Piling v Prynew Nemeth v Prynew

Mr SM Kettle for Piling COUNSEL : Mr J Simpkins SC for Prynew & Tsu Mr JE Robson SC & DS Weinberger for Nemeths Mr A HewittSc & P Dodson for QBE

Thompson Cooper Lawyers for Piling SOLICITORS : Avendra Singh & Co for Prynew and Tsu Salim Rutherford Lawyers for Nemeths Curwood & Partners for QBE

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY AND CONSTRUCTION LIST

55019/2003 Piling Contractors (Qld) Pty Limited v Prynew Pty Limited

55037/03 Ferdinand Nemeth and Virginia Nemeth v Prynew Pty Limited, Peter Tsu and Piling Contractors (Qld) Pty Ltd JUDGMENT 1 His Honour: This is the hearing of four Notices of Motion concerning the adoption of a Referee's report dated 1 February 2007. The report dealt with damages caused to premises at 46 Mona Road, Darling Point caused by the excavation of sand at 44 Mona Road, Darling Point. The plaintiffs' Notice of Motion was filed on 12 March 2007. The first and second defendants' Notice of Motion was filed 9 March 2007, the third defendant's notice of motion was filed on 22 February 2007 and the defendant to the second cross claim filed its motion on 1 March 2007. Background to the proceedings 2 The parties' submissions incorporated matters of background and chronology which I will incorporate in this judgment with some amendments. 3 These proceedings concern a three storey, eight bedroom Edwardian house owned by the plaintiffs ("the Nemeths") situated at 46 Mona Road, Darling Point NSW ("no 46") and a large excavation of sand at 44 Mona Road, Darling Point NSW ("no 44") owned by the first defendant ("Prynew") and the second defendant ("Tsu"). Tsu was the directing mind and will of Prynew. 4 In 2001 Prynew and Tsu jointly commenced construction of a new, six unit residential flat building which included a basement car park on no 44. An existing house on the site was demolished and contiguous piles were constructed by the third defendant ("Piling") along the boundary of no 44, being the southern boundary of no 46. These piles were to form part of a retaining wall system and were designed to provide lateral support to the foundation material of no 46 once the site at no 44 was excavated. 5 During these first stages of demolition, pile wall construction and excavation the Nemeths' house sustained considerable damage. Engineering experts agreed that the principal cause of the damage was the loss of support to the footings of no 46 through subsidence of the sandy foundation material when sand escaped into the partially excavated property at no 44 through a gap in the contiguous pile wall which had been constructed. 6 The Nemeths sued the defendants for damages. The whole of the proceedings (except for certain issues concerning Prynew/Tsu and the cross-defendant to the second cross-claim QBE Mercantile Mutual limited ("QBE")) were referred to an architect, Ms Janet Grey, ("the Referee") for inquiry and report pursuant to Part 72 of the Supreme Court Rules. The usual order for reference was made. 7 The reference was heard for approximately 36 days, and included three expert conclaves and a site view, during late 2005 and 2006. 8 The Referee's report is dated 1 February 2007 ("the Report"). The Referee found Prynew, Tsu and Piling negligent and liable to the Nemeths in damages in the amount of $239,674.89 plus simple interest at 10% per annum from 1 January 2003 plus any GST, which may be applicable on those amounts. The Referee apportioned liability as follows: Prynew/Tsu 75% and Piling 25%. 9 The plaintiff seeks adoption of the Report with three qualifications. The qualifications are:

1. That the damages be calculated by the reasonable value of the rectification of costs actually incurred by the Nemeths when they rebuilt the premises in the sum of $973,944.85,

2. The plaintiffs seek payment of accommodation costs said to have been incurred during the course of rectification which claim was not allowed by the Referee.

3. The plaintiffs seek a finding against each of the defendants for breach of statutory duty in respect of the alleged breaches of the development consent. The Referee did not determine this claim as she had concluded that the claim in negligence had been made out. 10 Prynew and Tsu sought a rejection of a large part of the Report on legal and factual issues and sought that the Court determine the basic matters of liability which had been found against them by the Referee. They also challenged the apportionment of liability. 11 Piling sought an adoption of the Report without any modification. 12 QBE sought the adoption of the Report so far as it determined the factual issues which arose on the second cross claim. The second cross-claim related to a claim by Prynew and Tsu on an insurance policy issued by QBE. QBE sought that the cross-claim be dismissed on the basis of the findings made by the Referee. Chronology of relevant events 13 Previously, Mr Tsu had been involved with the redevelopment of no 48 Mona Road which was on the other side of the Nemeths' property no 46. The Referee found that as a result of Mr Tsu's past experience he knew of the risks associated with the proposed excavation at no 44. 14 In September 1999 a development application was lodged by Prynew and Tsu with Woollahra Council for the development of a six unit residential flat building at no 44. Development consent was granted on 7 August 2000 and construction commenced in 2001. 15 In 1999 the Nemeths also submitted a development application for the re-development of no 46 and the construction of a new four-storey residential apartment block. Development consent was granted on 17 January 2000. 16 In or about February 2001, the Nemeths moved to Hampton Court Apartments, a private hotel at Kings Cross, which was owned by Nemeth Investments Pty Ltd. 17 Piling work commenced at no 44 on 14 May 2001 and was finished on 29 June 2001. 18 Excavation of no 44 commenced around 1 July 2001. In July and August 2001 the foundation material to the Nemeths' home subsided and the walls of their house opened up. Severe cracking in the southwest corner of the house radiated to less severe cracking elsewhere. 19 The first occasion of subsidence occurred on Thursday 26 July 2001. This occurred after excavation on the site disclosed that one of the piles was only about 4.4 metres in depth instead of a depth in the order of 15 metres. That defect in the pile had been discovered on Saturday 21 July 2001. The events between these dates are the subject of a substantial amount of contested evidence. 20 The second occasion of subsidence was on 15 August and the third was on 16 August 2001. On each occasion the subsidence occurred when sand escaped from the Nemeths' property through a gap in the piling wall caused by the absence of the balance of what became known in the case as "the short pile". The Referee found that the second and third occasions did not cause the damage as it had been all been caused by the first subsidence. However they were treated by the Referee as relevant to the question of whether Prynew and Tsu would have acted on advice calling for preventative measures after the first subsidence. 21 Mr Nemeth sought advice from his architect, Mr Stuart Clarke. He also sought advice from Mr Denis Young, a structural engineer, with whom he had no prior relationship, and Mr Scott Smith, a quantity surveyor. 22 In August or September 2001 the Nemeths instructed Mr Clarke to prepare a claim against Tsu for the cost of rectifying their house. At this time the Nemeths had intended to re-develop no 46 in a manner consistent with a development consent that they had obtained. Mr Clarke prepared re-construction drawings, obtained an estimate of re-construction costs and sent a letter of demand to Tsu on behalf of the Nemeths. Mr Clarke's drawings were based upon the advice and drawings prepared by Mr Young. 23 By October 2001 Mr Young and Mr Clarke had designed and documented a rectification scheme involving demolition and reconstruction of the rear of the house. 24 In early 2002 Mr Nemeth was 80 years of age and had undergone a heart bypass operation and was receiving treatment for throat cancer. He decided, due to health and other reasons, not to develop no 46. The Nemeths decided to return to their home in 2002. At that the time and at the time of the subsidence in July 2001 no 46 was owned by Mr Nemeth. In mid 2002 the Nemeths decided to repair their house consistent with the advice they had received from Mr Young. 25 The Nemeths instructed Mr Fred Ayoub of MFS Constructions to carry out rectification works in accordance with the rectification scheme designed and documented by Messrs Young and Clarke. Building work on 46 commenced in May 2002 and was completed by August 2003. 26 According to the Nemeths, the work was carried out on a "do and charge" basis at a total cost of $1,183,663.07. The court will disregard that amount, as it was found by the Referee that the reasonable value of the building works carried out by Mr Ayoub was $973,944.85. The Nemeths do not seek to disturb that finding. The Nemeths are content to accept the reasonable value of the work carried out by Mr Ayoub as determined by the Referee as comprising the complete ambit of their claim in so far as the cost of rectification is concerned. 27 Proceedings were commenced in this court on 28 June 2002. Legal principles 28 There was no disagreement between the parties as to the legal principles to be applied by the Court when considering the adoption of the Referee's report. All parties referred to the principles recently summarised by McDougall J in Scripture Union Children's Special Service Mission v Prime Industrial Pty Ltd [2005] NSWSC 736. There he said: "3 The principles to be applied, in exercising the discretion conferred upon the Court by Pt 72 r 13 to adopt, vary or reject in whole or in part a report of a referee, are well established. There are a number of cases to which, customarily, reference is made. They include Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; the unreported proceedings in that case before Giles J (19 May 1992: the relevant considerations referred to by his Honour are sufficiently extracted in the decision of the Court of Appeal); Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193; and Foxman Holdings Pty Ltd v NMBE Pty Ltd (1995) 38 NSWLR 615. As to the nature and content of the referee's obligation to give reasons, the relevant authorities include Xuereb v Viola (1989) 18 NSWLR 453 and Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17 August 1994, unreported; BC 9402885). 4 The relevant principles, distilled from those decisions, can be stated as follows:

(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.

(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.

(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.

(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.

(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.

(6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than "unsafe and unsatisfactory.

(7) Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.

(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.

(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.

(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.

(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.

(12) The right to be heard does not involve the right to be heard twice.

(13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised "by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it". The real question is far more limited: "to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence."

(14) Where, although the referee's reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee's findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.

(15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified." 5 The twelfth point restates the aphorism of Mahoney JA in Super at 567. The thirteenth, fourteenth and fifteenth points are drawn (and include direct quotations) from the judgment of Hodgson CJ in Eq (with whom Priestley JA agreed and with whom, as to the relevant principles, Fitzgerald AJ also agreed) in Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2/12/98, unreported; BC 9806367). If I may say so with respect, I regard what his Honour said as giving content, on the facts of the particular case, to the operation of relevant principles rather than as stating any new principle." 29 A number of questions of law and questions regarding the application of legal standards to established facts were agitated before me. I will consider these questions in accordance with paragraph 4 (4) above. The parties who seek the adoption of the report in whole or the substantial adoption of the report urged me to consider the principles referred to in 4 (5) above. The more difficult area was the application of the principles in 4(6), (7) and (13) above. The submissions were directed to establishing that the referee's reasons were inadequate by substantial reference to the evidence in order to demonstrate the particular inadequacy identified in submissions. Questions of law and the application of legal standards to established facts 30 On the plaintiffs' case the following questions of law and the application of legal standards to established facts arose:

1. Was it reasonable to use rectification costs rather than diminution in value?

2. Whether the reasonableness of the desirability to rebuild has to be determined at the date of the injury or at the date of the trial.

3. Whether the defendants were liable for breach of statutory duty. 31 On the case for the first and second defendants the following questions of law or the application of legal standards to established facts arose:

Whether there was any duty at common law or under s 177 of the Conveyancing Act 1919 (NSW) in respect of the support of buildings on adjoining land and whether that duty included omissions,

Whether the defendants were liable for breach of statutory duty,

Whether there was an implied term of Piling's contract that Prynew would act carefully,

Whether Mr Malicia's knowledge (as an employee of a Solaraite) was Prynew's knowledge,

Whether Prynew or Tsu are liable for the conduct of Mr Malicia or Mr Little,

Whether it was reasonable to use diminution in value rather than rectification costs, 32 The first and second defendants submitted that in some instances there was an error of principle as well as there being a conclusion by the referee that was not reasonably open, or that she misunderstood the evidence or that there was no acceptable process of reasoning. I will deal with these separately as it is convenient to also consider the factual matters as well as the alleged error of principle. 33 On the case for QBE, the following questions of law or the application of legal standards to established facts arose:

1. Were the Truswell plans for the construction of the piling works plans and specifications for excavation work

2. Did the Jeffrey and Katouskas report form part of the Truswell plans

The disputed factual findings under challenge 34 On the plaintiffs' case the only factual question was the claim for the payment of accommodation costs said to be incurred during the course of rectification which claim was not allowed by the Referee. 35 On the case of the first and second defendants the factual questions which arose in respect of their liability were as follows:

Whether there was, as found by the Referee, excavation in the immediate vicinity of the short pile after sand had been pushed against it on 23 July and before the first subsidence.

If there was such an excavation, it was not the conduct of either Prynew or Mr Tsu.

Whether, as found by the Referee Prynew and Mr Tsu would have followed Pilings advice if it had been given before the first subsidence?

Whether continued excavation before the first subsidence increased the volume and effect of the subsidence and consequent damage to the Nemeth house.

Whether the piling contract required gaps not to exceed 30 mm.

7. Whether the short pile was required to be within 1% of the vertical.

8. Whether, as found by the Referee, the first and second defendants were negligent in setting out the positions of the piles.

9. Whether, as found by the Referee, the first and second defendants were negligent in failing to seek advice from Mr Tusswell the design engineer.

10. The correctness of the Referee's determination of the apportionment between Prynew and Mr Tsu on the one hand and Piling on the other. 36 The first and second defendants raised various factual issues in respect of the findings on the cross-claim between themselves and QBE, their insurers. These related to the following questions which were referred to by the Referee: "1 whether or not the excavation and underpinning work was carried out in strict accordance with any plans and specifications for such work and at the direction of the design engineer and, if they were not, the nature of the non-compliance" "3 whether or not the Cross-Claimant took all reasonable care and precautions, among other things: (i) to prevent property damage; (ii) to comply with all laws and statutory obligations and by-laws or regulations imposed by ay public authority for the safety of persons or property; (iii) To maintain the work site and the piling structure used in the Contract Works to support the Plaintiff's property in sound condition; and (iv) to ensure that the operations at the contract site were at all times carried out so as to minimise the risk of any claim being made under the Policy." "4 whether or not the damage and loss for which the Plaintiff makes his claim in the summons was occasioned by the wilful act, omission or recklessness of the Cross-Claimant, its agents or employees." 37 I will deal with a number of matters of principle, which will have a substantial effect on the result of the application before turning to the more detailed matters concerning the disputed factual questions. Whether there was any duty at common law or under s 177 of the Conveyancing Act 1919 (NSW) in respect of the support of buildings on adjoining land and whether that duty included omissions. 38 The Referee considered whether there was a duty of care in respect of the support of buildings on adjoining land. At paragraph 50 of her report she concluded in these terms: "50 In summary, because: 1) the current relevant statute abolishes nuisance as a cause of action; 2) the current statute incorporates the common law of negligence; 3) the current statute neither excludes a right for the maintenance of land with a superimposed load on it nor an action in negligence for removal of support to a building; and 4) the current law of negligence is wide enough to incorporate an action in negligence where there has been a breach of a duty of care that has led to foreseeable damage to a building; I find that the current position is that a duty of care, based in statute and common law, is owed in respect of the maintenance of support for buildings upon adjoining land, regardless of whether the superimposed load of the building contributed to the subsidence. A breach of this duty will, therefore, give rise to an action in negligence." 39 It is this conclusion that raises a major issue in the proceedings. 40 Prior to the amendments to the Conveyancing Act 1919 (NSW) which introduced s 177 in 2000, at common law the right to support of land in its natural state was said to be an incident of land itself: Dalton v Henry Argus & Company (1880-81) LR 6 App Cas 740 at 791. If an individual excavated their property and in so doing undermined the support for their neighbour's land, they had committed an "actionable nuisance for which strict liability attaches without proof of any negligence": Fennell v Robson Excavations Pty Ltd [1977] 2 NSWLR 486 at 493 per Glass JA. 41 This rule, however, was qualified. If an individual built upon their property, and in doing added unnatural weight to those lands, they could not recover if their neighbour in excavating adjoining property removed support for that land and caused damage to the buildings so situated. This is because, although neighbours were obligated to provide support for each other, their obligations did not extend to supporting the additional weight that buildings placed on contiguous, yet separately owned lands: Pantelone v Alaquie (1989) 18 NSWLR 119 at 129 per Giles J. As Fry J explained in Dalton v Henry Argus at 772: "On principle it appears to me that it might well be held that every man must build his own house upon his own land, and that he cannot look to support from the land of adjoining proprietors. Such a principle would prevent the owner of a house from ever acquiring a right to lateral support except by actual contract. An opposite view might be taken, for which also much reason could be given. The right of soil to support by adjoining soil is given by our law as a natural right, and it might well have been held that this natural right to support carried with it a right to the support of all those burdens which man is accustomed to lay upon the soil. On this principle, the right to support would arise as soon as the house was built, and would exist independently of the user, consent or contract. It might thus, it appear to me, be reasonable to hold that a house should never have the right of support, or that it should always have it. But I am unable to find any principle upon which to justify the acquisition of the right to support by a house independently of an express covenant or grant. For casting aside all technicalities, I think that the only principle upon which rights of a kind like the one in question can be acquired is that of acquiescence. But I further think that, as he who cannot prevent cannot acquiesce, and as the owner of the adjoining land cannot prevent his neighbour from erecting a house upon his own land, he can never be said to have acquiesced in the construction of that house, or in the burden that which thence results. Such are the conclusions to which I should be driven by the consideration of this question on principle. When I turn to the authorities of our law bearing on the subject, I find as it appears to me, that it has been decided that an ancient house does possess the right in question; that a new house does not possess this right; and consequently, that the right is one that may be acquired independently of express covenant" 42 The rule in Dalton v Henry Angus was criticised, in particular because of the way in which it distinguished between land that is built upon and land that is not. In Stoneman v Lyons (1975) 133 CLR 550 Stephens J at 567 observed that the rule is "clearly ill-adapted to conditions in modern cities". In Xpress Print Pty Ltd v Monocrafts Pte Ltd [2000] 3 SLR 545, Yong CJ at [35] demonstrated how the application of this rule could lead to unfair and somewhat absurd results: "If my neighbour's land is in its natural state, I may not remove the soil on my land without providing alternative support for his land; but if my neighbour expends money and effort in building a bungalow on his land, then I may excavate with impunity, even though his bungalow might crumble to the ground. Yet my liberty to ignore the support required by his house is not perpetual, but lasts only for 20 years, at which time any indolence in pursing my right to remove my soil is transformed into a positive right of support [that is, an easement of support] in respect of his dwelling." Nonetheless, although the rule was clearly inappropriate as there was no High Court ruling to the contrary, it continued to form part of Australian law: Kebewar Pty Ltd v Harkin (1987) 9 NSWLR 738 at 740-741 per McHugh JA 43 In Pantelone v Alaquie (1989) 18 NSWLR 119 Giles J usefully summarised the state of the law in these terms: "There is a natural right in an owner of land to have his land supported by the land of an adjoining owner, but there is no natural right in that owner to have the additional weight of buildings on his land supported by the land of the adjoining owner: Dalton v Henry Angus & Co (1881) 6 App Cas 740; Anderson v Mackellar County Council (1968) 69 SR (NSW) 444; 87 WN (Pt 2) (NSW) 308; 14 LGRA 352; [1968] 2 NSWR 217 and Public Trustee v Hermann (1968) 88 WN (Pt 1) (NSW) 442. But if the support is withdrawn so as to cause the land to subside and the subsidence was not caused by the additional weight of the buildings, the owner of the land is entitled to recover, in addition to damages for the subsidence of the land, damages for the injury to the building although he had no acquired right of support in respect of the building: Brown v Robins (1859) 4 H & N 186; 157 ER 809; Stroyan v Knowles (1861) 6 H & N 454; 158 ER 186; Public Trustee v Hermann and Ray v Fairway Motors (Barnstaple) Ltd (1968) 112 Sol Jo 925; 20 P & CR 261." 44 The second qualification mentioned by his Honour does not arise having regard to the finding made by the Referee. The Referee considered whether the damage to the Nemeth house was caused by the subsidence of the land in its natural state. In paragraph 56 of her report she found that without the contribution of the superimposed load of the Nemeth's house that natural subsidence was not sufficient to cause the damage to the house. This finding is not challenged. 45 The question as to whether there can be a liability in negligence between owners of adjoining land was also referred to by Giles J at page 132 in the following terms: "Because Mr Alaouie and Mr Palumberi are otherwise liable, it is unnecessary to consider their liability in negligence. The liability in negligence of Mr Mourad must still be considered. Some reference to Mr Alaouie's position in that respect is, however, desirable as a preface to considering that of Mr Mourad. In Dalton v Henry Angus & Co , it was said that in the absence of a right of support for a building in addition to support for the land in its natural state, conferred by grant or prescription (at 804 per Lord Penzance): "… the owner of the adjacent soil may with perfect legality dig that soil away, and allow his neighbour's house, if supported by it, to fall in ruins to the ground." The entitlement to do so was necessary in order that the owner be able to prevent the accrual of a prescriptive right of support in the adjoining owner. It has been seen as a corollary thereto that an owner of land has no cause of action against the adjoining owner for withdrawal of support even if the excavation was made negligently or recklessly: Johns v Delaney (1890) 16 VLR 729 and Ray v Fairway Motors (Barnstaple) Ltd . In New Zealand, the Court of Appeal held otherwise in Bognuda v Upton & Shearer Ltd [1972] NZLR 741, holding that there was an obligation to take reasonable care to avoid damaging one's neighbour's building in excavating the soil on one's own land and distinguishing Dalton v Henry Angus & Co on the ground that it was based upon the availability of a prescriptive right of support and did not apply where there was no such availability. It seems that there is no such availability in the present case: Kostis v Devitt ; Australian Hi-Fi Publications Pty Ltd v Gehl [1979] 2 NSWLR 618 and Dewhirst v Edwards [1983] 1 NSWLR 34. In Stoneman v Lyons (1975) 133 CLR 550, Stephen J (obiter) (at 567) considered it as then arguable that the law of negligence imposed a duty of care, but in Kebewar Pty Ltd v Harkin , McHugh JA observed (at 743), although with a reference to Stoneman v Lyons , that if the defendant owed no duty to support a building on the plaintiff's land it was not easy to see how she could owe a duty to take care not to affect the plaintiff's right to erect a building on its land. The question well deserves consideration in an appellate court in Australia, but is a question as between the adjoining owners. Its present relevance is that it may be asked whether a duty of care to the adjoining owner may fall upon Mr Mourad in relation to the excavation on No 312 if the owner of No 312, by whom he was engaged, is not under a duty of care to the adjoining owner with respect to that excavations." 46 After referring to the criticism of Stephen J noted above, Giles J continued at 135-136: I return then to what may be called the Dalton v Henry Angus & Co point….. If it prevents the recognition of a duty of care owed by one owner to an adjoining owner, I do not see why it should be given a wider effect so as to prevent a duty of care being owed by someone other than the owner of land. A negligent driver who knocks down the wall of a building will be liable to the building owner. As long ago as 1850 it was held that a stranger who removed support to land could be liable where he would not be liable had he been the adjoining owner: Jeffries v Williams (1850) 5 Exch 792. In my view a negligent engineer in the position of Mr Mourad can also be so liable. If the owner of land can excavate negligently on his land, that must be regarded as an anomaly founded upon the primacy given to the incidents of ownership of land. 47 It was in this state of the law that s 177 was introduced by the conveyancing (Law of Support) Act 2000. Section 177 is in the following terms: "177 Duty of care in relation to support for land (1) For the purposes of the common law of negligence, a duty of care exists in relation to the right of support for land. (2) Accordingly, a person has a duty of care not to do anything on or in relation to land (the supporting land ) that removes the support provided by the supporting land to any other land (the supported land ). (3) For the purposes of this section, supporting land includes the natural surface of the land, the subsoil of the land, any water beneath the land, and any part of the land that has been reclaimed. (4) The duty of care in relation to support for land does not extend to any support that is provided by a building or structure on the supporting land except to the extent that the supporting building or structure concerned has replaced the support that the supporting land in its natural or reclaimed state formerly provided to the supported land. (5) The duty of care in relation to support for land may be excluded or modified by express agreement between a person on whom the duty lies and a person to whom the duty is owed. (6) Any such agreement: (a) has effect in relation to any agent of the person on whom the duty lies, and (b) has effect in relation to any successor in title of the supported land if the agreement is embodied in a registered easement for removal of support relating to that land. (7) The right to agree to the removal of the support provided by supporting land to supported land is a right of the kind that is capable of being created by an easement. (8) Any right at common law to bring an action in nuisance in respect of the removal of the support provided by supporting land to supported land is abolished by this section. (9) Any action in negligence that is commenced after the commencement of this section in relation to the removal of the support provided by supporting land to supported land may be wholly or partly based on something that was done before the commencement of this section. However, this subsection does not operate to extend any period of limitation under the Limitation Act 1969 . (10) This section extends to land and dealings under the Real Property Act 1900 . (11) This section does not apply in relation to any proceedings that were commenced before the commencement of this section. (12) A reference in this section to the removal of the support provided by supporting land to supported land includes a reference to any reduction of that support. (13) This section binds the Crown in right of New South Wales and, in so far as the legislative power of the Parliament of New South Wales permits, the Crown in all its other capacities." 48 Section 177(8) abolishes the common law cause of action in nuisance. In its place s 177(1) confirms or alternatively brings into existence a cause of action in negligence depending upon the view one takes of the authorities. 49 In their submissions the first and second defendants pointed out that the duty of care referred to in s 177(1) is in respect of " a right of support of land" and was a reference to the common law right of support. This was justified on the basis that what the section achieves is the removal of strict liability that would otherwise arise for nuisance and, in so far as it declares a duty of care, it is a duty in respect of the right of support that was otherwise protected by the tort of nuisance. 50 The first and second defendants' submissions drew attention to the fact that there were two cases in which differing obiter views were expressed about be extent of the duty of care. In Yared v Glenhurst Gardens Pty Limited (2002) 10 BPR 19,485 Austin, J expressed the following obiter opinion about the effect of section 177: [126] The section was intended to remove doubt as to the existence of a duty of care in relation to the maintenance of lateral support of a neighbour's land. The effect of the section is to remove from consideration of the negligence claim, the highly artificial rules in nuisance which had developed out of the decision of the House of Lords in Dalton v Henry Angus & Co (1881) 6 App Cas 740: as to the old rules, see Kebewar Pty Ltd v Harkin (1987) 9 NSWLR 738, 741. In nuisance, a defendant's omission to maintain lateral support was not sufficient to establish liability. However, on ordinary principles of negligence, a defendant has an obligation to take reasonable care to prevent or reduce foreseeable injury caused by failure to maintain lateral support.

51 In Sutherland Shire Council v Becker, (2006) LGERA 184 Bryson JA expressed an obiter opinion to the opposite effect saying: [74] Under the law as it was when the subdivision application was considered and when the fill was deposited an owner of Lot 7 had no entitlement to lateral support for a deposit of this kind. The law was later changed by the enactment in the year 2000 of the present s 177 of the Conveyancing Act (and its provisions do not appear to confer any right to lateral support either; see subs. (3) and (4))… 52 Under s 34 (2)(b) of the Interpretation Act 1987 (NSW) it is possible to consider the terms of any Law Reform Commission report which was laid before either house of Parliament before the provision was enacted or made. In this case the relevant report is the NSW Law Reform Commission Report no 84 (1997). Paragraph 4.7 to 4.10 are as follows: "4.7 The issues relating to rights of support from adjoining land are wider then those canvassed in Dalton v Henry Angus & Co (1881) 6 App Cas 740, so the Commission considers that it would not be sufficient simply to provide that the rule established in that case no longer applies. As well, abolition of that rule may have unintended consequences for rights associated with ownership of land. As a result of decisions including Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 general principles of negligence will already apply to actions of a person that cause damage to neighbouring land through the escape of hazardous substances. The reforms that the Commission proposes relate only to compensation for damage caused by removal of support of land or buildings. 4.8 The suggested reform is intended to replace the common law right to support as an incident to land, with an obligation on the person to take reasonable care that he or she does not do or omit to do anything to land which might cause loss or damage by removing support provided by that land to other land. For this purpose, the supporting land includes the natural surface of the land, the subsoil, subterranean water, and reclaimed land, but does not include man-made structures on that land, except to the extent that those structures replace the support provided by the supporting land in its natural state. With respect to buildings it is not intended to create rights for support where none presently exist, except in so far as such rights would exist but for the rule in Dalton v Angus . Therefore, if a building is supported by a building erected on adjoining land, without a registered easement for support, the owner of the supported building will not be able to claim compensation if the supporting building is demolished, altered or not properly maintained. If, however, a building receives support from adjoining land, and the excavation and other use of that land results in a loss of actual or potential support which is reasonably foreseeable, the owner of the building may claim compensation for loss or damage from the person whose act or omission causes the loss of support. The same result could be reached if the land's ability to support new buildings which might reasonably be expected to be built were reduced. 4.9 As the remedy in nuisance would be abolished under the suggested reform, the Commission considers it prudent to create a duty of care by statute, even though it is arguable that a duty of care would be placed by the general law on the owner or occupier of supporting land. 4.10 The advantages of a negligence-based system of liability are as follows:

· the right to support is no longer an incident of the land itself, and can, therefore, be actionable against anyone failing to exercise reasonable care; · the right is not confined to land in its natural state; · the flexibility of the common law is retained, so as to encompass a wide variety of fact situations and remedies; · a duty of care between neighbouring landowners is established, consistent with principles developed throughout the century; and · liability for damage to land and structures can be apportioned according to fault, in accordance with basic notions of fairness." 53 The Commission made recommendations about legislation to be adopted. Most of its recommendations were eventually adopted in s 177. It is to be noted that in respect of the next argument that the Commission was careful to spell out in its report that the proposed legislation should include liability for both acts of omission and commission. 54 In the second reading speech in both the Legislative Council and Legislative Assembly the Minister said: "As I have previously said, there currently exists a right for land to receive support from adjoining land, but that support does not apply to any buildings on the supported land. This situation is now to be changed by providing that the duty of care, which I have just discussed, is to extend to buildings on the supported land. Therefore, anything done on the supporting land that removes support for the buildings on the supported land, will be in breach of the duty." 55 As is apparent from the second reading speeches and clauses 4.7, 4.8 and clause 4.10 of the Law Reform Commission report, the clear intention of Parliament was to abolish the rule in Dalton v Henry Angus and provide for compensation for the damage caused by removal of support for land and buildings on neighbouring properties. The criticism of the rule in Dalton v Henry Angus prompted this report. It seems therefore that to the extent that the provision is ambiguous and having regard to the purpose and underlying object of the Act, one would construe reference to the "support for land" as including support for land and the buildings erected upon it. 56 It was suggested by the plaintiffs' submissions that the terms of subsection (2) were suggestive of strict liability for the breach of duty of care in relation to the right of support for land whether reasonable care was exercised or not. Given the generality of subsection (1) I do not think that strict liability is appropriate. Subsection (1) clearly imports the common law of negligence. Subsection (2) is more concerned with the actions that will lead to that liability. Whether such actions can include omissions is the next important dispute. 57 In Land Law by Peter Butt (5th ed 2006) the author discusses the question of omissions in these terms: "In New South Wales, the chief reform is found in s 177 of the Conveyancing Act, introduced in 2000. That section, partially implementing recommendations of the New South Wales Law Reform Commission, abolishes any common law right to bring an action in nuisance for the removal of support for land and replaces it with a right to enforce a negligence-style duty of care. At least, that appears to be its purpose, for s 177(1) states: 'for the purposes of the common law of negligence, a duty of care exists in relation to the right of support for land,' However, s 177(2) then provides that, 'Accordingly' a person has 'a duty of care not to do anything' on or in relation to land (the supporting land) that removes or reduces the support that that land gives to other land (the supported land). This makes it clear that, despite the width of subs (1), the duty of care under the section does not extend to omissions. A person is liable for acts of commission, such as excavating a hole, but not for omissions to act, such as failing to prevent a loss of support from occurring." 58 After referring to this passage the Referee made the following comments: "64 In the present situation, Prynew and its independent contractors provided a pile retaining wall to the common boundary with Nemeth. The evidence below will establish that they then excavated the Prynew site and, while doing so, found a hole in this retaining wall which, without ceasing excavation, they failed to fill. If the construction contended for by Butt were correct, there might be no liability as the subsidence was caused by a combination of acts of commission and omission. Without the semi-final act of omission, i.e. the failure to fill the hole before further excavation, there would have been no significant subsidence. 65 As the legislation was intended to clarify the common law position vis a vis negligence v nuisance , and as the common law of negligence encompasses acts of both omission and commission, and as the statute does not specifically exclude acts of omission, I find that such acts are encompassed by the duty of care owed by the Defendants to the Plaintiffs. " 59 The first and second defendants' argument characterised the defendants' omission to fill the hole before further excavation as the cause of the subsidence to the extent that it was significant. If this characterisation is correct and liability under s 177(2) does not extend to cover omissions, then there is no liability on the part of the first and second defendants. 60 It is strange that this result might be achieved given that the law before s177 was that in claims for negligence in removing support from land by persons other than adjoining owners, acts of omission could constitute negligence in appropriate circumstances. (See Pantalone v Alaouie at 135-136 quoted above.) 61 In this case the Referee found that Piling was in breach of its duty to the plaintiffs by failing to provide advice at the relevant time. Because of her conclusions regarding the operation of s 177, the Referee did not have to differentiate between the statutory and common law duties. A common law duty was, however, also available in the circumstances of the case. 62 I have earlier mentioned that the recommendations made by the Law Reform Commission included a draft bill, which specifically referred to omissions, by including the words "or not to omit to do anything" immediately after the words "… a duty of care not to do anything". When the bill was presented to Parliament it included liability for omissions. The bill also contained an exemption in respect of the liability of the Crown for acts of omission. This led to a debate as to whether liability for omissions should be removed in respect of private landowners. 63 The Legislative Council dealt with the bill in committee where the government moved an amendment, which removed the Crown exemption and deleted the words referring to liability for omissions. This amendment was passed and the act excluded acts of omission. Accordingly, having regard to the bills passage through Parliament, the purpose of the bill was plainly not to include acts of omission. 64 As there is no liability under s 177 for acts of omission it is necessary to see whether the Referee's characterisation that I have referred to earlier is correct. It is plain on the evidence that the Referee accepted that at the time the short pile was first discovered on 21 July 2001 the extent of the excavation had extended to a point between a half a metre and one metre below the bottom of the short pile. By the time the subsidence had occurred on the evening of 26 July 2001, a further 3 metres had been excavated. Noting for the moment that this finding is challenged, on the Referee's findings what occurred was further excavation without the filling of the gap that had been exposed and which was evident on 21 and 23 July 2001. 65 Evidence of the steps that should have been taken to fill the gap were to the effect that it should have been filled every ½ to 1 metre as the excavation proceeded. The first and second defendants' characterisation of their own act as one of omission completely overlooks what in fact was happening on the site. What was happening was that excavation was proceeding in a manner, which, having regard to the existence of the hole was improper in the circumstances. 66 Section 177(2) states that "a person has a duty of care not to do anything on or in relation to the land….that removes the support." Accordingly, the defendants owed the plaintiffs a duty of care not to excavate the land at no 44 in a manner that removed the support provided by no 44 to no 46. The act that gives rise to liability under s 177 was the improper excavation of land at no 44. 67 An interpretation of s 177 that allows the removal of support for adjoining land by classifying such acts, as omissions would be contrary to the intention of Parliament. 68 For example, if an owner had sought to excavate this site without any piling it is plain that the building next door would collapse into the exposed hole. Is the owner making such an excavation to escape liability because his mistake is categorised as failing to have a proper piling wall? Certainly the answer would be "no" as what he did was to excavate with complete disregard for the consequences because of the manner of the excavation. 69 The same analysis applies to what was occurring on site after 21 July 2001. Excavation was continuing in a manner that was improper because it continued despite the presence of an obvious hole exposed in the piling wall. The hole, plainly on the evidence, would have caused the subsidence to occur. In my view the correct characterisation of what caused the subsidence was the doing of an act, namely, further excavation on or in relation to the supporting land that removed the support provided by the supporting land to the adjacent land.

Whether the defendants were liable for breach of statutory duty 70 Having found that the defendants liable in negligence, the Referee did not come to a conclusion about the existence of liability for breach of statutory duty. At the hearing I heard argument on the question of breach of statutory duty in case I accepted the defendants' submissions with which I have just dealt. It is appropriate that I should consider this question. Accordingly, I turn to deal with this aspect of the matter. 71 On 7 August 2000 Woollahra Municipal Council granted development consent for the development at no 44 pursuant to the Environment Planning & Assessment Act, 1979 (NSW). Clause 82 of the consent was in these terms: "Compliance with the following requirements prescribed under clause 78 of the Environmental Planning & Assessment Regulation 1994: Compliance with the Building Code of Australia (a) All building work must be carried out in accordance with the provisions of the Building Code of Australia. … Excavations and back filling (a) All excavations and backfilling associated with the erection or demolition of a building must be executed safely and in accordance with appropriate professional standards. (b) All excavations associated with the erection or demolition of the building must be properly guarded and protected to prevent them from being dangerous to life or property. Retaining wall and drainage If the soil conditions require it: (a) Retaining walls associated with the erection or demolition of a building or other approved methods of preventing movement of the soil must be provided; and (b) Adequate provision must be made for drainage. Support for neighbouring buildings (a) If an excavation associated with the erection or demolition of the building extends below the level of the base of the footing of a building on an adjoining allotment of land, the person causing the excavation to be made: (i) must preserve and protect the [neighbouring] building from damage; and (ii) if necessary, must underpin and support the building in an approved manner; (iii) must, at least seven days before excavation below the level of the base of the footings of a building on an adjoining allotment of land, give notice of intention to do so to the owner of the adjoining allotment of land and furnish particulars of the excavation to the owner of the building being erected or demolished" 72 The development required approval and consent was issued by the Council following application by the developers. Section 80A (11) of the Environmental Planning and Assessment Act 1979 (NSW) provides that development consent is subject to such conditions as may be prescribed by regulations. Part 7 of the Environmental Planning and Assessment Regulation 1994, as amended by Regulation 267 of 1998, gives details of the prescribed conditions for the purposes of the section and other sections of the Act. There are a number of clauses which are reproduced in full in clause 82 of the development consent part of which are set out above. The relevant part concerning support of neighbouring buildings is contained in clause 78F of the regulations which was in these terms: "78 Prescribed conditions of development consents: sections 80A (11) and 85A (6) (a) of the Act The provisions of this Part are prescribed conditions for the purposes of section 80A (11) and 85A (6) (a) of the Act. ……………… 78F Support for neighbouring buildings ( 1 ) If an excavation associated with the erection or demolition of a building extends below the level of the base of the footings of a building on an adjoining allotment of land, the person causing the excavation to be made: (a) must preserve and protect the building from damage, and ( b ) if necessary, must underpin and support the building in an approved manner, and (c) must, at least 7 days before excavating below the level of the base of the footings of a building on an adjoining allotment of land, give notice of intention to do so to the owner of the adjoining allotment of land and furnish particulars of the excavation to the owner of the building being erected or demolished. (2) The owner of the adjoining allotment of land is not liable for any part of the cost of work carried out for the purposes of this clause, whether carried out on the allotment of land being excavated or on the adjoining allotment of land. (3) In this clause, allotment of land includes a public road and any other public place." 73 Section 76A (1) of the Environmental Planning and Assessment Act 1979 (NSW) provides that where an environmental planning instrument requires development consent to be obtained for the carrying out of development that development must not be carried out unless consent has been obtained and is in force and in accordance with the consent which was granted. 74 Section 122 provides that for the purposes of Div 3 of Part 6 of the Act (which deals with restraining orders), a breach of the Act includes an actual, threatened or apprehended contravention of, or failure to comply with, inter alia, a condition subject to development consent granted under the Act. 75 It can be seen that the legislation thus contains a prohibition on contravening the conditions of consent and makes such a contravention a breach of the Act for the purposes of enforcement proceedings and penalties. See s125 of the act. 76 In O'Connor v S P Bray Ltd (1937) 56 CLR 464 at 478 Dixon J said in a much quoted passage: "Whatever wider rule may ultimately be deduced, I think it may be said that a provision prescribing a specific precaution for the safety of others in a matter where the person upon whom the duty laid is, under the general law of negligence, bound to exercise due care, the duty will give rise to a correlative private right, unless from the nature of the provision or from the scope of the legislation of which it forms a part a contrary intention appears. The effect of such a provision is to define specifically what must be done in furtherance of the general duty to protect the safety of those affected by the operations carried on." 77 As pointed out in the plaintiffs' submissions in Sovar v Henry Lane Pty Limited (1967) 116 CLR 397, Kitto J, at 405 summarised the principles to apply when determining whether a failure to comply with a statutory provision gives right to a private cause of action in these terms: "The legitimate endeavour of the courts is to determine what inference really arises, on the balance of considerations, from the nature and terms of the statute, including the nature of the evil against which it is directed, and the nature of the conduct prescribed, the pre-existing state of the law, and, generally the whole range of circumstances relevant upon the question of statutory interpretation…It is not a question of the actual intention of the legislators, but of a proper inference to be perceived upon consideration of the document in the light of all its surrounding circumstances." 78 There are a number of cases concerning predecessors of the present town planning laws where the Court has held in the context with which I am concerned that the act and ordinances created a private cause of action in respect of excavations. The first of these concerned s 318 of the Local Government Act 1919 and Ordinance 71 which was made pursuant to the Act. Clause 44 (b) of that Ordinance provided: "Where a building owner proposes to erect a building in close proximity to any other building…if it be necessary for him to excavate or dig out the ground against the wall of such other building, the building owner shall at his own cost shore up and underpin such wall…with proper and sufficient material in a workmanlike substantial manner…" 79 In Anderson v Mackellar County Council (1968) 69 SR (NSW) 444, the New South Wales Court of Appeal held that provisions of s 318 (17) of the Local Government Act 1919 and the above Ordinance made pursuant thereto gave rise to a private cause of action to a landowner for breach thereof by an adjoining owner. 80 The successor to ordinance 71 was ordinance 70 which provided in cl 31.4 for: 31.4. (1) Where an excavation extends below the level of the base of the footings of a building on an adjoining allotment of land, the person causing the excavation to be made shall, at his own expense - (a) preserve and protect such building from damage; and (b) if necessary underpin and support such building in an approved manner. (2) The person causing the excavation referred to in subclause (1) to be made shall, seven days before excavating below the level of the base of the footings of a building on an adjoining allotment of land, give notice of his intention to do so to the owner of the adjoining allotment of land and shall at the same time furnish to such owner particulars of the work he proposes to do." 81 In Kebewar Pty Ltd v Harkin (1987) 9 NSWLR 738 the Court of Appeal was concerned with this provision. It referred to the private cause of action in these terms: "The decision of this Court in Anderson v Mackellar County Council (1968) 69 SR (NSW) 444; 87 WN (Pt 2) 308 which was concerned with the predecessor of Pt 31 was accepted by the parties as authority for the proposition that breach of Pt 31 gave rise to a private action for damages atthe suit of a person who suffered damage as a result of the breach. 82 For reasons which were not concerned with the existence of the cause of action the Court dismissed the appeal. 83 In Pantalone v Alaouie (1989) 18 NSWLR 119 at 131 Giles J accepted that cl 31.4 gave rise to a private cause of action. It will be seen from my discussion of the way in which the present statutory provisions operate that it is a breach of a condition which the legislation deems to be a breach of the Act. This is in contrast to the previous legislation which contained the prohibition in the subordinate legislation. 84 The defendants' submissions pointed to this difference in the statutory scheme and suggested that under the present statutory scheme one only has an obligation to comply with development conditions without any contemplation of the particular development condition which might be imposed and whether that particular statutory obligation is one imposed for the health and safety of the public. No other aspects were argued and I note that the abolition of this statutory cause of action was recommended in this area by the New South Wales Law Reform Commission Report no 84 but its recommendation has not been implemented. 85 Apparently the defendants were referring to what was said by McHugh J and Gummow J in Byrne v Australian Airlines (1995) 185 CLR 410 at 462 in these terms: "Even where the duty in question is created by delegated legislation in the form of regulations made under power conferred on the Executive by statute, there is an added difficulty in discerning the existence of a civil sanction for breach. The question then, as Fullagar J pointed out in Darling Island Stevedoring & Lighterage Co Ltd v Long (1957) 97 CLR 36 at 54-55 whether the statute gives power to create by regulation duties enforceable by action at the suit of a person injured by breach thereof. If the statute does not expressly confer on the Executive a power by regulation to create an action for damages at the suit of any person injured by breach of the substantive provisions of the regulations, it must be difficult to construe the statute and the delegated legislation as impliedly bringing about that result. This must be so, perhaps a fortiori, where the silent statute operates upon an award made by an arbitral body established by the statute. " 86 In the same case Brennan CJ, Dawson and Toohey JJ in a joint judgment said at 424-426: A cause of action for damages for breach of statutory duty arises where a statute which imposes an obligation for the protection or benefit of a particular class of persons is, upon its proper construction, intended to provide a ground of civil liability when the breach of the obligation causes injury or damage of a kind against which the statute was designed to afford protection: see Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397 at 404. 405. The question is one of the construction of the statute, although as Dixon J pointed out in O'Connor v S P Bray Ltd (1937) 56 CLR 464 at 477-478 an examination of the statute "will rarely yield a necessary implication positively giving a civil remedy". One generalisation that can be made is that where the persons upon whom the statutory obligation is imposed are under an existing common law duty of care towards the persons whom the statute is intended to benefit or protect, the statutory prescription of a higher or more specific standard of care may, in the absence of any indication of a contrary intention, properly be construed as creating a private right: O'Connor v S P Bray Ltd (1937) 56 CLR 464 at 478. Thus it is that Factories and Shops Acts and other legislation designed to protect the health and safety of employees in the workplace have been held to impose duties the breach of which gives rise to a right to sue for damages (see, eg, Groves v Wimborne [1898] 2 QB 402; cf R v Deputy Governor of Parkhurst; Ex parte Hague [1992] 1 AC 146). The legislation in this case, the Industrial Relations Act as it stood at the relevant time, is of a very different kind. There have been significant amendments to the Act in the meantime, but it is convenient here to speak of it (as it existed) in the present tense. The principal object of the Act is expressed in s 3 to be the promotion of industrial harmony and co-operation among the parties involved in industrial relations in Australia by the doing of a number of things which include the provision of a framework for the prevention and settlement of industrial disputes by conciliation and arbitration in a manner which minimises the disruptive effects of industrial disputes on the Australian community as a whole. The function of making awards is vested in the Industrial Relations Commission by s 111 and in exercising that function the Commission is required under s 90 to take into account the public interest and, for that purpose, to have regard to the objects of the Act and the likely effects on the economy of any award it is considering or proposing to make, with special reference to the likely effects on the level of employment and on inflation. The Act does not prescribe the content of the awards which the Commission is empowered to make in the settlement of industrial disputes. Having regard to the public aims of the legislation, its scope and purpose is not such as to disclose any intention to benefit or protect employees or any other class of persons by conferring on them a right of action at common law for breach of an award obligation. However, in pursuit of those aims the Act does provide for the enforcement of awards thereby giving them statutory force. The appellants' argument tended to focus upon the award itself rather than the Act. But an award is not a statute (see Ex parte McLean (1930) 43 CLR 472 at 484) and if a duty imposed by an award is to be regarded as a statutory duty enforceable by way of a civil action for damages, then the necessary intention that it should be so regarded must ultimately be found in the Act and not the award. The Act discloses no such intention and, indeed, cannot do so in the absence of any specification of the duties which might be imposed by an award. On the other hand, the Act can and does disclose a contrary intention in providing a means for the enforcement of awards which does not contemplate the existence of private rights enforceable by way of an action for damages. Section 178 imposes a penalty for the breach of an award which might be sued for and recovered by, amongst others, a party to the award or a member of an organisation who is affected by the breach. Under s 356 a court that imposes a penalty may order that it be paid to a particular organisation or person. Section 178 also provides that where, in a proceeding against an employer under the section, it appears to the court concerned that an employee of the employer has not been paid an amount to which the employee is entitled under an award, the court may order the employer to pay to the employee the amount of the underpayment. And s 179 provides that an employee entitled to the benefit of an award may sue for wages and other payments due under it. The maximum penalty which may be imposed for a breach of an award is the relatively modest sum of $1,000 which, when regard is had to the fact that a court may order it to be paid to a member of an organisation affected by the breach, is plainly inconsistent with a right to unlimited compensation by way of damages. So also is the express provision for the recovery of underpayments and of wages under awards inconsistent with a right to sue for damages for breach of an award.

87 The passage cited from the majority in Byrne shows how that case is distinguishable from the legislative scheme being considered in this case. In Byrne the reason why it was held that a breach of the award did not give rise to a private claim for damages was because the Industrial Relations Act expressly provided for an alternative form of compensation that in effect exhausted or took over any private right that may accrue by implication from the Act. In this case there are two sections that give private rights of action. 85 They are ss123 and 124 which provide: Restraint etc of breaches of this Act 123 (1) Any person may bring proceedings in the Court for an order to remedy or restrain a breach of this Act, whether or not any right of that person has been or may be infringed by or as a consequence of that breach. (2) Proceedings under this section may be brought by a person on his or her own behalf or on behalf of himself or herself and on behalf of other persons (with their consent), or a body corporate or unincorporated (with the consent of its committee or other controlling or governing body), having like or common interests in those proceedings. Orders of the Court 124 (1) Where the Court is satisfied that a breach of this Act has been committed or that a breach of this Act will, unless restrained by order of the Court, be committed, it may make such order as it thinks fit to remedy or restrain the breach. (2) Without limiting the powers of the Court under subsection (1), an order made under that subsection may: (a) where the breach of this Act comprises a use of any building, work or land-restrain that use, (b) where the breach of this Act comprises the erection of a building or the carrying out of a work-require the demolition or removal of that building or work, or (c) where the breach of this Act has the effect of altering the condition or state of any building, work or land-require the reinstatement, so far as is practicable, of that building, work or land to the condition or state the building, work or land was in immediately before the breach was committed. 88 These sections do not however give a private right to damages. 89 In the present case the regulation making power in the present Act is as follows: "157 Regulations (1) The Governor may make regulations, not inconsistent with this Act, for or with respect to any matter that by this Act is required or permitted to be prescribed or that is necessary or convenient to be prescribed for carrying out or giving effect to this Act and, in particular, for or with respect to: (a) any function conferred by this Act on any person, or (b) requiring information, particulars, returns and statistics to be furnished to the Director-General by councils and the time and mode of furnishing and the manner of verifying them, or (c) the form, time, manner and mode of giving notices under this Act, or (c1) the content, form, erection, maintenance and removal of signs relating to the carrying out of development or persons involved with the carrying out of development, or (d) obligations on persons regarding fire safety, or (d1) temporary structures, or (d2) places of public entertainment, or (e) the purposes, objectives, provision and maintenance of affordable housing, including: (i) means for determining whether a household is a very low income, low income or moderate income household (for example, by reference to income statistics produced by the Australian Bureau of Statistics), and (ii) means for determining affordable housing costs payable in respect of affordable housing (for example, by reference to percentages of household income), and (iii) enabling the Minister by order to determine matters relating to affordable housing (including the matters referred to in subparagraphs (i) and (ii)), or (f) procedural matters in relation to the making of local environmental plans. (2) A provision of a regulation may: (a) apply generally or be limited in its application by reference to specified exceptions or factors, (b) apply differently according to different factors of a specified kind, or (c) authorise any matter or thing to be from time to time determined, applied or regulated by any specified person or body, or may do any combination of those things. (3) A regulation may apply, adopt or incorporate any publication as in force from time to time." 90 This regulation making power is quite different to the power in s318 of the Local Government Act 1919 which supported the ordinance in Anderson. In Mcdonald v Girkaid [2004] NSWCA 297 the court made reference to the comments of McHugh J and Gummow J in Byrne in these terms: "171 The proposition to which their Honours referred was one which enjoyed currency prior to the decision in Australian Iron and Steel Pty Limited (1957) 97 CLR 89 in which Kitto J's judgment made it plain (at 98) that it was based on the fallacy that the question whether a private cause of action was created depended on discerning a "disclosure of a positive intention to create such a right." Following that decision, as was pointed out in The Liability of Employers , Glass, McHugh and Douglas (The Law Book Company Limited, second edition at 115), "[a]ctions for breach of duties created by regulation … proliferated". McHugh and Gummow JJ's observation had particular significance in Byrne v Australian Airlines Limited where it was being contended that "the silent statute operates upon an award made by an arbitral body established by the statute". It cannot, however, resolve the outcome of the question whether regulations 18 and 19 created a private cause of action." 91 After referring to the nature of the Dangerous Goods Act under consideration in that case the Court said: "174 However, the question whether a statutory duty confers a correlative private right of action also turns on whether the statute imposes a duty to take "a specific precaution" ( O'Connor v S P Bray Limited ) or "measures for the safety of others" ( John Pfeiffer Pty Limited v Canny ). 175 In Storozuk v Commissioner for Railways (1963) 63 SR (NSW) 581 at 593 - 594, Brereton J (with whose reasons Else-Mitchell J agreed) doubted whether regulations which expressed an obligation in terms of a requirement to take "all practicable precautions" founded a civil action. This was because the phrase did not "prescribe or define precisely the means that must be taken …" (referring to Windeyer J in General Constructions Pty Ltd v Peterson (1962) 108 CLR 251 at 257). In Slivak v Lurgi (Australia) Pty Limited [2001] HCA 6; (2001) 205 CLR 304, however, all members of the High Court held, respectively, that a provision of the Occupational Health, Safety & Welfare Act 1986 (SA) which turned on the phrase "ensure so far as reasonably practicable" created a private cause of action (at [27] - [29] per Gleeson CJ, Gummow and Hayne JJ, at [50] per Gaudron J, at [87] per Callinan J). 176 Although the question whether a statute confers a private cause of action ultimately turns on the terms of the particular legislation, Slivak v Lurgi (Australia) Pty Limited is persuasive authority supporting the view that the requirements in regulations 18(e) and 19(e) to take "all practicable steps" and "all practicable precautions" sufficiently identify specific precautions or measures to support the primary judge's conclusion that, taken with the purpose of the dangerous goods legislation, those regulations created a private cause of action. I would, therefore, reject ground 6(a) of McDonald's grounds of appeal insofar as it relates to regulations 18(e) and 19(e). 177 Regulation 19(g) is in a different category. It prescribes the end but not the means. It does not identify any specific precaution or measure which the occupier is to take for the safety of others. It is a blanket prohibition on doing the act in question. It does not tell the occupier what measures must be taken: cf Utah Construction & Engineering Pty Limited v Pataky [1966] AC 629 at 641. In my view, the absence of identification of specific precautions means that regulation 19(g) should not be construed as conferring a correlative private cause of action on Girkaid and Inghams. I would, therefore, uphold ground 6(a) of McDonald's notice of appeal insofar as it related to regulation 19(g). 178 The conclusion that one out of several clauses in the enactment does not create a private right is not inconsistent with a conclusion that other clauses in the same enactment do create such a right: see O'Connor v S P Bray Limited , above, at 479." 92 The words with which I am concerned "must preserve and protect the building from damage" are even more specific than the words with which the Court was concerned in McDonald. 93 The prescribed conditions in Part 7 of the Environmental Planning and assesment regulations 1994 which must by force of law be included in a development consent include a range of conditions directed towards matters which fall within the rubric of health and safety requirements to protect the public or certain classes of the public. In this case there are a substantial number of other conditions of the consent imposed by the Council which have nothing to do with these prescribed conditions and which are in a different category. Like Giles J in Pantalone v Alaouie I find the reasons advanced by Jacobs JA in Anderson v Mackellar County Council at p 448 compelling. Those reasons were: "It seems to me that the underpinning and shoring of adjoining buildings is a subject matter which initially has the character of a provision which the legislature might well intend for the special benefit of the limited class of adjoining owners and occupiers and in which it might well intend to give those owners and occupiers private rights of action in the case of a breach. The terms of the actual Ordinance in the present case add much support to this view because, after the provisions of par. (a) and par. (b) as set out in the declaration, there are further provisions which specifically deal with the relationship between a building owner and an adjoining owner in terms which I have no doubt create private rights and obligations between them. There is the further significant fact in the Ordinance that this clause made pursuant to par. (17) of s. 318 is limited to cases where the adjoining building is in different ownership. I therefore do not find a context of the legislation to the contrary of any intention to create private rights, and in addition I find many of those circumstances from which an intention to create private rights can be inferred. The statutory penalty provided under the Local Government Act for breach of an Ordinance is quite inadequate when the damage from a breach in this particular case may be of an especial magnitude. The primary benefit of a provision made pursuant to this paragraph of the Ordinance is for the adjoining owner or occupier. It is true that there may be a general benefit to the community not to have buildings in the community made ruinous by building works of adjoining land, but this benefit is quite secondary to the enormous benefit conferred by the legislative provision on the adjoining owner and occupier There is the further fact that in this same field there is an analogous, but by no means identical, common-law duty. The adjoining owner has a natural right to the support of his land and he may acquire a right to the support of his buildings. The fact that the common-law right is limited to support for the land may possibly be regarded as the reason for the legislative intention to confer rights in respect of support of buildings on those lands. The importance in the present context is that the common-law right to support for the land itself is in the same general field as the rights intended to be conferred by the legislation. In the circumstances, therefore, I am of the opinion that it sufficiently appears that there was a legislative intention in s. 318 (17) to permit the creation by Ordinance of private rights of action in respect of breach of any statutory duty imposed pursuant thereto, and that there sufficiently appears from the terms of the relevant Ordinance an intention that thereby a private right on the adjoining owner should be conferred by virtue of the statutory duty created pursuant to the terms of cl. 44 of Ordinance 71. " 94 Given that the legislative scheme requires the imposition of the particular condition I would not liken the legislative scheme to one where a silent statute operates upon an award by an arbitral body established by the statute. In this case the "arbitral body", namely the council, is obliged to include the conditions. It has no choice in the matter as the statute and regulations command what must be done. The scheme of the Act which provides for the safety of buildings and those working or living within them, its penalty provisions for breach of condition and the identical wording employed in ordinance 31.4 and cl 78 F of the Regulation in force at the time of consent, lead me to conclude that the Regulation and the Act does give a private cause of action for damages in respect of a breach of this condition. 95 The relevant condition imposed by regulation refers to "the person causing the excavation to be made". Giles J dealt with this expression in Pantalone v Alaouie in these terms: "Clause 31.4 differs significantly from cl 44(b). It does not impose the obligation specifically upon the building owner. It seems to have been thought that there may be situations in which the building owner would be so remote from the carrying out of the work that it would be inappropriate to impose the obligation upon him and subject him to liability for its breach; and conversely, that there may be situations in which some person other than the building owner would be so responsible for the carrying out of the work that the obligation should be imposed on him and he should be subjected to the liability for its breach. The more flexible criterion has therefore been used of the person causing the excavation to be made. The flexibility carries with it uncertainty. In one sense, the owner who lets a building contract to a builder, who sublets an excavation contract to an excavator, causes the excavation to be made. In another sense, the plant operator working the excavator causes the excavation to be made. I do not think that it was intended that there should be multiple liability. Clause 31.4 refers to "the person" not "any person", and requires that person to give the notice and particulars to which cl 31.4(2) refers. Quite apart from what flows from the use of the definite article, it is unlikely that it was intended that each one of those who might be considered as causing the excavation to be made, ranging from owner to contractor to sub-contractor to labourer, should have to give the notice and particulars. Rather, it seems to me that it was intended that one person must be identified as the person causing the excavation to be made, and that person must be identified primarily by asking who was thought to be in a position to give seven days notice of his intention to excavate, in a position to give particulars of the work he proposes to do, and in a position to take the protective measures to which cl 31.4 refers." 96 In the present case the first and second defendants were the owners as well as the developers of No 44. They employed design engineers and various contractors to do the piling work and the excavation. They coordinated all those activities. In these circumstances plainly they were the ones who caused the excavation and, accordingly, would be liable at the suit of the plaintiffs. 97 The statutory duty is one of strict liability and, accordingly the first and second defendants are liable for breach of the terms of the consent as they caused an excavation to be made below the level of the base of the footings of the building next door and they "failed to preserve and protect such building from damage". Plainly this has occurred in the present case and they are liable. However, it is necessary to continue with a consideration of their negligence for the purposes of the cross-claims and any necessary apportionment of liability. Whether there was in an implied term of Piling's contract that Prynew would act carefully 98 In paragraph 84 of the Report the Referee concluded that the piling contract between Piling on the one hand and Prynew and Tsu on the other contained an implied term that Prynew and Tsu carry out " its work using proper skill and care". The reasons given by the Referee for implying the term was that a similar term was implied into the piling contract in respect of piling work carried out by Piling. 99 It appears that such later term was implied because there was a concession made by Piling to that effect. Prynew made no similar concession. The relevant item of work that was done was the setting out for the placement of the piles. Prynew and Tsu or others that they had engaged, did that work. The contractual provisions in the piling contract were to the effect that the setting and maintaining of survey pegs and levels for piles and checking after driving were to be provided and maintained by others than Piling at no cost to Piling and in such a manner that Piling's operations were not delayed. 100 The basis of an implied term is referred to by Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347 where the court approved the statement in BP Refinery ( Westport) v Shire of Hastings (1977) 16 ALR 363 at p.376: "Their Lordships do not consider it necessary to review exhaustively the authorities on the implication of a term in a contact which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied. (1) It must be reasonable and equitable; (2) It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) It must be so obvious that 'it goes without saying'; (4) It must be capable of clear expression; (5) It must not contradict any express term of the contract". 101 Given that the work could be performed by others I do not think that the implied term was necessary to give business efficacy to the contract. In addition, as the express term of the contract recognized that others rather than Prynew or Tsu would do the relevant work the implied term would seem to contradict that term. This is not to say however that in the circumstances where Prynew and Tsu did the work (if that be the case) the relevant duty of care might be found and breached as indeed the Referee decided at paragraph 419. 102 It is useful to turn to some of the main factual matters which were the subject of submissions before me. Whether, as found by the Referee, excavation occurred in the immediate vicinity of the short pile after sand had been pushed against it on 23 July and before the first subsidence 103 There were a number of breaches of duty of care found by the Referee in respect of the setting out of the piling work and in respect of the steps that should have been taken in the period between when the short pile was first discovered on 21 July and the evening of the 26 July when the subsidence occurred on the first occasion. The relevant breaches found by the Referee in respect of these areas were as follows:

Piling did not exercise reasonable care and skill in ensuring that the expelled grout did not travel to the short pile location 122.

Prynew and Tsu failed to accurately locate the position for the drilling of the relevant piles.

Piling, Prynew and Tsu were in breach of duty to take special care when excavating the area.

When after 21 July Prynew and Tsu did not urgently seek advice from the design engineer they were in breach of their duty of care to the plaintiffs.

That Piling was in breach of its duty of care to the plaintiff and Prynew for failing to provide urgent advice when requested by Prynew and Tsu.

That continuing excavation after the short pile was discovered by Prynew and Tsu was in breach of its duty of care to the plaintiffs.

That when wet weather was forecast to the knowledge of Prynew and Mr Tsu their failure to seek urgent advice from the design engineer constituted a breach of their duty of care to the plaintiffs. 104 Piling challenged none of these findings and it will be recalled that they advocated that the report should be adopted. 105 The alleged breaches committed by Prynew and Tsu were attacked in submissions on a number of different bases. In respect of the present matter, namely, whether there was excavation after discovering the short pile and before the first subsidence, it was submitted that the Referee misunderstood the evidence, her conclusion was not reasonably open and that there was no acceptable process of reasoning. 106 The Referee dealt with the matter at paragraphs 255 to 274 of her report. She found that approximately 3 metres of further excavation took place immediately adjacent to the short pile between the morning of 23 July and the time that the photographs were taken on 27 July 2001. The photographs which were taken on 27 July were exhibit 7 before her and showed the site immediately after the subsidence. An acceptable interpretation of the photographs would indicate that on the assumption (as the Referee found) that the extent of the excavation was between a half and 1 metre below the bottom of the short pile when it was first discovered on 21 July there had indeed been such a further excavation. 107 The submissions of Prynew and Tsu were that the Referee concluded that:- (a) Excavation occurred between the morning of 23 July and 27 July 2001 (paragraph 253) to a further depth of approximately 3 metres (paragraphs 274, 398 and 880);

(b) The excavation involved the removal of the western half of the half cone of sand ( the Removed Section ) as a result of the activities on the morning of 23 July 2001 (paragraphs 252, 253 and 882); (c) The Removed Section was probably not replaced prior to 27 July 2001 since this would have involved additional work for the excavator for which an invoice would have been raised but there was no such invoice (paragraphs 254 and 862); (d) Mr Malicia and Mr Tsu must have observed this (paragraphs 399 and 883); (e) Mr Malicia and Mr Tsu authorised and controlled this (paragraphs 401 and 883); (f) Prynew and Mr Tsu were negligent in failing to ensure that excavation did not proceed and in authorising or allowing its continuation (paragraph 426)

108 The submissions went on suggest that the Referee's conclusion that such excavation had taken place was based upon: (a) A photograph taken after the subsidence on 27 July 2001 showing, inter alia, the installation of a second whaler (paragraph 269);

(b) Evidence that a second whaler had been installed after the morning of 23 July 2001 and that this would have required excavation (paragraphs 260 and 274 but Cf paragraph 261; paragraph 269); (c) The recording in the site diary that a whaler was placed in position on 23 July 2001 (paragraph 274) as a result of which she concluded that the whaler was most likely placed before noon on 23 July 2001; (d) Expert evidence that the excavation depicted in the photograph was inconsistent with excavation having stopped at a depth of 1-1.5m below the toe of the short pile (paragraph 270); (e) Mr Malicia was on site everyday all day and Mr Tsu visited each morning and afternoon (paragraph 399); (f) Mr Malicia was able to control excavation for the purposes of co-ordinating trades (paragraph 400); (g) Mr Kolistassis of the excavator acknowledged that he acted upon Mr Tsu's instructions to cease and re-commence excavation (paragraph 400) and Mr Tsu acknowledged giving such instructions (paragraph 883). 109 The submission went on to criticise various conclusions arrived at by the Referee. The criticisms were as follows.

1. The Referee's conclusion that the second whaler was installed by 12 noon on the 23 July was wrong but in any event inconclusive as to whether or not excavation had proceeded.

2. The acceptance of the conclusions of the experts of what was revealed by the photos taken on 27 July. This involved consideration of what was said to be the level of excavation at the time of discovery, what inferences were actually available or not available from the photographs and whether that was a matter that the referee should have determined for herself and not relied on the evidence of experts. 110 Turning to the question of what was the gap under the short pile on 23 July 2001 the Referee said that she accepted the uncontested evidence of all the witnesses who saw the gap under the short pile and made the finding at paragraph 272. The actual evidence about the depth at the time of its discovery came from Mr Luck, Mr Tsu and Mr Kolistassis. The evidence of Mr Kolistassis in his affidavit and oral evidence was that he went to the site at 9am on 23 July 2001. He saw a gap of about 1 metre below the pile. On that occasion when he saw the pile there was no whaler installed. 111 Mr Tsu's affidavit evidence was that when he arrived at the site at 9.45am he saw that the excavation had proceeded to a depth of about 5.5 metres below natural ground level and this had revealed the short pile. Having regard to the length of the short pile it would be no more than 1.5 metres on his evidence. He indicated in his oral evidence that when he went to the site he did not actually see the gap under the short pile because there was a pile of sand pushed up against it. 112 Mr Luck in his affidavit of 30 January 2006 referred to his visit to the site on 23 July 2001 and the photographs taken on 27 July 2001. He said that the photographs showed a larger void than the void he had seen on 23 July 2001. On that day he says the second whaler was not in place when he went there at about 10am in the morning. He went on to say that the photographs showed that the excavation had continued and that the second whaler had been installed. He repeated this evidence in the witness box. 113 The submissions criticised the Referee for failing to carry out a detailed analysis of why she accepted some of the evidence of witnesses and not other evidence given by them. For example she did not accept the evidence of Mr Tsu that no further excavation was carried out nor did she accept evidence from Mr Luck he had not been asked by Mr Malicia to advise what should be done. 114 Although the Referee has not set out detailed reasons why she accepted part of the evidence it seems plain that she may have regarded it as acceptable. The fact of the matter is that there were a number of items of evidence that were available for her to accept as to what was the depth of the excavation when the pile was first discovered. Direct contrary evidence was not given. In these circumstances I do not think that the criticisms, which have been levelled at the fact-finding process, warrant the Court rejecting the Referee's finding. There was appropriate evidence available to her to make her finding. I do not think that the criticisms of the lack of reasons are appropriate when considering this simple fact-finding. This is not an appeal. 115 The next matter to consider is the Referee's conclusions that the photographs showed there had been a further excavation of 3 metres. This conclusion was criticised as it was said that the Referee appeared to have wrongly treated the question of the significance of the photographs as a matter upon which expert opinion could be relied upon rather than appreciating that it was essentially a matter of fact for her to decide in regard to the evidence, inter alia, of Mr Tsu and Mr Kolistassis. 116 The Referee dealt with the matter in the course of the hearing in conclave No 2 for which there was a transcript. The conclave was with the engineering experts. The Referee referred to this evidence at paragraphs 270 to 271 of her report. Those paragraphs are as follows:

270 From their instructions that the excavation below the short pile on the morning of 23 July 2001 was between half to one metre below the toe of the pile and from the photographic record of 27 July 2001, the experts concluded that if Mr Kolistasis's alleged direction not to excavate further below the short pile had been given, it had not been followed. By reference to PILING exhibit 7, photo 3, Mr Ervin said that, by 27 July 2001, excavation had proceeded to an approximate depth of 6 metres under the toe of the short pile without any filling or plugging of the gap with concrete and steel (conclave 2, transcript 18 to 19) . The other engineers agreed that the excavation was significantly deeper than 1 metre (conclave 2, transcript 20) . Mr Young estimated the distance between the two walers at 1.8 to 2 metres and said the photograph illustrated that, by 27 July 2001, no sealing of the wall had been carried out (transcript 797 to 798) . The experts agreed that, by 27 July 2001, excavation had proceeded below the bottom of the second waler. Mr Truswell estimated the distance from the toe of the short pile to the second waler was 1.5 to 2 metres and agreed he could see no evidence of attempts to seal this gap or place a berm of sand in front of it (transcript 985) . Although agreeing with the other experts about further excavation having taken place (transcript 1531), Mr McMillan said: "If there was a substantial amount of soil washed away from the front of the pile, then just looking at the photograph of what happened after the event might not be, or probably would not be, a true depiction of what was there before the event" (transcript 1532). 271 Mr Voigt, who had taken the photos, estimated a depth of 2 metres from the lower waler to the excavated level (transcript 1822). 117 After dealing with the evidence of what the gap was under the short pile on 23 July 2007 the Referee went on to express her final conclusion at paragraph 273 as follows: 273 Although Mr Tsu testified that excavation around the short pile did not take place between 23 and 27 July 2001, the photographic evidence, in particular exhibit PILING 7 photo 3 , taken on 27 July 2001, illustrated an excavated depth of between 1.5 and 2 metres from the toe of the short pile to the second waler and a further 2 metres from the lower waler to the excavated level to the immediate west of the short pile, i.e. a total depth of between 3.5 and 4 metres from the toe of the short pile to the excavated level. The excavated depth on 23 July was between 0.5 and 1 metre. Between 23 and 27 July 2001, further excavation of approximately 3 metres must, therefore, have occurred. 118 When coming to this conclusion it is apparent that the Referee has realised that there was contrary evidence and in particular the evidence of Mr Tsu that there was no further excavation between 23 and 27 July 2007. In this paragraph she does not say that it was the experts who concluded that the photograph taken on 27 July 2007 showed the depth of excavation of a somewhat greater amount. It is expressed simply as her conclusion and although she may have been assisted by the discussion in the conclave what she has done has made a factual finding herself that there was further excavation. Having regard to the evidence and photographs this was an acceptable conclusion that was open to her. 119 For these reasons it seems that the Referee's conclusion as to the further excavation should not be disturbed. As was pointed out in the submissions from the first and second defendants the sustainability of the conclusion that there was excavation must turn not upon whether a second whaler was installed but upon what was deduced from the photographs based on the depth of excavation on 23 July 2001. In any event there is other evidence pointing quite clearly to the installation of the second whaler across the gap caused by the short pile. See plate B in ex Piling 7. 120 I turn to consider another critical matter in the fact-finding process. How did the short pile arise and were Prynew and Tsu negligent in setting out the pile location for the pile 122? 121 The construction of the piling was done using an Auger having a width of 500mm. The centres of each pile were located at 550mm centres in order to achieve a close fit between the piles. After drilling, the piles were injected and subsequently reinforcing inserted into the piles before they set. Locating the piles involved a number of operations. Prior to each pile being injected the surrounding area first had to be levelled so that the drilling rig could move into position. The location of the piles had to be pegged. There was an earth moving company with a mechanical excavator used to create the working platforms each day, to remove spoil from the drilled piles and otherwise move material away from the site. 122 Piling's contracted work excluded the provision of "all survey including setting out and maintaining positions and levels". 123 A surveyor was engaged to place reference marks on the site from which the southern and western piling walls were located. In the course of the work Solarite Pty Limited another of Mr Tsu's companies, hired a bricklayer, Mr Peter Little, to assist the Prynew foreman, Mr Malicia, to place markers for the piles to be drilled each day. These gentlemen did not give evidence. The piling work commenced on 4 May 2001 and was completed by 30 June 2001 when the drilling rig left the site. 124 Before the Referee various employees of Piling gave evidence of how the short pile came into existence. The Referee dealt with this at paragraphs 144 to 148 of the report. It is difficult to follow the matter without reference to the plan view of the piles, which were included in her report at paragraph 144. That plan view was in this form:

125 In summary the Pilings witnesses contentions were as follows: On 4 June 2001 pile 122 was pre-drilled;

On the same date, pile 118 was re-drilled after perimeter grout had hardened before placement of the reinforcing cage; The pre-drilled location for pile 122 was 1.6m from pile 118; During the re-drilling fluid grout from pile 118 escaped into the pre-drilled location for pile 122; The escaped grout hardened and became the short pile; On 5 June 2001 the location for pile 122 was re-pegged; The re-pegging was wrong; The augur when inserted into the incorrect location deflected off the set grout; The deflection left the short pile in a gap between piles 123 and 122.

126 When considering this conclusion it is to be remembered that although the pre-drilled location for pile 122 was partly filled with a column of grout such grout would normally take some time to set and in the ordinary course if necessary it could have been drilled out in the same place. However, from a factual point of view that did not happen and hence the question of the placement of the drill for the redrilling of pile 122 became critical. 127 This conclusion was criticised in the submissions of Prynew and Tsu in these terms: The principal problem with the contention accepted by the Referee is that it attributes part of the responsibility for the short pile to the person who did the re-pegging upon the basis that the re-pegging was wrong but:- There was no evidence of any re-pegging of pile location 122 on 5 June 2001;

There was no evidence that any pegging or re-pegging of pile location 122 was wrong; There was no basis for otherwise concluding that any pegging or re-pegging of pile location 122 was wrong. 128 The Referee's conclusion was at pargraph 148 in these terms: "148 While it appeared, during the reference, that Prynew and Tsu were sceptical of Piling's explanation for how the short pile came into existence, it was: 1) the only explanation given; 2) provided by officers of Piling who were in the best position to give an explanation; 3) consistent with contemporaneous business records, to the extent that these recorded aspects of the explanation; and 4) not traversed by expert opinion or any other evidence. On reflection, the Piling explanation, as set out in paragraph 144 above, was credible and, on the balance of probability, I find that this is how the short pile came into existence." 129 The fact of the matter is that it is plain that there was a short pile. The only question is how it came about. The basic explanation given by Piling certainly is acceptable and the Referee was correct to accept their explanation in the absence of any other explanation as to how it occurred. The real question is whether on 5 June the location of the pile 122 was re-pegged in the wrong position. A possibility is of course that it was simply re-drilled without re-pegging. As I have mentioned earlier it is possible for a re-drilling to have occurred on the site of the short pile the next day because the grout would not have hardened by that time. 130 The evidence given by Pilings foreman, Mr Richard Rochester, is relevant in respect of the steps taken. There are also the records maintained by Piling which refer to the following relevant matters:- 4 June 2001 · .Pile locations for piles 118 and 122 were set up and drilled (site diary report) · Old concrete footings were removed from pile location 122 (site diary report) · Pile location 118 was redrilled and refilled (site diary report) · Only 5 piles were installed (site diary report) · Pile 118 was drilled and constructed (daily drilled record and verification checklist) 5 June 2001 · There were 2 redrills after grout had been installed (site diary report) · Pile location 122 was drilled and constructed (daily drilled record and verification checklist) 131 It is notable that there is no reference to there being a further set out of pile location 122 on 5 June 2001 but only a reference to it being drilled and constructed. 132 The initial evidence about the pegging out given by Mr Rochester in his affidavit was to this effect: "The client provides the set out of the pile locations. The client places a peg in the ground and Piling drills at the peg location. The client places a peg for each pile. I cannot recall the name of the brickie who provided the set out for the initial pile location. Henry Malicia provided set out for the subsequent pile location." 133 Mr Rochester was subjected to intense cross-examination. 134 In terms of general procedure Mr Rochester confirmed that when he went to drill a pile he would do so using as a reference point the peg out at the centre of the pile put there by Prynew. In order to enter the ground at that point there was a need to have an off-set marker for the removal of the peg so that as the Auger went into the ground it could be checked that it was going into the position that the peg had previously occupied. It is plain that Mr Rochester could see all the drilling at all the relevant times and supervised various operators. However, he did not have a recollection of the installation of pile 122. 135 At paragraph 146 the Referee returned to the question of whether the re-pegging was in a different and incorrect location from the pegging on the previous day. She set out the cross-examination of Mr Rochester at transcript 1789 to 1791 and the part that she included was in these terms: 146 As the Piling theory was based partly on an assumption that the re-pegging of pile 122, on 5 June, for which Prynew was responsible, was in a different and incorrect location to the pegging of the previous day, this theory involved the potential culpability of Prynew as well as Piling. During his cross-examination, Mr Rochester gave the primary evidence concerning this (transcript 1789 to 1791) : Q. "Can I ask you this: your theory, as I understand it, is that what happened was that the site which had been pegged for 122 got plugged up with grout?" A. "Yes."

Q. "And then the next day someone in your team went to construct the hole 122." A. "Yes."

Q. "And, if they had done their job properly, would have seen this grout in location 122; is that right?" A. "Not necessarily, because the platform - because the drill rig is a big, heavy machine and it adversely affects the platform, so every, or at regular intervals throughout the day we'd have had to re-smooth and prepare the platform area for suitable access for the machinery."

Q. "But I'm assuming the day after pile 118 was constructed, given what you contend to be the probable pre-drilling of pile 122 on the same day, that your team when they went back to actually construct pile 122 the following day would have looked to see where it was pegged, remembered that they had predrilled it, and, when they looked at the predrilled hole, seen the grout?" A. "No, no, because at the end of the operation after the completion of pile 118 the machine would have been moved away from the hole and the concrete lines blown out and the platform would have been smoothed over ready for pegging either that afternoon or early the next morning."

Q. "But let's be clear about it: the predrilling occurred, according to your theory, for pile 122 on 4 June, the same day that pile 118 was constructed, correct?" A. "Yes."

Q. "To have that predrilling take place, the hole needed to be pegged, didn't it?" A. "Yes."

Q. "So the pegging had already been done by a Prynew representative by or during 4 June." A. "Yes." Q. "And then on the following day, 5 June, according to your theory, your team went back to the site and looked to see where they had predrilled the location -" A. "No, because that would have been sort of filled in and smoothed over and would have been repegged."

Q. "That's what you assume, is it?" A. "That's what I believe to be the case."

Q. "Can I ask you this: what is the point - please explain to us - of predrilling at location 122 if all that's going to happen is it's going to be covered over and you won't be able to find it the next day? What is the point?" A. "Well the point is we intended to install it that day, but we ran out of time. We had to redrill hole 118".

Q. "Are you seriously telling the reference that, having predrilled at location 122, your team came back the following day, not knowing where the predrilling had taken place?" A. "Yes."

Q. "And not looking to see the specific area that had been watered to make the work at that location easier?" A. "Yes. It all gets - the site was very, very sandy and just walking the machine backwards to put the cages in created quite large wind rows around the tracks, so it required regular smoothing out with the excavator."

Q. "Okay. So you tell the reference, as I understand it that the practices that you were aware of which were being applied to this work by your team did not require it to take any steps to go back and try to locate the area of the predrilled location; is that right?" A. "Well we would have had it repegged the next day." Q. "Answer my question, please. Is that right? Do you want the question again?" A. "Yes, please." THE WITNESS: "The standard practice is, if you lose a piling location, you get it repegged. That's not an unreasonable step, I don't believe."

MR SIMPKINS: Q. "Can I have an answer to my question? Do you want it re-read again?" A. "Yes, please."

THE WITNESS: A. "That's right."

MR SIMPKINS: Q. "So they would set up this site the day after the predrilling and not make any effort to work out where the predrilling had taken place. Is that seriously what you're saying - not make any effort?" A. "Not make any effort? Well, no." 136 The cross examination continued on the subject after the part quoted by the Referee. That part was as follows:

Q. Do you have any recollection, that is, an actual recollection, of what happened on 5 June in relation to the work concerning pile 122? A. I don't have specific recollections of that day, no. I am prompted by the site diary.

Q. You are not able to say whether on that day the area of the predrilled location for pile 122 could or could not be readily seen, are you? A. Not specifically, no, but generally speaking on that job that was the procedure that was followed.

Q. But as I understand the process that you're describing, on 4 June 2001 location 122 was predrilled because immediately as the first job the next day, 5 June, the team were to come back and put in pile 122; is that right? A. No. We were going to put in 122 on 4 June.

Q. It didn't go in on 4 June, did it? A. No, it didn't.

Q. As it turned out, it was the first job which was done on the following day, 5 June? A. Yes.

Q. Well let's assume for the moment that your theory is right, so that the grout does travel, it occupies part of the predrilled location at 122. Your operator, you want to suggest, then on the following day, 5 June, goes back to construct pile 122 with the labourers. A. Yes.

Q. Although you don't know whether it occurred or not, your belief is that pile 122 may have been pegged a second time? A. Yeah, either first thing that morning or late the previous afternoon, repegged. Q. Let's assume that whoever pegged it got it right. When the drilling rig was placed at the right area for location 122, the pile could not have been constructed at that location on that day; correct? A. Yes. 137 When considering this evidence it is plain that Mr Rochester did not have a specific recollection of having seen the re-pegging of the pile on 5 June 2001. However, he did provide basic evidence about how the operations were normally carried out and how the drill was positioned by reference to the pegging. It is not an unreasonable assumption that the Referee has made that there was in fact a re-pegging and that it was at an incorrect location because that is where the pile ended up, namely, at an incorrect location. Effectively what the Referee is doing is inferring that the location for pile 122 was re-pegged at an incorrect location. 138 Cross on Evidence summarises the correct approach to drawing inferences in civil cases and criminal cases in these terms: " Where satisfaction of the civil state depends upon inference, there must be something more than mere conjecture, guesswork or surmise. That is, there must be more than "conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture". If there is the test is as follows: "the difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. " 139 Although the evidence from Mr Rochester was that the site would have been re-pegged the next day this was not an answer to the question which was posed by the evidence and is rather a reference to the standard practice if one loses a pile location. The other alternative to the inference the Referee has drawn is that the location was not re-pegged and that the drilling platform was set up and the hole drilled in a position by reference to some other means of identifying where the hole was to go. This seems quite unlikely and, in my view, the Referee was correct to infer that pile 122 was re-pegged at an incorrect location. Obviously that was done by Prynew or those whom it had engaged to do this work. 140 It is necessary to turn to the conclusions concerning the negligence of Piling and Prynew for the relocation of pile 122. The Referee accepted that neither Mr Rochester nor his team took any steps to relocate the predrilled and watered hole instead they simply relied on the Prynew team to re-peg the hole accurately. There is no challenge to this finding as far as Prynew is concerned. The Referee fastened on some evidence that the setting out apart from the primary positions was not done by a surveyor. Mr Malicia and Mr Little the bricklayer apparently located the pegs for individual pile locations and they gave no evidence in the proceedings. Her conclusion was that Prynew did not take the precaution of ensuring the piles were set out using a skilled surveyor or using survey equipment. Unfortunately this was not an allegation that was pleaded against Prynew and was not available. 141 The Referee's reliance on the evidence of Mr Carl Voigt to suggest that the method of location of the piles was unorthodox is probably not available. His evidence was that normally the main control points would be determined by a surveyor which would be used by the client to determine the intermediary points for the piles and that process did in fact take place. Her conclusion in paragraph 419 on this aspect was as follows: 419 The unchallenged evidence of Mr Voigt, which I accept, was that Prynew inaccurately located a number of piles and the methods Mr Malicia and Mr Little used in doing this were unorthodox. Although no expert witness expressed an opinion that the unorthodox methods used did not meet the reasonable care and skill expected of an experienced developer with work being carried out under the supervision of an experienced foreman, in my view, such a conclusion was self-evident. Correct set-out is of fundamental importance in all building projects. In not using survey equipment in accordance with normal building practice and in adopting the unorthodox methods they did, which resulted in a failure to accurately locate the piles, I find that Prynew and Tsu, through their employees and agents, were negligent and failed in their duty of care to Nemeth and Piling. 142 Although the Referee found the failure to set out was negligent she did so on the wrong basis but the fact of the matter is that as a result of her factual findings there was a set out of the pile 122 at an incorrect location. This leaves open for consideration support for the Referee's conclusion of negligence without relying upon the failure to use surveying equipment or surveying techniques. Obviously the set out of the piles at the right locations is critical to the success or failure of the construction of a contiguous wall and a failure in this respect could be classified as negligent. 143 It is plain that the Referee regarded correct set out as fundamental in this project. As I have mentioned Mr Malicia and Mr Little were not called to give evidence. On the evidence they were the men who did the pegging and, given the evidence to this effect, they could have provided answers in respect of the faulty pegging. They are non-party witnesses but in my view it would be natural for the first and second defendants to call them. Plainly their evidence as to what happened on 5 June 2001 would have shed some light on the matter. In my view their evidence would not have assisted the first and second defendants. 144 It is open to the Court to decide any matter on the evidence taken before the referee without any additional evidence and the motion of the first and second defendants invites that approach in relation to whether the first and second defendants breached their duty of care. 145 What happened here is something that would not ordinarily happen in the construction of a contiguous piling wall. The occurrence bespeaks negligence and the evidence points to two separate breaches of care by the defendants. The first and second defendants were responsible for setting out the location of the piles and the referee has found that this was not done correctly. Given the Referee's view of the fundamental importance of correct set out it is arguable that the first and second defendant breached their duty of care in this respect. I will decide the matter by reference to the existing evidence before the Referee and I will give directions for written submissions on this point.

146 On the evidence before the Referee the set out was done by Mr Malicia or Mr Little. The question arises whether Prynew was responsible for their actions. The Referee addressed this matter in paragraph 397 in these terms: 397 The evidence established that Mr Malicia was the site foreman and acted under the direction of Mr Tsu. As Mr Tsu was the sole director of Prynew, Mr Malicia's performance was the responsibility of Prynew and Tsu and could not be delegated. Similarly, as Mr Little, the bricklayer, was an employee of Solarite, of which Mr Tsu was the sole director, and, as Mr Malicia supervised Mr Little's work, Mr Little's performance was also the responsibility of Prynew and Tsu and could not be delegated and I so find . 147 There was some debate before the Referee as to whether Prynew and Tsu were responsible for acts of their independent contractors. The plaintiffs' position before the Referee was that the duty of care owed by a landowner to an adjoining landowner could not be delegated. In detailed submissions in reply made of behalf of Prynew and Tsu reference was made to the law in this area. The state of the law has recently been reviewed in Walker v Corporation of City of Adelaide (2004) 88 SASR 225 as follows: [308] Ordinarily, a building owner (or in this case Estoril as occupier) would not be liable for the negligence of an independent contractor which it had engaged.

[309] But there may be cases where the building owner, or as in this case, Estoril as occupier, may be liable for the negligence of its independent contractor. Liability may arise where the owner or occupier owes a duty to a third party which it cannot delegate by assigning the performance of it to an independent contractor.

[310] Although it may be accepted that in some instances the duty owed by a building owner or occupier is non-delegable, the principles which serve to identify a situation in which such a duty is non-delegable, have proved difficult to define precisely.

[311] The difficulty may be illustrated by reference to the decision of the High Court in Stoneham v Lyons and Ors20..

[312] In that case the owner of land employed a builder to erect a supermarket in accordance with plans and specifications prepared by the owner's architect. The specifications involved the construction of a wall along the boundary of the adjoining land on which a building was erected adjacent to the boundary.

[313] The builder excavated a trench alongside the adjoining wall being part of the building on the adjacent land with the result that it collapsed.

[314] It was a condition of the building contract that the builder would do everything necessary to avoid damage to the adjoining property and in the event of it becoming necessary for any underpinning to be performed, the builder was to notify the architect and obtain instructions as to how to go about it.

[315] The owner of the adjoining land, who had suffered loss by reason of the collapse of the wall, sued the architect, the builder and the owner of the land upon which the building works were being carried out.

[316] The trial judge awarded damages against the owner. His decision was affirmed by the Full Court of the Supreme Court of Victoria.

[317] On appeal to the High Court, the judgment was quashed and the owner was exonerated.

[318] In the course of his judgment in that case, Mason J observed21.:

The principles governing the liability of a person for damage caused to a third party in the execution of dangerous operations undertaken by his contractor form a branch of the law notorious for its difficulty. Its complexity is not diminished by the wealth of discordant statements which have been made in the decided cases. Although the general rule is that a person is not liable for the negligence of his independent contractor, it is accepted that a person who owes a duty to a third party cannot avoid responsibility for discharging that duty by delegating performance of it to an independent contractor. The question then is: what is the extent of the duty owed by one landowner to a neighbouring landowner in connexion with an excavation to be made by a contractor employed by the former on his land which will, if not made with due care, endanger the building of his neighbour?

Various expressions of the duty are to be found in the books. As might be expected, the appellant asserts that in the case of extra-hazardous operations, that is operations which involve special danger to others, ie fire and explosion, the ultimate employer is responsible for the acts of his independent contractor because he is under a duty to see that the operations are undertaken without negligence. This was the basis assigned by the Court of Appeal for its decision in Honeywill & Stein Ltd v Larkin Bros (London's Commercial Photographers) Ltd22., a principle later affirmed and applied by that Court in Matania v National Provincial Bank Ltd23.; see also Salsbury v Woodland24.. The distinction between hazardous and extra-hazardous acts, between dangers and special dangers, a distinction which lies at the heart of this doctrine, has been trenchantly criticized (Torette House Pty Ltd v Berkman25.) and there is powerful authority for the proposition that the doctrine, notwithstanding the existence of a similar doctrine in the United States (see Prosser on Torts, 3d ed (1964), p 484; Harper and James, Law of Torts (1956), pp 788 et seq, pp 801 et seq), forms no part of the common law (Read v J Lyons & Co Ltd.26.); Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd.27.). Indeed, the House of Lords in Read v J Lyons & Co Ltd by accepting the principal that in the case of dangerous things and operations there is a special responsibility to take care proportioned to the danger, discarded the notion of strict liability and preserved the concept of fault.

In this case there is no occasion to decide whether the doctrine of absolute duty or strict liability for extra-hazardous acts is part of the common law in Australia. If it has an application here, it would be wrong to classify the demolition and erection of a building (necessarily involving an excavation) in immediate proximity to the wall of an adjoining building as an extra-hazardous act. The operation is one which certainly involves a risk of injury to the neighbour if it is not executed with due care. But this is not in itself enough to justify its description as extra-hazardous. To my mind this expression signifies that, notwithstanding the taking of proper precautions, there is some special element of danger arising from the operation.

Although here the operation was one which involved a risk of injury to the respondents if it was not executed with due care, in essence it was an everyday occurrence entailing safeguards which are well known and which, if implemented by a skilled and experienced contractor, eliminate the danger. There is in these circumstances no reason why the law should classify the operation as extra-hazardous and thereby impose an absolute duty of care on the landowner by virtue of which he becomes responsible for collateral negligence of the contractor in the form of a negligent act or omission inconsistent with his instructions and not readily to be foreseen. Although the temptation to apply a rule of strict liability in favour of plaintiffs who have sustained a severe loss and who are otherwise without remedy is not always easy to resist, it is one which should be repelled in these circumstances when its consequence is to cast a liability on a party in whom no fault resides and who in the nature of things is compelled to rely on the expertise of contractors in a matter which lies outside the realm of his own capacity and experience.

[319] Although the court in Stoneham v Lyons found it unnecessary to decide whether the doctrine of strict liability for extra-hazardous acts was part of the common law of Australia, ten years later, in Stevens v Brodribb Sawmilling Co Pty Ltd28., the High Court declared the principle to be no part of Australian Law29..

[320] In that case, Wilson and Dawson JJ in their joint judgment observed30.:

The direction taken in this Court has also been away from strict liability for tortious behaviour. There is a preference for a view which is more in harmony with the ordinary principles governing liability for negligence, namely, that the extent of a duty of care will depend upon the magnitude of the risk involved and its degree of probability: Adelaide Chemical and Fertilizer Co Ltd v Carlyle31.; Swinton v China Mutual Steam Navigation Co Ltd32.; Thompson v Bankstown Corporation33.. Thus the standard of response required is that of a reasonable man placed in the relevant circumstances: see Wyong Shire Council v Shirt34.. If that means, in the words of Lord Simonds, an ultra-cautious response to an ultra-hazardous operation, it nevertheless falls short of the imposition of strict liability. In our view it would be inconsistent with this approach to follow the decision in Honeywill and Stein Ltd v Larkin Bros Ltd.35. and the view of Jordan CJ in Torette House Pty Ltd v Berkman36. is to be preferred.

It is possible then to start with the general proposition laid down in 1840 in Quarman v Burnett37. that a person will not be liable for the acts or omissions of another unless that other is his servant acting in the course of his employment. He will not, therefore, be liable for the acts or omissions of a competent independent contractor employed by him.

[321] Wilson and Dawson JJ go on to refer to certain exceptions or qualifications to the general principle, such as where the employer may be taken to have authorised the act or omission causing the harm. In the course of this part of their judgment, they go on to refer with approval to Stoneham v Lyons (above)38..

[322] Stoneham v Lyons is closely analogous to the present case in the context of considerations bearing upon the potential liability of Estoril. I can see nothing to distinguish that case from the present case.

[323] Having regard to the principles which have now been laid down by the High Court, on the facts of this case it could not be said that Estoril was subject to a non-delegable duty of care with respect to damage to the adjoining property." 148 Given this authority if Mr Malicia and Mr Little were independent contractors then the Referee's conclusion would be inappropriate. 149 The problem is that the employment and actual duties undertaken by Mr Malicia and Mr Little were matters of some debate at the hearing. They were not independent contractors in the sense that they were working under a separate contract to do a particular portion of the work. There are questions as to by whom they were employed for the purpose of paying their wages but perhaps of more importance was whether they could be described as independent contractors with an inability to control and supervise them by Mr Tsu and through him by Prynew. The defendant's submissions are correct that the fact that Mr Tsu was the sole director of Solarite, who might have employed Mr Little, does not mean that Mr Tsu was responsible. The situation must be looked at to see whether there was responsibility for the performance of their work. 150 In this context it is useful to recall that under the Piling contract it was Prynew's obligation to carry out the setting and maintaining of the survey pegs for the piles position. In his affidavit of 16 August 2005 Mr Tsu gave the following evidence as paragraphs 17 and 18. 17 In or about early May 2001, I had the following conversation with Peter Little, a bricklayer:

Me: "Solarite wants to appoint you on a casual basis to place markers for the piles that will be drilled each day."

Me: "You will be advised by Piling or Henry the sequence of piles that are being drilled each day. You will have to follow that sequencing."

We then agreed on wages to be paid to Mr Little and Mr Little was put on Solarite's payroll as a casual employee.

18 Also, at about this time, I said to Henry Malicia words to the following effect:

"Please assist Peter Little with the placing of markers for the piling works." 151 Cross-examination of Mr Tsu established that Prynew employed Mr Malicia. His position was as foreman on the site and one of his duties was to look after the casual workers employed by Solarite. Mr Tsu asked Mr Malicia to look the after the employees of Solarite that were present on site at the time. Evidence was given in cross-examination of Mr Tsu as to what work was done by Malicia in these terms:

"Q. When did you first approach Mr Malicia to work on the site? A. I think it would be somewhere in probably around March 2001.

Q. When did he start working on the site? A. He was visiting site from time to time during work carried out by Piling Contractors. I say that he probably started around about April.

Q. About April 2001, is that right? A. 2001, yes.

Q. And he would have been there as well when Piling were carrying out the piling work; is that correct? A. He used to come from time to time, but he wasn't present there all the time.

Q. Okay. In summary, when Mr Malicia was on site, you would see him in the mornings and in the afternoons; is that correct? A. Do you mean while the piling contractor was working on site?

Q. I will break it up into two periods. Yes, when Piling Contractors, was Mr Malicia there most days or some days? A. No, no. He used to come from time to time so he only used to come to site when he was required. For example, he was responsible to place markers for the piling contractor and do some other small jobs, to ensure that he had, for example, a three-phase power supply and other facilities, toilets, et cetera.

Q. In the period the Piling was there, you gave instructions to Mr Malicia to set out the piles. Is that correct? A. To set out markers, not the piles.

Q. The markers, that's right, where the piles are to go? A. That's correct. Q. Was there anyone else there involved in the setting of the markers? A. Yes.

Q. Who was that? A. The fellow called Peter Little, and he was there most of the time. He was there all day when he was required to put pegs as markers for the piling contractors.

Q. Was it the case that both Mr Malicia and Peter Little set out the markers or was it that you delegated to Malicia and he delegated it to Peter Little? Do you know what the situation was? A. I think it was probably from both of us, but Henry Malicia had his own benchmarks that were left by surveyor, certain parts on site, which I was not at the time present when surveyor left them, and he then directed Peter Little use those benchmarks for the markers to be placed in.

Q. Did you have the opportunity to observe the work of Mr Little or Mr Malicia? A. Yes.

Q. In setting out those markers? A.Yes.

152 The conclusion from this evidence is that Mr Malicia was an employee of Prynew and that he had control over the employees used on site, which were actually paid by another company called Solarite. In those circumstances it seems to me that the conclusion to be drawn is that they were not independent contractors but they were the foreman employed on the site and a casual labourer. Mr Malicia's duties as foreman and as an employee of Prynew were to carry out directions given by his employer, which included setting out the markers. In these circumstances, although it is not the basis upon which the Referee decided the matter, it seems to me that there is a proper basis for liability for the actions of Mr Malicia and Mr Little as they were not independent contractors. 153 I turn to the next matter, which it is useful to consider at this stage. Prynew was an experienced contractor who should have recognised the need for urgent engineering advice and, if so, would the advice have been to immediately plug the gap? 154 There is no doubt that once the gap was discovered Mr Malicia tried to contact and obtain advice from Piling Contractors as what should be done. The Referee spent some time considering what steps should have been taken by Prynew and Tsu to obtain advice and rectify the obtain. The finding is not critical for liability as accepting excavation did continue as the Referee pointed out Mr Tsu (paragraph 426) admitted that he knew at the time that this should not have occurred. It is of itself a breach of duty of care to Mr Nemeth. The finding made in respect of the failure to obtain advice was at paragraph 423 in these terms: 423 I found above: 1) that, between 21 and 27 July 2001, the only advice sought was by Prynew and Tsu from Piling; and 2) that Piling did not provide the requested advice. I also found that, had the Prynew diary entry of 21 July 2001 been brought to Mr Truswell's attention, he would have directed that the recommendations outlined at item 9) below were implemented at little cost to Prynew and Tsu and that this could have been done by 24 July 2001. As Prynew and Tsu did not urgently seek advice from the design engineer, I find that they were in breach of their duty of care to Nemeth and were negligent. 155 Mr Gary Truswell was the design engineer who gave evidence in the proceedings. 156 The defendants summarised the Referee's conclusions in these terms: An "experienced contractor" would have recognised the need for urgent engineering advice (paragraphs 192(1), 422 (1));

A reasonable period in which to seek and "find " such advice was 24 hours (paragraphs 192 (4), 422 (4));

An engineer would have recommended that the problem be addressed immediately (paragraphs 192 (3), 422 (3)); An engineer would have advised that a half cone of soil was inadequate for any period beyond the time taken to obtain advice (paragraph 192 (7)) but that a berm of sand backfilled out several metres then battered would be a safe temporary solution ( the Permanent Solution ) (paragraph 192 (8)); An engineer would have advised that the permanent solution was to progressively fill under the short pile with steel and concrete while hand excavating to no more than .5 to 1m below it (paragraph 192 (9)).

157 The Referee also concluded that:- Prynew did not seek any engineering advice within 24 hours -only advice from Piling (paragraphs 423 and 430);

If Prynew had sought the advice of Mr Truswell, the design engineer, he would have recommended the Permanent Solution and this would have been effected by 24 July 2001 (paragraphs 423 and 429); In failing to seek advice from Mr Truswell within 24 hours, Prynew and Mr Tsu were negligent (paragraphs 423, 430, 432, 806 and 817). 158 The Referee based her conclusions on evidence given by three engineers, Mr Doug McMillan, Mr Max Ervin and Mr Truswell. She discussed this evidence at paragraph 176 of the report and concluded with her findings at paragraph 192. It is what course of action that should be taken by someone in the situation of Prynew or Tsu which was relevant. At paragraph 177 she stated that all experts agreed that, whether the people looking at the short pile were engineers or experienced building or piling contractors, its discovery in loose sand should have flagged the need for urgent advice. There were attacks on her conclusion on the basis that the evidence was what an expert engineer would appreciate the approach to be rather than evidence of what a developer would be expected to do if acting in accordance with proper industry practice. Reference was made to Australian Cement Holdings Pty Limited v Adelaide Brighton Limited [2001] NSWSC 645; Adler v. ASIC (2003) 46 ACSR 504, 635-6; ASIC v. Vines (2003) 48 ACSR 291 at [12]. 159 The question is whether the engineers would have had sufficient expertise to be able to say what a builder or developer would do in this situation. Their evidence seems to be directed to what an experienced builder would do, in other words, an experienced builder would have recognised the need to obtain urgent engineering advice. I would have thought that a practising engineer would have a continuous interaction with builders and would be able to give evidence as to what their reaction should be in this situation. 160 Even if the evidence is admissible it is what an experienced contractor would do. The Referee does not seem to have addressed the question of responsibility for Mr Malicia's actions. At paragraph 194 she concluded that Mr Malicia's qualifications were that of a normal experienced building foreman. Her finding was in these terms: 194 Mr Tsu's evidence was that Mr Malicia was engaged as a foreman on the site and had been recommended to him by experienced contractors as a competent foreman. Mr Malicia was not called to give evidence and I infer that his qualifications and experience were that of a normal experienced building foreman. From this and the expert evidence set out above, I find that Mr Malicia was or ought to have been aware: 1) that the need for advice was urgent and should have been obtained within 24 hours; 2) that advice should have been sought from all involved parties, i.e. the piling contractor, the design engineer and the excavator; 3) that temporary restraint was necessary while awaiting this advice; and 4) that work, including excavation around the short pile, should have stopped until a permanent solution was found. 161 The Referee's conclusions for liability rest upon the assumptions she made about Mr Malicia's qualifications. There is no evidence dealing with what building foreman should do and, accordingly, the only way the first and second defendant could be liable would be if he were their employee rather than an independent contractor. As I have mention above it seems that he was employed by Prynew and not as he incorrectly said in one affidavit by Solarite. In these circumstances there is at least an arguable basis for the Referee's finding of this negligence and it should not be disturbed. 162 This leads into the next matter for consideration. Whether Prynew and/or Mr Tsu would have followed Piling's advice if given? 163 At paragraph 804 the Referee concluded that Prynew and Tsu would not have followed any advice that Piling gave to Mr Malicia on the basis that Mr Tsu did not follow the advice of Mr Truswell when it was given after the first subsidence. She found that excavation occurred without the gap under the short pile being patched from time to time. The Referee appears to have based this on the following findings:- Mr Tsu was told to patch the gap after excavating each .5m to 1m (paragraphs 301, 302 and 310);

Mr Tsu told Mr Kolistassis that this was how the work was to proceed (paragraph 331); Mr Tsu and Mr Kolisassis claimed to have seen the works proceeding in this way (paragraphs 327 and 332); The photographs taken on 15 August 2001, however, showed excavation without patching according to the evidence of:- Mr Truswell (paragraph 333); Mr Luck (paragraph 334); Mr Voight (paragraph 335); The experts (paragraphs 341 and 343); this conclusion was also supported by Mr Voight's file note of 15 August 2001 (paragraphs 335 and 343).

164 Plainly there was a contest in the evidence on whether the recommendations had been followed and there was evidence, which the Referee could accept (which she did) that the work had not been done. It was suggested that her finding was not open because Mr Tsu was not cross-examined to suggest that as he failed to follow Mr Truswell's advice about plugging the gap and that he would not have followed the advice from Piling if it had been given. It hardly seems necessary for that to have been put to Mr Tsu that he failed to follow Mr Truswell's advice because his case was that in fact that he did follow the advice and that he did not excavate further without following the advice. 165 In addition it was put to Mr Tsu that his priority was to have Piling Contractors fix the problem. He agreed with that suggestion. It was also suggested to him that in the hope that he could have piling Contractors fix the problem he was prepared to take the risk of something going wrong. In these circumstances I think that the issue was raised appropriately.

Whether any continued excavation between 23 and 27 July 2001 increased the volume and effect of the subsidence? 166 This raises the question of the cause and effects of the further excavation, which the Referee found, occurred after discovery of the short pile and before 26 July 2001. I will set out the Referee's reasons for her conclusion, as it is necessary to give some careful consideration to what she decided. Paragraphs 814 to 816 of her report are as follows:

814 The uncontested evidence, considered earlier in this report, established that on 23 July 2001, when the short pile was first discovered, the gap between its toe and the excavation level was between .5 and 1 metre (say .75 metres) in depth. By 27 July this depth had increased by 3 metres to, say 3.75 metres. The width of the gap at the toe was approximately .4 of a metre and, by 16 August 2001, at the lower depth, this increased in width to approximately .6 of a metre. Extrapolating from these approximate dimensions, it appeared that, between 23 and 27 July 2001, the continued excavation increased the exposed face of the excavation by approximately 550% (.75 x .4 = 0.3 sq.m. compared with 3.75 x .45 = 1.6875 sq.m.). 815 Before the material was excavated, it provided lateral support to the adjacent Nemeth foundation material. According to both expert engineering evidence and logic, exposing a larger and lower face of excavated material increased both the risk and volume of material likely to subside and lowered the level from which it subsided. Had no excavation taken place, between 23 and 27 July, based on all the engineering evidence, some subsidence during the rain was likely and I so find. With the dramatic increase in risk to which the further excavation was exposed, it was, in my view, more likely than not that the volume and effect of the subsidence increased significantly with continued excavation and I so find. 816 It is now not possible to say with certainty the extent of damage, if any, which would have occurred to the Nemeth property if further excavation had not occurred after the short pile was first discovered. In my view, however, based on the uncontested engineering evidence, it is highly likely that the large increase in excavation was a significant and critical factor in the serious damage caused to the Nemeth property and, on the balance of probability I find this to be so. 167 The submission about the issue was the extent to which (if at all) any such excavation caused any more significant damage to the Nemeth property than otherwise would have been caused. According to the submission the fact of an increased risk of subsidence was irrelevant if subsidence would have happened in any event as the Referee found. It was pointed out that there was no evidence that any greater gap had the consequence that any more material subsided than otherwise would have been the case or that it might have occurred from the lower level or that if it did this resulted in damage that otherwise would not have occurred. In this case it was submitted that the Referee was wrong in her conclusion that any excavation had actually caused any loss. 168 As pointed out in Piling's submissions the Referee did not find that the subsidence would have occurred in any event. Putting it more accurately in her own words what she said was, "It is now not possible to say with certainty the extent of damage, if any, which would have occurred to the Nemeth property if further excavation had not occurred after the short pile was discovered". She did find that if no excavation had taken place between 23 and 27 July some subsidence "during the rain" was likely. She did not say that some damage would have occurred as a result of that subsidence. 169 A reading of her conclusion in paragraph 816 inclines me to the view when referring to "the serious damage" she is referring to the actual damage, which occurred, and she has linked the large increase in excavation as causing that damage. This is the purport of her finding and there is in my view no basis not to accept it. Whether the Piling contract required gaps not to exceed 30mm? 170 The Referee concluded that:- The Piling Contract was formed on 28 March 2004 (paragraph 135);

The Piling Contract incorporated AS 2159-1995 ( the Standard ) (paragraph 135); The conversation between Mr Rochester for Piling and Mr Tsu for Prynew in early May 2001 was not contractual (paragraph 138); and Agreement was reached that, inter alia, there would be a maximum of a 50mm gap between piles (paragraph 138). The conversation was to the effect that the gaps would not exceed 30mm (paragraph 136). The Referee accepted that the conversation had occurred (paragraph 137). Mr Tsu was cross-examined about the conversation to the effect that the agreement then reached was that the gaps would not exceed 50mm (rather than 30mm) - a proposition Mr Tsu rejected (T1193-4).

171 The Referee also concluded that the piles would be set out with pile markers at 550mm centres. As the Auger was 500mm in width this left a gap of 50mm between each pile. 172 The critical matter of whether or not the gap was to be 30mm is a result of the conversation which Referee accepted at 136. That paragraph is as follows: 136 According to Mr Tsu, the early May 2001 site conversation between him and Mr Rochester, the Piling foreman, was in the following terms. PT: "I want the gaps between the piles to be no more than 25mm." MR: "We can't achieve that. We may be able to get gaps of 30mm. We're drilling the piles too close to the boundary. They are huge piles and we are driving them to considerable depths. We can do it this way. You mark the centre of each pile at 550mm intervals. This will give you an average gap between the piles as designed of 50mm. However, the gap in practice will be much smaller. We are using an auger of 500mm diameter which will mean that the diameter of the hole drilled by the pile will be larger than this to accommodate the steel cage and the concrete. Doing it that way, the gap between the piles should be no more than 30mm and will probably be less than that" PT: "Okay, Ill tell Henry and Peter to set out the pile markers at 550mm centres." 173 There does not seem to any basis for the Referee's rejection of the authority of Mr Rochester to make any contractual promises. There is also in my view no consent at transcript 1193 to 1994 of any term that the gap was to be of 50mm. Given the agreement to set out the pile markers at 550mm this had the effect of leaving a 50mm gap between the piles. The Referee also found that the promise was not contractual. This I think is probably the correct conclusion although it is plain that there is a representation that the gap "should" be no more than 30mm and would probably be less than that. 174 In these circumstances I would not disturb the Referee's finding as to the contractual term. Whether the short pile was required to be within 1% of the vertical? 175 The Referee concluded that the standard AS2159, which was part of the contract, permitted contiguous piles to have a planned position tolerance of 75mm and a 4% vertical deviation on the axis of each pile. The present matter concerns whether she was correct in adopting the 4% vertical deviation. 176 This arose because the Referee found pile 122 was 300/400mm east of its designed location and 3.4% off the vertical. She found that the location did not conform to the standard but that the vertical deviation was not in breach of the standard. 177 There was evidence that there was an industry expectation in relation to contiguous piling that one could achieve a 1% deviation from the vertical. The question is whether that was contractual and there is no evidence to suggest in any way that this was a contractual requirement. The Referee accepted the evidence of the engineers of the standard required to allow a 4% tolerance. She also appears to have accepted evidence that it is not possible to have constructed a fully contiguous pile wall and this conclusion was open to her on the evidence. The correctness of the Referee's determination of the apportionment between Prynew and Mr Tsu on the one hand and Piling on the other. 178 The Referee's conclusions and her reasons appear at paragraph 821 in the following terms: 821 The Piling breaches that led to the subsidence were limited to the construction of the short pile. In this, Prynew and Tsu shared a responsibility. Prynew and Tsu were also liable for their failure to seek advice from the design engineer and, therefore, the consequences of not carrying out advice that otherwise would have been provided. They were, therefore, responsible for continuing to excavate without plugging the short pile and for their continued failure to seek advice from the design engineer when rain was forecast and when it commenced and the consequences of this. They, therefore, shared a greater responsibility than Piling. The construction of the short pile created the problem and for this I find Piling to be 50% responsible and Prynew and Tsu to be 50% responsible. Once the problem was unearthed, the failure to seek and follow advice from the design engineer led to the subsidence. For this, I found Prynew and Tsu to be 100% responsible. In my view, under section 109ZJ of the Environmental Planning and Assessment Act 1979, having regard to their relative culpability and the seriousness of their breaches, a just an equitable split of the damages payable to Nemeth is Prynew / Tsu 75% and Piling 25% and I so find. 179 I will address this when I receive the further submissions on negligence in respect of the set out. Was it reasonable to use rectification costs rather than diminution in value?

180 The uncontested evidence was that as a single-storey residence Mr Nemeth's property was worth in order of $4 million and that as a re-development site was worth in order $5.5 million. As the normal method of assessing damages is diminution in value this would leave no claim by the plaintiffs. The Referee found that the plaintiffs were entitled to recover reasonable costs of repair rather than diminution in value. 181 I will mention some background facts that are necessary to appreciate in order consider the appropriateness of the Referee's findings.

182 In 1994 Mr Nemeth submitted a development application for the demolition of his existing house and construction of new four-storey residential apartment block. Approval was obtained in January 2000. At the time Mr Nemeth and his wife were living in the house and using part of it as an office. 183 Between February 2000 and February 2001 Mr and Mrs Nemeth moved from their house to Hampton Court Apartments, which is owned by a company Nemeth Investments Pty Ltd. This move was to enable the development of units at 46 Mona Road. Mr Nemeth's intention to demolish his house remained unchanged between February 2000 through the time of subsidences in July and August 2001 until early 2002. At the time the damage occurred Mr Nemeth had no intention of rectifying the damage. 184 In August and September 2001 at a time when Mr Nemeth still intended to demolish the house he instructed his architect to prepare an insurance claim against Mr Tsu for rectification of the house and this was done. The claim was for $1,502,800. In early 2002 after advice from his doctors about his health Mr Nemeth decided to rectify his house rather than have it demolished. At this time Mr Nemeth's wife was opposed to the idea of any re-development. Mr Nemeth decided to proceed with the rectification for these reasons. The rectification work commenced in May 2002 and was completed by about August 2003. The actual transfer of one half of 46 Mona Road to Mrs Nemeth occurred on 29 July 2002. 185 The Nemeths commenced proceedings in this Court on 28 June 2002. 186 In Evans & Anor v Balog & Anor (1976) 1 NSWLR 36 the Court of Appeal was dealing with a situation where a house was damaged by being undermined as in this case. The Court held: "The measure of damages in tort is that sum of money which will put the injured party in the same position as he would have been in, if he had not sustained the wrong for which he is to be compensated, and this, subject to what appears below, would, in a case such as the present, be the amount of diminution in the value of the plaintiffs' property." 187 The Court also held: "In the case of tortious damage to a building, however, it cannot be said that the normal, or the only, measure of damages is the amount of diminution in the value of the property. An equally admissible measure of damages is the cost of reinstatement and restoration, even though this be higher." 188 At page 40 Samuels J expressed the qualification in these terms: "As the learned author McGregor on Damages says at p.713, the case sustains what I take to be the true criterion of the selection between diminution of value and the cost of reinstatement. What he says is this: "The test which appears to be the appropriate one is the reasonableness of the plaintiffs' desire to reinstate the property; this will be judged in part by the advantages to him of reinstatement in relation to the extra cost to the defendant in having to pay damages for reinstatement rather than damages calculated by the diminution in value of the land." Hence, it is sometimes said that a plaintiff may have the cost of restoration provided that it is not disproportionate to the diminution in value: Cf. Public Trustee v Hermann (1968) 88 WN (Pt 1) (NSW) 442. This is merely an alternative way of stating the principle expressed in McGregor on Damages." 189 The Referee noted the change of intention by the Nemeths and accepted that the intention at the date of trial was relevant rather than the intention at the date of the wrong. She considered whether the house itself was unique and noted that house was not restored to its original condition and therefore the plaintiffs were not returned to the exact position they had before the damage occurred. She noted that from a personal perspective that there was little attachment to the house and concluded that there was probably little attachment. Her conclusion was as follows: 486 Before the subsidence occurred, the Nemeths' 2000 decision, to vacate and develop their property suggested a lack of attachment to their house. Once the damage occurred, their decision to stay and rectify, at an approximate cost of $1 million, at the possible expense of an insurance company, suggested an opportunistic change of mind, if not heart. Their property was valued at its highest as a development site. The difference in the damages for which the Defendants were liable, if rectification as opposed to diminution in value was found to be the proper measure, was substantial. Nevertheless, on balance, I find rectification to be the proper measure. This is because I accept: 1) that Mrs Nemeth was never a willing participant in the demolition and development scheme and always wanted to remain in the house; 2) that she only first had a serious say in the matter in 2002 when her husband's health deteriorated and she was to become a co-owner, and 3) that Mr Nemeth wanted to please his wife. I accept that, in these circumstances, the choice to rectify was reasonable and I so find . 190 The submissions of the first and second defendants were that in the absence of any significant uniqueness and/or attachment to the house it was not reasonable for the Nemeths to take the course of repair. 191 Those matters are not the only matters, which might make it reasonable in the present case. Mr Nemeth's health deteriorated with the need to avoid stress and he wanted to please his wife. These are factors, which need to be taken into account when deciding whether the decision was reasonable. These matters are confirmed by the fact that the Nemeths did do the rectification and move back into the house. In my view the Referee's conclusion was appropriate. 192 This leads to the next question claimed by the Nemeths that the Referee should have allowed the full amount of the rectification that she determined was the sum of $973,944.05 rather than the amount that she did find of $239,674.89. 193 The rectification costs for the higher amount were a result of Mr Young recommending that the 70% of the rear of the house be demolished. The alternative proposal that the Referee accepted was that of Mr McMillan which involved the south-west corner of the house being demolished and reconstructed and the remaining damage being repaired without the expense of demolition. This latter proposal was one, which was only proffered during the course of the proceedings, and well after the house had been partially demolished and reconstructed on the basis of the Mr Young's proposal. 194 After analysing the matter the Referee indicated at paragraph 580 that the primary factual and technical issues concerned were:

Structural / geotechnical engineering inferences that could be drawn from the observed and photographed damage.

Whether, from an engineering perspective, the engineering advice to demolish and re-construct 70% of the house was necessary and reasonable.

195 The Referee then went on to refer to the submissions and authorities and to consider the extent of the damage and whether the house could be repaired. In paragraphs 586 to 643 she dealt in detail with the engineering and other evidence, which concerned the proposals of Mr Young and Mr McMillan. Her conclusion at paragraph 643 was: 643 In conclusion, from an engineering perspective, I do not accept that it was either necessary or reasonable to demolish 70% of the house and reconstruct it. I also accept that the demolition of the southwest corner of the house and underpinning plus repair of the remaining portion of the house, as described by Mr McMillan, was all that was either necessary or reasonable and I so find. 196 The Referee rejected a hybrid proposal and then considered what advice was provided to the Nemeths on the appropriate method of rectification. She found that the work on the demolition in Mr Young's proposal commenced as a result of advice from Mr Clark and that Mr Young was not consulted again on the matter. She then considered whether the demolition and reconstruction, which was adopted, was necessary, reasonable and a proportionate response to the damage suffered. The Referee's starting point for the analysis was Belgrove and Eldridge (1954) 90 CLR 613 at 618 where in a slightly different situation the High Court pointed out that the rule was subject to a qualification that the work undertaken must be necessary and a reasonable course to adopt. She went to on the consider whether Mr Nemeth acted reasonably in accepting the advice of his consultants which she found involved the adoption of measures "more burdensome" than those later proposed under Mr McMillan's proposal. 197 This approach was criticised by the plaintiffs as placing undue emphasis on the analysis of the debate between the experts without regard to the actual advice provided to and relied upon by the Nemeths. It was said that it placed an onus on the Nemeths to second guess the expert advice which Mr Young had provided. The Referee's conclusions on this aspect were as follows: 661 A decision to follow the advice of experienced and senior consultants would normally, in my view, be reasonable, even if this advice later turned out to entail more work than strictly necessary. In this instance, however, Mr Nemeth must have known that the advice had been prepared for the purpose of a theoretical and exaggerated claim, (i.e. it included GST twice and a claim for repair of swimming pool damage that had not been established). When Mr Nemeth decided to return to his home, Mr Young, the consulting engineer, who had spent no more than one to two hours inspecting for the purpose of advising on the insurance claim, who had carried out no tests, taken no measurements nor consulted with a quantity surveyor or geotechnical engineer, was not re-approached and no consideration was apparently given to alternative possibilities. Between Mr Young completing his October 2001 drawings and the commencement of demolition, no consultation apparently occurred between him and Mr Clarke or Mr Nemeth. 662 Mr Young's evidence was that, apart from the southwest corner, although very difficult, repair was possible, and that the choice between it and re-construction was an economic one and yet Mr Smith, who had been engaged to price the demolition and re-construction scheme, was not asked, until the court case, to price any major repair alternative. When, in the court case, this was done, his evidence was that repair was considerably cheaper than re-construction. According to the limited evidence about discussions surrounding the direction to proceed with demolition, Mr Nemeth issued his direction at the same meeting at which Mr Clarke expressed uncertainty of the need for it. Mr Nemeth did this with the knowledge; 1) that he was embarking on a project with an expenditure of approximately one million dollars; and 2) that he would be asking Mr Tsu or his insurers to pay for it. In this, I consider his behaviour unreasonable and I so find . 663 In my view, when a reasonable and considerably less expensive option was available, demolition and reconstruction of 70% of the house was disproportionate with the damage, and I so find . I also find that the McMillan proposal was a reasonable option and that Nemeth was entitled to the reasonable cost of the work involved in this proposal, valued by reference to the rates of a specialist builder employing specialist tradesmen to bring it to a good quality finish. 198 Having regard to the matters to which the Referee referred which were not attacked I think her approach was correct and I agree with her conclusions. To the extent that she took into account the changed desire, which existed at a time prior to the trial, in my view this was correct rather than relying on what was the intention at the date of the wrong. The very exercise that has to be undertaken requires a consideration of it in this way. 199 I return to the remaining factual matters to be considered. Accommodation costs 200 This was a claim made by the Nemeths which was disallowed by the Referee. They claimed the cost of the Hampton Court (which was owned by the company) temporary accommodation from 1 March 2002 to 1 July 2004 at the rate of $550 per day at a total cost of $469,746. It will be recalled that the Nemeths' reason for moving out was to enable them to redevelop their property. 201 The rectification work commenced in June 2002 and was completed about August 2003. The Nemeths continued to occupy the rooms at Hampton Court until July 2004. 202 It is plain that as the Referee notes in the period up until 1 March 2002 it was relevant that this was the time the Nemeths intended to be away from their house in any event. The Referee's view was that it was unlikely that they would have returned to Mona Road was based upon the time taken to redecorate after the completion of the renovations. Taking into account the six-week period for the proposed rectification system the Referee concluded that the Nemeths would not have vacated Hampton Court by the end of that time. In these circumstances the Referee's conclusion is reasonable. QBE Insurance questions 203 The relevant clauses in the insurance policy are as follows: "9.4 Excavation and Underpinning We will only indemnify You for Personal Injury or Property Damage as the result of an Occurrence happening in connection with any excavation or underpinning work carried out subject to the following conditions:- (a) the excavation or underpinning work is carried out in strict accordance with the plans and specifications for such work and at the direction of the design engineer. (b) any surrounding structures that could be affected by such excavation or underpinning work have, prior to the commencement of such work, a "Conditions Report' produced on the existing condition of such structures." "10.7 Reasonable Care and Precautions You shall take all reasonable care and precautions: (a) to prevent Personal Injury and Property Damage; (b) to comply with all laws and statutory obligations and by-laws or regulations imposed on any pubic authority for the safety of persons or property; (c) to maintain al premises, fittings and plant and everything used in the Contract Works in sound condition; and (e) to ensure that the operations at the Contract Site are at all times carried out, so as to minimise the risk of any claim being made under this policy." "11 Exclusions applying to Sections 1 & 2 We shall not be liable for: …….. 11.3 any willful act, omission, recklessness of You, Your agents or Your employees." 204 In respect of clause 9.4 above QBE conceded that sub-clause (b) was not relevant. QBE also conceded that clause 10.7(c)(d) was not relevant. In the hearing before me clause 11.3 was not relied upon by QBE.

Question One 205 The question was: "whether or not the excavation and underpinning work was carried out in strict accordance with any plans and specifications for such work and at the direction of a design engineer and, if they were not, the nature of the non-compliance." 206 In respect of clause 9.4(a) the Referee noted the submissions of Prynew and a fair summary of her reasoning as submitted by the first and second defendants is as follows: a. there were two relevant types of excavation:- i. pre-drilling for the piles; and ii.bulk excavation (Report, paragraph 846); b. Truswell's drawings were used for both (Report, paragraph 846); c. in respect of the pre-drilling of the pile, they identified the location and depth of the excavation (Report, paragraph 847); d. in respect of bulk excavation, they defined the profile and gave instructions (Report, paragraph 848); e. since they described the extent of excavation and gave associated instructions, Truswell's drawings could be described as plans and specifications for the excavation work (Report, paragraph 849); f. the J & K Report was incorporated by reference (Report, paragraph 850); g. the J & K Report therefore formed part of the specification (Report, paragraph 852); h. Prynew's removal of the continuous support by excavation after detection of the short pile meant that the excavation work was not carried out in strict accordance with the plans and specifications as excavation was not to proceed until there was adequate support for the Nemeth property (Report, paragraph 854); i. the design engineer was Truswell (Report, paragraph 859); j. Truswell gave a direction of 2 August 2001 [after the first subsidence] that was not followed (Report, paragraph 860); k. this meant that there was excavation after 2 August 2001 that was otherwise than in accordance with the design engineer's direction (Report, paragraph 862). 207 The points taken by Prynew and Tsu in respect of her conclusions were as follows: a. The Truswell plans and specifications for the construction of the piling works were not plans and specifications "for excavation work"; the mere fact that they might have been of assistance in respect of excavation does not make them plans and specification for that work; b. If the Truswell plans and specifications for the construction of the piling works were also plans and specifications "for excavation work", the J & K Report did not form part of them or if it did was not so incorporated as to require compliance with the entire report; c. If the J & K Report was incorporated so as to require complete compliance and even if Prynew carried out further excavation after the detection of the short pile on 23 July 2001, there was nothing in the J & K Report that such continued excavation was contrary to; d. The conclusion that there was excavation after 23 July 2001 and before the first subsidence was in any event wrong. 208 The last matter is one that I have already determined adversely to Prynew. Accordingly, it is necessary to consider the other matters raised. 209 The first point raised by Prynew and Tsu was that the Truswell plans and specifications were not plans and specifications "for excavation work". It was noted that the mere fact they might have been of assistance does not make them plans and specifications for that work. 210 In her report the Referee referred to the two types of excavation that were necessary, namely, the excavation of the piles and the bulk excavation. In paragraphs 847 and 848 she gives good reasons as to why the plans and specifications were for, inter alia, excavation work. As she points out the plans apply for more than one trade. In my view her conclusions on this aspect are correct. Question Two 211 The question was: "whether those plans incorporated the Jeffery & Katauskas Pty Ltd (J & K) report". The note on the drawing is in these terms: "These drawings shall be read in conjunction with all architectural and other consultant's drawings and specifications and with such other written instructions as may be issued in writing during the course of the contract".

212 The other note on the plan was note F2 in these terms: "All foundation material and subgrade preparation to be in strict accordance with the geotechnical report."ts report 213 The first point to be made about these notes and particularly about the first one is that it does not oblige compliance with the J & K report on its face. It merely indicates that the drawings are to be read in conjunction with whatever it is referring to. The second point in respect of the first note is whether J & K report was in fact a specification for the work. 214 The report is an investigation report prior to any arrangements for the construction of the building and the necessary excavation. On page 1 it describes the purpose of the report as: "it follows that the purpose of this preliminary investigation was to obtain due technical information sub-surface conditions as a basis for recommendations on further geotechnical investigation and preliminary comments and recommendations on excavation conditions, excavation support footing design and slab on ground construction". 215 It does not purport to specify what particular steps should be taken in the construction process although it contains a series of recommendations the relevant ones of which were referred to by the Referee. 216 The second note does not seem to have been relied upon by the Referee. In any event what it is talking about is preparation of the foundation material and sub-grade and incorporating what might be said about that in the geotechnical report. The matters in the report to which the Referee has referred are not matters dealing with these items. In these circumstances it seems to me that the conclusion of the Referee cannot be supported. 217 In the report the Referee deals with whether the work was carried out at the direction of the design engineer. The only directions the Referee found related to a failure to comply with the directions given by Mr Truswell on 2 August 2001. As the Referee found that this did not cause the damage it is not necessary to address this aspect.

Question three 218 The question was "whether or not the Cross Claimant took all reasonable care and precautions, among other things: (i) to prevent property damage; (ii) to comply with all laws and statutory obligations and by-laws or regulations imposed by ay public authority for the safety of persons or property; (iii) To maintain the work site and the piling structure used in the Contract Works to support the Plaintiff's property in sound condition; and (iv) to ensure that the operations at the contract site were at all times carried out so as to minimise the risk of any claim being made under the Policy. " 219 As I have mentioned question 3(iii) is no longer relevant and was not considered by the Referee. 220 This question has to be seen in the light of the established interpretation for this type of policy. Paragraph 9.52 in Derrington & Ashton The Law of Liability Insurance (2nd Ed 2005) the authors discussed the condition in these terms: 9-52 The duty of care under this type of condition is quite distinct from the duty of care that the insured owes to those persons who may be injured and make a claim that is covered by the policy. Ordinary negligence alone does not come within this condition. It is this duty to the insurer that is relevant to the effect of this condition. For example, the standard of the duty is not coterminous with nor similar in quality to the obligation of an employer to workers or indeed of the insured to any claimant, for if it were so, its effect would be to exclude a very large part of the risk the indemnity for which is expressly covered. Whilst such a construction would be given if it were warranted, the removal by a condition of a substantial part of the cover otherwise provided must be expressed in a very clear terms before such meaning would be adopted." 221 They continued on after pointing out that in this type of insurance negligence of the insured provides no defence to the insurer because that is the very contingency for which protection is sought at 9-54 in these terms: 9-54 The insured's obligation is to take precautions to prevent accidents, that is, to take measures to avert dangers that are likely to cause the damage or injury in respect of the risk to be indemnified. The decisive point lies in the construction of the word " reasonable" . It does not mean reasonable as between the claimant and the insured but as between the insured and the insurer, having regard to the commercial purpose of the contract which includes the indemnification of the insured against the liability for personal negligence or vicarious liability for the negligence of others. The application of a rigorous obligation by this provision is to be rejected if it would be contrary to the normal expectations of persons insured under the policy and so undermine its commercial utility. What is reasonable will depend on the gravity of the possible loss, its foreseeability and the ease of possible precautions; and this is an issue of fact as to which the onus of proof rests upon the insurer. Incompetence, without more, is irrelevant: there must be something of the nature of a subjective appreciation of the existence of the relevant risk coupled with a deliberate courting of the risk or recklessness in relation to it. Here is a breach only if the insured does not take steps that it regards as reasonable to avert a danger known to exist. There must be a state of mind of not caring whether the conduct might cause damage to others, and the insured must deliberately court the danger known to exist by taking measures which he or she knows or ought to know are not adequate to avoid danger." 222 In Legal & General Insurance Ltd v Eather (1986) 6 NSWLR 390 the concept was referred to by Justice Glass in these terms:

"For these reasons I am of opinion that the words should be construed in the same manner as if they appeared in a liability indemnity. The insured person will not be in breach if he shows either that he did not recognise that a danger existed or that perceiving its existence he took some action to avoid it and was not indifferent to whether the danger was averted or not: Fraser v B N Furman (Productions) Ltd; Miller Smith & Partners (A Firm) Third Party [1967] 1 WLR 898 at 906; [1967] 3 All ER 57 at 61. Judging the plaintiff's conduct by this criterion he has in my view shown a performance of his contractual obligations. 223 In the same case Justice McHugh, as he then was, had this to say: In my opinion the words "you are to take all reasonable precautions to avoid or minimise injury, loss or damage" mean that the insured must be concerned to protect the property from loss or damage and must take such steps to protect the property as he thinks are reasonable having regard to dangers which he recognises. The onus of proving compliance with the condition is on the insured: Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (at 239; 202); Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303 (at 342). 224 Against this background the Referee noted that clause 10.7(d) was no longer in issue and continued with her findings which the first and second defendants summarised in their submissions as follows: a.Tsu was aware that:- i. the sandy subsurface soil constituted a danger (Report, paragraph 870) ii. there was a need for meticulous attention to structural and geo-technical advice (Report, paragraph 870); iii. the warnings in the J & K Report called for considerable caution and required gaps to be grouted immediately (Report, paragraphs 870 and 871); iv. the excavation presented more than usual risks (Report, paragraph 873) v. excavation had to stop when the short pile was detected (Report, paragraph 874); vi. there were risks in excavating in sand when a breach of the retaining wall occurred that meant excavation had to stop and the gap plugged (Report, paragraph 884); b. The photographs taken on 27 July 2001 showed that excavation to an additional depth of 3m below the short pile had taken place after its detection (Report, paragraph 880) and that the gap was not urgently filled (Report, paragraph 881); c. The excavation:- i. took place after 23 July 2001; ii. most likely involved the removal and non-replacement of the sand pile up against the short pile because there was no charge by Kolistasis after 23 July 2001 (Report, paragraph 882); d.Tsu must have known about the further excavation as he attended the site regularly (Report, paragraph 883); e. accordingly it should be concluded that the excavation continued:- i. with Tsu's consent; ii. under Tsu's active control (Report, paragraph 883); f. the precaution that Tsu took of piling sand in front of the gap was not recommended by any engineer and was appropriate only for a period of up to 24 hours (Report, paragraph 884); g. Tsu "courted danger" and was "reckless" because he:- i. failed to take known precautions in a situation of known risk; ii. took action known to increase risk (Report, paragraph 885); h. the development consent required that:- i. the excavation be "executed safely and in accordance with appropriate professional standards" (Report, paragraph 890) ii. the person causing the excavation "preserve and protect" the building on the Nemeth property from damage (Report, paragraph 890); i. this was not done and section 76A(1)(b) of the Environmental Planning and Assessment Act 1979 was, accordingly, breached (Report, paragraphs 889 and 891) j. Tsu was responsible for this (Report, paragraphs 892, 398 to 401). 225 The criticism of the Referee's conclusions in respect of clause 10.7 were as follows: (a) the Referee wrongly regarded mere recklessness as sufficient; (b) the conduct of Prynew as found by the Referee did not amount to a "deliberate courting of the danger"- at best the Referee concluded only that Prynew recognised the danger and failed to take steps to avert it; (c) in any event, there could be no breach of clause 10.7 unless the directing mind and will of Prynew deliberately courted the danger; (d) at the very least that required that Tsu (with indifference to whether damage would follow) have directed the continued excavation after the detection of the short pile on 23 July 2001 and before the first subsidence; (e) Tsu was not shown to be indifferent; (f) the fact that Tsu must have become aware of the excavation by a site visit provided no basis for the finding that Tsu must, therefore, have directed the excavation - particularly where the site was being managed on a day to day basis by Malicia for Prynew; (g) the conclusion that there was excavation after 23 July 2001 and before the first subsidence was in any event wrong.

226 The main complaint was that the conduct of Prynew as found by the Referee did not amount to a "deliberate courting of the danger" and the second point was that the directing mind and will of Prynew did not deliberately cause the danger. I have earlier accepted the Referee's conclusion that there was excavation after the 23 July 2001and before the first subsidence. 227 On the first matter at paragraph 884 the Referee referred to the risks of excavating in sand of which Mr Tsu had knowledge. She also referred to the fact that he knew of the measures necessary to avert the risk and concluded as she had earlier that he did neither. Instead he increased the risk by continuing to excavate. The only physical precaution taken by him was from time to time piling sand in front of the gap, which was not, a precaution recommended by any engineer. His past experience is important as it related to a similar incident, which occurred several years earlier. An excavation conducted by him at 48 Mona Road also suffered subsidence damage. The Referee referred to these matters at paragraphs 870 to 874. 228 Such evidence made it abundantly obvious that Mr Tsu had a subjective appreciation of the existence of the relevant risk. 229 The Referee found that in the context of the knowledge of Tsu who recognised the danger he not only failed to take steps to advert it but also took action known to increase the risk. She concluded that he was courting danger. Having regard to the active steps that the referee found he took, such as continuing with excavation, her conclusion was open to her and I agree with it. 230 On the second point it is necessary to note as the Referee was careful to do, Tsu's case was that there was no further excavation after 23 July he having directed Mr Malicia to cease excavation. The Referee referred to the evidence, which plainly established that Tsu was on site every day after 23 July 2001. 231 As was pointed in Derrington & Ashton The Law of Liability Insurance (2nd Ed) 9-59 the duty to take care imposed by the condition is the personal duty of the insured as distinct from that of its employees as the purpose of the insurance is to cover the situation where employees do not fulfil their duty. In the case of an insured company in order to operate against it such knowledge would need to be that of the Board of Directors or at least the person who was the repository of its authority for the daily running of it. (See the authorities at note 230 in Derrington at 9-60). It is of course clear that Mr Tsu was the person who was the repository of authority for the daily running of Prynew or to use another expression he was the directing mind of that company. 232 Given the fact of Mr Tsu's attendance at site and that the Referee did not believe his evidence of the excavation having stopped, it was appropriate in my view and open to her to conclude as she did at paragraph 883 that the excavation not only continued but did so with his knowledge and consent while under his active control. 233 In these circumstances the Referee's conclusion in paragraph 885 should be adopted. 234 The next matter to consider is whether the Referee's conclusion that clause 10.7(b) was breached. In paragraph 889 the Referee found that the breach of the development consent condition constituted a breach of Environment Planning & Assessment Act 1979. By reference to the conditions to which I have referred earlier in the judgment the Referee found that reasonable precautions were not taken to ensure;

(a) that the excavation of the site was executed safely and in accordance with appropriate standards, or

(b) the preservation and protection of the Nemeth house from the consequences of the excavations that extended beneath the base of the Nemeth footings. 235 Apart from the matters already raised Prynew raised the need for the breach to be a product of Mr Tsu's direction and suggested that an inadvertent breach of regulation is not sufficient. In this case there is evidence that Mr Tsu knew read the terms of the consent as soon as he received them. 236 QBE in its submissions referred to the Court of Appeal decision in Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60-580. It submitted that as a result of that case the obligation to take reasonable precautions against breach of statutory provisions is not read down as earlier mentioned and it is only necessary to see whether there was a breach of one of the pleaded statutory requirements. This appears to be the case. 237 In this case as I have already pointed out that what occurred was a breach of the development condition. There was no breach of a provision of a regulation or by-law and on the policy wording the question is whether the breach of the development consent can be described as a breach of an "act" or "statutory obligation". 238 S 76A is in the following terms: "76A Development that needs consent (1) General If an environmental planning instrument provides that specified development may not be carried out except with development consent, a person must not carry the development out on land to which the provision applies unless: (a) such a consent has been obtained and is in force, and (b) the development is carried out in accordance with the consent and the instrument. (2)……" 239 As the development was not carried out in accordance with the consent there would be a breach of the Act and the statutory obligation imposed by the Act. 240 I will give directions for further submissions in respect of the matters referred to in paragraph 145 above.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.