New South Wales Court of Appeal CITATION: Roluke Pty Ltd v Lamaro Consultants Pty Ltd (No. 2) [2009] NSWCA 21 HEARING DATE(S): On written submissions JUDGMENT DATE: 23 February 2009 JUDGMENT OF: Basten JA at 1; Campbell JA at 2; Sackville AJA at 3 DECISION: 1. The appeal be allowed in part. 2. The judgment in favour of the plaintiffs (appellants) entered by Nicholas J on 18 May 2007 be set aside and in lieu thereof judgment be entered in favour of the plaintiffs (appellants) in the sum of $1,257,448. 3. The respondents pay two thirds of the appellants' costs of the appeal. CATCHWORDS: DAMAGES - reassessment following principal judgment - costs CATEGORY: Consequential orders Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 349 CASES CITED: Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 671 Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2008] NSWSC 323 Roluke Pty Limited (First Appellant) PARTIES: Scotts Motors Artarmon Pty Limited (Second Appellant) Lamaro Consultants Pty Limited (First Respondent) Anthony Vincent Lamaro (Second Respondent) FILE NUMBER(S): CA 40492 of 2007 COUNSEL: J L Glissan QC/J S Drummond (Appellants) D J Fagan SC/D M Loewenstein (Respondents) SOLICITORS: Booth & Boorman (Appellants) Hunt & Hunt (Respondents) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 55020 of 2003 LOWER COURT JUDICIAL OFFICER: Nicholas J LOWER COURT DATE OF DECISION: 17 April 2007 LOWER COURT MEDIUM NEUTRAL CITATION: [2007] NSWSC 349 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40492/07 BASTEN JA CAMPBELL JA SACKVILLE AJA 23 February 2009 ROLUKE PTY LTD & ANOR v LAMARO CONSULTANTS PTY LTD & ANOR (NO. 2) Judgment 1 BASTEN JA: I agree with the orders proposed by Sackville AJA and with his Honour's reasons. 2 CAMPBELL JA: I agree with Sackville AJA. 3 SACKVILLE AJA: On 27 November 2008, this Court delivered judgment on an appeal by the appellants ("Roluke") against an award of damages made by the primary Judge in proceedings brought by Roluke: Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2008] NSWCA 323 ("Principal Judgment"). This judgment should be read in conjunction with the Principal Judgment. 4 The primary Judge awarded damages to Roluke of $912,245 by reason of a breach by the respondents ("Lamaro") of their duty to exercise reasonable skill and diligence as consulting structural engineers: Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 349 ("Primary Judgment"). His Honour also ordered Lamaro to pay two thirds of Roluke's costs of the proceedings at first instance: Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 671 ("Costs Judgment"). 5 One component of the damages award was the sum of $161,940, attributable to the cost of removing and reinstating a waterproof membrane on a concrete slab. The installation of the membrane ("the rectification membrane") was part of remedial works necessary to rectify design defects that had resulted in water penetrating the concrete slab. His Honour found that the rectification membrane would have a life expectancy of five years, while the membrane referred to in the original specifications ("the specified membrane") would have had a life expectancy of 10 years. The calculation of the component of damages attributable to the removal and reinstatement of the rectification membrane proceeded on that basis. Accordingly, his Honour allowed the net present value of the cost of removing and reinstating the rectification membrane on one occasion during the period 2007 to 2017 (that is, in 2012). 6 On the appeal, Roluke contended that his Honour had made a number of errors in assessing damages and that, consequently, the award failed to compensate Roluke adequately for the losses sustained as a result of Lamaro's breach of duty. This Court, in substance, upheld only one of Roluke's grounds of appeal, namely that his Honour had erred in finding that the life expectancy of the specified membrane was 10 years. The Court concluded that damages should be re-assessed on the basis that the expected life of the specified membrane was 20 years: Principal Judgment at [110]. 7 This Court allowed the appeal in part and made the following consequential orders: "2. The parties file agreed short minutes of order within 14 days giving effect to the judgment herein and dealing with the costs of the appeal and of the trial. 3. In the absence of agreement, the appellants serve and file short minutes of order within 14 days (including orders relating to the costs of the appeal and the costs of the trial), together with a brief outline of submissions supporting the proposed orders. 4. If the appellants serve and file draft short minutes of order in accordance with Order 3, the respondents, within a further seven days, file and serve short minutes of order (including orders relating to the costs of the appeal and the costs of the trial), together with a brief outline of submissions supporting the proposed orders. 5. If the respondents wish to proceed with the summons for leave to appeal against the costs orders made by the primary Judge, the outline of submissions referred to in Order 4 should notify the Court of that intention." 8 The parties have been unable to agree on short minutes of order, although Lamaro no longer seeks to disturb the costs order made by the primary Judge. (In its written submissions on the appeal, Lamaro relied on a Calderbank offer, rejected by Roluke, to argue that it should have been awarded its costs of the proceedings at first instance on an indemnity basis from the date Roluke rejected the offer.) RE-ASSESSMENT OF DAMAGES 9 Each party has filed written submissions in support of the orders they seek. Roluke submits that the damages awarded by the primary Judge should be increased to $1,469,872. It also submits that the costs order made by the primary Judge should be set aside and that Lamaro should be ordered to pay Roluke's costs of the proceedings and of the appeal. 10 Roluke contends that since the expected life of the specified membrane would have been 20 years and since the expected life of the rectification membrane is only five years, it is entitled at least to the net present value of the cost of the removal and reinstatement of the rectification membrane on three separate occasions between 2007 and 2027 (that is, in 2012, 2017 and 2022). By contrast, the primary Judge proceeded on the basis that since the expected life of the specified membrane was only 10 years, Roluke should be allowed the cost of removing and reinstating the rectification membrane on one occasion only during that 10 year period (that is, in 2012). 11 However, Roluke goes further. It says that its damages should not be limited to the removal and reinstatement of the rectification membrane on three occasions during the 20-year period from 2007 to 2027. It argues that the damages should allow for the replacement of the membrane at five yearly intervals throughout the expected 60 year life of the building. Thus Roluke should be compensated on the basis that it will be required, in each successive period of 20 years, to remove and replace the rectification membrane on four separate occasions. According to Roluke: "The proper and appropriate measure of [Roluke's] loss arising from the failure of [Lamaro] to provide a design in accordance with the contract is therefore the present value of the cost of removing and replacing the Rectification Membrane but deducting from that cost the present value cost to remove and replace the Specified Membrane for the life of the building (i.e. 60 years)." (Emphasis in original.) 12 Lamaro submits that Roluke's contentions as to the quantum of damages proceed on a false basis. In particular, Lamaro submits that Roluke wrongly assumes that the Principal Judgment entitles it (Roluke) to the cost of reinstating the rectification membrane, not merely during the first 20 years following the works, but thereafter at five-year intervals for the entire 60-year life of the building. Lamaro submits that Roluke, in consequence of the Principal Judgment, is entitled only to the net present value of the cost of removing and reinstating the rectification membrane on two additional occasions (that is, in 2017 and 2022, in addition to the removal and reinstatement of the rectification membrane in 2012, already allowed by the primary Judge). 13 Roluke's notice of appeal included Grounds 3 and 4 as follows: "3. His Honour erred in assessing damages on the basis that an appropriate membrane and concrete screed (being part of the Specifications prior to their amendment on 25 November 1998) had an expected life of ten (10) years. 4. His Honour erred in failing to hold on the evidence that 'an appropriate membrane and concrete screed' would have an expected life of twenty (20) years." The Principal Judgment upheld these grounds of appeal (although in substance they raised only one issue). Neither of the grounds alleged that the primary Judge had erred in determining that the period of time in respect of which the cost of removing and reinstating the rectification membrane would be allowed would be a period equivalent to the expected life of the specified membrane. 14 The notice of appeal specified a number of additional grounds (Grounds 7-11) under the heading "Assessment of damages [on] actual versus hypothetical basis". Grounds 7 to 9 were as follows: "7. His Honour erred in failing to assess damages on the basis of the Specifications as amended which required the Building to be designed and constructed without a membrane and/or topping screed. 8. His Honour erred in failing to assess damages on the basis of the present value of: (i) the cost to install and replace an Emerclad membrane and asphalt topping screed; and (ii) associated business interruption; each five (5) years until 2060. 9. His Honour erred in assessing damages on the basis that it was the 'expectation' of the Appellants that they would be required to meet the cost of replacing an 'appropriate membrane and concrete topping screed' within ten (10) years following the completion of the Building (i.e. 2010)." Grounds 10 and 11 were expressed as alternatives, but were essentially variations on Grounds 7 to 9. 15 As the notice of appeal suggests, Roluke's contention that it was entitled to be compensated for the cost of removing and reinstating the rectification membrane every five years rested on the proposition that the contract between Roluke and Lomaro required the latter to design a building incorporating a concrete slab which could be constructed without a membrane. Roluke's written and oral submissions on the appeal reflected the structure of the notice of appeal. Roluke did not submit that if its contractual argument was rejected (as it was), Roluke was nonetheless entitled to be compensated for the removal and reinstatement of the rectification membrane over the sixty-year life of the building. 16 Roluke now asserts that the Principal Judgment intended to find that the damages award should include the cost of removing and reinstating the rectification membrane every five years over the life of the building. This, however, is not correct. The Principal Judgment intended only to overturn the primary Judge's finding that the life expectancy of the specified membrane was about 10 years. This was the issue addressed in the relevant part of the Principal Judgment (at [103]-[110]). Nothing in the Principal Judgment suggests that the members of the Court intended to go any further. 17 Lamaro rightly points out that the primary Judge, having found that the life expectancy of the specified membrane was 10 years, assessed damages by reference to the number of times the rectification membrane would have to be removed and reinstated during that 10 year period. Since removal and reinstatement would be required twice during that period (in 2012 and 2017) and since the specified membrane would have to be replaced once in any event (in 2017), Roluke was entitled to the net present value of only one removal and reinstatement of the rectification membrane (that is, in 2012). 18 As Lamaro submits, the primary Judge made no finding that, after the end of the expected life of the specified membrane, removal and reinstatement of the rectification membrane would be required more frequently than that of the specified membrane, if it had been installed in the first place. On the contrary his Honour justified (Primary Judgment at [86]) the allowance for only one removal and reinstatement of the rectification membrane on the basis of: "the evidence that the life expectancy of the specified membrane was about 10 years, and also Mr Smee's evidence that after that time it is probable that [Roluke] would have been put to the costs of repair and replacement " (Emphasis added.) This passage indicates that his Honour did not accept that removal and reinstatement of the rectification membrane would be required at more frequent intervals than the removal and reinstatement of the specified membrane, once the expected life of the specified membrane had expired. 19 Roluke did not challenge these findings. It is too late to do so after the hearing has concluded. The submissions requested by the Court in the Principal Judgment were to be confined to the steps required to give effect to the conclusions reached in that Judgment. 20 The appropriate course, in the light of the conclusions reached in the Principal Judgment, is to adjust the award of damages to include the net present value of the cost of removing and reinstating the rectification membrane on two additional occasions (that is, in 2017 and 2022, his Honour having allowed for removal and reinstatement of the rectification membrane in 2012). Adopting the same methodology as the parties used to calculate the net present value of the removal and reinstatement of the rectification membrane required in 2012, the appropriate adjustment to the damages award is recorded in the following table taken from Lamaro's written submissions: "Original damages awarded by the primary Judge $ 912,245 Net present value at the date of the judgment below of: · an additional (second) renewal of the rectification membrane in 2017 $ 143,738 and · associated business interruption $ 41,564 Net present value at the date of the judgment below of: · another additional (third) renewal of the $ 124,035 rectification membrane in 2022 and · associated business interruption $ 35,866 Total $1,257,448" 21 It follows that in lieu of the damages awarded by the primary Judge on 18 May 2007, judgment should be entered in favour of Roluke in the sum of $1,257,448. COSTS 22 The primary Judge explained in the Costs Judgment his decision to order Lamaro to pay two thirds of Roluke's costs as follows: "26 In my opinion the approach to be taken in determining the costs question is to consider the matter overall, and to make an order which is fair and reasonable in the circumstances … The proceedings involved numerous issues including which of several was the reasonable method of rectification of the building, and the cost of the necessary work. Although the plaintiffs were successful overall, they lost on some issues with the result that the award was substantially reduced from the amount claimed. 27 It is well accepted that it will be an appropriate exercise of the court's discretion to deprive a party of its costs in respect of an issue which it lost at trial … An allocation of costs in a case of mixed results when neither party is wholly successful can never be done with mathematical precision and, ordinarily, a broad brush approach is to be taken … 28 A relevant consideration in the exercise of discretion is that the plaintiffs failed to establish the primary case for which they contended throughout, namely that the contract was one to produce a result, and that the reasonable method of rectification included the construction of a roof over level 3 with damages to be assessed accordingly. They also failed in their claim for damages for diminution in value of the building. It is also relevant to take into account that the plaintiffs failed in their claim that damages for the Emerclad option should be calculated with regard to future replacements and business interruption over the life of the building. The determination of these issues, to a large extent, turned on the assessment of contested expert evidence which occupied a significant part of the hearing. 29 Nevertheless, it is inappropriate in the exercise of discretion in the circumstances of this case to adopt a scoreboard approach, and to attempt to measure up points on which a party won or lost, because evidence and submissions relevant to many issues necessarily overlapped. The overriding consideration is to exercise the court's wide discretion with regard to the administration of justice in the case. Often the outcome will be one of overall impression as to where the justice lies. The exercise is usually not one of going back over the detail of the case in some artificial balancing exercise. 30 My task is to make an order which, doing the best I can by way of overall assessment, is a fair one. To reflect the plaintiffs' ultimate success, and taking into account the defendants' success in confining the award to an amount substantially less than that claimed, I propose to order the defendants to pay two thirds of the plaintiffs' costs of the proceedings on a party/party basis." 23 Although Roluke has succeeded on the appeal on one issue and thus obtained an increase in the damages awarded of some $340,000, the analysis at [28] of the Costs Judgment is largely unaffected. In my view, notwithstanding Roluke's partial success on the appeal, the costs award made by the primary Judge is just and reasonable in the circumstances of the case. It should therefore stand. 24 As at trial, Roluke failed on its principal contentions on the appeal but enjoyed some success nonetheless. In the circumstances, it is appropriate to make some allowance in the costs order for Roluke's failure on its principal contentions. Lamaro should pay two thirds of Roluke's costs of the appeal. ORDERS 1. The appeal be allowed in part. 2. The judgment in favour of the plaintiffs (appellants) entered by Nicholas J on 18 May 2007 in the sum of $912,245 be set aside and in lieu thereof judgment be entered in favour of the plaintiffs (appellants) in the sum of $1,257,448. 3. The respondents pay two thirds of the appellants' costs of the appeal. ********** 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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