When can a building owner hold a subcontractor liable for incorrect advice?
The Supreme Court of Victoria considered a strike out application by a subcontracted engineer in relation to proceedings issued by a building owner.
- In the Supreme Court decision of The Uniting Church in Australia Property Trust (Vic) v Ian Hartley Architects Pty Ltd & Ors  VSC 233, the Court sets out a number of helpful considerations when determining whether an employee of a subcontractor will be liable to a building owner for a claim of pure economic loss.
On 1 February 2010, the Uniting Church in Australia Property Trust (Vic) (Church) and Ian Hartley Architects Pty Ltd (Architect) entered into a contract for the provision of architectural services relating to the construction of a building known as the New Ministry Centre (Building). The Architect subsequently engaged AGB Engineering Pty Ltd (AGB) to produce structural drawings for the footings of the Building.
On 14 September 2011, the Architect requested a separate engineering firm, Kersulting Pty Ltd (Kersulting), provide structural and civil engineering services for the Building and attend a site visit. Damien Grant (Engineer) an employee of Kersulting conducted the site inspection and issued two written project advice notices to the Architect.
The Church commenced the proceeding against the Architect, the builder, E J Lyons & Sons Pty Ltd (Builder) and Engineer, alleging that the Building had experienced substantial cracking caused by settlement of the footings and incorrect foundational material, which had caused it extensive loss and damage.
The claim as against the Engineer was in negligence for pure economic loss as well as a claim for misleading and deceptive conduct in contravention of the Fair Trading Act 1999 (Vic) (FTA). That is, the Church alleged that the Engineer owed a duty to exercise reasonable care in performing the structural and civil engineering services and this duty was breached due to incorrect advice causing economic loss. Alternatively, the Church alleged that the advice regarding the footings were representations which were misleading or deceptive under the FTA.
The Engineer alleged that the pleadings were deficient and filed a strike out application.
The decision at trial
Justice Delany was tasked with considering whether a novel duty of care existed between the Engineer and Church. In undertaking this assessment, Justice Delany provided some helpful guidance on the factors which will be considered when determining whether a claim against a subcontractor or consultant who provided advice has a proper basis. In particular, Justice Delany identified three main factors:
- whether the consultant knew or ought reasonably to have known that the building owner may read or rely on the advice/s provided;
- the vulnerability of the building owner; and
- the nature of the claim.
In assessing the above in relation to the Engineer, Justice Delaney considered that there was no evidence that the Engineer knew or ought reasonably to have known that the Church would have relied on the advice given by the Engineer. In particular, because the advice was addressed to the Architect rather than the Church and there was no evidence that the Engineer had any knowledge of who the owner of the builder was. Further, there had been no direct contact between the Church and the Engineer or Kersulting.
In relation to vulnerability, Justice Delaney observed that there had been no material facts pleaded in support of the allegations that the Church was vulnerable to economic loss. In particular, there were no allegations regarding the ‘political and economic standing of the Uniting Church’ which indicated that it was vulnerable. Further, the assertion that the Church could have taken additional steps to protect its economic interests but did not, does not in itself mean that the Church was vulnerable.
Finally, regarding the nature of the claim itself, Justice Delaney observed that the cause of action relied on by the Church was allegedly negligent advice by the Engineer. Justice Delaney observed that despite there being a lack of vulnerability, it is possible for a Court to conclude that it was reasonable for a claimant to have relied on advice. However, given there were no material facts to support known reliance on the advice provided, Justice Delaney concluded that the novel duty of care alleged against the Engineer was not made out.
Further, Justice Delaney also found that the FTA claim against the Engineer must be struck out namely as the Church failed to provide a proper basis for the claim against the Engineer personally under the FTA. As such, the entire claim against the Engineer was struck out.
Implications for you
This decision provides some helpful commentary regarding the limits of pure economic loss claims against subcontracted consultants. When asserting the existence of a novel duty of care, the pleadings must contain the material facts relied upon to support the salient features of the relationship (assumption of responsibility, known reliance, and vulnerability) between the relevant parties. In this case, the pleadings did not contain any details of the basis on which it was alleged that the employee sub-contractor knew his advice would be relied on by the building owner, the basis on which he knew that the building owner would rely on his advice, or the reasons why it was alleged that the building owner was vulnerable in the sense that it was unable to take reasonable steps to protect its own interests. These pleading defects led to the claim being struck out in its entirety.