Tepko Pty Ltd & Ors v Water Board

New South Wales Court of Appeal CITATION : Tepko Pty Ltd & Ors v Water Board [1999] NSWCA 40 FILE NUMBER(S) : CA 40435/96 HEARING DATE(S) : 01/03/99; 02/03/99 JUDGMENT DATE : 29 September 1999

PARTIES : Tepko Pty Limited & Ors v Water Board JUDGMENT OF : Mason P at 1; Beazley JA at 28; Fitzgerald AJA at 29

LOWER COURT JURISDICTION : Supreme Court LOWER COURT FILE NUMBER(S) : 30023/91 LOWER COURT JUDICIAL OFFICER : Allen J

COUNSEL : S J Downes QC/S J Motbey (Appellant) P R Garling SC/ S T White (Respondent) SOLICITORS : S A Teen (Appellant) Phillips Fox (Respondent) CATCHWORDS : Negligent misstatement; misfeasance in public office; duty of care; breach; pure economic loss; liability for negligent information or advice; reliance; inducement; necessity for further inquiry by representee; consideration of representor's knowledge of representee's contemplated transaction; whether representor had knowledge that information was basis for critical step by representee; foreseeability; "control" of representor; "vulnerability" of representee; consideration of Perre v Apand Pty Ltd [1999] HCA 26. DECISION : Appeal dismissed with costs.

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40435/96 ALD30023/91

MASON P BEAZLEY JA FITZGERALD JA Wednesday, 29 September 1999 TEPKO PTY LIMITED & ORS v WATER BOARD

Tepko Pty Ltd and others ("the appellants") wished to subdivide land at Wallacia. The two Councils responsible for the land agreed to the necessary rezoning on the condition that the Water Board ("the Board") agreed to connect its water supply system to the land. The Board furnished the Minister for Natural Resources with a memorandum (which included a draft letter to be sent to the Minister for Planning and the Environment), which contained the advice that the immediate cost of connecting the water supply would be in the order of $2.5 million. A letter was sent by the Minister for Natural Resources to the Minister for Planning and the Environment containing that advice. The latter conveyed the advice to the appellants and it was also conveyed to the mortgagee of the land, who upon receiving it: (a) believed that the cost of water connection would be $2.5 million; (b) formed the view that the subdivision scheme was not economically viable; and (c) having formed that view placed the appellants in receivership. The land was then sold for an amount far less than it would have fetched had the subdivision been effected.

Below: The appellants alleged that the figure of $2.5 million was deliberately or negligently inflated. They claimed that the advice of the Board was given negligently, causing economic loss to the appellants, or alternatively that it was given maliciously, intending to damage the appellants.

The appellants' action against the Board for damages for negligence or misfeasance in public office was limited to four issues each of which the trial judge resolved in favour of the Board, holding, inter alia, that misfeasance was not established and that no duty of care was owed by the Board to the appellants.

On Appeal: The critical question addressed on appeal was whether the Board, in the circumstances, owed a duty of care to the appellants in framing the advice it tendered to the Minister for Natural Resources, including the draft letter proposed to be sent by that Minister to the Minister for Planning and the Environment.

Held: Per Mason P (Beazley JA concurring): · No duty of care existed. · Nothing in the memorandum or letter indicated that the Board was or ought to have been conscious of the fact that a critical step was about to be taken by the appellants in reliance upon the advice about the cost of water connection. · It cannot be said that the letter evidenced an intention on the Board's part to induce a particular response by the appellants. · The facts of the case are far removed from Perre v Apand Pty Ltd [1999] HCA 26. The Board was not the party in control of a situation in which the appellants' interests stood in a position of perceived vulnerability. · The decision below should be upheld.

Per Fitzgerald JA (in dissent) · The Board owed a duty of care to the appellants. · The Board had no reasonable basis for its order of costs estimate. · The Board expected the misstatement to be communicated to the appellants · The Board's evident purpose was to state its position in a convincing way in order to influence both the Ministers involved and the appellants. · It cannot be said that the Board had no legal responsibility whatever to the appellants. · Perre v Apand Pty Ltd [1999] HCA] 26 reaffirmed that forseeability of economic loss to another does not, of itself, establish a duty to take reasonable care to avoid causing such loss. Individual cases must be decided according to their particular facts and circumstances. · The facts and circumstances of this case were such as to impose a duty on the Board to exercise reasonable care in the provision of the order of costs estimate to the appellants. · The Board breached its duty of care to the appellants in informing the Minister for Natural Resources, for communication to the appellants that the immediate cost for water connection would be in the order of $2.5 million.

Order: Appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40435/96 ALD30023/91

MASON P BEAZLEY JA FITZGERALD JA Wednesday, 29 September 1999 TEPKO PTY LIMITED & ORS v WATER BOARD

JUDGMENT 1 MASON P: I have had the advantage of reading in draft form the judgment of Fitzgerald JA. I agree with its conclusion that the information contained in the draft letter which accompanied the Water Board's memorandum to its Minister Mrs Crosio on 11 November 1985 was inaccurate in consequence of negligence in stating that the "immediate cost to connect Mr Neal's proposed development would be in the order of $2.5million". And I agree with the reasoning upon which that conclusion stands, particularly in the inferences drawn from the Board's failure to call key witnesses. 2 However I cannot accept that the Board was under a duty of care. 3 The trial judge held that there was no duty of care: The relationship between the parties simply was not such that a reasonable body in the position of the defendant would have seen any relevant risk of purely economic damage to the plaintiffs if the figure was in excess of an order of cost estimate of that type arrived at by the exercise of reasonable care and the exercise of reasonable skill appropriate for such an estimate. 4 The case might have been framed in negligence against the State of New South Wales, and based upon the information apparently conveyed to the appellants through Mr Watkins MLC derived from Mrs Crosio's letter of 21 November 1985. Such a case would have explored the circumstances in which Mr Watkins showed the letter to the appellants or their agents. And it would have addressed the corpus of information conveyed at the critically important meeting on Monday 25 November 1985 between officers of the Board on the one hand and Mr Neal, Mr Geraghty, the appellants' solicitor and Mr Rhodes, their town planner on the other hand. 5 But the case was pleaded differently, and run on the preliminary issues of duty and breach. From the vantage point of the Court of Appeal there is an air of unreality about a case that scrupulously avoided grappling with these key precursors of the appellant's decision to show the Watkins' letter to its bank on 28 November 1985, with apparently disastrous consequences. The matter is even more quizzical because the trial did not address very live issues of causation and computation of damages. 6 I return to what to me is the critical question: did the Board, in the circumstances, owe a duty of care to the appellants in framing the advice it tendered to its Minister on 11 November, including the draft letter proposed to be sent by Mrs Crosio to her ministerial colleague Mr Carr? 7 The Board never knew of Mr Watkins' later approach to Mrs Crosio on the appellant's behalf when he wrote to her on 20 November 1985 (AB 1130). It follows that it never knew of its Minister's decision to use the earlier letter to Mr Carr (drafted by the Board) as the template for a letter to Mr Watkins. Nor did the Board know of any specific meeting that was to take place with the appellants in consequence of its memorandum. If negligence is to be sheeted home to the Board it must stem from the advice it gave referable to the proposed Crosio-Carr communication. (The truncation of issues requires one to suspend judgment as to the appellants' prospects of establishing actual reliance upon that advice (cf Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 257, 263, 301. Reliance upon Mrs Crosio is not the same as reliance upon the Board.) 8 If liability for negligent advice is to be established it relates to information (or advice) conveyed and relied upon, as distinct from the particular form of communication. Nevertheless, a defendant's choice of a particular form or medium may be critical in determining whether the occasion was a serious one and in identifying the person or class of persons to whose interests the defendant had regard or ought to have had regard. There is a world of difference between a whispered comment between two individuals at a social event and the publication of an advertisement in a newspaper. 9 The present case falls between such extremes. The Board was tendering confidential advice to its Minister on a serious matter with political and financial overtones. The advice affected the specific interests of the Board as well as matters of town planning, hence the draft letter to Mr Carr, then the Minister for Planning and Environment. But the advice also affected the interests of the appellants and this would have been obvious to the Board. Indeed, the draft letter addressed to Mr Carr offered Mr Neal the opportunity to discuss the matter further with the Board's Director of Operations and Customer Relations. 10 The issue for the Board was the manner to address the pressing demands of a developer who was also a constituent who had the ear of government. Mr Neal had every right to approach government, knocking at as many doors as he chose, to press his representations. To subdivide for redevelopment he needed rezoning (Mr Carr's portfolio), but a favourable rezoning depended upon the Board providing water supply. This in turn depended upon the developer funding the water supply, because it was a rural area and it was not the Board's policy to spend its own money in these areas. It was obvious that Mr Neal was not to be palmed off, and that a considered response would have to be given sooner or later. How that response would be dressed up would depend upon what the ultimate decision was going to be. The evidence discloses a practice or policy of the Board in 1985 to provide water supply to rural residential areas "provided the works can be funded by developers so as not to affect the Urban Development Program, present or future" (see the letters to Messrs Carr and Watkins). This was not a legal obligation, but a practice or policy capable of application (or modification) by the Board, subject of course to Ministerial direction (cf Metropolitan Water, Sewerage and Drainage Act 1924, s7). 11 The High Court's exposition of the law relating to liability for negligent information or advice may be traced though Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556 ("Evatt"), San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 (San Sebastian") to Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 ("Esanda"). I take the following propositions relevant to this appeal to be established:

(1) "[M]ere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction as the result thereof and suffer financial loss in that transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice" (Esanda at 252 per Brennan CJ. See also per Dawson J at 254, 258 per Toohey J and Gaudron J at 265, per McHugh J at 271-4, 291 per Gummow J at 308-10).

(2) It is not essential that a plaintiff prove that information or advice was sought by the plaintiff from the defendant, but instances of liability for misstatement volunteered negligently will be rare ( San Sebastian at 356-7; Esanda at 252, 255, 262, 265, 272).

(3) Reliance must be established by the plaintiff, if only to link the defendant's negligence to the plaintiff's loss. But reliance - even "known reliance" - does not itself prove that a duty of care existed ( Esanda at 257, 263, 299. See also (1) above.). Gummow J goes further, and criticises the use of terms such as "reliance" and "known reliance" as imprecise, beguiling and deceptive in their simplicity ( Esanda at 299-300. See also Hill v Van Erp (1997) 188 CLR 159 at 229-30).

(4) A number of statements address the specificity of the knowledge which the defendant has or ought to have, in relation to the plaintiff's intended use of the information or advice conveyed, in order to fix the defendant with a duty of care:

(a) In Evatt , Barwick CJ said (at 571) that: the speaker must realise or the circumstances be such that he ought to have realised that the recipient intends to act upon the information or advice in respect of his property or of himself in connection with some matter of business or serious consequence.(emphasis added)

Later (at 572) the Chief Justice summarised his views, stating that: whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter … and the relationship of the parties arising out of the circumstances is such that on the one hand the speaker realizes or ought to realize that he is being trusted, particularly if he is thought by the other to have, or to have particular access to, information or to have a capacity or opportunity to exercise judgment or both as to the matter at hand, to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to seek or accept it and in either case to act upon that information and advice the speaker, choosing to give the information or advice in such circumstances, comes under a duty of care …. (emphasis added)

This statement of principle was accepted as correct by Mason and Aickin JJ in Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 at 251 per Mason J, at 256 Aickin agreeing. See also at 255-6 per Murphy J.

(b) In San Sebastian , Gibbs CJ, Mason, Wilson and Dawson JJ said (at 357): The maker of a statement may come under a duty to take care through a combination of circumstances or in various ways, in the absence of a request by the recipient. The author, though volunteering information or advice, may be known to possess, or profess to possess, skill and competence in the area which is the subject of the communication. He may warrant the correctness of what he says or assume responsibility for its correctness. He may invite the recipient to act on the basis of the information or advice, or intend to induce the recipient to act in a particular way. He may actually have an interest in the recipient so acting.

In the passage immediately following (at 357-8) their Honours rejected as too broad the submission that where A engages in conduct which is intended to cause B or a class of persons to act in a particular manner, A comes under a duty of care to B or any member of the class who is induced to act in that matter. The deficiency in the submission was expressed by saying (at 358) that: it is necessary not only that A intends that B or members of a class of persons should act or refrain from acting in a particular way, but also that A makes the statement with the intention of inducing B or members of that class, in reliance on the statement, to act or refrain from acting in the particular way, in circumstances where A should realize that economic loss may be suffered if the statement is not true. In cases where the defendant intends the statement to operate as a direct inducement to action, the reasonableness of the reliance will not be a critical factor, although in other cases the defendant's appreciation of the reasonableness of reliance will be relevant. (emphasis added)

Brennan J (at 372) also expressed in narrow terms the preconditions of a duty of care where the representor intends to induce the representee to act on information or advice on a serious or business matter. He restated his position in Esanda and I will return to this, after adverting to passages in Caparo Industries Plc v Dickman [1990] 2 AC 605 upon which he relied which were cited with approval by several of the justices in Esanda .

(c) In Caparo , a claim of negligence against the auditors of a company which had been taken over by the plaintiff failed in the House of Lords for absence of duty of care. Their Lordships said that liability for economic loss caused by negligent misstatement was confined to cases where the statement or advice had been given to a known recipient for a specific purpose of which the maker was aware and the recipient had relied and acted upon the statement or advice to its detriment. Several speeches emphasised the essentiality of the defendant's awareness of the nature of the transaction which the plaintiff had in contemplation (see per Lord Bridge at 620-1, per Lord Roskill at 628-9, per Lord Oliver at 635-6, 638, per Lord Jauncey at 661). Some of these passages were cited with apparent approval in Esanda by Brennan CJ (at 250-2), Toohey and Gaudron JJ (at 261-2), McHugh J (at 276-7).

(d) In Esanda , Brennan CJ said (at 252) that: …in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring or economic loss if the statement should be untrue or the advice should be unsound. (emphasis added)

Dawson J emphasised the requirement of proximity and held that the plaintiff's reliance upon the defendant's statement must be reasonable, except in cases where the defendant intends the information or advice to operate "as a direct inducement to action" (at 257). (This effectively restated the passage from San Sebastian quoted above, at (b).)

Toohey and Gaudron JJ observed, in relation to the statement by Barwick CJ in Evatt that was accepted as correct by Mason and Aickin JJ in Shaddock (see (a) above), that in Shaddock (at 253), Mason J had pointed out that: the existence of a duty of care does not depend upon knowledge on the part of the speaker of the precise use to which the information will be put. It is enough if he knows, or ought to know, that the inquirer is requesting it for a serious purpose, that he proposes to act upon it and that he may suffer loss if it proves to be inaccurate. (emphasis added)

It is not clear to me that any of the other justices who decided Esanda accepted such a test for characterising the level of generality of knowledge which a defendant had or ought to have had to trigger a duty of care. As I shall indicate, other judgments appear to favour a more specific attribution of knowledge referable to the plaintiff's proposed use of the information conveyed. In any event, the words to which I have drawn emphasis are relevant to the present appeal. Toohey and Gaudron JJ drew attention to the absence in the impugned pleading of allegations that the auditors sought to induce entry into the particular financial transaction which led to loss or that they intended that any class of readers of the audit certificate should act upon the accounts or the certificate in deciding to enter into those financial transactions (see at 262). In doing so, they were at pains to add that there will be some situations where there may be liability even though the statement in question is neither made with the intention that it should be acted upon nor pursuant to a professional or contractual obligation (see at 265). However, of significance to the present appeal, they indicated that: ordinary principles require that the relationship does not arise unless it is reasonable for the recipient to act on [the] information or advice without further inquiry. Similarly, ordinary principles require that it be reasonable for the recipient to act upon it for the purpose for which it is used.

It is pertinent that McHugh J's and Gummow J's review of the overseas case law drew attention to passages in judgments which referred to the defendant's knowledge of the particular purpose to which information would be put as a touchstone of liability, at least in the absence of a pleading of intention to induce reliance by the plaintiff (see esp at 276-281, 304-5, 307-8). And it is (I believe) significant that each justice approved the decision of the Appeal Division of the Supreme Court of Victoria in R Lowe Lippmann Figdon & Franck v AGC (Advances) Ltd [1992] 2 VR 671.

(e) In R Lowe Lippmann the Court relied upon the reasoning in San Sebastian to find (in McHugh J's summary ( Esanda at 274)): that the auditors of financial accounts which had been improperly audited, and which had allegedly been relied upon by a major creditor of the audited company in advancing further money, did not owe a duty of care to the creditor. The Appeal Division held that the mere act of supplying a signed report stating the company's financial position, knowing that the company would in turn pass the statement on to its major creditor, was not enough to establish a duty of care in the circumstances (R Lowe Lippmann [1992] 2 VR 671 at 682-683). No duty was owed even though prior to the audited accounts becoming available, the creditor had telephoned the auditors and told them that it required the accounts for review purposes and had requested confirmation that the company's annual profit would be the figure that the company claimed."

Brooking J (at 684) appears to accept as authoritative the statements in Caparo (at 620, 621, 638) requiring full knowledge of the transaction which the plaintiff had in contemplation. (These presumably extend to such knowledge as would be attributed to a reasonable person placed as the defendant was placed: see Caparo at 638, per Lord Oliver.)

(f) See also Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360; Australian Breeders Co-operative Society Ltd v Jones (1997) 26 ACSR 26 at 62-3; Ta Ho Ma Pty Ltd v Allen [1999] NSWCA 202; Fleming, The Law of Torts 9th ed p712 . 12 The appellants rely upon the primary judge's finding that the Board was well aware of the closeness of the contact between Mr Neal and the Minister for Environment and Planning and had every reason to anticipate that the contents of the letter, and certainly the figure of "in the order of $2.5 million", would be passed on to Mr Neal (AB 1138). The appellants submit that the letter was in effect the long-delayed response to the appellant's request for a cost estimate that had been pressed since 1982 (see AB 830). I accept this submission, at least as regards the draft letter prepared for Ms Crosio to send to Mr Carr. I shall assume (without deciding) that this can be applied in the context of liability stemming through the Crosio-Watkins letter. The Board's original response had been to state that it was not its policy to supply information regarding the provision of services to subdivisions/ developments which were contrary to zoning. Further enquiries were directed to the Department of Environment and Planning (AB 839). Later overtures in 1983 and 1984 were similarly stone-walled by the Board, although discussion continued (see AB 886, 887, 894, 935-967). While this was correctly described by Mr Neal's local member as catching Mr Neal "in inter-departmental and inter-governmental crossfire" (AB 901), this was a position which legally, if not politically, the Board was entitled to adopt. 13 A file note written a few weeks after 11 November 1985 under the hand of the officer who calculated the figure of "in the order of $2.5million" referred to Mr Neal's subdivision as an "exception" to the Board's "limit of supply embargo". The note continued: This problem has persisted for several years. Earlier on we responded negatively because of the limited capacity of headworks of feeder mains etc.

An argument they had used was the very good pressure at Wallacia, forgetting that the mains had to get water to Mulgoa and Luddenham….

After gross political pressure the Board caved in to the extent of supplying costs to amplify the system for very restricted development. 14 This contemporaneous description by a virtual eye-witness should be accepted as a fair description of the Board's position. The memorandum of 11 November 1955 with its accompanying draft letter was a "cave in" to the extent of supplying (effectively to Mr Neal) the cost estimate that he had long requested. 15 But was this enough to establish a duty of care? The observer's description cannot contradict the very words of the memorandum upon which the Board has been sued, construing that memorandum (with its annexure) in context. 16 Some things are clear. 17 The final zoning decision lay, and was reasonably perceived to lie, with Mr Carr. Mr Neal had his ear and he was the Minister with the carriage of the rezoning process. Mr Carr had written to Mrs Crosio on 4 October 1985 following a meeting with Mr Neal and his consultants. The letter acknowledged that the Board was "currently determining an appropriate policy for alternative methods of servicing …development proposals" such as Mr Neal's. The letter continued: In order that I might consider the proposal by Mr Neal further, I would appreciate your advice as to when this policy is expected to be furnished. (emphasis added) 18 There was at the time a unit known as the Policy Coordination Unit. One of its functions was to coordinate policy matters between the Department of Natural Resources and other government departments. Mr Carr's inquiry from Mrs Crosio was known as a "special inquiry" and fell within the remit of the Unit. On 18 October 1985 and 29 October 1985 the Board's acting water systems planning manager provided information to the Unit in relation to this special inquiry (see AB 1091-1094). His memoranda express a firm preference for addressing Mr Neal's proposals in a wider geographical context as well as in the broader context of a policy still being developed by the Board as to servicing rural residential development. The Unit was informed that the engineering and economic analyses needed for completion of the policy report should be available to the Unit by January/February 1986. 19 The memorandum (and annexure) sued upon have the same broad thrust. Thus, the communication proposed by the Board is from Mrs Crosio to Mr Carr, with the draft letter stipulating: "I trust this information will enable you to further consider Mr Neal's proposal". 20 The draft letter to Mr Carr provided costing information specific to Mr Neal's interests in circumstances where it was clear that the Board knew that in the likely event that Mrs Crosio sent the letter as drafted that information would be passed on (by Mr Carr) to Mr Neal and his advisers. However, the letter by its terms and its addressee was clearly directed to stating the Board's position referable to a decision intended to be made by Mr Carr (or cabinet). More significantly, the letter stated firmly the Board's consciousness "that it is not a planning organisation and would not wish to take a decision on this matter in a way which might lead to longer term difficulties for both the Government and the Board". The information provided as to the Board's preparedness to provide water supply to rural residential areas on conditions, and the particular costing information concerning the Wallacia area and Mr Neal's proposed development in particular were provided "within this framework". The letter was eloquent with unwillingness to cooperate with Mr Neal at the present time. In the same breath as the Board gave an estimate of the "immediate cost to connect Mr Neal's proposed development" there was added: But the Board would favour a proposal from a consortium of the developers in the area so that the system could be amplified to the full dimension of a viable scheme described above in a single program.

The letter explains clearly why the Board does not wish to consider Mr Neal's proposal in isolation or before finalising its policy. 21 The only "cave-in" was the statement of the Board's preparedness to take certain action "within this framework" and the provision of relevant costing estimates. But the letter did not suggest that the battle was won, at least at that stage. This was made particularly clear by the Board's reiterated preference to address Mr Carr's representation on behalf of Mr Neal in the context of a "revised policy for such developments [which] will not be completed early in 1986". Not only was the delivery of that policy deferred until the following year, but the letter indicated that such policy would be offered to Mr Carr (presumably through the Policy Coordination Unit) for his consideration as the minister responsible for planning matters. The Board's reluctance to go the second mile with Mr Neal should fairly be viewed in this context. 22 Nothing in the memorandum or letter indicated that the Board was or ought to have been conscious of the fact that some decision was about to be taken by Mr Neal in reliance upon the information as to costing likely to be conveyed to the appellants through the Crosio-Carr letter. It certainly cannot be said that that letter evidenced an intention on the Board's part to induce a particular response by the appellants, or even that the information would be made available to the appellants in a context where a particular response by the appellants was in contemplation. Rather, the Board was saying in effect that it was "over to Mr Carr" for a decision to be made, taking into account the information provided in the letter. 23 These facts did not attract the principles as to duty of care for negligent advice as I have endeavoured to summarise them. 24 Since writing what is set out above I have read the High Court's recent judgment in Perre v Apand Pt Ltd [1999] HCA 36. The Court adhered to its earlier view that forseeability of financial harm is not enough to guarantee a duty of care to avoid economic loss, and its rejection of "proximity" as a helpful guidepost in itself. Unfortunately, no consensus emerged as to an acceptable framework for viewing these cases as a whole. The majority of the court rejected two and three stage test formulae proposed in other jurisdictions. 25 The facts of the present case are far removed from Perre. But several of the justices in that case emphasised the relevance of the plaintiffs' known vulnerability because of the defendant's exclusive control of the situation as a significant factor in establishing a duty of care (see Gleeson CJ at [10]-[11], McHugh J at [50], [104]-[105], [125]-[126], Gummow J at [216], Kirby J at [296]). Most of the justices also emphasised the defendant's foresight of the likelihood of harm occurring to the plaintiffs (see Gleeson CJ at [13], Gaudron J at [42], McHugh J at [104], Kirby J at [296], Callinan J at [413]-[415]). Here the Water Board had no reason to think that the information which it provided to its Minister was about to be the basis of some critical step taken by the appellants. Nor was the Board the party in control of a situation in which Mr Neal's interests stood in a position of perceived vulnerability. 26 It bears recalling that this was not a situation, as in Avenhouse v Hornsby Shire Council (1998) 44 NSWLR, where the Water Board was under any duty of care to act with promptness so far as the appellants were concerned. 27 For these reasons I would uphold the decision below on the ground that no duty of care existed. 28 BEAZLEY JA: I agree with Mason P. 29 FITZGERALD JA: This is an appeal from a judgment in the Administrative Law Division which dismissed the appellants' action against the respondent Board for damages for negligence or misfeasance in public office. The former claim alleged that the Board made an inaccurate statement negligently, causing economic loss to the appellants, while the latter claim alleged that the Board made the inaccurate statement maliciously, intending to damage the appellants. Regrettably, the entire action was not tried. Instead, there was a separate trial of four awkwardly expressed issues, which the trial judge resolved in favour of the Board. It is also unfortunate that the Board did not adduce evidence, presumably for perceived forensic advantage, with the consequence that its material conduct is not fully explained.

30 The appellants wished to subdivide about 80 hectares of land at Wallacia, which was located partly within the local government area of Penrith City Council and partly within the local government area of Liverpool City Council. Each Council was prepared to rezone the land from "rural" to permit the subdivision to proceed, but only if the Board agreed to connect its water supply system to the land. The Board was opposed to doing so, and the appellants made many attempts to persuade politicians to intervene on their behalf.

31 The statement on which the appellants' action is based was made on 11 November 1985 by the Board to its Minister, the then Minister for Natural Resources, Mrs Crosio, for communication to the then Minister for Planning and the Environment, Mr Carr, who had been approached by the third appellant, Mr Neal, to assist the appellants in obtaining a supply of water to the land. The trial judge noted that a lengthy document entitled "Confidential Ministerial Submission" had been prepared by the appellants for Mr Carr, and that a copy of the "Confidential Ministerial Submission" was also given to the Board. His Honour said: "It is apparent from the terms of the Confidential Ministerial Submission that Mr Neal and his advisers accepted the reality … that if the water supply was … extended, despite the Board's opposition, … amplification works would be extremely expensive and that the Board would insist that neither its resources in manpower or money be diverted, to any degree, to implementing the extension should it be permitted to go ahead."

32 After the Board furnished Mrs Crosio with a memorandum and a draft of a letter to Mr Carr on Monday 11 November 1985, Mrs Crosio wrote to Mr Carr in terms of the draft prepared by the Board on Thursday, 21 November. There is no finding of any subsequent communication to the appellants by Mr Carr, who played no further role which is material to the present dispute.

33 On the same day, Thursday 21 November 1985, Mrs Crosio wrote a generally similar letter to Mr Watkins, a member of the Legislative Council who, unknown to the Board, had also approached Mrs Crosio on the appellants' behalf. Mr Watkins provided a copy of the letter from Mrs Crosio to the appellants on or about Wednesday 27 November.

34 Mrs Crosio's letter to Mr Watkins, with underlining added, was in the following terms: "I refer to your representations regarding water supply to land at Wallacia by Mr John Neal.

I understand that Mr Neal has approached the Board a number of times and been advised that any additional demand at Wallacia would adversely affect the water supply to the residential areas of Mulgoa and Luddenham. Additional demands brought about by the development at Wallacia could not be met without extensive and costly amplification works.

The Board's funds are fully committed to meeting the Government's Urban Development Programme. The principle has been well established that rural developments would not be given priority over the Urban Development Programme.

Although Mr Neal's proposal covers a relatively small area, it cannot be considered in isolation for two main reasons:

(a) Provision by the Board of water supply to areas outside the Government priority areas necessarily creates the precedents which lead to development pressures which are inconsistent with Government objectives.

(b) The Board is aware that other property owners and large developers in the immediate area are keenly awaiting the decision on this issue and wish to submit similar proposals. This would inevitably lead to other infrastructure pressures.

The Board is particularly conscious that it is not a planning organisation and would not wish to take a direction on this matter in a way which might lead to longer term difficulties for both the Government and the Board.

Within this framework, the Board is prepared in general to provide water supply to rural residential areas provided the works can be funded by developers so as not to affect the Urban Development Programme, present or future.

The minimum viable scheme to serve rural residential development in the Wallacia area would cost in the order of $7 to $10 million. This would provide for around seven similar developments.

The immediate cost to connect Mr Neal's proposed development would be in the order of $2.5 million. But the Board would favour a proposal from a consortium of the developers in the area so that the system could be amplified to the full dimensions of a viable scheme described above in a single programme. I must also advise that the $2.5 million scheme would be satisfactory only to serve the development proposed by Mr Neal ."

35 In accordance with the draft prepared by the Board, there was an additional paragraph at the end of Mrs Crosio's letter to Mr Carr which is of potential significance, namely: "I trust this information will enable you to further consider Mr Neal's proposal. In the event that Mr Neal wishes to discuss the matter further with the Board, he might contact Mr A G Wright, Director of Operations and Customer Relations, who can be reached on 269-6001."

36 As pleaded, the appellants' case was that (i) the Board made an inaccurate statement to Mrs Crosio "… with a view to inducing [her] to sign a Ministerial letter to be provided to the [appellants] and [their] representatives…" which repeated the misstatement, (ii) the Board's misstatement "… caused or contributed to the act by the Minister of, on 21 November 1985, signing, and providing to the [appellants'] representative Mr Watkins, a letter …" which repeated the misstatement, and, (iii) "[u]pon reading the Ministerial letter referred to … the [mortgagee of the land] Deutsche Bank: (a) believed that the cost of connecting water to the development would be $2.5 million

(b) formed the view, on the basis of that belief (engendered by the Ministerial letter), that the subdivision scheme could not be economically viable and accordingly that the value of its security was substantially reduced, and

(c) having formed that view, placed the corporate [appellants] in receivership", The subsequent histories of the corporate appellants, which were sometimes described as having been placed in liquidation, and how they were in a position to institute and prosecute this action, were not explained.

and (iv) "the land, when sold …, fetched far less than it would have done had it been possible to sell it as land ready for subdivision at an economic price", causing loss and damage to the appellants. Shortly expressed, the appellants' allegation was that the "immediate cost to connect the [appellant's] development … in the order of $2.5 million" which would "… only … serve [that] development was deliberately or negligently inflated.

37 The course which has been followed, involving trial of only some issues, has disguised the considerable difficulties which confront the appellants' claim.

38 Although their amended statement of claim does not say so, it was the appellants who themselves provided the bank with a copy of Mrs Crosio's letter to Mr Watkins at a meeting on 28 November 1985. The trial judge expressed the view that the copy of Mrs Crosio's letter to Mr Watkins might have been provided by the appellants to the bank because it "… contained good news as well as bad news. The good news was that at last there was a firm decision that the … Board would be prepared to connect the water. The subdivision could go ahead. The bad news was that the connection cost, as stated in the letter, was high". His Honour pointed out that, unknown to the Board, the appellants had been insolvent for months and were "in dire financial trouble", and "under extreme pressure from [the] bank to present to it a decision of the Board, duly documented, as to the connection of water to the proposed subdivision". Nonetheless, unless the appellants sought to use the prospect of an "immediate cost … in the order of $2.5" million to obtain a supply of water to the land as a basis for borrowing additional money from the bank, there is no obvious reason for their providing it with a copy of Mrs Crosio's letter to Mr Watkins without qualification or explanation in accordance with what the appellants had been informed by the Board prior to their meeting with the bank on 28 November 1985.

39 The appellants' amended statement of claim omits a critically important meeting which occurred on Monday 25 November 1985 between officers of the Board and Mr Neal, the appellants' solicitor, Mr Geraghty, and their town planner, Mr Rhodes. i.e., prior to the meeting at which the appellants provided the bank with a copy of Mrs Crosio's letter to Mr Watkins. It is unclear whether anyone present at the meeting was aware that Mrs Crosio had written to Mr Carr or Mr Watkins. Only Mr Neal and Mr Geraghty gave evidence of what occurred at the meeting, and their evidence lacked detail and, in part at least, was otherwise unsatisfactory. However, there is contemporaneous evidence of the critical aspect of the meeting in letters written by Mr Geraghty to the Board on 25 November 1985 following the meeting, and by Mr Rhodes to Mr Neal on 26 November 1985.

40 Those letters, with some significant passages underlined, respectively provided: (a) Letter from Mr Geraghty to the Board dated 25 November 1985:

"re: Supply of Water - Park and Greendale Roads, Wallacia

We refer to our meeting of today and on behalf of our client, Mr John Neal and his Representatives. We would like to extend our appreciation for the advice and assistance given by Mr Wright and his colleagues.

As requested by you we set out hereunder detailed information on the possible lot yields in respect of three (3) options:-

The likely layout is shown on the plans, which will be forwarded under separate cover (by Courier) as soon as possible, and these are the plans which the Board has considered in arriving at the $2.5m amplification cost.

Total lot yield of approximately 125 lots made up of:-

Possible layouts for Options 2 and 3 are shown in the plans to be forwarded shortly.

Option 3 appears to be the maximum potential for Mr Neal's land and accordingly the maximum lowest per lot cost for amplification. In addition the land adjoining Mr Neal on the east to James Street has been identified for rural residential (2 hectare lots) and this could yield a further 20 lots.

Options 2 and 3 also contain 60 residential lots which we understand will reduce the extent of amplification works on a per lots basis.

The estimated amplification cost of $2.5m for approximately 90 lots (Option 1) represents a per lot contribution of $27,777.00. Clearly this is prohibitive and would need to be reduced by a combination of additional lot yield and hopefully a significant reduction in amplification costs based on a detailed investigation and possible execution of the work under Contract. This latter aspect is particularly important given the earth moving business our client now operates.

Option 3 (200 lots) based on an amplification cost of $3.5m represents a per lot contribution of $17,500.00. Whilst this is still prohibitive it does give an indication that an economically feasible per lot contribution may be possible. Based on this indication our client wishes to advise the Board that he is willing to meet amplification costs in accordance with the following draft arrangements:-

Work for which our client is responsible to be restricted to that work required as a consequence of his development and not work required to service additional lots or work which the Board would have to undertake had his development not occurred.

Work for which our client is responsible to be carried out wherever practical by his Earth Moving Company under Contract to, and supervised by, the Board.

Work to be subject of a detailed investigation and subsequent design by the Board in conjunction with our client's consulting Surveyors where necessary and appropriate.

Contributable funds, where necessary, to be covered in total by an acceptable bank guarantee with funds being called in as expenditure occurs by the Board.

In the event of the Board undertaking the construction of a new treatment Works/Pumping Station downstream of the existing plant such that the per lot contribution is reduced, our client would require a similar reduction or refund (plus interest) whichever is applicable.

We believe the foregoing will provide opportunities to significantly reduce the amplification costs both in terms of direct contributions, actual work costs and holding charged on those funds expended. In turn the subdivision should become economically viable leading to a satisfaction of market demand for land and an important injection of capital and work opportunities in the area.

We request the Board's detailed investigation of the three Options and consideration of the suggested agreements as soon as practical."

(b) Letter from Mr Rhodes to Mr Neal dated 26 November 1985: "Re: Provision of Water to Wallacia Subdivision

Further to our meeting with Metropolitan Water, Sewerage and Drainage Board on Monday 25 November, 1985 I advise that I have prepared correspondence to the Board indicating your acceptance of their requirements for the amplification of the water mains.

As discussed it is reasonable to assume that detailed investigation by the Board and completion of the work under contract will result in a significant reduction in amplification costs. However, adopting the Board's figures at this stage we see the following options :

Water Reticulation 2700 metres @ $70.00m $ 189,000.00 $3,404,500.00

Allow $4,000.00 per lot contingency. Therefore adopt $41,827.00 per lot of $3,764,500.00 total.

Water Reticulation 3230 metres @ $70.00m $ 226,100.00

Allow $4,000.00 per lot contingency. Therefore adopt $38,721.00 per lot or $4,762,683.00 total.

60 x 800-1000m2 lots @ $35,000.00/lot $2,100,000.00

Water Reticulation 4612 metres @ $70.00m $ 322,700.00

Allow $4,000.00 per lot contingency. Therefore adopt $30,699.00 per lot or $6,017,004.00 total.

60 x 800-1000m2 lots @ $35,000.00/lot $ 2,100,000.00

Option 3 is based on our calculated yield of 100 x 4000 m2 lots for the land in the Liverpool Council area.

Clearly the preferable option is to maximise the 4000m2 lots and exclude or minimise residential lots given the additional roadworks costs associated with the latter. Options 1 or 3 appear to be the most practical and should be pursued.

It is important to appreciate that the development costs of each option are based on the Board's figures, and as stated earlier, significant reductions in these amplification costs could reasonably be expected.

We will await further advice from the Board and advise you accordingly. "

41 The appellants attempted to have Mr Rhodes' letter of 26 November 1985 to Mr Neal excluded from evidence. The trial judge acceded to the appellants' objection during the hearing, but only after most significant portions of the letter had already emerged in cross-examination of Mr Geraghty. Although the admissibility of the letter was not again referred to at the trial, the Board was plainly entitled to put Mr Rhodes' letter into evidence during its cross-examination of Mr Neal. Perhaps recognising this, the trial judge relied on the letter in his judgment. There can be no suggestion that the appellants were unjustly prejudiced by the admission and use of the letter, and, in my opinion, the letter is part of the evidence which is available for this Court's consideration.

42 While the additional information which the Board provided to the appellants on 25 November 1985 might help to establish that the Board's advice to its Minister on 11 November was, at best, incomplete, at least from the time of the meeting on 25 November the appellants were aware that, after a "detailed investigation" was carried out by the Board, they could reasonably expect "a significant reduction" in the estimated "immediate cost … in the order of $2.5 million".

43 Mr Smith, whom the trial judge described as "an experienced civil engineer called by the [appellants]", explained what the trial judge described as "Board practices well known to professionals dealing with the Board in relation to water connections for developments and costings concerning them". His Honour continued: "It is manifest that where a development is being contemplated, requiring connection to the Board's water supply, substantial costs might be involved to the Board in making the investigations and doing the calculations necessary to determine what the cost would be should the developer wish to proceed. Where very substantial works might be involved to connect the water it would be unreal for a developer, who might or might not proceed having learned that order of costs involved, to expect the Board to go to the trouble and expense of giving him at the outset a precise costing. If the Board were prepared to supply any information as to the order of cost to the developer the figure provided would be in the nature of what is known as an order of cost estimate. There were well established general engineering levels of costing. These levels were not peculiar to the Board. The first was that in routine engineering practice the lowest level of costing was an order of cost estimate. The net level, in ascending order, was a preliminary (or "pre-design") estimate. The third was a detailed design estimate. (Generally in engineering practice there was also, where tenders were to be called, a final costing for that purpose. That final level was not appropriate for the requirements of the Board). The three orders of costing which were appropriate to the Board, namely the order of cost estimate, the preliminary estimate and the detailed design estimate were not only ascending in order of accuracy but ascending in order of time. One started with an order of cost estimate. As Mr Smith explained it is very expensive to make estimates when they become increasingly more accurate and, "before you charge ahead to do the design which has a cost you would want to know whether it is worthwhile doing the design". At the order of cost estimate level a margin of error of up to 25% was acceptable, depending upon how much information the estimator had to work on. Further as Mr Smith stated: "It is also recognised within the industry that the Board applies a multiplying factor to its estimates". He explained that as being "a very large factor of safety to estimates". The factor applied was to multiply the estimate by 1.35. Board calculations which are in evidence confirm that this indeed was the practice - at least at the order of cost estimate stage which presupposes no minimum site investigations, tests or the like."

44 His Honour held that the appellants were aware that the "immediate cost … in the order of $2.5 million" stated by the Board was "simply an order of cost estimate for guidance [to the appellants] as to whether it was worth pursuing the matter…. moreover, the figure would be very much on the conservative side for the Board's protection and there was a figure which, if the matter were pursued …, was likely to come down considerably. The Board would not have incurred any substantial costs, if any at all, to the stage of the memorandum and draft letter complained of, in particular investigation and design work for it. That would come later [if the appellants] having considered the ball-park figure decided to proceed and did so."

45 Consistently with his earlier remarks concerning the Confidential Ministerial Submission which the appellants had prepared for Mr Carr, his Honour also held that the appellants would have understood that they "… would be expected to pay upfront Hence the reference to "immediate cost". the whole of the cost of what the Board considered necessary to get the water to [their] proposed development without in any way imperilling the capacity of the Warragamba Township supply system to meet the anticipated future demands upon it (including from extensions of the system). … The basic, inflexible requirement was that the Board's funds and resources were not to be diverted, at all, from its fundamental obligation to attend to the water requirements, including future needs, for the area for which the system was designed".

46 As requested by Mr Geraghty in his letter of 25 November 1985 to the Board, and as expected by Mr Rhodes according to his letter of 26 November to Mr Neal, the Board embarked on a more detailed assessment of the cost which would be involved in supplying water to the appellants' land. The trial judge found that the Board was "moving towards the second level of costing, that is the preliminary (or pre-design) estimate", when , on 10 January 1986, Mr Neal telephoned stating that "… he had been placed in receivership and was anxious to receive advice from [the Board] before the Penrith Council meeting on 4 February". Thereafter, "the Board moved with dispatch". On 29 January 1986, the Board informed the appellants' solicitor of a revised cost estimate of $1.7 million, for the following items: "1 1100 metres of 375 mm Rising main in Board's property from Megarrity's Creek Pumping Station. 2. 1700 metes of 375 mm main in Silverdale Road. 3. 120 metres of 300 mm main, 985 metres of 200 mm main and 635 metres of 150 mm main in Greendale Road." 47 Since the land was not sold until 25 May 1988, it is difficult to see why the anticipated cost of subdivision should have been based on an estimate of $2.5 million, not $1.7 million, for the supply of water to the land. Indeed, as early as 1986, the appellants were made aware by the Board that even the $1.7 million figure was likely to change, when the Board wrote to the appellants' solicitor stating: "As discussed, the cost of $1.7 million … is not a firm cost but was an indicative estimate given to enable your clients' planning to proceed …. A firm cost for the necessary amplification and reticulation works would be given … after conditional approval of development by the relevant local Councils."

48 The trial judge rejected not only the appellants' allegations that the estimated cost "in the order of $2.5 million" referred to in Mrs Crosio's letter to Mr Watkins was deliberately or negligently overstated by the Board but also an alternative position which the appellants sought to adopt via the evidence of Mr Smith that the cost of $1.7 million referred to in the Board's letter of 29 January 1986 to the appellants' solicitor was also deliberately or negligently overstated. His Honour found that "the cost for the works as detailed in respect of the $1.7 million was reasonable", and said: "Mr Smith criticises also what may be called the second stage figure, that is the letter dated 28 January 1986 to Mr Neal's solicitor setting out the works required "at a estimated cost of $1.7 million"… Notwithstanding the particularisation of the site, length and dimensions of the piping involved Mr Smith expresses the opinion that this is another order of cost estimate rather than a preliminary (or pre-design) estimate. He acknowledges, however,, that the divisions between the various levels of estimation are "rubbery" and that this second stage figure does involve these specifications to which I have referred. He expresses surprise that there are not detailed calculations on the Board's records as to how these specifications were arrived at. It is unlikely that these figures were simply plucked out of the air. Nor were they figures arrived at without further study. I accept that the flow testing of the headworks had demonstrated that they were still producing well below their design capacity - despite the opening of the valve. It is not to the point whether technically the second-stage figure should be described as another order of costs estimate or as a preliminary (or pre-design) estimate. Insofar as they might arguably fall short of being comfortably within categorisation as a preliminary estimate the explanation, probably, is that they were being pushed out quickly by the Board in commendable response to Mr Neal's pleas for urgency in the light of the appointment of the liquidator."

49 An alternative case that the Board's estimated cost of $1.7 million for the amplification works in January 1986 was deliberately or negligently misstated was neither pleaded nor argued in this Court, and need not be considered. Conversely, the fact that the appellants knew that the estimated cost "in the order of $2.5 million" was likely to significantly reduce does not necessarily answer the appellants' case that the Board's reference to that amount was a deliberate or negligent misstatement and a breach of a duty owed by the Board to the appellants. Because of the manner in which the trial has been split, it is necessary to consider that issue although other deficiencies in the appellants' case might ultimately make it immaterial.

50 In order to decide whether the Board breached a duty to the appellants by alleged misstatement, it is necessary to consider in more detail the Board's attitude to the appellants' attempts to obtain a water supply for the land from the Board prior to the meeting on 25 November 1985, and the basis upon which, in that month, it made the statement concerning "immediate cost" which the appellants alleged was deliberately or negligently inflated.

51 The Board pumped water uphill from the Warragamba Dam through a water treatment plant at Warragamba to the North Warragamba Reservoir, And other reservoirs. and then provided water to Wallacia by gravity flow through mains from that reservoir, which was also the source of water for the more remote townships of Mulgoa and Luddenham. In accordance with the Government's "Urban Development Program", which sought to direct urban development into appropriate areas having regard to infrastructure costs associated with the provision of services, including reticulated water, the Board's Wallacia system did not extend to land zoned "rural". While the appellants' land was located in close proximity to part of the Board's system at Wallacia, there were other potential demands on the system, including anticipated increased usage from the subdivision of land already zoned for residential development.

52 A file note concerning a meeting of the Board of 6 February 1984 includes the following passage: "The proposed subdivision at Wallacia does have mains nearby which are fed from the Warragamba Water Treatment Works. The existing mains are fully committed to the present development and to supply such a large new area would require major and extensive amplification works all the way back to the Treatment Works or, alternatively, to the Warragamba pipeline. In the latter case a new water treatment works would also be required.

While no detailed investigations have been carried out, it is assessed that the cost of those amplification works would be in the order of $11M on top of which the developer would have to provide the necessary reticulation works. The imposition of a charge for the amplification works is in accord with current practice for all such amplifications required upon rezoning."

53 Under the subheading "Wallacia-Mulgoa", a memorandum prepared in May 1984 by the Board's Acting Chief Engineer (Investigation) in anticipation of a meeting between officers of the Board and officers of Penrith City Council stated: "The present system design capacity is approximately 14ML/d compared to a present total demand of approximately 8 ML/d.

(iii) However, full development within existing zonings of areas presently supplied would create a demand of approximately 19 ML/d.

Warragamba Township 5.8 ML/d Silverdale 7.2 ML/d Wallacia 1.7 ML/d Mulgoa 1.3 ML/d Luddenham 1.4 ML/d rural dev. enroute 1.6 ML/d 19.0 ML/d

(iv) Significant amplification will therefore ultimately be required to meet the demand of full development within existing zonings. Under present policy the Board will fund the necessary works.

(v) The present system capacity of 14 ML/d is capable of being amplified to a capacity of 22 ML/d but at a cost of some $7-$10M.

(vi) Rezonings as proposed … for Wallacia and Mulgoa … would create a demand of 4.5 ML/d over and above the presently expected full development demand of 19 ML/d (see item iv)."

54 Shortly before the Board provided Mrs Crosio with its memorandum and draft letter to Mr Carr on 11 November 1985, the Acting Water Systems Planning Manager of the Board, Mr Clayton, wrote two memoranda, dated respectively 18 and 29 October 1985, to the Policy and Co-ordination Unit, which co-ordinated policy matters between the Department of Natural Resources and other Government departments and was responsible for furnishing information which other Ministers had requested from the Department of Natural Resources. In October 1985, the Board also provided Mrs Crosio with answers to a number of questions raised by another Member of Parliament, Mr Mochaliski, who had been approached by Mr Neal. The Board's memoranda of 18 and 29 October 1995 to the Policy Co-ordination Unit and of 11 November 1995 to Mrs Crosio and its answers to the questions indicate that its general position with respect to the supply of water in connection with the residential development of land zoned "rural" in Wallacia was as follows: (a) The water supply system servicing the Wallacia, Mulgoa and Luddenham areas was limited in capacity and designed to service land use in accordance with the current zoning, and inadequate to provide water to additional "rural" zoned land which was rezoned to permit its residential development.

(b) The extent of the demand at Wallacia affected the water supply at the extremities of the material system at Mulgoa and Luddenham, where water pressures had been substandard on occasion.

(c) "Full development, within the existing zonings … [would] create a supply demand of approximately 20 megalitres/day which [was] in excess of the present system's capacity. Further staged amplification of the existing system (in accordance with the overall design) [would] therefore be progressively undertaken as warranted by development within these existing zonings. While these amplifications of the water-pumping station, water treatment works and mains have not been costed, it [was] anticipated that when required, they would involve an expenditure of some $10 million".

(d) An increase in the land at Wallacia zoned for residential development would increase the potential demand on the headworks.

(e) Amplification costs [were] a function of the extent of the additional rezoning to be supplied and [could not] be determined in advance of the fixing of the size of a rezoning proposal.

(f) The extent of the additional demand and the nature and cost of the work necessary to supply that demand could not appropriately be assessed by reference to the rezoning of only one area of land zoned "rural" for residential development. If water was supplied to the [appellants'] land, other owners of rural zoned land would expect similar treatment by the Board, leading to development pressures on infrastructure which were inconsistent with Government objectives.

(g) Sufficient additional demand imposed on the headworks by new development at Wallacia would necessitate extensive and costly amplification works, involving expenditure of several million dollars and possibly requiring a new system in addition to the existing system.

(h) If undertaken, such amplification work would be inconsistent with the Urban Development Program and contrary to well established policy.

(i) The Board was investigating methods of supplying rural residential development, and developing policy with respect to rural residential demands, standards of service to rural residential properties and alternative types of rural residential development. However, the problem of increased demand on the headworks resulting from new development would remain, irrespective of the method used to reticulate water to such developments.

(j) The engineering and economic analyses needed for completion of a projected policy report were expected to be available by January/February 1986.

(k) "[W]ithin this framework, the Board [was] prepared in general to provide water supply to rural residential areas provided the works [could] be funded by development so as not to affect the Urban Development Program, present or future".

(l) "The Board [had] attempted to treat the representations [on behalf of the appellant] as sympathetically as possible, yet … [had] been unprepared to depart from the principles that urban planning should be done by the Department of Environment and Planning, not the Board, and that Government urban development priorities should not be set aside. In these circumstances, and particularly bearing in mind the financial implications, the Board … [adhered] to the established principle that the developer should fund the provision of water services."

55 The trial judge considered that it sufficed "to treat the headworks as limited to the pumping station, the mains to it from the water treatment works (called rising mains because the water was pumped uphill) and the water treatment works themselves". Whether or not that was correct, the amplification work envisaged by the Board also included other "mains", including mains from the water treatment work to the reservoir and from the reservoir to the land. Further, as will be seen, neither of the Board's two estimates of cost, "in the order of $2.5 million" in November 1985 and $1.7 million in January 1986, included amplification work on the pumping station or the water treatment works.

56 Under the heading "The Practicalities of Planning by the Board", the trial judge said: "…The headworks were the foundation of the Board's whole reticulation system of the whole of the Township of Warragamba supply system. … amplification of the headworks could not be done on an ad hoc basis of a small amplification of them every time a new developer on land previously zoned rural wanted the water connected, the amplification being no more than that needed to supply to the system the additional amount of water which his particular development would be likely to consume…. The Board would be acting stupidly if it did not require any further piping between the pumping station and the water treatment works to be of standard size appropriate to sensible planning and economies of scale. Similar considerations apply to the water treatment works themselves. It follows that any particular work contemplated as necessary for a satisfactory scheme to serve [the appellants'] development clearly was likely to be more extensive, and expensive, than the cost of the minimum work necessary to add to the Board's system an amount of water equivalent to the demand which would be generated by [the appellants'] subdivision. The work done, necessary to service that subdivision, had to be work compatible with the discharge by the Board of its functions to supply an entire major reticulation system. …

The Board was fully entitled confidently to anticipate that Mr Neal would not read the letter as meaning that a scheme 'satisfactory only to serve' his development would add no more to the system's capacity than the precise amount of water his development would consume."

Neither in that passage nor elsewhere did the trial judge explain his understanding of what the Board did mean when it said that an "immediate cost … in the order of $2.5 million" would pay for a "scheme" which "would be satisfactory only to serve the development proposed by [the appellants]".

57 The appellants' case that the Board deliberately or negligently misstated the estimated 'immediate cost" was substantially dependent on their attempts to reconstruct the Board's behaviour and state of mind from documents which they obtained from the Board. Their witness for that purpose was Mr Smith, but the trial judge was "… satisfied, on balance of probability that the basis upon which Mr Smith has expressed conclusions in relation to the $2.5 million figure was incomplete and was inadequate for the purpose for which Mr Smith used such of the data as found its way into the [discovered] records of the Board." I do not understand that passage to suggest some deficiency in the Board's discovery. Rather, his Honour seems to have considered that the few pages which contained potentially material information, mostly if not entirely handwritten, did not fully record the Board's information or adequately indicate the course which it had followed in arriving at an estimated immediate "cost … in the order of $2.5 million".

58 As earlier indicated, the Board did not call evidence although there was no suggestion that appropriate Board officers, Messrs Ell, MacLachlan and Clayton, were not available. In dealing with the Board's omission to call evidence, the trial judge said: "… the onus is on the [appellants] to show negligence. It is not on the Board to show how it made its calculations and what they mean. I do not infer from the fact that the Board did not call Mr Clayton, Mr MacLachlan or Mr Ell and gave no explanation for not calling them that evidence which they could have given would not have assisted the Board. I consider it was reasonable for the Board not to call them. It was not mounting an affirmative case. It was the plaintiffs who bore the onus…."

59 I am unable to agree. As will emerge, there are aspects of the contents of the Board's documents which call for explanation and the lack of any attempt by the Board to provide that explanation provides a foundation for an inference that the evidence available to the Board would not have assisted it.

60 As appears from paragraph 27, the Board's position in October/November 1985 according to its memoranda at that time and the answers which it provided to questions raised by Mr Mochaliski was that works needed to supply water to the appellants' land would include amplification work to the pumping station and the water treatment works. However, that was not stated in the Board's draft letter for Mrs Crosio to send to Mr Carr, or in her letter to Mr Watkins. The "… immediate cost … in the order of $2.5 million" to amplify the Board's system so that "… it would be satisfactory only to serve the development proposed by [the appellants]" did not include amplification of the pumping station or the water treatment works. One of the Board's internal handwritten documents indicated that the "$2.5 M figure" included "$1.4 M" for a rising main from the pumping station to the water treatment works, "$1.0 M" for "2 km of 300 mm main" from the water treatment works to the reservoir, and "$0.1 M" for "local amplification".

61 Similarly, (as appears above), according to the letter dated 29 January 1986 from the Board to the appellants' solicitor, the only amplification work required to supply water to the appellants' land (which was estimated to cost $1.7 million) was: "1 1100 metres of 375 mm Rising main in Board's property from Megarrity's Creek Pumping Station. 2. 1700 metres of 375 mm main in Silverdale Road. 3. 120 metres of 300 mm main, 985 metres of 200 mm main and 635 metres of 150 mm main in Greendale Road." 62 One set of calculations carried out by officers of the Board sought to determine what proportion of the additional water supply which the amplification works would make available would be required for the appellants' land and to ascertain the corresponding proportion of the estimated costs of the total amplification works. The purpose of that exercise was not revealed. The amount arrived at by those calculations was far less than $2.5 million. However, the Board did not put the " immediate cost … in the order of $2.5 million" forward as an estimate based on the relationship between the quantity of water to be supplied to the appellants' land and the total additional water supply which would become available from the amplification works which it considered appropriate if water was to be supplied to allow the appellants' land to be developed.

63 The appellants also criticised the Board's statement that an "immediate cost … in the order of $2.5 million … would be satisfactory only to serve the development proposed by [the appellants]". Amplification works which would cost "… in the order of $2.5 million …" would obviously increase the system's capacity beyond what was needed to supply the appellants' land. The development of that land would require only a proportion of the additional volume of water which the amplification works would make available, consistently with the Board's frequent statements that the supply of water to the appellants' land would lead to requirements for water to be supplied to other land zoned "rural" to permit its residential development and any amplification works for the purpose of supplying the appellants' land had to take account of the additional demand which would ensue. Although infelicitously expressed, the statement that an "… immediate cost … in the order of $2.5 million … would be satisfactory only to serve the development proposed by [the appellants'] land" in context confirmed the earlier statement that amplification works " … to serve rural residential development in the Wallacia area would cost "… in the order of $7 to $10 million", which "… would provide for "around seven similar developments" to that proposed by the appellants. I consider that no more was meant by the statement that "… the $2.5 million scheme would be satisfactory only to serve the development proposed by [the appellants]" than that the proposed amplification works were no greater than was appropriate to supply the appellants' development.

64 However, that conclusion serves to emphasise the appellants' most substantial complaint concerning the Board's statements. The "immediate cost … in the order of $2.5 million" included $1.4 million for an amplified rising main from the pumping station to the water treatment works. According to the Board's letter of 29 January 1986 to the appellants' solicitor, this involved 1100 metres of 375 mm pipe. Prior to the meeting between the Board's and the appellants' representatives, although quite likely after the Board's memorandum and letter were provided to Mrs Crosio on 11 November 1985, one of the Board's officers appears to have proceeded on the basis that 2300 metres of 375 mm pipe was required, and, on that footing, calculated a cost of almost $700,000. Another, more senior officer "multiplied" that figure by "difficulty" to more than double it to $1.4 million. No evidence was given in explanation or justification of that course, which departed significantly from the factor of 1.35 which the Board ordinarily adopted. In these circumstances, I am satisfied that the inference should be drawn that the Board had no reasonable basis for the major component in the "immediate cost … in the order of $2.5 million", namely, the amount of $1.4 million for a rising main from the pumping station to the water treatment works. I am conscious that this conclusion differs from that of the trial judge, but am satisfied that it is permissible to reject his Honour's decision on this point conformably with the established principles concerning appellate deference to factual findings at trial.

65 The appellants also relied on a somewhat curious statement in the Board's handwritten documents that the $1.4 million for the rising main from the pumping station to the water treatment works was "not required", at least "immediately", which was contrasted with the Board's reference to "immediate cost". The trial judge considered that the fact that it was not necessary to expend the money immediately "… did not mean that the Board would not require [the appellants] to pay upfront the cost of the amplification required so that the supply of water to [their] subdivision would not diminish the water available to not only existing users but potential future users of water from the Board's system. The cost to [the appellants] was going to be an immediate cost". While I consider that his Honour's explanation does not sit comfortably with the language of the Board's material statement, I am not persuaded that the Board's omission to call evidence warrants an inference that the Board's misstatement was deliberate.

66 The appellants further relied on the fact that, when water was supplied to their land after its sale in May 1988, the cost was even less than the Board's estimate of $1.7 million in January 1986. As the trial judge observed, the work which the purchaser-developer was required to pay for "did not include any amplification of headworks or even amplification of the rising main from the water treatment works to the North Warragamba Reservoir". However, a conclusion that the Board maliciously or negligently misled the appellants in 1985/1986 cannot be drawn from its position some time after May 1988. Indeed, the appellants did not even prove when or why the Board's change in position occurred. The trial judge, who delivered judgment on 26 July 1996, said that the works ultimately required by the Board were then still not "fully completed".

67 In summary, I am of opinion that the trial judge correctly concluded that the appellants did not establish their claim against the Board for misfeasance in public office. However, the Board failed to exercise reasonable care when it informed its Minister on 11 November 1985 that the "immediate cost to connect [the appellants'] proposed development would be in the order of $2.5 million …" and that "… the $2.5 million scheme would be satisfactory only to serve the development proposed by [the appellants]".

68 The remaining question is whether that failure constituted a breach of a duty owed by the Board to the appellants to "… use reasonable care in and about the truth, accuracy and reliability of statements and advice communicated to the [appellants] in connection with their applications for water supply…" and "… to make its decisions with reasonable care and skill having regard to proper and reasonably relevant criteria…". Amended statement of claim, para 14. More specifically, the question is whether the Board had a duty to the applicants to provide a reasonably accurate "… order of costs estimate" of the cost of supplying water to the appellants' land, to adopt a phrase used by the trial judge.

69 The decisions of the High Court Most recently Perre v Apand Pty Ltd [1999] HCA 26 (12 August 1999). in relation to damages for economic loss for negligent misstatement demonstrate that the material legal principles are not finally settled and that there are sometimes subtle distinctions between what is and what is not sufficient to maintain such a claim. Judicial comments aimed at confining claims for such losses on policy grounds are frequently associated with particular circumstances and not easily applied to other contexts. For example, although the same principles are generally applicable to misstatements by public authorities and other parties, See eg Rennie v The Commonwealth (1995) 61 FCR 251; Woollahra Municipal Council v Sved [1996] Aust Torts Reports 63,545 (81-398)(CA NSW); Bamford v Albert Shire Council [1998] 2 Qd R 125. in the case of public authorities a distinction is sometimes drawn between "policy" decisions, and "operational" decisions and the opinion has been expressed that the former cannot be made the subject of a duty of care. See for example, The Council of the Shire of Sutherland v Heyman (1985) 157 CLR 424, 468-469, per Mason J. That is not universally accepted. See Air Services Australia v Zarb (CA40570 of 1997, unreported, 26 August 1988, and cases cited by Rolfe AJA; special leave to appeal was refused by the High Court on 14 April 1999). It is unnecessary to pursue the point on this occasion. The misstatement made by the Board was not concerned with policy. Further, there was no evidence to suggest that the policy issues which the Board was developing or revising at the time when it made the misstatement, and the associated engineering and economic analyses which it was conducting, might have affected its "order of costs estimate" for the supply of water to the appellants' land or directly or indirectly affected either the existence or the performance of any duty which the Board owed to the appellants. 70 It is important in considering whether the Board owed a duty of care to the appellants not to stray beyond the limited issues which the unsatisfactory procedure adopted at trial raises for present consideration. Thus, for example, whether or not the appellants relied Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, 251, 263, 301. on the Board's misstatement is not presently in contention. Reference has earlier been made to some of the potential problems which the appellants face in relation to proof of loss and causation. Their amended statement of claim passes over any difficulty which might have been encountered, e.g., from the Minister for Planning and the Environment, in obtaining the rezoning of the appellants' land which was necessary for its development; according to the appellants, the obstacle to be overcome to enable development to proceed was obtaining the Board's "… agreement to provide water to the development". Amended statement of claim, para 6. Assuming that to be so, the Board's misstatement did not deflect the appellants from their purpose. As previously noted, they requested the Board to proceed to the next stage of cost investigation, which was provided to the appellants by the Board's letter of 29 January 1986.

71 In considering whether the Board owed the appellants a duty of care, it is also important not to let the somewhat unusual circumstances of the parties' dispute, or the appellants' puzzling behaviour, distract attention from the alternatives between which the Court must choose at this point in the litigation. The Board either owed the appellants a duty to provide a reasonably accurate estimate of the "order of costs" of supplying water to their land, or, so far as the appellants' legal rights vis-a-vis the Board are concerned, it was at liberty to provide a careless, even a reckless estimate of the "order of costs" despite any financial detriment which the appellants might incur in reliance on that estimate. The Board did not dispute that it had responsibilities to the Executive Government which required it to provide accurate information to its Minister. On the hypothesis now under consideration, its argument is that a breach of its obligation to the Executive Government did not involve a breach of duty to the appellants because it did not owe them any duty.

72 The trial judge held that the "relationship between the parties" was not such that the Board would have reasonably seen a "relevant risk of purely economic damage to the [appellants] if the figure [of $2.5 million] was in excess of an order of costs estimate … arrived at by the exercise of reasonable care … and reasonable skill appropriate for such an estimate". More simply, his Honour considered that the Board would not have reasonably foreseen that its careless misstatement that the "immediate cost" of a "scheme [which] would be satisfactory only to serve the development proposed by the [appellants]" would be "in the order of $2.5 million" would cause the appellants economic loss. As I understood the Board's argument in this Court, it sought to support that conclusion not on the basis that the Board would not have expected its misstatement to be communicated to the appellants but on the footing that it would not reasonably have expected its misstatement to be relied on by the appellants, and, perhaps, that they were not entitled to do so.

73 The Board clearly expected its misstatement to be communicated to the appellants, as is emphasised by the trial judge's findings which are referred to in paragraphs 15 to 17. Both the surrounding circumstances and the contents of the letter which the Board prepared for Mrs Crosio to send to Mr Carr, including the final paragraph of that letter, indicate that the Board's evident purpose was to state its position in a convincing way in order to influence both the politicians and the appellants. As the letter from Mrs Crosio to Mr Carr stated, and as in fact occurred, the Board was prepared to meet with the appellants to discuss their respective aspirations, requirements and concerns. The Board recognised that the supply of water to the appellants' land in connection with their residential development against the Board's wishes was a real possibility. If water was to be connected to the appellants' land, the Board wanted a "scheme" which "would provide for around seven similar developments" in the Wallacia area to that proposed by the appellants at a "cost in the order of $7 to $10 million". However, that was not the Board's preferred option. It remained opposed to the residential development of any land zoned "rural" at Wallacia because it did not wish to supply water to that land. If the Board did not convince the politicians to support it, its best chance of the appellants not proceeding with their development lay in their assessment that the cost of water supply would be too high. The Board's assertions that an "immediate cost to connect [the appellants'] proposed development would be in the order of $2.5 million" and that that amount would "…only … serve the development proposed by [the appellants]" were an integral part of its attempt to influence the outcome of the appellants' efforts to obtain a water supply to enable them to develop their land and their decision whether or not to proceed with the development.

74 The findings by the trial judge referred to in paragraphs 15-17 underpinned his Honour's conclusion that the Board did not expect the appellant to rely on its "figure" of $2.5 million. The essential reason for that conclusion was that it was "an order of costs estimate", which was likely to be significantly reduced. However, such a proposition is inconclusive. While the appellants could not reasonably rely on the Board's "order of costs estimate" as an accurate indication of the actual final cost which would be involved if their development proceeded, conversely the Board could not reasonably expect the appellants not to rely upon the amount which it estimated for what it was; i.e., an "order of costs" estimate. The trial judge's findings established that it was ordinary practice for an "order of costs estimate" to be used as the basis for a decision concerning "… whether it was worth pursuing [a] matter…" to the next level of investigation of the likely cost. An "order of costs" estimate provided an upper limit as a starting point for the appellants' decision whether or not to proceed with their proposed development, and was obviously considered significant enough for the Board to include the amount in its advice to its Minister and its draft of the letter to be sent from Mrs Crosio to Mr Carr, who was expected to communicate it to the appellants. The Board's "order of costs estimate" was, to its knowledge, important to the appellants, who, as the Board knew, would reasonably have expected the "order of costs estimate" to have been prepared with reasonable care within the parameters of the Board's usual approach to such estimates. The Board was in a unique position to estimate the "order of costs" of supplying water to the appellants' land, and the appellant had been pressing the Board to inform them of the cost for about three years.

75 Not only was the Board's "order of costs estimate" intended to influence the appellants' decision whether or not to proceed with the development of their land, it was apparent to the Board that the development was intended to profit the appellants, and a decision by them not to proceed to the next stage because the "order of costs estimate" was too high would lose them a specific financial opportunity.

76 Perre [1999] HCA 26 reaffirmed that foreseeability of economic loss to another does not, of itself, establish a duty to take reasonable care to avoid causing such loss, that there is, as yet, no general principle to determine whether or not such a duty exists, and that a general principle will not emerge until there is a sufficient body of cases decided on their particular facts. While that process evolves, individual cases will be decided by comparison with decided cases and by reference to material circumstances and policy considerations.

77 The existence or absence of a relationship between the parties, the dependence of a party vulnerable to loss upon a party asserted to be under a duty of care, the number of vulnerable persons and the nature and extent of their possible claims, the control exercisable and responsibility assumed by a person asserted to be under a duty of care, the degree of foreseeability of reliance by a vulnerable party on the other party and the degree of foreseeability of loss by a vulnerable party, and of the magnitude of that loss, and, arguably, the degree of departure from standards of reasonableness are potentially material factors. The latter possibility is not without its difficulties, but might include foreseeable economic loss caused to a vulnerable person by, for example another's reckless conduct.

78 In my opinion, the circumstances discussed above imposed a duty on the Board to exercise reasonable care in relation to the Board's "order of costs estimate" for the appellants. As noted above, I am satisfied that the Board had no reasonable basis for its "order of costs" estimate. I am unable to accept that the Board had no legal responsibility whatever to the Board, even not to act recklessly.

79 Statements in some of the authorities suggest that the circumstances which are contended to give rise to a duty of care in a case of negligent misstatement should be pleaded. See, for example, Esanda Finance Corporation (1997) 188 CLR 241, 252, per Brennan J. However, this appeal was not argued on the basis of pleading deficiencies and the appellants should not be shut out at this point in the litigation on that footing. Plainly, they will have considerable difficulties in succeeding at trial on their present amended statement of claim.

80 The conclusion that the Board owed a duty of care to the appellants contradicts the fundamental proposition upon which the trial judge's decision in favour of the Board was grounded. Although it gave a notice of contention related to another matter, the Board did not argue that the decision below could be supported notwithstanding a finding that it breached its duty to the appellants. The judgment below should therefore be set aside. 81 The appeal should be allowed with costs, and a declaration made that the Board breached its duty of care to the appellants in November 1985 by informing its Minister for communication to the appellants that the "immediate cost to connect [the appellants'] proposed development [to the Board's water supply] would be in the order of $2.5 million" and that "the $2.5 million scheme would be satisfactory only to serve the development proposed by [the appellants]". The action should be remitted to the Administrative Law Division to determine all remaining issues. The costs of the proceedings to date, other than the costs of the appeal, should be paid by the Board to the appellants if they obtain a judgment for damages against the Board. If the appellants do not obtain a judgment for damages against the Board, the costs of the proceedings to date, other than the costs of the appeal, should be paid by the appellants to the Board.

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