NEGLIGENCE

CONSUMER PROTECTION ABSTRACT not all, instances. Two particular

IN RESPECT OF The existence and scope of difficulties with Murphy are
a builder’s duty in respect of the coupling of cases against
DEFECTIVE BUILDINGS latent defects in premises has local authorities and builders
Eoin Quill, Lecturer in Law been a matter of contention and the comparison to product
for decades in many common liability cases used by the House
University of Limerick of Lords. On the first point, the
law jurisdictions. This article
considers the position in England, reasons for considering the
Ireland, Canada and Australia. imposition of a duty on each is
Looking at the underlying slightly different, as the relevant
policy considerations in tort policy considerations between
law, drawing a comparison to the two categories of case are
consumer protection laws and not identical.2 The comparison
considering insurance factors, to products cases is misplaced,
it argues that builders should since there are important
be subject to a duty of care differences between goods and
towards consumer purchasers real estate and our relationship to
of dwellings and small business them that merit reflection in the
purchasers of premises, but that law. The article will also examine
larger commercial concerns the Canadian and Australian
should not be owed such a duty, approaches to a builder’s duty
absent a clear demonstration of care, focusing in particular
of vulnerability. The duty owed on the High Court of Australia’s
by builders should extend to reasoning in Woolcock Street
significant quality defects and not Investments Pty Ltd v CDG Pty Ltd
be confined to dangerous defects. (2004) 216 CLR 515.

INTRODUCTION The proposed rationale for a

The principal motivation for builder’s duty is the growing
this article was the adoption by recognition of consumer
the Irish Supreme Court of the protection in modern legal
three–stage test for duty of care systems, reflecting current social
and the exclusionary rule, subject values; this is underpinned
to limited exceptions, in respect by two policy factors—the
of pure economic loss in Glencar vulnerability of purchasers and
Explorations Plc and Andaman accountability of providers of
Resources plc v Mayo County specialist services. The article
Council (No 2) [2002] 1 IR 84.1 This will examine, in broad terms,
opened the possibility of a review the development of consumer
of earlier developments in areas protection in England, Ireland,
of pure economic loss claims, the EU, Canada and Australia.
such as defective buildings cases. It will be argued that these all
To date the Irish courts have not demonstrate broad agreement
considered the House of Lords on a division between private
decisions in D & F Estates Ltd consumers, small business and
v Church Commissioners for large business and provide a
England [1989] AC 177 or Murphy sliding scale of protection from
v Brentwood DC [1991] 1 AC very high protection of private
398 nor the responses to those persons to expecting big business
decisions from the Superior to protect itself through market
Courts of other jurisdictions. power. This division is not solely
the product of statutory reform,
The object of the article is to but also has a long history of
highlight anomalies in the judicial innovation. It will be
reasoning in Murphy and propose further argued that this division is
a viable reason for builders’ a sufficiently powerful reflection
duty as an exception to the of current social values to be
exclusionary rule in some, but
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 15
reflected in tort law in respect of judgment of Lord Oliver ([1991] 1 Their Lordships did briefly note
the relationship between builders AC 398 at 489) exceptional situations where
and purchasers of buildings. This duties in respect of economic
If, then, the law imposes upon
view is enhanced by the fact that loss do arise, principally under
the person primarily responsible
the underpinning of consumer Hedley Byrne & Co Ltd v Heller
for placing on the market a
protection involves policy factors & Partners Ltd [1964] AC 465,
defective building no liability to a
that have particular resonance but provide no clear reasons why
remote purchaser for expenditure
with the duty of care in tort. a builder should not be subject
incurred in making good defects
to such liability.6 One could, for
THE BUILDER’S DUTY OF which, ex hypothesi, have injured
instance, argue that completion of
CARE nobody, upon what principle is
work and departure from the site
Initially in the wake of Donoghue v liability in tort to be imposed upon
carries an implied representation
Stevenson [1932] AC 562 builders a local authority for failing to
that the work has been properly
retained an immunity in English exercise its regulatory powers so
carried out to a reasonable
tort law in respect of defective as to prevent conduct which, on
standard and that subsequent
construction work.3 If they were this hypothesis, is not tortious?
purchasers are within the class
working under contract, then Thus, although in theory any of persons that the builder ought
their obligations were confined statements about the builder’s to reasonably foresee as being
to contractual obligations to duty are obiter, they are so affected by that representation
the other contracting party. If closely connected with the and the purchase of the property
they were speculative builders, reasons for the decision that they is a type of transaction that
building on their own land and would necessarily be regarded could reasonably be expected to
then selling the property on, as binding. In any event, the result from reliance. However,
they benefited from the vendor’s combined effect of the two cases recasting the question in the
immunity in respect of the in respect of the abolition of guise of a misstatement case
condition of the property.4 Key a builder’s duty in respect of does not surmount the need to
decisions in the abolition of the cost of repair of defective consider whether the underlying
builders’ immunity were Dutton workmanship was confirmed by policy considerations merit the
v Bognor Regis Urban DC [1972] House of Lords in Department of imposition of a duty. The history
1 QB 373 and Anns v Merton LBC the Environment v Thomas Bates of Hedley Byrne shows its
[1978] AC 728. Although these & Son Ltd [1991] 1 AC 499.5 The criteria to be no more predictable
cases were principally concerned manner of both development and in concrete situations than
with local authorities’ duty, they abolition of duties demonstrates Donoghue.
also considered the duty that a significant intertwining of local
ought to be imposed on builders. In Ireland, Colgan v Connolly
authority duty and builder’s
The builder’s duty at common Construction Co (Ireland) Ltd
duty. The principal reasons for
law was largely dismantled by the [1980] ILRM 33 established
abolishing the duties were the
House of Lords decision in D & F that a builder had a duty to
exclusionary rule in respect of
Estates, which held that a builder avoid dangerous defects not
claims for pure economic loss
was not liable to a subsequent discoverable by the type of
and a close comparison between
owner of a building in respect examination that it is reasonable
building and the manufacture of
of the cost of repairing defective to expect the purchaser to
products. Their Lordships noted
construction work that had not make and that the cost of
that the duty under Donoghue
yet damaged any other property repairing defects discovered
has been confined to personal
or person. The possibility that before they had caused injury
injury or damage to separate
damage done by one portion of was recoverable. The plaintiff
property, caused by latent
a building to another, separate in that case was the second
defects and has not extended
part of the same building could be owner of the dwelling in
to the cost of repairing defects
treated as recoverable property question, with no contractual
in the product that have been
damage was kept open under the relationship to the builder. The
discovered before causing any
complex structure theory. This judgment acknowledges that
physical harm. By analogy, a
was, however, ruled out by the some purchasers will not be in
purchaser of a building should
House of Lords in Murphy. The a position to spend a significant
have no recourse in respect of
linkage between a builder’s lack amount of money on examining
the economic cost of repairing
of duty and the decision in respect the property and McMahon J
defects in the building that have
of the abolition of local authority considered that the question
not yet caused personal injury
duty is particularly clear in the of intermediate examination
or damage to other property.
16 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007
should not be considered to despite the references to the now High Court, however, rejected a
be a definitive factor in the discredited two–stage test. bright line distinction between
determination of duty.7 In Ward v dwellings and commercial
Although Irish courts have
McMaster [1985] IR 29 Costelloe property as a basis for its
not dealt with commercial
J extended the builder’s duty to decision, noting a variety of
purchasers, the builder’s duty
include non–dangerous defects, cases where the line is blurred.
is not expressed explicitly in
based on a broad construction Instead the focus is on policy
terms of the purchaser being a
of Junior Books Ltd v Veitchi Co concerns, principally that of the
private individual, or the premises
Ltd [1983] 1 AC 520. The plaintiff vulnerability of the plaintiff to the
being a dwelling; therefore, a
in Ward was in receipt of local loss in question.10 The principal
commercial purchaser could
authority funding for the purchase judgment held that the plaintiff’s
be regarded as coming within
of a house because he was unable case failed as the pleadings did
the duty. In practice, however,
to obtain suitable finance in the not disclose vulnerability, since
the courts would expect a
private market and it was held they lacked sufficient information
commercial purchaser to conduct
that it was reasonable in such on contractual protection,11 on
a survey of the property and this
circumstances for him to rely on the investigations that could
would reduce the chances of loss
the local authority’s examination have been carried out and
arising from a latent defect, but
of the building, rather than thirdly, on whether the purchase
would not entirely remove it.
arrange for his own. The builder represented a very significant
and local authority were found The Canadian Supreme Court investment for the purchaser (at
jointly liable, but only the local declined to follow Murphy [31]–[33]). The judgment leaves
authority appealed and this was in Winnipeg Condominium open the question of whether
unsuccessful.8 In Sunderland v Corporation No 36 v Bird there must be a breach of duty
McGreavey [1987] IR 372 Lardner Construction Co Ltd [1995] 1 towards the original owner, if
J applied Colgan in respect of SCR 85; (1995) 121 DLR (4th) 193 a subsequent purchaser is to
the extent of a builder’s liability, and held that a builder is liable succeed (at [28]–[29]).
but Howard v Dublin Corporation to compensate a purchaser for
(unreported, Ireland HC, 31 July the cost of repairing a building A PRINCIPLED APPROACH?
where the defects render it a Some writers have argued that
1996), a case against a local
‘real and substantial danger to the Canadian, Australian and
authority, supported Ward and
the inhabitants’. Notably, there is other courts have too easily had
suggested obiter that recovery
no requirement that the danger resort to broad policy arguments
ought to be allowed for non–
be immediate. The court applied and that a principled approach, or
dangerous defects. The Supreme
the two–stage test from Anns, at least one based on much more
Court in Glencar was critical of
under which the reasonable narrowly defined policy grounds
the reasoning process employed
foreseeability of the harm gave would be better. Beever,12 for
in parts of the Supreme Court
rise to a prima facie duty of example, argues that the rejection
judgments in Ward, relating to
care and the court found no of economic loss generally is not
local authority liability (Keane CJ,
convincing countervailing policy a policy choice; he argues that
[2002] 1 IR 84 at 138). Costello J
considerations. there is no primary right on the
in the High Court relied on the
plaintiff’s part to which a duty not
two–stage approach in Anns The High Court of Australia to interfere could attach, unlike
in respect of the builder’s duty rejected Murphy in Bryan v personal injury cases (where a
([1978] AC 728 at 43–44), but Maloney (1995) 182 CLR 609, right to bodily integrity can be
used the three–stage approach where a subsequent purchaser seen as part of the plaintiff’s
in respect of the local authority’s of a dwelling was held entitled primary rights) or property
duty (at 49–50). It is submitted to recover for the diminution damage cases (where property
that if the imposition of a duty of value of the property when law determines the scope of the
on the local authority to detect serious defects were discovered. primary rights). He asserts that
defects is just and reasonable, However, the reasons offered in Murphy is a decision on principle,
then it is also just and reasonable Bryan have been superseded by not policy and references to policy
to impose a duty on the person the decision in Woolcock Street play only a supporting role.13
actually responsible for causing Investments Pty Ltd v CDG
the defect. Thus, Costelloe J’s Pty Ltd,9 where a subsequent There are some shortcomings
decision in respect of a builder’s purchaser of a commercial in this argument. Some
duty is compatible with the property was refused recovery jurisdictions, including Ireland
Glencar decision and should still for similar economic loss. The do have recognised economic
be regarded as correctly decided, rights, like the right to earn a
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 17
livelihood; one could also argue of goods. Despite the general defective premises, but that most
that economic loss interferes theory of contract as agreement of the cases in this field do not
with the plaintiff’s autonomy and the obligations as therefore involve imminent danger. As a
over his or her resources. Tort voluntary, the true position is principled approach, it is logical
law does recognise some limited that they are imposed by law and and well argued, but is subject to
protection of economic interests not voluntarily undertaken. Why some of the objections referred
in ways that are now regarded as then is it improper for tort law to to earlier in respect of Beever’s
principled, such as liability under impose equivalent obligations on approach—is principle a sufficient
Hedley Byrne and the economic builders? reason to prevent development
torts.14 Economic rights can be and does logic provide a
Even if one accepts that
seen as an emerging area and the satisfactory solution for current
economic rights are not
development of duties may help social needs?
sufficiently developed to count
to shape our understanding of the as primary rights and the logic The House of Lords in Murphy
content of economic rights. If we of the principled approach is and the commentators referred
briefly look at the way Donoghue impeccable, some difficulties to here take a narrow view
advanced the protection of the remain. Just because an of Donoghue; the ratio and
right to bodily integrity, we can argument has academic logical subsequent history confines
see how the shape of economic force does not make it a good it to physical harm and does
rights could develop. Prior rule for society and the first job not extend to pure economic
to Donoghue, bodily integrity of the law is to serve society. loss resulting from quality
was recognised by virtue of its If you tell the average citizen defects. Murphy uses the
protection by a variety of torts, but that the law does not recognise incremental approach, derived
it was not protected in respect economic rights in scenarios like from Sutherland Shire Council
of negligent manufacturing of defective buildings and relational v Heyman (1985) 157 CLR 424;
goods. If the Donoghue decision loss cases, they are more likely 60 ALR 1. This approach is
is a principled one, redefining our to tell you that your view of rights reminiscent of the dissenting
conception of the protection of the needs work, than accept that it is judgments in Donoghue. On
primary right to bodily integrity, a right that they are not permitted a broader view, Donoghue
right already recognised in other to recover the economic cost introduced a new reasoning
situations, then why does the of a third party’s negligence. process in English tort law, which
same argument not hold true for Furthermore, principles may has been replicated in other
economic rights? To some extent simply be seen as long– jurisdictions, and policy is central
the development of duty redefines established policy choices. They to that process.16 It developed
our understanding of rights. all started life as novel choices manufacturers’ duty based on
Tort law has historically afforded in individual cases and evolved ideas of social protection and the
lesser protection to economic through case development into values of the day, which in turn
rights, but tort law also reflects their current form. Thus, if there spurred further development in
social values and must change are no primary economic rights, novel areas. Developments in
along with society. Modern we need to develop some. Such consumer protection obviated the
society has pushed economic economic rights as may exist, or need to develop manufacturers’
values to the forefront, with many be developed, are not absolute duty in respect of quality defects,
issues such as education and but have to be balanced against but no equivalent development
health care that are not primarily others and so, policy choices will occurred in respect of buildings.
economic in nature now being have to be made. This is one reason why a direct
described through the language comparison between the two
Neyers argues that courts are
of economics. The EU has placed situations is unwarranted.
ill–equipped to make the kind
economic development as a prime Looking at defective buildings
of policy decisions undertaken
goal and developed new rights cases against negligent builders
in cases like Winnipeg.15 He
and new expectations, which tort on their own merits requires
argues for a much narrower
law is entitled to reflect. Some us to ask whether a duty to
ground to support the recovery
of the economic rights that exist protect purchasers against
of a much more limited category
in contract, which are seen as economic loss can be justified
of claims. By analogy to rescue
acceptable because they are on modern values? Despite
cases he accepts that a person
contractual, are implied rights; economic loss being suspect
may recover the economic cost
particularly the rights of buyers in from a duty standpoint, there are
of extracting themselves from
respect of the quality and fitness exceptions and we need to explore
imminent danger in respect of
18 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007
possible reasons for making a This allows for the possibility consideration. Central to this is
builder’s negligence one of those that the duty question may be a fear of uncontrolled liability.20
exceptions. answered differently in respect But, in buildings cases liability
of the involvement of both a will always be constrained by the
POLICY FACTORS IN builder and a local authority in value of the property, as damages
RESPECT OF A BUILDER’S the loss suffered by the buyer of will either be cost of repair or
DUTY a building suffering from latent devaluation and, possibly, loss
The general approach to the defects. However, for Irish and of rental income. Prices may
duty of care question in novel English courts, this approach rise over the years making the
situations, or in cases considering has not been recognised as loss greater than an equivalent
a change to an established yet and a general exclusionary harm (repair, devaluation or loss
area on the duty question, will rule is recognised, despite its of rent) occurring at the time
use policy considerations. The lack of pedigree. Exceptions of building, but is that enough
Canadian courts favour the are, however, recognised, so we of a variable to categorise
two–stage test in Anns (as did the must consider the policy factors the risk to negligent builders
Irish courts for many years), the that arise in cases of negligent as unreasonably high? The
English and Irish courts use the construction and consider inapplicability of indeterminacy to
three–stage test from Caparo and whether an exception to the at least some defective buildings
the High Court of Australia uses exclusionary rule is warranted in cases is highlighted in Bryan
its own formulation from Sullivan respect of builders. v Moloney (1995) 182 CLR 609
v Moody (2001) 207 CLR 562; 183 at 623–62421 and, in Woolcock,
ALR 404 and Woolcock, which Floodgates McHugh J (216 CLR 515 at [99])
overtly acknowledges policy and Various policy factors were finds it ‘difficult to see how issues
has dispensed with proximity. considered in Murphy. Lord Keith of disproportionate liability can
did acknowledge that deterrence be a factor in defective buildings
A categorised approach to might be a factor in favour of cases concerned with pure
economic loss imposing a duty, but also noted economic loss’.22
An initial difficulty with denying that a duty might discourage
liability on the basis of the repair by the owner ([1991] 1 AC In Murphy the loss was £35,000
economic nature of the loss is 398 at 472): plus associated expenses,
the question of whether there resulting in a total just under
So far as policy considerations
ever was a general exclusionary £40,000. In D & F Estates
are concerned, it is no doubt the
rule for all pure economic loss the loss was approximately
case that extending the scope of
claims. Feldthusen demonstrates £100,000. The risk in the case
the tort of negligence may tend to
that there is no satisfactory of each building relates to the
inhibit carelessness and improve
historical pedigree for a general value of the work done plus
standards of manufacture and
exclusionary principle for inflation for the latency period;
construction. On the other hand,
such claims, but there is an the total risk for the builder is
overkill may present its own
established exclusionary rule in dependent on the number of
disadvantages, as was remarked
respect of one particular category buildings in which shoddy work
in Rowling v Takaro Properties
of pure economic loss–relational is carried out—a factor within
Ltd [1988] AC 473, 502. There
loss.17 He suggests that there the builder’s own control.23 This
may be room for the view that
are various different categories level of risk is relatively small
Anns–type liability will tend to
of pure economic loss claim, compared to the risk of liability
encourage owners of buildings
raising different considerations in respect of personal injuries,
found to be dangerous to repair
and opening the possibility for which includes variables such
rather than run the risk of
different solutions amongst the as the number of people in the
injury. The owner may, however,
categories. This approach has vicinity of danger when the risk
and perhaps quite often does,
found favour with the Canadian materialises, the extent of their
prefer to sell the building at its
Supreme Court18 and its adoption injuries, their income levels and
diminished value, as happened in
by the English Courts has been the level of other recoverable
the present case.
advocated recently by at least expenses generated by the
one commentator.19 Under this However, the principal reason injuries sustained. The level of
approach, builders and local for excluding the loss was its loss in Winnipeg was significantly
authorities fall into different economic character and this higher—$1.5 million for the
categories, each with their own is generally considered to be replacement of exterior stone
relevant policy considerations. underpinned the floodgates policy cladding, but this was due to the

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 19

scale of the building in question, Dutton has suffered a grievous practical difficulties in buying
which would have been known loss. The house fell down without in assistance to redress the
to the builder at the time and, any fault of hers. She is in no imbalance. These factors are in
presumably, reflected in the position herself to bear the loss. evidence in other areas of the law
price of the work. Even this loss Who ought in justice to bear it? on pure economic loss, such as a
pales into insignificance when I should think those who were solicitor’s liability to disappointed
compared with the damages that responsible. Who are they? In beneficiaries. In areas where
could flow from multiple personal the first place, the builder was the law is more cautious about
injury and property damage responsible. It was he who laid expert accountability, such
claims that would have arisen if the foundations so badly that the as auditors’ and accountants’
a large amount of cladding had house fell down. duty in respect of corporate
fallen into the street during a busy accounts, one does find that
period. Lord Bridge in Murphy ([1991] many unsuccessful claims in
1 AC 398 at 482) quotes this fact involve plaintiffs that are not
An additional shortcoming in passage, but adds that ‘[i]t is particularly vulnerable, such as
the floodgates argument is that pre–eminently for the legislature multi–national corporations.25
its concern is with liability, yet to decide whether these policy
in meeting that concern it relies reasons should be accepted as Vulnerability
exclusively on the denial of any sufficient for imposing on the One of the principal reasons
obligation on the defendant’s part. public the burden of providing for the failure of the appellant
Much of the liability concerns compensation for private financial in Woolcock was that the High
can be met by using other losses. If they do so decide, it is Court was not satisfied that they
facets of tort law to constrain not difficult for them to say so’. were sufficiently vulnerable in
the extent of compensation paid However, it is not clear why this respect of the loss suffered to be
out by defendants, such as the area is so pre–eminently unsuited owed a duty by the respondents.
standard of care, causation and to judicial development. This The joint judgment (216 CLR 515
remoteness of damage and will be considered further in the at [31]–[33]) simply noted that
defences.24 An outright denial consumer protection section of the pleadings failed to disclose
of duty is, arguably, too blunt an this article. any vulnerability. In doing so,
instrument for the task. it identified two aspects to
Lord Denning’s statement
The floodgates concern also vulnerability; the first was the
carries a certain appeal, but
refers to level of litigation likely protection that a buyer might
justice is too vague a factor to
to be generated by a novel obtain by way of a contractual
give any reliable guidance as
development, but McHugh J in term, such as a warranty from
to why a duty should arise. It
Woolcock (216 CLR 515 at [97]) the vendor, or an assignment
may be more useful to point to
notes that such a problem hasn’t of any vendor’s rights against
specific factors underlying the
materialised in jurisdictions third parties; the second was the
appeal to justice. His statement
imposing liability for defective significance of the investment
does implicitly identify two such
buildings. that the property represented for
factors—accountability and
the appellants. McHugh J (at [80]–
Fairness and accountability vulnerability. Part of the reason
[86]) discussed vulnerability in
Lord Denning MR in Dutton v why tort law utilises corrective
more detail and the emphasis is
Bognor Regis Urban DC [1972] 1 justice is to make wrongdoers
not just on theoretical contractual
QB 373 at 397–398 said: answerable for the effects of their
protection, but also focuses on
behaviour; it conforms with social
This case is entirely novel. Never whether it is practicable to obtain
attitudes to accountability that
before has a claim been made sufficient protection. McHugh J
the person who caused the harm
against a council or its surveyor highlights a number of shortfalls
should carry the responsibility
for negligence in passing a in contractual protection that
to remedy it, or a least put in
house. The case itself can be may occur in practice. He also
place insurance to provide a
brought within the words of Lord identifies a further aspect of
remedy. We generally favour third
Atkin in Donoghue v Stevenson vulnerability—the ability, or
party over first party insurance.
[1932] AC 562: but it is a question inability, to discover the defect
Second, victims are often not in
whether we should apply them through examination of the
a position to adequately protect
here. … It seems to me that it is a building by an appropriate
themselves against the risks
question of policy … What are the expert. Ultimately he holds that
posed. The builder is an expert,
considerations of policy here? I commercial purchasers are not
whereas the purchaser generally
will take them in order. First, Mrs sufficiently vulnerable and so are
is not and may encounter
20 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007
not owed a duty (at [110]–[112]). that it should be elevated to the a duty should apply. Clearly the
Kirby J, dissenting (at [168]–[173]), status of principle. Other factors buyer’s expectations have to
takes a different view of the remain relevant to the duty be reasonable, so if one buys a
vulnerability issue on the facts. question, but vulnerability is so cheap property, one has to expect
He argues that, as it is a case central to duty that the answer to that the materials used will not
stated, there is no evidence on the the vulnerability enquiry should, be exactly the same as those in
practicality of possible protective prima facie, be an answer to the a more expensive property. This
measures the purchaser could duty enquiry. Only in exceptional does not, however, mean that a
have taken and a presumption cases should a particularly buyer should have to bear the
should not always be made that vulnerable plaintiff be denied the effects of shoddy work, such as
a commercial purchaser is not protection of a duty. Likewise, the use of entirely inadequate
vulnerable. non–vulnerable plaintiffs should materials, or incorrect mixing of
not generally benefit from a duty. what would otherwise have been
Vulnerability was clearly a
suitable compounds for the task
central feature of the policy The nature of buildings and
in hand.
choice made in this case, but it the process by which they are
was not the only consideration. acquired in practice tends to CONSUMER PROTECTION
The judgments emphasised a indicate that private persons Opponents of builder’s duty often
variety of other aspects to the buying dwellings are particularly suggest that this is an area more
duty question, though most of vulnerable to economic loss suited to legislative resolution
those also weighed against the as a result of latent defects in than judicial determination. Lord
appellants.26 Stapleton has gone construction.28 Large commercial Keith in Murphy provides a typical
a step further and argued that entities are less vulnerable, as example of this approach ([1991] 1
the protection of the vulnerable they are in a better position to AC 398 at 472):
is a core moral concern of tort bargain for contractual protection;
There is much to be said for the
law.27 She suggests abandoning they can generally engage in a
view that in what is essentially
a distinction between principles more searching examination
a consumer protection field, as
and policies and recognising that of the property; and, in many
was observed by Lord Bridge of
there are simply various legal cases, the purchase represents
Harwich in D & F Estates [1989]
concerns that have to be taken a less significant investment of
AC 177, 207, the precise extent
into account in determining duty resources for them compared
and limits of the liabilities which
questions. She further argues to a person buying a home.
in the public interest should be
that the vulnerability concept Smaller commercial entities fall
imposed upon builders and local
provides a coherent way of somewhere between the two
authorities are best left to the
allowing recovery in a limited and this is perhaps what Kirby J
legislature.29
number of economic loss cases was referring to in Woolcock. A
without opening the floodgates. person buying a small store, or a Contrary to this, one may assert
few dwellings as an investment that there is no particular barrier
This approach has considerable
for retirement is probably in a to judicial development of this
appeal, though it may face
position more comparable to a area. Three features of consumer
significant resistance in respect of
person buying a home, than a protection law provide the focus
abandoning a distinction between
corporate giant adding one more for this article; the first is the
principle and policy. However,
outlet to its chain. Vulnerability, judicial role in furthering the
even if it does not ultimately
where it arises, is not confined to development of this field of law;
find favour with the courts or
dangerous defects, but includes the second is the steady growth
commentators, it still carries
all defects that involve large in protective legislation from
considerable force in the analysis
costs relative to the owner’s around the 1970s to the present,
of the duty question. It highlights
resources. Thus, the builder’s demonstrating the growing
the crucial role that vulnerability
duty should not be confined to awareness of the need to protect
has played in the development
dangerous defects, but extend purchasers from unsavoury
of negligence and emphasises
to all significant latent defects. commercial practices; the third
its ability to make a clear and
It should not be beyond the is the division of purchasers into
justifiable distinction between
wit of the judiciary to forge a three general groups—private
duty and no–duty situations. If the
recognisable distinction between buyers, small businesses and
principle and policy distinction
normal wear and tear, for which large businesses—with differing
is to remain, then vulnerability
a property owner has no redress, levels of protection for each. The
has been such a central feature
and serious deficiencies, to which history of consumer protection is
of policy choice in negligence
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 21
as much one of judicial innovation development of implied terms outside the scope of the federal
as legislative intervention, so in contracts for services.33 The legislation.38 State laws equivalent
the supposed superior position judiciary have also, on occasion, to the 1893 English legislation
of the legislature to decide its expanded the measure of had been the principal protection
parameters is misplaced. The damages in certain types of prior to the 1974 Act.39
growth in protective provisions service contract to protect family Following the initial burst of
is relevant, not so much for the interests in the contract, rather developments in the 1970s,
specific details of what is provided than confining themselves solely legislatures continued to revise
for, but to show a general trend in to the interests of the actual consumer protection legislation,
social and political development family member responsible for with the 1990s in particular
that may legitimately be utilised making the contract.34 seeing a significant wave of
by the judiciary. Judges often look
The expansion of consumer development. Sale of goods
to statutes for general guidance
protection legislation was further revised
in deciding matters of common
Since the 1970s, broadly in England40 and Canada.41
law and do not confine their
speaking, all of the countries Apart from sale of goods, other
use of statutes to their direct
under consideration here have facets of consumer vulnerability
application to cases governed
been engaged in expanding have been addressed, including
by the legislation. Following
consumer protection measures, unfairness and consumer credit.
on from this, the third feature,
providing evidence of legislative Unconscionability was put on a
the threefold classification of
support for a policy of protecting statutory footing in Australia42
purchasers, is the particular
vulnerable customers. In England, and some Canadian States.43
facet that it is proposed to apply
the Sale of Goods Act 1979 (Eng) England and Ireland have
to a builder’s duty in respect of
strengthened the protection of legislation protecting against
defective construction.
buyers of goods, particularly by unfair contract terms.44 All of
The judicial role in prohibiting the use of exclusion these measures, apart from the
consumer protection clauses in contracts where particular details of the individual
Implied rights for buyers in private persons were buying from pieces of legislation, are indicative
contracts for the sale of goods traders. The Supply of Services of a trend of increasing protection
provided the key starting point Act 1981 (Eng) gave a statutory against unacceptable business
in the development of consumer footing to developments in the practices. This trend provides
protection law. The Sale of Goods protection of persons contracting evidence of the widespread
Act 1893 (Eng) and (Irl) has been for the provision of services that acceptance that modern social
central to this field in Ireland had been developing at common values, across many jurisdictions,
and England throughout the 20th law. The Sale of Goods and include a general view that
century. Yet this statute was not Supply of Services Act 1980 (Irl) vulnerable buyers should be
the product of a political decision provided equivalent measures in protected against improper trade
to change the common law, it was Ireland. In Canada, the Sale of practices. There is little good
a codification of developments Goods legislation in the various reason for exempting builders in
that had already occurred at States was also reformed,35 particular from being accountable
common law.30 Its history during though protection in respect of to those affected by their
the decades of its application was services has not been placed on substandard work.
not one of narrow parsing of the a statutory footing. In Australia, In the context of a possible
legislation by the judiciary, but Pt V of the Trade Practices Act reconsideration of a builder’s duty
rather an expansive approach, 1974 (Cth) introduced federal in Irish law, there is additional
maximising the protection regulation of sale of goods and support for acceptance of a
afforded to buyers.31 supply of services contracts and general trend of increasing
prohibited the exclusion of the consumer protection. Since
The judiciary have also been
implied terms provided for the the 1980s the EU has steadily
active in other areas that may be
buyer’s protection.36 Following developed consumer policy
considered as part of the field of
its introduction, the federal and consumer protection has
consumer protection. The most
legislature did not let matters risen up the hierarchy of EU
notable examples are Donoghue
rest, but continued to develop and objectives. Originally there was no
in the development of protection
refine the Trade Practices Act specific provision and consumer
against dangerously defective
throughout the 1970s.37 Individual protection measures had to be
products, the development of
States also provided legislative brought in under the residual
the unconscionability doctrine
protection for transactions powers in what was then Art 235
in contract law32 and the
22 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007
of the Treaty of Rome. Later, bargaining strength and alternate defective construction need
the Single European Act in 1986 opportunities for contracting on not necessarily oust the role of
introduced Art 100A, providing better terms.47 common law principles. Other
for a high level of consumer jurisdictions, including Ireland,
The Trade Practices Act in
protection as part of the Single have not made any legislative
Australia also evidences a
Market programme. The Treaty provision in this area, so it falls
threefold distinction, providing
on European Union (TEU) then to the courts to determine the
three distinct provisions on
included in its primary objectives matter. Murphy provides the
unconscionable conduct. Section
in Art 3 a contribution to the principal argument against the
51AB deals with unconscionable
strengthening of consumer imposition of a duty, but it is
conduct by a corporation in
protection; this is now to be submitted that the reasoning in
respect of the commercial
found in Art 3(t) of the EC Treaty. the case is flawed and should not
supply of goods or services to a
The TEU provided for consumer be followed. The gist of the House
consumer, provided the goods or
protection in Title XI, containing of Lords’ reasoning in respect of
services are of a kind ordinarily
a single article committing defective buildings is as follows:
acquired for personal, domestic
the EU to contributing to the a building is comparable to a
or household use; s 51AC
attainment of a high level of manufactured product, as both
provides protection for small
consumer protection.45 Specific are new items generated by
business against big business;48
provisions have dealt with a putting raw materials together;
s 51AA is a residual provision
variety of matters, such as the law does not protect buyers
for unconscionable conduct not
unfair contract terms, doorstep of manufactured products against
caught by other two provisions.
contracts and consumer credit. economic loss resulting from
Also, the implied terms in
Apart from the introduction of deficiencies in the condition
consumer contracts for the sale
such specific measures, the rise of the product; consequently,
of goods or supply of services,
of consumer protection in the purchasers of buildings should
under Pt V, contain restrictions on
general policies and objectives not be protected against
exclusion clauses.
of the EU demonstrates the rise economic loss resulting from
of consumer protection as a While differences of detail exist deficiencies in the condition of the
generally accepted social value in between the jurisdictions covered, property. There are two problems
Europe and this strengthens the it is clear that there is a core with this reasoning. First of all,
case for permitting an Irish court element of general agreement to say that a building is just a big
to have regard to the protection that there is a distinction product fails to recognise the
of vulnerable buyers in the between private consumers greater practical and economic
evaluation of policy factors in tort. and business consumers and a significance that building
further division between large and purchases entail, particularly
The threefold classification small business. There is general in the case of the purchase
of customers recognition of a need for a high of one’s home. Second, and
Even in the 1893 Act, the level of protection for private more importantly, the analogy
beginning of a distinction between consumers, a reduced level of overlooks the fact that tort law
consumer and non–consumer protection for small business and protection against economic
transactions was evident. The large business can be left to its loss in the case of manufactured
implied terms in respect of own devices to use market forces goods is not necessary, as
merchantable quality and fitness to protect itself. the buyer’s vulnerability has
for purpose in s 14 only applied been largely addressed by
where the buyer was not acting The case for a builder’s
consumer protection legislation.
in the course of a business and duty Manufactured goods are generally
the seller was. This was later Some jurisdictions have provided bought from retailers, with
enhanced in Ireland, England legislation on builders’ duty. the built in protections for the
and Canada by the banning of Whether that entirely ousts customer. Although some goods
exclusion clauses in consumer the jurisdiction of common are bought privately without such
contracts.46 The introduction of law development is a matter protection, the buyer generally
criteria to determine the fairness of statutory interpretation.49 has a choice between buying
of such clauses in non–consumer Common law and statutory in this unprotected manner
contracts allows for a distinction obligations coexist in other facets and buying in a more secure
to be drawn between small of tort law, such as employer’s fashion. If the buyer chooses to
traders and larger business by liability, so the presence of contract outside the protected
focusing on matters such as legislative duties in respect of environment, perhaps for a
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 23
significant reduction in price, then decades, at least, and are likely law.52 In the case of defective
the quid pro quo is that he or she to have a multiplicity of owners buildings, insurance is relevant
runs the risk of buying something and many latent defects can in two ways. First, there is the
deficient without any real materialise long after the building concern that the development
prospect of redress. Buildings are work has been completed. of a builder’s duty contributes to
not generally distributed through the general escalation in the cost
A key objective of consumer
a commercial chain in the way of the tort system. The second
protection law is the protection
that goods are; apart from the is that, if buyers can readily avail
of vulnerable buyers and the
initial transaction with the builder, of insurance against the cost of
concomitant placing of risk on
they are usually bought directly latent defects, then they are not
commercial entities providing
from the previous owner. Except vulnerable and, consequently, not
goods or services for profit.50
perhaps for large commercial in need of the assistance of tort
Protection against vulnerability
entities, buyers cannot generally law. If a buyer is insured, then
is also a central feature of tort
in practice obtain contractual the tort duty simply favours the
law and tort has an established
protection against such loss. If buyer’s insurer, at the expense
history of developing protection
the average house buyer asked of the builder or the builder’s
where it is needed due to
the seller to give an undertaking insurer. It also effectively means
shortfalls in the protection
to accept responsibility for the that two insurance policies are
provided by other branches
economic cost of latent defects, being paid for against a single
of the law. Therefore, tort is
the seller would simply refuse to risk.53 Conversely, the absence of
a suitable vehicle for reform
sell and wait for another buyer. readily available insurance for the
and development in defective
buyer reinforces vulnerability.
In the case of services, the buildings cases. If tort law is
contractual protections provided seen to go too far in doing so, it Escalating cost
by consumer protection laws, is always open to the legislature In respect of personal injury
whether they be statutory or to respond by reducing the scope compensation, Atiyah’s concerns
common law, are generally of protection provided. Notably, about stretching tort law
sufficient. Few services generate the Irish legislature never and putting pressure on the
significant risk of third party sought to reduce the liability of compensation pool and his
economic loss; most services builders created in Colgan and concerns about tort law providing
present an economic risk to developed in Ward. Neither have a poor mechanism for addressing
the person contracting for the the legislatures of the other the need for compensation in
service, so contractual protection jurisdictions under consideration society are well–known.54 Such a
is generally sufficient. Some here sought to abolish the concern is also relevant to claims
services, however, do generate builder’s duties developed in for pure economic loss, though
third party risk. Legal and their leading cases. The only for different reasons. Increases
medical services can, in some jurisdiction to abolish the duty is in tort liability bring about costs
instances, generate such risks. England and that was a judicial, and we cannot always work on the
An improperly drawn will can put not a legislative, decision. assumption that such costs can
an intended beneficiary at risk. easily be borne by society. Neither
Improper advice or treatment INSURANCE
can we assume that insurance to
The relationship between tort law
of a pregnant woman can protect defendant businesses is
and insurance is problematic. On
cause her spouse or partner to always readily available against
the one hand the judiciary claim
incur financial expenditure in new developments in liability.55
that tort law is not concerned
some cases. Notably, the law However, if the earlier discussion
with insurance considerations,
does make exceptions to the of indeterminacy is correct
which is the formal legal stance
exclusionary rule and allows and defective buildings liability
on the subject. On the other
recovery in some such scenarios, is relatively constrained, then
hand the law is replete with
so there is an established pattern such liability will only be a small
examples of the extension of tort
of using tort law to address third part of the escalation. Can this
law past established boundaries
party vulnerability to economic relatively small escalation be
against insured defendants, in
loss from the negligent provision justified? Concern about even
order to provide compensation
of services. Building services also small contributions to escalating
to a ‘deserving’ plaintiff.51
generate third party vulnerability costs of the tort system may be
Cousy has described liability
to economic loss, because of the valid where alternate protection is
insurance as having a ‘hidden
durable nature of buildings. They available, but where it is not then
and undeclared but decisive
are expected to last for several the stretching of tort law and its
role’ in the development of tort
24 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007
socio–economic implications is In England, the National House there is a financial limit on the
justified. If there is an excessive Builder’s Council agreement maximum amount that can be
burden, it is because defendants provides a limited scheme of claimed. The cover is for a period
cause too much harm through protection in respect of new of 10 years after completion, but
negligent conduct, not because houses. The cost is included a reduced period of two years
tort law recognises the harm in the purchase price of a new applies to smoke damage and
and protects the plaintiff. While house; the builder purchases a water penetration. The scheme
deterrence due to tort law is bond covering the house, so the is only available if the builder
generally very limited, any benefit passes to subsequent is registered with the company
small contribution to reducing owners. But it has a limited time running the scheme.64 Outside
undesirable behaviour should be frame, being confined to two of the scheme, the insurance
encouraged.56 The onus should years for most defects, with a market is generally similar to
be on builders to keep insurance further eight years coverage for that in England. The net result
costs down by taking more care major structural defects.59 For is that the vulnerability of the
in carrying out work. This is also buildings outside the scope of buyer is not generally met by
distributively fair, as to keep costs the scheme, or risks not covered available insurance mechanisms,
down by letting the burden fall on by the scheme, the position is so a strong case remains for the
the victims does not offer them variable. In Murphy itself Lord imposition of a duty of care on
an opportunity to offset or share Keith noted at the outset of his builders.
that risk more broadly in society judgment that the plaintiff’s
if insurance is not available. The insurers were willing to cover his CONCLUSION
The proposed policy rationale
cost does not go away by taking half of the cost of repairs to the
for a builder’s duty does not
it outside the tort system. If it defective foundations under the
mandate a particular set of rules
goes uncompensated, it falls pair of semi–detached houses,
for all jurisdictions; there is some
exclusively on the person who of which his house was one. But
leeway for variation, such as
happens to be the owner of the the neighbour’s insurer wasn’t
differing measurement of harm,
building at the time the defect is willing to cover the other half and
with knock–on implications for
discovered. the plaintiff’s insurer wouldn’t pay
accrual in respect of limitations
the entire amount, so the plaintiff
Buyer’s insurance sold up.60 and calculation of compensation.
If builders owe a duty, they will The ratio of vulnerable to non–
usually obtain liability insurance Limits on insurance cover vulnerable buyers within the
and the cost is included in the in British Columbia came to suggested categories may vary;
price of the service, which is the fore when thousands of courts may legitimately base
distributed across all buyers.57 defective condominiums were their stance on preponderance,
If the buyer has insurance, the damaged due to dampness.61 The rather than looking at the specific
same distributive effect can be legislative solution offered was vulnerability of the individual
generated and no individual buyer the Homeowner Protection Act buyer in each case. Legal rules
is prejudiced. Where insurance 1998 (British Columbia), but this do not produce an exact fit
is widely and easily available to does not provide a comprehensive between the underlying rationale
buyers of real estate, a case can solution.62 In Australia, building of a rule and the fact pattern of
be made to say that they are not owner’s insurance does not every case considered under the
particularly vulnerable to serious generally extend to defective rule. Some may win even though
economic hardship as a result construction work, except in their precise position is not as
of defective construction work. If respect of coverage of leaking vulnerable as the plaintiffs in
buyers can’t readily get insurance, or bursting pipes, tanks or the bulk of cases and vice versa.
then there is no distribution of fixed apparatus.63 In Ireland, The result in Murphy may be
the loss and it is a matter of luck insurance cover is also limited; justified in England, as many
as to which buyers pay and which there is a Homebond scheme for persons are not vulnerable; the
avoid any loss. In practice, such new houses, similar to that in fact that an individual may be
insurance is often not available England. The scheme is confined more vulnerable than the rest
to the owner of the building. to major defects (which has a does not necessarily require
Where insurance is available it specific and limited definition) and an exception, though one may
is often subject to constraints compensation is confined to cost be desirable. The combination
that significantly reduce its of repair or diminution of value, of statutory provisions and
effectiveness.58 thereby excluding consequential insurance arrangements may
economic losses; furthermore, be considered to provide a

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 25

sufficient, if imperfect, level eventual demise is traced by Heydon JJ in Woolcock Street
of protection. Despite the fact Binchy in ‘Builders, Defective Investments Pty Ltd v CDG Pty Ltd
that such an interpretation is Buildings & Public Authorities’ (2004) 216 CLR 515; 205 ALR 522;
plausible, it is submitted that (1986) 4 ILT 76; see also Ireland, [2004] HCA 16 at [35] indicates
the degree of vulnerability of Law Reform Commission, The that the decision in this case does
homeowners and small business Law Relating to the Liability of not necessarily disturb Bryan v
in England does still warrant Builders, Vendors and Lessors for Moloney’s result in respect of
the imposition of a duty and that the Quality & Fitness of Premises dwellings and anyway this area is
the position adopted in Murphy (LRC Working Paper No 1, 1977) now governed by statute. See also
is unsatisfactory. For Ireland, (Stationery Office, 1977) McHugh J at [116].
where buyer vulnerability is 5. Both this case and Murphy 10. The joint judgment at [23]–
greater mainly due to the lack of a were decided on the same day, 26 [24] notes the importance of
legislative duty and possibly also July 1990 vulnerability in the determination
because of insurance differences,
it is submitted that the duty 6. Lord Oliver of Aylmerton in of duty in economic loss cases,
set out by Costello J in Ward Murphy v Brentwood DC [1991] but decides this case without
should be retained for private 1 AC 398 at 486 suggests lack determining a general proposition
individuals purchasing dwellings. of reliance for rejecting Hedley on its importance.
A similar duty should also apply Byrne. He does, however, 11. Such protection could be
to small business purchasers acknowledge some successful by way of warranty of freedom
of premises, but should not be cases not involving reliance, from defects, or assignment of
extended to large commercial such as Morrison Steamship Co contractual rights.
entities in the absence of strong Ltd v Greystoke Castle (Cargo
Owners) [1947] AC 265 and Ross 12. Beever A ‘A Rights–Based
evidence of buyers’ vulnerability.
v Caunters [1980] Ch 297, and Approach to the Recovery of
opines that there is no clear Economic Loss in Negligence’
REFERENCES logical dividing line, leaving (2004) 4 OUCLJ 25; See also
policy choice as the basis for the Benson P ‘The Basis for
1. Noted by Byrne and Binchy,
distinctions drawn. Lord Keith, at Excluding Liability for Economic
Annual Review of Irish Law, 2001
468, treats Greystoke ‘as turning Loss in Tort Law’ in Owen D (ed),
(Round Hall Sweet & Maxwell,
on specialties of maritime law The Philosophical Foundations of
2002) pp 554–74. The three–stage
concerned in the relationship of Tort Law (OUP, 1995)
test is principally associated
with Caparo v Dickman [1990] 2 joint adventurers at sea’. 13. Beever n 12 at 38
AC 605, but having support from 7. He referred to the principle 14. Beever n 12 at 48–49 does
earlier judgments, such as Lord in respect of defective products, acknowledge this in part under
Keith of Kinkel in Governors contained in s 34(2)(f) of the Civil the heading ‘unfinished business’.
of the Peabody Donation Fund Liability Act 1961 (Irl) (reflecting
v Sir Lindsay Parkinson & Co 15. Neyers J, ‘Donoghue v
the position at common law) that
Ltd [1985] AC 210 at 241; Lord Stevenson and the Rescue
the possibility of intermediate
Brandon of Oakbrook in Leigh and Doctrine: A Public Justification
examination should be taken only
Sillavan Ltd v Aliakmon Shipping of Recovery in Situations
as evidence on the question of
Co Ltd (The Aliakmon) [1986] AC Involving the Negligent Supply of
negligence. See also O’Connor
785 at 815 and by Lord Bridge of Dangerous Structures’ (1999) 49
v First National Building Society
Harwich in Curran v Northern U Toronto LJ 475; See Part II at
[1991] ILRM 208; this judgment
Ireland Coownership Housing 479–484 in particular.
also notes the distinction between
Association Ltd [1987] AC 718 the type of examinations that 16. See Hutchinson A ‘The
2. See Ralph Gibson LJ in the could theoretically be conducted Importance of Leading Cases.
Court of Appeal in Murphy and those that the seller would A Critical Analysis’ in O’Dell
in practice consent to. This E (ed), Leading Cases of the
3. See, e.g. Otto v Bolton [1936] 2 Twentieth Century (Round Hall
issue is also addressed by Lord
KB 46; Hoskins v Woolham [1938] Sweet & Maxwell, 2000); Dolding
Templeman in Smith v Eric S
1 All ER 692; the same applied L and Mullender R, ‘Tort Law,
Bush [1991] 1 AC 831 at 850.
in Ireland, see Chambers v Lord Incrementalism and the House of
Mayor of Cork (1958) 93 ILTR 45 8. Ward v McMaster and Louth
Lords’ (1996) 47 NILQ 12
County Council [1988] IR 337.
4. The history of builders 17. Feldthusen B ‘Pure Economic
immunities in tort and their 9. The joint judgment of Gleeson
Loss in the High Court of
CJ, Gummow, Hayne and
26 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007
Australia: Reinventing the Square (1999) 31 Canadian Business 30. Atiyah PS The Sale of Goods
Wheel?’ (2000) 8 Tort L Rev 33. Law Journal 335; See also the (9th ed, Pitman, 1995) p 1; White
See also Feldthusen B Economic Barrett Commission Report—The F Commercial Law (Thomson
Negligence: The Recovery of Pure Renewal of Trust in Residential Round Hall, 2002) §8.2.1
Economic Loss (4th ed, Carswell, Construction: Commission 31. Atiyah n 30, Ch 11; White n 30,
2000) of Inquiry into the Quality of Ch 13
18. Martel Building Ltd v Canada Condominium Construction In
British Columbia, submitted to 32. Turner C Australian
[2000] 2 SCR 860; (2001) 193
the Honourable Jenny Kwan, Commercial Law (24th ed,
DLR (4th) 1; Bow Valley Husky
Minister of Municipal Affairs, Law Book Co, 2003) pp 129 et
(Bermuda) Ltd v Saint John
16 June 1998 by Dave Barrett, seq; Waddams SM The Law of
Shipbuilding Ltd [1997] 3 SCR
Commissioner. Contracts (4th ed, Canada Law
1210; (1997) 153 DLR (4th) 385. Book Co, 1999) §§515 et seq;
See also Osborne PH The Law 24. Quill E ‘Maintaining the Fridman GHL The Law of Contract
of Torts (2nd ed, Irwin Law, Distinction Between Duty and in Canada (4th ed, Carswell, 1999)
2003) Ch 3, section G; Linden Liability’ (1998) 20 DULJ 183. pp 346 et seq
AM Canadian Tort Law (7th ed,
Butterworths, 2001) Ch 12; Quill 25. See Quill n 24 33. Francis v Cockrell (1870) LR 5
E Torts in Ireland (2nd ed, Gill 26. McHugh J, for example, QB 501; GH Meyers & Co v Brent
and Macmillan, 2004) at 53 et includes subordinate policy Cross Service Co [1934] 1 KB
seq adopts this approach in the reasons, such as limitations 46; Key v Key [1930] 3 DLR 327;
examination of Irish law on pure problems, at [107]–[108], and Scott–D’Amboisie Const Co v Reo
economic loss, though the Irish economic efficiency, at [108]– Motors [1958] OR 711; see also
courts have not formally adopted [109]. Fridman, n 32, pp 504–506
such an approach. 34. Jackson v Horizon Holidays
27. Stapleton J ‘The Golden
19. Giliker P ‘Revisiting Pure Thread at the Heart of Tort Law: Ltd [1975] 1 WLR 1468; McCarthy
Economic Loss: Lessons to be Protection of the Vulnerable’ v JWT [1991] ILRM 817 (package
learned from the Supreme Court (2003) 24 ABR 135; Stapleton J, holidays); Johnson v Longleat
of Canada?’ (2005) 25 LS 49. ‘Comparative Economic Loss: Properties Ltd [1978] 13 Ir Jur
Lessons From Case–Law– 186 (building contract for the
20. The nature of the concern is
Focused ‘Middle Theory’’ (2002) construction of a family home).
excellently articulated by McHugh
J in Woolcock Street Investments 50 UCLA Law Review 531. 35. See e.g. Sale of Goods
Pty Ltd v CDG Pty Ltd (2004) 216 28. See Waldron n 23 at Act RSBC 1979 c 370 (British
CLR 515; 205 ALR 522; [2004] 340–345 on deficiencies in Columbia), s 20 prevented
HCA 16 at [46]–[47] contractual warranty law; exclusion in retail sales to private
345–347 on deficiencies in persons for private use; Sale
21. See also Smith v Eric S Bush
the regulatory system and of Goods Act RSO 1980 c 462
[1991] 1 AC 831 at 858–859 (Lord
347–351 on deficiencies in tort, (Ontario), s 53 permitted the
Griffiths).
all of which combine to make exclusion of implied terms, but
22. See also [77] of McHugh J’s buyers vulnerable. The risks to such clauses were prohibited in
judgment. purchasers, noted at 336, include consumer contracts by s 34(2) of
inestimable knock on costs, such the Consumer Protection Act RSO
23. If there is widespread
as bankruptcy, foreclosure and 1980 c 87 (Ontario). For details
defective construction, then
anguish. See also Lord Griffiths in respect of legislation in other
problems can develop; in British
in Smith v Eric S Bush [1991] states see Waddams n 32, §490,
Columbia there was a design
1 AC 831 at 859, who draws a fn 163. For detailed consideration
fad that led to the construction
distinction between purchasers of sales law in Canada, see
of thousands of condominiums
of houses at modest prices, who Fridman GHL Sale of Goods In
in a damp coastal region that
have limited means, and other Canada (4th ed, Carswell, 1995).
were not waterproof; the average
repair cost was Can$23,000, but purchasers of more valuable 36. Levine JR ‘Aspects of the
due to the number of properties properties. The context was a Trade Practices Bill 1973’
involved the total bill was consideration of whether an (1973) 47 ALJ 679 discusses the
estimated at $500–800 million. exclusion clause fell foul of the background to the Act. Section
The issue is analysed by Waldron Unfair Contract Terms Act 1977 68 provides the prohibition on
MA ‘How T–Rex Ate Vancouver: (Eng). exclusion clauses. This was later
The Leaky Condo Problem’ 29. See also Lord Bridge at 482 amended by the introduction of

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 27

s 68A allowing limited exclusion 42. See Turner n 32, Ch 17 a particular balance between
if goods or services are not for consumers and builders in the
43. Trade Practice Act RSBC
personal, domestic or household Defective Premises Act 1972
1979 c 406 (British Columbia);
use, but are sold for less than (Eng), the common law has no
Trade Practice Act RSBC 1996 c
A$40,000; such clauses must further role to play and should
457 (British Columbia); Business
also be fair in the circumstances. not be used to circumvent the
Practices Act RSO 1990 c B18
See also Indico Holdings Pty intention of Parliament. Against
(Ontario)
v TNT Australia Pty Ltd (1990) this one might argue that the
41 NSWLR 281. More recently 44. The Unfair Contract Terms legislation is over 30 years
the Schedule to the Trade Act 1977 (Eng) and the Unfair old; it was a first step in the
Practices Amendment (Liability Terms in Consumer Contract development of liability, coming
for Recreational Services) Act Regulations 1999 (Eng); European on the back of an era of builder’s
2002 (Cth) inserted s 68B to the Communities (Unfair Contract immunity and, when the courts
Trade Practices Act 1974 (Cth), Terms) Regulations 1995 (Irl) did expand the builder’s duty in
allowing for the limitation of 45. See Glöckler G ‘Consumer later cases, Parliament did not
liability in respect of the supply Policy’ in Glöckler G, Junius intercede to nullify the effect of
of recreational services by a L, Scappucci G, Usherwood S these decisions, so Parliament’s
corporation. and Vassalo J (eds) Guide to EU intent is ambivalent, or even
Policies (Blackstone, 1998). indifferent.
37. For consideration of the
main developments during the 46. Sale of Goods and Supply 50. On consumer vulnerability
1970s in respect of sale of goods of Services Act 1980 (Irl), s 10; as a core value of consumer
and unfair terms, see Goldring Sale of Goods Act 1979 (Eng), protection law see Ziegel JS
J and Richardson ‘Liability of s 55, earlier provisions were to ‘The Development of Canadian
Manufacturers of Defective be found in the Supply of Goods Consumer Law’ (1973) 51 Can Bar
Goods’ (1977) 51 ALJ 127; Franzi (Implied Terms) Act 1973 (Eng) Rev 191, who emphasises that
‘Merchantable Quality and and the Unfair Contract Terms consumer problems are generally
Particular Purpose: Questions Act 1977 (Eng); Sale of Goods characterised by disparities in
of Overlap’ (1977) 51 ALJ 298; Act RSBC 1979 c 370 (British bargaining power, knowledge and
Sutton KC ‘Let Sellers and Columbia), s 20; Sale of Goods Act resources.
Manufacturers Beware’ (1980) 54 RSBC 1996 (British Columbia), 51. See Mills M ‘Insurance and
ALJ 146. s 18; Consumer Protection Act Professional Liability—The Trend
38. See Sutton KC Sales and RSO 1980 c 87 (Ontario), s 34(2); of Uncertainty Or: Negligence and
Consumer Law (4th ed, Lawbook Consumer Protection Act RSO the High Court—A Practitioner’s
Co, 1995) Ch 25; Wilmott L, 1990 (Ontario), s 4(2). See also Perspective’ (2000) 12 ILJ 25;
Christensen S and Butler D Atiyah n 32, Ch 13; White n 32, Lewis R ‘Insurance and the
Contract Law (OUP 2001) §8.800; §13.7; Ziegel JS and Duggan Tort System’ (2005) 25 LS 85;
Mason HH and Butler PA ‘The AJ Commercial and Consumer Stapleton J, ‘Tort, Insurance and
Trade Practices Act 1974, and the Sales Transactions (Edmond Ideology’ (1995) 58 MLR 820
Possible Inconsistency Therewith Montgomery, 2002) Ch 18
52. Cousy HA ‘Tort Liability and
of Certain State Laws Dealing 47. See also R & B Customs Liability Insurance: A Difficult
With Consumer Protection’ (1975) Brokers Co Ltd United Dominions Relationship’ in Koziol H and
49 ALJ 539. Trust [1988] 1 WLR 321; [1988] Steininger BC (eds) European
39. See e.g. Sale of Goods Act 1 All ER 847, where the Court Tort Law 2001 (Springer, 2002)
1954 (ACT); Sale of Goods Act of Appeal treated a commercial p 20. See also §§34–35 in
1923 (NSW); Sale of Goods Act entity as a consumer where the particular on the interrelationship
1896 (Qld); Sale of Goods Act purchase was neither of a regular between liability insurance and
1895 (SA); Sale of Goods Act 1896 kind that the business entered tort principles. Judgments from
(Tas); Goods Act 1958 (Vic); Sale of into, nor was it an ‘integral part of several jurisdictions referring to
Goods Act 1895 (WA) the business’. this issue are cited in Balkin RP
48. See Turner n 32, pp 348–349 in and Davis JLR Law of Torts (3rd
40. Sale and Supply of Goods Act
respect of protection of business ed, LexisNexis Butterworths,
1994 (Eng)
customers. 2004) §13.16.
41. For example, Sale of Goods
49. In England one could argue 53. The author has previously
Act RSBC 1996 c 410 (British
that, since the legislature made voiced opposition to multiple
Columbia); Sale of Goods Act RSO
a reasoned decision to strike insurance against same risk; Quill
1990 c S 1 (Ontario)
28 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007
E ‘Sub–Contractors, Exclusion exclusions; defective construction 64. Canny J Construction and
Clauses and Privity’ (1991) 9 ILT work is not generally covered Building Law (Round Hall
211, recommending that the (except perhaps by the provision Sweet & Maxwell, 2001) Ch 7.
decision in Norwich City Council v in respect of leaks/bursting pipes
Harvey [1989] 1 WLR 828; [1989] 1 or tanks or fixed apparatus). Eoin Qill’s article was previously
All ER 1180 be followed in Ireland. published in (2006) 14 Torts
59. See McGee The Modern Law
54. Atiyah PS Accidents, of Insurance (Butterworths, Law Review 105, a publication
Compensation and The Law 2001) §39.2; defective design is of the Lawbook Co, part of
(Weidenfeld & Nicolson, 1970). usually excluded, see §39.21. Lord Thomson Legal & Regulatory
This was first published in Bridge in D & F Estates noted Limited. A draft version of this
1970, but the central argument the possibility of NHBC schemes paper was also delivered at
has been retained through being suitable for exclusion from the Society of Legal Scholars’
subsequent editions and is the provisions of the Defective Annual Conference, Strathclyde
summarised in Atiyah PS The Premises Act 1972 (Eng) under University, 8 September 2005.
Damages Lottery (Hart, 1997). the power provided in s 2 of the Reprinted with permission.
Act.
55. See Mills n 51 at 36–45 on
the potential for an insurance 60. Murphy v Brentwood DC
crisis if pure economic loss [1991] 1 AC 398 at 458. Ralph
claims develop unchecked. The Gibson LJ in the Court of Appeal
categorised approach to pure in Murphy, at 411, noted that
economic loss claims discussed a local authority made liable
earlier, combined with the for construction defects would
emphasis on vulnerability, should have a right of indemnity against
mean that defective buildings negligent contractors, who would
liability of the kind argued for generally be insured. Clearly
here does not contribute to the some awareness of the insurance
widespread development of background was pertinent to the
pure economic loss across the decision–making in the case,
spectrum. though differing views emerged
between the Court of Appeal and
56. See Cousy n 52, §§46–56
the House of Lords.
on the limited nature of torts
deterrent effect and §§57–68 on 61. See Waldron n 23 at 351–358,
the relationship between liability highlighting deficiencies in the
insurance and deterrence. insurance scheme available to
homeowners.
57. Insurance costs can be readily
offset in a buoyant property 62. See Waldron n 23 at 358–367;
market, as prices are far greater due to lobbying and the nature
that construction costs. However, of the governmental process ‘no
such costs could prove more systemic and reliable solution
problematic during a slump in to the problem has been
the market, so the distributive achieved’ (at 365); Siebrasse
effect described will not always N ‘The Insurance Challenge of
necessarily hold true. Mandatory Home Insurance’
(1999) 31 CBLJ 380 suggests
58. For the general position in
that insurance may not provide
Canada see Hilliker G Liability
a sufficient solution, as systemic
Insurance Law in Canada (3rd
factors in the industry raise a
ed, Butterworths, 2001) pp 131
serious possibility of under–
et seq; for Australia see Sutton
pricing and consequently not
KC Insurance Law in Australia
being able to meet the necessary
(3rd ed. LBC Information
payout for a widespread disaster.
Services, 1999) §9.48; Insurance
Contract Regulations 1985 (Cth). 63. Insurance Contract
Regulation 10 prescribes the Regulations 1985 (Cth), regs 10
risks covered and reg 11 sets out and 11; see Sutton n 58, §9.48

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #114 MAY/JUNE 2007 29