme for statutory certification. I will turn to that when considering the case against the Council. A third is that the plaintiffs in this case had the benefit of the statutory warranties given by Mr Acres. Those last two features were apparently absent in Bryan.
Further, there is another and to my mind significant distinction between the facts in Bryan and the facts in this case. It is a distinction pointed out by Crennan, Bell and Keane JJ in Brookfield at [136]. Their Honours, having in the previous paragraph rejected the proposition that Bryan was distinguishable because it concerned the construction of a dwelling house whereas the case before the Court concerned the construction of a "commercial investment" property, pointed to two material distinctions.
The first (which is of no present relevance) involved the comparison of "the detailed prescriptions of the D&C contract between the appellant and the developer, in contrast to the simple obligation in Bryan v Maloney between the builder and the original owner to exercise reasonable skill and diligence…".
The second distinction arose from the express obligations of rectification that the developer undertook, to procure repair of defects due to faulty materials or workmanship lots (cl 32.6) and common property (cl 32.7). Crennan, Bell and Keane JJ at [136] contrasted this with "the situation in Bryan v Maloney, where there was no promise as to quality given to Mrs Maloney when she acquired the dwelling".
In the present case, the position may be said to be a fortiori, as regards the second ground of distinction. The contract (to buy the property) that the plaintiffs made with Mr Acres: 1. contained an express obligation on Mr Acres to make good a particular specified defect; and 2. otherwise, expressly negated any representation or warranty as to the quality of the property (and, I might add, included as well an "entire agreement" clause). Reliance and assumption of responsibility: the facts
MHE provided limited professional services to Mr Acres. Those services were: 1. the preparation and revision of structural drawings; and 2. the inspection of the works from time to time, in response to specific requests made by Mr Acres.
MHE did not undertake any general obligation of supervision. It was not retained generally to supervise the execution of, and certify the sufficiency of, the works undertaken by Mr Acres.
Having said that, it must have been clear to MHE (more accurately, to its principal Mr Howes, as its directing mind) that Mr Acres would rely on MHE to exercise reasonable care and skill in the performance of its professional duties. MHE must have realised that Mr Acres' reliance extended both to the design work that it agreed to and did undertake, and to the specific inspections that it agreed to and did undertake.
Further, if Mr Howes did not actually know that Mr Acres was an owner-builder, there can be no doubt that the employed engineer who undertook most of the work and performed the inspections knew this. In the ordinary way, that knowledge would be imputed to MHE. Thus, MHE must have realised, had it turned its corporate mind to the point, that Mr Acres' reliance, in relation to inspections, was likely to be heavier than the reliance that a qualified builder might place upon a structural engineer.
Equally, MHE knew that the work that it was retained to do related to the construction of extensions to a dwelling house. It must have known, had it thought about it, that the dwelling house would change hands from time to time in the future. Thus, although MHE had no reason to think that the particular plaintiffs would have bought the house, it must have been apparent to MHE, had Mr Howes thought about the matter, that it was likely that the house would be sold at some time in the future.
The work done by MHE related to the structural elements of the extensions to the house. In the usual way, it is common for the structural elements of a building to be covered up in the course of construction. MHE must have realised, from Mr Howes' and the inspecting engineer's study of the drawings prepared by Actron, that the structural elements of the work that MHE was retained to design (and, to the extent it happened, to inspect) would be covered up in the course of construction.
For the reasons I have given, it is clear that MHE must be taken to have known of the risk of economic loss, should it perform its duties negligently. Indeed, one might think, there would be few more capable of appreciating the risk of harm than MHE. However, foreseeability of damage is insufficient of itself to justify the imposition of a duty of care to prevent economic loss.
In this case, MHE was required to, and did, report upon the suitability of the existing building to accommodate the proposed extensions. It was required to, and did, produce a structural design that would produce a safe and serviceable extension. It must have known of the risk of loss if its design were inadequate (which of course is not the case alleged). But it must also have known of the risk of loss if its inspections were performed negligently. And it must have appreciated that, since Mr Acres was an owner-builder, the possibility that works might not be done in accordance with the structural designs, or that site directions might not be followed up, was perhaps greater than might be the case with a competent and experienced builder.
In this context, it is worth noting that, as I find (accepting Mr Acres' evidence on this point), the inspecting engineer did call in to the site from time to time, quite apart from the formal inspections that he undertook and upon which he reported. The obvious inference is that the inspecting engineer understood that Mr Acres might be grateful for any assistance that he could be given, and that it might be wise to check up on what was happening on site.
MHE must have appreciated, had Mr Howes turned his mind to the matter, that for almost all of the structural elements, a subsequent purchaser could not obtain evidence of structural defects except in two ways. One would be evidence of the existence of problems (such as severe cracking, water penetration and the like), from which the existence of structural defects could be inferred. The other would be direct evidence, obtained through invasive and destructive testing.
Finally, in this context, MHE must have appreciated, had Mr Howes turned his mind to the point, that if it performed its services negligently, there was a real risk, not only that Mr Acres might suffer loss, but also that a subsequent purchaser of the house might suffer loss. I do not think that the engineer could have thought that an intending purchaser of the house would commission invasive or destructive testing (or that the owner of the house would consent to such testing). Mr Howes gave no evidence of any such understanding. Had he given it, I would have found it very difficult to accept.
Thus, looking at the matter overall, MHE must have realised that there were people, including purchasers in the position of the plaintiffs, who in a practical sense were dependent on MHE's appropriately skilful and professional performance of its obligations as to design and inspection. It must have realised that such persons would be likely to suffer loss if it performed those obligations negligently. Accepting as I do that reasonable foreseeability of loss is not of itself sufficient to justify the imposition of a duty of care to avoid economic loss, it is nonetheless an essential consideration.
It is one thing to say that MHE knew or ought to have known of those matters. It is, however, quite another to say that MHE should be taken thereby to have assumed responsibility, to use reasonable skill and diligence in performing its obligations, in the interests of subsequent purchases of the property. And it is yet another to say that, in the particular case, the particular purchasers did in fact rely on MHE.
The plaintiffs gave no evidence of actual reliance on anything done or omitted to be done by MHE. Only the plaintiff Mr Cox gave evidence; Ms Chan did not. Mr Cox gave evidence in his first affidavit of: 1. inspecting the property and discussing making an offer, subject to a pre-purchase inspection; 2. obtaining (for valuable consideration) a copy of the pre-purchase inspection from Alpha; 3. discussing the contents of that inspection with the inspector; 4. in conjunction with Ms Chan, deciding to make an offer on the basis of a special condition that ultimately was inserted, as special condition 18; 5. in the course of considering both Alpha's inspection report and the contract for sale, giving consideration to the occupation certificate issued by the Council in its capacity as PCA, and the insurance certificate that Mr Acres had procured as owner-builder; 6. "taking comfort" from the existence of the statutory insurance and the Council's approvals (which may have included, as well, the construction certificate issued in its capacity as Council); 7. not obtaining copies of the stamped and approved plans, the development approval, or the specifications for the work, although Alpha had recommended that this be done; 8. likewise, not obtaining certification and guarantees that Mr Acres might have obtained from suppliers and contractors; 9. relying on the solicitor whom the plaintiffs retained to give advice in relation to the contract; 10. noting limitations expressed in Alpha's report, as to what it had and had not been able to inspect; 11. knowing that there was in consequence a possibility of defects in areas that the inspector had not been able to inspect.
Mr Cox was cross-examined on matters relevant to vulnerability. He agreed that he knew that Mr Acres was an owner-builder (although this knowledge came from the occupation certificate and from Alpha's report). He agreed that he could have asked, but did not ask, for the development approval, the stamped and approved plans, the specifications or (by implication at least) the structural drawings. With all the knowledge that he had, he agreed that he and Ms Chan agreed to proceed with the purchase of the property, aware as they were of special condition 1. He then said (T64.40-65.32): Q. You understood that you were acknowledging that you were purchasing the property subject to all defects latent or patent? A. As it stated there, yes. Q. You knew that you were agreeing to purchase the property in its present condition and state of repair? A. As it stated there, yes. Q. You decided that on balance you would take the risks that flowed from buying the property on those terms, correct? A. I wouldn't phrase it in that way but-- Q. You didn't have to buy the property, did you? A. No we didn't have to. Q. You didn't have to accept these terms, did you? A. Didn't have to accept the terms? Q. These terms. You could have said, "No, Mr Acres, we don't accept these terms, we're going to look elsewhere." You could have said that, couldn't you? A. Yes. Q. You made a decision not to, didn't you? A. That's correct. Q. In making that decision you were prepared to take the risk that the property might have defects in it that nobody had told you about, correct? A. Sorry, that doesn't really enter into your mind when you're signing a contract such as that, so that's not what I would-- Q. I'm sorry, please finish. It did enter into your mind because you sought a special condition in relation to a particular item, didn't you? A. Yes, that's correct, there was a very obvious defect. Q. Clause 18 of the special conditions? A. That's correct. Q. Page 201. So you read the report of the building inspector, you saw that there were limitations to the extent of the investigations he could undertake. You sought specific protection in relation to one particular problem but otherwise you decided that you would agree to purchase the property subject to all defects latent or patent. That's correct, isn't it? A. That is correct.
Mr Cox understood "that patent means those [defects] that are visible or obvious and latent means something that is not obvious or visible" (T65.42-.43).
Further, although I do not think that Mr Elliott relied on it (and certainly, Mr Cox was not cross-examined on it), special condition 17 drew to the plaintiffs' attention the fact that they were buying from an owner-builder: Conspicuous Note: 17. Pursuant to sub section 95(2A) of the Home Building Act 1989, a person who is the owner of land, and to whom an owner-builder permit was issued under Division 3 of Part 3 (of the said Act) must not enter into a contract for the sale of the land in relation to which the permit was issued unless the contract includes a conspicuous note: (a) that an owner-builder-permit was issued under Division 3 of Part 3 to the person in relation to the land, and (b) that the work done under that permit was required to be insured under this act. The vendor disclosed this conspicuous note and the purchaser acknowledges that the vendor has complied with the vendor's obligations as required herein both as owner-builder and as vendor. Analysis
What, then, are the features of the relationship between the plaintiff and MHE that could be said to be have made the plaintiffs relevantly vulnerable to the consequences of want of appropriate professional care and skill on the part of MHE in performing its duties of inspection?
First, there is the obvious point that the works that MHE was required to inspect concerned substantial extensions to a dwelling house. It is common knowledge that dwelling houses are assets that (barring fire and other disasters) have a long useful life, and that customarily change hands several times at least over their useful life. Whilst the specific duties that MHE owed were owed by it to the owner at the time, pursuant to the contract between them, there could be no reason for MHE to think that Mr Acres would remain the owner of the property for the duration of its useful life.
Thus, and by analogy with the plurality reasoning in Bryan, MHE and the plaintiffs were, in a real sense, connected through the property. That connection arose because the plaintiffs fell into a readily definable and limited class of persons: namely, purchasers from the person with whom MHE contracted, and subsequent purchasers of that property.
Second, the duties that MHE was called upon to perform were duties in respect of what were intended to be permanent features of the dwelling house. Thus, they were duties owed in respect of an integral part of what, it would be expected, would be sold and resold in years to come.
Third, the nature of the duties of inspection was such that, once they were performed, there was no real ability to check the adequacy of their performance. Inadequacy might be inferred if, at some time in the future, obvious structural damage occurred which could be linked rationally to the works inspected. And it might be detected through the process of invasive or destructive testing. But, once the inspections were performed and the work progressed, there was no readily practicable way for intending purchasers to check that which had been inspected.
However, as I have said, the plaintiffs did not, in terms at least, rely on the work done by MHE. Indeed, the plaintiffs do not appear even to have considered whether Mr Acres had retained an engineer, let alone what (if anything) any engineer who had been retained might have done.
So far as the evidence goes, the plaintiffs do not appear to have turned their minds at all to the process by which the extensions were designed and constructed, save that they knew that: 1. Mr Acres had done the work as an owner-builder; 2. he had obtained development approval, a construction certificate and, on completion of the works, an occupation certificate; 3. the works had been inspected and approved by the Council as PCA; and 4. he had held some form of statutorily required insurance in respect of the works.
The plurality judgment in Bryan at 627 makes it clear that known reliance and assumption of responsibility were inferred, on the facts on the case taken as a whole. Does the evidence in this case support inferences that MHE assumed responsibility to subsequent purchasers in respect of its inspections, and that the plaintiffs relied on the adequacy of those inspections, in deciding to buy? In my view, it does not.
The factors that I have identified at [212] to [221] above would suggest that MHE, through Mr Howes, should have appreciated (if it did not actually appreciate) the significance, both to Mr Acres and to subsequent owners of the property, of the proper performance of its duties of inspection (as and when called upon to inspect). But as I said at [222], assumption of responsibility does not follow as of course.
Undoubtedly, MHE owed to Mr Acres a common law duty of care, coexistent with its implied contractual obligation to use reasonable professional care and skill, in respect of those inspections. As a matter of common sense, it might be thought to be obvious that it would owe an equivalent common law duty to subsequent purchasers. But, if this depends on showing that MHE assumed responsibility to subsequent purchasers, there must be some evidentiary foundation to make good that proposition.
The judgments in both Woolcock Street and Brookfield emphasise the need for pleading and proof of the matters relied upon to support the imposition of a common law duty of care to prevent economic loss. In this case, the pleading is (to put it neutrally) uninformative, and (as between the plaintiffs and MHE) neither assumption of responsibility nor reliance was the subject of direct evidence. Is it open to do as the majority in Bryan did, and infer those matters almost as a matter of obvious knowledge?
In the present case, although Mr Howes gave evidence, he was not cross-examined at all in relation to assumption of responsibility or in relation to known reliance. Thus (in contrast to the position of the Council) there is no direct evidence of assumption of responsibility to the plaintiffs, or of known reliance. It is, therefore, a case of inference or nothing.
In relation to the plaintiffs, and if the imposition of a duty of care on MHE depends on reliance, the evidentiary position is even starker. As I have said, Mr Cox gave detailed evidence of the various matters that he and Ms Chan took into consideration, in deciding to buy the property. He gave no evidence at all of any assumption made as to the sufficiency of the work done by MHE, nor of any reliance upon its supposed adequacy.
Why should the Court infer reliance, when: 1. a witness who was called, and who could have given evidence of reliance, gave no such evidence; and 2. another person who could have been called, and who could have given such evidence, was not called? 3. For the reasons given by Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-419, the Court should not draw any inference of reliance in favour of the plaintiffs, where they gave no evidence of it. The position is so a fortiori, in my view, where the plaintiffs, through Mr Cox, gave detailed evidence of reliance, in their case against the Council.
It is one thing to say that as a matter of general knowledge or expectation, a purchaser of a dwelling house may be taken to have relied upon the builder to have done its work properly. It is quite another to say, as a matter of general knowledge or expectation, that a purchaser of a dwelling house may be taken to have relied, in the same way, on work done and goods and services supplied by contractors or subcontractors, suppliers, and professional consultants, involved in the construction of the completed dwelling house.
In the present case, and returning to the relationship between MHE and the plaintiffs, there is no express evidence of assumption of responsibility on the part of the former (vis à vis the plaintiffs), or of known reliance on the part of the latter. Thus, unless the facts of the case are so obvious that those matters "go without saying", it seems to me that matters of some significance to the establishment of a duty of care is lacking. And as I have said, where the plaintiffs' evidence dealt carefully with the question of their reliance on the Council's exercise of due care (and where the evidence of the Council acknowledged an assumption of responsibility to do so), in contradistinction to the evidentiary position as between the plaintiffs and MHE, I do not think that either reliance or assumption of responsibility should be inferred.
To my mind, the absence of known reliance is a very significant indicator that the plaintiffs were not vulnerable to the conduct of MHE. This does seem to me to be a case of the kind recognised by McHugh J in Perre at [126], namely one where reasonable reliance is the appropriate test for determining whether the plaintiffs were vulnerable to MHE's acts or omissions. In the absence of known reliance, there is nothing to take the relationship between the plaintiffs and MHE out of the everyday situation where one person's economic interests are damaged (not consequent upon physical or property damage) through another person's failure to exercise due care. They are not sufficient to convert what might be called "everyday vulnerability" to (to adapt the words of McHugh J in Perre at [126]) "special vulnerability". See, too, Meagher JA in Dansar at [172]. Other matters relevant to vulnerability
I turn to other matters said to be relevant to the question of vulnerability.
Mr Elliott submitted that the plaintiffs were under no compulsion to buy the house. They made their decision to buy it very quickly, knowing that the extensions had been constructed by an owner-builder, and knowing that there was one significant defect in the work done by that owner-builder. In theory at least, it was open to them to negotiate for other terms in the contract.
All those matters may be accepted. Nonetheless, in my view, the position of the plaintiffs was very different to the position of the commercial purchaser who was the plaintiff in Woolcock Street. Experienced investors are equipped to make decisions as to risk. They are equipped to negotiate in relation to risk. For example, it is not uncommon, in dealings involving substantial parcels of commercial real estate, for prospective purchasers to undertake very detailed investigations, in the nature of "due diligence".
By contrast, although it is common - and prudent - for purchasers of residential property to obtain pre-purchase inspection reports, it is uncommon in the extreme for those reports to deal with structural problems that are not apparent without invasive or destructive testing. Thus, of their very nature, pre-purchase inspection reports are unlikely to reveal problems with hidden structural elements in the building. That fact is common knowledge; and it was stated in the written evidence of Mr Iskowicz. The report that the plaintiffs in fact obtained from Alpha conformed to that pattern, and noted that fact expressly.
It is sometimes said that it may be open to purchasers to obtain assignments (or novations) of warranties given by professionals and builders in connection with commercial building projects. That may be so, where the project is undertaken effectively for the benefit of the end purchaser. To my mind, it is unrealistic to suggest that a prospective purchaser of residential property, intended to be used and occupied as the purchaser's dwelling, should seek to do that. It is, with all respect to those who submitted to the contrary, even more unrealistic to suggest that a tradesman or an engineer or an architect, if asked by a prospective purchaser to give a warranty of his her or its work (or to extend to the purchaser the benefit of warranties given) would agree.
There is one other matter, or perhaps a complex of matters, that may be significant. That is the degree and nature of control that MHE could exercise. See Allsop P in Stavar at [103(c)], where his Honour referred to "the degree and nature of control able to be exercised by the defendant to avoid harm" as an important factor.
In this case, MHE was asked to inspect the works at specific stages. It did so. It produced SI reports. It gave directions in those SI reports. It was open to MHE to direct (as from time to time it did) that particular works should be done, or should be completed.
Thus, in theory at least, it was open to MHE to achieve some degree of control. It could have declined to certify until it was satisfied its prior directions had been complied with. And it was open to MHE to inform the Council of this, by passing on a copy of any SI reports to the certifier. However, for the reasons I give at [313] to [322] below in dealing with an argument as to causation, I do not think that in practice MHE had any real control over the works or the contractors.
I do not regard such limited measure of control as MHE may have had as, of itself, necessitating the conclusion that a duty of care was owed. If the other factors to which I have referred justified the imposition of a common law duty of care, the existence of some (even slight) measure of control would be consistent with the imposition of that duty. However, unless those other factors support the imposition of a duty, the existence of some measure of control does not seem to me to go far enough: at least, where the control is less than absolute, for the reasons I have given.
The matters I have set out at [246] to [248] indicate, to my mind, that the plaintiffs in this case were less able to protect their interests than was the plaintiff in Woolcock Street. Those matters are therefore consistent with vulnerability in the abstract. But they do not stand alone. They must be assessed in conjunction with all other relevant matters. Those other matters include, as well: 1. the steps that the plaintiffs did take to protect their interests; 2. the plaintiffs' willingness to accept the risk of defects other than those referred to in the contract for sale; 3. the availability of a measure of protection flowing from the statutory warranties given by Mr Acres; 4. the absence of any pressure (at least, attributable to MHE); and 5. the absence, on the evidence, of reliance (known or otherwise) on, and assumption of responsibility by, MHE.
I referred in the previous paragraph to "vulnerability in the abstract". However, that is not the test, or touchstone. In this field of discourse, vulnerability means the "plaintiff's inability to protect itself from the defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant": see Hayne and Kiefel JJ in Brookfield at [57]. In the same case, Crennan, Bell and Keane JJ said at [130] that: Vulnerability, in this field of discourse, is concerned not only with the reasonable foreseeability of loss if reasonable care is not taken by the defendant, but also, and importantly, with the inability of the plaintiff to take steps to protect itself from the risk of the loss. Conclusion - no duty of care
To my mind, all those considerations, taken together, are insufficient to justify the imposition of a duty of care. For those reasons, in my view, MHE did not owe the plaintiffs a duty of care. Other factors
On that view, the other factors to which McHugh J referred in Woolcock Street need only brief mention.
There is here no question of indeterminacy of liability, for the same reasons that McHugh J gave in Woolcock Street at [77]. Although his Honour did so in relation to a commercial building, it seems to me that what he said must apply equally to a residential builder. His Honour said that liability would ordinarily be restricted to the owner of the builder when damage manifested itself. There might be a problem of indeterminacy where occupants other than the owner claim, but this could not be the case where the claim was one brought by the first owner or a subsequent purchaser.
There is no real question of interference with individual autonomy. MHE was free to protect its economic interests, in the terms of the contract that it negotiated with Mr Acres. It sought no terms, and thus must be taken to have acquiesced in duties to Mr Acres flowing from the implied term (and coextensive common law duty) to which I have referred above.
Imposing on MHE a common law duty of care to a subsequent purchaser would not interfere with MHE's legitimate pursuit of its proper commercial and economic interests. As McHugh J said in Woolcock Street at [79], "imposing a duty to avoid economic loss to the first or subsequent owner is not inconsistent with the pursuit of the legitimate interests of those who design or construct the building".
The other considerations outlined by McHugh J in Woolcock Street - responsibility for the control of third parties, outflanking the law of contract, and the like - were not raised in this case. However, three of them do bear mention. The first is that the floodgates argument really goes nowhere, for the reasons his Honour gave at [97]. The second is that, for reasons I have explained, there is no risk of disproportionate liability. The third is that there is no problem in finding a measurable standard of care. That is apparent from the views of the expert engineers.

[35]

Breach

On the view to which I have come, the question of breach does not arise, as between the plaintiffs and MHE. However, against the possibility that others may take a different view (and in any event because it is necessary for the resolution of Mr Acres' cross-claim against MHE), I shall deal with it. The inspection of 20 June 2008
The defects alleged that are relevant to this inspection and the following SI report are those set out in item 1 of the schedule. As has been noted, the alleged breaches of duty have been conditionally admitted ("conditionally", in the sense that the admission is made only to the extent that, contrary to my conclusion, MHE did owe a common law duty of care). However, and again as I have noted, Mr Elliott contended that the defect relating to the use of N12 rather than N16 bars had no structural consequence.
As to that last matter, Mr Joannides gave evidence that N12 starter bars at 2.5 metre intervals would have been adequate (that is, in place of the specified N16 starter bars) so long as the vertical and horizontal bond beams for the lower ground floor walls were properly constructed. He performed calculations which supported this opinion.
Mr Stubbs agreed as to the northern and southern walls, but disagreed as to the western wall. However, he gave no evidence of calculations that he had carried out to support his opinion in respect of the western wall.
In the circumstances, where Mr Joannides' opinion has been supported by calculations and (on the evidence) Mr Stubbs' opinion has not, I prefer the opinion expressed by Mr Joannides. The inspection of 1 December 2008
The defects that were said to have been missed in the course of this inspection, and not referred to in the SI report issued after it, are those listed in items in 2 to 6 and 21 of the schedule.
In relation to item 2, MHE disputes that the failure to observe and record that the vertical bond beams had not been constructed as designed was a breach of any common law duty of care that it owed to the plaintiffs.
The essential difference between the parties relates to what was observable on 1 December 2008. The design provided for vertical bond beams to be installed at various locations in the northern, southern and western walls. It provided, further, for a horizontal bond beam to be installed along the top of the lower ground floor blockwork, directly supported by (i.e., on top of) the vertical bond beams, and for the vertical bond beams to be cogged in to the horizontal bond beam by means of steel reinforcing bars.
The defects asserted as to the vertical bond beams are that there was either no or insufficient steel reinforcing, and that there was insufficient grouting. It is, I think, common ground that those defects (to the extent that they existed) could not have been observed simply by inspection of the external faces of the blockwork walls. That is so, obviously enough, because the reinforcing bars and grouting were to be placed within the concrete blocks at the specified locations.
Thus, absent invasive or destructive testing (and no one suggested that the inspecting engineer should have undertaken them), the defects in the construction of the vertical bond beams could only have been observed from the top: by looking down into the lower ground floor blockwork walls.
However, it is by no means apparent that the inspecting engineer would have been able to do so. There are at least two reasons.
The first reason is that, on the evidence (to the extent that the vertical bond beams were inspected by invasive testing), there was some grouting. There is no evidence of observations of complete absence of grouting. The certifier said that voids will be created within a core filled vertical bond beam when the concreters do not force the concrete down into the beam to remove air pockets. Thus, he agreed (T262.38-263.13), when one looked at the top of such a vertical bond beam, it would appear to have been grouted, because there would be concrete at the top.
The second reason is that the design called for the horizontal bond beam to be constructed on top of the vertical bond beams. At the time of the inspection on 1 December 2008, at least the blockwork for the horizontal bond beam must have been laid. That had to be done before the floor joists for the ground floor could be installed, because the joists were to rest on top of the horizontal bond beam. Thus, if the blockwork for the horizontal bond beam had been laid, and the floor framing placed as designed, it would have been impossible in any event for the inspecting engineer to look down into the vertical bond beams to see whether or not there was reinforcing steel (of the specified dimension) and core filling present.
To my mind, for each of those reasons separately, no breach of the alleged duty has been demonstrated in respect of inspection of the lower ground floor vertical bond beams.
Ms Painter sought to counter the second reason by referring to a passage of evidence given by Mr Stubbs in his concurrent session with Mr Joannides. The topic of the evidence was the joint view of the engineers that the inspecting engineer "should have identified and noted on his Site Inspection Report [of 2 December 2008] that the supporting blockwalls on the lower ground floor bond beams were not constructed as shown on the [engineer's] drawings". Mr Joannides said that in his understanding this was restricted to the horizontal bond beam (T376.2-.7). Mr Stubbs agreed "generally…, that's on the assumption that the horizontal bond beam had been constructed at that time of the inspection" (T376.12.14).
In the answer to which I have referred, Mr Joannides added that the inspecting engineer "may not have been able to inspect [the vertical bond beams]" because they "were partially filled and the ones that were partially filled were filled at the top". That appears to support the first reason to which I have referred (at [272] above).
Based on that material, Ms Painter submitted that the inspecting engineer should have observed that the steel reinforcement cogging, from the vertical bond beams into the horizontal bond beams, was absent. She submitted (T673.35-674.8): It's our understanding that the expert engineers accepted that the engineer who inspected ought to have noticed that the horizontal bond beam was not reinforced, that is, that the channel for the reinforcing didn't actually have any such reinforcing but it's axiomatic that this means that the engineer who inspected ought also to have noticed that the cogging, if there was any, from the vertical bond beams didn't exist, that is, it wasn't cogged into the course laid for the horizontal bond beam. The visible defect that you would also see was not just that there wasn't a horizontal bond beam but there wasn't vertical bond beams cogging into the horizontal bond beam. Frankly, what seems to have happened as best we can tell is that rather than constructing the horizontal bond beam with the kind of blocks that carry within them a channel into which the concrete is laid, so in a sense a U‑shaped block which is what should have been used would impede one's view down into the wall below. But because that wasn't used and just regular blocks seemed to have been used, there would be no impediment to either the vertical cogging into the horizontal channel or into the cavity into which the vertical bond beams were placed. So not only could and should the inspector have seen the absence of the horizontal bond beam, but because of the way it was constructed, he could and should have noticed the absence of any vertical reinforcing that should have been cogging up, and because his view wasn't impeded by the standard construction of a horizontal bond beam, he could and should have noticed that the cavities where the bond beams were supposed to be were not filled with concrete.
The difficulty with this submission is that it was not put to the engineers, nor is it based directly (rather than, at best, inferentially) on anything said by them, either in their individual reports or in their joint reports. I accept, of course, that the structural drawings did call for steel reinforcement bars to be used to cog in the vertical bond beams to the horizontal bond beam. It may be thought that, as a matter of reality, if the blocks for the horizontal bond beam had been laid, the cogging bars should have been visible, since the horizontal bond beam had not been grouted. However, I do not think that this is so obvious that it "goes without saying".
There was evidence that, as a matter of construction practice, reinforcing steel may be retrofitted. Although, in the main, that evidence related to reinforcing steel starter bars for the vertical bond beams (Mr Hall gave this evidence in the concurrent session with Mr Iskowicz, and Mr Iskowicz did not disagree), it is by no means obvious to me that, as a matter of construction practice, it may not have been thought easier to retrofit the cogging steel bars once the blocks for the horizontal bond beam had been laid.
In any event, I do not think that the passage of evidence to which Ms Painter referred supports the submission that she put. Since the matter was not otherwise raised in the evidence (and, a fortiori, was not put to the engineers for their consideration and response), I do not think that I should accept the submission.
Accordingly, I find that the alleged breach in respect of failure to observe the defective construction of the vertical bond beams in the lower ground floor wall (item 2 of the schedule) has not been made out.
I turn to item 3 in the schedule. The defects relate to the floor joist framing for the ground floor (failure to fix the joists to the walls with continuous solid blocking or some other appropriate method); the construction of the balconies using laminated timber beams rather than a steel beam and balustrade construction and without adequate waterproofing; and the defective construction of the horizontal bond beam. That last aspect has been dealt with already (as the engineers did) in relation to item 2 of the schedule.
The engineers were of the view that the floor joist framing was defective in the manner alleged. They agreed that the inspecting engineer should have noted this, and should have referred to it in the SI report that he prepared.
Likewise, the engineers agreed that the defects in the ground floor balconies existed. They said that the inspecting engineer should have observed the want of steel beams (and the use instead of laminated timber beams) and the defective construction of the balustrade, and should have referred to these matters in his SI report.
I should note that Mr Joannides' agreement, in respect of the balcony defects - absence of steel beams (and the use instead of laminated timber beams) - was conditional. He said that this would not be a significant defect if the balconies were adequately waterproofed. Whilst I accept that this may be so, I do not think that it offers an excuse for the failure of the inspecting engineer to notice and report upon the use of laminated timber beams instead of steel beams. The design called for steel beams. The use of laminated timber beams was a departure from the design. On the view of the expert engineers, that departure should have been noticed. There is no evidence that the inspecting engineer was told, or had any basis for assuming, that the change from steel to laminated timber beams would be accompanied with appropriate waterproofing measures, such that the use of laminated timber beams could be justified.
I find that the alleged breaches in respect of item 3 of the schedule have been made out.
I turn to item 4 of the schedule. That relates to the defective construction of the ground floor external walls. There are, I think, two differences between the parties. The first question is, what was the purpose of the inspection of 1 December 2008? The second question is, had the ground floor external walls been constructed at the time the inspection was carried out? It appears to be common ground between the engineers that if the ground floor external walls had been constructed, the inspecting engineer should have noted and reported upon the alleged defects.
As I have noted, the stated purpose of the inspection of 1 December 2008 (see SI report No. 5) "was to review the completed underpinning & ground floor structural framing for the above project". That is the only evidence of the purpose for which Mr Acres retained the engineer to carry out the inspection. It follows that the particular retainer did not extend in terms to inspecting the ground floor walls.
There is disagreement as to the extent of the obligation to inspect "ground floor structural framing": namely, precisely what is meant by "ground floor structural framing" in terms of the stated purpose of the inspection? There is a related question as to what "structural framing" was available to be observed on 1 December 2008. I shall return to these questions.
The engineers agreed that the external ground floor walls were constructed as single skin blockwork walls without vertical and horizontal bond beams. However, for present purposes the question is not whether those walls were defective in their construction but whether, as at 1 December 2008, there was any opportunity for the inspecting engineer to observe that defective construction.
Mr Elliott pointed to evidence given by Mr Acres in cross-examination. Mr Acres said (T123.29-124.23) that after the lower ground floor walls had been constructed and the ground floor framing (joists) had been installed, there was an inspection by the inspecting engineer. That must have been the inspection of 1 December 2008.
Mr Acres then said that after the inspection (and, thus, after the joists had been checked) construction work continued, including that the ground floor walls were constructed, as was the roof framing. I set out this last passage of his evidence (T124.10-.23): Q. Then is this right, after that had been checked, the joists work for the ground floor had been checked? A. Yep. Q. Works then carried on? A. Yeah. Q. The ground floor walls were put up then? A. Correct. Q. The roof framing went up. A. Correct. Well, it wasn't framing in so much as trusses. It was an I beam that was literally sat on one wall and sat on the, the opposing wall which had a slight angle. It was a very flat roof.
Ms Painter, who cross-examined Mr Acres after Mr Elliott had done so (the passage to which I have just referred came from Mr Elliott's cross-examination) did not challenge this aspect of Mr Acres' evidence. I accept it.
Acceptance of that aspect of Mr Acres' evidence means, necessarily, that the ground floor external walls had not been constructed as at 1 December 2008. It follows that the inspection of that date (which, I note, was the last inspection carried out and reported upon) could not have observed the construction, let alone defective construction, of the ground floor walls.
I turn to item 5: the defective construction of the ground floor level structural steel framing. It is common ground between the experts, and I have found, that the C2 columns were not installed, and thus (of course) that the RB1 and RB2 roof beams were not welded to them (and were not otherwise adequately bolted to the blockwork walls).
The real question is, again, whether any of that work was in place as at 1 December 2008, and so available for inspection.
Ms Painter relied on the fact that the purpose of the inspection was said to be to review, among other things, the "ground floor structural framing", and that the review was said to have been carried out in accordance with the then current versions of the structural drawings. She referred to drawing S05 (Revision B, although it does not matter) which was titled "ground floor framing layout plan". That drawing does show that the steel columns C2 were to be installed in various locations, and that they were to support steel beams.
Ms Painter relied also on: 1. the express terms of the SI report of 2 December 2008; and 2. the failure to call the inspecting engineer.
The relevant part of the SI report is the statement that: All other ground floor structural framing was found to be in accordance with the above documentation.
Mr Elliott submitted that the "ground floor structural framing" that was the subject of the inspection was not the same as the detail shown on the "ground floor framing layout plan". He submitted that the inspection was limited to the framing of the ground floor itself: that is to say, to the ground floor joists.
The real difficulty with this aspect of the plaintiffs' case is this. Even assuming that "ground floor structural framing" is all the framing referred to on the ground floor framing layout plan, it does not follow that all of that framing was in place, and able to be inspected, as at 1 December 2008. To my mind, reading the SI report as a whole, it does no more than say that so much of the ground floor structural framing as had been constructed and inspected "was found to be in accordance with" the relevant structural drawings.
I do not think that the statement that the inspection was carried out in accordance with the current revisions of the structural drawings is of any great assistance. That was, I think, a "pro forma" statement. The SI report referenced all the structural drawings, including the then current revisions. Many of those structural drawings had nothing whatsoever to do with the ground floor structural framing: for example, the lower ground floor raft slab layout plan (drawing S02) and the beam, footing and other details (S03, S04). Likewise, the various details for the front retaining wall (S07) had nothing to do with the ground floor structural layout.
The next point is that the C2 columns and the RB1 and RB2 beams that were intended to be welded to them are shown again in the roof framing layout plan (S06). Thus, it could be inferred that if inspection of those structural elements were required, it should have been requested and performed at the time they were constructed. This was not done.
If I thought that the evidence, on balance, supported the inference that the subject of the inspection on 1 December 2008 extended beyond the structural framing for the ground floor itself, I would draw that inference more comfortably because of the unexplained failure to call the inspecting engineer. However, I am not satisfied, on the evidence as it stands, that the inference is properly available. In expressing this view, I take into account again the evidence of Mr Acres referred to at [291], [292] above. It is evident from the roof framing layout plan that the columns and beams were regarded, structurally at least, as elements of that work.
In the circumstances, and balancing the evidence as best I can bearing in mind the obvious deficiencies as to testimonial evidence that might have assisted, I do not conclude that the columns had been installed, and were available for inspection, on 1 December 2008. It follows that there is no breach of (hypothetical) duty on the part of MHE, in respect of the fifth item of structurally defective work.
I turn to item 6: the defective construction of the roof framing. There is no evidence at all that the roof framing had been constructed as at 1 December 2008. The SI report does not state, as something that was to be inspected, the roof framing. On Mr Acres' evidence, the roof framing was not constructed until after 1 December 2008. It follows that there could be no breach of duty in respect of this defect.
The remaining defect that, it is said, MHE should have inspected, observed and reported upon is item 21 - the Dincel retaining wall. The simple answer appears to be that MHE was not retained to inspect and report upon that retaining wall. Hence, there can be no breach of duty.
The experts agreed that if MHE had inspected the completed wall, it should have observed that it did not comply with the structural drawings, and should have taken steps to see if it was structurally adequate.
In any event, there is no evidence as to when the wall was constructed. Ms Painter relied upon some photographs, produced and tendered late in the proceedings, to ground a submission that the wall was under construction as at 1 December 2008. The engineers were not asked to review those photographs. Although they were put to the building experts (Messrs Iskowicz and Hall), the point sought to be made (by Mr Acres, in his cross-examination of them) related to drainage details that were shown, not to what might have been the commencement of construction of the northern retaining wall.
I do not regard the photographs as providing any, let alone satisfactory, evidence as to the state of construction of the northern (Dincel) retaining wall as at 1 December 2008.
It may be that, as a matter of logical construction sequence, the retaining wall would have been constructed, so as to stabilise the northern boundary of the property, before work commenced on the extensions at the western end of the house. But even if this were to be assumed, in circumstances where MHE was not asked to inspect the northern wall, was not asked to report on its construction or adequacy, and was not paid for doing either of those things, I see no reason for finding that it owed Mr Acres any duty to do so.
Two things follow. The first is that there could be no breach. The second, and a fortiori, is that there could be neither an equivalent duty to inspect owed to the plaintiffs, nor breach of that suggested duty.

[36]

Causation

The case on causation focuses on the precise nature of the duty said to have been owed by MHE to Mr Acres. That duty (leaving aside preparation and revision of the structural drawings) comprehended an obligation to use reasonable care in inspecting the works when required to do so, and in reporting on the compliance, or otherwise, of those works with the relevant structural drawings; and to make recommendations (or, in the words MHE used, give "directions") as to what should be done if the works were found to be in some respects non-compliant.
The plaintiffs did not plead that, having so inspected and reported (and, where necessary, given directions), MHE was required, as part of its retainer, to return to the site and ensure that the works had been completed in a satisfactory manner (if there were some defect), or that any relevant direction had been followed. Nor is there any evidence to suggest that MHE was ever instructed to follow up on inspections, for the purpose of seeing that non-compliant or incomplete work had been rectified or completed, or that any directions had been followed up.
Thus, it is essential, on the causation issue, for the plaintiffs to show, on the balance of probabilities, that had MHE observed the defects that (it is admitted, or I have found) should have been but were not observed, and given a direction to rectify them, Mr Acres would have acted on those directions, and the defects would have been rectified.
The starting point, according to Mr Elliott, was that Mr Acres' evidence, taken overall, did not show even that he had received and read the SI reports prepared by MHE. I accept that, in the evidence that he gave, Mr Acres could not be certain that he had received and read them. He did say (T112.4) that there was "a big likelihood that [he] did read them". Mr Elliott characterised this as "speculation". Mr Acres said that it was "the truth". However, Mr Acres was not able to say as a matter of fact that he had received and read the reports (T112.7-.17).
There is no doubt that the SI reports, and their accompanying invoices, were sent. The invoices were paid. It follows, I think, that Mr Acres received the reports (he said that his then wife was responsible for payment of invoices). It is, I think, unlikely that Mr Acres, having requested the inspections and paid for them and the reports, would not have read the reports. It is unlikely that, having read the reports, Mr Acres would have ignored them.
However, the actual work of construction was undertaken by contractors, who had contracted with Mr Acres. Mr Acres said, in substance, that when he engaged each contractor, he gave it a copy of the relevant documents (the development application and consent, the architect's drawings and, it must be, MHE's drawings) and told them in substance to do what was required, in accordance with the conditions of the consent and the drawings.
An available inference is that when Mr Acres received reports from MHE, he would have passed them onto the contractors on site, with instructions to do whatever was required. If that inference represents reality, the fact is that the contractors did not do what the directions required. Nor did Mr Acres check to see that they had done what was required.
Had this sequence of events occurred, it is likely that the contractors would have paid no more attention to MHE's directions than they seem to have paid to the structural drawings. The evidence in fact points the other way. It suggests, very strongly, that the contractors built what was convenient to build, not what was required by the drawings. In those circumstances, the likelihood that the contractors would have gone back at their own expense (as would have to be the case) and rectified their defective or incomplete work in accordance with the hypothetical directions that the MHE should have given, is remote.
Of course, if Mr Acres did not give MHE's reports to the contractors, then there was no reason for the contractors to have gone back and rectified their work in accordance with the hypothetical directions. Thus, whichever way one views the prospect of Mr Acres' passing the SI reports onto the contractors, the strong likelihood is, and I find, that the contractors would not have troubled themselves to comply with the engineer's directions, at least if to do so would have occasioned them expense or delay.
In those circumstances, I conclude, on the balance of probabilities, that the defective work would not have been rectified even if MHE had given the directions that the plaintiffs say it should have given.
The position is different with the Council. After all, the Council had the power to reinspect, and to insure that any defective or incomplete work that it had noted on an earlier inspection had been rectified or completed. It had the power to hold works up until this was done. It had powerful weapons available to it to ensure compliance with directions. I shall return to this in discussing the case against the Council. The present point is that there were no such weapons available to MHE. That follows in part from the fact that the engineer was not acting in any sort of official capacity, equivalent to that of the Council as PCA; and in part from the fact that MHE was not retained to reinspect and ensure that its directions had been complied with.
I would conclude, were it necessary to do so, that the plaintiffs have not shown that any of the asserted breaches of duty on the part of MHE would have resulted in loss. I reach that conclusion because, assuming that a duty that was owed had been breached, it is less rather than more likely that the non-negligent action - identifying, reporting upon and requiring rectification of defective or incomplete work - would have produced any different outcome. On balance, the plaintiffs have not proved the necessary causal link between the (hypothetical) breaches of duty and the loss that they say flowed from those breaches.

[37]

Nature of the case

The case against the Council is that it owed, and breached, statutory duties under the EPA Act and a common law duty of care.
The statutory duties are said to arise from ss 109E and 109H of the EPA Act, as they stood at the relevant time. Those sections read as follows: 109E Principal certifying authorities (1) The person having the benefit of a development consent or complying development certificate for development involving building work or subdivision work may appoint the consent authority, the council or an accredited certifier as the principal certifying authority for the development. (1AA) The council must, if appointed under subsection (1), accept that appointment. (1A) Despite subsection (1), such an appointment may not be made by any contractor or other person who will carry out the building work or subdivision work unless the contractor or other person is the owner of the land on which the work is to be carried out. (2) Despite subsection (1), an accredited certifier must not be appointed as the principal certifying authority for development involving subdivision work unless the subdivision to which the work relates is of a kind identified by an environmental planning instrument as one in respect of which an accredited certifier may be a certifying authority. (3) A principal certifying authority for building work or subdivision work to be carried out on a site is required to be satisfied: (a) that a construction certificate or complying development certificate has been issued for such of the building work or subdivision work as requires development consent and over which the principal certifying authority has control, before the work commences on the site, and (b) that the principal contractor for the work is the holder of the appropriate licence and is covered by the appropriate insurance, in each case if required by the Home Building Act 1989, before any residential building work over which the principal certifying authority has control commences on the site, unless the work is to be carried out by an owner-builder, and (c) that the owner-builder is the holder of any owner-builder permit required under the Home Building Act 1989, before an owner-builder commences on the site any residential building work over which the principal certifying authority has control, and (d) that building work or subdivision work on the site has been inspected by the principal certifying authority or another certifying authority on such occasions (if any) as are prescribed by the regulations and on such other occasions as may be required by the principal certifying authority, before the principal certifying authority issues an occupation certificate or subdivision certificate for the building or work, and (e) that any preconditions required by a development consent or complying development certificate to be met for the work before the issue of an occupation certificate or subdivision certificate have been met, before the principal certifying authority issues the occupation certificate or subdivision certificate. (4) A principal certifying authority must also comply with such other requirements of a like or different nature as may be imposed on principal certifying authorities by the regulations. Note. Section 81A prohibits the commencement of building work or subdivision work unless the consent authority has been notified of the appointment of a principal certifying authority for the work. Section 109D (2) prohibits the issue of an occupation certificate authorising the occupation and use of a new building except by the principal certifying authority appointed for the erection of the building. Section 109D (3) prohibits the issue of a subdivision certificate for a subdivision involving subdivision work except by the principal certifying authority appointed for the carrying out of the subdivision. 109H Restrictions on issue of occupation certificates (1) There are two kinds of occupation certificates, as follows: (a) an interim occupation certificate that authorises a person to commence occupation or use of a partially completed new building, or to commence a new use of part of a building resulting from a change of building use for an existing building, (b) a final occupation certificate that authorises a person to commence occupation or use of a new building, or to commence a new use of a building resulting from a change of building use for an existing building. It is not necessary for an interim occupation certificate to be issued before a final occupation certificate is issued with respect to the same building. (2) An occupation certificate must not be issued unless any preconditions to the issue of the certificate that are specified in a development consent or complying development certificate have been met. (3) An interim occupation certificate must not be issued to authorise a person to commence to occupy or use a partially completed new building unless: (a) a development consent or complying development certificate is in force with respect to the building, and (b) in the case of a building erected pursuant to a development consent but not a complying development certificate, a construction certificate has been issued with respect to the plans and specifications for the building, and (c) the partially completed building is suitable for occupation or use in accordance with its classification under the Building Code of Australia, and (d) such other requirements as are required by the regulations to be complied with before such a certificate may be issued have been complied with. (4) An interim occupation certificate must not be issued to authorise a person to commence a new use of part of a building resulting from a change of building use for an existing building unless: (a) a development consent or complying development certificate is in force with respect to the change of building use, and (b) the part of the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia, and (c) such other requirements as are required by the regulations to be complied with before such a certificate may be issued have been complied with. (5) A final occupation certificate must not be issued to authorise a person to commence occupation or use of a new building unless: (a) a development consent or complying development certificate is in force with respect to the building, and (b) in the case of a building erected pursuant to a development consent but not a complying development certificate, a construction certificate has been issued with respect to the plans and specifications for the building, and (c) the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia, and (d) such other matters as are required by the regulations to be complied with before such a certificate may be issued have been complied with. (6) A final occupation certificate must not be issued to authorise a person to commence a new use of a building resulting from a change of building use for an existing building unless: (a) a development consent or complying development certificate is in force with respect to the change of building use, and (b) the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia, and (c) such other matters as are required by the regulations to be complied with before such a certificate may be issued have been complied with. (7) In this section: new building includes an altered portion of, or an extension to, an existing building.
The particular obligations said to have been owed and breached are those arising under s 109E(3)(d), (e) and under s 109H(5)(b),(c).
It is to be noted that s 109E imposes duties on PCAs. It must follow that the alleged breaches of statutory duty are breaches alleged against the Council in respect of the performance of its obligations as PCA.
On analysis, the same is correct as to the breaches alleged of s 109H. That section deals with the issue of occupation certificates. An occupation certificate is defined in s 109C(1)(c) of the EPA Act: (c) an "occupation certificate" , being a certificate that authorises: (i) the occupation and use of a new building, or (ii) a change of building use for an existing building,
Section 109D provides, relevantly (and I paraphrase) that an occupation certificate may be issued by, among others, a PCA (s 109D(1)(c), read in conjunction with subs (2) and with the definition of "new building" in subs (4); it is not necessary to set out those further provisions).

[38]

Pleading issues

The common law duty of care that is pleaded against the Council is based specifically on its duties as consent authority and as PCA. The duty is pleaded as follows at [83] of the ALS: The Fourth Defendant had a common law duty of care in the exercise of its duties as consent authority, acting as the PCA conducting critical stage inspections and issuing a Final Occupation Certificate, arising from the following:- a. on issuing of the Final Occupation Certificate, the Dwelling could be occupied and sold; b. in the event that the Works were not carried out in a proper and workmanlike manner the Plaintiffs would be a member of a class of persons who would suffer loss and damage as a consequence; and c. the fact that the Fourth Defendant, in its capacity as principal certifying authority of owner builder work, would or ought to have been aware of the implications of the HBA in that upon issuance of a Final Occupation Certificate the Plaintiffs could become the owners of the Dwelling and would thereby suffer loss and damage as a result of defective works or works which did not comply with relevant laws and approvals; d. that there was reliance by the Plaintiffs on the Fourth Defendant; e. the fact that the Plaintiffs were in no position to protect themselves against the Fourth Defendant's default; f. the Fourth Defendant was in a special position of control being the sole gateway to the grant of the Final Occupation Certificate; g. the Fourth Defendant was in a special position of control being the entity contracted to conduct, and in fact conducting, critical stage inspections of the Works whilst being undertaken; h. the fact that, as between the parties, approval of the building works as compliant with the BCA, relevant Australian Standards, laws and approvals was entirely and particularly within the Fourth Defendant's control.
The duty is said, at [84], to be "one to take positive action to protect the safety and interests of the Plaintiffs and its [sic] invitees".
Mr Bambagiotti of Counsel, who appeared for the Council, criticised the pleading of the duty of care. He submitted, first, that there was no pleading of any anterior duty of care owed by the Council to Mr Acres.
It is correct that there was no pleading of any such anterior duty. It is not correct that there was no such anterior duty: a common law duty of care coextensive with the contractual obligations that the Council, as PCA, assumed to Mr Acres. And in any event, for the reasons I have given at [202] to [204], I do not regard the absence of an anterior duty of care as being of itself fatal to the plaintiffs' case against the Council.
Mr Bambagiotti also criticised the characterisation of the duty of care alleged. He said that the law did not recognise any such positive duty of care. If I may say so, I think that he is on stronger ground in that criticism.
The case was conducted on the basis that the plaintiffs' claim against the Council was one to recover damages for pure economic loss. The disparity between the value of what they bought, and what they paid for it, identifies the kind of loss of which they complain (although, on orthodox principles, the cost of rectification of the defective work might be the appropriate measure of that loss). For a claim so framed, the duty of care (if any) owed by the Council could be no more than to use reasonable care and skill, in the performance of its functions as PCA (leaving aside, for the moment, allegations about its functions as consent authority) to avoid economic loss to the plaintiffs and people in their position, as subsequent purchasers of the house.
The allegations of breach are contained at [85] of the list statement. Their inverse chronological order reflects the fact that the complaints in respect of the inspection of 8 July 2008 were added, by amendment, at the commencement of the hearing. In any event, I set out that paragraph: In breach of its duty of care and/or in breach of its statutory obligations, the Fourth defendant: a. permitted the First Defendant to carry out works otherwise than in a proper and workmanlike manner; b. permitted the First Defendant to carry out works contrary to relevant laws and approvals; c. failed to carry out any inspection of the wet areas prior to tiling; d. failed to carry out the critical stage inspection works in a proper and workmanlike manner, in that at the inspection on 15 December 2008, their inspector Sashi Sasidharan, failed to: i. Identify that the First Defendant had not installed Columns C2 as detailed on Drawing SO5 to support Beam B4 on the Western rear elevation; ii. Require the First Defendant to install Columns C2 as detailed on Drawing SO5 to support Beam B4 on the Western rear elevation before the Compliance Certificate was issued; iii. Identify that the First Defendant had not constructed any of the horizontal bond beams the Third Defendant had specified and designed to be installed at the top of the block work walls forming the lower ground floor walls or ground floor walls; iv. Require the First Defendant to construct any of the horizontal bond beams the Third Defendant had designed and specified to be installed at the top of the block work walls forming the lower ground floor walls or at the top of the ground floor walls before the Compliance Certificate was issued; v. Identify that the First Defendant had not constructed the vertical bond beams the Third Defendant had designed and specified to be installed as part of the block work walls forming the lower ground floor walls and ground floor walls; vi. Require the First Defendant to construct the vertical bond beams the Third Defendant had specified to be installed as part of the block work walls forming the lower ground floor walls and ground floor walls elevation, before the Compliance Certificate was issued; vii. Identify that the First Defendant had installed floor joists for the ground floor by cutting into hollow core block work walls; viii. Require the First Defendant to install floor joists for the ground floor by mechanically fixing them to a horizontal bond beam as designed and specified by the Third Defendant elevation before the Compliance Certificate was issued; ix. Identify that the First Defendant had not adequately tied down the floor to the supporting wall structure; x. Require the First Defendant to tie down the roof structure to the supporting wall structure in accordance with the relevant Australian Standard before the Compliance Certificate was issued. xi. Identify that First Defendant had not used 16mm diameter reinforcing bars in the vertical bond beams installed by rather had used 10mm and 12mm diameter reinforcing bars; xii. Require the First Defendant to replace any 10mm or 12mm diameter reinforcing bars with 16mm reinforcing bars where specified by the Third Defendant elevation before the Compliance Certificate was issued; xiii. Identify that the 200mm high retraining wall on the northern boundary to the property had not been constructed by the First Defendant in accordance with any Site Instruction or detail issued by the Third Defendant. xiv. Require adequate or any information from the First Defendant in order to ascertain how the retaining wall on the northern boundary had been designed, constructed and certified elevation before the Compliance Certificate was issued. xv. Require production from the First Defendant of any certification from the Third Defendant, or any other suitably qualified engineer, certifying that the works as executed and as detailed above were compliant with the relevant provisions of the BCA and Australian Standards elevation before the Compliance Certificate was issued. e. failed to carry out the critical stage inspection works in a proper and workmanlike manner, in that at the inspection on 8 July 2008 ("the blockwork inspection"), their inspector Sashi Sasidharan, failed to: i. identify that the First Defendant had installed N12 reinforcement bars to the vertical bond beams rather than N16 reinforcement bars. ii. identify that the First Defendant had not installed any reinforcement bars to the locations detailed for horizontal bond beams as detailed in "Horizontal Bond Beam Detail" and Typical Bond Beam Elevation" on the Mitchell Howes Engineering Drawing S03 Revision A dated 27 May 2008; iii. require the First Defendant to install N16 reinforcement bars to the vertical bond beams or obtain a certificate from the Third Defendant attesting to the structural adequacy of the installed N12 reinforcement bars; iv; require the First Defendant to install N16 reinforcement bars to the locations detailed for horizontal bond beams in "Horizontal Bond Beam Detail" and Typical Bond Beam Eleation" on the Mitchell Howes Engineers Drawing S03 Revision A dated 27 May 2008 or obtain a certificate from the Third Defendant attesting to the structural adequacy of the structure without any reinforcement bars in the locations nominated on the Mitchell Howes Engineers Drawing S03 Revision A dated 27 May 2008; and v. not issue a Compliance Certificate for the reinforcement to the blockwork walls until the First Defendant had addressed the deficiencies particularized in subparagraphs (f)(i) - (f)(iv) above.
It is then alleged at [86] that, knowing of the defects as particularised, the Council "permitted the First Defendant to obtain a Final Occupation Certificate". There are further and consequential allegations at [87] to [90]: [87] As a result of failing to require the First Defendant to produce any adequate certification, the Fourth Defendant failed to require the First Defendant to rectify work which was carried out otherwise than in a proper and workmanlike manner, as detailed in defects reports later obtained by the Plaintiffs. [88] As a result of failing to require the First Defendant to produce adequate certification, the Fourth Defendant failed to require the First Defendant to carry out works in accordance with the relevant laws and approvals and in fact endorsed and ratified the First Defendant's non-compliant works as detailed in defects reports later obtained by the Plaintiffs. [89] As a result of failing to require the First Defendant to produce adequate certification, the Fourth Defendant approved or certified works which had been carried out otherwise than in a proper and workmanlike manner, as detailed in defects reports later obtained by the Plaintiffs; and [90] As a result of failing to require the First Defendant to produce adequate certification, the Fourth Defendant approved or certified residential building works which were not suitable for occupation or use as a residential building.
Mr Bambagiotti submitted, correctly, (T644.4-.12) that: What is conspicuously absent in the allegations from 15 December 08 and 8 July 08 is any reference to EB3, or any reference to waterproofing or drainage or the balcony or the front wall or the plethora of other allegations that are made. The allegations that are actually particularised in subpara 85(d) relate to the C2 columns, the horizontal bond beams which is at subpara (iii) and (iv) and is picked up again at (xi) and (xii), the vertical bond beams which is at (v) and (vi) and again reinforced, if I may use the pun, in (xi) and (xii), the floor joists at (vii) and the tie down of the roof at (ix) and the 2,000 millimetre high retaining wall at (xiii) and (xiv).
However, the case was conducted on the basis that those defects were in contest between the plaintiffs and the Council. The plaintiffs' Scott Schedule and expert evidence dealt with those issues. The Council had whatever opportunity it needed to meet them. It chose to conduct the hearing on the basis that those defects were in contest. In those circumstances, the fact that the evidence went beyond the particulars of breach, so that the case was argued on a wider basis than asserted in the particulars of breach, goes nowhere.
It is convenient to note at this point that the allegations of breach of statutory duty prompted the Council to rely, by way of defence, on ss 43 and 43A of the Civil Liability Act 2002 (NSW). Those sections read as follows: 43 Proceedings against public or other authorities based on breach of statutory duty (1) This section applies to proceedings for civil liability to which this Part applies to the extent that the liability is based on a breach of a statutory duty by a public or other authority in connection with the exercise of or a failure to exercise a function of the authority. (2) For the purposes of any such proceedings, an act or omission of the authority does not constitute a breach of statutory duty unless the act or omission was in the circumstances so unreasonable that no authority having the functions of the authority in question could properly consider the act or omission to be a reasonable exercise of its functions. (3) In the case of a function of a public or other authority to prohibit or regulate an activity, this section applies in addition to section 44. 43A Proceedings against public or other authorities for the exercise of special statutory powers (1) This section applies to proceedings for civil liability to which this Part applies to the extent that the liability is based on a public or other authority's exercise of, or failure to exercise, a special statutory power conferred on the authority. (2) A "special statutory power" is a power: (a) that is conferred by or under a statute, and (b) that is of a kind that persons generally are not authorised to exercise without specific statutory authority. (3) For the purposes of any such proceedings, any act or omission involving an exercise of, or failure to exercise, a special statutory power does not give rise to civil liability unless the act or omission was in the circumstances so unreasonable that no authority having the special statutory power in question could properly consider the act or omission to be a reasonable exercise of, or failure to exercise, its power. (4) In the case of a special statutory power of a public or other authority to prohibit or regulate an activity, this section applies in addition to section 44.
As will be seen, the short answer to those defences is that, even if the sections are otherwise applicable, the conduct of the certifier was "so unreasonable that no authority having the functions of the authority in question could properly consider the act or omission to be a reasonable exercise of its functions" (s 43(2): and see the equivalent provision relating to special statutory powers in s 43A(3)).

[39]

The PCA agreement

The PCA agreement was made on 5 May 2008. It was described as "a service agreement to be completed where [the Council] is appointed as the [PCA] in accordance with s 81A of the [EPA Act] to carry out nominated inspections of the building works and to issue required Final Occupation Certificates".
The agreement set out the identity of the owner and the location of the property, and the nature of the approved work (and gave details of the approval). It was signed by Mr Acres and his then wife as "Owner". It was signed for the Council by the certifier. Above that signature, the following words appeared: As Council's Building Surveyor I agree to the provision of services detailed by this agreement subject to the owner supplying plans, specification, engineering/other details, Compliance Certificates, Certificates, Survey Reports and obtaining required public liability insurance in accordance with this agreement.
Under the heading "Additional Information", there appear the following matters:
Building Inspections Council will provide you with a list of Critical Stage Inspections to be conducted for the development. Please refer to your responsibility under this agreement to ensure that Council is given not less than 48 hours notice (excluding weekends and public holidays) of when works are ready to be inspected. Council building inspections are undertaken at critical phases of the building process. Ku-ring-gai Council will carry out PCA and inspection services in a professional manner and in accordance with the requirements of the Environmental Planning and Assessment Act 1979 and Council's Code of Conduct. Council, acting as the PCA, may at any stage request the owner or the owner's builder to provide specialist reports, plans, specifications (e.g. Fire Safety Certificates) and certification of building materials, process or works. Work must not proceed beyond each stage until a satisfactory inspection result is obtained.
Other Services Ku-ring-gai Council's building surveyors can provide a range of additional PCA services, including issuing of Compliance Certificates, details of compliance with Council's development consent and provision of technical building and fire safety advice. The provisions of these services are not covered by this agreement. These services will attract additional fees and charges It is the agreed responsibility of the owner and their builder or sub-contractors, where the owner is the builder that they must comply with all relevant legislation, consents and approvals relating to the subject development. These include but are not limited to the following Acts and Regulations thereunder: * The Environmental Planning and Assessment Act 1979 * The Contaminated Land Management Act 1979 * The Protection of the Environment Operations Act 1997
Compliance with relevant legislation, consent and approvals * The Local Government Act 1993 Work not in accordance with the approval and Building Code of Australia may result in the refusal to issue an Occupation Certificate. Council may also serve notices and orders to comply with the approval and/or may institute legal proceedings for any breach. * The Roads Act 1993 * The Traffic Act 1909 It is agreed that the owner has a duty of disclosure with respect to any known breach of any relevant legislation or matter that may require rectification or remediation. An example being the discovery of land contamination.
Occupational Certificate The owner agrees that a final Occupation Certificate must be obtained from Ku-ring-gai Council prior to the occupation or use of a new building (or part of a building) or prior to the change of an existing building use/classification. An application may be made to the Council for an interim Occupation Certificate, which will be considered in accordance with the provisions of the Environmental Planning and Assessment act [sic] 1979 and conditions of development consent. An application for an interim or final Occupation Certificate must be accompanied by final or interim fire safety certificates as required by the Environmental Planning and Assessment Act (Form 15). The production of Fire Safety Certificates does not form part of this agreement and is only required for Class 2 to 9 buildings inclusive. This agreement includes the assessment and determination of the final Occupation Certificate, however, where the owner makes an seeks an Interim Occupation Certificate additional fees and charges apply in accordance with Council's adopted fees and charges.

[41]

Did the Council owe the plaintiffs a duty of care?

To my mind, the salient features of the relationship between the Council and the plaintiffs are distinctively different from those of the relationship between the plaintiffs and MHE.
Those salient features include the statutory scheme under, and for the purposes of which, the Council performed its functions as PCA. They include, as well, the Council's actual knowledge of reliance by purchasers (such as the plaintiffs), and Council's at least inferred (in truth, I think, actual) assumption of responsibility towards such purchasers. In those circumstances, it must have been clear to the Council that the negligent performance of its functions as PCA could well injure the economic interests of those purchasers, who it knew would rely on the occupation certificate according to its terms.
It was reasonable for purchasers (including the plaintiffs) to rely on the Council properly to discharge its functions. There are at least three reasons why: 1. the independence of the Council, 2. because of the statutory scheme pursuant to which it acted; 3. and because it was not reasonably practicable for the purchasers to undertake the kind of testing that would be necessary to uncover the defects that the Council should have picked up, but did not.
Mr Bambagiotti submitted that the plaintiffs were not relevantly vulnerable. He submitted (correctly) that they were educated people, occupying responsible professional positions. He noted, correctly, that Ms Chan is a solicitor, and was at the relevant time. He noted that the plaintiffs had retained an independent solicitor to act for them on the purchase.
The starting point is that the process of critical stage inspections was clearly intended to ensure that the work the subject of the inspections was properly carried out in accordance with the relevant drawings. The inspections were carried out "at important stages of the building construction", as the certifier recognised (T261.3). It is, and in 2008 was, a feature of such inspections "that quite often they have to be carried out at a particular point of time because otherwise the work to be inspected will be covered up as the building work progresses" (T261.13-.19). The certifier understood this (T261.19). The inspections had to be "completed satisfactorily before a final occupation certificate can issue" (T261.21-.23).
That evidence from the certifier makes clear what in any event is in my view apparent from the statutory scheme in Part 4A of the EPA Act. One function of the critical stage inspections is and was to ensure that work was done satisfactorily, so as to lead to the issue of a final occupation certificate which would certify, among other things, that the building was suitable for occupation or use in accordance with its BCA classification. In turn, unless and until an occupation certificate has been issued, the building (or part) to which it relates may not be occupied (s 109M(1): that prohibition ceases after 12 months, but despite Mr Bambagiotti's submissions to the contrary, I do not regard this as being a critical point).
The scheme for which Part 4A provides must be read bearing in mind s 81A of the EPA Act. That section provides, among other things, that the erection of a building in accordance with the development consent must not be commenced until the person having the benefit of the consent has appointed a PCA, and notified the PCA that work is about to commence (as an owner-builder, if that is the case): see s 81A(2)(b).
Thus, building work must not be carried out without development consent and the issue of a construction certificate; nor may it be commenced until a PCA has been appointed. The PCA is required to notify the person having the benefit of the consent of any critical stage inspections and other inspections that must be carried out (s 81A(2)(b1)(ii)).
Once building work commences, the person having the benefit of the consent - in this case, Mr Acres - must notify the PCA - in this case, the Council - when work has got to a specified critical stage, in respect of which inspection is required. The PCA must then inspect the work. By necessary implication from the scheme of Part 4A and the concept of "critical stage" work, the PCA must assess the work against the relevant drawings and other matters (e.g., the BCA or applicable Australian Standards).
Unless the PCA is satisfied that the work has been carried out in accordance with the terms of the consent, the drawings and so on, it should not reach the requisite degree of satisfaction as to the quality of the work. In turn, unless the PCA is satisfied that the work when completed has resulted in the erection of a building that is suitable for occupation or use in accordance with its classification under the BCA, it should not issue an occupation certificate. Unless an occupation certificate is issued, the building may not be occupied (for 12 months following completion of the works, at least).
In this case, the certifier understood the importance of the issue of a final occupation certificate. As I have noted already, he accepted that the critical stage inspections had to be completed satisfactorily before such a certificate could be issued. He then gave the following evidence (T261.25-.41): Q. Did you understand at the time that the final occupation certificate is a document relied upon by the owner of the house for whom the work is carried out? A. Yes. Q. Where it's an owner-builder then by that owner-builder? A. Yes. Q. Did you have any understanding at the time as to whether it was a document that subsequent purchasers of the house might look at? A. Yes. Q. You understood that they would look at that to satisfy themselves-- A. Yes. Q. --that the work had been inspected and had been passed? A. Yes.
In the present case, as the certifier understood was likely to happen, the plaintiffs did indeed look at the occupation certificate, and did indeed draw some comfort from it. The occupation certificate certified, among other things, that (contrary to the fact then and now) the work done by Mr Acres was fit for occupation and use as a dwelling house.
In the case of the Council, and quite unlike the case of MHE, it is in my view clear that there was both the expectation of reliance (i.e., the Council, through the certifier, knew or understood that prospective purchasers would rely on the occupation certificate) and actual reliance. I do not understand it to have been submitted that the reliance of which Mr Cox gave evidence was unreasonable. It is plain from the evidence of the certifier that the Council knew of the likelihood of that reliance. In those circumstances, it is easy to infer, and I do, that the Council, knowing that intending purchasers would rely on its work as summarised in occupation certificates, assumed the responsibility of certifying accurately. One might well ask, accordingly, why should it not also bear the consequences of certifying inaccurately?
When one considers in their totality the matters that I have canvassed above, it seems to me to be strongly arguable that the plaintiffs were relevantly vulnerable. There is the unchallenged evidence of known and expected reliance, and of inferred assumption of responsibility. There is the feature of the Council's functions as PCA. There is the feature that the work inspected was "critical" because, in many cases at least, it was important structural work. And there is the feature that, in many cases at least (in fact, probably all), the opportunity to reinspect that work was lost once the Council had done so and certified it as compliant, because the work was then covered up.
Further, where (as here) the work is the construction of a dwelling house (or extensions to a dwelling house) intended for use as a family home, there is the consideration that it is unlikely in the extreme that invasive or destructing examination would be undertaken, to "second-guess" the state of affairs certified by the final occupation certificate. Indeed, purchasers would be entitled to think (as did the plaintiffs) that there was no need to revisit matters apparently settled by the issue of that certificate.
In my view: 1. the plaintiffs (to adapt the words of McHugh J in Perre at [126]) were "specially vulnerable to the… conduct" of the Council, because to the knowledge of the Council, they relied on it to perform its functions as PCA with appropriate care and skill; 2. the Council was aware that there was a class of purchasers, of which the plaintiffs were members, who would so rely on it; 3. the Council must have therefore recognised, had it turned its mind to to the point, that purchasers would be likely to suffer economic loss if, contrary to the state of affairs certified in the occupation certificate, the property were not fit for use as a dwelling house (at least, as to the extensions); and 4. in those circumstances, and again adapting the words of McHugh J in Perre at [126] (and see also Meagher JA in Dansar at [172]), known reliance is the appropriate test for determining whether the plaintiffs were vulnerably exposed to harm from the Council's acts or omissions in its performance of its duties as PCA, so as to justify imposing on the Council a duty of care in respect of that performance.
As to other features of the relationship that tell for or against the imposition of a common law duty of care, the position seems to me to be no different to the equivalent position as between the plaintiffs and MHE.
It was reasonably foreseeable that the plaintiffs, or purchasers in their position, would suffer loss if the Council carried out its inspections negligently, failed to detect obviously non-compliant work, and as a result certified (wrongly) that a building riddled with structural defects was fit for use and occupation as a dwelling house. There is no question of indeterminacy of liability. There is no interference with individual autonomy. And (following on from foreseeability) the Council was well placed to know of the possible consequences of negligent inspection and certification. After all, it employed building surveyors of great experience (as was the certifier in the present case) to carry out inspections. They must have appreciated the risk to life and limb should they wrongly certify, as fit for use and occupation, something which was structurally dangerous.
Further, in this case, no question arises in respect of the "floodgates", or of disproportionate liability. The duty owed by the Council to the plaintiffs (or purchasers in their position) could be no different in extent to the duty it owed in contract and in tort to Mr Acres. And the damages for breach likewise could be no different.
Finally, in this case, it cannot be suggested that there is no measurable standard of care. To the contrary: the Court was regaled with voluminous detailed evidence from experts in the field of building regulation, seeking to impose on each other and the Court their views as to what a reasonable certifier in the position of the Council might or might not do in respect of the various deficiencies alleged.
To my mind, when one considers all those features of the relationship between the plaintiffs (or purchasers in their position) and the Council acting as PCA, viewed against the context of the statutory scheme, there is a strong case for imposing on the Council, in favour of purchasers in the position of the plaintiffs, a duty to use reasonable care in performing its activities as PCA that led to the issue of the final occupation certificate, and to certify accurately in terms of, among other things, fitness for use and occupation, the subject of s 109H(5)(c) of the EPA Act.
What factors tell against the imposition of a duty of care? It is of course the case, as Mr Bambagiotti submitted, that the plaintiffs had the opportunity of inspecting the property, and of obtaining and discussing a pre-purchase inspection report. It is the case that they negotiated an amendment to the contract, to reflect a defect that was pointed out in that report. It is correct that, otherwise, they agreed to assume the burden of latent defects. It is correct that all those were matters of choice; and that there was no compulsion on them to buy the subject property.
Further, Mr Bambagiotti referred to the statutory scheme for protection of buyers of residential homes set out in ss 18B and 18C of the HB Act. He submitted, he said consistently with what I had said in Brookfield at first instance (Owners Corporation Strata Plan 61288 v Brookfield Multiplex Ltd [2012] NSWSC 1219), that the legislature had chosen to enact the indemnity scheme set out in those provisions of the HB Act, and that it was not for the Court to go further. (I said the same in Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712 - a case that did not go on appeal.) It might be thought that the joint judgment in Woolcock Street at [35], and the judgment of Gageler J Brookfield at [186], support that proposition.
The "Brookfield" cases concerned a builder and a subsequent owner. Woolcock Street concerned an engineer and a subsequent owner. The salient features of the relationships exposed in those cases did not include any equivalent of the features of the relationship between the Council and the plaintiffs that I have referred to above. Specifically, they did not include the features of known reliance and assumption of responsibility. Whilst I accept (as I did in my earlier decisions) that the Court should be very slow to tread where the legislature has not, in a field where the legislature has chosen to intervene to some extent, I do not think that this consideration is sufficient to outweigh what I see as being the logical and principled development, by analogy, of what has been said in the High Court cases to which I have referred all too extensively.
Mr Bambagiotti submitted, further, that it had been open to the plaintiffs in the present case to seek assignments of warranties given by contractors, by MHE (and perhaps by the Council). For the reasons I gave when considering the same submission made by Mr Elliott for MHE (see at [248] above), I do not accept that submission.
I conclude that the Council, in its capacity as PCA, did owe to the plaintiffs a duty to use reasonable care in performing its critical stage inspections, and in issuing the final occupation certificate. In each case, I conclude, that duty of care is coextensive with the contractual and tortious duty that the Council owed to Mr Acres under and in respect of the PCA Agreement.
To my mind, recognising that the actual decision in Western Districts related to the issue of a subdivision certificate, and to the specific statutory consequences of the issue of that certificate, and recognising also the different position of persons who contract to buy land before subdivision is effected, compared to persons who buy land on which building work has been carried out, some support for my conclusion is, nonetheless, to be found in the decision in Western Districts. I should however say that I do not regard this as being a weighty, let alone dispositive, consideration: the significant differences between this case and that show why this is so.

[42]

Breach

After the certifier had completed his evidence, and in light of what seemed to me to be conclusions reasonably available from that evidence, I inquired of Mr Bambagiotti whether the Council maintained aspects of its denial of the allegations of breach made in the ALS. Mr Bambagiotti, with the benefit of an adjournment to seek adequate instructions, said that the Council wished to amend its list response.
The amended list response (ALR) maintains the Council's denials of the allegations in [85(a), (b), (c)] of the ALS. Further, and specifically in relation to [85(c)] (wet areas), the Council says that it was not notified that the waterproofing works had been carried out, was unable to inspect them when it did become aware that they had been carried out (because the waterproofing membrane had been tiled over), and that it relied (and was entitled to rely) on a certificate from the waterproofing contractor that Mr Acres gave it.
As to [85(d)] of the ALS, the ALR substantially contests only the allegations in sub-paras (xiii) and (xiv).
In respect of [85(e)], the ALR admits that the certifier did not carry out the critical stage inspection in a proper and workmanlike way, and then answers various individual allegations.
The ALR also refers to and relies upon MHE's SI report of 2 December 2008 in various ways.
I set out [30] of the ALR: 30. In response to paragraph 85, the Fourth Defendant: (a) it denies the allegations in subparagraphs (a) and (b) and says that it's [sic] role as certifier did not extend to permitting or otherwise work being done by the First Defendant who was in control of and responsible for the work being done; (b) In specific response to subparagraph 85(c) i. Says it was not notified by the First Defendant between 8 July 2008 and 15 December 2008 that waterproofing works had been carried out; ii. Says it was unable to inspect the waterproofing works during its inspection conducted on 15 December 2008 as tiling of the wet areas had already been completed; iii. Says it relied upon a certificate subsequently provided by the First Defendant to it in relation to the waterproofing works; Particulars i. Ku-ring-gai Council Compliance Certificate signed by Sashi Sasidharan and dated 15 December 2008. ii. W & R Water Proofing Certificate for Water Proofing dated 27 April 2009. iv. Says it was entitled to rely upon the certificate as evidence the waterproofing works had been carried out in compliance with the conditions of consent and in accordance with the plans; Particulars i. Section 93(i)(b) of the Local Government Act, 1993 (NSW). v. Says it does not incur any liability to the Plaintiffs as a consequence of its reliance upon the certificate; Particulars i. Section 732(b) of the Local Government Act, 1993 (NSW). vi. Denies, in the circumstances, the failure by it to inspect the wet areas prior to tiling was a breach of any common law and/or statutory duty; c. with respect to the allegations in sub-paragraph (d), without prejudice to its contention that it owes and so has breached no duty of care to the Plaintiff or anyone else, it says: (i) it admits the allegation in sub-paragraphs (d)(i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (xi), (xii) but says that: (A) it relied upon the certificate issued by the Third Defendant 2 December 2008 that was provided to it by the First Defendant; (B) in relation to the installation of the N16 end bars, it relied upon the assurances given by the First Defendant to the effect that they would be installed in the work and in respect of those bars; (C) in relation to the bond beams alleged in sub-paragraphs (iii), (iv), (v) and (vi), it says that it was only expected to, and could only reasonably, inspect the steel reinforcement of the said beams and was not required to, and could not reasonably, inspect or be responsible for the grouting of those beams, so its admission herein extends only to the placement of steel reinforcement in the said beams; (D) in relation to the bond beams alleged in sub-paragraphs (iii), (iv), (v) and (vi), it denies that it was obliged to, or was responsible for, the grouting in the said beams and denies the allegations therein to that extent; (ii) it admits the allegation in sub-paragraphs (d)(ix) and (x); (ii) in relation to the allegations in sub-paragraph (xiii) and (xiv), it: (A) admits that it did not inspect the said retaining wall; (B) does not admit that the said wall was part of the development subject of its obligations as PCA; (C) denies that it was required to inspect the said wall; (D) and so denies the allegation therein. (iv) it denies the allegation in sub-paragraph (d)(xv) and the balance of the allegations in paragraph 85 of the Amended List Statement. (d) in respect of the allegations in sub-paragraph 85(e), it says: (i) it admits that it failed to carry out the critical stage inspections in a proper and workmanlike manner, but says: (ii) in respect of the allegation in subparagraph (e)(i), that it did identify that the First Defendant had installed N12 reinforcement bars to the vertical bond beams, but considered those beams to be adequate in the circumstances in the exercise of professional judgment; (iii) it admits the allegation in subparagraph (e)(ii); (iv) in relation to the allegation in subparagraph (e)(iii), it says that: (A) it directed that N16 reinforcement bars be placed "at each corner and ends to full height of the block wall prior to core filling" Particulars The Compliance Certificate of 8 July 2008 (B) it was provided with, and relied upon, the certification provided by the Third Defendant in the Site Inspection Report of 2 December 2008 as attesting to the structural adequacy of the structural framing, as including those parts of the framing comprising the material portions of the blockwork walls subject of the allegations in the sub-paragraph, as given by the First Defendant to the Fourth Defendant in December 2008; Particulars The Third Defendant's Site Inspection Report of 2 December 2008 (C) it relied upon the First Defendant's assurances that the N16 bars that were subject of the Compliance Certificate of 8 July 2008 would be installed. (v) in relation to the allegation in subparagraph (e) (iv), it says that: (A) it admits that it did not require the N16 bars to be installed to the horizontal beams, as alleged, but says (B) it was provided with, and relied upon, the certification provided by the Third Defendant in the Site Inspection Report of 2 December 2008 as attesting to the structural adequacy of the structural framing, as including those parts of the framing comprising the material portions of the blockwork walls subject of the allegations in this sub-paragraph, as given by the First Defendant to the Fourth Defendant in December 2008; (C) it admits that, in the circumstances, a compliance certificate should not have been issued in relation to the blockwork on 8 July 2008, (vi) it admits the substance of the allegation in subparagraph (e) (v) subject to the issues particularly raised hereinabove. b. Otherwise, denies paragraphs 85 and each and every particular of breach of duty and/or breach of statutory duty pleaded therein.
There was no factual debate about the breach alleged in respect of wet area inspections. The Council's letter of 6 May 2008 nominated "Wet Area - Bathrooms/Laundry/Recessed Balcony" as one of the critical stages of the works, inspection of which was required before the next stage could be commenced. However, the evidence of the certifier was, in substance, that the Council had not been notified of the completion of the application of the waterproof membranes in the relevant areas, and had not been asked to inspect them, before the membranes were tiled or otherwise covered over.
No doubt, the certifier could have asked for the work to be uncovered: a process that would involve time, expense and almost certain damage to the underlying membrane. Instead, he chose to require certification from the waterproofing contractor. He was given that certification. On its face, it showed that the work had been carried out appropriately.
I accept, of course, that the whole purpose of independent certification by a PCA is to ensure that work is carried out properly and in accordance with the approved drawings. However, there must be an element of discretion in the performance of the PCA's duty. It is a question of judgment, whether to require the work to be uncovered (with consequences including at least those I have identified), or whether to rely on certification by the contractor. In my view, it was reasonably open to the certifier in this case, having regard to the events that had happened, to rely upon the contractor's certification. It might be different if, for example, Mr Acres had notified the Council that the waterproofing membranes had been applied and could be inspected, and the certifier had failed to do so. But that is not this case.
This case is one where the certifier was required to choose between two alternatives, neither of which was particularly attractive, and neither of which involved strict compliance with its obligations under the PCA agreement as amplified in the letter of 6 May 2008. The choice that it made was, at least, not unreasonable; more kindly, I think, reasonable. In those circumstances, no liability attaches to the Council for the failure to inspect and certify, after inspection, the waterproofing membrane.
I turn to the remaining allegations of breach. The effect of the revised pleading to the allegations of breach in respect of the inspections of 8 July and 15 December 2008 is that, except in respect of the Dincel wall, the Council has admitted facts which show that the inspections were simply not carried in an appropriate and professional way. On the contrary, it is obvious from the evidence that the certifier simply did not look at, or if he looked at did not notice, what must have been obvious non-compliances.
Taken as a whole, the certifier's evidence shows such wholesale dereliction of duty, such gross disparity with the exercise of reasonable care, that if the defences under ss 43(2) and 43A(3) of the Civil Liability Act were available as a matter of law, the facts are such that no reasonable certifier, in the position of the Council, could have acted as the certifier in this case did.
Accordingly, except as to the Dincel wall, I find the remaining substantial allegations of breach of duty proved.
It follows that there was no basis for the Council, acting as PCA, to certify, as it did in the final occupation certificate, that the extension was fit for occupation and use as a dwelling house. The evidence shows that it was plainly unfit for such occupation and use, because it was structurally defective, and because those structural defects presented and present a very real threat to personal safety and property.
That leaves the Dincel wall. The Council says that it did not form part of the approved development. That appears to be correct. There is no trace of the northern boundary retaining wall on the Actron drawings that were submitted to the Council and approved by it. The north elevation on sheet 5-11 refers to a "brick wing wall as selected". There is no identification of that wall that would enable it to be correlated to the wall on the northern boundary that was the subject of MHE's sketch SK01.
MHE's structural drawings were not submitted to the Council with the development application. Nor were they referred to in the development approval. Indeed, despite many requests, they were not submitted to the Council for some months after work had commenced (a matter for which the certifier was, in my view rightly, criticised). Those structural drawings in any event did not form part of the approved plans.
As the Council submitted, the wall was not "part of the development subject of its obligations as PCA". Nor was it nominated for a "critical stage inspection".
There is no evidence that the certifier was ever called upon to inspect the wall. A fortiori, there is no evidence that he ever did inspect it, or that he certified it as in some way compliant.
In short, I find that the Council is not liable in respect of the allegations of breach insofar as they relate to the defective waterproofing the subject of [85(c)] of the ALS, or to the Dincel wall, the subject of [85(d)(xiii),(xiv)].
The other allegation of breach that is in issue is that made in [85(d)(xv)]. I do not regard this as a substantial matter.
That sub-paragraph alleges failure to require the production of certification that the works as executed complied with relevant provisions of the BCA and applicable Australian Standards. That general allegation appears to have got somewhat lost. It was not addressed in the parties' submissions. It is not immediately apparent to me why the duty of care that, I have found, the Council did owe to the plaintiffs should have obliged it to require the production of such certificates. In any event, there is an obvious question as to whether Mr Acres was in a position to procure them, given that he had not engaged MHE to supervise the works, inspect each stage, and certify its compliance with the structural and other drawings.

[45]

Damages

Right up until their case was opened at the commencement of the hearing, the plaintiffs had put their case for damages on the basis that it was necessary to demolish the whole house, and reconstruct it. Their case, based on the evidence of Mr Iskowicz, was that rectification work was not (at least economically) practicable, and that it would be more efficient, and no more expensive, to demolish and reconstruct. Mr Iskowicz produced costings for the alternatives that the whole of the house, or the extensions only, were demolished and reconstructed. The basis on which he said that demolition and reconstruction would be economically efficient, compared to rectification of the defects, was not exposed.
Mr Iskowicz's evidence, as to the cost of demolition and reconstruction, was substantially supported by the evidence of another expert called for the plaintiffs: a builder, Mr Walter.
For some months prior to the hearing, it had been MHE's case, to be advanced through the evidence of Mr Joannides, that rectification of the defects in situ was practicable in an engineering sense. MHE argued also, through the evidence of Mr Hall, that it was economically feasible.
When Messrs Stubbs and Joannides conferred with a view to producing their joint report, they agreed in substance on the defects and on the scope of works (at a level of some generality) that would be necessary to rectify those defects. In substance, that scope of works followed what Mr Joannides had said some months earlier, that had been costed by Mr Hall.
Faced by the prospect of being stuck with the costing of Mr Hall (whom the plaintiff Mr Cox described, in SMS messages to Mr Iskowicz, in offensive and unflattering terms), the plaintiffs pushed Mr Iskowicz to respond with his own costing of the scope of works. Mr Elliott objected to this. Ultimately, I took the course that it was better to let the experts in question, Messrs Hall and Iskowicz, confer, to see to what extent they could agree.
Assessment of their costings is made difficult for a number of reasons. One is that Mr Hall costed only the scope of works that was necessary to rectify the defects alleged against MHE (this is not a criticism), whereas Mr Iskowicz costed the scope of rectification of all the defects of which the plaintiffs complained. Thus, it is difficult to extract from their respective costings an "apples for apples" comparison.
Another difficulty is that, of necessity because of the haste with which it was produced, their joint report is not entirely easy to follow. In saying this, I express no criticism of the experts. On the contrary, they are to be thanked for attending to what must have been an unwelcome addition to their daily professional burdens, and doing so promptly and (so far as I can tell) comprehensively.
Messrs Iskowicz and Hall were questioned at some length, in a concurrent evidence session. A sustained attack was made on the credibility of Mr Iskowicz, suggesting in substance that he had become overly close to the plaintiffs; that he had lost objectivity; and that from time to time he had expressed opinions as an advocate and not as an impartial and independent expert. To my mind, there is some substance to these criticisms.
There were attacks made on Mr Hall also. It was suggested that he had sought to underplay the complexity and cost of the proposed work; and that he had underestimated the time required to support his costing; and that he had taken a cavalier attitude towards Workplace Health and Safety (WHS) legislation. Again, in my view, there is some substance to these criticisms.
My overall assessment of the experts is that each of them, to some extent, lacked objectivity. I thought that Mr Iskowicz sought to exaggerate the cost, extent and complexity of the works. For example, in relation to the rectification of waterproofing in a bathroom, he suggested that the bathroom fittings should be removed and scrapped, and replaced with new fittings (at the cost of the defendants). Again, his costing for the rectification of the EB3 defect included an allowance for a drainage pit. That is totally unwarranted.
Equally, I think, Mr Hall's program for the works was unrealistically short. That must affect his costings, as the builder's preliminaries of necessity reflect, among other things, the amount of time for which it is required to maintain men, machinery and equipment on site.
Again, I am satisfied that Mr Hall signally failed to recognise (or to accept) the WHS implications of the work. He therefore failed to factor into his estimate of time, and thus into his costing, the fact that, for a number of reasons (which, to his discredit, he was loath to accept), those WHS restrictions were significantly more onerous than he had suggested.
Another problem with Mr Hall's evidence was his "fluctuation" in his choice of information on which he based his costings. On occasion, he referred to standard costing guides such as Cordells and Rawlinsons. On other occasions, he referred to his own experience (without indicating why it was that his experience was representative of what prices any other builder, acting reasonably, could get). Finally, in the course of cross-examination, he referred for the first time to yet another guide to costing, apparently issued by the Master Builders' Association.
I am not satisfied that for the most part, the costings of either Mr Iskowicz or of Mr Hall can be relied upon without some qualification.
The cross-examination did not descend to tackling every disputed costs figure. Counsel took the course of choosing particular subjects, with a view to identifying the fundamental submissions that they proposed to put. The result is that I am in no position to undertake a detailed comparison of the costings, and to make a rational choice between them, item by item.
Looking at the common items between the two costings, I have the very strong impression that most of them are affected, adversely, by the relevant factors to which I have referred. There is one significant exception to this: the competing views as to the necessity for and cost of internal bracing. I turn to that at [424] and following below.
It would be possible to do as Mr Elliott submitted: namely, take Mr Hall's figures, and increase them by some factor to represent what I thought was an appropriate correction for his undue conservatism. There is some theoretical merit in that approach, because Mr Hall is a practising builder, and has used real world experience at least in part. Mr Iskowicz, by comparison, has not worked as a builder for the last 20 years.
As against that, Mr Iskowicz's rates are grounded in orthodox costings guides. And at least in respect of demolition and reconstruction, his opinion as to cost is not remarkably dissimilar to that expressed by Mr Walter, who as I have said does work as a builder. That gives me some confidence in the general accuracy of Mr Iskowicz's acquaintance with current-day costs.
If I were to take the approach for which Mr Elliott argued, it would mean that there would be a revised costing of part only of the work. The revised costing would relate only to those particular items of work that Mr Hall had costed. That would then require me to make some adjustment to Mr Iskowicz's costings for the balance of the work.
If I am to be guided in part by the costings of Mr Iskowicz, then, it seems to me, I should be guided by them entirely. To the extent that this carries with it the risk of injustice, it is of necessity a risk that affects all parties, although obviously enough in different ways.
There are alternatives. I could stand the matter over for detailed investigation of the costing. Or I could refer the matter out. However, having regard to what is, even on the evidence of Mr Iskowicz, the relatively small amount at stake, and having regard to the immense costs that no doubt the parties have incurred already, I think that that the appropriate course is to take what I acknowledge can be no more than a broad-brush approach to the figures produced by Mr Iskowicz, and reduce them by what seems to me, taking into account all the matters that were raised in the evidence and in submissions, an appropriate percentage to bring them back to what might regarded as some kind of reality.
I turn to the question of structural bracing.
The engineers agreed that, for the rectification work to be undertaken, it will be necessary for the extension to be structurally braced. Otherwise, they said, there would be a real risk of collapse, with the obvious risk of adverse consequences to life and property.
On the southern wall of the house, bracing could be achieved effectively and economically by the use of structural scaffolding. Scaffolding will be required in any event to enable the workers to have access to the upper levels of the extension. There is available scaffolding which also performs a bracing function. Although it is more expensive than ordinary scaffolding, its use would enable a significant saving to be made compared to the combined cost of ordinary scaffolding and separate bracing.
However, for the north and south walls (where scaffolding and bracing will also be required), there is a problem. Those walls are close to the boundary. It appeared to be common ground that if structural scaffolding were used, it would encroach on each side about 200mm over the boundary. That of course would be a trespass. The scaffolding would be liable to be removed at the suit of the adjoining owners.
Although Mr Elliott and Mr Bambagiotti submitted that it would be open to the plaintiffs to seek the agreement of their neighbours to that trespass, or to seek a court order permitting it, that does not strike me as a particularly satisfactory solution. There are obvious risks of delay and expense.
The engineers said that, as an alternative, internal bracing could be used. That would of itself add a substantial extra element of cost. But it would also contribute to an increase in the costs of rectification for a different reason. It appeared to be common ground that, for the internal bracing to be installed, it will be necessary to cut through the floors in various locations. There would then be additional costs for making good (including costs of retiling where the floors in question were tiled).
Mr Iskowicz costed internal bracing at some $67,752.00. Mr Hall costed it at some $56,356.00. In part, the difference in their costings represents their different approaches to the time that would be required. For the reasons I have given, I think that Mr Hall's estimate of time is unrealistic. Although, it may be, the estimate by Mr Iskowicz was conservative, I am in no position to assess, either in time or in percentage terms, the extent of any conservatism. Accordingly, I conclude, the costs of internal bracing should be assessed in the sum calculated by Mr Iskowicz.
In case it is not clear from what I have said already, I conclude that the plaintiffs should be allowed the cost of the internal bracing. The alternatives suggested by Mr Hall, for which Mr Bambagiotti contended, are speculative and incapable of quantification. I do not see why the plaintiffs should be put to the uncertainty, expense and delay of the known unknowns for which Mr Elliott and Mr Bambagiotti contended, when there is a solution that has been costed and that will answer the problem.
I return to the remaining costs disputes. There are some objective factors that suggest that the discount to be applied to the costing prepared by Mr Iskowicz should be relatively modest. I have referred to two already. One is that, when dealing with the cost of demolition and reconstruction of the whole house, his figures were corroborated by those of Mr Walter. Another is the favourable view that I formed as to his costing of internal bracing.
A third matter that, to my mind, is relevant to the choice of the discount to be applied to Mr Iskowicz's costings is that he factors in the additional costs of making good after removal of the internal bracing, and allows for making good in a more comprehensive and satisfactory way than the patchwork job for which Mr Hall contended would do. Mr Elliott sought to support this aspect of Mr Hall's evidence. The likely result of adopting Mr Hall's approach would be to leave the plaintiffs with an unsightly display of mis-matched or ill-matched tiling in various places.
Taking all those matters into consideration, and accepting that what follows is necessarily impressionistic, I conclude that to the extent other damages claims require to be assessed, they should be assessed at 80% of the figures costed by Mr Iskowicz. That applies as between all parties, where the assessment of damages is required, and it applies to all costs save those for internal bracing, as to which Mr Iskowicz's figure should be used. The percentage figure is of necessity one that seeks to balance overall each of the disputed questions so as to produce a quantifiable outcome.
There is one more matter that needs to be considered, in connection with the cost of rectification of defects. I referred at [48] above to the demolition of the balconies. That is necessary because of their defective construction: the use of laminated timber beams rather than steel beams, exacerbated by the failure to protect the timber beams by waterproofing. However, the demolition of those balconies would be necessary in any event, so that the structural bracing/scaffolding that is necessary both to support the southern wall and to enable work to be carried out safely.
I do not think that this makes any difference. The balconies have to be demolished for two independent reasons. One is that they were constructed defectively, and present a danger to life. The other is that they need to be demolished to permit other aspects of the rectification works to be performed.
As between the plaintiffs and MHE, the first of those reasons would provide an independent and effective causal relationship between the alleged breach of duty and the particular item of loss (subject to the overall "want of causation" finding made at [324] above) because MHE failed to observe and give an appropriate direction in respect of the defective work. As between the plaintiffs and the Council, the second aspect provides that causal link.
To my mind, the full cost of demolition and reconstruction of the balconies should be allowed as against the Council. Further, if (contrary to my view) damages fell to be assessed against MHE, that cost should be allowed against MHE also. Their respective contributions to the outcome would fall to be considered and adjusted through the mechanism of apportionment of responsibility, to which I will turn in a moment.
I do not propose to undertake the mechanics of quantification myself, as the certain result will be arithmetical error. Accordingly, I shall stand the matter over, to enable the parties to work out the outcomes of these reasons.

[46]

Apportionment of responsibility

This arises as between Mr Acres, MHE and the Council, because Mr Acres has cross-claimed for relief against MHE and the Council. On the conclusion to which I have come, it does not arise directly as between the plaintiffs, MHE and the Council, because I have found that MHE is not liable to the plaintiffs.
However, it seems to me, the apportionment exercise that is necessary would apply also if, contrary to my view, it were to be concluded that MHE owed, and breached, a duty of care to the plaintiffs.
There is an immediate with including MHE in this exercise. I have concluded, for the reasons given at [313] to [324] above, that there was no causal link between any breach of duty on its part and the damages claimed for the relevant defects. Apportionment requires, among other things, an assessment of "causal potency" (see at [455] and following below). On my findings as to causation, any breach of duty on MHE's part had no causal potency.
Thus, as to MHE, the present exercise is hypothetical. It requires an assumption of a counter-factual universe in which: 1. Mr Acres would have passed on to the contractors any direction given by MHE; and 2. the contractors would have done, promptly and properly, whatever those directions required of them.
The starting-point, as between Mr Acres and MHE is that the breaches of duty that MHE admitted conditionally vis à vis the plaintiffs must be breaches of the implied contractual duty to use reasonable care and skill, as between Mr Acres and MHE. I do not think that Mr Elliott contended otherwise.
Equally, as between Mr Acres and the Council, the breaches of duty that I have found vis à vis the plaintiffs must be breaches of an equivalent implied contractual duty as between Mr Acres and the Council. Again, I think, there was no submissions to the contrary.
Mr Acres was an owner-builder. He had no experience in building works of the kind in question. He had undertaken a TAFE course which did little more than inform him of relevant provisions of the HB Act.
Mr Acres contracted out almost all of the relevant work: 1. architectural design, to Actron; 2. structural design, to MHE; 3. responsibility for actually performing the building work, to licensed contractors; and. 4. some obligation to inspect the structural works, to MHE.
In addition, Mr Acres contracted with the Council, for it to inspect and certify the works as PCA.
There is no reason to think that Mr Acres had any evidence that the contractors he engaged were other than competent, and capable of understanding of what they had to do and of doing it with reasonable care and skill. Nor is there any reason to think that Mr Acres was, or should have been, aware of any defects in the way in which those contractors carried out their works.
Mr Acres said, and I accept, that he gave the contractors the drawings prepared by Actron, and the structural drawings (as from time to time revised) prepared by MHE. He said that he gave the contractors the development consent issued by Council, and other relevant material. He was not cross-examined to suggest the contrary.
Importantly, there was nothing in the certificates issued by MHE or in the certificates issued by the Council, as a result of their respective inspections, that would suggest to an owner/builder in Mr Acres' position that there was any problem with the works that had been inspected.
As to MHE, and the breaches that have been found (being those conditionally admitted), there is simply no explanation as to how it was that the inspecting engineer failed to pick up the non-compliant work - that is to say, the work that was not consistent with the structural drawings. There was no evidence that a competent engineer, acting with reasonable professional care and skill, could reasonably not have observed the defects in question. On the contrary, as I have said, it was the evidence of Messrs Joannides and Stubbs that the inspecting engineer should have observed, noted and required rectification of the admitted defects.
The same may be said of the breaches that I have found as against the Council. There was no evidence that the certifier, acting reasonably and with proper skill, could nonetheless reasonably have failed to detect the various breaches. On the contrary, the certifier admitted that he should have observed the various items of non-compliant work that he missed.
As between MHE and the Council, to the extent that their negligent inspections covered the same work, and in the counter-factual universe within which this issue must be resolved, I would attribute the greater responsibility to MHE. After all, it was MHE who prepared the structural drawings, and it was by reference to those structural drawings that MHE was required to inspect, on the two occasions when it did so. One might think that, in those circumstances, it was peculiarly the responsibility of MHE to see that the work done was in conformity with its drawings.
However the question of apportionment of responsibility arises, it seems to me to require an assessment of relative culpability of each party, and of the relative importance of their acts and defaults in causing the damage suffered. I take that analysis from Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492 at 494: The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, ie. of the degree of departure from the standard of care of the reasonable man (Pennington v Norris (1956) 96 CLR 10 at 16) and of the relative importance of the acts of the parties in causing the damage: Stapley v Gypsum Mines Ltd [1953] AC 663 at 682; Smith v McIntyre [1958] Tas SR 36 at 42-49 and Broadhurst v Millman [1976] VR 208 at 219, and cases there cited. It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case; for example, the circumstances of some cases may be such that a comparison of the relative importance of the acts of the parties in causing the damage will be of little, if any, importance.
The liability that Mr Acres has does not rest on any actual negligence or fault on his part. It is a liability imposed on him by statute. It is a liability that arises simply because s 18C of the HB Act operates as between him and the plaintiffs. There is no real question of "culpability". I do not think that he has been shown to have acted in any relevant way unreasonably.
By contrast, as it seems to me, both MHE and the Council departed in serious ways from the proper standard of care to be expected of them, in respect of the breaches that have been conditionally or otherwise found against them respectively.
Turning to the relative importance of the acts as contributing to the damage, or their causal potency, again, in the counter-factual universe but otherwise on the facts as I have found them, Mr Acres' contribution must be regarded as minimal at most. True it is that the defective building work was carried out by contractors whom he engaged. True it is that he assumed the responsibility, as owner-builder, of supervising and co-ordinating those works. However, as I have pointed out, he was in no real position to judge of their sufficiency, or of the extent (if any) to which they complied with the structural drawings. That was a matter that he left, and in my view was entitled to leave, to others.
For the breaches that have been conditionally admitted by MHE, the causal potency of its defaults, as between it and Mr Acres, is significant. As I have said, I think that, for the breaches in question, its contributions to the perpetuation of those breaches should be regarded as more significant than those of the Council.
For those same breaches (i.e., those for which both MHE and the Council share, or might share, responsibility), the causal potency of the Council's breaches of duty should be assessed as less than that of MHE. After all, the certifier knew that MHE had inspected the work, and had been given no reason to think that, in MHE's view, the work was in any way defective.
The task of converting into hard figures impressionistic conclusions as to comparative contributions to loss is one that cannot be carried out with any degree of precision. It is misleading to turn those impressions into percentages. Percentage figures give an appearance of certainty, which is quite at odds with the underlying process of assessment. However, it is a task that must be performed.
As between Mr Acres, MHE and the Council, for breaches for which all have or might have responsibility (that is to say, the breaches conditionally admitted by MHE), I hold Mr Acres entitled to be indemnified: 1. by MHE: for 60% of the assessed cost of rectification; and 2. by the Council: for 40% of that cost.
That leaves the position as between Mr Acres and the Council, in respect of breaches for which both are in law responsible. The simple fact is that, had the certifier done his job, the items of non-compliant and defective work would have been detected. Had the certifier done his job, he would have required rectification of those items of work. Had the defects not been rectified, the certifier could and should have refused to issue the occupation certificate.
In those circumstances, I hold that Mr Acres is entitled to be indemnified in full for the assessed cost of rectification of the defects in question.
If the question of apportionment arose as between the plaintiffs, MHE and the Council, I would hold MHE liable for 60% of the "common" (as between it and the Council) loss, and the Council liable for 40%.

At a glance

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Judgment (48 paragraphs)

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Legislation Cited (4)

Cases Cited (19)

Cited By (10)