WHO SHOULD READ THIS
- Local Governments.
- Purchasers of land who receive town planning certificates.
THINGS YOU NEED TO KNOW
- The Queensland Court of Appeal handed down an important decision in Central Highlands Regional Council v Geju Pty Ltd  QCA 38 on Friday, 16 March 2018.
- The decision relates to a Council's liability for issuing an incorrect limited planning and development certificate in circumstances where the certificate is given to a third party.
The case involved an appeal by the Central Highlands Regional Council (the Council) against a judgment requiring the Council to pay the respondent, Geju Pty Ltd (Geju), the sum of $852,205.50 for loss sustained by Geju in purchasing vacant land in reliance upon a negligent misrepresentation in a limited planning and development certificate (Certificate).
The factual background was complex but in summary:
- the Certificate was issued by a predecessor Council to the solicitors of the previous owners (the Mayfair Group) when they were purchasing the property
- the Certificate inaccurately described the zoning of the land as 'town' and the precinct as 'industrial.' The correct zone was 'rural'
- the Certificate was issued by the Council in February 2008 and subsequently given to Geju by the Mayfair Group's real estate agent, and
- in June 2008 Geju entered into a contract to purchase the land from the Mayfair Group.
Duty of care
Fraser JA, with McMurdo JA and Brown J agreeing, overturned the trial judge's finding that the Council owed Geju a duty of care. The Court found that Geju did not prove that the Council knew or ought to have known that Geju, or an identified class of persons of which Geju was a member, would rely upon the Council's certificate.
Duty to take care when certificate is given directly to the applicant
The High Court has previously held that a Council was under a duty to take reasonable care to supply correct information in a certificate the Council gave to a solicitor, who had applied for such a certificate, while acting for an intending purchaser of land.1 Fraser JA, referred to this decision, but stated that none of the statements made by the High Court in that case supported the existence of a duty of care in circumstances where it is alleged to be owed to a person other than the person to whom the Council gave the certificate.
Duty to third parties – are they within an identified class of persons?
The High Court has considered the question of whether liability for negligent misstatement may arise where the statement was not made in response to a request for information and advice and stated that such a request was by no means essential (though instances of liability for misstatement volunteered negligently will be rare).2
A plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement may be entitled to recover without proving that they sought the information, but they must prove that the statement would be communicated to a member of an identified class of persons who the defendant knew or ought to have known would receive the information.3
In this case Fraser JA found that there was no rational way to define a class of which Geju was a member other than in very broad terms (as the class would extend to owners, tenants, lenders and investors who might regard the zoning of the land as a material factor in serious financial decisions).
The trial judge held that the vulnerability of Geju, arising from the circumstance that the Council was the only potential source of the information the certificate was supposed to contain, justified the imposition of a duty of care. Fraser JA disagreed that Geju was relevantly vulnerable and stated that:
'Reliance has been regarded as "an indicator of vulnerability", but the High Court has so far not held that a duty of care arises in negligent misstatements cases merely because it is foreseeable that a plaintiff unknown to the defendant falls within a broadly defined class of persons who might suffer economic loss by reasonably relying upon a statement made by the defendant.'4
Similarly, Fraser JA held that the existence of statutory provisions providing compensation for errors in certificates did not justify the court in discarding common law limitations upon the circumstances in which a duty of care is owed or amount to evidence that the Council knew or intended that a defined class of persons would rely upon the certificate.
Ultimately, Fraser JA concluded that there was no basis in the evidence for concluding that the Council knew or ought to have known that the Mayfair Group would pass on the certificate and that a person would buy the land in reliance upon that certificate.
Different if the Council has knowledge and intention that potential purchasers will rely on certificate
One of Geju's principal arguments was that in a decision involving similar facts, the Full Court of the Federal Court held that a Council owed a duty of care to a purchaser of land in respect of three certificates the Council issued, which wrongly communicated that the Council had no information which would indicate that the land was subject to the risk of flooding.5 In that case the first certificate was issued to the vendor and then given to the purchaser before the purchaser entered into the contract.
Fraser JA distinguished the Full Court case by saying that the additional feature there was that the Council knew and intended that potential purchasers, which included the plaintiff in that case, would rely upon the certificate in deciding whether to commit themselves financially. It is not clear what evidence the Full Court relied on which illustrated that the Council had the requisite knowledge and intention, but Fraser JA referred to the fact that:
- the Council issued the other two certificates directly to the purchaser, and
- there was evidence that the Council officer responsible for the issue of the certificate 'knew that purchasers would be likely to rely upon the answers' and sought to make the answers accurate 'with the intention that purchasers should rely on them as being accurate' (No such evidence was led in this case about the Council's knowledge and intention).6
Councils can take some comfort in this decision as it seeks to limit the scope of the duty of care owed to third party recipients of certificates to circumstances where the Council knows or ought to know those persons will rely on it. As acknowledged by Fraser JA it could otherwise extend to a broad class of persons including tenants, lenders and investors.
However, it is important that Councils are aware that where they know and intend for potential purchasers (or other third parties) to rely upon the certificate they are likely to owe them a duty of care in respect of the certificate, even if the certificate is requested by other parties.
1 L Shaddock & Associates Pty Ltd v
Parramatta City Council (No 1) (1981) 150 CLR 225.
2 San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (NSW) ((1986) 162 CLR 340 at 357-358.
3 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241at 252.
4 Central Highlands Regional Council v Geju Pty Ltd  QCA 38 .
5 Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCR 290.
6 Central Highlands Regional Council v Geju Pty Ltd  QCA 38 .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.