Softley v Metricon Homes Pty Ltd

Softley v Metricon Homes Pty Ltd - [2014] VCAT 1502 - VCAT 2014 case summary — Zoe

[29]

They observed that the footing system had been constructed in accordance with Australian Standard AS2870-1996. With adequate site maintenance, the crack width was unlikely to grow larger to any noticeable extent. The effect of the Standard, however, was that a crack free, distress free performance was not guaranteed or implied. Structural Works said they strongly suspected that this site had experienced significant abnormal moisture conditions. Remedial measures should be 'directed at minimising the potential for future movement. Preventative measures, which eliminate movement, do not exist.'
This report led to the Softleys calling on Metricon to install the agricultural drain advocated by Structural Works at Metricon's expense. Metricon's representative, Mr Shaun Milne, declined to do this and in an email of 11 March 2011 stated that in Metricon's view, the installation of the agricultural drain might accelerate or exaggerate movement of the house, rather than alleviate or prevent it. Mr Milne told Mr Softley that Structural Works no longer believed that the agricultural drain was necessary. Mr Milne on Metricon's behalf, however, referred the Softleys to CSIRO BTF18 which he said recommended a concrete path being placed around the perimeter of the house.
Rectification workers attended the house on behalf of Metricon in September 2011. They consisted of a bricklayer working outside and two plastering contractors working indoors, removing cornices and plasterboard in the rumpus room and replacing them. They realigned an internal stud wall using a sledgehammer for the purpose as shown on a video taken by Mr Softley.
The Softleys carried out only limited works, constructing a 2m wide concrete path around each side of the house with surface drainage points. Those paths do not extend to the rear corners of the house. They also installed landscaping at the front of the house consisting of mulch, crushed decorative rock and river pebbles.
According to Mr Softley, 'the home continues to experience continuous movement'. On 18 January 2012 Mr Norm Morrod of Structural Works attended on site with Mr Milne and Mr Clayton of Metricon to check the levels of the floor of the house. According to the Metricon report:

[35]

By their Amended Points of Claim, the Softleys alleged a breach of contract by Metricon in failing to carry out the building works in a proper and workmanlike manner. They alleged a breach in that respect of Clause 11 of the contract and the terms implied by the Domestic Building Contracts Act 1995, asserting that Metricon had warranted that the home would be suitable for occupation at the time of completion, and that upon completion would be reasonably fit for the purpose of use as a domestic home and of such a nature and quality as those building works might reasonably be expected to achieve. They said that the breaches included a failure to backfill or compact the site during construction to ensure prevention of water ingress or penetration under the footings; an absence of a drainage system as required by the contract and Clause 5.5.4 of Australian Standard AS2870. Further, they alleged that there were missing downpipes and cut-off drains and an absence of flexible fitting piping which 'allowed uncontrolled water penetration of and around the slab edge during construction and generally'. They said the slab footing 'was not constructed so as to maintain the required 85mm thickness and the slab was not properly vibrated'. They alleged further breaches including missing double studs under girder truss locations, constructing an under strength framework and missing stud ties and incorrect fittings.
The Amended Points of Claim also referred to a document styled 'The Metricon 25 Year Structural Guarantee' which was attached to the contract for the construction of the building which, it was alleged, obliged Metricon to rectify, at its cost, any structural failure of:
1. foundation system, concrete or strip footing;
2. load bearing brickwork;
3. structural timber and steel in wall or roof framing.
They alleged that the filling under the concrete slab provided by Metricon was scoria which, it was said, was contrary to Part 3.2.2.2 of the Building Code of Australia, Class 1 and Class 10 Buildings, Volume 2 and the slab/ footing system did not have sufficient thickness and strength 'and therefore the design and/or construction of the slab/footing system was and remains defective'. Further, they said the windows and doors 'have not been flashed/waterproofed in accordance with BCA 2009, performance requirements 2.2.2/weatherproofing or Australian Standard AS2047-1999'. The Amended Points of Claim draw attention to the distress and cracking in the structure which, it was alleged, were caused by Metricon's failure to carry out the work in a proper and workmanlike manner, carry it out in accordance with all laws and legal requirements including the statutory warranties under the Domestic Building Contracts Act and the Building Act 1993 and carry out the work with reasonable skill. They said the footing system had performed inadequately with a 71mm differential movement. The footings had been designed for a Class H - highly reactive clay sub-soil - site whereas the proper classification was Class E - extremely reactive, which soil classification called for a 'significantly stiffer and stronger' footing system. The losses were also caused, it was said, by 'the lack of attention to site drainage by the footing system designers and during construction'. They also complained as to the design of the timber roof trusses which was said to be in breach of Australian Standard AS1170 and AS1720 with the result that 'the trusses are and remain unsafe. The truss system should be demolished and replaced with a correctly designed system.' The Amended Points of Claim alleged damage by way of:

[38]

In its Amended Defence, Metricon referred to the 'Structural Guarantee' which said it granted in the Softleys' favour, promising to rectify at its cost the structural failure of the concrete or strip footings, load bearing brickwork and structural timbers, subject to the exclusion of movement due to shrinkage evidenced by minor cracking and slab heave due to changes in soil conditions. It denied that the property had suffered structural failure, noting that the brickwork and the plasterboard are not load bearing. The defence noted the installation by the Softleys of cut-off drains and paving to the north, east and west elevations of the property. It said that stone garden beds at the front of the property remains a source of water ingress. The defence complained that landscaping of the property had not been performed in accordance with the CSIRO pamphlet BTF18. The site classification, the defence said, had been performed in accordance with AS2870 and the cracking in the house was not beyond the levels anticipated by AS2870 for normal moisture conditions. It said the trusses in the roof were not unsafe and do not require demolition. Metricon said that at all times it has been prepared to assist the applicant to rectify defects and remains willing 'if allowed by the applicants, to return to the house to perform rectification work to the cracked masonry and plasterboard'. Further, it said that any loss suffered by the applicants was due to a failure on their part to mitigate their damage by failing to grade surface landscaping away from the house by the construction of two pebble beds at the front of the house 'which allow both rainfall and surface runoff to pond adjacent to the footings in the front of the house'. The defence noted advice to the Softleys to install an apron of paving 'around the building perimeter' and a grated drain on the outside edge of the paving on the uphill side of the building which advice, it was said, was in accordance with the CSIRO pamphlet and correspondence between the parties in March 2011. The defence said that no remedial work had been undertaken at the front of the house and paving had not been placed at the rear corners of the house as recommended. Had those remedial measures been taken they

[60]

Whatever the correct view be, since either opinion put the cracking at worse than Category 1 or 2, cracks in which categories must be less than 5mm, the performance criterion laid down by the Standard has not been met. In addition there is at least some Category 3 cracking in the house as it now stands. At least one piece of external brickwork was photographed and identified as a Category 3 crack by Mr Price, a building inspector giving evidence for the Softleys. We observed this at the view that we carried out in the course of the hearing. Mr Price said he observed at least two other Category 3 cracks in the brickwork but there was some doubt as to their identification. Further, in identifying the work which will need to be done to rectify the house in its present state, Mr McLennan, a building surveyor and building consultant who gave evidence for Metricon, said that a 'panel', that is, part of the brickwork on the eastern wall of bedroom 2 would need to be rebuilt. Separately from chasing and re-pointing other parts of this brick veneer wall, he also recommended the removal of two to four courses in the area above window level in this wall and their replacement and re-bricking (T 985). Again, whether one characterises this as Category 3 or Category 4 cracking, it goes beyond what AS2870 regards as acceptable performance for the slab. Expert reports, photographs and our own observation at the on-site view revealed instances of windows which were sticking and whose frames had distorted, matters which were also indicative of a performance falling short of what was required by the Standard.
Mr Margetts and Mr Scheid said that as to Category 1 cracking, there were a multitude of such cracks, whereas AS2870 laid down as its criterion a 'low incidence' of Category 1 cracking. Again, the reports, the photographs and the view bore out this observation. Mr Gobbo and Mr Carr however, submitted that the extent of this minor cracking had to be judged against the fact that no maintenance work had been done on the house since the applicants commenced the present proceeding. In effect, no maintenance work has been done since the major work undertaken in the later part of 2011 by Metricon. In our view, there is some substance to this observation. On balance, however, even allowing for this consideration, there remains a multiplicity of Category 1 and Category 2 cracking in this house which again goes beyond the performance criterion in AS2870.
It is appropriate to apply the design input criterion found in Table 4.1 as a 'check' upon the findings indicated by the above observation. Table 4.1 in selecting 30mm as the tolerable limit for differential movement in a slab focuses not upon absolute movement but rather upon differential movement, that is, bending. If, as a result of seasonal fluctuations, the breaking of a drought or the incidence of a drought for that matter, a slab were to rise, say, 70mm or subside, say, 50mm, as long as the slab moved uniformly, the superstructure of the house sitting upon it would not be subjected to distress. These absolute movements occurring in a non-differential way are the very processes which a stiffened raft slab is constructed and adopted to allow in highly reactive clay sub-soil conditions such as those ruling in West Melton. Even if movement of this type does not maintain the slab horizontal so that there is, in effect, a tilt, this is not at odds with the design input provided for in Table 4.1. The issue of slope as distinct from differential movement is dealt with in Table C2, Classification of Damage with Reference to Concrete Floors, Note 4 of which states:

[63]

It is the edges of a slab which are exposed to the ingress of water during rain events or most exposed to drying out in the course of prolonged drought because of their proximity to uncovered ground. Areas in the centre of the slab are characteristically relatively stable. It is for this reason that heave is almost invariably 'edge heave'. Differential movement therefore will generally manifest itself in a 'dishing' effect where the edges of a slab rise or 'heave' and the central locations either remain stable or sink slightly. The differential movement in these circumstances is measured not by a simple measurement of the difference between the altitude at the highest point compared to the altitude at the low point, rather the extent of the bow or bend is measured by drawing a line from one high point to another and measuring the maximum vertical distance from that straight line to the lowest point on that alignment of the slab.
Mr McFarlane said that since the design input in Table 4.1 was intended to create a particular result relative to the walls of the structure, viz. maintaining cracking due to differential movement below 5mm, any measurement of differential movement needed to be undertaken along the line of an internal wall system. According to Mr McFarlane, in a structure such as a warehouse which had no internal walls, a differential movement which involved dishing but no differential movement along the external walls would be in no way problematic.
Mr Fox, who it will be recalled is the chairman of the committee in charge of AS2870, in cross-examination accepted without demur the propriety of carrying out differential movement calculations simply diagonally across the house floor plan without any regard to following the line of walls. This also seems to have been the approach of Structural Works in their first report on distress to the structure.
In our view, the restriction upon the operation of the criterion in Table 4.1 proposed by Mr McFarlane is without justification. First, it entails adding words to the Standard which are not there. The Standard gives every indication of having been prepared with great care in the choice of language. The Standard does not present as some sort of relatively sketchy guide, details of which need to be implied to provide a comprehensive set of requirements and criteria. The occasion simply to add criteria, as Mr McFarlane advocates, simply does not arise. Secondly, we regard the acceptance of the opposite view, implicit in Mr Fox's evidence as weighty having regard to Mr Fox's role as the chairman of the committee responsible for the Standard. Thirdly, it is not clear to us that differential movement in a structure having internal walls but which does not follow the line of the walls is not calculated to inflict structural damage on the walls in the locations where they are erected and other structures such as roof trusses and so on. In cross-examination Mr Fox agreed that there is 44mm of differential movement along one alignment in the floor plan (T 737 lines 25-31). Mr Fox at line 10 on the following page was asked 'and you wouldn't build a slab to perform like that?', that is, with differential movement almost 50% higher than what the Standard regards as a tolerable limit, and replied 'correct'. All of the above matters support the view that the slab here has not in the past and is not now, performing as AS2870 suggests it should.

[64]

The performance standard laid down at paragraph 1.3.1 of AS2870 is expressed upon the basis that the slab in question is 'not subject to abnormal moisture conditions'. To put it another way, if abnormal moisture conditions do exist 'all best are off'.
If it be found that abnormal moisture conditions obtain as a result of some matter outside the responsibility of the builder, then to the extent that the lack of performance of the slab is attributable to that or those abnormal moisture conditions, the lack of performance cannot be the responsibility of the builder. Here, it is contended that there have been abnormal moisture conditions. What are they? The builder refers to two pebble gardens at the front of the house and a leaking drainpipe behind the garage and in the vicinity of the distress hotspot at bedroom 2, laundry and WC. The cause of the cracked drainpipe which Metricon says it has repaired was not disclosed by the evidence. Mr Price noted that flexible couplings had not, in accordance with the Standard, been used in the subsurface joint in the stormwater drain. This could have the consequence that, in the face of what is expected movement as a result of the highly reactive clay sub-soil, the drainpipes crack at a coupling. The cracking could simply have been as a result of carelessness by a contractor on site in the course of the construction. Whichever way one looks at it, this sort of abnormal moisture conditions cannot be regarded as outside the builder's responsibility. As to the pebble gardens, one of them is, in effect, in accordance with the way the site was left by Metricon. Again, it is difficult to regard this situation as beyond the responsibility of Metricon. The other pebble garden was constructed by the Softleys. It was under construction at the time of the first Structural Works report. Structural Works were critical of it. Mr Softley says that he constructed its base so as to be graded away from the building. It is not in the vicinity of any point of significant distress in the structure, therefore, however characterised, we do not regard it as causative of the serious distress which we have found exists in the structure. There was also criticism of a failure to continue the concrete apron constructed by the Softleys to the rear corners of the house. Precisely why the Softleys have wished to abstain from continuing the pathway to those points was not clear to us from their evidence, however, again, these points are not near damage hotspots and we were not persuaded that they are causative of the distress with which we are now dealing.
As we explain below, the evidence satisfies us that there were abnormal moisture conditions on site during construction which were the responsibility of the builder.

[76]

Next, they said there was a failure of workmanship in placing scoria fill under the concrete slab. They said this constituted a breach of paragraph 3.2.2.2 of the Building Code of Australia.
The making of findings as to what did or did not happen during the construction period was complicated by the general absence of evidence from Metricon and its contractors and sub-contractors as to what happened on site during construction. The only evidence along these lines was to be found in a witness statement given by Mr Thornycroft who is a construction manager employed by Metricon. He said in his statement that several site managers reported to him and that he received construction files and did a 'write up' on those files. According to Mr Thornycroft, before the commencement of construction of the Softleys' house, 'at some time prior to that', he conducted a pre-build site inspection. He said that Mr Softley 'was a frequent visitor to site to see how construction was progressing'. Mr Thornycroft remembered that the Softleys 'was a smooth build process'. He said that he arranged a pre-settlement inspection with the Softleys on 19 February 2010 where they raised a number of relatively minor matters none of which pertained to the substance of this proceeding which Mr Thornycroft arranged to have dealt with and on 10 March 2010 the Softleys 'signed off'. Mr Thornycroft referred to an inspection carried out on 11 November 2009 at the pre-plaster stage which reported that 'the walls had been plumbed to within the allowable tolerances and the trusses were buried correctly onto the wall frames and connected properly'. Mr Thornycroft said that he had not attended the home since the inspection in March 2010. In these circumstances, Mr Margetts and Mr Scheid submitted that we should draw adverse inferences against Metricon because of its failure to call evidence from those in its camp who would have detailed knowledge of what took place during construction. They relied on the well-known decision of the High Court of Australia in Jones v Dunkel (1959) 101 CLR 298.
Mr Gobbo and Mr Carr submitted, however, that those involved, for instance, in the pouring of the footing slab on behalf of Metricon, would have been involved in dozens, perhaps hundreds, of concrete pours and would be unlikely to have any independent recollection of the events surrounding the 'pour' at the Softleys, therefore, no purpose would have been served by calling any of these persons. Further, they said, it would have been competent for counsel for the Softleys to cross-examine Mr Thornycroft as to his statement, rather than permitting it to go into evidence without challenge.
Mr Margetts and Mr Scheid, however, submitted that since Mr Thornycroft's statement did not really touch on the issues which they said were crucial in a critique of the construction phase, and presumably Mr Thornycroft's statement covered all relevant matters to the extent of his knowledge of them, it would have been pointless to cross-examine him. Moreover, since they were not seeking to challenge any of the material in his statement, the rule in Browne v Dunn did not oblige them to cross-examine him.
In our view, the absence of evidence from any of those involved in the construction for Metricon is striking where there is a full-blooded attack on the quality of its workmanship. The inference which the High Court says a finder of fact, judge, magistrate, jury or tribunal may draw in circumstances where witnesses who might be expected to be called are not called, is limited to the conclusion that the evidence of the absent witnesses would not have assisted the relevant parties' case. Where adverse inferences are drawn, they cannot go the distance of speculating as to what the absent witnesses might or might not have said. In the circumstances, we think it appropriate to draw adverse inferences from the unexplained absence of Metricon witnesses as to the construction phase. Mr Gobbo and Mr Carr made submissions as to why the witnesses might not have been of assistance; but no evidence was offered as to the explanations that were relied upon. In these circumstances, we believe that we can draw inferences from the material relied on by the Softleys favourable to their case with greater confidence than might have been the case if Metricon had called witnesses as to the occurrences during the construction phase. Say for instance, where Mr Gobbo and Mr Carr submitted that one could attach little significance to a photograph of the house with a roof installed but no downpipe on the basis that downpipes might have been installed the following day or indeed immediately following the taking of the photograph. The parties that would be able to call such evidence and prove that such a thing happened would obviously be Metricon. No such evidence was proffered.
In our view, the contention that proper workmanship was not employed as to the matters raised by the Softleys during the construction phase is not made out
AS2870-1996 which, as previously explained, governs design and workmanship in circumstances such as the present, provides amongst other things that:

[90]

Mr Gobbo and Mr Carr submitted that no substantial causative affect should be ascribed to what occurred during construction because the long draught broke, according to the rainfall figures which were put into evidence, in October/November 2010, several months after the completion of construction. Nevertheless, we accept the submission put by Mr Margetts and Mr Scheid that events during construction are significant because the rainfall figures show a number of significant rain events and some 80% of the local average rainfall for the Melton area having fallen in the year in which construction took place.
We do not attach much significance to the alleged failure to maintain an 85mm minimum thickness for the slab. The evidence supportive of such a finding came from Mr Price, a building surveyor who carried out an audit of the building ex post facto. He concluded that there had been a failure to maintain the minimum depth for the slab based upon a photograph showing a 'cut out' for the installation of plumbing fittings, apparently in the main bathroom. This is a particularly inexact means of measurement and the evidence was therefore of uncertain reliability. Mr Price was also critical of the method used. He said that, rather than simply effect a cut-out in the slab, the base of the slab or soffit should simply have been dropped. This appears to be the correct method which should have been adopted. Mr Yttrup, an engineer who was the applicant's principal expert witness, attached no significance to these matters because they were located toward the centre of the slab, and the problems which Mr Yttrup believed were causative of the distress in this structure related to its edges, not its centre. Mr Price, the expert who identified the issues, did not suggest that they were relevant to the slab differential movement, rather, he said that they constituted a weak spot for termite infestation. In these circumstances we put those matters to one side.
AS2870 under the heading '6.6 Additional Requirements for Class H and E' sites includes the following:

[110]

In the present case, Structural Works gave two reports on this subject on 3 December 2008 (Tribunal Book p189) and on 25 March 2009 (Tribunal Book p283). There were three bore holes tested and in accordance with paragraph 2.2.3 Structural Works carried out a visual-tactile identification of the soil. Clause 2.2.3 provides for sites to be classified by reference to their characteristic surface movements which value is described as 'Ys'. This value is derived from the result of bore leg tests carried out in accordance with the Supplement Commentary C2.2.3. According to Table 2.3 of AS2870 soil is to be classified as H, that is, highly reactive, where the Ys value is greater than 40mm but not greater than 70mm. A Ys value of greater than 70mm would lead to a soil classification of E and, in accordance with the critique made by Dr Haberfield on behalf of the applicants, there would be a design error by misclassification if E were the correct classification to be applied. Golder Associates as part of the report of Dr Haberfield carried out extensive laboratory testing over and beyond that which was undertaken by Structural Works. Mr Gobbo and Mr Carr submitted that so long as Structural Works technique accorded with what was required by the Standard, the fact that more elaborate testing might yield a different result was beside the point. In the end it is unnecessary for us to express a view as to the correctness of this contention. None of the materials before us supports a classification of the soil as 'E'.
There were elaborate critiques and cross-critiques by the experts. Dr Haberfield was dismissive of the visual-tactile approach adopted by Structural Works. In cross-examination it was suggested that Dr Haberfield had made errors of calculation by applying factors at the wrong point in calculation. It was also suggested that, while Golder Associates had carried out an averaging across bore holes, they had not carried out an averaging across the various soil profiles on the site as required by AS2870. For these purposes, a 'soil profile' should be regarded as a 'layer'. The highest value obtained in calculation by Dr Haberfield was 69mm. He submitted that even although in accordance with Table 2.3 of AS2870 this still equated with an H classification for the soil since it was near the margin, a 'prudent engineer' would upgrade the classification to E in the interests of conservatism. Without necessarily accepting the correctness of the higher values obtained by Dr Haberfield, which stood in contrast with figures of 58 and 57 obtained by Mr Eric Fox, the Standard read as a whole points away from the application of the sort of conservatism which is entailed in Dr Haberfield's view as to what a prudent engineer would do. As previously observed, AS2870 gives every indication of being a very deeply considered document. If its authors had intended that a Ys value of 70mm was appropriate to denote an E class soil, no doubt they could have said so. In fact, they have designated with a Ys factor of up to 70mm as properly designated as H. Clause 2.2 of the Standard includes Note 1 stating:

[115]

There is no breach of proper design standards in the soil classification.
The second alleged design default urged against Metricon relates to the roof trusses. Mr Ytrrup was highly critical of the design of the roof trusses which are continuous across the entire width of the structure. The design provides for them to derive support both from the external stud walls and from one internal structural wall; because the stud walls have risen with the edge heave there has been a parting of the trusses from the internal structural wall as referred to in the summary of damage quoted above. According to Mr Ytrrup, a proper design of trusses in accordance with traditional building practice would have had separate truss members spanning from the external walls to the internal load bearing wall with a break at the internal wall so that there were two separate trusses and, in the event of edge heave, both separate truss members would retain contact with the internal structural wall and derive support from it in contrast to the situation now where the single truss members span the entire structure with no intermediate support. According to Mr Yttrup, there was even greater peril in the scenario where, with the relief of the edge heave, the outer walls subsided and the single truss members were left to 'pivot' on the internal structural wall.
There are two answers to this. First, as Mr Gobbo and Mr Carr submitted, this scenario supposes that the reversal of the edge heave proceeds to such an extent that the reactive clay sub-soil shrinks to an even greater extent than it had shrunk in the course of the prolonged drought which ended in 2010. This is a highly unlikely scenario. The areas of the edge which have heaved are now covered both by the slab itself with further protection from the concrete paving which has been added by the Softleys. It is difficult to conceive therefore, that these areas around the edges could dry out to the same extent which they did in the prolonged drought where none of these protections against desiccation existed.
Mr Ashton, a structural engineer working for an organisation named Mitek Australia gave evidence that according to his expert calculations, the existing truss structure was adequate to span the distance between the two outer structural walls without the support of the central structural wall. Against the unlikely scenario of the outer structural walls dropping to a level below the levels where they were before the initial heave, Mr Ashton said that since the internal structural wall was offset, the practical effect would be that the trusses would rest for their support upon the outer structural wall closer to the inner wall and the inner wall and 'cantilever' toward and above the other outer wall. Mr Ashton also proposed a regime of bracing which he said would add conservative protection against any eventualities for the roof trusses. Mr Ashton's evidence was not effectively contraverted in cross-examination. He is an expert in truss design. We find his evidence on these points more convincing than Mr Ytrrup's. Accordingly, we conclude, either that there is no design flaw relative to the trusses or that any design flaw which does exist may be met by the bracing regime advocated by Mr Ashton as part of Metricon's case.

[123]

In the case before the Court, their Honours concluded that demolition and re-building was reasonable and necessary. For a generation and more this analysis was treated as authority. It was ultimately adopted by the House of Lords in Ruxley Electronics and Constructions Limited v Forsyth [1996] AC 344. In 2009 however, the operation of the Court's analysis in Bellgrove was reconsidered in what on its face was an unlikely context. In Tabcorp Holdings Limited v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 the Court considered a case where a defendant had entered into a lease of office premises for 10 years which included the usual covenant restricting the tenant from making or permitting any substantial alterations or additions to the premises. The tenant sought consent for alterations but consent was refused or deferred; but the tenant commenced work remodelling the foyer. The trial judge found that the tenant had acted with 'contumelious disregard' of the landlord company's rights. The landlord sought damages to fund the reinstatement of the original foyer. On appeal to the High Court the tenant contended that, since the reconstructed foyer was on a purely economic basis, no less valuable than the original foyer which was destroyed, no more than nominal damages were recoverable. This was said to be by virtue of the so called 'doctrine of efficient breach'. Perhaps unsurprisingly the High Court declined to accept the tenant's arguments which tenant's counsel sought to support by reference to Bellgrove and the Ruxley Electronics case. The Court, French CJ, Gummow, Heydon, Cremman and Kiefel JJ said that using a measure of damages in circumstances such as Bellgrove or the Tabcorp case itself would only be appropriate 'where the innocent party is "merely using a technical breach to secure an uncovenanted profit" ' [2009] HCA 8; (2009) 236 CLR 272, 288. This passage has sometimes been used to argue that once a 'disconformity' is shown between building work done under a building contract and the contract requirements, it will only be in exceptional circumstances that a measure of damages other than the cost of rebuilding will be appropriate. Later in the judgment their Honours referred to what was necessary to produce conformity as being the damages which would be necessary to fund the reconstruction of the foyer as it had originally been built and as it was when the tenant took possession. [2009] HCA 8; (2009) 236 CLR 272, 290
Their Honours continued on the same page:

[129]

Their submission was that in the circumstances it was reasonable to require an award of damages sufficient to fund demolition and re-erection of the house because to do otherwise would leave the Softleys bearing the risk of future distress in the structure.
Mr Gobbo and Mr Carr referred to the possibility of further claims being made under Metricon's Structural Guarantee or perhaps some further general contractual claim if additional problems were encountered. In our view, the proper approach here is to regard ourselves as assessing damages once and for all without making any allowance for the possibility of future claims. It would require a lengthy exposition at this point to examine all of the considerations which might be brought into play relative to the doctrine of res judicata and the operation of the limitation provisions to be found in the Building Act 1993 without concluding that there definitely could not be any further claims relative to distress in the structure. Even a cursory consideration of the matters just mentioned would indicate that it is far from clear that any further claim could be made.
The choice which confronts us, therefore, in framing an appropriate remedy in damages is to determine whether, in the circumstances, it should be concluded that the worst is over and that the damage and distress which the structure has suffered already are referrable to 'one off' events during construction and that further large scale movements will not occur having regard to the 'covered structure' phenomenon and the protective effect of the pathways constructed by the Softleys. Or on the other hand if there are further factors in play that perhaps had not been fully explained, with the result that further movement beyond the parameters assumed to be reasonable in accordance with AS2870 will occur.
If the former conclusion is reached then damages should be awarded sufficient to fund a rectification of the existing structure. If the latter conclusion is reached, then the funding should be sufficient to allow for a demolition and reconstruction.
The most significant factor here is a consideration where the most significant distress is now manifesting itself. This is in the area on the eastern wall in the vicinity of bedroom 2, the laundry and WC. This is the area where, even according to Metricon's case, some of the external brickwork is in need of demolition and replacement viz. a section of approximately 7 to 8m above the windows varying from two to four courses. Apparently, there was some rectification work carried out here in 2011 but the distress and cracking has re-manifested itself. This area is remote from either of the pebble gardens. It is also protected by a concrete path. There is a related 'hotspot' of distress on the eastern side of the kitchen manifesting itself at the cornice level which is in the relatively close vicinity of the main area of distress. The persistence of these problems, despite a rectification work, to our mind, gives the lie to the contention that the worst is over and any future movement will be within what are regarded as acceptable parameters in accordance with AS2870. In accordance with the principles stated by the High Court in Bellgrove it is reasonable to fix the measure of damages by reference to the cost of demolition and a re-erection in these circumstances. To quote their Honours in the context of Bellgrove itself:

[133]

The primary claim made by the Softleys was for damages sufficient to demolish and rebuild the house at 7 Long Tree Drive, West Melton. A building consultant, Mr Croucher costed this work at $259,729. Mr Croucher agreed that his figures represented the costing of somewhat different works than were provided for in the original contract. This entailed a slab appropriate to a soil classification of 'E' (T 621). In cross-examination it was put to Mr Croucher that this entailed the award of damages for the construction of a house superior to the one which was provided for in the contract between the parties. This was said by the cross-examiner (Mr Carr) to amount to an inadmissible element of 'betterment' in the assessment of damages. In the face of objection from Mr Margetts on behalf of the Softleys that this constituted cross-examination on a point of law, this line of cross-examination was not pressed (T 622). The Softleys' position was, as we understand it, that the contract as a whole required an upgraded slab despite the express terms of the plans which formed part of the contract. The basis for this contention as we understood it, was that an upgraded slab was necessary to render the house suitable for occupation in accordance with the warranty implied by section 8(e) of the Domestic Building Contracts Act and that this obligation overrode the express terms of the plan. It was not competent for a home owner to bargain away the benefit of the section 8 warranty (see section 10 of the Domestic Building Contracts Act 1995). This contention might have been correct if we had upheld the Softleys' contention that there was a design error in classifying the relevant site as H rather than E and that, therefore, a house erected on this site would not be fit for residential purposes unless it had a slab adequate to the requirements of an E Class site. As explained earlier, we have not sustained this part of the Softleys' case, and so the premise on which Mr Croucher has done his calculations has not been made good. Other costings have been provided to the Tribunal both by the Softleys and by Metricon on the premise that the correct quantum of damages represents the cost of rectifying but not demolishing and re-erecting the present structure. We have reached the point, therefore, where there are no detailed costings for the work which our findings say should be covered by the damages to which the Softleys are entitled. Mr Croucher however attributed about $8,000 of his costing to the slab upgrade. (T 615 line 7). This costing will have to be stripped out. The amounts claimed for removal and accommodation also seem appropriate.
In the circumstances we propose leaving it to the parties to agree upon these final calculations.

At a glance

Court

Decision date

Before

Source

Judgment (136 paragraphs)

Softley v Metricon Homes Pty Ltd (Building and Property) [2014] VCAT 1502 (11 December 2014)

Parties

Cases Cited (3)