Janet Campbell v C.J. Cordony & Sons Pty Limited [2009] NSWSC 63 (2 March 2009)

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NEW SOUTH WALES SUPREME COURT

CITATION:
Janet Campbell v C.J. Cordony & Sons Pty Limited [2009] NSWSC 63
This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION:

FILE NUMBER(S):
55030/2008

HEARING DATE(S):
2, 3, 4, 5, 6, 10, 11, 12, 13 February 2009

JUDGMENT DATE:
2 March 2009

PARTIES:
Janet Campbell
Malcolm Campbell
C.J. Cordony & Sons Pty Limited
Christopher John Cordony

JUDGMENT OF:
Hammerschlag J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable

COUNSEL:
M. Orlov (Plaintiffs)
E.M. Olsson SC (Defendants)
R. Polin (Solicitor) (Defendants) 13 February 2009 only

SOLICITORS:
Carneys Lawyers (Plaintiffs)
Creagh & Creagh (Defendants)

CATCHWORDS:
CONTRACTS – building, engineering and related contracts – plaintiffs had contracted with first defendant builder for it to renovate the plaintiffs’ house – plaintiffs claim against first defendant for breach of contract on the basis that work was defective
DAMAGES – plaintiffs entitled to damages for particular breaches of contract being the amount required to bring the work into conformity with the building specifications
TRADE AND COMMERCE - Trade Practices Act 1974 (Cth) and related legislation – plaintiffs also claim that builder engaged in misleading and deceptive conduct by representing that it had home warranty insurance which it required under the Home Building Act 1989 (NSW) when it did not and that second defendant was a person knowingly involved in the contravention – plaintiffs establish misleading and deceptive conduct and knowing involvement by second defendant but fail to establish they suffered any loss by the conduct complained of

LEGISLATION CITED:
Home Building Act 1989 (NSW)
Trade Practices Act 1974 (Cth)

CATEGORY:
Principal judgment

CASES CITED:
Vintix Pty Ltd v Lumley General Insurance Ltd (1992) 24 NSWLR 627
Bellgrove v Eldridge (1954) 90 CLR 613
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8
Hadley v Baxendale (1854) 9 Exch 341
Fink v Fink (1946) 74 CLR 127
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Commonwealth v Verwayen (1990) 170 CLR 394
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768
State of New South Wales v Moss (2000) 54 NSWLR 536
Troulis v Vamvoukakis [1998] NSWCA 237; BC9800395
JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237
Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1
Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904

TEXTS CITED:
Hyam, The Law Affecting Valuation of Land in Australia, 3rd ed (2004) Federation Press

DECISION:
Verdict for the plaintiffs against the first defendant. Plaintiffs' claim against the second defendant dismissed

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY & CONSTRUCTION LIST

HAMMERSCHLAG J

2 MARCH 2009

2 The renovators sue the builder for defective work and the builder counter-sues them for unpaid work.

BACKGROUND

3 The first plaintiff (or “Mrs Campbell” as the case may be) owns a house (“the house”) at 202 Copeland Road East, Beecroft in this State. She and the second plaintiff (her husband), together with their two daughters, live there.

4 The first defendant company is a builder. I shall refer to it as “the builder”.

5 In its dealings with the plaintiffs, the builder was at all times represented by Mr Cordony, the second defendant.

7 Mrs Campbell obtained a quotation from the builder for a large part, but not all of the renovation work. The quotation included alterations and additions to form a new lounge room, dining room, a kitchen, a meals and family area, a rumpus room, a home theatre, a new master bedroom and three other bedrooms (“the work”).

8 On 6 September 2002 the plaintiffs entered into a written building contract with the builder to carry out the work for a contract price of $534,059 including GST (“the Contract”).

9 The Contract was in the form of the NSW Housing Industry Association Plain Language Building Contract for Additions, Alterations, Renovations and Restorations and included written drawings and specifications (“the specifications”).

13 Clause 1 defined “practical completion” and cl 9 provided for delays and extensions of time.

15 Clause 30 provided for liquidated damages to be paid by the builder for each working day from the end of the contract period to the date of practical completion.

16 Schedule 4 was entitled “Warranty Insurance”, and contained the following:

18 The specifications contained the following under the heading “Materials and Workmanship”:

19 The specifications contained the following under the heading “Building Regulations”:

20 Under the heading “External Construction and Finishes” the specifications contained the following in relation to external wall finish and brickwork:

21 Under the heading “External Area Off Laundry” the specifications provided as follows:

22 Sections 92(1) and (2) of the Home Building Act 1989 (NSW) (“the Act”) prohibit (and at the material time prohibited) a contractor (in this case the builder) from doing work under a contract involving more than $5,000 (in this case the Contract) or claiming payment for that work unless a contract of insurance that complies with the Act is in force in relation to that work in its name and a certificate of insurance in the prescribed form is provided to the other party (in this case the plaintiffs).

23 Such insurance is commonly referred to as home warranty insurance or warranty insurance.

24 Section 94(1) of the Act provides that where such insurance is not in place, a contractor who does such work is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party and is not entitled to recover any money in respect of that work under any other right of action including a quantum meruit. However, s 94(1A) provides that if the Court considers it just and equitable, the contractor, despite not holding the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.

25 There is no issue that under the Act the builder required such insurance in respect of the work.

26 Despite the fact that the Contract recorded that the builder had such insurance from Royal & Sun Alliance (“Sun Alliance”), there is no issue that the builder never obtained it.

27 The plaintiffs and their two children vacated the house during the renovation.

28 The plaintiffs themselves directly retained a series of contractors to carry out other work involved in the renovation including the electrical work, plumbing, tiling, landscaping, air-conditioning, the building of a swimming pool and painting, and for that purpose Mrs Campbell obtained certification as an owner builder, which she was required to do under the Act.

30 Practical completion (and handover) of the work occurred on 31 August 2003.

31 During the course of the Contract, progress claims were made by and paid to the builder.

32 On 4 September 2003 the builder directed a final claim to the plaintiffs, including for variations, for $139,096.

33 On 15 September 2003, although the work was not yet fully complete, the plaintiffs occupied the house, having obtained an interim occupation certificate from the Hornsby Shire Council.

34 On 2 October 2003 the plaintiffs engaged Tyrells Property Inspections (“Tyrells”) to do an inspection of the house. That organisation produced a list of uncompleted items of work.

35 On 12 October 2003 the plaintiffs gave notice to the builder of a list of uncompleted work including but not limited to those identified by Tyrells. The plaintiffs demanded rectification of the items identified within 14 days. They threatened to engage other tradesmen to complete the work if the builder did not do so, and to deduct the cost from the outstanding balance payable to the builder.

37 On 6 September 2004 Mrs Campbell requested the builder (via its solicitors) to provide a “warranty insurance certificate” by 10 September 2004.

38 By letter dated 14 September 2004 the builder’s solicitors provided a copy of “a Certificate of Currency issued to our client by Vero Insurance Limited”. It is not in dispute that this was not a certificate of home warranty insurance.

39 By letter dated 17 September 2004 the plaintiffs made a further written demand to the builder via its solicitors for such a certificate. They stated that the certificate had become a “crucial and overriding matter”.

40 On 20 September 2004 the plaintiffs wrote a lengthy letter to the builder’s solicitors setting out in detail their claims for credits, their responses to the builder’s claims for extras, and seeking to reconcile the parties’ respective positions. I shall refer to this letter as “the claim letter”.

41 The conclusion was that the plaintiffs demanded $16,771 from the builder. They also made a further demand for the home warranty insurance certificate and threatened to resort to the Department of Fair Trading.

42 On 22 September 2004 the defendants’ solicitors wrote a letter to the plaintiffs which included the following:

43 On 12 October 2004 the builder’s solicitors responded to the claim letter. I shall refer to the letter of reply as “the reply letter”. The reply letter commenced with the following preamble:

44 It went on, however, to respond to the claim letter, placing in issue many of the plaintiffs’ assertions and stating the defendants’ version of relevant events asserted by the plaintiffs.

45 According to Mrs Campbell a number of the problems were rectified over the next few months but some became defective again.

46 On 2 November 2004 the plaintiffs sent a letter to the builder’s solicitors responding to the reply letter and amongst others demanding immediate rectification of certain of the work complained about.

48 There were negotiations about matters in dispute but by about 15 November 2004 they had broken down.

49 On 15 November 2004 the plaintiffs lodged an application with the Home Building Section of the Department of Fair Trading seeking an investigation into the matter.

50 Those proceedings were initially removed to the District Court and then to this Court.

51 Mrs Campbell retained Tyrells to provide further reports. Mr Tony Ransley of that organisation provided a further report dated 25 May 2005 dealing with defective and incomplete work.

52 On 27 June 2008 this Court (Bergin J) referred the whole of the proceedings to Mr John Tyrril (“the referee”) (not to be confused with Tyrells) for inquiry and report.

53 On 9 September 2008 after the referee had embarked on the reference, the defendants by notice of motion brought urgently, moved the Court to limit the ambit of the reference order. The basis put was that the defendants (who had agreed to the earlier order) had changed position because it was now considered that there were legal issues involved in the contest which were more appropriate for determination by a judge of the Court rather than to be referred to a referee.

54 Initially a modified order for reference was contemplated by Bergin J so that the referee would deal only with defects, rectification of defective work and incomplete work. However, the referee had difficulties with the terms of the modified order.

55 The matter came before her Honour again on 17 September 2008. Among others her Honour noted that the parties had advised the Court that the referee had taken issue with the status of the order of the Court made on 9 September 2008 and ordered the referee to produce a report in relation to the work which he had done pursuant to the reference.

57 The ultimate result was that her Honour revoked the reference order and set the matter down for hearing before a judge of the Court to commence on 2 February 2009.

58 The hearing was estimated to take four days but took nine hearing days including a half day spent on an inspection of the house on 10 February 2009.

59 As will appear below, ultimately there were no legal issues raised by the defendants which could not adequately have been dealt with by the referee. More importantly, as will also appear below, the bulk of the issues in dispute were entirely appropriate to be dealt with by a referee.

61 Firstly, they sue the builder for damages for breach of contract. Their contractual claims are divided into two broad categories:

a a claim for various credits against the unpaid portion of the contract price. It is common cause that before disputed credits are taken into account, there is an amount of $57,022.90 due to the builder for work and which has not yet been paid. If all the plaintiffs’ credits are allowed a net amount of $4,751.50 is due to the builder for work done;

b a claim that the builder’s work was defective and did not comply with the specifications. The plaintiffs claim the reasonable cost of rectifying the work together with an amount for relocation and rental on the basis that they say they must vacate the house whilst the rectification work is done.

62 Secondly, they assert that the builder engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”) by representing, contrary to the fact, that it had home warranty insurance under the Act from Sun Alliance (“the conduct complained of”).

63 They assert that Mr Cordony was a person knowingly involved in the contravention within the provisions of s 75B of the TPA and is therefore personally liable to them.

64 They say that but for the conduct complained of they would not have entered into the contract with the builder but would have contracted another builder to do the work. They say that they received work which was defective and incomplete and that their loss and damage is the cost of rectifying the defects and completing the work.

65 As put the measure of damages for both the contractual damages claims against the builder and the statutory claims is the same. Accordingly the approach taken by the plaintiffs is that the statutory damages claim against the builder may be disregarded. However, in order to determine the personal claim against Mr Cordony all elements of the statutory claim against the builder have to be considered as well as the issue of his alleged knowing involvement.

66 The builder cross-claims for the amount of $57,022.90 (or any other amount found due to it) for work done.

67 By s 94(1A) of the Act, unless the Court considers it just and equitable the builder is not entitled to succeed in its claim.

68 The plaintiffs, however, accept that it is just and equitable that if any amount is found (after allowing for any credits) to be due to the builder for work done, the builder should receive credit for it.

69 The plaintiffs’ overall contractual claim comprises a significant number of smaller claims most of which are described in a Scott Schedule which Mrs Campbell prepared for the purposes of the original Consumer Trader and Tenancy Tribunal proceedings (“the Scott Schedule”).

70 When the proceedings reached this Court, the parties were required to file and serve Technology and Construction List Statements and Responses. However, the plaintiffs did not (apart from the misleading and deceptive conduct claims) adequately articulate in their pleading the individual claims. During the hearing the brief descriptions in the Scott Schedule were relied on and in some cases only in final submissions (and when pressed by the Court) were some of the claims finally articulated by plaintiffs’ counsel. The same can be said of responses made by the defendants.

71 Each party retained an expert building consultant who provided reports for the proceedings. The plaintiffs called Mr Christopher Palombo and the defendants called Mr Mark Kavanagh.

72 On 8, 9, 10 and 11 September 2008, before the reference order had been revoked, Mr Palombo and Mr Kavanagh held a conclave. They signed a report dated 11 September 2008 summarising items which had been agreed prior to the conclave, items which were agreed during the conclave, and items upon which they had not agreed. The items were identified by reference to the Scott Schedule. I shall refer to this report as “the conclave report”.

73 Upon commencement of the hearing on 2 February 2009, the experts had not produced a document dealing further with items which were in dispute. I directed that a document be prepared identifying any further consensus, the remaining areas of disagreement and the experts’ respective positions. That document was provided. I shall refer to it as “the joint report”.

74 Each claim, its amount and most (but not all) of the issues were ultimately identified by reference to the Scott Schedule, the conclave report, the joint report, a document entitled “Plaintiffs’ Evidentiary References to Disputed Non-expert Scott Schedule Items (corrected)”, an outline of the plaintiffs’ closing submissions, an outline of the plaintiffs’ reply submissions, a document entitled “Defendants’ Quantum Summary” and in oral submissions.

75 Each of the claims in the Scott Schedule is designated by an item number. The same item numbers were utilised in the claim letter and the reply letter. Where I refer to an item number it is a reference to that item in the Scott Schedule (and, where appropriate, in the claim letter and the reply letter).

76 As will appear below a number of the claims are the subject of conflicting evidence between Mrs Campbell and Mr Cordony with respect to the dealings between them.

77 I preferred the evidence of Mrs Campbell to Mr Cordony where they were in conflict.

78 The specific respects in which I found his evidence to be unsatisfactory are dealt with later in the context of particular claims.

79 During their opening, the defendants foreshadowed an attack on Mrs Campbell’s credit. That attack (so far as there was one) was unsuccessful. There was no significant respect in which I found her evidence to be unsatisfactory.

81 During the hearing the parties agreed that $27,347 41 is to be credited to the plaintiffs for incomplete or omitted work and in respect of costs incurred in rectifying agreed defects.

82 There remained four disputed separate claims which were dealt with on the basis that if the plaintiffs established them they should be deducted from the amount owing to the builder. They were described during the proceedings as credits. I will deal with them in turn.

83 During the course of the work it emerged that the cornices and certain surfaces which had been constructed by the builder were unsatisfactory.

84 The plaintiffs had retained their own painting contractor, Wetaroll Pty Ltd (“Wetaroll”), to do the painting work.

85 The plaintiffs assert that there was an arrangement under which the builder asked Wetaroll to do what it could to remedy these difficulties on the basis that Wetaroll would render an account to the plaintiffs who would pay it, and that the builder would credit that payment against amounts owed by them to it.

86 Mr Wayne Olliver was the principal of Wetaroll at the time. He was called by the plaintiffs.

87 Mr Olliver’s evidence was that the arrangement was made in a conversation between him and Mr Cordony in Mrs Campbell’s presence.

88 Mrs Campbell’s evidence was that Mr Olliver took her round the house while the builder was working and pointed out that the render to certain walls needed work before any painting could commence. Mrs Campbell took Mr Cordony to those areas, and he agreed to fix them all before painting commenced. On a subsequent occasion in Mr Cordony’s presence Mr Olliver pointed out that the cornices were “awful and need work”. According to Mrs Campbell, discussions between Mr Olliver and Mr Cordony took place in her presence during which Mr Cordony asked Mr Olliver to fix the cornices and said that he would pay for it. She says Mr Cordony said “You get Janet to pay you. Let me know what it is and I will deduct that amount from their contract with me,” and Mr Olliver agreed.

89 Mrs Campbell’s further evidence was that on a subsequent occasion in her presence Mr Cordony asked Mr Olliver to fill the gaps under the skirting boards and the gaps between the architraves and the walls as well.

90 Wetaroll rendered to the plaintiffs an account for $8,472 for patching and sanding cornices, filling of walls and ceilings, filling of woodwork, preparation of doors and repainting of skirting.

91 The plaintiffs paid this account and claim a corresponding credit.

92 It was put to Mrs Campbell that the only conversation she heard between Mr Cordony and Mr Olliver related to one small section of work, a proposition which she denied. She accepted that she was not in a position to say whether the hours for which Wetaroll charged were accurate.

93 Mr Olliver was cross-examined about the conversations. It was suggested to him that he did not have any conversation with Mr Cordony generally, and that Mr Cordony did not ask him to carry out rectification work because nothing more could be done. He gave evidence as to the poor work and that he pointed out things to Mr Cordony which he thought needed to be fixed. He referred to a conversation during which Mr Cordony asked him to do what he could to rectify the cornices. He also referred to walking around together with Mr Cordony and Mrs Campbell and to the conclusion which was reached that he was to do what he could on the rendered walls, some of the patching on the gyprock and the cornices and that Mr Cordony was going to arrange with Mrs Campbell to do something about the final figures they were paying one another and that Mrs Campbell would pay him.

94 Mr Cordony’s position was that no such conversations occurred.

95 During the course of the hearing an affidavit of Mr Cordony sworn on 6 February 2009 was served and read. In it he denied any conversation with Mr Olliver other than one in which he was asked to repair paintwork to a leak over the front porch. Liability for $437 for this painting was accepted and is referred to below.

96 It was submitted that Mr Cordony’s evidence be preferred to that of Mrs Campbell and Mr Olliver.

97 I prefer the evidence of Mrs Campbell and Mr Olliver to that of Mr Cordony. I find that there was an arrangement under which Wetaroll would do what it could to rectify the builder’s work, that Mrs Campbell would pay Wetaroll and that the builder would credit Mrs Campbell accordingly.

98 In no way was Mr Olliver’s credit impeached. Although Mr Olliver accepted that he was a family friend of the plaintiffs he has no pecuniary interest in the outcome of these proceedings.

99 The objective contemporaneous events and behaviour of the parties support the plaintiffs’ version.

100 The evidence leaves little room for doubt that the relevant builder’s work was (and still is) unsatisfactory and that Wetaroll carried out work in an attempt to improve the defective substratum left by the builder on which the painting was to be done. The plaintiffs paid Wetaroll for its efforts in doing what it could with the builder’s defective work. I accept that Wetaroll’s accounts reflected the work done.

101 There was evidence from both Mr Olliver and Mrs Campbell about various conversations which explain how this came about. I find it highly improbable that there were no conversations (apart from the one Mr Cordony accepts) which led to this work being done and paid for.

102 Accordingly, this claim is made out and the plaintiffs are entitled to a credit of $8,472 against the builder’s claim.

103 Initially during the hearing this amount was claimed as part of the amount covered by the asserted arrangement dealt with in item 9. During final submissions the plaintiffs shifted ground contending that they were entitled to a credit for this amount on the basis that these were costs incurred as a consequence of the builder’s defective work.

104 The builder’s initial position was that the evidence fell short of establishing the nature and extent of the defects or the true cost of rectifying them. In the defendants’ quantum summary the only response was articulated as “no evidence of agreement as to work”.

105 Mrs Campbell’s evidence (contained in a witness statement dated 12 November 2008 – upon which she was not cross-examined) was that a leak had occurred in the laundry wall running under the cornice and down the wall and affected the architrave to the laundry external door and wall. Gaps appeared under the skirting boards in the family room because of an internal leak. A leak developed in the front porch ceiling and buckled the paint and the ceiling had to be sanded down and repainted. The builder had also re-rendered the left porch wall and one of the front fence pillars had been re-rendered and this had to be repainted. The plaintiffs arranged for Wetaroll to do this work.

106 Wetaroll rendered an invoice for $3,748 for this work and the plaintiffs paid it.

107 Mr Cordony’s evidence was that he had asked Mr Olliver to repair paintwork to a leak over the front porch. The builder accepted that there should be a credit for $437.

108 There was no real challenge to the evidence led on the nature, extent or cost of this work. The plaintiffs did not rely on any agreement as founding their entitlement to the cost of repair of defective work.

109 Accordingly, this claim is made out and the plaintiffs are entitled to a credit of $3,748 against the builder’s claim.

Item 15 – balustrade damage

110 The plaintiffs claimed a total credit of $6,352 for the cost to remove a timber balustrade which was damaged by the builder or his trades during construction and to supply ($3,130) and install ($3,222) a replacement balustrade.

111 Although the basis for the claim was not articulated in the pleadings, during oral submissions the plaintiffs put that it was an implied term of the Contract that the builder would exercise reasonable care in protecting the works and that damage to the balustrade was caused by the builder in breach of this term.

112 The builder did not place in issue that such a term is to be implied.

113 Mr Cordony denied that the balustrade had been removed and replaced for the reason that it was damaged. His position was that Mrs Campbell had given oral instructions for it to be removed simply because she did not want to keep it and that it was replaced by a powder-coated steel version installed by another contractor which matched the steel balconies to the house’s two “Juliet” balconies.

114 Mrs Campbell’s evidence was that she wanted to keep the balustrade, but that after demolition work had started she saw that it was not protected, and was being damaged. Jackhammers were being used beside it to remove a concrete slab and she observed dents in the balustrade which were not there before. She said that she then wrapped some blue underlay around it and taped it over. Some months later she saw that the balustrade had been further damaged and said to Mr Cordony that he had totally ruined the staircase and railing and wanted him to replace them.

115 Mr Cordony’s evidence was that Mrs Campbell did not protect the handrail and she did not tell him to keep it. He said that “we protected it and then she said she didn’t want to keep it”. He arranged for the balustrade and handrail to be removed and stored it in his garage for a long time because it was a good piece of polished timber. He denied that it was damaged.

116 Initially it was put to Mrs Campbell that the balustrade had not been damaged beyond repair. She maintained that it had. It was then put to her that there was no damage to the handrail at all and she specified the damage which she says it suffered.

117 Until final submissions no issue was raised by the builder with respect to the amount claimed. In the joint report the cost of removal and replacement were agreed. During final submissions, however, it was contended that the correct measure of damages was the value of the wooden balustrade and handrail which had been damaged (of which there was no evidence) not the cost of supplying and installing a new steel one.

118 In the Defendants’ Quantum Summary the defendants’ position was put as follows:

119 This was a reference to the claim letter in which the plaintiffs said the following:

121 It was submitted that Mr Cordony’s evidence should be preferred to that of Mrs Campbell. It was put that Mrs Campbell had a motivation to change the balustrade because the new one matched the outside balconies. Also, it was put that an indication that the balustrade was not damaged beyond repair was that Mr Cordony kept a part of it.

123 It is unlikely that the builder would have been prepared to allow $2,000 in respect of the balustrade and handrail if it had simply been asked to remove it, especially in the face of an assertion that it had been ruined in breach of the builder’s obligations. In other instances where the builder’s response to the plaintiffs’ claims was that it acted on the plaintiffs’ instructions, it said so.

124 During cross-examination Mr Cordony accepted that he was intending to give credit where credit was due and one item where credit was due was in relation to the balustrade. He then declined to fully accept that money was due because he accepted that the allegation made was true. His explanation was that maybe he was too generous. This did not sit easily with his evidence that where he disagreed with a claim he instructed Mr Pelosi to refuse it and I do not accept his evidence that he did not accept that the allegation that the plaintiffs made about the balustrade being damaged.

125 As to the submission that the new balustrade matches the outside balconies, that fact is neutral. The selection of a new one that matched the outside balconies does not support their conclusion that the plaintiffs forewent an undamaged polished timber one. Mr Cordony’s evidence fell far short of establishing that what he kept was an intact balustrade and handrail. During cross-examination his evidence was that all he kept was the turned end of the balustrade because it was a good piece of polished timber. He threw the rest away.

126 I am satisfied on the balance of probabilities that the balustrade was replaced because the builder damaged it.

127 So far as damages are concerned, the plaintiffs accepted that in the ordinary course where a second-hand chattel is damaged the owner gets its value because he can go into the market and get another to replace it; he cannot charge the other party with the cost of replacing it with a new one: see Vintix Pty Ltd v Lumley General Insurance Ltd (1992) 24 NSWLR 627 at 635.

128 However, it was put that where the only way to put the claimant in the position in which it would have been but for the wrong is to give it a new chattel the damages are to be assessed accordingly subject to there being an allowance for betterment in respect of which the onus rests on the wrongdoer.

129 I do not accept this submission. The issue of betterment arose in Vintix Pty Ltd v Lumley General Insurance Ltd in the context of the ambit of the obligation of an insurer under the terms of an insurance policy to indemnify an insured for loss of a chattel. That is not this case.

130 The position is that the plaintiffs have established a breach by which they suffered damage.

131 There was no evidence that a replacement balustrade such as that which was destroyed was not available and that what was installed was the only feasible alternative.

132 The cost of a new steel balustrade is not necessarily equivalent to a second hand wooden one. But no-one suggested it would be any less. Nevertheless, the plaintiffs were prepared to accept $2,000 and the builder was prepared to allow that amount. This seems to be the best evidence of the value of what was damaged.

133 The plaintiffs are accordingly entitled to a credit of $2,000 against the builder’s claim.

134 The plans and specifications required a 1.8 m wall to the east of the house but the builder only built a wall 1.3 m high.

139 The parties agreed that if the breach is established the quantum is as claimed. The builder’s position in the Defendants’ Quantum Summary was articulated as: “...denied but if found, agreed to $2,250”.

140 There being no issue that the wall failed to meet the specifications, the builder bears the onus, or at least an evidentiary burden, of establishing the oral agreement.

141 Mr Cordony’s evidence was that Mrs Campbell requested the wall to finish at 1.3 m so as not to look closed in. He says too that he built a small retaining wall to the side of the garage where originally there were to be steps.

142 Mrs Campbell denied having had any conversation with Mr Cordony in which she either made any request or agreed that the wall stop at 1.3 m above the ground.

143 I prefer Mrs Campbell’s evidence to that of Mr Cordony. The defendants have not established the request or agreement for which they contend.

144 Contrary to the agreement now asserted, the reply letter claimed a credit of $1,000 for the extra retaining wall against the cost of $1,500 which the wall would have cost. It asserted no agreement or request such as that now claimed.

145 The plaintiffs are accordingly entitled to a credit of $2,250 against the builder’s claim.

147 The date for practical completion was accordingly 8 May 2003. Practical completion having occurred on 31 August 2003, the works were 82 working days late.

150 The plaintiffs alleged a series of breaches of contract, some but not all of which consisting of defective work. During the hearing counsel referred to all of these generally as defects and I shall do the same except where it is necessary to make clear that the claim is for a breach not amounting to defective work.

152 Amongst the agreements which the parties reached was that in respect of the reasonable cost to remedy any defects which are found, there is to be added 25 per cent for builder’s margin and that GST is to be added to the total.

153 Before proceeding to a consideration of the various disputed claims it is necessary to set out (albeit briefly) the applicable legal principles which apply where an owner suffers damage as a consequence of a departure by a builder from agreed specifications forming part of the building contract between them.

154 Where a builder breaches a building contract with an owner by departing from the specifications, the measure of damage is the cost, in excess of any amount of the contract price unpaid, of reasonable and necessary work to make it conform to the contract plus consequential losses by reason of the breach: Bellgrove v Eldridge (1954) 90 CLR 613 at 618.

155 The rule is subject to the qualification that not only must the work undertaken be necessary to produce conformity but it must be a reasonable course to adopt. As to what remedial work is both necessary and reasonable in any particular case is a question of fact: Bellgrove v Eldridge at 618-619; see Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8 at [17].

156 Consequential losses are claimable if they satisfy what is commonly referred to as the rule in Hadley v Baxendale (1854) 9 Exch 341. The rule has two limbs. The first limb is that loss is recoverable if either it may fairly and reasonably be considered as arising naturally, that is according to the usual course of things, from the breach. The second limb is that loss is recoverable if it may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.

157 A plaintiff bears the onus of proving its loss. The fact that quantification may be a difficult exercise does not relieve the Court of the obligation to do its best: see for example, Fink v Fink (1946) 74 CLR 127 at 143.

158 A plaintiff is under a duty to mitigate its damages arising from a breach of contract but does not have to show that it has fulfilled that duty. The onus is on the defendant to show that it has not and to show the extent to which it has not done so: TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 158.

159 The parties agreed that the plaintiffs were entitled to damages (before builder’s margin and GST) of $29,475 in respect of defects which were described in the Scott Schedule as items 18, 39, 42, 52, 53, 56, 57, 58, 59, 69, 71, 83, 84, 90, 91, 92, 96, 99, 100, 102, 103 (incl. 104), 105, 108 (incl. 109), 118. It is not necessary to describe all the defects concerned. These items include the builder’s failure to install a waterproof membrane in the balconies; its failure to install certain expansion joints; installation of defective patio steps which do not conform to applicable standards; defective installation of bi-fold doors in the rumpus room; and cracks in the boundary wall and the driveway being built above the garage level so that water flows into the garage.

160 The parties agreed that the plywood flooring to all bedrooms is defective because it is loose and that the furniture needs to be removed, the carpet lifted, the floor screwed to the joists, the carpet re-laid and the furniture replaced, and that the plaintiffs are entitled to damages for this breach of $2,750 (item 54).

161 During the hearing the builder conceded that it had failed to install a complete termite management system as required by the Contract and that the plaintiffs are entitled to an award of $3,894 being the cost to install an adequate termite management system (item 49).

162 The conclave report reflects that Mr Kavanagh and Mr Palombo were agreed that the ceiling in the family/kitchen/meals room is defective – all joints being visible (item 41).

163 Mr Palombo’s opinion (with which Mr Kavanagh agreed) is that the work required to rectify the defect is “Prepare and hard set plaster entire ceiling to achieve a level 5 finish. Repaint ceiling”. They agreed that the reasonable cost of this work was $5,876.

164 The conclave report further reflects that Messrs Kavanagh and Palombo are agreed that the internal cement rendering does not meet the Contract requirements because it differs from the existing wall finishes – existing work is smooth, steel trowel finish – new work is wood float, sponge finish (item 119).

165 Mr Palombo’s opinion is that the work required to correct this defect is to prepare and set all walls (hard set plaster) and that the reasonable cost to do so is $28,085.

166 Mr Kavanagh agreed that if the plaintiffs are entitled to succeed with respect to these items, the work described by Mr Palombo is appropriate and that his costings are reasonable.

168 However, as has been earlier referred to the plaintiffs retained their own painting contractor.

169 On the plaintiffs’ instructions the painter applied paint to the builder’s defective work.

170 It was submitted by the builder that by doing so the plaintiffs’ right to sue for damages for the builder’s breach was lost.

171 In the Defendants’ Quantum Summary the contention was articulated as follows:

172 During final oral submissions the contention was ultimately put solely on the basis that by painting over the builder’s defective work the plaintiffs waived the builder’s breach. This submission is unsustainable.

173 It is well-established that waiver may be seen as a form of election between inconsistent rights where choosing one course results in the exclusion of the other: see for example, Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 655; Commonwealth v Verwayen (1990) 170 CLR 394 at 427 per Brennan J; 472 per Toohey J; at 491 and following per McHugh J.

174 The plaintiffs’ conduct involved no such election vis-à-vis the builder. Painting over the builder’s defective work is in no way inconsistent with the maintenance of the plaintiffs’ right to hold the builder accountable for its breach. It was accepted in submissions that painting over the work made no practical difference to the builder or to the work that would be required to fix its defective efforts.

175 It follows that the plaintiffs are entitled to damages of $5,876 and $28,085, that is a total of $33,961 in respect of these items.

176 There is an outside door to the laundry which is reached by ascending a number of stairs. The plans made provision for a landing at the top of the stairs. The builder did not construct the landing. One exits the laundry immediately onto a stair below the level of exit.

177 In final submissions this claim was resisted on the basis that there had been an agreement that the absence of the platform was accepted in return for the builder providing additional stairs to the rumpus room without cost.

178 The builder relied on the following statement by the plaintiffs in the claim letter made in response to the builder’s claim for $200 (made on 4 September 2003) for an extra consisting of the construction of concrete stairs to the rumpus room:

180 In both the conclave report and the joint report Mr Kavanagh recorded that he had been instructed that the design of the steps was changed by agreement.

181 Mr Kavanagh’s view was that the steps “were fit for purpose”. His evidence was that the stairs had suffered from a slight rotation and that the gap created by the rotation would require filling with a flexible sealant, the cost of which was $230. The builder accepted liability for this amount.

182 Mr Palombo’s evidence was that the stairs as constructed are dangerous in that one steps out of the laundry onto a stair below the door. He and Mr Kavanagh agreed that if the stair is removed and reconstructed in accordance with the plans the cost would be $2,745.

183 In support of the oral agreement asserted it was submitted on behalf of the builder that the laundry stairs were close to the clothes line which would have been a reason for the variation.

184 Mr Palombo was cross-examined on this aspect. It was put to him that the stairs as the plan required would have ended close to the clothes line which has been affixed to the outside wall of the house. His response was that the clothes line would have been the last thing to have been constructed and that there would still have been enough room to move the clothes line far away from the steps.

185 It was pointed out on behalf of the defendants that the plaintiffs’ original position on this defect in their letter to Mr Cordony of 12 October 2003 was not that the landing be constructed but that the gap between the door and the brickwork be filled.

186 Finally, the builder submitted that this was not a structural, functional or standards issue and that the reasonable course was merely to fill the gap.

187 So far as the alleged variation is concerned, although the statement in the claim letter can be viewed as an admission of the agreement, in its own correspondence the builder did not accept that agreement.

188 Moreover, the agreement as articulated (for the first time) in final submission was not one to an agreement to a change in design but rather one that the builder’s breach would be excused in return for the extra rumpus room steps.

189 Finally and probably most importantly, no such agreement was either the subject of any evidence from Mr Cordony nor was it put to Mrs Campbell in cross-examination.

190 I am accordingly not satisfied that the builder has established the agreement for which it contends.

191 I agree with Mr Palombo’s assessment that the absence of a platform makes the exit from the laundry more dangerous than it would have been had the platform been constructed in accordance with the plans. To my observation there would have been no difficulty in constructing an adequate clothes line had the platform been there. The construction of a platform is in the circumstances a reasonable course to take.

192 In the circumstances the plaintiffs are entitled to damages of $2,745 for this breach.

193 The cornices which the builder constructed in all rooms suffer from misalignment, cracking, undulations and uneven margins.

195 The evidence established that the misalignment and cracking has occurred because the builder rigidly fixed the cornices to the ceilings and walls without providing a flexible joint between the cornice and ceiling or cornice and masonry wall to accommodate expected differential movement of different kinds of material. This has resulted in cornices separating from walls or ceilings.

196 So far as the undulations and the uneven margins are concerned, there was no issue as to the defective nature of the work but the builder contended that the plaintiffs had engaged their own painter to try and fix the builder’s work and had painted over it thereby accepting the defective work (or substratum) beneath. As before, the contention was put solely on the basis of waiver.

197 For the reasons which I have dealt with above, the submission as to waiver is rejected.

198 As to the cracking Mr Kavanagh’s view was that relatively minor work is all that is required and that filling will be sufficient, the cost of which would be $550.

199 Mr Palombo’s view, which I accept, is that patching will not prevent the problem from continuing to occur and that the cornices should be removed and installed correctly to comply with the materials and workmanship standards of the Contract.

200 Mr Palombo’s assessment is that the cornices should be removed and replaced and that if this is done the cost will be $26,416. Mr Kavanagh agreed that this amount is fair and reasonable.

201 My inspection of this work revealed extremely poor workmanship and striking defects. In my view removal and replacement of the cornices is both reasonable and necessary.

202 The plaintiffs are accordingly entitled to damages in the amount of $26,416 in respect of this item.

203 The doors which were installed pursuant to the specifications each have four framed wooden panels.

204 In varying degrees they have shrunk, cracked and become loose. They were also installed with inconsistent gaps between the doors and their jambs.

205 Mr Olliver’s evidence was that the doors were exposed to excessive moisture, have subsequently dried out and have therefore shrunk.

206 Whilst there was no issue that the doors are defective, the parties were at issue as to what was necessary to rectify them.

207 Mr Kavanagh’s view is that the doors can be rectified by being sanded, glued and repainted.

208 Mr Palombo’s view is that the loosening of the joinery has compromised the integrity of the doors and that they should be replaced and in replacing them, the inconsistent gaps will be addressed.

209 Mr Kavanagh and Mr Palombo agreed that if the doors are to be rectified, Mr Kavanagh’s costing of $2,400 is fair and reasonable.

210 Mr Kavanagh and Mr Palombo agreed that if the doors are to be removed and replaced, Mr Palombo’s costing of $11,520 is fair and reasonable.

211 I have come to the conclusion that Mr Kavanagh’s figure should be accepted.

212 Not all the doors have been affected to the same extent. At least one of the doors, that to the main bathroom, should be replaced. But this is not the case in respect of some of the other doors, where to my observation the damage is not significant.

213 Both parties adopted an all or nothing approach, that is that either all the doors should be replaced or all should be repaired.

214 Given that the onus rests on the plaintiffs to prove their damage and that I am not satisfied that all of the doors are damaged to the extent that they need to be replaced, I find that the plaintiffs have established damage to the extent only of the cost to repair.

Item 47 (including items 98 and 106) - path and patio constructed too high

216 It was common cause that the path on the western side of the house and the patio adjacent to the French doors have been defectively constructed because the path and patio were set too high and are above the damp proof course.

217 It was also common cause that the height of the path and patio is causing water entry into the dining room which has resulted in damage to the parquet flooring.

218 The parquet flooring in the lounge and dining room has cupped as a consequence of the ingress of moisture.

219 Mr Kavanagh and Mr Palombo agreed that rectification of this defect requires the removal and lowering of the path and the patio to a level which complies with the Building Code of Australia.

220 However, Mr Kavanagh and Mr Palombo disagreed as to the work reasonably required to repair the parquet flooring.

221 Mr Kavanagh’s position is that surface repair, by sanding and repolishing of the parquet flooring, should be satisfactory to rectify the effects of the water ingress, the cost of which would be $11,000. In the Defendants’ Quantum Summary the builder accepted liability for this amount.

222 Mr Palombo, however, considers that because moisture ingress has been ongoing (for some five years) the ply underlay beneath the parquet flooring will have rotted and delaminated and that the continual wetting and rotting of the ply underlay will have caused it to lose its structure, which will result in eventual uneven settlement of the floor.

223 Accordingly Mr Palombo’s view is that the parquet flooring and ply underlay should be lifted and replaced. Mr Kavanagh was in agreement that the reasonable cost to do this would be $32,132.

224 In support of its position the builder put that there was no evidence that the floor substrate had been damaged or has rotted. Mr Palombo accepted that the parquet flooring had not been lifted to expose the ply underlay to confirm his belief that it would have rotted.

225 On the other hand, Mr Kavanagh accepted that for his method of rectification to be satisfactory in the long term it would be necessary to ensure that the ply underlay dried out and that he could not say whether this would take one month, two months or three.

226 He accepted that if his method of rectification was adopted and the underlay is not absolutely dried out the result would be a repeat of the cupping. He accepted that the efficacy of his solution was based on the premise that one can successfully dry out the ply underlay without removing the parquet flooring.

227 Ultimately their views were distilled into the following. Both agreed that there had been water ingress and that water had reached the ply underlay. Mr Kavanagh accepted that he did not know what the damage if any to the ply underlay has been. After repairs one would have to wait some unspecified period to see whether there was still moisture beneath and then surface repair ought to be sufficient. Mr Palombo’s view is that water has got in, making it likely that the ply underlay has been affected and the safe course is to pull up the floor and redo it.

228 In further support of its position (articulated as a failure to mitigate) the builder put that as early as October 2003 the plaintiffs had been advised by Mr Ransley that this moisture issue should be clarified and that had steps been taken any damage sustained over the last five years by water ingress would have been avoided.

229 I do not accept that the plaintiff’s position is adversely affected by not having investigated the matter further as suggested by Mr Ransley. There was no evidence as to the difference such an investigation would have made or what part of the rectification claimed would have been avoided. In 2005 Mr Ransley provided another report in which he did not identify any problem with the level of the external paving or the dining room floor.

230 The experts were agreed that water has been seeping in for some years. It seems more probable than not that the ply underlay will have been affected by this process.

231 Mr Palombo’s suggested course of action will result in bringing the work into line with the specifications. This reflects the plaintiffs’ contractual entitlement.

232 Mr Kavanagh’s position may possibly rectify the problem but may well not. The evidence does not satisfy me, on the probabilities, that it will.

233 Accordingly the plaintiffs are entitled to damages of $32,132 in respect of this item.

Item 55 (including item 110) – rising and falling damp in brick columns on back patio and rising damp on western wall of entry porch

235 The builder failed, in breach of the Contract, to install an effective damp proof system to prevent rising damp. Responsibility for this was accepted by the builder in the Defendants’ Quantum Summary.

236 Mr Kavanagh and Mr Palombo disagreed on the appropriate response to the problem.

237 Mr Kavanagh’s view is that a chemical injection system will damp-proof the columns which will permit them to be repaired and repainted and that the cost of this would be $3,000.

238 Mr Palombo’s view is that the chemical injection system proposed by Mr Kavanagh will not provide a guaranteed or permanent solution to the damp problem. The appropriate method of rectification is to demolish and rebuild the columns to comply with the material and workmanship standards of the Contract. This work would cost $10,500.

239 Once again Mr Palombo’s approach will ensure that the work will conform to the Contract whereas Mr Kavanagh’s approach may not do so.

240 The plaintiffs are accordingly entitled to $10,500 in respect of the rising damp in the columns.

241 So far as falling damp is concerned, the columns were not capped. This remained the position although the plaintiffs had a vergola installed on them by another contractor. According to Mr Kavanagh capping should have occurred at this time. Because they were not capped moisture entered through the top. If falling damp is to be included Mr Kavanagh’s costing (together with the allowance for rising damp) would be between $4,500 and $5,000 and Mr Palombo’s would be $12,750.

242 Given that vergolas were to be installed and that capping was appropriate at that time, I am not satisfied that the plaintiffs have established that the falling damp is attributable to the builder’s breach of Contract.

244 There is rising damp in the western wall of the entry porch. The evidence established that this is because the builder did not install an effective damp proof course. My inspection included looking into a manhole which revealed the absence of such a damp proof course.

245 Messrs Kavanagh and Mr Palombo agreed that if the rising damp in the porch wall is the result of an ineffective damp proof course, then the reasonable cost of rectifying it will be $2,150.

247 There was no issue that the paving installed by the builder does not meet the specifications in that it is not to a first class standard. It has misaligned joints and lipping.

248 Mr Kavanagh’s opinion is that whilst this work was not first class it would not be a reasonable response to pull it up to get it to the appropriate standard.

249 Mr Kavanagh and Mr Palombo agreed that the reasonable cost of repaving is $3,184.

250 Initially the builder put that there was other paving adjacent to the area complained of which was no better and which had been laid by a different paving contractor. However it transpired that the plaintiffs had retained the same paving contractor who had installed the paving on behalf of the builder.

251 I agree with the plaintiffs’ submission that the area is a visual focal point and that the work is noticeably not first class. For these reasons redoing the paving is a reasonable course to take.

253 There was no issue between the parties that the skirtings in the bedrooms have not been “fitted tight to the floor”.

254 My inspection revealed that this is so. There are noticeable gaps at a number, but not many, places.

255 In their letter to Mr Cordony dated 12 October 2003 only two gaps under the skirting board were identified by the plaintiff. I noticed at least one other.

256 Mr Kavanagh’s evidence was that customarily, a gap is left which is taken up by carpeting. His view of the existing gaps is that they are minor and do not warrant rectification.

257 Mr Palombo on the other hand considers that good building practice requires the skirtings to be installed tight to the floor and that they should be removed and reinstalled.

259 The experts agreed that if the skirtings are to be removed and replaced the reasonable cost of doing so would be $6,540.

260 Mr Ransley, whose evidence the builder relied on, expressed the view in his report dated 25 May 2005 that the skirtings are gapped excessively above the floor surface with the bottom edge visible above floor coverings, that this is defective work and the responsibility of the builder to rectify.

261 The manner in which the skirtings have been affixed is clearly defective. Even if it was appropriate to leave a gap to begin with, this does not explain why, the carpets having been fitted, there are noticeable gaps only in some places.

262 In my view removal and re-installation of the skirtings is a reasonable course to take and is necessary to bring the work into conformity with the specifications.

263 In my view the plaintiffs are entitled to an award of $6,540 in respect of this item.

Item 80 (including items 27, 45, 65 and 101) – render, polystyrene bandings, no “V-joints”

265 The first is that the external cement render has not been provided with V-joints which has resulted in cracking.

266 The second is that polystyrene mouldings which were supplied in substitution for rendered bands have been defectively installed. A complaint that rendered bands rather than polystyrene mouldings were required was not persisted in.

267 The third is that the rendered finish is uneven and does not match the finish of the original house.

268 So far as the V-joints are concerned Mr Kavanagh’s view is that they can be cut in and the cracking patched and painted.

269 Mr Palombo’s view is that patching and painting will not achieve a uniform standard of rendered finish to a first class standard, will result in further unevenness and will inevitably lead to highly visible areas of dissimilar surface finishes.

270 So far as the polystyrene bands are concerned, during the course of the works, the builder did not construct bandings round the house and round the front windows. Mr Cordony had mistakenly believed that these had been deleted. As an alternative he suggested stick-on polystyrene mouldings.

271 By 11 August 2003 some of the mouldings at the front of the house were coming away. Mrs Campbell contacted Mr John Hansen a sales representative from Austech External Building Products who had supplied the polystyrene bandings and the other materials needed to affix them and seal them.

272 Mr Hansen made a site visit on that day and formed the conclusion that the mouldings had been fixed to the wall with Tech Flex (a sealant) instead of Build Bond, the appropriate adhesive.

273 Mr Hansen was called as a witness by the plaintiffs. His evidence was that when he attended the site in August 2003 he met with Mrs Campbell and with Mr Cordony. He was asked whether it was possible that he met somebody “from the builder’s company, but not Mr Cordony himself”. His evidence was that he believed it was Mr Cordony and that the meeting had been arranged by Mrs Campbell with Mr Cordony. It was not put to him that the meeting concerned was not with Mr Cordony.

274 Mrs Campbell’s evidence was that Mr Cordony was present when the Austech representative attended on site in about August 2003. Under cross-examination Mr Cordony’s evidence was that he could not recollect the meeting nor anything put to him as having been said at it.

275 The evidence established that at least some of the mouldings have been defectively affixed and that all the mouldings on the front of the building will have to be replaced and fixed in accordance with the installation instructions.

276 The evidence did not establish that the remainder have properly been fixed, even though they have not to this point come away.

277 Having seen the external render, it is clearly unsatisfactory and I agree with Mr Palombo’s view that entire re-rendering is required. The reasons (leaving aside that the new areas do not match the old as required by the specification) are that:

a the rendering is uneven and unsatisfactory (even before additional patch work which would be necessary if one adopted Mr Kavanagh’s approach);
b vertical V-joints are required at the junctions of the old walls and the new and horizontal V-joints are required around the entire house, on the ground floor just above the damp proof course and on the whole upper level above the flashings. This will require a significant measure of re-rendering;
c the reasonable and necessary course is to remove at least all the polystyrene bands that have come or are coming away and where the mitred joints have parted;
d in all the circumstances the necessary and reasonable course is to re-render entirely.

.
278 Mr Kavanagh and Mr Palombo agreed that the reasonable cost of removing and replacing the present render is $80,000.

279 The plaintiffs are entitled to damages in that amount in respect of these items.

280 The experts were agreed that following the completed rectification work some repainting of the house would be required.

281 Mr Kavanagh’s approach on various defects, if followed, would require less work than the approach of Mr Palombo. On Mr Palombo’s approach, given the extent of the works required particularly to ceilings, cornices and internal and external rendered surfaces, the whole house requires to be repainted.

282 The parties agreed during the hearing that a finding as to the extent of repainting would depend on ultimate findings of the Court. Given the possible range of findings it was possible that the extent of repainting required might need to be the subject of further consideration by the experts.

283 On the findings I have made it seems to me that repainting of the whole house is required, the agreed cost of which would be $57,500, and that the plaintiffs are entitled to an award accordingly.

284 However, if the defendants wish to submit to the contrary (and to lead any expert evidence which takes my other findings into account) I will reserve them liberty to do so within seven days by notice to my Associate whereupon I will make appropriate directions.

Item 89 – non-centralised patio doors

285 There was no dispute that the doors from the family room to the rear patio are not centralised in the opening and part of the support is exposed.

286 Mr Kavanagh and Mr Palombo agreed that the doors have not been installed in accordance with the plans.

287 However the plaintiffs accepted that the doors have to be removed anyway because the threshold has to be rebuilt.

288 There was no evidence that there would be any additional cost beyond that which will be incurred in any event.

289 Accordingly the plaintiffs have not established that they have suffered any damage by this breach, and they fail in respect of this item.

290 Mr Kavanagh and Mr Palombo were in agreement that there are areas in the crawl space beneath the timber floor that are inaccessible.

291 The plaintiffs submitted that in failing to ensure access throughout the entire crawl space the builder did not meet the provision of the specifications that requires compliance with the Building Code of Australia.

292 The experts agreed that if access to all areas is required the fair and reasonable cost of the work to provide that access would be $24,737.

293 It was not put in issue that the relevant standards require certain minimum clearances for visual inspection between finished ground level and any structural component or any other obstructions.

294 The builder’s original position and only ground of resistance was that it was not obliged to ensure such crawl space because it did not carry out any work below floor level. The evidence showed, however, that the builder did do work below floor level and that ground was abandoned.

295 The final position adopted by the builder was that notwithstanding that the crawl space is not fully accessible, visual inspection was possible and that there was evidence from Mrs Campbell that the house has been regularly inspected.

296 It was put on behalf of the plaintiffs that the experts had agreed that the crawl space did not comply with the requisite standard. However, in my view, this is an overstatement of the position.

297 Mr Palombo gave evidence that if there was not crawl space access the standard which requires regular termite inspections could not be complied with.

298 Mr Kavanagh said that if you “can’t access the area ... [i]t is hard to either put a protective system in or carry out the inspection”.

299 I do not consider that there was any concession by Mr Kavanagh that the visual inspection requirements of the standard had not been met or that the position was that there was insufficient visual access to reveal the presence of termites during visual inspection.

300 An additional difficulty is that the experts agreed that the cost of implementing an adequate termite protection system was $3,894.

301 On one view there is an inconsistency between the existence of an agreement that an adequate termite system would cost only $3,894 and the maintenance by the plaintiffs of the stance that there is inadequate crawl space to enable the implementation of an adequate termite protection system.

302 The plaintiffs put that there is a distinction between the level of access necessary to install an adequate termite system (which may be chemical or physical) and the level of access necessary to monitor whether it is functioning properly.

303 The evidence did not establish that the visual access available did not meet the precise requirements of the standard or indeed, that it was inadequate to monitor whether the adequate termite protection system about which they agreed was working.

304 I do not consider that the plaintiffs established that the visual access which is available does not meet the standards and accordingly they fail with respect to this item.

305 The plaintiffs claim the cost of renting alternative accommodation for 26 weeks on the basis that it will be necessary for them and their family to move out which the rectification work is done. They claim the sum of $33,080 under this head, being what they say is the cost of moving out plus rental payable for that period.

306 The 26-week period was selected on the basis that practically, six months is the minimum lease available for residential accommodation, although the plaintiffs led no evidence to establish that contention.

307 The parties fought this claim out on two issues: firstly, whether it was in fact necessary for the plaintiffs to move out when the remedial work is done and, secondly, whether even if it is, the plaintiffs have proved their damage.

308 The defendants’ position was that the work could be carried out and the plaintiffs and their family could reside in the house while that happened.

309 Mrs Campbell gave unchallenged evidence that she intended to move out into rented accommodation whilst the repairs were carried out and that she intended to have the six bathrooms, laundry and entry done at the same time which were defectively constructed by another contractor against whom she successfully obtained relief in the Consumer Trade and Tenancy Tribunal.

310 The reasons the plaintiffs intend to move out include that Mrs Campbell has asthma and would be adversely affected by the dust created by the rectification works, her husband runs his business from home when he has an office and needs a quiet environment, and her daughter has health difficulties which make it difficult for her to respond to changes in routine which will undoubtedly occur if builders come and go through the house whilst the work is done.

311 There was no issue that this head of damages claimed by the plaintiffs satisfies the requirements in Hadley v Baxendale even though there was no suggestion that Mrs Campbell’s condition existed at the time of the Contract or that Mr Campbell operated his business at the time of the Contract or that their daughter’s medical condition at the time of the Contract was such that it was in the contemplation of the builder that this breach could result in the damages claimed.

312 It was put, however, that the plaintiffs were not entitled to damages because they were going to leave anyway to have other work done. However, the evidence did not go this far. Mrs Campbell’s evidence was that the plaintiffs intend to move out while building works to repair defects are carried out and that they intend to have the other work done when the work, the subject of these proceedings, is done.

313 I do not consider that the plaintiffs have established that it is necessary for them to move out, although it may be inconvenient, even highly inconvenient, for them to stay.

314 When the plaintiffs moved in the painting internally had not been done, the floors had to be redone and according to Mrs Campbell, they were living in “a quarter of the house. All our furniture was in the garage, except for beds and we were living upstairs and in the front foyer”.

315 The house has five bathrooms and a powder room and Mr Palombo accepted (although he would not recommend it) that it is possible to seal rooms and cover furniture so that work can be done while people are in occupation.

316 In my view the plaintiffs did not establish that it is necessary to move out. Accordingly, they fail with respect to this claim.

317 Additionally, the only evidence relied on by the plaintiffs to establish the rental that they will have to pay was a print-out from an internet website entitled “Domain – the key to your property dreams” which was the product, on its face, of an internet search on 30 January 2009 for rental properties available in the northern Sydney suburbs of Beecroft, Carlingford, Cheltenham, Epping, Pennant Hills and West Pennant Hills.

318 The material discloses advertisements mostly by real estate agents of homes for rent at weekly rentals ranging from $600 per week for a house in Carlingford to $1,400 per week for a house in Cheltenham.

319 The plaintiffs submitted that the figure of $900 per week should be adopted because it is an average figure and the lowest figure presently available for houses in Epping.

320 Although this material was not objected to it neither establishes nor is evidence of the level of rentals actually being paid in any of the areas concerned. At its highest it establishes no more than that real estate agents are advertising housing at asking rentals. It does not even reach the level of establishing an offer.

321 Even offers from landlords would not establish what rental willing tenants would pay: see Hyam, The Law Affecting Valuation of Land in Australia, 3rd ed (2004) Federation Press at 92 and following and the authorities there cited.

322 The evidentiary difficulty was the subject of debate with counsel for the plaintiffs during final submissions. No application was made to reopen to lead admissible evidence as to rental value.

323 This claim fails for the further reason that the plaintiffs have failed to prove their damage. There would have been no difficulty for the plaintiffs to lead admissible evidence as to rentals but they did not do so: see Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768 at [38]; State of New South Wales v Moss (2000) 54 NSWLR 536 at 554; Troulis v Vamvoukakis [1998] NSWCA 237; BC9800395 at 28-29; JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 243-246.

324 The plaintiffs are accordingly entitled to a verdict against the first defendant for the amount which is yielded by the various findings I have made with the necessary adjustments to take into account the balance due to the builder on completion, builder’s margin and GST.

325 The plaintiffs’ position was that the damages claim against the builder for misleading and deceptive conduct was coextensive with the claim for damages for breach of contract and could, therefore, be disregarded.

326 It restricted its claim to one personally against Mr Cordony on the basis that he was a person knowingly involved in the builder’s misleading and deceptive conduct.

327 Section 52 of the TPA provides, relevantly, that a corporation “shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

328 Section 82 of the TPA provides that a person who suffers loss or damage by conduct of another person that was done in contravention of, amongst others, s 52 “may recover the amount of that loss or damage against that other person or against any person involved in the contravention”.

329 Section 75B of the TPA provides that a “person involved in a contravention” refers to a person who:

330 The measure of damages to which the plaintiffs would be entitled is the difference between the position they are in and the position they would have been in had they builder not engaged in the conduct complained of: see Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1.

331 So far as the conversations are concerned, Mrs Campbell asserts that in September 2002 before the Contract was signed she asked Mr Cordony “where is the Home Owner’s Warranty Insurance?” to which he responded “Don’t worry, I have it from Sun Alliance. I will give you a copy”. She says that a week or two later he handed her copy of a document from Sun Alliance (which is in evidence) and dated 2 September 2002 and which is headed “Certificate of Currency”. It is common cause that this document does not evidence home warranty insurance as contemplated by the Act.

332 Mr Cordony’s version is that he told Mrs Campbell in about August 2002 he was not able to obtain Home Warranty Insurance and says that the defendants had full knowledge and comprehension that he could not obtain it. He says that he believed that if the plaintiffs obtained an owner builders permit he was not obliged to have home warranty insurance and suggested to Mrs Campbell that she apply for such a permit which she subsequently did, and obtained one.

333 On 6 September 2004 Mrs Campbell wrote to the defendant’s solicitor, Mr Pelosi, providing a copy of the Contract “and the proof that he was to supply Home Warranty Insurance”.

334 On 17 September 2004 in a letter to Mr Pelosi Mrs Campbell referred to having been informed by Mr Pelosi that the builder held the appropriate home warranty insurance cover. She referred to the contractual undertakings by the builder to provide the certificate.

335 In the claim letter which the plaintiffs sent to Mr Pelosi on 20 September 2004 they said:

336 In a further lengthy letter to Mr Pelosi on 2 November 2004 Mrs Campbell said:

337 At no stage in the correspondence did Mrs Campbell assert that Mr Cordony had told her orally that the builder had such insurance. (Although she was not cross-examined as to why not.) Before entering into the Contract, Mr Cordony told Mrs Campbell that the builder had such insurance. On a number of occasions she referred to it having been so represented to her by the terms of the Contract. Mrs Campbell also referred to what Mr Pelosi told her orally.

338 By schedule 4 of the Contract (the information therein having been written by Mr Cordony) the builder represented to the plaintiffs that it had such insurance.

339 I prefer Mrs Campbell’s evidence to that of Mr Cordony. I do not accept his evidence that that he told Mrs Campbell that he did not have warranty insurance and could not get it.

341 Secondly, at no stage did Mr Pelosi in responding to Mrs Campbell’s letters assert that the position was as Mr Cordony says he conveyed it to Mrs Campbell. To the contrary, on 22 September 2004 Mr Pelosi wrote to the plaintiffs as follows:

342 Thirdly, Mr Pelosi wrote that the builder had not obtained such insurance by oversight. I found Mr Cordony’s evidence that this did not conform with his instructions to Mr Pelosi to be unconvincing. Mr Pelosi was not called.

343 A submission was put by the defendants that Mrs Campbell had not in correspondence asserted the oral representation by Mr Cordony that the builder had insurance and that this was a factor favouring Mr Cordony’s version.

344 That is was not referred to in correspondence is not surprising because of the clear written representation in the Contract and because Mr Cordony was not asserting any conversation to the contrary of the written representation. He accepted it.

345 In my view, the plaintiffs have established that the builder engaged in misleading and deceptive conduct by representing that it held home warranty insurance when it did not.

346 Mr Cordony’s own version was that he knew the builder had no such insurance and was accordingly knowingly involved in that conduct within the provisions of s 75B of the TPA.

347 In their Further Amended Technology & Construction List Statement the plaintiffs articulate their claim for damages as follows:

348 It was accepted that the appropriate measure of damages is the difference between the position in which the plaintiffs now find themselves and the position they would have been in had the conduct complained of not occurred.

349 Mrs Campbell’s evidence is that the specification was tailored specifically for this job and she obtained other quotes from several builders. The builder’s quote was neither the highest nor the lowest. Her affidavit evidence was that she would not have entered into the Contract with the builder if she did not think that it had warranty insurance.

350 Ultimately the plaintiffs’ submissions were refined into the following propositions:

a but for the conduct complained of the plaintiffs would not have contracted with the builder;
b the plaintiffs would have contracted with another builder at a “comparable price”;
c they would have received a defect-free job for that price from the alternative builder;
d the loss attributable to the builder’s conduct is the cost of remedying its defective work and the expense incurring in recovering that cost in these proceedings;
e had the builder effected the necessary insurance there would be no difficulty in recovery; and
f if the plaintiffs are unable to recover their damages from the builder then by reason of Mr Cordony’s conduct he should be held personally responsible for any shortfall and an order under s 87 of the TPA be fashioned accordingly.

351 It was put by the plaintiffs that I should infer that she would have proceeded with another builder at “a comparable price”. Even if I was prepared to infer that she would have proceeded with an alternative builder (which I think is a reasonable inference), no evidence was led which would enable the Court to find a price at which the plaintiffs would have proceeded. No evidence was led as to the terms upon which the work might have been done by any other contractor for example as to the contractual period or with respect to liquidated damages. No evidence was led as to whether the quotes conformed with the sets of documents which Mrs Campbell says she issued to other builders. No evidence was led as to whether such contractors had or had the ability to obtain warranty insurance at the time. No evidence was led as to the capability of any of the alternative builders to have done the work.

352 These were matters of which the plaintiffs could have led evidence but did not.

353 In my view the plaintiffs have not established that they suffered loss or damage in the manner in which they contend they did.

354 Finally it does not seem to me that it can fairly be said that even if they did suffer loss or damage in the manner they contend they did that that damage can be said to have been suffered “by” the builder’s misleading conduct. Their damage was actually suffered by defective work being done, not by the inducement to enter into the Contract being the conduct complained of: see Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904 at [43].

356 Subject to any adjustment which may be required and which is the subject of notification dealt with below there shall be a verdict for the plaintiffs against the first defendant in the amount of $394,659.13 made up as follows:

Balance due to builder on completion before deduction of credits		$57,022.90
Less Credits
Agreed credits	$27,347.41
Item 9	$8,472.00
Item 10	$3,748.00
Item 15	$2,000.00
Item 33	$2,250.00
Total credits	$43,817.41
Balance due to builder after deduction of credits and before damages		$13,205.49
Damages for defective work		$403,764.62
Agreed damages including items 54 and 49	$36,119.00
Items 41 and 119	$33,961.00
Item 60	$2,745.00
Item 121	$26,416.00
Item 46	$2,400.00
Item 47	$32,132.00
Item 55	$12,650.00
Item 68	$3,184.00
Item 77	$6,540.00
Item 80	$80,000.00
Item 79	$57,500.00
	$293,647.00
Plus 25% builder’s margin	$73,411.75
	$367,058.75
Plus 10% GST	$36,705.87
Total	$403,764.62

358 Provisionally I make the following orders as to costs:

a the first defendant is to pay the plaintiffs’ costs of the proceedings;
b the plaintiffs are to pay the second defendant’s costs of the proceedings;

359 If either of the parties wishes to be heard further on the question of costs, if the defendants seek further directions with respect to item 79 – repainting – or any party considers that there are any further issues which require to be dealt with or which necessitate any adjustment to the verdict, the party must within seven days notify my associate in writing accordingly.

361 In the event that notification is received arrangements will be made for a date to be fixed for the making of directions or further hearing as appropriate.

AMENDMENTS:

19/03/2009 - erroneous figure and consequential corrections in pars 81 and 356 (including table)
words omitted in pars 129 and 354 - Paragraph(s) 81, 129, 354, 356

23/03/2009 - amend "Cordony's" to Cordony - Paragraph(s) 339

LAST UPDATED:
23 March 2009

Nett amount due by builder before liquidated damages		$390,559.13
Liquidated damages	$4,100.00	$4,100.00
TOTAL		$394,659.13

Supreme Court of New South Wales

Janet Campbell v C.J. Cordony & Sons Pty Limited [2009] NSWSC 63 (2 March 2009)