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Parties: Ashell Homes Constructions Pty Ltd (Plaintiff) Jonathan Hilton Kobus (First Defendant) Amy Elleway (Second Defendant) Representation: Counsel WDB Buckland (Plaintiff) D Robens (First and Second Defendants) Solicitors O’Connor Harris & Co Solicitors (Plaintiff) Harrington Hall Lawyers (First and Second Defendants) File Number: SC 45 of 2020 McWILLIAM J: Relevant procedural history

1. This was a building dispute between two owners (the defendants) and their former builder (the plaintiff). The owners terminated the building contract and sought damages on a counterclaim. Damages were awarded following a finding that the builder had repudiated the contract and were set off against a conversion claim on which the builder had succeeded, with the net effect being judgment entered for the defendants in the sum of $25,089.35 plus interest: Ashell Homes Constructions Pty Ltd v Kobus [2022] ACTSC 323 (primary judgment).

2. Reasons were subsequently provided for the damages sum awarded to the defendants in Ashell Homes Constructions Pty Ltd v Kobus (No 2) [2022] ACTSC 359 (damages judgment).

3. The present application follows an appeal on damages which was successful because the quantum of damages on the counterclaim was held to have been awarded on a basis other than how the counterclaim was run, and this was found to have denied the builder procedural fairness: Ashell Homes Constructions Pty Ltd v Kobus [2024] ACTCA 32 at [1], [52] (Ashell).

4. The matter was remitted for the purpose of the court assessing the defendants’ claim for damages on the basis of the claims that were properly before the court: Ashell at [11]. Mossop and Baker JJ went on to state at [13]: Other than confining the scope of the remittal to the determination of the quantum of damages on the respondents’ counterclaim and consequential orders, it is not appropriate to give any further direction to the primary judge. How the matter proceeds will be a matter for the primary judge to determine. The application for determination

5. By application dated 30 January 2025, the defendants sought to amend the counterclaim. They require leave to do so: r 507 of the Court Procedures Rules 2006 (ACT). The purpose of the amendments is to properly plead the damages sought. Explanations were put before the court, but I consider that a material part of what gave rise to the application was the court’s findings in the primary judgment on liability and the refinement of the issues on appeal.

6. Previously the defendants had claimed rectification of non-compliant work and the costs to complete the project as required by the contract. The passing of time has also permitted the effect of that defective work to be better appreciated and quantified.

7. The amendments seek now to claim: (a) damages for work undertaken to rectify the defects caused by the plaintiff; (b) damages for the difference between the contract price and the total amount reasonably incurred or required to be incurred by the defendants in causing the building works to be completed as closely as possible to the approved plans; (c) damages for loss of amenity; (d) repayment of the progress payments to which the plaintiff was not entitled; and (e) damages for the two townhouses not achieving the environmental performance of the townhouses that was desired or the strength of the construction desired, as a result of the deviations from the engineering plans and the quality of the slab and footings that were constructed.

8. Initially the defendants also sought to pursue a claim for diminution in value upon the sale of the units, however those amendments are no longer pressed.

9. The defendants have quantified the damages they now seek for breach of contract at $184,026.61. That figure is broken down in the submissions, but it broadly comprises the following: (a) costs to complete the construction; (b) damages for substantial departures from the plans when constructing the foundations and slab; (c) labour and disbursements in undertaking drainage works; (d) battery purchased to alleviate increased power costs; (e) loss of amenity living in units with inferior insulation, and general damages for managing and facilitating the subsequent building work and rectification and compliance issues; (f) interest on the costs of the battery and to complete drainage works; and (g) additional mortgage payments and interest.

10. They submitted that the orders on the remitter expressly did not prohibit the proposed amendments, nor the leading of further evidence. Further, the amendments would aid the just resolution of the dispute and would not unduly expand the remittal hearing. The defendants submitted that even with the amendments, the hearing on damages was still confined in scope and duration, with a further one day hearing required. The plaintiff’s opposition to the amendments

11. The application was opposed by the plaintiff for what may be viewed as two main reasons: (a) The first was that the Court of Appeal did confine the scope of the damages assessment to the claims that were properly before the court and the amendments take the damages beyond those claims. (b) The second reason was that the proper application of principles concerning case management meant that the court should refuse to permit amendments broadening the scope of a claim after a hearing, with those principles deriving from Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 at [71]-[74].

12. It was submitted that certain items claimed “could require” expert evidence both on causation and quantum regarding the construction of the foundations and slab, and drainage works. The plaintiff considered that expert building evidence, including assessment by a quantum surveyor, might be required.

13. It was further submitted that the claim for a battery will require documentary investigation, including the issuing of subpoenas to obtain the relevant conveyancing files.

14. The plaintiff would need an opportunity to put on responsive evidence, which might include structural engineering evidence in response to the items claimed for constructing the foundations and slab.

15. The plaintiff further submitted that the plaintiff would need to further cross-examine the defendants on (at least) the new costs to complete now claimed, the damages claimed for slab and foundations issues and how that was calculated, the facts relating to the drainage works, the issues affecting the amenity claim, the claim for project management, and the basis for the damages sought insofar as they related to the additional mortgage payments. The plaintiff disagreed with the defendants’ estimate that the hearing would be confined to a day.

Leave will be granted for some, but not all, of the amendments proposed

16. This is a procedural matter arising on a discrete issue, namely whether the defendants should have permission to amend how they plead the quantum of damages on the counterclaim. The court’s assessment of damages on remittal is not confined to the existing pleading

17. I do not accept that the Court of Appeal confined the scope of the remittal on damages in a way that prevented any subsequent application to amend the damages claimed. At the time the reasons were delivered, the Court of Appeal did not have any knowledge of any future application to amend the damages claim. Moreover, such a confinement would have been at odds with the principle that the assessment of damages is quantified as at the date of the hearing, not a point fixed at the time of an earlier hearing. There is no reason to construe the reasons of the Court of Appeal in that way.

18. The application is instead governed by s 5A of the Court Procedures Act 2004 (ACT) (CPA), which requires that powers exercised in applying civil procedure provisions must be exercised in the way that best promotes the main purpose of the provisions. If the amendments are permitted, then they will form part of the claims that are properly before the court for determination of the quantum of damages, which is entirely within the scope of the remittal.

19. The main purpose of the case management objectives is to facilitate the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible. This includes, inter alia, the efficient use of judicial resources, the efficient disposal of a court’s overall caseload, the timely disposal of civil proceedings, and the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

20. However, those overarching objectives do not mean that an amendment must be refused whenever circumstances that conflict with those objectives arise. There are tolerances in litigation. It has been said that the pursuit of statutory objectives similar to those of the CPA does not mean that an application for amendment will be refused. It is the extent of the delay and costs, together with any prejudice that might be caused, which is relevant to the grant or refusal of permission to a party to alter its case: Rozenblit v Vainer [2018] HCA 23; 262 CLR 478 at [31].

21. In the circumstances of this case, the key consideration remains that there has already been a hearing with evidence on the question of damages. The defendants are not in the position of being able to amend their pleading wholly unconfined. Equally though, the defendants are not to be prevented from clarifying their pleaded counterclaim to pursue the remedies to which they are entitled on the proper application of legal principle and as at the date of the further hearing, provided they do not occasion injustice to the opponent.

22. Significantly for the amendments proposed on this contractual claim, there are different ways in which damages may be measured. The remaining issue between the parties is about the appropriate measure of the damages, and the loss actually suffered may have changed. An overview of the court’s approach to damages in cases where a property has been built in a defective manner (in this case, in fundamental departure from the approved plans) is helpful to understand why I have not taken a uniform position to each of the amendments proposed.

The approach to the assessment of damages generally

23. The established principle (discussed in the damages judgment at [21]-[24]), is that the party sustaining the loss by reason of a breach of contract is, “so far as money can do it, to be placed in the same situation … as if the contract had been performed”: Robinson v Harman [1848] 1 Ex 850; 154 ER 363 at 365 applied in Bellgrove v Eldridge [1954] HCA 36; 90 CLR 613 at 617-8.

24. The loss is measured by ascertaining the amount required to rectify the defects complained of and so give to the relevant party the equivalent of a building on their land which is substantially in accordance with the contract. The shorthand term for this kind of relief is rectification damages or the Bellgrove measure, although being placed in the same situation “as if the contract had been performed” is not to be confused with being placed in as good a financial position.

25. Damages can be recovered on the basis of the cost of rectification where the owner may or may not carry out the rectification, so long as the work is necessary to produce conformity and it would be reasonable to do so: Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 (Scott Carver) at [44], [120]; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272 at [15]. The test of unreasonableness is only satisfied in fairly exceptional circumstances: Tabcorp at [17].

26. Thus, the cost of rectification may remain the appropriate measure of damages even where a property is sold with defective work unrectified and the owner does not intend to carry out the rectification work (as occurred in De Cesare v Deluxe Motors Pty Ltd [1996] SASC 6196; 67 SASR 28 at 35).

27. However, rectification damages may not always be an appropriate measure of loss or may be displaced. If, by reason of subsequent events, the owner has suffered a different loss, or no loss, then the damages must be measured by the loss actually suffered: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 at 116. Circumstances where this might occur include: (a) Where that type of damage is found to be unreasonable (including because it is no longer feasible or practical to rectify), in which case the plaintiff is entitled to damages for what has been described as loss of amenity: see, for example, Stone v Chappel [2017] SASCFC 72; 128 SASR 165 at [72], [289], [299], [453]. It has also been put in terms of performance loss: see, for example, Scott Carver at [65]. That is, the supply of a product of lesser standard, quality or value than the contractor was originally obliged to supply. (b) Where there are supervening circumstances that show with substantial certainty that rectification will not happen: see, for example, Central Coast Leagues Ltd v Gosford City Council (NSW Supreme Court, Giles CJ, 9 June 1998) at 215-7; Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313 at [99] per Giles JA (and at [25] per Sheller JA).

28. These principles have been explained to communicate why the court cannot simply confine a party who has succeeded on liability to a pleaded loss that may no longer be appropriate, and also to explain why damages for loss of amenity are not to be understood as a separate additional component, but rather as an alternative in the exceptional case where rectification is found to be unavailable.

Decision on the proposed amendments

29. The different approaches taken by each party with regard to damages was part of the confusion during the first round of litigation. A properly pleaded counterclaim can only assist in the parties resolving the outstanding quantum of damages claimed. That is, the amendments may assist in bringing the parties to a point where they are in a position to agree on some of the damages claimed.

30. The plaintiff has always pleaded rectification damages. Proposed paragraph 37A claims that the defendants have suffered loss and damage as a result of the plaintiff’s deviations from the requirements of the contract and the approved plans described at [35J] and what I infer is meant to be [35M] of their defence. The amendment supports existing paragraphs 38(b), and 39-42. That amendment is within the existing scope and will be read in light of the court’s findings on liability. It will be allowed as it assists the plaintiff and the court to understand the case to be met by clarifying the causal link for what is being sought on the counterclaim. It enables the plaintiff and the court to assess whether those damages are referrable to rectification and the reasonableness of the quantum claimed.

31. For completeness, the claim also includes the following items in existing paragraph 37 of the counterclaim: (i) Losses associated with the need to engage a new builder to complete the building work at the Property. (ii) Expenses incurred associated with the need to rectify the Defective Building Works. (iii) Losses incurred but not yet paid associated with the need to rectify other aspects of the Defective Building Works. (iv) Losses associated with payment of a sum greater than that agreed with the plaintiff to achieve completion of the building work.

32. Paragraph 37I of the proposed counterclaim deals with damages for the deviations from the contract and approved plans resulting in a product that was inferior in environmental performance and the strength of the construction. As the findings on repudiation were directly related to the slab and footings, and the Structural Insulated Panels (SIP) (see primary judgment at [67]-[80] and [95]-[101]), I consider that aspect of the claim also fell within the parameters of the pleaded case on damages that was heard. To the extent that this was found not to be part of the pleaded case, the amendment merely clarifies the defendants’ key contention on damages, namely that they did not achieve the townhouses for which they had contracted.

33. The proposed amendment is also an example of the defendants potentially having to rely in part on alternatives to rectification damages in circumstances where both have now sold their properties. It is appreciated that one of the defendants had sold her interest prior to the first hearing, but the fact that neither are now able to pursue further rectification is a material difference for the task on assessment. For those reasons, the amendment in paragraph 37I will be allowed.

34. In making that finding, I was not convinced that additional expert building evidence would necessarily be required to answer this aspect of the claim. The defendants (counterclaimants) have already served what they say is the totality of their evidence-in-chief and this did not include expert evidence. The plaintiff’s submission was that it could be required. However, even assuming that further expert evidence might be in contemplation by one or both of the parties, the nature of this component of damages means that the scope of any additional evidence will not unduly expand the further hearing that is required. That is, it may expand the hearing, but I do not consider that any additional length of time will be undue, because I anticipate that at worst, the increased time might extend to a second or third day, not a matter of weeks.

35. Some of the proposed amendments were not expressly pleaded as part of the existing claim. Proposed paragraphs 37B, 37C, 37E, 37F, and 37G fall into the “loss of amenity” category. The amendment is of limited scope in terms of both additional evidence and judicial resources required. That is because, although not expressly identified in the pleading as a specific head or measure of damage, it was part of the evidence led by the defendants (for example, see damages judgment at [25]-[27]). This amendment to claim (in part) an alternative measure of damages for those aspects where rectification damages was not claimed, or may no longer be available, manifestly seeks to deal with the finding of the Court of Appeal, but it does not constitute either a shifting or expansion of the case. The balance of considerations guided by s 5A of the CPA favours the defendants being able to pursue those aspects. Accordingly, paragraphs 37B, 37C, 37E, 37F, and 37G of the proposed counterclaim will be allowed.

36. A further category of damages which was previously pleaded but not specifically itemised in the amount previously claimed is the recovery of losses in the form of additional rental expenses and loan interest payments required to be made associated with the delay in completion of the building work: Paragraph 37(v) of the counterclaim. From the material before the court, the defendants now seek to lead evidence to support that aspect of their counterclaim. The merit of the claim is not the subject of consideration here. I have assumed it to be arguable. I will allow that component to be agitated or re-agitated because it is brief, discrete, is likely to be dealt with largely through documentation and short cross-examination of the defendants and will likely be resolved primarily through legal argument about the proper application of the principles for this type of loss. By that I mean the general principle articulated in Ruxley Electronics Ltd v Forsyth [1996] AC 344 (at 358) that “in taking reasonableness into account in determining the extent of loss, it is reasonableness in relation to the particular contract and not at large.”

37. The final aspect of damages now sought to be claimed or re-agitated relates to losses associated with payment of progress payments to which the plaintiff was not entitled, being paragraph 37(iv) and 38(a) of the proposed counterclaim. Although this was part of the original amended counterclaim and is not really part of the proposed amendments the subject of this application, it still appears in the counterclaim proposed to be propounded by the defendants. I would simply observe that the original findings of the court on other aspects of the plaintiff’s claim proceeded on the basis that no such claim had been made: primary judgment at [147]-[149]. While the defendant’s claimed losses may well have been compensable at law, this is the kind of claim that would occasion injustice to the plaintiff by allowing the defendants to proceed on it after judgment on liability has been determined. It appears that the defendants continued to accept that position, because they did not include those payments in the latest quantification of their loss. Further conduct

38. The defendants will be granted leave to file a further amended counterclaim in accordance with these reasons and then the plaintiff will have the right to file a further answer to the further amended counterclaim within the usual time permitted for filing a defence.

39. At that point, the defendants will be in a position to know what aspects of the quantum are contested and the parties can set a timetable for the filing of any further evidence on the hearing.

40. Costs of this application will be reserved, with the intention that the cost of pursuing the arguments to be pleaded form part of the ultimate determination of the success or failure of those arguments.

Orders

41. The orders of the Court are: (1) Leave is granted to the defendants to file a further amended counterclaim substantially in accordance with these reasons. (2) The defendants are to file and serve any such further amended counterclaim within 7 days of the making of these orders. (3) Within 28 days of the further amended counterclaim being filed, the plaintiff is to file any further answer to the said counterclaim. (4) The costs of the application are reserved. (5) The matter is listed for directions at 9.30am on Thursday 1 October 2026 before McWilliam J.

I certify that the preceding forty-one [41] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Justice McWilliam.

Associate: Date: