BGC CONSTRUCTION PTY LTD and FELIX - [2009] WASAT 220

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM: COMMERCIAL & CIVIL

ACT: BUILDERS' REGISTRATION ACT 1939 (WA)

CITATION: BGC CONSTRUCTION PTY LTD and FELIX [2009] WASAT 220

MEMBER: MS J HAWKINS (MEMBER)

HEARD: 22 SEPTEMBER 2009

DELIVERED : 4 NOVEMBER 2009

FILE NO/S: CC 292 of 2009

BETWEEN: BGC CONSTRUCTION PTY LTD
Applicant
AND
ERROL LEONARD FELIX
RACHEL CHRISTINA FELIX
Respondents

Catchwords:

Leave to review decision - Breach of contract in respect to thickness of concrete slab - Method of assessing loss - Whether diminution in value appropriate method

Legislation:

Builders' Registration Act 1939 (WA) s 41, s 41(2)

Result:

The application for review is dismissed

Category: B

Representation:

Counsel:

Applicant: Mr A Macpherson
Respondents : Mr P McGowan

Solicitors:

Applicant: Hotchkin Hanly
Respondents : Conal O'Toole

Case(s) referred to in decision(s):

Bellgrove v Eldridge (1954) 90 CLR 613
J-Corp Pty Ltd and Ly [2006] WASAT 132
Radford v de Froberville [1978] 1 All ER 33
Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8
Tangent Nominees Pty Ltd and Edwards [2005] WASAT 119
Watson v Wallington [1999] WADC 84
Wilshee v Westcourt Ltd [2009] WASCA 87

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of Tribunal's decision

The applicant, BGC Construction Pty Ltd, (builder) sought leave to review a decision of the Building Disputes Tribunal delivered 2 February 2009 whereby the Building Disputes Tribunal ordered the applicant to pay the respondents $93,141.00.
The dispute before the Building Disputes Tribunal required it to assess what loss or compensation should be paid to the respondents (owners), in circumstances where the applicant had breached the contract between the parties and constructed the respondents' home on a concrete slab which was not as thick as that specified by the contract.
In the hearing before the Building Disputes Tribunal, the respondents conceded that the cost of rectification/reinstatement was not appropriate, as, in a previous decision of the Building Disputes Tribunal, it had held that the concrete slab was fit for the purpose.
In determining the dispute as to the loss payable to the respondents the Building Disputes Tribunal found that the basis to assess the loss, attributable to the breach, was on the basis of a diminution in value of the respondents' home.
In the application for leave to review that decision, the applicant submitted the Building Disputes Tribunal erred and should have awarded the loss on a different basis, namely the difference in cost to the builder of the actual work done and the work originally specified in the contract. The applicant also suggested that, if the appropriate measure of loss was on the basis of diminution in value, then the Building Disputes Tribunal erred, upon the evidence in making the award it did in the amount it did.
The Tribunal dismissed all grounds of the application for leave to review.
The decision in this matter turns on its facts. The Tribunal did not consider that there was any basis to show that the Building Disputes Tribunal's decision was wrong or attended with sufficient doubt in assessing the loss suffered by the respondents on the basis of diminution in value. The decision discussed in part the recent decisions concerning assessment of damages in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8 and Wilshee v Westcourt Ltd [2009] WASCA 87.
Further, the Tribunal considered on the evidence before the Building Disputes Tribunal that it was open for them to make the award in the amount that it did, to the respondents.
The application for leave was therefore dismissed.

Background, issues and principles upon which leave is granted

The applicant builder (builder) seeks leave to review the decision of the Building Disputes Tribunal (BDT), which was the subject of a hearing in November 2007. Despite the date for hearing, the reasons of the BDT were only published on 2 February 2009 and reflected in an Order to Pay No 133/200809 (BDT's decision). As a result the builder was ordered to pay to the respondents (owners), the sum of $93,141.00.
The dispute between the builder and the owners is longstanding with a significant history. It primarily concerned the concrete slab, on which the owners' house was built, not being as thick as required by the contract between the parties. It is important to note at this stage, that the contract between the parties dates back to 1999. For the purposes of the hearing before the BDT in November 2007, the state of the concrete slab was accepted as being fit for the purpose. Therefore the only issue for determination by the BDT was assessing the loss suffered by the owners as a result of the builder's breach of contract.
The application for leave as filed referred to three grounds. The issues identified by those grounds can be summarised as follows:
1)As the owners had conceded that the cost of rectification/reinstatement was not an appropriate method to quantify their loss, did the BDT err in law by relying on Bellgrove v Eldridge (1954) 90 CLR 613 (Bellgrove) in finding that diminution in value of the house as built, was the appropriate measure, or ought it to have found, that in all the circumstances, the most appropriate measure, was the difference in the cost to the builder of the actual work done and the work originally specified in the building contract?
2)If it is found that diminution in value was a proper basis upon which to assess the owners' loss, then was it open for the BDT upon the evidence before it to make the award it did in the amount that it did?
Section 41 of the Builders Registration Act 1939 (WA) (BR Act), provides that a party to proceedings before the BDT may apply to this Tribunal for a review of such a decision. Section 41(2) of the BR Act provides that such an application cannot be made unless the Tribunal grants leave to an applicant to do so.
The Tribunal therefore has a discretion to grant leave. To do so it must be shown that:
a)the decision in respect of which leave is sought is wrong or at least attended with sufficient doubt to justify the grant of leave;
b)that a substantial injustice would be done by leaving the decision unreversed (see Tangent Nominees Pty Ltd and Edwards [2005] WASAT 119 (Tangent Nominees)).
What constitutes a substantial injustice is dependant on the circumstances of each case. It may be sufficient to show that there is a significant question of law to be considered: see JCorp Pty Ltd and Ly [2006] WASAT 132.
Accordingly, the Tribunal will be slow to grant leave unless there is no discernable basis for the decision or where the rules of natural justice have been breached: see Tangent Nominees.
The leave application was the subject of the hearing on the 22 September 2009. Both parties were legally represented and prior to the hearing on the 22 September 2009 filed written submissions.
The builder also filed a statement attaching all relevant documents including a copy of the transcript of the hearing before the BDT on 30 November 2007, (the BDT transcript).

Consideration

Ground 1

The issue to be determined by this ground is whether the BDT erred in finding that diminution in value was the appropriate measure of loss.
The builder maintains that the BDT erred in finding that the assessment of the owners' loss, based on diminution in value, was the appropriate measure of loss. Rather, the builder submits that the appropriate measure was the difference in the cost to the builder of the actual work done. The difference in value would be significant. The BDT awarded the owners $93,141.00 whereas the builder suggested at the hearing before the BDT, that based on its proposed method of assessing the loss, on the basis of the difference in cost to the builder of the actual work done, the loss could be quantified at approximately $500.
At the hearing before the BDT, the builder argued that the evidentiary basis for the owners' case, based on evidence from the valuer, (Mr Hall), called by the owners, was undermined as a result of alleged inconsistencies in the evidence given by Mr Hall.
It is important to note at this point, that in respect to the quantification of any loss, the builder led no evidence. Further, as previously stated for the purposes of the hearing before the BDT, the parties had conceded that the cost of rectification/reinstatement was not the appropriate remedy, due to previous findings of the BDT that, although the concrete slab was not as thick as the contract required, it was nonetheless fit for the purpose.
The builder referred the BDT to para 8.137 of Hudson's Building and Engineering Contracts (11th ed, 1995) (Hudson) and suggested that there were three bases for assessing damages namely:
1)costs of reinstatement (which the parties conceded was not the appropriate measure);
2)the diminution of the value of the work done due to the breach of contract (which the builder's counsel argued did not apply, due to what the builder's counsel described as the inconsistencies in the valuation evidence provided by the owner); and
3)the difference in the costs to the builder of the actual work done and the work specified.
The builder suggested the last basis mentioned above was the appropriate measure.
The submissions filed by the builder in this Tribunal, referred to the recent High Court decision of Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8 (Tabcorp). The decision in Tabcorp was published on the 12 February 2009, after the BDT's reasons in this matter were published. The builder's counsel sought to rely on Tabcorp to suggest that diminution in value may not be appropriate unless the subject matter was a marketable commodity. The builder's written submissions suggested why the owners' house could not be regarded as a marketable commodity.
Tabcorp was concerned with competing arguments as to the assessment of damages arising from the tenant's conduct in effecting substantial alterations to the demised premises in breach of a term of the lease that such alterations not occur without the landlord's written approval.
The tenant argued the damages were to be assessed by reference to the diminution in value of the premises, whereas the landlord contended the damages should reflect the cost of restoring the premises to their original condition, which was a far higher figure.
The High Court held in favour of the landlord, on the basis of the 'ruling principle' in breach of contract cases that:
… where a party sustains a loss by reasons of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed.
The significance which the High Court placed on whether or not the subject of the contract in issue was a marketable commodity, was where it was not possible to sell the defective item and purchase an item corresponding with the contract.
In such a case, in order to place the innocent party in the same situation as if the contract had been performed, it was necessary to award damages measured as the cost of restoring the premises to the condition in which they would have been had the contract not been breached; see Tabcorp at [13] and at [15].
The builder's counsel submitted that Tabcorp provides illustration that there are circumstances where diminution in value may not be the appropriate measure of damages for a breach.
The builder argued that the subject matter of the current application being a family home, was not a mere marketable commodity and that it was not appropriate therefore to assess the loss arising from the building defect, by reference to diminution in market value.
In my view, the builder's submission ignores that Tabcorp was concerned with the question of which of restoration costs and diminution in value was the appropriate measure of damages.
Tabcorp does not stand for the proposition that in a case where the plaintiff or complainant does not claim the cost necessary in order to obtain performance of contract, the diminution in value measure of damages will never apply in a case which does not concern marketable commodities. That much appears clear from the High Court's discussion in Tabcorp at [17] (with reference to the passage from Radford v de Froberville [1978] 1 All ER 33 at [16] where a party seeking the cost of restoration was said to be entitled only to diminution in value damages where the innocent party is 'merely using a technical breach to secure an uncovenanted profit'. The actual decision in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 (Ruxley) referred to in Tabcorp at [18], was, in common with the present case, a 'building' case concerning the original claimant's home. This did not prevent the House of Lords from awarding 'loss of amenity' damages, which their Honours in Tabcorp described as 'the diminution in the value of the work occasioned by the breach'. Although the High Court was less than complimentary of the reasoning employed in Ruxley, in ascribing diminution in value as the measure of damages, this was not because the subject matter was not a marketable commodity.
The BDT's reasons in respect to their assessment, based on diminution of value, is set out at para 16 to para 24 of their reasons. Having summarised each parties submissions and the evidence relied upon by the owners (remembering that the builder led no evidence), the BDT stated as follows:
The classical expression of damages for breach of contract is stated in Bellgrove v Eldridge (1954) 90 CLR 613, where the measure taken there was the difference in value between what was built and what was contracted to be built. Indeed there is a simple justification in this, in that a contracting party is entitled to get what was contracted for.
Counsel for the respondent quoted text book authority for other measures, but these must be understood as alternative to the measure mention in the paragraph above. There will be circumstances where the difference in value is not able to measure or perhaps to adequately compensate the aggrieved client, and rectification or accounting for unjust profit may be a better measurement.
In these circumstances here, the Hall report makes it clear that there is a difference that can be measured and the difference is due to the breach of contract by the respondents unworkmanlike building'. The valuations therefore form a clear and justifiable basis for calculating the applicants' loss.
By reason of the contents of the third paragraph of the passage just quoted, it was open to the BDT to conclude that the owner had suffered a loss by reason of the builder's breach by reference to the differences in value identified by Mr Hall.
The builder contends for an alternative reason of damages based on the difference in the costs to the builder of the actual work done and the work specified.
Apart from reference to the comments at para 8.137 of Hudson, the builder did not refer the BDT to any case law where such a method, had been applied. Indeed in Tabcorp and recently, Wilshee v Westcourt Ltd [2009] WASCA 87, where both the High Court and the Full Court dealt in detail with the topic of alternative methods of assessing damages for breach of contract, the alternative limb of assessing damages as suggested by the builder, was not mentioned.
At the hearing before the BDT, Mr Hall, the valuer, accepted that there was no issue with the structural integrity of the concrete slab, the subject of the dispute. It was largely based on that concession, that the builder argued, that once it was clear there was no issue with the structural integrity of the slab, then the premise for Mr Hall's opinion of a diminution in value of the owners' house, fell away. Accordingly the builder maintained, that diminution in value was not the appropriate method of assessing the loss.
However, the owners' counsel maintained, that this was not an accurate characterisation of Mr Hall's evidence.
At page 36 line 30, of the BDT transcript, Mr Hall did not accept that by saying that the owners' home was structurally secure meant there was no diminution in value. Further, at page 52 line 15 to line 40 of the BDT transcript, Mr Hall maintained that even in such circumstances there would still be a perception in the marketplace which would result in a diminution in value.
Although the BDT recognised that in some circumstances diminution in value may not be the proper basis for the assessment of loss it nonetheless relied upon the only valuation evidence before it from Mr Hall. The BDT was presented with no alternative expert evidence. Although Mr Hall accepted that there was no issue with the structural integrity of the concrete slab, he nonetheless maintained that there still existed a perception in the market in respect to the owners' home that a decrease in the then current market value. His evidence provided the reasoning relied on in reaching he assessment for the owners' loss based on diminution of value. As the builder chose not to lead any alternative expert evidence and the basis for the expert evidence was revealed, it was open for the BDT to rely on the only expert evidence before them.
Although I accept that the reasons given by the BDT were not as fulsome as they could have been, they are sufficient to enable the builder to understand the basis upon which the BDT reached its conclusion on this issue.
The BDT is required to act informally. A nitpicking approach to the processes adopted by the BDT, including the reasons, should not be adopted (see Watson v Wallington [1999] WADC 84).
For the reasons expressed above, I therefore consider that it was open for the BDT to find upon the evidence before it that the appropriate measure of the owners' loss was on the basis of diminution in value. Ground 1 is therefore dismissed.

Grounds 2 and 3

The issue for determination by these grounds is, if diminution in value was a proper basis to assess the owners' loss, was it open for the BDT to make the award it did in the amount that it did?
The builder suggested that the BDT should have taken account of alleged inconsistencies in Mr Hall's evidence, namely, that his written report suggested there should be a discount on the value given to equivalent houses in the area based on maintenance and structural issues. The builder suggested that as Mr Hall conceded there were no structural defects to the owners' home and Mr Hall could not point to any maintenance issues, then it was not open for the BDT to simply rely on his assessment of loss. It was further argued that the BDT erred in its unqualified acceptance of Mr Hall's evidence in light of other evidence going to the extent of the defect of the concrete slab.
However, as stated above, although concessions were made by Mr Hall in crossexamination, in reexamination he made clear that he maintained his valuation based on what he considered would be a perception in the market place that there may still be problems associated with the owners' home, (see page 36, line 30 and page 52, line 15 to line 40, the BDT transcript.
In addition, the builder offered up no alternative valuation evidence which challenged in any way the basis of the assessment of loss, made by Mr Hall. So although there was other evidence before the BDT as to the extent of the defects in the concrete slab, none of this evidence could be characterised as relevant expert evidence addressing the assessment of loss.
Therefore, although the BDT's reasons could have explored in greater detail, the evidence given by Mr Hall and the weight to be attributed to the other evidence concerning the extent of the defects in the concrete slab, it is still clear from their reasoning as a whole, they accepted Mr Hall's evidence and were offered no contrary valuation.

In those circumstances therefore, I consider that it was open for the BDT to rely on Mr Hall's evidence in quantifying the owners' loss as they did. Grounds 2 and 3 are therefore dismissed.

Orders

For the above reasons, the Tribunal makes the following orders:
1.The application for leave to review the decision of the Building Disputes Tribunal published 2 February 2009 and reflected in Order to Pay No 133/200809 is dismissed.

I certify that this and the preceding [52] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
MS J HAWKINS, MEMBER