New South Wales Court of Appeal CITATION : JPQS P/L v Cosmarnan Constructions P/L & 3 Ors [2003] NSWCA 66 revised - 3/07/2003 HEARING DATE(S) : 31/03/03 JUDGMENT DATE : 2 July 2003 JUDGMENT OF : Mason P at 1; Meagher JA at 7; Beazley JA at 32 DECISION : Appeal dismissed with costs. CATCHWORDS : Torts - duty of care - reliance on accuracy of quantity surveyor's reports- application of rule in Jones v Dunkel to testimonies of doubtful relevance. CASES CITED : Jones v Dunkel (1959) 101 CLR 298 Armory v Delamirie (1722) 93 ER 664; 1722 (1) Strange 505 JPQS Pty Limited (Appellant) Cosmarnan Constructions Pty Limited (1st Repondent) PARTIES : Bellora Pty Limited (2nd Respondent) Giovanni Scundi (3rd Respondent) Maria Scundi (4th Respondent) FILE NUMBER(S) : CA 40380 of 2002 COUNSEL : A: B Walker SC & S Kerr R: M Tobias SC & P Tomasetti SOLICITORS : A: Colin Biggers & Paisley R: Galluzzo Golotta Andriano Simone LOWER COURT District Court JURISDICTION : LOWER COURT DC 9775 of 1999 FILE NUMBER(S) : LOWER COURT Rolfe DCJ JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40380 of 2002 MASON P MEAGHER JA BEAZLEY JA Wednesday 2 July 2003 JPQS PTY LIMITED v COSMARNAN CONSTRUCTION PTY LIMITED FACTS The appellant was a bank-approved quantity surveyor. The four respondents together constituted a joint venture engaged in the development of certain land situated at Bossley Park. Pursuant to the respondents' lending arrangements, the appellant was required to certify as to the correctness of progress claims submitted to him by the builders engaged by the respondents. At trial, the respondents sued the appellant in contract and in tort. Rolfe DCJ dismissed the claim in contract, but held that the respondents had a well-founded claim in tort, viz ., that every time the appellant certified as to the correctness of a progress report he made negligent misrepresentations both as to the degree of completion of the works and as to the quality of the workmanship of such building work which had been completed. The respondents gave evidence that they relied on the appellant's certificates for the purpose of presenting progress reports to their bank for payment. HELD per Meagher JA, dismissing the appeal (Mason P and Beazley JA agreeing): i. The appellant's duty of care to the respondents arose from the latter's reliance on the accuracy of the appellant's certifications, for the purpose of presenting the relevant reports to their bank. ii. The principle in Jones v Dunkel (1959) 101 CLR 298 or, as it should more properly be called, the rule in Armory v Delamirie (1722) 93 ER 664; (1722) 1 Strange 505, had no application to the present case, where (1) the relevance of the absent witness's testimony was doubtful, and (2) where a finding of fact had been made in the respondents' favour by the trial judge. The fact that the absent witness's evidence, if it were given, would not have supported that finding, could not disturb the finding that was actually made. HELD per Mason P (Beazley JA agreeing) A useful resource for those who need to locate Bossley Park is http://www.travelmate.com.au . By clicking on "map maker" one can find easy ways of getting from, say, Darling Point to that suburb. ORDERS That the appeal be dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40380 of 2002 MASON P MEAGHER JA BEAZLEY JA Wednesday 2 July 2003 JPQS PTY LIMITED v COSMARNAN CONSTRUCTION PTY LIMITED Judgment (IN SIMPLE ENGLISH) 1 MASON P: I have had the benefit of reading in draft the reasons of Meagher JA. 2 I also have the benefit of having access to a street directory. Accordingly, I do not share his Honour's customary doubts about the location of well-known Sydney suburbs lying to the west of Darling Point which sit cheek by jowl with his Honour's customary lack of doubts about most other matters. A useful resource for those who need to locate Bossley Park is http://www.travelmate.com.au. By clicking on "map maker" one can find easy ways of getting from, say Darling Point to that suburb. (http://www.nowwhereroute.com/travelmate/mapmaker/mappage.asp?Type=darling%20point-_nsw_bossley%20park_nsw.) 3 Otherwise I agree with Meagher JA in the dismissal of this appeal, substantially for the reasons he gives. 4 The detailed and justified findings of the trial judge, with which I agree, support the orders made in the District Court. 5 In particular: (a) the respondent relied and was entitled to rely on the appellant to exercise at least reasonable care in the inspection and verification of the progress of building work before expressing the opinions set out in the various Progress Reports; (b) Mr Black's evidence, upon which the trial judge was entitled to rely, showed that the progress certified as having been achieved had not occurred in several particulars as well as in the generality of the global progress said to have been gained (monetarily speaking) in the successive Progress Reports; (c) reliance was established for the reasons set out at pp14-15 of the judgment below (Red 42-43). Mr Nicomede's absence from the witness box, a matter addressed by the learned trial judge (Red 43), did not require his Honour to conclude otherwise. (d) damages were properly assessed, for the reasons set out by Meagher JA. 6 The appeal should be dismissed with costs. 7 MEAGHER JA: The appellant in this case is a quantity surveyor against whom his Honour Judge Rolfe awarded a verdict of some $665,025.00 in favour of the four respondents, who together constituted a joint venture engaged in the development of certain land said to be situated at Bossley Park (wherever that is). 8 The development consisted of building twenty-one residential units on the land. The respondents put in $750,000.00 of their own money, and further money was to be borrowed from their Bank. Total cost of the development venture was estimated to be $1,680,000.00. 9 On 25 August 1997 the venturers entered into a building contract with a builder for the construction of those twenty-one units. On 2 September 1997 the Builder commenced work. A year later, on 21 September 1998, the Builders suspended work, never to be resumed. Then it went into liquidation. Thereafter, on 26 May 1999, the joint venturers engaged a second Builder to complete the job – for the sum of $736,000.00. 10 The appellant is, as I have said, a quantity surveyor. It came into the picture because the respondents' Bank, which was providing them with a bill facility of $1,400,000.00, required, as one of the conditions of making its loan, the following: " Quantity Surveyor bank approved Q S is to confirm contract price, time frame and approve all drawdowns of the facility. Quantity surveyor is also to confirm that minimum of $750,000.00 in equity has been applied to the development prior to the initial drawdown of the facility. A list of bank approved quantity surveyors is attached for your information." The appellant was the relevant "bank approved quantity surveyor". 11 There came into existence, obviously enough, a contract between the Bank and the appellant. It was the respondents' contention that there was also a contract between the respondents and the Bank. Two versions of such a contract were suggested. His Honour held that one such contract did exist but that there were no breaches of it. 12 The manner in which the financial arrangements between the parties worked were as follows: the Builder would periodically present the respondents with a progress claim (which was really a claim for payment), the respondents would show that claim to the appellant seeking its verification of the claim's accuracy and propriety, and if the appellant's benediction were obtained, would forward it together with a Progress Report by the appellant to the Bank for payment. On payment, a debt would arise between the Bank and the respondents, in the former's favour. The appellant was remunerated for its services both by the Bank and by the venturers. 13 By the time the Builder departed the scene, the building works were in some disarray. Long delays had meant that much of the work was not completed, although it was work for which the Builder had claimed completion in its Progress Reports; much of the work done was defective; and such of the work as had been done was extensively vandalized. It was in this state of affairs that the venturers sued the appellant in the District Court. They sued in both contract and tort. I have already summarised the learned judge's findings on contract. 14 In tort, the venturers' case against the appellant was that every time the appellant certified as to the correctness of a progress report it made negligent misrepresentations both as to the degree of completion of the works and as to the quality of the workmanship of such building work which had been completed. The venturers gave evidence that they relied on the appellant's certificates for the purpose of presenting the relevant progress reports to the Bank for payment. That the appellant owed a duty of care to the venturers in this regard was not contested. His Honour held that the venturers claim in tort was well-founded. 15 The appellant published six Progress Reports between April 1998 and July 1988 (numbered consecutively 5, 6, 7, 8, 9 and 10). The April Report (No. 5) stated that the building works had reached a stage of over 75% completion (a percentage, both counsel agreed, calculated on a monetary basis). By the July Report (No 10) the 75% figure had risen to 95%. The other Reports had various intermediate figures. 16 In order to appreciate the context of these assertions, one must have regard to the nature of a Progress Report as used by the parties in this case. In this regard, I select Progress Report No. 10 as an example. It is a document which consists of about 7 or 8 pages, together with three appendices. It is divided into a number of sections. The first section is called a "Project Summary". Clause 1.1 of the summary is in the following form: "1.1 DRAWDOWNS 1.1.1 The assessed value of work completed for Drawdown No. 10 is $50,092.00. Included in Appendix A is a copy of A.C.A CONSTRUCTION'S PROGRESS CLAIM No. 15 for the amount of $62,555.00 which is not fair and reasonable for the extent of works carried out to-date. 1.1.2 The total loan approval for the development is $1,400,000.00 less the total amount to be released up to and including Drawdown No. 10 ($1,003,311.67) leaves a positive balance of $396,688.33. We wish to advise that the cost of the project has now increased from $1,664,500.00 to $1,727,644.00 due to variations to the value of $57,344.00 & design fees to the value of $5,800.00." Clause 1.3 is in the following form: "1.3 CONSTRUCTION PROGRESS 1.3.1 The building works has reached 95% completion stage. 1.3.2 Basically the works completed are site establishment, demolition works, site clearing, excavation, piling, concrete works, partial carpentry and joinery, brickwork, roofing, fencing, partial installation of floor coverings & kitchen cupboards, internal fitout, painting, partial paving, installation of door hardware, electrical and hydraulics works." Clause 1.6 is in the following form: "1.6 STANDARD OF WORKMANSHIP 1.6.1 The standard of workmanship is reasonable at this stage and poses no financial concern on the project. The quality of workmanship achieved to date is not seen to adversely affect the Market price of the Development." 17 The second section is a Schedule of Drawdown claims, which is what it claims to be. Item by item it shows the amounts of fifteen claims made by the Builder from February 1998 to July 1998, which, with variations, amount to $1,753,311.00 of which came $750,000.00 has been paid by the venturers and $953,219.00 by the Bank. 18 The third section is a "Cost Summary" which sets out a list of all the cost items involved to date, their estimated cost, and the degree of completion. Thus, one item on the list is "Electrical Rough-In", and we are told that its "estimated cost" is $22,088.00 and that it has been fully completed. Similarly we are told that another item is "Kitchens & Vanities", which has an estimated cost of $42,238.00 and has also been fully completed. 19 The fourth section is a Variation Summary, and the fifth section is an Anticipated Cash Flow. It is not really relevant to discuss the appendices. 20 The case before his Honour was substantially concerned with the question of whether the statements made by the appellant constituted the tort of negligence. I have set out these statements. His Honour found them false, and false to a marked degree. In pleading terms the venturers' allegations of negligence were: "e. Stating in each of the Progress Reports 1 to 10 'The standard of workmanship is reasonable at this stage and poses no financial concern to the project. The quality of workmanship achieved to-date is not seen to adversely affect the market price of the Development' in circumstances where there was unworkmanlike work and faulty work on the site, particulars of which are contained in the witness statement of Norman Black dated 29 June 2000. f. Failing to observe and/or to report to the plaintiff that there were faults in the building work and defective workmanship in the building work to enable the Plaintiff to hold back an appropriate sum from progress claims on account of such faulty building work and defective workmanship." 21 Central to his Honour's findings as to the falseness of the appellant's written statements was the evidence of a Mr Black, an acknowledged expert in the field. On his evidence his Honour made the following comments: "As I have already said, I consider Mr Black prepared his estimate of works thoroughly. Although he was cross-examined forcefully, I was impressed with Mr Black as a witness because, in my assessment, he was full and frank with his answers and I have no doubt he was an honest and truthful witness. Notwithstanding it was some years since he had undertaken his inspections, and compared with Mr Portelli, I was impressed with Mr Black's recollection of various matters of detail which went to the question of whether or not work was incomplete, defective, faulty and so on. For example, Mr Black recalled that no metered switchboards had ever been installed on the site, that he had been able to identify where shower screens and mirrors were missing, likewise where there had been a failure to fix vanity units, where flashings (which should have been visible) were missing (leading to water penetration), that he had observed the lack of flyscreens which should have been installed, that he observed a great deal of painting had not been done; he also observed the absence of cook tops, range hoods, ovens, dish washers and other appliances, the non-existence of internal roadways and driveways and missing clotheslines. These are all good examples, given by Mr Black, in his evidence, of incomplete work and defects in the work carried out by the Builder at the site. I therefore accept his evidence. In conclusion, I am comfortably satisfied that the works identified in Mr Black's estimate of works were faulty, defective, unworkmanlike and incomplete. They were, in my opinion, and I so find on the balance of probabilities, clearly observable by the second defendant." It is difficult to imagine a more wholehearted endorsement of a witness's credit. In particular, it will be noted that many of the defects to which Mr Black referred were items which were supposedly 100% completed (e.g. "vanities"). 22 Granted his Honour's acceptance of Mr Black's testimony, I can see no escape from the conclusion that the appellant had been negligent. 23 It was urged, against this conclusion, that there was no evidence of reliance by the venturers on the appellant's reports, but I do not see how this submission can be treated seriously in the light of his Honour's specific finding (based on evidence) to the contrary. 24 Again, much was made of the failure by the venturers to call a Mr Nicomede, an employee of one of the venturers. Such failure was said to bring into play the principles outlined by the High Court in Jones v Dunkel (1959) 101 CLR 298 or, as it should more properly be called, the Rule in Armory v Delamirie (1722) 93 ER 664; (1722) 1 Strange 505. The relevant principle is that if a party fails to call a witness whom it might reasonably be expected to call, an inference may be drawn that his evidence, were he called, would not assist that party. It is not easy to see how that principle has anything to do with the present case, and for three reasons. First, it is true that Mr Nicomede had great knowledge of the building trade, but only as a concreter, and it is hard to imagine what he could tell the Court, for example, about vanities or electrical installations. Secondly, when his Honour makes a finding about reliance, the absence of Mr Nicomede is of no moment. Thirdly, (and this is probably doing no more than repeating the previous reason), when a finding of fact has been made in a party's favour by a judge, the fact that an absent witness's evidence, if it were given, would not support that finding, cannot disturb the finding actually made. 25 But there is a further head of negligence raised by the venturers on a statement of contention. This results from the assertion by the appellant of the various degree of completion of the works undertaken. Thus, as I have pointed out, the appellant certified in its Fifth Progress Report (of April 1998) that the contract works were 75% complete, and that in its Tenth Progress Report (of July 1998) that the works were 95% complete. In regard to the last mentioned figure, Mr Black opined that the true figure should have been 75%, not 95%. Although his Honour did not specifically endorse Mr Black's evidence in this regard, in my view his endorsement of Mr Black's evidence is sufficiently effusive to constitute a finding that the work was only 75% complete at the date of the Tenth Progress Report. This conclusion is not negated by the fact that Mr Black did not go through each item in the "Cost Survey", and indicate the proper degree of completion of that item. (Moreover, I do not see how such an effort could have led to a mathematically correct answer, as, presumably, the percentage applicable to each item would differ from that applicable to other items). He was an expert in the field, and as such was capable of estimating correct total percentages. 26 Moreover, it follows that if the Tenth Progress Report was out by 20%, all the other reports from the Fifth Report onwards must also have been out – although not necessarily by the same degree. After all, if one accepts that at the end of the road, at the Tenth Report, the works which had been completed were only 75% of the whole, it is hardly likely that the representation in the Fifth Report that the works were then 75% complete could be accurate. 27 I should therefore uphold the Notice of Contention. 28 As far as damages were concerned, the figure at which his Honour arrived was, before interest was taken into account, $535,005.00. This was computed by aggregating the sum agreed by the experts which was necessary to complete unfinished works ($300,135.00) with the sum necessary for rectifying defective work ($355,690.00), and deducting from that aggregate sum the money still in hand at the Bank ($120,820.00). In this process, the cost of rectifying the results of vandalism were, of course, disregarded. Likewise any discrepancy between values at the date of the tort and values at the date of the order were disregarded. 29 That way of calculating damages seems to me to be unexceptionable. It represents a mode of calculating the amount of money wrongly paid to the Builder as a result of the appellant's negligent representations. 30 Another way of coming to the same result is on the basis of the argument in the Notice of Contention (which, as I have indicated, I would uphold) by calculating the value of 20% (being the difference between the represented and the actual degree of completion) of the contract price of the works. 31 I would dismiss the appeal with costs. 32 BEAZLEY JA: I agree with Meagher JA and the perspicuous remarks of Mason P. ***** Last Modified: 10/04/2011 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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