Sunvara Pty Ltd v John Thomas Williams

The arbitrator's appreciation of the correct test 4 13

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION - CONSTRUCTION LIST

Friday 25 May 2001 ex tempore Revised 25 May 2001

55050/00 - SUNVARA PTY LTD V JOHN THOMAS WILLIAMS JUDGMENT

The Second Interim Award 1 On 6 April 2001, the Court refused the plaintiff leave to appeal from the first interim award made on 27 September 2000. The Court reserved its judgment in relation to the second interim award. 2 The Second Award was concerned with the defendant's entitlement to damages by reason of the Arbitrator finding that the plaintiff was in breach of special condition 1(c). The Arbitrator found that the painted plasterboard finish was to be removed and replaced with the painted cement render at a cost of $54,450.

The Measure of Damages 3 In Bellgrove v Eldridge (1954) 90 CLR 613, the High Court dealt with a claim for damages from a builder in respect of substantial departures from the building specifications which were said to have resulted in grave instability in the building as erected. The Court held that the claimants damages could, prima facie: "be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building of her land which is substantially in accordance with the contract." (p 617) 4 Subject to one qualification, the Court endorsed the general view that the measure of the damages recoverable by the building owner for the breach of a building contract is: "the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach". (p 618)

5 The qualification referred to by the Court was that the work undertaken must be "necessary to produce conformity" and must be a "reasonable course to adopt" (p 619). 6 Reference was made by the plaintiff to the decision of the House of Lords in Ruxley Electronics & Construction Limited v Forsyth [1996] 1 AC 344. In that case, a builder built a swimming pool in the owner's garden to a depth of 6 foot 9 inches, whereas the specified depth was 7 foot 6 inches. The difference in depth did not cause any adverse effect on the property. The House of Lords held that the expense of reinstatement would be out of proportion to the benefit to be obtained, and that the plaintiff was therefore only entitled to any diminution on value caused by the breach. 7 The approach taken by the House of Lords in Ruxley was consistent with the approach taken by the High Court in Bellgrove. So much is made clear by the judgment of the Court of Appeal in Coshott v Fewings Joinery Pty Ltd [unreported BC 9602971, 15 July 1996] where the judgment of Priestley JA at page 15 (with whose judgment Gleeson CJ and Beazley JA agreed) includes the following: "The High Court decision of Bellgrove….. is not inconsistent with the view taken by the House of Lords [in Ruxley]. In Bellgrove the High Court said (at 618) that usually the builder in breach of contract would have to pay whatever damages were necessary for the other party to achieve conformity with the contract but that this rule was subject to the qualification that 'not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt." 8 I am generally unable to discern that there is any issue as between the submissions of the plaintiff and the submissions of the defendant as to the general principles. Both sets of submissions cited both Bellgrove and Ruxley. 9 After considering Bellgrove, and other authorities including Ruxley, the Arbitrator decided that the replacement of plasterboard walls with cement render was not unreasonable. In coming to this conclusion, the Arbitrator compared the cost of the rectification ($54,450) with the contracted purchase price of the property ($700,000). (Interim Award 2, paragraphs 3.3, 3.7) 10 The plaintiff submits: (a) that the Arbitrator found that because the cost was less than 8% of the purchase price, it was not so out of proportion as to make it an unreasonably course to adopt; and (b) that this approach was incorrect in law. 11 It refers to paragraph 1.4 of the Second Award, in which the Arbitrator noted that the defendant had suffered no financial loss. It is the plaintiff's submission that because there has been substantial performance by the plaintiff, and the defendant has suffered no monetary loss, a reinstatement of the finish is indeed an unreasonable course to adopt. 12 The plaintiff submits that the correct test in law in deciding whether the work to be undertaken is a reasonable course to adopt, is: "to consider whether the cost of reinstatement is out of all proportion to the benefit to be obtained by the defendant. It is not the correct approach to consider whether the cost of reinstatement is a particular percentage of the contract price of the whole works."

The arbitrator's appreciation of the correct test 13 The arbitrator in paragraph 3.1 of the second interim award, specifically repeated portion of the respondents submissions which had cited Bellgrove in the following terms: "The general rule that the measure of damages recoverable by a building owner for the breach of a building contract is the difference between the contract price of the work or the building contracted for and the cost of making the work or building conform to the contract is subject to a qualification that not only must the work undertaken be necessary to produce conformity, but also it must be a reasonable course to adopt …." and "as to what remedial work is necessary and reasonable is a matter of fact in every case…" [emphasis added] 14 I cannot accept from a careful reading of the second interim award that the arbitrator is shown to have done otherwise than address the question of requiring to be satisfied that the work to be undertaken was "a reasonable course to adopt". He posed that very question for himself in paragraph 1.1 of the second interim award, pointing out that there are several determinants in relation to answering that question. One finds several references to the correct test in paragraphs 3.1, 3.2, 3.3, 3.5, 3.6 and 3.7 of the second interim award. Indeed the arbitrator approached the question of the reasonableness or unreasonableness of requiring the work of reinstatement to be undertaken from a number of different vantage points: (a) He looked at whether it was unreasonable in construction terms to replace the plasterboard walls with cement render. [Paragraph 3.7] (b) He looked at whether it was unreasonable for the defendant to want what it contracted to receive from the point of view of the significance of (a) the finishes of all the interior walls with a material which he had held differed in design including texture, durability, sound and hardness [paragraph 3.5] and (b) the properties of the materials and of the aesthetics of the premises internally [paragraph 3.9]. 15 In the result I reject the submission that the arbitrator decided the question by applying what is said to have been an incorrect test in relation to the consideration of whether the cost of reinstatement was a particular percentage [or using the arbitrator's words, was " out of all proportion"] to the contract price. The identification of that question and the answer given to it which one finds in paragraph 3.7 is simply one of a number of ways which the arbitrator adopted to decide the ultimate issue before him. His approach was more complex than to simply pose for himself and answer, one question. He was however entitled to look at the matter inter alia by reference to that question as well as by reference to the other questions which he posed for himself. He clearly took into account his finding as to the clear significance [although "not in market value terms" - paragraph 3.9] to the buyer of the differing quality [paragraph 3.4], having already made findings in paragraphs 1.5, 1.6 and 1.7 as follows: '1.5 Another factor to be considered is the quality of workmanship. At the view my attention was drawn to major deficiencies in the trueness of line and plumbness of some walls. In some cases parts of some walls were out of plumb by as much as 20mm yet in other parts of the same walls the walls were plumb. This, combined with some parts being out of line horizontally in the middle of the walls which had the effect of the walls bowing in parts and bulging on the other side of the wall in the adjoining room. The effects of these defects were particularly noticeable at wall corners, and the curved lines of the skirtings at the floor and of the cornices at the ceiling junction of wall and ceiling. 1.6 Evidence was led by witnesses of both parties that the walls are constructed of brickwork and that some of the hollows were packed out from the brickwork with strips of plasterboard in an attempt to plumb up parts, and fill hollows in other parts where the brickwork is out of plumb or out of line. Despite these efforts the finished walls are still defective as described above in 1.5. The effects of packing out the walls are twofold. Firstly the walls are more susceptible to impact damage as parts of the wall are hollow between the packing strips, and secondly the walls sound hollow when knocked. This was so noticeable that Mr Wilkinson, an experienced architect, concluded in his first report that the walls were constructed with a timber frame as the hollow sound, apparent when tapping the wall, is consistent with that construction rather than with plumb and true masonry walls constructed in accordance with the regulatory standards and sheeted with plasterboard. 1.7 The hollow sound when the plasterboard walls are tapped is a further difference in quality between a cement rendered masonry wall and a wall packed out and finished with plasterboard. If the hollow sound led an experienced architect to believe that the walls were constructed with a timber frame rather than masonry, it would certainly lead a layperson such as a possible purchaser and or any expert inspector they may have engaged to a similar conclusion. If some of the plasterboard to the walls is removed and the brickwork further packed out in order to rectify the present defects which the Respondent agrees should be rectified, then the hollowness sound would be more extensive and more noticeable. In any rectification proposal this problem should be addressed.' 16 The plaintiff's submission that the arbitrator failed to consider whether the cost of reinstatement was out of all proportion to the benefit to be obtained from the reinstatement is rejected. The arbitrator's consideration of this parameter is clear from his careful analysis of the facts in cases such as Ruxley, Parramatta City Council v Lutz (1988) 12 NSWLR 293 and De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 at 35 as well as from the second sentence of paragraph 3.9 of the award. 17 Whilst minds may differ on the essential question , it is clear that the arbitrator took into account his finding that apart from cement render in a bathroom, all of the interior walls had been finished with material which differed in design including texture, durability, sound and hardness. [Paragraph 3.5] To my perception the plaintiff has failed to establish a manifest error of law on the face of the award in terms of something which is evident or obvious rather than arguable. As pointed out in paragraph 43 of the first judgment, the word "manifest" to be found in section 38 (5) of the Commercial Arbitration Act requires swift and easy persuasion and rapid recognition of a suggested error. Far from any such swift and easy persuasion or rapid recognition of a suggested error it seems to me that the arbitrator recognised and applied the correct test and had material before him to justify his holding now under attack. And if in fact the test which he applied be incorrect, it is certainly not so obvious and clear that he applied an incorrect test as to constitute to my mind, a manifest error on the face of the award. 18 Nor am I satisfied that there is any, let alone strong evidence that the arbitrator made an error of law and that the determination of a relevant question may add, or may be likely to add, substantially to the certainty of commercial law [See section 38 (5) of the Commercial Arbitration Act]. 19 For these reasons the application for leave to appeal must be dismissed.

Solatium 20 I note that if the defendant/applicant on the arbitration had wished to pursue an alternative backstop approach to the approach apparently taken, that is to say, had sought to pursue a claim for a lump sum by way of a solatium , some related questions would have arisen. This was the approach taken in Coshott [referred to above] where the NSW Court of Appeal considered orders made by the trial judge for damages in favour of an owner of a house under construction. The damages arose from a contract to supply joinery for certain windows and doors in the house. 21 The trial judge had awarded the owner $3205 for defective window sills and $5000 for "solatium". The judge described this latter award of damages as compensation for the inconvenience that the owners would suffer as a result of the rectification work, and for the disappointment that resulted from not getting the exact high quality for which they had bargained. He said: "All these substituted measures are resisted by the plaintiff and I accept that none of them will give exactly what he had hoped for but the degree of shortfall is in my view minimal - so slight as to render quite unjustified the enormous expenditure which would be required to bring about the perfect result.

While my own view is that the result would be quite acceptable, I accept that the plaintiff wants perfection. Since he cannot have it, there will need to be some lump sum payment by way of a solatium. " [emphasis added] 22 The Court of Appeal dismissed the defendant's appeal against this award for solatium. Priestley JA held that the trial judge was correct in deciding that this situation fell within the Bellgrove qualification, and that the decision of the House of Lords in Ruxley Electronics Construction Ltd v Forsyth (1996) 1 AC 344 provided direct support for his decision to award damages for "solatium". At 15 he said: "That view opens the way to include in the award of the lesser amount of damages a sum for what Judge Bell called a solatium and what the House of Lords referred to as "loss of amenity". In the same way that the House of Lords thought an amount awarded for loss of amenity in Ruxley was appropriate, it seems to me the amount awarded by Judge Bell in the present case for a solatium was likewise appropriate." 23 This decision has been described as entrenching the right of owners to recover compensation for inconvenience and disappointment in appropriate cases, where the "necessary" and "reasonable" tests described in Bellgrove have not been satisfied. [J Sharkey, "Some Solace for Owners" (1996) 12 BCL 380] 24 The case of Richards and Another v Baker [1943] SASR 245 involved the question of damages for a mother and father following the death of their son as a result of the defendant's negligent driving. The plaintiffs claimed an amount of 300 pounds by way of solatium, and the Court's remarks with respect to the meaning of the concept are germane to the present proceedings. 25 By way of considering this claim, Mayo J (at p 251) referred to the meaning given to "solatium" in the Oxford Dictionary as: "a sum of money paid over and above the actual damages as a solace for injured feelings"

which is stated to apply: "especially in law" .

Mayo J further described the concept as: "An arbitrary monetary value…intended to replace and recoup very inadequately a lost pleasure". (p 251)

He also referred to the following definition given to the term by a United States court: "a compensation, as a soothing to the affections or wounded feelings, and for the loss of comfort and social pleasure there is in the association between members of a family…Solatium is sentiment, love or affection, as distinguished from property loss." [ Marshall v Consolidated Jack Mines Mr Courtney 95 SW 972] 26 It is unnecessary bearing in mind the reasons given for dismissing the application for leave to appeal, to further consider this area. Possibly the solatium issue would simply not have been available on the arbitration depending upon the state of the points of claim and points of defence. 27 Costs were reserved in relation to the judgment delivered on 6 April 2001. It is necessary presently to determine costs both in relation to that judgment as well as in relation to the judgment delivered a moment ago. It seems clear that in each situation the appropriate order is that costs should follow the event. In those circumstances the orders of the Court are as follows:

(1) The plaintiff is to pay the defendant's costs of proceedings 55037/00.

(2) The plaintiff is to pay the defendant's costs of proceedings 55050/00.

(3) The summons in proceedings 55037/00 is dismissed.

(4) The summons in proceedings 55050/00 is dismissed.

I certify that paragraphs 1 - 27 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 25 May 2001 and revised 25 May 2001.

  Susan Piggott
  Associate
  25 May 2001

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