Hudson v McKay - [2001] WADC 90

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: HUDSON & ORS -v- McKAY & ANOR [2001] WADC 90

CORAM: WILLIAMS DCJ

HEARD: 29, 30, 31 JANUARY & 1 FEBRUARY 2001

DELIVERED : 11 APRIL 2001

FILE NO/S: CIV 4301 of 1996

BETWEEN: JOHN FRANCIS HUDSON
MARGARET ROSE HUDSON
COLIN EDWIN BAILEY
SUSAN LYSLE BAILEY
Plaintiffs
AND
RODERICK DOUGLAS McKAY
KATHLEEN GLENYS McKAY
Defendants

Catchwords:

Contracts - Measure of contractual damages for defective paving work

Legislation:

Nil

Result:

Plaintiffs entitled to judgment against defendants in the sum of $171,938.25

Representation:

Counsel:

Plaintiffs: Mr B P Wheatley
Defendants: Mr G A Rabe

Solicitors:

Plaintiffs: Murfett & Co
Defendants: Goldfinch & Co

Case(s) referred to in judgment(s):

Bellgrove v Eldridge (1953-1954) 90 CLR 613
Hadley v Baxendale (1854) 9 Exch 341
Husher v Husher (1999) 165 ALR 384
Randall v Dul (1994) 13 WAR 205

Case(s) also cited:

Argent Pty Ltd V Huxley [1971] Qd R 331
Baltic Shipping Co v Dillon (1992-1993) 176 CLR 344
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981-1982) 149 CLR 337
Dal Zotto v Bonnani and Others (1980) 47 FLR 239
Dodd Properties Ltd and Another v Canterbury City Council and Others [1980] 1 WLR 433
Giannini Bros Pty Ltd v Lucas Transport Equipment Pty Ltd and Marin Transport Pty Ltd (1974) 8 SASR 525
Hansen v Gloucester Developments Pty Ltd [1992] 1 Qd R 14
Lee v Sheard [1956] 1 QB 193
McPhee & Son (Aust) Pty Ltd v Technolpolis Pty Ltd, unreported; SCt of SA; Judgment No S5487; 14 March 1996
Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516
Schick v Abbott [1976] WAR 54
Warner v Sampson and Another [1959] 1 QB 297

WILLIAMS DCJ: The plaintiffs formerly traded in partnership as Hudson's Coromal Mandurah and Hudson's Caravan Workshop at premises situated at 18 Panton Road, Mandurah ("the premises") from 2 June 1994 and prior to that date from premises at 16 Panton Road, Mandurah. The plaintiffs are the registered proprietors of the premises. As from 1 July 1999 Hudson's Coromal Mandurah and Hudson's Caravan Workshop have both been carried on in partnership by John Hudson Services Pty Ltd (as trustee for the J & M Hudson Family Trust) and Crestwood Corporation Pty Ltd (as trustee for the C & S Bailey Family Trust).
The defendants carried on the business of McKay's Earthmoving which included the laying of hot mix paving.
In or about January 1994 Mr Bailey and Mr Hudson who operated out of premises at 16 Panton Road wished to develop the site at 18 Panton Road. They approached Mr McKay for a quote for earthmoving and the laying of hot mix paving.
All three persons met on the site for that purpose. At that time the premises consisted of a vacant block which required levelling. According to Mr Bailey he told Mr McKay that they were going to build a caravan display yard, offices and showrooms. He told Mr McKay that they wanted a red colouring asphalt.
According to Mr Bailey he received a quote from Mr McKay on or about 7 February 1994. The quotation (Exhibit 2A) is in the following terms:
"To dig out area under proposed workshop on lot 26 Panton Road Mandurah, fill with .5 metre clean fill compact and level Grade Parking area to sumps installed
lay 25mm hot mix on .150 limestone base with gravel top
Proof roll the entire site with large Vibrating Roller     $62,350
If Red Bitumen finish required add  $ 3,000
½% red oxide add  $ 3,000
No allowance for kerbing, sumps, grates & piping
Haven't allowed for any rock  $68,350"
It is common ground between the parties that subsequent discussions between the parties resulted in a revised price of $70,000 which price was to include the provision of storm water sumps, lids and storm water pipe in accordance with a plan.
The only point of difference between the plaintiffs and the defendants is as to whether or not there was any variation to the volume of the limestone base. According to Mr McKay that price was reached after Mr Bailey and Mr Hudson accepted an offer of a limestone base of 100 ml. According to Mr McKay, Mr Bailey and Mr Hudson accepted an offer of a base of 100 ml using a red hot mix and a red dye. Both Mr Bailey and Mr Hudson deny that they agreed to any variation of the limestone base. I have no difficulty in accepting the evidence of Mr Bailey and Mr Hudson on this point and for the following reasons:
(a)No mention is made of this fact in Mr McKay's subsequent invoices of 30 June 1994 (Exhibit 2B and 2C).
(b)In evidence-in-chief Mr McKay stated that Mr Bailey and Mr Hudson accepted an offer of 100 ml using red hot mix and red dye. In cross-examination he stated that the agreement was that he could reduce the base from 150 ml down to 100 to 125 ml.
(c)Although he accepted that it was an important variation it was never confirmed in writing.
(d)He described it as a gentleman's agreement.
(e)He stated that it had always been an issue and always been his position but accepted that defences filed on his behalf on 27 November 1997 and 14 July 1998 made no reference of this fact.
(f)He accepted that the first time the reduction in thickness was pleaded was on 31 August 1999 when it was pleaded that the reduction was to 125 ml to 130 ml.
(g)He stated that his solicitors got his instructions wrong, which I find unlikely to be the case.
In opening the plaintiffs' case counsel for the plaintiffs stated that the plaintiffs required the work to be done to give a fine long lasting finish and to create a show piece for selling of caravans. Counsel for the defendants objected to this on the basis that it had not been pleaded. At the time I allowed evidence of this to be lead and said that I would rule on its admissibility later. My ruling is that this evidence is not admissible. It was not pleaded as forming part of the contract and I do not intend to rely on any of the evidence going to this issue.
It is my finding therefore that the plaintiffs and the defendants entered into a contract for the defendants to carry out the works as set out in the three invoices being Exhibit 2(a), (b) and (c) as shown on the plan being Exhibit 9.
In Exhibit 2(a) the male defendant specified that the defendants would "lay 25 mm hot mix on .150 limestone base with gravel top."
The cost of the works was made up of the sum of $68,350 as set out in Exhibit 2(a), a further amount of $1,650 "to install storm water sumps, lids and storm water pipe as per plan" as set out in the first paragraph of Exhibit 2(b) totalling $70,000 plus additional works as agreed totalling $7,008.50 as set out in Exhibit 2(b) and (c) plus a further sum of $825 for hot mix for the Hampton Street driveway which was not costed in Exhibit 2(c).
The total cost of $77,833.50 included the supplying and laying of hot mix at a cost of $38,006.40 by the subcontractor Asphalt Services Pty Ltd (Exhibit 3) which was approximately half of the total cost.
The plaintiffs paid the defendants the sum of $76,183.50 which represents the amount of $77,008.50 shown in Exhibit 2(c) less the sum of $825.
The plaintiffs have consented to judgment for the additional sum of $825 which although referred to was not costed in Exhibit 2(c).
In breach of the contract the defendants failed to comply with the thickness of materials as per the agreement. This is clear from the evidence of the plaintiffs' civil engineer Mr Christopher Hogg (Exhibit 32 pars 6.1 and 7.2) and is not disputed by the defendants. This is notwithstanding the efforts of Mr McKay to establish an agreement to vary the thickness and to blame the plaintiffs for reshaping the hot mix. Those efforts of McKay are inconsistent with the evidence and I reject them. Exhibit 32 par 6.1 reads as follows:
"Pavement Dippings
The pavement dippings conducted during the various visits revealed that the as constructed pavement comprised:
(i)Asphalt of a thickness varying between 20mm to 40mm.
(ii)Compacted laterite gravel basecourse below the asphalt varying between 30mm to 80mm in thickness. This basecourse layer was absent at 3 dipping locations (July 1995 – 1, March 1998 PD1 and PD3).
(iii)Compacted crushed limestone sub-base below the laterite gravel varying between 50mm and 215mm in thickness.
(iv)Fill comprising sand with gravel (gravel comprises building debris and limestone) which appeared to have been compacted, below the crushed limestone. It should be noted that the blow counts obtained from the Perth Sand Penetromoter (PSP) testing were high due to the presence of gravel in each of the pavement dippings. (PSP testing does not comply with AS1289.6.3.3 if gravelly materials are tested).
The results of thickness measurements recorded within the pavement dippings are summarised in Table 2, below.
Table 2Pavement Dippings

Dipping Location	Asphalt Thickness	Basecourse Thickness	Sub-base Thickness	Comments
March 1995	30	36	215	Within area of Block Cracking
July, 1995, 1	25	-	50	Within area of Block Cracking
July, 1995, 2	20	35	130	Within area of Block Cracking
July, 1995, 3	30	50	80	Within area of Block Cracking
July, 1995, 4	35	30	110	Within area of Block Cracking
July, 1995, 5	20	80	80	Within area of Block Cracking
July, 1995, 6	20	45	110	Within area of Block Cracking
July, 1995, 7	30	50	110	Within area of Block Cracking
July, 1995, 8	25	40	110	Within area of Block Cracking
PD1	40	-	90	Not Within area of Block Cracking
PD2	30	45	155	Within area of Block Cracking
PD3	30	-	115	Not Within area of Block Cracking
PD4	30	35	115	Within area of Block Cracking

It should be noted that the dippings excavated during the 19 March, 1998 visit were made in areas generally free of cracking and dippings, PD1 and PD3 did not contain a layer of laterite basecourse. In addition, it was observed that the top surface of the basecourse in pavement dippings, PD2 and PD4, appeared moist upon removal of the asphalt."

In breach of the contract the defendants laid the asphalt when the base was too wet. See Exhibit 32 par 7.3. Again this was not disputed by the defendants notwithstanding the efforts by Mr McKay to deny responsibility for the same by blaming the weather conditions. See for example Exhibit 38 par 2, second last paragraph. This is contrary to the evidence referred to in Exhibit 4 and the oral evidence of Mr Glossop which evidence I accept.
In any event it is conceded by the defendants "that an incident of the implied term to use all reasonable skill, care and diligence in the performance of the works required the defendants to ensure adequate moisture conditioning of the limestone and gravel before laying the hot mix so as to avoid cracking. It is accordingly conceded that the term underlying the breach pleaded at sub-par 9(e) and sub-par 9(f) were breached by the defendants" (defendants' written submissions dated 16 February 2001 par 33). Sub-par 9(e) and sub-par 9(f) of the plaintiffs' statement of claim allege that the defendants:
(e)failed to ensure adequate moisture conditioning of the limestone and gravel; and/or laid the asphalt on a base that was too wet and, or alternatively
(f)they failed to take any adequate precautions to prevent cracking of the pavement the subject of the agreement.
It is common cause that:
(i)the defendants completed laying the paving on or about 21 May 1994;
(ii)the limestone and gravel base were too wet at the time that the hot mix was laid;
(iii)cracks started appearing in the paving by about August 1994. (Defendants written submissions dated 16 February 2001 pars 2(b), (c) and (d)). Mr McKay conceded in evidence that the cause of the cracking was that the hot mix was laid at a time when the gravel base and limestone base were too wet.
It is the defendants' submission that although much of the plaintiffs' pleaded case and much of the expert evidence adduced by the plaintiffs dealt with the varied thicknesses of the hot mix, the gravel and the limestone and or whether adequate compaction levels had been achieved by the defendants when laying the paving, nothing turns on these issues at all. This is said to be because the critical expert evidence in the case was that the cause of the cracking was that the hot mix was laid at a time when the gravel base and limestone sub-base were too wet. It is said that variable thickness levels and variable compaction readings are on the plaintiffs own expert evidence irrelevant to the issue of causation.
Mr Rimpas a civil engineer called by the plaintiffs was of the view that there were two major causes:
1.the fact that the basecourse was too wet and not properly conditioned prior to the asphalt being laid; and
2.the continual movement of the basecourse through thermal movement.
Mr Hogg another civil engineer called by the plaintiffs was of the view that the overriding factor was that the base course was too wet but also the lack of pavement thickness.
Mr Simpson a civil engineer called on behalf of the defendants agreed with Mr Hogg that the wetness was a prime cause of the cracking.
It is therefore my finding that the cause of the cracking was that the basecourse was too wet and not properly conditioned prior to the asphalt being laid and to a lesser extent by the other factors.
As a result of the breach the pavement has developed potholes in two specific areas (in front of the office at its south-west corner and in front of the workshop door to the north-east) and cracking over most of its surface: Exhibit 28 par 1, par 2 and par 3 and Exhibit 32 par 3. Mr McKay in cross-examination accepted that there could be 90 per cent block cracking.
By letter dated 31 August 1995 (Exhibit 8) the plaintiffs' solicitors requested the defendants to carry out remedial work but the male defendant expressly refused to do anything to remedy the defects in the pavement (Exhibit 20) resulting in the plaintiffs issuing a writ on 19 December 1996.
The main argument during trial was as to the nature of the remedial work required. It is the plaintiffs' case that the paving has to be demolished and replaced. It is the defendants' case that currently only three small potholes of approximately 15 mm diameter require repair.
Mr Rimpas is a civil engineer and the principal of Pavement Analysis Pty Ltd. He has been involved with pavement for 23 years.
Mr Rimpas attended at the site on 21 December 1999. A site inspection revealed:
1.The block cracking which he had previously viewed on 24 April 1999 was still evident. However in his opinion was both more severe and more extensive.
2.The cracks in the asphalt had heaved upward indicating that thermal movement of the base was causing the cracks to expand and contract. During the expansion of the cracks, sand and silt is entering the cracks and during the contraction of the cracks, the sand and silt in the cracks is preventing the cracks from closing a little thereby causing the walls of the cracked asphalt to heave upward. This is causing little bumps in the pavement and can be detected when driving over the pavement.
3.There is a particular area in front of the office where the asphalt is approximately 7 mm thick and has formed a pothole. There is another area alongside which is also now crocodile cracked and will pothole soon. This was previously not observable on the site visit of 24 April 1999.
4.There were no visible signs of structural failure.
Mr Rimpas was of the view that the existence of the cracks was unacceptable for three main reasons:
1.The cracks are aesthetically unacceptable.
2.The heaving (upturn) could result in a person tripping.
3.The cracks permit the ingress of water which can cause the structural failure of the pavement under heavy traffic.
He was of the view that one of the cheapest ways to correct the cracking problem was to remove the existing asphalt surfacing together with the gravel basecourse to reveal the limestone sub-base. The sub-base would then be scarified and topped-up with additional limestone, reworked and compacted to design levels. The limestone would then be surfaced with a minimum of 35 mm of oxide added gravel asphalt.
If one was to attempt to repair the asphalt surface the cheapest option would be by way of crack sealing.
Crack sealing is a process where the cracks are blown out to remove sand and debris and filled with bitumen, with or without a rubberised additive. The product is black and it is virtually impossible to colour match with the existing surface.
If crack sealing was carried out, this would not necessarily prevent new cracks from occurring. New cracks could occur because of the nature of the basecourse material. Crack sealing is only a maintenance option and not a rehabilitation option. Furthermore crack sealing is usually only good for four to five years.
In any event by reason of the difficulty associated with colour matching the existing surface through crack sealing, every single crack once sealed would become highlighted. In any event, the colour of the sealing material changes over time.
Crack sealing is accordingly aesthetically unacceptable and does not address the underlying problem. Accordingly the asphalt surface should not be crack sealed.
The next option available would be to overlay the pavement with a new red (gravel) asphalt surface with or without some form of membrane interlayer. However it is highly likely that the cracks will reflect through to the new surface and will only be a waste of money.
Mr Hogg is a senior civil engineer with Soil and Rock Engineering.
Mr Hogg attended the site in March 1998. He noted that the hardstand had a surface comprising coloured dense graded asphalt and the paved areas were kerbed. Pavement defects comprised block cracking of extensive areas of hardstand across the site. There was no evidence of permanent deflection such as rutting. The extent of block cracking across the paved areas of the site was estimated to be approximately 90 per cent of the total paved area.
Mr Hogg was of the opinion that whilst the pavement was generally serviceable the inadequacies in the pavement construction will shorten the service life of the pavement. This shortening of the pavement life is due to:
1.Widening of cracks over time as a result of:
(a)moisture entering the pavement causing further swell/shrinkage of the laterite gravel;
(b)expansion and contraction of the asphalt due to temperature changes; and
(c)trafficking of cracked areas leading to pumping of the "fines" from the basecourse and further deterioration of the pavement during wetter periods of the year.
2.Development of "potholes" due to:
(a)picking up of asphalt due to vehicle movement over the cracked/deteriorated surface;
(b)moisture entering the pavement causing loss of strength of the pavement materials; and
(c)collection of water in the potholes.
Possible remedial work included:
(a)sealing of the cracks; and
(b)provision of a granular overlay.
Sealing of the cracks would involve infill of the cracks with bitumen but this remedy would probably not be acceptable due to aesthetic considerations. Crack sealing is usually undertaken as a temporary measure prior to rehabilitation of a pavement, that is to temporarily extend the pavement life. Provision of a granular overlay would involve:
(a)Removal of the cracked asphalt and gravel basecourse.
(b)Compaction and testing of existing limestone sub-base.
(c)Importation of basecourse, moisture conditioning, compaction and trimming. (The basecourse should be a minimum of 90 mm thickness. The total pavement thickness comprising sub-base and basecourse should be a minimum of 165 mm).
(d)Placement of a primer followed by an asphalt seal (minimum thickness 25 mm) in accordance with relevant standards and codes of practice.

Mr Simpson is the principal civil engineer with Hatch a privately owned engineering consultancy. He carried out inspections of the site on 1 July 1999, 25 October 1999 and 25 September 2000.
Based on observed pavement performance (from photographic records and physical inspection) over a 30 month period and the fact that the pavement is more than six years old it was Mr Simpson's opinion that:
"•The pavements have already performed functionally for approximately 40% of their anticipated lifespan, have significant residual life and should achieve a substantial proportion of the normally anticipated lifespan.
•Sudden, catastrophic failure of large sections of the pavement is not anticipated.
•Sudden formation of extensive rutting or localised deep ruts is not anticipated for the current traffic loadings.
•Rapid development of edge curling of the cracks is not anticipated.
•Currently only the three small potholes of approximately 15 mm diameter require repair.
•Pavement deterioration over time is likely to comprise formation of isolated potholes in areas of thin asphalt or at the crack joints. These potholes will need to be patched to preserve the functionality of the pavement. The formation of potholes is likely to increase slowly with the age of the pavement, as the asphalt surface oxidises. Some rutting may occur as the pavement approaches its normal lifespan in the areas most heavily trafficked, but there is no evidence of this to date.
•In view of the substantial residual life remaining, the observed low rate of pavement deterioration and the expectation that the development of pavement defects will not be rapid, the replacement of the pavement at this time is not considered necessary, or appropriate."
In relation to the evidence of the three engineers I prefer the evidence of Mr Rimpas and Mr Hogg to that of Mr Simpson. I have come to that conclusion after viewing all of the photographs and videos of the area and in particular Exhibits 7, 24, 25, 34 and 35. Mr Simpson is not even prepared to concede that any crack patching is required. He currently considers only three small potholes require repair. It is apparent, in my view from viewing Exhibits 7, 24, 25, 34 and 35, that remedial work is required. It is clear that there were major problems within months of the asphalt being laid. Mr McKay in effect washed his hands of the problem.
The measure of contractual damages for defective building work was defined by the High Court in Bellgrove v Eldridge (1953-1954) 90 CLR 613 as being the difference between the contract price of the work and the cost of making the work or building conform to the contract plus the amount of profits or earnings lost by the breach. This measure of damages is qualified in that not only must the work undertaken be necessary to produce conformity with the plans and specifications under the contract but in addition, it must be a reasonable course to adopt (at 618). Whether or not the remedial work is both "necessary" and "reasonable" is a question of fact in each particular case (at 619). It is the submission of counsel for the defendants that it is not reasonable and necessary to remove and replace paving which although superficially cracked, is structurally sound and which will continue to meet the purpose for which it was required for the full extent of its design life.
In my view it is both reasonable and necessary. In spite of a written request by the plaintiffs' solicitors to the defendants by letter dated 31 August 1995 the male defendant refused to do anything to remedy the defects in the pavement.
It is not in dispute that at the time of entering into the contract the plaintiffs told the defendants that they intended to set up a workshop and showroom at the premises. Damages for breach of contract are awarded for loss such as may fairly and reasonably be considered either as arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it: Hadley v Baxendale (1854) 9 Exch 341 at 345. In my view this was a loss which was reasonably foreseeable by the defendants. I accept the evidence of Mr Rimpas and Mr Hogg that the paving has to be demolished and replaced.
The plaintiffs obtained three quotes for replacing the pavement during 1995 and 1996. The first quote was from Red Roo the Earthmovers for $121,980 dated 23 May 1995 (Exhibit 10). The second quote was from Boral Contracting Pty Ltd for $127,838 dated 26 May1995 (Exhibit 22). The third quote was from Malatesta Road Paving and Hot mix for $128,661 dated 17 September 1996 (Exhibit 11).
Subsequently the plaintiffs obtained updated quotes from Red Roo the Earthmovers for $138,940 on 15 September 1998 (Exhibit 21 and 10) and $171,938.25 on 20 December 2000 (Exhibit 10).
It is apparent from the quotation of 15 September 1998 (Exhibit 21) and 21 October 1999 (Exhibit 10) that it included the removal of the total existing bitumen pavement and gravel basecourse down to the level of the existing limestone sub-base. This is in accordance with Mr Rimpas' statement that the cheapest way to correct the cracking problem was to remove the existing asphalt surface together with the gravel basecourse to reveal the limestone sub-base.
The Red Roo the Earthmovers quote for $138,940 (Exhibit 10) is made up of three approximately equal components:
(a)removal of the existing material (the
first 7 items listed under heading scope
of works and break up of quotation)                 $44,750
(b)new base and installation  $47,703
(c)supply colour hot mix  $46,481
$138,934
The Red Roo the Earthmovers quote for $171,938.25 (Exhibit 10) is calculated by adding 12.5 per cent for increased costs plus 10 per cent for GST to the quote for $138,940 (Exhibit 21 and 10).
In my view the plaintiffs are entitled to this sum as damages for breach of contract.
The plaintiffs claim an additional loss of $20,000 because the business would be unable to trade for two weeks due to replacement of the paving.
As stated earlier in these reasons for judgment as from 1 July 1999 Hudson's Coromal Mandurah and Hudson's Caravan Workshop have both been carried on in partnership by John Hudson Services Pty Ltd (as trustee for the J & M Hudson Family Trust) and Crestwood Corporation Pty Ltd (as trustee for the C & S Bailey Family Trust). Any loss in the future would be the loss of the corporations as trustees for the family trusts.
It is the plaintiffs' submission that they are entitled to recover damages for lost earning capacity even though it may involve a family trust: Husher v Husher (1999) 165 ALR 384; Randall v Dul (1994) 13 WAR 205.
In my view this case is distinguishable from those cases involving loss of earning capacity which injury deprives a partnership or company of the services of a partner or shareholder. This is a claim for pure economic loss. In this case the plaintiffs as beneficiaries of a trust have brought the claim on behalf of the trustee of the trusts. Legally in my view they cannot do so: see Ford Principles of the Law of Trusts, 3^rdEdition, par 17530.
Furthermore in my view no reliable evidence was adduced to support the claim for $20,000. Exhibit 14 which was produced in support of the claim makes reference to Southbound Investments Pty Ltd an entity which is not referred to in the pleadings.
I do not allow the claim for $20,000.
It follows that the plaintiffs are entitled to judgment against the defendants in the sum of $171,938.25.
I will enquire from the parties as to whether any orders are required from me in relation to the plaintiffs consenting to judgment in the sum of $825 which was the subject of the counterclaim.