CONTRACT FOR SUPPLY OF JOINERY TO HOUSE UNDER CONSTRUCTION - defects alleged in joinery supplied - trial judge holds defendant in breach of implied condition under s 19(1) of Sale of Goods Act - awards costs of rectification rather than replacement - includes "solatium" - On appeal: plaintiff claims entitlement to replacement cost - defendant challenges inclusion of solatium - held: both rectification and solatium approaches by judge justified by facts and sound in principle - Ruxley Electronics & Construction Limited v Forsyth (1996) 1 AC 344 and Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 referred to - judgment varied by deduction of minor amount allowed to plaintiff because trial judge mistakenly thought defendant had conceded liability for that amount - defendant's cross appeal otherwise dismissed - plaintiff's appeal dismissed.

3. Judgment below set aside and in lieu thereof judgment to be entered, as at the date of the pronouncement of judgment by Judge Bell, in the sum of $23,205; costs to follow the event.

GLEESON CJ: I have had the benefit of reading in draft form the reasons for judgment of Priestley JA. I agree with the orders proposed by his Honour and with his reasons for those orders.

PRIESTLEY JA: The present appeal proceedings, which come from the District Court, are between Mr and Mrs Coshott and Fewings Joinery Pty Limited. In the District Court Mr and Mrs Coshott were the plaintiffs in an action against Fewings Joinery Pty Limited as defendant. Mr Coshott was the principal actor on the plaintiff's side. When speaking of him alone, I will refer to him as the plaintiff. I will refer to Fewings Joinery Pty Limited as the defendant.

During 1987 the plaintiff held a building permit as an owner/builder in respect of the construction of a house at 5 Gilliver Avenue, Vaucluse. He engaged Mr V. Walsh as a building consultant and instructed him to erect the building, which was to be the home of himself and his wife, to the highest possible standard.

It seems that, generally speaking, the building was erected to a very high standard, but a number of defects appeared and in 1989 the plaintiff commenced four actions in the District Court against four different defendants. The four actions were heard together by his Honour Judge Bell. One of them was against a company from which the appellant had purchased architraves and skirtings. This action was settled on the fifth day of what proved to be a nine day hearing when a verdict was entered in favour of the plaintiff against that company. The other three actions were against the defendant and each of two tradesmen who had worked on the building.

At the conclusion of the hearing Judge Bell reserved his decision. He later delivered a judgment against the defendant in the sum of $23,967 and against each of the tradesmen separately for $1,500.

The plaintiff appealed against all three judgments on the basis that the damages awarded should have been greater. The defendant cross appealed on the ground that judgment should not have been entered against it at all. The tradesmen did not appeal.

When the three appeals came on for hearing, the plaintiffs sought leave to discontinue them against the tradesmen. Leave was granted. The appeals were discontinued and the plaintiffs ordered to pay the costs.

It seems that during the nine days of hearing before Judge Bell many issues were contested. The settlement of one action reduced the number of issues to be decided by the judge. In the appeal proceedings the issues became reduced much further. I will describe them by reference to the five items in respect of which the judge assessed amounts making up the sum of the judgment given in favour of the plaintiff. These were:

The only item challenged by the plaintiff in the appeal was that of $3,205 for shrunken sills. The plaintiff asserted that on the evidence before the trial judge, this figure should have been $25,687.99.

The explanation of the various items assessed by the judge is as follows.

The plaintiffs and defendant agreed that the defendant would supply joinery for certain doors and windows in the building under construction. The joinery was supplied to the plaintiff and installed by the two tradesmen already mentioned. The plaintiff claimed the joinery was defective, unsuitable for its purpose, not of the proper dimensions and not of the required standard: par 8, Statement of Claim.

The principal basis of the claim was that wood supplied as one component of the windows caused such unsightly defects in the windows that the only way in which the plaintiffs could get a proper fulfilment of their agreement with the defendant was for the windows to be entirely replaced.

With the exception of the component complained of, the windows were made from red cedar. The one component not of red cedar was that part of each window sill which protruded on the external side of the window. This was made of tallow-wood in every case. The internal window sill in each case (called nosing) was red cedar. Looked at in section, the nosing was about one third of the depth of the external sill. It was married to it by a tongue and groove arrangement.

The following matters concerning the tallow-wood were either common ground or satisfactorily established. It was unseasoned; it was the general building practice to use tallow-wood for external sills because the external sills were the wooden parts of the window subjected to most use and weather and tallow-wood was regarded as the most durable available wood for the purpose; although it would have been preferable to use seasoned tallow-wood, the demand for it was such that it was impossible to buy, and it was the accepted practice to use unseasoned tallow-wood.

After the windows were installed the internal sills were, along with other surfaces, painted. In the case of a number of windows the tallow-wood sills shrank as they lost moisture. This shrinkage caused the part of the sills holding the nosing of the internal sill to move so that the vertical face of the external sill retreated a little distance along the tongue of, and away from, the internal sill. This meant that part of the upper horizontal plane of the nosing previously embedded in the groove of the external sill became visible. This exposed a small unpainted part of the upper horizontal plane of the inner sill and caused cracking of the paint near the junction of the inner sill with the external sill.

There was expert evidence before the trial judge that the moisture content of the tallow-wood, or at least some of it, was over 15%. One of the plaintiff's arguments was that the effect of the Timber Marketing Act 1977 and Regulations was to make the sale of such unseasoned wood unlawful. The trial judge rejected this argument and it was not relied on in the present appeal proceedings.

The defendant did not dispute that unseasoned tallow-wood was liable to shrinkage. There was however evidence that tallow-wood was still regarded as the best timber for external sills even though it was recognised that there would always be some shrinkage. The trial judge said:

"There is, no doubt, an implied condition that the frames supplied by the defendant should be made of proper and suitable materials. This includes the sill. The mere fact that the hardwood sills had not been fully seasoned does not constitute a breach of that requirement. The fact that they shrank to some degree would not necessarily render them unsuitable. Some shrinkage is to be expected even from 'seasoned' timber, which may also expand in very moist conditions."

In my opinion, on the materials before him, the trial judge was quite right in saying this.

Mr V. Walsh was called as a witness by one of the tradesmen in the action against that tradesman. As all the actions were being heard together and the evidence in each was taken, so far as relevant, as evidence in them all, both the plaintiffs and the defendant had the opportunity of cross examining him. The trial judge recorded that he was aware of the difficult situation in which Mr Walsh found himself: he had been the building consultant employed by the plaintiff; had dealt with the defendant; had supervised the tradesmen; and was thus subject to unavoidable conflicts of interest. The judge said however that he felt Mr Walsh was an honest witness and that generally he accepted his evidence.

Mr Walsh said that he had never seen shrinkage to the extent that it showed up in some of the windows. Based on his evidence the trial judge concluded that three millimetres of shrinkage would be the maximum acceptable and went on to hold

"that a sill which is seasoned to the extent that it is unlikely, by shrinkage, to expose more than about three millimetres of unpainted wood, is acceptable under the contract proved. The very fact that the tongue and groove method was used to fix the window boards supports the view that some shrinkage was expected ..."

The trial judge then said that in taking about three millimetres as the criterion he was being somewhat arbitrary but he considered a line must be drawn somewhere and for that purpose he accepted Mr Walsh's standard. In effect, the judge thereafter treated instances of shrinkage which exposed more than about three millimetres as breaches of the agreement by the defendant to supply joinery to the plaintiff.

The trial judge did not state in so many words exactly what contractual term he considered to be broken by the instances of shrinkage greater than about three millimetres. In the appeal, counsel for the plaintiffs, asked about this, said that the broken term was the condition implied under s 19(1) of the Sale of Goods Act. He pointed to findings in the course of Judge Bell's reasons supporting the position that the plaintiff had made known to the defendant the particular purpose for which the joinery was required so as to show that the plaintiffs were relying on the defendant's skill or judgment and that the joinery was something which it was in the course of the defendant's business to supply; this showed that the judge was finding, pursuant to s 19(1) that there was an implied condition that the joinery should be reasonably fit for the purpose for which it was required.

On re-reading Judge Bell's reasons with this contention in mind, it seems to me that the contractual term of which he was finding there had been breaches was that suggested by the plaintiffs' counsel. It was one of the allegations in the Statement of Claim; the judge's reasons are all consistent with it; and the assertion by the plaintiffs' counsel was not disputed by counsel for the defendant before this court. I will therefore deal with the case on that footing.

In terms of s 19(1) the trial judge's finding was to the effect that tallow-wood sills which exposed more than about three millimetres of what the judge referred to as the window boards (a term which included what I earlier called the upper horizontal plane of the inner sill) were not reasonably fit for the purpose for which they were required. All such instances were breaches of contract by the defendant.

The judge subsequently said that there appeared to be about six windows which, by the standard he had adopted, were unacceptable and thus instances of breach of contract. He then proceeded to consider the basis on which he would award damages to the plaintiffs.

There were two competing contentions. For the plaintiffs it was argued that there must be complete replacement of all windows affected by breaches of contract. For the defendant it was said that a good result could be achieved by adopting one or more of various remedial measures.

The judge concluded that he should accept the defendant's submission on this point. He stated his reason in the following passage:

"All these substituted measures are resisted by the plaintiff and I accept that none of them will give exactly what he had hoped for but the degree of shortfall is in my view minimal - so slight as to render quite unjustified the enormous expenditure which would be required to bring about the perfect result.

While my own view is that the result would be quite acceptable, I accept that the plaintiff wants perfection. Since he cannot have it, there will need to be some lump sum payment by say of a solatium."

In reaching this conclusion the trial judge accepted evidence which, in some detail, had supported the view that remedial work would produce a quite acceptable result. He mentioned in particular his acceptance of Mr G. Taylor. Mr Taylor was an employee of the defendant. The trial judge recognised this but said that in his opinion Mr Taylor was "a totally honest witness".

In the appeal, counsel for the plaintiffs submitted that the trial judge should have found that the breaches of contract affected seven windows, not six and that the plaintiffs would not receive what the defendant had contracted to supply unless all seven windows were replaced.

As to the number of windows, the plaintiffs' counsel relied on the evidence of Mr Larner, an officer of the Forestry Commission of New South Wales. There were two reports from Mr Larner in evidence. He also gave oral evidence. The relevant part of his evidence, so far as the number of window frames was concerned was what appeared on pp 3 and 4 of his earlier report, dated 21 November 1991, part of Exhibit G. On the approach taken by the trial judge, what appeared on those pages fully justified his taking the relevant figure as six. It would only be if the judge's use of his three millimetre standard could be successfully impeached by the submissions for the plaintiffs that the situation might arise where this court would consider adopting the relevant number as seven instead of six.

There were two submissions going to the method adopted by the trial judge. The first was that he should not have accepted the evidence of Mr Walsh to the effect that three millimetres of shrinkage would be acceptable. The submission was that the length should have been shorter, such as two millimetres, or a moisture percentage approach adopted. It was also suggested that the various conflicts of interest which Mr Walsh had in regard to the case should have deterred the trial judge from accepting and relying on his evidence.

There was no contractual requirement making it either necessary or desirable for the judge to approach the question of the quality of the tallow-wood for the purpose for which it was required by reference to moisture content. The criterion adopted by the trial judge seems to me to have been practical, workable and justified by the circumstances of the case.

As to the figure of three millimetres adopted by the trial judge it was directly based on the evidence of Mr Walsh. There was no doubt about Mr Walsh's experience in matters of the kind about which he was expressing opinions. The fixing of the three millimetre figure as the relevant standard was, to some extent at least, a matter of expert judgment, not scientific or expert calculation. The judge was satisfied of Mr Walsh's expertise and of his honesty. There is neither material before this court, nor any other reason for thinking that Mr Walsh's opinion is seriously questionable. In these circumstances I do not think it is any business of this court to interfere with the trial judge's finding based on Mr Walsh's evidence.

A further argument for the plaintiffs against the judge's adoption of the three millimetre standard was that it did not take into account further shrinkage of the tallow-wood likely to happen after the date of the trial. This submission was again based on Mr Larner's evidence. In his second report, dated 7 January 1992, also part of Exhibit G, he expressed his views on the possibility of further shrinkage of the tallow-wood sills which he had tested on 19 November 1991. He said it was probable that they would lose further moisture, until they came into a state of equilibrium with the surrounding atmosphere. He went on:

"It may take some time before this state of equilibrium is reached, as tallowwood takes many years to season. The rate at which it seasons is dependent upon the cross sectional area and prevailing climatic conditions. The greater the cross sectional area the longer it takes to reach a state of equilibrium."

He then added that as the tallow-wood lost moisture further shrinkage would occur and he supplied examples of such shrinking from published shrinkage rate tables, not directly related to the circumstances of the tallow-wood in position in the plaintiffs' window frames. He then concluded:

"This shrinkage would be in general evenly distributed throughout the piece. However movement due to shrinkage would be dependent upon how and where the piece was fixed or held.

It should be noted that tallowwood sills are rarely obtainable in a seasoned state due to the time required for them to season. It is accepted practice in the trade to use them in an unseasoned condition."

He was asked about the possibility of future shrinkage in cross examination by the plaintiffs' counsel:

"Q. Mr Larner, what is your view about the possibility of further shrinkage of this timber from the measurements you made last year?

A. Based on the measurements, I took it that if the sills are currently around 15% to 16%, I would expect them to drop probably between three and four percent. It depends on the point of equilibrium. It's going to depend on the season in which you take the moisture content readings. Seasonal fluctuations might be one or two percent either way.

Q. Are you able to say over what period of time further shrinkage will occur?

HIS HONOUR: Q. Would it take a century, several years, or --

A. It could be a number of years. It is more likely to be years rather than months."

In light of this and the other evidence before the trial judge, I do not think it can be said that there was any error involved in taking the three millimetre figure as the standard. The evidence about future shrinkage seems to me to have been quite equivocal and such as not to require the trial judge to give it any particular weight when arriving at the standard that he did.

The result is that none of the submissions put by the plaintiffs' counsel in the plaintiffs' appeal succeeds. Some other matters were raised in the Notice of Appeal but were not relied on in the hearing of the appeal.

The defendant's cross appeal sought to have overturned four of the five heads of damage assessed by his Honour. There had been grounds of appeal filed in regard to the remaining item, which was that dealing with the shrunken sills ($3,205) but the grounds of appeal relating to that item were abandoned in the course of the hearing.

At the commencement of the oral hearing the defendant by consent and by leave filed an Amended Notice of Cross Appeal. Grounds 4, 5, 6, 8 and 15 of this amended notice were not pursued.

Grounds 1 to 3 depended on the view that the trial judge, in addition to finding an implied condition of the contract between the plaintiffs and the defendant pursuant to the Sale of Goods Act also implied a further condition concerning the high quality of the joinery to be delivered.

As earlier mentioned, I have been proceeding in these reasons on the footing that the only condition the trial judge found against the defendant in addition to the written terms of the agreement was that implied by s 19(1) of the Sale of Goods Act. I earlier gave reasons for taking that course, to which I now add that to take the view I have taken seems to me to be the soundest way of reading and understanding the trial judge's reasons.

In the result grounds 1 to 3 can not succeed. The high quality to which the trial judge was referring was something which in my opinion he was properly entitled to take into account when considering whether the joinery supplied was reasonably fit for the purpose for which it was required.

Grounds 7, 9 and 10 of the Amended Notice of Cross Appeal dealt with items 2 and 3 of the heads of damage, the rectification of sashes: $5,000 for the joinery and $10,000 for the painting. The figures themselves were not complained of. What was submitted was that the trial judge had misunderstood the evidence in arriving at the conclusion that the defendant, rather than the tradesmen, was liable for the cost of this rectification.

The plaintiffs' complaint about the sashes was that they rattled unduly in a wind. The expert evidence led to the conclusion that the rattling was caused by the meeting rails of the upper and lower sashes not binding together sufficiently closely when the window was closed. The expert evidence suggested that this must be the fault either of the defendant in the manufacture of the sashes or the two tradesmen installing them. It was submitted that there was no evidence upon which the trial judge could attribute the fault to the defendant rather than the two tradesmen. As part of this submission it was also said that the trial judge had not made any finding that it was the fault of the defendant rather than the tradesmen. It was said that the judge had proceeded from the proposition that it must be the defendant or the tradesmen's responsibility or partly the defendant's responsibility and partly the tradesmen's responsibility to a finding that the defendant was responsible for the amount estimated by the judge, without his having made any intervening finding or giving any explanation for his view that the defendant was in fact responsible for part of the liability.

I do not think the latter part of this submission can be accepted. The trial judge gave his reasons on this part of the case somewhat tersely, thus giving the defendant some foothold for the argument, but it seems to me that the judge sufficiently made clear that his reasoning was: (1) the windows did rattle inordinately; (2) in some cases this was because the meeting rails of the sashes did not meet properly; (3) in some of the cases this was due to faulty construction and was the responsibility of the defendant. I base (3) on reading the first sentence of the third paragraph under the heading "SASHES" on p 7 of his Honour's reasons with the last sentence on p 9 of his reasons. There was debate at the hearing whether the part of the last sentence on p 9 which says "that seem to be attributable to Fewings" was part of Mr Elgood's claims or a statement of his Honour's opinion. In the context of the whole of his Honour's reasons it seems to me that the latter is the better reading.

The question therefore becomes whether there was evidence upon which the trial judge could make the finding.

It seems to me that there was evidence upon which the trial judge was virtually bound to find as he did, that there was at least some responsibility in the defendant for the rattling. This was the evidence of the tradesmen and Mr Walsh, first, that a prime cause of the rattling was the imperfect join of the meeting rails of the upper and lower sashes when the windows were closed, and that the tradesmen had installed the sashes as they were delivered to the site by the defendant without making any adjustments or changes to them before installation.

There is one matter in the evidence which might possibly have been helpful to the defendant on this point. Mr Taylor (an employee of the defendant) said in the course of his evidence that he had been asked by Mr Walsh to supply the frames before the sashes were ready. Ordinarily they would all be supplied at once. Mr Taylor said he had agreed to Mr Walsh's request on the basis that Mr Walsh would be responsible for the fitting of the sashes. This evidence was referred to incidentally in the course of the oral argument in this court, and it seemed as if it may have founded an argument that since the fitting of the sashes within the frames was usually done at the defendant's premises where the defendant would be able to check upon the fit of the sashes and since the defendant had not had that opportunity because of the request of Mr Walsh, then it would not be right to say that the defendant was responsible for the misfitting of the sashes.

However, it seemed upon examination of this possibility that it had not been relied on before the trial judge, nor had it in any way been pleaded. Further, the reason for Mr Walsh having had to make the request was that the defendant was behind schedule in getting the sashes ready; they should have been ready for delivery when the frames were ready for delivery. Considerations of this kind may be the reason why the matter was not pursued by the defendant at the trial. There may be other reasons. In any event, since it seems the matter was not litigated at the trial, nor raised in argument by the defendant in the appeal, I do not think this court should look any further into this aspect of the case.

Shortly stated, the evidence fully supports the view that the meeting rails should have been made at the defendant's factory so that upper and lower sashes met satisfactorily and the evidence also supports the view that at least some of them were not so made.

I mentioned earlier that the judge's reasons on this point were expressed with some brevity. Looking at the relevant materials for myself I would come to the same conclusion as the judge for the reasons I have given.

Grounds 11 and 12 of the Amended Notice of Appeal raised the question whether the judge should have made any award in regard to the fourth item in his list, French door, $762. The trial judge found that the French doors were unsatisfactory in that they let in a lot of unpleasant drafts and rattled. He canvassed a number of reasons why this was so. Some of the reasons concerned the tradesmen, who may have caused the problems in installing the doors. Another possible reason was their unsuitability for where they were positioned, exposed to westerly winds. The only part of his Honour's reasons which explored any aspect of this item which related to the defendant was as follows:

"A number of explanations have been offered. In respect of one pair of doors it is quite clear that these were supplied at a dimension too small for the frame. Whose fault this is is unclear but the defect was observed on delivery and after consultation between the fixers and the plaintiff's representative they were accepted. Had they been rejected before installation they would have been replaced by larger doors. The defendant Fewings concedes that it is liable to the plaintiff for the actual cost of supplying one new set of French doors."

It seems clear that the only reason the trial judge gave the plaintiffs the benefit of this item was his understanding that the defendant had conceded liability for supplying one new set of French doors.

Counsel for the defendant submitted that there was no basis for the trial judge to think this concession had been made. Counsel for the plaintiffs was unable to point to any. There was one part of the evidence before his Honour which may possibly have given rise to misunderstanding. When examined, however, this part of the materials does not on any view amount to the supposed concession. Nor was the court directed to any evidence which, in light of the acceptance of the doors by Mr Walsh as recorded by the judge, could have made the defendant liable for the cost of one new French door.

In the circumstances it seems that the cross appeal must be allowed to enable the deletion of this item from the heads of damage awarded to the plaintiffs.

The last matter of appeal went to the solatium of $5,000 awarded by his Honour. He said that this would be compensation for the inconvenience the plaintiffs would suffer from the rectification work and for the disappointment of the plaintiffs in not getting the exact high quality result for which they had bargained.

For the defendant it was said that in a claim for damages of the present kind there was no basis for the making of such an award. It seems to me that the reasons given by the judge for the award were completely sound, and the amount, in the circumstances, quite modest.

As for the competence of the court to include such an amount in the assessment of damages, the recent House of Lords decision, Ruxley Electronics and Construction Limited v Forsyth (1996) 1 AC 344 provides direct support for the approach of Judge Bell. The High Court decision of Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 is not inconsistent with the view taken by the House of Lords. In Bellgrove the High Court said (at 618) that usually the builder in breach of contract would have to pay whatever damages were necessary for the other party to achieve conformity with the contract but that this rule was subject to the qualification that "not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt".

In the present case the trial judge, rightly in my opinion, considered that the position fell within the qualification. That view opens the way to include in the award of the lesser amount of damages a sum for what Judge Bell called a solatium and what the House of Lords referred to as "loss of amenity". In the same say that the House of Lords thought an amount awarded for loss of amenity in Ruxley was appropriate, it seems to me the amount awarded by Judge Bell in the present case for a solatium was likewise appropriate.

In my opinion therefore the result of the submissions put to the court by the plaintiffs and the defendant is that the appeal should be dismissed, the cross appeal allowed, the judgment below set aside and in its place judgment entered, as at the date of the pronouncement of judgment by Judge Bell in the sum of $23,205.

The court was given to understand that the costs below followed the event, that is the defendant became obliged to pay the plaintiffs' costs. There was some discussion of this matter in the hearing of the present appeal pursuant to a ground of appeal the defendant was relying on seeking to disturb the costs result below. However, that ground of appeal was in the end not relied on. I do not think that the change in the judgment resulting from the cross appeal is of such significance as to warrant any alteration of the costs position below.

So far as concerns the costs of the appeal proceedings, although the defendant has had a minor success in regard to the cost of one set of French doors, the overall result of the appeal and the cross appeal is that the former has wholly failed and the latter almost wholly failed. It therefore seems to me that the simplest fair order to make in regard to costs is that the court make no order for the costs either of the defendant in the appeal or the plaintiff in the cross appeal.