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 Design and Construction Pty Ltd ("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 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 in relation to the design and construction of "the pavement and Office 1 (including foundations and groundworks)." A number of claims are also made under the Trade Practices Act 1974 (Cth).

24. The present application by CSR is supported by two affidavits of Catherine Michelle Greene sworn 22 July 2003 and 29 August 2003, a member of the firm of solicitors acting for CSR, and an affidavit of Peter John Killeen sworn 4 August 2003.

27. The first Greene affidavit states that CSR seeks to join as a defendant SWIJ, which was the consulting engineer who assessed the design of the external concrete pavement and ground floor slab of Office 1 on behalf of CSR. The proposed Statement of Claim against SWIJ alleges that SWIJ owed a duty of care to TNT based upon the following alleged facts:

(a) SWIJ was aware that the tasks it was performing pursuant to the retainer by CSR were for the purposes of the works at the site being constructed for TNT;

(b) SWIJ knew or ought reasonably to have known that TNT relied upon it to perform its tasks with all due care, skill and diligence;

(c) SWIJ knew that in the event it did not so perform its tasks, then the works would be likely to sustain the defects as alleged by TNT.

33. The Killeen affidavit discloses that Mr Killeen was the Manager of CSR Construction Services and was directly involved in the TNT project. Mr Killeen deposes that TNT was advised by CMW that SWIJ was being used by CSR as design engineer and that SWIJ was at all times aware that the works were for TNT.

36. The first Greene affidavit next states that CSR seeks to join as a defendant V&G Concrete. The proposed Statement of Claim against V&G Concrete alleges that V&G Concrete owed a duty of care to TNT based upon the following alleged facts:

(a) V&G Concrete was aware that the tasks it was performing under its sub-contract were for the purposes of the works at the site being constructed for TNT;

(b) V&G Concrete knew or ought reasonably to have known that TNT relied upon it to perform its tasks with all due care, skill and diligence;

(c) V&G Concrete knew that in the event it did not so perform its tasks, then the works would be likely to sustain the defects as alleged by TNT.

42. Mr Killeen deposes that V&G Concrete was retained by him and was aware that the works were for TNT and that:

"I believe TNT was concerned about concrete performance and expected all tradesmen on site including V&G [Concrete] to carry out their task in a competent and workmanlike manner. ...Ivan Vigliaroni of V&G [Concrete] was present at at least one meeting when these requirements were discussed."

46. An affidavit of Ivan Vigliaroni sworn 29 August 2003 was filed on behalf of V&G Concrete. Mr Vigliaroni deposes neither he nor anyone else from V&G Concrete ever met, spoke or corresponded with any of the representatives of TNT and that V&G Concrete carried out its labour concreting works on instructions received from CSR and subject to supervision by CSR. Mr Vigliaroni further deposes that V&G Concrete undertook approximately 25% of the external pavement concreting works with the remaining majority of the work being undertaken by Boxshall and that Boxshall was not supervised or directed by V&G Concrete but by CSR. Boxshall provided its labour to CSR, not to V&G Concrete.

49. Next, the first Greene affidavit states that CSR seeks to join as a defendant Boxshall, being "the provider of labour work services to V&G Concrete...and [CSR] in respect of the external concrete pavement." The proposed Statement of Claim against Boxshall alleges that Boxshall owed a duty of care to TNT based upon the following alleged facts:

(a) Boxshall was aware that the tasks it was performing under its sub-contract were for the purposes of the works at the site being constructed for TNT;

(b) Boxshall knew or ought reasonably to have known that TNT relied upon it to perform its tasks with all due care, skill and diligence;

(c) Boxshall knew that in the event it did not so perform its tasks, then the works would be likely to sustain the defects as alleged by TNT.

55. Mr Killeen deposes, in relation to Boxshall, that TNT was "aware that further labour would be coming onto the site"; however, his evidence for this seems to relate to CMW rather than TNT and he further deposes that he does not know whether CMW advised TNT of "Boxshall's exact identity" prior to their arrival on site, but that TNT "would have established Boxshall's identity once they commenced work on site." Mr Killeen further deposes that Boxshall provided labour to V&G Concrete and provided concreting works under their direction (which, as I have noted, is denied by Mr Vigliaroni).

58. I think it was common ground that, in the present proceeding, CSR (the existing defendant) had to show on the material summarised above that there was an arguable case that each of the proposed defendants 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.

61. 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 persons such as the proposed defendants that the proprietor (TNT) was likely to suffer economic loss if such proposed defendant 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 a proprietor and some contractually unrelated person, 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.

64. 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] On the other hand, a different approach may be supported by reference to a decision of Riley J in the Supreme Court of the Northern Territory in Proprietors Units Plan No. 95/98 v Jiniess Pty Ltd [2000] NTSC 89 and also a decision of McPhee & Son (Aust.) Pty Ltd v Technopolis Pty Ltd (1998) 13 BCL 189 (South Australian Supreme Court, Bowen Pain J).

67. One case cited 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."

71. 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".

74. Another case cited was Metal Roofing and Cladding Pty Ltd v Eire Pty Ltd [1999] NTCA 104; (1999) 9 NTLR 82, a decision of the Full Court of the Supreme Court of the Northern Territory (Mildren, Bailey and Riley JJ). That case involved three related companies (controlled by Mr and Mrs McElwee). One company purchased certain land, another company was to build a supermarket thereon and the third company (the respondent, Eire Pty Ltd) was the proposed operator of the supermarket. The appellant, Metal Roofing and Cladding Pty Ltd, contracted with Mr McElwee to provide certain building materials within a specified time, but the materials were supplied late, thereby delaying the opening of the supermarket, and causing economic loss to the respondent. The trial judge found that the appellant owed a duty of care to the respondent, that the appellant was negligent, and he awarded damages to the respondent for loss of profits. The majority (Bailey and Riley JJ) dismissed the appeal. Bailey J simply agreed with Riley J, saying at 96:

"The only comment which I wish to add is to emphasise the present disgraceful uncertainty in the law dealing with claims for pure economic loss in negligence. Both Mildren J and Riley J refer to having found nothing to change their opposing views in the present matter by reference to the High Court's recent decision in Perre v Apand Pty Ltd... Similarly, I have laboured through the 437 paragraphs (and a good deal of the material referred to in the 539 footnotes) of the seven judgments upholding that appeal. With the greatest of respect, there is nothing there in terms of agreement on basic guiding principles to assist with resolution of claims such as the present. I appreciate that these observations will be of no comfort to either the appellant in the present matter or countless future litigants until such time as there is consensus as to the fundamental principles in this branch of the law of tort."

78. Riley J agreed with the reasoning of the trial judge in relation to the existence of a duty of care which was based upon the appellant's knowledge that the supermarket was to be "conducted by a particular person in the McElwee interest" and that there was "a voluntary assumption of responsibility by the appellant to the owner/operator, through the McElwees, to deliver the goods on time". Accordingly, there was a relationship of sufficient proximity to give rise to the imposition of a duty of care. The appellant at all relevant times knew that it was not just dealing with the builder but was also dealing with the building owner, who might also be the operator of the supermarket. Mildren J dissented upon a number of bases derived from the cases, and upon his analysis of the facts, including that the contract was with the builder only and that the appellant did not know nor ought it to have known who was going to operate the supermarket.

81. Mr Harrison of Counsel who appeared for CSR submitted that there was a sufficient relationship of proximity between TNT and each of the proposed defendants and he pointed to a number of the features which had been referred to by Gillard J in Johnson Tiles Pty Ltd & anor v Esso Australia Pty Ltd & ors [2003] VSC 27 at [745] and [755], including reliance by plaintiff, assumption of responsibility by defendant and an ascertainable person (TNT) likely to suffer harm if the defendant was negligent. Mr Harrison tended to emphasise the necessity to evaluate the various considerations in the light of all the evidence at trial and contended that the proposed defendants lost nothing by being joined as such, given that they would in any event be joined as third parties.

84. Mr Tiernan of Counsel for V&G Concrete submitted that there was no viable cause of action by TNT against his client and referred in particular to Bryan v Maloney (1995) 182 CLR 609, Zumpano v Montagnese [1997] 2 VR 525, Tod Group Holdings Pty Ltd v Fangrove Pty Ltd (1998) 15 BCL 328 and Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2002] QCA 88; (2003) 19 BCL 55, while conceding that those authorities were concerned with the question of whether a duty of care was owed to a subsequent owner rather than to an identifiable existing owner. He contended that the matters pleaded in the proposed Statement of Claim against V&G Concrete were insufficient to give rise to a duty of care.

87. In the light of the difficulty of identifying the principles relevant to the imposition or existence of a duty of care, in the case of alleged negligence causing economic loss in a building context, I am satisfied, despite the paucity of the evidence before the Court and the way in which each of the proposed Statements of Claim is pleaded, that an arguable cause of action has been shown in relation to each of the three proposed defendants. Indeed, I do not think that it can be dogmatically stated at present, in the context of building contractors and sub-contractors, that a duty of care to a proprietor cannot exist in the absence of express reliance and/or assumption of responsibility, or other special factors where the proprietor is identified or ascertainable at the time of the alleged negligent conduct. The contention that the reasonable foreseeability of loss by the negligence of a mere supplier of labour for the purpose of concreting at a particular project, albeit one conducted for the benefit of a known proprietor, can, without more, give rise to a duty of care owed to such proprietor by the party supplying that labour to a contractor or sub-contractor is dubious, but cannot be said to be utterly hopeless. I am therefore of the view that the basis for joining V&G Concrete and Boxshall is established. Not without hesitation, I am also of the view that there is an arguable basis for the joinder of SWIJ as a defendant.

90. Further, as a matter of discretion, I think that CSR's application should succeed because any prejudice and inconvenience to the proposed defendants will be relatively insignificant, given that each of the proposed defendants would (and will) in any event be joined as a third party in the proceeding.

93. Accordingly I accede to the application by CSR for the joinder of the three proposed defendants. I invite Counsel to agree upon consequential orders.

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