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[2025] NSWCA 261
respondent. Appeal dismissed with costs. The primary judge’s award of nominal damages remained undisturbed.
The Court of Appeal dismissed 85 Princess’s appeal. It held that the evidence did not adequately establish the details, effectiveness and cost of the proposed crack-monitoring and repair method. However, that did not decide the case in 85 Princess’s favour: the Court accepted that replacing the slab was unreasonable in the circumstances, including because the property was acquired as an investment and the contractual and leasing context pointed towards repairs rather than replacement. The Court also held that the structural-soundness warranty was not breached, while the warranty requiring compliance with the relevant standard was breached. Because 85 Princess had claimed replacement costs and had not proved the cost of repairs on an alternative basis, the nominal damages award remained.
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2,450 words · generated 06/10/2026
2 cited instruments linked from this judgment.
85 Princess Pty Ltd acquired a Crown lease and two recently built warehouses at Beard in the ACT under a contract dated 20 September 2021. Ian Fleming was the sole shareholder and director of the seller, Fleming Investments (ACT) Pty Ltd, and was also a party to the contract as “Seller Director” ([3], [18]). The Sale Contract contained personal warranties about the construction and condition of the buildings, including that the work had been carried out properly, that the Building was structurally sound, and that the work complied with the Building Code of Australia and other applicable requirements ([19]–[20]).
The warehouses’ concrete slab had developed cracks. 85 Princess had obtained a dilapidation report before purchase. It recorded significant cracking and recommended rectification by a suitable method such as an epoxy or polymer resin product ([16]). A later engineering report considered that the cracks would not pose a structural issue for light industrial use, while attributing them to concrete shrinkage and potentially ineffective saw cuts ([17]). Further reports and expert evidence followed. The primary judge ultimately found that the saw cuts had probably been installed too late or otherwise did not work as intended, and that further cracking was possible ([41]–[42]).
The Property was already subject to a long-term sublease to Reece, which ran to 2031 and required the landlord to maintain structural soundness and carry out necessary structural repairs ([10]–[13]). Reece later underlet the Property to Go Troppo. Go Troppo occupied the premises and installed offices and cool rooms, making slab replacement potentially disruptive ([4], [86]).
85 Princess sued for $5,313,593.39, the claimed cost of replacing the slab ([7]). The primary judge found breaches of several warranties but considered replacement an unreasonable response. His Honour considered that cracks should instead be monitored and repaired as they appeared. As 85 Princess had not provided evidence of the cost of that approach, the primary judge awarded nominal damages ([43]–[49]).
On appeal, the Court of Appeal agreed that some warranties had been breached but dismissed the appeal. Ball JA gave the principal reasons, with Payne and Stern JJA agreeing ([1]–[3], [94]). The Court’s reasoning is important because it separated two questions: whether Mr Fleming had proved that the proposed repair approach was an equally effective, cheaper alternative, and whether replacement was nevertheless unreasonable in the broader circumstances.
The starting point was the ordinary contractual damages principle: damages aim, so far as money can, to put the injured party in the position it would have occupied if the contract had been performed ([47]). For building work that fails to meet a contractual specification, the cost of rectification is prima facie the measure, provided rectification is necessary and reasonable. If it is not reasonable, diminution in value may be the appropriate measure ([54]–[55]).
The Court clarified the evidential burden when a party in breach proposes a cheaper repair method. That party must give evidence of the method, how effective it is, and what it will cost. It is not enough to identify a possible repair in general terms. The evidence must enable the court to be satisfied that the alternative produces the same practical outcome as reinstatement ([68]).
On that question, Ball JA accepted 85 Princess’s criticism of the primary judge’s reasoning. Mr Fleming had not led adequate evidence about how the proposed inspection and repair programme would operate where cracks were underneath Go Troppo’s offices or cool rooms. Nor was there evidence of the likely cost over the slab’s expected remaining life ([79]). Accordingly, the reasoning that replacement was unreasonable because a proven, cheaper, functionally equivalent repair was available could not be sustained on the evidence.
That did not, however, resolve the appeal. The Court considered the other circumstances relied on to support the conclusion that replacement was unreasonable. 85 Princess had acquired the Property as an investment and its evidence linked the purchase to retirement planning. There was no evidence of an interest in the slab apart from the effect of its condition on the Property’s value and rental income ([15], [82]). The Court distinguished Tabcorp Holdings Ltd v Bowen Investments Pty Ltd, where the landlord’s interest in preserving a particular foyer was protected by a specific lease covenant, and reinstatement was the only effective way to vindicate that interest ([59]–[62], [82]).
The contract and surrounding circumstances also pointed towards repair rather than replacement. The pre-sale Ekror report recommended repairing the cracks with epoxy or polymer resin, and the Sale Contract warranted that the identified defects had been rectified properly ([16], [20], [84]). The Court considered that the parties must have contemplated that further cracks would be dealt with similarly, rather than by replacing the whole slab ([84]).
The lease context added to that conclusion. The landlord had obligations concerning structural repairs and rights of access for repairs, while replacement could disrupt Go Troppo’s occupation. Ball JA did not decide whether the leases legally permitted demolition and replacement, but treated the lease terms, disruption and lack of evidence that tenants had agreed to replacement as relevant to the objective likelihood that 85 Princess intended to replace the slab ([85]–[86]).
Finally, the Court addressed which warranties were breached. The warranty in cl 70.2(d) that the Building “is structurally sound” was a warranty about the position when the contract was signed, not a promise that it would remain sound regardless of future events. On the findings, reasonable repairs could address the cracks, and the slab was not shown to have been structurally unsound at the contract date ([72]–[74]). By contrast, the warranty in cl 70.2(e) was breached because the slab had not been constructed so that cracking would be limited as required by AS3600 cl 9.5.1 ([75]–[76]). The appeal was dismissed because replacement was unreasonable in the circumstances and 85 Princess had not proved the cost of an alternative repair-based measure of loss ([49], [92]–[94]).
The judgment did not replace the established Bellgrove v Eldridge approach. It restated that rectification costs are the prima facie measure for defective building work where rectification is necessary and reasonable, and that the reasonableness assessment is a question of fact ([54]–[55]). It also emphasised that this assessment must not be reduced to a mechanical comparison between replacement cost and the financial value of the property. The purpose of the contractual obligation and the claimant’s actual interest can matter ([60], [63]–[65]).
The judgment clarifies the evidence expected when a defendant advances a cheaper, supposedly equivalent repair. The defendant must identify the method, establish its effectiveness and provide cost evidence. The Court applied that principle to the proposed monitoring and repair programme and found the evidence inadequate ([68]–[69], [79]). The decision therefore distinguishes two kinds of argument. One is that a specific cheaper method will deliver the same practical outcome as reinstatement. The other is that reinstatement is unreasonable on the overall facts, even without proof of an equivalent method. The evidence requirements differ according to the argument being advanced ([69], [78]–[80]).
The Court also explained the risk to a claimant who pursues only reinstatement costs. If reinstatement is held unreasonable, a claimant that has not proved loss on another basis may receive only nominal damages. It is not for the defendant to prove the amount the claimant could recover under a different damages measure ([69]). The Court noted that 85 Princess could have sought to prove the costs of repairing expected future cracks, but it had pursued its case on the basis of replacement costs instead ([93]).
As to warranties, the Court’s construction of cl 70.2(d) shows the importance of the actual language and context. The present-tense wording made it a warranty about the Building’s condition at the contract date, rather than a continuing guarantee ([74]). The Court treated cl 70.2(e) differently because the standard it incorporated directed how the slab was to be designed and constructed ([76]). These conclusions concern the wording of the particular warranties before the Court; the judgment does not establish that all construction warranties are necessarily limited to the contract date.
Alternative rectification evidence: At [79], Ball JA said that evidence of “the method, its effectiveness and its cost” was necessary to discharge the evidential onus. In plain English, a proposed repair is not established as a reasonable substitute merely by naming a product or general approach. Evidence must show how the work would operate, whether it would do the job, and what it would cost.
Reasonableness is broader than functional equivalence: At [80]–[82], the Court accepted that replacement was unreasonable in the circumstances, including because the Property was bought as an investment and the warranties protected the value of that investment. In plain English, even where a cheaper method has not been proved to be equally effective, other features of the bargain and the claimant’s interests may make full reinstatement unreasonable.
Warranty timing: At [74], the Court said the warranties in cl 70.2 addressed the position “as at the date the contract was signed”. In plain English, this particular warranty did not promise that the slab would remain sound forever. The Court assessed whether it was sound and capable of bearing expected loads at the time the contract was made, taking reasonable repairs into account.
Different result for the compliance warranty: At [76], the Court held that the slab was not constructed in a way that limited cracking as required by the incorporated standard. In plain English, the fact that repairs could reduce the practical consequences did not mean the construction complied with the standard when built.
Liability and damages are distinct: At [92], Ball JA said damages should not change according to the certainty with which facts proving liability had been established. In plain English, once the relevant breach is found, the remedy is assessed on the breach and loss established, not adjusted simply because some factual aspects of the liability analysis were uncertain.
The judgment is particularly relevant to disputes involving building contracts or sale contracts with construction warranties, where defects have been established and the claimant seeks the full cost of rectification. It is especially pertinent when the defendant says that a cheaper repair, monitoring programme or remedial product can achieve the same practical result as replacement. In that situation, the judgment indicates that evidence is needed about the repair method, its effectiveness and its cost ([68]–[69], [79]).
It also matters where a claimant seeks reinstatement despite an investment purpose, long-term tenancy arrangements, or substantial disruption to occupants. Those matters were relevant here because the Property was acquired to generate investment value, had existing lease arrangements, and was occupied by an under-tenant with installed fixtures ([4], [15], [82], [86]). The judgment does not make those facts decisive in every case. It treats them as part of a factual assessment of the contractual purpose, the claimant’s interest, intention and practical consequences ([63]–[65]).
The warranty analysis may be relevant where contractual provisions use different language to describe present condition, future capacity, workmanship, compliance or rectification of identified defects. The decision shows that warranties in one clause may have different temporal and substantive scopes. Here, the present-tense structural warranty was treated as a contract-date warranty, while the construction-compliance warranty was assessed by reference to whether the slab had been designed and built to meet the relevant standard ([74]–[76]).
The judgment also highlights a pleading and proof issue: a claimant who advances only the cost of replacement may be left without substantial damages if replacement is found unreasonable and no alternative measure of loss has been proved ([69], [93]). The Court noted that 85 Princess’s pleadings initially referred to repair-related obligations, but the case proceeded on common law damages for breach of warranties and the replacement claim became the measure pursued ([31]–[34], [93]).
The material provided is the Court of Appeal’s decision itself, dated 10 December 2025. It contains no subsequent decisions applying or distinguishing 85 Princess Pty Ltd v Fleming. Later judicial treatment therefore cannot be established from this source.
The judgment does, however, explain how the Court treated earlier authorities. It applied the burden-of-proof principle from Owners SP 92450 v JKN Para 1 Pty Limited that the party in breach bears an evidential onus to displace reinstatement costs as the prima facie measure ([47], [66]). It considered Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 as an example where a proposed cheaper method required evidence of functional equivalence ([68]).
It also explained the relationship between Bellgrove, Ruxley Electronics and Tabcorp Holdings. Bellgrove supplied the necessity and reasonableness qualification to rectification damages ([54]–[55]). Ruxley illustrated circumstances in which reinstatement costs were out of proportion to the benefit and the claimant’s intention to reinstate was doubtful ([56]–[57]). Tabcorp was distinguished on its facts: the landlord there had a specific interest in preserving the foyer, protected by an express covenant, whereas the warranties in this case were directed to the value of the Property acquired ([59]–[63], [82]).
The Court expressly left open whether the landlord’s rights under the Sublease permitted demolition and replacement of the slab where the slab did not suffer from a structural defect, and whether such work might interfere with the tenant’s right to quiet enjoyment. It said that resolving those matters was neither necessary nor appropriate in this dispute ([86]). The related position under the Underlease was also not resolved.
The Court did not decide the precise cost or technical design of an effective monitoring and repair programme. It held that the evidence was insufficient to establish those matters, including for cracks beneath Go Troppo’s fixtures ([79]). The judgment therefore gives an evidentiary standard, but not a technical specification or cost benchmark for this kind of concrete-slab repair.
Nor did the Court decide whether a properly supported alternative repair programme would have been sufficient in a different case. It concluded that Mr Fleming’s evidence was inadequate on that argument, then found replacement unreasonable on other circumstances ([79]–[92]). The decision’s result should therefore not be read as a finding that monitoring and polymer repairs were proven to be equally effective.
Finally, the Court noted but did not decide whether the unpursued claim for the cost of repairing future cracking could itself provide an additional reason against replacement damages ([93]). It also did not make a general rule that investment properties cannot attract reinstatement damages. Its comparison with Tabcorp depended on the different contractual purpose and evidence in each case ([60], [82]).
This is general legal information, not legal advice. Zoe can make mistakes. Before acting on or relying on this analysis, have a qualified Australian lawyer check it.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: 85 Princess Pty Ltd v Fleming [2025] NSWCA 261
Hearing dates: 11 November 2025
Date of orders: 10 December 2025
Decision date: 10 December 2025
Before: Payne JA at [1];
Stern JA at [2];
Ball JA at [3]
Decision: Appeal dismissed with costs.
Catchwords: CONTRACTS – contract for the sale and purchase of Crown lease – defects – cracks in concrete slab – measure of damages – rectification damages – where multiple methods of rectification are available – where evidence led only in respect of one method of rectification – reasonableness of methods of rectification
Legislation Cited: Building Code of Australia
Cases Cited: 85 Princess Pty Ltd v Fleming [2025] NSWSC 407
Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36
Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 [2010] NSWCA 23
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114
Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353; (2004) 135 LGERA 98
Radford v De Froberville [1977] 1 WLR 1262
Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5
Robinson v Harman (1848) 1 Exch 850 at 855; 154 ER 363
Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344
Stone v Chappel (2017) 128 SASR 165; [2017] SASCFC 72
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8
Category: Principal judgment
Parties: 85 Princess Pty Ltd (Appellant)
Ian Alexander Fleming (Respondent)
Representation: Counsel:
N Hutley SC with J Mack (Appellant)
MR Pesman SC with Dr AJ Greinke (Respondent)
Solicitors:
Litigation Specialists (Appellant)
MV Law (Respondent)
File Number(s): 2025/202613
Publication restriction: None
[This headnote is not to be read as part of the judgment]
By a contract entered into on 20 September 2021 (the Sale Contract) the appellant, 85 Princess Pty Ltd (85 Princess), acquired from Fleming Investments (ACT) Pty Ltd (Fleming), whose sole shareholder and director is the respondent, Mr Ian Fleming, the Crown lease of land located at Beard in the Australian Capital Territory (the Property). Located on the Property were two large warehouses which had recently been built.
At the time of the sale, the Property was the subject of a long‑term sublease (the Sublease) in favour of Reece Australia Pty Ltd (Reece) with a 10 year term ending in 2031. Following the sale, Reece granted an underlease of the Property to Go Troppo Fruit Market Pty Limited (Go Troppo) which terminates on 30 March 2031. Go Troppo entered into occupation of the Property and installed fixtures, including offices and cool rooms, in the warehouses.
After completion of the construction work, cracks began to appear in the concrete slab on which the two warehouses had been built. The cracks were the subject of a dilapidation report prepared that 85 Princess had obtained in connection with its purchase of the Property. Some initial cracks had been repaired using an epoxy filler, but further cracks developed following completion of the Sale Contract.
On 17 August 2022, 85 Princess commenced proceedings claiming $5,313,593.39 as the cost of replacing the concrete slab. The primary judge, Brereton J, rejected that claim. His Honour accepted that Mr Fleming was in breach of several warranties contained in the Sale Contract. However, his Honour held that replacement of the slab was not a “rational or reasonable commercial response” to the cracking and that an appropriate response was to repair the existing cracks as required and to implement a program to monitor and repair any new cracks using an epoxy or polymer resin (the Epoxy Method).
On appeal, 85 Princess contended that the primary judge erred in finding that: (1) it was unreasonable in the circumstances for it to seek damages calculated by reference to the costs of achieving compliance with the contractual warranties that the primary judge found had been breached; and (2) a reasonable alternative to achieving compliance with the contractual warranties was to repair the existing cracks and to implement a program to monitor for any new cracks and to repair those cracks in a timely way.
The Court held (Ball JA, Payne and Stern JJA agreeing) dismissing the appeal:
(1) On the analysis adopted by the primary judge, Mr Fleming bore at least an evidential onus of establishing that some alternative and cheaper method of rectification would produce the same practical outcome as replacement of the slab. In order to discharge that onus, it would have been necessary for Mr Fleming to lead evidence of the method, its effectiveness and its cost. That is not something that Mr Fleming sought to do, and the expert engineering evidence was inadequate to discharge the onus Mr Fleming bore: [79].
(2) Nonetheless, Mr Fleming had discharged his onus of establishing that it was unreasonable for 85 Princess to replace the slab. That was because 85 Princess had bought the Property as an investment and the warranties that were breached were designed to protect that investment; the Sale Contract specifically contemplated that cracks in the slab would be repaired rather than that the problem with the cracking would be solved by replacing the slab; and that fact together with other evidence indicated that 85 Princess did not intend to replace the slab: [80]-[92].
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8; Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36; Stone v Chappel (2017) 128 SASR 165; [2017] SASCFC 72; Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344, Radford v De Froberville [1977] 1 WLR 1262, considered.
PAYNE JA: I agree with Ball JA.
STERN JA: I agree with Ball JA.
BALL JA: By a contract entered into on 20 September 2021 (the Sale Contract) the appellant, 85 Princess Pty Ltd (85 Princess), acquired from Fleming Investments (ACT) Pty Ltd (Fleming), whose sole shareholder and director is the respondent, Mr Ian Fleming, the Crown lease of land located at 16 Spongolite Street, Beard in the Australian Capital Territory (the Land). Located on the Land were two large warehouses which had recently been constructed by another company controlled by Mr Fleming, A & J Projects Australia Pty Ltd (A & J Projects). It will be convenient to refer to the Land together with the warehouses as the Property.
At the time of the sale, the Property was the subject of a long‑term sublease (the Sublease) in favour of Reece Australia Pty Ltd (Reece) which commenced on 1 April 2021 and terminates on 31 March 2031. Following the sale, Reece granted an underlease of the Property (the Underlease) to Go Troppo Fruit Market Pty Limited (Go Troppo) which commenced on 15 July 2022 and terminates on 30 March 2031. Go Troppo entered into occupation of the Property and installed fixtures, including offices and cool rooms, in the warehouses.
Under the Sale Contract, Mr Fleming gave several personal warranties including warranties to the effect that the construction of the “Building” (defined to mean “the buildings and other improvements erected on the Land”) had been carried out in a proper and skilful way and complied with relevant regulatory requirements including the Building Code of Australia.
After completion of the construction work, cracks began to appear in the concrete slab that had been laid by A & J Projects and on which the two warehouses had been built. The cracks were the subject of a dilapidation report prepared by Ekror Pty Ltd (Ekror) that 85 Princess had obtained in connection with its purchase of the Property. Some initial cracks had been repaired using an epoxy filler, but further cracks developed following completion of the Sale Contract.
On 17 August 2022, 85 Princess commenced proceedings in the Equity Division claiming $5,313,593.39 as the cost of replacing the concrete slab.
The certificate of occupation and use of the warehouses was issued on 8 February 2021. The Sublease commenced on 1 April 2021. The term of the Sublease is 10 years. The Sublease grants Reece three options of renewal for a further term of 5 years each. The initial rent payable under the Sublease was $331,650 per annum (plus GST).
Clause 16.3 of the Sublease provides:
“Structural repairs
The Landlord must keep and maintain the Premises and the Buildings including the external walls, roof and other parts of the Buildings which do not form part of the Premises in a structurally sound, watertight and weatherproof condition and promptly conduct all necessary structural repairs to the Premises and the Buildings (including the parts referred to above) at its own cost.”
No other obligations are placed on the landlord (now 85 Princess) to maintain the Buildings.
**“**Tenant’s rights on default
Without limiting its rights under clause 18, the Tenant may stop or reduce payments under this lease, or claim compensation or damages from the Landlord if the Landlord does not comply with this clause 16.”
“Access
Subject to clause 17.3, the Landlord or any person authorised by the Landlord may enter the Premises at times agreed by the Tenant:
(a) to inspect, maintain, repair or alter the Premises or the Services; and
(b) to carry out any building works required by the Landlord or any Relevant Authority, subject to at least 1 month’s prior written notice being given to the Tenant.”
85 Princess is a company owned by Dr Shruti Kapila (who gave evidence) and her husband, Mr Deepak Shankar (who did not). Mr Shankar is a solicitor who acted for 85 Princess in connection with the purchase of the Property and the subsequent litigation. Ms Kapila said in cross-examination that the Property was bought “As part of our planning for our retirement” and that 85 Princess itself did not operate a business that would “have the need of a commercial warehouse of this kind”.
As already mentioned, in connection with the purchase of the Property, 85 Princess obtained a dilapidation report from Ekror dated 2 May 2021. In relation to slab cracking, the dilapidation report relevantly said:
“Slab cracking (Both Warehouses)
Significant slab cracking was found across both warehouses, with the cracks ranging in width from 1mm to 7mm and with continuous lengths >20m. The cracking fractures in multiple directions and cross several sawcut joints. These cracks are likely to get worse when the warehouse floor is loaded with racking and the use of forklifts or similar are used.
Prior to the incoming tenant taking occupation it is advised that the cracks be rectified by suitable means like an epoxy or polymer resin remedial repair product.”
The following page contains a floor plan of the warehouses showing the location of the cracks.
“Cracking to slab
There were numerous cracks throughout the warehouse floor, well documented in the Ekror report. Noting that the width of cracking mentioned in the report ranged from 1-0.7mm, which is not technically correct as a measurement was taken at a broken edge to a crack, where in fact the crack widths were generally found to be less than 1.0mm.
…
These cracks will not pose any structural issue for light industrial usage which has been assumed for the pavement.
The cracking has occurred as a result of concrete shrinkage where the saw cuts may have been either installed too late or not effective to control early cracking.”
The Sale Contract was in the terms of the standard form contract issued by the ACT Law Society together with a substantial number of special conditions. Both Fleming and Mr Fleming were parties to the contract. Fleming was named as the “Seller” and Mr Fleming as the “Seller Director”.
Clause 70.2 (part of the special conditions) is in the following terms:
“Warranties
Despite anything else in this Contract, the Seller Director warrants to the Buyer that:
(a) the Work has been carried out in a proper and skilful way and substantially in accordance with the approved plans;
(b) that good and proper materials for the Work have been used in carrying out the Work;
(c) the Work and any material used in carrying out the Work is reasonably fit for the purpose or of such a nature and quality that they might reasonably be expected to achieve the result;
(d) the Building is structurally sound and can withstand the loadings likely to arise from its expected use;
(e) the Work done complies with the:
(i) Building Code of Australia;
(ii) relevant codes, standards and specifications that the work is required to comply with under any law or standard;
(iii) conditions of any relevant development consent, requirements of the relevant council and all statutory authorities with respect to the work;
(f) the Identified Defects have been rectified in a proper and skilful way using good and proper materials.”
“Work” is defined to mean “the construction of the Building” and “Building” is defined to mean “the buildings and other improvements erected on the Land”. “Identified Defects” is defined to mean “the defects in the Building Dilapidation Report by Ekror dated 2 May 2021 Revision A, a copy of which is annexed to this Contract”.
Clause 70.3 of the Sale Contract relevantly provides:
“Indemnity
(a) The Seller Director indemnifies the Buyer and agrees to hold the Buyer harmless from and against any Claim or Loss connected with breach of this clause 70, including breach of a Building Warranty.”
(b) The indemnities in clause 70.3(a) are conditional upon the following:
(i) the Buyer must notify the Seller Director immediately in writing if:
(A) any Claim is made or Loss sustained;
(B) anything happens which might in the reasonable opinion of the Buyer give rise to a Claim, or result in any Loss;
in relation to which the indemnity contained in clause 70.3(a) may potentially operate;
…”
“Loss” is defined in cl 54 to include “any cost, liability, loss, fine, penalty, suit, claim, damage or proceeding”.
Clause 70.5(a) of the Sale Contract provides:
“The Seller Director will cause all defects or faults (if any) in the Building due to defective or improper materials or bad workmanship, as are notified in writing to it by the Buyer within the Defects Liability Period, to be made good in a proper and workmanlike manner, at no cost to the Buyer. The Seller Director is not required to rectify:
(i) natural shrinkage or the like in the Building or defects caused by natural shrinkage in the Building; or
(ii) stains or the like in paintwork, brickwork, tiles, carpets, concrete, paving or on walls, ceilings or windows.”
“(a) a load-bearing component of the Building (whether internal or external) that is essential to the stability of the Building or part of it; or
(b) a component (including waterproofing) forming part of the external walls or roof of the Building.”
“Cracking is evident across the reinforced slab, most prevalently to the southern third of the slab, with some differential movement across the cracks.
The cause could likely be attributed to either, or combination, of the following:
• The differential movement across the crack suggests settlement of the slab due [to] inadequate compaction of the subgrade fill; and/or
• Poor placing and curing (allowed too [sic] dry to[o] quickly) of the concrete slab causing surface shrinkage cracking.
…
The cracks have been repaired at some point since construction; the cracks have been ground out and sealed with a proprietary product (brand unknown). The full specification of the remedial works undertaken and whether these were completed after a period of monitoring to ensure the movement was not progressive should be confirmed.”
“We recommend further monitoring, including mapping of the cracking, installation of tell tails to determine if there is any ongoing movement and coring the warehouse floor slabs to facilitate in-situ testing of the subgrade.”
“This items [sic] was raised in the Ekror report and the cracks have been repaired. Noting that suitability of the repairs can’t be determined as the building has not been occupied since the repairs were carried out. The crack repairs should be monitored and reviewed at a later stage.”
On 15 July 2022, the Underlease was entered into (it appears that it was signed by Go Troppo on 24 June 2022). It commenced on that day and expires on 30 March 2031. It incorporates the terms of the Sublease subject to a number of amendments.
Clause 13 of the Underlease requires Go Troppo at the end of the lease to remove all the “Tenant’s Property” and to reinstate the premises “back to its condition as at the Commencement Date, per the Condition Report”. “Condition Report” is defined to mean the Napier & Blakeley report dated 23 May 2022, a copy of which was attached to the Underlease.
There was further correspondence between 85 Princess and Fleming in which 85 Princess continued to press Fleming to rectify the defects identified by Napier & Blakeley, including defects in the concrete slab, before Go Troppo installed its offices and cool rooms and in which Fleming refused to do so.
(a) rectify the Work;
(b) make good Defects notified during the Defects Liability Period.
Relevantly, it gave as particulars of those allegations the Ekror report dated 9 June 2021, the Napier & Blakeley report dated 23 May 2022 and the Ekror defects report dated 24 June 2022.
Although the pleaded case appears to be a case that Mr Fleming failed to comply with the obligations placed on him by cl 70.5(a) of the Sale Contract and that 85 Princess was entitled to recover damages for a failure to comply with that obligation, the case proceeded on the basis that what in fact was alleged was that Mr Fleming had failed to comply with the warranties contained in cl 70.2 and that 85 Princess was entitled to recover damages in accordance with common law principles for a breach of those warranties.
Ultimately, Mr Fleming defended that claim on two main bases. First, he denied that there were any breaches of the contractual warranties. Second, he submitted that 85 Princess purchased the Property as an investment, that its real interest was in the value of the leasehold, that 85 Princess had no obligation under the Sublease to repair any defects other than structural defects and that therefore “applying Bellgrove [a reference to the decision of the High Court in Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36] no substantive damages should be awarded (other than nominal damages) in the event that a breach is otherwise established”.
In support of its claim, 85 Princess served two expert reports, one from Mr David England, a civil and structural engineer, and one from Mr Ken Whyte, a quantity surveyor.
In his report, Mr England expressed the opinion that the cracks were likely to have been caused by:
“a. Rapid drying of the surface of the concrete following placement. Poor workmanship allowing the surface to dry too quickly in hot weather typically results in surface cracking.
b. Missing reinforcement steel trimmer bars at re-entrant corners. I note that the Sellick Consultants structural engineering plans for the development do not show trimmer bars for re-entrant corners.
c. Poor compaction of the subgrade materials below the concrete floor causing differential movement of the concrete floor during normal daily use resulting in cracking.
d. Low strength concrete resulting in structural failure of the floor during the normal use of the warehouse.”
“52. In my opinion, the concrete floor is structurally unsound and likely to fail over the life of the warehouse. The failures are likely to be further cracking and, potentially, spalling of concrete resulting in the floor being unable to support loads and vehicles expected in the use of the warehouse. The severity of the floor cracking, and creation of new cracks, indicates that structural failure of the floor continues to develop.
- In my opinion the concrete floor is unlikely to withstand the loadings likely to arise from its expected use over the life of the warehouse.
- The cracking of the concrete floor is due to improper materials of inferior strength being specified by the structural engineer.”
“The statements in the England report from paragraphs 47-61 are reasons on why concrete can crack. It does not link to sufficient information such as structural drawings, testing or geotechnical analysis to directly link these reasons to why it has cracked.
Paragraph 50 has noted additional cracking linked to previous repairs. During my inspection this was not observed. There had not appeared to be additional cracking ‘extending from the repair’.
Paragraph 51 assumes that additional cracking has occurred after the time at which the initial repairs were carried out. I do not necessarily agree on this conclusion drawn in the England Report. The cracks that have been repaired are of a much greater width than the un-repaired cracks, and it would be reasonable to assume that the thinner cracks were present at the time of the initial repairs, but deemed not necessary to repair.”
“The cracking has increased since previous inspection, the new cracking can lead to further damage if not sealed and treated. No differential settlement across the cracks can be observed.
A suitable repair method would need to developmental [sic], designed and certified to ensure the design life of 20 years is achieved with the pavement as an alternative option to replacement.”
“[58] I am satisfied on the evidence that the cracking occurred because the saw cuts failed to serve their purpose as designed, most likely because they were installed too long after the concrete was poured. That was Mr Hazelton’s evidence and it was essentially unchallenged. I use the expression ‘most likely’ because that was the expression used by Mr Hazelton in his report. By the conclusion of the case, 85 Princess had, to some extent, embraced Mr Hazelton’s evidence on this matter, in order to seek to establish a breach of warranty.
[59] I accept that it is probable that there will come a point when there is no more cracking arising from the fact that the saw cuts failed to fulfil their intended function. That is because it is probable there will be a point where sufficient cracks have developed for the slab to be able to accommodate the stresses that arise from changes in temperature. I cannot make any findings about when that point will be achieved. Nor can I rule out the possibility that the cracking will continue for the life of the building.”
“There are cracks present in the slab that have been repaired. There are new cracks that need to be repaired. Further cracking is a real possibility, and those cracks will require repair should they arise. Mr Hazelton’s evidence was that a suitable repair method will need to be developed and put into place to ensure that the slab will not degrade and fail to serve its function. That general proposition may be accepted. But other than some evidence that the repair method would likely involve the application of a semi-rigid polymer, there was no detailed evidence from Mr Hazelton, or anyone else called by Mr Fleming, or by 85 Princess, about what might be involved in developing the repair method or what it may cost to design and implement the repair strategy.”
Having reached those conclusions, his Honour found that Mr Fleming was in breach of the warranties contained in cll 70.2(a), (c), (d) and (e).
In relation to the warranty contained in cl 70.2(a), his Honour concluded that the construction of the concrete slab was not carried out in a proper and skilful way because “the saw cuts were not installed sufficiently early or were not otherwise installed in a way such that they fulfilled their intended function”: J[68]. For a similar reason, he thought that there had been a breach of cl 70.2(c): J[71].
His Honour also thought that there had been a breach of the warranty contained in cl 70.2(d) because “there was a structural problem in that the saw cuts were ineffective and that meant that cracks were highly likely to emerge which, if left untreated, would lead to the deterioration of the slab such that it would come to fail to bear loadings likely to arise from its expected use”: J[72].
Finally, his Honour concluded that there had been a breach of cl 9.5.1 of AS3600 Concrete Structures, which provides “Cracking shall be limited to an extent that does not impair the durability or serviceability of the slab, both in terms of function and appearance”. That clause was breached because “the cracking that came about because of the ineffective saw cuts would, without repair, impair the durability of the slab”: J[73].
In relation to damages, the primary judge observed uncontroversially that the starting point was the statement of principle in Robinson v Harman (1848) 1 Exch 850 at 855; 154 ER 363 that an award of damages for breach of contract should so far as money can do it place the injured party in the position it would have been in if the contract had been performed and the statement of principle in Bellgrove at 618-9 that, in the case of a contractual stipulation that a building will meet certain specifications, that amount is the amount necessary to bring about conformity with those specifications provided that is a reasonable course to adopt. His Honour also referred to the principle stated by this Court in Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114 at [71] (Gleeson JA; with whom White and Brereton JJA agreed) that:
“The burden of proof for establishing loss lies on the claimant … By contrast, the party in breach of contract has the onus of displacing the prima facie rule for assessing damages as the cost of reinstatement.”
“[131] Mr Fleming has adduced evidence that supports the conclusion that the reasonable response to the cracking that has emerged, and which may emerge, is not to replace the slab. Rather, it is to repair the cracks that now exist as required and then to implement a program to monitor for any new cracks and to have them repaired in a timely way, probably using an epoxy or a polymer resin remedial repair product. He has discharged his evidential onus. If he bore a legal onus, that too has been discharged. On the evidence, it is likely that a program of monitoring and repair will ensure that the slab performs as it is supposed to perform. It is an unreasonable response to replace the slab. I have come to this conclusion notwithstanding a paucity in the evidence about what this strategy is likely to cost, both now and into the future. I am nevertheless satisfied that the cost is likely to be substantially less than the cost of replacement. …
[132] I accept that the strategy of monitoring and repairing the cracks will not eliminate risk. There is a risk that the cracking will worsen to a point where it becomes apparent that simply filling the cracks will not do. However, on the evidence, this risk is a low one. It is more likely that the cracking will slow and stop. There is no suggestion on the evidence that 85 Princess faces a risk of catastrophic failure with serious consequences for life, limb and property. The risk, which is low, is that it will become apparent in due course that repairing the cracks by filling them will cease to be a sufficient response.”
85 Princess advances only one ground of appeal, although that ground has several sub-grounds. Essentially, 85 Princess advances two interrelated arguments on appeal. The first is that the primary judge erred in concluding that it was unreasonable in the circumstances for it to seek damages calculated by reference to the costs of achieving compliance with the contractual warranties that the primary judge found had been breached. The second is that the primary judge erred in concluding that a reasonable alternative to achieving compliance with the contractual warranties was to repair the existing cracks and to implement a program to monitor for any new cracks and to repair those cracks in a timely way.
By a notice of contention, Mr Fleming challenges the primary judge’s finding that he breached the warranties contained in cll 70.2(d) and 70.2(e) of the Sale Contract (grounds 1 and 2 respectively). Mr Fleming also challenges the primary judge’s finding that 85 Princess had suffered loss and damage (ground 3). That challenge, which to a large extent repeats his argument at first instance which was not dealt with by the primary judge, rests on the following contentions:
“a. the appellant had purchased the warehouse as a financial investment;
b. the warehouse was purchased with an existing sub-lease to Reece Australia Pty Ltd (Reece), which by clause 10 required Reece to maintain and repair the premises, excluding structural repairs;
c. the cracking in the concrete slab was not a structural defect and did not adversely affect the industrial utility of the premises as a warehouse;
d. any maintenance of the concrete slab necessary to prevent further cracking or deterioration was the responsibility of Reece under the sub‑lease;
e. neither Reece nor its under-tenant were entitled to claim or had made any claim against the appellant that might engage the indemnity in clause 70.3.”
Lastly, Mr Fleming contends that the primary judge should have drawn adverse inferences from the fact that 85 Princess did not call Mr Shankar or witnesses from Reece or Go Troppo (ground 4).
It is convenient to deal first with the question of breach (raised by grounds 1 and 2 of the notice of contention) and then to deal with the question of damages. However, before doing so, it is desirable to say something more about the relevant legal principles.
“In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.” [emphasis in original]
That rule, however, is subject to a qualification (at 618):
“The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.”
“Many examples may, of course, be given of remedial work, which though necessary to produce conformity would not constitute a reasonable method of dealing with the situation and in such cases the true measure of the building owner’s loss will be the diminution in value, if any, produced by the departure from the plans and specifications or by the defective workmanship or materials.” (at 619).
“If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff's loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.”
Lord Lloyd also said that relevant to the question of reasonableness is whether the plaintiff intended to reinstate the building: at 372. In Ruxley, reinstatement was totally disproportionate to the benefit to be obtained. A swimming pool with a depth of 6 feet 9 inches could be used in the same way as one with a depth of 7 feet and 6 inches (in particular, the trial judge had found such a pool was “perfectly safe to dive into”). There was no suggestion that the appellant intended to install a diving board, which might have provided a reason for a greater depth. The trial judge had found that “Mr Forsyth’s stated intention of rebuilding the pool would not persist for long after the litigation had been concluded” (at 372). Reinstatement in those circumstances did not reflect the appellant’s true loss.
These principles were affirmed by the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8, although the Court thought that the example given by the Court in Bellgrove of a case where it was unreasonable to seek reinstatement (of a cement rendered wall constructed with new bricks where second hand ones had been specified) tended to indicate that “the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances” (at [17]). The Court also quoted with approval (at [16]) the following passage from the judgment of Oliver J in Radford v De Froberville [1977] 1 WLR 1262 at 1270 which it thought was closely aligned to the example given in Bellgrove:
“Now, it may be that, viewed objectively, it is not to the plaintiff’s financial advantage to be supplied with the article or service which he has stipulated. It may be that another person might say that what the plaintiff has stipulated for will not serve his commercial interests so well as some other scheme or course of action. And that may be quite right. But that, surely, must be for the plaintiff to judge. Pacta sunt servanda. If he contracts for the supply of that which he thinks serves his interests — be they commercial, aesthetic or merely eccentric — then if that which is contracted for is not supplied by the other contracting party I do not see why, in principle, he should not be compensated by being provided with the cost of supplying it through someone else or in a different way, subject to the proviso, of course, that he is seeking compensation for a genuine loss and not merely using a technical breach to secure an uncovenanted profit.”
“The Tenant’s submissions rested on a loose principle of ‘reasonableness’ which would radically undercut the bargain which the innocent party had contracted for and make it very difficult to determine in any particular case on what basis damages would be assessed.”
Two points may be made about the decision in Tabcorp Holdings that are relevant to the present context. First, Tabcorp Holdings was obviously not a case concerned with the failure to meet a contractual specification. It was concerned with the failure to comply with a negative stipulation in the contract not to alter premises without written consent. It was a right that could have been vindicated by equitable relief in the form of a negative injunction if the tenant had not clandestinely made it impossible for the landlord to apply for relief of that type. The purpose of the clause was to do more than protect the landlord’s interest in the financial value of the building. It was to protect the landlord’s interest (for whatever reason) in having the building preserved in its current form. The protection afforded by the clause would be seriously undermined if damages were assessed merely by reference to the financial consequences of the breach. That is not what the test stated by Parke B in Robinson requires: see particularly Tabcorp Holdings at [13]-[15].
Secondly, there may on the face of it appear to be a tension between the decision in Ruxley and the decision in Tabcorp Holdings. Indeed, the High Court suggested in Tabcorp Holdings at [18] that “The result at which their Lordships arrived is on one view inconsistent with those principles [that is, the principles derived from Bellgrove and Radford]”. However, the facts of the two cases are very different. In Ruxley, Mr Forsyth had originally entered into a contract with Ruxley to build a swimming pool on his land with a depth of 6 feet 6 inches at the deep end. However, following a discussion between Mr Forsyth and Mr Hall, who controlled Ruxley, Ruxley agreed to increase the depth to 7 feet 6 inches for no extra charge. The work was performed by a subcontractor. However, it was defective with the result that Mr Hall agreed to remove the existing pool and build a new one, which Ruxley did. Mr Forsyth raised a number of complaints about the new pool, including the fact that the depth was only 6 feet 9 inches. Ruxley sued to recover the contractual price for the work. Mr Forsyth filed a counterclaim. The initial counterclaim contained particulars of ten defects, but nowhere was there a complaint about the depth of the pool. The counterclaim was amended three years later, but still there was no complaint about the depth of the pool. A complaint was only raised about the pool’s depth during the second day of the hearing.
The circumstances in Tabcorp Holdings could not have been more different, as illustrated by the first two paragraphs of the High Court’s judgment:
“1 On Monday 14 July 1997, Mrs Maria Bergamin arrived at an office building at 5 Bowen Cres, Melbourne. There she found that the foyer of the building had been badly damaged. A glass and stone partition, timber panelling and stone floor tiles had been removed. She was shocked and dismayed to see what remained of the floor stone work being jack hammered. A large bin was filled with the debris of the foyer. This destruction had been carried out by a tenant, Tabcorp Holdings Ltd (‘the Tenant’), the appellant in this appeal.
2 Why was Mrs Bergamin shocked and dismayed? She was a director of the respondent, Bowen Investments Pty Ltd (“the Landlord”), a company which owned the building. She had taken particular care over and interest in the construction of the foyer. It was of high quality. It was made of special materials — San Francisco Green granite, Canberra York Grey granite, and sequence-matched crown-cut American cherry. The construction of the foyer had been completed less than six months earlier. The Tenant had taken possession under a lease granted by the Landlord less than six months earlier. The lease contained a covenant, cl 2.13, forbidding the Tenant to alter the premises without the prior written approval of the Landlord. Mrs Bergamin had on Thursday 10 July 1997 arranged for the Tenant to be told that the Landlord did not consent to any alteration to the foyer. Mrs Bergamin had informed the Tenant in writing on Friday 11 July 1997 that the Landlord could not consent until the Tenant’s proposed alterations were examined at a site meeting at 11 am on Monday 14 July 1997. It was when Mrs Bergamin arrived at 10.45 am on 14 July 1997 in order to attend that site meeting that she observed the destruction which had taken place and which was continuing to take place. The trial judge specifically found that the Tenant was well aware that written consent from the Landlord to do what the Tenant had done was needed, and that that consent did not exist.”
The two cases serve to demonstrate the point made by the High Court in Bellgrove that what is reasonable is very much a question of fact that depends on the particular circumstances of the case. They also appear to support the view that relevant to the question of reasonableness is the subjective intention of those in whose favour the relevant contractual requirement is included.
In Stone – a case relied on heavily by the primary judge – Kourakis CJ at [55] helpfully set out a number of matters relevant to the question of reasonableness. They are:
“(1) the degree of departure from the contractual stipulation;
(2) the adverse effect of the departure on the functional utility, amenity and aesthetic appearance of the building;
(3) the reasons, objectively ascertained and commonly known, for which the innocent party made the stipulation which was breached;
(4) the practical feasibility of rectifying the work, including the effects on third parties of attempting to do so;
(5) whether or not the innocent party intends to carry out the rectification work;
(6) the absolute cost of the rectification work and the disproportion between that cost and
• the value of the building and contract price;
• the diminution in commercial value of the building;
• the effect of the departure on the functional utility, amenity and aesthetic appearance of the building;
(7) the nature of the wrongdoer’s fault for the defect; and
(8) the public interest in reducing economic waste.”
As the primary judge pointed out (at J[84]), there is a question about (8) in view of the comments made by the High Court in Bellgrove*,* which cast doubt on the proposition. Moreover, although this is a useful checklist, it should not be applied mechanistically and the ultimate question remains whether in all the circumstances of the case it would be reasonable to undertake the work necessary to achieve compliance with the contractual specification.
As already mentioned, it is generally accepted that although the burden of proof for establishing loss lies on the claimant, the party in breach bears at least an evidential onus of displacing the prima facie rule that damages for breach of a contractual stipulation in a building contract are to be assessed by reference to the costs of reinstatement: see JKN at [71] and the cases cited there. It follows that the party in breach must at least introduce evidence which, if accepted and left unanswered, would satisfy the court that reinstatement is unreasonable.
The two methods of assessing damages identified in Bellgrove are not the only methods for assessing damages for breach of a contractual specification in a building contract. As Kirk JA and Griffith AJA pointed out in Roberts v Goodwin Street Developments Pty Ltd [2023] NSWCA 5 at [94], quoting with approval a passage from the dissenting judgment (in the result) of Santow JA in Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353; (2004) 135 LGERA 98 at [187], “rules and principles as the common law has developed to assess the damages of an injured party are not inflexible, and must always be applied with the overriding goal of compensation”.
In building cases, one way in which defendants often seek to establish that the costs of reinstatement are unreasonable is by leading evidence that some alternative and cheaper method of rectification would produce the same practical outcome, in which case damages are assessed by reference to the costs of that rectification method. In those cases, it is necessary for the defendant to lead evidence of the method, its effectiveness and its cost. Unless the court can be satisfied that the method of rectification is as effective as reinstatement, damages will not be awarded on that basis. Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 [2010] NSWCA 23 is an example. In that case, the contract required the builder to construct concrete or brick hobs between residential units and their balconies to prevent storm water from entering the units. The builder had installed inferior wooden hobs. Following the builder’s liquidation, the owner sued Building Insurers’ Guarantee Corporation (BIGC), the builder’s insurer, for the costs of replacing the hobs with hobs that met the contractual specification. BIGC argued that it would be unreasonable to demolish and to replace the hobs because the same result could be achieved by treating the wooden hobs with a sealant. The Court (Handley AJA, with whom Tobias and Campbell JJA agreed) upheld the primary judge’s rejection of that argument. The expert called by BIGC gave evidence that little was known about the sealant, and there was no certainty that it could prevent water penetration under the aluminium angles. In the light of that evidence, BIGC had failed to establish its evidential onus:
“There was a clear breach of contract, the specified hobs which would have acted as a secure waterproof barrier had not been installed, and those that had been were inferior. In these circumstances the Guarantee Corporation had at least an onus of adducing evidence of functional equivalence, that the hobs as installed were just as effective as those specified.” (at [79])
Cases such as Guarantee Corporation need to be distinguished from cases, such as Ruxley, where the party in breach simply seeks to establish that it would be unreasonable for the claimant to insist on reinstatement. In those, the claimant has a choice. It can rely solely on its claim that the costs of reinstatement are the appropriate measure of its damage. But in doing so it takes the risk that, if the party in breach discharges its onus of proving that reinstatement is unreasonable, it will recover only nominal damages, since it will have failed to prove that it suffered any loss. Alternatively, the claimant can lead evidence of its loss calculated on that alternative basis. It is not for the party in breach to prove the damages that the claimant would be entitled to recover on that alternative basis.
Against that background, it is now possible to turn to the issues raised by the current appeal.
Mr Fleming challenges the primary judge’s finding that he was in breach of the warranties contained in cll 70.2(d) and 70.2(e).
The primary judge’s conclusion that cl 70.2(d) (that “the Building is structurally sound and can withstand the loadings likely to arise from its expected use”) was breached rests on two propositions. The first is that the warranty is a continuing one in the sense that it should be interpreted as saying that the Building is and will remain structurally sound. The second is that the warranty was false because unless the cracks were repaired with a sealant the slab would deteriorate “such that it would come to fail to bear loadings likely to arise from its expected use”: J[72].
In my opinion, the first proposition is not correct. The second depends on factual findings made by the primary judge which are not challenged on appeal.
As to the first proposition, it seems clear that the warranties contained in cl 70.2 address the position as at the date the contract was signed. That is plain in the case of the warranties addressed to the past, such as the warranties contained in cll 70.2(a) and 70.2(b). It is logical to treat the other warranties in the same way. The warranty in cl 70.2(d) is that “the Building is structurally sound”. The use of the present tense makes it clear that the warranty is concerned with the position at the time it is given, not at some future time. Although the second part of the warranty (“can withstand the loadings likely to arise …”) uses the word “likely” to identify loadings that are likely (but may not) arise in the future the warranty is still a warranty about what the Building “can” withstand, not a warranty about what the Building will be able to withstand if it is in a different condition (namely develops significant additional cracks which are not repaired with sealant, resulting in the overall condition of the concrete slab deteriorating such that it cannot withstand loads) at some time in the future. Properly understood, the warranty is saying that the Building was, at the time the Sale Contract was signed, capable of withstanding the loadings to which it was likely to be subject during the term of the Sublease. Whether the warranty is breached should be assessed on the basis that reasonable steps are taken, either by 85 Princess or the current tenants, to repair cracks with sealant, as suggested by Mr Hazelton. There is no suggestion that, by reason of the sawcuts not being effective, the concrete slab was structurally unsound or incapable of bearing the loads to which it might be subject at the time the Sale Contract was entered into, nor that that would be the case if reasonable steps were taken to repair cracks in the concrete slab with sealant. In this regard, the problem with the concrete slab can be distinguished from, for example, foundations which render a building unstable: as was the case in Bellgrove (at 615). It follows that the warranty was not breached.
On the conclusions I have reached, Mr Fleming was in breach of the warranties contained in cll 70.2(a), 70.2(c) and 70.2(e). The primary judge found that the prima facie measure of damages for breach of those warranties is “the cost of making the building conform to the contract” which in this case was “the cost of replacing the slab”: J[129]. That finding is not challenged on appeal.
Consequently, the issue on appeal in relation to damages is whether Mr Fleming discharged his evidential onus of establishing that replacement was not a reasonable course to take. Understandably, 85 Princess’s submissions in relation to that issue focussed on the primary judge’s finding that it was not a reasonable course because an alternative course was available – that is, “to repair the cracks that now exist as required and then to implement a program to monitor for any new cracks and to have them repaired in a timely way, probably using an epoxy or a polymer resin remedial repair product”: J[131]. However, the issue is broader than that because by his notice of contention Mr Fleming points to other matters which are said to make reinstatement unreasonable.
I accept 85 Princess’s submissions that there are difficulties with the primary judge’s conclusion on reasonableness if that conclusion rests on the reasons given by his Honour. On the analysis adopted by his Honour, Mr Fleming bore at least an evidential onus of establishing that some alternative and cheaper method of rectification would produce the same practical outcome as replacement of the slab. In order to discharge that onus, it would have been necessary for Mr Fleming to lead evidence of the method, its effectiveness and its cost. That is not something that Mr Fleming sought to do. The identification of the likely problem by Mr Hazelton (the timing of the saw cut joints in the slab) and Mr Hazelton’s comments about an appropriate method of rectification certainly provided some evidence concerning the alternative method and its effectiveness. However, that evidence was inadequate to discharge the onus Mr Fleming bore. For example, it is unclear how the system of inspection and repair would work in relation to cracks that developed in the parts of the slab that were underneath the offices or cool rooms installed by Go Troppo, or whether it was unnecessary to repair those cracks because they were adequately protected from water ingress by the structures over them. Moreover, Mr Fleming led no evidence of the likely cost (over the balance of what was expected to be a 20 year life of the slab) of adopting the proposed method of rectification. However, evidence of that type was essential because it could only be in the light of that evidence that it would be possible to say that the costs of reinstatement were wholly disproportionate to the benefit that would be obtained by reinstatement compared to repair.
That, however, is not the end of the matter. Mr Fleming submitted at trial, and I accept, that it was unreasonable for 85 Princess to seek to reinstate the slab in circumstances where:
(a) 85 Princess acquired the Land as an investment; (b) At the time 85 Princess acquired the Property it was the subject of a long term sublease in favour of Reece; (c) Under the terms of the Sublease, the Landlord only had an obligation to repair structural defects; (d) The defect in the slab that caused the cracking was not a structural one; (e) At the time the Sale Contract was entered into, the parties contemplated that the cracks that appeared would be repaired, rather than the slab replaced.
These matters need to be considered together. Some require further elaboration.
In Tabcorp Holdings, the High Court rejected a submission that the landlord should only be entitled to recover damages measured by reference to the diminution in the value of the building because it had bought the building as an investment. But the circumstances of that case were very different to the present one. In that case, the evidence established that, for whatever reason, the landlord had an interest in preserving the building in its existing state and had chosen to protect that interest by including in the lease an express clause preventing the tenant from altering it without the landlord’s written consent (which was not to be withheld unreasonably). The only effective way of compensating the landlord for a breach of that obligation was to award damages on a reinstatement basis. In the present case, the relevant obligations were contained in the Sale Contract. The purpose of those obligations was to protect the value of what was bought. Dr Kapila conceded as much when she said in cross-examination that 85 Princess bought the Property “As part of our planning for our retirement”. There was no suggestion that 85 Princess had any interest in the state of the concrete slab beyond its effect on the value of the Property and the ability to earn rent from it. Moreover, there was no evidence, for example, that the value of the Property was affected by the cracking, or that Reece was unwilling to pay the rent due under the Sublease because of the cracking or that either Reece or Go Troppo had complained about the cracking.
The primary judge found that 85 Princess did not intend to reinstate the pavement. That finding was based largely on evidence given by Dr Kapila in cross-examination who when asked whether “your present intention is to spend any damages in this case on rectifying any found issues in the property” replied that “It is to rectify the damage, yes”. The primary judge treated that evidence as evidence that 85 Princess “has an intent to address the cracking, but I would conclude that it will address the cracking in the manner that is most cost effective”: J[116]. That finding is challenged in para 1(a) of the grounds of appeal on the basis that Mr Fleming did not plead that 85 Princess did not have a genuine intention to reinstate and did not raise the issue in its submissions.
In my opinion, the question of intention does not depend on the evidence of Dr Kapila and is bound up with the objective facts of the case, which Mr Fleming did rely on. The evidence, which was accepted by the primary judge, was that the concrete slab did not suffer from a structural defect requiring its replacement. The likely cause of the cracking was the failure to install saw cut joints sufficiently promptly after the slab was laid. At the time that it bought the Property, 85 Princess was aware of the cracks from the dilapidation report that it had obtained from Ekror. That report proposed that the “cracks be rectified by suitable means like an epoxy or polymer resin remedial repair product”. The warranty in cl 70.2(f) (that “the Identified Defects have been rectified in a proper and skilful way using good and proper materials”) must be understood as a warranty that the existing cracks had been repaired in a proper and skilful way using an appropriate epoxy or polymer resin. And the parties must have contemplated that further cracks giving rise to a breach of the warranties contained in cl 70.2 would be dealt with in the same way. They could not have intended that the cracks would be repaired, but that any future cracks would be dealt with by replacing the slab in its entirety. Nor would they have intended that future cracks would not be repaired in circumstances where a failure to repair the cracks might, ultimately, result in the concrete slab becoming structurally unsound.
“Accordingly, the plaintiff has not suffered loss and damage caused by any minor defects, because it has no obligation under the lease to repair any defects other than structural defects. Nor is Reece or Go Troppo required to permit the defendant to enter the property to carry out any repairs save for structural repairs.”
“83 The adverse inferences to be drawn from not calling any witness from Reece or Go Troppo is that neither Reece nor Go Troppo have been adversely affected in their use of the warehouse by any of the alleged defects or are demanding repairs*.*
84 The plaintiff offers no explanation as to how carrying out non-structural repairs are even possible under the terms of the sublease and underlease.” [emphasis added]
The adverse inferences that Mr Fleming contends in ground 4 of his notice of contention should have been drawn must be those inferences. Although Mr Fleming does not expressly state in the paragraphs just quoted that it is to be inferred that 85 Princess does not intend to reinstate the slab, that is the force of the submission and the reason that Mr Fleming submitted that 85 Princess had suffered no loss. In my opinion, the issue was clearly raised even if it is not to be resolved precisely how Mr Fleming contended it should be.
The primary judge said this at J[117]:
“One way to rectify the defective work is to remove and replace the slab. That is the only way to be certain to fix the problem. However, I am satisfied on the evidence that a prudent owner of the slab would not replace the slab (at least not immediately). Rather, the cracking that has been occasioned, and which may continue, would prudently be addressed by putting into place a program of monitoring and filling the cracks by a suitable epoxy filler or some like material. That is likely to give the slab the same functionality and amenity as would have been achieved had there been no breach. It is possible that this will not be enough and that the slab will have to be replaced. I consider that unlikely.”
“133 Although in Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504, Handley AJA spoke in terms of expenditure to eliminate risk, I do not understand that the law requires an alternative to reinstatement to be entirely free of risk. It will depend on the circumstances, including the nature of the risk. The Court in Bellgrove v Eldridge spoke in terms of a ‘doubtful remedy’. 85 Princess should not be confined to a doubtful remedy. But the remedy of monitoring and repairing cracks is not a doubtful one. It is likely to be effective and the risk of it failing does not involve any real prospect of catastrophe.”
The primary judge’s view that it was possible that the slab may have to be replaced but that that was unlikely must be understood in context. The primary judge’s conclusions were based on acceptance of Mr Hazelton’s evidence. That evidence was that cracking “is most likely related to the timing at which saw cuts were installed in the slab, and also the continuation of, and arrangement of, saw cuts over the suspended loading dock”. However, that opinion, was expressed “without any testing or geotechnical analysis, and without any criticism of any structural drawings”: J[48]. Consequently, neither Mr Hazelton nor the primary judge could be definitive about the cause of the cracking. For that reason, the primary judge could not be definitive about Mr Hazelton’s evidence that if treated appropriately with the right polymers the cracking would stop over time and that “provided the cracks are treated properly, their existence will not otherwise impact upon structural integrity of the slab” (J[55]). The primary judge’s qualification, then, was not about the effectiveness of the repair method but related to the certainty with which the facts relevant to liability had been established. Those facts were not relevant to the question of damages or the reasonableness of addressing the problem by the replacement of the slab. Damages are not to be increased or decreased to reflect the certainty with which the facts proving liability have been established. As the primary judge observed, the relevant warranties were breached because the work was not carried out in a proper and skilful manner. That was because, on the balance of probabilities, the saw cuts joints had not been installed correctly. Accepting that that was the breach, for the reasons given, it was not reasonable to remedy that breach by the replacement of the slab.
It might be added that, contrary to Mr Fleming’s submissions, it is not correct to say that 85 Princess has suffered no loss. There are cracks in the concrete which need to be repaired. Those cracks arose from a breach of the warranties contained in cll 70.2(a), 70.2(c) and 70.2(e). It was open to 85 Princess to seek an indemnity under cl 70.3(a) in respect of that loss and to sue for damages if Mr Fleming failed to honour that indemnity, which he did. Indeed, that is how 85 Princess framed its case in its statement of claim. Framed in that way, it was open to 85 Princess to prove its loss by proving the costs of repairing future expected cracking of the slab over the remainder of its expected life of 20 years. Damages framed in that way would have meant that 85 Princess would be compensated for the cost of obviating structural damage by repairing cracks as they emerge. However, the fact that 85 Princess abandoned that claim in favour of a claim based on the cost of replacing the slab is not a reason for awarding damages on the latter basis. Indeed, the existence of the alternative claim may provide an additional reason for thinking that replacement of the slab was unreasonable. However, that was not an argument that was advanced by Mr Fleming, and it need not be considered further.
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85 Princess Pty Ltd
Fleming [2025] NSWCA 261
(1954) 90 CLR 613
(1959) 101 CLR 298
(2004) 135 LGERA 98
(2017) 128 SASR 165
(2009) 236 CLR 272
Appeal dismissed with costs. The primary judge’s award of nominal damages remained undisturbed.
The primary judge (Brereton J) rejected that claim: see 85 Princess Pty Ltd v Fleming [2025] NSWSC 407. His Honour accepted that Mr Fleming was in breach of several of the warranties contained in the Sale Contract. However, he held that replacement of the slab was not “a rational or reasonable commercial response” to the cracking (J[134]) and that an appropriate response was “to repair the cracks that now exist as required and then to implement a program to monitor for any new cracks and to have them repaired in a timely way, probably using an epoxy or a polymer resin remedial repair product” (J[131]). In the absence of any evidence concerning the costs of dealing with the cracks in that way, the primary judge held that 85 Princess was only entitled to recover nominal damages of $100. 85 Princess appeals against that decision.
For the reasons that follow, in my opinion the appeal must be dismissed with costs.
The primary judge concluded that cl 70.2(e) was breached because the slab did not comply with cl 9.5.1 of AS3600 which provides that “Cracking shall be limited to an extent that does not impair the durability or serviceability of the slab, both in terms of function and appearance”. In the present case, on the unchallenged findings of the primary judge, absent repairs the cracking was such that its durability would be impaired.
In my opinion, the primary judge was correct to conclude that that standard was not complied with and that therefore the warranty was breached. It is not entirely clear on what basis Mr Fleming submits that the warranty was not breached. The submission appears to be that, like the warranty in cl 70.2(d), the warranty in cl 70.2(e) is concerned with the position at the time it is given, not at some future time. That much may be accepted. But that does not dispose of the issue. The question is whether the slab was designed and constructed in a way that complied with cl 9.5.1 of AS3600. Although that clause uses the future tense, it is plainly a standard directed at the way in which the slab is constructed. Interpreted in that way, it is to be understood as saying that the slab must be designed and constructed so as to ensure that cracking is limited in the way stated. Understood in that way, the clause was breached because the slab in question was not constructed in a way that cracking was limited to the required extent. Rather, it was constructed in a way that caused cracking that would impair its durability or serviceability in terms of function because unless the cracks were repaired, the slab was likely to deteriorate to the point where it was no longer structurally sound.
The conclusion of the previous paragraph is supported by the terms of the Sublease, which were known to 85 Princess at the time that it bought the Land. Clause 16.1 of the sublease provides that “the Tenant may peacefully enjoy the Premises during the Term without interruption by the Landlord”. Clause 16.3 requires the Landlord to “keep and maintain the Premises and the Buildings … in a structurally sound, watertight and weatherproof condition and promptly conduct all necessary structural repairs to the Premises and the Buildings … at its own cost”. Clause 17.1 gives the Landlord a right of access at a time agreed by the Tenant “to inspect, maintain, repair or alter the Premises” and “to carry out any building works required by the Landlord … subject to at least 1 month’s prior written notice being given to the Tenant”. Consequently, the Landlord has an obligation to enter the premises to repair structural defects. It has a right to do so to repair non-structural defects. Clause 19.1 provides that “If the Premises or part of the Premises are damaged or destroyed so that they cannot or a substantial proportion of them cannot be used for the Tenant’s Business, the Landlord may, on written notice to the Tenant to be served within 14 days from the date of the destruction or damage, choose to either end this lease or reinstate the Premises”.
Under these clauses, 85 Princess has a right to enter the Property to repair cracks in the concrete with sealant or whatever other means is adopted to repair the cracks as they emerge. However, contrary to the conclusion of the primary judge at J[111] that “there is no obvious contractual impediment to the carrying out of rectification works, whether it be replacement of the slab or the filling of cracks”, it is less clear that under the sublease the Landlord has a right to demolish and to replace the slab if, as I have found, the slab does not (and provided repairs are carried out likely will not) suffer from a structural defect. For the Landlord to undertake the work necessary to do so may interfere with the Tenant’s right of quiet enjoyment. Similar issues arise in relation to the Underlease. It is neither necessary nor appropriate to resolve these issues in the context of the present dispute. The point is that the terms of the Sublease and Underlease, the obvious disruption that replacement of the slab would cause Go Troppo, and the absence of any evidence that 85 Princess has sought the agreement of Reece or Go Troppo to the replacement of the slab or that that agreement has been obtained make it objectively unlikely that 85 Princess intends to replace the slab and supports the conclusion that it does not have that intention.
85 Princess’s response to the point made in the previous paragraph is to say that it was not an issue raised by Mr Fleming at first instance. I do not accept that submission. In para 76 of his written submissions in the court below, Mr Fleming said: