Makawe Pty Limited v Randwick City Council - [2009] NSWCA 412 - NSWCA 2009 case summary — Zoe

NSWNSWCA

Makawe Pty Limited v Randwick City Council

[2009] NSWCA 412

Court of Appeal (NSW)|2009-05-28|Before: Hodgson JA, Campbell JA, Simpson J

View original source

At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2009-05-28

Before

Hodgson JA, Campbell JA, Simpson J

Source

Original judgment source is linked above.

Judgment (48 paragraphs)

[1]

Background 80 Pursuant to its powers under the Environmental Planning and Assessment Act 1979 ("the EP&A Act"), in December 1995 the Council granted to Firmbuild Pty Ltd ("Firmbuild") approval for the construction of a three-storey residential apartment building in Roma Avenue, Kensington. The proposed building consisted of 18 studio apartments and a basement level car park, three metres below ground level. It was within the Council's power to impose conditions upon the approval. The approval given was, in fact, subject to 42 specified conditions. 81 In January 1996 Firmbuild lodged a building application, which the Council approved, again subject to conditions, in May 1996. At the time of this approval, but not at the time of the approval of the development application, the Council had in its possession a geo-technical report by Messrs Jeffery & Katauskas Pty Ltd ("Jeffery & Katauskas") that showed that the floor slab on which it was proposed to site the car park was to be constructed at approximately the same level as the water table of the area, and that it was likely that the levels of the water table would rise from time to time, posing a risk of flooding in the car park. The engineers also advised that any such seepage would be controllable by sump and pump de-watering techniques and systems. 82 Construction commenced. From time to time the Council issued "local approvals", each of which was subject to numerous and detailed conditions. Notwithstanding the information that it had from the Jeffery & Katauskas report, at no time did the Council impose any condition of consent concerning the level of the car park slab. There was no evidence to suggest that it gave any consideration to the imposition of such a condition. 83 Construction was completed at the end of 1996. 84 In February 1997 Makawe contracted to purchase the building from Firmbuild. The purchase was finalised on 4 July 1997. The apartments were let to tenants. 85 In June 1998 flooding occurred in the car park. Makawe arranged for rectification work to be undertaken, but it was some time, and only after several further instances of flooding and the installation of pumps, that a satisfactory solution was achieved. 86 The flooding also involved the deposit of muddy sediment on the car park floor. The sediment was drawn into the pumps and caused damage, and, ultimately, seizure of the pump. This necessitated regular clean outs as part of the maintenance program. The flooding also left brown stains on the floor and walls of the car park. 87 In the District Court, Makawe pleaded that, notwithstanding the absence of any direct relationship between itself and the Council, in all of the circumstances the Council owed "the owner [of the premises] from time to time" a duty to take reasonable care in and about imposing conditions of consent to construction; that, in the applicable circumstances, the discharge of that duty of care required the Council to take measures (such as imposing conditions of consent) that would ensure that penetration from the water table would not cause damage; that, in failing to take such measures, the Council was in breach of its duty of care to the "owner from time to time" (including Mawake); and that, as a consequence, Makawe suffered loss or damage. 88 The allegation of breach of duty was variously formulated in the Further Amended Statement of Claim, on which pleading the matter went to trial; put globally, it was that, having regard to its knowledge of the content of the Jeffery & Katauskas report, and having regard to its powers under the EP&A Act, the Council ought to have taken, and did not take, steps to protect the building (and, in reality, the owners of the building) from the anticipated effects of flooding. 89 Bearing in mind the issues raised on the appeal, it is convenient here to set out the manner in which Makawe's alleged loss and damage were pleaded: "18. In consequence of each of the breaches of duties of care herein pleaded or, alternatively, all of them, the plaintiff suffered loss or damage. Particulars (a) Flooding from time to time of the basement of the Building.

[18]

(q) …" 94 Given the approach spelled out in Stavar, it seems to me that to begin with a categorisation of loss as "pure economic" or not "pure economic" is to risk over-compartmentalisation. Firstly, the definition of what is, and what is not, pure economic loss has proved elusive. No clear definition has emerged. Secondly, the rationale for so categorising losses (for the purpose of determining whether a duty of care is owed) seems to have been considerably undermined. It was once, but is no longer, thought that no duty of care was owed to a person to avoid damage categorised as pure economic loss. That may be seen to have been so whittled away as to be, in my view, no longer a valid generalisation. Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 dealt the death blow to that as an absolute proposition (although the circumstances in which liability for the infliction of pure economic loss has continued to bedevil the courts, and occupy the time of the High Court: see, for example, Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515). 95 And, while there are suggestions that where the loss claimed is of the pure economic variety, the test to be applied to determine the existence or otherwise of a duty of care is a different one, that, in my opinion, does not sit easily with the "salient features" approach which has emerged as the current favourite. As Allsop P has shown, the salient features approach is appropriate to the consideration of the existence or otherwise of a duty of care in any "novel" situation or circumstance, outside accepted or established categories. There appears to be no reason to treat cases of pure economic loss differently; and I perceive good reason, of principle, to endorse an approach that is not differentiated solely by reference to the nature of the loss claimed (although, as Allsop P has held, that may well be one of the salient features). 96 Nevertheless, it will be appropriate, in due course, to deal with the correctness or otherwise, and the consequences, of the finding that the damage here claimed is properly classified as "pure economic".

[20]

and "Damage of the kind complained of in this case is now clearly classified as economic loss." 98 He based this conclusion on a passage in the joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street at [19]-[20], and repeated that: "… the only possible classification of the damage in this case is pure economic loss and the duty of care must be defined in terms applicable to such loss." 99 He considered that, where the only loss sustained is pure economic loss, the duty of care owed is "narrower" than in cases of damage to property or personal injury. 100 He noted that determination of whether a duty of care exists requires consideration of the elements of control, vulnerability, and reliance, the last of which, he said, assumes particular importance in cases of pure economic loss. He considered each of the specified elements in turn. 101 He recognised that, where the defendant is (as is the Council) a local authority, determination of the existence and extent of its duty of care will, in part, depend on the applicable statutory provisions - here, particularly, s 91 of the EP&A Act. 102 He concluded that the Council had had relevant control. Put shortly, this was because of its knowledge of the level of the water table, its knowledge of the Jeffery & Katauskas report, and its power, under the EP&A Act, over building approvals, which included power to impose conditions of approval. He recognised that that was, of itself, insufficient to establish that the Council owed Makawe a duty of care, and that it was necessary also to look to the issues of vulnerability and reliance. 103 He held that Makawe had failed to demonstrate vulnerability in the sense necessary to warrant a conclusion that, because of its vulnerability, the Council owed it a relevant duty of care. He quoted again from the joint judgment in Woolcock Street at [23], where vulnerability for this purpose was defined as: "… the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant." 104 His Honour noted that Makawe had purchased the building, shortly after its completion, for a price in excess of $3,500,000, at a time when the apartments were already tenanted, and that the purpose of the purchase was to use it as a source of income. He thought that that alone made it "very difficult" for Makawe to establish vulnerability in the relevant sense. 105 Still in the context of vulnerability, he dealt also with avenues available to Makawe to protect itself against loss; these included the capacity to require, in the contract of sale, a provision assigning any rights Firmbuild had against its builder, architect or engineer; and Makawe's capacity, through inspection of the Council's records, to obtain the Jeffery & Katauskas report and the engineer's designs. He mentioned that these avenues were, "for a company with [Makawe's] resources", relatively inexpensive. 106 He quoted a passage from Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609, giving emphasis to the observation that the building in that case (a residential house) was: "… a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime ." (emphasis added by Phegan DCJ) 107 He held that the evidence did not establish actual reliance in the relevant sense. He referred to evidence given by a director and principal of Makawe that it was not his practice personally to make direct enquiries of the Council with regard to building matters, but had, rather, left this to his builders and/or architects; and that he expected that the Council would have reviewed engineering matters and imposed appropriate conditions, although he did not give the matter any particular thought. 108 Having concluded that Makawe had established neither vulnerability nor actual reliance, his Honour reached the further conclusion that it had also failed to establish that the Council owed it a duty of care. That, as he recognised, was sufficient to dispose of the proceedings. 109 However, he did go on to deal with the other issues that had been debated during the course of the trial. These included breach of duty, the application of the Civil Liability Act 2002, the application of s 733(1) of the Local Government Act 1993, contributory negligence, and damages.

[28]

A view was adopted for a time in England … that, because there was physical damage to the building, a claim of the kind made by the appellant was not solely for economic loss. That view was questioned in Sutherland Shire Council v Heyman [[1985] HCA 41; (1985) 157 CLR 424] and rejected in Bryan v Maloney . It was subsequently also rejected by the House of Lords in Murphy v Brentwood District Council [[1991] 1 AC 398]. There is no reason now to reopen that debate and neither side in the present matter sought to do so. The damage which the appellant alleges it has suffered is pure economic loss." (italics in original; emphasis by bold added) 125 The reference in [19] to potential damage to person or property, and to the identification of the defect and the prospect of rectification before such damage occurred, taken alone, might be seen to leave open the possibility that, once damage to property had actually occurred (as distinct from the potentiality of damage), then the damage claimed can be transformed from pure economic loss to actual property damage. Any such notion is put to rest by what follows in [20] and also by the judgment in Bryan v Maloney. 126 In Bryan v Maloney, a house had been built with inadequate footings. The damage that ensued included cracks in the walls - that is, real physical damage. Nevertheless, it was held to be "mere economic loss" (p 617) because it was distinct from, and not consequent upon, ordinary physical injury to person or property. 127 An attempt was made, in the written submissions, to distinguish the present case from Bryan v Maloney. It was said that the damage in Bryan v Maloney was due to a defect in the structure of the house; but that, in the present case, the structure itself was not inherently defective. It was argued that Bryan v Maloney does not deal with every case of physical damage to a building where the damage does not arise from structural defects inherent in the building. 128 I would reject this attempt. I see no relevant distinction in the defect here shown (the effect of inundation by water including the deposit of stain - causing sediment), and the subsequent property damage, and the defect (inadequate footings) and the actual damage (cracking) in Bryan v Maloney. 129 Reliance was also placed upon a decision of this Court (Sutherland Shire Council v Becker [2006] NSWCA 344; (2006) 150 LGERA 184) as one distinguishing Bryan v Maloney, and treating the claim there made as one for property damage as distinct from pure economic loss. Attention needs to be paid to only one paragraph of the judgment of Bryson JA to reject that submission. His Honour said: "70 The nature of the loss which the respondent alleges was in my opinion plainly damage to property: the fill deposited on Lot 7 lost lateral support and slipped away, carrying with it vegetation and trees which formed much of the backyard, and causing the fracture of a water pipe which appears to have carried water to a garden tap … The claim cannot be seen as a claim for economic loss in the sense in which structural stress to the warehouse and office complex in Woolcock Street … was said to be economic loss: the loss claimed went beyond diminution in value of an improvement. The respondent's case requires the deposit of fill in Lot 7 to be considered as in some way a fixture, an improvement or a structure on her land, and the risks to which it was exposed which are to be considered in relation to the existence of a duty of care are risks to its stability created by the manner in which the appellant dealt with the subdivision application." 130 In no possible way can Becker be seen as providing an analogy to the damage claimed in the present case. 131 In the light of the passage from Woolcock Street which I have extracted above, I see no error in the conclusion that the damage here claimed was pure economic loss. 132 To the extent that it is necessary or relevant to do so, I would reject this ground of appeal.

[29]

Ground 2: duty of care? 133 Ground 2 encapsulates the essence of the appeal. As I read them, the remaining grounds (other than the last) point to asserted error in the reasoning process that led to the trial judge's conclusion that no duty of care was owed. 134 A principal complaint made about the manner in which the trial judge proceeded to his assessment was that he took a "cumulative" approach to the "salient features" examination. That is a theme which permeates the written submissions. That he did this was said to be demonstrated by a single sentence that appears in the judgment after the conclusion that the Council had the relevant control. That sentence is: "However, whether such a duty was owed to the plaintiff still depends upon whether the further requirements of vulnerability and reliance are met in this case." (Red, 61T) 135 Reference was made in the submissions to Becker, at [20]-[21], per Giles JA, and Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 (at [149]). Resort to the passages cited does not support the proposition that the approach taken by the trial judge was contrary to that required by either of those (or any other) cases. In Graham Barclay Oysters, at [149], Gummow and Hayne JJ said: "An evaluation of whether a relationship between a statutory authority and a class of persons imports a common law duty of care is necessarily a multi-faceted inquiry. Each of the salient features of the relationship must be considered." 136 There is nothing in paras [20] or [21] of Becker that suggests that the manner in which the trial judge dealt with the issue was incorrect. 137 It is true that the authorities do not prescribe the relative importance of any of the salient features. That is precisely the point of the "salient features" test. That an order of importance is not prescribed does not mean that each does not have to be considered separately. Indeed, I can see no way that the test can be applied other than to consider each of the elements separately, with an eye to its relative importance for the circumstances of the case in question. To borrow a concept from the criminal law, once all the salient features have been identified, and considered, the exercise involves a synthesis of those considerations and their relative importance. 138 A further submission made was put as follows: "34. (c) Sometimes one salient feature, or factor can assume overwhelming significance, so it is unlikely that all other factors also need to be satisfied before a duty is found."

[30]

Pyrenees Shire Council v Day [1998] HCA 3; (1998) 192 CLR 330 was cited as an illustration of the proposition. 139 It may be correct, as is suggested, that one salient feature may be of such overwhelming importance that others are unable to dislodge its impact. But that does not mean that it is not still necessary to consider all other salient features - it can not be known whether that feature is of such overwhelming importance as to have that effect unless and until it is analysed in context with all others. In any event, even if the proposition were correct, that is not this case. His Honour was correct in his assessment of the features of vulnerability and reliance. The only feature which favoured Makawe was control, and that, alone, given the absence of vulnerability and reliance, could not establish a duty of care. 140 The next complaint was that his Honour failed to take into account "policy considerations" of the kind referred to by Gummow J in Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159 at 235-6. Had he done so, it was argued, the outcome would have favoured Makawe. Three "policy considerations" were identified: indeterminacy; the reluctance to impose a duty that would interfere with legitimate competitive conduct; and the need to resist the imposition of a duty of care that would intrude into another area of law (Moorabool Shire Council v Taitapanui [2006] 14 VR 55; (special leave refused) [2006] HCA Trans 328). 141 Examination of these policy considerations, if made, would have favoured Makawe: given that the class of persons to whom the duty of care is said to have been owed is limited to purchasers of the property, there is no question of indeterminacy; given that the Council is not engaged in competitive conduct, it is unnecessary to factor in the protection of competition into the determination; and there are no issues of competing legal obligations. 142 I accept that none of the policy considerations identified would speak against the imposition of the duty of care here alleged. The question then is whether such policy considerations were relevant, and ought to have been taken into account with the result that the judge ought to have found that the Council owed Makawe a duty of care. 143 Proof of the absence of a policy reason that might contra-indicate a duty of care does not establish a positive reason for the imposition of that duty of care. That policy considerations that might argue against a duty of care are absent is no more than neutral. No policy consideration favouring the imposition of a duty of care was identified. 144 The next complaint was that his Honour failed to give any or any sufficient weight to the statutory role of the Council in considering and approving development and building applications. This is the ground numbered 4. The submission made was that, because of the particular way his Honour reasoned, (that is, what was said to be the cumulative approach) he: "… precluded from his final consideration … the possibility that the Council's statutory powers of control over building approval and its knowledge of the potential risk to the subject property could themselves found a duty." 145 This is merely another way of saying that control of itself, and his Honour's finding in that respect, established a duty of care, or at least was capable of doing so. I would reject that proposition. The answer is as set out in [65] above. 146 In any event, the ground is founded upon a false premise. In paras 31 and 32 of the judgment, the trial judge said: "Where the defendant is a local authority, such as the defendant Council in this case, the existence and extent of the duty of care depends in part on the statutory regime under which the local authority is acting."

[32]

Three decisions, two of them in this Court, were cited as cases in conflict with the decision in question. 152 On examination, however, this submission must also be rejected. One of the decisions upon which reliance was placed was Port Stephens Shire Council v Booth [2005] NSWCA 323 at [81] and [82]. Those paragraphs appear under a sub-heading "(i) Discretion". In the immediately preceding paragraph ([80]) Giles JA said: "The Council did not dispute on appeal that it owed the purchasers a duty to take reasonable care in the determination of the application. Its submissions focussed on the grant of development approval." 153 In [82] he said: "The present question is not the existence of a duty of care, acknowledged as one owed to the purchasers, but its nature." 154 Those passages demonstrate that, in that case, the existence of a duty of care was not in issue and was not judicially determined. 155 Another decision cited as an illustration of a case in conflict with the present decision was Becker, at [75]. 156 I see nothing in that paragraph to support the proposition. In [75] Bryson JA, in the course of considering whether, in the circumstances that there pertained (vastly different from the present) case law about government powers to regulate conditions of building applied to cases about the existence of a duty of care in the exercise of statutory powers, such as the construction of roads, drains and subdivisions. He concluded that they had no such application. It is of some interest that he held that, in that case, the council owed no duty of care. 157 In my opinion, Phegan DCJ properly took into account the circumstance that the Council exercised statutory powers. That circumstance was one of the considerations that went, in favour of Makawe, into the synthesis. It was not, however, enough, of itself, to create a duty of care. 158 The next argument put on behalf of Makawe arose under the ground numbered 7, in which the finding of absence of reliance was challenged. His Honour concluded that Makawe had failed to establish actual reliance, as distinct from "general reliance". The ground of appeal as pleaded asserts error in that finding. But the written submissions took a different tack; they did not challenge the finding, but rather asserted error in the emphasis given by his Honour to the absence of reliance. 159 It was put that his Honour: "… incorrectly reasoned that establishing reliance is required for Makawe to establish that the council owed it a duty of care."

[34]

162 In any event, it is not apparent that the proposition is incorrect. In Becker, Bryson JA said: "The present state of the law relating to duty of care in building control was considered in Smith v Eurobodalla Shire Council [2005] NSWCA 89 at paras [95]-[104] (McClellan AJA). There has been no development, in the case law there reviewed, or elsewhere so far as I am aware, towards extension of duty of care to situations where there has been no reliance on some information provided by or communication with the public authority, and no development towards the extension of a Council's duty of care, other than in the context of any such reliance by them, to later owners of property not involved in the approval process …" 163 The written submissions filed for Makawe suggested that this was incorrect. They pointed to a passage in the judgment in Smith in which McClellan AJA said: "106. In the ultimate resolution of this matter, the fact that the appellants purchased from the builder and made no relevant inquiry of the Council may prove significant in determining whether the Council owed them a duty of care." (emphasis added in written submissions) 164 The argument put was that this passage shows that the absence of relevant inquiry is not decisive. 165 Again, Booth was cited, this time in support of the proposition that a duty of care may be found to exist in the absence of reliance. As I have indicated, Booth cannot be cited for such a proposition, because it made no such determination. 166 Nor is Smith authority for such a proposition; in Smith, after finding various errors in the conduct of the trial and in the reasoning process, this Court ordered a new trial. That is what McClellan AJA referred to in the opening words of the passage cited: "In the ultimate resolution of this matter …" 167 In my opinion, no error in this respect has been demonstrated. 168 The next attack was made with respect to the determination of the question of vulnerability (grounds 6, 8 and 9). The challenges identified in the amended Notice of Appeal to the findings of vulnerability were:

[39]

As submitted by counsel for the defendant there were a number of avenues open to [Makawe] at the time of purchase which would have provided relatively inexpensive means, especially for a company with [Makawe's] resources, by which [Makawe] could have protected itself. Since [Makawe] was dealing with the original developer, [Makawe] could have required a clause in the contract for sale assigning any rights which the developer/vendor had against its builder, architect or engineer. [Makawe] could have obtained, through inspection of the [Council's] records, the Jeffery & Katauskas supplementary report of 13 March 1996 and the engineer's designs for the basement drainage. Such documents would have provided a basis for further inquiries of the engineer, Michael Ell and Associates." 170 His Honour then referred to Bryan v Maloney, extracted a paragraph from p 625, and emphasised the last sentence which reads: "It is a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime." (italics added by Phegan DCJ) 171 In this segment of the judgment, Phegan DCJ was following closely what was said in the joint judgment in Woolcock Street. The facts of that case bore significant parallels with the facts of the present case. The plaintiff was an investment company, purchasing property for investment purposes. After purchase the building was found to have defects. The case proceeded in the High Court by way of appeal from a Case Stated. In the joint judgment the following appeared: "31 Neither the facts alleged in the statement of claim nor those set out in the Case Stated show that the appellant was, in any relevant sense, vulnerable to the economic consequences of any negligence of the respondents in their design of the foundations for the building. Those facts do not show that the appellant could not have protected itself against the economic loss it alleges it has suffered. It is agreed that no warranty of freedom from defect was included in the contract [of sale], and that there was no assignment to the appellant of any rights which the vendor may have had against third parties in respect of any claim for defects in the building. Those facts describe what did happen. They say nothing about what could have been done to cast on the respondents the burden of the economic consequences of any negligence by the respondents …

[45]

that the Council's conduct represented a substantial departure from "proper conduct" (here reference was made to a finding, in rejecting the defence under s 43A of the Civil Liability Act , that the Council's failure to give proper attention to the significance of the water table to the development was 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 the power"). 176 It was submitted, with respect to the suggestion that Makawe could have informed (and protected) itself by inspecting the Council file, that the evidence did not support a conclusion that any such file would have been made available, that the relevant personnel of Makawe would have recognised the significance of the document at the time, or that they were aware of any matter that would provide a reason to make such an inquiry or to inspect the Council file. 177 It is in this respect, and this respect only, that I have some difficulty with his Honour's judgment. Underlying the suggestion that Makawe might have inspected the Council records is the suggestion that Makawe was aware of some reason to do so. No such reason is apparent from the evidence. There is no reason to think (on the evidence) that Makawe was aware of the existence of the Jeffery & Katauskas report, such as to prompt it to make such an inspection. I do not accept the process of reasoning by which his Honour arrived at the conclusion that Makawe had failed to establish vulnerability. 178 That, however, does not establish that Makawe was relevantly vulnerable. The absence of any explicit, express or actual reliance by Makawe on the Council, it seems to me, significantly undermines the proposition that it was. 179 And even if it were relevantly vulnerable, that circumstance, in combination with the finding that the Council had control, does not dictate a conclusion that the Council owes it a duty of care. It is still necessary to consider the other matters (to the extent that these are material to the particular circumstances of the case) in the catalogue provided by Allsop P in Stavar (judgment in which had not been delivered at the time of argument in the present case nor indeed at the time of argument in this appeal). 180 Of those features, pointing in favour of a duty are those lettered (c) (the degree and nature of the control exercised by the Council); (f) (the assumption of responsibility (by granting building approval) by the Council); (j) (the nature and degree of hazard); (k) (knowledge by the Council of potential harm to a subsequent purchaser of the building). 181 Pointing in the other direction are those lettered (b) (the nature of the harm - pure economic loss); (d) (degree of vulnerability); (e) (degree of reliance); (g) (proximity); (h) (relationship between Makawe and the Council). 182 When all the features are balanced, I am satisfied that error has not been shown in the conclusion of the trial judge. That makes it unnecessary to consider the question raised by the Notice of Contention. 183 It also makes it unnecessary finally to deal with a further issue raised at the instance of the Court after judgment had been reserved. 184 That issue concerns the applicability (or otherwise) of s 44 of the Civil Liability Act. 185 Since counsel were invited to, and did, make submissions with respect to that section, it is appropriate to note the arguments. 186 Section 44 provides: "44 When public or other authority not liable for failure to exercise regulatory functions

[47]

(2) Without limiting what constitutes a function to regulate an activity for the purposes of this section, a function to issue a licence, permit or other authority in respect of an activity, or to register or otherwise authorise a person in connection with an activity, constitutes a function to regulate the activity. 187 Section 41 defines (for the purposes of Pt 5 of the Civil Liability Act, in which Part s 44 appears) "function" as including: "… a power, authority or duty." 188 The matter was raised in the District Court, and was dealt with briefly by the trial judge. At [77] his Honour said: "Section 44 refers to a failure to exercise 'any function'. This is not a case in which the plaintiff's claim is based on any such allegation. The 'function' exercised by the defendant Council in this case is the function of approving a development/building application. That function was clearly exercised and the case against the defendant is based on the manner of its exercise, not a failure to exercise it at all. Section 44 therefore has no application in this case …" 189 As can be seen, his Honour identified "function" for the purposes of s 44(1) as the broadly stated function to deal with applications for building approval. If that is a correct identification of "function" in the sub-section, then the conclusion is clearly correct. 190 However, on behalf of the Council an attempt was made to define or identify "function" more narrowly, and to include the power (see s 41) to impose conditions on the grant of development or building approvals. If that is correct, then it may well be that s 44 affords a complete defence to Makawe's claims. 191 However, since I have reached the conclusion that the judgment was correct without recourse to s 44, it is unnecessary finally to resolve that matter. 192 This conclusion also means that it is unnecessary to deal with the final ground of appeal concerning the assessment of damages. 193 I would dismiss the appeal with costs. **********

Parties

Applicant/Plaintiff:

Makawe Pty Limited

Respondent/Defendant:

Randwick City Council

Cases Cited (38)

CITATION: Makawe Pty Limited v Randwick City Council [2009] NSWCA 412

Armidale City Council v Alec Finlayson Pty Limited [1999] FCA 330; (1999) 104 LGERA 9 Bamford v Albert Shire Council [1998] 2 Qd R 125; (1998) 97 LGERA 33 Bryan v Maloney (1995) 182 CLR 609 Caltex Refineries (Queensland) Pty Limited v Stavar [2009] NSWCA 258 De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 Donoghue v Stevenson [1932] AC 562 Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159 Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak [2006] NSWSC 844; (2006) 67 NSWLR 569 CASES CITED: Moorabool Shire Council v Taitapanui [2006] VSCA 30; (2006) 14 VR 55 Perre v Apand Pty Limited [1999] HCA 36; (1999) 198 CLR 180 Port Stevens Shire Council v Booth [2005] NSWCA 323; (2005) 148 LGERA 351 Pyrenees Shire Council v Day [1998] HCA 3; (1998) 192 CLR 330 Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Limited [2009] NSWCA 263; (2009) 53 MVR 502; [2009] Aust Torts Reports 82-031 Sutherland Shire Council v Becker [2006] NSWCA 344; (2006) 150 LGERA 184 Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424 Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 Western Districts Development Pty Limited v Baulkham Hills Shire Council [2009] NSWCA 283; (2009) 169 LGERA 62 Wollongong City Council v Fregnan [1982] 1 NSWLR 244 Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16; (2004) 216 CLR 515

As to (1) (per Simpson J; Hodgson and Campbell JJA agreeing) The damage was properly considered by the primary judge as one of pure economic loss. Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16; (2004) 216 CLR 515, followed.

Perre v Apand Pty Limited [1999] HCA 36; (1999) 198 CLR 180; Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424; Pyrenees Shire Council v Day [1998] HCA 3; (1998) 192 CLR 330, considered.

The primary judge erred in considering actual reliance, as opposed to reliance reasonably foreseeable by the alleged tortfeasor. Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424, approved. Pyrenees Shire Council v Day [1998] HCA 3; (1998) 192 CLR 330, considered.

Despite these errors, the primary judge was correct in finding no duty of care. In the present case, where there is not an established duty of care, it is necessary to consider the cumulative effect of the salient features. Although finely balanced (see [49]-[55]) for this balancing exercise), taking into account the totality of the salient elements, a duty of care in respect of economic loss was not established. Caltex Refineries (QLD) Pty Limited v Stavar [2009] NSWCA 258, considered. (per Simpson J) The primary judge was correct in: (i) Taking a cumulative approach to the salient features of vulnerability and reliance; (ii) Not taking into account policy considerations. Proof of the absence of a policy reason that might contra-indicate a duty of care does not establish a positive reason for the imposition of that duty of care;

Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159; Moorabool Shire Council v Taitapanui [2006] 14 VR 55, considered.

[105] The task of imputation has been expressed as one not involving policy, but a search for principle: see especially Sullivan v Moody [[2001] HCA 59; (2001) 207 CLR 562] at 579 [49]. The assessment of the facts in order to decide whether the law will impute a duty, and if so its extent, involves an evaluative judgment which includes normative considerations as to the appropriateness of the imputation of legal responsibility and the extent of thereof. Some of the salient features require an attendance to legal considerations within the evaluative judgment.

Some Authorities 27 However, although I think the reasoning of the primary judge was erroneous in these respects, in my opinion his conclusion that no relevant duty of care was owed was correct. 28 I note first that Heyman establishes that there is no general duty of care owed by a Council to a purchaser of property to protect that purchaser from economic loss by exercise of its power to carry out inspections during the construction of a building so as to ensure that the building is constructed in accordance with approved plans and specifications. In my opinion, one important rationale for this conclusion is that there is no statutory or other obligation on a local authority to carry out inspections, whereas there is a statutory obligation on a developer (and ordinarily a contractual obligation on a builder) to ensure that a building is built in conformity with approved plans, so that the reasonable reliance of a purchaser of property would be on performance of these obligations by the developer and the builder rather than on the local authority doing something it was not obliged to do. 29 The position is somewhat different in relation to the approval of development applications and building plans. The local authority in this case did have a statutory obligation to consider whether to give consents, and to consider what if any conditions to impose; and in particular it had a statutory obligation to take into consideration the matters set out in s 90(1) of the EPA Act and the matters set out in Regulation 12(1) of the Local Government (Approvals) Regulation 1993. 30 There are a number of cases suggesting that local authorities may have a duty of care owed to developers and/or purchasers in relation to their approval of development and/or building applications. I will briefly review some of these cases. 31 In Wollongong City Council v Fregnan [1982] 1 NSWLR 244, the plaintiffs had applied to the Council for approval to erect a house on land they were purchasing, and the Council approved that application. The land was on a slippage register maintained by the Council, and not open to inspection by the public. The plaintiffs had intended to build at a point close to the road (an area reasonably safe from slippage), but Council officers required them to build a further 75 feet to the north (where there was a real risk of slippage). The plaintiffs' building application was endorsed with a note concerning the danger of slippage, but the plaintiffs were not informed of this or warned of the risks of slippage. About three years later, the house erected by the plaintiffs began to collapse by reason of slippage. 32 The New South Wales Court of Appeal (Hutley, Glass and Mahoney JJA) found that the Council had breached a duty of care to the plaintiffs, in particular because the Council knew of the risks of slippage (and did not inform the plaintiffs), and the Council required the house to be placed in a position on the land where there was a real risk of slippage. Hutley JA (at 248) said the Council had a duty of care to the plaintiffs in exercising its powers to approve the building of their home; while Glass JA (at 252) held that, because careless conduct by the Council did expose the plaintiffs to a foreseeable risk of damage to their property (and not merely economic loss), the Council had a duty of care of the kind identified in Donoghue v Stevenson [1932] AC 562. Mahoney JA agreed with both the other judges on the question of liability. 33 In Bamford v Albert Shire Council [1998] 2 Qd R 125; (1998) 97 LGERA 33, the Council approved a subdivision application by a developer, who sold one of the lots to the plaintiffs. The plaintiffs obtained Council's approval to build a house on this lot and proceeded to do so. The house later became uninhabitable because of movement of earth and rock. The plaintiffs sued the Council on the basis that the Council was negligent in the grant of subdivision approval and in the grant of approval to carry out building work, and were successful on both allegations at first instance. The Council appealed against the finding that it had been negligent in relation to the grant of subdivision approval, arguing that it did not breach a duty of care to a subsequent purchaser. 34 The Queensland Court of Appeal (McPherson JA, Pincus JA and Thomas J) dismissed this challenge. In the majority judgment, Pincus JA and Thomas J referred to s 34(12) of the Local Government Act 1936 (Queensland), which requires the local authority, in respect of any application for approval of subdivision of land, to take into account (among other things) "(g) whether the land or any part thereof … is not fit to be used for residential purposes." They relied on a reference by Gibbs CJ in Heyman (at 445) to the "well-settled principle" that "when statutory powers are conferred they must be exercised with reasonable care", and also to statements in the same case by Mason J at 457-8 and Brennan J at 479. They considered these observations supported the view, which the Council did not contest, that the Council had a duty of care to the plaintiffs, as subsequent purchasers of the property, in exercising its function of considering an application for subdivision. The Court of Appeal upheld the decision of the primary judge that this duty of care had been breached. 35 In Armidale City Council v Alec Finlayson Pty Limited [1999] FCA 330; (1999) 104 LGERA 9, the Council had re-zoned a substantial parcel of land at Armidale, formerly in an industrial zone, as residential. In 1984 a predecessor in title to the plaintiff applied to subdivide this parcel so as to create nine residential lots, a public reserve, and a residual lot, this application said to be part of an overall proposal to subdivide the property. In 1985 the plaintiff (Finlayson) purchased the residual lot, and applied to the Council for approval to subdivide this lot. Approval was granted and Finlayson proceeded to carry out subdivision works, to construct houses, and to sell houses and residential lots. In 1990 Finlayson became aware that some of the land was contaminated, and the fact was that some of the land was contaminated from creosote and arsenic at levels that required remediation. It was established that, at the time of the rezoning and the subdivision application by Finlayson's predecessor in title, the Council's officers were well aware that the land was contaminated and that the site was covered with gravel that concealed the contamination. 36 The full Federal Court (Beaumont, Moore and Merkel JJ) held that the Council owed Finlayson a duty of care, relying particularly on the Council's knowledge of the contamination and of the deceptiveness of the gravel cover, the fact that so far as the Council knew the applicants for residential subdivision development were unaware of the contamination risk, the fact that if it approved the subdivision the probability was the land would be sold to purchasers also unaware of the problem and be used for residential purposes with potential to cause serious harm, and the Council's statutory obligation to consider whether the land was suitable for residential use by reason of any risk, which would include contamination. The Court also held that the duty of care had been breached, in that the duty of care could only have been discharged by refusing the application, or at least by refusal except on acceptance and performance by the applicant of appropriate remediation. 37 In Port Stevens Shire Council v Booth [2005] NSWCA 323; (2005) 148 LGERA 351, the purchasers of lots in a holiday cabin resort claimed damages from the Council in the following circumstances. In 1992, the Department of Defence sent the Council an Airport Noise Exposure Forecast (ANEF) showing contours for noise exposure from Airforce operations from a nearby airport to the year 2002. Most of the resort area was within the 25 ANEF contour. The relevant Australian Standard provided to the effect that houses, home units and flats were acceptable for less than 20 ANEF, conditional for 20-25 ANEF and unacceptable for greater than 20 ANEF; while hotels, motels and hostels were acceptable for less than 25 ANEF, conditional for 25-30 ANEF and unacceptable for greater than 30 ANEF. Development consent to the development of the resort, and subsequently building consent, were granted by the Council in 1993, with no conditions or advice addressing aircraft noise. 38 The New South Wales Court of Appeal held that the Council owed a duty to purchasers to exercise reasonable care in determination of the applications, rejecting a submission that there was no breach of any duty by the Council unless the Council's decision was Wednesbury unreasonable; and it upheld the primary judge's decision that this duty of care had been breached. 39 The case of Moorabool Shire Council v Taitapanui [2006] VSCA 30; (2006) 14 VR 55 was different from the other cases in that, although a claim was upheld against the Council, it was not in respect of the exercise by the Council of its statutory functions. Rather, it was in respect of the exercise of the statutory functions of a building surveyor, for which the Council was held to be vicariously liable in that, although the building surveyor was acting as a private building surveyor, he was nevertheless a Council employee acting in the course of his employment by the Council. The relevant statutory scheme pursuant to which the surveyor was acting was introduced in Victoria in 1993, with the stated object, among other things, of establishing, maintaining and improving standards for the construction of buildings, and it provided that building work must not be carried out unless a building permit had been issued, that a building surveyor must not issue such a permit unless satisfied that the building work and permit would comply with the Act and Regulations (which incorporated with slight modification the Building Code of Australia), and that the Council must keep a register of permits available for inspection by the public. The building surveyor was also required to make mandatory inspections during construction. Surveyors were required to have substantial qualifications, and insurance. 40 A house was built pursuant to a building permit granted in 1996, and it was sold in 1997. It was sold again to the plaintiffs in 1999. It then became apparent that there were substantial structural deficiencies. The Victorian Court of Appeal held that the surveyor (and thus the Council his employer) owed these subsequent purchasers a duty to exercise reasonable care in giving the building permit, and that this duty had been breached. 41 Finally, Western Districts Development Pty Limited v Baulkham Hills Shire Council [2009] NSWCA 283; (2009) 169 LGERA 62 concerned purchasers of a lot in a subdivision who later had to pay a substantial sum of money in order to comply with requirements of a water supply authority. It was a requirement of s 109J(1) of the EPA Act that a subdivision certificate must not be issued for a subdivision unless the certifying authority was satisfied, in the case of a subdivision that related to land within a water supply authority's area of operations, that the applicant had obtained a certificate of compliance from the water supply authority with respect to the subdivision of the land. In this case, the Council was the relevant certifying authority, and it issued a subdivision certificate even though no certificate of compliance had been obtained from the water supply authority. The New South Wales Court of Appeal held that the Council owed the purchasers a duty of care in relation to compliance with that requirement for the issue of a subdivision certificate, and thus held that the Council was liable for damages in respect of the amounts that the purchasers had to pay to the water supply authority. 42 On the other hand, the existence of a relevant duty of care was denied in Sutherland Shire Council v Becker [2006] NSWCA 344; (2006) 150 LGERA 184. In that case, the Council had approved a subdivision of land, of which the plaintiff's land was part. The conditions of approval included that any fill to the land be satisfactorily consolidated, and that there be a drainage easement in favour of the plaintiff's land with a pipeline carrying drainage through that easement. The plans for the pipeline were approved by the Council, and drawings for the works were sighted and signed off by the Council, although the works themselves were carried by the developer. Subsequently, water escaped from the pipe on land adjoining the plaintiff's land causing slippage of the fill on that land down the hillside; and this removed support for the fill on the plaintiff's land, which itself slipped down the hillside. The Court of Appeal (Mason P, Giles and Bryson JJA) held that the Council did not owe the plaintiff a relevant duty of care. 43 I see no reason to disagree with any of these cases, and I would draw the following general propositions from them: (1) General statements such as that of Gibbs CJ in Heyman , to the effect that when statutory powers are conferred they must be exercised with reasonable care, do not mean that in all cases, where a local authority exercises statutory powers in respect of the approval of subdivisions and/or building work, it owes a duty of care in respect of those approvals to developers and/or subsequent purchasers of the property. (2) However, if the approving authority is subject to a statutory requirement not to give consent unless it is satisfied of something, the courts may well find a duty, owed to developers and to purchasers, to exercise reasonable care in considering whether it is so satisfied: Taitapanui, Western Districts. (3) If the approving authority actually knows something seriously detrimental to the subdivision or the building, and is aware that it is likely that developers and/or purchasers do not know this, the courts may well find a duty owed to developers and purchasers to exercise reasonable care in relation to that detrimental feature: Fregnan, Finlayson, Booth. (4) If the approving authority makes a positive requirement that something be done which otherwise would not be done, the courts may well find a duty owed to developers and purchasers to exercise reasonable care in making that requirement: Fregnan. (5) If the approving authority is required to consider or take into account some particular matter which bears on the structural integrity of buildings to be erected, the courts may well find a duty owed to developers and purchasers to exercise reasonable care to avoid risks of property damage arising from this matter: Fregnan, Bamford.

Application to this Case 44 In the present case, there was no relevant requirement on the Council not to give consent unless it was satisfied of something. 45 In my opinion, this was not shown to be a case where the Council actually knew something seriously detrimental or potentially detrimental and was aware that the developer would not know of this. I have already expressed my view that the primary judge did not find actual knowledge in the relevant Council officers of a problem of intersection of the water table with the excavation for the underground car park. Further, the Council had every reason to think that the developer was aware of any problem that there might be in this regard, because the developer's engineers had measured the water table to be at the level proposed for the excavation of the underground car park and the Council had a document signifying that fact. The developer provided the Council with details of a plan for dealing with drainage, including drainage of the underground car park and including the provision of pumping; and in my opinion it cannot be inferred, as was submitted for Makawe, that this had nothing to do with the level of the water table. 46 This was not a case where the Council made some relevant positive requirement of something to be done. 47 The Council was subject to a statutory requirement in dealing with the development application to take into consideration "whether the land was unsuitable for that development by reason of being … subject to flooding … or to any other reason"; and in relation to the building application, it was required to take into consideration in giving building approval the matters referred to in pars (a) and (b) of Regulation 12(1), and also "whether the site is subject to flooding". To the extent that any of these matters could pose a threat to the integrity of the building, I may well have been prepared to hold that the Council owed a duty of care to purchasers in relation to physical damage to the property that might result through deficiencies in respect of these matters. However, as indicated earlier, it is clear in my opinion that the claim in this case is in respect of pure economic loss. There is evidence of some threat to the physical condition of the building, in particular there being the possibility that the floor slabs in the basement would become "uneven, cracked and permanently wet" (Blue 12). However, beyond that, there is no evidence of a significant threat to the physical integrity of the building. 48 Accordingly, in my opinion, the case is one where it cannot be said that there is an established duty of care; and it is necessary to consider the matter having regard to the cumulative effect of salient features of the kind set out in Stavar. The first seven of those features are of some relevance in this case. 49 As regards foreseeability of harm, in a general sense it was foreseeable by the Council that, if it did not exercise reasonable care in approving and determining conditions for the development application and the building applications, a subsequent purchaser could be harmed. However, for harm to ensue, there must also generally be a lack of reasonable skill and care by the developer and/or the builder and/or their engineering consultants, and also failure by a purchaser to detect the relevant problem by inspection before purchase. The risk would be most substantial where the failure to exercise reasonable care concerns a matter that could give rise to a hidden defect, for example in hidden foundations. This consideration applies with some force to the existence of a water table near the level of excavation for an underground car park; although as mentioned above, there is no suggestion that this seriously threatens the integrity of the building or substantial physical damage to the building. It can also be said that a reasonable person in the position of the Council should in this case have been aware of the problem; and that the problem was one that would not be obvious to a purchaser. Against this consideration, the problem was apparently known to the developer and/or its engineer, and provision was made for drainage of the underground car park, including provision for the pumping of water. 50 As regards the nature of the harm, I have already agreed with the primary judge that the harm was pure economic loss; and for that reason, in my opinion, a stronger case is required to establish a duty of care. 51 As regards control, the Council did not have control in the sense that it did not produce plans for the building or for engineering solutions to any problems that the building might involve; but on the other hand, it did have power to deny approval or impose conditions. 52 As regards vulnerability, in my opinion problems concerning the relationship between the water table and the underground car park were not problems likely to be picked up on an ordinary inspection prior to purchase, or indeed such as were likely to be dealt with in a contract of purchase. I do not think it is of major significance that the purchaser was an investor: I think it unlikely that there would be a duty of care owed to a class of purchasers who were not investors, but not owed to the class of purchasers who were investors. Although investors may be considered as having more business and financial sophistication than other purchasers, it does not seem to me that the difference is such as to impact substantially on whether or not a duty of care exists. 53 As regards reliance, in my opinion what could be important in relation to this element is the reasonable reliance of a class of persons, including Makawe, that was reasonably foreseeable by the Council. In my opinion, it was reasonably foreseeable that purchasers would place some reliance on the Council having exercised reasonable care in relation to such matters as the stability of the site, so far as this is relevant to the integrity of the building. It is less clear that they would place reliance on the Council in respect of the adequacy of an engineering solution to water table issues, which are not such as to seriously threaten the integrity of the building or indeed such as to give rise to anything other than pure economic loss. 54 As regards assumption of responsibility, the Council was required by the statutory provisions to which I have referred to consider certain matters, and it had a responsibility to do so. Although there is reference in both the EPA Act and the relevant Regulation under the LG Act to flooding, in my opinion this is directed to general flooding of the site rather than to the possibility of the water table impacting on excavations to the site. In my opinion, none of the statutory requirements are specifically directed to the problems that arose in this case. 55 Finally, as regards proximity or nearness in a physical, temporal or relational sense, that is not a powerful factor in favour of imposing a duty of care in this case. Makawe itself had no dealings with the Council. 56 I think the matter is quite finely balanced; but taking into account the totality of these salient elements, in my opinion a duty of care owed by the Council to Makawe in respect of the economic loss that occurred in this case was not established. 57 Having regard to these views, it is unnecessary to specifically address either the notice of contention in this case, the possible defences under the Civil Liability Act 2002, or damages. 58 CAMPBELL JA: The relevant facts are set out in the judgment of Simpson J. I agree with the orders proposed by Simpson J and, subject to the following, with the reasons of Hodgson JA. 59 Any question about the existence of a duty of care must bear in mind the type of damage that it is being suggested the defendant had a duty to take reasonable care to avoid the plaintiff suffering. In the present case, the relevant damage arises from a defect in the design of the structure. That defect is that it was constructed at a depth in the ground such that it was foreseeable that the water table in the surrounding land would sometimes rise above the floor level of the car park, but without there being an adequate means of either preventing water penetration into the car park or dealing with water penetration once it had occurred. That defect in the design is not one that the Council had produced, or concerning which it had any special knowledge. 60 There are some factors that tend in favour of the existence of a duty of care. 61 First, the type of damage suffered was reasonably foreseeable by the Council, given that the Council had knowledge (or at least the means of obtaining the knowledge by searching its own records) of the level of the water table. 62 Second, the Council had a statutory duty (ie, more than a statutory power) to consider whether the land in question was unsuitable for the structure that was proposed to be built on it. Probably the type of water seepage that here occurred would not be "flooding" or "tidal inundation" within the meaning of section 90(1)(g) EPA Act. However, fairly clearly it would be "any other risk" within the meaning of that provision, and the aftermath of any such seepage would be "drainage" within the meaning of Reg 12 Local Government (Approvals) Regulation 1993. 63 Third, it was foreseeable to someone in the position of the Council that a subsequent purchaser would be vulnerable, in the special sense that is relevant to existence of a duty of care, namely that it is unable "to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant": Woolcock Street Investments Pty Ltd v CDG Pty Ltd at 530 [23]. In deciding whether someone is "unable" to do this, it is courses of conduct that have a realistic prospect of being ones that the subsequent purchaser might follow that matter. If that were not so, a duty of care would risk losing its connection with what one person taking reasonable care to avoid harm to another should do. It is, in theory, open to a purchaser of a building to obtain a warranty from the vendor that the building work has been done in a good and workmanlike manner, and that the building is suitable for the purpose for which it is intended, but in reality it is not very likely that a purchaser would do so. It is also in theory open to the person who purchases a building from the developer to obtain from the developer an assignment of the benefit of any warranty that the developer has obtained from a builder or engineer involved in the construction. However, that latter course is also in reality not a very likely one for a purchaser to follow, particularly when there is no reason to suspect, at the time of purchase, that the building is defective. As well, it is not altogether clear how effective a protection such an assignment would be, given that the quantum of damages recoverable by the assignee of the benefit of contract is the same as the quantum of damages that the assignor could have recovered (Mid-City Skin Cancer & Laser Centre Pty Ltd v Zahedi-Anarak [2006] NSWSC 844; (2006) 67 NSWLR 569 at 608-9 [190]-[193], 622 [245]), and the quantum of damages recoverable for breach of a warranty about the quality of building work is not altogether clear in circumstances where the person with the benefit of that warranty has sold the building for a price that is not reduced by reason of the existence of the defects (cf De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28). In the present case there is no basis for knowing whether or not the Appellant would have a good cause of action in negligence against the designer of the building, but, even if there was such a cause of action, it could not be right that having a good cause of action against another tortfeasor stops one from being vulnerable in the sense that is relevant for existence of a duty of care - otherwise the scope for contribution between tortfeasors would disappear. 64 The nature of the structure seems to me to be a neutral matter. A factor that was relevant to the existence of the builder's duty of care to a subsequent purchaser in Bryan v Maloney (1995) 182 CLR 609 was that the structure in question was a house, and the kind of structure inherently likely to be the most important, or one of the most important, investments made by a subsequent purchaser in his or her lifetime. However, in Woolcock Street Investments at 528 [17] doubt was cast on the practicality of making a proposition of law, about whether a duty of care existed, depend on whether or not a building was classified as a dwelling. Quite apart from that, here, while the Appellant was in fact an investor, the building was one concerning which the Council had approved a strata plan, which was annexed to the contract by which the Appellant purchased. There was nothing about the structure, as the Council approved its plans, that made it unsuited for occupation as individually owned apartments, and of course at that time the Council did not know whether the subsequent purchaser would be an individual home-owner or an investor. 65 There are other factors particularly relevant to there being no duty of care in the present case. 66 First, the damage suffered was pure economic loss. 67 Second, while the council had a statutory duty to give consideration to matters relating to the seepage that actually occurred, this was as part of a long list of matters that it was required to give consideration to, and no particular consequence was required to follow from giving consideration to these matters. It is not as though there was a statutory obligation on the Council not to consent unless it was satisfied of some particular matter that was relevant to the seepage problem that eventually manifested itself. 68 Third, the statutory duty of the council is not one that related to its own control and management of land (cf Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Limited [2009] NSWCA 263; (2009) 53 MVR 502; [2009] Aust Torts Reports ¶82-031 at [117]-[118]). 69 Fourth, when the council approved the design of the building it was in no contractual relationship or any other kind of relationship with the Appellant, and indeed did not know of the Appellant in any way other than by description, as a member of the class of subsequent purchasers of the building. 70 Fifth, insofar as the Council embarked on any task, it was a task of giving its approval to a design that had already been drawn up by professionals who were qualified in the field of engineering and design. 71 Sixth, it is not as though the Council had relevant knowledge that others involved in construction of the building did not have (or that the Council should have realised others involved in the construction of the building did not have). The developer and its engineers knew about the level of the water table in the vicinity. 72 Seventh, as a consequence of the previous two matters mentioned, it is not as though the Council was in a unique position to (or should have realised that it was in a unique position) to stop a subsequent purchaser from suffering the type of loss that the Appellant suffered. The engineer, developer and builder were all in a position to stop it. 73 Eighth, there was no contact or communication of any kind between the plaintiff and the council after the design had been approved on the topic of the adequacy of the design of the building. 74 In these circumstances, in my view no duty of care exists. 75 SIMPSON J: By statement of claim filed in the District Court, the present appellant (Makawe Pty Ltd, to which I will refer as "Makawe") claimed, against the defendant (the present respondent, Randwick City Council, to which I will refer as "the Council") an award of damages. Makawe pleaded a cause of action in negligence. The claim was yet another - there have been many - in which a plaintiff contended that a defendant, with whom the plaintiff had no direct relationship, either in contract or otherwise, owed it a duty of care and failed to discharge that duty of care, as a result of which the plaintiff suffered damage. 76 On 16 May 2008 Phegan DCJ entered verdict and judgment in favour of the Council. He did this because he held that the Council did not owe Makawe any (relevant) duty of care. He reached this conclusion, at least in part, via an anterior conclusion that the damage claimed by Makawe consisted of pure economic loss. 77 Makawe appeals against the decision. By its first ground of appeal it challenges the preliminary finding that the damage claimed was properly categorised as pure economic loss; by the second ground of appeal it challenges the consequential (or, at least, subsequent) finding that the Council owed Makawe no duty of care. By the remaining grounds of appeal (the grounds number 10 in all) Makawe asserts various errors in the approach taken by the trial judge in reaching those conclusions. 78 (I interpolate here that whether or not the Council owed Makawe a duty of care is a question of law: Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 at [62], per Gummow J. If the conclusion is correct, it is of no moment (for appellate purposes) that it was (if it be the case) arrived at by a flawed process of reasoning. There is no room for the conclusion that, had error not infected the reasoning process, the judge might have come to a different result.) 79 By notice of contention the Council contends that, even if error can be demonstrated, the verdict and judgment in its favour can be supported on an alternative basis. That, it seems to me, is merely another way of saying that the conclusion that, as a matter of law, the Council owed Makawe no duty of care is correct, but for reasons other than those identified in a flawed reasoning process (assuming flaws in the reasons have been shown).

[2006] VSCA 30

[1998] HCA 3

[1995] HCA 17

(1999) 104 LGERA 9

(1998) 97 LGERA 33

(1995) 182 CLR 609

(1996) 67 SASR 28

(2002) 211 CLR 540

(1997) 188 CLR 159

(2006) 67 NSWLR 569

(2006) 14 VR 55

(1999) 198 CLR 180