Lichaa v Boutros

[2021] NSWCA 322

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Lichaa v Boutros [2021] NSWCA 322

Hearing dates:

27 October 2021

Date of orders:

16 December 2021

Decision date:

16 December 2021

Before:

Macfarlan JA at [1]
Gleeson JA at [2]
Rein J at [3]

Decision:

(1) Appeal allowed in part as to ground 5.

(2) Set aside orders 1 and 4 made by Olsson SC DCJ on 16 March 2021.

(3) Remit the proceedings to the District Court for a new trial limited to the following issues:

(a) Are any of items 1-6 and 8-18 identified as defective by Mr Verinder in the Amended Scott Schedule breaches of the Contract (including the implied terms)?

(b) If the answer to (a) is yes, what is the necessary remedial work reasonably required to bring Ms Lichaa’s house into conformity with what was promised by the Contract?

(c) What are the costs of the work required and identified in (b)? Direct that insofar as the work includes demolition of the first floor in its entirety, Mr Verinder’s costing should be used, but updated to reflect any increase or diminution in the costs identified by reason of the passage of time.

(4) Respondent to pay the costs of the appeal.

(5) Respondent to have a certificate under the Suitors’ Fund Act 1951 (NSW) if otherwise qualified.

(6) Costs of the proceedings below to abide the outcome of the new trial.

Catchwords:

APPEALS — Procedural fairness — Failure to give reasons — Adequacy of reasons – failure to engage with the case presented by each party – duty to give reasons for rejecting evidence of expert or preferring evidence of one expert over another – whether the primary judge failed to adequately explain why the Appellant’s expert evidence was rejected or why the Respondent’s expert evidence was preferred.

BUILDING AND CONSTRUCTION — Contract — Termination — Repudiation – the Respondent, the builder, was shut out from site after repudiatory conduct by the Appellant, the owner – whether the owner repudiated the contract.

BUILDING AND CONSTRUCTION — Contract — Damages — Defects – relevance of repudiation to claims for damages for defects – whether repudiation by the owner not relevant – Appellant had accrued rights in respect of work carried out prior to determination of the contract.

BUILDING AND CONSTRUCTION — Contract — Damages — Defects – engagement of second builder to complete work of the Respondent including repair of defects of Respondent not exculpatory of Respondent and not relevant to the loss claimed in respect of defects solely the result of work performed by the Respondent – whether owner had accepted the defective work.

BUILDING AND CONSTRUCTION — Contract — Damages – proof of loss – adequacy of evidence supporting loss – where failure to mitigate damages not pleaded – whether evidence from the Appellant’s expert that would enable the Appellant’s loss to be calculated albeit on the basis of demolition of the building.

Legislation Cited:

Home Building Act 1989 (NSW), ss 18A, 18B, 18AB

Suitors’ Fund Act 1951 (NSW)

Uniform Civil Procedure Rules 2005 (NSW), rr 20.14, 51.53

Cases Cited:

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

ECS Group (Australia) Pty Ltd v Hobby [2014] NSWCA 193

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Harbutt's Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447

Jandon Constructions (A Firm) v Lyons [1999] WASCA 310

J-Corp Pty Ltd v Gilmour (2006) 22 BCL 8; [2005] WASCA 136

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; [2007] HCA 61

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25

M & EM Hull Pty Ltd v Thompson [2001] NSWCA 359

New South Wales Land and Housing Corporation v Orr (2019) 100 NSWLR 578; [2019] NSWCA 231

Robinson v Harman (1848) 1 Exch 850

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

Wenham v Ella (1972) 127 CLR 454

Wiki v Atlantis Relocations (NSW) Pty Ltd (2004) 60 NSWLR 127

Texts Cited:

DB Casson and IH Dennis, Odgers’ Principles of Pleadings and Practice: In Civil Actions in the High Court of Justice (1981, 22nd ed, Stevens & Sons)

Category:

Principal judgment

Parties:

Odette Lichaa (Appellant)
Maroun Boutros (Respondent)

Representation:

Counsel:
A G Rogers (Appellant)
R V Zikmann (Respondent)

Solicitors:
Observatory Legal (Appellant)
Farah Lawyers (Respondent)

File Number(s):

2021/101885

 Decision under appeal 

Court or tribunal:

District Court of New South Wales

Jurisdiction:

Civil

Date of Decision:

16 March 2021

Before:

Olsson DCJ

File Number(s):

2018/275277

HEADNOTE

[This headnote is not to be read as part of the judgment]

The Appellant and the Respondent entered into a building contract pursuant to which the Respondent was, for an agreed sum, to build to lock up stage a second storey on the Appellant’s existing residence (the Contract).

At a time close to completion of the work specified in the Contract, there were disputes between the Appellant and the Respondent and the Respondent claimed that the Appellant had shut him out of the building site and repudiated the Contract, which repudiation he had accepted. Following the Respondent’s departure, the Appellant retained a new contractor whose contract (the New Contract) included an obligation to repair defects in the Respondent’s work.

The Appellant claimed that the works carried out by the Respondent were defective in a number of respects (the Defects Issue) and by an expert’s report provided costing of the demolition of the structure built by the Respondent.

The primary judge held that the Appellant had repudiated the Contract and rejected the Appellant’s claim in respect of the alleged defects in the Respondent’s work. Her Honour also held that a quotation prepared by the Respondent (the Quotation) formed part of the Contract.

There were four issues on the appeal:

(1) whether the primary judge erred in concluding that the Appellant had repudiated the Contract;

(2) whether the Quotation formed part of the Contract;

(3) whether the primary judge had adequately dealt with the Defects Issue; and

(4) whether the primary judge erred in relation to her conclusion that there was insufficient evidence of loss to support the Appellant’s claim.

HELD, allowing the appeal (Rein J, Macfarlan and Gleeson JJA agreeing):

(1) the primary judge did not err in concluding that the Appellant had repudiated the contract: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; [2007] HCA 61 referred to at [23];

(2) it was not necessary for the purpose of the appeal to determine whether the Quotation was part of the Contract or not: at [22];

(3) the primary judge erred in concluding that the Appellant’s claim in relation to the Defects Issue should be dismissed because the second builder was obliged under the New Contract to repair defects in the Respondent’s work; the Appellant “accepted the works” completed by the Respondent: at [38], [39];

(4) the fact that the Appellant had repudiated the Contract and the lack of evidence as to what was paid by the Appellant to the second builder under the New Contract was not relevant to the Appellant’s claim in respect of the defects at [24];

(5) the primary judge’s reasons for rejecting the Appellant’s claim in respect of defects failed to adequately explain why the primary judge rejected the expert evidence called by the Appellant or preferred the expert evidence called by the Respondent: at [48]-[50]; Wiki v Atlantis Relocations (NSW) Pty Ltd (2004) 60 NSWLR 127 and New South Wales Land and Housing Corporation v Orr (2019) 100 NSWLR 578; [2019] NSWCA 231 referred to at [46]-[47].

(6) there was evidence from the Appellant’s expert that would enable the Appellant‘s loss to be calculated albeit on the basis of demolition of the structure built by the Respondent: at [53];

(7) an allegation that a plaintiff failed to mitigate his or her loss must be specifically pleaded: ECS Group (Australia) Pty Ltd v Hobby [2014] NSWCA 193 referred to at [35];

(8) on the basis that UCPR r 51.53 applied to an appeal from a District Court judge sitting without a jury (there being no contention that it did not), a substantial wrong or miscarriage has occurred: at [58]; and

(9) the appeal should be upheld and the matter remitted for a new trial but limited to specified issues: at [60].

Judgment

1. MACFARLAN JA: I agree with Rein J.

2. GLEESON JA: I agree with Rein J.

3. REIN J: This appeal concerns a residential building contract entered into between the appellant, Ms Odette Lichaa (Ms Lichaa), homeowner, and the respondent, Mr Maroun Boutros (Mr Boutros), builder, in respect of first-floor additions to Ms Lichaa’s property at Rockdale (the Contract). Ms Lichaa brought proceedings in the District Court claiming that:

1. Mr Boutros had, at her property in Rockdale, “performed the Works, or ceased to perform the Works in such a way as to cause damage (i) to the Property and (ii) to such of the Works as had to date been completed”.

2. Mr Boutros in breach of his obligations under the agreement quit the site on 2 November 2015 and had left the works incomplete and not properly protected from the elements which led to consequent flooding and damage to the building.

3. As a consequence of (1) and (2) Ms Lichaa had suffered loss and damage, the amount particularised being:

1. a “restitutionary claim” in the amount of $137,000, this being all the monies paid by Ms Lichaa to Mr Boutros before he was excluded from the site;

2. rectification costs “yet to be quantified but no less than $230,203.50”; and

3. damages for “loss of amenity” in respect of the property.

4. Item (b) was effectively particularised as $747,368 through the Scott Schedule of Ms Lichaa’s expert, Mr Peter Verinder (Mr Verinder), and later revised down to $705,114 through the Amended Scott Schedule.

5. Mr Boutros denied that any of his work was defective and denied any liability to Ms Lichaa. He agreed that he had left the site on 2 November 2015, but asserted that failure to complete, cover or protect the unfinished works could not be something for which he was responsible, given that Ms Lichaa had precluded him from the site leading to termination of the building contract.

6. In her judgment of 16 March 2021, the primary judge rejected Ms Lichaa’s claims. Ms Lichaa appeals from that decision and seeks judgment in the amount of $609,737.50, or alternatively a new hearing.

Background

7. An understanding of the scope of the dispute in the District Court is assisted by reference to the following matters:

1. There is no dispute that the parties entered into a building contract on 20 August 2015 and that both building plans and an engineering plan describing the nature of the work were incorporated into the contract for the work to be performed by Mr Boutros. The building plans were prepared by Mr Geoff Wills, a builder. The engineering plan was prepared by RKM Consultants Pty Ltd (RKM) and comprised a single page no. 15029-1.

2. There is no dispute that the work to be performed by Mr Boutros was only to “lock up stage” so that Ms Lichaa would be responsible for all finishes to the upper storey that Mr Boutros was contracted to build.

3. There is no dispute that the work to be performed by Mr Boutros did not include a kitchen and laundry.

4. One matter which is in dispute is whether a quotation bearing the date 17 August 2015 (the Quotation) was provided by Mr Boutros to Ms Lichaa prior to or at the time of signing of the Contract. There is a space in the Contract for completion of reference to a quotation but it has not been completed. Ms Lichaa and her daughter, Ms Joanne Lichaa (Joanne), deny having received the Quotation at any relevant time and Mr Boutros in cross-examination said he gave it to them before the Contract was signed. Joanne had a significant involvement in the project throughout because the building work was intended to provide her and her sons accommodation at Ms Lichaa’s house.

5. After the work had commenced there arose disputes between Mr Boutros and Joanne as to, for example, the placement of windows and in respect of the quality of the work. There also arose an issue of whether tiles could be laid on the entirety of the new first floor rather than just in the bathroom and ensuite. The tiling issue generated significant controversy with Joanne and Ms Lichaa asserting that they had always wanted a fully tiled first floor and Mr Boutros disputing that he had ever been told of that intention and asserting that tiling was not possible on the flooring (yellow tongue-and-groove) that he had installed. It may be that the inability to lay tiles across the whole of the first floor came to be understood by Ms Lichaa as a consequence of a limit of the structural integrity of the supports for the floor.

6. There is no dispute that the engineering plans required the beams supporting the upper floor, B1 to B9, to be steel and that Mr Boutros did not install any steel beams to support the floor where specified. Mr Boutros claims that he pointed out to Ms Lichaa and Joanne that timber beams would be easier to procure and he says that they agreed to that substitution. Ms Lichaa and Joanne denied that their views had been sought or that they had agreed to the change. What is not in dispute is that Mr Boutros sought and obtained the approval of Mr R McKean of RKM (Mr McKean) to the change. The terms of the approval are important and the content of Mr McKean’s letter to Rockdale City Council of 12 October 2015 which relevantly provides:

“PROPOSED EXTENSIONS AT 12 WOODFORD ROAD, ROCKDALE

Structural details for the above are shown on our drawing no. 15029-1.

We hereby certify that the structural details shown on the above drawings have been designed in accordance with the current relevant SAA Codes and are structurally adequate for the proposed loadings including the following amendments:

Beams B1 to B9 may be 2/300x65 LVL18 in lieu of steel beams.”

7. After Mr Boutros ceased work on the site, Ms Lichaa retained a new builder, AIT Building Constructions Pty Ltd (AIT) in about March 2016.

8. After AIT had ceased work, Joanne carried out work on the house.

9. Ms Lichaa made complaints to the Department of Fair Trading and also commenced proceedings in the NSW Civil and Administrative Tribunal (NCAT) against Mr Boutros claiming that the work performed was defective. Those proceedings were later abandoned.

10. Ms Lichaa engaged an expert, Mr Verinder, to assess the property for the purpose of these proceedings and he provided a report dated 16 August 2019 and a supplementary report dated 16 May 2020.

11. Mr Boutros engaged an expert, Mr Ken Demlakian (Mr Demlakian), who provided a report dated 26 March 2020 and an Addendum to Expert Report dated 25 May 2020.

The Primary Judgment

8. The primary judge made the following findings:

1. Mr Boutros’s work commenced in late August 2015 and proceeded until 2 November 2015: J [36], [56].

2. The Quotation was given to Ms Lichaa before the building contract was signed and was incorporated and formed part of the Contract: J [21], [35].

3. The Quotation specified the work to be performed and indicated a price of $260,000 and that was the price specified in the Contract: J [22].

4. The work covered by the Quotation was only up to lock-up stage. All other works being for Ms Lichaa to complete: J [18], [44(ii)].

5. The Contract required an initial payment of $27,000 by Ms Lichaa to Mr Boutros upon signing and thereafter instalment payments progressively during the works when work reached a specified stage - $160,000 by the time of “blueboard rendering or painting”: J [23].

6. Sections 18A, 18B and 18BA of the Home Building Act 1989 (NSW) (the Act) were engaged because the work was residential work: J [24].

7. The approved plans which were referenced in the Contract were silent as to floor coverings: J [40], [44(ii)].

8. Mr Boutros did not know until late October 2015 that Ms Lichaa intended to install tiles on the first floor: J [45].

9. That:

1. Timber beams were more readily available than steel and quicker to install: J [51].

2. Mr Boutros had allowed for timber beams in the quote: J [51].

3. That Ms Lichaa knew about the “change” but did not appreciate its significance: J [51].

10. That, based on the use of timber beams, Mr McKean prepared a revised structural design and approved the works and the Principal Certifying Authority (PCA) approved the floor framing and issued a certificate: J [52].

11. There was a dispute concerning windows between Mr Boutros and Joanne: J [53]. There was a further dispute concerning Ms Lichaa’s request for a kitchen and laundry which she wanted installed on the first floor: J [54]. The windows issue was resolved.

12. On 2 November 2015, Mr Boutros was approached by a Mr Michael Mousakis (Mr Mousakis), a friend of Ms Lichaa and Joanne. On Mr Boutros’s evidence Mr Mousakis said he wanted to discuss the performance of the works with Mr Boutros, which Mr Boutros declined to do. He says that Mr Mousakis tried to prevent him leaving, threatening in effect to throw him from the scaffolding: J [57], [78]. Her Honour found that Mr Boutros left the site under the threat of physical violence and that accordingly he was deprived access to complete the works and that Ms Lichaa thereby repudiated the Contract: J [78].

13. Mr Boutros’s solicitor wrote to Ms Lichaa’s solicitor on 4 November 2015 seeking to recover $73,000 being the claimed amount outstanding under the Contract: J [64].

14. On 12 November 2015 Ms Lichaa’s solicitor replied noting that Ms Lichaa would be obtaining quotes for rectification work and completion of the building works, and stated that Mr Boutros would not be allowed back on site: J [65].

15. On 11 November 2015, Ms Lichaa retained Mr McKean to inspect the works to determine defects and advise on a course of action. Some minor defects were noted and Mr McKean recommended “a detailed inspection and site measure”: J [60].

16. There was no evidence of any further inspection carried out, notwithstanding the recommendation of Mr McKean: J [62].

17. On 1 March 2016 AIT provided a quote to Ms Lichaa for $152,834 which set out a complete list of work, including as the first item “repair existing works incorrectly done”: J [67]-[68]. Most of the work in the AIT contract was work beyond the scope of the Contract between Ms Lichaa and Mr Boutros.

18. In or after March 2016 AIT commenced its work: J [67].

19. The house has been occupied by Ms Lichaa, Joanne, and Joanne’s children since 2016: J [75(x)(d)].

9. The primary judge remarked on a number of matters as to which the evidence was incomplete:

1. What work precisely AIT performed (although Ms Lichaa agreed that AIT did not demolish everything Mr Boutros had done: J [70]).

2. How much money was actually invoiced by AIT: J [71]. The receipts given by AIT, however, totalled $56,000.

3. It is not clear what work, if any, was done by AIT after 24 June 2016, but it seems that Joanne arranged for any remaining work after that date: J [73].

4. There was no means, on the evidence, of determining what work was done by AIT in rectification of alleged defects in Mr Boutros’s work or what work was done by AIT or after AIT had left the site.

10. The critical findings or conclusions which led to her Honour’s determination that Ms Lichaa should fail in her claim were:

1. The absence of evidence of the totality of moneys paid to AIT: J [71].

2. The difficulty or impossibility of distinguishing rectification work from completion work: J [72], and there was no evidence as to what portion of the sum paid to AIT was for defect rectification: J [81].

3. The uncertainty of what work Joanne arranged after AIT ceased work: J [73].

4. That Mr Boutros was to be given the opportunity to complete his work free of interference from the site – if some of the work was defective “he ought to have been given the opportunity of correcting it”: J [77]. He left the site under threat of physical violence and Ms Lichaa denied him access to complete the works and in so doing repudiated the Contract: J [78].

1. Ms Lichaa failed to explain why the site was unprotected after Mr Boutros’s departure from the site: J [79].

2. AIT was contracted to rectify and complete the works – AIT did not demolish any of the works and therefore “took responsibility for the work” and when Joanne took over the project “she, too, took responsibility for the work and must be taken to have accepted it”: J [80].

3. Ms Lichaa:

“elected to complete the entire project without demolition of all of [Mr Boutros’] work and I find that they accepted [Mr Boutros’] work for that reason”

: see J [82].

8. It seems that Ms Lichaa paid $137,000 to Mr Boutros leaving a balance of $123,000 on the Contract sum so to “recover anything, the Plaintiff would need to demonstrate that the rectification and completion of the work caused her to expend a sum greater than $123,000”: J [85].

9. Her Honour was not satisfied that Ms Lichaa had incurred a cost greater than $123,000: J [86].

10. After discussing the reports of Mr Verinder and Mr Demlakian and having noted at J [75] that “doubtless there was some work which required rectification”, her Honour explained why she did not propose to go into the detail of those matters. It is necessary to set out her Honour’s reasons in full:

“75.   Both prepared extensive reports as to defective and incomplete works. Doubtless there was some work which required rectification. I do not propose to go into it in detail for these reasons:

(i)   The evidence regarding the circumstances in which the builder left the site is wholly unsatisfactory. The plaintiff and her daughter complained about various aspects of the work including the placement of windows, plumbing and some of the carpentry. The builder complained that they, in particular Joanne, interfered with the work of subcontractors and ordered materials (namely, windows) which were different to those specified in the plans. It is impossible to disentangle these disputes in the absence of evidence from the tradesmen involved and lucid evidence about what the plans provided and what materials (for example, windows and plumbing fittings) the plaintiff purchased and their suitability or otherwise for the project as designed.

(ii)   One matter which has troubled me is the affidavit evidence given by Joanne and Odette. There are significant portions which are identical in form and content. It does not reflect well on them.

(iii)   There is a paucity of evidence given by the plaintiff of what sums she paid to the defendant and what she paid to the second builder. Indeed it is not even clear on the evidence what work the second builder performed.

(iv)   Part of the plaintiff’s claim for defective work apparently stems from damage to the framework sustained as a result of rain storms that occurred between 2 November 2015 and mid to late March 2016. It would appear that no effort was made by the plaintiff to cover or weatherproof the exposed timbers in that five-month hiatus.

(v)   Odette said at one point that she had paid the defendant the total of $137,000. The contract sum was $260,000. It seems reasonable to infer that she had the latter sum at her disposal. That being the case, I infer that she had funds available to her to take emergency action to protect the building from the weather. I conclude that she chose to take no steps to mitigate her loss.

(vi)   The second builder assumed the risk and responsibility for the works when he took over the site in March 2016. In other words, if there were defects in the work performed by the defendant, they were either rectified in the course of AIT’s work or were adopted by him.

(vii)   The works carried out by the second builder and the plaintiff far exceeded the work required to bring the project to “Lock up” stage as contemplated in the contract.

(viii)   The plaintiff engaged Mr Verinder, building consultant some three years later. His first report was dated 16 August 2019. The house he inspected was one which had been worked upon by at least the second defendant and the plaintiff and, presumably, other tradesmen.

(ix)   There was no cogent evidence from which it is possible to determine the value of any rectification work which may have been attributable to the defendant’s work.

(x)   The expert evidence of the plaintiff’s expert Mr Verinder was of little assistance. Somewhat illogically, he opined that the subject works needed to be completely demolished and rebuilt. He identified various aspects of the work which he considered to represent departures from the original plans and departures from relevant building standards. However:

(a)   He agreed in cross examination that he had not been provided with the Defendant’s quotation dated 17 August 2015 nor the quotation by the Second Builder prior to the preparation of his report.

(b)   There was no evidence that the building had sustained any structural failure.

(c)   He overlooked the role of the second builder and of Joanne as (effectively) the owner builder.

(d)   The house had been occupied by the plaintiff, her daughter and grandchildren since 2016.”

The Appeal

11. The amended notice of appeal raised three issues. First, whether the Quotation formed part of the Contract (the Quotation Issue). Second, and alternatively, if Ms Lichaa authorised the substitution of timber beams for steel beams, whether the work by Mr Boutros done according to the required specifications in the Contract and did it meet the standards of prudent construction as required by the terms implied by s 18B of the Act for reasons that included, but were not limited to, the substitution for beams B1 to B9 of timber instead of steel (the Defects Issue). Third, whether Ms Lichaa repudiated the Contract.

12. On the first issue, Ms Lichaa challenged her Honour’s conclusion that the Quotation was provided to Ms Lichaa (or Joanne) prior to the signing of the Contract. The only relevance of whether the Quotation did or did not form part of the Contract is this: if it was part of the Contract there was arguably no specification of steel universal beams for B1 to B9 because the Quotation refers to “timber beam joist and floor board” and the approval of a change to timber from steel would not have been required. I say arguably because there would have been a conflict between the Quotation and the RKM plans had those plans not been amended as in fact they were. Given the later amendment to the RKM plans, it is not necessary to address this issue.

13. On the second issue, Ms Lichaa contends that her Honour’s reasons do not provide an adequate explanation for the rejection of her case on the Defects Issue.

14. The third issue did not feature in the appeal. In her reply submissions, whilst maintaining her challenge to the finding on repudiation, Ms Lichaa submitted that the issue of repudiation was irrelevant to the determination of the appeal as Ms Lichaa was claiming damages for alleged breaches of the Contract by Mr Boutros prior to the termination of the Contract.

15. There is no challenge to the primary judge’s rejection of Ms Lichaa’s claims for restitution and loss of amenity.

16. Mr Boutros contends that her Honour’s conclusion in relation to the Quotation Issue was open on the evidence and not glaringly improbable.

17. Mr Boutros’s essential contentions in respect of the Defects Issue were that:

1. The primary judge was entitled to proceed on the basis that Ms Lichaa had retained AIT to rectify defects and for that reason Mr Boutros was not responsible for any defects. This was referred to by Mr Boutros as the “Second Builder Point”.

2. The primary judge preferred the evidence of Mr Demlakian who, importantly, did not consider that demolition of the works done by Mr Boutros was necessary.

3. There was no evidence of loss. This was referred to as “the Proof of Loss Point”. In addition to asserting that Ms Lichaa’s claims failed “because she failed to discharge the “onus”, by failing to prove that she had actually suffered a financial loss”, in the course of submissions, it was asserted that there was no evidence of loss if demolition was not required.

The Quotation Issue

18. Even if the Contract did not include the Quotation, if Mr Boutros’s evidence that he discussed the change to timber beams with Ms Lichaa and Joanne is accepted, the fact that it was not included becomes irrelevant.

19. In Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 the High Court held that the owner of a building is entitled to the reasonable cost of rectifying a departure from the contractually specified work or a defect so far as that is possible and said per Dixon CJ, Webb and Taylor JJ at 618:

“…But the work necessary to remedy defects in a building and so produce conformity with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure. And it is obvious that the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. Indeed — and such was held to be the position in the present case — there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place. In none of these cases is anything more done than that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace only a small part, or a substantial part, or, indeed, the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner's loss.”

20. The Court went on, however, to express a qualification:

“The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt. No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks. In such circumstances the work of demolition and re-erection would be quite unreasonable or it would, to use a term current in the United States, constitute “economic waste”.” (Emphasis added).

21. If the Contract specified steel beams and the change to timber was not discussed with Ms Lichaa and no approval to the change was given then the new structure was not built in accordance with the plans and hence would constitute a breach of contract. However, given that the engineer approved the change and the absence of evidence that steel beams B1 to B9 would have provided any greater support than the beams Mr McKean specified in his letter of 12 October 2015, it could not be concluded that it would be necessary or reasonable to require demolition of the entire structure so that steel beams could be inserted in place of the replacement timber beams approved by Mr McKean.

22. On the issue of whether the Quotation was given to Ms Lichaa at or before the time the Contract was signed there are matters that support her Honour’s conclusion and some that detract from it. In relation to the latter, her Honour commented at J [48] that Mr Boutros’s evidence as to Ms Lichaa’s consent to the change to timber was unconvincing. The absence of evidence in Mr Boutros’s affidavit concerning the Quotation, the change to timber and discussions with RKM are, as counsel for Ms Lichaa submitted, also surprising. The failure (asserted by counsel for Ms Lichaa and not disputed by counsel for Mr Boutros) to put a contrary version to Ms Lichaa and Joanne is also relevant. Her Honour explained why she was disinclined to accept Joanne’s evidence over Mr Boutros’s and Ms Lichaa’s but did not deal with the tension in Mr Boutros’s evidence that he did not seek approval from the engineer to change to timber beams until after the Contract was signed. I am mindful, however, of the need for caution in regards to overturning conclusions of credit: see Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]-[31], and another aspect is that it was never squarely put to Mr Boutros that the Quotation was a false or fraudulent document. Additionally, Ms Lichaa, Joanne and Mr Boutros were all being asked about matters that had occurred some five years earlier. On the view I take of the matter, it is not necessary to express a concluded view on the first issue because even assuming that there was no error in the conclusion that the Quotation was part of the Contract, in my view, the outcome of the Defects Issue leads to the appeal being upheld.

23. In relation to the finding of repudiation, I consider that her Honour was entitled to find that Ms Lichaa repudiated the Contract even without recourse to the physical (on Mr Boutros’s evidence) confrontation with Mr Mousakis because by her solicitor’s letter of 12 November 2015, Mr Boutros was informed that he would not be let back on site. By this conduct, Ms Lichaa evinced an intention no longer to be bound by the Contract. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; [2007] HCA 61 at [44], the High Court said that this type of repudiatory breach of contract may be termed renunciation. It follows then that water damage due to the site being left unprotected and the cost to complete the Contract by engaging AIT to rectify that damage could not be claimed from Mr Boutros.

24. The repudiation issue is, as counsel for Ms Lichaa submits, not otherwise relevant because Ms Lichaa’s claims are in respect of defects in the work carried out prior to termination of the Contract: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25 at 476-9 per Dixon J (as his Honour then was), with whom Rich and McTiernan JJ agreed. Notwithstanding that the Contract was for a lump sum price, it is not in dispute that Ms Lichaa had an accrued right to receive partial performance of the Contract in respect of those works for which progress payments had been made, prior to termination of the Contract in November 2015. At that point, Ms Lichaa had paid Mr Boutros $137,000 which covered the initial sum of $27,000 upon signing the Contract and the first three progress payments in respect of (i) completion of the first two days of work, (2) completion of timber frame, and (iii) completion of fascia, gutters and roof tiles.

The Defects Issue

25. On this issue the questions are whether:

1. her Honour’s reasons were inadequate because they did not engage with Ms Lichaa’s claim that Mr Boutros’s work did not comply with the contractual requirements as specified in RKM’s drawings and those imposed by the Act by implication;

2. if her Honour’s reasons are inadequate, whether this Court is in a position to substitute its conclusion for that of the primary judge (including on the issue of quantum); and

3. if her Honour’s conclusion is erroneous, but this Court is not in a position to substitute its own conclusion, whether the Court should order a new trial: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 51.53.

26. As to (1) above, the warranties implied in every contract for residential building work by s 18B of the Act include a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, and that all materials supplied by the builder will be good and suitable for the purposes for which they are used.

27. Before addressing these issues it is necessary to mention several matters which have been relied on and which, in my view, are not, in the circumstances of this case, relevant.

28. Both Ms Lichaa and Mr Boutros at the trial relied upon the AIT contract, which led to confusion and error. First, Ms Lichaa, through the report of Mr Verinder, included the sum of $152,834 in the AIT quotation as a cost to be taken into account in the cost of rectification. Second, Mr Boutros relied on the AIT contract insofar as AIT agreed to rectify defects in the work performed by Mr Boutros, which it was said had the effect of relieving him from any liability to Ms Lichaa for any of the defective works.

29. The only evidence of money paid to AIT are the invoices totalling $56,000. There is nothing to indicate that any of the amounts paid were paid to AIT in rectifying any work done by Mr Boutros and most of the AIT contracted work was work which was not the subject of the Contract, which as I have noted was expressly agreed to be to “lock-up stage”. The AIT contract could be relevant if work was done under that contract altering or changing the work done by Mr Boutros but, not only is there no suggestion by Mr Boutros that any of the defects identified by Mr Verinder were not wholly work he carried out, it is common ground that no demolition work was carried out by AIT and the evidence is that none of the work done by AIT related to any of the work carried out by Mr Boutros.

30. Whilst it might have been possible for Ms Lichaa to claim damages for the amount paid to AIT to complete work which Mr Boutros had been contracted to perform but had not completed, that case was not pleaded or clearly articulated and it could not succeed if she had either repudiated the Contract, or precluded Mr Boutros from returning to the site to complete the work for which she had contracted. Further that case would have required Ms Lichaa to establish what was the work left undone by Mr Boutros and what amount was paid to AIT for it. No such evidence was adduced and Ms Lichaa’s submissions in the District Court made clear that no claim of that sort was being pressed. Once it is recognised that AIT demolished nothing and, on the evidence, has not interfered with or altered any of the work done by Mr Boutros, the AIT contract becomes irrelevant both to Ms Lichaa’s defects claim and to Mr Boutros’s defence.

31. Counsel for Mr Boutros repeated the submission advanced at trial that because AIT had contracted with Ms Lichaa to rectify building defects in Mr Boutros’s work that relieved Mr Boutros of any liability. No authority was put forward for that proposition and counsel was unable to explain the basis for it. Although her Honour appears to have accepted that contention (see J [80], [82] and see [10(7)] above), I do not think there is any basis for it. AIT, if it failed to rectify defects, might be liable to Ms Lichaa, but that liability does not exculpate Mr Boutros from liability for any defective work performed by him.

32. To the extent that her Honour also placed weight on the fact that Ms Lichaa and Joanne have been living in the premises since 2016, and saw that as some sort of “election” by Ms Lichaa, no authority is cited by her Honour to support that proposition and again none was provided by counsel for Mr Boutros on the appeal. Election requires for its application a choice between two inconsistent rights as against the party in default: Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622; [1984] HCA 55 at 633-634 and it is a matter which would need to be pleaded in defence to a claim, which it was not.

33. I have referred earlier to the issue of ceramic tiles. Contrary to the suggestion by counsel for Mr Boutros that Ms Lichaa “went and tiled the floor”, Mr Verinder addressed this issue at [89]-[92] of his second report where he expressed the view that the timber beams installed by Mr Boutros, with its departure from RKM’s specifications, has forced Ms Lichaa to install a timber floor rather than a ceramic floor, and thus “severely limited” Ms Lichaa’s use of the first floor area. Given that elsewhere in his report Mr Verinder has identified the departure from the RKM specifications and expressed the view that even without ceramic tiles installed in areas of the first floor it has experienced cracking and twisting because of the defects, I do not understand his view to be that the additions are defective and should be demolished only because ceramic tiles could not be laid in areas other than the bathroom and ensuite.

26. Although Mr Verinder’s first report assumed that steel beams were required by RKM for the B1 to B9 beams, in his second report he acknowledged the approval by RKM of the change: see [53] of his report. At [54]-[56] of his second report he stated:

“[54] Most importantly the 2/300 x 65 LVL18 (HYSPAN) timber beams were required to form a single double-thickness timber beam section that was able to act as a single support unit by being vertically laminated or “sistered” in accordance with the requirements on the RKM Consultants engineering drawing No. 15029-1, which specified that this be done in accordance with the requirements within AS1684 (AS1684.1-1999: Residential timber-framing-Design Criteria). This vertical lamination is illustrated in the manufacturer’s CCH (Carter/Holt/Harvey), “hySPAN” publication and is achieved by a double row of nails along the full length of the beam being sistered, a key excerpt from this publication is provided in Appendix [D] within this report.

[55] I agree with Mr. Demlakian that the proposed steel beam and subsequent sistered 2/300 65 LVL18 glue laminated timber beams layout on the RKM Consultants engineering drawing No. 15029-1 intended that the wall above the kitchen opening carry none of the first-floor support loads. However, the Defendant changed this support arrangement and omitted key support beams, B1 and B2, on the RKM Consultants engineering drawing No. 15029-1 and constructed an open softwood timber framing system, to support the floor joists, that was supported directly off the brick wall between the kitchen and the family room. This is clearly shown in Photographs Nos. 25, 26, 27, 28 & 30 in Appendix [C] within this report.

[56] Accordingly, as stated in my expert technical report in this matter, dated 16/08/19, in my opinion it is clear that by unilaterally changing the structural design engineer, RKM Consultants, beam support system the Defendant caused the noted cracking above the rendered and painted opening between the kitchen and the family room due to excessive first-floor dead and live loads being applied on the wall above the opening.”

35. Another matter referred to by counsel for Mr Boutros was the fact that Mr Boutros was not given the opportunity to rectify the defects identified by Mr Verinder, and that Ms Lichaa failed to mitigate her loss by not having AIT rectify the defects before AIT and others continued with the first floor addition. Mr Boutros did not accept that any of his work was defective and except in relation to the water damage point he did not plead a failure to mitigate nor did he plead a failure by Ms Lichaa to permit him to rectify the defects. In the District Court, counsel for Ms Lichaa drew attention to the absence of any pleading of mitigation. A failure to mitigate if it is to be relied upon must be pleaded: ECS Group (Australia) Pty Ltd v Hobby [2014] NSWCA 193 and see also DB Casson and IH Dennis, Odgers' Principles of Pleadings and Practice: In Civil Actions in the High Court of Justice (1981, 22nd ed, Stevens & Sons) at 105-106. This would apply whether the claimed failure was based on statute or some other matter. Nor was there contained in Mr Boutros’s Amended Defence any pleading that he had not been given the opportunity to rectify any of the claimed defects – his position being denial of any defects: see paragraphs 4, 9 and 12.

36. Addressing her Honour’s reasoning on the Defects Issue at J [75], which is reproduced at [10(10)] above, in my view, the matters referred to at J [75](i),(ii), (iv) and (v) (which correlate to [10(4)] and [10(5)] above) are relevant only to the issue of repudiation which I have already dealt with.

37. In my view, the matters referred to at J [75](iii), (vi) and (vii) (which correlate to [10](1), (2), (3), (6), (8) and (9) above) are not relevant to the rejection of Mr Verinder’s evidence, for the reasons already given.

38. In relation to the matters referred to at J [75](viii) and (x)(c), normally the fact that others had worked on the building would present a difficulty in distinguishing between the allegedly defective works and any subsequent repair works, but in this case there is no suggestion that the works identified by Mr Verinder as defective were not those performed by Mr Boutros, nor was there any suggestion that the state of that work has been altered or affected by AIT or anyone else. Whilst three years is a long delay in inspection, Mr Verinder did inspect the property on 30 June and 30 July 2019 and photograph the defects, whereas Mr Demlakian did not do so and the reasons for that failure have not been adequately explained (T38.9-10, T38.38-46).

39. In relation to the matter referred to at J [75](x), it is correct, as her Honour has noted, that Mr Verinder was not originally provided with the Quotation nor the AIT quotation. However, the role of AIT and Joanne on behalf of Ms Lichaa are, in my view, irrelevant to the question of whether there are defects in the work carried out by Mr Boutros, as is the fact that Ms Lichaa and Joanne and her family have been living in the house since 2016.

40. Her Honour expressed the view that all of the matters referred to in [75](x)(a), (b) and (c) detracted from Mr Verinder’s view that the alterations needed to be completely demolished but in my view none of them do – and nor is Mr Verinder’s view that the new structures ought be demolished necessarily illogical. I fully accept that close and reasoned analysis may lead to the conclusion that demolition is not necessary whether in reliance on the views of Mr Demlakian or for other reasons, but her Honour’s reasons, with respect, not only do not provide such an analysis but contain a clear indication that her Honour did not regard that as required. Insofar as counsel for Mr Boutros at T22.1-24 embraced the absence of need for her Honour to have done so, I reject that submission.

41. In my view, the evidence of Mr Verinder, although disputed by Mr Demlakian, provided support for the contention that the work of Mr Boutros was indeed defective, even accepting that the engineer, Mr McKean, approved the replacement of steel beams by timber beams, given the following matters:

1. When Mr McKean approved the replacement he referred to drawing no.15029-1 and permitted only one alteration - the replacement of B1 to B9 joists by “2/300x65 LVL18 in lieu of steel beams”. I take his approval to have the effect that the balance of the requirements in drawing no.15029-1 had to be met, including the requirement that “all timber framing to comply with AS 1684, AS 1720 and BCA” (a specification in the right hand section of 15029-1).

2. The RKM drawing:

1. required double timber sections to be vertically laminated in accordance with AS 1684 and all steel beams bearing on masonry to be “solid blocked down to b/w with H.W blocks”;

2. required “heavy duty joist hangers”;

3. required general compliance with AS 1684 and AS1170-2002;

4. required, by a diagram showing 10 nails on either side of the beam, a method of fixing. That method of fixing was in accordance with the hySPAN document;

5. required nine beams (i.e. B1-B9) in specified locations;

6. required that the manufacturer’s hySPAN specification be followed and that required double sections to be “securely nail laminated”; and

7. specified the dimensions of the concrete pads.

It is common ground that “LVL” means “laminated veneer lumber” and “H.W.” means “hardwood” (T14.31-37), and an example of what is meant by double section LVL can be seen from a hySPAN publication and under the heading “using double sections”. Mr Boutros did not dispute that hardwood was required, but he asserted that he had used hardwood not softwood.

3. According to Mr Verinder’s evidence, what was installed by Mr Boutros did not contain laminated beams, used softwood rather than hardwood, did not include hard wood blockings at the interface with brick and did not have nails or bolts in the numbers specified in drawing no.15029-1: see the passages of the report set out in [34] above. The photographs attached to Mr Verinder’s report seem to support his conclusion in relation to the style of beams. Mr Demlakian seems to have accepted that what has been used is thin ply in the middle of two pieces of timber. Mr Verinder also expressed the view that Mr Boutros had omitted key support beams (B1 and B2): see [55] of his report.

4. In his first report Mr Verinder said:

“[88] …the connection of the HJ300 timber floor joists to the 300mm x 45mm HYSPAN timber beam on the western side of the house is not as shown on the RKM Consultants Pty Ltd engineering drawing No 15029-1 in that the steel connector sections used by the builder are not “heavy duty” and do not have five (5) double rows of nails per side of the connector, as depicted in photographs Nos. 25, 29 & 32 in Appendix [A] of this report…

[96]…the 2/300mm x 45mm HYSPAN timber beams on the western side of the dwelling that were substituted by the builder for the steel beams shown on the RKM Consultants Pty Ltd engineering drawing No 15029-1 have not been “sistered” (or vertically nail laminated) to join them to each other to ensure that they work as a single building component…

[104] … the builder had built the first-floor joist support system without founding it on the specified steel beams and hardwood sections as shown on the RKM Consultants Pty Ltd engineering drawing No drawing No. 15029-1 and has substituted unsuitable and compressible softwood timber framing or unrestrained groupings of softwood to support the first-floor walls, floor and roof areas off the ground floor level load-bearing walls, as depicted in photographs Nos. 25-30 inclusive in Appendix [A] of this report.”

5. Mr Verinder opined that what Mr Boutros built also did not comply with AS1684.1 and AS1170.2002.

6. Two of the beams on the eastern side required by RKM’s drawing were not included. Mr Boutros admitted that he had not installed them.

7. The steel beams used to support the rear balcony were not hot dipped galvanised and showed significant corrosion: see Photos 9 and 10 in Mr Verinder’s report.

8. The cement pads for the steel columns supporting the balcony were not built to RKM’s specifications: see, for example, Photos 11 to 14 in Mr Verinder’s report.

9. The Juliette balcony was not built to the dimensions specified in the building plans.

42. Against this, counsel for Mr Boutros relied upon Mr Demlakian’s evidence that once the change to timber beams in place of steel beams was authorised, the builder was in effect free to ignore the engineers’ plans (T31.21-27). This is a rather surprising proposition. Mr Demlakian also gave evidence that nails could not be inserted in a beam in accordance with RKM’s drawing because of the nature of the joist hanger used. The difficulty with that opinion is, as Mr Verinder pointed out, that 15029-1 actually called for heavy duty joist hangers and he considered that what had been installed by Mr Boutros did not meet that description. In addition, Mr McKean, even on his initial limited inspection on 11 November 2015, found that the beam connection to C3 was “not as per drawing”, that the posts were not galvanized and that the bolts were not correct.

43. Whilst Mr Demlakian accepted that some of the work identified by Mr Verinder was not in conformity with the RKM specifications he proffered responses for many of them and he strenuously resisted the proposition that any of the works required demolition asserting that repairs could be performed with the first floor remaining in situ. As her Honour remarked during the trial the two experts had “quite strong and differing opinions”, “I think I’ve got the range of opinion and I’m just going to have to make some sense of it”. Some of the dispute seemed to turn on whether Mr Verinder had measured the size of a bolt properly, whether what was discernible in the photo was rock or clay and whether a length of timber shown in a photograph did in fact connect to the supports for the upper floor or not.

44. In my view the primary judge was required to consider the expert evidence of Mr Verinder and Mr Demlakian and determine:

1. Whether the alleged defects (excluding the water damage defects) were in fact defects and hence a breach of the Contract either because the work did not comply with the requirements specified by the engineer, the relevant codes, or comply with good building practice.

2. In respect of any of the alleged defects found to be defects, what was the appropriate means of rectification and the cost of that work.

45. Whilst her Honour did observe at J [75] “doubtless there was some work which required rectification”, she did not detail which works were defective, in what respects, and what in her view was required for these to be rectified. I do not think her Honour’s reasons have addressed the questions identified in [44] above and I am, with respect, unable to discern how her Honour came to the conclusion that Mr Verinder’s evidence was “of little assistance”: J [75](x).

46. The need for reasons and the content of reasons to satisfy that obligation were conveniently summarised in Wiki v Atlantis Relocations (NSW) Pty Ltd (2004) 60 NSWLR 127 per Ipp JA, with whom Bryson JA and Stein AJA concurred, at [56]-[68] but particularly at [56]-[57] and [61]:

”The judicial obligation to give reasons

[56]   A miscarriage of justice can arise where what is and is not disclosed in a judge’s reasons is a breach of the principle that justice must not only be done but must be seen to be done: Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 at 431 (per Mason P).

[57]   As McHugh JA explained in Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 279, one of the purposes served by a judicial decision is that: “…[I]t enables the parties to see the extent to which their arguments have been understood and accepted as well as the basis of the judge’s decision”. Accordingly, as McHugh JA said (at 278–279): “…[A] judicial decision must be a reasoned decision arrived at by finding the relevant facts and then applying the relevant rules or principles. A decision which is made arbitrarily cannot be a judicial decision; for the hallmark of a judicial decision is the quality of rationality…”

…

[61]   But, where the issue in dispute involves differences between expert witnesses that are capable of being resolved rationally by examination and analysis, and where the experts are properly qualified and none has been found to be dishonest, or misleading, or unduly partisan, or otherwise unreliable, a decision based solely on demeanour will not provide the losing party with a satisfactory explanation for his or her lack of success. A justifiable grievance as to the way in which justice was administered will then arise.”

47. It is well-established that the function of an appellate court is not to determine the optimal level of detail required in reasons for a decision but rather to determine the “minimum acceptable standard” which is informed by the issues at trial, the nature of the evidence, the nature of the submissions, the scope of any right of appeal, and other relevant circumstances. The standard required of reasons is not one of perfection: New South Wales Land and Housing Corporation v Orr (2019) 100 NSWLR 578; [2019] NSWCA 231 at [66] (Bell P (Ward JA agreeing)).

48. In my view, if her Honour was minded to reject Mr Verinder’s evidence or prefer Mr Demlakian’s evidence over Mr Verinder’s that required explanation which, as I have noted, save for the matters referred at J [75], was absent. In his attempt to explain why her Honour might have preferred Mr Demlakian’s evidence, counsel for Mr Boutros said “Mr Verinder’s not an engineer, it would have had to be the engineer who opined that there was something deficient” (T22.48-T23.14). That submission is contrary to the evidence – Mr Verinder holds both a Bachelor of Engineering and a Master of Engineering Science and is a qualified structural and civil engineer.

49. Although Mr Demlakian contended that the PCA inspected and certified the 300mm hySPAN timber beams and her Honour referred to the certificate at J [52], she did not address the issues raised by Mr Verinder in relation to defects in the timber frame. The certificate dated 14 October 2015 seeks the provision of an engineer’s certificate for LVL used in lieu of steel beams, but it is quite unclear whether the certifier attempted any assessment of whether what had been installed met the requirements of the engineer (RKM). There is another document, being an email dated 4 March 2016 from Mr Charles Mouawad (Mr Mouawad) to Mr Boutros, in which Mr Mouawad asserts that “structured pine (mgp10)” has been used and an unspecified framing code has been met. There is no evidence as to Mr Mouawad’s qualifications, on what basis he has made the assertion and in respect of which code he is asserting compliance. Mr Verinder expressed the view that “only the design engineer or a similar professionally qualified structural engineer is able to assess and approve a reduction in the specified connection requirements” and the evidence does not establish that the design engineer was called to inspect and advise on this: see [73] of Mr Verinder’s report. If Mr Verinder is correct, that would undermine any reliance on the fact that the PCA did not identify any errors or omissions, but in any event, if the PCA did not pick up an error that does not exculpate Mr Boutros.

50. It follows in my view that a very significant part of the case advanced by Ms Lichaa at trial has not been adequately considered and its rejection has not been adequately explained in her Honour’s reasons.

The Proof of Loss Point

51. Turning to the question of quantum and the Proof of Loss point, counsel for Ms Lichaa indicated that Ms Lichaa’s position is that she would be entitled to the amounts costed in Mr Verinder’s Amended Scott Schedule dated 22 May 2020, but now reduced to $609,737.50 made up of:

1. $75,000 for demolition (including demolition of defective steel columns to rear balcony) and reconstruction;

2. $229,100 for rebuilding of the first floor generally, but not including “additions” (i.e. the kitchen and wet areas);

3. $106,450 for reinstalling additional cost items, e.g. kitchen floor coverings, wet areas and stairs;

4. $50,000 for removalist costs and alternative accommodation;

5. $102,637.50 for supervision, overheads and profit; and

6. $56,813.75 for GST.

52. The details of the claim are derived from the Appellant’s Supplementary Submissions on Damages received after the hearing of the appeal in accordance with leave granted by the Court over the opposition of the Respondent. Leave was given to the Respondent to reply to those submissions and the Court received the “Respondent’s Reply to the Appellant’s Supplementary Submissions on Damages”. That document did not meet the requirements of submissions in reply, but effectively repeated and even expanded upon submissions made at the hearing. It was barely responsive to the Appellant’s Supplementary Submissions and certainly presented no support for the contention that there was “no evidence” of quantum to support the Appellant’s case on damages arising from the claimed defects. What can be said, however, is that Mr Verinder did not give evidence of the cost of rectification of specific items if demolition of the first floor was not required. At the trial there was some limited evidence from Mr Demlakian obtained in the course of cross-examination, but counsel for Mr Boutros objected to further questions being put to Mr Demlakian about the topic.

53. The Amended Scott Schedule of Mr Verinder and his reports do provide a basis for calculation of the rectification costs, contrary to her Honour’s findings at J [75(ix)].

54. The claim for the cost of rebuilding includes the cost of replacing items that were not part of the work required by the Contract. This is because Ms Lichaa contends, on the basis of Mr Verinder’s evidence, that work will have to be removed to demolish the additions.

52. I have referred earlier to the decision of the High Court in Bellgrove. In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8, the High Court (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) rejected an appeal from the Full Federal Court which held the landlord was entitled to the cost of demolishing work carried out without permission by the tenant and restoring it to its prior condition. The Court at [17], after referring to the qualification in Bellgrove which I have set out at [20] above, said:

“That tends to indicate that the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances. The example given by the Court aligns closely with what Oliver J said in Radford v De Froberville, that is, that the diminution in value measure of damages will only apply where the innocent party is “merely using a technical breach to secure an uncovenanted profit.” It is also important to note that the “reasonableness” exception was not found to exist in Bellgrove v Eldridge.”

Not only was the reasonableness exception not found to exist in Bellgrove but nor was the builder successful in resisting demolition in Jandon Constructions (A Firm) v Lyons [1999] WASCA 310, M & EM Hull Pty Ltd v Thompson [2001] NSWCA 359 and J-Corp Pty Ltd v Gilmour (2006) 22 BCL 8; [2005] WASCA 136.

56. Counsel for Mr Boutros submitted that Mr Verinder’s view that demolition was the only answer to the defects was an extreme response that had no credibility. I make the following observations on that contention:

1. It was not Mr Verinder’s position that all of the defects he identified on their own required demolition (see, for example, items 1, 2, 3, 4 and 5). However his view was that since other defects required demolition of the first floor that would provide an opportunity to remove a defective item, for example, items 1 and 2, the steel support for the balcony shown in Photos 9 and 10 in which evidence of corrosion (and in a significant degree) is apparent and item 4 which is the inadequate fixing to the base plate of columns.

2. If the support for the floor has not been constructed in accordance with the RKM specifications and if it has, as Mr Verinder opined, caused twisting and cracking of the floor, it does not appear at all surprising to me that he should conclude that the structure should be demolished. I do not accept the submission of counsel for Mr Boutros (at T36.13) that Bellgrove permits the repairs to be done in “the cheapest possible way”. What is required is repair that will give the owner what was contractually promised, subject to the requirement of necessity and reasonableness.

3. It is of course unfortunate that additional work has been done but if the structure underneath is defective and has to be removed that is the natural consequence of defective foundations or support, at least in a case where there is no plea of failure to mitigate loss, by avoiding allegedly unnecessary expenditure.

4. There is no dispute that the demolition and rebuilding work assessed by Mr Verinder includes the work of demolishing and reinstalling items that were not within the scope of the Contract. As counsel for Ms Lichaa pointed out, however, if later work not included in the Contract needs to be removed to repair the defective work that is compensable loss: see Harbutt's Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447. Ms Lichaa is entitled to be put in the position she would have been if the Contract had been performed according to its terms: Wenham v Ella (1972) 127 CLR 454 citing Robinson v Harman (1848) 1 Exch 850 at 855. There is no element of “betterment” as Mr Boutros contended, rather it is putting the owner in the position she would have been in if the breach had not occurred.

Outcome of the Appeal

57. Counsel for Ms Lichaa conceded that if the Court accepts the inadequate reasons ground then it would be difficult for this Court to itself determine the outcome (T11.24-39, T13.38-43).

58. Rule 51.53 of the UCPR provides that the Court must not order a new trial on any ground “unless it appears to the Court that some substantial wrong or miscarriage has been thereby occasioned”. Neither party suggested that r 51.53 was in its terms inapplicable to an appeal from a District Court judge sitting without a jury: cf the doubts expressed by Kirby and Callinan JJ in Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478; [2002] HCA 22 at [53]; Mastronardi v State of New South Wales [2007] NSWCA 54 at [74]-[75]. I am persuaded that a substantial wrong or miscarriage has occurred and the judgment under appeal ought be set aside and the matter referred back to the District Court for a rehearing

59. Counsel for Mr Boutros raised a concern as to the costs a further hearing would entail and he referred to the limited means of both parties (T52.50-53.5). I regard this as is something to be taken into account in determining the ambit of any new trial.

60. In my view, a new trial should be ordered limited to the following issues:

1. Are any of items 1-6 and 8-18 identified as defective by Mr Verinder in the Amended Scott Schedule breaches of the Contract (including the implied terms)?

2. If the answer to (1) is yes, what is the necessary remedial work reasonably required to bring Ms Lichaa’s house into conformity with what was promised by the Contract?

3. What are the costs of the work required and identified in (2)? Insofar as the work includes demolition of the first floor in its entirety, Mr Verinder’s costing should be used, but updated to reflect any increase or diminution in the costs identified by reason of the passage of time.

61. On remittal, the District Court should have particular regard to keeping further costs to the parties to a minimum. In particular, it should consider whether to appoint under UCPR 31.46 a court expert with the qualifications of a civil or structural engineer and experience in the residential building sector. The expert would be appointed to enquire into and report on the questions identified above, on the basis of the reports of Mr Verinder and Mr Demlakian, their evidence given in the District Court and, if need be, an inspection by the expert of the property. It would be open to the expert to make such further enquiry as he or she considered necessary. Alternatively, the appointment of a referee under r 20.14 of the UCPR should be considered.

Costs

62. Ms Lichaa has been successful and Mr Boutros should pay her costs of the appeal. The costs of both parties of the hearing in the District Court should abide the outcome of the new trial.

Orders

63. I propose the following orders:

1. Appeal allowed in part as to ground 5.

2. Set aside orders 1 and 4 made by Olsson SC DCJ on 16 March 2021.

3. Remit the proceedings to the District Court for a new trial limited to the following issues:

1. Are any of items 1-6 and 8-18 identified as defective by Mr Verinder in the Amended Scott Schedule breaches of the Contract (including the implied terms)?

2. If the answer to (a) is yes, what is the necessary remedial work reasonably required to bring Ms Lichaa’s house into conformity with what was promised by the Contract?

3. What are the costs of the work required and identified in (b)? Direct that insofar as the work includes demolition of the first floor in its entirety, Mr Verinder’s costing should be used, but updated to reflect any increase or diminution in the costs identified by reason of the passage of time.

4. Respondent to pay the costs of the appeal.

5. Respondent to have a certificate under the Suitors’ Fund Act 1951 (NSW) if otherwise qualified.

6. Costs of the proceedings below to abide the outcome of the new trial.

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Decision last updated: 16 December 2021