Makawe Pty Limited v Randwick City Council

(b) The need to take remedial steps to ameliorate the flooding.

(c) The need to tank the basement against water penetration.

(d) Undermining of the physical integrity of the basement.

(e) Penetration into the basement of sand and oxide sludge.

(f) Staining of the floor and lower walls of the basement." 90 The appeal essentially turns upon whether, in all of the circumstances, the Council owed Makawe a relevant duty of care. However, other, and subsidiary issues, also arise; one of these concerns the nature of the loss alleged by Makawe.

Duty of care 91 As the trial judge correctly recognised, the path to defining the circumstances in which a duty of care is owed by one party to another has been a long and tortured one, and has, as yet, no end. 92 The current state of the law was most recently encapsulated by Allsop P in Caltex Refineries (QLD) Pty Ltd v Stavar [2009] NSWCA 258. That was a case, like the present, in which the plaintiff had no direct contractual or other relationship with the defendant but nevertheless asserted that the defendant owed her a duty of care; unlike the present, the damage there alleged was personal injury, uncomplicated by issues that arise where the damage asserted is found or said to be pure economic loss. (In Stavar, the plaintiff was the wife of a man who had worked on the premises of the defendant, where he had been exposed to asbestos; the plaintiff suffered from an asbestos-caused cancer, which, she claimed, she contracted by coming into contact with asbestos fibres transported on her husband's clothing, which she laundered.) 93 Allsop P undertook an examination of the authorities relating to the question of the existence of a duty of care, and concluded that there is no particular formula or methodology that will yield (in all cases) an answer to the question whether, in any such case, one party owes to another a duty of care [103]. He gave, however, an inventory of "salient features", by reference to which the existence or otherwise of a duty of care may be determined. He identified 17 such salient features, of which the following might here be noted: "(a) the foreseeability of harm;

(c) the degree and nature of control able to be exercised by the defendant to avoid harm;

(d) the degree of vulnerability of the plaintiff to harm from the defendant's conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself;

(e) the degree of reliance by the plaintiff upon the defendant;

(f) any assumption of responsibility by the defendant;

(g) the proximity or nearness in a physical, temporal or relational sense of the plaintiff to the defendant;

(h) the existence or otherwise of a category of relationship between the defendant and the plaintiff or a person closely connected with the plaintiff;

(i) the nature of the activity undertaken by the defendant;

(j) the nature or the degree of the hazard or danger liable to be caused by the defendant's conduct or the activity or substance controlled by the defendant;

(k) knowledge (either actual or constructive) by the defendant that the conduct will cause harm to the plaintiff;

(m) the nature and consequences of any action that can be taken to avoid the harm to the plaintiff;

(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".

The judgment of the District Court 97 There appears to have been little, if any, area of factual dispute. The trial judge recited the facts, and set out the issues as identified in the pleadings. Under the heading "Duty of care" he observed that: "The parameters of the relevant duty of care vary substantially depending on whether the loss complained of by the plaintiff is properly classified as economic loss"

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.

Breach of duty 110 Phegan DCJ concluded that, on the assumption that the Council owed a duty of care to Makawe, the Council's failure to include a condition of development approval requiring a drainage system designed to address the risks of a rise in the water table in order to avoid flooding in the basement, represented a failure on the part of the Council to exercise reasonable care and was thus a breach of its duty. 111 He based this conclusion on an analysis of the competing expert evidence. 112 Since the correctness of this conclusion was not challenged by the Council, it is unnecessary to say more about it.

Other defences 113 The Council also raised defences under s 43A of the Civil Liability Act, and s 733(1) of the Local Government Act, and the partial defence of contributory negligence. His Honour rejected each. Since no challenge to any of these conclusions is made in the notice of contention, it is unnecessary to take further time on these issues.

Damages 114 It was common ground that, if Makawe were entitled to recover, its damages would include costs of investigation of the cause of the flooding, including costs of reports from engineers, the costs of replacement pumps and the works undertaken between 1998 and the end of 2003, and the cost of work undertaken in late 2003 and early 2004. 115 Only one head of damages claimed appears to have been contested. This was the claim for the costs of "tanking" to seal off the area below the basement floor, to prevent seepage of ground water to the sub-floor area. 116 This was work that had not been done, but which Makawe claimed was necessary or reasonable in order to cure the problem. 117 His Honour referred to "additional damages" claimed by Makawe, but precisely what was meant by this is not clear from the judgment. He said that the costs of these works were estimated as between $50,000 and $60,000, but rejected the claim, observing that the estimate was made by a geo-technical engineer, with no apparent expertise in costing. 118 He then referred to the claim for "tanking", which was costed at $398,320. Of this, he held that, before damages "of these proportions" could be recovered, Makawe would "have to make a very clear case that tanking was the only solution to the flooding problem", a position that, he said, was not supported on the evidence.

The grounds of appeal and the notice of contention 119 As I have mentioned above, the first ground raised by Makawe's amended notice of appeal was a direct challenge to the finding that the damage claimed by Makawe was pure economic loss. The second ground is a direct challenge to the crucial conclusion that the Council did not owe Makawe a duty of care. 120 The remaining grounds (other than the last, which concerns the notional assessment of damages if a duty of care did exist) attack the manner in which his Honour dealt with the various issues and arrived at the conclusion that no duty of care was owed: to paraphrase, they assert that, rather than determining the salient factors of the particular case, and assessing their relevance and importance in that circumstance, the trial judge took a serial approach to the separate considerations (ground 3); that his Honour failed to give any or any sufficient weight to the statutory role of the Council in considering and approving (including the imposition of conditions) the development and building applications (ground 4); that, in considering whether the Council owed Makawe a duty of care, his Honour failed to give any or any sufficient weight to whether, and if so, to what extent, the Council had departed from proper practice (ground 5); that, in various respects, he erred in his approach to the question of vulnerability (grounds 6, 8 and 9); that his Honour erred in concluding that Makawe had not established that, to the extent necessary, it had relied upon the Council (ground 7); and, finally, that he erred in concluding that, if Makawe were entitled to recover, it was not entitled to recover the projected cost of "tanking". 121 By its notice of contention the Council asserts that, even if error is shown, the verdict and judgment can be supported on the alternative ground that:

the duty of care alleged by Makawe to be owed to it by the Council depended upon proof that the Council would have owed a duty to Firmbuild;

the Council would not have owed such a duty to Firmbuild.

Ground 1: the nature of the loss alleged 122 Extensive written submissions were directed by both parties to this ground. But, in oral argument, senior counsel for Makawe (who did not prepare the written submissions) somewhat retreated from the challenge, accepting that the line between property damage and pure economic loss is not always (and may not in this case be) "absolutely clear". 123 However, senior counsel did not abandon the ground, and in recognition of the arguments advanced in the written submissions, it is best that I deal with it, although briefly. 124 The trial judge's conclusion that the damage claimed was pure economic loss was based virtually wholly on the extracted passage from Woolcock Street. That passage is: "19. The damage for which the appellant seeks a remedy in this case is the economic loss it alleges it has suffered as a result of buying a building which is defective. Circumstances can be imagined in which, had the defects not been discovered, some damage to person or property might have resulted from those defects . But that is not what has happened. The defects have been identified. Steps can be taken to prevent damage to person or property.

20. 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.

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."

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."

He went on to set out s 91 of the EP&A Act and s 94 of the Local Government Act . At para 40 he said: "The Council's powers over building approval in the relevant legislation ([31]-[32]), together with its knowledge of the potential intersection of the watertable and basement slab, combined to create a basis for a duty to exercise reasonable care in the imposition of conditions for the purpose of building approval with regard to below ground drainage." 147 Although it was recognised that his Honour had made these references, nevertheless the submission was made that, in this passage, his Honour: "… expressly den[ied] the ultimate relevance of the statutory duties of the Council and the objects of the statute under which it operates." 148 Earlier, in para 34 (Red, 58D-F) he said: "But the existence of a duty to use reasonable care in the exercise of the power will depend upon whether the relationship between local authority and plaintiff is one which meets all of the criteria by which the existence of a duty is determined." 149 It was submitted that his Honour's failure to make (further) mention of these matters: "at the point of assessing the existence or otherwise of a duty to … Makawe, on such an important manner, demonstrates that his Honour did not take those matters into consideration in determining that duty." 150 It is sufficient to say that I would reject that submission. It does not withstand examination when regard is had to the passages from the judgment I have extracted above. 151 It was next argued that the "cumulative" approach that he was asserted to have taken limited the trial judge to a conclusion "… in conflict with several cases in this Court where these particular statutory powers have been held to be part of the statutory context founding a duty of care owed by a council".

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."

and that: "50. Second, is [sic] Honour's reasoning … in relation to reliance appears to misapply relevant authority to reach the conclusion that establishing reliance is essential for Makawe to show a duty of care." 160 Such a proposition can only be found from a misreading of what his Honour said at para 45. That was: "What has become increasingly clear in more recent statements in the High Court is that the element of reliance, particularly in cases of economic loss, requires actual and not merely general reliance." 161 Read properly, his Honour was not saying that reliance is, in every case, a requisite for establishing a duty of care; what he was saying was that, where reliance is established, it is insufficient that it be reliance of a general character (as his Honour found reliance in this case to be) but must be specific, or actual.

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:

that his Honour concluded that, to the extent that Makawe needed to demonstrate vulnerability, such vulnerability was not demonstrated unless there was nothing he could have done to prevent the loss; that so to conclude was an error; and that the correct test is whether Makawe's inability to protect itself was such as to cast an obligation on the Council;

that his Honour erred in concluding that Makawe had not demonstrated vulnerability by: (a) not having an engineer inspect the property;

(b) not obtaining an assignment of Firmbuild's rights against the engineer;

that his Honour erred in considering that, because the property was purchased for $3.5 million and was income producing, Makawe had not satisfied the requirement of vulnerability. 169 What his Honour (relevantly) said was: "42. In Woolcock the High Court pointed to the failure of the plaintiff in that case to show that it was, in any relevant sense, vulnerable to the economic consequences of any negligence on the part of the defendants. The same observation can be made of [Makawe]. The property was bought at a price in excess of $3,500,000 and consisted of 18 studio apartments. Although the property was purchased shortly after completion, the apartments were already tenanted and there is no doubt that the plaintiff's purpose in purchasing the property was to use it as a source of income through the continued letting of the apartments. It would be very difficult for [Makawe] in such circumstances, even if [Makawe] had sought to do so, to establish vulnerability in the sense explained by the High Court.

43. 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 …

It is not alleged or agreed … that the defects of which complaint now is made could not have been discovered …

Finally, if it is relevant to know, as was assumed to be the case in Bryan v Maloney , whether buying the building represented a very significant investment for the appellant [at p 625 of Bryan ], there is nothing in the Case Stated or the appellant's pleading which bears on that question." 172 The appellant had obtained from the relevant local authority a certificate of compliance with some relevant legislation. This certificate did not throw up the defects later discovered. The High Court said that that: "… says nothing about what other investigations might have been undertaken or might have revealed." 173 I accept, as was put in the written submissions, that: "The degree and nature of vulnerability sufficient to found a duty of care will vary from category to category and from case to case." 174 That proposition is drawn directly from the judgment of McHugh J in Perre v Apand. 175 It was argued that, in this case, "particular circumstances" require "a realistic view" of Makawe's vulnerability to the role of the Council. The "particular circumstances" were not clearly spelled out. Those asserted appear to be:

the Council's knowledge about the water table and its proximity to the development;

that that information was not in Makawe's possession;

that it was unlikely that any purchaser, including Makawe, would think to consider whether inspection of the Council file might yield information relevant to the purchase;

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

(1) A public or other authority is not liable in proceedings for civil liability to which this Part applies to the extent that the liability is based on the failure of the authority to exercise or to consider exercising any function of the authority to prohibit or regulate an activity if the authority could not have been required to exercise the function in proceedings instituted by the plaintiff.

(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. **********

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