(a) The majority of the perimeter of the pavilion was constructed with a raised concrete hob which was above the external paving level (paragraph 56 of the Report);
(b) Nubra experienced some difficulty in constructing the concrete hobs to the correct level (paragraph 63 of the Report);
(c) Construction drawings prepared by Scott Carver provided for 2 layers of membrane to be laid over the hob. A sill glazing channel to support the glazing was then to be installed above the membrane layers (paragraph 63 of the Report);
(d) Although two layers of membrane were laid by Rightway over the hob, prior to the installation of the sill glazing channel, the membrane was cut away and the sill glazing channel was installed directly on top of the concrete hob (paragraph 63 of the Report);
(e) The sill glazing channel was installed by O'Brien. By laying the sill glazing channel directly on top of the concrete hob and by omitting the stainless steel flashing angle required by the construction drawings, O'Brien failed to follow the requirements of the drawings in breach of its contract with SAS (paragraphs 63 and 64 of the Report);
(f) Because the sill glazing channel was installed out of sequence, to provide waterproofing to the Pavilion, following a meeting attended by a Rightway representative, a Sealex representative and a Nubra representative, a proposal for waterproofing the hob was developed by Rightway (in consultation with Sealex). The proposal was reviewed by Scott Carver who approved it in principle by sending a facsimile (incorporating a sketch) to that effect to Nubra (paragraph 65 of the Report);
(g) The revised hob design approved by Scott Carver by way of facsimile was inadequate (paragraph 74(c) of the Report);
(h) Nubra issued Rightway with a site instruction and sketch instructing Rightway to carry out the waterproofing in accordance with the revised hob design (thus varying the original design) (paragraph 67 of the Report);
(i) Not only was the revised hob design inadequate, in its instruction to Rightway, Nubra specified too light an angle for the membrane pressure seal (paragraph 74(d) of the Report);
(j) Rightway compounded matters by constructing the membrane pressure seal using too widely spaced and inappropriate pop rivet fixings instead of screw fixings (paragraph 74(e) of the Report);
52 The plaintiffs submitted that O'Brien's failure to construct the sill work in accordance with its trade contract was not an operative cause of the plaintiffs loss in respect of the waterproofing defects. It submitted that the conduct of Scott Carver, Nubra and Rightway effectively negatived any causal connection between O'Brien's breaches and the plaintiff's loss. The plaintiff's interest on this aspect is because of the terms of the settlement of the glazing claims, which are referred to in annexure A to the referee's report. They provide for a reduction in in the payments to be made to the plaintiff by Scott Carver if O'Brien is obliged to contribute to the liability to the plaintiff by Scott Carver.
53 In Medlin v State Government Insurance Commission (1995) 182 CLR 1 in their joint judgment Dean, Dawson, Toohey and Gauldron JJ stated:
"For the purposes of the law of negligence, the question whether the requisite causal connection exists between a particular breach of duty and particular loss or damage is essentially one to be resolved, on the probabilities, as a matter of commonsense and experience. (see Fitzgerald v Penn (1954) 91 CLR 268 at 277-8; March v Stramare (E&MH) Pty Limited (1991) 171 CLR 506 at 515, 522-3; 99 ALR 423; Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 412-413, 418-419, 428; 107 ALR 617) And that remains so in a case such as the present where the question of the existence of the requisite causal connection is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage. In such a case, the "but for" test, while retaining the important role as a negative criterion which will commonly (but not always) exclude causation if not satisfied, is inadequate as a comprehensive positive test (see, eg., March v Stramare (E&MH) 171 CLR at 515-519, 522-4). If, in such a case, it can be seen that the necessary causal connection would exist if the intervening act or decision be disregarded, the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has had the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the Defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage...."
54 A substantial part of the plaintiff's submissions were that O'Brien could not reasonably foresee the intervening acts in question. It referred to a number of cases which refer to the role such foreseeability plays in any determination of the court. In Latham v Johnson [1913] 1 KB 398 the Court of Appeal said:
"No doubt each intervenor is a causa sine qua non, but unless the intervention is a fresh, independent cause, the person guilty of the original negligence will still be the effective cause, if he ought reasonably to have anticipated such interventions and to have foreseen that if they occur the result would be that his negligence would lead to mischief."
55 The comments of Dowd J, in Griffin v State of New South Wales [2002] NSWSC 1273 at paragraph 27, which considered the legal principles for determining whether an intervening act should have been foreseen, were also referred to in submissions. Dowd J stated:
"As a practical matter, once this Court has been satisfied that the wrongful act or omission of the defendant caused the harm the plaintiff is complaining of, the question of law becomes whether there exists a principle which precludes the acceptance of the wrongful conduct being the cause of the harm complained of. The guiding principles behind the High Court's adoption of a 'commonsense' approach in March v E & MH Stramare Pty Limited [1991] 171 CLR 506, rather than the 'but for' or (sine qua non) test as being the sole test for causation can be summarised in terms that are applicable to the case as follows per Smith J in Haber v Walker [1963] VR 339 at 358:
'In the first place a wrongful act or omission cannot ordinarily be held to have been a cause of subsequent harm unless the harm would not have occurred without the act or omission having previously occurred with such of its incidences rendered it wrongful. Exceptions to this first principle are narrowly confined. Secondly, where the requirements of this first principle are satisfied, the act or omission is to be regarded as a cause of the harm unless there intervenes between the act or omission and the harm an occurrence which is necessary for the production of the harm and is sufficient in law to sever the causal connection. [the intervening occurrence, if it is to be sufficient to sever the connection] must ordinarily be either -
(a) human action that is properly to be regarded as voluntary; or
(b) a causally independent event the conjunction of which with the wrongful act or omission is by ordinary standards so extremely unlikely as to termed a coincidence.' "
56 This approach seems to be endorsed by the High Court in Norton Australia Pty Limited v Streets Ice Cream Pty Ltd (1916) 120 CLR 635 when Barwick CJ said at page 648 the following:
"Lastly, I should say something about causation, though to refer to it at all in this case is, in my opinion, to indulge in a work of supererogation. But let it be supposed that the warning to the contractor was inadequate in that it did not convey to him the knowledge of the rate of evaporation of the solvent and of the density of the fumes. Did this deficiency cause or contribute to the cause of the fire? Of course, it is in general no answer to a person who has suffered injury or damage to say that the negligence of another person has contributed to cause the damage where the defendant or some person for whose acts he is responsible has negligently done or omitted something which is causally related to such injury or damage. But where the act or omission of another has intervened between the defendant's negligent act or omission so as to open up a new chain of causation, the defendant will not be responsible for the injury or damage caused by the intervening act or omission. The two principles seem often in competition. Once the defendant's negligence is proved, it will embrace within its attributable consequences all that was or ought to have been foreseen by the defendant or the actor for whom he is responsible at the time of the commission of the act or omission. If the intervening act or omission of another does not fall within the area of the foreseen, then, assuming it to be causally related to the resultant injury, the defendant will not, in my opinion, be responsible for that injury or damage. The person responsible for the new act or omission will bear that responsibility."
57 Chief Justice Barwick's reference to "a work of supererogation" and the facts of that case neatly illustrate his use of that expression. The defendant was sued by the plaintiff whose factory had been destroyed by the fire. The incident happened in a coolroom when some adhesive containing a petroleum solvent was being used. The defendant made the adhesive and it was sued on the basis that sufficient warning was not given of its inflammable nature. The caution on the adhesive was "Caution: highly inflammable. For further information ask for data sheet". The solvent was being used in one room and nearby the contractor was melting bitumen using a naked flame from a Porta gas burner. Needless to say, the court held that this negligent act could not have been foreseen by he manufacturer of the product. Clearly the negligent act was gross.
58 Although it is not always useful to compare the factual situation of other cases it is interesting to note the circumstances in March v M & H Stramare Pty (supra). The facts in that case were that a driver was injured when his car ran into a truck which had been parked in a position where it straddled the centre line of a six lane road. The collision occurred at night and the truck's parking and hazard lights were illuminated. The driver was under the influence of alcohol and was driving at an excessive speed. In an action by the driver of the car against the owner and driver of the truck, the trial judge found that the owner and driver of the truck were negligent, but that the driver of the car was also negligent and apportioned responsibility. On appeal to the Supreme Court of South Australia it was held that the plaintiff's own negligence was the sole effective cause of the accident and the action was dismissed. On appeal to the High Court the court reversed the Court of Appeal and held that the defendant's negligence was the cause of the accident. In effect the court held that an intoxicated driver, driving at excessive speed and failing to keep a proper lookout, might collide with the parked truck was the "very kind of thing" which was likely to happen if there was a want of care on the part of the truck owner.
59 When illustrating this proposition Mason CJ referred to Dorset Yacht Company v The Home Office (1970) AC 1004 at 10030 where Lord Reid observed:
"But if the intervening action was likely to happen I do not think it can matter whether that action was innocent or tortious or criminal. Unfortunately, tortious or criminal action by a third party is very often the kind of thing which is likely to happen as a result of the wrongful or careless act of the defendant."
60 In this case, of course, the question is whether the subsequent negligence of the architects and the others involved was the very kind of thing which was likely to happen when a contractor charged with installing external windows in a building which obviously would have to be water proof, did so negligently. O'Brien created a situation which would cause there to be a breakdown in the waterproofing. That may or may not be able to be rectified by some other contractors but it clearly opened the way for there to be an ultimate problem if it was not able to be fixed or if it was sought to be fixed improperly.
61 It is notorious that many waterproofing problems occur in glass walled buildings and as it worked in the area O'Brien would appreciate this fact. Great care is needed in design and execution of work in order to ensure that waterproofing measures are effective. The fact that there may be any variety of further problems when attempting to fix O'Brien's faulty workmanship indicates that this possibility is one of the very kind of things which was likely to happen. The need to fix it would obviously be very likely because the problem existed. The fact that the work to "fix" the problem may not be appropriate is, I would have thought, something that should have been foreseen given the care that is needed in respect of waterproofing work.
62 In these circumstances it seems to me that the actions of Scott Carver, Nubra and Rightway in negligently carrying out their respective tasks are not a supervening cause or nova actus interveniens severing the causal connection. The suggestions that there were some breaches of the contract by Nubra do not make any difference to this finding.
Has the Plaintiff suffered any damage?
63 This problem arises because the plaintiff commenced these proceedings on 13 June 1997 and, subsequently in October 1998, sold the property, along with several other properties, to Perpetual Trustees Limited. The sale price of $170 million was discounted by $2,352,741 to allow for rectification of the damage. The amount of this discount was based upon the plaintiff's estimate of the remedial work. Although there were valuations in order to set the price for the sale it was not an arm's length transaction and, indeed, the plaintiff ended up having a 50% interested in the trust administered by the purchaser. No funds were expended by the plaintiff on rectification either before or after the sale.
64 The referee concluded at paragraph 417 that there was no diminution in the value of the property resulting from the subject defects. This finding was not challenged and the plaintiff's position then was that there was a diminution in the value of the works. In the plaintiff's submission it was the cost of rectification of the works which was the true measure of damages. The referee accepted this submission and held that the plaintiff was entitled to damages. This rendered otiose the reduction in the sale price. In considering the cases to which I will turn it is important to realise that in the present case we are concerned with the cost of rectification of works to the atrium and entrance to two large office buildings. In contrast to the value of the buildings ($170 million) the works were quite minor and obviously would have little or no effect on the value of the building.
65 There are a number of cases which touch upon the problem and it is necessary to deal with them in some detail. The first is Bellgrove v Eldridge (1954) 90 CLR 613 a case where due to faulty construction of foundations a plaintiff cross claimed against a builder for the cost of demolition and rebuilding of the house. At p616 the court expressed the principle as to the assessment of damages in these terms:
"It is true that a difference in the values indicated may, in one sense, represent the (owner's) financial loss. But it is not in any real sense so represented. In assessing damages in cases which are concerned with the sale of goods the measure, prima facie, to be applied where defective goods have been tendered and accepted , is the difference between value of the goods at the time of delivery and the value they would have had if they had conformed to the contract. But in such cases the plaintiff sues for damages for breach of warranty with respect to marketable commodities and this is in no real sense the position in cases such as the present. In the present case, the (owner) was entitled to have the building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the (contractor) to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract …"
66 The plaintiff cited this passage to indicate that the lack of diminution in value of the building as a whole is not the true measure.
67 However, the court went on at 617 to say the following:
"In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract . One or two illustrations are sufficient to show that the prima facie rule for assessing damages for a breach of warranty upon the sale of goods has no application to the present case. Departures from the plans and specifications forming part of a contract for the erection of a building may result in the completion of a building which, whilst differing in some particulars from that contracted for, is no less valuable. For instance, particular rooms in such a building may be finished in one colour instead of quite a different colour as specified. Is the owner in these circumstances without a remedy? In our opinion he is not; he is entitled to the reasonable cost of rectifying the departure or defect so far as that is possible. Subject to a qualification to which we shall refer presently the rule is, we think, correctly stated in Hudson on Building Contracts, 7th ed. (1946), p. 343. 'The measure of the damages recoverable by the building owner for the breach of a building contract is, it is submitted, the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach'.
Ample support for this proposition is to be found in . . . . . . . . . . But the work necessary to remedy defects in a building and so produce conformity with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure. And it is obvious that the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. Indeed - and such was held to be the position in the present case - there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place. In none of these cases is anything more done than that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace only a small part, or a substantial part, or, indeed, the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner's loss.
The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt. No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks. In such circumstances the work of demolition and re-erection would be quite unreasonable or it would, to use a term current in the United States, constitute 'economic waste'. (See Restatement of the Law of Contracts, (1932) par. 346). We prefer, however, to think that the building owner's right to undertake remedial works at the expense of a builder is not subject to any limit other than is to be found in the expressions 'necessary' and 'reasonable' for the expression 'economic waste' appears to us to go too far and would deny to a building owner the right to demolish a structure which, though satisfactory as a structure of a particular type, is quite different in character from that called for by the contract. Many examples may, of course, be given of remedial work, which though necessary to produce conformity would not constitute a reasonable method of dealing with the situation and in such cases the true measure of the building owner's loss will be the diminution in value, if any, produced by the departure from the plans and specifications or by the defective workmanship or materials."
68 Scott Carver seized upon the qualification that the work to be undertaken must be a reasonable course to adopt. It submitted that in the circumstances that:
1. The plaintiff had sold the property;
2. It had no obligation under the contract of sale to complete rectification works;
3. It was a trustee for its members and was presumably under fiduciary duties not to waste its funds;
a claim for cost of remedial works was not a reasonable course to adopt and that as there was no diminution in value no damage had been suffered.
69 The first defendant's submission that a claim for remedial costs was not a reasonable course to adopt is inconsistent with the decision in Bellgrove v Eldridge where the example of an "unreasonable course" involved the demolition of a house in order to replace the bricks used in the exterior walls. The example provides a useful guide to what is "unreasonable" and I do not agree with Scott Carver's submission that this is such an extreme case. Rectification, were it to occur, would not entail destroying a significant part of the pavilion, nor would it jeopardise the structural integrity of the building or entail great expenditure. As is discussed below, the sale of the building does not affect the right of the plaintiff to take action for loss of value of the works.
70 The next case is Director of War Service Homes v Harris (1968) Qd R 275 which concerned an action for damages brought by an initial building owner against the builder of a number of houses. The defects were not discovered until after the houses had been sold by the initial owner who then sued the builder for the cost of remedying defects which it had rectified although not obliged to do so. Sir Harry Gibbs, with whom Stable and Hart JJ agreed, said :
"It is true that Bellgrove v. Eldridge was not a case in which the building owner had sold the building before bringing the action but I am unable to see any reason why there should be a different measure of damages in such a case and nothing is said in Bellgrove v. Eldridge to support any such distinction. When the builder, in breach of his contract, delivered to the building owner a building that did not conform to the specifications, the owner became entitled to recover damages according to the measure approved in Bellgrove v. Eldridge. If the owner subsequently sold the building, or gave it away, to a third person, that would not affect his accrued right against the builder to damages according to the same measure. The fact that the building had been sold might be one of the circumstances that would have to be considered in relation to the question whether it would be reasonable to effect the remedial work, but assuming that it would be reasonable to do the work the owner would still be entitled to recover as damages the cost of remedying the defects or deviations from the contract (assuming of course that the contract price had been paid). In assessing those damages it would not be relevant whether the owner was under a legal liability to remedy the defects, or whether he had made a profit or a loss on the sale of the building, for the builder has no concern with the details of any contract that the owner might make with a third party. There is a principle that in actions for non-delivery or breach of warranty under a contract for the sale of goods 'the law does not take into account in estimating the damages anything that is accidental as between the plaintiff and the defendant, as for instance an intermediate contract entered into with a third party for the purchase or sale of the goods ' ( Rodocanachi v. Milburn (1886) 18 Q.B.D. 67 at 77: Williams Brothers v. Ed. T. Agius Ltd. [1914] A.C. 510; Slater v. Hoyle [1920] 2 K.B. 11) and this principle (which has been applied to a contract for the sale of a lease, plant, buildings and stock, treated as realty - Brading v. F. McNeill & Company Limited [1946] 1 Ch. 145) should in my view be similarly applied to the case of a building contract. The owner of defective building may decide to remedy the defects before he sells it so that he may obtain the highest possible price on the sale; he may sell subject to a condition that he will remedy the defects; or he may resolve to put the building in order after it has been sold because he feels morally, although he is not legally, bound to do so. These matters are nothing to do with the builder, whose liability to pay damages has already accrued ."
71 Certainly the case is not on all fours with the present in that the defects were rectified but it is a case that considered the circumstance of the sale of the building.
72 The next case of interest is De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28. The case concerned the situation where building work performed under a contract with the building owner was not complete and it was necessary to rectify work which had been done defectively. The question arose as to whether the building owner was able to recover damages measured by the cost of that further work even though the owner had sold the building, did not intend to carry out the further work, and had not established by evidence that the price for which the building was sold was less than would have been if the building work had been completed in accordance with the contract. Notwithstanding this later finding the case proceeded on the basis that the price paid by the buyer of the building was less than it otherwise would have been. The case was a decision of Full Court of South Australia and there was consideration of the cases by Knox CJ and Nyland J including, of course, Harris' case.
73 Knox CJ referred to the passage which I have italicised in the quote from Harris' case and suggested that what was said might be too absolute. He went on to say that in principle the relevance of the sale of the building is limited to the question of whether it would be reasonable to effect the remedial work. He concluded at page 35:
"In my opinion, in the present case, having regard to the findings of the magistrate it was reasonable for the building owner to carry out the remedial work. Prima facie the building owner was entitled to damages measured according to that cost. There is no doubt at all, in my opinion, that that would be the measure of damages if the property had not been sold, and that that would have been the measure without inquiry as to the owner's intention to carry out the work.