Delic & Ors v Yahome Pty Ltd (Domestic Building) [2012] VCAT 752

1. The Respondent must pay the First Applicant $289,943.
2. The Respondent must pay the Second Applicant $176,793.
3. The Respondent must pay the Third Applicant $218,682.
4. Costs reserved pending receipt of any written submissions in reply.
5. By 19 June 2012, the Respondent may file and serve any written submission in reply as to the question of costs.

Mr Lim, director and Mr B Gillies of counsel (written submissions only)

1. The Applicants are the owners of three adjourning properties located in Burnside Heights, Victoria. Each of the Applicants purchased their properties from Linh Thuy Nguyen ('the Vendor') in late 2009 or early 2010, pursuant to three separate sale contracts.
2. The Respondent constructed each of the properties now owned by the Applicants ('the Builder'). The properties formed part of a terrace construction comprising eight townhouses. Each townhouse was the subject of a separate building contract between the Builder and the Vendor. At the time when the Applicants entered into the sale contracts, the townhouses were not completed. In that sense, although the Applicants are subsequent owners of the relevant properties, they were the first occupiers of each of the townhouses.
3. The Applicants claim substantial damages against the Builder on the ground that the building works undertaken by it are defective. A number of building inspection reports have been prepared on behalf of the Applicants, which describe the nature of the alleged defective work and the cost to rectify that work. In particular:
   • (a) Lot 832 (No 58) owned by the First Applicant: $282,778
   • (b) Lot 831 (No 56) owned by the Second Applicant: $165,973
   • (c) Lot 829 (No 52) owned by the Third Applicant: $211,608
4. In addition, the Applicants also claim consequential losses, such as the cost of alternate accommodation and removal and storage of furniture; which they contend is necessary by reason of the rectification works.
5. The Builder defends the claims made against it on the ground that it has no liability for the defective work because it had previously entered into a settlement agreement with the Vendor, under which it was given a release in respect of all defective work, save and except for latent structural defects. Consequently, the only expert evidence before the Tribunal is that given by Mr Croucher, building consultant engaged by the Applicants.
6. There is no contrary expert evidence, nor was Mr Croucher extensively cross-examined on his evidence given during the course of the hearing. Therefore, the central issue for determination is whether; and to what extent, the claims against the Builder have been compromised pursuant to a settlement agreement between it and the Vendor.

1. The First Applicant, Ms Delic, purchased Lot 832 on 29 April 2010. Prior to signing the sale contract, she inspected the townhouse in the company of the relevant real estate agent and observed various building works were still in progress. She said that she gave a list of observed defects to the real estate agent. She gave evidence that two days prior to settlement of the sale contract, she made a further inspection of the townhouse and observed that the works and the items described in her defects list were still not complete. She said that she provided a further list of defects to the Vendor's conveyancing agent. She recounted that the conveyancing agent advised her that she should proceed with settlement even though the building works were not complete, otherwise she would lose her deposit. She said that the conveyancer had told her that the Builder would complete all works after settlement.
2. The sale contract was settled on 28 May 2010. On 29 May 2010, Ms Delic inspected her townhouse only to find that the townhouse was not in a state fit for occupation. She gave evidence that the townhouse had not been cleaned and that there was building rubble left on site. In addition, there were a number of incomplete or defective works. She said that many of the items that she had previously listed in her defects list had not been completed. As a consequence, she extended the lease over the property that she had previously resided in so as to give her time in which to organise for the townhouse to be made suitable for occupation. She said that she arranged and paid for the cleaning of the townhouse and eventually moved into the dwelling on 12 June 2010.
3. Ms Delic gave evidence that after occupying the townhouse, she noticed further defects such as a gas leak in the kitchen, water entering the townhouse at various points, broken or damaged floor and wall tiles and other items. She said that she called the Builder on a number of occasions but received no response. On 5 July 2010, she obtained a defects report which she sent directly to the Builder. A representative of the Builder then inspected her residence but no repairs were carried out by the Builder at that time. A further defects report was prepared which was sent to the Builder on 27 August 2010. She said that after that report was given to the Builder, it returned on several occasions in an attempt to make good some of the items referred to in the report but without success. Ms Delic gave further evidence that she had incurred expenses totalling $665 [1] as follows:
   • (a) Installation of TV antenna: $150
   • (b) Telephone connection wiring: $165
   • (c) Cleaning and removal of builders rubble: $350

1. The Second Applicant, Mr Huynh is the registered owner of Lot 831 (No 56). He gave evidence that he purchased the townhouse on 15 August 2008, with settlement occurring on 27 April 2010. He said he purchased the property off the plan. However, when he took possession of the property, it was not in a state fit for occupation. He said there were boxes, construction materials and other rubble left behind. He noticed a large crack at the corner of the kitchen counter, pen marks on the windows and doors, leaking kitchen sink and bathroom pipes and other matters. He gave evidence that after having occupied the property for some months, he noticed other defects which included:
   • (a) The front door was warped which allowed water into the townhouse;
   • (b) The telephone line was not working;
   • (c) There were large cracks on the brick panels around the townhouse;
   • (d) The water tank pump was not functioning;
   • (e) There was missing insulation;
   • (f) There was water entering the garage; and
   • (g) There was no provision for drainage on the balcony floor.
2. Mr Huynh said that he initially raised the defects with the Vendor's representative. He said he was told to make a defects list and send it to the Vendor so that she could make an official complaint to the Builder. To that end, he e-mailed a defects list to the Vendor's representative on 6 July 2010. He said two weeks later, the Builder sent its contractors to his townhouse in order to make good the items of defective work. According to the Mr Huynh, the rectification work caused further damage to the property. At some point after July 2010, Mr Huynh contacted the Builder directly in order to persuade the Builder to repair the defective works. He said that his request was largely unanswered.
3. In early March 2011, he made a complaint to the Plumbing Industry Commission, following which a report was prepared. On 28 May 2011, he received a handwritten note from the Builder which offered to rectify the works insofar as they related to the issues concerning the roof. However by that stage he had lost confidence in the Builder's ability to adequately deal with the number of defects and as a consequence, did not invite the Builder to make good the roof defects. Mr Huynh gave evidence that he had incurred expenses totalling $530 [2] as follows:
   • (a) Installation of TV antenna: $150
   • (b) Cleaning and removal of builders rubble: $380

1. The Third Applicant, Ms Caberoy, is the owner of Lot 829 (No 52). She purchased her townhouse pursuant to a contract signed on 16 September 2009. Settlement of that contract occurred on 23 April 2010. As was the case with the other Applicants, the townhouse was not in a state fit for occupancy at the time when Ms Caberoy took possession. She said that the property was dirty with builder's rubble being left in the dwelling and around the site. In addition, left over equipment and building materials were also discovered in and around the townhouse and garage. She said that she noticed that there were large scratches across the floorboards, dark patches on the kitchen floor and pencil marks still visible on the stairs. She gave evidence that she contacted the real estate agent and was advised that they would get in contact with the Builder. However, she heard no response. She then decided to clean the townhouse herself so that it was fit for occupancy. She gave evidence that she moved into the townhouse in late April 2010.
2. Ms Caberoy said that after moving into the townhouse, she noticed other defects, such as the water tank not operating, further damage to the floorboards and tiles, unfinished tiling in the laundry behind the toilet, paint on the carpet, holes in and nails protruding from door frames, gaps in the brickwork and other defects. She said she tried to contact both the real estate agent and the Builder several times regarding those defects. In mid May 2010, she made contact with the Builder and advised him of the defects. She recalled that the Builder sent his supervisor to inspect the property and perform some repairs. This occurred over the months of May, June and July. She stated that she did not believe that the work had adequately repaired the defects. In mid July 2010, she engaged a building consultant to prepare building inspection report which she then forwarded to the Builder. She heard no response from the Builder after that.
3. Ms Caberoy gave evidence that more recently she has observed further defects, such as uneven plastering on certain walls and ceilings and water leaks inside the townhouse which has caused further consequential damage to plasterwork, painting and ceilings. She further said that she had incurred expenses totalling $409 [3] as follows:
   • (a) Installation of TV antenna: $209
   • (b) Rectification of evaporative cooling system: $200

1. It is common ground that no contract exists between the Applicants and the Builder. Further, the claims are not couched in terms of a claim in negligence. The claims are brought pursuant to rights given to the Applicants, as subsequent land owners, under s.9 of the Domestic Building Contracts Act 1995 ('the Act'). That provision states:

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

1. The warranties set out under s.8 of the Act include warranties that:
   • (a) The work would be carried out in accordance with the Building Act 1993 and the regulations made under that Act.
   • (b) The work would be carried out with reasonable care and skill; and
   • (c) The work would be carried out in a proper and workmanlike manner in accordance with the plans and specifications set out in the contract.
2. Consequently, Ms Johnson, solicitor acting on behalf of the Applicants, argued that the defects identified in Mr Croucher's report result from a breach of the warranties set out under s.8 of the Act.
3. Damages for breach of a warranty are to be assessed as if the warranty was true: Pennant Hills Restaurant Pty Ltd v Barrel Insurances.[4] Therefore, the reasonable measure of damages is to be assessed by reference to what it would cost to make the warranty true. In other words, the reasonable cost of making good the breach of warranty. In my view, that necessarily entails not only the cost of repairing defects but also compensating an innocent party for consequential losses associated with making good that breach of warranty.

1. As indicated above, the only expert evidence before the Tribunal is the evidence of Mr Croucher. He prepared a report dated 3 April 2012, in which he assessed what he considered to be the reasonable cost of rectification of all defects claimed by the Applicants. He also gave oral evidence elaborating and explaining the basis upon which he formed his opinion. Mr Croucher said that he was provided with a number of building inspection reports previously prepared by Malcolm Axford, building consultant of Building Watchdog Pty Ltd and was asked to provide an opinion as to whether he agreed with the conclusions reached in those reports and if so, the reasonable cost of undertaking rectification work.
2. Mr Croucher said he had inspected each and every item of defective work described in the reports prepared by Mr Axford and agreed with Mr Axford's conclusions. He said that he then calculated the reasonable cost of rectification and added a margin of 35% to his costing, which comprised:
   • (a) 5% for contingency;
   • (b) 10% for administrative costs; and
   • (c) 20% for profit and supervision.
3. Mr Lin, director of the Builder, represented its interests during the course of the hearing. He did not cross-examine Mr Croucher on any particular item of defective work or question him on his cost estimates, apart from suggesting that Mr Croucher's allowance for margin was excessive.
4. In response, Mr Croucher said that the margin was reasonable because it reflected the fact that a rectifying builder was likely to charge more than the original builder, given that the rectification work may uncover other defects that were not initially apparent. He said that rectifying builders generally charge more by way of margin to afford protection against that risk.
5. As I have already indicated, there is no contrary evidence as to whether the items in Mr Croucher's report (and by incorporation, Mr Ackford's reports) are items of defective work. Consequently, I accept the uncontested evidence of Mr Croucher. Further, I accept that Mr Croucher's costing is fair and reasonable, given that there is no contrary evidence as to quantum.
6. Therefore, I find that the reasonable cost to make good the items of work listed in Mr Croucher's report are:
   • (a) Lot 832 (No 58) owned by the First Applicant: $282,778
   • (b) Lot 831 (No 56) owned by the Second Applicant: $165,973
   • (c) Lot 829 (No 52) owned by the Third Applicant: $211,608

1. As I have indicated above, the Applicants further claim consequential losses. Those losses include the expenses incurred by the Applicants referred to above together with further costs associated with the rectification of the works. In particular, all Applicants contend that the rectification works will take three months to complete. They further contend that they will have to move out of their respective townhouse during the period that the works are being repaired and that they will need to remove all of their furniture and store it for that period of time.
2. Again, the defence raised by the Builder focuses solely on there being a settlement of all defects. Accordingly, the Applicants' claims for consequential loss hinge entirely on that defence. There is no contrary evidence disputing that the Applicants have or may in the future, incurred the costs and expenses comprising their claims for consequential loss.
3. Each of the Applicants gave evidence that that they were told that the rectification works would take three months to complete. However, Mr Croucher, the only expert witness called to give evidence in the proceeding, did not give any evidence that the Applicants were required to vacate their townhouse during the rectification works. Moreover, he provided no evidence as to the likely period that the rectification works would take to complete. Further, nothing is mentioned in his report or in Mr Axford's report going to that issue.
4. No doubt, the Applicants will suffer inconvenience when internal repairs are being carried out, especially where internal walls are straightened, re-plastered and then re-painted. However, I am not persuaded that the rectification period would extend to three months for each of the townhouses, even if they were repaired separately to each other - so that one townhouse was completed before work commenced on another; which seems to be the methodology used to assess the cost of rectification work.
5. Doing the best I can with the evidence before me, I find that six weeks is a reasonable period of time to allow for rectification work to the interior of each townhouse. I find that it is reasonable for each of the Applicants to vacate their respective townhouse for a period of six weeks, whilst internal repairs are carried out. I make this finding having regard to the number of labour hours estimated by Mr Croucher for internal works, which are, on average, approximately 450 hours or 11.25 consecutive working weeks.[5] Obviously, much of the work can be done concurrently. Therefore, I find that 11.25 weeks ought to be reduced to 6 weeks to take that factor into account.
6. Each of the Applicants gave evidence as to the cost of a serviced apartment during the period that repairs are carried out. Both Ms Delic and Ms Caberoy produced quotations for a one bedroom serviced apartment at $155 per night, which I consider reasonable. Mr Huynh produced a quotation for a two bedroom serviced apartment, which he said was necessary because he had to cater for his wife and children, at $245 per night, which I also consider to be reasonable.
7. As to the claim for removal of furniture and storage, there is no evidence from Mr Croucher that this is necessary. The only evidence from the Applicants is that they wanted to reduce the risk of damage during the repair process. In my view, appropriate precautions can be adopted to protect furniture during the rectification period. Therefore, I dismiss this aspect of the Applicant's claim.
8. The remaining items claimed by the Applicants relate to expenditure incurred by them as set out above. Invoices were produced to verify such expenditure. Again, no contrary evidence was led by the Builder that these items were not included in the original contractual scope of work. Therefore, I consider that this expenditure results from a breach of the warranties given pursuant to s.8 of the Act. I will allow those amounts.
9. Accordingly, I find that the Applicants' losses due to a breach of the warranties under s.8 of the Act by the Builder are as follows:
   • (a) First Applicant:
     • (i) Cost of repairs: $282,778
     • (ii) Cost of alternate accommodation in a serviced

(iii) Installation of TV antenna: $150

(iv) Telephone connection wiring: $165

(v) Cleaning and removal of builders rubble: $350

(b) Second Applicant:

• (i) Cost of repairs: $165,973
• (ii) Cost of alternate accommodation in a serviced

(iii) Installation of TV antenna: $150

(iv) Cleaning and removal of builders rubble: $380

(c) Third Applicant:

• (i) Cost of repairs: $211,608
• (ii) Cost of alternate accommodation in a serviced

(iii) Installation of TV antenna: $209

(iv) Rectification of evaporative cooling system: $200

(v) Telephone connection wiring: $165

1. As I have already commented, the Builder's defence does not contest the Applicants' claims on technical grounds, nor does the defence contend that Mr Croucher's cost estimates are not reasonable. The defence is based on the sole ground that any claim as to the condition of the townhouses was compromised pursuant terms of settlement between the Vendor and the Builder, save and except for latent structural defects.
2. Mr Gillies of counsel prepared written closing submissions on behalf of the Builder. He made reference to a settlement agreement entered into between the Builder and the Vendor, which he submitted comprised the following terms:

(1) The Respondent [the Vendor] pay the Applicants [the Builder] the sum of $255,000.00 as follows:

(b) The balance thereof to be paid by three equal instalments within fourteen days of completion of the maintenance items relating to each of the dwellings located at Lots 832, 833 and 834 in accordance with the attached list.

(2) The Applicants complete dwellings at Lots 832, 833 and 834 on or before 5 May 2010.

(3) The Applicants release the Respondent from any further claim in relation to the monies.

(4) The Respondent releases the Applicants from any further claims or monetary compensation thereafter relating to any defects previously identified.

1. Mr Lin, director of the Builder gave evidence that the settlement agreement between the Builder and the Vendor resulted in the Builder compromising its final claim in respect of the eight townhouses constructed by it by $72,324.08, spread equally across each of the eight separate building contracts. In other words, the Builder discounted its final contract price by $9,040.51 for each of the eight building contracts. Mr Lin said that there were a number of defects raised by the Vendor which she required the Builder to make good in order to make the purchasers happy. He said that the Builder agreed to discount the contract prices in consideration that the Vendor took responsibility for any maintenance items from that point on, although he conceded that the Builder was still responsible for any structural defects.
2. Mr Lin also relied upon an affidavit sworn by the Builder's solicitor (or former solicitor) Mr Ferrerro on 4 May 2012. In his affidavit Mr Ferrerro stated that a dispute arose between the Builder and the Vendor, which culminated in the Builder issuing proceedings in this Tribunal against the Vendor, claiming $327,324.08, as money owing under the various building contracts. He states:
   1. The Respondent [the Vendor] denied liability alleging that money was not owing as a result of defects in the building works which resulted in points of defence being filed with the Tribunal...
   2. The parties engaged in negotiations both privately and through lawyers, which resulted in an agreement being reached between Yahome [the Builder] and Nguyen [the Vendor] therein...
   3. After agreement was reached and the above correspondence forwarded, the parties agreed that they would not bother with formal terms of settlement and as a result, no formal terms were actually signed. Instead the parties had made notes about the agreement reached, now produced and shown to me and marked with the letters 'SF-7' is a note prepared by the parties dated 14 April 2010 which represents the agreement referred to in the file note of 15 April 2010 and my letter dated 16 April 2010 to the respondent's solicitor. Now produced and shown to me and marked with the letters 'SF-8' is a true copy of the defects list in respect of Lots 832, 833 and 834. These were the final units to be completed and so those defects lists were still to be dealt with. The other units were completed earlier and so, those defects were rectified.
3. In paragraph 6 of his written closing submissions, Mr Gillies submitted:

All units with the exception of Lots 832, 833 and 834 were completed by April, 2010. The compensation received by Nguyen was received for the defects which the Respondent did not rectify. Therefore, Nguyen took responsibility for those defects. The defects identified in the list produced to Salvatore Ferraro at the time of making his affidavit dated 4 May, 2012 and identified as 'SF-8' where the items that remained as the responsibility of the Respondent and which he had subsequently rectified.

1. In my view, a settlement agreement between an original owner and its contracting builder could affect the rights of a subsequent owner. Although s.9 of the Act gives a subsequent owner rights commensurate with the rights of the original contracting party, it does not create rights greater than the rights of that original contracting party. Therefore, one must look at the rights of the original contracting party to determine the rights of the current Applicants.
2. If the Vendor compromised her rights with respect to certain defects, then I do not accept that a subsequent owner is able to reignite those rights in reliance upon s. 9 of the Act. In my view, the final words in s.9 of the Act, which state as if that person was a party to the contract are words which limit the operation of s.9 to effectively put a subsequent owner into the shoes of the original contracting party. Therefore, if the original contracting party has compromised its ability to claim for breach of a warranty, then subject to s.10 of the Act, no further action lies against a builder in respect of that particular breach. To construe s.9 in any other way would, in my opinion, be tantamount to restricting rights which crystallise upon there being an accord and satisfaction of a suit. Those rights comprise the right to be free of liability in respect of the matters so compromised. Had the legislature intended s.9 to take away or alter those common law rights, it could have drafted s.9 with clear and express words to that effect.[6]
3. At one point during Mr Lin's evidence, he said that a 'deal' was struck between the Builder and the Vendor, which had the effect of discounting the building contract price in consideration that the Vendor took the properties in the condition that they were in. However, that statement is inconsistent with Mr Lim's other evidence, where he said that all items of complaint were completed to the satisfaction of the Vendor and as a result, she paid all outstanding monies due under that settlement agreement.
4. In my view, the evidence led by the Builder is deficient in several respects. First, no evidence was given as to what defects were actually settled. The list of defects exhibited as SF-8 to the affidavit of Mr Ferrerro does not take the matter any further as those items merely reflect items of work for which the Builder remained responsible. However, it is impossible to discern from that list or from the evidence adduced by the Builder, what items of work were actually compromised. In my view, the onus rests on the Builder to satisfy me on the balance of probabilities that certain items of work, which are now the subject of the Applicants' claims, were actually settled. To simply say that the Vendor was to take responsibility for any maintenance items after the settlement agreement was entered into or to say that the Vendor agreed to take the properties in the condition that they were in is not sufficient. In particular, the terms of the settlement agreement, reflected in the Builder's solicitor's letter dated 16 April 2010, states that the Builder is released from any further claims relating to any defects previously identified. However, there is no evidence as to what those previously identified defects are. For example, there is no evidence that any of the defects in the building inspection reports prepared on behalf of the Applicants were the subject of the settlement agreement. Indeed, it is unlikely that that was the case given that Lot 832 was still to be completed at the time when the settlement agreement was entered into.
5. In my view, it is unlikely that the defects identified in the building inspection reports prepared on behalf of the Applicants were compromised as part of the settlement agreement between the Builder and the Vendor, especially when one considers that the "discount" given by the Builder of $9,040 for each townhouse is disproportionate to the cost to make good defects as assessed by Mr Croucher. Moreover, evidence was given by each of the Applicants that the Builder returned to each of the townhouses to undertake further rectification work after each of the Applicants had taken possession of their respective townhouse. Again, that conduct is inconsistent with there being a compromise of all defects comprising the Applicants' claims.
6. Ultimately, however, the Builder's defence fails because there is insufficient evidence to satisfy me on the balance of probabilities that any of the defects identified in the building inspection reports of Mr Croucher were the subject of a settlement agreement. The hearsay evidence of Mr Ferrerro, who was not called to give oral evidence and the documents produced as exhibits to his affidavit do not go far enough to satisfy me that the items of defective work listed in Mr Croucher's report form part of the settlement agreement between the Builder and the Vendor. Mr Lin's evidence that the Builder was not responsible for any maintenance items after the settlement agreement was entered into is too vague and uncertain for me to draw any conclusion that any of the items listed in Mr Croucher's report were compromised. Therefore, I am not satisfied that any of the items listed in Mr Croucher's report were the subject of the settlement agreement between the Builder and the Vendor. I find that the Applicant's rights have not been compromised by reason of any settlement agreement between the Builder and the Vendor.
7. Accordingly, I find in favour of the Applicants in the amounts set out in paragraph 34 above.

1. The Applicants further claim costs of the proceeding on the County Court Scale of Costs and pursuant to s.109(3)(c) and (d) of the Victorian Civil and Administrative Tribunal Act 1998. To that end, the Applicants have filed written submissions in support of their costs claim. No submissions have yet been filed by the Respondent.
2. In the interests of procedural fairness, I am of the view that some time should be afforded to the Respondent to reply to the cost submissions made by the Applicants. Therefore, I will order that the Respondent may file and serve any written submission on the question of costs within 14 days of the date of these reasons.
3. Accordingly, I reserve my determination on the question of costs pending receipt of those submissions (if any).

[1] This amount represents the aggregate of those expenses incurred by the First Applicant which are being claimed and which are listed in a document entitled Loss and Damage filed with the Tribunal on the first day of hearing.

[2] This amount represents the aggregate of those expenses incurred by the Second Applicant which are being claimed and which are listed in a document entitled Loss and Damage filed with the Tribunal on the first day of hearing.

[3] This amount represents the aggregate of those expenses incurred by the Third Applicant which are being claimed and which are listed in a document entitled Loss and Damage filed with the Tribunal on the first day of hearing.

[4] [1981] HCA 3; (1981) 145 CLR 625 per Gibbs CJ at 637

[5] Assuming 8 hours of labour for each working day.

[6] Potter v Minahan [1908] HCA 63; (1908) 7 CLR 277 per O'Conner J at 304.