Edilizia e costruzioniThe measure of damages for defective building

Those that engage a builder to renovate or construct a property would expect to be entitled to receive the cost to rectify any defects following a determination of defective building work by a Court or Tribunal.

Similarly, a builder may expect to be liable for such a cost if their work is found to be defective.

The law generally reflects that expectation however this is subject to the rectification work being (i) necessary to produce conformity with the contract and (ii) a reasonable course to adopt (Bellgrove v Eldridge),  otherwise the measure of damages will likely be the diminution in the value of the property.

Il Bellgrove principles are easy to understand but difficult to apply in practice.  The Full Court considered the second limb of the test in Stone v Chappel [2017] SASCFC 72 where after surveying the authorities the Full Court identified a list of relevant factors to determine reasonableness.

Although Stone is notably a decision of an appellate court in a neighbouring State from some years ago, the decision has gained traction in Victoria and has been increasingly applied by the VCAT including in at least 11 cases published on AustLII.

Although some commentators have noted the decision has its limitations, Stone is significant because the list of factors identified by the Full Court provide helpful guidance and clarity to the application of the Bellgrove principles.

The facts of the case can be stated briefly – Mr and Mrs Stone were a retired couple who had a deep appreciation for building and interior design (they had both been the recipients of design awards for properties they owned).  They wanted to build a home with ceiling heights of 2700 mm that would allow them to display particular pieces of artwork which were very important to them. They engaged a builder to construct the shell and framework of an apartment in a retirement village for the contract sum of ­$1.85m with the desired ceiling height specified in the contract.  At completion, it became apparent that the ceiling height in the apartment was, on average, 48 mm less than the 2700 mm specified in the contract.

The Stones sought damages for cost of rectification to alter the heights of the ceiling to the contractually agreed height of 2700m – this was estimated to cost in the range of $331,000.

At trial, the Stones were awarded damages in the amount of $30,000 only, representing the diminution in the value of the property (that is, the cost of rectification was found not to be a reasonable course to adopt).

The central issue for determination on appeal was the appropriate award of damages for the breach of contract.

The Full Court applied the Bellgrove principles and after considering the authorities, Kourakis CJ and Doyle J (in slightly different terms at 257 – 263) identified a list of factors as to whether rectification damages were a reasonable course to adopt.

The list of factors identified by Kourakis CJ (at 55) were:

(i)           the degree of departure from the contract;

(ii)          the adverse effect on the functional utility, amenity, and aesthetic appearance;

(iii)         the reasons for which the innocent party made the stipulation which was breached;

(iv)         the practical feasibility of rectifying the work;

(v)          whether the innocent party intends to carry out the rectification work;

(vi)         the cost of the rectification work;

(vii)        the nature of the wrongdoer’s fault; and

(viii)       the public interest in reducing economic waste.

The Full Court upheld the lower Court’s decision and the Stones’ appeal failed.

Some commentators have noted some reservations about the decision in particular that the list does not emphasise that some factors are more important than others.  Notwithstanding those concerns, the case provides helpful guidance on the application of the Bellgrove principles and can assist practitioners advising builders as to their potential exposure to damages for defective building work as well as owners on their likelihood of an award of damages.

A link to the decision is in the comments below, including the citation to an article by Associate Professor Matthew Bell which contains an excellent and detailed discussion of the topic and case which is available on Westlaw, (2022) 38 BCL 1.

Articolo scritto da Patrick Fabris of our Melbourne Office