FRIEND AND BROOKER PTY LTD v COUNCIL OF THE SHIRE OF

CONTRACT - breach - damage - multiple causes - liability for - legal rule - Simonius Fischer and Co v Holt and Thomson [1979] 2 NSWLR 322 (CA) applied.

ARBITRATION - commercial arbitration - error of law - appeal to Supreme Court - appeal dismissed by Cole J but leave granted to appeal to Court of Appeal

• claim by building contractor against local authority - arbitrator finds authority misled contractor concerning works - calculation of consequent damages - alleged interference in continued trading of contractor - proof of lowered profitability - proof of additional unprofitable contract - arbitrator finds contractor may have survived one but not two unprofitable contracts - awards half total loss of profits - contractor asserts error of law in failing to apply Simonius Vischer and Co v Holt and Thompson [1979] 2 NSWLR 322 (CA) - held:

(1) If a breach of contract has two causes, both cooperating and of equal efficacy in causing the loss, a party responsible for the breach is liable to the plaintiff.

Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635 applied; Alexander and Ors v Cambridge Credit Corporation Ltd and Anor (1987) 9 NSWLR 310 (CA);

(2) The arbitrator failed to find the facts necessary in law to support his conclusion.

Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 (CA) applied;

(3) Appeal and cross appeal allowed and award remitted to arbitrator with opinion of the Court of Appeal on questions of law.

DAMAGES - causation - multiple causes - attributability to one party - liability in contract - held: If a breach of contract has two causes both cooperating and of equal efficacy in causing loss, a party responsible for the breach is liable to the plaintiff for the loss.

Simonius Vischer and Co v Holt and Thompson [1979] 2 NSWLR 322 (CA) applied.

CONTRACT - breach - damages - causation - multiple causes - liability for - held: In a breach of contract with multiple causes, each cooperating and of equal efficacy, a party responsible for the breach is liable to the plaintiff for the loss.

R W Miller and Co Pty Ltd v Krupp (Australia) Pty Ltd, Supreme Court (NSW), unreported, 9 June 1992 - Giles J considered.

Clarke JA On 15 January 1984 the appellant, Friend and Brooker Pty Ltd ("Friend and Brooker'), and the respondent, the Council of the Shire of Eurobodalla ("the Shire Council") entered into a schedule of rates contract for the

construction by Friend and Brooker of sewerage reticulation works in North Narooma for the Shire Council. The work proceeded to practical completion on 27 September 1985 and Friend and Brooker presented its final measurement and various other claims to the Shire Council in January 1986. A dispute arose when the claims were rejected by the Shire Council in April 1986. That dispute was referred to arbitration and after an unfortunate series of events Mr T M McDougall was appointed arbitrator and he conducted the arbitration. On 19 March 1993 he published his Award in which he found in favour of Friend and Brooker and awarded it $1,634,964. Following the publication of the award both sides applied to Cole J for leave to appeal from the award. Cole J refused both applications and it is apparent from his judgment that each party had sought to attack the award on a vast array of grounds. In refusing to grant leave to challenge the Arbitrator's award in respect of claims 50, 51, 52 and 54 his Honour pointed out that the issue which arose was essentially one of causation and that on that issue the Tribunal was bound to adopt a common sense approach. His Honour was of the view that there was not disclosed in the Award any error of law or strong evidence that the Arbitrator made an error of law.

Friend and Brooker sought, and was granted, leave to appeal to this Court from Cole J's decision relating to claims 50, 51, 52 and 54. The substantial point upon which leave was granted was that the Arbitrator's ultimate award of damages on those claims was vitiated by a legal error, that is, in failing to apply the correct legal test to the facts as found. Subsequently, the Shire Council sought leave to cross-appeal against that part of Cole J's judgment which dealt with claims 50, 51, 52 and 54. During argument on that leave application there was discussion of questions of remoteness of damage and the Court made it plain that if it granted leave to the Shire Council to cross-appeal it would restrict argument to the legal consequences of the Arbitrator's findings of fact on the relevant claims and would not entertain argument on remoteness issues. Upon that basis leave was granted to the Shire Council to cross-appeal.

The argument on the appeal has focused on one paragraph, F6.24, of the Award but it is necessary to set that paragraph in context. In the Award the Arbitrator referred to the claim made by Friend and Brooker that:

"ESC (Shire Council) supplied information on subsurface conditions which was misleading in the sense that rock was actually at considerably greater depth than was indicated. The immediate effect was that F and B (Friend and Brooker) did not recover money at the rate it expected for the work performed and incurred greater costs in OTR excavation than the information indicated... "

The recital of the claim then dealt with a number of other alleged breaches of duty on the part of the Shire Council and then proceeded:

"The immediate consequence of these matters, through the reduction in income combined with the increasing of costs, was that the job was short of money and productivity suffered, increasing costs still further. The other and longer term consequences were that the credit of F and B suffered, increasing costs both through higher prices imposed on it for goods and services and through legal costs of creditor action, and that F and B lost the capacity to continue trading."

The Arbitrator then considered the claims of breach of duty and found "that the information supplied as to OTR and rock quantities was negligently obtained and presented, in addition, to being intended to be relied on, and was misleading". He then found that on the probabilities Friend and Brooker was required to perform an excessive amount of restoration and/or suffered excessive deductions from

UARJEND AND BROOKER PTY LTD v COUNCIL OF THE SHIRE OF EUROBODALL& (Clarke JA)

progress payments for allegedly incompetent restoration. Consequently he concluded that Friend and Brooker had established its claim for damages.

The major relevant damages claim was 54 which was described as a claim for loss of trading. What Friend and Brooker asserted in this respect was that the breaches had caused it to incur additional costs and, in addition, caused it to suffer a near complete loss of ability to continue trading in the post-Narooma era and therefore lose the profits which it could have expected to have been generated by continued trading.

The evidence which had been put before the Arbitrator demonstrated that in the year 1986 and in following years Friend and Brooker's trading activities had markedly diminished. For instance, between 1980 and 1985 the annual return for work done varied between $1,323,848 and $5,386,277 whereas in 1986 and the following years the highest figure returned was $694,265 and that was in 1990. In the earlier years following 1986 the returns were much lower. The case made by Friend v Brooker was that the significant reduction in its trading activities resulted from the Shire Council's breaches of duty in the Narooma contract and it claimed a loss of profits in respect of that reduction.

For its part the Shire Council contended that Friend and Brooker had underbid on the Narooma contract, was inexperienced in the type of work, provided insufficient detailed supervision of the performance of it and had insufficient resources of capital to carry out the contract. The Arbitrator substantially rejected each of those claims and then turned his attention to the relationship between the Shire Council's breaches of duty and the reduced trading performance of Friend and Brooker. The exercise that he then undertook required that he direct his attention to a number of other contracts involving Friend and Brooker which it was said brought about the reduction in trading quite independently of its involvement in the Narooma contract. The Arbitrator rejected those claims except in respect of one contract which was described in the Award as the Bridge Street project. This was a project in which a company called Ilenace Pty Ltd, which was owned by the principals of Friend and Brooker, entered into a contract with that company for the construction of a series of town houses at Neutral Bay which it was intended would be sold by Ilenace Pty Ltd at a profit. The Arbitrator found that the project was an overall disaster and undoubtedly cost Friend and Brooker a lot of money.

In the paragraph which is critical to the issues in this case the Arbitrator expressed his ultimate conclusion on the reasons for the reduction in Friend and Brooker's trading in the years between 1986 and 1990. He said: "F and B (Friend and Brooker) attributes this solely to the losses which were incurred on the Narooma project and which are the subject of this arbitration. Mr Commisso, however, has concluded (Exhibit 177) that F and B (Friend and Brooker) appeared not 'to have had the capacity to undertake the Narooma contract or any other significant contract after the Bridge Street project'. There is considerable force in the latter. Although I concluded earlier that the losses incurred on the development costs of this project should not be included in the results of F and B (Friend and Brooker) from building and contracting operations per se, the effect of these losses on F and B's (Friend and Brooker's) liquidity situation is a different matter. My conclusion is that F and B (Friend and Brooker) may have survived either the Bridge Street project or the Narooma project by itself but not the two in combination, as far as continuing to trade at the same level is

concerned. I am, therefore, of the view that of the assessed actual loss of profits of $662,000 an amount of $331,000 should be awarded as being the consequence of the Narooma situation."

On the hearing of the appeal both parties contended that there was to be found a clear error of law in this paragraph Mr D Bennett QC, who appeared for Friend and Brooker, submitted that the finding of fact made by the Arbitrator should, as a matter of law, have led him to award the while of the assessed actual loss of profits of $662,000.

In his submission the factual finding could be interpreted in two ways. First that there were two concurrent causes of the damage, in which case Friend and Brooker was entitled to the damages flowing from the breaches of duty as one of those concurrent causes (Simonius Vischer and Co v Holt and Thompson (1979) 2 NSWLR 322, 346D). Secondly, that Friend and Brooker had been rendered vulnerable by the earlier Bridge Street project and been pushed over the edge, as it were, by the Narooma contract. In either event, he submitted, the total assessed actual loss of profits flowed as damages from the breaches.

Mr Bainton QC, who appeared for the Shire Council, submitted that the findings of fact did not support any award of damages.

It is, in my opinion, settled law in this State that if a plaintiff is able to establish that the defendant's breaches of contract were a cause of a particular loss then the plaintiff will be entitled to be compensated in respect of that loss notwithstanding that there may have been other concurrent causes. This was the view expressed by Samuels JA (with whom Moffitt P and Reynolds JA concurred on this point) in Simonius Vischer when he said (at 346):

"T take the correct principle to be that stated in Chitty on Contract, General Principles, 23rd Ed, at 670, paral448: 'If a breach of contract is one of two causes, both co-operating and both of equal efficacy in causing loss to the plaintiff, the party responsible for the breach is liable to the plaintiff for that

As Mr Bennett QC pointed out this principle has been acknowledged by Professor Treitel (The Law of Contract, 8th Ed, [1991] 865), by Halsbury's Law of Australia (Vol 6 [110-11160]) and was recently applied by Giles J in R W Miller and Co Pty Ltd v Krupp (Australia) Pty Ltd (9 June 1992, unreported at 182-183 of the judgment). In the last-mentioned case (an appeal was compromised by the parties) Giles J collected the cases which supported the proposition expressed by Samuels JA and pointed out that in Alexander v Cambridge Credit Corporation Ltd [1987] 9 NSWLR 310, McHugh JA said (at 357-8) that the principle approved in Simonius Vischer was in accordance with the statement of Barwick CJ in Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968)120 CLR 635 at 643, that it is sufficient that the breach of contract 'causally contributed to the loss... °.

Subject to one matter with which I will deal Mr Bainton accepted that if the finding of fact expressed in paraF6.24 was to the effect that the Shire Council's breach of contract was one of two concurrent causes of the loss then the Arbitrator should have awarded Friend and Brooker the total amount of $662,000. Mr Bainton QC also, as I understood his argument, accepted Mr Bennett's alternative argument that if the proper conclusion was that the Arbitrator had determined that the earlier contract had so weakened Friend and Brooker that the breaches found in respect of the Narooma Contract caused its failure to survive the same result followed. His essential argument was, however,

UARJEND AND BROOKER PTY LTD v COUNCIL OF THE SHIRE OF EUROBODALLA (Clarke JA)

that the findings of fact necessary to support the propositions for which Mr Bennett QC argued were not to be found in the Award.

Mr Bainton QC also suggested during argument that the decision of the High Court in March v E and M H Stramare Pty Ltd and Anor (1990-91) 171 CLR 506 may have cast doubt on the correctness of the principle which I have discussed. Stramare, which involved an action in negligence, determined that the 'but for' test is not a definitive test of causation. In the headnote (which records accurately enough for present purposes the basic proposition decided) the following appears ".. causation is essentially a question of fact to be answered by reference to common sense and experience and one into which considerations of policy and value judgments necessarily enter". The propositions for which Stramare stand do not seem to me to be in any way in conflict with the principle referred to by Samuels JA and, as Mr Bainton QC did not develop the point, it is unnecessary to say any more than that in my opinion there is nothing in Stramare which is inconsistent with the proposition on which Mr Bennett QC relies.

In support of the cross-appeal Mr Bainton submitted that the findings did not support any award for loss of profits insofar as they left open the prospect that the losses were all caused by the Bridge Street project. Unless, he submitted, there was a finding that the Bridge Street project did not solely bring about the failure to survive it was not open to award any loss of profits to Friend and Brooker as a consequence of the breaches in the Narooma contract.

What is apparent from this discussion is that there was little, or no, issue between the parties on the relevant legal principles but that the parties were divided on the meaning to be attributed to CLF6.24 in the Award when read in the context of the whole Award. I should add at this stage that, although some reliance was placed upon para 6.12 in which the Arbitrator expressed the view that it was no coincidence that the level of trading of Friend and Brooker had been greatly reduced post Narooma, that clause has not assisted me to glean the meaning to be attributed to the words used in para F6.24. My reason for saying this is that para F6.12 does not do any more, in my view, than convey the Arbitrator's opinion that the Narooma contract had some impact on the level of trading previously enjoyed by Friend and Brooker.

It is no simple matter to ascertain precisely what the Arbitrator was intending to convey in paraF6.24. This is not entirely surprising for he was dealing with an area of the law which involves complex questions and he was not a trained lawyer. The major difficulty, however, surrounds the use of the words 'may' and 'survive'. The latter word, which is relevantly defined in the Concise Oxford Dictionary to mean 'continue to exist', was quite inappropriate in that Friend and Brooker did not collapse after the Narooma contract. If, indeed, Friend and Brooker had collapsed then the question confronting the Arbitrator would have been whether the breaches of the Narooma contract were a cause of that collapse. However, a single event, that is, a collapse, was not under consideration. Rather the Arbitrator was considering the causes of a reduction in trading levels and the reduced trading could, it seems to me, have been caused wholly by one or other, or both, of the stated projects, or partly by one and partly by the other. The word 'may' also creates difficulty as it is equivocal in the circumstances. It conveys to me no more than that Friend and Brooker may or may not have survived either project but could not survive the two in combination. The difficulty is that it leaves open, as it seems to me, the prospect that Friend and Brooker may have failed to survive (in the sense used by the Arbitrator) the Bridge Street project.

Mr Bennett QC argued that the meaning conveyed by the critical sentence is that Friend and Brooker probably would have survived either but not the two in combination. The difficulty is that the Arbitrator did not use that language and there is nothing in the rest of the paragraph which suggests that that is what he meant. Mr Bennett submitted, in the alternative, that at the very least the Arbitrator was conveying that both events contributed to the failure to survive. That is an attractive argument if 'survived' is understood as antonymous to a ceasing to exist. But it is more difficult to read the conclusion in that way when the Arbitrator was discussing a reduction in trading level. As I earlier pointed out, that reduction may have flowed wholly from the combined effect of the two projects or it may have resulted partly from one project and partly from another. The reference to the two events in combination supports the argument while the final award of $331,000 is to contrary effect. On the other hand the final award could be explained as the consequence of the legal error which Mr Bennett QC attributes to the Arbitrator.

My conclusion is that the critical finding by the Arbitrator is equivocal and incapable of supporting either the amount awarded or the total loss for which Mr Bennett QC opts. On the other hand I do not think it can be said that the finding leads to the consequence that nothing should be awarded. The findings of fact are simply an inadequate foundation for any conclusion.

In the result there is a manifest error of law - in the sense in which that word is used in the Commercial Arbitration Act 1984, s38(5) as discussed in Promenade Investments Pty Ltd v State of New South Wales [1991] 26 NSWLR 203, at 225 - in that the Arbitrator has failed to find the facts necessary in law to support his conclusion. As a consequence leave to appeal from this part of his Award ought to have been granted by Cole J and the appeal allowed. This Court, which has the powers enjoyed by Cole J (Supreme Court Act, s75A(6)) ought therefore, in my opinion, to grant leave to appeal and to allow the appeal. Insofar as the error reflects a failure to find the facts necessary to lead to an ultimate conclusion on the claim for loss of profits it is appropriate for the Court to remit the Award, together with this opinion, to Mr McDougall for reconsideration (Commercial Arbitration Act, 1984, s38(3)(b)). The facts necessary to be found are whether the Narooma contract was:

(a) a cause of the actual loss of profits of $662,000, or

(b) a cause of part of the actual loss of profits of $662,000 and if so what part.

The consequence of a finding in accordance with (a) would be an award of an amount of $662,000 to the appellant. The consequence of a finding in accordance with (b) would be an award of an amount representing that part of the actual loss. A finding that the Narooma contract was not a cause of the actual loss of profits or any part of the actual loss of profits would be that no amount would be awarded under this head. Before expressing the orders which should be made I should add the observation that the decision on claim 54 was vital to a consideration of claims 50, 51 and 52 and for this reason those claims should also be remitted for further consideration in the same way.

(1) Allow the appeal and cross-appeal and set aside so much of the orders of Cole J which refused leave to appeal to both parties from the Award of the Arbitrator in respect of claims 50, 51, 52 and 54.

(2) Grant leave to both parties to appeal from the Arbitrator's award in respect of those claims;

WRJEND AND BROOKER PTY LTD v COUNCIL OF THE SHIRE OF EUROBODALLA (Sheller JA)

(4) Remit those parts of the Award to the Arbitrator for reconsideration in the light of this Court's opinion on the question of law;

(5) Respondent to pay appellant's costs of the appeal and, if qualified, to have a certificate under the Suitors Fund Act.

(6) Appellant to pay respondent's costs of the cross-appeal and, if qualified, to have a certificate under the Suitors Fund Act.

Sheller JA I have had the benefit of reading the judgment of Clarke JA and agree with it and the orders therein proposed.

1. Allow the appeal and cross-appeal and set aside so much of the orders of Cole J which refuse leave to appeal to both parties from the Award of the Arbitrator in respect of claims 50, 51, 52 and 54;

2. Grant leave to both parties to appeal from the Arbitrator's award in respect of those claims;

4. Remit those parts of the award to the arbitrator for reconsideration in the light of this Court's opinion on the question of law;

5. Respondent to pay appellant's costs of the appeal and, if qualified to have a certificate under the Suitors' Fund Act 1951; and

6. Appellant (cross respondent) to pay respondent's (cross appellant's) costs of the cross appeal and, if qualified, to have a certificate under the Suitors' Fund Act 1951.

Counsel for the Appellant/Cross-Respondent: D M J Bennett QC/R Christie Counsel for the Respondent/Cross-Appellant: J Bainton QC/R A Vincent Solicitors for the Appellant/Cross-Respondent: Foulsham and Geddes

Solicitors for the Respondent/Cross-Appellant: Dunhill Madden Butler