In Campbell v C.J. Cordony & Sons Pty Limited  NSWSC 63, the Supreme Court of New South Wales confirmed that the damages for breach of a building contract are the costs of bringing the defective work up to the contract standard.
Mr and Mrs Campbell (Campbells) decided to renovate their house in Beecroft, New South Wales. They entered into a contract for $534,059 (plus GST) (contract) with C.J. Cordony & Sons Pty Limited (builder). The builder was represented by Mr Cordony. The contract stated that the builder had home warranty insurance. However, the builder never obtained this insurance.
Practical completion occurred 82 days after the contracted completion date. The Campbells engaged property inspectors who found a number of incomplete and defective items of work.
Negotiations between the Campbells and the builder over the rectification of the defective items of work and completion of the incomplete works failed. The Campbells then lodged a complaint with the Department of Fair Trading (NSW).
Subsequently, the Campbells sued the builder and Mr Cordony:
- To retrieve amounts paid for work the builder had not done.
- For defects in the builder's work.
- For breach of section 52 of the Trade Practices Act 1974 (Cth) (TPA) by representing that the builder had home warranty insurance, when it did not.
- To recover their consequential loss for rental and removal costs.
The builder cross-claimed for the outstanding amount of $57,022.90 for work it had done.
The proceedings were commenced in the Consumer Tenancy and Trader Tribunal and for procedural reasons were transferred to the District Court and finally to the Supreme Court of New South Wales.
The proceedings were ultimately set down for hearing before Justice Hammerschlag.
Justice Hammerschlag confirmed that when claiming for breach of a building contract:
- The cost of reasonable and necessary work to make it conform to the contract plus consequential losses because of the breach (in excess of any amount of the contract price unpaid) is recoverable (Bellgrove v Eldridge (1954) CLR 613).
- The rectification of the work must be a reasonable course to adopt.
- Consequential loss is claimable if the loss arose naturally from the breach of contract, and if the loss may reasonably have been in the contemplation of both parties at the time they made the contract (the rule in Hadley v Baxendale (1854) 9 Exch 341).
- The plaintiff bears the onus of proving its loss.
- The plaintiff must mitigate its damages arising from a breach of contract. However, the onus is on the defendant to show that the plaintiff has not done so.
Justice Hammerschlag reviewed the evidence on the defective and incomplete works and held that the Campbells were entitled to damages for breach of contract for various claims of defective building work. The builder argued that by the Campbells painting over the builder's defective work they had waived the right to claim for the builder's breach. This argument was rejected as painting over the work made no practical difference to the builder or to the work that would be required to fix its defective nature.
Justice Hammerschlag found that:
- The contract recorded that the builder had insurance from Royal & Sun Alliance.
- Mr Cordony assured the Campbells before the contract was signed that he had insurance from Royal & Sun Alliance.
- Following this conversation, Mr Cordony gave the Campbells a certificate of currency from Royal & Sun Alliance.
- A letter from the builder's solicitor admitted that the builder had failed to obtain the insurance and intended to obtain retrospective cover.
Justice Hammerschlag held that the builder engaged in misleading and deceptive conduct by representing that it held home warranty insurance when it did not. In addition, Mr Cordony knew the builder had no such insurance and was therefore knowingly involved in the misleading and deceptive conduct within the provisions of section 75B of the TPA.
Justice Hammerschlag stated that even if he was to infer that the Campbells would have proceeded with another builder at 'a comparable price', the Campbells failed to lead evidence about:
- The price at which they would have proceeded.
- The terms on which the work might have been done by any other builder.
- Whether the quotes conformed with the sets of documents issued to other builders.
- Whether the other builders had the ability to obtain insurance at the time.
- The capability of any of the alternative builders to have performed the work.
Therefore, it was held that the Campbells were not entitled to damages for misleading and deceptive conduct because they failed to establish that they suffered loss or damage in the manner contended.
Further, Justice Hammerschlag relying on Anema E Core Pty Ltd v Aromas Pty Ltd  FCA 904 stated that even if they had suffered loss or damage, the damage suffered was not caused by the builder's conduct. In Anema it was held that it was not enough to show, that the contract resulted from the inducement. What had to be shown was that the loss flowed directly from the inducement. Therefore, the Campbells' damage was actually suffered by defective work being done, not by the inducement to enter into the contract.
Justice Hammerschlag found that damages for removal and rental expenses satisfied the rule for claiming consequential loss. Despite the fact that the Campbells submitted that they were required to move out due to health reasons and the fact that the husband ran his business from home, the Court found that the Campbells had failed to establish that it was necessary for them to move out, although it may have been highly inconvenient for them to stay.
Additionally, the claim failed as the Campbells failed to prove any damage suffered by them as they did not lead proper evidence as to rental value. Justice Hammerschlag stated that a mere print out from an internet website 'Domain' of rental prices in the northern Sydney suburbs did not establish the actual rentals being paid in the area. At best it established the asking price of real estate agents but did not even reach the level of establishing an offer.
For builders and their insurers this case confirms that if a building contract is breached the damages available to the innocent party can include:
- The cost of labour and material to remedy a breach of contract.
- Consequential loss such as loss of profit.
- The cost of removal and rental expenses.
For those seeking to claim for breach of a building contract, this case confirms that the claim must be reasonable, arising as a direct consequence of the breach of contract and within the contemplation of both parties to the contract. In addition, it is imperative to keep adequate documentation throughout the project to ensure there is sufficient evidence to support any future claim.
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