Tepko Pty Ltd & Ors v Water Board

Tepko Pty Ltd & Ors v Water Board - [1999] NSWCA 40 - NSWCA 1999 case summary — Zoe

[18]

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:

[37]

(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.

[39]

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.

[40]

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.

[98]

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."

[102]

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."

[141]

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.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (152 paragraphs)

Parties

Cases Cited (10)