TNT Australia Pty Ltd v CMW Design & Construction Pty Limited & ors

5. In Boral Resources (Vic) Pty Ltd v Robak Engineering and Construction Pty Ltd [1999] VSCA 66; (1999) 2 VR 507, the Court of Appeal held that the provisions of ss.131 and 132 of the Building Act would justify the joinder in appropriate circumstances of a party as a defendant, at the instance of an existing defendant, notwithstanding that the plaintiff had no wish to join such party as a defendant. What the existing defendant has to show, in effect, is that there may be a question between the existing defendant and the proposed defendant which arises out of or relates to or is connected with any claim made in the proceeding, and it is just and convenient to determine that question both between the defendant and the proposed defendant and the defendant and the plaintiff. The question, of course, is whether the proposed defendant is liable to the plaintiff in relation to some aspect of the plaintiff's claim so that the said provisions of the Building Act (abolishing joint and several liability) become relevant. In Boral Resources, there were two appeals before the Court of Appeal in two separate building cases. In the first building case, the plaintiff (Robak) was a head contractor which had sub-contracted some concrete work to the proposed defendant (Foster Hall) which in turn had obtained the required concrete from the existing defendant (Boral). It was alleged by Robak that the concrete supplied by Boral was defective and Robak brought the proceeding for damages against Boral. Boral denied Robak's allegations, but also alleged that other persons were responsible for Robak's damages, including Foster Hall, which it contended had been negligent in the performance of the works and in the provision of information to Boral in respect of the supply of concrete. For present purposes, it is sufficient to note that it could not have been successfully contended that there were no arguable causes of action by Robak against Foster Hall. In the other proceeding the subject of the appeal to the Court of Appeal, the plaintiff (Wimmera Mallee Rural Water Authority - "the Authority") had engaged the defendant (FCH) to provide it with contract administration and design checking services in respect of a water storage tank. FCH recommended as the contractor, to design and construct the tank, a company (R&L) and that recommendation was accepted by the Authority. The Authority issued a proceeding against FCH for damages and FCH joined R&L as a third party, and sought to have it treated, or added, as a defendant. Again, it could not have been successfully contended that there were not arguable causes of action by the Authority against R&L. Consequently, once the Court of Appeal had decided that it was open to join additional defendants at the instance of an existing defendant, there was little difficulty in concluding that Foster Hall and R&L should be added as defendants in the two cases before the Court. I note that, in cases where there is no arguable cause of action between a plaintiff and a proposed added defendant, the existing defendant may nevertheless be able to join such proposed added defendant as a third party but, in order to do so, there will have to exist an arguable cause of action by the existing defendant against such third party, and not merely a claim for contribution under the Wrongs Act.

8. In Wimmera-Mallee Rural Water Authority v FCH Consulting Pty Ltd [2000] VSC 102 (one of the building cases involved in the Boral Resources appeal) the defendant (FCH) sought to add another defendant (MGZ), which allegedly prepared the design of the tank for R&L. FCH alleged that MGZ's design work was performed negligently. The Authority opposed FCH's application to add MGZ as a defendant on the basis that it did not appear that the Authority had any cause of action against MGZ. Byrne J said at [8]:

"What was submitted to me on behalf of the Authority was that FCH must demonstrate that there exists a viable cause of action in the Authority against MGZ and that this demonstration must be based on proper material. In my opinion, the question whether a cause of action is viable in this sense requires the application of the conventional pleading test. Accordingly, I should treat the cause of action as viable unless I am satisfied that it is clearly hopeless. In a case such as the present, FCH must show to that standard that MGZ owed a duty of care to the Authority, that it was in breach of that duty and that the damages which the Authority claims were, in part at least, caused by this breach. Since the application is not a true pleading application, but an application to join a party, the applicant must adduce material, including, if need be, hearsay in accordance with Rule 43.03(2), sufficient to satisfy the court of these matters..."

12. Byrne J said that, in the case of a claim in negligence for pure economic loss, as this was, something more than mere foreseeability of loss was required to establish a duty of care and that a special relationship had to exist between the Authority and MGZ. Byrne J said that on the material before the Court, it did not appear that the Authority relied in any way upon MGZ's design. Byrne J concluded that there was a "total absence of pleaded facts" on matters relevant to the existence of a cause of action by the plaintiff against the proposed defendant and that FCH had not shown an arguable basis for its claim that MGZ was at least partly legally liable to the Authority for its loss.

15. In Wimmera-Mallee Rural Water Authority v FCH Consulting Pty Ltd (No. 2) [2000] VSC 193, the application by FCH which had been refused in the earlier case was renewed on further material (it does not appear that any objection was taken to this course). Byrne J adopted the same approach to the application which he had outlined in the previous application (see above). Byrne J said that he would apply the "conventional pleading test as the measure by which the prospects of success of the claim are to be judged". His Honour concluded that the defendant had still failed to discharge the burden of satisfying the Court that the joinder was proper in circumstances where the existence of a duty of care was not self evident. His Honour listed a number of matters which tended to raise concerns as to the existence of any duty of care and which had not been examined in any detail before him.

18. In Hampton Park Central Pty Ltd v Australian Safeway Stores Pty Ltd [2000] VSC 422, the plaintiff, Hampton Park, sought damages from the defendants, Safeway and Woolworths, in relation to alleged defective paving in a shopping centre car-park. The causes of action included misleading and deceptive conduct and the alleged breach by Woolworths (as builder) of obligations which had been assigned by Safeway to Hampton Park under a contract of sale. Woolworths applied to add as defendants, alternatively as third parties, two companies involved in the construction of the car-park (one company, Uniscan, was the project manager engaged by Woolworths and the other company, Gamble, was the consulting engineer engaged by Woolworths, for the project). Byrne J considered whether Woolworths had discharged the onus of showing that there was a "viable" cause of action by Hampton Park against the two proposed defendants in the sense used in the two Wimmera-Mallee Water Authority cases. The application to add Uniscan failed in essence because an arguable case was not shown that it was any part of Uniscan's functions as project manager to supervise the paving work. In relation to Gamble, Byrne J considered that the material showed an arguable basis for alleging breaches of design responsibility by Gamble but that the question remained whether Gamble owed to Hampton Park, as the purchaser of the shopping centre from Safeway, a duty of care in relation to those design responsibilities. Woolworths relied on the authority of Bryan v Maloney (1995) 185 CLR 609. Byrne J said that he could not be satisfied that the existence of a duty of care was not arguable and accordingly acceded to the application to join Gamble as a defendant.

21. Turning to the present proceeding, it was commenced on 7 December 2001 and there is an Amended Statement of Claim dated 18 March 2002 which contains the following relevant allegations. The plaintiff ("TNT") engaged CMW, which carried on business as architectural designers, civil engineering designers and builders, to design and construct a terminal for heavy duty road transport vehicles, including buildings and internal and external concrete pavements, at Gilbertson Road, Laverton North for a sum in excess of $9M. The engagement was by a contract in writing dated 27 April 1998. The works were completed by CMW but various breaches of contract and acts of negligence are alleged relating to, inter alia, the provision of an inadequate external pavement and the failure of the ground floor slab in "Office 1". CMW, by contract or sub-contract in writing made in April 1998, retained the second defendant ("CSR") to design and construct the concrete pavements. It is alleged that CSR owed a duty of care to TNT and a claim is made against CSR in negligence. A number of claims are also made under the Trade Practices Act 1974 (Cth).

24. The present application by CMW is supported by an affidavit of Ross Antony Donaldson sworn 16 June 2003, a member of the firm of solicitors acting for CMW (there is also a supplementary affidavit sworn by Mr Donaldson on 28 July 2003). Mr Donaldson outlines the nature of the proceeding, and deposes that CMW engaged BH&P to act as it consultant structural and civil engineers for the design and construction of Office 1. He produces a copy of a fee submission letter dated 8 October 1997 which is said to have been orally accepted and further deposes that BH&P did in fact provide the services proposed in that letter. Mr Donaldson summarises the contents of expert reports which state that the Office 1 slab design was deficient and did not comply with the relevant Australian standard. He also refers to certain modifications made to the design of the reinforcement of the slab which were made by a consultant of CSR (namely, Scott Wilson Irwin Johnson Limited, "SWIJ"). The Office 1 footings and slab were constructed according to the BH&P design and the SWIJ slab reinforcement variation. Mr Donaldson deposes that CMW has been advised by counsel that it is proper to join BH&P as a defendant "as it may be found responsible for the loss allegedly suffered by [TNT]". In relation to the question whether BH&P owed a duty of care to TNT, Mr Donaldson refers to "three additional matters". The first matter is that CMW advised TNT that BH&P was part of the design team. The second matter is that TNT appears to be alleging that it relied upon documents in relation to the slab design which mentioned the design contributions of BH&P and SWIJ. The third matter is that communications between the various parties might be taken as showing that BH&P approved or acquiesced in the design modifications made by SWIJ. However, Mr Donaldson deposes that he has expert advice that the reinforcement design modification by SWIJ for the Office 1 slab was insufficient of itself to transfer design responsibility for the foundation system of Office 1 from BH&P to SWIJ, and that the change in the reinforcement pursuant to the SWIJ modification was not relevant to the causes of the deficiencies in the slab.

27. A proposed Statement of Claim is exhibited which alleges, inter alia, that TNT was aware of BH&P's engagement, aware that BH&P had provided CMW with a design for the ground floor slab of Office 1 and aware that CSR had sought BH&P's approval to the change in reinforcement. The proposed Statement of Claim further alleges that BH&P was aware that the works were being constructed for the benefit of TNT, knew or ought to have known that TNT relied upon it to exercise appropriate skill and care and that BH&P assumed responsibility for the proper design of the foundation system of Office 1. Accordingly it is alleged that CMW owed to TNT a duty of care which it broke, thereby causing loss to TNT, and CMW accordingly seeks a judgment as to proportional liability pursuant to s.131(1) of the Building Act.

30. An affidavit in opposition was filed and sworn by Leigh Francis Burns, an engineer and a director of BH&P. The affidavit emphasises the contractual relationship between CMW and BH&P and the lack of any direct relationship by BH&P with TNT.

33. I think it was common ground that, in the present proceeding, CMW (the existing defendant) had to show on the material summarised above that there was an arguable case that BH&P (the proposed defendant) owed a duty of care to TNT and broke that duty. As Tadgell JA said in Boral Resources (at page 510), the Court ought to be satisfied that there is substance to the existing defendant's contention that "there may be a question" in the relevant sense (ie, whether the proposed defendant is liable to the plaintiff) but, even then, there will be room for the exercise of a discretion.

36. The law relating to the existence of a duty of care in this kind of situation where damages for economic loss are claimed is somewhat unclear. It is insufficient to show that it was reasonably foreseeable by a sub-contractor such as BH&P that the proprietor (TNT) was likely to suffer economic loss if it (BH&P) performed its responsibilities without reasonable skill and care. There was, and perhaps still is, considerable authority for the proposition that if there was a relationship of "proximity" between the proprietor and the sub-contractor, sometimes referred to as a "special relationship" or as a " special relationship of proximity", then a duty of care existed or may have existed. However, the authorities have generally recognised that to state that a proximate relationship has been established is to express a conclusion rather than to elucidate the criteria which must be satisfied for reaching that conclusion. A number of judgments, including High Court judgments, particularly more recently, have tended to rely less on any concept of proximity and rather to refer to a number of particular factors in the case at hand which gave rise (or did not give rise) to a duty of care. Throughout the case law, such matters as the particular reliance which a plaintiff has placed on the conduct or proposed conduct of a defendant, and the assumption of responsibility by such a defendant have received emphasis, among many others. A very recent case which exemplifies the many factors which arguably might need to be considered in determining the question whether a duty of care exists in relation to economic loss is Johnson Tiles Pty Ltd & anor v Esso Australia Pty Ltd & ors [2003] VSC 27. The reasons for judgment of Gillard J illustrate the difficulty and complexity involved in determining a question of duty of care in relation to purely economic loss.

39. Authorities which may be thought to generally bear upon this question, very few of which were referred to by Counsel, include Junior Books Limited v Veitchi Co Limited [1982] UKHL 4; [1983] AC 520, Hawkins v Clayton (1988) 164 CLR 539, 574 - 575, Simaan General Contracting Co v Pilkington Glass Limited (No. 2) [1988] EWCA Civ 15; [1988] 1 QB 758, Greater Nottingham Cooperative Society Limited v Cementation Foundation and Pilings Limited [1988] UKHL 4; [1989] 1 QB 71, Henderson v Amadio Pty Ltd [1995] FCA 1300; (1995) 62 FCR 1, 143 - 144, Bryan v Maloney (1995) 182 CLR 609, Minchillo v Ford Motor Company of Australia Limited [1995] VicRp 78; [1995] 2 VR 594, Zumpano v Montagnese [1997] 2 VR 525, Hill v Van Erp (1997) 188 CLR 159, Esanda Finance Corporation Limited v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241, Pyrenees Shire Council v Day [1998] HCA 3; (1998) 192 CLR 330, Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 and cases cited in the preceding cases. I was referred to a decision of the Supreme Court of Queensland (Court of Appeal) in Tod Group Holdings Pty Ltd v Fangrove Pty Ltd [1998] 2 Qd R 236, in which the Court found that there was no duty of care owed to a subsequent owner in a case involving a commercial building where negligent design by a structural engineer was alleged. The Court said that there was no special relationship of proximity in the absence of any finding of an assumption of responsibility or express or known reliance. I was also referred to another decision of the Supreme Court of Queensland (Court of Appeal) in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2002] QCA 88; (2003) 19 BCL 55 in which the Court found that no duty of care to a subsequent owner was owed by a defendant engineer or a defendant project manager in relation to negligent design and construction of a commercial building.[1]

42. One case cited[2] was that of Latrobe Valley Village Incorporated v CSR Limited and Monier Limited (Unreported, Supreme Court of Victoria, J H Phillips J (as he then was), 26 June 1990). In that case, the plaintiff alleged that the defendants or one or other of them had manufactured and supplied roof tiles for 49 residential units erected on land subsequently owned by the plaintiff. It was alleged that the defendants were or ought to have been aware that the tiles would be used for roof cladding without any further examination and with the knowledge that in the absence of reasonable care in their manufacture, damage or injury might result. It was further alleged that the tiles had rapidly deteriorated to a point where they were no longer serving their function as roof cladding. Damages were claimed, being the cost of the replacement of the roofs. The Master had dismissed the plaintiff's pleading on the basis that the statement of claim disclosed no cause of action. On appeal from the Master, His Honour discussed the question of proximity and referred, inter alia, to the cases of the then leading authorities in England of D & F Estates Limited v Church Commissioners for England [1988] UKHL 4; [1989] 1 AC 177 and in Australia of Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424, San Sebastian Pty Ltd v Minister Administering Environmental Planning Act [1986] HCA 68; (1986) 162 CLR 340 and Caltex Oil (Australia) Limited v The Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529. After discussing the arguments of Counsel, His Honour said at page 29 that:

"...I accept that, in sufficiently "special" circumstances, a plaintiff could maintain, in Australia, an action for negligence against, say, a manufacturer or builder where the claim for damages is in terms of pure economic loss...I further accept that relevant proximity can be established in such a claim without the necessity for the presence of the ingredient of reliance in cases other than those of negligent misstatement."

46. Nevertheless, His Honour found that the pleading in the case before him did not show any such "special" circumstances in essence because, as had been submitted on behalf of the defendants, the pleadings did not "support the relevant concept of proximity, and its associated concepts of reliance, assumption of responsibility or special relationship".

49. Mr Neal of Counsel for CMW, reflecting what was alleged in the proposed Statement of Claim against BH&P, emphasised that BH&P was, to the knowledge of TNT, engaged generally to do the structural design for the project, that representatives of TNT were present at some project meetings relating to design matters and that TNT was aware of BH&P's continuing involvement when SWIJ (the engineers engaged by CSR) made some design changes (to which I have referred), but which were not material to the alleged fundamental flaws in BH&P's design. Mr Neal submitted that it was arguable that BH&P had assumed "responsibility for the sufficiency of the slab in its design" and that it was arguable in the foregoing circumstances that BH&P owed a duty of care to TNT.

52. Mr Carr of Counsel for BH&P submitted that the matters relied upon by CMW were insufficient to establish any duty of care owed by his client to TNT. He submitted that the only relevant factor mentioned by CMW was that TNT were aware that BH&P was doing design work on the project and that that was insufficient of itself to found a duty of care to TNT. He said that the material showed that TNT had relied on CMW and not BH&P (although I note that he did not suggest that there was any relevant provision in any contract between CMW and BH&P which might affect the existence, nature or scope of any duty of care). There was no evidence that TNT saw the plans prepared by BH&P or relied on them in proceeding with the project. Mr Carr further submitted that the Court, in its discretion, should refuse to make the order sought because it would make his client a defendant whereas the relatively small aspect of the proceeding involving his client could sufficiently be dealt with by BH&P being joined as a third party (which was not opposed).

55. In my opinion, it is barely arguable on the facts disclosed by the affidavits that TNT relevantly relied upon BH&P's design or its design responsibilities, or that BH&P assumed responsibility in the relevant sense for that design. However, the full facts of the matter are not within the knowledge of CMW, nor is the full evidence of what occurred, including what occurred at meetings, before the Court. The position of TNT at the time, when investigated at trial, may turn out to be one which is supportive of a sufficiently proximate or special relationship (or it may not). It is only at trial that the many factors which the cases show may be relevant to the existence of a duty of care can be properly analysed in the full factual context. Given the uncertain state of the law in relation to the existence of a duty of care in this area, I am reluctant to conclude that CMW's contentions are necessarily without substance, even based upon the somewhat inadequate evidence provided at this stage. I think that sufficient has been shown to support a conclusion that CMW's arguments are not utterly hopeless, based as they are upon the knowledge of TNT and BH&P of the existence and position of each other in the project and of the fundamental importance of the design of the slab. I would also refer to the additional matters discussed in my judgment in TNT Australia Pty Ltd v CMW Design & Construction Pty Ltd & ors (No.2) [2003] VSC 339.

58. Further, as a matter of discretion, I think that the Court should accede to CMW's application because the prejudice and inconvenience to BH&P will be relatively insignificant, given that BH&P would (and will) in any event be joined as a third party in the proceeding.

61. Accordingly, there will be an order for the joinder of BH&P as a defendant in this proceeding. I would ask Counsel to agree upon the appropriate consequential orders. Costs will be reserved.

[1] I was told by Counsel that the High Court had granted special leave to appeal from this decision on 14 March 2003.

[2] In a later hearing involving an application by the second defendant, CSR, a further more recent case was cited, namely Metal Roofing and Cladding Pty Ltd v Eire Pty Ltd [1999] NTCA 104; (1999) 9 NTLR 82.