FEDERAL COURT OF AUSTRALIA
Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd
[2004] FCA 403TRADE PRACTICES – Alleged misleading conduct – Reports regarding remediation of contaminated site – Whether reports contained misleading statements – Reliance on reports – Whether consultant’s report was activity in connexion with the sale … or the possible sale … of an interest in land’ – Liability established as against corporation that issued report, but not against corporation that passed it on without adopting its contents.
CONTRACT – Contractual liability of vendor of land under special condition of contract in respect of failure to ensure remediation of land – Breach of contract.
NEGLIGENCE – Whether there was a relevant duty of care – Breach of duty.
NEGLIGENT MISSTATEMENT – Duty of care.
ASSESSMENT OF DAMAGES
Trade Practices Act 1974 (Cth) ss 52, 53A(1), 75B, 82(1), 87
CHARBEN HAULAGE PTY LTD v ENVIRONMENTAL & EARTH SCIENCES PTY LTD and CALTEX PETROLEUM PTY LTD
N 626 of 2002
WILCOX J
8 APRIL 2004
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 626 of 2002
BETWEEN:
CHARBEN HAULAGE PTY LTD
APPLICANTAND:
ENVIRONMENTAL & EARTH SCIENCES PTY LTD
FIRST RESPONDENTCALTEX PETROLEUM PTY LTD
SECOND RESPONDENTCALTEX PETROLEUM PTY LTD
CROSS CLAIMANT ON THE FIRST CROSS CLAIMCHARBEN HAULAGE PTY LTD
FIRST CROSS RESPONDENT TO THE FIRST CROSS CLAIMENVIRONMENTAL & EARTH SCIENCES PTY LTD
SECOND CROSS RESPONDENT TO THE FIRST CROSS CLAIMENVIRONMENTAL & EARTH SCIENCES PTY LTD
CROSS CLAIMANT ON THE SECOND CROSS CLAIMCALTEX PETROLEUM PTY LTD
CROSS RESPONDENT TO THE SECOND CROSS CLAIMJUDGE:
WILCOX J
DATE OF ORDER:
8 APRIL 2004
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Judgment be entered in favour of the applicant, Charben Haulage Pty Ltd (‘Charben’), against the respondents, Environmental & Earth Sciences Pty Ltd (‘EES’) and Caltex Petroleum Pty Ltd (‘Caltex’), in the sum of two million one hundred and forty seven thousand and eight hundred dollars ($2,147,800) (‘the said sum’).
2. EES and Caltex pay to Charben its costs of the proceeding.
3.Judgment be entered in favour of Caltex against EES in the said sum, subject to deduction from the judgment debt any part of it that may be paid by EES to Charben.
4.EES pay to Caltex its costs of the proceeding, including any costs paid by Caltex to Charben pursuant to order 2.
5. The cross-claim made by EES against Caltex be dismissed with costs.
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
N 626 of 2002
BETWEEN:
CHARBEN HAULAGE PTY LTD
APPLICANTAND:
ENVIRONMENTAL & EARTH SCIENCES PTY LTD
FIRST RESPONDENTCALTEX PETROLEUM PTY LTD
SECOND RESPONDENTCALTEX PETROLEUM PTY LTD
CROSS CLAIMANT ON THE FIRST CROSS CLAIMCHARBEN HAULAGE PTY LTD
FIRST CROSS RESPONDENT TO THE FIRST CROSS CLAIMENVIRONMENTAL & EARTH SCIENCES PTY LTD
SECOND CROSS RESPONDENT TO THE FIRST CROSS CLAIMENVIRONMENTAL & EARTH SCIENCES PTY LTD
CROSS CLAIMANT ON THE SECOND CROSS CLAIMCALTEX PETROLEUM PTY LTD
CROSS RESPONDENT TO THE SECOND CROSS CLAIM
JUDGE:
WILCOX J
DATE:
8 APRIL 2004
PLACE:
SYDNEY
REASONS FOR JUDGMENT
WILCOX J:
This case concerns contamination of two adjoining allotments of land at Killara, a suburb of Sydney. The allotments were used for many years as sites, respectively, for a motor service station and a mechanical workshop. They were subsequently redeveloped for commercial purposes. When discussing the allotments collectively, it is convenient to refer to them as ‘the Site’.
The commercial redeveloper, Charben Haulage Pty Limited (‘Charben’), sues Caltex Petroleum Pty Limited (‘Caltex’, the second respondent), the owner of one allotment and lessee of the other, and Environmental and Earth Sciences Pty Limited (‘EES’, the first respondent), a consultant employed by Caltex to supervise remediation of the Site.
The case turns substantially on issues of fact and contractual interpretation. There is little dispute about legal principles.
These reasons are arranged as follows:
Paras
History of the site
(i) The first report: Report 19844 5 – 8
(ii) UST removal 9 – 12
(iii) EES’ validation of Lot T: Report 19844B 13 – 23
(iv) The applicant 24 – 26
(v) The Lot T contract 27 – 31
(vi) The Lot U contract 32 – 37
(vii) Validation work on Lot U 38 – 39
(viii) The Geotechnique report of March 1999 40 – 42
(ix) Charben’s development application 43 – 44
(x) EES’ validation of Lot U: Report 19844C 45 – 53
(xi) Council’s intervention 54 – 57
(xii) The appointment of HLA 58 – 65
(xiii) HLA’s draft site audit report 66 – 68
(xiv) Geotechnique’s draft RAP 69 – 70
(xv) Site activities: August 2000 – February 2001 71 – 82
(xvi) The appointment of SKM 83 – 89
(xvii) Construction work: May 2001 – August 2001 90
(xviii) Work stopped: August 2001 – March 2002 91 – 92
(xix) Work completed: April 2002 – August 2002 93 – 94
The applicant’s case 95 – 104
The representations allegedly made by EES and Caltex(i) Identification of the representations 105 – 106
(ii) The Site had been validated in accordance with the Guidelines 107 – 131
(iii) Significant vertical migration was unlikely 132 – 135
(iv) No down gradient impact 136 – 139
(v) Suitability for new use 140 – 149
The case against Caltex(i) The Trade Practices Act claims 150 – 156
(ii) The contract claim 157 – 177
(iii) The negligent misstatement claim 178 – 180
(iv) The negligence claim 181 – 183
(v) Conclusion concerning Charben’s liability 184 – 185
The case against EES(i) The Trade Practices Act claims 186 – 197
(ii) The negligent misstatement claim 198 – 214
(iii) The negligence claim 215 – 220
(iv) EES’ claim to indemnification by Charben 221 – 226
Assessment of damages: general 227 – 228
Assessment of damages: two points of principle(i) Caltex and Lot T 229 – 237
(ii) Increased costs before February 2001 238 – 242
Diminution in building value(i) Allowability 243 – 248
(ii) Quantum 249 – 258
Additional capital costs 259 – 276
Loss of rental income 277 – 286
Total damages 287 – 288
Caltex’s cross-claims(i) The amended cross-claim 289
(ii) The cross-claim against Charben 290 – 293
(iii) The cross-claim against EES 294 – 303
EES’ cross-claim against Caltex 304
Disposition 305History of the Site
(i) The first report: Report 19844
At material times, the two allotments were known as 692B Pacific Highway (also called ‘Lot U’) and 694 Pacific Highway, Killara (also called ‘Lot T’). A service station was located on Lot U. It was owned by Caltex. Lot T was owned by other persons including, from 1991, Paul Ward-Harvey and David Clifton Ford (‘the lessors’). A mechanical workshop was located there. It was used in conjunction with the service station, and leased to Caltex.
In early 1997, Caltex decided to close the service station and sell Lot U. However, closure was not to take place until 1998. To cover the intervening period, Caltex took a fresh lease of Lot T, which (as amended) allowed Caltex to remain in occupation until 30 August 1998. This lease, in common with its predecessor, imposed environmental obligations on Caltex, including obligations to provide to the lessors an environmental audit report, to carry out remedial works in accordance with that report and to provide the lessors with an independent validation report after remedial works had been completed.
On 19 March 1998, Emil Ford & Co, the lessors’ solicitors, requested Caltex to provide the environmental audit report. Caltex engaged EES for this purpose. EES delivered a report to Caltex on 19 May 1998 (‘Report 19844’). A covering letter included the following statement:
‘In summary the investigation shows that fill material at the rear of the existing building contains total petroleum hydrocarbon (TPH) concentrations in the C10-C36 range above the NSW EPA Guidelines for the assessment of service station sites. In addition levels of lead in the fill exceed the NEHF guidelines for industrial/commercial sites and is above the residential criteria for lead and copper. The estimated volume of impacted soil is approximately 30m3. Access limitations to the rear of the property, due to the position of the building, would make remediation difficult.’
A copy of Report 19844 was provided to Emil Ford & Co. They complained about its failure to specify a remedial program in respect of petroleum hydrocarbon contamination that had been discovered in two boreholes by EES and required the contaminated area to be remediated.
(ii) UST removal
At about this time, Caltex informed Ku-ring-gai Council (‘Council’), the relevant local authority, of its intention to decommission and remove the fuel storage system on Lot U, prior to sale and redevelopment of that allotment. Caltex said that decommissioning and environmental assessment would be ‘conducted in accordance with Workcover regulations and EPA Guidelines for remediation of sites’. The words ‘EPA Guidelines’ referred to a publication of the New South Wales Environment Protection Authority (‘NSW EPA’), Guidelines for Assessing Service Station Sites (‘the Guidelines’).
An application was made to Council, accompanied by a Decommissioning Plan that contemplated remediation to a residential standard. Clause 3 of the Decommissioning Plan stated:
‘The site remediation is intended to validate the site as suitable for potential future land uses. Site remediation will reflect the zoning of the site. However, where viable, at sites current [sic] zoned as commercial, remediation will be to a standard that will also allow residential (ie sensitive) redevelopment. For sites remediated to a standard that will allow residential redevelopment the NSW EPA criteria for sensitive land use (soil) will be employed as the site clean up criteria. These clean up goals are presented in Table 1.’
Table 1 set out the NSW EPA standards for remediating land containing various hydrocarbon contaminants.
Council gave development approval for the work on 27 July 1998. The approval was subject to conditions, including the following:
‘29.Upon removal of the storage tanks the applicant shall undertake testing to determine the level of soil contamination and extent of remediation works required. A report detailing the above shall be submitted to Council for consideration and approval prior to remediation works being undertaken.
…
32.Upon completion of decontamination of the site a final report prepared by an Environmental Protection Authority Accredited Auditor declaring the site to be suitable for a specific future development shall be submitted to Council.’
In July 1998, the underground storage tanks (‘USTs’) on Lot U were removed by a contractor. EES representatives supervised the work and kept daily notes of its progress. The notes for 19 July 1998 mention ‘Moderate HC [hydrocarbon] odour in backfill sands’ and that ‘drilling at rear of service [station] indicates HC migration occurring at interface (confined flow) in clay sand – sandy clay layer of moderate permeability. [Contamination] may extend beyond the site boundary’.
(iii) EES’ validation of Lot T: Report 19844B
By August 1998, action was being taken towards selling both allotments. On 10 August 1998, EES presented a proposal to Caltex ‘to carry out validation and partial supervision of remediation’ of the Site. The proposal stated:
‘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 [sic] NEHF D criteria and NSW EPA Soil sampling guidelines.’
On 13 August 1998, Simon Caples of Caltex instructed Philip Mulvey, Managing Director of EES, to ‘[p]roceed with the decommissioning activities’, presumably in accordance with EES’ proposal.
Work commenced almost immediately. The evidence contains borehole logs, two of which (‘BH 10’ and ‘BH 11’) referred to either a strong or moderate ‘HC odour’ at a depth below one metre. The material above that depth was described as ‘clay’ or ‘sandy clay’. A sectional diagram indicated that the rear of Lot U, where BH 10 and BH 11 were situated, was down gradient from the USTs. The interface between sandy loam and sandy clay stratas roughly followed the surface gradient of the land, falling from the middle of Lot U to the rear boundary.
Laboratory analyses of samples taken from BH 10 and BH 11 revealed elevated levels of benzene, toluene, ethyl-benzene, xylene, TPH C6-C9 and TPH C10-C14.
There were originally two USTs in front of the workshop building on Lot T. They were removed and samples were taken of the soil in the surrounding area. In his report of 25 August 1998, Richard Campbell of EES noted a ‘strong HC odour in majority of samples’. Caltex agreed to transfer the contaminated soil to a stockpile on Lot U.
On 11 September 1998, Emil Ford & Co wrote to Caltex’s solicitors asking ‘as a matter of urgency what is happening with the remediation of the land and when we can expect to receive the validation report’. The solicitors responded that Caltex ‘has finished the remediation work in the area owned by your client and … expects to have a validation report prepared by the end of the week’.
On 19 October 1998, EES wrote to Caltex proposing to ‘undertake the removal of metal rich contaminated soil from the rear of the leased workshop portion’ of Lot T and to ‘provide a validation report for the leased portion of the site’. This proposal was accepted. EES brought a bobcat on to Lot T for two days and the stockpiled soil was moved from Lot T to Lot U.
On 22 October 1998, Council approved demolition of the service station. On the same day, commercial waste (metal shavings, car parts, glass bottles and tyres) was removed from the rear of the workshop on Lot T. However, Tracey Bauer, General Manager of EES, who was supervising this work, noted that complete removal of waste material was impossible due to possible undermining of embankments. Analyses of samples of the excavated material showed elevated levels in the higher TPH fractions.
Caltex retained two firms of real estate agents to act jointly in connection with the sale of Lot U. They were apparently also instructed by the owners of Lot T, and so were able to offer the two allotments together. Emil Ford & Co continued to press for a validation report. It was issued by EES on 9 November 1998 (‘Report 19844B’). The report was written by Ms Bauer and audited by Mr Mulvey. Ms Bauer holds a degree of Bachelor of Engineering in Geological Engineering from the Royal Melbourne Institute of Technology and a degree of Masters of Engineering Science in Waste Management from the University of New South Wales. She has worked for EES for about ten years.
Report 19844B related only to Lot T. Its stated objective was ‘to validate the site after remediation to confirm the site is suitable for industrial useage [sic]’. However, the Conclusion to the report went further than this, at least in relation to use-suitability. The report included these statements:
‘Remedial works undertaken on the leased portion of the site at 692 Pacific Highway, Killara, Sydney, included the removal of a 10 000 L unleaded petrol UST and a 14 000 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 were below the instruments levels of detection.’ (emphasis added)
On 19 November 1998, Caltex’s solicitors provided a copy of this report to Emil Ford & Co.
(iv) The applicant
At about this time, Dimitrios (Jim) and Victoria Janakis became interested in purchasing the Site for the purpose of carrying out a redevelopment. Neither of them had previous experience in property development; they had run a dry cleaning business for 23 years. However, Mrs Janakis was the daughter of Steve Paradisis, a person who had extensive property development experience, acting through a company called Caldas Holdings Pty Limited (‘Caldas’). In more recent years, Mr Steve Paradisis had operated the company with his son Theodore, a licensed builder. Caldas operated on the basis that Mr Steve Paradisis made most of the commercial decisions and Mr Theo Paradisis was responsible for organising the building work.
Some time previously, Mr and Mrs Janakis had told Mr Steve Paradisis they wished to acquire an investment property. In October or November 1998, Mr Steve Paradisis told Mr and Mrs Janakis about the Site. They inspected it and liked its location. They asked Mr Steve Paradisis to negotiate the purchase of the two allotments on their behalf. He did so and negotiated a total purchase price of $1,100,000. Mr and Mrs Janakis agreed to pay this amount. They were aware that the Site had previously been used as a service station and mechanical workshop and ‘that contamination could be an issue’. However, Mr Janakis gave evidence that he understood ‘it was for the vendor to make good all contamination before the property was transferred’.
Mr and Mrs Janakis left it to Mr Steve Paradisis to arrange exchange of contracts. He instructed his own solicitor, Barry Beilby of Beilby Poulden and Costello, to act on behalf of Mr and Mrs Janakis. Mr Beilby suggested they should acquire the Site in the name of a company to be controlled by them. Charben was incorporated, or acquired, for this purpose.
(v) The Lot T contract
On 27 November 1998, Emil Ford & Co gave Mr Beilby a copy of the special conditions they proposed to insert in the contract for sale of Lot T. They also enclosed a copy of the Conclusion to Report 19844B. Shortly afterwards, Mr and Mrs Janakis attended at Mr Beilby’s office. Mr Janakis gave evidence that Mr Beilby went through the special conditions with them and assured them the conditions were satisfactory. Mr Janakis said Mr Beilby informed them it was safe to sign the contract and exchange ‘because of the information we were given about the state of the land’. Mr Janakis said he accepted that assurance and would not otherwise have signed the contract. Mr Steve Paradisis remembered arranging for Mr and Mrs Janakis to call on Mr Beilby and sign the contract.
Mr Beilby gave evidence that he recalled reading the Conclusion to Report 19844B. He made markings on the last page. Mr Beilby also recalled discussing the report with Mr Steve Paradisis.
Mr Beilby said he did not recall Mr and Mrs Janakis coming to his office to sign the contract. However, he said it was his standard practice to go through special conditions of contracts with clients prior to exchange, to read inspection reports associated with the relevant land and to discuss with clients anything in an inspection report that might suggest there was a risk associated with the purchase.
Contracts for the purchase of Lot T were exchanged on 27 November 1998. The purchase price was $400,000. The contract contained eight special conditions. Only sub-clauses (a) to (c) of special condition 8 are presently material. Those sub-clauses read:
‘(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.’
Sub-clauses (d) and (e) of special condition 8 contained a release and indemnity.
(vi) The Lot U contract
Allen Allen and Hemsley (‘Allens’) acted for Caltex on the sale of Lot U. They proposed numerous special conditions of contract. Mr Beilby requested amendments to some of them. Contracts were ultimately exchanged on 4 December 1998. The purchase price was $700,000. The special conditions included cll 43 and 44.
Clause 43 contained an acknowledgment by Charben of the previous use of the property as a service station. Clause 44.1 required Caltex to remove all USTs known to Caltex from the property.
Clause 44.2 is important to the dispute between Charben and Caltex. It read:
‘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 (the “Works”) shall be in accordance with the purposes and uses permitted by the present zoning of the property;
(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.’
Clause 44.3 required Caltex to pay the cost of the remedial work up to $50,000, with an option to rescind the contract if the cost would be more than that amount and Charben declined to pay the excess. Clause 44.4 contained a release and indemnity in these terms:
‘(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.’
Clause 44.5 made provision for the possibility of the purchaser not being satisfied ‘that the Environmental Report indicates that the Works have been completed so as to reduce the levels of petroleum hydrocarbon pollution’ to a level sufficient to permit the use referred to in cl 44.2(a). Clause 44.9 provided that cl 44 ‘will not merge on completion’.
A certificate under s 149(2) of the Environmental Planning and Assessment Act 1979 (NSW) was included in the contract. It revealed that the land was zoned BUSINESS 3(a)-(A2) RETAIL SERVICES. The primary object of that zone was to provide business and office accommodation. Dwelling houses were prohibited, unless used in conjunction with uses permitted in the zone. Residential flat buildings were permissible with Council’s consent.
(vii) Validation work on Lot U
After the exchange of contracts, work continued on Lot U, under the supervision of Ms Bauer. It is not necessary to detail all of Ms Bauer’s site notes. They reveal an understanding by her that ‘we are cleaning up to residential’ standard. They also reveal the presence of hydrocarbon odours. A laboratory report of 17 February 1999 showed elevated TPH C6-C9 levels at a depth of two metres at location V46.
On 16 February 1999, Allens informed Mr Beilby of their instructions that ‘all underground tanks have been removed from the site’, with minimum soil impact, and that Caltex expected remediation works to be completed ‘earlier than 15 April 1999’.
(viii) The Geotechnique report of March 1999
At some stage, Mr Steve Paradisis instructed a company called Geotechnique Pty Ltd (‘Geotechnique’) to make a ‘contamination assessment’ of the Site. The circumstances of this instruction are not clear to me but it probably arose out of a requirement of a finance broker, Balmain NB Commercial Mortgages Limited. It seems that a copy of Geotechnique’s report was sent to that company. A copy was also sent to Mr Steve Paradisis, at his home address, on 16 March 1999; however, Mr Steve Paradisis claimed in evidence that he had not seen the report until he was shown it by the solicitor acting for Charben in this litigation about two months before giving his evidence.
I do not think it is necessary to discuss the content of Geotechnique’s report. The statements made in the report were not verified by the evidence of any witness. No party chose to call, as a witness, anybody associated with Geotechnique. Although the report may be in evidence, for all purposes, as a business record, under the circumstances I would not be willing to rely on anything said in that report in making factual findings as to the condition of the Site at any particular time.
The report is not relevant to the issue of reliance. I accept the evidence of Mr Steve Paradisis that he did not read the report in 1999. My assessment of him is that he is not a great reader of reports. I think he would be much more inclined to rely on oral information from a person he trusted. There is no evidence that Mr Beilby, Mr Theo Paradisis, or Mr or Mrs Janakis, ever saw the report. Mr Janakis denied all knowledge of the report. Neither Mr Beilby or Mr Theo Paradisis was asked about it.
(ix) Charben’s development application
Charben retained a firm of architects, Leffler Simes Pty Ltd (‘Leffler Simes’), to advise it in relation to redevelopment of the Site. Initially, Mr Steve Paradisis had proposed ‘a combined commercial/residential development’. However, apparently on the advice of the architects, he changed the proposal to a wholly commercial development, involving two basement car park levels, ground floor retail shops and first floor offices. Leffler Simes submitted a development application for such a building to Council on 18 March 1999.
On 8 April 1999, Council responded to the development application by requesting Leffler Simes to provide ‘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’. Leffler Simes replied on 19 April 1999, enclosing three copies of what it called ‘the Environmental Site Assessment Report for the workshop site’. Presumably, this was Report 19844B. The architects said that ‘remediation of the service station site is proceeding’.
(x) EES’ validation of Lot U: Report 19844C
Charben completed the purchase of Lot T on 15 April 1999. Remediation work was continuing on Lot U, but at a slow pace. EES adopted the strategy of remediating the stockpiled soil by progressively exposing it to the elements. That took time. On 16 August 1999, Ms Bauer responded to an inquiry by Mr Caples of Caltex by saying EES was ‘half way through’ the job. Ms Bauer and Mr Caples discussed the possibility of speeding up progress by taking some of the soil offsite. However, they made no decision about that. At a later stage, quotes were obtained for transport and disposal of what was described as ‘Contaminated Industrial Waste Type’. Samples continued to reveal elevated hydrocarbon contaminant levels in some locations.
On 11 February 2000, EES provided a third report to Caltex (‘Report 19844C’). This report was written by Mr Mulvey. Mr Mulvey holds the degrees of Bachelor of Science in Agriculture and Masters in Applied Science (Hydrogeology). He is an accredited site auditor. Report 19844C was audited by Ms Bauer. It related solely to Lot U.
Allens forwarded a copy of Report 19844C to Mr Beilby and required completion of the contract on or before 29 February 2000.
The EES letter to Caltex enclosing the report stated that ‘[v]alidation of the site was undertaken in accordance with the proposed residential guidelines’, apparently of NSW EPA. The Introduction to the report stated EES’ understanding that Lot U ‘is being sold and is proposed to be redeveloped for residential purposes’. The objective sought to be achieved during the remediation process was said to be ‘to validate the site to confirm it is suitable for the proposed residential usage’.
Section 3 of the report dealt with ‘site characteristics’. A cross-section drawing showed a fall of the land to the rear of the allotment (the west). The interface between the ‘sandy loam’ strata and the underlying ‘sandy clay’ mirrored the slope of the surface of the allotment. This was confirmed in the text of the report. Paragraph 3.4 stated:
‘As indicated above the site is underlain by clay soils and shale, with minor sandstone sequences which tend to have moderate water yield. The topography of the surrounding area suggests that groundwater flow would be to the west and southwest. Any groundwater encountered during the study was likely to be the result of interface drainage, between the soil and weathered shale horizons.’
The report said groundwater and/or interface drainage ‘was not encountered during the investigation thus relevant groundwater criteria have not been consulted’.
The concluding section of the report summarised the work done by EES and ended:
‘Given the above, the 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)
After he received Report 19844C from Allens, Mr Beilby telephoned Mr Steve Paradisis. Mr Steve Paradisis went to Mr Beilby’s office. Mr Beilby read to him extracts from the report and told him it concluded, so far as he could see, ‘that the site is clean’. Mr Steve Paradisis accepted this information and relayed it to Mr and Mrs Janakis. They agreed to proceed to settlement.
After some dispute between the solicitors as to the date of settlement, the contract between Caltex and Charben for the purchase of Lot U was completed on 16 March 2000.
(xi) Council’s intervention
On 10 April 2000, Council provided to Leffler Simes a copy of an internal memo relating to Council’s approval in July 1998 of removal of the USTs and site remediation: see para 11 above. The memo said that there had not been compliance with condition 32. This condition required Caltex to submit to Council a report prepared by a NSW EPA accredited auditor.
Mr Beilby was not previously aware of condition 32. His requisitions on the purchase of Lot U had included a question whether there was ‘any currently applicable development approval or consent to the use of the premises’. Allens (seemingly wrongly) had answered this question in the negative.
Upon receipt of Council’s letter, Mr Beilby raised the matter with Allens. In a letter of 17 April 2000, he said that Council had rejected Report 19844C because the person who had certified it, on behalf of EES, was not a NSW EPA approved person. He asked that the report be amended to contain such a certification. He also said that Council required copies of the two earlier reports, Report 19844 and Report 19844B. He asked for copies of each of them.
Allens responded on 19 April 2000. They stated they had been ‘instructed to advise that the Vendor has complied with its obligations under the completed contract’.
(xii) The appointment of HLA
At about the time of completion of the contract for the purchase of Lot U, Mr Steve Paradisis retained the services of Peter Taylor, of Prominent Projects Pty Limited, to assist him in executing the development. When he became aware of the problem about Report 19844C, Mr Taylor recommended the employment of another consultant, HLA Envirosciences Pty Limited (‘HLA’). The Managing Director of that company, Chris Kidd, was a NSW EPA accredited site auditor.
On 5 May 2000, after Allens’ response to Mr Beilby’s letter of 17 April 2000, Mr Taylor retained HLA to carry out a statutory site audit of contamination of the Site.
On 9, 10 and 12 May 2000, HLA sent faxes to EES requesting clarification of aspects of its reports. Ms Bauer responded on 15 May 2000. She said EES ‘would be happy to provide information and assistance’ relevant to the reports but could not do so until EES was commissioned by Caltex to undertake the work. Ms Bauer sent a copy of her response to Mr Caples.
On 17 May 2000, Mr Steve Paradisis telephoned Ms Bauer to ask her to respond to HLA’s questions so that he could obtain the site audit report requested by Council and commence building. It is common ground that Ms Bauer replied that someone would have to pay for the time involved in supplying answers and that Mr Steve Paradisis said he would do so. Ms Bauer said she estimated the total cost at $400 and told Mr Paradisis she would fax a document for him to sign.
However, Ms Bauer did not immediately send this fax. She decided she would first need Caltex’s approval and Mr Caples wanted to be provided with information about the ‘purpose of the audit and the nature of the queries regarding prior remedial work’.
While this standoff was continuing, on 23 May 2000, Council granted approval of Charben’s application for commercial development on the Site, but subject to a condition that the consent ‘shall not 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 30 May 2000, Ms Bauer sent a fax to Mr Steve Paradisis. EES now argues it released any claim that Charben might otherwise have had against EES. The fax said:
‘I have spoken briefly to Simon Caples at Caltex Australia Petroleum (Caltex) regarding your previous discussions with me per 692 Pacific Highway, Killara. He has been provided with a copy of the questions from the Auditor and has provided approval for Environmental & Earth Sciences to answer these where possible and pertinent.
Environmental & Earth Sciences Pty Ltd 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 $480.00. An hourly rate of $80/hour will be charged for any additional queries made by the Auditor. If you agree with the costs above and that the indemnity clause still holds, Environmental & Earth Sciences can have answers to the Auditor by Thursday 1 June 2000 (this week).’
Mr Steve Paradisis signed and returned the fax. Thereafter, EES supplied information to HLA.
(xiii) HLA’s draft site audit report
On 21 June 2000, HLA sent to Mr Taylor a draft site audit report. The draft report was prepared by Mr Kidd. It identified a number of deficiencies in the work done by EES, notably the absence of ‘groundwater investigation to confirm the contamination status of groundwater at [Lot U]’, ‘[i]nsufficient investigation to confirm the potential for offsite migration of contamination through groundwater’, and insufficient investigation to determine the extent of potential soil contamination. In a covering letter (and referring to himself as ‘the Auditor’), Mr Kidd stated:
‘The Auditor notes that as a result of these deficiencies, significant uncertainty exists in the Auditor’s opinion as to the potential for contamination with respect to deeper soils than those investigated, and the potential for offsite migration of contamination through groundwater. Due to these uncertainties the Auditor is unable to issue a Site Audit Statement at this stage. However, it is noted that proposed deep excavation for the basement carpark should remove any suspect material and may resolve the uncertainties.
The Auditor is of the opinion that additional validation works are required to confirm the contamination status of the site. The Auditor requests that a suitably qualified environmental consultant be engaged to conduct the additional validation works, and these works should comply with the relevant NSW EPA guidelines.’
Mr Kidd said the additional validation works could be conducted either prior to the commencement of development earthworks or during the course of the earthworks. He explained the practical consequences of each of these alternatives.
Charben (apparently by Mr Steve Paradisis) chose the second option, which Mr Kidd had described in this way:
‘This methodology would require that an Environmental Management Plan (EMP) be developed that addresses the identification, handling and disposal of any contaminated soil and groundwater encountered during the development excavation works for the basement carpark. The EMP, which must be approved by the Auditor, should also state a suitable soil validation sampling programme for the base and walls of the development excavation. If hydrocarbon contaminated soils are encountered in the excavation, three groundwater monitoring wells along the down gradient site boundary should be installed to a depth of at least 1.5m below the water table in the shale rock. Groundwater samples should be collected and analysed from these wells. This option may involve some additional costs and delay with any contaminated materials encountered during the excavation.’
(xiv) Geotechnique’s draft RAP
Mr Steve Paradisis retained Geotechnique to prepare a remediation action plan (‘RAP’). A draft RAP was sent to Mr Kidd. He commented on it. A copy was provided to Council.
On 9 August 2000, and on the basis of the draft RAP, the Council allowed demolition and earthworks to proceed, subject to conditions. Council emphasised it would not issue a Construction Certificate, permitting construction of the new building, until it received a Site Audit Statement saying the Site was suitable for the proposed land use.
(xv) Site activities: August 2000 – February 2001
Caldas was engaged to manage site operations on behalf of Charben. Mr Theo Paradisis acted on behalf of Caldas. Glencoe (NSW) Pty Ltd, a contractor engaged by Caldas, demolished the buildings on the Site. In the course of doing this, it found and removed five additional USTs.
On 6 September 2000, Geotechnique issued a revised RAP that took account of Mr Kidd’s comments on the earlier draft. The revised document required the drilling of boreholes across the rear of the Site, from which samples were to be taken at various depths. Mr Kidd approved this approach, and agreed to excavation of the Site, but only on the basis that excavation would be in lifts of one metre at a time, with the soil removed in each lift being tested for evidence of hydrocarbon contamination prior to removal from the Site and prior to the next lift being excavated.
The system of work required by Mr Kidd was adopted. Some of the excavated material was classified as ‘industrial’ waste; other material was accepted to be clean landfill. Because of the need to stop excavation after each one metre lift, and wait for a test of the samples, progress was slow. Excavation extended over several months.
On 6 November 2000, Mr Kidd carried out an inspection of the Site. He noted strong hydrocarbon odours. A photoionisation detector (‘PID’) returned high hydrocarbon readings. Mr Kidd recommended that Caldas obtain advice from Geotechnique about additional testing, remediation excavation and stockpile options.
Geotechnique carried out further testing. The tests showed that contamination in some locations exceeded acceptable limits. Geotechnique recommended additional aeration of the stockpile.
On 18 January 2001, Geotechnique informed Mr Theo Paradisis that the Site was ‘suitable for the proposed commercial/retail development’. It said a validation report was being prepared and would be sent to Mr Kidd for review within one week.
A validation report was issued on 22 January 2001. It led the Council’s delegate, a private certifier, Dix Gardner Pty Limited, to issue a Construction Certificate for the new building on 25 January 2001. Mr Theo Paradisis immediately poured a large concrete slab at the back of the Site. This was intended to be the lower level carpark floor.
However, on 30 January 2001, Mr Kidd inspected the Site in company with Mr Theo Paradisis. Mr Kidd was dissatisfied. He took samples from locations at the southeast corner of the Site and detected unacceptable PID readings, and strong hydrocarbon odours, in three of them. Basing himself on information given to him by Mr Theo Paradisis about the location of the water table, Mr Kidd formed the opinion that ‘hydrocarbons from the former underground tanks have penetrated to at least 8 m below the street level and have probably reached the water table’. Accordingly, he directed additional investigation, including testing of the groundwater below the relevant part of the Site.
Geotechnique undertook the further tests required by Mr Kidd. On 7 February 2001, Geotechnique reported to Mr Kidd that they revealed ‘elevated TPH (C6-C9) and BTEX’ in all the soil samples, and also the one water sample, that had been taken. Paul Gorman of Geotechnique expressed the view that the water sample was ‘more likely to be groundwater’, in which case ‘it is clear that there has been some leaching of the contaminants into the groundwater’. He proposed installation of monitoring wells.
Mr Kidd passed Geotechnique’s results on to Mr Theo Paradisis, with a direction that the area of contamination be delineated and an assessment made of the offsite migration of contamination in both soil and groundwater. He required preparation of a new RAP in relation to this work.
On 26 February 2001, Geotechnique wrote a letter to Mr Kidd reporting on further water analyses. Mr Gorman commented ‘there appears to be migration of BTEX and hydrocarbons off site, towards the west’. He said he had not yet considered notifying NSW EPA as he was awaiting the outcome of risk assessment. Apparently, Mr Gorman had already advised Mr Theo Paradisis to retain a Melbourne company, Contaminated Land and Water Environmental Risk Assessment Pty Ltd (‘CLW’), for this purpose.
Mr Kidd wrote to Mr Theo Paradisis on 28 February 2001 recommending ‘that the offsite migration of contaminated groundwater be reported to the NSW EPA for its assessment of whether the contamination poses a Significant Risk of Harm’. Mr Kidd requested that the direction of the groundwater flow be determined and noted it may be necessary to carry out further investigation to delineate the extent of the contaminated groundwater. At about this time, Mr Kidd requested Mr Theo Paradisis to cease building work. He did so.
(xvi) The appointment of SKM
On 1 March 2001, Philip Walker of CLW wrote a letter to Mr Theo Paradisis in which he suggested ‘it may be more cost effective to design an Environmental Management Plan (EMP) to deal with the issues and risks that the contamination presents’. He indicated issues that an EMP should address.
In the meantime, however, Mr Theo Paradisis had been in contact with another consultant, Ian Swane of Sinclair Knight Merz (‘SKM’). Dr Swane had also been recommended by Geotechnique. Mr Theo Paradisis preferred to retain Dr Swane, with whom he felt comfortable and who was located in Sydney. Dr Swane took a different approach to Mr Walker. He did not recommend creating yet another plan but, rather, favoured immediate remedial action.
On 5 March 2001, Brad May of SKM sent Mr Theo Paradisis a quotation for design of a vapour extraction (bio-venting) system. His letter explained:
‘Sinclair Knight Merz has completed a number of similar projects in the past including the design of a vapour design system at Sydney Park. This system covers 1,600m2 and extracts volatile methane from the subsurface. Dr Ian Swane, Sinclair Knight Merz NSW EPA accredited Site Auditor has undertaken the design of the AGL Oyster Cover vapour extraction system. This project had a total value of 15 million dollars.’
Two days later, Mr Kidd wrote to Mr Theo Paradisis saying:
‘Testing of soils and groundwater during excavation of the former Caltex Service Station at 692B Pacific Highway, Killara has identified:
•Elevated concentrations of petroleum hydrocarbons particularly C6-C9 fractions and benzene toluene, ethlybenzene and xylene (BTEX) in fractured shale down to below the floor level of the proposed basement.
•Elevated photoionisation detector (PID) readings in most test holes indicate volatile organics are present down to the water table and occur behind the shot-creted wall on the Pacific Highway side of the site.
•The water table is about 7 m below the upper basement floor level (116.85 m) and about 6 m below the lower based floor level (115.6 m).
•Concentrations of BTEX in groundwater immediately outside the down gradient side of the site exceed the groundwater guidelines in NSWEPA (1994) Guidelines for Assessing Service Station Sites and the ANZECC (1992) freshwater quality guidelines.
•Lower concentrations of TPH and BTEX occur in groundwater below the upper basement level.
•No testing has occurred below the lower basement level due to the concrete slab being poured.
In the Auditor’s opinion the site presents a significant risk of harm because:
• the groundwater is contaminated;
•there is evidence of off-site migration of elevated levels of BTEX and TPH in the groundwater;
•residential units exist on the neighbouring property immediately downslope;
•there is a potential for build up of vapours to explosive levels immediately below the basement.
Remediation works are required to:
a.Address the issue of organic vapours below the basement slabs both upper and lower levels and behind the walls of the excavation particularly on the Pacific Highway side of the site.
b.Reduce concentrations of residual hydrocarbons in the vadose zone by bio-venting or other approved methods to remove ongoing sources of contamination of the groundwater.
c.Reduce concentration of hydrocarbons particularly BTEX in groundwater under and leaving the site to acceptable concentrations.
d.All systems shall be designed so as to operate with minimal maintenance below the basement concrete slabs of the building.
e.Monitoring installations shall be provided to monitor effectiveness of the system in reducing vapour concentrations in groundwater concentrations.
It will be necessary to demonstrate by appropriate testing that the design spacing of venting wells is adequate. It will also be necessary to determine whether bio-venting is required under the lower basement level slab. The extent of groundwater contamination under the site, particularly the lower basement levels, and off-site needs to be defined to select and design appropriate remediation works. The off-site groundwater contamination issues may not be the responsibility of the present land owner/developer, but may be of concern to the NSW Environmental Protection Authority under the Contaminated Land Management Act 1997.’
Mr Theo Paradisis immediately reported the situation to NSW EPA.
On 13 March 2001, Mr May gave Mr Theo Paradisis a further quotation for an extended design that included ground remediation. This quotation was apparently accepted. SKM carried out the design, modifying it to reflect suggestions made by Mr Kidd.
It seems that a pilot bio-venting system was first installed. Mr Kidd was satisfied with its performance and approved installation of the full system. Initially, Mr Kidd required that installation be completed before work resumed on construction of the building. However, he subsequently modified this requirement, at Mr Theo Paradisis’ request, to permit installation of the bio-venting system in conjunction with construction work.
(xvii) Construction work: May 2001 – August 2001
Construction work resumed in early May 2001. Installation of the bio-venting system took about six weeks. By August 2001, the roof structure was in place.
(xviii) Work stopped: August 2001 – March 2002
On 13 August 2001, Council instituted a proceeding in the Land and Environment Court of New South Wales seeking to restrain construction work on the Site, on the basis that this was not permitted, under its development consent, until all contamination had been remediated and the Site validated by an accredited site auditor. Caldas stopped construction work and Charben applied to Council to vary the relevant condition of approval, so as to allow construction work to continue while remediation work was being undertaken. Council refused to deal with this application until the site auditor’s certificate was received; so work remained suspended for another seven months.
On 26 March 2002, Brad Eismen of HLA (who had taken over responsibility for the site audit from Mr Kidd), certified the Site to be suitable for ‘commercial/industrial use’. The certificate was subject to implementation of the RAP developed by SKM, including ongoing monitoring of the installed bio-venting system.
(xviii) Work completed: April 2002 – August 2002
After Mr Eismen issued this certificate, Caldas was able to resume building work. Construction recommenced in April 2002. The building was completed early in August 2002. Council’s delegate issued an occupancy certificate on 9 August 2002.
Mr Theo Paradisis said in his affidavit that he had programmed construction to take 30 weeks and had actually planned to complete it in only 24 weeks. He said the additional construction time was solely due to contamination of the Site.
The applicant’s case
This proceeding was instituted on 28 June 2002. The Application (as amended prior to the trial) includes claims under ss 52, 53, 75B, 82 and 87 of the Trade Practices Act 1974 (Cth) (‘the Act’), in negligence and for breach of contract.
These claims are spelled out in a Further Amended Statement of Claim dated 11 April 2003 (‘the FASC’). In their closing written submissions, counsel for Charben, Mr Frank Corsaro SC and Mr Philip Taylor, summarised in this way the primary causes of action alleged in the FASC:
‘A.A claim against both Caltex and EES for damages for misleading conduct under the [Act] arising from the provision of the extract from [Report 19884B].
B.A claim against both Caltex and EES for damages for misleading conduct under the [Act] arising from the provision of [Report 19884C].
C.A claim against Caltex for breach of contract, in failing to carry out the works specified in clause 44 of the Contract.
D.A claim against both Caltex and EES in negligent misstatement arising from the provision of [Report 19884B], and separately [Report 19884C].
E.A claim against both Caltex and EES in negligence, arising from the failure to take sufficient care in carrying out the remediation works on the Site.
F. A claim to set aside a purported agreement to indemnify EES.’
In relation to Lot T, the FASC alleges that EES provided Report 19844B to Caltex under circumstances in which it knew, or ought to have known, that Caltex would provide a copy to prospective purchasers of Lot T from the lessors and that a copy was in fact provided to Charben. The FASC alleges that, by Report 19844B, EES and Caltex represented that remedial works had been carried out on Lot T, and this work had been validated to such a standard as to make the allotment suitable for any landuse. The FASC claims that Charben relied on these representations in agreeing to purchase Lot T from the lessors.
In relation to Lot U, the applicant’s primary case against Caltex is for alleged breaches of the covenants contained in cl 44 of the sale agreement. In particular, it is said that Caltex failed to cause its environmental consultant to reduce the levels of petroleum hydrocarbon pollution to a level that would permit use of the allotment for Charben’s proposed use.
Charben claims EES also supplied Report 19844C under circumstances in which it knew, or ought to have known, that Caltex would provide a copy to prospective purchasers, and that Caltex in fact provided a copy to Charben. Charben says the report contained significant misrepresentations, including the statement that Lot U had been remediated to a standard suitable for residential land use. These misrepresentations are said to constitute misleading conduct by both EES and Caltex. Charben says it relied on the representations in the report in deciding to purchase Lot U.
I need not detail all the allegations in the FASC. I will consider separately each of the principal pleaded causes of action, as summarised by counsel at para 96 above. However, it is convenient immediately to make a finding about reliance.
There is no doubt in my mind that, in deciding to purchase each of the allotments, Charben relied on the statements made in the respective reports, especially the statement in the Conclusion of each report as to the suitability of the land ‘for any landuse’ or ‘for residential landuse’: see paras 22 and 51 above.
The applicant’s witnesses on reliance, Mr Janakis, Mr Steve Paradisis and Mr Beilby, were all impressive people. Mr Beilby not only is an experienced solicitor, but also appears to be a cautious person who takes care to protect his clients’ interests. It is common ground that he received at least the Conclusions to Reports 19844B and 19844C. I have no doubt that he read them and discussed their contents with both Mr Steve Paradisis and Mr and Mrs Janakis. As I have said, I do not think Mr Steve Paradisis is a great reader of reports. However, he was aware of the possibility that the Site would be affected by hydrocarbon pollution. He regarded that possibility as a matter of concern. He knew these reports dealt with that matter. I have no doubt that he listened carefully to Mr Beilby’s summaries of the Conclusions and that he passed on the essence of them to his daughter and son-in-law. I am satisfied that Mr and Mrs Janakis placed total trust in Mr Steve Paradisis and would have accepted his assurance that the reports were satisfactory. This belief would only have been confirmed by what they were told by Mr Beilby.
It seems Emil Ford & Co sent to Mr Beilby only a copy of the Conclusion to Report 19844B, not the whole document. However, it was effectively conceded this made no difference. Under cross-examination by Mr Corsaro, Mr Mulvey agreed that a conclusion to a report is ‘a very important part of a document’. He said it ‘is the amalgamation of everything done’, taking everything in the report in to account. This exchange followed:
‘If someone wanted to come to the guts of your belief based on what you did, you go to a conclusion, correct? --- Yes.
And that’s what you intended, didn’t you, when you audited this report, the conclusion to be, the guts setting out the final position of EES, having regard to everything described above, correct? --- Yes.’
This is not a case in which a statement in the Conclusion was clarified or contradicted by something said in the body of the report.
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. The dominant factual issue at the trial was the correctness of the statements made in Report 19844B and Report 19844C. It is desirable to go immediately to that issue.
The representations allegedly made by EES and Caltex
(i) Identification of the representations
Counsel for the applicants argued, in their written submissions, that the two substantive reports issued by EES (Report 19844B and Report 19844C), and used by Caltex for its own purposes, contained four significant misleading representations. They were:
‘(i) the Site had been validated in accordance with the relevant guidelines.
(ii) significant vertical migration of contaminants was unlikely.
(iii)the former service station activities had not impacted on the Site down gradient of the fuel storage facilities.
(iv)the Site was suitable for residential land use in accordance with the relevant guidelines.’
All of these representations were made in Report 19844C in relation to Lot U. The first and fourth representations were also made, in relation to Lot T, in the Conclusion to Report 19844B; but perhaps the fourth should be read as being limited to ‘the tank void’ on that allotment.
(ii) The Site had been validated in accordance with the Guidelines
Two witnesses gave evidence on behalf of the applicant in relation to this representation: Dr Swane and Mr Kidd.
Dr Swane holds graduate and post-graduate degrees in geotechnical engineering from the University of Sydney. He has practised as an engineer for about 30 years and is currently Manager of SKM’s Contaminated Sites and Geotechnical Engineering Groups. Dr Swane has been involved in numerous remediation and rehabilitation projects, both in Australia and overseas, mainly for government and semi-governmental instrumentalities. He is an accredited environmental site auditor in both New South Wales and Victoria.
Dr Swane is well-qualified and highly experienced. He gave evidence in a careful and thoughtful way. He seemed always ready to concede a point that he thought to be valid. I would have had no hesitation in relying on his advice if I had found myself in the position of Charben in March 2001.
In a report in which he reviewed reports prepared by the respondents’ expert witnesses, Dr Swane opined that ‘[i]nsufficient soil samples were collected below the elevation of the storage tank in the area outside the tank pit, so that no proper assessment could be made of the migration potential for petroleum hydrocarbons down the site’. Paragraph 2.2.4 of the Guidelines requires sampling of the soil of a former service station site to be taken at a minimum of three depths, one of which must be below the estimated depth of the former tanks. It is common ground that EES did not do this, either on Lot T or Lot U.
Paragraph 2.3 of the Guidelines requires that, ‘[i]f any groundwater is found at a site, it should be collected and submitted for laboratory analysis’. The paragraph also says that, where groundwater is present, ‘the site assessor should drill at least one monitoring well on the site to assess groundwater quality’.
Report 19844B drew no distinction between ‘groundwater’ and ‘interface drainage’. At para 3.4, Ms Bauer wrote:
‘Any groundwater encountered during the study was interface drainage, between the soil and weathered shale horizons.’
The report went on to speak of backfill sand which was ‘found to be wet due to water trapped in the tank pits or interface drainage between the backfill sand and natural soil profile’.
Mr Mulvey conceded in cross-examination that, ‘if groundwater or interface drainage was intercepted’, a well should be installed and testing undertaken of the water in the well. He also conceded that, on a fair reading, Report 19844B indicated that ‘groundwater and/or interface drainage’ was encountered in the tank pit on Lot T; yet it was not submitted for laboratory analysis and no well was installed. Mr Mulvey’s evidence went on:
‘You say to his Honour you just failed to follow the guidelines in putting in the well, correct? That’s what you would say, wouldn’t you? --- In terms of the way you’ve put it, yes, but how the judgment was made at the time was that the site operator made a professional judgment ---
That the well wasn’t needed? --- The well wasn’t needed because it wasn’t interface drainage or groundwater, it was contained pit water.’
The basis of the claimed ‘professional judgment’ is inconsistent with references to interface drainage in the report itself.
Mr Kidd’s draft site audit report of 21 June 2000 concerned both Report 19844B (Lot T) and Report 19844C (Lot U). Mr Kidd noted a number of deficiencies in the reports. In particular, he criticised the absence of information on groundwater. He wrote:
‘The Auditor notes that the level of reporting on groundwater is unsatisfactory. The Auditor notes that the depth of investigation of the bores was not deep enough to investigate potential groundwater. Given the presence of a number of USTs at the site, and the exceedances in the TPHs noted at depth in some investigation samples along the boundary, the Auditor considers that groundwater investigations at the site are necessary in accordance with the NSW EPA (1994) Guidelines for Assessing Service Station Sites.’
At a later point in the report, he commented:
‘The Auditor notes that the investigation of Lots T & U does not strictly comply with the NSW EPA (1994) Service Station Guidelines, in that groundwater was not investigated at the site. The Auditor notes EES did not conduct a specific investigation into the contamination or extent of contamination associated with the USTs and associated bowsers and pipework in the ESA. Therefore, the Auditor notes that the investigation works does [sic] not fully determine the contamination status of the site.’
Early in the hearing, I raised with counsel a question of the use that ought to be made of statements in the HLA draft site audit report. This report had been included in the agreed bundle of documents, all of which were admitted into evidence. However, the report had not been verified. It was accepted by all parties that the report was a business record and admissible to prove the accuracy of statements contained within it. However, I was concerned that it might be dangerous to put weight on statements contained in the report without them being verified on oath or affirmation and tested by cross-examination.
Possibly as a result of this discussion, Mr Corsaro called Mr Kidd as a witness. Mr Kidd’s curriculum vitae was tendered. It revealed that he had a Bachelor of Science (Geology) Honours degree from the University of Canterbury and 29 years practical experience in water supply, dewatering, water management, solid waste management, site contamination assessment and cleanup, environmental impact assessment and environmental risk management. Mr Kidd had conducted environmental audits at over 80 former industrial and commercial sites in New South Wales. He also had extensive experience of investigation and remediation of sites, including former service station sites. Plainly, Mr Kidd is both well qualified and highly experienced in relation to the remediation of contaminated sites. In his case, also, I was impressed with him as a witness. He gave his evidence carefully and with apparent fairness. It is possible that some people who were concerned with the Site might, at the time, have thought Mr Kidd’s requirements excessive. However, the fact that evidence of hydrocarbon contamination continued to be found, as investigations were undertaken, suggests his requirements were only those of a cautious man who worked to high standards.
Mr Kidd explained that a site audit report is normally referred to as a ‘draft’ report until the audit process is complete. This occurs when the auditor is satisfied that the relevant site is suitable for its proposed new use.
Mr Kidd told Mr Corsaro that, in writing his draft site audit report, his main concern was that the EES reports had not addressed contamination of the groundwater. Mr Kidd said the deepest test boreholes drilled by EES were about 1 to 1.5 metres, but some of the excavation pits had gone down lower than that, to about three metres. He explained:
‘my concern as from that was that there were high levels of hydrocarbons encountered at depth and particularly in one bore, BH10 which was on the lower side of the site, and given that was a service station with a lot of petrol on site and a long history an [sic] old service station, then I was concerned that there would be a ground water issue and required it to be tested so I did not complete the report until there was some ground water testing done.’
Mr Kidd then gave this evidence:
‘With your knowledge of the guidelines and relevant statutory prescriptions at the time that the first respondent conducted its remediation and validation exercise and prepared the reports which you subsequently came to assess, in your opinion were there some guidelines or prescriptions that required in the remediation and validation of a contaminated site the assessment of ground water? --- Yes, there was a [sic] service station guidelines assessing service stations issued by the EPA in 1994 which described the types of investigations and the issues about contaminants on service station sites.
And so far as you are concerned would it have been possible for an environmental consultant at the time that these reports were being prepared, the reports that you subsequently came to review, to state that a site had been remediated and validated without doing testing in order to establish what was happening in the ground water on the site? --- It would be possible, but given on a site such as this where there was petrol, in particular, and given its general hydro-geological position or situation, in my view it was a good practice to investigate the groundwater, and given that the guidelines indicates [sic] that there is a suggestion of deep penetration then one should test the groundwater.
And just to make it clear, when you were auditing the reports, you did so with an independent mind and without any connection – or interest and connection with the matter generally, is that right? --- That’s correct.’
In assessing Mr Kidd’s evidence on the point, it is relevant to note that he has been concerned about EES’ lack of groundwater testing for a long time. He said so at the time of his first involvement with the Site, in his draft site audit report of 21 June 2000 (see para 66 above). Nobody at that time argued he was wrong or excessively cautious. On the contrary, it was subsequently clearly established, and it is now common ground, that the groundwater below the Site is contaminated.
When Ms Bauer gave evidence, she agreed that, ‘because no groundwater investigations were conducted by EES at the Site, the auditor was not in a position to be able to assess the level of contamination in the groundwater on the Site’.
Ms Bauer was taken by Mr Michael Green, who appeared with Mr John Webster SC for EES, to the comment of Mr Kidd about the failure of EES to test groundwater samples. Apparently drawing a distinction between interface drainage and the underlying water table, Ms Bauer said that ‘groundwater’ was not intercepted on the Site; she expected it to be below 10 metres depth. She added: ‘We also were working on a specific scope of works at the time the assessment was undertaken’. Ms Bauer explained:
‘We were employed by the second respondent to assess the soils across the site. If there was no groundwater intercepted during the assessment or there was no significant contamination identified during the assessment we were not requested to drill, there was given no cause to drill to groundwater.’
I think this evidence reveals the reason why EES did not investigate the condition of the groundwater; namely, EES had not been instructed to do so by Caltex.
Ms Bauer did not dispute the evidence of Dr Swane and Mr Kidd as to the need to undertake a more extensive investigation if the Guidelines were to be satisfied. In cross-examination, Ms Bauer accepted that, based on the data it had accumulated, EES was not in a position to rule out the risk of offsite migration of contamination; indeed, on the basis of Mr Campbell’s site notes, there was a ‘potential’ for off-site migration. Mr Corsaro drew Ms Bauer’s attention to BH 10 and proceeded:
‘Now, you would have to concede, wouldn’t you, that if the bore log which you’ve put forward as being correct in the report that you audited as true, you had all the evidence that you needed that there was migration of heavy contamination across this site which could have spread anywhere and which could have gone through moderately permeable stone located at various locations on this site, correct?’ --- I don’t agree.
It’s certainly a reasonable proposition I put to you, isn’t it? --- It’s a reasonable proposition.’
Roger John Parker was an expert witness called to give evidence on behalf of Caltex. Mr Parker is also well-credentialed and experienced. He holds the degrees of Bachelor of Engineering and Master of Engineering Science from Monash University. Since 1986, he has been Principal and National Manager for Environmental Services for Golder Associates Pty Ltd. In that role, he has been involved in numerous projects involving contaminated land. He is approved as a site auditor by the Victorian Environment Protection Authority.
I was favourably impressed by Mr Parker. However, in assessing the weight to be given to his evidence, where it is in conflict with that of Dr Swane or Mr Kidd, it is necessary to bear in mind Mr Parker’s lesser degree of contact with the Site. He inspected it before preparing his affidavit. However, at that stage, the building had been completed. Mr Parker read the various reports to which I have referred, but he was not involved in carrying out any of the inspections, tests or remedial work to which they referred.
In fact, there is considerable common ground between Dr Swane and Mr Kidd, on the one hand, and Mr Parker, on the other. In particular, Mr Parker agreed the Site was affected by groundwater contamination and this warranted a remediation strategy. Mr Parker accepted that the Site had not been remediated to a standard suitable for residential use in accordance with all the ‘relevant EPA endorsed guidelines’. He agreed there was a possibility of ‘migration of contaminants along some pathway’. Mr Parker said it was not known whether any migration was over moderately permeable rock; ‘[w]e don’t know how deep that goes’. Mr Parker’s evidence went on:
‘If you had that information when you were carrying out a validation and an assessment of this site, would you stop there or would you do something else? --- I have said in my evidence that EES could have gone deeper in their investigation.
Could have or should have? --- They made a judgment at that point. I hope I would have made a different judgment.’
Mr Parker said that, with the information he now had, ‘it would have been good to install some wells’. His evidence continued:
‘You would have done that, do you not agree? If you had this result, at that time, it is likely you would have instructed the testing of the groundwater on this site, do you agree? --- No, I would have drilled deeper first here, and then made that decision.
Eventually tested the groundwater, do you agree? --- No, I would have drilled deeper here and then made an assessment as to whether or not I’ve [sic] … drilled to assess groundwater.’
Mr Corsaro drew Mr Parker’s attention to a passage in Report 19844B in which Ms Bauer reported that ‘groundwater and/or interface drainage was not encountered during validation sampling except in the tank pit’. He suggested this meant that water had been encountered at that point. Mr Parker agreed this water ‘should have been tested … in accordance with the guideline’. He said: ‘If you really didn’t know what it was, the guidelines would suggest you should put in a well’.
I am satisfied that the work carried out by EES in relation to validation of both allotments, prior to the delivery of the respective reports, was insufficient to satisfy the Guidelines.
Counsel for the applicants argued another non-compliance with the Guidelines. They said the Guidelines required that ‘groundwater monitoring wells be installed unless migration of contaminants could be positively excluded’. They referred to pages 8 and 9 of the Guidelines. However, the relevant sentence is: ‘If the excavation and chemical testing of the tank pits and other areas of elevated contaminant concentrations shows that there has been no migration of contaminants, there may be no need to drill monitoring wells’. Dr Swane interpreted this sentence as requiring that ‘if you can’t demonstrate that there has been no migration then you should drill’. I can understand his view that this is good practice. But this goes beyond what is stated at pages 8 and 9 of the Guidelines. The relevant sentence does not impose the positive obligation suggested by counsel for the applicants. I do not accept that EES failed to comply with the Guidelines in this regard.
(iii) Significant vertical migration was unlikely
The second representation relied on by the applicant is that ‘significant vertical migrations of hydrocarbons was unlikely’. Mr Kidd did not agree with that view of the situation when he prepared his draft site audit report of 21 June 2000. He said in evidence that he thought ‘assessment of the groundwater was necessary’ and ‘given it was a steep site and … there was no groundwater investigations done at that stage … it was good judgment to say, in my opinion, that there was a potential for offsite migration down the slope’.
There may be room here for argument about degrees of probability. However, whether or not the evidence expressly negatives the representation in the report, the expert evidence clearly shows that EES was not in a position responsibly to make that representation.
Mr Kidd had noted in his draft site audit report of 21 June 2000, speaking of both Report 19844B and Report 19844C, that ‘no groundwater samples were collected from beneath the site for testing and therefore the contamination status of the groundwater beneath the site is largely unknown’. As mentioned, Ms Bauer agreed in cross-examination that, because EES had made no groundwater investigations, Mr Kidd (as auditor) was not in a position to assess the level of groundwater contamination on the Site.
During the course of her evidence, Ms Bauer hypothesised that any groundwater flow would take place (roughly laterally) along the seam between the sandy loam strata and the sandy clay. It was pointed out to her that this seam was intersected at its western point by a retaining wall. Ms Bauer was asked how she could be confident that contaminated groundwater, that flowed along the seam, had not reached the retaining wall and then been directed vertically. Ms Bauer responded that, ‘to be correct’, she could not be confident that this had not occurred.
(iv) No down gradient impact
The third representation relied on by counsel for the applicant is that the former service station activities had not impacted on the Site down gradient of the fuel storage activities. It follows from what I have said about EES’ failure to delineate the migration of contaminants that it was not in a position, responsibly, to make this statement.
At the trial, it was common ground that two monitoring wells at the rear of the Site (MWs 2 and 3) were (and still are) significantly contaminated by hydrocarbons. With some support from Rodney Clifford Harwood, a hydrogeologist called by counsel for EES, Mr Mulvey advanced some fanciful theories as to the source of that contamination. There was some inconsistency between the theories; their major common characteristic was that all attributed the conceded groundwater pollution to activities away from the Site. This is difficult to reconcile with EES’ discovery of hydrocarbon migration at the interface between the sandy loam and sandy clay stratas (see para 12 above) and hydrocarbon odour in BH 10 and BH 11 below a depth of one metre (see para 15 above).
I do not find it necessary to detail Mr Mulvey’s theories. None of them is supported by hard evidence. Even Mr Harwood was not prepared to say the source of the contamination was ‘definitely offsite’.
More importantly, even if one or more of the theories had a foundation, the fact would remain that EES made no attempt to investigate the groundwater under the Site. Accordingly, it was in no position to assert that the former service station activities had not impacted down-gradient. Nor was it in a position to assert that the allotments that constituted the Site were suitable for ‘any landuse’ or ‘residential use’. Such an assertion implies that EES had investigated, and negatived, the possibility that there was groundwater pollution, at least from onsite sources. EES had not done this.
(v) Suitability for new use
As indicated, Report 19844B and Report 19844C both made statements about the suitability for other uses of the areas with which they were concerned. The Conclusion to Report 19844B said Lot T (or at least its former tank area) was ‘now suitable for any landuse’. Report 19844C stated Lot U was ‘suitable for residential landuse’. These statements can only be read as statements about the position at the date of the respective reports, without the necessity for future remedial work.
Having regard to its failure to delineate the extent of hydrocarbon contamination, EES was in no position to make either of these statements. In her oral evidence, Ms Bauer effectively conceded as much. Speaking of Report 19844C, she agreed ‘we could have had clearer limitations in that report’. The problem is that neither report stated any limitation; in both cases, the statement as to suitability was unqualified.
Counsel for Caltex attempted to draw a distinction between the suitability of the Site itself for development and the presence of contamination in the underlying groundwater that might cause the Site to be regarded as posing a significant risk of harm to neighbouring properties. However, the expert evidence does not support such a distinction. The presence of contaminated groundwater impinges upon the suitability of the Site for development.
Well before this litigation was commenced, both Dr Swane and Mr Kidd were adamant that the Site would not be suitable, even for the proposed commercial development, unless remedial works were undertaken. As late as March 2001, Mr Kidd noted elevated concentrations of petroleum hydrocarbons in soil samples taken during excavation of the Site: see para 86 above. He thought the Site represented a significant risk of harm because of groundwater contamination, offsite migration of elevated levels of BTEX and TPH in the groundwater and the ‘potential for build up of vapours to explosive levels immediately below the basement’. In order to counter the first of those problems, Dr Swane’s design proposed pumping, and subsequent decontamination, of the groundwater. In order to deal with the second problem, he proposed a vapour extraction (bio-venting) system.
I agree with the logic of Charben’s response. At the same time, I think counsel for Caltex were justified in criticising the quality of the evidence adduced in relation to those costs. As they said, in many respects the only relevant evidence was Mr Theo Paradisis’ uncorroborated oral evidence. Contrary to the suggestion of counsel for Caltex, I do not think Mr Theo Paradisis set out consciously to mislead the Court. However, it is clear his recollection was incorrect in relation to some matters of detail; not surprisingly, given the lapse of time between the relevant events and the date of his giving evidence. However, nothing seems to turn on those matters of detail. The critical matter, for the purpose of this submission, was what Mr Theo Paradisis meant in evidence by the term ‘clean fill’, in relation to dumping waste. I do not accept that Mr Theo Paradisis’ 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. Mr Theo Paradisis had previous experience with service station sites. He knew that a former service station was unlikely ever to be in pristine condition. I think he used the term ‘clean fill’ to refer to fill that was able to be accepted at any regular dump; that is, fill that posed no hazard to a normal urban environment. The reason why an additional $178,995 had to be paid to Glencoe for removal of soil from the Site was because the material was not disposable at a regular dump; it had to be carted to a specialised facility. Accordingly, I should allow the disputed items related to removal of contaminated material from the Site.
On the other hand, I think Caltex has a point in relation to the HLA and Geotechnique fees. Whether or not the Site had been properly remediated, the Council would have required a site audit to establish that fact. Fees would have been incurred. A site audit would presumably have involved testing, and expenditure on testing fees. It is not possible for me to determine what these fees would have been. I think the fair course is to deduct from the sums to be subsequently allowed the sum of $10,000.
Diminution in building value
(i) Allowability
Caltex also contends that Charben is not entitled to calculate any component of its loss by reference to the difference at any time between the hypothetical value of the completed development, if it had not been contaminated, and its actual value as completed i.e. on the supposition that it was in fact contaminated.
Counsel’s argument is put this way:
‘Charben has not actually suffered such a loss, because it has not sold the completed development and realised any loss. The evidence is that Charben never intended to sell the development on completion, but rather intended to hold it as a long-term investment. That is what has happened. Charben has therefore not actually suffered any monetary loss related to the sale of the property. It may never do so. On the evidence, once the bioventing system has completed its work, the excessive contamination problem will be resolved. Charben will then, if it wishes, be able to sell the development for its full market value.
None of the expert valuers in their determinations of the present value of the completed development expressed any opinion that the passing rents paid by the tenants were less than market rent. That is, the evidence does not show that as long as Charben retains ownership of the development it will actually receive less rental income than it would had the contamination not been present. The long-term nature of the leases shows that Charben should not receive less than market rent during any likely period of operation of the remediation system.’
Counsel argue that, if Caltex breached cl 44.2 of the contract, the natural measure of Charben’s damages would be the amount of money that Charben would have had to expend to decontaminate Lot U following completion. Counsel concede this cost must be calculated in the context of the development that was under construction when the contamination was discovered, and should extend to increased development costs directly caused by the contamination of Lot U.
Counsel for Charben remark that, depending on the selected discount percentage, the approach argued by their opponents might yield higher damages than those claimed by their client. However, they submit Caltex’s approach is wrong in principle; it is open to the Court, and is the usual course, to assess loss of value as at the date of breach or date of trial. They refer to Johnson v Perez (1988) 166 CLR 351.
In that case, at 355, Mason CJ referred to ‘a general rule that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arises’. The Chief Justice acknowledged this rule is not inflexible. He said at 356: ‘courts depart from the general rule whenever it is necessary to do so in the interests of justice’. He instanced cases of fluctuating foreign currencies or goods for which there is not an established market. Those examples are remote from the present case. It is common ground that there is an established market for commercial properties, values being usually determined by capitalising the present or likely future rental yield.
Mr and Mrs Janakis might be content to have Charben continue to hold the Site for such time as it may take for the remediation process to be completed and any diminution in value to be eliminated. However, they might not; to assess damages on the basis that they will definitely take that course would be to expose them to an uncompensated loss if they chose, or needed, to sell at an earlier date. Effectively, Charben would lose the option (possessed by every other commercial property owner) of deciding for itself whether to continue to hold its property. I think Charben is entitled to have the Court take into account the diminution in value of the Site, caused by the contamination, assessed as at the date of trial.
(ii) Quantum
For the purpose of their valuations, all the valuers assumed the Site is in fact contaminated and that the bio-venting and ground remediation works installed by SKM were necessary, in order to impose acceptable limits on groundwater contamination and polluting odours.
However, the three valuers adopted different assumptions as to both the period during which it would be necessary to operate the bio-venting system and the annual cost of doing so. Choice between those assumptions does not depend on real estate valuation expertise. The choice has to be made by me, having regard to other evidence; especially that of the engineers.
The three valuers agreed that the market value of the Site, at the date of trial and as developed with the existing buildings, but free of any hydrocarbon contamination, would be $3,800,000. For the purposes of calculating the market value of the affected site (as developed), they agreed it was necessary to deduct from this figure a sum representing the likely future annualised cost of running the bio-venting system. The annual cost is currently $110,000. The valuers agreed that, if one assumed an operating period of ten years at $110,000, the current market value of the developed site would be $2,700,000. However, against the possibility that the Court did not accept either a ten year operating period or that costs would continue to be incurred at the rate of $110,000 per annum, they also made calculations in respect of ten other possibilities.
Six of the ten possibilities assume an operating period of either three years or five years. I immediately set them aside; even five years is too short.
In a report dated 5 March 2003, Dr Swane said ‘it is likely that the system will need to operate for a minimum of 2-5 years’. He said the environmental monitoring system may ‘need to continue for some years after the bio-venting system has been removed in order to verify the long-term water quality’. He thought it might be ’10 years or more’ before the NSW EPA was prepared to remove its ‘significant risk of harm’ notification on the site and adjoining residences. Having regard to the fact that Dr Swane spoke of a monitoring period of ‘10 years or more’, counsel for Charben argue that the Court should assess value on the basis that the bio-venting system may need to operate for 10 years. They refer to evidence given by Ernest Craig Miller, the valuer retained on behalf of Charben, that he would advise a prospective purchaser ‘to make an allowance equivalent to 20 years being 10 years plus a risk factor of 100% to allow for the fact that the operation of the bio-venting system may have to be extended for an indefinite period and also to allow for a discount in the future sale price due to the contamination history of the site’.
The valuers retained on behalf of the respondents took a more sanguine view than this; but they were each willing to adopt a 10 year operation period. Neither of the respondents have contended I ought not to do this. Consequently, I disregard the six calculations that assume an operating period of less than 10 years.
The difference between the remaining four values arises out of differing assumptions relating to annual operating costs. These costs comprise fees paid to SKM and costs incurred by Caldas on Charben’s behalf. As I have noted, currently they run at $110,000 per annum. However, Dr Swane accepted that costs are likely gradually to reduce. He agreed the annual costs would probably not exceed $87,000 (in today’s dollars) by the end of the 10 years.
There are major uncertainties about the future operation of the bio-venting system, including its likely cost of operation. I accept Mr Miller’s point about any prospective purchaser taking a cautious approach. Nonetheless, an allowance of $110,000 per year for 10 years seems excessive.
The other annual operating costs figures considered by the valuers were $86,184, $55,000 and $15,000. $15,000 is clearly too low. There is room for debate as between $86,184 and $55,000. Perhaps by the end of the 10 year period, the annual cost will not exceed $55,000. However, at the beginning of the period it is running at twice that rate, so it seems wrong to adopt $55,000 as the average throughout. I think the appropriate course is to assume operating costs of $86,184 per annum over the 10 year period. On that assumption, the present value of the building is $2,850,000. This figure is $950,000 less than the agreed value of the same building on an uncontaminated site. Accordingly, I adopt $950,000 as the value of the first element in Charben’s claim, the diminution in building value.
As this element is being assessed by reference to values at the date of trial, it is not appropriate to award pre-judgment interest.
Additional capital costs
The next matter for consideration is the extra capital costs incurred by Charben as a result of the contamination. Here again, there is a substantial degree of agreement. After discussions between all three engineering consultants, two (Peter Franklyn Loveday, of Hinds Blunden Pty Limited representing Charben, and Craig Anthony Walsh, of Evans and Peek representing Caltex) met in a ‘conclave’ with Mr Theo Paradisis, the idea being to question him about disputed items.
After the conclave, Mr Loveday and Mr Walsh produced a document containing 31 items. They agreed to allow 22 of these items at specific figures, and to disallow two of them. I need not detail the agreed items. Subject to some later qualifications, I adopt their figures.
To the 22 agreed figures, I add item 27 concerning the fees of SKM. The experts agreed this item was supported by invoices but they felt unqualified to assess the reasonable cost of services related to the bio-venting system. I understand their reticence. However, having regard to the evidence now before the Court, the claimed figure should be allowed. The 23 items just mentioned total $247,979.
The two disallowed items involved legal expenses. The experts agreed the value of the relevant invoices but omitted them from their calculation, on the basis that recoverability was a matter for the Court. Nothing has been put before me to suggest these expenses ought to be included in my assessment of damages.
This leaves four disputed items.
Item 10 is a claim for $12,136 paid to Caps Australia Pty Ltd for the hire of air blower equipment. The experts sighted invoices for the hire charges but Mr Walsh thought Charben should have purchased a pump, rather than incur hiring charges. However, it seems Mr Theo Paradisis told the conclave that Dr Swane was unsure whether the originally selected equipment would turn out to be suitable in the long term; Dr Swane wished to review the position after twelve months’ operation. Under those circumstances, it was reasonable for Mr Theo Paradisis to decide to hire, rather than purchase, the equipment.
Item 18 is a claim for $41,393 paid to Geotechnique. The claim was divided into two parts: $24,823 for services rendered prior to 14 February 2001 and $16,275 for services rendered after that date in connection with the bio-venting system. Mr Walsh conceded the reasonableness of the second part and he acknowledged that the earlier $24,823 was paid. However, he thought the amount excessive for preparation of the RAP, sampling and reporting. He gave no reason for that opinion. As counsel for Charben point out, the fees are the total of hourly or small item charges, so I would not disallow them on the basis that they were excessive. However, as indicated at para 242 above, I think it is reasonable to deduct $10,000 from the agreed figures in relation to Geotechnique and HLA to cover what Charben would have needed to pay by way of fees in any event.
Adding the value of items 10 and 18 ($53,529) to the agreed $247,979, and deducting $10,000, takes the running total to $291,508.
This leaves two major items: the site management charges made by Caldas (item 9) and the excavation costs claimed by Glencoe (item 19). Even here, there are elements of agreement, but differences remain.
The total claim in relation to Caldas’ charges is $122,310. Two items, totalling $34,830, are agreed. One item of $11,340 relates to time spent by Mr Theo Paradisis dealing with solicitors. There has been no evidence about that matter. In the absence of evidence, this item is not recoverable. The remainder of the claim, items of $27,000 and $49,140, are contentious. Both items concern Mr Theo Paradisis’ time as supervisor on the projects. No objection is taken to the claimed $90 hourly rate. However, there are no detailed invoices or site records and Mr Walsh thought the claimed number of hours to be excessive.
Mr Walsh gave reasons for his opinion in a report on the conclave. However, Mr Theo Paradisis gave evidence as to the hours that he worked. He was cross-examined on the subject and I see no reason to disbelieve him. There is no doubt that, during the relevant period, this project was Mr Theo Paradisis’ absorbing interest, so far as his work was concerned. I propose to allow both disputed items, making the total value of item 9 $110,970 ($122,310-$11,340). This takes the running total to $402,478.
The final item (item 19) concerns the cost of carting and disposing of excavated material; being the extra cost incurred because the material was contaminated.
Mr Loveday adopted a figure, for the extra cost, of $178,995. However, he noted ‘an unexplained anomaly whereby invoiced truck loads appear to give rise to a quantity of material in excess of that expected by about 20%’. If the total cost of carting and disposal of excavated material ($318,845) is reduced by 20%, the adjustment on account of contamination becomes $145,076.
Mr Walsh argued the rates charged by Glencoe were excessive. As I follow his argument, the total charge of $318,845 was excessive to the tune of $142,525, meaning that the total charge should have been only $176,320. Although this is not spelled out in the joint report, I gather that Mr Walsh would deduct $110,000 from this figure ($318,845-$208,845), thereby valuing the item at $66,320.
Mr Walsh’s position in relation to this item is based on quotations that he received from three haulage companies whilst he was preparing his initial report and on his own inquiries as to possible alternative tipping sites. He also referred to gaps in Caldas’ written records about tips.
Mr Theo Paradisis was cross-examined about the haulage and tipping expenses Caldas incurred. In the course of that evidence, he dealt with the gaps in written records; I thought satisfactorily. There appears to be no doubt that the charges made by Glencoe were paid by Caldas. There is no suggestion that the relationship between Glencoe and Caldas was other than an arms-length relationship. In that situation, I think it would be wrong for me to reduce the amount recoverable by Charben simply because three other haulage companies now assert they would have offered cheaper rates. Similarly, it would be wrong to substitute Mr Walsh’s conjectures as to alternative tipping locations for those found and used by Caldas at the time. In relation to item 19, I propose to adopt Mr Loveday’s adjusted figure, $145,076.
Three of the items in the schedule compiled by Mr Loveday and Mr Walsh (items 21, 23 and 30) were referred to at pages 15 to 17 of a further report of Mr Loveday dated 2 June 2003. Mr Loveday there gave reasons for increasing item 21 from $14,800 to $25,998, item 23 from nil to $1,887 and item 30 from nil to $9,615. There does not appear to be any contention about those reasons. They total $22,700. I add this figure to the earlier figure of $145,076, making a total sum allowed in relation to extra capital costs of $570,254.
It is reasonable to allow pre-judgment interest on this sum. The extra capital costs were incurred over a two-year construction period that ran from September 2000 to August 2002. It would be tedious, even if it were possible, to put a date against each item of expenditure. I think it would be fair to allow interest for the period of 31 months that has elapsed since the mid-point of the construction period, early September 2001. Adopting a rate of 9% per annum, I allow $132,584 for interest. The second element of the claim is therefore assessed at $702,838.
Loss of rental income
The accountant representing Charben, Goodwin Gower, calculated his client’s loss of rental income at $477,293. At a meeting on 16 May 2004 with Darryl Dorfan and Paul Mentzalis, the accountants representing the respondents, Mr Gower acknowledged an error in the tax rate used over one period. He agreed this sum ought therefore be reduced by $3,000. However, Mr Gower resisted other suggested adjustments.
In a report dated 28 March 2003, Mr Gower explained how he calculated the sum of $477,293. He assumed that, but for the contamination, Charben would have received $26,771 net rent for each of the 18 months between February 2001 and July 2002, a total of $481,883. He deducted tax of $147,777, leaving a net rent after tax of $334,105. However, Mr Gower assumed that any damages awarded in respect of loss of rental income would be taxable, so he ‘grossed up’ the figure of $334,105 to take account of the tax that would be levied on this sum at current rates.
Counsel for Caltex submit that the delay in receiving rental income is something that ‘would have occurred in any event because of the contamination of No 694, which is a matter for which Caltex was not responsible’. I think this submission is covered by what I have said in paras 230 to 234 above.
Counsel for Caltex further submit that it is erroneous to assume that, absent the contamination, the building would have been ready for leasing on 27 February 2001. They point out that Mr Gower assumed that, absent the contamination, construction would have commenced about 1 August 2000 and taken 30 weeks. This takes the completion date to the end of February 2001. However, counsel note the assumption makes no allowance for breaks in construction activity.
I agree with counsel that leasing at the end of February 2001 is an unrealistic assumption. I do not overlook the fact that Mr Theo Paradisis said he had planned to complete construction in 24 weeks, as opposed to the programmed 30 weeks. Although I accept Mr Theo Paradisis as a credible witness, I regard the 24 weeks plan as an aspiration rather than a probability. I think I should work on the basis of the programmed 30 weeks. Moreover, allowance must be made for the stoppage of work that occurred generally in Sydney over the period of the September 2000 Olympic Games and the Christmas break.
To make those allowances, I think I should assume an additional six weeks, taking the completion date to mid-April 2001. This should be compared with the actual date of completion, 9 August 2002. The difference amounts to about 16 months. On this basis, Mr Gower’s allowance of 18 months’ loss of rental income seems excessive. Although to do so involves a ‘broad brush’ approach that ignores slight variations in tax rates, I will reduce Mr Gower’s figure of $474,293 ($477,293 - $3,000) by one-ninth, to $421,594.
Mr Mentzalis, the accountant representing Caltex, thought Mr Gower should have made three further deductions from his assessed loss of rental income figure. First, Mr Mentzalis said the assumed rental for the early months of occupancy should be reduced by $28,000 to take account of the movement in inflation between February 2001 to March 2003, the date as at which the monthly net rent was calculated. However, Mr Gower thought the movement in inflation made no difference; the rental assumed by Mr Miller would have been available at the earlier date.
The evidence does not enable me satisfactorily to resolve this issue. I am influenced by Mr Miller’s apparent opinion that his assumed rental would have been available at the earlier date but there must be something in Mr Mentzalis’ point about inflation. I propose to cover the matter by deducting $10,000 from the figure of $421,594.
Mr Mentzalis also argued for a deduction representing the time needed for obtaining tenants and the value of concessions given to tenants by Charben in relation to outgoings. However, it seems to me these incidents of leasing a property would apply regardless of the date of commencement of the lease. I will not make any further reduction on that account.
I allow the sum of $411,594 for loss of rental income. This loss occurred during the period April 2001 to August 2002. Taking a date at the middle of that period, December 2001, and allowing pre-judgment interest at 9% for 27 months, I add $83,348 for interest. This takes the total for loss of rental income to $494,942.
Total damages
I summarise my calculation of damages as follows:
(a) Diminution in building value $ 950,000
(b) Additional capital costs $ 702,838
(c) Loss of rental income $ 494,942
Total damages $2,147,780
I propose to enter judgment in favour of Charben for this amount as against both respondents.
Caltex’s cross-claims
(i) The amended cross-claim
Caltex filed a cross-claim in which it named both Charben and EES as cross-respondents. This document was amended, most recently by a Further Amended Cross-Claim filed on 28 April 2003. I will refer to it as ‘the cross-claim’.
(ii) The cross-claim against Charben
The cross-claim against Charben is based on cl 44.4 of the contract of sale between Caltex and Charben in relation to Lot U. It claims an indemnity ‘against any claims, liability, demands, suits, proceedings, losses, costs, penalties or damages incurred by Caltex as a result, directly or indirectly of the existence or otherwise of the Works (as defined in clause 44.2(a) of the Contract for Sale), the Environmental Report (as defined in clause 44.2(b) of the Contract for Sale) or any environmental contamination in, under or on the property or in, under or on land which is in the vicinity of the property’.
I set out the terms of cl 44.4 at para 35 above. The relief sought by Caltex against Charben is as follows:
‘(a)Indemnity from Charben in respect of any liability Caltex has in these proceedings.
(b)Indemnity from Charben in respect of any loss and/or damage incurred by Caltex (on an indemnity basis) in and about these proceedings.
(c)A declaration that clause 44.4 of the Contract for Sale 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 Contract for Sale.
(e)A declaration that pursuant to clause 44 of the Contract for Sale 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 the property.
(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 EPA declares the land to be free from contamination.
(g)Indemnity.
(h)Damages.
(i)Such other or further order as may be deemed appropriate by the Court.
(j)Costs.’
Counsel for Caltex put only a short submission in relation to these claims. They say: ‘Caltex submits that clause 44.4 is as a matter of law effective according to its terms, and it follows that Caltex is entitled to the relief claimed’.
At paras 168-175 above, I discussed the relationship between cl 44.4 and cl 44.2. I accepted the submission of counsel for Charben that cl 44.4 does not release Caltex from the obligations specified in the contract, including those specified under cl 44.2. If that is correct, Caltex’s cross-claim against Charben must fail.
(iii) The cross-claim against EES
Caltex’s cross-claim against EES is based upon several causes of action: breach of contract, ‘breach of duty of care’, and contraventions of ss 52 and 53A(1) of the Act. Caltex claims damages, an order under s 87 of the Act that EES indemnify Caltex for all loss and damage incurred by it in the proceedings and as a result of NSW EPA’s significant risk of harm notification, and indemnification and/or contribution under s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) or s 87 of the Act.
Clause 10 of the cross-claim (which is admitted by EES) refers to the making of an agreement between Caltex and EES in August 1998 ‘under which [EES] agreed to carry out validation and supervision of remediation (excluding supervision of tank removal) of’ the Site. Clause 11, which is also admitted, alleges the following terms of this agreement:
‘(a)The fill on the property and the land would be investigated to ensure compliance with the medium density residential criteria (NEHF D Criteria).
(b)If the fill proves to be contaminated removal will be supervised and then validated.
(c)Once tanks are removed, all tank pits will be sampled in accordance with the NSWEPA guidelines for assessing service station sites. The remainder of the property and the land will be validated after remediation of fill, if any, according to NEHF D Criteria and NSW EPA soil sampling guidelines.
(d)The property and the land would be remediated to ensure compliance with the medium density residential criteria (NEHF D Criteria).
(e)Upon completion of the work, Environmental Earth Sciences would issue an environmental assessment/validation report.’
Caltex also alleges certain implied terms, including a term implied by s 74(2) of the Act. EES disputes the existence of these implied terms. It is not necessary to resolve that dispute. Although EES denies the fact, it seems to me clear that EES failed to comply with each of para (a), (c) and (d) of the terms alleged in cl 11 of the cross-claim.
It is also clear that EES contravened s 52 (but not s 53A) of the Act when it supplied Caltex with Reports 19844B and 19844C. Caltex relied on the latter report, at least, in completing its contract of sale of Lot U to Charben. It thereby exposed itself to the action that Charben has successfully brought against it.
In answer to the cross-claim brought by Caltex against EES. EES pleads that Charben is bound by cl 44.4 of the contract for sale between Caltex and Charben; and, therefore, Caltex is indemnified against the loss that it asserts. For reasons already given, that answer must be rejected.
Although the matter was not pleaded, EES referred in its written submissions to a condition of its contract with Caltex whereby its liability would be limited to the value of the fee for its services, up to a maximum of $50,000. It was said this condition was included in EES’ standard terms and conditions, which were incorporated by reference into its contracts with Caltex in relation to each of the three reports. However, as the written submissions concede, the relevant clause is not in evidence.
Although the written submission foreshadowed an application to tender the standard terms and conditions, and there has been ample opportunity for such an application to be made, no such application has been made. Accordingly, it seems to me I have no option but to disregard this response to Caltex’s cross-claim. It is not necessary for me to determine whether, as Caltex contends, the limiting condition would, in any event, be overborne by ss 68(1) and 74(2) of the Act.
The difficulty about Caltex’s invocation of s 5 of the Law Reform (Miscellaneous Provisions) Act is that this provision applies only to a case where damage is suffered by a person as a result of a tort. It enables a ‘tort-feasor’ to seek contribution. Because I have held Caltex to be liable to Charben on the basis of breach of contract, not of commission of a tort, the provision is inapplicable to this case.
Caltex’s contribution claim arguably falls under s 87 of the Act, but only if it be concluded that the damage suffered by Caltex arose out of the conduct of EES that fell within s 52 of the Act. In one sense it did, but more fundamentally it arose out of EES’ failure to fulfil the contractual terms set out in para 295 above. For this reason, I have some hesitation about using s 87 as a basis for making a contribution or indemnification order in favour of Caltex against EES.
However, it seems to me unnecessary for Caltex to bring itself within either of these statutory provisions. By its cross-claim, Caltex has made a claim for damages for breach of contract. I see no difficulty in entering judgment for Caltex against EES for the same sum as the judgment entered in favour of Charben against Caltex and EES, subject to deduction from the judgment any part of the sum that may be paid by EES to Charben.
EES’ cross-claim against Caltex
The cross-claim made by EES against Caltex is based entirely upon the general terms and conditions already incorporated into the agreement between EES and Caltex. As indicated, these are not in evidence. Accordingly, I must dismiss EES’ cross-claim.
Disposition
In the result, I propose to enter judgment for Charben against Caltex and EES in the sum of $2,147,800. Caltex and EES must pay Charben’s costs. I will enter judgment in favour of Caltex against EES in the same sum ($2,147,800), subject to deduction from the judgment debt of any part of the sum that may have been paid by EES directly to Charben. EES must pay Caltex’s costs, including any costs paid by Caltex to Charben.
I certify that the preceding three hundred and five (305) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox. Associate:
Dated: 8 April 2004
Counsel for the Applicant: Mr F Corsaro Sc, Mr P Taylor Solicitor for the Applicant: Pricewaterhouse Coopers Legal Counsel for the First Respondent: Mr J Webster SC, Mr M Green Solicitor for the First Respondent: Colin Biggers & Paisley Counsel for the Second Respondent: Mr S Robb QC, Mr M Henry Solicitor for the Second Respondent: Acuiti Legal Date of Hearing: 6 – 9 May 2003, 12 – 16 May 2003, 21 May 2003 (last submissions filed on 17 October 2003) Date of Judgment: 8 April 2004
- AGLC
- Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd [2004] FCA 403
- Case
- [2004] FCA 403
- Decision Date
CaseChat Overview and Summary
The court found that the defendants had breached their contractual obligations by making misleading statements about the site's environmental condition. The defendants argued that groundwater monitoring wells were not required because contaminant migration could be excluded, but the court held that the Guidelines did not impose such a positive obligation. The defendants also represented that significant vertical migration of hydrocarbons was unlikely and that the site had not been impacted down gradient of the fuel storage activities. The court found these representations misleading as the evidence did not support the defendants' positions, and they had not conducted sufficient investigations to make such representations responsibly.
The court concluded that Charben was entitled to judgment against the defendants for the specified amount of $2,147,800. The defendants were ordered to pay Charben's costs, and judgment was entered in favour of Caltex against EES for the same amount, subject to any payments made by EES to Charben. EES was also ordered to pay Caltex's costs, including any costs paid by Caltex to Charben. The cross-claim by EES against Caltex was dismissed with costs.
Orders
Orders of the court
1. Judgment be entered in favour of the applicant, Charben Haulage Pty Ltd (‘Charben’), against the respondents, Environmental & Earth Sciences Pty Ltd (‘EES’) and Caltex Petroleum Pty Ltd (‘Caltex’), in the sum of two million one hundred and forty seven thousand and eight hundred dollars ($2,147,800) (‘the said sum’).
2. EES and Caltex pay to Charben its costs of the proceeding.
3. Judgment be entered in favour of Caltex against EES in the said sum, subject to deduction from the judgment debt any part of it that may be paid by EES to Charben.
4. EES pay to Caltex its costs of the proceeding, including any costs paid by Caltex to Charben pursuant to order 2.
5. The cross-claim made by EES against Caltex be dismissed with costs.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Established by: WILCOX J
Counsel for the applicants argued another non-compliance with the Guidelines. They said the Guidelines required that ‘groundwater monitoring wells be installed unless migration of contaminants could be positively excluded’. They referred to pages 8 and 9 of the Guidelines. However, the relevant sentence is: ‘If the excavation and chemical testing of the tank pits and other areas of elevated contaminant concentrations shows that there has been no migration of contaminants, there may be no need to drill monitoring wells’. Dr Swane interpreted this sentence as requiring that ‘if you can’t demonstrate that there has been no migration then you should drill’. I can understand his view that this is good practice. But this goes beyond what is stated at pages 8 and 9 of the Guidelines. The relevant sentence does not impose the positive obligation suggested by counsel for the applicants. I do not accept that EES failed to comply with the Guidelines in this regard.(iii) Significant vertical migration was unlikely The second representation relied on by the applicant is that ‘significant vertical migrations of hydrocarbons was unlikely’. Mr Kidd did not agree with that view of the situation when he prepared his draft site audit report of 21 June 2000. He said in evidence that he thought ‘assessment of the groundwater was necessary’ and ‘given it was a steep site and … there was no groundwater investigations done at that stage … it was good judgment to say, in my opinion, that there was a potential for offsite migration down the slope’. There may be room here for argument about degrees of probability. However, whether or not the evidence expressly negatives the representation in the report, the expert evidence clearly shows that EES was not in a position responsibly to make that representation. Mr Kidd had noted in his draft site audit report of 21 June 2000, speaking of both Report 19844B and Report 19844C, that ‘no groundwater samples were collected from beneath the site for testing and therefore the contamination status of the groundwater beneath the site is largely unknown’. As mentioned, Ms Bauer agreed in cross-examination that, because EES had made no groundwater investigations, Mr Kidd (as auditor) was not in a position to assess the level of groundwater contamination on the Site. During the course of her evidence, Ms Bauer hypothesised that any groundwater flow would take place (roughly laterally) along the seam between the sandy loam strata and the sandy clay. It was pointed out to her that this seam was intersected at its western point by a retaining wall. Ms Bauer was asked how she could be confident that contaminated groundwater, that flowed along the seam, had not reached the retaining wall and then been directed vertically. Ms Bauer responded that, ‘to be correct’, she could not be confident that this had not occurred.(iv) No down gradient impact The third representation relied on by counsel for the applicant is that the former service station activities had not impacted on the Site down gradient of the fuel storage activities. It follows from what I have said about EES’ failure to delineate the migration of contaminants that it was not in a position, responsibly, to make this statement.