Scripture Union v Prime Industrial

Alleged pre-determination of geotechnical issues 125 I have stated in para [11] above that this criticism is not made out. 126 The geotechnical experts met in conclave at a time when they did not have access to allegedly relevant witness statements. They were asked to agree on a number of matter of fact concerning the fill placed over the prepared sub-grade, including the depth and make up of the fill, its shrinkage characteristics and its likely moisture content when compacted. Their views on those matters are recorded in appendix 4.1 to the report. 127 The Prime companies submitted that "the observations of fact of eye witnesses at the time would logically be highly probative of" those matters (written submissions dated 8 March 2005, para 66). Two men described by the Prime companies as "key eyewitnesses", Messrs Drake and Forlico, prepared statements, but the experts had not had access to those statements before their conclave. 128 The Prime companies submitted that, notwithstanding that the experts had not had access to that lay evidence, the referee adhered to the views of the geotechnical experts in preference to the views of the "key eye witnesses". Thus, they submitted, the referee had pre-determined these critical questions of fact by deciding, regardless of the evidence that was subsequently given, to stick to the views (or the consensus views) expressed by the experts in conclave. 129 This is not a fair characterisation of the referee's approach. The referee did pay attention to the relevant evidence, including that of Messrs Drake and Forlico. He dealt with some of the factual evidence relating to the earthworks at R147-165, and with further aspects at R176-205. 130 The referee's analysis included detailed comments on the acceptability of Mr Drake's evidence - put bluntly, on Mr Drake's credibility. The referee gave reasons for finding that Mr Drake was not a credible witness. Having regard to the material to which he refers, it was clearly a conclusion that was open to him. It is not a conclusion with which I should interfere. It follows that the criticism of the referee, for preferring the views of the experts over the "eye witness" evidence of Mr Drake, cannot be sustained. 131 Equally, the referee dealt with Mr Forlico's evidence. He had no concerns with Mr Forlico's credibility; on the contrary, he recorded that although suffering from "difficulties of recollection, Mr Forlico was a straight forward and honest witness" (R177). However, the referee concluded that there was no basis in Mr Forlico's evidence to displace the views of the experts. Again, I think, that was a conclusion of fact that was open to the referee having regard to his observation of the witnesses and to the fact that he heard (as I have not heard) the whole of the evidence. 132 One of the reasons why, the Prime companies submitted, there could not have been an average fill depth of 600 mm over the site was that it would mean that substantially more earthworks were required than those allowed for in the sub-contract with the earthworks contractor, Angex. However, no extra payments were made to Angex. The referee dealt with this at R154. It does not seem to me that he dealt with it in a way that should invite the intervention of this Court. Indeed, although the referee did not refer to it in this context, it is worth noting that the sub-contract with Angex required it to assume some aspects of the risk of quantities greater than those allowed for in the tender. 133 Again, the Prime companies submitted that some of the referee's findings (including as to the wetness of the fill and sub-grade) were inconsistent with contemporaneous records. In this context also, the referee dealt with the alleged inconsistencies in his treatment of the evidence. I see nothing in there that would invite this Court's intervention. 134 In short, I think, the referee did test the views of the geotechnical experts against what acceptable "eyewitness" evidence, or evidence from contemporaneous records, there was. It was a matter for him to decide what evidence he accepted. He came to a view, and gave reasons for that view. Those reasons do not involve any patent misapprehension of the evidence or perversity or manifest unreasonableness. There is nothing in the referee's treatment of the evidence to indicate that it was motivated by some bias or predisposition in favour of the view expressed by the geotechnical experts.

Fill depth and quantity of fill 135 This is the first of a series of findings challenged on the ground that the referee misapprehended or misunderstood the evidence, or made perverse or manifestly unreasonable findings of fact. Although the Prime companies use that label, presumably to suggest that the submissions that they make are such as to justify the intervention of the Court, the reality is that in no case do the errors attributed to the referee correspond even remotely to the description. In truth, the attitude taken by the Prime companies is to seek (as they have sought elsewhere) to reargue these aspects of the case generally, and to seek to justify this by incanting, as some sort of mantra, the formula that is said to justify intervention. 136 I have referred to some aspects of this challenge, in considering the previous issue, namely predetermination. That is because one of the matters that was the subject of the conclave of geotechnical experts, and on which there was agreement, was depth of fill. This is set out in appendix 4.1 under the heading "agreed position on fill". The agreed position as to depth of fill is stated as being: "The fill depth from the south-east wall to the north-east wall is generally as per the geo map drawing SU01, but with an additional 500 mm of fill. This 500 mm is variable and varies from 0 to 1000 mm in depth. There are localised areas of fill over the remainder of the building footprint." 137 As the referee pointed out at R156, the geotechnical experts based their views of fill depth (or the range of fill depth) "on their expert review of the post construction borehole and test pit data". That is a reference to a number of boreholes that were drilled at various points through the slab, and to test pits dug adjacent to the slab. (The evidence as to test pits was that preparation of the ground would need to extend for some distance outside the actual boundaries of the slab, so that test pits dug adjacent to the slab might provide valuable information as to fill depth and materials.) 138 The bore logs and surveys and analyses were in evidence before the referee. The referee, although not a geotechnical engineer, was clearly qualified to understand them, particularly aided by the conclave process and the views of the geotechnical experts. Although the referee refers to the bore logs and survey data, he offers no detailed analysis of them. But that does not mean that his acceptance of the experts' views based on them is thereby vitiated. I do not think that it was necessary for the referee to give a detailed exposition of what might be derived from them, particularly where that exercise had been carried out by the geotechnical experts, and was the subject of apparent agreement. See Xuereb v Viola (1989) 18 NSWLR 453, 469 where Cole J cites the judgment of Samuels JA in Strbak v Newton (Court of Appeal, 18 July 1989, unreported). 139 In truth, this attack is intertwined with the attack based on predetermination, to the extent, I think, that if (as I have concluded) the complaint of predetermination is not made good then this attack, to the extent that it is separately maintained, must likewise fail. If there were no acceptable evidence to controvert the views of the experts (as the referee found) and if those views were reasonably based on appropriate data (as the referee again found) then it can hardly have been unreasonable or perverse to make a finding in accordance with the views of the experts. 140 There is another problem with the Prime companies' submissions on this point. They commence (written submissions dated 8 March 2005, para 78) by referring to the referee's finding, or acceptance, that there was 350 m³ of fill over the sub-grade beneath the building footprint. They assert that the finding "is critical to the finding of fault in PI and PC". That is not correct. The referee stated at R157 "that the fill volume per se is not a determinative issue…. What is important is the depth of fill" Although the Prime companies attack that statement on the basis that volume is a function of depth and width, that is a simplistic attack which misunderstands the referee's point. The referee was discussing the capacity of the fill to settle. In that, as the referee said, the depth of fill is the relevant consideration. The starting point of the Prime companies' submissions is flawed in a fundamental respect.

Dr Burman's change of mind 141 At R216, the referee noted that "Dr Burman changed the opinion contained in his original statement." The circumstances in which this occurred were set out in detail at R217. The change of mind was that Dr Burman had initially thought that the reactivity of the fill or underlying soil played no part in the movement of the slab, whereas, by the time he gave evidence at the hearing, he thought that it did play a role. That reflected a change from Dr Burman's initial view that there was insufficient factual material to enable him to determine a cause of the partial failure of the slab. 142 The referee adverted to this. He said at R218 that "Dr Burman's change of position properly reflects his acknowledged duty to the Court, and … is to be commended. 143 The referee was aware of the technical issues. He had participated in the conclave process. It was for him to determine whether Dr Burman's change of position was credible. He concluded that it was. It was open to him to do so. 144 Again, the Prime companies seek to intertwine this submission with their submissions on predetermination. Again, the failure of the submissions on predetermination necessarily weakens this particular submission.

The Rooney & Bye design 145 Another matter to which the Prime companies refer under the rubric of misapprehension or misunderstanding of the evidence or unreasonable or perverse findings of fact, is described as "Rooney & Bye design was the sole material cause of damage" (see the index to the written submissions furnished in the course of the hearing). That is said to be addressed in paras 116-122 of the written submissions dated 8 March 2005. I have read those paragraphs carefully. I do not understand the point that is being made in them - more accurately, I do not understand how whatever that point may be relates to the rubric under which, according to the index, it is made. 146 The submission appears to be that some witnesses expressed the view that Rooney & Bye were responsible for the design of the earthworks and for inspection and certification of the earthworks, so that (the failure of the slab being due in part to the under-design of the slab and in part to the excessive contraction of the fill and sub-grade) Rooney & Bye must have been responsible for the entirety of the problem. 147 If this is the submission then it, perhaps even more clearly than the others with which I am presently dealing, demonstrates that in truth what the Prime companies are seeking to do is to reargue the whole of the case on liability. There is nothing in the submissions to show that the referee's findings on liability are such as, having regard to the well established principles to which I have referred more than once, could justify this Court's intervention.

The geotechnical evidence 148 Again, under this rubric, the Prime companies repeat their complaint that the geotechnical experts formed their opinions without access to the whole of the factual evidence, and that the referee came to findings of fact based on the geotechnical evidence rather than the evidence of "key eye witnesses". Although those submissions occupy a substantial amount of paper (according to the index, paras 123-207 of the written submissions dated 8 March 2005), there is nothing in them to displace the findings of the referee, or to suggest that those findings are vitiated by some error of the relevant kind, that I have not dealt with in earlier sections of this judgment that deal with the geotechnical evidence.

The Limitation Act defence 149 I have referred in para [9] above to the way in which the referee dealt with this issue. The parties accept the referee's conclusion that the claim in contract was statute barred. The Prime companies, however, challenge his conclusion that the claim in tort was not statute barred. 150 The referee concluded at R100 that the construction and design defects identified by him as the primary causes of damage were latent defects. The Prime companies accept this, although in a somewhat qualified way, saying that "[i]nsofar as no damage was manifest until some time after the building construction was completed, this conclusion is correct." (written submissions dated 8 March 2005, para 96). 151 The referee at R101 posed two questions:

(1) When did the damage resulting from the construction and design defects (which he described as "cracking…or other than negligible damage") become manifest? or

(2) When was the inadequacy of the fill platform or the slab first known or manifested?

(The referee referred also to the design of the first floor slab. His conclusions in relation to the first floor were not directly challenged, and I need not refer to them.) 152 The Prime companies submitted that the first of these questions is the proper test. That, I think, is so in the context of this case. As I understand it, the defendants did not suggest that the deficiencies in design or construction that led to damage should have been identified other than by the physical manifestations of that damage. Thus, although the second question posed by the referee might be relevant in some cases, it was not relevant in this. Nothing turns on this point, because the referee determined the limitation defence by reference to the first question. 153 These proceedings were commenced on 9 June 1998. The Prime companies alleged that damage resulting from the design and constructions deficiencies was first manifested in 1991. Scripture Union said that damage was first manifested in the second half of, and towards the end of, 1992. The Prime companies acknowledge that the resolution of this issue is "a question of fact which required no particular expertise on the part of the Referee other than a close examination of the documents and contemporaneous records." (written submissions dated 8 March 2005, para 95). I have to say that I do not understand why "particular expertise" is required to enable someone to make "a close examination of … documents and contemporaneous records." 154 The Prime companies relied on a report prepared by Mr Shirley, a geotechnical engineer retained by Scripture Union to investigate and report when the structural damage was evident. Rooney & Bye had suggested that the damage that was by then evident had been caused because of roadworks carried on by the Roads and Traffic Authority (RTA) adjacent to the eastern boundary of the site. This was one of the questions that Mr Shirley had to consider. Clearly, if damage had become evident before the RTA commenced its works, Rooney & Bye's explanation for the damage could not be correct (or completely correct). Thus, it was important for Mr Shirley to attempt to ascertain when it was that damage of the relevant kind was first observed. 155 Mr Shirley spoke to a Mr Tigwell of Scripture Union. Mr Shirley made a contemporaneous note of that conversation which was relevantly as follows: "Some two years [1991?] after the building was constructed, movement was noted and subsequently rectified by Prime." 156 The reference to "1991?" is Mr Shirley's. The referee said at R102 that this indicated "uncertainty". I am not sure that this is correct. Mr Shirley's cross-examination on the point (which was tendered before me without objection) was that:

(1) He was "uncertain" about the year, because "it is ambiguous" (TR760.20).

(2) The question mark may only have been intended to indicate "when in 1991 this occurred" (TR761.5).

(3) At some stage, he came to think that it may have been early to mid 1991 (TR761.10). 157 In any event, as the referee recorded at R102, it is apparent that Mr Tigwell had said that "movement was first noted about two and a half years or something, after the building was finished". Mr Shirley in effect suggested the year 1991 to Mr Tigwell: "I said, "oh, that would be about 1991, would it be?" and he said, "yeah, that would be about it."" 158 When Mr Shirley was asked whether Mr Tigwell told him "it was about 1991" he responded, as the referee recorded, "I put the "1991" words into his mouth I think…". 159 Mr Shirley's report was admitted into evidence before the referee without any restriction under s 136 of the Evidence Act 1995. The Prime companies submitted that, the hearsay statement attributed to Mr Tigwell being admissible to prove an assumption relied upon by Mr Shirley to rebut the explanation that the damage was caused by the RTA's works, the hearsay rule did not apply to it: Evidence Act, s 60. The Prime companies relied on the decision of the Court of Criminal Appeal in R v Welsh (1996) 90 A CrimR 364, followed by the Court of Appeal in Daw (see the judgment of Heydon JA, with whom Priestley and Sheller JJA agreed, at paras [68] to [70]). 160 Accepting that the statement attributed to Mr Tigwell has become, by virtue of s 60 of the Evidence Act, evidence of the fact asserted and not merely of the communication, or representation, of that asserted fact to Mr Shirley, it does not follow that the referee was bound to act on it. There was other evidence. That included the evidence of Mr Phillis of Scripture Union, who was quite definite that he had not observed any signs of damage attributable to movement in the slab until the second half of, and towards the end of, 1992. Further, there was evidence of requests made by Scripture Union after practical completion for rectification of defects. Those defects related to roof leaks and the like. They were not referable to movement in the slab. There was no record of any request before the early part of 1993 for rectification of a defect that could be considered to have been caused by movement in the slab. 161 The referee dealt with this evidence at R102-110. He preferred the evidence of contemporaneous documents, and the recollection of Mr Phillis, to the evidence of what Mr Tigwell had said to Mr Shirley. He pointed out in particular that the recollection attributed to Mr Tigwell of movement being rectified "some two years [1991?] after the building was constructed" was inconsistent with the proved facts, which showed that the only rectification work carried out in or prior to 1991 was the fixing of roof leaks, and that the only rectification work that could have been attributable to movement in the slab was carried out after February 1993. 162 I see no fault, let alone fault of a kind sufficient to justify this Court's intervention, in the referee's approach to the evidence. I think that it was open to him to conclude the way he did. I do not think that the submissions of the Prime parties demonstrate any misapprehension of the evidence, or any perverse or manifestly unreasonable finding on the evidence. On the contrary, as I have said, the conclusion to which the referee came was clearly open to him on the facts. 163 I therefore reject this challenge to the referee's findings.

Damages 164 I have referred at para [16] above to the ways in which Scripture Union put its case on damages to the referee. The referee dealt with this at R273-310. 165 Scripture Union sold the premises in September 2001. It claimed that the sale price was depreciated by $600,000, because of the damaged condition of the building. It claimed this amount, together with the expenses (including stamp duty, removalist and "miscellaneous") of moving to new premises, together with the cost of remedial works actually carried out.

The referee's approach 166 The referee determined that the net proceeds of the sale, after allowing for commission, legal expenses and remedial works, was $1,278,959.00. He determined, on the basis of expert valuation evidence that he considered, that a sale of the building in undamaged condition would have returned a net sale price of $1,850,000.00. He therefore determined the measure of Scripture Union's loss at $571,041.00. He excluded from consideration the stamp duty, removalist and miscellaneous expenses, essentially on the basis that they were a necessary consequence of the purchase of new premises (R276-279). 167 The referee then considered the cost of rectification. Again, there was competing expert evidence which the referee summarised in appendices 6A (the agreed position of the experts) and 6B (the spreadsheet to which I have already referred). He concluded that the reasonable cost of repairs was $481,087.00. 168 The referee pointed out at R293 that when Scripture Union was considering undertaking repairs, its professional advice was that "relocation was probably necessary for up to six months". The referee accepted the cost of this as being about $126,000.00. Thus, he determined the total (notional) cost of repair as being "of the order of $600,000.00 to $610,000.00" (R295). 169 Because the cost of repairs exceeded the referee's finding of loss on sale, he determined that "the least cost option … is the appropriate approach" (R309). He therefore concluded that Scripture Union should have this amount together with interest, which he quantified to 30 November 2004 at $168,887.00 (the report was dated 12 November 2004, and the referee assumed the later date "for report purposes"). 170 Scripture Union submitted that the referee should have allowed, as well as the loss of value, the costs of moving. The Prime companies submitted that the referee should have allowed the cost of repair, excluding relocation expenses. Rooney & Bye adopted the Prime companies' submission on this point. 171 The contest in relation to relocation expenses is explained at R293 and 294. As I have mentioned, the referee in the former paragraph referred to the advice given to Scripture Union at the time repairs were being contemplated, that relocation would be necessary. However, at R294, the referee referred to the fact that "the consolidated view of the experts is now that rectification could have been undertaken without vacation of the premises". But he said that he had "no doubt that the work required would have involved very considerable disruption". He therefore considered "that in considering its least cost options, Scripture Union were entitled to factor in the costs of" relocation. He therefore concluded at R295 that "a realistic view of the minimum cost of repair, remove and then return would have been in the order of …$600,000.00 to $610,000.00."

Bellgrove v Eldridge 172 In Bellgrove v Eldridge (1954) 90 CLR 613, the High Court of Australia dealt with the measure of damages for defective building work. As the headnote makes clear, the court held "that the measure of damage was not the difference between the value of the building as erected and the value it would have borne if erected in accordance with the contract but the cost, in excess of any amount of the contract price unpaid, of reasonable and necessary work to make it conform to the contract plus consequential losses by reason of the breach." 173 The headnote accurately states the reasons given by the court: see 617, where their Honours specifically, and in mandatory terms ("cannot be measured"), rejected the diminution in value method; and see 617-619, where their Honours approved the cost of repair method subject to the qualifications that the work must be not only "necessary to produce conformity, but…also…a reasonable course to adopt." 174 Having regard to that clear statement, and the explicit rejection of diminution in value as a measure of damages, I do not think that it was open to the referee to choose diminution in value simply because it produced (on his approach) a lesser outcome. 175 Their Honours dealt with diminution in value again at 619 where they said that it was only where remedial work "would not constitute a reasonable method of dealing with the situation" that "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". 176 I do not understand there to have been any suggestion before the referee that the repair works assessed by him to have a cost of $481,087.00 were not necessary to produce conformity; or that it would have been unreasonable for Scripture Union to carry out those works to produce conformity. As the decision in Bellgrove makes clear at 620, it is "quite immaterial" that the works have not been carried out. The decision in De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 makes it equally clear that it matters not that the injured party, having disposed of the premises, will not (or can not) carry them out, at least where (as here) there is evidence of diminution in value. 177 The referee's assessment of damage must therefore be rejected, and the cost of repairs substituted. That leaves the question, whether it is appropriate to include in the cost of repairs the allowance for relocation expenses of $126,000.00. 178 Relocation expenses, whilst repairs are being carried out, are not part of the cost of repair. They are properly to be regarded as an item of consequential loss. They are not an element, but a consequence, of the repairs. Whilst the cost of repairs may be recovered even though the repairs have not been carried out (as is made clear in Bellgrove and in many cases following it), I do not think that the same can be said of consequential losses. They must be incurred, and must be shown to have been reasonable (both in the sense of reasonable to have incurred them and reasonable in amount) before they can be recovered. 179 There is no suggestion that Scripture Union did relocate from the premises. I therefore think, contrary to the referee's view, that the quantification of its loss by reference to the cost of repairs should not include any allowance for relocation expenses. 180 It would also be open to Scripture Union to recover the reasonable cost of such repairs (if any) as it actually carried out. As I understand the report on this point, Scripture Union actually carried out remedial works in the amount of $81,533.00, and incurred professional advice in the sum of $1,144.00 associated with those works (R284). If those amounts have not been included in the repairs, the cost of which the referee quantified at $481,087.00, then they would be recoverable in addition to that amount by way of further damages. 181 The parties did not address on this point. I am unable to decide it in the absence of either agreement or further submissions. I will therefore give the parties an opportunity, if they cannot agree, to put submissions on this point. It follows that there should be substituted for the figure (before interest) of $571,041.00 found by the referee, either the figure of $481,087.00 or the figure of $563,764.00.

Conclusions and order 182 I conclude that the report of the referee should be adopted insofar as it deals with all questions of liability and apportionment, that his conclusions on quantification of damage should be rejected, and that there should be substituted for the figure found by the referee whichever is appropriate of the figures referred to in the preceding paragraph. 183 I direct the parties to bring in short minutes of order to give effect to these reasons within fourteen days of today's date. If the parties can agree on the proper quantification of damages, having regard to what I have just said, then the Short Minutes of Order should reflect that agreement; and if the parties can agree on costs, then the Short Minutes should likewise reflect that agreement. If the parties cannot agree on those matters I will hear further argument on a date to be arranged with my Associate.

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