New South Wales Court of Appeal CITATION : Hyder Consulting (Australia) P/L v Wilh Wilhelmsen Agency P/L & Anor [2001] NSWCA 313 FILE NUMBER(S) : CA 40955 of 2000 HEARING DATE(S) : 03/09/01 JUDGMENT DATE : 14 November 2001 Hyder Consulting (Australia) Pty Limited v PARTIES : Wilh Wilhelmsen Agency Pty Limited And James Thiessen & Associates Pty Limited JUDGMENT OF : Meagher JA at 1; Sheller JA at 25; Giles JA at 56 LOWER COURT JURISDICTION : District Court LOWER COURT 2754 of 1998 FILE NUMBER(S) : LOWER COURT Sorby DCJ JUDICIAL OFFICER : Appellant: G Inatey SC with G P McNally COUNSEL : 1st Respondent: D Hammerschlag SC with I H Bailey 2nd Respondent: I G B Roberts Appellant: Colin Biggers & Paisley SOLICITORS : 1st Respondent: Barker Gosling Lawyers 2nd Respondent: Minter Ellison Lawyers CATCHWORDS : Contract - construction of pavement - where after four years' use pavement collapsed - whether ACEA terms limiting liability were part of contract - assessment of damages - reduction for betterment - appeal allowed - cross-appeal allowed. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Bellgrove v Eldridge (1954) 90 CLR 613 at 617-8 Badham v Williams (1968) NZLR 728 Harbutt's 'Plasticine' Unlimited v Wayne Tank and Pump Co Limited [1970] 1 QB 447 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 Jebsen v East and West India Dock Co (1875) LR 10 CP 300 Joyner v Weeks [1891] 2 QB 31 CASES CITED: Murphy v Brown [1985] 1 NSWLR 131 J & B Caldwell v Logan House Retirement Home [1999] 2 NZLR 99 James Street Hardware and Furniture Co v Spizziri (1987) 62 OR (2d) 385 Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd & Anor (1998) 4 VR 559 at 569 Baltic Shipping Co v Dillon ("Mikhail Lermontov") (1991) NSWLR 1 at 8-9 and 24-25 Central Coast Leagues Club Limited v Gosford City Council (9 June 1998, unreported) Director of War Services Homes v Harris (1968) QdR 512 De Cesare v Deluxe Motors Pty Limited (1996) 13 BCL 136 Hoad v Scone Motors Pty Ltd (1977) 1 NSWLR 88 DECISION : IN THE APPEAL BY THE ENGINEER:- a) Appeal allowed; b) verdict and judgment for the owner set aside, and in lieu thereof verdict and judgment for the engineer; c) owner to pay the engineer's costs of the trial and of the appeal, and to have a certificate under the Suitors Fund Act if otherwise qualified. IN THE CROSS-APPEALS BY THE ARCHITECT AND THE OWNER:- a) Appeals allowed; b) verdict and judgment for the owner in the amount of $578,163 set aside, and in lieu thereof verdict and judgment for the owner in the amount of $426,138; c) owner to pay architect's costs of the appeal, and to have a certificate under the Suitors Fund Act if otherwise qualified. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40955 of 2000 DC 2754 of 1998 MEAGHER JA SHELLER JA GILES JA Wednesday, 14 November 2001 HYDER CONSULTING (AUSTRALIA) PTY LIMITED v WILH WILHELMSEN AGENCY PTY LTD AND ANOR The appellant was engaged by the second respondent to carry out redevelopment work at the premises of a wholly owned subsidiary of the first respondent. The redevelopment included a new area of pavement. In March 1994, the second respondent advised the appellant of the load capacity required and specified that the pavement was to have a life expectancy of approximately 20 years. In April 1995 the first respondent advised the second respondent that the pavement was to be of increased capacity and asked them to inform the appellant of the new requirements. The second respondent's attempts to do this were not received by the appellant. They did not confirm whether the information was received. The appellant completed the pavement in June 1995 based on the load specifications of March 1994. The pavement collapsed after approximately four years' use. The first respondent sued the appellant and the second respondent in negligence and obtained a verdict against both; liability apportioned on a 50/50 basis. The appellant appealed in relation to liability and damages. The major ground of appeal was the trial Judge's finding that the Association of Consulting Engineers Australia (ACEA) conditions were not incorporated into the appellant's terms of engagement. These terms limited the liability of the appellant as to amount and duration. The second respondent cross-appealed in relation to damages. The trial Judge quantified damages as the cost of rectification, assessed by reference to tenders obtained before the rectification was carried out. This assessment was substantially more than the actual cost of repair. The second respondent submitted that his Honour should have found that the first respondent was only entitled to recover the actual cost of repair; that damages should be reduced by 20% on the basis that the plaintiff had the benefit of four years' use of the pavement; and that the owner had not proved a loss due to business interruption. The first respondent cross-appealed in relation to interest on its damages. HELD per Meagher JA & Giles JA (Sheller JA agreeing): 1) When the engineering services were provided and the benefit of the services taken by the first respondent, there was acceptance of the services on the terms and conditions offered by the appellant, including the ACEA terms. Where an offeree takes the benefit of a contract in circumstances indicating that the offeror will be paid in accordance with the offer, the inference is open that the offer was accepted according to its terms. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 532 2) Per Meagher JA & Giles JA (Sheller JA agreeing): Damages should have been awarded on the basis of the actual cost of repair; this was an impeccable alternative method of calculating cost. 3) Per Giles JA & Sheller JA (Meagher JA dissenting): It is not appropriate to reduce damages for the four years' use of the pavement. Per Sheller JA: If a defendant negligently damages or destroys the plaintiff's property and there is no evidence that the plaintiff has any reasonable choice other than to replace or repair that property, the cost of replacement or repair is recoverable as damages. In each case it is a question of fact. Per Meagher JA: The amount of damages should be reduced by 20%. The first respondent gained a new pavement in place of a four year old pavement which represents a windfall to which he was not entitled. 4) Per Meagher JA & Giles JA (Sheller JA agreeing): No damages should be awarded for loss due to business interruption as there was no real evidence of such an interruption. 5) Per Giles JA (Sheller JA agreeing): Interest should be allowed on the first respondent's damages, calculated from mid-2000. ORDERS IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40955 of 2000 DC 2754 of 1998 MEAGHER JA SHELLER JA GILES JA Wednesday, 14 November 2001 HYDER CONSULTING (AUSTRALIA) PTY LIMITED v WILH WILHELMSEN AGENCY PTY LTD AND ANOR Judgment 1 MEAGHER JA: This is an appeal by Hyder Consulting (Australia) Pty Limited from certain orders made by Sorby DCJ in a contractual dispute. The appellant ("the engineer") did certain work at the Botany premises of a company, which was related to the first respondent ("the owner"), having been engaged to do so by the second respondent James Thiessen and Associates Pty Limited ("the architect"). 2 Without going into any details, the dispute arose out of the collapse of a certain pavement at the owner's premises. The collapse was due to the fact that the pavement turned out not to be able to bear the weight which was imposed on it. 3 The load information which the architect advised to the appellant engineer on 18 March 1994 was as follows: 1. Pavement to be designed for a 50 tonne ISO loader. 2. Pavement to be designed for 8 tonne and 10 tonne container forklifts. 3. 100,000 repetitions was assured by Acer Wargron Chapman which equates to a paving life expectancy of approximately 20 years (PX12)". The words "50 tonne ISO loader" means "an ISO loader capable of carrying 50 tonnes"; the words "8 tonne and 10 tonne container forklifts" mean forklifts which are capable of lifting 8 tonnes and 10 tonnes respectively. The pavement which it was the engineer's business to construct was expected to be sufficiently strong to bear such a loader and forklifts, passing and repassing on it. "Acer Wargron Chapman" was the previous name of the appellant. 4 In March 1995, things changed. The owner decided it would use a much larger forklift (called an Omega 40c). On 27 April 1995 the owner advised the architect of this. It asked the architect to transmit to the engineer this fact, and the loadings which would be required, as this information would be vital for the engineer to use in designing the pavement. The architect endeavoured to inform the engineer. The engineer, however, never received the message. His Honour so found, and there is no challenge to his Honour's findings in these respects. 5 The engineer completed the pavement in June 1995 based on the design loadings of March 1994. The pavement in that state was used, resulting, almost initially one would have thought, in marked deterioration of the pavement by June 1996. It eventually failed entirely. By 1999 it had to be, and was, replaced (if I may use that term for the moment). 6 The owner then sued both the architect and the engineer in negligence, the architect because it never passed on to the engineer the information which the owner had vouchsafed to it about the new forklift, the engineer because it had made insufficient enquiries of its own as to what weights the pavement was expected to bear. The owner won against both of them in the sum of $578,163.00. As between them, liability was apportioned on a 50/50 basis. 7 The engineer appealed against the judgment. The architect did not. 8 His Honour achieved the $578,163.00 figure in the following way: $566,560.00 Rectification/rebuilding of defective paving (a) Less the amount which the Plaintiff would have incurred by way of additional cost had the pavement been appropriately designed in 1995 $ 53,618.00 $512,946.00 (b) Professional fees incurred by structural inquiries in course of rectification $ 20,493.00 (c) Loss owing from disruption during rectification $ 44,724.00 TOTAL $578,163.00 9 The appellant's grounds of appeal are numerous. I think it most convenient to deal first with the thirteenth ground of appeal, which is "That his Honour erred in finding that the ACEA (Scil The Association of Consulting Engineers Australia) terms were not incorporated into the Engineer's terms of engagement with the Plaintiff". 10 The importance of the ACEA terms is that clause 4.2 of these terms is: 4.2 Maximum amount of liability The maximum liability of the consulting engineer to the client arising out of performance or non performance of the service, whether under the law of contract, tort or otherwise, shall be the amount specified in item 9 of the schedule, or if no amount is specified $300,000. More importantly, clause 4.3 provides: 4.3 Duration of liability The consulting engineer shall be deemed to have been discharged from all liability in respect of the services, whether under the law of contract, tort or otherwise, at the expiration of the period specified in item 10 of the schedule or if no date is specified on the expiration of one year from the completion of the services, and the client (and persons claiming through or under the client) shall not be entitled to commence any action or claim whatsoever against the consulting engineer (or any employee of the consulting engineer) in respect of the services after that date. 11 The engineer's design work was complete by April 1995, and the pavement was in fact constructed by May 1995, shortly after which time it was used. 12 One of the architect's expert witnesses, a Mr Gilling, said: "9.12 – The ACEA conditions of engagement are recognised as the most used and standard conditions of engagement for structural engineers and others. The ACEA conditions of engagement are the standard conditions published by the Association of Consulting Engineers Australia. The ACEA conditions of engagement were certainly in common use by February 1994." 13 On 2 February 1994 the architect wrote a letter to the engineer (then still known as Acer Wargron Chapman (NSW) Pty Ltd) as follows: Further to our discussions we enclose 4 copies of Drawing BA.01, a copy of the development approval and copies of subsequent correspondence between our office and Botany Council. On behalf of our client Wilh Wilhelmsen Agency Pty Ltd we request a fee submission for engineering services. 1. Structural/Civil Engineering. - Design and documentation of proposed awnings and enlargement/reduction of roller shutter size. - Design and documentation of new reinforced concrete and/or bitumen to areas as shown on drawing including reshaping of truck entry to site on Hale Street. - Site stormwater including site retention as requested by Council. 2. Hydraulic and Fire Services - Design and document as required stormwater system to new awnings. - Design and document relocation/upgrading fire fighting equipment as required by Council and/or B.C.A. 3. Mechanical Services - Design and documentation of smoke exhaust and compartmentalisation as required by Council and/or B.C.A. 4. Electrical Services - Report and/or design and documentation of emergency lighting. If your fees are approved you will be engaged directly by our client: Wilh Wilhelmsen Agency Pty Ltd 36 Doody Street ALEXANDRIA Attn: Mr Geoff Northausen We will be coordinating your services. Each discipline will be responsible to liaise with Council directly and obtain the best and most economical solution for our client. We are to be kept informed at all times. We thank you for your cooperation and we look forward to working together. 14 On 8 February 1994 the engineer replied: We acknowledge receipt of your letter of 2 February 1994, inviting our company to provide a fee proposal for the above project and present for your approval our submission. As you are aware, the scope of works cannot, at this stage, be fully defined, due to ongoing discussions with the Council and necessary upgrade works subject to future inspections and reports. Accordingly we propose that our engagement be on a time basis with fixed upper limits for the various engineering components. These limits would not be exceeded without the client's written approval. The following hourly charge rates are deemed appropriate: Associate Director $105.00/hr Senior Engineer $ 95.00/hr CAD Drafting $ 65.00/hr STRUCTURAL ENGINEERING Design/Documentation proposed new awnings, alterations to roller shutters. Engineering 6 hours @ $95.00/hr $570.00 Drafting 8 hours @ $65.00/hr $520.00 $1,090.00 CIVIL ENGINEERING Design/Documentation new hardstand/bitumen pavement areas. Design/Documentation site stormwater retention as required by council. Design/Documentation new stormwater systems to awnings. Engineering 20 hours @ $95.00/hr $1,900.00 Drafting 40 hours @ $65.00/hr $2,600.00 $4,500.00 FIRE SERVICES Design/Documentation of relocation/upgrading fire fighting equipment as required by Council/B.C.A. This work will include a review of existing services and their compliance with B.C.A. Engineering 50 hours @ $95.00/hr $4,750.00 Drafting 20 hours @ $65.00/hr $1,300.00 $6,050.00 MECHANICAL SERVICES Design/Documentation of smoke exhaust/compartmentalisation as required by Council B.C.A. Engineering 80 hours @ $95.00/hr $7,600.00 Drafting 40 hours @ $65.00/hr $2,600.00 $10,200.00 ELECTRICAL SERVICES This work will be split into two sections and include the following: Report on emergency lighting Engineering 20 hours @ $95.00/hr $1,900.00 $1,900.00 Design/Documentation upgrade emergency lighting as required. Engineering 20 hours @ $95.00/hr $1,900.00 Drafting 20 hours @ $65.00/hr $1,300.00 $3,200.00 Co-ordination with your office, Client and council Associate 20 hours @ $105.00/hr $2,100.00 We understand that the client will be Wilh Wilhelmsen Pty Ltd of Alexandria with our commission directly with them. We propose that our appointment be in accordance with the ACEA Conditions of Engagement. We note that the above hours have been estimated on the basis of previous projects. The extent of new works is dependent upon the condition of the existing installation and its conformance with BCA. Accordingly our budget figures must be considered as preliminary only. We trust the above is acceptable and look forward to the client's approval. Should you require further information, please contact Mr Jeremy Atkinson or the undersigned. 15 This provoked the following response from the architect on 11 February: On behalf of our client, Wilh Wilhelmsen Agency Pty Ltd, we confirm your engagement as consultant engineers for the above project in accordance with our letter of 2.2.94 (Our Ref: 98902021) and your offer of services and fee submission of 8.2.94 (Your Ref: ETS:mk 376/WP5250). As previously stated your engagement is directly with: Wilh Wilhelmsen Agency Pty Ltd 36 Doody Street ALEXANDRIA NSW 2015 Contact: Mr Geoff Northausen Phone: 667 1200 Fax: 693 1553 Invoices should be addressed to your client c/- James Thiessen & Associates. Please forward to Mr G Northausen a copy of ACEA Conditions of Engagement, for his information and approval at your earliest convenience. We are engaged as primary consultants and will be coordinating your services. Please advise in writing the name/s of engineer/s who will be liaising with our firm and Council. We confirm that upper limits shown on your fee proposal are not to be exceeded without written approval from the client. We look forward to a successful project completion. 16 The engineer never forwarded a copy of the ACEA Conditions to Mr Northausen, nor did either the owner or the architect; nor did Mr Northausen exert himself to obtain one, although copies must have been readily accessible and, from the correspondence, it is clear the Mr Northhausen knew of the purported incorporation of the ACEA conditions, since copies of all correspondence went to him. The subject does not seem to have been mentioned again by anyone to anyone. The engineer's letter of 8 February 1994 is clearly an offer; and equally clearly it was accepted by the architect's letter of 11 February, but subject to a condition. A conditional acceptance is a counter-offer. Therefore, if things stopped there, there would have been no contract between the parties. However, things did not stop there. The engineer proceeded to perform its contract (or, perhaps more accurately, the contract which everyone thought it had), and so did the owner. In these circumstances, a nice question arises about the nature of the arrangement between the two parties. Learned senior counsel for the engineer, Mr Inatey QC, submitted that, in effect, the owner had waived the benefit of the condition. Learned senior counsel for the owner, Mr Hammerschlag SC, submitted that a contract had come into existence on all terms except that regarding Mr Northausen's approval. In this regard, Mr Hammerschlag was driven to argue that there was one contract between the parties dealing with fees and nothing else, and another contract (never concluded) dealing with matters other than fees. This submission seems to me unreal. Reading the engineer's letter of 8 February does not give one the impression that it was engaged in making multiple offers. Rather, one gains the impression that the ACEA Conditions were part of the fee submission. Indeed, so far as it matters, Mr Northausen himself seemed to be under the same impression. He said: "…it did not occur to me that it was of any legal significance that we had not received the ACEA conditions. Because the letter of engagement said it was subject to ACEA conditions, I assumed that Wilh Wilhelmsen would be subject to the conditions whether or not we received the document." The case which most clearly deals with this problem to which we were referred was Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, when McHugh JA pointed out that where an offeree takes the benefit of a contract in circumstances indicating that the offeror will be paid for his services in accordance with the offer, the inference is open that the offer was accepted according to its terms; and, in the present case, I find such an inference to be irresistible. 17 As a result, in the engineer's appeal, the appeal should be allowed, the orders of Judge Sorby made on 6 November 2000 be set aside, and judgment should be entered in favour of the appellant in the Court below. The first respondent should pay the appellant's costs both below and on appeal and have a certificate under the Suitors' Fund Act. 18 There remains the architect's cross-appeal. It deals solely with quantum. Grounds two to five of the cross-appeal are explained as follows: GROUNDS 2. Having found that the measure of the first respondent's damages should be the costs of rectifying the defective works, His Honour assessed those rectification costs by reference to tenders obtained some time before the works were carried out ($512,946) despite the fact that those tenders were substantially more than the actual cost of repair ($354,281) for that damage. 3. His Honour erred in finding that there was 'no alternative method or (sic) calculating rectification costs' (sic) beyond the tenders called by the first defendant's expert, Mr Stephen Brain ($512,946). His Honour should have found that the actual costs of carrying out the rectification works ($354,281) provided such alternative method and should have assessed the first respondent's loss and damage by reference to those actual costs. 4. His Honour failed to deal with the submissions made by the cross appellant that consistent with the legal principle of mitigation, in circumstances where the first respondent had obtained a tender for the cost of repairs of the pavement in the amount of $512,946 and later determined to redevelop the premises and make good the pavement as part of that work for a lesser amount ($354,281), His Honour should have found that the first respondent was obliged to act reasonably and to rectify that work so that it was not entitled to recover more than the actual cost of repair as part of the larger redevelopment. 5. His Honour should have found in the circumstances that the first respondent was only entitled to recover by way of damages its actual costs of rectifying the defective works rather than costs based on a tender obtained by the first respondent's expert. The grounds as expressed really represent one ground. The owner received a quotation to do the rectification work in June 1997. It was in the amount of $566,560. However, on the first or second day of the trial, the owner revealed that the rectification was completed and cost $354,281. The trial then proceeded on that basis. The defendants could not have found out earlier, because the files relating to the performance of the work were not discovered (it was not suggested otherwise than unwittingly). On appeal, learned counsel for the owner suggested that the works done for $354,281 related to only part of the works requiring rectification – and, on the face of it, that seems correct. However, in my view it is too late to change horses: the trial was clearly conducted on the basis that $354,281 was paid for all the required rectification work. 19 What is surprising is that his Honour stated "in the absence of any alternative method of calculating rectification costs or any expert evidence on the point" he would accept the figure of $566,560. It seems almost too simplistic to point out the actual cost was an impeccable alternative method of calculating cost. The owner's counsel suggested that the $566,560 figure was mandated by the High Court's decision in Bellgrove v Eldridge (1954) 90 CLR 613 at 617-8. In my view, this is simply not so. The ratio of that case is that where the price of rectification is ascertained, that price cannot be discounted because of the fact that the plaintiff will not, or might not, spend all the money on the rectification in question. 20 This ganglion of grounds of appeal must therefore be allowed. 21 The next ground of the cross-appeal is: 6. His Honour erred in failing to reduce the plaintiff's claim for the cost of repairs by 20% to take into account the fact that the plaintiff had the benefit of four years' use from the initial pavement out of a design life of 20 years. 22 I would allow this ground of appeal. The owner has gained a windfall to which he was not entitled. He has lost an old pavement and gained a new one. Some allowance must be made in this regard, and the 20% figure seems to me reasonable. 23 The final ground of cross-appeal is that his Honour erred in finding that the owner had proved a loss due to business interruption. I quite agree. To my mind there was no real evidence of any such interruption. There was evidence that the owner's business fluctuated markedly depending on the time of the year, and that the rectification was carried out during a quiet time. There was evidence that the owner could have made accurate records of any interruptions but did not do so. Its experts prepared their reports without knowledge of the existence of any such business interruption. That can only be because they did not exist. This ground should also be upheld. 24 On the architect's cross appeal, therefore, the following orders should be made: Cross-appeal allowed. Orders and judgment of Sorby DCJ below be set aside and in lieu thereof enter a judgment in favour of the first cross-respondent in the sum of $283,424.80 The first cross-appellant to pay the costs of all parties to the cross-appeal. 25 SHELLER JA: Giles JA has set out the material facts and issues raised in the appeal and cross-appeal. I need not repeat these. For the reasons his Honour has given I agree with the orders he proposes both on the appeal and on the cross-appeal. I wish, however, to add some remarks about ground 6 of the cross-appeal. 26 By ground 6 the architect cross-appellant claimed that the trial Judge erred "in failing to reduce the plaintiff's claim for the costs of repairs by 20 per cent to take into account the fact that the plaintiff had the benefit of four years' use from the initial pavement out of a design life of 20 years". In his judgment, which I have had the benefit of reading, Meagher JA would allow this ground of cross-appeal on the basis that by the award the owner had gained a windfall to which it was not entitled. It had lost an old pavement and gained a new one. 27 Judge Sorby did not mention this submission. No one said to us that it had not been put to his Honour. Before us the ground was not argued in any depth. The cases were not reviewed or examined. There have been differences of opinion. For example, the learned author of McGregor on Damages, 16th ed, writing on "Torts affecting goods: Damage and Destruction", says at para 1328: "The method of assessing the cost of repair has been elaborated in a number of cases. (1) The cost of repair must be reasonable, both in that the work must be necessary and the charges must not be extravagant. …. (2) The cost of a complete repair of all the damage is recoverable by the plaintiff notwithstanding that the result of a complete repair may be to render the ship more valuable than she was before the collision. This was laid down in The Gazelle (1844) 2 W.Rob. (Adm) 279 [at 281; 166 ER 759 at 760] where Dr Lushington held, apparently in opposition to prior practice, that the deduction in insurance cases of one-third of the value of the material, since the new material is more valuable than the old, had no proper application to a case of tort, and no such deduction could be permitted to the defendant. 'the measure of the indemnification is not limited by the terms of any contract but is co-extensive with the amount of the damage. The right against the wrongdoer is for restitutio in integrum, and this restitution he is bound to make without calling upon the party injured to assist him in any way whatsoever ….. If [the injured] party derives incidentally a greater benefit than mere indemnification, it arises only from the impossibility of otherwise effecting such indemnification without exposing him to some loss or burden, which the law will not place upon him'." 28 On the other hand in Halsbury's Laws of Australia, Volume 9 "Damages" appear the following passages. The first is in Volume 9 at 135-1090 discussing damages for the destruction of goods: "The plaintiff must credit the defendant for the fact that the plaintiff now receives new goods in place of old (that is, for betterment) ( Hoad v Scone Motors Pty Limited (1977) 1 NSWLR 88) except where the plaintiff would never have replaced the chattel in question ( Harbutt's 'Plasticine' Limited v Wayne Tank and Pump Co Limited [1970] 1 QB 447)." 29 The second passage is in Volume 9 at 135-1165 "Betterment" discussing damages for injury to property: "Where cost of reinstatement is the appropriate measure of damages, plaintiffs must give credit for betterment where the property increases in value after reinstatement, except where reinstatement involves plaintiffs in making an investment they would never had made at all (Harbutt's)." 30 Several considerations are material. The most significant is whether there is evidence that the plaintiff had a reasonable choice between adopting a less expensive course of repair or reconstruction which would mitigate its damage and the course it chose which would not. A plaintiff may decide for good business reasons to use the occasion not merely to repair or rebuild but to improve its facilities. To adapt the words of Dr Lushington the question is whether on the evidence a greater benefit than mere indemnification could be avoided without exposing the plaintiff to some loss or burden. 31 In Anthoness v Bland Shire Council (1960) 60 SR (NSW) 659 the Full Court of the Supreme Court of New South Wales (Evatt CJ, Herron and Sugerman JJ) considered the case of repairs of a rare motor vehicle. The Court approved the general principles stated in The Gazelle and said at 666 that: "The fact that in special circumstances the result of complete repair of all damage done may render the property damaged worth more than it was before the collision is not an answer to the plaintiff's claim." 32 However, a contrary position was taken in Eastern Construction Co Pty Ltd v Southern Portland Cement Ltd [1960] NSWR 505, a case concerning damage negligently caused to a mobile crane. At 506 Owen J, with whom Wallace and Nagle JJ agreed, stated that: "If there had been evidence that after repairs ….. the prime mover would then have had a value higher than its pre-accident value, the jury would have had to allow a discount representing that enhanced value." The decision in Anthoness , although delivered three months earlier, was not mentioned by Owen J. 33 In Badham v Williams (1968) NZLR 728, an appeal from the Magistrates' Court, as the result of the appellant's negligence a power main was damaged and the power supply to a detached flat on the respondent's land was destroyed. The only practical course for the respondent to adopt was to employ an electrician to restore the supply. Had it been possible to reinstate the power main as it stood before the accident the cost would have been about £20. In fact, however, the arrangements of the Auckland Electric Power Board made this impossible. The respondent was obliged to have a different type of installation at a cost of slightly over £136. At 729 Richmond J said: "The present case is one in which, in my opinion, the cost of replacement provides a prima facie measure of the diminution in value. There was no evidence which established otherwise. …. It is unnecessary for me to deal with the questions which may arise in some other case in which the evidence shows either that replacement or repair was unreasonable or that it brought about an increase in the value of the property. My present view, however, is that no allowance should be made in favour of a defendant for betterment in a case where the plaintiff has had no reasonable choice except to replace or repair in order to obtain restitutio in integrum as regards the use and enjoyment of his property. This appears to accord with the decision in the Gazelle." 34 In the case of a chattel, such as a car, destroyed or damaged by the defendant's fault, but of which the plaintiff has had the benefit of some use, a choice of the type referred to in Badham v Williams is more likely to be available than in the case of a building so destroyed or damaged. In Harbutt's the defendant, while installing equipment under contract in an old mill which the plaintiff used as its factory, destroyed the building by its negligence. The plaintiff was not permitted to rebuild the old mill which was five storeys high. It had to put up a new factory two storeys high though with no more accommodation. The question as posed by Lord Denning MR at 467 was whether the plaintiff was entitled to the actual cost of replacement or was limited to the difference in value of the old mill before and after the fire. At 468 his Lordship said: "The destruction of a building is different from the destruction of a chattel. If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge the defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case." 35 At 472-3 Widgery LJ said: "The distinction between those cases in which the measure of damage is the cost of repair of the damaged article, and those in which it is the diminution in value of the article, is not clearly defined. In my opinion each case depends on its own facts, it being remembered, first, that the purpose of the award of damages is to restore the plaintiff to his position before the loss occurred, and secondly, that the plaintiff must act reasonably to mitigate his loss. If the article damaged is a motor car of popular make, the plaintiff cannot charge the defendant with the cost of repair when it is cheaper to buy a similar car on the market. On the other hand, if no substitute for the damaged article is available and no reasonable alternative can be provided, the plaintiff should be entitled to the cost of repair. It was clear in the present case that it was reasonable for the plaintiffs to rebuild their factory, because there was no other way in which they could carry on their business and retain their labour force. The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of this here. Nor do I accept that the plaintiffs must give credit under the heading of 'betterment' for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them." 36 At 475-6 Cross LJ said: "….but in my judgment the value of the building and of the plant and machinery before the fire throws no light on the true measure of damage in a case like this where it was obviously right for the plaintiffs to rebuild and re-equip their factory and start business again as soon as possible. Further, I do not think that the defendants are entitled to claim any deduction from the actual cost of rebuilding and re-equipping simply on the ground that the plaintiffs have got new for old. It is not in practice possible to rebuild and re-equip a factory with old and worn materials and plant corresponding to what was there before, and such benefit as the plaintiffs may get by having a new building and new plant in place of an old building and old plant is something in respect of which the defendants are not, as I see it, entitled to any allowance. I can well understand that if the plaintiffs in rebuilding the factory with a different and more convenient lay-out had spent more money than they would have spent had they rebuilt it according to the old plan, the defendants would have been entitled to claim that the excess should be deducted in calculating the damages. But the defendants did not call any evidence to make out a case of betterment on these lines and we were told that in fact the planning authorities would not have allowed the factory to be rebuilt on the old lines." 37 The approach is no different whether the destruction of or damage to property results from breach of contract or negligence. In Harbutt's the plaintiff sued for both breach of contract and negligence. 38 In Hoad the plaintiffs' tractor and mower used in their business as dairy farmers were destroyed by fire as a result of the defendants' admitted negligence. The plaintiffs' business required them to replace the tractor and mower urgently to avoid crop losses. They were not able to obtain a suitable comparable second-hand tractor or mower. Accordingly, they purchased a new tractor and a new mower to mitigate their loss. The question was whether the fact that the plaintiffs, by the purchase of new equipment to replace old, had become better off after the fire should be taken into account in measuring their damage. The majority, Moffitt P and Hutley JA, thought that it should. Hutley JA at 97 was persuaded that Harbutt's could not stand with the judgment of the House of Lords in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673. 39 Samuels JA dissenting held that the duty to mitigate and the need for a replacement taken together made it reasonable for the plaintiffs to purchase new equipment and that in these circumstances they were entitled to recover as damages the whole of the cost of that equipment without any deduction based upon the advantage which they had obtained by acquiring new equipment for old. Part of the factual circumstances of Hoad's case was that the plaintiffs had proposed to give up the lease of the property on 30 June 1976, which was approximately eighteen months after the fire. The trial took place in March 1976. The trial Judge said: "His replacing of the equipment, however, I think leaves him better off than before his loss. He intends to sell this equipment with the farm at the end of this financial year so that in July he will be left with the price of equipment which is substantially more valuable than that which he lost, and will have lost no profits." 40 At 94 Moffitt P said: "As has been repeatedly said, the assessment of damage is a question of fact in each case. The assessment in the Wayne Tank case depends, in my view, upon the particular facts of that case. To replace the destroyed building, capital had to be laid out to erect a like building in the only way it could be, namely with new materials. The plaintiffs were not in the business of buying and selling factories. They needed the replacement factory for indefinite use. There was no question of it being sold. Prior to its destruction there was no contemplation of reconstructing it in the foreseeable future. The facts in the present case are quite different. Farm equipment depreciates rapidly, and it is either written off or is replaced at short intervals. Planned replacement at short intervals was in fact the business practice of the plaintiffs. If this practice would have continued, then the consequence of the fire was merely to accelerate the inevitable capital expense of acquiring a new tractor and mower." 41 A little later in his judgment the President said: "If the wide general proposition contended for by the respondents be correct, then, where the result of a wrong is that substantial expenditure has to be incurred when in any event it would have to be incurred, but a very little later, then the award of damage would be the total expenditure, although in truth it bears no relation to a true loss." 42 In the present case there was no suggestion that at or about the time the pavement failed substantial expenditure would have been incurred in replacing the pavement in any event. 43 The President thought his decision was consistent with the decision of the House of Lords in British Westinghouse. In that case a contractor supplied a railway company with turbines deficient in power and not in accordance with the contract. The railway company, whilst reserving its right to sue for damages for breach of contract, used the turbines for a time but ultimately replaced them with other turbines of a different make and design. An arbitrator stated a special case for the opinion of the court as to whether, in the circumstances, the cost of the substituted turbines was recoverable by the railway company from the contractor as part of the damages. The arbitrator found that the purchase of the new machines by the railway company was a reasonable and prudent course and mitigated or prevented the loss or damage which would have been recoverable from the contractor if the railway company had continued to use the contractor's defective machines in the future. He also found that the purchase of the machines was to the pecuniary advantage of the railway company and that the superiority of the new machines in efficiency and economy over those supplied by the contractor was so great that, even if the contractor had delivered to the railway company machines in all respects complying with the conditions of the contract, it would yet have been to the pecuniary advantage of the railway company at its own cost to have replaced the machines supplied to it by the new machines as soon as the latter could be obtained. 44 In a speech with which the other members of the House of Lords agreed, Viscount Haldane LC said at 689: "Subject to these observations I think that there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James LJ in Dunkirk Colliery Co v Lever [1878] 9 ChD 20 at 25, 'the person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business.' As James LJ indicates, this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act." 45 His Lordship distinguished the "res inter alios acta" cases where what was relied on as mitigation did not arise out of the transactions the subject matter of the contract. Where delay in the discharge of a ship of the plaintiffs led to a loss of the passengers the plaintiffs had contracted to carry, the damages were not reduced because the same persons took passage in another vessel belonging to the plaintiffs; Jebsen v East and West India Dock Co (1875) LR 10 CP 300. The measure of damages for breach of a covenant by a lessee to deliver up the demised premises in repair was not affected by the fact that the lessee had granted a lease to another lessee to commence from the expiration of the term of the first lease and the new lessee had made no claim to be reimbursed the cost incurred in repair after the expiration of the first lease; Joyner v Weeks [1891] 2 QB 31. At 691 Viscount Haldane said: "I think the principle which applies here is that which makes it right for the jury or arbitrator to look at what actually happened, and to balance loss and gain. The transaction was not res inter alios acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach. Apart from the breach of contract, the lapse of time had rendered the appellants' machines obsolete, and men of business would be doing the only thing they could properly do in replacing them with new and up-to-date machines." 46 The House of Lords concluded that the arbitrator in assessing damages should take into account that the purchase of the new machines was to the pecuniary advantage of the railway company and that their superiority in efficiency and economy over those supplied by the contractor was so great, that even if the contractor had delivered to the railway company machines in all respects complying with the conditions of the contract, it would yet have been to the pecuniary advantage of the railway company at their own cost to have replaced the machines by the new machines so soon as the latter were to be obtained. Clearly enough the House of Lords decision is distinguishable from the present in the sense that there were factors to be taken into account in assessing damages of a kind absent from those found in this case. 47 Bearing in mind that an assessment of damages is a finding of fact, in the sense that it is the function of a jury properly instructed, I do not agree with the proposition advanced by Hutley JA in the passage I have referred to that the decision of the Court of Appeal in Harbutt's cannot stand with the judgment of the House of Lords in British Westinghouse. The facts were different. The factory owner had no choice but to build the replacement factory which it did. On the other hand the railway company chose, albeit for good commercial reasons, not merely to replace the turbines but to purchase a superior version. In Hoad Samuels JA in his dissenting judgment carefully reviewed the authorities and said at 103: "It follows that no deduction can be made by dint of any doctrine of betterment. It might be different if the new tractor had been of greater capacity than the old, or of superior performance; cf British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd. But there was no such evidence. The new tractor was no more than a replacement for the old, and as nearly equivalent as the circumstances in which the plaintiffs were placed would permit." 48 His Honour went on carefully to examine the facts in British Westinghouse at 104 and following and said at 107: "Several observations may be made about this decision. First, since it concerned the assessment of damages for breach of contract and not for a tort, the essence of the respondent's claim was for the loss of its bargain. In such a case, as Viscount Haldane pointed out, the respondent was entitled to recover the economic value of the bargain, that is, to be placed in as good a situation as if the contract had been performed. Secondly, the respondent's bargain was to have machines of a certain standard of efficiency and economy according to the stipulation in the contract. Thirdly, the respondent was entitled to recover the extra expense incurred in running the appellant's machines up to the time they were replaced by the Parsons machines. Fourthly, they did not replace them with comparable machines, but with more efficient and economical machines, and thus obtained for themselves a better bargain than that which the appellant had promised to provide; and fifthly, they did so at a time when the appellant's machines had become obsolete and due for replacement in any event. It seems to me that when the matter is analysed in this way, it becomes reasonably plain that the respondent could not have been entitled to an award of damages which would have given it a greater advantage than that which it would have enjoyed had the appellant's bargain been faithfully carried out. The basis of the decision can be readily understood; but the principle for which the case stands is of comparatively narrow application. This may be seen from the later cases in which that principle has been invoked. It is not a means of applying some doctrine of betterment, merely because a plaintiff gets new for old, and I can find no case in which it was employed for that purpose. I would suggest that the reason why the British Westinghouse case was apparently not cited in Harbutt's case was because it was irrelevant to the circumstances of that case, as it is, I think, to the situation of the present plaintiffs. The critical fact in the British Westinghouse case was that the respondent had acquired improved machines of greater efficiency and economy, and had made profits from their use which it could not have achieved by using the old machines. Nothing of that kind occurred in Harbutt's case, where the new mill was of no greater capacity than the old; nor in the present case, there being no evidence that the new tractor was any more efficient than the old, and no evidence that it increased the plaintiffs' profit. Application of the rule in the British Westinghouse case relevantly requires some use of the substitute which the plaintiff has obtained which can be said to form part of a 'continuous dealing with a situation in which the plaintiff has found himself as a result of the defendant's breach of contract or of duty." 49 Samuels JA thought that the principle expounded in the British Westinghouse case had no relevance to Hoad's case. Even more certainly, in my opinion, does it have no relevance to the present case. The plaintiff had no reasonable choice but to replace the defective pavement with new pavement. 50 In Murphy v Brown [1985] 1 NSWLR 131 at 133 Mahoney JA in reasons for judgment with which Hope JA agreed said at 133: "In some cases, to put the plaintiff in the physical position in which, uninjured, he would have been will result in his being financially in a better position than he was. Thus, it may be that to give the plaintiff what he had before, eg, a factory, would result in his being in a better financial position than he was: a new factory may be worth more than the factory that he had. In such circumstances, the sum to be awarded will sometimes, though not always, be reduced: cf Harbutt's case. Rules of this kind are, in principle, directed to ensuring that the plaintiff has, but has no more than, what will put him in his uninjured position. But there is a further rule which operates by way of qualification of the general principle. Where a plaintiff claims the cost of the work necessary to put him or his property in the pre-injury condition, the work must not merely be necessary for that purpose but 'it must be a reasonable course to adopt' to do that work: Bellgrove v Eldridge (1954) 90 CLR 613 at 618. And, as the defendant's argument here suggested, it will not normally be reasonable to spend, for example, $4,000 to restore a vehicle which, undamaged, was worth, say, $1,000." 51 In the recent New Zealand case of J & B Caldwell v Logan House Retirement Home [1999] 2 NZLR 99 Fisher J noted at 106 that "two somewhat extreme positions" had been taken over betterment. At 107 his Honour expressed the view that neither of those extremes fully accorded with the fundamental object of damages to restore financially the plaintiff to no more and no less than the position which it would have occupied if the contract had been performed. His Honour regarded the logical middle ground to be to make a deduction for betterment but only after allowance to the plaintiff for any disadvantages associated with the involuntary nature of the additional investment. 52 Fisher J referred to the decision of the Ontario Court of Appeal in James Street Hardware and Furniture Co v Spizziri (1987) 62 OR (2d) 385. At 403-4 the Court of Appeal of Ontario quoted from Waddams, The Law of Damages (1983) [see now the 2nd edition (1991) at 1.2730 and following] and summarised what Dr Lushington said in The Gazelle about the plaintiff being obliged to submit to "some loss or burden" and what Widgery LJ said in Harbutt's about "forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them". The Court of Appeal went on: "These considerations, however, do not necessarily mean that in cases of this kind the plaintiff is entitled to damages which include the element of betterment. As Waddams suggests, the answer lies in compensating the plaintiff for the loss imposed upon him or her in being forced to spend money he or she would not otherwise have spent – at least as early as was required by the damages occasioned to him by the tort. In general terms, the loss would be the cost (if he has to borrow) or value (if he already has the money) of the money equivalent of the betterment over a particular period of time." 53 However as there was no evidence on the effect of the replacement of new for old components on the value of the building, the Court of Appeal concluded that there was no reasonable basis for a deduction on account of betterment and pointed out that the trial judge had not considered the concomitant question of loss flowing to the plaintiff if its compensation was reduced by the deduction for enhancement. 54 In a sense the British Westinghouse case may represent the middle ground. However, the context was that the railway company had replaced the defective turbines with superior turbines. In my opinion, if a defendant negligently damages or destroys the plaintiff's property and there is no evidence that the plaintiff had any reasonable choice other than to replace or repair what had been damaged or destroyed, the cost of replacement or repair, provided it is not extravagant, is recoverable as damages. In each case it is a question of fact. 55 The facts in Hoad and British Westinghouse are distinguishable from the facts in this case. The plaintiff had no choice but to replace the defective pavement with new pavement. It could not do so by paying less for a four year old pavement. There was no evidence of any advantage to the plaintiff beyond the speculative proposition that the new pavement might last longer than the old one would have, if it had been properly laid. Moreover as Giles JA has remarked in his reasons for judgment, it is not appropriate to use a "crude percentage discount" to reduce the amount awarded. Ordinarily if such a reduction is to be made the formula mentioned in Waddams and referred to with approval by the Court of Appeal of Ontario should be applied. On the evidence in this case, no allowance should have been made for betterment and this ground of cross-appeal fails. 56 GILES JA: Wilh Wilhelmsen Agency Pty Ltd ("the owner") owned industrial premises at 1 Hale Street, Botany. Oswalds Pty Ltd ("the occupier"), then a wholly owned subsidiary of the owner, conducted a container terminal at the premises as lessee from the owner. The owner decided to redevelop the premises. It engaged James Thiessen & Associates Pty Ltd ("the architect") as its primary consultant for the project. 57 The redevelopment included a new area of pavement. The architect engaged Acer Wargon Chapman (NSW) Pty Ltd ("the engineer"), later known as Hyder Consulting Australia Pty Ltd, to provide engineering services, including the design and documentation for the pavement. The conditions on which the engagement was made included that the engagement was with the owner and that as primary consultant the architect would be coordinating all services. 58 In March 1994 the architect provided the engineer with design load information for the pavement. The information included that the pavement should be designed "for 8 tonne and 10 tonne container forklifts", meaning forklifts capable of lifting 8 tonne and 10 tonne containers, and that a particular number of repetitions was to be assumed and that the pavement should have a life expectancy of approximately 20 years. Within a short time the engineer prepared a design for the pavement and supplied it to the architect. The design was appropriate for the design load information as provided. 59 In March 1995, before the construction of the pavement commenced, the owner informed the architect that it proposed to acquire a forklift capable of lifting much heavier containers. In April 1995 the occupier provided to the architect information relevant to design load for the pavement consequent on the use of the larger forklift. 60 The architect should have sent this information to the engineer so that modification of the pavement design could be considered. The trial judge accepted that the architect faxed the information to the engineer, but also accepted that the fax was not received by the engineer. Nothing was done by the architect to confirm that the information had been received by the engineer, and the trial judge was not satisfied that the proposal to acquire the larger forklift was made known to the engineer in discussion at an earlier site meeting or in a later communication between the architect and the engineer. 61 Had the engineer been made aware or become aware of the information, the pavement design would have been modified to withstand the heavier loads consequent on the use of the larger forklift. It was not modified. The pavement was constructed in June 1995. Within a short time it began to fail under the loads to which it was subjected. 62 Early in 2000 the owner brought proceedings against the architect and the engineer, alleging that each had been negligent in the provision of its services. On 6 November 2000 Sorby DCJ held that each had been negligent, that the owner had not been contributorily negligent, and that as between the architect and the engineer liability should be apportioned equally. He assessed the owner's damages at $578,163. 63 The engineer appealed in relation to liability, damages and the apportionment of liability. The architect cross-appealed in relation to damages. The owner cross-appealed in relation to interest on its damages. The engineer's appeal 64 The engineer submitted in relation to liability that Sorby DCJ had erred in finding that it had been negligent, but also that his Honour had erred in rejecting its reliance on an exclusion clause in the ACEA Conditions of Engagement. It is sufficient for the engineer's appeal to address liability and the exclusion clause. 65 The ACEA Conditions of Engagement were standard conditions of engagement for consulting engineers. They were issued by The Association of Consulting Engineers Australia, hence the acronym, and were in common use in 1994. Clause 4.3 in "Part 4 – Scope of Liabiity" read - "Duration of Liability The Consulting Engineer shall be deemed to have been discharged from all liability in respect of the Services, whether under the law of contract, tort or otherwise, at the expiration of the period specified in Item 10 of the Schedule or if no date is specified on the expiration of one year from the completion of the Services, and the Client (and persons claiming through or under the Client) shall not be entitled to commence any action or claim whatsoever against the Consulting Engineer (or any employee of the Consulting Engineer) in respect of the Services after that date." 66 Before Sorby DCJ it was not in dispute that, if the engagement of the engineer was on the ACEA Conditions of Engagement, by virtue of cl 4.3 the engineer had been discharged from any liability it might have had to the owner. No date was specified in Item 10 of the Schedule, so the proceedings had to be brought before the expiration of one year from the completion of the engagement. The proceedings were brought more than four years after the completion of the engagement. The question was whether the engagement of the engineer was on the ACEA Conditions of Engagement. The question was the same on appeal. 67 The architect wrote to the engineer on 2 February 1994 - "Further to our discussions we enclose 4 copies of Drawing BA.01, a copy of the development approval and copies of subsequent correspondence between our office and Botany Council. On behalf of our client Wilh Wilhelmsen Agency Pty Ltd we request a fee submission for engineering services. 1. Structural/Civil Engineering. - Design and documentation of proposed awnings and enlargement/reduction of roller shutter size. - Design and documentation of new reinforced concrete and/or bitumen to areas as shown on drawing including reshaping of truck entry to site on Hale Street. - Site stormwater including site retention as requested by Council. 2. Hydraulic and Fire Services. - Design and document as required stormwater system to new awnings. - Design and document relocation/upgrading fire fighting equipment as required by Council and/or B.C.A. 3. Mechanical Services. - Design and documentation of smoke exhaust and compartmentalisation as required by Council and/or B.C.A. 4. Electrical Services. - report and/or design and documentation of emergency lighting. If your fees are approved you will be engaged directly by our client: Wilh Wilhelmsen Agency Pty Ltd 36 Dooley Street ALEXANDRIA Attn: Mr Geoff Northausen. We will be coordinating your services. Each discipline will be responsible to liaise with Council directly and obtain the best and most economical solution for our client. We are to be kept informed at all times. We thank you for your cooperation and we look forward to working together." 68 A copy of this letter was sent to Mr Geoff Northausen of the owner. 69 The engineer replied to the architect on 8 February 1994. The letter began - "We acknowledge receipt of your letter of 2 February 1994, inviting our company to provide a fee proposal for the above project and present for your approval our submission. As you are aware, the scope of works cannot, at this stage, be fully defined, due to ongoing discussions with council and necessary upgrade works subject to future inspections and reports. Accordingly we propose that our engagement be on a time basis with fixed upper limits for the various engineering components. These limits would not be exceeded without the client's written approval. The following hourly charge rates are deemed appropriate: Associate Director $105.00/hr Senior Engineer $95.00/hr CAD Drafting $65.00/hr" 70 There were then set out under headings for Structural Engineering, Civil Engineering, Fire Services, Mechanical Services and Electrical Services estimates of times and extensions by charge rates for the various engineering services indicated in the letter of 2 February 1994. An additional amount was stated for co-ordination with the architect, the client and the council. The letter concluded - "We understand that the client will be Wilh Wilhelmsen Pty Ltd of Alexandria with our commission directly with them. We propose that our appointment be in accordance with the ACEA Conditions of Engagement . We note that the above hours have been estimated on the basis of previous projects. The extent of new works is dependent upon the condition of the existing installation and its conformance with BCA. Accordingly our budget figures must be considered as preliminary only. We trust the above is acceptable and look forward to the client's approval." (Emphasis added) 71 On 9 February 1994 the architect sent a copy of this letter to Mr Northausen. 72 The architect then wrote to the engineer on 11 February 1994 - "On behalf of our client, Wilh Wilhelmsen agency Pty Ltd, we confirm your engagement as consultant engineers for the above project in accordance with our letter of 2.2.94 (Our Ref: 98902021) and your offer of services and fee submission of 8.2.94 (Your Ref: ETS: mk 376/WP5250). As previously stated your engagement is directly with: Wilh Wilhelmsen Agency Pty Ltd 36 Dooley Street ALEXANDRIA Contact: Mr Geoff Northausen. Phone: 667 1200 Fax: 693 1553 Invoices should be addressed to your client c/- James Thiessen & Associates. Please forward to Mr G Northausen a copy of ACEA Conditions of Engagement, for his information and approval at your earliest convenience. We are engaged as primary consultants and will be coordinating your services. Please advise in writing the name/s of engineer/s who will be liaising with our firm and Council. We confirm that upper limits shown on your fee proposal are not to be exceeded without written approval from the client. We look forward to a successful project completion." (Emphasis added) 73 The architect sent a copy of this letter to Mr Northausen. 74 I have emphasised the sentences in the letters of particular importance to the question. The engineer did not provide a copy of the ACEA Conditions of Engagement to Mr Northausen. The architect did not ensure that a copy was provided. Mr Northausen did not ask for a copy. His evidence included that he assumed that the owner would be subject to the conditions whether or not it received the document. 75 Sorby DCJ recorded the engineer's submission that "approval" in the letter of 11 February 1994 - " … was not used in the sense of further negotiations needing to take place before the conditions were implemented into the agreement but on the basis that the conditions would on receipt, be identified and approved as the ACEA Conditions rather than meaning that there were to be further negotiations". His Honour recorded the owner's submission that the engagement of the engineer "was complete without the Conditions and the proposal that the engagement be in accordance with them was not accepted". 76 His Honour said - "In my opinion the word 'approval' should be given the ordinary English meaning. The letter of 11 February 1994 asks the Engineer to forward the Conditions to Mr Wilhelmsen [sic] for his information and approval. If the contents of the conditions were part of the offer of services negotiated by the Architect with the Engineer on behalf of Wilh Wilhemsen, then they would have been forward for 'information' only. Their content, particularly clauses 4.2 and 4.3 are of such significance that the Architect sought to have his client approve them. They were not forwarded to Wilh Wilhemsen by the Engineer. He did not approve the Conditions nor would have approved the Conditions had he known about them. The Conditions were offered but not accepted. I therefore find that they did not form part of the Engineer's retainer." 77 With respect, this was an incomplete analysis. His Honour considered that approval of the ACEA Conditions of Engagement by Mr Northausen was necessary, but did not fully consider what that meant for the engagement of the engineer. If by the letter of 8 February 1994 the engineer was offering to provide engineering services on the ACEA Conditions of Engagement, but that offer was not accepted because approval was outstanding, there was no engagement at all. Yet there clearly was an engagement, in that the engineer provided and the owner took the benefit of the engineering services. How could the engagement have been on some of the terms of the letter of 8 February 1994 (as to a time basis with fixed upper limits and the charge rates), but not on another important term of the letter (appointment in accordance with the ACEA Conditions of Engagement)? 78 The owner sought to defend this median position on appeal. I do not think it is defensible. It treats the letter of 11 February 1994 as making a fee proposal open to be accepted without incorporation of the ACEA Conditions of Engagement. It is clear, in my view, that the engineer's letter of 8 February 1994 should be read as a complete proposal, with appointment in accordance with the ACEA Conditions of Engagement an integral part of the proposal. Not only is that the natural reading of the letter, but contracting on specified standard conditions to flesh out the fairly bare time and money matters was to be expected; further, in economic terms the charge rates would be affected by the conditions, including the protection obtained under Part 4. 79 In Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 a developer declined to sign a building contract, but let the work proceed and received the benefit of the work. It was held that it should be found that the offer made by the builder by proffering the contract had been accepted by the developer by its conduct, and that there had been an acceptance of the work on the terms and conditions offered by the builder. 80 In my opinion the same should be found here. By the letter of 8 February 1994 the engineer offered to provide engineering services on the ACEA Conditions of Engagement. If the offer was not accepted by the architect's letter of 11 February 1994 because of a qualification that the ACEA Conditions of Engagement had first to be approved by Mr Northausen, when the engineering services were provided and the benefit of the services was taken by the owner without prior approval by Mr Northausen there was acceptance of the offer by the owner without that qualification: there was acceptance of the services on the terms and conditions offered by the engineer, including the ACEA Conditions of Engagement. 81 The owner submitted that this conclusion could not be reached because the ACEA Conditions of Engagement required completion in a number of respects, so that, absent completion, the engagement could not be on those conditions. It might be observed that a need for completion does not seem to have troubled the architect at the time. 82 The ACEA Conditions of Engagement took the form of an agreement between a client and a consulting engineer. So far as they provided for identification of the client and the engineer, that was apparent from the letters. So far as they required a description of the professional services to be provided and the fees payable to the consulting engineer, those also were to be found in the letters. 83 A schedule contained twelve items for completion. Item 1 was the date of the agreement, and in the circumstances did not need completion. Items 2 and 3 were the addresses of the client and the consulting engineer, which addresses were to be found in the letters. Item 4 was the State or Territory whose laws governed the agreement and all arbitrations arising out of it, but completion was not necessary because if it was not completed the law would provide the governing law. Items 5 and 6 were directed to the client making equipment and facilities available to the consulting engineer, and did not apply where that was not to occur. Item 7 was a payment period, but completion was not necessary because the agreement operated satisfactorily even if it was not completed. Item 8 was a rate of interest on outstanding money, but the relevant condition had a default interest rate. Item 9 was the consulting engineer's maximum liability, but the relevant condition had a default amount. Item 10 was directed to the period for termination of the consulting engineer's liability, but the relevant condition (cl 4.3 set out above) had a default period. Item 11 was concerned with nomination of an arbitrator, but the relevant condition had a default mechanism. Item 12 provided for the amount of a bank guarantee, but the relevant condition operated only on request by the consulting engineer and completion was not necessary because the agreement operated satisfactorily even if it was not completed. 84 There was nothing requiring completion in the ACEA Conditions of Engagement which, if it was intended that the engagement of the engineer be on those conditions, prevented giving effect to the intention. I do not think the owner's submission should be accepted. 85 The owner further submitted that it should not be found that it had by its conduct, and without actual notice of the conditions, agreed to be bound by the ACEA Conditions of Engagement when they included such an important provision as cl 4.3, and together with it cl 4.2 providing for the engineer's maximum liability. It said that the question was whether it could reasonably be taken to have assented to these provisions (citing Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd & Anor (1998) 4 VR 559 at 569), and that where limitation provisions were involved express consent or reasonable notice was called for (citing Baltic Shipping Co v Dillon ("Mikhail Lermontov") (1991) 22 NSWLR 1 at 8-9 and 24-25). The test is objective, and in my opinion the nature of the provisions did not preclude the finding: it was not only a reasonable finding, but in the circumstances all but compelled. 86 The owner also submitted that the architect's authority extended only to committing the owner to fees, and that it did not have authority to bind the owner to the ACEA Conditions of Engagement. I do not see why the architect's authority to commit the owner to fees did not include the conditions integral to the fees, but it matters not because the owner was bound by its conduct, not by virtue of the architect's letter of 11 February 1994. 87 In my opinion, therefore, the engineer was entitled to rely upon the exemption clause. Its appeal should be upheld, and there should be a verdict and judgment in its favour. Sorby DCJ had dismissed the cross-claims between the architect and the engineer, apparently because he considered that liability should be apportioned equally. This was incorrect, but it means that no order is needed on appeal in relation to the cross-claims. The architect's cross-appeal 88 It was not suggested that the architect should have brought an independent appeal, rather than a cross-appeal. I do not trouble with possible procedural niceties. 89 Sorby DCJ accepted the owner's claim for damages as put forward, namely - "(a) Rectification/rebuilding of defective paving $566,560.00 Less the amount which the Plaintiff would have incurred by way of additional cost had the pavement been appropriately designed in 1995 $53,618.00 $512,946.00 (b) Professional fees incurred by structural inquiries in course of rectification $20,493.00 (c) Loss owing from disruption during rectification $44,724.00 TOTAL $578,163.00" 90 The architect challenged the awards of damages in (a) and (c). (a) Cost of Rectification 91 In March 1997 an engineer was engaged by the owner to prepare tender documents for the reconstruction of the pavement. He did so, and submitted the documents to a number of contractors. The cheapest price quoted was $566,560. 92 However, the pavement was not reconstructed at this time, or pursuant to the tender documents. The owner decided to redevelop the premises again. The total cost of the further redevelopment was in the order of $8,100,000. Two buildings were demolished and a new building was constructed near the area of pavement in question, and an existing building was extended to take in a portion of that pavement with the consequence (amongst others) that part of the failed pavement was replaced by an internal concrete slab of less load bearing capacity. Thus the reconstruction of the pavement was part only of much more extensive construction work, and the pavement was not all reconstructed to the same extent. The pavement reconstruction was carried out by Vaughan Constructions Pty Ltd over a period October 1999, and it seems that the redevelopment was completed about mid-2000. 93 At the request of the owner, in a letter dated 6 July 1999 Vaughan Constructions Pty Ltd estimated the costs attributable to the reconstruction of the pavement - "The damaged pavement area between sheds 9 –10 is approximately 2,684m2, and east of shed 3 is approximately 656m2. Costs to:- Demolish and remove existing 200mm pavement Additional excavation and material removal to suit pavement profile Required adjustment to existing stormwater pits Preparation for post tensioning and placement of 260mm thick 40 MPA concrete and curing Including design documentation $354,281.00 Preparation for 180mm thick 35 MPa concrete and curing / internal slab Building 3 extension Including design/documentation $50,528.00 " 94 The owner maintained before Sorby DCJ that it was entitled to damages based on the $566,560 as the reasonable cost of reconstruction of the pavement, even though it had not actually incurred that cost. It expressly conceded "that the costs set out in the letter of 6 July 1999 from Vaughan Constructions are the costs for rectification that the plaintiff in fact incurred". 95 His Honour dealt with the matter as follows - "The Plaintiff said the rectification was reasonable and necessary in accordance with principles set out in Bellgrove v Eldridge (1953-54) 90 CLR 613 at 617-18. There is no doubt the damages to the Hale Street pavement required rectification and it was reasonable in the circumstances to require rectification of the pavement. No expert was called or relied upon to suggest that the method of rectification (or the need for it) as proposed by the Plaintiff was inappropriate. The Plaintiff submitted that it was irrelevant to consider the amount which the Plaintiff in fact sent on the rectifications (De Cesore [sic] v Deluxe Motors Pty Limited (1996) 13 BCL 136). It was submitted the Plaintiff would be entitled to damages even if the property had been sold without rectification (Director of War Services Homes v Harris (1968) QDR 512). The Plaintiff it was submitted would have been entitled to some measure of damages even if it had commenced no rectification or indicated no intention to carry out any rectification at all. This submission is in accordance with the principles in Bellgrove. In the absence of any alternative method of calculating rectification costs or any expert evidence on the point I intend to allow the proposed sum of $512,946.00 as claimed for the rectification and rebuilding of the defective concrete paving." 96 In my opinion his Honour was in error. Neither Bellgrove v Eldridge (1954) 90 CLR 613 nor the other cases cited supported damages based on the theoretical cost of reconstruction of the pavement when the actual cost of reconstruction of the pavement was known, and the actual cost was powerful evidence of an alternative method of calculating rectification costs. 97 In Bellgrove v Eldridge the owner sued the builder for breach of contract in constructing a building with defective foundations. It was held that the measure of damages was not the diminution in the value of the building by reason of the defective foundations, but the cost of reasonable and necessary work to rectify the foundations plus consequential losses, and that in the particular case demolition and rebuilding was reasonable and necessary to provide a building in conformity with the contract. Theoretical cost versus actual cost was not in question. 98 The Court did say (at 620) - "It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another. If she does not, it is said, she will still have a house together with the cost of erecting another one. To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all." 99 This does not mean that a theoretical reasonable cost is to be preferred over the actual cost where the actual cost is known and can be taken as the reasonable cost. If the rectification work has not been carried out, then a theoretical reasonable cost must be found and, because damages must be assessed once and for all, must be awarded even though the rectification work might not be carried out. (I have held that, if it is found that the rectification work will never be carried out, no damages should be awarded: see Central Coast Leagues Club Limited v Gosford City Council, 9 June 1998, unreported). But if the rectification work has been carried out and the actual cost is known, that provides sound evidence of the reasonable cost and should ordinarily provide the basis for damages. 100 In neither Director of War Services Homes v Harris (1968) QdR 512 nor De Cesare v Deluxe Motors Pty Limited (1996) 13 BCL 136 was the actual cost of the rectification work known. The buildings had been sold, and while in De Cesare v Deluxe Motors Pty Limited some money had been spent on rectification work there had not been proper rectification. It was held in both cases that the reasonable cost of rectification could still be the measure of the former building owners' losses. 101 The owner sought to argue that, on analysis of the letter of 6 July 1999, the costs set out were not in fact the actual cost of rectification of the pavement, but represented part only of that cost or were the actual cost of work of a different scope. I do not think it should be permitted to depart from the clear concession made below. 102 Before Sorby DCJ it appears that the relevant actual cost of reconstructing the pavement was taken to be the figure of $354,281 in the letter of 6 July 1999, and his Honour so found. It appeared on appeal that the further figure of $50,528 should have been included. There was no notice of contention or cross-appeal, but the owner so argued in submissions and it was all but conceded. The only argument put to the contrary was that $50,528 was in some manner part of the $53,618 allowed in favour of the respondents, see the elements of the claim for damages earlier set out. I am unable to see that it was. I consider it sufficiently clear that, as part of correcting the award of $512,946, the substituted figure for cost of rectification should include the $50,528. 103 In my opinion, therefore, and subject to the challenge in a further respect to which I next come, the challenge to the award of damages in this respect has been made good. The damages are $351,191, being $354,281 plus $50,528 less $53,618. 104 There was a challenge in a further respect. The architect submitted that the damages should be reduced by 20 per cent to take into account the fact that the owner had the benefit of four years' use from the original pavement out of a design life of 20 years. The reasons of Sorby DCJ did not deal with this matter, although we were informed that it was put to his Honour. 105 The design life of the pavement was approximately 20 years, but it should not be assumed that the pavement would be usable for 20 years and then become unusable. I doubt that it would be appropriate to make the suggested reduction in the owner's damages on an uncertain assessment of use for part of a period of time. But that is not the only difficulty with the submission. 106 The architect referred to Hoad v Scone Motors Pty Ltd (1977) 1 NSWLR 88 for the proposition that damages should reflect the net detriment to the plaintiff after taking account of any gain connected with the loss. In that case the plaintiffs' equipment was destroyed by fire by the negligence of the defendants. The equipment was some years old, and would normally have been replaced periodically, but the plaintiffs intended to cease the business activity in which the equipment was used. The plaintiffs bought new equipment. It was held by Moffitt P, with whom Hutley JA agreed in the result, that they were not entitled to recover as damages the cost of the new equipment, and that their damages should reflect the net detriment from acquiring the new equipment as a result of the loss. What the net detriment was, and how it should be assessed, were left for a new trial. 107 The reasons of Moffitt P make it clear that each case depends on its own facts, see at 94-5. The general principle of restitutio in integrum, so that a plaintiff should be compensated for its loss but not over-compensated, is undoubted. Its application will vary according to the circumstances. In the present case the owner was entitled to a sound pavement, and from the time it was laid the pavement failed and the owner did not have a sound pavement. It had to be replaced, and the owner could not replace it with a sound four year old pavement. Any benefit to the owner seems to be that, whereas it would otherwise have had to spend money repairing or replacing the pavement in (say) 2015, having reconstructed the pavement in 1999 it will now not have to spend money repairing or replacing it until (say) 2020. So the owner will have the use for five years of the money spent on the repair or replacement. If any allowance in favour of the architect is to be made, I do not think it should be by the crude percentage discount suggested by the owner. (c) Business interruption 108 The owner did not occupy the premises, and did not itself suffer disruption during rectification. On appeal it relied on a letter from the occupier dated 1 October 1998, reading - "Due to the requirement to reconstruct a large proportion of the damaged concrete area at Hale Street, Botany, Oswalds Pty Ltd will suffer a considerable loss of profits due to business interruption during the reconstruction period. As Wilh. Wilhelmsen Agency P/L (WWA) is the landlord of our premises, we hereby seek compensation from WWA for the loss of profits during the reconstruction. We have been advised that the reconstruction period will be approximately one month. Please find attached a copy of our loss of profits calculation, totalling $44,700. The Income Categories listed in our loss of profits calculation are all produced from activities conducted in our sealed concrete yard area. Currently we have approximately 9,600m2 of sealed yard area at Hale Street, including the damaged area. During the reconstruction of the damaged concrete a minimum of 3,600m2 (not allowing for any area around the reconstruction zone) will be inoperable. This represents 37.5% of the available yard area. While we acknowledge that we will make greater utilisation of the useable yard area during reconstruction, the loss of the reconstruction area for a month will have significant detrimental affect on the income gained from our yard activities. Hence we have estimated the revenue and gross profit gained from our yard activities will be reduced by a minimum of 25% during the month of reconstruction. Please contact the writer if you require further information regarding our loss of profits calculation." 109 The attached loss of profits calculation set out average income figures per month for six categories of work, and in a column headed "25% Loss of income Per Month" struck a total figure of $44,724. 110 In an affidavit sworn on 2 November 1998 Mr David Norcott of the occupier gave evidence that the letter detailed losses it was "likely to suffer as a consequence of the interruptions likely to be caused to its business by the paving being replaced". An outside accountant calculated profits lost by the occupier on various other assumptions, but the owner did not rely on his report on appeal and in any event the calculation was only as good as the proof of the facts on which it was based. 111 The estimate of lost income in the letter assumed that "the reconstruction area" would not be available to the occupier for a month. The further redevelopment was undertaken more than a year after the estimate was made. Although there was evidence to the effect that the pavement reconstruction would have interfered with the conduct of the occupier's business, we were not referred to any evidence showing that the reconstruction area was in fact not available to the occupier for a month, or for any other period; nor were we referred to any evidence showing that the further redevelopment would not have disrupted the occupier's activities in any event, for example because of the extension of the building over part of the defective pavement. 112 Even if this could be put aside, there was no evidence that the owner had in fact paid $47,400 to the occupier, or allowed that amount to it by reduction of rent or in some other way. There was evidence from Mr Norcott that the occupier had "some holiday on rental", which he said was "$30,000ish I suppose", for disruption over a year while the redevelopment was carried out. There was nothing more certain, or more specific to any disruption referable to the reconstruction of the failed pavement as distinct from the redevelopment as a whole. In my opinion the owner did not establish loss to itself from disruption during rectification. This challenge to the award of damages has been made good. 113 It follows that the owner's damages should be $371,684 made up of $351,191 for the cost of rectification and $20,493 for professional fees. The architect's appeal should be upheld, and there should be a substituted verdict and judgment for that amount. The owner's cross-appeal 114 The owner's statement of claim included a claim for interest pursuant to s 83A of the District Court Act. It was acknowledged that Sorby DCJ was not asked to include interest in the owner's damages in submissions made at the trial. No interest was awarded. His Honour was not asked to rectify that omission when he gave judgment, or when there was later argument as to costs. The owner did not raise the matter in the appeal until, by a notice of motion filed in court on the first day of the hearing, it sought leave to cross-appeal out of time from what was described as his Honour's failure to include or allow interest in the judgment. 115 The architect and the engineer opposed the grant of leave. They submitted that the owner may have made a forensic decision not to claim interest because its claim for the major amount of the cost of rectification was for a theoretical reasonable cost. Even if interest on the actual cost was considered, they said, when the expenditure must have been part of the expenditure on the further redevelopment there was no evidence of when the money was paid or even that it was paid. 116 I can see no satisfactory reason for a forensic decision by the owner to abandon any claim to interest. Even if it was hesitant about interest on the $512,946, in principle it was entitled to interest on the $20,493 and the $44,724 which it claimed. The explanation must be neglect, much to be regretted. Focussing now on the $351,191 and the $20,493, I do not think it would be an injustice to the architect to rectify the neglect, but in the absence of evidence of payment the interest should be calculated only from mid-2000, after the pavement replacement was completed, on the basis that it may be taken that Vaughan Constructions Pty Ltd was paid by the time the redevelopment was completed. Interest on $371,684 from 1 July 2000 to 5 November 2000, at 10% to 21 August 2000 and 11% thereafter, is $54,454,24. Orders 117 In my opinion the following orders should be made - 1. In the appeal by the engineer - (a) Appeal allowed; (b) verdict and judgment for the owner set aside, and in lieu thereof verdict and judgment for the engineer; (c) owner to pay the engineer's costs of the trial and of the appeal, and to have a certificate under the Suitors Fund Act if otherwise qualified. 2. In the cross-appeals by the architect and the owner - (a) appeals allowed; (b) verdict and judgment for the owner in the amount of $578,163 set aside, and in lieu thereof verdict and judgment for the owner in the amount of $426,138; (c) owner to pay architect's costs of the appeal, and to have a certificate under the Suitors Fund Act if otherwise qualified. ******* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.