Professional Negligence

Engineers and Builders - No Liability in Professional Negligence to Subsequent Owners of Commercial Buildings for Structural Defects


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Engineers and Builders - No Liability in Professional Negligence to Subsequent Owners of Commercial Buildings for Structural Defects

The case of Woolcock Street Investments Pty Ltd v CDG Pty Ltd involved a claim for professional negligence by a subsequent owner of a building due to defects in the foundations. The appellant company alleged that they were owed a duty by the respondents who initially designed the foundations of the building. At trial it was decided that no duty was owed and therefore the owner of the building appealed to the High Court.

The question for determination in the appeal was whether the engineers behind the design of the foundations of a building owe a duty of care to a subsequent purchaser of that building and whether any duty was breached and as such, was there professional negligence on their part.

Background

The respondent was an engineering company that designed the foundations for a warehouse. A number of years after it was built, the property was sold by the original owner to the appellant. The contract of sale gave no warranty that it would be free from defects and there was no assignment of rights that the vendor may have had in relation to any such defects.

A year after purchase, it became apparent that the building was suffering from severe structural defects and it was determined that this distress was due to the settlement of the foundations or the material below the foundations, both of which would have been the responsibility of the respondent engineers when the designs were made.

Consequently the appellants held the respondents liable for the defects and sought remedies for negligence and breach of duty. The respondents denied that they had a duty to any subsequent owners of the building and claimed that despite their insistence that the original owner obtain soil tests, the then owner instructed them to proceed without tests and to use structural footing sizes provided by the builder.

Nature of the Loss

The loss suffered in this instance was of significance as it was pure economic loss. Had the loss related to personal injury or property damage as a result of the defects in the building, then the issue of liability would have been more clear. However because the defects had been identified, steps could be taken to prevent that type of loss and therefore the only loss that could be argued was that of pure economic loss due to the depreciation of value in the building.

The issue the courts have with allowing recovery for pure economic loss where all that can be shown is negligence and that the loss was foreseeable, is that it opens up the potential liability for “an indeterminate amount for an indeterminate time to an indeterminate class”. Many of the cases that have allowed for such recovery have placed an emphasis on the vulnerability of the plaintiff in terms of being unable to protect themselves from incurring such loss.

In this appeal the court drew a distinction between this case and the case of Bryan v Maloney (a case where economic loss was deemed recoverable by a subsequent purchaser of a house). Unlike that case, here it could not be found that the respondent owed a duty of care to avoid such economic loss to the original owner. The original owner in fact directly ignored certain recommendations by the respondent engineers in regards to planning and testing required for the design process. Therefore there was no existence of a “non-detailed” contract where it might be expected that heavy reliance was being placed on the engineers to correctly carry out a duty of care (as was the case in Bryan v Maloney). For this reason a duty to subsequent owners could not be argued by analogy to a duty that was owed to the original owner.

Issue of Vulnerability

There was no evidence on the facts that the appellants were particularly vulnerable and unable to protect themselves from the damage suffered. While it was conceded that the appellants probably did not know of the issue with the foundations when they bought the building, there was no evidence to suggest that they would not have been able to obtain this information. Further, there was nothing in the contract of sale protecting them from such loss and no evidence to suggest that (as in Bryan v Maloney) the purchase was a very significant investment.

Outcome of Appeal

It was held that the facts of this case were “in a different factual context” to those of Bryan v Maloney and that a duty could therefore not be argued by analogy to that case. The appellants were not in a position of particular vulnerability and no rights had been conferred to them by the original owner through the sale contract. Therefore allowing recovery for pure economic loss in this case would open the floodgates to claims by an “indeterminate class”. It was stated that there is a distinction between rights available to purchasers of a dwelling (house) when the building is defective and the rights available (or in fact not available) to the purchaser of a commercial building and therefore cases such as Bryan v Maloney, involving a dwelling, could not be used to argue a duty to subsequent owners in cases involving commercial buildings.

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