Introduction
In this case, the NSW Court of Appeal confirmed that the prima facie measure of damages where there are defects caused by a breach of a contractual obligation is the cost of rectification, provided the works to be carried out are both necessary under the contract and reasonable, affirming the principle espoused in Bellgrove v Eldridge.
The court also confirmed that only exceptional circumstances will mean that rectification is unreasonable, as observed in Tabcorp Holdings Pty Limited v Bowen Investments Pty Limited.
Facts & background
The owners contracted with the respondent builder to build a dwelling on a sloping block. The rear two-thirds of the dwelling was to be constructed over land fill using a cut and fill method.
The contract specified the maximum depth of fill as 300mm. The builder exceeded the specification and the fill was 500mm deep.
The contract also specified that the footings were to be 300mm deep. However, they were founded only 100mm deep. The builder prepared the site prior to the slab being poured by watering it for two days, and then leaving it to consolidate for six to seven weeks without any cover or other protection.
The building began to move within a few months after completion, causing internal and external cracks to appear and some doors to not open and close properly. These problems worsened over the next couple of years.
The owners claimed rectification costs of $113,124.64 (of which $107,224.64 was for underpinning) and relocation costs of $14,525.
Decision at first instance
The owners commenced proceedings against the builder in the NSW District Court alleging breaches of contract and claiming rectification and relocation costs.
The owners submitted that the builder had breached the building contract by:
- Using excessive fill
- Founding the footings too shallow
- Allowing the fill to dry out prior to the slab being poured, which caused the slab to subsequently heave and the consequential damage to occur.
The Trial Judge agreed that the builder had breached the contract by using excessive fill and founding the footings too shallow. The Trial Judge found on the evidence, however, that the fill was not too dry.
The Trial Judge nevertheless found in favour of the builder on the basis that, whilst the builder had clearly breached the contract, the breaches were not causally related to the owners' loss.
Her Honour interpreted the evidence of the builder's expert geotechnical engineer to mean that the breaches should have caused the slab to subside and settle, but not heave as it had. Accordingly, Her Honour found that there was no connection between the breaches and the heave.
The Trial Judge found that the underpinning was unnecessary. Accordingly, the owners were not entitled to any rectification or relocation costs.
The Appeal
The NSW Court of Appeal unanimously upheld the owners' appeal. Macfarlan JA delivered the leading judgment.
Conclusion
Ms Holby, Trial Judge had misinterpreted the expert evidence. A proper construction of each parties expert evidence pointed to the builder being responsible for the fill swelling after the slab had been poured because the fill was too dry when the slab was laid. Further, the Trial Judge had erred in not finding a causal link between the breaches and the damage.
The owner's claim that they be entitled to the cost of underpinning was successful, on the basis that the builder had breached the contractual specification and that the underpinning was a reasonable course to adopt to rectify the breach. In making these findings it was confirmed they conformed with the principles in Bellgrove v Eldridge, qualified by the High Court's observation in Tabcorp Holdings Limited v Bowen Investments Pty Limited, that rectification of defects will only be considered unreasonable in exceptional circumstances.
Conclusion
This decision confirms that rectification of defective works will be ordered when it is considered both necessary and reasonable. If the cost of rectification is disproportionate to the breach, then rectification will not be necessary or reasonable.
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