Edgewater Service Ltd v Irwin Johnston & Partners Engineering Pty Ltd
[2002] VSC 76
•22 March 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8747 of 1995
| EDGEWATER SERVICE LTD. (ACN 004 514 569) | Plaintiff |
| v. | |
| IRWIN JOHNSTON & PARTNERS ENGINEERING PTY. LTD. (ACN 005 611 530) | Defendant |
| FIRE FIGHTING ENTERPRISES (VIC.) PTY. LTD. (IN LIQUIDATION) (ACN 004 251 601) | Third Party |
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JUDGE: | PAGONE, J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 26-28 FEBRUARY; 1 and 4-8 MARCH 2002 | |
DATE OF JUDGMENT: | 22 MARCH 2002 | |
CASE MAY BE CITED AS: | EDGEWATER SERVICE LTD. v. IRWIN JOHNSTON & PARTNERS ENGINEERING PTY. LTD. | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 76 | |
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CATCHWORDS: Negligence – Duty of care of professional fire engineers – Damages for breach – Causation – Liability of third party.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | J. Brett | Deacons |
| For the Defendant | R.W. McGarvie | Ebsworth & Ebsworth |
HIS HONOUR:
The seeds of this proceeding may be found in the unfortunate necessity in modern life of having continually to comply with, and therefore update to meet, new and more onerous building regulations. The plaintiff, Edgewater Service Ltd. ("ESL") is the registered owner of the stratum title apartment block named "Edgewater Towers" at 12 Marine Parade, St. Kilda. They were built around 1961-2, and it may be assumed that at the time of their construction they complied with all then operative building and fire regulations and standards. The regulations and standards had changed by the late 1980's and the applicable laws then required that works be done on the building to meet the new fire safety standards. This obligation imposed onerous duties upon ESL, its shareholders (the ultimate owners) and the residents. The defendants, Irwin Johnson Partners, ("IJP") are the professional and expert consultants who were engaged by ESL to help it comply with the new fire safety obligations. The third party ("FFE"), now in liquidation, is the company engaged to effect certain works that were central to the discharge of those obligations. ESL contends that IJP failed to perform in its duties to ESL and that it suffered loss and damage in consequence. In its turn, IJP contend that FFE failed in the duties that were required of it.
Edgewater Towers is a 13 storey building comprising some 104 residential apartments held as stratum title. On 23 September 1986 a report was prepared by the Metropolitan Fire Brigade ("MFB") and forwarded to ESL after an inspection. The report recommended the adoption of a number of fire protection measures, including the installation of a sprinkler system throughout the building. The ultimate owners of Edgewater Towers were understandably concerned about the requirement that a sprinkler system had to be installed throughout. The building had not been constructed with the installation of sprinklers in mind and, because of the construction of the building, to install a sprinkler system would necessarily have an impact on the aesthetic enjoyment of the apartments by their residents and would also involve additional cost and substantial inconvenience. One reason for the difficulty, cost and inconvenience flowed from the cement structure of the building that made it difficult and unsightly to have metal pipes on concrete ceilings and walls.
The then current regulations were those found in the Building Control Act 1981. Under Part VIII of that Act the building surveyor of the municipality and the Chief Officer of the MFB could prepare a joint report regarding any defect in the fire protection system of an existing building.[1] Unfortunately for ESL this included defects perceived by reason of the changes and developments in the regulations and standards which occurred between the date of construction and the date of the report. Such a report was then to be served upon the owners and occupiers of the building[2], which would then be considered with the relevant municipal Council before the making of a final determination.[3] An appeal from a determination could be made to the Building Referees Board[4] either by the owner/occupier or by the MFB.
[1]s.133
[2]s.134
[3]s.135
[4]s.138
A joint report in this case was made around May 1987 by the City of St. Kilda (now incorporated into the City of Port Phillip). ESL retained IJP and a response was made to the joint report concentrating upon alternatives to a sprinkler system. A formal joint report was issued under s.133(1)(a) of the Building Control Act 1981 on 9 November 1987, and a formal response was completed by IJP on behalf of ESL on 23 February 1988. On 6 May 1988, IJP submitted a supplementary report dealing with some issues raised with them by the City of St. Kilda and by the MFB. On 27 May 1988 the City of St. Kilda adopted a proposal satisfactory to ESL but which the MFB appealed against to the Building Referees Board.
The Building Referees Board made a determination on 10 November 1988 after two days of hearing which commenced on 3 November 1988 and at which IJP participated on behalf of ESL and, it seems, the City of St. Kilda. The Building Referees Board endorsed as acceptable either of two proposals: (a) a sprinkler system; or (b) fire protective works accompanied by a smoke detection system in accordance with AS 1670 as then in force. On 5 January 1989 IJP wrote to ESL comparing the two options permitted by the Building Referees Board determination, and on 6 February 1989 ESL wrote to IJP rejecting the sprinkler option. It seems clear that IJP and ESL were then of the view that a non-sprinkler system option in accordance with AS 1670 was practically possible: ESL's view to that effect was based upon the view and role of IJP and its expert professional advisers. A variation was considered and ultimately abandoned but on 1 November 1989 IJP recommended to ESL that B.M. Culley & Associates be appointed to administer and organise the work with IJP continuing in its role as consultant engineers. On 12 February 1990 the technical specifications were prepared and completed by IJP and the works were carried out during 1990 and 1991.
The relationship between ESL and IJP thus began in 1987 and was broad and open-ended. IJP was a leading company of consulting engineers and ESL had a clear need for ongoing professional advice and service which IJP gave as and when needed. At first IJP assisted in dealing with the report, next it assumed the role of advocate, but the relationship was always broad and open-ended. Mr. Reddaway was the individual engineer primarily responsible for the works required by ESL. He described the relationship between IJP and ESL as varying from time to time depending on the particular circumstances. Mr. Reddaway was perhaps the leading expert in the field in Melbourne at the time. He had graduated from Cambridge University in 1965, and had worked for 10 years in the United Kingdom and Australia as a structural engineer. He joined IJP in 1976 to work in what was then the new and developing area of engineering in Australia known as fire engineering.
The particular circumstances into which the relationship between IJP and ESL developed came to include the implementation of the determination of the Building Referees Board which had authorised either a sprinkler system (which ESL did not want), or the installation of an automatic audible fire alarm system throughout the building complying with AS 1670 utilising smoke detectors in each apartment and public areas. It is clear from the first page of the determination that the Building Referees Board (itself a body of experts) had accepted the arguments presented on behalf of the City of St. Kilda and the building owners "that the building can be made reasonably safe from fire, and reasonable protection and means of escape can be provided in the event of fire for the occupants of the building and for members of the public who may be using the building without a system of automatic sprinklers being installed." These arguments depended heavily upon the report and submissions by IJP. Indeed, it was of the essence of the role of IJP as advocates before the Building Referees Board that a system could be provided for fire protection as an alternative to the automatic sprinklers sought by the MFB.
IJP then set upon the task of designing a fire protection system suitable for the circumstances and needs of ESL and its residents. IJP assumed that task amply and, it seems, diligently. It sought to adapt the then latest technology to suit the circumstances of ESL, including an attempt to modify a system known as Vesda to develop a smoke detection system known as Smodeps. The Smodeps system was suggested by IJP in March 1989 (described by Mr. O'Reilly, another IJP engineer who gave evidence, as the brainchild of Mr. Reddaway) and it conducted tests in June and July of that year. On 18 October 1989 IJP sought a variation of the determination to permit the use of the smoke detector system but it became apparent in December 1989 that the necessary variation was unlikely to be made; the Smodeps option was then abandoned by ESL at IJP's suggestion.
In February 1990 IJP prepared technical specifications and plans to give effect to what they, as technical professional experts thought was possible; namely, an audible fire alarm system complying with AS 1670 in accordance with the determination of the Building Referees Board which had been made in 1988. IJP prepared the necessary specifications and the relevant plans. The technical specifications were prepared by Mr. O'Reilly, a fire systems designer, who had joined IJP in 1988 not long after the determination of the Building Referees Board. Mr. O'Reilly's evidence concerning the preparation of the specifications and the drawing of the plans did not inspire complete confidence in what occurred at the time. In fairness to Mr. O'Reilly, the events about which he gave evidence occurred a long time ago and it is normal for recollections to fade. However, it is clear that the resultant plans suffered from insufficient attention and care to detail and to the particular circumstances with which IJP was confronted. The plans were deficient in some respects including the placement of detectors in relation to kitchens and bathrooms. It seems that the source plans which were given to the draftsman were of only three floors because an assumption was made that all floors, except the ground floor and the floor on which there was a penthouse, were identical. In relation to the floors thought to be identical, however, the plans did not apparently indicate the nature or use of the rooms, so that detectors were placed in inappropriate positions having regard to the use of a room as a kitchen or a bathroom. The specification also referred to the installing of detector heads at a maximum of 300 millimetres from the wall whereas the relevant standard, AS 1670, required that they be installed at a minimum of 300 millimetres from the wall. Mr. O'Reilly described this fact in evidence in chief as "just an oversight".
The main problem, however, with the system installed upon IJP's recommendation was that it produced an unacceptably high number of false, or unwanted, fire alarms. On 22 December 1989 IJP wrote to Mr. Brookes who was the building manager for ESL at the time and was the person responsible for the fire protection issue on behalf of ESL. The letter from IJP enclosed then recent correspondence with the Building Referees Board concerning the use of the Vesda system but went on to say that, notwithstanding the possibility that the use of the Vesda system could still be subject to negotiation before a final decision was made, IJP believed that in the long term they would not be successful in finally convincing either the MFB or the building surveyor. IJP, therefore, recommended "that an analogue addressable smoke detection system be installed". The letter continued by seeking confirmation that ESL wished IJP to proceed along this path. Mr. Reddaway explained in evidence that he had recommended that kind of system because he was of the view that the analogue addressable smoke detection system was the very best technology that was available and, significantly, that the system was capable of adjusting the sensitivity of each individual detector head. Adjustability of the system was at the heart of the reason for adopting the system and the failure of adequate adjustability was the principal explanation for the problems that followed.
The system had never been used before in a residential setting but Mr. Reddaway was not aware at the time that the system had any particular limitation in respect of adjustments. Mr. Reddaway agreed that at the time of installation he had no reason or fear or inkling that the system he was recommending would give rise to the rate or number of false alarms which occurred. He admitted to being "totally shocked" after the system was installed and he learned of the number of false alarms that were experienced. He thereupon immediately contacted the suppliers of the system, FFE, who then informed him of the limits of the adjustability of the technology which had been adopted at his recommendation. Mr. Reddaway said that he "had assumed that the sensitivity could be adjusted over so that one could reduce the sensitivity to any desired extent, but it transpired" not to be the case. It was, to say the least, an unfortunate assumption for him to have made. The consequence was that the system could not at the time be connected to the MFB because the high level of false alarms was so great that the system was unreliable and practically unworkable. A necessary consequence was also that ESL had therefore not satisfied the obligations upon it to make adequate provision for fire protection as approved by the Building Referees Board.
In my view IJP clearly failed in its duties to ESL. It failed to ensure that the system which it was recommending was capable of performing the tasks needed. That failure was primarily due to the wrong assumption which Mr. Reddaway had made. Mr. O'Reilly was also aware at the time of the need for the system to be adjustable. He explained in evidence that IJP had recommended an addressable adjustable system rather than what he described as a "conventional" system because the former was, and the latter was not, adjustable. It seems that Mr. O'Reilly believed at the time (unlike Mr. Reddaway) that the analogue system then available, and adopted, did not have unlimited adjustability and that this "was common knowledge at the time". This evidence makes it all the more curious that IJP would have recommended the adoption of the system without considering whether the degree of adjustability which the system might have had was sufficient for the purposes for which it was being recommended to ESL. In any event, it was the fact that the system was not sufficiently adjustable that made it unworkable and resulted in ESL having at least wasted some of the expenditure on the system installed, and that necessitated ESL in incurring additional expenditure to rectify the system that it had.
A difficulty which arises in this proceeding, however, is that of being able to identify with precision the exact quantum of the loss flowing from the breaches. A good many of the particulars of loss in the document filed and dated 22 February 2002 are reasonably enough referable to the loss and damage occasioned by the breaches which I find IJP responsible for. The problem of paying for the rectification which was ultimately pressed did not include, as I think it could not include, the estimated further costs which would amount to an upgrade on the system. However, the largest claim for rectification included an amount payable to Creham Eng. Pty. under a contract of variations in the sum of $162,706. This amount was urged by counsel for the plaintiff as an undisectable sum occasioned by the need to rectify. Most of the items contracted for may have been just that, but a principal difficulty faced by the plaintiff lies in part in the submission made on its behalf that an event occurred which its counsel referred to on many occasions as an "earthquake". The event so described was the repealing of the Building Control Act 1981 as from 1 July 1994. This was said to be an earthquake because as a result of the change in legislation the regulatory system, that is, "the whole system became a different system". Counsel for the plaintiff said that a result was that "the whole idea of changing the [fire protection] system radically, emerged and was thereafter acted upon". Counsel for the plaintiff explained that the change was radical because it was "decided to scrap the concept of direct connection with the apartments to the fire brigade, via the fire panel and have the apartment operating on an audible system only." What I have difficulty in seeing in this solution, therefore, is how every step that may be taken in pursuance of it may reasonably and sufficiently be said to flow from the breaches rather than, at least in part, from some new or other cause. The difficulty is in part created by the fact that the steps taken were not merely to rectify something but also, and fundamentally, to achieve a result which was required by the need to install fire protection; that need pre-dated the breaches and continued to operate. A useful illustration may be seen in the claim for the cost of stair pressurisation which was initially claimed but ultimately, in my view correctly, abandoned. ESL has undoubtedly incurred much expense and in my view has undoubtedly incurred some of that by reason of faults properly attributable to IJP, but it cannot be said that all of the expense ESL has incurred is truly due to the fault of IJP and therefore compensable by it. The difficulty is that of unravelling the expenses due to the default by IJP and that which is not. The claim of $162,706 for the works by Creham Eng Pty. is not one that I am able to break down in a reliably secure basis to give me confidence that there has been adequate apportionment between that expense caused by the fault of IJP and that which is simply incurred to deal with the fire protection issue that IJP's involvement had sought to resolve and, possibly, some new event. An illustration of this may be the claim for stair pressurisation which was ultimately (in my view correctly) abandoned that seemed due to the new post "earthquake" approach rather than caused by a breach by IJP.
An alternative claim, however, made by ESL includes a claim for the works performed by FFE in 1990 in the sum of $144,345. It seems to me reasonably safe to assume that virtually all of that expenditure was wasted. It may be that some portion of that expenditure has not been wasted where, for example, it is referable to the laying of wires that need not be moved. However, such "unwasted" expenditure must necessarily be insignificant in comparison to the bulk paid. In addition to that amount was the cost charged by IJP for supervision of the works carried out. In this respect I have no direct evidence of the amount charged by IJP, although I was told that IJP charged on a time basis and that IJP did charge for its time in supervising the system. Counsel for the plaintiff urged that I adopt as a fair measure of those costs thrown away a percentage of the contract sum on the basis that there is evidence that Mr. Rockman, subsequently engaged by ESL, has charged 3.5% for his work in supervising the rectification tasks. This would produce an amount of $5,052 upon the contract sum of $144,345 to FFE in 1990. This contrasts with what appears to be the whole amount charged by IJP of $85,114.29 for services to 3 August 1991 of which $63,388.69 has been paid. The evidence indicates that most of IJP's work was directed to the implementation of a fire protection system in accordance with the decision of the Building Referees Board. Some of the work was directed to developing the Vesda/Smodeps system but that too was necessarily directed to the outcome which ultimately failed. It seems to me that the allocation of about two thirds of IJP's bill may fairly be directed to wasted expenditure by IJP and, accordingly, I would allow an additional $42,259.12. There is then a number of particular items which in my view are clearly referable to rectification in the sense that they were occasioned by a need to determine how rectification should proceed and which would not have been incurred had the system recommended by IJP proved to be effective and appropriate. In that regard I allow $8,397 paid to IJP by ESL after 1991, $2,150 paid to James Hardy Building Services for investigations, $14,173 paid to Kim Rockman and $5,760 paid to Warrington Fire Research. I am not prepared to allow a further sum for what is described as the "Cascading" system because I am not satisfied that this system is not truly to be regarded as an upgrade and additional to that which IJP caused ESL to acquire initially.
It is next necessary for me to consider what amount, if any, should be awarded to IJP against the third party. In my view there is no evidence that what FFE provided was in any way defective in itself. The evidence is that what FFE provided was unsuitable for the purposes for which IJP had recommended it to ESL. The evidence of Mr. O'Reilly was that FFE had assured him that the sensitivity of the system could be adjusted to a level to avoid false alarms. His evidence about this was, to use his words "a little hazy", but, in any event, I am not persuaded that FFE was ever sufficiently apprised of the degree of adjustability required or that the relationship between FFE and IJP was such that the former was reliant upon the expertise of the latter in the particular respect of the suitability of the system provided by FFE for the particular purposes and needs of ESL. Mr. O'Reilly's recollection was little more than a general impression of an assurance. FFE installed the analogue addressable system in accordance with the specifications prepared by IJP which contained two mistakes, namely the installation of fire detection heads in bathrooms and the installation of heads a maximum of 300 millimetres from the walls. Both errors were contrary to AS 1670. However, FFE appeared to have complied with the express terms of its contract (that is, in following the specifications) and I am not satisfied that the relationship between FFE and IJP was such that any relevant duty arose or was breached. FFE supplied and installed a system as indicated by the experts. Accordingly I dismiss the third party proceedings.
In the result I find for the plaintiff against the defendant and order that the defendant pay damages in the sum of $217,084.12 together with costs.
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