Scripture Union v Prime Industrial

[2005] NSWSC 736

CITATION:	Scripture Union v Prime Industrial [2005] NSWSC 736
HEARING DATE(S):	28 June 2005
JUDGMENT DATE :	27 July 2005
JURISDICTION:	Equity Division Technology and Construction List
JUDGMENT OF:	McDougall J at 1
DECISION:	See paras [182] and [183] of judgment

CATCHWORDS:

PRACTICE AND PROCEDURE - referee's report - whether report ought to be adopted - whether referee failed to apply legal standards to established facts - whether referee predetermined agreed issues - whether patent misapprehension of fact - DAMAGES - where damage awarded for negligent design and construction - appropriate measure of damages - whether cost of rectification or diminution of value correct method of assessment - Bellgrove v Eldridge applied

LEGISLATION CITED:

Evidence Act 1995
Limitation Act 1969

CASES CITED:

Bellgrove v Eldridge (1954) 90 CLR 613
Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60
Daw v Toyworld (NSW) Pty Ltd [2001] NSWSC 25
De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28
Florida Hotels Pty Limited v Mayo (1965) 113 CLR 588
Foxman Holdings Pty Ltd v NMBE Pty Ltd (1995) 38 NSWLR 615
Franks & Anor v Berem Constructions Pty Ltd (NSWCA, 2/12/98, unrep; BC 9806367)
Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17/8/94, unrep; BC 9402885)
Johnson v Johnson (2000) 201 CLR 488
Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492
Prenn v Simmonds [1971] 1 WLR 1381
R v Welsh (1996) 90 A CrimR 364
Scarcella v Lettice (2000) 51 NSWLR 302
Seven Sydney v Fuji Xerox [2004] NSWSC 902
Strbak v Newton (Court of Appeal, 18/7/89, unrep)
Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549
White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193
Xuereb v Viola (1989) 18 NSWLR 453

PARTIES:

The Scripture Union Children's Special Service Mission and Inter-School Christian Fellowship (Plaintiff)
Prime Industrial Pty Limited (First Defendant)
Prime Constructions Pty Limited (Second Defendant)
Rooney & Bye (Australia) Pty Limited (Third Defendant)
Stanton Dahl & Associates Pty Limited (Fourth Defendant)
Roads & Traffic Authority of New South Wales (Fifth Defendant)

Prime Industrial Pty Limited (First Cross-Claimant)
Rooney & Bye (Australia) Pty Limited (First Cross-Defendant)
Jeffery & Katauskas Pty Limited (Second Cross-Defendant)

Prime Constructions Pty Limited (Second Cross-Claimant)
Rooney & Bye (Australia) Pty Limited (First Cross-Defendant to second cross-claim)
Jeffery & Katauskas Pty Limited (Second Cross-Defendant to second cross-claim)

Prime Industrial Pty Limited (First Cross-Defendant to the third cross-claim)
Prime Constructions Pty Limited (Second Cross-Defendant to the third cross-claim)
Rooney & Bye (Australia) Pty Limited (Third Cross-Defendant to the third cross-claim)

Rooney & Bye (Australia) Pty Limited (Fourth Cross-Claimant)
Jeffery & Katauskas Pty Limited (First Cross-Defendant to the fourth cross-claim)
Prime Constructions Pty Limited (Second Cross-Defendant to the fourth cross-claim)

FILE NUMBER(S):

SC 55035/2000

COUNSEL:

M A Ashhurst (Scripture Union)
G Inatey SC/P C Tomasetti (Prime Industrial and Prime Constructions)
I G B Roberts (Rooney & Bye)

SOLICITORS:

Church & Grace (Scripture Union)
Colin Biggers & Paisley (Prime Industrial and Prime Constructions)
Ebsworth & Ebsworth (Rooney & Bye)
Corrs Chambers Westgarth (Stanton Dahl)
Minter Ellison (for Jeffery & Katauskas)

LOWER COURT JURISDICTION:

SCRIPTURE UNION v PRIME INDUSTRIAL [2005] NSWSC 736

Index to Judgment

Para

The relevant principles	2
The report	6
The parties’ approaches to adoption	15
The Prime companies’ submissions	19
The project	22
Industrial’s obligations under the Design Management Agreement	45
The 14 May letter	46
The Development Management Agreement	50
The referee’s approach	56
Industrial’s submission	57
Conclusion	71
The obligations of Constructions under the design and construction contract	72
The obligations of Rooney & Bye	77
The retainer	77
The referee’s approach	79
Analysis	81
Florida Hotels & Mayo	85
“Unwise but not negligent’ and “primary responsibility”	97
Apportionment of damage	107
Podrebersek v AIS	111
The application of the referee’s methodology	120
Alleged pre-determination of geotechnical issues	125
Fill depth and quantity of fill	135
Dr Burman’s change of mind	141
The Rooney & Bye design	145
The geotechnical evidence	148
The Limitation Act defence	149
Damages	164
The referee’s approach	166
Bellgrove & Eldridge	172
Conclusions and order	182

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

McDOUGALL J

Wednesday 27 July 2005

55035/2000 THE SCRIPTURE UNION CHILDREN’S SPECIAL SERVICE MISSION AND INTER-SCHOOL CHRISTIAN FELLOWSHIP v PRIME INDUSTRIAL PTY LIMITED & ORS

JUDGMENT

1 HIS HONOUR: The plaintiff (Scripture Union) was the owner of land at Homebush (the Site). It engaged the second defendant (Constructions) to design and construct factory/office premises on that land, and engaged the first defendant (Industrial) as development manager for that project. The third defendant (Rooney & Bye) is a structural engineer. It was retained by Industrial to perform, and did perform, the structural design of the premises. Some time after Scripture Union moved into the premises, it noticed significant differential settlement of the ground floor slab, with consequential and significant structural and cosmetic damage. It sued in these proceedings to recover what it said was its loss. The proceedings were referred to a referee, Mr G.M. Peck, for inquiry and report. The referee found in favour of Scripture Union. The question for me is whether the report should be adopted (as, with qualifications to which I shall return, Scripture Union and Rooney & Bye submit it should) or rejected (as Industrial and Constructions submit it should).

The relevant principles

2 The parties agreed that the relevant principles were stated in paras [11] to [15] of my judgment in Seven Sydney v Fuji Xerox [2004] NSWSC 902. For convenience, I paraphrase what I there said.

3 The principles to be applied, in exercising the discretion conferred upon the Court by Pt 72 r 13 to adopt, vary or reject in whole or in part a report of a referee, are well established. There are a number of cases to which, customarily, reference is made. They include Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; the unreported proceedings in that case before Giles J (19 May 1992: the relevant considerations referred to by his Honour are sufficiently extracted in the decision of the Court of Appeal); Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193; and Foxman Holdings Pty Ltd v NMBE Pty Ltd (1995) 38 NSWLR 615. As to the nature and content of the referee’s obligation to give reasons, the relevant authorities include Xuereb v Viola (1989) 18 NSWLR 453 and Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17 August 1994, unreported; BC 9402885).

4 The relevant principles, distilled from those decisions, can be stated as follows:

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

(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.

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

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

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

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

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

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

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

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

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

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

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

(15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified.”

5 The twelfth point restates the aphorism of Mahoney JA in Super at 567. The thirteenth, fourteenth and fifteenth points are drawn (and include direct quotations) from the judgment of Hodgson CJ in Eq (with whom Priestley JA agreed and with whom, as to the relevant principles, Fitzgerald AJ also agreed) in Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2/12/98, unreported; BC 9806367). If I may say so with respect, I regard what his Honour said as giving content, on the facts of the particular case, to the operation of relevant principles rather than as stating any new principle.

The report

6 The report is dated 12 November 2004. It is divided into two main parts: the first being “findings on liability and quantum” and the second “reasons for findings”.

7 In the first part, after some introductory matters, the referee set out some 29 issues. (The parties agreed before me that these were the issues that were litigated before the referee: T4.15-.25). He then set out his findings on each of those issues. He then moved to quantum. Having assessed the total amount of damages, he assessed the respective contributions of Industrial and Constructions “jointly and severally” and of Rooney & Bye.

8 In summary, the referee found that Scripture Union’s damage (before interest) was $571,041; that the Prime companies were jointly and severally liable for 76%, or $433,991; and that Rooney & Bye was liable for 24%, or $137,050.

9 In the second section of the report, the referee summarised the background to the dispute and the claims made by Scripture Union against the Prime companies and Rooney & Bye. He then dealt with the various contractual relationships and the obligations that, he thought, flowed from those relationships, and with what he called “duties of care.” Having done that, the referee made findings on events following practical completion (which occurred on 18 December 1989): no doubt because those events were of crucial relevance to the first issue, which was whether Scripture Union’s claims, in contract or tort, were barred by operation of the Limitation Act 1969. The referee then dealt with that issue, concluding (based on the decision of the Court of Appeal in Scarcella v Lettice (2000) 51 NSWLR 302) that the causes of action in contract were statute barred, but that the causes of action in tort were not.

10 The referee next considered what he called the question of causation. At this point, I note that (as one might expect) a number of experts, in the disciplines of structural engineering and geotechnical engineering, were called to give evidence before the referee. The referee adopted a process of holding discussions in conclaves with the experts, which discussions were recorded, with the transcript being made available to the parties. As a result of that process, agreement was reached (or the referee was satisfied that it was reached) on a number of issues; and the area of dispute in relation to other issues was refined or defined. The referee advised the results of the conclaves to the parties, and reproduced the outcomes as appendices 4.1 and 4.2 to his report. Based on those outcomes, the referee formed some “preliminary views on technical issues”. He stated those preliminary views in an interim report, which is now reproduced as appendix 4.3 to his final report.

11 The Prime companies criticised the referee, not so much for adopting this process, but because, so they submitted, it had led him into at least the appearance and perhaps the reality of prejudgment of some of the technical issues. Whilst it is clear that, from time to time during the hearing after the conclaves were completed, the referee expressed views as to the attempts of parties to move from the positions established during the conclaves, and indeed from the preliminary views formed by him based on the conclaves, I am not satisfied that the material goes anywhere near demonstrating a real prospect, let alone the reality, of prejudgment. See Johnson v Johnson (2000) 201 CLR 488 at 493 [13] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).

12 I do not think that it was inappropriate for the referee to conduct a conclave process with the experts, and to seek (as happened) to produce areas of agreement and refine residual areas of disagreement; on the contrary, I think that was an entirely appropriate exercise of the power given to the referee under Pt 73 r 8(2)(a), in circumstances where the proceedings of the conclaves were recorded and the transcript thereof was made available to the parties. Nor do I think that it was inappropriate for the referee to form, and inform the parties of, preliminary views based upon the outcome of the conclaves. On the contrary, I think that it was entirely appropriate for him to do so, where the result must have been intended to focus (and, properly appreciated, should have focused) both examination-in-chief and cross-examination of the relevant witnesses. See Daw v Toyworld (NSW) Pty Ltd [2001] NSWCA 25 at [42] and [52]–[53] (Heydon JA, with whom Priestley and Sheller JJA agreed).

13 When one reads the report as a whole, it appears to follow a logical order and to deal with the issues (or, more accurately, groups of issues) in a logical and reasoned way. It appears to display a thorough, analytical and scientific approach to the assessment of the relevant disputes; in which process, one might think, the referee was assisted by his undoubted technical expertise.

14 One consequence of the structure of the report is that, in considering the conclusions of the referee on a particular point, it is often necessary to bear in mind, and refer back to, his analysis of the evidence of particular witnesses in an earlier section of the report. I do not say this intending to be critical of the referee. He was faced with some twenty-nine separate issues (apart from quantum issues) and a substantial quantity of written, oral and documentary evidence. Much of it went to more than one point; and, indeed, many of the points are related. I mention this only because the approach taken by the Prime companies in submissions (apart from displaying some reluctance to accept the substance of the principles governing adoption of reports) focused on individual sections of the report, whilst failing to take into account the extent to which what was there said might be illuminated or explained by what had been said in other sections of the report. Perhaps for that reason (and undoubtedly as a result of the tendency to which I referred in parentheses), the Prime companies’ written submissions were almost as lengthy as the report that they attacked.

The parties’ approaches to adoption

15 Scripture Union submitted that the report should be adopted, but with a variation of the referee’s findings on the amount of its damages.

16 Scripture Union propounded alternative cases on damages. It claimed either the cost of rectification of the defects or the diminution of the value of the building by reason of the defects. The latter took account of the circumstance that it had in fact sold the building. The referee took the latter as the appropriate measure of damages. However, in comparing the actual sale price achieved with the hypothetical value of the building in an undamaged state, he made certain deductions for selling expenses on one side of the comparison but not on the other; and he did not (as Scripture Union had submitted he should) allow all the amounts claimed as consequential loss.

17 The Prime companies submitted that the report should be rejected and that the questions between the parties should be determined by the Court on the evidence taken before the referee.

18 Rooney & Bye submitted that the report should be adopted. However, with a touch of inconsistency, it sought to take advantage of one particular attack made by the Prime companies on the referee’s approach to damages that dealt with the referee’s choice of diminution in value rather cost of rectification as the appropriate measure of damages (it being submitted that the cost of rectification was less than the diminution in value).

The Prime companies’ submissions

19 Because Scripture Union’s dissatisfaction with the report was limited to the question of damages, it is convenient to start (as the hearing before me started) with the Prime companies’ attacks on the report.

20 The attacks were gathered under three headings:

(1) The referee failed to apply legal standards to established facts.
(2) The referee predetermined matters.
(3) The referee misapprehended or misunderstood the evidence or made manifest unreasonable and perverse findings of fact.

21 I shall deal with the submissions in that order. Before I do so, however, I shall give a description of the project and of Scripture Union’s complaints.

The project

22 Scripture Union desired to establish new headquarters. It selected the Site as appropriate for its purposes. It entered into negotiations with Industrial (then known as Prime Developments Pty Ltd) for the redevelopment of the Site. That led to Industrial’s letter of offer to Scripture Union dated 14 May 1988.

23 The letter proposed a development under which Industrial would act as project manager, the design and construction work would be undertaken by Constructions (subject to agreement on price), but independent consultants “appropriate to the type of work and disciplines required” would be retained. Ultimately, it was Industrial rather than Constructions (the distinction on this point is not relevant to any issue in the litigation) that retained a firm of architects, Stanton Dahl, to design the building; Rooney & Bye, to provide structural design services; and a firm of geotechnical engineers, Jeffery and Katauskas, to provide geotechnical services.

24 Scripture Union, and the referee, placed great reliance on the terms of the letter of 14 May 1988, and it will be necessary to return to the detail of those terms. At present, it is sufficient to note that Prime described its prospective role as follows:

(1) In relation to “design management”, as being “to appoint and control consultant designers to undertake the Architectural and Engineering design work for the project”; and

(2) In relation to “design and construction contracting”, as being to “undertake the supervision of the work as the client’s representative to ensure that it complies to the contracted time, cost and quality goals.”

25 Thereafter, Scripture Union, Industrial and Stanton Dahl met to discuss and refine the design of the building. It appears that the preliminary design was complete by about November 1988.

26 Industrial obtained a quotation from Rooney & Bye for “structural engineering design and supervision”, dated 22 November 1988. It included a component for supervision, at the lesser of 0.2% of the project cost or $50 per hour. Again, it will be necessary to return to the detail of the terms of that letter.

27 The arrangements between Scripture Union and Industrial were documented in a “Development Management Agreement” dated 12 December 1988. That is an unusual document, in that it specifies a range of services that might be undertaken by Industrial as development or project manager, but appears to make the performance of any of those services dependent on its being identified by Scripture Union or Industrial as “necessary or desirable … for the purpose of assisting Scripture Union in managing the Development” (or, in a slightly different formulation, “necessary….in the implementation of the Project”). The referee took the view that, in considering the obligations of Industrial under the Development Management Agreement, it was appropriate to have regard to the terms of its letter of 14 May 1988. Industrial complains of that approach.

28 On 9 March 1989, Constructions submitted a quotation for construction in the sum of $1,010,016.00. On 15 June 1989, Scripture Union and Constructions entered into a design and construction contract (in the form “Decon 1, May 1988” issued by the Master Builders’ Association of New South Wales). The price payable by Scripture Union to Constructions for the services specified in that contract was $1,008,231.00.

29 Also on 15 June 1989, Scripture Union appointed “Mr Alan Hunt of Prime Developments Pty Ltd … as our representative” under the design and construction contract. (It appears that the parties and the referee treated this as an appointment of Industrial; I express no view on that.) That appointment was made pursuant to clause 17(a), whereby Scripture Union was entitled to appoint in writing “a representative as [its] agent for any purposes under this contract”. Possession of the Site was given to Constructions on the same day.

30 The Site is a substantial parcel of land at 42-46 Richmond Road, Homebush. There were existing buildings upon it, which needed to be demolished. The Site sloped gently from west to east. It was proposed that the Site be levelled by a cut and fill operation, whereby excess material removed in cut could be used, to the extent necessary, as fill.

31 The structural design proposed by Rooney & Bye included a floating slab, or slab on ground. As Mr Butcher of Rooney & Bye acknowledged, this meant that the ground on which the slab was placed, would be, in essence, a structural member. Substantially all that ground was to be filled, with the extent of fill depending on the level and on the extent of the bulk cut and fill operation undertaken.

32 The soil on the Site was apparently composed substantially of clay. It was classified by Jeffery and Katauskas, pursuant to the classification scheme then in use (AS2870-1986 as supplemented and updated in AS2870-1988) as “M” – ie, moderately reactive. The consensus of the expert evidence was that this classification was appropriate under the current version of AS2870, whereas under a later version of the Standard, the appropriate classification would have been “H” – ie, highly reactive. The referee concluded that the soil was at the upper end of reactivity for its “M” classification.

33 Soil having a class “M” classification could be expected to show a range of settlement of the order of 20-40 mm. Soil having a class “H” classification could be expected to show a range of settlement of 40-70 mm. To jump ahead: Mr Butcher, who performed the design of the slab, conceded that it would accommodate a movement of only about 5 mm without cracking. Thus, on any view, the design was inadequate; and it is apparent that Rooney & Bye, because it moves (with a presently irrelevant and in any event qualified exception) for adoption of the report, accepts that this is so.

34 Constructions commenced work on or some time after 15 June 1989. Practical completion was achieved on 18 December 1989. The site, and the works, were affected by heavy rain in late June and early July 1989, the effect of which was to make both the material removed in cut and the natural (or exposed) soil extremely wet.

35 On 20 December 1989, Rooney & Bye issued a certificate whereby it stated that the final building inspection on the property had been carried out and that:

“The major structural items were inspected during construction and we certify that the building has generally been built according to the structural plans.”

36 Again to jump ahead: it is apparent from Mr Butcher’s concession that the “major structural items” included the sub-grade and compacted fill, and from his concession that Rooney & Bye did not inspect the compacted fill before the slab was poured, that this certificate was factually incorrect.

37 Scripture Union was at first satisfied with the work undertaken by the Prime companies pursuant to their respective contracts, and with the building. In the first two years after it took occupation, Scripture Union reported what the referee at R71 referred to as “[m]inor repairs for various water leaks…related to what appear to be normal roof and gutter maintenance issues”.

38 There was a significant factual dispute as to when Scripture Union became, or should reasonably have become, aware of the likelihood of structural damage. On the Prime companies’ case, that was during 1991. On Scripture Union’s case, it was at some time no earlier than the second half of 1992. On 25 February 1993, Scripture Union wrote to Industrial concerning cracking around the lift well, apparently due to “differential settling of the building in the area of the lift on the ground floor….”. The evidence of Mr Phillis for Scripture Union, which it appears the referee accepted, was that he had first noticed this towards the end of 1992.

39 It is not necessary to deal with subsequent events, except to note that, by contract for sale dated 7 September 2001, Scripture Union agreed to sell the property. At that time, it had not undertaken the major repairs that were said to be necessary to rectify the defects, although some works of repair had been performed.

40 The referee concluded that the ground floor slab was not constructed on fill that was properly compacted (see answer to Issue 5) and that the slab moved substantially, due to shrinkage of the fill and natural clay beneath it. That shrinkage occurred, the referee found, because of depletion of moisture in the fill and natural clay (see answer to Issue 6). Further, the referee found, the design of the slab did not have adequate regard to the classification of the natural clays or fill as class “M”, or moderately reactive (see answer to Issue 11).

41 Thus, the referee concluded at R226, the damage to the ground floor was caused by:

(1) Inadequate or improper preparation of the earth platform (fill and sub-grade – the underlying natural material) which was the support for the ground floor slab.

(2) Failure to undertake the specified testing regime which, done properly, would have revealed the inadequate or improper preparation of the earth platform before the slab was constructed.

(3) Inadequacy in the design of the ground floor slab having regard to the likely range of movement referable to the site classification.

42 The reference in the second of those matters to “specified testing regime” is a reference to the testing regime specified in (among other places) the structural drawings prepared by Rooney & Bye.

43 In substance, therefore, the failure of the slab was caused partly by its inadequate design and partly because of shrinkage in the fill and natural ground on which it rested, that shrinkage in turn being caused by inadequate or improper preparation.

44 Against that background, I turn to the complaints made by the Prime companies. Logically, the first group of complaints to be considered is of those relating to the referee’s findings on the obligations of Industrial and the obligations of Rooney & Bye.

Industrial’s obligations under the Design Management Agreement

45 I have referred in general terms to Industrial’s letter of 14 May 1988 and some provisions of the Development Management Agreement.

The 14 May letter

46 The letter of 14 May 1988 included the following statements:

“As indicated to you and as detailed in our general “Outline of Consulting Services” which was handed to you, our company not only undertakes smaller development projects on its own behalf, but acts as a Development Consultant for other bodies, such as yourselves. Our associated construction company, Prime Constructions Pty Ltd is able to undertake the design and building work in a timely and economical manner, thus giving clients the advantages of dovetailing the design and construction phases as much as possible.
The role of Development Manager is similar to that of the traditional professional Project Manager, however, we believe that the role has a more global interest in a project than just managing the building work. In relation to your proposed project, the actual Development Management work on your project will be handled by the writer personally, with assistance from other Directors as required.
We would propose that the following services be undertaken by us to ensure that the society’s interests are protected in the proposed relocation:
…….”

47 These statements were followed by a number of topics including “site analysis”, “authorities”, “design management”, “cost planning” and “reporting”. It is not necessary to refer to what was said under those headings.

48 The letter then turned to explain the different roles that would be undertaken by Industrial on the one hand and Constructions on the other. Relevantly, it said:

“Design and Construction Contracting
The work undertaken by Prime Developments Pty Ltd is separate from the actual construction work and we will undertake the supervision of the work as the clients representative to ensure that it complies to the contracted time, cost and quality goals.
……..”

49 The letter then dealt with “time control” and “fee structure” The fee proposed “for the range of activities as detailed above” was 1.8% of the value of the land and design and construction works, payable in stages.

The Development Management Agreement

50 In part 3 of the Development Management Agreement, it was noted that Scripture Union “proposes to purchase and own and/or control the property” and that it had requested Industrial “to assist in the management of the Development”.

51 Part 4 of the Development Management Agreement read as follows:

“4.1 The Owner hereby appoints PRIME to act as its Development Manager and PRIME hereby agrees to accept such appointment pursuant to the provisions of this Deed in respect of the Development.
4.2 This Deed shall have effect as from the date set out in Item 2 of the First Schedule and shall continue in full force and effect until the date set out in Item 3 of the First Schedule unless previously determined in accordance with this Deed.
4.3 PRIME agrees that it will perform on behalf of the Owner those of the services set out in the Second Schedule to this Deed considered necessary or desirable by PRIME or the Owner for the purpose of assisting the Owner in managing the Development.”

52 Part 5 dealt with the remuneration of Industrial. By clause 5.1 Industrial’s fee was 1.8% of the value of the property and the design and construction works, with a maximum of $30,000, payable in stages.

53 The second schedule to the Development Management Agreement read as follows:

“ Development Management Services to be provided as considered necessary by PRIME or by the Owner in the implementation of the Project:-
1. to input and review development construction and design principles and conceptual designs and prepare advise and make recommendations on development programmes and development feasibility studies including the preparation of commercial assessments as required;
2. to advise and make recommendations with respect to the engagement by the Owner of builders architects and other building engineering and construction consultants real estate agents lawyers accountants advertising agents and valuers with respect to the development and commission them on behalf of the Owner and to use its best endeavours to ensure reimbursement to them by the owner in accordance with their terms of engagement by the Owner;
3. to prepare and issue an appropriate design brief to all consultants which accurately reflects the Owner’s design requirements decisions and criteria to enable the consultants to prepare all necessary drawings and documentation;
4. to advise and make recommendations with respect to insurances to be arranged for the purposes of the Development including, but not limited, to the assessment of the adequacy of the professional indemnity insurance arranged by architects or other consultants engaged for the purpose of the Development;
5. to assist in the preparation of estimates of construction costs and the development preparation and up-dating of a Development budget;
6. prepare with the assistance of the Owner builder and other consultants and keep up dated as necessary a Development Programme and Time Schedule which will correlate and integrate all activities for the completion of the Development and in sufficient detail so as to identify activities critical to the prompt execution of all phases of the Development.
7. to co-ordinate and monitor the services of architects and other building engineering and construction consultants engaged on the Development in relation to the contract;
8. to monitor and control the activities of the builder engaged to construct the building including attendance at regular site meetings the issuing of instructions to the builder the receipt of progress claims and the certification of progress claims for payment by the Owner. To administer the contract between the Owner and the builder including the receipt of any claims for extension of time or variations in the cost of the works and the certification of same for payment by the Owner;
9. to liaise with all relevant authorities having jurisdiction over the Development and to cause to obtain all certificates of approval from all Authorities having jurisdiction over the Development at completion.
10. to liaise regularly with the Owner to provide a regular monitoring of costs and accounting procedures for the Development including a comparison of the Development Budget against the actual costs being incurred.”

54 Clause 2.1 contained the following relevant definitions:

“2.1.3 “the Property” means the land described in item 1 of the First Schedule and such other land as may become subject to these provisions by later agreement together with all Building and includes a reference to any part thereof.
2.1.5 “the Development” means the development of the Property as a Commercial and/or industrial complex in such manner as is determined from time to time by the Owner and communicated to PRIME in writing.”

55 There does not appear to be a definition of the expression “the Project”. No point was taken about this; I think it can be taken to be interchangeable with the defined expression “the Development”.

The referee’s approach

56 The referee dealt with the legal relationship between Scripture Union and Industrial in a number of places, starting at R30-39 where he set out what he saw as the relevant terms of the letter of 14 May 1988, and the subsequent dealings (up to and including execution of the Development Management Agreement) between Scripture Union and Industrial. At R60-61, he concluded that the duties owed by Industrial to Scripture Union included those set out in items 7 and 8 of the second schedule to the Development Management Agreement. He reached this view because, at R60, he had concluded that “the 14 May 1988 initial offer sets out the range of services provided by“ Industrial, which services, he concluded, “are within the range normally provided by a Development Manager or Project Manager”. The referee thought that the design management and design and construction contracting services in the letter were, in his words “reasonably encompassed within the Development Management Agreement at” Items 7 and 8 of the second schedule.

Industrial’s submission

57 Industrial’s complaint, stated in various ways was that the referee had impermissibly construed the Development Management Agreement by reference to the antecedent correspondence and, perhaps, the antecedent dealings between the parties. This, it submitted, was inconsistent with what Lord Wilberforce had said in Prenn v Simmonds [1971] 1 WLR 1381, 1384-1385. This error, the Prime companies submitted, was repeated in the referee’s analysis of the duties of Constructions (at R43-47 and 62-65): to which I shall return.

58 I do not think that the referee fell into error in his analysis of the obligations owed by Industrial to Scripture Union. The question is not one of construction; nor did the referee treat it as one.

59 There is no ambiguity or difficulty in the construction of clause 4.3 of the Development Management Agreement, nor (with a possible exception, dealt with in paras [64] and [65] below) of the second schedule. The relevant obligation of Industrial under cl 4.3 is to perform “those of the services set out in the Second Schedule to this Deed considered necessary . for the purpose of assisting [Scripture Union] in managing the Development.” That focuses attention on a question of fact: what, on the evidence, are the services that either Industrial or Scripture Union considered necessary or desirable to assist Scripture Union in managing “the Development”?

60 It is therefore necessary to see where, in the evidence, the parties had considered the necessity or desirability of any services. The primary source is the letter of 14 May 1988. That letter described in some detail the services that Industrial proposed to undertake “to ensure that [Scripture Union’s] interests are protected in the proposed relocation”. Clearly, that indicates that the services described were those that, in the language of clause 4.3, Industrial thought were “necessary or desirable…for the purpose of assisting [Scripture Union] in managing the Development”.

61 In this context, it is I think significant that the referee noted at R34 “that from no later than mid September 1988, PI was proceeding with the role generally indicated in its offer of 14 May 1988, with the full knowledge of SU, whether or not their role had formally approved.” That finding of fact indicates that both Industrial and Scripture Union regarded Industrial’s role as being that set out in the letter, and provides a basis for the conclusion that each regarded the services set out in that letter as necessary or desirable within clause 4.3.

62 As I have noted, the fee proposed by the letter of 14 May 1988 was the same as that specified in the Development Management Agreement, and in substance payable in the same manner (there was some change to the staging of the fee, but nothing turns on this). The letter made it clear that the fee was payable “for the range of activities as detailed above”. That the fee was incorporated, without any relevant alteration, into the Development Management Agreement suggests, once again, that the parties regarded the necessary or desirable range of services to be provided by Industrial as being those specified in the letter.

63 The referee concluded, based on the terms of the letter and the Development Management Agreement and on his own experience, that Industrial’s obligations in relation to design management and design and construction contracting under the letter equated to (among others) those in Items 7 and 8 of the Second Schedule. It was open to him to reach that conclusion. To the extent that it involves some process of construction of the two documents, it is a construction that was reasonably open. To the extent that it involves a question of fact, as to the nature of the services in each document, it is a conclusion of fact that was reasonably open.

64 On one reading of the second schedule, the same reasoning applies, and leads to the result that there is no relevant fault in the referee’s conclusion. There is, however, an alternative reading. On that alternative, the schedule sets out the services to be provided, and the words “as considered necessary” do not qualify the services ( ie, do not impose some condition that must be satisfied before it can be said that any or all of the listed services are to be provided), but qualify merely the timing of the obligation to provide them. On this view, the second schedule does describe the “necessary or desirable” services to which clause 4.3 relates, and Industrial is bound to provide all those services as they become necessary, and to the extent that they become necessary, during the performance of the project.

65 If that be the correct construction of the Second Schedule – and as the matter was not argued before me, I express no concluded view – it would provide an alternative basis for the conclusion to which the referee came, namely that the services to be provided included Items 7 and 8 of the Second Schedule.

66 As I have noted, the referee concluded that the cause of action in contract was statute barred, but that the cause of action in negligence was not. For the purpose of examining the cause of action in negligence, he treated the duty of care as encompassing the relevant obligations of Industrial under the Development Management Agreement. Industrial did not submit that the referee erred in this approach. That is to say, Industrial did not submit that the referee erred in defining the content of its common law duty of care by reference to its obligations under the Development Management Agreement. Its complaint, as I have said, was that the referee erred in his approach to determining the extent or nature of its obligations under the Development Management Agreement.

67 In any event, the criticisms made by Industrial of the referee’s findings on its duty of care have an element of the unreal. Mr de Gail, a director of both Industrial and Constructions, gave evidence. He was shown the letter of 14 May 1988. He said that it was likely that he had discussed the letter with its author, Mr Hunt, before it was sent. (See the transcript of evidence before the referee (TR), admitted without objection on the adoption application as exhibit PX3, at TR 177.45). He said that:

(1) There was nothing in the letter “that I wouldn’t have had knowledge of at the time” (TR 1775.12).

(2) Mr Hunt discussed with him that the proposal would include supervision of the work on behalf of the client (TR 1776.4) for the purpose of complying with “the contracted time, cost and quality goals” (TR 1776.10).

(3) Mr Hunt would undertake the oversight of the performance of the construction by whomsoever the builder might be (TR 1776.30).

68 Mr de Gail’s attention was then directed to the second schedule to the Development Management Agreement, and in particular to items 7 and 8. He agreed that Industrial provided those services to Scripture Union (TR 1778.8).

69 Thus, regardless of the debate as to the extent or nature of the contractual obligations, Mr de Gail’s evidence was that Industrial in fact undertook the role of co-ordinating and monitoring the consultants (including, obviously enough, Rooney & Bye and Jeffery and Katauskas) and of monitoring and controlling the activities of Constructions including, where necessary issuing instructions to Constructions.

70 If, as Mr de Gail said, Industrial undertook those obligations, then (even if they were not governed by the terms of the Development Management Agreement made between it and Scripture Union) it nonetheless owed Scripture Union a common law duty of care in respect of its performance of those obligations. In fact, Mr de Gail’s evidence goes further than this. It corroborates the conclusion to which the referee came: namely, that the obligations of Industrial under cl 4.3 and the Second Schedule of the Development Management Agreement included the obligations set out in items 7 and 8 of the Second Schedule. It does so because it shows that in Industrial’s view (formed through Mr de Gail) the performance of those services was necessary or desirable within cl 4.3.

Conclusion

71 I therefore conclude that this challenge to the report must fail.

The obligations of Constructions under the design and construction contract

72 Clauses 17(c) and 20 of the Design and Construction Contract are relevant. They read as follows:

“ Principal’s and Contractor’s Representatives

17…..
(c) The Contractor is and shall be responsible for the superintendence of the Works so as to ensure that the Works are executed in accordance with this Contract. For the purposes of such superintendence the Contractor shall maintain on the Works during their progress a competent person to superintend the Works together with any necessary assistants.
Contractor’s Warranty as to Design
20. The Contractor warrants to the Principal that the design of the Works has been and shall be carried out with due care and skill appropriate to the undertaking.”

73 The referee concluded at R64 that “these obligations represent the minimum expression of the duty of care owed to SU by PC”.

74 The Prime companies in their written submissions in chief (dated 8 March 2005) at para 30 referred to the referee’s recital of the relevant facts at R43 and following and complained that the referee “referred to correspondence and then and only then to the contract.” I do not understand why it is a criticism of the referee that he referred to the relevant transactions in chronological sequence.

75 In the same submissions at para 31, the Prime companies complain that “the Referee should not have determined the duty of care between the parties other than by reference to the contract between them” (emphasis in original). I do not understand this complaint. The referee did not construe the design and construction contract by reference to antecedent correspondence or conduct, nor did he determine the content of Constructions’ common law duty of care other than by reference to the contract. As I have noted, he concluded that clauses 17(c) and 20 represented the “minimum expression of the duty of care”. Although the use of the word “minimum” might be taken to suggest that the referee thought that the duty of care may have had a more ample content, there is nothing in the report to suggest that he applied any duty other than that garnered from, and no greater in terms than, the contractual duties imposed by clauses 17(c) and 20.

76 I therefore conclude that this challenge to the report must fail.

The obligations of Rooney & Bye

The retainer

77 The retainer of Rooney & Bye was not formally documented. Mr Butcher wrote to Mr Hunt of Industrial on 22 November 1988 (apparently having been asked to quote for the Structural Engineering, design and supervision). From the preliminary plans, Mr Butcher provided a quotation as follows:

“Design Component
= 0.75% of the project cost
our fees would be in the range of $6,000.00 to $6,750.00 if the project costs were $800,000.00 to $900,000.00.
Supervision Component
= maximum 0.20% of the project cost
OR
an hourly rate of $50/hr, whichever is the lesser amount.

78 There was no written reply to that letter; but Mr Butcher’s evidence was that the quotation was accepted orally.

The referee’s approach

79 The referee concluded at R66 that Rooney & Bye “owed the normal professional duty of care to each of the Owner (SU) then [sic] immediate client (PI) and the ultimate constructor (PC), to undertake the structural design with normal skill and care”. It is hard to see any fault in this statement.

80 The referee dealt with the “supervision” component of the quotation in R69. He accepted the submission for Rooney & Bye “that this role should be interpreted as “inspection”. He referred to the distinction, “in terms of outcome” as “largely semantics”: on the basis that “[a]ny failure to detect a significant departure from their design by the Constructor could inevitably result in damage”.

Analysis

81 I think that it was open to the referee, in context, to take the view that he did of the work referable to the fee for “supervision”. That is because, on his findings (which, as I have said, I accept) it was Industrial that had responsibility for supervision of the performance by Constructions of its obligations under the design and construction agreement, and for co-ordinating and monitoring the services of the consultants. The necessity for it to perform those tasks (more accurately, the necessity as perceived by either or both of it and Scripture Union to do so) no doubt flowed (as the referee, in my view correctly, found) from the undertaking in the letter of 14 May 1988 to “undertake the supervision of the work” as Scripture Union’s representative “to ensure that it complies to the contracted time, cost and quality goals”.

82 In those circumstances, it was Industrial that had, and on Mr de Gail’s evidence recognised that it had and sought to perform, the relevant obligation of supervision. It would be illogical for Rooney & Bye to undertake exactly the same role unless Industrial sub-contracted or delegated that role to Rooney & Bye; and no one suggested that this was the case. In context, therefore, Rooney & Bye’s “supervision” obligation was, I think, properly characterised by the referee as one of inspection. That this is so was recognised by Rooney & Bye in its letter of 20 December 1989, to which I have referred in para [35] above. I think that the reference to a “final inspection”, and to inspections “during construction”, are to be read as references to the “supervision” that Rooney & Bye offered to provide by its letter of 22 November 1988. Neither Scripture Union nor Industrial replied to this letter, referring to an obligation to supervise rather than inspect.

83 On that basis, the obligation was, again as the letter of 20 December suggests, to inspect the major items of the structure at appropriate times and from time to time during the construction process. The letter also makes clear the purpose of that inspection: to enable Rooney & Bye to satisfy itself that “the building has generally been built according to the structural plans”.

84 Thus, I conclude, the referee correctly identified the services to be provided by Rooney & Bye pursuant to its retainer. Although the referee did not in terms say so, it is clear that he regarded the inspection obligation as subject to the same duty of care as the design obligation: ie, in substance, to exercise reasonable care and skill in the performance of the relevant obligation.

Florida Hotels v Mayo

85 The Prime companies submitted that the “supervision” obligation of Rooney & Bye was governed by what the High Court had said in Florida Hotels Pty Limited v Mayo (1965) 113 CLR 588. They submitted that the referee had erred in failing to apply what was said in that case to the duty of “supervision” undertaken by Rooney & Bye.

86 In that case, it was held that an express contractual obligation on an architect “to give such periodical supervision and inspection as may be necessary to ensure that the works are being executed in general accordance with the contract” required the architect to keep himself informed of the progress of the work, including by making reasonable and reliable arrangements to be kept informed of the general progress of the work. It was not sufficient to rely on the foreman supervising the works to notify the architect, in effect, when inspection might be required.

87 I do not think that the decision in Florida Hotels governs the outcome of this case. The architect in that case was the only person with an obligation to supervise and inspect; and that obligation extended to the whole of the works. There was no one co-ordinating or monitoring the activities of the architect and others. If the architect did not carry out his duties, there was no supervision.

88 In this case, Industrial had (as I have found) the express obligation, under item 7 of the second schedule to the Development Management Agreement, to co-ordinate and monitor the services of the architect and the other building, engineering and construction consultants. Further, it had the obligation under item 8 of that schedule to monitor and control the activities of Constructions. Thus, on the scheme that was put in place for this project, Industrial had the primary obligation to monitor and control; and, as part of it, an obligation to co-ordinate and monitor the consultants. In those circumstances, Rooney & Bye would be entitled to assume that a representative would be called to the site whenever required, and that Industrial, through its monitoring and controlling of the building activities, would decide when inspection was required. I do not think that the facts of this case are such as to make applicable the reasoning of the court in Florida Hotels.

89 Alternatively, in the language of Barwick CJ in Florida Hotels at 593-594, I think that Rooney & Bye would have been entitled to think that there were “reasonable arrangements of a reliable nature” for it “to be kept informed of the general progress of the work” (his Honour’s emphasis). On that basis also, I think, Rooney & Bye would have been entitled to assume that a representative would be called to the site to inspect work whenever Industrial was of the opinion that inspection, in terms of Rooney & Bye’s retainer, was required.

90 The referee was aware of the Florida Hotels issue. He discussed it, in the context of Industrial’s duty, at R238. In the course of that discussion, he noted the evidence of Mr Forlico, who was Constructions’ project manager, that the geotechnical and structural engineers were called as required; and that Jeffery & Katauskas were called to inspect the earthworks and Rooney & Bye to inspect the structural works. The referee noted further that Jeffery & Katauskas did inspect the earthworks (including the earth platform on which the floating slab was to be laid), advised that certain things should be done before proof rolling and compaction, and noted the absence of density testing. The referee concluded (R238.10, .11):

“10. PI and PC were the common denominators in all this. They were the only ones who were aware that nothing had been done to verify compliance of the earthworks with the specification. All engineers were on a ‘call when required’ arrangement, which apart from the one critical omission by PI and PC seems to have worked well.
11. The co-ordination role was the responsibility of PI. I consider it was their role in the first place to ensure that someone verified compliance by PC. Once they received the JK warning of 11 July 1989, I consider their failure to act was a clear breach of their duty of care and meets all the tests for negligence.”

91 I think that the referee’s analysis is correct.

92 Before I leave this topic, I should note that the Prime companies’ written submissions in chief suggested, in the context of Florida Hotels, that the referee asked the wrong question. Paras 40, 41 and 42 read as follows:

“ 40. Instead of examining the contract between the parties and construing the contractual and tortious duties that might arise the referee asked himself the wrong question and proffered an irrelevant answer.
41. He asked:
Was RB responsible for the inspection and verification of the earthworks and the foundation material in the absence of a geotechnical engineer being engaged?
He then answered the question this way:
Since a geotechnical engineer (JK) was engaged as a matter of fact, this question is not on point.
42. The fact that a geotechnical engineer was engaged was irrelevant to the question asked. The question as to what was the contract between the parties was critical as PI and PC maintained in their cross claims and throughout the hearing that RB owed them a duty of care to inspect and verify the earthworks and the foundation material. Whether there was a geotechnical engineer otherwise engaged was irrelevant to this claim. The referee asserted that the evidence of PB was “unchallenged”. PB denied that he had any role to supervise the work and PI and PC asserted that he did in accordance with the obligation contended to arise from the letter of 22 November 1988. The referee reasoned that the supervision represented only 40 hours at $40.00 per hour over the six month life of the project. He said the supervision component of the mechanical and electrical design was similar and that based on the indicated fee structure the architect appeared to have been expected to play a minor role in the construction phase. There was no evidence of the mechanical and electrical design consultant role and the architect’s role and, in any event, the contractual obligation between PI and RB must be determined without regard to those matters. The number of hours which the structural engineer may have allowed for supervision is also not relevant to the contractual obligation that he came under. The referee referred to Florida Hotels v Mayo at para 238. He found applying that case to the facts of this case the following:

173 The headnote accurately states the reasons given by the court: see 617, where their Honours specifically, and in mandatory terms (“cannot be measured”), rejected the diminution in value method; and see 617-619, where their Honours approved the cost of repair method subject to the qualifications that the work must be not only “necessary to produce conformity, but…also…a reasonable course to adopt.”

174 Having regard to that clear statement, and the explicit rejection of diminution in value as a measure of damages, I do not think that it was open to the referee to choose diminution in value simply because it produced (on his approach) a lesser outcome.

175 Their Honours dealt with diminution in value again at 619 where they said that it was only where remedial work “would not constitute a reasonable method of dealing with the situation” that “the true measure of the building owner’s loss will be the diminution in value, if any, produced by the departure from the plans and specifications or by the defective workmanship or materials”.

176 I do not understand there to have been any suggestion before the referee that the repair works assessed by him to have a cost of $481,087.00 were not necessary to produce conformity; or that it would have been unreasonable for Scripture Union to carry out those works to produce conformity. As the decision in Bellgrove makes clear at 620, it is “quite immaterial” that the works have not been carried out. The decision in De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 makes it equally clear that it matters not that the injured party, having disposed of the premises, will not (or can not) carry them out, at least where (as here) there is evidence of diminution in value.

177 The referee’s assessment of damage must therefore be rejected, and the cost of repairs substituted. That leaves the question, whether it is appropriate to include in the cost of repairs the allowance for relocation expenses of $126,000.00.

178 Relocation expenses, whilst repairs are being carried out, are not part of the cost of repair. They are properly to be regarded as an item of consequential loss. They are not an element, but a consequence, of the repairs. Whilst the cost of repairs may be recovered even though the repairs have not been carried out (as is made clear in Bellgrove and in many cases following it), I do not think that the same can be said of consequential losses. They must be incurred, and must be shown to have been reasonable (both in the sense of reasonable to have incurred them and reasonable in amount) before they can be recovered.

179 There is no suggestion that Scripture Union did relocate from the premises. I therefore think, contrary to the referee’s view, that the quantification of its loss by reference to the cost of repairs should not include any allowance for relocation expenses.

180 It would also be open to Scripture Union to recover the reasonable cost of such repairs (if any) as it actually carried out. As I understand the report on this point, Scripture Union actually carried out remedial works in the amount of $81,533.00, and incurred professional advice in the sum of $1,144.00 associated with those works (R284). If those amounts have not been included in the repairs, the cost of which the referee quantified at $481,087.00, then they would be recoverable in addition to that amount by way of further damages.

181 The parties did not address on this point. I am unable to decide it in the absence of either agreement or further submissions. I will therefore give the parties an opportunity, if they cannot agree, to put submissions on this point. It follows that there should be substituted for the figure (before interest) of $571,041.00 found by the referee, either the figure of $481,087.00 or the figure of $563,764.00.

Conclusions and order

182 I conclude that the report of the referee should be adopted insofar as it deals with all questions of liability and apportionment, that his conclusions on quantification of damage should be rejected, and that there should be substituted for the figure found by the referee whichever is appropriate of the figures referred to in the preceding paragraph.

183 I direct the parties to bring in short minutes of order to give effect to these reasons within fourteen days of today’s date. If the parties can agree on the proper quantification of damages, having regard to what I have just said, then the Short Minutes of Order should reflect that agreement; and if the parties can agree on costs, then the Short Minutes should likewise reflect that agreement. If the parties cannot agree on those matters I will hear further argument on a date to be arranged with my Associate.

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