Westcourt Ltd (ABN 98 009 250 373) v Willshee

[2009] HCATrans 274

[2009] HCATrans 274

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P19 of 2009

B e t w e e n -

WESTCOURT LTD (ABN 98 009 250 373)

Applicant

and

DEREK MICHAEL WILLSHEE

Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON WEDNESDAY, 14 OCTOBER 2009, AT 11.53 AM

Copyright in the High Court of Australia

MR S. OWEN-CONWAY, QC:  May it please, your Honours, with MR P. A MONACO I appear on behalf of the applicant.  (instructed by G V Lawyers Pty Ltd)

MR M. L. BENNETT:   If it please the Court, I appear on behalf of the respondent.  (instructed by Lavan Legal)

FRENCH CJ:   Yes, Mr Owen-Conway.

MR OWEN-CONWAY:   We would respectfully invite your Honours to consider that special leave should be granted because the special leave questions raise matters of public importance relating to the scope and application of the decision of the High Court in Tabcorp Holdings v Bowen insofar as that decision affects the application of the qualification to the rule in Bellgrove v Eldridge in its application in building contract disputes in Australia.  As his Honour Justice Templeman said in his reasons at appeal book page 58, paragraph 322, and I quote:

As a general rule, a person who contracts with a builder for the construction of a house is entitled to be provided with a building which conforms with the contract plans and specifications.  However, there is a qualification to that general rule, as stated by the High Court in Bellgrove v Eldridge –

The qualification is as follows:

not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.

His Honour Justice Templeman found that although a significant percentage of the limestone blocks were unacceptable in some respects, the house is structurally sound and likely to remain so.  The sealing carried out by the application of a chemical polymer product called brylcote in October 2004 has been effective to prevent any further deterioration in the condition of the limestone cladding.  The defects about which the plaintiff complains regarding the visual appearance of some of the blocks could be repaired in a way which would be invisible or virtually invisible to the untrained eye, and that the house is now, his Honour said, entirely adequate for its design purpose and the plaintiff’s concern can only be the lack of aesthetic pleasure which he might have derived from the sight of limestone in pristine condition.

FRENCH CJ:   They have got some kind of limestone with a sort of equivalent of osteoporosis, have they not?

MR OWEN-CONWAY:   The limestone, in fact, demonstrated the characteristics which is present in all limestone in the process of weathering.  It is just that, as his Honour found, that in about 50 per cent of the blocks, there were accelerated features of weathering evident in the form of some advanced pitting, advanced spalling and crumbling.  Where one says along the continuum line there is a defect, rather than an imperfection, rather than perhaps a naturally occurring feature in an organic product, is a matter of opinion.  But in any event, the finding ‑ ‑ ‑

FRENCH CJ:   Does that suggest that this is really a matter of a decision of degree.  How does it raise the question of principle?

MR OWEN-CONWAY:   The question of principle arises in this way.  His Honour found that the plaintiff’s contention that it was reasonable to spend nearly $258,000 in demolishing the entire limestone cladding and reinstating the same was not made out in the circumstances where the structural integrity of the house was not in doubt, and the plaintiff’s only remaining complaint at trial was based on his subjective view of the aesthetics of the limestone.  That is in the appeal book at page 60, at paragraph 328 of Justice Templeman’s reasons.

Now, what was reasonable for the appellant to bear the costs of were the sealing and hardening of the limestone, which his Honour assessed at only $5,000, and the costs of repainting the timber decking, posts, beams and eaves which had been affected to some extent by the cleaning.  That was a further $4,290.  Justice Templeman did not allow the plaintiff the cost of patching, which he assessed at $7,716, because the patching which had been carried out by Mr Willshee’s contractor had not been carried out to an acceptable standard, his Honour so found.

We submit that his Honour was correct in adopting this approach to determine what rectification work was reasonable in the circumstances.  However, the Court of Appeal adopted a different approach, and they said that the reasoning of the trial judge – this is in the reasoning of the Chief Justice, Chief Justice Martin, commencing at paragraphs 68 and 69 of his reasons for decision at page 87 – who gave careful consideration to the particular facts and circumstances in which he found warranted a conclusion, that it was not a reasonable course to adopt to remove the entire external cladding of the house and reinstate the same with new limestone blocks, was erroneous following the decision in Tabcorp.

FRENCH CJ:   Just while we are in that part of his Honour’s judgment, that is the Chief Justice’s judgment, I am looking at 71.  He says:

Mr Willshee gave evidence in the strongest terms of his displeasure upon discovering that a significant part of the limestone used for the external cladding of his house was of inferior quality.  That evidence was entirely plausible and reasonable, and was not rejected by the trial judge.

Do you take issue with that?

MR OWEN-CONWAY:   We do not take issue with it.  It is a question of how far it goes, because the trial judge – one of Mr Willshee’s primary complaints leading up to and during the course of his giving evidence was that he believed that the house was not structurally sound.  He called his own expert, who said that it was.  All the other expert evidence said that the house was structurally sound, and at the end of the day, the end of the conclusion of the trial and I think in closing submissions, only in written submissions, he conceded that the house was structurally sound.  So at the end of the day, his displeasure, as his Honour Justice Templeman found, was directed purely to what he regarded as being a visually unappealing appearance to the limestone blocks, as at July 2003 initially.  Up until that point, because completion handover took place in November 1999, so for a period of three and a half years Mr Willshee was not only pleased with the external appearance of the cladding, he was delighted with it.  He said he was delighted ‑ ‑ ‑

FRENCH CJ:   Did the entitlement in damages depend upon his subjective reaction?

MR OWEN-CONWAY:   No, it does not.  Can I just advance my argument in terms of where I will respectfully submit the Court of Appeal has got this wrong, where they have gone off the rails, as it were.  The Court of Appeal equated the qualification of unreasonableness established in Bellgrove v Eldridge with circumstances in which the innocent party, and I quote from his Honour’s reasoning at paragraph 69 of his reasons.  In circumstances in which the innocent party is “merely using a technical breach to secure an uncovenanted profit”.  That was a reference in that part of the quotation to a passage in the judgment of Justice Oliver in Radford v De Froberville at 1270, subparagraph E. 

In Bellgrove v Eldridge and in Tabcorp, the competing claims as to the appropriate measure of damages was between diminishing in value, on the one hand, and the cost of performing remedial work involving demolition and reconstruction on the other.  In this case, however, the competing claims were the cost of demolition and reconstruction against the cost of carrying out repairs and remedial work to the limestone blocks which were not of high quality. 

The Court of Appeal erred, in our respectful submission, in not assessing the question of reasonableness and, indeed, necessity to produce conformity by reference to these competing claims.  In assessing reasonableness, the Court of Appeal has had little regard to the findings of the trial judge which clearly supported his holding that it was not reasonable to demolish the entire walls and reinstate them in the circumstances of this case. 

What the Court of Appeal did not do and, we say, should have done, with respect, is examine carefully all of the facts and circumstances of the case which related to the alternative method of providing conformity with the contract so as to give the second grade blocks the quality of first grade blocks, that is, to ensure that the problems with the softness in the blocks was resolved, which it was, by October 2004 and so found; that the weathering characteristics had been stabilised, which they had been and so found; that the blocks were otherwise capable of being repaired in such a way that was by careful patching from a skilled stonemason rather than a person whose only qualification was to clean limestone by hose blasting; to ensure that it was possible to repair those visual, if one can call them visual, defects of accelerated pitting and spalling in the blocks in a way that was capable of being unseen to the untrained eye, his Honour so held. 

Having regard to all of those factors, at the end of the day, the Court of Appeal should have considered then whether what the plaintiff would have been left with was in fact a finished product that was no different in appearance, in visual impact, than the 50 per cent of blocks found to be of high quality.  The Court of Appeal did not adopt this approach.  Their Honours referred to the qualification of unreasonableness but only very briefly, only in paragraphs 69 to 70 and paragraph 76 very briefly.

BELL J:   In paragraph 69, Chief Justice Martin made reference to the decision of this Court in Tabcorp and to Bellgrove.  He referred in particular to paragraph 17 in the judgment in Tabcorp.

MR OWEN-CONWAY:   Yes.

BELL J:   What error do you say you identify in paragraphs 69 and 70 that would justify a grant of special leave, otherwise surely we are in the realm that the trial judge had one view of reasonableness and three members of the Court of Appeal conducting a rehearing had another view of reasonableness.

MR OWEN-CONWAY:   The error is this, if I might just develop this argument very briefly. 

BELL J:   Yes.

MR OWEN-CONWAY:   In paragraph 69, his Honour looked at the qualification of unreasonableness only in the context of whether the applicant’s breach of contract was in any sense technical.  The reference made by the Court of Appeal to Tabcorp in paragraph 69 includes a portion of a quotation in the judgment of Justice Oliver, as I think I have said, in Radford v De Froberville, in which his Honour said that a diminution in value measure of damages will only apply where the innocent party is “merely using a technical breach to secure an uncovenanted profit”.  The Court of Appeal then said it would apply “that test to the circumstances of the present case”, that is the opening line in paragraph 70, and held that Westcourt’s breach was not a technical one, which indeed it was not.

BELL J:   But if you can go back to Tabcorp, what is it in paragraph 17, to which reference was made by the Chief Justice, that you say was misapplied?

MR OWEN-CONWAY:   In this case, neither party contended the diminution in value measure had any application.  That was completely irrelevant.  The plaintiff claimed nearly 258,000, being the cost of demolition and reinstatement, along with some consequential losses and the defendant said that if it was in breach of contract, the appropriate and reasonable costs were those required to carry out the remedial work to the affected blocks.  In our submission, the Court of Appeal has wrongly decided, in effect, that the decision in Tabcorp has marked the change in the law which makes the conventional approach to determining what is reasonable in the circumstances no longer applicable. 

The Court has limited the inquiry into what is reasonable to an examination of the issue of whether the innocent party is merely using the technical breach to pursue an uncovenanted profit.  If correct, this would mark a significant shift in the law which could have or may have unintended consequences in the context of the building and construction industry in Australia.  Indeed, since the decision in Tabcorp, there has been a decision at first instance in New South Wales which has considered Tabcorp in the context of a dispute between a builder and owner.  That is in Campbell v CJ Cordony & Sons Pty Ltd in which the Equity Division of the Supreme Court of New South Wales gave its deliberation in what is a typical building dispute between an owner and a builder. 

In that case, the owners claimed that some of the work undertaken by the builder was defective.  A number of items were accepted as being deficient, including some timber door panels, but the parties were at issue as to what was necessary to rectify them.  His Honour outlined the applicable legal principles and after referring to Bellgrove v Eldridge and the qualification that not only must the work be necessary to produce conformity, it must also be a reasonable course to adopt, his Honour said – this is at paragraph [155] ‑ ‑ ‑

FRENCH CJ:   This is at page 67 of your materials, I think.

MR OWEN-CONWAY:   Thank you, your Honour:

As to what remedial work is both necessary and reasonable in any particular case is a question of fact –

His Honour there referred to both Bellgrove v Eldridge and Tabcorp at paragraph [17]. His Honour then referred to what he described the “all or nothing” approach to replacement of the doors adopted by both the parties, that is, either all the doors should be replaced or all should be repaired. His Honour rejected that approach and he said this in his conclusions:

I am not satisfied that all of the doors are damaged to the extent that they need to be replaced, I find that the plaintiffs have established damage to the extent only of the cost to repair.

So it can be seen that his Honour did adopt what is an entirely conventional approach to his consideration of the qualification to the rule in Bellgrove v Eldridge in much the same way as Justice Templeman did in this case, yet the Court of Appeal has concluded that the decision in Tabcorp establishes that this process of reasoning is erroneous.  That is in paragraph 67.  Therein is the point of principle and there is no risk of there being a diversity of judicial decisions across intermediate courts with a lack of conformity in the application of the reach of the decision in Tabcorp in the building and construction industry in Australia. 

Your Honours, if I could just briefly refer to some of the findings made by his Honour which were not challenged on appeal.  They appear in the application book at page 103,  It is these findings which were not given consideration to by the Court of Appeal at all in the context of the court’s deliberations as to what constituted reasonableness or unreasonableness.  These are very important findings and they were effectively ignored and they were ignored because, with respect, we say the error in the approach that the Court of Appeal adopted in their consideration of the limitation of this concept of unreasonableness which Chief Justice Martin clearly believed was affected by the decision in Tabcorp.  Our submission today is that Tabcorp and Bellgrove v Eldridge are capable of being reconciled and applied consistently in this conventional manner, as has recently been done by the Court in New South Wales.  His Honour’s findings were that:

(a)The limestone cladding was structurally sound and likely to remain so in the future and demolition would destroy

approximately 50% of the limestone blocks which were not affected by the defects found in the lower quality limestone blocks;

(b)At all times after October 2004 the defects in the blocks, being the appearance of excessive pitting, spalling and crumbling in about 50% of the limestone blocks, had been halted by the application of a chemical treatment to the blocks;

(c)The aesthetic qualities in the appearance of the limestone of which the Respondent first complained in about mid July 2003, could be repaired in a way which was invisible or virtually invisible to the untrained eye by the removal of patches applied by a contractor engaged by the Respondent which was generally accepted by the experts not to have been carried out by the Respondent’s contractor to an acceptable standard ‑ ‑ ‑

FRENCH CJ:   We have read all of this, of course, Mr Owen-Conway.

MR OWEN-CONWAY:   Yes.  They are the findings which we say the Court of Appeal should have had regard to and applied, having regard to those particular and important facts of the case, in assessing the question of reasonableness, that is, in its application of the qualification to the rule in Bellgrove v Eldridge, and they were led into error in that they were under the impression that the reasoning which supported the conclusion of the trial judge was erroneous because of the decision in Tabcorp.  That is what they say at the top of paragraph 68.  So, your Honour, those are our submissions.

FRENCH CJ:   Thank you, Mr Owen‑Conway.  We will not need to trouble you, Mr Bennett.

This is an application for special leave to appeal from a judgment of the Court of Appeal, the Supreme Court of Western Australia delivered on 18 May 2009.  The Court of Appeal substantially increased the quantum of damages awarded by the trial judge for the applicant’s breach of an implied term in a building contract that limestone which it was to supply and use in the construction of the respondent’s residence would be of high quality. 

The Court of Appeal held the respondent was entitled to a house constructed using limestone which was all of high quality and entitled to damages in the amount required to put him in that position.  In so doing, it had regard to the decision of this Court in Tabcorp Holdings Ltd v Bowen Investments Ltd (2009) 83 ALJR 390. Its decision reflected the appropriate application of principle to a particular fact situation. It differed from the trial judge’s conclusion but, in our opinion, no error warranting the grant of special leave is shown in its decision.

Special leave will be refused.

MR BENNETT:   Notwithstanding the provision of the argument at page 107 of the application book, we would seek the costs of the appeal.  We would say that your Honours’ reasons appropriately identify that the Court of Appeal decision does not modify the qualification or does not hold that Tabcorp modifies the qualification, there is no reason why costs should not follow the event.

FRENCH CJ:   Mr Owen‑Conway?

MR OWEN-CONWAY:   In view of your Honours’ judgment, then I would have to accept that.

FRENCH CJ:   Yes, all right. 

The special leave will be refused with costs.

AT 12.14 PM THE MATTER WAS CONCLUDED