REUTERS | Ronen Zvulun

No defect too small?

Does size matter?

It certainly did in a recent Australian case, Unique Building PTY Ltd v Brown. The decision tackles an issue which crops up in construction defect claims: can a party recover the cost of “starting again”?

Demolition of defective work

Starting again may entail demolition of “imperfect” work. But should loss be quantified on another basis, perhaps based on less radical remedial steps? Of course, plenty of relevant UK authority exists – the House of Lords’ decision on a disappointingly shallow swimming pool in Ruxley v Forsyth being the most well known (and McGlinn v Waltham Contractors a less well-known example since then)…

Back to Oz

But this Australian case is still noteworthy, particularly as in Ruxley the House of Lords cited an older Australian decision on this topic with approval.

The works in question involved construction of 4 townhouses in central Adelaide, on a very tight site.

Problems emerged in the development’s floor slab:

  • The slab encroached around 20mm into council land.
  • The slab was 90mm higher than the design level. This meant cars would encounter a “steep rise” entering the townhouse garages, and one car in twenty would not be able to get in at all.
  • The height mistake would also make a step leading to the side door of one town house “too high”.

Demolition job

The building owners decided to demolish the partly-built townhouses, abandoning the original scheme and instead lodging plans to erect a 7 storey apartment block. They sued the contractor for the full cost of demolition and re-building to the stage the previous work had reached.

The contractor argued that less drastic remedial works would have substantially rectified the defects and that its liability was much less than the damages sought.

Was demolition a reasonable course to adopt?

Uncontroversially, the court said that a claimant is entitled to the cost of making works conform to contract, but only if these works constituted a “reasonable course to adopt.” In doing so, it followed similar reasoning in Ruxley and other UK cases; if the cost of making good is manifestly disproportionate to the benefit obtained, another measure of loss will be more appropriate, such as reduction in value.

However, in this case, the court found that small did not equal trivial. It held that the council may not have treated the encroachment into its property as “minor”. In relation to the ramps, “shaving” the slab to allow unrestricted access would produce an unacceptably unsightly appearance. The door step could not be lowered without creating other structural problems.

The court also dealt with an issue which, in my experience at least, is often misunderstood, perhaps because it’s quite a subtle point. The owners didn’t intend to re-build the same scheme, so was it automatically unreasonable to award the cost of demolition and partial reinstatement of the original scheme? The court said no, noting Ruxley in doing so; what really mattered was why a claimant did not intend to actually perform the relevant work.

If remedial work won’t be performed because a property will remain perfectly functional and aesthetically sound without it, this may suggest the work is inherently unreasonable – and that damages based on the cost of that work shouldn’t be awarded. But if the work is a proportionate response to the defects, then the associated cost may be recovered as damages, irrespective of how the owner intends to actually spend that compensation.

Extreme measures?

Of course, this decision largely turned on the relevant facts. Nevertheless, it’s interesting to see the Supreme Court of South Australia taking such a robust line in respect of contractual conformity. Breaches of contract measurable in such small scales might at face value be considered trifling, or at least not sufficient to justify damages based on going back to square one.

Wouldn’t the proposed remedial works have represented a more balanced, if not perfect, solution? Didn’t Mr Forsyth have to tolerate a pool just 18 inches shallower than specified?

Perhaps there is a natural gut reaction that “rip it up and start again” can’t possibly be proportionate in these circumstances. However, this could be a perilously superficial response. As this case shows, a court may see things very differently; seemingly negligible errors may have big consequences.

Everything depends on the facts. After all (and at the risk of stretching the point), for the want of a horsenail a kingdom was lost…

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