The proceedings in Northern Territory of Australia v John Holland Pty Ltd,1 related to the design and construction of certain development works at the Alice Springs Hospital. The plaintiff had entered into a contract with the first defendant to manage that design and construction work. The works were substantially performed by consultants and subcontractors contracted to the first defendant. The plaintiff alleged that the works were defective and claimed against the first defendant in contract and against five other defendants for negligence.
The sixth defendant was a provider of building and engineering certification services alleged to have been engaged by other defendants to assist with and coordinate the building certification process associated with the redevelopment works. The statement of claim alleged that the sixth defendant was negligent in a number of respects in carrying out its alleged role and that as a result of those breaches the plaintiff suffered loss and damage.
The sixth defendant applied to strike out the plaintiff’s claim against it on the ground that the pleading did not disclose a cause of action against the sixth defendant. Angel J struck out the proceedings against the sixth defendant on the ground that the statement of claim failed to properly plead the facts upon which it was alleged the duty of care arose and, in particular, failed to allege that the plaintiff was in any relevant sense vulnerable to the economic consequences of any negligence of the sixth defendant.
The proceedings in Perpetual Trustees Australia Ltd v Onesteel Trading Pty Ltd,2 related to the supply and installation of fire protection systems in various shopping centres owned by the plaintiffs. The plaintiffs alleged that pipework used in these fire protection systems was defective and pleaded causes of action against the defendants — the suppliers of the pipework and consultants involved in the design and installation of the fire protection systems — in negligence and for misleading and deceptive conduct.
As to the existence of a duty of care, the statement of claim alleged that:
- at the time that the pipework was supplied for installation as part of the fire protection systems the defendants knew or ought to have known of the defects and that it would be necessary to replace the pipework after installation and substantial cost;
- each of the plaintiffs was vulnerable to the risk of suffering substantial loss and damage, including replacing the pipework, as a consequence of the defects in that there were no reasonable steps available to them to take in order to ascertain the existence of the defects before installation of the pipework or to protect themselves from suffering such loss and damage.
Habersberger J accepted the criticism made by the defendants that the plaintiffs had not pleaded why they were vulnerable, rather than simply alleging that they were. No facts were pleaded in the statement of claim which showed that the plaintiffs could not have protected themselves against the economic loss they alleged. They simply pleaded a conclusion by restating the proposition of vulnerability. In order to properly plead a duty of care each of the plaintiffs was required to separately identify the basis for the allegation that it was unable to ascertain the existence of the defects in the pipework before installation or to protect itself from suffering such loss and damage.
Both of these decisions highlight the importance, since the decision of the High Court in Perre v Apand Pty Ltd,3 of the concept of the vulnerability of the plaintiff in establishing a duty of care to avoid pure economic loss.4
In this context, the High Court has explained that vulnerability does not simply mean that a plaintiff is likely to suffer damage if reasonable care is not taken, ie that a plaintiff is at risk of loss. Rather, vulnerability refers to a plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences on the defendant.5
The concepts of reliance and assumption of responsibility are now characterised as indicators of vulnerability to harm from a defendant’s conduct. In certain situations “reasonable reliance” will be the appropriate test for determining whether a plaintiff was vulnerably exposed to harm from a defendant’s conduct.6
A number of cases since Woolcock have emphasised that the question of a plaintiff’s vulnerability is a question of fact in each particular case.7
There seem to be two main areas of factual enquiry that will impact upon the question of a plaintiff’s vulnerability.
The first concerns any characteristics of the plaintiff that prevented it from protecting itself from the consequences of the negligent conduct. This is reflected in the statement of McHugh J in Woolcock that vulnerability means that a person was unable to protect him herself from risk “by reason of ignorance or social, political or economic constraints.”8 It is also reflected in the comparison of the relative sophistication of investors in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd.9
The second area of inquiry is the market conditions in which the relationship between the plaintiff and the defendant was formed. To the extent that those market conditions precluded a plaintiff from securing detailed contractual warranties from the defendant, or from otherwise taking steps to protect itself from the consequences of the defendant’s negligence, vulnerability might still be found to exist.10
Of course, other bases for pleading vulnerability on the part of a plaintiff may arise on the facts of a particular case.
When pleading an action for negligence based upon pure economic loss detailed instructions should be sought about factual matters that might support an allegation of vulnerability on the part of the plaintiff. These facts should be specifically pleaded so as to avoid applications to strike out the negligence action or objections at trial to evidence directed towards proving facts not pleaded which must be made out if the Court is to make a finding of vulnerability.
Sean Cooper
Endnotes
- [2008] NTSC 4
- [2007] VSC 370
- (1999) 198 CLR 180
- Ibid at 225 [118]
- Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 530 [23], 549 [80]
- Perre v Apand Pty Ltd supra at 228 [124], [125]
- See Perpetual Trustees Australia Ltd v Onesteel Trading Pty Ltd supra at [61]; Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216 at [62].
- supra at 548, [80]
- supra at [62]
- See McHugh J in Woolcock supra at 552 [95]
