Plaintiff company failed to establish a claim for pure economic loss against a builder and engineers with respect to failure of a concrete slab in an airconditioning storage warehouse.

In Issue

  • Claim for pure economic loss
  • Consideration of whether the plaintiff was vulnerable in the requisite sense

The Background

In April 2007, the plaintiff purchased a commercial warehouse building from a property developer. The building had been constructed by the first defendant (DDS) pursuant to a design and construct contract with a developer. The second defendant (DEQ) was retained by DDS to prepare structural drawings for the design of the building, which included a concrete slab on the ground. The third defendant (Mr Henry) was a director of DEQ and a registered engineer. The building certifier was the fifth defendant on behalf of his company, the fourth defendant.

On behalf of DEQ, Mr Henry had issued Form 15 & 16 certificates under the Standard Building Regulation 1993 (the Regulations) that the design and construction was in accordance with the relevant approvals, drawings and the Regulation.

After the plaintiff acquired the property, it installed pallet racking in or about May/June 2007. The racking was up to 4 levels high except one bay which was 6 levels high. The plaintiff then used the property as a warehouse for the storage of air-conditioning units and parts pending their sale and installation.

Issues arose with the concrete slab of the building which began to subside. Investigations as to the cause of the subsiding slab commenced in 2009. Based upon the results of a geotechnical investigation of the slab, the plaintiff commenced proceedings for economic loss arising from the failure of the floating slab on which the warehouse was built.

The Decision

The essential issue in the claim against DEQ and its director, Mr Henry, was whether they owed a duty of care in tort to the plaintiff for the design of the concrete slab and the issue of the Form 15 and 16. A claim was also brought for misleading and deceptive conduct, however, that was ultimately unsuccessful.

The trial judge observed that the key issue was whether the plaintiff was “vulnerable” in the sense referred to in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 and Brookfield Multiplex Ltd v Owner’s Corporate Strata Plan 61288 [2014] HCA 36 which was the plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care.

The plaintiff submitted that the fact that Mr Henry was fulfilling a statutory function in issuing the Form 15 and/or Form 16 was of particular significance on the issue of vulnerability.

The court found:

  1. The plaintiff knew what its intended use of the building was, including installation of racking to store air-conditioner units which would exert a downward force on the concrete slab. Notwithstanding this, the plaintiff made no enquiries before entering into the contract in circumstances where the marketing material for the building alerted the plaintiff to the fact that “no allowance has been made for pallet racking or punching”;

  2. Not only did the plaintiff not engage an engineer to inspect the building and the engineering drawings to ascertain whether the building was suitable for the plaintiff’s intended use prior to entering into the contract, the plaintiff agreed to the deletion of the standard clause 4 which would otherwise have made the contract conditional on a building report;

  3. The contract between the plaintiff and the seller disclaimed any warranty that the improvements had been conducted in a good and workmanlike manner or otherwise fit for purpose;

  4. The imperative consideration for the plaintiff in its purchase negotiations prior to entering into the contract was achieving a discount on the purchase price rather than taking all steps that would have otherwise been available to ensure that the building was of a suitable construction for its intending use; and

  5. It was relevant that neither the developer nor DDS would have been able to take action against DEQ and Mr Henry. DEQ had complied with its contractual obligations, namely to design a slab of concrete on the ground.Citing Brookfield, Her Honour stated “the coherence of the common law would be undermined if a duty of care in tort were imposed on a party in respect of the performance of an obligation under contract for which that party had no liability to the other contracting party”.

The court concluded that if there had been negligence by DEQ and Mr Henry in designing the slab as a slab on ground, the plaintiff had failed to establish vulnerability in the sense explained in Woolcock and Brookfield to permit the imposition of a duty of care owed by DEQ and Mr Henry in respect of the design and/or certification of the slab for the subject building.

Implications for You

This decision is consistent with the view that it will be difficult for subsequent owners of commercial buildings to bring actions against builders outside of any direct contractual right. This is because where two parties are free to contract with each other, it will be difficult for a subsequent purchaser to bring an action in negligence for pure economic loss as it will be unlikely to establish that they were in a position of vulnerability.

Actron Investments Queensland Pty Ltd v DDS Project Management Pty Ltd (ACN 074 814 725) and DEQ Consulting Pty Ltd (ACN 065 711 248) and Michael Henry and A1 Express Plant Approval Services Pty Ltd (ACN 082 452 499) and Stacy Kennedy [2016] QSC 306