Creeper v Cooper

[2013] SASCFC 78

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court: Civil)

CREEPER & ANOTHER v COOPER & ANOTHER

[2013] SASCFC 78

Judgment of The Full Court

(The Honourable Justice Gray, The Honourable Justice Sulan and The Honourable Justice Blue)

15 August 2013

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH

DAMAGES - GENERAL PRINCIPLES

The plaintiffs sued the defendants in the District Court for damages for breach of a warranty in a contract for the sale and purchase of land that no building work had been carried out without approval.  The Judge found that the defendants breached the warranty.  However, he awarded only nominal damages, finding that causation of loss was not established because the plaintiffs had offered the purchase price without obtaining a building inspection report and, on learning of building work undertaken without approval, did not make further enquiries but proceeded with the contract.

The plaintiffs claimed damages of $132,000 based on costs of rectification estimated by a builder called as an expert witness.  The defendants called an engineer, who disagreed with some of the opinions of the builder and in re-examination gave an estimate of rectification costs of $13,500.  The Judge assessed damages, on the assumption that causation of loss had been established, at $15,000 based on the evidence of the engineer.

The plaintiffs appeal on the grounds that the Judge erred in finding that the breach of warranty caused no loss or damage and against the trial Judge’s assessment of damages.

Held by the Court allowing the appeal:

1.      The Judge erred in finding no causation of loss.  The plaintiffs’ conduct before and after entry into the contract identified by the Judge did not negate causation of loss by the breach of warranty.  The fact that the plaintiffs did not exercise their cooling off rights did not negate their entitlement to damages (at [12]-[15]).

2.      The Judge erred in his approach to the assessment of damages.  He assessed damages on the basis of a global assessment of the credibility of the expert witnesses, rather than making specific findings relevant to and in determination of the issues in dispute (at [22]-[31]).

3.      The Judge erred in his assessment of quantum.  He did not address all of the complaints of the plaintiffs and wrongly permitted the defendants’ expert witness to give evidence concerning quantum in re-examination (at [32]-[35]).

4.      Appeal allowed.  Judgment of the District Court set aside.  Judgment entered for the plaintiffs for damages to be assessed (at [40]).

Terry v Leventeris [2011] SASCFC 26; (2011) 109 SASR 358; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, discussed.
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286; Stubing v Halling [2012] SASCFC 123; (2012) 115 SASR 1, considered.

CREEPER & ANOTHER v COOPER & ANOTHER
[2013] SASCFC 78

Full Court:       Gray, Sulan and Blue JJ

THE COURT

1. The plaintiffs and appellants, Andrew James Creeper and Julie-Ann Baliga, claimed damages in District Court proceedings in respect of a breach of warranty in relation to a contract of sale of real property.  The Judge found that Ashley Warren Cooper and Susan Carol Cooper, the vendors of the property, had acted in breach of warranty.  The Judge concluded, however, that only nominal damages should be awarded, as the breach of warranty caused no loss or damage.  The plaintiffs, by this appeal, challenge the Judge’s conclusion that no damage was caused by the breach. 

2. The Judge dismissed claims for damages for misrepresentation and for breach of the Fair Trading Act 1987 (SA). These orders were initially challenged, however during the course of the appeal, they were abandoned.

3. In May 2004, the defendants offered their house property at St Agnes for sale through the agency of Phillip McBride.  The plaintiffs inspected the property in mid-June 2004 and discussed their interest in the property with Mr McBride.  On 26 June 2004 they inspected the property again.  On this occasion, they made an offer to purchase the property for $370,000.00.  Mr McBride prepared a standard form contract which the plaintiffs signed thereby making an unconditional offer to purchase the property.  The defendants, at this time, were in Melbourne, and Mr McBride telephoned them to discuss the offer.  At some time between 26 and 29 June 2004, the defendants advised Mr McBride that they wished to accept the offer and he then faxed a copy of the signed offer for their acceptance.  The defendants executed the contract as vendors and returned a copy of the executed document by facsimile.  Mr McBride then informed the plaintiffs by telephone that their offer had been accepted. 

4. Thereafter, on 29 June 2004, the plaintiffs met with Mr McBride at the property.  On this occasion, he explained about the cooling-off period and provided the relevant documents to them.  In preparation for the meeting, Mr McBride claimed to have more closely inspected Council searches and satisfied himself that the garage on the property had been converted into three small bedrooms without Council approval.  Mr McBride produced the searches to the plaintiffs and informed them that Council approval had not been obtained.  There was some discussion about the possibility of retrospective approval.  There was also discussion about the possibility of the removal of the bedrooms.  It is to be noted that the disclosure to the plaintiffs that the garage had been converted without Council approval was only made following the execution of the contract by both parties and the plaintiffs being informed that their offer had been accepted.  According to the Judge’s findings, there had been no disclosure prior to entry into the contract that a timber carport had also been built without Council approval. 

5. The contract included the following warranty given by the defendants:

   5.6     Warranties by the Vendor

   The Vendor warrants except as set out in the Schedule:

   5.6.1  …

   5.6.2 that to the Vendor’s knowledge, no building work has been carried out on the land without all necessary consents and approval having been obtained;

   5.6.3  …

6. The Schedule to the contract contained this clause:

   N.    Alterations, Repairs and Improvements erected without consent [Clause 5.6.2]

   “NIL”.

7. Examination of the conversion of the garage revealed several problems.  A damp proof course[1] had not been inserted in appropriate places.  As a consequence of the way in which bricks had been laid and the absence of the damp proof course, there had been a termite infestation and damage.  Although the termites had been eradicated, the damage remained.  The carport was found to be in a poor state of repair.

   [1]    A damp proof course involves the insertion of material to avoid the rising of damp.

8. The Judge concluded that the defendants were in breach of warranty.  They had converted the garage and erected the carport without Council approval.  The Judge considered that the warranty was to be understood as meaning that, to the extent that the vendors knew that building work had been done on the land during their ownership, they warranted that all necessary approvals and consents had been obtained for such work.  On the appeal, there was no challenge by the defendants to this conclusion.[2] 

   [2]    Stubing v Halling [2012] SASCFC 123; (2012) 115 SASR 1 at [17]-[21] per Gray J and [61] per White J (Sulan J agreeing).

9. The Judge, having found breach of warranty, concluded however that, because the plaintiffs did not rely upon the warranty, the breach was not causative of damage and they were entitled to nominal damages only.  The Judge gave the following reasons for this conclusion:

   For the following reasons, Mr Creeper and Ms Baliga did not rely on the warranty in clause 5.6.2 in respect of the garage conversions or the carport:

   •Mr Creeper was prepared to offer $370,000 to buy the house upon his second inspection without having a building inspector inspect the house and provide a report.

   •Having been told that the garage had been converted without approval, he chose not to make any further enquiries about consent or approval but to rely upon his own skill and judgment.

   •He must have known that the timber carport had been built to replace the original garage and yet, again, he chose to make no further enquiries once he had been alerted to the fact that the garage conversion did not have the necessary council consent and approval. 

   Mr Creeper and Ms Baliga did not cool off and the contract eventually settled. 

10. The Judge then considered the assessment of damages.  He did so against the contingency that he was in error in his earlier conclusions.  The Judge referred to the evidence of the competing experts.  Steven Pike, an experienced builder called by the plaintiffs, gave evidence that the cost of bringing the garage conversion and carport to a standard to satisfy the Council requirements would involve an expenditure of $120,000.00 together with GST.  Richard Liney, an engineer called by the defendants, provided an estimate of $13,500.00.  The Judge was unimpressed by Mr Pike’s evidence that the damp proof course deficiency could only be treated by erecting a new wall.  The Judge was critical of Mr Pike’s reluctance to accept the use of appropriate measuring instruments to test for dampness.  The Judge considered that Mr Pike’s evidence was unsatisfactory.  Mr Liney had offered the solution of a process of chemically treating the slab for waterproofing.  The Judge was impressed by Mr Liney’s evidence.

11. The Judge accepted Mr Liney’s guesstimate of the costs of rectification at $13,500.00 and added a further amount of $1,500.00 to allow for minor contingencies, leading to total damages, had causation been established, of $15,000.00

    The Appeal

12. Earlier in these reasons, we have set out the grounds given by the Judge for finding no causation.  The first of those reasons was that the plaintiffs were prepared to make an unconditional offer to buy the property without having a building inspector prepare a report.  This is not a relevant matter to support a finding of no causation.  The contract provided the plaintiffs with the protection of the earlier referred to vendor’s warranty.  The next two grounds related to information conveyed to the plaintiffs after the contract had been entered into by both parties.  It was at that time that the plaintiffs first learnt that the garage had been converted without approval and sometime thereafter the plaintiffs must have become aware that the carport had been built without approval.  These matters were of no relevance to the issue of causation.  By this time, the contract had been executed and the plaintiffs had the protection of the vendors’ warranty.  The final matter referred to by the Judge was the failure of the plaintiffs to cool off.  Cooling off was an entitlement of the plaintiffs.  It was for the plaintiffs to cool off it they wished to do so.  They were not under any obligation or duty to do so.  In short, none of the reasons provided by the Judge justify his conclusion concerning causation of loss and damage.

13. The plaintiffs were not obliged to terminate the performance of the contract after becoming aware of the defendants’ breach of warranty.  Their entitlement to complete the performance of the contract was recognised by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd where Jordan CJ observed:[3]

    In considering the legal consequences flowing from a breach of contract, it is necessary to remember that (i) the breach may extend to all or to some only of the promises of the defaulting party, (ii) the promises broken may be important or unimportant, (iii) the breach of any particular promise may be substantial or trivial, (iv) the breach may occur or be discovered (a) when the innocent party has not yet performed any or some of the promises on his part, or after he has performed them all, and (b) when the innocent party has received no performance from the defaulting party, or has received performance in whole or in part; and to remember also that the resultant rights of the innocent party and the nature of the remedies available to him may depend upon some or all of these matters.

    The nature of the promise broken is one of the most important of the matters.  If it is a condition that is broken, i.e., an essential promise, the innocent party, when he becomes aware of the breach, has ordinarily the right at his option either to treat himself as discharged from the contract and to recover damages for loss of the contract, or else to keep the contract on foot and recover damages for the particular breach.  If it is a warranty that is broken, i.e., a non-essential promise, only the latter alternative is available to the innocent party: in that case he cannot of course obtain damages for loss of the contract: A.H. McDonald & Co. Pty. Ltd. v. Wells. 45 C.L.R. 506 at 513-4.

    Although the decision of Jordan CJ was reversed by the High Court,[4] the above exposition of the law was not doubted. 

    [3]    Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641 per Jordan CJ.

    [4]    Luna Park (N.S.W.) Limited v Tramways Advertising Pty Ltd (1938) 61 CLR 286.

14. Circumstances may occur where damage does not arise from a breach of warranty.  The authorities include examples of a party knowing of the true state of affairs before the warranty was provided.  None of those authorities are concerned with the situation in which the aggrieved party learnt of the breach following entry into the contract. 

15. Counsel for the defendants on the appeal accepted the correctness of the legal principles enunciated by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd.[5]  At first counsel argued that the plaintiffs had the opportunity to utilise the right to cool off provided in the contract.  Ultimately, counsel was unable to provide any basis for distinguishing the observations of Jordan CJ.  It follows that the Judge’s conclusions regarding causation were flawed. 

    [5]    Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) SR (NSW) 632.

16. The plaintiffs are entitled to recover by way of damages the cost of having the garage conversion and the carport erection brought up to a standard that met the Council’s requirements. 

    The Assessment of Damages

17. The plaintiffs challenged the Judge’s conclusions concerning damages.  They argued that the Judge erred in preferring Mr Liney’s evidence over that of Mr Pike on the basis of a credibility assessment and in any event in relying upon Mr Liney’s guesstimate given in re-examination.  The defendants contended that the damages as assessed by the Judge were the appropriate assessment. 

18. It is convenient to extract the reasons of the Judge on this topic:

    I have considered the evidence of both of those witnesses carefully.  Mr Pike was plainly an honest witness but there were a number of unsatisfactory aspects to his evidence.  I give a few examples.  He would not make concessions where they obviously should be made: he insisted that a builder could be liable for defective work even when it had been done in strict accordance with an engineer’s specifications.  He placed much reliance on his ability to test any dampness in a concrete slab floor by covering it for a short period of time with a piece of rubber matting and then seeing if there was moisture on the floor when the matting was removed but he was very reluctant to accept that the proper way to test for dampness is with the appropriate measuring instrument.  On the topic of moisture measurement, he did not include in his report that there was evidence of moisture in the slab but insisted in his evidence that there was such moisture.  He included in his estimate the cost of footings without having checked to see that there were adequate footings already present.  He was very reluctant to admit that a slab can be chemically treated for waterproofing and comply with the relevant section or sections of the Building Code.  He only begrudgingly conceded that Mr Liney’s solution for damp proofing the garage conversions eastern wall to bring it up to council standard was acceptable. 

    Mr Liney is, as I said, a qualified engineer who has had experience in damp proofing existing buildings.  He has suggested a solution to the problem with the eastern wall in the garage conversion and produced a plan demonstrating how that solution works.  While Mr Pike insisted that the carport must be demolished and replaced, Mr Liney gave evidence that it could be brought up to standard by replacing some of the timber work and by bracing the now free standing carport to the eaves of the house.  He said that he would certify work done in accordance with his plans.  There is no suggestion in the evidence that council approval would not be given for works so certified.  Mr Liney was a professional and straightforward witness who impressed me.  Even though he was never asked for a detailed breakdown of the costs of bringing both the garage conversion and the carport up to standard, he gave a confident “guesstimate” of $5,000 for each of them together with a fee of something in the order of $3,500 for the necessary architect’s and engineer’s work. 

    I prefer Mr Liney’s estimate of the costs of remedial work to that of Mr Pike.  Accordingly, if the plaintiffs are entitled to damages I would fix damages at $15,000.  I have rounded up Mr Liney’s figure to allow for what would probably be minor contingencies. 

19. Counsel for the plaintiffs on the appeal referred to valuation evidence given by a land agent at trial.  The Judge made no reference to this evidence at all in his reasons.  The valuation at December 2004 was $235,000.00.  The valuation was made without an inspection of the property.

20. The valuer was instructed by the plaintiffs’ solicitor to determine market value on the basis that the garage conversion and the carport erection were not approved by the Council, that the purchasers were fully aware of these matters, and that the cost of rectifying the defective works was the amount specified by Mr Pike of $120,000.00.  The valuation proceeded on the basis that the problems identified by Mr Pike had been correctly assessed by him.  The valuer assessed the market value of the property unaffected by the building issues at $365,000.00, and simply made a deduction of the costs of the remedial works assessed at $130,000.00, leading to a valuation of $235,000.00.  Plainly, this valuation was contingent on the acceptance of Mr Pike’s evidence.  Had the true costs of the remedial works been $15,000.00, it would follow that the valuer would have valued the property at the time at $350,000.00.

21. The valuer was called to give evidence.  In essence, his opinion was that the property unaffected by the problems associated with the garage conversion and the carport had a value of $365,000.00 at the date of the sale in 2004 and from that amount should be deducted the rectification costs.  In cross-examination, the valuer was questioned about the approach that he would take to valuing the property if the defects had been disclosed at the time of the contract of purchase.  He confirmed that the value of the property would be reduced by the expense involved in attending to the remedial work.  In his view, if a purchaser believed the cost of rectification to be less than $130,000, a purchaser would deduct that lesser rectification cost from what the purchaser would otherwise be prepared to pay.  The approach of the valuer confirmed that the loss and damage is represented by the cost of the rectification works. 

1. In order to assess damages by reference to the cost of rectification, it is necessary to identify the relevant defects in the building; to identify the rectification works reasonably required to remedy those defects; and then to assess the reasonable cost of undertaking that work. 

2. The Judge did not undertake this process.  He did not identify the relevant issues or evidence bearing on each claimed defect or make relevant findings of fact.  He simply made a global assessment of the credibility of the respective expert witnesses.  He considered that Mr Liney was the more reliable.

3. The plaintiffs advanced detailed complaints at trial.  It was claimed that the floor slab in the converted garage did not have a proper damp proof membrane beneath the slab to stop moisture rising into the floor coverings and the house.  The plaintiffs claimed for replacement of the concrete slab.  The defendants contended that the slab could be sprayed with a sealant.

4. The plaintiffs asserted that the eastern external brick wall of the converted garage had been constructed upon a course of transverse brick pavers sitting on the footing without any damp proof course underneath.  The plaintiffs claimed for removal of the existing pavers and brick wall and construction of a new brick wall on a new damp course sitting on top of the footing.  The defendants contended that the bottom two courses of bricks could be removed and replaced with new courses sitting on a damp course on top of the footing.

5. The path outside the converted garage was constructed above the top of the footing when it was required to be lower than the top of the footing.  This was necessary to prevent water and termite ingress under the external brick leaf wall. The plaintiffs claimed for removal of the existing paving and construction of new paving below the top of the footing together with a small retaining wall.  The defendants contended that a new damp course could be placed below the first and second brick courses.

6. The plaintiffs further complained of the existence of a gap between the outside edge of the garage slab and the inside edge of the external brick wall capable of permitting termites to enter and damage the internal timber framed walls.  The plaintiffs claimed for the erection of new internal wall framing, associated finishes and fittings. 

7. An opening had been cut through the wall between the converted garage and the main part of the house without a lintel.  The plaintiffs claimed for installation of a lintel above the door frame. 

8. The plaintiffs claimed that the carport had been constructed of untreated, internal grade timber.  They claimed replacement of the timber.  The defendants contended that the roof trusses at each end could be replaced and those trusses which had pulled away from the beams could be re-attached with no additional replacement.  Finally, the plaintiffs said that the eight carport posts sat on 20 millimetre diameter steel pins.  The plaintiffs claimed for removal of those pins and replacement with new posts encased in concrete.  The defendants contended that bracing the carport to the house would be an adequate solution.

9. The plaintiffs called a building inspector employed by the City of Tea Tree Gully.  He was not asked in cross-examination whether the Council would grant development approval in respect of the alternative rectification solutions proposed by Mr Liney. 

10. The Judge did not make findings as to the specific respects in which the garage conversion and the carport erection had been defective and would not have merited development approval.  He did not make findings about the majority of the plaintiffs’ complaints.  He did not make findings as to the rectification work which would have been required and which would have been accepted by the Council in order for development approval to be granted.  He did not give reasons for the few findings that he made in relation to any of these matters.  The Judge erred by not making specific findings and giving reasons for such findings on the issues which he was required to decide.  For these reasons, his assessment of damages should be set aside. 

11. About two weeks prior to the commencement of the trial, the defendants obtained and served on the plaintiffs an expert report by Mr Liney.  Mr Liney was not asked to and did not address all of the complaints of the plaintiffs or the matters covered by Mr Pike’s report.  He did not address the complaints concerning the gap between the garage slab and the external brick wall.  He did not address the absence of a lintel. 

12. Mr Liney was not asked to provide an opinion concerning costs.  At trial, he gave very little evidence-in-chief and did not give any evidence of cost estimates. In re-examination, Mr Liney was asked about guesstimates which he had given to the defendants’ solicitor and to which he had referred during cross-examination. The plaintiffs’ counsel objected but the trial Judge overruled the objection. 

13. Mr Liney should not have been permitted to give evidence of his guesstimates in re-examination.  No report by him concerning estimated costs had been served before trial or before Mr Liney gave evidence.  Mr Liney’s guesstimates had not been put to Mr Pike in cross-examination.  They were not disclosed at all before the plaintiffs closed their case.  No evidence was led in chief from Mr Liney concerning estimated rectification costs.  The defendants accepted that they had they been at fault in failing to disclose the communication between their solicitor and Mr Liney concerning his guesstimates. 

14. Mr Liney’s guesstimates did not cover all of the rectification works required.  They did not cover replacement of the internal wall framing, associated finishes and fittings or the installation of a lintel.

15. The plaintiffs urged this Court to reach a conclusion as to damages without remitting the matter for reassessment.  The defendants contended that the matter would need to be remitted to the District Court for an assessment of damages if the judgment were set aside.  This Court is simply not in a position in which it could undertake an assessment of damages.  

    Two further matters

16. There are aspects of this proceeding that have caused the Court considerable disquiet. 

17. The Judge delayed delivering judgment for a period of almost 18 months.  The reasons for judgment refer only to part of the evidence and then in what can only be described as a cursory manner.  The reasons are wholly inadequate.  The Court refers to this Court’s decision in Terry v Leventeris[6] and to the discussion concerning the problems associated with lengthy delays in delivering judgment following a trial. 

    [6]    Terry v Leventeris [2011] SASCFC 26; (2011) 109 SASR 358 at [14]-[18] per Gray J.

18. The Court is gravely concerned about the expenses involved in the proceeding thus far and was informed that each party’s costs were approaching $200,000.00.  Apparently, no attempt had been made to mediate a resolution.  It is a sad state of affairs when the parties jointly spend more than the value of the entire property when litigating a breach of warranty involving, at most, damages of $120,000.00 

    Conclusion

19. The appeal is allowed.  The orders of the District Court are set aside.  In lieu thereof judgment is entered for the plaintiffs for damages to be assessed.  We defer consideration of the remittal of the proceeding to assess damages.  We will discuss with the parties the question of mediation.  We will hear the parties concerning costs.