SUTHERLAND SHIRE COUNCIL v HEYMAN

157 CLR 424
60 ALR 1

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(Judgment by: DEANE J)

SUTHERLAND SHIRE COUNCIL
v HEYMAN

Court:

Judges: Gibbs C.J.
Mason J.
Wilson J.
Brennan J.

Deane J.

Subject References:
Negligence
Local Government (NSW)

Judgment date: 4 July 1985

CANBERRA

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Judgment by:
DEANE J

Mr. and Mrs. Heyman ("the respondents") purchased a block of land at Engadine within the Shire of Sutherland in New South Wales. On it there stood a dwelling house. The land was steeply sloped from front to rear and the back section of the main floor of the house stood high above ground level supported by what is known as a "laundry core", enclosed by brick walls beneath the main structure, and by brick pier and steel pipe supports. After the purchase had been completed, the respondents discovered that the foundations of the house were inadequate and unsafe. They incurred the cost of necessary remedial work. In the District Court of New South Wales they recovered damages in the amount of that cost (plus interest) from the Council of the Shire of Sutherland ("the Council"), which is the local government authority for the area in which the house is situated. An appeal by the Council to the New South Wales Court of Appeal was dismissed. The Council now appeals, by special leave, to this Court.

The common law imposes no general duty to avoid loss or injury to another merely because it is reasonably foreseeable that one's actions or omissions are likely to cause it. Nor, under the common law, is a person liable in damages for loss or injury to another merely because such loss or injury would not have been sustained if he or she had acted with reasonable care to avoid it. Such a duty arises and such liability exists under the common law only if there be the requisite element of proximity in the relationship between the parties with respect to the relevant act or omission: the injured party must be "so closely and directly affected by my act" that the law adjudges that "I ought reasonably to have (him or her) in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question" (per Lord Atkin, Donoghue v. Stevenson (1932) AC 562, at p 580). Reasonable foreseeability of loss or injury to another is an indication and, in the more settled areas of the law of negligence involving ordinary physical injury or damage caused by the direct impact of positive act, commonly an adequate indication that the requirement of proximity is satisfied. Lord Atkin's notions of reasonable foreseeability and proximity were however distinct and the requirement of proximity remains as the touchstone and control of the categories of case in which the common law of negligence will admit the existence of a duty of care (see, generally, Jaensch v. Coffey (1984) 58 ALJR 426, at pp 427-428 and 439-442, 54 ALR 417 , at pp 419-420, 439-446; Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. (1984) 3 WLR 953 , at pp 959-960, [1984] 3 All ER 529 , at pp 533-534). It will subsequently be seen that the ultimate question in the present case is whether the relationship between the Council and the respondents possessed the requisite degree of proximity to give rise to a relevant duty of care on the part of the Council to the respondents. At this stage, it is convenient to indicate my understanding of what is involved in the notion of proximity. To some extent, that involves a repetition of views expressed in the course of my judgment in Jaensch v. Coffey (58 ALJR, at pp 441-442, 54 ALR, at pp 443-446).

The potential ambiguity of the term "proximity" when used in the context of the law of negligence has long been recognized (see, e.g., Grant v. Australian Knitting Mills Ltd. (1935) 54 CLR 49 , at pp 63-64, (1936) AC 85, at pp 103-104). Its use has, however, been so widespread in that context in leading judgments that it would seem impracticable to avoid it altogether. The most that one can do is to stress the distinction between Lord Atkin's notion of proximity in Donoghue v. Stevenson and his related but distinct test of reasonable foreseeability. Lord Atkin's "proximity" or "neighbourhood" requirement ("this necessary qualification": at p 582) was a substantive and independent one which was deliberately and expressly introduced to limit or control the bare test of reasonable foreseeability. As he formulated it (see the statement at p. 580 quoted previously and see also at p 582 ("the contemplated relationship (being) so close that the duty arises") and at p 599 ("so close as to create a duty"), emphasis added), it differed in nature from the test of reasonable foreseeability in that it involved both an evaluation of the closeness of the relationship and a judgment of the legal consequences of that evaluation. While this distinction between the notions of "proximity" and "reasonable foreseeability" has been obscured in judgments in many subsequent cases, particularly in cases where the existence of a duty of care went without saying, it remains a fundamental one. Conceptually, it underlay Lord Devlin's exposition of the principles of the law of negligence in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (1964) AC 465 and the speeches of the Law Lords in Dorset Yacht Co. Ltd. v. Home Office (1970) AC 1004, esp. at pp 1037-1038, 1054-1055 and 1059ff. It has been recognized and applied in this Court in developing areas of the law of negligence (see, e.g., per Stephen and Mason JJ., Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976) 136 CLR 529 , at pp 574-576 and 590-593, and per Gibbs C.J., Jaensch v. Coffey, 58 ALJR, at p 428, 54 ALR, at pp 419-420). In the House of Lords, it has been again asserted in clear terms by Lord Keith of Kinkel (in a speech with which the four other members of the House agreed) in the recent case of Peabody Fund v. Parkinson.

In the recent case of Leigh and Sillivan Ltd. v. Aliakmon Shipping Co. Ltd. (1985) 2 WLR 289 , at pp 326-327, Robert Goff L.J. expressed vigorous disagreement with the views expressed by members of this Court in The Dredge "Willemstad". For present purposes, it suffices to refer more particularly to his Lordship's comments about Stephen J's acceptance (136 CLR, at pp 574-575) of the general notion of "proximity" or "neighbourhood" as a control of the circumstances in which the law will adjudge the existence of a duty of care to avoid reasonably foreseeable injury. Robert Goff L.J. commented (at p 327) that "the trouble" with this "approach" is that "it begs the question" for the reason that once "proximity is no longer treated as expressing a relationship founded simply on foreseeability of damage, it ceases to have an ascertainable meaning; and it cannot therefore provide a criterion for liability". There is an incontestable element of truth in that statement in that the notion of proximity is obviously inadequate to provide an automatic or rigid formula for determining liability. With due respect however, I do not think that that consideration escaped either Lord Atkin or others who have propounded or accepted the notion of proximity as performing the function which Stephen J. ascribed to it. Nor do I think that either the validity or the utility of common law concepts or principles is properly to be measured by reference to whether they can be accommodated in the straitjacket of some formularized criterion of liability. To the contrary, it has been the flexibility of fundamental concepts and principles which has enabled the common law to reflect the influence of contemporary standards and demands and which has in no small part underlain its genius to provide a living element of the social compact of civilization for different peoples through different ages and in different parts of the world. As Lord Devlin pointed out in Hedley Byrne (at p 524), Lord Atkin himself in Donoghue v. Stevenson (at p 584) expressly warned against the danger of unduly restricting "the inherent adaptability of English law" and expressly recognized (at p 580) that what he was stating was a "general conception of relations giving rise to a duty of care". To dismiss that general conception on the ground that it does not provide a "criterion for liability" or on the ground that it lacks "ascertainable meaning" is, in my respectful view, to ignore its importance as the unifying rationale of particular propositions of law which might otherwise appear to be disparate. More important, it is to disregard its substance and true function.

The requirement of proximity is directed to the relationship between the parties in so far as it is relevant to the allegedly negligent act or omission of the defendant and the loss or injury sustained by the plaintiff. It involves the notion of nearness or closeness and embraces physical proximity (in the sense of space and time) between the person or property of the plaintiff and the person or property of the defendant, circumstantial proximity such as an overriding relationship of employer and employee or of a professional man and his client and what may (perhaps loosely) be referred to as causal proximity in the sense of the closeness or directness of the causal connection or relationship between the particular act or course of conduct and the loss or injury sustained. It may reflect an assumption by one party of a responsibility to take care to avoid or prevent injury, loss or damage to the person or property of another or reliance by one party upon such care being taken by the other in circumstances where the other party knew or ought to have known of that reliance. Both the identity and the relative importance of the factors which are determinative of an issue of proximity are likely to vary in different categories of case. That does not mean that there is scope for decision by reference to idiosyncratic notions of justice or morality or that it is a proper approach to treat the requirement of proximity as a question of fact to be resolved merely by reference to the relationship between the plaintiff and the defendant in the particular circumstances. The requirement of a relationship of proximity serves as a touchstone and control of the categories of case in which the common law will adjudge that a duty of care is owed. Given the general circumstances of a case in a new or developing area of the law of negligence, the question what (if any) combination or combinations of factors will satisfy the requirement of proximity is a question of law to be resolved by the processes of legal reasoning, induction and deduction. On the other hand, the identification of the content of that requirement in such an area should not be either ostensibly or actually divorced from notions of what is "fair and reasonable" (cf. per Lord Morris of Borth-y-Gest, Dorset Yacht Co. Ltd. v. Home Office, at pp 1038-1039 and per Lord Keith of Kinkel, Peabody Fund v. Parkinson, (1984) 3 WLR, at p 960, (1984) 3 All ER, at p 534), or from the considerations of public policy which underlie and enlighten the existence and content of the requirement.

In the present case, the Council's active connection with the erection of the house was limited to the exercise of some of its statutory powers and functions with respect to buildings within its local government area. Those statutory powers and functions and their partial exercise provide the context and the essential content of the only relevant relationship between the Council and the respondents with respect to the house. They are to be found in the provisions of the Local Government Act 1919 (NSW) ("the Act") and of the Ordinances made thereunder which were in force at the time when the plans of the house were approved (subject to conditions) by the Council and when the building was erected. They forbade the erection or alteration of a building without the prior approval of the local council (Act, s 311). They provided that applications to a local council for approval must be in the prescribed form (s 312). They specified the matters which a local council should take into consideration in dealing with such applications (s 313). They required that a local council consider each application and the plans and specifications accompanying it and, subject to the provisions of the Act, approve, approve subject to conditions or disapprove the application (s 314). Among the matters which were required to be taken into consideration were the stability of the proposed building and whether subsidence of the site was likely (s 313(1)(b) and (m)). The doing of any work in connection with the erection of a building otherwise than in conformity with the approval was made an offence (s 317) as was a failure to comply with the provisions of Ordinance 71 which was the then Building Ordinance (see Ord 71, cll.83(f) and 84). Section 310 of the Act provided that, subject to the provisions of the Act and Ordinances, every building "hereafter erected in the area" shall, to the satisfaction of the Council, be erected in conformity with the Act, the Ordinances and with the application, plans and specifications in respect of which the Council gave its approval for the erection of the building. Clause 83 of Ordinance 71 required that "the person by or in consequence of whose order the building is being erected" give notice in writing to the local council "forthwith upon completion" and that "forthwith" upon the receipt of such notice there be an inspection by "the proper servant" of the Council who "shall inspect and report to the Council whether or not the building has been erected in accordance with this Ordinance and without material deviation from the approved plans and specifications". In some cases, such as where it appears that reliance was in fact placed by a plaintiff upon the content of such a report, the provisions of cl.83 may assume particular importance. They are of but background relevance in the present case however since the evidence indicates that no such report was made for the reason that neither the then owners nor the builder gave the requisite notice of completion to the Council and there is no suggestion in the evidence that the respondents adverted to, let alone relied upon, any assumption that such a report would have been made to the Council.

At relevant times, the Council has exercised and discharged the above statutory powers and functions generally in relation to buildings in its area. As has been said, it exercised and discharged some of them in relation to the house involved in the present case: the plans and specifications of the particular house were approved by the Council and there was subsequently an inspection, by a Council building inspector, of the house in course of erection when the building inspector failed to observe either that the foundations of the building being erected were inadequate and unsafe or that there was considerable discrepancy between the foundations of what was being built and the foundations indicated in the approved plans. There is not to be discerned in the statutory provisions conferring and defining the Council's powers and functions any legislative intention that the Council should enjoy immunity from liability under the ordinary principles of the common law of negligence. Nor is it suggested that those provisions imposed upon the Council any special statutory duty or liability to the respondents, enforceable by action for damages, independently of those ordinary principles. If the distinction between rights under public law and rights under private law, which is well recognized in civil law systems, be relevant (cf. Harlow, "'Public' and 'Private' Law: Definition Without Distinction", Modern Law Review, vol. 43 (1980), 241; Samuel, "Public and Private Law: A Private Lawyer's Response", Modern Law Review, vol. 46 (1983), 558), the respondents' claim is propounded as an ordinary action in negligence for the alleged breach of their private law rights. The existence of liability on the part of a public governmental body to private individuals under those principles will commonly, as a matter of assumed legislative intent, be precluded in cases where what is involved are actions taken in the exercise of policy-making powers and functions of a quasi-legislative character (see, generally, Welbridge Holdings Ltd. v. Metropolitan Corporation of Greater Winnipeg (1970) 22 DLR (3d) 470, at pp 476ff.; Anns v. Merton London Borough Council (1978) AC 728, at pp 754ff.; Takaro Properties Ltd. v. Rowling (1978) 2 NZLR 314, at pp 325ff. and 333ff.). No such legislative intent can be assumed however in a case, such as the present, where the relevant powers and functions are of a routine administrative or "operational" nature. In such a case, the mere fact that a public body or instrumentality is exercising statutory powers and functions does not mean that it enjoys immunity from liability to private individuals under the ordinary law beyond the extent that there can be actually discerned in the relevant legislation an express or implied intent that the private rights of individuals be displaced or subordinated. Nor does it mean that the existence of the statutory powers and functions, the assumption of responsibility which may be involved in their exercise, or any reliance which may be placed upon a presumption that they have been or are being properly exercised is to be ignored or discounted in determining whether there existed in the relationship between public body or instrumentality and private citizen a degree of proximity which was adequate to give rise to a duty of care under the principles of common law negligence.

At the outset, one must distinguish between a positive act or misfeasance and an omission or nonfeasance and between physical damage and mere or pure economic loss. In the absence of some contrary express or implied statutory mandate or special common law right, there will ordinarily be little difficulty in discerning that a defendant, whether public instrumentality or private person, was under a duty to take reasonable care to avoid causing ordinary physical injury to the person or property of a plaintiff by the direct impact of its, his or her positive action. In such cases, as pointed out previously, the reasonable foreseeability of such damage being caused will ordinarily suffice to establish the requisite proximity of relationship and there will also ordinarily be no difficulty in the operation of the rule that a cause of action will arise when the physical damage is sustained. The position is different in cases where the alleged negligence is constituted by a mere failure either to act or to prevent another from acting or where the alleged loss or damage is pure economic loss.

There is much to be said for the view that Lord Atkin's inclusion of "omissions" in his formulation of the requirement of proximity in Donoghue v. Stevenson (at p 580) was intended to be read as referring not to mere failure to act to prevent injury to another but to an omission in the course of positive conduct, such as a failure to apply the brakes of a motor vehicle while driving it on a public road or a failure adequately to inspect a product in the course of manufacturing it for sale on the open market, which results in the overall course of conduct being the cause of injury or damage (see Professor J.C. Smith and Professor Peter Burns, "Donoghue v. Stevenson - The Not so Golden Anniversary", Modern Law Review, vol 46 (1983), 147, at pp 155-156). Be that as it may however, the clear trend of authority has been to accept the principles of common law negligence enunciated in cases such as Donoghue v. Stevenson as being of general application (see, generally, the more recent cases cited by Professor Smillie in "Principle, Policy and Negligence", New Zealand Universities Law Review, vol 11 (1984), 111 and, in this Court, Jaensch v. Coffey; Hackshaw v. Shaw (1984) 59 ALJR 156, 56 ALR 417 ; Papantonakis v. Australian Telecommunications Commission (1985) 59 ALJR 201, 57 ALR 1 ). In my view, that trend should continue to be accepted in this Court and those principles should be recognized as governing liability in negligence for omissions as well as for acts of commission. That does not mean that the distinction between mere omission and positive act can be ignored in identifying the considerations by reference to which the existence of a relationship of proximity must be determined in a particular category of case. To the contrary, the distinction between a failure to act and positive action remains a fundamental one. The common law imposes no prima facie general duty to rescue, safeguard or warn another from or of reasonably foreseeable loss or injury or to take reasonable care to ensure that another does not sustain such loss or injury (cf. per Windeyer J ., Hargrave v. Goldman (1963) 110 CLR 40 , at p 66). That being so, reasonable foreseeability of a likelihood that such loss or injury will be sustained in the absence of any positive action to avoid it does not of itself suffice to establish such proximity of relationship as will give rise to a prima facie duty on one party to take reasonable care to secure avoidance of a reasonably foreseeable but independently created risk of injury to the other. The categories of case in which such proximity of relationship will be found to exist are properly to be seen as special or "exceptional" (cf. per Dixon J., Smith v. Leurs (1945) 70 CLR 256 , at p 262 and Dorset Yacht Co. Ltd. v. Home Office, at pp 1038-1039, 1045-1046, 1055 and 1060ff.). Apart from those cases where the circumstances disclose an assumption of a particular obligation to take such action or of a particular relationship in which such an obligation is implicit, they are largely confined to cases involving reliance by one party upon care being taken by the other in the discharge or performance of statutory powers, duties or functions or of powers, duties or functions arising from or involved in the holding of an office or the possession or occupation of property.

In accordance with the clear trend of recent authority, the general principles of the common law of negligence should also be recognized as extending to cases involving mere economic loss, that is to say, economic loss which is not consequential upon ordinary physical injury to one's person or property. Again, however, the distinction between mere economic loss and ordinary physical loss or injury remains important in determining whether the requisite proximity of relationship exists in a particular case or category of case. The field of liability for pure economic loss is a comparatively new and developing area of the law of negligence. Again, the reasonable foreseeability of a real risk of such loss does not of itself suffice to give rise to a prima facie duty to take reasonable care to avoid it (see, e.g., The Dredge "Willemstad", at pp.549ff., 572ff. and 590ff.). That being so, the circumstances in which the relationship between the parties will be such as to impose a duty to take care to avoid pure economic loss are also properly to be seen as special. Indeed, in a competitive society, the infliction of pure economic loss upon another will commonly be a concomitant of the successful pursuit of personal advantage by way of lawful conduct in that there can be discerned, in many commercial and financial transactions, a correlation between the attainment of personal gain for one's self and the sustainment of economic loss by another.

In the present case, the respondents do not now argue that the operative cause of their loss or damage was some positive act on the part of the Council. The positive actions involved in the erection of the house with inadequate foundations were those of the builder. The Council gave its approval to the plans and specifications of the house but those plans and specifications (in the context of the conditions of approval) disclosed no deficiency in the foundations and it has not been argued in this Court that the Council was in breach of any duty in that regard. The Council had received no notice of completion of the house and had not given its permission to the commencement of its use or occupation. No certificate that the building complied with the requirements of the Act, the Ordinances, and any approved plans and specifications was sought by the then owners or, subsequently, by the respondents or was furnished by the Council. It is true that the respondents complain both that the Council's inspector negligently conducted the inspection which was carried out and that the Council's system of inspecting buildings in the course of erection was negligently inadequate. Upon analysis however, the respondents' claim against the Council is essentially about what it failed or omitted to do in that the act or omission of the Council which they must identify as an operative cause of their loss is the failure or omission, by reason of careless inspection or inadequate system, to secure that the house was not erected with unsafe foundations. The fact that a third party is careless in not observing negligent conduct by another may mean that a failure or omission to protect, warn or rescue the person put at risk by that negligent conduct is itself careless. It does not alter the fact that the relevant operative act or omission is the failure or omission to protect, warn or rescue and not the mere failure to observe which will be relevantly operative only to the extent that it is reflected in the failure or omission to protect, warn or rescue.

Nor is the respondents' claim in the present case for ordinary physical damage to themselves or their property. Their claim, as now crystallized, is not in respect of damage to the fabric of the house or to other property caused by collapse or subsidence of the house as a result of the inadequate foundations. It is for the loss or damage represented by the actual inadequacy of the foundations, that is to say, it is for the cost of remedying a structural defect in their property which already existed at the time when they acquired it. In Anns v. Merton London Borough Council, it was held by the House of Lords that a local government authority owed a relevant duty of care, in respect of inspection of the foundations of a building, to persons who subsequently became long term lessees (either as original lessees or as assignees) of parts of the building. Lord Wilberforce, in a speech with which three of the other four members of the House of Lords agreed, expressed (at p 759) the conclusion that the appropriate classification of damage sustained by the lessees by reason of the inadequacy of the foundations of the completed building was "material, physical damage, and what is recoverable is the amount of expenditure necessary to restore the dwelling to a condition in which it is no longer a danger to the health or safety of persons occupying and possibly (depending on the circumstances) expenses arising from necessary displacement". While, in a case where a subsequent purchaser or long term tenant reasonably elects to retain the premises and to reinforce the foundations, one possible measure of the damages involved in the actual inadequacy would (if such damages were recoverable) be that suggested by his Lordship, I respectfully disagree with the classification of the loss sustained in such circumstances as "material, physical damage". Whatever may be the position with respect to consequential damage to the fabric of the building or to other property caused by subsequent collapse or subsidence, the loss or injury involved in the actual inadequacy of the foundations cannot, in the case of a person who purchased or leased the property after the inadequacy existed but before it was known or manifest, properly be seen as ordinary physical or material damage. The only property which could be said to have been damaged in such a case is the building. The building itself could not be said to have been subjected to "material, physical damage" by reason merely of the inadequacy of its foundations since the building never existed otherwise than with its foundations in that state. Moreover, even if the inadequacy of the foundations could be seen as material, physical damage to the building, it would be damage to property in which a future purchaser or tenant had no interest at all at the time when it occurred. Loss or injury could only be sustained by such a purchaser or tenant on or after the acquisition of the freehold or leasehold estate without knowledge of the faulty foundations. It is arguable that any such loss or injury should be seen as being sustained at the time of acquisition when, because of ignorance of the inadequacy of the foundations, a higher price is paid (or a higher rent is agreed to be paid) than is warranted by the intrinsic worth of the freehold or leasehold estate that is being acquired. Militating against that approach is the consideration that, for so long as the inadequacy of the foundations is neither known nor manifest, no identifiable loss has come home: if the purchaser or tenant sells the freehold or leasehold estate within that time, he or she will sustain no loss by reason of the inadequacy of the foundations. The alternative, and in my view preferable, approach is that any loss or injury involved in the actual inadequacy of the foundations is sustained only at the time when that inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs. On either approach however, any loss involved in the actual inadequacy of the foundations by a person who acquires an interest in the premises after the building has been completed is merely economic in its nature.

In the courts below, the learned trial judge and the members of the Court of Appeal understandably relied upon Anns as a basis of their conclusion that the Council was liable to the respondents under the ordinary principles of common law negligence. Indeed, in the subsequent case of Minister Administering the Environmental Planning and Assessment Act 1979 v. San Sebastian Pty. Ltd. (1983) 2 NSWLR 268, at p 332, Mahoney J.A, having indicated his awareness of difficulties posed by Lord Wilberforce's judgment, expressed the view that the Court of Appeal's decision in the present case was "based on the fact that the legislation in question was not distinguishable in principle from that in Anns" which it was the Court of Appeal's "duty ... to follow". In this Court however, it is necessary that the reasoning in Anns be more closely and critically scrutinized. For my part, the result of such scrutiny is that I derive little assistance from that case in the resolution of the present appeal. The main reason is that it appears to me that Lord Wilberforce used the terms "proximity" and "neighbourhood" in Anns with a different connotation from that which is, in my respectful view, appropriate to their use as a touchstone of the existence of a prima facie duty of care in a case in which the alleged negligence lies in an omission or failure to act or in which the alleged damage is mere economic loss. The point would probably be unimportant if all that was involved was a bare question of abstract principle since the wider notion of proximity that had and has, in my view correctly, been recognized and applied in previous and subsequent cases (see, e.g., Hedley Byrne, at pp.524-525, 529-532; Peabody Fund v. Parkinson, (1984) 3 WLR, at pp 959-960, (1984) 3 All ER, at pp 533-534) could be accepted as overlaying Lord Wilberforce's exposition of principle. The point cannot be so readily disposed of in the present case however since it appears to me that it was only by reference to his narrower (in the sense explained below) notion of proximity in Anns that Lord Wilberforce could properly discern the existence of a relevant prima facie duty of care .

In the oft-cited passage of his judgment in Anns (at pp 751-752), Lord Wilberforce expressed the view that the question whether a duty of care arises in a particular situation must be approached in two stages. The first stage is that one must ask whether, as between the alleged wrongdoer and the person who has suffered damage, there is "a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter - in which case a prima facie duty of care arises". The second stage is that one must ask whether "there are any considerations which ought to negative, or to reduce or limit the scope of (any such prima facie) duty or the class of person to whom it is owed or the damages to which a breach of it may give rise".

Lord Wilberforce's use of the terms "proximity" and "neighbourhood" must be distinguished from the notion of proximity of relationship which was developed in Donoghue v Stevenson. Notwithstanding an element of uncertainty introduced by the use of the words "reasonable contemplation", it would seem, from an overall reading of his judgment and from the description and the examples given of the second stage, that the first stage test of "a sufficient relationship of proximity or neighbourhood" is to be understood as effectively connoting no more than the circumstance that there is reasonable foreseeability of injury to another. That view of the first stage is supported by his Lordship's subsequent reference, in McLoughlin v O'Brian [1983] 1 AC 410 , at p 420, to the examples which he gives in his judgment in Anns (at p 752) in explaining the second stage as "examples" of circumstances where "foreseeability does not of itself, and automatically, lead to a duty of care". In other words, the thesis of the first stage is that there is a prima facie duty of care whenever, in the reasonable contemplation of a person in the sense of what can be reasonably viewed or foreseen, carelessness on his or her part may be likely to cause damage to another: "he would test the sufficiency of proximity simply by the reasonable contemplation of likely harm" (per Woodhouse J., Scott Group Ltd v McFarlane (1978) 1 NZLR 553, at p 574 and see the cases cited by Professor Smillie, supra, n.2). In contrast, Lord Atkin's notion of a relationship of neighbourhood or proximity was formulated as a separate and general limitation upon the test of reasonable foreseeability (see, generally, Jaensch, 58 ALJR, at pp 439ff., 54 ALR, at p 439ff.). It designated a broad and flexible requirement of nearness or closeness in the relationship between plaintiff and defendant which must be satisfied before a relevant duty of care to avoid reasonably foreseeable damage to the plaintiff will have arisen. It should be mentioned that, in McLoughlin v O'Brian (at p 420), Lord Wilberforce himself moved away from what appears to me to have been his position in Anns by referring, with apparent approval, to Lord Atkin's judgment in Donoghue v Stevenson as saying "that foreseeability must be accompanied and limited by the law's judgment as to persons who ought, according to its standards of value or justice, to have been in contemplation."

The approach in Anns may be a convenient one in cases involving ordinary physical injury to a plaintiff or his or her property as a consequence of the direct impact of a positive act of the defendant. It may be that Lord Wilberforce saw Anns as such a case though his references to the "primary fault" of the builder (at p 758) and to the Council's duty being "a duty to take reasonable care to secure compliance with the bye-laws" (at p 759; underlining added) must raise doubt that that was so. In such cases, it is likely to be settled that, if the risk of injury was reasonably foreseeable, any proximity requirement is satisfied (see Jaensch, 58 ALJR, at pp 440-441, 54 ALR, at pp 442-443). That approach is, however, inappropriate in cases in the less developed areas of the law of negligence such as where what is alleged is a negligent omission or failure to act or where the damage sustained has been merely economic in its nature. In such cases, as has been said, the mere fact that it is reasonably foreseeable that carelessness on the part of a person may be likely to cause damage to another person is not in itself sufficient to give rise to a prima facie duty of care: a relevant duty of care will only arise if the requisite element of "proximity", in the broad sense in which Lord Atkin used the term in Donoghue v Stevenson, is satisfied. In any general formulation of the ingredients of a cause of action in negligence which is intended to encompass cases involving mere omission or mere economic loss, "proximity" of relationship in this broader sense should be seen as a distinct general requirement which must be satisfied before any duty of care to avoid reasonably foreseeable injury will arise (cf. Jaensch, 58 ALJR, at p 442, 54 ALR, at pp 445-446; Peabody Fund v Parkinson, (1984) 3 WLR, at pp 959-960, (1984) 3 All ER, at pp 533-534). In such cases, as Mason J. demonstrates in his judgment in this appeal, it is likely that the existence of the requisite element of proximity will reflect, among other things, reliance by the plaintiff upon care being taken by the defendant to avoid or prevent injury, loss or damage to the plaintiff or his property in circumstances where the defendant had induced or encouraged such reliance or (depending upon the particular combination of factors) was or should have been aware of it.

As I read Lord Wilberforce's judgment in Anns, there were two essential steps or "stages" involved in his conclusion that the local council was under a duty of care to the plaintiff in that case. The first step or stage was the conclusion that there was, between local council and owners and occupiers of the premises, "a sufficient relationship of proximity or neighbourhood" in the sense "that, in the reasonable contemplation of the (council), carelessness on (its) part may be likely to cause damage" to such an owner or occupier. The second step or stage was his Lordship's conclusion (at p 754) that the "essential factor ... that the local authority is a public body, discharging functions under statute" did not, in light of the particular statutory powers and functions, preclude the implication of a relevant duty of care in relation to acts or omissions not falling within the proper ambit of its discretion. In other words, his Lordship, in conformity with his general statement of principle, treated reasonable foreseeability ("contemplation") of the likelihood of injury as sufficing to give rise to a prima facie duty of care and concluded that that prima facie duty of care was not negatived by the nature of the local council's powers and functions and was only reduced or limited in scope by the exclusion of acts or omissions which, under the relevant statutory provisions, came within the ambit of the local council's discretion. It follows from what has been said that I respectfully disagree with this process of legal reasoning at least in cases, such as the present, involving omissions or mere economic loss. That being so, I am unable to accept either the decision in Anns or the general statements in Lord Wilberforce's judgment as offering acceptable guidance in relation to the outcome of the present case. In circumstances in which there was no contact between the respondents themselves and the council prior to the respondents' purchase of the house, the existence of any relevant prima facie duty of care on the part of the Council in the present case depends, as a matter of ordinary principle, primarily upon whether there existed in any relationship between the council and the class of persons comprising future owners of the house of which the respondents were members the requisite element of proximity in the broader sense of that term explained above.

One can discern in the relevant provisions of the Act and Ordinances a number of purposes for which a local council's powers and functions with regard to the erection of buildings within its area were conferred. Those purposes included the advancement and maintenance of the general amenity of the neighbourhood, protection of health and the prevention of injury to the person or property of those within the area. The last-mentioned purpose, namely the safety of the person and property of those within the area, was obviously of particular relevance where the foundations of a building were involved. The conferral upon a local government council of those powers and functions represented a restraint upon the freedom of action of owners of land and their builders. It was a restraint which was enforceable by penal sanction and which had been imposed for, among other reasons, the protection of the general public within the area from actions of the owners of land and their builders which might have a detrimental effect upon the advancement of the purposes for which the powers and functions in relation to the erection of buildings were conferred. A local government council may well, in certain circumstances, be under a duty of care to an owner or prospective owner of land within its area in relation to information provided or positive acts done in the exercise and performance of those powers and functions (cf. L. Shaddock & Associates Pty. Ltd. v. Parramatta City Council (No. 1) (1981) 150 CLR 225 ). It may, in some circumstances, be under a duty to take reasonable care in that exercise and performance to avoid placing unnecessary restrictions or requirements upon such an owner's or prospective owner's freedom to use and develop his land. It is however, in my view, impossible to discern in the relevant provisions of the Act and Ordinances anything which would warrant the conclusion that there had been included among the purposes for which those powers and functions were conferred a general purpose of protecting owners of premises from sustaining economic loss by reason of defects in buildings which they or their builders might erect or which they might purchase after erection.

It is in the light of the foregoing that one must approach the question whether the requirement of proximity in the relationship between the parties with respect to the relevant act or omission and the injury sustained was satisfied in the circumstances of the present case. Once the foundations of a building have been completed and covered, there will commonly be no occasion for subsequent inspection unless and until any deficiency begins to cause consequential damage. It was, no doubt, reasonably foreseeable that a failure or omission by the Council adequately to inspect the house in the course of erection resulting in a failure to take action to prevent the house being erected with inadequate foundations might result in a builder erecting the house with unsafe foundations and consequential economic loss to the class of persons consisting of subsequent owners of the house. As has been said however, there is no prima facie general duty of care to take positive action to prevent reasonably foreseeable injury being sustained by another or to avoid causing mere economic loss. It is therefore necessary to examine the additional factors involved in the relationship between the Council and the respondents to ascertain whether, by reference to decided cases or general principle, any one or more of them should properly be seen as giving rise to a relevant duty of care. Such examination makes clear that none of them, alone or in combination with others, can properly be seen as so supplementing foreseeability of damage as to have that effect. Reference has been made to the more important of those other factors in the course of what has been written above. At the cost of some repetition, it is desirable that they be identified and brought together at this stage. They are essentially of a negative character.

There was no contact at all between the Council and the respondents prior to the respondents' purchase of the house. Nor is there anything in the circumstances which could warrant the conclusion that there was some special element in the relationship between the Council and the previous owners, their builder or the respondents or that the Council had assumed any special duty or obligation to any one or more of those persons. The approach of the previous owners, their builder and the respondents was, plainly enough, to ignore rather than to rely upon the Council with respect to the erection or the condition of the house: only one of the notices indicating that a particular inspection stage had been reached was returned to the Council by the previous owners or their builder; no notice of completion of the building was given to the Council as required by Ord. 71, cl.83; at the time of their purchase, the respondents made no inquiry about what the Council's records disclosed in relation to the house; the respondents neither applied for nor obtained a certificate of compliance under the Act. There is nothing in the evidence to suggest that the Council made any particular representation to the respondents or anyone else about the exercise of its statutory powers and functions in relation to the house. Nor is there anything in the evidence to suggest that the respondents or anyone else placed any reliance upon the actual or assumed exercise by the Council of those statutory powers or functions. In so far as what I have referred to earlier as causal proximity is concerned, the causal relationship between any carelessness on the part of the Council and the damage sustained was indirect in the sense that any such carelessness on the part of the Council would have been inconsequential were it not for the builder's negligent construction of the house which was the cause of the inadequacy of its foundations. As has been seen, protection of the owner of land from the mere economic loss which might be sustained by reason of a defect in a building erected upon his or her land is no part of the purpose for which the relevant legislative powers and functions were conferred upon the Council. The provisions of the Act and Ordinances have traditionally never been seen as intended to place upon a local government council the duty or burden of protecting an owner of premises from mere economic loss sustained by reason of the negligent erection, by someone other than the council, of a building upon his or her land. Nor is there any readily discernible reason in principle, policy or justice why the general body of ratepayers within an area should bear the economic loss sustained by such an owner of land.

Each of the above additional factors tends to indicate an absence - rather than a presence - of physical, circumstantial or causal proximity. They do not, by reference to any acceptable process of legal reasoning, supplement the existence of reasonable foreseeability of economic loss in a way which would warrant a conclusion that there existed in the relationship between the Council and the respondents the element of proximity necessary to give rise to a duty on behalf of the Council to take reasonable care to ensure that the respondents did not sustain economic loss by reason of a defect in the foundations of the building which they were purchasing. It follows that the respondents' action against the Council should have been dismissed. The present appeal must be upheld and the judgment and orders in the respondents' favour must be set aside.

There are three further matters to which brief reference should be made. The first is that the evidence indicated that consequential damage was sustained by the fabric of the respondents' house by reason of movement resulting from the inadequate foundations. While the damages awarded and upheld in the courts below were confined to the cost of remedying the inadequacy of the foundations and to interest thereon, it would seem appropriate that I indicate that I do not consider that the outcome of the present appeal turns upon any distinction between the inadequacy of the actual foundations and consequential damage to the fabric of the building. It seems to me, as at present advised, that any such consequential damage to the building itself resulting from inherent defect in the foundations is properly to be seen as falling within the same category as the damage involved in the inadequacy of the actual foundations, that is to say, as economic loss sustained by reason of the erection or purchase of the unsound building. The second matter is that it should be apparent that my conclusion that no relevant duty of care was owed by the Council to the respondents in the present case is based to no small extent on the particular combination of factors involved in the case including the nature of the damage sustained by the respondents. That conclusion could not be directly applied to a case where the building owner established that the damage sustained was caused by his reliance upon some particular course of conduct being or having been pursued by the Council in (for example) circumstances where the Council had encouraged such reliance. Nor is that conclusion directly applicable to a case where ordinary physical injury to person or property (other than the inadequately constructed building) has been sustained as a consequence of a collapse or partial collapse of a building caused by its inadequate foundations. The third matter is that, since the other members of the Court are divided in relation to it, it would seem desirable that I indicate that I have formed a firm view about the finding in the courts below of carelessness on the part of the Council. Like Mason J. and Brennan J., I consider that, on the evidence, there was some carelessness in the inspection of the house while it was under construction. If, contrary to my conclusion, the Council had been under a relevant duty to the respondents to take reasonable care, in the exercise of its powers of inspection, to prevent economic loss being sustained by the respondents by reason of the house being erected with inadequate foundations, I would have been of the view that the finding of negligence by the learned trial judge, which was confirmed by the Court of Appeal, was correct and could not properly be disturbed.