Orlit Pty Ltd v J F & P Consulting Engineers Pty Ltd & Ors [1993] QCA 277

The appellant argued that the trial judge erred in holding it negligent. Further, it submitted that, in a number of respects, the damages assessed were too high.

When the slabs were laid, the clay underneath had not reached its absorption capacity. Later, wet weather caused the clay to take in more water which could not escape by evaporation because of the slabs. As the clay expanded, it exerted pressures upwards and sideways. Humps, or "centre heaves", formed under the slabs and caused the slabs, which were not fixed to the reinforced strip footings, to move.

Further movement resulted from dry weather, which caused the ground adjacent to the structures and the ground inside the footings under the edges of the slabs to dry out. As the soil dried, it contracted, which caused a withdrawal of support from the edges of the slabs with the remainder still supported by the humps ("edge drop"). Further, the shrinkage around the inside and outside of the footings caused rotational forces on the footings, pushing them outwards.

The appellant's employed engineer who designed the slabs and footings used a "rule of thumb" in 1982 when the respondent's project was designed, which was related to the plasticity index of the clay as discovered by site testing. The plasticity index was about 45, with a range between 40 and 50 and the engineer used a plasticity index of 50 as the cut-off point for a "floating" slab design; above that he would have used a "stiffened raft" design. In this instance, he deepened the footings in an attempt to build a more extensive barrier to the intrusion of water under the slabs from the ground outside. Additionally, if effective, the deeper footings should have reduced the escape of moisture in dry weather from under the edges of the slabs to the dry outside ground.

The advantages of stiffened rafts were described by the trial judge in the following terms which were not challenged before us:

"By way of contrast to that for a floating slab the rationale for a stiffened raft construction is that the slab (raft) is structurally connected to the perimeter footings and may itself incorporate a number of stiffening beams either connected to the slab or cast integrally with it (the latter would have been the case here had the stiffened raft been adopted). The slab and the beams then form a structural unit with a capacity to both resist and distribute movements of the underlying soil."

It was not demonstrated that there would have been disadvantages associated with the use of stiffened rafts. Moreover it would not have been significantly more expensive, costing only an additional $25,000.00 to $26,000.00 over the entire project.

There is some difficulty in discussing the reasons for judgment of the trial judge because, as was accepted by both parties, there is some confusion in his Honour's description of the processes associated with expansion and contraction of the clay. Nonetheless, he correctly understood that expansion and contraction due to the soil absorbing moisture and drying out was the major cause of damage. And he understood that it was necessary to consider all possible causes of that absorption and drying out including the planting of vegetation; and other possible causes of settlement of the slabs, such as inadequate compaction of fill or deficient bedding; in order to determine the extent, if any, of the appellant's responsibility. However, no finding was made concerning the extent to which the damage was caused by expansion (wet weather) and the extent to which it was caused by contraction (dry weather and associated factors such as vegetation).

The trial judge found that, at the time of trial, there was a greater awareness of the design problems associated with soil such as that on the subject site than was the case in 1982. Further, "... the foundation design more generally favoured for slab on ground domestic dwelling in 1982, in the Brisbane region was a floating slab." However, his Honour said:

"On the other hand, it is fair to say that a stiffened raft foundation was utilised in domestic construction (in my view that is the category of construction into which the structures in issue here fitted) in and prior to 1982 in the Brisbane region by some designers in order to deal with the potential problems of reactive soils. The promulgation of Australian Standard 2870 the Residential Slabs and Footings Code in 1986 was an end manifestation of a process of increased appreciation of the advantages of that design in reactive soil and evidences a trend that had been developing for some years previously and which was in train in 1982.

As I have already indicated in general terms there was nothing novel in 1982 in the notion that reactive clay soil increased and decreased in volume with fluctuations in moisture content and that these changes in volume were capable of imparting differential stresses to parts of structures exposed to the consequences of such soil movement. ... It was moreover appreciated that a stiffened raft design was better able to resist stresses generated by variations in soil volume than was a floating slab. The publication by the Cement and Concrete Association of Australia "Foundations Soils" (Exhibit 46) in March 1982 addresses the issues directly and its concerns were not novel at the time and ought to have been taken into account by a prudent designer. The defendant's design engineer in effect agreed that so far as he was concerned a plasticity index of round about 50 was the transition point from adopting a floating slab to adopting a stiffened raft design. At the time he was doing the work in issue, I have mentioned, the index figures here were in the range of 40-50 with some at least tending to the upper end of the range. A rule of thumb to the effect of a plasticity under of [sic] about 50 being a transition point from a floating slab to a stiffened raft design is no more than that. It is not a substitution for a proper professional judgment taking account of all relevant considerations.

Other considerations were relevant to the selection of a foundation design. I have already mentioned some, these include the weather pattern which might give rise to fluctuations in the moisture content of the soil. As I have said, the meteorological record indicates that such fluctuations should have been anticipated. Where the moisture content of the soil and its plasticity stood at the particular time of the tests in the range of moisture content and plasticity the soil would exhibit over time does not seem to have been considered but ought to have been done.

Another consideration was the depth of the reactive soil. The test results made it prudent to assume that it was across the site to the depth of a metre or more. The conformation of the site and other local features, notably the presence and potential presence of vegetation fell to be considered. Concrete paths and aprons around the perimeters of buildings are a way of maintaining an even moisture content in the vicinity of foundations but for aesthetic reasons were probably not attractive at Roseland Heights Estate.

An important factor which fell to be considered was the sensitivity of the structure to be erected upon the foundation and slab. Unarticulated brick, that adopted for the exterior of the structures in the Roseland Heights Estate, is sensitive to foundation movement. Its adoption and sensitivity ought to have been known to and taken into account by the design engineer.

The design engineer did not undertake any calculations of the movement which might be involved given the soil characteristics. In this context I do not find the argument that the known behaviour of plastic clays in Adelaide and Melbourne were not useful in predicting the fluctuations in Brisbane soil completely convincing. In any event, as I have said, the absence of calculations providing a basis for considering the forces to which slab and footing might be subjected, favoured a conservative design approach especially when the plasticity index was in the range it was here in a case where there were a large number of slabs distributed over an extensive site.

The factors I have identified all militate towards a conservative approach to design selection; that is in favour of adopting a stiffened raft. Importantly, there were, in all the circumstances, few, if any, countervailing considerations, apart from cost, militating in favour of the design approach selected."

"The design engineer made no attempt to calculate how much the slab might move apparently because it was thought that reference material valid for that purpose was not available. Different considerations seem to me to apply when a design can, for example, calculate stresses as opposed to the situation when they can be predicted, but not calculated. The latter situation, which is that which applied in this case, so far as the design was concerned, seems to me to require a more conservative approach to design than does the former.

The footings were designed to be taken down to a depth of 900 millimetres. It was considered that they would thus act as a moisture barrier and so inhibit differential swelling inside and outside the slab. That view is, it seems to me, having regard to the evidence, more an optimistic expectation than an exercise of professional judgment. Among other considerations the reactive soil was apparently distributed across the site and at places at least to a considerable depth."

Later, under a heading "The Relationship Between the Defendant's Breach and Physical Damage", his Honour said:

"I am persuaded that the mechanisms generated by the changes in soil volume and the differential swelling and contraction of the reactive clay soil of the Roseland Heights development, which I have previously endeavoured to describe, imposed stresses on the footings and the slabs and hence on the structures and fittings forming part of the development which resulted in physical damage becoming manifest. I am persuaded that the use of stiffened raft design for the foundations of the unit blocks would have greatly reduced, if not eliminated, the occurrence of the physical damage caused by the mechanisms to which I have been referring. It was, of course, the prospect of these occurrences which in my view rendered the defendant in breach of duty in failing to choose a foundation design better adapted to coping with them.

In this context, I am satisfied that the "effective cause" in terms of "qualities of reality, predominance, efficiency" of much of the damage complained of by the plaintiff was the defendant's failure to adopt a stiffened raft design; see Leyland Co. v. Norwich Union Fire Insurance Society (1918) A.C.350 @ 370, March v. E. & M.H. Stramare Pty. Limited (1991) A.L.J.R 334 @ 335/6 per Mason C.J. Approached from a slightly different direction the probabilities are that an appropriate design for the footings and slabs would have coped with the consequences of a reactive clay soil to the extent of avoiding most if not all of the damage of which the plaintiff now complains."

These findings are of importance in relation to other issues before his Honour which are the subject of some confusion. As appears from the passages last quoted, he considered that a "stiffened raft" design would probably have avoided most of the damage. This raises the question of a possible reduction of the respondent's damages on the basis of the hypothesis that a "stiffened raft" design would not have avoided all, some or perhaps any of the loss: cf. Malec v. J.C. Hutton Pty. Ltd. [1990] HCA 20; (1990) 169 CLR 638.

Further, there was an allegation of contributory negligence advanced by the appellant against the respondent. As to this, the trial judge said:

"The Defendant alleges that any loss suffered by the Plaintiff was caused or contributed to by causes for which the Defendant is not liable, or which otherwise serve to diminish its liability. First it is said that, in effect, the plaintiff failed to construct the works (in which landscaping is included) in a proper and workmanlike manner and in accordance with the contractual requirements applying to them. I do not regard it as having been established that the Plaintiff failed in these respects (I will deal later with the issue of compaction) which did not extensively feature at the trial."

Later, under the heading "Other Causes and Damage", his Honour said:

"As I mentioned earlier, it was contended for the defendant that, given that it was found to be in breach of duty in adopting a floating slab rather than a stiffened raft design, with consequent physical damage, there were nevertheless other causes of damage for which the defendant was not responsible or on account of which any damages recovered by the plaintiff ought to be reduced. A number of those causes remain to be dealt with.

(a) damage caused by vegetation in proximity to footings and slabs;

(b) damage caused by slab settlement due to poor compaction of bedding sand or fill on the building platforms;

(a) Vegetation: The probabilities are that in some cases the settlement of the edges of slabs has been exacerbated by the presence of vegetation in the immediate vicinity. The effect of the vegetation is to accelerate or exaggerate the effects of the characteristics of reactive soil.

I have earlier concluded that the defendant had done all that was to be expected of it in apprising the plaintiff and the other defendants of the risks of vegetation exacerbating the mechanisms associated with the reactive clay soil. I am not prepared to conclude that the vegetation was a major cause of movement which is of course what a stiffened raft design was designed to counteract. As I said, it exacerbated and accelerated that effect in specific localities. The plaintiff was, again, as I have earlier indicated, aware of the necessity to deal with the question of vegetation. On the other hand the foreseeable effect of vegetation was one of the design features, such as some use of paths. The evidence is not particularly forthcoming as to what vegetation was introduced, some potentially troublesome vegetation seems to have been on adjoining properties and not under the plaintiff's control."

His Honour went on to discuss the respondent's contention that the appellant was responsible "for compaction" and held that it was not. He did not further consider the possibility that it was the respondent which was responsible and accordingly contributorily negligent. He concluded:

"Settlement had a role, it seems, in respect of some damage but it was relatively minor and it operated in the context of the inadequate design and its consequences which I have already dealt with. I am not persuaded that the evidence establishes that there was damage associated with finishes which were inappropriate for the design adopted."

"In the event I accept that the damage recovered by the plaintiff against the defendant should be discounted to reflect (a) and, to a lesser extent (b), but not to the extent contended for by the defendant. The discount is not amenable to any precise calculation - I do know that it is suggested it was. I have endeavoured to reflect this consideration in the outcome."

Under the heading "DAMAGES" and the sub-heading "Past Rectification", it was said:

"As I have said there should be a relatively small discount to reflect any subsidence and consequent damage as a result of compaction inadequacy and the effects of vegetation in the context of the defendant having been in breach of duty in the design he selected. I allow the plaintiff $175,000 for the cost of past rectification."

(The figure arrived at without discounting was approximately $196,000.00).

Under the sub-heading "Future Rectification", amounts were allowed for work already necessary although yet to be performed with a further "heavily discounted" sum in respect of "some future damage" which might "become apparent as a consequence of the defendant's breach of duty". It is perhaps implicit in the words "as a consequence of the defendant's breach of duty" that the possibility that any future damage might be partially caused by "compaction inadequacy and the effects of vegetation", was appropriately taken into account. However, it is plain that there was no similar discounting in respect of work already necessary although yet to be performed.

The appellant's argument as to liability accepted that the trial judge had correctly stated the test to be applied in accordance with the decision of the High Court in Rogers v. Whitaker [1992] HCA 58; (1992) 67 ALJR 47 but contended that his Honour had misapplied that test. The argument took as its foundation divergent views expressed by the numerous engineers who provided reports and were called as witnesses and asserted that "there was ample evidence that the appellant's design for the subject soil type conformed either with the majority practice or very common practice by engineers at the time."

This understandably led to quite lengthy analysis of the evidence of the different experts by counsel for both parties, a process which had been carried out to an extent by the trial judge in his reasons for judgment.

"There was a respectable body of evidence and expression of opinion that even in 1982 the appropriate approach to the design of foundations for the structures forming part of the Roseland Heights Estate project by an engineering consultant specialising in urban development, structural and civil engineering, involved the rejection of an approach using reinforced strip footings and a floating slab and adopting a stiffened raft. The Roseland Heights development, in my view, favoured the adoption of the latter approach.

In my view, however, the whole of the evidence, leads to a conclusion that even in 1982 a design engineer in the position of the defendant's design engineer ought to have adopted a stiffened raft design. The rule of thumb of a plasticity of 50 providing a transition point was no more than that.

Given the soil characteristics of the site and the other design considerations I have mentioned a prudent engineer in the position of the defendant's design engineer would not have relied on it as determining a floating slab design.

Whilst I do not unreservedly accept all the evidence of Dr. Wood, his evidence, in conjunction with that of Mr Philp and Mr Morgan is to my mind persuasive of the conclusion I have reached.

Mr Beale in my view did the best that could be done for the defendant but even in conjunction with that of Mr Walsh and Mr Butler his evidence does not sustain the defendant's choice.

I have earlier referred to some aspects of his evidence. His evidence does not to my mind overcome the considerations favouring a stiffened raft design. At best for the defendant the design considerations in this case were too close to the borderline to justify taking the risks inherent in a floating slab design on such a reactive clay soil. The soil was, I think, more reactive than Mr Butler's evidence appreciates. Mr Walsh, I think, had too much faith in his rule of thumb. Taking everything into account, I am not prepared to accept the evidence of those gentlemen as justifying the design adopted.

In my view the evidence, essentially for the reasons which I have canvassed, founds a conclusion that the defendant was in breach of its duty to the plaintiff in adopting the foundation system design which it did rather than adopt a stiffened raft."

In his reasons for judgment, to which reference has been made, the trial judge criticised both the use of a "rule of thumb" to choose between a "floating" slab and a "stiffened raft" and the use of increased footings as an extra moisture barrier, which he described as "more an optimistic expectation than an exercise of professional judgment." In part at least, both criticisms were related to the appellant's employed engineer's omission to use calculations or estimations to determine what would or might occur. This seems unjustified. The preponderance of evidence supported the view that there was no calculation or estimation which could have been made to determine accurately what would occur and what design was appropriate; it was largely a matter for experience and judgment, taking account of the nature and character of the soil and the type of structure to be erected. There was no breach of duty necessarily involved in the use of a "rule of thumb" based upon experience and expertise.

Reference was also made by the trial judge to a number of factors which it was considered militated against the use of a "floating" slab and in favour of a "stiffened raft". But again this perhaps misunderstands the basis upon which use of a "rule of thumb" might be justified. The matters referred to, such as weather patterns, depth of reactive soil and the type of structure to be erected, might all be encompassed in an appropriate "rule of thumb".

Similarly, it is not necessarily a legitimate criticism of a design choice that the plasticity index of the soil was near the point at which, under the "rule of thumb", a design change was required. A "rule of thumb" might well be intended to take account of all appropriate considerations, including a sufficient margin of safety.

This was the extremely simple approach adopted by the appellant's employed engineer. He was not particularly experienced in designing slabs and footings for use in reactive clay but was aware of the potential problems. He knew of no method of estimating or calculating the degree of movement which might occur or of determining the effect of increasing the depth of footings from 600 to 900mm. He relied on a "rule-of-thumb" which provided a change of design from "floating" slab to "stiffened raft" at a plasticity index of 50, which he considered was supported by the practice of other engineers.

While the use of a "rule of thumb" seems justified as a general guide, there may be some force in the trial judge's view that such an approach did not fully satisfy the obligation to exercise proper professional judgment, particularly at or near the point at which a change of design was called for according to the "rule of thumb", especially in circumstances in which there was little extra cost involved in what was generally accepted at the time was probably the safer design and it was known, or should have been known, that there were significant uncertainties associated with what might occur and doubts concerning which course should be followed.

Perhaps more importantly, although there were experts who supported the appellant's choice of a "floating" slab design as according with sound engineering practice, there were others who disagreed. It was the latter, more conservative view which was preferred by the trial judge.

It is understandable if, with this strong divergence of opinion, the appellant considers itself unfortunate and incorrectly assessed by reference to hindsight. However, although there are aspects of his reasoning which we doubt and it would have been helpful to have a more comprehensive and detailed discussion of the various witnesses and their testimony, there was ample evidence available to the trial judge to support his finding of negligence and no sufficient basis has been shown for this Court to interfere with that conclusion.

Reference will later be made to specific elements of the damages awarded to the respondent. For the moment, it is necessary to consider general issues which arise out of the findings of the trial judge that:

(a) landscaping and to a lesser extent deficient bedding and/or defective compaction for which the appellant was not responsible increased the damage; and

(b) a "stiffened raft" design might not have avoided the damage caused by the use of "floating" slabs.

The first of these findings might perhaps have led to the further finding that the respondent was contributorily negligent but did not do so. In the result, that is of little, if any, practical importance. Whether or not the respondent was responsible for the extent to which damage was caused by vegetation and deficient bedding or defective compaction, the appellant was not responsible for the contribution of those factors to the respondent's loss.

No specific findings were made by the trial judge, but if regard is had to the discount which he applied under the sub-heading "Past Rectification" it seems that he considered vegetation and deficient bedding and/or defective compaction to have caused about one-ninth of the damage.

Nothing was allowed by the trial judge for the possibility that a "stiffened raft" design would not have avoided any of the damage caused by the use of "floating" slabs, or might have avoided only some of the damage. There was evidence along these lines by some of the engineers. However, there are no findings made by reference to which this Court could confidently fix an appropriate discount.

On the basis of such information as is available, we consider that the appropriate course would be to reduce the damages awarded by a total of 20% by reference to all factors, including the effects or possible effects of vegetation and deficient bedding and/or defective compaction. We have not made any additional allowance for the architectural design of the structures erected as we do not consider that his Honour's refusal to do so was shown to be incorrect.

Further, in our opinion, this discounting factor should be applied in relation to all of the respondent's loss, both past and future insofar as future loss allowed by the trial judge related to work already necessary.

In other words, the appellant should be held liable for only 80% of the respondent's loss, except unascertained future loss for which the amount allowed by the trial judge was "heavily discounted".

We turn next to the grounds of appeal which were concerned with issues other than liability.

Both parties accepted that his Honour rightly deducted the additional cost of $25,423.00 which would have been incurred had a stiffened raft been used instead of a "floating" slab. However, the appellant submitted that, because the additional cost would have been incurred between 1982 and 1984 but was not, there was a benefit to the respondent that should have been taken into account. The appellant submitted that the benefit was equivalent to interest on the cost of a stiffened raft until rectification was complete. Most of the rectification costs were incurred between April 1987 and the end of 1990. The appellant accepted the interest rate of 10% used by his Honour for the purpose of calculating this benefit. The appellant calculated the benefit as about $12,700.00 over a five year period from 1983 to 1988.

The respondent submitted that, in the absence of evidence by the appellant, it could not be assumed that the money would have earned interest. It further submitted that, if this could be assumed, then interest on the management expenses would more than offset the benefit to the respondent. In any event the appellant appeared to suggest that the interest should only be calculated over a three year period.

In our opinion, the respondent would have incurred the additional cost of a stiffened raft at the end of the development, i.e., 1984. It had the benefit of that money until it began rectification in April 1987. Therefore we think there should be a reduction representing 10% interest on the amount over three years, i.e., $7,626.90. In the absence of evidence that the money would not have been productively invested (cf management expenses) it may be assumed that the money would have earned interest - that is the basis of awards of interest generally.

Ground 3 of the notice of appeal asserted that the trial judge erred in finding that the respondent could recover past and/or future damages notwithstanding that all units had been sold to third parties after the structures had been built.

His Honour held that this circumstance did not prevent the recovery of damages by the respondent from the appellant. He relied on the decision of the Full Court in Director of War Service Homes v Harris [1968] Qd R 275, the risk of action by the Builders' Registration Board under the Builders' Registration and Homeowners Protection Act 1979 and the interest which the respondent had in protecting its market reputation. His Honour also referred to National Mutual Life Association v Coffey & Partners Pty Ltd [1991] Aust Torts Rep 81-057.

His Honour was satisfied, and it was not contended otherwise here or below, that rectification of the deficiencies of the foundations and repair of consequent damage was a reasonable course to adopt. It is clear then, from Director of War Service Homes v Harris, that the appellant's contention is incorrect. In Director of War Service Homes v. Harris, Gibbs J. (with whom Stable and Hart JJ. agreed) said at p.278-279:

"When the builder, in breach of his contract delivered to the building owner a building that did not conform to the specifications, the owner became entitled to recover damages according to the measure approved in Bellgrove v. Eldridge. If the owner subsequently sold the building, or gave it away, to a third person, that would not affect his accrued right against the builder to damages according to the same measure. The fact that the building had been sold might be one of the circumstances that would have to be considered in relation to the question whether it would be reasonable to effect the remedial work, but assuming that it would be reasonable to do the work the owner would still be entitled to recover as damages the cost of remedying the defects or deviations from the contract (assuming of course that the contract price has been paid). In assessing those it would not be relevant whether the owner was under a legal liability to remedy the defects, or whether he had made a profit or a loss on the sale of the building for the builder has no concern with the details of any contract that the owner might make with a third party."

His Honour correctly "heavily discounted" for the cost of future rectification and took into account that "there is a degree of probability that future damage may become manifest at unpredictable future times (and) (if) it does there is a lesser degree of probability that the plaintiff may be liable to the then unit owner."

Whilst dealing with the quantum of damages for future rectification, his Honour stated "(r)ectification work to Unit R12 is justified at a cost of $20,000...". The appellant submitted that this amount should not have been allowed because it is inconsistent with a finding earlier in his Honour's reasons that "(t)he defendant seems correct in contending that the plaintiff has not proved damage to unit R12 (a unit not referred to in Exhibit 165)". Exhibit 165 is an agreement on quantum between the appellant and respondent.

However, when these statements are read in the context of the documents before his Honour, it is apparent that there is no inconsistency.

Counsel for the appellant referred his Honour to a Scott Schedule in which there were two allegations of damage to Unit R12, only one of which was referred to in Exhibit 165. The first allegation concerned the rotation and settlement of footings and the consequent shear cracking of brick work; the cost of rectification was estimated at $20,000.00. Both the allegation and the cost were admitted in the Scott Schedule and referred to in Exhibit 165. The second allegation, concerning cracks in the bathroom tiles, was not admitted in the Scott Schedule and not referred to in Exhibit 165. It is clear that his Honour's finding that damage had not been proved was in respect of this allegation. Therefore there is no inconsistency and the award of $20,000 for future rectification in respect of Unit R12 should stand.

Ground 5 of the notice of appeal asserted that the learned trial judge erred in finding that the respondent had suffered any damage on account of lost management time and associated expenses. His Honour had awarded $44,663.50 under this head of damage.

There were four bases for the contention that either the respondent did not suffer any such damage or that its damage was less than the amount which his Honour awarded. The first was that the evidence in respect of the three senior executives concerned in the claim for lost management time was to the effect that whatever work was necessitated by the need to rectify the appellant's negligence, they were able to accommodate it within the normal scope of their employment activities and there was no evidence that any other activities of theirs which would have made profit for the plaintiff were curtailed by such work.

The second was that the evidence showed that those three senior executives were not employed by the respondent, and did not have their salaries paid by the respondent but by Kizvat Pty Ltd ("Kizvat"), a service entity, and it failed to show that management fees charged by Kizvat to the respondent were in fact related to the respondent's claim for lost management time.

The third was that some of the amounts accepted by his Honour in order to arrive at the above sum were too high with the result that that sum must be reduced.

And the fourth was that the claim duplicated an agreed figure for project management fees.

We do not think that there is any substance in the first of these contentions. Each of the relevant executives, Messrs Soutar, Irving and Roberts, gave evidence of the time spent and steps taken by him in respect of or associated with rectification work. It was this time which formed the basis of the calculations upon which the damages were assessed. Their evidence in this respect was uncontradicted and his Honour plainly accepted it. It is irrelevant that the respondent did not prove that any other activities of theirs which would have profited the respondent were curtailed by the need to spend time in relation to the rectification work. It is sufficient and reasonable to infer that they would otherwise have been engaged in the respondent's business; or, after 1 July 1988, engaged in that business or in work for associated companies for which the respondent would not have paid. We refer to these alternatives when discussing the second contention to which we now turn.

All of these executives were employed by the respondent until 1 July 1988. The second contention can have no relevance to so much of this as relates to the period before 1 July 1988. Thenceforth their salaries were paid by Kizvat which in turn charged a management fee to the respondent for their services. It is irrelevant to this contention that they may have entered into service contracts with some other entity in the group of which the respondent and Kizvat were part. The amount of the management fee was not less, in any case, than the amount actually incurred by Kizvat for that work. The amount claimed by the respondent was calculated on the proportion of the amount incurred by Kizvat for that work, not on the, apparently larger, management fee.

Given that the amount which the respondent paid Kizvat was at least, and apparently substantially more than what the executives cost Kizvat, a calculation based on that cost must, prima facie, be a conservative measure of the respondent's loss.

The appellant sought some support for its argument in the fact that the respondent apparently also paid management fees to other companies in the group. But there was no evidence that this was for the management services provided by these three executives. Consequently, the fact that the respondent may have paid management fees to other companies in the group is irrelevant to this contention.

The respondent also sought to derive support from the fact that other companies in the group also paid management fees to Kizvat. There was no evidence that these were paid for services provided by these three executives, though there was some evidence that Soutar and Roberts performed services for other companies in the group.

This argument was, in effect, that, although the respondent and other companies in the group paid Kizvat service fees, there was no evidence that the fees paid by the respondent bore any relation to the work actually done by the executives for the respondent. It is curious that the appellant should advance that argument before us after successfully objecting to evidence being given as to the terms of the arrangement between Kizvat and the respondent with respect to this matter. Be that as it may we think it more in accordance with logic and common sense that the amount which Kizvat was paid by the respondent was proportional to the services supplied rather than that the amount which it charged bore no relation to the services supplied.

Consequently we think that the cost to Kizvat of the executives' services during the time spent by those executives on work in relation to the rectification is a reasonable measure of the respondent's loss.

The calculation of that cost which formed the basis of his Honour's award was the subject of the appellant's third contention in support of this ground. The respondent claimed under this head of damage $68,696.40. That sum included air fares for the three executives which totalled $24,032.90. His Honour disallowed the whole of the air fares but accepted the whole of the balance of the claim of $44.663.50. The claim and its components were the subject of a document in the form of a schedule handed up to his Honour by the respondent during its address. The appellant contends that in a number of respects components of that sum of $44,663.50 do not accord with the evidence. In several respects this contention was accepted before us by the respondent. These were as follows:-

1. The respondent's schedule proceeded on an averaging of salaries over the total period rather than on the basis of the salaries applicable in each year. The respondent concedes this error which makes a difference in the appellant's favour of $1,304.00.
2. The respondent's schedule whilst making an apportionment in respect of other items between the time spent in relation to rectification work and time spent on other matters failed to make this apportionment with respect to telephone time. It was conceded that this made a difference of $1,500.00 in the appellant's favour. Although the appellant arrived at a higher figure than this, as the evidence on this question was left in an uncertain state we can do no more than accept the figure conceded.
3. Similarly, an apportionment should have been made in respect of Mr Irving's inspection hours, the difference in the appellant's favour being conceded to be $3,500.00. The appellant did not suggest any higher figure.

Thus the respondent conceded that by reason of the above errors the amount awarded was, on the findings which his Honour made, about $6,300.00 too high. However, the respondent contended that his Honour should have allowed air fares and seeks to sustain the amount awarded under this head of damage on that basis. Before considering that argument, we propose to consider the other criticisms, not conceded to be correct by the respondent, made by the appellant of the respondent's schedule.

The first of these was that, notwithstanding that Mr Soutar had said that on his Brisbane trips after the middle of 1988 he would have spent only 20-25% of his time on work related to rectification, the respondent's calculation was based on the assumption that he spent 75% of his time on that work; that is that the number of hours was reduced by only 25%. The appellant's contention is supported by the wording of the explanation which accompanied this particular calculation when it was handed up by the respondent as part of its "Management Time Schedule" at trial: this document states the total number of hours spent on Brisbane trips (306 hours) and says in brackets "@ 8 hours per day less 25%". However, before this court, the respondent argued that its calculation had in fact already taken into account the full 75% reduction argued for by the appellant. Our own attempts to arrive at an approximate figure for Mr Soutar's inspection hours have convinced us that the respondent's calculation must have incorporated the full 75% reduction: the figure would otherwise have been much higher than 306 hours.

The appellant also argued that the 306 hours spent by Mr Soutar on Brisbane trips should be reduced by 30% to account for the fact that he admitted to spending only 70% of time on rectification work. We agree that this reduction is warranted. However, although no such reduction was expressly noted in the respondent's "Management Time Schedule" document, it is clear that some such reduction must have taken place in order for the respondent to arrive at a figure of 295.65 hours as the total hours spent by Mr Soutar on rectification work (encompassing meetings, telephone conversations and Brisbane trips). As the trial judge accepted 295.65 hours as the correct total hours figure, no further reduction is warranted and we therefore reject the appellant's argument on this point.

The appellant further contended that the trial judge's allowance of eight hours per day for each day Mr Irving spent in Brisbane was too generous. However, the appellant did not suggest a more acceptable figure to us, let alone direct our attention to any evidence supporting a reduced figure. Nor did the appellant criticise the trial judge's allowance of eight hours per day for Mr Soutar's Brisbane trips. For these reasons, this contention must also fail.

The appellant also took issue with the trial judge's allowance of 88 hours for the time Mr Roberts spent in Brisbane on rectification matters. The respondent was prepared to concede that there had been an arithmetical error in adding up the hours spent by Mr Roberts is Brisbane which had effectively overstated the claim by $923.00. On our view of the evidence, the respondent in fact failed to prove that any of the time spent by Mr Roberts in Brisbane after May 1988 was spent on relevant rectification work. However, before us the appellant conceded that the respondent was entitled to 72 hours in respect of Mr Roberts' Brisbane time, provided that was reduced by 30% in respect of time spent on balcony matters. In accordance with this concession, we would have been prepared to reduce the respondent's award by $1500, but this has been rendered unnecessary because of the set-off explained below.

Finally, the appellant argued that the hours Mr Roberts spent in meetings should be reduced by 30% (as for Mr Soutar and Mr Irving) rather than the 20% adopted by the trial judge. In evidence, Mr Roberts estimated that 80% of meeting time was spent on rectification problems associated with the foundations, 10% on problems with balconies and 10% on other issues. The appellant argued that this estimate must have been inaccurate, as Mr Roberts attended the relevant meetings with Mr Soutar and Mr Irving, both of whom said only 70% of meeting time was spent on rectification problems with foundations. There is substance in this submission and we would consequently have adjusted the amount claimed for Mr Roberts' time to accord with that allowed for Messrs Soutar and Irving but for the set-off to which we now refer.

As we have indicated, the respondent sought to offset against any reduction in its damages by reason of the above matters part of its claim for air fares which his Honour disallowed. The claim which totalled $24,032.90 consisted of $13,185.00 air fares for Mr Soutar, $8,513.90 air fares for Mr Irving and $2,334.00 air fares for Mr Roberts. They were claimed because it was said that these executives needed to come to Brisbane in relation to rectification work. His Honour allowed as part of the damages the time spent by them in Brisbane in relation to rectification work. He expressed his reason for nevertheless disallowing the air fares in the following terms:-

"It is true that some trips were made to Brisbane on that account but what is also true is that, by and large advantage was taken of the occasion to pursue other aspects of the companies' business. For this reason I am not persuaded air fares are recoverable. The expense was not thrown away on account of the defendant's breach but was utilised in respect of other matters."

The respondent points to the evidence of Mr Irving which was that the primary purpose of his visits the subject of the claim for his air fares was the rectification work but if he had time he would visit other sites. He estimated that this was about 5% or less of his time. The claim for his air fares of $8,513.90 had already been reduced by 5%. It is difficult to see how, in the light of that evidence which his Honour does not seem to have rejected, his Honour could have reached the conclusion which he did. We think that his Honour should have allowed $8,513.90 for Mr Irving's air fares. Similarly, Mr Roberts said that his first two trips to Brisbane were solely in relation to rectification work. These, on the figures tendered, would have amounted to about $700.00. Again, as his Honour does not appear to have rejected this evidence, we do not think that what he said about this justified disallowing this amount. The respondent did not advance any similar contention with respect to Mr Soutar's air fares.

We therefore think that, the respondent should have recovered approximately $9,200 for air fares and that, to the extent that it is necessary, it should be set off against the amount by which his Honour's award under this head of damage was otherwise too high.

The fourth basis for ground 5 was that the respondent, by agreeing to the quantum of a number of items of its claim, including "project management fees", thereby limited the amount claimed for lost management time of its executives. However, the appellant was unable to point to anything which explained what the parties were agreeing to as project management fees or to anything which indicated that, following the making of the above agreement, the claim the subject of this ground was otherwise abandoned. Indeed, the contrary appears to have been the case. This submission was not made below and consequently the case was then argued on the basis that project management fees were different from the amount the subject of this ground. We would accordingly reject this basis for the contention.

We would therefore disallow the appeal on this ground.

Ground 6 of the notice of appeal was concerned with the award of interest by the trial judge. Because judgment for the respondents has been reduced, the interest awarded by the trial judge should also be reduced.

The trial judge allowed $60,000 interest on the damages awarded for past rectification. This Court has reduced the component of damages upon which interest was calculated to $123,558.01. Reducing the amount of interest proportionately, an amount of $49,565.92 interest ought to be allowed.

The appellant sought leave at the hearing to amend the notice of appeal to add a new ground 7 in the following terms:

"7. The learned trial judge erred in, notwithstanding the judgment he gave, ordering that the first defendant pay the plaintiff's costs of and incidental to the action to be taxed in that:

(a) such costs order failed to adequately or at all take into account the issues as litigated between the plaintiff, the first defendant, the second defendant, the third defendant and the fourth defendant;

(b) such costs order failed to adequately or at all take into account the notice of discontinuance filed on 31 January, 1989 between the plaintiff and the fourth defendant;

(c) such order failed adequately or at all to take into account settlement between the plaintiff and the second and third defendant;

(d) was otherwise not a sound exercise of discretionary judgment."

The respondent objected to the amendment. The Court reserved its decision on the application but proceeded to hear argument on the proposed ground.

There were originally four defendants in the action. By the time of delivery of the amended statement of claim on 5 August 1991 no claim was being pursued against the fourth defendant and on the first day of trial the learned trial judge was informed that the fourth defendant was no longer a party. There was nothing before the court to indicate the nature of the claim which might have been made against that party or how costs between the plaintiff and that party had been resolved.

On the third day of the trial which went for thirteen days the plaintiff informed the court that the action as between it and the second and third defendants had settled and that there was to be no order as to costs. The court was not informed of the basis of settlement or otherwise of how costs as between the plaintiff on the one hand and the second and third defendants on the other had been resolved.

It was conceded by the appellant that his Honour's order for costs which was that the respondent recover against the appellant the costs of and incidental to the action, entitled the respondent to recover from the appellant not only the cost of the action as between those parties, but also its costs as against the other defendants. It is not clear that this concession was rightly made. See the distinction made in Oliver's Law of Costs (1960) at 69 between the case where the plaintiff succeeds against one defendant but fails against another (Kelly's Directories Ltd v. Gavin [1901] 2 Ch. 763), where the above rule applies; and that where the plaintiff succeeds against one defendant but discontinues against another, where it is said, citing the unreported case of Dunn v. Northey, that it does not. In view of the order which we propose to make it is unnecessary to resolve that question.

The appellant submitted that the respondent should not be entitled to those costs. The appellant submitted that the order which his Honour should have made was that it pay only the respondent's costs of and incidental to the action as between those parties.

Also on the third day the respondent sought leave to withdraw certain allegations made in the statement of claim against the appellant. The appellant asked his Honour to reserve those costs which his Honour did. It seems then that his Honour's costs order impliedly included reserved costs.

His Honour pronounced judgment on 30 July 1992. He indicated on that day that he intended to make the costs order which he ultimately made but he gave the parties seven days within which to consider whether they wished to be heard on that question. His Honour indicated that if they did not indicate that they wished to be heard within that time his provisional costs order would be the final order. The appellant did not take advantage of his Honour's offer apparently because it thought that the proposed costs order would not include the respondent's costs as against the second, third and fourth defendants. It was not until a bill of costs was presented to the appellant's solicitors in taxable form that the appellant appreciated this. It then sought unsuccessfully to persuade his Honour to amend his order under the slip rule.

The respondent submitted before us that, because the appellant failed to argue the matter before his Honour when it had an opportunity to do so, it should not get leave to appeal. In support of this submission the respondent also submitted that, because the appellant failed to apply to the learned trial judge to seek to persuade him to make a different costs order, the respondent never had the opportunity of putting before him the basis upon which proceedings were discontinued against the fourth defendant or settled between the respondent and the second and third defendants. It also submitted that the fact that it had submitted a substantial bill of costs in taxable form before the appellant complained about the costs order was a relevant factor.

It seems to us that his Honour failed to advert either to the consequences of the order which he made or to the compromise which the respondent had reached with the second and third defendants and the discontinuance against the fourth defendant. It is unlikely, we think, that, had his Honour adverted to all of those facts, he would have made an order for costs against the appellant of the proceedings against the second, third and fourth defendants without knowing the terms of the compromise, and whether the allegations against the second, third and fourth defendants were such that the respondent was justified in joining them in respect of damage to the foundations. There had been allegations against the second and third defendants in respect of the foundations but, because no statement of claim had ever been delivered against it, none against the fourth defendant.

No doubt the appellant should have made an application to his Honour within the period of seven days which his Honour allowed. However, we do not think that because of its failure to do so it should be burdened with a costs order which may be of a substantial amount and which, on the evidence before his Honour, should not have been made. On the other hand, there is not sufficient evidence before this Court to enable us to say whether such an order should be made. Accordingly, we think the appropriate order is to grant leave to the appellant to amend and to remit that question to the learned trial judge for determination by him. Because this course is necessitated by the appellant's failure to apply to his Honour during the period which his Honour allowed, the respondent should have its costs of the hearing of the remitted question in any event.

1. The appellant should be held liable for only 80% of the respondent's loss, except unascertained future loss. Since the amount of $195,771.14 was allowed for past rectification before discounting, $42,430.00 for ascertained future rectification, $45,000.00 for unascertained future loss, and $44,663.50 for management expenses, the appellant is liable, before deductions, for $271,291.71.

2. In addition to a deduction of $25,432.00 in respect of the additional cost of a stiffened raft, there should be a deduction of $7,626.90 as the benefit to the respondent because the additional cost would have been incurred between 1982 and 1984 but was not. After these deductions the appellant is liable for $238,232.81.

3. The interest awarded by the trial judge should be reduced from $60,000.00 to $49,565.95.

4. Leave should be granted to the appellant to amend the notice of appeal by adding a new ground 7. The matter is remitted to the Trial Judge for his determination in the terms of the order made by this Court.

Accordingly, the orders of the Court are as follows:

1. Appeal allowed. Set aside the orders below and substitute judgment for the respondent against the appellant in the sum of $287,798.76

2. Leave is granted to the appellant to amend the notice of appeal by adding a new ground 7 in the terms set out in the amended notice of appeal filed 4 march 1993.

3. Remit to the Trial Judge for his determination the question of whether and to what extent the appellant is required to pay the respondent's costs of and incidental to the proceedings below against the second, third and fourth defendants.

4. Appellant to pay the respondent's costs of the hearing of the remitted question in any event.

5. Appellant to pay the respondent's costs, including reserved costs, of the proceedings below as between the appellant and the respondent.

6. Respondent to pay the appellant's cost of the appeal limited to one day's hearing.

7. The entry of judgment in this court is to be dated as of the date of the judgment below, 30 July 1992.