Residential Focus: Part 1 - Beware the paper breach - damages in a claim for building defects

Holding Redlich


Holding Redlich, a national commercial law firm with offices in Melbourne, Canberra, Sydney, Brisbane, and Cairns, delivers tailored solutions with expert legal thinking and industry knowledge, prioritizing client partnerships.
Decision reflects the importance of demonstrating actual damage and not merely paper non-compliance.
Australia Real Estate and Construction
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In Metricon Homes Pty Ltd as trustee for Metricon Homes Unit Trust v Lipari [2024] NSWSC 566 the Court considered the appropriate measure of damages in a claim for defects, where the primary defect had no associated damage.

The owner alleged that a slab, which did not comply with AS2870, should be demolished and rebuilt at a cost of approximately $800,000. The owner alleged that there were 11 non-compliances with AS2870 which collectively caused a risk of the slab failing.

The owner had paid an additional amount of $5,850 for an H1 class slab, on top of the cost of the "M" class slab which was included in the contract price.

Although the builder and the design engineer accepted that the slab was non-compliant with AS2870 in certain respects, they disputed the extent of the non-compliance and the loss suffered.

The Court found that, while the slab was not compliant with the AS2870, the strength of that slab had not been affected in any meaningful way, nor had the non-compliances caused any visible damage to the house. The only non-compliances that were established were those conceded by the builder and engineer. The Court found that these non-compliances (even combined) had no practical effect on the performance of the slab, as evidenced by its actual performance.

Accordingly, the owner was not entitled to damages representing the reasonable cost of demolition and rebuild.

Despite the findings on the strength of the slab, the Court found that the owner had successfully established her contract claim regarding the slab's non-compliance with AS2870. As the slab did not meet all the requirements for either an "M" or "H1" class slab under AS 2870, the Court considered that the owner was entitled to reliance damages for the full cost of the slab itself, being $55,020.40.

The award of reliance damages is a manifestation of the general rule at common law that where a party sustains a loss by reason of a breach of contract, he or she is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed... (the owner) bargained for, and did not receive, a slab of a particular type. The amount that she paid for the bargained-for slab reflects the loss suffered by the failure to provide a slab of that type.

The decision reflects the importance of demonstrating actual damage and not merely paper non-compliance, a difference which can have significant bearing on the damages result.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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