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[2008] VSC 97
Supreme Court of Victoria
2008-04-24
BYRNE J
Original judgment source is linked above.
BUILDING CASES - domestic building - economic loss - duty of care of architectural draftsman to proprietor - duty of care of architectural draftsman to subsequent purchaser.
Practice and Procedure - domestic building - appeal against VCAT orders - whether questions of law - proportionate liability - applicant settles with concurrent wrongdoer for an amount greater than the amount found by Tribunal to reflect its responsibility - application of surplus settlement sum.
Costs - whether costs ordered against concurrent wrongdoers should reflect proportionate responsibility for plaintiff's loss and damage.
1 In or about 1997 and 1998, Terrace Constructions (Vic) Pty Ltd ("the proprietor"), the owner of the land situated at and known as 57 and 59 Evansdale Road, Hawthorn, caused the existing house to be demolished and replaced by a two-storey building comprising two dwellings. The builder of the duplex was an associated company, the third respondent Terrace Designs Pty Ltd ("the builder").
2 In due course, Terrace Constructions sold the two completed town houses: No 57 to Mr and Mrs Roberts on 5 July 1998 and No 59 to Mr and Mrs Lindsay. Each of these purchasers later on-sold their property: the Roberts sold No 57 to the firstnamed respondent, Ceri Lyn Lawley, on 16 March 2000; the Lindsays sold No 59 to the secondnamed respondent, Suzanna Baines, on 16 August 1999.[1] I shall refer to Ms Lawley and Ms Baines as "the owners".
3 In late 2001 or early 2002 the owners noticed cracking and distortion in the building. An examination by an architect and soil engineer disclosed substantial cracking to the front façade in and near the garages at the front or western end of the building. This cracking represented the most serious, but by no means the only, defect in the building. Others concerned inadequate sub-floor ventilation, termite infestation, light-wells and a handrail to the rear external deck of No 59.[2]
4 In 2004 the owners each commenced a proceeding in the Victorian Civil and Administrative Tribunal[3] against the builder, as the firstnamed respondent; against GJ Graham, a director of the builder who was also the registered building practitioner, as the secondnamed respondent; and against Arthur John Gunston, architectural draftsman, as the thirdnamed respondent. Further parties which later joined were the fourthnamed respondent, Vero Insurance Ltd, which was the builder's domestic building insurer, joined by the owners by way of appeal from an adverse response to their claims; the fifthnamed respondent, Civil & Soil Pty Ltd, the soil engineer and the sixthnamed respondent, Alvisio Casagrande, the building surveyor, who were both joined by the builder. The soil engineer then joined the structural engineer, Robert Brotchie & Associates Pty Ltd, but was unable to formulate a good claim against it so that this part of the proceeding was not pursued. Mr Casagrande has since died and his interests are represented by the executrix of his estate who is the fourthnamed respondent to the appeal.
5 And so, the owners' fairly straightforward claims were transformed into a complex and doubtless expensive suite of proceedings, a phenomenon which is regrettably a not uncommon product of the proportionate liability regime now in force. The owners, who had a good claim against the builder, ended up suing six respondents, failing against two of them and succeeding against four, of which one was a limited insurer of another which itself is probably insolvent. Of the remaining two successes, one is here under challenge.
6 The joint hearing at VCAT commenced on 31 May 2005. Shortly before the hearing, Vero Insurance paid to each of the owners $100,000, being the limit of the domestic builders insurance cover. This meant that it had no further interest in the proceedings. The builder, then, having been responsible, directly or indirectly, for the joinder of three parties lost interest in the proceedings and did not appear at the hearing. The Tribunal, nevertheless, did not release the soil engineer or the building surveyor because claims for apportionment involving them were pursued by the continuing parties and because, by a very general allegation, the owners made claims against them as concurrent wrongdoers under the Wrongs Act 1958 Part IVAA.
7 After an 11 day hearing the Tribunal concluded that the owners' claims against the soil engineer[4] and the director[5] failed. It found against the builder, the architectural draftsman and the building surveyor. Orders made against the architectural draftsman were that he should pay to Ms Lawley $41,192.18 and costs and to Ms Baines $39,976.40 and costs. The architectural draftsman appeals in each proceeding against these orders, including the orders as to costs.
8 The Tribunal found that the architectural draftsman was retained by the builder to prepare drawings for submission to the responsible authority in support of its application for a building permit and later for submission to the building surveyor in support of its application for a building permit. The working drawings, which were dated April 1997, were criticised in two respects -
(a) They showed that vegetation was to be planted at the front of the building at the north and south boundaries. These are shown on sheet 6 of 6 as constituting five large plants at the north boundary and seven at the south boundary all west of the western or front wall of the building. Smaller plants are shown to the east of the other plantations running about 6m in an easterly direction close to the side walls. There are shown on the drawing a planting of 11 plants near the northern wall and 13 near the south wall. In addition, there is a strip of planting of 10 of the smaller plants running west of the façade along the boundary between the two apartments. By the planting depicted near the north boundary there is a notation that the landscaping was to be to a later detail. No detail was ever prepared. The criticism of these drawings was that they failed to either specify either appropriate plants, to warn the builder to select only appropriate plants or to provide some protection for the building.
(b) The drawings did not show the number or location of the expansion joints in the northern external wall, the southern external wall or the party wall.
9 The Tribunal concluded that the provision on the drawing of the planting as shown was negligent. The architectural draftsman knew or ought to have known that the planting of trees so close to the building and in such numbers might cause a significant diminution of the subsurface moisture which, in the case of the soil on this site, could lead to significant and substantial damage to the building. In these circumstances, the architectural draftsman would or ought to have known that it would be necessary to give consideration to site drainage along the façade footing and, where necessary, to have sought the advice of a structural engineer.[6]
10 The Tribunal also found that the number and location of masonry control joints ought to have been depicted on the drawings and that the architectural draftsman was negligent in failing to do this.[7]
11 The Tribunal found that the cracking to the building was due to settlement of the soil and to an insufficient depth in the strip footing under the western façade. The extent of the consequent damage to the building was contributed to by the insufficient articulation joints provided. The failure of the builder to properly install brick ties also exacerbated the consequence of the movement to the building.[8]
12 On behalf of the architectural draftsman, these conclusions of the Tribunal were attacked on a number of bases.
(2) The finding of the architectural draftsman owed a duty of care to the owners was bad in law.
(4) The finding that the acts or omissions of the architectural draftsman caused the loss to the owners was erroneous.
(6) The Tribunal was in error in its treatment of a settlement sum paid to Ms Lawley on behalf of the building surveyor.
(7) The costs orders against the architectural draftsman were erroneous.
13 At the conclusion of the hearing, counsel for the owners asked, and I granted leave, to file further written submissions on the question of the duty of care which the architectural draftsman as a sub-contractor to the builder owed to the proprietor. In these reasons I have had regard to the further matters placed before me.
14 I am, on this appeal, not concerned to revisit the findings of fact of the Tribunal; appeal is permitted only upon a question of law. In these circumstances, grounds 1-10 in the notice of appeal will succeed only if it is demonstrated that there was no evidence which could support the findings.
15 I will not burden this judgment or the detailed analysis of the five pages of facts which, it was said in the notice of appeal, were not supported by the evidence.
16 Many of the findings turned upon the view taken by the Tribunal of the technical evidence presented. In this regard, I am mindful that the Tribunal is a specialist tribunal established by statute to deal with domestic building disputes. And so, for example, the Tribunal read the architectural draftsman's drawing as indicating, not that vegetation to be planted was of an unspecified number, nature and size to be decided upon by the builder; the drawing told the reader that the vegetation was to be trees, that some of them were to be larger than others and that they were to be planted close to the building. There was evidence to support such a finding. Likewise, there was evidence to support the finding that the builder would act upon such a design and that, absent some warning, the builder might plant an inappropriate species of tree. Likewise, if evidence be needed of this, there was evidence that, if an architectural designer did not include drainage near the walls, the builder might not think to include this in the construction.
17 And so, grounds 1, 2, 3, 4 and 5 are introduced by the words, "It was not open on the evidence for the Tribunal to have concluded that..." These grounds appear to have been drawn with the decision of Batt J in Roads Corporation v Dacakis[10] in mind. There, after a careful analysis of the cases, his Honour concluded that a finding of fact may be impugned as an error of law only where there is no probative evidence to support it. It is not sufficient for an appellant to show only that the finding is not reasonably open on the evidence. It may be that the omission of the word "reasonably" in grounds 1 to 5 in this appeal was intended to amount to an assertion that there was no probative evidence to support the finding. If this be the case, it is difficult to understand why the drafters did not say so, as they did in grounds 6 and 7. In the Roads Corporation case, Batt J also concluded that, where the appellant under a regime such as the present, which permits appeal upon error of law, attacks an inference drawn rather than a fact found, this is permissible only where there is no basis for the inference. Since inference is a logical process which draws a conclusion from other facts or conclusions, the inference will amount to an error of law only where it is not reasonably open on the facts.[11] This means that the inference may not be impugned as an error of law on the basis that it is illogical or even that it is demonstrably unsound; it must be an inference which is not reasonably open to the Tribunal.[12]
18 Grounds 8 and 9 commence with the words "the Tribunal should have held that ...". Ground 17, too, if it be comprehensible, appears to be directed to the conclusions of fact of the Tribunal. All of these grounds, which are not directed to questions of law, I shall put to one side as an impermissible attempt to impugn the Tribunal's findings of fact. They are in this respect to be contrasted with grounds 6 and 7 which are said that a specific finding of fact was not open for the reason given because there was no evidence to support it.
19 The owners' claims against the architectural draftsman were based upon suggested breaches of the duty of care owned to them as subsequent owners.[13] In its reasons, the Tribunal placed reliance upon the statutory obligation of the architectural draftsman as a registered building practitioner. Regulation 15.2 of the Building Regulations 1994 provides:[14]
(a) perform his or her work as a building practitioner in a competent manner and to a professional standard.
An architectural draftsman is a building practitioner within the definition in s 3 of the Building Act 1993; an architect is not.[15]
20 As a matter of legal analysis, this regulation might impose a statutory obligation whose breach confers upon a person a right of action for damages;[16] it might give rise to an implied term in a contract between the practitioner and the client; or it might provide a standard which informs the common law duty of care owed by the practitioner to the client and, perhaps, to third parties. In this case the owners' claims rested upon the last of these analyses. Grounds 14 and 15 and, probably ground 12, appear to be based upon the premise that the owners' claims were for a breach of statutory duty imposed by Regulation 15.2. This is not the way the owner's cases were put against the architectural draftsman. Perhaps the architectural draftsman should be grateful that they did not: if such a case were made out, it may be that it would not have entitled him to dilute his liability by the application of a proportionate liability regime established by Part IVAA of the Wrongs Act.
21 Counsel for the architectural draftsman contended that, so understood, the statutory obligation was no more than a restatement of the professional's duty of care owed to the client.[17] Insofar as this is a tortious duty, it is that the professional "must use reasonable care, skill and diligence in the performance of the work he undertakes".[18] Voli's case establishes that such a duty may be owed to protect a non-client from physical harm. The present case involves what has come to be called pure economic loss, a loss which was not compensable under the law of negligence as it stood in 1963 when the Voli case was decided. The High Court, in a series of decisions over the past 30 years, has established the existence of a cause of action in negligence for this loss, but the ambit of the duty of care which underlies this cause of action is somewhat uncertain. It is, however, well established that something more must be shown than that the loss of the plaintiff was reasonably foreseeable by the defendant.[19] The further requirements will depend upon the circumstances of the case and, in particular, upon an examination of what the High Court has called the "the salient features" in order to determine whether the relationship between the plaintiff and the suggested negligent party is sufficiently close to impose an actionable duty of care.[20] In a case such as the present these will include reliance by the plaintiff, the acceptance of responsibility by the defendant and the vulnerability of the plaintiff in the sense that it was unable to protect itself from the consequences of the defendant's want of due care.
22 Insofar as concerns the architectural draftsman, the Tribunal addressed this question by reference to the analysis of the High Court in Bryan v Maloney[21] and Woolcock Street Investments Pty Ltd v CDG Pty Ltd,[22] cases which, in some respects, resemble the present because they both arose from defects to buildings which were the consequence of neglectful design or construction. In each case, the plaintiff purchased the defective property but without being aware of its defect or that this defect might cause distress to the building as, in fact, happened. The suggested negligent party in Bryan's case was the builder engaged by the proprietor and, in Woolcock's case, the engineer who designed the footings. In their consideration of these cases, the High Court was concerned that such a claimant must first show that the defendant owed a duty of care to the original owner, that is the proprietor at the time of the negligent act.[23] This is an issue anterior to the principal issue in the present case because, if such a duty did not exist, the plaintiff as a subsequent owner must fail. If it did exist, then the plaintiff, as subsequent owner must then establish that this duty of care is owed to it as well as to the proprietor.
23 It was this anterior question which caused some difficulty in argument before me. The Tribunal found that the proprietor at the time of the development was Terrace Constructions[24] and that the builder was an associated company, both controlled by Mr Graham. It seems that no building contract between those parties was produced and neither the builder nor its director participated at the hearing. This matter was not explored before the Tribunal and no finding in terms was made that a formal building contract was in existence or as to its terms. The Tribunal proceeded on the basis that the architectural draftsman was engaged by the builder rather than by the proprietor.[25] The anterior question, then, was whether the architectural draftsman, engaged by the builder, owed a duty of care to the proprietor to protect it from pure economic loss by reason of defective design.
24 Counsel for the architectural draftsman submitted that their client, like any sub-contractor or supplier, owes no such duty except, perhaps, when their exists some special relationship between it and the proprietor.
25 On behalf of the owners, counsel protested that this was not a point taken before the Tribunal. If it had been taken, then enquiry would have been directed to the question as to which company it was that retained the architectural draftsman. In their points of claim the owners each alleged that the architectural draftsman was retained by "the builder" and they alleged that the builder was Terrace Designs. The Tribunal noted that there was a dispute as to whether Terrace Designs or Terrace Constructions was the builder, a contest which was determined by its conclusion that the builder was Terrace Designs.[26]
26 To my mind, the architectural draftsman ought not to be shut out from presenting this argument. There was before the Tribunal and is before me a live issue as to whether a duty of care is owed by the architectural draftsman with respect to the loss in question. Before the Tribunal, reliance was placed on the Woolcock Street case. It must be assumed, therefore, that the anterior question as to the liability of the architectural draftsman to the proprietor, Terrace Designs, was addressed.
27 There is no general principle of law that a sub-contractor cannot owe a duty of care to a proprietor with which it has no direct contractual relationship. Furthermore, it is not helpful to consider the existence of a duty of care in a vacuum: it will depend upon the relationship between the parties with respect to the negligent activity in question and with respect to the loss which the proprietor has suffered as a consequence. This may arise from the fact that the sub-contractor is nominated by the proprietor or that its work was otherwise the consequence of direct dealings between them. In Valleyfield Pty Ltd v Primac Ltd[27] Cullinane J saw as significant that the relationship between the relevant parties before him was "a close one almost approximating that which exists between contracting parties."[28] In the present case, the proprietor and the builder were related companies and were controlled by a common director. The architectural draftsman spoke of receiving instructions from this man whom he referred to simply as "Geoff". His relationship with the proprietor was therefore very close.
28 The feature which is of great importance in the cases, at least since 1999[29] in determining the existence of a duty of care in the architectural draftsman to the proprietor is vulnerability, that is, the ability of the plaintiff to protect itself from the loss in the event of negligence. In the normal case, where duty is said to be owed by a sub-contractor to a proprietor, this requirement may be difficult for the proprietor to satisfy. There will usually be a contract between the proprietor and the head contractor which will contain covenants protecting the proprietor from defective work. Even if it does not, it will be difficult in the typical case for the proprietor to persuade the court that it did not have the ability to protect itself in this way.[30] In the present case, the terms of any contract between the proprietor and the builder are not known. It may be that the relationship between the two companies was so intimate that there was no formal contract at all. Even so, it is difficult to suppose that the builder undertook the work for the benefit of the proprietor otherwise than pursuant to some contractual arrangement, express or implied, between them. The fact remains that the proprietor had the ability to protect itself by contract from the consequences of the architectural draftsman's defective work. In any event, if there was in existence a building contract, it would contain the statutory implied warranties under s 8 of the Domestic Building Contracts Act 1995 if, indeed, these were implied in respect of the design work in this case.[31]
29 An associated consideration which will often be important with respect to the relationship between parties to a building project, will be the activity in question. It will often be the case that the proprietor is a professional developer, a person who may be assumed or in respect of whom it is demonstrated, to have a familiarity with ordinary construction aspects of the work. It may be that the activity in question is not remote from everyday experience. And so, for example, when the activity involves a skilled and technical activity, for example, the provision of certain electric or electronic services, the Court will more readily infer that the required relationship exists. The position might be otherwise where the activity is relatively unskilled and a deficiency in the work was readily apparent. Another factor may be the degree of involvement by the proprietor in the construction activity.
30 It may also be important that, in a typical building project, there will be interposed between the proprietor and the subcontractor, a head contractor who will have the qualifications and competences required for registration under the Building Act and also, in most cases, experience in the building industry. From the proprietor's point of view, the interposition of the head contractor with its usual responsibility for the works, means that any reliance by it upon the careful performance of the work by a subcontractor is considerably diminished. Again, the significance of this will depend upon the relative expertise of the various contracting parties and upon the nature of the activity in question.
31 The point presently under consideration arose from my enquiry as to whether the fact that the architectural draftsman was a subcontractor rather than a direct contractor with the proprietor was of significance for determining the duty of care owed. This was, of course, in the context of the anterior question, whether the architectural draftsman owed a duty of care to the proprietor.[32] I was referred to a number of cases where such a duty was not found to be owed by a subcontractor to a proprietor[33] and some where it was found to exist..[34] Included among the latter, was the much criticised House of Lords decision in Junior Books Ltd v Veitchi. [35]
32 It seems to me that the present law in Australia does not admit a cut and dried answer to the existence of this duty. What can be said with some confidence is that, in a typical domestic building contract where the proprietor is a developer rather than a layperson with little or no experience or expertise in construction matters, the proprietor's assertion that a sub-contractor owes a duty of care to it with respect to the quality of the work performed by the subcontractor will ordinarily face difficulty in establishing the requirements of vulnerability or reliance. Each case, however, must be examined in light of the facts which are said to give rise to the necessary relationship.
33 In the present case the proprietor by itself, or inasmuch as it was close to the builder, appears to have had a significant role in aspects of the construction work. I refer to the fact that it appears to have been content to make its own decisions about the landscaping details. It did not ask the architectural draftsman to provide the landscaping detail which was foreshadowed in the working drawing: the notation on the working drawing shows that, at the time the drawing was prepared, it was contemplated that the architectural draftsman or some other person would be engaged to prepare such a detail. Consideration should have been given by somebody to the location, size and type of vegetation to be planted close to the building in order to avoid damage to it. The Tribunal found that this would have been known by the architectural draftsman.[36] I would infer, too, that the builder and the proprietor would also be aware of this. The soil report had disclosed that the soil itself was highly reactive,[37] a fact which may not have been known to the architectural draftsman by which was presumably known to the builder which engaged the soil engineer,[38] and therefore to the proprietor. The builder or the proprietor then, in possession of this knowledge, selected the trees to be planted and located them close to the structure without reference to the architectural draftsman. In this respect the present case resembles the Woolcock Street Investments case. A claim by the proprietor against the architectural draftsman for negligently causing inappropriate or unprotected planting to occur must meet the response that the proprietor could have but did not seek from the architectural draftsman advice as to the type or location of the planting. In the circumstances, it cannot be said that there existed between them with respect to this activity the necessary relationship which gives rise to a duty of care.
34 Much the same may be said of the complaint about the failure of the architectural draftsman to insert in the drawing the location and number of the expansion joints. The working drawings, on sheet 5 of 6, draw attention to the requirement that brickwork conform to the Australian Standard AS3700 (Masonry Structures). The problem in this case appears to have been an insufficient number of expansion joints rather than their location. The Masonry Structures standard specifies the number of expansion joints which are required and it may be supposed that a competent builder would be aware of this. In the circumstances, the evidence of the witnesses who referred to the desirability of the architectural draftsman locating these expansion joints does not in this case translate to the establishment of a duty of care at law in the architectural draftsman to prescribe their number.
35 The Tribunal appears to have placed in each case considerable reliance upon Regulation 15.2 of the Building Regulations. I agree with counsel for the architectural draftsman that this obligation may inform the duty of care owed by a building practitioner, but it does not itself create a duty where none otherwise exists.
36 In its reasons,[39] the Tribunal referred to statutory environment in which domestic building work is carried out since the 1993 statutory reforms. Since that time, there has been in force a legislative structure which imposes several liability upon those involved in building work and, at the same time, requires them to carry insurance. This legislation has changed from time to time over the past 15 years but it is clear that the Tribunal was the more ready to impose a duty of care because of these legislative features.[40] While this legislative regime for allocating risk may be a relevant consideration, it is not sufficient to warrant the imposition of a common law duty of care where the required relationship is not present. Nor does Regulation 15.2 fill the gap.
37 To my mind, the Tribunal fell into error of law in its approach to the question of duty of care owed by the architectural draftsman. First, it does not appear to have addressed the question in the two stages required by the Woolcock Street Investments case. It does not appear to have considered whether the architectural draftsman owed a duty of care to the proprietor. Had it done this, it must, on the findings of fact which it made, have rejected the existence of such a duty. This would have had the consequence that no duty of care was owed to the owners as purchasers of the building.
38 I am satisfied that the second question of law must be answered in favour of the architectural draftsman. The Tribunal erred in finding that the architectural draftsman owed to the owners a duty of care to avoid their suffering the economic loss which they did suffer in relation to the buildings.
39 It is not necessary that I say anything further about grounds 10, 11, 14, 16, 18, 19, 20 and 21, and I do not do so.
40 It is not necessary that I enter upon this essentially factual matter. I will say nothing further about it.
41 Next, it is put that if there be a duty of care owed to the owners and a breach of that duty, the architectural draftsman's breach did not cause their loss. The Tribunal adopted as the appropriate principle whether in each case the breach, viewed in a practical and common sense way, made a material contribution to the loss of the owner's.[41] This principle of law was not challenged before me.
42 Grounds 6 and 7 assert, as I have mentioned, that two findings of fact were not supported by any evidence. These findings are that the architectural draftsman's failure graphically to depict the articulation joints was a cause of the owners' loss and that, by his failure to nominate, to direct, or to advise as to the type and number of trees, the architectural draftsman caused inappropriate tree planting to take place by the builder. The argument developed in support of these grounds, however, was directed to persuading me, not so much that there was a lack of evidence as to these matters, but, rather, that it was insufficient. The Tribunal treated the architectural draftsman as being under no less obligation than an architect with respect to the matters contained or not contained in his drawings. This was not challenged.
43 The Tribunal's conclusion which is attacked in ground 6 was that an architectural draftsman performing design tasks with due care and competence would have shown the number and location of the required articulation joints. This was supported by the commentary in the Masonry Structures standard and by the opinion of witnesses whose evidence was accepted. The obvious reason for such a requirement is that it brings to the attention of the builder in an unequivocal way the need for this construction feature and that, if this be not done, the builder may be neglectful. This, as with much of the contemporary style of architectural drawing and specifications, appears to contemplate the possibility that a builder without guidance may be incompetent or neglectful with a consequent damage to the structure. This is what happened in this case. The Tribunal's conclusion is not be set aside for lack of supporting evidence.
44 Much the same may be said for the conclusion referred to in ground 7. This conclusion, as expressed in the ground, is that "the depiction of future landscaping on the Site Plan ... caused inappropriate tree planting by the builder". It is not an entirely fair summary of the relevant conclusion by the Tribunal. The selection of the plants was left to the builder. The selection of inappropriate plants was not caused by the content of the drawing; it was that the drawing did not sufficiently bring to the builder's attention the need to select plants which would not endanger the structure or to take other steps to protect the structure.[42] Such a conclusion was open on the evidence.
45 I have already described the procedural structure of these proceedings before the Tribunal. The Tribunal concluded that the claims of the owners against the builder and its insurer were not apportionable claims within the meaning of Part IVAA.[43] The claims against the builder were for breach of the warranties implied under s 8 of the Domestic Building Contracts Act 1995, which warranties inure for the benefit of subsequent owners by reason of s 9.
46 The Tribunal noted that one of the statutory warranties relied on by the owners was that "the builder would carry out the work with reasonable care and skill".[44] It nevertheless concluded that this was not an apportionable claim, that is, it was not "a claim... (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care."[45] This conclusion was not challenged before me and nothing turns upon this. I would not, however, like to think that my silence should be taken as an indication that I share this view. The point is of no significance in this appeal because, in the Tribunal's consideration of the responsibility of the other respondents for the loss or damage of the owners, the builder was in fact treated as a concurrent wrongdoer.
47 The statutory liability of the builder was covered by insurance under the scheme established by the Building Act 1993. It seems that the insurer did not accept the owners' insurance claims and these disputes were referred to the Tribunal pursuant to s 59A of the Domestic Building Contracts Act 1995. This claim, too, is not an apportionable claim. The owners' claims against the architectural draftsman, however, were put in negligence and are apportionable claims. It is not altogether clear from the Tribunal's summary of the parties' contentions whether the owners' claims against Mr Graham, the director of the builder, were put in breach of duty of care and were therefore apportionable.[46] But nothing turns upon this as these claims failed. It will be recalled that the soil engineer and the building surveyor were joined by the builder. According to the Tribunal's summary, these claims against them were put in contract and in negligence. Depending upon the terms of the contract relied upon,[47] the contract claims may have been apportionable. It appears from the Tribunal's summary of contentions that the architectural draftsman sought apportionment from the soil engineer and the building surveyor on the basis that each of them was in breach of its duty owed to the owners to perform its duties professionally and competently.[48] Finally, in broad general terms, the owners, too, alleged that these parties were concurrent wrongdoers and should be liable for a share of the owners' loss and damage in the event that the architectural draftsman's allegations against them were made out.
48 As I have mentioned, the claims against the structural engineer were never pursued and nothing more need be said about them.
49 In summary, therefore, at the trial, the Tribunal was confronted with non-apportionable claims involving the builder and the insurer and apportionable claims involving the architectural draftsman, the soil engineer and the building surveyor. The builder was also treated as a concurrent wrongdoer so that questions of apportionment of the owners loss or damage arose with respect to the builder, the architectural draftsman, the soil engineer and the building surveyor. Prior to the hearing, the owners each settled with the insurer for $100,000. Nothing turns upon this for present purposes.
50 The task of the Tribunal in determining apportionment was made more difficult in that the various wrongdoers had differing responsibilities for different categories of the owners' loss or damage. The Tribunal approached its task in a practical way, attributing a percentage of responsibility to each of the wrongdoers as was found to be appropriate for each defined category of the apportionable loss or damage and then calculating the percentage for each wrongdoer for the total of those defined categories. This percentage was then applied to the total loss suffered by each owner. This produced the following result:
The Lawley Claim (No 57 Evansdale Road)****[49]
The Baines Claims (No 59 Evansdale Road)[50]
51 The orders made as a consequence were that the builder pay to each of the owners all of her loss and damage for these claims against the builder were not apportionable. Against each of the architectural draftsman and the building surveyor, an order was made that he pay the amount of his share of the owners' loss as appears in the table above. The claims against the director and the soil engineer failed so that no orders were made against them.
52 Subject to one matter, no criticism was directed to this assessment or to the orders made. The point at issue arose from the fact that, in the course of the trial, the claim of Ms Lawley against the building surveyor was settled when she accepted its offer of $65,000 plus costs. It will be seen that this sum was very much greater than the amount of $16,024.52 which was the appropriate amount determined by the Tribunal as reflecting the responsibility of that party for the Ms Lawley's loss or the amount of $16,782.26 which may be more appropriate.[51] The question which then arose was as to the impact of this upon the orders to be made against the other concurrent wrongdoers. On behalf of the architectural draftsman, it was contended that the acceptance of this offer and the receipt of the settlement sum diminished the loss and damage suffered by Ms Lawley to $190,320.18 and that this amount should be distributed among the wrongdoers in the proportions of their responsibility, so that the sum to be paid to her by the architectural draftsman would be reduced to $30,698.65. The Tribunal, however, accepted the contention put on behalf of Ms Lawley that this sum, or the surplus over the amount of the building surveyor's liability, should be deducted from the amount to be paid by the builder.
53 In the normal course, I would not concern myself with matters of apportionment for these are for the tribunal of fact and will rarely be disturbed on appeal.[52] In the present case, however, the issue largely involved the construction of Part IVAA and it is appropriate that I venture my views upon it.
54 The provision for apportionment is found in s 24AI(1) of the Wrongs Act:
(1) In any proceeding involving an apportionable claim -
(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage; and
(b) judgment must not be given against the defendant for more than that amount in relation to that claim.
55 Part IVAA, generally, is concerned with certain claims; its apportionment regime is not available to all claims where two or more wrongdoers are responsible for a claimant's loss. The question whether such a claim is apportionable may depend upon the legal characterisation of the claim, as for example one arising from the failure to take reasonable care or as one excluded by s 24AG. It may also depend upon the relief sought, for the regime applies only to certain claims, which are claims for damages as defined.[53] It may also depend upon the findings, for a claim where fraud is found is not apportionable.[54]
56 I return to s 24AI(1)(a) which speaks of "the loss or damage claimed". There is, of course, very often a distinction between the quantum of the loss or damage suffered which is the subject of a claim,[55] the quantum of the loss or damage proved and which is, therefore, recoverable and the quantum of the loss or damage which is in fact recovered.[56] The common law has never had any difficulty with a plaintiff obtaining a series of judgments which, if all were satisfied in full, might mean that it received more than the total amount of its proved loss or damage. What is not permitted is that the plaintiff actually recovers in the aggregate a sum greater than its proved loss or damage. This is the rule against double compensation referred to in Bonchristiano v Lohmann.[57] So much was not in issue before me.
57 Within the proportionate liability regime of Part IVAA of the Wrongs Act, the same principle is adopted. Section 24AK permits a plaintiff to seek and obtain in a subsequent proceeding an order for damages in respect of the same loss and damage as was the subject of an earlier proceeding. The terminology of this section and s 24AL is a little awkward. It may be supposed that, in the first proceeding, the plaintiff would have obtained orders against all of the concurrent wrongdoers before the Court[58], which in total would amount to 100% of its loss or damage, for the task of the Court in that proceeding was to determine responsibility for that loss as between all of those concurrent wrongdoers. The second proceeding, against another concurrent wrongdoer, could not disturb the allocation of responsibility made in the first proceeding because none of the wrongdoers then before the Court might be joined in the subsequent proceeding.[59] The consequence of a successful prosecution of the second proceeding, therefore, would be to give to the plaintiff an order which, together with those previously made, would exceed the total loss and damage suffered. This indicates that the intention of s 24AK(2) is not to prevent double judgments.
58 With this in mind, I return to s 24AI(1). Paragraph (a) is concerned with liability; paragraph (b) with judgments. In each case, the section speaks of an amount which marks the limit of each concurrent wrongdoer's liability and the limit of the permissible judgment against that wrongdoer. In each case the amount reflects the proportion of "the loss or damaged claimed" which is found to be just having regard to that person's responsibility for that loss or damage. I have been troubled by the word "claimed" in the quoted phrase. This cannot refer to the quantum of the claim for this might be reduced after trial. It must refer to the type of loss or damage claimed, leaving to one side the quantum of this which has been established. I construe the expression "loss or damage claimed" as a shorthand version of the expression "the proved loss or damage which is the subject of the claim".[60]
59 The scheme of s 24AI is that any given defendant is at risk of liability and judgment for an amount limited to its proper share of the loss or damage the subject of the claim. This risk is not increased by dealings between the plaintiff and another concurrent wrongdoer. For example, a failure by that wrongdoer to pay its share does not increase the liability of any other defendant. Nor is it diminished by dealings between the plaintiff and another wrongdoer as, for example, the successful outcome of a subsequent proceeding under s 24AK. I speak here of the risk represented by the liability which has been determined in the first proceeding and the judgment given in that proceeding. Where, however, the plaintiff recovers money in the subsequent proceeding, the rule against double recovery may come into play to bring about some adjustment as between the wrongdoers.
60 The effect of the proportionate liability regime, therefore, is to transform fundamentally the relationship which exists between a plaintiff and a concurrent wrongdoer defendant. Where under a solidary liability regime each defendant is liable for the whole of the plaintiff's loss, a payment by one must affect the liability of the other. It is for this reason that the plaintiff, after settlement with one wrongdoer which involves payment by that wrongdoer in diminution of the plaintiff's loss, cannot obtain judgment for the total loss. In the proportionate liability regime, however, a payment by one concurrent wrongdoer is a benefit conferred on the plaintiff independently of its right of redress against each other wrongdoer. To adapt the dictum of Dixon CJ in National Insurance Co v Espagne,[61] the benefit of the payment made by the concurrent wrongdoer is intended for the plaintiff; it is not intended in relief of the liability of the others each to compensate the plaintiff to the limit of its proportionate liability.
61 This is, of course, not to say that the plaintiff has recovered from all of the concurrent wrongdoers payment which in total exceeds its loss or damage. Ms Lawley has received from the building surveyor some $49,000 more than was later found to be his proper share of her loss or damage. When the other concurrent wrongdoers make the payments which have been found to reflect their responsibility so that these, together with her $49,000 surplus, overtop the amount of her loss or damage, then the question will arise as to the fate of this surplus. In the meantime, there is no double recovery.
62 The question may be looked at from a different but related angle. Suppose Ms Lawley's settlement with the building surveyor included a term that he not pay the settlement sum for 12 months. At the trial against the remaining wrongdoers should they be permitted to reduce her loss or damage for the purposes of s. 24AI by the amount of the $49,000 surplus? What would be the result if the settling wrongdoer failed to make the agreed payment and could not be compelled to do so? Should this be then brought to credit and the amounts of the judgments given against the remaining wrongdoers revised? It is difficult to see that Parliament would have intended such a result. These difficulties would be avoided if Part IVAA were interpreted to produce a regime where the forensic relationship between the plaintiff and concurrent wrongdoer defendants was seen as a serries of independent claims which were tried together as a matter of convenience.
63 In his careful reasons published after the second hearing in August and September 2006 the Senior Member addressed this question and reached a similar conclusion. He offered two further reasons to support it. It is that a settlement by a plaintiff with one concurrent wrongdoer at undervalue could not operate to increase the liability of the others; settlement at an over-value should not, in principle, operate differently. There is, therefore, some symmetry in the conclusion which he reached.
64 The second reason was one that attached itself to the particular difficulties of parties to litigation under the proportionate liability regime. I refer to the great difficulty of achieving settlement where agreement cannot be reached with all parties. It cannot be supposed that Parliament, which is properly concerned to minimize the cost of litigation to defendants as well as to plaintiffs and which is a supporter of mediation and ADR, should intend that the proportionate liability regime should increase the difficulties which face a plaintiff who wishes to settle with one of a number of defendants or those difficulties which face a defendant who wishes to settle with the plaintiff. The analysis proposed upon behalf of the architectural draftsman would make it extremely difficult for a single defendant to fashion an offer which would be attractive to a plaintiff and which, as the facts of this case disclose, would not be potentially dangerous for a plaintiff to accept. This would be the case where the fact of the settlement might have a bearing on the Tribunal's determination as to the liability of the remaining defendants.
65 A further consideration is this. Under the proportional liability scheme a plaintiff is, in effect, suing each concurrent wrongdoer separately and recovers a separate judgment against it. This is such a fundamental change from the position which previously existed that courts must struggle to rid themselves of concepts which depend upon the outmoded joint and several solidary liability. The plaintiff under the new regime takes, in each case, the risk that any of the judgments will not be satisfied. Where a defendant offers a sum in settlement of the plaintiff's claim, the plaintiff's risk immediately changes. It is faced with an offer of payment which, if accepted and the payment made, fixes the risk of the litigation and the risk of recovery. Uncertainty is replaced by certainty. Before the payment is made the settlement fixes the risk of litigation and substitutes for the risk of recovery a new risk or benefit which will depend upon the terms of settlement. This risk may be a small one, as, for example, where the terms of settlement include some guarantee of payment or other security for payment. It may be a different one as, for example, where the terms of settlement are for payment by instalments. What is important is that it does not affect the risks of the other concurrent wrongdoers. They may still contend at the trial, as in this case, that the proportionate share of the settling wrongdoer was greater than that represented by the settlement. Indeed, their ability to do so may be increased as a consequence of the settlement where the settling defendant takes no further part in the proceeding and is therefore not concerned to minimise its responsibility for the plaintiff's loss or damage. If, as a consequence, the settling defendant is fixed with a greater responsibility than would otherwise have been the case, the effect of the settlement would be to reduce the judgments which are recovered against these other wrongdoers. This is an added risk which the plaintiff assumes by settling with a defendant. In these circumstances, the value of the settlement to the plaintiff cannot be assessed by having regard only to the amount agreed to be paid under its terms. What must be valued is the benefit and the risk - the benefit which the settlement has brought to the plaintiff and the further risk which it has created for the plaintiff. These will be matters which the plaintiff will have assessed in negotiating the settlement.
66 These are considerations which might lead to the conclusion that settlement, and even recovery, by a plaintiff in a proportional liability claim ought not to be brought to account in giving judgment against the other concurrent wrongdoers. But I need say nothing further about this for, in the present case, the plaintiff, Ms Lawley, is not shown to have recovered in the aggregate a sum greater than the amount of her loss or damage.
67 I find no error of law in the Tribunal's treatment of this question of law.
68 The Tribunal determined, notwithstanding s 109 of the VCAT Act, that this was a case where the owners should have their costs. Having heard argument, the Senior Member made orders which were intended to make each of the unsuccessful respondents liable to pay the separate costs of the owners' claims against it. Much of the owners' costs, however, could not be allocated in this way. The Tribunal dealt with them on the basis that each of the unsuccessful respondents should bear an equal share of these allocated costs to the owners.
69 So expressed, such an order was within the power of the Tribunal and reflects, if I may say so, a just assessment of where the owners' costs should lie.
70 On behalf of the architectural draftsman and, in the case of Ms Baines' claim, the building surveyor, it was put that all of the owners' costs should be distributed in the same proportions as the liability of those parties. This is said to reflect the philosophy underlying the proportionate liability regime. It was not put that the provisions of Part IVAA require this to be done; it was said that, in the exercise of its discretion, the Tribunal should be mindful of and have regard to this philosophy.
71 The Tribunal in making the costs orders which it did was exercising its discretion - a discretion which will not lightly be disturbed on appeal. It is apparent that the Tribunal considered and rejected the contention that is now offered by the architectural draftsman and the building surveyor. The Tribunal was mindful of the proportionate liability regime but it was well and truly entitled to allocate costs in terms of the time occupied in dealing with the different claims and their outcomes.
72 Subject to one matter, I would not disturb this VCAT order as to costs. This matter is that the order would be difficult, if not impossible, to implement.
73 The terms of the costs orders were as follows. I set out that made in Ms Baines' proceeding which included an order for costs against the building surveyor, which order was not made in Ms Lawley's proceeding.
(a) the applicant bring a single bill for assessment;
(b) Counsel's fees be allowed at the rate of $2,000 per day for appearances and otherwise at the rate of $200 per hour, save where Counsel's fees are incurred in conjunction with the applicant in Proceeding D144/2004 where they will be allowed at one half of these rates;
(c) to the extent that any item in that bill allowed on the assessment relates to the applicant's claim upon more than one party, those parties are jointly and severally liable to pay the same to the applicant.
74 The practical difficulty is caused by the direction in paragraph 12 of the order that the applicant Baines bring in a single bill for assessment. The cost of the builder and of Vero Insurance are to be assessed on the Supreme Court Scale; those for the architectural draftsman and the building surveyor are to be assessed on County Court Scale "D". No criticism is directed to these provisions in paragraphs 3, 6, 7 and 11 of the order. The problem arises from the disconformity between the Supreme Court Scale and the County Court Scale items. To my mind, the intent of this order might be achieved by directing that the single bill for assessment referred to in paragraph 12 of the order be prepared in accordance with the County Court Scale "D". In a typical case of this kind, the practical difference between a bill assessed on that scale and a bill assessed on the Supreme Court Scale is, I have been informed by the Taxing Master, about 33%. The intent of the Tribunal's costs order might therefore be achieved by varying paragraph 12, and the corresponding paragraph in the Lawley order, by providing that the amounts payable by the builder and by Vero Insurance be increased by 33% so that they are the equivalent of an assessment on the Supreme Court Scale. The separate liability of those parties will therefore be increased accordingly.
75 The alternative causes which suggest themselves are unattractive. These are to:
76 Since this matter was not, formally, the subject of the appeal and since I did not have the benefit of any argument other than to point to the difficulty attending the present orders, I will hear counsel further if they be minded to address the matter.
77 The appeal of the architectural draftsman will be allowed and the orders against him, including costs orders, must be set aside. It may be that he will seek costs against the owners.
78 Counsel for that party submitted that the question of apportionment should be remitted to the Tribunal for further consideration because the responsibility of the builder and of the building surveyor will necessarily increase as a consequence of the failure of the claims against the architectural draftsman. Notwithstanding that this might, in another case, be appropriate, I am reluctant to do so in the present case because the reallocation is minimal.
79 I have already described how the Tribunal went about allocating responsibility for the loss of each owner.[62] The detail of this is set out in paras [345] and [346] of the VCAT reasons. It will be there seen that the responsibility of the architectural draftsman for the work described as Façade and AG Drain is divided between the builder and the architectural draftsman as to 80% and 20% respectively. The removal of the responsibility of the architectural draftsman for this work will mean that the builder becomes 100% responsible. The other category of loss or damage which involves the architectural draftsman is that described as that described as MCJ Masonry Joints which has a total value of $2,686.58 in the Lawley claim and $1,491.58 in the Baines claim. The 20% responsibility of the architectural draftsman for this represents $537.32 and $298.32 for those claims respectively. If the responsibility of the architectural draftsman and these amounts were allocated equally between the builder and the building surveyor, the consequence would be to make a very modest change to the percentage of responsibility of the building surveyor.
80 The responsibility of and the amount of judgment against the builder for Ms Lawley's loss or damage would increase from 77.59% - $198,103.48 to 93.43% - $238,537.92; that of the building surveyor would increase from 6.276% - $16,024.52 to 6.57% - $16,782.26, an increase of about $750. Ms Lawley's claim against the building surveyor has been resolved by settlement so that any adjustment of the responsibility of that party is of no consequence.
81 Similar adjustments in respect of for Ms Baines' loss and damage would have the consequence that the responsibility and judgment against the builder would increase from 76.374% - $201,746.40 to 91.35% - $241,302.27 and that of the building surveyor from 8.492% - $22,431.52 to 8.65% - $22,852.05.
82 If the non-involvement of the builder at the trial was due to impecuniosity, the cost of returning to VCAT to obtain a greater judgment against it and the building surveyor may not be worthwhile. Ms Baines' judgment against the building surveyor will increase by about $420. Again, if the arithmetic is accepted, this may be most economically achieved by my entering judgment in her favour for the new amount against the building surveyor.
83 I will hear counsel further as to the following matters:
I certify that this and the 29 preceding pages are a true copy of the reasons for judgment of Byrne J of the Supreme Court of Victoria delivered on 24 April 2008
[3] File D144/2004 (Lawley); file D145/2004 (Baines).
[9] It may be more correct to say that there are two appeals since the determinations of the Tribunal were made in two separate proceedings.
[11] Roads Corporation v Dacakis [1995] VicRp 70; [1995] 2 VR 508 at 520.
[12] See Waterford v Commonwealth [1987] HCA 25; (1997) 163 CLR 54 at 77, per Brennan J.
[14] The provision was introduced by SR 24/1996 which commenced on 1 May 1996.
[15] A similar obligation, however, is imposed upon architects by Regulation 6 of the Architects Regulations 2004.
[16] The breach may lead to an enquiry by the Building Practitioners Board pursuant to s 178 of the Building Act 1993, but it does not appear that the Board has the power to award compensation for loss suffered as a consequence.
[17] Voli v Englewood Shire Council [1963] HCA 15; (1963) 110 CLR 74 at 84.
[18] Voli v Englewood Shire Council [1963] HCA 15; (1963) 110 CLR 74 at 85.
[19] Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at 530 [21].
[20] Moorabool Shire Council v Taitapanui [2006] VSCA 30; (2006) 14 VR 55 at 73 [71]- [72].
[23] Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at 527 [14].
[25] VCAT reasons paras [193] and [198]. It seems that this is the way the parties analysed the position in their pleadings.
[27] [2002] QSC 80 at [66].
[28] His Honour noted in support of this conclusion a reference to Junior Books Ltd v Veitchi [1982] UKHL 4; [1983] 1 AC 520.
[29] See Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180.
[30] See, for example, Southern Water Authority v Carey [1985] 2 All ER 1077; Norwich City Council v Harvey [1989] 1 All ER 1180.
[32] Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515.
[33] Frederick W Nielsen (Canberra) Pty Ltd v PDC Constructions (ACT) Pty Ltd (1987) 71 ACTR 1; Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] EWCA Civ 15; [1988] QB 758; Greater Nottingham Co-operative Society Ltd v Cementation Piling and Foundation Ltd [1988] UKHL 4; [1989] QB 71; John Goss Projects Pty Ltd v Thiess Watkins White Constructions Pty Ltd [1992] QCA 088.
[34] Valleyfield Pty Ltd v Primac [2003] QCA 339.
[39] VCAT reasons paras [200]-[208].
[47] This is not clear, see VCAT reasons para [25-27].
[52] See Moorabool Shire Council v Taitapanui [2004] VSC 239 at 136 per Smith J. His Honour's view was not challenged in the Court of Appeal or, indeed, before the High Court upon the unsuccessful application for special leave to appeal.
[55] For example s 24AH(1).
[56] See for example s 24AJ(a).
[57] [1998] 4 VR 82 at 89, per Winneke P.
[58] Including any non-party referred to in s 24AI(3).
[60] Cf s 24AH(1).
[61] [1961] HCA 15; (1961) 105 CLR 569 at 573.
Gunston
Lawley & Ors [2008] VSC 97
(1997) 163 CLR 54
(1963) 110 CLR 74
(2004) 216 CLR 515
(2006) 14 VR 55
(1995) 182 CLR 609
(1999) 198 CLR 180
(1961) 105 CLR 569