Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: CJD Equipment Pty Limited v A&C Constructions Pty Limited & Ors [2011] NSWCA 188
• Hearing dates: 11 April 2011
• Decision date: 14 July 2011
• Before: Giles JA at 1, Young JA at 9, Handley AJA at 10

Decision

(1) Appeal dismissed;

(2) Cross-appeal allowed;

(3) Order (1) below set aside;

(4) In lieu thereof substitute judgment for the plaintiff against the first defendant for $67,147 with effect from 14 May 2010;

(5) Order (2) below varied by substituting an order that the first defendant pay 5% of the plaintiff's costs, as defined, up to 28 August 2009;

(6) The appellant to pay the first respondent's costs of the appeal and cross-appeal;

(7) The appellant to pay the costs of the second and third respondents of the appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: APPEAL - challenge to findings of trial judge - no question of principle; DAMAGES - challenge to assessment - no question of principle; DAMAGES - mitigation - no recovery for avoidable loss - cost of mitigation to avoid further loss - cost not incurred - whether plaintiff entitled to recover cost as accrued loss
• Cases Cited: Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421; Copley v Lawn [2010] 1 All ER (Comm) 890 CA; Fox v Percy [2003] HCA 22, 214 CLR 118; Munce v Vinidex Tube Makers Pty Ltd [1974] 2 NSWLR 235
• Category: Principal judgment
• Parties: Appellant: CJD Equipment Pty Limited; First Respondent: A&C Constructions Pty Limited; Second Respondent: Allan Keith Jeffree; Third Respondent: Peter Marcus Consulting Engineers Pty Ltd
• Representation: Counsel; Appellant: G A Sirtes SC with D C Price; First & Second Respondents: I Roberts SC with D Tanevski; Third Respondent: D J Fagan SC with M B Holmes; Solicitors; Appellant: The Builders' Lawyer Pty Ltd; First & Second Respondents: Walsh & Blair Lawyers; Third Respondent: Colin Biggers & Paisley
• File Number(s): 2008/290633

Decision under appeal

• Before: McDougall J
• File Number(s): 2008/290633

Judgment

1 GILES JA: Subject to what follows as to mitigation, I agree with the reasons of Handley AJA.

2 Having held that the finding that the proprietor failed to take reasonable steps in mitigation stands, his Honour asks at [78] whether the builder's onus on mitigation extends to proving how much of the ultimate loss could and should have been avoided. I respectfully consider that the question does not arise.

3 The proprietor claimed the cost of removal and replacement of the curtain wall. On the judge's finding, had the proprietor acted reasonably it would not have been necessary to remove and replace the curtain wall. Therefore it could not recover the cost of doing so.

4 The appeal was against the finding that the proprietor failed to act reasonably. In support of the appeal it was said that there was no expert evidence of the amount of damage caused by the failure to take the suggested steps and that it was impossible to assess the damage flowing from the failure. This referred to physical damage. The uncertainty of damage went to the reasonableness of the proprietor's conduct, not to quantification of it loss.

5 The uncertainty plays no further part when it is found that if the proprietor had acted reasonably, it would not have been necessary to remove and replace the curtain wall. The builder established the physical extent of avoidable damage. The quantum of that loss was the claimed cost of removal and replacement of the curtain wall, but that was the loss which could and should have been avoided. There was no separate question on appeal of the quantum of avoidable loss.

6 As was acknowledged by Mr Sirtes in the course of submissions, the proprietor made an all or nothing claim. The appeal against the finding that it had failed to act reasonably having failed, the claim fails. No claim was made to the cost of rectifying such damage as may have occurred prior to the time the mitigatory steps should have been taken but were not.

7 The Court raised whether the proprietor nonetheless would be entitled to recover the cost of carrying out the mitigatory steps. The consequence of failure to act reasonably is that the avoidable loss can not be recovered, not that the recovery is reduced after allowance for what should have been done but was not. The proprietor did not carry the steps out, and suffered no loss so measured. Quite apart from whether Mr Jeffree's price of $12,500 could be taken as reflecting the cost of the steps recommended by Mr Alden on which the judge proceeded, I respectfully differ from Handley AJA in this respect.

8 I agree with the orders proposed by Handley AJA, save that the substituted judgment should be for $67,147.00.

9 YOUNG JA : I agree with Giles JA and, subject thereto, with Handley AJA.

10 HANDLEY AJA :

General

11 These proceedings comprise an appeal and cross appeal from judgments of McDougall J. of 10 December 2009 and 14 May 2010 in a complex building case brought by the proprietor against the builder, its managing director (Mr Jeffree), and three consultants.

12 The proprietor claimed damages in the order of $6 million from the builder, but recovered judgment for $164,395. It failed against the other defendants, Mr Jeffree, G.F. Murphy Consulting Pty Ltd, the first consulting engineer, Telford Building Systems (Aust) Pty Ltd which designs pre-fabricated kit buildings for industrial and commercial use (Telford), and Peter Marcus Consulting Engineers Pty Ltd, the second consulting engineer.

13 The proprietor appealed from the judgment against the builder and the judgments in favour of Mr Jeffree and the second consulting engineer, and sought judgments for damages to be assessed or reassessed. The builder cross appealed seeking a reduction in the damages awarded for failure to construct the works in accordance with the Building Code of Australia (BCA).

14 The informal building contract provided for works to be constructed on land at Smeaton Grange near Narellan for a price of $3,145,500 plus GST. The contract comprised a three and half page quotation dated 6 June 2002 from the builder (blue 1/64) which incorporated some building and engineering drawings and its acceptance by a purchase order dated 26 June 2002 (blue 1/69). The proprietor did not retain an architect or engineer to supervise the works.

15 The proprietor which carried on business throughout Australia imports, sells, and services heavy engineering and construction machinery. It had to move from leased premises at Minto, and it acquired the subject site as the base for its future operations in the greater Sydney area. The works comprised a large building to contain offices, a show room, and workshops, a smaller building, and substantial external pavements.

16 The machinery sold and serviced by the proprietor included heavy tyred and tracked vehicles. Most of the tyred vehicles were in the range from 15 to 25 tonnes (1/444), with others weighing up to 33 tonnes (1/164), and some up to 51 tonnes (1/154, 185). The tracked vehicles weighed up to 46 tonnes (1/170).

17 Work on levelling the site was already underway on 21 June 2002 (1/217) before the builder received the proprietors' formal purchase order of 26 June. The site was cut and filled to provide a level platform and compaction work was carried out. The slabs were then laid. A steel framed building, generally in accordance with the design prepared by Telford, was constructed.

18 On the western side of the main building there was a glass curtain wall facing Anzac Avenue. Its design and construction were undertaken by Campbelltown Glass Services Pty Ltd (the glazier) which was not a party to the proceedings. The design provided for the curtain wall to be supported by the internal slab, and for the framing components to be attached to the steel frame designed and supplied by Telford. The design did not allow for relative movement between the curtain wall framing members and the steel structural members.

19 The proprietor claimed that the internal and external slabs as constructed were inadequate for the known design loads communicated to the builder and passed on to the consulting engineers. It also claimed that the slabs were inadequate because the joints were not sealed to prevent the entry of moisture.

20 Moisture penetrated between the slabs causing the reactive clay material in the sub-grade to swell. This caused the slabs to heave and because the glass curtain wall could not move relative to the steel frame which was supported on piers to rock, it came under stress and suffered damage.

21 The proprietor also alleged that the building failed to comply with some requirements of the BCA.

Challenge to findings of fact

22 The proprietor moved into the new premises in March 2003. Two years later there were signs of heave in the slabs.

23 The substantial questions in the appeal concerned two of the Judge's findings of fact. The first was that a conversation occurred on 21 June 2002, mentioned in a diary note of that date, between Mr Jeffree and an unidentified executive of the proprietor, in which Mr Jeffree said that the builder could not be responsible for the failure of pavements constructed to a thickness of only 180 mm. The second was that on 25 June Mr Jeffree handed a letter disclaiming such responsibility to Mr Perrin, the executive in charge of this project on behalf of the proprietor.

24 The proprietor approached the builder in connection with this project in December 2001. The builder was provided with a copy of the geotechnical investigation report obtained by the proprietor (1/12), and preliminary sketches and elevations prepared by its architects. The builder asked Telford to quote for the design and supply of the steel framed building proposed in the preliminary plans.

25 In January 2002 Mr Jeffree retained the first consulting engineer to design the drainage and re-grading works. In March he asked the engineer to design the internal and external pavements.

26 The engineer's design had to cover the slabs, the sub-base on which they would rest, and the underlying sub-grade. At the request of the engineer the builder retained Geotechnique Pty Ltd, a geotechnical engineer, to advise on the design. Geotechnique sought information about the expected loads and the proprietor provided this on 15 March 2002 (1/444, 154). The information was passed on to the engineer and Geotechnique.

27 Geotechnique's first report dated 4 April (1/181) recommended reinforced concrete slabs over a sub-base course 100 mm thick. The slabs were generally 310 mm deep, with 450 mm edges.

28 When Mr Jeffree discussed the Geotechnique report of 4 April 2002 with Mr Perrin the latter asked how much it would cost. Mr Jeffree provided an estimate and Mr Perrin said that the proprietor would not pay for that thickness of concrete. Mr Jeffree said that the slabs were required to meet the expected loads but Mr Perrin insisted that the slabs be redesigned.

29 Mr Perrin's underlying rationale was that the proprietor had found that 150 mm reinforced concrete slabs could withstand the loads imposed on them by the machinery it sold and serviced.

30 The engineer asked Geotechnique to redesign the slabs to accommodate the proprietor's concerns. Its second report dated 10 April (1/204) Geotechnique recommended 150 mm pavements for car parking designed for loads up to 3 tonnes, and 180 mm pavements with edges of 280 mm for heavy equipment moved by low loaders.

31 With the benefit of this report the engineer prepared a new design. This provided for 180 mm reinforced concrete slabs and a 310 mm slab where heavy equipment was to be unloaded and moved all with thickened edges. He assumed that heavy equipment would be moved onto and from the site on low loaders to reduce the pressure on the pavement. His design provided for the joints between slabs to be filled with an impervious polysulphide sealant.

32 Mr Jeffree then had a meeting with Mr Perrin to consider the second report and the engineer's new design. Mr Perrin said the pavement would still cost too much and because most of the machines would weigh 33 tonnes he asked if the slabs could be redesigned for that load. Mr Jeffree said that he replied: "Well you can, but I'm not going to be held responsible for any damage caused by the use of the heavier machines." The Judge accepted that evidence: [124].

33 Mr Jeffree discussed this suggestion with the engineer who asked Geotechnique for a third report. This, dated 17 April (1/212) was based on a 36 tonne load, and recommended 260 mm slabs with 370 mm edges.

34 Mr Perrin rejected that proposal and asked for 150 mm slabs throughout. Mr Jeffree said that the engineer would not agree and Mr Perrin said that Mr Jeffree would just have to find another engineer who would do it.

35 Mr Jeffree said (1/113-4) that in the second half of April Mr Perrin asked him how much he had allowed for sealing the joints between the slabs. When Mr Jeffree said it was $11,000 Mr Perrin told him to take it out.

36 Mr Jeffree said that sealing prevented water entering the sub-grade through open joints and suggested that at least the external slabs be sealed, but he was instructed to take out the lot. Mr Jeffree made a note of this instruction on his working papers (1/235 M). The Judge accepted this evidence: [175]; [341], [343], and found [344] that the proprietor was responsible for the absence of sealing.

37 The first engineer was not prepared to design the pavement sought by Mr Perrin [26] above and the Judge accepted [129], [131] Mr Jeffree's evidence that he then had the following conversation:

"I went back to Rob Perrin and said:

'[The engineer] won't have anything to do with it.' He said 'Well you just have to find an engineer who will'. I said 'That would be very hard. What engineer is going to put his name on something that will be under designed. The only way would be to cover myself and the engineer. We'll have to give you a letter advising we'll take no responsibility for any inadequacies of the slabs if anything goes wrong'."

38 On 6 June the builder quoted for the job (1/64), and its quotation provided (1/65) for a concrete pavement of 180 mm, except in front of the awning where it was to be 300 mm.

39 On 18 June Mr Jeffree met Mr Marcus, the second engineer's principal, on the site to discuss the problem (5/2226). He asked the second engineer to design pavements with a uniform thickness of 180 mm except for the area in front of the awning of the main building which was to be 310 mm. Mr Marcus accepted the retainer in a fax to Mr Jeffree the same day (1/215).

40 Mr Jeffree told Mr Perrin that he had found an engineer who would not agree to 150 mm slabs but would design 180 mm slabs provided there was an area of 310 mm set aside for heavy vehicles to be unloaded and parked. The Judge found that Mr Perrin would not accept any area of 310 mm and said that all the slabs had to be 180 mm: [138]-[141].

41 Mr Jeffree gave the following affidavit evidence about the disputed meeting of 21 June 2002 (1/114):

"On 21 June 2002, at about 9 a.m., I attended on site and met with Ron Jowett, Managing Director of [the proprietor]. Rob Perrin arrived a bit later. I said to Ron Jowett words or words to the effect:

...

'[The first engineer] was not happy to go ahead with the proposed slab thicknesses of 150 mm. Rob has told me to go and find another engineer. I have spoken to Peter Marcus and he said he would prepare plans. The plans have to be for slab thicknesses of at least 180 mm in areas that will be trafficked by the low loaders and also for the car park. The floor design is not sufficient for the larger machines. I'm going to have to give you are a letter saying that we are not going to be responsible for that design, namely having slabs at less than 310 mm'."

42 He said that he later made this diary note of the meeting (5/2228):

"Rob Perrin + Rob Jarrett onsite 9.00 am

...

Discussed slabs - redesign - Peter Marcus -[first engineer] not happy to redesign slabs (to reduce thickness) [the builder] to issue letter to [the proprietor] re slab thickness reduction - can't warrant structural adequacy against [unclear] and any possible structural defects resulting."

43 The second engineer prepared a plan for slabs with a uniform thickness of 180 mm (1/216). This was given to Mr Jeffree on 25 June (1/115). The drawing showed a number of saw cut and construction joints. There was a note that saw cut joints were to be sealed with suitable flexible sealer. It referred to a diagram of "formed or sawn joint with sealer": [171].

44 There were serious difficulties with some of Mr Jeffree's evidence which will be considered later, and at the trial counsel for the proprietor submitted that the alleged conversation on 21 June had not occurred and the diary note and 25 June letter were later concoctions.

45 According to Mr Jeffree, four days after that meeting he wrote the 25 June letter to the proprietor and gave it to Mr Perrin with the second engineer's plan. The letter stated (1/218):

"As requested by you, Peter Marcus - structural eng, was employed to redraw the floor slabs and details reducing the thickness of the internal slabs to 180 mm following the design by our [first] engineer ... being rejected on a cost basis ie slab thickness of 260 mm.

Please find attached drawing ... which superseded drawing ...

The design of [the second engineer] is against the recommendations of [the first engineer] as it falls short of the criteria given by you to us for the design of these slabs.

As a result [the first engineer] or [the builder] cannot take responsibility for the structural adequacy of the slabs as now designed, the thickened edges, joints or details or any other resulting problems, faults or failures resulting or associated with this design."

46 Mr Perrin initially said that he saw this letter for the first time after he had retired and legal proceedings had been commenced.

47 In 2005, after problems had emerged with the curtain wall and slabs, Mr Jeffree met Mr Perrin's successor, Mr Egan, on site on 6 October. Mr Jeffree wrote a long letter to Mr Egan on 12 October (1/350) rebutting the claims against the builder. Mr Jeffree said that the problems were due to slab heave, not settlement of the piers, and this became common ground at the trial.

48 The critical paragraph of the letter (1/351) was:

"I believe the reason that this rebound [heave] has occurred across the front and end of the building is that moisture resulting probably from rain is entering the subgrade through open construction joints in the concrete resulting in swelling of the subgrade. In our original design all slab edges were detailed with joints formed and filled with a polysulphide filler. This procedure was rejected by [the proprietor] along with the redesign of the slab thicknesses reduced from 370 mm and 260 mm as designed by Geotechnique as a cost cutting exercise. The slab design was reduced 3 times to what you have today ie 180 mm with one layer of F82 mesh, our original design had two layers of F82 mesh. It was [the proprietor's] wish to reduce costs however [the builder] is on record of advising [the proprietor] that we could not warrant the slabs at anything less than what the original engineer's designed for your loadings."

49 The Judge found that the letter of 25 June was the "record" referred to [152].

50 The letter of 12 October 2005 failed to provoke either a denial that the builder was "on record" as alleged, or a request for the "record" to be identified.

51 The problem with Mr Jeffree's evidence about the meeting on 21 June 2002 [41]-[42] is that the proprietor had no executive named Rob Jarrett and Ron Jowett was in Western Australia at the time.

52 Mr Jeffree said that the conversation, [41] above, occurred before Mr Perrin arrived and was not repeated. Mr Perrin was in charge of this project but Mr Jeffree had also met Mr Rafferty, the managing director of the proprietor, and Mr Jowett another director.

53 Counsel for the proprietor submitted at the trial, and the submission was maintained in this Court, that Mr Jeffree's evidence about this conversation should not be accepted because no executive from the proprietor could have been present before Mr Perrin arrived.

54 Mr Jeffree said that when he first made his diary note he was not certain about the name of the executive and left a space marked by a series of dots. As the Judge found [57], this is apparent from the copy of the diary note (5/2228) and the original diary (1 & 2 D X 5). The Judge also noted [57] that there were other entries in the diary where Mr Jeffree had followed this practice.

55 Mr Jeffree said that he had not met Mr Jowett before 21 June but had met other executives from the proprietor and couldn't always pick up their names when he first met them.

56 The Judge found that Mr Jeffree was an honest witness [66], and [60] that the substance of the diary note should be accepted as accurate. In general he preferred Mr Jeffree's evidence to that of Mr Perrin [66].

57 The proprietor did not establish that it had no other executive who could have been at the on-site meeting on 21 June. In fact Mr Rafferty identified another executive, Mr Alan Barnett, who was involved in this project between February and June 2002 (blue 1/4). Mr Barnett was not called and it was not established that he could not have been present. Mr Rafferty also referred to "our staff and agents" who were involved in this project, without identifying all of them (blue 1/4).

58 In accepting the substance of Mr Jeffree's evidence about this meeting the Judge relied [60], as he was entitled to, on the pressure admittedly exerted by Mr Perrin on Mr Jeffree to reduce the thickness of the slabs, and Mr Jeffree's concern about the adequacy of thinner slabs. As the Judge said [60]: "it is thus inherently likely that Mr Jeffree would have protested as he said he did". See also [156]. Indeed, Mr Jeffree had earlier protested to the same effect, see [32] and [37] above, and the judge had accepted that evidence - it was really not disputed. That provided powerful support for protest on 21 June when the second engineer's design was under consideration.

59 It is also likely that Mr Jeffree would take the opportunity to share his concerns with another executive from the proprietor, and not bother to repeat them after Mr Perrin arrived because his mind was closed.

60 Although Mr Perrin denied receiving Mr Jeffree's letter of 25 June (1/218) the Judge found [147] that the unsatisfactory nature of his evidence, and "the objective probability as to the action that any builder would take if forced to construct something that he believed to be inadequate" supported his conclusion that the letter of 25 June was given to Mr Perrin about that date.

61 Mr Sirtes SC, leading counsel for the proprietor in this Court, relied on a number of statements in the letter of 25 June [45] above to support his submission that the Judge erred in finding that it was delivered on or about its date.

62 The statements relied upon included the absence of any reference to the external slabs, reference to the first engineer's slabs of 260 mm, the disclaimer which did not in terms cover the second engineer, and the reference to thickened edges which was not part of the latter's design.

63 The Judge rejected the proprietor's submission that these matters showed that the letter could not have been written about its date [148]-[150]. A design for 260 mm slabs had been recommended in the third Geotechnique report [33] above, with thickened edges.

64 Although the disclaimer did not in terms cover the second engineer the Judge found [150] that it was obvious that it was being given in relation to his design. He said:

"... the fact that Mr Jeffree - a builder, not a lawyer - did not word his letter as well as he could does not seem to me to detract from its authenticity."

65 The Judge held [151] that the letter of 12 October 2005 [39] above which stated that the builder was on record that it could not warrant a slab of 180 mm provided "powerful support" for the authenticity of the letter of 25 June.

66 The letter of 12 October 2005 was not directly challenged but Mr Sirtes relied on what he said were mistakes in it to challenge the Judge's finding that it supported the authenticity of the letter of 25 June 2002.

67 The first matter was the reference to Geotechnique's original design being for 370 mm slabs, whereas it was for slabs of 310 mm. In my judgment this was probably a typographical error which Mr Jeffree failed to notice and correct. The other mistake relied upon was the reference to an original design with two layers of F82 mesh.

68 The first engineer's design (1/211) provided for a single layer of mesh and the builder's quote (1/65) did not appear to include a second layer. In my judgment these minor errors do not undermine the Judge's findings.

69 The Judge found [158], [321] that the proprietor was solely responsible for the thickness of the slabs as constructed. That finding was well supported by his acceptance of Mr Jeffree's evidence about the meeting of 21 June 2002, the authenticity of his letter of 25 June, and the effect of his letter of 12 October 2005.

70 In my judgment the critical findings of the Judge, based on the probabilities he identified, and his acceptance of the evidence of Mr Jeffree in preference to that of Mr Perrin, cannot be disturbed by this Court.

71 The Judge reasoned to his conclusions in accordance with the instruction in Fox v Percy [2003] HCA 22, 214 CLR 118, 129 that is "on the basis of contemporary materials, objectively established facts and the apparent logic of events". There was no error in his approach.

72 At the conclusion of Mr Sirtes' argument on these questions, the Court indicated that it was not prepared to disturb the Judge's findings (T 37). Mr Sirtes rightly accepted that this conclusion would dispose of the proprietor's appeal except on the question of mitigation.

Mitigation

73 The Judge found that there were defects in the building because the curtain wall was mounted on the internal slabs and fixed to the structural steel members mounted on piers carried to rock. Thus when the slabs heaved the curtain wall could not move relative to the structural steel and became stressed and damaged.

74 The builder was not responsible for the design but the Judge found that it ought to have known that it was defective [379] and rejected it [345]. If the wall had been supported by the structural steel it would not have been damaged when the slabs heaved [345].

75 The Judge apportioned responsibility for the damage between the proprietor and builder in the proportions 15 to 85 [381], and assessed the cost of replacement at $380,199 [390].

76 The builder claimed that when heave was identified in 2005 the proprietor should have sealed the joints between the slabs to prevent more water getting into the sub-grade. It should also have taken steps to ensure that further movement in the slabs did not impose further stresses on the wall. This was suggested by Mr Jeffree in his letter to the proprietor of 12 October 2005 (1/353).

77 The Judge found [403], [406] that the proprietor acted unreasonably in failing to carry out the remedial works suggested.

78 Although there was no evidence of the extent to which the curtain wall had deteriorated since 2005 he held that it was a reasonable inference that if the recommended works been carried out it would not have been necessary to replace the curtain wall [398]. The builder had therefore discharged the onus of proving a failure to mitigate [402].

79 There was no independent evidence of the damage caused by the proprietor's failure to mitigate [400]-[401], but Mr Rafferty said (black 1/47 S) Mr Jeffree told him in 2005 that the builder would do the work for $12,500.

80 The Judge concluded [406]:

"In circumstances where the steps recommended by Mr Alden [an expert called by the first engineer], if taken, would have rendered replacement of the curtain wall unnecessary, it follows that the only quantification of loss in respect of the curtain wall - namely, of the cost of its removal and replacement - ought not to be allowed. There is no other evidence of damage that should be allowed in respect of this aspect of the claim."

81 Mr Sirtes submitted that the Judge erred in finding that the proprietor had acted unreasonably. He relied on the evidence of Mr Alden (4/1741) that further work may have been necessary later, and the damage to the wall would not have been reversed. He also submitted that in 2005 it was not clear whether the problem was heave of the slabs or subsidence of the piers.

82 The Judge accepted Mr Alden's evidence in report form that the steps suggested "were not likely to be difficult," [395] - [398], [404]; which was neither challenged (black 1/350-1) nor contradicted.

83 The Judge continued:

"It was not put to Mr Alden that the steps recommended by him were of such novelty of obscurity that someone in [the position of the proprietor], seeking to act reasonably to mitigate its loss, should not have thought to undertake them."

84 It was also not suggested that doubts about the cause of the distress in the curtain wall affected the steps that should have been taken.

85 In these circumstances the Judge's findings that the proprietor failed to take reasonable steps in mitigation, and that its claim for the cost of replacement failed, cannot be disturbed.

86 The proprietor had already suffered some damage when the so-called "duty" and opportunity to mitigate arose in October 2005.

87 The question is whether the builder's onus on mitigation extends to proving how much of the ultimate loss could not have been avoided. In Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421, 430 Jordan CJ said: " The onus is upon the defendant to establish facts going to mitigation of damages". However the present problem did not arise in that case because there was no evidence that the plaintiff could have mitigated his loss.

88 The fact that the defendant carries the ultimate legal onus and the initial evidentiary onus of proving a failure to mitigate does not prevent the evidentiary onus shifting to the plaintiff during the trial.

89 The Court was not referred to any authority directly in point, and I was unable to find any in McGregor on Damages 17 th edition 2003.

90 However there is a helpful statement of principle by Glass JA in Munce v Vinidex Tube Makers Pty Ltd [1974] 2 NSWLR 235, 239:

"There is authority of long standing which establishes an exception to the principle that the plaintiff bears the onus of proving all matters relating to damages. The exception relates to any disputed question which is truly a matter of mitigation of damages. In relation to questions properly so classified the defendant ... must not only introduce evidence that the plaintiff has failed to minimise his loss, but also persuade the jury that the balance of testimony favours this conclusion ... In the field of personal injury litigation, an issue of this kind will normally be raised by an allegation that some action on the part of the plaintiff would have reduced his damages, and that his failure to take such action is unreasonable. If a defendant so persuades the jury, it will then be their duty to assess the plaintiff's damages on the footing that he has taken the hypothetical action and been endowed with its hypothetical benefits."

91 Another decision which is helpful is Copley v Lawn [2010] 1 All ER (Comm) 890 CA which involved offers in mitigation by defendants. Insurance companies offered claimants the free use of cars while theirs were being repaired. Longmore LJ, giving the principal judgment, said at pp 898, 900 [25]-[26], [29]:

"[25] ... both sides are anxious to have an answer to the question whether, if the claimants did fail to take reasonable steps to mitigate their loss, they can recover nothing or can recover, at least, the cost which the defendants' insurers would have had to pay to hire a replacement car themselves.

[26] In principle it cannot be correct that a claimant who rejects a defendant's reasonable offer is entitled to nothing. The claimant has still suffered a loss. If a defendant makes an open monetary offer of the sum of money to which the claimant is entitled and it is rejected, the usual result is that the claimant will still make recovery but will not recover the cost of the proceedings. It should not make any difference if the defendant's offer is not monetary but is an offer in kind or an offer to perform a service which will enable the claimant to avoid his loss.

...

[29] In the present cases there was an undoubted loss to the claimants because their cars had to be repaired and they needed replacement cars during the period of repair. That loss cannot be wiped out by an offer from the defendants to provide a 'free' replacement. ... It cannot be right that a refusal to accept a defendant's offer even if such refusal were wholly capricious, or something that deprived the [claimant] of his right to substantial damages altogether."

92 Damages for the builder's breach of contract must therefore be assessed on the basis that the proprietor "has taken the hypothetical action and been endowed with its hypothetical benefits."

93 Glass JA did not indicate whether the hypothetical benefits should be calculated on a gross or net basis. In other words must the hypothetical cost of the reasonable steps in mitigation be allowed when calculating the hypothetical benefits?

94 In my judgment the plaintiff must be allowed the cost of the reasonable hypothetical steps when calculating the hypothetical benefits. If the proprietor could have saved the cost of replacing the curtain wall in 2009 by spending $12,500 in 2005 its failure to do so only caused the further loss, it did not diminish the accrued loss that required it to spend $12,500.

95 The proprietor's appeal on the mitigation issue should therefore be allowed in part, and the award of damages increased by $10,626 which is 85% of $12,500 [75] above.

Cross-Appeal

96 The Judge found that the building failed to comply in a number of respects with the BCA, and this was the responsibility of the builder [349], [382]. There is evidence that the cost of rectification works to ensure compliance would be $147,648 [386], and the Judge included this figure, together with $16,747 as the builder's proportion of the cost of rectifying the internal slabs [407], to produce his final award of $164,395 (judgment 14 May 2010).

97 The builder cross-appealed from the award of $147,648 alleging that the fire wall, and access and sanitary facilities for disabled people, allowed for in this amount, were omitted on the proprietor's instructions, and that the Judge erred in finding that the building, as constructed, lacked exit signs, a fire hydrant, and hose reels.

98 The builder's written submissions in support of the cross-appeal referred to evidence from Mr Jeffree that these items were omitted on the instructions of Mr Perrin. This was either not disputed by Mr Perrin or was accepted by him in cross-examination.

99 The builder submitted that these matters had been raised by its counsel in final address to the Judge but had not been dealt with in his reasons.

100 The builder claimed, in its written submissions, that the amount allowed by the Judge for the cost of rectifying the BCA omissions, which should not have been accepted was $97,248 and it sought a reduction of the judgment from $164,395 to $67,147.

101 The proprietor's written submissions did not address these questions but submitted that they should be remitted to the Judge.

102 However, at the hearing, Mr Sirtes recognised the inevitable and conceded that the proprietor had no answer to either limb of the cross-appeal. In other words the Judge had failed to deal with the builder's submissions below, and the proprietor had no answer of substance to them (T 39).

103 The cross-appeal must therefore be allowed and the judgment against the builder varied accordingly.

Interest

104 The Judge did not award pre-judgment interest on the amount awarded to the proprietor (judgment 14 May 2010 [8]).

Costs

105 The Judge awarded the proprietor 10% of its costs of the proceedings, with certain exceptions, up to 28 August 2009. The substantially reduced judgment substituted by this Court requires this costs order to be varied by substituting an order that the builder pay 5% of the proprietor's costs, as defined, up to 28 August 2009. The proprietor's appeal substantially failed, and despite its limited success it should pay the costs of the appeal and cross-appeal.

Orders

106 My opinion that the proprietor is entitled to additional damages of $10,626, [95] above is a minority one. In accordance with the views of the majority the following orders should be made:

(1) Appeal dismissed;

(2) Cross-appeal allowed;

(3) Order (1) below set aside;

(4) In lieu thereof substitute judgment for the plaintiff against the first defendant for $67,147 with effect from 14 May 2010;

(5) Order (2) below varied by substituting an order that the first defendant pay 5% of the plaintiff's costs, as defined, up to 28 August 2009;

(6) The appellant to pay the first respondent's costs of the appeal and cross-appeal;

(7) The appellant to pay the costs of the second and third respondents of the appeal.

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Decision last updated: 19 July 2011