Bernhardt & Ors v Gribble [1999] QDC 290

IN THE DISTRICT COURT AT MAROOCHYDORE QUEENSLAND [Before Dodds DCJ] [Lois Diana Bernhardt & Ors v. David B. Gribble] QDC [1999] 290 Plaint No. 264 of 1997 BETWEEN: LOIS DIANA BERNHARDT First Plaintiff SCOTT ALEXANDER MILLAR Second Plaintiff BARBARA JANE MILLAR Third Plaintiff AND: DAVID B. GRIBBLE Defendant AND: MAURICE BERNHARDT Third Party Reasons for Judgment Delivered on the 13th day of December 1999. The plaintiffs sued the defendant for various relief including damages. A number of causes of action were pursued in the plaint. However by the end of the trial it was plain, and the plaintiffs counsel acknowledged, that the claim was one for damages for negligence in supervision and in advice given. The defendant is a civil engineer. He had been employed as the project engineer for development of land (the land) which at the material time was owned by the first and second plaintiffs (the joint venture). The first and third plaintiffs in about 1988, became the registered owners of about an acre of land at Parkway Drive, Mooloolaba (the land). The second plaintiff (Millar) is -- 1 of 12 -- 2 the husband of the third plaintiff. Maurice Bernhardt (Bernhardt) is the husband of the first plaintiff. In 1993, the second plaintiff acquired his wife’s interest in the land. Bernhardt, who at all material times was a real estate agent, looked after his wife’s interest in the joint venture. In 1992, an approach was made to the local authority with a view to a duplex group title development on the land. After discussion with the local authority, the proposal was altered to an integrated housing development for eight houses requiring subdivision of the land into four lots. This application was approved in June 1992 subject to conditions requiring engineering works to the satisfaction of the shire engineer addressing matters such as levels, earthworks, retaining walls, landscaping, paved areas, means of access, parking areas, collection and discharge of storm water and drainage. A rough costing was then obtained from a firm of civil engineers, Rod Tait & Partners, for all works required for construction of the subdivision. The costing was $207,000. It was deemed uneconomic to proceed. Subsequently it seems that Bernhardt spoke to the defendant who was then employed by a firm of civil engineers, McWilliams Engineering (McWilliams). It was apparently thought possible the engineering work could be done for a lesser sum. In August or September 1992, McWilliams was engaged to provide professional services including brief of geotechnical consultants. The defendant was nominated as the project engineer. Geotechnical investigation of the land was undertaken by Golder & Associates, a recognised and well-respected firm in the field. Their report (the Golder report) is dated August 1992 and appears to have been provided to Millar. McWilliams received a copy of it. Throughout 1993, McWilliams produced estimates of costs for site and civil works in the $150,000 to $160,000 range and was also engaged in design and in dealing with the local authority. In September 1993, McWilliams produced a draft design which was submitted. In November 1993, tenders were sought for the site and civil works. Two tenders were obtained, $153,416 and $153,638, which were communicated to Millar and Bernhardt in December 1993. These tenders were in the form of a schedule of rates tender. Schedule 1 was for site works; Schedule 2 for access works; Schedule 3 for water supply; Schedule 4 for sewerage; Schedule 5 for storm water drainage and Schedule 6 for unsuitable material (PQ). Standard conditions of tendering applied which included that “the tenderer shall inform himself fully with all conditions relating to the site”. There is no clear indication that the Golder report was provided to these tenderers. A director of McWilliams, Gerald Croucher (Croucher), examined the firms file and could find no evidence the defendant had provided the Golder report to the tenderers. A list of documents that formed part of the tender documentation did not refer to it. Throughout the early part of 1994 the matter seems to have been held up in the local authority. The defendant left McWilliams employment in June 1994. McWilliams -- 2 of 12 -- 3 continued to address local authority requirements. In November 1994, an updated and detailed cost estimate was produced by McWilliams in the sum of $206,077. This included almost $26,000 for connection and head works charges for water and sewerage, $5,000 for SEQEB and Telecom requirements and $18,734 for contingencies. If they are removed the amount reduces to about $156,000. It specifically stated that it did not include any amount for importation of fill or testing of existing material. There was also in existence and Millar was in possession of, a more detailed estimate by McWilliams dated 3 October 1994. The estimate for Schedule 1 to 6 work was about $209,000. There are hand written reworkings of values thereon resulting in a total of about $216,500. There is a large increase in the cost of Schedule 1 site works, which appears to be due to the cost of importing material to compacted fill and some smaller increases in Schedule 2 and Schedule 5 works. In November 1994, the services of McWilliams was terminated and Millar and Bernhardt engaged the defendant as project engineer. The defendant was then in practice on his own behalf. The engagement is evidenced by a letter under the hand of Millar dated 25 November 1994 agreeing to a fee structure of five per cent of project cost savings the defendant could achieve below a base a $191,000 (derived from the McWilliams estimate of $209,000 less $18,000 for clearing and burning of timber on the land); and a letter under the hand of the defendant dated 28 November 1994 confirming he was to act as project engineer for the development and reconfirming that his fee for services prior to going to tender would be five per cent of the reduction in costs from the current budget of $191,000. I find that at the time this engagement occurred the defendant was aware that the plaintiffs had arranged a loan facility to finance the development, that the final cost of the development was important and that if the development was to proceed, the plaintiffs needed to be assured that the cost for the engineering works would leave the project viable; otherwise they would not proceed with the development. The defendant produced a pre-tender estimate dated 2 December 1994 for site and civil works, that is for Schedule 1 to 6 works. The item for unsuitable ground was shown as Schedule 7 instead of Schedule 6 as previously. The estimate also included a Schedule 8 for landscaping and an amount being 7.5 per cent for contract variations. Excluding landscaping and contract variations, the total estimate was in the order of $150,000. It contained a statement that it was a pre-tender estimate based on plans under review. The defendant wrote on it that he was currently looking at “a savings on estimate of $55,000 if council accedes.” On 16 January 1995, a contract was let to a contractor Devrex Pty Ltd (Devrex) for “clearing, grubbing and bulk earthworks in preparation for main civil works. Payment…by unit rates for invoiced quantities and hours as verified by the engineer". This was for the Schedule 1 site works. -- 3 of 12 -- 4 I find that during discussions prior to the contract of 16 January 1995 with Devrex to proceed with the Schedule 1 site works, in response to Millar seeking reassurance that the cost of the engineering work would not increase, the defendant advised Millar that the risk of extra expense in the engineering works lay in the amount of fill that would be required. This subsequently proved to be largely true. He advised that no contractor would estimate the amount and recommended that this work be done at hourly rates as a first stage. He was aware of a contractor and was privy to the contractor's unit rates. This was Devrex. Millar and Bernhardt agreed. The principal of Devrex, a Mr Jeffries (Jeffries) gave evidence. It is apparent from his evidence that he tendered for the Schedule 2 to 6 (or 7) works on a bill of quantities on or about 8 December 1994. The schedule of rates tender stated that it was based on plans under review. The total was $143,287. The defendant appears to have received this tender on or about 19 December 1994. He ultimately accepted it on behalf of his clients on 24 March 1995. Parkway Drive terminated in a cul-de-sac which adjoined the northeastern boundary of the land. A drainage easement ran through the northern side of the land from the cul-de-sac in roughly a west-northwest, east southeast direction. A creek transected the drainage easement and ran along or adjacent to the northern boundary of the land. On 7 March 1995, the defendant wrote to the plaintiffs in the following terms: “Following completion of the majority of the site works [ Schedule 1 works] last week, I am now in the position to update the estimate for the civil works on this project. A summary of my estimate dated March 7 is enclosed. The current figure is $4,800 over that on my estimate of December 19 reflecting the considerable savings made through redesign and carrying out the site works under hourly rates. Schedules 2, 3, 4 and 5 of the estimate incorporate the contractors tendered unit rates. In reference to the reduction in construction costs and my fee for services, the current estimate for civil works excluding pit-burning costs is $153,465. This represents a reduction of $37,535 from the $191,000 stated in your commissioning letter. This reduction is somewhat less than anticipated as the original estimate had significant problems with respect to the cost of the open drain and the culvert. The following moneys are now due for payment: Holbrook Group for fill material $ 6,152.50 Devrex Pty Ltd for site works and haulage $15,101.10 David Gribble for supervision and redesign $ 3,046.75 David Gribble outstanding account $ 780.00 TOTAL $25,080.35 … We are also now ready to prepare documents and proceed to contract. My fee for the supervision of the contract for construction of the civil works will be $3,100…” -- 4 of 12 -- 5 At the time the letter of 7 March 1995 was written, site works had not been undertaken in the area involved in the creek and the drainage easement. In the end result it was in this area that the cost of the Schedule 1 works later dramatically increased to a final cost of $83,451. At the time the defendant committed his clients to the balance civil works on 25 March 1995, no work was being done because of the weather. An extension had been obtained. Work seems to have commenced again at the end of May 1995 when access works commenced. The increase in costs for Schedule 1 works was due to the discovery of substantial organic material buried within the creek area when the preparation work commenced for the culvert and drain. This involved excavation and fill for a suitable foundation on which to construct the culvert and a drainage channel upstream of the culvert. In the end result the final cost for Schedule 1 works was $83,451 rather than the defendant’s pre-tender estimate of 2 December 1994 of $48,700 or his 8 March 1995 estimate of $38,956. The defendant was aware of the Golder report. Golder’s investigation of the site involved five test pits. Test pit two, which was located in the western corner of the land adjacent to the creek, disclosed “topsoil type fill material containing a substantial quantity of organics to 2.6 metres depth including large tree roots and fibrous matter in a loose, silty matrix.” This location was remote from where the culvert and drainage channel were to be constructed at the easterly end of the lot. The other test pits revealed varying materials. Test pits one and five encountered sandy clay of variable density. Test pit five was located at the eastern end of the lot in the drainage easement. Test pits three and four “comprised a 600 millimetre deep clayey sand top soil overlying very weakly cemented light brown white clayey sand becoming dark black silty sand below 1.1 metres to 1.8 metres.” The report notes “there is a drainage easement through the northern side of the lot which is near flat and has been recently filled along a creek which flows through the easement.” It continued: “The results of the investigation indicate that there is significant variability and potential surface movements due to either moisture variation or consolidation and compression settlements in different areas of the site. Further investigation would be required to determine site classifications for footing design for the individual structures…Filled areas in the present conditions will be prone to potentially high variable and unpredictable settlements and would be unsuitable to support even light structural loads…The filled areas on the site are underlain by loose, poorly compacted soils containing deleterious, organic material. This strata would be unsuitable to support structural loads…Based on the current information on the site this would include the proposed buildings 1, 6, 7 and 8 on Figure 1.” These lots were adjacent to the creek. The report continued: “An appropriate site improvement procedure would include the following minimum requirements, stripping of all fill presently in place and disposal to spoil of unsuitable material comprising organic contaminants and organic rich topsoil. -- 5 of 12 -- 6 This spoil material must not be used as fill to support any structural loads…Culvert design. Sub-service conditions in the test pits indicate that conditions at the base of the existing creek are likely to be adequate to support a culvert structure on high level footings. Some local stripping to remove soft or loose zone may be required. Such zones should be replaced with a granular backfill…” I accept the evidence of Mr Lange (Lange), Exhibit 24. Lange was a civil engineer who gave evidence in the plaintiff’s case. The Golder report contained information which called for either further testing in areas where significant civil works would be undertaken eg. where the culvert and drainage works were to be done or alternatively completion of site works including excavation and fill in these areas before committing to the balance civil works. That was the only way to obtain a complete knowledge of what the cost of site works would be. Kenneth Croucher (Croucher), an experienced civil engineer with significant geotechnical experience who gave evidence in the defendant’s case acknowledged that in the light of the Golder report and the creek on the site it would have been appropriate to talk to the client to ask whether the client wished to pay for further investigation and at the start of the contract when the machinery arrived to undertake investigation around the creek as early as possible to have a good look at what was there. I accept this evidence. The first indication the plaintiffs had of an increase in costs was in a letter from the defendant dated 24 June 1995. Amongst other things, it advised that the current value of the running estimate was $171,918 due to buried debris in the watercourse, additional length of culvert and a new sewerage access chamber. The accompanying schedules of work showed increases in cost for Schedule 1 and Schedule 6 work. Millar spoke to the defendant about the increases. Both he and Bernhardt were concerned. By this time the existing culvert had been removed compromising access to the land, a factor to be considered in deciding whether to proceed or alternatively attempt to sell the land. Bernhardt acknowledged that it would still have been considered viable to proceed at that figure. A further letter dated 11 July 1994 was received by the plaintiffs from the defendant, Exhibit 13 explaining delays. In it the defendant acknowledged he was aware of “the very tight budget”. On 7 September 1994, a further letter was received from the defendant advising that the estimated final cost of the works was now $203,000. Schedules of works attached to the letter show increases in all schedules except sewerage with a major increase in Schedule 1 site works and lesser increases in Schedule 2 access works, Schedule 3 water supply and Schedule 5 storm water drainage. On 2 October 1995, the plaintiffs wrote to the defendant asking him for full details of cost increases and for a copy of the contract between Devrex and themselves. To that point they had not seen it. The defendant responded by letter dated 5 October 1995, Exhibit 16, enclosing contract documents. -- 6 of 12 -- 7 The work continued to completion. A further progress certificate was received from the defendant under cover of a letter dated 20 November 1995. It indicated the value of work completed was $215,884. Schedules of works accompanying it showed cost increases in Schedule 1 site works, Schedule 2 access works, Schedule 4 sewerage and Schedule 5 storm water drainage and a cost decrease in Schedule 3 water supply. On 16 January 1996, the defendant forwarded the final certificate to the plaintiffs together with a valuation of works. Total cost of the work was $219,494. There had been a further increase in Schedule 1 site works. The letter of 7 March 1995 was misleading. It leaves the impression that the updated total cost estimate for the engineering works was $153,465 plus pit burning costs and that the majority of the Schedule 1 works had been completed. It sought payment for engineering works in the sum of about $21,250. Against the background of the earlier discussions, it implied that in the area where the defendant had advised cost increase could occur the risk had been managed. Moreover unless the amount of $143,287, tendered for the balance of civil works and received by the defendant from Devrex on or about 19 December 1994 was reduced by reworking quantities or by some other means, the cost of engineering works excluding any amount for variations would range from $164,537 (if the cost of Schedule 1 works was $21,250) through $182,243 (if the estimate for Schedule 1 works of $38,956 indicated in the summary of estimate referred to in the 7 March letter to the plaintiffs be used) to $191,987 (if the estimate of Schedule 1 works for $48,700 in the defendant’s pre-tender estimate of 2 December 1994 be used). There is no doubt reliance was placed on the expertise and advice of the defendant. So much is admitted in the pleadings. The defendant was a qualified civil engineer. He was engaged as such. His engagements are evidenced in the letter from Millar to the defendant dated 25 November 1994 and by the letters of 28 November 1994 and 7 March 1995 from the defendant to Messrs Bernhardt and Millar. He was under a duty of care regarding supervision of works and regarding information he gave to the plaintiffs about the cost of the engineering works for the development. His duty was to discharge the engagements with the skill and competence reasonably to be expected of a duly qualified civil engineer. I have come to the conclusion that in material respects the discharge of the defendant’s duty fell below that standard. It results from a combination of his supervision of the Schedule 1 work before his letter of 7 March 1995, his letter of 7 March 1995 in so far as it dealt with the Schedule 1 work and the overall cost of the engineering works and his discussions with Millar subsequent to the letter of 7 March 1995 and before he committed his clients to the balance of the works on 25 March 1995. In coming to that conclusion I am not concerned with the pre-tender estimate of 2 December 1994. It was a pre-tender estimate given at relatively short notice. Putting that to one side the engagement evidenced by the letters of 25 November 1994 and 28 November 1994, was clear. It was not to provide a meaningless estimate. The -- 7 of 12 -- 8 defendant was, if possible, to design and supervise the civil engineering works for under $191,000. If that could not be done or if there was a risk it could not be done it was his duty to make that clear to his clients. He was plainly aware of a risk of fill being required on the site and of the impact on price. Discharge of his duty required that he should have either eliminated or illuminated the risk of cost increase for Schedule 1 works before committing his clients to the Schedule 2 to 6 works. He should have appreciated and made clear to his clients the risk which still existed at the time of the 7 March letter. Instead the letter indicated that he had achieved considerable cost saving and masked the considerable potential remaining for cost to increase. The persons with whom the defendant dealt were Millar and Bernhardt. The owners of the land were Millar and the first plaintiff. Bernhardt appears to have acted throughout as an agent for his wife, the first plaintiff. I accept that a verbal offer was made to the joint venture to buy the land for $160,000. It was probably in late 1994 or early 1995. Bernhardt thought it was after the Schedule 1 works were commenced however I prefer the evidence of Mr Philp, the real estate agent who was instructed to make the offer. Work had not commenced on the land when he inspected it with the offeror. Bernhardt and Millar discussed it. Bernhardt was minded to accept the offer. However at that stage, Millar preferred to proceed with the development of the land and Bernhardt acquiesced. The cost of the engineering works when finally completed financially inhibited the joint venture in building houses as planned on the subdivided lots. The lots were put up for sale. Bernhardt bought one. Millar’s father-in-law bought another. Sometime later Bernhardt bought it and another of the lots. Two dwellings were built on the remaining lot which is still owned by the joint venture. I find that if the defendant had made Millar and Bernhardt aware of the risk still existing in March 1995 that costs could increase due to fill requirements, they would probably have sought to quantify those costs before proceeding. I find that had they become aware that the total cost would or could rise to approaching $191,000 or beyond, the development would probably not have proceeded. The joint venture’s options then would have been to sell the land, investigate some other use for it and/or simply continue to hold it. The land was purchased in 1988 for $53,000. Sale of the land shortly after 7 March 1995 may have resulted in a profit after taking into account $25,080.36 development costs to that time. Instead the joint venture proceeded with the development. As a consequence, the following amounts were agreed as expended in addition to the cost of acquiring the land: Total cost of works $219,494.00 Telecom and SEQEB conduiting $ 2,485.00 Interest payments to QIDC (the original financier) $ 31,057.04 Interest payments to Uranus Pty Ltd (a company of -- 8 of 12 -- 9 the second plaintiff’s father-in-law) $ 7,130.30 Heritage Building Society $ 7,295.42 Legal fees re: Devrex Pty Ltd $ 10,874.50 Rates: February 1995 to February 1997 $ 2,694.38 SEQEB $ 2,594.00 Head works Maroochy Shire Council $ 26,111.00 Survey fees $ 5,217.00 Engineering fees – defendant $ 6,426.75 Recoverability of a couple of these amounts requires further consideration. Uranus Pty Ltd was a company of Millar’s father-in-law. The interest payments to Uranus are said to be recoverable because the company lent money to the joint venture. This was apparently to discharge the debt to the original financier QIDC which occurred in mid to late 1996. The defendant issued the final certificate in January 1996. The evidence about why the borrowing occurred was not clear. It may have been that sufficient funds had not been realised from sale of the subdivided lots to fully discharge or discharge within a time limit, the debt to QIDC. The Heritage Building Society amount was apparently to meet an amount to be paid to Devrex after settlement of Devrex legal action against the joint venture. The legal fees re: Devrex Pty Ltd amount reflects the joint ventures costs of the proceeding. These costs were apparently incurred in defending the action by Devrex for work done by Devrex on the land. As far as the Uranus amount is concerned, the evidence does not show the breach of duty was necessarily a cause of the borrowing. For instance there was evidence that QIDC was pressing to be repaid and that completion of the project was delayed by adverse weather. Moreover whilst three lots were sold at some stage one has been retained by the joint venture. Likewise the other amounts. If an amount was due to Devrex as it seems it was, it could have been paid and the costs avoided. As to the money paid to Devrex, apparently borrowed from Heritage Building Society, I am not clear why this amount is apparently additional to the amount certified as the total cost of works, the full amount of which is accounted for in the above costs of development. The joint venture is entitled to damages which put it so far as is possible in the position it would have been in had the defendant properly discharged the duty upon him. In my opinion the date at which damages are to be ascertained is when the engineering works which the joint venture proceeded with were finished. The cost of that work was fixed upon its conclusion. The joint venture was deprived of an opportunity to sell the land. Instead it went ahead and developed the land. In doing so it incurred costs. Excluding the Uranus, Heritage and legal fees Devrex costs, when those costs are added to the cost of acquiring the land the total is $349,079.17. The only evidence of the value of the land when subdivision was complete is from the prices for which lots were sold. It was not challenged by the defendant. I find that three of the subdivided lots were sold for -- 9 of 12 -- 10 $245,000. One has been retained and developed by the joint venture. I find the value of the subdivided lot retained by the joint venture was $75,000 as a vacant lot. The total is $320,000. The offer of $160,000 for the land was a verbal offer made after the offeror had looked at the land. There was nothing in writing. Whether there was a buyer who would have bought at that price at about 7 March 1995 or shortly thereafter can only be a speculative enquiry. It is necessary to keep in mind that in fact expenditure, perhaps significant expenditure for fill, would be required to fully develop the land. It is necessary to keep in mind also that a lot of changes can occur between a verbal offer for a block of land and completion of sale. The evidence of the verbal offer is not a completed sale for $160,000. The cost of development to subdivision viewed against the value of land when subdivision was complete demonstrates a shortfall of $29,079.17. This shortfall would probably not have eventuated had the joint venture been made aware of the likely cost or the risk of it. Instead the joint venture would probably have explored the opportunity to sell the land. Bernhardt would have been in favour of that depending on the price. The land had been held since 1988 and a number of investigations about development had indicated they appeared to be uneconomic. In assessing damages for the loss of opportunity to sell the land as it was after completing Schedule 1 works the only evidence touching upon value and a market is the evidence of the verbal offer of $160,000. A completed sale depended upon a buyer who was prepared to consider it economic to pay a price the joint venture was prepared to accept for land, which may require as part of its development cost, significant costly importation of fill. The development the joint venture undertook in fact resulted in a shortfall of about $29,000 with a purchase price of $53,000. There was no evidence from a professional valuer about the likely sale value of the land at the material time. I infer that the joint venture would probably not have sold the land unless constrained to do so by economic circumstances, except to realise some profit. Fifty-three thousand dollars compounding at ten per cent for seven years would amount to a little over $103,000. Ignoring acquisition, holding and sale costs deduction of purchase price and development costs to 7 March 1995 from that amount would realise about $25,000. I assess damages for the loss of opportunity to sell the land before incurring further development costs in an amount of $20,000. There was a third party claim by the defendant against Bernhardt. Bernhardt filed an Entry of Appearance and Defence which denied the claim. No evidence was directed to proof of the claim. It was not made out. -- 10 of 12 -- 11 I give judgment for the first and second plaintiffs against the defendant for $49,079.17. I give judgment for the third party against the defendant on the third party claim. -- 11 of 12 -- IN THE DISTRICT COURT AT MAROOCHYDORE QUEENSLAND [Before Dodds DCJ] [Lois Diana Bernhardt & Ors v. David B. Gribble] Plaint No. 264 of 1997 BETWEEN: LOIS DIANA BERNHARDT First Plaintiff SCOTT ALEXANDER MILLAR Second Plaintiff BARBARA JANE MILLAR Third Plaintiff AND: DAVID B. GRIBBLE Defendant AND: MAURICE BERNHARDT Third Party JUDGMENT Judgment delivered: 13 December 1999 Catchwords: NEGLIGENCE – Breach of duty – Economic Loss – Careless advice – def employed as project engineer for development of land – under duty of care regarding supervision of works and information given to plfs about costs – def aware of plfs’ budget for works – duty to inform plfs of risk of cost increase Counsel: Mr M. Jarrett for the plaintiff Mr P. Mylne for the defendant Solicitors: Klooger Phillips Scott for the plaintiff Ferguson Cannon for the defendant Hearing dates: 13,14 and 15 October 1999 -- 12 of 12 --