Roluke Pty Ltd v Lamaro Consultants Pty Ltd

[2007] NSWSC 349

CITATION:	Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor [2007] NSWSC 349 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	07.11.05, 08.11.05, 09.11.05, 10.11.05, 11.11.05, 11.04.06, 12.04.06, 18.05.06, 30.10.06, 31.10.06, 01.11.06, 02.11.06
JUDGMENT DATE :	17 April 2007
JUDGMENT OF:	Nicholas J
DECISION:	para 106
CATCHWORDS:	Building - contract for engineering design - negligent performance - defective design - whether contract to produce a result or for provision of professional services - application of Bellgrove v Eldridge (1954) 90 CLR 613 - measure of damages - turns on own facts
LEGISLATION CITED:	Fair Trading Act 1983 Trade Practices Act 1974 (Cth), s 51A, s 52
CASES CITED:	Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513 Bellgrove v Eldridge (1954) 90 CLR 613 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Davidson v J S Gilbert Fabrications Pty Ltd [1986] 1 Qd R 1 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 W Jeffreys Holdings Pty Ltd v Appleyard & Associates (BC 9002747); (1990) 10 BCL 298 Payton v Brooks [1974] 1 Lloyd’s Rep. 241 Proprietors Units Plan & Ors v Jiniess Pty Ltd & Ors [2000] NTSC 89
PARTIES:	Roluke Pty Ltd - first plantiff Scotts Motors Artarmon Pty Ltd - second plaintiff Lamaro Consultants Pty Ltd - first defendant Anthony Vincent Lamaro - second defendant
FILE NUMBER(S):	SC 55020/03
COUNSEL:	J S Drummond – plaintiffs D M Loewenstein - defendants
SOLICITORS:	Booth & Boorman - plaintiffs Curwood & Partners - defendants

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

Nicholas J

17 April 2007

55020/03 Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor

JUDGMENT

1 His Honour: In these proceedings the plaintiffs, Roluke Pty Ltd (Roluke) and Scotts Motors Artarmon Pty Ltd (Scotts), sue the defendants, Lamaro Consultants Pty Ltd and Anthony Vincent Lamaro (who, where appropriate, are collectively referred to as Mr Lamaro), in contract and tort alleging breach of duty of care to exercise reasonable skill and diligence as consulting structural engineers. They also claim the defendants made misleading representations as to their knowledge, skill and experience to provide the required engineering designs, plans and specifications in breach of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1983, alternatively, that they negligently misrepresented that they were suitably qualified and skilled to do so.

Background

2 Since 1994 Scotts has carried on the business known as Hornsby Honda at no. 154 Pacific Highway, Hornsby. It sells new and second hand Honda motor vehicles.

3 In 1997 Roluke purchased the land at no. 156 Pacific Highway, Hornsby, for the purpose of building a motor vehicle service centre for Hornsby Honda to service new vehicles sold, and second hand vehicles acquired as trade-ins.

4 In February 1998 Roluke retained Mr Ian Ezzy of Ian and Nola Ezzy Pty Ltd, architects, to prepare architectural plans for the building. It designed a building of 3 levels. Level 1 contained a car washing and detailing area. Level 2 consisted of a 12 bay motor service centre. Level 3 was designed as a car park to service levels 1 and 2 in addition to the car saleyard at no. 154 Pacific Highway, Hornsby. Each level of the building was connected by a circular driveway to enable the movement of vehicles to and from level 1, the service centre, and level 3. Level 3 was designed without a roof and was thereby exposed to the weather. It was designed by Mr Ezzy to act as an on site water detention system (OSD).

The relevant development application was lodged with Hornsby Shire Council on 25 June 1998.

5 In June 1998 Roluke engaged Mr Sherrard of Julius Poole & Gibson Pty Ltd to act as the consulting structural engineer for the preparation of engineering plans and specifications for the construction of the building to be lodged with the council.

6 Mr Wal Musgrove, trading as Wal Musgrove Constructions, was retained by Roluke to construct the building in accordance with the engineering plans prepared by Mr Sherrard and approved by the council.

7 On 7 September 1998 Mr Ezzy provided to Roluke architectural drawings in support of the building application, and the specification dated September 1998. The specification includes part 7 which provides for roofing. Clause 5 thereof is as follows:

“5. BUILT-UP ROOFING
All concrete roofs to have falls in structural slab, patent built up roof membrane and stamped concrete topping slab with integral colour”.

8 By 14 September 1998 Mr Michael Frost of Michael Frost & Associates Pty Ltd, hydraulic engineers, had prepared drawings no. H00-H04 in support of the building application. Drawing HO4 provided for level 3 to incorporate an OSD with a volume of 20.812 cubic metres. Level 3 was designed to drain to a central pit from which the accumulated water would be transported to the council’s storm water system through pits and pipes. Drawing HO4 identified a topping slab to be placed on the slab for level 3 which was to have a maximum thickness of 130 mm at the perimeter. The hydraulic plans had been prepared by Mr Frost in accordance with Mr Ezzy’s specification so that the slab to be constructed as level 3 would act as an OSD and be overlayed with a polyurethane membrane and a concrete topping slab.

The function of the topping slab was to protect the membrane from damage from the movement of vehicles, and for that purpose it required a thickness of up to 100 mm with sufficient reinforcing to withstand the weight and forces applied by vehicles travelling over its surface.

9 At all material times the second defendant, Anthony Vincent Lamaro, was a director and the principal officer of the first defendant, Lamaro Consultants Pty Ltd, which carried on the business of consulting structural and civil engineers.

10 On 26 September 1998 the council issued its consent to the development application. Condition 22.1 of the consent required an OSD to be constructed as part of the drainage system.

11 On 29 October 1998 Mr Paul Scharrer, a director and principal of Roluke and Scotts, attended a meeting at the site with Mr Musgrove and Mr Lamaro. During the meeting Mr Lamaro was provided with the architectural plans prepared by Mr Ezzy and engineering plans prepared by Mr Sherrard. Mr Lamaro accepted that during the meeting he became aware that Mr Ezzy had specified a membrane and topping slab in the specification and that he was being asked to design a building to reflect that specification. At about this time Mr Sherrard’s engagement was terminated and the engagement of Mr Lamaro to complete the engineering designs was recommended by Mr Ezzy.

12 By letter of 29 October 1998 Mr Lamaro submitted to Scotts a quotation for fees and a description of engineering design services to be provided. Relevantly, it included the following:

“SCOPE OF ENGINEERING DESIGN SERVICES
* Design and Draw the following, as shown on preliminary Architects drawing:
…
* Design of columns as shown on Architects Drawing

* Design of lowest level car parking slab on ground, plus driveway ramp

* Design of upper level workshop slabs and beams, and circular ramp

* Design of level 2 mezzanine slabs and beams

* Design of Ground Floor slab and beams, including all set down areas, etc.
…
* We will liaise with yourself and your Architect, during the design and construction stage

* We will provide the Architect with Structural Information eg. Column Sizes, and locations, slab thicknesses and set downs, beams, etc sufficient to produce the working drawing on time.
…
DESIGN FEES

To carrying out structural design and drawings of the works noted above, so that builders may price and construct the works
Our fee will be …………………………………………$6,600.00

VARIATIONS

Any additional design work not shown on the drawing on which the above fee is based, and any revisions to engineering details already designed, or drawn and made necessary by later changes to the Architects drawings, will be charged out at the Minimum Time Charge Rate, less 10%
SITE INSPECTIONS FEES DURING CONSTRUCTION
Site inspections and Meetings will be carried out as requested by either yourself, the architect, or the builder, during the construction of the above works.
To carrying out site inspections, etc, of the above works, our fees will be:
Consultants time ………………………………..$280.00 per visit.
These fees allow time away from the office, including travelling.”

13 On 2 November 1998 Mr Lamaro agreed to change the fee to $250.00 per visit, and Mr Scharrer accepted the proposal. On the same day there was a site meeting attended by Messrs Lamaro, Ezzy, and Musgrove. Mr Ezzy’s note of that meeting records that Mr Lamaro had been provided with the geotech report, previous engineering details, and architectural plans.

14 By 10 November 1998 Mr Lamaro had prepared plans for fittings, retaining walls and the level 1 basement slab.

15 By 22 December 1998 Mr Lamaro had prepared a number of drawings. These included plan 7 which contained design details for the mezzanine on level 2, and plans 8, 9, and 10 which contained design details for the level 3 slab, reinforcement, and beams. The design for the level 3 slab in plan 8 did not provide for the incorporation of a topping slab.

16 On 5 March 1999 Mr Lamaro received amended architectural plans from Mr Ezzy. On the same day Mr Lamaro wrote to Scotts advising of the need for new engineering designs and additional design fees estimated to be $6,000.00 resulting from the architect’s changes. The letter advised of the need to redesign all internal beams, slabs, columns and footings. In particular it advised that drawings 4, 5 and 6 relating to level 2, and drawings 8, 9 and 10 relating to level 3 were required to be totally redesigned and redrawn. The letter included the following:

“I believe that by varying the design so that there are only longitudinal beams and no transverse beams, at the 2 main floors, i.e. Level 2 and Level 3, I believe that cost savings well in excess of the above extra design fee can be achieved, in formwork, concrete, & reinforcements, as well as time.”

Mr Lamaro’s proposal was accepted by Mr Scharrer.

17 On 8 March 1999 Mr Frost sent to Mr Lamaro amended hydraulic services drawings H00-H04. Drawing H04 provided for level 3 to function as an OSD.

18 By 24 March 1999 Mr Lamaro had redesigned structural drawings so as to accommodate the amendments to the architectural and hydraulic services plans. These included plans 4A-10A for the slabs for levels 2 and 3.

19 Construction took place during 1999. The building was completed and occupied by late January 2000.

20 By May 2000 cracks appeared in the level 2 and 3 slabs. These extended in an east west direction across, and permitted the penetration of rainwater through, each slab. Accumulation of water on level 2 resulted in risk of injury to the plaintiffs’ employees working in the service centre due to the floor becoming slippery, and to exposure to electrocution through use of electric power tools. Vehicles located on level 1 suffered damage to paintwork from water which contained impurities (e.g. lime) collected as it passed through the level 2 and 3 slabs.

21 In May 2001 Roluke installed a waterproof membrane on level 3 at a cost of $52,152.00. It subsequently failed, and water recommenced to penetrate the slab.

22 In October 2003 Roluke caused the cracks to be repaired and installed a more durable membrane on level 3 at a cost of $103,943.40. Shortly thereafter it failed, and water again penetrated the level 3 slab and entered the service centre below.

23 Mr Lamaro conceded that, on the evidence, his designs of the level 2 and level 3 slabs were defective. He accepted that the amount of reinforcement detailed in the drawings for these slabs was less than that required under the relevant standard, Australian Standard 3600-1994 (concrete construction), with the result that cracking occurred through which water penetrated to level 1 of the building. It was common ground that the design for the level 3 slab did not allow for the incorporation of a membrane and a topping slab. Mr Lamaro conceded that, in failing to provide a suitable design for a waterproof slab, the defendants were in breach of the agreement and in breach of their duty of care to the plaintiffs.

The 25 November 1998 issue

24 Before proceeding further it is necessary to determine an important preliminary issue, namely whether a meeting took place on or about 25 November 1998 at the office of Mr Ezzy in Hornsby, attended by Messrs Lamaro, Ezzy, Musgrove and Frost and Mr David Law, who was an employee of Mr Ezzy. The plaintiffs alleged that there was such a meeting during which Mr Lamaro made representations to the effect that he was suitably qualified and skilled to design the level 3 slab to be waterproof without a membrane and topping slab, and that a slab so designed would be suitable as the roof slab for the building.

25 Mr Lamaro denies his presence at any such meeting and that he made the representations alleged.

26 To decide the question it is necessary to review the evidence. I turn first to that relied upon by the plaintiffs.

27 Mr Ezzy’s evidence was that he had practised as an architect for about 40 years. He said that on or about 25 November 1998 he called the meeting to expedite the final structural designs so that structural engineering details could be submitted to the council for approval. He said that he had known Mr Lamaro for over 20 years on various projects. He said that the meeting went on for about an hour during which the following was said:

“Ezzy As you know the purpose of this meeting is mainly to get structural details for council approval, unless we have them we cannot legally go ahead. We have already got a Stop Work Order. The reason that Michael Frost is here is because the roof slab has been designed by him as a detention basin, and it will have to be certified at completion of the job. Vince is here because he needs to give us structural details so the Council can approve them and the job can progress.
We need to discuss the final design of the roof slab. It has to have various functions, which include the parking of cars, traffic and pedestrians and vehicles, detention of the storm water and the enclosing of the workshop below. I have designed it to have a waterproof membrane with a topping slab.
Lamaro There are various structural engineering solutions such as flat slab, conventional slab, and post and pre tension slabs.
I can design an extra thick slab that will adequately meet all these functions including waterproofing and we will need not a topping slab or membrane. I think that is the best way to proceed.
Frost That would be unusual in my experience but it is up to Vince.
Ezzy Can you produce the drawings as soon as possible so that I can submit them to Council.
Lamaro Yes.”

28 Mr Ezzy identified an entry in his diary for 2pm 25 November 1998, in his handwriting, which read: “Honda – Lamaro/David/MF/WLM”. He explained that “David” referred to Mr Law, “MF” to Mr Frost, and “WLM” to Mr Musgrove. His recollection of the date of the meeting was based upon this entry. In cross-examination he accepted that, having regard to Mr Lamaro’s statement that he was on the Gold Coast from 21 to 30 November 1998, it was possible that Mr Lamaro did not attend the meeting in that period. However, he was adamant that the conversation took place, and his recollection was that he spoke only to Mr Lamaro about structural engineering topics.

29 Mr Law’s evidence was that he attended the meeting described by Mr Ezzy. He said that engineering aspects of the project were discussed, and that in relation to the waterproofing of the level 3 slab Mr Lamaro said the following:

“I have concerns that a membrane would be broken down by traffic on the slab. Alternatively I can design a thicker slab. In my opinion the best way to waterproof the roof slab is to make it thick enough so that water penetration cannot occur. With a thicker slab you don’t need a membrane.”

Although he was uncertain of the precise date, he had no doubt about what Mr Lamaro said at the meeting.

30 Mr Musgrove’s evidence was that he was at a meeting in Mr Ezzy’s office at the end of November 1998, attended by Messrs Lamaro, Ezzy, Law and Frost at which options were discussed for the waterproofing of the top slab. There was a conversation to the following effect:

“Lamaro There are three options. One, a waterproof membrane; two, pre-stressed concrete and three, we can use a thicker slab. I have achieved waterproofing by using an appropriately thick slab on other projects and I can tell you that it works. That is a better method than using the membrane.
Musgrove What about the membrane if it is in the specifications.
Lamaro This is a roof slab. On a hot day cars may damage the membrane so the thicker slab is the better option. In concrete terms, we increase the strength of the concrete and the thickness of the slab, this will give us a waterproof slab.”

He is married to Mr Lamaro’s niece, and maintains a family association with him.

31 Mr Frost’s evidence was that he attended the meeting as described by Mr Ezzy. He agreed with the accounts given by Messrs Ezzy and Law. He added that Mr Lamaro said the following:

“In concrete terms, we increase the strength of the concrete and thicken the slab, this will give us a waterproof slab.”

He recalled that the architect stated that the documents were to be completed by the end of the following week. He said he made notes during the meeting. The notes were in evidence, and included a sketched diagram of the roof slab which indicated a thickness of 350 mm, and a control pit. In cross-examination he accepted the possibility that he might be mistaken as to the identity of the person who spoke the words he attributed to Mr Lamaro.

32 The plaintiffs relied upon Mr Lamaro’s progress claim of 9 April 1999 for site inspections signed by the second defendant (Ex U). It included an item for a site meeting on 25 November 1998 for which a fee of $250.00 was charged, in accordance with the agreement.

33 They also relied upon a handwritten note produced on discovery by Mr Lamaro (Ex J). They submitted that it was a note of the meeting of which Mr Lamaro was the author. On the first page are recorded the names of those present, namely Messrs Ezzy, Law, Frost and Musgrove, but not the author. It includes the following entries:

“do dwgs finish by end of next week (i.e. by Fri 4th Dec).”

and

“20.812 cm metric retention after major storm goes in abt 15m.”

34 There also appears a sketch of the roof showing a maximum fall of 130 mm from the perimeter to the central grate, near which are the words “allow 75mm topping L”.

35 On the second page are three cross-sectional diagrams. The first identifies a slab having thickness of 250 mm at the centre and 400 mm at the perimeter. The second identifies a slab incorporating a central grate in the beam. Above the second diagram are the words “no topping”. The third diagram indicates a roof slab with a constant thickness of 250 mm. Figures indicate the thickness of the slabs at different points.

36 It was submitted that the note is consistent with the plaintiffs’ version of the matters discussed at the meeting, particularly the suggestion that the level 3 slab could be made waterproof by thickening. Further, Mr Frost said (T p 177) that one of the diagrams on the second page was almost a replica of a sketch he had made in his notes.

37 The plaintiffs also rely upon the design details of the level 3 slab in plan 8 made 22 December 1998 and in plan 8A made 24 March 1999, neither of which provided for incorporation of a membrane and topping slab. They submitted that these plans were consistent with the notes in Ex J and with the evidence that Mr Lamaro made statements at the meeting that it would be preferable to have a thick slab which would be waterproof without the need for a membrane and topping slab.

38 Mr Lamaro denied that the meeting ever occurred and that he made the statements attributed to him. He said that from 21-30 November 1998 he was holidaying on the Gold Coast. In support, he relied upon a Diners Club account dated 22 December 1998 which evidenced payment of an airfare for travel to Coolangatta on 21 November 1998. He also relied on his diary for the period 21 November – 2 December 1998 which was blank except for appointments entered for 2 December 1998, the day on which he said he returned to work. He also relied on a Telstra mobile phone account which showed that calls were made on a phone from the Gold Coast between 21-30 November 1998. He was not cross-examined on these documents. He also denied that he was the author of Ex J.

39 Under cross-examination he stated that any major decision as to the structural designs would be made by him, and that there was no one authorised to speak on his behalf. He accepted that, had there been a meeting between late November and early December 1998 at which an engineer was present, he was the only person for the first defendant who could have attended. His explanation for the evidence given by the plaintiffs’ witnesses was that it was the product of collusion, and that each was lying rather than mistaken (T p 261).

40 The plaintiffs submitted that Mr Lamaro’s denial of the meeting should be rejected. They submitted that on this and other issues his evidence was implausible. Evaluation of Mr Lamaro as a witness requires consideration of the following:

41 Initially, Mr Lamaro firmly asserted that he designed level 3 to allow for the incorporation of a membrane and topping slab, but not as an OSD. He said he was not informed that the roof was to be an OSD. However, when taken to the documents, he accepted that by about 8 November 1998 he had Mr Frost’s hydraulic plans H00-H04 of which plan H04 clearly depicted level 3 as an OSD with capacity of 20.812 cubic metres, and then asserted that he did not understand what the entry “OSD on roof” meant, but made no enquiries to find out.

42 He was also taken to his letter to Scotts of 2 March 2003 which included the following:

“In order to foresta (sic) any legal proceedings against the company, I will now outline the real reasons why these problems have occurred.
…
3. As this roof was to act as both a detention tank, and also a car parking area, without a membrane, the use of expansion and construction joints in the slabs and beams could not be considered, as the problems of preventing water entry through the joints over a long period of time were insolvable.
…
The decisions involving items 1, 2 & 3 above were made by yourself, and your other consultants, some time before I became involved in the project, and I had no input in the decisions noted above.”

After some prevarication (T pp 254-255) he accepted that he was referring to the proposal as it was in 1998 and 1999. I find these statements to be inconsistent with his evidence, which I reject, that he was unaware that the roof was to be an OSD.

43 Mr Lamaro also gave evidence about plans 8 and 8A. Initially he stated (T p 228), without qualification, that these designs allowed for the installation of a membrane and topping slab on level 3, and he proceeded on the assumption that there would be such a membrane and topping slab. However, analysis of the plans demonstrated that this evidence was contrary to the fact and untenable. His counsel acknowledged as much during submissions. In fact, the design provided for a 250 mm slab with the top of the topping slab being flush with the grate in order to provide a finished level at RL193.600 at the grate and RL193.730 at the perimeter. No allowance was made for a 75 mm topping slab to go on top of the slab and a membrane. As was pointed out in cross-examination, if in truth he intended to provide for a membrane and topping slab, his error lay in specifying a level for the slab which was the same as the finished level specified in the architects’ plans, whereas he should have specified a level for the level 3 slab which was sufficiently lower than the finished level to enable incorporation of a topping slab. In an attempt to defend that which I find to have been an indefensible position, Mr Lamaro said that the error was attributable to a mistake in both plans by the draftsman which he failed to detect. Adherence to his position was also inconsistent with the statements in the letter of 2 March 2003 to which I have referred. In my opinion his evidence on these matters was quite implausible and should be rejected.

44 With regard to these matters I found Mr Lamaro to be an unconvincing witness, and that his answers were given in attempts to avoid harming his case which generated grave doubt in my mind as to the truthfulness of his evidence where it was in conflict with evidence against his interests.

45 With regard to the whole of the evidence on the issue of the meeting, I hold that the plaintiffs’ version should be accepted in preference to Mr Lamaro’s assertion that he attended no such meeting. I find that Messrs Ezzy, Law, Frost and Musgrove were each truthful witnesses, whose evidence was not shaken in cross-examination. There was no rational basis for Mr Lamaro’s assertion that they lied, or that any part of their evidence should be rejected. I also find that it is probable that Mr Lamaro was the author of the notes, Ex J. Support for these findings is derived from the following:

46 Plans 8 and 8A indicate that Mr Lamaro intended to design the level 3 slab without a membrane and topping slab, which is consistent with the statements he made at the meeting, and with entries in Ex J, particularly those relating to the diagrams on the second page thereof.

47 Absent explanation otherwise, strong indicators that Ex J is Mr Lamaro’s document are that it was produced by the defendants on discovery, and records the names of all present except himself, and that he said he was the only person who would be involved in matters concerning structural design for the building. The entry that drawings were to be finished by the end of next week, Friday 4 December, is consistent with Mr Ezzy’s evidence that Mr Lamaro agreed with his request to produce the drawings as soon as possible for submission to council, and with his diary entry of a meeting scheduled for 2pm 25 November 1998. Mr Frost corroborated Mr Ezzy’s request for completion of the documents by the end of the following week. Mr Frost also said that one of the diagrams in Ex J was almost a replica of a sketch he made in his notes at the time. The entry “20.812 cm retention ….” is, I find, directly referable to information in plan HO4 which Mr Lamaro had received on about 8 November 1998.

48 Mr Lamaro’s progress claim of 9 April 1999 (Ex U) included an item for a site meeting on 25 November 1998. He signed it. His evidence that he was the only person involved with structural design work suggests that it was unlikely that someone else attended the meeting in his place.

49 Although it may be accepted that the documents relied upon by Mr Lamaro (para 39 above) corroborate his assertion that he was on the Gold Coast from 21-30 November 1998, in my opinion they provide no basis for a finding that the meeting did not take place at all.

50 Having regard to the whole of the evidence I find that the meeting took place as described by Messrs Ezzy, Law, Frost and Musgrove, and that Mr Lamaro made the statements which they have attributed to him. I also find that it was held in late November or early December 1998, and, very probably, on or about 25 November 1998.

51 It follows, and I find, that the probable explanation for the design in plans 8 and 8A was Mr Lamaro’s intention to give effect to the suggestion he made at the meeting that he could design a thicker slab which would be waterproof without a membrane and topping slab, and not that the design was attributable to the draftsman’s mistake.

The defective design

52 Plans 8 and 8A were provided as designs for the level 3 slab to be waterproof without a membrane and topping slab. The building was constructed according to the later plan, plan 8A, provided on 24 March 1999. As earlier mentioned (para 23) it was common ground that the failure of the level 2 and level 3 slabs to be waterproof was the result of defective design.

53 Mr David Smee, the engineering expert for the defendants, and Mr Howard Bersten, the engineering expert for the plaintiffs, were of the view that a slab could be properly designed to be waterproof without the incorporation of a membrane and topping slab. They considered that a properly designed slab would be one which included adequate F72 reinforcement in accordance with AS3600-1994, was subject to minimal restraint by columns and walls, was post-stressed, and contained an appropriate water proofing additive. Their view was that the designs in this case were defective because they did not provide for these features.

54 They agreed that by reason of the designs provided by Mr Lamaro, the slabs failed because:

(i) they contained significantly less F72 reinforcement than required by AS3600-1994;

(ii) the difference between the dimension of the beams and the dimension of the slabs was so great as to result in differential shrinkage which contributed to cracking;

(iii) they were restrained by columns and perimeter walls;

(iv) they were not post-stressed;

(v) they contained no concrete additive such as the product known as “Xypex” which would assist in waterproofing them.

55 The plaintiffs sued the defendants on a number of separate counts. Against the first defendant, in general terms, they alleged breach of contract on the basis that it would exercise reasonable skill, care and diligence in the provision of advice and the design of engineering plans and specifications for the construction of the building, and, similarly, in negligence. They sued the second defendant in negligence. They also claimed against both defendants that in representing that the first defendant was suitably qualified and possessed the requisite knowledge, skill and experience to perform the design work they were guilty of misleading and deceptive conduct under ss 51A and 52 Trade Practices Act 1974 (Cth), alternatively they made a negligent misrepresentation to the same effect.

56 Mr Lamaro conceded that in failing to provide for sufficient reinforcement in the slabs, and in failing to provide for the incorporation of a membrane and topping slab on level 3, the defendants were in breach of their contractual and tortious duty of care to the plaintiffs. In any event, the evidence provides ample support for the findings, which I make, that the defective condition of the level 2 and level 3 slabs was due to faulty design, and this was due to the failure of Mr Lamaro to exercise due skill and care in the performance of the contract, and to negligence in performance of the design work as identified by Mr Smee and Mr Bersten.

57 The concessions of the defendants made it unnecessary to determine the plaintiffs’ claims based on the alternative counts of misleading and/or negligent representations.

Damages

58 The real issue in these proceedings concerns the computation of damages. The plaintiffs contended that the contract with the first defendant was one to produce a result, namely to provide drawings for the construction of a waterproof building without a membrane and topping slab. They contended that upon the application of the principles in Bellgrove v Eldridge (1954) 90 CLR 613 the appropriate measure of damages is the cost of providing them with a building which substantially conforms to the contract. Accordingly, they claim the costs of construction of a steel roof over level 3 which would provide them with a waterproof structure for the life of the building which does not require the incorporation or maintenance of a membrane or topping slab. On this basis, the claim, including amounts for past and future repairs to the slabs and membrane, for business interruption, and for diminution in value of the building is for a sum of about $2.3 million.

59 On the other hand, the defendants contended that the contract was for the provision of professional services which required the design of slabs which were waterproof so that the measure of damages should be of such amount as would put the plaintiffs in the same position as they would have been if they had not sustained the injury for which damages are claimed (Bellgrove p 616). On this basis, they contended that the plaintiffs are entitled to the costs of installation of a membrane over the level 3 slab, and to amounts in respect of past and future repairs to the slabs, and for business interruption, in a sum of about $539,000.00.

60 In Auburn Municipal Council v ARC Engineering Pty Ltd [1973] 1 NSWLR 513 Hutley, JA emphasised the importance of the distinction between a contract to produce a result and a contract to exercise due skill and diligence in the performance of work for the purpose of identifying the proper measure of damages for breach. He said (p 531):

“…. It is in the character of the contract that was made that the proper measure of damages for the breach of contract has to be found, and the contract to exercise proper professional skill in designing a structure is radically different from a contract to achieve a result. It is of the very nature of contracts of professional employment that they are not contracts to achieve a result. The doctor does not promise that he will get a patient well. The lawyer does not promise that he will recover damages, and, similarly, the consultant engineer does not ordinarily promise that he will design a structure which will produce a result desired by the client. He may do so, but this is most unusual ...

…

The distinction between the two classes of case is touched on in McGregor on Damages , 13th ed., p. 24, par. 28, where the learned author after dealing with contracts directly affecting property, points out: “In the case of an ordinary service contract, however, there is no basic clear loss; perhaps most loss will be consequential”….

It is true that in many cases the measure of damages for failure to exercise professional skill can be reached by inquiring what are the costs involved in getting to the desired result. Thus, if the results of the careless failure to specify a beam of a certain strength can be rectified by the insertion of a replacement beam, those costs are the measure of damages in that it is in contemplation of the parties to the contract that the consequences of breach of contract will within reason be made good.

However, the fact that in a number of cases the same methods of proof may be resorted to does not mean that in the two cases there is an identical measure of damages. The two measures of damage diverge where it is necessary to destroy the structure erected and replace it by another structure. The designer cannot be called upon to do anything more than exercise his skill to produce a correct design and pay damages for the consequence of his neglect. He cannot be called upon to give the client the structure designed ….”

and (p 534):

“I do not consider that there should be imputed to the negligent professional man liability for the costs of carrying out or of obtaining professional services to carry out tasks which are of their very nature greater than was first conceived. To do this is to make a fundamental error, namely, to confuse a contract to produce a result with a contract to exercise skill with a view to producing a result.”


See also W Jeffreys Holdings Pty Ltd v Appleyard & Associates (9 February 1990, BC 9002747, p 12; (1990) 10 BCL 298, pp 301-302).

61 The question whether the contract in this case is one to produce a result or one to perform design work turns on the evidence of its terms. These are contained in the defendants’ letter to Scotts of 29 October 1998 and are set out in para 12 above.

62 The letter describes the scope of the engineering design services to be provided in accordance with the preliminary architect’s drawings (sic). Relevantly, it included the design of the slabs at levels 2 and 3, and the agreement to liaise with the plaintiffs and the architect during the design and construction stage, and to provide the architect with structural information for the production of the working drawings on time. Provision was made for any additional design work not shown on the architect’s drawing, and for necessary revisions to engineering details already designed or drawn. As is usual in contracts of this kind, it included an implied term that the defendants would provide advice from time to time in relation to the suitability of the engineering design and specification so as to ensure the proper and efficient construction of the building in accordance with the architectural drawings. Indeed this was the allegation pleaded in para 14(i) of the further amended statement of claim.

63 Mr Lamaro accepted that he was required to prepare structural designs for a roof slab with a membrane and topping slab in accordance with Mr Ezzy’s specification. Upon receiving hydraulic plans H00-H04 on 8 November 1998 he became aware that level 3 was to be designed to function as an OSD.

64 In my opinion it is plain that the contract was one for professional services which required Mr Lamaro to exercise due skill and diligence in performing structural design work which, initially, included the design of level 3 as a slab which was made waterproof by the incorporation of a membrane and topping slab. As I understood their submission, the plaintiffs accepted that, but for what took place at the meeting on 25 November 1998, the contract was one for the provision of professional services. They submitted that as a result of the changes to the architect’s design of the level 3 slab, which were discussed and agreed upon at the meeting, the contract became one under which Mr Lamaro was to produce a result i.e. the construction of a waterproof building without a membrane and topping slab. In my opinion the evidence does not support the submission and it should be rejected.

65 Mr Ezzy’s evidence was that he needed Mr Lamaro to give him structural details for approval by the council. He said to Mr Lamaro that they needed to discuss the final design of the roof slab, and explained its functions, and stated that he had designed it to have a waterproof membrane with a topping slab. Mr Lamaro’s response was as follows:

“There are various structural engineering solutions such as flat slab, conventional slab, and post and pre tension slabs.
I can design an extra thick slab that will adequately meet all these functions including waterproofing and we will need not a topping slab or membrane. I think that is the best way to proceed.”

Mr Ezzy then requested him to produce the drawings as soon as possible for submission to the council.

66 Mr Musgrove’s evidence was to the same effect. He said that Mr Lamaro proposed an appropriately thick slab as a better method of waterproofing than by using a membrane, and stated that by increasing the strength and thickness of the slab it would be waterproof. Mr Frost’s recollection was that Mr Lamaro stated that, as an alternative, the best way to waterproof the roof slab was to make it thick enough so that water penetration could not occur and a membrane would not be necessary.

67 In my opinion what this evidence shows is that Mr Lamaro recommended as an alternative to Mr Ezzy’s design a design for a waterproof roof slab which did not require a membrane, which recommendation Mr Ezzy accepted. The effect was that the method by which the roof slab was to be made waterproof was changed from one which included a membrane and topping slab to one which did not, and Mr Lamaro undertook to provide a design which reflected the change. Of course, no change was made to the function of the roof slab as the means by which the building was to be made waterproof. In my opinion the fact that Mr Lamaro advised that the design he proposed was preferable to Mr Ezzy’s design was entirely consistent with what was required of him under the contract.

68 The plaintiffs submitted that as Mr Ezzy was their agent his acceptance of Mr Lamaro’s recommendation constituted a variation of the specification which was part of their contract with Mr Lamaro. It was submitted that by this variation the contract became one to produce a building which was waterproof with a level 3 slab without a membrane and topping slab, thereby providing to the plaintiffs a building which did not require maintenance or replacement of a membrane or topping slab in the future.

69 I am unable to accept the plaintiffs’ argument. No variation was made to the specification. It was accepted that the obligation to design a roof slab in accordance with Pt 7, cl 5 of the specification was part of the contract for professional services rather than of a contract to produce a result i.e. a structure which was waterproof. Even assuming cl 7.5 of the specification was notionally varied by deletion of the requirement for a membrane and topping slab, I fail to understand how such a variation could operate to convert the contract into one to produce a result.

70 The measure of damages is to be assessed with regard to the principles applicable to loss resulting from breach of a contract for professional services i.e. that which “should be of such amount as will put an injured party in the same position as he would have been if he had not sustained the injury for which the damages are claimed” (Bellgrove p 616). As Cole, J pointed out in W Jeffreys Holdings Pty Ltd (p 12; p 302):

“Application of that principle will vary depending upon the circumstances. However, in every instance, a plaintiff must show that the loss suffered was causally connected to the breach of contract or tort established, and that, in the case of tort such loss was reasonably foreseeable, and in contract, was within the reasonable contemplation of the parties (See Alexander and Ors v Cambridge Credit Corporation Ltd and Anor (1987) 9 NSWLR 310 per McHugh JA at 349-351.)”

71 In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Deane, J said (p 116):

“The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant's wrongful conduct. The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (i.e the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act.”

72 As I understand the principles, in most cases covering professional negligence by engineers the measure of damages usually is the cost of making good the defective work (Auburn Municipal Council p 534).

73 On my findings, the reasonable contemplation of the parties was that the level 2 and level 3 slabs would be designed and built to be waterproof. It is not the case that the expectation was that the building be made waterproof by some other means such as a steel roof over level 3. The significance of Pt 7, cl 5 of the specification is that it established that, but for the alternative method accepted on 25 November 1998, the parties contemplated that the waterproofing of the building was to be by means of the level 3 slab with a patent membrane and topping slab with the limitations inherent in such a design, including the need for replacement and maintenance from time to time during the life of the building. When all the circumstances are taken into account, it is reasonable to assume the plaintiffs agreed for the building to be designed in accordance with, inter alia, Pt 7, cl 5 of the specification because they judged that it was in their commercial interests to do so. It is fair to conclude that the plaintiffs decided that level 3 built with a patent membrane and a concrete topping slab would provide an acceptable means of waterproofing the building to the extent required for the conduct of a motor vehicle service centre. In my opinion, the cost of the rectification work for which Mr Lamaro is liable is the cost of what is reasonable and necessary to give effect to the parties’ expectation to the extent that it is possible to do so.

74 As to what remedial work is both “necessary” and “reasonable” in any particular case is a question of fact (Bellgrove p 619). The plaintiffs did not submit that demolition and reconstruction of the building with a properly designed post-stressed slab is a reasonable method of remedying the defects. The question for determination is which of the roof or the level 3 slab with a membrane and topping slab is the reasonable remedy in the circumstances i.e. what is reasonable to be done to prevent the penetration of water through level 3 to the floors below?

75 In support of the roof option, the plaintiffs rely upon Mr Bersten’s evidence. He recommended a roof because it would provide the minimum, or least, risk solution to the problem of keeping water off the roof slab. His view was that the issue of the means of prevention of water penetration through the slab was a matter for the building owner to decide based on an assessment of what was an acceptable risk of the effect of water upon the operations on the levels below. He said (T p 119):

“On my view it would be the owner who would understand the detail of the operation undertaken and he would be the one who would make that assessment of what risk would be involved. It is possible that during the design process the type of operations may have been discussed and therefore presumably those would have been taken into account.”

76 Mr Bersten said that a roof would provide the best solution for the life of the building, whereas a membrane over a concrete slab would eventually fail and allow penetration. He also said (T p 138) that it is well accepted practice in dealing with a situation such as in this case to resort to a patent membrane to provide reasonable protection against water ingress.

77 Mr Smee’s view was that, in the circumstances, a steel roof was an extreme alternative, and “over the top”. He said that the cost of a new roof structure along with the resultant requirements for a separate detention tank is not necessary and would amount to a significant betterment. He recommended that the cracks in the slabs be repaired followed by the application of a single layer torch-on sheet membrane with an overlayed asphalt screed.

78 In my opinion Mr Smee’s recommendation should be preferred as it is consistent with the method originally contemplated and is reasonable. Consideration of the evidence of both Mr Bersten and Mr Smee leads me to the conclusion that the roof option is neither a necessary nor reasonable method of waterproofing the building.

79 It is appropriate now to deal with the defendants’ submission that the evidence of Mr Bersten in support of the roof option should be rejected on the ground that it was tainted by self-interest, and that he should not be accepted as an independent expert. The basis for the submission was that he had submitted, on behalf of his company, on about 21 November 2002 a tender (Ex 1) to the plaintiffs for the engineering contract for the roof. Mr Bersten was cross-examined on the issue with a view to demonstrating that his evidence was coloured by a desire to procure such a contract.

80 I do not accept the submission. My impression throughout the proceedings was that Mr Bersten’s evidence was given truthfully, independently of any actual or proposed relationship with the plaintiffs, and in accordance with his obligations as an expert witness. He made plain, and was tested on, the grounds upon which he recommended a roof as an alternative remedy. No connection was demonstrated between his recommendation and the tender which had been submitted some years earlier.

81 The joint report of 12 April 2006 (Ex Q) of Messrs Bersten and Smee identifies the appropriate membrane and screed system where no roof is to be constructed. It records their agreement that the appropriate technical solutions for providing a waterproof membrane system for the roof of the building is by way of (i) a 50 mm thick asphaltic concrete screed over a torch-on- membrane, together with (ii) a ramp transition as shown on TLB Engineer’s drawing 02118SK-R2.

82 The evidence supports the finding, which I make, that the reasonable remedy is as described in the joint report. Rectification in that way will provide a fair and reasonable solution which accords with that originally contemplated under the contract. A steel roof, although providing a minimum risk solution, would, in my opinion, be one which in the circumstances is neither necessary nor reasonable, and would be substantially different from that which Mr Lamaro agreed to design. The results of the careless failure to design slabs which were waterproof can be rectified by repairing the cracks and installing a membrane and asphalt screed over the level 3 slab. In the circumstances of this case it would not be reasonable to extend the defendants’ liability to include the costs of a task which was greater than, and different from, that which was first conceived.

83 The membrane appropriate for installation on level 3 is known as an “Emerclad” membrane. Mr Smee’s opinion was that level 3 would be made waterproof by the application of a single Emerclad membrane protected from vehicular movements by the installation of an asphalt screed with a thickness of 50 mm. The evidence establishes that, had the level 3 slab been built as originally contemplated with a patent membrane and a concrete topping slab, it would have been waterproof for about 10 years. After that time it is probable that the plaintiffs would have been put to costs of repair and replacement.

84 Mr Bersten and Mr Smee gave evidence to the effect that an Emercald membrane on a slab without defects would have a life expectancy of about 7 years after which it is likely that repair or replacement would be required. This time might be reduced to about 5 years in circumstances, as in this case, where the membrane was applied to a slab built without sufficient reinforcement to prevent movement. Mr Smee pointed out that competently repaired cracks would not contribute to such reduction.

85 In the circumstances of this case I am satisfied that the proposed membrane is likely to deteriorate after about 5 years by reason of the lack of sufficient reinforcement in the level 3 slab. It will then require replacement. However, according to Mr Bersten’s undisputed evidence, which I accept, the asphalt screed should have a life expectancy of about 10 years.

86 In this case it is not possible by way of an award of damages to provide a remedy which will give the plaintiffs a building exactly equivalent to that which was originally contemplated. The court’s assessment is to be made with regard to what the evidence indicates is reasonable and necessary, and which meets the interests of justice between the parties. Taking the evidence overall, it is, in my opinion, reasonable to include in the award an amount for the costs of installation of the Emerclad membrane and asphalt screed, and an amount for the costs of one replacement thereof. Support for the conclusion that allowance should be made for one replacement only is the evidence that the life expectancy of the specified membrane was about 10 years, and also Mr Smee’s evidence that after that time it is probable that the plaintiffs would have been put to the costs of repair and replacement. Allowance of one replacement which provides for sound membrane cover on level 3 for at least 10 years is, therefore, appropriate.

87 I turn now to the various heads of loss claimed by the plaintiffs.

Past damages

88 (a) Membrane repair and replacement costs

(May 2001; October 2003) agreed in the sum of $159,245.00

(b) Loss of profits from business interruption
from membrane repair and replacement (May 2001;
October 2003) agreed in the sum of $ 49,916.00
Total $209,161.00

(c) Interest on past damages agreed in the sum of $ 76,558.00
Total for past damages $285,719.00

Future damages

(a) Costs to repair cracks to level 2 and level 3 slabs

89 Costs of rectification include costs of repair of the cracks in the level 2 and level 3 slabs. The costs for level 2 were agreed in the sum of $17,383.00, as set out in Schedule D to the report of Messrs Plaister and Bersten of 23 October 2006 entitled “Conclave of Experts” report.

90 The length of cracking in the level 3 slab was disputed. The plaintiffs contended that the length was 230 lineal metres whereas Mr Lamaro contended it was 180 lineal metres. The plaintiffs relied upon Mr Bersten’s adoption of the measurements made by Mr David Plaister of the cracks in the level 3 slab on his inspection of the site on 21 July 2005. On this occasion he inspected the soffit of the level 3 slab by standing on the level 2 slab. He recorded the cracks observed on an architectural drawing, totalled the lineal metres and added a five per cent contingency which resulted in a total of 230 lineal metres.

91 Mr Lamaro relied upon the estimate of 172 lineal metres (plus five per cent contingency) referred to by Mr Bersten in his report of 7 May 2004. Mr Bersten’s observations of the cracks were through the membrane on the level 3 slab. His opinion was that Mr Plaister’s measurements were reasonable and more realistic than his, as Mr Plaister was able to see all the cracks whereas the membrane may have masked some. He pointed out that Mr Plaister’s observations were made over a year later than his, during which time there would have been further shrinkage which would have increased the length of the cracks.

92 On this evidence Mr Plaister’s estimate should be accepted. Accordingly, I find that the probable length of the cracks in the level 3 slab for repair is 230 lineal metres. The cost of the necessary work was agreed, and enables me to find that the reasonable cost for the repair of the cracks in the level 3 slab is the amount of $52,600.00.

93 Mr Smee’s evidence, which I accept, is that it would be sufficient to repair the cracks in each slab once only, and no repetition was justified. In his report of 10 October 2006 he said, and I accept, that properly repaired cracks will not require a repeat repair after 7 to 10 years, particularly where they are protected from sun, weather, and wear by a membrane and asphalt. He said that the crack repair is not required to be waterproof with the membrane over the top, but is intended to minimise the possibility of damage to the membrane.

(b) Cost of installation of Emerclad membrane and asphalt topping screed

94 The items of cost were specified in Schedule B to the “Conclave of Experts” report in the total sum of $248,449.00. By the end of the hearing Mr Lamaro had accepted all of the items as claimed by the plaintiffs, being Mr Bersten’s assessments, with the exception of item 3 for crack repairs to the level 3 slab for the sum of $52,600.00. I have accepted the plaintiffs’ claim for this amount (para 92 above). Accordingly, the total to be allowed for these costs is the sum of $248,449.00.

(c) Present value of costs for one replacement of Emerclad membrane

95 The items of costs were specified in Schedule C to the “Conclave of Experts” report in the total sum of $271,486.00. My understanding is that the various items as assessed by Mr Bersten, with the exception of item 3 for crack repairs to the level 3 slab, were agreed. Accepting Mr Smee’s evidence that it would be sufficient to repair the cracks once only, I reject this item for the sum of $52,600.00 for further repairs. The plaintiffs’ present claim for $271,486.00 under this head must be adjusted and recalculated accordingly. It is appropriate that the parties have the opportunity to agree on the figures.

(d) Business interruption

96 The plaintiffs’ claim for loss of profits due to the interruption of the business whilst repairs are carried out were based on the evidence of Mr Paul Hennessy, chartered accountant. His analyses and calculations are contained in his report of 14 May 2004 (Ex D). His evidence was not disputed, and I accept it. It establishes the basis for calculation of business loss is that the service centre ordinarily carries out 21.9 vehicle repair orders per day for 5 and one half days per week, from each of which is derived a gross profit of $277.00.

97 As earlier noted, the defendants accepted the claim for loss for past business interruption in the sum of $49,916.00. They also accepted the claim under this head of damages resulting from the repair of cracks to the level 2 slab in the sum of $46,536.00, and resulting from the repair of cracks to, and the membrane installation on, the level 3 slab in the sum of $82,214.00.

98 The claim under this head resulting from interruption due to the installation of one replacement membrane on level 3 requires further consideration. In order to avoid the risk of error, it is appropriate to give the parties the opportunity to agree upon the amounts with regard to the finding that no additional crack repairs will be required for the level 2 and level 3 slabs, and that it is reasonable to allow for only one replacement membrane to level 3.

Loss in value of building

99 The plaintiffs claimed the sum of $200,000.00 as the loss in the value of the building being the difference in value had it been constructed in accordance with the contract and its value once rectified. For the plaintiffs it was submitted (T p 627) that the value of the building with repairs effected would be diminished because of the knowledge that will be in the market place. It was put that because the cracks will never be repaired their presence will have an effect on the value of the building. The claim was based upon the unchallenged evidence of Mr Phillip Rennie, valuer, in his report of 23 July 2004 in which he valued the property as at January 2000 “without cracks and faults” at $3,650,000.00, and “assuming the satisfactory completion of the necessary repairs of the cracks and faults” at $3,450,000.00.

100 For Mr Lamaro it was submitted that the claim should be rejected on the basis that it was too remote. I understood this to mean that, in the circumstances, the plaintiffs would be fully compensated by an award for the costs of rectification and that any diminution in value attributable to the defects had not been proved.

101 The plaintiffs referred to the statements, although obiter, of their Lordships in Payton v Brooks [1974] 1 Lloyd’s Rep. 241 which, were referred to with approval in Davidson v J S Gilbert Fabrications Pty Ltd [1986] 1 Qd R 1 in the following passage from the judgment of McPherson, J (pp 5-7):

“ Payton v. Brooks [1974] 1 Lloyd's Rep. 241, which is the other decision referred to by McGregor, is less easily disposed of. It involved an appeal from the county court by a plaintiff who had claimed to recover not only the cost of repairs (described as "excellent") effected to his new vehicle in consequence of damage done to it by the defendant, but also what he asserted to be the consequential difference in its post-repair market value. He failed to recover that additional amount in the county court, and also in the Court of Appeal; but their Lordships' reasons, although acknowledged by Edmund Davies L.J. to be obiter on this point, clearly recognize that in an appropriate case damages for diminution in value, going beyond the cost of repair, may be recoverable. His Lordship said ([1974] 1 Lloyd's Rep. 241, 244):

"On principle, I fail to see how it could be otherwise where a plaintiff is able to prove that, despite his best efforts to mitigate the damage caused by the defendant's negligence, the value of his property as a saleable asset has been reduced."

Buckley L.J. agreed that loss of market value consequential upon damage might" notwithstanding that excellent repairs have been carried out" rank as part of the damages recoverable. Roskill L.J., in a passage that should be quoted at length ([1974] 1 Lloyd's Rep. 241, 245) said:

"My Lord, Lord Justice Edmund Davies, referred to s. 53 of the Sale of Goods Act, 1893. I would add a reference to subsec. 3 of that section, which says:

In the case of breach of warranty of quality such warranty is prima facie the difference between the value of the goods at the time of the delivery to the buyer and the value they would have had if they had answered to the warranty.

There are many cases which arise, whether in the field of contract law or of tort, where the cost of repairs is a prima facie method of ascertaining the diminution in value. But it is not the only method of measuring the loss. In a case where the evidence justifies a finding that there has been, on top of the cost of repairs, some diminution in market value -- or, to put the point another way, justifies the conclusion that the loss to the plaintiff has not been fully compensated by the receipt of the cost of complete and adequate repairs, because of a resultant diminution in market value-- I can see no reason why the plaintiff should be deprived of recovery under that head of damages also.
I would only add one word of caution. This conclusion is not a charter under which infuriated plaintiffs, who have the misfortune to have their cars damaged by careless drivers, acquire an unfettered right to recover diminution of value in every case in addition to the cost of repairs. It is essential in such a case, in my judgment, for appropriate evidence to be called to prove diminution in value. I do not think in the ordinary case the burden of proof which rests on the plaintiff would be discharged merely by calling an individual to prove his idiosyncratic view of the particular loss in a particular case. The diminution in market value must be proved by appropriate evidence of the kind usually called when diminution in market value is sought to be proved as a head of damage. Subject to that qualification, it seems to me that this head of damage is recoverable."

These statements, although obiter, show plainly enough that there is no rigid rule that ties a plaintiff to the cost of repair as the limit of the damages he may recover for injury to the chattel of which he is the owner.
Indeed, after referring to the introductory sentence in the relevant paragraph (now para. 1043 in the 14th edition) in McGregor, op. cit. , stating the normal measure of damages as the diminution in the value of the goods, Roskill L.J. added the comment that that "is, of course, the normal rule in relation to damage to chattels".
…
It follows in my opinion that, in so far as there is any prima facie rule that damages for injury to a chattel are to be measured by the cost of repair, that rule is here displaced by appropriate evidence that the plaintiff has sustained loss going beyond that measure, in the form of diminution in the market value of the damaged vessel.”

102 Although these cases concern claims for damages for the costs of repair to, and diminution in value of, chattels (Payton: a motor vehicle; Davidson: a yacht), I see no reason why, as a matter of principle, a plaintiff’s claim in respect of a defectively designed structure should be limited to the costs of repairs where the evidence shows a loss of market value notwithstanding that it has been satisfactorily repaired. Indeed, in Proprietors Units Plan & Ors v Jiniess Pty Ltd & Ors [2000] NTSC 89, Riley, J allowed a claim for the diminution in the market value of units notwithstanding that the building had been repaired.

103 I was not referred to the detail of Mr Rennie’s report, and no submissions were made as to the validity of his assumptions, or to explain the basis of his opinion. However the relevant explanation appears to be in the following passage from his report (p 11):

“Assuming a fully leased position or a sale and leaseback and considering both valuation bases above which confirm value levels ranging from $3.2m up to $3.8m plus with the advantages of the roof top carpark I adopt the high range say $3,650,000 i.e. without cracks and faults. Alternatively assuming satisfactory repair or on a vacant possession basis the high yield range is applicable plus some incentives, fees and rental loss over say a 3 to 6 letting up period must be allowed. On this basis an approximate value of $3,450,000 is supported.”

104 I am bound to say that having read this passage in the context of the whole report I was unable to ascertain the grounds upon which the figure of $3,450,000.00 was calculated, including any connection between it and what were assumed to be the satisfactorily repaired cracks and faults. There was no attempt, for example, to take into account Mr Smee’s evidence that the cracks would be rectified by proper repair, or to demonstrate that space available for business use on the slabs would be reduced by reason of the repaired defects. There was no evidence to support the plaintiffs’ proposition that knowledge of the cracks in the market place would adversely affect the building’s value either in the future or, relevantly, as at January 2000, the valuation date.

105 I am left unpersuaded that the plaintiffs’ evidence through Mr Rennie has proved this head of damage. Although it was uncontradicted, I find it to lack any probative weight, and reject it. (cf: Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, para 89.) I find that the plaintiffs have failed to discharge the onus of proof of diminution of market value and, therefore, reject this claim.

Conclusion

106 In summary, I propose to award the plaintiffs damages which are to include the following:

(a) Past damages: $285,719.00

(b) Repair of cracks to level 2 slab: $ 17,383.00

(c) Costs of installation of membrane and asphalt screed: $248,449.00

(d) Business loss during repairs to level 2 slab $ 46,536.00
Business loss during installation of membrane
and asphalt screed to level 3 slab: $ 82,214.00

107 With regard to these reasons, the parties should consider, and endeavour to agree upon, the amounts to be awarded for are replacement of the membrane including loss for related business interruption, interest where applicable, and any other outstanding items. The parties should also have the opportunity, failing agreement, to address on the question of costs.

108 I direct the parties to make arrangements with my associate by 4pm 27 April 2007 to re-list the proceedings for the purpose of settling the amount of the award of damages and, if necessary, to hear submissions as to costs.

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17/04/2007 - error in judgment date - Paragraph(s) coversheet