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UI International Pty Ltd v Interworks Architects Pty Ltd

 

[2006] QSC 79

 

SUPREME COURT OF QUEENSLAND

  

CITATION:

UI International Pty Ltd v Interworks Architects Pty Ltd & Ors [2006] QSC 079

PARTIES:

UI INTERNATIONAL PTY LTD
(ACN 070 639 422)
(plaintiff)
v
INTERWORKS ARCHITECTS PTY LTD
(ACN 087 985 402)
(first defendant)
PAUL THOMAS SHEPPARD
(second defendant)
MOSTIA CONSTRUCTIONS PTY LTD
(ACN 010 608 009)
(third defendant)
GROGAN RICHARDS PTY LTD
(ACN 006 346 087)
(fourth defendant)
MOSTIA PROJECT MANAGEMENT PTY LTD
(ACN 099 777 223)
(fifth defendant)
ROHAN LEIGH WOODFORTH
(sixth defendant)
REDLAND SHIRE COUNCIL
(seventh defendant)

FILE NO/S:

10390/04

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT: 

Supreme Court of Queensland

DELIVERED ON:

20 April 2006

DELIVERED AT:

Brisbane

HEARING DATE:

4 April 2006

JUDGE:

McMurdo J

ORDERS:

1. The paragraphs 16, 20, 21(c), 30(b), 30(c), 45, 58 and sub-paragraphs (a), (b), (c), (d) of paragraph 60 and “and 30” where that expression appears at paragraphs (e) and (f) of paragraph 60 of the statement of claim will be struck out. 

2. Within twenty-eight days the plaintiff will file and serve an amended statement of claim which pleads the facts and circumstances from which it is likely that all owners of a lot within any relevant community title scheme will agree to the demolition and rebuilding of the development which is the subject of the allegations in paragraphs 74, 75, 76, 81 and 82 of the statement of claim, or from which it is likely the District Court is likely to make such orders as are necessary to enable the plaintiff to effect that demolition and rebuilding. 

3. Within twenty-eight days the plaintiff will have leave to amend its statement of claim in relation to the matters presently pleaded in paragraphs 16, 20, 21(c), 45, 58 and 60 of the statement of claim, in accordance with this judgment.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT – PLEADING – GENERALLY – where the plaintiff alleges that it has suffered loss because of breaches of contract and negligence of the defendants – where the plaintiff’s damages claim is quantified upon the basis of its demolition and rebuilding of the development – where the first, second and third defendants apply to strike out that part of the amended claim on the basis that it cannot succeed because the plaintiff is no longer the owner of the buildings or the land on which the buildings stand ­– whether certain paragraphs of plaintiff’s amended statement of claim should be struck out under r 171 UCPR – whether specified parts of the pleading disclose no reasonable cause of action or would prejudice a fair trial

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT – PLEADING – GENERALLY – where the first and second defendants apply to strike out certain paragraphs of the amended statement of claim which deals with the first and second defendants’ alleged liability for breach of contract and/or negligence – whether certain paragraphs of the plaintiff’s amended statement of claim should be struck out under r 171 UCPR – whether specified parts of the pleading would prejudice and/or delay a fair trial

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT – PLEADING – GENERALLY – where the third defendant applies to strike out certain paragraphs of the amended statement of claim in which the plaintiff pleads three implied terms of the construction management agreement – whether certain paragraphs of the plaintiff’s amended statement of claim should be struck out under r 171 UCPR – whether specified parts of the pleading disclose no reasonable cause of action or would prejudice and/or delay a fair trial

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTICE UNDER RULES OF COURT – PLEADING – GENERALLY – where the third defendant applies to strike out certain paragraphs of the amended statement of claim which deals with the third defendant’s alleged liability for negligence – whether certain paragraphs of the plaintiff’s amended statement of claim should be struck out under r 171 UCPR – whether specified parts of the pleading disclose no reasonable cause of action or would prejudice and/or delay a fair trial

Body Corporate and Community Management Act 1997 (Qld), s 77, s 78, s 83, s 86

Uniform Civil Procedure Rules 1999 (Qld), r 171(1)(b)

Alucraft Pty Ltd (in liq) v Grocon (No 2) [1996] 2 VR 386, discussed

Bellgrove v Eldridge (1954) 90 CLR 613, discussed

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, applied

Brading v F McNeill & Company Limited [1946] 1 Ch 145, cited

Central Coast Leagues Club Ltd v Gosford City Council & Ors, unreported, Supreme Court of New South Wales, Giles CJ Comm D, 55046/94, 55011/96, 9 June 1998, discussed

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981-1982) 149 CLR 337, applied

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, discussed

De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28, discussed

Director of War Service Homes v Harris [1968] Qd R 275, discussed

Gates v City Mutual Life Assurance Society Ltd (1985-1986) 160 CLR 1, cited

Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd & Anor [2001] NSWCA 313, discussed

Kirkby & Anor v Coote & Ors [2006] QCA 61, cited

Robinson v Harman (1848) 1 Ex 850, cited

Rodocanachi v Milburn (1886) 18 QBD 67, cited

Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462, discussed

Slater v Hoyle [1920] 2 KB 11, cited

Williams Brothers v Ed T Agius Ltd [1914] AC 510, cited

COUNSEL:

R N Wensley QC, with C C Heyworth-Smith, for the plaintiff

L F Kelly SC, with D P de Jersey, for the first and second defendants

R A Holt SC, with S M Burke, for the third defendant

SOLICITORS:

Creswicks lawyers for plaintiff

Thynne and Macartney for first and second defendants

James Byrne and Rudz for third defendant

  1. McMURDO J:  From May 2001 until December 2002 the plaintiff was the registered owner of land near Cleveland.  It developed that land by the construction of a number of buildings now used for residential, retail and office purposes.  It engaged the first and second defendants as the architects and the third defendant to co-ordinate and supervise the construction.
  1. The plaintiff claims that it has suffered loss in a number of ways through what it says were breaches of contract and negligence of those defendants (and other defendants who are not parties to the present applications). It alleges that the construction was more costly than it should have been, resulting in a loss of $7,062,305. It claims to have performed rectification works which have cost in total, just under $70,000. And it claims that the buildings each have structural faults and other defects which are so serious that each building needs to be demolished and rebuilt. It claims $2,285,000 as the estimated cost of demolition and $28,746,471 as the estimated cost of rebuilding. It claims a further $3,612,860 as income lost from the renting of some of the shops, because of the need for demolition and rebuilding. With one other component (of less than $7,000) and a claim for interest, the plaintiff’s claim overall is for “not less than” $42,464,603.
  1. Accordingly, most of the plaintiff’s claim is quantified upon the basis of its demolition and rebuilding of the development. The first, second and third defendants apply to strike out that part of the claim, upon the basis that it cannot succeed. In essence, their argument comes from the fact that the plaintiff is no longer the owner of these buildings or the land on which they stand. The development is now the subject of a layered community title scheme, and the plaintiff is the owner of only a relatively small number of the lots. The defendants say that from the facts alleged against them, there is no compensable loss because the plaintiff explains neither why nor how it would demolish what is now the property of others.
  1. Each of the applicants applies to strike out certain parts of the statement of claim upon further bases. And each application, as filed, sought orders for the provision of further particulars. As I indicated at the hearing, the applications for particulars should await the determination of these strike out applications. I will first discuss the question of whether the plaintiff can claim damages quantified by reference to a demolition and rebuilding of the development.

The demolition claim

  1. Each of these defendants is sued for breach of contract and in the alternative for negligence. Each is said to be responsible for the same result, which is that the buildings are structurally unsound and have certain other defects, and they ought to be demolished and rebuilt. The first and second defendants, as architects, are said to have caused that by both defective design and defective supervision. The third defendant is said to have caused that by defective management and supervision of the construction.
  1. The plaintiff pleads that in or about February 2003, the third defendant “abandoned the development”,[1] when the development was then “incomplete, defective and structurally unsound, such that it has a life expectancy of only ten to fifteen years, as opposed to a structural life expectancy of more than one hundred years and a service life of sixty to seventy years”.[2]  In the particulars of the “structural deficiencies”, the plaintiff alleges that within three of the development’s four buildings, the concrete floors walls and roofs of the basement car park are structurally inadequate and prone to failure. 
  1. Paragraphs 74 and 75 are as follows:

“74.The only and/or the only reasonable method of rectifying the reduced life expectancies, the defects and the structural deficiencies pleaded in paragraph 57 above is to demolish and rebuild the development.

  1. As at 30 June 2005, the estimated reasonable cost of rebuilding was $28,746,471.”

Paragraph 76 then alleges that by reason of the breaches of contract and duty pleaded in certain paragraphs (which include allegations against all but the seventh defendant), “the Plaintiff has suffered loss and damage in respect of the cost of rebuilding the development in the sum of $28,746,471 and claims that sum”.

  1. Paragraph 81 of the statement of claim pleads that the plaintiff “will suffer loss and damage in respect of the cost of demolishing the development calculated as at 30 June 2005 in the sum of $2,285,000”.
  1. Paragraph 82 of the statement of claim is significant as further demonstrating that the plaintiff’s case is premised upon the likelihood, and perhaps the inevitability, of its demolishing and rebuilding:

“82.Arising out of the rebuilding of the development as contemplated by paragraphs 74, 75 and 76 above, and assuming that any compensation arrangement with current third party unit owners and original third party purchasers does not entail the non-cash return of a properly completed residential property unit, a benefit may accrue to the Plaintiff in respect of:

(a)the extent to which the achieved net sale proceeds upon a unit sale post-rebuilding of the development exceeds the actual net sale proceeds achieved for that unit pre-demolition; and/or

  1. the extent to which the achieved net sale proceeds upon a sale of commercial or retail premises exceeds the actual net sale proceeds achieved for that commercial or retail premises pre-demolition.

which gains would need to be set-off against the plaintiff’s claim for damages.”

This indicates that the plaintiff intends to reach compensation arrangements with the present lot owners for the acquisition of their properties, on terms which may or may not result in lots in a rebuilt development being conveyed to them.

  1. Paragraph 79 pleads that “by reason of the matters pleaded in paragraph 57 above, the Plaintiff has suffered loss and damage in respect of the net leasing income it would have derived from the commercial and retail properties at the development calculated as at 30 June 2005 in the sum of $3,612,860”. Particulars of that are said to be contained in an accountant’s report provided to the defendants. To understand this part of the plaintiff’s claim, it is necessary to consider not only that report but also a valuation report upon which the accountant expressly relies. According to these reports, the case seems to be that because of the demolition of the buildings is not only warranted by their structural condition but also likely to occur, the income which the plaintiff has derived, and will derive, from letting those parts of the development which are still owned by it, will be less than it would have been. So this component of the claim, which is not the subject of a strike out application, at least on the same argument, is also premised upon the likelihood of a demolition and rebuilding of effectively the entire project. This particular claim is distinguishable because it is for a loss from the likelihood of the development being demolished and rebuilt by someone, but not necessarily the plaintiff.
  1. Accordingly, the costs of demolition and rebuilding, totalling $31,031,471, are claimed upon the premise that the plaintiff will demolish and rebuild the development. The defendants say that this is impossible, because that which the plaintiff says it will demolish is not the plaintiff’s property. It constitutes residential apartments, retail and office premises, most of which have long been sold by the plaintiff and there is no allegation that the plaintiff’s sale prices were affected. And the plaintiff pleads no circumstances from which the plaintiff is obliged, legally or morally, to do this work. Nor does the plaintiff plead that the concurrence of the owners has been obtained to this proposal.
  1. The land upon which these buildings were constructed has been subdivided by a layered scheme under the Body Corporate and Community Management Act 1997 (Qld).  There is a principal scheme under which there are three schemes for different parts of the development.  The first is the Raby Bay Harbour Villas Community Title Scheme 30943, consisting of twenty-four residential apartments within a stand alone three-storied building.  The second is the Raby Bay Harbour Apartments Community Title Scheme 30944, consisting of thirty residential apartments on the second and third floors of two further three-storied buildings.  The third is the Raby Bay Harbour Commercial Centre Community Title Scheme 30945, which consists of twenty-two lots, which are fourteen shops and eight offices.  Six of the shops are on the ground floors of the two buildings which contain those thirty apartments.  The other shops are on the ground level of an adjoining building.  The offices are in yet another building, in which there is a level where further residential apartments are yet to be constructed.  That level is a separate lot in the principal scheme, and is owned by the plaintiff.  It also owns some nineteen lots in the Raby Bay Harbour Commercial Centre Community Title Scheme 30945.  Accordingly (as the plaintiff pleads), there are some fifty-four residential apartments within the “Villas” and “Apartments” schemes, and three lots within the Commercial Centre, which it does not own.
  1. Although its pleading makes no reference to it, the plaintiff accepts that a demolition of the buildings would require the termination of the Community Title Schemes. Section 78 of the Body Corporate and Community Management Act provides for the termination of a scheme.  Only a ‘basic’ scheme can be terminated: s 77.  Here there are three basic schemes, but also the principal scheme.   The plaintiff says that the basic schemes could be amalgamated, resulting in one basic scheme (s 83).  That single scheme could then be terminated in one of the ways prescribed by s 78.  According to s 78 and s 86, all of this could be effected only with the agreement of each and every owner of a lot, or by an order of the District Court if satisfied that it would be just and equitable to do so.  The pleading does not refer to any facts and circumstances indicating that either the unanimous approval of owners or the approval of the District Court is likely to be obtained.  According to the plaintiff’s pleaded case, the buildings have not yet failed; rather their life expectancy is ten to fifteen years.  It is far from clear that every owner, or the District Court, would approve an immediate demolition. 
  1. In each case, the plaintiff claims that these defendants are liable for the same sum, whether as damages for breach of contract or damages for negligence. For the contractual claim, from Robinson v Harman[3] the general rule is that “where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”.  Referring to that rule, Brennan J in Commonwealth v Amann Aviation[4] said that it “identifies both the subject of compensation (loss sustained by reason of a breach of contract) and the measure of damages (the amount required to place the innocent party in the same situation as if the contract had been performed).”  That distinction is significant here, as I will discuss.  In tort, the plaintiff is entitled to an award which would place him in the situation he would enjoy if the wrong had not been committed.[5]  The defendants accept, at least for the purposes of these applications, that there is no significant difference between the contract and tort  measures of damages which is significant in this case.
  1. In Bellgrove v Eldridge,[6] the appellant builder had not built according to the agreed specifications with the result that the foundations were defective and the building was unstable.  The principal question was whether the owner’s damages should be measured by the difference between the value of the building as built and its value as it should have been, or instead by the cost of having the building conform with what the contract required.  It was held that ordinarily the latter was the appropriate measure.  In that case, what was required was the demolition and rebuilding of the respondent’s house.  It was held that she should have the cost of this work, although it was uncertain whether she would have it performed.  Dixon CJ, Webb and Taylor JJ said:[7]

“It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another.  If she does not, it is said, she will still have a house together with the cost of erecting another one.  To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all.”

It was also held that this usual measure was subject to the qualification that the performance of work to produce conformity with the contract “must be a reasonable course to adopt”.[8]  The Court instanced a case of a house to be built with rendered external walls of second hand bricks, which was in fact constructed with new bricks, as an example of where the work of demolition and re-erection would be unreasonable.  The Court then concluded:[9]

“… The question whether demolition and re-erection is a reasonable method of remedying defects does not arise when defective foundations seriously threaten the stability of a house and when the threat can be removed only by such a course.  That work, in such circumstances, is obviously reasonable and in our opinion, may be undertaken at the expense of the builder.”

  1. Bellgrove v Eldridge can be relevant also to a claim in tort, where, for example, the defendant’s negligence has resulted in the building having a defect which it was the defendant’s duty to avoid.[10]  It need not now be considered whether the Bellgrove measure has the general application in such cases as it has contractual claims.  The defendants do not dispute that the measure of this plaintiff’s claims, in contract or tort, would be according to Bellgrove if the plaintiff was still the owner.
  1. Bellgrove provides support for this plaintiff’s case then in two respects.  First, it holds that the cost of demolishing and rebuilding a structurally unsound building is the appropriate measure of damages, the qualification of reasonableness not being significant where the defect is of that kind.  Secondly, it holds that it is unnecessary, at least in every case, to prove that there will be a demolition and rebuilding. 
  1. The plaintiff in Bellgrove had remained the owner of the building.  However, Bellgrove was applied in favour of a plaintiff which had sold the relevant property in Director of War Service Homes v Harris.[11]  The respondent there was a builder who had breached his contract with the appellant by substantially departing from the specifications for ten houses.  It was only after the houses had been sold that the breaches were discovered and there were complaints by occupiers to the appellant.  The appellant demanded that the respondent rectify the defects but he refused.  The appellant then had another builder do the work at the appellant’s cost, and the appellant claimed that cost from the respondent.  The trial judge dismissed the claim because in his view “the cost of the remedial work was not a loss resulting from the breach of the contract but from a voluntary act.”[12]  That was reversed by the Full Court, in which the principal judgment was given by Gibbs J.[13]  Bellgrove was applied in this way:[14]

“It is true that Bellgrove v Eldridge was not a case in which the building owner had sold the building before bringing the action but I am unable to see any reason why there should be a different measure of damages in such a case and nothing is said in Bellgrove v Eldridge to support any such distinction.  When the builder, in breach of his contract, delivered to the building owner a building that did not conform to the specifications, the owner became entitled to recover damages according to the measure approved in Bellgrove v Eldridge.  If the owner subsequently sold the building, or gave it away, to a third person, that would not affect his accrued right against the builder to damages according to the same measure.  The fact that the building had been sold might be one of the circumstances that would have to be considered in relation to the question whether it would be reasonable to effect the remedial work, but assuming that it would be reasonable to do the work the owner would still be entitled to recover as damages the cost of remedying the defects or deviations from the contract (assuming of course that the contract price had been paid).  In assessing those damages it would not be relevant whether the owner was under a legal liability to remedy the defects, whether he had made a profit or a loss on the sale of the building, for the builder has no concern with the details of any contract that the owner might make with a third party.  There is a principle that in actions for non-delivery or breach of warranty under a contract for the sale of good “the law does not take into account in estimating the damages anything that is accidental as between the plaintiff and the defendant, as for instance an intermediate contract entered into with a third party for the purchase or sale of the goods” (Rodocanachi v Milburn (1886) 18 QBD 67 at 77; Williams Brothers v Ed T Agius Ltd [1914] AC 510; Slater v Hoyle [1920] 2 KB 11) and this principle (which has been applied to a contract for the sale of a lease, plant, building and stock, treated as realty – Brading v F McNeill & Company Limited [1946] 1 Ch 145) should in my view be similarly applied to the case of a building contract.  The owner of a defective building may decide to remedy the defects before he sells it so that he may obtain the highest possible price on the sale; he may well subject to a condition that he will remedy the defects; or he may resolve to put the building in order after it has been sold because he feels morally, although he is not legally, bound to do so.  These matters are nothing to do with the builder, whose liability to pay damages has already accrued.”

That passage seems to provide sufficient support for the present claim; indeed it suggests that the plaintiff who is a former owner need not plead, as this plaintiff has, that it will demolish and rebuild.  But the difference between that case and the present, of course, is that there the plaintiff had rectified the works, and it was the amount which it had spent which it sought to recover.  The question was one of causation: whether a proven loss, from the plaintiff’s expenditure upon remedial works, was relevantly caused by the defendant’s breach of contract.  The disposition of the appeal required only a decision as to whether there was that causal relationship, the trial judge having dismissed the claim upon that issue.  Many of the remarks in the above passage were obiter dictum

  1. In De Cesare v Deluxe Motors Pty Ltd[15] Doyle CJ[16] said of that passage from Director of War Service Homes v Harris that “it may be expressed in terms that are too absolute”, but agreed that “the relevance of the sale of the building is limited to its relevance to the question of whether it would be reasonable to effect the remedial work”.
  1. In De Cesare a builder had gone into liquidation leaving the works in an  incomplete and defective state.  The cost of making the works conform to the contract was found to be about $108,000 of which the building owner had spent only some $17,000 before it sold the building.  There was no evidence or finding as to the effect of the incomplete and defective work upon the price for which the building was sold.  The claim was by a sub-contractor for a statutory lien against what he said was due from the (former) owner to the builder.  The question was whether the owner’s entitlement to damages for breach of contract was worth at least as much as the amount otherwise owing to the builder.  The appellant’s argument was that the owner’s loss was limited to the $17,000 which it had spent before selling the building.  The appeal was unanimously dismissed.  Whilst noting that the magistrate had made no finding as to the effect of the incomplete and defective works upon the value of the building, Doyle CJ said that it should not be assumed that there was no effect on value and it was reasonable to assume that there had been that effect.[17]  Nyland J, with whom Bollen J agreed, applied the above passage from Director of War Service Homes v Harris.
  1. In Scott Carver Pty Ltd v SAS Trustee Corporation[18] Hodgson JA said[19] that De Cesare:

“is to be explained on the basis that the circumstances were not sufficient to displace the cost of rectification as the measure of damages.  It was found reasonable to undertake the rectification work, and it was appropriate to infer that the defects depreciated the value of the property; and there was nothing to suggest that the price obtained on sale was not affected by that depreciated value.”

  1. Alucraft Pty Ltd (in liq) v Grocon (No 2)[20] involved a claim by a sub-contractor for payment against the head contractor, which alleged that the sub-contractor’s work was defective.  This was some years after the owner of the building had issued a final certificate.  The sub-contractor argued that there was no prospect of the head contractor being called upon to rectify the work so that the sub-contractor was not liable for damages.  Smith J held that there remained a risk that the owner would call upon the head-contractor to rectify the defective work, but that the risk was remote and the rectification costs of $35,000 should be discounted to result in an award of $5,000 to reflect that risk.  Director of War Service Homes v Harris was distinguished upon a number of grounds, including the fact that in that case, the rectification costs had been incurred.
  1. In Central Coast Leagues Club Ltd v Gosford City Council & Ors,[21] Giles CJ Comm D held that damages should not be awarded for the cost of work required to effect compliance with the contract, because he concluded that the rectification work would not be performed.  He reached that conclusion because the Land and Environment Court had ordered different and more extensive work to be performed.  He held that Bellgrove did not permit an award of damages for the cost of rectification where there was a finding of fact that the cost would never be incurred because the fact “that the rectification work will never be undertaken means that there is no loss”.[22]  The judgment did not involve the qualification of reasonableness under the Bellgrove measure; rather it held that the measure had no operation where there was no loss.  The judgment then is inconsistent with the obiter in Director of War Service Homes v Harris.
  1. In Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd & Anor,[23] there was a challenge to an assessment of damages against an architect whose default had resulted in the need for some rectification or rebuilding of some defective paving.  The owner obtained quotes from contractors, the cheapest of which was $566,560.  But the pavement was not rebuilt because the owner decided to redevelop the premises by demolishing buildings and constructing a new building, with the result that the reconstruction of the pavement was only effected in part, and at a lessor cost.  Giles JA, with whom Santow JA agreed, held that the plaintiff should recover only the cost of that rectification work which was performed.  Consistently with his reasoning in Central Coast Leagues Club, Giles JA held that the cost of the unperformed rectification work was not recoverable once it was clear that it would never be performed.
  1. In Scott Carver Pty Ltd v SAS Trustee Corporation the respondent corporation had recovered damages against the appellant architects, quantified by the estimated cost of rectifying certain defects.  SAS began its proceedings in 1997 before selling the building in 1998 to a trust in which it held a fifty per cent interest.  It was not an arm’s length sale.  The parties to it had agreed that certain deductions would be made from the price including a sum for the rectification works.  There was no obligation under the contract of sale for SAS to undertake any of the rectification.  A referee held that there was no diminution in value of the property resulting from the defects, if the property was to be valued by the capitalisation of its income, but that the “value of the completed contract works” was diminished effectively by the cost of the necessary rectification.  The referee concluded that SAS was entitled to damages for the cost of rectification, and his report was adopted by a decision of a Master.  On appeal from the Master’s decision, the presently relevant question was whether SAS could recover those damages.  The appellant’s argument was that there was no loss, because the referee had found that the value of the property was unaffected by the defects and the plaintiff had sold it.  It was submitted that the overriding principle was that a plaintiff should be awarded damages only in so far as it was necessary to put it in the same position as if the contract had been performed, in reliance in particular upon Commonwealth v Amann Aviation Pty Ltd.[24] 
  1. The appeal was unanimously dismissed although for differing reasons. Although Hodgson JA held that the Bellgrove measure applied in the facts of that case, his judgment provides support for the present defendants’ argument.  Hodgson JA said:

“38.I accept that Bellgrove does not require that damages for breach of contract by reason of defective building work must in all cases include the cost of rectification, so long as rectification would be a reasonable course to adopt.  If by reason of subsequent events, the owner has suffered a different loss or no loss, then the underlying principle expressed by Deane J in Amann at 116 does mean that the damages must be measured by the loss actually suffered.

  …

  1. Bellgrove establishes that damages can be recovered on the basis of cost of rectification where the owner may or may not carry out the rectification, so long as it would be reasonable to do so; and in my opinion that result will be displaced only if there are supervening circumstances that show with substantial certainly this will not happen, as occurred in Central Coast Leagues Club and Hyder.

   …

  1. The sale of the property of itself does not displace the Bellgrove measure, as illustrated by De Cesare and Harris.  If it were shown that the price received on a sale was unaffected by the defects, or that it was reduced by an amount less than the cost of rectification, this could displace the Bellgrove measure.”

Ipp JA expressly agreed with the above passage from Director of War Service Homes v Harris, and said[25] that “were this not to be the rule, the builder in breach of contract would obtain a windfall, depending on coincidence (the proprietor’s whim in selling) that would not be deserved”.  Bryson JA agreed that the appeal should be dismissed, holding that the measure from Bellgrove was not displaced for these reasons:

“131.In my opinion the transaction spoken of as the sale of the building does not constitute a reason of any kind for concluding that SAS did not suffer a loss.  The situation is much the same as if SAS had continued to own the building, left it unrepaired and decided to spend its damages on something else.  The situation is quite unlike situations in which a building becomes useless or repairs would achieve nothing because of some supervening change in planning law or some administrative decision.  Senior Counsel for Scott Carver contended that SAS would enjoy a windfall if it sold the building at a price unaffected by the need for repairs, received damages and did not carry out repairs.  The reference to a windfall was unfortunate: it can readily be applied to the case of a builder whose liability for defective works is said to end when the owner sells the building at a good price.”

  1. In my respectful opinion, the resolution of the present issue should not be according to whether the defendant could be said to obtain a windfall, or an “undeserved” windfall. The remedy in question is not a restitutionary one; it is an award of compensatory damages. The purpose of the remedy is to compensate for a proven loss. There are two questions: the first is whether, in the events which have occurred, the plaintiff has suffered a loss, and the second is how it is to be measured in an assessment of damages. This is the difference between the subject of compensation and its measurement to which Brennan J referred in Amann Aviation[26] as I noted earlier.  Bellgrove is authority for how, ordinarily, the plaintiff’s loss should be measured. 
  1. I agree then with the judgments of Giles JA and Hodgson JA that Bellgrove does not require, in all cases of defective building work which it is reasonable to rectify, an award of damages and in the amount of the cost of that rectification.
  1. In holding that the owner in Bellgrove need not prove that she would demolish and rebuild her house, the court was not holding that proof of a loss was unnecessary.  The respondent there remained the owner of the house, and her loss came from her not having the benefit of the performance of her contract, which mattered to her because of the consequences for her enjoyment of her property.
  1. Similarly, in Director of War Service Homes v Harris, there was no question that the plaintiff had suffered a loss.  As I have said earlier, the issue for determination was whether that loss (the plaintiff’s expenditure on rectification works) was relevantly caused by the breach of contract.  I agree with Doyle CJ in De Cesare that the obiter dictum of Gibbs J is, with great respect, “expressed in terms that are too absolute”.  Where a building owner does not have a building that conforms with that required by its contract (or which it would have had absent a breach of a duty of care owed to it) the owner suffers a loss, and one to be compensated according to the measure expressed in Bellgrove, unless, as Hodgson said in SAS,[27] that is displaced by supervening circumstances showing that a different loss or indeed no loss has been suffered.
  1. The question then is whether from the facts which are pleaded in the present case, (perhaps considered with other facts which are not or could not be in controversy), this case is so plainly one in which supervening events have resulted in no loss that the pleading of this part of the case should be struck out. Hodgson JA held that an award according to Bellgrove would be displaced only where the supervening circumstances showed “with substantial certainty” that the owner would not carry out the rectification.  The defendants here submit that there is that certainty.  They say that it is impossible for the plaintiff to carry out the rectification because, they argue, the plaintiff could not lawfully demolish and rebuild the property of others.  That is so, except if each owner or the District Court agrees to the proposal.  There is no specific reference to the prospect of such an agreement, either of owners or the court, in the statement of claim.  The plaintiff does not plead that it has obtained or is likely to obtain that agreement; nor does it plead the circumstances (if any) which make that agreement likely.
  1. However, the plaintiff does plead that it “will suffer loss and damage in respect of the cost of demolishing the development”.[28]  The particulars of that allegation refer to an accountant’s report, which is in terms suggesting that the plaintiff will undertake this work.  There is an implicit allegation that the agreement of owners will be obtained, which is indicated by paragraph 82.  But the likelihood that each and every owner will agree to the demolition of this development is not so obvious that the plaintiff need not explain it, by pleading the facts and circumstances from which it comes.  Those facts and circumstances should be pleaded.  And if the plaintiff has already the agreement of some owners, that fact should be pleaded and with proper particulars.
  1. There is no evidence (either way) as to the likelihood of the agreement of the owners. The implicit assertion that their agreement will be obtained is not so obviously groundless that it should be struck out, at least at present, on the ground that it has no prospects.
  1. What I have regarded as the implicit allegation as to the owner’s agreement should be made explicit. The plaintiff should be required to plead its case as to whether it has obtained the consent of any owners and its case as to the likelihood of obtaining their consent or the approval of the District Court, by reference to the facts matters and circumstances from which that likelihood is alleged. The plaintiff should have some reasonable time in which to amend its pleading to add those allegations. But absent any amendment, it is my view that it would be appropriate to strike out paragraphs 74, 75, 76, 81 and 82 of the statement of claim, because to allow the plaintiff to plead those matters without revealing its case (if any) as to how it could demolish the buildings would prejudice a fair trial: r 171(1)(b) of the Uniform Civil Procedure Rules.  I would allow twenty-eight days from this judgment.

Paragraph 58: Architects’ liability for incompleteness and structural unsoundness

  1. The first and second defendants apply to strike out paragraph 58. To put that in context it is necessary to set out paragraphs 56 and 57 (without its particulars):

“56.On or about February 2003 the Third Defendant abandoned the development and the plaintiff had no choice but to take possession.

  1. As at that date, the development was incomplete, defective and structurally unsound, such that it has a life expectancy of only ten to fifteen years, as opposed to a structural life expectancy of more than one-hundred years and a service life of sixty to seventy years.”

Within paragraph 57 particulars are then given of those three matters of incompleteness, defects and structural unsoundness.  Then follows paragraph 58 which (as part from its particulars) is as follows:  

“58.The matters pleaded in paragraph 57 above have been caused or contributed to by the breach of contract and/or negligence of the First Defendant and/or Second Defendant, as particularised below.”

Extensive particulars then follow, and they are expressed to be particulars of certain pleaded terms of the architects’ retainer and breaches of duties of care.

  1. The architects say firstly that they cannot be responsible for all of “the matters pleaded in paragraph 57” (as paragraph 58 alleges) because one of those matters is the incompleteness of works, which is apparently due to the third defendant’s abandonment of the development (as pleaded in paragraph 56). To that complaint, the plaintiff’s submission[29] is that the pleading that the development was abandoned and incomplete is “merely a pleading of a material event; it is not a material fact going to breach of obligation by the first and/or second defendants”.  This is an apparent concession that the plaintiff does not attribute responsibility for the abandonment by the third defendant, and therefore for the incompleteness of the works, to the architects.  Yet the incompleteness of the works is one of the matters complained of, and extensively particularised, in paragraph 57.  Paragraph 58 requires amendment to distinguish between those matters within paragraph 57 which are attributed to the architects and those which are not.  At least for this reason paragraph 58 should be struck out with leave to replead.
  1. The second complaint about paragraph 58 relates to the structural deficiencies particularised in paragraph 57. That paragraph alleges structural unsoundness, such that the development has a “life expectancy of only ten to fifteen years, as opposed to a structural life expectancy of more than one-hundred years and a service life of sixty to seventy years”. The architects point out that the plaintiff pleads against the third defendant and the fourth defendant specific duties relating to the achievement of structural and service lives for the development in those terms.[30]  But there is no corresponding allegation that the architects owed specific duties in those terms.  So they submit that they are not alleged to have owed duties which would be breached by the development having such a limited life.
  1. The plaintiff points to the contractual duties pleaded as implied terms in paragraph 22 and the duties of care pleaded in paragraph 44. For example paragraph 22 pleads that the architects were obliged to “ensure that the redesign would be in accordance with good and sound architectural and engineering practice”,[31] and that “the development, as constructed, would be reasonably fit for its intended purpose … namely, as a good quality marketable mixed purpose commercial, retail and residential complex”.  Duties of care are pleaded in similar terms.  The plaintiff says that a development with a life of ten to fifteen years is not one which is fit for that purpose.  The plaintiff says it is unnecessary for it to plead, as it has against other defendants, a specific duty to ensure that the development had a certain life.  I accept that submission.  The case in this respect is sufficiently clear: the plaintiff particularises paragraph 58 by reference to certain implied terms (including those I have mentioned) and certain of the duties of care pleaded against the architects.  And the allegation that, if the building has such limited life, it is in consequence of the breach of such duties could not be struck out as having no prospects.
  1. But because the first matter of complaint, which is that relating to the incompleteness of the works, paragraph 58 is defective. It will be ordered that it be struck out with liberty to replead it within 28 days from this judgment.

The architects’ role – paragraphs 16, 20 and 21(c)

  1. The plaintiff pleads in paragraph 16 that the first and second defendants, or either of them, orally offered to be “the plaintiff’s consultant architect and/or project manager and/or principal consultant for the purposes of the development”. The particulars of paragraph 16 include the following:

“(a)The words constituting the said offer were to the following effect:

(i)the Second Defendant could design a better development than that contemplated by the original design;

(ii)the Second Defendant was an experienced architect with specific experience in the type of development under contemplation by the plaintiff;

(iii)the approximate cost of constructing the development as redesigned would be $10m;

(iv)his fees would be 5% of the construction costs and would include all architectural plans and consultants’ fees including engineers’ fees and surveyors’ fees;

(v)the 5% fee was also for the management of the project;

(vi)the Second Defendant would confirm the terms on the standard conditions in writing.”

Paragraph 17 pleads that the plaintiff orally accepted their offer. 

  1. Paragraph 18 pleads a written offer by the first defendant to the plaintiff “to employ and manage the consultant team for the development on the terms and conditions in that letter”. Paragraph 19 pleads that the plaintiff, by a letter dated 8 September 2001, “confirmed the engagement of the first defendant to provide consultancy services for the development incorporating all building design disciplines and agreeing to a fee of 5% of the total construction cost”.
  1. Paragraph 20 pleads:

“In the premises:

(a)In or about early August 2001, the Plaintiff orally engaged the First Defendant and/or the Second Defendant to act as its architect and/or project manager and/or principal consultant for the purposes of the development; and/or

(b)On or about 8 September 2001, the Plaintiff engaged the First Defendant in writing to act as its architect and/or project manager and/or principal consultant for the purposes of the development.

These engagements being referred to as “the architect’s retainer”.”

  1. Paragraph 21 pleads express terms of the architects’ retainer, one of which (para 21(c)) is that “the First Defendant and/or the Second Defendant would act as the plaintiff’s architect and/or project manager and/or principal consultant for the purposes of the redesign and of the development”.
  1. The architects say that the use of the expression “and/or” in these paragraphs is ambiguous, embarrassing and unintelligible. They claim to be at a disadvantage from the plaintiff’s pleading alleging that each of them offered and was retained to act as “consultant architect and/or project manager and/or principal consultant”. It is not clear to me why the plaintiff pleads in those terms. Although paragraph 16 pleads an oral offer in those terms, the particulars of paragraph 16 make it clear that it is not the plaintiff’s case that the second defendant used those words. Nor are they said to have been used in the written offer made by the first defendant. This description of the architects’ role is the plaintiff’s characterisation. It seems to add nothing to the plaintiff’s case.
  1. In my view it is preferable for the pleading to avoid this description of the alternative roles of the architects which is the subject of their present complaint. Because it is not said that the architects orally or in writing offered to act specifically as project managers or as “principal consultants”, the use of those terms in the pleading tends to distract from the terms of the contract. It encourages the assessment of the architects’ performance by reference to obligations which may not be the same as the ones to which they agreed. I am persuaded that paragraphs 16, 20 and 21(c) should be struck out with leave to replead within twenty-eight days from the date of judgment.

Further applications by the third defendant

Implied terms

  1. In paragraph 26 the plaintiff pleads that on or about 12 January 2002, the plaintiff and the third defendant entered into an agreement whereby the third defendant agreed “to construct the development for the plaintiff under a construction management arrangement on a cost-plus basis”. The plaintiff refers to this contract as “the construction management agreement”.
  1. In paragraph 27 the plaintiff pleads that on a date unknown but prior to 5 July 2002, the plaintiff and the third defendant agreed to vary that contract by executing and agreeing to be bound by a document entitled “Construction Management Contract”.
  1. Paragraph 28 pleads certain express terms “of the construction management agreement until that agreement was varied as pleaded in paragraph 27”. Paragraph 29 then pleads “express terms of the construction management agreement as varied”. The language of paragraph 28 suggests that the express terms there pleaded were terms which no longer formed part of the parties’ contract once it had been varied. But on another view, the plaintiff’s case could be that the terms pleaded in paragraph 28 remained terms after the variation. This ought to be clarified. The third defendant has sought particulars as to which of the express terms were varied. Although, as mentioned already, the hearing was concerned with applications to strike out paragraphs, and not with particulars, the need for the plaintiff to clarify its case in this respect can now be noted without any consequential order at present in relation to paragraphs 27 to 29.
  1. The plaintiff’s case is that the third defendant was appointed to act as a “construction manager”. The plaintiff was to engage sub-contractors and suppliers as the plaintiff’s agent. The plaintiff was to pay the third defendant a fee (three per cent of the value of the work completed). The third defendant was not obliged to perform building construction but it was obliged to co-ordinate and supervise the construction. One term of the (original) agreement pleaded in paragraph 28 was that the third defendant was to “attain practical completion for shops at ground level of the development by 10 October 2002”. The third defendant was to “co-ordinate direct and monitor the work and progress” of the contractors and to “monitor” their work “in order to assess their performance and likely future performance and recommend any course of action that may be available to the (plaintiff)”. The third defendant was to monitor the work of those contractors for the purpose also of being “reasonably satisfied that the work has been performed in accordance with the requirements of (their contracts)”.
  1. Importantly, as the plaintiff pleads in paragraph 29(h), the plaintiff was to be responsible for the design of the works, other than design provided by the third defendant, and it was to be the plaintiff which was to retain the services of consultants (such as the architects and engineers).
  1. Paragraph 30 pleads three implied terms of the construction management agreement as follows:

 

“30.There were implied terms in the construction management agreement that the Third Defendant would, as construction manager of the development:

 

(a)carry out its duties with reasonable care, skill and competence to a standard measured by reference to a professionally competent construction manager skilled and experienced in construction and construction management of projects such as the development.

(b)deliver up the development on final completion free of defective work.

(c)deliver up the development on final completion in a state such that it would have a structural life expectancy of more than one hundred years and a service life of sixty to seventy years.”

  1. The third defendant applies to strike out sub-paragraphs (b) and (c) upon the basis that the pleading discloses no basis for the implication of the terms. The terms would be implied only if they satisfied the criteria for the implication in fact of a term, according to BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[32] applied in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales.[33]  The plaintiff particularises some matters from which each of those terms is said to have been implied.  Some of those particulars refer to dealings between the plaintiff and others, and not dealings between the plaintiff and the third defendant.  But more generally, the particulars do not show an arguable case for the implication of the terms pleaded in sub-paragraphs 30(b) and (c).  The particulars rely upon certain of the express terms as well as:

“(c)the fact that the Third Defendant was, and represented itself to the Plaintiff as, a building contractor, sufficiently skilled and experienced to build the development under a construction management agreement;

(d)the fact that the Plaintiff was, to the knowledge of the Third Defendant -

 

(i)a client seeking building services from the Third Defendant for the construction of the development;

(ii)not experienced in design, management, supervision or construction of works such as the development;

(iii)not experienced in the construction of developments such as the development under a construction management agreement;

(iv)relying on the Third Defendant and upon its skill and judgment, and not relying upon itself, in respect of the construction of the development under the construction management agreement.”

As to that particular (c) it is something of a misdescription to say that, according to the express terms pleaded, the third defendant was to “build” the development, but in any case that particular would support no more than the implication of the term pleaded in sub-paragraph 30(a).  The same may be said of the particulars within paragraph (d).

  1. It is unnecessary to set out in this judgment all of the express terms pleaded as part of a contract between the plaintiff and the third defendant. On no view of those express terms was the third defendant a builder in the sense that it contracted to produce a built result. So far as the quality of the work done by the various contractors was concerned, the third defendant’s obligation, according to the pleaded express terms, was to “supervise construction in accordance with consultant documents”[34] and to “co-ordinate, direct and monitor the work and progress of trade contractors to assess their performance and be reasonably satisfied that the work was being performed in accordance with the relevant trade contract”.[35]  Those obligations fall short of an obligation to cause the development to be built free of defective work.  The term pleaded in sub-paragraph 30(b) fails to meet a number of the necessary criteria; it is not reasonable, necessary to give efficacy to the contract or so obvious that it “goes without saying”.
  1. The term pleaded in sub-paragraph 30(c) has essentially the same difficulties. But further, a term cannot be implied in such absolute terms, unqualified by the express obligation of the plaintiff to be responsible for design considerations. It fails to meet those three criteria mentioned for the other implied term. And the reason why a term would be implied with those particular periods for a “structural life expectancy” or a “service life” does not appear from the pleading. For example, why did it “go without saying” that the structural life expectancy would be more than one-hundred years rather than, say, more than seventy-five years?
  1. Accordingly sub-paragraphs 30(b) and 30(c) must be struck out.

Negligence claim against the third defendant

  1. Paragraph 45 pleads that the third defendant owed duties of care as follows:

“45.Arising from the engagement of the Third Defendant by the Plaintiff, as referred to in paragraphs 26 and 27 hereof, to construct the development and/or to be the construction manager of the development, the Third Defendant owed duties of care to the Plaintiff:

(a)to deliver up the development on final completion free of defective work.

(b)to deliver up the development on final completion in a state such that it has a structural life expectance of more than one hundred years and a service life of sixty to seventy years.

(c)to perform of the functions of construction manager with due professional skill and care.

(d)to take reasonable care in the scheduling of work activities on site, so as to produce the optimum economic outcome for the Plaintiff.

(e)to inspect the works on a regular basis.

(f)to supervise the performance of the works with sufficient regularity to be able to determine if there were any deficiencies in design or construction.

(g)to perform the function of detecting any deficiencies in design or construction with due professional skill and care.

(h)to perform the function of having any deficiency in design or construction remedied with due professional skill and care.”

  1. The terms of the duties pleaded in sub-paragraphs (a) and (b) correspond with the implied terms alleged in sub-paragraphs 30(b) and (c), which will be ordered to be struck out. Because the implication of such terms would be, amongst other things, unreasonable, an alternative allegation that the third defendant owed the same obligations in tort seems to have no real prospects. Perhaps it is the plaintiff’s intention to say that, for example, the third defendant was obliged to take reasonable care to see that the development on final completion was free of defective work. But that duty to take care has to be related to the third defendant’s function, which is what it agreed to do.
  1. An immediate problem with paragraph 45 is in the first few lines, where it is alleged that the third defendant was “to construct the development and/or be the construction manager of the development”. There is a difference between those two functions, and according to the express terms which are pleaded against the third defendant, it was in the second respect that the third defendant was to act. It was not obliged to construct the development, and an allegation that it owed a duty of care to do so by “delivering up the development on final completion” in a certain state is not supported by other pleaded facts. Put another way, the introductory words of paragraph 45 misstate the nature and extent of the “engagement of the third defendant by the plaintiff”.
  1. A further difficulty with at least sub-paragraphs (a), (b), (f), (g) and (h) is that, at least on one view, the duty is to produce a result, rather than to take reasonable care in the provision of its services. Those paragraphs can be compared with sub- paragraphs (c) and (d), within each of which the duty is expressed in terms of reasonable care. The introductory words of paragraph 45 do refer to “duties of care” owed by the third defendant, which might be thought to qualify the apparently absolute duties pleaded in sub-paragraph (a) and others. As I read paragraph 45 however, the plaintiff is alleging that the exercise of the alleged duty of care did require, for example, the development to be “free of defective work”. This makes it yet more difficult to see the basis for the imposition of such a duty.
  1. A further problem exists in relation to at least sub-paragraphs (f) and (g) of paragraph 45. It is that the plaintiff would seek to make the third defendant responsible for detecting deficiencies in design, although the parties’ contract expressly made design the responsibility of the plaintiff and others it engaged. There is no justification for such duties “arising from the engagement of the third defendant”. A similar point applies to sub-paragraphs (g) and (h), in that they refer to “the function” of the third defendant as if it were a function which its contract i.e. its engagement by the plaintiff, required it to perform.
  1. There is a basis which can be pleaded for the imposition of a duty in terms of sub-paragraph 45(c), and perhaps 45(d). However the appropriate course is to strike out the whole of paragraph 45, with leave to replead within 28 days, at least because of the problem in the first few lines of paragraph 45 to which I have referred.

Paragraph 60

  1. In the course of discussing the architects’ applications, I have discussed paragraph 57, which pleads that the development was incomplete, defective and structurally unsound, with a life expectancy of only ten to fifteen years, in February 2003 when the third defendant abandoned the development. I have mentioned paragraphs 58 and 59, which plead that the matters in paragraph 57 were caused or contributed to by the defaults of the architects. The third defendant complains about paragraph 60, which pleads that the matters in paragraph 57 were also caused or contributed to by its “breach of contract and/or negligence ... as further particularised below”.
  1. The first thing about those particulars is that in each case they involve an alleged breach of contract, not any alleged negligence. Because of the order for the striking out of paragraph 45, it is appropriate that the words “and/or negligence” be struck out of the second line of paragraph 60.
  1. The particulars of paragraph 60 consist of sub-paragraphs (a) to (f) and occupy some four pages of the pleading. The third defendant applies to strike out all of paragraph 60 on various bases. It is necessary to consider those sub-paragraphs individually.
  1. Sub-paragraph (a) of those particulars provides as follows:

“(a)failing to deliver up to the Plaintiff on final completion a development which:

(i)has a structural life expectancy of more than one hundred years and a service life of 60 to 70 years, this also being a breach of the term pleaded in paragraph 30(c) above;

(ii)is free of defective work, this also being a breach of the term pleaded at paragraph 30(b) above.

(iii)structurally sound.”

Save for (iii) this sub-paragraph pleads a breach of the implied terms pleaded in sub- paragraphs 30(b) and (c), which are to be struck out.  The allegation in (iii) is not referable to any alleged contractual term, save for those implied terms.  It is to be noted that sub-paragraph (a) is not pleaded in the language of negligence: the allegation is a failure to deliver a result rather than a failure to exercise due care.  This paragraph (a) of the particulars of paragraph 60 should be struck out.

  1. Sub-paragraph (b) of the particulars of paragraph 60 is headed “Failures giving rise to the loss and damages (sic) pleaded in paragraph 78”.  In that paragraph it is alleged that, so far as the third defendant is concerned, that the plaintiff suffered loss and damage by the difference between the total paid for the work performed ($26,114,539) and “the reasonable cost” of that work ($19,052,284), by reason “of the breaches of contract and duty pleaded in … 60(b)”.  There is a specific complaint in paragraph (b)(i) that the third defendant failed to co-ordinate construction with the consequence that works were performed in the wrong sequence which required some removal or demolition of works and in turn their reconstruction.  Particulars of those works are then provided in an annexure to the pleading.  That annexure, within three pages, instances some forty respects in which the third defendant failed to co-ordinate works or adequately supervise them.  One problem here is that these particulars, under that heading referring to the loss pleaded in paragraph 78, are not really particulars of the allegation in paragraph 60.  They are not particulars of the breach of contract and/or negligence of the third defendant which is said to have caused what is alleged in paragraph 57, which is an incomplete, defective and structurally unsound building when the third defendant abandoned it in early 2003.  What is alleged within paragraph (b) of the particulars to paragraph 60 belongs elsewhere. 
  1. Further, there seems to be no attempt by the plaintiff to relate the cost of demolishing and rebuilding certain works to a loss within what is claimed in paragraph 78. Not all of those losses could be due to the need to demolish and rebuild some works, and in particular through poor co-ordination and supervision. The plaintiff ought to be able to plead the approximate cost of demolition and rebuilding in relation to the various matters identified in the annexure. A further allegation within this sub-paragraph (b) is that the third defendant did not engage competent staff but instead engaged the sixth defendant, who was not competent. Various breaches are pleaded against him in paragraph 63 of the statement of claim, (except that the extent of allegations there made are against “the fifth defendant and/or the sixth defendant”). There seems to be no attempt to particularise the respects in which the appointment of the sixth defendant has caused the cost of the development to increase, and if so by how much.
  1. But putting aside those questions of particulars, upon which, as mentioned, oral submissions were not made at this hearing, it is appropriate for the other reasons mentioned to strike out from paragraph 60 this sub-paragraph (b).
  1. Sub-paragraph (c) of the particulars to paragraph 60 is pleaded as follows:

“(c)the Third Defendant breached all of the terms of the construction management agreement referred to in paragraphs 28(d), 29(e), 29(f) and 30 above, in that it did not, competently or at all, do the things and/or discharge the obligation imposed upon it by those terms and the totality of those breaches have resulted in and caused the defective state of the development, as referred to in paragraph 57 subparagraphs (a)-(i).”

Because the terms pleaded in sub-paragraphs 30(b) and (c) are to be struck out, there is an immediate difficulty in this paragraph in that it pleads that “the totality of those breaches” has caused the defective state of the development as alleged in paragraph 57.  Accordingly this sub-paragraph (c) will have to be amended, so that it can be seen what the plaintiff’s case would be absent reliance upon those alleged implied terms.

  1. Sub-paragraph (d) is as follows:

“(d)further, the defective state of the basement carpark walls, referred to above, was contributed to by –

(i)the use of concrete in the walls with a test strength of under 25MPa, rather than the strength specified;

(ii)the concrete cover to the reinforcement steel in the walls being, as constructed, greater than as specified by the design,

these matters involving a breach by the Third Defendant of the terms of the construction management agreement referred to at paragraphs 28(d)(iv), 28(d)(v), 28(d)(viii), 29(f) (clause 5 introduction; clause 5(c); clause 5(j) and 30(a) above, with the result that the walls are significantly under strength, in comparison with the design assumptions and are porous and susceptible to attack by salt water and acid from acid sulfate soils.”

The terms of the construction management agreement referred to include the express term that the third defendant was to “undertake quality assurance” (28(d)(iv)), supervise construction in accordance with the consultant documents (28(d)(v), provide a full time foreman on site (28(d)(viii)) and establish a site office and engage competent staff at the site to co-ordinate, direct and monitor the work and progress of contractors (29(f)).  In essence, the case is that the third defendant failed to supervise the relevant contractors to see that the concrete had the specified strength and that the concrete cover was appropriate.  The present question is not whether that allegation is likely to succeed.  It is whether it discloses some case, and in terms which are not objectionable.  In my view this sub-paragraph (d) of paragraph 60 should not be struck out.

  1. Paragraph 60(e) alleges that:

“(e)and further in breach of the terms of the construction management agreement referred to in paragraphs 28(d)(v), 29(e) and 30 failing to ensure that all conditions imposed by the Seventh Defendant on and in respect of the development, were met and/or complied with.

 

Particulars of subparagraph (e)

 

The non-compliances are listed in the Planning Development Certificate dated 27 February 2004 and issued by the Seventh Defendant, in the Statement of Details indicating the fulfilment or non-fulfilment of conditions which relate to Development Approvals granted as required under Section S.5.7.11(1)(a) of the Integrated Planning Act.”

Paragraph 28(d)(v) is the pleaded express obligation to “supervise construction in accordance with consultant documents”.  A breach of that term is not obviously one which would result in a breach of the conditions imposed by the local authority.  Paragraph 29(e) is the pleaded express obligation that the third defendant should act as the agent of the plaintiff.  The relevance of that to the requirements of the local authority is even less clear.  Then there is paragraph 30 which will be struck out and repleaded in more limited terms.  The basis for the obligation to ensure that all conditions imposed by the local authority were met, insofar as that is said to be within the terms in paragraphs 28(d)(v) and 29(e), does not appear strong.  Nevertheless it is not so obviously bad that it should be struck out at least at this stage.  The order in relation to sub-paragraph (e) of the particulars of paragraph 60 should be that the words “and 30” be struck out. 

  1. That leaves sub-paragraph (f) of the particulars of paragraph 60. It is in these terms:

“(f)Further, the matters referred to in paragraphs 57(j)(iii) and 57(k)(iii) were caused or contributed to by breaches of the terms of the construction management agreement referred to in paragraphs 28(d)(iv), 28(d)(v), 29(f)(clause 5(c)), 29(f) (clause 5(j)), 29(g) and 30 in that –

(i)the Third Defendant knew or ought to have known of the presence of actual or potential acid sulfate soils on the site, where the basement carparks under buildings 1, 2 and 3 were to be constructed;

(ii)the Third Defendant knew or ought to have known that the Seventh Defendant required such soils to be detected, treated or removed from site;

(iii)under the supervision of the Third Defendants, some attempt was made to treat and/or remove from site acid sulfate soil materials, but that attempt was ineffective and incomplete, so that potential and actual acid sulfate soils remain on the site, in the vicinity of the walls and floor of the basement.”

What are the matters referred to in paragraphs 57(j)(iii) and 57(k)(iii)?  Paragraph 57(j) pleads that the concrete floor slabs of the basement car park of three of the buildings are structurally inadequate and failing or will fail due to the effects of three things, the third of which is “(iii) the acid sulphate content of the said groundwater”.  Paragraph 57(k) makes a similar allegation in relation to the walls of those buildings.  The case is, relevantly, that the floors and the walls of the basement car parks are prone to failure by reason of three things, one of which is the particular content of the ground water.  It is alleged that the third defendant knew or ought to have known of the condition of soils affected by that ground water and of the need to remove such soils from the site, but that the third defendant failed to supervise the works as necessary to have those soils removed.  That case is not so flawed that it should be struck out, save in its reliance upon the terms pleaded in paragraph 30.  It will be ordered that the words “and 30” be deleted from sub-paragraph (f) of the particulars of paragraph 60.

  1. The third defendant argues that the claim against it is defective because it is a “global” claim in that the plaintiff “cannot link any particular breach with any specific defect” so that even on this basis alone, all of paragraph 60 and its particulars should be struck out. I do not entirely accept that submission. For example, the defective state of the basement car park is alleged to have been caused by certain specified defaults, rather than everything complained of in paragraph 60. There is force in the complaint that the plaintiff has not particularised the specific losses which came from specific defaults. But that involves a question of particulars which may have to be considered, but in the context of a pleading which is amended according to this judgment.
  1. Nor do I accept the third defendant’s submission that the pleading is defective because “it does not attempt to particularise that part of the loss caused by each of the defendants”. A loss can be caused by the defaults of more than one defendant, and the relevant question within this application is whether its sufficiently particularises the loss caused by the third defendant. As already explained, some parts of paragraph 60 is tenable enough for them to withstand this strike out application.

Orders

  1. The paragraphs 16, 20, 21(c), 30(b), 30(c), 45, 58 and sub-paragraphs (a), (b), (c), (d) of paragraph 60 and “and 30” where that expression appears at paragraphs (e) and (f) of paragraph 60 of the statement of claim will be struck out. Within twenty-eight days of this judgment the plaintiff will file and serve an amended statement of claim which pleads the facts and circumstances from which it is likely that all owners of a lot within any relevant community title scheme will agree to the demolition and rebuilding of the development which is the subject of the allegations in paragraphs 74, 75, 76, 81 and 82 of the statement of claim, or from which it is likely the District Court is likely to make such orders as are necessary to enable the plaintiff to effect that demolition and rebuilding. Within twenty-eight days from the date of this judgment, the plaintiff will have leave to amend its statement of claim in relation to the matters presently pleaded in paragraphs 16, 20, 21(c), 45, 58 and 60 of the statement of claim, in accordance with this judgment.
  1. I will hear the parties as to costs.

Footnotes

[1] Paragraph 56

[2] Paragraph 57

[3] (1848) 1 Ex 850, 855; 154 ER 363, 365 applied in the Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 80, 98, 135-136, 148, 161

[4] (1991) 174 CLR 64, 98

[5] Gates v City Mutual Life Assurance Society Ltd (1985-1986) 160 CLR 1, 12

[6] (1954) 90 CLR 613

[7] (1954) 90 CLR 613 at  620

[8] (1954) 90 CLR 613 at 618

[9] (1954) 90 CLR 613 at 619

[10] See e.g. Kirkby & Anor v Coote & Ors [2006] QCA 61

[11] [1968] Qd R 275

[12] [1968] Qd R 275, 278

[13] with whom Stable and Hart JJ agreed

[14] [1968] Qd R 275, 278-279

[15] (1996) 67 SASR 28

[16] (1996) 67 SASR 28, 35

[17] (1996) 67 SASR 28, 30

[18] [2005] NSWCA 462

[19] [2005] NSWCA 462, [42]

[20] [1996] 2 VR 386

[21] Central Coast Leagues Club Ltd v Gosford City Council & Ors, unreported, Supreme Court of New South Wales, Giles CJ Comm D, 55046/94, 55011/96, 9 June 1998

[22] Central Coast Leagues Club Ltd v Gosford City Council & Ors, unreported, Supreme Court of New South Wales, Giles CJ Comm D, 55046/94, 55011/96, 9 June 1998 at 216

[23] [2001] NSWCA 313

[24] (1991) 174 CLR 64, 116

[25] At [122]

[26] Cited above at [14]

[27] At [38]

[28] Paragraph 81 of the statement of claim

[29] The respective submissions on this paragraph were in writing, delivered after the hearing

[30] Paragraphs 30(c), 37(c), 45(b) and 47(b)

[31] Paragraph 22(a)(ii)

[32] (1977) 52 ALJR 20, 26

[33] (1981-1982) 149 CLR 337, 347

[34] Statement of claim paragraph 28(d)(v)

[35] Paragraph 29(c), (j)

Close

Editorial Notes

  • Published Case Name:

    UI International Pty Ltd v Interworks Architects Pty Ltd & Ors

  • Shortened Case Name:

    UI International Pty Ltd v Interworks Architects Pty Ltd

  • MNC:

    [2006] QSC 79

  • Court:

    QSC

  • Judge(s):

    McMurdo J

  • Date:

    20 Apr 2006

Litigation History

No Litigation History

Appeal Status

No Status