HAWKINS v CLAYTON
164 CLR 53978 ALR 69
(Decision by: GAUDRON J)
Between: HAWKINS
And: CLAYTON
Judges:
Mason C.J.
Wilson J.
Brennan J.
Deane J.
Gaudron J.
Subject References:
Negligence
Limitation of Actions
Judgment date: 8 April 1988
CANBERRA
Decision by:
GAUDRON J
The facts and circumstances giving rise to this appeal are set out in the judgment of Deane J. I need not repeat them. For the reasons given by his Honour, I agree that the questions raised on this appeal should be answered on the basis that Messrs Clayton Utz & Company ("the respondents") had custody of the original will of Mrs Melinda Ellen Brasier ("the testatrix") at the time of her death. I agree also, and for the reasons given by his Honour, that any damage sustained by reason of the matters complained of by the plaintiff ("the appellant") was sustained by her late husband, Mr Hawkins, in his capacity as legal personal representative of the estate of the testatrix .
The present action was instituted by Mr Hawkins in his capacity as executor of the estate of the testatrix as well as in his personal capacity and has been continued by his executrix. No objection is made to this Court treating the action as brought by Mr Hawkins in his representative capacity. Accordingly the questions which arise on this appeal may be confined to a consideration of whether any relevant duty of care was owed by the respondents to Mr Hawkins as executor of the estate of the testatrix, and if so, whether the resulting cause of action was barred by s 14(1) of the Limitation Act 1969 (NSW) before the action was commenced on 22 November 1982.
In the development of the modern law of negligence the main focus has been on the ascertainment of a duty of care owed by one person to another by reason of a relationship of proximity between them, and the identification of the content of that duty. This development has recognized that an aspect of the duty of care that may arise in relation to another's person or property could involve the requirement that care be exercised in the provision of information . See, for example, Wyong Shire Council v. Shirt (1980) 146 CLR 40 . It has also been recognized that a duty of care may arise in relation to a plaintiff's interest where interference with this interest results in economic loss alone, and such a duty may require the exercise of care in the provision of information. Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 ; Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1968) 122 CLR 556 ; Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1970) 122 CLR 628 ; San Sebastian Pty. Ltd. v. The Minister (1986) 162 CLR 341 . So too, where a duty of care is owed in relation to another's person or property the duty may require disclosure of information: see, for example, O'Connor v. Commissioner for Government Transport (1954) 100 CLR 225 , at p 229. Where a duty of care is owed and the loss is purely economic, there is no reason in principle why a disclosure of information cannot be required to comply with this duty: see Sutherland Shire Council v. Heyman (1985) 157 CLR 424 , per Deane J. at pp 503 and 505; Norwest Refrigeration Services Pty. Ltd. v. Bain Dawes (WA) Pty. Ltd. (1984) 157 CLR 149 . Failure to disclose is simply an omission which, as was pointed out by Gibbs C.J. in Heyman (at pp 443-444), does not necessarily preclude the imposition of liability in negligence.
It is trite law that the existence of a duty owed by one person to another connotes a corresponding right in that other person. In Seale v. Perry and Anor. (1982) VR 193 Sir George Lush expressed this idea in the context of an action for negligence stating that "(a) duty, however, cannot exist by itself. To the duty seen as imposed on the defendant, there must be a correlative right in the plaintiff: for either to exist, both must be capable of being identified" (at p 200). Thus the duty to exercise care in the imparting of information imports a right in the recipient to receive such information as would be possessed or ascertained by persons in the position of the information giver in the exercise of reasonable skill or knowledge. So too, a duty to disclose or volunteer information imports a right in another to receive that information. At base the right which exists by reason of a duty of care in relation to the provision of information is the same whether it is an act or an omission which constitutes a breach of that duty .
However, there is a special problem when it is sought to recover damages for economic loss by reason of a failure to disclose or volunteer relevant information. That difficulty lies in the importance which has been ascribed to reliance as indicative of a relationship of proximity sufficient to give rise to a duty to exercise care in the giving of information where the damage suffered is economic loss. The problem was identified in the judgment of Gibbs C.J., Mason, Wilson and Dawson JJ. in San Sebastian, at p 355, where it was stated:
"The notion of proximity, because it limits the loss that would otherwise be recoverable if foreseeability were used as an exclusive criterion of the duty of care, is of vital importance when the plaintiff's claim is for pure economic loss. When the economic loss results from negligent misstatement, the element of reliance plays a prominent part in the ascertainment of a relationship of proximity between the plaintiff and the defendant, and therefore in the ascertainment of a duty of care. But when the economic loss results from a negligent act or omission outside the realm of negligent misstatement, the element of reliance may not be present. It is in this sphere that the absence of reliance as a factor creates an additional difficulty in deciding whether a sufficient relationship of proximity exists to enable a plaintiff to recover economic loss."
It may be that in a particular context failure to disclose some matter where other information is being imparted brings about a situation, foreseeable by the information giver, which amounts to the recipient treating that non-disclosure as a statement of some relevant fact. Shaddock & Associates Pty. Ltd. v. Parramatta City Council (No 1) (1981) 150 CLR 225 was such a case. In those circumstances reliance may be an appropriate and sufficient test of proximity. There may be other situations in which, although non-disclosure cannot in its context be regarded as equivalent to misstatement, the failure to disclose may give rise to a liability because of the reliance by the injured party upon care being taken to disclose all relevant information in circumstances where the other party ought to know of such reliance, whether or not that other party assumed a responsibility to impart all relevant information. Certainly that must be a possibility if assumption of responsibility and reliance are possible alternatives and not cumulative criteria for the relationship of proximity, as appears to have been accepted by Deane J. in Heyman (at p 498) and in the joint judgment in San Sebastian (at p 357).
Reliance and assumption of responsibility are not the sole or necessary determinants of proximity. In Heyman (at p 498) Deane J., in whose judgment in Jaensch v. Coffey (1984) 155 CLR 549 the requirement for proximity was forcefully re-asserted, stated that "(b)oth the identity and the relative importance of the factors which are determinative of an issue of proximity are likely to vary in different categories of case."
I apprehend that the present case is in a different category from the cases of economic loss referable to negligent misstatement or failure to disclose which have hitherto attracted the consideration of this Court. The economic loss sustained by Mr Hawkins was sustained in conjunction with and in consequence of the impairment of a legal right, viz. his right to exercise the powers of executor inhering in him as named executor of the will of the testatrix. The right was impaired because he did not know that the testatrix had died leaving in the custody of the respondents a will appointing him sole executor.
The law of tort already protects contractual rights from intentional interference: Lumley v. Gye (1853) 2 El & Bl 216; (118 ER 749). The torts of trespass, conversion, detinue and slander of title are intimately concerned with the protection of legal rights accruing by reason of ownership or possession of property. It seems to me that where the act or omission complained of amounts to an interference with or impairment of an existing right which is known or ought to be known to the person whose acts or omissions are called into question then the issue of proximity may be open to determination by reference to factors somewhat different from those applicable where economic loss is occasioned without infringement or impairment of an otherwise recognized right. Of course that determination must be undertaken in accordance with the processes of legal reasoning and not divorced from consideration of what is fair and reasonable or from considerations of public policy relevant to the requirement of proximity: (Heyman, per Deane J. at p 498; Stevens v. Brodribb Sawmilling Co. Pty. Ltd. (1986) 160 CLR 16 , per Deane J. at p 52). However, it may be that the factors which I would regard as determinative of the issue of proximity in the present case are not materially different from those applicable where a duty is asserted in relation to the provision of information as the basis of an entitlement to recover damages for economic loss.
It is now accepted that liability for negligent misstatement causing economic loss involves application of the general principles of negligence: San Sebastian, in the joint judgment at pp 354-355; Heyman, per Deane J. at p 502; Cook v. Cook (1986) 162 CLR 376 , at p 382. The basis of that liability is the rule expressed in Donoghue v. Stevenson [1932] AC 562 , at p 580 that a person "must take reasonable care to avoid acts or omissions which (he) can reasonably foresee would be likely to injure (his) neighbour". If the statement of duty is transposed into a statement of right it constitutes an acknowledgment of a right not to be injured by or in consequence of the acts or omissions of one's neighbour in circumstances where the injury is reasonably foreseeable by that neighbour. It must be emphasized that it is the relationship of neighbour which is critical to the existence of a right not to be injured by or in consequence of the acts or omissions of another for reasonable foreseeability alone does not necessarily result in the imposition of a duty of care: Heyman, at pp 466-467 and 477-479; San Sebastian, at p 355; Cook v. Cook, at p 382. Whilst the relationship of neighbour remains constant as between the person who owes and the person who is owed a duty of care, the criterion of the existence of that relationship is necessarily different depending on whether it is identified from the perspective of the person against whom a duty of care is asserted or from the perspective of the person who asserts a right which has been infringed.
The Donoghue v. Stevenson test of neighbour (at p 580) - "persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question" - is formulated from the perspective of the person against whom a duty is asserted. Reliance, as a criterion of proximity, is a factor which is primarily relevant when the question of proximity is approached from the perspective of the injured party. However, reliance as a criterion of proximity viewed from the perspective of the injured party is by no means coextensive with the test of neighbour formulated in Donoghue v. Stevenson from the perspective of the person who owes a duty of care. A more approximate formulation, in the context of economic loss, may be that of a person whom the injured party might reasonably expect would have his interests and the likelihood of injury to those interests in contemplation when directing attention to the acts or omissions called in question.
In San Sebastian it was pointed out in the joint judgment that a request for information or advice is by no means essential to the existence of a duty to exercise care in the giving of information or advice. It was stated (at p 357):
"The maker of a statement may come under a duty to take care through a combination of circumstances or in various ways, in the absence of a request by the recipient. The author, though volunteering information or advice, may be known to possess, or profess to possess, skill and competence in the area which is the subject of the communication. He may warrant the correctness of what he says or assume responsibility for its correctness. He may invite the recipient to act on the basis of the information or advice, or intend to induce the recipient to act in a particular way. He may actually have an interest in the recipient so acting."
The circumstances there identified are capable of being analyzed in terms of reliance on the correctness of the information by the recipient, although as was recognized in a later passage the relevance of reliance is not constant in all of the identified situations. Thus it was stated (at p 358) that
"(i)n cases where the defendant intends the statement to operate as a direct inducement to action, the reasonableness of the reliance will not be a critical factor, although in other cases the defendant's appreciation of the reasonableness of reliance will be relevant."
It seems to me that reliance, as a criterion of proximity, presented itself in cases concerned with the provision of information by reason that ensuing damage was consequential, not upon the provision of the information, but upon reliance on that information as the basis for action or inaction. See San Sebastian, at p 353. Although the duty of care has come to be expressed in terms of the exercise of care in the giving of information and the breach has come to be expressed in terms of negligent misstatement, the duty which is asserted is, in essence, a duty to exercise reasonable care to give reliable information, information on which the other might rely as the basis for making an informed decision. If the duty is so identified then it seems to me that the relevant factor of proximity in the circumstances identified in the passage quoted from San Sebastian may be stated in terms of reasonable expectation, a concept which is more readily applicable to omissions than is the concept of reliance. Thus a relationship of proximity may be constituted by the reasonable expectation of a person (including a reasonable expectation that would arise if he turned his mind to the subject) that the other person will provide relevant information or give reliable information, if that expectation is known or ought reasonably to be known by the person against whom the duty is asserted. Of course, the foreseeability of the risk of injury is necessarily relevant to a consideration of the reasonableness of expectation
Whether or not reasonable expectation (including in that concept one which would arise if the injured party turned his mind to the matter) is a suitable criterion of proximity in all cases where a duty is asserted in relation to the provision of information, it is one which I would adopt as appropriate where the information is necessary for the exercise or enjoyment of a legal right and the person against whom the duty is asserted knows or ought to know of that right and the necessity for the information before the right can be exercised or enjoyed. In the postulated circumstances a person entitled to the right might, if he turned his mind to the matter, reasonably expect that another, knowing that he is in a position to control (whether by possession of information or possession of some physical object) the exercise or enjoyment of that right in circumstances such that loss may ensue if the right is not exercised or its enjoyment is impaired, would take reasonable steps to inform him of the fact of that possession, especially if the provision of that information involves no risk of prejudice to any right or other duty inhering in the person possessed of the information or object. A person thus in a position of control ought to know that such expectation would arise. Put in conventional terms, a person in that position of control ought to have the other in contemplation as one affected by his failure to disclose the information when directing his mind to failure to give that information.
In Shaddock, Stephen J. recognized as material to the duty of care there in issue that the information was exclusively within the knowledge of the council, stating (at p 243):
"Where, as in the present case, the supplier is the exclusive possessor of essential information concerning a matter of importance, such as the buying and selling of property, and, being a local government body, sets itself up as a centre from which, in a quite formalized fashion, this information is distributed to those who require it, it requires no holding out of special skill or competence in order to lead to the inference that care will be taken in furnishing that information."
So too, in determining whether a person has a duty to volunteer information exclusivity of possession of that information is a matter of great significance. Particularly is this so in determining whether a person is in a position to control the exercise or enjoyment of a right by withholding information. However, there may be situations in which exclusivity of information is not essential to the existence of a duty of care. It may be, for example, that the person against whom the duty is asserted knows or ought to know that the significance of information of which he is possessed will not be apparent to others possessed of the information. However, it is unnecessary to pursue this issue in the present case for the respondents had exclusive possession of the original will of the testatrix, and that possession was critical to the right of Mr Hawkins to obtain a grant of probate. To obtain a grant it was necessary for him to prove that the will remained unrevoked, including that it had not been destroyed by the testatrix animo revocandi. Normally that would be proved by production of the original will in its original form. Until it was so produced by the respondents or until they provided information sufficient to establish that they had possession of the original will in its original form at the date of death of the testatrix Mr Hawkins could not obtain a grant of probate .
The evidence is that after the respondents learned of the death of the testatrix they took steps to ascertain whether there had been a subsequent will. It seems that those inquiries were completed by the end of February 1975. At this time they must have known or ought to have known that Mr Hawkins was entitled to apply for probate of the will in their possession but that information as to their possession of the will was necessary before that step could be taken. Moreover they must have known that until he was so informed he would effectively be precluded from exercising any powers as executor, whether those powers derived from the will or from grant. The risk of financial loss if action was not taken to enable Mr Hawkins to exercise his powers as executor was real and foreseeable. The provision of the information that they had possession of the will involved no prejudice to any right or duty inhering in the respondents. Rather, it would have been an effectuation of what they conceived to have been their duty for Mr Hardwick gave evidence that he told Mr Lamb, a nephew of the testatrix, that he thought he (Mr Hardwick) should make inquiries, but refrained from so doing by reason of his belief that it would be a waste of time. A person in the position of Mr Hawkins might, if he turned his mind to the matter, reasonably expect that persons in the position of the respondents would take reasonable steps to inform him that they had possession of the will appointing him executor, and the respondents ought to have known that such expectation might arise. Accordingly, in my view, by the end of February 1975, when the respondents had failed to locate a subsequent will, they came under a duty of care to take reasonable steps to inform Mr Hawkins that they were in possession of the last will and testament of Mrs Brasier by which Mr Hawkins was appointed the sole executor of her estate. This they failed to do.
It remains to be considered whether the cause of action arising from the respondents' failure to take reasonable steps to inform Mr Hawkins of their possession of the will was barred by s 14(1) of the Limitation Act when action was commenced on 22 November 1982. That sub-section provides that a cause of action founded, inter alia, in tort "is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom he claims".
As negligence is not actionable per se a cause of action only accrues when damage is suffered. It is clear that as early as 1975 the assets of the estate were being wasted, at least in the sense that the real estate was not being used to produce income. The respondents contend that the cause of action then accrued, and was thus barred by s 14(1) of the Limitation Act in 1981. In support of this contention they rely on the decision of the House of Lords in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 AC 1 . On the other hand, the appellant contends that the cause of action accrued when the damage was discovered or discoverable and relies on the decision of the Supreme Court of Canada in Kamloops v. Nielsen (1984) 10 DLR (4th) 641; (1984) 2 SCR 2.
In Pirelli, the House of Lords expressly rejected statements in Sparham-Souter v. Town and Country Developments (Essex) Ltd. (1976) QB 858, (a case concerned with economic loss consequent upon latent defect in a building) that damage was sustained when the damage to the building was discovered or with reasonable diligence ought to have been discovered . Pirelli too was concerned with economic loss referable to a latent structural defect in a building. It was held that the cause of action accrued when the damage occurred to the building. It is interesting to note the precise manner in which it was put in the speech of Lord Fraser of Tullybelton, with whom all other members of the House agreed (at p 16):
"The plaintiff's cause of action will not accrue until damage occurs, which will commonly consist of cracks coming into existence as a result of the defect even though the cracks or the defect may be undiscovered and undiscoverable."
The passage makes it clear that the cause of action did not accrue merely by reason of the sustaining of economic loss, for in one sense that loss was sustained as soon as the defect came into existence: at that stage the owner had something inherently less valuable than he would have had but for the defect in the chimney. His Lordship did allow, however, that there might be cases "where the defect is so gross that the building is doomed from the start, and where the owner's cause of action will accrue as soon as it is built" (at p 16). In his Lordship's view, such cases would be exceptional. Save for the reference to a building "doomed from the start", Pirelli has nothing to say as to the time of accrual of a cause of action for economic loss which is sustained otherwise than in consequence of or in conjunction with physical damage to property. The brief reference to a building "doomed from the start" seems to have been intended to enable a plaintiff to bring action before physical damage actually occurred, as was allowed, for example, in Junior Books Ltd. v. Veitchi Ltd. [1983] 1 AC 520 . Perhaps what his Lordship had in mind was that a cause of action in negligence for economic loss sustained in consequence of or in conjunction with a defect to property accrues when the property sustains damage, unless actual financial loss is sustained at an earlier time. The subsequent decision of the House of Lords in Ketteman v. Hansel Properties Ltd. [1987] 1 AC 189 , in which it was claimed unsuccessfully that the buildings there in issue were doomed from the start, throws no further light on the question of accrual of a cause of action for economic loss sustained otherwise than in consequence of or in conjunction with physical damage to property.
In Kamloops (a case also concerned with latent defect in a building) Wilson J., speaking for the majority of the Supreme Court of Canada, preferred the discovered or discoverability test enunciated in Sparham-Souter on the basis that it was "much the lesser of two evils" (p 685 DLR; p 40 SCR). In Central Trust Co. v. Rafuse (1986) 31 DLR (4th) 481, a case concerned with "pure" economic loss, the Supreme Court of Canada adopted discovery or discoverability as the criterion for accrual of a cause of action for negligence involving economic loss whether that loss was "pure" economic loss or was sustained in consequence of or in conjunction with physical damage to property.
Notwithstanding the criticisms that may be and have been made of the Pirelli test (see, for example, Rossiter and Stone, "Latent Defects in Buildings: When Does the Cause of Action Arise?" (1985) 59 Australian Law Journal 606) the solution advanced in Kamloops and Central Trust Co. seems to have been based purely on policy considerations.
Considerations other than those enunciated in Pirelli and Kamloops are arguably relevant to the answer as to when a cause of action for negligence causing economic loss accrues. It may, for example, be relevant to consider the precise interest infringed by the negligent act or omission. In actions in negligence for economic loss it will almost always be necessary to identify the interest said to have been infringed to determine whether the risk of loss or injury to that interest was reasonably foreseeable and whether a sufficient relationship of proximity referable to that interest was present so as to establish a duty of care. If the interest infringed is the value of property, it may be appropriate to speak of a cause of action in negligence for economic loss sustained by reason of latent defect as accruing when the resultant physical damage is known or manifest, for as was explained by Deane J. in Heyman (at p 505) it is only then that the actual diminution in market value occurs. If, on the other hand, the interest infringed is the physical integrity of property then there is a certain logic in looking at the time when physical damage occurs, as was done in Pirelli. So too, if the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible. The discoverability test adopted in Central Trust Co. seems to have been premised on the assumption that the interest infringed was the possession of a right to recoupment rather than recoupment itself. See Schlosser, "Some Recent Developments in the Law of Limitation of Actions, Concurrent Liability and Pure Economic Loss" (1987) 25 Alberta Law Review 388, at p 390, where the point is made in relation to Central Trust Co. that as the "mortgagors" made repayments until 1977 (notwithstanding that the mortgage given in 1968 was void ab initio ) no actual loss was sustained until 1977.
In Heyman, Deane J. pointed out (at p 502) that "the distinction between mere economic loss and ordinary physical loss or injury remains important in determining whether the requisite proximity of relationship exists in a particular case or category of case." It is a distinction which is equally important in determining when loss has occurred. Physical loss imports damage sustained by a physical object whether it be property or person. Economic loss, on the other hand, imports loss sustained by a juristic entity in relation to the assets or liabilities of that entity. The various and complex economic relationships which are a feature of present day economic organization suggest that loss may manifest itself in various forms, and it is for this reason that there may be occasions when it is necessary to identify precisely the interest which has been infringed .
It would be too simplistic to restrict analysis of economic loss merely to a consideration of reduced value or increased liability. However, a consideration of reduced value suffices in the present case, for the loss sustained by Mr Hawkins was the difference between the value of the assets of the estate when they came under his control as executor and the value they would then have enjoyed had he then held them in the same capacity and had they been properly managed from the time of the death of the testatrix.
Until the assets came under the actual control of Mr Hawkins they had sustained damage by deterioration and had been subject to waste, including that the real estate had not been put to income-producing use. But that was not the loss sustained by Mr Hawkins. The property was not then vested in him, notwithstanding that by s 44 of the Wills, Probate and Administration Act the grant of probate effected a vesting with retrospective effect. Nor had he suffered a loss of income. Indeed it may have been that had the real estate been under his control it would have been used for his personal occupation rather than for the production of income. What he suffered was a loss in the value of the assets referable to their not having been properly managed in the period prior to coming under his control. That loss was suffered by the executor only when the assets came under his actual control. At the earliest, that occurred when he was informed of the existence of the will in March 1981. Action was commenced within six years of that date.
The appeal should be allowed and the orders of the Court of Appeal of the New South Wales Supreme Court set aside. As damages have not been assessed, I agree with the course proposed by Deane J.