Warburton v County Construction (NSW) Pty Ltd

By my judgment delivered on 15 July 2022 (Warburton v County Construction (NSW) Pty Ltd [2022] NSWSC 941) I found (at [224]) that:

I also noted several difficulties which had arisen in respect of the quantification of damages, in explaining why I would not proceed to determine issues as to the disputed scope of defects, rectification work, their disputed costs and damages in the numerous claims as to which County’s liability was not established, against the contingency of an appeal. I observed (at [225]-[227]) that:

I then directed the parties to submit agreed orders to give effect to the judgment, including as to costs, or, if there was no agreement between them, their respective draft orders and short submissions as to the differences between them.

Subsequently, by the parties’ consent, I made orders on 1 August 2022 noting that the parties had agreed the quantum in respect of Item H3 as $1,985.64 and the quantum in respect of Item G34 (Item 9A) as $3,562.93 and providing for the Court to determine the quantum of items H2 and H13, if practicable, without the need for an oral hearing, and providing a timetable for written submissions in that respect, and deferring the question of costs to be determined after those matters were determined. At the time I made those orders, my Associate also advised the parties, at my request, that:

It appears that I was unduly pessimistic in that regard and that these matters can be determined within the constraints imposed by the state of the evidence.

I first deal with the question of quantification in respect of Item H2. I described the issue in respect of that item in the primary judgment (at [171]) as follows:

Mr Hicks, with whom Ms Anderson appears for Mr and Mrs Warburton, now points out that this defect was rectified by a contractor engaged by them and pointed to the experts’ agreement that this item was defective and had been rectified to the experts’ satisfaction. Mr Hicks submits that the rectification work was done to rectify their loss and damage and points to the invoice for that work, which discloses work done to address several matters including this item, the number of hours worked and the rates charged for the relevant tradespersons and additional amounts charged in respect of materials. However, the contractor’s invoice cannot be relied on to establish the cost incurred in rectifying that defect, because it includes other work not related to this matter and does not apportion the costs between this matter and the other work done. The cost of repairing this item was estimated in Mr Zakos’ report dated 21 August 2020, on which Mr and Mrs Warburton relied, and was not addressed by County’s expert evidence or in the joint report as to quantum. Mr and Mrs Warburton submit, rightly, that this is a “relatively small item” and also submit that Mr Zakos’ costing for the item should be accepted.

Mr Klooster, with whom Ms Clark appears for County, acknowledges in response that an installation defect was present and necessary repair works were completed between the site inspections by the experts, but submits that the evidence is not sufficient to support the costs claimed. He refers to the decision of the Court of Appeal in Lichaa v Boutros [2021] NSWCA 322, dealing with the position where an invoice for rectification costs was relied on to establish a loss but did not separately specify the cost of rectification of the relevant defect. Here, of course, the invoice is not the only evidence of the costs incurred, because the estimated costs of the repair are also addressed in Mr Zakos’ report, to which County made no response.

It seems to me that County’s submission is, at best, unconvincing, where the extent of evidence that is necessary to establish the amount of the loss should be assessed having regard to the size of the loss, and on the basis that Mr and Mrs Warburton should not be required to incur disproportionate costs for the recovery of the relatively small amount of the loss claimed. I am satisfied that the loss claimed in respect of this amount, being $3861.00 inclusive of GST as set out in Mr Zakos’ quantification report, is established. It is regrettable that the parties have likely incurred greater costs in their dispute as to this amount than the amount claimed.

Mr and Mrs Warburton’s claim in respect of Item H13 is more substantial, and provides some commercial justification for this additional stage of the proceedings. I summarised that issue in my primary judgment (at [174]) as follows:

As I noted in my primary judgment, the hydraulic experts agree the storm water drainage system is defective but disagree as to the scope of work required to rectify it. Mr Hicks submits that the Court should prefer the evidence of Mr Laurie.

As I noted above, I had observed in the primary judgment at [226], that there was no basis to prefer Mr Laurie’s evidence to Mr Brown’s evidence as to these matters generally, although I was not there specifically addressing this item. Mr Hicks now repeats and possibly expands the points that he had made in earlier submissions in respect of the different views of Mr Laurie and Mr Brown, to which I had regard in expressing the view recorded in the primary judgment in general terms. Mr Klooster responds by pointing to the view that I the expressed in general terms. I continue to take that view, not least because this is not an occasion on which to revisit my findings in then primary judgment. However, that does not fully resolve the position in respect of this item, because Mr Laurie had fully scoped the work required for this item in his report, although his view is open to challenge; Mr Brown did not develop an alternative scope of works, as distinct from recommending further investigation and highlighting the possibility that a lesser scope of works may be sufficient and the likelihood or possibility that some existing pipe works may be able to be re-used. Where I cannot prefer Mr Laurie’s view to Mr Brown’s view, and where they are not true alternatives, then I must have regard both to Mr Laurie’s scope of work and the prospect that a lesser scope of work, not fully defined by Mr Brown, may be sufficient.

Mr Hicks submits that the approach proposed by Mr Brown requires Mr and Mrs Warburton to bear some risk that the scope of work he prefers will not ensure that the works comply with contractual requirements, so far as he had suggested that a further detailed examination was required in order to scope the necessary works and that a portion of the existing pipe work could be reused. Mr Hicks also submits that, if a lesser remedial scope is proposed by the party in breach, then it bears the legal and evidentiary onus of establishing that what is proposed will provide functional equivalence and refers to Builders Insurers Guarantee Corporation v The Owners – Strata Plan No 57504 [2010] NSWCA 23 at [79]-[80] in that regard. Mr Klooster responds that that decision in Building Insurer’s Guarantee Corporation does not establish the general proposition for which Mr and Mrs Warburton contend and that, where equally credible and experienced experts provide different opinions as to how to remedy a defect, and both methods are reasonable, a plaintiff’s entitlement is limited to the cheaper remedial option, referring to Dean v Ainley [1987] 1 WLR 1729 and to Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463. It seems to me that I could only reach the finding that Mr Brown’s approach involves risks which Mr and Mrs Warburton should not be required to bear if I preferred Mr Laurie’s evidence to Mr Brown’s evidence, or disregarded Mr Brown’s assessment that a lesser scope of portion of the pipes are likely to be able to be reused and a lesser scope of works may be required. I am unable to do so, where no more evidence is available now than was available at the earlier hearing in that regard.

Mr Hicks also submits that the quantum experts have included a provisional sum in relation to Mr Brown’s proposed scope and also submits that Mr and Mrs Warburton should not have to “carry the risk that the provisional sum may not cover the cost required to investigate the system and undertake the appropriate rectification work”. It seems to me that the allowance of a provisional sum is a proper way to address uncertainty in the scope of the work. In the quantum evidence, Mr Zakos costs this item at $179,458.25, adopting Mr Laurie’s scope of work, and Mr Seeto costs it at $115,131.16, also adopting Mr Laurie’s scope of work. Neither quantification expert quantified Mr Brown’s position, since it was not a sufficiently defined scope of work to do so.

After the receipt of County’s submissions as to quantum, and prior to Mr and Mrs Warburton’s reply submissions, I requested further brief submissions in respect of the specific issue whether Mr Zakos’ quantification of costs of rectification of Item H13 depended upon the acceptance of Mr Laurie’s scope of work for that item, so that it did not apply if that scope of work was not accepted. Mr Klooster responded that Mr Zakos applied Mr Laurie’s scope of work for Item H13 and his costings did not apply if Mr Laurie’s wider scope of work was not accepted by the Court. Mr Klooster also submits that both Mr Zakos and Mr Seeto costed Mr Laurie’s wider scope and the difference between them arose through the use of different rates to carry out the same work.

In submissions addressing that issue and in reply, Mr Hicks repeats the proposition, in relation to this item, that the Court should prefer Mr Laurie’s to Mr Brown’s assessment of the hydraulic defects, and should prefer the consequential quantification undertaken by Mr Zakos, by reference to Mr Laurie’s scope of work to the quantification undertaken by Mr Seeto. Mr Hicks also submits that the figure of $115,131.16 for which County contends reflects Mr Seeto’s quantification with reference to Mr Laurie’s scope of work and contends on that basis that County does not press the proposed scope of work of Mr Brown. Mr Hicks submits that the remaining question is whether the quantum for Item H13 should be referenced to the estimate of Mr Zakos or Mr Seeto. I prefer the approach of Mr Zakos to that of Mr Seeto for the reasons noted below. Mr Hicks also identifies an approach which could be adopted by adjusting Mr Seeto’s costings, by reference to Mr Laurie’s work, to include Mr Zakos’ figures for particular items, resulting in a total figure of $141,200.07. It is not necessary to take that approach, where I prefer the approach of Mr Zakos to the approach of Mr Seeto in this respect.

An issue also arises as to the rates to be allowed in respect of the quantification of this item. Mr Klooster refers to a difference in rates allowed by Mr Zakos and Mr Seeto in respect of Items 13.1 – 13.4 in respect of removal of drainage. I prefer Mr Zakos’ approach in that respect, where Mr Seeto’s approach appears to allow a nominal figure that is not likely to compensate for the actual costs of the work. Mr Hicks points out that there is a difference in respect of items 13.5 – 13.8, where Mr Zakos includes an additional charge for laying of pipes and Mr Seeto treats that amount as included in the appropriate rate for the supply and laying of the pipe. I also prefer Mr Zakos’ approach to Mr Seeto’s approach in this respect, where two separate and distinct steps will be required, one to remove at least part of the existing drainage line in internal and external areas, including landscaped areas, and another to supply and lay the additional line. I prefer Mr Zakos’ approach in respect of the costing of items 13.21 – 13.24, where there is no explanation for Mr Seeto’s position that those amounts should not be charged for, and Mr Klooster did not press that contention in submissions in the primary hearing.

As I noted above, I am satisfied that I must do the best I can to quantify the damages which plainly exist in respect of this item. In principle, the damages to which Mr and Mrs Warburton are entitled, in respect of Mr County’s breach of contract as to this item is the monetary sum which, so far as money can, represents “fair and adequate compensation for the loss or injury” which they sustained by reason of that breach: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 116 per Deane J (“Amann”). The Court must do the best it can to make a reliable assessment of damages, where damages are difficult to assess, including where a party has failed to lead the best evidence of damages: Amann above at 83 per Mason CJ and Dawson J, 125 per Deane J, 153 per Gaudron J. In Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31 at [135], Beazley JA (as her Honour then was) observed that:

I bear in mind that the case law also recognises that damages must be proved with a degree of precision which reflects the proof that is reasonably available to the parties: New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133 at [72] ; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768 at [38]; Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 319; JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 243; Troulis v Vamvoukakis [1998] NSWCA 237; McCrohan v Harith [2010] NSWCA 67 at [128]; and Re Hair Industrie Penrith Pty Ltd, Hair Industrie Merrylands Pty Ltd [2015] NSWSC 1578 at [20], on which I have drawn for this summary. It seems to me that the reports of Mr Laurie and Mr Zakos on which Mr and Mrs Warburton rely plainly meet this standard, although there remains a degree of uncertainty as to the recoverable loss suffered as to this items until the work is done.

Doing the best I can in this respect, and recognising that scientific or mathematical certainty is here not possible, it seems to me that I should adopt Mr Zakos’ quantification of the damages recoverable by Mr and Mrs Warburton in respect of this item, discounted by 15% to allow for a real but uncertain prospect that the scope of the necessary work will be reduced by some use of existing pipework, reducing the recoverable loss as to this item to $152,540, rounding to the nearest dollar.

Mr and Mrs Warburton have been substantially successful in respect of their claims as to the quantification of Items H2 and H13 and, on 14 September 2022, made on open offer to accept an amount less than that which they have recovered under this judgment in respect of Item H13, which would reasonably have been accepted by County. On that basis, it seems to me that County must pay Mr and Mrs Warburton’s costs of the quantification application in respect of item H2 on an ordinary basis and in respect of item H13 on an ordinary basis to 14 September 2022 and thereafter on an indemnity basis. Neither Counsel contended to the contrary.

Turning now to the position as to costs generally, in the primary judgment, I had observed (at [230]) that:

Plainly, this preliminary observation may now require qualification, because Mr and Mrs Warburton have recovered compensation that is material in amount in respect of Item H13, and the significance of that matter may well not have escaped the parties’ attention in the extended dispute as to quantification of that item. I should defer further comment in that respect where I made orders by consent, on 1 August 2022, deferring the question of costs to be dealt with by submissions after the issues as to items H2 and H13 were determined.

I make the following orders: