Rocter Tanks Pty Ltd v Adam & Foale No. Scgrg-00-697

ROCTER TANKS PTY LTD V JIM A & DEBORAH ADAM & SIMON FOALE

[2000] SASC 442

Magistrates Appeal

1................ LANDER J....... This is an appeal and a cross appeal from a decision of a Magistrate sitting in the civil jurisdiction of the Magistrates Court.

I shall refer to the parties by their description in the court below.
The pleadings in this matter have been amended from time to time but I shall only refer to the pleadings in their final form.
The plaintiff is a company that carries on the business of the construction and erection of reinforced concrete tanks.
The defendants were at all material times the registered proprietors of an estate in fee simple in the whole of the land comprised in Certificate of Title Register Book Volume 5634 Folio 727 upon which they erected a house.
The third party, Simon Foale, trades as Oakbank Earth Moving & Bitumen Paving.
It was the plaintiff’s case that on or about 10 March 1999 the defendants requested the plaintiff to construct a reinforced concrete tank and lid on the defendants’ property. It was the plaintiff’s case that the defendants were responsible for the preparation of the site and all earthworks associated. The plaintiff claimed that it was responsible for the construction of the tank the measurements of which had been conveyed in writing and verbally to both defendants and to the third party who was engaged by the defendants to prepare the site and do the necessary earthworks.
The plaintiff claimed that in accordance with the contract between the plaintiff and the defendants it constructed the tank and lid in about May 1999. On 4 May 1999 it issued an invoice to the defendants in the sum of $11,700 being the agreed price for the construction of the tank and lid.
The plaintiff claimed that the defendants failed to make payment of the amount due and as a result the plaintiff had lodged a notice of lien of the Workers Liens Act 1893 claiming the sum of $11,700.
The plaintiff’s claim was for the sum of $11,700 and for an order for the enforcement of the lien over the property.
The defendants admitted that they contracted with the plaintiff for the construction of an underground reinforced concrete tank with a lid. They admitted that it was no part of the contract between the plaintiff and the defendants for the plaintiff to prepare the site for the construction of the reinforced concrete tank.
The defendants admitted that the plaintiff completed the construction of a reinforced concrete tank on or about 1 May 1999. They further admitted that it was an agreed term of the contract that the defendants would pay to the plaintiff the sum of $11,700 for the cost of construction and erection of that tank.
The defendants asserted that the sum of $11,700 was not payable by the defendants because the plaintiff was in breach of its contract, or alternatively in breach of its duty of care, with the defendants to construct an underground reinforced concrete tank and lid.
The defendants have lodged set off and/or counterclaim.
In that proceeding the defendants claim that it was an express term, or alternatively an implied term of the contract, that the construction of the reinforced concrete tank with lid was such that it was to be underground so as to enable a path to be laid to the house and garage over the concrete tank.
They claim that in breach of the contract the plaintiff failed to construct an underground reinforced concrete tank with lid. In particular the plaintiff incorrectly constructed the reinforced concrete tank such that it was protruding above ground level.
In the alternative it is pleaded that the plaintiff owed the defendants a duty of care to carry out the works with all reasonable care and skill and in breach of that duty the plaintiff failed to carry out the works in accordance with the contract as to the levels required so as to ensure that the reinforced concrete tank was below ground level.
The defendants claim that by letter dated 22 June 1999 they gave notice to the plaintiff to remedy the breach of contract by cutting down the levels of the reinforced concrete tank so as to comply with the condition as it constitutes an underground reinforced concrete tank. The defendants claim that the plaintiff failed, neglected or refused to respond to that notice. They further claim that they gave notice to the plaintiff that they required rectification work to be carried out to remedy the breach but again that the plaintiff has failed to do so.
It is claimed in this set off and/or counterclaim that as a result of the plaintiff’s breach of contract and/or negligence, and the plaintiff’s failure to remedy its breach of contract and/or negligence, the defendants engaged contractors to remove the lid of the concrete tank, cut down the height of the tank and refit a new concrete lid and make good the site so as to achieve a reinforced underground concrete tank. The cost of the rectification work was in the sum of $14,621.
So much is claimed either by way of set off or counterclaim.
The plaintiff has filed a reply denying any breach of contract or negligence on its part.
In its defence to the defendants’ counterclaim the plaintiff pleaded:
“4..... As to paragraph 2 of the Counterclaim, the Plaintiff states that on about the 10th March 1999 as a result of negotiations between the male Defendant Jim Adam acting for himself and the Second Defendant and the Plaintiff’s Managing Director David Jarred in the presence of Simon Foale an earth-moving contractor trading as Oakbank Earth, the Plaintiff and the Defendants entered into a contract relating to construction of a 30,000 gallon underground water tank at a cost of $11,700 on the following terms:-
(i)Express terms:-
(a)The Defendants to engage and supervise their own earthwork contractor to prepare levelled site that allowed for required levels of the water tank, the lid and the path to be laid over it having regard to the levels of the garage and house floor.
(b)That the Defendants to ensure that the whole of the following agreed dimensions was excavated beneath levelled site:-
Width 12 m x 12 m
Depth 2,500 mm
(c)It was expressly agreed between the Plaintiff and Defendants that the Plaintiff would not be responsible for the levels of the earthwork but would be responsible for construction of the tank.
(d)Once the hole and the site levels approved by the Defendants was ready, the Plaintiff to construct using his own labour and material a water tank of 30,000 gallon capacity with the following dimensions into that hole:-
Tank Height 2.3 m
Lid 150 mm
Diameter 9.45 m
(e)The Defendants to pay the agreed price upon completion of tank.
(ii)Implied terms:-
(a)The Plaintiff to carry out the construction of the tank with care and skill.
(b)The Defendants as owner/builders to supervise and control the earthwork and construction of the tank with care and skill.”
The plaintiff pleaded in the defence to counterclaim that the male defendant instructed Mr Foale to ensure that earthwork was carried out to enable a tank to be constructed and allow for a path to be constructed over the water tank.
It was pleaded that Mr Foale agreed to prepare this site and carry out the excavation to achieve the required levels.
The plaintiff pleaded that in April 1999 the male defendant telephoned the plaintiff’s Managing Director and informed him that the levelled site was ready for form work and pour whereupon the plaintiff commenced form work in conformity with agreed dimensions and poured the concrete.
The plaintiff claimed in the defence to counterclaim that it erected the water tank in conformity with the terms of the contract.
In the alternative the plaintiff pleaded that if it had committed a breach of contract or was negligent in the construction of the tank the defendants were in breach of the contract and/or guilty of contributory negligence and it gave particulars of the defendants’ breach of contract and/or negligence.
As an alternative plea the plaintiff pleads that the defendants’ conduct in carrying out rectification work was unreasonable in that the defendants should have accepted an offer from the plaintiff for the plaintiff to remove the lid of the tank and lower the height of the tank walls at no cost to the defendants.
The plaintiff pleaded that the defendants were the author of their own losses and in the alternative the charges for rectification work were excessive and/or unreasonable.
The defendants issued third party proceedings directed to Mr Foale in which they claimed that the defendants, or in the alternative the plaintiff, engaged the third party to excavate the site for the construction of the underground reinforced tank.
They pleaded that the third party was aware or ought to have known that the site had not been properly excavated so as to ensure that the reinforced concrete tank with lid would be below ground level.
The defendants claimed that the third party was in breach of his contract with the defendants or in breach of his duty of care to the defendants in failing to excavate the site to the correct levels.
They sought indemnity from the third party against the plaintiff’s claim and the costs of the action on the grounds that his negligence or breach of duty resulted in all contributed to the defendants’ loss and damage.
The third party did not file any defence to the defendants’ claim for indemnity.
Indeed at the trial the third party accepted that he did fail to excavate the site to the required depth.
The Magistrate has recorded:
“Mr Foale has admitted his responsibility and that need not be looked at further other than to say that he did acknowledge, in writing, to the plaintiff that he accepted full responsibility.”
The learned Magistrate said:
“It should be implied, into the situation, that the plaintiff should have satisfied themselves (sic) as to the correctness of the levels and dimensions. This is prior to the installation. Even though there was a “nominated sub-contractor”, I am of the view that the contractor, that is the plaintiff in this case, had a responsibility to check the subcontract work.”
Thus he found that the plaintiff was at fault. The Magistrate has not articulated whether the plaintiff’s failure to carry out the inspection of the levels was a breach of contract or breach of some duty of care owed by the plaintiff to the defendants.
He also concluded that the defendants had to bear some responsibility for what had happened. He said that the male defendant had the opportunity to fully inform the third party as to what was required. He said that the defendants had a responsibility as owner/builders to supervise the third party’s earthworks. They had a corresponding responsibility, so he concluded, to the plaintiff to provide a site which would be fit for the contract works that were to be carried out.
As I have already observed Mr Foale admitted his responsibility. The learned Magistrate said in respect of that:
“Although Mr Foale has conceded liability, the extent of his liability, in my opinion, remains to be quantified. I would find that he contributed to the situation by not fully informing himself, as to the requirements of the earthworks that he was to provide. He, with the other parties, knew that certain dimensions had to be observed, that the tank was to go underground and that there would be a lid fitted that would enable the defendants to have access to their nearby garage.”
Thus the Magistrate found that each of the parties in the matter bore a responsibility for the situation that had arisen.
The Magistrate then discussed the question of damages. He concluded that the defendants’ actions to remedy the situation were reasonable. Implicitly he found that the defendants had not failed to mitigate their loss.
He found that all parties had contributed equally to the defendants’ losses and were liable in equal shares for the rectification works.
The cost of the rectification works, as I have already said, was $14,621. He found that each party was liable to contribute to the cost of the rectification to the extent of $4,873.70.
He therefore reduced the plaintiff’s claim against the defendants by $4,873.70 and entered judgment for the plaintiff against the defendants for $6,826.30.
He ordered the third party to indemnify the defendants to the extent of $4,873.70.
It follows from his orders that he found that the plaintiff was entitled to recover against the defendants for the cost of the work but that each of the plaintiff, the defendants and the third party had to contribute equally to the cost of rectification of the plaintiff’s work.
The Magistrate made orders as to costs. He ordered the defendants to pay the plaintiff’s costs reduced by one third. He allowed the defendants to have their costs on the counterclaim reduced by one third as against the plaintiff and the third party.
He allowed the plaintiff interest on the judgment sum as and from 5 May 1999.
He ordered the plaintiff and the third party to share equally interest on the defendants’ judgment on the counterclaim as and from 21 July 2000.
Both the plaintiff and the defendants are dissatisfied with the reasons and orders of the Magistrate and have appealed.
I do not intend to set out the grounds of appeal raised by the parties and their respective notices. In a number of respects the grounds raised are irrelevant.
There were really only three issues in this matter none of which unfortunately were addressed by the Magistrate.
It was agreed by all parties that there was a contract between the plaintiff and the defendants and a further contract between the defendants and the third party.
It was admitted by the third party that he was in breach of his contract in that he failed to excavate the site to the required depth. He made an unqualified admission of his liability in that respect.
The first issue which had to be addressed in this matter was the terms of the contract between the plaintiff and the defendants.
The Magistrate should have determined the express and any implied terms of that contract.
Once having determined the terms of the contract between the plaintiff and the defendants it was then a matter to determine whether the plaintiff or the defendants breached those terms. If any of the parties had been in breach the next matter for determination was the consequences of that breach.
If it was the plaintiff which was in breach of the terms of the contract then the court needed to determine what damage flowed from that breach.
If the defendants were able to satisfy the court that they had suffered damage by reason of the breach of the contract by the plaintiff then those damages needed to be assessed. In assessing those damages regard had to be had to the plaintiff’s alternative plea that the defendants had failed to mitigate their loss.
If on the other hand the plaintiff had not been in breach of the contract between the plaintiff and the defendants then the plaintiff was entitled, because no-one suggested otherwise, to judgment for the amount of the plaintiff’s claim as against the defendants.
In those circumstances the Magistrate had to determine whether the defendants were entitled to indemnity from the third party.
Unfortunately the Magistrate did not address the matter in the manner which I have suggested would be appropriate.
He did not discuss the causes of action available to the parties. He did not determine the contractual arrangements between the parties or the terms of those contractual arrangements. He ignored the third party’s admission of liability in respect of the defendants claim for indemnity against the third party.
He apportioned liability in an idiosyncratic way rather than according to legal principle.
As I pointed out to counsel, both of whom immediately agreed, the appeal has to be allowed, the real question being whether it would be appropriate for this Court to proceed upon the basis which I have identified or alternatively remit the matter back to another Magistrate for hearing.
The matter was further complicated by the non appearance of the third party. The third party was given notice of the hearing of this appeal but elected not to be present. In that regard I took the view that the third party’s admission of liability in respect of the defendants’ claim for indemnity would continue to stand and in those circumstances the third party could not be prejudiced by proceeding in his absence.
The third party’s liability to the defendants, of course, only arises if I find that the plaintiff is entitled to succeed on his claim and the defendants are not entitled to succeed on the counterclaim.
There is no doubt, in my opinion, that it was an express term of the agreement that the plaintiff would construct and erect an underground tank.
That was the evidence of Mr Jarred, the proprietor of Rocter Tanks Pty Ltd.
He said that prior to the construction and erection of the tank he visited the site with the male defendant and agreed upon a price for the construction of the tank.
He was asked:
“Q You see that it says there ‘a 30,000 gallon underground water tank’.
A Yes.
Q...... Now, Mr and Mrs Adam made it clear to you that they wanted an underground water tank, didn’t they.
AYes.
Q...... You knew that because they showed you where they wanted this tank constructed.
AI said on that and many days I am only responsible to build a concrete tank and not the levels.
Q...... Mr and Mrs Adams showed you where they wanted you to construct this tank.
AYes.
Q...... And it was adjacent to the house and the three door garage, wasn’t it.
AYes.
Q...... And Mr Adams told you that he wanted to be able to have a path over the top of the tank.
AYes.
Q...... And he was particularly concerned so that vehicles could drive into the garage.
AThat’s what Mr Adams would like, yes.
Q...... I just want to produce a document to you. You see that there is a plan of a survey there.
AThat was produced after the tank was built.
Q...... That’s correct. In fact, you see that the date of the document is 27 January 2000.
ARight.
Q...... For the moment, I don’t want you to have any regard to the measurements but you see the circle. Would you agree that that was the position of the tank in relation to the house and garage.
AApproximately.
Q...... And that you knew that Mr and Mrs Adam wanted this tank right near the house and the garage.
AIt is their responsibility to supply a site.
Q...... You knew that Mr and Mrs Adams -
AI don’t know what they want. They must supply a site where the product is to be built, where the owners would like the tank, they prepare a site. I built the tank. I didn’t supply levels. I didn’t supply the peg. I supply a concrete water tank on the site, level site to levels.
Q...... On at least one occasion when you were on site, Mr Adams showed you where he wanted his tank, isn’t that the case.
AThat would be the first meeting, yes.
Q...... That you knew at that meeting that he wanted it adjacent to the house and the garage.
AYes, we were standing in the general position.
Q...... He also told you that he wanted vehicles to be able to drive into the garage.
AYes.
Q...... He told you that he wanted a path.
AYes.
Q...... Going over the tank.
AYes.
Q...... There was no doubt in your mind that he wanted this tank to be underground.
AYes.”
It is clear from the position of the tank that the tank had to be underground otherwise the defendants could not obtain access to their garage.
The tank was to be erected immediately to the front of the house. As you look at the house the garage runs at a 90 degree angle from the left hand side of the house. The tank was to be immediately in front of that garage.
Unless the tank was erected underground cars could not have access to the garage. Moreover, if the tank was only partly underground a person walking out of the front door of the house would walk straight into the tank.

It is abundantly clear from the design of the house and the garage that the tank had to be wholly underground so that access was able to be had to the garage and access was able to be had from the garage to the house.
That the tank had to be underground was manifestly obvious to Mr Jarred, a concrete fixer, who fixed the formwork and attended for the pour.
In cross-examination he was asked:
“Q.... You were aware from the very first time you were attended on site that this tank was adjacent to the house and a three door garage, that’s correct.
AIt depends what you call adjacent. Is adjacent 2 metres, 10 metres. It’s in the vicinity.
Q...... It was near the house and the garage.
AIt is in the vicinity of it but near is - in the general area.
Q...... It was in front of the three door garage, wasn’t it.
AIt was in front of the garage.
Q...... In fact, if you were driving a vehicle, to get into the garage you would have to go over the tank, wouldn’t you.
AI guess eventually you would because it was put right in the middle of the drive, or right where the driveway was going to be.
Q...... That’s right. There was not trick about this. You would have to drive over the tank to get to the garage.
AThat is why it was specified with that sort of reinforcement etc. with engineers, so it could be driven over, so that would be correct. That is why it was like that.
Q...... It would also follow that you knew, therefore, that it had to be an underground tank.
AI presume. You wouldn’t put it on top of the grounds. I would presume it would be underground.
Q...... Absolutely, because of its location in respect to the house and the garage.
AThat’s right.
Q...... That would be obvious to anyone, wouldn’t it.
AYou would hope so, yes.”
In my opinion, it was an express term of the contract that the tank was erected underground.
I am fortified in that conclusion by the plaintiff’s own pleading in the defence to counterclaim. The plaintiff has pleaded that:
“The plaintiff and the defendants entered into a contract relating to construction of a 30,000 underground water tank.”
The plaintiff has also pleaded in the defence to counterclaim that it has erected a water tank in conformity with the terms of the contract.
In my opinion, the plaintiff could only erect the tank in conformity with the terms of the contract if it erected an underground water tank.
In fact the tank which was erected protruded some six inches above ground level.
In my opinion, in erecting a tank which protruded that far above ground level the plaintiff was in breach of its contractual obligation to the defendants.
Of course the plaintiff had no obligation to prepare the site itself. It would have been quite entitled when it directed the formwork and made whatever observations or tests were necessary to ensure the tank was underground to call upon the defendants to put the site in order so that the tank could be erected underground. It did not have any obligation to put the site in order itself.
However, the plaintiff was in breach in failing to ensure when the formwork had been erected that the tank would be underground as specified and as expressly agreed.
As a result thereof the plaintiff became liable to the defendants in damages for its breach of contract.
The defendants also relied upon s 32 of the Building Work Contractors Act 1995. Section 32(2) provides:
“The following warranties on the part of a building work contract are implied in every domestic work contract:
(a)a warranty that the building work will be performed in a proper manner to accept its trade standards and in accordance with the plans and specifications agreed to by the parties;
(b) ...
(c)...
(d)...
(e)...
(f)if the building owner has expressly made known to the contractor, or an employee or agent of the contractor, the particular purpose for which the building work is required, or the result that the building owner desires the building work to achieve, so as to show that the building owner relies on the contractor’s skill and judgment - a warranty that the building work and any materials used in performing the building work will be reasonably fit for that purpose or of such a nature and quality that they might reasonably be expected to achieve that result.”
I think this is a domestic building work contract and the work carried out was domestic building work within the meaning of the definitions in the dictionary section of the Act.
However, I do not think that the defendants needs to rely upon s 32 to succeed upon its counterclaim because, as I have already found, it was an express term of the contract that the tank is underground.
It follows from what I have said that the defendants must be entitled to succeed on the counterclaim. If, however, the defendants are put in the position that they ought to have been if the terms of the contract had been complied with then the plaintiff would be entitled to succeed on the claim. If the defendants are compensated for the rectification work made necessary by the plaintiff’s breach then the defendants will have attained that which they bargained for and the plaintiff should be paid for the construction and erection of the tank.
The defendants were under an obligation, of course, to minimise their losses. The defendants’ damages could have been assessed in a number of different ways. First they could have been assessed by reference to the diminution in value of the property by reason of the inability to have access to the garages and by reference to the inconvenience associated with the tank on that site and in that position.
In my opinion, it would have been unreasonable for the defendants to claim that they were entitled to damages assessed on that basis. In my opinion, it was reasonable for the defendants to carry out rectification work so as to reduce the height of the tank by the extent of the protrusion so as to allow access to and from the house and the garage.
If that was a reasonable exercise the defendants’ damages would then be assessed by reference to the cost of the rectification work together with the diminution in value, if any, occasioned by having a smaller tank because of the rectification work. As it happened the defendants did not seek damages in respect of the diminution in value of the property but only in respect of the rectification work.
The first matter to be addressed, however, is whether or not the defendants were reasonable in carrying out the rectification work they did.
It was argued by the plaintiff that it was unreasonable for the defendants to carry out the work for which they claim.
There was considerable dispute at trial as to whether it was necessary to carry out the work which was carried out by the defendants or whether the work could have been done in a less costly manner.
I am satisfied, as was the Magistrate, that the method of rectification adopted by the defendants was the appropriate course and that the defendants actions in responding to the breach by the plaintiff were reasonable.
I would also reject suggestions made by the plaintiff that the rectification work could have been carried out by using a system of acroprops and hydraulic hoists.
The learned Magistrate found such a proposal would not have been a solution at all and that if the work had been carried out as suggested that there was a real possibility that the costs would have been substantially more.
I see no reason to differ from the decision of the learned Magistrate in regard to his assessment of damages.
It follows therefore that the defendants were entitled for damages in the sum of $14,621 and on payment of that sum the plaintiff would be entitled to judgment for $11,700 being the agreed contract sum for the construction and erection of the tank.
The plaintiff should have judgment on the claim for $11,700.
The defendants should have judgment on the counterclaim for $14,621.
That leaves the third party proceedings. The plaintiff elected not to sue the third party and the defendants elected only to seek indemnity. The plaintiff, of course, is not entitled to any judgment against a third party because there are no issues between the plaintiff and the third party. The defendants are not entitled to indemnity because I have found that the defendants’ obligation to the plaintiff is contractual.
The third party therefore, even though he was the party at fault, is, because of the procedure adopted by both the plaintiff and the defendants, entitled to escape any judgment.
There should be an order that the defendants’ action against the third party should be dismissed with costs.
That leaves the question of the costs between the plaintiff and the defendants.
The order for costs is, in my view, like the contribution orders, idiosyncratic. Those orders for costs should be set aside consequent upon the rejection of the learned Magistrate’s reasoning in relation to the matter of liability.
It falls to me to determine the appropriate order for costs of the trial.
As the real issue in the case was whether or not the plaintiff had any obligation to meet the costs of rectification of the tank, in my opinion, justice would be served by allowing the defendants 80 per cent of their costs on the counterclaim and making no order for costs on the claim.
There will be the following orders:
1      Judgment for the plaintiff against the defendants for $11,700.
2...... Judgment for the defendants against the plaintiff on the counterclaim for $14,621.
3      No order for costs on the claim.
4...... The plaintiff to pay 80 per cent of the defendants’ costs of the counterclaim.
5...... The defendants’ third party proceedings against the third party dismissed with no order as to costs.

[2000] SASC 442

21 December 2000