Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
• Hearing dates: 5 April 2011
• Decision date: 22 September 2011
• Before: Basten JA at [1]; Campbell JA at [5]; Sackar J at [272]

Decision

(1) Appeal dismissed.

(2) Appellant to pay costs of the 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: BUILDING AND CONSTRUCTION - s 177 Conveyancing Act 1919 - "duty of care not to do anything on or in relation to land..." - whether developer's decision to use particular support system was "doing something" in relation to land - whether developer's decision to use particular support system was something that "removed the support provided by the supporting land" - whether developer's decision to use particular support system was made without exercising reasonable care - relevance of departure from construction certificate; BUILDING AND CONSTRUCTION - s 109ZJ Environment Planning and Assessment Act 1979 - whether party was a "contributing party" - effect of agreement of all parties that it would not be alleged that, had a person been a party to the action, that person would have been a contributing party; NEGLIGENCE - causation - s 5D Civil Liability Act 2002 - whether failure to warn or advise can only be causative of loss if a warning or notification, if given, would have been acted upon in a way that prevented the loss - whether it is appropriate to attribute liability to someone who puts in place the preconditions that enable another person's negligence to become effective - discussion of the principles governing causation under s 5D; AGENCY - whether one party contracted with another as agent for a third party, or whether that party separately contracted with the other in performance of contractual obligations to the third party; APPEAL - interference with judge's finding of fact - Jones v Dunkel inference - enables tribunal of fact to infer that the evidence of an absent witness, if called, would not have assisted the party who failed to call that witness - missing witness must have been expected to have been called by one party rather than other - inference not available where disputed issue is whether missing witness was agent for the party and no other reason to believe missing witness was in camp of that party; CONTRACTS - construction and interpretation - admissibility and legitimacy of use of evidence of post-contractual conduct - discussion of for what proposition County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 is authority - majority reasons do not have as their ratio any proposition about the availability of post-contractual conduct for the purpose of finding the terms of an agreement that is wholly or partly oral; CONTRACTS - construction and interpretation - admissibility and legitimacy of use of evidence of post-contractual conduct - post-contractual conduct can be used for the purpose of finding the terms of an agreement that is wholly or partly oral when that conduct is an admission - Tomko v Palasty [2007] NSWCA 258 - circumstances in which being an admission would not permit post-contractual conduct to be used to find terms of a wholly or partly oral contract; CONTRACTS - construction and interpretation - that a particular person is party to a contract is a matter of mixed fact and law - whether a party to litigation can make an admission concerning a matter of mixed fact and law - whether admission made by person other than party to the litigation can be admitted against that party - effect of the introduction of the Evidence Act 1995 to the pre-existing common law principles concerning admissibility of admissions for post-contractual conduct; CONTRACTS - construction and interpretation - admissibility and legitimacy of use of evidence of post-contractual conduct - post-contractual conduct can be used for the purpose of ascertaining the terms or the subject matter of an agreement that is wholly or partly oral regardless of whether the post-contractual conduct is an admission.
• Legislation Cited: Building and Construction Industry Security of Payment Act 1999; Civil Liability Act 2002; Civil Liability Amendment (Personal Responsibility) Act 2002; Conveyancing Act 1919; Environmental Planning and Assessment Act 1979; Evidence Act 1995 (Cth); Evidence Act 1995 (NSW); Property (Relationships) Act 1984; Uniform Civil Procedure Rules 2005
• Cases Cited: Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; (2009) 239 CLR 420; Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232; Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193; CSR Ltd v Eddy [2005] HCA 64; (2005) 226 CLR 1; Day v Rogers [2011] NSWCA 124; Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317; Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213; Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669; J Blackwood & Son v Skilled Engineering [2008] NSWCA 142; Jones v Dunkel (1959) 101 CLR 298; Jones v Sutherland Shire Council [1979] 2 NSWLR 206; Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70; Manly Council v Byrne [2004] NSWCA 123; March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; Marcolongo v Chen [2011] HCA 3; (2011) 274 ALR 634; Markisic v Commonwealth of Australia [2007] NSWCA 92; (2007) 69 NSWLR 737; Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382; National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569; Nominal Defendant v Gabriel [2007] NSWCA 52; (2007) 71 NSWLR 150; Payne v Parker [1976] 1 NSWLR 191; Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; Pitcher v Langford (1991) 23 NSWLR 142; Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492; Pusell v Grabham [1963] NSWR 172; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149; Sutherland Shire Council v Heyman (1985) 157 CLR 424; Tomko v Palasty [2007] NSWCA 258; Tucker v McCann [1948] VR 222; Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422; Wilson v Hart (1817) 7 Taunt 295 at 304; 129 ER 118; Woolworths Limited v Strong [2010] NSWCA 282; Zanner v Zanner [2010] NSWCA 343
• Texts Cited: J D Heydon, Cross on Evidence, 8th Australian edition (2010); Commonwealth, Review of the Law of Negligence Final Report, (2002)
• Category: Principal judgment
• Parties: Lym International Pty Limited (Appellant); Leonilda Marcolongo (First Respondent); QBE Insurance (Australia) Pty Ltd (Second Respondent)
• Representation: Counsel; D A Robertson (Appellant); T Alexis SC; D H Mitchell (First Respondent); R Cheney (Second Respondent); Solicitors; Unsworth Legal (Appellant); Dunstan Legal (First Respondent); Lee & Lyons (Second Respondent)
• File Number(s): 2009/326965
• Publication restriction: Nil

Decision under appeal

• Jurisdiction: 9101
• Citation: N/A
• Date of Decision: 2009-11-26 00:00:00
• Before: Elkaim SC DCJ
• File Number(s): 3372/2004

Judgment

1 BASTEN JA : In proceedings in the District Court, the respondent, Mrs Leonilda Marcolongo, obtained a judgment against parties found to be responsible for causing damage to a building owned by her by removing supporting land. The appellant was the developer, the proportionate liability of which was found to be 25%. It challenges that judgment, asserting that its proportionate liability was a lesser figure. I agree with Campbell JA that the appeal should be dismissed with costs. Subject to the following qualifications, I also agree with his reasons.

2 First, with respect to issue 1, namely the question whether Mr Young acted as a agent of the developer in contracting with MacDonald Sheetpiling (NSW 1) Pty Ltd, I agree that Mr Brown was not authorised to make admissions on behalf of the developer in respect of that issue. I do not, however, find it necessary to address the scope and operation of the Evidence Act 1995 (NSW) in respect of admissions.

3 Secondly, with respect to issue 4, causation of damage, I agree that it is necessary to apply the provisions of s 5D of the Civil Liability Act 2002 (NSW). Once it is accepted, as it should be, that the negligence was a "necessary condition of" the harm suffered, it was incontestable that the appellant was responsible for such harm, at least in the present statutory context, for the amount of its apportioned liability. Its failure to take reasonable care related to the maintenance of support for the respondent's land. Its breach of duty was a cause of damage to that land and the respondent's building. The damage fell squarely within the area covered by the duty. It was therefore "appropriate" for the appellant's liability to extend to its proportion of the harm so caused, within the terms of s 5D(1)(b). In that circumstance, I do not find it necessary to express a view in relation to the matters discussed by Campbell JA at [239]-[260].

4 Appeals to "commonsense" in the context of findings as to causation are usually little more than an exhortation to avoid over-sophisticated analysis. That exhortation should generally be accepted. The point at which careful analysis becomes necessary, and reliance on "common sense" unhelpful, is where there is a real risk that "common sense" conceals fallacious assumptions, illogical reasoning or plain careless thinking. This case does not raise such risks.

5 CAMPBELL JA : Mrs Leonilda Marcolongo has at all relevant time owned land at 7 xxx Street Mona Vale (" No. 7 "), on which a building containing both shops and residential units was constructed. Lym International Pty Ltd, the Appellant, at all relevant times owned an adjacent property at 5 xxx Street Mona Vale (" No. 5 "). I will refer to it as the Developer. For the purpose of constructing a new building on its land, the Developer made arrangements through which first demolition work, then excavation work, was carried out. The excavation was intended to be the site of an underground carpark. The work of demolition and excavation was carried out in June to October 2002 by Mr Rod Young, who traded under the name of Modern Demolition.

6 One particular wall on the northeastern corner of Mrs Marcolongo's property was in very close proximity to the boundary between No. 7 and No. 5.

7 The side of the excavation adjacent to Mrs Marcolongo's property was shored up using the process known as sheet piling. The sheet piling was installed by a company called MacDonald Sheetpiling (NSW1) Pty Ltd (" MSP ").

8 While the sheet piling was being installed on 20 July 2002, Mrs Marcolongo's building suffered damage as a result of, at least in part, some subsidence that affected its foundations.

9 She brought proceedings in 2004 in the District Court, initially against the Developer and MSP. The trial did not take place until August 2009.

10 We were informed that the extraordinary delay in bringing the case on for hearing was affected by the events involved a related piece of litigation that culminated in the High Court decision in Marcolongo v Chen [2011] HCA 3; (2011) 274 ALR 634.

11 By the time of the trial, MSP had been deregistered. It had been insured by QBE Insurance (Australia) Pty Ltd (" QBE "). QBE came to be a party to the litigation. Both the trial and this appeal have been conducted on the basis that QBE is liable for whatever amount MSP might be liable for.

12 Mr Young had at one time been a cross-defendant in the District Court proceedings, but he ceased to be a party, on the basis of an agreement between the remaining parties to the litigation. The effect of that agreement is one of the matters in dispute in this appeal.

13 One of the causes of an action on which Mrs Marcolongo sued QBE and the Developer was negligence, based upon breach of the statutory duty of care contained in s 177 Conveyancing Act 1919 . The other was trespass, because some of the work involved in installation of the sheet piling involved incursions into the subsoil of Mrs Marcolongo's land.

The Legislation

14 It is convenient to set out here the legislative provisions that were relevant to the causes of action.

15 Section 177 Conveyancing Act was introduced into the legislation in 2000. It provides, so far as relevant:

"(1) For the purposes of the common law of negligence, a duty of care exists in relation to the right of support for land.

(2) Accordingly, a person has a duty of care not to do anything on or in relation to land (the supporting land ) that removes the support provided by the supporting land to any other land (the supported land ).

(3) For the purposes of this section, supporting land includes the natural surface of the land, the subsoil of the land, any water beneath the land, and any part of the land that has been reclaimed.

(4) The duty of care in relation to support for land does not extend to any support that is provided by a building or structure on the supporting land except to the extent that the supporting building or structure concerned has replaced the support that the supporting land in its natural or reclaimed state formerly provided to the supported land.

...

(8) Any right at common law to bring an action in nuisance in respect of the removal of the support provided by supporting land to supported land is abolished by this section.

...

(12) A reference in this section to the removal of the support provided by supporting land to supported land includes a reference to any reduction of that support."

16 At the times relevant to this litigation the Environmental Planning and Assessment Act 1979 (" EPA Act ") contained a Part 4C, which included ss 109ZI and 109ZJ. Section 109ZJ was repealed by Schedule 4.2 of the Civil Liability Amendment (Personal Responsibility) Act 2002 , but that Schedule of the Act came into effect on 1 December 2004, after accrual of the various causes of action sued on in these proceedings.

17 Section 109ZI contained some definitions that applied for the purposes of Part 4C:

" building action means an action (including a counter-claim) for loss or damage arising out of or concerning defective building work.

building work includes the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of building work."

18 Because the definition of "building work" in s 109ZI was an inclusive one, it had the effect of expanding, for the purposes of Part 4C, the definition contained in s 4 EPA Act :

" building work means any physical activity involved in the erection of a building."

It is the definition in s 4, not its extension by s 109ZI, that is relevant to this case.

19 Section 109ZJ relevantly provided:

"(1) After determining an award of damages in a building action ..., a court must give judgment against each contributing party for such proportion of the total amount of damages as the court considers to be just and equitable, having regard to the extent of that party's responsibility for the loss or damage in respect of which the award is made.

(2) Despite any Act or law to the contrary, the liability for damages of a contributing party is limited to the amount for which judgment is given against that party by the court.

(3) A contributing party cannot be required:

(a) to contribute to the damages apportioned to any other person in the same building action ..., or

(b) to indemnify any such other person in respect of those damages.

(4) In this section contributing party , in relation to a building action ..., means a defendant or other party to the action found by the court to be jointly or severally liable for the damages awarded, or to be awarded, in the action."

20 Section 109ZJ allowed for apportionment of liability amongst defendants or other parties to an action. It did not make the more radical inroad on the common law concerning solidary liability that was made by the proportionate liability provisions of Part 4 of the Civil Liability Act 2002 , introduced into that Act by the Civil Liability Amendment (Personal Responsibility) Act. For the " apportionable claims " to which it applied, the Part 4 provisions permitted apportionment of the total damage among all the concurrent wrongdoers who had caused the relevant loss or damage, whether or not all of those concurrent wrongdoers were defendants or other parties in the action.

21 It was common ground, both at the trial and on the appeal, that the excavation work that was carried out on the Developer's land was "building work" within the meaning of the EPA Act , and thus if both QBE and the Developer were liable for the damage sustained by Mrs Marcolongo's property, apportionment of the damages under s 109ZJ EPA Act was in principle possible.

The Result Below

22 The District Court judge held that both the Developer and QBE were liable by reason of a breach of the duty of care imposed by s 177 Conveyancing Act . He took the view that his finding on liability under s 177 made it unnecessary for him to decide the trespass claim. No complaint is made on the appeal about the judge's failure to decide the trespass claim.

23 The judge assessed the quantum of damage that Mrs Marcolongo had suffered as being $1,554,574.50. He apportioned responsibility for the damage 25% to the Developer, and 75% to QBE. Accordingly, he entered judgment for Mrs Marcolongo against the Developer for $388,643.62, and judgment for Mrs Marcolongo against QBE for $1,165,930.88. Judgments of that size were possible because the parties had consented to the monetary limit of the ordinary jurisdiction of the District Court being extended.

Issues on the Appeal

24 The present appeal is brought by the Developer. It does not dispute that Mrs Marcolongo's property was damaged, or the quantum of damages. Its contention on the appeal is that the judge was wrong in finding that it had any liability to Mrs Marcolongo at all, or alternatively that the judge should have found that its proportionate liability was less than 25%.

25 QBE does not cross-appeal. It has paid to Mrs Marcolongo the amount of the judgment given against it.

26 The Developer submits that there are four reasons why its appeal should succeed. It submits that:

1. The judge erred in finding Mr Young was the agent of the Developer for the purposes of entry into the contract with MSP.

2. The judge erred in failing to consider, or alternatively misconstruing, the agreement that the parties entered at the time that Mr Young ceased to be a party to the litigation.

3. The Developer did not, within the meaning of s 177 of the Conveyancing Act , "do anything in relation to" its own land that removed the support provided by that land to Mrs Marcolongo's land. It submits that in finding to the contrary his Honour acted without evidence.

4. Contrary to the judge's finding, the matters that his Honour found to have been breaches of duty by the Developer were not causative of any of the damage sustained by Mrs Marcolongo's building.

27 Concerning the first of those grounds of appeal QBE, by Notice of Contention, asserts that there is an additional reason why the judge's finding of agency on the part of Mr Young was correct. It is that there was at one time an admission in a pleading of the Developer that the Developer, 'through Rod Young" , had retained MSP to carry out the shoring, sheet piling and anchoring works.

28 In its written submissions on the appeal QBE submitted that, even if any of the arguments of the Developer succeeded, it would still not be open to the Court to increase the amount for which QBE had been held liable, in the absence of a cross-appeal by Mrs Marcolongo. In the hearing of the appeal, QBE abandoned that submission, and accepted that it was open to this Court to increase the proportion of liability beyond that which the trial judge had found, if this Court concluded that that should have been the result.

Outcome

29 I have concluded that:

1. The judge was mistaken in finding that Mr Young was the agent of the Developer for the purposes of entry into the contract with MSP.

2. The judge made no error concerning the agreement that the parties entered at the time that Mr Young ceased to be a party to the litigation.

3. The judge was correct in holding that the requirement of s 177, that the developer did "do anything in relation to" its own land that removed the support provided by that land to Mrs Marcolongo's land, was satisfied.

4. While the judge was mistaken concerning two of the causal links he identified between the breach of duty by the Developer and the damage sustained by Mrs Marcolongo's building, his overall conclusion of a causal link was correct.

5. There is no occasion to alter the apportionment of damages from that which the judge ordered.

30 For the purposes of deciding whether Mr Young was the agent of the Developer in entering the contract with MSP, both parties submitted that the judge was entitled to take into account certain items of post-contractual conduct. I have concluded that the parties are correct in so submitting.

Factual Background

The Development Consent and Construction Certificate

31 The development at No. 5 was carried out pursuant to a Development Consent granted by the Land and Environment Court on 12 September 2001. Its conditions included:

"A3. Excavations and backfilling

1. All excavations and backfilling associated with the erection or demolition of a building must be executed safely and in accordance with appropriate professional standards.

...

A5. Support for neighbouring buildings

Where excavations extend below the level of the base of the footings of a building on an adjoining allotment of land, the person causing the excavation must preserve and protect the building from damage and, if necessary, underpin and support the adjoining building in an approved manner ..."

32 These generalities were made more specific by some drawings bearing the name of Henry & Hymass, Consulting Structural Engineers, that formed part of the construction certificate that an approved certifier issued on 21 February 2002. Those drawings showed the excavation being protected by contiguous piles. That is to say, the entire perimeter of the excavation consisted of cylindrical piles that abutted each other.

Some People Involved in the Work

33 Mr William Mao was a director of the Developer. Mr Robertson, counsel for the Developer on the appeal, accepted that Mr Mao was capable of binding the Developer.

34 Mr Christopher Browne is a consultant with experience in arranging and overseeing financial aspects of development projects. The judge found at [52] that Mr Browne was employed by Mr Mao on an ad hoc basis to assist in the development of No. 5. I do not take this finding of Mr Browne being "employed" to be a finding that there was a contract of master and servant between them, but rather that Mr Browne was engaged by Mr Mao concerning the development at No. 5. The judge went on to say:

"It is difficult to conclude exactly what his brief was, but it seems to have involved at least dealing with Mr Young and with problems that arose in the course of construction."

35 At the time the construction work was being planned and carried out at No. 7, Mr Andrew Spanos was employed by MSP as a project administration manager.

The Sheet Piling System

36 The judge described the process of sheet piling as follows ([79]):

"... firstly some drilling was done to loosen the soil. The sheet-piling was then driven in by a machine with a jaw mechanism which grabbed the sheet and then drove it into the soil by applying a high frequency vibration to the sheet. ... this vibration was in a vertical direction and might span about two to four inches. The sheets were driven consecutively with about 150mm overlap. The anchors were put in to maintain or brace the strength of the sheet-piling."

37 Uncontroversial evidence showed that the sheets in question were corrugated metal sheeting, each sheet being 915 mm wide. Each sheet had an effective width of 685 mm, because the sheets overlapped. The length of the sheet was custom cut for the job, and in the present case was between 4.5 m and 6 m .

38 We were not taken to any specific finding, or evidence, about the location on No. 5 at which the metal sheeting was placed into the ground. However, the engineering drawing that was part of the construction certificate showed the intended contiguous pile wall as running parallel to the boundary with No. 7, and (by comparison with identified lengths on the scale plan that formed part of the construction certificate) in a location where the parts of the piles that were closest to Mrs Marcolongo's boundary were between 1.3 and 1.4 m from it. It is likely that the sheet piling was installed in approximately the same location.

39 Before the sheets were vibrated into the ground some triangular piles were inserted under the footing of adjacent buildings. These triangular piles are a proprietary product of MSP. The piles were inserted to provide temporary stabilisation while the sheet piling was being installed. This process was sometimes referred to in the evidence as underpinning. The judge evidently accepted evidence given by Mr Spanos and Mr Willing, the leading hand for MSP on the job at No. 5, about the process involved in installation of the triangular piles: [59], [63]. As explained by Mr Willing, the MacDonald sheet piling product included the triangular piles as well as the corrugated sheet piling itself. He said that the triangular piles are installed so that they sit approximately vertically underneath the footing of an adjacent building. The temporary piles were not intended to provide permanent support to the footing; rather, they were intended to provide it with support temporarily, during the time that the adjacent earth was being subjected to the vibrations involved in the insertion of the sheet piling. First a hole about 300 mm in diameter is drilled into the ground at a very slight angle right next to the footing using an auger. The pile is then lowered into that hole. The pile is hollow, and has holes along its length. A tube is then lowered into the pile, and compressed air forces out any debris that have collected in the pile as it is lowered into the vertical hole. At some stage in this process the pile is pushed to the back of the hole, so that the pile becomes vertical. The pile is then filled with cement. Some of the cement comes through the holes in the side and partly fills the void around the pile. The pile as installed does not reach all the way to the footing. A box-like object called a headstock, open at the top and containing a hydraulic jack, is installed on the top of the pile. The jack is then screwed up to support the footing, and the headstock partly filled with concrete.

40 The soil is then loosened by drilling a series of holes at intervals along the lines where the sheet piling is to be installed. The sheet piling is then vibrated into place. The judge evidently accepted at [165] that insertion of the triangular piles could predispose the ground to settlement when the vibration of the sheets into the ground occurred. Excavation then takes place within the confines of the sheet piling. Once some excavation has occurred, ground anchors are then inserted through the sheet piling, in an approximately horizontal plane. In the present case, some of those ground anchors went through Mrs Marcolongo's land.

41 Six or seven temporary piles were installed under the footing of Mrs Marcolongo's building. Immediately following completion of the underpinning and prior to installing the sheet piling the wall of No. 7 was backfilled using sand. The sand backfill covered up the underpinning.

42 A report dated 30 November 2001 from Jeffery and Katauskas Pty Ltd, consulting geotechnical and environmental engineers, was addressed to Mr Mao. It referred to the soil at No. 5 having "weak and compressible layers" , and said that the "excavation will require a full depth retention due to the close proximity to the site boundaries and the sandy soils encountered." Part of the report made recommendations concerning the type of retention system that should be installed at the site prior to bulk excavation. The MacDonald sheet piling system was described as being one of the "potentially suitable systems for this site". The report continued:

"However, the vibrations associated with the installations of sheet piles may cause settlement of the adjacent sandy soils. If these methods are to be considered, we recommend that you contact the specialist contractors and obtain their assurance that their systems can satisfactorily be used in these conditions without damaging the nearby structures."

Adoption of the MSP System for No. 5

43 Mr Browne's first involvement with the project at No. 5 was about three weeks before Mr Young became involved. Mr Mao requested Mr Browne to arrange for Mr Young to undertake some demolition work. Later, Mr Browne became aware that the Developer had requested Mr Young to quote for the excavation work.

44 On 27 May 2002 Mr Browne received a fax from Mr Young quoting for the excavation and removal of sand at No. 5. It quoted a price of $78,350 excluding GST. Mathematically that equates to $86,185 inclusive of GST. That quotation stated that one of the inclusions was:

"(3) external engineer/supervision $1,000 for the period of excavation & piling only"

The quotation made no mention of any system for retaining the sides of the excavation.

45 Mr Browne's evidence in chief said that after he had received the fax of 27 May 2002 he had a discussion with Mr Young to ascertain what was included in the quote. His evidence also stated (substituting names of parties for the roles they played in the litigation):

"After discussions with [Mr Young] the [Developer] agreed to enter into an agreement with [Mr Young] for the excavation work. On 5 June 2002 [Mr Young] forwarded the terms of the contract."

46 Mr Browne also deposed that he recalled that Mr Young recommended that "[MSP] be used for the retention or shoring system on the site." He continued:

"[MSP] had a system that I was not familiar with and I recall that I had discussions with [Mr Young] and representatives of [MSP] about the system. There was a meeting arranged between William Mao; [Mr Young] and Andrew Spanos of [MSP] so that the system could be explained to Mr Mao and myself before we made any decision. I cannot recall the date of the meeting although I do recall it was held at the Trades Union Hotel, which was just around the corner from Mr Mao's then office. At the meeting I was informed by [Mr Young] and Andrew Spanos of [MSP] that the system used by [MSP] was excellent for sites near beaches. I recall that Andrew Spanos said to me words to the effect:

'We have been on a site at Dee Why and our system is the best one to use when dealing with soils near beaches.

Sheet piling is the only way to go on your site as it has high sand content that will need to be shored. I know the types of soil in the area from the Dee Why site and MacDonald's system is great for your site .'"

The meeting at the Trades Union Hotel was the first time Mr Spanos had met Mr Mao and Mr Browne. The judge recorded at [53] that " Mr Browne said he had had no previous experience with [MSP] or with works involving sheet piling . " Mr Mao did not give evidence.

47 Mr Browne said that, in the course of the discussion at the Trades Union Hotel, Mr Spanos spoke words to the effect of:

"This all overseen by experts. We have our own professional people and experts. We have our work monitored by external engineers."

48 By reference to documents, Mr Browne stated that he believed the meeting at the Trades Union Hotel occurred between 27 May 2002 and 5 June 2002.

49 The judge did not make express findings about all of the evidence that Mr Browne gave. At [78] he referred to, and apparently accepted, Mr Spanos' evidence that MSP did not employ its own engineers but rather relied on external engineers for calculations and design, including the design of temporary piles. There was other evidence in which Mr Spanos denied that MSP used independent expert engineers to monitor its work. Mr Spanos explained the role of the engineers in design as being:

"Like a Lysaght roofing sheets, there's often designs done on how those roofing sheets can deal with wind loading, and there are standard design tables where you can give them to a builder and say 'If you're using them in this application, here's the criteria'. You would apply, you know, screws at this spacing, so there was an understanding of the pre-engineering that had been done 10/20 years ago, and then each project would get assessed on its ground conditions and those calculations would be confirmed for that site.

ROBERTSON

Q. In terms of the design of the underpinning, that's the temporary piles that you recalled earlier, that was done by Earth Tech in this case, was it?

A. In that same process, that's right, yeah."

50 Shoring the excavation using sheet piling involved a totally different construction system to shoring it using contiguous piling, as required by the construction certificate. The judge found that "the change was made principally for cost and time saving reasons" ([17]).

51 On 4 June 2002 Mr Spanos faxed to Mr Young a revised budget tender quotation for shoring and associated work on the site. That document came into evidence as an Annexure 2 to Exhibit AS1 to the affidavit of Mr Spanos. It was not referred to in the evidence of Mr Browne, and there is no finding, or basis for concluding, that Mr Browne received a copy of it. It had two pages besides its cover sheet. One of them was headed "Payment Conditions - Non Negotiable". The other began by saying "The present extent of shoring and associated work the subject of the above offer is as follows: -" .

52 The coversheet of the fax of 4 June 2002 showed that the document was address to "Modern Demolition" for the attention of Rod Young. It was headed "Revised Budget Tender Quotation" . The text of the coversheet had as its substance solely:

"Rod,

Here is the latest revision, together with the scope of works we have allowed for."

53 The "Payment Conditions" page stipulated a price of $252,000 plus GST. Mathematically, that equates to $277,200 inclusive of GST. Oddly, the document said that the amount of the offer was $291,000. It set out a payment schedule, for progress payments, and said, "Our tax invoices will be provided ahead of schedule milestones." It also said "In the acceptance of this offer, you agree to pay overdue charges in the form of 2% interest, in addition to our bank overdraught [sic] charges."

54 The "present extent of shoring" page described the type of temporary retention system that was proposed to support the excavation, the work that was included in the quote, and the work that was excluded from the quote.

55 An earlier version of the "Payment Conditions" page of the same document, that lacks a dated coversheet but bears a footer date of 31 May 2002, and a fax header showing that it was faxed from MSP on 3 June 2002, was part of tab 2 of Exhibit CB1 to the affidavit of Mr Browne. Mr Browne's evidence was that he did not see a copy of that document "until some time later than 3 June 2002" .

56 Like the 4 June quotation, the 3 June quotation consisted of two pages: a single page setting out the payment conditions and a "present extent of shoring" page. However, the document that Mr Browne received consisted only of the page setting out the payment conditions. Mr Browne did therefore not receive "present extent of shoring" page.

57 The only differences between the page setting out the payment conditions in the document of 3 June and the corresponding page in the document of 4 June are that the document of 3 June contained in the quote two line items adding to $252,000, and correctly stated the offer price as being $252,000, while the document of 4 June contained three line items adding to $252,000, and expressly stated that that price was plus GST.

58 The "present extent of shoring" page of the 3 June quotation (which was not sent to Mr Browne) and the "present extent of shoring" page of the revised quotation dated 4 June (which was sent to Mr Young but apparently not sent to Mr Browne) each included a statement:

"We have not allowed for the construction of any permanent walls in front of our sheetpiling, however as a guide, we have estimated that a blockwall system will cost in the vicinity of $40,000 to $45,000 plus GST."

59 The quotation faxed on 3 June 2002 (but not the revised quotation of 4 June 2002) had written in handwriting immediately adjacent to the part that quoted a price:

"Plus $45,000 plus GST

= block work

$326,700.00"

At the hearing of the appeal we were informed, without objection, that the handwriting was Mr Young's, and was on the fax as received by Mr Browne (T11).

60 On 5 June 2002 Mr Young sent a letter to the Developer, marked for the attention of Mr Mao, and identifying that it related to No. 5. The letter said:

"CONTRACT LYM

Dear William,

This will verify that Modern Demolition will commence a contract with Lym International Pty Ltd on the above mentioned site address.

These works will provide two contractors:

• Modern Demolition - Earthworks and excavation
• MacDonald Sheet piling (NSW1) Pty Ltd

Overall lump sum price inclusions:

1. Removal of all excavation materials as per specified on plans, which will include detail work in existing bulk excavation other than rock (OTR)

2. All site fencing and signs is included for a period of 6 months - commencing 30 th April 2002.

3. De watering is included in this contract for the period of excavation and piling only.

4. Location and protection of service line at rear of site to be included from anchoring.

5. Contractor for sheet piling will commence approx. 1 to 1 1/2 weeks prior to excavation commencing. The contractor will work in conjunction with Modern Demolition and the entire job will be overseen for entire contract by an external engineer.

TOTAL CONTRACT PRICE: $421,400.000 (Incl GST)

SCHEDULED PROGRESS PAYMENTS

• Initial deposit of $15,000 required to be paid direct to Modern Demolition for initial earthworks commencing on site - due 5 th June 2002.

• TBA - with a minimum of 2 day notice.

Quotation from Modern Demolition and MacDonald Piling will be supplied.

If you require further information please feel free to contact me."

61 Mr Browne's evidence also included:

"I recall that after the materials for the sheet piling was delivered to the site I was informed by [Mr Young] that [MSP] required $50,000 in cash to cover its insurance policy for the project. I understand that William Mao had arranged for the money to be given to [Mr Young] for him to give to [MSP]. I was very angry when I discovered that [Mr Young] did not obtain a receipt from [MSP] for the payment."

62 Mr Spanos said:

"There was a period before sheet piling commenced where MSP was awaiting confirmation from [the Developer] that it had effected insurance cover for the site, including cover that would protect MSP for works it was to perform on the site."

63 The work started on No. 5 in the week after 18 June 2002. There is no suggestion that in the time between Mr Young accepting MSP's quote on 14 June 2002 and the start of work the Developer took steps to obtain an alternative design for the shoring system from any engineer. Rather, it trusted assurances from MSP.

Payment to MSP for its Work

64 On 13 June 2002 MSP sent a fax addressed to "Modern Demolition" for the attention of Mr Young. The subject of the document was stated to be "Payment Schedule (Indicative Programme)". The fax said:

"Rod,

In order to ensure that the project runs smooth [sic], and that we are not on site waiting for materials, I suggest the following be adhered to in terms of payment schedule."

It then set out a table which listed each day on which work would proceed, and stated, in respect to each such day, the work expected to be done on that day. The entries for five days, interspersed through the 17 days that the schedule covered, also stated the amount of a payment that was expected to become due on that day.

65 On 24 June 2002 MSP sent to Modern Demolitions, attention Mr Young, a tax invoice, entitled "Progress Claim No. 1". It was in the form of a printed document, in which some blanks had been filled in by typing. One printed part of the form was a statement appearing prominently near its top, and inside a box, saying "This claim is made under the Building and Construction Industry Security of Payment Act - 1999 ".

66 The document stated "further to our Quotation dated 3 June 2002 and your acceptance dated 14 June 2002 for the execution of the works, we herewith submit our progress claim to the value of: $33,550."

67 We were informed by counsel, without there being any dispute, that the Quotation dated 3 June 2002 is the document I have referred to at [55]-[ 59 ] above. There was no written acceptance of that quotation, but it is agreed that the quotation was accepted orally, in a conversation between Mr Young and Mr Spanos.

68 The tax invoice goes on to include a list of items of work. Alongside each item of work appear columns headed "contract value", "this claim", "previously claimed", and "total claimed". One of the items of work is "installation of sheet piling" , which is attributed a contract value of $20,800. Another item of work is "installation of building stabilisation piers" alongside which appears "no charge". The total appearing at the foot of the "contract value" column was $252,000.

69 Progress Claims Numbers 2, 3, 4, 5, 6, 7 and 8 are in exactly the same format as Progress Claim No. 1, though each document claims different sums of money, due on a different date. Oddly, each of those progress claims is dated 24 June 2002. It appears that that date is not the product of forgetting to change the date on a standard form, because each progress claim also bears a fax header sheet showing that it had been faxed by MSP on 26 June 2002, at times between 9.54 am and 9.57 am.

70 Progress Claim No. 6 stated that it was due on 12 July 2002. Progress Claim No. 7 stated that it was due on 19 July 2002.

71 Progress Claim No. 1 bears a stamp that says "paid 26 June 2002 by: Rod" . Though there is no express finding to that effect, it is a clear enough inference that Mr Young paid each of Progress Claims 1 to 5 inclusive.

72 MSP had a system whereby a document entitled "internal daily report" is completed each day, concerning each job. Its reports of 19 July 2002, 20 July 2002 and 21 July 2002 relating to the Mona Vale site identified the client as being "Modern Demolitions".

73 MSP sent another version of a document entitled "Progress Claim No. 6" , bearing date 20 September 2002, to the Developer marked for the attention of Mr Mao. It was in substantially the same format as the version of Progress Claim No. 6 that had been sent to Mr Young, except that the claim made for "supply of foundation piles" had increased by $5,000, and the claim included four variations, whereas no variations were included in the version of Progress Claim No. 6 dated 24 June 2002. The later version Progress Claim No. 6 stated that it was due for payment on 4 October 2002.

74 Similarly, MSP sent another version of Progress Claim No. 7 to the Developer, marked for the attention of Mr Mao. It was in the same format as the earlier version of Progress Claim No. 7, except that it made a claim of $21,000 for installation of foundation piles (whereas the earlier version of Progress Claim No. 7 had made no claim for that item), and it included the same four variations as the later version of Progress Claim No. 6, whereas the earlier version of Progress Claim No. 7 had included no variations. This later version of Progress Claim No. 7 was dated 4 October 2002, and stated that it was due on 11 October 2002.

75 The Developer paid the amounts shown in the later versions of Progress Claim No. 6 and Progress Claim No. 7 directly to MSP.

76 The judge at [82] recounted, and evidently accepted, evidence of Mr Spanos that in about October 2002 he had become concerned about the financial position of Mr Young, and that it was shortly thereafter that progress claims previously sent to Mr Young, but unpaid had been sent the Developer.

Mr Browne's Cross-Examination

77 The cross-examination of Mr Browne included a portion that began when he was shown an unsigned document on the letterhead of Mr Young's business name. The document was dated Tuesday October 15, 2002. It was addressed to MSP for the attention of Mr Spanos. It stated:

"I received your letter and schedule for placing piles at a rate of eight (8) to ten (10) piles per day under normal drilling conditions and I wish to advise this is acceptable to the client.

This job will require a full working team to be supplied by [MSP] until finalisation of the job. Each pile placed in the ground must be signed off and certified to required loadings by your Engineer as per design. Variations, if any, must be discussed with Rod Young and [the Developer] before proceeding.

The time factor you have suggested is approximately 10 working days. If necessary, this time factor may be extended by an additional six (6) working days maximum under normal drilling conditions. Otherwise, penalties will commence on the seventeenth (17 th ) day at a cost of $1,800.00 per day and will be deducted from initial contract price to [MSP].

On acceptance of this quotation a progress payment of $54,000.00 is to be paid to [MSP]. A second progress payment is to be made two weeks from the date of this quotation, ie Wednesday 29 th October 2002.

Work must commence on arrival of piles ie p.m. of 15th October 2002 or a.m. 16 th October 2002.

We trust the above is acceptable to you and that this last section can run smoothly and within the time frame.

.............................. .................................

(Signed) Rod Young (Signed) Andrew Spanos

Modern Demolition MacDonald Sheetpiling (NSW) on

Behalf of Lym International behalf of MacDonald Sheetpiling"

78 There was some crossing out and an illegible handwritten amendment following the word "paid" in the final sentence of the fourth paragraph, but the illegibility of the handwriting does not affect the outcome of the case.

79 Mr Browne said that the document had come from his records, but he could not say with any accuracy when he received it. The cross-examination continued:

"Q. But you see that Mr Young has [sic - is?] there signing off the document on behalf of Lym International?

A. No, I see a document with no signatures on it.

Q. Do you accept that Mr Young in creating this document on his letterhead described himself as acting on behalf of Lym International?

A. Yes.

Q. At some point after this letter's creation obviously you came into possession of a copy of it?

A. Correct.

Q. You at no time disputed with Mr Young or anybody else the proposition that Young was acting on behalf of Lym when he did things in connection with this project?

A. Mr Young was to my knowledge the one that had taken out the contracts with MacDonald Sheet Piling.

Q. Your understanding was that he had done so for and on behalf of the same entity to which you were consulting, Lym?

A. Yes, yes."

80 Two pages of transcript later, Mr Browne was being cross-examined about a different letter, which he had written on 22 October 2002 to MSP. While that letter is not in the appeal papers, it appears, from the context of the cross-examination, that it contained an assertion that MSP was liable to the Developer for some damage sustained on the site. The cross-examination continued:

"Q. I'm suggesting to you the assertion that you were in any position to hold MacDonald responsible for anything is consistent only with the belief on your part that you enjoyed some contractual relationship with them.

A. No, incorrect."

81 The cross-examination then turned to another letter dated 29 October 2002 that Mr MacDonald, of MSP, wrote to the Developer marked for the attention of Mr Browne. It is on the topic of a damaged sewer. It said:

"Please note that our offer of work and contract has been made with Modern Demolition, your agent the contact of Rod Young. With this in mind, we have notified Modern Demolition on two separate occasions regarding the abovementioned sewer line. I can confirm that these notifications were sent on 17 th August, and 29 th August 2002.

We hereby again notify that our company puts Modern Demolitions, on notice and advises your company as per our quotation and offer dated 25 th May, 2002, revised on the 3 rd June, 2002, Acceptance and direction of our offer dated the 14 th June 2002 and further confirmed on 5 th July, 2002.

Pursuant to our sub-contractor agreement clause 5.2, we confirm liability for damage to or as a result of the execution of the sub-contract works is with the contractor (Modern Demolition) or any servant or agent of the contractor.

Our company formally requires the contractor or any servant or agent of the contractor to notify their insurers, that under our sub-contract you are indemnify our company from any claims or demands arising out of the project and associated works."

82 Mr Browne's cross-examination on the letter included:

"Q. ... you'd agree that the letter conveys the understanding of Mr MacDonald that the contract that MacDonald had with Modern Demolition amended with Modern Demolition [sic] as your agent, or as a Lym's agent. Do you see that? I'm speaking of the first sentence, sir.

A. It's stating that - that Modern Demolition is - is acting as our agent. I didn't interpreter [sic] it that way.

Q. You didn't interpreter [sic] this letter that way or you didn't interpreter [sic] the relationship that way?

A. I didn't interpreter [sic] the relationship that way.

...

Q. I take it from time to time you had come to understand that MacDonald viewed the relationship that way, is that right?

...

A. No, I never at any stage because my understanding from the outset was Modern Demolition had engaged MacDonald Sheet Piling - that was it. They - there were supposed to be the contractor for the site and my - at that - I wasn't involved in the actual engaging of MacDonald. My understanding at that time and today is that they were responsibility [sic] to Modern Demolition."

An Identified Deficiency in the Works

83 Over a weekend during the time the hearing was proceeding, one of the headstocks under Mrs Marcolongo's building was examined. It was found to have been inadequately constructed in that the cavity containing the jack was never filled with concrete, the flange at the top of the jack was not placed flush with the bottom of the footing, and the headstock did not extend 100 mm outside the line of the edge of the footing and building wall but rather sat about 100 mm within this line.

Issue 1 - Agency of Mr Young

84 Mrs Marcolongo contended that when Mr Young engaged MSP to carry out the works of shoring, sheetpiling and anchoring he did so as the agent of the Developer. The Developer denied that there was any such agency. Rather, it submitted, it had a contract with Mr Young and he, in performance of his obligations under that contract, separately contracted with MSP. The judge upheld Mrs Marcolongo's contention on this topic.

85 The Developer submits that the Judge was mistaken in so doing. As will appear, I accept this submission.

The Judge's Reasoning

86 The reasoning by which the judge arrived at the conclusion that Mr Young contracted with MSP as agent for the Developer is elusive. His Honour listed, at [192] the following factors that the Developer had contended were against the existence of an agency:

"(a) MSP addressed its quotation for the work to be performed to Mr Young (Modern Demolition).

(b) The payment schedule dated 13 June 2002 was issued to Modern Demolition.

(c) The tax invoice dated 24 June 2002 was addressed to Modern Demolition.

(d) The group of tax invoices, all dated 24 June 2002, were addressed to Modern Demolition.

(e) Modern Demolition made the first payment of $33,550 on 27 June 2002.

(f) The letter dated 5 June 2002 from Modern Demolition to [the Developer] specifically refers to Modern Demolition subcontracting with MSP.

(g) The apparent admission by Mr Browne at T 271.32 is at best equivocal."

That "apparent admission" is the final question and answer that I have set out at [79] above.

87 The Judge said at [193] that in his view the letter of 5 June 2002 (set out at [60] above) was the most significant in that list. He continued:

"However, contrary to the submissions of [the Developer] I read it as being consistent with an agency position rather than a subcontract authorisation. I make the following points about this letter:

(a) It does not provide any instruction by [the Developer] for Modern Demolition to subcontract with MSP. Rather, it states that there will be two contractors working on the site, Modern Demolition and MSP, without any suggestion that they would be contracted to each other.

(b) Paragraph 5 specifically envisages a separate external engineer removing the suggestion that Mr Young was to monitor the operations of MSP.

(c) Although the total contract price includes moneys to be paid to MSP this, in my view, is as consistent with an agency as with a subcontract. Mr Young is being given the money to pay MSP. That does not mean he is required to contract with MSP.

(d) My reading of the letter is consistent with the invoices being sent to Modern Demolition.

(e) Mr Young was not called to give evidence. Counsel for [the Developer] submitted that no inference should be drawn against any party for the failure of Mr Young to give evidence. I do not agree. I think that on the case run by [the Developer] it is the party that would have been expected to call Mr Young. However, I do not draw any inference beyond that his evidence would not have assisted [the Developer's] case."

88 He then referred to the final two questions and answers in the evidence of Mr Browne, which I have set out at [79]. His comments concerning that evidence were:

"(a) The fact that Mr Young had taken out the contract with MSP does not necessarily mean he was contracting on his own behalf or on behalf of MSP.

(b) It is the second question and answer that I think are firmly against [the Developer's] interests and amount to an admission, to the extent that Mr Browne was able to make it, that Mr Young was the agent of [the Developer]. Mr Mao, the principal of [the Developer], did not give evidence and I draw the same inference in that respect as I did with Mr Young. The difference, of course, is that there can be no doubt at all that Mr Mao is a witness in [the Developer's] camp."

89 That is the totality of the judge's reasoning on the topic.

Jones v Dunkel Finding Concerning Mr Young

90 The Developer submits that the judge was mistaken at [193(e)] of his judgment, set out at [87], in drawing even a limited Jones v Dunkel (1959) 101 CLR 298 inference concerning Mr Young's absence. I agree.

91 Jones v Dunkel authorises, but does not require, a tribunal of fact to engage in two different types of reasoning. One is to infer that the evidence of an absent witness, if called, would not have assisted the party who failed to call that witness. The other is that the tribunal of fact can draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn: Manly Council v Byrne [2004] NSWCA 123 at [51]. It is only the first of those courses that the trial judge followed in the present case.

92 Glass JA identified a number of propositions for drawing such an inference in Payne v Parker [1976] 1 NSWLR 191 at 201-202. Among these were the following conditions:

"(6) Whether the principle can or should be applied depends upon whether the conditions for its operation exist. These conditions are three in number: (a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained.

(7) The first condition is also described as existing where it would be natural for one party to produce the witness: Wigmore , par 286, or the witness would be expected to be available to one party rather than the other: O'Donnell v Reichard [1975] VR 916, at 921, or where the circumstances excuse one party from calling the witness, but require the other party to call him: ibid [1975] VR 916, at p. 920, or where he might be regarded as in the camp of one party, so as to make it unrealistic for the other party to call him: ibid [1975] VR 916, at 920, Regina v Burdett (1820) 4 Barn & Ald 95; 106 ER 873, or where the witness' knowledge may be regarded as the knowledge of one party rather than the other: Earle v Castlemaine District Community Hospital [1974] VR 722, at 733, or where his absence should be regarded as adverse to the case of one party rather than the other: ibid [1974] VR 722, at 734. It has been observed that the higher the missing witness stands in the confidence of one party, the more reason there will be for thinking that his knowledge is available to that party rather than to his adversary: ibid [1974] VR 722, at 728. If the witness is equally available to both parties, for example, a police officer, the condition, generally speaking, stands unsatisfied. There is, however, some judicial opinion that this is not necessarily so: ibid [1974] VR 722, at 728. Evidence capable of satisfying this condition has been held to exist in relation to a party's foreman: Cafe v Australian Portland Cement Pty Ltd (1965) 83 WN (Pt 1) (NSW) 280; his safety officer: Earle v Castlemaine District Community Hospital [1974] VR 722; his accountant: Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348; his treating doctor: O'Donnell v Reichard [1975] BR 916, at 921."

93 The drawing of the Jones v Dunkel inference was a step the judge took on the way to his conclusion that Mr Young contracted with MSP as agent for the Developer. It would therefore not have been open to the judge to assume, at the time he was deciding whether the inference was open, that Mr Young had indeed been the agent of the Developer. Apart from that disputed agency (which, in any case, was at best an ad hoc one for the purpose of entering a particular contract) there is no reason to believe that Mr Young had had any contact with anyone on behalf of the Developer, outside the confines of this particular construction job. His role in that job (apart from the alleged agency) was as an independent contractor, who had obtained the job after submitting a quotation. There is no reason to believe there was any contact between Mr Young and anyone on behalf of the Developer after this particular construction job had concluded, other than in the context of the present litigation. The contact that they had in that context was that the Developer had sued Mr Young, by a cross-claim that it ultimately did not press. Nothing in Mrs Marcolongo's amended ordinary statement of claim (the last pleading she filed before the trial) said that Mr Young either was, or was not, the agent of the Developer for the purpose of entering the contract with MSP. Nor was there such an allegation in the defence of either the Developer or QBE at the time at which the matter went to trial. Thus, there was no direct issue on the pleadings about whether Mr Young had contracted with MSP as agent for the Developer.

94 In all these circumstances, the judge was mistaken in finding that the Developer would have been expected to call Mr Young. Thus, the limited Jones v Dunkel inference that the judge drew should in my view not have been drawn.

Availability of Subsequent Conduct

95 Before deciding whether the judge's finding of agency is correct, it is necessary to be clear about the scope of the evidence that is available for making that decision. That necessitates an examination of whether certain conduct that occurred after Mr Young engaged MSP can properly be used, and if so on what basis it can be used.

96 QBE submits that the judge was correct in referring to extrinsic materials, including post-contractual conduct, in order to ascertain the capacity in which Mr Young contracted. There are two particular instances of post-contractual conduct that QBE wishes to invoke. The first is what it characterises as an admission by Mr Browne in the witness box. The second is the conduct of the Developer in paying MSP's insurance premium before the work started, and paying Progress Claim No. 6 and Progress Claim No. 7 when MSP sent those documents to it in September and October 2006.

97 The Developer seeks to draw support from the various Progress Claims that MSP sent to Modern Demolitions ([54]-[61] above) for its contention that Mr Young did not contract with MSP as an agent of the Developer. One basis on which it seeks to do so is that the sending of the Progress Claims was conduct contemporaneous with the entry into the contract.

98 In my view, that basis is not available. The relevant contract was entered on 14 June 2002, and the Progress Claims were not sent until 24 June 2002.

99 The Developer alternatively supports those Progress Claims being available to ascertain the capacity in which Mr Young contracted because, even if they are post-contractual conduct, they are an admission. The Developer also seeks to rely on MSP's internal reports ([72] above) as support for Mr Young having contracted in his own right.

100 As will appear, it is of importance for any consideration of the availability of post-contractual conduct that any contract between Mr Young and MSP was not wholly in writing. MSP's quotation of 3 June 2002 was accepted orally. As well, the Developer concedes, in my view correctly, that there must be oral elements in the contract arising from the discussions between Mr Browne and Mr Young (Appeal tp 15).

Admissibility and Legitimacy of Use of Evidence of Post-Contractual Conduct

101 Sometimes the question of whether post-contractual conduct can properly be used in seeking to find the terms of a contract arises if there is an objection to its admissibility. At other times a question arises of whether evidence of post-contractual conduct that was not objected to can legitimately be used either to find the terms of, or to construe, a contract.

102 Under the Evidence Act 2005 , sometimes evidence that is relevant is excluded from admissibility. However, relevance is always an essential precondition for admissibility. Relevance is defined by s 55 of the Evidence Act as " evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding . "

103 The topic of the use that may legitimately be made of evidence that has been admitted without objection has its complications (see J D Heydon, Cross on Evidence , 8 th Australian edition (2010) at [1650]-[1680]). However, it can at least be said that it would be improper for a judge to use, in assessment of the probability of the existence of a fact in issue, evidence that in truth does not rationally affect that probability. Further, sometimes a rule of evidence specifically restricts the use that may be made of admissible evidence, by providing that a type of evidence is admissible to prove some particular type of matter, or by imposing a condition on the use of evidence in a particular way. (Section 83, mentioned further at [125] below, provides a presently relevant example.) Thus questions of the admissibility of evidence, to the extent they are based in relevance, or in such restrictive principles, can also cast some light on whether evidence admitted without objection can legitimately be used in a particular way. The judgment of Mason J in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 351-352 illustrates this, as his Honour discussed in terms of admissibility the topic of when surrounding circumstances may legitimately be used in the construction of a written contract. It is for these reasons that the following discussion sometimes talks of admissibility, and counsel in submissions sometimes spoke of the admissibility of the evidence, even though the evidence that is the subject of present contention was admitted without objection, and the dispute is about how it can legitimately be used.

Assistance from Wilson v Hart ?

104 One authority that QBE cites in support of its contention that the subsequent conduct can legitimately be used, is the statement of Park J in Wilson v Hart (1817) 7 Taunt 295 at 304; 129 ER 118 at 122 that it "is the constant course to shew by parol evidence, whether a contracting party is agent or principal."

105 Wilson v Hart does not bear on the present problem. It arose from the provision of the Statute of Frauds requiring a contract in writing or a note or memorandum thereof concerning contracts for the sale of goods for the price of £10 or more. The issue related to whether, when the documentation relating to a contract for the sale of goods showed a particular person as the purchaser, it was open to prove by oral evidence that that person was acting as an agent, and for the principal of that person to then be sued on the contract. Nothing in the facts of Wilson v Hart involved using subsequent conduct to decide whether a contract had been entered between particular parties.

For What is County Securities Authority?

106 Another authority that QBE cites to support the use of post-contractual conduct is County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [161] ff per McColl JA. Deciding whether County Securities is authority for the use of post-contractual conduct requires a close examination of the facts of the case.

107 County had sued Challenger and its related company CHL, alleging that it had paid an amount of around $338,000 more than it was obliged to pay when it settled an agreement (" the Transfer Agreement ") with Challenger and CHL. Under the Transfer Agreement County acquired CHL's Equity Swap Business. County had failed in the court below, but County appealed successfully to this Court.

108 CHL operated a business under which it entered into Equity Swaps with entities called ACE and ACM. Under an Equity Swap, CHL agreed to pay to ACM or ACE an amount equal to the economic benefit that would be derived from ownership of a certain number of shares (" Notional Shares ") in Seven Network Ltd (" Seven "); ACM or ACE paid interest to CHL; and payments were made between the parties to the swap from time to time so that CHL always held a certain percentage of the then value of the relevant number of Seven shares (" Collateral Amount "). CHL established a hedge to protect itself from loss on the Equity Swaps. The hedge was comprised of shares in Seven (" Physical Stock ") equal in number to those to which a particular swap related, and a debt that CHL owed on a Margin Loan that it had acquired to enable it to fund the part of the purchase price of the Physical Stock that had not been derived from the Collateral Amount. As Spigelman CJ explained at [5] it was essential that the Equity Swaps be kept quite distinct from the hedge, because if ACE and ACM knew that CHL had acquired Physical Stock it might be arguable that CHL was "warehousing" Seven shares for ACE and ACM.

109 One part of the Transfer Agreement was a transfer to County of the Equity Swaps. This part of the transaction was wholly in writing, contained in a Novation Agreement entered on 23 June 2003: see [80]. The other part of the Transfer Agreement required the transfer to County of the components of the hedge, including County undertaking the debt owing on the CHL Margin Loans. At the time of settlement EML was the lender of the CHL Margin Loans.

110 Settlement of the transaction occurred on 26 June 2003: see [83]. The Physical Stock was transferred to County in an off-market transaction, pursuant to a Share Transfer form that the relevant County officer signed on 24 June 2004: [83]. County paid the whole of the amount that CHL then owed to EML on its Margin Loan Account. That payment happened pursuant to a Transfer Request that County had sent to EML on 23 June 2003. It directed EML to "pay out the loan balance on account" CHL from available funds in County's account: [81]. On 26 June 2003 Mr Basten, the relevant officer of CHL, credited back to County interest that had accrued on the Margin Loan Account between 1 and 26 June 2003. However there was an amount of about $338,000 of interest that had been capitalised previously on that loan account, which was not credited back. County did not realise at the time that there was any capitalised interest in the Margin Loan Account, Mr Basten did not realise there was any capitalised interest when he credited back the interest that had accrued in June, and it was contrary to the way in which County had been informed the Equity Swap Business worked that there should be any such capitalised interest: [127], [197]. Mr Basten credited the June interest because Mr Gilsenan, the Chief Financial Officer of Challenger, had directed him that the transfer was to be at no profit to Challenger: [74], [84]. It is not clear from the judgments when that direction had been given.

111 County's claim in the litigation was that it had overpaid the purchase price by that $338,000, and was entitled to have Challenger and CHL reimburse it for that overpayment. The correctness of that claim depended on whether the parties had agreed that County had agreed to take over liability for the total amount owing on the CHL Margin Loans, or had agreed only to take over liability for the principal amount of those loans.

112 The primary judge had found that the Novation Agreement, the share transfers and the Transfer Request constituted the terms of the Transfer Agreement: [92]. Thus his view was that the contract was wholly in writing.

113 On appeal County contended that there were oral terms in the agreement ([138], [142]), and that neither the Transfer Request nor the share transfers contained contractual terms: [140]. Challenger and CHL accepted on the appeal that when the court was deciding what agreement had been entered into, it was entitled to take into account the terms of the Transfer Request and "the parties' conduct in entering into the transactions to effect the transfer of the Equity Swap Business to County ": [148]. " The parties' conduct " would appear to include Mr Basten's action in crediting back the June interest.

114 Contrary to the view of the primary judge in County , McColl JA (Beazley JA agreeing) held the Transfer Agreement to be a contract ascertained by looking at the whole relationship between the parties ([170]) and that included conversations ([181]). Spigelman CJ held that it was partly written, partly oral and partly to be inferred from conduct: [2]. McColl JA at [183] (Spigelman CJ at [30] and Beazley JA at [66] agreeing in this respect) held that the Transfer Request was not a contractual document, but rather a communication to a third party made by one of the contracting parties in the implementation of the Transfer Agreement.

115 Spigelman CJ at [30] said that the Transfer Request was not part of the Transfer Agreement, but was evidence from which the terms of that Agreement could be inferred. This was done not by construing the words of the Transfer Request itself, but by taking the Transfer Request into account, along with other evidence, in deciding what was the agreement between the parties. When used in that way, other evidence outweighed any inference drawn from it that the parties had agreed to transfer the total amount owing on the margin loan accounts: [31]. Overall, the Chief Justice found that the agreement was to transfer the Equity Swap Business, and that the capitalised interest was not part of that business: [35]. Spigelman CJ found that the action of Mr Basten in paying out the June interest was post-contractual conduct, of an objective nature, that " significantly reinforces [the] conclusion that the margin loan that was assigned pursuant to the Transfer Agreement was limited to the principal paid for the acquisition of the hedge shares and did not extend to capitalised interes t": [46]. Thus his Honour (and in this respect Beazley JA agreed with him) based the liability of Challenger and CHL on breach of an implied term that there was no capitalised interest: [52]-[55].

116 McColl JA made no decision about the date on which the contract was entered. Rather, she held that:

"It is not easy to identify offer and acceptance, or even the precise date upon which the parties agreed to be bound, other than to say that considering the events which happened after the idea of County acquiring the Equity Swap Business was floated, it is clear there was a contract..." [170].

117 The part of McColl JA's judgment at [161] ff, on which QBE relies, considers the extent to which the re-crediting of the June interest could be relied on. Her Honour said: "There is a factual question about whether this was conduct contemporaneous with the Transfer Agreement or post-contractual conduct".

118 Her Honour went on to say at [161]-[162]:

"The present state of the law throughout Australia on whether, and if so when, it is possible to use post-contractual conduct as an aid to construction of the contract is not yet settled, the view, favoured in this Court, being that subsequent communications cannot be looked to as an aid to construction of a contract, but can be looked to as an aid to deciding whether a contract has been entered into: Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R 90-263 (at [59]) per Campbell JA (Beazley JA agreeing); Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 (at [99] ff) per Giles JA (Hodgson and Campbell JJA agreeing).

However it is permissible to have regard to the conduct of parties, even subsequent conduct, as constituting an admission of the state of the parties' rights: see Pitcher v Langford (1991) 23 NSWLR 142 (at 160); Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 (at 684-685); Jones v Sutherland Shire Council [1979] 2 NSWLR 206 (at 231); Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 (at 188E), although care must be taken about identifying the fact said to have been admitted: Sagacious (at [106])."

119 Ultimately, her Honour did not apply any of the law concerning using post-contractual conduct as an aid to construction or as an admission, because of her decision at [201]-[202] concerning this factual question:

"Mr Gilsenan's direction to Mr Basten was an admission that the transfer was to take place on the terms for which County contended. It is worth briefly re-visiting Mr Gilsenan's evidence in this respect to make good this proposition.

Mr Gilsenan said that he instructed Mr Basten that the transfer of the swaps was to be 'at book' and that if a corporation sold or disposed of an asset at book value one would not expect any profit or loss to be recorded. He also accepted that 'the book value [of the Challenger shares] would have been the value of the shares bought off the market plus brokerage'. His direction to Mr Basten was consistent with an agreement that the price County was to pay for the transfer did not include capitalised interest. Mr Basten complied with the direction on 26 June by crediting the June interest to County. Mr Gilsenan's admission that the transfer was to take place at book value was communicated to County by this action. It constituted an objective circumstance to which the Court could have regard in determining the terms of the contract . It was not post-contractual conduct . Rather it took place contemporaneously with the final act of settlement, which, as the primary judge found (at [53]), was on 26 June 2003." (emphasis added)

120 As Mr Gilsenan was both the CFO of Challenger and a director of CHL ([74]), and it was not disputed that he had authority to contract on both of their behalves ([174]), he was able to make an admission on behalf of those parties to the contract, about matters relevant to the terms of the contract. However, her Honour held that his conduct in making that admission was not post-contractual.

121 As Beazley JA agreed with this aspect of McColl JA's judgment, the majority reasons in County do not have as their ratio any proposition about the availability of post-contractual conduct for the purpose of finding the terms of an agreement that is wholly or partly oral.

Another Basis for Availability of Post-Contractual Conduct - As Admissions?

122 However Tomko v Palasty [2007] NSWCA 258 deals, though not exhaustively, with that topic. Basten JA at [13]-[14] (with whom Mason P agreed) held that post-contractual conduct can be used for that purpose when that conduct is an admission. Einstein J at [68] (with whom Mason P also agreed) similarly held that:

"... subsequent communications may legitimately be used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract, where an issue concerns whether a particular person was a party to that contract."

123 Counsel for the Developer submits, concerning such post-contractual conduct, "unless it is closely contemporaneous it should not be admitted unless it is a clear admission" (tp 16).

124 I do not accept that submission, for two reasons. First, once a post-contractual admission passes the test of relevance, it is admissible unless it is excluded under s 135 Evidence Act (supposing that it is not hearsay or opinion evidence). Second, sometimes post-contractual conduct can be availed of to find the terms of a contract not wholly in writing even if that conduct is not admissible as an admission.

125 If being an admission were the only route through which post-contractual conduct could be available as an aid to finding the terms of a contract not wholly in writing, there would be limitations on the use to which that conduct could be put. Conduct relied on as an admission is evidence against the party to litigation on whose behalf the admission is made, but it is not evidence against any other party to the litigation unless that other party consents: s 83 Evidence Act . Sometimes that could limit the use that could be made of post-contractual conduct, in determining, as against a person who had not made the admission, what the terms of the contract were. Further, it is not possible to prove, on the basis that it is an admission, conduct of someone, who is not a party to the litigation in which that proof is sought to be made or acting with the authority of such a party (s 87). (It is unnecessary to discuss whether the Evidence Act permits an admission to be made by a privy of a party.)

126 However, subject to a problem to which I will turn in the next few paragraphs, those limitations do not apply in the present case. Here QBE seeks to use the conduct of the Developer in paying the insurance premium and the second versions of invoices 6 and 7 as relevant subsequent conduct. QBE contends that that is conduct capable of being an admission by the Developer that it was the other party to the contract under which MSP did the sheet-piling work. As well, the Developer seeks to use the evidence concerning MSP sending the first version of the invoices to Mr Young and his payment of the first five of them against QBE, to prove that Mr Young was not the Developer's agent. It contends that that evidence can be admissible against QBE (standing in the shoes of MSP) insofar as it is an admission by MSP about who were the parties to the contract. The Developer contends that, as it was MSP who composed and sent the invoices, that conduct amounts to an admission that it was Mr Young who was the other party to the contract. Thus, it contends, the conduct is a permissible source for ascertaining the terms of an agreement to which MSP was a party, by reason of being an admission by MSP.

127 The topic of these putative admissions is the identity of the party other than MSP to a contract that undoubtedly existed for the performance of the sheet piling work. That a particular person is party to a contract is a matter of mixed fact and law. Under the common law, Mahoney JA in Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 684-5 held that a party-witness can be asked in court to admit a conclusion depending on a legal standard (whether particular debts had been sold), and referred to authority supporting the view that there can be an admission of a matter of mixed fact and law. Glass JA at 675-6 reached an opposite conclusion, while Samuels JA expressed no opinion on that topic.

128 Mahoney JA reiterated his view in Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 231. Hutley JA did not consider that general question, confining his discussion at 211-212 to extending the common law rule that permitted the admission of an admission as to title by a predecessor in title to extend to an admission by a predecessor in title of a lack of planning consent. Samuels JA again did not consider the general question.

129 In Pitcher v Langford (1991) 23 NSWLR 142 at 160 Handley JA (Kirby P agreeing) preferred the views of Mahoney JA. However in Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 Gummow J at [68] said:

"... in Jones v Sutherland Shire Council , Mahoney JA observed that '[a] party to litigation may make an admission, not only of a fact, but also a conclusion from facts, a mixture of fact and law, or even of law' (emphasis added). The emphasised portions of that statement state the proposition too widely."

130 Gummow J at [69] recognised that a party can admit by its pleading any point of law, and can admit facts from which a conclusion of law may then be drawn. He went on to say, at [70]:

"Different questions arise where, as here, the suggested admission includes a conclusion which depends upon the application of a legal standard. In Grey , Glass JA considered an admission sought from a witness to the effect that he had assigned certain choses in action at law or in equity. His Honour said:

'By extorting from a party an admission that he was negligent, or that he was not provoked, or that his grandfather possessed testamentary capacity, there is added to the record something which is, not merely of dubious value, but by definition valueless, owing to the witness' unfamiliarity with the standard governing his answer.'"

131 This statement of the law had the support of the majority in Dovuro v Wilkins . McHugh J at [40] and Heydon J at [177] expressly agreed with Gummow J in this respect. Gleeson CJ at [25] said:

"I agree with what is said by Gummow J as to the care that needs to be taken in identifying the precise significance of admissions, especially when made by someone who has a private or commercial reason to seek to retain the goodwill of the person or persons to whom the admissions are made. Common sense may dictate that they be used with caution by a fact-finder. And it is always necessary for the fact-finder to consider precisely what it is that is being admitted. If the driver of a motor vehicle says to an injured passenger: 'I am sorry, I let you down', that may not mean much, or anything. If the driver says: 'I am sorry, I was going too fast', that may be very significant. The statement that the appellant '[failed] in its duty of care to inform growers as to the presence of these weed seeds' cannot be an admission of law, and it is not useful as an admission of failure to comply with a legal standard of conduct. There is no evidence that the author of the statement knew the legal standard."

132 Though Gummow J put it that the admission of mixed fact and law was " valueless " , and Gleeson CJ put it in terms of being " not useful " , rather than in terms of admissibility, that may have been because the evidence had already been admitted, and the question concerned the use that legitimately could be made of it. However their view would seem to have the effect that such a statement was not admissible, because it was not relevant to a fact in issue. Their Honours appear to have left open the situation concerning an admission of mixed fact and law by a person who is shown to understand the relevant legal standard, but that is not the present case.

133 Hayne and Callinan JJ at [172]-[173] appear to have decided that the admissions of breach of duty in that case were of no evidentiary use because they "revealed nothing about the respect or respects in which Dovuro ought reasonably to have acted in the light of what it knew or ought to have known when it distributed the seeds" , but do not directly consider the question of admissibility. Kirby J at [116], [121] took a different view to that of Gummow J.

134 Although Dovuro v Wilkins was decided concerning the significance of evidence at a trial in the Federal Court in 2000, it did not discuss any aspect of the application of the Evidence Act 1995 (Cth) to the question of admissibility. While their Honours apparently assumed that the situation under the Evidence Act was the same as under the common law, a case is not authority of proposition that has been assumed rather than decided: CSR Ltd v Eddy [2005] HCA 64; (2005) 226 CLR 1 at [13]; Markisic v Commonwealth of Australia [2007] NSWCA 92; (2007) 69 NSWLR 737 at [56] and cases there cited.

135 Neither did the argument in the present case deal with any effect that the introduction of the Evidence Act 1995 (NSW) might have had to the pre-existing common law concerning admissibility of admissions of mixed questions of fact and law. In those circumstances, I prefer not to rest my decision on whether the subsequent conduct in issue in this case is an admission.

Another Basis for Availability of Post-Contractual Conduct - As Facts Basing An Inference

136 Spigelman CJ in County regarded the Transfer Request and the crediting of the June interest as both being post-contractual conduct that was available material for the ascertainment of the terms of contract. However his reasoning did not depend on either of them being an admission. His Honour's judgment contains several different themes.

137 First , County involved a contract whose terms:

"must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definite form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?" ([7]).

Concerning such a case all the surrounding circumstances are to be considered: ([8]-[13]).

138 Second , even concerning wholly written contracts, extrinsic evidence, at least of pre -contractual events, may be used to identify the subject matter of a contract ([14]-[16]), so the same must be the case for contracts not wholly written ([17]). His Honour does not decide to what extent post-contractual conduct may be used to identify the subject matter of a wholly written contract: ([18]-[19]).

139 Third , where a contract is oral, post-contractual conduct may be used to ascertain the subject matter of the contract: ([17], [20]). Such use of subsequent conduct is justified when it is "relevant, on an objective basis, to the identification of the subject matter of the contract or the determination of the necessary terms, as distinct from deciding the meaning of words": ([21]-[25]). Such subsequent conduct is relevant in that way when "what was done later [is] a basis for inferring what was agreed when the contract was made, or as establishing later additions or variations" ([27], citing Browne LJ in Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213 at 1229.

140 I respectfully agree with Spigelman CJ's analysis. Other authority that where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact is collected in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 at [90].

141 There is a vast difference between the task that is involved in interpreting a wholly written contract, and the task involved in finding what has been agreed in a contract that is not wholly in writing. The difference between those tasks in itself makes a vast difference between the circumstances in which post-contractual conduct can be relevant for the respective tasks.

142 Where there is a contract that is wholly in writing, there is no doubt what the contract is - it is the writing. The task of interpretation is ascertaining the meaning that the bystander who knows all the relevant surrounding circumstances would understand from the parties using the words in that writing. The admissibility of evidence for interpreting a wholly written contract is decided by reference to whether it is able to assist in ascertaining the meaning that the bystander who knows all the relevant surrounding circumstances would understand from the parties using those words. Save in the case of post-contractual events providing retrospectant evidence of a surrounding circumstance that was known to the parties at the time of contracting, the view favoured in this court is that post-contractual conduct cannot assist in that task, and thus is not admissible, or if admitted cannot legitimately be used in that task: the cases cited by McColl JA in County at [161] ([118] above).

143 By contrast, the task in ascertaining what are the terms of a contract that is not wholly in writing is quite different - the task is finding as a fact what the parties have agreed. A range of post-contractual conduct could be relevant to ascertaining what the parties have agreed. For example, their conduct in carrying out the contract could itself be objective evidence of what they had agreed, an admission of one of the parties could assist in ascertaining what they have agreed, and business records created to record or report on the contract rather than carry it out could also assist in that task.

144 A different task again is deciding whether particular writing is or is not a contract. The cases cited by McColl JA in County at [161] show that the admissibility of conduct that is subsequent to the writing is well recognised for the purposes of that task. That is because that task is a specialised subcategory of the task of " ascertaining what has been agreed " , and subsequent conduct like the parties continuing to negotiate, or failing to act at times when action would be called for if they had in truth made a contract, can assist in deciding whether the particular writing has been agreed on: cf Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [99]-[106].

145 Spigelman CJ's analysis would permit subsequent conduct to be used to ascertain the terms of a contract that was wholly or partly oral even if the party to the litigation against whom the evidence was sought to be used was not party to the contract in question, or even if no party to the litigation had engaged in the subsequent conduct in question. The subsequent conduct is an objective matter that operates as retrospectant evidence of what the parties to the contract had earlier agreed.

146 Applying Spigelman CJ's analysis to the present case, the conduct of MSP sending the Progress Claims to Mr Young, and of Mr Young in paying the first five of them, could rationally affect a decision about whether they had earlier agreed that Mr Young had entered the contract with MSP in his own right. Conversely, the conduct of MSP in sending the second versions of Progress Claims No. 6 and No. 7 to the Developer, and the Developer's conduct in paying those Progress Claims and the insurance premium, could rationally affect a decision about whether the Developer was obliged to make those payments, and thus about the identity of the contracting parties. The ultimate decision about whether Mr Young contracted as agent for the Developer is a matter as to the weight of those respective pieces of evidence, and how they relate to other evidence that is relevant to identifying the contracting parties.

147 Counsel for the Developer submits that MSP's internal daily reports ([72] above) are admissible notwithstanding that they were not communicated to either Mr Young or the Developer. He submits that they are admissible because they are conduct of MSP which is consistent only with its understanding that its contract was with Modern Demolitions, and are an admission that is admissible against QBE. Even if they were an admission, their weight would be negligible.

148 While an admission by a party is one type of post-contractual conduct that can be used to ascertain the terms of a contract not wholly in writing, the question of the "admission" of Mr Browne requires some separate consideration, that I will give it next.

149 It is unnecessary for present purposes to consider the matters left open in Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [2] and [59], because those matters related to the availability of subsequent conduct to identify the parties to a contract that was wholly in writing.

The "Admission" by Mr Browne - Capacity to Make Admission

150 The judge found that the last of the questions and answers of Mr Browne that I set out at [79] "amount to an admission, to the extent that Mr Browne was able to make it, that Mr Young was the agent of [the Developer]". However, this finding fails to decide to what, if any, extent Mr Browne was able to make an admission on the Developer's part in his evidence in the witness box.

151 The trial judge cannot have been using the word "admission" in the sense it has in the Evidence Act . This is for three reasons.

152 First, the Dictionary to the Evidence Act provides:

" admission means a previous representation that is:

(a) made by a person who is or becomes a party to a proceeding (including a defendant in a criminal proceeding), and

(b) adverse to the person's interest in the outcome of the proceeding.

...

previous representation means a representation made otherwise than in the course of giving evidence in the proceeding in which evidence of the representation is sought to be adduced."

Because Mr Browne's answers to questions in cross-examination were given in the proceedings, they were not "previous representations" and therefore cannot be "admissions" for the purposes of the Evidence Act .

153 Secondly, the concept of an admission in the Evidence Act (and previously under the common law) serves only to render admissible evidence which would otherwise be inadmissible by virtue of the hearsay or opinion rules. It is important to keep in mind the way in which the Evidence Act deals with admissibility of evidence, and the use to which admitted evidence can be put. The starting point, as I have said above at [102], are ss 55 and 56. Section 56(1) provides that " except as otherwise provided by this Act, evidence that is relevant in a proceeding is admissible in the proceeding " . Section 55 defines " evidence that is relevant in a proceeding " to mean "evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding".

154 The remaining provisions of Part 3 operate in one of two ways. First, some provisions create exceptions to the general rule in s 56(1), rendering inadmissible evidence that would otherwise be admissible . Secondly, some other provisions create exceptions to those exceptions, rendering admissible evidence that would otherwise be inadmissible .

155 The concept of an admission in the Evidence Act falls into the latter category. Section 81(1) provides that " [t]he hearsay rule and the opinion rule do not apply to evidence of an admission ." The remainder of Part 3.4 - Admissions is directed towards creating specific exclusionary rules to supplement the general rule of s 81(1). There is no suggestion that Mr Browne's answers would otherwise have been inadmissible as hearsay or opinion evidence.

156 Thirdly, Mr Browne was not himself a party to the litigation. The circumstances in which an admission made by somebody other than the party to litigation personally can be admitted against that party are determined in accordance with s 87:

"(1) For the purpose of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that:

(a) when the representation was made, the person had authority to make statements on behalf of the party in relation to the matter with respect to which the representation was made, or

(b) when the representation was made, the person was an employee of the party, or had authority otherwise to act for the party, and the representation related to a matter within the scope of the person's employment or authority, or

(c) the representation was made by the person in furtherance of a common purpose (whether lawful or not) that the person had with the party or one or more persons including the party.

(2) For the purposes of this section, the hearsay rule does not apply to a previous representation made by a person that tends to prove:

(a) that the person had authority to make statements on behalf of another person in relation to a matter, or

(b) that the person was an employee of another person or had authority otherwise to act for another person, or

(c) the scope of the person's employment or authority."

157 The time when the representation was made was the time at which Mr Browne gave evidence. It is not reasonably open to find that at that time he had authority to make statements on behalf of the Developer. Nor is it open to find that at the time when the representation was made he was an employee of the Developer, or that he had authority otherwise to act to the Developer and the representation related to a matter within the scope of his employment or authority. Nor is it open to find that Mr Browne made the representation in furtherance of a common purpose that he had with any party to the litigation.

158 For these three reasons, Mr Browne's statements in the witness box could not of themselves be "admissions" (as defined in the Evidence Act ) by the Developer. He could, of course, give evidence in the witness box of some admission that the Developer had earlier made, but that was not the nature of the evidence on which QBE seeks to rely.

159 Furthermore, the Developer submits on the appeal that Mr Browne was not the agent of the Developer for the purposes of giving evidence. I agree.

160 The fact that the Developer called him as a witness in its case is not enough of itself to make Mr Browne the agent of the Developer. There was no basis for concluding that, at the time he gave evidence, he had any ongoing office or role with the Developer.

161 Sometimes a concession that is made in the evidence of a party or a relevant agent of a party is given particular weight because it is the party who makes the concession. Sometimes such concessions made in evidence are referred to as "admissions" . The reasons given at [157] above also mean that Mr Browne's statements were also not capable of being admissions (in the non-technical sense of "concessions" ) .

The "Admission" by Mr Browne - Weight

162 In any event, I would not accord any weight to the evidence of Mr Browne that is said to be an admission. Mr Browne acknowledged that his understanding was that Mr Young had contracted with MSP "for an and on behalf of" the Developer. While contracting "for and on behalf of" another entity would most naturally be taken as being an acknowledgment of agency, it could also be a recognition that the contract was entered for the benefit of that other entity.

163 If his evidence is taken to be an acknowledgment that he understood Mr Young to be the Developer's agent, it is contradicted by the other evidence of Mr Browne, given very shortly afterwards, quoted at [80] and [82] above. That later evidence addresses more explicitly the question of whether Mr Browne understood that Mr Young was acting as the Developer's agent, and Mr Browne denied that that was his understanding. There was no attack on Mr Browne's credit.

164 Further, Mr Browne's understanding of the contractual position was not necessarily complete. The judge said, at [54], and evidently accepted:

"Although a number of documents were shown to Mr Browne which included his name he said he could not recall seeing them and this was because the nature of his consultancy was such that he did not receive all the relevant correspondence."

165 Even acting on the assumption that Mr Browne was able in the witness box, at a time when he was not shown to have any ongoing role or relationship with the Developer, to make admissions (in the sense of concessions) on behalf of the Developer, the "admission" by Mr Browne upon which the judge relied is far outweighed by other evidence pointing to MSP being a subcontractor to Mr Young.

Agency - Decision

166 In my view the Judge was mistaken in concluding that Mr Young contracted with MSP as agent for the Developer. There is no evidence of any document or conversation whereby Mr Young became the agent of the Developer, for the purpose of entering the contract with MSP, or for any purpose whose scope extended to entering the contract with MSP. There is no evidence of there being any prior relationship between the Developer and Mr Young, before Mr Young was invited to quote for the excavation work at No 5.

167 While it was Mr Young who recommended to Mr Browne that MSP be used for the retention or shoring system on the site, Mr Browne said that the meeting at the Trades Union Hotel was arranged "so that the system could be explained to Mr Mao and myself before we made any decision" . The latter part of Mr Browne's account of the conversation at the Trades Union Hotel ([46] above) shows Mr Spanos treating Mr Browne as the person who needed to be convinced about the appropriateness of using sheet piling for the site. However, while these matters suggest that it was necessary for Mr Browne and Mr Mao to receive some information about MSP's system before they would permit it to be used on the site, that in itself is neutral between whether the system would be used pursuant to a contract between the Developer and MSP, or whether the system would be used pursuant to a sub-contract that Mr Young entered with MSP.

168 In my view, the sequence of quotations supports MSP being a sub-contractor to Mr Young. The first quotation that Mr Young submitted to Mr Browne on 27 May 2002 ([44] above) was for a price of $86,185 inclusive of GST for the excavation and removal of sand. Mr Young's letter to the Developer of 5 June 2002 ([60] above) quoted a contract price of $421,400 inclusive of GST. A price of that order was plausible only if it related not only to excavation and removal of the sand, but also the work of sheet piling.

169 It will be recalled that Mr Young had made some handwritten annotations on the page of the quotation dated 3 June 2002 that he had received from Mr Spanos ([59] above). The figure of $326,700 written there is readily understandable. A price of $45,000 for the block work, plus GST on that sum, equals $49,500. When that is added to the price of the temporary retention system itself ($277,200 inclusive of GST - [53] above) one comes to the sum of $326,700.

170 Adding that to the $86,165 inclusive of GST that Mr Young had previously quoted for the excavation and removal of sand alone ([44] above) one comes to a total amount of $412,865. Thus the contract price quoted in the letter of 5 June 2002 of $421,400 inclusive of GST has more commercial plausibility if it related to work that included the sheet piling.

171 Further, Mr Young sent the letter of 5 June 2002 to the Developer only after Mr Young had received the quotation from MSP of 4 June 2002. That quotation was addressed to Mr Young, proceeded on the basis that it was an offer that Mr Young could accept, and that if he accepted he would be liable to pay. Mr Young in fact accepted the quotation.

172 I do not agree that the letter of 5 June 2002 from Mr Young to the Developer (set out at [60] above) is indicative of Mr Young acting as the Developer's agent. When the letter says, "these works will provide two contractors" , and identifies them, the natural reading seems to me to be that "these works" are the works to be performed pursuant to the contract between Modern Demolition and the Developer. Further, the fact that a single lump sum price was quoted by Mr Young, and the fact that the total lump sum price appears to allow Mr Young a small profit margin concerning the work to be done by MSP, suggests that Mr Young was undertaking contractual responsibility for all the work for which Mr Young was quoting. Item 5 of the "overall lump sum price inclusions" clearly related to the work to be done by MSP. It would have been inappropriate for Mr Young to include this item in a contract if that contract did not extend to MSP's work.

173 While Mr Young's letter of 5 June 2002 said that the quotation from Modern Demolition and MSP would be supplied, that does not elucidate the purpose for which the quotation from MSP would be supplied. There is no implausibility in the proprietor of a building site wishing to know the margin its head contractor was proposing to obtain concerning work done by a subcontractor. In any event, it appears that what Mr Young provided to Mr Browne was just the page of the quote from MSP that contained the price, not the entire quotation.

174 I do not agree with the judge's view that the statement that "the entire job will be overseen for entire contract by an external engineer" removes the suggestion that Mr Young was to monitor the operations of MSP. Rather, it is consistent with Mr Young having as his responsibility the organisation of the supervision, even though at least some of that supervision would be carried out by an engineer.

175 The fact that the letter of 5 June "does not provide any instruction by [the Developer] for Modern Demolition to subcontract with MSP" is in my view of no significance. A letter from Modern Demolition to the Developer would hardly be expected to contain any such instruction.

176 The conduct of MSP sending to Modern Demolition the eight progress claims, and Modern Demolitions paying the first five of them, is in my view a significant pointer to the contract being between MSP and Mr Young. The invoices specifically stated that they were claims under the Building and Construction Industry Security of Payment Act 1999 . That Act commenced operation on 26 March 2000. Its provisions were so wide-reaching concerning the manner in which payments for building work were to be claimed and made that it is inevitable that it promptly became well known in the building industry. Under s 13 of that Act as it was at the time:

"(1) A person who is entitled to a progress payment under a construction contract (the claimant ) may serve a payment claim on the person who under the contract is liable to make the payment.

(2) A payment claim:

(a) must identify the construction work (or related goods and services) to which the progress payment relates, and

(b) must indicate the amount of the progress payment that the claimant claims to be due for the construction work done (or related goods and services supplied) to which the payment relates (the claimed amount ), and

(c) must state that it is made under this Act."

177 That documents in the form required by the Act were sent by MSP to Mr Young, and paid by him, are in my view significant acts on the part of both of them, consistent with there being a building contract relating to work that included installation of sheet piling, and under which the contract value of the contract works was $277,200 inclusive of GST.

178 Another item of subsequent conduct that can be taken into account for the purpose of deciding who the contracting parties were was the Developer's payment of the later versions of Progress Claims No. 6 and 7 ([73] and [74] above) direct to MSP. However, the significance of that conduct is substantially less than the significance of all the progress claims having been sent initially by MSP to Mr Young, bearing in mind that the later versions of Progress Claims No. 6 and 7 were only sent to the Developer around the time that Mr Spanos said there were concerns about Mr Young's financial position.

179 While QBE points out that Mr Spanos said that it was around October 2002 that he had concerns about Mr Young's financial position, and the second version of Progress Claim No. 6 was sent in September 2002, Mr Spanos did not identify this timing by reference to any document, and I would not regard his evidence about it as offering great precision. The second version of Progress Claim No. 6 was sent to the Developer long after the first version of Progress Claim No. 6 had said it was due, on 19 July 2002. There is a ready explanation of why the Developer would pay those progress claims even if it did not have a contractual liability to do so. The Developer had a partly completed building job, with a subcontractor on site whose ongoing cooperation was needed to complete the job.

180 I do not attach particular importance to the Developer's conduct in paying the insurance premium that covered MSP. The quotations were silent about which of the parties involved in the building project would bear the expense of any insurance. It does not strike me as unusual that the principal of a building job would arrange insurance that covered contractors on the site, including a subcontractor.

The Notice of Contention

181 QBE, by its Notice of Contention, seeks to support the judge's finding of agency by relying on the terms of the original Notice of Cross-Claim that the Developer filed. One paragraph in the latter document asserts:

"In 2002 and at all material times thereafter, the [Developer] retained [MSP] through Rod Young, who was trading as Modern Demolition, to carry out on the [Developer's] behalf certain works ..."

182 Mr Mao verified that Notice of Cross-Claim by affidavit.

183 By the time of the trial, that Notice of Cross-Claim had been amended. The corresponding paragraph of the Amended Notice of Cross-Claim said:

"In 2002 and at all material times thereafter the [Developer's] contractor, Rod Young, trading as Modern Demolition, ... retained [MSP] to carry out certain works ..."

The Amended Notice of Cross Claim was also verified by Mr Mao on affidavit. Mr Mao did not give evidence.

184 In Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 Mason CJ and Brennan J at 85-86 reaffirmed the traditional view that a pleading is an outline of the case a party wishes to present, not an admission. However, at both 85 and 86 their Honours noted that the pleading with which they were dealing was not verified on oath.

185 There was no submission made to us about whether a verified pleading could be an admission - rather, the appeal proceeded on the assumption that it could be. I will likewise assume, without deciding, that a verified pleading is capable of containing an admission.

186 However, the type of admission that is contended to arise from the pleading in the present case is not like the situation that arises when a plaintiff contends in a statement of claim that some particular fact or situation exists, the defendant by its defence admits the correctness of that allegation, and the trial proceeds on the basis of those pleadings. Concerning that sort of formal admission, it is not possible for the matter that has been admitted to be controverted in Court, unless the Court gives leave for the admission to be withdrawn: Nominal Defendant v Gabriel [2007] NSWCA 52; (2007) 71 NSWLR 150 at [110]-[111]. In the present case, the admission on which the Notice of Contention relies was not part of the pleadings on which the case went to trial. Accordingly, the admission has no higher status than an item of evidence that is capable of being taken into account along with all the other evidence on the topic of agency.

187 It is far outweighed by the evidence supporting Mr Young having contracted with MSP in his own right.

Issue 2 - The Agreement Concerning Mr Young

188 The Judge recorded at [82], and apparently accepted, that Mr Spanos "dealt with Mr Young as the site manager/builder" .

189 Once he had found that the Developer was in breach of s 177, the Judge continued:

"201. Turning to causation, I think that [the Developer's] actions, in breach of its duty, caused damage:-

(a) By implementing a system outside the approved contiguous wall requirement [the Developer's] conduct allowed MSP to do the work which led to the damage.

(b) By not notifying the plaintiff of the intended use of the MacDonald system [the Developer] prevented the plaintiff from taking steps to prevent damage to her property.

(c) [The Developer] exercised no control over the activities of MSP, including ensuring that any caveats to the system envisaged by Jeffery and Katauskas were addressed, so that an inappropriate and ineffective system was allowed to be used and to cause damage.

202. Having found both MSP and [the Developer] liable to the plaintiff for a breach of Section 177, the next step is to apportion liability between them, as required by Section 109ZJ (EPA).

203. I think that MSP's contribution far outweighs that of [the Developer]. MSP not only applied its system without proper precaution but probably also carried out its activities negligently (as highlighted in the construction of the 'Fagg' temporary pile). It is true that [the Developer] allowed this system to be used but the substantial damage was caused by MSP's implementation of its system. In my view a split of 75% against MSP is appropriate, leaving a contribution of 25% to [the Developer]."

The "Fagg" temporary pile, which the judge referred to at [203], was the pile excavated in the course of the hearing that was found to be inadequate.

190 On 2 July 2009 the Court made orders, with the consent of Mrs Marcolongo, the Developer and QBE, that included the following notes:

"1. Note the agreement of all parties that for the purposes of s 109ZJ of the Environmental Planning and Assessment Act 1979 (" Act "), in determining the proportion of the damages (if any) to be awarded against the First Defendant, McDonald Sheet Piling (NSW1) Pty Ltd [sic] is to be considered a 'contributing party' to the action regardless that the said company has been deregistered.

2. Note the agreement of all parties that it will not be alleged by any party that, had Rodney Young trading as Modern Demolitions been a party to the action, he would have been a 'contributing party' to the action for the purposes of s 109ZJ of the Act."

191 The Developer submits that the agreement precluded any reliance by either the Developer or QBE on the matters that the judge identified in [201(b)] and [201(c)] of his judgment as giving rise to liability on the part of either defendant. It submits that responsibility to exercise control over MSP fell to Mr Young, because MSP was Mr Young's subcontractor and because there was no contractual relationship between the Developer and MSP. The Developer submits that thus any failure to exercise control over MSP, if causative of damage to Mrs Marcolongo, gave rise to a liability, in respect of which Mr Young, had he been a party to the action, would have been a contributing party. The Developer also submits that it was Mr Young's responsibility to obtain consents from neighbours for the installation of ground anchors, and thus any default in warning the neighbours of the commencement of sheet piling work was the responsibility of Mr Young, concerning which, had Mr Young been a party to the action, he would have been a contributing party. Thus, it submits, the judge was precluded by the agreement from reasoning as he did in [201](b) and (c).

192 I do not agree.

193 Clause 1 of the agreement was that MSP would continue to be a "contributing party, even though it had been de-registered" . In finding against QBE, the judge acted in accordance with Clause 1 of the agreement.

194 The evident purpose of s 109ZJ was to alter the situation that had existed under the previous law if numerous defendants had all caused defective building work, and judgment for the total damage sustained was given against each of them. In that situation, even if they had cross-claims for contribution amongst each other, if one of the defendants who had contributed to the damage was unable to pay its proportionate share of the damages it would be the remaining defendants who would be required ultimately to bear that contributor's portion of the damages. Further, the plaintiff would be free to choose to execute against whichever of the defendant was most able to pay, and leave that defendant to enforce its rights of contribution as best it could. Section 109ZJ enabled a successful plaintiff to receive a judgment against a contributing party only for the proportionate amount of the total damages for which that contributing party was held to be responsible. It transferred to the plaintiff both the risk of insolvency of one of the contributing parties, and the task of enforcing against each contributing party.

195 The agreement was entered on 2 July 2009, about a month before the hearing, which began on 3 August 2009. It is clearly designed to take account of Mr Young ceasing to be a party to the action. Its effect is that any liability that would have attached to Mr Young, had he remained a party to the action, would be part of the liability that the judge allocated between the Developer and QBE. Why the parties would enter into such an agreement is not established on the evidence, though an answer might lie in the common practice of a single insurance policy covering all the contractors who work on a building site, and the cost that would be involved in having QBE representing the interests of MSP, and there being separate representation for Mr Young, at a trial that was not likely to be short.

196 Without assistance from the purpose of the agreement, the task of the court is to apply its words. Under the definition of " contributing party" in s 109ZJ, whether someone is a " contributing party" depends on that person being a defendant or other party, and the court making a particular type of finding concerning that person. If the court does not make that type of finding, the person is not a " contributing party" . The agreement in Clause 2 was that none of the remaining parties in the action would ask the judge to find that Mr Young would have been a " contributing party" , had he remained a party to the action. It was not an agreement that the judge was to disregard all the consequences of any actions of Mr Young, for all the purposes of the action.

197 In apportioning liability between the Developer and QBE, without taking into account any liability that Mr Young would have had had he been a contributing party, the judge was acting in accordance with Clause 2 of the agreement. The judge committed no error in proceeding in this way.

Issue 3 - Developer Did Not "Do Anything" in Relation to its Own Land that Removed Support to Mrs Marcolongo's Land

198 There is some peculiarity in the wording of section 177(2) Conveyancing Act in that it imposes "a duty of care not to do anything on or in relation to land ... that removes the support provided by the supporting land to any other land...". It is apparent, from the wording of s 177(1) that this is intended to be a duty of care of the type known in "the common law of negligence". Such a duty is always one to take reasonable care. Thus, the duty that s 177(2) imposes is a duty to take reasonable care "not to do anything on or in relation to land ... that removes the support provided by the supporting land to any other land...".

199 As the judge recorded at [186], there was no issue in the court below that each of the Developer and MSP were subject to the duty of care created by s 177. However, there was active dispute about whether they had breached it.

The Judge's Findings on Breach

200 At [175] his Honour made findings:

"(a) ... the damage alleged to have occurred on 20 July 2001 did in fact occur. This includes damage consequent upon insertion of the temporary piles prior to 20 July 2002.

(b) The damage was caused by the actions of MSP in preparing the site and then, using high frequency vibrations, inserting the sheet-piling on 20 July ... ."

201 The judge recorded (at [196]) that in the Court below Mrs Marcolongo submitted that the following matters arose from a finding of a contractual relationship between the Developer and MSP:

"(a) [The Developer] carried out, or at least permitted MSP to carry out, a system of wall retention that contravened the conditions of the development consent.

(b) [The Developer], by MSP, installed ineffective underpinning under No. 7. In addition it failed to have the underpinning properly certified by an engineer.

(c) [The Developer] took part in the removal or reduction of support provided by No. 5 to No. 7.

(d) [The Developer] failed to supervise retaining work, an allegation which includes allowing the demolisher, Mr Young, to have a supervisory capacity when he was not qualified to do so.

(e) [The Developer] allowed MSP to work without ensuring the integrity of the ground beneath No. 7.

(f) [The Developer] allowed MSP to carry out its operations without first informing the plaintiff about the works to enable her to take advice on their potential damage to her property."

202 The Judge did not find that each of those submissions was a basis for finding the Developer in breach of its duty under s 177. He recorded, at [197], the following contentions of the Developer:

"(a) Even if there was a contract between [the Developer] and MSP, [the Developer] was entitled to rely on MSP's expertise as an independent contractor experienced in the type of work being carried out.

(b) The nature of the duty under Section 177 is a duty "not to do anything ..." so that it could only be liable for a positive act on its part.

(c) Nothing done by [the Developer] caused the damage at No. 7."

He made no decision about the first of those contentions, implicitly accepted the second, and rejected the third.

203 His finding, at [198] of the reason why the Developer was in breach of its duty under s 177 was specific and narrow:

"[The Developer] was aware, or at least must be taken to have been aware, of the conditions of the development consent and the certification for the construction of No. 5. [The Developer] chose (even if via Modern Demolition) to construct No. 5 in contravention of the conditions. The conditions relating to the use of a contiguous pile wall concerned the maintenance of the support provided by No. 5 to No. 7. In other words, the contiguous pile wall was required as a substitute to the support provided by the ground beneath No. 5. By choosing to go outside the conditions relating to this support, [the Developer] did something 'in relation to land ... that removes the support provided by the supporting land ...'."

204 The Judge found (at [199]) that the Developer could not exonerate itself because Jeffery and Katauskas had referred to sheet piling as a potentially suitable system for the site. The Judge found that the Developer "ignored the caveats and requirements suggested by the report . There is no evidence of an assurance by MSP that its system was appropriate. Somewhat to the contrary, MSP was concerned about its insurance position in relation to neighbouring properties ... " ([199]).

205 The Developer submits that the judge's finding of breach against it was dependent upon his finding that Mr Young had been the Developer's agent when contracting with MSP. It submits that the judge's finding was in substance that by retaining MSP to construct a sheet piling wall the Developer did something in relation to land that removed the support provided by the supporting land.

206 I do not agree that the judge's finding of breach on the part of the Developer was dependent upon his finding concerning agency. His finding at [198] was that the Developer's breach lay in "choosing to go outside the conditions" imposed by the construction certificate. The Developer's choice in this respect fundamentally affected the way in which the development on No. 5 thenceforth proceeded, regardless of whether its choice came to be implemented through Mr Young acting as its agent to enter a contract with MSP, or through Mr Young engaging MSP as his own subcontractor once he had received the permission of the Developer to do so.

207 The Developer further submits on this appeal that the decision to use sheet piling rather than contiguous piles was insufficient to show that it had done anything in relation to land that removes the support provided to other land. The Developer's written submissions stated:

"The decision to use sheet piling was a decision to do something to ensure support for the neighbouring land. It was not established that the use of sheet piling per se was responsible for damage to the Respondent's land. Rather, both as his Honour concluded (at paragraph 175 of the Judgment) and the evidence suggested, the damage was caused by the inadequate preparation of the site including the insertion of temporary piles."

208 The judge did not find (at [175]) that "the damage was caused by the inadequate preparation of the site ..." . Rather, his finding (at [175]) is that the damage was the consequence of both inadequate preparation of the site and the high frequency vibrations that were inherent in the sheet piling system. The insertion of the temporary piles was an inherent part of the sheet piling system.

209 Even though the decision to use sheet piling was made with a view to providing support for the neighbouring land, the judge was right, in my view, in concluding that the Developer had done something in relation to land that removed the support. The inquiry that s 177(2) calls for is:

(i) whether the defendant has done anything on or in relation to land;

(ii) if "yes" to (i), has what the defendant did in fact removed the support, and

(iii) if "yes" to (ii), did the defendant exercise reasonable care in doing that particular thing.

210 In my view, the judge was right in concluding that permitting the sheet piling system to be used was "doing something" in relation to land. It involved the Developer making rudimentary enquiries, and then giving its approval for the adoption of that system. When it was a system to be used on the land, that giving of approval was clearly " in relation to " the land.

211 Even though it can be accepted that the purpose of the Developer in using the sheet piling system was endeavouring to support the neighbouring land, that does not answer the question whether permitting the use of the sheet piling system was something that "removed the support provided by the supporting land ..." . The characterisation of the adoption of the sheet piling system should be carried out bearing in mind the function that the sheet piling system had in the overall building job. Making the excavation would inevitably remove the support that the excavated earth had provided to the adjacent land. The sheet piling system was intended to provide an alternative means of support for the adjacent land. However, it should be understood as an integral part of an activity that removes support from the adjacent land. That is exactly how the judge treated it - the contiguous pile wall had been intended as "a substitute for the support provided by the ground beneath No. 5" , and the Developer had chosen to alter that substitute means of providing support.

212 In my view, the judge was right in deciding that the Developer's decision to use sheet piling was made without exercising reasonable care.

213 In the present case, in my view, it was manifest that the making of an excavation metres deep on the Developer's land, where the excavation was quite close to the boundary, created a risk of removal of support to adjacent land. The Developer was thus required by s 177(2) to exercise reasonable care in approving the particular construction method to be adopted, to prevent that removal of support from adjoining land from resulting in damage.

214 Mr Mao had attended a consultants meeting on 22 October 2001, along with representatives of various professional advisors, including Mr Ray Kusturin, of Henry & Hymas Pty Ltd, Engineers. The minutes of the meeting record that Mr Kusturin advised that the carpark retaining walls were to be either geocast or contiguous piling. That was noted. There is no evidence of anyone on behalf of the Developer seeking advice from anyone with professional engineering qualifications about the appropriateness of departing from Mr Kusturin's recommendation. Henry & Hymas prepared detailed plans for construction of the building, including details of the contiguous pile wall. From the fact that those plans were submitted to the certifier, and came to be part of the construction certificate, it is apparent that the Developer was aware of them.

215 It is also highly relevant that the decision to adopt sheet piling involved a departure from the construction certificate. Section 76A EPA Act has the effect that the Developer was prohibited from carrying out development on its land unless that development was carried out in accordance with the development consent. Section 80(12) EPA Act provided that if a construction certificate was issued, that certificate and any approved plans and specifications issued with respect to it, are taken to form part of the relevant development consent (other than for a purpose not presently relevant). The manifest purpose of the construction certificate requiring contiguous pile support of the excavation was to protect the neighbouring properties. Departing from a course of conduct that the law requires to protect the property of others is in itself evidence of a failure to take reasonable care: Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 459 per Mason J; Pusell v Grabham [1963] NSWR 172. In Tucker v McCann [1948] VR 222 Herring CJ said, at 225:

"Now it is the duty of everyone to know and to obey the law, and so to know and obey the precautions laid down in the regulations. And prima facie a reasonably prudent man will take them. And whenever a person is under a duty to someone else to take care, his failure to take those precautions or any of them is a matter that must be taken into account in determining the question whether he has or has not exercised due care. But this question is one of fact to be determined in the light of all the circumstances, and a breach of the regulations is only one of such circumstances. Such a breach must, therefore, be considered along with all the facts of the case, it cannot be considered in vacuo as it were. It is thus no more than a piece of evidence of want of reasonable care on the part of the person guilty of such breach."

216 In circumstances where the construction certificate required the adoption of contiguous pile support, the fact that Jeffery and Katauskas had, in a report that pre-dated the issue of the construction certificate, suggested that sheet piling might appropriately be adopted in some circumstances has little bearing on whether the Developer exercised reasonable care in departing from the requirements of the construction certificate, once that certificate had issued.

217 The Developer submits that MSP had had years of experience in this type of work and provided assurances about the involvement of engineers in its work. The Developer trusted a company with which it had had no previous dealings, but that was apparently competent, to do the work in a way radically different from the site-specific engineered construction plan that had been incorporated in the Development Consent. In my view this is insufficient to justify departure from the Development Consent, adherence to which was a legal requirement.

Issue 4 -Causation of Damage

218 The judge made no mention of s 5D Civil Liability Act in his reasoning on causation. It was common ground on the appeal that the question of causation should be analysed in accordance with s 5D.

219 Section 5D only came into effect on 6 December 2002, after accrual of the various causes of action sued on in the proceedings. However, Schedule 2 [14] of the Civil Liability Amendment (Personal Responsibility) Act 2002 inserted a clause into the Schedule of the Civil Liability Act 2002 which provided that:

"The amendments to this Act made by the 2002 amending Act extend to civil liability arising before the commencement of the amendments, but do not apply to or in respect of proceedings commenced in a court before that commencement."

As proceedings in the court below had not been commenced by 6 December 2002, s 5D applied to the question of causation.

Application of Section 5D to [201(a)]

220 Section 5D, so far as relevant, provides:

"(1) A determination that negligence caused particular harm comprises the following elements:

(a) that the negligence was a necessary condition of the occurrence of the harm ( factual causation ), and

(b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused ( scope of liability ).

...

(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent:

(a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and

(b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest.

(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party."

221 The Developer submits that it is insufficient to establish causation that a breach of duty sets the scene in which damage was suffered. It submits that the Developer's permitting the use of the sheet piling system merely set the scene for MSP's negligent conduct, in carrying out its contract, to cause the damage. As will emerge, no such limited approach is justified.

Error In [201(b)]?

222 The Developer submits that the judge was mistaken in [201(b)] of the judgment ([189] above), because a failure to warn or advise can only be causative of loss if a warning or notification, if given, would have been acted upon in a way that prevented the loss. It submits that there was no basis for concluding that if either Mrs Marcolongo or her son, had been notified of the intended use of the system they would have done anything either to prevent the work from proceeding, or to arrange their own underpinning.

223 Mrs Marcolongo at all relevant times lived in the building at No. 7. She did not give evidence. She was aged 76 in November 2004, and thus would have been 80 or 81 by the time of the trial in October 2009. The judge did not draw any unfavourable inference from her failure to give evidence, and it is not suggested on the appeal that he was mistaken in that respect.

224 The principal witness for Mrs Marcolongo was Mr Claudio Marcolongo, her son. He was a real estate agent, who had lived in the building at No. 7 for some years, saw his mother almost daily, and acted on her behalf in connection with the building work. He was absent from Sydney at the time the damage occurred, but on his return on about 6 August 2002, he observed the damage to the building. On his own affidavit account, soon afterwards he was approached by Mr Young, who:

"... stated that he needed permission to underpin the north eastern corner of [No. 7] and that this would involve 'jacking the floor back up to the brickwork'. He produced a document for my mother to sign, which she signed. ..."

225 He said, concerning that extra underpinning:

"I was aware that work would be carried out in close proximity to [No. 7], but I assumed that the work would be closely supervised by and [sic] engineer."

226 The Developer also draws attention to Mr Marcolongo's evidence that when he was informed of unauthorised drilling under his mother's property and saw anchors being installed, he complained to Mr Young about it, but that Mr Young did nothing in response. However, Mr Marcolongo himself did not seek any advice, or take any other action.

227 QBE submits that it was open to the judge to infer that if Mrs Marcolongo's consent to the installation of anchors below her property had been sought, the fact of those works contravened the construction certificate would have been exposed, and either she would not have given the consent, or she would have sought expert advice to protect herself from the risks that were later to be realised. The judge recorded, at [39], Mr Marcolongo's evidence that he had never been approached by representatives of the Developer or by Mr Young for permission to install anchors. That is consistent with his later evidence, that he became aware of work being done under Mrs Marcolongo's building in August or September 2002.

228 Mr Robertson submitted, in his oral address in reply, that it would have been open to Mr Marcolongo to give evidence of what he would have done had he been told of the Developer's intention to install ground anchors and temporary piles under his mother's building. He submits that the prohibition in s 5D(3)(b) Civil Liability Act would have applied only to Mrs Marcolongo, not to Mr Marcolongo. He submits that that is because the prohibition is directed to "the person who suffered harm" , and that is Mrs Marcolongo alone.

229 In my view, that construction of s 5D(3)(b) is correct. Even so, the High Court has repeatedly warned that evidence from a plaintiff about what he or she would have done if the defendant had acted otherwise should be treated with caution in cases where the complaint is failure to warn ( Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 at 246, 272-3; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [26], [87]-[89], [158] and [221]; Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 at [226]). The same applies to evidence from someone like Mr Marcolongo who throughout has been acting as though he were the agent of a plaintiff. By comparison with his proved inaction in the face of real damage already sustained, evidence in hindsight from Mr Marcolongo about what he would have done had he known of those matters, would have been of such slight weight that its absence is also of very slight weight.

230 The preferable conclusion is that even if Mr Marcolongo had been notified of the intended use of the MacDonald system, he would not have done anything to prevent it. His later action, once the damage had actually happened, of permitting the remedial works to proceed without seeking any advice or checking what council permissions had been obtained for the doing of the work, is strongly supportive of that conclusion. There was far less occasion for him to be cautious, or alarmed, when the work still lay in the future. It is readily understandable that he would have assumed that the work was being done in accordance with any legally necessary consents, and with proper professional advice.

231 It follows that, in my view, the judge was not justified in regarding the Developer's failure to notify Mrs Marcolongo of the intended use of the MacDonald system as something that caused the damage, by preventing Mrs Marcolongo from taking steps to prevent damage to her property. However, the reason why that is not a separate cause is because of the likelihood that it would never have occurred to Mr Marcolongo (and, through him, Mrs Marcolongo) that there was a real risk that the Developer would do anything as blatantly irresponsible as adopting a method of retaining a deep excavation that differed from the method that had been specifically designed for that site by an engineer and was a legal requirement of the development consent.

Error in [201(c)]?

232 The Developer also submits that the judge was mistaken in [201(c)] of his judgment. It submits that when MSP was an independent contractor to the Developer's own independent contractor, and the Developer had no reason to doubt MSP's expertise in installation of sheet piling, and competence to ensure neighbouring properties were adequately protected, there was no occasion for the Developer to exercise control over the activities of MSP.

233 The Developer further submits that there was no occasion for the Developer to ensure "that any caveats to the system envisaged by Jeffery and Katauskas were addressed" . They submit that the only caveat suggested by the Jeffery and Katauskas report was:

"We recommend that you contact the specialist contractors and obtain their assurance that their systems can satisfactorily be used in these conditions without damaging the nearby structures."

The Developer submits that in substance it obtained that assurance. In circumstances where QBE does not point to any other "caveats to the system envisaged by Jeffery and Katauskas" , I conclude that this criticism by the Developer is made out.

234 The Developer also contends that the statement of the judge in [201(c)] that "an inappropriate and ineffective system was allowed to be used" was not justified on the evidence.

235 The written submissions of QBE do not argue against the contention that the judge was mistaken in [201(c)]. In those circumstances I take it as conceded. However, concerning the judge's statement that "an inappropriate and ineffective system was allowed to be used" , I would point out:

- it is not clear whether the judge is saying that the entire sheet piling system was inappropriate and ineffective, or whether he is saying that the temporary props under the foundation were inappropriate and ineffective.

- it would not be necessary for Mrs Marcolongo to prove that the sheet piling system was inappropriate and ineffective to succeed in proving that that system had been adopted without sufficient care, and that its adoption caused damage to her.

236 Mr Robertson accepts that s 5D(1)(a) Civil Liability Act is satisfied in the present case because "the choice to go with sheet piling was a necessary condition of the damage as it occurred" (AT 31). That concession is consistent with Woolworths Limited v Strong [2010] NSWCA 282 at [50] which held that application of s 5D(1) requires the court to consider the particular harm that the plaintiff in the proceedings has suffered. He submits, however, that it is not appropriate under s 5D(1)(b) to attribute liability to someone who merely puts in place the preconditions that enable another person's negligence to become effective.

237 Mr Robertson, adopting as an approximation that the sheet piling system was installed about a metre from the boundary, submits that the cause of the damage to Mrs Marcolongo's building was defective installation of the temporary piles. He submits that installation of the temporary piles underneath Mrs Marcolongo's building:

"... wasn't a part of the system that was ever described or exposed to [the Developer]. [The Developer] was never asked to approve or otherwise on the evidence. ... As far as [the Developer] was concerned, the system was the sheet piling. .... The fact that MSP chose to use another mechanism which was ineffective is not something that can be in my submission attributed to them. In other words, unless they had knowledge that these temporary piles were going to be used and approved that, then there's no basis for the attribution of cause." (AT 32-33)

238 Reaching a decision concerning that submission requires some examination of s 5D and its role in the law of negligence. In Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; (2009) 239 CLR 420 at [11], [41] the High Court has made clear that a court's decision about causation by negligence must now be approached in accordance with s 5D.

239 The law of negligence operates in a framework of assumptions about how one person in society should act towards another. Those assumptions are involved in the notion of taking reasonable care. The assumptions are incompletely articulated, and come to be understood more through ostensive definition than through explicit exposition. The assumptions are seen as having a sufficiently wide degree of acceptance to be applied to everyone in the society, and a sufficient degree of wide acceptance to be applied by everyone who is given the opportunity to think about and discuss them. Being applied to everyone in a society makes them a fit subject for being the law rather than a private or sectional standard. Being able to be applied by everyone who is given the opportunity to think about and discuss them makes the topic of whether there has been a failure to exercise reasonable care a topic fit to for a jury to apply, as usually occurred in the earlier days of the tort of negligence. The members of a jury might initially have been randomly chosen members of society, but the trial process itself, and the opportunity for discussion in the jury room, provided each juror with the occasion for reflection and discussion about the standard of conduct that was being applied.

240 The question that arises under s 5D(1)(a) of whether a breach of duty is a necessary condition for a particular harm to a plaintiff that follows it in time is purely an objective factual inquiry, dependent on knowledge of how in fact one type of event brings about a different type of event.

241 There are also two different types of normative evaluation involved in the application of s 5D. One of them arises in the inquiry under s 5D(2), of whether, in an exceptional case and where there has been negligence that cannot be established as a necessary condition of the occurrence of harm, that negligence should nonetheless be accepted as establishing factual causation. Section 5D(2) directs the court to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. The occasion for making that sort of evaluation does not arise in the present case. The other arises under s 5D(1)(b), of deciding "that it is appropriate" that the person who has failed to act with reasonable care should be held liable for the particular harm concerning which factual causation has been established.

242 The Review of the Law of Negligence Final Report , September 2002 ( "the Ipp Report" ) that is the avowed source of the Civil Liability Act , recommended that the test for causation should include separate elements of factual causation and scope of liability (Recommendation 29, at [7.49]). At [7.42] the Report says:

" ... a finding that the negligent conduct was a necessary condition of the harm may, by itself, be sought to justify a conclusion that the defendant ought to be held liable for the consequences of the negligence. The point is not that imposition of liability may not be justified, but only that a finding that the negligence was a necessary condition of the harm is not, by itself, sufficient to support that conclusion, because there is an infinite number of necessary conditions of every event. For this reason, the Panel recommends a legislative statement to the effect that the issue of causation has two elements - factual causation and scope of liability - both of which need to be addressed."

243 One of the ways in which the existence of an "infinite number of necessary conditions of every event" is manifested in the attribution of responsibility lies in separating out those necessary conditions that fail, at a general level, to meet a standard of acceptable behaviour by one member of society towards another from other necessary conditions that do not involve such a failure. Evaluation of any action for the purpose of attribution of responsibility recognises that the action occurs in the context or against a background of circumstances and actions that are in themselves neutral or normal for evaluative purposes. In attributing responsibility for a motor car collision, it may well be that the accident would not have happened if one of the drivers had not been invited to meet a friend, supposing that the accident happened en route to that meeting. While the friend's invitation is a factual cause of the accident, it is inappropriate to attribute responsibility to the friend for issuing the invitation. This is because inviting a friend to visit is the sort of thing that is itself part of the ordinary background of social action that is not in itself blameworthy. Suppose instead that the accident would not have happened if one of the drivers had not borrowed the car involved. Whether the owner's lending the car is itself blameworthy, and deserving of the imposition of liability for the accident, will depend on matters such as whether a defect that the owner should have known about was part of the physical cause of the accident, or whether there was no such defect and the accident would not have occurred without negligent driving by the other driver involved. It is the blameworthiness of the particular necessary condition for the accident that makes it appropriate to attribute responsibility to the person who performed that necessary condition. Conversely, if a person's action is a necessary condition of particular harm happening but is not itself blameworthy, that person's action is not seen, for the purposes of attribution of responsibility, as justifying the imposition of liability. That does not involve denying the causal role of the necessary condition, just saying that not all causes deserve the attribution of legal liability.

244 This does not, however, provide an adequate explanation of the operation of s 5D(1)(b). That is because s 5D is concerned with providing for a test for when "negligence caused particular harm" . "Negligence" is defined in s 5 as meaning "failure to exercise reasonable care and skill" . The scope of s 5D is wider than the tort of negligence, because s 5A(1) provides that "This Part [Part 1A - Negligence] applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise." However, the notion of a failure to exercise reasonable care and skill, whether used in the law of tort or in the other contexts to which s 5A(1) refers, already has within it the notion that there has been a departure from proper standards. Section 5D(1)(b) implicitly assumes that there might be some situations in which a person has failed to exercise reasonable care, and that that failure to exercise reasonable care was a necessary condition of the occurrence of the harm, but even so it is appropriate for the scope of the negligent person's liability not to extend to the harm so caused.

245 Deciding whether conduct has failed to meet the standard of reasonable care is an evaluation of the conduct, by reference to standards of how one member of society ought behave towards another. The normative element in that exercise involves applying to the particular alleged breach a standard of how, at a fairly high level of generality, people ought behave towards one another. The focus of s 5D(1) is different to that - it evaluates both the conduct itself and also the connection that there is between a failure to exercise reasonable care, and particular harm that a particular plaintiff suffers following that event.

246 The Ipp Report's total explanation of its concept of scope of liability is at [7.43]-[7.50]. It is reproduced in the Schedule to this judgment. By reference to terminology that the common law used, it identifies some types of situation where it might not be appropriate to hold a defendant liable for the consequences of his failure to take reasonable care. The identified types are situations where:

(a) as a matter of common sense that people would say that the negligence was not a cause of the harm;

(b) the negligence is not the "real cause" or "effective cause" of the harm;

(c) another necessary condition "intervenes" between the defendant's conduct in the harm and "breaks the chain of causation". The example is given of a driver who negligently injures a pedestrian, who is further injured when the ambulance in which she is being taken to hospital is involved in a collision as a result of negligence on the part of the ambulance driver. In that situation, the first driver would not be held liable for the injury resulting from the second accident, notwithstanding that the first driver's negligence was a necessary condition of the harm suffered in the second accident.

(d) the damage is too remote - ie not a reasonably foreseeable consequence of the negligence.

247 The common law used the first three of these concepts as ways of holding that something that was a necessary condition of the occurrence of harm was not "really" a cause of the harm. It then used the concept of remoteness of damage as a way, once a "real" cause had been found, of limiting the damages for which the person who had engaged in the action or inaction that was the "real" cause was held responsible. It was only by use of the concept of remoteness of damage that the common law explicitly recognised that it was limiting liability for the consequences of a wrongful action.

248 Of particular relevance for this case, it did not always happen that identification of a later cause of the harm in question was enough to "break the chain of causation" between the harm and an earlier necessary condition of the harm. The common law has long ago abandoned the "last opportunity rule" as a test of causation.

249 There was some recognition in the common law that the law was applying its own concept of causation, which was not the same as applied in some other fields of discourse. In National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 Windeyer J noted at 590 that:

"Sir Frederick Pollock long ago sounded a warning that 'the lawyer cannot afford to adventure himself with philosophers in the logical and metaphysical controversies that beset the idea of cause'."

See further, Mason CJ's comments in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 509.

250 Thus, the common law searched for "a cause" of a particular harm by the use of concepts like the first three identified. However, this search involved a covert application of evaluative standards, concerning when and why it was appropriate for a person to bear legal liability for his or her actions or inactions. The recommendation of the Ipp Committee that is now embodied in s 5D recognised the common law's implicit reliance on normative assessments in determining causation. The Ipp Committee's recommendation did not suggest that the conclusions at which the common law had arrived concerning when it was appropriate to hold a person responsible were wrong. Rather, its recommendation required that the covert application of evaluative standards become explicit.

251 In Zanner v Zanner [2010] NSWCA 343 this Court held that the notion of common sense that the common law had applied in deciding causation could be used in carrying out the task under s 5D(1)(b): at [12] per Allsop P, and [79] per Tobias JA (Young JA agreeing with both).

252 I respectfully agree. When a jury decided negligence cases under the common law, the question of causation was the province of the jury. The normative standards that were involved in deciding causation were ones that ordinary members of the community understood and could apply. The widely held understanding of ordinary people is often called "common sense" - sense that is common to everyone - and judges adopted and invoked this notion of "common sense" to explain to jurors the sort of connection between failure to exercise reasonable care, and subsequent harm to the plaintiff that warranted finding that the defendant was legally liable. Now negligence cases are decided by judges sitting alone, without the assistance of other fellow citizens to help them decide whether holding a defendant responsible for having acted negligently would accord with common standards of when people ought be held responsible. In this context a judge's decision about whether it is "appropriate", within the meaning of s 5D(1)(b), to hold a defendant liable for the consequences of his negligent act should still be decided by reference to the standards that the general mass of the community would understand and apply. As McHugh J said in Dovuro v Wilkins at [34]:

"If negligence law is to serve any useful social purpose, it must ordinarily reflect the foresight, reactions and conduct of ordinary members of the community or, in cases of expertise, of the experts in that particular community. To hold defendants to standards of conduct that do not reflect the common experience of the relevant community can only bring the law of negligence, and with it the administration of justice, into disrepute."

253 While a judge has some feeling for this simply by being a member of the community, a judge also has available assistance from cases that decide when it is, and when it not "appropriate" to hold a defendant liable for the consequences of his negligence. Insofar as they are decisions about the facts of particular cases they do not operate as precedents, in the sense of cases that provide binding authority for subsequent cases. Rather, they fill the somewhat different role of ostensive definition (definition by showing), that the common law has long used previous cases to perform. Reading a variety of cases that have considered whether a defendant should be held liable for the consequences of his negligence enables one to come to an understanding of the standard by which that appropriateness is to be ascertained.

254 The Ipp Committee's report recognises that whether it is appropriate to attribute to a negligent defendant responsibility for particular harm that results from that negligence depends to some extent on the class of relationship between the plaintiff and defendant. For example, suppose that the defendant is a medical practitioner and the plaintiff his patient who has sustained a rare complication after undergoing an operation that the plaintiff agreed to undergo only because the defendant failed to warn that that complication could arise from that operation. The relationship between plaintiff and defendant would be a relevant element in a conclusion about the appropriateness of attribution of liability. Alternatively, a conclusion about the appropriateness of attribution of liability can have as a relevant element that the defendant is a motor vehicle driver and the plaintiff a passenger in another vehicle. One can see that there are elements of personal reliance and trust in the relationship between medical practitioner and patient that are not exactly parallelled in the relationship between the motorist and passenger in another vehicle, and that can bear upon the community's commonly held ideas about when liability should be attributed.

255 In Zanner the plaintiff was a woman who had been injured when her 11-year-old son accidentally drove a motor vehicle into her while she was standing in front of it. She had permitted him to drive the vehicle, and was aware of his lack of experience. It was argued that no responsibility should be attributed to the son, and that all responsibility fell on the mother. The court rejected that argument. The reasoning by which the argument was rejected illustrates the process involved in applying s 5D(1)(b). Allsop P said, at [12]:

"Injury to the mother was entirely foreseeable should negligence occur. The scope of the risk of harm protected by the duty and created by the breach included injury to the mother. The injury was not coincidental to the breach. It was the direct and immediate consequence of the negligence. The son in the car ran over his mother. The content of the duty and the attenuated standard of care were directed to the exercise of care to avoid injury to the mother in the very manner that occurred. There was no intervening act of a third party or of an abnormal event. The only other causal factor was the negligence of the person (the mother) to whom the duty was owed. There is no reason why the appropriate apportionment of respective responsibility is not best allocated through contributory negligence. Common sense would attribute the mother's injury to the negligence of her son, as well as to her own negligence in putting herself in that position."

256 Tobias JA's reasoning, at [80]-[82] was:

"In my view the respondent's submission that the issue of policy that arises out of a case such as the present concerns the question of responsibility for the conduct and control of motor vehicles should be accepted. It was submitted that it would be a rare case indeed where a motor vehicle case attracted some other policy consideration, once factual causation was established, which would justify a denial of liability on the grounds of causation. Such a rare case may be one where the relevant harm is only remotely connected to the defendant's conduct.

The present case involves two necessary conditions that contributed to the occurrence of the respondent's injuries. The first was the first appellant's conduct in his control of the vehicle; the second was the respondent's conduct in permitting the first appellant to drive the vehicle and then standing in front of it. It is the latter factors that give rise to the respondent's contributory negligence. Be that as it may, it does not follow that because the respondent contributed to her injuries in the manner referred to, as a matter of policy the first appellant should not be held to account with respect to his own negligence. After all the most proximate cause of those injuries was his negligence.

As has already been observed, it cannot be said that the first appellant was not fully aware, notwithstanding his age, of the dangers associated with driving a motor vehicle and, in particular, of the necessity to ensure, given his knowledge that the respondent was standing in front of the vehicle, that his foot did not slip from the brake to the accelerator. In these circumstances it seems to me that it is appropriate for the scope of the first appellant's liability to extend to the harm to the respondent directly caused by his conduct and that, subject to the question of contributory negligence, there was no policy reason why responsibility for that harm should not be imposed upon him."

257 Day v Rogers [2011] NSWCA 124 provides an example of the application of s 5D(1)(b) to a situation in which the harm suffered by the plaintiff is a consequence of the interaction of the defendant's negligence with several other causal factors. The plaintiff had briefed the defendant to act for him as a barrister concerning a claim under the Property (Relationships) Act 1984 . When that case came on the hearing, the affidavits filed on behalf of the plaintiff were read. The opposite party in the litigation then made an application under Uniform Civil Procedure Rule 29.9 for the case to be dismissed, basically on the ground that the affidavits were so defective that the case was bound to fail. The defendant argued that application. The judge then dismissed the case, but because it was not a dismissal on the merits it was possible for the plaintiff to start again. He sued to recover the costs that were wasted because of the proceedings being dismissed and needing to be recommenced. The failure to exercise reasonable care alleged and found against the defendant was in his preparation of affidavits for use in the proceedings.

258 The plaintiff succeeded in his negligence action in the court below, but the defendant overturned it in this Court, because this Court held that the preparation of the affidavits fell within the scope of the advocate's immunity from suit. However this Court also considered, and rejected, an argument that negligence in preparation of the affidavits had not caused the waste of the costs, because of the existence of intervening causes. One such intervening cause was the defendant's own conduct of the application under UCPR 29.9, concerning which he clearly had advocate's immunity, and concerning which he had not been sued. His conduct of that application had some fairly basic deficiencies, identified at [139]. Further, a majority of this court (Allsop P at [2], Sackville AJA at [151]) held that the application should not have succeeded.

259 The defendant accepted that his negligence was a necessary condition of the occurrence of the harm to the plaintiff, but disputed that the scope of his liability should extend to the wasted costs ([134]). Concerning the scope of liability, Giles JA (Allsop P and Sackville AJA agreeing) said at [145]-[147]:

"It must be asked whether it is "appropriate" for the scope of the appellant's liability to extend to the wasted costs consequent on the dismissal (s 5D(1)(b)), with consideration of whether and why responsibility for the harm should be imposed on the appellant (s 5D(4)). The starting-point is that the appellant's negligence brought the occasion for [the opposite party's] application pursuant to r 29.9.

It is not necessary ... to attempt to forecast what might have occurred if the appellant had acted otherwise than he did in his conduct of the proceedings at the hearing. Speculation on whether the dismissal might have been averted if the appellant had acted otherwise than he did in opposing the application is not a sound basis for finding a break in causation, and does not in my view materially weigh against imposing responsibility on him. His negligence brought the situation about, and failure so to act as to avert the dismissal, whether or not negligence in itself, should not work to his advantage.

As to error on the part of [the District Court judge], a barrister or solicitor should prepare and conduct proceedings so as to guard against the judge falling into error. Even if [the judge] was persuaded to an over-strict view of the presentation of both parties' asset positions, by his negligence the appellant enabled [counsel for the opposite party] to exercise the persuasion. The appellant submitted that it was not appropriate that he should be found to have caused the respondent's harm, if the judge had contributed to the harm but it was not open to the appellant to claim for contribution or reduction for proportionate liability. That is no reason to relieve the appellant from his responsibility for the harm."

260 I have deliberately set these passages out in full because coming to an understanding of an abstract concept like "appropriate for the scope of the negligent person's liability to extend to the harm so caused" is assisted not only by considerations of history and policy, but also by concrete examples of how the concept is applied.

261 In my view, it is appropriate for the scope of the Developer's liability to extend to the harm suffered by Mrs Marcolongo's building. There is no finding by the judge that, if there had been no negligence in installation of the temporary piles, the damage would not have occurred. We are not asked to make such a finding. However, I put the finding of appropriateness on a wider basis than that. The Developer made a radical departure from its own commissioned engineering design for a deep excavation in an urban area that was to go within a metre or so of a neighbouring building. It departed deliberately from a legal requirement that attached to its having permission to carry out the development at all. It did so without adequate inquiry, and for no better reason than to save itself time and money. That is conduct that involves a very serious departure from the standards that a landowner in twenty-first century Australia is entitled to expect from his or her neighbour.

262 Though those are matters that are relevant to breach, characterisation of the conduct that constitutes the breach is relevant to the decision about attribution of responsibility.

263 Further, it was readily forseeable that creating an excavation could cause damage to neighbouring buildings if it was not properly retained. The neighbours had a particular vulnerability to inadequate carrying out of the excavation. They had little scope for taking action of their own to prevent it occurring - objection to the development application, complaint to the Council in the course of construction, or in extreme cases seeking an injunction against an anticipated tort. The point of imposing the duty of care on the Developer is to protect against precisely the sort of damage that Mrs Marcolongo sustained. While there was a contributing cause of the damage, namely the negligent installation of the temporary piles, the installation of the piles only occurred because it was an intergral part of the sheet piling sytem. I recognise that that contributing cause operated after the Developer decided to adopt the sheet piling system, but I do not accept that members of the community would regard that as a reason why the Developer should not be held liable. Taking all these matters together, it is in accord with common sense that the Developer be held liable.

264 Questions of the relative responsibility of the Developer and MSP are more appropriately resolved through apportionment than through excusing the Developer from liability altogether.

Apportionment

265 When I have found (at [233]-[235]) that the judge was mistaken in finding that the matters that he identified in [201(b)] and [201(c)] were causes of the damage, his reasoning process concerning apportionment has proceeded on a flawed basis. Thus it is necessary for this Court to assess the apportionment for itself.

266 An apportionment between a plaintiff and a defendant of their respective shares in the responsibility for damage was held, in Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492 at 494, as involving:

"... a comparison both of culpability, ie of the degree of departure from the standard of care of the reasonable man ... and of the relative importance of the acts of the parties in causing the damage ..."

267 Those factors are also relevant to the apportionment of responsibility between defendants for the purpose of contribution between tortfeasors: J Blackwood & Son v Skilled Engineering [2008] NSWCA 142 at [94]. In particular, they apply to apportionment under s 109ZJ EPA Act .

268 The culpability of the Developer was, for the reasons I have earlier given, of a very high order. MSP's manner of constructing the temporary piers was of greater relative importance in causing the damage. I would apportion the damages in the same way the trial judge apportioned them.

Orders and Costs

269 The judge ordered both defendants to pay the plaintiff's costs of the proceedings, and ordered how that liability should ultimately fall between the two defendants. That apportionment reflected the 75:25 split that his Honour had found was appropriate for liability, so far as the costs of the plaintiff in the period after 3 February 2005 were concerned, and 50:50 for the period prior to 3 February 2005. The parties requested the opportunity to make further submissions on costs if the appeal were to be upheld in any respect, in particular concerning the appropriateness of making a Bullock order.

270 I propose that the appeal be dismissed, with costs. In that circumstance, there does not appear to be any need for the parties to make any further submissions concerning costs. However, if there are any matters of which the Court is not presently aware that might impact upon costs, the parties have the opportunity under UCPR 36.16 to deal with that situation by filing a Notice of Motion within 14 days.

271 The orders I propose are:

(1) Appeal dismissed.

(2) Appellant to pay costs of the Respondents of the appeal.

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SCHEDULE

7.43 It is in the context of the second element - namely scope of liability for consequences - that the statement that causation is a matter of commonsense is most often made. However, courts use various other terms and phrases to describe the sort of connection between negligent conduct and harm that can justify the imposition of legal liability to pay damages. These include 'real cause' and 'effective cause' . It is also said that if another necessary condition 'intervenes' between the defendant's conduct and the harm and 'breaks the chain of causation' , the defendant will not be liable for the harm.

7.44 The concept of foreseeability is used in this context as well. A basic rule of negligence law is that a negligent person will not be held liable for unforeseeable consequences of their negligence (although there are important qualifications to this rule - such as the principle that the victim of negligently-caused harm must be 'taken as found' - that need not be discussed in detail here). A point that should be noted is that the rule laid down in the Shirt case ..., that a person cannot be liable for failing to take precautions against a far-fetched or fanciful (albeit foreseeable) risk of harm, does not apply in this context. Once a person is held to have behaved negligently, they can, in theory at least, be held liable for foreseeable consequences of that negligence, even if they were of a very low probability.

7.45 None of these terms and phrases provides very much guidance as to the likely outcome of individual cases, and the question of 'the scope of liability for consequences' tends to be seen as one that has to be answered case-by-case rather than by the application of detailed rules or principles. This is not to say that there are no relevant guidelines in the law. For instance, it is said that a person is not liable for 'coincidental' consequences of their negligence. Suppose that a driver negligently injures a pedestrian, who is further injured when the ambulance in which she is being taken to hospital is involved in a collision as a result of negligence on the part of the ambulance driver. The first driver would not be held liable for the injury resulting from the second accident, because the sequence of events would be considered a 'coincidence' , even though the first driver's negligence was a necessary condition of the harm suffered in the second accident. On the basis of this example, it is easy to see the appeal of the 'coincidence principle' as an outworking of ideas about personal responsibility.

7.46 However, this principle of 'no liability for coincidences' is not of universal application. For instance, in Chappel v Hart , the failure of the defendant to warn the plaintiff was accepted to have been a necessary condition of the materialisation of the risk because the plaintiff would not have had the operation, at the defendant's hands or when it was performed, if she had been warned; and in that case she would almost certainly not have suffered the harm. But the fact that the risk materialised despite the exercise of reasonable care by the defendant could be called a coincidence. The best explanation of the difference between this case and the example discussed in paragraph 7.45 is not that the doctor caused the patient's harm whereas the first negligent driver did not cause the harm suffered in the second accident. Rather, the explanation would seem to lie in differing ideas about the responsibilities of doctors to their patients on the one hand, and the responsibilities of drivers to pedestrians on the other. In Chappel v Hart , several of the judges made this point by saying that the doctor should be liable because the risk that materialised was precisely the risk about which (in discharge of the reactive duty) he should have warned the patient.

7.47 For present purposes, the important point is that there appears to be a perception amongst various groups that courts are too willing to impose liability for consequences that are only 'remotely' connected with the defendant's conduct. In other words, there is a feeling that the net of responsibility for the consequences of negligence is being cast too widely. The question that confronts the Panel is whether there is anything that we can usefully propose by way of legislative statement that might reduce the element of uncertainty in the law and indicate to courts that issues of responsibility are directly relevant in this context.

7.48 A major difficulty here is to strike a balance between making legislative statements that are so abstract and general as to be more or less useless, and making detailed provision that denies courts the flexibility they need to deal with the infinitely various facts of individual cases. What is needed is a provision that will suggest to courts a suitable framework in which to resolve individual cases. Terms and phrases such as 'effective cause' , 'foreseeability' and 'commonsense causation' do not provide such a framework because they express a conclusion without explaining how that conclusion was reached. They discourage explicit consideration and articulation of reasons, for imposing or not imposing liability for the consequences of negligence, that are securely grounded in the circumstances of individual cases and address issues of personal responsibility.

7.49 The Panel believes that it is possible to give some helpful legislative guidance that holds out a reasonable prospect of furthering the objectives of the Terms of Reference. Such a provision would be to the effect that in determining liability for the harmful consequences of negligence (whether in such terms or in terms of 'legal cause' , ' effective cause' , 'commonsense causation' , 'foreseeability' , 'remoteness of damage' and so on), it is relevant to consider, (a) whether (and why) responsibility for the harm should be imposed on the negligent party, and (b) whether (and why) the harm should be left to lie where it fell.

[The Report then set out the terms of its recommended legislation, which differed in some respects from s 5D, but which included in para (h) a recommendation that is in substance the same as s 5D(1)(b) and s 5D(4), and continued]

7.50 It may be helpful to give an example of how paragraph (h) of this Recommendation (dealing with scope of liability) might be used. Consider the case of Chappel v Hart again. Because the plaintiff would not have had the operation, at the hands of the defendant and at the time it was performed, if she had been warned of the risk, the defendant's failure to warn played a part in bringing about the harm suffered by the plaintiff. But this conclusion does not settle the question of whether the doctor ought to have been held liable for that harm. In favour of denying liability, it could be argued that in the absence of negligence on the part of the defendant in performing the operation, the harm suffered by the plaintiff was a mere coincidence for which the defendant ought not to be liable. On the other hand, it could be argued that even though the occurrence of the harm was a coincidence, it was the very risk about which the plaintiff had inquired. For that reason, the imposition of liability would be justified in order to reinforce the doctor's reactive duty to inform and the patient's interest in freedom of choice. The provision in paragraph (h) of Recommendation 29 does not support either of these arguments against the other. Rather, it is intended to encourage courts to articulate such arguments and to discourage them from explaining decisions in terms of unhelpful phrases such as 'commonsense' or 'real and effective cause' . Articulation of principles of personal responsibility will further the objectives underlying the Terms of Reference.

272 SACKAR J : I have had the advantage of reading the judgment of Campbell JA in draft and I am in agreement with his reasons and the orders he proposes.

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Decision last updated: 22 September 2011