Brown & Brown v Unique Building Pty Ltd

[2009] SADC 13

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil)

BROWN & BROWN v UNIQUE BUILDING PTY LTD

[2009] SADC 13

Judgment of Her Honour Judge McIntyre

19 February 2009

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - REMEDIES FOR BREACH OF CONTRACT - DAMAGES

The parties entered into contracts by which the defendant was to construct four townhouses for the plaintiffs - The plaintiffs say that the defendant was in breach of contract or of statutory warranties in that it failed to perform the work in a proper manner and in accordance with the specifications resulting in a number of defects - The defendant denies that it was in breach of either statutory warranties or the contracts - It further says that the plaintiffs are not entitled to maintain this action in view of the dispute resolution processes in the contracts - The defendant says that the plaintiffs are in breach of contract for failing to pay for work performed and counterclaims for unpaid progress payments. 

Held - The plaintiffs are entitled to maintain this action notwithstanding the dispute resolution procedures in the contracts - The defendant is in breach of the contracts in that the work performed was defective and the plaintiffs are therefore entitled to damages - The proper measure of damages is the cost of demolition and rebuilding together with the additional cost to complete the works in accordance with the contracts as at November 2002 - The defendant is entitled to judgement on the counterclaim for the unpaid progress claim number 3.

Building Work Contractors Act 1995  , referred to.
Ipoh v TPS Property No 2 [2004] NSWSC at 289; James McEwan & Co Pty Ltd v Dilettante Pty Ltd (1992) 163 LSJS 162; Federal Commerce & Navigation Co Ltd v Molena Alpha Incorporated (1979) AC 757 at 779; Bellgrove v Eldrige (1954) 90 CLR 613; Wenham v Ella (1972) 127 CLR 454 at 473; Haines v Bendall (1991) 172 CLR 60; Carosella v Ginos & Gilbert Pty Ltd High Court (1982) 47 ALR 761 and SASC (1981) 27 SASR 515; DeCesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28, considered.

BROWN & BROWN v UNIQUE BUILDING PTY LTD
[2009] SADC 13

Introduction

1. This building dispute arises out of a contract to build four town houses at Tam O’Shanter Place, Adelaide. 

2. The plaintiffs and their sister Rosalind May Brown entered into three separate lump sum contracts with the defendant on 21 December 2001 (“the contracts”).  The defendant was to construct four, three storey town houses upon property owned by the plaintiffs at Tam O’Shanter Place.  The site was handed over to the defendant on or about 14 January 2002 and site work commenced on or about 2 February 2002.  The slab was installed in April 2002.  The defendant delivered its first progress claim on 23 May 2002.  The parties entered into a dispute over the first progress claim.  The matter escalated from that point.

3. The plaintiffs bring the action in their own right and as assignees of their sister’s rights.[1]  There is no issue taken in relation to this assignment.  The plaintiffs allege that the defendant was in breach of the terms of the contracts and/or statutory warranties under the Building Work Contractors Act 1995 (“the Act”). The alleged breaches can be summarised as follows:

   ·Delay and suspension of works without reasonable cause.

   ·Failure to perform work in a proper manner causing defects; and

   ·Failing to correct defects.

   [1]    Deed of Assignment, Exhibit P1, vol 2, pp64-84

4. The defendant denies that it was in breach of either a statutory warranty or the contracts and says that the plaintiffs were in breach of the contracts by failing to pay progress claims and failing to comply with the dispute resolution processes outlined in the contracts.

5. The defendant has a counter-claim in respect of unpaid moneys for works performed on site. 

   Witnesses

6. Both plaintiffs gave evidence concerning the contracts, the progress of the building works and the dispute with the defendant.  The plaintiffs also called evidence from Mr Jankovic, a building consultant of SA Building Consultants, and Mr Knowles, a quantity surveyor from Rider Levett Bucknall. 

7. The defendant called Mr Colin Boots, a consultant to the defendant, who had the primary contact with the plaintiffs during the course of this matter and Mr Damian Boots, a director of the company.  In addition, the defendant called Mr Roger Pitt, a former employee of Rapid Building Services who erected the walls on the site, and Mr Warwick Graham, a consulting engineer.  

8. The expert witnesses, Mr Jankovic, Mr Knowles, Mr Pitt and Mr Graham all gave objective and clear evidence as experts and I accept their evidence.  There was little dispute between these experts as the evidence transpired.  I have referred to specific differences in the evidence and made findings on these. 

9. It is my view that all other witnesses in this matter attempted to give honest evidence. They all appeared to have a reasonable recall of the events as they occurred.  It is plain however that there were entrenched views on both sides, and, that these views coloured the evidence that the witnesses gave. I did not generally prefer the evidence of one lay witness or another.  I have made specific findings on disputed issues.

10. Substantial documents were tendered by consent in the form of three volumes of material together with additional material through the course of the hearing. 

    Exhibits

P1	Plaintiffs book of documents in three volumes excluding documents 14 and 15.
P2	Report from PT Design together with letter of instruction from Camatta Lempens P/L dated 9/8/2007.
P3	Report from PT Design together with letter of instruction from Camatta Lempens P/L dated 14/11/2007.
P4	Supplementary Report of Rider Levett Bucknall dated 8/4/2008.
D1	Letter from Unique Building Pty Ltd to Plaintiffs dated 8/5/2002.
D2	Memorandum from Plaintiffs to Defendant dated 15/5/2002.
D3	Submission to Royal Australian Institute of Architects from plaintiffs dated 9/12/2002.
D4	Submission to Mr Earle Scott from Defendants dated 23/1/2003.
D5	Minutes of Meeting dated 28/1/2003.
D6	Bundle of correspondence between parties solicitors from 18/9/2002 – 13/12/2002.
D7	Letter from Engineer to M Brown dated 26/8/2003.
D8	Bundle of documents – Development Application dated March 2004.
D9	Agenda & Minutes of Adelaide City Council – Development Assessment Panel dated 7/7/2003.
P5	Transmission Sheet dated 8/2/02 and Drawing 9802-96  Lot D.
P6	Drawing Lot D Laundry – April 2008.
P7	First Home Owner Grant Information Sheet from Revenue SA.
D10	Magistrates Court Claim 02-12658.
D11	Letter from Cowell Clarke to Camatta Lempens dated 11 March 2003.
P8	Transmission to NAB from plaintiffs dated 19/2/2003.
D12	Letter from National - Sydney branch to Camatta Lempens dated 16/10/2003.
P9	Photographs taken by Mr Jankovic of site – 8/12/2005.
D13	Bundle of Rapid Wall Documents.
D14	Report from Mr Graham to Defendant’s solicitors dated 9 April 2008 together with email from Adelaide City Council.
D15	Site plan with evidence marked by Pitt and Jankovic.
D16	Sketch of G Gillet no SK-02 in relation to report dated 12/9/2003.
P10	5 coloured photographs of foundation pour.

1. There was also a view of the building site.

   Background

2. The first plaintiff, Michael Brown, is an architect.  He was involved in the development of some land in the north-east section of the City of Adelaide between Grenfell Street and Pirie Street.  At the conclusion of that development Mr Brown acquired a portion of the land that was not utilised in the development. 

3. Mr Brown saw this land as an opportunity to provide housing for himself, his brother the second plaintiff David Brown and his sister Rosalind Brown. The land was sub-divided between the siblings.  It is located at 19 – 23 Tam O’Shanter Place, Adelaide being the whole of the land comprised and described in Certificates of Title Register Book Volume 5800 Folios 774, 776, 770 and 775.  The land is also known as Lot A, B, C and D Moger Lane.  This is how I shall refer to the allotments.  Following subdivision, Michael Brown was the registered proprietor of Lots A and C; Rosalind owned Lot B and David owned Lot D.

4. Michael Brown designed four town houses to go on the land.  Subsequently he had discussions with Colin Boots, a consultant with the defendant, as to the possibility of the defendant constructing the town houses.

5. On 21 December 2001 the Browns entered into 3 separate contracts with the defendant.[2]  The contract was a standard form contract issued by the Royal Australian Institute of Architects being a lump sum contract for building works with administration by proprietor.  Michael Brown prepared the contracts and all three were signed by the parties on 21 December 2001.  Michael Brown’s contract related to the building of town houses on Lots A and C for a total sum of $340,000.  Rosalind Brown’s contract for Lot B was in the sum of $155,000 and David Brown’s contract for Lot D was in the sum of $120,000.  In all other respects the terms of the contracts were identical. 

   [2]    Exhibit P1, vol 2, pp33-61

6. The contract documents were defined in item B5 of the Appendix to be the Agreement, the specifications marked Architectural Specification No. 3802 including 5 A4 Engineer Specification 31898, the drawings numbered Architectural drawing numbers 9802-75287, Structural Engineers drawings numbered 31898 – 51, 52, 53, Defendant’s letter of offer dated 23 November 2001 as amended by notations and signed by contracting parties. 

7. The date for practical completion was 18 July 2002 although this was subsequently amended by agreement to 30 July 2002. 

8. The site was handed over to the defendants on 14 January 2002.  The site was cut and filled between 2 and 6 February 2002.

9. On 20 February 2002 drainage works conducted by the plumber disclosed the presence of an old pit and turntable.  This required extra site works and a variation to the original contract price.  The costing of the variation was not agreed.  At about the same time an issue arose in relation to flood gully or non-return valve sewer connections.[3]  A meeting occurred on 10 March 2002 at which the defendant advised that it would install reflux valve sewer connections in order to rectify the flood gully issue.[4] 

   [3]    Exhibit P1, vol 3, doc 44

   [4]    Exhibit P1, vol 3, doc 45

10. In early April 2002 the slab was installed.  The plaintiffs allege that there are a number of problems with the slab.  These problems are asserted to be:

    ·    The floor slab is too high.

    ·    The slab step does not comply with the drawings and restricts access.

    ·    The slab encroaches upon adjoining land on both the western and eastern elevations.[5]

    [5]    Statement of Claim para 26

11. On 23 May 2002 the defendant issued progress claim no.1 to the plaintiffs seeking $109,483.28.[6]  The plaintiffs paid the sum of $69,405.63 but disputed the balance of the progress payment.  The basis of the dispute is set out in a memorandum from the plaintiffs to the defendant dated 30 May 2002.[7]   In summary, the plaintiffs disputed the claim for Rapid Wall material because the material was unfixed and some of the cost of extra site preparations in the sum of $18,666.02, which the plaintiffs said were not covered by the variation. 

    [6]    Exhibit P1, vol 3, pp370-385

    [7]    Exhibit P1, vol 3, doc 49

12. A meeting occurred between the plaintiffs and Mr Colin Boots on 2 June 2002.  The meeting was not cordial and did not resolve the dispute over progress claim no.1.  Subsequent correspondence between the parties indicated that the defendant would not return to work unless further payment was received. 

13. At about the same time the plaintiffs became concerned about certain aspects of the work.  The plaintiffs wrote to the defendant by letter dated 24 June 2002.[8]  The issues raised by the plaintiffs were as follows:

    [8]    Exhibit P1, vol 3, doc 59

    ·Inaccurate set out of works leading to misalignment of the slab step and some plumbing leading to delays for reworking and extra cost to builder for termimesh installation.

    ·Request by the builder for proprietors to pay for reinstallation of survey marks removed by the builder in the course of the works.

    ·Failure to coordinate installation of eastern most sewer line to the existing connection.

    ·Failure to coordinate the installation of termimesh until after the slab and plumbing were laid.

    ·Failure to install slab starter bars specified by structural engineer.

    ·Numerous minor contractual omissions.

    ·Overall delay of the works.

    ·Builder seeking variation from proprietors for works clearly within the contract in the first progress claim.

    ·Persistent dismissal of the means to present the builder’s claim to an independent third party for assessment.

    ·Builder’s refusal to meet the proprietors to resolve issues.

    ·Suspension of work.

14. The plaintiffs sought to appoint a referee under the terms of the contract in order to resolve the issue with the first progress payment (progress claim No. 1).  There was however a difficulty with the contracts.  The referee was stated to be the President of the Institute of Architects.  The contracts required amendment to allow a nominee to be appointed.  The plaintiffs requested the defendant sign a document consenting to that amendment.  The defendant declined to do so. 

15. On 16 July 2002 the plaintiffs contend that they discovered the Rapid Walls were misaligned.  They also complained about the delay in progress. 

16. On 19 July 2002 the defendant’s subcontractor, Rapid Wall, left the site. This was the last time work was performed on site apart from some remedial work required by the Adelaide City Council to make the site safe. On 26 July 2002 the plaintiffs served a notice of default on the defendant complaining of delay and refusal to appoint a referee.[9]

    [9]    Exhibit P1, vol 2, doc 37

17. On 30 July 2002 the defendant submitted a second progress payment claim (progress claim no. 2) seeking $36,550.98.[10]  The plaintiffs responded on 2 August 2002 by saying this progress claim no. 2 was not valid.[11]  They sought further information from the defendant in order to assess the claim.  It was at this stage the parties’ relationship appears to have broken down completely.  The plaintiffs consulted a solicitor.  The plaintiffs sought to meet with the defendant at their solicitor’s office.  The defendant declined to attend a meeting.  The plaintiffs issued a notice of default on the defendant dated 14 August 2002 identifying, inter alia, a number of defects and requiring the defendant to provide a programme demonstrating how it intended to rectify those defects.  This did not occur.  The defendant responded with a notice of dispute dated 29 August 2002.

    [10]   Exhibit P1, vol 2, p339

    [11]   Exhibit P1, vol 3, p423

18. Symonds Ryans & Cornish, surveyors, conducted a survey of the site on 23 October 2002.  Their first report is dated the same day and deals with the “as built” levels and slab location.[12]  Symonds Ryans & Cornish provided a subsequent report dated 11 November 2002 that deals with the site set-out and “as built” wall locations.[13]  The plaintiffs referred these surveys to the defendant saying that they demonstrated that the slab was higher than designed and also that the slab step deviated from the design position.  The defendant disputed that these surveys were correct.[14]

    [12]   Exhibit P1, vol 2, p313

    [13]   Exhibit P1, vol 2, p303

    [14]   Exhibit P1, vol 2, p317

19. The plaintiffs attempted to utilise the arbitration clause in the contracts.  The builder objected to the appointment of an arbitrator saying that there was no jurisdiction in the contracts for an arbitrator to be appointed.  Subsequently it was agreed to amend the contracts and to send the dispute relating to progress claim no. 1 to a referee nominated by the Institute of Architects.  On 17 December 2002 the Institute of Architects nominated Mr Earle Scott as referee.

20. On 23 December 2002 the plaintiffs wrote to the defendant including an instruction seeking rectification of wall locations and slab levels.[15]

    [15]   Exhibit P1, vol 3, doc 81

21. Following submissions by both parties, the referee Mr Earle Scott issued an Award on 12 February 2003 (“the first Award”).[16]  The plaintiffs disputed the first Award in a letter dated 19 March 2003[17] and made further submissions on 14 April 2003.[18]   In consequence the referee amended his Award on 22 April 2003.[19]

    [16]   Exhibit P1, vol 3, doc 127

    [17]   Exhibit P1, vol 3, doc 129

    [18]   Exhibit P1, vol 3, doc 130

    [19]   Exhibit P1, vol 3, doc 131

22. On 14 February 2003 the defendant sent a further progress claim (progress claim no. 3) to the plaintiffs.[20]  On 24 February 2003 the proprietors responded disputing this claim.[21] On 26 February 2003 the defendant wrote to the plaintiffs suspending further work on site until progress claim no. 3 was paid in full.[22]

    [20]   Exhibit P1, vol 2, doc 35

    [21]   Exhibit P1, vol 3, doc 86

    [22]   Exhibit P1, vol 3, doc 92

23. On 11 March 2003 the plaintiffs served a further proprietors’ instruction on the defendant.[23] On 14 March 2003 the defendant served a notice of default on the plaintiffs[24] and on 18 March 2003 wrote to the plaintiffs refusing to comply with the proprietors’ further instruction.[25]

    [23]   Exhibit P1, vol 3, doc 88

    [24]   Exhibit P1, vol 3, doc 89

    [25]   Exhibit P1, vol 3, doc 90

24. On 19 March 2003 the plaintiffs served a notice to comply with the further proprietors’ instruction upon the defendant.[26]  The defendant responded that it would not proceed with any instructions until the outstanding progress claims were paid in full.[27]  On 11 April 2003 the plaintiffs paid $25,212.41 to the defendants.  Further correspondence ensued and the defendant registered a lien over the land in the sum of $155,585.17 plus interest and costs on 20 May 2003.

    [26]   Exhibit P1, vol 3, doc 91

    [27]   Exhibit P1, vol 3, doc 92

25. The plaintiffs issued a notice of determination pursuant to clause 12.3 of the contract on 7 November 2003.[28]

    [28]   Exhibit P1, vol 3, doc 97

26. In the meantime on 7 October 2003 the defendant issued proceedings in the Adelaide Magistrates Court seeking recovery of the amount due under the first Award in the sum of $37,693.05 from the plaintiffs.[29]  On 7 October 2003 the defendant (in this action) applied for summary judgment in the sum of $22,217.50 in the Adelaide Magistrates Court proceedings in respect of the amounts outstanding under the amended Award.[30]  Those proceedings were apparently settled on the basis of a payment by the plaintiffs (in this action).  The quantum of the payments and the nature of the settlements is not clear on the evidence before me.  In any event the proceedings were discontinued by consent in November 2003.

    [29]   Exhibit P1, vol 3, p643

    [30]   Exhibit P1, vol 3, doc 134

27. The within proceedings were issued by the plaintiffs on 30 December 2006.

    Issues

    ·Are the plaintiffs entitled to maintain this action?  Specifically:

    - Is the first Award binding?
    - If so, what is the status of the amended Award?

    ·Is the defendant in breach of the contracts as alleged by the plaintiffs or at all?

    ·What is the present status of the contracts?

    ·If the defendant is in breach:

    - At what date are damages assessed?

    - On what basis are damages assessed?

    ·Is the defendant entitled to judgment on its counterclaim? If so, to what extent?

    Are the plaintiffs entitled to maintain this action? 

1. The defendant asserts a complete defence on the basis that the matters that are the subject of these proceedings were the subject of the first Award.  Under clause 13.1.5 of the contracts the parties agreed that the referee’s determination should be binding on both parties.  It is said that the plaintiffs are therefore barred from seeking further damages with respect to the matters that are the subject of the first Award.

2. Further on 7 October 2003 the defendant issued proceedings in the Magistrates Court against the plaintiffs to enforce the first Award.  The plaintiffs did not file a defence in those proceedings.  The matter was settled and the defendant filed a notice of discontinuance by consent on 7 November 2003. 

3. The plaintiffs on the other hand say that the referee’s Award is interim in nature and may be reviewed by arbitration or litigation in accordance with clause 13.5 of the contract.  In the alternative they say that a proper interpretation of clauses 13.1 – 13.6 of the contracts means that the referee’s award can be reviewed either by arbitration or litigation. 

4. Section 13 of the contracts deals with dispute resolution and arbitration.  Clause 13.1 relevantly provides as follows:

   13.1   REFEREE (Refer to sub-clause 1.2.4)

   13.1.1Subject always to the provisions of sub-clause 13.1.3 any dispute or      difference whatsoever that shall arise from the performance or as to the meaning of this Agreement before Practical Completion shall be submitted to the Referee.

   13.1.2In the event that any dispute or difference whatsoever shall arise from the performance or as to the meaning of this Agreement after Practical     Completion and before Final Payment such dispute may be submitted to the Referee.

   13.1.3        The parties hereby agree:

   1.that the purpose of referring any dispute or difference to the Referee is to resolve such matters promptly and avoid delay to the progress of the Works.

   2.no matter in dispute shall be referred to arbitration before Practical Completion except as provided for in clause 12.1, 13.1.5, 13.4.2 and 13.5.1; any dispute or difference concerning the achievement of Practical Completion shall be referred to the Referee for determination.

   3.to indemnify and hold indemnified the Referee against any        consequences whatsoever arising out of the Referee’s involvement or lack of involvement in any matter pursuant to this Agreement.

   13.1.5The Referee’s determination shall be binding on both parties unless it is overruled by an Arbitrator’s Award.

   13.2   LETTER OF DISPUTE AND RESPONSE

   13.2.1The Claimant shall give written notice, detailing the subject of the dispute and the proposed remedy, to the Referee and the Respondent.

   13.2.2Within 5 days of receipt of the Claimant’s notice the Respondent shall provide to the Referee and the Claimant a written reply to the notice of dispute.

   13.3   PROCEDURE

   The following rules shall apply to the process of resolving the dispute.

   13.3.1        Neither party shall be represented by a legal practitioner.

   13.3.2In submitting the notice to the Referee the Claimant shall pay the               Referee’s fee in full.  The Referee is not obliged to act until the sum              has been received.

   13.3.3        The Referee shall give equal opportunities to both parties to put their                   case.

   13.3.4        The Referee shall be allowed access to the Works and the subject of                   the dispute.

   13.3.5        The Referee’s determination including allocation of the costs of the                    reference shall be provided in writing, without reasons, to both parties.

5. Clause 13.1.1 is couched in mandatory terms.  The underlying rationale for clause 13.1 appears to be the contracting parties’ mutual desire to keep the building works progressing towards practical completion.    This was described in submissions as “a quick and dirty” method of resolving disputes.  Clause 13.1.5 indicates that the referee’s decision shall be binding on both parties unless it is overruled by an arbitrator’s award.

6. Clause 13.5 relates to arbitration and states as follows:

   13.5   ARBITRATION

   13.5.1Notwithstanding anything to the contrary in clauses 13.1, 13.2, 13.3 and 13.4 neither party to this Agreement shall be prevented from submitting to arbitration or litigation in accordance with clause 13.6 a dispute concerning the determination of the Builder’s employment under this Agreement.

   13.5.2        After Practical Completion either party in this Agreement may submit                  to arbitration or litigation any dispute arising out of this Agreement in   accordance with clause 13.6

7. Neither arbitration provision appears relevant to this matter.  This is not a dispute concerning the determination of the builder’s employment under the agreement nor has there been practical completion of the works.  The only dispute that could be referred to an arbitrator is a dispute concerning the referee’s determination under Clauses 13.1.5 and 13.1.3.2.  The plain wording of the contracts therefore appears to indicate that the referee’s determination is to be binding upon both parties.[31]

   [31]   Ipoh v TPS Property No 2 [2004] NSWSC at 289

8. The question is then what the referee determined.  The document referring the dispute to the referee[32] indicates that dispute relates to the following matter:

   The proprietors disagree with the amount lodged by the builder in progress claim no. 1.

   [32]   Exhibit P1, vol 3, pp519 - 520

9. This was confirmed in the letter from the referee Mr Earle Scott dated 18 December 2002[33] noting the nature of the dispute as:

   the claimant disagreeing with the first progress claim by the respondent for $109,483.28 and the remedy of $69,405.63 thereof. (sic)

   [33]   Exhibit P1, vol 3, p528

10. Thereafter there was a draft agreement prepared by the referee dated 23 December 2002[34] which refers to the dispute as:

    The amount claimed by the respondent in the first progress claim and certain defects relating to same.

    [34]   Exhibit P1, vol 3, p532

11. No signed copy of this document was tendered but it appears that the draft document was signed by the parties before the hearing.[35] 

    [35]   Exhibit P1, vol 3, pp615-619

12. Both parties supplied the referee with written submissions.  It appears that the defendant sought to expand the dispute to include progress claim no. 2 by serving a notice of dispute in a letter of 23 January 2003.  The plaintiffs responded to this by letter dated 31 January 2003.  It is not entirely clear, but it appears that there was agreement to extend the dispute to be adjudicated on by the referee to include progress claim no. 2.  The first Award dated 12 February 2003[36] states that:

    The dispute is in regard to the first two progress payments (which are not final certificates, where the builder certifies that the contract has been carried out in accordance with contract agreement signed by the parties on 23 December 2001) and any payment to the builder shall not be taken as proof or admission of the acceptability of the works, or that the works have been executed in accordance with the drawings and specifications at the time of the progress certificate, but shall be a payment on account during the progress of the works.[37] 

    [36]   Exhibit P1, vol 3, doc 615

    [37]   Referees decision p4

13. The referee indicated that he was not satisfied that the plaintiffs had supplied sufficient evidence of faulty construction in the floors or walls and he specifically rejected Rider Hunt estimates for removal of concrete.  The referee accepted the defendant’s evidence that the additional height of the slab was due to an E&WS department requirement.  This seems now to be accepted as incorrect.  He further accepted that the defendant had provided reasonable evidence of extra work carried out.  Specifically, additional site excavation, extra concrete piers and reinforcement in progress claim no. 1. He awarded the defendant $40,077.65 for progress claim no. 1 and $14,492.30 for progress claim no. 2 plus interest and costs.

14. The plaintiffs took issue with the Award by letter dated 19 March 2003.[38]  In consequence, and without reference to the defendant, the referee issued an amended Award dated 22 April 2003.  I find that the amended Award is invalid as the referee was functus officio and further did not afford procedural fairness to the defendant.[39] 

    [38]   Exhibit P1, vol 3, p622

    [39]   Ipoh v TPS Property No 2 Pty Ltd [2004] NSWSC 289 and for reasons that are not clear on the evidence.

    James McEwan & Co Pty Ltd v Dilettante Pty Ltd (1992) 163 LSJS 162

15. The defendant took action in the Adelaide Magistrates Court as outlined above, seeking to enforce the first Award. The particulars of claim specifically denied the validity of the amended Award and claimed the full amount of the first Award, less an amount paid by the plaintiffs on 11 April 2003, in the sum of $25,212.41. In those proceedings the defendant sought judgment in the sum of $37,693.05 being the amount of the first Award, less the payment made plus interest. 

16. The defendant, on 7 October 2003, applied for summary judgment on the basis of the amended award.  The matter resolved, following an agreement about which I have no evidence, with the filing by consent of a notice of discontinuance.  That, in my view, effectively resolved the builder’s claim for monies payable under progress claims no. 1 and 2.  Progress claim no. 3 however remains outstanding, as, in my view, do the matters raised by the plaintiffs in this action.

17. I consider that the first Award is a decision as to the quantum of progress claims no. 1 and 2. Whilst it is plain that matters relating to the quality of the work were put to the referee, and considered by him, this appears to have been done in the context of contesting the amount specified in the progress claims, on the one hand, or justifying the amounts claimed on the other.  The referee, in the passage quoted above, makes it plain that it was agreed that the payments awarded in respect of progress certificates do not constitute proof or admission of the acceptability of the works, or that the works have been executed in accordance with drawings and specifications.  Taken in conjunction with the clear intent of the dispute resolution clauses that prompt determinations be made about such disputes to avoid delay to the progress of the works, it appears to me that the referee’s decision concerning the works can be no more than a finding that the builder was entitled to payment of progress claims no. 1 and 2 on the basis of the material before him.  It does not amount, in my view, to a finding that the works were appropriately conducted and executed in accordance with the drawings and specifications.  It does not preclude the plaintiffs from subsequent proceedings of the nature presently before me seeking damages for breach of contract or breach of statutory warranty.

18. I therefore find that the first Award and the subsequent Magistrates’ Court proceedings to enforce the first Award do not constitute a bar to the plaintiffs’ action. 

    Is the defendant in breach of the contracts as alleged by the plaintiffs or at all?

19. The defendant admitted the validity of the plaintiffs’ allegations of breach of contract in relation to the slab height and the slab deflection in its final address.[40]  The defendant’s position was outlined in paragraph 24 of closing submissions as follows:

    Unique Building accepts liability with respect to the layout of the slab (and in particular the slab step deflection to the north) and the height of the slab in so far as it differs from the design by 90mm in the garage, 70mm in the study and 95mm in the landing of Unit A adjacent to the western door.

    [40]   Transcript p739

20. This represents the first admission by the defendant that there was a problem with the height of the slab.  It is my view that, given the evidence, these were proper admissions to make.  It is however unfortunate that they were not made at an earlier date.  Mr Colin Boots in his evidence continued to deny that there was an issue with this.[41]  The defendant continues to deny the allegations in respect of the Rapid Wall, the sewer riser, the Termimesh installation and the water pipe in Lot D.

    [41]   Transcript pp616-7

    Slab Deflection

21. The slab layout is not square to the eastern end and western boundaries.  Instead of running east-west it deflects to the north by a maximum of 217 mm on the eastern boundary.  The position of the slab step is shown in the Symonds Ryan & Cornish survey drawing.[42]  There are three consequences arising from this misalignment. 

    [42]   Exhibit P1, vol 3, p561

22. The first relates to the laundry in Unit D.  Unit D is the area where the northern deflection of the slab step is greatest.  This is the unit owned by David Brown.  It is said that the effect of the deflection is to reduce the size of the laundry such that there is no longer enough room to allow a shower in the laundry area. 

23. It was accepted by Michael Brown in cross-examination that, at the point where the shower was to be located, there was a net loss of 81mm out of a total length of 2,900 mm, which was the north-south length of the laundry in Unit D as designed.[43]  No drawing provided to the defendant specified a shower in the laundry.  It would not therefore have been obvious to the defendant that the altered dimension would prevent the installation of one.  However, it is plain that the size of the laundry was not in accordance with the plans. 

    [43]   Transcript pp259 - 260

24. In any event, it is put by the defendant that it would be possible to rectify the problem in one of three ways.  First, the door size could be reduced from a standard 820 mm door to the next standard size of 720 mm.  Second, the tread depth on each of the five stairs in the area could be reduced from 250 mm to 240 mm and shaving back the door and its rim by a further 30 mm.  Finally, part of the concrete slab step could be removed so as to accommodate the first tread of the five steps back into the concrete slab itself therefore gaining 250 mm.  The first two options would incur no additional cost.  The third option would, according to the evidence of Mr Andrew Knowles from Rider Hunt, cost $1,250 as at October 2003.[44] 

    [44] Transcript p419

25. The second consequence of the slab deflection is that the Rapid Walls adjacent to the slab deflection (“the cross walls”) could not be installed as designed.  The defendant repositioned the cross walls to accommodate the deflection.[45]  It appears that this was done without consultation with the plaintiffs.  The repositioning of the walls was therefore somewhat different to the designed position.  This appears to have had little practical consequence in terms of room sizes.[46]  The plaintiffs were however concerned that this might have had some structural significance.  Their concerns were allayed to some extent by a letter from Mr Vreugdenburg dated 26 August 2003.[47]  In that letter he identified that there were a number of issues to be resolved, including misalignment of the starter bars for the walls and the centreline of the footings but indicated that the structure appeared to be “structurally adequate”.  It would however be necessary to check the structural slab and footings as part of the next stage of construction.  It is not clear on the evidence whether additional cost would have been occasioned by this.

    [45] Transcript pp578 - 580

    [46] Transcript pp 257-260

    [47] Exhibit D7, Transcript p261

26. The deflection also means that the slab encroaches over the western and eastern boundaries.  Both encroachments are on land owned by the Adelaide City Council. There was limited evidence concerning this.  Mr Jankovic considered that this could be rectified by negotiation with the Adelaide City Council.  He stated, in his report, that the Council might allow an encumbrance on its land. He estimated the cost of this to be $2,500, but noted that this was subject to proper costing and quotations.[48]  This figure was assessed by the quantity surveyors Rider Levett Bucknall in their report dated April 2008.[49]  This cost as at April 2008 is stated to be $4,565.  The basis upon which that cost was assessed is far from clear.

    [48]   Exhibit P1, p93

    [49]   Exhibit P1, p140.

27. This issue was not explored in any detail in oral evidence. This is somewhat unsatisfactory.  With all due respect to Mr Jankovic it does not appear that he has any specific expertise in this area.  Accordingly, his opinion that the council would regard the encroachments as minor and allow the matter to be remedied by way of an encroachment, must be approached with caution.   I further note that even if this were possible, it would mean that two of the exterior walls of the premises would be on land not owned by the owner of the premises. 

28. The other method of rectification is removal of the encroachment on adjoining land by demolition of the building and removal of the slab.

    Slab Height

29. The slab height is significant in two main respects.  The first relates to the garages for each of the units and the second to a side door on the western boundary of the unit on Lot A.

    Garages

30. The extra height in the garages is 90 mm.  The plaintiffs say that this prevents driving a car into each garage and accordingly that the garages are not fit for their purpose.  The plaintiffs further say that the only method of resolving this is by removal and replacement of the slab in the garages.  There is only coverage of the foundation reinforcement of 50 – 70 mm and accordingly it is not possible to shave the floor without exposing the reinforcing thus weakening the building structure. 

31. The plaintiffs rely upon the report of Mr Vreugdenburg from PT Design Structural Engineers.[50]  Mr Vreugdenburg was not called to give evidence but his report was tendered by consent.  His report identifies two options to rectify the slab height issue in the garages:

    1.     Remove slab only – providing additional stiffening beams across             existing beams to compensate for the reduction and stress of the   existing beams and for any removal of exposed reinforcing; or

    2.     Removing the garage slab and footing entirely and reconstructing at a               lower level.

    [50]   Report of  Mr Vreugdenburg dated15/2/2008

32. Mr Vreugdenburg indicated that measurements had been taken with a cover metre to determine the amount of concrete cover to the reinforcing.  The amount of cover was in the range of 50 – 70 mm varying across the length of the building.  It was his view that it was not possible to “shave” the slab to the required amount without exposing the reinforcing. 

33. The plaintiffs also called Mr Jankovic.  Mr Jankovic’s evidence in chief did not deal with the issue of the slab height in the garages. He was however cross-examined on this topic.

34. Part 4 of Mr Jankovic’s report dated 6 January 2006 deals with the impact of the height of the floor slab on the garage. He noted that there was no Australian standard for the gradient of residential driveways in relation to vehicle access.  He did however refer to Australian standards dealing with car parking facilities as a useful guide. The recommended gradient in the standards is 20%. He undertook some calculations which indicate that the gradient from the street water table to the top of the garage floor in Lot A is approximately 23.15% and the gradient for Lot D is 29.47%. This is because the street is not level, but slopes. Accordingly in Mr Jankovic’s opinion, for the driveways to comply, the height of the slab at the eastern end of the development (by Lot D) should have been no more than 190 mm above boundary ground level. Mr Jankovic recommended that the footings be cut back and then graded. This would result in the desired gradient but not a flat garage floor. Mr Jankovic’s opinion was however subject to the caveat that this required approval of the structural engineer and the approving authority. He did not consider that there was a guarantee that the engineer would be willing to approve the cut out.

1. When cross-examined on this topic, Mr Jankovic explained the reason for his suggestions.[51] It is true to say however, that Mr Jankovic deferred to the engineering advice in relation to the rectification of the garage floors and noted that the recent engineering advice indicated that his solution would “interfere with the top reinforcement, top rods”.[52] He agreed that theoretically it was possible to resolve raising the height of the road and water table.[53] Mr Jankovic agreed that he was not asked to cost the method of cutting the slab back and replacing it with a sloped slab, rather, he provided a rough costing of the “shaving” solution that he suggested.  He was not asked to comment on the cost of complete removal of the garage slab as recommended by Mr Vreugdenburg.[54]

   [51]   Transcript pp471-474

   [52]   Transcript p472

   [53]   Transcript p473

   [54]   Transcript p474

2. A number of reports have been provided by Mr Knowles, a quantity surveyor, of Ryder Levett Bucknall (formerly Rider Hunt) outlining the cost of rectification of the garage slab height issue based on two scenarios for rectification.  Two reports costed Mr Jankovic’s rectification proposal as follows:

   October 2002 – net trade price  $ 3,000.[55]
   October 2003 – net trade cost  $ 6,754.[56]

   Mr Knowles’ report dated 8 April 2008, costs complete removal and replacement of the garage floors including builders margin and GST as recommended by Mr Vreugdenburg in the sum of $48,481 as at 8 April 2008, and $33,994 as at November 2002.[57]

   [55]   Exhibit P1, p179

   [56]   Exhibit P1, p266

   [57]   Exhibit P4

3. Mr Knowles also gave evidence.  His expertise was not disputed and was most helpful.  I accept his calculations on this issue.  The plaintiffs rely upon the report of 8 April 2008, which costs the second option identified by Mr Vreugdenburg to rectify the slab height issue in the garage.

4. The defendant now agrees that the increased height of the slab would cause difficulties for vehicles entering the garages.  It does not however agree that the rectification solution proposed by the plaintiffs is appropriate.

5. Mr W A Graham, consulting engineer, provided two reports[58] and gave evidence on this topic for the defendant. In his first report, Mr Graham stated that, if it was possible to remove 50 mm of concrete from the front edge of the slab tapering back to zero, 750 mm from the front edge, it would be possible to drive a fully loaded 95 percentile vehicle up the ramp into the garages without scraping the vehicle underside.[59]  He was then provided with a copy of the report from Mr Vreugdenburg dated 15 February 2008 dealing with the concrete coverage results for the reinforcing bars in the footings of the garage.  Based on this testing Mr Graham revised his opinion.  He now considers that only 20 mm of concrete could be safely removed.  This would not rectify the problem.  Mr Graham thought that there were alternative solutions to those proposed by Mr Vreugdenburg.  These are outlined in his second report.  The first two options identified by him involve alterations to the curbing and footpath across the front of the development. 

   [58]   Report of  Mr Graham dated 16/5/07, Exhibit P1, p111 & further report dated  9/4/08 Exhibit D14

   [59]   Exhibit D14, p2

6. The defendant says that the plaintiffs should have approached the Adelaide City Council with a view to raising the northern footpath level when the Council reconstructed the curb and watertable in 2006. Mr Graham considers that the only cost involved in that solution would have been for shaving 20mm from the front of the slab, tapering back to zero over 400mm. He estimated the cost of this to be $2,700 not including the builder’s margin or GST. It is said that this opportunity was lost when the Council reconstructed the curb and watertable without input from the plaintiffs. The second option is similar in that Mr Graham suggests shaving 20mm from the front of the garage, tapering back to zero over 400mm, but also applying to the Council to lift the watertable 70mm. He has annexed, to his report, an email from the Adelaide City Council indicating that it is possible to reconstruct the curb and watertable, regrade and resurface the road as required. It appears from the email that this is subject to development approval.  It would require design and compliance with Council engineering standards and would be at the cost of the proprietor. Mr Graham estimates the cost of this to be $20,000, not including the builder’s margin or GST. If however, Council resurfaces the lane as foreshadowed in the email, it is possible that this cost will be $14,000, not including the builder’s margin or the GST.

7. I do not consider the plaintiffs acted unreasonably in failing to negotiate with the Council in 2006. Given the issues between the parties concerning the whole of the building and particularly given the defendant’s then position that there was no problem with the slab height, it is in my view, unreasonable to suggest that the plaintiff should have taken this approach. Accordingly, I do not consider that option 1 is an appropriate solution. Option 2 is likewise problematic. It is not plain upon what basis Mr Graham has assessed the cost. Given that a substantial portion of the cost would be levied by the Council, one would have expected some evidence as to the basis upon which Council would charge for this work. Likewise, there is no guarantee that Council approval would be forthcoming, nor is there any apparent allowance in the costing for the design work and approval procedures. I reject option 2 as too speculative and imprecise.

8. The remaining option identified by Mr Graham is to cut and demolish the first front metre of the slab and footings and reconstruct the slab with a slope towards the front edge.  He estimates the cost of this modification to be $16,000 not including the builder’s margin or GST.  The precise basis of this estimate is not clear.  With due respect to Mr Graham, I prefer the evidence of Mr Knowles in relation to the estimation of costs on the basis of his superior expertise.  Mr Knowles was not however asked to cost this proposal.  It is likely that, if he had, it would be cheaper than the option pressed by the plaintiffs as, self evidently, it requires less work.  The result however is less satisfactory from the plaintiffs’ perspective. The plaintiffs would be left with a sloping floor rather than a flat floor. I accept their evidence that this is unsatisfactory. Both plaintiffs gave evidence as to the limits that a sloping garage floor would place upon their ability to fully utilise the garage. This, taken in combination with the lack of clarity over the costing provided by Mr Graham and the potential that his solution may not prove vastly different in cost to that proposed by Mr Vreugdenburg and costed by Mr Knowles leads me to reject it.

9. An alternative position for the defendant was put by Mr Colin Boots.  He gave evidence that the footing lays below the 130 mm concrete slab at the entrance to the garage and that is possible to simply remove the concrete slab and carry out the rectification work referred to in the 2003 Rider Hunt report with a net trade cost of $6,754.

10. I do not accept this assessment.  Mr Boot’s evidence was based upon the footing plans and schedule which refer to a slab having generally a thickness of 130 m. The difficulty with this proposition however is that Mr Boot’s evidence does not establish that the footings were built to plan.  Manifestly the slab was not laid in accordance with the plans and specifications in a number of respects.  It is unfortunate that Mr Vreugdenburg was not called to give evidence concerning this matter however, on the basis of his report, it is apparent that he tested the footings using a cover meter. This testing demonstrates coverage of 50 – 70 mm across the length of the building. Mr Graham accepted that this was the case. Mr Boots gave no compelling reason why his position should be accepted in reference to Mr Vreugdenburg.

11. Finally, I note that Mr Vreugdenburg was the design engineer who prepared the footing designs.  If he is satisfied, following examination of the building works as constructed that the reinforcing would be exposed if the footings are shaved then it is my view that this is correct.  I therefore accept his evidence that the two options he suggested are the only options reasonably available to remedy the problem leaving aside complete demolition of the buildings.  The only method that has been fully costed is the removal of the garage slab and footing entirely as outlined in the Rider Hunt report dated 8 April 2008. 

    Lot A side door

12. The side doorstep is 95 mm higher than it should be owing to the increased height of the slab.  The original design step-up was, according to the plaintiff Michael Brown, about 225 mm. This is technically above appropriate step-up level outlined in the building code of Australia.[60]  Mr Jankovic gave evidence, which I accept, that a design height of 225 mm did not breach the building code.[61]  Whatever the situation with this, the step up is now 95mm higher than was designed and is clearly too high.  The plaintiffs urge demolition to resolve this issue saying any other option results in a significant compromise. 

    [60]   Transcript p81

    [61]   Transcript p469

13. The defendant agrees that the discrepancy from the design level at the side entrance in Lot A is a serious error.[62] The defendant does not consider it reasonable or necessary to demolish and rebuild. It relies on the proposal for rectification contained in the Grieve Gillett report.[63]  The cost of this proposed rectification is stated to be $860.00 plus GST and builder’s margin. The difficulty with the latter proposition is that Mr Grieve, the author of the report, was not called to give evidence. The plaintiffs indicated that they were not relying on the opinions expressed in the Grieve Gillett report. It was tendered as relevant to the parties’ state of mind at that time.  Further, Mr Grieve’s comments in relation to the door were subject to the proviso that structural advice was required. The recommendation in that report was as follows:

    Another major problem created as a result of the slab levels is access from the pedestrian walkway (along the western boundary) via door D12. To provide appropriate steps a portion of the slab will require removal to create a new level entry zone at RL99.47 (see attached sketch 99007/SKO2). Structural advice is required to determine the structural implications of these changes.[64]

    [62]   Scott Schedule item 3

    [63]   Exhibit P1, vol 2, pp291-294 & Exhibit D16

    [64]   Exhibit P1, p292

14. Mr Jankovic recommended an alternative solution which he costed in the vicinity of $9,000 but noting that this was subject to proper costing and quotation. He also had the proviso that a structural engineer and the approving authority would be required to approve the cut out.[65]

    [65]   Exhibit P1, p92

15. In October 2003, Rider Hunt suggested that the cost of rectification of this issue was $860.00.  In the most recent report however, the price is suggested to be $11,872.00.  Mr Knowles gave evidence on this topic and was cross-examined about the different pricing for rectification.  The lower price was the cost of rectification in accordance with the Grieve Gillett report and the higher price is that related to the cost of rectification in accordance with Mr Jankovic’s recommendations.[66]

    [66]   Transcript p427

16. Both proposed methods of rectification were subject to an opinion from a structural engineer.  The structural engineer on this project was Mr Vreugdenburg.  As previously indicated, he was not called to give evidence.  His reports do not deal with the issue of rectification of the door in Lot A.  His reports deal solely with the issue of the garage.

17. Mr Graham is a civil engineer with structural engineering qualifications.  In his report of 16 May 2007, he states that the side entrance is now unviable and needs to be abandoned. He expressed his opinion as to rectification as follows:

    It would be necessary to cut out and remove concrete and reinforcing steel both in the slab and in the main footing beams. To create complying steps, the depth of removal would be more than 300mm, in order to lower the landing and construct a new slab. It would not be possible to retain reinforcement continuity without extensive breakout of concrete, which would potentially damage adjacent concrete. A large number of beam construction joints in the area would create a weak point in the footing system and damage the integrity of the footing system.[67]

    [67]   Exhibit P1,p117 para 7.21

18. Mr Graham maintained the view that the preferred approach to this issue was abandoning the doorway in giving evidence.[68]  He agreed that this work did not accord with the contract and was a defect.  It was suggested to him that it was possible to cut into the slab on the western side to lower the doorway, but that this would create a greater height to navigate between the doorway and the study level and Mr Graham agreed with that proposition.[69]  Unfortunately, he was not asked about the effect on the structural integrity of the building, which appears to me to be a rather more significant problem with this proposal.  However, his response in relation to cutting into the floor reinforcing mesh on the floor of the garage provides some indication of his likely view.  In relation to that issue he stated “you want to avoid cutting into it at all costs because it is a major structural element of the footing system”.[70]

    [68]   Transcript p532

    [69]   Ibid

    [70]   Transcript p541

19. In re-examination, Mr Graham was asked about the Grieve Gillett report, indeed their drawings for rectification works were tendered through him.  He agreed that the costing of that work was set out in the Rider Hunt report.[71] Again, he was not asked to comment upon the effect of that proposal upon the structural integrity of the building. 

    [71]   Exhibit D16

20. I find that the slab height on the side door is significantly in excess of the designed height and that it is a substantial defect.  I further find that both rectification proposals are likely to affect the structural integrity of the building.  I make this finding on the basis of the evidence of Mr Graham and the reservations expressed by Mr Grieve and Mr Jankovic when making their proposals. Accordingly, the only two options to resolve this issue are demolition of the building or abandonment of the side door.

    Rapid Wall

21. There are a number of allegations concerning the construction of the Rapid Walls.  In particular, it is asserted in the pleadings that the panels have been damaged by incorrect concrete filling and that the Rapid Wall panels were not square to the southern edge of the slab. The plaintiffs also suggest that the lack of a damp proof membrane between the boundary walls or the slab has resulted in moisture problems with the Rapid Wall.

22. Mr Roger Pitt gave evidence.  He was employed by Rapid Wall in 2002.  He gave evidence that there were some meetings at Rapid Wall concerning the southern edge of the Rapid Walls not aligning with the slab.[72]  He indicated that this occurred due to the fact that the walls were pre-made and the concrete slab was not installed in accordance with the plans.  His evidence was however that the walls could be extended in length, reinforced with Y12-bars and filled with concrete.  This would have occurred at no additional expense to the plaintiffs.  Rapid Wall would have met that expense.   Mr Graham suggested an alternative method of rectifying this issue in his report dated 16 May 2007.  This involved cutting and removing concrete to create a rebate in the slab.  He suggested this to avoid water penetration beneath the  window frame.  The rebate would require sealing with a waterproof compound.  The end wall of Lot B would require painting.  He estimated the cost to be $2,000 not including building margin and GST.

    [72]   Transcript p496-7

23. Mr Jankovic recommended removal of the wall.

24. Mr Pitt also gave evidence about the manner in which Rapid Walls were constructed on site.[73]  He explained that once the Rapid Walls were erected they were filled with concrete.  It sometimes occurred that whilst the concrete was being delivered to the wall through a concrete pump, if the concrete is wetter than it should be, it caused pressure on the wall causing the wall to expand.   This created what was described as a concrete bulge.  Rapid Wall would rectify these bulges.  He attended the building site on the morning of the hearing prior to giving evidence.  He marked a plan indicating where there were some concrete bulges.  He commented that, given the amount of time the walls have been unprotected on site, they are still in exceptionally good condition.[74]  Mr Jankovic and Mr Graham both say no moisture membrane was required as asserted by the plaintiffs.  The plan of the site marked in accordance with Mr Pitt’s evidence was exhibit D15.  He indicated that the problems that he identified were not major problems and would be finished when building work had been completed.  Mr Pitt stated:

    There is no point in finishing the walls to a finish ready for paintwork when you have other people working on top of you which are going to or could damage or cause interference with your finished work, so the walls were left in the condition they were and then once that particular area, say this room, an area like this room was totally finished as far as other trades were concerned well then we would come back and we would have our finishing trades that would fix any blowouts as they were called, tape and flush the joints where the walls abut each other and what’s called flushing the walls with a plaster mixture to get them ready for the paint finish.[75]

    [73]   Transcript p499

    [74]   Transcript p503

    [75]   Transcript p507

25. He was questioned as follows:

    QSo it is fair to say with respect to each of the areas you have identified on your plan they would have been rectified by either sanding and flushing or some other process.

    AJack hammering, sanding and flushing, taping flushing just the normal process of finishing the wall.[76]

    [76]   Transcript p508

26. I accept Mr Pitt’s evidence that the concrete blowouts were not an unusual occurrence in the erection of Rapid Walls and would have been fixed by Rapid Wall as part of its contract.  I further note that it was Rapid Wall’s practice to do that after the first floor slab had been poured so that any damage caused during that process could also be rectified.  In terms of the moisture issue I further accept his evidence, supported by Mr Jankovic and Mr Graham, that there was nothing about the condition of the Rapid Walls that would be classed as serious and that no membrane was required.[77]  This accords with my observation on the view of the building site.  Given the walls have been in an exposed condition for some 6 years they appeared to be in remarkably good condition.  I therefore find that the plaintiffs have failed to establish any defective workmanship with respect to the condition of the Rapid Walls. 

    [77]   Transcript p508

27. The southern edge misalignment is a different issue.  This was a consequence of the defendant’s failure to ensure that the slab layout was in accordance with the plans.  The Rapid Walls were constructed according to the plans and so, when installed, the misalignment occurred.  Mr Graham, Mr Jankovic and Mr Pitt gave evidence of three different methods of rectification of this problem.  It is unfortunate that the merits of the respective methods were not explored in greater detail.  I am not however confident that the Rapid Wall solution would have rectified this problem in a satisfactory manner given that there was no structural engineer’s comment upon it.

    Termimesh

28. The plaintiffs complain that the Termimesh was not installed in accordance with the plans and at the appropriate time.  It was retrofitted and is in consequence unsightly.  It prevents polished concrete floors as originally planned.  It is difficult to repair as a stand alone item but it is said that it would be cured by removal and reinstatement. 

1. The defendant says that it is a minor rectification to cut back the Termimesh and to seal it and relies upon the evidence of Mr Graham in that regard.[78] Mr Graham considers it would be acceptable to cut the Termimesh off where it was to be visible in the open slab area and place a sealant along the joint. This option has not specifically been costed but generally could be expected to be minimal.

   [78]   Transcript p561

   Sewer Riser

2. The sewer riser in Lot C is conceded by the defendant to be in the wrong place.  Mr Jankovic recommends that this be jack hammered out and relocated.[79] This was estimated at a cost of $903 as at November 2002 and $1,298 as at April 2008.[80]  Mr Graham does not consider that any remedial work is required.  He considers that the pipe can be relocated without compromise to the structural capacity of the panel and it is said the hole in the face of the panel will be concealed by the specified joinery duct. 

   [79]   Report dated 6 January 2006

   [80]   Rider Levett Bucknall report April 2008

3. I do not find the defendant’s position on this issue convincing.  There would in my view be some cost associated with the relocation of the sewer riser no matter what course was adopted.  I consider that the costs attributed by the plaintiff’s expert are appropriate.  This cost would not however apply if the building is demolished as the plaintiffs contend.

   Findings

4. To summarise I find that the plaintiffs have proven that the defendant was in breach of contract in the following respects:

   ·The layout of the slab was defective reducing the dimensions of the laundry of Lot D, causing an encroachment onto neighbouring Council land and repositioning of the cross walls.

   ·The slab layout also caused a misalignment of the Rapid Wall on the southern boundary.

   ·The slab is too high preventing vehicle access to all four garages and rendering the side door on the western boundary of the unit on Lot A unusable.

   ·The Termimesh was not installed properly; and

   ·The sewer riser in Lot C is inappropriately placed.

5. I do not accept the plaintiffs’ contentions in relation to the condition of the Rapid Wall.  The condition of the Rapid Walls was not unusual and would have been rectified in the normal course of construction at no additional expense to the plaintiffs.  There was no need for a moisture proof membrane to be installed.

6. In view of these findings I do not propose to deal with the allegations of breach of statutory warranty.

   What is the present status of the contracts?

7. As outlined above, the plaintiffs served two notices of default on the defendant.  The first on 24 July 2002[81] and the second on 14 August 2002.[82]  The plaintiffs purported to terminate the contracts on the basis of those notices by notice of determination dated 7 November 2003.[83]  The first notice of default dealt with issues of alleged delay and lack of diligence.  The second notice of default dealt with asserted defects including access issues to the garage, problems with the installation of the Termimesh and slab encroachment into a public walkway. 

   [81]   Exhibit P1, vol 2, p348

   [82]   Exhibit P1, vol 2, p349

   [83]   Exhibit P1, vol 2, p358

8. The defendant purported to terminate the contracts by letter dated 4 June 2002.[84]  Somewhat inconsistently, the defendant subsequently served two notices of default on the plaintiffs.  The first on 29 August 2002[85] and the second on 14 March 2003.[86]  The defendant did not proceed to issue a notice of determination in relation to its notices of default.  In addition, the defendant wrote to the plaintiffs on at least two occasions indicating that it would not do any further work until outstanding monies were paid.

   [84]   Exhibit P1, vol 2, p 347

   [85]   Exhibit P1 vol 2 p 351

   [86]   Exhibit P1, vol 2 p 355

9. Both parties have claimed that the other wrongfully repudiated the contracts.  Notwithstanding the matters referred to above, both parties’ actions indicate an intention to be bound by the contracts at least up to the time the referee issued the first Award.  Both were seeking to enforce their rights under the contracts by way of a referral to the referee. 

10. The defendant argues that the plaintiffs’ refusal to pay the defendant in accordance with the first Award was a fundamental breach of the contracts that evinced an intention not to be bound by the contracts and that it accepted this repudiation by refusing to carry out any instructions or to go back on site. 

11. I do not consider that the plaintiffs’ conduct in refusing to pay the first Award is a fundamental breach or repudiation of the contracts in the circumstances of this case.  To amount to a repudiation the breach must go to the heart of the contract and must be such as to deprive the injured party of a substantial part of the benefit to which it is entitled under the contract.[87]  The plaintiffs disputed the first Award.  The referee issued the amended Award.  The plaintiffs appear at all times to have been attempting to enforce the terms of the contract as they saw them. 

    [87]   Federal Commerce & Navigation Co. Ltd. v Molena Alpha Inc. [1979] AC 757 at p779 per Lord Wilberforce

12. Even if the plaintiffs’ refusal to pay could be considered a repudiation of the contract, I do not consider that the defendant accepted this.  The conduct relied upon as constituting acceptance appears little different to the defendant’s position since it left the site in July 2002.  The defendant issued its second notice of default under the terms of the contracts on 14 March 2003.  This in my view indicates that the defendant considered that the contracts were on foot at that time.  The defendant’s position, at all times, appears to have been that it would carry out the contracts if the progress payments were made.[88]  It did not, as indicated above, at any stage prior to these proceedings acknowledge a problem with the slab height or the slab layout.  Its intention was apparently to build these now admitted defects in to the building.  This would potentially have caused additional problems as the building progressed.  Mr Graham gave evidence that it was important to address problems with the slab at an early stage and before the building reached the point of no return at which it becomes difficult to make alterations.[89]  He noted that there were serious issues with the slab layout and slab height that required rectification.  He agreed that he would expect a builder to identify such problems and devise or at least discuss with the owners a methodology for rectifying them before the building proceeds further.[90]  Further, the defendant continues to deny the other defects that I have found proven.  It has at no stage offered to remedy these defects.  I have found that rectification is required.  The defendant was therefore in breach of the contract at the time of the plaintiffs’ refusal to pay. 

    [88]   Boots evidence Transcript p599

    [89]   Transcript p527

    [90]   Transcript p528

13. Given my findings in respect of the defective workmanship and the terms of the contracts, I find that the plaintiffs were entitled to serve the second notice of default and, in the absence of compliance by the defendant, were further entitled to terminate the contracts by their notice of determination dated 7 November 2003.

14. I further find that the plaintiffs are entitled to damages for breach of the contracts.

    At what date are damages assessed?

15. Damages for breach of contract must be assessed on a once and for all basis.[91]  The difficulty with the evidence is that various different scenarios have been costed at various different dates and the escalating cost of building work over time means that the determination of a date has significant consequences.  There is also unexplained delay in these proceedings coming to hearing.  For example, it is not clear on the evidence why it took until November 2003 for the plaintiffs to issue the notice of determination and until November 2006 for these proceedings to be issued. 

    [91] Bellgrove v Eldridge (1954) 90 CLR 613

16. The general rule is that damages for breach of contract are assessed at the time of the breach.[92]  In this case the breaches relate to a number of defects commencing with the laying of the slab in April 2002.  It took some time for the defects to be precisely identified.  For example, the plaintiffs’ notice of default dated 14 August 2002 identified, inter alia, a following defect “No ramp running between back of footpath and garage levels”.  This was, in effect, a symptom of the later discovered problem with the slab height.  The slab height and lay out issue was clarified in the two survey reports of Symonds Ryan & Cornish.  The later report was dated 11 November 2002.  I consider this to be an appropriate date at which to assess damages.  There is unlikely to have been any significant increase in building costs from the date of breach to that date.  In any event, I consider that the time taken by the plaintiffs to identify the precise nature of the problem with the slab was not unreasonable given the need for a full survey of the building.  The other defects were known at this point. 

    [92] Wenham v Ella (1972) 127 CLR 454 at 473

    On what basis should damages be assessed?

17. The aim of compensatory damages in actions for breach of contract are that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position they would have been in had the contract been performed.[93]  The method of compensation under this general principle will vary depending on the circumstances of each case.  The proper assessment in an action for damages for breach of contract brought by a building owner against a builder, where the builder has substantially departed from the specifications, is the cost, in excess of any amount of the contract price unpaid, of reasonable and necessary work to make the building conform to the contract, together with any consequential losses by reason of the breach. What remedial work is both necessary and reasonable in any particular case is a question of fact. [94]

    [93] Haines v Bendall (1991) 172 CLR 60

    [94]   see note 91

18. I was referred to the decision in Carosella v Ginos & Gilbert Pty Ltd [95] in which a completed house was ordered to be demolished as the only reasonable and appropriate manner of rectifying a defective footing the consequences of which could have been remedied with compromises.  The plaintiffs urged this course upon me. 

    [95] High Court (1982) 47 ALR 761 and Supreme Court of SA (1981) 27 SASR 515

19. The defendant resists this proposition and contends that the defects are not so substantial as to require demolition.  The defendant further says that the cost of remedying the breaches is minor. Much was also made of the plaintiffs’ attempts to obtain planning approval to construct alternative buildings on site.  This it was said, demonstrated that the plaintiffs did not intend to proceed with the current buildings. 

20. I note the decision of the Supreme Court of South Australia in De Cesare v Deluxe Motors Pty Ltd[96] in which the Full Court confirmed that, in the case of incomplete and defective building work, the usual remedy will be the cost of completing the building work in accordance with the building contract and that the primary measure of damages is the cost of remedying the defective contractual performance subject to the test of reasonableness. The test of reasonableness is an objective one and is not affected by the intention of the plaintiff.  In other words, if the building work is clearly defective, the absence of an intention on the part of the building owner to remedy the defective work does not lead to a conclusion that it would be unreasonable to award the cost of remedying the defective work.

    [96] (1996) 67 SASR 28

21. In the present circumstances, the defendant’s contention seems to be somewhat different namely, that the plaintiffs have changed their mind and wish to develop the site in some other format and accordingly do not intend to rectify the building but rather prefer demolition to enable them to redevelop the site in accordance with alternative designs.  I accept the plaintiffs’ explanation of these applications as attempts to mitigate their losses following determination of the contracts.  In any event, the authorities make it plain that the issue that should concern me is conformity with the contract.  As I have found, the work was not performed in accordance with the contracts and is, in some respects, defective.  The plaintiffs are entitled to have damages for breach of contract assessed on this basis notwithstanding they may not necessarily complete the buildings as originally designed.

22. Leaving aside the demolition of the premises the cost of rectification of the items I have found to be in breach of the contracts is as follows:

23. Laundry in Lot D – options 1 and 2 involved no cost and option 3 cost $1,250.  All three involve compromise albeit of a limited nature.  The only available costing is as at October 2003.  

24. Repositioning of cross walls – no cost.  The builders had already attended to this.  The compromise associated with the repositioning was in my view minimal.  There is no evidence as to whether additional structural engineer’s costs would be incurred in consequence.

25. Southern boundary misalignment – no cost if the Rapid Wall solution was viable.  Estimated cost of $2,000 plus builder’s margin and GST if Mr Graham was accepted.  Mr Graham’s solution involves some compromise on the premises as designed albeit of a limited nature.  His costing is contained in his report of 16 May 2007.

26. Encroachments – if the Adelaide City Council was prepared to consent to an encumbrance the evidence as to cost was, as outlined above, somewhat inadequate.  The estimated cost was $3,196 as at November 2002.  I have some reservations about the basis of this costing as outlined above.  The plaintiffs would not own the land on which two exterior walls of their premises stood.  The option is subject to the consent of Council, which is somewhat speculative. 

27. Garage slab height – this can be rectified for the sum of $33,994 as at November 2002.  There would be no compromise associated with this solution. 

28. Lot A side door – the only alternative to demolition is abandonment of the door.  This would result in a very substantial compromise for Michael Brown.

29. Termimesh – If I accept Mr Graham’s evidence on this topic the cost of cutting back the Termimesh and sealing the joints is “minimal” but not specified.  The plaintiffs do not agree with this solution.

30. Sewer Riser – the cost of relocation is $908 as at November 2002.

31. The total cost of rectifying those items capable of rectification, subject to the qualifications as to the estimates that I have referred to, is in the order of $42,000.  The estimates occur at different dates.  The cost to demolish and replace the building to its present stage, as assessed by Mr Knowles, is $132,605 as at November 2002.[97] 

    [97]   Exhibit P1, Report dated April 2008, vol 2, doc16, p140

32. The relationship between the parties fell apart, in effect, at the first progress payment.  Work ceased on site on July 2002 and, at that stage, the work performed represented only approximately 20% of the proposed works.  Rectification would involve compromises such as the loss of the side door to Lot A.  Some aspects of rectification are speculative such as the encroachment issue and the cost of the various suggested solutions.

33. In all the circumstances I consider that the reasonable and necessary cost of rectifying the defective work is the cost of demolition and re-building in the sum of $132,605. 

34. In addition, the plaintiffs claim consequential losses being additional costs to complete and loss of the first homeowners grant. 

35. The pleadings also refer to the loss of use of monies paid to the defendant and finance costs associated with borrowings.  There was no evidence called on these issues and they were not pressed in argument.  Accordingly I make no award in relation to those claims.

    First Homeowner’s Grant.

36. The plaintiffs claim that they have lost the benefit of a first homeowners’ grant in the amount of $14,000 each for the three units. 

37. Rosalind Brown was not called to give evidence in relation to this issue.  There is no evidence that she was entitled to the first homeowner’s grant or that she lost her entitlement due to the conduct of the defendant.  I therefore reject that aspect of the claim. 

38. Michael and David Brown both gave evidence that they were entitled to the first homeowner’s grant and that they have, by the conduct of the defendant, lost that entitlement.  Both applied for the grant in respect of this development and both were required to repay it when the project came to a halt.  Prior to the repayment Michael and David Brown were registered as proprietors of improved land in New South Wales.  They did not claim the grant in relation to that property.  They are precluded from seeking this grant again owing to the New South Wales property.  It is my view that this inability to apply for this grant is not attributable to the actions of the defendant.  I therefore decline to award the plaintiffs damages for consequential loss in relation to the first homeowners’ grant. 

    Additional cost to complete

39. The plaintiffs are entitled to the additional cost to complete by way of damages for breach of contract.[98]  It is argued that the present cost of constructing the four town houses is greater than at the time the contracts were entered into.  Mr Jankovic did not cost this but suggested an appropriate way to assess the likely cost of rebuilding in accordance with the original design was to obtain quotes for the work.[99]   

    [98] see note 95

    [99]   Exhibit P1, Report dated 25/3/2008, doc 13 p126.

40. Mr Knight of Rider Hunt costed the additional cost of constructing the town houses in addition to rectification works as $606,430 in his report dated October 2003.[100]  The report also recommends a tender range of $580,000 to $630,000.  Mr Knowles updated this costing in his report dated 8 April 2008 to include GST and increased costs to $876,886.[101]  He also indicated that the costing in what he describes as the November 2003 report was in error, as it did not include GST.  The report tendered was in fact dated October 2003.  Mr Knowles indicates that costing (as at November 2002) would have been $614,841. 

    [100]  Exhibit P1, pp259-287

    [101]  Exhibit P4

41. Somewhat surprisingly, Mr Knowles was not examined or cross-examined on the issue of increased cost to complete in any detail.  He did not give evidence on this topic other than to comment that the cost to complete should be the subject of a competitive tender.[102]

    [102] Transcript p403

42. The work has not been put out to tender.  The best evidence I have before me is the costing by Mr Knowles of the cost to complete of $614,841 as at November 2002.  I accept his evidence and therefore find that the cost of constructing the town houses in addition to rectification works as at November 2002 was $614,841.  From this must be deducted the contract price to complete.

43. The original contract price was $615,000 together with two variations.  The amount of the variations was the subject of some dispute between the parties.  I find that the quantum of those variations was resolved by the first referee’s decision and was $1,707.29 for the first variation and $24,470.27 for the second.  The referee’s decision as to quantum of those variations is, I find, binding on the parties.  The total contract price was therefore $641,177.56.  In order to establish the contract price to complete I must consider the progress payment claims.  There is a dispute as to the progress payments raised by the defendant’s counterclaim. 

    Is the defendant entitled to judgement on its counterclaim?  If so, to what extent?

44. The plaintiffs have paid the defendant a total of $116,697.52 under the contracts.  The defendant counterclaims unpaid progress payments under the contracts.  I consider that it is entitled to payment of progress claims made under both clause 12.6 of the contracts and the common law.[103]  Written submissions were provided in relation to the quantification of these unpaid payments.  These dealt only with the referee’s awards and not with progress claim no. 3, which was not included in either of the awards.

    [103] see note 91

1. I found that the amended Award was invalid.  On that basis the defendant claims $24,501.43 as at 28 April 2008 under the first Award.  The difficulty with this claim is that it has already been litigated in the Adelaide Magistrate’s Court as outlined above.  Those proceedings were apparently settled.  The basis of the settlement was not the subject of evidence before me.  What is plain however is that the defendant discontinued those proceedings upon some payment by the plaintiffs.  If this payment was not in accordance with the settlement agreement this is not a matter that has been raised in these proceedings.  I decline to make any order in respect of the first two progress payments.

2. I find however that the defendant is entitled to the full amount of progress claim no. 3 in the sum of $18,863 together with interest from 21 February 2003.

   Conclusion and Summary

3. If I deduct the full amount of the progress claims from the contract cost to complete, this will overcompensate the plaintiffs given they have not paid the full amount of the claims.  I consider that it is appropriate to deduct the amounts paid by the plaintiffs in the sum of $116,697.52 together with the amount of progress claim no. 3 in the sum of $18,863.  The contract price following deductions to complete is $505,517.04.   Accordingly, the additional cost to complete is $109,323.96.

4. I find that the plaintiffs are entitled to damages assessed at 11 November 2002 as follows:

5. Cost of demolition and rebuilding  $132,605.00

6. Additional cost to complete  $109,323.96.

7. The defendant is entitled to judgement on the counter claim in the sum of $18,863.00.

   Proposed Orders

8. Judgment for the plaintiffs on the claim in the sum of $241,928.96 plus interest from 11 November 2002.

9. Judgment for the defendants on the counterclaim in the sum of $18,863 together with interest from 21 February 2003.

10. I will hear the parties as to the form of the orders, interest and costs.