Manwelland Pty Ltd v Dames & Moore Pty Ltd [2000] QSC 432

Supreme Court of Queensland|2000-11-23|Before: Dutney J

[1] DUTNEY J: The plaintiff sues for damages for negligence, breach of contract and contravention of s.52 of the Trade Practices Act 1974.

[2] The action concerns the acquisition by the plaintiff of a former gasworks site in Mackay in 1995.

[4] In early 1994 the businessmen became interested in the old gasworks site in Shakespeare Street. The site was owned by Gas Corporation of Queensland Limited. The site was known by the businessmen to be a contaminated site. While it was appreciated that as a contaminated site there were restrictions associated with the use and development of the land none of the businessmen had any prior experience with such a site or knew anything about cleaning up such a site. Manwelland's previous developments had been small scale and conventional.

[5] One of the businessmen, Mr Penridge, gave evidence (T6) that he and his associates were attracted by the fact that it was a large site (1.2ha) bordering the CBD at what appeared to be an attractive price. Mr Penridge saw the possibility of an industrial sub-division, large shopping centre or simply on-sale as an englobo cleaned up site. Mr Penridge considered the land a good buy at anything under one million dollars.

[6] Negotiations ensued and on 14 September 1994 Manwelland acquired an option to buy the land for $810,000. The option had to be exercised within 30 days of the later of Manwelland acquiring a clearance from the Department of Environment and Heritage ("DEH") to use the property for light industrial purposes or obtaining approval for a plan of sub-division for the property. If either approval was not obtained within five months from the signing of the option the grantor of the option, Gas Corporation of Queensland, could terminate the option agreement. Ultimately the last date for exercise of the option was varied to 31 March 1995.

[7] In the event of the option being executed a form of contract was attached to the option agreement, of particular importance to this case was clause 42 of the form of contract which provided the following:

"(a) The Purchaser acknowledges and accepts that the Land or part thereof is contaminated land within the meaning of the Contaminated Land Act 1991. The Purchaser agrees to accept title to the Land in an "as is" condition and further agrees that it will not make any objection nor be entitled to any compensation or damages or attempt to defer completion under this contract as a result of any contamination of the Land or alleged contamination of the Land. The Purchaser acknowledges that, following completion, it shall be responsible for all remediation measures required under the Contaminated Land Act 1991 or otherwise in relation to the Land or any adjacent Land including without limitation treatment of any omission, leak, release, escape or discharge of waste or any other hazardous substance into or upon the Land or into any adjacent Land and any restoration of the Land or any adjacent Land.

(b) The Purchaser agrees as and from the Date for Completion to indemnify the Vendor against any and all claims, losses, liabilities, damages and expenses (including without limitation compensation, fines, investigation costs, clean-up costs, legal and other consultants fees) made or incurred arising directly or indirectly from, out of or by reason of any contamination of the Land or any adjacent Land or other matter referred to in subparagraph (a) of this clause.

(c) The Purchaser agrees that forthwith following completion it will effect any remediation or other measures required to the Land or any adjacent Land because of any contamination or other matter referred to in subparagraph (a) of this clause as a condition of any rezoning or development approval and, if such measures are not completed within 12 months of completion (or such shorter time as the Department of Environment and Heritage may direct), will provide to the Vendor a Bank Guarantee in a form satisfactory to the Vendor in an amount equal to the Vendor's estimate of the costs of such measures, pending their completion."

[8] Two things flow from this clause of the proposed contract. Firstly, there can be no doubt that the plaintiff was conscious of the problem of contamination and secondly the potential obligations to be assumed on exercise of the option were potentially quite far reaching.

[9] Before Manwelland signed the option agreement Mr Penridge spoke to an officer of the DEH. He was told that to clean up the site it would be necessary to engage a reputable environmental consultant to evaluate the extent of contamination and prepare a clean up plan which may result in complete clearance for some areas and a restricted use certificate for other areas. Later Mr Penridge spoke to a Mr Omerod of Dames & Moore who suggested Mr Lee of that firm as an appropriate consultant. Mr Penridge then spoke again to the officer of DEH who informed him that the department had no difficulties with Dames & Moore. Those conversations all took place before the signing of the option agreement.

[10] Mr Penridge said in his written statement (ex 3) at paragraph 17 that on 12 September 1994 he had a conversation with Mr Lee to the following effect:

"I said "I spoke to Robin Omerod a little while ago and he told me you head up a department which assists with environmental clean ups. I am looking at the possibility of doing a development of an old gas works site. The Council indicates that the site will probably have some contaminants on it. I may need to work out a remediation program with Department of Environment of Health. Can you assist me with that?"

He said "We have considerable expertise in cleaning up contaminated sites. We have worked on some major contaminated sites in Queensland and interstate."

I said "This is an old gas works site which has been partially filled with ash and other by products from the gas works. They haven't made gas on the site for 20 or 30 years."

I then gave him details of its size and that Manwelland was considering subdividing it to make it an industrial estate. I said to him:

"Can you submit a proposal to me as to how you would approach the matter? I will then talk that over with my fellow directors."

He said "We would have to carry out some tests on the site and find out what is there. When we know that, we would recommend a remediation plan if that was necessary. I will send you a history of Dames & Moore setting out the types of work that it does. If you have any queries, come back to me when you have read the Dames & Moore details.""

[11] Mr Lee was not called as a witness. No explanation was offered for not doing so. There was nothing in the demeanour of Mr Penridge or in his evidence which caused me to believe he was being other than frank or that his recollections were materially faulty. Since no alternative was put forward by Mr Lee I accept Mr Penridge's evidence of this and the other conversations he had with Mr Lee. Likewise, and for the same reasons I accept Mr Porter's evidence concerning the conversations he had with Mr Lee.

[12] Following Mr Penridge's conversation with Mr Lee on 12 September 1994 Dames & Moore wrote to Mr Penridge on behalf of Manwelland on 14 September 1994 as follows:

"I refer to your invitation of 12 September 1994 on the above topic, and have pleasure in providing the attached proposal and costing.

Our company has developed considerable expertise in dealing with the assessment of contamination, and could ensure that the highest professional standards would be maintained."

[13] Subsequently a report erroneously dated October 1991 titled "Stage I Environmental Assessment Boral Site Mackay" was received by Manwelland in October 1994. The report in section 1.o. identified itself as having been conducted in accordance with the procedures described in the "Guidelines for the Assessment of Contaminated Land in Queensland" by the CHEM Unit, 1992.

[14] Relevantly, for present purposes, the October report ("Stage I report") identified that the site was contaminated with Polynuclear Aromatic Hydrocarbons ("PAH"). However, it was also said that medium clay at depths ranging from 300mm to 1500mm formed a natural base under most of the site which "layer would provide an effective barrier to vertical migration of any contamination." Further, it was stated that "contamination of groundwater was not indicated."

[15] The Stage I report was received under cover of a letter from Dames & Moore dated 25 October 1994 which contained the following:

"I am pleased to present three copies of the above report to you. If any clarification of this information is required, please do not hesitate to make further contact.

Basically the project found contamination on the property, particularly elevated levels of polynuclear aromatic hydrocarbons in the eastern and central part of the site. These levels were several hundred times higher than levels considered to be safe in soil. It is not unexpected to find PAH's at old gas works sites.

The current project was a Stage I Assessment which aimed to identify the potential for contamination at the site as well as identify the presence of any suspended toxic compounds by sampling and testing. This presence has now been confirmed, and the contamination would need to be considered in any site redevelopment plan to avoid exposure of toxic compounds to health and/or the environment.

State legislation (Contaminated Land Act 1991) does not require contamination to be cleaned up (unless it is migrating off-site), however if it is not removed from the site, there will be restrictions placed on the permitted use of those allotments on which the contamination occurs. Also a management plan may be required to permanently monitor the contamination to ensure that it is not migrating off-site or contaminating the groundwater. Further, any activity which would disturb the subsurface, eg excavations for roadworks, building foundations, installation of underground services, would require approval by the Contaminated Land Unit of the Department of Environment and Heritage (DEH) before the works occurred. This would be incumbent on the developer of the site as well as upon the subsequent owners of the allotments in perpetuity. This is an onerous requirement, and is one which most landowners aim to avoid by cleaning up their sites.

Also if the contamination is not removed, the market value of the affected allotments, and perhaps the whole site, would be significantly reduced.

If you wish to continue your interest with the site, the next step in addressing the contamination issue is to define the lateral and vertical extent of the contamination by conducting further sampling and testing in a Stage II Assessment.

After the extent of contamination was defined, the cost of clean up could be calculated. If you considered these to be acceptable, cleanup works would proceed.

If you think the subdivision project may be viable, and also if it would be your intention to clean up the site to a Former classification on the DEH Contaminated Sites Register, then it would be desirable to forward my current report to the DEH for their consideration. DEH approval is required for later stages of site cleanup, as well as for the final certification of effectiveness of cleanup. There is a waiting period of at least 10 weeks for DEH to consider a report, and this time starts from when the first report on a site is received. It is more efficient to start the waiting period as soon as possible, and conduct later stages of the project during this waiting period."

[16] After reading the report Mr Penridge again spoke to Mr Lee. The conversation was along these lines:

"I said "I have read your report. Just how badly contaminated do you say the site is?"

Lee said "It's pretty contaminated, but it's not the worst site that I've seen. There are some pretty nasty things there."

Lee then went on to explain the nature of the contaminants which he had found. At that stage, I did not fully understand what he told me. He talked in scientific and technical terms.

He said "There is not a problem in doing it. It is a case of extracting the contaminated material and removing it from the site. If you remove it, it no longer exists, you no longer have a problem and you will get a clearance from the Department. The next step is to obtain details of the lateral and vertical extent of the contamination. That will tell you the volume of material that has to be removed. You will then be able to work out the costs of the clean up and you will be able to verify the liability of you problem."

I said "Will you go ahead and do the second stage assessment and tell us what the lateral and vertical extent of the contamination is?"

He said "Alright. We will get on with that as soon as we can. The preferred method of remediation is to pick up the contamination and take it away. There are other ways such as capping and containing, but I think removal is the best way to get a clearance from the Department. If we want to remove the contaminants, we will have to move on to a further report which quantifies the volume of material that has to be removed."

I said "Would you give us a quotation for the costs of preparing a further report"."

[17] Following this conversation Dames & Moore forwarded a proposal to Manwelland. The scope of the proposed work was said in section 2.2 to include a remediation plan to recommend alternatives to clean up the site. Each alternative would be costed and a preferred remediation plan recommended. The report would also be prepared to a standard acceptable to the Contaminated Land Unit DEH (section 2.3).

[18] At some point around this time Manwelland received from Dames & Moore some flow charts setting out the steps involved in getting contaminated land clearance. On analysis these charts identify the steps as a Stage I report subsequently assessed by DEH, a State II report subsequently assessed by DEH, a Stage III report to develop options and select a site management plan in liaison with DEH followed by implementation.

[19] Much was sought to be made of the fact that it was a term of the option agreement that no approach could be made to DEH for site clearance without providing the appropriate reports to the grantor and obtaining its approval. It was said that it followed from this that the proposal referred to in paragraph [17] could only be for a Stage II report simpliciter because it was not being prepared in liaison with DEH. In evaluating this submission one must start from the position that the businessmen behind the plaintiff were lay people with no experience of contaminated sites and no knowledge of procedures in relation to cleanup beyond what they were being told by Dames & Moore. If Dames & Moore told them the Stage II report would contain a choice of remediation plans and costings Manwelland was entitled to and did, by the businessmen involved, accept that what was subsequently provided was a remediation plan and a reliable costing.

[20] The proposal for the second report was accepted and in December 1994 Manelland received a document entitled "STAGE II SITE INVESTIGATION REMEDIATION PLAN AND COSTINGS". I have previously referred to this document somewhat loosely as the Stage II report and will continue to do so. This should not be taken to be a finding that it is in fact limited to being a Stage II or that in so far as it includes the Stage II report it satisfies the relevant guidelines.

[21] In its case Manwelland relies primarily on that part of the Stage II report relating to the proposals for remediation and the costing. Section 5.0 is described as "REMEDIATION PLAN AND COSTING". In sub-section 5.2 it offers four possible alternative measures. These were 1. Disposal to Landfill; 2. Capping and Containment; 3. Thermal Desorption; 4. Stablisation/Solidification. Of these alternatives 3 and 4 were never seriously considered because of the cost. Option 1 was identified as the preferred option although initially Manwelland favoured option 2.

[22] Option 1, which was Dames & Moore's preferred option involved the excavation of the site and disposal of the contaminated soil to the Bayersville Refuse Tip in North Mackay. The grounds for Dames & Moore preferring this option were expressed in subsection 5.3 of the Stage II report as being threefold. First, the dumping fees at the Bayersville tip were low. Second, there was a high acceptability of such a method to regulatory bodies such as DEH when compared with the capping and containment method. Third, the cost of stabilisation/solidification of the excessively contaminated soil was low compared to thermal disorption.

[23] Sub-section 5.4 of the Stage II report dealt with costing. It commenced:

"The following tasks would be required to be carried out as part of the remediation process described above:"

No list of tasks followed although the next sentences read:

"Estimated costs involved with each of the tasks described above has been calculated and are shown in Table 7. The total costs for the project would be in the order of $300,000."

Table 7 did contain a list of tasks with a costing beside each task. The total of the individual item costs was $300,000.

[24] Section 6 of the report was headed "CONCLUSIONS" and relevantly contained the following:

"The most appropriate process of remediating the site would involve the off-site disposal of soil containing concentrations of PAH below 500mg/kg, and on-site treatment of soil containing levels of PAH greater than 500mg/kg, with subsequent off-site disposal. The estimated cost for carrying out this remediation process is estimated to be in the order of $300,000."

[25] Section 7 of the Stage II report contained a statement of the limitations of the report. No relevant limitation relates to the costing or the appropriateness of the recommendation.

[26] After reading the Stage II report Mr Penridge telephoned Mr Lee. The conversation went along these lines (see ex 3, para 36):

"I asked him how definite he was about the cost to dump soil at the Mackay City Council's land fill site. He said that the prices quoted in the report were what he had been told by the Council, but it was very low when compared to Brisbane charges. He suggested we try to meet with the Council officers and lock in the charges at those rates.

I then said "I would like you to make some further comments to help me negotiate with the Gas Corporation in relation to our purchase of the site. Iu want to factor into my negotiations the removal costs. Will you give me a letter with the estimate of those costs saying that they might increase, so that I can submit it to the Gas Corporation to verify what I am putting."

He said "Mackay City Council indicates that it wants $6.00 per cubic metre to take the contaminated material at the Bayersville site. Every rise of $1.00 per cubic metre will add $5,000.00 to the removal costs. I will send you a letter confirming that"."

[27] The letter arrived dated 15 December 1994. The relevant parts of the letter were as follows:

"I refer to our Stage II report of December 1994 and wish to add some further comments on the above topic. These issues were not raised in the report as they are of a sensitive commercial nature.

Several assumptions were made in the calculations of clean-up costs in our Stage II report, and these costs are likely to escalate considerably with time. Clean-up costs have increased significantly over the last three years, and this trend is expected to continue into the future.

The new Environmental Protection Bill is currently being debated in the Queensland Parliament and this will require new standards of environmental compliance by owners of industrial properties. Because of the relatively high toxicity of PAHs, and the fact that high levels of PAH (up to 5 000 mg/kg) were found along the eastern boundary of the property, environmental measures may be required to ensure that contamination does not migrate off-site in the groundwater. These measures could include regular monitoring of groundwater quality and prevention of any off-site migration by construction of cutoff trenches and extraction and treatment of groundwater on a permanent basis.

In summary, the costs of clean-up may increase in the future at a rate which is faster than increases in value of the site. In many other cases, clean-up costs have increased by up to ten times over the last three years, mostly from increasing standards of investigation required and costs of disposal of contaminated material at landfill sites. Further, these increases should be expected to continue as the public and government develop increasing unwillingness to accept health risks and/or environmental degradation."

[28] The defendant's submission relies heavily on the letter of 15 December 1994 as a qualification of the costing in the Stage II report. In particular, it is submitted that 8 relevant matters in the letter qualify the Stage II report. These are:

(a) several assumptions were made in the calculations in the Stage 2 report;

(b) clean up costs are likely to escalate considerably with time - they had increased significantly over the last 3 years and that trend is expected to continue;

(d) if MCC adopted lower threshold levels than the BCC, a greater quantity of excavated material would need to be treated before acceptance at the Tip;

(e) the general trend of standards applying to refuse tips is such that contaminated material is becoming more difficult to dispose of;

(f) the Environmental Protection Bill is being debated in Parliament and will require new standards of environmental compliance by owners of industrial properties;

(g) environmental measures may be required to ensure that contamination does not migrate offsite in groundwater and could include regular monitoring of groundwater quality;

(h) in many other cases, clean up costs had increased by up to ten times over the last 3 years, "mostly from increasing standards of investigation required and costs of disposal" and these increases should be expected to continue as the public and government "develop increasing unwillingness to accept health risks and/or environmental degradation".

[29] The attempt to renegotiate the purchase price with Gas Corporation failed.

[30] Between December 1994 and 31 March 1995 the matter progressed little as far as the clean up was concerned. The disposal costs at the Bayersville Tip were locked in.

[31] In late February 1995 Mr Penridge became award that Harvey Norman was looking to find a site in Mackay. Some discussions were held with PRD Realty about using the entire site for a retail store, warehouse and carpark.

[32] The significance of the Harvey Norman interest was that it might enable Manwelland to do the project with the clean up limited to the cap and containment option rather than removing the contaminated soil off site.

[33] At the same time a Mackay accountant, Paul Clark of CE Smith & Co indicated that be believed he could put together a syndicate of clients to form a property trust to acquire the redeveloped site from Manwelland.

[34] Although no costing was over done the directors of Manwelland had it firmly in their minds that the capping and containment option could be implemented at a fraction of the cost of removing the contaminated soil to a landfill. This may or may not have been a valid assumption but nothing ultimately turns on it because the decision to proceed was ultimately done on a worst case scenario for which the directors relied on the Dames & Moore costing of "in the order of $300,000".

[35] Having been unsuccessful in having the deadline for the exercise of the option further extended from 31 March 1995 the directors of Manwelland met on that day to consider their position. The options and information given by Dames & Moore was considered. A few days before this meeting one of the directors, Mr Porter, had spoken to Mr Lee and obtained confirmation that a full clean up could be achieved for $300,000 (ex 4, para 25).

[36] The directors decided at the meeting to exercise the option and a letter exercising it was given that day.

[37] The decision to exercise the option was said to be based on the belief that as a worst case scenario the site could be cleaned up and obtain a "former" classification at a cost of between $250,000 and $350,000 allowing a reasonable variation from the Dames & Moore estimate. At T52.1-6 Mr Penridge said:

"... what I appreciated at the time was my worst case scenario was that it would cost me $300,000 to clean that site, give or take. Worst case scenario. On that basis I knew that when I entered into a contract the worst case scenario I had would be, for the purchase of that land, approximately $1.1 million. That's the reality of it."

[38] Each of the directors emphatically denied they would have exercised the option if they had been told that the cost estimate of $300,000 to clean up the site could not be relied on for accuracy or that the recommended option might not ultimately be acceptable to DEH. I accept the matters set out in this paragraph and paragraphs [36] and [37].

[39] Ultimately, Dr Swane, an expert in the clean up of former gas works sites provided reports and gave evidence for the defendant. Dr Swane recognised that there was some element of uncertainty about removal of contaminated soil to a land fill as a method of cleaning up a contaminated site notwithstanding that it remains the most common method (T349.45). This had been identified in a published article by Dr Swane in "Geotechnical Management of Waste and Contamination" (Ex 28, p151). In any event I am satisfied that the information contained in the Stage I and Stage II reports could never have satisfied DEH that the recommended clean up method of removing the soil was acceptable. In other words there were as at 31 March 1995 insufficient grounds to support advice that such a clean up method would be acceptable or to cost it at $300,000. I consider that the requirement of the application of ordinary skill by an expert called on to give advice demands that there be a rational basis for the advice proffered or if not at least an explanation to that effect.

[40] One of the recurring problems in subsequent negotiations with DEH was the suitability of the Bayersville tip as a repository for the contaminated soil which problem should have been predictable to Dames & Moore (see T98.30-58) although it would not have been predictable to a lay person. In particular the Bayersville tip was a poor location because it was sited next to mangrove swamps and was unlined, had no surface water collection control, no groundwater monitoring and no leachate collection system (ex 7, report of HLA-Enviroscienses Pty Ltd, 4.10.00 pp6-7; Briese: T252.45-253.2). It appears Dames & Moore had failed to consider the suitability of the Bayersville tip in making the recommendation. That this was in fact a critical issue to DEH is clear from Mr O'Connor's evidence at T211.8-15.

[41] Further, there seems to me to have been no proper basis for the cost estimate of $300,000. Dr Swane for the defendant seemed to be saying at T326-327 that estimating the cost of the clean up to be "in the order of $300,000"meant and should be understood to mean that it was difficult to quantify and may or may not be of that order. Frankly, I found this proposition incredible. To me, the allowance in fact made by Manwelland of plus or minus $50,000 seemed to be a conservative approach to the way a lay person would read such an estimate. I thought Dr Swane was partisan in the giving of his evidence which should be discounted accordingly. Even he, however, in his report at p 18 (ex 38) said that the finding in the Stage II report that "the cost to remediate 5200 cubic metres of contaminated soil using the "dig and dump" approach was in the order of $300,000" was unjustified.

[42] In reality, I find, was that there was no proper basis for the costing of $300,000. Mr Kidd estimated it would in fact have been over $500,000 and up to $963,500 (ex 7, report HLA-Envirosciences Pty Ltd, 4.10.00 at pp 11-12). Dr Swane gave a lower figure but it seems to me that despite my reservations about Dr Swane's evidence there is still insufficient basis to accurately assess the cost because Bayersville tip was never approved, no alternative site ever identified and the extent of the problem never properly identified by adequate groundwater sampling.

[43] Had Manwelland been properly advised by Dames & Moore of the unreliability of the cost estimate or the problematic acceptability of the recommended method I am satisfied it would not have exercised the option. Even though it did not at the time of exercise of the option intend to remove the contaminated soil from the site I am satisfied that the belief that this was the worst case fall back position was critical to the decision. Further, I am not satisfied that any of the points the defendant seeks to draw from the letter of 15 December 1994 having regard to the circumstances in which the letter was provided and its purpose is sufficient to qualify the contents of the Stage II report in such a way as to identify its inherently misleading nature. In any case, it seems to me that the letter of 15 December 1994 does no more than say cost will inevitably rise in time and environmental standards will change. It does not say that neither the recommendation nor the costing has been sufficiently investigated to give an objectively reasonable basis for making them. Certainly neither the Stage II report nor the letter of 15 December 1994 says that either or both the recommendation and the costing are unreliable.

[44] For the purpose of the Trade Practices Act 1974 claim I am satisfied that both the advice that the removal of the contaminated soil would not be a problem given orally after 25 October 1994, and the costing contained in the Stage II report were predictions and subject to s51A of the Trade Practices Act 1974. I am satisfied that Dames & Moore had no proper basis for making those predictions. I am satisfied that Dames & Moore had done insufficient investigation to justify a statement in the Stage II report that a removal to land fill option had high acceptability to bodies such as DEH without qualification for the particular problems of this site. Having been given in an unqualified way each of the statements I have referred to was misleading or deceptive in the context of an expert advising a client in relation to costs and options knowing the client intended to use the advice as the basis for a decision whether or not to buy a property and knowing the decision was cost sensitive.

[45] Accordingly I find each of the statements in paragraph [44] infringed s.52 of the Trade Practices Act 1974.

[46] In discussing the development of the law of negligence as it relates to the giving of advice in Esanda Finance Corporation Ltd v. Peat Marwick Hungerfords (1995-1997) 188 CLR 241 at 252, Brennan CJ said:

"... in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound."

It is not relevant to this issue whether what is provided is information, advice or some combination: San Sebastian v The Minister [1986] HCA 68; (1986) 162 CLR 340 at 356. Neither is it relevant that advice relates to future matters such as the future conduct of DEH: Meates v Attorney-General [1983] NZLR 308.

[47] Each of the required elements necessary to found liability in negligence in the event of damage having been suffered by the plaintiff is established. The defendant was conscious of the purpose for which the Stage I and Stage II reports had been sought, namely, to found a decision on whether or not the plaintiff would commit itself to the purchase of the Mackay gas works site. There is in my view no doubt that the defendant knew that the plaintiff did rely on that advice. In fact, the plaintiff would rely on that advice. The advice was unsound in that it represented without a proper foundation that the removal of contaminated material from the site to the Bayersville tip would be an acceptable method of cleaning up the site as long as stabilisation of the more highly contaminated material was first carried out on site and that such a clean up could be achieved at a cost of the order of $300,000.

[48] Here Mr Lee expressly represented himself as someone particularly skilled in the job he was being asked to do: see [10] above. In my view the terms of the retainer of Dames & Moore included the matters referred to in section 2.2 of the proposal for the Stage II report, namely that a recommended and costed remediation plan would be provided. Inherent in this is that the plan would be viable in the sense that sufficient work would be done to ensure it was a practical rather than a purely theoretical proposal and the costings reliable. The report subsequently did not meet the terms of the retainer in the form in which it was supplied.

[49] It follows that the defendant was in breach of the implied contractual term to exercise proper care and skill in the furnishing of the advice.

[50] For reasons which follow one of the central issues in this case is whether or not the conduct of the defendant which I have concluded is below the required standard of care, misleading or deceptive and in breach of the contract of retainer has given rise to loss on the part of the plaintiff. Proof of damage is an essential element of the cause of action in negligence and the cause of action under the Trade Practices Act 1974 on which the plaintiff relies. In the case of the claim under s 82 of the Trade Practices Act 1974 this is expressly stated in the judgment of the majority in Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525. In relation to the claim in negligence see Munday Ltd v London City Council [1916] 2 KB 331, 334; Williams v Milotin [1957] HCA 83; (1957) 97 CLR 465. In contract the position is different and a plaintiff who cannot show real damage is entitled upon proof of breach to at least nominal damages: Marzetti v Williams [1830] EngR 839; (1830) 1 B & Ad 415; 109 ER 842. Where there are alternative claims in tort and contract the approach of the court has been to award nominal damages where real damage is not shown without finding it necessary to differentiate between the of action in which damage is an element and that where it is not: see Hanflex Pty Ltd v NS Hope & Associates [1990] 2 Qd R 218; Gore v Montague Mining Pty Ltd [2000] FCA 1214. This has some significance in relation to costs if ultimately only nominal damages are assessed.

[51] As a general proposition the calculation of damage is to be determined by comparing the position the injured party is in as a result of the tortious or misleading conduct or the breach of contract as the case may be and the position the plaintiff would have been in if that conduct had not occurred. Both parties agree that the quantum of damage under the three separate causes of action relied on here is the same. But for the conduct of the defendant complained of here the plaintiff would not have exercised the option and acquired the Mackay gas works site. In this case proper performance of the contract would have been to advise that the clean up of a former gasworks site was new to DEH, that DEH's response was unpredictable, that the Bayersville tip was not necessarily a suitable repository for the removed material and that a reliable costing was not possible at that stage. In Toteff v. Antonas [1952] HCA 16; (1952) 87 CLR 647 at 650-651 the High Court said of the calculation:

"The measure of damages in an action of deceit consists in the loss or expenditure incurred by the plaintiff in consequence of the inducement on which he relied diminished by the corresponding advantage in money or moneys worth obtained by him on the other side ... You look to what he has been induced to part with as the initial step. He is entitled to say that but for the fraud he would never have parted with his money... But he cannot recover the entire price he has paid unless the thing prove wholly worthless. If the thing has any appreciable value the damages must be reduced pro tanto ..."

"The measure of damages is the difference between what the plaintiff paid, the sum he was out of pocket, and the real market value of the assets he acquired."

[52] The critical issue in the assessment of damage in this case is whether or not in calculating any loss it is necessary to bring to account the proceeds of subsequent sale of the portion of the land which was ultimately developed and sold.

[53] The plaintiff submits (para 98 of its written submissions) that whether Manwelland made any profits out of the sale of part of the property is irrelevant. It does not have to offset any such profits against the loss in value of the property. It is said that the property may be seen as a proxy for another property that it may have acquired were it not for defendant's negligence and breach of contract. It may have made profits out of such a property in any event. The only relevant loss is the difference in value between the purchase price and the real value of the property on the date it was acquired.

[54] I having difficulty in accepting these submissions as a full and accurate statement of the position. They do not seem to me to give full effect to the compensatory nature of damages in these types of cases. In Haines v. Bendall [1991] HCA 15; (1991) 172 CLR 60 at 63 the majority said:

"The settled principle governing the assessment of compensatory damages, whether in actions or tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort not been committed ... Compensation is the cardinal concept. It is the "one principle that is absolutely firm, and which must control all else"... Cognate with this concept is the rule ... that a plaintiff cannot recover more than he or she has lost."

[55] Marks v. GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 establishes that the same principle applies to claims under s. 82 of the Trade Practices Act 1974.

[56] The reasons for what happened after 31 March 1995 and the detailed steps undertaken although canvassed in detail in the course of the trial are of limited relevance. It is sufficient to record that the Manwelland preferred option of capping and containing the waste on site was abandoned when it became clear that the ongoing monitoring requirements imposed by DEH and the theoretical possibility of buildings on site being subject to removal to treat any contamination problems meant that financiers would not lend on the security of any development on the land. This rendered it unsaleable. The removal to land fill option was never approved principally because of insufficient ground water investigations to satisfy DEH of the extent of the problem and the unsuitability of the Bayersville tip to receive the contaminated material. Ultimately approval was given to subdivide the land into three lots. Lot 1 facing Shakespeare Street was cleaned up by removing contaminated material to Lot 3. Lot 1 was then classified as a "former" site. A shopping complex was built on it by Manwelland and sold to the property trust set up by CE Smith & Co. Lot 2 is the less contaminated portion of the balance of the site. It remains a vacant and undeveloped but may at some time be able to be economically remediated to the extent of being approved by DEH for some purposes. Lot 3 is heavily contaminated and is unlikely ever to be approved for any use.

[57] The defendant submits that a comparison of the relative positions of the plaintiff with and without the breach of contract or tortious conduct is a comparison between the position of the plaintiff if it had not exercised the option and the position that it exercised the option and purchased the land, developed and on sold part of it and retained the balance. The plaintiff's notional position, had it not exercised the option, is that it would not own Lots 2 and 3 and would not have spent any money after 31 March 1995 in acquiring developing and on-selling. It had always been the intention to develop the land and sell it (T39).

[58] I consider the defendant's analysis of the respective positions to be correct. The plaintiff says that a proper analysis shows the following (see Ex 33; T170-180):

[59] Of course, the plaintiff submits this analysis is irrelevant to the question of damages. The plaintiff submits that the true quantification of the loss is the difference between the purchase price of the land ($810,000) and its true value at the date of acquisition ($300,000) together with costs wasted in consequence of Dames & Moore's advice, and differential transaction costs totalling $386,841.22 (exhibit 9). The total claimed loss is therefore $896,841.22.

[60] In relation to the figures I accept the accuracy of those items in the profit analysis. They are all historical costs which can be verified by reference to exhibit 14. None of those costs was challenged save the payment of $114,000 to Cordukes for costs wasted on the original development proposal and interest. There was also some attack on the travel expenses as they were originally presented (T68). Ultimately Mr Porter was able to satisfactorily explain the amount claimed (T280-T281). I accept the figure of $2,247 claimed. As to the $114,000 it seems to have been a compromise reached with Cordukes after the initial proposal to develop the whole site fell through. Having heard Mr Porter's explanation at T294 I am satisfied that it represents a bona fide settlement of the claim made by Cordukes and hence is reasonable. The figures in exhibit 14 include the $386,841.22 claimed as additional transaction expenses or wasted expenditure by the plaintiff in its quantification of the claim.

[61] The figure claimed as being true value of the land is derived from the evidence of Mr Deacon, a valuer. Mr Deacon gave evidence that the price a reasonable purchaser would pay for the land in April 1995 knowing the land was contaminated but not knowing what remedial steps would be required to be undertaken and whether or not they would render the whole site useable was $300,000. (T 172.58-173.12; T186.17-30).

[62] Although not calling separate evidence of value the defendant contests this figure. The basis of the attack is that a higher valuation was provided on the assumption that Lot 1 had a "former" classification and approval for development. I consider this to be wrong assumption for the purpose of the exercise. As at April 1995 the true position was that it was not known whether the site could be remediated or to what extent. The assumption underlying the $300,000 valuation is, therefore, in my view the correct assumption and I accept that figure as the only evidence of value based upon the correct assumptions.

[63] In my view the approach to quantification of damage by the plaintiff is wrong in principle. If I acceded to that approach the profit on sale of the Lot 1 development would be $896,841.22. This profit could not have been made without the negligent or misleading advice of the defendant. The derivation of a profit by development and sale was integral to the whole project. This windfall profit seems to me to be entirely inconsistent with compensation being the "cardinal concept" (Haines v. Bendall (supra)). The correct measure of damage is equivalent to the net profit or loss on the entirety of the transaction induced by Dames & Moore's tortious or misleading conduct. In my view this corresponds with the profit analysis set out above less costs incurred prior to 31 March 1995 and taking into account the value of the land retained.

[64] The expenses incurred before 31 March 1995 consist of the cost of the Stage I and Stage II reports. These total $28,094.57 (see ex 14, p 9). If one deducts this amount from the expenses in the profitability analysis one is left with a loss of $10,259.43 rather than the loss of $38,354.00 overall. On top of this is the value of the retained contaminated land. In his valuation as at 20 April 1995 Mr Deacon values this residual land at $80,000 on the basis of its being contaminated (ex 8, p 35). Mr Deacon was cross-examined at length about the value of the residual land (T 188 ff). In the end I did not consider that Mr Deacon departed from his written valuation (ex 8) notwithstanding that at other times since 1994 he has valued the land and applied different values based on the assumptions set out in those valuation reports (see ex 32 and ex 34). I accept that the value of the residual land (ie. Lots 2 and 3) is $80,000. The effect of this is that in value terms the plaintiff despite being wrongly induced by Dames & Moore to acquire the former gasworks site has made an overall net profit of $69,740.57 by doing so. No evidence was led to suggest that entry into this transaction caused loss by preventing Manwelland from taking advantage of a commercial opportunity elsewhere. Since the onus of proving damage is on the plaintiff it has for the reasons I have outlined failed to discharge that onus: see Gore v Montague Mining Pty Ltd [2000] FCA 1214 at [34].

[65] Since I am not able to find that the plaintiff has suffered any damage in consequence of the negligence or breach of s 52 of the Trade Practices Act 1974 by the defendant I would, but for the alternative claim in contract have no option but to dismiss the action. In relation to the claim in contract the plaintiff has established the breach by the defendant which is sufficient to entitle it to nominal damages which I assess in this case as $20. Accordingly, judgment is given in the action for the plaintiff against the defendant in the sum of $20.

[66] What should happen in relation to costs in consequence of such an outcome was considered by the Full Court in Hanflex Pty Ltd v NS Hope & Associates [1990] 2 Qd R 218 at 229. In that case after considering a number of authorities it was ordered that each party have the costs of the issues on which they were successful. That would impose a significant and unnecessary burden on the assessor here. Although the defendant succeeded on the claims for negligence and under the Trade Practices Act 1974 the plaintiff succeeded in contract. The same evidence was led in relation to each. The plaintiff succeeded, however in establishing that the defendant was both negligent and misleading or deceptive in relation to the advice given. The real distinction recognised by the Full Court in Hanflex (supra) is between issues going to liability and issues going to damages. This seems to be the essence of the outcome in Hanflex and the Full Court of the Federal Court came recently to the same conclusion in Gore v Montague Mining Pty Ltd [2000] FCA 1214. Apart from Mr Deacon and some cross-examination of Mr Penridge and Mr Porter the evidence was almost entirely in relation to liability. Having sat through it, I estimate that at least 80% of the evidence and documentation related to liability. On the assumption that both sides costs were approximately equal that would ordinarily result in an order that the defendant pay 60% of the plaintiff's costs. This is the net result of the defendant paying 80% of the plaintiff's costs and the plaintiff paying 20% of the defendant's. In fact this is likely to favour the defendant because the plaintiff's costs are likely to be higher. The plaintiff had the carriage of the matter and the defendant called no evidence on damages. On the other hand the action, in view of the quantum of the damages, could in fact have been brought in a lower court. The issues were such that it was not inappropriate for them to be litigated in this court particularly since, had I accepted the plaintiff's submissions as to how to assess damages I would have assessed damages at $896,841.22 plus interest. In the circumstances I consider justice is done to each party taking into account all these factors if I order that the defendant pay 50% of the plaintiff's costs of and incidental to the action to be assessed on the standard basis. Before making such an order, however, I will hear submissions from the parties.

CITATION: Manwelland Pty Ltd v Dames & Moore Pty Ltd [2000] QSC 432

DELIVERED ON: Reasons for judgment published 23 November 2000

ORDERS: Plaintiff's application to reopen refused.

Judgment for the plaintiff against the defendant in the amount of $16,158.60 with the defendant to pay the plaintiff's costs of and incidental to the action to be assessed on the standard basis

CATCHWORDS: PRACTICE & PROCEDURE - APPLICATION TO REOPEN - plaintiff seeks to adduce further evidence after reasons for judgment published - earlier opportunities - mathematical error - correction

COSTS - CALDERBANK OFFER - amount recovered could have been sued for in Magistrates Court - error in approach to calculation of damage contributed to by defendant - discretion

Calderbank v Calderbank [1976] Fam 93, considered

Tector v McCaughey [2000] QCA 426, referred to

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2000] QCA 172, referred to

Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425, distinguished

COUNSEL: JC Bell QC with him K Barlow for the plaintiff

[1] On 23 November 2000 I published reasons for judgment in this action. In doing so I indicated that I proposed to award the plaintiff nominal damages of $20 on the basis that no loss had been demonstrated and would hear submissions on costs but subject thereto was inclined to award the plaintiff 50% of its costs assessed on the standard basis.

[2] Since then I have received detailed submissions on costs with which I shall deal shortly. I have also received an application from the plaintiff to reopen the case and adduce further evidence on damages.

[3] The plaintiff seeks to re-open its case to lead evidence summarised in paragraph 9 of the submissions in support of the application as follows:

(b) the obligation of the plaintiff to reimburse the directors for providing their services to the plaintiff;

(d) the lost opportunity to invest in another project.

[4] The explanation advanced for not adducing the evidence at trial is that the plaintiff claims to have been misled by the defendant into thinking that the defendant agreed with what the plaintiff ultimately submitted was the proper basis for calculating damages.

[5] A number of matters combine to cause me to reject the application.

[6] The application is very late. Evidence concluded in October. The defendant delivered written submissions late in October in which the issue of failure to prove damage was squarely raised. I raised the issue of the correct measure of damages very early in the course of the trial, before Mr Penridge, the plaintiff's first witness finished his evidence in chief. The plaintiff's counsel were permitted to reserve their position on the issue and if necessary to recall Mr Penridge. They chose not to do so.

[7] The matter was again raised during the evidence of Mr Deacon through whom (at T 176) the document which became Ex 33 was tendered. Ex 33 as corrected by the evidence at T 178-180 was said to show the profitability of the reconfigured development. It was also said to be in response to my earlier suggestion that the net profit or loss on the reconfigured development might ultimately have to be brought to account (see T177.1). In its own written submissions on the trial proper the plaintiff suggested loss of opportunity but gave no indication of wanting to reopen to lead evidence.

[8] Despite a belief on the part of the plaintiff that the defendant may have agreed with its method of calculation of damage it is, of course, ultimately a matter for the judge to assess damage in the absence of compromise. The plaintiff, in my view, was made aware of the concerns I had as to the appropriateness of its method of calculation and led evidence to address them. I consider it would be rare in light of the way the case has developed to give leave to reopen to lead additional evidence after the publication of reasons. I do not consider this to be an appropriate case. The application to reopen is refused.

[9] I have reservations in any event about the heads of additional damage the plaintiff wants to pursue. The affidavit of Mr Penridge filed in support of the application does not demonstrate any legal basis of liability on the part of the plaintiff for its directors' time. This head seems a little opportunistic. Holding costs of Lots 2 & 3 should be reflected in their present value as should be the potential liability for rectification. The lost opportunity which is identified at Airlie Beach seems to have progressed no further than that a possible joint venture partner (who owned the relevant land) "showed interest". The lost opportunity would seem to be a loss of a very uncertain chance. Fortunately I don't have to express any concluded view on these matters.

[10] Despite my refusal of the application there is one matter I should address. In setting out in paragraph [58] of the reasons for judgment Ex 33 as varied by the evidence gross realisations are shown at $3,780,000. To this I added $80,000 as the value of the retained land (see para [64]). Perusal of the evidence of Mr Deacon at T 178.45-.53 shows that Mr Deacon had already included the $80,000 in the sum of $3,780,000. It has therefore, been counted twice.

[11] Since judgment has not been pronounced I should correct the error to which my attention has now been drawn. The effect of the double counting of the $80,000 is to correct a $69,740.57 profit to a $10,259.43 loss (see para [64]). Therefore the plaintiff has, in fact, demonstrated loss.

[12] Judgment should therefore be given for the plaintiff for $10,259.43 plus interest at10% for 5.75 years making $5,899.17. The total amount of the judgment therefore will be $16,158.60.

[14] I have now been made aware that on 27 September 2000 the defendant offered to settle the action for a sum of $60,000. The offer appears to have been an all up offer and was to remain open for 2 days. The offer was not made pursuant to Chapter 9 Part 5 of the Uniform Civil Procedure Rules. Under that part an offer is required to remain open for at least 14 days even if rejected and cannot be withdrawn without leave. If the plaintiff fails to beat a Chapter 9 Part 5 offer a defendant is entitled to its costs assessed on the standard basis after the date of service of the offer. Although the offer here is not in accordance with the rules I am entitled to consider it in the exercise of my discretion. Such offers are commonly described as Calderbank offers since they are based on the principles discussed in Calderbank v Calderbank [1976] Fam 93. Because the offer is an all up offer one has little against which to measure it except one's own impression of what costs are and in this case Mr Clarke's affidavit of 13 December 2000 which assesses indemnity costs to 30 June 2000 around $40,000 and from 1 July 2000 to 5 December 2000 at a little over $48,000 excluding senior counsel's fees. The offer is almost certainly less than judgment plus costs including trial costs even on the standard basis but may or may not be more than judgment plus costs to the date of the offer.

[15] The defendant submits that in view of the offer I should award the plaintiff the 50% of costs I was minded to award originally but reduced to the Magistrates Court scale and assessed on the standard basis but only until 27 September 2000. From 28 September 2000 it is submitted I should award the defendant its costs on an indemnity basis. The 50% I was originally minded to award was, of course, predicated on a failure to prove damage.

[16] The award of costs to the defendant from 28 September on an indemnity basis would put the defendant in a better position than it would have been in had it made a formal offer under the rules. In my view this would be inappropriate. The rules in Chapter 9 Part 5 set out a considered framework with clear consequences for failing to beat offers with which all practitioners are or can by reference to the rules become familiar. There are decided advantages in having an established system covering offers to settle. Practitioners should be encouraged to use it so that the other party is under no illusions as to the risk associated with non- acceptance of an offer. To reward the maker of an informal offer more highly would undermine this system. Likewise, the rules keeping offers open for 14 days even if initially rejected have much to commend them. Offers which remain open only for such a short time that they cannot practically be properly thought through are not really likely to encourage settlement. They are more likely to result in the kind of knee jerk rejection that occurred here. In my view while effect may be given to Calderbank offers (see Maggbury Pty Ltd v Hagele Australia Pty Ltd [2000] QCA 172) that effect depends on all the circumstances and is not necessarily to the extent that effect would be given to an offer under the rules. In Tector v McCaughey [2000] QCA 426 the Court described the nature of Calderbank offers as follows:

"[4]...where there is no rule of court which governs offers of settlement...a letter containing an offer of settlement may be taken into account by a court when considering the question of costs. Calderbank did not concern indemnity costs".

An offer under the rules was not made apparently because the defendant wanted to put itself in a better position than under the rules. Although reference is made to Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 that seems to me to be an entirely different situation. In any event I am not sure whether, even when made the offer exceeded damages recovered plus costs to date of offer. Under the rules the relevant amount is the judgment and the offer does not exceed the judgment if costs are on the Supreme Court scale.

[17] As far as the plaintiff's costs are concerned I do not consider it appropriate to limit them to 50% on the Magistrates Court scale. The 50% I originally suggested was already significantly discounted from a true division on the issues as I explained in [66] of the reasons for judgment. The reasons for the limitation to 50% are now irrelevant in view of the correction to the assessment. This is not a case where I would have limited costs to the Magistrates Court in any event. Until the receipt of its written submissions the defendant seemed to be in agreement with the plaintiff as to the approach to be taken to damages (see T377.20-.24). It was, therefore, a case which until quite late, on the view of both sides, was if I made the findings I did, properly brought in this court. I did not find the resolution of the damages issue easy nor did I find the plaintiff's position on it unarguable. Some of the blame, at least, for the position adopted by the plaintiff should be placed on the defendant's initial agreement with the plaintiff's method of calculation of damages which if correct would have resulted in a judgment after interest of more than a million dollars.

[18] In the result I propose to order that the defendant pay the plaintiff's costs of and incidental to the action to be assessed on the standard basis.

[19] The defendant also seeks indemnity costs for what it says were unnecessary mentions before Cullinane J on 1 August 2000, 15 August 2000, 222 August 2000 and 28 August 2000. No orders were made on any of those days and costs were neither reserved nor awarded. Each related to attendance at callovers or attempts to have the matter listed. Whether the plaintiff gets costs for any of those occasions will be a matter for the registrar in assessing the costs. I do not think the plaintiff should be penalised for trying to get a case heard by paying costs much less indemnity costs. In any event Mr Clarke's affidavit which deposes to Cullinane J refusing to award costs is not disputed.

[20] During the course of preparation of the trial the plaintiff's solicitors provided the defendant's solicitors with copies of reports prepared by Mr Deacon and a Mr Earnes. Mr Earnes's report and part of Mr Deacon's report related to a possible claim for loss of profit. Mr Earnes was ultimately not called and that part of Mr Deacon's report relating to loss of profit was not relied upon. The Defendant seeks the costs of considering and responding to those reports relating to a loss of profit claim on an indemnity basis. Disclosure of such reports is required by r 423 but in any case I would be disinclined to make an order for costs for such reports as sought by the defendant. The plaintiff will not recover the costs of unnecessary reports in the assessment of costs.

[21] In the result I give judgment in the action for the plaintiff against the defendant for the sum of $16,158.60 and I order the defendant to pay the plaintiff's costs of and incidental to the action to be assessed on the standard basis.

Contaminated Land Act 1991

(Contaminated Land Act 1991

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (154 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (7)