L Shaddock & Associates Pty Ltd v Parramatta City Council

150 CLR 225
36 ALR 385

---

(Judgment by: MASON J)

Between: L SHADDOCK & ASSOCIATES PTY LTD
And: PARRAMATTA CITY COUNCIL

Court:

Judges: Gibbs C.J.
Stephen J.

Mason J.Murphy J.
Aickin J.

Subject References:
Negligence
Damages

Judgment date: 28 October 1981

---

Judgment by:
MASON J

By a contract dated 21 May 1973 the appellants purchased a property on the south-east corner of Macquarie and O'Connell Streets, Parramatta, for $417,250. This purchase was completed on 9 July 1973. The appellants intended to redevelop the land in about three to five years by erecting a commercial building when a proposed nearby office complex was expected to make this profitable. The approximate area of the land was 1,552 sq. metres, that is, 16,706 sq. ft. The land was zoned under the County of Cumberland Planning Scheme Ordinance and the Draft Parramatta Planning Scheme Ordinance in such a way as to permit the intended redevelopment and there was no provision in the town planning schemes for widening or realigning either Macquarie Street or O'Connell Street.

At the time of the purchase the appellants were unaware that the respondent Council had a proposal for the widening of O'Connell Street and Macquarie Street. This proposal was first approved in principle by the Council by resolution made on 3 August 1971. Although the proposal was not formally confirmed until the Council's resolution of 11 February 1974, the trial judge, Waddell J., found that "by May 1973 only details were in question and there was no reason to doubt that the proposal would be adopted". The proposal required the acquisition of more than a third of the land, reducing its area to about 10,500 sq. ft. The appellants claimed that the residue of the land would be unsuitable for their proposed redevelopment and Waddell J. accepted that they would not have purchased the property if they had been aware of the proposal.

The appellants claimed damages for negligent mis-statement alleged to have been made by or on behalf of the respondent in answer to verbal and written inquiries made by the appellants' solicitor to the effect that in May 1973 the respondent did not have any such road-widening proposal. At first instance, Waddell J. held that no duty of care was imposed on the respondent in its voluntary supply of answers to the inquiries of the appellants. On appeal, the New South Wales Court of Appeal (Hutley and Mahoney JJ.A.; Moffitt P. dissenting) also held that the Council was not under a relevant duty of care to the appellants (1979) 1 NSWLR 566. The appellants have appealed to this Court.

Before considering the critical issue of duty of care it is necessary to set out the circumstances surrounding the two alleged misstatements made by the Council. The appellants relied on (1) an oral conversation between the appellants' solicitor, Mr. Carroll, and an officer of the Council; and (2) an application made for a certificate under s. 342AS of the Local Government Act, 1919 (NSW), as amended, and the Council's written reply to that application.

As to (1): On 10 May 1973, Mr. Carroll telephoned the town planning department of the Council. He described himself as a member of the firm of solicitors acting for purchasers of the land which he identified. He inquired, inter alia, whether the property was affected by any local road-widening proposals. Waddell J. was "completely satisfied" that Mr. Carroll was told that there was no local road-widening proposal affecting the subject land. Mr. Carroll did not ask the name of the person who answered his inquiry and did not seek to confirm this information by letter to the Council. The learned trial judge was also satisfied that if the existence of the road-widening proposal had been disclosed, then Mr. Carroll would not have exchanged contracts on behalf of the appellants without ascertaining details of the proposal and that, if aware of the nature of the proposal, the appellants would not have exchanged contracts. His Honour also accepted that for a period of years which included the month of May 1973, it had been the practice of the engineering and town planning department of the Council to answer telephone inquiries relating to such matters as road proposals.

As to (2): Following the telephone conversation, Mr. Carroll on 11 May 1973 made a written inquiry concerning the land. Section 342AS of the Local Government Act provides that a person may apply to the Council for a certificate that land is or is not land to which a prescribed planning scheme relates or to which the interim development provisions of the Act apply. By Ord. 107, cl. 9, the Council may issue a certificate under s. 342AS setting forth the matters relating to zoning and town planning referred to in that clause. No form for the making of an inquiry of the Council was prescribed. Mr. Carroll used a form prepared by a firm of law stationers which was then commonly used by solicitors. The form provided for inquiries in respect of matters falling within the statutory provisions but also contained printed material going beyond those matters. The form stated

"Application is hereby made for the issue of -

(a)

Certificate under Section 160 (fee $2)

(b)

Certificate under Section 342AS (fee $2)

(c)

Other information indicated under Remarks (Delete items not required)"

and had at its foot a portion reading -

"REMARKS: (Please delete information not required. If information is required this form must be supplied to the Council in duplicate.) Is the property affected or proposed to be affected by any of the following:

...

6. Road widening or re-aligning proposals;

..."

There was provision in the form opposite, inter alia, question 6 for a "Reply."

It should be noted that this road-widening proposal was not required to be shown in a 342AS certificate. Nor was there any legal obligation on the Council to answer the additional questions.

The form was not sent to the Council in duplicate. However, the evidence established that in so far as it answered what the form required, the Council did not use this form for the purpose of providing its answers. It used a form based upon the statutory form of certificate under s. 342AS (form 4, Ord. 107). That form made no provision in its printed terms for answers to questions concerning , inter alia, road-widening proposals. The trial judge from the evidence adduced, drew the inference that "at all relevant times it was the practice of the defendant Council to answer inquiries made by use of the (law stationer's) form as to the existence of any road-widening or realigning proposal by making an appropriate indorsement on the 342AS certificate in red typing or red ink if there was such a proposal".

The 342AS certificate supplied by the Council was signed on 25 May 1973 and was received by Mr. Carroll some time before 9 July 1973, the date on which the purchase was completed. There was no indorsement on that certificate concerning any road-widening proposals. The appellants, through Mr. Carroll, undoubtedly took the certificate to be an intimation by the Council that there were no relevant proposals.

Waddell J. was satisfied that if Mr. Carroll or either of the appellants had become aware of the road-widening proposal on receipt of the 342AS certificate, the appellants would have exercised their contractual power of rescission and would not have proceeded to completion. Clause 17 of the contract gave a right to rescind in these circumstances.

The learned trial judge also found that in fact the certificate was an intimation by the Council that there were no relevant proposals. The Council submits that that finding should be set aside. In my view the submission should be rejected. Once it is accepted that it was the Council's practice to add at the end of its form of certificate a notification of any relevant proposals, and that Mr. Carroll was aware of this practice, it is inevitable that a reasonable man in Mr. Carroll's position would take the Council to be giving him to understand that there were no proposals. In this respect I agree with what Mahoney J.A. said in the Court of Appeal. Further, this is what the Council intended. This is a situation in which the failure to answer a question amounts to an intimation of fact.

Given that verbal and written mis-statements were made by the Council to the appellants, it is necessary to consider (1) Whether the Council owed a duty of care in supplying answers by telephone and/or the 342AS certificate. (2) If so, whether the mis-statements breached the duty owed. (3) The extent of damages suffered.

Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (1964) AC 465 decided that Derry v. Peek (1889) 14 App Cas 337 did not establish the "universal rule that in the absence of contract an innocent but negligent misrepresentation cannot give rise to an action", in the words of Lord Reid (1964) AC, at p 484. Subsequently this Court decided in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1968) 122 CLR 556 that a plaintiff had a cause of action against the defendant life assurance company in negligence when the plaintiff suffered loss by investing in a company in reliance on advice from the defendant which, being in a special position to give accurate advice about the financial position of the other company, accepted the responsibility of giving advice to the plaintiff knowing that he intended to act upon it. On appeal (1970) 122 CLR 628 ; (1971) AC 793 the Privy Council by majority reversed the decision of this Court, the majority enunciating a narrow view of the circumstances in which liability for negligent mis-statement will arise, the minority offering a broader view, one which generally accorded with the observations of Barwick C.J. in this Court

This Court must now decide for itself what is the common law for Australia upon the topic, unfettered by the Judicial Committee's decision in Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (see Viro v. The Queen (1978) 141 CLR 88 ). The decision to be made, broadly speaking, calls for a choice between the view of liability expressed by the majority (Lord Hodson, Lord Guest and Lord Diplock) and the wider view of liability favoured by the minority (Lord Reid and Lord Morris of Borth-y-Gest) and by this Court.

The majority judgment has attracted trenchant criticism from academic commentators, who regard it as a retreat from what was said in Hedley Byrne and who prefer the minority judgment. Moreover, on no less than two occasions members of the English Court of Appeal have expressed a preference, and in one instance a marked preference, for the minority judgment over the majority judgment - Esso Petroleum Co. Ltd. v. Mardon (1976) QB 801, at p 827 (Ormrod L.J.); Howard Marine and Dredging Co. Ltd. v. Ogden & Sons (Excavations) Ltd. (1978) QB 574, at p 591 , per Lord Denning M.R. and per Shaw L.J. at p. 600.

The judgment delivered by Lord Diplock formulated a principle of general application; it cannot be put aside as a judgment which, though dealing with the liability of those who have an obligation to bring to bear skill and competence in the provision of advice and information, acknowledged that there is a general liability for negligent mis-statement on the part of others who do not possess or profess to possess skill and competence.

According to the majority, a person comes under a duty of care in relation to the provision of advice or information if he carries on a business or profession and in the course of it provides advice or information of a kind which calls for skill and competence or he otherwise professes to possess skill and competence and he provides advice or information when he knows or ought to know that the recipient intends to act or rely on it. The majority also acknowledged that a duty of care may arise when the speaker has a financial interest in the transaction with respect to which the statement is made. The minority did not confine the existence of a duty of care to those who give advice or information which involves the possession of skill and competence or the professed possession of skill and competence. Lord Reid and Lord Morris of Borth-y-Gest thought that a businessman is under a duty of care in giving advice or information when he knows or ought to know that the recipient intends to rely or act on it.

The principle expressed by Lord Hodson, Lord Guest and Lord Diplock was supported by reference to the following considerations: (1) the duty imposed by the common law upon those who follow a calling which required skill and competence to exercise in their calling such skill and competence as is appropriate to it; (2) the need for a duty of care owed by an adviser to relate to an ascertainable standard of skill and competence in the subject matter of the advice, as otherwise there can be no way of determining whether the adviser is in breach of duty ; (3) the absence of a "halfway house" between the duty as formulated based on skill and competence "and the common law duty which each man owes his neighbour irrespective of his skill - the duty of honesty" (1970) 122 CLR, at p 636; (1971) AC, at p 804 ; and (4) the limitation in the American Restatement of the Law of Torts (2d), par. 552, of the duty of care in giving advice to persons who make it part of their business to supply advice, apart from the case where the speaker has a financial interest in the transaction.

The response of the minority to the reasoning of the majority was largely designed to demonstrate that possession or professed possession of skill and competence was not an essential element in the foundation of a duty of care. Lord Reid and Lord Morris of Borth-y-Gest said (1970) 122 CLR, at p 646; (1971) AC, at p 812:

"We can see no ground for the distinction that a specially skilled man must exercise care but a less skilled man need not do so. We are unable to accept the argument that a duty to take care is the same as a duty to conform to a particular standard of skill. One must assume a reasonable man who has that degree of knowledge and skill which facts known to the inquirer (including statements made by the adviser) entitled him to expect of the adviser, and then inquire whether such a reasonable man could have given the advice which was in fact given if he had exercised reasonable care."

The minority did not decide whether the duty to take care was confined to the provision of advice in a business or professional context. They said (1970) 122 CLR, at p 644; (1971) AC, at p 811 :

"It may be going too far to say that a duty to take care can only arise where advice is sought and given in a business or professional context...."

Barwick C.J. did not accept that the duty was so confined.

According to the Chief Justice (1968) 122 CLR, at pp 572-573 , whenever a person gives information or advice to another upon a serious matter in circumstances where the speaker realizes, or ought to realize, that he is being trusted to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to act on that information or advice, the speaker comes under a duty to exercise reasonable care in the provision of the information or advice he chooses to give.

In this formulation there are several points to be noted. First, liability for negligent mis-statement is not confined to those who carry on, or profess to carry on, a profession, business or occupation involving the possession of skill and competence (1968) 122 CLR, at pp 573-574. The Chief Justice, like the minority in the Privy Council, was in disagreement with the majority in the Privy Council who drew a distinction between those who bring, or profess to bring, professional knowledge or skill into the preparation of their statements and those who do not do so and are not expected to do so, the latter being under no duty of care in relation to their statements (1970) 122 CLR, at p 637; (1971) AC, at p 805.

The restriction of liability to the class of persons identified in the majority judgment and in the Restatement, generally speaking, limits liability to those who can best afford to meet it. The judgment delivered by Lord Diplock makes no mention of this policy goal. The Restatement is more forthcoming. In commenting on par. 552 it states:

"When the harm that is caused is only pecuniary loss, the courts have found it necessary to adopt a more restricted rule of liability, because of the extent to which misinformation may be, and may be expected to be, circulated, and the magnitude of the losses which may follow from reliance upon it."

There are several reasons why this policy consideration should not be regarded as paramount. In the first place, it denies a remedy to those who sustain serious loss at the hands of those who are not members of the class and whose conduct is negligent. Secondly, it ignores the availability of insurance as a protection against liability. Thirdly, there is no logic in excluding from the class of persons liable for negligent mis-statement persons who, though they may not exercise skill and competence, assume a responsibility to give advice or information to others on serious matters which may occasion loss or damage. Finally, the rule, recently established by Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976) 136 CLR 529 , is that economic loss, not consequential upon property damage, may be recoverable from those whose negligence occasions it.

It is for these reasons that I prefer the wider view to that expressed by the majority of the Privy Council in the M.L.C. Case. I consider that this Court should now adopt Barwick C.J.'s statement of the conditions which give rise to a duty of care in the provision of advice or information. It will be noted that his Honour specifically equated the provision of information with the giving of advice, a conclusion which conformed to his Honour's view that liability is not confined to those who carry on a profession or business.

Cross L.J. expressed doubt in Ministry of Housing and Local Government v. Sharp [1970] 2 QB 223 , at p 291 that a clerk who is by reason of careless searching responsible for the dissemination of incorrect information by his employer is liable for loss sustained by the recipient who acts on the information. But, if both employer and employee are aware, or ought to be aware, of the use to which the information is to be put, no distinction can be drawn between them. Lord Denning M.R. was right when he said that a clerk "was under a duty at common law to use due care. That was a duty which he owed to any person... whom he knew, or ought to have known, might be injured if he made a mistake." (1970) 2 QB, at p 268.

However, there will be situations in which an employer is liable in negligence for the dissemination of incorrect information, even though no employee is liable, because the employee is ignorant of the use to which the information is to be put. According to the majority of this Court in Darling Island Stevedoring and Lighterage Co. Ltd. v. Long (1957) 97 CLR 36 , at pp 54, 60-65, 66-70 , the liability of the employer is not a vicarious liability, but is separate and independent, resulting from the attribution to the employer of the conduct of the employee; the employer is to answer for the servant's act as if it were his own.

In the present case we are not concerned with advice given by a life assurance company in relation to an investment in which it had special knowledge, but with information furnished by a local authority, in relation to proposed road-widening proposals. There is no ground for confining the liability to those who engage in a business activity and for excluding those who provide negligent advice or information in the course of discharging a government or administrative responsibility. The citizen is just as likely to rely on the accuracy of advice or information given to him by a government department, a statutory authority or a local authority as he is to act on similar advice or information given by a person who carries on a business. And there is no persuasive reason for saying that the citizen who sustains damage as a result of information negligently given by a government department or authority has no remedy, although the citizen who sustains similar damage as a result of information negligently given by an investment adviser has a remedy.

The suggestion that the imposition of a duty of care and consequential liability would unduly hamper statutory and local authorities in the discharge of their public functions is an unsupported assertion. Local authorities provide information and advice to citizens in connexion with a wide range of matters and in so doing, I assume, make a real endeavour to provide accurate information and advice. Recognition of the existence of a duty of care and consequential liability would make little difference, if any, to the standard of care taken in giving information and advice. An authority can, if it wishes, obtain protection against liability by means of insurance.

It is inconceivable that the practice of giving information as to proposals affecting property will be discontinued merely because the provision of inaccurate information may expose an authority to liability. In the discharge of their public functions local authorities have in a practical sense an obligation to provide information of the kind now in question in response to a request. It is information of vital importance to an owner or intending purchaser. It materially affects the use to which the land may be put in the future and its value. Because it relates to intended acts of the authority, it is information which it alone possesses. In these circumstances it is improbable that the practice of providing such information would be discontinued, though it is possible that a fee might be charged and that an endeavour might be made to exclude liability. That is quite a different matter.

The specialized nature of the information, the importance which it has to an owner or intending purchaser and the fact that it concerns what the authority proposes to do in the exercise of its public functions and powers, form a solid base for saying that when information (or advice) is sought on a serious matter, in such circumstances that the authority realizes, or ought to realize, that the inquirer intends to act upon it, a duty of care arises in relation to the provision of the information and advice. In Canada it has been so held on a number of occasions - see, for example, Windsor Motors Ltd. v. District of Powell River (1969) 4 DLR (3d) 155 ; Gadutsis v. Milne (1972) 34 DLR (3d) 455 ; H.L. & M. Shoppers Ltd. v. Town of Berwick (1977) 82 DLR (3d) 23 ; Jung v. District of Burnaby (1978) 91 DLR (3d) 592. Such are the functions and responsibilities of a local authority that it is possible that a local authority may come under a duty to provide accurate information in connexion with its activities or proposed activities. This is not a question which needs to be presently considered - it was not argued that the respondent was subject to such a duty in the present case.

The principal issues which remain are - (1) whether the circumstances in which the requests were made were such as to raise a duty of care and, if so, (2) whether there was a breach of that duty. I doubt whether the oral inquiry made by Mr. Carroll brought the respondent under such a duty. The inquiry was oral and informal. Mr. Carroll did not identify the officer to whom he spoke. Nor did he follow up his oral request by confirming the conversation in writing. There is some room for doubt whether the officer realized, or ought to have realized, that Mr. Carroll or his clients were relying on the information supplied or that they were intending to act upon it.

The second request, the written application for a s. 342AS certificate, stands in a different position. It was a formal request made by Mr. Carroll. The respondent dealt with it in the same fashion as it dealt with other requests at the time. It treated it as a request for information additional to the s. 342AS matters, notwithstanding that a duplicate form did not accompany the request.

I would reject the respondent's argument that no duty of care arose because Mr. Carroll did not bring home to it the purpose to which the information would be put. True it is that he did not state why the information was wanted or what action his clients proposed to take on the strength of it. But the existence of a duty of care does not depend upon knowledge on the part of the speaker of the precise use to which the information will be put. It is enough if he knows, or ought to know, that the inquirer is requesting it for a serious purpose, that he proposes to act upon it and that he may suffer loss if it proves to be inaccurate. These requirements were satisfied in the present case. The fact that the request was made in association with an application for a s. 342AS certificate by a solicitor would cause any reasonable man to conclude that the request was made for a serious purpose, on behalf of an owner, intending purchaser or lender who intended to act upon the information provided and would in all probability suffer loss if the information were not accurate.

The final question relates to the award of damages which the primary judge would have made had he found in favour of the appellants on the issue of liability. Included in the amount were items of consequential damage totalling $18,745. The primary judge assessed the value of the land as affected by the road-widening proposal in May 1973 at $284,000. The difference between this value and the purchase price paid by the appellants was in round figures $133,000. To this figure the judge added the consequential damage of $18,745 and an interest component of $22,193, making an overall assessment of $173,938.

The respondent contests the inclusion in this amount of certain items of consequential damage amounting to $13,215. They were -

The respondent submits that the approach to damages taken by the judge was to place the appellants in the same position as if the land had not been affected by the road-widening proposal and that there was no justification for giving them any compensation beyond that. The respondent says that the items in question were all expenses to which the appellants would have been subject if they had bought the land free from the road-widening proposal.

The primary judge considered that the appellants would have been entitled to recover all items of consequential damage up to the end of 1974 because until that time "they were exploring what could be done with the land and making efforts to salvage what they could from what was in fact a disastrous purchase". His Honour found that the period up to the end of 1974 was a reasonable period.

The respondent is right in saying that the items were expenses to which the appellants would have been subject had the land been free from the road-widening proposal. However, this does not prevent the expenses from constituting recoverable damage. The judge found that, but for the negligent mis-statement, the appellants would not have bought the land, the land being useless for the purpose for which it was acquired. Consequently, the appellants' loss includes, not merely the diminution in value of the land, but also the expenses of acquisition and retention for a reasonable time, expenses which would not have been incurred had the respondent not been negligent. It was not suggested that the items in question fell outside the boundary of foreseeability. The measure of recoverable damages for negligent mis-statement is the amount of money necessary to restore the plaintiff to the position he was in before the statement, subject to the loss being foreseeable. The test is somewhat different from that applied in deceit (Doyle v. Olby (Ironmongers) Ltd. [1969] 2 QB 158 , at p 167 ) and breach of warranty.

The relevant mis-statement by the respondent was made after entry into the contract by the appellants, but before completion. However , had the respondent informed Mr. Carroll of the existence of the proposal, the contract would have been rescinded and the stamp duty, if any, paid on the contract would have been recoverable.

I would allow the appeal, set aside the judgment in favour of the respondent and enter judgment in favour of the appellants for $173,938.