Macquarie Bank v Meinhardt (NSW) [2010] NSWSC 1228

Macquarie brought proceedings against an engineering business which provided certifications in relation to hydraulics works on the security site. The bank was financing a project for the conversion of an industrial building to a strata-titled residential complex and required the borrower to arrange for an expert hydraulics engineer to certify the hydraulics works on the project had been carried out correctly. Meinhardt inspected the hydraulics works and reported that the workmanship was generally acceptable and stated: “no significant non-conformance with Australian Standards and Regulation is identified”.

Macquarie provided finance on the basis that the hydraulics works were acceptable. Some months later the borrower defaulted under the facility and Macquarie appointed receivers. The new project manager received a report from Harris Page & Associates, hydraulics engineers, indicating that the hydraulics work on the Project were defective. A further opinion was obtained from Warren Smith & Partners. Their report, confirmed that the hydraulics works did not comply with Australian Standards and were of a low quality. With the defective hydraulics works having been discovered, a new plumber was engaged who proceeded to remove and replace the existing hydraulics works.

The negligence claim
Meinhardt puts in issue the question of whether it owed Macquarie a duty of care. The court noted the test for whether a duty of care was owed involved an examination of:

(a) the foreseeability of harm;

(b) the nature of the harm alleged;

(c) the degree and nature of control able to be exercised by the defendant to avoid harm;

(d) the degree of vulnerability of the plaintiff to harm from the defendant’s conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself;

(e) the degree of reliance by the plaintiff upon the defendant;

(f) any assumption of responsibility by the defendant;

(g) the proximity or nearness in a physical, temporal or relational sense of the plaintiff to the defendant;

(h) the existence or otherwise of a category of relationship between the defendant and the plaintiff or a person closely connected with the plaintiff;

(i) the nature of the activity undertaken by the defendant;

(j) the nature or the degree of the hazard or danger liable to be caused by the defendant’s conduct or the activity or substance controlled by the defendant;

(k) knowledge (either actual or constructive) by the defendant that the conduct will cause harm to the plaintiff;

(l) any potential indeterminacy of liability;

(m) the nature and consequences of any action that can be taken to avoid the harm to the plaintiff;

(n) the extent of imposition on the autonomy or freedom of individuals, including the right to pursue one’s own interests;

(o) the existence of conflicting duties arising from other principles of law or statute;

(p) consistency with the terms, scope and purpose of any statute relevant to the existence of a duty; and

(q) the desirability of, and in some circumstances, need for conformance and coherence in the structure and fabric of the common law.

This was said to be a non-exhaustive list of considerations of the kind relevant to the evaluative task of imputation of the duty and the identification of its scope and content. In applying the list to the facts the court held:

1. As Macquarie did not engage Meinhardt, no contractual relationship existed between them. Therefore Meinhardt did not owe Macquarie a duty of care on standard principles applying between professionals and their clients;

2. As Macquarie claimed pure economic losses, namely payments made to third parties that it is said, but for the alleged negligence, would not have been made, the tests appropriate for cases relating to purely economic loss applied;

3. Although Macquarie did not have any hydraulic engineering expertise of its own that did not establish that Macquarie was vulnerable in the relevant sense. Macquarie could have required Meinhardt to provide a warranty to it for the fitness of the certification;

4. As the claim was for purely economic loss vulnerability was a very important consideration and as there was no relevant vulnerability Macquarie failed to establish a duty of care.

The judge buttressed his decision (to find no duty based solely on one of the criteria in the list) by reference to the following authorities:

• Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16 per McHugh J:

The better view in all cases – not merely building cases – is that the capacity of a person to protect him or herself from damage by means of contractual obligations is merely one – although often a decisive – reason for rejecting the existence of a duty of care in tort in cases of pure economic loss.

• Precision Products (NSW) Pty Ltd v Hawkesbury City Council [2008] NSWCA 278 per Allsop P:

Vulnerability is the “most important” of the salient features which will give rise to a duty to prevent economic loss;

• CJD Equipment Pty Ltd v A and C Constructions Pty Ltd, [2009] NSWSC 1362 per McDougall J:

It is for a plaintiff, alleging a duty of care to avoid economic loss, to plead, particularise and prove vulnerability: specifically, why, in the circumstances of the particular case, it could not protect itself against the consequences of negligence on the part of the defendant.

Macquarie sought to support its duty of care case by drawing an analogy to cases where an expert valuer is retained by a bank to carry out a valuation of a property – which is proposed to be provided as security to the bank in the event the bank approved a loan application – is found to owe a duty of care to a mortgage insurer who, if the bank approves the loan, provides a policy of insurance in favour of the bank. The plaintiff emphasised that: the valuer and insurer are not parties to any contract; the valuer is not and has no right to be paid by the insurer; and the insurer could get its own separate valuation, but does not. Macquarie referred to the judges recent decision in Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates [2010] NSWSC 1043 and also Kestrel Holdings Pty Ltd v APF Properties Pty Ltd [2009] FCAFC 144. The judge parried this argument by baldly stating that “where a duty of care is imposed in novel circumstances, the analysis is fact-specific.. in the circumstances of the present case, I conclude that Macquarie’s failure to prove vulnerability precludes it from establishing the relevant duty of care”. It is therefore left to our imaginations to consider how a case such as Hodder Rock can be distinguished from the present case.

The claim under s 52 of the Trade Practices Act

Macquarie argued, and the judge agreed, that through its certifications that:

a) Meinhardt represented that the hydraulics works then in place conformed with Australian Standards, regulations and Project documentation in all significant respects (alleged express representation);

b) Meinhardt represented that the hydraulics works then in place were of an acceptable standard of material and workmanship;

c) The representations were expressions of expert opinion, carrying with them an implied representation that a reasonable degree of care and skill had been brought to bear in the preparation of the report and the opinions there expressed;

Meinhardt argued it did not make any representations to Macquarie, but rather made them to the borrower. The judge rejected that contention noting that Meinhardt should be held to have been aware that Macquarie would be considering and indeed relying upon the representations contained in its reports.

The question of concurrent liability was stood over for determination after the parties had made further submissions.

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