Economic Loss: Defective Structures Flashcards
What’s the problem?
Negligent building in the foundations of a house.
But nothing appears wrong when the building is first sold to the vendor.
But the problems arise at a later stage when the property is sold onto P - the first, second or third and so forth purchaser. Could be 20-30 years after the work is originally done.
Problem because P was not in possession of the building at the time. They have paid for a property for more than what it’s worth.
The courts in these instances construe the harm as purely economic harm because the P was not in possession of the building but the P has paid for a product more than it is worth due to the damage.
Policy arguments against Local Council Liability
- Pure economic costs (repair costs)?
- Omissions (Crimmins) - Person that is supervising that is negligent. So the liability will be omission. Omitting to prevent another person committing pure economic harm to a substantive level.
- Justiciability (Crimmins) - Does the negligence consist in making some policy decision about how to spend public resources or general allocation of resources?
Basically power that is immune because courts will regard that type of decision as non justiciable (non judge-able) because of the separation of powers - Liability consistent with statutory purpose - What are the statutory purposes that the council is given?
Ensure that making the public body liable is consistent with the intentions of the legislature in giving the council those powers in the first place. - Public Purse arguments: Council never becomes insolvent because when they run out of money, someone else somewhere is required to bail them out.
- Some plaintiffs are not vulnerable. (Distributive justice argument). Are there reasonably ways that the purchaser could have protected themselves.
An argument about the appropriate distribution of caution between builders on the one hand and the purchaser’s on the other.
Sutherland SC v Heyman - 1985
HCA held: Council didn’t owe a duty of care in respect of a power to inspect property.
They said in this case, it’s possible for a DOC to arise where:
1. There is specific reliance by the P on the Council i.e. If the council said or did something that on the occasion in question contributed to the purchaser’s decision to purchase.
- Second possibility is where there’s general reliance. Probably insufficient on it’s own. General reliance is said to be too vague that members of the public might legitimately expect protection therefore are generally reliant on the council.
- Statutory duty to satisfy self or some crucial matter prior to grant of planning approval - Western Districts v Baulkham - where the council doesn’t just have power over the works, but has a statutory duty to ensure that a particular matter is in place or regulation is satisfied before it gives approval of the works. If, in those circumstances, the council approves the works without complying with the statutory duty, it’s quite clear that it could be liable in negligence for the economic losses of the future purchaser.
so two possible exceptions:
1. Specific reliance - requires P to react to something D had done which induced the decision to purchase
- General reliance - simply require a general expectation of protection on the part of the P. This might work becuase the local authority is the only method of protection to members from the public body in question. So this wouldn’t apply in cases where P had other ways of protecting themselves. You’re “generally reliant’ if the public body becomes “the exclusive means to protect against the harm”. Such general reliance is acceptable.
Woollahra Municipal Council v Sved
P was a domestic purchaser of a home.
Inquired the council whethr or not building plans would comply with building regulations.
In those days, you could apply to the council for a certificate which the council could issue to you stipulating the plans were in accordance with regulations.
In this case, certificate was not received until after purchase.
Prior to purchase, D gave oral confirmation that plans were in accordance and the certificate would be issued in due course.
Building turned out not be and there was a problem with water penetration.
This caused damaged to structure of building and separate property of the plaintiffs.
P sued council.
Held: DOC was owed on the basis that it had been reasonable for the purchaser to rely on an oral assurance given by the council.
In this case, there is a specific relationship with the council giving the assurance which is then specifically relied upon by the purchaser.
Nowadays though, certificates are no longer given.
Exception: General reliance
Port Stevens SC v Booth
P planned to construct an eco cabin resort. Little known to P, but known to the Council which was responsible for certification and building plans, the development was situated from the RAF and only 2.5 km from a bombing range.
Council approved plans and issued certificates indicating what the noise levels in the area were, which were actively misleading misstating as a consequence of which P went through with the purchase.
Held: DOC of course was owed.
Courts base their decision on another case: Armidale CC v Finlayson.
Reasons for DOC:
1. Some positive action by D that gets rid of omission concerns.
2. Actual knowledge of the serious risk from P’s POV. They had active knowledge in respect of noise.
3. P was specifically or generally or both reliant on the council. Generally reliant because D ought to have known that purchasers of property in the circumstances were looking for protection in respect of noise.
4. P was vulnerable and completely ignorant of the risk.
5. DOC covered the P’s financial interest.
Makawe v Randwick
COA of NSW had to consider how you would decipher a DOC for a new case.
Facts: Council had approved commercial development plans of the first owner of an apartment block that had an underground carpark attached to it.
Council had an obligation under statute to consider whethere or not to give consent and an obligation to consider whether to attach any conditions to the approval of the plan.
No obligation to satisfiy of flood risk, but this is to be considered in deciding whether to give approval.
Council gave approval.
But there was a problem with the water table.
This put the underground carpark at a flooding risk whic hCOA said D ought to know.
There was flooding.
P’s losses were construed as purely economic.
Even though it looks like physical damage, he paid too much money for property that was inherently defective or prone to risk.
Hodgson JA Approach in new cases: Considers 17 factors which fall outside existing precedence.
Reliance is not necessary in all cases. He also says that reliance can sometimes include general reliance. So you dont necessarily need specific reliance.
Some element of control is always necessary (in omission cases).
Some vulnerability is required in some sense or another
Economic harm was reasonably foreseeable.
Makawe v Randwick : Pros
In this case:
- Harm was generally foreseeable
- Constructive knowledge of risk
- Control over approval process
- P vulnerable (risk not likely to be picked up by inspection or dealt with by contract of sale; fact that p a developer ‘not of major significance’)
- No indeterminacy
Makawe v Randwick : Cons
- Pure economic Loss
- No actual knowledge of the risk (distinguish Port Stevens)
- No foreseeable general reliance regarding water table risk
- No assumption of responsibility
- No actual prior dealings with P and D
So hence, no DOC was found.
Approach to new cases as in Makawe v Randwick
- The foreseeability of harm
- The nature of the harm alleged
- The degree and nature of control able to be exercisd by the D to avoid harm
- the degree of vulnerability of the P tot harm from the D’s conduct
- The degree of reliance by P upon D.
- Any assumption of responsibility by D
- The proximity or nearness of a physical, temporal or relational sense of the P to the D
- Existence or otherwise of a category of a relationship between D and P or a person closely connected with the P
- The nature of the activity undertaken by the D
The nature or degree of the hazard or danger liable to be caused by D’s conduct - KNowledge (either actual or constructive) by D that the conduct will cause harm to P
- Any potential indeterminacy of liability
- the nature and consequences of any action that can be taken to avoid the harm to the P
- The extent of imposition on the autonomy of individuals
- Existence of conflicting duties
- Consistency with terms, scope and purpose of any statute relevant to the existence of the duty
- The desireability of, and in some circumstances, need for conformance and coherence in the structure and fabric of the common law.
Any statutory principles?
s35 of the CLA s35 and 36
Liability of Builders: Policy arguments
- Pure economic loss
- Indeterminate time
- Conflict / coherence: risks contractually allocated?
- Vulnerability Purchaser reasonably able to protect self?
Woolcock v CDG
This was a case against the engineer for design of the works.
The subsequent purchaser is a commercial purchaser and the purchase is commercial. Foundations are found to be defective.
Held: By HC no DOC.
They distinguished this to Bryan v Maloney.
This case, P had failed to establish an assumption of responsibility by D.
Majority held that this was the key element.
Reason? Builder had, in it’s negotiations with the first owner, offered to do a geotechnical investigation of the foundation, but the first owner said no. Court held that the builder cannot be regarded as assuming responsibility with the compliance of geotechnicalities with the regulation.
P was not vulnerable because he could have gotten independent inspection of the building. Furthermore, a warranty in the contract of sale for the premises. They thtought that P could have/reasonably able to secure from the vendor of the premises a guarnatee that premises is free of defect.
The courts in Woolcock don’t have the assumption that if it’s commercial purchasing then no DOC.
Because there was a valid contract between the builder and the first owner, the Courts were reluctant to interfere.
Woolcock doesn’t discuss control because control is usually in omission. Builders are more liable because they are at the source of the problem. The council are secondary parties, supervisors, but not people who actually do the building work.
Bryan v Maloney
The reasoning in this case differs from Woolcock because in the year 1995, the courts still used the proximity concept.
This case says that a builder might owed a DOC where:
1. There is a voluntary assumption of responsibility,
2. General reliance (There is rarely specific reliance) by the subsequent purchaser upon the builder and
3. The P is vulnerable.
P is a subsquent purchaser suing builder for economic loss for defects in foundations.
Held: HC held DOC owed.
HC bases their arguments on a proximity of relationship:
1. Because the builder had assumed responsibility through a contract with the first owner, the courts say by reason of this, the assumed responsibility is to be regarded as extended to the subsequent owners. Therefore, an assumption of responsibility to the first owner is also to the subsequent owners.
- General reliance by P. Domestic purchasers of property were generally expecting protection from builders in regard to their financial interests.
No problem here with indeterminate liability, none with conflict, not unreasonably burden on D’s freedom because they already agreed to the first owner.
It’s argued that because a dwelling is one of the largest purchases a person will make, it’s a key policy proposition that the person will spend a lot of time on mortgages and you don’t want to waste your money paying for something that is worthless. This argument is strongly for the imposition of a DOC.
