Torts - Negligence - Duty of care: existence - Factors determining existence of duty - Generally - Single issue of whether duty of care existed in negligence claim against defendant plumbers to recover losses arising from faulty plumbing work on plaintiff's leased premises - Whether loss arising from faulty plumbing work was properly characterised as pure economic loss or property damage - Whether duty of care owed by subcontractor to principal novel - Loss properly characterised as property damage - Duty of care owed by subcontractor to principal not novel - Reasonable foreseeability sufficient to establish existence of duty of care - Plaintiff's claim allowed.

Building Act 2016 (Tas)

Civil Liability Act 2002 (Tas)

Fair Trading (Code of Practice for Retail Tenancies) Regulations 1988 (Tas)

Water and Sewerage Industry Act 2008 (Tas)

Anns v Merton London Borough Council [1977] UKHL 4; [1978] AC 728

Brocklands Pty Ltd v Tasmanian Networks Pty Ltd [2019] TASSC 26

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36; [2014] 254 CLR 185

Brown v Hewson [2015] NSWCA 393

Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13; (1994) 179 CLR 520

Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' (1976) HCA 65, 136 CLR 529

Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; (2009) 75 NSWLR 649

CJD Equipment v A & C Constructions [2009] NSWSC 1362 (10 December 2009)

De Pasquale Bros Pty Ltd v Cavanagh Biggs & Partners Pty Ltd (1999) Aust Tort Reports 81

D'Orta Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1

Dutton v Bognor Regis Urban District Council [1972] 1 QB 373

Farah Constructions Pty Ltd v Say-dee Pty Ltd (2007) 230 CLR 89

Gunston v Lawley [2008] VSC 97; [2008] 20 VR 33, VSC 97

Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27

Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd [1985] UKHL 10; [1986] AC 785

Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412

Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25, 98 ALJR 956

R G & T J Anderson Pty Ltd v Chamberlain John Deere Pty Ltd (1988) 15 NSWLR 363

RAA-GIO Insurance Ltd v O'Halloran and Others; Australian Kitchen Industries Pty Ltd v O'Halloran [2007] SASC 245

Rail Corporation of NSW v Fluor Australia Pty Ltd [2008] NSWSC 1348

Rail Corporation of NSW v Fluor Australia Pty Ltd & Anor [2009] NSWCA 344

Sullivan v Moody [2001] 207 CLR 562

Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424

Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] CLR 515

Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40

Judgment Number: [2025] TASSC 28

VALLEVE HOLDINGS PTY LTD (ACN 630 658 105) AS TRUSTEE FOR THE

MIDAS FAMILY TRUST (TRADING AS SISTERHOOD HOBART) v

1. When installing a waste pipe in the subfloor area of the premises at Shop 4A, 48 King Street, Sandy Bay ("the premises") on 23 and 24 May 2019, an apprentice employed by the partnership of Matthew and Philip Shepperd, a firm of plumbers trading as "Shepperd Brothers", the first and second defendants, left three waste pipes uncapped.
2. The installation of the waste pipe was part of the plumber's "rough out" required for the fit out of a café to be operated from the premises by Valleve Holdings Pty Ltd as trustee for the Midas Family Trust trading as "Sisterhood Hobart", the plaintiff. The plaintiff was the lessee of the premises being the assignee of the leasehold interest under a lease with the lessor, Goodside Holdings Pty Ltd as trustee for the Sandy Bay Trust, dated 14 November 2018 ("the lease").[1] The lease was guaranteed by Yasmin Seol Chung, the plaintiff's principal.
3. The plaintiff entered a building contract with Mr Scott Emery, trading as Yarra Valley Commercial, the head contractor, ("YVC") to construct the plaintiff's fit out for the premises. That contract was in writing and was comprised by a quotation and a "Fit Out Works Contract" (together "the head contract").[2] The defendants were sub-contracted by YVC to complete plumbing work, that included the installation of the waste pipe, as part of the plaintiff's fit out.
4. In late May 2019, in the days immediately after the three waste pipes were left uncapped, a cool room was constructed over the waste pipes. Ultimately, as recorded by the now unchallenged evidence of the loss adjusters, an egress of water and steam from the three waste pipes resulted in damage to the plaintiff's fit out. The process of repair and rectification which was then undertaken, damaged stock owned by the plaintiff.[3] On or around 13 August 2019, the first defendant attended the premises and performed works to access and cap the waste pipes under the cool room floor.[4]

1. The plaintiff sues the defendants in negligence for the property damage to its fit out and consequential loss which it contends flow from the breach of a duty of care it says was owed to it by the defendants, but specifically eschews any action for pure economic loss. The defendants contend that the plaintiff's action is not for property damage but rather for pure economic loss and, given that the plaintiff is a principal and the defendants a sub-contractor there is no relevant duty of care.
2. As we shall see that contest raises important questions including, but not limited to: (i) the legal position and relationships between those interested, and engaged, in the fit out; (ii) the mechanism occasioning the damage; (iii) the nature of the damage suffered, particularly whether it should be characterised as property damage or pure economic loss, and (iv) the applicable legal principles relevant to identifying a duty of care, especially in circumstances where the parties disputed whether the alleged duty of care is to be described as "novel".
3. In the course of opening addresses on 12 February 2025, the issues between the parties narrowed such that the sole issue between them was whether the plaintiff could succeed in establishing the pleaded duty of care.
4. With the exception of that issue, the defendants abandoned the defences pleaded in their further amended defence dated 20 June 2024, including defences as to: (i) breach; (ii) any apportionment of concurrent liability against YVC under the Civil Liability Act 2002 (Tas); (iii) contributory negligence, and (iv) quantum.
5. The single issue remaining is said to be, "Did the defendant subcontractors owe the plaintiff principal a duty of care to prevent harm in carrying out the Plumbing Work as alleged in the statement of claim?"[5]
6. As the parties identified only a single legal issue, and no matters of fact remained in dispute, the Court heard the parties' opening and closing addresses on 12 and 19 February 2025 with the parties identifying the evidence upon which they relied. The plaintiff filed a document titled "Documents Replied Upon By The Plaintiff" immediately after the completion of closing addresses. Items in that schedule are referenced by the number given in the "Plaintiff's Book of Evidence" ("PBE").[6] The defendants adduced no evidence.
7. The facts are not in dispute. However, the Court has been required to conduct its own assessment of the relevance and weight of the large number of documents put into evidence in order to resolve the legal issues between the parties. The documentary evidence tendered in the PBE was prepared prior to the parties' identification of what is now said to be the single legal issue. Thus much of the evidence tendered became redundant. The Court has been required to trawl through the evidence in the context of the contest between the parties as to the legal characterisation of the loss and damage and the existence of the pleaded duty.

1. The lease was entered into between the lessor and Lavelle Holdings Pty Ltd on 14 November 2018.[7] The interests of Lavelle Holdings Pty Ltd were later assigned to the plaintiff by a deed of assignment dated 8 February 2019.[8] The lease made provision for the "Lessee's Works" at clauses 7[9] and 7A.[10] Clause 7A was included as a "Special Covenant" (see the first schedule to the lease), and the first schedule provided that "Special Covenants" "shall apply to this lease and that all relevant provisions shall be subject to these Special Covenants".
2. Clause 7A of the Lease provided:

(a) at the Lessee's sole expense carry out all necessary works (Works) to undertake a refurbishment and fitout of the Premises. The Lessee will be responsible for obtaining (at its cost) all planning and building licence approvals from the Hobart City Council and other authorities for the Works and for obtaining all permits of other approvals from any other authority associated with the occupancy of the Premises and operation of a café from the Premises.

(b) carry out the Works in accordance with the Plans to be first approved by the Lessor, in a manner reasonably required by the Lessor, to a standard reasonably required by the Lessor and in accordance with the requirements of all relevant authorities and using suitably qualified and competent trades people.

(c) complete the Works including that the Works are reasonably fit for use and occupation by the Lessee and all omissions and defects have been completed or rectified to the satisfaction of the Lessor (Completion of Works) within eight (8) weeks after the Handover Date PROVIDED THAT if Completion of Works has not occurred by the date that is eight weeks after the Handover Date the Lessor may complete the same at the sole expense of the Lessee; and

7.1 (a) On the commencement date or any later date as the Lessor advises the Lessee in writing, the Lessee will carry out at its cost all its fitting out work to the Premises as shown in the approved plans (such approval not to be unreasonably withheld) referred to in this clause. The Lessee will carry out such works in a good and workman like manner to the Lessor's reasonable satisfaction.

(b) Before doing any fitting out work at the Premises the Lessee will prepare plans and specifications for such work and will obtain the approval of the architect to such plans and specifications.

(c) All work performed at any time by the Lessee requires the Lessor's prior written consent (such consent shall not be unreasonably withheld).

7.2 The Lessee will pay to the Lessor or the Lessor's agents or contractors within 14 days of demand".

1. In or about May 2019 after the head contract was entered into, but prior to the installation of the waste pipe, YVC sub-contracted certain plumbing works as part of the required fit out, being part of the "Lessee's Works", to the defendants, which included the installation of the waste pipe to the premises ("sub-contract").
2. There is a purchase order from YVC, as head contractor, to the defendants, under the sub-contract, in the amount of $2,500 plus GST dated 17 May 2019, which included the installation of the waste pipe by the defendants ("plumbing works").[12]
3. During 2019, and prior to the defendants entering into the sub-contract with YVC, the plaintiff and the defendants had been in direct discussions regarding the fit out.
4. For example, on or about 13 March 2019 Ms Chung, as principal of the plaintiff, contacted Matthew Shepperd, the first defendant, regarding the defendants undertaking prospective plumbing works at the premises.[13] It was Ms Chung who later, on or about 6 May 2019, informed the first defendant of the appointment of YVC as the plaintiff's head contractor for the purposes of the fit out of the premises.[14]
5. I find that despite being sub-contractors, the defendants were aware, at all material times, that the purpose of the plumbing works was as part of the plaintiff's fit out of the premises for the operation of a café to be run by the plaintiff.
6. Turning to the plumbing works by the defendants, as sub-contractors, in May 2019.
7. YVC, the head contractor, gave a quote to the plaintiff dated 1 May 2019 for the fit out works including the plumbing works.[15]
8. YVC prepared a work schedule for Job 19125 dated 16 May 2019 which included the plumbing works.[16]
9. The PBE included the statement of Jack Harper, the apprentice working on the installation of the waste pipe on 23 and 24 May 2019, which statement is dated 12 April 2021,[17] and which included a plan describing the works ("Annexure A").[18] Mr Harper, states, relevantly:

"3 In May 2019 I was undertaking plumbing works at Sisterhood Café at Unit 4, 48 King Street Sandy Bay (Sisterhood). I was instructed to undertake works to the drains and waste connections in the kitchen areas. I have been shown a plan which to the best of my recollection depicts the floor plan of the premises. The work I undertook was in the area to the right of the orange line and on the area where drains and wastes are marked in blue ...

1. The work undertaken was to allow the relocation of sinks and appliance connections. This involved capping off some drains and wastes and joining into existing pipework for the new equipment. I did cap off some wastes in the kitchen area. I did not have reason to inspect the piping in the kitchen other than to cap off or move connections for the sink and new equipment.
2. I checked my diaries for the period of May 2019 and June 2019. Those diaries indicate that I attended Sisterhood on Thursday 23, Friday 24 and Tuesday 28 May 2019 and Tuesday, 11 June 2019.
3. I am aware that in August 2019, there was an issue in respect of a smell in the Sisterhood premises attributed to an uncapped waste connection on which I had been working ...
4. I have been shown a photograph (see Annexure B).[19] That photograph shows the kitchen area in which I was working with the waste connection to the subject of the event in the bottom right hand corner. The premise was a building site with a number of tradesmen present continuously undertaking plumbing and electrical work. The builder, Yarra Valley, and the project manager, John, were Victorian based. There were on occasions brief discussions with the tradesmen and project manager as to the progress of my works. There was nothing formal.
5. Prior to commencing work on the waste which is shown as inside the cool room, I spoke on the phone with Matt Shepperd ... [the First Defendant] ... who was on holidays overseas. Matt told me to set the waste pipe outside of the cool room. I did this by cutting the waste pipe. I intended on placing an 80mm riser pipe in the waste so that it protruded from the floor level and could easily be seen. I did not have a piece of pipe to allow this to happen on the Friday ...[24 May 2019] ... The waste pipe was still visible. On the Friday when I left (sic) was intending on returning to the site early the next week to put in the riser. I was not told by the project manager or other trades that the cool room was going to be insulated anytime soon. I do not recall speaking to the project manager or other trade about the pipe. It was clearly visible especially to anyone working in the vicinity.
6. When I left the premises on 24 May 2019, I did not place a tied plastic cover over the waste pipe end. I did not cap the end of the pipe.

1. Without reference to the defendants a cool room was installed over the uncapped waste pipes in the week following Mr Harper's work, ie between Monday, 27 May 2019 and Tuesday, 28 May 2019. The waste pipes were left uncapped by Jack Harper on Friday, 24 May 2019.
2. In his statement Mr Harper describes his return to the premises on Tuesday, 28 May 2019 from paragraph 11:

"11 On Tuesday, 28 May 2019 I returned to the site. I had the pipe for the riser with me and intended on connecting it to the waste. When I went to the area of the (sic) where I was to place the riser pipe, I found the cool room insulation had been installed and the floor area was (sic) had been covered over. Phil Shepperd ... [the Second Defendant] ... was on site at that time.

1. I do not recall being concerned about the waste connection area being covered over. That is because the pipe would have been visible to the refrigeration tradesmen before installing the floor as would have been the channel in (sic) concrete floor. It would have been usual practice for the project manager to be consulted before the refrigeration works commenced and that the concrete channel be filled in and sealed with a membrane. I thought this happened in my absence.
2. I have been shown a series of photographs numbered 1 to 12 (see Annexure C). The photographs appear to have been taken after my works and after the cool room had been constructed and the event had occurred. The waste is visible in photographs numbered 3 - 10 as is the concrete channel.[20]"
3. After the installation of the waste pipe, and on or about 2 June 2019, Ms Chung, on behalf of the plaintiff, asked the defendants to directly undertake additional work at the premises, as contractors rather than as sub-contractors ("additional work"). The plaintiff and the defendants corresponded about the additional work in June 2019. The additional work is not the subject of these proceedings.
4. On 5 July 2019 the defendants issued an invoice to the plaintiff for $2,500 plus GST for the plumbing works. Senior counsel for the plaintiff confirmed that this included the work by the defendants' apprentice Jack Harper on 23 and 24 May 2019.[21] The description of that work includes:

"Clean, service work to plumbing connections for shop refit 4/48 King Street Sandy Bay Order No 39966".[22]

1. On 8 July 2019 Scott Emery of YVC executed a "Standard of Work Certificate - Building Work" for the premises.[23]
2. On or about 10 July 2019 the plaintiff commenced trading as the "Sisterhood Café" from the premises.[24]

Discovery of the uncapped pipe - loss and damage

1. Problems associated with the uncapped waste pipes were discovered upon the emanation of an odour from the sub-floor area in which the pipes were located to the café. The plaintiff filed a claim with its insurer, Chubb Insurance Australia Ltd ("Chubb"). Chubb then engaged loss adjustors and experts, including Sedgewick Australia, to assess the damage and scope of required rectification works.
2. The history of the odour and the discovery of the uncapped waste pipes is set out in the preliminary report by Sedgewick to Chubb dated 22 August 2019.[25] That report states that the plaintiff was insured for contents and stock ($750,000) and Business Interruption ($1,050,000).[26] It records the advice from Ms Chung, on behalf of the plaintiff,[27] that:

"... The Insured again contacted Shepherd who advised they had spoken with their apprentice who performed works in the property and he advised he believed he left a drain uncapped. Shepperd then returned and performed explorative holes in the cool room floor, located an uncapped drain pipe and sealed it off ...

The odour continued to get progressively worse and so the Insured removed some of the floating flooring. In so doing they observed water and waste sitting underneath which had overflowed from the uncapped pipe in the cool room and flowed through the floor joists of the main service areas of vinyl and underneath to the customer area of the floating flooring. They are unsure how far this had flowed into the café dining area ...

The Insured advised Shepperd has accepted responsibility and confirmed they left three pipes uncapped during the shop fit out."

1. I find that the defendants' in completing the plumbing work knew, or ought reasonably to have foreseen, that the conduct of their unsupervised apprentice, Jack Harper, in leaving the three waste pipes uncapped, was likely to cause physical damage to property owned by the plaintiff, in circumstances where the plumbing work was part of the plaintiff's fit out of the premises and other trades were engaged to progress that fit out including the construction of a cool room over the site of Mr Harper's work.
2. Sedgewick's observations recorded in Sedgewick's preliminary report included, but were not limited to:[29]

(ii) Need to remove and realign marble bar counter;

(iii) Remove and reinstate vinyl flooring near the bar counter;

(vi) Cracked tiling to the base of the service counter;

(viii) Possible removal/replacement of vinyl flooring;

(ix) Need to inspect timber flooring and joists for damage;

(x) Clean and sanitise concrete flooring and joists, and

(xi) Possible removal and reinstallation of the cool room and appliances and bench tops in the kitchen if flooring needs to be removed."

1. The preliminary scope of works included the prospective need for work to the bar counter, service counter, flooring, kitchen, cool room and considered stock losses ($1,000) and business interruption. The preliminary assessment concluded with an observation that, "We are mindful that the proximate cause of the Insured's loss will likely be deemed defective workmanship and we wish to consider ...[the] ... Policy response in that context".[30]
2. Assessments in relation to the damage flowing from the uncapped waste pipes is contained in a series of reports tendered by the plaintiff at trial. These reports were prepared by the loss adjustor firm Sedgewick Australia, which engaged the firms Cowan Restoration and EHS Assess Pty Ltd for the purpose. Cowan is a specialist loss adjuster that specialises in the restoration of all structural and content items that have suffered from fire or water damage. Cowan attended the premises on 10 September 2019 to commence restoration works. EHS has experience in occupational hygiene and risk management to protect health and mitigate loss.[31]
3. The first of these reports by Sedgewick is dated 29 August 2019 and is titled "Commercial Property Claim - Report 1" ("Sedgewick first report").[32] At section 6 of the Sedgewick first report it states:[33]

6.1 There seems to be little doubt and consensus that Defective Workmanship on the part of Shepperd has been the primary cause of the situation the Insured is now in, being uncapped drains left in the floor cavity.

6.2 Hollard Insurance has appointed Technical Assessing ('TA') in Tasmania to represent their claim from Shepperd. Our site inspection on 27 August 2019 was also attended by Kayson Wong from TA and he seems to accept the cause is undeniably Defective Workmanship on the part of Shepperd.

6.3 We remain mindful that Yarra had the contractual arrangement with the Insured, subcontracted Shepperd, and so are potentially vicariously responsible for the 'proximate cause of loss'."

1. There are two reports dated 13 September 2019, the first of these (PBE 364-402) is by Sedgewick and is titled "Commercial Property Claim - Report 2" ("Sedgewick second report").[34] The other report of that date is prepared by Cowan ("Cowan report").[35]
2. In the Sedgewick second report at section 3, Sedgewick adds further assessments to its advice regarding cause, including:[36]

3.1 It is understood that Yarra Valley Commercial who the Insured contracted for the fit-out at the risk address, in turn subcontracted Shepperd Bros Plumbing to complete the plumbing requirements which included drainage in the subfloor space.

3.2 It is further understood that Shepperd Bros Plumbing failed to cap three drains in the subfloor due to an unsupervised apprentice having done this work.

3.3 Class 3 water has subsequently flowed into the subfloor space via the uncapped drains causing the timber floor to swell and damage fixed fittings. The moisture has also caused the development of mould in the subfloor ...".

1. The Sedgewick second report included a "Water Damage Report" prepared by Mr Murphy of EHS.[37] That water damage report describes "Category 3 water" in the following terms:[38]

"ANSI/IICRC S520 defines Category 3 water as water that is grossly contaminated and may contain pathogenic, toxigenic or other harmful agent."

1. EHS reported that "the full extent of the issue is difficult to determine without removal of the floor".[39] EHS tested the premises for mould and provided a scope of works for remediation, it reported the following findings, following a visual inspection of the subfloor in the bar/service area and restaurant seating area:[40]
   • A foul waste like odour;

• An accumulation of drain like waste under the floor on the slab;

• Visible mould to the underside of the particleboard flooring;

• Cupping of the timber floor in the restaurant seating area.

1. In the assessment of EHS the café was "... not fit to trade and remediation works to rectify the issues to the subfloor is required. Due to the extent of the issue, Category 3 water and extensive mould, removal of the flooring throughout the affected areas to access the subfloor and floor framing is required ...".[41]
2. EHS also noted that the underside of the cool room was "saturated on the particleboard with visible mould growth throughout the subfloor on the underside of the door and floor framing", and as recorded in the Sedgewick second report (PBE 367), EHS's (Mr Murphy) "findings were effectively the removal of the cold-room, serving counter, part of the kitchen and most of the flooring in order to remediate the mould and class 3 water contamination in the subfloor space".[42]
3. Turning then to the Cowan report, it notes that it:

"... attended site on the 10th of September 2019 to begin restoration works based on the report that was completed by EHS Assess on September 6th 2019. We are aware of the background of the claim and that the cause of the issue allegedly came from 3 uncapped drains underneath the raised timber floor in the kitchen of the café. These drains remained uncapped since the fitout was completed approximately 8 weeks ago. The waste water from these drains was leaking hot and dirty dishwasher discharge for the duration that the café was operating. The hot water has caused excess steam to fill the subfloor cavity and run under the other areas of floor and up into the bar joinery. A strong odour has been noted inside the property."[43]

1. The findings of the Cowan report included:[44]

″ Floor construction of raised floor is pine framework, ply board floor with commercial final floor covering.

• Floor construction of lower section is a concrete slab with hardwood batons, hardwood Jarrah floorboards, 5 mil plyboard, with plank vinyl on top of the ply. The Jarrah hardwood floor is 24 mil thick and is very resistant to water. On our inspection I found no major damage to the hardwood itself. There was some surface mould growth around the bar area.
• We have cut several inspection holes into sections of the raised floor and the lower section of flooring.
• Visible mould growth has been found on all areas of the raised flooring section throughout the bar and kitchen area.
• Walls surrounding (sic) main kitchen area have been spotted to have mould growth on the back side through inspect (sic) holes cut on the ramp which has exposed the kitchen side of the plaster.
• The bar itself has cracking along the tiles and marble bench top. All the joinery will require removal. Marble bench top is cracked already and will not be repairable. Caesarstone bench tops will also require removal ...
• Timber framework below (sic) raised floor is about 20% moisture content and affected by surface mould growth. Judgment will be made on restorability of the timber following removal works. It is more likely cost effective to remove and replace pine timbers instead of drying and remediating."

1. Rectification works recommended by Cowan were to be completed in six stages:

(1) Contents relocating and containment

(2) Removal Works

(3) Drying Works

(4) Remediation Works

(5) Contents Remediation, Mechanical and Electrical Works

(6) Post remediation verification.[45]

1. In addition to damage and rectification costs to the premises, the reports also detail further losses incurred to the plaintiff arising from the uncapped waste pipes. Sedgewick's third report "Commercial Property Claim - Report 3" dated 14 October 2019[46] describes a stock loss to the plaintiff of over $10,445.56 based on a full post loss stock take[47] following the disposal of damaged, perishable, expired and open products.
2. Sedgewick also prepared an assessment of losses arising from the interruption to the plaintiff's business between 27 August 2019 to 14 June 2020 in its "Commercial Property Claim - Report 14" ("Sedgewick report 14"). Calculations in Sedgewick report 14 were made based on expected turnover coming from average weekly sales before the closure of the business and totalled $428,272.[48]
3. The plaintiff has set out the quantum of its losses it claims in a Schedule of Quantum[49] which includes the claim for Business Interruption Costs as assessed by Sedgewick in Sedgewick report 14, and that claim is now unchallenged absent the existence of the relevant duty, and is as follows:

1. The plaintiff in its closing submissions contended that the defendants owed the plaintiff a duty of care to prevent harm in carrying out the plumbing works, and specifically, in that context, to prevent property damage.
2. The plaintiff's pleading in respect of the duty begins with the description of the "Plumbing Works" in the context of the sub-contract at paragraphs 4 and 5 of the statement of claim (endorsed on the writ dated 17 May 2022[50]), as:

"4 In or around May 2019, the Plaintiff entered into a building contract (Contract) with Scott Emery trading as Yarra Valley Commercial (ABN 22 664 963 894) (YVC) for a fit-out of the Premises (Works).

The Contract is writing. It comprises a quotation dated 8 May 2019 and a Fit Out Works Contract (undated). Copies of the quotation and the Fit Out Works Contract are in the possession of the Plaintiff's solicitors and may be inspected on request.

1. On a date unknown, but in or around May 2019, YVC engaged the Defendants, trading as Shepperd Bros (herein, Shepperd Bros) to perform the plumbing works required under the Contract at the Premises (Plumbing Works)."
2. The duty that is contended for by the plaintiff is pleaded out at paragraphs 14, 15 and 16 of the statement of claim:[51]

1. At all material times, it was reasonably foreseeable that if Shepperd Bros did not take reasonable care in the tasks involved in the Plumbing Works, the tenant of the Premises may suffer loss and damage of the kind alleged in paragraph 18 below.
2. The Plaintiff, as the tenant of the Premises, is a member of the class of persons described in paragraph 14 above.
3. In the premises, Shepperd Bros owed the Plaintiff a duty of care to carry out the Plumbing Works:

(a) using all the due care, skill and diligence to be expected of a plumber whose ordinary course of business includes the performance of works such as the Plumbing Works; and

(b) so that any person engaged and/or performing and/or supervising, and/or arranging and/or managing the Plumbing Works or any part thereof was adequately and appropriately qualified to undertake such tasks,

1. The matter was put at trial on the basis that the plaintiff's claim was to recover for damage to property, and the losses consequential upon that damage, and was not a claim for pure economic loss.[52] The plaintiff's claim was as a tenant of the premises, refer paragraph 15 of the statement of claim. This required the identification of the mechanism for the damage occasioning the plaintiff's loss.
2. Senior Counsel for the plaintiff, Mr Cox SC, accepted that this was a case where the parties had taken such different positions with regard to how the nature of the damage was to be legally characterised, and how the law was to be applied in respect of any applicable duty of care_,_ "that both the parties seem to be speaking past each other" and that he was "fearful that we will be ships passing in the night".[53] It is that gulf between the parties that has driven this litigation and is the dispute that this Court now has to resolve.
3. The plaintiff asserted that the facts of this case brought the duty of care that it relied upon within an established category, ie an established duty of care to protect against property damage well known to the law - and thus not a novel duty. Further, that reasonable foreseeability of harm to the plaintiff by the defendants' negligence was present on the facts and sufficient to establish that duty of care.
4. Mr Cox in closing described the mechanism by which the damage was caused in the following way:

"... the damage is the physical harm that occurred when wastewater passed through the uncapped pipe, damaging the subfloor space and caused cracking, lifting and damage to the physical components and mould as well ... [a]nd that was caused by - we say the admitted conduct of the defendant in failing to cap the pipe upon which they had been working - Mr Harper had been working."[54]

1. In the absence of any factual dispute between the parties, I find that the mechanism of the damage consequential upon the three waste pipes, or drains, being left uncapped is as described in the Cowan report and has proceeded on that basis, ie.[55]:

"... the cause of the issue allegedly came from 3 uncapped drains underneath the raised timber floor in the kitchen of the café ... The waste water from these drains was leaking hot and dirty dishwasher discharge for the duration that the café was operating. The hot water has caused excess steam to fill the subfloor cavity and run under the other areas of the floor and up into the bar joinery. A strong odour has been noted inside the property".

1. I find the mechanism for the damage complained of was, at least in part, and certainly in relation to the bar joinery, the excess steam in the sub-floor cavity not merely an egress of water.
2. The parties are so far apart because they disagree as to how the agreed damage occasioned by the egress of water and steam from the uncapped waste pipes is to be categorised, ie as property damage or economic loss, that gulf informs their primary dispute as to whether a duty of care exists and, if so, whether that duty is properly understood as novel.

1. Mr Cox put the plaintiff's case in the following terms:

"... the case, in our submission is simple and falls within a known category where a duty arises, and we say that it could never be the case that a subcontractor could go about their business with impunity and without regard to an owner's proprietary interest in the property."[56]

1. Of course, in this instance, the plaintiff was not the owner of the premises but the lessee. It was not in dispute between the parties that a possessory interest, such as that held by a lessee, is sufficient to ground an action in negligence for property damage: R G & T J Anderson Pty Ltd v Chamberlain John Deere Pty Ltd (1988) 15 NSWLR 363 per Hope JA (Kirby P and McHugh JJA agreeing) at 368-369 citing Lord Brandon in Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd [1985] UKHL 10; [1986] AC 785 at 809 - thus a plaintiff who claims in negligence for loss caused to him by reason of loss of or damage to property must have either the legal ownership or possessory title in the property at the time when the loss or damage complained of occurred; see also RAA-GIO Insurance Ltd v O'Halloran and Others; Australian Kitchen Industries Pty Ltd v O'Halloran [2007] SASC 245 per Duggan J (Nyland and Kelly JJ agreeing) also citing Leigh and Sillavan Ltd at p 130. However, the lessee's interest here is that conferred by the assigned leasehold interest.
2. The lease in the First Schedule set out the Special Covenants at clause 2,[57] and made provision for the transfer of ownership in plant and equipment to the plaintiff, as the lessee:

The Lessor will hand over to the Lessee on the Handover Date in its state and condition as at the Handover Date on and as is, basis including all existing plant and equipment, fittings fixtures and furniture as set out in the list attached and marked "B" (plant and equipment). On the Handover Date, the Lessee will take and assume ownership of all items of the plant and equipment for the consideration of $1.00 paid to the Lessor by the Lessee (receipt of which is acknowledged by the Lessor) and the Lessee will be responsible for all maintenance, repair and replacement of the plant and equipment as necessary or required throughout the term of the Lease. The Lessor warrants that the plant and equipment is not encumbered and the Lessor has the power to transfer title to the plant and equipment to the Lessee. Unless otherwise agree between the Lessor and the Lessee and subject to clause 20.1(b), at the expiration or sooner determination of this Lease, the Lessee must remove all the plant and equipment from the Premises and make good in accordance with the provisions of this Lease." (Emphasis added.)

1. A copy of the list of plant and equipment annexed to the lease is at Annexure D to these reasons.
2. The plaintiff took ownership of the plant and equipment (initially transferred to the original lessee under the terms of the lease) pursuant to the assignment of the lease.[58] Importantly that plant and equipment included all existing plant and equipment, fittings fixtures and furniture. Pursuant to the assignment of the leasehold interest, the plaintiff had legal ownership of all the plant and equipment, fittings fixtures and furniture listed in Annexure E on the premises at the time the three waste pipes were left uncapped and when there was a subsequent egress of waste water and steam to the premises.
3. The plaintiff owned the stock on the premises at the material time. Under the lease, by clause 10.15,[59] the plaintiff was obliged to "keep the Premises fully stocked and staffed, but will keep only such merchandise as the Lessee intends to offer for retail sale from the Premises".
4. Those observations leave the question of who owned the "Lessee's Works" (see clauses 7A and 7 of the lease, above at [13]-[14]). That is, who owned the plant and equipment, fittings fixtures and furniture associated with those works whilst the works were in progress, and after completion? Certainly, those works were at the plaintiff's sole expense, see clause 7A.1(a) of the lease, and were, ultimately, subject to its make good provisions. By clause 20.1(b) they were to be removed by the lessee at the expiration or sooner determination of the lease, ie:[60]

"(b) the Lessee will remove from the Premises all fixtures, fittings and chattels brought onto the Premises by or for the use of the Lessee or any prior lessee (including the plant and equipment in the list annexed and marked B)[61] except for:

(i) the shopfront (other than signage) and the ceiling;

(ii) the toilets, lighting, walk-in freezer and cool rooms, exhaust extraction and exhaust hoods, and grease trap; and

(iii) any fixtures, fittings and chattels provided by the Lessor for the use of the Lessee which the Lessor determines should remain in the Premises;

(iv) the air-conditioning unit unless the Lessor determines it must be removed from the Premises by the Lessee ...". (Emphasis added.)

1. To the extent that the plaintiff sought to recover its losses in respect of its fit-out, being the "Lessee's Works" for the purposes of clauses 7A and 7 of the lease, it had a possessory interest under the lease, and one sufficient to found its action against the defendants in negligence. Both parties approached the litigation on the basis that the plaintiff, not the Lessor, had a proprietary interest in the plant and equipment, fittings fixtures and furniture associated with the fit out and agreed that the only issue in these proceedings was the single legal issue identified above. The Court may not be aware of the extent of all the agreements made between the parties in this regard and has no choice but to proceed on the basis upon which this litigation has been fought. Such a position is consistent with the interest held by the original lessee and transferred to the plaintiff on assignment.
2. The plaintiff also relied upon the regulatory scheme applying to plumbers in Tasmania.
3. The plaintiff pleaded by way of reply that the defendants had admitted that the plumbing works were incomplete and thus (at paragraph 1 of the Reply) they were "defective" in that:[62]

(a) Section 11 of the Building Act 2016 (Tas) ... states that a person performing plumbing work must ensure that the work complies with the Act and all applicable provisions of the National Construction Code, unless otherwise authorised under the Act;

(b) Section 49 of the Building Act 2016 (Tas) sets out the minimum standard for plumbing work, and specifically that a plumber who performs or supervises plumbing work must ensure that the work is performed in accordance with and complies with the Act and the National Construction Code;

(c) The Defendants' incomplete Plumbing Works were in breach of the National Construction Code Volume 3: 2016, and specifically, section 4.11.2 of Australian Standard 3500.2, and

(d) Section 207 of the Building Act 2016 (Tas) defines defective plumbing work as plumbing work that does not comply with the Act or the National Construction Code and is discovered at any point after the completion of the work."

1. The plaintiff further pleaded, by way of reply, that the plumbing works were "certifiable works" as defined by s 56TA of the Water and Sewerage Industry Act 2008 (Tas) and accordingly the defendants were required to ensure that the plumbing works were completed in accordance with regulatory requirements, and that the building surveyor has relied upon the defendants' assertion of compliance in issuing the certificate of occupancy for the plaintiff's premises following the fit out. The plaintiff says that by virtue of the defendants' conduct, they breached ss 11, 49 and 210, and the certification requirements, of the Water and Sewerage Industry Act.
2. It is an error to equate a statutory duty with a duty of care in tort. Non-compliance with standards can be evidence of negligence but such non-compliance of itself does not establish negligence. In Brown v Hewson [2015] NSWCA 393, the New South Wales Court of Appeal, Adamson J, observed at [137]:

"The primary judge appears to have reasoned on the erroneous basis that non-compliance with regulations establishes negligence. Whilst non-compliance with standards can amount to evidence of negligence, such non-compliance does not, of itself, establish negligence, or indeed liability on another basis ...".

1. The plaintiff contended this case did not concern a novel duty of care, and there was a long line of Australian authority for the proposition that a person who suffers property damage as the result of defective design or execution of building work may sue in tort for the injury. Further, that reasonable foreseeability of physical harm was sufficient, to impose a duty of care on a person who knows or reasonably ought to foresee that physical harm is a likely result of his or her conduct. The learned authors of Professional Liability in Australia ("Professional Liability")[63] at [1.220] observe:

"For some categories of relationships between A and B, foreseeability by a reasonable person in A's position that A's careless conduct might cause injury to B is sufficient to establish a duty of care owed by A to B. For these categories of relationships, it is stated that reasonable foreseeability of injury satisfies the relationship of proximity necessary to give rise to a duty of care: see Bryan v Maloney (1995) 182 CLR 609 at 617. For other categories of relationships, an additional factor or connection is required between A and B in order for a duty of care to arise."

1. In this case the plaintiff asserts that the pleaded duty falls into the first category and reasonable foreseeability is enough to support the pleaded duty, whilst the defendant insists that if there is a duty then it falls into the latter category. The passage cited from Bryan v Maloney (1995) 182 CLR 609 above at [1.220] of Professional Liability deals specifically with the nature of the duty of care when the cause of action is physical damage to property:

"The cases in this Court establish that a duty of care arises under the common law of negligence of this country only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage. In more settled areas of the law of negligence concerned with ordinary physical injury to the person or property of a plaintiff caused by some act of the defendant, reasonable foreseeability of such injury will commonly suffice to establish that the facts fall into a category which has already been recognized as involving a relationship of proximity between the parties with respect to such an act and such damage and as "attracting a duty of care, the scope of which is settled" (4). In contrast, the field of liability for mere economic loss is a comparatively new and developing area of the law of negligence. In that area, the question whether the requisite relationship of proximity exists in a particular category of case is more likely to be unresolved by previous binding authority with the consequence that the "notion of proximity ... is of vital importance (5)." (Emphasis added.)

1. In Australia where a claim is brought for pure economic loss courts have had some difficulty in settling on the extra factor or factors required in addition to reasonable foreseeability to establish a duty of care. There have also been similar issues in seeking to identify when a duty of care arises in novel circumstances. Both revolve around the integers used to determine the existence of a duty of care in negligence.

1. The majority in Sullivan v Moody (2001) 207 CLR 562 noted at [48], "As Professor Fleming said, 'no-one has ever succeeded in capturing in any precise formula' a comprehensive test for determining whether there exists between two parties, a relationship sufficiently proximate to give rise to a duty of care of the kind necessary for actionable negligence".
2. The "Anns test" (see Anns v Merton London Borough Council [1977] UKHL 4; [1978] AC 728 per Lord Wilberforce from 751) which elevated policy considerations as determinant features was rejected in Australia in Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424. The proximity analysis evident in the passage from Bryan v Malone,y, set out above, was first fashioned by Deane J in Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549 and for a time was adopted by a majority of the High Court, ie a duty arises consequent upon the application of a two-step test involving reasonable foreseeability and a relationship of proximity. However, that test was ultimately rejected as being too imprecise, as were variations of that test that added fair, just and/or reasonable as a third integer: see Sullivan v Moody per the majority at [47]-[49].
3. In Australia, courts have now identified a multi-factorial approach to determining the existence of a duty of care, by applying a non-exhaustive list of salient features, features which either favour, or militate against, the existence of a duty of care, especially in respect of a novel duty of care: Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; (2009) 75 NSWLR 649, per Allsop P at [102]-[109]. The proper approach is to undertake a close analysis of the facts bearing on the relationship between the parties by reference to the salient features or factors affecting the appropriateness of imputing a legal duty to take reasonable care. Factors that have been recognised in the list of salient features include those enumerated by Allsop P in Caltex Refineries (Qld) Pty Ltd v Stavar ("Caltex") at [103]:

(a) the foreseeability of harm;

(b) the nature of the harm alleged;

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

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

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

(f) any assumption of responsibility by the defendant;

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

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

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

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

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

(l) any potential indeterminacy of liability;

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

(n) the extent of imposition on the autonomy or freedom of individuals, including the right to pursue one's own interests;

(o) the existence of conflicting duties arising from other principles of law or statute;

(p) consistency with the terms, scope and purpose of any statute relevant to the existence of a duty; and

(q) the desirability of, and in some circumstances, need for conformance and coherence in the structure and fabric of the common law."

1. In this case the salient feature at (b) in the list, the nature of the harm alleged, is of particular relevance, that is because whether the harm is categorised as property damage or pure economic loss can lead to different legal outcomes. This is a primary issue between the parties. The plaintiff asserts that as all of the loss and damage claimed is, or flows from, property damage, that being a well-established genre of tortious liability, the case finishes there. Whereas the defendants say, this is a case of pure economic loss requiring the application of the salient features test, and properly applied that indicates there is no relevant duty. The defendants contend that in applying the salient features test the Court is required to have particular regard to vulnerability, ie the salient feature at (d) of the list, "the degree of vulnerability of the plaintiff to harm from the defendant's conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself".
2. Ultimately, the plaintiff contends that the defendants, sub-contracting plumbers, owed the plaintiff, the principal, "a duty to avoid property damage based on ordinary principles of negligence, namely reasonable foreseeability of physical harm caused by a person engaged to work on the plaintiff's property."
3. The plaintiff further submitted that vulnerability and reliance (the salient feature at (e) on the list) were not additional requisites to the formation of the duty of care in the circumstances of this case.[64] The defendants' primary case was that no relevant duty of care arose, but that if a duty was to be found, that duty was novel. The defendants went as far as to state that "no Australian court has ever imposed a duty of care on a subcontractor vis-à-vis a principal."[65]
4. In respect of the defendants' secondary position, the defendants contended that in claims involving pure economic loss, the factor of vulnerability of the plaintiff will be determinative of whether a duty of care is owed or not. The defendants then reasoned that the plaintiff in this case did not exhibit the requisite vulnerability, contending that the existence of the head contract between YVC and the plaintiff demonstrated that the plaintiff had the ability to protect itself against the negligence of the builder, and/or sub-contractors. The defendants submitted that, irrespective of the characterisation of the plaintiff's loss, the defendants still did not owe the plaintiff a duty of care because there was a lack of salient features which would dictate otherwise. In support of that contention, the defendants referred to the list of salient features in Caltex before outlining two factors in the present case that they said militated against the recognition of a duty of care, (i) conflicting duties arising from other principles of law; and (ii) the desirability or need for conformity and coherence with the structure and fabric of the common law.
5. Mr Cox, for the plaintiff, submitted in response:

"The duty posited by my friend ... not only extends to say its pure economic loss and therefore you can't recover but now they say, there is no primary duty even if it is property damage. And we say that just cannot be right."

1. The courts have placed few limitations on the recognition of a duty of care in respect of property damage. As McHugh J noted in D'Orta Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 at [36]:

"Ordinarily, people owe a duty of care to other persons when they know or ought reasonably to foresee that their conduct may cause physical damage to those persons or their property. Reasonable foreseeability of property damage is generally enough to impose a duty of care on a person who knows, or ought reasonably foresee, that physical harm is a likely result of his or her conduct".

1. In approaching the parties' arguments in this case it is interesting to consider whether a claim for property damage that is brought by a principal against a sub-contractor is to assert a novel duty of care.
2. Were that the case then, in circumstances where recovery in tort for property damage is well recognised, see D'Orta Ekenaike (above), the focus would be on the nature of the relationship of principal qua sub-contractor rather than the nature of the damage. But here the defendants make two points, first that the damage properly understood must be pure economic loss, and secondly if that is incorrect and the claim is for property damage then because the asserted duty is novel it is precluded by the application of the salient feature test.
3. A claim for property damage can only be novel if it seeks to extend such claims by recognising new categories of duty. Whist the defendants' points go to different parts of the analysis they both seek to emphasise the principal/sub-contractor relationship as the primary integer. In that context the way in which the damage is properly to be characterised and the argument as to the novel nature of the posited duty become somewhat circular.
4. I have already found (at [32] above) that the defendants knew, or ought reasonably to have foreseen, that the conduct of their unsupervised apprentice in leaving the three waste pipes uncapped was likely to cause physical damage to property owned by the plaintiff. That finding relates to property damage.
5. The duty of a sub-contractor to a principal in tort for property damage is not a novel duty in Australian law, see McDougall J in Rail Corporation of NSW v Fluor Australia Pty Ltd [2008] NSWSC 1348 ('Rail Corp) and Rail Corporation of NSW v Fluor Australia Pty Ltd & Anor [2009] NSWCA 344 per Allsop P, Hodgson JA and Macfarlan JA on appeal from the decision of McDougall J ("Rail Corp - NSWCA"). A judge of this Court is bound to follow the decision of another intermediate court unless the judge considers the decision of the other intermediate appellate court is "plainly wrong": Farah Constructions Pty Ltd v Say-dee Pty Ltd (2007) 230 CLR 89 at [135]. With respect, I do not consider the relevant elements of the decision of McDougall J or the New South Wales Court of Appeal to be plainly wrong.
6. The parties were provided with a copy of the New South Wales Court of Appeal's decision in Rail Corp-NSWCA during the course of argument as an example of an Australian intermediate appellate court finding the existence of a duty of care owed by a sub-contractor to a principal for property damage which did not sound in pure economic loss. The decision in Rail Corp-NSWCA challenges the defendant's submission (at [79] above) that "no Australian court has ever imposed a duty of care on a subcontractor vis-à-vis a principal."
7. In Rail Corp, Rail Corporation of NSW ('Railcorp'), the owner of rail lines and track retained Fluor Australia Pty Ltd ("Fluor") to maintain rail track. Fluor sub-contracted the work to Alpcross Pty Limited ("Alpcross"). On 6 October 2000, a passenger train owned by the State Rail Authority of NSW ("SRA") derailed causing injuries to some passengers travelling on the train, damage to three trains owned by the SRA, and rail track and overhead lines owned by Railcorp. Railcorp paid $5,207,299 to the SRA for damage to the train and for passenger injuries. Railcorp brought a claim to recover that sum from Fluor and/or Alpcross.
8. The trial judge, McDougall J, found that faulty work causing the derailment had been done by Alpcross as the subcontractor to Fluor, and not by Rail Corp. The trial judge found that Alpcross owed Railcorp a duty to exercise reasonable skill and care in carrying out the subcontract work, and that "No question arises in respect of 'pure economic loss', because the work was carried out on Railcorp's property and the consequences of what in my view was a clear breach of the duty of care included loss to Railcorp consequent upon damage, of a foreseeable kind, to Railcorp's property". That analysis at [41], in turn, rested upon his Honour's analysis of Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40:

"In Shirt, Mason J (with whom Stephen and Aickin agreed) said at 44 that a duty of care will, at least prima facie, arise where there exists between the defendant and the plaintiff such a relationship that a reasonable person in the defendant's position would foresee that carelessness on his or her part might cause damage to the plaintiff ...".

1. McDougall J found at [43] that "the guiding minds of Alpcross must have known that carelessness on the part of Alpcross in the performance of the sub-contract works would be likely to cause damage to Railcorp. Alpcross was working on the property of Railcorp. The work involved the removal of sections of the track, and the replacement of those sections by welded in steel rail. The guiding minds must have known that if too much steel rail were inserted in the track, the adjustment of the track would be imperilled, and a substantial rise in temperature ... would render the track susceptible to buckling and misalignment". Further, at [50]-[56] his Honour found that Alpcross had breached its duty and this negligence was causative of the derailment because the track buckled and became misaligned when heated up.
2. On appeal, Alpcross argued that Railcorp's loss was pure economic loss and relied on the principle (restated in Mallonland) that as a general rule damages in negligence are not recoverable for economic loss which is not consequential upon injury to the plaintiff's person or property (Macfarlan JA, (Allsop P and Hodgson JA agreeing) at [127], citing Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65, (1976-1977) 136 CLR 529 per Gibbs J at 555). A similar argument to that was run by the defendants in this matter, albeit in the context of building works.
3. It was found that Railcorp's loss (being its payment to the SRA) was not pure economic loss but was loss consequent on negligent damage to Railcorp's property by the sub-contractor, Alpcross. Macfarlan JA observed:

"After the work was done however the track was unsafe for trains to travel over it. In physical terms, the track was, as Mr Black said, buckled and displaced laterally. These physical defects in the track were negligently caused by Alpcross which became, prior to the derailment, liable in tort for the cost of repair to the track. Before the damage was repaired (or indeed detected) that damage to the rail caused the train to derail with consequent economic loss being suffered by RailCorp. RailCorp's loss constituted by its payment to SRA was not therefore, 'pure' economic loss, but was consequent upon negligent damage to RailCorp's own property. As a result, ordinary principles of remoteness of damage are applicable to determine its recoverability from Alpcross and the principles as to recovery for pure economic loss ... are inapplicable."

1. In this case the apprentice's omission in failing to cap the three waste pipes was not discovered before the damage occasioned by the egress of water and steam occurred. It was the physical defects created by that negligent omission, for which the defendants are responsible, which caused the physical damage to the plaintiff's fit-out. The defendants, however, submitted that this case did involve pure economic loss because the apprentice's omission created a physical defect to a building, and a line of authority in the High Court of Australia has found that loss associated with such defects is pure economic loss. I now turn to those issues.

Was the damage suffered property damage or pure economic loss?

1. The defendants' closing submissions concluded that they did not owe a duty of care to the plaintiff in the circumstances of this case, and put forth two propositions in support of that conclusion. The defendants' first proposition was that the plaintiff's claim was properly characterised solely as pure economic loss. The second proposition was that, even if the plaintiff's claim was to be characterised as property damage, there could still be no duty of care on an analysis of the salient features of this case.
2. For the reasons that follow, these propositions must be rejected as they seek to artificially constrain the plaintiff's position by applying the now extensive jurisprudence dealing with claims in negligence by a subsequent purchaser of a building with an existing (at the point of sale) defect against the party responsible for creating that defect prior to sale. Such claims are now characterised as claims for pure economic loss because any loss by the subsequent purchaser is to be measured as a diminution in the value of the building, a loss against which the purchaser could have protected itself.
3. In this case, the plaintiff as a lessee in possession is not in the position of a subsequent purchaser, or an analogous position. Indeed, it is the nature of the relationship between the lessee and the sub-contractor and the fact that negligence has occasioned damage to property which frames the action in this case, not notions of what constitutes a "defect", or seeking to elevate the cause, or the nature, of the relevant property damage as primary integers that explain, and separate, pure economic loss from property damage.
4. Mr Cox, for the plaintiff, sought to draw a distinction between a claim for property damage and those for pure economic loss whilst, at the same time, eschewing any claim by the plaintiff for pure economic loss:

"... what we have here is an external cause water crystallising the cause of action for property damage by its entry into the premises and causing harm to real and personal property. To the fit-out of the premises and we say that is simply a claim for breach of duty for property damage."[66] (Emphasis added.)

1. Mr Cox accepted that the distinction the plaintiff was seeking to draw was between property damage and pure economic loss was of the type described by Hodgson JA in Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412 at [103]- [108] ("Makawe") (discussed from [118] below).
2. These submissions threw up an antecedent issue to the question of duty, ie whether the damage caused by the three uncapped pipes is to be properly characterised as property damage with consequential losses, or was it purely economic loss? A similar issue to that considered in Rail Corp.
3. The defendant in response relied heavily on the decision of the High Court in Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16, CLR 515 per Gleeson CJ, McHugh, Gummow, Hayne, Callinan and Heydon JJ at [20] discussed below,[67] to the effect that a claim by a subsequent owner of a building for damages for a defect that existed at the point of sale is to be seen solely through the prism of pure economic loss, because it is to be measured as a diminution in the value of the property.
4. Arguably then, a claim in negligence by a subsequent owner for any property damage consequent upon a defect that existed at the time of sale is also to be treated as a claim for pure economic loss. That is, if the property damage for which a claim is made occurs after sale and reveals a defect (present at sale) and is causally linked to the existing defect (at the point of sale), then the post-sale damage because it is causally linked to the existing defect may also be measured as a diminution in the value of the property. Certainly, that is not the plaintiff's position in this case and the point does not arise.
5. None of these observations mean that a lessee in possession cannot bring a claim for property damage in the normal course, nor that such a claim must be analysed solely in terms of "defects" in buildings - it may just be damage to property arising from negligent workmanship to a lessee's property.
6. A "defect" is the term used to characterise existing deficits in a building at the point of sale, thus affecting the interests of a subsequent purchaser. The use of the term tends to equate such property with defective goods at the point of sale, and that analysis can over-complicate the position of a lessee in what may otherwise be a simple action in negligence for property damage.
7. As we shall see in Makawe: (i) the building's susceptibility to flooding was an existing defect at the time of the purchase of the building by Makawe Pty Ltd, and the claim in that regard was an example of pure economic loss measured by the diminution in the property's value occasioned by the defect, whereas, (ii) the damage to the pumping system and staining caused by the actual flood after the building was sold and in the possession of Makawe Pty Ltd was characterised as property damage, albeit that damage may, arguably, be seen as pure economic loss if it was causally linked to the existing defect at the point of sale (refer [102] above).

The nature and mechanism of the damage - the authorities

1. The plaintiff was unequivocal in its submission that its claim squarely concerned, and only concerned, physical damage to property and consequent loss and damage.
2. The purpose of its claim, the plaintiff submitted, was not to recover the cost of the works necessary to replace the uncapped pipe which it characterised as a defect. Rather, it was a claim for the losses incurred by the plaintiff for the works to repair the physical harm caused by leaving the waste pipes uncapped and consequential business losses arising as a result. Conversely, the defendants submitted that the damage, as claimed by the plaintiff, was to be correctly characterised as pure economic loss.
3. Despite the disavowal by the plaintiff that its action in these proceedings is a claim for pure economic loss, the defendants' position that the damage suffered by the plaintiff in this matter is properly characterised as pure economic loss in circumstances where they assert they owe no responding duty of care to the plaintiff requires some careful consideration in the context of recent authority, in particular as to: (i) the nature of the damage suffered, (ii) the mechanism by which that damage was occasioned, (iii) the difference between property damage and pure economic loss, and (iv) how claims in negligence for property damage and those for pure economic loss are to be compared. Turning to the relevant authorities.

1. In its recent 2024 decision in Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25, 98 ALJR 956 the High Court of Australia considered the development of legal principles dealing with the nature and availability of an action in negligence for the recovery of pure economic loss in Australia.
2. In Mallonland, Advanta Seeds Pty Ltd produced grain sorghum seed for sale through distributors to Australian growers. Grain sorghum seed is grown commercially for animal feed and biofuel. Bags of the seed produced by Advanta and sold to commercial growers in bags were contaminated with "shattercane".[68] The contamination only became clear months after the contaminated seed had been planted by affected growers. Those growers commenced a class action in the Supreme Court of Queensland contending that they had suffered pure economic loss as a result of the contamination, including lost income and increased costs. Both the primary judge and the Queensland Court of Appeal found that Advanta was not liable to the affected growers because it did not owe the growers a duty of care.
3. The High Court, Gageler CJ, Gordon, Steward, Gleeson, Jagot and Beech-Jones JJ (Edelman J agreeing), dismissed the appeal from the Queensland Court of Appeal. The plurality, at [29]-[41], described the legal principles that govern the existence of a duty of care to avoid causing pure economic loss in Australia. The primary proposition was put in the following terms at [30]:

"As a general rule, damages are not recoverable in negligence for pure economic loss, that is_, for loss that is not consequential upon injury to person or property_ ...". (Footnotes omitted. Emphasis added.)

1. Edelman J adopted this statement of general principle at [89].
2. Those statements of principle support the proposition that a claim for loss consequential upon property damage is unremarkable and part of the canon of negligence in this country. Further, were the plaintiff's action in this matter properly understood as a claim only for pure economic loss, ie loss not consequent upon property damage, then the matter would have short travel indeed, given that the plaintiff expressly eschews such a characterisation of its action in this Court.[69]
3. It is the defendants' characterisation of the plaintiff's action as such a claim which underpins and explains their position at trial. The parties are separated by their different characterisations of the nature of the damage suffered by the plaintiff, by reference to the mechanism occasioning that damage, and how that damage is to be properly understood within the legal principles for recovery of economic loss in tort in Australia.
4. It is these dramatically different, approaches adopted by the parties which explain why the findings at [19], [32], [56] and [57] above do not resolve the matter. The plaintiff asserts the pleaded duty of care and seeks damages for economic loss consequent upon property damage, whilst the defendants' say that any damage suffered must be understood as pure economic loss, and the plaintiff is not owed any relevant duty of care by the defendants. The latter two propositions are somewhat circular.
5. The passage from the plurality's reasons in the High Court in Mallonland, set out above, notes that the general rule that damages are not recoverable in negligence for pure economic loss is conditioned by the recognition of the action in tort for damages for economic loss consequent upon property damage. Those observations lead to a series of decisions in which Australian courts have considered claims in respect of structural damage to buildings occasioned by the negligence of sub-contractors or professional advisers and characterised them as claims for pure economic loss. The notion that claims seeking consequential economic loss consequent upon physical property damage, such as this case, and those seeking to recover for pure economic loss can be readily separated is, arguably, not reflected in the authorities.

1. The plaintiff relies upon the decision in Makawe.
2. In 1997 Makawe Pty Ltd purchased an apartment block from developers.
3. In 1995, prior to the purchase of that building by Makawe Pty Ltd, the Randwick Council had approved a development application for the building with a basement level car park three metres below ground level. In 1996 the Council approved a building application for the apartment block. At that time, the Council had in its possession a geo-technical report stating that the water table was about the same level as the basement floor slab of the building. However, the Council was also aware from an internal 1992 Private Storm Water Code and participation in the 1996 Botany Aquifer Working Group that the water table was close to the ground surface.
4. From June 1998 onwards, flooding occurred in the building's car park, causing damage to the pumping system, leaving stains and requiring rectification works. Makawe Pty Ltd, despite the absence of a direct relationship with the Randwick City Council, brought an action in negligence against the Council in the District Court of New South Wales asserting that the Council owed it a duty of care and ought to have taken steps to protect the building. At first instance, in the District Court of New SouthWales, Phegan DCJ, found that the council did not owe any duty of care, in part, on the basis that the damage claimed consisted of pure economic loss. In the New South Wales Court of Appeal, Simpson J, Hodgson and Cambell JJA agreeing, dismissed an appeal, finding that the damage for which relief was sought was properly characterised as pure economic loss, Hodgson JA characterised the relevant damage in the following terms at [18]:

"I agree with Simpson J and with the primary judge that the loss complained of in this case is to be characterised as pure economic loss. In my opinion, this conclusion is required by the decision of the High Court in Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16; (2004) 216 CLR 515. There has been very minor property damage to Makawe's building by way of staining and the like; but the damages claim is not in respect of that staining or its consequences but rather in respect of the defect in the building as originally constructed." (Emphasis added.)

1. Hodgson JA draws a distinction between physical damage to the building owned by Makawe Pty Ltd and the nature of the damages for which relief is sought, in that there was no claim by Makawe Pty Ltd for property damage or consequential loss but rather for damages emerging for a "defect in the building as originally constructed". Arguably, had the plaintiff made a claim for physical damage suffered as a direct result of the flood, then that would sound in pure economic loss in any event as it was causally related to the defect existing at the point of sale (susceptibility to flooding) (refer [102] above). The ambit of claims for pure economic loss by subsequent purchasers is framed by the fact of sale, the pre-existing defect and the damage causally linked to a pre-existing defect.
2. The relief sought by Makawe Pty Ltd was for a defect in the construction of an apartment building which existed at the time that Makawe Pty Ltd acquired the building from developers in 1997, and was, therefore, characterised as pure economic loss because what was sought was effectively a diminution of the value of the apartment block at the date of purchase. It was this characterisation of the loss for which relief was sought that brought the matter within the purview of the earlier decision of the High Court in 2004 in Woolcock Street Investments Pty Limited v CDG Pty Limited (above).

(iii) Woolcock Street Investments Pty Limited

1. In Woolcock Street Investments Pty Limited the appellant/plaintiff, Woolcock Street Investments Pty Limited ("Woolcock") purchased a building from Permanent Trustee Co Ltd in 1992, a company that had succeeded a joint-venturer that had constructed the building in 1987. The contract for the purchase of the building by Woolcock contained no warranty that the building was free from defects.

1. Prior to the purchase, Woolcock's solicitors had requested Townsville City Council to physically inspect the building, and the Council gave a qualified report to Woolcock on 7 July 1992 which did not identify any matters of structural concern. Similarly, a report commissioned from a plumber, prior to purchase, who inspected the roof of the building also failed to identify any serious defects. In 1994 the building began to show signs of structural distress by way of settlement.
2. Woolcock sued, inter alia, the engineering company that had designed the building and supervised its construction ("CDG"). Woolcock commenced proceedings in the Queensland Supreme Court, and after Woolcock had delivered a further amended statement of claim and each respondent had filed a defence, the case proceeded by way of case stated to the Queensland Court of Appeal. Woolcock contended that CDG owed it a duty of care, which was pleaded in the following terms at paragraphs 6 and 7 of the statement of claim:

"6 (a) The Complex was at all times, to be a permanent structure to be used indefinitely.

(i) failure to design the structure of the Complex properly;

(ii) failure to design the foundations of the Complex properly;

(iii) failure to take any or any proper account of the sub-soil conditions under the Complex; and/or

(iv) failing to construct the foundations properly, would result in an owner of the Complex suffering loss and damage of the kind pleaded at paragraphs 3, 4 and 5 herein.

1. The said loss and damage to the Plaintiff has been caused by reason of the negligence of the First Defendant and/or the Second Defendant in discharge of their respective duties to the Plaintiff."
2. The Queensland Court of Appeal was asked to answer the question stated, ie "On the agreed facts, does the amended statement of claim delivered on 11 April 2000 disclose a cause of action in negligence against the defendants?", and the court answered that question in the negative. The matter went on appeal to the High Court of Australia.
3. In the High Court, Gleeson CJ, Gummow, Hayne and Heydon JJ, dismissed the appeal, and McHugh and Callinan JJ joined in the orders, albeit in separate judgments, with Kirby J dissenting. The focus on the appeal was on "defects" in buildings. The plurality made it clear, at [19], that:

"The damage for which the appellant seeks a remedy is the economic loss it alleges it has suffered as a result of buying a building which is defective. Circumstances can be imagined in which had the defects not been discovered, some damage to a person or property might have resulted from those defects. But that is not what has happened. The defects have been identified. Steps can be taken to prevent damage to person or property." (Emphasis added.)

1. It is immediately obvious that the case brought by the plaintiff in this case contends that the negligent workmanship was the three uncapped pipes, which were not discovered prior to the egress of hot and dirty dishwashing discharge which caused excess steam to fill the subfloor cavity and run under the floor and into the bar joinery thereby effecting property damage and causing a strong odour. The facts as pleaded in this matter are different in important respects to the case brought by Woolcock and considered by the High Court. In particular, the plaintiff was a lessee not an owner and any loss suffered as a result of negligence could not effectively sound in the diminution of value in a building which the lessee did not own. Further, there was no assignment of the lease (which might be seen as analogous to a sale of a building) between the negligent workmanship and the damage or its discovery.
2. The High Court in Woolcock Street Investments Pty Limited, perhaps unsurprisingly, refused to be drawn into the debate about how damage to buildings should be characterised. In considering what the court said in this regard, it is important to be mindful that the cases discussed were all claims by subsequent purchasers of buildings without notice of a defect that existed at the point of sale. In this regard, the plurality of Gleeson CJ, McHugh, Gummow, Hayne, Callinan and Heydon JJ at [20], citing Dutton v Bognor Regis Urban District Council (1972) 1 QB 373 per Lord Denning MR at 396, and Anns v Merton London Borough Council [1977] UKHL 4; (1978) AC 728 per Lord Wilberforce at 759 stated at [20] that:

"A view was adopted for a time in England that, because there was physical damage to the building, a claim of the kind made by the appellant was not solely for economic loss. That view was questioned in Sutherland Shire Council v Heyman and rejected in Bryan v Maloney. It was also subsequently rejected by the House of Lords in Murphy v Brentwood District Council. There is no reason now to reopen that debate and neither side in the present matter sought to do so. The damages which the appellant alleges it has suffered is pure economic loss." (Footnotes omitted. Emphasis added.)

1. This passage raises the question whether damage of the type pleaded by the plaintiff in this matter, despite being, or including, physical damage to its fit out, can only be characterised as pure economic loss; and whether its pleaded action is now precluded by the principles set out in Woolcock Street Investments Pty Limited. If the analysis of Makawe set out above is accepted, then the answer emerges as a clear "no". If a subsequent purchaser sues in negligence for a defect in a building present at sale, then the suit is for pure economic loss. If that suit includes damage to the building post sale caused by an existing defect at the point of sale and suffered by the subsequent owner post sale (e.g. if the plaintiff in Makawe had sought damages for the staining and damage to the pumps occasioned by the actual flood) then that is also, arguably, pure economic loss because it is causally related to a defect in existence at the point of sale and thus also capable of characterisation as pure economic loss.
2. Certainly, the general proposition expressed in Mallonland (reproduced at [112] above) confirms the availability of an action for property damage and consequential economic loss in Australia. In that context, it may readily be appreciated that a subsequent purchaser such as Woolcock is essentially claiming for the diminution in value of the building it has purchased, because of defects at the point of sale, and hence that diminution in value due to those defects can be readily quantified and characterised as pure economic loss. Equally, one might characterise property damage suffered by a subsequent purchaser post sale as a result of a pre-sale defect as pure economic loss if it is causally linked to the pre-sale defect.
3. That leaves the outstanding question whether a claim for any damage to the property of a party in possession, whether as an owner or a lessee, arising from damage consequent upon negligent workmanship or a building defect by a sub-contractor must, as advocated by the defendants, be characterised as a claim for pure economic loss, such that the plaintiff can only establish a duty of care upon the application of the salient features test and the principles in Woolcock Street Investments Pty Limited?
4. The point made above that an action in negligence for damage to property brought against a sub-contractor may be brought by either an owner or a lessee of a damaged building, each having at least a possessory, rather than merely a contractual interest in the building, raises the question why damage flowing from a building defect must always be seen through the prism of a subsequent owner, ie as a diminution in the value of the building in circumstances where such a diminution could not be a loss suffered by a lessee in possession at the date of the damage because the lessee does not own the building. Equally, the position of the plaintiff as the lessee is neither the same, nor analogous to, a subsequent purchaser (of a building with defects) as the plaintiff remained in possession at all material times.
5. If the loss cannot be characterised, or quantified, as a diminution in the value of the building, do the principles in Woolcock Street Investments Pty Limited apply? This question appears to pose some significant difficulties for the argument put by the defendants in this matter. We shall see that the courts have approached this issue in different ways depending upon whether the position of the party with the possessory interest can be equated, by analogy, to that of a subsequent purchaser, ie whether the party in possession is an assignee of a prior lessee and the defect arose during the tenancy of the assignor (see Rickard Constructions discussed below from [139]).
6. Equally, do such principles apply where an owner (not this case) who is not a subsequent purchaser of the building but rather is in possession and owns the building at the time of the damage? No doubt such damage could be quantified as a diminution in the value of the property, but the point is that the damage has been done to the owner's property whilst the owner owned the building and was in possession - unlike a subsequent purchaser who did not own the building at the time the damage was done. Of course, this issue does not arise for decision in this case (as the plaintiff is a lessee in possession not an owner) and can be put to one side. The point does however raise some potential limitations upon the application of the principles in Woolcock Street Investments Pty Limited.

(iv) The text - professional liability in Australia

1. The defendants in their submissions relied heavily on a passage in Professional Liability at [6.620],[70] where the learned authors discuss claims in negligence made against sub-contractors by the owners of buildings for shoddy or defective work. Given that the plaintiff in this case is neither: (i) the owner of the building the subject of its claim, nor (ii) an assignee of a lease where the damage to the building (defect) occurred before assignment of the lease, one has to treat the application of the principles described and collected in paragraph [6.620] with considerable care.
2. The authors first identify the nature of the legal relationship between an owner and a sub-contractor:

"There is no contract between the owner and the subcontractor. Instead, there is a contract between the owner and another party (A), such as head contractor or builder, and a separate contract between A and the subcontractor ... The significant point is that there is no contract or direct contractual arrangement between the subcontractor and the owner. A question is whether the subcontractor owes the owner a duty of care. The principles stated in Woolcock Street Investments Pty Limited v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 apply. Hence, whether the subcontractor owes the owner a duty of care requires a consideration of whether the owner is vulnerable, the contract and the relationship between the subcontractor and A, and the concepts of assumption of responsibility and known reliance. In general, the owner will have difficulty in establishing that the subcontractor owes the owner a duty of care: see, for example, Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWCA 356 at [203]- [209]; Gunston v Lawley (2008) 20 VR 33; [2008] VSC 97 at [19]- [33]; CJD Equipment Pty Ltd v A & C Constructions Pty Ltd [2009] NSWSC 1362 at [247]- [265]; Design Services Ltd v Canada (2008) 293 DLR (4th) 437 (Supreme Court) , Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2004] NZCA 97; [2005] 1 NZLR 324 (Court of Appeal)." (Emphasis added.)

1. Turning then to each of the cases cited in the passage set out above (with the exception of the New Zealand and Canadian authorities) starting with Rickard Constructions.

1. In Rickard Constructions the New South Wales Court of Appeal heard an appeal from the decision of McDougall J in respect of a claim by the appellant ("Rickard Constructions") which had constructed a pavement at a container depot at Port Botany. The pavement failed shortly after it was put into service, and the question arose as to who should bear the loss.
2. The pavement was designed by the first defendant, ("Rickard Partners") and the second defendant ("Jeffrey and Katauskas") provided geotechnical services. The third defendant ("Allianz") had issued a contract works insurance policy in favour of Rickard Constructions. Rickard Constructions action against the defendants was brought on different bases which included a claim "as the possessor in its own right" of causes in action in negligence against Rickard Partners and Jeffrey and Katauskas. The trial judge held at [6] that:

"... with a possible qualification which he did not resolve, Rickard Partners did not owe Rickard Constructions a relevant duty of care, that any duty of care had not been breached, and that Rickard Constructions had not shown that it suffered any damage. He held, with a like possible qualification that he did not resolve, that Rickard Partners owed only a limited duty of care, and that any duty of care had not been breached."

1. To better appreciate the outcome in Rickard Constructions it is necessary to explore the relationships between the parties. The container depot was leased by Sydney Ports Corporation to the Port Botany Container Park ("Container Park"). Container Park engaged Rickard Partners, civil engineers with expertise in heavy duty pavements, to design the pavement. Rickard Partners had previously designed another pavement for a container depot across the road which had performed satisfactorily.
2. The engagement of Rickard Partners for the design of the pavement by Container Park was oral. The design was "prepared by at least the 28 March 1998", albeit the design changed thereafter and the design document in evidence was dated September 1998.
3. On 23 April 1998, Rickard Constructions executed a contract, for a contract sum of $6 million, with Container Park providing for the construction of the pavement in accordance with the plans and specifications drawn by Rickard Partners. The specifications did not say anything about a qualified geotechnical engineer undertaking testing. Construction of a pavement of the relevant type usually requires attention to the moisture content to allow optimal compaction.
4. On 24 April 1998, Jeffrey and Katauskas put a proposal to Rickard Partners for the provision of geotechnical services in the construction of the pavement. Jeffrey and Katauskas did site investigation and testing (including compaction testing) for Rickard Partners, particularly as work was done to prepare the subgrade but also some CBR testing on the sub-base in late 1998. Giles JA describes the contractual arrangements that existed as at the end of 1998:

"[42] By a Business Purchase Agreement dated 4 January 1999 Mayne Nickless agreed to purchase the assets of Container Park's Sydney business. The assets included the lease of the container depot and what were described as the Sydney Contracts, amongst which were Container Park's contract of 23 April 1998 with Rickard Constructions as a specifically identified contract and '[a]ny other executory agreements with third parties relating to Works being carried out under the Building Contract with Rickard Constructions Pty Ltd'. The Business Purchase Agreement was a complex document, with Container Park and Mayne Nickless carefully allocating risk in the sale of assets. It included an indemnity by Container Park in respect of any claim for which Mayne Nickless might be liable in respect of the ownership of the assets or the conduct of the business.

[43] The Business Purchase Agreement did not itself assign the contract of 23 April 1998 or, if it was one of the executory contracts with third parties, the contract under which Rickard Partners had been engaged. It provided that on completion Container Park would transfer the contracts either by assignment or by novation. Completion must have taken place, but there was no evidence of what, if anything, happened by way of assignment or formal novation. Mr Rickard said that Mayne Nickless representatives came to site meetings after Container Park sold its interest in the container depot, although that presumably was after completion at some time later than 4 January 1999. Rickard Constructions and Rickard Partners must have come to know of the change in ownership. It does not seem to have been disputed that in some manner Mayne Nickless became the Proprietor under the contract with Rickard Constructions. That it became a contracting party with Rickard Partners was questioned by the latter, and I will return to it."

1. Following completion of construction of the pavement on or about 26 August 1999, Rickard Partners provided "pavement certification" to Rickard Construction which in turn notified Container Park (apparently there was no explanation as to why this notification was not made to Mayne Nickless): per Giles JA at [49]. After completion Mayne Nickless "apparently" gave MPG Logistics a right to occupy the container depot and "one or more of them began to use it for the storage of shipping containers". Within three days of being put in to service the pavement failed.
2. Giles JA dealt with the principles in Woolcock Street Investments Pty Limited when considering if Rickard Partners owed a duty of care to Mayne Nickless and/or MPG Logistics. Importantly, his Honour considered at [160] that Mayne Nickless should be considered to be in the position of a subsequent purchaser. That was because Mayne Nickless purchased the lease of the container depot and the contract of 23 April 1998. As a consequence, Giles JA applied the principles in Woolcock Street Investments Pty Limited despite Mayne Nickless, as lessee, having a leasehold interest only. Essentially Mayne Nickless, being found to be in a position analogous to that of a subsequent purchaser, could have taken steps to protect itself when taking the assignment of the lease from Container Park, and thus was not vulnerable to the economic consequences of any negligence by Rickard Partners: per Giles JA at [161]-[167], citing Gleeson CJ and Gummow, Hayne and Heydon JJ in Woolcock Street Investments Pty Limited at [31], and McHugh J at [111].
3. The passage in Rickard Constructions cited by the learned authors in Professional Liability focussed on the reasons given by Giles JA at [203]-[209] where his Honour dealt with an alleged duty of care owed by Jeffrey and Katauskas to Mayne Nickless (the subsequent lessee), again the analysis was based on a position analogous to that of a subsequent purchaser. However, in this case, unlike Rickard Constructions, there was no relevant assignment of the lease. The plaintiff was the lessee throughout the fit out and was in possession when it suffered the consequences of the loss and damage arising from the defendants' failure to cap the uncapped pipes. Certainly, Giles JA considered that a succeeding lessee, being the subsequent assignee of the lessee at the time a defect arose, can be seen through the same prism as a subsequent purchaser - such that any loss and damage is to be seen as pure economic loss and the principles in Woolcock Street Investments Pty Limited applied.
4. It is interesting to consider, with respect, how it can be said that a subsequent lessee's action based on a pre-existing defect at the point of assignment could be represented as a diminution in the value of a building that the lessee did not own. Perhaps another way of understanding the decision in Rickard Constructions is that the subsequent lessee was not vulnerable in the sense that it could have taken steps to protect itself from the loss occasioned by the failure of the pavement.
5. Rickard Constructions Pty Ltd leaves open the question in this case - how is the Court to treat a lessee not being in an analogous position to that of a subsequent purchaser? The Court has to consider whether the alleged duty of care has been established, but in doing so is it obliged to apply the principles in Woolcock Street Investments Pty Limited as if the plaintiff were in the same position as a subsequent purchaser or subsequent lessee?

1. Turning then to the decision of Byrne J in Gunston v Lawley [2008] VSC 97; (2008) 20 VR 33, VSC 97 at [19]-[33]. In or about 1997 or 1998 Terrace Constructions (Vic) Pty Ltd, the owner of land at 57 and 59 Evansdale Road, Hawthorn, caused the existing building to be demolished and replaced by a two story building comprising two dwellings. The builder was an associated company, Terrace Designs Pty Ltd.
2. The new dwellings were then sold, No 57 to Mr and Mrs Roberts on 5 July 1998 and No 59 to Mr and Mrs Lindsay. Each of these purchasers then on-sold the relevant property. Mr and Mrs Roberts sold No 57 to Ms Lawley on 16 March 2000 and Mr and Mrs Lindsay sold No 59 to Ms Baines on 16 August 1999. In 2001, or early 2002, the subsequent owners noticed cracking and distortion in the building, and subsequently commenced proceedings in the Victorian Civil and Administrative Tribunal against the builder, a director of the builder and registered building practitioner, and Mr Arthur Gunston the architectural draughtsman (other parties were subsequently joined). His Honour observed at [5]:

"... the owners fairly straightforward claims were transformed into a complex and doubtless expensive suite of proceedings, a phenomenon which is regrettably not uncommon product of proportionate liability regime now in force. The owners who had a good claim against the builder, ended up suing six respondents, failing against two of them and succeeding against four, of which one was a limited insurer of another which itself is probably insolvent. Of the remaining two successes one is here under challenge."

1. Of the grounds of appeal, the second attacked the finding in the Tribunal that the architectural draughtsman, Mr Gunston, owed a duty of care to the subsequent owners. Byrne J dealt at [21] with the claim, as a claim by a subsequent owner and characterised the action as a claim for pure economic loss:

"The present case involves what has come to be called pure economic loss, a loss which was not compensable under the law of negligence as it stood in 1963 when the Voli case was decided. The High Court, in a series of decisions over the past 30 years, has established the existence of a cause of action in negligence for this loss, but the ambit of the duty of care which underlies this cause of action is somewhat uncertain. It is, however, well established that something more must be shown than that the loss of the plaintiff was reasonably foreseeable by the defendant. The further requirements will depend upon the circumstances of the case and, in particular, upon an examination of what the High Court has called the 'the salient features' in order to determine whether the relationship between the plaintiff and the suggested negligent party is sufficiently close to impose an actionable duty of care."

1. The difficulty with applying the analysis in Gunston in this case is that, like Woolcock, it begins by characterising the action as a claim for pure economic loss because the respondents were subsequent purchasers. This brings us back to the question whether the loss and damage claimed by the plaintiff in this matter can be similarly characterised?
2. That question falls to be answered in circumstances where the plaintiff in this case was neither a subsequent owner nor lessee (in the sense that Mayne Nickless was in Rickard Constructions) and the loss and damage is said by the plaintiff to have arisen as property damage and consequential economic loss upon the defendants' negligence rather than as pure economic loss.
3. A starting point for the consideration of the plaintiff's circumstances in this case, consistent with the statement by the plurality in Mallonland is, as Byrne J acknowledged at [27]:

"There is no general principle of law that a subcontractor cannot owe a duty of care to a proprietor with which it has no direct contractual relationship. Furthermore, it is not helpful to consider the existence of a duty of care in a vacuum it will depend upon the relationship between the parties with respect to the negligent activity in question and with respect to the loss which the proprietor has suffered as a consequence. This may arise from the fact that that the subcontractor is nominated by the proprietor or that the work was otherwise the consequence of direct dealings between them ...".

1. Byrne J, having identified the action as one for pure economic loss, embarked at [34] on the salient features analysis in which he highlighted the question of vulnerability and the plaintiff's ability to protect itself in the event of negligence. The analysis required in this case does not go so far unless the damage can be characterised as purely economic loss. In Rail Corp at first instance, McDougall J considered Gunston, but ultimately at [46] found it unnecessary to consider the principles identified by Byrne J because of his findings as to the nature of the duty owed by Alpcross.

1. The last of the cases at paragraph [6.620] was the 2009 decision of McDougall J, the New South Wales Supreme Court in CJD Equipment v A&C Constructions [2009] NSWSC 1362.
2. The plaintiff, CJD, imported, sold and serviced heavy earthmoving and construction machinery, and carried on its business throughout Australia, including premises at Smeaton Grange in New South Wales. The Smeaton Grange premises were constructed for CJD by the first defendant, A&C. CJD says that the premises are defective, and unfit for its purposes. It seeks damages from A&C and from those who were involved in the design of the premises. In particular CJD complained about internal and external slabs which it said were inadequate for the design loads, allowed moisture to penetrate between individual panels allowing the subgrade to swell, in circumstances where the subgrade had been over compacted.
3. The case in CJD Equipment was brought as a claim for pure economic loss. McDougall J observed at [229]-[231]:

"[229] The plurality judgment in Woolcock Street at 529 [19], [20], makes it clear that a claim for damages sustained by buying a building that is defective is a claim for economic loss. At [19], their Honours (Gleeson CJ, Gummow, Hayne and Heydon JJ) said that '[c]ircumstances can be imagined in which, had the defects not been discovered, some damage to personal property might have resulted from those defects. But that is not what has happened. The defects have been identified. Steps can be taken to prevent damage to person or property'. That is the case here. The defects have been identified. CJD has taken steps - specifically, to prevent glass falling out of the curtain wall - to prevent damage to person or property.

[230] At [20], their Honours referred to a view 'that, because there was physical damage to the building, a claim of the kind made by the appellant was not solely for economic loss' (their Honours' emphasis). They said that the view had been questioned in Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424 and rejected in Bryan v Maloney (1995) 182 CLR 609. That view had also been rejected, their Honours said, by the House of Lords in Murphy v Brentwood District Council [1991] UKHL 2; [1991] 1 AC 398.

[231] Thus, their Honours said, '[t]here is no reason now to reopen that debate'."

1. In this case, if one characterises the egress of water and steam from the three uncapped waste pipes as a defect, then unlike CJD Equipment and Woolcock Street, that defect was not discovered before property damage was incurred. Further, the damage occasioned by the defect occurred whilst the plaintiff was in possession. It is that property damage that the plaintiff seeks to recover for, not for any diminution, or notional diminution, in the value of a building.

A distinction between internal and external sources of harm?

1. The defendants referred to curial authority to support the principle that the damage in this case is solely pure economic loss, and that arises where there is an internal defect within a building or property. The defendants contended that a series of cases ( De Pasquale Bros Pty Ltd v Cavanagh Biggs & Partners Pty Ltd (1999) Aust Tort Reports 81; Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13; (1994) 179 CLR 520; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27; Brocklands Pty Ltd v Tasmanian Networks Pty Ltd [2019] TASSC 26), established the principle that damage to a building can only be characterised as property damage where the damage came from an external source to the property, rather than from a defect within the property itself.
2. The present facts, the defendants argued, fell within the ambit of pure economic loss because the uncapped waste pipes constituted an internal defect.
3. The plaintiff submitted that the principles relied on by the defendants were drawn from cases involving claims for the cost of rectifying defective work and generally involved subsequent purchasers of buildings that contained an existing defect at the point of sale. The plaintiff sought to distinguish those authorities from the present case on the basis that the facts do not involve a subsequent purchaser, or rectification works to avoid the risk of future physical harm to person or property.
4. The analysis proffered by the defendants in closing (defendants' closing submissions at [43], began with a passage from Bryan v Maloney (Mason CJ, Deane and Gaudron JJ p 623 at [12])):

"[43] While the relationship between Mr Bryan and Mrs Manion with respect to physical injury to Mrs Manion's person or property must be distinguished from the relationship between them with respect to mere economic loss, the significance of such a distinction varies according to the particular kind of economic loss which is involved in the relevant category of case. Here, the distinction is between ordinary physical damage to a house by some external cause and mere economic loss in the form of diminution in value of a house when the inadequacy of its footings first becomes manifest by consequent damage to its fabric. Obviously, that distinction, which has only recently attained general acceptance, is an essentially technical one..."

1. The passage highlighted by the defendants simply draws a comparison between: (i) an established defect in a house present at the time of purchase which manifests (damage is caused to the building) in the hands of a subsequent purchaser, and (ii) damage caused to a building by defective workmanship where the claimant for damages for property damage has a current possessory interest in the building. The same observation can be made with regard to the further passage from the judgment of Brennan J from Bryan v Maloney at p 634 that was relied upon by the defendants (defendants' closing submissions at [44]):

"It is the defective quality of the building or chattel, not the results external to the building or chattel, that is postulated as the damage in respect of which the question of the builder's or manufacturer's duty of care arises."

1. This passage equates defective buildings and chattels which, whilst it may be apposite when applied to a subsequent purchaser who has purchased a building with an existing defect, becomes infelicitous when characterising damage to a lessee's property whilst in possession because the lessee has not acquired the building. To characterise such damage as a defect is somewhat unwieldy. The reference to "external" in this context is to make the distinction between existing defects in the building at the point of purchase, ie "defective quality of the building" characterised as "internal" compared to subsequent impacts upon the building occasioning damage described as "external". It is to be noted that when the whole of the passage relied upon by the defendants is considered the point becomes clear:

"The question is not whether the builder or manufacturer might be liable for personal injury or damage to property resulting from the defect produced by negligent building or manufacture, but whether the builder or manufacturer might be liable for defects in the building or chattel itself. It is the defective quality of the building or chattel, not the results external to the building or chattel, that is postulated as the damage in respect of which the question of the builder's or manufacturer's duty of care arises." (Emphasis added.)

1. Makawe demonstrates how an external flood may occasion damage to a building in the hands of a subsequent purchaser, albeit as a result of a defect that existed at the time of purchase (susceptibility to flooding). Is such damage occasioned by an external agency (flooding) to be recognised as an internal defect? Or does it simply suggest that such an internal/external analysis has limited utility when seeking to legally characterise the nature of the damage?
2. The defendants also rely on a further passage from Bryan v Maloney (Mason CJ, Gaudron and Deane JJ at [20]) where the majority held:

"It is difficult to see why, as a matter of principle, policy or common sense, a negligent builder should be liable for ordinary physical injury caused to any person or to other property by reason of the collapse of a building by reason of the inadequacy of the foundations but be not liable to the owner of the building for the cost of remedial work necessary to remedy that inadequacy and to avert such damage."

1. This passage is inapposite in this case as it deals with the situation where a builder contracted by a former owner of a building is not liable to a subsequent owner for remedying a defect that existed at the time of purchase, and so the subsequent owner's loss is measured as pure economic loss which, of course, is not this case. That is not an example of the internal/external distinction posited by the defendants, and Makawe demonstrates why such an analysis lacks utility in any event.
2. The defendants then seek to rely on the passage from Woolcock Street Investments Pty Limited, (majority at [19]-[20], see defendants' closing submissions at [46]), which has been considered above (from [124]) and, for the reasons set out, it does not assist the defendants in this matter. Similarly, and contra to the submission at [53] of the defendants' closing submissions, the defendants' reliance on other cases brought by the subsequent owners of buildings in respect of existing defects at the point of sale (or a subsequent assignee of a lease in an analogous position) doesn't assist them here: see, Woolcock, Rickard Constructions, Makawe, and Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 & Anor [2014] HCA 36; (2014) 254 CLR 185.
3. The defendants then presented a further series of cases that were said to be "examples of where the courts have held damage to arise from external causes - which the courts have held to be property damage, and not pure economic loss" (defendants' closing submissions at [56]-[60]): De Pasquale Bros Pty Ltd v Cavanagh Biggs & Partners Pty Ltd; Burnie Port Authority v General Jones Pty Ltd; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd; and Brocklands Pty Ltd v Tasmanian Networks Pty Ltd .
4. It is here that the defendants' reliance on a distinction between internal and external sources crystallises, the defendants submit that in each of the cases relied on the damage to the property came from an external source to the property, that is the damage did not come from a defect (being a result of negligence) internal to the property itself. The defendants offer a series of analogies, one of which is (defendants' closing submissions at [62]):

"Equally, if the defendants' negligence had caused mould or water damage to an adjoining property, or even to the plaintiff's stock. Similarly, had an employee of the plaintiff contracted an illness as a result of the water damage and mould at the Premises, this would be personal injury because the water damage and mould is an external cause of the injury to the person."

1. It is hard to reconcile why negligence which caused damage to aspects of a building occupied by a lessee in possession (such as its floor and fittings) would be characterised as pure economic loss whilst the same negligence causing damage to stock on the premises is to be understood as property damage merely because the stock is a chattel and not part of a fit out. To the extent that it may be relevant, why is the egress of water and steam an external cause of property damage to stock and not to other elements in the building?
2. The defendants also relied upon the English Court of Appeal decision in Bellefield Computer Services & Ors v E Turner & Sons & Ors [2002] EWCA Civ 1823 as "another useful illustration of the distinction between pure economic loss and property damage, and how the nature of the cause of the damage (ie external or internal) determines whether the damage is economic loss or property damage" (defendants' closing submissions [63]). The claim in negligence was for damages due to the defective construction of a wall that allowed a fire to spread. Reliance was placed by the defendants on the nature of the damage in that case that was found to be recoverable. Bellefield being another case where the claimant was a subsequent owner did not assist the defendants' case.
3. The argument put by the defendants is that the way to approach the question is to consider what was the "thing" worked on that gave rise to the damage; and is that external to the damage suffered? Examples were proffered (defendants closing submissions [64]):

"In Esso, the defendants' negligence caused an explosion at its gas plant - an external factor to the lost stock at the malt factory and restaurant. In De Pasquale, the damage to NJF's building was caused by the negligent design and construction of De Pasquale's adjoining building. In Burnie Port Authority, the independent contractor was working on a part of the defendant's building which caused a fire; damaging property belonging to someone else in a different part of the building."

1. The four cases cited as examples of damage caused by external sources do not advance the defendants' case, because they do not establish the external/internal distinction that the defendants seek to apply in this case, nor that the damage suffered by the plaintiff in this case should be characterised as an internal defect and thus a case of pure economic loss.
2. Here the mechanism of the damage was the escape of water and steam and the impact they had on property owned by the plaintiff, but that property was the fit out within the building - not the building that contained the fit out which continued to be owned by the lessor not the plaintiff. The fit out was the "thing" that was worked upon. In that context whilst the fit out is not a chattel, the plaintiff's ownership of its elements is preserved (refer [66] above), and it is to be removed at the end of the lease. This observation further demonstrates why the plaintiff's claim in this instance is not for damage occasioned by an internal defect as described by the defendants. Equally it is not clear why the egress of water and steam into the plaintiff's fit out is not analogous to damage to buildings caused by external sources such as fire, wind, flood or electricity.

1. I find the pleaded duty of care is established. The duty of care found is well known to the common law of Australia and is not novel. The defendants' position in that regard is misconceived in that it seeks to build on the application of authorities that engage claims by subsequent owners of buildings in respect of defects in their buildings at the time of sale and, in some instances, damage incurred to those buildings after sale but causally linked to pre-defects.
2. I find that the defendants were negligent and breached the duty they owed to the plaintiff when their unsupervised apprentice left three waste pipes uncapped at the premises on or about 24 May 2019.
3. The negligence of the defendants in leaving the three waste pipes uncapped breached the duty of care that they owed to the plaintiff, and caused damage to property owned by the plaintiff which was part of its fit out. That damage resulted in consequential loss, causing business interruption and stock losses.
4. The unchallenged loss adjusters' reports demonstrate the mechanism of the property damage and the nature of the plaintiff's losses.
5. There is no contest to the plaintiff's case on quantum and the Court is satisfied that the plaintiff's claim in respect of damages flowing from the egress of water and steam have been established to the requisite standard.

1. The plaintiff's claim is allowed in the sum of $1,402,868.06 comprised of:

[1] Plaintiff's Book of Evidence, Exhibit 22 ("PBE") from PBE 29

[2] Quotation (PBE 93), and the fit-out works contract (from PBE 100)

[3] The stock was damaged having been sprayed with waste during the repair process (PBE 341)

[4] Paragraph 13 of the statement of claim filed 17 May 2022 (PBE 12) admitted at paragraph 10 of the further amended defence dated 20 June 2024 (PBE 17)

[5] Defendant's amended list of issues at [1]

[11] The "Act" is defined under the Lease as "means the Code of Practice for Rental Tenancies in force under the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998".

[12] Chronology of Uncontested Facts, Item 10, and see senior counsel for the defendants on 19 February 2025 at T 35

[13] Chronology of Uncontested Facts, Item 1 - plaintiff's written closing submissions p 3 [12a]

[14] Chronology of Uncontested Facts, Item 7 - plaintiff's written closing submissions p 4 [12d]

[18] A copy of the plan referred to at paragraph 3 of the statement of Jack Harper made 12 April 2021 (described as Annexure A in that statement) showing the uncapped waste pipe appears at Annexure A to these reasons.

[19] A copy of the photograph referred to at paragraph 7 of the statement of Jack Harper made 12 April 2021 (described as Annexure B in that statement), showing kitchen area, appears at Annexure B to these reasons.

[20] A copy of one of the photographs referred to at paragraph 13 of the statement of Jack Harper made 12 April 2021 (described as photograph number 4 of 12 and part of Annexure C to that statement), showing the uncapped pipe appears at Annexure C to these reasons.

[21] Transcript, plaintiff's closing 19 February 2025, T 10 lines 20 - 35; defence closing 19 February 2025 T 44 line 20.

[23] PBE 26, Chronology of Uncontested Facts, Item 24

[24] PBE 26, Chronology of Uncontested Facts, Item 25

[48] PBE 692, it is understood that this figure includes stock damaged during rectification work, refer [34] above.

[52] Plaintiff's closing 19 February 2025, T 7 line 10

[53] Plaintiff's closing 19 February 2025, T 7 line 19

[54] Plaintiff's closing 19 February 2025, T 8 lines 1-10

[56] Transcript, plaintiff's Closing 19 February 2025, p 9 lines 15-20

[58] Deed of assignment, PBE 80, see clause 2.1 at PBE 85

[63] Abadee, A, Zipser, B, Sirtes, G, and O'Keefe R, Professional Liability in Australia, Fourth Edition, Lawbook Co 2023.

[64] Plaintiff's closing submissions p 36 [106]

[65] Defendant's closing submissions p 19 [81]

[66] Plaintiff's Closing 19 February 2025, T 9 lines 35 - 40.

[68] Shattercane is a plant genetically related to grain sorghum, but not itself useable for grain crops; its seed head shatters, spreading seed widely and growing vigorously to the detriment of grain sorghum cultivation, see Mallonland at [1].