Court Finds That The Builder Should Pay For A New Home Where The Slab Is Defective
- The Supreme Court of Victoria Court of Appeal (COA) in the matter of Metricon Homes v Softley  VSCA 60 (6 April 2016) confirmed a long line of Australian court decisions on the assessment of damages for rectification of defective building work.
- The case was first heard and determined in the Victorian Civil and Administrative Tribunal (Tribunal). Simply put, the COA agreed with the Tribunal’s finding on the cause of the damage and their reasoning for the assessment of compensation for the damage. By arriving at this finding the COA have maintained a consistent line of authority in Australia for the principle that it is reasonable to order that a house be demolished and re-built where the defective slab or footings have caused structural defects and any other remedy is doubtful.
- In this matter, Mr and Mrs Softley contracted with Metricon for the construction of a new dwelling on their recently acquired vacant allotment. The house was a typical slab on ground, brick veneer dwelling and the slab system used was a commonly used waffle pod system.
- Shortly after the Softleys moved into the house in March 2010, they began to notice cracks in the plasterboard, skirting board and cornices. After a long standing drought affecting the Melbourne metropolitan areas broke with torrential rain, Mr Softley gave evidence that the house went from just having internal issues that were visible, to having external damage with severe cracking and splitting through the bricks and mortar from the top to the bottom. The internal cracks also worsened.
- After several inspections and some repairs, proceedings were commenced against Metricon in the Tribunal.
- The Softleys made a number of allegations in the Tribunal including:
- There was a failure to backfill or compact the site during construction to ensure prevention of water ingress or penetration of the footings;
- There was an absence of a drainage system as required under the contract including missing downpipes and an absence of flexible fitting piping which allowed uncontrolled water penetration of and around the slab during construction and generally;
- The slab was not constructed so as to maintain the required 85mm thickness and the slab was not vibrated properly;
- The filling under the slab was not as required in the Building Code of Australia;
- The flashings around the windows were not to Australian Standards; and
- There were faults in the timber framing.
- Metricon denied that there was structural failure and argued the Softley’s had caused the failure of the slab, or failed to mitigate the damage by their failure to landscape and remediate the site to prevent water ingress under the slab.
- The Tribunal found that the Softley’s allegations failed on all counts except for the claim that there was an absence of adequate drainage during the construction. The Tribunal found that this constituted a breach by Metricon which was causative of the structural distress and caused Softleys loss and damages. The Tribunal rejected the allegation that the Softley’s had failed to mitigate the damage.
- Metricon’s main argument on appeal was that the tribunal did not properly apply the principles established in Bellgrove v Eldridge (“Bellgrove”)1, Australia’s leading case on the assessment of the measure of damages for defective building work.
- After consideration of Metricon’s argument and the Tribunals reasoning the COA found unanimously in favour of the Softley’s and the appeal was dismissed. The COA agreed with the Tribunals reasoning as to the assessment of the measure of damages and we summarise those principles for consideration.
The principles for assessment of the measure of damages for defective building work
- The primary authority for the assessment of the measure of damages in defective building work in Australia is the High Court’s decision in Bellgrove in 1954. In Bellgrove the owner of a new home erected by a builder complained that the house was gravely unstable due to the fact that the mortar used in the brick walls and the composition of the concrete in the foundations substantially departed from the specifications.
- The trial judge found that the owner’s contentions were correct and it therefore came down to identifying the best method of repair. The builder contended that the footings either might be underpinned or the footings could be removed and replaced piecemeal. The trial judge found that it was doubtful that either of the builder’s remedies could be successfully done or would be a proper remedy for the defects and awarded the cost of demolition and re-building of the house in accordance with the contract.
Builder Appeal to High Court Failed
- The builder appealed to the High Court. The builder contended that the proper measure of damages was the cost of a new house less the proceeds from the sale of the old house which the builder claimed someone may repair. In other words the builder was arguing that the owner is only entitled to the diminution (loss) of value.
- The High Court rejected the builder’s argument noting that the owner was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications. Putting the innocent party into the same situation as if the contract had been performed will coincide with placing the party into the same financial situation. The owner was therefore awarded the cost of erection of a new house on her land that was in accordance with the contract.
Is the rectification work ‘necessary and reasonable’?
- The High Court have continued their support for strict adherence to the contract terms in the matter of Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (“Tabcorp”)2. In Tabcorp they noted that it is only in ‘exceptional circumstances’ and where it be ‘quite unreasonable’ that there should not be an order to compensate the plaintiff in order to provide for the work to be completed in accordance with the contract.
- The High Court confirmed that the ruling common law principal for breach of contract damages is “that where a party suffers loss by reason of a breach of contract he is so-far as money can do to be placed in the same situation with respect to damages and as if the contract had been performed”
- The High Court gave an example from a previous case of where it may be unnecessary and unreasonable to award damages. The example would be where the building contract called for the erection of a house with cement rendered external walls built in second hand bricks and the builder had constructed the walls with new bricks. As the bricks were to be unseen and cement rendered in such circumstances the work of demolition and re-erection would be quite unreasonable.
- The High Courts decision in both Bellgrove and Tabcorp has confirmed therefore that the test for contractual damages is whether the work required is necessary and reasonable.
The Approach taken in the Metricon Case
- The COA in Metricon also referred to the Kirkby v Coote (“Kirkby”)3 decision of the Court Appeal in Supreme Court of Queensland. In Kirby it was a case of footing failure allowing movement of the house.
- In Kirkby his honour Keane JA found that even though there was a potential remedy there was still a slight risk of instability to the house. He stated that the threat to stability may not have been grave “in the sense of obvious and immediate but it was real” and therefore the owner should not be awarded a doubtful remedy. The proper approach of the Court was, in these cases, to assess damages once and for-all without making any allowance for the possibility of future claims.
- In Metricon therefore the COA agreed with the Tribunal’s decision and the long standing list of authorities for the assessment of damages and found it was inappropriate to leave Softleys home at the risk of future distress in the structure by a doubtful remedy.
- The COA agreed that the Tribunal properly apply the principals laid down in Bellgrove and it was appropriate to follow the decision in Kirkby. The Tribunal had applied the correct test as to whether the work was necessary or reasonable.
What does Metricon Mean for Builders?
- The implications from this case are that there is considerable support in the Courts for plaintiffs to receive an award that would adequately compensate them for considerable repairs where there are the prospects than any alternative remedy would be doubtful and further damage could incur.
- For builders, this means that where there are issues with foundations or slabs, they should look at repairs that are going to provide effective long-term solutions rather than piecemeal attempts at remediation.
1 HCA 36; (1954) 90 CLR 613.
2 HCA 8; (2009) 236 CLR 272.
3 QCA 61.
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