New South Wales Court of Appeal CITATION : SUE WHELAN ARCHITECTS v GILMOUR [2001] NSWCA 152 FILE NUMBER(S) : CA 40681/00 HEARING DATE(S) : 18 May 2001 JUDGMENT DATE : 18 May 2001 SUE WHELAN ARCHITECTS PTY LTD PARTIES : v JOHN GRAHAM GILMOUR & ANOR JUDGMENT OF : Meagher JA at 18; Handley JA at 1; Davies AJA at 19 LOWER COURT JURISDICTION : District Court LOWER COURT 5919/98 FILE NUMBER(S) : LOWER COURT Sidis DCJ JUDICIAL OFFICER : COUNSEL : P R Garling SC/G Curtin (Appellant) J B Whittle SC/D R Sibtain (Respondents) SOLICITORS : Colin Biggers & Paisley (Appellant) Clayton Utz (Respondents) CATCHWORDS : APPEAL - decision based in part on adoption of referee's report - no question of principle CASES CITED: Trulis v Vamvookarkas, 27/2/98, unrep DECISION : Appeal dismissed with costs THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40681/00 DC 5919/98 MEAGHER JA HANDLEY JA DAVIES AJA 18 May 2001 SUE WHELAN ARCHITECTS PTY LTD v JOHN GRAHAM GILMOUR & ANOR JUDGMENT 1 HANDLEY JA: This is an appeal as of right by a defendant from a judgment of Sidis DCJ who found a verdict in favour of the plaintiff for $146,375. The proceedings arose out of the retainer by the plaintiffs on 30 October 1997 of the defendants, a firm of architects, to advise in connection with their contemplated purchase of a house property at 12 Rydal Place, Wheeler Heights, near Dee Why. 2 The defendants inspected the property on 3 November 1997 and gave a written report to the plaintiffs shortly thereafter. The plaintiffs relied upon the report and entered into a contract to purchase the property for $405,000. After completion the plaintiffs became aware of significant defects in the building and they commenced proceedings in the District Court on 17 August 1998. On 23 March the following year an order was made referring the whole of the proceedings to Mr John Tyrrell, an architect with legal qualifications, as a referee. His first report was dated 18 October 1999 and he reported that in his view the plaintiffs were only entitled to nominal damages which he assessed at $10,000. I should interpolate that the plaintiffs had sued for breach of contract, in negligence, and for damages for contravention of s 52 of the Trade Practices Act. 3 The issue on the first reference turned on the expert evidence called by the parties relating to the value of the house property. The plaintiff 's expert was Mr Meredith and in his view the true value of the property, at the date of its purchase, was to be ascertained by deducting from the purchase price 100% of the cost of necessary rectification work. The defendant's expert, Mr Davis, agreed with this general approach but thought that the appropriate amount to be deducted was substantially less. Both experts adopted estimates prepared by other experts of the extent and cost of the rectification work that was required. 4 Mr Davis thought that the necessary rectification work fell into two categories, that which was necessary and that which was not so necessary and could be deferred. In respect of the first category he thought that the appropriate discount from the price paid was 75 per cent of the cost of the rectification work. In respect of the second category he thought the appropriate deduction was 25 per cent. 5 The referee rejected the view of Mr Meredith that the value was to be determined by simply deducting the costs of rectification from the price. He preferred Mr Davis's evidence as more realistic but on the other hand felt unable to act on Mr Davis's evidence to arrive at an appropriate deduction. He concluded therefore that there should be no deduction and that the plaintiffs had failed to discharge the onus of proof. 6 The matter came before Sidis DCJ for adoption or rejection of that report. In her first judgment of 17 November 1999 the Judge set aside parts of the referee's report and remitted the issues to him for further consideration in accordance with her reasons for judgment. Her Honour was satisfied that the referee's finding that the plaintiffs had failed to discharge the onus of proving more than nominal damages could not be supported. 7 The referee had found that the defects could only be rectified through demolition and reconstruction. There had been evidence before him from two valuers that a prudent purchaser would take account of the costs of rectification in assessing the price to be paid. Mr Davis said that the appropriate discount was between 25 and 75 per cent, and that a major structural defect would affect the purchase price of a house. 8 The Judge was also satisfied that the referee had erred in rejecting all of Mr Meredith's evidence merely because he had adopted a 100 per cent discount. She also considered that the referee had erred in rejecting the whole of Mr Davis's evidence rather than only part and in failing to consider Mr Meredith's evidence in conjunction with those parts of the evidence of Mr Davis which dealt with the effects of the buoyant real estate market at the time. 9 Her Honour concluded that there was no reason to disturb the referee's findings adopting the diminution in value method rather than the cost of cure. She was persuaded that there was evidence available on which a judicial officer could make a reasoned assessment of damages but held that a finding would be needed from the referee as to the costs of rectification work. 10 On further consideration the referee found that the cost of necessary rectification work was $127,300, but he made no finding as to how much of this represented necessary rectification work and how much less necessary rectification work, because neither side asked him to make any such finding. His second report is dated 10 March 2000. The matter again came before Sidis DCJ for adoption or rejection of that report. Her judgment dealing with those issues was given on 2 August 2000. 11 Her Honour adopted the referee's finding as to the cost of necessary repairs. Neither side had called further valuation evidence on the second reference. Her Honour was therefore faced with evidence from Mr Meredith that the discount should be 120 per cent of the cost of rectification work to allow for contingencies and disturbance, and evidence from Mr Davis that the discount should be 75 per cent in some cases and 25 per cent in others. The absence of any finding by the referee as to how much of the $127,300 fell into the non necessary category and how much into the necessary category meant that for practical purposes her Honour was confronted with evidence suggesting a discount of 100 or 120 per cent of the cost of rectification work from Mr Meredith, or 75 per cent of the cost from Mr Davis. 12 Mr Garling's submission to this Court was that it was not open to her Honour to arrive at a figure which was not directly supported by expert evidence, and in particular it was not open to her Honour to arrive at a figure which involved a greater discount than that supported by Mr Davis in his evidence. I do not agree. It is trite law that a tribunal of fact is entitled to accept some parts of a witness's evidence and reject other parts. Effectively, as a result of the absence of any finding as to how much of the costs of rectification represented less necessary work, her Honour was confronted with a choice of discounting figures of 100 per cent from Mr Meredith and 75 per cent from Mr Davis. 13 It was common ground that the condition of the real estate market at the relevant time was a significant matter which also had to be taken into account in arriving at the correct discount figure. Her Honour found that the market was relatively buoyant but was not crazy. In those circumstances she considered that the appropriate discount was 90 per cent of the cost of rectification work, a figure falling between those adopted by the two experts who had been called before the referee. 14 I see no error of law or principle in this approach. It is an everyday experience in valuation appeals, which in this Court typically come from the Land and Environment Court, that the judicial valuer does not adopt figures supported precisely by either group of experts but uses his or her judicial experience and commonsense to arrive at what is thought to be an appropriate figure on the whole of the evidence. 15 We were referred to the unreported decision of the then Chief Justice in Trulis v Vamvookarkas (27 February 1998) where the plaintiff sued for damages in tort on the sale of a business but failed to present any evidence of the value of its goodwill. The Chief Justice said that there were limits to the lengths to which a court may properly go in doing the best it can to assess damages, and in the absence of any evidence which would enable the goodwill to be valued the plaintiffs had failed to prove their case. He said: "The assessment of damages turned upon the valuation of the goodwill of a business, that was a matter in respect of which there may well have been room for differences of opinion. However, it was not shown that the goodwill was valueless and it was necessary for the respondents, who themselves conducted the business for almost two years, to provide some evidence on which a rational assessment could be made". 16 He had previously said: "We are not here concerned with damages of a kind which are inherently difficult to quantify or which involve estimating a risk or measuring a chance or predicting future uncertain events". 17 Those statements of principle, in my judgment, have no application in the facts of this case. There was expert evidence here as to the effect on the value of this property of the repairs which the referee had found should be made to put the property in a satisfactory condition. She had adopted the referee's findings that the defects could only be rectified through demolition and reconstruction. In those circumstances the plaintiffs proved that the property was worth less than the price they had paid and in my judgment it was open to the trial Judge to arrive at an appropriate discounted figure which fell within the range made available to her by the expert evidence. I would therefore propose that the appeal should be dismissed with costs. 18 MEAGHER JA: I agree. 19 DAVIES AJA: I agree. ****** 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.