A. No, I have said what I would expect. I would expect 20 years out of it . I think I used the word 'hope' to get 20 years out of it. Anything over that is a bonus. You may well get something extra."
107 Later, Mr Smee was asked as to how one would ensure that a concrete slab, which expands and contracts under thermal effects can be kept waterproof. He answered (Black 320):
"You either replace or repair the membrane every twenty year period, I guess."
108 Mr Fagan SC, who appeared with Mr Loewenstein for the respondents, accepted in oral argument that it was unclear how his Honour had come to select ten years as the expected life of the membrane. Mr Fagan did not point to any evidence, other than that given by Mr Smee, that supported his Honour's finding that the expected life of the membrane specified by the architect was ten years. Nor did Mr Fagan suggest that his Honour assumed or should have assumed that the membrane would be other than of good quality, installed in accordance with the usual practice.
109 No question of credit or of resolving conflicting evidence arises in relation to this issue. When Mr Smee's evidence is read as a whole, his Honour erred in finding that the expected life of the membrane specified by the architect was ten years. The preferable view on the evidence was that the life to be expected from a good quality membrane, properly installed, was no less than twenty years.
110 The assessment of damages was therefore in error, insofar as it was based on the finding that the expected life of the membrane specified by the architect was ten years. Damages should be re-assessed in this Court on the basis that the expected life was twenty years.
REPAIRS TO CRACKS IN SLABS
111 The appellants challenged the primary Judge's finding that the cracks in the level 2 and 3 slabs would need to be repaired on one occasion only and that, once repaired, the slabs would remain intact for the life of the building. The significance of the challenge is that his Honour's award of damages allowed for the cost of only one set of repairs to the cracks in each of the slabs. If the challenge to the finding succeeds and this Court finds (as the appellants urged) that each slab would require repairs every ten years or so, the assessment of damages under this head will have been shown to be erroneous. The award of damages under this head ($52,600.00 for repaired cracks in the level 3 slab and $17,383.00 for repair of cracks in the Level 2 slab) would then have to be increased to allow for the cost of additional repairs to each of the slabs during the life of the building. The appellants said that the amount that should be awarded in respect of future repairs of cracks in the level 3 slab is $118,086.00, while the amount that should be awarded for the level 2 slab is $29,025.00.
112 The appellants accepted that the primary Judge based his finding on the evidence of Mr Smee. In his report of 10 October 2006, Mr Smee expressed the view that an item in a schedule of claims covering repairs to cracks in the slab should be allowed only once:
"Even … if the whole membrane is replaced, properly repaired cracks will not require a repeat repair after 7 to 10 years, particularly where they are protected from sun, weather and wear by a membrane and asphalt."
113 The appellants also appeared to accept that the primary Judge's finding should be set aside only if it can be regarded as "glaringly improbable" or "contrary to compelling inferences": Fox v Percy [2003] HCA 22; 214 CLR 118 at [28]-[29] (128) per Gleeson CJ, Gummow and Kirby JJ. It is not clear why the appellants accepted this burden. The impugned finding was not based on an assessment of the credit of Mr Smee or any other witness. Nor did it rest on an evaluation of Mr Smee's demeanour in the witness box.
114 The parties did not debate the proper approach to a challenge to a finding of fact by an appellate court determining an appeal by way of rehearing: see Costa v The Public Trustee of NSW [2008] NSWCA 223 at [14]-[19] per Hodgson JA; [31]-[51] per Ipp JA; [58]-[97] per Basten JA; Skinner v Frappell [2008] NSWCA 296 at [4]-[17] per Basten JA. The finding of fact made by the primary Judge as to the likely life of the membrane depended upon evidence which was not challenged on the basis of credit or reliability, but which requires some interpretation. Assuming that the challenge to the factual finding cannot succeed unless error on the part of the primary Judge is established (see Costa at [16] per Hodgson JA; cf Basten JA at [86], [90], [95], [97]), it is not necessary for the appellant to show that there was no evidence to support the primary Judge's finding. It is enough on an issue such as the expected life of the membrane, for the appellate court to be satisfied, after paying due deference to the reasoning of the primary Judge and to the advantages enjoyed by him in interpreting the evidence of Mr Smee, that his Honour should have reached a different conclusion on the evidence before him. As the High Court made clear in Fox v Percy, an appellate court must conduct a "real review of the trial", within the constraints marked out by the appellate process: at [25] per Gleeson CJ, Gummow and Kirby JJ. The constraints include the "natural limitations" that exist where an appellate court proceeds wholly or substantially on the record: at [23]. However, in a case such as the present, if the appellate court is satisfied that the trial Judge should have reached a different conclusion on the evidence, it must correct the finding.
115 The appellants submitted that the primary Judge had failed to give due weight to certain matters:
· Mr Smee conceded his lack of expertise in relation to the questions of the frequency of repairs to the Level 3 slab;
· Mr Smee accepted that the method of repairing cracks should be as suggested by Caps Beta Pty Ltd and that company was only prepared to provide a warranty for ten years;
· a conclave of experts attended by the appellants' expert, Mr Bersten, and an expert nominated by the respondents (not Mr Smee) had accepted that the cracks would require regular repairs over time;
· Mr Smee's report on this issue was served belatedly on 27 October 2006, after the conclave of experts was held and well into the trial; and
· the respondents did not put to Mr Bersten that the cracks to level 3 only had to be repaired on a single occasion.
116 Contrary to the appellants' submissions, Mr Smee gave oral evidence in November 2005 about the likely life of repairs to the cracks in the concrete slabs well before he prepared his written report on this particular issue. His oral evidence was to the same effect as the opinion he later expressed in his written report. Moreover, in his oral evidence Mr Smee supported his opinion by citing data suggesting that the rate of differential shrinkage (which is the principal cause of cracking of a concrete slab) decreases dramatically within a period of two years or so from the laying of the slab. He also expressed the opinion that cracking would be inhibited by the application of a membrane and a topping, as recommended by the experts. Mr Smee's evidence, to which he adhered in cross-examination, provided ample support for his Honour's finding.
117 Mr Smee did not acknowledge in his evidence that he lacked expertise in this area. The passage relied on by the appellants to establish lack of expertise merely show that Mr Smee did not claim "intimate knowledge" of particular membranes and topping sheets.
118 Nor is it correct to say, as the appellants did, that the expected life of repairs to cracks in a slab, carried out in a particular way, must coincide with the warranty period given by the contractor who is likely to carry out the repair work. There are many reasons why a contractor may not be prepared to offer a warranty covering the full expected life of a product or procedure. The evidence did not explore the basis on which the contractor offered only a ten year warranty.
119 The other matters relied on by the appellants do not establish error on his Honour's part. He was not bound by the results of the conclave in which, in any event, Mr Smee did not take part. Mr Bersten participated in the conclave to which I have referred, but he does not appear to have given direct evidence that cracks in the slabs would need to be repaired regularly over the life of the building. The absence of any cross-examination of Mr Bersten on this point did not make it erroneous for the primary Judge to accept Mr Smee's evidence: cf State Rail Authority of New South Wales v Brown [2006] NSWCA 220 at [9] per Giles JA (with whom Santow JA agreed).
DIMINUTION IN VALUE
120 The appellants submitted that his Honour erred in not accepting the evidence of Mr Rennie, a registered valuer, that the value of the building, following completion of the rectification works, would be $200,000 less than a building which had never had the defects in the first place. Mr Glissan pointed out that Mr Rennie's evidence had been admitted without objection and that he had not been cross-examined. Mr Glissan contended that in these circumstances it was not open to his Honour to reject Mr Rennie's opinion.
121 Mr Rennie expressed the opinion in a supplementary report prepared on 23 July 2004, that the value of the building "without cracks and faults was $3.65 million", while the value of the building "assuming the satisfactory completion of the necessary repairs of the cracks and faults" was $3.45 million. As his Honour noted, the only apparent reasoning process in Mr Rennie's report that supports the differential valuations was the following paragraph in his report:
"Assuming a fully leased position or a sale and leaseback and considering both valuation bases above which confirm value levels ranging from $3.2m up to $3.8m plus with the advantages of the roof top carpark I adopt the high range say $3,650,000 i.e. without cracks and faults. Alternatively assuming satisfactory repair or on a vacant possession basis the high yield range is applicable plus some incentives, fees and rental loss over say a 3 to 6 letting up period must be allowed. On this basis an approximate value of $3,450,000 is supported."
122 This paragraph merely reformulates the assertion recorded elsewhere in the report that a satisfactorily repaired building would be worth less than a building that had never been in need of repairs. As the primary Judge observed, Mr Rennie did not support his valuation by reference to examples of repaired buildings that had suffered a diminution in value notwithstanding that the repairs had been satisfactorily carried out. Nor did he explain why potential buyers of the premises would be likely to pay less because the particular building had defects, notwithstanding that the defects had been satisfactorily repaired. Indeed, the report did not suggest that in Mr Rennie's experience potential buyers of a commercial building of this kind would be concerned with any issue relating to defects in a building other than the obvious question of whether they had been satisfactorily repaired.
123 It is difficult to see how Mr Rennie's opinion on this point was admissible, had objection been taken. His report disclosed no reasoning process supporting his opinion and thus did not demonstrate that the opinion was the product of Mr Rennie's "specialised knowledge based on [his] training, study or experience": Evidence Act 1995 (NSW) s 79; HG v The Queen [1999] HCA 2; 197 CLR 414 at [39]-[44] per Gleeson CJ.
124 Once Mr Rennie's report was admitted into evidence, his Honour was not bound to accept the opinion expressed in it, if that opinion was not supported by any reasoning process or by other evidence lending weight to it. In my opinion, it was open to his Honour to conclude, as he did, that Mr Rennie's opinion was of no probative value on the issue and that the appellants had not discharged the onus resting on them.
125 The appellants' submission that his Honour erred in not accepting Mr Rennie's opinion fails.
NOTICE OF CONTENTION
126 The respondents' notice of contention challenged the decision of the primary Judge to admit into evidence a number of affidavits relating to the conversation that occurred on 25 November 1998. The notice of contention has significance for the appeal only if the appellants succeed in their first argument, relating to a construction of the contract entered into in early November 1998.
127 Since the appellants have not succeeded on that argument, there is no need to consider the notice of contention.
COSTS
128 The respondents' summons for leave to appeal with respect to costs challenges his Honour's costs orders on the basis that he should have held that the appellants' failure to accept the Calderbank offer to settle the claim for $1,000,000 plus costs was unreasonable.
129 Mr Fagan made it clear that the application for leave to appeal against the costs orders would only be maintained if the grounds relied on by the appellants failed. Since the appellants have succeeded in one of their challenges it appears to be unnecessary to consider the question of costs. If this is incorrect, for example because the adjustment to damages awarded by the primary Judge ($912,245.00) will not bring the award above $1,000,000 and the respondents wish to pursue their challenge to the costs orders, the Court should be notified so that it can then resolve any outstanding costs issues.
CONCLUSION
130 The only grounds of appeal that have been upheld are those relating to the life of a properly applied membrane and topping slab. That will require the award of damages to be increased. The Court was told that the parties had agreed on the adjustments that should be made to the award of damages if the appeal was upheld. However, although the Court was supplied with certain figures, it is not clear that they cover the adjustment that is required to give effect to the particular grounds that have been upheld. Accordingly, the appropriate course is to give the parties an opportunity to agree on short minutes of order giving effect to the judgment.
131 I propose the following orders: