Piling Contractors (Qld) Pty Ltd v Prynew Pty Ltd - [2008] NSWSC 118

No judgment structure available for this case.

CITATION: Piling v Prynew Nemeth v Prynew [2008] NSWSC 118

HEARING DATE(S): 10 - 14 September 2007

JUDGMENT DATE :
26 February 2008

JURISDICTION: Equity Division

JUDGMENT OF: Macready AsJ at 1

CATCHWORDS: BUILDING & CONSTRUCTION - Adoption of Referee's report as to causes and results of subsidence of the support for a house resulting from excavation and faulty piling work next door. - REAL PROPERTY - General principles Nature of duty of care under s177 of Conveyancing Act 1919. Whether it extends to support of adjoining buildings. Held it does. Whether it includes omissions. Held it does not. - TORTS - NEGLIGENCE - STATUES - Whether a statutory cause of action for breach of condition of development consent arises in respect of breach of a condition imposed under s78 and s78F of Environmental Planning & Assessment Regulation 1994. Held it does. - INSURANCE - Professional indemnity insurance. Whether a breach of terms occurred. Held there was a breach.

PARTIES: Piling Contractors (Qld) Pty Limited v Prynew Pty Limited
Ferdinand Nemeth v Prynew Pty Limited & 2 Ors

FILE NUMBER(S): SC 55019/03; 55037/03

COUNSEL: Mr SM Kettle for Piling
Mr J Simpkins SC for Prynew & Tsu
Mr JE Robson SC & DS Weinberger for Nemeths
Mr A HewittSc & P Dodson for QBE

SOLICITORS: Thompson Cooper Lawyers for Piling
Avendra Singh & Co for Prynew and Tsu
Salim Rutherford Lawyers for Nemeths
Curwood & Partners for QBE

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY AND CONSTRUCTION LIST

Associate Justice Macready

Tuesday 26 February 2008

55019/2003 Piling Contractors (Qld) Pty Limited v Prynew Pty Limited

55037/03 Ferdinand Nemeth and Virginia Nemeth v Prynew Pty Limited, Peter Tsu and Piling Contractors (Qld) Pty Ltd

JUDGMENT

1 His Honour: This is the hearing of four Notices of Motion concerning the adoption of a Referee's report dated 1 February 2007. The report dealt with damages caused to premises at 46 Mona Road, Darling Point caused by the excavation of sand at 44 Mona Road, Darling Point. The plaintiffs’ Notice of Motion was filed on 12 March 2007. The first and second defendants’ Notice of Motion was filed 9 March 2007, the third defendant's notice of motion was filed on 22 February 2007 and the defendant to the second cross claim filed its motion on 1 March 2007.

Background to the proceedings

2 The parties’ submissions incorporated matters of background and chronology which I will incorporate in this judgment with some amendments.

3 These proceedings concern a three storey, eight bedroom Edwardian house owned by the plaintiffs (“the Nemeths”) situated at 46 Mona Road, Darling Point NSW (“no 46”) and a large excavation of sand at 44 Mona Road, Darling Point NSW (“no 44”) owned by the first defendant (“Prynew”) and the second defendant (“Tsu”). Tsu was the directing mind and will of Prynew.

4 In 2001 Prynew and Tsu jointly commenced construction of a new, six unit residential flat building which included a basement car park on no 44. An existing house on the site was demolished and contiguous piles were constructed by the third defendant (“Piling”) along the boundary of no 44, being the southern boundary of no 46. These piles were to form part of a retaining wall system and were designed to provide lateral support to the foundation material of no 46 once the site at no 44 was excavated.

5 During these first stages of demolition, pile wall construction and excavation the Nemeths’ house sustained considerable damage. Engineering experts agreed that the principal cause of the damage was the loss of support to the footings of no 46 through subsidence of the sandy foundation material when sand escaped into the partially excavated property at no 44 through a gap in the contiguous pile wall which had been constructed.

6 The Nemeths sued the defendants for damages. The whole of the proceedings (except for certain issues concerning Prynew/Tsu and the cross-defendant to the second cross-claim QBE Mercantile Mutual limited (“QBE”)) were referred to an architect, Ms Janet Grey, (“the Referee”) for inquiry and report pursuant to Part 72 of the Supreme Court Rules. The usual order for reference was made.

7 The reference was heard for approximately 36 days, and included three expert conclaves and a site view, during late 2005 and 2006.

8 The Referee’s report is dated 1 February 2007 (“the Report”). The Referee found Prynew, Tsu and Piling negligent and liable to the Nemeths in damages in the amount of $239,674.89 plus simple interest at 10% per annum from 1 January 2003 plus any GST, which may be applicable on those amounts. The Referee apportioned liability as follows: Prynew/Tsu 75% and Piling 25%.

9 The plaintiff seeks adoption of the Report with three qualifications. The qualifications are:

1. That the damages be calculated by the reasonable value of the rectification of costs actually incurred by the Nemeths when they rebuilt the premises in the sum of $973,944.85,

2. The plaintiffs seek payment of accommodation costs said to have been incurred during the course of rectification which claim was not allowed by the Referee.

10 Prynew and Tsu sought a rejection of a large part of the Report on legal and factual issues and sought that the Court determine the basic matters of liability which had been found against them by the Referee. They also challenged the apportionment of liability.

11 Piling sought an adoption of the Report without any modification.

12 QBE sought the adoption of the Report so far as it determined the factual issues which arose on the second cross claim. The second cross-claim related to a claim by Prynew and Tsu on an insurance policy issued by QBE. QBE sought that the cross-claim be dismissed on the basis of the findings made by the Referee.

Chronology of relevant events

13 Previously, Mr Tsu had been involved with the redevelopment of no 48 Mona Road which was on the other side of the Nemeths’ property no 46. The Referee found that as a result of Mr Tsu’s past experience he knew of the risks associated with the proposed excavation at no 44.

14 In September 1999 a development application was lodged by Prynew and Tsu with Woollahra Council for the development of a six unit residential flat building at no 44. Development consent was granted on 7 August 2000 and construction commenced in 2001.

15 In 1999 the Nemeths also submitted a development application for the re-development of no 46 and the construction of a new four-storey residential apartment block. Development consent was granted on 17 January 2000.

16 In or about February 2001, the Nemeths moved to Hampton Court Apartments, a private hotel at Kings Cross, which was owned by Nemeth Investments Pty Ltd.

17 Piling work commenced at no 44 on 14 May 2001 and was finished on 29 June 2001.

18 Excavation of no 44 commenced around 1 July 2001. In July and August 2001 the foundation material to the Nemeths’ home subsided and the walls of their house opened up. Severe cracking in the southwest corner of the house radiated to less severe cracking elsewhere.

19 The first occasion of subsidence occurred on Thursday 26 July 2001. This occurred after excavation on the site disclosed that one of the piles was only about 4.4 metres in depth instead of a depth in the order of 15 metres. That defect in the pile had been discovered on Saturday 21 July 2001. The events between these dates are the subject of a substantial amount of contested evidence.

20 The second occasion of subsidence was on 15 August and the third was on 16 August 2001. On each occasion the subsidence occurred when sand escaped from the Nemeths’ property through a gap in the piling wall caused by the absence of the balance of what became known in the case as “the short pile”. The Referee found that the second and third occasions did not cause the damage as it had been all been caused by the first subsidence. However they were treated by the Referee as relevant to the question of whether Prynew and Tsu would have acted on advice calling for preventative measures after the first subsidence.

21 Mr Nemeth sought advice from his architect, Mr Stuart Clarke. He also sought advice from Mr Denis Young, a structural engineer, with whom he had no prior relationship, and Mr Scott Smith, a quantity surveyor.

22 In August or September 2001 the Nemeths instructed Mr Clarke to prepare a claim against Tsu for the cost of rectifying their house. At this time the Nemeths had intended to re-develop no 46 in a manner consistent with a development consent that they had obtained. Mr Clarke prepared re-construction drawings, obtained an estimate of re-construction costs and sent a letter of demand to Tsu on behalf of the Nemeths. Mr Clarke’s drawings were based upon the advice and drawings prepared by Mr Young.

23 By October 2001 Mr Young and Mr Clarke had designed and documented a rectification scheme involving demolition and reconstruction of the rear of the house.

24 In early 2002 Mr Nemeth was 80 years of age and had undergone a heart bypass operation and was receiving treatment for throat cancer. He decided, due to health and other reasons, not to develop no 46. The Nemeths decided to return to their home in 2002. At that the time and at the time of the subsidence in July 2001 no 46 was owned by Mr Nemeth. In mid 2002 the Nemeths decided to repair their house consistent with the advice they had received from Mr Young.

25 The Nemeths instructed Mr Fred Ayoub of MFS Constructions to carry out rectification works in accordance with the rectification scheme designed and documented by Messrs Young and Clarke. Building work on 46 commenced in May 2002 and was completed by August 2003.

26 According to the Nemeths, the work was carried out on a “do and charge” basis at a total cost of $1,183,663.07. The court will disregard that amount, as it was found by the Referee that the reasonable value of the building works carried out by Mr Ayoub was $973,944.85. The Nemeths do not seek to disturb that finding. The Nemeths are content to accept the reasonable value of the work carried out by Mr Ayoub as determined by the Referee as comprising the complete ambit of their claim in so far as the cost of rectification is concerned.

27 Proceedings were commenced in this court on 28 June 2002.

Legal principles

28 There was no disagreement between the parties as to the legal principles to be applied by the Court when considering the adoption of the Referee's report. All parties referred to the principles recently summarised by McDougall J in Scripture Union Children’s Special Service Mission v Prime Industrial Pty Ltd [2005] NSWSC 736. There he said:

Super Pty Ltd v SJP Formwork (Aust) Pty Ltd

Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd

White Constructions (NT) Pty Ltd v Commonwealth of Australia

Foxman Holdings Pty Ltd v NMBE Pty Ltd

Xuereb v Viola

Hughes Bros Pty Ltd v Minister for Public Works

(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.

(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.

(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.

(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.

(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.

(6) If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory.

(7) Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.

(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.

(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.

(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.

(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.

(12) The right to be heard does not involve the right to be heard twice.

(13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: ”to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence.”

(14) Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.

Super

Franks & Anor v Berem Constructions Pty Ltd

29 A number of questions of law and questions regarding the application of legal standards to established facts were agitated before me. I will consider these questions in accordance with paragraph 4 (4) above. The parties who seek the adoption of the report in whole or the substantial adoption of the report urged me to consider the principles referred to in 4 (5) above. The more difficult area was the application of the principles in 4(6), (7) and (13) above. The submissions were directed to establishing that the referee's reasons were inadequate by substantial reference to the evidence in order to demonstrate the particular inadequacy identified in submissions.

Questions of law and the application of legal standards to established facts

30 On the plaintiffs’ case the following questions of law and the application of legal standards to established facts arose:

1. Was it reasonable to use rectification costs rather than diminution in value?

2. Whether the reasonableness of the desirability to rebuild has to be determined at the date of the injury or at the date of the trial.

31 On the case for the first and second defendants the following questions of law or the application of legal standards to established facts arose:

1. Whether there was any duty at common law or under s 177 of the Conveyancing Act 1919 (NSW) in respect of the support of buildings on adjoining land and whether that duty included omissions,

2. Whether the defendants were liable for breach of statutory duty,

3. Whether there was an implied term of Piling's contract that Prynew would act carefully,

4. Whether Mr Malicia’s knowledge (as an employee of a Solaraite) was Prynew’s knowledge,

5. Whether Prynew or Tsu are liable for the conduct of Mr Malicia or Mr Little,

32 The first and second defendants submitted that in some instances there was an error of principle as well as there being a conclusion by the referee that was not reasonably open, or that she misunderstood the evidence or that there was no acceptable process of reasoning. I will deal with these separately as it is convenient to also consider the factual matters as well as the alleged error of principle.

33 On the case for QBE, the following questions of law or the application of legal standards to established facts arose:

1. Were the Truswell plans for the construction of the piling works plans and specifications for excavation work

2. Did the Jeffrey and Katouskas report form part of the Truswell plans

The disputed factual findings under challenge

34 On the plaintiffs’ case the only factual question was the claim for the payment of accommodation costs said to be incurred during the course of rectification which claim was not allowed by the Referee.

35 On the case of the first and second defendants the factual questions which arose in respect of their liability were as follows:

1. Whether there was, as found by the Referee, excavation in the immediate vicinity of the short pile after sand had been pushed against it on 23 July and before the first subsidence.

2. If there was such an excavation, it was not the conduct of either Prynew or Mr Tsu.

3. Whether, as found by the Referee Prynew and Mr Tsu would have followed Pilings advice if it had been given before the first subsidence?

4. Whether continued excavation before the first subsidence increased the volume and effect of the subsidence and consequent damage to the Nemeth house.

5. Whether the piling contract required gaps not to exceed 30 mm.

6. How the short pile came into being.

7. Whether the short pile was required to be within 1% of the vertical.

8. Whether, as found by the Referee, the first and second defendants were negligent in setting out the positions of the piles.

9. Whether, as found by the Referee, the first and second defendants were negligent in failing to seek advice from Mr Tusswell the design engineer.

36 The first and second defendants raised various factual issues in respect of the findings on the cross-claim between themselves and QBE, their insurers. These related to the following questions which were referred to by the Referee:

“1 whether or not the excavation and underpinning work was carried out in strict accordance with any plans and specifications for such work and at the direction of the design engineer and, if they were not, the nature of the non-compliance”

“3 whether or not the Cross-Claimant took all reasonable care and precautions, among other things:

37 I will deal with a number of matters of principle, which will have a substantial effect on the result of the application before turning to the more detailed matters concerning the disputed factual questions.

Whether there was any duty at common law or under s 177 of the Conveyancing Act 1919 (NSW) in respect of the support of buildings on adjoining land and whether that duty included omissions.

38 The Referee considered whether there was a duty of care in respect of the support of buildings on adjoining land. At paragraph 50 of her report she concluded in these terms:

I find

39 It is this conclusion that raises a major issue in the proceedings.

40 Prior to the amendments to the Conveyancing Act 1919 (NSW) which introduced s 177 in 2000, at common law the right to support of land in its natural state was said to be an incident of land itself: Dalton v Henry Argus & Company (1880-81) LR 6 App Cas 740 at 791. If an individual excavated their property and in so doing undermined the support for their neighbour’s land, they had committed an “actionable nuisance for which strict liability attaches without proof of any negligence”: Fennell v Robson Excavations Pty Ltd [1977] 2 NSWLR 486 at 493 per Glass JA.

41 This rule, however, was qualified. If an individual built upon their property, and in doing added unnatural weight to those lands, they could not recover if their neighbour in excavating adjoining property removed support for that land and caused damage to the buildings so situated. This is because, although neighbours were obligated to provide support for each other, their obligations did not extend to supporting the additional weight that buildings placed on contiguous, yet separately owned lands: Pantelone v Alaquie (1989) 18 NSWLR 119 at 129 per Giles J. As Fry J explained in Dalton v Henry Argus at 772:

“On principle it appears to me that it might well be held that every man must build his own house upon his own land, and that he cannot look to support from the land of adjoining proprietors. Such a principle would prevent the owner of a house from ever acquiring a right to lateral support except by actual contract. An opposite view might be taken, for which also much reason could be given. The right of soil to support by adjoining soil is given by our law as a natural right, and it might well have been held that this natural right to support carried with it a right to the support of all those burdens which man is accustomed to lay upon the soil. On this principle, the right to support would arise as soon as the house was built, and would exist independently of the user, consent or contract. It might thus, it appear to me, be reasonable to hold that a house should never have the right of support, or that it should always have it. But I am unable to find any principle upon which to justify the acquisition of the right to support by a house independently of an express covenant or grant. For casting aside all technicalities, I think that the only principle upon which rights of a kind like the one in question can be acquired is that of acquiescence. But I further think that, as he who cannot prevent cannot acquiesce, and as the owner of the adjoining land cannot prevent his neighbour from erecting a house upon his own land, he can never be said to have acquiesced in the construction of that house, or in the burden that which thence results. Such are the conclusions to which I should be driven by the consideration of this question on principle. When I turn to the authorities of our law bearing on the subject, I find as it appears to me, that it has been decided that an ancient house does possess the right in question; that a new house does not possess this right; and consequently, that the right is one that may be acquired independently of express covenant”

42 The rule in Dalton v Henry Angus was criticised, in particular because of the way in which it distinguished between land that is built upon and land that is not. In Stoneman v Lyons (1975) 133 CLR 550 Stephens J at 567 observed that the rule is “clearly ill-adapted to conditions in modern cities”. In Xpress Print Pty Ltd v Monocrafts Pte Ltd [2000] 3 SLR 545, Yong CJ at [35] demonstrated how the application of this rule could lead to unfair and somewhat absurd results:

“If my neighbour’s land is in its natural state, I may not remove the soil on my land without providing alternative support for his land; but if my neighbour expends money and effort in building a bungalow on his land, then I may excavate with impunity, even though his bungalow might crumble to the ground. Yet my liberty to ignore the support required by his house is not perpetual, but lasts only for 20 years, at which time any indolence in pursing my right to remove my soil is transformed into a positive right of support [that is, an easement of support] in respect of his dwelling.”

Nonetheless, although the rule was clearly inappropriate as there was no High Court ruling to the contrary, it continued to form part of Australian law: Kebewar Pty Ltd v Harkin (1987) 9 NSWLR 738 at 740-741 per McHugh JA

43 In Pantelone v Alaquie (1989) 18 NSWLR 119 Giles J usefully summarised the state of the law in these terms:

Dalton v Henry Angus & Co

Anderson v Mackellar County Council

Public Trustee v Hermann

Brown v Robins

Stroyan v Knowles

Public Trustee v Hermann

Ray v Fairway Motors (Barnstaple) Ltd

44 The second qualification mentioned by his Honour does not arise having regard to the finding made by the Referee. The Referee considered whether the damage to the Nemeth house was caused by the subsidence of the land in its natural state. In paragraph 56 of her report she found that without the contribution of the superimposed load of the Nemeth’s house that natural subsidence was not sufficient to cause the damage to the house. This finding is not challenged.

45 The question as to whether there can be a liability in negligence between owners of adjoining land was also referred to by Giles J at page 132 in the following terms:

Dalton v Henry Angus & Co

“… the owner of the adjacent soil may with perfect legality dig that soil away, and allow his neighbour's house, if supported by it, to fall in ruins to the ground.”

Johns v Delaney

Ray v Fairway Motors (Barnstaple) Ltd

Bognuda v Upton & Shearer Ltd

Dalton v Henry Angus & Co

Kostis v Devitt

Australian Hi-Fi Publications Pty Ltd v Gehl

Dewhirst v Edwards

Stoneman v Lyons

Kebewar Pty Ltd v Harkin

Stoneman v Lyons

46 After referring to the criticism of Stephen J noted above, Giles J continued at 135-136:

Dalton v Henry Angus & Co

Jeffries v Williams

47 It was in this state of the law that s 177 was introduced by the conveyancing (Law of Support) Act 2000. Section 177 is in the following terms:

supporting land

supported land

supporting land

Limitation Act 1969

Real Property Act 1900

48 Section 177(8) abolishes the common law cause of action in nuisance. In its place s 177(1) confirms or alternatively brings into existence a cause of action in negligence depending upon the view one takes of the authorities.

49 In their submissions the first and second defendants pointed out that the duty of care referred to in s 177(1) is in respect of “ a right of support of land” and was a reference to the common law right of support. This was justified on the basis that what the section achieves is the removal of strict liability that would otherwise arise for nuisance and, in so far as it declares a duty of care, it is a duty in respect of the right of support that was otherwise protected by the tort of nuisance.

50 The first and second defendants’ submissions drew attention to the fact that there were two cases in which differing obiter views were expressed about be extent of the duty of care. In Yared v Glenhurst Gardens Pty Limited (2002) 10 BPR 19,485 Austin, J expressed the following obiter opinion about the effect of section 177:

[126] The section was intended to remove doubt as to the existence of a duty of care in relation to the maintenance of lateral support of a neighbour's land. The effect of the section is to remove from consideration of the negligence claim, the highly artificial rules in nuisance which had developed out of the decision of the House of Lords in Dalton v Henry Angus & Co (1881) 6 App Cas 740: as to the old rules, see Kebewar Pty Ltd v Harkin (1987) 9 NSWLR 738, 741. In nuisance, a defendant's omission to maintain lateral support was not sufficient to establish liability. However, on ordinary principles of negligence, a defendant has an obligation to take reasonable care to prevent or reduce foreseeable injury caused by failure to maintain lateral support.

51 In Sutherland Shire Council v Becker, (2006) LGERA 184 Bryson JA expressed an obiter opinion to the opposite effect saying:

[74] Under the law as it was when the subdivision application was considered and when the fill was deposited an owner of Lot 7 had no entitlement to lateral support for a deposit of this kind. The law was later changed by the enactment in the year 2000 of the present s 177 of the Conveyancing Act (and its provisions do not appear to confer any right to lateral support either; see subs. (3) and (4))…

52 Under s 34 (2)(b) of the Interpretation Act 1987 (NSW) it is possible to consider the terms of any Law Reform Commission report which was laid before either house of Parliament before the provision was enacted or made. In this case the relevant report is the NSW Law Reform Commission Report no 84 (1997). Paragraph 4.7 to 4.10 are as follows:

Dalton v Henry Angus & Co

Burnie Port Authority v General Jones

Dalton v Angus

4.9 As the remedy in nuisance would be abolished under the suggested reform, the Commission considers it prudent to create a duty of care by statute, even though it is arguable that a duty of care would be placed by the general law on the owner or occupier of supporting land.

4.10 The advantages of a negligence-based system of liability are as follows:

· the right to support is no longer an incident of the land itself, and can, therefore, be actionable against anyone failing to exercise reasonable care;

· the right is not confined to land in its natural state;

· the flexibility of the common law is retained, so as to encompass a wide variety of fact situations and remedies;

· a duty of care between neighbouring landowners is established, consistent with principles developed throughout the century; and

· liability for damage to land and structures can be apportioned according to fault, in accordance with basic notions of fairness.”

53 The Commission made recommendations about legislation to be adopted. Most of its recommendations were eventually adopted in s 177. It is to be noted that in respect of the next argument that the Commission was careful to spell out in its report that the proposed legislation should include liability for both acts of omission and commission.

54 In the second reading speech in both the Legislative Council and Legislative Assembly the Minister said:

“As I have previously said, there currently exists a right for land to receive support from adjoining land, but that support does not apply to any buildings on the supported land. This situation is now to be changed by providing that the duty of care, which I have just discussed, is to extend to buildings on the supported land. Therefore, anything done on the supporting land that removes support for the buildings on the supported land, will be in breach of the duty.”

55 As is apparent from the second reading speeches and clauses 4.7, 4.8 and clause 4.10 of the Law Reform Commission report, the clear intention of Parliament was to abolish the rule in Dalton v Henry Angus and provide for compensation for the damage caused by removal of support for land and buildings on neighbouring properties. The criticism of the rule in Dalton v Henry Angus prompted this report. It seems therefore that to the extent that the provision is ambiguous and having regard to the purpose and underlying object of the Act, one would construe reference to the “support for land” as including support for land and the buildings erected upon it.

56 It was suggested by the plaintiffs’ submissions that the terms of subsection (2) were suggestive of strict liability for the breach of duty of care in relation to the right of support for land whether reasonable care was exercised or not. Given the generality of subsection (1) I do not think that strict liability is appropriate. Subsection (1) clearly imports the common law of negligence. Subsection (2) is more concerned with the actions that will lead to that liability. Whether such actions can include omissions is the next important dispute.

57 In Land Law by Peter Butt (5th ed 2006) the author discusses the question of omissions in these terms:

“In New South Wales, the chief reform is found in s 177 of the Conveyancing Act, introduced in 2000. That section, partially implementing recommendations of the New South Wales Law Reform Commission, abolishes any common law right to bring an action in nuisance for the removal of support for land and replaces it with a right to enforce a negligence-style duty of care. At least, that appears to be its purpose, for s 177(1) states: ‘for the purposes of the common law of negligence, a duty of care exists in relation to the right of support for land,’ However, s 177(2) then provides that, ‘Accordingly’ a person has ‘a duty of care not to do anything’ on or in relation to land (the supporting land) that removes or reduces the support that that land gives to other land (the supported land). This makes it clear that, despite the width of subs (1), the duty of care under the section does not extend to omissions. A person is liable for acts of commission, such as excavating a hole, but not for omissions to act, such as failing to prevent a loss of support from occurring.”

58 After referring to this passage the Referee made the following comments:

“64 In the present situation, Prynew and its independent contractors provided a pile retaining wall to the common boundary with Nemeth. The evidence below will establish that they then excavated the Prynew site and, while doing so, found a hole in this retaining wall which, without ceasing excavation, they failed to fill. If the construction contended for by Butt were correct, there might be no liability as the subsidence was caused by a combination of acts of commission and omission. Without the semi-final act of omission, i.e. the failure to fill the hole before further excavation, there would have been no significant subsidence.

vis a vis

,

59 The first and second defendants’ argument characterised the defendants’ omission to fill the hole before further excavation as the cause of the subsidence to the extent that it was significant. If this characterisation is correct and liability under s 177(2) does not extend to cover omissions, then there is no liability on the part of the first and second defendants.

60 It is strange that this result might be achieved given that the law before s177 was that in claims for negligence in removing support from land by persons other than adjoining owners, acts of omission could constitute negligence in appropriate circumstances. (See Pantalone v Alaouie at 135-136 quoted above.)

61 In this case the Referee found that Piling was in breach of its duty to the plaintiffs by failing to provide advice at the relevant time. Because of her conclusions regarding the operation of s 177, the Referee did not have to differentiate between the statutory and common law duties. A common law duty was, however, also available in the circumstances of the case.

62 I have earlier mentioned that the recommendations made by the Law Reform Commission included a draft bill, which specifically referred to omissions, by including the words ”or not to omit to do anything” immediately after the words “… a duty of care not to do anything”. When the bill was presented to Parliament it included liability for omissions. The bill also contained an exemption in respect of the liability of the Crown for acts of omission. This led to a debate as to whether liability for omissions should be removed in respect of private landowners.

63 The Legislative Council dealt with the bill in committee where the government moved an amendment, which removed the Crown exemption and deleted the words referring to liability for omissions. This amendment was passed and the act excluded acts of omission. Accordingly, having regard to the bills passage through Parliament, the purpose of the bill was plainly not to include acts of omission.

64 As there is no liability under s 177 for acts of omission it is necessary to see whether the Referee’s characterisation that I have referred to earlier is correct. It is plain on the evidence that the Referee accepted that at the time the short pile was first discovered on 21 July 2001 the extent of the excavation had extended to a point between a half a metre and one metre below the bottom of the short pile. By the time the subsidence had occurred on the evening of 26 July 2001, a further 3 metres had been excavated. Noting for the moment that this finding is challenged, on the Referee's findings what occurred was further excavation without the filling of the gap that had been exposed and which was evident on 21 and 23 July 2001.

65 Evidence of the steps that should have been taken to fill the gap were to the effect that it should have been filled every ½ to 1 metre as the excavation proceeded. The first and second defendants’ characterisation of their own act as one of omission completely overlooks what in fact was happening on the site. What was happening was that excavation was proceeding in a manner, which, having regard to the existence of the hole was improper in the circumstances.

66 Section 177(2) states that “a person has a duty of care not to do anything on or in relation to the land….that removes the support.” Accordingly, the defendants owed the plaintiffs a duty of care not to excavate the land at no 44 in a manner that removed the support provided by no 44 to no 46. The act that gives rise to liability under s 177 was the improper excavation of land at no 44.

67 An interpretation of s 177 that allows the removal of support for adjoining land by classifying such acts, as omissions would be contrary to the intention of Parliament.

68 For example, if an owner had sought to excavate this site without any piling it is plain that the building next door would collapse into the exposed hole. Is the owner making such an excavation to escape liability because his mistake is categorised as failing to have a proper piling wall? Certainly the answer would be “no” as what he did was to excavate with complete disregard for the consequences because of the manner of the excavation.

69 The same analysis applies to what was occurring on site after 21 July 2001. Excavation was continuing in a manner that was improper because it continued despite the presence of an obvious hole exposed in the piling wall. The hole, plainly on the evidence, would have caused the subsidence to occur. In my view the correct characterisation of what caused the subsidence was the doing of an act, namely, further excavation on or in relation to the supporting land that removed the support provided by the supporting land to the adjacent land.

Whether the defendants were liable for breach of statutory duty

70 Having found that the defendants liable in negligence, the Referee did not come to a conclusion about the existence of liability for breach of statutory duty. At the hearing I heard argument on the question of breach of statutory duty in case I accepted the defendants’ submissions with which I have just dealt. It is appropriate that I should consider this question. Accordingly, I turn to deal with this aspect of the matter.

71 On 7 August 2000 Woollahra Municipal Council granted development consent for the development at no 44 pursuant to the Environment Planning & Assessment Act, 1979 (NSW). Clause 82 of the consent was in these terms:

72 The development required approval and consent was issued by the Council following application by the developers. Section 80A (11) of the Environmental Planning and Assessment Act 1979 (NSW) provides that development consent is subject to such conditions as may be prescribed by regulations. Part 7 of the Environmental Planning and Assessment Regulation 1994, as amended by Regulation 267 of 1998, gives details of the prescribed conditions for the purposes of the section and other sections of the Act. There are a number of clauses which are reproduced in full in clause 82 of the development consent part of which are set out above. The relevant part concerning support of neighbouring buildings is contained in clause 78F of the regulations which was in these terms:

allotment of land

73 Section 76A (1) of the Environmental Planning and Assessment Act 1979 (NSW) provides that where an environmental planning instrument requires development consent to be obtained for the carrying out of development that development must not be carried out unless consent has been obtained and is in force and in accordance with the consent which was granted.

74 Section 122 provides that for the purposes of Div 3 of Part 6 of the Act (which deals with restraining orders), a breach of the Act includes an actual, threatened or apprehended contravention of, or failure to comply with, inter alia, a condition subject to development consent granted under the Act.

75 It can be seen that the legislation thus contains a prohibition on contravening the conditions of consent and makes such a contravention a breach of the Act for the purposes of enforcement proceedings and penalties. See s125 of the act.

76 In O’Connor v S P Bray Ltd (1937) 56 CLR 464 at 478 Dixon J said in a much quoted passage:

“Whatever wider rule may ultimately be deduced, I think it may be said that a provision prescribing a specific precaution for the safety of others in a matter where the person upon whom the duty laid is, under the general law of negligence, bound to exercise due care, the duty will give rise to a correlative private right, unless from the nature of the provision or from the scope of the legislation of which it forms a part a contrary intention appears. The effect of such a provision is to define specifically what must be done in furtherance of the general duty to protect the safety of those affected by the operations carried on.”

77 As pointed out in the plaintiffs’ submissions in Sovar v Henry Lane Pty Limited (1967) 116 CLR 397, Kitto J, at 405 summarised the principles to apply when determining whether a failure to comply with a statutory provision gives right to a private cause of action in these terms:

“The legitimate endeavour of the courts is to determine what inference really arises, on the balance of considerations, from the nature and terms of the statute, including the nature of the evil against which it is directed, and the nature of the conduct prescribed, the pre-existing state of the law, and, generally the whole range of circumstances relevant upon the question of statutory interpretation…It is not a question of the actual intention of the legislators, but of a proper inference to be perceived upon consideration of the document in the light of all its surrounding circumstances.”

78 There are a number of cases concerning predecessors of the present town planning laws where the Court has held in the context with which I am concerned that the act and ordinances created a private cause of action in respect of excavations. The first of these concerned s 318 of the Local Government Act 1919 and Ordinance 71 which was made pursuant to the Act. Clause 44 (b) of that Ordinance provided:

“Where a building owner proposes to erect a building in close proximity to any other building…if it be necessary for him to excavate or dig out the ground against the wall of such other building, the building owner shall at his own cost shore up and underpin such wall…with proper and sufficient material in a workmanlike substantial manner…”

79 In Anderson v Mackellar County Council (1968) 69 SR (NSW) 444, the New South Wales Court of Appeal held that provisions of s 318 (17) of the Local Government Act 1919 and the above Ordinance made pursuant thereto gave rise to a private cause of action to a landowner for breach thereof by an adjoining owner.

80 The successor to ordinance 71 was ordinance 70 which provided in cl 31.4 for:

81 In Kebewar Pty Ltd v Harkin (1987) 9 NSWLR 738 the Court of Appeal was concerned with this provision. It referred to the private cause of action in these terms:

Anderson v Mackellar County Council

82 For reasons which were not concerned with the existence of the cause of action the Court dismissed the appeal.

83 In Pantalone v Alaouie (1989) 18 NSWLR 119 at 131 Giles J accepted that cl 31.4 gave rise to a private cause of action. It will be seen from my discussion of the way in which the present statutory provisions operate that it is a breach of a condition which the legislation deems to be a breach of the Act. This is in contrast to the previous legislation which contained the prohibition in the subordinate legislation.

84 The defendants’ submissions pointed to this difference in the statutory scheme and suggested that under the present statutory scheme one only has an obligation to comply with development conditions without any contemplation of the particular development condition which might be imposed and whether that particular statutory obligation is one imposed for the health and safety of the public. No other aspects were argued and I note that the abolition of this statutory cause of action was recommended in this area by the New South Wales Law Reform Commission Report no 84 but its recommendation has not been implemented.

85 Apparently the defendants were referring to what was said by McHugh J and Gummow J in Byrne v Australian Airlines (1995) 185 CLR 410 at 462 in these terms:

“Even where the duty in question is created by delegated legislation in the form of regulations made under power conferred on the Executive by statute, there is an added difficulty in discerning the existence of a civil sanction for breach. The question then, as Fullagar J pointed out in Darling Island Stevedoring & Lighterage Co Ltd v Long (1957) 97 CLR 36 at 54-55 whether the statute gives power to create by regulation duties enforceable by action at the suit of a person injured by breach thereof. If the statute does not expressly confer on the Executive a power by regulation to create an action for damages at the suit of any person injured by breach of the substantive provisions of the regulations, it must be difficult to construe the statute and the delegated legislation as impliedly bringing about that result. This must be so, perhaps a fortiori, where the silent statute operates upon an award made by an arbitral body established by the statute. ”

86 In the same case Brennan CJ, Dawson and Toohey JJ in a joint judgment said at 424-426:

Sovar v Henry Lane Pty Ltd

O’Connor v S P Bray Ltd

Groves v Wimborne

R v Deputy Governor of Parkhurst; Ex parte Hague

The legislation in this case, the Industrial Relations Act as it stood at the relevant time, is of a very different kind. There have been significant amendments to the Act in the meantime, but it is convenient here to speak of it (as it existed) in the present tense. The principal object of the Act is expressed in s 3 to be the promotion of industrial harmony and co-operation among the parties involved in industrial relations in Australia by the doing of a number of things which include the provision of a framework for the prevention and settlement of industrial disputes by conciliation and arbitration in a manner which minimises the disruptive effects of industrial disputes on the Australian community as a whole. The function of making awards is vested in the Industrial Relations Commission by s 111 and in exercising that function the Commission is required under s 90 to take into account the public interest and, for that purpose, to have regard to the objects of the Act and the likely effects on the economy of any award it is considering or proposing to make, with special reference to the likely effects on the level of employment and on inflation. The Act does not prescribe the content of the awards which the Commission is empowered to make in the settlement of industrial disputes.

Ex parte McLean

Section 178 imposes a penalty for the breach of an award which might be sued for and recovered by, amongst others, a party to the award or a member of an organisation who is affected by the breach. Under s 356 a court that imposes a penalty may order that it be paid to a particular organisation or person. Section 178 also provides that where, in a proceeding against an employer under the section, it appears to the court concerned that an employee of the employer has not been paid an amount to which the employee is entitled under an award, the court may order the employer to pay to the employee the amount of the underpayment. And s 179 provides that an employee entitled to the benefit of an award may sue for wages and other payments due under it. The maximum penalty which may be imposed for a breach of an award is the relatively modest sum of $1,000 which, when regard is had to the fact that a court may order it to be paid to a member of an organisation affected by the breach, is plainly inconsistent with a right to unlimited compensation by way of damages. So also is the express provision for the recovery of underpayments and of wages under awards inconsistent with a right to sue for damages for breach of an award.

87 The passage cited from the majority in Byrne shows how that case is distinguishable from the legislative scheme being considered in this case. In Byrne the reason why it was held that a breach of the award did not give rise to a private claim for damages was because the Industrial Relations Act expressly provided for an alternative form of compensation that in effect exhausted or took over any private right that may accrue by implication from the Act. In this case there are two sections that give private rights of action.

85 They are ss123 and 124 which provide:

88 These sections do not however give a private right to damages.

89 In the present case the regulation making power in the present Act is as follows:

90 This regulation making power is quite different to the power in s318 of the Local Government Act 1919 which supported the ordinance in Anderson. In Mcdonald v Girkaid [2004] NSWCA 297 the court made reference to the comments of McHugh J and Gummow J in Byrne in these terms:

Australian Iron and Steel Pty Limited

The Liability of Employers

Byrne v Australian Airlines Limited

91 After referring to the nature of the Dangerous Goods Act under consideration in that case the Court said:

O’Connor v S P Bray Limited

John Pfeiffer Pty Limited v Canny

Storozuk v Commissioner for Railways

General Constructions Pty Ltd v Peterson

Slivak v Lurgi (Australia) Pty Limited

Occupational Health, Safety & Welfare Act

Slivak v Lurgi (Australia) Pty Limited

Utah Construction & Engineering Pty Limited v Pataky

O’Connor v S P Bray Limited

92 The words with which I am concerned “must preserve and protect the building from damage” are even more specific than the words with which the Court was concerned in McDonald.

93 The prescribed conditions in Part 7 of the Environmental Planning and assesment regulations 1994 which must by force of law be included in a development consent include a range of conditions directed towards matters which fall within the rubric of health and safety requirements to protect the public or certain classes of the public. In this case there are a substantial number of other conditions of the consent imposed by the Council which have nothing to do with these prescribed conditions and which are in a different category. Like Giles J in Pantalone v Alaouie I find the reasons advanced by Jacobs JA in Anderson v Mackellar County Council at p 448 compelling. Those reasons were:

“It seems to me that the underpinning and shoring of adjoining buildings is a subject matter which initially has the character of a provision which the legislature might well intend for the special benefit of the limited class of adjoining owners and occupiers and in which it might well intend to give those owners and occupiers private rights of action in the case of a breach. The terms of the actual Ordinance in the present case add much support to this view because, after the provisions of par. (a) and par. (b) as set out in the declaration, there are further provisions which specifically deal with the relationship between a building owner and an adjoining owner in terms which I have no doubt create private rights and obligations between them. There is the further significant fact in the Ordinance that this clause made pursuant to par. (17) of s. 318 is limited to cases where the adjoining building is in different ownership.

190 The submissions of the first and second defendants were that in the absence of any significant uniqueness and/or attachment to the house it was not reasonable for the Nemeths to take the course of repair.

191 Those matters are not the only matters, which might make it reasonable in the present case. Mr Nemeth’s health deteriorated with the need to avoid stress and he wanted to please his wife. These are factors, which need to be taken into account when deciding whether the decision was reasonable. These matters are confirmed by the fact that the Nemeths did do the rectification and move back into the house. In my view the Referee’s conclusion was appropriate.

192 This leads to the next question claimed by the Nemeths that the Referee should have allowed the full amount of the rectification that she determined was the sum of $973,944.05 rather than the amount that she did find of $239,674.89.

193 The rectification costs for the higher amount were a result of Mr Young recommending that the 70% of the rear of the house be demolished. The alternative proposal that the Referee accepted was that of Mr McMillan which involved the south-west corner of the house being demolished and reconstructed and the remaining damage being repaired without the expense of demolition. This latter proposal was one, which was only proffered during the course of the proceedings, and well after the house had been partially demolished and reconstructed on the basis of the Mr Young’s proposal.

194 After analysing the matter the Referee indicated at paragraph 580 that the primary factual and technical issues concerned were:

Structural / geotechnical engineering inferences that could be drawn from the observed and photographed damage.

195 The Referee then went on to refer to the submissions and authorities and to consider the extent of the damage and whether the house could be repaired. In paragraphs 586 to 643 she dealt in detail with the engineering and other evidence, which concerned the proposals of Mr Young and Mr McMillan.

I so find.

196 The Referee rejected a hybrid proposal and then considered what advice was provided to the Nemeths on the appropriate method of rectification. She found that the work on the demolition in Mr Young’s proposal commenced as a result of advice from Mr Clark and that Mr Young was not consulted again on the matter. She then considered whether the demolition and reconstruction, which was adopted, was necessary, reasonable and a proportionate response to the damage suffered. The Referee’s starting point for the analysis was Belgrove and Eldridge (1954) 90 CLR 613 at 618 where in a slightly different situation the High Court pointed out that the rule was subject to a qualification that the work undertaken must be necessary and a reasonable course to adopt. She went to on the consider whether Mr Nemeth acted reasonably in accepting the advice of his consultants which she found involved the adoption of measures “more burdensome” than those later proposed under Mr McMillan’s proposal.

197 This approach was criticised by the plaintiffs as placing undue emphasis on the analysis of the debate between the experts without regard to the actual advice provided to and relied upon by the Nemeths. It was said that it placed an onus on the Nemeths to second guess the expert advice which Mr Young had provided. The Referee’s conclusions on this aspect were as follows:

661 A decision to follow the advice of experienced and senior consultants would normally, in my view, be reasonable, even if this advice later turned out to entail more work than strictly necessary. In this instance, however, Mr Nemeth must have known that the advice had been prepared for the purpose of a theoretical and exaggerated claim, (i.e. it included GST twice and a claim for repair of swimming pool damage that had not been established). When Mr Nemeth decided to return to his home, Mr Young, the consulting engineer, who had spent no more than one to two hours inspecting for the purpose of advising on the insurance claim, who had carried out no tests, taken no measurements nor consulted with a quantity surveyor or geotechnical engineer, was not re-approached and no consideration was apparently given to alternative possibilities. Between Mr Young completing his October 2001 drawings and the commencement of demolition, no consultation apparently occurred between him and Mr Clarke or Mr Nemeth.

662 Mr Young’s evidence was that, apart from the southwest corner, although very difficult, repair was possible, and that the choice between it and re-construction was an economic one and yet Mr Smith, who had been engaged to price the demolition and re-construction scheme, was not asked, until the court case, to price any major repair alternative. When, in the court case, this was done, his evidence was that repair was considerably cheaper than re-construction. According to the limited evidence about discussions surrounding the direction to proceed with demolition, Mr Nemeth issued his direction at the same meeting at which Mr Clarke expressed uncertainty of the need for it. Mr Nemeth did this with the knowledge; 1) that he was embarking on a project with an expenditure of approximately one million dollars; and 2) that he would be asking Mr Tsu or his insurers to pay for it. In this, I consider his behaviour unreasonable and I so find .

663 In my view, when a reasonable and considerably less expensive option was available, demolition and reconstruction of 70% of the house was disproportionate with the damage, and I so find . I also find that the McMillan proposal was a reasonable option and that Nemeth was entitled to the reasonable cost of the work involved in this proposal, valued by reference to the rates of a specialist builder employing specialist tradesmen to bring it to a good quality finish.

198 Having regard to the matters to which the Referee referred which were not attacked I think her approach was correct and I agree with her conclusions. To the extent that she took into account the changed desire, which existed at a time prior to the trial, in my view this was correct rather than relying on what was the intention at the date of the wrong. The very exercise that has to be undertaken requires a consideration of it in this way.

199 I return to the remaining factual matters to be considered.

Accommodation costs

200 This was a claim made by the Nemeths which was disallowed by the Referee. They claimed the cost of the Hampton Court (which was owned by the company) temporary accommodation from 1 March 2002 to 1 July 2004 at the rate of $550 per day at a total cost of $469,746. It will be recalled that the Nemeths’ reason for moving out was to enable them to redevelop their property.

201 The rectification work commenced in June 2002 and was completed about August 2003. The Nemeths continued to occupy the rooms at Hampton Court until July 2004.

202 It is plain that as the Referee notes in the period up until 1 March 2002 it was relevant that this was the time the Nemeths intended to be away from their house in any event. The Referee’s view was that it was unlikely that they would have returned to Mona Road was based upon the time taken to redecorate after the completion of the renovations. Taking into account the six-week period for the proposed rectification system the Referee concluded that the Nemeths would not have vacated Hampton Court by the end of that time. In these circumstances the Referee’s conclusion is reasonable.

QBE Insurance questions

203 The relevant clauses in the insurance policy are as follows:

“9.4 Excavation and Underpinning
We will only indemnify You for Personal Injury or Property Damage as the result of an Occurrence happening in connection with any excavation or underpinning work carried out subject to the following conditions:-
(a) the excavation or underpinning work is carried out in strict accordance with the plans and specifications for such work and at the direction of the design engineer.
(b) any surrounding structures that could be affected by such excavation or underpinning work have, prior to the commencement of such work, a “Conditions Report’ produced on the existing condition of such structures.”

……..

204 In respect of clause 9.4 above QBE conceded that sub-clause (b) was not relevant. QBE also conceded that clause 10.7(c)(d) was not relevant. In the hearing before me clause 11.3 was not relied upon by QBE.

Question One

205 The question was: “whether or not the excavation and underpinning work was carried out in strict accordance with any plans and specifications for such work and at the direction of a design engineer and, if they were not, the nature of the non-compliance.”

206 In respect of clause 9.4(a) the Referee noted the submissions of Prynew and a fair summary of her reasoning as submitted by the first and second defendants is as follows:

a. there were two relevant types of excavation:-

i. pre-drilling for the piles; and

ii.bulk excavation (Report, paragraph 846);

b. Truswell’s drawings were used for both (Report, paragraph 846);

c. in respect of the pre-drilling of the pile, they identified the location and depth of the excavation (Report, paragraph 847);

d. in respect of bulk excavation, they defined the profile and gave instructions (Report, paragraph 848);

e. since they described the extent of excavation and gave associated instructions, Truswell’s drawings could be described as plans and specifications for the excavation work (Report, paragraph 849);

f. the J & K Report was incorporated by reference (Report, paragraph 850);

g. the J & K Report therefore formed part of the specification (Report, paragraph 852);

h. Prynew’s removal of the continuous support by excavation after detection of the short pile meant that the excavation work was not carried out in strict accordance with the plans and specifications as excavation was not to proceed until there was adequate support for the Nemeth property (Report, paragraph 854);

i. the design engineer was Truswell (Report, paragraph 859);

j. Truswell gave a direction of 2 August 2001 [after the first subsidence] that was not followed (Report, paragraph 860);

k. this meant that there was excavation after 2 August 2001 that was otherwise than in accordance with the design engineer’s direction (Report, paragraph 862).

207 The points taken by Prynew and Tsu in respect of her conclusions were as follows:

a. The Truswell plans and specifications for the construction of the piling works were not plans and specifications “for excavation work”; the mere fact that they might have been of assistance in respect of excavation does not make them plans and specification for that work;

b. If the Truswell plans and specifications for the construction of the piling works were also plans and specifications “for excavation work”, the J & K Report did not form part of them or if it did was not so incorporated as to require compliance with the entire report;

c. If the J & K Report was incorporated so as to require complete compliance and even if Prynew carried out further excavation after the detection of the short pile on 23 July 2001, there was nothing in the J & K Report that such continued excavation was contrary to;

d. The conclusion that there was excavation after 23 July 2001 and before the first subsidence was in any event wrong.

208 The last matter is one that I have already determined adversely to Prynew. Accordingly, it is necessary to consider the other matters raised.

209 The first point raised by Prynew and Tsu was that the Truswell plans and specifications were not plans and specifications “for excavation work”. It was noted that the mere fact they might have been of assistance does not make them plans and specifications for that work.

210 In her report the Referee referred to the two types of excavation that were necessary, namely, the excavation of the piles and the bulk excavation. In paragraphs 847 and 848 she gives good reasons as to why the plans and specifications were for, inter alia, excavation work. As she points out the plans apply for more than one trade. In my view her conclusions on this aspect are correct.

Question Two

211 The question was: “whether those plans incorporated the Jeffery & Katauskas Pty Ltd (J & K) report”. The note on the drawing is in these terms:

“These drawings shall be read in conjunction with all architectural and other consultant’s drawings and specifications and with such other written instructions as may be issued in writing during the course of the contract”.

212 The other note on the plan was note F2 in these terms:

213 The first point to be made about these notes and particularly about the first one is that it does not oblige compliance with the J & K report on its face. It merely indicates that the drawings are to be read in conjunction with whatever it is referring to. The second point in respect of the first note is whether J & K report was in fact a specification for the work.

214 The report is an investigation report prior to any arrangements for the construction of the building and the necessary excavation. On page 1 it describes the purpose of the report as:

“it follows that the purpose of this preliminary investigation was to obtain due technical information sub-surface conditions as a basis for recommendations on further geotechnical investigation and preliminary comments and recommendations on excavation conditions, excavation support footing design and slab on ground construction”.

215 It does not purport to specify what particular steps should be taken in the construction process although it contains a series of recommendations the relevant ones of which were referred to by the Referee.

216 The second note does not seem to have been relied upon by the Referee. In any event what it is talking about is preparation of the foundation material and sub-grade and incorporating what might be said about that in the geotechnical report. The matters in the report to which the Referee has referred are not matters dealing with these items. In these circumstances it seems to me that the conclusion of the Referee cannot be supported.

217 In the report the Referee deals with whether the work was carried out at the direction of the design engineer. The only directions the Referee found related to a failure to comply with the directions given by Mr Truswell on 2 August 2001. As the Referee found that this did not cause the damage it is not necessary to address this aspect.

Question three

218 The question was “whether or not the Cross Claimant took all reasonable care and precautions, among other things:

”

219 As I have mentioned question 3(iii) is no longer relevant and was not considered by the Referee.

220 This question has to be seen in the light of the established interpretation for this type of policy. Paragraph 9.52 in Derrington & Ashton The Law of Liability Insurance (2nd Ed 2005) the authors discussed the condition in these terms:

9-52 The duty of care under this type of condition is quite distinct from the duty of care that the insured owes to those persons who may be injured and make a claim that is covered by the policy. Ordinary negligence alone does not come within this condition. It is this duty to the insurer that is relevant to the effect of this condition. For example, the standard of the duty is not coterminous with nor similar in quality to the obligation of an employer to workers or indeed of the insured to any claimant, for if it were so, its effect would be to exclude a very large part of the risk the indemnity for which is expressly covered. Whilst such a construction would be given if it were warranted, the removal by a condition of a substantial part of the cover otherwise provided must be expressed in a very clear terms before such meaning would be adopted.”

221 They continued on after pointing out that in this type of insurance negligence of the insured provides no defence to the insurer because that is the very contingency for which protection is sought at 9-54 in these terms:

9-54 The insured’s obligation is to take precautions to prevent accidents, that is, to take measures to avert dangers that are likely to cause the damage or injury in respect of the risk to be indemnified. The decisive point lies in the construction of the word “ reasonable” . It does not mean reasonable as between the claimant and the insured but as between the insured and the insurer, having regard to the commercial purpose of the contract which includes the indemnification of the insured against the liability for personal negligence or vicarious liability for the negligence of others. The application of a rigorous obligation by this provision is to be rejected if it would be contrary to the normal expectations of persons insured under the policy and so undermine its commercial utility. What is reasonable will depend on the gravity of the possible loss, its foreseeability and the ease of possible precautions; and this is an issue of fact as to which the onus of proof rests upon the insurer. Incompetence, without more, is irrelevant: there must be something of the nature of a subjective appreciation of the existence of the relevant risk coupled with a deliberate courting of the risk or recklessness in relation to it. Here is a breach only if the insured does not take steps that it regards as reasonable to avert a danger known to exist. There must be a state of mind of not caring whether the conduct might cause damage to others, and the insured must deliberately court the danger known to exist by taking measures which he or she knows or ought to know are not adequate to avoid danger.”

222 In Legal & General Insurance Ltd v Eather (1986) 6 NSWLR 390 the concept was referred to by Justice Glass in these terms:

“For these reasons I am of opinion that the words should be construed in the same manner as if they appeared in a liability indemnity. The insured person will not be in breach if he shows either that he did not recognise that a danger existed or that perceiving its existence he took some action to avoid it and was not indifferent to whether the danger was averted or not: Fraser v B N Furman (Productions) Ltd; Miller Smith & Partners (A Firm) Third Party [1967] 1 WLR 898 at 906; [1967] 3 All ER 57 at 61. Judging the plaintiff's conduct by this criterion he has in my view shown a performance of his contractual obligations.

223 In the same case Justice McHugh, as he then was, had this to say:

In my opinion the words "you are to take all reasonable precautions to avoid or minimise injury, loss or damage" mean that the insured must be concerned to protect the property from loss or damage and must take such steps to protect the property as he thinks are reasonable having regard to dangers which he recognises. The onus of proving compliance with the condition is on the insured: Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (at 239; 202); Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303 (at 342).

224 Against this background the Referee noted that clause 10.7(d) was no longer in issue and continued with her findings which the first and second defendants summarised in their submissions as follows:

b. The photographs taken on 27 July 2001 showed that excavation to an additional depth of 3m below the short pile had taken place after its detection (Report, paragraph 880) and that the gap was not urgently filled (Report, paragraph 881);

d.Tsu must have known about the further excavation as he attended the site regularly (Report, paragraph 883);

f. the precaution that Tsu took of piling sand in front of the gap was not recommended by any engineer and was appropriate only for a period of up to 24 hours (Report, paragraph 884);

h. the development consent required that:-

Environmental Planning and Assessment Act

225 The criticism of the Referee’s conclusions in respect of clause 10.7 were as follows:

226 The main complaint was that the conduct of Prynew as found by the Referee did not amount to a “deliberate courting of the danger” and the second point was that the directing mind and will of Prynew did not deliberately cause the danger. I have earlier accepted the Referee’s conclusion that there was excavation after the 23 July 2001and before the first subsidence.

227 On the first matter at paragraph 884 the Referee referred to the risks of excavating in sand of which Mr Tsu had knowledge. She also referred to the fact that he knew of the measures necessary to avert the risk and concluded as she had earlier that he did neither. Instead he increased the risk by continuing to excavate. The only physical precaution taken by him was from time to time piling sand in front of the gap, which was not, a precaution recommended by any engineer. His past experience is important as it related to a similar incident, which occurred several years earlier. An excavation conducted by him at 48 Mona Road also suffered subsidence damage. The Referee referred to these matters at paragraphs 870 to 874.

228 Such evidence made it abundantly obvious that Mr Tsu had a subjective appreciation of the existence of the relevant risk.

229 The Referee found that in the context of the knowledge of Tsu who recognised the danger he not only failed to take steps to advert it but also took action known to increase the risk. She concluded that he was courting danger. Having regard to the active steps that the referee found he took, such as continuing with excavation, her conclusion was open to her and I agree with it.

230 On the second point it is necessary to note as the Referee was careful to do, Tsu’s case was that there was no further excavation after 23 July he having directed Mr Malicia to cease excavation. The Referee referred to the evidence, which plainly established that Tsu was on site every day after 23 July 2001.

231 As was pointed in Derrington & Ashton The Law of Liability Insurance (2nd Ed) 9-59 the duty to take care imposed by the condition is the personal duty of the insured as distinct from that of its employees as the purpose of the insurance is to cover the situation where employees do not fulfil their duty. In the case of an insured company in order to operate against it such knowledge would need to be that of the Board of Directors or at least the person who was the repository of its authority for the daily running of it. (See the authorities at note 230 in Derrington at 9-60). It is of course clear that Mr Tsu was the person who was the repository of authority for the daily running of Prynew or to use another expression he was the directing mind of that company.

232 Given the fact of Mr Tsu’s attendance at site and that the Referee did not believe his evidence of the excavation having stopped, it was appropriate in my view and open to her to conclude as she did at paragraph 883 that the excavation not only continued but did so with his knowledge and consent while under his active control.

233 In these circumstances the Referee’s conclusion in paragraph 885 should be adopted.

234 The next matter to consider is whether the Referee’s conclusion that clause 10.7(b) was breached. In paragraph 889 the Referee found that the breach of the development consent condition constituted a breach of Environment Planning & Assessment Act 1979. By reference to the conditions to which I have referred earlier in the judgment the Referee found that reasonable precautions were not taken to ensure;

(a) that the excavation of the site was executed safely and in accordance with appropriate standards, or

235 Apart from the matters already raised Prynew raised the need for the breach to be a product of Mr Tsu’s direction and suggested that an inadvertent breach of regulation is not sufficient. In this case there is evidence that Mr Tsu knew read the terms of the consent as soon as he received them.

236 QBE in its submissions referred to the Court of Appeal decision in Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60-580. It submitted that as a result of that case the obligation to take reasonable precautions against breach of statutory provisions is not read down as earlier mentioned and it is only necessary to see whether there was a breach of one of the pleaded statutory requirements. This appears to be the case.

237 In this case as I have already pointed out that what occurred was a breach of the development condition. There was no breach of a provision of a regulation or by-law and on the policy wording the question is whether the breach of the development consent can be described as a breach of an “act” or “statutory obligation”.

238 S 76A is in the following terms:

General

(2)……”

239 As the development was not carried out in accordance with the consent there would be a breach of the Act and the statutory obligation imposed by the Act.

240 I will give directions for further submissions in respect of the matters referred to in paragraph 145 above.

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Citations

Piling Contractors (Qld) Pty Ltd v Prynew Pty Ltd [2008] NSWSC 118

Most Recent Citation

Bowen v Stavroulakis [2020] NSWDC 20

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Mailey v Sutherland Shire Council [2017] NSWCA 343

Prynew Pty Limited v Nemeth [2011] NSWCA 5

Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413

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Statutory Material Cited

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CITATION:	Piling v Prynew Nemeth v Prynew [2008] NSWSC 118
HEARING DATE(S):	10 - 14 September 2007
JUDGMENT DATE :	26 February 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Macready AsJ at 1
CATCHWORDS:	BUILDING & CONSTRUCTION - Adoption of Referee's report as to causes and results of subsidence of the support for a house resulting from excavation and faulty piling work next door. - REAL PROPERTY - General principles Nature of duty of care under s177 of Conveyancing Act 1919. Whether it extends to support of adjoining buildings. Held it does. Whether it includes omissions. Held it does not. - TORTS - NEGLIGENCE - STATUES - Whether a statutory cause of action for breach of condition of development consent arises in respect of breach of a condition imposed under s78 and s78F of Environmental Planning & Assessment Regulation 1994. Held it does. - INSURANCE - Professional indemnity insurance. Whether a breach of terms occurred. Held there was a breach.
PARTIES:	Piling Contractors (Qld) Pty Limited v Prynew Pty Limited Ferdinand Nemeth v Prynew Pty Limited & 2 Ors
FILE NUMBER(S):	SC 55019/03; 55037/03
COUNSEL:	Mr SM Kettle for Piling Mr J Simpkins SC for Prynew & Tsu Mr JE Robson SC & DS Weinberger for Nemeths Mr A HewittSc & P Dodson for QBE
SOLICITORS:	Thompson Cooper Lawyers for Piling Avendra Singh & Co for Prynew and Tsu Salim Rutherford Lawyers for Nemeths Curwood & Partners for QBE