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[2008] NSWDC 392
District Court of NSW
2008-09-10
Giles CJ, McDougall J
Original judgment source is linked above.
Introduction
This issue is not addressed in the defendant's written submissions and appears to have been conceded.
This was not a matter about which the plaintiff led evidence, nor was it the basis on which the defendant defended the action. The plaintiff's "simple" (written submissions page 8) case on liability relies on the uncontradicted evidence of the landlord's plumber and security guard that the defendant's employees left the two kitchen taps on and running. The defendant's response to the plaintiff's claim that its case is "simple" is to assert that the plaintiff has failed to identify what "the alleged causative act or acts of negligence were" (defendant's submissions page 2). It is asserted that the failure to turn off the taps is only one of several causative factors and that the failure of the pump out box for unknown reasons (asserted to be the fault of the supplier) and the absence of a floor drain (the fault of the landlord) were the substantial causes of the flood.
This was the issue upon which liability was principally challenged, namely that the "but for" test applies "equally" to the landlord's and supplier's alleged negligence (defendant's written submissions, paragraphs 4, 9-22).
Neither the plaintiff nor the defendant called any evidence about the condition of the pump out box system. It was removed and disposed of by the landlord's plumber in March 2006 when a new drain system was installed at the landlord's expense. Mr Chan, a director of the defendant, threw away both the tap washers (T-479). Neither party called evidence from the landlord, although some correspondence was tendered and Mr Chan gave evidence of conversations. However, the only expert evidence concerning whether the pump out system in place was insufficient or faulty was the plumber's evidence that the pump out system was adequate (T-29 and 30).
As to the claim in nuisance 7. The defendant submitted the following were the relevant issues:
The parties relied on the same evidence for the nuisance claim.
What was the extent of physical damage occasioned to the plaintiff's tenancy by the water ingress?
What actual repair works were undertaken, and repair costs, if any, were incurred by reason of the water ingress?
What theoretical repair works became necessary (and associated repair costs "arose") by reason of the water ingress?
Whether in the circumstances, and having regard inter alia to the terms of the Canturi lease, it is appropriate to determine a figure for compensation for physical damage by reference to actual repair costs expended, or theoretical repair costs?
Whether all (or some) of the theoretical repair works/costs were subsumed and rendered redundant by the essential term of the Canturi lease (clause 18 thereof) to undertake at its own cost refurbishment of its leasehold tenancy?
Whether there was any business interruption, or loss of profits, at all on 29 October 2005, and if so, in what amount?
Whether there was any business interruption, or loss of profits, at all that was referable only to works during June and July 2006, to repair water damage (from October 2005) and if so, for what periods and in what amounts?
Whether the amounts claimed as damages for repair was wholly, or partly, on account of betterment works?
Whether the amounts claimed for loss of profits are referable in whole or in part to closures on account of betterment works, as opposed to repair works?
Mr Brad Fotheringham, a licensed plumber who (through his company Brad's On Tap Plumbing Pty Ltd) is retained by the landlord, came to the St James Centre on Saturday 29 October 2005 after receiving a telephone call from a representative of the landlord, who informed him that there was water leaking from Shop 14 (Indochine Café) to Canturi Jewellers, the shop below. According to his affidavit, he arrived at approximately 20 minutes later and met the security guard, Robert Rigney, at the Centre.
As he walked past Shops 11, 12 and 12A Mr Fotheringham looked through the window of Canturi and observed water stains on the back sandstone wall. He then went into Indochine Café where he was shown into the kitchen area. According to the affidavit he sworn on 2 February 2007, after careful inspection of the kitchen he observed that there were two taps (a wok tap and a sink tap) which were both on and running (affidavit paragraph 4). The water from the wok tap was flowing through a pipe into a holding tank located on the floor which contained a pump out box. There was a build up of grease contained within the pump out box and the holding tank of the pump out box was overflowing. The float switch (which is the mechanism that turns the pump out box off and on) was activated by the rising float, but the pump out box is not pumping out any water. There was a large puddle of water on the floor due to the overflowing of the holding tank and the pump out box was not pumping any water.
Mr Fotheringham turned off the wok tap by firmly turning the tap handle off. Either he or the security guard did the same to the sink tap. After both taps were turned off, he observed that water was overflowing from the pump out box and the holding tank onto the floor. There was no method of drainage of water from the wok tap other than the pump out box and there was no method of drainage at all from the floor of the kitchen.
Mr Fotheringham prepared an invoice on which he wrote: "Called to a [sic] after hours water leak from the restaurant to the shop below the water was leaking on the floor from a pump out box and the water was filling that from the tap in the sink not turned off the water leaked through the floor into the shop below flooding the floors and ceiling" (Exhibit 5 - reproduced without alteration)
Mr Fotheringham sworn a further affidavit on 26 June 2008 in which he confirmed (at paragraph 2) that he observed both the sink tap and wok tap (also known as the cook top tap) were "left on and running". He also turned off the lever tap, which controls the supply of water to the wok tap. He said "I do this as a matter of cause to ensure that no further water runs through the tap and all possible sources of water are contained" (paragraph 2.2). He went on to clarify that the reference in the tax invoice to "the tap in the sink not turned off" referred to the sink area containing both the cook top (or wok) tap and the actual sink tap. He went on to say in relation to the washers: "The washers in the taps I observed to be on and running were not in great condition, but were sufficient that myself and Robert Rigney were able to turn the taps off upon attending the premises. If there had been a failure in the washers, we would not have been able to do so;
In my experience, washers will break in the act of turning a tap on or off and not while the tap is either on or off. If the washers had broken when the tap was turned off on the night before I attended the Indochine Café, there would have been a noticeable leak as soon as the tap was turned off the night before. To try to turn it off with a broken washer when I arrived the next day would have taken the use of additional force." (paragraphs 3.3 and 3.4)
It a further affidavit sworn on 14 August 2008, in paragraphs 3 to 8, Mr Fotheringham reiterated that there were two taps and that "both of those taps were on and running". He went on to say in paragraph 3: "The reason I know they were on is because when I turned the wok tap clockwise, the water flow stopped, and when either Robert or I did the same to the sink tap, the water ceased flowing out of it as well."
He went on to confirm that if the washers had failed, he would not had been able to turn off the taps in this fashion because "when washers fail, they split" and "will not seal properly". If the washer had broken in the act of turning a tap off, it would run straight away and would be noticeable to the person turning off the tap because the water would not stop (paragraph 6). The reason why washers break in the act of turning a tap on or off, and not while the tap is either on or off, is because the act of turning the tap on or off breaks the washer. Washers do not break without movement or action of this kind.
In the witness box Mr Fotheringham was an impressive witness who was able to answer all questions promptly and clearly and had a good recollection of the events in question. He confirmed in cross-examination (T-18) that he and Mr Rigney "actually turned the taps off" and said that "it was the tap on the wok that stopped the water flow". He confirmed that he turned off the yellow insolation tap "just as a precaution". He described the taps as "leaking" (at T-28) saying "I can't recall whether it was a stream but I know that there was enough water to flood the entire floor". He confirmed (at T-29) his affidavit evidence that washers rarely just fail or fall off and said they failed "straight", which I suspect maybe a transcript error and should read "straight away".
Mr Fotheringham was not cross-examined about his observations of a build up of grease in the pump out box. That means I can assume that his observation of a build up of grease in the pump out box is correct. He was not asked whether this had any relationship to the flood.
The defendant asserts that Mr Fotheringham said that the tap was only dripping, or slowly flowing (e.g. T-28 line 34). However, when Mr Fotheringham referred to water droplets or water that is a "stream" (T-28 line 34) or the taps as being "on and running" (paragraph 3.3 of his affidavit), he was not saying that this was just a dripping tap. This was a steady steam of water, according to his consistent description of the taps in the invoice written on the day in question, according to his affidavit and also according to his evidence in cross-examination. It was a substantial amount of water. As Mr Fotheringham himself noted, there was enough water to flood the entire floor over a period of 10 to 12 hours (T-28).
In cross-examination Mr Fotheringham agreed that when he prepared an invoice he did not go to "any particular trouble or effort to record precisely" the work that was done. It was a general statement, not a statement prepared for litigation purposes, and it is asserted that Mr Fotheringham was confused, and that this is why it took him four affidavits to attempt to fully explain the limited events of 29 October 2005 and to clarify the discrepancies in his invoice of November 2005.
I do not accept this description of asserted inconsistencies or inaccuracies. Mr Fotheringham's invoice is clear and his evidence never wavered. The defendant's counsel in written submissions (p 28) criticises Mr Fotheringham for taking four affidavits to "attempt to fully explain" and to "clarify the discrepancies in his invoice" but I do not accept there are discrepancies in his invoice. It is a general but accurate description by a busy tradesman who is preparing an invoice in the usual way that he would do; he prepared these on a daily basis. To assert that an invoice is a general statement which because it is not prepared for litigation purposes cannot "accurate record what he saw or did" (defendant's submissions p 28) is to place too little emphasis upon the only contemporaneous written document in circumstances where it has been written by a skilled tradesman who is doing his best to describe what he saw and what he did.
Mr Fotheringham was accompanied to the premises by Mr Rigney, a security guard. Mr Rigney has sworn two affidavits (on 19 October 2007 and 14 August 2008). He describes (affidavit sworn 19 October 2007, paragraph 4) seeing "a tap located near the stove was left on, and was running at a steady rate. I further observed a large pool of water on the floor of the kitchen, to the approximate depth of between 1cm to 2cm. I then observed Mr Fotheringham turn off the tap".
In his affidavit of 14 August 2008, which appears, like subsequent affidavits of Mr Fotheringham, to have been generated as affidavits in reply to Mr Chan, he identifies the tap which was left on noting that it was a "small flow" and not just an occasional drip. He was unable to recall whether Mr Fotheringham also turned a lever tap which isolated the pipe which fed the tap. He said "the water on the floor was coming from the wok tap and not from any other tap. The water from the other tap went down the waste drain, but the water from the wok tap went to the pump out box on the floor, which I saw was not operating" (paragraph 3).
Mr Rigney made a note in the daily incident book. This is annexure B to his affidavit of 14 August and reads: "08:50: [not transcribable] R. Rigney on site. Had already been notified re water leaking from Indochine Restaurant. Located leak and stopped water. Tap had not been turned off properly and pump did not activate as float was stuck. Contacted BOM and asked for electrician to come in as well as the plumber. Cleaning contractor arrived to remove water from Indochine and Canturi. Contacted tenant (Indochine) to also be on site after checking areas affected by water both electrician and plumber said everything was both safe and secure. Cleaning contractors will be back at 16:00 for carpet drying in Canturi. Contractors off site approx 10:50. Otherwise all good at this time (11:20)."
There are other notes about what Mr Rigney did on that day, but they are not relevant to these proceedings.
In his evidence in the witness box, Mr Rigney candidly admitted that his recollection of the events of 29 October 2004 was poor. It is asserted that therefore his evidence adds little to the liability issues in that he is not able to confirm the matters in his file note were matters that were correct and he could recall. He could no longer recall for example how Mr Fotheringham shut off the flow of water (T-38 line 40), the extent of damage to the Canturi jewellery shop (although he recall seeing customers going into the shop later that day and seeing it trade - T-40 line 16) and in fact he said that he was not concerned with how observing how much damage had been occasioned to the plaintiff's shop by the water ingress (T-40), presumably because this falls outside his duties as a security guard.
Although Mr Rigney's recollection has faded, he made observations on the day and sworn an affidavit while events were fresh in his mind. While his evidence in relation to what he saw would be of limited use at best, it is nevertheless consistent with Mr Fotheringham's account.
I do not accept the defendant's submission that the flooding occurred in circumstances where taps had been turned off but the mere dripping of the taps was sufficient to cause such a flood. The contemporaneous documentation, the affidavit material and Mr Fotheringham's cross-examination (support to a very limited degree by Mr Rigney - see in particular T-38) confirm that taps were left running.
What then is the evidence of the defendant? Mr Chan stated quite candidly in his evidence in chief that he had no particular recollection of the day in question (T-468).
In Mr Chan's affidavit it is clear that he thought that the washers were the cause of the water filling the pump out box, and not the tap being left on, because he had noticed after 29 October 2005 that the cook top tap leaked even when turned off (Mr Chan's affidavit, paragraph 61). However, Mr Fotheringham, who is a plumber, had no difficulty turning off the tap and said in cross-examination that while the washers "were not in great condition", their condition was "sufficient" that they could be turned off. If the washers had broken, this would not have been possible. More importantly, however, it was the obligation of the defendant to keep the taps, including the washers, in good working order, pursuant to clauses 5.1 and 5.3(b)(3) of exhibit RC1 to Mr Chan's affidavit. In addition, as the plaintiff in submissions points out, while one broken washer might explain why one tap was running, this would not explain why two taps were left running.
The precise volume of water that escaped is unknown. It was enough to do substantial damage to the premises below. The precise amount of what which had escaped may have been ascertainable from the defendant's or the landlord's water board records. However these documents are not in evidence, so I have no information beyond the evidence of the damage and the observations of these witnesses, who saw the extent of flooding.
Given that Mr Fotheringham had no difficulty in turning the taps off, notwithstanding the fact that the washers had a degree of wear, the inference that I must draw is that both taps were left on carelessly by an employee of the defendant. The wok tap in particular was probably difficult to turn off if the washer was in the condition described by Mr Fotheringham. Mr Chan was aware the cooktop tap leaked even when turned off (Mr Chan's affidavit, paragraph 61). It was the defendant's obligation under the lease to keep the taps in good working order and the defendant failed to do so.
The reason for the water collecting in the kitchen sinks and pump was that a careless employee of the defendant failed to turn the taps off before leaving the kitchen for the night.
Having made this finding of fact, I now consider the claims in negligence and nuisance as formulated by the defendant in its outline of issues (see paragraphs 6 of this judgment).
The defendant as the occupier of premises has a duty to prevent injury which is reasonably foreseeable, and the duty of care is to exercise a standard of care reasonable in the circumstances. Whether or not there was any contribution to the flooding by reason of the pump being inadequate or faulty, the fact remains that the escape of water by reason of the taps having been left on, whether by careless oversight or deliberate act, particularly in circumstance where the problem in turning the taps off properly appears to have related to the poor condition of the washers, is the conduct satisfying the "but for" test in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506. This is not a case where in the course of ordinary use the pump failed, or where notwithstanding proper care being taken by the defendant's employees, the washers in the taps suddenly came on, or water already stored in the pump in some way escaped to flood the plaintiff's premises.
Leaving a tap on such an obviously dangerous act that damage is foreseeable and the standard of care which is reasonable in the circumstances cannot be met.
When a defendant is responsible for an act which indirectly causes physical injury to land or substantially interference with the use or enjoyment of that land where the injury or interference is held to be unreasonable, the tort of nuisance is committed. The plaintiff draws to my attention the different onus of proof in nuisance, in that once the nuisance is proved and the defendant is shown to have caused it, the legal burden shifts to the defendant to justify or excuse the act, whereas in negligence the onus remains throughout on the plaintiff: see Marcic v Thames Water Utilities Ltd [2002] QB 929 at 994; Balkin & Davis, The Law of Torts, 3rd ed at 14.2.
The plaintiff submits that the defendant is liable for failing to take necessary reasonable steps to remedy a dangerous state of affairs (Balkin & Davis at 14.40). As to liability for escape of water, see Goldman v Hargrave (1966) 115 CLR 458 and Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] QB 485, as well as Marcic v Thames Water Utilities Ltd, supra. The danger caused by flooding and water damage is well known and the danger of leaving both taps on (whether because of problems turning off the taps with both washers in poor condition, or for any other reason), is both obvious and foreseeable.
The plaintiff also submits that the defendant was well aware that there was no floor drain in the defendant's kitchen. This meant that the defendant's employee were on notice that there was nowhere for the water to go if it was not dealt with by the pump out box and holding tank arrangement that had been selected in lieu of the more expensive option of a floor drain upon the kitchen fit out. Whatever the strengths and weaknesses of the pump system that was installed, it was, as Mr Fotheringham pointed out in his evidence, never designed to be operating 24 hours a day. By leaving the taps on, which meant that the pump has to function continuously over many hours, perhaps days, the defendant's employees were, by their own deliberate actions, creating a nuisance.
The defendant submits that the tort of nuisance involves fault of some kind or another, which generally involves foreseeability, and submits that the escape of water was not foreseeable. I reject that submission. A reasonable person in the position of the defendant or its employees would have been aware of the dangers of leaving a tap on.
The defendant owed a duty of care to prevent the escape of water from its kitchen premises into the neighbouring property. The defendant failed to take measures to ensure that the neighbouring property was not damaged by flood. The measures the defendant failed to take included not simply failure to turn off the taps, but failure to ensure that the washers in the taps were in good working order so that the taps were able to be turned on and off easily by staff members. The same findings apply to the claim in nuisance as in negligence, in that the fault or lack of reasonable care was the failure to turn off the taps and the failure to ensure the washers were in good working order. These were deliberate faults. I note the concession by Mr Chan in his evidence that he knew it was not the landlord's responsibility to maintain the washers in good repairs and it was his responsibilities. He said the following in cross-examination: "Q. Did you understand it was your job to keep the taps and the washers in good repair? A. Yes.
Q. So if it leaked because the washer was worn out that wouldn't be the landlord's problem? A. Yes." (T-487, lines 25-45)
Mr Chan in fact replaced the washers and disposed of the original washers shortly afterwards: "Q. I think you said in your affidavit that you didn't replace the washer immediately in the tap? A. Yes.
Q. Because you wanted to keep it to show that it leaked? A. Yes.
Q. Who did you show? A. The assessor, the assessor from the insurance company.
Q. You knew the landlord had made a demand on you and you knew that the Canturi solicitors had made a demand but you didn't keep the washer? A. Mm.
Q. But you didn't keep the washer to show that it was damaged? A. No because I got no experience, you know, in this case so that's why I pass it to my insurance company, you know, for the assessors to handle the case.
Q. So your assessor looked at the washer? A. Yeah.
Q. Okay. So he'd be the one who could tell us what the state of the washer was? A. Not the washer because at the time when he came nothing has been fixed yet. I just show him, you know, how it happened.
Q. So that person, he would be the one that could tell us if the washer was damaged or not?
MILLER: I object. That wasn't the answer that was just given.
Q. So you're saying that someone from the insurance company came and you shoed them how the washer was gauged?
Q. You tell us what you did when the insurance man came. What did you do, what did you show him? A. I just show him how this, you can do when you turn off, as the water's still leaking, I think most likely because of the washer, the damage of the washer.
Q. That's the only person you showed? A. I can't remember any other person.
Q. Then at some point you got the washer replaced? A. Yes.
Q. You knew that there was a claim being made by Canturi about the flood? MILLER: I object. At what time, what time period.
Q. At the time you threw the washer away, you knew there was a claim? A. No.
Q. Well you knew that the landlord had written to you and told you that you were liable for all the damages?
MILLER: I object. Can we have that identified, that letter.
HER HONOUR: I think, in all fairness, you will show him the letter.
Q. You are going to be shown a letter that the landlord sent you saying that the landlord expected you to pay for this damage. Do you remember receiving that letter? A. Yes.
Q. So did you throw away the washer before or after you got this letter? A. After, it's before because when I read the date that should be before.
Q. You threw away the washer before you got that letter? A. Yeah.
Q. That can't be right, sir. The flood was on 29 October? A. After, after. It's November, yeah, sorry.
HER HONOUR: He's already answered that several times. How about you ask him why he threw it away if he knew that they were making a demand.
Q. Why did you throw it away if you knew that there was a demand? A. To my understanding, you know, because when after I showed to the insurance assessor, I think they know the cause and I don't think that there's any importance of keeping that damaged washer."
While the washers were still in workable condition, Mr Chan's evidence about their poor condition is significant, given this was a busy commercial kitchen in a restaurant.
There is no evidence concerning whether the build up of fat and grease observed by the plumber in the tanks caused flooding to occur. Using the common sense test (set out in March v E & MH Stramare Pty Ltd) would dictate that the build-up of fat and grease may have played a contributory role. However, I do not need to make any finding about this issue. The basic failure to turn off the taps and to leave them running in circumstances where a very substantial amount of water was released is evidence which satisfies the test for both the claim in negligence and the claim in nuisance.
Finally, I should note a concession by the defendant in paragraph 4(c) of the Defence that there was an escape of water. The precise terms of the pleading are as follows: "4(c) the defendant admits that the escape of water was caused by a combination of:
(i) a failure of a washer on the cooktop tap so as to permit the discharge of water from that tap some time after 5:00pm Friday 28 October 2005;
(ii) the failure of a pump in a holding tank in the defendant's premises attached to that cooktop that would otherwise have caused that water to be disposed of to the sewer; and
(iii) the failure of the landlord of the premises to have a drain located in the kitchen floor; but,
otherwise does not admit the allegations therein and denies the breach by it of any duty of care."
The assertion that any other person was responsible for the state of repair of the washers on the cook top tap must fall away when having regarding to the provisions of the contract and also the concession by Mr Chan in cross-examination that the state of the washers was known to be the plaintiff's own responsibility (T-487). If I have erred in the findings set out above, on this basis alone, if the washers are defective, the claims in negligence and nuisance must succeed.
This brings me to a consideration of the extent to which the defendant should be fixed with a proportion of liability by reference to ss 34 and 35 Civil Liability Act 2002 in relation to asserted acts and omissions of the landlord (Tanert Pty Limited) and/or the cooktop supplier and installer (J&P Catering Equipment Pty Limited).
Apportionment of liability under ss 34 and 35 Civil Liability Act
The question of whether or not the flooding occurred not simply because of the escaping of the water from the tank but also the failure of the pump in the holding tank and the absence of a drain in the kitchen floor are the next issues which I will consider.
I shall first set out the pleading of the claim pursuant to s 34 Civil Liability Act 2002 (NSW) concerning the liability of the landlord and of J&P Catering Equipment Pty Limited: "In further answer to the claim, the defendant says that if it is liable for any loss or damage suffered by the plaintiff (which is denied):
(a) the plaintiff's claim is an "apportionable claim" within the meaning of s 34 Civil Liability Act 2002 (NSW).
(b) that other persons are "concurrent wrongdoer/s" within the meaning of s 34 Civil Liability Act 2002 (NSW) who [sic] acts or omissions caused the plaintiff's alleged damage and loss;
(c) says that the liability to the plaintiff (if any) is limited to an amount reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of its responsibility for the plaintiff's damage or loss under s 35 Civil Liability Act 2002 (NSW);
(d) says that the plaintiff has failed to join other concurrent wrongdoer/s who [sic] acts or omissions caused the plaintiff's alleged loss and damage."
Sections 34, 35 and 35A Civil Liability Act provides: " 34 Application of Part
(1) This Part applies to the following claims ("apportionable claims"):
(a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury,
(b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act.
(1A) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind).
(2) In this Part, a "concurrent wrongdoer", in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.
(3) For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1).
(4) For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died.
35 Proportionate liability for apportionable claims
(1) In any proceedings 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 damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and
(b) the court may give judgment against the defendant for not more than that amount.
(2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim:
(a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and
(b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant. (3) In apportioning responsibility between defendants in the proceedings:
(a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and
(b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.
(4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.
(5) A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.
35A Duty of defendant to inform plaintiff about concurrent wrongdoers
(a) a defendant in proceedings involving an apportionable claim has reasonable grounds to believe that a particular person (the "other person") may be a concurrent wrongdoer in relation to the claim, and
(b) the defendant fails to give the plaintiff, as soon as practicable, written notice of the information that the defendant has about:
(ii) the circumstances that may make the other person a concurrent wrongdoer in relation to the claim, and
(c) the plaintiff unnecessarily incurs costs in the proceedings because the plaintiff was not aware that the other person may be a concurrent wrongdoer in relation to the claim,
the court hearing the proceedings may order that the defendant pay all or any of those costs of the plaintiff.
(2) The court may order that the costs to be paid by the defendant be assessed on an indemnity basis or otherwise."
Part IV of the Civil Liability Act was designed to prevent an injustice whereby a plaintiff could chose to sue only one of several wrongdoers and enforce the judgment against only that defendant, leaving that defendant to pursue other wrongdoers for indemnity or contribution. The aim was to was alleviate this injustice by ensuring that each concurrent wrongdoer should bear only that proportion of liability which the court considered just, having regard to the comparative responsibilities of all wrongdoers for the plaintiff's loss.
However, as Palmer J notes in Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463 at [94]: "[94] Part IV is designed to alleviate this perceived injustice. It is intended to visit on each concurrent wrongdoer only that amount of liability which the Court considers " just ", having regard to the comparative responsibilities of all wrongdoers for the plaintiff's loss. How the Court is to assess what is "just" is not explained. The Court must exercise a large discretionary judgment founded upon the facts proved in each particular case. The principles upon which the Court will exercise this discretionary judgment will come to be developed on a case-by-case basis. However, it seems clear enough that the policy of Pt IV is that a wrongdoer who is, in a real and pragmatic sense, more to blame for the loss than another wrongdoer should bear more of the liability. This calls for the exercise of the same kind of judgment as the Court exercises in apportioning responsibility as between a defendant sued in tort for negligence and a plaintiff who, by his or her own negligence, has been partly responsible for the injury."
A careful analysis of the language of Palmer J when considering the comparative responsibilities of all wrongdoers for the plaintiff's loss is very helpful. His Honour refers to a wrongdoer who is "in a real and pragmatic sense, more to blame" and for the Court to exercise the same kind of judgment that the Court would do where there has been contributory negligence by a plaintiff.
The exercise of judgment a Court makes when apportioning responsibility between a defendant and a plaintiff who has been contributorily negligent is embarked upon in circumstances where the onus lies on the party asserting contributory negligence, namely the defendant. The bare assertion by a defendant that a plaintiff involved in a motor vehicle or workplace accident must had been negligent or the accident would not have occurred in the first place will not be sufficient to establish contributory negligence, particulars of the contributory negligence need to be given and evidence led.
The defendant has drawn my attention to an article by McDougall J "Proportionate Liability In Construction Litigation" (2006) 22(6) BCL 394 (http://www.lawlink.nsw.gov.au/lawlink/Supreme_Court/ll_sc.nsf/pages/SCO_mcdougall100706) in which McDougall J notes that s 35(3)(b) gives rise to the problem that the Court is required to assess the non party's contribution to the overall damage by applying the formula set out in s 35(1)(a) without hearing from the non party and in circumstances where the defendants have a very real interest in fixing that non party with as much of the responsibility as possible. The plaintiff however may lack the information or resources available to the defendants. Whether or not this is the case, the court is unlikely to have the benefit of hearing from the non party. McDougall J goes on to note: "There are at least two immediately obvious consequences. The first is that the court's orders may tend to understate the responsibility of the concurrent wrongdoers who are defendants, compared to the responsibility that might have been allocated had all concurrent wrongdoers been defendants. This will diminish the amount of damages recoverable by the plaintiff in the action. The second is that the non party will not be bound by the assessment, in proceedings to which it was not a party, of its responsibility. If, therefore, the plaintiff sues that non party in subsequent proceedings, the plaintiff will be required to run the entirety of its case (involving duplication, which might be thought to be substantial, of the case already run) but with the risk that the defendant against whom that case is run will be able to minimise the extent of its responsibility. The consequence might be that the plaintiff, although it has sued all concurrent wrongdoers, does not recover the full amount of its loss, even though there can be no doubt that, between them, those wrongdoers caused the whole of that loss.
The answer appears to be that the plaintiff should seek to identify all concurrent wrongdoers and to join them all in the one action, so that they can fight out among themselves the amounts of their several liabilities to the plaintiff. Undoubtedly, that is what Parliament intended should happen. But the plaintiff may not always be aware of the identity of all concurrent wrongdoers.
Section 35A seeks to mitigate this situation. It imposes on a defendant a duty to inform the plaintiff of the identity of other persons that the defendant on reasonable grounds believes may be a concurrent wrongdoer in relation to the plaintiff's claim, and to inform the plaintiff of the circumstances that give rise to that belief. However, the only sanction for breach of this duty is that of costs. Particularly where circumstances of common insurance arise, it may well be in the interests of a defendant (or its insurer) to hold back for as long as possible information concerning the identity of concurrent wrongdoers, so as to put the plaintiff in the position where it must elect either to abandon a trial date so as to join the non party or take its chances on the apportionment, at trial, of responsibility to that non party.
It may be that this situation could be dealt with by rules of court or a practice note aimed at preventing a defendant from relying on the comparative responsibility of a concurrent wrongdoer who is not a party where the defendant has breached its duty under s 35A(1)(b) to notify the plaintiff "as soon as practicable" of the relevant matters in relation to that non party. There would remain a question, whether the express terms of s 35A could be, as it were, reinforced (and, more relevantly, perhaps restricted) in this way; and, in any event, the efficacy of any such rule of court or practice note in relation to a defendant's right under Commonwealth legislation may be questionable. However, the discretionary nature of the power have regard to the comparative responsibility of non-parties (in New South Wales, s 35(3)(b): "may have regard to") may solve this problem."
That is what has occurred in this case. Notification has been given by the defendant pursuant to s 35A. It was then open to the plaintiff to join those additional parties, on the understanding that in the event that the action against them failed, the defendant would pay all or any of the costs of the plaintiff. However, the Civil Liability Act is not the only relevant statute for a legal practitioner to take into account when advising a client. The obligations solicitors have under the Legal Professional Act 2004 (NSW) as well as the obligations incumbent upon practitioners (which may in some circumstances include personal liability for costs) under the Civil Procedure Act 2005 (NSW) are both matters to which the Court ought to have regard.
Where a defendant has given notification that a concurrent wrongdoer should be joined, the plaintiff is not absolved from the responsibility of investigating such a claim to see if it is meritorious. The dangers of proliferation of parties and the need for costs to bear a proportionate relationship with the sum claimed (which in the present circumstances is comparatively modest) are enshrined in ss 56-62 Civil Procedure Act.
The question remains, however, whether a defendant who identifies another person as a concurrent wrongdoer has the onus of establishing the concurrent wrongdoing. In a practical sense if a plaintiff joins the concurrent wrongdoer, this is not a problem as the onus lies on the plaintiff. Where, however, does the onus lie if the plaintiff does not do so? This topic is dealt with in some detail by McDougall J (at pages 399-401) and I gratefully borrow his Honour's careful analysis of the legislation. His Honour concludes that an obligation is imposed on defendants to identify those whom the defendant believes on reasonable grounds may be concurrent wrongdoers (s 35A(1)) but does not impose on them any obligation to plead or prove the contribution of those concurrent wrongdoers to the overall loss and damage. However, McDougall J goes on to note the decision of Einstein J in Ferdinand Nemeth v Prynew Pty Ltd [2005] NSWSC 1296 at [19] where his Honour said that the question of onus was made quite clear by ss 35 and 35A Civil Liability Act. McDougall J concludes that this means a defendant can raise a proportionate liability defence, but that the onus of proof lies upon it if it did. This would mean that the onus of proof would lie in the present circumstances on the defendant.
At page 405, McDougall J notes refers to the pleading in Ferdinand Nemeth v Prynew Pty Ltd and says that a defence in those terms (and I note there is a defence in similar terms in these proceedings) should not be permitted. This is even having regard to the more liberal rules that are available in the Technology and Construction List. McDougall J considers that a defendant should be obliged not merely to identify the other persons who are thought to be the concurrent wrongdoers but set out the material facts showing they are the concurrent wrongdoers. His Honour concludes by saying "[i]n substance, the defendant should plead with the same degree of precision and particularity as it would do under the old regime if it were bringing a cross-claim against that alleged concurrent wrongdoer."
All that the defendant in these proceedings has done is to assert that there must had been a failure in the pump for there to had been a flood. There are many reasons why a pump might fail, including negligence in its maintenance and repair by the defendant or, for the reason Mr Fotheringham gave, namely that the pump was not designed to pump water 24 hours a day. This is an even greater problem in relation to the alleged liability of the landlord because in circumstances where the unchallenged evidence of Mr Fotheringham that pumps of this kind are adequate to deal with the non-excessive water flowing from the plaintiff's kitchen, it is hard to see on what basis the failure of the landlord to agree to the installation of the floor drain would have in some way contributed to the flooding.
The extreme vagueness with which these claims are pleaded and the lack of evidence concerning the issues in dispute can best be appreciated when considering the defendant's submission that if liability is found the defendant should be found to be only 25% liable. The supplier of the pump should be 50% liable and the landlord should be found to be 25% liable (written submissions paragraph 81). How were those percentages arrived at? The defendant's written submissions, although very lengthy, fail to expose the reasoning behind these estimates.
Having noted the difficulties of the lack of evidentiary material, I now consider the question of the liability of the landlord and of J&P Catering Equipment Pty Limited.
The plaintiff submits that Mr Fotheringham was not cross-examined as to the role of the build up of grease in the pump out box arrangement. Mr Chan did not contradict that evidence in his affidavit when he had the opportunity to do so (T-473-474) although he contradicted other matters in Mr Fotheringham's affidavit (which resulted in Mr Fotheringham filing a further three affidavits). Nor did he contradict it in the witness box. The plaintiff submits that the defendant deliberately chose not to cross-examine on this fact (T-481) and also that vital evidence has been destroyed in that the pump out box and the washer had never been produced for inspection and indeed appear to have been destroyed.
The defendant submits (written submissions page 1) that it was not responsible for the destruction of the pump box. The defendant points to evidence that Mr Fotheringham, the plumber retained by the landlord, removed and disposed of this item (T-30; T-481 line 42).
However, the defendant owned and paid for the original pump box. The replacement system was paid for by the landlord. The landlord arranged for the installation by Mr Fotheringham because the installation involved access to other parts of the building.
At the time the new system was put in place the defendant was well aware that the plaintiff considered the defendant was liable for the damage caused by the flood and should have been alert to potential contributors to the cause of the damage. The plaintiff had already paid invoices totalling $1,243 for drying the carpet, checking the air-conditioning and the plumber's visit. The defendant knew the extent of flooding meant there could be a substantial claim for damages, and that its own insurance company had rejected the claim. If the flood had been caused or contributed to by inadequacies or defects in the pump, that would have been vital evidence for the defendant to investigate and this could only have been done if the pump was seen in situ or retained after removal.
Mr Fotheringham's evidence does not support any claim that the pump was faulty or inappropriate for the job. He took the pump out, but not because it was faulty: "Q. You didn't have any regard to what condition it was or anything at that time, you just took it out and moved it? A. That's right. The reason why we took it out was because we connected the sinks to the floor drainage." (T-30, lines 18-21)
The only cross-examination related to whether the pump was an appropriate or reasonable way to pump water, which Mr Fotheringham said it was. Mr Fotheringham was not cross-examined about whether the pump was working on either occasion, nor was he cross-examined about his observation of a build-up of grease in the system.
Evidence about defects or inadequacies in the pump system could be given by Mr Chan and the defendant's kitchen staff. Mr Chan gave affidavit evidence that he cleaned out the pump box on a daily basis (paragraphs 40-50) and, crucially, that prior to the night there were no other incidents of the pump failing to operate (paragraph 51 of his affidavit). He was not cross-examined on this material.
All of the evidence points to the pump being in good working order, albeit with a build-up of grease on the night in question.
The defendant asks me to accept that if the pump was in good condition, and working properly, the kitchen could not have been flooded. This is put to me on a res ipsa loquitur basis.
However, I have accepted the evidence of the plumber that a stream of water (not a "dripping tap" as the defendant calls it in written submissions - see for example page 4) and I have accepted Mr Fotheringham's evidence that the amount of water which escaped would have been over a long period and considerable in circumstances where the pump was not intended to work for 24 hours a day (T-29). There is no expert evidence to explain to me how it is that the pump should have been able to cope with this substantial amount of water and its failure to do so means that some unspecified fault lay in the pump.
Mr Rigney in his note of 14 August noted "pump did not activate as float was stuck" (annexure B to his affidavit). Mr Rigney said: "Q. He said to you from your memory that the float switch wasn't working. Is that right? A. That's correct." (T-39 lines 32-34)
Mr Rigney also described the pump out system as not working.
Mr Rigney was only a security guard, with no knowledge of plumbing. Why was the float switch not working? What did this mean? Mr Fotheringham was not asked about Mr Rigney's observations that the float was stuck. There are no expert's reports available to help me. In the absence of expert evidence I should not make assumptions: Blacktown City Council v Hocking (2008) Aust Torts Reports ¶81-956; [2008] NSWCA 144. I note that the parties' submissions are silent on this point in any event.
How important is Mr Fotheringham's evidence that these pumps are "not designed for the pumps to be running 24 hours a day" (T-29)? Is the reason the flood occurred that the pump had been running during daytime restaurant hours and when the taps were not turned off by the staff it continued to run until the following morning? If so, the pump was doing what Mr Fotheringham said it was not designed to, namely to be running 24 hours a day.
The defendant has asked be to take a number of matters into account. I have been asked to draw a Jones v Dunkel inference (Jones v Dunkel (1959) 101 CLR 298) from the plaintiff's failure to call Mr Tran (written submissions page 8) and to make a number of assumptions about why it is the pump failed. The defendant submits it is the landlord and not the defendant who was responsible for the removal and subsequent destruction of the pump in question and its replacement with a drain system.
McDougall J proposes, in his helpful article, that parties should have to plead and prove a claim for proportionment under Part IV in the same way that they would prove a case against any potential concurrent wrongdoer. It would have been a simple matter for the defendant to identify, with some degree of precision, why it was that the pump failed. The failure of the defendant to identify why the pump failed is exacerbated by the fact that the pump cannot be inspected by the plaintiff for the purpose of preparation of an expert report because the pump has been disposed of. In the absence of expert evidence (and indeed when what expert evidence I have heard from Mr Fotheringham is to the contrary) I decline to surmise as to potential flaws or defects either in the operation of the pump or its suitability for the task. It is my view that the defendant's claim under Part IV fails in limine in that it fails to identify with the precision recommended by McDougall J the facts and matters relied upon to assert that J&P Catering is a concurrent wrongdoer. Alternatively, the claim against J&P Catering must fail because, on the very slander evidence in these proceedings, there is no evidence that the pump was not fit for the purpose, was inadequately serviced and maintained and/or negligently repaired.
Having made these findings in relation to J&P Catering, I now consider the issue of liability of the landlord.
Prior to September 2004 when the defendant moved into the premises it occupied at the time of the flood, the defendant had operated from other leased premises in the same building for a number of years. Mr Chan was approached in May 2004 to see if he was interested in relocating to the larger premises on the first floor, a restaurant previously known as Rigoletto (Mr Chan's affidavit, paragraph 6). Mr Chan said in his affidavit that he did not observe at that time whether or not the kitchen contained a floor drain. His company entered into a lease on 16 August 2004.
Between August and November 2004 work undertaken during the new tenancy included the installation of kitchen equipments such as exhaust fans. At some stage after the lease was signed, Mr Chan was told by a Mr Tran of J&P Catering that he did not know whether there would be enough room to install a floor drain on the plans as set out by the defendant. For example, the kitchen's exhaust fans were located at the centre of the kitchen and this meant it was necessary for the cooktop to be in that position. Mr Tran advised as an alternative that Mr Chan could have a pump out box which would operate by a float mechanism and pump water to the trade waste at the back wall of the kitchen. He said it would probably be a cheaper and easier option anyway and should work just as well (Mr Chan's affidavit, paragraph 15). I note that a similar statement was made by Mr Fotheringham.
Although Mr Chan did not say so in his affidavit, he conceded in his evidence that he could have put in a floor drain but he could not afford it. He did so because he took advice from a friend who was a plumber who said it was quite complicated and "it would really cost you a lot of money" (T-485).
Mr Chan did ask the building manager whether it was possible to have a drain installed. He did so between February and September 2005. He said in his affidavit (at paragraphs 31 and 32) that this was because it was difficult to remove water from the floor after mopping. What those mopping problems were was never explained.
The first issue is whether or not the installation of the pump out box in the defendant's kitchen was acceptable or appropriate for a restaurant of this size.
Mr Fotheringham's evidence was that while a floor drain was now a requirement in modern buildings (T-21), a pump out box of the kind installed in the defendant's kitchen was what he called "an acceptable solution". He asserted (at T-29): "Q. If the holding tank and pump system in this kitchen that you've previously stated was an acceptable solution-- A. Yeah.
Q. --had operated in the way that it had been intended to operate, it would have dealt with a dripping tap, correct? A. Definitely would have. Dealt with a tap that was split as well. They're designed that the flow from the pumps can discharge a certain amount of litreage per second and it would have well covered that.
Q. In fact, what they're designed to do is to deal with constant running water as you'd agree? A. They're not designed to pump out - for the pumps to be running 24 hours a day but they are designed to pump out water as its needed. The pump box fills, the pump turns on, goes down, turns off, pumps up, same thing."
It was for this reason that Mr Fotheringham said that it was a reasonable and fair alternative to the absence of a floor drain to have a pump out system of this kind (T-23).
Mr Fotheringham made it quite clear that while it is a mandatory requirements since about 1997 for floor drains to be installed in new kitchen installation (T-21) that would not have required to the defendant's premises, which had previously been used as Rigolettos restaurant for several decades (T-20).
Mr Chan agreed in cross-examination that he understood that his company was responsible for the fitout of the kitchen (T-463) and that he had made a mistake, in his view, in renting a kitchen without a drain because he had failed to look on the floor to see if there was a drain there before he rented it (T-484). He knew that when he came to do the fit out there was no drain (T-484). There was correspondence with the landlord about putting in a drain but the landlord never replied. He said in evidence that he chose not to ask the landlord to put in a drain (T-484-485): "Q. But when you went in afterwards and you knew there was no drain, you could have put in a drain? A. Yeah that is why I consult with Mr Tran you know, was the other alternative way, you know, because the drainage happened in this restaurant is different because these are old buildings, the pipes is above the ground level.
Q. You could have put a floor drain in after talking with Mr Tran, that was one option you had wasn't it? A. Yeah
Q. Well why is that the landlord's fault that Mr Tran suggested another thing which you agreed with? Its not the landlord's fault what has happened? A. I think they had dished out the responsibility because it is the basic, like when you are driving a car, you know, suppose you should have four wheel, instead only three wheels, there is one wheel missing, because when you look at this side you didn't realise there is one wheel missing, the car still can go you know.
Q. You could have put in the floor drain? A. If I can afford, yes, but I can't afford.
Q. Is that the explanation, that you couldn't afford one? A. Yes. Can I put - add more?
Q. What would you like to add? A. Because not to - what I call recall, you know, I got a friend who is a plumber too and he - this quite complicated, you know, and it will really cost you a lot of money because just couldn't find any pipe you know underneath you know. And downstairs all like this famous jewellery shop you know probably they will you know stop you know - cause inconvenience to them."
The central reason why Mr Chan did not put in a drain was, as he admitted in his cross-examination, the cost. He obtained advice from a friend who was a plumber, and acted on it. I note Mr Fotheringham also commented on the cost and expressed the view that in terms of value for money the pump out system the defendant had was just as good.
Although there is an assertion that Mr Chan was advised by Mr Tran that there might not have been enough room to install a floor drain (affidavit at paragraph 15) in fact the landlord installed one following the flood (page 33 paragraph (L) submissions). Mr Fotheringham was not cross-examined on this issue; he installed the new system without difficulty. It was never clear to me if this was a particular of alleged negligence of J&P Catering, the landlord, or both. This is one of several examples of the problems caused by the defendant's failure to identify with the required precision what his claim under s 35 was: Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135.
A significant part of the defendant's argument was that the defendant could not install the more expensive drainage system because the prior concurrence and approval of the landlord were required (clause 23 of the defendant's lease). It is submitted that it was entirely dependant upon the landlord acting if a floor drain is to be installed.
However, it is clear from Mr Chan's evidence that he made a deliberate decision not to install a floor drain. It may had been a factor that the landlord did not answer or act on his correspondence, but what ultimately convinced Mr Chan was the advice of the plumber friend that he consulted who said that the installation of a drain was complicated and expensive.
The defendant asks me to note from the Court file that an affidavit was obtained in relation to the issue of liability from a representative of the landlord and that it was neither read nor relied upon. The degree to which judges should have regard to evidence that parties file but do not rely upon is limited. It can be done: Elias v Pascoe [2006] NSWCA 110. However, the pleading of the claim against the landlord is as vague as the pleading against J&P Catering. It is my view that the claim should fail in limine for the same reasons. Alternatively the claim should fail because there is no evidence that the flood was caused because the pump was inadequate. To the contrary, Mr Fotheringham's affidavit (not to mention the evidence of the unknown plumber friend of Mr Chan) was that the pump was adequate. While the landlord was on notice of some mopping problem, there was simply to causal link between the landlord's failure to answer correspondence concerning the installation of a floor drain system and the circumstances of the flood. The landlord did not refuse permission; what they appear not to have accepted was the apparent suggestion that the cost of the installation of a drain should be met by the landlord rather than the defendant, in circumstances where the defendant's obligations under the lease should have extended to the installation of the new drain.
The defendant makes much of the fact that the landlord paid for the installation of the new drain system. However, in the absence of some kind of causative link, this evidence is of little assistance. The landlord could have had many reasons for doing this, including keeping the peace between the tenants, keeping regular tenants in the centre and the like. It would be inappropriate for me to speculate. I can, however, refer to some relevant correspondence.
In Exhibit 23 the landlord's building manager, Mr Hodges, discusses Mr Fotheringham's quote for a floor waste drain (obtained after the flood) noting that floor waste installation may not resolve the issues as water may run directly past the floor waste "and cause similar damage to that which is currently the subject of an insurance claim".
The building manager goes on to note: "I think that we need to be careful that if we proceed with this work, and a similar situation arises, that we are not seen to have provided a poor and inappropriate solution, and therefore become liable."
However, these are concerns expressed about the new drain floor waste system, not the pump out box, in circumstances where the landlord is concerned about insurance claims.
Adam Morris of Tanert Pty Limited replied to these emails on 20 January noting the need to find the "right solution" and saying the installation is "a tenant cost", adding "they took it as is with no warranties as to its suitability for use. Have they had a plumber through and offer solutions?" (Exhibit 23).
Further correspondence in exhibit 23 refers to drafting indemnity letters relating to any future claims of water leakage stemming from the subject premises (see the email of 6 March 2006). The explanation given to Mr Chan (for the defendant) by the landlord on 10 March 2006 is as follows: "Dear Roy,
SHOP 14, 80 CASTLEREAGH STREET, SYDNEY - UPGRADE OF DRAINAGE SYSTEM
The Lessor has organised for the drainage system in shop 14 to be upgraded as per Council guidelines. The relevant works are scheduled to occur on Sunday, 12 March 2006.
Please note that the above works should not be seen as a guarantee or total solution against water leaks or expulsion of water from your tenancy, with the ultimate responsibility falling back on the Tenant, Gagner Pty Ltd. The appropriate precautions will have to be taken by you in making sure that water is expelled from your tenancy in a correct and safe way.
Having read and understood the above, would you kindly execute the bottom section of this letter and return back to our office via facsimile on (02) 9036 6670 by Friday, 10 March 2006.
Should you have any questions, please do not hesitate to contact Tom Skotadis on (02) 9036 6674.
Yours sincerely, TOM SKOTADIS Property Manager
cc - Tanert Pty Ltd P. Zagaras - Canturi Jewels Anthony Hodges - Knight Frank"
Attached to this is a signed indemnity dated 10 March 2006. The identity of Sophie Ton as the signatory is a matter about which I have no evidence.
These documents illustrate the risks described by McDougall J inherent in making findings pursuant to s 35, 35A and 36 of the Civil Liability Act in circumstances where the full facts may not be before the Court. The reason the defendant paid for the new drain is not something within the knowledge of the plaintiff; the Court is reliant on the defendant, and the defendant can tell the Court as much (or as little) as it wishes.
I reject the Part IV claim in relation to the claim made against the landlord.
The plaintiff has succeeded on all issues as to liability. This brings me to the question of damages.
The defendant submits (written submissions, paragraph 23) that the important point to remember when assessing the plaintiff's damages is that "not a single dollar that is claimed (be it for alleged physical rectification work, or for business interruption) relates to actual repair work that was undertaken on actually damaged items so as to return the premises to its former state and layout and that the damages claim is for "theoretical amounts", namely the estimates of the cost of replacement made by Mr Makin. This is because, to use the defendant's words, the fitout "was earmarked for replacement shortly after the time of the water ingress" and these plans were being developed as early as June 2005 (written submissions, paragraph 25).
The basic measure of damages is the cost of a replacement. The purpose of damages awards is to compensate the plaintiff for the loss by awarding a sum of money which, insofar as a sum of money can do, puts the plaintiff in the same position as if the tort had not been committed.
The defendant submitted that the plaintiff should not obtain a replacement that is newer or otherwise better than the destroyed chattel. Plaintiffs must give credit for any betterment they have received from the acquisition of a replacement chattel. This is the case not only under Australian law (Hoad v Scone Motors [1977] 1 NSWLR 88) but also English (Bacon v Cooper (Metals) Pty Ltd [1982] 1 All E R 397) and American law (M Tilbury, "Civil Remedies" Volume II (Australia: Butterworths 1993), at [12035] - [12036]).
However, while the plaintiff's claim did initially contain claims of a betterment nature (e.g. the whole of the period that the shop was closed for the refit) that is no longer the case. The plaintiff is content to accept (subject to certain additions) the defendant's expert's assessment of the cost of the damaged chattels, and submits that the defendant should pay that sum notwithstanding the fact that the plaintiff waited until a quieter trading time and then carried out a total refit of the store.
The defendant's argument is that the plaintiff never intended to do the replacement work at all. The plaintiff not only had an obligation to replace the fittings under its lease, but had been planning a complete refit of the premises for some time. In other words, the plaintiff was always going to remove these fittings and the defendant submits the plaintiff should not be entitled to compensation because, prior to their removal, some of these fittings fortuitously suffered damage by reason of the defendant's negligence.
Although this is not a betterment claim, some guidance as to the amount of compensation payable when the work is either not done at all or subsumed by other work can be obtained from cases discussing the principles of betterment. The plaintiff relies upon Roberts v Rodier [2006] NSWSC 282 where Campbell J noted at [143] that "it can sometimes be appropriate to allow the plaintiff the full value of that better item", citing a line of authority commencing with Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 (which is, I note, a contract rather than a tort case). Tilbury suggests (at [12037] that where the life of the chattel is indefinite, different rules may apply, and that this qualification would explain the result in Harbutt's Plasticine v Wayne Tank and Pump Co Ltd if the plaintiff in that case would never have had to rebuild his factory. There is no appellate authority directly on point, although Campbell J notes that in Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd & Anor [2001] NSWCA 313 the Court of Appeal at [47], [54] and [107] noted that whether this course was adopted would depend on the facts in the case. In Hyder the plaintiff sought the cost of a new concrete floor to replace a four-year-old floor because it was impossible to build a four-year-old pavement; the Court held, by majority that the plaintiff had no choice but to replace the defective pavement and there was no benefit to the plaintiff other than that the new pavement might last better than the older one.
In "Law of Torts" (Balkin and David, 3rd edition, LexisNexis, 2004) the learned authors at p. 204 remind the reader that every occurrence is the result of many causal conditions which are jointly sufficient to produce it. The Court's task, when looking at issues of causation, is to extract one or more circumstances out of the whole complex of antecedent conditions of an event as its cause: Cavanagh v Commonwealth (1960) 103 CLR 547 at 584. For example, in a practical sense, most replacements for damaged items are newer (and may be better) and likely to last longer than the items they replace. Hyder demonstrates that the Court disregards this advantage. This line of reasoning may be of assistance when evaluating the defendant's argument that the existence of other motives for replacing the chattels constitutes a reason for denying the most if not all of the claim for damages.
The first question is whether or not the damage to the premises was such that the plaintiff either does not need to or simply fails to carry out rectification. Can a plaintiff recover damages where the chattel is not repaired but is replaced or simply never repaired at all? The defendant submits that a plaintiff cannot do so, and relied upon Central Coast Leagues Club Ltd v Gosford City Council (Giles CJ Comm D, Supreme Court of NSW, 9 June 1998, unreported). In Central Coast Giles CJ Comm D said: "The Architect and the Council submitted that any damages were subject to the relevant rectification work being part of the works required under the orders of the Land and Environment Court the Club submitted that this was immaterial. Whether and to what extent rectification of the departures as found would be part of the works required under the orders of the Land and Environment Court was not gone into in detail. The substance of the submissions of the Architect and the Council was that to the extent that the works required under the orders of the Land and Environment Court did not involve rectification of the departures as found, the rectification of the departures would not be done, and that there would be over-compensation if the Club received damages including the cost of rectification works which it would not incur.
The Club relied on Bellgrove v Eldridge (1954) 90 CLR 613. The building owner sued the builder for breach of contract in constructing the building with defective foundations. It was held that the measure of damages was not the diminution in the value of the building by reason of the defective foundations, but the cost of reasonable and necessary work to rectify the foundations plus consequential losses, and that in that case demolition and rebuilding was reasonable and necessary to provide a building in conformity with the contract. The Club referred to the passage (at 620) -
"It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another. If she does not, it is said, she will still have a house together with the cost of erecting another one. To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all."
I do not think that the passage in Bellgrove v Eldridge would be in point if there were a finding of fact that the cost of the rectification work would never be incurred. In the assessment of damages once and for all, that finding of fact would remove any ground for the relevant compensation. On the reasoning in Ruxley Electronics Ltd v Forsyth (1996) 1 AC 344 at 354, 357-9, 372-3 (including citing with approval Tito v Waddell (No 2) (1977) Ch 106 at 332), once a loss has been established, intention as to the subsequent use of the damages is immaterial, but that the rectification work will never be undertaken means that there is no loss.
In Bellgrove v Eldridge it was said (at 618) that awarding the reasonable cost of rectifying defective work was subject to the rectification work being a reasonable course to adopt, and that the work will never be undertaken gives occasion to conclude that it is not a reasonable course to adopt. So in Alucraft Pty Ltd (in liquidation) v Grocon Ltd (No 2) (1996) 2 VR 385, where four years had passed since the subcontractor's defective work but the proprietor had not complained about it and had issued a final certificate, it was held that it would be unreasonable to award the contractor the cost of rectification because it did not intend to rectify the works and would probably not be called on to do so (see especially at 396). (Compare De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28, where the building owner's damages included rectification costs although be had sold the building without carrying out the relevant rectification; the decision can be justified on the basis that it was assumed that the defective work had a depreciatory effect on the value of the building, see at 32, 35-6, but here the Club eschewed damages measured by loss in value of the premises).
In my opinion the submission of the Architect and the Council is in principle correct. To the extent that the orders of the Land and Environment Court do not involve rectification of the departures as found, I consider that in fact the rectification will not be done, and the cost of the rectification work would not be part of the Club's damages." (emphasis added)
The reasoning and decision in Central Coast is inconsistent with authority both in other States of Australia (De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 at 32 per Doyle CJ) and in England (Ruxley Electronics Ltd v Forsyth [1996] AC 344). In Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2008] FCAFC 38 at [93] Rares J rejected it as "contrary to the decision in Bellgrove". In Scott Carver Pty Ltd v SAS Trustee Corporation (Formerly State Authorities Superannuation Board) and Ors [2005] NSWCA 462 at [99] Hodgson JA expressed "some reservations" about such a proposition, if taken unqualified and out of context. Giles JA acknowledged as much in Westpoint Management Ltd v Chocolate Factory Apartments Ltd; Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd (in liq) [2007] NSWCA 253.
The second question is whether, independent of any obligation (or desire) by the plaintiff to carry out a refit, the defendant can dictate to the plaintiff the manner in which the rectification is to be carried out. For example, counsel for the defendant submitted that if the rectification work had been carried out shortly after the damage, even though it would have prevented or been replaced by a major fitout the following year, the defendant would not be able to object to payment for replacement of the damaged chattels.
Leaving aside the likelihood that any shopkeeper who closed his premises for up to two weeks over the Christmas period to effect repairs which would be replaced or modified by other work during the following year would be facing compelling arguments concerning failure to mitigate, it is not open to the wrongdoer to direct the manner in which his wrong is to be righted. As long as the plaintiff's claim is reasonable and does not confer betterment, issues such as whether the damages actually have been or will be used for the purposes are largely irrelevant, for the reasons explained by in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd at [83] - [88], where Rares J explains the principles laid down by the High Court in Bellgrove v Eldridge (1954) 90 CLR 613 as follows: "[83] But in Bellgrove the High Court proceeded on a distinct, and conceptually sounder, basis than the intention of the owner to limit the damages recoverable for defective work. They looked at whether the rectification work was objectively both necessary to produce conformity with the specifications and a reasonable expedient. Dixon CJ, Webb and Taylor JJ did not have regard to the subjective intention of the plaintiff to use any award. Rather, they held that if it were objectively reasonable to require the work, damages were payable. Dixon CJ, Webb and Taylor JJ said in Bellgrove (at CLR 620; ALR 933):
It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another. If she does not, it is said, she will still have a house together with the cost of erecting another one. To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all. [Emphasis added.]
See too J W Carter and D J Harland, Contract Law in Australia , 4th ed, Butterworths, Australia, 2002, para [2156]; N C Seddon and M P Ellinghaus, Cheshire & Fifoot's Law of Contract , 8th Aust ed, LexisNexis Butterworths, Sydney, 2002 at p 1001, para [23.26].
[84] If a reasonable person would not require rectification or reinstatement because the work or cost necessary to bring about conformity with the specifications was out of all proportion to the disconformity, and if the work substantially served its purpose, then it would not be reasonable to use, as the measure of damage, the cost of reinstatement. This has nothing to do with the subjective purpose of a plaintiff in an action for breach of contract. Nor should it.
[85] Where issues of personal taste affect a person's decision to specify work of a particular kind or quality to be performed as part of a contract, the other contracting party is not usually at liberty to depart from that specification in performing the work. That is why the court held in Bellgrove (at CLR 617; ALR 932) that a builder who provided a building painted in quite a different colour to that specified in the contract would be liable for the cost of repainting.
[86] Many actions for damages for breach or enforcement of rights under a contract involve cases in which a party will not use the amount recovered as any form of compensation. Thus, the rules for quantifying damages in cases of sales of goods or shares may give buyers or sellers windfalls because they depend on market prices on a particular day when the plaintiff, had the transaction actually occurred on that day, would have suffered a loss or made a profit according to how radically the market changed on the next day. In such cases it is still necessary and reasonable to award damages, even though the plaintiff may, in truth, not be compensated by such an award and, indeed, may receive a windfall. The use of a plaintiff's subjective intentions as to what will be done with the award as a criterion for assessing his or her entitlement to damages for a breach of contract will produce commercial uncertainty. The purpose of the law of contract is to enforce bargains, good or bad, according to their terms. It is not to enforce or ignore what the subjective views of a party might be.
[87] In Director of War Service Homes v Harris [1968] Qd R 275 at 278-9 ( Harris ) Gibbs J, with whom Stable and Hart JJ agreed, held that Bellgrove established the applicable measure of damages which a building owner was entitled to recover when a builder, in breach of contract, delivered to the owner a building which did not conform to the specifications. Gibbs J said:
If the owner subsequently sold the building, or gave it away, to a third person, that would not affect his accrued right against the builder to damages according to the same measure. The fact that the building had been sold might be one of the circumstances that would have to be considered in relation to the question whether it would be reasonable to effect the remedied work, but assuming that it would be reasonable to do the work the owner would still be entitled to recover as damages the cost of remedying the defects or deviations from the contract (assuming of course that the contract price had been paid). In assessing those damages it would not be relevant whether the owner was under a legal liability to remedy the defects, or whether he had made a profit or a loss on the sale of the building, for the builder has no concern with the details of any contract that the owner might make with a third party . There is a principle that in actions of non delivery or breach of warranty under a contract for the sale of goods "the law does not take into account in estimating the damages anything that is accidental as between the plaintiff and the defendant, as for instance an intermediate contract entered into with a third party for the purchase or sale of the goods" ( Rodocanachi v Milburn (1886) 18 QBD 67 at 77: Williams Brothers v Ed T Agius Ltd [1914] AC 510; Slater v Hoyle [1920] 2 KB 11). And this principle (which has been applied to a contract for the sale of a lease, plant, buildings and stock, treated as Realty-Brading v F McNeill & Company Limited [1946] Ch 145) should in my view be similarly be applied to the case of a building contract. [Emphasis added.]
[88] Gibbs J then applied that principle. He held that the owner of the defective building had an accrued right to damages, the quantum of which was not affected by what the owner might decide to do in the future. I am of opinion that the principle stated by Gibbs J was correct and should be followed."
I find that the plaintiff was indeed considering a major refit of the store to take place some time during 2006. While a part of this was because of the obligation to refit under the lease, this was at the bottom of the plaintiff's list of reasons for carrying out a refit. The plaintiff was in the course of carrying out a major refit of all of its premises to present its wares to the top end of the market. This refit was far in excess of any obligations under the refit provision in the lease. It was while the plaintiff was planning this substantial refit that it made the unwelcome discovery of a flooding of its flagship jewellery shop at the busiest time of its trading, namely immediately before Christmas. As the analysis below of the competing estimates of damage will show, the impact of that flooding was, on any analysis, a cause of substantial damage. Clearly the damaged store fixtures and fittings had to be replaced. It would have been ridiculous for the plaintiff to make an insurance claim, shut its store for up to 10 days to carry out the work, only to carry out a substantial complete refit. Clearly, the plaintiff had to carry out repairs to the damaged premises whilst at the same time accommodating and adapting its plans for a total refit of the store. Had he closed its store twice, once for repair of the water damage and a second time for a total refit, this would not only have had a serious impact on its business, but require the plaintiff to do the same work twice within a short period of time, perhaps even a few months. Clearly the responsible and sensible way for any plaintiff mitigating its loss was to combine the two. For these reasons, and for the reasons set out above in my consideration of the relevant case law, I accept the plaintiff's submissions on this issue.
This brings me to a consideration of the quantum of damages. Although during the trial the plaintiff essentially adopted the figures in the Makin report, I note that in written submissions additional sums had been claimed.
The plaintiff claims damages as follows: (a) Cost of rectifying the water damage as per the Makin report, totalling $48,524. This is made up of the following:
(b) Time for rectification: Mr Makin is of the view that this is 10 days (paragraph 43) which applies to the agreed daily rate of $4,983 results in a total of $49,830.
(c) Computer: The computer was water damaged and replaced at a cost of $1,193.50 (Exhibit 20, tab 14, page 114.5).
(d) Lost trade on 29 October 2005 of $4,983.00; 50% of this is admitted by the defendant.
Plaintiff claims: $4,983 (agreed daily rate) + interest from 29/10/2005 = $6,381.24
Plaintiff claims: $1,193 + interest from 1/9/06 = $1,438,35
Plaintiff claims: range of $48,524 to $65,872 (inc GST) + interest from 14/7/06 = $59,065.01 to $80,181.56 (inc GST)
Plaintiff claims: range of $49,830 (10 days) to $64,779 (13 days) [based on agreed daily rate of $4,983] + interest from 14/7/06 = $60,654.71 to $78,851.13
As indicated in my previous judgment (Canturi Corporation Pty Limited v Gagner Pty Limited [2008] NSWDC 151) Mr Canturi's role in the refurbishment of his premises, and his failure to provide an affidavit prior to the commencement of these proceedings, led to the application to lead further evidence by the plaintiff which led to adjournment of these proceedings.
The defendant asks me to take into account the circumstances in which Mr Canturi gave evidence after listening to all of the evidence that had been given (written submissions page 67), in circumstances where the plaintiff's counsel had repeatedly told the Court that Mr Canturi would not be a witness (T-191, 192, 232), was called after the evidence of Mr Vitogiannis and indeed at the end of the plaintiff's case rather than at the beginning and in circumstances where his affidavit was not served until the fourth day of the hearing, in circumstances where the defendant suffered significant forensic disadvantages. This was despite the defendant indicating in outline submissions at the commencement of the hearing that the claim would be made that there were refit obligations under the lease and that this had been the subject of consideration by the plaintiff, this being evidenced by documents obtained under subpoena as well as from the plaintiff by way of notice to produce.
Mr Canturi's evidence relates to quantum only. He knew nothing about the circumstances of the flood. Consequently, even if I accept as correct a number of the submissions made by the defendant as to his credit, they only relate to issues of quantum.
Mr Canturi's evidence is at variance on a number of issues with the evidence of Mr Vitogiannis. It is necessary to deal with each of these matters in turn.
When did Mr Canturi first decide to carry out a refit of his Sydney store, and why?
Mr Canturi denied (T-340) that his company was committed to refitting the Castlereagh Street salon as at 29 October 2005. He agreed that it was an essential term to refit the Castlereagh Street salon by March 2006 (T-340) but said that the plans as at 29 October 2005 were "[n]o development, just some planning options" and that these discussions with Mr Vitogiannis were "[s]ome ideas were thrown across the table" (T-340). He did not recalled Mr Vitogiannis saying that "our lease actually requires me to do a fit out of the salon several months from now" (T-341). He said that what was in Mr Vitogiannis' affidavit and what Mr Vitogiannis said in the witness box was not correct (T-341). In his affidavit Mr Canturi said that he had been told following the flood by Mr Vitogiannis that it would take "two or three weeks" to repair the damage and that this was something he was reluctant to do at a peak trading period just before Christmas. Mr Canturi asserted the correctness of this conversation in his evidence (T-343) although he said he was aware that his insurance company was ready, willing and able to undertake the repair work in early 2006 (T-343-344). He agreed that he said the person who refused that offer on the part of the insurance company because "it was not satisfactory to me" (T-344). It was put to Mr Canturi that he declined the insurance company's efforts to undertake the repair work because he was still developing his wholesale replacement fit out design and because he had led his business interruption policy and policy cover lapse in the previous year. He denied both these allegations. He denied that the refit design and layout he set up had nothing to do with repairing water damage from the flood on 29 October 2005.
It was put to the plaintiff that he had no intention at all of undertaking any limited water leak repair work but rather that his intention at the time was to do a wider refit of the whole premises (T-346). He agreed with this (T-347 line 31). He agreed that only four tradespersons came to his store to carry out any work with respect to the water leak shortly after the water flooding date, namely the cleaner, the plumber and electrician and in addition someone who came and smoothed out the parquetry underneath the carpet (T-348). It was put to him that the electrician, cleaner and plumber were paid for by the landlord (I note however that the landlord appears to have claimed this sum from the defendant at a later date). He agreed with this but said that the person came to smooth but the parquet was not someone it had been sent by the landlord. It was not a repair job, it was simply cutting the carpet and removing the tiles as a "quick fix" for which he thought there was no charge (T-348). In other words, the plaintiff did not actually pay anybody any money to deal with the water repairs to its premises on 29 October 2005 (T-349).
Mr Canturi agreed that he had been involved in fit outs for the Melbourne, Brisbane, Greenacre, Las Vegas and New York stores as well as the Sydney store, making a total of six. On or about June 2005 he paid approximately $400,000 for the fit out of the Brisbane premises. The Melbourne premises costed approximately $600,000. The fit out for Sydney costed approximately $290,000 and $300,000. He agreed that the Sydney store had been completely remodelled with new fixtures and fittings (T-352) and an entirely different ceiling layout (T-352-353) as well as a completely different layout of the store (T-353-356). He agreed that the area that in fact damaged on 29 October 2005 was an area in the South Eastern quarter of the shop around the area which is now an open private viewing area (T-356). The following cross-examination occurred at T-357: "Q. And, am I correct then, it must follow from what you've just said, that you chose to effect a repair of that south eastern corner by including in a way where you would in fact refit the whole of the shop because you were subjectively of the view that you could never get a repair of the south east corner in a way that would allow you to be comfortable with the presentation of the shop as a whole? Is that right? A. Yes, that's correct. Yes.
Q. Mr Vitogiannis gave you a quote on 4 November 2005 to repair the work in that south eastern corner of the shop didn't he? A. Yes, he did.
Q. At no point in that quotation. Are you familiar with that quotation? A. Very much so. Yes.
Q. Yes. At no point in that quotation did he ever suggest to you that he would not be able to effect a repair of that portion of the shop, that would not otherwise present in an acceptable way as though it was part of the remaining refit of the shop, did he? A. What, he, yeah, he was confident he could do the repair, yes. And at the same time there was no way he could match the sandstone or the cabinetry he told me.
Q. Where did he say that in the quote? A. It doesn't say it in the quote.
Q. Where did he say that in any letter or email? A. It's not said in any letter or email. This is, this is something which is completely understood by any builder.
Q. You're not a builder? A. I'm not a builder. That's why I got advice from him."
One of the asserted reasons for refitting the whole shop was that the sandstone wall could not be made to look uniform (T-358 line 48). He did not know how long it would take to replace all the sandstone and agreed that he had not made any enquiry of the amount of time that it would require (T-359).
Mr Canturi was asked about the conversation he had with Mr Vitogiannis in or about November 2004 about repairing water damage properly. He replied: "A. First of all, he did not advise me to do that and secondly, if the wall had water damage internally there is no way that you can find out if it had it unless you pulled the wall down. So I would not want to risk putting up cladding and then in two years later knowing that the wall starts to rot and be weakened. It's - it's not in my interests to - to make that decision to repair something quickly. I need to have a store which is going to be, you know, fitted out correctly.
Q. Is it fair to say this? You didn't press ahead with that item of work limited as it was because there might have been some further damage behind the wall? A. There was strong evidence there would be, yes, might have been.
Q. What's the strong evidence? A. Water in wood rots.
Q. Take the cladding off? A. And leave it exposed?
Q. How long does it take water to rot the wood behind this panel? A. How long - it's constant, it continuously keeps rotting unless the wood is taken out. Once the water damage is in the wood it's damaged.
Q. What was the nature of the wood that was behind that panel, sir? A. I have no idea but it was wood.
Q. You don't know if it had been treated with anything either, do you? A. No, I don't.
Q. You're just making this up, aren't you? A. No, I'm not.
Q. I want to suggest to you that without beating around the bush, Mr Vitogiannis told you squarely and directly in around November 2005, that you should move promptly to repair any water damage. Do you agree? A. I don't recall any of that he'd said.
Q. In fact you sat here for the first four days of the evidence two weeks ago, didn't you? A. Yes, I did.
Q. At the end of Mr Vitogiannis's evidence you walked outside and had a meeting that you were involved in before he gave his evidence in re-examination, didn't he? A. That's right."
Mr Canturi agreed he had been in Court on a number of occasions when Mr Vitogiannis had said that the redesign he was briefed to undertake at the plaintiff's store was for the purposes of updating the store's appearance rather than repairing water damage (T-356-364) but Mr Canturi denied that the brief he gave to Mr Vitogiannis in August 2005 was to "update the appearance of the store" (T-364). Mr Canturi said he asked Mr Vitogiannis for a design to "refit the store now" (T-364 line 11).
The defendant in written submissions (pages 68 to 70) points to the following inconsistencies: (a) Although Mr Canturi conceded that Mr Vitogiannis was the builder with expertise and Mr Vitogiannis in fact provided a quotation for $52,000 in November 2005 to carry out repair work, the plaintiff vetoed that option. It was Mr Canturi, not Mr Vitogiannis, who believed that the minor areas of discoloured sandstones could not be matched, and that the cabinetry needed to be completely replaced and removed. The defendant submits that only $4,500 worth of sandstone panels had been damaged and that although $10,000 could have been spent to replace the whole of those sandstone panels (on an old or new basis) he went ahead with the design that saw half of this wall been entirely removed and made into an open space and the other half of the wall being demolished and finished with an entirely different material. As for the cabinets, it is asserted that neither of them was in any way damaged by the water leak of 29 October 2005 and none of the other cabinetry was anywhere near the water damage area, something that Mr Canturi conceded (T-142).
(b) The defendant submits that the assertion by Mr Canturi at paragraph 16 of his affidavit that he was forced to refit the entire shop so as to avoid being left with imperfect matches is a proposition with no basis in fact.
(c) Could Mr Canturi have carried on his business with repairs taking place by cover with a temporary screen?
According to Mr Vitogiannis' evidence, Mr Canturi told him in March 2006 that he would have to do a refit of the salon under the terms of the lease (T-144-146). The idea was there to be a similarity in the presentation of the Brisbane, Melbourne and Sydney stores (T-133). By October 2005 when the flood occurred at least part of the fit out at the Sydney store, on any analysis of the evidence, was nine years old. The refit obligations at clause 18.1 had to be complied with by March 2006.
In Mr Canturi's affidavit and annexures there is a great deal of material which indicates he enjoys an international reputation. There are photographs of international film stars wearing his jewellery; there is correspondence with stores such as Tiffany (who described themselves at page 76 as being "an admirer of your work") and there is a procedures manual at page 109ff which sets out (especially at page 146) the jewellery salon presentation noting "the environment of the jewellery salon is just as important as the jewels". Whether a shop is a high fashion jeweller's store or an upmarket city restaurant, I accept as a matter of common sense, and as a matter on which I do not need to received expert evidence, that the presence of a screen covering damage, or behind which workmen are working, is likely to deter customers. Mr Canturi said in his evidence that there would be dust from the workmen. I accept that a level of fastidiousness for a jeweller store at the top of the line would make it inappropriate for him to have workmen in the store over a period of some weeks working behind the screen making noise and creating dust, and I do not consider this to be a practical solution. Mr Canturi's evidence on this point was sensible, if a little dramatic in presentation. He is clearly a jewellery artist of some standing and international reputation.
(d) Was Mr Canturi undertaking this work to comply with his clause 18.1 lease obligation or for some other reason?
The defendant particularly directs my attention to transcript pages 425 to 426:
"MILLER: I will withdraw that, I will put it this way. The obligation in clause 18 of your Sydney lease was for you to carry out refurbishment works within two years of the commencement date of that lease, correct? A. Yes.
Q. And we have already agreed that the refurbishment works are defined in clause 1 of the lease, do you recall that? A. Yes.
Q. Before you could do any refurbishment works, under clause 18.2 of your lease as you well knew, you had to obtain the landlord's approval to the plans, drawings and specifications for the refurbishment works, correct? A. Yes.
Q. The landlord could always disagree and stop you doing refurbishment works with which it did not agree, correct? A. That is correct, yes.
Q. Taking out of the definition during the negotiations, I am talking about the definition in clause 1, the words "to the landlord's reasonable satisfaction", you well knew was of no moment because under clause 18.2 the landlord still kept a right of veto with respect to any refurbishment works that you might suggest, correct? A. I have no idea. I can't understand that question, it's too long.
Q. You knew well and truly, didn't you, when you signed that lease that any refurbishment works that you were going to do at your Sydney store had to be approved firstly by your landlord? A. Correct.
Q. You did not have a right just to do whatever work you thought would be satisfaction or satisfy the definition. It also had to be approved by your landlord. Correct? A. This is correct, yes.
Q. It had to be approved in writing, didn't it? A. I think - I don't know if it was in writing but I think it had to be shown and they approved it. The building manager approved a lot of things verbally.
Q. You do know, don't you, that on 6 June 2006, Mr Vitogiannis sent to the landlord's agent all of the plans for the June/July refit. Correct? A. That's correct, because it was a major reconstruction, yes.
Q. In fact what he did, I want to suggest to you, is it conformably with the requirement in clause 18 point 2 of the lease seek the landlord's approval to do the refurbishment works that the lease required. Correct? A. Yes, that's correct, Mr Miller.
Q. What happened in June and July of 2006 were the refurbishment works that the lease required. Correct? A. Not correct.
Q. You just agreed with me in the previous question that your landlord sought-- A. I don't say with the façade, sending plans to do that for the façade, and internals, they were always happy with the internals.
Q. On 6 June 2006 your builder sent to your landlord the design for the internal refurbishment. Correct? A. That I had decided after the water damage happened, yes.
Q. Whether you decided it after the water damage happened or before the water damage happened, what that suite of works were, I'm suggesting to you, were the refurbishments works expressly required by the lease? A. Not so.
Q. Your answer that you just gave is agreeing with that, I suggest to you, sir, is not the truth and you know it not to be the truth? A. Please don't say that I'm a liar. It is the truth, thank you."
The defendant draws to my attention the landlord's letter of 21 June 2006 in which Mr Canturi's request for a rent free period was refused on the basis that there was no provision for a rent free incentive "even though the refurbishment of the subject premises in an essential term of the lease and at the Tenant's Cost" (Exhibit 22).
(e) Did Mr Canturi close the store for the renovations or did he close the store for the both the repairs and renovations at the same time?
Mr Canturi was frank and straightforward in his evidence on this issue. He made a pragmatic decision to carry out both the repairs and renovations at the same time. His concern was his store's reputation as a top of the line jeweller, his need to be opened over the Christmas period, and his need to keep the period of downtime for his store at a minimum. While one of the factors may have been at he allowed an insurance concerning downtime to lapse, his principle concern was as the shop owner who did not want to have his shop closed unless it was absolutely necessary, and his conduct in keeping the premises open even on the day of the flood is indicative of this.
This brings me to a consideration of the evidence of Mr Vitogiannis.
It is important to analyse the evidence of Mr Vitogiannis carefully as it differs in a number of respects from the evidence of Mr Canturi. The relevant issues of conflict relate to whether or not the refit works were always to occur, either because of the obligations under the lease or because the plaintiff was looking for a new look by refitting all of its jewellery stores. The defendant submits that Mr Vitogiannis' evidence shows that what the plaintiff is claiming is not damages by way of compensation but a windfall to indemnify it concerning some of its refit expenses which were carried out in part to comply with the terms of its lease and in part because of the desire to refit all of its shops to a very high standard, a wish which predated the water damage.
In addition to there being discrepancies between the evidence of Mr Canturi, Mr Vitogiannis' evidence in the witness box differs in some respects from the evidence contained in his own affidavits.
I will deal with these asserted inconsistencies in turn.
What instructions did Mr Vitogiannis received, when and to do what?
Mr Vitogiannis' evidence about his instructions was as follows: "Q. Did you sit down then with Mr Canturi yourself in about June/July 2005 to discuss his brief for the refurbishment? A. Possibly. We would have had a few meetings in general discussion about what would be proposed to be done.
Q. Is it your memory that in those discussions you spoke about the finishes and the standard of finishes that he was aiming to achieve in his refurbishment? A. My recollection of what we discussed was purely space planning at the time. What could be altered, what couldn't be altered. We were engaged as a first stage of refurbishment to undertake the works to the exterior of the façade in association with a contractor that Canturi had engaged, which was a stone contractor. Our task around that time was to just change signage and redress the bulk head; create a black beam, if you like, outside the shop. Now beyond that time we started evolving into discussions for the interior and it was earmarked to me that there was a potential refurbishment of the interior but that may be some time. So we started engaging as to what possibly can happen. The brief from Canturi to us was "This is basically the shop as it works, I don't want to change this footprint from what it currently works, we may just upgrade it, I'm not sure"; that sort of brief.
Q. When you say "I don't want to change the footprint" there was some discussion, wasn't there, about reducing the back of house space and increasing the front of house space, correct? A. Yes.
Q. So there was necessarily going to be a reconfiguration to accommodate that, correct? A. I wouldn't say necessarily, there were options.
Q. You were going to have to demolish some walls in some areas if that was going to be achieved? A. Yeah, if we went to a - if we increased any part of the back of house area. That was one of the options. We also looked at other options to the left side of the tenancy and where there used to be a staircase - I think that's on a licence arrangement rather than a lease - whether we should create a storage space there. Just various configurations with the interior.
Q. Do I understand that part of your brief was to upgrade the appearance of the store as well to give it a more contemporary feel in line with the other stores, correct? A. I wouldn't say contemporary feel. Upgrade, yes. As far as in line with the others stores, yes, as I mentioned yesterday, the flavour essentially.
Q. To give them a similar flavour and feel? A. That's right.
Q. Did Mr Canturi in these discussions that you've just told us about that happened in about June/July 2005 tell you to your memory that he had an obligation under his lease to have that work done by March 2006? A. Yeah. I'm not aware of the actual date but we did discuss part of the lease arrangement was that he needed to renovate.
Q. He had to renovate by a certain time, correct? A. I can't recall. There may have been. I can't recall the timeframe that we discussed." (T-143 line 49 to T-145 line 3)
Mr Vitogiannis said at T-157: "Q. By April 2006 what did you understand would remain of the fit out after the refurbishment had been completed? That is, what parts of the original fit out did you understand were going to be retained? A. The shopfront, showcases attached to the shopfront, any furniture that would be retained, marble tables, some of the consultation tables. That would be about it.
Q. Have you got any diary record of that? A. Again if it's not in that document that you have or our files, I wouldn't have anything further.
Q. In fact I want to suggest to you that not one document has been produced by your company or yourself in answer to a subpoena suggesting that by April 2005 there was any intention to retain any of the items you've just discussed. Would you agree? A. I can't agree or disagree. As I say, whatever is on that package that you have." (T-157 lines 1-17; the reference to April 2005 is an error; it should be April 2006)
Further on in the cross-examination, Mr Vitogiannis again stated that his understanding of the instructions was that the plaintiff would undertake the lease refit towards the end of 2006 and that these works were the fit out works Mr Vitogiannis had been working on with Mr Canturi since mid-2005, which was some months before the water leak.
However, the whole of Mr Vitogiannis' evidence on these issues is to be treated with caution. Mr Vitogiannis said (at T-167 line 45 to T-168 line 15): "Q. It'd follow, wouldn't it, that it's unlikely that you said what you said set out in paragraph 4 of that conversation where you made a distinction between "repair work" and extra fit out work? Do you see that? A. I'll just read that. Sorry, can you repeat the question?
Q. It's unlikely that you in fact said that to Mr Canturi, isn't it? A. No it's likely if I've listed it here.
Q. But you've told me twice now that that wasn't something you were remotely concerned about, the distinction between water repair work and fit out work. If you weren't remotely concerned about it, why would you go to the trouble of saying to Mr Canturi that there was in fact a distinction to be made? A. I can't answer that question now.
Q. You don't actually have any memory as you sit there of saying that to Mr Canturi, do you? A. No not at the moment.
Q. And it goes without saying you don't have documentary records from the time of saying that, do you? A. No."
This is a typical example of Mr Vitogiannis' evidence. He has no documents, he has no independent recollection, he is unable to answer quite simple questions and he is contradicting himself.
Notwithstanding Mr Vitogiannis' vagueness, contradictory evidence and lack of documentation, it does seem reasonably clear that he was instructed to advise on a complete fit out of the Sydney shop some months before the water damage, and probably in about June, July or August 2005 (T-143, 145 lines 7). More importantly, this was intended to give the premises a contemporary feel and also a similar feel or favour to the other stores (T-144). It was the third fit out that Mr Vitogiannis had undertaken for Canturi between 2004 and 2006 (T-131) for very substantial amounts of money.
It appears to have been the case that most if not all of the other leases did not have fit out provisions. All of these fit outs were undertaken regardless of any requirements under the lease. Having regard to the very substantial sums of money that the plaintiff was spending, the very ambitious projects that the plaintiff was undertaking (which included designing a necklace for Nicole Kidman to wear in "Moulin Rouge", as well as negotiations with Tiffany & Co and other world famous brands) any obligations the plaintiff (and in particular Mr Canturi on behalf of the plaintiff) had in relation to the fit out clause in the lease were very low in his priorities.
Mr Canturi's direction was international and not local. The likelihood is that the major refit of the store that was being planned was so that Sydney could be a store of at least equal prominence to the plaintiff's other Australian and International stores.
It was against this background that Mr Canturi on behalf of the plaintiff made the unwelcome discovery that his very exclusive jewellery shop had suffered water damage at the most important trading time of the year, namely the two months just before Christmas. This brings me to the central question of Mr Canturi's and Mr Vitogiannis' response and in particular to the quotation prepared by Mr Vitogiannis.
What instructions were given to Mr Vitogiannis concerning the water damage?
Mr Vitogiannis appears to have been invited to come to the shop immediately as his quotation is dated 4 November. That quotation relates solely to the replacement of the damaged fixtures and fittings but without charging prices or otherwise referring to or incorporating any of the wholesale replacement of the fit out that was under discussion at the time.
There was disputed evidence as to when and in what circumstances Mr Vitogiannis told Mr Canturi that the repairs needed to be undertaken promptly. Mr Canturi said (at T-161 line 1-43): "Q. What you don't describe in that quotation, and I suggest again it's because it is the fact of what was the case, was damage throughout the furniture throughout the entirety of the tenancy, correct? A. Correct.
Q. The damage that existed on 29 November 2005, to your observation, was essentially confined to back right hand corner, or the south western corner, correct? A. Right.
Q. And if it had been fixed at that time, the damage would have been confined to the south western corner of the tenancy, correct? A. That would have been, yes.
Q. I take it that you as a builder would have thought that it would have been prudent for any tenant faced with water damage in that back right hand or south western corner to move promptly to repair that water damage so as to confine the area that might be affected, correct? A. Correct.
Q. Did you give Mr Canturi that advice in around early November 2005 to move promptly to repair that water damage in the back right hand corner of his tenancy so as to confine the area that might be affected? Did you give him that advice? A. Yes I did.
Q. When did you give him that advice? A. Around the time that this quotation was issued.
Q. Because the whole point of that quotation was you conveying to Mr Canturi that this water damage could be fixed for a relatively confined sum of money, $50,000, if it was dealt with promptly, correct? A. Correct.
Q. Did Mr Canturi ever tell you why he didn't follow your recommendation of addressing the water damage at the beginning of November or as soon as he could thereafter? A. No.
Q. Did Mr Canturi ever say to you at around that time that the reason why he wasn't going to go ahead with this repair work at that time was because he was going to seek to recover part of his fit out cost in due course? A. No I don't believe he did, we had words to that effect."
At transcript 166, Mr Vitogiannis was cross-examined about whether if there had been prompt rectification of the water damage there not had been a need to replace any other furniture within the shop except the two vitrine cabinets, some of the back of house office furniture and the sandstone wall. Mr Vitogiannis agreed although he added that the ceiling in the area also needed attention.
Conclusions concerning the evidence of Mr Canturi and Mr Vitogiannis
I do not accept the evidence that the plaintiff's fit out was nearing the end of its working life. The photographs make it clear that the fit out was at a very high standard already. There is evidence that Mr Canturi was planning to update the corporate image but I accept the submissions of the plaintiff that both before and after the fit out, the plaintiff's store's image was that of a high-end jeweller.
Mr Canturi was considering a refit of the premises. However, these plans were far from being finalised. Mr Canturi said, and I accept, that his mind was always open and he was not committed to an expensive refit leading up to October 2005. He certainly had a refit of the store in mind, but the existing standard of the fittings and fixtures in his store can be ready appreciated from the photographs which had been tendered. The most likely result of the flood is that this was the last straw for him and it was following the flood that he committed himself to the expensive refit that he subsequently undertook during 2006.
Mr Vitogiannis was not an impressive witness, because, as I have set out in the examples referred to in his evidence, his recollection was poor and he was not able to answer a number of questions in a clear and concise fashion. The plaintiff submits that Mr Makin's evidence in relation to damages, particularly in relation to assessment, should be accepted. It is because of the plaintiff's general acceptance of Mr Makin's evidence that I have not engaged in a detailed analysis of his evidence.
In practical terms, what Mr Canturi's evidence bears out is that while he was considering refitting an already high standard jewellery store fit out, the damage indeed precipitate that business decision because it meant that the store would have to be closed for a period of time in relation to repairs. It was because Mr Canturi decided to close the store only once that he decided to include in his major refit repairs to the water damage.
I accept the defendant's contention that Mr Vitogiannis' understanding of when the refit was going to be done, or whether it was to be done, is irrelevant. He was a contractor who was discussing the matters with Mr Canturi. He had no contract to do the work unless and until the plaintiff decided to retain him, which the plaintiff did not do until late May 2006.
Mr Canturi's evidence about whether the refit was brought forward is evidence which I accept. In fact the whole of Mr Canturi's conduct after the flood is the conduct of a person who find himself with an unexpected and unwelcomed interruption to his plans, considering, and then discarding, a series of courses of action, including having the repairs done at the time (hence, his request to Mr Vitogiannis to prepare a quotation), making a claim against the insurance company, requesting down time from the landlord, and the like. What Mr Canturi is doing, on behalf of the plaintiff, over this period of time is clear; he is seeking to minimise the loss as best he can. It would be a mistake to read into Mr Canturi's activities some kind of acknowledgement of a pre-existing intention to perform one or more of these tasks. Mr Canturi considered and discarded a number of plans before eventually deciding upon a total refit of the premises. This is reasonable and understandable behaviour from a person whose property has been damaged. The defendant's concentration upon one or more of these proposed plans considered by Mr Canturi as evidence that the damage to the premises made no difference to Mr Canturi's plans misses the point entirely.
Notwithstanding the fact that Mr Canturi was called late, had the advantage of hearing the evidence of other witnesses and gave evidence which was contradictory to that of Mr Vitogiannis, I am satisfied that his evidence as to his intentions and ideas should be accepted. He was not caught out in a lie, nor contradicted by contemporaneous documentary evidence. He answered questions promptly and with a good recollection of events, as the extracts from the cross-examination set out above demonstrate. Accordingly, I accept his evidence on these issues.
However, I have reservations about the additional matters that are claimed by the plaintiff in written submissions which go beyond the assessment of Mr Makin. This brings me to a consideration of the evidence of Mr Makin and also of the defendant's additional expert, David James Plaister.
I have already indicated that I regarded as inappropriate for there to be a partition wall placed in these premises. Notwithstanding Mr Plaister's comments about lack of dust, the noise and inconvenience, I do not accept that the noise and smells of quite extensive renovations could be hidden from customers behind a screen, and that this would have an adverse impact on trade in a high quality jeweller's shop.
Mr Makin prepared two reports dated 10 July 2007 and 15 August 2008 and was cross-examined at some length.
During the hearing counsel for the plaintiff stated on a number of occasions that he would be submitted to me that Mr Makin's estimate should be preferred to the quotations prepared by Mr Vitogiannis. The defendant in written submissions (paragraph 117) submits that what the plaintiff has done is to seek to graft onto Mr Makin's estimates in certain circumstances some of Mr Vitogiannis' calculations for some of his items only. However, Mr Makin was not asked to agree with Mr Vitogiannis' 4 November 2005 repair estimate and in fact it was apparent from his evidence that he did not agree with it. The defendant submits it is illogical to take Mr Makin's estimates and then seek to inflates certain of those items to turn it into a figure of $65,872 inclusive of GST, which is in fact more than Mr Vitogiannis' 4 November 2005 repair estimate.
Mr Makin's task was to identify the repair work that needed to be carried out and to put a reasonable estimate on it. The plaintiff concedes that Mr Makin has done so. The plaintiff now asks me to inflate that some by coming to what amount to expert opinions about the contents of photographs and the like in relation to six of the items (the carpet, the sandstone, the ceiling, the display cabinets, the painting and the rectification).
Mr Plaister prepared a report dated 5 September 2008. That report related largely to the ability of the plaintiff to carry out work while a screen was in the premises. I have rejected this suggestion as unworkable because I have accepted Mr Canturi's evidence concerning the nature of his business and his clientele. I note the contents of Mr Plaister's and Mr Makin's reports but the submissions on this point, as well as on alternative repair methods that would have enabled the plaintiff to have the premises reinstated, are both based on the mistaken premise that a wrongdoer can dictate to the person wronged how to go about effecting the repairs necessary to right the wrong.
In order to consider this claim, I need to look at the concessions that were made by Mr Makin in the course of cross-examination.
Mr Makin agreed that the figures given by himself and Mr Vitogiannis were very close and that the higher figure fell within the 10% margin allowed by him (T-512). He agreed in dollar terms that there may not be any problem in reconciling the two. The cost that is quoted, where there is evidence that it was actually paid (Exhibit A, tab 53, 63, 64; Part 8 to Annexure B to the affidavit of Mr Vitogiannis) means that the actual amount is a more reliable measure and accordingly I accept the increased figure proposed by the plaintiff.
The plaintiff points out that Mr Makin has simply accepted Traditional Stonemasonry Company's quotation for 9 square metres which relates to the parts of the wall most damaged, being the right hand side of the shop. I agree however that there is damage to the cladding on the left hand side of the shop. The whole of this wall is completely gone and this is now "thin air" (T-515). Mr Makin agreed that Mr Canturi's description of where the damage was was more likely to be right (T-516 line 28). He went on to agree that he had misinterpreted the photographs (T-516 line 41).
Taking the above into account, the plaintiff's estimate to the sandstone wall cladding is to be preferred.
The plaintiff points to Mr Makin's concession in cross-examination that it was quite likely that the underneath would get wet inside and disintegrate. I will set this out in full: "Q. The second part of that says "remove the sandstone cladding feature panels to the affected wall noting that the substrate if found to be plasterboard will probably tear away during the removal process and require replacement". Now you didn't follow that probability did you? A. Well, we've just already discussed the allowance for plastering of ceilings and walls.
Q. What I am suggesting is where the loss adjuster said you could repair the units, you accepted it but where somebody said in one of these documents that the plasterboard would probably tear away you didn't accept that? A. I think we have already established that there's an allowance for fixing up the ceiling and the wall plastering.
Q. No, you are being asked whether you accept. Do you accept that while they were doing this work it's possible that the plasterboard would disintegrate in this fashion? A. I do accept that.
Q. All right? A. I'm sorry, I didn't realise that was the question.
Q. I want to ask whether you accept it probably would? A. I think it's likely.
HER HONOUR: I think he accepted that, yes, it is likely so it's not a mere possibility.
Q. There is a Sun Greenway Builders request for a quote; it is probably 108, tab 10? A. This is a quotation request to Traditional Stonework.
Q. It says "Please advise the cost to supply and install new panels to the damaged zone and will they match the remaining panels"? A. Yes.
Q. I just wanted to take you to the quote which I think is probably 109, tab 11, where they give the quote just for nine square metres and they don't mention anything about whether it will match? A. That's correct.
Q. I want to suggest to you that in a very high-end store of this type, it would be unacceptable to replace only part of a sandstone cladded wall if there was no certainty that the sandstone would match and match well? A. I accept that. What's often done in this sort of situation is to replace into a corner, and we do have a corner here which is a natural break point where colour matching would be hidden.
Q. Let me just understand that answer. If you look at annexure F. We're assuming that we're going to repair the damage that was done by this flood to a satisfactory level for a high-end jewellery shop of the type you've inspected? A. Yes.
Q. The damage was largely in the purple section or the right-hand section but it extended to some extent to the left underneath the first two of those glass cases? A. Yes.
Q. The right-hand side and the left-hand side, leaving aside the return part, they're parallel even thought they're not a continuous line? A. That's correct.
Q. You can't solve the problem of mismatching sandstone by talking about corners in this situation, can you? A. It depends how good the match is. What I'm saying is if it is a local sandstone you would hope to get something of a very similar colour, and if there's a shade difference then you would hide it in the corner of the wall.
Q. You don't even know whether they could get matching? A. No, I don't.
Q. You didn't follow up that question when you were giving your report? A. No, I didn't.
Q. You didn't raise it as a problem or an issue or something you should bring to the attention of the author of the report? A. I didn't think it was a problem.
Q. You don't know whether they could match it or not, isn't that a problem? A. I think we've established that there are ways of dealing with a slight mismatch.
Q. But you don't know whether it would be slight or otherwise, do you? A. No, I don't.
Q. No. You accept, don't you, that it's likely that you would need to replace some of the sandstone in the parts underneath those jewellery display? A. It's really not clear because although we have a photograph of those panels shown as being wet, we don't know what they look like when they're dried out."
In those circumstances, it is appropriate to allow for the higher estimate given by the plaintiff in written submissions.
I note that this sum remains at $1,600 according to the plaintiff's written submissions. There is reference to some additional electrical work, but this has been included elsewhere in the quotation (see paragraph 123 in this judgment).
While I am reluctant to draw conclusions from the photographs, I note that the quotation from Steamatic says that these had been damaged and had noticeable swelling and cracking timber (Exhibit A, tab 27). Mr Makin said (at T-531ff): "Q. I'll just go back to the vitrine units for a minute. I wanted to show a photograph. It looks like there is a bit of damage to the top of the unit? A. Can I have a look at this photo that you've got?
Q. Yes. Is that in your bundle? A. I don't think this one is. No.
Q. You see there is some white markings on the top of the photo? A. Yes, and I don't know what that is.
Q. Then you know, don't you, that there were lights inside it? A. Yes.
Q. There was a lot of water that came down from above. And you can see the water at the top, I suggest? A. Yes.
Q. On the left side. So the electricals would have all had to be fixed up? A. Dried at least.
Q. Dried out and then there's a lot of water in there and they may have had to be replaced? A. Possibly.
Q. There was water inside it, as you have said, and if you look at the next photograph which is the one with the blue tirell(?) inside it, I want to suggest to you that you can see the wood swelling in the front corner? A. Yes.
Q. You can see water down the side slightly to the right of the corner? A. Yes.
Q. You can see that there is a lot of water sitting on the wood on the inside, inside the glass underneath the material? A. Yes.
Q. It is quite likely that there would have been water damage to the back because it's up hard against the wall that was most affected by the water? A. Yes.
Q. You can't really repair wood that's swollen, can you? A. If it's solid timber it will be reusable. If it's MDF or similar material it can't be re-used.
Q. You can't really be confident that this could be repaired, can you? A. I'm relying on what the loss adjuster said."
Accordingly I accept the plaintiff's revised estimates for these cabinets. Mr Makin has not, either in his reports or in his evidence, exposed his explanation as to why it is that only 50% should be allowed. The cabinets were in fact removed and replaced, and since they clearly suffered damage, it is appropriate to allow the sum claimed by the plaintiff.
Both Mr Makin and Mr Plaister gave evidence about this. Mr Plaister in particular gave evidence that there was no such thing as painting to a particular standard and there was no reason why part only of the wall or the ceiling could not be painted.
I have accepted Mr Canturi's evidence that he wanted his premises to be finished to a very high standard. In those circumstances I consider the plaintiff's submissions are reasonable.
There is one submission by the defendant which troubles me, and that is the contention that as these are theoretical rectification works, GST should not be awarded as any part of any compensatory measure of damages as GST will never come to be accounted for to the Commissioner of Taxation. Economic loss and pecuniary loss damages are commonly awarded in this court and apart from certain recognised exceptions for personal injury non-economic loss and the like, they are all assessable. This complex issue has been exhaustively analysed by the Federal Court in Commissioner of Taxation v Sydney Refractive Surgery Centre Pty Ltd [2008] FCAFC 190. I respectfully agree with the comments of the judge at first instance in those proceedings, that there is a need to consider procedural changes to enable courts to consider the impact of taxation on damages awards: (2008) 247 ALR 313 at [10]. If, as seems inevitable given the combative nature of these proceedings, there is an appeal from my judgment, it is to be hoped that guidance can be provided by the appellate courts or by appropriate practice notes and guidelines so that judges are not left to deal with such issues without assistance. However, gratefully borrowing from the Full Court's explanation at [10], the proper test is and remains to look at the character of the payment in the hands of the taxpayer.
The plaintiff has not answered the submissions set out at paragraph 118 of the defendant's written submissions and neither side had directed me to authorities on this issue. It is one of several issues in these proceedings where I am left to do the best I can.
Following the introduction of GST in June 2000, its impact upon settlements and judgments was the subject of consideration by the Deputy Commissioner of Taxation in a 156 page final ruling named GSTR 2001-4 (Issue 20 June 2001). This public ruling can be relied upon by taxpayers and their advisors because the Commissioner's views are administratively binding on the Commissioner under the relevant provisions of the Taxation Administration Act 1953 (Cth). Where any judgment or settlement involves a "supply" the question of whether that supply is subject of GST depends on whether the transaction is characterised as relating to an existing supply, a current supply or a discontinuance supply. An example of a discontinuance supply is where a party pays an agreed amount in return for an infringing party agreeing to withdraw and not taken further proceedings in a dispute. The Commissioner's view is that discontinuance supplies do not attract GST because there is an insufficient nexus between the consideration (namely the amount in a settlement or judgment) and the supply (being the release or forbearance from taking further action). However, the broad concept of "supply" under ss 9 and 10 of the GST Act, which referred to "supply" as "any form of supply whatsoever". While there is reference in the ruling to exemptions where the subject of the dispute is a claim for examples such as property damage, the fact of the matter is that the plaintiff has actually paid for new carpets and the like and all of those payments including a GST component.
It was always open to the defendant to defend these proceedings on a different basis, for example by an approach to damages that the plaintiff having decided a course of a total refit, only a proportion of that refit (whether it represented the loss of value on the fittings and fixtures, or on some other basis) should be allowed. The defendant elected to defend this case on an item-by-item basis by submitting that the estimate of Mr Makin should be preferred, by taking as its primary position that no allowance at all should be made for any damages on the basis that the plaintiff's desire to totally refit the premises, and failure to carry out renovations on the damaged portions shortly after the water damage occurred meant that the plaintiff was disentitled from bringing any claim at all. Having elected to run the case in this fashion, the defendant cannot complain if, when I find against the defendant on this basis, I then proceed to a consideration of Mr Makin's objections on an item-by-item basis and take into account GST in that regard.
The plaintiff has succeeded in relation to the revised estimates for all of the sums it has claimed. The plaintiff is entitled to GST on all of these items. Accordingly, the full amount allowed for this part of the claim is the sum of $65,872.26 claimed by the plaintiff (see page 24 of the plaintiff's written submissions).
While I have allowed the plaintiff the additional sums set out, I do not accept that the 10-day period referred to by Mr Makin should be increased to 13 days. I have accepted the 10-day closure period identified by Mr Makin because he has carefully set out how this is calculated and it is reasonable in the circumstances. It is submitted by the defendant that since the store does not open on Sunday, theoretically that equates to 9 days of business interruption. That was not my understanding of the evidence. My understanding of Mr Makin's evidence was that the shop would remain closed for 10 days. Mr Makin did make a contingency allowance for possible further work, such as rebuilding the wall (T-524, 543), the parquetry (T-543), additional painting (T-543) and electricals (T-533). However, while Mr Makin said that these matters might take a day or two or a day, it is clear that other work would be going on at the same time. It is my view that any additional work would only extend the time by a matter of hours to do the work Mr Makin quoted for and there would be considerable overlap.
In particular, I have only allowed for closure for half a day on the day of the flood. It is clear the shop was open and a number of sales were made that afternoon.
Quantification of the loss Repairs --- $65,872.26 Business interruption --- $49,830 Business interruption of 29/10/05 (allowed for ½ a day) --- $2491.50 Replacement of computer --- $1,193.50 Total --- $119,387.26
I have been provided with interest calculations on these damages but would prefer to defer the question of interest, as the parties have asked me to reserve the interest of costs for further argument and it may be that interest can best be dealt with by the parties arriving at a figure which is mathematically agreed.
Accordingly, there will be judgment for the plaintiff for the sum of $119,387.26 with leave to the parties to arrive at agreed figures representing interest.
Both parties requested me to reserve on the issue of costs.
These are proceedings for a comparatively small sum of money. They were set down for hearing for three days. These proceedings took a total of 12 days (not including written submissions) despite counsels' assurances at the commencement that the case would finish in three days. The proceedings were adjourned part heard in the circumstances referred to in Canturi Corporation Pty Limited v Gagner Pty Limited [2008] NSWDC 151. Many hundreds of pages of documents were tendered by both sides and the written submissions ran to several hundred pages.
Section 56 of the Civil Procedure Act 2005 (NSW) provides that the administration of justice should be "just, cheap and quick". Section 61 provides that the costs in proceedings should bear some proportion to the sum claimed.
I note these matters because the manner in which a case is conducted is, by reason of ss 56 and 61 Civil Procedure Act, a matter which may be relevant as to costs.
Orders 1. Judgment for the plaintiff for $119,387.26. 2. Liberty to apply re interest and costs. 3. Exhibits retained for 28 days.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Canturi Corporation Pty Ltd
Gagner Pty Limited trading as Indochine Cafe
CITATION: Canturi Corporation Pty Ltd v Gagner Pty Limited trading as Indochine Cafe (No. 2) [2008] NSWDC 392
Angel v Hawkesbury City Council [2008] NSWCA 130 Bacon v Cooper (Metals) Pty Ltd [1982] 1 All E R 397 Blacktown City Council v Hocking (2008) Aust Torts Reports 81-956; [2008] NSWCA 144 Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2008] FCAFC 38 Canturi Corporation Pty Limited v Gagner Pty Limited [2008] NSWDC 151 Cavanagh v Commonwealth (1960) 103 CLR 547 Central Coast Leagues Club Ltd v Gosford City Council (Giles CJ Comm D, Supreme Court of NSW, 9 June 1998, unreported) Commissioner of Taxation v Sydney Refractive Surgery Centre Pty Ltd [2008] FCAFC 190 De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 Elias v Pascoe [2006] NSWCA 110 Ferdinand Nemeth v Prynew Pty Ltd [2005] NSWSC 1296 Goldman v Hargrave (1966) 115 CLR 458 CASES CITED: Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 Hoad v Scone Motors [1977] 1 NSWLR 88 Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd & Anor [2001] NSWCA 313 Jones v Dunkel (1959) 101 CLR 298 Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135 Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] QB 485 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Marcic v Thames Water Utilities Ltd [2002] QB 929 Roberts v Rodier [2006] NSWSC 282 Ruxley Electronics Ltd v Forsyth [1996] AC 344 Scott Carver Pty Ltd v SAS Trustee Corporation (Formerly State Authorities Superannuation Board) and Ors [2005] NSWCA 462 Westpoint Management Ltd v Chocolate Factory Apartments Ltd; Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd (in liq) [2007] NSWCA 253 Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463
(1960) 103 CLR 547
(1996) 67 SASR 28
(1966) 115 CLR 458
(1959) 101 CLR 298
(2001) 54 NSWLR 135
(1991) 171 CLR 506
(1954) 90 CLR 613
(1996) 2 VR 385
(2008) 247 ALR 313