Stewart v Sherridon Pty Ltd

[2024] VCC 1023

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

BUILDING CASES LIST

Case No. CI-22-02897

ROSLYN LORRAINE STEWART

and

JASON WOOSTER STEWART

First Plaintiff

Second Plaintiff

v

SHERRIDON PTY LTD (ACN 127 439 132)

Defendant

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JUDGE:	HIS HONOUR JUDGE MACNAMARA
WHERE HELD:	Melbourne
DATE OF HEARING:	29-30 April, 1, 6-7, 16, 30 May 2024
DATE OF JUDGMENT:	10 July 2024
CASE MAY BE CITED AS:	Stewart & Anor v Sherridon Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VCC 1023

REASONS FOR JUDGMENT
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Subject:CONTRACT

Catchwords:              Domestic Building Contracts Act 1995 ss8, 10, 31, 37, 39, 132 – Major domestic building contract entered into between plaintiffs as owners and defendant as builder – Attached drawings depicting siting of residence and absence of eaves on garage – Special conditions granting builder authority to vary and re‑site structure, whether valid or repugnant to ss31 and 37 of the Domestic Building Contracts Act – Structure re‑sited on working drawings signed as approved by plaintiff owner, whether effecting a variation to domestic building contract – Whether formalities required for variation at instance of builder by s37 of Domestic Building Contracts Act 1995 were satisfied – Whether builder nevertheless entitled to recover cost of variation and treat contract as varied pursuant to s39 of the DomesticBuilding Contracts Act 1995 – Agreement under s173 of the Planning and Environment Act 1987 imposing “urban design guidelines” on subject allotment – Whether urban design guidelines relieved builder from obligation to build in accordance with contract drawings – Whether damages representing the cost of demolition and reconstruction ought to be awarded – Fallback claim for damages for misleading or deceptive conduct left unresolved.

Legislation Cited:      Planning and Environment Act 1987 (Vic); Transfer of Land Act 1958 (Vic); Domestic Building Contracts Act 1995 (Vic); Sale of Land Act 1962 (Vic); Competition and Consumer Act 2010 (Cth); Australian Consumer Law and Fair Trading Act 2012 (Vic); Wrongs Act 1958 (Vic); Hire-Purchase Act 1960 (NSW); Retail Leases Act 2003 (Vic); Building Regulations 2018 (Vic)

Cases Cited:AMO Rifat Holdings Pty Ltd v Dib [2024] VCAT 419; Baltic Shipping Company v Dillon (1993) 176 CLR 344; Bellgrove v Eldridge (1954) 90 CLR 613; Clark v Macourt (2013) 253 CLR 1; Commonwealth v Verwayen (1990) 170 CLR 394; Commonwealth v VL Investments Pty Ltd (1988) ANZ ConvR 150; Considine v Citicorp Australia Ltd [1981] 1 NSWLR 657; Czarnikow Ltd v Koufos [1969] 1 AC 350; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; Evans v Balog [1976] 1 NSWLR 36; Everest Project Developments Pty Ltd v Mendoza [2008] VSC 366; Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145; Hypec Electronics Pty Ltd (in liq) v Mead [2004] NSWCA 221; J Hutchinson Pty Ltd v Transcend Plumbing and Gasfitting Pty Ltd [2023] VSC 39; Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2022] VSCA 209; Jones v Dunkel (1959) 101 CLR 298; Kirkby v Coote [2006] QCA 61; Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993; Mann v Paterson Constructions Pty Ltd [2019] 267 CLR 560; Metricon Homes Pty Ltd v Softley (2016) 49 VR 746; Owners SP 92450 v JKN Para 1 Pty Limited [2023] NSWCA 114; Riverman Orchards Pty Ltd v Hayden [2017] VSC 379; Sidhu v Van Dyke (2014) 251 CLR 505; Spirovski v Univest Assett Merchants Syndicators Pty Ltd [2013] VSC 728; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; Vaughan v Byron Shire Council [1999] NSWCA 235; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Judgment:                  1.  Within 14 days the parties must bring in short minutes to give effect to these reasons.

2.Costs reserved.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M T Settle	Rizkallah Partners
For the Defendant	Mr M Tennant	Jem Lawyers

HIS HONOUR:

Background

1On 25 June 2019, Mrs Stewart, the first plaintiff in this proceeding, and her husband, Mr Stewart, the second plaintiff in this proceeding, were registered as joint proprietors of Lot 27 on Plan of Subdivision 808863M, being the land comprised in Certificate of Title Volume 12083 Folio 806 (Court (“CB”) 837).

2According to certified practising valuer, Mr Geoffrey Brown, Lot 27:

“…comprises a regular shaped residential allotment situated on the southern side of Overland Drive in [the] regional township of Kilmore, approximately sixty kilometres north of the Melbourne Central Business District. It has a land area of approximately 587 square metres…”. (CB 114)

3The Stewarts, who already owned a residence at 11 Peterlee Court, Craigieburn (CB 837), selected Lot 27 because some of their adult children reside in houses in the same sub-division (Transcript (“T”) 187, Lines (“L”) 15-17, T237, L4-6, Supplementary Court Book (“SCB”) 167 [6] and [7]).

4Mr Stewart described his occupation as being “in property maintenance and renovations”.  He has three trailers that he used in this business and owns four motor vehicles (SCB 166).

5When considering what type of residence to construct on Lot 27, Mr Stewart said:

“I had always proposed to build a large shed in the rear of the Property, as a workshop for my business and to store a vehicle. The shed was going to be approximately 7 by 5 metres. We were going to build a driveway down the side of the home to access the shed.” (SCB 167, [10])

6Initially, Mr Stewart began negotiations with home builder Simonds Homes Pty Ltd via one of its employees, Mr Ashley Thorsen. Mr Thorsen was a good friend of one of Mr Stewart’s daughters (T164, L13-22, SCB 168, [14]).

7As part of the negotiations, Mr Thorsen prepared a site plan on Simonds Homes stationery depicting a centrally located residence with a setback of 3.21 metres from the eastern boundary.  The garage on the western side of the residence was shown as set 200 millimetres back from the western boundary.

8Mr Thorsen, by May 2020, was employed by Sherridon Pty Ltd (“Sherridon”), the defendant in this proceeding, as a “new homes specialist” – presumably a sales role.  He sent a “fixed price quote” to Mrs Stewart under cover of an email dated 14 May 2020, stating inter alia:

“I have added eaves to the entire home which is in the estate guidelines, some people have built them [viz houses] without eaves but my advice is to put them in and you will have no issues with council later,

Please let me know if there is anything else that you would like in the home also,” (CB 1140)

9The “estate guidelines” referred to by Mr Thorsen were apparently part of an agreement under s173 of the Planning and Environment Act 1987 (Vic) between Mitchell Shire Council as the responsible authority under the statute and Tascorp Superannuation Pty Ltd, the owner and sub-divider (CB 979-80).

10This agreement was it seems entered into pursuant to conditions 9 and 10 of the permit to sub-divide.  Those conditions were set out in the agreement as registered under the Transfer of Land Act 1958 (Vic) as recycles G and H. Condition 9 required submission for approval by council as the responsible authority of what were described as “Urban Design Guidelines”.

11Amongst the features required for those guidelines by paragraph j of condition 9 of the permit was “[e]aves of least 450mm where practical within the constraints of the lot”. Condition 10 required the execution of the s173 agreement which was to include the Urban Design Guidelines and the payment of a development contribution. In accordance with the terms of s173 and associated sections of the Planning and Environment Act 1987 (Vic) by clause 5.12 the agreement provided:

“The Owner’s obligations in this Agreement are intended to take effect as covenants which shall be annexed to and run at law and in equity with the Land and every part of it, and bind the Owner and its successors, assignees and transferees, the registered proprietor or proprietors for the time being of the Land and every part of the Land.” (Clause 5.12, CB 987)

12This agreement entered into on 14 April 2014 and registered under the Transfer of Land Act (AL029478Q) on 16 April 2014 was therefore binding on the Stewarts in the same manner as it bound the original sub-divider. The Urban Design Guidelines for what was described as “…the Mall Run Estate were annexed as Annexure A to the agreement and included amongst the guidelines nine Dwellings must have eaves of at least 450mm where practical within the constraints of the lot.” (CB 993)

13Mr Stewart said that after his wife received Mr Thorsen’s email he:

“…spoke with him by telephone approximately three (3) times and told him that the home had to be built on the west Property line and that the garage should not have eaves, otherwise i [sic] would be unable to use and store the trailers down the side of the home.” (SCB 168, [16])

14The trailers referred to by Mr Stewart were three in number.  He said:

“The largest trailer I have is 2.438 metres wide and has two axels. The trailer is used to carry oversized items for my business. This includes items such as work site temporary fences that are 2.1 x by 2.1 metres, demolished fence panels, rainwater tanks, reinforcing steel sheets that are used to reinforce concrete, kitchen cabinets and debris.” (SCB 167, [12])

15The two other trailers were narrower and were used to give him “flexibility in my business”, though they could not fit the larger items (Ibid).

16Mr Stewart said that Mr Thorsen then agreed “that the garage would be sited on the west Property line and that there would be no eaves on the garage.” (SCB 168, [17]).

17Mr Stewart said that this accommodated his requirements.

18Sherridon then issued tender #4752 dated 12 May 2020, quoting $259,217 as the cost of erection of a house in the “Aspire” range with a “Clifton” design size 28 with a “Nixon” façade (CB 1141).

19In the “Variations” section of the tender under the heading “Estate requirement”, there appeared the words “[s]upply eaves to entire home as per estate requirement” at a cost of $1,490 (CB 1145).

20By an agreement dated 28 November 2020, Sherridon agreed to erect a house on Lot 27 for the price of $261,700, increased by certain variations by $4,445.37 (SCB 168, [18], CB 544).

21The plans attached to this contract depict the proposed residence with a setback of 3,310 millimetres for the side of the house from the eastern boundary [viz 3.31 metres].  The garage is set on the western boundary (CB 636).

22Special conditions 1 and 2 provided as follows:

“1.     The drawings in this contract may not be the final drawings. This contract is subject to the builder obtaining developers and all statutory approvals. The building owner agrees to reimburse the builder the costs of the changes required by the developers or any other body.

2.   The Builder reserves the right to amend the siting of the building works as described in this Building contract subject to the provision of services, council requirements and developer requirements, which shall be at the sole discretion of the Builder.” (CB 571)

23Attached to the contract was a copy of the tender document dated 12 May 2020, which included the following under the heading “Developer Requirements” (CB 622):

DEVELOPER REQUIREMENTS	QTY	Total Cost
Provide additional 450mm deep Eave (lineal metres) including roof cover and eave lining.	47.48	$2,849
As Per developer guidelines
NOTE: This home is subject to Developer’s Approval. This Tender attempts to comply with all requirements, however if additional measures are required in order to obtain Developer’s Approval, then the Client will be advised and additional costs (if any) will be charged to the Client by way of Variation.	1.0	Inc

24Sherridon submitted its tender. The preliminary agreement, as bound into the building contract, however, was expressed, as the rest of the building contract was, to have been entered into on 28 November 2020.

25Paragraph 6 of the preliminary agreement, under the heading “Developer Requirements”, stated:

“Should developer’s approval be required, we will submit the plans to the developer on the owner’s behalf. Any specific requirements of the developer will be added as a variation. The client is responsible for providing relevant documents (Ask your friendly sales consultant for more information) to Sherridon Homes and accepts the additional costs where required due to the estate guidelines.” (CB 631)

26This documentation was entered into and executed during the COVID pandemic and at a time when “lockdowns” were in force in metropolitan Melbourne. The documents were executed under the “DocuSign” regime with electronic signatures.

27As part of Sherridon’s standard procedure and protocol, once a customer signed an agreement for Sherridon to build a home for him or her an appointment is made for the customer or customers to attend an interior design studio known as “Gallerie” where, according to Ms Jasmina Lazareska, Sherridon’s Executive General Manager, the customers:

“…go to select, amongst other things, the interior and exterior paint colours, tiles, carpet, appliances, and other finishes for the property. After the appointment, the ‘Gallerie’ staff then prepare documents recording what the customer selects which is signed off and approved by the customer.” (SCB 181, [16])

28According to Ms Lazareska, the selections made by the Stewarts show that their consultation with “Gallerie” took place on 19 February 2021 (Ibid, [18], (Ibid 341, paragraph 8, CB 1686–93). Administration of the contract following its execution passed to Ms Felicia Blees, who held the title Pre-Construction Administrator with Sherridon (SCB 341, [13]). There was extensive correspondence between Ms Blees and Mr Stewart on the subject of paintwork (CB 1698-1701). Mr Stewart was pressing the view that the “two coats” painting regime employed by Sherridon did not comply with the “National Construction Code” (T117). Ms Blees sent the Stewarts a letter dated 22 April 2021 from Valspar Paint (Australia) Pty Ltd trading as “Wattyl” in support of the painting system used by Sherridon (CB 1200). Somewhat bizarrely, this letter was headed “Without Prejudice” and it stated to be “Re: Suitability of a two-coat paint system”.

29By May 2021, Mrs Stewart agreed that she and her husband would have to approve final plans before construction of the house could commence. This was particularly with regard to the “Gallerie” finishes and colour selections.  She agreed this would entail her and her husband carefully reviewing the Gallerie selection “and the plans that were included in that, to ensure that the house was on the boundary, which it was, that the driveway that we paid extra for was there.” (T239, L14‑25) The Gallerie selection (CB 1241-1254) included “markups” of the plans which were attached to the contract; that is, the plans which showed the garage set on the western boundary and an access way of 3.321 metres between the house and the eastern boundary.  Ms Blees sent an email to Mrs Stewart dated 24 June 2021 state inter alia: “Please see attached working drawings – please sign and return to me.” These plans showed the garage set back one metre from the western boundary and the house one metre closer to the eastern boundary; that is, the access way along the eastern boundary of one metre narrower. (SCB 147)

30It appears that these plans, specifically the elevations shown at SCB 151, led to a telephone call by Mr Stewart to Ms Blees seeking to have brick infills inserted over the windows of the front of the house.  In an email dated 25 June 2021, on behalf of both Mr and Mrs Stewart, they stated “[w]e will review the plans sent yesterday but want to also review these with our confirmed variations in front of us.” The email earlier referred to certain costing issues relative to carpet, painting, et cetera (CB 1210). There was no comment upon the re-siting of the house. The plans in question which provided for the movement of the entire structure one metre to the east were prepared by Mr Artan Kalavace who forwarded them by email to Ms Lazareska at Sherridon under cover of an email dated 24 June 2021. His email was headed “Working Drawings” with a sub-heading “Drafting PDF attached”.  The email set out a number of features of the drawings under the heading “Clarifications” in a series of dot points, the fourth of which stated “[g]arage side setback set at 1m”.  Mr Kalavace was an employee of an organisation known as Builders Office Backup Pty Ltd, known as “BOB” for short (CB 1702‑3). The seven “clarifications” the subject of the dot points in Mr Kalavace’s email do not seem to have been passed on to the Stewarts. Mr Kalavace’s email to Ms Lazareska was timed at 8.54am. Ms Lazareska sent an email forwarding the drawings to Ms Blees at 8.57am (CB 1702).

31Each sheet of the working drawing included a panel at the foot of the page viewed in landscape format headed “PLEASE READ CAREFULLY” stating as follows:

“I/WE ACKNOWLEDGE THAT THESE PLANS ARE CORRECT & REFLECT ALL THE ITEMS REQUESTED IN OUR BUILDING CONTRACT WITH SHERRIDON HOMES PTY LTD.  I AM ALSO AWARE THAT IF ANY FURTHER CHANGES ARE REQUIRED TO BE MADE A $1000.00 VARIATION FEE WILL OCCUR.” (SCB 149)

32Mrs Stewart denied having reviewed these plans and accepted that had she done so, even without any expertise in the reading of plans, it would have been obvious to her that these “working drawings” re-sited the dwelling structure by one metre in comparison to the plans attached to the contract. She said, however, that her attention was focused on issues such as paint colours and so forth and was not alert to or expecting any modifications in the site structure (T242).

33Insofar as Mrs Stewart observed the lack of brickwork above the windows at the front of the residence, she had to concede that she had reviewed the “working drawings” to some extent (T246). Mrs Stewart could not distinctly remember whether she had shown these working drawings to her husband or not (T247, L26‑31).

34On the afternoon of 25 June 2021 (1.48pm), Ms Blees sent an email to Mrs Stewart advising a further charge of “$2355 for brick infills to windows and doors” and inquired “…if you are happy to proceed and I can prepare a PCV and request drafting to update the plans for you.” (CB 1239) Ms Blees sent a further email to Mrs Stewart’s email addressed “Hello Jason and Roslyn”, inquiring if they wanted her to send the plans “via docusign”, continuing “[a]s soon as you have signed off I will have drafting update asap” (Ibid). At 2.39pm, she sent an email to Mrs Stewart stating “[w]ould you also like Gallerie sent via docusign?” (Ibid)

35The email track between Sherridon and the Stewarts seems to have been routed to Mrs Stewart’s email address. However, Mr Stewart could receive notice on his mobile phone of email traffic to his wife and could read the text of those emails if he wished (T250, L15‑24). The list of choices via the Gallerie process was transmitted to the Stewarts and docusigned on their behalf on 19 July 2021 with their authority (T281, L18‑23) (CB 712‑13, 714-721). The working drawings for the house structure were again forwarded by Ms Blees to the Stewarts under cover of an email from Ms Blees dated 1 July 2021 (CB 1255). These were, it seems, the same working drawings as had been sent the previous month. It seems that Mrs Stewart was delaying the sign-off until she received the Gallerie documents (T253, L12‑18). Mrs Stewart said “I understand working documents to be the drawings that are given to the contractors that the builder gives to conduct the works.” (Ibid, L28‑31) She said she signed those working drawings with her husband on 19 July after she had resolved issues relative to the Gallerie documents (T254, L1‑5). Mrs Stewart conceded that Sherridon was seeking signatures from her and her husband as authority to build in accordance with the working drawing and with a view to preventing any disputes as to authorisation in the future (T254, L20‑30). Mrs Stewart did not deny that once one gave attention to the siting of the proposed dwelling, the movement of one metre was obvious enough.  She said, however, that she was focused on other things (T255‑6).

36The “working drawings” which Sherridon built to had been forwarded to the Stewarts multiple times before the Stewarts signed them off on 19 July (T264, L25‑26). The signatures on the working drawings were not by DocuSign but orthodox manuscript signatures which required the plans to be printed out for the purpose. Mrs Stewart could not say which of the various packages of documents that were sent was printed out for the purposes of the signature (T265, L5‑9). The signature of the working drawings occurred only after a number of follow-ups by Ms Blees. For instance, in an email dated 10 July 2021, Ms Blees said “[p]lease sign off on the documents I have sent you in preparation for construction handover.” (CB 1409) On the morning of 19 July, Ms Blees sent a further follow-up email addressed to Mr and Mrs Stewart, stating inter alia:

“We have the building permit and the estimating team have finalised your project.

In preparation for hand over to the construction team may you please sign off on the attached working drawings and PCV for the electrical.

I have forwarded the signed colours and Gallerie PCV to Gallerie this morning for you.” (CB 1412)

37It would seem a further pack of documents was enclosed with that email.

38As the second half of 2021 rolled on, COVID restrictions remained in force. By an email dated 23 July 2021, the Stewarts sent the signed working drawings to Sherridon.  The email continued “I require for the bank a copy of the following:”. There were a number of documents requested including “[c]opy of the approved plans and specifications” and “[c]opy of the Building Permit” (CB 1444).

39Whilst the request was made on behalf of the proposed mortgagee, the email would appear to indicate that the Stewarts had assimilated the statement in Ms Blees’s earlier email that she had obtained the building permit (T268, L22‑27). Mrs Stewart also conceded that at the time of purchase of Lot 27, she was provided with a statement under s32 of the Sale of Land Act 1962 which included a copy of the agreement under s173 of the Planning and Environment Act 1987 described above (T273, L14 ‑ T274, L2). Again, insofar as Mrs Stewart forwarded the plans forming part of the Building Permit to her finance broker, Ms Campbell, she had to conceded that had she looked at those plans, they would have alerted her to the fact that the house was to be erected one metre further to the east than the plans attached to the building contract depicted (T286).

40Sherridon forwarded a document styled “Notice of Commencement”, stating inter alia “[w]e are pleased to advise that the excavation/site cut at the above address [viz Lot 27] was completed on the 02/08/2021.” (CB 725) A month later, a Ms Alison Azzopardi, who described herself as “Building Administrator” forwarded a series of photographs of a recently poured concrete slab. The covering email addressed to the Stewarts began “Congratulations! The concrete slab has been poured for your home.” (CB 1546-1550) She followed this up with an email dated 12 October 2021 to the Stewarts commencing once again “Congratulations! The frame has been installed for your home”, attaching a series of photographs (CB 1551-1555).

41The Stewarts rejected a suggestion that these photographs alerted them to the re‑siting of the structure from its location proposed in the building contract.

42According to Mr Stewart:

“ After the lockdown and in late October 2021 I went to inspect the works. I noticed that the distance down the side of the house was not correct. I took a measurement and saw that the distance was 2.3 metres. I did not notice the position of the garage. There was no fence on that side of the home.  The house at that stage had been roofed, bricked and the plaster was either in or about to go in.” (SCB 170, [30])

He said when he returned home, he viewed the working drawings noting that the side access on the eastern side of the house was depicted on those drawings as having a width of 2.31 metres. He said “I did not immediately contact the Defendant as I thought it was my mistake. It made me feel very depressed.” (Ibid, [31])

43Mr Stewart said that Sherridon emailed him the building permit, working drawings and colour selections. He said “[i]t was then that I noticed that the External Selection Schedule was different from the Building Permit” (SCB 171, [33]). “I said to Roslyn ‘I knew I was right’. I also noticed that the driveway was not square.” (Ibid) He sent an email to Ms Blees dated 14 November 2021 relative to the driveway at the front of the garage on the western side of the allotment (CB 1629). On 19 November 2021, Mr Stewart, spoke to a Mr Simon Mandragona, who is Sherridon’s General Manager. Mr Mandragona, in that role, had “overall responsibility for the sales teams selling Sherridon…Homes.” (CB 271, [5]) Complaining about the siting of the house at Lot 27, Mr Stewart said that Mr Mandragona responded “[y]ou came to us because we’re the professionals and we let you down.” (CB 250, [36]) In his witness statement, Mr Mandragona said he did not recall the precise date of the conversation or the precise words (CB 271, [8]). A diary note of the conversation taken by Mr Stewart attributes to Mr Mandragona the statement “if he couldn’t prove an email paper trail, he’d lose every day of the week.” (CB 250 and 1633) Mr Mandragona denied having said this (CB 271, [8]), but did not deny specifically said that Sherridon had let the Stewarts down.

This proceeding

44By a writ dated 26 July 2022, solicitors acting for the Stewarts commenced this proceeding against Sherridon Pty Ltd.

Statement of claim

45By the statement of claim attached to the writ, the Stewarts referred to the building contract dated 28 November 2020. They referred to special conditions 1 and 2 in schedule 4 of that contract alleging that they were void by reason of the combination of s10 and 8(a) of the Domestic Building Contracts Act 1995.

46Next, they said that insofar as the plans forming part of the building permit, these sited the dwelling house from its location shown in the plans attached to and forming part of the building contract, such variation was void by reason of non-compliance with the formalities laid down for variations by s37 of the Domestic Building Contracts Act 1995 (Vic). Finally, they alleged contraventions by Sherridon of the Australian Consumer Law by way of misleading or deceptive conduct contrary to s18 of that Act, alleging first that the terms of the building contract constituted a representation to the Stewarts by Sherridon that “the garage [forming part of the dwelling to be built on Lot 27] could be built on the west Property line and that there would be a 3310mm distance between the residence and the east Property line.” It said they relied on this representation which was misleading or deceptive “in that [Sherridon] failed to design the residence in accordance with the Developer Requirements”. The expression “Developer Requirements” is defined in paragraph 5 of the statement of claim. They said they relied on this representation “when entering into the [building] contract”.

47A further contravention was alleged to the effect that the mode of submission of the working drawing constituted a representation to the Stewarts, “that the only change to the Site Plan was the addition of the brick infill above all windows and doors.”  This representation was said to be misleading or deceptive in that the site of the garage had been moved and the Stewarts were asked to sign working drawings “without [Sherridon] advising them of the movement of the garage away from the west Property line.” 

48They said further that the external selection schedule, insofar as it showed the garage on the western boundary of the Property line as per the building contract was misleading and deceptive insofar as these plans once again showed the garage on the western boundary and the wider access on the eastern boundary of the house. It was said that the COVID lockdown prevented any inspection of the progress of the house by the Stewarts until 18 November 2021.

49The statement of claim sought a declaration the special conditions were to avoid, damages, costs and further or other relief.

50An amended statement of claim was filed dated 11 November 2022.  This added a further alleged misleading or deceptive piece of conduct by way of a representation described as “the siting representation” said to have been made by Mr Thorsen on behalf of Sherridon to the effect that “a garage could be built on the west Property line without eaves and that there would be a sufficient distance between the residence and the east Property line for [Mr Stewart] to park trailers on the east side of the residence.”  The amended statement of claim referred to the site plan forming part of the contract. The Stewarts said they relied on this representation and suffered loss and damage as a result. The allegation of loss and damage was supplemented with further particulars, referring to various items and alleging in the alternative loss and damage in the sum of $390,866.

51Finally, shortly before trial, the solicitors filed a summons seeking leave to file and serve a further amended statement of claim.  A summons seeking that relief came before another judge of the Court who referred this issue for determination by me at the beginning of the trial. I granted leave.

52The further amended statement of claim deleted the particulars of damage added by the amended statement of claim. The substitute particulars of damage were headed “Demolish and rebuild” and totalled $634,915. The particulars also added a reference to the gaining of vehicular access to a shed in the rear garden. Paragraph 4, being an introductory paragraph dealing with issues such as incorporation, added to the allegation that the defendant was engaged in trade and commerce within the meaning of the Australian Consumer Law with reference to the Australian Consumer Law and Fair Trading Act 2012 of the State of Victoria. The evident intent of this amendment was to bring the claim for relief relative to alleged misleading or deceptive conduct under Victorian Law rather than in the Federal jurisdiction. The FASOC also added a reference to s31(1)(d) of the Domestic Building Contracts Act 1995 (Vic) which renders it an offence for a builder to enter into a major domestic building contract unless the contract includes plans and specifications for the works and that those plans and specifications contain enough information to enable the obtaining of a building permit. The FASOC added for the first time a reference to an intention on the part of the Stewarts to construct a shed at the rear of the residence.

Defence to further amended statement of claim

53Following the filing of the further amended statement of claim, the defendant filed an amended defence thereto dated 1 May 2024. This defence admitted uncontroversial matters such as ownership of land, incorporation and so forth.  As to the contract, it admitted its existence and alleged a variety of additional terms and provisions beyond those referred to in the further amended statement of claim. In particular, it referred to a statement said to be contained in the contract: “unless the context otherwise requires, the Contract includes the Tender Document and all statements and materials obtained in them.” It also alleged special conditions 1 and 2; the ones which, according to all versions of the statement of claim, are “void”.

54The defence admitted that the Preliminary Plans, as the plans annexed to the contract were described, showed the garage abutting the western boundary of the property without eaves, and that those plans showed “a clearance of 3310mm between the eastern wall of the proposed residence and the eastern boundary of the Property”. The defence admitted the incorporation in the contract of the terms implied by the Domestic Building Contracts Act 1995 (Vic).

55According to the defence, “on 22 July 2021 the Plaintiffs and the Defendant agreed to vary the Building Works...to provide that proposed residence and garage at the Property was to be constructed in accordance with the plans signed by the Plaintiffs on 22 July 2021”. These were referred to as “Final Plans”.

56According to the defence, there was no non-compliance by Sherridon with the terms of s37 of the Domestic Building Contracts Act 1995 (Vic), but, if there were, there are exceptional circumstances “and/or” Sherridon would suffer a significant or exceptional hardship if it were not entitled to recover moneys in respect of the variation. Since Sherridon completed the property in accordance with the Final Plans, it would be unfair to allow the Stewarts to recover the moneys paid for them, since the Stewarts had received the benefit in the form of the residence.

57According to the defence, if Sherridon breached the contract and the plaintiffs suffered loss and damage, by signing the Final Plans and dispatching them to Sherridon and not notifying Sherridon or the building surveyor that they “did not agree to the proposed residence at the Property being constructed in accordance with the Approved Plans” they represented to Sherridon that they agreed to the building works being carried out in accordance with the final Approved Plans.  Sherridon relied on that representation and would suffer loss and damage if the plaintiffs are allowed to “resile” from the representation.

58Next it was said that there had been a failure to mitigate the plaintiffs’ damages, in that the plaintiffs failed to purchase an alternative or replacement trailer and failed to accept an open offer of settlement made by letter from the defendant’s solicitors dated 12 April 2023.

59The defence next contained a series of admissions and denials relative to the Stewarts’ alleged causes of action under the Australian Consumer Law, contending that a number of the paragraphs of the further amended statement of claim alleging such causes of action were embarrassing, did not disclose a cause of action, and ought to be struck out. As to causes of action under the Australian Consumer Law, the defence likewise alleged a failure to mitigate on the part of the plaintiffs.

60In its original form, the statement of claim alleged breaches of the Australian Consumer Law without a clear indication as to whether that law was relied upon in so far as it constituted federal law by reason of the Competition and Consumer Act 2010 of the Commonwealth, or as Victorian law by reason of Victoria’s Australian Consumer Law and Fair Trading Act 2012. An earlier version of the defence therefore pleaded in detail a case of contributory negligence based on s137B of the Commonwealth Competition and Consumer Act 2010. When the further amended statement of claim based its contentions arising out of alleged breaches of the Australian Consumer Law on the Victorian statute alone, those paragraphs as to contributory negligence were deleted. The defence to the further amended statement of claim, however, stated:

“if, which is denied, the Court determines that the Plaintiffs have suffered loss or damage as the result of the wrong of the Defendant, then the Plaintiffs suffered that loss or damage partly as a result of the Plaintiffs’ failure to take reasonable care” (Paragraph 42(a))

61Details particularly are given centring on the Stewarts’ approval of what the defendant Sherridon describes as Final Plans and a failure on the part of the Stewarts to make timely complaint or objection, failing to review the plans which they approved or photographs furnished during the course of construction. These matters were said to found a defence or partial defence of contributory negligence under s26(1) of the Wrongs Act 1958 (Vic), such that “the damages recoverable in respect of the wrong must be reduced to such extent as the Court thinks just and equitable” (Paragraph 42(b)).

Reply

62The plaintiffs filed a reply dated 20 October 2022 to the original defence: that is, the defence to the original statement of claim. No reply seems to have been filed responding to the defence to the amended statement of claim or the defence to the further amended statement of claim.

63The reply referred to clause 6 of the document styled “Preliminary Agreement” forming part of the contract, providing for variations based on “Developer Requirements”.  Further, it was said that no variation agreements were submitted, as the plaintiffs contended was required by clause 6 of the preliminary agreement.

64The reply observed that Sherridon had built at least one other home on the same subdivision bound by the same s173 agreement with the garage built on the boundary with no eaves. It was said that Sherridon did not advise of any additional measures required in order to obtain Developer’s Approval in accordance with the terms of Sherridon’s tender #4752. The plaintiffs said the requirement for sufficient width between the proposed house and the east boundary for the storage of work trailers was discussed by Mr Stewart with Ashley Thorsen, then an employee of the defendant, Sherridon.

65As to the Final Plan, the Stewarts said that the defendant had breached clause 23.0 [presumably of the building contract] in that there was no statement of the reason for and details of the variation sought, and there was no explanation of the effect of the variation as required by clause 23.2 [presumably of the building contract]. The reply also stated an intention on the part of the plaintiffs to seek “general damages”.

VCAT proceeding

66Sherridon filed an application in the Victorian Civil and Administrative Tribunal (“VCAT”) seeking the following relief:

“A declaration that if the County Court in Proceeding No CI-22-02897 determines that the Applicant [viz Sherridon] breached sections 37(1) and/or (2) of the Domestic Building Contracts Act in respect of the contract between the Applicant and the Respondents dated 28 November 2020 and/or the building works undertaken by the Applicant pursuant to that contract at 22 Overland Drive, Kilmore, the Applicant is entitled to recover the cost of carrying out the variation plus a reasonable profit pursuant to sections 37(3) and (4) of the Domestic Building Contracts Act.” (SCB 209)

67This application was brought before me as a Vice President of the Tribunal, and was heard concurrently with the court proceeding.

Later developments

68For most of the trial, my understanding of the defendant Sherridon’s position was that since it regarded the design guidelines rendered applicable to this building project by the s173 agreement as requiring eaves, the provision of eaves around the entire perimeter of the structure, including the garage, precluded setting the garage on the boundary as desired by the Stewarts and provided for in the drawings attached to the contract. It would constitute encroachments into the airspace of the neighbouring land (T317, L16 – T318, L2).

69The evidence-in-chief of the witnesses was to be by witness statements, which statements were required to be filed and served by a date in November 2023. In the course of the trial, Mr Tennant, on behalf of the defendant, foreshadowed calling an additional witness, no statement for whom had been provided the previous November. This was Mr Kalavace. The transcript misspells his name.  Mr Kalavace explained that the problem with adding eaves to the garage section of the structure was that the addition of eaves would limit light access to habitable windows (T386).

70It appears that Mr Kalavace not only prepared the contentious “as built” plan, but also the original drawings as attached to the contract (T397) (though this is not mentioned in his original or amended witness statement). He denied, however, that in making the original siting of the house on the boundary he had “made a big blue” (T398, L6-8). He said what required him, in what were described as the “working drawings”, to move the site of the house was “because of the features of...the land” (T399, L23-28). I was surprised by this answer, given that the allotment No 27 was relatively flat, without, so far as I was aware, any notable features.  Mr Kalavace said that a “features survey” of the land, which he had when preparing the working drawings but not the earlier version, was “a crucial point” (T401, L21-30). He said that it was necessary in accordance with regulations 75, 80 and 85 of the Building Regulations 2018, which he quoted in his amended witness statement, which precluded the average wall height along the boundaries exceeding 3.2 metres (T402, L2-8). The “features survey” included the various levels on the land. Compliance with this regulation was judged by the drawing of a “red line” on the plan (T406, L28 – T407, L16).

71Mr Kalavace reworked the contract drawing elevations so as to subject them to the red-line test which he described as being mandated by regulations 75, 80 and 85 of the Building Regulations 2018.  He said he found the design as depicted there likewise non-compliant (SCB 380). Mr Kalavace said that at the time he drew the contract drawings he did not believe that there was a breach of the regulations. It was only subsequently that he determined that the design failed the “red line test” (T419, L31 – T420, L4). He said this “red line issue” would exist even if the eaves were deleted (T421, L15-16).

72In summary, therefore, the contract drawings raised two problems: one relative to the issue of light courts, and the other was the red-line issue.  The deletion of the eaves would have resolved the light-court issue but not the red-line issue (T423, L17-26).  Mr Kalavace said that in measuring compliance with the regulations the natural ground level, which could not be determined until provision of the features survey, was essential (T440, L21 – T441, L5). The natural ground level shown in the contract drawings, he said, was “just...fictional”, “not a real natural ground level” (T441, L15-17). The working drawings, as compared with the contract drawings, showed that the real natural ground level was 100-150 millimetres below the one supposed for the purposes of the contract drawings (T444, L1-11).

73Mr Kalavace conceded that the “red line” issue could be resolved as suggested by dropping the level of the entire building slab by 200 to 300 millimetres (T423, L5-12).

74I sought an indication from Mr Kalavace of the purport of the proviso in the design guideline requiring eaves on dwelling houses in the subdivision “where practical within the constraints of the lot”: see [11] above. I asked Mr Kalavace, relative to this requirement in the s173 agreement, “what are the practicalities – the constraints that would, in a hypothetical example, tell someone who was designing a house,...I’ve come up against a practical constraint. That means I can forget about the eaves. What sort of practical constraints would do that?” Mr Kalavace replied: “Light court. ...Light court request for habitable windows.” Mr Kalavace explained that the regulations require “at least 3 square metres light court to come in, with a minimum dimension of 1 metre clear to the sky.” (T384, L29 – T385, L8) This is the sort of scenario which he agreed would justify dispensing with eaves (T385, L16-18).

75I then referred to the evidence of the joint expert valuer, Mr Brown, to the effect that moving the proposed structure one metre toward the eastern boundary reduced the value of the property as constructed by tens of thousands of dollars from the value it would have had if constructed as per the contract drawings, implying that would be a relevant practical constraint which would justify a designer dispensing with eaves (T385, L19 – T386, L2). Mr Kalavace replied that there was “a request on the contract side and by the client and the builder which required 47 linear metre of 450 mil eaves around the house on the perimeter.” (T386, L3-5)

76In light of the late addition of Mr Kalavace as a witness, I gave leave to the plaintiffs to obtain an expert report from a building consultant, Mr Leonard, who was in due course cross-examined upon that statement.

77Building surveyor and inspector Mr Shane Leonard provided an expert report on the construction of the Stewarts’ residence at Lot 27 (SCB 381). He agreed that regulations 75, 80 and 85 of the Building Regulations 2018 created a constraint upon locating the residence at Lot 27 as depicted in the contract drawing. He said that the design as depicted in the “working drawings”, which are also the “as built” drawings, placed the floor level of the garage “330mm higher than natural ground level thereby pushing the boundary wall height and adjacent roof height higher than necessary.” (SCB 386-7)

78Mr Leonard was confident that departure from the regulations by locating the garage either on the property boundary or with a setback of no more than 200 millimetres would be approved by council by a procedure known as a “Report and Consent” application. A refusal would leave open an appeal to the Building Appeals Board (SCB 390). The process with council was not entirely informal, and there was a statutory period of 10 days, and, in a matter such as this, the neighbours would have a right to be heard (T477, L17-31). The issue could likewise be resolved by simply dropping the finished floor level of the house (T478, L19-20).

79Mr Leonard noted that, subject to a further setback, the regulations permitted the erection of a second storey on a building on Lot 27, adding another three metres in height. He said the “little wedge” involved with the present design “would be undetectable”, and approval would be “a no-brainer”. (T479, L19-26)  Mr Leonard saw the relevant regulations as directed to issues of “visual bulk”. (T480, L12-13)

80As to the issue of eaves and the Urban Design Guidelines, Mr Leonard remarked:

“it is important to note that the UDG [Urban Design Guidelines] is only a guideline and not a statutory regulation and [the relevant clause] is somewhat discretionary as the words “where practical within the constraints of the lot”, provide the designer [with an opportunity] to vary this requirement when it proves impractical.  ... It is my opinion that the application of [the relevant clause] of the UDG for the Subject Property would be unreasonable and serve no benefit to the owners or occupants.” (SCB 389)

81In cross-examination, Mr Leonard conceded that the practical constraints on the inclusion of eaves to the relevant part of the roof, viz the garage on the western boundary, resulted from the design and the relatively large size of the residence chosen by the Stewarts, rather than any inherent constraints on the allotment Lot 27, which was regularly-shaped, almost flat, and devoid of features such as easements intruding through the middle of the allotment. (T462-3)

82As to the interlocking issues of eaves and the need to provide a one-metre light court for each habitable room, which was at the forefront of Mr Kalavace’s explanation as to why the working or final drawings were modified from those appearing in the contract, Mr Leonard was of the view that in providing a 450‑millimetre eave in compliance with the urban design guidelines, the fascia and gutter attached to the eave should be regarded as forming part thereof, with the result that if 450‑millimetre eaves were mandated by the s173 agreement, the required eave would be a smaller structure than Mr Kalavace designed. (SCB 392, paragraph 4.3.3)

83The interaction of the issue of eaves and the requirement for a one-metre light court for each habitable room arises in that to the extent that the eaves protrude from the line of the external walls, they correspondingly decrease the size of the “light court” available to the habitable room below. Mr Leonard conceded that even with a combination of the smaller eaves which he said would be compliant with the Urban Design Guidelines, and a structure set back 200 millimetres from the western boundary, compliance could not be achieved with the light court requirement. Even with a 200‑millimetre setback from the western boundary, the eaves would have to be narrower than required by the Urban Design Guidelines; hence, there would be non-compliance with the s173 agreement. (SCB 392, paragraph 4.3.2; T475)

84In light of the plaintiffs retaining and adducing evidence from a building surveyor and inspector, Sherridon sought and received leave to file and rely upon advice from its own expert, Mr Brent Williams, who is likewise a building surveyor and inspector. (SCB 411)  Unsurprisingly, the opinion and views expressed by the two experts were generally aligned with one another.  In his report, he said:

“It is my opinion that subject to approval from the Council, by way of Report & Consent applications, the dwelling could have been constructed in accordance with the contract drawings.”

85Mr Williams agreed that the gutter and fascia were to be counted as part of the 450‑millimetre-wide eaves required by the Urban Design Guidelines. (SCB 418, paragraph 4.4.3)  He said that construction in accordance with the contract drawings would have required not one but two consents from council. (SCB 419, paragraph 4.5)  Mr Williams believed that the “red line” issue could be resolved by dropping the finished floor level of the house by 100 millimetres. (T488, L20-28)  As to what might be regarded as practical constraints for the purposes of the Urban Design Guidelines, Mr Williams said:

“A practical constraint, when we deal with regulations, talks about site issues, as in easements, the slope of the land, existing conditions.  You’re referring to the 173 agreement.” (T486, L11-14)

Conclusions

86This unhappy dispute would not have arisen had the defendant Sherridon proceeded in accordance with the model laid down by the Domestic Building Contracts Act 1995 (Vic). Section 31(d) of the statute prohibits a builder from entering into a domestic building contract unless it “includes the plans and specifications for the work and those plans and specifications contain enough information to enable the obtaining of a building permit”. Here, what was attached to the contract as the “plans” was, in the language of the defendant’s witnesses, merely preliminary. The site of the building could not be finally determined, as Mr Kalavace’s evidence demonstrated, without access to the “features survey” from which the natural ground level could be determined. Had that features survey been consulted at the time that the contract plans were prepared, the issues which have led to this dispute would have become evident. Either they would have been resolved in some fashion acceptable to both parties, or no contract would have been entered into.

87Again, had Ms Blees, in seeking a “sign-off” from the Stewarts on the final plan, provided some explanation as to the re-siting of the entire structure and the reason therefor, matters would not have reached their present state. The evidence did not disclose why Sherridon decided to proceed with preliminary plans only, rather than, as required by s31 of the Domestic Building Contracts Act 1995 (Vic), plans which were sufficient to obtain a building permit. Perhaps this was dictated by considerations of time or concerns as to the recoverability of the cost of a features survey in the event that a domestic building contract was not entered into by the Stewarts.

88If Ms Blees had alerted the Stewarts to this issue, it could have been dealt with before building commenced.  Perhaps the revelation of the issue might have led to a conflict, for instance, as to whether Sherridon would be obliged to absorb the cost of a deeper site cut so as to drop the finished floor level of the property or perhaps to narrow the entire structure to accommodate the eave.  Perhaps the Stewarts would have been prepared to meet that cost themselves.  Perhaps the parties might have split the difference.  Perhaps some other solution might have been reached.  At that point there may have been a nasty dispute, but it would have been but a storm in a teacup in comparison to what has happened.

89Again, Mr Kalavace provided an explanation, albeit in relatively cryptic language, to Ms Blees, as to the issues which he dealt with in preparing the final plan.  Did Ms Blees deliberately avoid referring to these matters to obviate a potential conflict with the Stewarts, or was she simply oblivious?  It is incongruous that Mr Kalavace provided an email explaining the issues which dictated the course he took in preparing the final plans but no such explanation was given to the Stewarts when they were pressed to “sign off” on the plan.  As the narrative shows, the Stewarts had the “final” plans for many weeks before making the final sign-off.  It seems they deferred the “sign-off” until final decisions were made relative to finishes, interior and exterior.

90Ms Blees, who presumably could shed invaluable light on these issues, was not called as a witness.  She is no longer employed by Sherridon, but is now in the employment of another domestic builder, Glenvill Homes. (SCB 181) This in itself does not render her unavailable as a witness.  There was no explanation as to why she was not called.  This leaves the obvious inference to be drawn that her evidence would not have assisted the defendant’s case. (Jones v Dunkel (1959) 101 CLR 298)

91The result, therefore, seems to be that in so far as issues relative to the “red line” light wells and the several building regulations referred to by Mr Kalavace are concerned, solutions were available which would have allowed the residence to remain sited as in the contract drawing by dropping the finished level of the building, by obtaining advice and consent under the provisions of the building regulations from the municipal council, or by a combination of these measures.  Both consultants, as I understood them, were confident that such a resolution could be reached.  With those matters capable of resolution, the focus in final submissions returned to the issue of the eaves.

92Mr Tennant correctly observed that the obligation to provide eaves was imposed not by any building regulation but by the agreement under s173 of the Planning and Environment Act 1987, which is part of the regime of planning control. This would not be susceptible of modification or waiver by the regime referred to by the consultants relative to the building regulations. Mr Tennant’s contention was that the eaves issue represented an intractable problem which precluded construction of the Stewarts’ residence as depicted in the contract drawing consistently with the legal obligations imposed by the s173 agreement.

93I sought to confront the Stewarts’ counsel, Mr Settle, with this issue, asking during his closing submissions:

“Suppose, hypothetically, we reached a situation where in a general sense as a matter of contract, it appeared that Sherridon had contracted to build the property as depicted in the contract plans and if it also appeared that so to do would be in breach of the s173 agreement, what is the consequence of that? Is there, as it were, an implied limitation that says, ‘Well, Sherridon is obliged to perform, but only to the extent that it’s legal?’ Or does it have to build even if it is illegal?” (T545, L17-26)

94Mr Settle, perhaps unsurprisingly, complained that Sherridon had not drawn this actual or alleged dilemma to the attention of his clients.  I continued:

“But within the realms of contract law, what’s the interpretation of that scenario?  They’re committed to build this house in that location, and now it looks like that’s illegal.” (T546, L4-8)

95He did not answer that question directly, or perhaps at all.  He said:

“my submission is it wouldn’t be illegal.” (T547, L6-7)

96Neither counsel took me to the relatively elaborate regime which regulates s173 agreements. This occupies an entire division of Part 9 of the Planning and Environment Act 1987 (Vic). Subdivision (1) of that division deals with the making and form of such agreements. Subdivision (2) deals with “Ending and amendment of agreements”. Section 178A provides for land owners to propose the amendment or termination of agreements. Section 178B provides a large number of matters which a municipal council as responsible authority is required to give attention to in considering such a proposal. Should the responsible authority agree to the proposal “in principle”, s178C provides for the giving of separate notices to interested persons, potentially the erection of a sign on the land concerned, and the publication of notices in newspapers circulating in the area. Section 178D authorises “any person” who has been given notice to object or make submissions, and s178E provides for council to determine whether to amend the relevant agreement. A person whose application to amend or end an agreement was refused has a right to seek review from the Victorian Civil and Administrative Tribunal.

97All in all, this relatively elaborate procedure, which I have sought to summarise only at the highest level of generality, is the antithesis of the relatively swift and, one would think, relatively inexpensive regime for waivers or consents under the building regulation. The relatively costly and elaborate process entailed in achieving an amendment of the s173 agreement means it would be wrong to proceed on the basis that there is a relatively convenient and practical escape hatch from the terms of the s173 agreement. To put it another way, for practical purposes the agreement should be regarded as immutable.

98The rules as to eaves, upon the evidence I have heard, including photographic evidence, appear to have been more honoured in the breach than in the observance.  Almost half of the dwellings erected in the subdivision do not comply with the rules or guideline as to eaves.  Most notably, one of the properties was erected by Sherridon.  It was open to Sherridon to provide an explanation as to how it came about that another property in the same street constructed by Sherridon appeared to flout the rules as to eaves.  It chose not to share that information with me or the Stewarts.  It is reasonable to suppose that the explanation would not have assisted Sherridon’s case.

99My guess, and it can be no more than that, is that the widespread apparent non‑compliance with the guidelines as to eaves was not the result of resort to some sort of statutory escape hatch (which on my analysis would be very difficult, very costly, and would have left some record which would have come to attention in the course of this dispute), but rather deliberate or simply ignorant non‑compliance.

100What then of the present instance?  Could the dwelling on Lot 27 have been constructed without eaves to enable it to be located on the eastern boundary?  Mr Settle’s contention was that in terms of the guidelines, Lot 27’s owners and builders would be excused from provision of eaves on the basis of the practical constraints affecting the property. (T547-8)  He referred to the evidence of Mr Kalavace.  I asked Mr Kalavace:

“What sort of practical constraints would create, if you will, a loophole that would allow a structure without eaves?” (T384, L21-23)

101I continued, asking what sort of practical constraints would enable a designer to forget about eaves, and he replied “Light court”. (T384, L29 – T385, L3)  The effect then would be that the need to provide a light court to habitable room would represent a constraint such as would justify dispensing with eaves.

102Mr Tennant said the two expert consultants called by the parties (Mr Leonard on behalf of the Stewarts, and Mr Williams on behalf of Sherridon) were agreed that the practical constraints referred to in the guidelines pertained to issues such as the shape and topography of an allotment.  Here, he said, the Stewarts had created their own constraint by selecting a comparatively large structure to put on Lot 27 and by seeking to achieve an accessway on the far side.  Mr Tennant said it could not be contended that the garage was not part of the dwelling because the definition of “dwelling” in the Mitchell planning scheme included “outbuildings and works normal to a dwelling”.  It may be observed that this garage, as built, and as depicted in the contract drawing, was “under the same roof” as the dwelling proper.  If the definition is applicable, then appurtenances to the dwelling which are part of the main structure would a fortiori fall within the definition.

103There is nothing in the s173 agreement which specifically incorporates the definitions in the planning scheme by reference. I was referred to no statutory provisions which have had that effect. Nevertheless, this agreement was entered into to satisfy a condition of a planning permit issued under the Mitchell Planning Scheme. As previously noted, it is part of the suite of planning controls which affect this property. Accordingly, even in the absence of an express incorporation by reference of the definition, I believe this definition should inform our interpretation of the word “dwelling” in the agreement, with the result that the garage section of this house is to be regarded as part of the dwelling.

104I accept the contentions put by Mr Tennant, and supported by Messrs Leonard and Williams, that the circumstances surrounding the design and construction of this house on Lot 27 cannot be regarded as the sort of practical constraint referred to in the guideline.  If parties could create their own practical constraints simply by the siting of the structures which they sought to construct or their size, the guideline could become a “dead letter”.

105Where then does this lead? Would the construction of the house as depicted in the contract drawings be illegal? The provision as to eaves in the s173 agreement is described as a “guideline”. This means it is not as rigorous in its operation as a rule. It cannot be flouted wholesale, but the nature of a guideline carries with it some degree of flexibility. The contract drawings (CB 636) show that the controversial area set to the boundary with no eaves is the garage only. The balance of the dwelling is provided with eaves. In his report, Mr Leonard, the Stewarts’ building expert, noted that the relevant provision is a guideline only. The garage is not a habitable room.

106I heard no evidence from any planning consultant; nor was there any explanation as to the provenance of the urban design guidelines.  Were they “bespoken” for this subdivision, or were they taken from some set of rules or policies or guidelines relative to medium-density housing?  The rationale for eaves would seem to be referable to two considerations: one, an aesthetic judgment; and, secondly, the matter of environmental concern; that is, that in summer weather, providing shade to habitable windows, eaves minimise the energy which may be required for cooling.

107In the present instance, given the widespread absence of eaves in this subdivision and the relatively small portion of the structure involved, there would seem to be no aesthetic consideration of any substance which would require the garage to have eaves.  As to environmental concerns, since the garage is not a habitable room, there is no issue as to the use of excessive amounts of energy to cool it.

108In my view, albeit a view reached after earnest consideration and with great hesitation, I conclude that construction of the Stewarts’ property as per the contract drawings would not be unlawful.

109I note that s8 of the Domestic Building Contracts Act 1995, paragraph (c), implies a provision into the relevant contract as follows:

“ the builder warrants that the work will be carried out in accordance with, and will comply with, all laws and legal requirements including, without limiting the generality of this warranty, the Building Act 1993 and the regulations made under that Act”.

110Had I been of the opposite opinion as to the application of the guideline as to eaves, I would have concluded, in answer to the question which I pressed on Mr Settle but which he did not answer, that the obligation to build the relevant dwelling in accordance with the contract as set out in paragraph (a) of s8 would yield to the obligation to comply with legal requirement laid down in paragraph (c), so that a decision to comply with legal requirement would excuse a failure to build in accordance with the contract plans, subject of course to what I will say below as to variation.

111I turn next to the issue as to whether the Stewarts’ “sign-off” of the revised plans effected a variation of the major domestic building contract.

112On this subject it is necessary to turn first to the provisions of the Domestic Building Contracts Act 1995 (Vic) and their interaction with the first two special conditions in the original contract as identified above. In laying down certain mandatory requirements as to form and procedure for variations of domestic building contracts, the statute deals separately with variations of plans or specifications initiated by the builder, which are dealt with in s37 of the statute, and variations of plans or specifications by the owner, which are dealt with in s38. The variation here, if effective, was made upon the initiative of Sherridon; therefore, s37 is the relevant section. It provides:

“37Variation of plans or specifications—by builder

(1)A builder who wishes to vary the plans or specifications set out in a major domestic building contract must give the building owner a notice that—

(a)   describes the variation the builder wishes to make; and

(b)   states why the builder wishes to make the variation; and

(c)   states what effect the variation will have on the work as a whole being carried out under the contract and whether a variation to any permit will be required; and

(d)   if the variation will result in any delays, states the builder's reasonable estimate as to how long those delays will be; and

(e)   states the cost of the variation and the effect it will have on the contract price.

(2)A builder must not give effect to any variation unless—

(a)   the building owner gives the builder a signed consent to the variation attached to a copy of the notice required by subsection (1); or

(b)   the following circumstances apply—

(i)a building surveyor or other authorised person under the Building Act 1993 requires in a building notice or building order under that Act that the variation be made; and

(ii)the requirement arose as a result of circumstances beyond the builder's control; and

(iii)the builder included a copy of the building notice or building order in the notice required by subsection (1); and

(iv)the building owner does not advise the builder in writing within 5 business days of receiving the notice required by subsection (1) that the building owner wishes to dispute the building notice or building order.

(3)A builder is not entitled to recover any money in respect of a variation unless—

(a)   the builder—

(i)has complied with this section; and

(ii)can establish that the variation is made necessary by circumstances that could not have been reasonably foreseen by the builder at the time the contract was entered into; or

(b)   VCAT is satisfied—

(i)that there are exceptional circumstances or that the builder would suffer a significant or exceptional hardship by the operation of paragraph (a); and

(ii)that it would not be unfair to the building owner for the builder to recover the money.

(4)If subsection (3) applies, the builder is entitled to recover the cost of carrying out the variation plus a reasonable profit.

(5)This section does not apply to contractual terms dealing with prime cost items or provisional sums.”

113Mr Settle’s contention at the outset of the hearing was that the terms of s37 rendered void the two initial special conditions of the relevant contract: the contention being that they were repugnant to s37 in so far as they purported, to use the metaphor that appealed to me, to give unlawful “elbow room” to the builder to modify its obligation and the details of what it contracted to construct.

114In closing submissions, however, Mr Tennant, on behalf of Sherridon, relied on a decision of Woodward J, sitting as the President of VCAT, in AMO Rifat Holdings Pty Ltd v Dib [2024] VCAT 419. In that case a builder relied on a provision of similar purport to the contentious special conditions in this case, and the owners contended, as did Mr Settle, that such a provision was repugnant to the Domestic Building Contracts Act 1995 (Vic) and accordingly void. Reliance was being placed on s38 of the statute dealing with owner-initiated variation. His Honour rejected this argument, stating at [71] that the special condition did:

“not oust s38 of the DBCA (or clause 13.1 of the Contract), which continues to prescribe the process that must be followed before a variation that may arise pursuant to special condition 11 can be claimed.”

115I should follow the reasoning of the President of VCAT, who is a Judge of the Supreme Court. Ultimately it may be a distinction without a difference. On this point Sherridon lives or dies upon whether or not it can be regarded as having complied with the requirements of s37.

116A further point made by Mr Tennant was that although s37 falls into two distinct halves, the first dealing with variations which are given contractual force, and the second provided for in ss(3) and (4) which appear to grant a statutory restitutionary entitlement in favour of the builder where the builder establishes the matters required by ss(a) of ss(3) and the Victorian Civil and Administrative Tribunal finds that there are exceptional circumstances and that “it would not be unfair to the building owner” for the builder to recover the money, the Court of Appeal has held in Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2022] VSCA 209 that where a builder succeeds under the equivalent provision to ss(3) and (4) of s37 it enjoyed the benefit of s39 of the statute, which provides as follows:

“39Effect of a variation on the contract price

Unless the contrary intention appears, if the plans or specifications set out in a major domestic building contract are varied in accordance with section 37 or 38, any reference in this Act, the regulations or the contract to—

(a)those plans or specifications is to be read as a reference to them as varied; and

(b)the contract price is to be read as a reference to the contract price as adjusted to take account of the variation; and

(c)the completion date, or the number of days required to finish the work, is to be read as a reference to that date, or number of days, as adjusted to take account of the variation.”

([2022] VSCA 209 [66] per the Court constituted by Niall, Sifris and Walker JJA)

117The Court’s determination on this point explains the utility of Sherridon’s VCAT application under s37, which on the face of it could serve no useful purpose in circumstances where the entire contract price, including the cost of any variation, has already been paid, and, whilst the plaintiffs seek damages for breach of contract, they make no application to recover any part of the price on the basis either of a failure of consideration or payment under mistake. If the restitutionary matters are established, the plans stand varied, and there can be no claim of breach of contract on the part of the Stewarts based on the siting of the structure.

118Unsurprisingly, Mr Settle contended, on behalf of the Stewarts, that the matters required for success under ss(3) and (4) of s37 had not been made out.

119I turn first to the question as to whether, in accordance with ss(1) and (2) of s37, an effective variation of contract has been made; or, to put it another way, if the requirements of ss(1) and (2) are made out, the relevant contract will be treated as varied.

120Mr Settle’s first contention in this regard is that the manner in which the alleged variation took place did not entail the rendering of “a notice” as required by s37(1). He said that dealing with the corresponding provision of s38, the High Court in Mann v Paterson Constructions Pty Ltd [2019] 267 CLR 560, 619 said that in the context of s38 the notice must be in writing. Next he took me to clause 6 of the general conditions of the building contract (CB 581) which provided:

“6.0Unless otherwise stated in this Contract, a notice given under this Contract must be in writing and in English.”

121The notice in this case is said to be constituted, as I understand it, by the revised or working drawings prepared by Mr Kalavace after he had received the features survey.  Such plans were plainly in writing.  It cannot be said, however, that they were in English.  The English language consists of words.  No doubt the plans included various notations in the form of words from the English language, but the gravamen – viz, the shifting of the site of the proposed structure – was conveyed solely by the lines representing the walls of the structure. It follows, therefore, that no notice as required by ss(1) has been given. This conclusion represents a combination of the statutory requirements and the general conditions of the contract. In my view, the notice required by ss(1) must be judged in the contractual context in which it is to be given. Therefore, in light of General Condition 6 in the present case, to be effective for the purposes of s37(1) it needed to be both in writing and in the English language, and it was not.

122None of the matters referred to in paragraphs (b) to (e) of ss(1) were to be found in the “notice” if, contrary to my view, the revised plans were to be regarded as such a notice. Subsection (2), precluding the builder from giving effect to a variation save in the circumstances described, is not reached, since the requirements of ss(1) have not been met. The four circumstances referred to in paragraph (b) of ss(2) are connected by the word “and”. That is, establishment of one or more is insufficient. All must be proven. It is sufficient to note that there was no building surveyor involved in the process, and so s37(2)(b) has no application. Paragraph (a) of the section, which is an alternative route to an effective variation, is effective if, and only if, a notice in accordance with ss(1) has been given. In the circumstances, I do not believe that any such notice has been given.

123I turn then to ss(3) and (4), which are potentially engaged by the VCAT application that is before me. Paragraph (a) has no application because, upon the findings I have made, Sherridon did not comply with s37(1). The “fall back” is to be found in paragraph (b). There is an element of artificiality in the enquiries mandated by paragraph (b) when Sherridon has already been paid and there was no application on the part of the Stewarts to recover the money which they have paid (as distinct from a claim for damages for breach of contract). This artificial enquiry, however, seems to be required by the conclusion of the Court of Appeal in Jolin as to the operation of the corresponding provisions in s38 and their interaction with s39.

124There is the further element of unreality in that, even were the contract price still outstanding, the variations in question here did not add to that price.  Assuming for the purposes of the exercise that there were further moneys to be recovered, I am not persuaded that “it would not be unfair to the building owner [viz the Stewarts] for the builder to recover the money”.

125This unhappy drama has been set in train by a systemic failure by Sherridon to embrace and carry into effect the model for the formation of major domestic contracts mandated by the statute: viz, that the plans attached to and forming part of the contract are final; that is, with sufficient detail to enable a building permit to be obtained.  Plans which, in Mr Kalavace’s words, included a “fictional” natural ground level did not meet this criterion.  I have sought to explain above how this set an unhappy train of affairs in motion.  This conclusion is sufficient to establish, subject to the matters dealt with below, the Stewarts’ case that Sherridon breached its building contract with them.

126Sherridon says, however, that even if, contrary to its primary contention, it should be regarded as in breach of the domestic building contract, the Stewarts by their actions in signifying approval to the revised plans by signing them are thereby estopped from relying on that breach of contract.  In closing submissions, Mr Tennant, on behalf of Sherridon, referred to and quoted from the well-known and standard authorities on estoppel by representation (paragraphs 58-62).  He referred to Commonwealth v Verwayen (1990) 170 CLR 394; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 419 – in the famous formulation by Brennan J as he then was; Sidhu v Van Dyke (2014) 251 CLR 505, 511. He extracted a formulation of the law in these matters by Stynes J in J Hutchinson Pty Ltd v Transcend Plumbing and Gasfitting Pty Ltd [2023] VSC 39. In particular, he said, at paragraph 61:

“For the purposes of common law estoppel by representation, the representation may be made innocently.  In addition it is not necessary for the reliant party to establish that its conduct was ‘innocent’.”

127He referred to Vaughan v Byron Shire Council [1999] NSWCA 235 [21] per Handley JA and Hypec Electronics Pty Ltd (in liq) v Mead [2004] NSWCA 221 [81] per Tobias JA. Mr Settle in his outline of closing submissions did not deal with this issue.

128It is important to see this argument and the pleaded reliance upon it by Sherridon in context.  What I have found so far is that the manner in which Sherridon proceeded was at odds with the regime established by the Domestic Building Contracts Act. The statute implies an obligation on Sherridon to construct in accordance with the contract plans. Section 10 of the Act is headed “Person cannot sign away a right to take advantage of a warranty”, and provides as follows:

“10Person cannot sign away a right to take advantage of a warranty

A provision of an agreement or instrument that purports to restrict or remove the right of a person to take proceedings for a breach of any of the warranties listed in section 8 is void to the extent that it applies to a breach other than a breach that was known, or ought reasonably to have been known, to the person to exist at the time the agreement or instrument was executed.”

129To reinforce the point, s132, headed “Contracting out of this Act prohibited”, provides:

“132Contracting out of this Act prohibited

(1)Subject to any contrary intention set out in this Act—

(a)any term in a domestic building contract that is contrary to this Act, or that purports to annul, vary or exclude any provision of this Act, is void; and

(b)any term of any other agreement that seeks to exclude, modify or restrict any right conferred by this Act in relation to a domestic building contract is void.

(2)However, the parties to a domestic building contract may include terms in the contract that impose greater or more onerous obligations on a builder than are imposed by this Act.”

130Mr Tennant’s contention in this regard on behalf of Sherridon seeks to set all this, the implied warranty and the provisions as to contracting out, at naught. The signed plans could, for the purposes of s10, be regarded as an “instrument” or perhaps as an “agreement” in so far as Sherridon in its primary contention said that it operated as a variation. If a signed plan constitutes a variation, as Sherridon’s primary contention would have it, then either they form part of the domestic building contract and are avoided by s132(1)(a) or, if they are to be regarded as a separate agreement, they are avoided by paragraph (b) of the same subsection. These considerations in themselves might be thought to be sufficient to dispose of the estoppel argument. However, in the context of the statutory cause of action of “misleading or deceptive conduct”, the authorities recognise that a provision in a contract can separately be regarded as misleading or deceptive conduct and create an entitlement for relief in that respect separately from any contractual operation which they might or might not have. I therefore proceed to consider this matter upon the basis that even if it be contractually ineffective, it might nevertheless constitute an estoppel.

In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her.  This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.  (Emphasis in original.)

Bellgrove v Eldridge recognised a qualification to the rule it stated in regard to damages recoverable by a building owner for the breach of a building contract. “The qualification … is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt” (at 618). The joint judgment gave as an example of unreasonableness, demolishing the walls of a house which were to be cement rendered with second-hand bricks, to replace second-hand bricks with new bricks, which was said to be “quite unreasonable”, whilst indicating that the expression “economic waste” goes too far in stating the test (at 618-619). Importantly, the test of “unreasonableness” is only to be satisfied “by fairly exceptional circumstances”: Bellgrove v Eldridge at 617, cited in Tabcorp at [17].

Tabcorp at [16] referred by way of an example of unreasonableness to the situation where the innocent party was “merely using a technical breach to secure an uncovenanted profit”, citing Oliver J in Radford v De Froberville [1977] 1 WLR 1262. Other examples include where the cost of the “proposed rectification is out of all proportion to the benefit to be obtained”: Brewarrina Shire Council v Beckhouse Civil Pty Ltd [2006] NSWCA 361 at [87]-[88], citing South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd [2004] SASC 81 at 90 (Debelle J); and Scott Carver Pty Ltd v SAS Trustee Corporation [2005] NSWCA 462 at [120] (Ipp JA); see also Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [81] (Macfarlan JA, McColl and Basten JJA agreeing). For a recent application of this principle in this Court, see Renown Corporation Pty Ltd v SEMF Pty Ltd [2022] NSWCA 233.”

157He also referred to Kirkby v Coote [2006] QCA 61 [52]; Metricon Homes Pty Ltd v Softley (2016) 49 VR 746 [220] and [287]; and Riverman Orchards Pty Ltd v Hayden [2017] VSC 379 [269].

158In my view, the true purport of verbal formulae such as those employed in the several authorities relied upon by Mr Tennant can only be judged in light of the factual scenario to which they relate.

159The case of Owners SP 92450 v JKN Para 1 Pty Limited concerned a claim brought by the owners corporation against the builder of a 28-storey residential building on the basis that flammable cladding in the form of aluminium composite panels had been installed. The Court held that since the owners corporation had proven that the builders had not complied with the Building Code of Australia, it was incumbent upon the builders, in resisting an application for an order for reinstatement damages, to establish that such a course would be unreasonable. The builders did not establish that an alternative solution was available and therefore that the costs of rectification would be unreasonable. The Court allowed an appeal from the decision of the primary judge, stating:

“orders should be made upholding the Owners Corporation claim for damages for reinstatement, being the agreed cost of removal and replacement of the cladding.” [5]

160Kirkby v Coote [2006] QCA 61 concerned a claim relative to footings for a house property on sloping ground which did not conform to the findings for satisfactory foundations disclosed by a geological survey. The trial judge awarded damages representing the costs of reinstatement, and the Court of Appeal (Williams and Keane JJA and McMurdo J) dismissed the appeal with costs. The claim was brought in tort against the designer of the footings, and the trial judge awarded the reasonable costs of demolition and reconstruction of the house. In dismissing the appeal, McMurdo J said:

“Where it operates, the qualification in Bellgrove affects an assessment of damages because of its relevance in the definition of the plaintiff’s loss.  To take the example given in Bellgrove, the building owner with better bricks than those specified by the contract has suffered no loss, and for that reason would not be awarded the cost of replacing them. This qualification does not operate as some discretionary power to deny a plaintiff an award which is commensurate with a proven loss. In the present case there is a loss from the respondents having a house with an unacceptable risk of structural failure, an event which if and when it occurs could have drastic consequences, and whilst it remains a contingency, still affects their enjoyment of their property. Ordinarily that loss would be measured by the cost of remedying the defect, so that they were compensated in an amount which, as far as possible, would put them in the position they would enjoy had their engineers not been negligent. The appellants do not argue that a proven loss, in relation to these (unfailed) footings, should be measured in another way which is more appropriate in the circumstances. Instead they argue that there should be no damages. Ultimately, this alternative submission returns to the appellants’ first argument, which is that there is no proven loss.” ([2006] QCA 61 [94])

161The third case relied on by Mr Tennant as to whether damages based on the cost to demolish and rebuild the structure was a decision of Victorian Court of Appeal in Metricon Homes Pty Ltd v Softley [2016] VSCA 60.

162This was an appeal from the Victorian Civil and Administrative Tribunal, which determined an application by the building owners, Mr and Mrs Softley, in their favour ordering the payment of the costs of demolition and reconstruction of the subject house.  The house was brick veneer with foundations constituted by a waffle slab. 

163According to Mr and Mrs Softley:

“the footing system was rendered irrevocably defective by the gathering of water under the slab during the construction phase as the soil upon which the slab sat would continue to expand and contract causing the slab to heave and resulting in damage to the structure and fabric of the house.” ([2016] VSCA 60 [76])

164The court was constituted by Warren CJ, Tate JA and Robson AJA.  The Chief Justice dealt with issues as to the proper test to apply for leave to appeal and the approach required to be taken by the court in cases of judicial review.  Robson AJA dealt with the substantive building issues and Tate JA concurred with both judgments.  Whilst leave to appeal was granted as to certain matters, the appeal as a whole was dismissed.  Robson AJA undertook an extended analysis of the High Court’s decisions in Bellgrove v Eldridge and Bowen, as well as the Queensland Court of Appeal’s decision in Kirkby v Coote [2006] QCA 61. His Honour noted in that case that Keane JA (as he then was) rejected the contention on behalf of the builder that the reasonableness or otherwise of the award of damages to demolish and re‑erect depended upon a finding as to whether it was more probable than not that further landslips would occur in the vicinity of the structure. ([220]-[223])

165At paragraph [240], Robson AJA said:

“The Tribunal thus accepted that an award of damages for demolition and reconstruction is necessary and reasonable where there are real risks to the continuing stability of a house in the future that the owner would not have been required to bear if the contract between the owner and the builder had been properly performed by the builder.” ([2016] VSCA 60 [240])

166At paragraph [242], Robson AJA said:

“In my view, the Tribunal properly applied the principles laid down in Bellgrove and considered whether an award of damages for demolition and reconstruction was necessary and reasonable and in so doing, the Tribunal had regard to whether the award of a remedy, other than damages based on demolition and reconstruction, would constitute a doubtful remedy.” [2016] VSCA 60 [242]

167His Honour observed at paragraph [251]:

“Even if the structural stability of the house was not threatened (in the sense that the house will not collapse), the High Court’s decision in Tabcorp makes clear that damages are to be measured by the sum necessary to put the Softleys in the position they would have been in if the builder had observed the building contract.  Giving the Softleys a figure calculated on simple financial loss is not necessarily appropriate, as the High Court explained in Tabcorp. The issue is: what did the builder promise and what compensation is required to provide the Softleys with what they bargained for, subject of course to the test of reasonableness?” [2016] VSCA 60 [251]

168Mr Tennant also relied on the decision of John Dixon J in Riverman Orchards Pty Ltd v Hayden [2017] VSC 379. This was a claim in the tort of private nuisance constituted by a chemical spray drift which blighted the plaintiff’s vineyard. Relevantly, for present purposes, his Honour had to consider whether the cost of total rehabilitation of the vineyard was reasonable in the circumstances. This issue remitted his Honour to a consideration of the line of authority with which we are now dealing.

169In that connection, his Honour also had regard to a decision of the New South Wales Court of Appeal in Evans v Balog [1976] 1 NSWLR 36, 39-40, per Samuels JA. In that case, Samuels JA considered the question as to whether the proper measure of damages for “tortious damage to a building” was the cost of reinstatement or the diminution in value of the property. Samuels JA remarked:

“it is sometimes said that a plaintiff may have the cost of restoration provided that it is not disproportionate to the diminution in value.” ([1976] 1 NSWLR 36, 40)

170At paragraph [257] of his judgment, John Dixon J said:

“the High Court in Tabcorp concluded that … ‘the test of “unreasonableness” is only to be satisfied in fairly exceptional circumstances’.” ([2017] VSC 379 [257])

171His Honour concluded:

“What the authorities make clear as the correct understanding of unreasonableness in this context is that remediation costs might be unreasonable in appropriate circumstances if disproportionate to diminution in value, but will be unreasonable if disproportionate to the plaintiff’s injury. It is settled on the authorities that in order for the plaintiffs to obtain the costs that they seek of replanting the vineyard, that basis of quantification of damages must be both necessary to effect compensation for the loss and a reasonable course to adopt.” ([2017] VSC 379 [262])

172His Honour said at [279]:

“I am satisfied by the expert evidence to which I now turn that the probability that the vineyard will continue to deteriorate is a powerful justification for the plaintiff’s claim that it is necessary and reasonable that it replant the vineyard.” ([2017] VSC 379 [279])

173His Honour noted at paragraph [357] that he had rejected the defendant’s contention which disputed the need for replanting the vineyard.

174A consideration of these authorities serves not to subvert the force of the High Court’s decision in Bowen, but rather tends to reinforce it.  In truth, Bowen represents the latest utterance on this subject by the highest authority.  Later decisions of intermediate courts of appeal or trial judges cannot diminish its force.

175Self-evidently, demolition and reconstruction is “necessary” to provide the Stewarts with the dwelling which they contracted to have constructed by Sherridon.  Their insistence upon key features of the structure, as depicted in the contract drawing, is not a mere whim or unreasonable in the sense of an owner who was entitled under a contract to have his building constructed of second-hand bricks and is presented with a structure composed of first-grade new bricks.

176Here, there was a significant and material difference in value between what was contracted to be built and what was actually constructed, as testified by Mr Brown’s evidence.  This was not one of the “exceptional” cases spoken of by the High Court in Bowen, where the cost of reconstruction could be regarded as an unreasonable measure of damages.

177I was not clear if Mr Tennant advocated any alternative measure of damages aside from the cost of demolition and reconstruction.  His primary contention of course was that there was no breach of contract and therefore no occasion to make an award of damages in any amount.  The only alternative would seem to be the $37,500 representing the difference in value of the house as built from the one which ought to have been built in accordance with the contract, as assessed by Mr Brown.

178Given that the fundamental purpose of damages awarded for breach of contract is to place the plaintiff or plaintiffs in the same position in which they would have found themselves had the contract been observed, the costs of demolition and re‑erection are reasonable.  Had the contract been observed, the Stewarts would have had a house which was satisfactory to their requirements.  They would not be placed in this position simply by awarding them damages of $37,500 but otherwise leaving matters unchanged.

179On behalf of the plaintiffs, Mr Settle sought the award of damages in the sum of $320,000.  Mr Garofalo, the warranty manager of Sherridon, said that as at November 2023 “the current cost for Sherridon’s clients to build an identical house at the Property is approximately $305,000”.  The trial was in May of 2024.

180Mr Settle, cross-examining Mr Mandragona, the sales manager of Sherridon, asked what increase in costs had occurred in “the last six months” – viz since November 2023 when Mr Garofalo made his statement.  Mr Mandragona said “4, 5 per cent” (T227, L28 – T228, L1)

181Mr Mandragona added:

“the bulk of the price increases have incurred - happening just out of that post COVID period, so the last six months the prices have pretty much stabilised.” (T228, L8-11)

182When Mr Garofalo was cross-examined, Mr Settle asked him, “In the last seven or so months, how much has the cost increased since November? By what percentage, would you say?”  He Garofalo replied “I don’t think it’s increased.  Sorry.  I don’t think it’s increased.” (T212, L6-9)

183According to Mr Garofalo, there was a surge in prices after the pandemic but it has since stopped and gone no further since November. (T212, L30 – T213, L2) 

184This is a direct conflict of evidence between the defendant’s executives.  The present surge in inflation and the increase in interest rates in the domestic market to halt or slow that increase is so notorious that I believe I can take judicial notice of it.  This would suggest that $320,000, as proposed by Mr Settle on behalf of the plaintiffs, is the more appropriate figure.  I am fortified in that view by the thought that the preparation of these reasons has entailed a further delay since the estimate of costs of construction was given by Mr Garofalo in November 2023.

185Mr Settle also sought the award of $46,200, representing the costs of demolition plus Goods and Services Tax (GST).

186Mr Tennant, however, referred to a quotation given in November last year for demolition at $20,000 inclusive of GST by an organisation known as “Melbourne’s Hulk Demolition”.  There was no cross-examination on these quotations.  The quotation relied on by Mr Settle seems overly high, and the quote by Melbourne’s Hulk Demolition seems more reasonable.  I would adopt it and adjust it to $22,000 to reflect price increases since November last.  As assessed by Mr Mandragona, five per cent would leave the adjusted figure of $21,000, but given that I have chosen a low rather than a high figure, it is prudent I think to err on the side of caution and make a somewhat larger adjustment.

187Mr Settle also sought an award of rental for 18 months in the sum of $39,000.  Ms Lazareska of Sherridon said that from the grant of a building permit construction should take six to nine months.  Accordingly, Mr Tennant suggested that this allowance for rental is excessive.  More pertinently, it is not obvious precisely what rental is being sought.  The Stewarts retain their former residence in Craigieburn where Mr Stewart stores his trailers. (T170, L17-19)  There was no suggestion that this Craigieburn property was being let to third-party tenants.  Accordingly, the claim for rental does not represent an opportunity cost of rental on the Craigieburn property forgone.  The obvious course for the Stewarts to take is to reside in their old house during the period of demolition and reconstruction.  No award need be made for rental.

188Mr Settle sought recovery of a variety of amounts relative to the discharge of the Stewarts’ existing mortgage.  He said:

“Mr and Mrs Stewart need to pay out their current mortgage for the home to be demolished, $393,000.  From this should be deducted the amount they can currently borrow, $170,000.  Their loss therefor includes a further sum of $223,000.” (Plaintiff’s Closing Submissions, [93])

189Mr Settle relied on evidence from mortgage broker, Ms Campbell, who obtained the existing mortgage finance for the Stewarts, to the effect, first, that the mortgagee under the existing mortgage would not consent to the demolition of the existing property but would rather require the mortgage to be paid out.  She also gave evidence that with that mortgage paid out and discharged, having regard to a number of factors including the Stewarts being older now than when they granted their original mortgage, their borrowing capacity would be diminished.

190Mr Tennant correctly observed that this latter conclusion was based on a survey of the lending criteria of one lender only, namely the existing mortgagee, despite the fact that Ms Campbell, as a broker, has access to loan products from a large number of other lenders.  Again, he suggested in cross-examination that it would be possible to use a judgment award to paydown the mortgage and then redraw it progressively as the new structure was being erected in the same way as there was a progressive drawdown at the time of original construction.

191One should not too readily assume the ability to achieve such radical outcomes.  On the other hand, in these exceptional circumstances, with a judgment amount in hand, it is difficult to believe that it would be impossible to enter into some appropriate arrangement, or that arrangements could be made.

192Mr Settle contended that Sherridon should, in the circumstances, be liable for the $223,000, or some such sum, on the basis that it must have anticipated these sorts of losses in the event of breach.  He referred to the speech of Lord Reid in Czarnikow Ltd v Koufos [1969] 1 AC 350, 382-3, 388. Adopting the words of Lord Reid, Mr Settle contended that these mortgage costs were of the type that Sherridon should have realised would be at risk when it made the contract, and would be part of the losses incurred if it breached the contract. He also referred to the analysis of Brennan J (as his Honour then was) in Baltic Shipping Company v Dillon (1993) 176 CLR 344.

193The most recent detailed consideration by the High Court of Australia of the question “What award of damages ought to be made in the case of breach of contract?”, was in its decision of Clark v Macourt (2013) 253 CLR 1. Their Honours proceeded on the basis that the award of damages in such circumstances should be analysed within the framework laid down by the famous decision of the Court of Exchequer in Hadley v Baxendale (1854) 9 Ex (Welsby, Hurlstone and Gordon) 341; 156 ER 145, in which Alderson B, delivering the judgment of the court, said:

“Now we think the proper rule in such a case as the present is this:—Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.” ((1854) 9 Ex 341, 354-5)

194This analysis has customarily been regarded as establishing two heads of damages: the first the damages which flow in the ordinary course (the first rule), and secondly special damages deriving from special circumstances which were known to and in the joint contemplation of the parties when the contract was made.

195In my view, the details of the borrowing arrangements and the present and future borrowing capacities of the Stewarts would fall within the realm of the second rule as special circumstances which could give rise to damages if, and only if, it appeared that the special circumstances were known to the contract breaker.  There was no suggestion that Sherridon was particularly and specially acquainted with these matters.

196In those circumstances, even if I were wrong in the view that some arrangement could be reached with the existing mortgagee, additional outlay would not be recoverable against Sherridon.

197To make the further award sought by Mr Settle on behalf of the plaintiffs would, in my view, offend against the rule prohibiting double recovery.  The amount sought to pay off the existing mortgagee would redound to the credit of the Stewarts.  The Stewarts would have this credit balance or the remission of an existing debt, and be putting funds to construct a new house.

198Sherridon relied on the defence of contributory negligence. Section 26 of the Wrongs Act 1958 (Vic) provides, inter alia:

“26Liability for contributory negligence

(1)If a person (the claimant) suffers damage as the result partly of the claimant's failure to take reasonable care (contributory negligence) and partly of the wrong of any other person or persons—

(a)   except as provided in section 63, a claim in respect of the damage is not defeated by reason of the contributory negligence of the claimant; and

(b)   the damages recoverable in respect of the wrong must be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage.”

199The effect of this provision where it applies is to reduce the award of damages which would otherwise be made to a plaintiff by a percentage reflective of the degree to which the plaintiff’s own negligence contributed to the loss or damage.  The section obviates the old common law rule that contributory negligence constituted a complete defence to a claim for damages in negligence.  I asked Mr Tennant how the section could be relied upon in a claim based on breach of contract, and he replied that in so far as the breach of contract relied on was constituted by a failure to take reasonable care, contributory negligence could be relied on to reduce the amount of damages awarded. (T532-3)

200In the present case, the obligation of Sherridon to construct as per the contract drawings was not an obligation for it to take reasonable care, but an absolute obligation to construct in accordance with the plans. In those circumstances, neither the common law defence of contributory negligence nor s26 has any application.

201This brings me finally to the Stewarts’ claim for relief against alleged misleading or deceptive conduct. These alleged pieces of misleading or deceptive conduct and the loss or damage said to have been suffered are dealt with in paragraphs 21-39 of the further amended statement of claim. These paragraphs allege a representation by or on behalf of Sherridon to the Stewarts “that a garage could be built on the west property line [of Lot 27] without eaves and that there would be sufficient distance between the residence and the east property line for [Mr Stewart] to park trailers on the east side of the residence”. (Paragraph 22A). This is described as the siting representation. It was said that the siting representation and the site plan were misleading or deceptive, contrary to s18 of the Australian Consumer Law “in that [Sherridon] failed to site the residence on the west property line with no eaves on the garage”.

202A further representation was alleged as having been made on 28 November 2020 to the effect “that the garage could be built on the west property line and that there would be a 3310mm distance between the residence and the east property line”. This was said to be the contract plan representation. This representation was said to be misleading or deceptive and contrary to s18 of the Australian Consumer Law for the same reason as with respect to the contract and the siting representations.

203The third alleged piece of misleading or deceptive conduct appears at paragraph 28 of the further amended statement of claim and is described as the working drawing representation, whereby it is said that Sherridon “represented to [the Stewarts] that the only change to the site plan was the addition of the brick infill above all windows and doors”, whereas in fact the working drawings included a change of position of the garage [the further amended statement of claim might have said that the entire structure was re‑sited].  It was also alleged that the plan provided to the Stewarts for the external selection schedule depicted the garage on the west property line as per the contract plan, and that, induced by the pieces of misleading or deceptive conduct, the Stewarts signed the working drawings and the external selection schedule.

204The same damage was alleged to have been suffered as alleged relative to the breach of contract (see the particulars to paragraph 39).

205Plainly, this damages claim could not be successful in addition to a finding of breach of contract and an award of damages therefor.  The causes of action are alternatives.

206In paragraph 63 of his closing submissions, Mr Settle, on behalf of the Stewarts, said:

“Should the Court find that Sherridon was entitled to rely on the Special Conditions and not tell Mr and Mrs Stewart that the home was being re‑sited, Mr and Mrs Stewart rely on the misleading or deceptive conduct provisions of the Australian Consumer Law under the Australian Consumer Law and Fair Trading Act 2012 (Vic)”

207That is, these claims are purely fall-backs.  It is fair to say that in his closing submissions, Mr Settle did not fully develop the arguments in support of the misleading or deceptive conduct claims.

208Mr Tennant, on behalf of Sherridon, dealt with these matters at greater length at paragraphs 143 to 172.  The issues are of some complexity, and raise difficulties such as the extent to which expectation damages are recoverable in an action for misleading or deceptive conduct, together with the special problems that pertain to allegations of misleading or deceptive conduct constituted by representations as to the future and future action.  One might think that the gravamen of the misleading or deceptive conduct claim is that Sherridon failed to alert the Stewarts to the re‑siting of the residence on the working drawings, and therefore whether silence can constitute misleading or deceptive conduct.  This would remit one to a consideration of authorities such as Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. In those circumstances, and given that this cause of action is a mere fall-back, I do not propose to deal with it further.

Costs

209I have heard no submissions on the question of costs, and so I will reserve them.

Disposition

210For the reasons given above, the application for a declaration in the Victorian Civil and Administrative Tribunal will be dismissed.

211I will direct the parties to bring in short minutes to give effect to these reasons.

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Certificate

I certify that these 58 pages are a true copy of the judgment of his Honour Judge Macnamara delivered on 10 July 2024.

Dated: 10 July 2024

Alexandria Peck
Associate to His Honour Judge Macnamara