Webb v Spectre Group Pty Ltd (in liquidation)
[2018] VSC 704
•21 November 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2017 05182
| HARVEY AND SOPHIE WEBB | Plaintiffs |
| v | |
| SPECTRE GROUP PTY LTD (ACN 133 267 679) (in liquidation) | Defendant |
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JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 October 2018 |
DATE OF JUDGMENT: | 21 November 2018 |
CASE MAY BE CITED AS: | Webb v Spectre Group Pty Ltd (in liquidation) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 704 |
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DOMESTIC BUILDING – Claim by owners for costs of completion of a house – Assessment of damages – Actual cost of completion of building works – Expert estimates of completion costs – How assessed – No defence that actual costs unreasonable, excessive or of failure to mitigate – Failure to disclose a path of reasoning – Victorian Civil and Administrative Tribunal Act 1998 (Vic) ss 148, 117(5).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Bromley | |
| For the Defendant | No appearance |
HIS HONOUR:
Introduction
The plaintiffs are the owners of a house in Toorak that was partially constructed by the defendant (‘the builder’) under a major domestic building contract (‘the contract’).
In proceeding no BP1631/2015 (‘the Tribunal proceeding’) in the Victorian Civil and Administrative Tribunal (‘the Tribunal’), the owners were successful in their claims for damages against the builder for the cost of completing the construction of the house, and for rectifying the defective workmanship of the builder.
In a determination dated 24 November 2017, the Tribunal ordered the builder to pay $128,462.24 to the owners, together with the retention sum of $52,272.85.[1]
[1]Spectre Group Pty Ltd v Webb [2017] VCAT 1944 (‘the Tribunal decision’).
The owners seek leave to appeal under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (‘the VCAT Act’). They say that the Tribunal erred in law in quantifying the award of damages for completion. They seek to have the decision of the Tribunal set aside and to have the quantification of damages for completion remitted to the Tribunal for reassessment.
The builder has gone into liquidation but has domestic building insurance. The owners have been granted leave to proceed with this appeal under s 471B of the Corporations Act 2001 (Cth). The liquidator of the builder advised the Court that he did not intend to appear and had no interest in the proceeding.
Mr Trent Valentine, the director of the builder, filed a separate proceeding on behalf of the builder also seeking leave under s 148 of the VCAT Act to challenge the Tribunal decision. That proceeding has been dismissed.
The Tribunal decision
The Tribunal proceeding was heard over nine days with the owners represented by counsel, and the builder by Mr Valentine. The owners’ evidence included the evidence of the owners themselves, their architect, Mr Ryan a building consultant, an electrician, and Mr Kenneally the completion builder. The builder’s evidence included the evidence of Mr Valentine, two employees, Mr Buchanan a quantity surveyor and a building consultant.
The Tribunal held that the owners had validly terminated their contract with the builder on the ground that it had been repudiated by the builder. It upheld their claims for damages for incomplete and defective work by the builder and awarded them damages.
The issue in this proceeding is whether the Tribunal erred in law in the quantification of the owners’ damages for the cost of completion. The question is whether the correct basis for assessing completion costs was the actual cost of completion or the reasonable cost of completion as determined by the expert evidence.
The Tribunal’s assessment of damages for completion
The Tribunal commenced by stating the general position for the award of damages in building disputes:
As the innocent parties, the [owners] are entitled to be put in the position they would have been in if the breach by the [builder] of the [contract] had not occurred.[2]
[2]Tribunal decision [118], citing Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272.
After assessing damages for defective work, the Tribunal assessed damages for completion, and said:
The [owners] claim the sum of $136,861.67, being the additional amount that they say it cost them to finish the construction over and above what they would have had to have paid to the [builder].
The amount claimed is calculated as follows:
Cost of completion (excluding rectification) $440,246.99
Contract price, including variations $1,348,831.09
Total paid to the [builder] $1,045,445.77 $303,385.32
Additional cost $136,861.67
In addition to the above, the [owners] claim to have spent $108,287.65 to rectify defects and paid a further $14,908.41 for other works not included in the original scope of works in the [contract]. Rectification of defects is claimed separately and no claim is made for additional work Mr Kenneally did for the [owners].
The above calculation is based on what the [owners] actually spent. This did not coincide with the expert evidence as to what the reasonable cost completion should have been which I think is all that I can allow.[3]
[3]Ibid [133]–[136] (emphasis added).
The Tribunal then assessed damages for completion excluding rectification in relation to numerous individual items, ultimately allowing a cost of completion of $242,248.45, compared to the actual cost of completion of the works of $440,246.99. It is the Tribunal’s failure to make an award that reflected the actual cost of completion that is challenged by the owners in this proceeding.
As I have set out above, the Tribunal dealt with this issue but only very briefly when it said that the reasonable cost of completion as assessed by the expert evidence was all that it could allow.[4]
[4]Ibid [136].
I was informed by counsel for the owners that the proceeding before the Tribunal was principally concerned with other issues. The method by which damages for the cost of completion should be assessed received scant attention.
Leave to appeal
In Secretary to the Department of Premier and Cabinet v Hulls,[5] the Court of Appeal gave detailed consideration to the question of when leave to appeal will be granted under s 148(1) of the VCAT Act. A pivotal requirement is that an applicant must identify a question of law for which there is a real or significant argument to be put that error exists.[6] Though not a necessary factor, the Court will have regard to whether the applicant has identified a question of law that is of general or public importance.[7] Ultimately, what must govern is the justice of the case as it appears to the court from which the appeal is sought.[8]
[5][1999] 3 VR 331 (‘Hulls’).
[6]Ibid 335 [10]; see also Myers v Medical Practitioners’ Board of Victoria(2007) 18 VR 48, 55–56 [28]–[30]; Metricon Homes Pty Ltd v Softley; (2016) 49 VR 746, 751–755 [11]–[21]; Abercrombie v Salta Architects[2017] VSC 180, [10]; Beman Pty Ltd v Boroondara City Council (2017) 224 LGERA 157, 162 [15].
[7]Hulls[1999] 3 VR 331, 335–336 [11].
[8]Ibid 337 [16].
Proposed grounds of appeal
The owners rely on six proposed grounds of appeal. They are:
1.The decision to allow $242,248.45 for the total cost of completion…was wrong in law in that it failed to find that the [owners] had spent $440,246.99 to complete the works the subject of the building contract and that amount should have been used to determine the [owners] damages with respect to the costs to complete the building contract.
2.The decision to allow $242,248.45 for the total cost of completion…was wrong in law in that it failed to consider or take into account or give sufficient weight to the actual amount spent by the [owners] in deciding the amount allowed for ‘reasonable cost completion’.
3.The decision to allow $242,248.45 for the total cost of completion…was wrong in law in that it failed to:
a.include its findings on material questions of fact; and/or
b.disclose a path of reasoning
as to why, when assessing the cost to complete the building, the evidence of the experts [was] preferred to that of the actual cost incurred by the [owners].
4.The decision to allow $242,248.45 for the total cost of completion…was wrong in law in that it failed to consider or take into account or give sufficient weight to the evidence of Mr Ken Ryan relating to completion costs contained in his expert reports of 16 February 2016 and 24 October 2016 in deciding the amount allowed for ‘reasonable cost completion’.
5.The decision to allow $242,248.45 for the total cost of completion…was wrong in law in that it failed to consider or take into account or give sufficient weight to the evidence of Mr Douglas Buchanan relating to completion costs contained in his expert report of 30 November 2016 in deciding the amount for ‘reasonable cost completion’.
6.The decision to allow $242,248.45 for the total cost of completion…was wrong in law in that it failed to:
a.include its findings on material question of fact; or
b.disclose a path of reasoning
as to why all items listed as costs to complete in the expert reports of Ken Ryan and Douglas Buchanan were not taken into account…
The grounds of appeal relied on by the owners may be summarised:
(a)the Tribunal erred in law when it decided to allow $242,248.45 rather than the actual total cost of $440,246.99 for the completion of the works;
(b)by allowing $242,248.45 for the total cost of completing the works, the Tribunal failed to consider or take into account the expert evidence of Mr Ryan or Mr Buchanan; and
(c)the decision of the Tribunal as to quantum failed to make findings on material questions of fact, or disclose a path of reasoning as to why the evidence of the experts was preferred to the actual cost of completion incurred by the owners.
Ground 1 - The actual cost of completion
The owners submitted that the Tribunal had failed to adopt the preferred method of assessing damages based on actual cost. The Tribunal should have awarded them damages that would have put them in the same situation that they would have been in had the contract been performed.[9] It had not done so.
[9]Citing Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272.
The works had been completed, the actual cost was known, and it was unnecessary to rely on estimates of likely cost. The actual cost to complete was supported by expert evidence and by the evidence of the completion builder, and had been accepted by the Tribunal. There was no defence or suggestion that the actual cost of completion was unreasonable, or that there had been a failure to mitigate loss.
Relevant authority
In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd, the High Court affirmed that the ruling principle for the award of damages:
The ‘ruling principle’…with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman:
‘The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed.’[10]
[10]Tabcorp Holdings Ltd v Bowen Investments (2009) 236 CLR 272, 286, quoting Robinson v Harman (1848) 1 Exch 850, 855; 154 ER 363, 365.
The Tribunal referred to the ruling principle in its reasons.[11]
[11]Tribunal decision [118].
In the earlier decision of Bellgrove v Eldridge,[12] the High Court adopted the same principle with the qualification that the work undertaken must be necessary to produce conformity, and must also be a reasonable course to adopt.[13]
[12](1954) 90 CLR 613.
[13]Ibid 618.
Likewise in Mertens v Home Freehold Company,[14] the English Court of Appeal held that the proper measure was what it cost the plaintiff to complete the house substantially as it was intended, and in a reasonable manner at the earliest moment that the plaintiff was permitted to proceed with the work.[15]
[14][1921] 2 KB 526.
[15]Ibid 538.
The New South Wales Court of Appeal decision of Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd,[16] was a case where the repair work had been carried out by the time of the trial. Despite this, the trial judge assessed the cost of the repair by reference to a quotation rather than the actual cost of repair.
[16](2002) 18 BCL 122 (‘Hyder Consulting’).
Meagher JA held that the trial judge had erred in law stating:
It seems almost too simplistic to point out that the actual cost was an impeccable method of calculating cost.[17]
[17]Ibid [19].
Giles JA, with whom Sheller JA agreed, also held that the trial judge was in error. His Honour said that the cases did not support the award of damages based on the theoretical cost when the actual cost was known, as the actual cost was powerful evidence of rectification costs.[18] Where the rectification work had been carried out and the actual cost is known, the actual cost provides sound evidence of the reasonable cost and should ordinarily provide the basis for damages.[19]
[18]Ibid [96].
[19]Ibid [99].
Hyder Consulting has subsequently been applied or followed in cases in the Federal Court of Australia, the Supreme Courts of New South Wales and Tasmania,[20] and by the Tribunal itself.[21]
[20]Port Kembla Coal Terminal Ltd v Braverus Maritime Inc [2004] FCA 1211, [485] (Hely J); The Craftsmen Restoration and Renovations v Boland [2008] NSWSC 660, [113]–[114] (Howie J); Wabbits Pty Ltd v Godfrey [2009] NSWSC 1299, [106]–[108] (Ward J); Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] 236 FLR 401, [66]–[74] (Campbell JA, Macfarlan JA, Sackville AJA); Camellia Properties Pty Ltd v Wesfarmers General Insurance Ltd [2013] NSWSC 1975, [396]–[399] (Sackar J); Langmaid v Dobsons Vegetable Machinery Pty Ltd (No 2) (2014) 24 Tas R 61, 70–71 [20]–[28] (Tennent J).
[21]Finemore v Houndalas [2009] VCAT 2406 [30] (DP Aird).
Factual circumstances
Following an inspection of the partly completed work, Mr Ryan prepared a report in February 2016 as to the works that had been completed and as to defects and other non-compliant works. In a supplementary report prepared in October 2016, he assessed the value of the works described in his preliminary report and recommended the scope of works to be undertaken to complete the house. The scope of works prepared by Mr Ryan informed the completion works contract.
The completion works contract amount was $483,774.64 inclusive of GST. It was signed in April 2016 and awarded to Mr Kenneally.
By November 2016, practical completion of the completion works was achieved. A certificate of occupancy was issued in late 2016. By the time of the Tribunal hearing in July and August 2017, the completion works had been finished for over six months.
The assessment of damages is a matter of fact for the Tribunal to undertake. There is however no apparent reason why the actual cost of completion which was proven and unchallenged, should not have been used as the basis for the assessment of damages.
At the Tribunal hearing:
(a) there was no claim or defence that the completion cost was unreasonable or excessive, or that there had been a failure to mitigate;
(b) there was no suggestion that the completion works did not substantially conform to the works to be performed under the contract;
(c) Mr Kenneally gave evidence and his evidence was accepted by the Tribunal;[22] and
(d) the method of assessment of damages for completion used by the Tribunal was the best estimate of the expert witnesses of numerous individual items.[23] There were uncertainties and disputes between the experts as to most items. It is not obvious why the Tribunal relied on conflicting expert estimates when actual completion costs were available.
[22]Tribunal decision [9].
[23]Ibid [137]–[174].
Perusal of the assessment of cost to completion as set out in the Tribunal decision shows three other problems with the assessment:
(a)The Tribunal double counted the item of electrical works, and with different results on each occasion. In its first assessment of this item, the Tribunal found a cost to complete of $17,151.75.[24] In its second assessment of the same item, the Tribunal found a cost to complete of $19,280.25.[25]
(b)Despite the Tribunal’s conclusion that it could only allow the experts’ estimate of reasonable cost completion, the Tribunal allowed the actual cost of completing the swimming pool. The Tribunal considered that the amount that the owners had to pay the builder’s subcontractor to complete the pool was allowable.[26]
(c)It is not apparent that all of the items involved in completing the works have actually been assessed by the Tribunal. There are additional items set out in the experts’ reports which do not appear to have been allowed or taken into account.
[24]Ibid [144].
[25]Ibid [153].
[26]Ibid [152].
Despite the uncertainties of estimation, the method of assessment of damages adopted by the Tribunal is often the best method, for example, in circumstances where completion is yet to occur. In the present case, the completion works conform to the contract works. It is not suggested that the actual cost is excessive, or unreasonable, or that there has been a failure to mitigate.
For the reasons above, I am satisfied that the Tribunal misdirected itself and erred on a question of law when it held that it was not open to it to adopt the actual cost of completion as the appropriate method of assessing damages.
Ground 2 - Failure to consider or take into account the expert evidence
The owners submit that the Tribunal failed to take into account the evidence of Mr Ryan and Mr Buchanan when it allowed $242,248.45 for the cost of completing the works.
The evidence of these experts is extensively addressed by the Tribunal in its assessment of damages for completion. Their evidence was generally accepted by the Tribunal.
In Forster v Legal Services Board,[27] the Court of Appeal observed that a complaint that VCAT should have made different factual findings on the evidence before it does not concern an error of law.[28]
[27](2013) 40 VR 587.
[28]Ibid 620 [165] (Kyrou AJA; Weinberg and Harper JJA agreeing).
Despite the owners’ contentions, I am satisfied that the Tribunal did take into account the reports and evidence of Mr Ryan and Mr Buchanan in assessing damages. I am not satisfied that this ground is made out.
Ground 3 - Failure to make findings on material question of fact or disclose a path of reasoning
The owners submitted that the Tribunal did not set out in its reasons for decision the material findings of fact which led it to that decision or disclose a path of reasoning.
Under s 117(5) of the VCAT Act, the Tribunal must include its findings on material questions of fact in its written reasons. This requirement, and the Tribunal’s obligation to make its path of reasoning clear in regard to important points and conclusions, has been accepted on many occasions.[29]
[29]Wingfoot Australia Partners Pty Ltd v Kocak (2013) 252 CLR 480, 501 [55] (French CJ, Crennan, Bell, Gageler and Keane JJ); Gruma Oceania Pty Ltd v Bakar [2014] VSCA 252, [47]; Tower Australia Ltd v Filippis (2007) VSC 236, [13]; Caruso v Kite [2008] VSC 207, [32]; Dimatos v Coombe [2011] VSC 619, [20]; Legal Services Commissioner v Turner [2012] VSC 394, [69]; Burgess v McGarvie [2013] VSCA 142, [65]; Konann Pty Ltd v Commissioner of State Revenue [2015] VSC 23, [55].
In the present case, the Tribunal declined to award damages for completion on the basis of the actual cost to complete. It acted on the basis of the estimates in the expert evidence as it thought that this was all that it could allow.[30] The decision to disregard the actual cost of completion was an important decision and deprived the owners of a substantial sum of money that they had actually expended.
[30]Tribunal reasons [136].
The Tribunal decision does include its findings on the material questions of fact which led it to its decision. However, it does not give any reason why the actual cost of completion was not used to assess the quantum of damages, or cite any authority in support of its decision not to do so.
It is clear that the Tribunal did not set out the path of reasoning which led to its decision not to compensate the owners for much of the cost that they had incurred. If there was justification for this decision, it is not found in the Tribunal’s reasons.
I am satisfied that the Tribunal erred on a question of law when it failed to disclose a path of reasoning as to why the actual cost of completion should not be adopted in this case as the best method of assessment of damages for completion.
Conclusion
I am satisfied that the Tribunal has erred on questions of law. The owners should be granted leave to appeal, and the appeal allowed. The Court will order that the Tribunal’s assessment of damages be set aside and the proceeding remitted to the Tribunal for reassessment of the damages and interest payable to the owners arising from the builder’s failure to complete the works. The reassessment should be made by the same Tribunal as heard the Tribunal proceeding subject to any further order of the President of the Tribunal.
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