Cubic Metre Pty Ltd v C & E Critharis Constructions Pty Ltd [2020] NSWSC 479 | Case summary

Cubic Metre Pty Ltd v C & E Critharis Constructions Pty Ltd [2020] NSWSC 479 | Case summary | Zoe

[3]

Introduction

Cubic Metre Pty Ltd, the plaintiff (the Contractor), and C & E Critharis Constructions Pty Ltd, the defendant (the Builder) seek leave to appeal, and cross-appeal, to challenge orders made in the Local Court arising out of a claim by the Builder for damages for alleged breach of contract by the Contractor. The breach was said to be that the sandstone supplied by the Contractor was unsuitable for use as cladding for a sea wall at the boundary of a residential waterfront property at Watsons Bay owned by Vaughan and Jacqui Blank (the Owner).
The proceedings in the Court below were commenced by statement of claim filed on 8 March 2018 (which was subsequently amended on 6 April 2018). The Builder's claim was for the sum of $123,332, which it contended was the cost of rectifying the sandstone cladding on the stone wall. The proceedings were heard on 28 February 2019 and 1 March 2019. On 4 June 2019, Kennedy LCM ordered judgment for the Builder in the sum of $20,408.55, together with interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). On 25 June 2019, the magistrate ordered the Contractor to pay the Builder's costs.
In summary, the Contractor, in its appeal, alleges that the magistrate was in error in deciding the case on a basis which was not put by the Builder, failed to apply the principles of law relating to assessment of damages for breach of contract and failed to give sufficient reasons. The Contractor also contends that her Honour's discretion as to costs miscarried because account was not taken of the substantial discrepancy between the amount claimed by the Builder ($123,332) and the amount awarded by her Honour ($20,408.55). The Builder, in its cross-appeal, alleges that her Honour ought to have awarded the sum claimed, being the cost of rectification, which amounted to the cost of replacing the cladding on the sea wall.
By further amended summons filed on 31 January 2020, the Contractor seeks an extension of time for appeal, and, if required, leave to appeal, against decisions of Kennedy LCM made on 4 June 2019 (the substantive orders) and 25 June 2019 (the costs order). The original summons was filed on 30 July 2019. By amended cross-summons filed on 20 December 2019, the Builder seeks an extension of time for leave to cross-appeal from the substantive orders. The Builder's original cross-summons was filed on 1 October 2019.
The applicable time limit for commencement of proceedings for an appeal to this Court against an order of the Local Court is 28 days from the material date, being the date on which the decision from which the appeal is brought was pronounced or given: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), rr 50.2 and 50.3. The parties agreed that each ought be granted an extension of time under UCPR, r 50.3(1)(c).

[5]

The Head Contract

In June 2009, the Owner contracted with the Builder to construct a home at Watsons Bay on a costs plus basis (the Head Contract). The Builder's margin was stipulated to be 10%.
Clause 2 of the Head Contract provided: "Clause 2. Builder's Obligations 2.1 The builder must carry out and complete the building works in accordance with this contract."
Clause 13 of the Head Contract relevantly provided: "… 13.2 The owner must pay the price of the building works progressively as claimed by the builder. 13.3 The builder must give the owner a written claim for a progress payment at each progress stage described in Schedule 4. 13.4 A progress claim is to include details of the cost of the building works for the building works carried out, the proportion of the builder's fee claimed and of other moneys then due to the builder pursuant to the provisions of the contract. 13.5 A progress claim is to be accompanied by such invoices, receipts or other documents as may reasonably be expected to support the claim and evidence of the cost of the building works being claimed. 13.6 The owner must pay a progress claim within 5 working days of the builder giving the claim. 13.7 Unless the owner disputes the amount of a progress claim by giving the builder a written notice detailing the dispute within 5 working days of receiving a progress claim, the progress claim is accepted by the owner as the cost of materials, labour and other items provided by the builder which are the subject of the claim. This clause does not limit the owner's right to claim that the building works done by the builder are not in accordance with this contract."
Schedule 4 to the Head Contract, entitled "Progress Stages" provided: "Schedule 4. Progress Stages The stage for when progress claims are to be made must be clearly defined in this schedule. The stages may be by reference to work completed or by period of time or otherwise as agreed. Describe progress stages here: Progress Claims are either to be submitted monthly or in minimum amounts of $250,000 at the discression [sic] of the Builder. Payment of progress claims is to be made within 10 (ten) working days of receipt of progress claims (incl. all supporting invoices)."
Clause 18 of the Head Contract provided: "Clause 18. Assignment and Subcontracting 18.1 Neither party may assign this contract or any part of their rights, benefits or obligations under this contract without the prior written consent of the other party. 18.2 The builder may subcontract any part of the building works but remains responsible for all of the building works."
Clause 25 of the Head Contract provided for a defects liability period in the following terms: "25.1 The defects liability period is a period of 13 weeks commencing on and including the date of practical completion. 25.2 The owner may, before the end of the defects liability period, give the builder one list of defects in the building works that appear after the date of practical completion. 25.3 The builder must rectify defects that are the builder's responsibility and which are notified to the builder during the defects liability period."
Clause 32 of the Head Contract relevantly provided: "Clause 32. Warranties 32.1 To the extent required by the Home Building Act, the builder warrants that: (a) the building works will be performed in a proper and workmanlike manner and in accordance with the plans and specifications attached to this contract; (b) all materials supplied by the builder will be good and suitable for the purpose for which they are used and that, unless otherwise stated in this contract, those materials will be new; …"
It was common ground that there were no specifications attached to the Head Contract.
The Head Contract contained special conditions which included the following: "Retention: 10% of Progress Claims up to 5% of contract value. Retention capped at $250,000. Retention amount will be paid into a joint bank account. Retention to be released 12 months after receipt by owner of final occupation certificate."
For any breach discovered before the progress payment, the Owner was entitled to dispute the progress claim under cl 13.7. The Owner's remedies for any breach by the Builder which was discovered after the progress payment had been made were limited to the following: the Owner could retain the retention money for a further 12 months (under the special condition) and call upon the Builder to rectify the works (clause 25) or the Owner could sue the Builder for breach of cl 32.1 of the Contract or for breach of statutory warranty under the Home Building Act 1989 (NSW). The Owner was obliged to release any retention monies after the receipt by the Owner of the final occupation certificate.

[6]

The Sub-contract

The Builder entered into a contract with the Contractor by a document executed on 13 April 2011 (the Sub-contract). The Sub-contract required the Contractor to supply and install sandstone for the whole property at a cost of $520 per square metre.
Clause 13 of the Sub-contract provided: "13 DAMAGE AND DEFECTS (a) The Trade-Contractor will pay to the Builder the cost of making good any damage by him or his employees or his Trade-Contractors to the work of the Builder or of any other Trade-Contractor. (b) The Trade-Contractor will maintain the works until completion and thereafter make good all defects that may appear in the works prior to the expiration of the Builder's Defects Liability Period under the Head Contract. This duty will not relate to any defects which are caused to the Trade-Contractor's work by other parties for whom the Trade-Contractor is not responsible. (c) Corrective or remedial work must be undertaken within ten (10) days (or an alternate period as agreed by the Builder) of notification of the same to the Trade-Contractor. If the need to carry out the corrective or remedial work is urgent then the Trade-Contractor will attend to the same as a matter of urgency. (d) A failure to comply with the above requirements will entitle the Builder to arrange for other parties to carry out the work. The cost of this will be payable by the Trade-Contractor."
Special condition 21 of the Sub-contract provided: "Materials and Workmanship 21. Materials shall be new and both materials and workmanship shall be in strict accordance with the provisions of this Contract and the law (including but not limited to the Home Building Act 1986, Fair Trading Act 1987 and Sale of Goods Act 1923 in New South Wales, the Trade Practices Act 1974 (Cth) and common law), Council by-laws, the Building Code of Australia and any other applicable building codes and standards, including those promulgated by the Standards Association of Australia. Materials and plant shall be fit and proper for the purpose for which they were obtained, free from defects and consistent with the nature and character of the Works, and all workmanship shall be executed in a proper and workmanlike manner to the satisfaction of C&E Critharis Constructions and in conformity with all the reasonable directions and requirements of C&E Critharis Constructions. The Subcontractor shall if required furnish satisfactory evidence that the materials are of the origin and quality specified, otherwise C&E Critharis Constructions may conduct its own tests to ascertain the same at the Subcontractor's expense. The provision of this clause shall survive the defects limitation period and shall not merge on completion."
It was an agreed fact in the Court below that during the period from 13 April 2011 until not later than 9 March 2012, the Contractor supplied and installed sandstone pursuant to the Sub-contract. The sandstone was used throughout the house and also as cladding for a sea wall. The sea wall itself was constructed by another contractor.
There was an issue in the Court below as to whether the Builder's claim for damages at common law was time-barred. This issue turned on the date of last breach. The breach alleged was that the Contractor had supplied stone which was unfit for its purpose. The evidence established that the stone had been supplied in 2011. As the statement of claim was filed on 8 March 2018, the claim under the common law was statute-barred. However, as it was common ground that the claim under the Home Building Act was within time (there being an outer limit of seven years from the date of the contract), it is not necessary to address this question further, except in relation to what is referred to below as the Contractor's notice of contention.
On 14 November 2012 the Builder notified the Contractor that the Owner had observed that the stone in the sea wall was deteriorating. There were negotiations between the Builder, Contractor and Owner after this time which did not result in any concluded agreement as to rectification. No rectification work has been done on the sea wall. The Owner continued to reside at the property at the time of the proceedings in the Court below.

[7]

The proceedings in the Court below

In its claim in the Court below, the Builder relied on the warranty implied by s 18B(f), (now s 18B(1)(f)) of the Home Building Act). Section 18B of the Act relevantly provided: "18B Warranties as to residential building work (1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work - … (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment. (2) The statutory warranties implied by this section are not limited to a contract to do residential building work for an owner of land and are also implied in a contract under which a person (the principal contractor) who has contracted to do residential building work contracts with another person (a subcontractor to the principal contractor) for the subcontractor to do the work (or any part of the work) for the principal contractor."
The Builder also relied on special condition 21 of the Sub-contract (which is set out above) which required the materials used to be fit for their intended purpose. The difference between the provisions was material to the limitation defence since the limitation period for the claim under the contract was six years from breach and the limitation period for the claim for breach of warranty was, at that time, seven years after the completion of the work to which it related.
In order to address the grounds of appeal and cross-appeal it is necessary to examine the way the Builder put its case on damages in the Court below.

[15]

The Contractor's written submissions

Mr Webster, who appeared on behalf of the Contractor in the Court below and in this Court, provided written submissions to the Court below dated 22 March 2019. He said, on the question of damages: "Alleged damage 63. Counsel for the plaintiff conceded in opening that the plaintiff's alleged 'obligation' to replace the stone on the seawall (to the extent that the stone is in need of replacement) was a moral obligation arising from the plaintiff's long standing as a builder of repute. 64. Any contractual obligation (if any) as between the owner and the plaintiff arising from any of the statutory warranties in part 2C of the HBA [Home Building Act] would appear to have expired by about 8 March 2019, being the date 7 years after practical completion."
On the question of loss, the Contractor's written submissions said as follows: "Loss 121. The question of loss only arises if the court is against the defendant on the question of liability. 122. The plaintiff's alleged loss is pleaded at paragraph 12 of the ASOC. It states: The Plaintiff has suffered damages in respect to the above breaches by the Defendant of the sub-Contract as the owner is obliged to repair the defective sea wall pursuant to the Contract with the Owners, and has suffered loss as a result of the Owners withholding monies due to the defective sea wall. 123. Mr Elia Critharis agreed under cross examination that the plaintiff received from the owners payment in full for the defendant's invoices with respect to the sub-contract. That is, the plaintiff has suffered no loss arising from the sub-contract between it and the defendant. 124. Rather, the owner has allegedly withheld from the plaintiff part of the builder's margin due under the head contract. To the extent that such withholding is even a breach of the head contract (which was not a live matter before the court), such alleged breach lies as between owner and plaintiff. 125. There is currently no evidence before the court that would allow a conclusion to be drawn that any loss alleged by the plaintiff has been caused by the defendant. In fact, there is no documentary evidence at all before the court that any payment has been withheld."
The Contractor also made detailed written submissions criticising the evidence of Mr Barker, the quantity surveyor called by the Builder. The Contractor concluded as follows: "77. The defendant submits that Mr Barker's report should not be considered as probative of the cost of replacing the stone on the sea wall in any event, and in particular to the extent, if any, that the need for replacement has been caused by the defendant. 78. The defendant also notes that Mr Elia Critharis under cross examination did not press his own estimate of replacement, preferring to rely on the evidence of Mr Barker and was therefore not cross examined further on that point. Mr Critharis's evidence on the cost of replacement should be excluded."

[19]

The assessment of damages for breach

Her Honour referred to the evidence of what would be required to rectify the wall and found that "total replacement is the appropriate method of rectification".
Because of its importance to the appeal and the cross-appeal, I propose to extract her Honour's findings on damages in full: "Issue of Loss [114] Turning then to the issue of loss. There is no doubt that the plaintiff can demonstrate a loss to it for the withholding of $20,408.55 of the retention moneys as a result of the defective wall. The defendant says this is not referable to the dispute between the plaintiff and defendant. I find this is a direct loss to the plaintiff based on the evidence of Mr Critharis that this money has not been paid to him as a result of the failure of the wall. I accept that evidence and it remained largely unchallenged. [115] The more pressing question is whether the cost of rectification of the wall is a loss that can be demonstrated by the builder. Section 18B(1)(f) extends to allow a cause of action to be brought by a builder against a subcontractor. [116] However, the defendant says that in this case there is no action by the owner against the plaintiff, there is no rectification order made by Council, and suggests that any legal action by the owner against the builder is statute barred. It says the only thing the plaintiff can point to is a moral sense of right that it should repair the sea wall. [117] The plaintiff did not address this issue in submissions nor in submissions in reply, and provided no assistance to the court on the issue. It appears that the highest it can point to is a moral obligation to repair the wall which of course remains the property of the owner. This is an admirable attitude towards responsibility to the owner pursuant to the contract. However, there was no direct evidence from Mr Critharis of what he intends to do. It may be implied from his approach and attitude. I am troubled about this aspect. On one hand there was a contractual obligation for Mr Critharis to build a wall for the owners that was fit for purpose. This sea wall was not. However, in the last 6 years there is no evidence that remedial work has commenced. There was no evidence of quotations or indeed any other action but for the experts engaged in this case. [118] There was no evidence from the owner as to his position in relation to the builders' obligations pursuant to contract for the rectification. It is the plaintiff which must establish on balance the loss. It was curious that no direct evidence was lead from these witnesses in the proceedings as to even an intention to rectify. There was no evidence led of any agreements or contracts between the owner and the builder. [119] The act itself provides a mechanism to allow the builder to bring such a claim against the subcontractor. The act envisages rectification is the motivation. I accept that the builder has a contractual relationship with the owner, and I have that contract in evidence. I accept that it has been consistent with the conduct of the builder to arrange repair and rectification of the sea wall pursuant to its agreement. It has made attempts to resolve the matter with the defendant. It has obtained expert evidence to determine the source of the deterioration of the wall. [120] The Plaintiff has satisfied me that it is entitled to claim pursuant breach of contract being breach of the warranty pursuant to clause 21, and pursuant to section 18B(1)(f) of the Home Building Act. It makes a claim for greater than the jurisdictional limit and therefore agrees to abandon the remainder of its claim. [121] However, I have not been provided with any authorities to assist me in demonstrating a loss to the defendant can be made out on a moral responsibility alone. I have no evidence upon which I could be satisfied that the builder has a liability to the owner to repair the wall. Any award I made in the Local Court can only require the payment of the sum to a builder to compensate him, and I cannot order that such a sum be passed on to a third party, nor direct any work to be undertaken. I am not satisfied on balance that the plaintiff has established that the loss of rectification is a loss to it on the facts of this matter. [122] I am satisfied that money that was retained by the owner has been retained as a result of the breach of contract established against [the] defendant. The defendant says that this loss is both avoidable and that the plaintiff has not taken reasonable steps to avoid its loss. I find that the loss is directly related to retention of moneys as a result of the breach by the defendant. It attempted to resolve the matter through involvement with the defendant in 2012 when the issue arose. I consider it took all reasonable steps to avoid its loss. Doing the best I can with the evidence before me I make the following orders: Orders a. Verdict [sic, judgment] for the Plaintiff in the sum of $20,408.55 b. Interest in accordance with section 100 Civil Procedure Act c. Matter listed for any argument regarding costs on 11 June 2019."

[21]

The grounds of appeal

In respect of the substantive order, the Contractor relies on the following grounds of appeal: "1. The learned Magistrate failed to give reasons for finding that the sum of $20,408.55 withheld by the owner from the plaintiff: a. was retained as a result of the breach of contract established against [the] defendant; and b. that the plaintiff's loss was directly related to retention of moneys as a result of the breach by the defendant. 2. The learned Magistrate failed to give reasons as to why the plaintiff's loss was not too remote that the defendant should be liable for the loss. 3. The learned Magistrate erred in implying (at paragraph 114 of the court's reasons for decision) that the defendant bore any onus of proof with respect to the withholding of $20,408.55 by the owner from the plaintiff. 4. The learned Magistrate erred in holding that the defendant was liable to the plaintiff for the withholding of $20,408.55 by the owner from the plaintiff."
In respect of the costs order, the Contractor relies on the following grounds of appeal: "5. The learned Magistrate failed to apply principles of proportionality in awarding costs on the ordinary basis, without further qualification, to the plaintiff. 6. The learned Magistrate failed to take into account the material consideration that the defendant was largely successful in defending a claim of damages for $123,332. 7. The Costs Order was unreasonable or plainly unjust to the defendant in circumstances where the plaintiff effectively abandoned its main case in opening and the relief ultimately awarded to the plaintiff - in the absence of any supporting documentary evidence - was only marginally greater than the limit at which a maximum costs order would normally apply by virtue of Local Court Practice Note Civ 1."
In its amended summons, the Contractor added further grounds as follows: "In response to the defendant's cross-summons for appeal, the plaintiff relies on the following further grounds of appeal: 8. The learned Magistrate erred in holding that the relevant limitation period for the common law breach of contract claim as pleaded ran from the date on which the plaintiff's work was completed rather than from the date the pleaded cause of action arose. 9. There was no evidence to support the finding of the learned Magistrate that caulking of the wall in question was finished on or around 9 March 2012. 10. The finding of the learned Magistrate that evidence that caulking of the wall in question finished on or around 9 March 2012 was not refuted by Mr Taplin was contrary to the evidence admitted. 11. The learned Magistrate erred in applying a test for fitness for purpose of the stone in question that was not based on an objective assessment of the express terms of the contract between the plaintiff and the defendant. 12. There was no evidence that the words expressing the particular purpose for which the work was required, relied upon in respect of the statutory warranty claim pursuant to section 18B(1)(f) of the Home Building Act 1989, showed that the owner relied on the plaintiff's skill and judgment. 13. The learned Magistrate erred in holding that there was liability on the part of the plaintiff either in relation to the common law breach of contract claim or the statutory warranty claim."
As referred to above, the Contractor relies on grounds 8-13 as a notice of contention in response to the Builder's cross-summons. The effect of this is that, if the Contractor is successful in its appeal and successful in defeating the cross-appeal, both of which relate to the amount of the judgment sum, it does not press the challenge to the findings of breach. Mr Webster submitted that this would be an "acceptable commercial outcome" for the Contractor. I understand him to accept that, at least commercially, a judgment in favour of the Builder for nominal damages with a costs order in favour of the Contractor, would be as good as judgment in favour of the Contractor with a costs order in favour of the Contractor.

[26]

Whether the finding was open having regard to the way in which the Builder put its case

At first instance, the Builder claimed to be in a worse position as a result of the breach by reason of the moral obligation to replace the deficient cladding on the sea wall. It put its claim for damages squarely on the premise that it had an obligation to rectify the works and that the only reasonable way of rectifying them was to replace the sandstone cladding on the sea wall. This was the sole basis on which Mr Weaver opened the case. There was no alternative case put on the basis of the claim for the withholding payment. The Builder failed to establish its claim for the cost of rectification because no work had been done, there were no proceedings on foot between the Owner and the Builder, the breach by the Builder of the contract with the Owner was statute-barred and the Builder's "moral" obligation to the Owner did not give rise to damages recoverable against the Contractor.
The only evidence of the withheld payment was that contained in paragraph 43 of Mr Critharis's affidavit set out above. No documentary evidence was adduced in support of his statement. Mr Critharis was not cross-examined about it but he confirmed that all of his invoices to the Owner had been paid. Mr Blank was not asked about the withholding payment but confirmed that there were no legal proceedings between the Owner and the Builder.
It is an important aspect of the adversary system that a party is bound not only by its pleadings but also by the conduct of its counsel: R v Birks (1990) 19 NSWLR 677 at 683-684 (Gleeson CJ). The function of pleadings is to delineate the issues in the case and forms the basis for evidentiary rulings on relevance: Dare v Pulham (1982) 148 CLR 658 at 664 (Murphy, Wilson, Brennan, Deane and Dawson JJ); [1982] HCA 70; Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 (Mason CJ and Gaudron J); [1990] HCA 11.
The opening is designed to indicate to the court the way in which the plaintiff puts its case and the way in which it hopes to prove the case, as well as to indicate to the opposing party, the case which is required to be met. The questioning of witnesses is also designed to achieve procedural fairness as are submissions, both those in writing and those given orally.
In the present case, although there was a reference in paragraph 12 of the amended statement of claim to the "Owners withholding monies", the only loss particularised related to the cost of rectification. There was no alternative claim for the amount of monies alleged to have been withheld by the Owner. In Dare v Pulham, the High Court described the exception to the general principle that the parties are bound by the pleadings in the following terms at 664: "Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings … But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence …"
The Builder did not depart from its pleaded cause of action or particularised loss in the way it put its case in the Court below, except to the extent that the actual cost of rectification claimed was particularised at $87,000 in the pleading and a figure in the order of $123,000 in the expert evidence. The revision of the figure in that context fell within the exception in Dare v Pulham set out above.
Mr Weaver's opening similarly was confined to the claim for the cost of rectification. Although he read the paragraph of Mr Critharis's affidavit referred to above, he did not re-examine on the evidence given by Mr Critharis that he had been paid in full by the Owner for the work. Nor did he raise any issue with the Owner, who was called as a witness in the Builder's case and who admitted that there were no proceedings between him and the Builder.
Mr Webster, in the Contractor's submissions in chief, which happened to have been filed before Mr Weaver's submissions, specifically (and presumably for more abundant caution) noted the absence of a case based on the withholding monies, to which Mr Weaver can be taken to have chosen not to respond. There was, even after Mr Webster drew the Court's and the Builder's attention to the lack of evidence or particularised claim for the withholding monies, no application for leave to amend to claim the withholding monies in the alternative.
What is set out above does not amount to a criticism of Mr Weaver, who can be taken to have acted on instructions to put the Builder's claim for damages solely on the basis of the cost of rectification. There were several objectively demonstrable forensic reasons why the Builder might have chosen not to put the claim on the alternative basis. First, the claim for monies withheld was significantly less than the claim for the cost of rectification and, subject to the determination of costs, a judgment on that basis might be regarded as a Pyrrhic victory. Secondly, there would have been a significant issue whether monies withheld would fulfil the requirement that it not be too remote (this issue was raised by Mr Webster in his written submissions dated 22 March 2019). This issue is addressed further below.
For these reasons, the Court below was not entitled, as a matter of law, to find that the Builder, having failed to establish an entitlement to damages based on the cost of rectification, was nonetheless entitled to damages equivalent to the monies said to have been withheld, since this was not the way the Builder's case had been put. It follows that ground 4 of the amended summons has been made out.
I should add for completeness that the requirement that a court determine a case within the framework of the parties' dispute as delineated by the pleadings and the way the case has been conducted is not to say that a court is always bound to accept one party's case or the other. However, a court is not entitled to assess damages on a basis which was outside the pleading or which was not traversed at the hearing, since this will almost inevitably amount to a denial of procedural fairness. Judges at times are required to assess damages on the basis of scant evidence (which can lead to the use of the prefatory words, "doing the best I can") or uncertain bases, particularly in cases where the damages are difficult to assess: see, for example, McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411-412 (Dixon and Fullagar JJ); [1951] HCA 79 (a contract for the recovery of an oil tanker which was not at the location specified in the contract) and Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 (Mason CJ and Dawson J), 102 (Brennan J), 119, 125-126 (Deane J) and 153 (Gaudron J); [1991] HCA 54 (a contract awarded by government tender when it could not be shown that the contract would be likely to be profitable but there was a real prospect that it would be extended). However, even in those cases, the plaintiff still bears the onus of showing the loss of something of value.
The present case presented no such difficulty. Having rejected the sole basis on which the Builder's claim for damages was put, her Honour's error was to proceed to assess damages on a basis which was neither pleaded nor particularised or part of the Builder's case at first instance. Given that it was not part of the Builder's case, her Honour did not receive the detailed assistance she might otherwise have received from counsel as to the legal principles which applied to the question whether such damages had been proved or were available in the present case (although, it must be said, these principles were referred to by Mr Webster in the Contractor's submissions dated 22 March 2019).

[27]

Whether it was open to the Court below to assess damages on the basis of the withholding monies having regard to applicable legal principles

I propose to turn to the second aspect of ground 4: whether the evidence adduced by the Builder was in any event sufficient, as a matter of law, to establish damages in the sum of the withholding monies and whether such damages were too remote to be recoverable. There are two aspects to the Contractor's complaint in this Court: first, that the evidence adduced by the Builder at first instance was insufficient to establish that the alleged loss was caused by the breach; and, secondly, that the damages were in any event too remote.
I accept the Contractor's submission that the evidence adduced by the Builder was insufficient to discharge the onus of proving an entitlement to damages based on the amount of the monies said to have been withheld. The Builder had been paid in full by the Owner (plus the added 10% margin) for all invoices rendered by the Contractor for the supply of sandstone and the stonework. Thus, the Contractor had established that the Owner had not retained any percentage of these invoices pursuant to the special condition set out above. This evidence tended to indicate that the Owner withheld money from the Builder as a result of some dissatisfaction with the work unrelated to the Contractor's work. In these circumstances, it was not necessary for the Contractor to probe, in cross-examination of either or both of Mr Critharis or Mr Blank, the basis on which monies were withheld and what connection, if any, they had to the stone supplied or the work done by the Contractor since it bore no onus. The Contractor was entitled to leave the scant evidence of Mr Critharis on that issue alone: see Vidal v NRMA Insurance Ltd [2005] NSWCA 390 at [15] (Handley JA, Mason P and Brownie AJA agreeing). The evidence was insufficient to establish on what basis the monies had been withheld under the Head Contract or the extent to which the Builder was itself responsible for the withholding monies given its obligations to the Owner under the Head Contract. A consideration of the terms of the Head Contract and the Sub-contract does not lead to an inference that loss flowing to the Builder from its breach of the Head Contract (leading to monies being withheld by the Owner) would be recoverable from the Contractor. Indeed the Sub-contract expressly conferred rights on the Builder in respect of any breaches by the Contractor.
The requirement that the damages not be too remote is commonly referred to as the second limb of Hadley v Baxendale (1854) 9 Ex 341; (1854) 156 ER 145. The remoteness limitation has given rise to what was referred to by Brennan J in Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 368; [1993] HCA 4 as the "merged principle". This principle was articulated by Lord Reid in C Czarnikow Limited v Koufos [1969] 1 AC 350 (Czarnikow) at 385: "The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation."
While the Contractor could reasonably expect that any deficiencies in its work would give rise either to a demand from the Builder that it make good any defects or to a claim by the Builder under cl 13 of the Sub-contract, it by no means followed that it was in the reasonable contemplation of the parties that the Contractor would be liable for any monies withheld by the Owner under its Head Contract with the Builder: see Ipp JA's consideration of the distinction between reasonable foreseeability and being within the parties' reasonable contemplation in Stuart Pty Limited v Condor Commercial Insulation Pty Limited [2006] NSWCA 334 at [107]-[123]. The determination of this issue in the Builder's favour would require at least some evidence beyond that which Mr Critharis had given in his affidavit, to establish that it was not too remote and that it was a head of damages which can be taken to have been reasonably in the contemplation of the parties to the Sub-contract at the time it was entered into. No such evidence was adduced.
For the reasons given above, I do not consider that it was open to the Court below, as a matter of law, to assess damages on the basis of the withholding monies. The evidence was insufficient to discharge the Builder's onus of satisfying the merged principle in Czarnikow set out above in respect of those withholding monies, which were plainly not a direct loss under the Builder's contract with the Contractor but rather alleged to be a consequential loss under the Head Contract between the Owner and the Builder. Her Honour was in error in determining in [114] of her reasons that the loss was a "direct loss to the [Builder]".

[33]

The Builder's application for leave to appeal

As referred to above, the Builder seeks leave to cross-appeal against the rejection by the Court below of its claim for the cost of rectification.
The Builder argued that her Honour was in error in refusing the claim for the cost of rectification. Mr Weaver relied on legal principles established by authorities which he accepted that he had not raised in the Court below. A party is generally not entitled, on appeal, to make a different case than the one put below. In Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33 the plurality (Gibbs CJ, Wilson, Brennan and Dawson JJ) said at 7-8: "… To say that an appeal is by way of rehearing does not mean that the issues and the evidence to be considered are at large. It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial … In a case where, had the issue been raised in the court below, evidence could have been given which by any possibility could have prevented the point from succeeding, this court has firmly maintained the principle that the point cannot be taken afterwards …"
One of the authorities now relied on by the Builder in this Court, Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36, was raised in the Court below by the Contractor in its submissions. The Builder did not respond to the Contractor's submissions in this respect, thereby indicating that it did not rely on the stream of authority that included Bellgrove v Eldridge.
Her Honour's reasons for rejecting the claim for damages based on the cost of rectification are contained in [115]-[121], which are extracted above. It appears to me that, although the argument put by the Builder in this court (based on Jones v Stroud District Council [1988] 1 All ER 5, referred to below) was not put in the Court below, the evidence adduced, and the authorities relied on, by the Contractor raised the issue squarely. Accordingly, I consider that the Builder is entitled to make submissions in this Court. However, if the Builder is successful on a point not taken in the Court below, the consequences for costs would need to be addressed.
The summary of evidence relevant to the appeal and the cross-appeal (but not to the notice of contention) shows that there was no evidence that the Builder was either obliged to, or intended to, rectify the wall. Indeed the evidence adduced was to the contrary. The Owner did not depose to any present expectation that the wall would be rectified by the Builder and he confirmed that there were no proceedings on foot between him and the Builder. It was common ground that any such proceedings would now be statute-barred. Indeed so much can be taken to have been accepted by the Builder since Mr Weaver opened the case on the basis that the Builder could not "in all good conscience" leave the wall as it was. The objective facts showed that the Builder had done precisely that for the period of over six years since November 2012 when the Owner first noticed the deterioration of the wall and 28 February 2019 when Mr Critharis gave his evidence.
Mr Weaver sought to overcome the lack of evidence which could assist the Builder on the issue of the prospects of his rectifying the wall by submitting that I ought draw the inference from the fact that there had been negotiations between the Owner and the Builder for the rectification of the wall that it would be rectified. Mr Weaver also submitted that I should infer that the Builder had obtained detailed costings for rectifying the wall, not merely for the purposes of the proceedings, but also because it intended to carry out the work. He also asked rhetorically: if there was "any suggestion or any thought in [Mr Blank's] mind that this would not lead to a completion of the wall, you'd have to ask why he would bother to attend Court to give evidence in the proceedings". Mr Weaver also sought to distinguish the subject property (a waterfront at Camp Cove) from "a single fibro bungalow in another part of Sydney" to support a submission that "this is a home where people aren't going to put up with something that is half done". I regard these matters as no more than speculation. They are insufficient to cast any doubt on the factual findings drawn by the Court below.
The more significant obstacle in the path of the Builder's challenge to her Honour's rejection of its claim for damages measured by reference to the cost of rectification was that it was based on the factual findings set out in [115]-[121] and, in particular, her Honour's conclusion at [121]: "… I have no evidence upon which I could be satisfied that the builder has a liability to the owner to repair the wall …"
Even if this finding could be characterised as raising a question of mixed fact and law, and therefore susceptible to a grant of leave, it was plainly correct. The incontrovertible facts were that, at the time of the hearing, seven years after the completion of the head contract, no rectification work had either been done or requested. The Limitation Act period of six years had expired in relation to any relevant breach of either the Head Contract or the Sub-contract. The limitation period for any action by the Owner against the Builder pursuant to Part 2C of the Home Building Act for breach of a statutory warranty was seven years after the completion of the work to which it related: s 18E, as in force prior to the Home Building Amendment Act 2011 (NSW), which relevantly applied because of cl 109 of Schedule 4 to the Home Building Act. Accordingly, at the time Mr Blank gave his evidence on 28 February 2019, he had slightly more than a week to bring proceedings against the Builder for any damages for breach of a statutory warranty. He gave no evidence whatsoever that he had any intention of doing so. It would, in any event, appear that Mr Weaver accepted this to be the case, having regard to the way in which he opened the Builder's case in the Court below.
I discern no error in her Honour's approach which was entirely consistent with the authorities to which Mr Weaver referred this Court, to which I will now, for completeness, turn.
Mr Weaver relied on the following passage from Brooking on Building Contracts (5th ed, 2014, LexisNexis Butterworths) at [11.14]: "A plaintiff seeking damages must prove a loss, but if property belonging to a plaintiff has been or will be repaired, the court in awarding damages is not further concerned with the question of whether the owner has had to pay for the repairs out of the owner's own pocket or whether the funds have come from some other source. This principle, established in Jones v Stroud District Council [1988] 1 All ER 5 at 14 was said to remain 'good law' in Burdis v Livsey [2002] EWCA Civ 510 at 102 and was not doubted in Powercor Australia Ltd v Thomas [2012] VSCA 87."
The principle, which derives from Jones v Stroud District Council, allows an owner of property to recover damages by reference to the cost of rectification of the property to bring it to the condition it would have been in had the contract not been breached, irrespective of whether the property has actually been rectified at the owner's expense. Neil LJ said at 14: "It is true that as a general principle a plaintiff who seeks to recover damages must prove that he has suffered a loss, but if property belonging to him has been damaged to an extent which is proved and the court is satisfied that the property has been or will be repaired I do not consider that the court is further concerned with the question whether the owner has had to pay for the repairs out of his own pocket or whether the funds have come from some other source." [Emphasis added.]
Thus, there were two express riders to the principle: first, that the plaintiff must have a proprietary interest in the property in need of rectification by reason of the defendant's breach; and, secondly, that the plaintiff has proved that the property "has been or will be repaired".
In Alucraft Pty Ltd (in liquidation) v Grocon Ltd (No 2) [1996] 2 VR 386 (Alucraft v Grocon), the question arose as to the quantum of damages to be awarded to a contractor, Grocon, which had breached the head contract with the proprietor by reason of a breach by a sub-contractor, Alucraft, of the sub-contract. Grocon had sued Alucraft on a cross-claim and claimed the cost of rectifying Alucraft's defective work. Alucraft argued that Grocon was not entitled to the cost of rectification since three years had elapsed since the work was done and there was no evidence that the proprietor was likely to take action. It submitted that to award damages to Grocon on that basis would be to put it in a better position than had there been no breach. In response, Grocon submitted that the appropriate measure of damages was the cost of rectification and that it was immaterial whether the rectification would be carried out. Grocon relied on authorities which included Bellgrove v Eldridge in which the builder sued for payment for the construction of a house. The owner cross-claimed for damages for breach on the basis that the house needed to be demolished and re-built in accordance with the plans and specifications. Smith J in Alucraft v Grocon distinguished Bellgrove v Eldridge on the basis that Grocon was not the proprietor and therefore had no proprietary interest in the finished product. His Honour said at 392: "The question before the court [in Bellgrove v Eldridge] was the appropriate approach to quantification of the loss of the owner who had a proprietary interest in the finished product. That loss continued whether the rectification work was done. In the present case, Grocon did not have a proprietary interest in the finished product. It had an interest in the result produced by Alucraft not because it wished to enjoy the physical result itself but because Alucraft's work was being used by it in the performance of the head contract. Its interest lay in the financial result which depended in part on whether and to what extent the rectification work was done or required."
His Honour proceeded to assess the damages for which Grocon was entitled to compensate it for Alucraft's breach on the basis that it was "an extremely remote possibility that it [the proprietor] will now seek to have them rectified at Grocon's cost" (399). As the only relevant bar to action by the proprietor was the Limitation of Actions Act 1958 (Vic) and the period had not yet expired, there was still a chance that the owner would require Grocon to rectify the default. Smith J assessed the cost of rectification at $35,000 and awarded the sum of $5,000 as compensation for the risk to which Grocon remained exposed that rectification would be required.
In Roman Catholic Trusts Corporation v Van Driel Ltd [2001] VSC 310, Hansen J approved of the following statement by Lord Griffiths in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 97; [1993] UKHL 4: "The second ground upon which the recovery of damages is resisted is that Investments in fact reimbursed Corporation for the money they spent on the repairs. But here again in my view who actually pays for the repairs is no concern of the defendant who broke the contract. The court will of course wish to be satisfied that the repairs have been or are likely to be carried out but if they are carried out the cost of doing them must fall upon the defendant who broke his contract." [Emphasis added.]
In Pourzand v Telstra Corp Ltd [2012] WASC 210 at [205], Edelman J referred to a qualification on the general requirement that the property must be owned by the plaintiff for the principle in Jones v Stroud District Council to apply as follows: "A hypothetical example given by Lord Goff of Chieveley in Alfred McAlpine Construction Ltd v Panatown Ltd (dissenting in the result, but joined in this reasoning on this point by Lord Millett; and Lord Browne-Wilkinson assuming it to be true is instructive. Lord Goff spoke of a wealthy philanthropist who contracts for work to be done to the village hall. The work is defective. Can the philanthropist sue the builder, perhaps to obtain damages to repair the work? Lord Goff described as 'absurd' the suggestion the philanthropist will fail because he does not own the hall, and because he will not incur the expense himself of employing another builder to do the remedial work: The philanthropist's cause of action does not depend on his having actually incurred financial expense ... he 'has suffered loss because he did not receive the bargain for which he had contracted with the first builder'."
In the hypothetical example, the philanthropist had spent real money, the contract price, to get an actual result: the repair of the hall. The money required to put him in the position he would have been in had the contract been performed was, in that case, the cost of the repair of the hall. In the present case, the Builder had been paid in full for the work referable to the Contractors work on the wall. The Owner had not required him to rectify it and there was, as her Honour was entitled to find, no prospect that the Builder would actually rectify the wall or arrange for someone else to rectify it. Accordingly, the Builder failed to prove that he suffered loss or that his damages ought be measured by reference to the cost of rectification.
None of these cases, even had they been brought to her Honour's attention, could, on proper analysis, have altered the result. I note that Mr Weaver accepted the correctness of Alucraft v Grocon which is consistent with the other authorities referred to.
Having considered the issue raised by grounds 1 and 1A of the cross-appeal in some detail, I am disposed to grant leave to the Builder to appeal pursuant to s 40(1) of the Local Court Act but otherwise dismiss the cross-summons.

Cubic Metre Pty Ltd v C & E Critharis Constructions Pty Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (38 paragraphs)

Parties

Legislation Cited (8)

Cases Cited (26)

Cited By (4)