Appellant v First Respondent

1 Mirvac Victoria Pty Ltd (ACN 006 708 363) ('Mirvac') was respondent to two applications to the Victorian Civil and Administrative Tribunal ('VCAT') alleging defective retaining walls in breach of s 8 of the Domestic Building Contracts Act 1995 (Vic) ('Domestic Building Contracts Act'). The applicant owners of the two properties ('the owners') were successful at VCAT and obtained orders from Senior Member Walker that Mirvac pay $196,843.50 in each application being damages awarded for the defective workmanship calculated on the basis of the cost of rectification. Mirvac seeks leave to appeal the orders of VCAT in both proceedings pursuant to s 148 of the Victorian Civil Administrative Tribunal Act 1998 (Vic) ('VCAT Act'). The applications at VCAT and the appeals to this Court were listed to be heard together. They encompass common questions of fact and law.

2 Mirvac constructed a row of nine townhouses along First Point Road, Port Melbourne under a domestic building contract between 2004 and 2006. Occupancy permits were granted in March 2006 and the townhouses in due course sold. Lina Pahor subsequently purchased one townhouse located at 3 First Point Road, Port Melbourne ('No 3'), from an earlier owner taking possession in April 2008. Christopher and Ania Liszka purchased the neighbouring townhouse located at 4 First Point Road, Port Melbourne ('No 4'), from an earlier owner taking possession in July 2015.

3 The nine townhouses were constructed on reclaimed land with the rear of the properties adjacent to the foreshore beach reserve. Along the length of the rear of the properties is constructed a retaining wall (the 'rear wall') made of concrete panels. Each property had a set of stairs running parallel to the rear wall giving access from the elevated garden level to the lower foreshore reserve. Townhouses No 3 and No 4 also each had a pool constructed at the rear of the property. The pools were adjacent to one another separated by the common boundary. One concrete panel of the rear wall formed one end of each swimming pool structure (the 'pool panels'). Along the entire length of the rear wall the concrete panels were topped with panels of glass balustrading.

4 In approximately 2013 a glass balustrade at No 3 shattered. It was a glass panel that straddled the pool panel and the adjacent concrete panel in the rear wall.

5 In 2016, the Liszkas were made aware by their tenants in No 4 that a glass balustrade was bearing on the concrete wall and in danger of shattering. Inspection identified movement occurring at the junction between the pool panel and the adjacent concrete panel of the rear wall. The Liszkas learned that a similar event had occurred some two years previously at No 4 prior to their purchase.

6 The defect alleged by the owners was that the builder had failed to provide proper footings for the relevant panels and therefore the rear wall of their respective properties was structurally inadequate.

7 Being built on reclaimed land, the townhouses required adequate footing. A geotechnical report by Golder Associates Pty Ltd ('Golder') commissioned by Mirvac prior to construction concluded that all structures were required to be founded on piles. This was because the reclaimed ground sat upon underlying layers comprised of sand and silt that had features of high compressibility. This included a strata of some eight to nine metres thick of Coode Island Silt. The effect of this was that footings, if placed in compressible sand and silt, would allow for differential settlement within or between structures, which would be unacceptable. Settlement in such circumstances would likely involve the sinking of the structure as well as tilting. Golder recommended that the structures were constructed on piles descending to a depth of some 35 metres to rock[1] to ensure no unacceptable movement.

8 In relation to the rear wall of the properties, the panels that formed part of the pool structure were, like the townhouses, founded on piles as recommended by Golder. However, the remainder of the panels that formed the retaining wall for the gardens and the stairwells were founded upon reinforced concrete strip footing set into the sand and silt.

9 The expert evidence agreed that the relevant panels founded on concrete strip footing were sinking and tilting with compression of the silt and fill while the pool panels footed by piles into rock were not sinking or tilting. The dispute between the parties was whether this constituted a defect or was, as Mirvac contended, the wall performing as designed so that there was no defect or structural failure. Mirvac also contended that the movement of the concrete panels, if a defect, was an observable defect at the time of purchase. In both cases Mirvac contended that having purchased a property with observable defect that either was, or could have been, observed on a proper inspection, no loss is suffered.

10 The argument before the Tribunal about whether or not there was a defect and the nature of the defect was largely a contest between the engineering opinions of Mr Black and Mr Adams. Mr Black's opinion relied on by the owners was that the structures are failing and continuing to fall over. He opined that there was no reason that the movement would not continue and accelerate. He identified three causes for the movement:

(1) foundation on weak, dubious earth subject to compression and settlement and not founded on piles;

(2) panels not adequate in size or shape to resist the overturning forces of the earth they are supposed to retain; and

(3) the design ignores the effects of pad structures used to support the loads during construction.

11 Mr Adams, relied on by Mirvac, expressed the view that building on Coode Island silt leads to ground settlement that is continuous and unstoppable. In his view, the movement of the retaining wall, including the stairwell structures on strip footing, was movement without distortion of the wall except at the junctions of the piled and non-piled structures. Therefore he did not believe that the walls were failing and said that despite settlement and rotation he did not agree that they required demolition and replacement. In summary, he agreed with the first cause identified by Mr Black for the movement of the relevant panels but not the second or third causes. He concluded that the rear wall was structurally sound but that the glass balustrades straddling the pool panels and the adjacent concrete panels had not been properly articulated. In his view rectification required the vertical join between the pool panel and the adjacent concrete panels to be cleaned out and recorked and the glass balustrades 'to the extent that they are displaced, are not horizontal or are damaged they should be relevelled, refixed or replaced.'[2]

12 In addition to a number of reports provided by these two experts, the Tribunal heard concurrent evidence from them. The Tribunal set out the evidence of each of them at length in its reasons. In Pahor v Mirvac Victoria Pty Ltd ('Pahor'), Mr Black's evidence was summarised at paragraphs 14 to 23 of the reasons.[3] The evidence of Mr Adams was summarised at paragraphs 24 to 31.[4]

13 Having set out the areas of agreement and dispute in the evidence of the two engineers, the Tribunal came to the following conclusion as to structural adequacy:

The alleged structural inadequacy of these retaining wall panels concerns their footings and the material upon which those footings are founded. I am not satisfied that they are otherwise structurally unsound but it appears to be common ground that the Coode Island silt and fill will continue to settle under the weight of the retaining walls and that the difference in height between the retaining walls and the swimming pool walls will progressively increase. It was not suggested that there will be any end to this process. Indeed, the evidence is that it will continue. If that is the case, that would extrapolate to a relative movement of 240 mm over 20 years.

Since the walls of the swimming pools, which are founded upon rock, abut the adjoining retaining wall for each house, and since the adjoining retaining wall panels in each case are founded upon fill and silt, it must have been obvious to the Builder at the time of both design and construction that differential movement between the two was not only possible but inevitable. Indeed, the apparent decision to articulate each joint appears to confirm that this was contemplated, yet no amount of articulation is going to deal adequately with the differences in height and alignment that are going to occur.

Yet the two walls, as constructed in each case, formed the common support of a rigid glass balustrade that straddled the piled and un-piled sections of wall and were designed to form a continuous wall across the back of the Property where it abuts the foreshore.

The defect complained of was the failure of the Builder to found the footings for these retaining wall panels on piles that were founded in turn on the rock below.[5]

14 The Tribunal then went on to conclude at paragraph 46:[6]

...I am satisfied that, by constructing the retaining wall on an unsound foundation the Builder is in breach of the terms implied into the building contract by s. 8 of the Domestic Building Contracts Act 1995 and that, by reason of s. 9 of that act, the Owner as a subsequent owner of the Property is an [sic] entitled to damages for that breach.

15 Damages were sought in the alternative either the cost of rectification or a claim for diminution in value of the property. The question as to whether demolition and reconstruction was a reasonable course to adopt for rectification was in dispute between the parties and required determination. In terms of the method of achieving rectification Mr Black had prepared a scope of works. Mr Adams commented upon this scope of works but did not himself propose a scope of works involving the foundation of the rear wall. His opinion as to rectification work is as set out above at paragraph 11. In respect of the cost of rectification, the Tribunal had evidence from a builder, Mr Salvatore and a quantity surveyor, Mr Pitney.

16 The appellant identifies five questions that it says are questions of law:

(1) Did the Tribunal misdirect itself that the scope of works produced by Mr Black was not the subject of dispute between the parties?

(2) Did the Tribunal fail to determine the dispute between the parties as to the correct scope of work required to prevent any further movement in the retaining wall?

(3) Did the Tribunal fail to give reasons that disclosed its path of reasoning to explain why it was rejecting the evidence of Mr Adams and Mr Pitney as to the feasibility of retaining the existing structure, relevelling it and supporting it on piles and adopting the contrary evidence of Mr Black?

(4) Did the Tribunal fail to give reasons that disclosed its path of reasoning to explain why it was rejecting the evidence of Mr Adams and Mr Pitney as to the feasibility of retaining and reusing the pre-cast panels?

(5) Was the Tribunal's application of the Bellgrove v Eldridge[7] ('Bellgrove') measure of damages correct where the claimant was not the contracting party but a subsequent owner claiming pursuant to warranties by operation of s 8 and s 9 of the Domestic Building Contracts Act?

17 The associated proposed grounds of appeal relied on made the first four questions inter-related. In oral submissions the approach and reasoning of the Tribunal relating to all four questions (and the proposed grounds of appeal associated with them) were dealt with collectively. The final question and connected proposed ground was a discrete question relating to the assessment of loss and damage.

18 An appeal from an order of VCAT is limited to questions of law and requires leave. To grant leave this Court must be satisfied that the appeal has 'a real prospect of success'. That test was explained in Kennedy v Shire of Campaspe in this way:

Attention must be focussed on the words 'real prospect of success' used by the statute. Bearing that in mind, those words should be construed consistently with this Court's interpretation of s 63 of the Civil Procedure Act. That is, the Court may only grant leave where the appeal has a 'real' as opposed to a 'fanciful' chance of success. This also accords with the interpretation given to the same words in the UK Civil Procedure Rules relating to appeals.

Naturally, there will be some cases where prospects of the appeal are strong, others where the prospects are weaker but it cannot be said that they are fanciful, and others where the prospects are fanciful. For the purposes of leave, it is only necessary to distinguish between those whose prospects are real and those whose prospects are fanciful. There is no bright line that divides the two. Nor is it useful to devise other categories using terminology deployed in other situations.

There are, of course, some different considerations that may play a part in the exercise of the Court's residual discretion to refuse leave, even where the appeal has a real prospect of success. For example (and without limiting the possibilities), there may be cases where even though the prospects of the appeal are real, no substantial injustice will be done if the decision stands. This may be particularly so when the appeal is from an order as to practice and procedure.[8]

19 The introduction of s 148(2A) of the VCAT Act with effect from 1 May 2018 brings the test for an appeal to the trial division in line with the test applying to leave to appeal from orders of the President or Vice President to the Court of Appeal as governed by s 14C of the Supreme Court Act 1986.

Did the Tribunal determine the dispute before it and give adequate reasons if it did so?

20 The grounds relied on to make out the alleged errors of law impugn the Tribunal's finding which was as follows:

The scope of the works assessed by Mr Black does not appear to be disputed. The issue was the cost of carrying them out.[9]

21 By this statement it was submitted the Tribunal failed to identify the dispute between Mr Black and Mr Adams and so did not determine the work required to rectify the problem of movement of the retaining panels. The third and fourth questions directed at the inadequacy of reasons were based upon the fact that Mr Pitney costed three methods of rectification but that the Tribunal's reasons for selecting one costing and rejecting the other two was simply that:

Of the three options that Mr Pitney has costed, I should adopt the first, because that is what Mr Black has said needs to be done in order to rectify the defect.[10]

22 In understanding the import of these two paragraphs in the context of the Tribunal's reasons as a whole it is helpful to understand the way in which the Tribunal approached its task.

23 The Tribunal reasons used headings under which it dealt with various issues. Under the heading Background and The hearing, the Tribunal set out preliminary matters. Then it proceeded to The construction of the walls - dealing with issues facing construction on reclaimed land and the footings as disclosed by documents put in evidence including the Golder report and the engineering design. It turned next to The engineering evidence - setting out the evidence of Mr Black and Mr Adams and dealing with the opinion evidence of each witness as disclosed by their various reports and by the concurrent viva voce evidence given by them. The reasons identified areas of agreement and disagreement in their evidence.

24 Following this consideration the Tribunal reached the Conclusion as to structural adequacy, a section in which the Tribunal set out its findings. I have set out those findings in full at paragraph 13 above.

25 Next the Tribunal, under the heading Submissions, deals with the competing arguments of the parties as to knowledge of the builder about how the wall would perform with footings as designed and then the Knowledge of the defect dealing with both the builder's knowledge and the owners' knowledge. The Tribunal then made findings as to whether or not Ms Pahor or the Liszkas had knowledge of movement by one panel compared to the adjacent panel. On that question, the Tribunal found that the difference in levels must have been obvious at the time of the Liszkas' purchase[11] but that the evidence did not permit a conclusion that it should have been noticed at the time of the Pahor purchase.[12]

26 The Tribunal then made findings as to the nature of the defect under the heading What is the defect? The conclusion quoted above at paragraph 14 forms part of these findings. It is preceded by the following passage:

In considering the issue of knowledge of the defect however, I think it is important to examine what the defect is. If the defect is simply the discrepancy in heights between the piled wall and the retaining wall on the strip footing, then that ought to have been obvious to the Owners when they bought the Property. On the other hand if the defect is that the wall has been constructed on an unsound foundation that is sinking and going to continue to sink for an unknown period then that was certainly not obvious."[13]

27 Within the reasoning to this point is a detailed examination of the engineering evidence. The contest on the engineering evidence was fundamentally whether or not the rear wall was structurally adequate as built. The Tribunal accepted Mr Adams' opinion that the wall was structurally adequate to hold retaining soil, and that levelling pads used to hold the precast panels in place during construction played no role in the continuing movement of the relevant panels. However, on the critical issue of movement of the panels both engineers agreed that the strip footing was causing the movement. Mirvac submitted to the Tribunal that there was no dispute between the experts about the amount of movement and the projected movement, nor that it was caused by the settling of the footing in the compressible soil.[14]

28 Mr Adams' evidence was that the retaining walls 'are structurally adequate, despite settlement and rotation' in that they were unlikely to collapse or fail. Mirvac submitted that this was tolerable performance of the relevant panels.[15] Mr Adams did not agree that they should be demolished and replaced. Given the findings of fact that the defect was the unsound foundation and that continuing movement into the future was to be expected, it is clear that the Tribunal rejected the submission that the performance of the relevant panels was tolerable.

29 Viewed as a whole the reasons clearly and comprehensively deal with the issue between the parties as to the nature of any defect, identifying the differing opinions of the engineers as to the various pressures to which the panels were subjected and the causes of the misalignment of the panels. There was no disagreement that footing the panels on piles would correct ongoing movement.

30 Having made those findings about the nature of the defect, the Tribunal turned to the question of damages under the heading Assessment of Damages. There the Tribunal dealt first with the principles to apply for the assessment of damages. It determined that Bellgrove applied.

31 The owners contended that all of their rear wall should be properly footed. They were required to show that this course of rectification was reasonable. The competing arguments were directed at whether or not footing on pilings was a reasonable course.

32 On the question of reasonableness the Tribunal found in favour of the owners stating:

I do not think that it is unreasonable for the Owners to demand that the retaining wall panels be brought into conformity with the contract that is, be supported on a proper foundation.[16]

33 Mr Adams' evidence dealt with rectification on the basis that all that was required was maintenance directed at the junction of the piled and non-piled panels: rearticulating the glass balustrading and re-calking the articulation between the concrete panels. He disagreed that there was a need to rectify the footings, and described the vertical joint between pool panel and adjacent panel as 'aesthetically the movement has failed the articulated caulking joint'[17]. The Tribunal had found against those conclusions stating:

Indeed, the apparent decision to articulate each joint appears to confirm that this [differential movement] was contemplated, yet no amount of articulation is going to deal adequately with the differences in height and alignment that are going to occur.[18]

34 This factual finding clearly rejects Mr Adams' opinion on the question of what is needed to fix the defect.

35 Having found that requiring the panels be put on a proper foundation was reasonable, it proceeded under the heading Cost of demolition and reconstruction to consider competing evidence as to the cost of doing this.

36 The fact that the Tribunal accepted the opinion of Mr Adams on the structural integrity of the rear wall with respect to retaining soil and other forces, does not detract from its conclusion that the strip footing was causing continuing panel movement. In my view it could not be said, as the appellant submits, that the Tribunal's conclusion that apart from the footings and the material on which those footings are founded the wall was not otherwise structurally unsound,[19] implicitly accepted Mr Adams' view that the retaining wall should not be demolished. Both engineers agreed that there would be ongoing differential movement between pool panels and adjacent panels. Once the Tribunal found that the different footing was the cause of ongoing differential movement in a rear wall designed to form a continuous wall, it was clear that rectification was necessarily going to address that ongoing movement regardless of whether the wall was otherwise sound.

37 Having determined all matters necessary to arrive at the point of assessing damages the Tribunal proceeded to address the scope of works of Mr Black dated 8 September 2017 (the 'Black Scope of Works'). It was the only engineering scope of works where there was evidence of cost. Under the heading Cost of demolition and reconstruction[20] the Tribunal clearly turned its attention to the issue of resolving the conflicting evidence about the cost of footing the retaining wall.

38 There is nevertheless a further consideration of whether, in assessing the cost of putting the relevant panels on a proper foundation, there was a dispute as to how the work identified by Mr Black was to be undertaken.

39 The Black Scope of Works was provided in accordance with the Tribunal's order that the owners file a report that provided further detail to the original expert report and, relevantly, recommended a scope of works for any necessary rectification. Mr Black described his scope of works as a 'general overlay of the reinstatement requirements and not a full specification'. It set out a schedule of requirements for pricing purposes. In a table headed 'Part B - Demolition and Reconstruction', it listed 15 steps necessary which all required costing. Those steps included demolition and removal of existing structures and replacing structures of the same dimension as in the Mirvac drawings but set level with the pool panels and set on piles. As to the piling, it said that for pricing purposes Continuous Flight Auger piles ('CFA piles') are to be assumed. It contemplated reusing undamaged glass balustrading.

40 Mr Adams was asked to comment on the Black Scope of Works in his second report dated 14 May 2018. He repeats his view that the walls are structurally sound and require only some maintenance work but no remedial work. He opined that, if the wall required piled foundations, then demolition was not necessary as the panels and stairwells could be relevelled off new piles rather than demolishing and reconstructing them.[21] New piles could be sunk around the existing structure so that the existing panels and stairs would be jacked up to support them at their original level with relevelling (the 'jacking up on new piles method'). He opined that this was an option as there was no distortion in that part of the structure that was moving. If piling was required then Mr Adams' view was that CFA piles were not an appropriate solution and his report identified either screw in piles or driven piles. He reported that demolition could reuse precast panels and gates fitted with new spiggots or hinges.[22]

41 The viva voce evidence dealt with the suitability of various methods of piling. Mr Black was cross-examined about screw piles and driven piles. He maintained that screw piles were not appropriate and that CFA piles were a more gentle alternative to driven piles. When asked to comment on the nature of the piles proposed or alternatives, Mr Adams gave evidence about the differing ways that CFA and screwing piling impact upon the ground surface, and his view about the amount of vibration involved in breaking out existing concrete footings in order to remove them.[23] There was no exploration of keeping the existing structure and using the jacking up on new piles method in the concurrent viva voce evidence. Mr Adams made no mention of it. Nor was this method of putting the rear wall on a proper foundation put to Mr Black for comment. There was no attention paid at the hearing to the ability to separate the concrete panels from the footings in which they were cast in order to reuse them, save for the evidence of Mr Adams as to the vibration involved as mentioned above.

42 The submissions made by Mirvac to the Tribunal on what work was required if the wall was to be placed on a proper footing were both written and oral. The written submissions proceeded on the basis that the defect was patent and observable and therefore no loss was suffered. No alternative submission was made on the basis of Mr Adam's approach: the jacking up on new piles method. In oral submission the Tribunal asked '...if it is Mr Black's scope of works, that it should be according to the cost of - - ?'[24] The submission was made that 'it is unreasonable and unnecessary to do it, do the work proposed by Mr Black.'[25] No oral submissions were directed at a jacking up on new piles method proposed by Mr Adams.

43 The parties each presented evidence as to the cost of undertaking footing work in accordance with the Black Scope of Works. The owners relied on a quotation from a builder, Mr Salvatore. Mirvac relied on the costings of a quantity surveyor, Mr Pitney. Mr Salvatore and Mr Pitney both provided reports and gave concurrent evidence. Neither were asked about Mr Adams' jacking up on new piles method in their viva voce evidence. The Tribunal preferred the costing methods of Mr Pitney and gave reasons for that preference which are not challenged.

44 Mr Pitney had been asked to cost the scope of works outlined by Mr Black on the assumption that they were required. Mr Pitney's second and third costing options, rejected by the Tribunal, were based upon Mr Pitney's opinion that the Black Scope of Works was unnecessarily expensive and not required. Mr Pitney thought the need for piles to 35m seemed 'extreme' and recommended a more practical engineering solution be found. In light of his view, he costed three alternate methods of undertaking replacement of the footings. The first which involved accepting entirely the Black Scope of Works (which included the stairs in the rear wall) came out at $357,898. The second involved contemplated re-using the precast panels. This came out at $336,371. The third involved replacing the inner retaining walls only but not the panels forming the parallel side of the stairs. This came out at $254,196. The latter two were proffered in light of Mr Pitney's conclusions as to the unreasonableness of Mr Black's scope of works.

45 Mr Pitney was not given Mr Adams' report of 14 May 2018 detailing what might be required if piling was necessary. He was not asked to cost such a proposal. Nor was he asked about such a method in his viva voce evidence. Mirvac led no evidence as to the cost of Mr Adams' method.

46 The two costings methods Mr Pitney proposed that did not accord with the Black Scope of Works, did not match the suggested more practical engineering solution he recommended. Whether such methods were feasible or practical were clearly matters of engineering opinion and beyond his expertise as was his opinion about the need for the Black Scope of Works. No engineer was asked to contemplate piling only the inner walls as Pitney proposed.

47 The Mirvac written submissions to VCAT said that if it were determined to be necessary, the Black Scope of Works ought to be costed at one of the three Pitney options.[26] It made no submission as to which option was the preferred option and led no evidence as to the feasibility of costed options other than what Mr Black had proposed. In all of these circumstances it is unsurprising that the Tribunal observed that the dispute between the parties as to quantum of damages was one as to the cost of the works proposed by Mr Black.

48 The appellant states that the only reason given by VCAT for the preference of the first costing is 'that is what Mr Black has said needs to be done'[27] and this is so. However there was before the Tribunal no costing for an alternative of new footing of the panels in situ and no evidence about the ability to reuse precast concrete panels or how they might be isolated from their concrete footings. Mr Adams had given evidence about the vibration and risk associated with the necessity of breaking up those footings in order to remove them from the ground[28] which one might infer has some impact on the ability to reuse the precast panels.

49 It is difficult to criticise the Tribunal for any inadequacy or brevity of reasons as to considering the three options costed by Mr Pitney. Neither of the two options it rejected was the subject of any engineering evidence. Mirvac did not seek comment from Mr Adams on Mr Pitney's proposed methods if work on the footings was to be required. Mirvac did not put to Mr Black, when he gave evidence, Mr Pitney's options of re-using the precast panels or of piling only the panels forming the inner wall, as being more cost effective and equally acceptable methods of dealing with the footing. No submission was made to the Tribunal as to which of the three options costed by Mr Pitney was the preferable one for it to adopt or why. The only submission made was that his costings be preferred to those of Mr Salvatore, a submission which was accepted. The evidence before the Tribunal could not have warranted a conclusion that either of the options proposed and costed by Mr Pitney but not accepted by the Tribunal would put the owners in the same position as if the contract had been performed. Given that the contest as to assessment of damages was presented to the Tribunal as one whether or not the Black Scope of Works was reasonable and necessary, it was sufficient for the Tribunal to identify a preference for Mr Pitney's costing as that which accorded with the available engineering opinion which it had accepted.

50 Mirvac has no real prospect of success on any of the grounds connected with questions 1 to 4. I will refuse leave to appeal on those questions.

51 The appellant's fifth question and proposed ground of appeal concerned the Tribunal's approach to the measurement of loss sustained by an owner as a result of the breach of warranty. The Tribunal applied the principle in Bellgrove that damages for breach of a domestic building contract are generally assessed as the cost of making the building conform to the contract.

52 Often an appellant will be precluded from raising on appeal an argument not raised at trial. The respondents take issue with this ground as being one not argued below. However an appeal under s 148 of the VCAT Act, although described as an appeal, is analogous to a judicial review on a question of law.[29] If the Tribunal has proceeded to assess damages upon a wrong principle, a viable ground of appeal may arise, even if this was contributed to by the approach taken by the Appellant. The submission to the Tribunal by both parties on damages made reference to the application of Bellgrove principles. However, both parties also led evidence as to loss or damage as might be calculated by diminution of value as well as calculated by the cost of rectification. Before me it was not submitted that had a different legal test been identified the evidence led might have been different.

53 In Bellgrove the owner of land, contracted with a builder Mr Bellgrove, to construct a house on her land. Contrary to the contract and building specifications he did so with concrete and mortar not mixed in the correct proportions resulting in a building that was gravely unstable as constructed. Mrs Eldridge, sued by the builder for outstanding payments under the contract, cross claimed for damages for breach of contract. The builder's claim failed and the cross claim succeeded before Justice O'Bryan of the Supreme Court of Victoria. The builder appealed to the High Court on the question of the measurement of damages on the cross claim.

54 The High Court restated the general principle that damages should put an injured party in the same position, insofar as money can do so, as if they had not suffered the loss or injury. In the circumstance of a domestic construction contract between builder and owner that principle results in damages being required to be assessed as the cost of the work necessary to provide a house constructed in accordance with the specifications in the contract. The Court said:

It is true that a difference in the values indicated may, in one sense, represent the respondent's financial loss. But it is not in any real sense so represented. In assessing damages in cases which are concerned with the sale of goods the measure, prima facie, to be applied where defective goods have been tendered and accepted, is the difference between the value of the goods at the time of delivery and the value they would have had if they had conformed to the contract. But in such cases the plaintiff sues for damages for a breach of warranty with respect to marketable commodities and this is in no real sense the position in cases such as the present. 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 of her land which is substantially in accordance with the contract.[30]

55 The Court said that measuring damages on this basis is qualified by the need to demonstrate that the proposed rectification is necessary to achieve conformity with the contract and is a reasonable course to adopt.

56 The reasoning of the Court was that, unlike a contract for sale of defective goods of marketable commodities where the goods have been tendered and accepted, a construction contract involves necessarily not just the building to be constructed by the builder but the provision of the land by the contracting owner on which it is to be constructed. In such cases, the Court said, defects in the performance of the contract on the owner's land cannot necessarily be remedied by the difference in value of the defective goods (in this case the house, presumably including the land) and the value that the house and land would have if it had conformed to the contract. The Court, using the example of a building no less valuable but painted in a colour different to that for which the contract provided, asked whether an owner in such circumstances was left without remedy, and said:

In our opinion he is not; he is entitled to the reasonable cost of rectifying the departure or defect so far as that is possible.[31]

57 In this matter the owners are not the contracting party and sue based upon breach of warranty implied into the contract by s 8 Domestic Building Contracts Act. The warranties implied by statute include warranties that the work and materials are proper and suitable and carried out in accordance with the plans and specifications in the contract. Their cause of action derives from s 9 which provides:

S 9 Warranties to run with the building

In addition to the building owner who was a party to a domestic building contract, any person who is the owner for the time being of the building or land in respect of which the domestic building work was carried out under the contract may take proceedings for a breach of any of the warranties listed in section 8 as if that person was a party to the contract.

58 The appellant submits that the measure of damages for subsequent owners suing under an implied statutory warranty cannot be the same as for the contracting owner suing for breach of contract. It argues either that Bellgrove principles have no application at all or that, if Bellgrove principles do apply, they ought be determined by (i) whether non conformity was apparent at the time of purchase by the person seeking to rely on the warranty and, (ii) whether the non-conformity was structural in nature.

59 It contends that the decision in Bellgrove is based upon the particular status of promises in contract and the right of an owner who has specified a particular result to be able to recover that result by way of remedy. It further contends that any loss or damage of subsequent owners cannot be the same as for the original owner and loss cannot arise simply by reason of contractual non-conformity.

60 Under s 9 of the Act subsequent owners of property constructed under a domestic building contract are to take proceedings 'as if that person was a party to the contract'. I disagree with the submission that the reasoning in _Bellgrov_e relies on the particular status of promises in contract. Rather, in my view, it is the particular nature of a building contract - an agreement that a builder construct on land of the contracting owner in a way that land and building are indivisible -that underpins the Court's reasoning. In this way, a subsequent owner is entitled to damages if a breach of warranty is established, prima facie on the basis of conformity with the building contract.

61 That is not to say that a subsequent owner's loss and damage for breach of warranty will necessarily be identical to that of the contracting owner, even if assessed on the same principles. Assessment of loss and damage of each owner is a question of fact and the qualification of conformity with the contract being reasonable and necessary allows for a consideration of any different factual circumstances.

62 A departure from the contracted plans and specifications will not always amount to a breach of a warranty to carry out work in a proper and workmanlike manner or other warranty imposed by s 8 of the Domestic Building Contracts Act. One can think of many departures from plans and specifications that may still be work carried out in a proper manner not giving rise to any breach of warranty to a subsequent owner - the departure from specified paint colour is but one example. Other departures may also give rise to defects.

63 At the Tribunal, Mirvac argued that where a subsequent purchaser has full notice of any defect at time of purchase, no loss is suffered, relying on Allianz v Waterbrook.[32]

64 Allianz was concerned with an insurance policy for residential building work insuring the person on whose behalf the building work was being done and their successor in title against the risk of loss arising from a breach of statutory warranty in respect of the work. A developer contracted with a builder to construct a retirement village. The developer sold the village to Waterbrook. The building work contained defects and Waterbrook sought indemnity under the insurance policy for the cost of rectifying the defects. The policy excluded liability for defects that were reasonably visible at the time the land and buildings were acquired. Allianz repudiated liability.

65 At trial, McDougall J held that the measure of damages recoverable by the original owner for defective work was laid down in Bellgrove and 'the clear intention of s 18D [the equivalent to s 9] is that the entitlement of successors should be no less.'[33] On appeal the correctness of this approach was challenged by the submission that damages should be assessed on a tortious basis, being the decrease in value of the building caused by the defective work. The submission relied on Bryan v Maloney.[34]

66 Ipp JA in resolving the competing submissions said:

Belgrove v Eldridge [sic] was a case in contract and Bryan v Maloney a case in tort. The present, to the extent that it involves claims under the Policy is a claim in contract, but it is overlaid by the statutory application of the statutory warranties. Notwithstanding the influence of the statutory rights and duties in this case, I accept Mr Liney's argument that the contractual measure of damages (Belgrove v Eldridge) [sic] applies, as McDougall J held.[35]

67 His Honour goes on to consider difficulty in applying that measure of damages to a successor in title who may have purchased a building with patent defects making a deliberate decision to do so, thereby breaking the chain of causation. His Honour said:

In my opinion, applying the same reasoning, a successor in title who acquires a building in full knowledge of its defects, suffers no loss from the existence of those defects. In those circumstances, the builder's breach of statutory warranty could not be said to have diminished the successor's assets, nor increased its liabilities. Any adverse impact to the successor's financial position, and any loss to the successor, would result from the successor knowingly and deliberately paying more for the building than it was worth. The loss would be caused by the successor's own decision to purchase at the agreed price.[36]

68 The observations are predicated on the 'full knowledge' of the defects being not only knowledge of the existence of the defects but also knowledge of their significance. A party may know of the existence of defects (because they are patent), but may not appreciate - even acting reasonably - that major expenditure would be required to remedy them.

69 From this, the following principles can be extracted:

(a) Damages for breach of statutory warranty are neither an action in contract nor an action in tort. They are a statutory right of action given as if a successor in title was a party to the contract.

(b) Bellgrove principles determine the applicable measure of damages for a successor in title claiming breach of implied warranty as for a contracting owner.

(c) Whether a defect is latent or patent will be relevant to whether any loss has been caused by the breach of statutory warranty. Where a purchase is made with full knowledge of a defect, that act may break the chain of causation so that no loss is incurred.

(d) Even where evidence of a defect is patent, a full appreciation of the defect might not be possible even on reasonable inspection, and a loss might still be demonstrable.

The Tribunal was correct to apply the Bellgrove principles to measure damages for breach of warranty claimed under s 9 of the Domestic Building Contracts Act.

70 Whether on the particular facts of a case full knowledge of the defect breaks the chain of causation or negates the loss of a subsequent owner are questions of fact. Such matters are contemplated by the Bellgrove principles, qualified by reasonableness and necessity.

71 On the factual findings of the Tribunal in this case, the footings of the rear wall were unsound, although built in accordance with plans, resulting in a defect giving rise to an entitlement to damages. The Appellant's alternative argument was that Bellgrove only applies to a limited category of defects. It is unnecessary to consider that argument because on the findings of the Tribunal the defects would meet the suggested narrower definition.

72 I would grant leave to appeal on question 5. However the associated ground of appeal is not made out.

73 I will order that leave to appeal on questions 1 to 4 be refused, that leave to appeal on question 5 be granted but that the appeal be dismissed.

74 I will hear the parties on the question of costs.

[2] Bruce Adams, Expert Report - VCAT Case Reference BP 386/2016 Christopher Liszka and Ania Liszka v Mirvac Victoria and VCAT Case Reference BP338/2016 Lina Pahor v Mirvac Victoria (Report, 15 November 2017), 15 [3.12].

[3] Pahor v Mirvac Victoria Pty Ltd (Building and Property) [2018] VCAT 1105 ('Pahor') and the equivalent paragraphs in Liszka v Mirvac Victoria Pty Ltd (Building and Property) [2018] VCAT 1106 ('Liszka') [14] - [23].

[4] In Pahor (n 3) [24] - [31] and the equivalent paragraphs in Liszka (n 3) [24] - [31].

[5] Pahor (n 3) [32] - [35] and Liszka (n 3) [32] - [35].

[6] Pahor (n 3) [46] and Liszka (n 3) [48].

[7] [1954] HCA 36; (1954) 90 CLR 613 ('Bellgrove').

[8] Kennedy v Shire of Campaspe [2015] VSCA 47 [12] - [14] (Whelan JA and Ferguson JA).

[9] Pahor (n 3) [59] and Liszka (n 3) [61].

[10] Pahor (n 3) [67] and Liszka (n 3) [69].

[13] Liszka (n 3) [46]. In Pahor (n 3) the Tribunal was unable to find on the evidence whether it should have been apparent [44].

[14] Transcript of Proceedings, Lina Pahor, Christopher Liszka & Ania Liszka v Mirvac Victoria Pty Ltd, (VCAT, BP338/2016; BP336/2016, Senior Member R. Walker, 30 May 2018) 'VCAT Transcript' 161 (M Sharkey).

[16] Liszka (n 3) [60] and Pahor (n 3) [58].

[17] Bruce Adams, Expert Report - VCAT Case Reference BP 386/2016 Christopher Liszka and Ania Liszka v Mirvac Victoria and VCAT Case Reference BP338/2016 Lina Pahor v Mirvac Victoria (Report, 15 November 2017), 19.

[18] Liszka (n 3) [33] and Pahor (n 3) [33].

[19] Liszka (n 3) [32] and Pahor (n 3) [32].

[20] Liszka (n 3) [61] - [69] and Pahor (n 3) [59] - [67].

[21] Bruce Adams, Expert Report - VCAT Case Reference BP 386/2016 Christopher Liszka and Ania Liszka v Mirvac Victoria and VCAT Case Reference BP338/2016 Lina Pahor v Mirvac Victoria (Report, 14 May 2018), [5.7] - [5.9].

[26] Mirvac Victoria Pty Ltd, 'Respondent's Written Outline of Submissions', Submission in Christopher Liszka and Ania Liszka and Lina Pahor v Mirvac Victoria Pty Ltd, BP 386 / 2016 & BP 338 / 2016, 31 May 2018 [41].

[27] Liszka (n 3) [69] and Pahor (n 3) [67].

[29] Roy Morgan Research Centre Pty Ltd v Commissioner State Revenue (Vict) 207 CLR 72 [15].

[30] Bellgrove (n 28) 617 (emphasis in original).

[32] [2009] NSWCA 224 ('Allianz v Waterbrook').

[33] Waterbrook at Yowie Bay Pty Limited v Allianz [2008] NSWSC 1451 [54].

[35] Allianz v Waterbrook (n 33) [69].

[36] Allianz v Waterbrook (n 33) [110].