TRIDEN PROPERTIES LTD v CAPITA FINANCIAL GROUP LTD; TRIDEN CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL GROUP LTD v TRIDEN PROPERTIES LTD and ANOR SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CLARKE, SHELLER and POWELL JJA 20-22 September 1995, 15 November 1995 CONTRACT — Building construction — defects — construction in "a proper and workmanlike manner" — compliance with specifications — breach — loss of commercial advantage or opportunity — damages — indemnity pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 — costs On 8 July 1988 Capita Finance (Capita) and Triden Properties Ltd (Properties), the Developer, entered into a written Development Agreement under which Properties undertook to construct a building. After the expiry of the Defect Period on June 1990, serious faults in the glass and granite curtain wall of the building were discovered. On 25 November 1991 Capita began proceedings claiming damages for alleged breaches by Properties of the Development Agreement. Devine Erby Mazlin (Australia) Pty Ltd (DEM) was added as a second defendant. Several cross claims were filed. In a series of judgments in 1993 and 1994, Cole J, as he then was, adopted a referee's report enumerating defects in the building, held Capita entitled to succeed in its claim for breach of contract against Properties, Properties entitled to be indemnified in part by Contractors and Contractors entitled to be indemnified to the same extent by Timalco and to the extent of 81 percent of the indemnity, to have a charge over the insurance moneys enforceable against Heath. Capita was awarded damages in the sum of S1,503,306.49. Cole J's decisions led to three notices of appeal and a summons for leave to appeal. The issues between the parties were dealt with under the following headings: (1) BREACH OF THE DEVELOPMENT AGREEMENT There was no reason to doubt Cole's conclusion that, contrary to the obligations imposed by CL3.1 of the Developmental Agreement, Properties had not constructed the building in "a proper and workman like manner", had not complied with specifications and had failed to construct the building to the reasonable satisfaction of Capita. It is a mistake to address the question of breach by asking whether Properties was responsible for design. (2) CERTIFICATE UNDER CL9 DEM's letter to the development manager of Properties that all defects identified during the Defects Liability Period had been attended to was not a certificate under CL9.2 of the Development Agreement. CL9 depended upon DEM forming an opinion that any defects which appeared in the Defect Period should be made good. From its "superficial inspection" DEM was not in a position to form this opinion and hence was not competent to issue a certificate. A certificate as contemplated by CL9 indicated that the Developer had completed its obligations pursuant to the agreement but did not mean that, if it was subsequently discovered that the Developer had caused the building to be constructed in breach of its obligations under the contract, Capita was denied the right to claim damages. (3) ACCEPTANCE OF THE REFEREE'S REPORT OF 23 MARCH 1993 Properties' submission that Cole J should not have adopted some specific parts of the report on the basis that the findings were vague or not final was rejected. (4) DAMAGES Capita's submission that the amount awarded against Properties, $1,503,306.49, was insufficient as Properties' breach of contract resulted in the loss of chance to sell the building to Grosvenor International was rejected. 2 UNREPORTED JUDGMENTS The Development Agreement did not amount to a promise to provide a commercial advantage or opportunity; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 distinguished. The parties did not contemplate that a breach of the contract would have resulted in the loss of an opportunity to sell the building at its market value or $65 million. In priced contracts the measure of damage as between the owner and the contractor for breach will normally be the cost of making good and repair; Hudson, 11th ed, at 722. The same principles should apply to the Development Agreement. The general rule is that damages for breach of contract are assessed at the date of breach; Johnson v Perez (1988) 166 CLR 351. (5) S6 OF THE LAW REFORM (MISCELLANEOUS PROVISIONS) ACT 1946 Heath's appeal against Cole J's decision to uphold Contractors' claim against Heath for indemnity pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act failed. By terms of the liability insurance policy issued by Heath to Timalco, indemnity was limited to claims made against Timalco and notified to Heath during the period of insurance. By a letter of 17 January 1991 Contractors notified Timalco that a potential purchaser had decided not to proceed with the purchase and advised that proceedings would be commenced if rectification agreements were not finalised. The first basis of appeal that the letter of 17 January 1991 was not a claim within the meaning of the policy failed. Read against the common understanding that there were defects of design, the letter could be described as an assertion by Contractors against Timalco of a right to some relief because of the breach by the insured of the duty referred to in the cover; see Thorman v New Hampshire Insurance Co (unreported) QBD (Commercial Court) 23 December 1986 per Steyn J. The second basis of appeal that the event referred to in the expression "on the happening of the event giving rise to he claim for damages" in s6(1) was not "the occurrence which last occurs in order to complete the cause of action" failed. The relevant event was the manifestation of the latent defects which occurred during the period of insurance; Independent Wool Dumpers Pty Ltd v American International Underwriters Ltd and Ors (1993) 7 ANZ Insurance Cases 61-152 per Thomas J. The third ground of appeal that s6 does not apply to a claims made or notified policy where the event giving rise to liability to pay damages or compensation occurs in a year different from the year in which the claim is made failed for like reason. Since the event giving rise to the claim occurred within the period of insurance it is unnecessary to consider what would have been if it had occurred before the start of the period of insurance. (6) WHOLE OR HALF Contractors' appeal against his Honour's decision that Heath was obliged to indemnify Timalco and thus Contractors, only in respect of one-half of the cost of such rectification works as flowed from faulty design, that being the proportion of the claim pressed by Properties against Contractors succeeded. Properties successfully claimed that it was entitled to be indemnified by Contractors for the $1,503,306.49 it was held liable to pay Capita. Contractors was in turn entitled to be indemnified by Timalco. Prima facie the amount of the indemnity would be the amount obtained by Capita. No reason was given as to why the failure of Investments to press its claim against Contractors was relevant to the amount of indemnity or Heath's liability in respect of it. Properties and Contractors were entitled to indemnity for the full amount of the award of damages to Capita and Heath was bound to indemnify Timalco and pay Contractors an amount representing the agreed proportion referable to design, namely 81 percent. (7) COSTS There could be no suggestion that his Honour was under any misapprehension as to the correct principles to be applied or went outside the ranges appropriate to a sound exercise of his discretion when he ordered Properties to pay Capita's costs of the action including the costs of the references. (8) COSTS OF INVESTIGATION UIJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDES CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL PropertiGRQUMisSRw Ha QR PROPERAER AGO aNnhANOG (BRelRinY br could find that the amount paid to Arup Facade Engineering for facade investigations was a cost reasonably incurred and that there was insufficient evidence to hold that the amount of $9,612 payable to Lend Lease Property Management Pty Ltd (representing 54 hours of management investigation as opposed to litigation preparation at $178) was a cost reasonably incurred was rejected. Properties argument that this award usurped the function of the taxing assessor to determine whether the cost satisfied the usual party and party test was without merit. (9) INDEMNITY COSTS Nothing supports the claim that his Honour's discretion miscarried in the order for indemnity costs against Properties. (10) CAPITA'S APPLICATION FOR LEAVE TO APPEAL 40392/94 Cole J's order that Capita pay Properties' and Heath's costs relating to the Issue of damages for loss of opportunity was within the range of his Honour's discretion. ORDERS 40356/94 Appeal and cross appeals dismissed with costs. 40357/94 and 40574/94 1. Appeals allowed; 2. Set aside O.2 and O.3 of 8 June 1994 and in lieu thereof order: 2. Judgment for the cross claimants [Investments and Properties] against the first cross defendant [Contractors] in the sum of $1,503,306.49; 3. Judgment in favour of the second cross claimant [Contractors] against the second cross defendant [Timalco] in the sum of $1.217.678.10. 3. In appeal 40357/94 the cross appeal dismissed with costs and Heath to pay Contractors' costs of the appeal; 4. In appeal 40574/94 Contractors to pay Properties' costs of the appeal. 40392/94 Application dismissed with costs. Clarke JA I agree with the reasons and orders of Sheller JA. Sheller JA INTRODUCTION [1] On 8 July 1988 Capita Financial Group Ltd (Capita) and Triden Properties Ltd (Properties) entered into a written Development Agreement under which the Developer, Properties, undertook to cause a building to be constructed on a site at 12 Help Street, Chatswood. After the expiry on 19 June 1990 of the Defect Period set by the agreement, serious faults in the glass and granite curtain wall of the building were discovered. On 25 November 1991 Capita began proceedings by summons claiming damages for alleged breaches by Properties of the Development Agreement. By the time Capita filed and served a statement of claim on 10 November 1992 the project architect Devine Erby Mazlin (Australia) Pty Ltd (DEM) had been added as the second defendant. Properties filed a defence and amended defences and DEM a defence. Several cross claims were filed. On 24 April 1992 Properties cross claimed against the builders, Triden Contractors Pty Ltd (Contractors) (the first cross claim), claiming indemnity for any amount-for which Properties was held liable to Capita. At some time this cross claim was amended to add Triden Investments Ltd (Investments) as a cross claimant. Contractors cross claimed against Timalco Glass Structures Pty Ltd (Timalco), the sub-contractor responsible for the design, fabrication and construction of the glass and granite curtain wall, (the second cross claim), claiming indemnity for any amount for which Contractors was found to be liable to Properties. Contractors also cross claimed against Timalco's 4 UNREPORTED JUDGMENTS professional indemnity insurers, CE Heath Casualty and General Insurance Ltd (Heath) (the sixth cross claim), for a declaration that Timalco was indemnified by Heath against any liability to Contractors for negligent design as asserted in the second cross claim and that any insurance moneys payable by Heath in respect of Timalco's liability to Contractors was charged with the amount of that liability pursuant to s6(1) of the Law Reform (Miscellaneous Provisions) Act 1946. Where it is not clear from the evidence which of the companies in.the Triden Group is referred to I shall call it simply "Triden". In a series of judgments given in 1993 and 1994 Cole J, as he then was, sitting in the Common Law, Construction List, adopted a referee's report enumerating defects in the building, held Capita entitled to succeed in its claim for breach of contract against Properties, Properties entitled to be indemnified in part by Contractors and Contractors entitled to be indemnified to the same extent by Timalco and to the extent of 81 percent of the indemnity, to have a charge over the insurance moneys enforceable against Heath. His Honour gave judgment for Capita against Properties in the sum of $1,503,306.49. FACTUAL SUMMARY [2] On 13 October 1986 Contractors and Properties commissioned DEM to prepare plans and specifications for the construction of a multi-levelled office tower at 12 Help Street, Chatswood which Investments and Properties owned as tenants in common in equal shares. The plans prepared provided for a glass and granite curtain wall containing discrete lines of feature granite panels. The vision units in the curtain wall were double glazed and below them were single glazed spandrel glass panels. The ground floor foyer was enclosed by a hanging glass facade and adjacent was a two storey area between ground floor and the first floor which was enclosed with double glazed units known as the frontage glazing. On 6 April 1987 Investments and Properties entered into a design and construction contract with Contractors to erect the building for $24,323,816. On 31 July 1987 Contractors entered into a contract with Timalco for the design, manufacture, supply and construction of the glass and granite curtain wall in accordance with DEM's specifications. On or about 10 June 1988 Capita purchased a 50 percent interest in the property on the basis that it should be owned by Capita and Investments as tenants in common in equal shares. At the same time Capita entered into the Development Agreement with Properties and Capita and Investments entered into a Partnership Agreement in respect of the development by Properties of the property and the parties continuing obligations as joint owners. Provision was made for the event that either party decided to dispose of its interest if agreement could not be reached between them in relation to the disposition. Capita agreed to lease 50 percent of the completed building. THE DEVELOPMENT AGREEMENT [3] The terms of the Development Agreement were central to the disputes between Capita and Properties. In it, Properties was referred to as "the Developer'. The agreement recited that Capita had agreed to develop the land in conjunction with Investments by the construction of the office building and that the Developer at the request of Capita agreed with Capita "to supply the Project......for the Price (calculated in accordance with the agreement) and otherwise on the terms and conditions of (the) agreement." CL1.1 defined "Project Architect" to mean the architect specified in item | of the appendix (DEM was so specified) "or such other architect or firm of architects as the Developer bly withheld), may, with the consent of Capita (which shall not be URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDES CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL determine@RQ9RE H OL IaN RROREE VEAP ache miSkalier dA) which the building was available for occupation and "Available for Occupation" to mean that the construction of the building had been completed to such a stage that: [4] "G) The Council had issued a written permission to the effect that the Building is fit for occupation; or [5] (ii) The Project Architect certifies in writing that the Building has been constructed substantially in accordance with the Plans and Specifications to. such a stage that it is reasonably fit for occupation for the purpose of permitting Capita or a Lessee or Lessees to install its partitions and fittings." "Lessee or Lessees" were defined. If there were such, they played no part in this litigation. CL3.1 was as follows: [6] "The Developer shall cause the Building to be constructed expeditiously and in a proper and workmanlike manner in accordance with the Plans and Specifications to the reasonable satisfaction of both Capita and the Lessees and in accordance with the requirements and to the satisfaction of all relevant statutory authorities." No alteration in the plans and specifications was to be made without the written approval of the owners, not to be unreasonably withheld, (CL3.2) and the Developer was obliged to deliver to Capita as soon as it was issued, a certificate of compliance under s316 of the Local Government Act 1919 (CL3.3). CL3.4 provided that the Developer should pay one-half of all rates and charges, land tax and other outgoings assessed in relation to the land until the Date of Occupation. CL8.1 provided that as security for the performance by the Developer of its obligations pursuant to CL9, the Developer should, on or before the Date of Occupation deliver the Capita a bank guarantee securing to Capita $750,000 (the retention amount). CL9 was as follows: [7] "DEFECTS ETC [8] 9.1 Any defects shrinkages or other faults which appear in a Building within the period set out in Item 10 of the Appendix hereto [12 months] from the Date of Occupation in respect of that Building (herein called 'the Defect Period') which in the opinion of the Project Architect should be made good by the Developer shall be made good by the Developer within a reasonable time at no cost to Capita and if any such defects shrinkages or other faults appearing during the said period are not rectified or made good by the Developer within a reasonable time after notification Capita at its option but without there being any obligation on its part so to do may take steps to have such defects shrinkages or faults rectified or made good and Capita may, subject to Capita giving prior notice to the Developer of its intention to do so, pay the costs of such rectification and making good and seek reimbursement for such costs from the Developer. [9] 9.2 The Project Architect shall issue a Certificate in relation to the Building to the parties to this Agreement that any defects shrinkages or other faults referred to in CL9.1 hereof in respect of that Building have been made good or that there are no such defects shrinkages or other faults upon the last to occur of the following: [10] (i) the expiration of the Defect Period, and [11] (ii) fourteen (14) days after the completion of the making good of any such defects shrinkages or other faults to the reasonable satisfaction of the Project Architect. 6 UNREPORTED JUDGMENTS 12] 9.3 Upon the issue of the Certificate or the Project Architect pursuant to subCL9.2 and the delivery to Capita of the Certificate referred to in CL3.3 the Developer shall have completed its obligations pursuant to this Agreement. 13] 9.4 Not later than the end of the Defect Period the Developer shall deliver to Capita the following certificates relating to the relevant Building: 14] (i) the certificate of the Department of Industrial Relations as to the lifts in the building; 15] (ii) a letter from the State Electricity Commission confirming that the substation in the building complies with Commission requirements; 16] (iii) a certificate of Telecom Australia that block telephone cabling is completed; and 17] (iv) a certificate under s317AE [of the Local Government Act 1919]. 18] 9.5 The Developer shall not later than the end of the Defect Period at its own cost and expense cause to be prepared and delivered to Capita a complete set of as-built drawings, a set of the plans and specifications and all approvals and consents obtained from any local or other authority relating to that Building not previously delivered to Capita." Capita was bound to pay the price upon the Date of Occupation and on or as soon as reasonably practicable thereafter the Developer was bound to furnish to Capita particulars of all relevant existing contracts, warranties and guarantees in relation to the Building and deliver the same to Capita together with (where possible) assignments thereof. Where it was not possible to assign the benefit of such contracts, warranties, and guarantees to Capita, the Developer was bound to hold the same on trust for Capita until the expiration of the Defect Period; CL10. CL13 provided that in the event of any dispute or difference arising from the performance or as to the meaning of the agreement, such dispute or difference should be submitted to arbitration. The date of practical completion under the design and construction contract occurred on 19 June 1989. The parties agreed that this was also the Date of Occupation under the Development Agreement so that under both agreements the defects liability period expired on 19 June 1990. Before that date inspection revealed that roof membrane work remained to be completed. The waterproof roof membrane was unable to withstand the weight of the building maintenance unit (BMU) which comprised a gantry mechanism to allow platforms to operate from the roof level ova the side of the building for the inspection and maintenance of the whole facade. Being a wheeled structure it had damaged the membrane. THE ARCHITECTS' INVOLVEMENT [19] Cole J found that DEM were not generally retained to design the building, to draw the contract documents, to supervise construction, to administer the contract, to prepare a defects list at the conclusion of the defects liability period or to protect the proprietors' interest by supervision and inspection. DEM were given three limited specific retainers of which the first two, contained in correspondence of 20 January and 19 November 1987, were not relevant except to the extent that they confirmed Cole J's findings. The third retainer arose in May 1990, towards the end of the defects liability period, after Philip Gordon Cox, the development manager of Properties, was instructed to "take an active role in the compilation of a final list of defects which had by that stage appeared in the building and which required attention in order to satisfy CL9 of the Development Agreement." Mr Cox knew that, in accordance with CL8 of the UIRJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDEM CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL Developnf@RONBrebPhetR PRIPEROE HAG ESvelPGagiAN@MéskelafalAhtee in the sum of $750,000. He was asked to ensure its return on completion of the Defect Period. In May 1990 he spoke to Paul-Andrew Gately, the properly manager from Capita and later Lend Lease Property Management Pty Ltd, which took over Capita. Mr Gately's responsibilities included 12 Help Street, Chatswood. Mr Cox said to Mr Gately: [20] Cox: "Paul, the defects period is about to expire. I draw your attention to CL9 of the development agreement. You hold a bank guarantee of $750,000. In order to satisfy CL9 of the development agreement we need to appoint a project architect to undertake an independent defects report or evaluation. Mr Schooling of DEM has been used extensively in this project." [21] Gately: "I agree with your reasoning and I agree that the project architect should be Mr John Schooling of DEM." Mr Cox claimed that Mr Gately agreed to sharing the cost on a 50/50 basis, which Mr Gately denied. Ultimately Capita paid one-half of the architects' fees for this third engagement. According to Mr Cox he rang Mr Schooling and said: "John, Capita and Triden would like you to do a defects review of the 12 Help Street property so that Triden can recover its bank guarantee from Capita as per the development agreement." [22] and later: [23] "John, in order to facilitate the return of the bank guarantee, a comprehensive building defects lists needs to be prepared by you and as items are rectified they will need to be signed off by you as having been rectified." According to Mr Cox's evidence in chief, [24] "I then supplied him with all the defects reports done on the building so that he would have a comprehensive background of defects identified up to this point." This might suggest that DEM undertook to make a full and detailed inspection of the building for defects. Mr Schooling did not so understand the conversation with Mr Cox. According to Mr Schooling, on 22 May 1990, Mr Cox rang him and said: [25] "We would like you to carry out a review of the state of the defects lists for the job to see if they are being attended to." Mr Schooling replied: [26] "I will talk to Warren Marsh [a director and general manager of DEM] to see if we can do it We will be in touch." Mr Marsh was involved in discussion of the second retainer proposal under which DEM were not engaged to prepare either a complete defects list or practical completion certification. He had told Michael Bangel, Contractors' Design Manager, that DEM could not provide practical completion certification because they had not been on the site inspecting regularly and could not commit themselves to saying that the building was in accordance with the contract documents, which Mr Bangel accepted. On 29 May 1990 Mr Schooling wrote to Mr Cox: [27] "QUALITY/DEFECT REVIEW OF 12 HELP STREET FOR TRIDEN PROPERTIES [28] In response to your request for a proposal to carry out a Quality/Defects review of 12 Help Street, Chatswood we forward this submission for your consideration. 8 UNREPORTED JUDGMENTS 29] Scope of Work 30] 1. We will review the defects lists, supplied by you, and carry out an inspection of the building in order to ascertain whether the defects have been satisfactorily rectified, so far as visual inspection will allow. 31] 2. We will prepare a written report based on the inspection and provide you with 4 copies. 32] Fees 33] Fees will be charged on a time spent basis at an hourly rate of $150.00/hour. It is anticipated that the above scope of work will take between 20 to 25 hours. 34] Our conditions of engagement will be in accordance with our Standard Conditions, a copy of which is attached. 35] We await your response to this proposal and confirm our willingness to undertake the work." Cole J said that the letter of 29 May 1990 was entirely consistent with Mr Schooling's recollection of the conversation with Mr Cox and rejected Mr Cox's recollection of that conversation. Mr Gately remembered being shown a copy of Mr Schooling's letter by Mr Cox but did not remember receiving a copy and no copy was retained on Capita's file. On 1 June 1990 Mr Schooling, Mr Cox, Mr Bangel and the building supervisor carried out an inspection. Mr Schooling said he completed this inspection on or about 6 June. Cole J found that no inspection was made of areas not readily accessible and there was nothing that Contractors indicated or on any list that Properties supplied, showing defects either in design or in construction of the curtain wall. Accordingly the curtain wall was not in any meaningful way inspected for defects. On 14 June 1990 DEM wrote the following letter to Properties: [36] "12 HELP STREET, CHATSWOOD [37] INSPECTION REPORT [38] In accordance with our letter of 29 May 1990, we have received the defects lists supplied by yourselves and inspected the building. [39] The defects covered by your lists have generally been attended to. As far as possible the items noted were checked during our inspection. Any items still requiring attention are included in our report; other building items are considered to be rectified or, as noted on your lists, accepted by Triden Properties. Many items on the services lists were of a technical services nature and it is not possible for us to comment on these. [40] Our attached inspection report has been compiled from information gained from a superficial inspection made during a number of visits to the building. In some areas, notably occupied floors, this inspection has, of necessity, been only cursory and therefore not all areas of the building have been appraised. The report does not represent an exhaustive study of the building nor the ramifications of the requirements of the authorities having jurisdiction over it, particularly where alterations or repairs have been carried out, or are envisaged. [41] The report is for the use of Triden Properties and no responsibility is accepted to any third party for any part of this report or any omission therefrom. [42] With regards to your specific enquiry regarding the damage of the roof membrane by the building maintenance unit, we will forward separate correspondence with a recommendation regarding a possible solution to this problem. UIJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDEMS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL [43] Shd@ROVEu-TEgvite REMEROPG ES A le ene MNOTh (Sbellaie/Mems raised please contact me." A list of items, which DEM advised would require rectification/attention, accompanied this letter. Cole J said that the letter of 14 June 1990 could hardly have more clearly expressed the limited nature of the work undertaken, namely a check of the list that Properties had supplied. The inspection was expressed to be superficial and limited to accessible areas. The report was not an exhaustive study of the building or of its defects. On 18 June 1990 Contractors received a report from Rice Daubney Group about the roof membrane delamination and blistering. DEM also provided a report about rectification of the membrane. On 19 July 1990 Timalco issued a warranty to Contractors covering the aluminium framing of the curtain walL glazing, glass sealants and adhesives against defects due to faulty design and workmanship for a period of 10 years. On 23 July 1990 Properties wrote to Capita's managing agent attaching an account from DEM for services rendered in ".... receiving defects lists, inspecting building and preparation of a written report all as per our correspondence of 29 May 1990" and asking that it be paid on a 50/50 basis on behalf of Properties and Capita. Mr Gately noted that Capita's payment was subject to attempting to have Contractors "pay for this". In the minutes of a management meeting held on 26 July 1990 at which Mr Cox and Mr Gately were present it was noted that DEM had produced an interim defects list. One of the largest items listed on the defects list was the roof membrane "which is beginning to bubble." On 2 August 1990 Mr Schooling, in the company of Mr Bangel and Mr Cox, again inspected the building for defects. The next day Mr Cox wrote to Mr Schooling as follows: "John, 44] CL9.3 on page 10 refers to the Letter or Certificate we require to get the Bank Guarantee back from Capita. 45] CL3.3 is the Bank Guarantee amount. 46] Your prompt response would be appreciated." With this letter Mr Cox sent Mr Schooling a copy of CL8, CL9 and CL10 of the Development Agreement. On 15 August 1990 Mr Schooling wrote to Properties: 47| "Following our recent Site Inspection (on 2 August 1990) we attach an updated copy of our original inspection report. 48] We advise that the majority of items have been satisfactorily completed and that the remaining items are currently being attended to, all as noted in our report. We advise that, apart from the minor outstanding works, the building has been completed substantially in accordance with our documentation." The attached copy of the inspection report was dated 13 August 1990. At the management meeting held on 16 August 1990 at which Mr Cox and Mr Gately were present, DEM produced "a final defects list". The minutes recorded [49] "Triden Contractors also provided as (sic) services defects list which was circulated. Defects inspection of Solitaire [the name of the building] was arranged for Thursday, 23 August 1990 to sign off those items listed as completed, in order that Triden may claim back part of the bank guarantee currently held by Capita/Lend Lease. [50] Outstanding items on both lists to be completed by Contractors within 14 days." 10 UNREPORTED JUDGMENTS On 23 August 1990 Mr Gately inspected the building with Mr Cox. They met at the site and walked around the building looking at each of the items on Mr Schooling's inspection report of 13 August 1990 so that they could see which of the items had been completed and which ones still had to be done. Mr Cox handed Mr Gately a letter of 23 August 1990 which stated: [51] "Further to our site inspection of the above premises yesterday, we confirm that the updated defects lists compiled by Devine Erby Mazlin and Triden Contractors Ltd are a true representation of all outstanding building defects and that the costs associated to rectify these defect are fair and reasonable. We enclose a copy of each costed defect list and also include: 52] (ji) A letter from the Project Architect confirming the building has been completed substantially in accordance with Architectural requirements. 53] (ii) A certificate from Johns Perry Elevators confirming approval of lifts from the Department of Industrial Relations and Employment. 54] (iii) A letter from the Sydney County Council confirming compliance of building substation. 55] (iv) A certificate from Telecom Australia that the block telephone cabling is complete. 56] (v) A Certificate 317AE from the Willoughby City Council. 57] We confirm that you do not require a full set of as built drawings at this stage. However we confirm that we hold all relevant documentation and should you require the same, please contact the writer. 58] The amount of outstanding defects work is estimated at $56,795 say $60,000. We suggest that the $750,000 Bank Guarantee that your Company holds is replaced with a $80,000 Bank Guarantee effective immediately. 59] The outstanding defects matters are actively being pursued and rectified given the combined objective of Triden Corporation and Lend Lease in preparing this building for sale." On or about 25 or 26 August 1990 the $750,000 bank guarantee was exchanged for an $80,000 bank guarantee in substitution. On 28 August 1990 Mr Gately wrote to Properties, attention Mr Cox: 60] "We refer to our site inspection of 23 August 1990 and your letter of the same date. 61] We have since swapped bank guarantees such that we now hold an $80,000 bank guarantee in lieu of the $750,000 previously held by us. As requested, we await an updated retentions schedule complete with dollar amounts retained. and the timing of releases. 62] Your letter of 23 August 1990 did not enclose items (ii) and (iv) as specified, and we also await these. 63] We note the outstanding defects matters are actively being pursued and rectified, and we sincerely trust there is no lapse in efforts now that the bank guarantee has been reduced. 64] We look forward to inspecting the project in the last week of September; please contact us to arrange a time." On 20 September 1990 Mr Schooling conducted an inspection of the remaining items on the updated defects lists accompanied by Mr Bangel. In evidence Mr Schooling said that at that inspection he believed that the URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBN CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL rectificatiG@ROURé Tot TRAN TROVERWER LAA dANORAShled/ Ht complete within a few days. After that date DEM conducted no further inspections of the building. NEGOTIATIONS TO SELL THE BUILDING [65] On 20 August 1990 Grosvenor International Holdings Ltd (Grosvenor International), on behalf of Grosvenor Freeholds Pty Ltd, made an offer to Investments and Capita to purchase 12 Help Street, Chatswood for $63 million conditional, inter alia, upon the vendor's undertaking appropriate remedial work or replacement to the roof membrane and plant room cladding and doors as well as any other outstanding defects and Grosvenor International's completing its due diligence process to its satisfaction. On 22 August 1990 Grosvenor International increased the offer to $64 million. Various discussions took place about the minimum amounts that Investments and Capita required from any sale. On 24 August 1990 Grosvenor International in a letter signed by Michael Edward Billinghurst, the Managing Director, confirmed that it would recommend "to our Group Executive {hat we increase our offer to $65 million." On the same day Robert Miller, the General Manager of Properties and effectively, after April 1990, of Investments, wrote to Mr Billinghurst as follows: [66] "Further to your most recent Letter of Offer I wish to confirm on behalf of the owners that your offer of $65,000,000 will be recommended to the board of MLC /Capita. [67] All other conditions as per your Letter of Offer dated 20 August 1990, together with the additional conditions contained in your letter dated 24 August 1990 are fundamentally acceptable, subject to final contractual documentation and MLC/Capita board approval. [68] Heads of agreement are being prepared and will be forward [sic] to you by 12 noon Monday, 27 August 1990." On 28 August 1990 Colliers wrote confirming, under heads of agreement, the terms and conditions under which the owners' representatives had agreed to a sale, pending formal legal documentation satisfactory to all parties. By way of concurrence with the contents of this letter a director of Grosvenor International signed it. On 29 August 1990 Peter Francis Menzies, a director of Properties and other companies in the Triden Group, made a written report to the Triden board recommending against the acceptance of the offer of $65 million, which offered expenses and a pay out of $34.5 million to Capita and a net amount of $27.5 million to Triden. At a meeting of 30 August 1990, the directors of Triden Corporation resolved that the final terms of any sale should be subject to board approval. Further discussions took place about the share of any sale price. At a meeting of 24 September 1990 of Triden Corporation directors, it was recorded that Mr Menzies provided the meeting with details of progress on the sale of the property and, after discussion, it was agreed that, if appropriate, Investments should proceed to issue its partner Capita with a notice terminating the partnership, resulting in the Chatswood property being taken to tender. In October 1990 the final draft property investment report by Grosvenor International to Grosvenor Freeholds recommended acquisition of 12 Help Street on the terms proposed. On 8 October 1990 Investments gave notice pursuant to CL10 of the Partnership Agreement retiring from the partnership three months from that date and nominating the sum of $67.5 million as the fair market value of the property. 12 UNREPORTED JUDGMENTS At that time the sale to Grosvenor International was still being contemplated. Capita did not accept the validity of the notice nor did Investments thereafter retire from the partnership. On 29 October 1990 Grosvenor International received a report from engineers Wood and Grieve Verge of that date. The report followed three initial inspections and six detailed inspections of the building facade as well as a review of the design documentation. Wood and Grieve Verge reported that their inspection of the facade disclosed that the standard of installation of the curtain walling appeared to be less than satisfactory in a number of respects and that the standard of workmanship was of concern in that parts of the on site installation were critical to the effective waterproofing of the facade. They concluded: [69] "The main concern we have with this building is the curtain walls. The workmanship as observed on site is considered unsatisfactory and while the current waterproofing appears adequate, we question the long term performance. However of more importance are the requirements for additional work identified in the report as [70] * correct installation of flashings, [71] * adjustment of frames to provide minimum horizontal mullion gaps. [72] This work should be carried out without any delays; we recommend completion should be inside twelve months." They enclosed a report of Mr RJ Bonaldi, a building facade consultant. On 30 October 1990 Mr Billinghurst wrote to Mr Miller enclosing the reports and stating: [73] "We are unable to recommend a building to our investors where there is a significant fundamental shortcoming in the facade, particularly of the magnitude involved and even giving undertakings for rectification work. Furthermore, questions have been raised about the long term maintenance requirements of the facade. [74] Accordingly, I have to confirm my earlier advice that we withdraw from the transaction." DEM'S LETTER OF 19 APRIL 1991 [75] On or about 1 November 1990 Lend Lease instructed Mr B Cherry, a building consultant, to report to them on the matters raised in the Wood and Grieve Verge report. Mr Cherry advised Mr Cox that the facade was performing well and should remain stable in the future. Mr Cherry did not suggest any major work of significance. His report was not made available to any of the Triden companies nor to DEM. On 26 November 1990 the Peninsular Group offered to purchase the building for $62.35 million. The sale did not proceed. On 27 November 1990 Contractors wrote to Timalco sending a copy of the Wood and Grieve Verge report. In December 1990 Contractors instructed Peter Hartog of Building Diagnostics Asia Pacific to inspect and report upon the general construction and condition of the curtain wall cladding and associated windows and to comment on the matters raised in the Wood and Grieve Verge report. Mr Hartog reported that the general standard of workmanship in installation of the curtain wall was exceptionally poor and certainly compromised the serviceability and durability of the facade. The report was not provided to Capita which did not learn of it until after it had begun proceedings. To a letter from Contractors of 17 January 1991 advising that Grosvenor International had declined to proceed with the purchase because of the contents of the Wood and Grieve Verge report and to "avoid losing further potential purchasers it is imperative that all defects be UIJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL remedied GARE day TRIP AMER RRB Gnu ofP2gaANNOR (Belleth the curtain wall had gone through two complete weather cycles and had been subjected to high winds and heavy rain, as well as extremes in temperature, without any adverse effect. Meanwhile problems with the roof membrane and the BMU remained to be addressed. In mid-March 1991 work on the BMU began. On 8 April 1991 Mr Schooling wrote to Mr Cox confirming that "all defects identified at practical completion and subsequent inspections during defects liability period have now been attended to." Mr Bangel was of a view that this letter was not a certificate under CL9.2 of the Development Agreement. On 19 April 1991 DEM wrote to Mr Cox stating: [76] "We hereby confirm that all defects identified at Practical Completion and subsequent inspections during Defect Liability Period have now been attended to." Mr Cox asked DEM to issue a substitute letter in identical terms addressed to both Properties and Capita. JUDGMENTS SUBJECT OF APPEAL [77] On 17 July 1992 Cole J referred the whole of the dispute, including all of the legal issues, to a consulting engineer, Mr GA Markham, pursuant to Pt72 of the Supreme Court Rules. On 16 December 1992 Cole J ordered that the following issues be referred to Mr Markham for investigation and report and gave directions that the referee would conduct his enquiries in a conclave of experts and that no party to the litigation would be entitled to be legally represented. The issues were: [78] (i) whether or not the defects alleged in the curtain wall by Capita existed; [79] (ii) whether or not such defects were caused by incorrect design or construction; [80] (iii) whether or not such defects were latent and/or patent during the defects liability period. On 26 March 1993 the referee reported to the Court and on 31 March 1993 Cole J adopted the report. On 2 April 1993 his Honour ordered a second reference before referee Markham to determine the appropriate specification for rectification of the construction errors. The referee reported and on 1 October 1993 Cole J adopted this report. His Honour ordered a third reference before Mr Markham for the purpose of assessing the costs of rectifying the defects in the building by calling for tenders for the rectification work in accordance with the specification selected by Mr Markham in his second report. On 19 February 1994 the referee reported upon his assessment of the costs of rectification of the defects in the building including proJect management and ancillary cost which totalled $1,458.279. On 4 March 1994 Cole J adopted this third report. The following judgments given by the Court were the subject of the various appeals and cross appeals to which I shall come: (a) The judgment of Cole J of 23 February 1993 in proceedings relating to the procedures to be followed at the convocation of experts to begin the next day before the referee. Properties was ordered to pay the costs of these interlocutory proceedings on an indemnity basis. (b) The judgment of Cole J of 31 March 1993 adopting in full Mr Markham's report of 26 March 1993. In that report the matters listed in the Scott Schedule and the technical issues referred to the referee for inquiry and report were identified. The parties were in general agreement that the report should be 14 UNREPORTED JUDGMENTS adopted subject to specific objections. In his later judgment of 6 September 1993 Cole J summarised the report as follows: [81] "The report of the Referee, Mr GA Markham, of 26 March 1993, enumerates the defects in the building. He found that there were latent design defects in relation to the affixing of granite panels, and patent construction defects in relation to the affixing of one granite panel. He also found that there were latent design defects in relation to the frontage glazing. In relation to the glass facade the referee found that there were latent design defects regarding split angle patch fittings. Of critical importance was the referee's finding that there were latent design defects in the design joint size, and that the window joints were not constructed and installed in accordance with the specification. The referee attributed 75% of the existing defects in the window joints to latent design defects and 25% to patent construction defects. There were additionally patent design defects found in relation to vertical joints in the granite. There were other less importance [sic] latent design and construction defects in relation to sealants used in that wall." (c) The judgment of Cole J of 6 September 1993 determining issues of liability. In this judgment Cole J dealt with [82] * the involvement of DEM; [83] _* Capita's allegation that Properties breached CL3.1 of the Development Agreement; * whether a valid CL9.2 certificate had issued and, if it had, its effect on [84] * Capita's claims; [85] * Capita's claims against DEM; [86] * Properties' cross claim against Contractors; and [87] * Contractors' cross claims against Timalco and Heath. Cole J concluded that Capita was entitled to succeed in its claim in contract against Properties for breach of CL3.1, that Properties was entitled to succeed against Contractors in contract for breach of the specific provisions of the building agreement, subject to any "parties" point, that Contractors was entitled to succeed in its cross claim against Timalco based upon an indemnity given by Timalco and that, had Timalco claimed against Heath pursuant to its 1990-1991 policy in respect of its obligation to Contractors for negligent design, it would have succeeded in that claim and, accordingly, Contactors was entitled to succeed against Heath pursuant to s6(1) of the Law Reform (Miscellaneous Provisions) Act to enforce a charge in respect of damages payable for that design liability. The claims of both Capita and Properties against DEM failed. (d) The judgment of Cole J of 24 September 1993 dealing with costs. Inter alia his Honour ordered Properties to pay Capita's costs of the action including the costs of the reference and Heath to pay the following costs of Contractors: [88] "(i) the motion for leave to proceed against [Heath] filed 31 August 1992. [89] (ii) [Contractors'] costs of the cross-claim including 5% of the cross-claimant's general costs of the action incurred after 20 November 1992 after the costs jointly incurred by [Properties] and [Contractors] have been divided as to 75% to [Properties] and as to 25% to [Contractors]." (e) The judgment of Cole J of 20 May 1994 in which his Honour included in the verdict for Capita $45,027.49, the costs of investigating defects, ordered Properties to pay the whole instead of one-half of the costs of rectification of the construction and design defects and ordered Contractors to pay to Properties one-half of the amount which Properties was ordered to pay to Capita. URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL (f) The FR@MR4TP of TREN PROP ERTIES 658 and WNPR (RhelfoWbur_ordered Properties to pay all Capita's costs in regard to the third reference. APPEALS [90] Cole J's decisions led to three notices of appeal, 40356/94, 40357/94 and 40574/94 and a summons for leave to appeal, 40392/94. 40356/94 [91] Properties' appealed against the judgments to which I have referred. Capita was the respondent. Capita cross appealed (the first cross appeal) from the judgment of 20 May 1994 in respect of its unsuccessful claim for damages based upon the loss of the chance to sell the building, cross appealed (the second cross appeal), in the event that the appeal against the finding that there was not a valid final certificate under the Development Agreement was upheld, against the decision of 6 September 1993 dismissing its claims against DEM, and filed a notice of contention. By leave DEM cross appealed (the third cross appeal) out of time against an order made on 24 September 1993 dismissing its seventh cross claim against Properties. DEM also cross appealed against orders made on 24 September 1993 which dismissed its eighth cross claim against Contractors. Properties filed another notice of contention in relation to the judgment of 20 May 1994 dismissing the claim against it for damages for the loss of the chance to sell the building. 40357/94 [92] Contractors appealed against Cole J's judgment of 24 September 1993 declining to order the respondent, Heath, to pay any portion of Contractors' costs of the first reference and the judgments of 20 May and 8 June 1994 limiting the amount of indemnity payable by Heath to one-half of the amount Properties was ordered to pay Capita and refusing to order Heath to pay to Contractors any portion of its costs incurred in the second and third references. At the conclusion of the argument counsel for Contractors informed the Court that Contractors abandoned its appeal in respect of the cost orders made on 24 September 1993 and 8 June 1994. Heath cross appealed against Cole J's finding against it in his judgment of 6 September 1993 and the orders for costs made on 24 September 1993 and 8 June 1994. Contractors filed a notice of contention. 40574/94 [93] Properties appealed against Cole J's judgment of 20 May 1994 awarding Properties merely one-half end not the whole of the amount which Properties had been ordered to pay Capita. Contractors was the respondent. 40392/94 [94] Capita sought leave to cross appeal from Cole J's judgment of 8 June 1994 against Properties and Heath in relation to costs. Despite the proliferation of notices of appeal and cross appeal the substantial issues between the parties can be resolved under the following headings without further reference to them until I come to consider the orders to be made. The issues I discuss are all covered by one or other of the appeals, cross appeals or notices of contention. BREACH OF THE DEVELOPMENT AGREEMENT [95] Cole J said that by constructing a building using a design for the curtain wall which had serious deficiencies Properties had not constructed it in "a proper and workmanlike manna". Furthermore he found that Properties had not complied with the specifications. Accordingly it had not, contrary to the obligations imposed upon it by CL3.1 of the Development Agreement, caused 16 UNREPORTED JUDGMENTS "the building to be constructed in a proper and workmanlike manna in accordance with the specifications". Properties submitted that the majority of the defects the referee found were attributable to design deficiencies and not poor or unworkmanlike construction. Properties did not warrant the efficacy of the design of the building. The mere use of defective curtain wall plans, whether with knowledge or otherwise, by Contractors in the construction of the building did not constitute a breach by Properties of the obligation to construct the building in a good and workmanlike manna. His Honour identified a number of provisions in the relevant part of the specification "M4 Curtain Walling" with which Contractors did not comply. In particular under the heading "Structural Tolerances" the specification provided: [96] "The completed window shall be designed, constructed and installed in the building so as to be capable of absorbing all post-erection structural and thermal movements which may occur in the building." Mr Markham found that the horizontal joints in the curtain wall facade were provided in the design to accommodate thermal movements, building movements due to column shortening and beam deflection and to allow for fabrication and erection tolerances. He said that all the experts agreed that to satisfy code requirements, a joint width of 14.5 millimetres should have been provided. Inspection of the building had indicated that the width of many of the existing joints was [of] a random nature and that some joints had in effect closed, probably due to building movements. All the experts agreed that significant rectification was required to the facade to ensure that residual joint gaps were adequate to accommodate thermal and future building movements. The referee agreed. Speaking of the window joints in relation to design the referee found that there was insufficient allowance in the horizontal joint width for building movement, thermal movement, erection and fabrication tolerances. None of the arguments Properties advanced gave me the slightest cause to doubt his Honour's conclusion that Contractors had not complied with the specification in the manner he referred to and that accordingly Properties was in breach of its obligation under the Development Agreement to cause the building to be constructed in a proper and workmanlike manner in accordance with the specifications. Properties' argument emphasised, by reference to cases, the problem that may arise, in a building contract, about whether the builder is responsible for defective design; see for example Young and Marten Ltd v McManus Childs Ltd [1969] 1 Ao 454 which concerned a builder's warranty of the quality of fittings it had installed. Even if relevant to the present case, this decision would not assist Properties' argument. In my opinion it is a mistake to address the question of breach of CL3.1 by asking whether Properties was responsible for design. The correct approach was that taken by his Honour namely the approach the language of the clause dictated. The referee's report demonstrated that Properties had failed to perform its obligation to cause the building to be constructed in the manner agreed. His Honour also found that Properties had failed to cause the building to be constructed to the reasonable satisfaction of Capita. He held that the absence of satisfaction was entirely reasonable where the building, as constructed, contained deficiencies requiring lengthy and expensive rectification. In my opinion, substantially for the reasons Cole J gave, this ground of appeal fails. URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBM CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL His HofBGUP dO GRIRENEP RORRREES A are GNRR¢Soelehs/ Based upon implied terms, fraudulent misrepresentation, negligence or breach of s52 of the Trade Practices Act. However because of the seriousness of the allegation of fraud his Honour dealt with the claim and concluded that the allegation against Properties was without substance. CERTIFICATE UNDER CL9 [97] Properties submitted that DEM's letter of 19 April 1991 was a certificate under CL9.2 of the Development Agreement and provided a complete defence to Capita's proceedings against it for breach of contract. Cole J rejected Capita's argument that CL9 was directed only to defects which became apparent within the defects period. This conclusion was contrary to that which Rogers CJ Commercial Division had reached in a judgment given on 21 September 1992 on Properties' application to have determined as a preliminary point the question of whether, if a certificate had issued under CL9.2, Properties had fulfilled its contractual obligations. Rogers J referred to a number of procedural complications, with which we are not concerned, but, in order to provide the referee with directions as to the manner in which he should, as a matter of law, approach the reference, he considered how CL9 operated. He said that CL9.1 self evidently could only be applicable to defects which manifested themselves within the period in question and was not addressed to defects which might be latent in the building and certainly not to defects which only appeared subsequently. CL9.2 then addressed itself to the defects, shrinkages or other faults referred to in CL9.1 and no others. CL9.3 rounded off this approach to defects by providing that if defects had been made the subject of a requirement under CL9.1 and were the subject of a certificate in CL9.2, then in relation to such defects Properties was relieved from any further obligation under the agreement. In the view of Rogers J none of the clauses (and in particular CL9.3) addressed any defects which had not been the subject of CL9.1 and CL9.2 and certainly did not operate as a release in relation to any such claims which might arise from defects other than those previously addressed. Rogers J's conclusion about CL9 has all the force derived from adherence to the language used and from reading CL9.1, CL9.2 and CL9.3 as a coherent whole. Cole J viewed the matter differently. He said that CL3 and CL9 must be read together and that the purpose of CL9.3 was to make clear by the independent certificate of a third party, namely the project architect, when the obligations imposed upon Properties by CL3.1 had been discharged. The parties needed to be able with certainty to determine whether the contractual obligations had been complied with. He regarded the provision in the Development Agreement as one corresponding to what he said were the usual provisions in a construction contract. His Honour said that although CL9.1 and CL9.2 spoke only of defects arising in the defects period, it did not follow that after issue of a CL9.2 certificate there remained any obligation upon the Developer in respect of latent defects which might subsequently become apparent and which indicated that the building might not have been erected in accordance with the plans and specifications or in a proper and workmanlike manner. CL9.3, in his Honour's opinion, denied that approach to construction of the effect of CL9.2. So did the structure of the agreement. After issue of the certificate, defects or deficiencies were the responsibility of the owners. The argument in support of Cole J's conclusion emphasised the finality of the certificate of an architect where the parties have so agreed; see for example Tullis v Jacson [1892] 3 Ch 441 at 444-5. 18 UNREPORTED JUDGMENTS East Ham Corporation v Bernard Sunley and Sons Ltd [1966] AC 406 is high authority in this area of discourse. CL12 of a building contract provided that any defects, shrinkage or other faults which should appear within the defects liability period and be due to materials or workmanship not in accordance with the contract, should within a reasonable time after receipt of the architect's written instructions in that behalf be made good by the contractor. CL24(f) provided that upon expiration of the defects liability period or upon completion of making good defects under CL12, whichever was the later, the architect should issue a final certificate of the value of the works and such final certificate, save in the case of fraud or the like or as regards defects which a reasonable examination would not have disclosed, "shall be conclusive evidence as to the sufficiency of the said works and materials." CL24(g) provided that save as aforesaid no certificate of the architect should of itself be conclusive evidence that any works or material to which it related were in accordance with the contract. CL27, after providing for arbitration in cases of dispute, stated that the arbitrator should have power to open up review or revise any certificate in the same manner as if no such certificate had been given. The House of Lords, with Lord Cohen dissenting, held that in order to give effect to both clauses, CL27 must be read as being subject to CL(f) and CL(g) and, accordingly, the final certificate of the architect was conclusive and could not be reopened by the arbitrator save in the exceptional circumstances therein stated. The language of CL9 does not present the dilemma in quite the same way. The certificate of the project architect is not said to be final or conclusive with the consequence that might have in an arbitration or curial proceeding. However CL9.3 provides that upon the event of the issue of the certificate pursuant to CL9.2 and the delivery of a certificate under s316 "the Developer shall have completed its obligations pursuant to this agreement." This means no more and no less than that from that point of time the Developer is obliged by the agreement to do no more. It is absolved from any further performance of its obligations. In particular there is no continuing obligation to make good defects. ACL9.2 certificate relates to the making good of defects which appear during the Defect Period or the non existence of such defects. That apart, there was X statement, conclusive or otherwise, that the work had been performed satisfactorily. The absolution from any further performance of contractual obligations was not an absolution from all the consequences of past failures to perform. Hancock v BW Brazier (Anerley) Ltd (1966) 1 WLR 1317 concerned agreements whereunder a company, carrying on business as a building contractor and house vendor, agreed to sell blocks of land with a partially erected house on each and to erect and complete the houses "in a proper and workmanlike manner" in accordance with the plan and specification annexed to the agreement. CL11 of the agreement provided: [98] "If the purchaser shall discover any structural defects in the said house and works within six months from the date of completion and shall notify the vendor thereof in writing, the vendor shall forthwith make good such structural defects without expense to the purchaser." Within two to four years of completion the floors and walls of the houses cracked badly due to the presence of defective building material. Diplock LJ heard the matter at first instance. At 1325 his Lordship said: UIJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBNS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL [99] "It SRA dhe WHEW ENPRARRTESder Pied MGR (belied dtl complete a dwelling house in a proper and workmanlike manner he does not fulfil that obligation if, at the contractual time, he hands over a house which is not built, erected and completed in a proper and workmanlike manner. If work before the date of the contract has been done improperly, then to build, erect and complete that house in a proper and workmanlike manner means curing the defects which already existed, if there were any, before the contract was entered into." Both Diplock LJ and the Court of Appeal rejected an argument that because CLI1 stated expressly what defects were to be made good by the vendor, it covered the whole ground and there was no room for the purchaser to complain of other defects. At 1334 Lord Denning MR, with whose judgment Danckwerts and Salmon LJJ agreed, acknowledged that every case depended upon the true construction of the contract and continued: [100] "And I must say I think that if a builder has done his work badly, and defects afterwards appear, he is not to be excused from liability except by clear words. I am of opinion that CL11 is no defence to the builder here. It applies only to defects which the purchaser discovers within six months, not those which he discovers afterwards. Even with regard to those discovered within six months, it only compels the vendor to make them good. It does not excuse him from liability and damages. There is nothing in CL11 to take away the right of a man to sue in respect of structural defects which were not discoverable within six months. It does not, therefore, take away the right of the purchaser here." In National Coal Board v William Neill and Son (St Helens) Ltd [1985] QB 300 Piers Ashworth QC, sitting as a deputy judge of the High Court, carefully reviewed cases concerned with whether a builder's obligation that work be done in the manner set out in the specification and to the reasonable satisfaction of the architect or engineer imposes one cumulative obligation or makes the engineer's satisfaction the overriding requirement so that once the engineer has expressed satisfaction the employer cannot thereafter complain of any failure to comply with the specification. At 321 he held that the clause in question imposed two obligations - to execute the works in the manner set out in the specification and also to execute them to the reasonable satisfaction of the engineer. He went on to say that he saw no reason for interpreting the super added right as in any way derogating from the contractors' primary obligation to complete the work according to the specification. At 319 the deputy judge said it would not be legitimate to construe the clause so as to make the engineer's expression of satisfaction conclusive in respect of defects. CL9.1 and CL9.2 applied only to defects, shrinkages or other faults which appear in the building within the Defect Period. If in the opinion of the project architect they should be made good, the Developer was given the opportunity to do so within a reasonable time; compare National Coal Board v William Neill and Son at 321D. If the Developer failed to do so within a reasonable time Capita might take steps to have the defects, shrinkages or faults rectified or made good at the Developer's cost, subject to Capita having given prior notice of its intention. On or after the later of two events, the expiration of the Defect Period or fourteen days after the completion of the making good of any such defects, shrinkages or other faults to the reasonable satisfaction of the project architect, the project architect was bound to issue a certificate to the parties that within the Defect Period any defect, shrinkages or other faults which had been made good or that there were no such defects, shrinkages or other faults. The contract did not provide that the certificate should be conclusive evidence that defects had been 20 UNREPORTED JUDGMENTS made good or that there were no defects. Neither CL9.1 nor CL9.2 had anything to do with defects which did not appear during the Defect Period nor with whether the Developer had performed any obligations under the Development Agreement other than the obligation to make good defects which had appeared within the Defect Period. However it was important to both the Developer and to Capita to know at what point the Developer had completed its obligations pursuant to the agreement. CL9.3 provided for this. The essence of the Development Agreement, like the essence of a building contract, was a promise by the contractor to carry out work and supply materials in consideration of a promise by the building owner to pay for it; see generally Hudsons Building and Engineering Contracts, 11th ed, 457. Once the certificate was given the Developer had completed its obligations pursuant to the agreement. But this did not mean that, if subsequently it was discovered that the Developer caused the building to be constructed in breach of its obligations under the contract, Capita was denied the right to claim damages. In the present case even if I were of opinion, which I am not, that DEM, as project architect, issued a certificate as contemplated by CL9, this would not have prevented Capita suing to recover damages in respect of defects subsequently discovered. It may even be, as Lord Denning thought, that a certificate that defects which appeared during the Defect Period had been made good did not preclude Capita from recovering damages suffered in consequence of the detective work. CL9.3, in my opinion, was directed to establishing a point of time at or after the expiration of the Defect Period when the Developer could claim it had completed its obligations pursuant to the contract. CL9 depended for its operation upon the project architect forming an opinion that any defects, shrinkages or other faults which appeared within the Defect Period should be made good. As a first step in this process the project architect must necessarily have examined the building to see whether any defects, shrinkages or other faults had appeared. Unless the project architect knew what defects, shrinkages or other faults had appeared, it could not form an opinion about whether they should be made good. The Project architect's task was not merely to form an opinion about such defects as the Developer reported to it. The task was to form an opinion about "any" defects, shrinkages or other faults which appeared within the Defect Period. The scope of the work DEM undertook to perform was a review of the defects list supplied by Properties. The inspection it agreed to carry out was one to ascertain whether the defects had been satisfactorily rectified "so far as visual inspection will allow"; see DEM's letter of 29 May 1990. In the letter of 14 June 1990 DEM wrote acknowledging receipt of the defects list supplied by Properties and saying that the defects covered by the list "have generally been attended to. As far as possible the items noted were checked during our inspection. Any item still requiring attention are included in our report; other buildings items are considered to be rectified or, as noted on your list, accepted by Triden Properties. Many items on the services list were of a technical services nature and it is not possible for us to comment on these." DEM acknowledged that the attached inspection report had been compiled from information gained from "the superficial inspection" made during a number of visits to the building. In some areas the inspection had been only cursory. The report was for the use of Properties and no responsibility was accepted to any third party for any part of the report or any omission therefrom. Obviously an inspection of such a limited nature and conclusions about rectification, based upon an acceptance of the items by Properties, could not found the opinion URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDEN CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL required K§REVB bow: WIEN AROR FRY Esp peRradca ORK RHellafol be made good. As the letter of 29 May said what DEM set out to do was no more than review Properties' defects list and ascertain whether the defects had been satisfactorily rectified. As the later correspondence makes plain, DEM was never in a position to form the opinion CL9.1 required it to form and, hence, was not competent to issue a certificate that defects about which it had formed such an opinion had been made good or that there were no such defects. Properties sought to meet this in either one of two ways. First it said that on 29 May 1990 Mr Gately was shown the letter of DEM to Properties stating the limited scope of the work it would undertake. Based on this sighting, Properties argued in effect that Capita could not claim that DEM's letter of 19 April 1991 did not amount to a certificate within the meaning of CL9.2 with the consequences stated in CL9.3 of the Development Agreement. In an imprecise way this was said to depend upon some undefined agreed variation of the contract, or waiver or estoppel. Such a contention was never pleaded nor does it appear to have been raised before Cole J. However a fundamental flaw in the argument makes it unnecessary to consider further on what basis the contention could ever have succeeded or can now be raised. Apart from the fact that Mr Gately sighted the letter of 29 May 1990, Properties could point to no evidence which suggested that he or any officer of Capita were aware that DEM were proffering the letter of 19 April 1991 other than on the basis that DEM had formed the opinion required by CL9.1 and CL9.2. Nor could Properties point to any evidence that Mr Gately had any authority to vary the terms of the Development Agreement. Mr Gately gave evidence and was cross examined by Mr Jacobs QC, who appeared for Properties. In his statement of 19 May 1993 he recalled the conversation with Mr Cox about getting Mr Schooling involved and inspections of the building with Mr Schooling. In another statement of the same date he referred to an inspection conducted after May 1990 with Mr Schooling and Mr Cox, described what Mr Schooling did and said that this indicated to him at the time that Mr Schooling was applying his own independent architectural expertise in determining whether or not any defects had appeared during the defects liability period and what steps, if any, had to be taken in regard to their repair. The inspection took in the order of three hours. In a statement of 10 June 1993 Mr Gately said he recalled Mr Cox raising the appointment of DEM at a meeting and putting a letter on the table. He said: [101] "TI recall that I briefly looked at the letter but I have no recollection of reading the letter. Further I have no recollection of reading the words in the letter which relate to any limitation or qualification concerning the building inspection to be performed by Mr Schooling. Nor do I recall Mr Cox saying any words to me to the effect that the inspection would be in any way limited." Asked by Mr Jacobs about the letter of 29 May 1990 from DEM, Mr Gately said that he saw a copy of the letter in a management meeting with Mr Cox, when it was handed across the table, and he "skim read it". He was then asked about responsibility for paying half the costs and other matters. From this evidence this Court could not possibly conclude that Mr Gately or Capita accepted that DEM or Mr Schooling were doing other than conducting such inspections as CL9 required for the formation by DEM of an opinion under CL9.2. Properties relied on the fact that Capita agreed to substitute for the $750,000 guarantee an $80,000 guarantee and ultimately agreed to release that guarantee. Properties submitted that this pointed to Capita's accepting the validity of DEM's 22 UNREPORTED JUDGMENTS letter of 19 April 1991 as a certificate under CL9. Capita may have considered that the letter was such a certificate. But it did so because it was unaware that what DEM had done did not satisfy CL9. In any event, if it was the fact that the defects referred to in CL9.1 and CL9.2 had been made good, I do not see how Capita could have retained a security designed by CL8.1 to be for the performance by the Developer of its obligations pursuant to CL9, that is to say, to make good such defects. The substitution of a guarantee in a lesser amount and the ultimate release of a guarantee is, in my opinion, irrelevant to this issue. The second line of argument, which was put to Cole J, was that the Court could not go behind DEM's certificate. As I have said Cole J held that once the certificates described in CL9.3 had issued, defects or deficiencies in the building became the responsibility of Capita. Furthermore he rejected six bases of invalidity of the letter of 19 April 1991 as a certificate including the limited retainer given to DEM. In Cole J's view any limitation on the retainer of DEM could not affect the validity of the certificate issued pursuant to CL9.2 if it otherwise complied with the requirements of that clause. However, in his Honour's opinion, the letter of 19 April 1991 was not a certificate within CL9.2 because fourteen days had not expired after the rectification of defects which became apparent during the defects liability period, namely defects to the BMU and the roof membrane, before the certificate issued. It was to meet this contention that Properties argued that the court had no power to look behind the certificate or to the circumstances surrounding the certificate to determine whether in fact the substance of it was true. It was common ground that the membrane had not been rectified by 19 April 1991 and that modifications to the BMU were successfully made only immediately before 19 April. Properties conceded that the Court could inquire into whether or not the jurisdictional facts existed such as to allow the certifier to certify. This concession allows an inquiry about whether DEM's retainer permitted it to form the opinion essential to certification under CL9.2. Properties submitted that the certifier's mistaken judgment of a set of facts was not justiciable. Such an argument would have force if, in a case where the parties agreed that a certificate as to the existence of a fact was conclusive evidence of that fact, one party sought to displace that fact. Amongst the cases Properties relied on, the latest was the decision of Giles J in O'Mara Constructions Pty Ltd v Avery (unreported) 21 February 1992, an application by a plaintiff for summary judgment to recover the amount certified in a progress certificate. In his reasons for judgment, Giles J said that under the contract the defendants had agreed to be bound by what the architect did even if he was negligent or mistaken and referred to Arenson v Arenson [1973] 1 Ch 346. However his Honour also said that it was undoubtedly correct that the summary judgment application would fail if there was an arguable case that the progress certificate was not the honest and unfettered expression of the architect's opinion, or that it had been arrived at under duress or as the result of influence practised upon him by the plaintiff. If DEM had been retained to perform the function CL9 required to be performed and DEM had formed the opinion and certified in accordance with that clause there would be force in the argument that Capita could not go behind a certificate from DEM that defects, which had appeared during the Defect Period and which DEM was of the opinion should be made good, had been made good. It is quite another thing to say that DEM having agreed only to review a list of defects provided by Properties could, based on superficial and cursory examination, give a certificate having any effect under CL9. In Holt v Cox (1994) URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL 15 ACSR GROUPSTD Sate PRARERTMES EOP ancdAlyaiy ShelldesAvhereunder shares were required to be offered at a fair price determined by the auditor of the company, said: [102] ".....the effect of an agreement by the parties that the matter should be determined by a valuer, in the absence of an indication in the contract to the contrary, will generally be that the parties have agreed to accept the valuer's decision as final and binding, provided he or she acted honestly, impartially AND IN ACCORDANCE WITH THE TERMS OF THE CONTRACT: Strang Patrick Stevedoring Co Pty Ltd v James Patrick and Co Pty Ltd (1993) 32 NSWLR 583 at 587-8." (emphasis added) Properties sought to relate this argument to his Honour's conclusion that the certificate did not comply with the term of the agreement because it issued before fourteen days after the completion of the making good of the defects to the reasonable satisfaction of DEM. It submitted that it was enough that Mr Schooling had some belief about the matter, even though carelessly held. Mr Schooling had last inspected the building on 20 September 1990 and gave evidence that he then thought that it would take one or two days at the most to rectify the defects in the roof. Properties submitted it was reasonable to infer that Mr Schooling believed the defects would be attended timeously to enable him to issue the certificate on 19 April 1991. However Mr Schooling was not required nor did he certify that the defects had been completed fourteen days or more before. The effect of a valid certificate is considerable. I am inclined to agree with Cole J that the preconditions for its issue must be satisfied. In this case they were not. Properties argued that the BMU and roof membrane were not defects within the meaning of CL9.1 of the Development Agreement. The roof membrane was laid in accordance with the specification but damaged as the BMU travelled over it. There was evidence to which Cole J referred that there were other causes of the damage to the membrane. His Honour said that it was clear that Contractors, Properties and the architects each regarded the membrane problem as a defect requiring rectification. "That position was never contested at any time prior to final addresses in this litigation. I do not think Properties should now be permitted to assert for the first time that there was no defect in the roof membrane, howsoever caused." However this may be the fact remains, for the reasons I have given, that Properties was in breach of CL3.1 and neither CL9 in its terms nor the letter of 19 April 1991 inhibited Capita from recovering damages for this breach. ACCEPTANCE OF THE REFEREE'S REPORT OF 26 MARCH 1993 [103] Properties submitted that Cole J should not have adopted some specific parts of the report. These were: [104] (a) Item 6.2 in which the referee made a provisional allowance for costing purposes only in regard to panels involving eighty-five horizontal joints. Properties submitted that an allowance for costing purposes was void for vagueness, or alternatively did not constitute a finding which could or should be adopted. (b) Item 8.3 in which the referee found rectification work was required to approximately thirty gutter head legs. Properties submitted that a finding of an approximate number of items requiring rectification was void for vagueness and should not have been adopted. 24 UNREPORTED JUDGMENTS (c) Properties submitted that in items 9.2, 9.5 and 9.7 the referee made a non-finding in regard to dynabolts when he recorded that further investigation was necessary to ascertain whether their use was widespread, and whether or not dynabolts had been properly installed so as to provide an adequate slab fixing. Properties claimed that a finding that it was likely that some workmanship was not satisfactory, without identifying the specific fault, should have been held to be void for vagueness. (d) In Item 10.7, in regard to sealants and splice plates, Properties submitted that findings that - [105] (i) it was likely that some workmanship in respect of the sealants was not satisfactory, without identifying the specific sealants; and (ii) some splice plates were defective and/inadequately installed at the date of installation, without identifying the splice plates; were not findings which should have been adopted in that they were not final and were void for vagueness. Of Item 6.2 Cole J, after correcting a mathematical error, referred to the eighty-five panels to be shortened or lifted "as a provisional allowance for costing" and said that it was obviously going to be necessary for a specification to be drawn up and for work to be undertaken in relation to panels which required either to be shortened or lifted beyond those which presently could be identified with certainty. His Honour regarded it as a sensible engineering assessment of what was likely to be the outcome. Properties submitted that this was not a proper way of dealing with the problem. There should have been a finding by the referee on the probabilities. I think this argument is entirely without merit. Capita's claim against Properties was for damages for breach of contract. The referee's report was a step in identifying liability and the extent of liability. The referee's approach was legitimate and sensible as was his Honour's acceptance of this part of the report. The same may be said of the finding in Item 8.3 that about | percent of the gutter head legs (thirty) would yield and deform approximately | millimetre under wind suction. Of Items 9.2 and 9.5 concerning the inadequacy of the dynabolts, the referee said there was insufficient evidence available to make a finding other than the two dynabolt slab fittings were inadequate and required rectification. Further investigation was necessary to ascertain whether the use of dynabolts was widespread and whether or not the dynabolts had been properly installed so as to provide an adequate slap fixing. This was in the context of the finding that certain slab brackets in a particular location had been affixed without the use of dynabolts and that Triden's engineers had made an examination by exposing five end brackets and found that three of those brackets had been installed using dynabolts. Of those three, two were found to have a factor of safety less than accepted for dynabolts. Cole J regarded Properties' submissions that the only finding that should be made was that there were insufficiencies, in relation to dynabolt fixings, in only two instances as specious. His Honour said: [106] "It is clear that Triden's own engineers did not seek to expose every bracket to determine whether or not it had first of all been affixed with dynabolts or secondly, if it had been so affixed those dynabolts were providing a factor of safety sufficient for the proper securing of the brackets. Clearly Triden's consultant engineers adopted the sensible process of taking a sample. That sample disclosed a significant defect ratio. Rather than seek to apply that ratio to URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL the totalit @ BPH LARiNcLRMMEN FRREARE BSristBl and ONO iRertHele be more investigation to see precisely the extent of the problem and the rectification work required. [107] That seems to me to accord with what the Court had in mind when it asked the referee to determine the nature of any defects and what rectification works were required to rectify them. The same comments apply equally in relation to Item 9.7." T entirely agree with what Cole J said. Finally in relation to Item 10.7 the referee said there was no evidence presented during the reference as to the condition of sealants at the time of installation and thus "the condition at that time must be assessed". There was general agreement from the experts that some sealants were not currently in good condition and that it was likely that some workmanship was not of a satisfactory standard. As Cole J said, the referee thus accepted the general view of all of the experts. Even though there was no evidence concerning the condition of the sealants at the time thee were used, those experts were of the view that, having regard to their present condition, they could assess that there was likely to have been unsatisfactory standards of workmanship at the time of their application. In addition, the referee had stated that there were missing splice plates or splice plates that were out of position and that those matters required rectification because they were "an important outer line of defence of the curtain wall." Thus he found it necessary that rectification work be carried out. Cole J rejected the contention that because of the absence of evidence of the condition of the sealants at the time of application, appropriately qualified experts could not make a proper assessment of the likelihood of their condition or the skill at which they were applied by having regard to their existing condition. So do I. I agree that it being put of the rectification work, the specification when prepared would enable an appropriate costing of the work necessary to perform that rectification work. Substantially for the reasons Cole J gave, I reject Properties submissions that his Honour should not have entirely accepted the referee's report. DAMAGES [108] Cole J gave judgment for Capita against Properties in the sum of $1,503,306.49. Capita claimed more. It argued that, but for the defective facade, the building would have been sold to Grosvenor International for $65 million. Properties' breach of contract resulted in the loss of this chance. Capita asserted that at the date of the hearing the present value of the building was $51 million and claimed to recover the whole of the difference, $14 million. In the alternative Capita claimed $9 million being the difference between its expected proceeds of sale to Grosvenor International ($34.5 million) and one-half of the current value of the property. His Honour found that negotiations had reached an advanced stage for sale of the building by Capita and Investments to Grosvenor International for $65 million. Agreement had also been reached between the two partners, Capita and Investments, regarding an uneven split of the proceeds of sale. Capita claimed that the present value of the property was $51 million. Properties and Heath claimed it was $58 million. His Honour reviewed the valuation evidence and found that the value of the property as at November 1993 was $49.1 million and as at April 1994 was $51 million. He then reviewed the evidence about the negotiations and said that he was satisfied on the balance of probabilities that but 26 UNREPORTED JUDGMENTS for the facade defects the contract for sale would have proceeded. "But for the defective facade, there is a strong probability the transaction would have been completed." Cole J then turned to two other factual issues, the first relating to the intention of the parties at the date of formation of the Development Agreement and the Partnership Agreement regarding their intentions or expectations in relation to holding or sale of the completed development and the second relating to the attitude of Capita and Investments to sale of the property once Grosvenor International had withdrawn in October 1990. As to the first his Honour concluded that there was not an expectation at the date of the Development Agreement that the property would be sold immediately upon or shortly after completion. As to the second his Honour found that Capita from August to October 1990 was content to sell the property for $65 million upon the basis that it received $34.5 million. When the Grosvenor International sale fell through it disputed a notice of withdrawal from partnership that would have resulted in the property being sold by tender in the first half of 1991. It preferred to avoid that circumstance and suggested the property be held for two to three years for ultimate sale once the property market recovered. Notwithstanding, it was prepared to sell the property to the Peninsular Group for $62.35 million. Once that sale did not proceed it reverted to its position of holding the property, at least until the market improved. In his Honour's view, once the sale to Grosvenor International or to the Peninsular Group did not proceed, Capita's position was that it wished to remove the property from the market until the market cycle improved. His Honour noted that no steps had been taken to rectify the defects to improve the prospects of any sale. Nor was there any evidence of further endeavours to sell the property. Cole J said that if Capita were paid the cost of rectifying the curtain wall, it would have received from Properties the equivalent of that which it was contractually entitled to receive, namely, a building free of defects. If Capita had expended those moneys when advised of the defects in October 1990 the building would have been in the contractually required state by approximately October 1991. His Honour referred to Capita's claim for damages for "loss of chance of sale" but said that the case was not one involving loss of chance flowing from or causally related to a breach of contract. The contractual promise was not to provide to Capita the opportunity or chance to take advantage of some favourable commercial opportunity at the time of completion but to complete the contract works as stated in CL3.1. In his view the authorities established that the contract must be able to be characterised as one conferring upon the non-defaulting party as a matter of contract the chance alleged to have been lost. In addition his Honour was of the view that if damages were recoverable for loss of chance, those damages would be damages calculated at the date of breach. As the sale was to be at the equivalent of the market value even if the chance was lost, no loss was suffered. I agree with Cole J's conclusion. Capita cross appeals against it. In Hudson, 11th ed, at 722 it is said that in priced contracts the measure of damage as between owner and contractor for breach of the general obligation to carry out and complete the work in accordance with the contract, or of the special obligation under a defects clause, will normally be the cost of making good and repair, although where this is unreasonable the lower measure of diminution of value may sometimes be permitted. In addition, it will include any consequential damages such as compensation for loss of use of the building during repairs, or UIJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBM CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL liabilities GRQWFeET By TROP WARAP EBT ES ETB aANANGR OMeleedAlractors or sub-contractors. The same principle should apply to breach of CL3.1 of the Development Agreement. In Bellgrove v Eldridge (1954) 90 CLR 613 at 617-9 the High Court stated and explained the principle. Their Honours referred to the rule of common law which, in Livingstone v Rawyards Coal Co [1880] 5 App Cas 25 at 39, Lord Blackburn stated to be 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, and said: [109] "It is true that a difference in the values indicated may, in once sense, represent the respondent's financial loss. But it is not in any real sense so represented. In assessing damages in cases which are concerned with the sale of goods the measure, prima facie, to be applied where defective goods have been tendered and accepted, is the difference between the value of the goods at the time of delivery and the value they would have had if they had conformed to the contract. But in such cases the plaintiff sues for damages for a breach of warranty with respect to marketable commodities and this is in no real sense the position in cases such as the present. In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract..... Subject to a qualification to which we shall refer presently the rule is, we think, correctly stated in Hudson on Building Contracts, 7th ed, (1946) p 343. 'The measure of the damages recoverable by the building owner for the breach of a building contract is, it is submitted, the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach'." The qualification to which the rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt. By the terms of the Development Agreement, Capita was entitled to have the Developer supply to it a building constructed in a proper and workmanlike manner in accordance with the plans and specifications to its reasonable satisfaction. Capita's damage is the loss it sustained by Properties failure to perform this obligation. That loss cannot be measured by comparing the value of the building erected with the value it would have borne if erected in accordance with the contract. Prima facie the loss must be measured by ascertaining the amount required to rectify the defects complained of so as to give Capita the equivalent of a building substantially in accordance with the contract. Capita based its claim for damages in respect of the loss of opportunity to sell the building at 12 Help Street on his Honour's finding that, but for the facade defects, the contract for sale would have proceeded. It relied upon what the High Court said in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332. That case concerned a claim for damages under s82 of the Trade Practices Act 1974 based on an allegation that a company and its directors did not proceed to the 28 UNREPORTED JUDGMENTS conclusion of an agreement as the result of misrepresentations the respondents to the proceedings made to them. The damages awarded were for the lost commercial opportunity. The question was what damages could be awarded to a person who, relying on a misrepresentation, had been deprived of the opportunity which if taken would or may have been profitable. At 349 in a joint judgment, Mason CJ and Dawson, Toohey and Gaudron JJ said: "In the realm of contract law, the loss of a chance to win a prize in a competition resulting from a breach of contract to provide the chance is compensable, notwithstanding that, on the balance of probabilities, it is more likely than not that the plaintiff would not win the competition' Chaplin v Hicks [1911] 2 KB 786; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411-2. As the contract contained a promise to provide the chance, the breach of the contract resulted in the loss of the chance and that loss was for relevant purposes an actual loss, in the sense which Dixon and McTiernan JJ used that expression in Fink v Fink (1946) 74 CLR 127 at 143. And, where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat an award of damages. The damages will then be ascertained by reference to the degree of probabilities, or possibilities, inherent in the plaintiffs succeeding had the plaintiff been given the chance which the contact promised. [110] This approach is not confined to contracts relating to games of chance, sporting contests or other competitions And there can be no doubt that a contract to provide a commercial advantage or opportunity, if breached, enables the innocent party to bring an action for damages for the loss of that advantage or opportunity; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. So, in [that case] Mason CJ and Dawson J at 92, Brennan J at 102-4 and Deane J at 118-9 concluded that a lost commercial advantage or opportunity was a compensable loss, even though there was a less than 50 percent likelihood that the commercial advantage would be realised. Damages for breach of contract were assessed by reference to the probabilities or possibilities of what would have happened." Significant in that dictum for present purposes in the realm of contract law is the characterisation of the promise as a promise to provide a commercial advantage or opportunity. The Development Agreement did not amount to such a promise. However it may not be possible to dispose of Capita's claim in this way. In Amann Aviation at 170, McHugh J distinguished a promise to confer a commercial advantage and said: [111] "In the absence of an express or implied contractual stipulation, the common law rejects the notion that a plaintiff claiming damages for breach of contract is entitled to be compensated for, or have taken into account, a commercial advantage or loss of opportunity to display business or professional skills or to enhance a professional or business reputation. Where the contract of an actor, producer or author has been wrongly terminated, damages may be recovered for the loss of the opportunity to enhance his or her reputation. But the true explanation of these cases is that there is an implied promise on the part of the employer to afford the actor, producer or author such an opportunity whether the promise in these cases arises from business necessity or is implied by law, those cases are in a special category. They provide no foundation for supposing that there is any general rule that contractual promises in a business or professional context give rise to a further implied promise that the promisee will URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL obtain th@ROAmnbERMTRIVEAPBOE ERNE LAR and AOEUSkEllefol) from_ the performance of the contract. A fulfilment of such expectations is at the promisee's risk." On the other hand Mason CJ and Dawson J, after acknowledging at 91 "the firmly established rule that, in an action for breach of contract, a defendant is not liable in damages for not doing that which he or she has not promised to do; Abrahams v Herbert Reiach Ltd [1922] 1 KB 477 at 482 per Scrutton LJ; Lavarack v Woods of Colchester Ltd [1967] 1 QB 278", said that the rule was necessarily subject to the rule in Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145. At 91-2 their Honours said: [112] "According to Alderson B's renowned formulation, the plaintiff is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach; 354 and 151. It is now accepted that this is the statement of a single principle and that its application may depend on the degree of relevant knowledge possessed by the defendant in the particular case. However, in the present case, the application of the rule of Hadley v Baxendale turns not on the degree of knowledge possessed by the defendant but on what may reasonably be supposed to have been in the contemplation of the parties as the probable result of the breach. If it be right to suppose that the loss of a prospect of securing a renewal of the contract was within the contemplation of the parties as a probable result of the breach, then, notwithstanding the principle established by Abrahams and Lavarack, Amann is entitled to compensation which takes into account the value of the loss of a prospect of securing a renewal of the contract. See also per Brennan J at 102-3 and Deane J at 118-121. Cole J examined the evidence of events leading up to the making of the Development Agreement and the Partnership Agreement and said: [113] "The provisions of the Partnership Agreement make clear, in my view, that it was not the contemplation of the parties that upon completion of the building the property would be sold and the partnership dissolved. The partnership contemplated Capita becoming a long term tenant with the property partnership remaining. It contemplated division of net income both before and after the twelve months letting up period which expired twelve months after the first leasing, and it contemplated a partnership extending sufficiently long to take in contemplated refurbishment of the building. Nonetheless it provided for a partner to withdraw from the partnership by giving three months notice, in which event if the other partner did not exercise the option to purchase the retiring partner's interest within sixty days of receipt of notice of retirement (CL10.2) at a price determined by CL10.2, by CL10.3 the partnership was terminated and the property was to be sold by tender. There was thus not an expectation at the date of the development agreement, which I have found was breached by Properties, that the property would be sold immediately upon or shortly after completion. This finding is of relevance to the argument addressed by the parties regarding loss constituted by loss of a chance of profit on resale." Capita challenged these findings. Before dealing with these submissions it is necessary to define more closely the nature and extent of the object of the postulated contemplation. In Alexander v Cambridge Credit Corporation (1987) 9 NSWLR 310 at 3654 McHugh JA, as he then was, discussed this. He said: 30 UNREPORTED JUDGMENTS [114] "An important matter in ascertaining whether the loss or damage is too remote is the extent to which the parties may be taken to have contemplated the events giving rise to that loss or damage. The parties need not contemplate the degree or extent of the loss or damage suffered....... Nor need they contemplate the precise details of the events giving rise to the loss. It is sufficient that they contemplate the kind or type of loss or damage suffered." His Honour referred to a number of cases by way of guidance. One was Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 where, as his Honour noted, profit lost from a number of highly lucrative dyeing contracts was not treated as of the same kind as the loss of general business profits; 535 and 543. Capita relied upon the fact that the construction of the building was a commercial joint venture and that, in evidence to which Cole J referred, at a meeting held on 31 May 1988 some discussion took place about a mechanism for disposal of the building "at some point in the future". The parties specifically contemplated a "buy out". Mr Haynes (a director of Investments) gave evidence about discussions in May and June 1988. He said that it was not envisaged that the property would be sold on completion "but one has to make allowance for it, and during our negotiations on the preparation of the documentation there was an attempt to come up with a formula for the splitting of the proceeds.... on the eventuality of the sale or the possibility of the sale..... The possibility of sale at some stage was certainly canvassed." Provisions were made accordingly for the fixing of a fair market value of the land and for sale by public tender in certain events. In Amann Aviation Mason CJ and Dawson J spoke of what might reasonably be supposed to have been in the contemplation of the parties as the probable result of the breach of the contract. The Commonwealth broke a contract with the respondent to conduct aerial coastal surveillance for three years. The consequence was the loss of the prospect of securing a renewal of the contract. The evidence in the present case does not support the conclusion that the parties in 1988 contemplated or might reasonably be supposed to have contemplated that the breaches of the Development Agreement, found to have occurred, and remediable for the cost assessed, would have resulted in the loss of an opportunity to sell the building at its market value or $65 million. It is doubtful whether the parties contemplated that, on completion of the Development Agreement, the building would be sold. They certainly contemplated no particular contract. The most they might have contemplated was the sale of the building on completion at market value. As Cole J remarked, if the chance lost was to sell at market value and the market value was $65 million, there was nothing to suggest that the defects could not have been remedied and the building sold at that price. Furthermore the general but not universal rule is that damage for torts or breach of contract are assessed as at the date of breach or when the cause of action arises; Johnson v Perez (1988) 166 CLR 351 at 355, 360, 367 and 370. This rule will yield if in the particular circumstances some other date must be chosen to provide adequate compensation; see Johnson v Agnew [1980] AC 367 at 400-1. This is not a case where the circumstances require that some other date be chosen. In my opinion this cross appeals fails. S6 OF THE LAW REFORM (MISCELLANEOUS PROVISIONS) ACT 1946 [115] Heath issued Timalco a liability insurance policy for the period from 30 April 1990 to 29 April 1991. By the policy Heath agreed, subject to the limitations terms and conditions thereinafter mentioned or endorsed thereon and URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBN CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL so far as HBCURTEMA NET RUORNARAPEATIRAILS and ANGRdShelain) any claim which might be made against it and which was notified to Heath, the Company, during the period of insurance, for breach of professional duty in the profession of design consultants and draftsmen, by reason of any act, error or omission whenever committed on the part of the insured in the conduct and execution of its professional activities and duties. The policy did not indemnify the insured in respect of any claim made against it [116] '(e) for any legal liability of whatsoever nature imposed upon the Insured pursuant to the Law of Contract but only when such legal liability would not have been imposed upon the Insured pursuant the Law of Tort." By the terms of the policy, indemnity was limited to claims made against Timalco and notified to Heath during the period of insurance, but Heath acknowledged that by force of s54(1) of the Insurance Contracts Act 1984 it might not be permitted to refuse to pay the claim by reason only of a failure by Timalco to notify it of the claim during this period; East End Real Estate Pty Ltd v CE Heath Casualty and General Insurance Ltd (1991) 25 NSWLR 400. On 27 November 1990 Contractors wrote to Timalco enclosing Wood and Grieve Verge's report of 29 October 1990. Contractors referred to the fact that a potential purchaser of the building had indicated that it was reconsidering whether it wished to proceed with the purchase and requesting Timalco's immediate response to the contents of the report. On 17 January 1991 Contractors wrote to Timalco again as follows: [117] "RE 12 HELP STREET, CHATSWOOD [118] We refer to our letter dated 27 November 1990. Unfortunately in light of the report of Wood de Grieve Verge - Engineers the purchaser has decided not to proceed with the purchase of the building. To avoid losing further potential purchasers it is imperative that all defects be remedied without further delay. [119] As previously noted whilst the building remains only partially tenanted the cost of remedial work will also be less as it will involve less disruption to tenants. [120] We remain committed to a commercial resolution of the problem with minimum cost to our respective companies. However you will appreciate that unless satisfactory arrangements are made for the rectification of those defects we shall be obliged to institute proceedings to protect our interests. Subject to consideration of any comment you may put to us, we consider seven (7) days to be a reasonable period in which to finalise the rectification arrangements." Timalco did not notify Heath of these letters or their contents during the period of insurance. Subsequently Timalco went into liquidation. Cole J found that Timalco was liable in tort for negligent design of the curtain wall. Heath did not deny that a claim by Timalco against it to be indemnified for any tortious liability of Timalco in respect of the curtain wall would succeed. However it resisted Contractors' claim against it based on s6 of the Law Reform (Miscellaneous Provisions) Act, which provides, so far as material, as follows: [121] (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that 32 UNREPORTED JUDGMENTS the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability." Subs(4) provides for the enforcement of such charge. Cole J upheld this claim against Heath. Heath appealed against this decision. The grounds of appeal were limited to three: [122] 1. That neither of the letters to which I have referred were within the meaning of the policy a claim made against Timalco; [123] 2. The charge which s6(1) creates can only be created over a policy of insurance which exists "on the happening of the event giving rise to the claim for damages or compensation" namely, according to Heath, the time when Timalco incorporated the negligent design into the design of the building in 1987, well before the policy attached; [124] 3. S6 does not apply to a claims made and notified policy where the event giving rise to liability to pay damages or compensation occurs in a year different from the year in which the claim is made. NP Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurance Cases 61-180. Mr Foster SC, who appeared for Heath, submitted that a claim within the meaning of the policy must be "a positive assertion of a legal right to damages for compensation for breach of duty of a kind to which the policy responds and must be indicative of a real and unequivocal intention to pursue legal rights communicated to the insured." In the policy the word "claim" is used to refer to a claim or claims "made against" the insured and is distinguished in condition 4 from a circumstance of which the insured shall become aware and which "may subsequently give rise to a claim against them." Condition 3 provides: "The Insured shall as a condition precedent to their right to be indemnified under this Policy give to the Company immediate notice in writing of any claim made against the Insured whether such claim be oral or in writing and shall upon request, give to the Company such information as the Company may reasonably require to investigate the matter so reported." In Thorman v New Hampshire Insurance Co (unreported) QBD (Commercial Court) 23 December 1986, Steyn J defined "claim" in a professional indemnity policy as " the assertion by a third party against the insured of a right to some relief because of the breach of the insured of the duty referred to in the........ cover"; see Note 10, para2014 of MacGillivray and Parkington on Insurance Law, 8th ed. The Court of AppeaL although allowing the appeal, affirmed this definition; Thorman v New Hampshire Insurance Co (UK) Ltd and Home Insurance Co (1988) 1 Lloyds Rep 7 at 11. The definition Mr Foster advanced is, in my respectful opinion, untenable. For one thing the claim against the insured may require the insured to expend money on rectification. I see no reason why such a claim would not fall within the policy; compare Trollope and Colls Ltd v Haydon (1977) 1 Lloyds Rep 244. In Webb and Hughes v Bracey (1964) 1 Lloyds Reps 465 the plaintiffs' solicitors had a policy with the defendant against loss arising from any claim or claims which might be made against them during a specified period. During that period the plaintiffs received a letter notifying a claim which alleged that they were negligent in the conduct of a retainer in that they had failed to take the proper steps under the relevant legislation to obtain a new tenancy. Sachs J at 466 said that the particular claim was manifested or made by letters written to the plaintiff alleging negligence. URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL The ex#8Qiih A airh8 PAN P ROPER TRSihobradd ANO Phe ldAD) rules out any argument that the word ''claim" could refer to the right to make a claim (compare ANZ Bank Ltd v Colonial and Eagle Wharves Limited (1960) 2 Lloyds Reps 241 at 255.) In Transport Industries Insurance Co Ltd v NSW Medical Defence Union Ltd (1986) 4 ANZ Insurance Cases 60-736, this Court considered the meaning of the word "claims" in the context of an indemnity for sums for which the insured should become liable to pay "in respect of claims notified" to the secretary of the insured. At 74,420 Mahoney JA said the words referred "to something in the nature of a demand on a member to satisfy a liability which he is alleged to have to a third party or, at the least, an assertion or stipulation to the member that he is liable so to do." In Re St Paul Fire and Marine Insurance Co v Guardian Insurance Co of Canada (1984) 1 DLR (4th) 342 at 357 Thorson JA, with whose judgment Houlden JA agreed, in the Ontario Court of Appeal, said that the words "claim made" in a policy against a solicitor's liability for professional negligence "ought to be construed in accordance with the ordinary plain meaning of those words, which, simply stated, denote a claim that is 'made' by being notified to or otherwise brought to the attention of the person against whom it is asserted. However that is done, the essence of the making of the claim is that the substance of the claim is in fact 'brought home to' that person." T agree with the test propounded by Thorson JA which is consistent with what was said in this Court and by Steyn J. In the letter of 17 January 1991 Contractors stated that it was imperative that all defects be remedied without further delay. While Contractors remained committed to "a commercial resolution of the problem with minimum cost to our respective companies", its letter continued "However you will appreciate that unless satisfactory arrangements are made for the rectification of those defects we shall be obliged to institute proceeds to protect our interests." Seven days was then given to finalise the rectification arrangements. Cole J concluded that the letter of 17 January 1991 was a claim upon Timalco within the meaning of CLI of the policy. He said: [125] "Both Contractors and Timalco had the WGV report. Each knew that it asserted defects in design and construction. The letter of 17 January 1991 threatened legal action if those defects were not rectified. That was a claim against Timalco for damages for the defective design, if Timalco did not itself correct them." Read against a common understanding of Contractors and Timalco that there were alleged defects of design, the letter of 17 January was what Steyn J described as an assertion by Contractors against Timalco of a right to some relief because of the breach by the insured of the duty referred to in the cover. I agree. This ground of appeal fails. This brings me to Heath's second submission that the event referred to in the expression "on the happening of the event giving rise to the claim for damages" in s6(1) was not "that occurrence which last occurs in order to complete the cause of action." The phrase, so it was said, does not carry the same meaning as the concept of "the accrual of a cause of action". The event was that occurrence which brought about that claim or the act or omission on the part of the tortfeasor which led to the claim. That was not the manifestation of the latent defect but the incorporation of the negligent design into the design of the building. In Independent Wool Dumpers Pty Ltd v American International Underwriters (NZ) Ltd and Ors (1993) 7 ANZ Insurance Cases 61-152, Thomas J considered the meaning of these words in s9(1) of the Law Reform Act 1936 (NZ) from 34 UNREPORTED JUDGMENTS which section s6 of the Law Reform (Miscellaneous Provisions) Act was derived. In that case, under the policy, the insurer agreed to indemnify the insured for an amount, which the insured became legally obligated to pay as damages by reason of liability imposed on it by law, because of property damage as defined, and caused by an occurrence which was defined to mean, relevantly, an event resulting in property damage neither expected nor intended from the standpoint of the insured. The insured had entered into an agreement to manufacture and sell to the intending plaintiff certain equipment. After its installation problems were encountered and the plaintiff alleged that the equipment did not meet the performance specifications set out in the agreement. On 24 October 1990 the plaintiff made a claim against the insured for a breach of its duty to take reasonable care in the manufacture and design of the equipment. The manufacturer was subsequently wound up and the plaintiff sought leave to commence an action against the insurer to enforce a charge under the section. It was important because of subsequent endorsements to the policy that the plaintiff show that the "event" arose before 31 October 1989. It submitted that either the faulty design of the equipment, which occurred before the date of the contract, 15 December 1988, or the warranties, representations and performance specifications made at the time of the contract or the faulty manufacture or the manifestation of the faulty design, with sudden and unforeseen damage occurring, was the event. At 77,807 Thomas J said: [126] "It is true that the words, 'the happening of the event giving rise to the claim for damages ' literally refers to the claim made by the third party against the insured. In that sense it might be thought that the appropriate event must be the event which gives rise to that claim. I do not, however, consider that this is what is intended. Properly construed, I believe that these words are to be restricted to the event which gives rise to the claim for damages for which the insured is indemnified. Let me explain why. First, the section relates to any person who is indemnified against 'liability to pay any damages or compensation' and the charge attaches to 'the amount of his liability' (notwithstanding that it may not have been determined at the time). Although, therefore, the phrase 'happening of the event giving rise to the claim for damages " refers to the claim against the insured, in the context of the section the event is to be identified by reference to the liability for which the insured is indemnified, and not by reference to the third party's cause of action against the insured. The 'events' may, more often than not, coincide, but where they do not, the section is concerned to specify the event which gives rise, or will eventually give rise, to the insurer being liable to indemnify the insured. [127] Secondly, it would be repugnant to common sense if the event for the purposes of s9(1) could be divorced from the purpose of the section. The section is designed to enable a claimant to obtain a charge on the insurance funds which are or will become available as a result of the fact that the insured is indemnified against liability. Clearly, the claim which is contemplated is a claim which the insured can in whole or in part pass on to the insurer. The logical event, for the purposes of the section, therefore, is the event which triggers the insured's right to claim an indemnity from his or her insurer. The accepted notion that the third party can have no greater rights against the insurer under s9 than the insured has against the insurer, would be undermined if the third party could rely upon some event unrelated to the insured's indemnity. URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBS CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL [128] CGROWEbID. VITRBNMERQRERAESAIE ancAnanr Geeland) be to the intending plaintiff's cause of action against the insured, the alleged faulty design of the press, the warranties and representations which were made, and the faulty manufacture of the machine, are not legitimate 'events' for the purposes of s9. In a claim for breach of contract between IWD and Lidvon following the failure or breakdown of the press, the faulty design of the machinery may be a critical factor, but the event which gives rise to the claim for damages contemplated in s9(1) is the failure or breakdown of the press. Similarly, the fact that a warranty made prior to the completion of the contract may have been breached does not mean that the giving of the warranty made prior to the completion of the contract may have been breached does not mean that the giving of the warranty is the event which determines when the charge will attach under s9(1). If it is to attach, it will do so with the occurrence of the property damage caused by the faulty press. [129] For these reasons, and to the extent that it is necessary to do so, I regard the failure of breakdown of the press as the event which fixed the time at which the statutory charge attaches to the insurance money which may be payable." I agree with Thomas J's conclusion that, bearing in mind the purposes of s6, logically the event s6(1) refers to is the event which triggers the insured's right to claim an indemnity from his or her insurer. In this case Wood and Grieve Verge's discovery of the defects in the curtain wall was the event which gave rise to the claim for damages for which Timalco was indemnified. Cole J came to the same result. CL6(1) is concerned with a contract of insurance by which the insured is indemnified against "liability to pay any damages or compensation." The amount of the liability is charged on all insurance moneys that are or may become payable in respect of that liability. Cole J thought that the expression "liability" referred to a situation, to adopt the language of Windeyer J in Ogden Industries Pty Ltd v Lucas (1967) 116 CLR 537 at 584, in which a duty or obligation can arise as the result of the occurrence of some act or event. He considered that the happening of the event which gave rise to the claim for damages by the third party related to the event which completed the cause of action and permitted the making, or the "giving rise to" the claim for damages upon the insured. This would be when the latent defect first became known or manifest; Pullen v Gutteridge Haskins and Davey Pty Ltd (1992) Aust Tort Reports 81-170 at 61,384. As Thomas J pointed out commonly the event identified by reference to the liability for which the insured is indemnified and the event identified by reference to the third party's cause of action against the insured will coincide. I agree with Cole J that the decision of this Court in Oswald v Bailey (1987) 11 NSWLR 715 throws no light on the question. On 3 November 1995 the High Court delivered judgment in Bailey v New South Wales Medical Defence Union. Their Honours discussed the ancestry of s6 and the nature of the "charge" created by subs(1) but did not pass upon the meaning of the expression with which we are here concerned. In NP Manettas v Underwriters at Lloyds at 78,031 and following Cole J upheld an argument that s6 has no application to a "claims made and notified" policy where the event giving rise to the claim for damages or compensation occurs prior to the commencement of the period of the policy. In that case the insured were solicitors and the indemnity was against their liability to pay damages in respect of negligent acts or omissions which had occurred some time before the policy came into existence. That was the happening of the event giving 36 UNREPORTED JUDGMENTS rise to the claim for damages. It is not necessary to pass upon the correctness of the decision in Manettas. Suffice it to say that the facts of the present case are quite different and distinguishable. In the Independent Wool Dumpers case the event which triggered the claim against the insured, in the sense that until that event occurred there was no claim against the insured, was the failure or breakdown of the press. That was the event which gave rise to, in the sense that it produced or generated, the claim for damages for which the insured was indemnified. In the present case that event was the manifestation of the latent defect. The event occurred during the period of insurance and accordingly this ground of appeal also fails. The third ground of appeal fails for like reason. Since in my opinion the event giving rise to the claim occurred within the period of insurance it is unnecessary to consider what the position would have been if it had occulTed before the start of the period of insurance. WHOLE OR HALF [130] In his judgment of 20 May 1994 his Honour said that, while satisfied that Properties was obliged to pay the whole of the costs of rectification although Capita was only a half owner as tenant in common, in the action before him on the first cross claim, to which Investments had been joined as a cross claimant, only Properties' claim against Contractors was pressed and, accordingly, only Contractors' liability to Properties was pressed in the sixth cross claim against Heath. In his Honour's view, Heath was obliged to indemnify Timalco, and thus Contractors, only in respect of one-half of the cost of such rectification works as flowed from faulty design, that being the proportion of the claim pressed by Properties against Contractors. His Honour went on to say: [131] "Of course, if Investments is now to mount a separate action against Contractors in respect of the same contractual claims as those pressed in the cross-claim, with consequent further identical second cross-claims and sixth cross-claims, if the evidence remains as it is, as seems certain in light of the adoption of the referee's finding, Heath will become liable to Timalco, and thus to Contractors for the other half of rectification costs related to defects of design. No doubt Heath will give consideration to whether it now wishes to accept that liability or wishes to compel Investments, not being "Anshuned', now to sue, no doubt with Properties, Contractors, who in turn will sue Timalco who in tum will sue Heath in respect of defect in design. However, unless Heath accepts that second half of liability for defective design likely to flow from any such action mounted by Investments, in my view it is presently liable only for one half of the rectification costs flowing from defective design." With all respect it is a little difficult to follow the logic. Cole J accepted that Capita was entitled to a verdict of $1,503,306.49 against Properties. Properties successfully claimed that it was entitled to be indemnified by Contractors because of Contractors' breach of contract or negligence. Contractors in tum claimed to be indemnified by Timalco because of its breach of contract or negligence. Prima facie the amount of the indemnity would be the amount of the verdict obtained by Capita. This being so it is hard to see what the failure of Investments to press its claim against Contractors had to do with the amount of the indemnity or Heath's liability in respect of it. The matter was put to Heath's counsel and no satisfactory explanation for Properties' verdict against Contractors or Contractors' charge against Heath being reduced to one-half was given. In my opinion both Properties and Contractors were entitled to indemnity in the full amount of the award of damages to Capita and Heath was bound to URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBY CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL indemnifyCRRHAdd avd RIBENTURARERTES A Thad ANRBISkalehdAthe agreed proportion referable to design namely, 81 percent. COSTS [132] His Honour ordered Properties to pay Capita's costs of the action including the costs of the references. He explained why in a judgment of 24 September 1993 acknowledging that he had the advantage of extremely detailed submissions about costs. Those he considered. He stated his reasons shortly referring in the course of doing so to the Court's discretion to make special orders in relation to particular issues. He concluded the case was not one where there should be any special order. There could be no suggestion that his Honour was under any misapprehension as to the correct principles to be applied. The thrust of the appellant's complaint is that the costs order is so unreasonable that it should be reviewed. In substance this is based upon the success the appellant claims to have had on some of the issues determined by the referee, the cost of producing technical witnesses whose evidence was accepted, and the fact that Capita made allegations of fraud which Cole J rejected. An attempt was made to break up the days spent on the hearing between those issues upon which Properties succeeded and those upon which it did not. In my opinion, despite these matters which were advanced in general terms, it could not be said that the order Cole J made on its face went outside the ranges appropriate to a sound exercise of his discretion. His Honour was entirely familiar with the course the case had taken, with the time spent on various issues and with the many factors which a judge is entitled to take into account in exercising the costs discretion. On the material placed before us no ground has been shown for interfering and I would reject this ground of appeal. COSTS OF INVESTIGATION 133] Capita claimed the following costs: (a) Fees paid to Arup Facade Engineering for facade $34,215.49 investigations (b) Fees paid to the Lend Lease Design Group $1,200.00 (c) Fees paid to Lend Lease Property Management $24.742.00 Total $60,157.49 There was evidence that all of these costs were incurred by Capita in investigating defects in the building up to the date of issue of the summons. As to the first Cole J said there was no serious challenge. There was sufficient evidence that the claim related to proper facade investigation prior to summons. His-Honour said the amount was recoverable as damages flowing from the breach of contract. As to (b) no cross examination was directed to challenging the entitlement. Cole J said the claim was recoverable. Item (c) was for charges rendered by Digby O'Kell, manager of Lend Lease Property Management Pty Ltd and responsible for development management issues, for time spent by him investigating facade problems. The claim was 139 hours at $178 per hour. Cole J thought it reasonable to allow a charge out rate of $178 per hour but was not satisfied that all of the hours claimed were management investigation as distinct from preparation for litigation. By reference to a description of action his Honour allowed 54 hours and accordingly a sum of $9,612 making a total sum for damages of $45,027.49. 38 UNREPORTED JUDGMENTS Properties put its submissions in two way. First it asserted that there was no evidence upon which the Court could find that the amount paid to Arup Facade Engineering was a cost reasonably incurred and insufficient evidence for the Court to hold that the amount of $9,612 was a cost reasonably incurred. Secondly Properties claimed that the award usurped the function of the taxing master or assessor to deter nine whether the cost satisfied the usual party and party test. The second argument is without merit. His Honour found that the costs were not incurred in preparation of litigation. Indeed his Honour's careful examination and dissection of what was done by Mr O'Kell demonstrates that he was alive to the distinction between such costs and hours claimed for the necessary management investigation consequent upon Properties breach of contract. Properties submitted that because the Arup report was not tendered it was not possible to determine its relevance or the reasonableness of the cost. Cole J relied upon the evidence of Mr O'Kell as he was entitled to do. Mr O' Kell was cross examined. Properties have failed to demonstrate any error in his Honour's conclusion under this head. INDEMNITY COSTS [134] Cole J introduced his judgment of 23 February 1993 by observing that it was "yet another interlocutory application" in the proceedings, he was told the twenty-fifth. He said: [135] "The circumstances in which the matter comes before me today and occupies the time of 13 legal advisers in the Court, apart from the Judge and the Court staff, are that there has not been able to have reached agreement about procedures which ought to be followed or are to be followed at the convocation of experts which is to occur commencing tomorrow before the Referee. Mr Markham. [136] The matter has a long history before me and it is approaching an equally long history in the Court of Appeal. Materially to today it is necessarily only to go back as far as 16 December 1992. On that occasion I have certain reasons for judgment and I also made short minutes of order. Those short minutes. as I recall, were with some slight amendments made by consent after discussion between the various legal representatives. In essence, those short minutes established the reference which is to commence tomorrow. They provided by paral for certain issues be referred to the Referee, Mr Markham, and provided by para2 that 'the experts' attend a meeting chaired by Mr Markham who will then prepare a report for the Court. I also directed by para3 that the meeting before Mr Markham of the experts be conducted in the absence of legal representation. The aim of that order was to reduce the time which otherwise it would take and to reduce the costs, being confident as I was then, and as I am now - particularly having seen some of the technical material which has been apparently filed by the various parties - that the technical aspect of the construction dispute relating to the integrity of a glass walling are better reported upon by a technical person of Mr Markham's experience who can readily understand and discuss in a sensible fashion with the various experts the technical issues and, thus, produce a resolution of those issues in the sense that the experts who have been engaged by all parties may agree upon a technical resolution or, alternatively, Mr Markham will be available to report to the Court upon his view of the proper technical result of any technical issue remaining unagreed by the convocation of experts." Cole J decided that the convocation of experts or the referee, Mr Markham, should be conducted in the absence of lawyers. An attempt by Properties to appeal from this decision to this Court was unsuccessful. Questions then arose as UIRJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBY CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL to who els@ RRO A He preBUEN AE PROACHES Md Part ANd SeelemdMer for each individual party to decide whether it wished to attend or not. His Honour allowed two further reports filed on behalf of the Triden companies to be relied upon. This brought him to a report dated 22 February 1993 from Mr Johansen, an American expert experienced in curtain walling. For reasons which his Honour expressed, the order then current did not permit his evidence to be taken into account in the convocation of experts and Mr Johansen had no right to attend. Various reasons advanced on behalf of Properties did not, in Cole J's view, justify the filing and use of a report by a new expert some forty-eight hours before the start of the convocation. His Honour refused to allow it to happen. The judgment continued: [137] "The next step in that implementation of what I have called 'a device' was the preparation on 19 February of a letter signed by the chairman of Triden, a Mr Menzies, stating that, 'Mr Larsen is appointed as this company's representative in all matters related to the current litigation with Capita Financial Services Ltd'. It must be extremely doubtful if that letter means what it says because Mr Larsen, I was told, is an engineering consultant. It can hardly be thought that the chairman of Triden was handing over to Mr Larsen the right, on behalf of Triden, to give instructions, for instance, to Triden's solicitors. The reality is that it was simply a step in the endeavour to introduce into the convocation of experts an engineering advocate. It was not initially pointed out to Mr Markham that Mr Larsen was not a lawyer. Indeed, Mr Markham wasn't told what qualifications Mr Larsen had. It was in those circumstances that Mr Markham wrote, in a memorandum dated 19 February 1993, 'Mr Larsen and any other lawyers representing the parties may attend as observers but it is not appropriate for him to take part in the reference proceedings.' It is clear that Mr Markham wrote that in circumstances where he was under the misapprehension that Mr Larsen was a lawyer. Accordingly it cannot be said that Mr Markham has given any consent to Mr Larsen's presence." Properties argued before Cole J that as parties could be present so Mr Larsen could be present. His Honour was unimpressed with the argument and directed that Mr Larsen not be permitted to attend the convocation. Questions were then raised as to who should be permitted to cross examine witnesses. Procedure the referee had chosen was a less formal questioning between qualified persons who understood the technical issues they were discussing. Properties had indicated that it wished to have Mr Larsen cross examine various witnesses. His Honour said that the control of questions to be asked by the persons entitled to be present was in the hands of the referee in accordance with the procedures he had indicated or which he might consider appropriate in the future. Having addressed a further matter about the non provision of calculations said to be basic to reports provided by Properties' experts, Cole J came to the question of costs. He said: "Application has been made by the parties, being the plaintiff and the architects, and I assume Heaths, that they should have the costs of today. Each of the plaintiff and the architects have previously indicated in correspondence that if they are not able to achieve a satisfactory resolution to the matters which I have had to decide today they would bring the matter before the court today and would seek an order for costs. In the event it was necessary for the matters to come before the court, and some three hours or so has been spent sorting out matters which, I must say, I would have thought were sufficiently covered by orders which I made two months ago. The consequence is that I am of the view that the 40 UNREPORTED JUDGMENTS first defendant and the other Triden company, Triden Contractors Pty Ltd but, particularly, the first defendant, Triden Properties Ltd should pay the costs of the proceedings today. The arguments advanced by them in relation to each of the matters of which I have had to deal have been unsuccessful. The question is whether the costs should be on an indemnity basis. In my view they should. The proceedings today would have been unnecessary had there been an understanding or adherence to both the letter and the spirit of the orders which I made on 16 December 1992. 1 accordingly order that the first defendant, Triden Properties Ltd pay the costs of the other parties today on an indemnity basis. The costs may be agreed or may be taxed forthwith." Properties appeals against the order for indemnity costs. It submitted that Cole J's discretion miscarried. Nothing was put to us to support this claim. This ground of appeal should be rejected. CAPITA'S APPLICATION FOR LEAVE TO APPEAL 40392/94 [138] This application was directed against Cole J's order of 8 June 1994 that Capita pay Properties' and Heaths' costs relating to the issue of damages for loss of opportunity. His Honour said: [139] "That issue was an entirely distinct claim and head of damages. Capita failed in that claim. Had that claim not been brought, I have little doubt that after adoption of the referee's reports, a damages hearing would have been unnecessary. In my view the costs associated with the litigation of the claim by Capita for loss of a chance of sale of the property to Grosvenor, being the claim for $14 million upon which Capita was unsuccessful, should be paid by Capita. The Triden interests resisted that claim, and so did Heath. The order should be that Capita pay one set of costs to the Triden interests relating to that issue, and pay Heath's costs relating to that issue." This seems to have been an eminently sensible order. Certainly it was well within the range of his Honour's discretion and I would not disturb it. The application for leave to appeal should be refused. DEM'S CROSS APPEAL IN APPEAL 40356/94 140] Since Properties' challenge based upon the effectiveness of DEM's letter of 19 April 1991 as a certificate under CL9.2 of the Development Agreement fails, these cross appeals do not need to be considered and can be dismissed. CONCLUSION 141] I propose the following orders: 142] 40356/94 143] Appeal and cross appeals dismissed with costs. 40357/94 and 40574/94 144] 1. Appeals allowed; 145] 2. Set aside O.2 and O.3 of 8 June 1994 and in lieu thereof order: 146] 2. Judgment for the cross claimants [Investments and Properties] against the first cross defendant [Contractors] in the sum of $1,503,306.49; 3. Judgment in favour of the second cross claimant [Contractors] against the second cross defendant [Timalco] in the sun of $1,217, 678.10. 147] 3. In appeal 40357/94 the cross appeal dismissed with costs and Heath to pay Contractors' costs of the appeal; 148] 4. In appeal 40574/94 Contractors to pay Properties' costs of the appeal. 40392/94 URJDEN PROPERTIES LTD v_ CAPITA FINANCIAL GROUP LTD; TRIDBN CONTRACTORS PTY LTD v CE HEATH CASUALTY AND GENERAL INSURANCE LTD; TRIDEN PROPERTIES LTD v TRIDEN CONTRACTORS PTY LTD; CAPITA FINANCIAL [149] ASpReb de BivhQENWIAPEERTIES LTD and ANOR (Powell JA) Powell JA I agree with Sheller JA. 40356/94 Appeal and cross appeals dismissed with costs. 40357/94 and 40574/94 1. Appeal allowed; 2. Set aside O.2 and O.3 of 8 June 1994 and in lieu thereof order: 2. Judgment for the cross claimants [Investments and Properties] against the first cross defendant [Contractors] in the sum of $1,503,306.49; 3. Judgement in favour of the second cross claimant [Contractors] against the second cross defendant [Timalco] in the sum of $1,217,678.10. 3. In appeal 40357/94 the cross appeal dismissed with costs and Heath to pay Contractors' costs of the appeal; 4. In appeal 40574/94 Contractors to pay Properties' costs of the appeal. 40392/94 [150] Application dismissed with costs. COUNSEL: Triden Properties/Triden Contractors: MS JACOBS QC/PC TOMASETTI Capita: DA COWDROY QC/MR GRACIE DEM: CA NEEDHAM/V HEATH CE Heath: LG FOSTER SC/MT McCULLOCH/M STEEL SOLICITORS: Triden Properties/Triden Contractors: COLIN BIGGERS AND PAISLEY Capita: FREEHILL HOLLINGDALE AND PAGE DEM: MINTER ELLISON CE Heath: MURRAY STEWART AND FOGARTY