Gunston v Lawley & Ors [2008] VSC 97 – appeal from VCAT, point of law

April 28, 2008 |

 Justice Byrne in Gunston v Lawley gives a very useful and thorough analysis of tortious claim against builders, architects and the duty of care owed by principals and subcontractors in the building context.  It ws an appeal from a decision of VCAT which found that the owners claim against the soild engineer and director of the builder were not liable for cracking and distorition to 2 building but that builder, architecural draftsman and building surveyor were.  The Tribunal found that the provision of plants in the drawings was negligent insofar as it would affect the soil moisture which would have an effect on the land and the draftsman did not make allowance for this in placing the appropriate number and strength of masonary joints.  VCAT found the soil changes caused the cracks in the building.  Draftsman negligent.  He appealed.

In the midst of giving the grounds of appeal a working over his Honour made some very useful points often missed by practitionerrs in the rush to deal with the injustice of a case.  He said

14 I am, on this appeal, not concerned to revisit the findings of fact of the Tribunal; appeal is permitted only upon a question of law. In these circumstances, grounds 1-10 in the notice of appeal will succeed only if it is demonstrated that there was no evidence which could support the findings.

Sounds obvious but an error made on a regular enough basis.  In terms of wording of the grounds of the Appeal he commented, at par 17.

17 And so, grounds 1, 2, 3, 4 and 5 are introduced by the words, “It was not open on the evidence for the Tribunal to have concluded that…” These grounds appear to have been drawn with the decision of Batt J in Roads Corporation v Dacakis[10] in mind. There, after a careful analysis of the cases, his Honour concluded that a finding of fact may be impugned as an error of law only where there is no probative evidence to support it. It is not sufficient for an appellant to show only that the finding is not reasonably open on the evidence. It may be that the omission of the word “reasonably” in grounds 1 to 5 in this appeal was intended to amount to an assertion that there was no probative evidence to support the finding. If this be the case, it is difficult to understand why the drafters did not say so, as they did in grounds 6 and 7. In the Roads Corporation case, Batt J also concluded that, where the appellant under a regime such as the present, which permits appeal upon error of law, attacks an inference drawn rather than a fact found, this is permissible only where there is no basis for the inference. Since inference is a logical process which draws a conclusion from other facts or conclusions, the inference will amount to an error of law only where it is not reasonably open on the facts.[11] This means that the inference may not be impugned as an error of law on the basis that it is illogical or even that it is demonstrably unsound; it must be an inference which is not reasonably open to the Tribunal.[12]

Byrne’s above commentary is particularly helpful and a pithy explanation of matters which easly bog commentators down.

In this case the duty of care in issue is that of a subcontractor.  The builder engaged the architectural draftsman.  On that point Byrne said:

21 Counsel for the architectural draftsman contended that, so understood, the statutory obligation was no more than a restatement of the professional’s duty of care owed to the client.[17] Insofar as this is a tortious duty, it is that the professional “must use reasonable care, skill and diligence in the performance of the work he undertakes”.[18] Voli’s case establishes that such a duty may be owed to protect a non-client from physical harm. 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.[19] 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.[20] In a case such as the present these will include reliance by the plaintiff, the acceptance of responsibility by the defendant and the vulnerability of the plaintiff in the sense that it was unable to protect itself from the consequences of the defendant’s want of due care.

22 Insofar as concerns the architectural draftsman, the Tribunal addressed this question by reference to the analysis of the High Court in Bryan v Maloney[21] and Woolcock Street Investments Pty Ltd v CDG Pty Ltd,[22] cases which, in some respects, resemble the present because they both arose from defects to buildings which were the consequence of neglectful design or construction. In each case, the plaintiff purchased the defective property but without being aware of its defect or that this defect might cause distress to the building as, in fact, happened. The suggested negligent party in Bryan’s case was the builder engaged by the proprietor and, in Woolcock’s case, the engineer who designed the footings. In their consideration of these cases, the High Court was concerned that such a claimant must first show that the defendant owed a duty of care to the original owner, that is the proprietor at the time of the negligent act.[23] This is an issue anterior to the principal issue in the present case because, if such a duty did not exist, the plaintiff as a subsequent owner must fail. If it did exist, then the plaintiff, as subsequent owner must then establish that this duty of care is owed to it as well as to the proprietor.


24 Counsel for the architectural draftsman submitted that their client, like any sub-contractor or supplier, owes no such duty except, perhaps, when their exists some special relationship between it and the proprietor.

27 There is no general principle of law that a sub-contractor 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 the sub-contractor is nominated by the proprietor or that its work was otherwise the consequence of direct dealings between them. In Valleyfield Pty Ltd v Primac Ltd[27] Cullinane J saw as significant that the relationship between the relevant parties before him was “a close one almost approximating that which exists between contracting parties.”[28]

In the present case, the proprietor and the builder were related companies and were controlled by a common director. The architectural draftsman spoke of receiving instructions from this man whom he referred to simply as “Geoff”. His relationship with the proprietor was therefore very close.

28 The feature which is of great importance in the cases, at least since 1999[29] in determining the existence of a duty of care in the architectural draftsman to the proprietor is vulnerability, that is, the ability of the plaintiff to protect itself from the loss in the event of negligence. In the normal case, where duty is said to be owed by a sub-contractor to a proprietor, this requirement may be difficult for the proprietor to satisfy. There will usually be a contract between the proprietor and the head contractor which will contain covenants protecting the proprietor from defective work. Even if it does not, it will be difficult in the typical case for the proprietor to persuade the court that it did not have the ability to protect itself in this way.[30] In the present case, the terms of any contract between the proprietor and the builder are not known. It may be that the relationship between the two companies was so intimate that there was no formal contract at all. Even so, it is difficult to suppose that the builder undertook the work for the benefit of the proprietor otherwise than pursuant to some contractual arrangement, express or implied, between them. The fact remains that the proprietor had the ability to protect itself by contract from the consequences of the architectural draftsman’s defective work. In any event, if there was in existence a building contract, it would contain the statutory implied warranties under s 8 of the Domestic Building Contracts Act 1995 if, indeed, these were implied in respect of the design work in this case.[31]

29 An associated consideration which will often be important with respect to the relationship between parties to a building project, will be the activity in question. It will often be the case that the proprietor is a professional developer, a person who may be assumed or in respect of whom it is demonstrated, to have a familiarity with ordinary construction aspects of the work. It may be that the activity in question is not remote from everyday experience. And so, for example, when the activity involves a skilled and technical activity, for example, the provision of certain electric or electronic services, the Court will more readily infer that the required relationship exists. The position might be otherwise where the activity is relatively unskilled and a deficiency in the work was readily apparent. Another factor may be the degree of involvement by the proprietor in the construction activity.

32 It seems to me that the present law in Australia does not admit a cut and dried answer to the existence of this duty. What can be said with some confidence is that, in a typical domestic building contract where the proprietor is a developer rather than a layperson with little or no experience or expertise in construction matters, the proprietor’s assertion that a sub-contractor owes a duty of care to it with respect to the quality of the work performed by the subcontractor will ordinarily face difficulty in establishing the requirements of vulnerability or reliance. Each case, however, must be examined in light of the facts which are said to give rise to the necessary relationship.

36 In its reasons,[39] the Tribunal referred to statutory environment in which domestic building work is carried out since the 1993 statutory reforms. Since that time, there has been in force a legislative structure which imposes several liability upon those involved in building work and, at the same time, requires them to carry insurance. This legislation has changed from time to time over the past 15 years but it is clear that the Tribunal was the more ready to impose a duty of care because of these legislative features.[40]

While this legislative regime for allocating risk may be a relevant consideration, it is not sufficient to warrant the imposition of a common law duty of care where the required relationship is not present. Nor does Regulation 15.2 fill the gap.


38 I am satisfied that the second question of law must be answered in favour of the architectural draftsman. The Tribunal erred in finding that the architectural draftsman owed to the owners a duty of care to avoid their suffering the economic loss which they did suffer in relation to the buildings.

 

54 The provision for apportionment is found in s 24AI(1) of the Wrongs Act:

(1) In any proceeding involving an apportionable claim—

(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant’s responsibility for the loss or damage; and

(b) judgment must not be given against the defendant for more than that amount in relation to that claim.

55 Part IVAA, generally, is concerned with certain claims; its apportionment regime is not available to all claims where two or more wrongdoers are responsible for a claimant’s loss. The question whether such a claim is apportionable may depend upon the legal characterisation of the claim, as for example one arising from the failure to take reasonable care or as one excluded by s 24AG. It may also depend upon the relief sought, for the regime applies only to certain claims, which are claims for damages as defined.[53] It may also depend upon the findings, for a claim where fraud is found is not apportionable.[54]

56 I return to s 24AI(1)(a) which speaks of “the loss or damage claimed”. There is, of course, very often a distinction between the quantum of the loss or damage suffered which is the subject of a claim,[55] the quantum of the loss or damage proved and which is, therefore, recoverable and the quantum of the loss or damage which is in fact recovered.[56] The common law has never had any difficulty with a plaintiff obtaining a series of judgments which, if all were satisfied in full, might mean that it received more than the total amount of its proved loss or damage. What is not permitted is that the plaintiff actually recovers in the aggregate a sum greater than its proved loss or damage. This is the rule against double compensation referred to in Bonchristiano v Lohmann.[57] So much was not in issue before me.

57 Within the proportionate liability regime of Part IVAA of the Wrongs Act, the same principle is adopted. Section 24AK permits a plaintiff to seek and obtain in a subsequent proceeding an order for damages in respect of the same loss and damage as was the subject of an earlier proceeding. The terminology of this section and s 24AL is a little awkward. It may be supposed that, in the first proceeding, the plaintiff would have obtained orders against all of the concurrent wrongdoers before the Court[58], which in total would amount to 100% of its loss or damage, for the task of the Court in that proceeding was to determine responsibility for that loss as between all of those concurrent wrongdoers. The second proceeding, against another concurrent wrongdoer, could not disturb the allocation of responsibility made in the first proceeding because none of the wrongdoers then before the Court might be joined in the subsequent proceeding.[59] The consequence of a successful prosecution of the second proceeding, therefore, would be to give to the plaintiff an order which, together with those previously made, would exceed the total loss and damage suffered. This indicates that the intention of s 24AK(2) is not to prevent double judgments.

58 With this in mind, I return to s 24AI(1). Paragraph (a) is concerned with liability; paragraph (b) with judgments. In each case, the section speaks of an amount which marks the limit of each concurrent wrongdoer’s liability and the limit of the permissible judgment against that wrongdoer. In each case the amount reflects the proportion of “the loss or damaged claimed” which is found to be just having regard to that person’s responsibility for that loss or damage. I have been troubled by the word “claimed” in the quoted phrase. This cannot refer to the quantum of the claim for this might be reduced after trial. It must refer to the type of loss or damage claimed, leaving to one side the quantum of this which has been established. I construe the expression “loss or damage claimed” as a shorthand version of the expression “the proved loss or damage which is the subject of the claim”.[60]

59 The scheme of s 24AI is that any given defendant is at risk of liability and judgment for an amount limited to its proper share of the loss or damage the subject of the claim. This risk is not increased by dealings between the plaintiff and another concurrent wrongdoer. For example, a failure by that wrongdoer to pay its share does not increase the liability of any other defendant. Nor is it diminished by dealings between the plaintiff and another wrongdoer as, for example, the successful outcome of a subsequent proceeding under s 24AK. I speak here of the risk represented by the liability which has been determined in the first proceeding and the judgment given in that proceeding. Where, however, the plaintiff recovers money in the subsequent proceeding, the rule against double recovery may come into play to bring about some adjustment as between the wrongdoers.

60 The effect of the proportionate liability regime, therefore, is to transform fundamentally the relationship which exists between a plaintiff and a concurrent wrongdoer defendant. Where under a solidary liability regime each defendant is liable for the whole of the plaintiff’s loss, a payment by one must affect the liability of the other. It is for this reason that the plaintiff, after settlement with one wrongdoer which involves payment by that wrongdoer in diminution of the plaintiff’s loss, cannot obtain judgment for the total loss. In the proportionate liability regime, however, a payment by one concurrent wrongdoer is a benefit conferred on the plaintiff independently of its right of redress against each other wrongdoer. To adapt the dictum of Dixon CJ in National Insurance Co v Espagne,[61] the benefit of the payment made by the concurrent wrongdoer is intended for the plaintiff; it is not intended in relief of the liability of the others each to compensate the plaintiff to the limit of its proportionate liability.

61 This is, of course, not to say that the plaintiff has recovered from all of the concurrent wrongdoers payment which in total exceeds its loss or damage. Ms Lawley has received from the building surveyor some $49,000 more than was later found to be his proper share of her loss or damage. When the other concurrent wrongdoers make the payments which have been found to reflect their responsibility so that these, together with her $49,000 surplus, overtop the amount of her loss or damage, then the question will arise as to the fate of this surplus. In the meantime, there is no double recovery.

62 The question may be looked at from a different but related angle. Suppose Ms Lawley’s settlement with the building surveyor included a term that he not pay the settlement sum for 12 months. At the trial against the remaining wrongdoers should they be permitted to reduce her loss or damage for the purposes of s. 24AI by the amount of the $49,000 surplus? What would be the result if the settling wrongdoer failed to make the agreed payment and could not be compelled to do so? Should this be then brought to credit and the amounts of the judgments given against the remaining wrongdoers revised? It is difficult to see that Parliament would have intended such a result. These difficulties would be avoided if Part IVAA were interpreted to produce a regime where the forensic relationship between the plaintiff and concurrent wrongdoer defendants was seen as a serries of independent claims which were tried together as a matter of convenience.

63 In his careful reasons published after the second hearing in August and September 2006 the Senior Member addressed this question and reached a similar conclusion. He offered two further reasons to support it. It is that a settlement by a plaintiff with one concurrent wrongdoer at undervalue could not operate to increase the liability of the others; settlement at an over-value should not, in principle, operate differently. There is, therefore, some symmetry in the conclusion which he reached.

64 The second reason was one that attached itself to the particular difficulties of parties to litigation under the proportionate liability regime. I refer to the great difficulty of achieving settlement where agreement cannot be reached with all parties. It cannot be supposed that Parliament, which is properly concerned to minimize the cost of litigation to defendants as well as to plaintiffs and which is a supporter of mediation and ADR, should intend that the proportionate liability regime should increase the difficulties which face a plaintiff who wishes to settle with one of a number of defendants or those difficulties which face a defendant who wishes to settle with the plaintiff. The analysis proposed upon behalf of the architectural draftsman would make it extremely difficult for a single defendant to fashion an offer which would be attractive to a plaintiff and which, as the facts of this case disclose, would not be potentially dangerous for a plaintiff to accept. This would be the case where the fact of the settlement might have a bearing on the Tribunal’s determination as to the liability of the remaining defendants.

65 A further consideration is this. Under the proportional liability scheme a plaintiff is, in effect, suing each concurrent wrongdoer separately and recovers a separate judgment against it. This is such a fundamental change from the position which previously existed that courts must struggle to rid themselves of concepts which depend upon the outmoded joint and several solidary liability. The plaintiff under the new regime takes, in each case, the risk that any of the judgments will not be satisfied. Where a defendant offers a sum in settlement of the plaintiff’s claim, the plaintiff’s risk immediately changes. It is faced with an offer of payment which, if accepted and the payment made, fixes the risk of the litigation and the risk of recovery. Uncertainty is replaced by certainty. Before the payment is made the settlement fixes the risk of litigation and substitutes for the risk of recovery a new risk or benefit which will depend upon the terms of settlement. This risk may be a small one, as, for example, where the terms of settlement include some guarantee of payment or other security for payment. It may be a different one as, for example, where the terms of settlement are for payment by instalments. What is important is that it does not affect the risks of the other concurrent wrongdoers. They may still contend at the trial, as in this case, that the proportionate share of the settling wrongdoer was greater than that represented by the settlement. Indeed, their ability to do so may be increased as a consequence of the settlement where the settling defendant takes no further part in the proceeding and is therefore not concerned to minimise its responsibility for the plaintiff’s loss or damage. If, as a consequence, the settling defendant is fixed with a greater responsibility than would otherwise have been the case, the effect of the settlement would be to reduce the judgments which are recovered against these other wrongdoers. This is an added risk which the plaintiff assumes by settling with a defendant. In these circumstances, the value of the settlement to the plaintiff cannot be assessed by having regard only to the amount agreed to be paid under its terms. What must be valued is the benefit and the risk – the benefit which the settlement has brought to the plaintiff and the further risk which it has created for the plaintiff. These will be matters which the plaintiff will have assessed in negotiating the settlement.

66 These are considerations which might lead to the conclusion that settlement, and even recovery, by a plaintiff in a proportional liability claim ought not to be brought to account in giving judgment against the other concurrent wrongdoers. But I need say nothing further about this for, in the present case, the plaintiff, Ms Lawley, is not shown to have recovered in the aggregate a sum greater than the amount of her loss or damage.

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