Negligence

Damages or breach of contract are not the only means by which general principles of law allow recovery of monetary compensation. There are a variety of other general principles that can also provide monetary compensation, depending on the circumstances. In the construction industry, one of the most commonly relied upon principles is the law of negligence. 

Negligence is a tort and is not concerned with a breach of a contract, but with wrongful acts. In fact, there need not be a formal contract at all, as long as it can be shown that one person owed a duty of care to another and that the duty of care has been breached. Accordingly, if the elements of negligence are proven in a construction dispute, relief may be available whether or not a formal contract exists. However, where a contract does exist, concurrent relief grounded in both negligence and contract may be available. 

There are four basic requirements to establishing an action in negligence:

• one person owes a duty to take reasonable care to another;
• the duty of care has been breached;
• the breach of duty caused injury or damage to another; and
• the loss sustained was not too remote a consequence of the breach of duty.

Duty of care

The contractual obligations which parties owe to each other arise by reason of the decision to enter into the contract with another person. It is only the other party to the contract who can complain about a breach of the contract. A duty of care arises by reason of a decision to undertake a particular activity, for example construct a building. People who are affected by the activity will potentially be able to complain about a breach of a duty of care. The person complaining may also have entered into a contract or may be a stranger. The law places limits on the categories of people who can complain about a breach of a duty of care.

In the construction industry, these types of actions may vary from the construction of a building by a contractor, certain actions or advice provided by an engineer, architect or surveyor, or the activities and functions of a superintendent (amongst others).

The following examples demonstrate how a duty of care may arise in a construction context:

• Superintendent and contractor – a superintendent gives incorrect information to a contractor digging a trench for cables. The contractor fractures a water pipe and the neighbour’s property floods. The superintendent may be liable to the contractor for breaching a duty to give correct information.
• Contractor and subsequent owner – a contractor builds defective foundations for a house. The house is later sold by its owner to a new owner who discovers significant structural issues with the house which were unknown before that time. The contractor may be liable to the second owner for his non-compliant workmanship, even though the contractor only had a contract with the original owner (see also the section below on the Design and Building Practitioners Act 2020 NSW).
• Developer and adjoining land owner an owner partially demolishes a building on its site and leaves it unsecured. The building is left derelict and children play in it from time to time, and the owner is aware of this. A fire is later lit by the children, damaging an adjoining property. The owner may be liable to the adjoining property owner on the basis that it had a duty to not damage neighbouring property and this reasonably required, given the children playing in the building, security measures to be taken.

The standard of care

The standard of care required of a person owing an established duty of care, is subjective and determined by reference to what a reasonable person would have done. This standard may be deemed to be higher if the person is a professional or holds themselves out as having a specific or specialised skillset.

Causation and loss

Once a breach has been established, it must be shown that any loss was caused, or at least materially contributed to, by the activity in question.

Where more than one party contributes to the loss, damages may be apportioned according to each person’s liability. Where the person who suffers the loss contributed to the loss, any damages awarded may be reduced under the principles of contributory negligence and relevant proportionate liability legislation, such as the Civil Liability Act 2002 (NSW). See chapter 21 which provides further information about the proportionate liability legislation within each jurisdiction.

Loss can be:

• physical loss to a person or property, or
• pure economic loss which is loss that is not consequential upon personal injury or property damage.

The distinction is important given that a duty of care is generally not owed to prevent ‘pure economic loss’, even where the loss is foreseeable. However, there are exceptions to that general rule and central to the exceptions is a consideration of whether the party is vulnerable to the risk (amongst other factors). For example whether a relationship between a builder and original owner involved an assumption of responsibility on the part of the builder and known reliance on the part of the owner.

Remoteness

Once causation is established between the loss suffered and breach of the duty of care, it will be subject to the test of remoteness. This test requires the loss claimed to have been foreseeable by a reasonable person with that person’s particular knowledge and skill. For example, a person building a garage will be deemed to have the skill and knowledge of a person who normally builds garages.

However, where the loss is pure economic loss, the test of reasonable foreseeability is not sufficient on its own and additional factors, such as vulnerability, will be considered for a claim to succeed.

Concurrent liability

Historically, the existence of a duty of care, and the rights and obligations which attach to that duty, often ran concurrently with rights and obligations under a contract. Since the mid-90s a new line of caselaw  emerged casting doubt on that, or at least limiting the circumstances where concurrent contractual and tortious duties will exist. However,  it is certainly still arguable that in cases where two parties are adjacent to each other in a contractual chain and where a contract exists between them, a concurrent duty can exist so long as there is nothing in the contract which precludes a duty of care in negligence or otherwise goes far further than any duty would in negligence.