Australia: No duty of care owed…. This time

Last Updated: 10 September 2018
Article by Philip Mavor

The Queensland Supreme Court of Appeal in Central Highlands Regional Council v Geju Pty Ltd [2018] QCA 38(Central Highlands) has held that a Council had no liability to a third party purchaser (Geju Pty Ltd (Geju)) who relied on a limited planning and development certificate obtained by the vendor which misrepresented the zoning of the property

Facts

The Central Highlands case was an appeal by the Council against a judgement in the Queensland Supreme Court that the Council pay $852,205.50 in damages for loss sustained by Geju in purchasing land (Lot 70) in reliance upon a negligent misrepresentation in a limited planning and development certificate.

The certificate was issued by the Council to the owner of Lot 70. Four months later Geju, in reliance on the certificate, purchased Lot 70.

The certificate inaccurately described the zoning of Lot 70 as "town" and the precinct as "industrial". The correct zoning was "rural". Geju suffered a financial loss as a result of the misrepresentation in the certificate because the land was worth significantly less than the purchase price on application of the correct zoning.

The First Trial

The single Supreme Court judge held at first instance that the Council owed Geju a duty to take reasonable care in the preparation of the certificate, and that the Council breached that duty by incorrectly describing the zoning of Lot 70.

The trial judge (citing L Shaddock & Associates Pty Ltd v Parramatta City Council (No. 1) (1981) 150 CLR 225 (Shaddock)) noted it was well established that a public body exercising its public functions that supplies information to other persons (whether or not it has a statutory duty to do so) is under a duty of care to those to whom it knows will rely upon it, to exercise reasonable care that the information given is correct.

The trial judge held that:

  • Geju (as the potential purchaser of the property the subject of the certificate) was a member of an identified class of persons who the Council knew, or ought to have known, would receive the certificate and rely on it when contemplating making serious financial decisions involving the land;
  • Geju was vulnerable as the Council was the only potential source of the information the certificate was supposed to contain, and this justified the imposition of a duty of care; and
  • the Council's negligence in inaccurately issuing the certificate was a necessary condition of the occurrence of harm to Geju. Had the certificate stated the true position (that the land was zoned rural) Geju would not have to have purchased the land.

The trial judge awarded Geju damages in the sum of $852,205.50. The Council appealed to the Queensland Court of Appeal.

The Court of Appeal

The Court of Appeal allowed the appeal, and held that the Council did not owe Geju a duty of care, primarily because:

  • Geju did not request the certificate, nor was it in a member of an identified class of persons who the Council knew or ought to have known would likely receive and rely upon the certificate to enter into a transaction of the kind it did enter into;
  • Geju did not take prudent steps to protect itself from the loss suffered; and
  • the statutory obligations on the Council did not amount to reliance.

Not a member of an identified class

The Court examined when a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made, or advice given, by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice. It is necessary in every case for the plaintiff to prove that the defendant knew, or ought to have known, that the information would be communicated to the plaintiff, either individually or as a member of an identified class.

The Court disagreed with the trial judge's conclusions that Geju was a member of an identified class of persons who the Council knew or ought to have known would likely receive the certificate, and rely upon it to enter into a transaction of the kind it did enter into. The Court determined that:

  • there was no rational way to define a class of which Geju was a member other than in very broad terms;
  • the identified class would also include owners and persons such as tenants, lenders, and investors who might regard the zoning of the land as a material factor in serious financial decisions; and
  • while it was foreseeable that the vendor might pass on the certificate to one or more of the people in the very broad class of persons who might rely on the information in making serious financial decisions, there was no basis for concluding that the Council knew, or ought to have known, that the vendor would do so, much less that the Council intended, knew, or ought to have known, that a person would buy Lot 70 in reliance upon the zoning information in the certificate.

No vulnerability

In examining the vulnerability of Geju, the Court referred to Woodcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515, where the High Court considered that 'vulnerability' referred to the plaintiff's inability to protect itself from loss resulting from the defendant's want of reasonable care.

The Court found that Geju had not acted within its abilities to protect itself against the loss it suffered. While it may not have been unreasonable for Geju to fail to seek a standard or full certificate, it was open (and prudent) for Geju to protect itself from the loss by retaining solicitors to act on its behalf before entering into the contract, and to seek a warranty from the vendor that the land was zoned industrial.

No reliance

The Court rejected an argument by Geju that Council's statutory obligation to supply the certificate implied an intention by the Council that potential purchasers should rely on the certificate:

  • the statutory obligation did not justify the existence of a duty of care unless there was a known reliance;
  • the statutory obligation did not justify the Court discarding common law limitations upon the circumstances in which a duty of care is owed; and
  • a duty of care cannot be inferred on the basis the of statutory obligations where there is no known reliance.

Geju sought to rely on Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCA 290 (Mid Density) where 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 incorrectly stated that the council had no information that indicated the land was subject to flooding. The council issued the first certificate to the vendor, and the other two certificates to the purchaser.

The Court distinguished this case on the grounds that (unlike the current case) there was evidence in Mid Density that the council knew and intended that potential purchasers, which included the plaintiff, would rely on the certificates in deciding whether to commit themselves financially.

The Court also noted that none of the statements by the High Court in the Shaddock case support the existence of a duty of care to a person other than the person to whom the appellant council gave the certificate.

Key Points

The Geju case was heard in the Queensland Supreme Court of Appeal, and is not binding in Western Australia, although it may be persuasive.

However, key points that local governments may take from this case are that:

  • a local government owes the requestor of a certificate or other document a duty to take reasonable care to ensure the accuracy of the document;
  • a duty is also owed to a person within an identified class of person who is likely to receive the document and very likely to enter into a transaction in reliance on the document;
  • no duty is owed generally to a person who is not the requestor of the document and who does not fall within an identified class;
  • however, local governments should be aware that where they know and intend for potential purchasers or other third parties to rely upon the document, then they are likely to owe them a duty of care.

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.

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