Caltex Australia Petroleum Pty Ltd v Charben Haulage Pty Ltd - [2005] FCAFC 271

FEDERAL COURT OF AUSTRALIA
Caltex Australia Petroleum Pty Ltd v Charben Haulage Pty Ltd [2005] FCAFC 271
TRADE PRACTICES – decommissioned service station and workshop site sold for development as residential properties – environmental assessment reports produced on contamination and pollution and remediation of site – whether reports contained misleading statements – whether reports complied with guidelines on production of reports on service stations – reliance on reports – negligent misstatement – negligence
CONTRACT – breach of contract – whether developer compelled to complete contract for purchase of land unless triggered specific clause and gave appropriate notice that not satisfied with environmental assessment report – indemnity
Contaminated Land Management Act 1997 (NSW)
Trade Practices Act 1974 (Cth) ss 52 and 82
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 referred to
CALTEX AUSTRALIA PETROLEUM PTY LTD v CHARBEN HAULAGE PTY LTD & ANOR
NSD611 OF 2004
ENVIRONMENTAL & EARTH SCIENCES PTY LTD v CHARBEN HAULAGE PTY LTD & ANOR
NSD615 OF 2004
TAMBERLIN, KIEFEL & EMMETT JJ
22 DECEMBER 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD611 OF 2004

BETWEEN:

CALTEX AUSTRALIA PETROLEUM PTY LTD
APPELLANT

AND:

CHARBEN HAULAGE PTY LTD
FIRST RESPONDENT

ENVIRONMENTAL & EARTH SCIENCES PTY LTD
SECOND RESPONDENT

JUDGES:

TAMBERLIN, KIEFEL & EMMETT JJ

DATE OF ORDER:

22 DECEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

The appeal be upheld.

The orders of 8 April 2004 in NSD626 of 2002 be set aside and in lieu thereof there be orders that:
(a)The proceeding against the appellant be dismissed.
(b)The cross-claim by the appellant against the second respondent be dismissed.

The costs of the proceeding below and of the appeal are reserved.

The parties are to file and serve brief written submissions on costs by 4:00 pm on Friday 27 January 2006.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD615 OF 2004

BETWEEN:

ENVIRONMENTAL & EARTH SCIENCES PTY LTD
APPELLANT

AND:

CHARBEN HAULAGE PTY LTD
FIRST RESPONDENT

CALTEX AUSTRALIA PETROLEUM PTY LTD
SECOND RESPONDENT

JUDGES:

TAMBERLIN, KIEFEL & EMMETT JJ

DATE OF ORDER:

22 DECEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

The appeal be upheld.

The orders of 8 April 2004 in NSD626 of 2002 be set aside and in lieu thereof there be an order that the proceeding be dismissed.

The costs of the proceeding below and of the appeal are reserved.

The parties are to file and serve brief written submissions on costs by 4:00 pm on Friday 27 January 2006.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD611 OF 2004

BETWEEN:

CALTEX AUSTRALIA PETROLEUM PTY LTD
APPELLANT

AND:

CHARBEN HAULAGE PTY LTD
FIRST RESPONDENT

ENVIRONMENTAL & EARTH SCIENCES PTY LTD
SECOND RESPONDENT

NSD615 OF 2004

BETWEEN:

ENVIRONMENTAL & EARTH SCIENCES PTY LTD
APPELLANT

AND:

CHARBEN HAULAGE PTY LTD
FIRST RESPONDENT

CALTEX PETROLEUM PTY LTD
SECOND RESPONDENT

JUDGE:

TAMBERLIN, KIEFEL & EMMETT JJ

DATE OF ORDER:

22 DECEMBER 2005

WHERE MADE:

SYDNEY

REASONS FOR JUDGMENT
THE CALTEX SERVICE STATION SITE AT KILLARA
PURCHASE OF THE SITE BY CHARBEN
DEVELOPMENT OF THE SITE BY CHARBEN
THE PROCEEDING BEFORE THE PRIMARY JUDGE
THE CALTEX APPEAL
CONCLUSIONS OF THE PRIMARY JUDGE ON BREACH OF CONTRACT
CONSTRUCTION OF THE CALTEX CONTRACT
CHARBEN’S CLAIM AGAINST CALTEX BASED ON THE EES REPORTS
CROSS-CLAIM BY CALTEX BASED ON CLAUSE 44.4(b)
CONCLUSION AS TO THE CALTEX APPEAL
THE EES APPEAL
CHARBEN’S CLAIMS AGAINST EES BASED ON MISLEADING CONDUCT
The Representations Found By The Primary Judge
Reliance On The Representations
Whether Reliance Was a Major Issue
Report 19844B
Report 19844C
The Evidence of Reliance
Jim Janakis
Steve Paradisis
Mr Beilby
Reliance on Report 19844B
Reliance on Report 19844C
Conclusion As To Reliance
Falsity of the Representations
Findings of the Primary Judge
The Guidelines
Soil Samples
Groundwater
Conclusion as to Falsity

CHARBEN’S CLAIM AGAINST EES BASED ON NEGLIGENT MISSTATEMENT
CHARBEN’S CLAIM AGAINST EES BASED ON NEGLIGENCE
EES’S CLAIM TO INDEMNITY
CONCLUSION AS TO THE EES APPEAL
ISSUES RELATING TO LOSS AND DAMAGE
SCHEDULE 1
RELEVANT PROVISIONS OF THE LOT T CONTRACT
SCHEDULE 2
RELEVANT PROVISIONS OF THE CALTEX CONTRACT
THE CALTEX SERVICE STATION SITE AT KILLARA

These two appeals arise out of the purchase by Charben Haulage Pty Limited (‘Charben’), the first respondent in each appeal, of two adjoining parcels of land in Killara, NSW, known as 692B and 694 Pacific Highway (together referred to as ‘the Site’). The parcel known as 692B Pacific Highway (‘Lot U’) was owned by the appellant in the first appeal, Caltex Petroleum Pty Limited (‘Caltex’). The parcel known as 694 Pacific Highway (‘Lot T’) was owned by Paul Ward-Harvey and David Clifton Ford (‘the Lessors’) and was the subject of a lease to Caltex. Caltex conducted a service station on Lot U and used a workshop erected on Lot T in connection with the service station. Charben complained that the Site was affected by hydrocarbon pollution consequent upon use over many years as a service station and workshop and that, after purchase, it incurred substantial cost and expense in remediating the Site, so that it could be used for commercial and residential purposes.
In early 1997, Caltex decided to close the service station and sell Lot U. Pending the closure and sale, a further lease of Lot T was granted to Caltex (‘the Lease’). The Lease was for a term of seven months and one day expiring on 31 May 1998. The Lease imposed environmental obligations on Caltex in the following terms:
‘22.3(a)   As soon as is reasonably practicable after the date of this lease and on the expiration or sooner determination of this lease the Tenant must at its own expense provide the Landlord with an Environmental Audit Report (“Report”).
(b)The Report must:
(i)     identify all environmental damage, contamination, pollution and breaches of any relevant legislation arising out of or in any way connected with the Tenant’s use and occupation of the premises at any time; and
(ii)     specify a remedial programme in respect of any environmental damage, contamination, pollution or breach.
(c)The Tenant must take all necessary steps to ensure that the remedial programme is put into effect at the cost of the Tenant.
22.4(a)   The Tenant must at the Tenant’s expense provide the Landlord with a Validation Report after the remedial programme has been completed. The Validation Report must be prepared by an independent consultant approved by the Landlord who is experienced in the preparation of Validation Reports.
(b)The Validation Report must certify that the remedial programme set out in the Report has been complied with to a standard acceptable to the Landlord.
22.5The Tenant indemnifies and agrees to keep the Landlord indemnified against all claims, demands, damages, fines, expenses, clean-up notices and liability of any kind relating to environmental damage, contamination and pollution for which the Landlord may be or become liable during the Term or after the expiration or sooner determination of this lease, and resulting from any act, matter or thing occurring during the Tenant’s use or occupation of the premises.’
On 19 March 1998, Emil Ford & Co (‘Emil Ford’), the Lessors’ solicitors, requested Caltex to provide an Environmental Audit Report pursuant to the Lease. On 7 April 1998, Caltex approached the appellant in the second appeal, Environmental and Earth Sciences Pty Limited (‘EES’), for a quote for performing an environmental assessment of Lot T. On 15 April 1998, EES provided Caltex with a proposal for such work. The proposal noted that the work was ‘to specifically investigate the quality of the soil and groundwater (if encountered) within the property’. Bores were to be dug to depths of two to four metres ‘or drillrig refusal’, and other methods of detection were to be undertaken. The proposal also said that EES would advise if remedial action was required due to any migration of contamination offsite.
EES provided a report to Caltex on 19 May 1998 (‘Report 19844’). A copy of Report 19844 was provided to Emil Ford, who complained about its failure to specify a remedial program in respect of petroleum hydrocarbon contamination that had been discovered by EES. Emil Ford required the contaminated area to be remediated.
On 27 July 1998, Ku-ring-gai Municipal Council (‘the Council’) granted permission to Caltex, subject to certain conditions, to remove from Lot U underground storage tanks that had been used to store petroleum products. Those conditions included that Caltex undertake testing to determine the level of soil contamination and the extent of remediation works required and to submit a report to the Council. Upon completion of the decontamination, a final report prepared by an accredited site auditor was to be submitted to the Council.
Removal of underground storage tanks from Lot U took place in July 1998. In August 1998, underground storage tanks were removed from Lot T.
On 10 August 1998, EES presented to Caltex a proposal to carry out ‘validation’ and partial supervision of remediation of the Site. On 13 August 1998, Mr Simon Caples of Caltex instructed Mr Philip Mulvey, the managing director of EES, to proceed with ‘the decommissioning activities’. Work commenced almost immediately. On 19 October 1998, EES wrote to Caltex with a proposal for the removal of contaminated soil from the rear of the workshop portion of Lot T and provision of a ‘validation’ report for Lot T. That proposal was accepted.
On 22 October 1998, the Council approved demolition of the service station on Lot U. On the same day, commercial waste was removed from the rear of the workshop on Lot T. However, complete removal of waste material was not possible because of possible undermining of embankments.
Emil Ford continued to press for an Environmental Audit Report pursuant to the Lease and, on 9 November 1998, EES produced a further report (‘Report 19844B’) under cover of a letter dated 9 November 1998. The letter advised that the tank excavation had been ‘validated’ according to the ‘Guidelines for assessing service station sites – December 1994’ (‘the Guidelines’) published by the Environmental Planning Authority of New South Wales (‘the Authority’). The letter also said that ‘Validation of the site was undertaken in accordance with current industrial/commercial guidelines in keeping with the property’s current zoning’.
Report 19844B related only to Lot T. Its introduction noted that a potential existed for hydrocarbon impacts, due to the workshop activities and the presence of two underground storage tanks used in connection with the service station on Lot U. The objective to be achieved was stated to be to ‘validate the site after remediation to confirm the site is suitable for industrial usage’. Work done to meet that objective was said to include the following:
‘•validation of tank pit excavation after removal of [underground storage tanks];
• validation of material used to backfill the tank pit excavation;
•removal of contaminated fill material identified at the rear of the leased site;
• validate excavation at rear of leased site; and
•provide a report to [Caltex], which includes validation sample locations, laboratory results and a summary of works undertaken.’
In relation to ‘hydrogeology’, Report 19844B stated that ‘Any groundwater encountered during the study was interface drainage, between the soil and weathered shale horizons’. Report 19844B went on to describe the removal of the tanks and the contaminated soil associated with them, which had been removed to, and treated on, the adjoining service station site. Additionally it was said that, upon removal of the tanks, some sand was found to be wet due to water trapped in the tank pits or interface drainage between the backfill sand and natural soil profile. This was said to have no odour or visible sheen to suggest any hydrocarbon impact.
Report 19844B also stated that EES had used the Guidelines. After describing the sampling strategy undertaken in accordance with the Guidelines, Report 19844B went on:
‘Groundwater and/or interface drainage was not encountered during validation sampling except in the tank pit thus relevant groundwater criteria have not been consulted.’
The test samples and laboratory results were then gone into in some detail.
In the part of Report 19844B headed ‘CONCLUSION’ the following appeared:
‘Remedial works undertaken on the leased portion of the site at 692 Pacific Highway, Killara, Sydney, included the removal of a 10000 L unleaded petrol UST and a 14000 L premium unleaded petrol UST, validation of the tank excavation, removal of heavy metal contaminated insitu fill material from behind the work shop, validation of the excavation and validation of the site.
The laboratory results for TPH and BTEX confirm that the tank void was validated according to the NSW EPA Guidelines for assessing service station sites – December 1994 and the area is now suitable for any landuse. Statistical analysis of lead confirms this, while all organic analyses [sic] were below the instruments [sic] levels of detection.
Removal of insitu contaminated fill material has been undertaken as far as the site allows, without undermining of the trees and embankment. An area between two and five metres wide on the western boundary of the site, (less than 50 m³in volume) remains where the fill could not be removed because of mature trees. For complete removal of the soil some large trees would have to be felled and a retainer fence would need to be temporarily erected to contain dislodged boulders.
Despite containing elevated levels of metals, the fill material currently does not pose a threat to neighbouring sites as it is [sic] comprises a low volume and is held in place by the tree roots of trees which are quite healthy. If the site is to be demolished it is recommended at this time that the surface material on the western boundary of the site is removed with the appropriate controls stabilisation and safety controls in place. The site is safe for current use.’
On 19 November 1998, Caltex’s solicitors provided a copy of Report 19844B to Emil Ford.
PURCHASE OF THE SITE BY CHARBEN
Caltex retained two firms of real estate agents to act jointly in connection with the sale of Lot U. The Lessors also instructed those agents in connection with the sale of Lot T. The agents were thereby able to offer the two parcels together in a single line.
Mr Dimitrios (‘Jim’) and Mrs Victoria (‘Vicky’) Janakis became interested in purchasing the Site for the purpose of undertaking a new development on it. Neither of them had previous experience in property development. However, Vicky Janakis was the daughter of Mr Steven (‘Steve’) Paradisis, who had had extensive property development experience, acting through a company called Caldas Holdings Pty Ltd (‘Caldas’). Steve Paradisis operated Caldas with his son, Theodore (‘Theo’) Paradisis, a licensed builder. Steve Paradisis made most of the commercial decisions and Theo Paradisis was responsible for organising building work.
Steve Paradisis, acting on behalf of Jim and Vicky Janakis, first became aware that the Site was for sale in October 1998. He subsequently negotiated the purchase of the Site for a total purchase price of $1,100,000. Steve Paradisis instructed his own solicitor, Mr Barry Beilby of Beilby Poulden & Costello, to act on behalf of Jim and Vicky Janakis in connection with the purchase. Mr Beilby suggested that they should acquire the Site in the name of a company controlled by them. Charben was incorporated, or acquired, for that purpose.
On 27 November 1998, Emil Ford sent to Mr Beilby a copy of the page of Report 19844B headed ‘CONCLUSION’. Shortly afterwards, Jim and Vicky Janakis attended Mr Beilby’s office, when Mr Beilby informed them that it was safe to sign and exchange contracts for the sale of Lot T ‘because of the information we were given about the state of the land’.
On 27 November 1998, a contract for the sale of Lot T for a purchase price of $400,000 was entered into between the Lessors, as vendors, and Charben, as purchaser (‘the Lot T Contract’). The Lot T Contract contained a certificate under the Environmental Planning and Assessment Act 1979 (NSW), which showed the zoning of Lot T to be ‘BUSINESS 3(a) - (A2) RETAIL SERVICES’. No use was permitted without development consent. Some purposes were prohibited altogether. Thus, dwelling houses were prohibited in that zone, except those used in accordance with purposes permitted in the zone. Residential unit buildings and commercial uses were permissible, with the Council’s consent.
The Lot T Contract contained eight special conditions, including acknowledgments by Charben that Lot U had been used for the storage and dispensing of petroleum products, that the Lessors made no warranty that Lot T was free from environmental pollution and that Charben accepted Lot T as described in the special conditions. Paragraphs (a) to (c) of special condition 8 were as set out in Schedule 1 to these reasons. The Caltex Contract also contained a certificate from the Council showing that the zoning of Lot U was the same as Lot T.
Allen Allen & Hemsley (‘Allens’) acted for Caltex in connection with the sale of Lot U. On 4 December 1998, a contract for the sale of Lot U for a purchase price of $700,000 was entered into between Caltex, as vendor, and Charben, as purchaser (‘the Caltex Contract’). The Caltex Contract contained a number of special conditions dealing with contamination of Lot U, including clauses 43 and 44. Those clauses were as set out in Schedule 2 to these reasons.
After the Caltex Contract was entered into, work by EES on Lot U continued under the supervision of Ms Tracy Leanne Bauer. On 16 February 1999, Allens informed Mr Beilby of their instructions that all underground tanks had been removed from the Site and that Caltex expected remediation works to be completed earlier than 15 April 1999, the date for completion referred to in clause 44.7(a) of the Caltex Contract.
Charben retained Balmain NB Commercial Mortgages Limited (‘Balmain NB’) to arrange finance for the purchase of the Site. On 19 February 1999, Balmain NB wrote to GIO Finance seeking an advance in the sum of $1 million, to be secured by way of first mortgages over the Site and over the home of Jim and Vicky Janakis at Belrose. The covering letter relevantly said:
‘The site was previously used as a motor vehicle station, with adjoining associated workshop. The vendor of the larger site, [Caltex] will undertake full remediation of the site prior to settlement of the sale contract. The adjacent site has been sold by private interests and contains a brick workshop building which the applicant is going to demolish.’
In the enclosed proposal for finance, reference was made to the fact that, under the Caltex Contract, Caltex would provide Charben with an environmental report ‘Which will confirm the property may be used for [Charben’s] proposed use which [Charben] acknowledges shall be in accordance with the purposes and uses permitted by the present zoning of the property’.
It appears that the proposed financier required a contamination assessment of the Site. By no later than 1 March 1999, Geotechnique Pty Limited (‘Geotechnique’) had been instructed by Steve Paradisis to carry out an investigation of the Site. Some form of examination of the site was carried out by Geotechnique on 2 March 1999. On 9 March 1999, Mr Beilby wrote to Geotechnique, asking for their report as soon as possible ‘as our client is leaving for overseas’. Thus, it is clear that in March 1999, Mr Beilby was aware that an investigation of the Site was being conducted by Geotechnique.

On 15 March 1999, Mr Beilby wrote to Emil Ford enquiring whether the Lessors would extend the settlement date for the Lot T Contract to 31 July 1999, on the basis that Charben would pay interest on the outstanding balance of the purchase price. That letter may have crossed with a letter from Emil Ford, of the same date, noting that settlement was due on 15 April 1999 and requesting the transfer, as a matter of urgency, so that it could be signed prior to the departure of one of the Lessors overseas.
An internal memorandum of GIO Finance, of 16 March 1999, refers to a letter from Balmain NB requesting a split settlement for the proposed loan to Charben. The reason given was that Charben wished to purchase Lot T, but would not be receiving an environmental report for two months. The internal memorandum said that an amount of $400,000 was requested to enable completion of the purchase of Lot T, on the security of the Belrose property. The internal memorandum referred to a ‘Valuation Assessment where we require clear EPA report for the property at Killara (previous Caltex Service Station)… Once we receive the EPA report for Killara, we will advance the balance of funds. EPA report is expected in June 99.’
A copy of a report, prepared by Geotechnique, was sent to Steve Paradisis at his home on 16 March 1999 (‘the Geotechnique Report’). In its covering letter to Mr Paradisis of 16 March 1999, Geotechnique said:
‘The report provides a summary of soil sampling procedures, chemical analysis and an assessment of the contamination status of the site. Based on the results of the assessment, it is considered that the soils within the site do not pose a significant risk of hazard to human health or the environment under the proposed commercial development.’
The executive summary attached to the Geotechnique report contained the following statements:
‘This summary presents the results of a preliminary contamination assessment, carried out at Lot T… The investigation was commissioned by Mr S Paradisis.
It is understood that the proposed development will include office and retail space, occupying the bulk of the site area. There is also an option for residential units as part of the development.
The purpose of this assessment is to determine whether the site may or not be contaminated.
…
Based on the results of the environmental assessment, it is concluded that the site, under the proposed development, does not pose a significant risk of hazard to the environment or human health and is therefore suitable for the proposed commercial development and the option of residential apartments.
Should it be proposed to remove any of the existing fill materials located beneath the existing workshop, two options are available:
1. Re-use as filling on another industrial or commercial site.
2.Disposal at an EPA approved Landfill, following consent by the NSW EPA.
…’[emphasis added]
In the body of the Geotechnique report, the following qualification appeared:
‘Whilst this preliminary environmental site assessment has been thorough and in accordance with current acceptable guidelines and industry practice, the potential exists for contamination to be present between sampled locations. Should “suspect” materials be encountered during site preparation and construction, this office should be contacted for inspection, possible sampling and testing.
Reference must be made to the “Environmental Notes” in Appendix E, which set out details of the limitations of this report.’
Appendix E of the Geotechnique Report relevantly said as follows:
‘Although information provided by an environmental site assessment can reduce exposure to the risk of the presence of contamination, no environmental site assessment can eliminate the risk. Even a rigorous professional assessment may no [sic] detect all contamination within a site. Contaminants may be present in areas that were not surveyed or samples [sic], or may migrate to areas which did not show signs of contamination when sampled. Contaminant analysis cannot possibly cover every type of contaminant which may occur, only the most likely contaminants are screened.
…
Environmental site assessments are prepared in response to a specific scope of work required to meet the specific needs or [sic] specific individuals. an [sic] assessment prepared for a consulting civil engineer may not be adequate to a construction contractor or another consultant civil engineer.
An assessment should not be used by other persons for any purpose, or by the client for a different purpose. No individual, other than the client, should apply an assessment, even for its intended purpose, without first conferring with the consultant. No person should apply an assessment for any purpose other than that originally contemplated, without first conferring with the consultant.’
Curiously, Steve Paradisis asserted in evidence that he had not seen the Geotechnique Report until the solicitors acting for Charben in the proceeding showed it to him, about ten months before the hearing began in May 2003. The primary judge accepted the evidence of Steve Paradisis that he did not read the Geotechnqiue Report in 1999. Jim Janakis denied all knowledge of the Geotechnqiue Report and Theo Paradisis gave no evidence about it.
However, Mr Beilby gave evidence that the finance company required a full auditor’s report in relation to Lot T. He said that Geotechnique was the firm employed by Steve Paradisis for the purposes of carrying out that requirement. It was not until the Geotechnique report was received by the finance company that Charben was able to complete the purchase of Lot T. Completion of the purchase of Lot T took place on 15 April 1999.
In the meantime, Charben retained a firm of architects, Leffler Simes Pty Ltd (‘Leffler Simes’), to advise it in relation to development of the Site. On 18 March 1999, Leffler Simes submitted to the Council a development application for a commercial development on the Site. The documents submitted with that application included a ‘Statement of Environmental Effects’ prepared by Leffler Simes. Under the heading ‘Geotechnical & Archaeological’ in that document, the following appeared:
‘Old fuel tanks have been removed from the site and an E.P.A. Certification of the site will be gained prior to excavation activities.’
On 8 April 1999, the Council wrote to Leffler Simes. After referring to Charben’s development application and the consent of the owners of Lot T and Lot U, the Council’s letter said, relevantly, as follows:
‘The development site includes both the ex-service station site and the workshop site. Both properties are potentially contaminated land under the provisions of Part 7A of the Environmental Planning and Assessment Act 1979. It is noted that remediation works are in progress at the service station site.
The main purpose of this correspondence is to request that 3 copies of the report into the potential contamination of the workshop site and any remediation required, to make the site suitable for the proposed use, be provided to the Council to enable an assessment to be made under the provisions of Part 7A of the Act. You are requested to advise of the progress of the remediation of the service station site and the likely completion date of the works.’ [Emphasis added]
On 19 April 1999, Leffler Simes responded to the Council’s request of 8 April 1999, relevantly saying:
‘1.Workshop site. Attached for your information and records are three copies of the Environmental Site Assessment Report for the workshop site as requested. The main conclusion of the report is that no remediation works are required to the site.
2.Service station site. As noted in your letter, the remediation of the service station site is proceeding. The work is due to be completed in about eight weeks.’
The parties were unable to identify to the Court with certainty ‘the report into the potential contamination of the workshop site and any remediation required’ referred to in the Council’s letter of 8 April 1999. The primary judge assumed that the Council was referring to Report 19844B. However, that seems unlikely, since there is no reason to think that Leffler Simes would have had access to Report 19844B. Mr Beilby had only received a copy of the page containing the Conclusion to Report 19844B. It is more probable that it was the Geotechnique Report.
Remediation work was still continuing on Lot U at the time when completion of the purchase of Lot T took place. On 16 August 1999, Ms Bauer responded to an enquiry by Mr Caples by saying that EES was ‘½ way’ through the job.
On 11 February 2000, EES provided a third report to Caltex (‘Report 19844C’). Report 19844C related solely to Lot U. The covering letter, addressed to Caltex, dated 11 February 2000, stated that the ‘tank excavations have been validated according to [the Guidelines]’. It also said that validation ‘was undertaken in accordance with the proposed residential guidelines’.
The ‘INTRODUCTION’ to Report 19844C noted that Lot U was being sold and was to be redeveloped for residential purposes. The section of Report 19844C headed ‘OBJECTIVES’ stated that the objective to be achieved during the remediation process was ‘to validate the site to confirm it is suitable for the proposed residential usage’. Work undertaken to meet the objective was said to include the following:
- validation of tank pit excavations and piping excavations after removal of USTs and associated pipework;
- validation of material used to backfill excavation (both imported fill and bio-remediated soils);
- validation of the site as a whole; and
- provision of a validation report.
In the section of Report 19844C headed ‘DISCUSSION’, it was explained that samples had been collected from the floor and walls of the excavations after the removal of the underground tanks and they had been analysed to confirm that hydrocarbons had not impacted the surrounding soil. Validation samples were collected to assess whether any migration of contaminants had occurred to the rest of Lot U from the tankpit area. All hydrocarbons and lead levels tested were found to be non-detectable or below the Guidelines. It said that ‘groundwater and/or interface drainage’ was not encountered during validation sampling and that, therefore, groundwater criteria were not consulted.
The ‘CONCLUSION’ to Report 19844C was in the following terms:
‘Remedial works undertaken on 692B Pacific Highway, Killara, Sydney, included the removal of fourteen USTs and associated fixtures, validation of the excavations, removal of heavy metal contaminated fill material and validation of the site.
All known primary sources of hydrocarbon contamination including 14 USTs and associated pipework have been removed from the site.
Organic laboratory results for TPH, BTEX, PAH, phenols and inorganic results for lead, confirm that the USTs and pipeline excavations have been validated according to the NSW EPA (1994) - Threshold concentrations for sensitive land use - soils given in the NSW EPA (1994) - Guidelines for assessing service station sites.
Validation analysis of bioremediated backfill shows that all TPH, BTEX, lead and other heavy metals are below the above mentioned guidelines.
The laboratory results for TPH, BTEX, PAH, phenols, and lead on samples collected from boreholes and validation samples covering the remainder of the site confirm that the subsurface soils have been validated according to the NSW EPA (1995) - Sampling design guidelines and were below the values given in the NSW EPA (1994) - Threshold concentrations for sensitive land use - soils given in the (1994) - Guidelines for assessing service station sites (Table 4).
Given the above, validation results for potential contaminants associated with a former service station site, show that this site is suitable for residential landuse in accordance with the relevant guidelines.’ [Emphasis added]
On 14 February 2000, Allens forwarded a complete copy of Report 19844C to Mr Beilby. The covering letter pointed out that completion of the Caltex Contract was due to take place on or before 29 February 2000. After receiving a copy of Report 19844C from Allens, Mr Beilby telephoned Steve Paradisis, who went to Mr Beilby’s office. Mr Beilby read extracts from Report 19844C to Steve Paradisis and told him that it concluded, so far as he could see, that the Site was clean. Steve Paradisis relayed that information to Jim and Vicky Janakis, who agreed that Charben should complete the Caltex Contract. After some dispute between the solicitors as to the date for completion, the Caltex Contract was completed on 16 March 2000.
DEVELOPMENT OF THE SITE BY CHARBEN
At about the time of completion of the Caltex Contract, Steve Paradisis retained the services of Prominent Projects Pty Limited (‘Prominent’) to assist in the proposed development of the Site. Subsequently, Prominent, through Mr Peter Taylor, recommended the employment of HLA Envirosciences Pty Limted (‘HLA’). The managing director of HLA, Mr Christopher Kidd, was a site auditor accredited by the Authority.
On 10 April 2000, the Council notified Leffler Simes of the outstanding obligation, on the part of Caltex, to provide a report to it from an accredited site auditor with respect to the remediation of Lot U. As indicated above, the provision of such a report and site remediation had been a condition of the Council’s approval for removal of the tanks. The Council had rejected Report 19844C, because the person who certified it was not a site auditor approved by the Authority. Mr Beilby advised Allens and requested that Report 19844C be amended to comply with the Council’s requirement. Caltex declined to do so.
In May 2000, HLA sent facsimile communications to EES requesting clarification of aspects of its reports. On 15 May 2000, EES responded, through Ms Bauer, saying that EES ‘would be happy to provide information and assistance relevant to these reports’ but could not do so until EES was commissioned by Caltex to undertake the work. A copy of that response was sent to Mr Caples.
On 30 May 2000, Ms Bauer, on behalf of EES, sent a facsimile transmission to Steve Paradisis at Charben. The facsimile relevantly said:
‘I have spoken briefly to Simon Caples at [Caltex] regarding your previous discussions with me… He has been provided with a copy of the questions from the Auditor and has provided approval for [EES] to answer these where possible and pertinent.
[EES] undertook the work according to a brief set with Caltex, which did not involve an Auditor in the investigation or remediation process. We will provide information and answers to the queries put forward as long as you return this letter signed, agreeing that the indemnity in the contract of sale covering Caltex and their consultants undertaking environmental work on the site prior to sale still abides. Should the Auditor require additional work to meet the brief of the Auditor then this work will be the responsibility of the current owner, not that of Caltex.
It will take approximately 6 hours of time to answer the Auditor’s queries at a cost of $480… If you agree with the costs above and that the indemnity clause still holds, [EES] can have the answers to the Auditor by Thursday 1 June 2000.
…’
On 31 May 2000, Steve Paradisis sent a copy of that facsimile to EES endorsed with his acknowledgement and agreement to the above. EES subsequently provided a response to HLA’s enquiries.
In the meantime, on 23 May 2000, the Council granted Charben’s application for commercial development of the Site. However, the approval was subject to a condition that the consent was not to operate ‘until evidence of the decontamination of the site is submitted to the satisfaction of the Acting Director Environment and Regulatory Services and any additional conditions that may arise as a result of consideration of relevant reports’.
On 21 June 2000, HLA sent to Prominent a draft site audit report, prepared by Mr Kidd. It identified a number of deficiencies in the work done by EES. Mr Kidd said that additional validation works were required to confirm the contamination status of the Site, which he said could be conducted either prior to the commencement of development earthworks or during the course of the earthworks.
Steve Paradisis retained Geotechnique to prepare a remediation action plan. A draft remediation action plan was sent to Mr Kidd. Mr Kidd commented on the draft and a copy was provided to the Council. On 9 August 2000, and on the basis of the draft remediation action plan, the Council gave its consent for demolition and construction of earthworks to proceed on the Site. However, the Council emphasised that it would not issue a construction certificate, permitting construction of a new building, until it received a site audit statement saying that the Site was suitable for the proposed land use.
Caldas was engaged to manage site operations on behalf of Charben. Theo Paradisis acted on behalf of Caldas. A contractor engaged by Caldas demolished the buildings on the Site.
On 6 September 2000, Geotechnique issued a revised remediation action plan that took account of Mr Kidd’s comments on the draft. Mr Kidd approved the approach provided for in the revised remediation action plan and agreed that excavation of the Site could proceed. The system of work required by Mr Kidd was adopted. Progress was slow and excavation extended over several months.
On 6 November 2000, Mr Kidd carried out an inspection of the Site. He noted strong hydrocarbon odours and recommended that Caldas obtain advice from Geotechnique about additional testing, remediation excavation and stockpile options. Geotechnqiue carried out further testing, which showed that contamination in some locations exceeded acceptable limits. Geotechnique recommended additional aeration of the stockpile.
On 18 January 2001, Geotechnique informed Theo Paradisis that the Site was suitable for the proposed commercial development and said that a validation report was being prepared and would be sent to Mr Kidd. A validation report was issued on 22 January 2001. That led a delegate of the Council to issue a construction certificate for a new building on 25 January 2001. Caldas immediately poured a large concrete slab at the back of the Site, which was intended to be the lower level car park floor for the proposed development.
However, on 30 January 2001, Mr Kidd inspected the Site, in company with Theo Pradisis. Mr Kidd was dissatisfied. Accordingly, he directed additional investigation, including testing of groundwater below the relevant part of the Site. Geotechnique undertook further tests required by Mr Kidd and reported to him on 7 February 2001. Mr Kidd passed Geotechnique’s results on to Theo Paradisis, with a direction that the area of contamination be delineated and an assessment be made of the offsite migration of the contamination in both soil and groundwater. He required preparation of a new remediation action plan in relation to that work.
Thereafter, further consultants were retained to advise in connection with the contamination and remediation of the Site. Ultimately, a bioventing system was installed on the Site in accordance with designs provided by those consultants. Installation of the bioventing system took about six weeks. Construction work resumed in early May 2001 and by August 2001 the roof structure for the proposed new building was in place.
On 13 August 2001, the Council commenced a proceeding in the Land and Environment Court of New South Wales, seeking to restrain construction work on the Site on the basis that the work was not permitted until all contamination had been remediated and the Site had been validated by an accredited site auditor. Construction work was suspended for another seven months while a validation certificate was obtained. On 26 March 2002, HLA certified the Site to be suitable for the proposed commercial land use. Construction work recommenced in April 2002 and the new building was completed early in August 2002. An occupancy certificate was issued by the Council on 9 August 2002.
THE PROCEEDING BEFORE THE PRIMARY JUDGE

The proceeding in the Federal Court was instituted on 28 June 2002. Charben’s claims were spelled out in a further amended statement of claim filed on 11 April 2003 (‘the Statement of Claim’). In written submissions to the primary judge, counsel for Charben summarised the primary causes of action along the following lines:
- a claim against Caltex for breach of clause 44 of the Caltex Contract, in failing to carry out the Works, as defined in clause 44.2(a);
- a claim against both Caltex and EES for damages;
Caltex filed a cross-claim against EES claiming indemnity for any liability it might have to Charben. Caltex also filed a cross-claim against Charben, seeking declarations as to the continuing effect of the indemnity in clause 44.4 of the Caltex Contract.
The primary judge rejected the claims against Caltex based on misleading conduct, negligent misstatement and negligence. However, his Honour found that Charben’s claims against Caltex, based on breach of clause 44 of the Caltex Contract, and against EES, based on misleading conduct in relation to Report 19844B and Report 19844C were established. His Honour rejected the claims against EES based on negligent misstatement and negligence, but found EES liable on the basis of misleading conduct in relation to Report 19844B and Report 19844C.
The primary judge ordered judgment in favour of Charben against Caltex and EES in the sum of $2,147,800. His Honour also ordered judgment for Caltex against EES in the same amount on the cross-claim by Caltex against EES. While his Honour said that the cross-claim by Caltex against Charben should fail, his Honour did not make an order dismissing that cross-claim. The failure to do so appears to have been an oversight, although Charben has taken no steps to remedy the oversight.
Caltex and EES both appeal from the orders made by the primary judge. Charben relies on the notice of contention in the Caltex appeal, seeking to support the primary judge’s orders against Caltex, on the basis of the claim for misleading conduct arising from the provision of Report 19844C and the Conclusion from Report 19884B. Charben also relies on the notice of contention in the EES appeal, seeking to support the primary judge’s orders against EES on the basis of negligence in carrying out the remediation of the Site. Questions also arise on the appeals and notices of contention in relation to the quantification of damages.
THE CALTEX APPEAL
It is convenient to deal separately with the discrete questions raised by the Caltex Appeal, Charben’s Notice of Contention and the cross-claim by Caltex against Charben.
CONCLUSIONS OF THE PRIMARY JUDGE ON BREACH OF CONTRACT
The primary judge found that EES did not reduce the level of petroleum hydrocarbon contamination of Lot U to a level that would permit its use for a combined residential/commercial building, or even for a wholly commercial building. His Honour concluded that the word ‘cause’ in clause 44.2(a) was of significance, meaning to produce or bring about a particular effect. His Honour considered that the obligation of Caltex under clause 44.2(a) was to produce the effect that its environmental consultant reduce the pollution level to the requisite degree, or to be the cause of that happening. His Honour considered that the clause required more than an ineffective instruction.
The primary judge rejected Caltex’s reliance on clause 44.4(a). His Honour characterised the real question that arose under clause 44.4(a) as being whether it should be interpreted as a release from an action for breach of clause 44.2(a). While his Honour accepted that, read literally, clause 44.4(a) has that effect, it was necessary to read clause 44.2(a) in the context of the special conditions as a whole.
His Honour concluded that Charben’s right to object to an unsatisfactory environmental report, under clause 44.5, was irrelevant; there was nothing wrong with the terms of Report 19844C, only with its accuracy and the sufficiency of the remediation works that were required to be undertaken under clause 44.2(a). His Honour accepted the submissions by Charben that Caltex had not remediated Lot U so as to permit the use of Lot U for Charben’s proposed use without further remediation of the petroleum hydrocarbon pollution and that it followed that Caltex was in breach of clause 44.2 and was liable to Charben for damages for that breach.
CONSTRUCTION OF THE CALTEX CONTRACT
The Caltex Contract was not in any sense a contract of adhesion. Rather, it was the result of commercial negotiation between Allens and Mr Beilby. Mr Beilby requested amendments to the special conditions proposed by Allens and amendments were made, although not all of the amendments requested were accepted by Allens. It is clear that Charben accepted a degree of commercial risk in entering into the Caltex Contract. That is apparent from the terms of several of its clauses.
Clause 32(c) provided that Charben could not make a claim, objection or requisition or rescind or terminate in respect of any environmental hazard or contamination. Clause 43 then contained an acknowledgement of the previous use of Lot U. Charben acknowledged that it had inspected Lot U and was aware that it had been used for the storage and dispensing of petroleum products. By clause 43(b), it was provided that Caltex did not warrant or undertake that all petroleum equipment (as defined in 43(a)) had been removed or would be removed before completion. Under 43(d), Charben accepted Lot U as described in clause 43 and was not to make any requisition, objection, claim for compensation or other claim or delay completion or rescind or terminate in respect of any matter arising out of the matters set out in that clause.
Clause 44.1(a) provided that Caltex would remove all underground tanks, the existence of which was known to it or became known to it prior to completion. Clause 44.1(b) contained an express denial of any warranty or undertaking that all tanks would be removed. Once again, Charben accepted a commercial risk in that regard. Clause 44.1(d) picked up the same exception as is to be seen in 43(d), namely, that Charben was to accept Lot U as described and was not to make any claim or rescind or terminate in respect of any of the matters referred to in clause 44.1(a).
Clauses 32(c), 43(d) and 44.1(d) are all directed to the same end, namely, to eliminate any entitlement to rescind or terminate on the part of Charben by reason of the previous use of Lot U as a service station. The effect of clauses 32(c), 43(d) and 44.1(d) was that Charben was to be precluded from any right to rescind the Caltex Contract by reason of environmental hazard, contamination, the fact that Lot U had been used for the storage and dispensing of petroleum products or the fact that there might still be petroleum equipment left on Lot U. Those clauses indicate the acceptance of a commercial risk on the part of Charben. It is against the background of that acceptance of risk that clause 44 falls to be construed.
Clauses 44.2 and following are intended to alleviate, to some extent, the burden imposed upon Charben by clauses 32(c), 43(d) and 44.1(d). Nevertheless, clause 44.4 makes clear that, to the extent that any obligations were imposed upon Caltex prior to completion, those obligations were to be discharged from the date of completion.
Under clause 44.2(a), Caltex agreed to cause its environmental consultant to reduce the levels of petroleum hydrocarbon pollution to a level that would permit the use of Lot U for Charben’s proposed use (‘the Works’). Under clause 44.2(b), upon the completion of the Works, Caltex was to provide Charben with an environmental report from its environmental consultant that indicated that the Works had been completed. Under clause 44.2(c), completion was conditional upon completion of the Works and Caltex providing Charben with the environmental report referred to in 44.2(b). Section 44.4(a) then provided that, from completion, Caltex was to be released from all claims in respect of the Works, the Environmental Report or any contamination.
Under 44.5, if Charben was not satisfied that the report indicated that the Works had been completed, then it might so notify Caltex. Upon receipt of such notice, Caltex might either rescind or refer the environmental report to a certified contaminated site auditor, who was to determine whether the Works had been completed. That determination was to be final and binding on the parties.
The word ‘indicates’ in clauses 44.2(b) and 44.5 must be construed in the light of the scheme of clause 44 just outlined. It does not mean simply that the environmental report states in terms that the Works had been completed. It would not be sufficient to satisfy the condition in clause 44.2(c) for Caltex to provide a report that did no more than state that the Works had been completed. It required something more than that. Clause 44.5 would be otiose if the word ‘indicates’ simply meant ‘states’. It must mean that the environmental report demonstrates on its face, in professional detail, in accordance with appropriate guidelines, that the levels of pollution have been reduced to the relevant level.
That involved describing what work has been done, such that a certified contaminated site auditor would be in a position to determine whether the Works had in fact been completed. Clause 44.5 did not contemplate a physical inspection of the Site, although it would have been possible. Rather, clause 44.5 contemplated no more than an examination of the environmental report by the certified contaminated site auditor. Thus, if the report did not indicate, in the relevant sense, that the Works had been completed, the auditor would make a determination to that effect. It would follow that Caltex had not, at that stage, discharged its obligation under clause 44.2(a). Accordingly, by reason of clause 44.2(c), it could not have enforced completion at that stage.
It may be that clause 44.3 would then come into play. Thus, if further work were required in order to produce a report that indicated, in the relevant sense, that the Works had been completed, Caltex may become aware that the cost of the Works would exceed $50,000. Charben would then have the option of agreeing to pay the excess or of running the risk that Caltex might rescind. If Charben was not prepared to bear the excess over $50,000, Caltex would have the option of either rescinding or carrying out the Works at its own expense and producing an environmental report that indicated, in the relevant sense, that the Works had been completed. In the latter case Caltex could then insist upon completion by Charben.
Those provisions indicate an intention that, following exchange of contracts, Caltex was to have the obligations imposed by clause 44.2(a), subject to clause 44.3, (which provided that Caltex could rescind if the cost of the Works exceeded $50,000). On the other hand, they also clearly indicate that, on completion of the Caltex Contract, Caltex could walk away without any further concern about contamination of Lot U. The obligations of Caltex under 44.2(a) were not intended to continue after completion. On the assumption that Report 19844C satisfied clause 44.2(b), Caltex discharged its obligation prior to completion and was entitled to rely on clause 44.4.
The clear intent of clause 44.2 was to impose upon Caltex an obligation to cause the Works to be carried out. However, clause 44 provided its own mechanism for determining whether Caltex had performed that obligation. That is to say, unless the challenge contemplated by clause 44.5 was triggered, the Environmental Report was to be determinative of whether Caltex had performed its obligation under clause 44.2. Even so, that obligation was to come to an end upon completion, as the release and the indemnity in clause 44.4 made abundantly clear.
Thus, clauses 44.1, 44.2, 44.3 and 44.5 had effect only so long as the Caltex Contract was executory. They are to be contrasted with clause 44.4, which provides for a release and discharge and an indemnity ‘from the date of completion’. The parties evinced a clear and unequivocal intention that, once completion had occurred, Charben was to have no claim against Caltex in any way connected with the Works, the Environmental Report or any environmental contamination of Lot U. Further, Charben agreed to indemnify Caltex against any claims by third parties against Caltex as a result of the existence of any environmental contamination in Lot U. Charben agreed to accept the risk of such claims after completion.
That scheme indicates the extent of the respective risks that the parties negotiated for in relation to Lot U: Caltex accepted responsibility for the removal of any underground tanks, the existence of which was known to it prior to completion. That removal had to be carried out at the expense of Caltex, whatever that expense may be. Caltex was then to expend up to $50,000 in any necessary remediation work and to produce evidence, in the form of a report indicating, in the relevant sense, that it had carried out the remediation work. However, Caltex could not be compelled to expend more than $50,000 in the carrying out of remediation work. Charben, on the other hand, could not be compelled to complete the purchase of Lot U unless the remediation work was effected to reduce pollution to a level that would permit its use for Charben’s proposed use. However, Charben could not compel Caltex to spend more than $50,000 on remediation work. If there was a dispute as to whether the remediation work had been successful, that dispute was to be resolved by the auditor under clause 44.5.
Caltex sold Lot U to Charben for $700,000, under a contract that purported to limit Caltex’s liability for remediation to the sum of $50,000. It would be a curious result that Caltex is nevertheless liable to Charben for a sum in excess of $2.1 million for failing to remediate Lot U. That result flowed because the primary judge misconstrued clause 44. The effect of clause 44.4 was to discharge the obligation of Caltex under clause 44.2. His Honour erred in coming to a different conclusion.
CHARBEN’S CLAIM AGAINST CALTEX BASED ON THE EES REPORTS
Charben contended that Caltex, in effect, adopted Report 19844B and Report 19844C and must be taken to have made to Charben any representation contained in them.
The two Reports were clearly technical and were based on specific expertise. Caltex did not furnish any part of Report 19844B to Charben. It only furnished Report 19844C in performance of its obligation to provide an environmental report under clause 44.2(b). It did not adopt Report 19844C as its own. It clearly provided Report 19844C as a statement by EES, as its environmental consultant.
Each of Report 19844B and Report 19844C was printed on EES stationery and signed by EES personnel, as were their covering letters. There was no evidence, and nothing in either Report, to suggest that any Caltex representative played any part in their formulation.
Caltex passed on each Report to a firm of solicitors, under circumstances from which it may be inferred that Caltex would have expected the Report to reach any prospective purchaser. Nevertheless, nothing was said or done by Caltex that might reasonably have conveyed the impression that it was adopting the contents of either Report as its own statements. The primary judge concluded that neither Report constituted a representation made by Caltex, as distinct from a representation made by EES that Caltex passed on to another person in ignorance of its misleading nature.
Under the Lease, Caltex was obliged to furnish an environmental audit report and then take all necessary steps to ensure that a remedial program was put into effect. Report 19844B was provided by Caltex to the Lessors in order to discharge its obligations under the Lease. However, while Caltex commissioned Report 19844B, and gave directions from time to time about remediation work, a reader would understand that the statements in Report 19844B were assertions by EES, not by Caltex.
Similarly, Caltex furnished Report 19844C to Charben pursuant to its obligations under clause 44.2(b) of the Caltex Contract. Once again, while Caltex commissioned Report 19844C, and may have given directions from time to time about remediation work, a reader would understand that the statements in Report 19844C were assertions by EES and not statements by Caltex.
The primary judge found that there was no evidence that any Caltex officer knew that either Report contained misleading information. His Honour concluded, therefore, that there was no basis for suggesting that Caltex, or any officer of Caltex, was knowingly concerned in making any misleading statements contained in the Reports.
The primary judge rejected Charben’s contention that Caltex engaged in conduct in contravention of the Trade Practices Act or was involved in such a contravention. His Honour made no error in doing so.
CROSS-CLAIM BY CALTEX BASED ON CLAUSE 44.4(b)
In its cross-claim against Charben, Caltex sought indemnity from Charben in respect of any liability that it has in the proceeding and in respect of any loss or damage that it incurs in and about the proceeding. Those two claims were really matters of defence, which could have been pleaded by way of defence in order to avoid circuity of action.
However, Caltex also claimed further relief, consisting of declarations concerning the operation of clause 44.4(b), in so far as it constitutes an indemnity in respect of claims by third parties. The relief sought by Caltex in its cross-claim against Charben included the following:
‘(c)A declaration that clause 44.4 of the [Caltex Contract] continues to bind Charben and that Charben is obliged to comply with the clause.
(d)A declaration that any loss or damage (including legal costs) incurred by Caltex in responding to the EPA notification and/or responding to and complying with the EPA declaration are amounts which Charben is liable to indemnify Caltex pursuant to clause 44 of the [Caltex Contract].
(e)A declaration that pursuant to clause 44 of the [Caltex Contract] Charben is to indemnify, and to keep Caltex indemnified, from any and all losses and damages incurred as the result of any environmental contamination being present in, under, on or in the vicinity of [Lot U].
(f)An order that the assessment of the quantum of the indemnity to be provided to Caltex by Charben is to be referred to a Judicial Registrar pursuant to Order 38 for assessment from time to time upon applicant [sic] by Caltex as loss and damage is suffered by Caltex, until such time as 90 days after [the Authority] declares [Lot U] to be free from contamination.’
The reference to ‘The EPA Notification’ and ‘The EPA Declaration’ appear to be references to a notice received by Charben from the New South Wales Department of Environment and Conservation concerning a declaration by the Authority that land in the vicinity of the Site is a ‘Remediation Site’ under the Contaminated Land Management Act 1997 (NSW).
The primary judge dealt with the issue quite summarily. Having referred to the discussion earlier in the reasons of the relationship between Clauses 44.4 and 44.2 and the acceptance of Charben’s submission that Clause 44.4 did not release Caltex from its obligations under 44.2, his Honour concluded that Caltex’s cross-claim against Charben must fail. However, as indicated above, his Honour did not order that the cross-claim be dismissed. Thus, the appeal by Caltex is not from an order dismissing the cross-claim but from the failure of the primary judge to make the declarations and orders referred to above. Technically, however, the cross-claim is still on foot.

In its amended notice of appeal, Caltex claimed, inter alia, the following orders, either in addition to, or in lieu of, orders made by the primary judge:
‘ (c)a declaration that clause 44.4 of the [Caltex Contract] continues to bind Charben and that Charben is obliged to comply with the clause;
(d)a declaration that, pursuant to clause 44.4(b) of the [Caltex Contract], Charben is to indemnify, and keep Caltex indemnified, from any and all claims, liabilities, demands, suits, proceedings, losses, costs, penalties or damages incurred by Caltex as a result, directly or indirectly, of any environmental contamination being present in, under or on the [Lot U] or in, under or on land which is in the vicinity of [Lot U];’
The only ground in the amended notice of appeal that would support those orders is that the primary judge:
‘erred in failing to find that the effect of clause 44.4(b) of the [Caltex Contract] is that [Charben] must indemnify [Caltex] in respect of any liability that [Caltex] has incurred or will incur as a result of these proceedings (or the subject matter of these proceedings)’.
At present, there is no lis before the Court that would justify the making of declarations in the form sought by the cross-claim. The effect of the conclusion reached above, as to the proper construction of clause 44, is that the indemnity contained in clause 44.4 continues to be effective, notwithstanding completion of the Caltex Contract. In so far as clause 44.4(b) consists of an indemnity by Charben in favour of Caltex against any claims made in the future as a result of any environmental contamination in, under, or on, Lot U, that indemnity would continue in force. However, whether a particular claim that might be made in the future falls within the indemnity would depend upon the precise nature of the claim. There is no utility in making a declaration in the abstract about the operation of clause 44.4.
In the circumstances, the appropriate course would be to decline to make declarations, but on the basis that that declinature does not constitute an issue estoppel as to the effect of clause 44.4(b). Rather the cross-claim would be dismissed as premature, on the basis that there is not yet a genuine lis that it would be appropriate for the Court to determine.
CONCLUSION AS TO THE CALTEX APPEAL
It follows from the above conclusions that the appeal by Caltex should be upheld. The judgment in favour of Charben against Caltex should be set aside. In lieu of the orders made by the primary judge, there should be orders that the proceeding be dismissed as against Caltex and that the cross-claim by Caltex against EES be dismissed. The costs of the proceeding below and of the appeal are reserved. The parties are to file and serve brief written submissions on costs by 4:00 pm on Friday 27 January 2006.
THE EES APPEAL
It is convenient to deal first with the questions raised by EES in relation to the findings of the primary judge based on the Reports. It will then be necessary to deal with the allegation of negligence in carrying out the remediation, although that question would become otiose if the appeal by EES failed.
CHARBEN’S CLAIMS AGAINST EES BASED ON MISLEADING CONDUCT
The primary judge found EES liable under s 82 of the Trade Practices Act as a consequence of contravention of s 52 of the Trade Practices Act. His Honour made that finding on the basis that Report 19844B and Report 19844C contained significant misrepresentations and that their contents were critical in inducing Jim and Vicky Janakis, guided by Steve Paradisis and Mr Beilby, to cause Charben to purchase Lot T and Lot U.
His Honour found that Charben relied on the conclusions in the Reports in deciding to purchase Lot T and Lot U. His Honour concluded, therefore, that Charben had suffered loss or damage because the two Reports misled Charben into believing that it was purchasing parcels that were respectively suitable for ‘any landuse’ or ‘residential landuse’, when they were not. His Honour found that the expenditure incurred in making the Site suitable for commercial use was damage suffered by conduct that contravened s 52.
The Representations Found By The Primary Judge
His Honour found that there were four representations made by Report 19844C, the first and fourth of which were also made by Report 19844B, although there was a possible qualification as to whether the fourth representation extended only to part of Lot T. Charben no longer relies on the second and third representations. The two representations still relied on related to ‘the relevant guidelines’. The relevant representations found by the primary judge were:
- the Site had been validated in accordance with the relevant guidelines;
·the Site was suitable for residential land use in accordance with the relevant guidelines.
The term ‘Guidelines’ was defined by the primary judge as the guidelines for assessing service station sites published by the Authority. That publication, which was in evidence, was defined in the Statement of Claim as:
‘NSW EPA (1994) – Contaminated Sites: Guidelines for Assessing Service Station Sites’
His Honour found that the work carried out by EES in relation to validation of both parcels, prior to the delivery of the respective Reports, was insufficient to satisfy the Guidelines. His Honour also found that the Site had not been remediated to a standard suitable for residential land use. Accordingly, his Honour found that the representations were misleading and deceptive.
Paragraph 8E of the Statement of Claim alleged that Report 19844B contained, relevantly, the following representations:
‘(a)the removal of tanks, the removal of heavy metal contaminated fill material from behind the work shop and other remedial work had resulted in the appropriate remediation of [Lot T];
(b)following the remedial works, the validation of the excavation and [Lot T] generally had occurred;
(c)the tank excavation had been validated according to the NSW EPA Guidelines for Assessing Service Station Sites – December 1999 and in accordance with current industrial/commercial guidelines in keeping with rezoning of the Site at the time;
(d)[Lot T] generally was suitable for any land use.’
Paragraph 16 of the Statement of Claim alleged that Report 19844C contained, relevantly, the following representations:
‘(a)the Site, or alternatively [Lot U], had been validated according to the NSW EPA (1994) – Contaminated Sites: Guidelines for Assessing Service Station Sites, and the NEHF (1998) Health-based soil investigation levels.
…
(j)the Site, or alternatively [Lot U], had been remediated to a standard suitable for residential land use.’
Reliance On The Representations
Paragraph 9A of the Statement of Claim alleged that Charben relied on the truth and accuracy of the representations in Report 19844B in exchanging and completing the purchase of Lot T. Paragraph 17 of the Statement of Claim alleged that Charben relied on the truth and accuracy of the representations made by Report 19844C, by completing the purchase of Lot U, not making written objection to Report 19844C and assuming that Caltex had caused EES to reduce the levels of pollution on the Site, or alternatively Lot U, to a level that would permit Charben to use the Site for any purpose permitted by the zoning of the Site.
The primary judge said that there was no doubt in his mind that, in deciding to purchase each of Lot T and Lot U, Charben relied on the statements made in Report 19844B and Report 19844C, especially the statements in the respective conclusions of the Reports as to the suitability of the relevant land ‘for any landuse’ or ‘for residential landuse’.
The primary judge had no doubt that Mr Beilby read the Reports and discussed their contents with both Steve Paradisis and Jim and Vicky Janakis. His Honour did not consider that Steve Paradisis was ‘a great reader of reports’, but considered that he was aware of the possibility that the Site would be affected by hydrocarbon pollution. His Honour entertained no doubt that Steve Paradisis listened carefully to Mr Beilby’s summaries of the conclusions of the Reports and that Steve Paradisis passed on the essence of the conclusions to Jim and Vicky Janakis. His Honour accepted that Jim and Vicky Janakis placed total trust in Steve Paradisis and would have accepted his assurance that the Reports were satisfactory. His Honour concluded that that belief would only have been confirmed by what they were told by Mr Beilby.
Whether Reliance Was a Major Issue
The primary judge accepted that reliance was in issue on the pleadings and that Charben had the onus of establishing that it was induced to act to its detriment in some way in reliance upon Report 19844C. That involved the Court making findings as to the state of mind of relevant witnesses. The most important relevant mind, as will appear, was that of Mr Beilby.
However, when his Honour came to write reasons for his conclusions, his Honour believed that reliance was not a major issue and made the following observations:
‘To the extent that reliance is an issue in relation to any cause of action, that issue should be resolved in the applicant’s favour. In fact, although reliance was not admitted at trial, it was not a major issue.’
In the light of the submissions to the primary judge by both Caltex and EES, it was not entirely correct to say that reliance was not a major issue. The submissions in relation to each of Report 19844B and Report 19844C are summarised below.
REPORT 19844B
In its written submissions to the primary judge, Charben said:
191.     ‘The evidence that [Report 19844B] materially contributed to the decision to purchase Lot T, and thus to the decision to proceed with the development, is not seriously contested. Early on the day of exchange Mr Beilby… asked for and obtained the covering letter and conclusions of [Report 19844B]. Mr Beilby marked parts of that document before discussing it with Mr S Paradisis and perhaps with Mr and Mrs Janakis. Contracts were subsequently exchanged. It follows that [Report 19844B] contributed to the purchase of Lot T and therefore for the development of the Site.
192.     Mr Janakis gave evidence that he would not have exchanged on the contract for [Lot T] but for the advice given to him that Lot T was suitable for the proposed use. The advice given to Mr Janakis by Mr Beilby and Mr S Paradisis was materially influenced by the [Report 19844B] Extract. It is not necessary to show that the [Report 19844B] Extract was the sole or dominant cause of the decision to exchange on the contract…
193.     Causation is a question of fact which must be determined by applying common sense to the facts of each particular case. In this case, the conduct of EES and Caltex in forwarding misleading representations in the knowledge that potential purchasers would be the recipients of those misrepresentations must be causative of reliance by those purchasers on the representations.’
However, in its written submissions, Caltex submitted that it was necessary to identify representations made in the extract from Report 19844B that were conveyed by Mr Beilby to representatives of Charben. Caltex submitted that the present case was not one where Charben appointed Mr Beilby as its agent to review that extract and make the decision to enter into the Lot T Contract on the basis of the extract. Rather, Caltex submitted, Mr Beilby was merely a conduit for the purpose of interpreting the extract and relating its contents to representatives of Charben.
Caltex submitted that there was nothing in the extract from Report 19844B that would have permitted Mr Beilby to conclude that Lot T was ‘clean’ in the sense of completely uncontaminated or even that it would permit the construction of a commercial or combined residential/commercial development that would require a development approval. Caltex pointed out that Steve Paradisis said that he relied upon Mr Beilby to give him a ‘clean soil report’. If Steve Paradisis relied upon Mr Beilby’s statement that the Site was clean, then he relied upon a representation that was not made by EES.
Caltex further submitted that it would have been entirely irrational for Charben to act on the basis that the extract from Report 19844B contained representations that reasonably entitled Charben to rely upon them for the purpose of believing that Charben could use Lot T for its proposed use: to know that a property with residual contamination is safe for use as a mechanical workshop tells one nothing at all about whether the same property is fit for use as a commercial or combined residential/commercial redevelopment. Caltex submitted that nothing said in the extract was capable of being a representation that materially misled or deceived Charben into entering into the Lot T Contract.
Caltex also submitted that Charben plainly had an intention of using both Lot T and Lot U for the purpose of constructing the one commercial or one residential/commercial development. That use was not consistent with the use for which Lot T was fit, whether that be regarded as an industrial use or the current particular use. Caltex asserted that, even if Charben was misled into completing the purchase of Lot U because it acted upon the representation that Lot U was fit for standard residential use, that did not permit Charben to believe, rationally, that the representation concerning Lot U extended to Lot T or that Charben could implement its proposed use on Lot T. Caltex ultimately submitted that the only conclusion that was available was that Steve Paradisis (and Jim and Vicky Janakis if they were told) simply took a punt on the suitability of Lot T for their intended use.
Caltex also referred to the Geotechnique Report as having significance. The first significance was that it was the only report received by Charben that advised that Lot T was suitable for the actual use proposed by Charben. The conclusion to Report 19844B only stated that Lot T was safe for its current use, which was a mechanical workshop. The body of Report 19844B, in a part not given to Mr Beilby, made it plain that EES had adopted the threshold levels for commercial/industrial sites in the relevant part of the Guidelines and the objective was to confirm that Lot T was suitable for industrial use. Caltex submitted that Charben could not have relied upon the extract from Report 19844B so long as it retained its stated intention of leaving the residential option open.
Caltex drew attention to the statement in the executive summary to the Geotechnique Report that remediation options were to be recommended if contamination was found. Caltex submitted that that statement showed that Geotechnique at least understood that there was a possibility that Lot T remained contaminated in a way that would affect Charben’s proposed use. Caltex also drew attention to the fact that Steve Paradisis was an experienced and apparently successful property developer, who was in the process of acquiring substantial real estate on behalf of his daughter and son-in-law for the purpose of constructing a substantial development for their long term future. Caltex submitted that, since Steve Paradisis plainly commissioned and received the report from Geotechnique, if he did not read it in detail, he was cavalier. The Geotechnique report was not the sort of report that calls for cursory examination.
In its written submissions, EES submitted that Charben could not have been led to believe that any clean up work would go beyond permitting more than commercial use. Attention was drawn to Special Condition 8(b) of the Lot T Contract, whereby Charben specifically acknowledged that the Lessors did not warrant or represent that Lot T was free from environmental contamination, or that the clean up works would be completed. EES submitted that, in the light of the special conditions of the Lot T Contract, Charben’s claims that it entered into the Lot T Contract on the basis of a belief that it was suitable for commercial or combined residential/commercial development should be rejected and that the contemporaneous material demonstrated that Charben, or its advisers and backers, were openly accepting the risk of contamination and making decisions accordingly.
EES also drew attention to the Geotechnique Report as being the only environmental report received by Charben that advised that Lot T was suitable for the actual use proposed by Charben. EES referred to evidence from Mr Beilby in cross-examination that the finance company requested an auditor’s statement in regard to validation of Lot T. Mr Beilby agreed that Geotechnique had been employed by Charben for the purpose of carrying out the validation exercise. EES adopted the submissions made by Caltex that the Court should not accept the evidence of Steve Paradisis that he had not previously seen the Geotechnique Report. The finance company required that there be an independent report as to the contamination position of Lot T and Geotechnique was retained for that purpose.
REPORT 19844C
In its written submissions to the primary judge, Charben made the following assertion:
‘220. There can be no argument about the reliance upon and causative impact of [Report 19844C], for completion of the purchase of Lot U depended upon an appropriate remediation report, and completion was postponed until [Report 19844C] was provided.’
That submission, of course, is not directed to the question of whether anyone was induced by any representation contained in Report 1944C. Rather it is directed to the proposition that the provision of the Environmental Report, as contemplated by clause 44.2 of the Caltex Contract, was a condition precedent for completion. Thus, if Report 19844C were prepared negligently, in breach of a duty owed by EES to Charben, there may have been a causal connection between that breach and the loss following from the completion of the Caltex Contract. However, that says nothing about reliance upon the particular representations found by his Honour to have been made by Report 19844C.
In its written submission to the primary judge, Caltex submitted that the only convenient way to deal with Charben’s claim based on Report 19844C was to identify the representations that the evidence established were relied upon by Charben. If Charben did not rely upon a particular representation, then that would obviate the need to analyse Report 19844C in order to determine whether the representation was made and whether it was false or misleading. Caltex then proceeded to deal with the evidence as to what each of Jim Janakis, Steve Paradisis and Mr Beilby understood from Report 19844C.
In its written submissions to the primary judge, EES also drew attention to the elaborate scheme for the management of contamination risk contained in the Caltex Contract. EES submitted that the Caltex Contract clearly contemplated that Charben would retain its own environmental consultant for the purposes of advising it in relation to the report to be provided by Caltex. EES submitted that the existence of the regime provided for in clause 44 of the Caltex Contract confirms that Charben was aware of the not remote possibility that Lot U might still be contaminated. EES submitted that Charben was seeking relief in circumstances where the only inference available was that its directors and advisers went into the development project knowing full well the risks before them and choosing to ignore them.
EES specifically submitted that one of the issues that arose in the proceeding was whether it could be shown that Charben relied upon the representation allegedly made by the Reports. EES drew specific attention to the fact that Steve Paradisis, who was the primary decision maker, did not read or rely upon any of the Reports. It was said that Steve Paradisis’s behaviour could not be considered as the kind that would come within the acceptable range of behaviour to be expected within the relevant class of consumers. EES pointed out that having a solicitor read a single line from a complex scientific report was not the kind of behaviour that a potential purchaser of a service station site would regard as acceptable. EES drew attention to the fact that neither director of Charben read the EES Reports and that Mr Beilby was unable to recall with any certainty whether he discussed the reports with Jim and Vicky Janakis.
The Evidence of Reliance

Whether or not EES owed a duty of care to Caltex will depend upon the arrangements between EES and Caltex that gave rise to the performance of remediation work by EES on Lot U.
The instructions that resulted in preparation of Report 19844C were given to EES by Caltex in August 1998. On 10 August 1998, EES wrote to Caltex relevantly saying:
‘Validation of Caltex Killara and adjacent workshop, NSW
In response to our recent conversation [EES] are pleased to present a proposal to carry out validation and partial supervision of remediation of the Caltex service station Killara and the adjoining leased workshop located at 692 Pacific Highway Killara, NSW.
We understand that the site on which the service station is located is owned by Caltex… and the adjoining site on which the workshop is located is leased by Caltex… Both sites are for sale and use as a service station would be discontinued.
…
Remediation would be undertaken by A.C.A Foster Pty Ltd. The removal of the tanks will not be supervised. Contaminated soil and backfill will be stockpiled on site for classification by [EES] for offsite disposal or compaction on site. It is estimated that this will involve two half day inspections. While or before the tanks from both sites are being removed, the fill beneath the workshop and the fill at the rear of the service station site will be investigated to ensure compliance with the medium density residential criteria (NEHF D Criteria). This will be undertaken as part of the site validation. If the fill proves to be contaminated removal will be supervised and then validated.
Once tanks are removed all tank pits will be sampled in accordance with the NSW EPA Guidelines for assessing service station sites. The remainder of the sites will be validated after remediation of fill, if any, according [to] NEHF D criteria and NSW EPA Soil sampling guidelines.’
That proposal was accepted by Caltex on 13 August 1998 by facsimile from Mr Caples saying:
‘Please proceed with the decommissioning activities at Killara…’
On 19 October 1998, EES wrote to Caltex, for the attention of Mr Caples, relevantly saying as follows:
‘In response to your phone conversations with Philip Mulvey on the 15 and 16 October 1998, [EES] are pleased to present a proposal to undertake the removal of metal rich contaminated soil from the rear of the leased workshop portion of [Lot T].
[EES] conducted an Environmental Site Assessment (ESA) on this property in April 1998 and carried out validation of the tank pits at the front of the site during September 1998. On completion of remedial works a validation report is to be provided to Caltex… for [the] purpose of validating the site in accordance with the current NSW guidelines for commercial/industrial sites (NEHF health based investigation levels (1998)).
Remediation work will be undertaken by [EES] with scientific supervision and validation by [EES].
1.0      Objectives and insurance
The project brief specifies the following to be carried out:
-carry out removal of metal rich contaminated soil at the rear of the leased site and dispose to the adjacent Caltex owned service station site; and
-provide a validation report for the leased portion of the site.
…
2.0Methodology
All services such as power, water, gas, electricity and telecommunications were located and all unnecessary services disconnected prior to tank decommissionign (sic) which occurred in September 1998. A security fence was also put in place at this time on the Pacific Highway frontage.
…
3.0      Occupational health and safety requirements
…
4.0      Validation
The validation works will be conducted according to the NEHF health based investigation levels (1998) for commercial/industrial sites and according to the NSW EPA Sampling design guidelines (1995).
…
5.0      Time scope and bioremediation
The removal of contaminated fill from the rear of the site is expected to be completed within a week. Laborotory (sic) analysis will be undertaken on a three day turnaround. Depending on laboratory results and whether further work is required, a validation report can be supplied within three days of receiving final laboratory results.
6.0      Project cost
…’
Report 19844B was forwarded to Caltex under cover of a letter dated 9 November 1998, which was signed by Ms Bauer. The letter included the following:
‘The tank excavation has been validated according to the NSW EPA Guidelines for assessing service station sites – December 1994. Validation of the site was undertaken in accordance with current industrial/commercial guidelines in keeping with the property’s current zoning.’
Other relevant parts of Report 19844B and its conclusion are set out above.
The INTRODUCTION section of Report 19844C recognised that the Site was being sold by Caltex. That section relevantly said:
‘[EES] were requested by [Caltex] to undertake validation of the former Caltex service station located at 692B Pacific Highway, Killara, NSW. The site is being sold and is proposed to be redeveloped for residential purposes.
The former service station operated in conjunction with a workshop located immediately to the north of 692B, the two lots being known as 692 Pacific Highway, Killara. Prior to handing back the lease on the workshop site, [EES] decommissioned underground storage tanks on the site including remediation and validation works. These activities [were] presented in [Report 19844B].
A potential exists for hydrocarbon impacts on the site relating to the presence of a number of underground storage tanks (USTs) and associated piping.
…
This study was conducted according to [EES’s] proposal… dated 10 August 1998, and a letter from [Caltex] approving the proposed works dated 13 August 1998.
The OBJECTIVES section of Report 19844C relevantly said:
‘The objective to be achieved during the site remediation process was to validate the site to confirm it is suitable for the proposed residential usage.
Work undertaken to meet this objective included the following:
-validation of tank pit excavations and piping excavations after removal of USTs and associated pipework;
-validation of material used to backfill excavation (both imported fill and bioremediated soils);
-validation of the site as a whole; and
-provision of a validation report.
The work undertaken to meet the above is discussed in the following sections.’
Thus, the terms of Report 19844C demonstrate that EES knew that it had been commissioned in connection with the proposed sale of Lot U. That question was explored in the course of oral evidence given by Ms Bauer. She accepted that she was aware that Caltex was looking at selling Lot U and wanted Lot U remediated as suitable for residential land use.
Ms Bauer accepted that EES had a duty to let Caltex know if EES was of the opinion that, following remediation and validation, the Site had characteristics that either made it necessary for further work to be done or imposed constraints in the way that development could be undertaken. However, Ms Bauer would not accept that any such duty had anything to do with a proposed sale. Nevertheless, that assumption of responsibility may well be sufficient to satisfy the first element necessary to establish liability on the part of EES.
Charben was in a position where it had no contractual or other right, after it entered into the Caltex Contract, to ascertain whether the hydrocarbon pollution of Lot U had been reduced to the relevant level. It was dependent upon the terms of clause 44 of the Caltex Contract. The effect of clause 44 was to impose upon Caltex a contractual obligation to instruct its environmental consultant to carry out the Works and to provide a report from its environmental consultant indicating that the Works had been completed. Under clause 44.5, Charben was afforded the opportunity of having the Environmental Report referred to a certified contaminated site auditor to determine whether the Works had been completed so as to reduce the levels of hydrocarbon pollution to the relevant level, assuming Caltex did not rescind the Caltex Contract upon notification by Charben pursuant to clause 44.5. In circumstances where Charben was bound to complete the Caltex Contract if, on its face, the Environmental Report indicated, in the relevant sense, that the Works had been completed, EES could not have protected itself against the economic loss that it now claims. Charben was vulnerable to the risk of loss from the failure of EES to carry out the Works competently and in accordance with relevant professional standards.
However, Charben was under no compulsion to enter into the Caltex Contract. It could have negotiated different terms concerning the reduction of pollution levels. For example, Charben could have stipulated for its own consultant to supervise and oversee the Works and to provide a report indicating that the hydrocarbon pollution had been reduced to the relevant level. Charben was acutely aware of the potential risk, as the terms of clause 44 of the Caltex Contract and the special conditions of the Lot T Contract eloquently demonstrate.
In its pleaded defence, EES asserted that, if Charben has suffered loss or damage, it was caused, or was contributed to, by Charben’s own conduct or negligence. Relevantly, EES particularised Charben’s conduct and negligence as follows:
- failing to make its own assessment of the contamination of the Site before completing the Caltex Contract;
- relying on the Geotechnique Report;
- failing to obtain complete copies of Report 19844B and Report 19844C;
- failing to engage the services of an auditor to examine and advise on Report 19844B and Report 19844C;
- failing to have Geotechnique examine and advise on Report 19844B and 19844C;
- failing to carry out any or any proper investigation of the Site or to appoint an environmental auditor prior to completion of the Caltex Contract.
Whether or not it was open to Charben to retain a consultant to examine and advise on Report 19844C and whether it was open to Charben to carry out any investigation of Lot U after entering into, but prior to completion of the Caltex Contract, is very much tied up with the question of whether Charben was vulnerable to the risk of loss from the economic consequences of negligence on the part of EES in carrying out the Works, as defined in clause 44.2 of the Caltex Contract, so as to give rise to a duty on the part of EES to take care in carrying out the Works.
While the effect of clause 44 was to put Charben in a position of economic dependency in relation to the work that EES was instructed by Caltex to do, it was Charben’s choice to be in that position. It could have put itself in a direct relationship with EES, such that EES was under an express contractual obligation to Charben to carry out the Works in a competent, non negligent fashion. It did not do so. It was not vulnerable to economic loss as a consequence of negligence by EES until it had entered into the Caltex Contract. There is no evidence that EES was aware of the terms of the Caltex Contract.
In those circumstances, the prerequisites are not established for EES to have a common law liability in tort to Charben for carrying out the Works in a negligent fashion or in breach of a duty owed to Charben, assuming that, on investigation, negligence in carrying out the Works were established (see Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [31] and [80]).
Alternatively, of course EES may have had a common law liability to Charben in tort for economic loss if it knew that Charben was relying or depending on EES to carry out the Works in a competent and non negligent fashion, or if EES assumed a responsibility to Charben to do so. There was certainly no assumption by EES of any responsibility to Charben. While EES knew that there may be a sale of Lot U, it had no knowledge of Charben or its intentions for the development of Lot U.
At the time of the retainer of EES by Caltex in August 1998 Charben had no knowledge of the Site. It was not introduced to the Site until October 1998. While EES, through Ms Bauer, must be taken to have known that a prospective purchaser of Lot U would have an interest in ensuring that any remediation works to be carried out on Lot U would be carried out competently and without negligence, it cannot be said that EES knew that there would be reliance by any purchaser on EES for the purpose of completing the purchase of Lot U.
EES’S CLAIM TO INDEMNITY
In its defence, EES asserted that the exchange of facsimiles of 30 and 31 May 2000 between EES and Charben constituted an agreement that the indemnity clauses contained in the Caltex Contract would apply to Charben and that Charben would hold EES free from all actions and liability in respect of Report 19844C. EES then asserted that, if EES has any liability in the proceeding to Charben, such liability falls within the terms of the indemnity. EES also asserted that any costs incurred by it in respect of the proceeding also fall within the terms of such indemnity.
The primary judge observed that EES made no submissions in support of its assertion to be entitled to indemnification by Charben. His Honour concluded, in any event, that the defence has no substance. His Honour considered that, having regard to the lack of any discussion about the indemnity, it was questionable whether it could be regarded as part of any agreement between Charben and EES. His Honour concluded that, assuming it was, the substance does no more than acknowledge the continued application, as between Charben and Caltex, of the special conditions in the Caltex Contract and it did not confer on EES any right of indemnity.
The facsimile of 30 May 2000 was sent in the context of EES obtaining the consent of Caltex to respond to the questions from HLA in relation to Report 19844C. It does not purport do more than confirm the continuation of the indemnity in the Caltex Contract. It does not purport to create any new entitlement to indemnity in favour of EES that did not previously exist. The indemnity in clause 44.4 of the Caltex Contract was not expressed to extend to ‘Caltex and their consultants’ but refers only to Caltex as ‘the Vendor’. The primary judge correctly rejected any defence based on the indemnity contained in the Caltex Contract.
CONCLUSION AS TO THE EES APPEAL
It follows that the EES appeal must also be upheld. The judgment in favour of Charben against EES should be set aside. In lieu of the orders made by the primary judge, there should be an order that the proceeding be dismissed. The costs of the proceeding below and of the appeal are reserved. The parties are to file and serve brief written submissions on costs by 4:00 pm on Friday 27 January 2006.
ISSUES RELATING TO LOSS AND DAMAGE
In the light of the above conclusions, it is not necessary to deal with the issues as to quantum raised in the Caltex appeal. EES adopted the submissions made by Caltex in relation to those issues. However, since the issues were argued in full, it is desirable to say something about them. It is possible, of course, that the issues would not arise in the same way in the assessment of damages for negligence, if there were a finding that there was a breach of duty by EES as pleaded in the Statement of Claim.
The primary judge dealt with what was described as a point of principle concerning ‘Increased costs before February 2001’. The issue concerned a head of damage consisting of the costs incurred by Charben for removal of contaminated soil from the Site. His Honour concluded that an additional sum had to be paid to ‘Glencoe’ for removal of soil from the Site, which would not have been incurred if there had been remediation of the Site to the appropriate level. His Honour found that the additional expense was incurred because the soil was not disposable at a regular dump and had to be carted to a specialised facility (conducted by Enviroguard).
However, the cost of ensuring that the Site was completely free from contamination was not necessarily loss occasioned by any breach of clause 44 of the Caltex Contract or misleading statements that remediation had been carried out in accordance with the Guidelines. That is to say, Caltex was not obliged to restore Lot U to the condition in which it would have been if it had never been used for a contaminating purpose. Further, there was no finding that compliance with the Guidelines would not have achieved that condition. The only evidence before the primary judge was that, since Lot U had been used as a service station, it would be necessary for excavated material to be disposed of at a special dump, even if the pollution on Lot U had been reduced to the appropriate level. Accordingly, there was no evidence that Charben had incurred additional costs in disposing of the contaminated soil above the cost that it would have incurred had the pollution been reduced to the appropriate level as described in clause 44.2(a) of the Caltex Contract.
The only evidence on that topic was from Theo Paradisis. Theo Paradisis said that, if the soil had been ‘clean fill’, it would have been possible to dump the soil at another site, which was close to Killara and which was being managed by a business colleague. He said that dumping the soil at the Enviroguard facility was more expensive than dumping clean soil, as he had to pay Enviroguard for the cost of dumping and the trucks had to travel further to dump the soil.
Theo Paradisis gave his evidence in chief by affidavit. His Honour said that he did not accept that the reference to how he would have been able to dispose of ‘clean fill’ was a reference to soil that had never been contaminated at all. His Honour observed that Theo Paradisis had previous experience with service station sites and knew that a former service station site was unlikely ever to be in pristine condition. His Honour concluded that the term ‘clean fill’ was used to refer to fill that was able to be accepted at any regular dump, being fill that posed no hazard to a normal urban environment.
However, there was no basis for that conclusion. Theo Paradisis did not say that. On the other hand, he does not appear to have been cross-examined about the statement in his affidavit. A sentence in his affidavit appears to have been rejected and, as it stands, the affidavit simply refers to ‘clean fill’, without explaining what Theo Paradisis meant by that term. He was asked some questions about the quantity of material taken by Enviroguard.
Neither the affidavit evidence nor the cross-examination was directed to elucidating what Theo Paradisis meant by ‘clean fill’. His responses in cross-examination rather suggest that he had in mind that the whole of the excavated material from the site was industrial waste. That seems to be different from ‘clean fill’. Thus, he said in cross-examination that most of the soil was classified as ‘industrial waste, that is still like a contaminated waste and it had to go to an industrial landfill’. Theo Paradisis said that it was his understanding all along that the soil was contaminated but to varying degrees. He said that obviously the top layer was the worst form of contamination and the rest was all industrial and inert and ‘that is a form of contaminated soil’.
The primary judge was somewhat generous to Theo Paradisis in dealing with what Theo Paradisis meant by the term ‘clean fill’ in relation to dumping waste. His Honour gave a construction to language that, on one view, was quite unequivocal, being a construction that entirely changes the meaning of the language of the affidavit. There was undisputed evidence that, even if Lot U had been remediated to the level contemplated by clause 44.2(a), the excavated material would not be regarded as ‘clean fill’ and would have required disposal in the way in which it was actually disposed of. His Honour erred in concluding that there was any evidence that additional cost was incurred in the transport of excavated material, by reason of the fact the pollution of Lot U had not been reduced to the extent contemplated by clause 44.2(a).

The position may have been different if it had been found that EES was negligent in carrying out the remediation. If there were a finding that, without negligence, the Site would have been remediated to the condition it would have been in but for use as a service station and mechanical workshop, the expense may be regarded as attributable to the negligence. That would depend upon any finding as to breach of the duty owed by EES and the consequence of that breach of duty, assuming that EES owed such a duty.
Several further minor issues were raised in the Caltex appeal. However, those issues have not been pressed by Caltex.
A further issue was raised by EES concerning the installation on the Site of a bioventing system. EES contended that the carrying out of that work was unnecessary to achieve remediation and it was unreasonable for Charben to have done that work. EES contended that there was no causal connection between any conduct on its part and the expense incurred by Charben in the installation of the bioventing system.
However, the position might be different if Charben were to succeed against EES because EES breached a duty owed to Charben to take care in carrying out the remediation. In order remediate the Site, Charben relied on the advice of qualified consultants as to whether the installation of the bioventing system was necessary. It acted reasonably in doing so, to ensure that the Site was fit for the purpose for which Charben acquired it. The primary judge made no error in finding that the cost of the installation was an expense reasonably incurred in order to overcome the contamination. Whether it was an expense that was caused by any breach of duty to take care is another question, which would fall to be determined when any breach of duty has been established.
Finally, an issue was raised by Charben concerning the disallowance by the primary judge of the sum of $10,000 in relation to the fees of Geotechnique and HLA. The fees related to a site audit and expenditure on testing. The evidence before the primary judge indicated that, whether or not the Site was properly remediated, the Council would require a site audit to establish that fact and fees would have been incurred in providing such an audit. One could reasonably assume that such an audit would involve expenditure on testing. There is no error on the part of the primary judge in deducting the sum of $10,000 as an allowance for such expenditure.
SCHEDULE 1
RELEVANT PROVISIONS OF THE LOT T CONTRACT
8. (a) The Purchaser acknowledges that:
(i)the adjoining property comprised in Folio Identifier U/391532 and known as 692B Pacific Highway, Killara (“the adjoining property”) has been used for the storage and dispensing of petroleum products;
(ii)the owner of the adjoining property has installed underground tanks for the storage of petroleum products on the property sold under this Contract for Sale;
(iii)the Vendor has requested the owner of the adjoining property to remove the underground tanks and clean up environmental contamination on the property caused by the owner of the adjoining property to a commercial standard;
(iv)the excavations resulting from clean up works or from the removal of the underground tanks have been or will be backfilled and the filling has not been and will not be compacted; and
(v)in connection with the removal of the underground tanks and clean up works, water, electricity and gas services and telephone connections to the property may be disconnected.
(b)The Purchaser acknowledges that the Vendor does not warrant or represent that:
(i)the property is free from environmental contamination;
(ii) the clean up works will be completed;
(iii)if the underground tanks remain on or under the land at the Completion date, they may be or have been rendered fit for use; and
(iv)soil on the property has been or will be compacted to any particular standard or that the property is suitable for construction of improvements on the property.
(c)The Purchaser accepts the property as described in this special condition 8 and must not make any requisition, objection, claim for compensation or other claim or delay completion or rescind or terminate in respect of any matter arising out of any of the matters set out in this special condition.
SCHEDULE 2
RELEVANT PROVISIONS OF THE CALTEX CONTRACT

43. ACKNOWLEDGEMENT OF PREVIOUS USE
(a)The Purchaser acknowledges that the Purchaser has inspected the property and is aware that it has been used for the storage and dispensing of petroleum products. The Purchaser further acknowledges that various structures have been erected on the property and that receptacles for the storage of petroleum products and pipes, valves, pumps and other means of transport and dispensing of petroleum products (the “Petroleum Equipment”) have been installed on and under the land.
(b)The Vendor does not warrant or undertake that all Petroleum Equipment has been or before completion will be removed from the property. In the event that any Petroleum Equipment remains on or under the land on the date of completion, then the Purchaser acknowledges that that Petroleum Equipment is no longer available for use and may be or have been rendered unfit for use.
(c)The Purchaser further acknowledges that the Purchaser is aware that excavations resulting from clean up works or from the removal of underground receptacles for the storage of petroleum products or resulting from demolition of improvements have been or will be backfilled and that the filling has not been and will not be compacted. The Vendor does not warrant or represent that soil on the property has been or will be before completion compacted to any particular standard nor does the Vendor warrant or represent that the property is suitable for construction of improvements on the property. The Purchaser acknowledges that the Vendor does not make any such warranties or representations and shall not make any requisition, objection, claim for compensation or other claim or delay completion or rescind or terminate in respect of compaction (or lack thereof) of any soil on the property or the property’s suitability for construction of improvements.
(d)The Purchaser accepts the property as described in this clause and shall not make any requisition, objection, claim for compensation or other claim or delay completion or rescind or terminate in respect of any matter arising out of any of the matters set out in this clause.

44.ENVIRONMENTAL WORKS
44.1Removal of tanks
(a)The Vendor will remove from the property all underground tanks for the storage of petroleum products, the existence of which tanks is known to the Vendor or becomes known to the Vendor prior to completion.
(b)The Vendor does not warrant or undertake that all tanks for the storage of petroleum products have been or before completion will be removed from the property. In the event that any such tanks remain on or under the land on the date of completion, then the Purchaser acknowledges that they may be or have been rendered unfit for use.
(c)The Purchaser further acknowledges that the Purchaser is aware that excavations resulting from the removal of underground tanks for the storage of petroleum products have been or will be backfilled and that the filling has not been and will not be compacted. The Vendor is not obliged to excavate or remove from the property any pavement, hard stand area or foundation of any improvement nor replace any such items which may be excavated.
(d)The Purchaser accepts the property as described in this clause and shall not make any requisition, objection, claim for compensation or other claim or delay completion or rescind or terminate in respect of any matter arising out of any of the matters set out in this clause.

44.2Works
The Purchaser acknowledges and agrees that:

(a)after the Vendor removes the tanks in accordance with clause 44.1, the Vendor will cause its environmental consultant to reduce the levels of petroleum hydrocarbon pollution of the property caused by the use of the property as a service station to a level which will permit the use of the property for the Purchaser’s proposed use which the Purchaser acknowledges shall be in accordance with the purposes and uses permitted by the present zoning of the property (the “Works”)” [sic]
(b)upon completion of the Works, the Vendor will provide the Purchaser with an environmental report (the “Environmental Report”) from its environmental consultant which indicates that the Works have been completed;
(c)completion is conditional upon completion of the Works and the Vendor providing the Purchaser with the Environmental Report;
(d)the Vendor is unable to determine the time required for the completion of the Works and the Purchaser shall not make any requisition, objection, claim for compensation or other claim in respect of the Works being delayed by reason of the Vendor obtaining the necessary consents from the local authorities to commence and complete the Works, adverse weather, the rate of evaporation or anything else beyond the control of the Vendor.
(e)the Vendor does not represent or warrant that the Purchaser will be entitled to use the property for the Purchaser’s proposed use specified in clause 44.2(a) nor that the zoning of the property permits or will permit that use and that the Purchaser has satisfied himself in relation to the use to which he will be entitled to undertake on the property.

44.3Cost of Works
(a)The Vendor shall notify the Purchaser if the Vendor becomes aware that the cost of the Works will be in excess of $50,000.00 and the Purchaser shall then notify the Vendor within 14 days of service of the Vendor’s notice whether the Purchaser will pay the cost of the Works in excess of $50,000.00 (the “Excess”).
(b)If the Purchaser notifies the Vendor that the Purchaser will pay the Excess or if the Vendor is of the opinion that the cost would not exceed $50,000.00 the Vendor shall at its own expense up to $50,000.00 carry out the Works in accordance with Clause 44.2.
(c)If the Purchaser notifies the Vendor that it will not meet the Excess or if the Purchaser fails to notify the Vendor in accordance with Clause 44.3(a) within the 14 days referred to in that Clause, the Vendor may either:
(i)carry out the Works at its own expense; or
(ii)rescind this contract by written notice to the Purchaser.

(d)If paragraph (b) applies, the Purchaser shall pay the Excess to the Vendor on completion, but if completion does not occur for any reason (other than default by the Vendor or valid rescission by the Vendor or the Purchaser) the Purchaser shall pay the Excess to the Vendor within 5 days of receiving notice to do so.

44.4Release and indemnity
(a)From the date of completion, the Purchaser releases and discharges the Vendor from all actions, suits, causes of action, claims and demands (including, without limitation, any claim or demand for costs or expenses) which the Purchaser:
(i)now has; or
(ii)may have in the future,

against the Vendor arising out of or in any way connected with the Works, the Environmental Report, or any environmental contamination in, under or on the property or in, under or on land which is in the vicinity of the property.

(b)From the date of completion, the Purchaser indemnifies the Vendor against any claims, liability, demands, suits, proceedings, losses, costs, penalties or damages incurred by the Vendor as a result, directly or indirectly, of the existence or otherwise of the Works, the Environmental Report or any environmental contamination in, under or on the property or in, under or on land which is in the vicinity of the property.

44.5Objection to Environmental Report
If the Purchaser is not satisfied (acting reasonably) that the Environmental Report indicates that the Works have been completed so as to reduce the levels of petroleum hydrocarbon pollution of the property caused by the use of the property as a service station to a level which will permit the Purchaser’s proposed use of the property as specified in clause 44.2(a) then the Purchaser may so notify the Vendor (but only within seven (7) days after the Vendor provides the Purchaser with the Environmental Report and in this respect time is of the essence). Upon receipt of such notice, the Vendor may either:
(a)rescind this contract and refund the deposit monies paid under this contract to the Purchaser and the provisions of clause 19 shall therefore apply; or

(b)refer the Environmental Report to a certified contaminated site auditor (Auditor) who will determine whether the Works have been completed so as to reduce the levels of petroleum hydrocarbon pollution of the property caused by the use of the property as a service station to a level which will permit the Purchaser’s proposed use of the property as specified in clause 44.2(a).

The Auditor to whom the Environmental Report is referred pursuant to paragraph (b) will act as an expert and not as an arbitrator and the determination of the Auditor will be final and binding on the parties.

44.6 Auditors Costs
The Auditor’s costs in providing the Auditor’s determination under clause 44.5(b) will be:
(a)payable by the Purchaser if the Auditor determines that the Works have been completed to the standard referred to in clause 44.2(a) in which case it is a condition of completion that the Purchaser pay those costs to the Vendor on completion; or
(b)payable by the Vendor if the Auditor determines that the Works have not been completed to the standard referred to in clause 44.2(a).

44.7Completion date
The completion date is the later of:
(a)15 April 1999; or

(b)14 days after the Vendor provides the Purchaser with the Environmental Report where the Purchaser has not notified the Vendor under clause 44.5 within the period permitted under that clause; or
(c)if the Purchaser has notified the Vendor under clause 44.5 within the period permitted under that clause, the date which is 7 days after the Auditor has determined that the Works have been completed to the standard referred to in clause 44.2.

44.8Rescission

If the Purchaser fails to complete this contract on or before the completion date (other than as a result of default by the Vendor), then the Vendor is entitled to rescind this contract and refund the deposit monies paid under this contract to the Purchaser and the provisions of clause 19 shall therefore apply.

44.9 No Merger
This clause 44 will not merge on completion.

I certify that the preceding three hundred and six (306) numbered paragraphs and three (3) numbered schedules are a true copy of the Reasons for Judgment herein of the Honourable Justices Tamberlin, Kiefel and Emmett.
Associate:
Dated: 22 December 2005

NSD611/2004

Counsel for the Appellant:

S D Robb QC with M S Henry

Solicitor for the Appellant:

Middletons

Counsel for the First Respondent:

P T Taylor SC with D T Miller (14, 15, 16 and 17 February 2005)

F Corsaro SC with P T Taylor SC (10 and 11 August 2005)

Solicitor for the First Respondent:

PWC Legal (to 4 April 2005)

Phillips Fox (from 4 April 2005)

Counsel for the Second Respondent:

J J Webster SC with M Green

Solicitor for the Second Respondent:

Colin Biggers & Paisley

Date of Hearing:

14, 15, 16 and 17 February 2005 and 10 and 11 August 2005

Date of Judgment:

22 December 2005

NSD615/2004

Counsel for the Appellant:

J J Webster SC with M Green

Solicitor for the Appellant:

Colin Biggers & Paisley

Counsel for the First Respondent:

P T Taylor SC with D T Miller (14, 15, 16 and 17 February 2005)

F Corsaro SC with P T Taylor SC (10 and 11 August 2005)

Solicitor for the First Respondent:

PWC Legal (to 4 April 2005)

Phillips Fox (from 4 April 2005)

Counsel for the Second Respondent:

S D Robb QC with M S Henry

Solicitor for the Second Respondent:

Middletons

Date of Hearing:

14, 15, 16 and 17 February 2005 and 10 and 11 August 2005

Date of Judgment:

22 December 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD611 OF 2004

JUDGES:	TAMBERLIN, KIEFEL & EMMETT JJ
DATE OF ORDER:	22 DECEMBER 2005
WHERE MADE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD615 OF 2004

BETWEEN:	ENVIRONMENTAL & EARTH SCIENCES PTY LTD APPELLANT
AND:	CHARBEN HAULAGE PTY LTD FIRST RESPONDENT CALTEX PETROLEUM PTY LTD SECOND RESPONDENT
JUDGE:	TAMBERLIN, KIEFEL & EMMETT JJ
DATE OF ORDER:	22 DECEMBER 2005
WHERE MADE:	SYDNEY

NSD611/2004
Counsel for the Appellant:	S D Robb QC with M S Henry
Solicitor for the Appellant:	Middletons
Counsel for the First Respondent:	P T Taylor SC with D T Miller (14, 15, 16 and 17 February 2005) F Corsaro SC with P T Taylor SC (10 and 11 August 2005)
Solicitor for the First Respondent:	PWC Legal (to 4 April 2005) Phillips Fox (from 4 April 2005)
Counsel for the Second Respondent:	J J Webster SC with M Green
Solicitor for the Second Respondent:	Colin Biggers & Paisley
Date of Hearing:	14, 15, 16 and 17 February 2005 and 10 and 11 August 2005
Date of Judgment:	22 December 2005

NSD615/2004
Counsel for the Appellant:	J J Webster SC with M Green
Solicitor for the Appellant:	Colin Biggers & Paisley
Counsel for the First Respondent:	P T Taylor SC with D T Miller (14, 15, 16 and 17 February 2005) F Corsaro SC with P T Taylor SC (10 and 11 August 2005)
Solicitor for the First Respondent:	PWC Legal (to 4 April 2005) Phillips Fox (from 4 April 2005)
Counsel for the Second Respondent:	S D Robb QC with M S Henry
Solicitor for the Second Respondent:	Middletons
Date of Hearing:	14, 15, 16 and 17 February 2005 and 10 and 11 August 2005
Date of Judgment:	22 December 2005