Professional Liability Guide

CHAPTER 1 – DUTIES

Circumstances necessary to give rise to the existence of a duty generally involved an element of reliance or dependence by a plaintiff on a defendant, or a vulnerability of a plaintiff to the effects of the defendant’s negligence, against which the plaintiff is otherwise unable to protect itself. Additionally, in earlier Australian authorities, the duty of care to avoid causing another’s pure economic loss had required a ‘ relationship of proximity ’ between the parties in addition to the reasonable foreseeability of damages. ‘In the more settled areas of the law of negligence involving direct physical injury or damage caused by negligent act, the reasonable foreseeability of such injury or damage is, of itself, commonly an adequate indication that the relationship between the parties possesses the requisite element of proximity (see, eg, Wyong Shire Council v Shirt (1980) 146 CLR 40 at 44; Jaensch v Coffey (1984) 155 CLR 549 at 581–2). That cannot, however, be said of cases in the area where the plaintiff’s claim is for pure economic loss. In that area, the categories of case in which the requisite relationship of proximity is to be found are properly to be seen as special in that they will be characterised by some additional element or elements which will commonly (but not necessarily) consist of known reliance (or dependence) or the assumption of responsibility or a combination of the two (see, generally, Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 443–4).’ 65 This proximity requirement – involving the notion of nearness or closeness (in contemplation, if not in physicality) – arose because an otherwise unfettered duty of care based on mere foreseeability that a person might suffer a financial loss would extend liability in negligence too far to any number of defendants and would inevitably hinder normal commercial activities. A high-water mark of the proximity test was Bryan v Maloney, 66 where the High Court identified that duties to avoid causing pure economic loss would only be found in special cases. In 2014, the ‘ special cases ’ concept discussed in Bryan v Maloney evolved into the vulnerability test, which forms the basis of the High Court’s decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 67 and now represents the law in Australia. In Brookfield , a developer contracted with a builder (Brookfield) to construct an apartment complex. After construction was complete and the strata plan registered under the statute, the Owners Corporation came into existence and became the owner of all common property in the apartment complex. Some latent defects arose in the common property and, as the developer was not a financially viable defendant, the Owners Corporation brought a claim against the builder to recover the costs of rectifying the defects. Significantly, there was no contractual relationship between the Owners Corporation and the builder, and indeed the Owners Corporation did not exist at the time the builder conducted the defective works (so there could be no suggestion of reliance). 68 The issue was whether the builder owed the Owners Corporation a duty to exercise reasonable care in the construction of the building to avoid causing the Owners Corporation to suffer pure economic loss resulting from the latent defects in the common property. In Hawkins v Clayton , Deane J discussed the principle in the following manner:

65 (1988) 164 CLR 539, 576. 66 (1995) 182 CLR 609. 67 (2014) 254 CLR 185. 68 Ibid French CJ, 204, and the plurality, 235.

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