WA Green Centre Pty Ltd v White, Shirley Margaret

[1996] FCA 835

CATCHWORDS

DAMAGES - negligence - appeal - negligent inspection of termites - whether trial judge in error in assessing loss by reference to costs of repairs - whether trial judge should have utilised differential valuation method - whether evidence before trial judge admitted of any alternative - whether evidence of cost of repairs before trial judge sufficiently reliable.

Trade Practice Act 1974, s52

Fair Trading Act 1987 (WA), s12

Dodd Properties (Kent) Ltd v Caterbury CC [1980] All ER 928
Evans v Balog [1976] NSWLR 36
Kizbeau Pty Ltd v W G and B Pty Ltd (1995) 184 CLR 281
Lodge Holes Colliery v Wednesbury Corporation [1903] AC 323
Williamson v Commissioner for Railways [1960] SR (NSW) 252 (FC)

WA GREEN CENTRE PTY LTD (ACN 050 892 423) v SHIRLEY MARGARET WHITE and GEOFFREY THOMAS WHITE
NO WAG 119 OF 1995

CORAM:NORTHROP, R D NICHOLSON and FINN JJ

DATE:18 SEPTEMBER 1996

PLACE:PERTH

IN THE FEDERAL COURT OF AUSTRALIA                  )

WESTERN AUSTRALIA DISTRICT REGISTRY            )

GENERAL DIVISION  )              NO WAG 119 OF 1995

On appeal from a judgment of a single judge of the Federal Court of Australia

B E T W E E N:  WA GREEN CENTRE PTY LTD

(ACN 050 892 423)

Appellant

and

SHIRLEY MARGARET WHITE and GEOFFREY THOMAS WHITE

Respondents

MINUTE OF ORDER

CORAM:NORTHROP, R D NICHOLSON and FINN JJ

DATE:18 SEPTEMBER 1996

PLACE:PERTH

THE COURT ORDERS THAT:

1.The appeal be dismissed.

2.The appellant pay the respondent's costs of the appeal.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA            )

WESTERN AUSTRALIA DISTRICT REGISTRY       )

GENERAL DIVISION  )  NO WAG 119 OF 1995

On appeal from a judgment of a single judge of the Federal Court of Australia

B E T W E E N:  WA GREEN CENTRE PTY LTD

(ACN 050 892 423)

Appellant

and

SHIRLEY MARGARET WHITE and GEOFFREY THOMAS WHITE

Respondents

CORAM:NORTHROP, R D NICHOLSON and FINN JJ

DATE:18 SEPTEMBER 1996

PLACE:PERTH

REASONS FOR JUDGMENT

THE COURT:  This is an appeal against the basis on which the trial judge (Lee J) assessed loss consequent upon his finding the respondents were liable in negligence to the appellant.

The issue arose in the following circumstances.  On 28 April 1991 the appellant entered into an agreement to purchase a residential property in Fremantle for a price of $125,000.  The residence was of timber construction with weatherboard cladding and an iron roof and had an estimated age of approximately 70 years.  Settlement occurred on 26 June 1991.  In mid July 1991 the appellant discovered termites active in the building.  Further examination, which involved the removal of floor boards and internal wall cladding, disclosed substantial damage from that source to the building.  The appellant then commenced proceedings seeking relief principally in damages from the vendor, the settlement agent and the respondents, who are the proprietors of a pest control business.

When the matter came on for trial the appellant's claim against the vendor was dismissed by consent.  In relation to the claim against the settlement agent, it was found by the trial judge the settlement agent was not in breach of its contract with the appellant, had not breached a duty of care to the appellant to perform the contract competently and had not engaged in any conduct likely to mislead or deceive, contrary to s52 of the Trade Practice Act 1974.

The appellant's case against the respondents was brought in negligence and for contravention of s12 of the Fair Trading Act 1987 (WA). One of the hand written terms of settlement was "purchaser requires current white ant certificate of clearance". The respondents provided a white ant inspection report which reported "nil" visible white ant activity. It was dated 13 June 1991 and forwarded by the settlement agent to the appellant on 18 June 1991 and thereupon accepted on behalf of the appellant.

The trial judge found the respondents were under a duty of care to the appellant to carry out the inspection with a level of competence to be expected of an experienced operator in the field.  He found this obliged them to report on the presence of termites.  It was not argued that the duty of care extended to requiring the respondents to inform the appellant of any termite-caused damage revealed by the inspection.  Nor was it argued at first instance or on appeal that the absence of a direct relationship between those parties created any difficulty in relation to the finding.

After examination of the facts the trial judge found it was probable termite infestations discovered on 14 July 1991 were present on 13 June 1991 at the sites at which they were discovered in mid-July 1991.  This led him to the finding that inspection was not carried out to the usual standard of competence so that liability fell upon the respondents. 

Turning to the question of loss, the trial judge said:

"A builder called by the applicant estimated the cost of repairing the damage caused by the termites to be $20,000-$25,000.  That estimate was not challenged.  A valuer called by Cottesloe Pest Control confirmed that the price paid for the property in June 1991 represented the market value of the property at that time if the premises were undamaged by termites.  The evidence of that valuer was that if the improvements on the property had suffered substantial damage caused by termites that circumstance

would affect the value of the property and that the probable effect on value would be a deduction of the cost of repair.

A valuer called by the applicant provided an opinion that the property had a value of $72,000 at 26 June 1991.  That value was arrived at by ignoring any value for the improvements erected on the property and by applying a discount of 10% to the unimproved land value of $80,000 to represent the cost of demolition and removal of the improvements.

I do not accept that $72,000 represents the value of the property in June 1991.  I accept that the premises could have been repaired and restored at which time the value of the property would have been no less than $125,000."

He therefore concluded the loss caused by the respondents' negligence after the contract was entered into and before the transaction was completed would have been in the vicinity of $20,000.  He rejected a submission the extent of the loss should be measured by the cost of exterminating the termite infection.

The trial judge also rejected a claim for loss of rent on behalf of the appellants because no steps had been taken to repair the premises after the removal of floorboards and internal wall cladding.  He continued:

"Making some allowance for contingencies in the effect on the value of the property of the need for repair of termite‑caused structural damage I fix the amount of the applicants' loss at $17,500.  The applicant is entitled to recover that sum together with interest.  I have calculated interest for a period of four years and several months at an average rate of 10% compounded and have rounded that calculation to $8,500."

He therefore gave judgment for the appellant in the sum of $26,000. 

The ground on which the appellant relies is that the trial judge should have concluded the damage suffered by it was $53,000, being the difference between the purchase price of the property and its value at the date of settlement.  It is said he should have awarded interest on the damages at an average rate of 10% compounded for a period of four years, making a sum of $24,000.  The result, it is submitted, is that there should have been judgment for the appellant in the sum of $77,000. 

The valuer called by the appellant and referred to in the reasons of the trial judge was T R Dix.  His valuation was dated 10 March 1995.  His instructions were to determine the market value of the relevant property on 26 June 1991.  He found the land value to be approximately $80,000.  That was not in dispute between the parties.  Considering the proximity, general size and condition of improvements, he estimated the upper level of value to be approximately $125,000 at the relevant date.  He then concluded:

"In arriving at the affected value of the subject land, I have ignored any added value for the improvements.  I consider that the inability of the owners to remove the remaining structure, is a detriment to the land and would have effect on the market value of the property.

I have adopted a discount of $8,000, or 10% of the unaffected land value and consider that the property had a market value of $72,000 as at 26 June 1991.  This valuation is made on the basis of an unencumbered title, subject only to the current restriction on demolition."

During his evidence-in-chief, Dix was questioned concerning the foundation of his view that the improvement should be ascribed no value:

"So is this the basis on which you made your valuation that demolition would be permitted?---No.  I'm saying that in my opinion it could not be refurbished.

Because of council intervention?---Yes.

So therefore you must be doing it on the basis that demolition would be permitted?---I'm of the opinion that demolition would be permitted following negotiations between the owner and the council.  But that's beyond my personal knowledge.

So you've not assessed it on the basis of what a willing purchaser might indicate - or, might think is indicated as the cost of repair, given that it is in this state of disrepair?---My opinion is that the cost of repair would substantially exceed any value that could be attributed to the improvements."

In cross-examination Dix considered his opinion that the house was uninhabitable and could not be reconstructed was not based on any expert knowledge of his, either as a builder or engineer.  He conceded in cross-examination that if the house was habitable on 26 June 1991 it would have had some value and if there was no termite activity it would have had the total value of $125,000.  Cross-examination then continued:

"So that the only cost that would be brought to account then would be the cost of extermination?---And the cost of repairing the damage that had taken place."

Dix therefore conceded that if the house was habitable at the time of settlement the proper method of valuation was that ultimately adopted by the trial judge. 

There was evidence before the trial judge upon which he was entitled to come to the conclusion the property was habitable.  T and D Smith testified the house was inhabited when they conducted an inspection two weeks before settlement.  Structural Engineer A Andreotta gave evidence he had recommended timber elements be exposed and an experienced builder should be engaged to undertake remedial works and to restore the property to satisfactory structural condition.  It was these works which had been partly executed and on which Dix based his opinion the house was uninhabitable.  A licensed valuer, A Bonavita, disagreed the house was of no value saying that it was of a style which was popular. 

The only evidence of the cost of repairs which the trial judge could take into account in accordance with the concession made in cross-examination by Dix was that contained in a report by K Hegney, builder, being the builder's report relied upon by the trial judge.  The conclusion in that report read:

"Although it is difficult to estimate the cost of reparation work without striping linings off the walls and removing flooring to determine the extent of the damage it is my opinion that the costs could exceed $20-25,000 and I would recommend that once the linings have been removed that the consulting engineer carry out another inspection to give his opinion of the damage."

It will be observed that the conclusion is hedged with a number of conditions.  The first is that costs "could exceed" the stated figure.  Secondly, the figure itself was within a range of $20-25,000.  Thirdly, there is a recommendation for further inspection by a consulting engineer.  Fourthly, the difficulty of estimate pre-conditions the statement.  The appellant points to these conditional attributes contending the trial judge should not have relied upon this conclusion as an estimate of the costs of repair.  However, the onus lay upon the appellant to adduce before the trial judge evidence of the costs of repair if the evidence of Hegney was inadequate.  No further evidence was adduced by the appellant.

Once the evidence of Hegney is open to be relied upon, it contradicts the evidence of Dix that the cost of repair would substantially exceed any value which could be attributed to the improvements.

In our opinion there was evidence before the trial judge entitling him to come to the conclusion the property was habitable and inhabited at the time of settlement and that the cost of repairs would be significantly less than the value of the house in its affected condition.  Having come to that position the only evidence before the trial judge upon which he could have reached a decision was that of the builder Hegney and it was this upon which the trial judge reached his assessment of loss, there is no basis for impugning the assessment reached by the trial judge.

During the course of the argument of the appeal the question was raised whether, even though the approach adopted by the trial judge may have been open to him on the evidence before him, he should nevertheless have applied the differential value method relied on for the appellant rather than the cost repair method of valuation.  In Kizbeau Pty Ltd v W G and B Pty Ltd (1995) 184 CLR 281 at 291, the High Court said:

"In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it [Holmes v Jones (1907) 4 CLR 1692 at 1702-1703; Toteff v Antonas (1952) 87 CLR 647 at 650-651; Gould v Vaggelas (1985) 157 CLR 215 at 220, 255, 265]. Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at the date [Gould (1985) 157 CLR 215 at 220]."

An adequate guide to the diminution in value of property damaged is often provided by the cost of reinstatement: in Luntz and D Hambly, Torts Cases and Commentary 4th ed (1995) at 569 - 570, par8.3.1.  In Williamson v Commissioner for Railways [1960] SR (NSW) 252 (FC), a case of damage to a farm by fire, Sugerman J said (at 267):

"The plaintiff may claim... the difference in value of the property to him before and after the fire...Or, more particularly where the property is employed in a business, he may claim the cost of repairing or making good the damage, the diminution in value of the property after repairing or making good, and for losses sustained by reason of loss of use during the period occupied in repairing or making good.  These may be found to come to the same thing in the result.  That is, the amount ascertained in the manner secondly referred to may very well provide an estimate of the amount by which a purchaser of the property in its damaged condition would discount the price which he would have been prepared to pay for it undamaged."

Here, on the only viable evidence lead before the trial judge, this was the case where the differential method and the cost of repair method came to the same thing.  The difference between the real value of the house and land acquired as at the date of acquisition and the price paid for it was the cost of repairs.  This was not a case where the trial judge had to choose one or other principled bases of valuation because the evidence was there was no disproportion between damages for reinstatement and damages calculated by the diminution in value of the land: McGregor on Damages 13th ed (1972) at 713 cited in Evans v Balog [1976] NSWLR 36 at 40. That was the effect of the only evidence led before him.

Furthermore, in the particular circumstances of this case, even if the cost of restoration of the property was significantly greater than the amount by which the value of the property has been diminished so that there was a disproportion between them, there was evidence upon which it was open to be found that the cost of restoration was reasonable.  There was evidence the appellant intended to retain the property and rent it out when it bought the property.  It was not a case where there was evidence that the appellant intended to demolish the building on the land.  See Lodge Holes Colliery v Wednesbury Corporation [1903] AC 323 and Dodd Properties (Kent) Ltd v Caterbury CC [1980] All ER 928; McGregor on Damages 14th ed (1980) at 763, par1121.

Nor was this a case where the trial judge had to find Dix unbelievable to arrive at the conclusion which he reached on the quantum of loss.  As has been seen, Dix in cross‑examination admitted of the application of the cost repair method in the event that evidence established the house was habital.

For these reasons we consider that the appeal should be dismissed.  It is not therefore necessary for leave to be granted for the appellant to amend an order made by the trial judge that the respondent pay the appellant's costs to be taxed on a scale appropriate for an action brought in the Local Court of Western Australia.

I certify that this and the preceding 7 pages are a true copy of the Reasons for Judgment of the Court.

Associate:

Date: 18 September 1996

APPEARANCES

Counsel for the Appellant:                 Mr E W Sanderson

Solicitors for the Appellant:               Bostock & Ryan

Counsel for the Respondent:             Mr A C Thorpe

Solicitors for the Respondent:           A C Thorpe & Co

Date of Hearing:  18 July 1996

Date of Judgment:  18 September 1996