85 Princess Pty Ltd v Fleming

[2025] NSWSC 407

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

85 Princess Pty Ltd v Fleming [2025] NSWSC 407

Hearing dates:

10, 11, 12 February 2025

Date of orders:

30 April 2025

Decision date:

30 April 2025

Jurisdiction:

Equity

Before:

Brereton J

Decision:

See [149]

Catchwords:

CONTRACT – Breach of contract – whether warranties concerning building works were breached – where there was a breach of warranty – whether the purchaser is entitled to damages for breach of contract – whether purchaser is entitled to damages reflecting the cost of making the building conform to the contract – whether replacement of concrete slab is reasonable – where the warrantor discharged his evidentiary onus to show that replacement of concrete slab was not a reasonable course – where purchaser has not otherwise established loss – where purchaser is entitled to nominal damages – whether there should be an order for specific performance.

Legislation Cited:

N.A.

Cases Cited:

Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36

Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No. 57504 [2010] NSWCA 23

Carbone v Fowler Homes Pty Ltd [2024] NSWCA 192

Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39

Fothergill v Rowland (1873) LR 18 Eq 132

J C Williamson Ltd v Lukey (1931) 45 CLR 282

Kirkby v Coote [2006] QCA 61

Metricon Homes Pty Ltd as trustee for Metricon Homes Unit Trust v Lipari [2024] NSWSC 566

Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114

Purkess v Crittenden (1965) 114 CLR 164; [1965] HCA 34

Radford v De Froberville [1977] 1 WLR 1262

Renown Corporation Pty Ltd v SEMF Pty Ltd (2022) 110 NSWLR 246; [2022] NSWCA 233

Roberts v Goodwin Street Developments Pty Ltd (2023) 110 NSWLR 557; [2023] NSWCA 5

Robinson v Harman (1848) 1 Exch 850; 154 ER 363

Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344

State on New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415

Stone v Chappel (2017) 128 SASR 165; [2017] SASCFC 72

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8

Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108; [2017] NSWCA 27

Wolverhampton Corporation v Emmons [1901] 1 QB 515

Texts Cited:

Heydon, JD, Cross on Evidence (14th Aust ed, 2024, LexisNexis)

Heydon, JD, Leeming, MJ and Turner, PG, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015)

Category:

Principal judgment

Parties:

85 Princess Pty Ltd (Plaintiff)
Ian Alexander Fleming (Defendant)

Representation:

Counsel:
J Mack (Plaintiff)
Dr A J Greinke (Defendant)

Solicitors:
Litigation Specialists (Plaintiff)
MV Law (Defendant)

File Number(s):

2022/243968

Publication restriction:

N.A.

JUDGMENT

Introduction

1. These proceedings concern a dispute about a concrete slab in an industrial building located at 16 Spongolite Street in the Australian Capital Territory. A company called Fleming Investments (ACT) Pty Ltd was relevantly the initial owner of the property. The Defendant (Mr Fleming) is the company’s director, secretary and sole shareholder. Fleming Investments developed the land by procuring the construction of two warehouses, both placed on a concrete slab. The concrete was poured in April 2020.

2. At some time in about the first half of 2021, the Plaintiff (85 Princess) and Fleming Investments engaged in negotiations for the purchase of the land. Before contracts were exchanged, cracking had appeared in the slab. It was the subject of a pre-purchase dilapidation report and a response. Steps were taken to attend to the cracks by the application of an epoxy filler.

3. A contract for sale of the leased land was entered into on about 20 September 2021, at a purchase price of $5,050,000. The land was sold subject to a long sublease in favour of Reece Australia Pty Ltd. That sublease commenced on 1 April 2021 and has a termination date of 31 March 2031. The Permitted Use was defined as “Onsite Storage, Sale of Plumbing and Hardware related products”. Rent was initially $331,650 per annum plus GST.

4. The contract for sale included a series of special conditions. In particular, Mr Fleming gave a series of personal warranties concerning the building works that had been carried out on the land, including work to rectify the defects that had been identified.

5. Reece Australia never took physical occupation of the premises. Instead, it underleased the premises to a company called Go Troppo Fruit Market Pty Ltd. That underlease commenced on 15 July 2022 and has a termination date of 30 March 2031. Go Troppo took occupation and installed fixtures, including offices and cool rooms. It continues to occupy the premises.

6. At about the time Go Troppo took occupation in the middle of 2022, 85 Princess notified Mr Fleming about a variety of alleged defects concerning the building. One of the complaints involved cracking in the concrete slab. There were complaints about other matters, such as water perforation and defects regarding the Dincel PVC walls.

7. These proceedings were commenced on 17 August 2022. Until closing address, 85 Princess maintained a case about various alleged defects. However, the only matter that continues to be pressed concerns the cracking in the concrete slab.

8. 85 Princess contends that the concrete slab needs to be removed and replaced, at a cost of $5,313,593.39. Mr Fleming contends that there was no breach of warranty and that the steps of removing and replacing the concrete slab are unreasonable and unnecessary. He contends that more modest steps are available to remedy any cracking, such as filling the cracks with an epoxy product.

The key issues

9. The key issues that arise in the proceedings are:

1. whether there was a breach of warranty by Mr Fleming;

2. if so, what are the damages (if any) to which 85 Princess is entitled; and

3. whether there should be an order for specific performance.

Summary of Conclusion

10. By way of summary, I have come to the conclusion that:

1. Mr Fleming breached several warranties;

2. 85 Princess is entitled only to nominal damages, which I have assessed at $100; and

3. there should be no order for specific performance.

The relevant terms of the contract

11. As I have noted, the contract for sale of land was entered into on about 20 September 2021.

12. Clause 60 recorded that the property was being sold subject to a sublease, which was defined to be a sublease between Fleming Investments and Reece Australia. A copy of the sublease is annexed to the contract.

13. Clause 70.2 is in the following terms:

Despite anything else in this Contract, the Seller Director warrants to the Buyer that:

(a)   the Work has been carried out in a proper and skilful way and substantially in accordance with the approved plans;

(b)   that good and proper materials for the Work have been used in carrying out the Work;

(c)   the Work and any material used in carrying out the Work is reasonably fit for the purpose or of such a nature and quality that they might reasonably be expected to achieve the result;

(d)   the Building is structurally sound and can withstand the loadings likely to arise from its expected use;

(e)   the Work done complies with the:

(i) Building Code of Australia;

(ii)   relevant codes, standards and specifications that the work is required to comply with under any law or standard;

(iii)   conditions of any relevant development consent, requirements of the relevant council and all statutory authorities with respect to the work;

(f)   the Identified Defects have been rectified in a proper and skilful way using good and proper materials.

14. The expression “Seller Director” is defined to mean Mr Fleming. He was the person who was expressed to have given the warranties set out in clause 70.2. The evidence did not include a copy of the contract for sale that was executed by Mr Fleming in his personal capacity, but he accepted in these proceedings that he is bound by the terms of the contract for sale in that capacity.

15. The “Work” is defined to be the construction of the buildings and other improvements erected on the land that was the subject of the contract.

16. Clause 70.2(f) refers to the rectification of “Identified Defects”. They are defined as “the defects in the Building Dilapidation Report by Ekror dated 2 May 2021 Revision A”. A copy of the report is annexed to the contract. The report (which was not admitted to prove the truth of the opinions expressed in it) was prepared by Mr Daniel Rorke. It refers to “Identified Defects” and under the heading “Slab Cracking (Both Warehouses)” it records as follows:

Significant slab cracking was found across both warehouses, with the cracks ranging in width from 1mm to 7mm and with continuous lengths >20m. The cracking fractures in multiple directions and cross several sawcut joints. These cracks are likely to get worse when the warehouse floor is loaded with racking and the use of forklifts or similar are used.

Prior to the incoming tenant taking occupation it is advised that the cracks be rectified by suitable means like an epoxy or polymer resin remedial repair product.

17. 85 Princess alleges that there was a breach of each of the warranties given by clause 70.2(a) to (e).

18. Clause 70.3 is an indemnity and provides:

(a)   The Seller Director indemnifies the Buyer and agrees to hold the Buyer harmless from and against any Claim or Loss connected with breach of this clause 70, including breach of a Building Warranty.

(b)   The indemnities in clause 70.3(a) are conditional upon the following:

(i)   the Buyer must notify the Seller Director immediately in writing if:

(A)   any Claim is made, or Loss sustained; or

(B)   anything happens which might in the reasonable opinion of the Buyer give rise to a Claim, or result in any Loss;

in relation to which the indemnity contained in clause 70.3(a) may potentially operate;

(ii)    the Buyer:

(A)   must take all reasonable steps to mitigate any Loss in respect of which the indemnity contained in clause 70.2 may potentially operate;

(B)   must not make any admissions, settle, or take any step to conduct defence of any Claim in respect of which the indemnity contained in clause 70.2 may potentially operate without the Seller’s prior consent in writing (which consent must not be unreasonably withheld, refused, or delayed); and

(C)   must allow the Seller to in the name of the Buyer assume control and conduct of any Claim in respect of which the indemnity contained in clause 70.2 may potentially operate; and

(iii)   the benefit of the indemnity contained in clause 70.2 shall expire on the date which is six (6) years after the Completion Date in relation to any Claim or Loss not notified to the Seller prior to that time.

19. Clause 70.5 provides:

(a)    The Seller Director will cause all defects or faults (if any) in the Building due to defective or improper materials or bad workmanship, as are notified in writing to it by the Buyer within the Defects Liability Period, to be made good in a proper and workmanlike manner, at no cost to the Buyer. The Seller Director is not required to rectify:

(i)   natural shrinkage or the like in the Building or defects caused by natural shrinkage in the Building; or

(ii)   stains or the like in paintwork, brickwork, tiles, carpets, concrete, paving or on walls, ceilings or windows.

(b)    The Seller Director will make good defects notified during the Defects Liability Period:

(i)   if to or concerning:

(A)   a Structural Element;

(B)   electricity or gas supplies or distribution;

(C)   sewerage or drainage; or

(D)   any portion of the Building the fault or defect in which could materially restrict or interfere with the proper use and enjoyment of the Building by the Buyer or any lessee;

as soon as practicable after receiving the notice;

(ii)   in the case of any other defects or faults within 28 days from the date of receiving the notice.

The “Defects Liability Period” is defined to mean:

(a)   in relation to a Structural Element of the Building, the period of six (6) years from but excluding the date of Completion; and

(b)   in relation to a Non-Structural Element of the Building, the period of 12 months from but excluding the date of Completion.

Further events relating to the cracking

20. I have noted that annexed to the contract is a dilapidation report of 2 May 2021. That report was commissioned by Mr Deepak Shankar, a director of 85 Princess. A responsive report, commissioned by Fleming Investments, was prepared by Mr Don McInnes of Sellick Consultants. That report is dated 7 June 2021. It noted that:

There were numerous cracks throughout the warehouse floor, well documented in the Ekror report. Noting that the width of cracking mentioned in the report ranged from 1-0.7mm, which is not technically correct as a measurement was taken at a broken edge to a crack, where in fact the crack widths were generally found to be less than 1.0mm.

The report went on to note that: “with the corrected assessment the cracks can be regarded as damage category 1 as it related to AS2870”. Mr McInnes then set out an extract from AS2870, which described the typical damage associated with category one as: “Fine but noticeable cracks, slab reasonably level”. He stated that:

These cracks will not pose any structural issue for light industrial usage which has been assumed for the pavement.

The cracking has occurred as a result of concrete shrinkage where the saw cuts may have been either installed too late or not effective to control early cracking.

21. Before entering into the underlease with Go Troppo, Reece Australia procured a building defects report from Napier & Blakeley. It is dated 23 May 2022. It was also admitted on a limited basis (although a copy is also annexed to the underlease between Reece Australia and Go Troppo, which was admitted for all purposes). A copy of the report was provided to Mr Shankar. He forwarded a copy of the report to Mr Fleming on 14 June 2022. The report stated: “Cracking is evident across the reinforced concrete floor slabs, most prevalently to the southern third of the slabs across both units, with some differential movement across the cracks”. It went on to state:

The cause could likely be attributed to either, or combination, of the following:

●   The differential movement across the crack suggests settlement of the slab due inadequate compaction of the subgrade fill; and/or

●   Poor placing and curing (allowed to dry too quickly) of the concrete slab causing surface shrinkage cracking.

It also stated that: “The cracks have been repaired at some point since construction; the cracks have been ground out and sealed with a proprietary product (brand unknown)”. It stated:

The full specification of the remedial works undertaken and whether these were completed after a period of monitoring to ensure the movement was not progressive should be confirmed.

Under the heading “Remedial Action Required”, the report noted:

We recommend further monitoring, including mapping of the cracking, installation of tell tails to determine if there is any ongoing movement and coring warehouse floor slabs to facilitate in-situ testing of the subgrade.

22. Mr Shankar procured a report from Mr Rorke of Ekror (dated 24 June 2022) that responded to the Napier & Blakeley report. A copy of the report was provided to Mr Fleming. The report was admitted into evidence as evidencing that communication and not the truth of its contents. The communication was that, in response to the Napier & Blakely position on the slab cracking, Mr Rorke’s position was as follows:

This items (sic) was raised in the Ekror report and the cracks have been repaired. Noting that suitability of the repairs can’t be determined as the building has not been occupied since the repairs were carried out. The crack repairs should be monitored and reviewed at a later stage.

Although Mr Rorke noted that on this subject his position was to “disagree”, his comment suggests that there was some measure of agreement.

23. During June and July 2022, there were various communications between the parties concerning various alleged defects, including but not limited to cracking in the slab, and the need for rectification. 85 Princess advised Mr Fleming that it would be much less costly to rectify the defects before Go Troppo commenced occupation.

24. 85 Princess submitted that its position in mid 2022 was that it wanted the issue resolved one way or another, and that, in respect of the cracking, many options were available to Mr Fleming: for example, he could have attended on site, negotiated, devised and agreed a rectification regime, and undertaken the rectification.

25. 85 Princess submitted that from the time it provided a copy of the Napier & Blakeley report to Mr Fleming in June 2022, he was on notice that the issue with slab cracking was extant and worsening. It is an overstatement to say that the Napier & Blakeley report put Mr Fleming on notice that slab cracking was extant and worsening. Rather, the report, while noting that cracking was evident, recorded that the cracks have been repaired and recommended further monitoring.

26. During June and early July 2022, Mr Fleming took a course that 85 Princess described as non-responsive. It was non-responsive in the sense that Mr Fleming did not agree to undertake any work to rectify any of the alleged defects. 85 Princess was anxious for rectification to occur before Go Troppo took occupation. That did not occur. Go Troppo took occupation in about the middle of July 2022. These proceedings were commenced shortly afterwards.

The evidence about the cracking

27. In order to determine whether there was a breach of warranty in relation to the concrete cracking, it is necessary to consider closely the evidence concerning the nature and cause of the cracking. Although it is more relevant to the question of relief, at the same time it is convenient to address the question of what could and should be done in response to the cracking that subsists, and which may emerge.

28. The principal evidence about the cause of the cracking and the appropriate rectification was from two experts, each with qualifications as engineers. 85 Princess relied on evidence from Mr David England, who is a civil engineer and a surveyor. He holds academic qualifications as a civil engineer and has worked as a civil and structural engineer. Mr Fleming relied on evidence from Mr Aaron Hazelton, who is a building consultant. He has relevant academic and professional experience as a structural engineer.

29. Mr England and Mr Hazelton conferred and produced a joint engineering report. Both experts modified some of their views through the conferral process and agreement was reached on a number of issues. But they disagreed on some matters. They disagreed on the only issue that remains in dispute – the cracking in the concrete slab.

30. This is a case where the Court would have been assisted by evidence given by the experts concurrently. That did not occur because the legal representatives for Mr Fleming had not anticipated that evidence might be given concurrently and Mr Hazelton was not available on the first day of the trial. Mr England was available and cross-examination of him proceeded in the interests of efficiency. I consider that where experts have the same expertise and have conferred to produce joint report, it is usually desirable for the oral evidence to be given concurrently. The legal representatives should ordinarily confer with a view to producing an agenda for the concurrent evidence.

Mr England

31. In his report of 7 July 2023, Mr England observed that: “the concrete warehouse floor is heavily cracked within the southern end of the large warehouse”. He accepted during cross-examination that the word “heavily” is quite vague and unscientific.

32. Mr England expressed the view in his report that:

The cracks appear to have generated from areas of stress concentration, typically at the base of columns and re-entrant corners within the floor, due to rapid curing of the concrete, expansion and contraction of the concrete due to temperature variances and mechanical loading on the floor during use.

He reported that in his opinion, the cracks were likely to have been caused by: (a) rapid drying of the surface of the concrete following placement; (b) missing reinforcement steel trimmer bars and re-entrant corners; (c) poor compaction of the subgrade materials below the concrete floor causing differential movement of the concrete floor during normal daily use; and (d) low strength concrete resulting in structural failure of the floor during normal use.

33. Mr England expressed the view that the cracks in the floor are structural failures which are likely to exacerbate over time. He noted that some cracks have been ground out and filled with a proprietary mastic material, but that some of the floor cracks appear to have extended from the repair, indicating that ongoing structural failure of the floor is developing. He noted that several unfilled cracks, which he assumed had developed since the time of the repair of the other cracks in the floor, are an indication of further structural failure of the concrete floor. It was his opinion that the concrete floor is structurally unsound and likely to fail over the life of the warehouse. He said that the severity of the floor cracking, and creation of new cracks, indicates that structural failure of the floor continues to develop. He expressed the opinion that the concrete floor is unlikely to withstand the loadings likely to arise from its expected use over the life of the warehouse.

34. During the course of oral evidence given in chief (permitted to deal with some affidavit evidence that was rejected), Mr England gave evidence that the cracking of the concrete floor is due to improper materials of inferior strength being specified by the structural engineer. He said that the structural plans recorded that 20 MPa concrete was to be used, whereas under the relevant Australian Standard, if pneumatic tyre vehicles are to be used, “it has to be 32 MPa concrete”.

35. Mr England proposed a method and scope of works for rectification and repair of the slab cracking. The proposed rectification method was to “remove and replace concrete floors both warehouses with 32 MPa concrete appropriately reinforced”.

36. In the joint report prepared by Mr England and Mr Hazelton, on the subject of slab cracking Mr England largely adhered to the views expressed in his report. He observed that the degree of cracking in the warehouse floors has increased since his first inspection in 2022. He said that cracking has extended from many previously epoxy filled joints with new cracking evident throughout both warehouses. He said that the degree of cracking is likely to continue with the current use. He expressed the view that the cracking of the floors allows water or moisture to infiltrate through the cracks, ultimately interacting with the steel reinforcement and that, in time, corrosion of the steel reinforcement and spalling of the concrete is likely. He observed that the cracking of the floor has not resulted in differential movement either side of the crack, indicating that the failure of the slab appears to be related to the concrete only and not due to the failure of the subgrade under the slab. He expressed the view that the cracking of the warehouse floor will continue for the life of the building and that the removal and replacement of the floor is the only viable option to ensure a suitable design life for the warehouse floor of, say, 20 years.

37. It was put to Mr England during cross-examination that while he had identified in his report a series of reasons why concrete can crack, he had not undertaken the work or testing that was required in order to come to a view as to why the concrete slab in this case had cracked in the way that it did. There was force in this proposition, and Mr England accepted he had not, before preparing his report, carried out the analysis to determine which of the potential reasons was the actual reason.

38. As noted above, one of the reasons that Mr England advanced as to the cause of the cracking was that the structural engineer had specified the use of concrete of 20 MPa strength, whereas the relevant Australian Standard specified 32 MPa concrete. He expressed the view that concrete of inferior strength had been used.

39. The standard that Mr England was referring to was AS3600, titled “Concrete structures”. Under the heading “Abrasion”, the standard records at [4.6] that the strength requirements for abrasion for pavements or floors subject to pneumatic-tyred traffic is 32 MPa. The strength requirement of 32 MPa identified in AS3600 is specified in relation to abrasion resistance, not cracking. Up until closing oral address, 85 Princess maintained a case that the concrete slab was of inadequate strength to address abrasion resistance and that had manifested itself by excessive concrete dust. That part of the case was abandoned at the commencement of closing oral submissions. Mr England addressed AS3600 in his report when dealing with the subject of dust and abrasion resistance.

40. Section 9 of AS3600 is concerned with designs of slabs for strength and serviceability. It includes provisions about minimum strength requirements. Clause 9.5 is concerned with crack control of slabs. This clause does not speak of a relevant minimum strength of 32 MPa. It does provide that: “cracking shall be limited to an extent that does not impair the durability or serviceability of the slab, both in terms of function and appearance”. Mr England accepted that the standard recognises that a slab will have cracks, and that cracks by themselves do not necessarily indicate any structural failure in the slab. He accepted that cracking is often due to shrinkage of the slab.

41. I am unable to conclude that the strength requirement of 32 MPa identified in AS3600 is a requirement that is directed to the issue of cracking. The strength requirement of 32 MPa is addressed in AS3600 in connection with abrasion.

42. In addition, Mr England assumed that the slab was constructed using “N20” concrete, which is pre-mix concrete designed to achieve a strength of 20 MPa. He made that assumption because that was the concrete specified in the structural plans. There is evidence that the concrete that was delivered, and thus used, was N25 concrete. There is also evidence that testing of the slab after 28 days was indicating a strength of between 28 and 29.5 MPa, and that the 28 day strength was in the order of 80 - 90% of its final strength. It is possible that the final strength of the slab in-situ was greater than 32 MPa.

43. Mr England gave evidence that he and Mr Hazelton had agreed that undertaking core-testing to test for compressive strength in accordance with AS1012.14 would have been “a good idea”. He said he conveyed to the instructing solicitor that this was a process that could be undertaken. But there is no evidence that such testing has been undertaken, and Mr England did not do so.

44. It was put to Mr England that his “assumption that the slab requires replacement is premised on megapascal 20 from N20 design”. He agreed with that proposition, although the true position is that Mr England did not make an “assumption” that the slab requires replacement, rather that was his opinion. It was also put to him that: “when in your report and in the joint report, you suggest that ‘the removal and replacement of the floor is the only viable option to ensure a suitable design life’, and that was based on your assumption as to the strength of the concrete”. He accepted that proposition.

45. Mr England also accepted that his conclusion that removal and replacement of the floor is the only viable option to ensure a suitable design life was based on his lack of awareness of the existence and application of liquid densifiers. But that concession does not go anywhere because there was no other evidence about the existence and application of liquid densifiers.

46. Mr England expressed the view in his report that the removal and replacement of the concrete was a rectification step to address both the problem with the cracking and the “dusty floor due to inferior concrete strength”. In the joint report, he expressed the view that removal and replacement of the concrete floor is the only viable option to address the cracking and, separately, said that the same step was required to address the abrasion resistance. Mr England was not asked whether his opinion about the need to remove and replace the concrete floor to address the issue of cracking would be maintained if his assumptions were changed, that is: N25 concrete was used rather than N20 and testing had demonstrated a strength of between 28 and 29.5 MPa after 28 days.

Mr Hazelton

47. In his written report, Mr Hazelton expressed the opinion that no new cracking was observed on site beyond what had been previously documented in reports that had been supplied to him. He observed that the cracks that had been repaired were of a much greater width than the cracks that had not been repaired, and said that it would be reasonable to assume that the thinner cracks were present at the time of the initial repairs but were “deemed not necessary to repair”. He expressed the view that the sealed cracks that he observed were all under 1 mm and fell withing “Damage Category 1” of AS2870. During cross-examination, Mr Hazelton accepted that AS2870, which is titled “Residential slabs and footings”, applies to residential slabs and footings, but he maintained it had some application to buildings of the kind with which this case is concerned.

48. As to the cause of the cracking, Mr Hazelton commented that Mr England’s report identifies reasons why concrete can crack but does not “link to sufficient information such as structural drawings, testing or geotechnical analysis to directly link these reasons to why it cracked”. Mr Hazelton expressed the view that the cracking is “most likely related to the timing at which saw cuts were installed in the slab, and also the continuation of, and arrangement of, saw cuts over the suspended loading dock”. This conclusion was also formed without any testing or geotechnical analysis, and without any criticism of any structural drawings.

49. Mr Hazelton’s opinion as to the cause of the problem involved him adopting the conclusion found in the report from Mr McInnes of Sellick Consultants of 7 June 2021 (which was the response to Mr Rorke’s dilapidation report commissioned by 85 Princess). Mr McInnes’s report expressed the view that the cracking occurred as a result of concrete shrinkage where the saw cuts were installed too late or were ineffective to control early cracking. The report was provided to 85 Princess and there is no evidence that it or Mr Rorke expressed any disagreement with it.

50. Mr Hazelton expressed the view that the cracks are unlikely to cause any structural issue, assuming that the premises would be subject to light industrial use.

51. In the joint report, Mr Hazelton recorded that the cracking has increased since his previous inspection and that the new cracking can lead to further damage if not sealed and treated. His evidence was that a suitable repair method would need to be developed, designed and certified to ensure a design life of 20 years would be achieved with the pavement, as an alternative option to replacement.

52. While Mr Hazelton expressed the opinion in his report that no new cracking was observed on site beyond what had been previously documented in reports that had been supplied to him, he accepted that those reports had not sought to identify all of the cracking with precision. He was not well placed to express an opinion about changes to the cracking over the period before he first inspected the premises. Mr Hazelton accepted that the cracking had increased in the period between his two visits (October 2023 and March 2024). It is likely that if the cracking increased in the 5 months between October 2023 and March 2024, there had also been increased cracking in the 29 months between May 2021 and October 2023.

53. During the course of cross-examination, Mr Hazelton elaborated on what he considered to be the cause of the cracking problem and the likely implications. His evidence can be summarised as follows. The structural design of the slab called for the creation of saw joints in a grid-like pattern across the slab. These joints, as designed, are 3mm wide saw cuts or trowelled grooves and are intended to induce a crack, which will inevitably occur to relieve stress that builds as a result of the slab shrinking. The cracks so induced should appear beneath the saw cut. Mr Hazelton’s opinion is that the saw cuts have been ineffective. That was probably because they were installed too late (the plans called for them to be inserted within 18 hours of the slab being finished) but there could have been other reasons. The consequence was that the stress was relieved by cracking in places dictated by the will of the slab rather than in the places intended by the designer; that is, beneath the saw cuts. The scheme of cracking that emerged was different to the grid scheme contemplated by the designer. However, once the cracks that emerged are repaired by the use of a polymer, they perform the function of the saw cuts. They accommodate movement in the slab as temperatures change.

54. Mr Hazelton gave evidence under cross-examination that the additional cracks that he observed in between the time of his first inspection in October 2023 and the second inspection in March 2024 were some additional hairline cracks. He estimated that around 20% of the panels had at least one hairline crack. He agreed that these cracks were likely to have emerged because of the failure of the saw cuts. He said it was possible that there would be further cracking but there was some point, which he could not identify, when the cracking would stop. He rejected the possibility that cracking will continue for the life of the building. His evidence was that “if it’s treated appropriately with the right polymers, it’ll stop that crack degrading over time”.

55. Mr Hazelton agreed that if the wider cracks that he observed in March 2024 were left untreated, a deterioration in the slab would be accelerated because vehicular traffic on the edge of the crack will chip it away. He accepted that if left untreated, the larger cracks will impair the durability or serviceability of the slab. He said that they should be treated by cleaning the crack and applying a semi-rigid polymer. His evidence was that provided the cracks are treated properly, their existence will not otherwise impact upon structural integrity of the slab.

Conclusion on the cause of the cracking

56. The slab was not properly constructed. That has manifested itself in cracking that would not have occurred had it been constructed properly.

57. I am not satisfied that the cause of the cracking was the use of concrete of inadequate strength. Mr England came to that conclusion based on an erroneous assumption about the concrete used to construct the slab and without undertaking the testing that was necessary to demonstrate that the concrete was understrength, such that cracking was likely to occur.

58. I am satisfied on the evidence that the cracking occurred because the saw cuts failed to serve their purpose as designed, most likely because they were installed too long after the concrete was poured. That was Mr Hazelton’s evidence and it was essentially unchallenged. I use the expression “most likely” because that was the expression used by Mr Hazelton in his report. By the conclusion of the case, 85 Princess had, to some extent, embraced Mr Hazelton’s evidence on this matter, in order to seek to establish a breach of warranty.

59. I accept that it is probable that there will come a point when there is no more cracking arising from the fact that the saw cuts failed to fulfil their intended function. That is because it is probable there will be a point where sufficient cracks have developed for the slab to be able to accommodate the stresses that arise from changes in temperature. I cannot make any findings about when that point will be achieved. Nor can I rule out the possibility that the cracking will continue for the life of the building.

60. As I have noted, Mr England’s evidence that the cracking will continue for the life of the building rested on an assumption that was not made out and was made without the scientific testing of the slab that is necessary to conclude that it is understrength for the purpose of resisting cracking. But I also recognise that, like Mr England, Mr Hazelton did not carry out any core-testing to test for compressive strength or any other testing to assist the conclusions he formed about the cause of the cracking. I have accepted Mr Hazelton’s opinion about the cause of the cracking, but have done so in circumstances where neither expert carried out the testing required to prove or negative the possibility that the concrete used was understrength such that the cracking occurred and may continue to occur. There is sufficient evidence to establish that inadequate saw cuts are at least a cause of the cracking and there is inadequate evidence to prove that understrength concrete is also a cause.

61. There are cracks present in the slab that have been repaired. There are new cracks that need to be repaired. Further cracking is a real possibility, and those cracks will require repair should they arise. Mr Hazelton’s evidence was that a suitable repair method will need to be developed and put into place to ensure that the slab will not degrade and fail to serve its function. That general proposition may be accepted. But other than some evidence that the repair method would likely involve the application of a semi-rigid polymer, there was no detailed evidence from Mr Hazelton, or anyone else called by Mr Fleming, or by 85 Princess, about what might be involved in developing the repair method or what it may cost to design and implement the repair strategy.

Was there a breach of any of the warranties?

62. 85 Princess contends that there was a breach of each of the warranties given by clause 70.2(a) to (e) of the contract for sale.

Clause 70.2(a)

63. It was submitted for 85 Princess that, on Mr Hazelton’s evidence, there was a breach of the warranty given by clause 70.2(a), by which Mr Fleming warranted that the Work (which included construction of the slab) has been carried out in a proper and skilful way and substantially in accordance with the approved plans. It was submitted that construction of the slab was not carried out in a proper or skilful way because the saw cuts were ineffectual and clearly a breach of the approved plans.

64. Mr Fleming accepted that Mr Hazelton’s evidence supported this conclusion, but it was submitted that clause 70.2(a) needs to be to be read with 70.2(f), and that this confined the operation of clause 70.2(a), such that there was no breach. This raises a question of construction of the contract.

65. Clause 70.2(f) is a warranty that the “Identified Defects” have been rectified in a proper and skilful way using good and proper materials. The Identified Defect concerning the concrete slab was expressed in that part of the dilapidation report that is set out above at [16]. The Identified Defect was slab cracking, and the dilapidation report recommended rectification “by suitable means like epoxy or a polymer resin remedial repair product”.

66. It would be surprising if an Identified Defect was rectified before entry into the contract, as was warranted by clause 70.2(f), but that there would nonetheless be a breach of the warranty in clause 70.2(a) because of some deficiency in the construction that gave rise to the Identified Defect. I can see some force in the contention that the warranty in clause 70.2(a) should be read down so as not to extend to the specific Identified Defects. That is, if an Identified Defect was rectified then 85 Princess could not contend that there was nonetheless a breach of the warranty that the Work had been carried out in a proper and skilful way and substantially in accordance with the approved plans.

63. However, this does not provide an answer for Mr Fleming. The relevant Identified Defect was cracking in the slab. There is evidence that the cracking identified in the dilapidation report was treated by some kind of epoxy product, at least where the cracks were wider than about 1 mm. But this rectification work did not rectify the underlying defect, being the ineffective saw cuts, which caused further cracking to emerge after the dilapidation report was prepared, and after the initial cracks had been repaired, and may result in more cracking in the future. The cracks that were identified in the dilapidation report were symptomatic of a deeper problem, the ineffective saw cuts which were failing to corral the cracking that was inevitably going to occur as the slab cured.

64. I conclude that there was a breach of the warranty given by Mr Fleming by clause 70.2(a). I am satisfied that the construction of the concrete slab was not carried out in a proper and skilful way. That is because I am satisfied that the saw cuts were not installed sufficiently early or were not otherwise installed in a way such that they fulfilled their intended function.

Clause 70.2(b)

69. 85 Princess also submitted that there was a breach of the warranty given by clause 70.2(b) because the concrete used to construct the slab was understrength and not “a good and proper material”. I reject this submission. For the reasons I have given above, I am not satisfied that the concrete as laid was understrength. I am not satisfied that the cracking is a consequence of any understrength in the concrete.

Clause 70.2(c)

70. 85 Princess submitted that that there was a breach of the warranty given by clause 70.2(c), which is that:

The Work and any material used in carrying out the Work is reasonably fit for the purpose or of such a nature and quality that they might reasonably be expected to achieve the result.

The wording of this warranty is not particularly clear or precise. For instance, the “result” is not defined or obvious. It was submitted for 85 Princess that relevantly the “result” in this case could be conceptualised in a number of ways. One “result” is to have a warehouse that is free of cracking, which if left untreated would cause deterioration. Another is to have a slab with saw cuts that induce cracking at the appropriate time.

71. I have concluded that this warranty largely overlaps with the warranty in clause 70.2(a) and that the construction of the slab with ineffective saw cuts is a breach of the warranty provided by clause 70.2(c).

Clause 70.2(d)

72. 85 Princess also contends that there was a breach of the warranty that the Building is structurally sound and can withstand the loadings likely to arise from its expected use – see clause 70.2(d). Although less obvious perhaps, I conclude that there was also a breach of this warranty. Although I accept that at the time the warranty was given the slab could withstand the loadings likely to arise from its expected use, there was a structural problem in that the saw cuts were ineffective and that meant that cracks were highly likely to emerge which, if left untreated, would lead to the deterioration of the slab such that it would come to fail to bear loadings likely to arise from its expected use.

Clause 70.2(e)

73. Finally, 85 Princess contends the warranty given by clause 70.2(e) was breached because the slab did not comply with AS3600. Although Mr Hazelton gave evidence that AS3600 does not necessarily apply to a slab on the ground, it was common ground that AS3600 was a relevant code for the purposes of clause 70.2(e). 85 Princess relied on clause 9.5.1 of AS3600, which, as I have noted, provides that “Cracking shall be limited to an extent that does not impair the durability or serviceability of the slab, both in terms of function and appearance”. In my view, the slab as constructed did not comply with this clause of AS3600 because the cracking that came about because of the ineffective saw cuts would, without repair, impair the durability of the slab. It follows that there was a breach of this warranty as well.

Conclusion on breach

74. I accept that the construction of the slab with ineffective saw cuts gave rise to a breach of the warranties found at 70.2(a), (c), (d) and (e) of the contract for sale.

Damages

75. Having established the breaches of warranty, 85 Princess is entitled to recover damages.

The respective positions

76. 85 Princess seeks damages of $5,313,593.39, on the basis that this is the cost to have the slab removed and replaced. This figure is derived from an uncontested calculation undertaken by Mr Ken Whyte, a quantity surveyor. Mr Whyte quantified the costs associated with the demolition and reconstruction of the slabs, assuming that Go Troppo will have to vacate the premises during the reconstruction. The $5,313,593.39 is made up as follows:

Defect	Damages
SLAB CRACKING – WAREHOUSE 1	485,420.00
SLAB CRACKING – WAREHOUSE 2	115,816.00
REMOVAL AND REINSTATEMENT OF OFFICES	312,903.00
TEMPORARY OFFICE ACCOMMODATION	192,622.00
REMOVAL AND REINSTATEMENT OF COOL ROOMS	1,535,247.00
BUILDERS PRELIMINARIES – 74 WORKING WEEKS	606,991.00
CONSULTANTS @2.5%	81,224.98
CONTINGENCY @10%	333,022.40
BUILDERS MARGIN @15%	549,486.96
OWNERS PROJECT MANAGER/CLERK OF WORKS	158,400.00
UPDATED REPORT OF KEN WHYTE DATED 6 FEBRUARY 2025 @10.51%	459,406.11
GST @10%	483,053.94
5,313,593.39

77. Mr Fleming contends that if there was a breach of warranty on his part, the reasonable response is not to replace the slab; rather, it is to undertake repair work by having the cracks filled, as and when required. He contends that in the absence of any evidence about the costs of that repair work, 85 Princess has failed to prove any loss, and damages should be nominal.

78. The case was put by the parties on an all or nothing basis. 85 Princess contends it should receive damages of $5,313,593.39. Mr Fleming contends that if a breach of warranty is established (as it has), only nominal damages can be awarded. Neither party contended that the Court could or should award some amount in between. No figure between nominal damages and $5,313,593.39 was advanced by either party.

Principles relied upon by the parties

79. There was no real debate about the applicable principles.

80. The starting point of course, which was not contested, is the ruling principle that 85 Princess is, so far as money can do, to be placed in the same situation as if the contract had been performed: Robinson v Harman (1848) 1 Exch 850 at 855; Tabcorp HoldingsLtdv Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13].

81. 85 Princess relied on the general principle that where a building owner has a contractual entitlement for the building to be in a certain condition, the damages that are recoverable for breach of the contract is the cost of making the building conform to the contract, subject to the qualification that not only must the work be necessary to produce conformity, it must also be a reasonable course: see Bellgrovev Eldridge (1954) 90 CLR 613 at 617-618. It is to be expected that the work to produce conformity will only be unreasonable in “fairly exceptional circumstances”: see Tabcorp at [17].

82. 85 Princess referred to two cases where these principles have been applied in relation to a dispute about a concrete slab: Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108; [2017] NSWCA 27 and MetriconHomes Pty Ltd as trustee for Metricon Homes Unit Trust v Lipari [2024] NSWSC 566. Those cases provide a useful exposition and application of the principles, but also serve to highlight the need to address the particular facts of the case. There are many other cases that elucidate and apply the relevant principles. Recent examples from the Court of Appeal include: Renown Corporation Pty Ltd v SEMF Pty Ltd (2022) 110 NSWLR 246; [2022] NSWCA 233, Roberts v Goodwin Street Developments Pty Ltd (2023) 110 NSWLR 557; [2023] NSWCA 5 and Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114.

83. Mr Fleming drew attention the following passage from the decision of Kourakis CJ in Stone v Chappel (2017) 128 SASR 165; [2017] SASCFC 72 at [55]:

Rectification damages are awarded for a breach of a building contract unless there is good reason to adopt another measure because the award of rectification damages would be manifestly disproportionate to the attaining of the contractual benefit. That rule entrenches rectification costs as the primary measure of damages and emphasises the exceptional nature of any lesser award. In determining whether good reason exists, the authorities suggest that the following are relevant considerations:

(1)   the degree of departure from the contractual stipulation;

(2)   the adverse effect of the departure on the functional utility, amenity and aesthetic appearance of the building;

(3)   the reasons, objectively ascertained and commonly known, for which the innocent party made the stipulation which was breached;

(4)   the practical feasibility of rectifying the work, including the effects on third parties of attempting to do so;

(5)   whether or not the innocent party intends to carry out the rectification work;

(6)   the absolute cost of the rectification work and the disproportion between that cost and

●   the value of the building and contract price;

●   the diminution in commercial value of the building;

●   the effect of the departure on the functional utility, amenity and aesthetic appearance of the building;

(7)   the nature of the wrongdoer’s fault for the defect; and

(8)   the public interest in reducing economic waste.

84. I accept that this is a useful catalogue of relevant considerations, although there may be doubt that the final consideration is a relevant one. In Bellgrove v Eldridge, Dixon CJ, Webb and Taylor JJ referred to the term “economic waste” as one that was current in the United States and went on to say (at 618-619): “the expression ‘economic waste’ appears to us to go too far and would deny to a building owner the right to demolish a structure which, though satisfactory as a structure of a particular type, is quite different in character from that called for by the contract”. In light of those remarks, I am reluctant to take the prospect of economic waste (whatever it precisely means) into account as a separate consideration.

85. Mr Fleming also relied on the following observation in Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344 at 360 per Lord Mustill:

…where the contract is designed to fulfill a purely commercial purpose, the loss will very often consist only of the monetary detriment brought about by the breach of contract.

I note that the High Court in Tabcorp observed at [18]-[19] that the result at which their Lordships arrived in Ruxley is on one view inconsistent with what seemed to be accepted principles. Nevertheless, I accept that the statement of principle in the judgment of Lord Mustill, at least when read in its full context, is useful.

86. As to onus of proof, 85 Princess relied on the following statement of principle in Owners SP 92450 v JKN at [71]:

The burden of proof for establishing loss lies on the claimant, in this case, the Owners Corporation. By contrast, the party in breach of contract has the onus of displacing the prima facie rule for assessing damages as the cost of reinstatement.

Gleeson JA (with whom White and Brereton JJA agreed) observed at [72] that the onus on the party in breach is at least an evidentiary onus in the sense referred to by Barwick CJ, Kitto and Taylor JJ in Purkess v Crittenden (1965) 114 CLR 164 at 168, when speaking of the “burden of proof in the secondary sense” of introducing evidence. There was no argument in the case before me that the onus was more than an evidential onus. The contention from 85 Princess in closing address in reply was that it was incumbent upon Mr Fleming to discharge the evidentiary onus.

87. Owners SP 92450 v JKN concerned a claim for damages for breach of statutory warranties in section 18B(1) of the Home Building Act 1989 (NSW) arising from defects in the building, the most significant being the installation of aluminium composite panels on the exterior of the building. The claim was for the cost of rectification by removing the cladding and replacing it with cladding that conformed to the requirements of the Building Code of Australia. Gleeson JA held at [81] that the claimant did not have an onus to establish that an alternative solution could not be performed. His Honour concluded at [82] that the evidence adduced by the respondents did not establish the functional equivalence of an alternative solution that would satisfy the performance requirements of the Building Code of Australia. The respondents could not resist an award of reinstatement damages.

88. In Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 [2010] NSWCA 23, there was a breach of contract because a building contract required the builder to construct concrete or brick hobs at a junction of the exterior walls and the balconies of some residential units, to prevent storm water from the balconies entering the units, but inferior timber hobs had been installed. However, the defects were latent because the timber hobs had not failed. The defendant submitted that the plaintiff had suffered no loss because there was functional equivalence between the hobs as installed in the hobs that had been specified in the contract. Handley AJA (Tobias and Campbell JJA agreeing) remarked at [80] that in a case such as the one before the Court, a defendant “may actually have the legal onus of proving functional equivalence, so that reinstatement would be unreasonable”. The Court did not have to decide this question because in that case the defendant did not discharge an evidentiary onus. Handley AJA concluded at [83] that there was uncertainty about the effectiveness of the timber hobs and a risk that they would fail, and the demolition and reinstatement was the only way, on the evidence, that the risk of water penetration could be eliminated. Damages were awarded on that basis.

89. The Court of Appeal in both Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 and Owners SP 92450 v JKN referred to the decision of Keane JA in Kirkby v Coote [2006] QCA 61. That case concerned a claim for damages for the cost of demolishing and re-erecting a pole house on steeply sloping land, which the builder had constructed on inadequate footings. The builder contended that partial underpinning of the footings (costing $193,200) would be adequate and that damages for the cost of demolition and reconstruction ($581,200) was excessive. Evidence at trial established that partial underpinning involved a real risk of failure, but the risk could not be quantified with any certainty. After quoting from Bellgrove v Eldridge (at 620), Keane JA observed (at [52]) that when the Court in Bellgrove v Eldridge was speaking of the reluctance of the law to confine a plaintiff to a "doubtful remedy", it was contrasting a case where it is clear that the expenditure imposed on the defendant is disproportionate to any benefit to the plaintiff in terms of the vindication of the plaintiff's right to recover its actual loss from the defendant. His Honour observed that only by demolishing and re-erecting the pole house could the owner be “freed of a real risk of catastrophic failure with serious consequences for life, limb and property”. His Honour concluded (at [60]) that damages reflecting the cost of demolition and reconstruction would not result in a windfall to the respondents because it was the least expensive method of enabling them to have a house free of risk as to its stability. The alternative course, propounded by the builder, was a "doubtful remedy" which should not be foisted on the respondents.

Application of Principles

90. In this case, Mr Fleming gave warranties to 85 Princess that were relevantly to the effect that the saw cuts required by the design would be prepared in accordance with the building plans and would be effective to achieve their intended purpose. The warranties were breached in the manner I have addressed above.

91. 85 Princess had the burden of proof of establishing loss. It has discharged that burden. It is common ground that there are cracks in the slab that require repair, and there is the risk of further cracking that will require repair.

92. Mr Fleming is the party in breach. He has at least the evidentiary onus of displacing the prima facie rule for assessing damages as the cost of reinstatement. Reinstatement would require replacement of the slab with properly constructed and effective saw cuts. That would produce a slab that would have much less cracking than has been experienced. The starting point is that 85 Princess is entitled to an award of damages that would permit it to undertake that reinstatement. The amount required to do that is $5,313,593.39.

93. Mr Fleming’s submission is that damages to reflect the cost of reinstating the slab by removal and replacement is unreasonable. It was submitted for Mr Fleming that it would be unreasonable to replace and repair the slab because the defect, being the ineffective saw cuts, and the resultant cracking, is reasonably addressed by developing, designing and certifying a method to have the cracks (existing and any future cracks) repaired. This is the solution advanced by Mr Hazelton.

Relevant Considerations

94. Given the specific reliance that Mr Fleming placed on the list of relevant considerations identified by Kourakis CJ in Stone v Chappel (set out above at [83]), it is appropriate and useful to address them by reference to the facts in this case.

(1)   The degree of departure from the contractual stipulation

95. I would describe the degree of departure from the contractual stipulation as serious. The slab was not properly constructed because the saw cuts did not perform their intended function. The slab is a vital part of the building that was constructed on the land. The departure resulted in serious cracking in the slab that should not have been experienced. It was no mere technical breach (see Radford v De Froberville [1977] 1 WLR 1262 at 1270). 85 Princess’ claim cannot be attacked on this basis.

(2)   The adverse effect of the departure on the functional utility, amenity and aesthetic appearance of the building

96. There is no suggestion that the cracking impacts in any relevant way on the aesthetic appearance of the building. The building serves a light industrial purpose and there is no evidence or submission that the aesthetics are diminished by cracking in the slab.

97. Nor is there evidence that the departure has had any adverse effect on the functional utility or amenity of the building to date. Mr Fleming points out that there is no evidence from Reece Australia or Go Troppo that the cracking has any negative consequences for the subtenant or the undertenant. There is no evidence of any demands for rent abatement or concern that the slab is defective or unfit for purpose.

98. 85 Princess called lay evidence from Dr Shruti Kapila, who is a director of 85 Princess. She did not give any evidence in chief that Reece Australia or Go Troppo had any specific concerns or demands concerning the cracking to the slab. The high point of any evidence in chief about any concerns expressed is an email dated 23 June 2022 from Ms Natashia Radford, the Property Development Manager for the Reece Group, asking for an update on the defects report of 23 May 2022 and “dates of works to be rectified”. As I have noted above, the Napier & Blakeley report of 23 May 2022 did not identify specific rectification work in relation to the slab, but it did specify other unrelated rectification work. I do not read this email as a complaint about cracking.

99. During cross-examination, Dr Kapila was asked this question:

It’s the case, isn’t it, that your company by yourself and Mr Shankar, don’t have any real intention of carrying out the repairs, were they to obtain object damages in this case?

Her answer, which was not entirely responsive, was as follows:

What I’m concerned about is the number of phone calls we’re getting from the tenants. They have two warehouses, one they can’t use because water is flooding it. They’re concerned about the extension of the cracks. And we’ve had multiple site visits with the original owner, Frank Colosimo who passed away last year, and concreters on site about the damage that’s occurring and progressing. I am very concerned that they are at some point going to say we can’t run our business from here, that we are going to be responsible not only for the loss of rent, but also potentially the loss of income to that company that can’t run. And it’s a - it’s a big operation. It travels fruits, vegetables all over New South Wales. So yes, I’m very concerned financially about what would happen if we allow a property to go into disrepair.

This was the high-point of any evidence of any concern expressed by the “tenants” (presumably Go Troppo) about the cracking.

100. In the absence of any other or specific evidence about complaints by Reece Australia or Go Troppo about the cracking in the slab, I am not prepared to conclude that either Reece Australia or Go Troppo has expressed to 85 Princess any definite or particular concerns about the cracking causing any interference with the functional utility or amenity of the premises. I was not invited by 85 Princess to draw any inference to the contrary.

101. Counsel for Mr Fleming submitted that I should draw adverse inferences by reason of the unexplained failure of 85 Princess to call any witnesses from Reece Australia or Go Troppo. It was not clear to me precisely what inferences I was being asked more readily to draw by reason of the asserted failure. I am prepared to conclude that neither Reece Australia nor Go Troppo has made any claim against 85 Princess that would or might engage the indemnity provided by clause 70.3 of the contract for sale. That inference can be drawn because no evidence of a claim was led from Dr Kapila and no documentary evidence of a claim was adduced, and because 85 Princess did not submit some alternative inference should be drawn. This does not require any Jones v Dunkel inference from an unexplained failure to call evidence from an officer of Reece Australia or Go Troppo.

102. While I would not conclude that there has been any interference to date to the functional utility or amenity of the building for Reece Australia or Go Troppo, there is evidence that if the cracks are not repaired (including any future cracks) then the slab will deteriorate. Thus, there is a real prospect that absent the repair work, the cracking occasioned by the ineffective saw cuts could, at some point, have an adverse effect on the functional utility or amenity of the building. The timing and extent of that adverse effect has not been explored in any detail in the evidence.

103. Mr Fleming relied on the fact that 85 Princess purchased the property as a commercial investment. That is no doubt true. But 85 Princess does not contend that the slab should be replaced because it has a particular desire to have a slab that is pretty to the eye. Its interests are not aesthetic or eccentric. It does not seek to support its claim on that basis. 85 Princess’s admitted interest in the slab is a commercial one. It does not want to have a concrete slab that will diminish the industrial utility of the premises. It does not wish for the slab to impact its ability to maintain a long commercial lease of the premises. That is a reasonable expectation. But it is relevant to the consideration of a reasonable response to the defect, because it means that commercial considerations are paramount.

(3)   The reasons, objectively ascertained and commonly known, for which the innocent party made the stipulation which was breached

104. The evidence did not really explore the reasons why 85 Princess made the stipulations that were breached. I am prepared to infer that 85 Princess wanted to have an assurance that the new building was properly constructed so that it would be fit for the purpose of the sublease to Reece Australia. So much is obvious having regard to the terms of the contract for sale.

(4)   The practical feasibility of rectifying the work, including the effects on third parties of attempting to do so

105. Any rectification work would have an impact on the current occupant of the premises, Go Troppo.

106. The claim for damages by 85 Princess, based on the replacement of the slab, assumes that Go Troppo will require temporary office accommodation and that its cool rooms will have to be removed and reinstated, at considerable expense. It is easy to infer that the work will interfere in a substantial way with Go Troppo’s quiet enjoyment of the premises while the slab is being replaced.

107. 85 Princess does not have a contractual relationship with Go Troppo. Its contractual relationship is with Reece Australia. Under the terms of the sublease, Reece Australia has an obligation to keep and maintain the premises, but that does not include responsibility for repairs of a structural nature (clause 10.1). 85 Princess has an obligation to conduct all necessary structural repairs at its own cost (clause 16.3). 85 Princess has quite broad powers to access the premises. It has the right, for example, to enter the premises at times agreed by Reece Australia to repair the premises and carry out any building works required by 85 Princess (clause 17). There is no evidence about Reece Australia’s attitude to any replacement of the slab.

108. The underlease between Reece Australia and Go Troppo incorporates the provisions of the sublease between 85 Princess and Reece Australia, subject to certain amendments. One of the amendments requires Go Troppo to reinstate the premises back to the condition as at the Commencement Date, per the Napier & Blakeley report of 23 May 2022 (subject to fair wear and tear). That is the report that noted the existence of cracking, referred to repairs and recommended further monitoring.

109. It would seem that as between 85 Princess, Reece Australia and Go Troppo, it is 85 Princess who has the obligation to take steps to rectify any structural defects in the slab and the power to undertake that work. No doubt, if there was work to be done there would be detailed commercial negotiations on a range of matters, including rent abatement.

110. I can infer that the rectification work suggested by Mr Hazelton, such as it was, would also cause some interference with Go Troppo’s quiet enjoyment of the premises. It would require experts to enter the premises to examine the cracks and, in all likelihood, it would require tradespeople to come on site to apply epoxy filler to the cracks. The evidence does not explore how long that work would take, or how often it may be required. There is no evidence, for example, about whether this work would or may require the temporary removal of Go Troppo’s cool rooms. It is reasonable to infer, however, that repairs in the nature of filling of cracks would be considerably less intrusive to Go Troppo than the inconvenience associated with the replacement of the slab.

111. In short, there is no obvious contractual impediment to the carrying out of rectification works, whether it be replacement of the slab or the filling of cracks. There would be an effect on Go Troppo, with the slab replacement likely to have a greater impact on Go Troppo compared with monitoring and filling cracks. But the attitude of either Go Troppo or Reece Australia to all of this is unknown.

(5)   Whether or not the innocent party intends to carry out the rectification work

112. The evidence about any intention on the part of 85 Princess to carry out rectification works is equivocal.

113. In her affidavit evidence in chief, Dr Kapila said that “the Plaintiff’s claim is to request the Defendant to come back on site and rectify the defects pursuant to the Warranties in the Contract”. She did not in terms say that it was her intention to replace and rectify the slab, even if 85 Princess received damages sufficient to enable the company to undertake the work.

114. Dr Kapila was asked some questions in cross-examination about whether 85 Princess would carry out repairs to rectify the alleged defects if it was awarded damages. I have set out some of that cross-examination at [99] above. She was also asked:

If your company was genuinely concerned about some or all of these alleged defects, it would have carried out repairs itself already, but it hasn’t.

Dr Kapila responded:

We are not in a financial position to do the kind of repairs that are required.

There were no questions put to Dr Kapila specifically about the cracking to the slab. In re-examination, Dr Kapila was asked:

Can you tell the court if your present intention is to spend any damages in this case on rectifying any found issues in the property?”

Her answer was:

It is to rectify the damage, yes.

The difficulty with Dr Kapila’s evidence is that it was not specific about rectification work to the slab, being the replacement of the slab. I am not prepared to conclude, based on Dr Kapila’s evidence, that 85 Princess has a definite intention to replace the concrete slab if it obtains an award sufficiently large to enable it to do so.

115. Counsel for Mr Fleming submitted that I can more readily draw adverse inferences because of the absence of evidence from its other director, Mr Shankar. Mr Shankar was also the instructing solicitor in these proceedings. He is clearly in 85 Princess’s camp. Counsel for 85 Princess submitted that it would be a significant advance from Jones v Dunkel if a lawyer acting for a client can be said to have some inference drawn against him in his professional capacities for not going into the box. In JD Heydon Cross on Evidence (14th Aust ed, 2024, LexisNexis) at [1215] it is said:

… the rule in Jones v Dunkel does not apply where the witness not called is the party’s solicitor, at least where the evidence which is in consequence not given is privileged and the privilege has not been waived. This is because if the solicitor gave evidence on the subject of privileged communications the privilege would be lost, and the court will not permit the destruction of the privilege by this back door.

I would not draw any adverse inference from any failure to call Mr Shankar about matters that would attract legal professional privilege. But I would not put evidence about his intentions as a director of 85 Princess about the undertaking of rectification works in this category. However, in this case all I would infer is that Mr Shankar’s evidence would not have been better for 85 Princess than the evidence of Dr Kapila. Again, I did not understand 85 Princess to suggest anything that would conflict with this conclusion.

116. In Roberts v Goodwin Street Developments, Kirk JA and Griffiths AJA said at [119] that it is not generally necessary for a claimant positively to establish an intent to reinstate because such an intention is implicit in the making of the claim. I would not in this case be prepared to conclude that it is implicit in the making of the claim that 85 Princess has an intent to reinstate by replacing the slab. I would accept that it is implicit in the making of the claim, and from the evidence, that 85 Princess has an intent to address the cracking, but I would conclude that it will address the cracking in the manner that is most cost effective. Moreover, the prospect of a damages award of in excess of $5 million would be a sufficient incentive to maintain the claim, even if there was no continuing intention to replace the slab.

117. One way to rectify the defective work is to remove and replace the slab. That is the only way to be certain to fix the problem. However, I am satisfied on the evidence that a prudent owner of the slab would not replace the slab (at least not immediately). Rather, the cracking that has been occasioned, and which may continue, would prudently be addressed by putting into place a program of monitoring and filling the cracks by a suitable epoxy filler or some like material. That is likely to give the slab the same functionality and amenity as would have been achieved had there been no breach. It is possible that this will not be enough and that the slab will have to be replaced. I consider that unlikely.

118. I conclude that if 85 Princess was awarded $5,313,593.39 by way of damages in these proceedings because of the breaches of warranty concerning the concrete slab, the rational and reasonable response would be to take the steps that Mr Hazelton contends to be the appropriate steps. Acting prudently and reasonably, 85 Princess would retain an appropriate engineer to develop and design a plan to have the existing cracks repaired (to the extent that was needed) and would put in place a monitoring arrangement to ensure that any new cracks were repaired in a timely and appropriate way. It is possible, but unlikely, that further cracks will emerge and that it will become apparent that the epoxy filling repair strategy will prove to be ineffective or inadequate and that the slab will need to be replaced.

119. That was also the suggested response advanced by Napier & Blakeley in its report, which is the report that 85 Princess relied on in its dealings with Mr Fleming. I expect that 85 Princess would anticipate that these steps would require only a portion of any award of $5,313,593.39.

120. Given that I cannot conclude that 85 Princess would replace the slab if it was awarded $5,313,593.39 by way of damages, or that it would be rational or reasonable for it to do so, an award in this amount would likely result in a windfall to 85 Princess.

(6)   The absolute cost of the rectification work and the disproportion between that cost and: (1) the value of the building and contract price; (2) the diminution in commercial value of the building; and (3) the effect of the departure on the functional utility, amenity and aesthetic appearance of the building.

121. The cost to replace the slab is $5,313,593.39. Neither party led any evidence about the cost that could be expected to be incurred if Mr Hazelton’s solution were adopted. Presumably, the cost would depend on a range of matters, including whether any of Go Troppo’s tenant’s fixtures would have to be removed.

122. The proposition that Mr Hazelton’s approach would likely involve less expense is implicit in and consistent with the fact that Mr Hazelton propounded it as a superior course. It is also consistent with the fact that when cracks were identified before the contract for sale was made, the solution that was identified and implemented was to repair the cracks, not replace the slab. Mr Hazelton’s proposed rectification essentially involves conducting additional repair work along the lines that was suggested and implemented before the contract was entered into. The only expert to have suggested that the slab must be removed and replaced is Mr England, and I have found that conclusion was based on an assumption that has not been demonstrated to be correct and otherwise is not substantiated.

123. While I am willing to find that the costs to undertake all of the steps necessary to repair (and keep in good repair) the cracks (existing and those to emerge) would likely be significantly less than the costs to demolish and replace the existing slab, the evidence does not permit me to go any further.

124. The 20 September 2021 purchase price of the land with the newly constructed warehouses was $5,050,000. It is striking that the proposed rectification work would cost more than the property cost to acquire. However, a significant part of the rectification costs claimed (nearly 50%) arises from the need to temporarily relocate the current tenant.

125. There is no valuation evidence that addresses the current valuation of the land with the extant cracking problem or evidence of the value if there was no cracking problem. That means there is no evidence of the diminution in value occasioned by the cracking. Nor were any submissions made about this subject. I cannot assess or take into account any diminution in value.

126. I have already addressed the subject of utility, amenity and aesthetic appearance.

(7)   The nature of the wrongdoer’s fault for the defect.

127. There is evidence that the company that constructed the warehouses on the land was A & J Projects Australia Pty Ltd and that Mr Fleming (indirectly) owns that company. Whether it was A & J Projects Australia who laid the slab or a contractor is unclear (some delivery dockets of concrete refers to A & J as the customer while others refer to Hiltop Group Pty Ltd). In any event, I do not see any utility in this case of exploring the nature of Mr Fleming’s personal fault, and the evidence does not permit me to do so.

(8)   The public interest in reducing economic waste

128. For the reasons at [84] above, I do not think I should take into account the prospect of economic waste as some separate consideration. But in any event, I cannot do so because I am not in a position on the evidence to come to any view about any economic waste in this case.

Conclusions

129. I have found that Mr Fleming was in breach of contract essentially because the slab was constructed with saw cuts that did not fulfill their function. Cracking ensued. As a starting point, 85 Princess is entitled to damages calculated to reflect the cost of making the building conform to the contract. In this case, that is the cost of replacing the slab. It is too late now to make the saw cuts that should have been made at the time the slab was laid. Thus, the starting point is that 85 Princess is entitled to damages in the amount of $5,313,593.39.

130. On the case as run, Mr Fleming bore an evidentiary onus of discharging the prima facie position. He had an evidentiary onus of establishing that the replacement of the slab is not a reasonable course, bearing in mind that it is reasonable for 85 Princess to expect to enjoy the benefits of contractual performance.

131. Mr Fleming has adduced evidence that supports the conclusion that the reasonable response to the cracking that has emerged, and which may emerge, is not to replace the slab. Rather, it is to repair the cracks that now exist as required and then to implement a program to monitor for any new cracks and to have them repaired in a timely way, probably using an epoxy or a polymer resin remedial repair product. He has discharged his evidential onus. If he bore a legal onus, that too has been discharged. On the evidence, it is likely that a program of monitoring and repair will ensure that the slab performs as it is supposed to perform. It is an unreasonable response to replace the slab. I have come to this conclusion notwithstanding a paucity in the evidence about what this strategy is likely to cost, both now and into the future. I am nevertheless satisfied that the cost is likely to be substantially less than the cost of replacement. I do not understand this conclusion was disputed by 85 Princess. I have weighed the relevant considerations identified in Stone v Chappel, addressed at [94]-[128] above.

132. I accept that the strategy of monitoring and repairing the cracks will not eliminate risk. There is a risk that the cracking will worsen to a point where it becomes apparent that simply filling the cracks will not do. However, on the evidence, this risk is a low one. It is more likely that the cracking will slow and stop. There is no suggestion on the evidence that 85 Princess faces a risk of catastrophic failure with serious consequences for life, limb and property. The risk, which is low, is that it will become apparent in due course that repairing the cracks by filling them will cease to be a sufficient response.

133. Although in Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504, Handley AJA spoke in terms of expenditure to eliminate risk, I do not understand that the law requires an alternative to reinstatement to be entirely free of risk. It will depend on the circumstances, including the nature of the risk. The Court in Bellgrove v Eldridge spoke in terms of a “doubtful remedy”. 85 Princess should not be confined to a doubtful remedy. But the remedy of monitoring and repairing cracks is not a doubtful one. It is likely to be effective and the risk of it failing does not involve any real prospect of catastrophe.

129. 85 Princess’s interest in the performance of the contract is a commercial one. I accept that its commercial interest can be secured by something less than replacement of the slab. Replacement is not a rational or reasonable commercial response. An award of $5,313,593.39 would give a windfall to 85 Princess.

130. I am satisfied that this is an exceptional case where the prima facie position does not hold.

131. It follows that 85 Princess has not established that it has suffered loss in the claimed amount of $5,313,593.39 and, accordingly, it is not entitled to damages in that amount.

132. In the absence of any evidence about the cost that 85 Princess will and may incur in implementing a monitoring and repair program, I have no ability to assess damages by reference to that cost. The absence of any evidence of an alternative figure is ultimately a problem for 85 Princess.

133. It follows that 85 Princess can only recover nominal damages.

134. The quantification of nominal damages is discretionary: State on New South Wales v Stevens (2012) 82 NSWLR 106; [2012] NSWCA 415 at [36]. It might be tempting in a case such as this to exercise that discretion favourably to 85 Princess. However, that would be an error in the exercise of discretion. That is because nominal damages are vindicatory and not compensatory: see Stevens at [26]. For the purposes of vindication, an award of $100 is appropriate.

Specific Performance

140. 85 Princess seeks orders for specific performance as an alternative to damages.

141. An order for specific performance is theoretically possible to compel performance of clause 70.5 of the contract for sale, by which Mr Fleming promised (subject to various conditions) to cause all defects or faults due to defective or improper materials or bad workmanship to be made good in a proper and workmanlike manner at no cost to 85 Princess. It has not been suggested by Mr Fleming that 85 Princess has failed to give notice within the Defects Liability Period.

142. An order that Mr Fleming cause the defects in the slab to be made good in a proper and workmanlike manner would be very like compelling performance of a construction contract. In Carbone v Fowler Homes Pty Ltd [2024] NSWCA 192, Leeming JA (with whom Ward P and Mitchelmore JA agreed) observed at [44] that construction contracts are often regarded as paradigm examples where specific performance is not available. See also Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 at [105] per Heydon J. An order for specific performance of building contracts would generally require detailed and continued supervision by the Court, which is a powerful reason to decline to grant the remedy: see J C Williamson Ltd v Lukey (1931) 45 CLR 282 at 297-298.

143. In Wolverhampton Corporation v Emmons [1901] 1 QB 515, Romer LJ held (at 524-525):

There is no doubt that as a general rule the Court will not enforce specific performance of a building contract, but an exception from the rule has been recognised. It has, I think, for some time been held that, in order to bring himself within that exception, a plaintiff must establish three things. The first is that the building work, of which he seeks to enforce the performance, is defined by the contract; that is to say, that the particulars of the work are so far definitely ascertained that the Court can sufficiently see what is the exact nature of the work of which it is asked to order the performance. The second is that the plaintiff has a substantial interest in having the contract performed, which is of such a nature that he cannot adequately be compensated for breach of the contract by damages. The third is that the defendant has by the contract obtained possession of land on which the work is contracted to be done.

85 Princess is unable to show the three things to bring itself within the exception.

144. First, the particulars of the work required to rectify the defect are not sufficiently defined to enable the Court to know exactly what the work to be done really is. All the Court has is a very high-level description from Mr Hazelton of the steps to be taken to attend to the cracking problem.

145. Second, while 85 Princess has a substantial interest in having the contract performed, I am not satisfied that damages are not an adequate compensation for the non-performance of the contract. In one sense it is plainly correct in this case that damages of $100 are inadequate, because that will not be enough to rectify the cracking. However, that is not inadequacy in the required sense. Damages are nominal because 85 Princess has not proved the amount of damages that would properly be awarded for the breach of contract. Evidence could have been adduced about the expected cost of a proper rectification program that would see the cracks monitored and filled. The calculation or estimation of that cost would inevitably have required evidence about the probabilities and possibilities of further cracking developing in the future and some estimate of what would be required to repair such cracking in years to come. There would, inevitably, have been some imprecision in the assessment of loss. It may also have been appropriate to consider the possibility that in due course the defect would result in a more serious failure in the slab, such that removal and replacement was necessary. That could all have been accommodated in an assessment of loss. Difficulties in quantifying damages do not render them inadequate: see JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) at [20-030], citing Fothergill v Rowland (1873) LR 18 Eq 132 at 140 per Sir G Jessell MR.

146. Third, Mr Fleming does not have possession of the land. It may be that possession could be secured, but there are difficulties because 85 Princess does not have possession of the land and it would have to enforce rights under its sublease with Reece Australia, who would, in turn, be required to enforce rights that it has under its underlease with Go Troppo. There is no evidence that either of those third parties is prepared to endure any hardship that would flow from an order for specific performance.

147. I am not prepared to make an order for specific performance.

Costs

148. I will hear from the parties about costs.

Orders

149. I make the following orders:

1. The Defendant is to pay damages to the Plaintiff in the sum of $100.

2. The Amended Statement of Claim is otherwise dismissed.

3. The parties are to confer about how the Court can deal efficiently with the question of costs and are to inform my Associate about the outcome of that conferral by 5pm on 12 May 2025.

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Amendments

07 May 2025 - Amendment to:

Representation for Plaintiff

Decision last updated: 07 May 2025