(3) that scope of work involved "uncertainty and a risk that would not exist had there been original contractual compliance or complete contractual complying rectification" (R322).
119 In each case, the referee referred back to the sections of his report on which those conclusions were based.
120 In my view, those conclusions were open to the referee on the evidence. There was evidence either way. In particular, there was evidence to support the conclusions to which he came. It should be noted that the referee considered all the evidence. There were aspects of the evidence given by the experts called by the Owners Corporation with which the referee did not agree. His consideration of the evidence, as demonstrated in the report, shows a careful and analytical approach, and not merely an unreasoned and unreasonable acceptance of the case for one party over the case for another.
121 There was much debate, both before the referee and before me, as to whether the risk of failure of the timber hobs, and what the referee found were the risks inherent in the limited scope of rectification propounded by the Guarantee Corporation, justified the demolition of the hobs and their replacement by hobs complying with the relevant requirements of the specification. That debate was conducted by reference to a line of authority commencing with the decision of the High Court of Australia in Bellgrove v Eldridge (1954) 90 CLR 613. In that case, work carried out by a builder for a proprietor departed substantially from the specifications. As a result, the foundations were defective and the building was unstable. The trial judge held that the proprietor was entitled to damages assessed as the cost of demolishing the building and constructing a new building in accordance with the contract and the specifications. The High Court (Dixon CJ, Webb and Taylor JJ) upheld the decision of the trial judge.
122 Their Honours said at 617 that a proprietor who contracts with a builder is entitled to have a building erected in accordance with the contract, the plans and the specifications. Where what is erected does not comply with the plans and specifications, the proprietor suffers loss. That loss is not to be measured by comparing the value of that which has been erected with the value of that which should have been erected. Prima facie, the loss is the cost of rectification of the defects.
123 Their Honours said at 618 that there was a two-fold qualification to the prima facie measure of damages. Firstly, the rectification work must be necessary to produce conformity with the contract, the plans and the specifications. Secondly, in all the circumstances, it must be reasonable to carry out that work.
124 Their Honours said at 619 that it was a question of fact in each case as to what remedial work would be both necessary and reasonable.
125 At 620, their Honours considered the alternative and limited scope of work propounded by the appellants. They said, adopting the conclusion of the trial judge, that that work would provide at best a doubtful remedy. They said that to give the respondent damages calculated by reference to that limited scope of work "could not in any sense be regarded as ensuring to her the equivalent of a substantial performance by the appellant of his contractual obligations".
126 An example of the application of the qualification as to reasonableness is to be found in the decision of the House of Lords in Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344. The plaintiffs contracted to build for the defendant a swimming pool and its enclosure. The contract specified that the pool should have a diving area seven feet six inches deep. The pool as constructed was only six feet deep in that area. It was, however, perfectly safe to dive into, and there was no evidence that the shortfall in depth had decreased the value of the pool. Their Lordships held that the defendant was not entitled, by way of damages, to the estimated cost of demolishing and rebuilding the pool to the specified depth, because it would not be reasonable to do so.
127 Their Lordships considered a number of authorities, including the decision in Bellgrove. See for example Lord Jauncey of Tullichettle (with whom Lord Keith of Kinkel, Lord Bridge of Harwich and Lord Mustill agreed) at 357; and Lord Lloyd of Berwick (with whom also Lord Keith, Lord Bridge and Lord Mustill agreed) at 367, 378.
128 Their Lordships pointed out that the function of damages for breach of contract was to put the plaintiff, so far as money could, in the same position as if the contract had been performed: the well known statement of Parke B in Robinson v Harman (1848) 1 Exch 850 at 855. That was the justification for the principle adopted in Bellgrove. It was also the reason for the qualification. As Lord Jauncey said at 357:
If it is unreasonable in a particular case to award the cost of reinstatement it must be because the loss sustained does not extend to the need to reinstate. A failure to achieve the precise contractual objective does not necessarily result in the loss which is occasioned by a total failure.
129 As his Lordship pointed out, that is consistent with the reasoning of the High Court in Bellgrove at 618 (see at [123]) above.
130 Lord Lloyd also took as his starting point the statement of Parke B in Robinson: see at 365. Having referred to a number of authorities, including the decision in Bellgrove, Lord Lloyd said at 368 that the concept of reasonableness is of central importance in selecting the appropriate measure of damages:
If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff's loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.
131 In the result, as I have said, their Lordships held that the defendant was not entitled to the cost of demolition and reconstruction.
132 A contrary result was reached in the case of Kirkby v Coote [2006] QCA 61. That case concerned a "pole house". The house was supported by ten wooden poles and forty steel posts. In heavy rain, the footings under eleven of those poles or posts subsided, causing substantial damage to the house. The trial judge found that the design of the footings was negligent, because it did not comply with the recommendation of a geologist that the footings be founded on "dense basalt or … interlocking boulders". Five of the failed footings were excavated. None of them was so founded.
133 The defendants conceded that if the eleven failed footings had been founded on rock, they would not have failed. The question for decision was whether the other footings were performing, and would continue to perform, in a satisfactory way; or whether there remained the risk of movement. The defendants contended that the only rectification required was the reasonable cost of underpinning the house where the footings had failed. The plaintiffs claimed that they were entitled to the reasonable cost of demolishing and rebuilding the house with footings that conformed to the geologist's recommendation.
134 The trial judge awarded as damages the cost of demolition and reconstruction. He did so because the lesser scope of remedial works proposed by the defendants would leave the plaintiffs with an unacceptable continuing risk of structural failure. His decision was upheld by the Court of Appeal.
135 Keane JA, with whom Williams JA agreed, referred at [39] to the contention of the appellants (defendants) that the 39 footings which did not fail during the downpour had not exhibited any sign of failure since the house was constructed in 1994. They submitted, as his Honour recorded, that "a possibility that the footings are not down to rock, in the presence of satisfactory performance over a long period of time, is not evidence of a defect giving rise to a risk of failure".
136 It was correct to characterise as a possibility that the footings might not be founded on rock. That was because the investigations related to five only of the failed footings, out of the total of fifty footings in all.
137 Keane JA said at [50] that on the findings of the trial judge, "the threat to the stability of the building may not be "grave" in the sense of obvious and immediate, but it is real." His Honour referred at [51] to the further finding of the trial judge "that partial underpinning would be a doubtful remedy, in the sense that it would be unlikely to remove the threat to the stability of the building posed by the footings, even though they have not yet failed".
138 At [58] Keane JA, having referred to the decision in Ruxley, said that it could be distinguished. The present case was not one where the breach of duty resulted only in aesthetic disappointment. The plaintiffs had not been given a "perfectly serviceable" house: "one which is effectively free of risk of slipping". Thus, his Honour said at [59], the plaintiffs "should recover the amount of damages necessary to enable them to own a house free of risk so far as its stability was concerned".
139 On the referee's findings, the developer received less than the builder was obliged to deliver. As between the developer and the builder, the prima facie measure of damages for that breach of contract is the cost of rectification. Again on the referee's findings, rectification requires the demolition of the timber hobs and their replacement by concrete or brick hobs complying with the specification. By analogy with Kirkby, it would be wrong to require the builder to bear the cost of demolition and reconstruction only if in all the circumstances that work were unreasonable.
140 On the referee's findings, it would not be unreasonable, as between the developer and the builder, to require the builder to bear that cost. That is because the hobs as designed were intended to form an effective part of the waterproofing system, and as constructed they did not. The developer was entitled to receive a finished building in which the hobs could play their part, in helping to waterproof the internal areas of lots, for the life of the building.
141 Damages for breach of contract are assessed "once and for all". As Keane JA pointed out in Kirkby at [59], this means that the court should ensure that the damages awarded accurately reflect the cost of restoring the innocent party to the position it would have enjoyed had the guilty party not breached its contract.
142 On that analysis, the position is no different as between the Owners Corporation and the Guarantee Corporation (or, for that matter, between the Owners Corporation and HIH had that company not succumbed to years of poor underwriting judgments and inadequate provisioning). Demolition and replacement of the hobs are reasonable steps to take and the cost of doing so is the measure of damages. That is so whether damages are assessed in contract or in tort.
143 The question, as between the developer and builder, was whether the developer or the builder should bear the risk that the hobs would prove inadequate for their intended part in the waterproofing system. The question can be no different as between the Owners Corporation and the Guarantee Corporation. The referee answered that question in favour of the Owners Corporation. He concluded that it was reasonable that the hobs should be demolished and replaced. As I have said already, that conclusion was open to him on the evidence, and the means by which he reached it betrays no error of a kind that might require rejection of this aspect of the report.
144 Further, that position can be sustained by s 18C (and s 18D) of the HB Act. The effect of the sections is to give successors in title the benefit of the statutory warranties. That cannot be done if the successor's entitlement to damages for breach of a warranty is anything other than the appropriate contractual measure.
145 It follows that the report, insofar as it deals with the defect in and replacement of the timber hobs, should be adopted.
The dispute in relation to tiling
146 As I have said, the balconies of the affected lots were tiled. The tiles were laid over the waterproofing membrane. It was common ground that removal and replacement of the hobs would require the removal, and probable destruction, of at least some of the tiles on the balconies. It was also common ground that replacement of those tiles with matching tiles was impracticable.
147 A number of different solutions was propounded. The Owners Corporation said that all the tiles in all the balconies of the affected lots should be removed and replaced. The Guarantee Corporation said that the limited number of tiles that required removal could be replaced with tiles of a contrasting but compatible colour and shape. Alternatively, the Guarantee Corporation said, the tiles could be removed from a limited number of balconies; those balconies could be retiled completely; and the stock of tiles thereby yielded could be utilised to replace tiles that were damaged in the course of replacing the hobs.