Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [2016] NSWSC 50 | Case summary

Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [2016] NSWSC 50 | Case summary | Zoe

[3]

Introduction

In this proceeding the plaintiff, Tzaneros Investments Pty Ltd (Tzaneros), claims damages from the first defendant, Walker Group Constructions Pty Ltd (WGC), and the second defendant, AMT Engineers Pty Limited, formerly known as Alan L Wright & Associates Pty Limited (AMT), in relation to defective concrete paving at a container terminal at Molineux Point, Port Botany (the Terminal). WGC has also filed a cross claim against AMT in respect of the same damage.
The container terminal was built in 2003 and 2004 on land owned by Sydney Ports Corporation (the Land) which, at the time, was leased to P&O Trans Australia Holdings Limited (P&O). In late 2002 and early 2003, P&O carried out a tender process for the construction of the Terminal. Walker Corporation Ltd (formerly known as McRoss Developments Pty Ltd) (Walker), the parent company of WGC, was the successful tenderer, although ultimately the contract for the design and construction of the Terminal (the D&C Contract) was entered into between WGC and P&O. AMT is a design engineer who was engaged to design the concrete pavement that formed part of the Terminal. Its principal is Mr Alan Wright.
On 1 April 2004, P&O transferred its leasehold interest in the Land to a subsidiary, Smith Bros Trade and Transport Terminal Pty Ltd (Smith Bros), and on 2 December 2005 Smith Bros transferred its leasehold interest in the Land and associated assets to Tzaneros. On the same day, by a deed between P&O, Tzaneros and Smith Bros, P&O purported to assign to Tzaneros the warranties given by WGC in connection with the construction of the Terminal.
The D&C Contract provided for construction of five warehouses known as warehouses 2, 3, 4, 5 and 6 and the laying of various types of pavement including types P2/B2 and P2, which were both to be "heavy duty container grade pavement", that was to run around the outside of and in between the warehouses. Pavement type P2/B2 was intended to be used for the transport of fully laden shipping containers by forklifts. Pavement type P2 was intended to be used for that purpose and to store the fully laden containers. It will be convenient in this judgment to refer to the two types of pavement as P2 pavement. Following the laying of the pavement, cracks and spalling began to develop in both types of pavement. As a result, some of the concrete slabs have been replaced and many others had been repaired using epoxy or cold asphalt, although it is apparent from reports prepared by the independent experts retained by Tzaneros and WGC and a view of the site that those repairs are inadequate.
As a result, Tzaneros claims from WGC and AMT the cost of replacing the whole of the P2 pavement. It claims that those costs are $14,819,256.72.

[4]

The issues

The issues between Tzaneros and WGC are relatively narrow. In light of evidence given by the concrete design experts retained by Tzaneros and WGC, WGC does not dispute that the paving is defective in the sense that it does not meet the relevant contractual specifications. Nor does it dispute that the design of the pavement was negligent. However, WGC claims that the assignment executed by Tzaneros, Smith Bros and P&O to Tzaneros of the contractual warranties on which Tzaneros sues is ineffective to assign claims for breach of warranties that arose prior to 2 December 2005 (the date of the assignment). It puts that defence on two bases. One relies on the terms of the assignment. The other relies on Tzaneros's knowledge of the defects and the principle stated by Ipp JA in Allianz Australia Insurance Ltd v Waterbrook at Yowie Bay Pty Ltd [2009] NSWCA 224 at [110] (with whom Hodgson JA agreed) that a successor in title who acquires a building in full knowledge of its defects suffers no loss as a consequence of those defects. Any loss arises from the decision to acquire the Terminal at the price agreed, not from the defects. If accepted, these contentions would provide a complete defence to Tzaneros's claim.
In addition, WGC takes issue with Tzaneros's contention that all the paving needs to be replaced and with the proposed specifications for the replacement paving, which it says are well in excess of what is required to meet the contractual standard. It also submits that the damages claimed by Tzaneros are excessive having regard to the recent sale (in 2015) of the Terminal by Tzaneros to The Trust Company (Australia) Limited as trustee for Altis Property Partners (TCAL) and the terms of that sale. By its list response, WGC also contends that Tzaneros's claim is an apportionable one, that AMT is a concurrent wrongdoer and that WGC's liability should be reduced under s 35 of the Civil Liability Act 2005 (NSW) (CLA) having regard to AMT's responsibility for the loss.
Both Tzaneros and WGC make claims against AMT. Tzaneros does so on the basis that AMT owed it a duty of care in connection with the design of the pavement. WGC does so on the basis that AMT breached express and implied terms of the contract by which it was retained or breached a common law duty of care it owed to WGC. By its cross-claim, it also alleged that AMT engaged in misleading or deceptive conduct in contravention of either s 52 of the Trade Practices Act 1974 (Cth) or s 18 of the Competition and Consumer Act 2010 (Cth). However, that claim was abandoned during the hearing. Alternatively, WGC claims that, if the claim is not an apportionable one, then WGC is entitled to an indemnity or contribution from AMT under s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). It is not easy to see how this claim could succeed if WGC fails in its contention that the claim against it should be reduced under s 35 of the CLA; and no submissions were advanced in support of this claim.
In defence to the claim made against it, AMT contends that, insofar as the claim against it is one in contract, its contract was with Walker, not WGC. Insofar as the claim is in negligence, it says that it owed no duty of care to WGC (which, on its case was simply another subcontractor to Walker) or to Tzaneros (which was a successor in title to the Terminal). In addition, it contends that it did not breach any duty that it owed.
As to damages, AMT relies on the submissions of WGC. In addition, AMT submits that at least part of the loss flows from construction flaws for which it was not responsible, with the result that there should be a reduction in any claim by WGC for contributory negligence. AMT also submits that Connell Wagner was a concurrent wrongdoer, and that any damages payable by it should take account of Connell Wagner's responsibility for the loss.

[5]

The D&C Contract

On 20 February 2003, P&O wrote to Walker requesting it "to commence detailed design, project management and other activities necessary to commence the project". The letter stated that a number of issues needed to be resolved before P&O could enter into a binding contract with Walker, but that if no binding contract was entered into P&O would reimburse Walker for its fair and reasonable expenses for the work undertaken by it. The letter specifically said that it did not constitute acceptance of Walker's tender. On the same day, Walker wrote to P&O agreeing to the terms of P&O's letter and, in fact, the whole of the works were completed under that arrangement. As I have said, the D&C Contract itself was not executed until September 2004, a number of months after practical completion of the work with which it was concerned. It is not clear how WGC became a party to the contract. No-one from Walker or WGC gave evidence; and it is not apparent from the documents in evidence how the change came about. Although a number of documents that were sent during the course of the project were sent to or by WGC, other correspondence was sent to or by Walker and yet other documents simply refer to "Walker" or "Walkers" and do not distinguish between the two companies.
The D&C Contract consists of a number of documents including the formal instrument of agreement, Special and General Conditions of contract based on Australian Standard AS 4300-1995 and a Performance Specification.
The contract contemplated that the work would be performed in two separable portions. Separable portion 1, which consisted of warehouses 5 and 6, the surrounding external pavements and the front entry road, was to be completed by 28 January 2004. Separable portion 2, which consisted of warehouses 2, 3 and 4 and the surrounding external hardstand pavements, was to be completed by 6 April 2004.
The Superintendent under the contract was Mr Fielder of Fielder Engineers Pty Limited. It is apparent that Mr Fielder was involved in the preparation of the tender and acted as the superintendent throughout the project.
Clause 3.1 of the General Conditions of the D&C Contract relevantly provides: The Contractor [that is, WGC] shall execute and complete the work under the Contract in accordance with the requirements of the Contract.
Clause 4.1 of the General Conditions relevantly provides: Contractor's Warranties Without limiting the generality of Clause 3.1, the Contractor warrants to the Principal [that is, P&O] that the Contractor - (a) … … (e) shall execute and complete the work under the Contract in accordance with the Design Documents so that the Works, when completed, shall - (i) be fit for their stated purpose; and (ii) comply with all the requirements of the Contract and all Legislative Requirements.
Clause 9.1 of the General Conditions provides: Assignment Neither party shall, without the prior written approval of the other and except on such reasonable terms and conditions as are determined in writing by the other, assign the Contract or any payment or any other right, benefit or interest thereunder.
Clause 9.3 of the General Conditions provides: Contractor's Responsibility Approval to subcontract shall not relieve the Contractor from any liability or obligation under the Contract. Except where the Contract otherwise provides, the Contractor shall be liable to the Principal for the acts and omissions of subcontractors and employees and agents of subcontractors as if they were acts or omissions of the Contractor.
Clause 3.40(a) of the Special Conditions provides: Subject to sub-paragraphs (b) to (e), notwithstanding that the Contract is executed after the date of the commencement of the work under the Contract, the Contract applies to the whole of the work under the Contract.
Clause 3.41 of the Special Conditions provides: Pavement design life (a) In this clause 3.41: (i) O&M Manual means the document entitled 'Operation & Maintenance Manual - Concrete Pavements' which comprises Annexure E to this Contract; (ii) Pavements means the concrete pavements constructed as part of the work under the Contract and referred to in the O&M Manual. (b) The Principal acknowledges and agrees that: (i) the Contractor's responsibility in respect of pavement loadings is set out in paragraph 3.2 of the Contract document entitled 'Performance Specification Contract No. P200-T1.1-002' (Pavement Design Loading Obligation); (ii) the Contractor has no control over the manner in which the Pavements are utilised, or the loads to which they are subjected; (iii) the O&M Manual sets out minimum operational and maintenance standards which must be complied with by the Principal; (iv) subject to paragraph (v), the Contractor's Pavement Design Loading Obligation is conditional on compliance by the Principal with the O&M Manual; and (v) paragraph (iv) will not apply to any claim by the Principal for breach of the Pavement Design Loading Obligation to the extent that the Principal has demonstrated that the loss or damages the subject of the claim were not caused nor contributed to by any non-compliance by the Principal with the O&M Manual.
Clause 3 of the Operation & Maintenance Manual (O&M Manual) relevantly provides: 3.0 Pavement Design Parameters The following is a list of design parameters incorporated in the Design calculations for each of the pavements designed and constructed on the project. P1 - … P2/B2 - Forklift Pavements Laden Forklift moves (Annually) - 15,000 Unladen Forklift moves (Annually) - 25,000 Laden Wander Factor 0.8 Unladen Wander Factor 0.4 Truck ESA's (Annually) 1.3 x 106 Forklift Type Omega 48D as per the specification contained within appendix A Container loading (Fully laden) 1-high only (both 40 foot and 20 foot containers)

[7]

… P&O must not permit any vehicle to be used or operated on the pavements that places a load on the pavements which is greater than the loads for which the pavements have been designed. The reference to "ESA's" [sic] is a reference to "equivalent standard axles". An equivalent standard axle is an axle transmitting a load of 8.2 tonnes to the pavement. The load specification sheet for the Omega 48D forklift specified a maximum front axle loading of 89,000 kg and a rear axle loading of 9,000 kg.

Clause 5 of the Manual provides: Pavement Maintenance P&O must implement a comprehensive inspection and maintenance regime with regard to the concrete pavements constructed on the project. The regime implemented must include, without limitation, compliance with the requirements set out below. P&O must ensure that all drivers and operators of heavy equipment be inducted into the limitations of all pavements and the safe handling of containers and other equipment. P&O must not implement any changes to the pavement use without first consulting with Walker Group Constructions Pty Limited. This includes the use of alternative container handling equipment, racking design, or any other loading parameter which could potentially overload the pavements. P&O shall ensure that any loads, vehicles, or numbers of repetitions that may: 1. exceed the specification or intent of this manual; or 2. have a greater impact on the pavements than the vehicles specified in this manual, are not applied to or used on the pavements, without the written consent of WGC. P&O must perform six monthly inspections to identify any areas that require remedial works. Attached to this manual is an inspection checklist setting out minimum criteria which P&O must investigate during inspections. The checklist is a modified version of a checklist produced by the American Concrete Institute (ACI). Any deficiencies identified in the inspections must be: 1. rectified by WGC if attributable to a failure of WGC to construct the pavements in accordance with the terms of the contract dated [to be inserted] between P&O and WGC for the construction of the pavements; or 2. rectified by P&O if attributable to normal wear and tear. Rectification must be done promptly to prevent any additional or consequential damage. ….
The inspection checklist contemplated that there would be inspections every six months and that any damage would be recorded by distress type and severity. The distress types were identified as being linear cracking, joint chipping, surface wear, crazed cracking, joint seal damage and spalling. Four levels of severity were identified. They were non-contributing, light, medium and heavy and definitions were given for each by reference to matters such as the thickness or length of the relevant distress type. The manual also sets out the "minimum repair" for medium and heavy damage in the case of various distress types. The minimum repair is mostly described as "Epoxy Injection" or "Epoxy Repair".
The design specifications for the pavement in the O&M Manual are largely mirrored in the Performance Specification.
Clause 1 of the Performance Specification relevantly provides: The Contractor shall be responsible for the complete design, documentation, submission and gaining of approvals and construction of the new trade and transport terminal at Molineux Point. The scope of works, which forms this Contract, includes the following: 1.1 Design and Documentation The Contractor shall be responsible for the detailed design, documentation and certification for all elements of the development. The detailed design shall be completed in accordance with this Fielder Engineers Performance Specification, Ref: P200/T1.1/002 and associated sketch drawings.
Clause 2.4 of the Performance Specification relevantly provides: Design Criteria All aspects of the proposed trade and transport shall be designed with due regard to the site location and element durability to provide a minimum design life of 20 years with minimum maintenance. All items required to undergo major maintenance in the 20 year design period are to be identified in the submitted tender. Design working life is defined as the period for which structural elements, pavements, building, services, etc are to be used for their intended purposes with acceptable maintenance, but without major repair and/or replacement being necessary. Acceptable maintenance is defined in the following table.
The table contains the following in relation to pavements and roadways: Element Design Working Life Period to First Maintenance Routine Maintenance # Unacceptable Repair/Replacement Pavements & Roadways 20 years None None Any removal/replacement

[10]

Assignment of Terminal and D&C Contract

As I have said, P&O transferred the leasehold interest in the Land to Smith Bros, a wholly owned subsidiary that was responsible for operating the Terminal. The transfer was executed on 1 April 2004.
On 2 December 2005, Smith Bros transferred its leasehold interest in the Land and associated assets to Tzaneros, a company controlled by Mr Terry Tzaneros. Mr Tzaneros was also a director of P&O at the time the Terminal was built and was the director at P&O who was responsible for overseeing the project.
On the day the Land was transferred to Smith Bros, P&O, Tzaneros and Smith Bros entered into a deed by which P&O assigned its rights in the "Building Warranties". In particular, cl 3.1 of the deed provides: Assignment The Assignor as beneficial owner and for valuable consideration (the receipt of which is acknowledged) assigns to the Assignee absolutely all of the benefit of the Building Warranties with effect from the Effective Date.
"Building Warranties" is defined in cl 1.1 to mean: … the building warranties provided by, or imposed by law upon, Walker Group Constructions Pty Ltd, its sub contractors and consultants in respect of the Improvements, and the benefit of all builders' or manufacturers' warranties in respect of any work or goods or equipment forming part of the Improvements. "Improvements" is defined in the same clause to mean "the improvements described in the Building Contract". "Building Contract" is defined to mean the construction contract for the construction of the Improvements. The "Effective Date" was 2 December 2005. Although there is a degree of circularity in the definitions of "Building Contract" and "Improvements", it seems plain that the relevant warranties were those given by WGC, its subcontractors and consultants in respect of the work the subject of the D&C Contract.
By an undated letter WGC consented to the assignment. The letter states: In relation to the proposed sale of P&O's Molineux Point facility to Tzaneros Investments Pty Ltd, Walker Group Constructions hereby acknowledges that: • it constructed the terminal facility pursuant to a Design and Construct Contract executed with P&O Trans Australia Holdings Limited ("the Contract"). • the benefits of the building warranties contained in the Contract will pass to Tzaneros Investments Pty Ltd from the sale date; • save for those building warranties that have expired due to the effluxion of time all building warranties are valid and subsisting; • it is not aware as of the above date of any notice of any disclaimer, or refusal to comply with the terms of any building warranty by a manufacturer, sub contractor, consultant or other party; and • Tzaneros Investments Pty Ltd will be subject to the same obligations as P&O in relation to those warranties from the date of sale. In accordance with clause 9.1 of the Contract, Walker Group Constructions hereby consents to, and accepts the assignment of the building warranties to Tzaneros Investments Pty Ltd from the sale date.
Since 2005, Tzaneros has sub-leased the bulk of the Terminal, including the warehouses and paved areas, to Australian Container Freight Services Pty Limited (ACFS), a company that operates a landside container logistics services business which is associated with Tzaneros. The managing director of ACFS is Mr Arthur Tzaneros, Mr Terry Tzaneros's son.
By a contract dated 5 February 2015, Tzaneros agreed to transfer the lease of the Land to TCAL (the Contract for Sale) for the sum of $44 million. The sale price was consistent with a valuation obtained by Tzaneros for the Terminal.
In connection with that sale, a new company was incorporated that became known as ACFS Port Logistics Pty Ltd. Mr Arthur Tzaneros is also the managing director of that company. Through a number of transactions ACFS Port Logistics became the sub-lessee of the whole of the Terminal from TCAL. ACFS Port Logistics is owned as to 50 percent by Tzaneros family interests and 50 percent by Patrick Container Ports Pty Ltd, a subsidiary of Asciano Ltd.
Clause 65 of the Contract of Sale deals with pavement rectification works. By cl 65.2, Tzaneros warrants that it holds the benefit of the "Building Warranties" (defined in the same way as that expression is defined in the deed) and that the Building Warranties are valid and subsisting.
Clause 65.4 provides: Upon: (a) request by the Tenant [ACFS Port Logistics] to the Purchaser [TCAL] and notice thereof from the Purchaser to the Vendor [Tzaneros]; or (b) on notice from the Purchaser, if the following circumstances are satisfied: (i) a Tenant has not given a notice, but it would be reasonable for a tenant to request works to keep the External Pavements operational having regard to their use, and (ii) the Tenant does not object to the Vendor carrying out the required works on the Property; and (iii) there has been a material deterioration or dilapidation in the External Pavements that will adversely affect the operational use of the External Pavements having regard to the purpose for which the pavement is being used at the time, the Vendor shall carry out (or procure the carrying out of) any and all reasonable repairs or replacements to any defects in the External Pavement in stage 1 and stage 2 of the Premises in accordance with clause 65.7(a) or 65.7(b) (as applicable) limited to: (A) such repair as is reasonably necessary to ensure that they are fit for the purposes described in the First Building Contract for the balance of the term of the relevant Building Warranties adjusted to reflect the purpose for which the pavement is being used at the time; (B) such repair as is reasonably necessary to ensure the design life and design parameters of the External Pavement as provided for in the First Building Contract adjusted to reflect the then age of the External Pavement extends throughout the balance of design movements remaining in the term of the relevant Building Warranties; where such defects are attributable to a failure to design and/or construct the External Pavement in accordance with the terms of the First Building Contract and such repair is necessary to keep the External Pavements operational having regard to the purpose for which the pavement is being used at the time. The reference to the "First Building Contract" is a reference to the D&C Contract.
Clause 65.6 provides: If the Vendor is requested to carry out repairs pursuant to clauses 65.4 or 65.5: (a) the Vendor shall nominate whether the Works shall comprise "Minor Works" or "Substantial Works" and the Vendor shall nominate the methodology for the Works; (b) the Purchaser shall indicate to the Vendor if the Purchaser agrees with the Works being "Minor Works" or "Substantial Works" and whether the Purchaser agrees with the methodology for the Works as nominated by the Vendor and if not, the reasons for disagreement; and (c) if within 5 days of the Vendor receiving a notice pursuant to clauses 65.4 or 65.5 the Vendor and the Purchaser are unable to agree on whether the Works shall comprise Minor Works or Substantial Works and as to the methodology for the Works (dispute), the dispute will be referred to an expert in accordance with clause 65.8.
It is apparent from cl 65.7 that "Minor Works" are works that do not involve any substantial removal of the existing pavement whereas "Substantial Works" are those that do.
On 5 February 2015, Tzaneros and TCAL also entered into a deed entitled "Works Side Deed" which set out the work that Tzaneros was required to do to rectify the pavement. Under cl 2.1, it is required to commence work detailed in a Works Schedule that forms schedule 1 to the deed by 31 December 2016. By cl 2.2, it is required to complete those works in a proper and workmanlike manner in accordance with the Works Schedule. The work is to be completed by 31 December 2017 subject to extensions of time that are permitted in certain circumstances.
Clause 2 of the Works Schedule provides: These Works are supplementary to the obligations of the Vendor to the Purchaser in respect of the Concrete Pavement Rectification Works in the Contract for Sale.
Clause 4 provides: Area of works 4 The Works shall be undertaken to the areas of P2 external pavement located within the green and red zones on the aerial photograph in annexure A hereto and more specifically identified in the areas marked in orange on the drawing in annexure B hereto. Broadly speaking, the two annexures identify the P2 pavement except the P2 pavement between warehouses 2, 3 and 4 on one side and warehouses 5 and 6 on the other.
Clause 5 to 7 of the Works Schedule are in the following terms: Nature of Works 5 The Works shall constitute that repair or replacement of the external pavement as necessary to ensure that the pavement is fit for the purposes described in the First Building Contract [that is, the D&C Contract] adjusted to reflect the then age of the External Pavement and adjusted to reflect the balance of design movements remaining in the term of the relevant Building Warranties to the extent required to keep the pavement operational having regard to the pavement use at the time. 6 Subject to 8 below, the Works shall be undertaken using a methodology that is no less that [sic] the specification CA01 (annexure C hereto) and no more than the specification SK03-05 (annexure D hereto) depending upon what is required to meet the requirements of 5 above. 7 Subject to 3-6 above, the Vendor shall undertake the Works at such time and in such manner as to enable the Tenant to operate the Premises with the minimum amount of disruption. Annexure C sets out a specification for Minor Works, which involves the repair of cracks using cold asphalt. Annexure D sets out a specification for Substantial Works, which is in accordance with a design proposed by one of Tzaneros's experts, Mr Davis, about which more will be said later. Clause 8 sets out a procedure by which the Vendor and Purchaser are to agree on whether work should be undertaken as Minor Works or Substantial Works and a mechanism for resolving any disputes in relation to that question and the methodology of the works by an independent expert.
Although the work to be undertaken under the Works Side Deed is expressed to be supplementary to the work to be undertaken under cl 65 of the Contract for Sale, it is apparent that Tzaneros is required to undertake the work identified in the Works Side Deed and to commence that work by no later than 31 December 2016. In addition, it is required to undertake the work set out in cl 65 if certain conditions are satisfied.

[11]

Design of the P2 pavement

AMT was engaged in late December 2002 or early 2003 by Walker, originally to prepare a preliminary design to assist with the preparation of the tender. No formal consultancy agreement was ever entered into. However, when Walker was successful in winning the tender, AMT's role was extended to include the design of the pavement in accordance with the Performance Specification, which formed part of the tender and which ultimately was incorporated into the D&C Contract. There is a question whether AMT was engaged by Walker or WGC, to which it will be necessary to return.
On 19 February 2003, after the tender had been awarded, AMT indicated in an email to Walker that, consistently with the Performance Specification, it proposed to use the guidelines for the design, construction and specification for industrial floors and pavements published by the Cement & Concrete Association of Australia known as "T48". Applying those guidelines, it proposed a preliminary design for the P2 pavement that involved 250 mm thick slabs "with normal shrinkage reinforcement" that were to be poured in 30 m x 30 m slabs and then divided by "saw cut joints" into 6 m x 6 m panels.
There were, however, difficulties in applying T48, since it did not provide charts for axle loads of the amounts contemplated. As a result, in preparing a Design Report dated 8 March 2004, AMT indicated that it had used three alternative methods for the design of the pavement. Applying those methods, AMT concluded that the thickness of the pavement should be between 260 and 270 mm (not allowing for dynamic factors) and 275 to 280 mm (allowing for dynamic factors). AMT also indicated that it had engaged the services of Professor Brian Shackel, an Associate Professor in Civil Engineering at the University of New South Wales, who was a well‑known engineer with expertise in industrial concrete pavement design, "to do any independent design using his own software" to verify the accuracy of AMT's solution.
Fielder engaged Golder Associates (P&O's geotechnical engineers) and through them Diamon Consultants to conduct an independent review of AMT's design. Based on advice from them, Fielder expressed some concerns with the design proposed by AMT and, in particular, the proposed thickness of the pavement. From that time until late May 2003, there was correspondence and at least two meetings between representatives of WGC, AMT, Fielder and P&O in an attempt to resolve the difference of opinion. It was AMT and WGC's final position that a pavement thickness for the P2 pavement of 280 mm to 290 mm was appropriate. On the other hand, the position taken by P&O and Walker was that the pavement thickness should be 380 mm. On 9 May 2003, Fielder wrote to Mr Ben Fairfax and Mr Chris Bulmer of "Walker" advising them that "P&O has stated that a minimum pavement thickness of 380mm is required for the P2 pavement and nothing less than this figure will be accepted". The letter also states: The contract between P&O and Walker's [sic] is Design and Construct and the responsibility for the design will remain with Walkers. In this regard, Walker's [sic] shall submit a full and comprehensive set of calculations for all pavement types for review and approval. A copy of that letter was handed to Mr Wright at a meeting on 14 May 2003.
Mr Wright wrote to Walker on 26 May 2003 providing comments on Fielder's letter dated 9 May 2003. That letter concludes by saying: If your client continues to direct that a 380 slab is the minimum acceptable thickness then we will consider that our office is documenting Fielder Engineers Pty Ltd design and will nominate same on our drawings.
In order to resolve the impasse, P&O suggested the appointment of Mr Ray Elliott, an engineer employed by Connell Wagner, as an independent reviewer of the design proposed by AMT.
On 5 June 2003, WGC, on behalf of itself and P&O, sent Mr Elliott a briefing document dated 4 June 2003. The briefing document included a statement by AMT setting out why its proposed design complied with the Performance Specification and supporting material and a statement from P&O setting out why the proposed design did not comply and material in support of that contention. Mr Elliott was asked to determine whether the proposed design "complies with the design intent of the performance specification" on two assumptions. One was on the basis of one high container stacking. The other was on the basis of two high container stacking. Mr Elliott was asked to reach his decision having regard only to the documents contained in the brief.
The instructions also contained the following: 4. Report 4.1 Please include in your response: (a) the facts and assumptions on which you have based your opinions; and (b) your reasons for each opinion expressed. 5. Further Design 5.1 If your report (or any subsequent report issued by you) concludes that the pavement design does not comply with the performance specification, WGC shall submit to you a further design in respect of the pavement. 5.2 Within two working days of any such further design, you are required to review that design and issue a report to both parties stating whether or not that design complies with the performance specification set out in Schedule 1. … 7. No liability 7.1 The parties agree that you do not assume any design risk or responsibility to WGC, P&O or any third party for the pavement design by reviewing the question raised in this brief or by providing your report or any subsequent reports.
Mr Elliott prepared a draft report dated 10 June 2003. The report did not address the questions specifically asked of him. Rather, it pointed out that the Design Specification was deficient in a number of respects and made a number of recommendations in light of that fact. Those recommendations included a recommendation that P&O confirm that it was appropriate to use a design method "based on the Pickett and Ray influence chart solutions of Westergaard equations for stresses in concrete pavements", which was one of the three alternative methods that had been used by AMT instead of T48. Mr Elliott also recommended that P&O confirm whether AMT should assume that all loads were the maximum specified for Omega 48D forklifts and should confirm "the magnitude of the dynamic loads and how these are to be applied". The report also made a number of recommendations concerning the way in which AMT should apply the recommended design method.
AMT replied to that draft report on 12 June 2003. The letter sought to explain why AMT had adopted the approach that it had. It pointed out that it had calculated axle loads "based on a 54D fork lift which weighs 70.4 tonnes in lieu of the 48D which weighs 63 tonnes". It also maintained that it had already complied with a number of Mr Elliott's recommendations in relation to the way it should apply the recommended design method and included additional calculations, which it said complied with a recommendation that AMT provide a justification for the adoption of the design flexural strength of the concrete used in AMT's computations together with a risk analysis if the concrete did not reach that strength.
P&O replied to the draft report on the same day. It said it was open to discuss alternative design methods. It said that the design should allow for fully laden and unladen forklifts only and that the dynamic loads that should be applied were: 1.2 for 50% of the passes 1.0 for 50% of the passes
There was then further correspondence between the parties in which AMT was critical of the approach that had been adopted. It claimed that the review process was being conducted in "a very non technical manner" (to quote from AMT's letter dated 19 June 2003) and it threatened to withdraw from the review process. Apparently in response to these concerns, a meeting was arranged on 25 June 2003 between Mr Elliott and representatives of P&O, Walker and AMT (including Professor Shackel). Mr Elliott prepared detailed minutes of that meeting, which were circulated in draft to the other participants for their comments. No one suggested that the minutes were inaccurate. The minutes record the following: Ray Elliott has been commissioned jointly by P&O and Walkers to advise both parties on compliance with design intent. [Connell Wagner] will not be responsible for the design and will incur no liability.
The minutes also record: At approximately 10.30 am, Messrs Nacey, Watt [both from P&O] and Thomas [from Walker] left the meeting, allowing Messrs Wright, Shackel and Elliott to continue with the resolution of the technical issues. As a result of these discussions, the following decisions were made and will be adopted for the pavement design for the project, subject to P&O and Walkers acceptance of these minutes.
In relation to design loading, it was agreed that "Peter Watt is to clarify this matter [that is, the design loading for the 48D forklift] with Clark and formally advise Walkers of the axle loads, tyre pressure and tyre spacing to be used in the design". In relation to dynamic load factors and wander factors it was agreed that unless otherwise notified by P&O "a dynamic load factor of 1.2 is to be applied in accordance with Clause 3.2 of the Performance Specification" and that wander factors were also to be applied in accordance with that clause.
In relation to the design method, the minutes record the following: It was agreed to adopt the Portland Cement Association design procedure that utilises this method [that is, the Pickett and Ray Influence Chart method] as prescribed in the PCA Engineering Bulletin EB050.03P "Design of Concrete Airport Pavement" by R.G Packard. This procedure is to be used strictly in accordance with the document and not varied without approval. The computer program based on this procedure can be utilised in preliminary design computations, but the finally selected design thickness must be verified by manual methods in accordance with EB050.03P. … Since an interior load case design procedure has been adopted, the requirements with respect to load transfer in all joints must be adhered to in accordance with Chapter 3 of EB050.03P.
In relation to load transfer, the minutes record: [AMT] indicated that it is the intention to construct the pavement in approximate 30m x 30m panels, subsequently sawn into 6m X 6m slabs. Square dowels are to be provided in all joints. The design of the dowels is to be in accordance with the method prescribed in pages 98-106 of the publication "Principles of Pavement Design" by Yoder & Witczak (2nd Edition 1975).
As is apparent from its title, the Packard publication was concerned with the design of airport pavements. Mr Wright was not familiar with the publication, but Mr Elliott was.
The reference to the size of the panels and slabs and to load transfer is significant. An individual panel of an un-reinforced concrete slab is strongest at its centre because at that point stresses can be dissipated in all directions. Consequently, if a specification is based on the load capacity at the centre of a panel, the design must incorporate a system for transferring that load from the edge of one panel to an adjacent one so that the specification is met at the panel edges as well. To some extent, the transfer of loads is achieved naturally by saw cut joints. Saw cut joints are made to allow for the normal shrinkage and thermal stresses in the concrete. The joints induce shrinkage and temperature related cracks to run along a controlled path following the joints. The joints can then be sealed with a sealant to prevent water penetrating into the sub-base or subgrade. The rough faces of the cracked concrete along the joints in certain circumstances provide a form of interlocking that assists in load transference. Load transference can also be achieved or enhanced by smooth metal bars called "dowels" running along and perpendicular to a saw cut joint. The size of the panels will also affect the transfer of loads.
The Packard publication did not suggest that any allowance should be made for dynamic loads and, on 30 June 2003, Walker wrote to AMT confirming that P&O had confirmed that "there will be no dynamic factors".
On 7 July 2003, AMT submitted a design to Mr Elliott based on the Packard publication. It appears from the design that AMT had confirmed that the load limit of a 48D forklift was 89,000 kg.
There was correspondence between Mr Wright and Mr Elliott concerning Mr Wright's calculations and, in particular, the manual counting of "blocks" in stress diagrams prepared in accordance with the Packard design method. Based on his own count, Mr Elliott, in an email dated 18 July 2003, proposed that a thickness for the concrete of 350 mm be adopted. Mr Wright accepted that suggestion and on 22 July 2003 sent Mr Elliott drawings showing joint details and dowel sizes for Mr Elliott's approval.
On 24 July 2003, Mr Watt of P&O sent an email to Mr Thomas at WGC in which he said among other things: I also confirm that P&O will adopt the pavement thicknesses that Ray [Mr Elliott] agrees to. P&O does not require the 380mm thickness to be constructed.
On the same day, Mr Elliott sent Mr Wright a fax commenting on dowel sizes. It appears that Mr Elliott and Mr Wright then spoke about that issue. Following that conversation, Mr Wright sent Mr Elliott an email in which he said: We acknowledge your advice that the issues raised are generally [for] our consideration and are not to be considered mandatory requirements rather items for us to consider and adopt if we consider it appropriate. You will not be however rejecting our design … if we do not adopt any of these issues. The email went on to explain a number of design decisions taken by AMT.
Mr Elliott replied to that email on 25 July 2003 saying that the information contained in the email was acceptable but that Connell Wagner was still evaluating alternative dowel sizes.
On 11 August 2003, WGC sent Fielder a variation claim for the provision of a band of the P2 pavement that was 14 metres deep commencing from the outermost tip of the warehouse awnings that was capable of bearing the weight of 2-high container loads. The variation was based on a proposal that the concrete in those areas would be an additional 10 mm thick. Fielder approved that variation on 14 August 2003.
There was further correspondence between AMT and Mr Elliott concerning dowel sizes. AMT proposed smaller dowels spaced more closely together than that indicated by Yoder & Witczak. Mr Elliott ultimately accepted that proposal but in doing so said in a fax dated 5 August 2003: Our agreement to the adoption of the smaller dowels at closer spacings is therefore based purely on acceptance of the detailed computations as representing a theoretically equivalent dowel system, and not on demonstrated equivalent field performance. The adequacy of the dowel system is therefore placed solely at the responsibility of the designer who has departed from traditional dowel sizing. In cross-examination, Mr Wright accepted that in proceeding to complete the design the adequacy of the dowels was his sole responsibility.
Subsequently, on 7 August 2003, Mr Elliott gave his approval in an email to drawings prepared by AMT, although he suggested some changes, the most significant of which was the inclusion of reinforcing in some slabs including those that were irregular in shape or that contained mismatched joints. It is apparent from later drawings prepared by AMT that AMT accepted that advice.
At a site meeting held on 12 August 2003, Fielder recorded the following in relation to the external pavements: • P2 pavements 350mm approved by Ray Elliot [sic]. WGC to forward set of design drawings to FE [Fielder]. Only confirmation from Ray sent by email WGC [sic] expecting final report from Ray. • P2 pavements - 2 high stacking Finalised at 360mm.
On 23 September 2003, WGC wrote to Fielder claiming an extension of time because of the delays in finalising the design of the P2 pavement. That letter also contained the following statement: The design method instructed by P&O is not a one that WGC or Alan Wright & Associates proposed to adopt as the primary method of our pavement design proposal. The exclusion of other well-recognised heavy-duty pavement design methods, which our design consultant is more familiar with, has been to WGC's disadvantage. The independent expert appointed clearly had considerable experience with this method and as such the design was not produced in a way that WGC's structural consultant, Alan Wright & Associates are prepared to warrant. As such WGC is not prepared to warrant the pavement design for the 20-year design life period required by P&O.
There was correspondence between P&O and WGC in relation to that issue. Eventually, on 6 November 2003, WGC wrote to P&O confirming that it was prepared "to warrant the pavements on the Project for a 20-year design life from both a design and construction perspective" subject to a number of conditions. Those conditions included that P&O would pay certain variation claims and would not claim any liquidated damages for the delay in laying the pavements. P&O accepted those conditions on 12 November 2003.
In the meantime, on or about 3 October 2003, AMT issued "for construction drawings". Those drawings contain the following notation: NOTE: THE SLAB ON GROUND DESIGNS DOCUMENTED ON THESE DRAWINGS HAVE BEEN PREPARED AT THE DIRECTION OF CONNELL WAGNER PTY LTD 'DESIGN METHODS AND DESIGN CRITERIA WERE CHOSEN BY CONNELL WAGNER' THIS OFFICE ACCEPTS NO RESPONSIBILITY FOR THE DEFICENCIES IN THE DESIGN METHODS, DESIGN CRITERIA NOR FOR THE ECONOMY OF THE DESIGN Mr Elliott did not see the "for construction" drawings at the time.
Mr Elliott issued a final report dated 20 November 2003. The report simply set out the history of Connell Wagner's involvement in the design of the pavements.
The concrete was poured in late 2003 and early 2004. AMT issued at least two certificates to Walker in connection with that work. The certificates were in a similar form. They confirmed that "[T]his office has prepared the structural design for reinforced concrete footings, reinforced concrete slabs on ground, suspended slabs, structural steelwork and external paving" for the project and that if the work was undertaken in accordance with that design it would comply with certain specified Australian Standards. A certificate dated 6 January 2004 also confirmed that "[W]e have performed engineering inspections during construction until the above date and can certify that, with the exception of minor defects the works at the time of the inspections were generally in accordance with the drawings listed below". Those drawings included the "for construction" drawings.
At some stage P&O was provided with a copy of the "for construction" drawings. In April 2004, it took issue with the disclaimer they contained. In a letter dated 7 May 2004, Minter Ellison, who were acting for WGC in relation to the finalisation of the construction contract, agreed to the removal of the note. Nothing, however, was done in that regard. According to Mr Wright, the issue of removing the disclaimer was not raised with him until AMT included the disclaimer on "as built" drawings which AMT provided to Walker at Walker's request in October 2004. After receipt of those drawings, Mr Thomas of Walker asked Mr Wright to remove the disclaimer. Mr Wright agreed to do so. Subsequently, the drawings were issued with the following notation: THE SLAB ON GROUND DESIGNS DOCUMENTED ON THESE DRAWINGS HAVE BEEN PREPARED IN ACCORDANCE WITH PORTLAND CEMENT ASSOCIATION DESIGN PROCEDURE AS DETAILED IN PCA ENGINEERING BULLETIN EB 050.03P DESIGN OF CONCRETE AIRPORT PAVEMENTS" BY RG PACKARD.
AMT sent three invoices for its work in relation to the design of the pavement. The first was dated 11 August 2003 and was for $82,000 plus GST. The second, dated, 21 November 2003, was for $25,000 plus GST and the third, dated 21 July 2004, was for $24,000 plus GST. Each invoice was addressed to WGC and was paid, although by whom is unclear.

[12]

Development of cracks in the pavement

Cracks began to develop in the P2 pavement shortly after it was poured and before practical completion of stage 2, which occurred in April 2004. The cracks have worsened over time, both in terms of the number of panels affected and the severity of the cracking and spalling. Initially, it was thought that the cracking was not structural. However, by the time that the Terminal was sold to Tzaneros in December 2005 it was apparent that a number of the cracks were structural.
Initially, P&O attempted to repair the cracks using epoxy. However, those repairs lasted for only a short period of time. In 2007, Industrial Commercial Property Solutions Pty Limited (ICPS Pty Ltd), who had been engaged by Tzaneros as the project manager for stage 3 of the Terminal, replaced and repaired a number of the cracked panels on instructions from WGC at no cost to Tzaneros.
ICPS also obtained a draft report dated 5 September 2007 from Costin Roe Consulting Pty Ltd, a firm of consulting engineers, concerning the cracking. Their draft report suggested that there was "no evidence of pavement failure due to inadequate structural thickness design or pavement overloading", although it did suggest that Tzaneros use the Omega 48D forklifts rather than the 54D. It recommended that the cracks be repaired with various types of epoxy. The draft report concluded: Ongoing maintenance for pavement joints is normal required practice and is important in maintaining good pavement performance throughout the pavement life. In this case additional maintenance is required because of the cracks. In effect the repaired cracks will become [sic] of the normal pavement joint maintenance regime.
Following the initial repairs and the receipt of the report from Costin Roe, WGC did not undertake any further repairs.
The repairs using epoxy were not effective. As a result, in about 2008 Tzaneros started using cold asphalt, which it has found was more effective. Since that time it has made repairs using cold asphalt once or twice a week.
On 9 April 2009, Tzaneros's solicitors wrote to WGC and other companies in the Walker group demanding that they repair the pavement. Walker responded on 22 April 2009 denying liability on the ground that "P&0 have failed to maintain and use the pavements in accordance with the construction contract". Tzaneros then instructed Fielder to prepare a report on the state of the pavement with the intention of using information from that report in court proceedings. It commenced this proceeding on 30 September 2009.
In late 2011, Tzaneros engaged Statewide Civil Pty Ltd to replace with re-enforced concrete a number of panels that were most seriously affected with cracking and spalling. It paid Statewide Civil $419,388.20 for that work. A number of the replacement panels have developed cracks and there is a question concerning the effectiveness of those repairs.
In late 2014 and early 2015, Statewide Civil replaced a number of additional panels outside warehouse 4, again using a system of re-enforced concrete. The total cost of that work was $114,797.54.

[14]

Is Tzaneros entitled to sue for breach of the warranties contained in the D&C Contract?

WGC's primary contention in relation to this issue is that the assignment by its terms was only effective to assign the contractual right of performance under the D&C Contract. It was not effective to assign any cause of action that had already accrued in respect of the contract at the time the assignment took effect. In its final written submissions, WGC sought to characterise that distinction as a distinction between the assignment of rights in respect of latent defects (which were assigned) and the assignment of rights in respect of patent defects (which were not). However, they are not the same thing. A cause of action for breach of warranty arose at the time of breach, not at the time damage was suffered. Consequently, if WGC is right, the assignment did not include warranty claims in respect of the defective concrete whether or not those defects were patent at the time of the assignment.
WGC accepts that, in principle, accrued causes of action could have been assigned, but in its submission the language of the assignment in this case was not broad enough to achieve that result. It submits that that conclusion is supported by the negotiations between the parties in relation to the assignment, which in turn raises the question whether those negotiations are admissible in relation to that issue.
Originally, it was proposed that the parties, including WGC, would execute a deed to give effect to the assignment. A draft deed was prepared by Tzaneros's solicitors. It provided for the assignment of the "Building Warranties" and defined "Building Warranties" in these terms: Building Warranties has the same meaning ascribed in the Sale Contract and for avoidance of doubt includes any cause of action arising out of or in any way connected to a breach of the Building Contract, Trade Practices Act or other law or obligation to which the Assignee [Tzaneros] has an interest. Ultimately, WGC refused to be a party to the deed and a different definition of "Building Warranties" was adopted.
WGC submits that by adopting a different definition of "Building Warranties" which did not include the italicised words in the definition quoted above, the parties intended to narrow the scope of the assignment to exclude causes of action arising out of the Building Contract. WGC submitted that the deletion of those words was admissible as evidence of the parties' intention in accordance with the following passage from the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 353: There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal.
In my opinion, the possible exception identified by Mason J has no application in this case. There is no evidence that the parties refused to adopt the definition of Building Warranties in the original draft deed so as to reject the idea that the assignment included an assignment of accrued rights. The original draft included a reference to causes of action "for avoidance of doubt". Even assuming that the draft is admissible on the basis of the exception identified by Mason J, the parties' decision to change the definition is equally consistent with a shared belief that the rejected words were unnecessary.
The assignment of the warranties occurred in a context where P&O and Tzaneros knew that there had been cracking in the pavement and they must have contemplated the possibility that that would give rise to a claim for breach of warranty against WGC. The pavement was an important part of the Terminal. The assignment must be interpreted in that context. What was assigned was "all of the benefit of the Building Warranties". The "Building Warranties" included "the building warranties provided by, or imposed by law upon, Walker Group Constructions Pty Ltd …". In my opinion, the ordinary and natural meaning of the words "all of the benefits of the Building Warranties" included the right to sue in respect of breaches that had already occurred. That right was one of the benefits of the warranties. If WGC is correct, the assignment was ineffective to assign any rights in respect of cracks in the pavement, since any claim in respect of that had already accrued. It is to be expected that if that is what the parties had intended they would have said so specifically.
WGC submits that it did not consent to an assignment in such broad terms. Its consent to the assignment was a consent to the assignment of "the building warranties to [Tzaneros] from the sale date". That was a consent to the assignment of the warranties as they operated from the sale date, not the assignment of rights that had already accrued. In my opinion, there are two difficulties with that submission. First, the consent given by WGC cannot affect the scope of the assignment. Either WGC consented to the assignment or it did not. The clear intention of its letter was to operate as a consent. The letter expressly states that in accordance with cl 9.1 of the D&C Contract WGC gives its consent to the assignment. Second, the reference in the letter to "the date of sale" is not to be interpreted as placing a limit on the consent insofar as the scope of the assignment is concerned. Rather, its intention was to identify the date from when the assignment was to take effect. That date was obviously important to WGC because it would want to know in relation to an alleged breach when it should cease dealing with P&O and start dealing with Tzaneros.

[15]

Has Tzaneros suffered any loss as a consequence of the breaches or warranty?

WGC submits that Tzaneros has not suffered any loss, relying on the decision of the Court of Appeal in Allianz Australia Insurance Ltd v Waterbrook at Yowie Bay Pty Ltd [2009] NSWCA 224. In that case, Ipp JA (with whom Hodgson JA agreed; Giles JA dissented on the point) said (at [110]): In my opinion, … a successor in title who acquires a building in full knowledge of its defects, suffers no loss from the existence of those defects. In those circumstances, the builder's breach of statutory warranty could not be said to have diminished the successor's assets, nor increased its liabilities. Any adverse impact to the successor's financial position, and any loss to the successor, would result from the successor knowingly and deliberately paying more for the building than it was worth. The loss would be caused by the successor's own decision to purchase at the agreed price.
However, in my opinion, that principle does not apply in this case. In Allianz, there had been no assignment of the relevant warranties. Rather, the effect of the Home Building Act 1989 (NSW) was to impose on the builder warranties in favour of subsequent purchasers of the property. The question in that case was what loss Waterbrook as subsequent purchaser of the building in question had suffered in its own right as a result of the breaches of warranty by the builder. The majority held that Waterbrook had suffered no loss in respect of defects of which it had full knowledge at the time it bought the property because it must be taken to have agreed a price for the property based on that knowledge. In the present case, however, the warranties were assigned with the property. Tzaneros does not sue in respect of obligations owed to it in its own right but in respect of rights assigned to it as part of the sale of the Terminal. In the absence of any other evidence, it is to be inferred that the price that was agreed reflected the fact that the warranties were being assigned at the same time. In those circumstances, it could not be said that Tzaneros suffered no loss in respect of the breaches of warranty.
In any event, Tzaneros did not have full knowledge of the defects at the time it acquired the Terminal. The relevant knowledge is the knowledge of Mr Terry Tzaneros. Mr Terry Tzaneros's evidence was that the first time he knew that there was a structural problem with the pavement was when he received a letter dated 25 July 2006 from WGC enclosing a report from Mr Wright. The letter stated: The issues raised [with the cracking] can partly be attributed to either a design or construction related issue. These particular issues are being attended to by Walker's via several repair methods of which details have been previously sent to you. Even then, there was nothing in the letter or covering report suggesting that the cracking was the result of a serious design flaw in the pavement affecting all the panels.
I accept Mr Tzaneros's evidence that he did not know that the pavement suffered a design defect at the time that Tzaneros acquired the Terminal. His evidence is entirely consistent with what he was being told at the time. Mr Rudge SC, who appeared for WGC, properly conceded in final submissions that Mr Tzaneros did not have knowledge of the fact that there was a design defect in the pavement at the time Tzaneros acquired the Terminal. Consequently, even if the principle stated in Allianz applies to cases where the relevant warranty is assigned, a condition of its application was not satisfied in this case.

[16]

Calculating Tzaneros's loss

Generally speaking, the innocent party is entitled to recover as damages the cost of rectifying the defects, and not simply the difference in value of the relevant property with and without the defects. As the High Court explained in in Bellgrove v Eldridge (1954) 90 CLR 613 at 617: 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 her the equivalent of a building on her land which is substantially in accordance with the contract.
An exception to this principle exists where it would be unreasonable to rectify the defects in question. But as the High Court pointed out in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 at 288, the test of unreasonableness "is only to be satisfied by fairly exceptional circumstances" such as where the innocent party is "merely using a technical breach to secure an uncovenanted profit" or, to use the words of Ipp JA in Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 at [120], where "the cost of remedying the defect is out of proportion to the achievement of the contractual objective".
In the present case, the design experts retained by Tzaneros and WGC (none was retained by AMT) agree that the design of the P2 pavement was defective in the sense that it could not sustain the contracted-for level of traffic over the 20 year period specified in the D&C Contract. In their joint report, they identify four principal defects in the design of the pavement. The first was inadequate thickness of the concrete (given the selected slab size and joint details). The second was the joint details, which relied too heavily on aggregate interlock and which were inadequate to transfer the specified loads. The third was the joint spacing. In their opinion, having regard to the channelised nature of the traffic, the maximum slab size should have been 3.8 m2 in accordance with the Packard design methodology that was adopted. Fourth, it was inappropriate to use sand as a sub-base. In their opinion, water infiltration as a result of the cracking and consequent "pumping" of the sand to the surface contributed to some of the observed defects in the pavement.
The primary position of Tzaneros is that each of the panels suffers from the identified defects. As a result, a large number of panels have suffered from serious cracking and spalling and the cracking and spalling has increased substantially over time. The panels which have not so far manifested cracks may, if they continue to be subject to the loads to which the pavement has been subject or are subjected to loads consistent with the design specifications, crack within the next nine or so years (the remainder of the design life of the pavement). Consequently, all the panels must be replaced to give Tzaneros a pavement that conforms to the contractual specification.
That submission is largely consistent with evidence given by Professor Roesler and Mr Davis, the design experts engaged by Tzaneros. However, in the joint expert report prepared by the design experts, Mr Davis expressed the opinion that, if regard is had simply to the nature and extent of the current damage and its severity, it was not necessary to replace all the panels. Rather, the damaged panels would need to be replaced and an allowance would need to be made for the replacement of some additional panels. Following cross-examination on that evidence, Mr Davis produced a set of diagrams showing precisely the panels that would need to be replaced consistently with his evidence. The diagrams divide the panels into a number of categories. First, there are those that are damaged and need to be replaced immediately with concrete that is 350 mm or 360 mm thick. Second, there are those panels where an allowance should be made for possible future replacement of panels (again, which are 350 mm or 360 mm thick). Third, there are those panels that were previously replaced to Statewide Civil's specifications. Lastly, there are those that were replaced to ICPS's specifications.
Mr Davis proposes that the pavement be replaced by a reinforced pavement with a 100 mm subgrade of crushed rock (replacing a 75 mm subgrade of course ground sandstone and a 25 mm sand sub-base). There is no doubt that such a pavement would meet the contractual specifications. Indeed, there is some evidence that a reinforced pavement constructed according to Mr Davis's design could last for up to 50 years if subjected to the loads of the current pavement.
According to Mr Davis, a design based on reinforced concrete would have three additional advantages. First, the pavement could be laid in stages in slabs of any size and shape. That would permit the pavement to be replaced in accordance with a program prepared by Mr Arthur Tzaneros, which would allow the Terminal to continue to operate during that time. Under that program, two or three sections of the pavement would be replaced each weekend over a six to nine month period. Second, Mr Davis's design would mean the new pavement could be the same thickness as the one it replaces. Third, the newly laid pavement could be used sooner if designed to Mr Davis's specifications than if it were designed in a way that did not use reinforcement.
Based on evidence given by Mr Sturgess, an expert quantity surveyor retained by Tzaneros, Tzaneros claims that the cost of replacing the whole of the P2 pavement in accordance with Mr Davis's design is $14,819,256.72. The cost of replacing those panels that Mr Davis says require immediate replacement together with those panels in respect of which an allowance should be made for possible future replacement is $9,071,116.31. Both those figures include the cost of replacing the panels previously replaced in accordance with the design prepared by Statewide Civil. According to the evidence given by Mr Sturgess, the costs of replacing those panels are $737,577.77.
WGC takes issue with Tzaneros's case on damages in a number of respects.
First, WGC submits the principle stated in Bellgrove v Eldridge has no application in this case because of the sale to Tzaneros. According to WGC, the principle only applies where the original owner is seeking to recover damages for the failure of the work to meet the contractual specification, which is not this case. In addition, WGC submits that in this case Tzaneros acquired the Terminal at a very substantial discount to the value of the property at the time of acquisition and there is no evidence that the defect has affected the operation of the Terminal.
Second, based on expert evidence given by Dr Baigent, the design expert engaged by it, WGC disputes that all the panels need to be replaced. Dr Baigent divides the defective panels into five categories. Category 1 consists of panels with no damage. Category 2 consists of panels with minor shrinkage cracking and minor spalling at the joints. Category 3 consists of panels with structural cracking with relatively small crack widths and "no evidence of further degradation of the panel". Category 4 consists of panels with significant structural cracking over the full depth of the slab "but with the panel in a stable condition and not exhibiting degradation in relation to differential subsidence and rotation". Category 5 are panels with significant structural cracking that are in an unstable condition. According to Dr Baigent, panels falling within category 5 (of which there are 66) will need to be replaced in the near future. Not all panels falling within category 4 (of which there are 182) will need to be replaced over the remaining specified life of the pavement. In Dr Baigent's opinion, an allowance should be made for the replacement of 20 percent of the panels. In his opinion, none of the other panels will require "Substantial Works" in the next nine years. WGC also submits that the condition of the pavement has not affected the operation of the Terminal, which is said to support the conclusion that it would be unreasonable to replace the whole of the pavement.
Third, WGC takes issue with Mr Davis's design. If damages are awarded based on that design, WGC submits that there should be a reduction in those damages for betterment - that is, for the fact that Tzaneros will end up with a better pavement than the one WGC was required to supply under the D&C Contract. Alternatively, relying on evidence given by Dr Baigent, WGC submits that the panels requiring replacement could be replaced with panels designed in accordance with the Packard design methodology, which would be a cheaper alternative to the reinforced panels proposed by Mr Davis.
Fourth, relying on evidence given by Mr Radcliffe, a quantity surveyor retained by WGC, WGC takes issue with Mr Sturgess's costings on a number of grounds.
Fifth, WGC relies on the sale of the Terminal to TCAL. It submits that Tzaneros's loss can be no greater than the cost it incurs in repairing the pavement in accordance with its obligations to TCAL under the Works Side Deed and Contract for Sale.
In addition to these points, Mr Munn, an expert in pavement construction engaged by AMT expressed the opinion in a joint report prepared by pavement construction experts engaged by the parties, that approximately 15 percent of the damage to the pavement was caused by the use of Omega 54D forklifts, that approximately 50 percent of the damage was caused by four high stacked containers and that approximately 1 percent was caused by the trafficking of overloaded containers. Dr Baweja, an expert in pavement construction engaged by WGC, expressed no opinion on those matters, but did estimate that not less than 20 percent of the damage was caused by a lack of maintenance of the pavement. Although neither WGC nor AMT submitted in final submissions that these matters were relevant to the assessment of damages, those points had been raised in earlier submissions or in defences as being relevant to the question of the defendants' liability and it will be necessary to say something further about them.

[17]

The application of Bellgrove v Eldridge

Once it is accepted that the assignment of the warranties to Tzaneros was effective to assign accrued causes of action, it is difficult to see how the assignment to Tzaneros could affect the application of the principle in Bellgrove v Eldridge. This is not a case in which P&O, having sold the Terminal, is nonetheless seeking to recover damages for breach of warranties originally given to it. Rather, it is a case where, as a result of the assignment, Tzaneros is placed in the shoes of P&O and is seeking to recover damages from WGC as if it were P&O. Given that, it would be odd if the basis on which Tzaneros was entitled to recover damages changed merely because of the assignment of the Terminal and the warranties to it. There may be a question whether Tzaneros could recover any more than P&O as a result of the breach of warranties, but that question does not arise in this case. All Tzaneros is seeking to recover is the cost of replacing a pavement which does not meet the contractual specification. There can be little doubt that if there had been no assignment and that claim had been brought by P&O, P&O would have been entitled to recover damages on that basis. It is difficult to see why the position should change because of the assignment of the Terminal and warranties, having regard to the terms of the assignment.
In this context, the parties referred to a number of decisions that have held that an assignment of the relevant property does not affect the original owner's ability to recover damages on the basis of the principle in Bellgrove v Eldridge: see, for example, Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462; Bannister & Hunter v Transition Resort Holdings (No 3) [2013] NSWSC 1943 at [308]-[315] per McDougall J. That principle, and its scope, and those cases may be relevant to the subsequent sale to TCAL. However, they have no application to the sale to Tzaneros, where the sale included an assignment of the warranties and it is Tzaneros that is suing for a breach of those warranties.
There is no evidence that Tzaneros acquired the Terminal at a substantial discount. The submission that it did depends on a valuation which ultimately was not admitted into evidence. In any event, whether Tzaneros acquired the Terminal for less than its true value seems to me to be irrelevant to the damages that can be recovered from WGC in this case. The nature of the assignment in this case is that Tzaneros is to be put in the shoes of P&O and is to recover the amount that P&O would have recovered if the Terminal still belonged to it and the warranties had not been assigned. The price that Tzaneros paid for the Terminal is irrelevant to the determination of that amount.
It is not entirely clear how it is said that the fact that the defects in the pavement have not affected the operation of the Terminal is relevant to the recovery of damages. Leaving the assignments aside, even WGC accepts that some panels should be replaced. Consequently, it does not appear to be submitted that it would be unreasonable to permit Tzaneros to recover on the Bellgrove v Eldridge standard because the defects have not affected the operation of the Terminal. In any event, in my opinion the defects have had a significant effect on the operation of the Terminal. Tzaneros has had to engage in substantial repairs of the pavement to permit the Terminal to continue to operate. Mr Arthur Tzaneros gave evidence that ACFS has incurred higher costs in operating the Terminal as a result of the defects because forklifts were required to operate at slower speeds over the damaged pavement. That evidence is consistent with what could be observed on a view of the Terminal, and I accept it.

[18]

Which panels need to be replaced?

I do not accept the evidence of Dr Baigent on this issue for a number of reasons.
First, as Professor Roesler and Mr Davis point out, Dr Baigent's classification of the panels is really nothing more than a statement of the condition of the panels at a particular point in time. Although Dr Baigent purports to make predictions about the future deterioration of the pavement (20 percent or less of the panels in category 4 will deteriorate to the point where they need replacement within the next nine years, but none of the panels in categories 1, 2 and 3 will do so), he offers no explanation for why that should be so other than his personal assessment. Dr Baigent does not, for example, analyse the rate of deterioration of the pavement as a means of predicting future deterioration or give any explanation of the properties of concrete pavements that might suggest that that rate would increase or decrease over time. At an early stage, none of the panels fell within category 5. As a result of deterioration over the past 11 years a substantial number now do. It is not clear why that situation should not continue and that panels that appear to be stable now should not worsen. During the course of the hearing, Dr Baigent did produce a document that showed the number of category 4 panels showing continued cracking as a percentage of category 4 panels and as a percentage of all panels and a similar table for category 3 panels. However, those tables were of limited assistance in understanding the rate of deterioration of the pavement as a whole.
Second, I accept Mr Davis's criticism that the distinctions between Dr Baigent's categories are somewhat arbitrary and difficult to maintain. For example, as Mr Davis points out, it is difficult to see how the distinction between category 4 and category 5 panels can be maintained. Category 4 panels are panels that display significant structural cracking over the full depth of the slab. It is difficult to see how those panels could be described as stable. But if they are not, it is difficult to see why they should not be put in category 5.
Third, Dr Baigent's assessment relies on a visual inspection of the pavement. However, that visual inspection can only reveal surface cracking and spalling. It cannot, for example, reveal structural problems that have their origins below the surface of the pavement or provide information relating to the future serviceability of those panels.
Fourth, Dr Baigent's approach is not consistent with the contractual specification. The contractual specification requires that the pavement have a minimum life of 20 years with acceptable maintenance. The design experts in their joint report rightly conclude that that means that the pavement "should not suffer significant fatigue cracking within the 20 year design life period" so that "at the end of the 20-year design period, the Pavement could be expected to have a reasonably low level of cracking and still provide some level of service". However, if an allowance is only made for the replacement of 20 percent of the category 4 panels over the next nine years, the pavement will be subject to more than an acceptable level of maintenance. Moreover, if only category 5 and 20 percent of category 4 panels are replaced, it is far from clear that at the end of the 20 year period the pavement will be in a state where it can be used at all.
Fifth, Dr Baigent appears to assume that there will be no change to the use of the Terminal over the next nine years. There is, however, no basis for that assumption. There is some evidence that the Terminal is becoming busier with the result that the pavement is or will be subjected to increased stresses. It is quite possible that over the next nine years there will be changes in traffic flows with the result that some undamaged panels will be subjected to stresses to which they have not been subject to date causing them to crack.
That leaves the question whether all the panels should be replaced. Both during the course of the hearing and in final submissions, WGC placed considerable emphasis on what was taken to be a concession by Mr Davis that not all the panels need to be replaced. But the difficulty with that concession is that it was made on an incomplete assumption. It was made on the basis of the physical state of the pavement at present. All Mr Davis was saying was that looking at the current state of the surface of the pavement, not all panels need to be replaced immediately, and some may never need to be replaced. However, Mr Davis's primary position was that the whole pavement should be replaced because the whole pavement was defective in the sense that the design could not withstand the contracted-for loads. His concession must be understood in that context.
The question in accordance with the principle stated in Bellgrove v Eldridge is whether there are parts of the pavement that it would be unreasonable to replace. In my opinion, it would be reasonable to replace any part of the pavement that has been or might be the subject of the loads specified in the D&C Contract, since it is clear that the current pavement is not designed to bear those loads. It would, however, be unreasonable to replace parts of the pavement that have not been subjected and are not likely to be subjected to those loads over the next nine years. In my opinion, the only parts of the pavement that fall within that category are the areas under the awnings of the warehouses.
Not surprisingly, the areas of the pavement that are the worst affected are those that are the subject of the heaviest use. Laden forklifts tend to follow particular paths with some degree of wander; and in accordance with current systems, laden containers are stacked in particular areas. However, it is to be expected that forklifts will depart to a greater or lesser degree with varying degrees of frequency from paths that are used the most, and it seems to me that there is a realistic possibility that systems of work will change over time in response to different demands on the Terminal with the result that different parts of the P2 pavement will be subject to different levels of stress. For that reason, in general, it would be reasonable to replace the whole of the P2 pavement.
The areas under the awnings, however, are in a different position. The forklifts used to transport containers are too high to operate under the awnings. As a result, there is no realistic prospect that the areas under the awnings will be used to transport or store laden containers. The awnings would have to be removed or the warehouses themselves demolished to permit that to happen. It was open to Tzaneros to lead evidence of the likelihood of that happening, but it did not do so. In the absence of any evidence, in my opinion, there is not a realistic possibility that the Terminal will be altered in such a radical way over the next nine years. The likelihood is that changes of that type would only be part of a redevelopment of the Terminal; and there is no reason to think that that would happen over the next nine years. Indeed, the fact that the pavement was to have a design life of 20 years suggests that it was expected that there would not be a major redevelopment of the Terminal during that time. It follows that to require WGC to bear the costs of replacing the panels under the awnings would be, to use the words of Ipp JA in Scott Carver "out of proportion to the achievement of the contractual objective".
In addition, in my opinion, Tzaneros is not entitled to recover the costs of replacing panels that have already been replaced, although it is entitled to recover the original costs of replacement. It was not suggested that WGC bore any responsibility for the replacement panels. Those panels were laid to correct the most serious defects in the pavement at the time. It was not suggested that it was unreasonable to replace those panels or that the costs of doing so were excessive. Consequently, in accordance with the principle stated in Bellgrove v Eldridge, Tzaneros is entitled, subject to any other defence, to recover those costs. However, to the extent that the replacement panels are themselves defective, Tzaneros is not entitled to recover the costs of replacing them from the defendants. Any defects in those panels are not the defendants' responsibility.

[20]

Betterment

In determining whether a discount to an award of damages is appropriate on the ground of betterment, each case must be considered on its own facts: Harbutt's 'Plasticine' Limited v Wayne Tank and Pump Co Limited [1970] 1 QB 447 per Widgery LJ at 472-3; Paper Australia v Ansell [2007] VSC 484 at [369]. In addition, in considering the facts of a particular case, the court must have regard to two countervailing policy considerations. On one hand, the court is concerned not to award to a successful plaintiff a windfall to which he or she is not entitled: Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency [2001] NSWCA 313 per Meagher JA at [22]. On the other hand, the court takes into account the potential inconvenience that a plaintiff may be placed under where a discount for betterment is made, by being in effect forced to undertake unplanned capital expenditure as a result of the defendant's wrongful conduct: Harbutt's 'Plasticine' Limited v Wayne Tank and Pump Co Limited [1970] 1 QB 447 per Widgery LJ at 473.
In Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333, Hodgson JA summarised some of the applicable principles in these terms: [261] First, if a plaintiff chooses to acquire a more valuable asset than that which had to be replaced, where the plaintiff could for a lesser expenditure have acquired an asset that would have been as satisfactory as that replaced, the plaintiff cannot recover more than that lesser expenditure: British Westinghouse Electric & Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd. [1912] AC 673. [262] Second, even if there is no alternative available to a plaintiff other than to acquire a more valuable asset, a plaintiff may have to give credit reflecting the greater value of this asset to the plaintiff, if there is a benefit to the plaintiff which is not remote in time or speculative, and which can be quantified. ... [263] Third, where any benefit received by the plaintiff is considered as not truly caused by the defendant's conduct and expenditure undertaken in consequence of it (and paid for by the defendant), but rather considered as being collateral, no credit is given for it: Monroe Schneider Associates (Inc) v. No.1 Raberem Pty. Ltd. (1991) 33 FCR 1. [264] Fourth, although the plaintiff has the general onus of proof of damages, there can be legal or at least evidentiary onuses cast on the defendant.
A discount on the ground of betterment is likely to be appropriate where the plaintiff has had machinery or other property used for a commercial purpose replaced with property of greater efficiency or productivity, resulting in increased profits for the plaintiff: British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673. A discount is also likely to be appropriate where the replaced or repaired property is a "marketable commodity" that has been or is likely to be sold in the near future, as this would realise for the benefit of the plaintiff any increase in value due to the replacement or repair of the damaged or defective property: Hoad v Scone Motors Pty Ltd [1977] 1 NSWLR 88 at 93 per Moffitt P.
On the other hand, if the benefit said to accrue to the plaintiff is not quantifiable, is too remote in time, or could be considered to be merely speculative, a discount on the ground of betterment is less likely to be appropriate: Harbutt's 'Plasticine' Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447, see also Tyco Australia v Optus Networks at [262] per Hodgson JA. In Hyder Consulting (Australia) v Wilh Wilhelmsen Agency [2001] NSWCA 313, a defective pavement with a life expectancy of twenty years collapsed after four years. In reaching the decision that a discount for betterment would not be appropriate in that case, Sheller JA said that it was no more than a "speculative proposition that the new pavement might last longer than the old one would have" (at [55]).
It may be appropriate for any reduction in damages itself to be adjusted where the benefits that make the discount appropriate will only become available at some point in the future or are not certain to eventuate: Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 per Hodgson JA at [262]. In that case Hodgson JA did not consider a discount for betterment appropriate but noted in obiter that even if he had been, "the deduction from damages would have been substantially less than 50%, because the benefits would have become available between four and eight years in the future, and been less than 100% certain". In the New Zealand case of J & B Caldwell Ltd v Logan House Retirement Home Ltd [1999] 2 NZLR 99 (referred to by Sheller JA in Hyder Consulting at [51]-[52]), Fisher J made an adjustment to a discount for betterment to take into account disadvantages to the plaintiff "associated with the involuntary nature of the additional investment" (at 107).
In my opinion, it is not appropriate to make a discount for betterment in this case. I say that for two principal reasons.
First, in my opinion, any benefit that Tzaneros obtains from a reinforced pavement is speculative. The evidence is that a reinforced pavement would last substantially longer than the remaining nine years of the specification of 20 years, and possibly as long as 50 years. However, the specification was for a pavement that lasted a minimum of 20 years with acceptable maintenance. As I pointed out earlier, consistently with that specification, it is to be expected that the pavement could continue to be used after 20 years. Moreover, in order to assess whether there is betterment, it is necessary to compare the life of the replacement pavement with the life of a properly designed pavement using the Packard method. There is no evidence concerning the life of such a pavement nor of the costs of laying a pavement that complied with that design. This is not a case where the plaintiff is proposing to pay more to get a pavement that will last longer than the one it would have got if the pavement had been correctly designed. All that can be said is that for a cost that may be comparable, it is obtaining a pavement that will last longer than the minimum specified time. It is true that it has had the benefit of the old pavement for 11 years. But during that time it has incurred costs in repairing that pavement and it has suffered losses in terms of increased operating expenses. If the benefits associated with the 11 years are somehow to be brought to account, then so should the costs and losses.
Second, the parties accept that the pavement must be replaced in a way that allows the Terminal to continue to operate. The costs of closing the Terminal while the pavement is replaced would exceed any additional cost of carrying out the work in a way that permitted the Terminal to remain open. I accept Mr Davis's evidence that a reinforced pavement is the best means of ensuring that the Terminal can operate with minimum disruption while the work is carried out. A reinforced pavement can be laid in any shape or size and does not depend on load transference for its structural strength. It also relies on concrete compressive strength rather than concrete flexural strength. The latter develops over a longer period of time. As a result, a newly laid reinforced pavement can be used sooner than one that is not reinforced. In addition, according to Mr Davis's evidence, which I accept, there are fewer risks associated with laying a reinforced pavement because a pavement of that type does not give rise to difficulties in dealing with load transference between panels that are replaced and those that are not. Consequently, to the extent that the pavement proposed by Mr Davis is better than the one required by the D&C Contract, that comes about not as a consequence of any choice by Tzaneros but as a result of WGC's own breach and the need to rectify that breach in a way that permits the Terminal to remain open.

[21]

The cost of replacing the pavement

Both Mr Sturgess and Mr Radcliffe gave evidence of the cost of replacing the pavement in accordance with Mr Davis's design. Their general approach was to look at the costs associated with a typical area and extrapolate from that. Mr Sturgess and Mr Radcliffe prepared costings on four bases. Two were on the basis of the "as built" drawings and two were on the basis of the "for construction drawings". One each of those was on the basis that the Terminal would be closed and work would be done during the week. The other was on the basis that the Terminal would remain open and work would be done over weekends. Following a meeting, the experts produced a joint report in which they agreed on many of those costs and the parties agreed that the appropriate basis on which to prepare the costings was the as built plans and weekend work, with the result that the issues between the parties were narrowed greatly. The only outstanding issues concern disagreements between Mr Sturgess and Mr Radcliffe on some items of cost. Some of those are small and others less so.
In considering the remaining disputes, it is relevant to bear in mind that the real question in relation to damages is the cost to Tzaneros of carrying out the necessary work. That work will not be done by Tzaneros. Rather, Tzaneros will engage a contractor to carry out the work, presumably after a competitive tender. The real question, then, is what is the likely outcome of that competitive tender and what other costs will Tzaneros incur in completing the work. Necessarily, the answer to that question involves a degree of speculation and the estimates of Mr Sturgess and Mr Radcliffe can only provide a guide.
In all, 18 items remain in dispute. The first is the cost of the steel reinforcement. Mr Sturgess ultimately relied on Rawlinson's, an industry publication, to conclude that the cost per tonne for reinforcement was $2,238.00. Mr Radcliffe, taking into account oral quotes he obtained from suppliers, concluded that the cost per tonne would be $1,897.74. I prefer the approach taken by Mr Sturgess. In my opinion, oral quotes are not a reliable source of evidence of the price that will actually be charged for an identified job. In the absence of actual costs on comparable jobs, in my opinion it is more appropriate to use an industry publication.
The second area of dispute is the length of time the work will take. Mr Sturgess took the program prepared by Mr Arthur Tzaneros, which allows 41 weeks for the work on the basis that two panels would be replaced each weekend. He then allowed an additional two weeks for bad weather. Mr Radcliffe, on the other hand, allowed 33 weeks on the basis that he was told by Mr Don Hughes, who showed him around the Terminal, that work could only be undertaken between January and August (because the Terminal was very busy during the other months) and he (Mr Radcliffe) thought that it was reasonable to assume that between 2 and 3 panels could be replaced each weekend. I prefer the approach of Mr Sturgess. Mr Arthur Tzaneros is familiar with the operation of the Terminal. He prepared his program on the basis of that knowledge. No other program has been prepared. Mr Tzaneros was not cross-examined with a view to demonstrating that his program was unreasonable and, in particular was not cross-examined on evidence he gave that the Terminal could "remain operational even at close to capacity with two construction zones [of up to 360 square metres] provided they are on opposite sides of the Terminal". Consequently, I think it is reasonable to assume that the work will be carried out in accordance with that program and that two areas, on opposite sides of the Terminal, will be replaced each weekend.
The third area of dispute is that Mr Sturgess allows for the cost of contract works insurance whereas Mr Radcliffe takes the view that that insurance is a cost to the owner. I do not accept Mr Radcliffe's approach. The costs would not be incurred except for WGC's breach. Consequently, it is a cost recoverable by Tzaneros.
The fourth area of dispute is whether an allowance should be made to have an electrician available on standby. There is no dispute about the amount that should be allowed. Mr Radcliffe's position, however, is that it is unnecessary. Mr Sturgess takes the opposite view. In my opinion, it is reasonable to allow for an electrician on standby. The work is performed over the weekend when it may be difficult to obtain an electrician urgently. The work to be performed each weekend needs to be performed within a limited period of time, with the result that any significant delays in obtaining an electrician could cause serious problems for the proposed program. The evidence is that there are services running under the pavement. There appear to be no drawings showing precisely where those services are, with the result that there is a risk of accidental damage. Mr Sturgess gives evidence of other work that an electrician could do. In those circumstances, it is reasonable to allow for the costs of an electrician on standby when the work is performed.
The fifth area of dispute concerns a specific allowance made by Mr Sturgess for labour and materials for sediment control totaling $33,880. Mr Radcliffe's initial position was that that item was duplicated in a general allowance for labour. When giving oral evidence, Mr Sturgess said that it was not. There is no reason not to accept that evidence.
The sixth area of dispute is an allowance of $1,400 made by Mr Sturgess for transport of the fencing at the site. The real question is whether the item was included in general labour. Again, Mr Sturgess says that it was not. There is no reason not to accept his evidence. Consequently, the item should be allowed.
The seventh area of dispute concerns the costs of water-filled barriers. Mr Radcliffe assumes that the barriers will be moved when full. Mr Sturgess assumes that they will be emptied at the end of each weekend and stored and then refilled. He makes an allowance of $39,270 for that work. Each barrier when full could weigh up to 1,000 kg. There are likely to be difficulties in transporting them for that reason. There will be some costs involved in transporting them even if they are full. In my opinion, it is not unreasonable to assume that the barriers will be emptied before they are moved. Consequently, the item should be allowed.
The eighth area of dispute concerns the allowance that should be made for a surveyor. Mr Sturgess allows an amount of $300 per hour for a total of $11,550 based on established benchmarks set out in his report. Mr Radcliffe allows an amount of $200 per hour based on a telephone enquiry he made. In my opinion, the source of Mr Sturgess's estimate is more reliable and that estimate should be accepted.
The ninth area of dispute is the cost of as built drawings (totaling $31,900). It is not disputed that as built drawings should be prepared. Mr Radcliffe takes the view that they are not a building cost but part of the design function and consequently should not be included. However, they are a cost that would not be incurred if the original pavement had complied with the contractual specification. Consequently, in my opinion, Tzaneros is entitled to recover them as part of its damages claim.
The tenth area of dispute is the costs of an engineer to inspect the works ($68,640) and the eleventh area of dispute is the costs of preparing a dilapidation report ($13,800). Again in both cases, Mr Radcliffe does not dispute that those are reasonable costs. However, in each case, he does not regard them as part of the building work. For the reasons I have given, that does not matter. The costs are still recoverable as damages.
The twelfth area of dispute is whether $12,000 should be allowed for the costs of a programmer. Mr Sturgess expressed the view that that amount should be allowed. Mr Radcliffe expressed the view that the job is a simple and repetitive one and that a programmer is unnecessary. It is difficult to evaluate these competing positions, particularly since the real question is whether tenderers are likely to allow for the costs of a programmer when calculating their tender price. However, I have concluded that it is reasonable to allow for a programmer. Mr Radcliffe proceeded on the incorrect assumption that the Terminal would be closed over the weekends when the work was done. Although he said that that assumption made no difference to his opinion, the fact that the Terminal will remain open when the work is done is likely to introduce complications in coordinating the work around the operation of the Terminal. For that reason, in my opinion, it is reasonable to allow for a programmer.
The thirteenth area of dispute concerns the costs of photographs. It is not disputed that the work should be photographed. Mr Radcliffe's opinion is that the photographs can be taken by the foreman. Mr Sturgess has allowed $7,700, on the basis that it will be necessary to employ someone to catalogue the photographs. Again, in my opinion, Mr Sturgess's approach does not seem unreasonable and I accept it.
The fourteenth area of dispute concerns the time that should be allowed for site induction. Mr Sturgess has allowed four hours for 50 workers to make a total of $13,600. Mr Radcliffe accepts that 50 workers is an appropriate number, albeit at a slightly different rate to the one used by Mr Sturgess, but says that two hours is sufficient. Mr Radcliffe accepts that an induction of four hours on some jobs - such as a power station - may be appropriate but not on this job. Again, I do not think that the approach taken by Mr Sturgess is unreasonable. The work is made more complicated by the fact that the Terminal will continue to operate. Some additional time should be allowed for that fact; and an additional two hours does not seem unreasonable.
The fifteenth area of dispute concerns the costs of a project manager. Mr Sturgess has allowed $20,850 more than Mr Radcliffe. Some of that difference is to be attributed to the shorter program envisaged by Mr Radcliffe. However, some of the difference is also to be attributed to different views they have on how much time the project manager will spend working during the weekend rather than during the normal working week and, in particular, liaising with Tzaneros or the owner. Since the Terminal is open during the time the work is carried out, I do not think that the allowance made by Mr Sturgess is unreasonable.
The sixteenth area of dispute concerns an allowance for a contract administrator. Mr Sturgess allowed $90,000 over 41 weeks. Mr Radcliffe's opinion is that the job is sufficiently simple that it is not necessary to make any allowance for a contract administrator and that the work could be done by the project manager and foreman. In circumstances where the work must be performed to a tight timetable and the job is substantial, I do not think that it is unreasonable to allow for a contract administrator.
The seventeenth area of dispute concerns an allowance for profit and overheads. Mr Sturgess allows ten percent for profit and three percent for head office overheads. Mr Radcliffe allows five percent for both. I accept Mr Sturgess's approach. A five percent allowance for profit seems unrealistically low, and it is hard to believe that a tenderer would tender on that basis. The allowance made by Mr Sturgess in relation to head office expenses is to the defendants' benefit and should be accepted.
The last area of dispute concerns an allowance for contingencies. Mr Sturgess allows three percent. Mr Radcliffe allows nothing on the basis that he was simply asked to cost the work. Any tenderer would allow an amount for contingencies. On that basis, I accept Mr Sturgess's approach.

[22]

The sale to TCAL

There does not appear to be a serious dispute that, in principle, if Tzaneros was entitled to recover damages in accordance with the principle stated in Bellgrove v Eldridge before the sale of the Terminal to TCAL, then the sale does not affect its right to do so. The right of recovery on that basis would only be affected where, as a result of the sale, it would no longer be reasonable to carry out the rectification work. That might, for example, be because, as a result of the sale, the vendor had no right or obligation to carry out the rectification work and the vendor was paid a price that did not take account of the defects: see Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 at [62] per Giles JA (with whom McColl and Campbell JJA agreed); Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [230] per Bathurst CJ (with whom Macfarlan and Meagher JJA agreed). That is not the position in this case. As part of the sale, Tzaneros became obliged to carry out rectification work in accordance with the Contract of Sale and with the Works Side Deed. It is WGC's principle contention that Tzaneros cannot recover any more than its liability arising from those agreements, and that that liability is substantially less than the cost of replacing the whole of the pavement.
The first limb of WGC's submission cannot be disputed. If Tzaneros's obligations in respect of the defects are limited by the agreements governing the sale of the Terminal, it is difficult to see why Tzaneros should recover more than its liability under those agreements. The second limb of WGC's submission raises a more difficult issue.
Under the Works Side Deed, Tzaneros is required to repair or replace those parts of the pavement identified in the deed in a way that ensures that the pavement is fit for the purposes described in the D&C Contract "adjusted to reflect the then age of the External Pavement and adjusted to reflect the balance of design movements remaining in the term of the relevant Building Warranties". The works must be no less than repair with cold bitumen and no more than replacement of panels in accordance with Mr Davis's design, depending on what is required to meet the Building Warranties. As I have said, the areas to be rectified in accordance with the Side Deed do not include the pavement between the warehouses, although they do include the areas under the awnings of warehouses 2, 3 and 4.
Under the Contract of Sale, Tzaneros is required to repair any part of the pavement to the extent that the repairs are reasonably necessary to ensure that the pavement complies with the warranties contained in the D&C Contract. However, it is only obliged to do so if ACFS Port Logistics requests the repairs or the conditions set out in cl 65.4(b) of the Contract of Sale are satisfied.
Tzaneros submits that as a result of these provisions it is under an obligation to replace those parts of the pavement which require replacement in order to conform with the warranties contained in the D&C Contract and that that work must be performed in accordance with Mr Davis's specifications.
I have concluded that that submission should be accepted. Some of the work must be performed in accordance with the Works Side Deed. For the reasons I have given earlier, the pavement must be replaced for it to comply with the warranties contained in the D&C Contract. According to the evidence, the only method of replacement that will achieve that result is the method proposed by Mr Davis. Dr Baigent did propose an alternative method based on the Packard methodology. However, he did not prepare a precise design and it is a matter of speculation whether a properly designed pavement using that method would result in any substantial savings in costs; and there is a question whether any savings in costs using that method would be justified having regard to the additional difficulties and risks associated with that method if the pavement is replaced in stages, as it must be.
Some panels were replaced by Statewide Civil using a third methodology that appears to use some reinforcement. However, there is no evidence of precisely what that method was and how much it would cost to replace the remaining panels using that method. Moreover, there is a question whether the system used by Statewide Civil is itself defective.
Having regard to that evidence, it is to be expected that the parties to the Works Side Deed will agree to the replacement of that part of the pavement governed by that deed in accordance with Mr Davis's design and that, if they do not, that is the conclusion that will be reached by an independent expert appointed by the parties in accordance with the Works Side Deed. On the available evidence, the possibility that an independent expert will reach some other conclusion that has the effect of reducing the costs of replacement seems too remote to have an effect on the amount of damages that should be awarded.
A similar analysis applies to the other parts of the pavement that are liable to be replaced in accordance with the Contract of Sale. Relevantly, that liability will only arise if a request is made by ACFS Port Logistics under cl 65.4(a) of the Contract of Sale. However, Mr Arthur Tzaneros gave affidavit evidence that it is his intention to cause ACFS Port Logistics to seek to have the whole of the P2 pavement progressively replaced over the next few years. That evidence was not seriously challenged in cross-examination; and it was not put directly to Mr Tzaneros that ACFS Port Logistics would not make a request under cl 65.4(a). I accept that it is in ACFS Port Logistics' interest to replace the whole of the P2 pavement (except possibly the areas under the awnings). In those circumstances, it is to be expected that ACFS Port Logistics will make a request under cl 65.4(a). It seems clear that ACFS Port Logistics has refrained from doing so to date because of the relationship between it and Tzaneros and because it has been waiting on the outcome of this case. But I do not think that makes a difference. The question is whether the court should refuse to award damages on the basis of the costs of replacement because the pavement will never be replaced. In this case, the evidence is that the pavement will be replaced if damages are awarded on that basis.

[23]

Reduction in damages for other causes

In the pleadings and in some submissions, the defendants suggest that some of the cracks were caused by the way in which the Terminal was operated, and there should be a reduction in the damages recoverable by Tzaneros for that reason. In a joint report prepared by the experts on the construction of the pavement, Mr Munn (the expert retained by AMT) expressed the opinion that approximately 15 percent of the cracking was caused by the use of Omega 54D forklifts (rather than the specified 48D forklifts), 50 percent was caused by the stacking of four high laden containers and one percent was caused by the trafficking of overloaded containers. Dr Baweja (the expert retained by WGC) was not in a position to comment on any of those figures. However, he expressed the opinion that not less than 20 percent of the cracking was caused by poor maintenance. Mr Davis, who gave expert evidence for Tzaneros both in relation to design and construction, expressed the opinion that none of the factors referred to by Mr Munn and Dr Baweja contributed to the cracking. The issues were not pursued by the defendants in final submissions.
In my opinion, none of the factors referred to by Mr Munn and Dr Baweja provides a basis for reducing the damages otherwise recoverable by Tzaneros. Mr Munn's attribution of 50 percent of the cracking to the stacking of containers depends on the false assumption that the four high containers that he saw were fully laden. In fact, they were empty.
As to the use of Omega 54D forklifts, Mr Davis did calculations which indicated that a pavement designed in accordance with the relevant specifications - that is, 240,000 load repetitions of an 89 tonne Omega 48D axle load - would be capable of supporting up to 60 load repetitions per month for 20 years of a 50 tonne container transported by an Omega 54D forklift and an unlimited number of load repetitions of containers weighing less than 28 tonnes transported by the same forklift. The evidence suggests that very few containers over 28 tonnes were transported and there is no evidence that a container of 50 tonnes was transported over the pavement. All the design experts agree that the use of an Omega 54D forklift would not exceed the pavement design parameters of 89,000 kg axle load based on the container loading data for the Terminal. In my opinion, their evidence should be accepted.
As to Mr Munn's opinion in relation to overloaded containers, there is no evidence that some containers were overloaded. Mr Munn attributes only one percent of the damage to the trafficking of overloaded containers. Even accepting that overloaded containers were trafficked, the damages said to have been caused by them is too small to provide a proper basis for reducing the damages recoverable by Tzaneros.
As to the lack of maintenance, Dr Baweja does not identify specifically what maintenance should have been carried out that was not. The pavement was meant to last for at least 20 years with some maintenance. The evidence is that the maintenance specified in the operations manual (filling cracks with epoxy) was ineffective. Although Dr Baweja suggested that it was possible that the wrong epoxy was used, there is no evidence that would support that conclusion. There is, for example, no evidence of what epoxy was used and why that was inappropriate. None of the other expert witnesses dealing with the design or construction of the concrete gave evidence that a lack of maintenance contributed significantly to the cracking. For those reasons, I do not accept Dr Baweja's evidence.
One other point should be made about this aspect of the case. Tzaneros's claim is that it was entitled to a pavement that met certain specifications. It is apparent that the design of the pavement that was actually laid meant that it did not do so, and as a result the pavement suffered serious cracking and spalling that would have occurred independently of any other cause. As a result, leaving other defences aside, Tzaneros is entitled to damages measured by reference to the costs of replacement. The fact that some of the cracks appeared for other reasons cannot affect that entitlement.

[24]

Apportionment of the claim

Sections 34 and 35 of the CLA relevantly provide: 34 Application of Part (1) This Part applies to the following claims (apportionable claims): (a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury, (b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law. (1A) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind). (2) In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim. (3) … … 35 Proportionate liability for apportionable claims (1) In any proceedings involving an apportionable claim: (a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount. … (3) In apportioning responsibility between defendants in the proceedings: (a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law, and (b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings. …
WGC pleads that if it is liable to Tzaneros, then the claim against it is an apportionable claim and it is a concurrent wrongdoer in respect of that claim with AMT, with the result that the claim against it should be limited to an amount reflecting that proportion of the damage or loss that is just having regard to its responsibility for the damage or loss.
There is a question whether the claim against WGC is an apportionable one, since it is a claim that does not depend on a failure by WGC to take reasonable care but rather a failure of the pavement to meet the contractual specification. However, it is not necessary to resolve that issue in this case because, in my opinion, it is clear following the decisions of the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 and Brookfield Multiplex Ltd v Owners - Strata Plan No 61288 [2014] HCA 36; (2014) 254 CLR 185 that whether the claim is apportionable or not, AMT owed no duty of care to Tzaneros and consequently cannot be a concurrent wrongdoer.
In Woolcock, a majority of the High Court held that an engineering firm owed no duty of care to the subsequent purchaser of a commercial property to avoid pure economic loss arising from defect in the foundations of the property. In reaching that conclusion Gleeson CJ, Gummow, Hayne and Heydon JJ pointed out that it was open to the subsequent purchaser to seek a warranty in the contract for purchase that the building was free from defects, or taken an assignment of any rights the vendor may have had against third parties in respect of any claim for defects in the building, or arrange for an appropriate inspection of the building to be undertaken. Consequently, the purchaser was not in any relevant sense vulnerable to the economic consequences of any negligence of the engineers in their design of the foundations of the building: at [31]-[32]. Absent vulnerability, there could be no duty of care.
The decision in Woolcock was affirmed by the High Court in Brookfield. In that case, the Court held that the builder of strata-titled serviced apartments did not owe a duty of care to the owners corporation to avoid causing it to suffer loss resulting from latent structural defects in the common property. In reaching that conclusion, the members of the Court placed emphasis on the fact that the contract between the builder and developer contained detailed provisions relating to the standard to which the building should be constructed. It also contained warranties given by the builder in favour of the developer and imposed on the builder an obligation to remedy any defects. The lots in the strata plan were subsequently sold to individual purchasers pursuant to standard form contracts agreed between the developer and builder, which included detailed provisions about the repair of faults including defects and faults with the common property. The owners corporation came into existence following registration of the strata plan. It was not a case where the subsequent owners could be regarded as vulnerable. Rather, it was a case where the relationship between the builder, developer and subsequent purchasers had been clearly defined by the contracts into which they had entered.
In my opinion, the position of Tzaneros is no different to the position of the purchaser in Woolcock. It was in a position to protect itself by, for example, taking an assignment of P&O's rights, which is what it did. It was in no sense in a position of vulnerability to any failure by AMT to take reasonable care. As a result, AMT did not owe it a duty of care and consequently it was not a concurrent wrongdoer for the purposes of s 34(2) of the CLA.
For similar reasons any claim under s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) must also fail.

[27]

Was there a contract between WGC and AMT?

In para 11 of its second cross claim technology and construction list statement WGC pleads that it engaged AMT "to provide specialist engineering services for the design, documentation, inspection and certification of the Works [that is, the construction of the Terminal] including the Pavement Works [that is, the pavements that formed part of the Terminal]". In the particulars to that paragraph, it pleads that the contract was made in or about February 2003 and that it was partly in writing and partly oral. Insofar as it was in writing, the contract is said to have been contained in various correspondence between AMT and Walker between 28 May 2002 and 19 February 2003. Insofar as the contract was oral it is said to have been reached in conversations between Mr Wright and Messrs Hudson, Bulmer and Fairfax of Walker. None of Messrs Hudson, Bulmer and Fairfax gave evidence.
AMT's primary response to that allegation is that a contract could not have come into existence in February 2003 between it and WGC as a result of correspondence between it and some other entity. There is no allegation that Walker was acting as agent for WGC or that the contract was at some stage novated to WGC. WGC does rely on the invoices that AMT sent to WGC in two ways. First, it submits that the invoices formed part of the contract. As to that submission, AMT says that that allegation is not pleaded. Moreover, the invoices cannot form part of a contract that was said to have been entered into in February 2003. Nor can they be relied on as evidence of who the contracting parties were. That is said to be a question of construction of the contract and the court cannot have regard to subsequent events in construing it. Second, WGC relies on the invoices and their payment as giving rise to a an estoppel by convention to the effect that the parties to the contract were AMT and WGC.
In my opinion, the outcome of this issue should not be determined by the pleadings. The particularised correspondence cannot give rise to a contract between AMT and WGC. However, it is clear from para 11 of the second cross claim technology and construction list statement that what is alleged is the contract was between AMT and WGC. It has been clear at least since Mr Rudge SC opened the case for WGC that WGC intended to rely on the invoices as being relevant to the question who the parties to the contract were. Mr White SC, who appeared for AMT, did not suggest that he was caught by surprise by that fact or that, if WGC was going to rely on the invoices, other evidence was relevant which was not before the court. Mr White did submit that the court could not take account of subsequent events in construing a contract. But here the question is whether there was a contract between AMT and WGC. Evidence of subsequent conduct can be taken into account in determining whether a contract came into existence: Australian Broadcasting Corp v XIVth Commonwealth Games (1998) 18 NSWLR 540 at 550 per Gleeson CJ; Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at 14,569-70 per Kirby P; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [25] per Heydon JA. That includes the identity of the parties to the contract: Filadelfia Projects Pty Ltd v Entirity Business Services Pty Ltd (No 2) [2011] NSWSC 116 at [38].
It is apparent that AMT was initially engaged by Walker. At some stage, however, Walker decided that WGC, one of its subsidiaries, would perform the work for P&O that it was engaged to do. From that time, the parties did not clearly distinguish between Walker and WGC in their day to day interactions, although it is clear that the formal contract was entered into between WGC and P&O. At some date prior to 11 August 2003 (the date of AMT's first invoice), AMT must have been told that the work was being undertaken by WGC and that is why AMT issued its invoice to that company rather than Walker. In the absence of a formal contract between AMT and either Walker or WGC, AMT must have accepted that the work that it was performing was being performed for the entity responsible for constructing the Terminal - that is, WGC - even if it had initially been engaged by Walker. It is difficult to explain why AMT would be doing work for Walker when Walker was not responsible for building the Terminal; and AMT would not have issued its invoices to WGC if it thought its contract was with Walker.
AMT sought to characterise the relationship between Walker and each of WGC and AMT as that of contractor and sub-contractors. However, that characterisation is inconsistent with the contract that was actually entered into between WGC and P&O and does not explain why AMT issued its invoices to WGC.
An estoppel by convention arises where both parties conduct their affairs on a shared assumption. As the High Court explained in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244: Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying.
Even if there was not a contract between WGC and AMT, in light of the material I have referred to, I am satisfied that both parties operated on the basis that there was; and that, as a result, both parties are estopped from denying the existence of the contract.

[28]

Did AMT owe Walker a duty of care?

In my opinion, the current case falls within the well recognised class of case in which it has been held that a professional advisor who has been engaged by a person to provide advice falling within the advisor's area of expertise in circumstances where the advisor knows that the person will act on that advice and it is reasonable for the person to do so owes a duty of care when giving that advice: see, eg, Brickhill v Cooke [1984] 3 NSWLR 396. Notwithstanding the development of vulnerability as an important requirement for the existence of a duty of care, the existence of a duty of care in cases such as the present one can still be explained in terms of the assumption of responsibility by one party in circumstances of known reliance by the other: See Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at [24] per Gleeson CJ, Gummow, Hayne and Heydon JJ.
AMT advances two reasons why it did not owe WGC a duty of care. The first is the absence of a contract between AMT and WGC. The second is that AMT did not assume responsibility for the design of the pavement. That responsibility was taken over by Connell Wagner.
I have already concluded that there was a contract between AMT and WGC. However, even if that conclusion is wrong, in my opinion, AMT still owed WGC a duty of care. AMT knew that it was engaged as an expert to provide advice in relation to the design of the pavement. Subject to what might be said about the role of Connell Wagner, it must have appreciated that whoever was responsible for building the Terminal would rely on that advice. WGC was a wholly owned subsidiary of Walker. Although on occasions AMT addressed correspondence to Walker it also dealt with WGC in connection with the design of the pavement. It was not important to it whether it was Walker or WGC who was responsible for constructing the pavement, and it could not have been important to it whether it was Walker or WGC that relied on its advice. The important point is that it gave advice in relation to the design of the pavement to the entity responsible for its construction. It expected that advice to be relied on. As it happened the entity that was responsible for constructing the pavement and that relied on the advice was WGC. That was sufficient to give rise to a duty of care.
As to the involvement of Connell Wagner, AMT's submissions tend to confuse the position of P&O (and Fielder) with the position of WGC. WGC was under an obligation to build the Terminal, including the pavement, in accordance with the Performance Specification that were ultimately incorporated into the D&C Contract. To assist it to discharge that obligation, it engaged the services of AMT. Mr Wright was clearly familiar with the Performance Specification and understood that he was engaged to provide advice to assist Walker or WGC to meet those specifications. The Performance Specification provided that the pavement had to be designed "in accordance with the Cement and Concrete Association of Australia "Industrial Pavements Guidelines for Design, Construction and Specification" or "approved method" and that any design had to be submitted to Walker "for comment and approval". However, that approval "shall in no way relieve the Contractor of his design responsibilities".
Mr Fielder was not prepared to approve AMT's initial design and following an impasse between P&O and Mr Fielder on the one hand and WGC (or Walker) and AMT on the other, it was agreed between P&O and WGC to involve Mr Elliott of Connell Wagner. It appears that initially it was anticipated that Mr Elliott would act as an independent expert who would be responsible for making a determination on whether the initial design that was proposed by WGC on advice from AMT would meet the specifications or not. However, Mr Elliott did not do that. Instead, he made comments on the design specification and suggested a way forward. It appears that initially Mr Wright objected to the approach suggested by Mr Elliott and, at one point, threatened to withdraw AMT's services. However, that did not happen. Instead, the parties met on 25 June 2003. At that meeting it was made plain that Connell Wagner "will not be responsible for the design and will incur no liability". Consistently with the Performance Specification, an approved method for designing the pavement was agreed and, following the meeting, AMT set about producing a design in accordance with that method. Mr Elliott was intimately involved in that process. His involvement can be explained by the fact that any design had to be approved by Mr Fielder as Superintendent, and it is apparent that Mr Fielder and P&O were content to rely on the opinions of Mr Elliott in that regard. But none of that altered the fact that WGC (or Walker) was responsible for designing and constructing a pavement that met the Performance Specification and that it relied on AMT to assist it in discharging that obligation. AMT must have appreciated that that was so.
On 23 September 2003, WGC wrote to Fielder saying among other things that the design was not produced in a way that AMT "are prepared to warrant". In addition, on or about 3 October 2003, AMT issued "for construction drawings" that stated that the documents had been prepared at the direction of Connell Wagner and that "this office accepts no responsibility for the deficiencies in the design method, design criteria or for the economy of the design". However, in my opinion, those statements do not undermine the existence of a duty of care owed by AMT to WGC.
The first is a statement that AMT was not prepared to "warrant" the design. But that statement does not undermine a conclusion that WGC was relying on AMT to exercise reasonable skill and care in designing the pavement so as to enable WGC to discharge its obligations to P&O. It is relevant to bear in mind that throughout the process, it was P&O and Fielder's principal complaint that AMT's initial design was inadequate, and in particular did not allow sufficient thickness for the concrete. This is not a case where a design was forced on AMT that it thought was inadequate to achieve the specifications. Ultimately, WGC did rely on the adequacy of the design and inferentially the work that had been done by AMT in retracting its disclaimer. It was reasonable for it to do so in circumstances where the actual design was produced by AMT and AMT's principal reservation about the design was that it went beyond what was necessary, not that it was inadequate.
The second statement contained on the "for construction" drawings was ultimately withdrawn by AMT. Moreover, what AMT was not prepared to accept responsibility for was the "design method, design criteria or for the economy of the design". Presumably, the reference to "design method" is a reference to the design methodology based on Pickett and Ray Influence Chart method as prescribed by Packard and the reference to "design criteria" is a reference to the Performance Specification. The reference to "economy of design" is self-explanatory. Whatever the precise meaning of the disclaimer, it cannot be interpreted as a statement that AMT took no responsibility for a failure to exercise reasonable care and skill in designing the pavement in accordance with the approved method.

[29]

Breach

AMT contends that if it owed any duty, the scope of its duty was to design the P2 pavement using the "Pickett & Ray Influence Chart Solution, Packard and Yoder & Witzcak for the approval of Connell Wagner". In its submission, that is what it did.
In my opinion, that is not a correct statement of AMT's duty. Its duty was not simply a duty to produce a design of a certain type and to obtain Connell Wagner's approval to that design. The duty it owed was a duty to WGC, and it knew that approval by Connell Wagner would not relieve WGC of its obligations to design and construct a pavement that met the performance requirements set out in the Performance Specification. There may be questions concerning the precise scope of AMT's contractual and tortious duties. However, at a minimum, they included a duty to exercise reasonable care and skill in designing the pavement so as to meet the Performance Specification. The Performance Specification required the pavement to be designed in accordance with a particular methodology or other approved method and to be designed to meet certain specified loads. Eventually, the method that was approved was one based on the Pickett and Ray Influence Chart method as prescribed by Packard.
AMT contends that, even formulated in this way, it did not breach the duty it owed, since it exercised reasonable care in designing a pavement in accordance with the approved methodology.
This submission depends essentially on whether AMT should have appreciated that the traffic over the pavement would be channelised. Packard states that "for pavements 12 to 15 in. [ie approximately 300 mm to 380 mm] thick carrying channelized traffic, longitudinal joints should not be more than 12.5 ft. [3.8 metres] apart". It follows from this statement that if the traffic was channelised the concrete should have been thicker than it was or the panels smaller. The design experts also concluded that the system of load transference was inadequate. That conclusion is perhaps not as obvious from a simple reading of the Packard publication. However, the publication does state: Adequate transfer of loads across a joint must be provided to satisfy thickness-design principles. Depending on the type of joint, load transfer is obtained by dowels, keyways, or aggregate interlock of slabs with short joint spacings. The design experts in their joint report interpret this statement as requiring dowels (or other load transference device) in areas subject to "heavy, repetitive traffic to maintain high load transfer". No expert evidence was called by AMT to rebut that evidence; and in light of it I accept that a reasonably competent expert would have appreciated that Packard was recommending the use of dowels or other load transfer devices between joints that were the subject of heavy, repetitive traffic.
AMT submits that it was not negligent in failing to appreciate that the traffic would be channelised. It was required to produce a design largely in the abstract. It did not know precisely how the Terminal would operate and, in particular, it did not know that the traffic would be channelised, as it is. Consequently, particular parts of the pavement have been subjected to stresses that it could not have anticipated.
I do not accept that submission. The Performance Specification stated that the P2 pavement had to be designed relevantly to sustain 15,000 laden forklift moves with a wander factor of 0.8 annually. The Performance Specification explained that "Wander is a reduction factor in the number of loaded passes to account for variations in the travel path of the forklift". That could only mean that each part of the P2 pavement had to be able to sustain the specified number of moves, subject only to a reduction for the wander factor. It must follow that subject to wander, each part of the P2 pavement was required to bear traffic of the specified level. By its nature, that traffic is channelised because it is traffic over precisely the same area (subject to wander). It is for that reason that the experts have operated on the basis that each part of the P2 pavement had to sustain a total of 240,000 movements over its minimum life of 20 years. In my opinion, any reasonably competent engineer would have appreciated that fact. Consequently, I accept that AMT breached its contractual and tortious duties to WGC by failing to specify thicker concrete or smaller panels or additional load transferring mechanisms.

[30]

Was WGC guilty of contributory negligence?

AMT submits that WGC was guilty of contributory negligence because of the way in which the pavement was constructed. It identifies three types of construction error in its final submissions. The first was the misalignment of dowels. The second was the thickness of the concrete. The third was drainage. In addition, in its further amended defence to cross claim, AMT identifies as an additional particular of contributory negligence the failure properly to repair defects in the pavement.
As to dowel misalignment, the allegation is not supported by the expert evidence. In the joint report of the construction experts, Dr Baweja estimated that dowel misalignment contributed to less than 5 percent of the damage. When giving evidence, he said that it could be less than 1 percent. He also said that there would always be a certain degree of misalignment "simply because of the nature of the beast". On that evidence, to the extent that there was any misalignment, it could not be said that it was caused by WGC's negligence; and any design would need to take into account the fact that there was likely to be some dowel misalignment as a result of the construction process.
In the joint expert report, Mr Munn estimated that dowel misalignment contributed to less than 10 percent of the damage. However, when giving evidence he said that that figure was between 5 and 10 percent. He agreed with Dr Baweja's comment that there was always likely to be some dowel misalignment. Again, nothing that Mr Munn said suggested that WGC had been negligent in the way that it had laid the dowels. Moreover, none of the design experts thought that dowel misalignment contributed to the damage. It was Professor Roesler and Dr Baigent's opinion that whether or not there was some misalignment of the dowels, the pavement damage currently seen would still have occurred at generally the same rate. Mr Davis expressed the opinion that dowel misalignment could have contributed to some of the early cracks but that that did not alter the fact that the pavement still failed to meet the Performance Specification because of the design. That conclusion is not sufficient to establish that WGC was guilty of contributory negligence.
As to the thickness of the concrete, there is some evidence that in some places the concrete is less than the specified thickness, although the evidence is that the concrete was largely poured to the specified thickness. There is a difference of opinion between the experts on whether to the extent the concrete was not of the specified thickness that was within normal construction tolerances. But even if it was not, it does not matter. It is plain that most of the concrete was poured to the required thickness, yet the cracking is widespread. That is consistent with the evidence of the design experts that, even if the whole pavement had been poured to the thickness specified by AMT, it was still too thin having regard to the size of the slabs and the system of load transference between slabs that was used. Consequently, I do not accept that the way the concrete was poured contributed to any loss for which WGC and AMT are sued.
As to drainage, there is no evidence that inadequate drainage contributed to the problem. It was not identified as a contributing factor in the joint reports prepared by either the design or construction experts. Mr Davis and Mr Munn in their reports both referred to the fact that the pooling of water was likely to have contributed to pumping of the sub-base to the surface. But for the reasons I have already given, that was not a contributing factor to the defects in the pavement which necessitate its replacement. Consequently, in my opinion, if the drainage was inadequate it was not a contributing factor to the loss.
As to maintenance, it is difficult to see how a lack of maintenance by WGC contributed to the loss. It is not clear what additional maintenance could have been undertaken by WGC. Whether that maintenance was undertaken or not, the pavement was still defective to the point where it needs to be replaced in order to meet the Performance Specification. Lack of maintenance by WGC did not contribute to that state of affairs.

[31]

Apportionment of the claim

AMT submits that the claim against it is an apportionable claim and that Connell Wagner was a concurrent wrongdoer, with the result that AMT's liability should be reduced having regard to its and Connell Wagner's respective contributions to the loss.
The difficulty with this submission is that Connell Wagner was appointed on the basis set out in WGC's letter dated 5 June 2003, which acknowledged that Connell Wagner did not "assume any design risk or responsibility to WGC, P&O or any third party for the pavement design by reviewing the question raised in this brief or by providing your report or any subsequent reports". That exclusion of liability was repeated at the meeting of 25 June 2003. The minutes of that meeting record "[Connell Wagner] will not be responsible for the design and will incur no liability".
AMT submits that the exclusion of liability is not sufficiently broad to exclude Connell Wagner's liability for the design of the pavement. The exclusion is limited to liability arising from reviewing the question raised in the brief or by providing a report or subsequent reports. However, according to AMT, Connell Wagner did much more than that. It provided advice on the design approach to be adopted, the designs produced by AMT and checked AMT's calculations. Those activities went beyond the terms of the exclusion.
There are two difficulties with this submission. First, when read in context I do not think that the exclusion contained in the letter dated 5 June 2003 is as narrow as AMT contends or that the work Connell Wagner did went well beyond the original retainer. Connell Wagner was appointed to review AMT's initial design and comment on whether it met the Performance Specification. If it concluded that it did not, it was to review any further designs and issue a report stating whether the further design complied with the Performance Specification. The letter made it clear that Connell Wagner assumed no liability for the original report or the subsequent ones. In substance, what Connell Wagner did was what was contemplated by the letter. It reviewed the original design. Its first report addressed that design, although not in the terms contemplated by the letter, since it concluded that there were difficulties in applying the Performance Specification. Connell Wagner did not produce any designs itself. Rather, consistently with its obligations under the letter, it reviewed subsequent designs and provided comments on them. Although those comments were not in the form of formal reports, they addressed the question whether the design that was reviewed met the Performance Specification. The exclusion did not state that the reports in respect of which liability was excluded had to be in any particular form. In my opinion, it was sufficiently wide to cover comments on the revised designs.
Secondly, AMT's submission overlooks the statement that was made and apparently agreed at the meeting on 25 June 2003. That meeting was prefaced by a statement that Connell Wagner was not responsible for the design and will incur no liability. At that meeting the parties agreed on a way forward, which was subsequently followed. As a result of what was said at the beginning of the meeting, WGC could not have understood that it was entitled to rely on any advice Connell Wagner gave. Consequently, Connell Wagner could not have owed it a duty of care.

Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited

At a glance

Court

Decision date

Before

Source

Judgment (33 paragraphs)

The Contractor shall be responsible for routine maintenance during the first 12 months following Practical Completion as defined in Section 2.13.

Parties

Legislation Cited (6)

Cases Cited (23)

Cited By (8)