Negligent misstatements and statutory authorities – duty of care, statutory power and profit driven behaviour

Loulach Developments Pty Ltd v Roads and Maritime Services [2019] NSWSC 438

The Plaintiff (Loulach) was the developer of a mixed-use development in Parramatta.  The development site comprised two lots, lots 11 and 12.  The building was erected solely on lot 11.

In August 2008, when Loulach was pursuing development consent to build on lot 11, RMS’s predecessor (the RTA), in response to a “Property Information Inquiry Form”, confirmed in writing that lot 12 was required for a road (the first representation).  It did so again in January 2009, during the assessment of Louloch’s development application, but this time the representation was not made to Loulach but instead to the local council in the course of assessing the development application (the second representation).

Ultimately, the first representation and the second representation were found to be false.

Loulach sued the Defendant (RMS) in negligence for pure economic loss, claiming that if it had been told that the RTA no longer required lot 12, then it would have obtained rezoning of lot 12 and applied for and obtained development consent to build a mixed use building occupying the whole of its site, (that is, both lots 11 and 12, rather than just lot 11 alone), and consequently it would have made greater profits (the Desired Development). It sought damages in excess of $5,000,000.

Duty of care

Leeming JA found that in making the first representation, the RTA assumed a duty to Loulach to take reasonable care in relation to the provision of information and advice, which duty extended to whether in fact there was a road widening proposal at all: [48]-[57].  The key reason why the Court found that a duty of care was owed in this case (contrary to the general rule that damages are not recoverable for pure economic loss) was because the RTA, in responding to the request for information, assumed responsibility for its correctness, and because the plaintiff’s inquiry “manifested an ostensible intention to rely on the response for a “serious purpose””: [51]  That is, assumption of responsibility and reliance were key.

However, Leeming JA found that no such duty arose in relation to second representation as there was no assumption of responsibility, no direct reliance and Loulach was not vulnerable: [62]-[64].  Most importantly, Leeming JA considered that the RTA’s statutory function (which included matters concerning safety and efficient traffic management) sat uneasily with a duty to take reasonable care to prevent pure economic loss to an applicant for development consent: [65]-[71].

Breach

The parties treated the question of breach as standing or falling on whether there was, in mid-2008 and early-2009, an extant proposal to widen the road using lot 12.  Leeming JA found that there was not ([128]-[130]), and therefore found the RTA breached its duty of care: [140].

Causation

Mr Loulach gave evidence of the features of the Desired Development he said he abandoned upon receipt of the first representation.  Loulach put its case on the basis that, as a rational profit-maximising developer, it otherwise would have applied to rezone lot 12, and would have applied for and obtained consent to build a more profitable building on the whole of the site.  While Leeming JA considered that it is entirely plausible to consider that a builder would act to maximise-profit ([174]), the evidence fell short of demonstrating that it would have been rational to decide to pursue the Desired Development.

Leeming JA also considered that Mr Loulach’s affidavit evidence was also out of keeping with his usual manner of communication, indicating the affidavit reflected a deal of attention by persons other that Mr Loulach: [172].  That evidence was ultimately rejected: [173].

Leeming JA commented that it would have been open to Loulach to provide an alternative basis for causation. It could, at least in theory, have adduced evidence to explain why it would have been rational for it, in August 2008 or February 2009, to have chosen to apply to rezone lot 12 and pursue a more profitable development: [179].  Leeming JA then gave examples of the kind of evidence that would be involved in such a case, namely:

1)      Loulach’s financial position;

2)      other development opportunities;

3)      the likely attitude of council towards a new development proposal;

4)      the timing of the development;

5)      estimated profit;

6)      the attitude of the Loulach’s lenders: [180].

Having elected not to provide an alternative basis for causation, Loulach failed to satisfy the Court that on the balance of probabilities it would have decided to expand the development to include lot 12: [182].

Conclusion

The decision is a warning to statutory authorities to be careful when providing information and advice, and provides some guidance as to the evidence required when advancing a counter-factual, particularly in the building and construction space where third parties’ approvals are required.

It is also a reminder of the importance of ensuring that witness statements and affidavits reflect as near as possible the phraseology of the witness.

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