Shane Anthony Carmax and Karen Anne Suban v Haydon & Company Pty Limited [2000] ACTSC 29 (30 March 2000)

Last Updated: 3 April 2000

Shane Anthony Carmax and Karen Anne Suban v Haydon & Company Pty Limited

[2000] ACTSC 29 ( 30 March 2000)

CATCHWORDS

CONTRACT - contract for sale of land and for construction of house - purchaser/client refuses to complete and sues for return of deposit and damages - vendor/builder cross claims for loss of profits - purchaser/client defends cross claim on ground of failure to construct with due care and skill - onus of proof - conflict in evidence as to nature and cause of cracking in building - whether due to lack of due care and skill - it was not.

CONTRACT - contract for sale of land - solicitors for purchasers write indicating intention to complete and sue later - subsequent refusal to complete on ground of alleged breach by vendor - whether binding election - it was not.

Building Act 1972, s 53

Trade Practices Act 1974 (Cth)

Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634

No. SC 913 of 1996

Judge: Miles CJ

Supreme Court of the ACT

Date: 30 March 2000

IN THE SUPREME COURT OF THE )

) No. SC 913 of 1996

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: SHANE ANTHONY CARMAX and

KAREN ANNE SUBAN

Plaintiffs

AND: HAYDON & COMPANY PTY LIMITED

ACN 008 409 112

Defendant

ORDER

Judge: Miles CJ

Date: 30 March 2000

Place: Canberra

THE COURT ORDERS THAT:

1. The defendant be at liberty to enter judgment against the plaintiffs in the plaintiffs' action and to enter judgment against the plaintiffs in the counter-claim for $27,298.

1. The plaintiffs and the defendant entered into a contract under which the defendant was to sell land to the plaintiffs and build a house on that land. When the construction of the house was complete, the plaintiffs claimed that the building work was defective and that the defendant was otherwise in breach of the contract and they refused to complete the purchase. Now the plaintiffs sue the defendants for the return of a deposit and for damages which they claimed to have suffered by being deprived of the home they expected to occupy. A separate claim against a second defendant was discontinued. The defendant denies breach and makes a counter-claim for damages sustained as a result of the plaintiffs not completing the purchase.

2. The amounts in issue would have brought the case within the jurisdiction of the Magistrates Court. The litigation, however, has raised substantial areas of fact and law and has involved lengthy evidence, much of it from expert witnesses. Unfortunately, the cost of the litigation may well outweigh the amounts in issue. However, the parties are entitled to have their rights determined according to law.

A contract of sale and a construction contract

3. The first issue is what it was that constituted the contract. The further amended statement of claim alleges that the agreement was partly in writing and partly implied. The further amended defence and counter-claim alleges that the agreement was wholly in writing, but, as I understand it, concedes that terms may be implied from the writing itself and from relevant statutory provisions. Those implied terms include the unexceptional term that the building would be constructed with due care and skill and with proper materials, but, more particularly, in accordance with the requirements of the Building Act 1972 (the Building Act).

4. The major issue fought at the trial was a deceptively simple question of fact, namely whether the defendant was in breach of its promise to use due care and skill and proper materials. However, each party raised separate issues of law which, it was submitted, would resolve the case without the need to consider the major issue of fact.

5. Each party claims that the other repudiated the contract, conversely, that the party making the claim was entitled to terminate the contract in response to the other party's repudiation. There is a nice question of onus here. It should not depend on which party sued first. Insofar as each party claims that the other was in breach, the onus is on the party alleging breach. On the face of it, if the party alleging breach fails to discharge the onus, it would follow, as a matter of logic, that that party was itself in breach by its admitted termination of the contract. However, a logical approach might not be appropriate where the nature of the breach alleged by one party is different from the nature of the breach alleged by the other. In this respect it may be important to recognize the dual nature of the contract. On the one hand, it was a contract for the sale of an interest in land (the contract of sale) and, on the other, a contract for work to be done and materials to be provided (the construction contract). In the amended statement of claim the plaintiffs plead only the construction contract; in the further amended defence and counter-claim the defendant pleads both, denying the breach by it of the construction contract and alleging breach by the plaintiffs of the contract of sale. The plaintiffs allege that the defendant was in breach of the construction contract. The defendant alleges that the plaintiffs were in breach of the contract of sale. The extent to which the respective obligations interlocked is significant and depends upon the precise terms of the contract taken as a whole.

6. It is clear enough that in the claim by the plaintiffs on the construction contract, the onus is on them to show that the defendant was in breach by not carrying out its promise to construct the building with due care and skill and with proper materials. The defendant responds to that claim by a simple denial of breach. In the counter-claim for breach of the contract of sale, the onus is on the defendant to show that the plaintiffs failed to complete in accordance with the terms of contract. The failure to complete the contract of sale is not denied in the defence to the counter-claim, but the plaintiffs seek to justify the failure on the ground that a notice to complete given by the defendant was "invalid" for two reasons, one, that it followed a certificate of occupancy which was also "invalid" within the terms of the contract, and the other, that the defendant was in breach of the term to use due care and skill and proper materials. In my view, the outcome of this is that on the pleadings the onus is on the plaintiffs to show that the notice to complete given by the defendant was not effective, that is, that the defendant was not entitled to give the notice to complete for either or both of the reasons relied upon.

Was there a "valid" certificate of occupancy?

7. For the sake of convenience I deal first with the issue of the certificate of occupancy.

8. I state the essential facts which are not in dispute. The house in question is on land at Block 52 Section 23 Ngunnawal in the Australian Capital Territory. Prior to contract, and during negotiations, mutually acceptable plans were drawn and submitted by the defendant to the Building Controller for what is called a building approval under the Building Act. That approval was given on 7 December 1995. Further negotiations took place and there was consensus between the parties that the building in contemplation should be enlarged beyond that shown on the plans submitted to the Building Controller. The enlargement was in effect to be an extension of the building in an easterly direction by a distance of about 1.5 metres. The plans were amended in accordance with the consensus between the parties and the plans so amended were annexed to and formed part of the written contract. The contract is dated 29 February 1996.

9. The special conditions annexed to the contract included the following:

"1. Construction of Improvements

(a) Prior to completion the Seller shall at its expense complete the erection of a residence upon the land as nearly as practicable in accordance with the plans and specifications to be approved by the Building Controller under the ACT Building Act 1972 as amended and substantially in accordance with the plans annexed hereto marked "A" and in addition shall incorporate within the improvements the inclusions set out in the schedule attached hereto marked "B". No objection, requisition or claim for compensation shall be made by the Buyer in respect of any minor variation between the plans and inclusions schedule and the residence as a completed improvement upon the land.

(b) Ensure that the premises have received final approval from the ACTEW for all electrical work and that electrical power is immediately available to the premises upon application.

2. Completion

Completion of this contract shall take place on the date being fourteen (14) days from the date of notification by the Seller's solicitor to the Buyer's solicitor of issue of a Certificate of Occupancy for Fitness and Use in relation to the residence as completed upon the land."

10. The "plans annexed" referred to in Special Condition 1(a) consist of two sheets annexed to the contract are not marked with any approval by the Building Controller. They bear the date 12 February 1996 on both sheets and 4 October 1995 on one sheet only.

11. On 3 May 1996 application was made by the defendant to the Building Controller for an approval of a further building application to which the amended plans, that is the plans annexed to the contract, were attached. Three days later, on 6 May 1996, without any decision having been made by the Building Controller as to the further building application, the defendant made application for a Certificate of Occupancy and Use. In a box marked "Approved Plan No.", the number 89110/A was inserted. It is to be inferred that the defendant authorised or carried out the insertion.

12. A pro forma Final Inspection Report, identifying Approved Plan No 89110/A, was made by an inspector of the Department of Urban Services on 14 May 1996. In that report a box alongside the printed words "Work appears to be substantially complete in accordance with the approved plans", has received a tick, and in another box alongside the printed words "Passed for issue of Certificate or (sic) Occupancy" there is also a tick.

13. On the same day, 14 May 1996, the Building Controller issued a Certificate of Occupancy or Use which states, inter alia, that the building on the land in question, identified by TRIMS number 89110, is considered to be "substantially in accordance with the prescribed requirements for occupancy or use" and "fit for occupancy or use pursuant to s 53[3]".

14. Section 53(3) of the Building Act provides as follows:

"Where building work involving the erection or alteration of a building as completed is not strictly in accordance with the prescribed requirements for the building work but is substantially in accordance with those requirements, the Building Controller may, on an application made by the owner of the parcel of land on which the building work has been carried out, issue a certificate that the building as erected or as altered, is fit for occupation and use as a building of the class specified in the approved plans for that building work."

15. Section 53(2) in contrast provides as follows:

"Subject to subsection (2A), where building work involving the erection or alteration of a building has been completed in accordance with the prescribed requirements for the building work, the Building Controller shall, on an application by the owner of the parcel of land on which the building work was carried out, issue a certificate that the building work has been completed in accordance with those requirements and that the building as erected or as altered is fit for occupation and use as a building of the class specified in the approved plans for that building work."

16. For present purposes the relevant difference between the two subsections is that subs (2) requires the Building Controller to issue the certificate where the building as completed is completely, or strictly, in accordance with the prescribed requirements, whereas s 53(3) allows, but does not require the Building Controller to issue the certificate where the building as completed is not strictly but substantially in accordance with the prescribed requirements.

17. On 16 May 1996 the defendant's solicitors gave notice to the plaintiffs' solicitors, purporting to be in accordance with Special Conditions 2 and 5, that the certificate of occupancy had issued, and further notifying that completion was to take place on 31 May 1966 (exhibit 1, document 12A).

18. After an initial exchange of correspondence on peripheral matters, the plaintiffs' solicitors wrote to the defendant's solicitors on 28 May 1996 questioning the adequacy or strength of the concrete slab supporting the building and also seeking an explanation of the cause of cracking to brickwork in the northern and eastern walls. The defendant's solicitors replied the following day enclosing a certificate from Mr D J McInnes, structural engineer, of Sellick Consultants Pty Ltd, dated 12 March 1996, stating that he had inspected the slab and that it and the building membrane were structurally sound. The letter explained the cracking in brickwork by reference to shrinkage occurring when bricks were laid at intervals, wet conditions at time of laying, porosity of bricks chosen by the plaintiffs and the length of the walls. Further correspondence followed between the solicitors. A dispute arose over whether the defendant should allow the plaintiffs to excavate into the slab to enable core sampling to be taken from underneath it.

19. It appears that at this stage the Building Controller had approved the further building application lodged on 3 May 1996 and to which a copy of the amended plans were annexed. In the pro forma further application a tick was placed in a box alongside the printed words "An amendment to a plan". The further application bears a further date, namely 29 May 1996, which appears to be the date of the approval of the further application.

20. On 30 May 1996 the Building Controller issued a further Certificate of Occupancy or Use which stated that the building on the subject land, again identified by TRIMS Number 89110, "is considered to be substantially in accordance with the prescribed requirements for occupancy or use, subject to the endorsements listed below". Immediately above an endorsement below are the words "Fit for occupancy or use of part of the building pursuant to s 53[6]". An endorsement states "this partial certificate supersedes certificate dated 14 May 1996 due to amended plan lodged on 3 May 1996".

21. Section 53(6) provides:

"Where part of a building has been erected in accordance with the prescribed requirements in so far as they relate to that part of the building, the Building Controller may, on an application made by the owner of a parcel of land on which the building is being erected, issue to the owner of the parcel of land a certificate that that part of the building is fit for occupation and use as a part of a building of the class specified in the approved plans in respect of the building work."

22. On 3 June 1996 the defendant's solicitors served a formal notice to complete the contract on 18 June 1996 and specified that time was of the essence.

23. On 18 June 1996 the plaintiffs purported to issue a default notice under cl 18 of the contract, relying on the defendant's failure to complete the construction of the improvements "in a good and workmanlike manner" in that it had failed to comply with the building code of Australia by:

"(a) constructing footings that do not comply with Australian Standard AS2870.1 - Residential Slabs and Footings given the nature of the foundation material; and

(b) inadequately compacting fill material under concrete slab."

24. The defendant's solicitors responded to the notice to complete by letter of 19 June by issuing a notice which purported to be a notice of termination of contract pursuant to cl 19 of the contract, relying on the failure to comply with the notice to complete given on 3 June and an additional "breach of essential conditions". The notice also claimed forfeiture of the deposit to the seller and the right to sell or to sue for damages.

25. To complete the history it may be noted that yet another certificate of occupancy was issued by the Building Controller on 20 December 1996, endorsed to supersede preceding certificates. It may also be noted that on 10 April 1997 the land and building were sold by the defendant to a third party for $139,550. That was the sale price reserved by the contract between the parties.

26. It was submitted for the plaintiffs that the notice to complete given on 3 June 1996 was not a valid notice under cl 18 of the contract, the relevant parts of which provide as follows:

"18.1 If:

18.1.1 a date for completion is set out in Schedule Item 12 or is otherwise determined by this Contract ("the Date for Completion"); and

18.1.2 completion is not effected in accordance with Clause 2.2.3,

either party may, at any time after the Date for Completion, serve the other party a notice requiring the party served to complete this Contract ("Notice to Complete").

18.2 A Notice to Complete must:

18.2.1 appoint a time during business hours and a date being not less than 14 days after the service of the Notice to Complete (excluding the date of service) within which and a place in Canberra at which to complete this Contract; and

18.2.2 state that it is served pursuant to this Clause.

18.3 At the time the Notice to Complete is served the party serving the Notice to Complete must:

18.3.1 not be in default under this Contract; and

18.3.2 be ready willing and able to complete but for some default or omission of the other party

18.4 The completion of this Contract at the time date and place specified in the Notice to Complete is an essential condition of this Contract."

27. Clause 18 has to be read subject to Special Condition 2 which has already been set out above in [9]. According to the submission on behalf of the plaintiffs, there was no valid notice to complete, because the Certificate of Occupancy and Use of 14 May 1996 certified only that the building was substantially in accordance with the plans originally lodged with the building application prior to the contract and did not bear any relevant relationship to the amended plans annexed to the contract. Hence, so it was submitted, the Certificate of Occupancy and Use of 14 May could not act as a "trigger" for a notification under Special Condition 2, so that any notification purported to be given could not entitle the defendant subsequently to serve a notice to complete under cl 18.

28. I do not accept this submission. The Certificate of Occupancy and Use of 14 May 1996 was given, as it states, in accordance with s 53(3) and certifies only that the building is substantially in accordance with the prescribed requirements. Read in conjunction with s 53(3), the certificate also certifies that the building is fit for occupation and use "as a building of the class specified in the approved plans for that building work". It is consistent with the certificate of occupancy of 14 May 1996 that in fact the building, when inspected on that day, was also substantially in accordance with the amended plans although the amended plans at that stage had still not been approved. It is established as a matter of further fact that when the building was once again inspected on 30 May 1996 (subsequent to the application for building approval of the amended plans lodged on 3 May 1999) it was again considered to be substantially in accordance with the prescribed requirements and fit for occupancy or use as a building in the same class. The terminology of the Certificate of Occupancy and Use of 30 May 1996 as a "partial certificate" which "supersedes" that of 14 May 1996 should not be allowed to obscure the essential fact that at 14 May 1996 the building was substantially in accordance with both the original plans (which, although approved were not those of the contract) and the amended plans (which, although those of the contract, were not approved until 29 May 1996).

29. In any event, Special Condition 1(a) required only that the building be erected "as nearly as practicable in accordance with the plans and specifications to be approved by the Building Controller". This term of the contract clearly envisaged that a standard of accordance which was less than perfect was nevertheless sufficient. It also encompasses plans and specifications which had not yet received the approval of the Building Controller.

30. The Certificate of Occupancy and Use of 14 May 1996 does not certify that the building is strictly in compliance with the prescribed requirements. Furthermore, although the certificate does not expressly say so, it must be taken to certify in accordance with s 53(3) that the building is fit for occupancy or use "as a building of the class specified in the approved plans for that building work", that is to say, as is shown on the application, class 01. It follows from the above, in my view, that the plaintiffs cannot be heard to say that the notice to complete given on 3 June 1996 was invalid because at the time of the notification the Certificate of Occupancy and Use of 14 May 1996 related to a building of a class specified in plans which were not approved until 29 May 1996. Nor have the plaintiffs shown that the building as completed is not as nearly as practicable in accordance with the plans and specifications which were eventually approved by the Building Controller. However, the reasons for reaching the latter conclusion depend on findings which are stated below.

31. The alternative ground on which it is submitted on behalf of the plaintiffs that the defendant was not entitled to serve a notice to complete under cl 18.1 arises from cl 18.3, which requires that the party serving the notice to complete "must not be in default under this Contract". This raises the major issue of fact already referred to above, namely the alleged breach by the defendant of the contractual duty to carry out the construction with due care and skill and with proper materials. However, once again, before going to that issue, it is convenient to deal with another issue of law, which was raised by the defendant and which, if resolved in favour of the defendant, would avoid having to decide the factual issue about due care and skill.

Election and waiver

32. It was submitted on behalf of the defendant that the plaintiffs' solicitors had waived the plaintiffs' rights to sue for breach, or alternatively had elected to pursue an alternative and inconsistent remedy. The submission did not distinguish between waiver and election. It was alleged that the waiver or election arose from the following.

33. On 13 June 1996, five days before the expiry of the notice to complete, the plaintiffs' solicitors wrote to the defendant's solicitor stating, inter alia, as follows.

"We have discussed the matter further with our clients. In view of your client's failure to allow core sampling to be carried out, our clients believe they have no choice but to proceed to settlement and then carry out core sampling post settlement.

Accordingly, we advise that our clients:

(1) will settle the matter but under protest;

(2) reserve the right to seek damages and costs from your client with respect to the costs of making the concrete slab comply with the ACT Building Code and the Australian Standard.

(3) will refer the matter to the ACT Building Control (sic) and in particular to the Builders Licensing Section.

We have been advised by our client's engineer that your client has agreed to provide our clients with a warranty as to the structural integrity of the slab. Please arrange for this to be furnished to us immediately as we require it prior to settlement.

We request that you furnish us with settlement figures for Monday, 17 June 1996. We suggest settlement be effected at 2.30 pm at the Land Titles Office."

34. This letter elicited a lengthy reply from the defendant's solicitors which it is not necessary to produce in these reasons. The defendant's solicitors supplied some figures which they claimed were sufficient for the purpose of settlement of the contract of sale, but it is obvious that there was a continuing dispute about the exact amount, in the order of some $1,520. The defendant's solicitors also disputed the alleged agreement to supply a warranty as to the structural integrity of the slab and asserted that their client gave "such warranties as are contained in the Contract" and no more.

35. It is submitted on behalf of the defendant that this express statement of intention carries with it the essential element of a binding election to pursue a remedy for a breach perceived by the plaintiffs to have been committed by the defendant, which is inconsistent with the purported exercise of a right under cl 18.5 of the contract to serve a default notice and terminate the contract under cl 20 in the event of the defendant's failure to comply with the default notice. The submissions on behalf of the defendant rely on Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, including the following statement of Mason J at 658:

"If a party to a contract, aware of a breach of a contract going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm."

36. In the light of that statement I do not think that the expression of intention in the plaintiffs' solicitors' letter of 13 June 1996 constitutes an election whereby the plaintiffs were bound to complete the purchase. I have reached that conclusion for reasons which may be stated briefly.

37. The election, if any, must be between two inconsistent rights, one of which can be exercised only by affirming the contract and the other only by terminating the contract. Here the plaintiffs had no right to terminate the contract. They did not even have a procedural right to give a notice of default under cl 18.5, since cl 18.5 confers that right only where the other party is in fact in default. A belief in the other party's default is insufficient. If the other party is not in fact in default, the notice is at least ineffective, and possibly "invalid". A seller giving a notice under cl 18.5 is not entitled to terminate the contract under cl 20 by reason of the buyer's failure to comply with a notice of default when in fact there is no default.

38. The statement of intention to proceed to completion "under protest" and "reserve the right to seek damages" is, in my view, not an election to refrain from accepting the defendant's alleged breach as a repudiation of the contract. The statement of intention does not go so far as the actual exercise or purported exercise of a right under the contract. It is not "unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other": Sargant v ASL Developments, per Stephen J at 646, because the solicitors say that the plaintiffs believe (rightly or wrongly) that they have no choice but to proceed to settlement and to carry out core samplings after settlement. The statement of intention is conditional upon the defendant or its solicitors accepting the proposal of settlement "under protest" and supplying a warranty to which the defendant does not concede the plaintiffs are entitled.

Was the building constructed with due care and skill?

39. I turn finally to the alleged breach of the term to construct the building with due care and skill and with proper materials. Whilst there is no real issue about proper materials, there are two aspects about due care and skill. The first is whether there was a breach at all and the second is whether the breach was such that the defendant was "in default under this contract" within cl 18.3 and thus disentitled from giving a notice to complete under cl 18.1. The latter issue may be no different from the issue whether the plaintiffs were entitled to serve a default notice under cl 18.5.

40. It should be noted here that the plaintiffs rely on breaches, not only of the implied terms, but independent breaches of so-called statutory warranties under the Building Act and also under the provisions of the Trade Practices Act 1974 (Cth). However, in my view, the factual issues raised in respect of the independent breaches are no different in substance from those raised in respect of the alleged breaches of the implied terms and do not need separate discussion. As I understand it, the alleged breaches fall under five broad headings as follows:

* Excessive depth of fill under the slab, contrary to AS 2870.1.

* Failing to ensure that the sub-soil and/or fill did not contain an excessive proportion of reactive clay.

* Failure to review the certificate of site classification.

* Failure to comply with Australian Standard - Residential Slabs and Footings - Construction - AS2870.1.

* Failing to use a controlled fill with a high content of granular material and a minimum of fine material in the construction of the footings.

41. In summary, whilst it is established that there was technical failure on the part of the defendant to comply with the Building Code and the Australian standards with regard to fill (but query footings), the defendant contends that that breach did not affect the structural integrity of the building and that it was not likely to have affected the value of the building unless made the subject of extensive inquiry for the purpose of litigation. In fact the evidence does not support the proposition that the value of the building has been reduced.

42. The block of land on which the building was erected slopes down to the street, Alli Place, a drop of about 3.5 metres. It contains soils of silty sand towards the surface and deeper sandy clay. The exact composition of the soil is a matter of dispute. When the land was prepared for construction of the building, excavation was made into the rear of the block and the excavated material, compacted by machine, was used to raise the level at the front in order to provide a building platform. Excavations were also made for the purpose of placing concrete footings for the exterior brick walls and inevitably soils from the two general excavated areas became mixed. This added difficulty to problems of soil analysis which later arose.

43. The block of land is rectangular in shape and the boundaries are aligned roughly on a north-easterly/south-westerly axis. This has given rise to a good deal of confusion in description in the various reports and elsewhere in the evidence. Most notably, the wall on the north-western side is referred to in some places as the northern wall and in other places as the western wall. Windows on the main bathroom and the en suite bathroom of the main bedroom are in that wall. I will describe it as the northern wall, unless quoting from the evidence.

44. There is corresponding confusion about the wall on the south-western side of the building. Some refer to it as the southern wall and others refer to it as the western wall. It faces the street. It is, in effect, the front or part of the front of the building. It contains a large picture window for the main bedroom. I will refer to it as the western wall, unless quoting from the evidence.

45. The exterior perimeter walls of the building, although of brick construction, are "veneer" walls only. The weight-bearing walls are of timber frame construction. The floor is a concrete slab supported at the perimeter by a low inner wall of brick next to the exterior walls and otherwise supported by the ground surface in part and by the fill material in part. Because of the slope of the ground, the fill is at its highest, or deepest, at the north-western corner of the building, reducing, according to the distance, north-eastwards from that corner.

46. During the preparatory stages of the work Mr Carmax noted that a bobcat operator engaged by the defendant was having trouble getting what he described as a large boulder out of the ground in the area where the bathroom was to be located, that is somewhere towards the middle of the northern wall. The operator had to "shave" the top of the boulder which remained in position. When the slab was poured, Mr Carmax observed that it was higher off the ground than provided for in the plans, apparently because of the presence of the boulder. He started having concerns. Then he noticed that there were cracks in the brickwork on the northern side running down diagonally from the bathroom window and from the en suite window. There was another crack at the front left corner of the house near the windowsill. The window sill is on the western wall. In early 1996 he engaged an engineer, Mr Ruckschloss, to inspect the building.

47. The first Ruckschloss report, dated 20 May 1996, confirms that there was "minor cracking", about 0.5 mm wide in the northern wall running from the bottom of the bathroom window to the base of the brick wall. It makes no reference to cracking running from the en suite window. It states also that there had been some sign also of early cracking observed at the "north wall as well as at the eastern wall". It states that the west and north parts of the block have been filled with uncompacted material which was found to be extremely wet and soft. It offers the opinion that the north-western corner (which it assumes is built on fill of approximately 800 mm in depth) has settled differently from the rest of the building, causing the cracking, and expresses concern that the settlement will continue "with more serious consequences on the structural integrity of the residence".

48. The concerns of Mr Carmax and Mr Ruckschloss were conveyed to the defendant, who then engaged Sellick Consultants Pty Ltd to advise. An inspection was carried out on 6 June 1996 and a report dated 14 June 1996 obtained from Mr McInnes (the first Sellick report). Mr McInnes was of the view that, whilst the depth of fill possibly exceeded 400 mm for a distance of approximately one metre from the front wall, the slab was structurally sufficient. He was of the further view that the cracking could be the result of laying bricks in a wet condition as the result of very minor settling and was so minor as to be of no structural concern. It may be noted that Mr McInnes was also the author of a certificate of structural sufficiency given on 18 December 1995, which related only to the footings and had nothing to do with the slab or the fill under the slab.

49. Mr Ruckschloss carried out a further inspection on 12 June 1996 and also carried out tests by means of excavation. In the second Ruckschloss report he set out the following measurements of the depths of fill (from then ground level to the top of the reinforced concrete footings at three points in proximity to the northern wall) as follows:

	Depth
At the north-western corner	850 mm
Approximately three metres from the corner	570 mm
Approximately five and a half metres from the corner	425 mm

50. The plaintiffs obtained further advice from a structural engineer, Mr Ramsey Howard. Mr Howard inspected the site on 16 June 1996 and 22 June 1996. He obtained a topographic survey and a soil survey as well as copies of relevant plans and certificates from the ACT building and planning authorities. In his report written in September 1996 he described "significant cracking" in what he identifies as the "western side", extending from the bathroom window diagonally downwards to the front of the building, and the other extending from the en suite window similarly towards the rear of the building. It is clear that he is referring to what I call the northern wall, but having regard to the orientation of the building there is no criticism of him for that. He also identified cracks "on the southern side of the building and at the front left corner near the window sill ... up to five millimetres wide in places". The exact location of these cracks is not clear from his report. Mr Howard also referred to a cracked zone in the front windowsill extending to the western wall, which I take him to mean extending to the northern wall. He also referred to other cracks in walls which were "not as significant" and which he did not otherwise describe or locate. Care is needed in identifying the location of the various defects to which Mr Howard refers. I summarize Mr Howard's conclusions as follows:

1. The location of the cracks indicate that the building is subject to `differential' settlement whereby the front and back of the building (at least on the northern side) are moving downwards independently of the centre which is either stable or moving more slowly.

2. The results of bore holes taken in the soil survey indicate that the fill at the north-western corner contains a significant quality of highly plastic clay as well as high moisture content and that these factors will have a detrimental effect in further settlement of the building.

3. The clay content of the soil in relevant areas is such that the site should have been classified H under a classification system to which reference will be made.

4. AS 2870.1 (to which reference will also be made) requires footings to be specifically designed and fill to be controlled so as to contain a high content of granular material and a minimum of fine (plastic clay) material, and this requirement was not complied with.

5. Floor level is 300 mm above design level.

51. Mr Howard's overall conclusion and advice was that "the significant differential settlement which will occur will severely damage the building structure, requiring extensive repairs, unless remedial action is taken immediately to strengthen and support the footings and slab". He advised as to various courses of remedial action and added that a structural engineer would have to advise on selection of "the most economical structurally sound system".

52. For the purpose of the litigation, Mr McInnes reviewed the previous Ruckschloss reports and the Ramsey Howard report. In view of the conclusions reached in the latter, Mr McInnes engaged ACT Geotechnical Engineers Pty Ltd to investigate and report on the foundations of the brick work and of the slab. That company carried out an investigation which included geotechnical logging of five excavations along the northern, western and southern walls and one excavation into the material below the slab through a jackhammered hole broken into the slab for that purpose in the main bedroom. The geotechnical conclusions in relation to the footings were that classification S was appropriate, that the wall cracking was due to variations in loading along the wall and a rain-softened foundation at the time of construction, with consequent differential settlement along the footing. The settlement had stabilised and the crack, measuring about 0.5 mm wide, was of no structural significance. There was no evidence of cracking or deformation in the slab itself and there were no problems with the underlying fill which was a maximum of 0.7 metres deep at the north-western corner, gradually thinning out away from that corner.

53. The second Sellick report is dated 20 March 1997. It did little to add to the opinions expressed in the first Sellick report. It confirmed that the findings in the geotechnical report were consistent with those opinions. It emphasised that although the fill under the front area of the bedroom exceeded 400 mm (a limit which it was considered was imposed by ASA 2870.1) the slab has had at all times and will continue to have the capacity to "span" that area where the depth of fill exceeds the prescribed limit and should be regarded as "deemed to comply" with the standard.

54. Both Mr McInnes and Mr Howard were called to add to their reports in evidence-in-chief and to be cross-examined at great length, a process which, as far as I am able to ascertain after listening to and reading their evidence, did little to add to or detract from what was said in the reports. It is significant, in my opinion, that no one from ACT Geotechnical Engineering Pty Ltd was called for cross-examination on the report from that source. The geotechnical report has the advantage of being free from any suggestion of partiality. It also has the advantages of being very clearly expressed and of coming to grips with the issues in the case. I regard it as particularly persuasive.

55. Ultimately, the dispute between the expert opinions is over whether the existing defects, such as they are, could have been avoided by the application of proper care and skill, whether proper care and skill required strict compliance with ASA 2806.1, and whether the defects present are structural or merely cosmetic.

56. It was not disputed that ASA 2870.1, relating to the construction of residential slabs and footings, applied to the work undertaken by the defendant in accordance with the contract. That is a requirement of cl 3.2.0 of the Building Code, which the defendant was required to observe pursuant to s 29 of the Building Act. However, the extent to which the ASA 2870.1 applied, and the effect of non-compliance are, for the purpose of determining whether or not there was a breach of the term to construct the building with due care and skill, particular issues which need to be addressed.

57. The case was conducted (by both parties) on the basis that re-enforced concrete slabs built on compacted fill in excess of 400 mm are not permitted by ASA 2870.1. This is an over-simplification. What ASA 2870.1 requires at 6.1.2 is that "filling used in the construction of a slab ... shall consist of controlled fill or rolled fill [as prescribed]" and that "[mechanically compacted] non-sand fill up to 400 mm deep ... shall be deemed to comply with this requirement". However, I accept that according to general practice in the Australian building industry, fill under residential slabs should not usually exceed 400 mm. The consequences of fill exceeding 400 mm vary according to the circumstances.

58. To the extent that ASA 2870.1 at 6.1.15 is also relied on (particular 4 of par 4 of the further amended statement of claim), it requires the use of a specified kind of beam for the retention of fill under slabs where more than 450 mm of fill is restrained at the edge of a slab. It is plain from the evidence that no such beam was used in the construction of the slab, but this issue was not discussed by the experts nor was it the subject of submissions by counsel and in any event, I think that in the end it is of no consequence for reasons which follow.

59. I was taken in detail through many of the provisions of ASA 2870.1 and will refer only briefly to some of the more relevant provisions. It is worth noting that the preface to ASA 2806.1 states that it was prepared in response to an Australia-wide need for guidance on the design of slabs and footings for building on commonly encountered foundation conditions of sand, silts and clays and the purpose of the standard is to lay down specific designs for footing systems for foundation conditions commonly found in Australia. The standard places particular emphasis on the design for reactive clay sites susceptible to significant ground movement due to moisture changes. In its introductory sections it states at 1.3 that the footing systems specified are "designed to ensure that accepted probabilities of serviceability and safety are achieved during the design life of the building".

60. That the systems specified cannot guarantee avoidance of failure is apparent (if not from common sense) from the following:

"For the purpose of this Clause -

(a) the acceptable probability of failure is the traditionally low rate for reasonable site conditions which include foundation moisture variations caused by seasonal and climatic changes, the effect of the building and sub-division, normal garden conditions and site conditions.

...

Compliance with the recommendations in the CSIRO 10-91 `A Guide to Home Owners on Foundation Maintenance and Footing Performance' shall be deemed to provide normal garden and site conditions."

61. The CSIRO guide referred to, although not part of ASA 2870.1, is a very useful document for the purposes of the present case. It serves as a guide to and an explanation of ASA 2870.1. I summarise what it says on relevant matters.

62. Clay foundations are the cause of major problems for houses. "Reactive" clays can swell or shrink, as they become wet or dry, to such an extent that the resulting movement of the foundation causes structural damage to houses.

63. House sites are classified according to ASA 2870.1 and the classifications, in order of increasing reactivity, include the following:

S - Slightly reactive clays that have not given trouble in the past.

M - Moderately reactive clays that may cause minor damage to brick houses on old style light strip footings. Moderately reactive clays are common and occur, for example, in eastern Melbourne and western Sydney.

H - Highly reactive clays that often damage houses, paths and fences. Examples occur in northern and western Melbourne and in parts of Adelaide.

64. AS 2870.1 requires all sites to be classified by an engineer or builder.

65. Some minor cracking of masonry walls is almost inevitable despite proper design construction and maintenance. Very slight cracks up to 1 mm wide are to be expected in most houses. Larger cracks, up to 5 mm, may occur in some houses even with properly designed and constructed footings, if reactive clay sites have been subject to large changes of moisture. Cracks wider than 5 mm are regarded as significant damage.

66. Some house walls may be more sensitive than usual and may crack even though the footing has performed its design task. Such cracking is to be expected occasionally and this is expressed in the performance requirements of AS 2870.1.

67. In appendix A to ASA 2870, it is stated that Class S sites may be treated as non-reactive for the purpose of maintaining stable moisture conditions by protecting such sites from becoming extremely wet by attention to plumbing and repair of leaks. However, they do not require the attention needed for reactive clay sites for which it is necessary to provide drainage, design, limitations on garden watering and the like.

68. Appendix A describes cracks between 0.1 mm and 1 mm in width as fine cracks which do not need repair. It places them in category 1 where the damage degree is assessed as very slight. It describes cracks between 1 mm and 5 mm in width as cracks noticeable but easily filled and which may cause doors and windows to stick slightly. It assigns those cracks to Category 2 where the damage to doors and windows is assessed as slight. Appendix A also states that for Category 1 or 2 damage, remedial action should consist of stabilizing the moisture conditions of the clay and attention to repairing the visual damage. This should be part of the normal maintenance by home-owners of houses on reactive clays.

69. The question of the proper classification of the site under AS 2806.1 is therefore of some importance. I conclude that the classification of Class S was correct. My reasons for reaching that conclusion are as follows.

70. It is true that Mr McInnes may have been influenced by his previous classification of the site as Class S on 18 December 1995 which appears to have accompanied his certificate of structural sufficiency (restricted to footing excavations and re-enforcement) of the same date. The classification by Mr McInnes at that time repeated and confirmed the classification of Peter J Burgess and Associates Pty Ltd on 11 September 1993 who advised then that if cut or fill beyond 0.5 metres was made, the classification may need to be reviewed. Thus the levelling of the site in early 1996 may have required that the classification be reviewed. However, I am not aware of any evidence which suggests that, on the information available to the defendant at the time of construction, the site in fact required reclassification at that stage.

71. The confirmation of the classification of Class S by Mr McInnes in his report of 14 June 1996 is further confirmed by the report of ACT Geotechnical Engineers Pty Ltd, whose professional independence and competence I have no reason to doubt. Moreover, the prognosis of both Mr Ruckschloss and Mr Howard that further settlement would occur beyond what was observed by them in June 1996 is not made out. There is some discrepancy between the oral evidence of Mr Carmax about the observations he made before the first Ruckschloss report and the report itself. The report does not mention the cracking leading from the en suite. Mr Ruckschloss does not appear to have observed the latter on either visit, although he does refer to some "early cracking" in the "north wall" and the "east wall". (By "north wall" I think he means either the northern wall or the western wall, but I cannot imagine what he means by the "east wall".)

72. When Mr McInnes inspected the premises again in December 1996 and on 4 February 1997 he noticed that there was no sign of any separation of the eaves from the brickwork on the northern wall. I accept that that is a reliable test as to whether there had been any progress in settlement of the building. In the absence of evidence to the contrary, I infer that there was still no sign of separation of eaves from brickwork at the time of the hearing. Mr Howard's opinion about further cracking was proved wrong by events.

73. Mr Howard's evidence is also open to the substantial criticism that it is affected by the obvious error in his report where he describes the crack in the brickwork of the "southern" side of the building as 5 mm in width. It is demonstrable that the width on the northern wall was 0.5 mm. The cracking there and on or near the window sill has been filled, presumably by Mr Carmax himself, a bricklayer, who must have been aware of the true situation. It is clear that Mr Howard's error was not merely typographical, particularly since he described the cracking as "significant". Moreover, he confirmed an estimate "in the order of five" when he gave evidence-in-chief and was being questioned about what he then called the "southern wall". It became apparent during questioning that he was referring to the crack near the front windowsill, that is on the western wall (transcript at 181). He conceded that the problem there could be the result of laying the flashing to protrude past the brickwork. If it was, the evidence establishes to my satisfaction that it was nothing to do with footings. Moreover, laying of the flashing (and repairing of any cosmetic defect) would have been carried out by Mr Carmax himself. At any rate, if Mr Howard was thinking of a crack of 0.5 mm width, which is within category 1 of the ASA 2806.1 appendix A, his description of the crack as "significant" displays poor professional judgment. If he was thinking of a crack 5 mm wide, he was not describing a crack in the northern wall, and on no view of the evidence is the crack in and adjacent to the windowsill on the western wall of any structural significance. Little attention was given to it at any stage either before or during the hearing.

74. It also follows from what I have said that, as I prefer the conclusions in the report of ACT Geotechnical Engineer Pty Ltd to those of Mr Ruckschloss and Mr Howard, the plaintiffs have not made out that the perimeter footings were laid on fill. At most the plaintiffs have established that the fill under the slab was in excess of 400 mm deep, which is the desirable maximum under ASA 2806.1. The excess fill has not resulted in any structural weakness nor does it demonstrate that the defendant failed to complete the building substantially in accordance with the approved plans.

75. It further follows that the defendant is not in breach of the terms of the contract that the building was to be constructed with due care and skill. The defendant was entitled to give the notice to complete. The plaintiffs were not entitled to repudiate their obligation to complete the purchase of the property. The defendant is entitled to damages for its loss of bargain. The measure of those damages is a matter of agreement, namely $27,298. Subject to any further submission on interest, the defendant is at liberty to enter judgment against the plaintiffs in the plaintiffs' action and to enter judgment against the plaintiffs in the counter-claim for $27,298.

76. Unless the parties wish to be heard, I propose to order that the plaintiffs pay the defendant's costs of the action and of the counter-claim.

I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, the Chief Justice.

Associate:

Date: 30 March 2000

Counsel for the plaintiffs: Mr DJC Mossop

Solicitor for the plaintiffs: Baker Deane & Nutt

Counsel for the defendant: Mr N Adams

Solicitor for the defendant: Barker Gosling

Dates of hearing: 3 to 5 August 1999, 22 to 24 November 1999

Date of judgment: 30 March 2000