Australia: Case Note - BAK v. Glenleigh Homes Pty Limited [2006] NSW CA 10

In Brief

• This appeal was allowed because fresh evidence came to light after the appeal had been argued but before the decision had been handed down.

• Nevertheless, the Judges engaged in some useful discussion of the extent to which a Plaintiff must prove causation on the balance of probabilities in a case involving a "loss of chance" claim.

• On 21st October 1997, Mr Bak (the Plaintiff) and Glenleigh Homes Pty Limited (the Defendant) entered into an agreement for construction of a house on Mr Bak’s property in the terms of the Housing Industry Association (NSW division) Building Agreement Edition 9. On the same day, Mr Bak also signed a document acknowledging the Master Builders Australia’s "Homeowner’s Guide for protection from Termites (July 1995 Edition)" and acknowledging that an "Evencure XD5 Granitgard" system would be installed.

• Building work commenced on the house in November 1997 and reached practical completion in May 1998. Mr Bak moved into the house on 1st July 1998.

• In early December 1998, Mr Bak first observed nineteen (19) termite mud tracks on the brick walls of his house from ground level to the weep holes. Mr Bak removed the mud tracks manually and then applied a solution of creosote and kerosene around the brick perimeter of the house.

• In January 2000, Mr Bak saw more termite mud tracks inside the house and the following day he notified the Defendant. The Defendant called in recognised pest experts. Their inspection revealed extensive termite damage inside the house. In March 2000, an expert treated the property for termites extensively, including arsenic and liquid chemical treatment both internally and externally.

• In May 2002, Mr Bak commenced proceedings in the District Court of New South Wales against the Defendant. The Judge at first instance accepted a submission from the Defendant, on the balance of probabilities, that the internal damage to the house was caused via a single termite mud trail behind the hot water tank near the house wall. Mr Bak had not found this termite mud track when he destroyed the other mud tracks in December 1998.

• Mr Bak contended that this particular mud track was a concealed point of entry to anyone other than a trained person. The Trial Judge rejected this contention and found for the Defendant.

• Mr Bak appealed to the New South Wales Court of Appeal. The Appeal was argued at a hearing and the Court of Appeal reserved its decision.

• Whilst the decision on appeal was reserved, Mr Bak made an application to lead further evidence. The Court of Appeal arranged a further hearing at which evidence was led that, in late October 2005, after the hearing of the appeal, Mr Bak discovered fresh termite activity inside the house. A recognised pest expert opined that this termite activity was due to defects in the Granitgard system at several points in the wall.

• The Court of Appeal held unanimously that the fresh evidence must be admitted and that the appeal must be allowed. The matter was remitted to the Trial Judge for further hearing.

• Hodgson JA (with whom McColl JA agreed) indicated that he would have allowed the appeal. He would have found that the Defendant had breached the construction agreement by failing to adhere to Australian Standard 3.660.1- 1995 which deals with the protection of buildings from subterranean termites. Clauses 2.6 and 3.4 of the Standard provide:

• Hodgson JA would have held on the facts that the hot water tank was not separated by a clear gap of at least 40mm from the main building and that the proximity of a downpipe both "concealed" the area where the termite track passed, and did not "expose" it for a minimum of 75mm. His Honour thus would have held that the Defendant breached both clauses 2.6 and 3.4 of the Australian Standard.

• On the issue of causation, Hodgson JA would have held that the Plaintiff’s claim should be treated as a "loss of a chance" in accordance with the principles discussed in Malec v. JC Hutton Pty Limited (1990) 169 CLR 638. Therefore, once breach of contract was proved, the Courts should consider the amount of damages that should be awarded in accordance with the probability of that occurring. It was not necessary for the Plaintiff to prove on the balance of probabilities that the damage would not have occurred but for the breach. His Honour distinguished Sellars v.

Adelaide Petroleum NL (1994) 179 CLR 332, on the basis that that was a case where loss or damage was the gist of the action.

• Handley JA would have dismissed the appeal (if not for the admission of the fresh evidence). Contrary to the majority, he would have found as a question of fact that the area behind the hot water tank was not "concealed". Even if the water tank had been within 40mm, in breach of the Australian Standard, he considered that the Court of Appeal should not draw an inference that the Appellant would otherwise have noticed a termite mud track in this area. Further contrary to the majority, Handley JA would have held that the Plaintiff was obliged to prove that, but for any breach of contract, the damage would not have occurred.

• This appeal was allowed on the basis of fresh evidence which was admitted after the appeal had been heard but before a decision had been rendered. The matter was remitted to the Trial Judge for a fresh trial. As such, the balance of the judgments are obiter.

• Whilst much of their Honours’ reasoning concerns factual matters, the judgments do highlight a difference of opinion as to the manner in which the authorities of Malec v. JC Hutton Pty Limited (1990) 169 CLR 638 and Sellars v. Adelaide Petroleum NL (1994) 179 CLR 332 are to be reconciled in a case involving breach of contract leading to a "lost chance". The precise point of disagreement between their Honours in relation to whether a Plaintiff who shows breach of contract is also required to prove causation remains undecided.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.