Smith v Eurobodalla Shire Council & Anor

Smith v Eurobodalla Shire Council & Anor - [2005] NSWCA 89 - NSWCA 2004 case summary — Zoe

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WEDNESDAY 2 MARCH 2005 SMITH v EUROBODALLA SHIRE COUNCIL & ANOR Judgment 1 MASON P: I agree with McClellan AJA. 2 SANTOW JA: I agree with McClellan AJA. 3 McCLELLAN AJA: In March 1994 Robert and Margaret Smith ("the appellants") purchased a house at 14 Youralla Ave, Malua Bay within the Shire of Eurobodalla. The house was purchased from Shane Kearney ("the builder") who is the second respondent. He constructed the house during 1993 and 1994. 4 The house was built on sloping land, the fall being from the rear to the front of the property. The allotment on which it was constructed was created by a subdivision, originally carried out in 1961, with further re-subdivision in 1985. There is persuasive evidence that a shallow watercourse used to pass through part of the property, but this had been filled, probably when the original subdivision was being developed. 5 The house is single storey, with the main portion supported on a concrete slab that is in turn supported either on fill or concrete piers or a combination of both. A garage, which shares a common roof with the main building, was constructed with brick walls supported on concrete footings. The wall closest to the main dwelling may share a common footing with the adjacent pier supporting the floor of the dwelling, although this has not been confirmed. The garage floor is comprised of a concrete infill slab which provides no structural support for any other part of the structure and is independent from it. 6 Eurobodalla Shire Council ("the Council") granted approval for the construction of the dwelling in September 1993. Before granting the approval, an officer of the Council carried out an inspection of the building site. During the course of construction, other inspections were carried out by the Council's engineer and building inspector, Mr McHugh. 7 About eighteen months after moving into the property, the appellants noticed cracks appearing in the plasterboard, gaps between the wall and floor tiles of the bathroom, and other defects. The evidence before the trial judge was that the building has continued to deteriorate and now requires significant repairs to return it to a good condition. The appellants believe the defects in the building are due to the negligence of the respondents and sued in the District Court claiming damages. 8 The trial judge dismissed the claim and Mr and Mrs Smith appeal to this Court claiming either a verdict against one or both of the respondents or a new trial.

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The fundamental elements of the appellants' case at trial 13 The case made by the plaintiffs at the trial turned upon a number of critical matters. Because of the integration of the roof of the garage with the house, a failure in one section of the foundations would inevitably lead to a failure in other parts of the structure. Evidence was tendered of test pits, dug under the supervision of a geotechnical engineer, which showed unconsolidated fill was present adjacent to the foundations of the eastern wall. 14 Another test pit was dug on the north western corner of the house which revealed that the natural subsurface material was reactive clay. This sort of foundation material is common and, although it can lead to minor cracking, it does not usually cause major structural problems, although a stronger than usual floor slab may be required. 15 The appellants' case was constructed from the proposition that the site of the house was, at least in part, an old watercourse filled at the time of the original subdivision. Evidence was tendered from an engineer, Mr Dawson, that at least when the footings for the eastern wall were being constructed, the fill should have been obvious, although the extent to which it was present throughout the site was unknown to the appellants. 16 Documents were tendered from the Council's file which indicated that there were inspections of the building work by Council's officer, Mr McHugh, as the work progressed. The file note indicates that the house was constructed in part on footings, which must be the garage section, and in part with a "slab on ground", which must be the main section of the house. However, of critical significance to the appellants' case was the fact that the file note indicates that the Council's engineer intervened after the original approval had been granted and, to avoid problems from subsurface water, required the slab to be raised so that it was elevated 1200 mm above natural ground at the front of the house. The original plan apparently showed a height of only 300 mm in this location. The building inspector, upon becoming aware that the slab height had changed at the request of the Council's engineer, notes "could not ask for amended plan." 17 The file note provides confirmation of the slope of the land, which must have a fall of approximately 900 mm through the house site. This is now conceded by the Council and is consistent with the appellants' case. Furthermore, the slab is said to be, at least in part, 1200 mm above ground, which triggered a need under the relevant Council code for both a slab of a different design to the original and engineering certification. A slab at a lower level could be constructed with a simple design commonly approved by the Council. At a height of 1200 mm the position changed. The fact that amended plans were not required suggests that although the slab was raised, its design was not changed, and accordingly it rests on fill of unknown compaction, without supporting piers. 18 There were difficulties with the quality of the appellants' evidence at the trial and considerable time was taken arguing the admissibility of various expert reports. Unfortunately, because a transcript was not available, this has led to error by the parties and the trial judge as to whether the report of Mr Condon, an engineer, was in evidence. There were also difficulties in relation to the admissibility of a letter from the Council to the appellants dated 1 September 1998, which contained a statement to the effect that piers were not used in the construction of the house. Her Honour effectively excluded this statement from the evidence and it was not considered in her Honour's reasons for judgment. The letter is, of course, consistent with the evidence from the file that the main house is constructed using a "slab on the ground." 19 An important consideration in the case is the fact that neither the builder nor the Council called any person to give evidence of their observation of the site prior to or during construction of the house. Furthermore, neither respondent gave evidence as to the method of construction and no explanation of the Council's file note was given in evidence. Having regard to the evidence which the appellants tendered, consideration of the impact of the failure to call the builder or the Council inspector, both of whom were available, was of considerable importance (see Jones v Dunkel (1959) 101 CLR 298).

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The essential reasons of the trial judge - some problems 20 The fundamental finding of her Honour was that although there was evidence of unconsolidated fill underneath the garage, it could not be concluded that it was elsewhere on the site. Her Honour found, having regard to the one test pit at the north-western corner, that the main house slab was likely to rest on reactive clay, a natural material, and concluded: "the plaintiffs have failed to discharge [their] onus with respect to the presence of fill underneath the house slab. They have also failed to demonstrate that either piers were not used or that, if used, they did not reach natural ground." 21 Her Honour concluded that this finding was sufficient for the claims to fail, irrespective of whether the respondents knew or should have known of the presence of fill or whether the slope of the property contributed to design difficulties and the ultimate failure of the structure. 22 To my mind there are a number of difficulties with her Honour's analysis. Firstly, a finding that there was unconsolidated fill under the eastern wall of the dwelling suggests that it may be elsewhere on the site. It would hardly be likely to exist in only one or two locations, particularly if the land is, in part, an old creek bed. The fact that a test pit dug on the north-western wall showed reactive clay provides little information as to the fill material under the main house. This is particularly the case when it is appreciated that introduced fill must be present so that the slab could be raised to 1200mm as recorded in the building inspector's note. Her Honour does not analyse that note and may not have appreciated that it points to the fact that the main house slab is on fill rather than the natural ground. Coupled with the fact that no one was called to explain the note or rebut the inference that the house was built on fill, the available evidence suggests that one mechanism for the failure of the house is likely to be a combination of the failure of the eastern wall and instability of the main house slab. 23 A significant consequence of the requirement by the Council's engineer to alter the level of the slab was the need to reconsider its design and provide appropriate foundation piers. From the Council file note it can be inferred that this was not done. Indeed the plans did not alter, notwithstanding the increase in height. Without evidence from the Council or the builder to suggest otherwise, the appropriate conclusion would appear to be that the slab design is inadequate and has contributed to the failure of the building. However, her Honour did not consider the suitability of the design of the slab and whether it was adequate in the circumstances. 24 Irrespective of these factual matters her Honour, relying upon the decision of the High Court in Sutherland Shire Council v Heyman & Anor (1985) 157 CLR 424, held that in the circumstances, the Council did not owe a duty of care or that, if it did, there was no evidence that the Council's powers of inspection were negligently performed. Again, her Honour's analysis appears to have been undertaken without reference to the Council officer's note and the available inferences to which I have referred. Although defining the Council's duty is a complex task, it could not be said in the present case that there was no evidence that the powers of inspection were negligently performed. It is strongly arguable that once the level of the slab had been required to be raised, either the Council's engineer or the Council officer who inspected the foundation work should have required the specifications for the slab to be reconsidered and made appropriate for the structure being built. 25 The trial judge also found that there was no evidence of a fall of 900 mm where the house was constructed, although there was evidence of a fall over the whole site, and held for that reason that the appellants' case that the floor slab had not been appropriately designed failed. However, it is plain from the Council's file note, and was conceded in the appeal, that the slope through the house is 900 mm. This is obvious from the fact that the slab was raised 900 mm to avoid the necessity for cut, taking its maximum height to 1200 mm. Without evidence to the contrary, the only available conclusion was that the site had a slope which required special consideration to be given to the design of the slab. 26 With respect to the builder, the trial judge found that there was "no knowledge on the Second Defendant's part of any fill anywhere on the site" and that the builder complied with the Council's requirements for the construction of the slab. However, these findings are not consistent with the evidence of Mr Dawson as to the presence of fill at the eastern wall. Furthermore, the altered level of the slab gave rise to different requirements for its design, the responsibility for which must have rested, at least in part, with the builder.

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Ground 1 - Exclusion of the report of Mr Condon 28 Mr Condon is an engineer who prepared a report in which he concluded that the problems with the house were due to the fact that the garage was founded on fill that has settled and that the main house is founded on reactive clay, without an appropriately designed slab. The problems were exacerbated in his view by the failure of the Council to adequately maintain the drain which followed the line of the original watercourse. Although his report was tendered, it was assumed by all parties and the trial judge, in my opinion wrongly, that the report had been rejected by her Honour. 29 In order to effectively consider this ground of appeal, it is necessary to understand the course of the trial and in particular the manner in which expert evidence was tendered and objections considered by the trial judge. 30 Much of the evidence at the trial was comprised of written expert reports. At an early stage of proceedings, time was set aside for them to be tendered during which objections were taken and rulings were made. Lengthy debate occurred about the application of Makita Australia Pty Ltd v Sprowles (2001) 52 NSWLR 705. This process led to confusion later in the trial, without the benefit of a transcript, as to whether some expert material had been admitted into evidence. That confusion led to difficulties which were emphasised by the fact that, although at least the second respondent's counsel had indicated otherwise, both respondents decided not to call oral evidence. An indication that the builder intended to call Mr Condon was not pursued. 31 On the second day of the hearing the trial judge indicated that she had taken the opportunity of reading all the written material provided by the parties. Her Honour then proceeded to deal with the objections. 32 Mr Smith's statement was considered first. It included a number of annexures. One was a report from Mr Marshman, referred to in paragraph 10 of Mr Smith's statement and identified as annexure "C". Mr Marshman, who is a structural engineer, expressed opinions about the state of the house and the necessary remedial work. His report, which is relatively brief, was originally prepared for other proceedings and had not been served as required by the District Court Rules. 33 Objection was taken to the report and it was submitted that its form did not comply with the relevant Rules of the Court and that it failed the test for admissibility described by Heydon JA in Makita. The objection was debated and it was determined that Mr Marshman would be called. As a consequence, it seems to have been accepted that any problems of form could be dealt with when he gave evidence. 34 Her Honour said: "Gentlemen, I think at the end of the day that it's a matter that should be dealt with. Mr Marshman needs to be called and he needs to be qualified in the witness box and then the weight that I attach to the report at the end of the day will depend upon his cross-examination. If Mr Kerr and Mr Heath require some time in order to deal with Mr Marshman as a witness, well they'll be indulged in that regard. So for now you can assume it stays." 35 Later her Honour said: "Alright, he will be in due course or he won't be, we'll wait and see. So paragraph 10 stays in. Where are we up to now?" 36 Although the matter is not entirely clear, it would appear that her Honour ruled that paragraph 10 and the annexure were admitted into evidence, perhaps provisionally, the ruling to be reconsidered at the time he gave oral evidence. 37 The next matter which arose was the admissibility of paragraph 12 of Mr Smith's statement and, more importantly, the admissibility of Mr Condon's report which was referred to in that paragraph and attached as annexure "D" to Mr Smith's statement. Apparently, Mr Condon had originally been retained by the second respondent and his report provided to the other parties. 38 Discussion as to the admissibility of the Condon report was initiated by Mr J Heath, counsel for the builder, who said: "… I do not object to this paragraph, paragraph 12, I do not object to this paragraph and I seek to rely on the Condon report." 39 This would appear to have the consequence that at least in so far as the builder was concerned, the Condon report could be admitted into evidence without objection. Mr Heath then indicated that Mr Condon was a reluctant witness and, as a consequence, a subpoena had been issued for his attendance. 40 Having made plain that the builder wished the Condon report to go into evidence, Mr Heath referred to the possibility that objection might be taken to the report because of Mr Condon's failure to acknowledge the expert witness Code of Conduct. In anticipation of the issue arising, Mr Heath said: "If necessary, evidence can be put forward in relation to doing that, but that matter can be dealt with when Mr Condon comes here." 41 Mr S Kerr, counsel for the Council, took a different position. Mr Kerr said: "I object however, to paragraph 12 and I don't seek to rely on Mr Condon's report and if your Honour has regard to the contents of that report. Your Honour it's a lot more than just coming along and giving a CV in the witness box and saying that the witness has read the expert's code of conduct and agrees to be bound by it. The witness makes numerous statements which aren't supported by any analysis. The witness doesn't set out the basic assumptions on which relies." [sic] 42 This statement was followed by further discussion which concluded with Mr Heath confirming that he supported the tender of the report and if there were difficulties about its form or any matters of substance which might cause difficulties because Mr Condon was a reluctant witness, these could only be cured when he gave evidence. Mr Heath again confirmed that he intended to call him to give evidence. 43 Her Honour then ruled in the following terms: "Right. Well look just dealing with Mr Condon's report for present purposes what I said in relation to Mr Marshman's report I think applies equally. I don't regard Mr Condon's report as falling so far foul of the requirements of an expert report according to Makita that it should be excluded at this stage and I'll allow it. Can I just say though that in so far as any of these reports fall short of the requirements and the defendants can demonstrate any prejudice in the failure of the reports to address certain issues, then I will at any time accede to any request for that prejudice to be cured." 44 The evident effect of the ruling was that Mr Marshman's report was admitted into evidence subject to the right of the respondents to later point to matters which caused them prejudice in relation to which they would be allowed an opportunity to take whatever steps they required. However, failing any submission to that effect, as I understand the position, Mr Condon's report was in evidence without qualification. 45 Discussion then turned to subsequent paragraphs in Mr Smith's statement, many of which were not read. The transcript reflects what may be described as robust debate followed by a request from her Honour: "look can I just ask for some commonsense to prevail here." 46 Later, and when considering the admissibility of evidence from a building consultant who referred to Mr Condon's report, the question of the admissibility of Mr Condon's report was again raised. The following exchange occurred: "HER HONOUR: This is an objection to an expression of opinion about whether or not a builder would be able to carry out repairs, given the present insurance requirements, and his personal view as to whether or not he would do such a thing. MORAHAN: He's a builder, your Honour. HER HONOUR: Is Mr Condon - have we dealt with Mr Condon's report. MORAHAN: Not yet. HER HONOUR: Is Mr Condon's report objected to? KERR: It is by me. That's the one that my learned friend wants in, Mr Morahan wants in, I want out. HER HONOUR: That's right." 47 It is apparent that without the benefit of a transcript both the trial judge and Mr J Morahan, counsel for the appellants, were under a misapprehension as to what had previously occurred. 48 On the third day the matter proceeded with oral evidence being led. The witnesses included Mr and Mrs Smith and Mr Dawson, an engineer who was present when holes ("test pits") were dug on the site during investigation of the problems with the house. 49 During the course of the evidence in chief of Mr Dawson, reference was again made to the Condon report. No objection was made to the use of the Condon report in this manner and there was no suggestion that it was not in evidence. 50 When cross-examined by Mr Heath, Mr Dawson was referred to and asked questions about the Condon report. At that point the following exchange occurred: "HEATH: Do you have a copy of the Condon Report, Mr Dawson? A. I don't have it here with me now, unless it's in this file. Would it be in this one? Q. It will be in there and I'll tell you where it is.

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KERR: 85. Page 85. Just so there's no dispute, I noted it two days ago, I think. When we get to Mr Condon's report, as I indicated -- HER HONOUR: You have an objection to it, anyway. KERR: I have objections to part of it, but as long as that's made clear by -- HER HONOUR: Yes, all right. MORAHAN: I thought that Condon report was in as an annexure to the affidavit. KERR: No, it's not. What your Honour did was allow it to stay as an annexure, but your Honour hasn't ruled in relation to that, because there's been no argument in relation to that. Your Honour made that clear in my respectful submission at the beginning of day 2. HER HONOUR: Yes, we didn't deal with the objections to the report in particular, Mr Morahan, I'm just -- MORAHAN: If your Honour pleases. KERR: But the report certainly is attached. HER HONOUR: It's there, but I think Mr Kerr said that he would have some matters that he would object to within the report, but it's there as an annexure. KERR: Quite, your Honour didn't allow it in as an expert report by virtue of it being an annexure. Thank you, your Honour." 51 It is plain from the discussion recorded in the transcript to which I have earlier referred that both her Honour and Mr Kerr were by this stage having difficulty recalling how Mr Condon's report had been dealt with. As will emerge, the difficulties faced by the parties and her Honour without access to a transcript of the previous day's evidence are never satisfactorily overcome. 52 On the fourth day of the hearing, the transcript has reference to "discussion as to interposing Mr Condon." However, the content of that discussion is not recorded. In any event, he was not interposed and the cross-examination of Mr Dawson continued. 53 Just prior to the luncheon adjournment on the fourth day there was further discussion about interposing Mr Condon. Again, the discussion is not recorded. After lunch the discussion returns to the admissibility of other written evidence. During that discussion, reference is made to the Condon report and her Honour is recorded as saying: "We haven't dealt with Mr Condon yet." 54 Later that day, proceedings had come to the point where the appellants' case was complete and, but for some minor matters, Mr Morahan indicated that he would close his case. Mr Kerr sought a short adjournment to consider his position. Mr Heath then said: "HEATH: Your Honour, I would like to utilise the time - the five minutes Mr Kerr has talked about - because I may wish to have a brief discussion with him. I have Mr Condon here. He has come up especially -- HER HONOUR: Of course, sorry, I forgot about that, yes. HEATH: -- and I'm anxious to get him in on the basis that I made a promise to him, subject to your Honour's rulings, of course, obviously. But I did indicate to him that, based on my assessment, I thought we could deal with it today. So, I'd just like that time in order to do that. HER HONOUR: All right. Mr Kerr, do you have a problem if we get Mr Condon in this afternoon? KERR: Depends whether I want to call Mr McHugh and if I do, having regard to his knowledge and experience, I want him cross-examined before Mr Condon goes in because there may be matters put to Mr McHugh in cross-examination that I might wish to raise with Mr Condon. Depends how long my learned friends say they'd be with Mr McHugh if I call him. HER HONOUR: All right. Look, I can't resolve any of this until you have your little chat. So, I'll adjourn for 10 minutes and then we'll resume at 5 to 3. KERR: Thank you, your Honour. May it please the court. SHORT ADJOURNMENT" 55 Following the adjournment, Mr Morahan confirmed that but for some written material his case was closed. At this stage, Mr Morahan was entitled to assume that Mr Condon would be called by the builder. This had been made plain by Mr Heath who, later that day following a lengthy discussion about the evidence, volunteered: "My instructing solicitor just indicated to me he was going to ask [sic] Mr Condon and offer to buy him a pair of pyjamas for this evening … ." 56 Later, when debate is occurring in relation to the tender of an expert's report on behalf of the Council, an exchange occurred in which Mr Kerr said: "I should be able to have leave to read that sentence in reply if Mr Condon's report goes in. Your Honour, that's why I rely on it; it's in response to Mr Condon." 57 No one responds to the suggestion that Mr Condon's report may not be in evidence, although the urging of Mr Kerr of the acceptance of material in reply makes plain that he at least expected that it would be in evidence. 58 At the end of the fourth day there was a discussion about the future witnesses and the order in which their evidence would be taken. The transcript does not disclose the content of those discussions. 59 At the beginning of the fifth day her Honour remarks: "Yes, Mr Kerr, are we ready to start your case?" It is clear that her Honour anticipated that oral evidence would be called by the respondents and that she was ultimately surprised when neither respondent took this course. Mr Kerr indicated that he had completed his case and was immediately followed by Mr Heath who closed his case. It then became apparent that as between the respondents, agreement had been reached on the cross claim which was then discontinued. 60 No reference was made to Mr Condon. Without explanation the situation had changed from a position where the builder had indicated that it pressed his evidence and would call him. No doubt the respondents perceived that they could obtain a forensic advantage by taking this course. Whether Mr Condon was at court and available to be called is unclear. However, it would not appear that he had been formally released from the obligation of the subpoena. 61 The proceedings immediately proceeded to submissions. 62 An official transcript of the submissions is not available. However, the parties arranged for some of the tapes to be transcribed. That transcript includes a discussion of the Condon report and whether it was in evidence. It is apparent that the transcript was not consulted, and I infer was not available, during much of the discussion and although solicitors' notes were available, recollections were imperfect. 63 It would seem that Mr Morahan did not have a solicitor in court and, having no notes of the exchange when the Condon report was tendered and no independent recollection, was in the position where he had to accept the recollection, confidently expressed, of other counsel. The matter is discussed on a couple of occasions during an attempt to sort out the confusion surrounding which expert reports were exhibits in the proceedings. 64 My reading of the discussion in the transcript suggests that all parties were confused. Mr Kerr confidently asserts that the Condon report is not in evidence, at one stage suggesting that it has not been tendered. At another point, Mr Kerr suggested that the report was tendered with others but rejected, it being accepted that "by merely attaching a report an expert couldn't get into evidence." At that point, Mr Morahan said he wished to consult the transcript but it would seem it was not available. This is followed by further discussion after which her Honour says that Mr Morahan "accepts that the Condon report is not in." However, the matter does not end there and further discussion, which reflects even greater confusion, ensued. At a later stage, a solicitor's note is consulted and is transcribed in the following terms: "Paragraph 12 [being paragraph 12 of Mr Smith's statement] No objection. Seeks to rely on Condon report. Objection by Mr Kerr. No compliance with Rules. Judge: Report no four of Makita and Sprouse. Allows report but if prejudice shown will exceed to request for time to allow prejudice to be cured." 65 Reference to the note is followed almost immediately by a statement by Mr Kerr in which he says: "as I understand it there is no dispute as to whether Condon's in or out … ." 66 It is clear that he was asserting that the report was not in evidence. 67 I am satisfied that Mr Kerr's statement, although consistent with his understanding of the position, was not correct. However, it was not contradicted by Mr Morahan, who indicated that he had no independent recollection and no transcript was available to confirm the position. It is perhaps unfortunate that greater notice was not taken of the solicitor's note, which is generally an accurate reflection of the proceedings, when the Condon report was tendered. There is no doubt, having regard to the ruling her Honour made on the second day, that the Condon report was admitted into evidence. 68 The significance of the Condon report was twofold. Firstly, if accepted, it explained, in the clearest of terms the mechanism of failure of the building structure. It also provided criticism of the specification used for the main floor slab. Together with the evidence from Mr McHugh's file note about the changes made to the level of the slab, without changes in its design, the Condon report provided evidence which could have supported a finding that the damage to the house has been occasioned by it being constructed on fill with an inappropriately designed slab. 69 The assumption that Mr Condon's report was not in evidence, when I am satisfied that it was, leads inevitably to the conclusion that the trial has miscarried. I am satisfied that for this and other reasons, a new trial is necessary.

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Second ground - no evidence of fill on the site? 70 Her Honour found that there was unconsolidated fill on the site underneath the footings of the eastern wall of the premises. This was common ground. Mr Dawson says that the fill in this location was obvious "as soon as we started digging." The report of Douglas Partners was significantly more cautious about whether the fill in this location would have been apparent. However, neither the builder nor Mr McHugh, both of whom must have observed the trenches, gave evidence. 71 The appellants submit that the finding by her Honour, that "there is no evidence establishing knowledge or imputed knowledge on the Second Defendant's part of the presence of fill anywhere on the site", is not correct. In my opinion, having regard to the evidence of Mr Dawson, that submission should be accepted. 72 The Council approved plans for the dwelling were not tendered at the trial. However, there was in evidence the "Guide to Slab Reinforcement - Detail for Simple Domestic Construction" published by the Council. Under the Guide, when a building site is comprised of non-compacted fill up to 900mm in depth, a slab of 100mm thickness is required with piers at 2.00m centres. For a site with non-compacted fill between 900mm and 1200mm in depth, a slab of 125mm thickness is required. Over 1200mm in depth, a structural engineer's detail is necessary. Provision is also made for the dimensions of footings and columns on sites containing compacted fill. 73 The evidence at the trial included the Council's file relating to this building. It includes a document entitled "Record of Inspection Details." That document has two sections, "Footings Inspection" and "Slab on Ground Construction." 74 In the section relating to "Footings Inspection", notes are made against a standard check-list of items and the document has been initialled. A tick has been placed against the items "Size of footings", "Reinforcement of footings" and "Bearing value foundations." Because only the garage section and the eastern wall of the main house were constructed on footings, this part of the document must relate to the garage section. 75 In the section headed "Slab on Ground Construction", the note in relation to "Structural Engineer's Design" is "NIL." With respect to "Foundation height/approved plans" the note is "higher at front within code", together with the note "OK with engineer." This is consistent with a note relevant to the slab which reads as follows: "NOTE: alteration to approved plan - height of floor 1200mm above ground at front. Plan indicates 300mm. Builder advises council engineer visited site and requested no cutting of site to restrict ground water disturbance. - could not ask for amended plan." 76 It would seem, and this is consistent with the final built form of the structure, that in order to avoid cutting into the ground at the rear of the house, which because of the slope would have been necessary to keep the level of the floor at a maximum of 300mm above ground level, the Council had required the slab to be raised to a maximum height above ground of 1200mm at the front of the site. However, "slab on ground construction" denotes that the structure is to be erected without piers or strip footings. The slab is constructed on the ground and the building supported off it. 77 In order to construct the house with a raised slab it was necessary to provide a means of support. This could have been provided either by piers, at appropriate spacings and themselves founded on suitable material, or the slab could have been constructed on properly consolidated fill. The file note does not suggest that either method was utilised. 78 What is clear is that where unconsolidated fill in excess of 900mm is present, the Council's slab reinforcement guidelines impose requirements for a thicker slab and, if the height above natural ground is greater than 1200mm, structural engineer's details are required. If the fill exceeds 900mm, additional brickwork is required when forming the columns. 79 The compelling inferences available from the Council officer's note are that the garage section of the house has been constructed on footings which support the walls of that part of the building whilst the remainder of the house has been constructed on a slab which was for the most part originally intended to be placed on natural ground. The latter would not have required piers and there would have been no need for an engineer to have certified the design. However, once the Council's engineer had intervened to require the slab to be raised to avoid excavation, different considerations arose. Instead of the slab being "on ground", it would now have to be constructed on appropriately consolidated fill or on piers. The fact that the building inspector notes that the Council could not ask for amended plans, together with the fact that the inspector notes that "cut and fill" is nil, indicates that, although the slab was raised, its design was not changed. 80 The relevant Australian Standard 2870.1-1998 "Residential Slabs and Footings. Part 1: Construction" was also in evidence. In that document, "Section 2. Site Classification" provides guidance with respect to proper practices when considering the suitability of a site for the construction of a building. Sites with soft soil or uncontrolled fill are indicated as being appropriately classified as "Class P", sites for which engineering advice is required before the construction of the foundation. 81 As I have already indicated, there was evidence before her Honour as to the nature of the foundation material in some parts of the site. Four test pits were dug and reviewed by Douglas Partners, who are consulting geotechnical engineers. Two of the pits were adjacent to the eastern wall of the garage, one was at the north-west corner of the main house, and the fourth was well away from the house to the south and in the path of the old watercourse. 82 Douglas Partners expressed these conclusions about the site having regard to the evidence available from the pits: "The principal results of the investigation are summarised as follows: s test pits excavated in the vicinity of the garage have indicated a subsurface profile comprising filling to depths of 0.7 - 1.0 m overlying stiff residual clays, s the moisture content of the filling was initially wet decreasing to moist with increasing depth, s field testing indicated that the filling is of a lower strength than the residual soils, s the footing supporting the garage (east) wall was measured to be 200 mm thick and founding in the filling whilst the footing supporting the front wall of the dwelling was 300 mm thick, s prior to the development of the site, it is considered that a classification of M (moderately reactive) would be appropriate, s the placement of uncontrolled clay filling to depths in excess of 0.4 m would result in a P classification, s surveying of a selected brick course around the dwelling indicated a difference in level of 25 mm (within the limits of an M site) with the front wall being higher than the rear wall and the front wall peaking at about the front door. Regular monitoring of a brick course would be required in order to establish the existence of any settlement/displacement trends. s it is considered that the damage to the dwelling is most likely due to the shrink/swell behaviour of the site soils with changes in soil moisture content, with the damage to the garage area exacerbated by the footing founding in uncontrolled filling, s based on the results of the investigation, the site soils are naturally variable in colour and as such, any obvious distinction between the filling and natural soils based on colour may have been difficult to observe. A variation in texture and strength however, may have been a little more obvious, with the natural soils having a smooth excavation surface whilst the filling would have been slightly more irregular. Any delineation in texture however, would still be slight and possibly not that obvious." 83 The test holes were also observed by Mr Dawson, a building consultant, who gave evidence. He concluded that the holes beside the garage "clearly revealed non-compacted fill and water in the land." In his oral evidence he said: "There were holes dug on the alongside [sic] the garage, and it was quite obvious as soon as we started digging that there was fill under the foundations from the garage. It was pretty obvious from the other holes dug at the front of the building and at the rear of the building that it wasn't the same texture as near the garage, but it was clay, and I think once a builder is aware that there is some fill on site, he should have called in some expert straightaway." 84 The footing for the garage wall was a shallow footing, described as just below ground level. Mr Dawson's evidence makes plain that the foundation material for at least that part of the house was quite inadequate, thereby confirming at least one mechanism for the failure of the structure. 85 In these circumstances, the fact that neither the Council nor the builder called evidence as to the process of construction of the foundations and the slab assumes considerable significance. The allegation being that the building, both main house and garage, had been constructed on inappropriate fill, with an inadequate slab and either no piers or inadequate piers, could no doubt have been addressed by the builder himself or the relevant officer of the Council. Such evidence not being called, it should be inferred that the evidence would not have assisted either respondent (Jones v Dunkel (1959) 101 CLR 298). Notwithstanding the fact that a submission to this effect was made, the trial judge does not advert to it. 86 It is true that there was evidence which her Honour could accept that at least some of the foundations for the house at a point furthest to the north-west may be in reactive clay. However, given the presence of fill on the eastern side, it could not be concluded that the whole of the main part of the house was on reactive clay. Given the slope of the land and the raising of the floor level at the instigation of the engineer, unless contradicted, the inevitable inference is that a substantial part of the main house must be on fill, the characteristics of which are presently unknown. 87 With respect to the piers, her Honour admitted into evidence a letter from the Council dated 1 September 1998 and signed by the Administrative Officer in which it is said: "Piers were not used on this dwelling therefore there is no information relevant to your request." 88 The letter indicates that if further information is required contact should be made with Steve McHugh, who was the Council building inspector. However, her Honour noted that she would limit the use of that sentence saying "that statement, being hearsay, is not admissible as to proof of the truth of the assertion." 89 Whatever may be the effect of her Honour's ruling, it is plain that, as the question of whether piers were present was in issue, the statement must at the very least be understood as an admission made by the Council affirming the assertion that there were no piers (see Lustre Hosiery Ltd v York (1935) 54 CLR 134 and s 81 of the Evidence Act 1995). Furthermore, to my mind the admission would have considerable probative force being based upon Mr McHugh's knowledge of the plans and method of construction. Mr McHugh was the Council inspector who inspected the footings, and, although apparently available, was not called to give evidence. Of course, the admission was not joined in by the builder. 90 I am satisfied that her Honour's finding in relation to the lack of evidence of the presence of fill under the house slab cannot be sustained. Consideration of the whole of the evidence at the trial points to a conclusion that the house is built on fill and without piers.

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Ground four: The Council's duty of care? 95 This ground raises for consideration her Honour's conclusion based upon the High Court's reasoning in Sutherland Shire Council v Heyman & Anor (1985) 157 CLR 424 that, in the absence of evidence of reliance, the Council did not owe a duty of care to the appellants. Her Honour also said: "Furthermore, the existence of a common law duty of care allegedly owed by a statutory authority such as the First Defendant has received recent extensive consideration by the High Court in Ryan v Great Lakes Council [2002] HCA 54. Even assuming the 'co-existence of knowledge of a risk of harm and power to avert or to minimise that harm', that is not sufficient to give rise to a duty of care. The totality of the relationship between the parties, not merely the foresight and capacity to act on the part of one of them, is the proper basis upon which a duty of care may be recognised. Were it otherwise, any recipient of statutory powers to licence, supervise or compel conduct in a given field, would, upon gaining foresight of some relevant risk, owe a duty of care to those ultimately threatened by that risk to act to prevent or minimise it. As will appear, the common law should be particularly hesitant to recognise such a duty where the relevant authority is empowered to regulate conduct relating to or impacting on a risk laden field of endeavour which is populated by self interested commercial actors who themselves possess some power to avert those risks. (at para 145, per Gummow, Hayne JJ, Gaudron J agreeing) Where a duty of care has been found to exist in a statutory authority, such as a council, towards a citizen, it has depended upon the vesting by the statute of powers, which confer 'such a significant and special measure of control over the safety of the person or property of citizens as to impose upon the authority a duty of care'. ( Brodie v Singleton Shire Council [2001] HCA 29; per McHugh J in Ryan at paras 314 - 320) Physical control over the object or structure which is the source of the risk or harm, such as highways, is one such example of the type of control giving rise to a duty of care. The regulation of building activity on land within its Shire under the powers vested by the Local Government Act 1993, including the approval of a residential structure, does not bring with it that significant and special measure of control over the property of persons, which is necessary to give rise to a duty of care." 96 There can be little doubt that defining the basis for the liability of public authorities for their actions, which may cause or contribute to damage to others, has proved a difficult task for the common law in recent years. 97 Many of the relevant decisions are referred to and analysed by Gibbs CJ in Heyman. The statement by the Full Court of the Supreme Court of New South Wales in Miller & Crook Pty Ltd v Auburn Municipal Council (1960) SR (NSW) 398, that the negligent exercise of its powers by a council could not found an action for damages, has been rejected. 98 However, the role of proximity, specific and general reliance, foreseeability, and the obligations of a public authority to efficiently mobilise its limited resources have proved fertile grounds for judicial and academic discussion: see Heyman; Brodie v Singleton Shire Council, Ghantous v Hawkesbury Shire Council (2001) 206 CLR 512; Pyrenees Shire Council v Day (1998) 192 CLR 330; Parramatta City Council v Lutz (1988) 12 NSWLR 293; San Sebastian Pty Ltd v Minister Administering Environmental Planning Act (1986) 162 CLR 340. 99 Notwithstanding the difficulties, there are a number of cases where it has been held that a duty of care arises. In Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225, the Council was found to owe a duty of care when supplying information to a purchaser of land as to the Council's intentions with respect to road widening. In Wollongong City Council v Fregnan & Anor [1982] 1 NSWLR 244, the Council, when considering a building application, was said to be under a duty of care to provide to the applicant the information which it had about the risk of slippage and to ensure that any building which it approved was not built in a slip prone area. 100 In Alec Finlayson Pty Ltd v Armidale City Council (1994) 123 ALR 155 it was held that a council owed a duty to a developer who sought to subdivide land to warn of the problems which might exist due to the fact, which was known to the Council, that the land was contaminated. The decision was confirmed on appeal (see Armidale City Council v Alec Finlayson Pty Ltd (1999) 104 LGERA 9). 101 In Parramatta City Council v Lutz (1988) 12 NSWLR 293, the Council was found to owe a duty of care in circumstances where it had indicated that it would exercise its regulatory powers but had failed to do so. 102 In Mid Density Developments Pty Limited v Rockdale Municipal Council (1993) 44 FLR 290, the Council was found to owe a duty of care when supplying information in a certificate issued pursuant to s 149 of the Environmental Planning & Assessment Act 1979. 103 In Pyrenees Shire Council v Day (1998) 192 CLR 330, the High Court found that the Council had a duty to exercise its regulatory powers to avert the substantial risk of fire of which it was aware. 104 Although the reasoning by which a duty of care was held to exist in these cases differs between the various justices, at least three propositions can be distilled. Firstly, where a public authority has information which is relevant to the safety of others or the integrity of a proposed development, it may have a duty to disclose it to a class of persons. Secondly, if it has information relevant to the integrity of development the class of person will at least include the applicant for development consent. If it has a capacity to act to prevent a danger to persons, the public authority may also be under a duty to act. Finally, if a public authority intervenes to control the activity of others, it may be under a duty to act with appropriate care: see Heyman per Gibbs CJ at cLR 447, Mason J at CLR 460, Brennan J at CLR 479, Deane J at CLR 509. 105 In the present case, her Honour's finding that the case against the Council failed was based upon the following elements: · The file showed that the subdivision and building approval proceeded upon standard lines. · Although the file disclosed references to a natural watercourse they were not linked to knowledge or imputed knowledge in the Council. · There was no evidence of file notes referring to fill. · Although there was nothing in the Council file to affirm the presence of piers under the house slab, that does not establish a negligent omission on the part of the Council. · There was no evidence of reliance by the appellants on the Council having approved the building without negligence. 106 In the ultimate resolution of this matter, the fact that the appellants purchased from the builder and made no relevant inquiry of the Council may prove significant in determining whether the Council owed them a duty of care. In that respect, the discussion of the duty of a builder to subsequent purchasers may be significant: see Bryan v Maloney (1995) 182 CLR 609. However, it would seem likely that the builder was owed a duty of care by the Council, both when the relevant application was lodged and approved and when the foundations were inspected. Furthermore, it was the Council engineer who required the slab to be raised, which arguably gave rise to a need for a change in the design of the slab. At that point, it is conceivable that a duty may have been owed to a subsequent purchaser. However, whether a duty was owed and whether it has been breached will depend upon the particular circumstances. 107 In my opinion, a number of the trial judge's findings relevant to the Council's duty and any possible breach cannot be sustained having regard to the evidence tendered at the trial. To my mind, contrary to her Honour's finding, the file does not show that the approvals proceeded on standard lines. In fact, the intervention of the engineer indicates otherwise and his requirement that cut be avoided because of drainage matters suggests that he knew of drainage problems which existed because of the creek. Furthermore, if it is correct to conclude that the Council knew of the creek, there may have been a duty to bring this to the attention of the builder. If Mr Condon's report had been in evidence, it would have strengthened the appellant's case that both the Council, and for that matter the builder, should have known of the old creek. 108 Her Honour found that the Council's file contained no suggestion of piers under the house slab. This is true. The evidence both of the file note and the letter of 1 September 1998 would, unless rebutted, lead inevitably to the inference that there were no piers. However, having regard to the fact that the slab was required to be raised, this would lead to the inference that the house may not have been properly constructed. This is significant evidence and points to the possibility that the Council was negligent when, following the intervention by the engineer, the Council failed to require appropriate foundations for the house. 109 I have previously indicated that the cross claim between the Council and the builder was discontinued during the trial. This was done at the point where Mr Condon was due to be called. Following the agreement between the respondents, no oral evidence was called. 110 It is impossible to determine the course which the trial would have taken if Mr Condon's report had been understood to be in evidence. However, as I have indicated, it is significant both with respect to any breach of duty owed by the Council to the builder and, if there be a duty, any breach of the duty the Council owed to the appellants.

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Grounds nine and ten: Damages 116 The trial judge found that there was no evidence quantifying the amount of any damages which could found an award. 117 The appellants tendered, amongst other material, a report from Mr Hanrahan, a valuer, who gave evidence as to the value of the house if it had been in good repair, and its reduced value in its damaged state. Mr Hanrahan is an experienced valuer having practiced in the local area for 27 years and keeps up to date on the movement in value and the cost of building materials and labour. He gave evidence that, if in good repair, the house had a market value of $310,000. He also gave evidence, which was rejected, that the market value of the property in its current state of repair was $160,000. 118 The latter evidence was rejected primarily because Mr Hanrahan could not point to comparable sales of similarly affected properties. This was hardly surprising given that it would be unlikely that many properties would ever be sold in the condition to which the appellants' property has presently been reduced. In Mr Hanrahan's judgment, the value of the building has been reduced because of the damage from $178,000 to $32,000. He said he reached this conclusion having regard to his observations of the state of the property and his judgment as to the likely market impact of the defects. 119 The trial judge rejected the evidence for the reason, as I understand, that the facts upon which the opinion was based had not been proved, there being no comparable sales of damaged properties to which reference could be made, and accordingly, the evidence was precluded by the dictum of Heydon JA in Makita. 120 In particular reference was made to the following comment by Heydon JA in Makita (at NSWLR 731): "It has sometimes been said, for example, that all a valuer need do is establish valuation expertise, prove that that which is to be valued has been examined by the valuer, and give an opinion on what the value is. The opposing party would then have two choices. The first is to cross examine the dark, with the perils which usually face journeys into darkness, to establish the factual assumptions underlying the valuation, and the relationship between the valuer's expertise as applied to those assumptions. The second is not to cross examine, and run the risk of the court attaching weight to the opinion, ill substantiated though it may be on its face." 121 There is no doubt that the foundation for an expert's opinion must be adequately proved. This will include the evidence necessary to qualify the person as an expert in the relevant field and proof of the facts in respect of which the expert is requested to give an opinion. As Heydon JA acknowledges, this can give rise to difficulties in areas such as land valuation where, in many cases, the available market evidence is limited and the expert's judgment must be based upon accumulated experience. Sometimes when evidence of comparable sales is not available, alternative but less satisfactory methods of valuation may be utilised. (Various methods are discussed in Alan Hyam, The Law Affecting the Valuation of Land in Australia, 3rd ed, p 113ff). But there will be many cases, particularly in relation to sales of "unique" property, where this may not be possible and a valuer will be required to exercise his or her judgment having regard to the objective material which is available, however inadequate. If there is simply no direct market evidence in relation to a particular property, this does not mean that a valuer cannot express an opinion as to its value. As McClure J points out in the Full Court of the Supreme Court of Western Australia case in Western Australian Planning Commission v Arcus Shopfitters (2003) WASCA 295, Makita does not mean that an opinion will be excluded where the objective material is not complete "but the valuer must reveal as far as possible the reasoning process actually employed so as to enable the court to evaluate the evidence and the expert's conclusions." 122 In my opinion, the evidence of Mr Hanrahan's opinion as to the value of the damaged house was admissible in the present case. It is apparent that his opinion as to the value of a house in good condition was derived from the available market evidence. The foundation for his opinion as to the value of the house in its damaged state was his knowledge of the defects, gained in particular from his own observations. As there were no sales of similarly damaged property, he was required to assess the impact which he believed those defects would have in the minds of prospective purchasers, a task which, because of his knowledge and experience, he was equipped to undertake. Because of the lack of market evidence, Mr Hanrahan's opinion may have required careful assessment by the trial judge, but this did not make it inadmissible. 123 There was other evidence tendered below of estimates of costs to repair the house. A quote from Mr Dawson and an estimate from Mr Greenshields were tendered but rejected. The basis for the rejection is unclear and it is not referred to in the reasons for judgment. It is difficult to understand why a quote to repair the house would not be admissible, being at least some evidence quantifying the appellants' damages. There was also evidence before her Honour of the costs incurred in retaining experts to advise in relation to the damaged property which would have been sufficient to found an award.

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Cases Cited (15)