Darling Downs Foods Pty Ltd v Bovis Lend Lease Pty Ltd & Ors [2010] QSC 409

SUPREME COURT OF QUEENSLAND CITATION: Darling Downs Foods Pty Ltd v Bovis Lend Lease Pty Ltd & Ors [2010] QSC 409 PARTIES: PROJECT COMPANY NO.2 PTY LTD (ACN 051 834 309) (applicant/first plaintiff) v BOVIS LEND LEASE PTY LTD (ACN 000 098 162) (first respondent/first defendant) AND CUSHWAY BLACKFORD & ASSOCIATES PTY LTD (ACN 010 522 988) (second respondent/second defendant/first third party) AND ACN 066 045 645 PTY LTD (ACN 066 045 645) (third defendant/second third party) FILE NO/S: BS5192 of 2006, carriage file consolidated with BS7296 of 2007 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 5 November 2010 DELIVERED AT: Brisbane HEARING DATE: 19 August 2010 JUDGE: Martin J ORDER: APPLICATION DISMISSED CATCHWORDS: TORTS – NEGLIGENCE – ESSENTIALS OF ACTIONS FOR NEGLIGENCE – WHERE ECONOMIC OR FINANCIAL LOSS – CARELESS ACTS OR OMISSIONS – PROXIMITY – where a fire occurred at an abattoir – where loss was alleged to have arisen from defects in the premises – whether a designer or builder of a commercial premises owes a duty of care to a person with whom they have no contractual relationship Uniform Civil Procedure Rules 1999 (Qld), r 69 Bryan v Maloney (1995) 182 CLR 609 -- 1 of 9 -- 2 Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27 Murphy v Brentwood District Council [1991] 1 AC 398 Northern Territory of Australia v John Holland Pty Ltd [2008] NTSC 4 RAA-GIO Insurance Ltd v O’Halloran (2007) 98 SASR 123 Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2002] QCA 88 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 COUNSEL: M T Brady for the applicant/first plaintiff D G Clothier for the first respondent/first defendant M R Kearney for the second respondent/second defendant/first third party SOLICITORS: DLA Phillips Fox for the applicant/first plaintiff Dibbs Barker for the first respondent/first defendant Minter Ellison for the second respondent/second defendant/first third party [1] This is an application to join a second plaintiff to proceedings pursuant to r 69(1)(b)(i) and (ii) of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”). [2] Rule 69 relevantly provides: “69 Including, substituting or removing party (1) The court may at any stage of a proceeding order that— … (b) any of the following persons be included as a party-- (i) a person whose presence before the court is necessary to enable the court to adjudicate effectually and completely on all matters in dispute in the proceeding; (ii) a person whose presence before the court would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding.” The parties [3] The plaintiff, Project Company No. 2 Pty Ltd, is in external administration. It was previously called Darling Downs Foods Pty Ltd (“DDF”).. The proposed second plaintiff is called Project Company No. 1 Pty Ltd. It was previously called KR Castlemaine Pty Ltd (“KRC”). [4] From 23 December 2003 KRC owned 100% of the shares in DDF. [5] The third defendant was previously called Harwal Electrical Industries Pty Ltd (“Harwal”). Harwal, though served, did not participate in these proceedings. -- 2 of 9 -- 3 Background [6] In March 1999 DDF entered into a contract with the first defendant (“Bovis”) for the construction of an abattoir by Bovis. Bovis engaged the second defendant (“CBA”) and Harwal as a consultant and sub-contractor respectively. CBA was contracted to provide electrical design, inspection and certification work in relation to the abattoir, as well as a specification for the electrical switchboard. Harwal was to design and construct the switchboard. The abattoir was built pursuant to the contract. [7] In June 2004 DDF granted a licence to KRC to operate the abattoir. DDF remained the owner of the plant and equipment. [8] On 17 June 2005 there was a fire at the abattoir. It is alleged that it started in the switchboard and damaged both the switchboard and the refrigeration maximum continuous current and caused a loss of electrical power to the facility. The switchboard and associated equipment had to be replaced. Operations did not re- commence until some five weeks after the fire. [9] Neither Harwal nor CBA had a contractual relationship with DDF. The current proceedings [10] DDF claims that the defendants were negligent in constructing the main switchboard at the abattoir, which resulted in the fire that occurred on 17 June 2005. The abattoir lost power for a period of over a month and DDF claims to have suffered significant loss by having to re-locate its operations. [11] At a mediation held on 22 April 2010, it became apparent to the parties that, although DDF owned the land and buildings at the abattoir at the time of the fire, it was KRC which had suffered certain losses arising out of the effects of the fire. DDF says that it should then continue to pursue the claim for damages in relation to the switchboard. [12] This application seeks to join KRC on the following grounds: a) at the relevant time the site was owned by DDF and occupied by KRC; b) DDF is a wholly owned subsidiary of KRC; c) both DDF and KRC suffered losses arising from the same event; d) joining KRC to these proceedings would avoid multiple proceedings arising from the same facts; e) no new damages are claimed; f) the application to join KRC is brought within the limitation period; and g) the only additional question that would arise in proceedings would be whether the defendants owed KRC a duty of care. The proposed proceedings [13] The proposed statement of claim, should KRC be joined, contains the following allegations: (a) KRC conducted the business of an abattoir at the site; (b) DDF owned the site, the plant and the equipment; -- 3 of 9 -- 4 (c) DDF employed the labour at the site and made the employees available to KRC for its business; (d) Bovis knew, or ought to have known, that DDF could sell, lease or licence the facility to another entity and that, if that occurred, that other entity could suffer loss or damage if Bovis had been negligent; (e) Bovis owed a duty to any other occupier of the facility including KRC to exercise reasonable care and skill; (f) allegations similar to (d) and (e) made against CBA; (g) allegations similar to (d) and (e) made against Harwal; and (h) as a result of the negligence of Bovis, CBA or Harwal, KRC suffered the following losses: (i) loss of profits, and (ii) increased cost of working. The application [14] DDF argued that KRC should be joined as a plaintiff as its interests would clearly be affected by the outcome of proceedings between DDF and the defendants. It argued that: (a) determination of KRC’s claim might conveniently and justly be done in the present proceedings; (b) the same elements of breach of duty arise in the proceedings by DDF as would arise in proceedings by KRC with the only additional element being whether the defendants owed KRC a duty of care; (c) there would be no additional damages claimed because the “business loss” damages which are currently claimed by DDF would, under an amended pleading, be claimed by KRC; (d) the matter has not been listed for trial and any joinder would not occasion any substantial delay; (e) it would be unlikely that there are any significant steps needed to be taken by the defendants in order to defend any reconstituted proceedings; (f) the delay in seeking to join KRC is explained; and (g) as the limitation period has not expired it would be open to KRC to commence its own separate proceedings. [15] As to the delay in making the application, I accept that it is, in part, due to both DDF and KRC being under external administration. The evidence supports a conclusion that it was not until 22 April this year when, at a mediation, Bovis’ solicitors raised a concern that a number of the losses claimed by DDF were in truth not DDF’s losses, but KRCs. Shortly after that, DDF’s solicitors determined that KRC was licensed to operate the business at the time of the fire. [16] That explanation, though, does not go far enough. It does not explain why this fact was not known when proceedings commenced, and why it did not become known until April this year. [17] Documents disclosed by DDF in these proceedings demonstrate that a claim was made on business interruption insurance held by KRC and that a payment of the full amount of the claim was made. Clearly, the loss adjustors and the insurer knew that -- 4 of 9 -- 5 the business was operated by KRC. It is also clear that this is a subrogated proceeding commenced on the instructions of the insurer, Zurich Insurance. [18] While I think that the delay in making this application has not been satisfactorily explained, it is not, given that the limitation period has not expired, something to which I give much weight. It is more important to determine whether or not KRC does have a cause of action available to it. Bovis submits that it does not. The proposed pleading [19] The relevant part of DDF’s proposed pleading reads: “Duty of BLL 5A. At all material times, BLL knew, or ought reasonably to have known, that: 5A.1 DDF could lease or licence the facility and allow another person or company to occupy the facility; 5A.2 if BLL failed to exercise reasonable and proper skill, care and judgment in and about the carrying out of work under the construction contract. DDF or another person or company occupying the facility at the site could suffer loss and damage. 5A.3 the failure of BLL to exercise reasonable care in and about the matters set out in paragraphs 2 to 5 hereof could result in a defective design and construction of the project, including the switchboard: 5A.4 in the event that BLL's failure to exercise reasonable care resulted in the matters pleaded at paragraphs 24 to 27 hereof, an occupier of the site (whether DDF or a subsequent occupier, including KRC) was not able to have identified those matters using reasonable care: 5B. Further, it was not reasonable for KRC to have obtained a warranty from DDF that the site was free of defects in circumstances where: 5B.1 it was not purchasing the site but was merely occupying it subject to a licence: and 5B.2 it owned 100% of the shares of DDF and it would in truth have been giving a warranty to itself. 5C. KRC could not, with the exercise of reasonable care, have identified the defects in the switchboard identified in paragraphs 24 to 27 hereof as: 5C.1 the defects were not such as to be reasonably apparent upon an inspection of the switchboard; 5C.2 it was not, in any event, reasonable for KRC, as licencee, to conduct a detailed inspection of the switchboard prior to occupation of the site. 5D. The business conducted from the site was, at all material times, a significant portion of KRC's assets. 5E. In the premises of paragraphs 1.2, 1.2A, 1.3, 5A, 5B, 5C, and 5D hereof: 5E.1 KRC was vulnerable to the risk of economic loss in the event that BLL failed to exercise reasonable care as alleged; -- 5 of 9 -- 6 5E.2 KRC was a member of a determinate class of entities (being occupiers of the site) who might have suffered economic loss in the event that BLL failed to exercise reasonable care as alleged; 5E.3 BLL knew that KRC, as a member of that determinate class, was so vulnerable. 6 In the premises of paragraphs 3, 4, 5, 5A, 5B, 5C, 5D and 5E hereof, BLL owed a duty to DDF and to any other occupier of the facility, including KRC, to exercise reasonable and proper skill, care and judgment in and about the carrying out of work under the construction contract.” Is there a cause of action? [20] The claim which would be made by KRC in an amended pleading is one for pure economic loss. Thus, the question is raised whether a designer or builder of commercial premises owes a duty of care in respect of pure economic loss arising from defects in premises to a person with whom they have no contractual relationship. [21] It was argued for Bovis that leave should not be granted because: (a) a designer of commercial premises like those in this dispute; (b) does not owe a duty of care; (c) in respect of pure economic loss arising from defects in premises; (d) to a person with whom the designer has no contractual relationship. [22] This issue was considered in Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236. In that case the appellant had designed a parapet for a commercial building in 1985. The building was purchased by the respondent in 1989. The parapet collapsed in 1995, damaging the building. The respondent obtained judgment against the appellant in the District Court for damages for negligence. The Court of Appeal held that a designer of a commercial building was not subject to a duty of care to a subsequent owner of the premises to design them so as to avoid potentially dangerous defects, such that upon breach that owner could recover its loss, albeit a loss relating to damage to the premises themselves. [23] In allowing the appeal the Court considered Bryan v Maloney (1995) 182 CLR 609. The crux of the reasoning in that case appears in the joint judgment of Mason CJ, Deane and Gaudron JJ at 627: “Upon analysis, the relationship between builder and subsequent owner with respect to the particular kind of economic loss is, like that between the builder and first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss. In ordinary circumstances, the builder of a house undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners. Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to -- 6 of 9 -- 7 inspect and test the footings of the house than the first owner. Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment. Any builder should be aware that such a subsequent owner will be likely, if inadequacy of the footings has not become manifest, to assume that the house has been competently built and that the footings are in fact adequate.” [24] After consideration of that decision (and the reasons of the House of Lords in Murphy v Brentwood District Council [1991] 1 AC 398), de Jersey CJ said: “[14] Bryan v. Maloney represented an extension to the availability in this country of recovery for pure economic loss. There is strong reason for thinking that any further extension should lie within the province of the High Court. To allow this claim would involve further extension. The House of Lords authority I have mentioned sufficiently indicates that. It would be inimical to certainty, and responsibility, for this court to accede to the claim, even if otherwise persuaded that it would be socially desirable to do so. Policy considerations regulate the development of the law in this general area. They are multifarious. To my mind, the relevant considerations have to this point been sufficiently considered by the High Court to warrant the rejection of this claim: to resolve otherwise would involve this court’s adopting an unduly legislative role. Following the law which binds us, and the trends which should influence us, I believe the claim must be rejected.” [25] The reasoning in Fangrove was followed in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2002] QCA 88. An appeal against the decision in Woolcock was dismissed by the High Court (Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515). In relation to the notion of indeterminate liability Gleeson CJ, Gummow, Hayne and Heydon JJ said: “[21] Claims for damages for pure economic loss present peculiar difficulty. Competition is the hallmark of most forms of commercial activity in Australia. As Brennan J said in Bryan v Maloney: ‘If liability were to be imposed for the doing of anything which caused pure economic loss that was foreseeable, the tort of negligence would destroy commercial competition, sterilise many contracts and, in the well-known dictum of Chief Judge Cardozo, expose defendants to potential liability “in an indeterminate amount for an indeterminate time to an indeterminate class”.’ That is why damages for pure economic loss are not recoverable if all that is shown is that the defendant’s negligence was a cause of the loss and the loss was reasonably foreseeable.” (emphasis added) -- 7 of 9 -- 8 [26] Their Honours went further when considering issues of responsibility, known reliance and vulnerability: “[22] In Caltex Oil (Australia) Pty Ltd v The Dredge ‘‘Willemstad’’, the Court held that there were circumstances in which damages for economic loss were recoverable. In Caltex Oil, cases for recovery of economic loss were seen as being exceptions to a general rule, said to have been established in Cattle v Stockton Waterworks, that even if the loss was foreseeable, damages are not recoverable for economic loss which was not consequential upon injury to person or property. In Caltex Oil, Stephen J isolated a number of ‘salient features’ which combined to constitute a sufficiently close relationship to give rise to a duty of care owed to Caltex for breach of which it might recover its purely economic loss. Chief among those features was the defendant’s knowledge that to damage the pipeline which was damaged was inherently likely to produce economic loss. [23] Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. ‘Vulnerability’, in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, ‘vulnerability’ is to be understood as a reference to the plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant’s negligence in sowing a crop which caused the quarantining of the plaintiffs’ land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client’s retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor’s certification of the accounts of the company.” (emphasis added) [27] The other judges regarded the principle in Bryan v Maloney as being limited to dwellings. McHugh J said (at [112]): “… this Court should not take the step of extending the principle of Bryan v Maloney to commercial premises. That is, this Court should hold that, in the absence of a contract between the owner of commercial premises and a person involved in the design or construction of those premises, the latter does not owe a duty to the current owner to prevent pure economic loss.” [28] The failure to plead an allegation of vulnerability has led to findings that there was no duty or to the striking out of the pleading. See RAA-GIO Insurance Ltd v O’Halloran (2007) 98 SASR 123, Northern Territory of Australia v John Holland -- 8 of 9 -- 9 Pty Ltd [2008] NTSC 4. The need to plead vulnerability was emphasised in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27. [29] KRC, if allowed, would plead that it could not have identified the fault even with reasonable care, that it was vulnerable and that the business conducted was a significant portion of its assets. These allegations might answer some of the matters raised in the majority judgment in Woolcock but they do not overcome the conclusion reached in that case. The High Court affirmed the Court of Appeal’s decision which, in turn, was consistent with Fangrove. It did not extend the principles in Bryan v Maloney to buildings of the type with which this case is concerned. [30] It follows, then, that I remain bound by the decision in Fangrove which means that I must dismiss this application on the basis that the proposed pleading does not demonstrate a cause of action by KRC against Bovis. -- 9 of 9 --