COUNCIL OF THE MUNICIPALITY OF WOOLLAHRA v SVED and ANOR [1998] NSWCA 63

In 1986 builders named Di Blasio built a house at Vaucluse for Mr and Mrs Goddard. The following year the property was sold by auction to Mr and Mrs Sved for $1,820,000, who completed in reliance on an assurance by the appellant ("the Council") that a certificate under s317A would issue. The 317A certificate was not to hand prior to completion, but was issued by the Council eight days later. The Sveds moved into occupation, and within a short time defects in the building became apparent.

The Sveds brought proceedings in the Construction List in 1992, claiming damages from each of the Council, Mr and Mrs Goddard and Messrs Di Blasio. The Sveds' claims against the vendors and the builders were dismissed by Giles J (as he then was). The principal claim litigated was by the Sveds against the Council. Giles J held that the Council was in breach of its duty of care and Mr and Mrs Sved were entitled to recover from the Council the loss caused by their purchase of the property. Giles J determined that damages should be assessed by reference to the cost of rectification, as argued by the Council. However, it was agreed that the assessment of damages should be left for a later occasion.

After the resolution of an appeal in favour of the Sveds and further interlocutory proceedings, the matter came before Giles CJ Comm D regarding the right to recover damages for defects other than the drainage system. His Honour considered that there was "force" in the submission of Mr and Mrs Sved that the Council's case in this respect was not open to it due to the manner in which argument had proceeded at first instance. However, he found it unnecessary to decide the point, because in any event Mr and Mrs Sved were entitled to the cost of rectifying all the defects. Final judgment and orders were given on 19 February 1998, in favour of the plaintiffs against the Council.

The Council filed a Notice of Appeal without appointment limiting the challenges to the final orders to (1) a dispute about $28,033 touching one aspect of the drainage system and (2) a Bullock costs order. Since the amount put in issue in the appeal was less than $100,000 the respondents objected to the competency of the appeal. The Council responded with a Notice of Appeal which added a third challenge, being (3) a claim that Giles CJ Comm D erred in holding that the Council was liable to indemnify the respondents for the cost of rectification of all defects in the building.

The respondents sought to have ground (3) of the Notice of Appeal struck out as to part, on the basis that that part was an abuse of process; and declared incompetent as to the remainder, on the ground that the sum remaining in issue in the appeal required a grant of leave: see Supreme Court Act, s101(1)(r).

(1) It was an abuse of process for the appellant to advance on appeal a point expressly abandoned below where that abandonment significantly affected the course of the trial.

McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Coulton v Holcombe (1986) 162 CLR 1; Multicon Engineering Pty Ltd v Federal Airports Corporation (Court of Appeal, unreported, 15 October 1997), applied.

(2) Since one part of the Notice of Appeal was struck out on the ground that it constituted an abuse of process leaving the appeal incompetent as to the remainder, the fact that the Notice of Appeal was competent on its face when filed does not save the remainder. If it were otherwise, an abuse of process would become the source of a juridical right (ie the right to file an appeal as of right).

Castanho v Brown & Root (UK) Ltd [1981] AC 557; Watkins & North America Land & Timber Co (1904) 20 TLR 534, applied.

Mason P The appellant ("the Council") appeals against part of the judgments and orders announced by Giles CJ Comm D on 19 February 1998 and embodied in formal orders on 13 March 1998. The presently relevant order was a judgment in favour of the plaintiffs against the defendant Council in the sum of $402,111 in respect of all claims save for the second plaintiff's (Mrs Sved's) claim for general damages.

The respondents seek to have the Notice of Appeal struck out as to part, on the ground that that part is untenable; and declared incompetent as to the remainder, on the ground that the sum remaining in issue in the appeal requires a grant of leave: see Supreme Court Act, s101(1)(r).

In 1986 a large house was built at Vaucluse for Mr and Mrs Goddard by builders named Di Blasio. The following year the property was sold by auction to Mr and Mrs Sved for $1,820,000. Completion of the contract was subject to the vendors obtaining a certificate under s317A of the Local Government Act 1919. Shortly before completion of the purchase on 14 October 1987, Mr and Mrs Sved were informed by an officer of the Council that the certificate would issue, and they proceeded to complete in reliance upon that information. The s317A certificate was not to hand prior to completion, but it was issued by the Council on 22 October 1987.

Within a short time defects in the building became apparent to the Sveds, who had moved into occupation. There was extensive flooding in a number of places. As well, ceilings and cornices cracked over time, a floor dropped and other defects emerged. There had been departures from the approved plans and specifications and defective workmanship in the construction of the building.

The Sveds brought proceedings in the Construction List in 1992. They claimed from each of the Council, Mr and Mrs Goddard and Messrs Di Blasio damages measured by the difference in value between the property as the building was constructed and the property as the building should have been constructed, or alternatively by the cost of rectifying the defects. The Council cross-claimed against each of the other defendants for contribution as joint tortfeasors. So did Mr and Mrs Goddard, who also cross-claimed against the Council for damages amounting to indemnity against the claims made against them. The Messrs Di Blasio cross-claimed against the Council and Mr Goddard for contribution as joint tortfeasors.

Giles J (as he then was) heard the proceedings over a number of days in 1993 and 1994. He gave judgment on 2 March 1995. It is reported in (1995) 86 LGERA 222. He found that the building had several defects due to departures from the plans and specifications or proper building practice. Most attention was given at the trial and in the judgment to the defects in drainage works. It was

URJOUNCIL OF THE MUNICIPALITY OF WOOLLAHRA v SVED and ANOR (Mason P) 3

found (at 229) that these represented departures from the approved plans which should have been detected by Council inspectors. Other defects were found to have occurred (at 229-30) but there was no finding that the Council should have been aware of these deficiencies.

Giles J dismissed the Sveds' claims against the vendors and the builders. This disposed of the various cross-claims. The principal claim litigated by the Sveds was against the Council. Giles J held that the cause of the plaintiffs' loss was the purchase of the property in "overwhelming reliance on what they were told about the issue of the s317A certificate" (at 245). He held that, because the officer told Mrs Sved that the certificate would issue, the Council was in breach of its duty of care because there were departures from the Council's approvals affecting the drainage that were readily ascertainable and should have been ascertained (at 234). It was held that Mr and Mrs Sved would not have completed the purchase if they had been told of these departures, and that they would have exercised their right to rescind. Accordingly, Mr and Mrs Sved were entitled to recover from the Council the loss caused by their purchase of the property this finding was embodied in judgment for the plaintiffs against the Council for damages to be assessed. The proceedings were stood over to a fixed date for any necessary directions in relation to assessment of damages. The trial had proceeded to this stage without the formulation of separate questions pursuant to Pt31.

While the reasons and orders pronounced on 2 March 1995 did not quantify the damages payable by the Council, Giles J records (at 235) that it had also been agreed that he should determine the basis on which damages should be assessed, leaving their assessment for a later occasion. He addressed this issue at p235-237. It was common ground that the objective was to put Mr and Mrs Sved in the position they would have been in had they not purchased the property. However, the parties disagreed as to the method of assessment. While each party proceeded on a basis that recognised that Mr and Mrs Sved completed the contract and moved into occupation, the Sveds wanted damages representing the value of what they had lost, whereas the Council advocated the cost of rectification of the various defects. I shall explain the respective positions in more detail in the next two paragraphs.

Mr and Mrs Sved had submitted that the appropriate measure of damages was the difference between the price paid for the property and its true value with knowledge of the defects. According to their valuer Mr Egan this came to $520,000, being the difference between the purchase price of $1,820,000 and an affected value of $1,300,000. The valuer's calculation included an estimated cost of rectification of $260,000 being a figure which included rectification of defects extending beyond the drainage defects (which, as already indicated, were the only defects about which findings adverse to the Council had been made in the judgment delivered). This sum represented the difference in value at the date of purchase, not the date of hearing. Obviously interest would have to be added.

However, the Council contended that damages should be assessed by reference to the cost of rectification. Giles J accepted the Council's position on this matter. The critical passage in his judgment (at 237) was:

"Here Mr and Mrs Sved have retained the property notwithstanding its defects, and property values have altered (in general, they have fallen in the relevant area); Mr and Mrs Sved have lived in the property for many years, and there was no suggestion that they wished to or might sell it. The property was not an article of commerce, but a home which could be made the home they thought they had purchased by appropriate rectification work. Although the cost of rectification

was not fully canvassed in the hearing, from the $260,000 taken by Mr Egan is seems unlikely that the cost of rectification would exceed $520,000: if it did, the Council has by its submission accepted the additional burden. 1 was not referred to any authority precisely in point, but in pursuing the objective earlier identified I consider that Mr and Mrs Sved will appropriately be placed in the position in which they would have been put but for the Council's breach of duty if the defects are rectified. They will have the property which they wished to have free of the defects of which they now complain.

Given the agreement of the experts to which I earlier referred, the cost of rectification should also be able to be agreed. Other damages may fall to be considered. Those matters can be addressed after these reasons have been published and considered by the parties." (emphasis added)

It was common ground before us that the rectification cost (estimated by the valuer at $260,000) related to defects extending beyond the drainage defects negligently overlooked by Council inspectors and negligently represented (by implication) not to be a problem in the Council officer's statement to the effect that a clear s317A certificate would issue. It is to be remembered that Mr and Mrs Sved sued the Council for the tort of negligence, and that the damage relied upon was the completion of a contract which would not have been completed were it not for the Council's negligence. In other words, the loss flowing from the negligence was not necessarily confined to the diminution in value/rectification cost touching the drainage work. In my view it is very clear that the trial proceeded before Giles J on this basis. The sum of $260,000 for rectification work, although an estimate, was clearly referable to more than the cost of rectifying the drainage problems. And the Council had committed itself to pay for all rectification, as a loss flowing from its negligence, when it persuaded the trial judge to reject the loss of value approach urged by the Sveds: see the passage emphasised above.

The matter then went on appeal by leave to the Court of Appeal. The Council appealed against the order in favour of the Sveds and the dismissal of its cross-claims against the other defendants. This appeal was dismissed unanimously. The Sveds cross-appealed with respect to the dismissal of their claims against the vendors and the builders. The Court of Appeal (by majority) held that the builders and the vendors owed no duty of care to the Sveds: see Woollahra Municipal Council v Sved & Ors (1996) 40 NSWLR 101.

"Tn the course of argument there was some reference to observations made by Giles J concerning the way in which damages would be assessed against the Council. As I understood it, all counsel eventually agreed that this Court should confine itself to questions of liability, leaving questions of the proper approach to damages in the circumstances of the case to be dealt with at subsequent stages of this case. I have therefore not said anything about damages in these reasons."

An application for special leave to appeal to the High Court was filed but later withdrawn.

The proceedings returned to the Commercial Division. In June 1997 Bainton J ordered that various matters be determined by the Court and that others be referred to a referee. One of the orders was:

"(c) if the opponent proposes to contend, in relation to damages, that its liability therefor is limited to the reasonable cost of repairing the defective drainage systems and no more, an order that that contention be disposed of by the Court (and not a referee).

URJOUNCIL OF THE MUNICIPALITY OF WOOLLAHRA v SVED and ANOR (Mason P) 5

The parties were able to reach agreement on issues of quantification, thereby obviating the need to go before a referee. They came before Giles C] Comm D in February of this year. The principal matter litigated was the right to recover damages for defects other than the drainage system. It was noted that Mr and Mrs Sved claimed that their damages included the cost of rectifying all of the defects in the property and making good damage consequent on the defects: and that the Council claimed that damages were limited to the cost of rectifying the drainage system and making good damage consequent on the defective drainage system. It was agreed that on the Sveds' case they were entitled to $287,510 in addition to the cost of rectifying the drainage system, and that on the Council's case they were entitled to $89,056 in addition to the cost of rectifying the drainage system.

The learned judge considered that there was "force" in the submission of Mr and Mrs Sved that the Council's case in this respect was not open to it. However he found it unnecessary to decide the point, because in any event Mr and Mrs Sved were entitled to the cost of rectifying all the defects. Factual and legal reasons were given for this latter conclusion. It was held that the Council had represented that a s317A certificate would issue, and that its negligence lay in so informing Mr and Mrs Sved when it would not have done so, had it properly inspected the drainage system and appreciated its departure from the approved plan and other deficiencies. But for its negligent advice, the Sveds would not have completed the purchase of the property. It followed, for reasons given by his Honour, that the cost of rectifying the additional defects was causally related to the negligence.

On the legal issues, his Honour addressed and disposed of an argument advanced by the Council based upon the recent decision in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191.

He concluded that Mr and Mrs Sved were entitled to $287,510 for this head of damage (ie defects other than the drainage system).

The Council wishes to challenge this part of the final judgment in the pending appeal. Its right to do so is the essential issue arising in the objection to competency. That issue involves the point which Giles CJ Comm D considered to have "force", but did not need to address in the ultimate analysis.

The other matters addressed in the assessment of damages were the drainage defects themselves ($49,600 awarded) and general damages for mental distress plus interest ($15,000 awarded, to Mrs Sved). On the issue of costs, Mr and Mrs Sved obtained an order for their costs as well as a Bullock order with respect to the costs they had been ordered to pay Mr and Mrs Goddard and the Messrs De Blasio.

Following the final judgment and orders on 19 February 1998, the Council filed a Notice of Appeal without appointment. That Notice limited the challenges to the final orders to (1) a dispute about $28,033 touching one aspect of the under-design of the capacity of the drainage system; and (2) the Bullock costs order. Since the amount put in issue in the appeal was less than $100,000 the respondents objected to the competency of the appeal. The Council responded with the Notice of Appeal now before us which adds (in paral) a third challenge, being (3) a claim that Giles CJ Comm D erred in holding that the Council was liable to indemnify the respondents for the cost of rectification of all defects in the building, including defects that were not discoverable by the Council on the inspection that should have preceded the promised issuance of the s317A certificate. (This ground (3) barely appears in the Notice of Appeal, but its

content was fleshed out in argument before us. It is not a dispute about quantum, but a matter of principle touching causation and remoteness.)

The respondents submit that ground (3) involves an abuse of process and should be struck out, leaving the residue of the appeal incompetent. They accept that the point must be so clear as to justify summary dismissal in accordance with the well-established test.

The nub of the Sveds' objection is that the point now sought to be agitated by the Council was abandoned before Giles CJ Comm D in 1994-95 when the Council persuaded his Honour to award damages on a rectification basis. The matter which the Council seeks to ventilate as ground (3) flies directly in the teeth of this stance. The Council's success on the earlier issue depended, at least in part, on abandonment of that argument: see the passage emphasised in the extract from the judgment at 237 which I have set out.

In my view this is a good argument. It would be an abuse of process to allow the Council to advance in the appeal an argument disclaimed at trial where that disclaimer was a conscious step which bore fruit in the Council's favour. In my view, it was an abuse of process to have proceeded with such argument in the recent damages assessment hearing that culminated in the orders pronounced on 19 February 1998. (Giles CJ Comm Div considered this argument, noting that it had "force", but ultimately proceeded down a different route, when he held that Mr and Mrs Sved were entitled in any event to the cost of rectifying all the defects.)

It is not conclusive that the learned trial judge did not find it necessary to address the point now pressed.

Abuse of process takes many forms: see Director of Public Prosecutions v Shirvanian & Anor (Court of Appeal, unreported, 24 June 1998). It includes abuses of procedure that would bring the administration of justice into disrepute: Rogers v The Queen (1994) 181 CLR 251 at 256, 286. An attempt to depart from the basis upon which litigation was conducted or decided at an earlier stage may amount to an abuse of process: see Castanho v Brown & Root (UK) Ltd [1981] AC 557; Rogers.

An example of this principle in operation is University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481. That was a case in which a party to completed proceedings by way of case stated in the High Court sought to vacate a declaratory order which had been made by the Full Court of the High Court after it had been perfected by being taken out. The applicant desired to raise a point which had not been raised on the hearing in the High Court and which was in direct conflict with the basis of the case presented on his behalf in the completed proceedings in the High Court. (He wished to assert the constitutional invalidity of the Racial Discrimination Act 1975 (Cth) after having lost an earlier argument which assumed the validity of that Act, contending that it was inconsistent with a State Act.) In that context, the High Court stated that:

It is elementary that a party is bound by the conduct o his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.

Metwally did not involve an appeal by way of rehearing. Indeed, it did not invoke an appeal at all: see Coulton v Holcombe (1986) 162 CLR 1 at 17. Part of a cause pending in the New South Wales Court of Appeal (being an appeal against an order of the Tribunal) had been removed into the High Court.

URJOUNCIL OF THE MUNICIPALITY OF WOOLLAHRA v SVED and ANOR (Mason P) 7

Questions had then been stated, which were answered by the Full Court of the High Court. In the course of argument on the hearing of these questions counsel for the applicant advanced propositions that depended on the validity of the Racial Discrimination Act 1975 (Cth). It was held that "the proposition that the Act was valid was legally indispensable to the conclusion reached by the court in the proceedings between the parties" (at 482).

The same can be said about the Council's arguments before Giles J in 1994, which were accepted by Giles J in 1995.

An analogous principle applies in relation to appeals, even appeals by way of rehearing. A party will not be permitted to advance on appeal a point expressly abandoned below where that abandonment affected the course of the trial, or interlocutory steps antecedent to trial: McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 191; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; Coulton v Holcombe (1986) 162 CLR | at 7-9; Multicon Engineering Pty Ltd v Federal Airports Corporation (Court of Appeal, unreported, 15 October 1997).

Although one argument advanced before us on behalf of the respondents relied upon the course of proceedings in the 1996 appeal to this Court, and the subsequent abandonment of an application for special leave to appeal to the High Court, I wish to make it plain that my conclusions turn on what happened at the original trial.

And I have not overlooked the reservation of all damages issues when those proceedings were before the Court of Appeal in 1996. These remarks do not preclude us from now addressing the issue squarely raised in the present application.

I would therefore strike out paral of the Notice of Appeal with Appointment.

Mr Garling SC submitted that this would not render the appeal incompetent. It was sufficient that the Notice of Appeal was competent on its face when filed. I do not agree. The Notice of Appeal must be viewed in the light of these reasons and the orders flowing from them. If it were otherwise, an abuse of process would become the source of a juridical right (ie the right to file an appeal as of right). "The court has inherent power to prevent a party from obtaining by the use of its process a collateral advantage which it would be unjust for him to retain ": Castanho at 571 per Lord Scarman. See also Watkins & North America Land & Timber Co (1904) 20 TLR 534 (service on foreigner set aside because he was fraudulently enticed within the jurisdiction).

The Council then sought the opportunity to file papers enabling it to argue that leave to appeal should be granted in relation to the remaining issues, ie the challenges as to $28,033 damages and as to the costs order. I would refuse such leave because on 27 April the Registrar directed that should the Council determine to seek leave, such application was to be filed and served by 8 May and made returnable by 18 May. (18 May was the adjourned hearing date of the current motion challenging the competency of the appeal.) No application for leave has been filed.

A party faced with a formal objection to the competency of its appeal should, if it wishes to fall back on an application for leave to appeal, ensure that such an application is duly made prior to any contested competency application. The reason is simple. The case for leave may be strong, indeed overwhelming. In such a situation there may be no point in debating a difficult issue of competency. Here the putative appellant failed to follow this practice. What is worse it failed to comply with the Registrar's direction designed to ensure such compliance.

2. Appeal dismissed as incompetent.
3. Appellant to pay respondents' costs.

1. Notice of Appeal struck out.
2. Appeal dismissed as incompetent.
3. Appellant to pay respondent's costs.

Counsel for the appellant: P R Garling SC Solicitors for the appellant: Phillips Fox Counsel for the respondent: S Motby

Solicitors for the respondent: Jenkins & Associates