TINCKNELL & ANOR v DUTHY HOMES PTY LTD & ANOR; DUTHY HOMES PTY LTD & ANOR v TINCKNELL & ANOR [2020] SASCFC 24 (17 April 2020)

Last Updated: 17 April 2020

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

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TINCKNELL & ANOR v DUTHY HOMES PTY LTD & ANOR; DUTHY HOMES PTY LTD & ANOR v TINCKNELL & ANOR

[2020] SASCFC 24

Judgment of The Full Court

(The Honourable Justice Peek, The Honourable Justice Parker and The Honourable Justice Doyle)

17 April 2020

APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH DISCRETION OF COURT BELOW

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - REMEDIES FOR BREACH OF CONTRACT - DAMAGES

TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS

APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH DISCRETION OF COURT BELOW - PARTICULAR CASES - OTHER MATTERS - COSTS

Appeal against a decision of a Judge of the District Court concerning the construction of a residential home at Mannum. The contract price of the house was $2.3 Million.

The Builder commenced proceedings against the Owners seeking payment of the final progress claim. The Owners cross-claimed claiming that the Builder was in breach of contract and statutory warranties. They sought the cost of remedial works, as well as damages for pain and suffering, delay, and breach of the Trade Practices Act. They sought damages against the Builder’s director, in his personal capacity, for negligence and as an accessory to the Builder’s breach of the Trade Practices Act. They asserted that the works were not practically complete.

The Judge found that the house was practically complete on 26 February 2013. The Judge made remedial orders where she found it appropriate and where remedial orders were not appropriate, her Honour awarded the Owners compensation. Her Honour found that certain rectification costs claimed by the Owners were unreasonable and on that basis the Owners were not entitled to damages for breach of contract or breach of statutory warranty. The Judge dismissed the Owners’ claim for delay damages, pain and suffering and breaches of the Trade Practices Act. The Judge awarded the Owners the sum of $32,106.07 in back charges and dismissed the remainder of the Owner’s claims for back charges. The Judge held that the Builder was entitled to the final progress claim, plus the difference between the ‘float’ for variations, less those items where a remedial work order was inappropriate. The Judge awarded the Builder the sum of $173,049.41 plus interest. The Builder was awarded 60 per cent of its costs on a party/party basis.

On appeal, the Owners contend that the Judge erred, inter alia, by:

1. dismissing the claims for defective waterproofing, termite protection and tiling on the external balcony;

2. dismissing the claims for delay damages and damages for breach of the Trade Practices Act;

3. finding that the works had reached practical completion on 26 February 2013;

4. finding that the Builder be permitted to carry out remedial work in respect of the hot water system in accordance with the recommendations of the Builder’s expert rather than the Owners’ expert; and

5. dismissing the claims for back charges in relation to pre-cast concrete panels, engineering fees and Prime Cost items.

The Builder seeks permission to appeal against the costs orders made by the Judge. The Builder asserts that the award of costs was unreasonable and unjust and the Judge should not have departed from the ordinary rule that the successful party is entitled to the costs of the proceedings. Both appeals were heard together.

Held Parker J (with Peek and Doyle JJ agreeing):

1. The risk of water damage was insubstantial. The proposed remedial works would not constitute a reasonable response to the deficiency in the waterproofing. The Judge did not err in dismissing the claim for defective waterproofing.

2. Termite protection has been applied, albeit not to the full extent required by the contract, there is no evidence of termite presence and the risk can be managed by appropriate inspections. The Judge was correct to conclude that there is a lack of proportionality between the remedial work and the benefits that would be gained.

3. The Judge correctly found that there was insufficient evidence to establish that the tiling on the first-floor balcony had not been carried out in accordance with the Owners’ instructions or that the balcony tiles had been laid without the appropriate fall.

4. The Owners’ failure to move into the house after practical completion was the reason why the Mannum holiday home was not sold and the proceeds invested. The Judge did not err in rejecting the Owners’ claim for delay damages.

5. It has not been established that the length of the piping loops exceeds 60 meters. Upon the piping being insulated as recommended by the Builder’s expert, it may be inferred that the marginal difference in energy costs should be further reduced. The Judge did not err in ordering the plumbing work be rectified in accordance with the recommendations of the Builder’s expert.

6. The Judge did not err in finding that practical completion occurred on 26 February 2013. The evidence indicates that the lack of hot water to the house could have been resolved in February 2013 if that defect had been included in the lists of defects.

7. Upon the Owners assuming responsibility for meeting the cost of the pre-cast panels, the Builder ceased to be entitled to the allowance of the 10% profit and overheads. The Owners are entitled to a back charge of $20,000 against the amount payable to the Builder.

8. Pursuant to the contract the Builder accepted the liability for additional engineering fees. The Owners are entitled to a back charge of $30,940.80 against the amount payable to the Builder.

9. The contract entitles the Owners to receive, as a credit, the Builder’s profit on a prime cost item that it did not supply. The Owners are entitled to a back charge of $31,614 against the amount payable to the Builder.

10. Whilst there were clearly problems with some of the work performed by the Builder, the evidence is insufficient to establish that the representation as to the skill and expertise of the Builder was actually misleading or deceptive at the time it was made.

11. There will be a reduction in the award made by the Judge to the Builder from $173.049.41 to $90,494.61.

12. The cost order made by the Judge is varied, such that the Owners are to pay 50% of the costs incurred by the Builder on a party/party basis.

Trade Practices Act 1975 (Cth) s 52; Building Work Contractors Act 1995 (SA); Supreme Court Civil Rules 2006 (SA), referred to.

Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272; Stone v Chappel (2017) 128 SASR 165, applied.

Badge Construction Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6; BHP Billiton v Parker (2012) 113 SASR 206; Built Environs Pty Ltd v Tali Engineering Pty Ltd [2013] SASC 84; Chan Huan Kei v Hong Kong Construction (Hong Kong) Ltd [2014] HKEC 590; Hadley v Baxendale [1854] EngR 296; (1854) 9 Ex 341; Hutchinson v Ellis [2010] SASCFC 71; Kavanagh v Blissett [2001] NSWCA 79; Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 69 LGR 1; Rasch Nominees Pty Ltd v Barthomaeus [2013] SASCFC 105; Stubing v Halling [2012] SASCFC 123; Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61, considered.

TINCKNELL & ANOR v DUTHY HOMES PTY LTD & ANOR; DUTHY HOMES PTY LTD & ANOR v TINCKNELL & ANOR

[2020] SASCFC 24

Full Court: Peek, Parker and Doyle JJ

PEEK J: I would allow the appeal to the extent indicated in the orders proposed by Parker J. I agree with his Honour’s reasons.
PARKER J: Beth Terise Tincknell, as executrix for the late Michael Stuart Tincknell and in her own capacity (together, the Owners), appeal from orders delivered by a judge of the District Court on 1 December 2017 in proceedings between them and Duthy Homes Pty Ltd (the Builder).
The Owners and the Builder entered into a contract for the construction of a very large house over three levels at 9 River Lane, Mannum (the Contract). The contract price was $2.3 Million.
The Builder instituted proceedings for recovery of the final progress payment of $271,434.65, payment in respect of a number of variations to the Contract made by the Owners and return of a bank guarantee. The Builder also sought remedial work orders in respect of defective work such that it would be entitled to the whole of the unpaid contract sum once the defects were rectified.
The Owners denied liability and pursued a cross-claim. The principal of the Builder, Mr Chris Duthy, was joined as a defendant to the cross-claim. The Owners alleged that the Builder had breached the Contract and also breached statutory duties. They sought compensation for allegedly defective work by the Builder and also damages for delay, pain and suffering and breaches of the Trade Practices Act 1975 (Cth) (the TPA). They sought damages against Mr Duthy in his personal capacity for breach of his duties of care as supervisor for the performance of the Contract and as an accessory to breaches of the TPA. The Owners sought damages in the order of $2 Million, of which about $1 Million related to the delay claim. They also claimed credit against any sum owed to the Builder for work they asserted was not done and for expenses they incurred.
The Judge found that the house was practically complete on 26 February 2013. Her Honour found that the Builder was entitled to a payment of $173,049.41 but also ordered that it rectify certain defective work. In some instances, where it was not appropriate to order rectification, the Builder was ordered to pay compensation. Her Honour dismissed the Owners’ claim for damages for delay, pain and suffering and breaches of the TPA.
By way of their Second Notice of Appeal, the Owners complain of the following orders made by the Judge:
1. Judgment for the Builder in the sum of $167,437.58.
2. Dismissal of the Owners’ claims in respect of defects in the waterproofing, termite protection, cracking to the garage floor, tile placement on the external stairs, the ceiling exhaust system, colour and pattern of the tiles on the first and second floor balconies, water pooling on the external balconies, paving to the front of the house, the valley gutters and internal stairs.
3. Dismissal of the Owners’ claims for delay damages, damages for pain and suffering and breach of the TPA.
4. Dismissal of the Owners’ claims for back charges in relation to legal advice, grated sumps to rear patio core holes, concrete panels, reworking of the engineering designs, Prime Cost items, tiling credits and work done concerning gas leaks.
5. The orders permitting the Builder to carry out remedial work in relation to the hot water system, box gutters, downlights and the work identified by Mr Trenorden’s determination; and
6. The order allowing the Builder to retain the “float” of $4,380.10.
It should be noted that a number of other findings made by the Judge adversely to the Owners have not been appealed. In addition, a number of the matters encompassed by the grounds listed above were not pursued on appeal.
The Owners seek an order for “[a] balanced judgment for the Appellants for a sum to be determined once the Court has resolved each of the grounds of appeal”. They also seek that the respondents pay the Owners’ costs of the appeal and at first instance.
The Builder has sought permission to appeal against the costs orders made by the Judge. The Builder complains that the award of costs was unreasonable and unjust and the Judge should not have departed from the ordinary rule that the successful party is entitled to the costs of the proceedings. The substantive appeal and the costs appeal were heard together.

Background

The appellants/Owners, Mr and Mrs Tincknell, own land at 9 River Lane, Mannum.^[1] The first respondent/Builder is a building company. The second respondent, Mr Chris Duthy, is the director of the Builder.
The house comprises three floors facing the banks of the Murray River. The ground floor comprises a garage, rainwater tank holding area, bathroom and study, lift well and an entrance foyer. The first floor comprises four separate units, each containing a bedroom/living area, kitchen and ensuite. The second floor comprises the main bedroom, ensuite, meal area, living room, kitchen, formal lounge bar area, storeroom, laundry and bathroom and large outdoor patio area.
At the time of entering into the Contract, the Owners lived in a house they owned at Dernancourt. They also owned a holiday home at 84 River Lane, Mannum. The Owners intended to reside in the newly built home at 9 River Lane upon its completion. They contend that they intended to sell both their Dernancourt house and the holiday home and invest the net proceeds of those sales. By the time the building works commenced, the Owners were living permanently at the holiday home, i.e. very close to the building site.
Prior to engaging the Builder, Mr Tincknell engaged Artec Building Designers (Artec) and engineers Trevor John & Associates (the engineers) to draw up preliminary designs and plans. These designs and plans were approved by the local council and provided to Mr Duthy for tender.
In March 2010, Mr Duthy provided a quote to the Owners together with the Builder’s specifications. Mr Tincknell accepted the quote and provided a second version of the specifications incorporating his handwritten amendments. Mr Duthy later provided Mr Tincknell with a third version of the Builder’s specifications dated 30 August 2010 which incorporated only those amendments he agreed to.
The Owners entered into a preliminary works contract with Mr Duthy in his personal capacity in July 2010. The preliminary contract provided for the commencement of earth works. The work performed under that contract is not the subject of dispute between the parties.
The Owners and the Builder entered into the Contract on 7 October 2010. The Contract consists of the Housing Industry Association (HIA) Building Specification, the HIA Building Schedule and the Builder’s Building Specification dated 30 August 2010.
The contract price included the sum of $38,132 as a ‘float’ to provide for future variations to the works.^[2] At trial, the Builder accepted that its claim for variations against the Owners was confined to the sum of $33,301.90. An issue remained as to which party was entitled to the balance of the float.
Under the Contract, the Owners were entitled to a bank guarantee provided by the Builder in the amount of $115,000. The bank guarantee was intended to secure the Builder’s proper performance of the Contract. The bank guarantee was to remain in place for a 12 months defect period following the date of practical completion as defined by the Contract. A judge of this Court stayed the return of the Guarantee to the Builder pending the outcome of this appeal.
The Contract provided for the building works to commence on 5 July 2010 and be completed by 29 September 2011. The Owners granted the Builder an extension of time to 20 October 2011.
Mr Tincknell had previously owned a large and successful building company before taking early retirement due to ill health. He was frequently on site and closely observed the building works as they proceeded. There was regular written communication between Mr Tincknell and the Builder as well as 33 formal site meetings.
On 18 December 2012, the Builder issued the last progress claim to the Owners. On 20 December 2012 Mr Tincknell and Mr Duthy attended the house to inspect the works. The Builder asserted that the building works had reached practical completion. The Owners asserted, and continued to assert at trial, that the building works are not practically complete. Mr Tincknell provided Mr Duthy with a list of defects on 7 January 2013.
On 8 February 2013, the Owners served the Builder with a “Notice to Remedy Breach” enclosing a handwritten list of defects (the February 2013 defects list). Following receipt of that defects list the Builders undertook certain remedial works.
On 26 February 2013, the Builder issued a revised notice of practical completion. On 4 March 2013, the Owners served the Builder with a notice to the effect that due to its failure to remedy, the Owners would engage others to perform that remedial work.
On 27 March 2013, the Owners informed the Builder that they had taken possession of the site and that the Builder was no longer permitted on the site without permission. Police action was threatened if the Builder entered the site. In April 2013, the Owners issued a revised defects list (the April 2013 defect list).
As at the date of judgment in the District Court, the Owners had never lived at the house. It was conceded at trial that no hot water had been available at the house and that this was the only real issue preventing occupation of the house at the date of possession. As at the date of judgment that issue had been resolved and hot water connected.
As previously noted, in April 2013, the Builder commenced proceedings in the District Court seeking payment in the sum of $271,434.65 plus interest. That being the last progress claim less the variations to the contract abandoned by the Builder in the sum of $17,436.37. The Builder sought remedial work orders under the Building Work Contractors Act 1995 (SA), such that the whole of the unpaid contract sum would be payable once the defect work was completed. It also sought the return of its bank guarantee.
In June 2013, the Owners filed a defence and cross-action. The Owners claimed:
- that the Builder was in breach of contract and in breach of statutory warranties in that the building works were defective;
- that the Builder failed to comply with the Notice to Remedy issued pursuant to cl 23.2 of the Contract dated 8 February 2013;
- credit for the differences between the cost of the variations and the $38,132 that had been allowed for possible variations;
- the cost of remedial work. They opposed any remedial work order as they asserted a loss in confidence in the Builder; and
- that the works were not practically complete as at 18 December 2012 and were still not complete.
They also sought damages for pain and suffering, breach by the Builder of the TPA by way of misleading or deceptive conduct, and for the delay in the investment of funds from the sale of their Mannum holiday home. They sought damages against Mr Duthy in his personal capacity for breach of his duties of care as supervisor for the performance of the Contract and as an accessory to the misleading or deceptive conduct of the Builder.
Prior to the trial, certain defect issues were referred for binding expert determination by Mr Brenton Trenorden. Mr Trenorden determined that the Builder was liable to the Owners in the sum of $17,436.37 and $2,010.23 for work which the Builder was not liable but agreed to do. He determined that the works reached practical completion on or about 18 December 2012.
Mr Trenorden expressed the view that “the quality of the building work generally was well above that considered to be the level of finish found broadly in the housing industry in South Australia”. In his view, the Owners were fully engaged in the process on a day-to-day basis. He took the view that the Owners had significant knowledge about the building process and building practices, and that this knowledge and involvement should have enabled them to mitigate losses incurred throughout the building process.
Joint position papers were prepared by all experts and made available to the parties prior to trial. After a trial extending over 24 sitting days, the Judge found that the house was practically complete on 26 February 2013. The Judge made remedial orders where she found it appropriate and where remedial orders were not appropriate, her Honour awarded the Owners compensation. Her Honour found that certain rectification costs claimed by the Owners were unreasonable and that on this basis the Owners were not entitled to damages for breach of contract or breach of statutory warranty.
The Judge dismissed the Owners’ claim for delay damages, pain and suffering and breaches of the TPA. The Judge awarded the Owners the sum of $32,106.07 in back charges and dismissed the remainder of the Owner’s claims for back charges.
The Judge held that the Builder was entitled to the sum of $173,049.41 plus interest. The Builder was entitled to the final progress claim, plus the difference between the ‘float’ for variations, less those items where a remedial work order was inappropriate.
Each of the parties sought orders for costs. The Builder was awarded 60 per cent of its costs on a party/party basis.

Grounds of appeal

The Owners agitate 12 grounds of appeal. On 28 February 2019, the Court made orders directing that Grounds 2, 3, 7, 9, 13, 21 and 22 be dealt with by outlines of submissions and oral argument and that Grounds 12A, 16, 17, 18 and 27 be dealt with by written argument.

The primary grounds

Grounds of Appeal 2, 3, 7, 9 and 22 concern defect claims. The Owners approached those grounds by first, identifying the Owners’ performance interest under the Contract which they contend has been breached by the Builder, secondly, addressing whether the Builder has achieved the contractual objective of the work that had been carried out and, thirdly, by addressing whether cost of rectification is disproportionate to the benefit to be achieved by the repairs or the remedial work.

Ground 2: Waterproofing

Ground 2 asserts that the Judge erred in dismissing the Owners’ claim for defective waterproofing and in finding that there was a lack of proportionality between the proposed rectification work and the benefit it would achieve. Under this Ground the Owners assert that the Judge should have found that they were entitled to damages of $198,913, based on the cost estimate of Mr Sale.^[3]

Reasons for judgment

The Judge noted that the waterproofing claim was the focus of much of the evidence at trial. There was a divergence in the opinions expressed by the two experts, Mr Prider^[4] and Mr Goldfinch.^[5] There was also a dispute as to whether the engineer’s original waterproofing design was achievable.
The Judge noted that the requirements relevant to waterproofing were incorporated into the original drawings. The original design provided for a high‑density polyethylene (HDPE) sheet to be installed beneath the ground floor footings, to be lapped and taped with heat welded joints up the external walls and for a Nylex strip drain to be installed to collect and dispose of groundwater. Amendments were made to the design after the works commenced. The Owners asserted that the amendments were to accommodate the Builder’s alleged non‑compliance with the installation of the Nylex strip drain.
The Owners contended that the waterproofing was not carried out in accordance with the new design in that there is a weakness at the interface between the Fortecon and HDPE membranes through which water can enter. The Owners contended that the external walls of the house were not adequately waterproofed to prevent uncontrolled water entry. They contended that there has been entry of water into the ground floor through the northern and western sides of the house. The Owners sought the cost of remedial work in the sum of $198,913.
The Builder contended that there were deficiencies in the original design which made amendments necessary. The waterproofing work was done in accordance with the new design. It contended that the waterproofing treatments were extensive and completely done. The Builder also asserted that there had been no entry of water through the walls and there was no independent evidence of any water leaks. An occasion when there was water on the garage floor was unrelated to waterproofing. Minor departures from the design specification were de minimis. The Builder further asserted that waterproofing is guaranteed by Nova, the company that installed the system and provided a warranty for the waterproofing treatment.
The Judge noted that waterproofing the house was beset with difficulties. There were problems with the original design. There were significant difficulties in gaining safe access to enable the work to be carried out. The Builder had proceeded to pour the footings without council approval, there were faults in the work performed by Nova, and most relevantly, the HDPE did not extend over the joint between the footing and upright panel, which in the opinion of both experts, allowed a potential point of water entry.
Her Honour noted Mr Tincknell’s evidence that he had numerous conversations with Mr Duthy about waterproofing. He could not recall specific dates. He asserted that from at least August 2011, Mr Duthy was aware of the issues with the northern side of the property where moisture appeared on the floor of the garage. Mr Tincknell stated in evidence that during a downpour of heavy rain in July 2012, water had entered a bedroom on the north side of the house and into the garage. He stated that he told Mr Duthy the water appeared to be coming from an area under the lower tiled roof.
Mr Tincknell referred the Judge to a number of photographs. Some of those photographs showed water on the ground floor. Mr Tincknell was unable to say exactly when the photographs were taken but asserted that it was before December 2012. Mr Tincknell asserted that the MDF joinery on the northern wall had to be replaced and remedial work was necessary to replace the water damaged kick boards along the western and northern walls.
Mr Tincknell stated that since 18 December 2012 he had observed the entry of water into the garage floor on numerous occasions. Mr Tincknell asserted that he took steps to resolve the problem himself by pouring lean mix concrete across the rear of the property and a “swell” down the northern side on his neighbours’ property. He asserted that there have been no issues since.
Mr Tincknell agreed that as at 15 October 2010, his neighbours on the northern side did not agree to an agricultural drain being placed on their property. He agreed that the revised engineering design for waterproofing were received on 11 March 2011 and that he authorised a contract variation from the Builder in relation to waterproofing on 12 March 2011.
Mr Tincknell conceded that in relation to the progress claim he received on 4 September 2012, waterproofing is noted as 100% complete and paid as charged. He agreed that neither the February 2013 defect list nor the April 2013 defect list made mention of defective waterproofing. Mr Tincknell agreed that it was 11 months after the discussions with Mr Duthy in January/February 2013 before he retained Mr Prider to advise him about waterproofing issues in respect of the house.
Mr Tincknell conceded that the reason for the design change for waterproofing of the southern wall was because of difficulties with the site. He agreed that despite difficulties with waterproofing the southern wall, it had not leaked.
The Judge found it difficult to assess whether the waterproofing work was carried out in accordance with the ultimate design because no one who actually performed the waterproofing work was called to give an account of the work undertaken.
Her Honour noted that Mr Duthy gave evidence of a 10-minute meeting with Mr Tincknell in the garage in mid-December 2012. He recalled water on the garage floor which had come from the rainwater tank room. Mr Duthy asserted that he and Mr Tincknell discussed how the water entry had occurred and what could be done to rectify the problem. Mr Duthy also asserted that at the time of the meeting all the linings, insulation and cornices were installed against the inside of the northern wall and Mr Tincknell was installing cabinets in the garage. Mr Duthy asserted that if there was a free flow of water because of inadequate waterproofing treatment in the joints of precast panel on the northern wall, the wall linings would have shown some water damage.
Mr Duthy contended that the first he learned of complaints regarding the waterproofing treatment was when he saw Mr Prider’s report. In Mr Prider’s opinion, having regard to the waterproofing treatment installed, the risk of there being uncontrolled water entry into the house ‘was not zero’. Mr Prider was of the view that if the remedial work proposed was done, this would still not reduce the risk to zero.
Mr Prider and Mr Goldfinch agreed that despite ongoing difficulties in waterproofing the southern wall, it had not yet leaked. However, Mr Prider noted that this did not mean that water will never enter, as it has along the northern and western sides in the past.
The Builder contended that given that water had not entered since practical completion and given that the Owners had installed mitigation measures to the soil surface adjacent to the western and northern walls, there was no demonstrated need to undertake any further waterproofing. That was particularly the case in light of Nova’s warranty with respect to those walls.
The Judge was not satisfied that the original engineering design for the waterproofing could be achieved. Her Honour was unable to distinguish between the contributions of the Owners and the Builder to the delay in resolving the issues. Her Honour was satisfied however that the Builder had breached the Contract as measured against the ultimate design (at [183]).
The Judge addressed the question of whether any further work was reasonably required. Her Honour considered that the warranty given by Nova did not provide an answer to the issue and reliance on it by the Builder was misconceived.
The Judge noted the Owners’ contention that, consistent with authorities, a finding that remedial work is unreasonable is an exceptional finding in the context of a breach of a building contract, especially in circumstances where the alleged defect concerns significant aspects of construction, such as waterproofing.
The Judge found Mr Tincknell’s evidence of water entering the house to be unconvincing. On the Judge’s assessment of the evidence there had been no entry of water as alleged by Mr Tincknell. Her Honour considered that Mr Tincknell’s decision to have the cabinetry work done, with knowledge that waterproofing work was incomplete or unsatisfactory, was inexplicable. The Judge found that a lack of complaint by Mr Tincknell after practical completion was telling as to the true nature of the Owners’ loss.
Her Honour noted the evidence of Mr Prider, that the risk of uncontrolled water entry into the house was not currently zero, nor would it be if remedial work is carried out. Whilst Mr Goldfinch had accepted that there had been a failure to comply with the design, that fact did not change his opinion that no further work was necessary. In her Honour’s view, this was a case where a departure from the contractual standard did not compromise the functionality or value of the building.
The Judge concluded at [191] that although there had been a breach of the Contract in relation to the issue, there was a lack of proportionality between the cost of the proposed remedial work and the benefit it would achieve. Her Honour therefore dismissed the Owners’ claim at [192] in relation to waterproofing.

The Owners’ submissions

The Owners contend that the decision of Wheeler v Ecroplot Pty Ltd is directly applicable to the waterproofing and termite claims in this case.^[6] That case concerned defects to a new domestic building. The owners claimed, inter alia, that the builder failed to construct footings to the depths specified in the engineering drawings. At first instance, the Judge found that the builder had breached the contract by, inter alia, founding the footings too shallow. The Judge held however, that whilst the builder had breached the contract, the breaches were not causally related to the owners’ loss. The Judge found that underpinning was unnecessary and the owners were not entitled to any rectification costs.
The NSW Court of Appeal upheld the owners’ appeal and the claim for the costs for underpinning was allowed. Macfarlan JA (with Basten and McColl JJA agreeing) noted that the appellant had a home which did not conform to the stability requirements considered appropriate by the consulting engineer or by the relevant Australian Standards. His Honour saw no reason in the circumstances why the cost of underpinning should not be regarded as a reasonable measure. His Honour rejected observations made by the expert called by the builder about the nature of the work and whether there was any utility in the rectification work. His Honour rejected the observation of the expert that “underpinning is a very expensive option that has the potential to be ineffective”. His Honour said that the view of the expert is not a matter that the respondent in that case could rely upon to deny the appellants the benefit of their bargain. The question of whether the costs is disproportionality too high is a matter for the court. His Honour reemphasised the need to meet the performance interest in that particular case. Counsel for the Owners contend that Wheeler is on all fours with their case on waterproofing and termite protection.

Performance interest

Counsel for the Owners referred the Court to relevant contractual terms in respect of the waterproofing issues. Pursuant to cl 2 of the Contract, the Builder was to carry out the works under the Contract “properly and skilfully” and “in accordance with the contract documents”. Pursuant to cl 1.1.1(b), the contract documents included the engineering plans and specifications. Pursuant to cl 6.2, if there was any inconsistency in the contract documents the Contract was to have precedence and the engineering plans and specifications take precedence over all other contractual documents.
Clause 2 of the HIA Building Schedule provided that the engineers’ recommendations as to the footings are to be provided by the Owners as per the engineering drawings and its amendments. Clause 6 of the HIA Building Schedule relates to footings. That clause directs the Builder to the engineers’ details for all footings and slabs, subject to engineer’s site inspection upon completion of the excavation.
Counsel for the Owners referred to the engineers’ drawing as at the time the Contract was signed on 7 October 2010. The drawing notes that “Xypex was to be applied in strict accordance with the manufacturers specifications to provide a watertight structure”. The drawing refers to a strip drain that was intended to sit back from the footings slightly. The day before the footings were to be poured the engineer instructed the Builder not to pour the footings. However, the Builder proceeded to do the work without including the strip drains. The Owners contend that this action ultimately led to the amended engineers’ design.
In respect of the work to the southern side of the house, the Owners contend that the undisputed evidence was that the work required by the original drawings was only done to the first three of seven concrete panels because of access issues. They assert that this was a further instance of non-compliance with the engineering drawings which lead to the amended design.
The original design consisted of a single drawing to apply to all of the perimeter footings. The amended design consisted of three drawings referring to the southern, western and the northern sides of the property. The western side included an agricultural drain.
Counsel for the Owners asserts that in respect of the work on the northern side of the house, the stand-up concrete panels had control joints between the panels. The footing and the lap was meant to come down the face of the stand-up concrete panel over the joint between the footings and the panel and then to a depth of 200mm below that point using an adhesive form of HDPE to ensure a watertight seal. They assert that it was conceded at trial that there was no overlap at the joint. In no instance does the HDPE project over the joint to the minimum depth of 200mm as required by the engineer’s drawings.
The Owners further assert that it was conceded at trial that, in respect of the southern wall, the Builder did not comply with the requirement that the relevant joints be filled from the footing to the ground level with Xypex.
Counsel for the Owners contends that compliance with the engineering instructions in respect of waterproofing was a key functional requirement of the works to be carried out by the Builder.
The Owners contend that the Builder tendered for the project knowing that it was to build a strip drain footing on a site which was built to the boundaries and where there was no guarantee of access from neighbouring properties. They contend that the Builder proceeded to do the work in the way that the Builder wanted to do it. The Owners then had to work out a way to try and protect the property.
Whilst the Builder’s evidence was that the work was done in conformity with the engineer’s design, Mr Duthy ultimately conceded that it was not. Both experts acknowledged that there had not been compliance with the requirements of the engineering design.

Achieving the contractual objective

Counsel for the Owners refer to the evidence of Mr Prider at paragraph 6.19 of his report dated 9 May 2014. In his opinion:

[A]s a result of the waterproofing deficiencies, the owner will be likely to have to accept either the risk of ongoing leakage with the consequential damage to internal fixtures and finishes that would cause, or a reconfiguration of the garage interior to provide access to the interior of the external walls so that sealing from the inside can be attempted.

The experts agree that the appropriate means to remedy the defects is to work from the inside of the garage area. The joinery will need to be removed, the relevant points will need to be accessed and certain gels and additives can be added to remedy the defects.
The Owners challenge her Honour’s findings at [186] that “the lack of complaint by Mr Tincknell after the Builders practical completion, was telling of the true nature of the loss to the Owners”. The Owners contend that the Judge erred in determining the issue of loss based on whether a complaint was made at the date of alleged practical completion. They contend that the matter should have been assessed by reference to the expert opinion.
The Owners contend that the Judge erred in concluding that because Mr Prider gave evidence that the proposed remedial work would not achieve the absolute zero chance of prevention of uncontrolled water entry into the house, that the breach of contract did not “compromise the functionality or value of the building in a way which would be remedied by the suggested work”. They contend that the Judge should have accepted Mr Prider’s evidence that there is a weakness at the interface between the Fortecon membrane and the HDPE membrane and that this is an area through which water could enter.
The Owners contend that the fact that water had not entered the southern walls of the house at the date of trial did not mean that during the lifetime of the house, water will not so enter, as it had previously along the northern and western walls. The Owners further contend that the contract specifications never called for the Builder to construct the house in a way that had zero risk in those express terms.
Mr Goldfinch acknowledged that there would be increased protection if the works had been performed in accordance with the engineers’ design. The Judge concluded at [190] that whilst Mr Goldfinch had accepted that the Builder’s failed to comply with the engineers’ design, that fact did not alter his ultimate position as regard to the need for any further work. The Owners challenge this finding.
The Owners contend that the Judge erred in her consideration of Mr Goldfinch’s evidence at [189] in the following ways:
- An answer given by Mr Goldfinch was not responsive to the question. The question was directed to the HDPE system (namely the use of HDPE in and around the footings) in a manner specified by the engineers. Mr Goldfinch’s response addressed the fact that the HDPE membrane could not fail. The question put was not whether the membrane would fail but whether the absence of the membrane over the footings was a potential point of failure of the system.
- Mr Goldfinch conceded that “[the Owners would] get better protection from the joint if you’ve actually got adhesion of the HDPE sheet on the footing face itself and then the continuous sheet running over the joint”.
The Owner’s contend that the Judge failed to take this concession of a further failure of the Builder in the method of application of the HDPE sheets into account. The Owners contend that this evidence demonstrates that the contractual objective had not been achieved in the work performed.

Whether the cost of repairs is disproportionate to the benefit

The Judge found that the cost of repair was $166,007, being the midway point between the sums provided by the two experts.
Counsel for the Owners contend that the cost of doing the work ($166,000), relative to the cost of the house ($2.3 Million) is not disproportionate, having regard to the significance of the work and the contractual importance that the Owners placed on the work being done properly. In those circumstances, the Owners contend that the Judge should have found that it was reasonable to award damages for the breach by the Builder in failing to complete the works in accordance with the engineers’ design. The Owners contend that the Judge should have found that the Owners were entitled to damages of $198,913 in respect of the claim.

The Builder’s submissions

The Builder contends that Wheeler does not assist the Owners. In every contract dispute the circumstances of that dispute are bespoke in that they depend on the terms of the particular contract between the parties. Wheeler is no more than an application of accepted principles and the outcome is dependent upon the bespoke circumstances. The case is not of general application.
Apart from that submission, counsel for the Builder sought to rely on the written outline in respect of the waterproofing aspect of the appeal. Those submissions are similar to that advanced at trial. The Builder continues to assert that the engineer’s design in relation to the waterproofing treatment to the southern wall was amended due to the deficient design.
The Builder also continues to assert that the concrete cladding and waterproofing was done mostly in accordance with the contract documents. They assert that there are minor departures from the design specification, but which are de minimis, and especially on the criteria of effectiveness and functionality.
The Builder asserts that the work has been effective as there has been no water in sight. The engineers have not observed any waterproofing failure. Water on the garage floor was unrelated to waterproofing. The claim is speculative and unproven. The Builder asserts that the Owners’ criticisms of the waterproofing are unrealistic and pedantic and disingenuous. The waterproofing treatments are extensive and completely done. The Builder contends that the Owners have failed to make any consistent or unequivocal allegations of a specific leak on a specific date and the photograph example of water on the garage floor is a result of the water tanks overflowing. It asserts that the Owners took possession of the house six years ago and there was no independent evidence of any water leaks anywhere.
The Builder asserts that the Owners knew, because they had watched the house being built, the construction methods and the waterproofing. If there is any waterproofing defect it is latent. The work is not defective and no remedial work is necessary. The Builder asserts that the Judge’s application of the principles described is orthodox and well-reasoned.

Consideration

The key question in relation to the issue of waterproofing is whether the Judge erred by dismissing the claim for damages because of her Honour’s conclusion that there was a lack of proportionality between the cost of the proposed remedial work and the benefit that it would achieve. The decision in Wheeler does not assist the Owners as the case was decided on the particular facts.
The question is whether the Judge correctly applied the principles stated by the High Court in Bellgrove v Eldridge.^[7] In that case a builder had constructed a house with defective foundations. The issue before the High Court was whether it was appropriate to award damages assessed by reference to the cost of rectification, which would involve the demolition and re‑erection of the house. Alternatively, should damages be assessed in recognition of the cost that would be incurred in rectifying the defective foundations by underpinning. A further alternative was whether damages should be assessed by reference to the diminution in value of the house caused by the defective foundations.
The High Court stated the following principles:
- The prima facie position is that where building work is defective and remedial work is required so as to ensure conformity with the specification, the measure of damages will be the cost of the remedial work required to put the plaintiff in the same position as if the contract had been properly performed;
- In some cases that may require demolition of the building and its re‑erection;
- Not only must the work be necessary to conform with the specifications but the performance of that work must also be a reasonable course to adopt;
- Where remedial works are required to conform with the specifications but would not constitute a reasonable response to the deficiency, the true measure of the owner’s loss will be the diminution in value of the building;
- Whether remedial work is necessary and reasonable is a question of fact.
The High Court found in Bellgrove that because the defective foundations were a serious risk to the stability of the house, the demolition and re‑erection of the building was both necessary and reasonable.
The Judge referred to the observation made by the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd to the effect that the test of “unreasonableness” will only be satisfied by “fairly exceptional circumstances”.^[8]
In Stone v Chappel Doyle J (with Kourakis CJ and Hinton J agreeing) suggested that if the unreasonableness qualification is justified in part by reference to the unfairness of the burden to be imposed upon the defendant, it may be that this permits consideration of the nature or quality of the breach by the defendant.^[9] Doyle J suggested if the defendant’s conduct was “intentional, sharp, cynical, profit-driven or opportunistic, then it would be more difficult for the defendant to satisfy a court that the burden sought to be imposed upon it was unreasonable”.^[10] Doyle J went on to suggest that while there was merit in this approach to the unreasonableness qualification, this approach had not been expressly adopted in the Australian authorities. The matter had been left to be resolved as a question of fact and degree to be decided in light of the circumstances of the individual case.
Approaching the matter consistently with those observations, the evidence did not establish that the actions of the Builder were “intentional, sharp, cynical, profit-driven or opportunistic”.
The key finding by the Judge is that the failure to adhere to the Contract had not compromised the functionality or value of the building in a way which would be remedied by the suggested work. The Judge also noted that in the future (which I understand to mean when negotiating the sale of the building) the Owners may be required to disclose the advice of Mr Prider concerning the deficiencies in waterproofing. However, her Honour also observed that Mr Goldfinch had expressed a contrary view in his report. Her Honour concluded that this issue could not determine whether there should be an order to remedy the breach.
The effect of the Judge’s finding was that the evidence did not go beyond establishing that there was a slight risk that water may enter the ground floor of the building at some time in the economic life of the building.
The Owners sought compensation of $198,913 based on the cost of rectification. If these proceedings concerned an average or typical suburban house an award of that size might potentially appear disproportionate and unreasonable unless the shortfall in performance was particularly egregious. However, when assessing unreasonableness, regard must be had to the fact that the contract price was some $2.3 Million. Rather than the quantum of the claim, the more significant consideration in the circumstances of this particular case is the extent of the benefit that would be achieved by undertaking the remedial works sought by the Owners.
While the ground floor has been loosely described as a “garage”, part of this floor comprises a study and entrance foyer and is carpeted and fitted with built-in furniture. Thus, if water was to enter this area, the level of damage is likely to be greater than in the case of a conventional garage.
Notwithstanding that observation, I do not consider that the Judge erred in finding that there is a lack of proportionality between the cost of the proposed remedial work and the benefit that it would bring. The risk of water damage was insubstantial. In those circumstances, the proposed remedial works would not constitute a reasonable response to the deficiency in the waterproofing.
If a different approach had been taken by the Owners to the pleading of their case and the conduct of the trial, it is possible that they may have been entitled to damages based upon the diminution, if any, in the value of the building caused by the deficiency in the waterproofing. However, the case was not conducted on that basis. Thus, there is no evidence to indicate whether there was a diminution in the value of the house caused by the deficiencies in the waterproofing work and, if so, the extent of any such diminution.
I would dismiss Ground 2.

Ground 3: Termite control

Ground 3 asserts that the Judge erred in dismissing the Owners’ claim for termite protection. The Owners contend that the Judge erred in finding that there was no compromise to the functionality or value of the building, that any remedial work would be unreasonable and that there is a lack of proportionality between the proposed remedial works and the benefit to be gained. If Ground 2 (the waterproofing claim) is allowed, the Owners assert that Judge should have found that the Owners were entitled to damages of $90,629 in respect of Ground 3. However, if Ground 2 is not allowed, the Judge should have found that the Owners were entitled to damages of $245,993.

Reasons for judgment

At trial, the Owners contended that the termite treatment as certified by the Builder’s subcontractor, Complete Pest Control, is in breach of Australian Standards AS3660 and AS3600.1 in that it failed to treat the walls of the house below ground level. The Owners contended that the works are defective because a physical termite barrier was not installed by the Builder. They further contended that the Builder failed to address the fact that the walls of the house are in direct contact with the ground and that the joints between the panels provide a clear point of entry for termites.
The Owners contended that only the underfloor was sprayed and that Complete Pest Control installed the termite barrier but not in accordance with the Australian Standards.
The evidence in respect of the claim for termite treatment was as follows. The HIA Building Schedule required the Builder to provide termite treatment in accordance with the HIA Building Specifications and the Australian Standard 3660. The Building Specification provided that termite barrier systems were to be installed in accordance with the Building Code Australia (BCA) “and comply and/or with the AS3660.1”. The HIA Building Specification also stated that “supplementary termite barrier systems shall be installed and comply with AS3660.1.” The Building Schedule provided for termite treatment as “Kordon or equal approved treatments to penetrations only”. The Owners also requested a spray treatment be used in addition to the physical barrier.
The Builder conceded that, during the course of the building works, Mr Tincknell requested that both a spray treatment and a physical barrier be used. Mr Duthy acknowledged that he did not provide a physical barrier system to the northern, western or southern walls of the house in accordance with the Owner’s instructions. He acknowledged that Xypex was not installed in the joints below ground level. He also acknowledged that the perimeter walls were directly in contact with the earth and provided a potential entry point for termites.
The Builder contended that pursuant to the BCA no termite protection was necessary because the house is made of steel and concrete. Accordingly, nothing further needed to be done.
The certificate of installation provided by Complete Pest Control indicated that a chemical barrier was applied to 300m² of the under-slab area of the house. This work was completed on 13 April 2011. Inspections were recommended at 12 monthly intervals.
Mr Tincknell received the Owner’s Handbook on 18 December 2012. This included installation certificates, certificates of compliance and a termite control warranty certificate issued on 13 April 2011. Mr Tincknell admitted that he did not go through the warranty document.
The Judge noted that the Owners had not arranged for termite inspection within 30 days of taking ownership of the house so as to comply with the warranty. They also did not take advantage of the handover service offered by Complete Pest Control, nor did they fill in and complete the warranty activation form in the Owner’s Handbook. The Owners also did not arrange for Complete Pest Control, or any other company, to do an annual inspection. From the time they took possession, the Owners had not done anything to protect their home from termite attack.
Mr Tincknell said that when he went through the Owner’s Handbook he realised that the termite treatment was not done in accordance with the Builder’s obligations. He accepted that he did not raise the issue of termite protection with Mr Duthy at the inspection of the house in December 2012. However, he had referred to the issue in the February or April 2013 defects list. Mr Tincknell was unable to explain why it had taken over two years to pursue the issue of termite treatment.
Mr Prider opined in his report dated 12 March 2015 that because the wall panel joints below ground level do not incorporate a termite barrier, they do not comply with AS3660.1. A termite resistant sealant needs to be applied so that the joints are protected from risk of entry by termites. The notes to cl 1.5 of AS3660 require that if it is not possible to incorporate termite barriers in accordance with the Standard, “full documentation on the limitations of the barrier system should be provided to the building owner”. In Mr Prider’s opinion, the termite treatment installation certificates and warranty documents supplied to the Owner do not provide sufficient notification of the limitations of the barrier system.
Mr Prider accepted that the BCA prevails over the Australian Standards and that the BCA provided that no termite barrier was necessary. He also agreed that the Australian Standard does not address termite treatment of the vertical joints between the precast panels above the slab on the ground or for vertical wall construction of the type used in this building. Mr Prider further accepted that the chemical barrier was not expressly provided for in the Contract.
Mr Prider considered that to make the joints termite proof it would be necessary to remove internal wall and ceiling linings adjacent to the walls, and also to remove some floor coverings, so as to provide sufficient access. After installing barrier gel, the wall linings, ceilings, skirtings, fixtures, tiles and other finishes would require reinstatement. He recommended that when reinstating the ceilings, hatches be installed to allow for regular inspection.
Mr Goldfinch was critical in his report dated 15 May 2015 of the lack of detail in the building plans dealing with termite protection. He opined that:

[T]he vertical joints between abutting external precast concrete wall panels buried below ground level do not expose the building to any significant risk of concealed termite entry. I say this on the basis that these joints have their gaps filled with a Xypex cementitious grout infill between the hydro-reactive swellable waterproofing strips at the front and back of the joints. In my opinion, the cementitious grout forms an effective seal between the wall panels without any gap exceeding 1mm.

Mr Goldfinch went on to say that “the buried wall panel joints with their cementitious infill within the gaps between abutting panels does comply with the normative requirements of AS3660.1-2000.” However, he conceded that if Xypex had been placed within each of the joints up to ground level there would be a low risk of termite entry through the joint. He also acknowledged that the risk of termite entry would increase if the Xypex concentrate was not placed in the joints as originally depicted in the drawings. He conceded that although the HDPE membrane is not an absolute barrier to prevent termite entry, it would be unlikely that termites would want to attack that membrane because, unlike timber, there is no cellulose material. He contended that the Owners ought to have been aware of the risk of building boundary to boundary, and that special knowledge of itself constitutes sufficient notice of a particular weakness.^[11]
Mr Prider and Mr Goldfinch agreed in their joint report that, inter alia, the house does not require termite barriers to comply with the BCA and that where boundary situations prevent the installation of complying treatments, the owner must be advised of the limitations. They disagreed as to whether the Builder provided sufficient notice of the limitations to the Owners.
Mr Sale estimated the costs of additional work relating to the termite treatment to be $245,993. Mr Fuss estimated the cost to be in the range of $123,000 to $150,000.
The Judge found that pursuant to the BCA the house did not require protection. Her Honour found that whilst the BCA did not apply, the Contract required the Builder to comply with AS3660. Her Honour also found that the Contract provided for Kordon collars and that these had been competently fitted. Complete Pest Control has given a 10-year warranty for the Kordon collars and spray treatment. Her Honour found that there is no evidence of the presence of termites and that termite protection treatment appears to be effective.
The Judge found that the Builder breached the Contract by failing to ensure that Xypex was injected into the wall panel joints where they extend below ground level. However, her Honour was not satisfied that remedial work was necessary to correct the defect. This is because the house is built of concrete and steel and does not require any termite protection (at [241]).
The Judge took into account the view of Mr Goldfinch that termite activity was manageable on the proviso that regular inspections are carried out. Her Honour considered that Mr Prider presented an overly cautious and conservative approach to the issue. His primary concern was whether the Owners had been properly informed of the limitations. Even if the work that he recommended is carried out, termite inspections will still be necessary.
In the Judge’s view, the departures from the Contract had not compromised the functionality or value of the building. Remedial work would be unreasonable given that termite protection has been applied to the house, there are no termites, and, with appropriate inspections, the risk of termites is manageable. In her Honour’s view, there was a lack of proportionality between the remedial works and the benefit to be gained. Accordingly, her Honour dismissed the claim relating to termite protection (at [247]).

The Owners’ submissions

Counsel for the Owners contend that by reason of AS3660 and the way the parties had expressed themselves under the Contract, termite protection was a matter of significance to the Owners. The Judge had found that the Builder breached the Contract in failing to ensure that Xypex was injected into the wall panel joints where they extend below the adjacent ground level. Her Honour found that due to the lack of Xypex filling, the vertical wall panel joints do not prevent concealed termite entry. Her Honour noted the admission of Mr Duthy that this work had not been done. Those findings are not challenged by the Builder on appeal. The Owners contend that this a performance interest under the Contract and the Builder did not meet this contractual objective.
Counsel for the Owners contend that the reasoning underlying the Judge’s assessment about whether the remedial work was reasonable does not provide any basis for her Honour’s finding that the absence of Xypex in the joints does not compromise the functionality or value of the building.
The Owners contend that the Judge’s finding that termite protection was not required under BCA is a misapprehension by her Honour about the process which she was required to undertake. Her Honour’s task was to identify the performance interest under the Contract. The fact that the BCA does not require termite protection did not mean that the Owners were not entitled to the performance interest to have termite protection work completed in accordance with the Standard.
The Owners contend that the Judge placed too much weight on the fact that risk of termite activity was manageable if there were regular inspections carried out by appropriately trained and experienced inspectors.
Counsel for the Owners conceded at the hearing of the appeal that because the structure of the house is constituted of concrete and steel, an attack would not affect the structural integrity of the house. Rather, the concern is that the spaces between the upright panels provide a pathway for the termites to enter and attack the internal fixtures and fittings of the house.
The Owners contend that if the Court allows the appeal in respect of waterproofing, the additional cost of the termite protection work is $66,437. A sum that the Owners submit is reasonably modest. They contend that the lack of adequate termite protection will be a relevant consideration in the context of disclosure to a subsequent purchaser. However, the Judge did not deal with the impact of such a disclosure in her judgment.
The Owners assert that in the circumstances, the Judge’s finding that it was unnecessary or unreasonable to carry out the termite protection work is one that is not supported by evidence. The Judge should have found that it was reasonable to award damages for the breach by the Builder in failing to complete the works in the manner specified by the Owners’ engineers.

The Builder’s submissions

The Builder essentially repeats the arguments presented at trial. It contends that AS3600 does not provide for termite barrier for a house of this construction. The Contract provides for Kordon collars which were supplied and competently fitted. The Owners requested spray treatment which was supplied by the Builder. The termite treatment has been effective as there is no termite in sight. The Kordon Collars and the spray treatment are subject to a ten-year warranty. The Owners have not done what was required to maintain the termite treatment warranties or to manage the risk of termites. They also took possession of the house without claiming a lack of termite treatment as a defect.
The Builder further contends that the Owners have not proved a breach of contract or a relevant standard. They have also not established that the treatment is not effective; that the guarantees from Complete Pest Control do not suffice; that there is a real risk of termite entry; and that it is necessary for anything else to be done. The Builder submits that the rectification work proposed by the Owners is not needed and is unreasonable.

Consideration

The issues arising from the failure to undertake termite treatment measures in accordance with the contract are similar to those relating to the waterproofing issue. I have found that the finding of the Judge that the Owners are not to be compensated for the waterproofing deficiencies should not be disturbed. In light of that finding, the cost of the additional work relating to termite treatment has been estimated by Mr Short to be $245,993. Mr Fuss estimates the cost to be in the range of $123,000 to $150,000.
I am not persuaded that the Judge erred in finding that the Builder had breached the Contract by not installing a termite resistant barrier between those wall panels that were below ground level. While neither the Australian Standards or the BCA required a physical termite barrier because the house was constructed of steel and concrete, the Contract required a barrier system. That is the performance standard that the Builder was required to meet.
The further question is whether the Judge erred in concluding that remedial work would be unreasonable under the Bellgrove v Eldridge test. In reaching that conclusion her Honour was influenced by her finding that Mr Prider adopted an overly cautious and conservative approach to the issue of termite protection. That evidential finding has not been challenged on appeal. However, the appellants do challenge her Honour’s finding that the failure to provide Xypex protection below ground level did not compromise the functionality or value of the building. In reaching that conclusion her Honour took into account the fact that the BCA did not require termite protection. Furthermore, Kordon collars had been supplied and competently fitted and Complete Pest Control had given a 10‑year warranty covering both the Kordon collars and the spray treatment performed beneath the concrete slab. Mr Goldfinch also considered that the risk of termite activity was “manageable” if regular inspections were performed by a competent inspector. An inspection carried out during the course of the trial did not identify any sign of termites but recommended, as had Mr Goldfinch, regular inspections.
I consider that the combination of factors referred to in the previous paragraph provided a proper factual foundation for the Judge to conclude that the proposed remedial work would be unreasonable. Termite protection has been applied, albeit not to the full extent required by the Contract, there was no evidence of termite presence and the risk could be managed by appropriate inspections. In this light, I consider that her Honour correctly concluded that there was a lack of proportionality between the proposed remedial works and the benefits that would be gained.
The failure of Mr Tincknell as an experienced builder to take any of the action required under the warranty provided by Complete Pest Control, and also his two-year delay in taking any action concerning the deficiencies in termite treatment, provide some additional support for the Judge’s conclusion that expensive remedial work was not reasonably required.
I also note that the Owners had neither pleaded nor conducted their case on the basis that the failure to adhere to the terms of the Contract in respect of termite protection had diminished the value of the house. If relief had been sought on that basis, in view of the matters referred to in the previous paragraph there would have been a serious question as to whether the Owners had mitigated their loss.
I would dismiss Ground 3.

Ground 7: First floor tiling

Ground 7 asserts that the Judge erred in finding that there was insufficient evidence to support the Owners’ claim in respect of the tiling on the first floor, which the Owners contend was not carried out in accordance with their instructions. The Owners assert that the Judge failed to have any, or any proper, regard to certain evidence of Mr Tincknell and several exhibits. They assert that the Judge should have found that the Owners were entitled to damages of $29,175.03 in relation to this aspect of their claim.

Reasons for judgment

At trial, the Owners claimed that the first-floor balcony tiles were supposed to be laid in a diamond pattern and in a cappuccino colour, with a terracotta surround. The tiles have been laid in a square pattern and all in terracotta. The Owners sought that the incorrectly laid tiles and those in the wrong colour be removed and replaced. Mr Sale estimated the cost of this work to be $29,175.03. Mr Fuss estimated the cost to be $25,030.
The Judge referred to the evidence of Mr Tincknell. His evidence was that prior to the tiling work, he provided the Builder with a copy of the Artec drawings of the first floor.^[12] The drawing included a note in Mr Tincknell’s handwriting indicating the pattern to be used. Namely:

DIAMOND PATTERN TO CENTRE PANEL SIZE

TO BE DETERMINED

ON SITE

CREAM INSERT

TERRACOTTA.

Another version of this document did not contain the words “CREAM INSERT – TERRACOTTA”. The Judge rejected the evidence of Mr Tincknell and found that the version of the document provided to Ms Lewis had not contained those additional words, although this version may later have been given to Mr Duthy after the work was done.
Mr Tincknell gave evidence that he was overseas when the tiling on the first-floor balcony was done. When he returned home and saw the tiling he was horrified. He told the Builder he would accept the mistake but to ensure the second-floor tiling was correct.
A fax from the Builder to Mr Tincknell dated 4 September 2012 confirmed the first-floor balcony tile layout “as discussed” as:

First floor balcony as laid terracotta inserts on diagonal

Second floor to have cream tile inserts as discussed and plan given to Italia tiling.

Patio and rear area to be confirmed.

Mr Tincknell gave evidence that he expressed his concerns with the tiling to the Builder on many occasions. He said that nothing was done about his complaints prior to practical completion.
Mr Duthy asserted that Mr Tincknell was present during the entire tile laying process and made no complaint about the colour of the tiles. Mr Tincknell did not mention the colour or pattern of the tiles at the 20 December 2012 joint inspection. Mr Duthy maintained that the tiles were laid in accordance with Mr Tincknell’s instructions.
Ms Lewis gave evidence that Mr Tincknell had supplied her with a brochure that included a photograph of the tiling at his previous house at Dernancourt. He explained that he wanted the tiles to look exactly as they did in a picture in that brochure, i.e. terracotta outside tiling, a cream coloured border and a terracotta insert laid on the diagonal. There was no note or record made of his instructions. Ms Lewis said that this was how the tiles were laid on the first‑floor balcony.
Ms Lewis accepted that the Artec drawings were received from Mr Tincknell in September 2011 before the tiling work commenced. She used those drawings to give formal instructions to the tiler. Ms Lewis denied that before any work was undertaken on the first floor Mr Tincknell had instructed that cappuccino tiles be laid in the centre of the balcony.
Ms Lewis recalled Mr Duthy telling her that Mr Tincknell told him the first‑floor tiling was incorrect but could not recall when this occurred. She did not recall Mr Duthy relaying a conversation with Mr Tincknell to the effect that whilst the first-floor tiling was incorrect, he was prepared to accept the terracotta tiles and to leave them in place. Ms Lewis was told by Mr Duthy that Mr Tincknell had given him coloured copies of the tiling diagrams on 6 September 2012 and the tiling had not been carried out in accordance with the instructions.
The Judge noted that the Owners’ claim is purely aesthetic but that this did not mean the claim must fail. Her Honour took the view at [406] that if sufficient evidence was provided to establish that the tiles were not laid in accordance with Mr Tincknell’s instructions, she would be minded to make a remedial order. However, her Honour found:

[407] ...the instructions at the relevant time show no particular colour for the insert. It is unfortunate that the witnesses were not questioned in more detail about the issue. There was no challenge to Ms Lewis regarding her evidence about Dernancourt, nor was Mr Tincknell cross-examined on the issue. The brochure, said to show the design of the tiling at Dernancourt was not provided nor was there any evidence to show that the tiling differed from Dernancourt. From the evidence I heard, I am unable to decide whether Mr Tincknell was in fact present at the time the tiling on the first floor was being carried out, something which would have been easy to establish. If he was, it would be difficult to accept that he did not speak up about the work that was being done if it did not accord with his instructions. It is relevant that Mr Tincknell did outline his concerns about the pattern and colour of tiling in great detail in the October Site Issues document and the response by the Builder is not what would be expected given the view Mr Duthy took that the tiling was indeed carried out according to instructions. In any event, the details of what went on at the meeting on 12 November 2012 regarding the tiles, was not adequately explored by either party.

Her Honour recorded that she was unable to find that the first-floor balcony tiling was not carried out in accordance with the instructions of Mr Tincknell. Her Honour dismissed the claim (at [409]).

The Owners’ submissions

Counsel for the Owners contend that this ground only requires consideration of the performance requirement of the Contract. This comprises looking at the nature of the instructions given to the Owners in respect of the scope of the works to be carried out by the Builder.
Counsel for the Owners assert that the Judge erred in determining that it was not part of the scope of the works for the tiles to be laid in the configuration that the Owners allege they instructed the Builder. The Owners contend that the Judge erred in finding at [409] that there was insufficient evidence to support their claim. The Owners contend that the Judge erred in her analysis at [407] in the following ways:
1. The Judge failed to consider properly the words “Balcony tile configuration. Barossa terracotta and cream inserts/diagonal” that appeared on the instruction given to Ms Lewis on 15 July 2011. They contend that whilst that instruction contemplated there would be further instruction given as to the size of the panel to be laid in a diamond pattern, the size of the panel is not in issue.
2. The Judge failed to consider that the Builder did not lead any evidence that it was instructed to use the red terracotta tiles.
3. The Judge failed to have any regard to the fact that the second-floor tiling was laid correctly and that there was no logical reason to have different patterns on different floors.
4. The Judge failed to give proper weight to events which occurred after the works were done, including the letter of 4 September 2012. The complaints of Mr Tincknell are consistent with his evidence that the work occurred when he was overseas and that it was contrary to his instructions.
5. The Judge failed to have any regard to the evidence of Mr Tincknell that he supplied 110m²of the cappuccino tiles to the site but that the Builder had only used 53.7m². The size of the order in September 2011 in consistent with the instruction that was given to the Builder prior to the work being carried out.
The Owners contend that the drawing that was the subject of debate at trial did in fact indicate that there would be inserts on a diagonal configuration. In the circumstances, the Judge should have found that the tiles were not laid in accordance with the instructions of the Owners. Her Honour should have found that the Owners were entitled to damages of $29,175.03 in respect of their claim relating to first floor tiling.

The Builder’s submissions

Counsel for the Builder contends that the tiling was done as specified and in accordance with the Owners’ on-site directions and wishes. It asserts that the work is not defective. It contends that Mr Tincknell was regularly on site and, if he was dissatisfied with anything he would raise it. He inspected the tiling work on 20 December 2012 and did not make any complaint. The balcony tiles were not included in the defects lists. The Owners paid the progress claim which included the balcony tile work.

Consideration

Both versions of the annotated Artec plan referred to in paragraphs [141] and [142] contain the words “balcony tile configuration. Barossa terracotta and cream insets/diagonal”. The Judge found that a second version of this document which also included the words “cream inset terracotta” had not been provided to Mr Duthy prior to the tiling work being done.
The photographic evidence shows that the outside portion of the first-floor balcony tiling has been laid in a square pattern, while the tiles in the inner part have been laid diagonally. Apart from two narrow strips of tiles in a light colour (presumably cream), the tiles are in a reddish colour (apparently terracotta). Narrow strips of cream coloured tiles have been laid at the border of the central diagonal area and between the first and second row of tiles at the perimeter of the tiled area.
I do not consider the pattern and colouring shown in the photographic evidence to be inconsistent with the notation “Barossa terracotta and cream insets”. In fact, I consider the preferable reading of the somewhat cryptic instruction to be that the tiles were to be predominantly terracotta with cream insets. That is precisely what was laid. I find the additional reference to “diagonal” in that notation to be inherently ambiguous.
Even if the judge erred in finding that the second version of the annotated Artec plan which also included the words “cream inset terracotta” had not been provided to Mr Duthy before the tiling work was done, I am not persuaded that the additional words would have operated in the manner suggested by the Owners. The words “cream inset terracotta” do not clearly countermand the instruction “balcony tile configuration. Barossa terracotta cream insets/diagonal”. In fact, the addition of those words tends further to reinforce my conclusion that the tiles were laid in accordance with instructions provided.
While the copies of the Artec plan provided to the Court are not of a particularly high quality, they do appear to indicate that the pattern (as distinct from colour) of tiling that I have described is consistent with the Artec plan. That pattern is also consistent with the notation “diamond pattern to centre panel size to be determined on site”.
I have examined the numerous transcript passages referred to by counsel for the Owners. However, that material does not persuade me that the Judge erred in finding that there was not sufficient evidence to establish that the tiles had not been laid in accordance with the instructions of Mr Tincknell. The passage from her Honour’s judgment set out at [150] above is entirely consistent with the oral and documentary evidence.
The fact that Mr Tincknell apparently ordered a significantly larger quantity of cappuccino tiles than were actually required is not evidence of the instructions that he provided to the Builder. Similarly, the fact that a different tile layout and colour scheme was applied on the second floor, does not serve to identify the instructions given in relation to the first floor. While these two matters might give some limited support to the Owners’ contentions, they are not sufficient to overcome the lack of clear evidence establishing that the tiles were not laid in accordance with the instructions provided.
For the foregoing reasons, I consider that the Judge did not err in concluding that she was unable to find that the tiling on the first-floor balcony had not been carried out in accordance with the instructions given by Mr Tincknell.
I would dismiss Ground 7.

Ground 9: Tiling drainage

Ground 9 relates to tiling draining on the external balcony. The Owners assert in this Ground that the Judge erred in finding that the claim in respect of drainage was not genuine. The Ground asserts that the Judge should have found that the Owners were entitled to damages of $17,205.79 for item 15 and $4,114.43 for item 18.

Reasons for judgment

At trial, the Owners claimed that there is a lack of proper drainage on the first-floor external balcony and that the work is defective. Mr Sale estimated the cost of remedial work to be $17,205.70. Mr Fuss estimated that figure to be $15,355.
The Judge referred to Mr Short’s^[13] report dated 9 June 2014. That report noted water marks on the balcony tiling adjacent to the surface drains. According to Mr Short, this tended to indicate a lack of proper drainage. He noted that the area of floor tiling adjacent to the family room was ponding water at the time of inspection. In Mr Short’s view, the work is defective. He did not water test the floor because light rain had fallen earlier that day. Mr Short recommended that the tiles that were holding water be replaced.
The Judge noted that Mr Jankovic^[14] was unable to carry out a water test on the balcony because Mr Tincknell would not give him permission. Accordingly, he was unable to test for pooling of water. In his report, he noted dirt stains around the drainage outlet which may result from water ponding around the grate, but it was not clear to what extent. The type of grate fitted tends to prevent a small film of water from draining into the grate. This can be rectified by adjusting the grate. He also noted that the water stains may have occurred if the drain temporarily overflowed due to blockage.
The Judge noted that the only agreement between Mr Short and Mr Jankovic in their joint position paper was that the existence of dirt stains on the tiles could indicate that water ponds in the area of the floor drain.
The Judge noted the evidence of Mr Tincknell that after heavy rain, water gets on the balcony and just sits there. Her Honour also noted that Mr Tincknell agreed during cross examination that a photograph in Mr Short’s report showed the meniscus effect of water on hard surfaces. He agreed that photographs taken at the view demonstrated the meniscus effect on both the tiles and the drain. Her Honour considered that Mr Tincknell’s evidence may provide an explanation for what is said to have been observed. However, her Honour cautioned that neither expert was asked about the meniscus effect.
Mr Tincknell had stated that Mr Jankovic wanted to run a hose over the tiling but he had insisted that Mr Jankovic use a bucket. Mr Jankovic refused to comply with that request. Her Honour was concerned that Mr Tincknell had not permitted Mr Jankovic to conduct a test that would not appear in any way to be destructive.
The Judge noted that no testing had been undertaken and neither expert was asked to measure the fall. Thus, there was no evidence to establish that the tile laying was defective. When Mr Tincknell had the tiles pressure cleaned in March 2014 there was no complaint regarding ponding. Her Honour considered that the claim was not genuine and dismissed the claim.

The Owners’ submissions

Counsel for the Owners contend that there is a lack of proper drainage in two areas of the balconies. The plans for the drainage of the balconies, both originally and as modified, require a fall of 1 in 80 towards the drain. Accordingly, the Owners assert that the performance interest under the Contract was the installation of tiles with the relevant fall. There is no dispute that this is what the Builder was required to provide. However, the Owners assert that the Judge was not prepared to make a finding about whether the fall had been achieved or not.
The Owners contend that the question of drainage has two consequences. First, if water does not drain away from the living areas there is potential for water to enter rooms. They contend that the unchallenged evidence of Mr Tincknell is that this had in fact occurred. Secondly, as a matter of safety, water should drain from a tiled surface rather than pool to prevent the tiles becoming a slipping hazard.
Counsel for the Owners assert that the Judge erred in the following ways:
1. Drawing an inference that the proposed test by Mr Jankovic of the fall of the tiles “would appear in not any way destructive”. The Owners assert that this finding ignored the evidence of Mr Tincknell that water had pooled against the windows and had entered the living areas, as well as Mr Jankovic’s observations that the tiles did slope towards the living areas.
2. The Judge found that Mr Jankovic refused to test the fall by pouring water over the tiles with a bucket. The Owners contend that her Honour should have drawn an adverse inference from this fact and the fact that Mr Jankovic did not otherwise measure the fall on the tiles.
3. The Judge failed to give sufficient weight to the direct observations and opinions of Mr Short, that he did not measure the fall because on the day of his inspection he observed water on the tiles which was not draining.
4. The Builder did not put to Mr Short that what he had observed was not a failure to drain but the meniscus effect of water on a tiled surface.
The Owners assert that the Judge placed too much weight on the lack of measurement of the fall. Lack of measurement of the fall is not the only manner by which the defect could be established. The fall in the tiles was designed to ensure drainage occurred. The fact that the water was pooling leads to an inference that the works were defective.
The Owners contend that if the Builder proposed to contend that all the pooling that had been observed by Mr Tincknell and Mr Short was the result of the meniscus effect, the mere fact that Mr Tincknell conceded that a photograph demonstrated a meniscus effect is not to the point. It was not put to the Owners that any other pooling they had observed was as a result of the meniscus effect. This was also not put to Mr Short. The Owners contend that the Judge should have ignored this evidence.
Lastly, the Owners contend that the Judge placed too much weight on the pressure cleaning of the tiles in March 2014. The Owners contend that it was not put to the witness that water had not pooled during the pressure cleaning. They contend that photographs taken during the pressure cleaning are equivocal.
The Owners contend that, in the circumstances, the Judge should have found that the Owners’ claim was genuine and that it was reasonable to award damages for the Builder’s breach in the sum of $17,205.70 and $4,114.43.

The Builder’s submissions

The Builder asserts that the Owners have not proved that the fall in the tiles was not in accordance with the Contract. It contends that it was shown that any pooling of water was caused by the meniscus effect and the interplay between the tiles and the drains. The Builder asserts that the claim is not a genuine claim. The claim was not mentioned until a 2014 report and Mr Short was not told that the Owner was dissatisfied with the pooling in his letter of instruction or before he inspected the house.

Consideration

A facsimile message sent to the Builder by the tiling contractor, Adelaide Tile Style, dated 11 October 2011 included a note that the “new design calls for a min 1:80 falls”. The contractor stated that this could not be achieved and he would “strongly recommend that the client revert to the original plan where a flat fall to strip drains is used”. The evidence does not reveal whether or not this recommendation was accepted. Her Honour noted the context of this message at [424] and observed that neither expert was asked to measure the fall. Her Honour also observed that neither expert had been asked about any meniscus effect although Mr Tincknell conceded that this may explain the observations made by Mr Short.
I consider that the Judge correctly found that there was no evidence to establish that the tiles had been laid without the appropriate fall. The expert evidence about drainage was inconclusive and did not deal with the possible consequences of the meniscus effect. In my view, the evidence was clearly insufficient to prove the claim made by the Owners.
I would dismiss Ground 9.

Ground 13: Delay damages

Ground 13 asserts that the Judge erred in finding that the Owners were not entitled to damages for the Builder’s delay in completing the works under the Contract.

Reasons for judgment

Clause 12 of the Contract states:
1. Time for doing the work

12.1 We will start the works as soon as reasonable after the start date.

12.2 We must do the works at a reasonable pace and in any case the works must be practically complete by the finish date.

12.3 However, the finish date will be put back by whatever time is reasonable if any only if there is a delay in the works because if any disobedience of this contract by you.

12.4 We must notify you of the likelihood of a delay (and the expected period of the delay) within 7 days of becoming aware if that likelihood.

12.5 We will make every reasonable effort to minimise the delay.

12.6 We will keep you reasonably informed about the delay.

12.7 Once we can reasonably know the period of the delay, we will notify you in writing of the period of any extension of time that we claim.

12.8 We will not be entitled to any extension of time to bring the works to practical completion other than those available to use under clause 12.3 or otherwise agreed between you and us.

Item 3 of the Schedule to the Contract provides that the finish date for the works is 29 September 2011. The Contract creates a procedure for the Builder to give notice of delay and to seek an extension of time. The Owners agreed to one extension of time for practical completion to 20 October 2011.
At trial, the Owners contended that, in breach of cl 12.2 of the Contract, the Builder failed to ensure that the works were practically complete by the amended finish date.
The Owners’ evidence was that at all material times they had been residing at their holiday home in Mannum. Upon completion of the works under the Contract their intention was to move into the new home and sell their holiday home. They intended to invest the net proceeds from the sale of the holiday home and to reinvest the interest earned from time to time. The Owners contended that by reason of the Builder’s breach of the Contract they suffered loss by way of their failure to earn interest upon the investment of the proceeds of sale of their holiday home. They sought compensation for the lost interest in the period from 1 January 2012 to 1 June 2015. They also contended that the loss is ongoing and would continue until the substantial defects have been repaired. Uncontested expert evidence indicated that the value of the holiday home was a little over $1 Million. The Owners’ evidence was that they would have invested the net proceeds of sale in debentures with Angas Securities at the prevailing “coupon” interest rate.
The Builder contended that the claim must fail because it is too remote and because the Owners did not make good the two limbs in Hadley v Baxendale.^[15]
The Judge was unable to conclude from Mr Tincknell’s evidence that he discussed his plans to either sell and/or invest the proceeds of his holiday home with either Mr Duthy or Ms Lewis. Her Honour noted Mr Tincknell’s statement that he would not have discussed investment with the Builder as “it was rather personal”. Her Honour’s impression of Mr Tincknell was that, as a very successful business person, he would have been unlikely to confide in the Builder about his investment plans.
The Builder conceded that it had failed to obtain extensions of time under the Contract. However, the Builder contended that the “prevention principle” or the “Peak principle”^[16] operated to deny the Owners’ claim given that they themselves were responsible for the delay in the progress of the building works.
The Builder asserted that the Owners delayed the works in a number of ways. The Judge summarised those assertions at [487] as follows:
- The waterproofing design could not be constructed and the Owners engineers did not provide a suitable design until March 2011.
- The Owners directly dealt with the “trades”, which frustrated the progress of the works.
- The Owners failed to provide information to the Builder in a timely manner.
- The Owners made fundamental changes to the building, for example the change from electric hot water to gas.
- The Owners insisted upon variations being performed but refused to sign variation authorities and, towards the end of the Contract, unilaterally refused to authorise anything by signing variations.
In the Judge’s view, the Owners clearly contributed to the delay in the works. However, her Honour was unable to reach a satisfactory conclusion as to where the “fault” for the delays in respect of the waterproofing lay. Her Honour found that the respective contributions of Mr Tincknell and the Builder to the delay could not be determined.
The Judge considered that the Owners’ decision not to move into the house, thereby permitting the sale or rental of their holiday home, precluded them from succeeding in this aspect of the claim. Her Honour dismissed the claim for delay (at [491]).

The Owners’ submissions

Counsel for the Owners contend that on the basis of the Judge’s finding that the works were practically complete on 26 February 2013, her Honour should have assessed damages for the delay of 495 days. They contend that if the Court finds in favour of the Owners on Ground 12A (practical completion), then the period of delay will be longer.
The Owners assert that the Judge:
- erred in tacitly applying the “preventative principle”;
- erred in finding that the Owners clearly contributed to the delay; and
- failed to apply the terms of clauses 12.1 to 12.8 of the Contract.
The Owners assert that the Judge should have found that:
- the date for practical completion, as extended, was 20 October 2011;
- that the works were not practically complete on 26 February 2013;
- the works will be practically complete after the remedial work foreshadowed at [343] of the Judge’s reasons are completed; and
- that the Owners are entitled to damages for the interest they would have earned on the investment of the net proceeds of the sale of their holiday home from 1 January 2012.
The Owners contend that the Judge erred in relying on the matters identified by the Builder at trial, which he asserted were evidence that the Owners contributed to the delay. They contend that none of the matters identified and adopted by the Judge provided a basis to grant an extension of time.
The Owners contend that the assertion that they contributed to the delay because the waterproofing design could not be constructed and their engineers did not provide a suitable design until March 2011, is inconsistent with the acknowledgement in cl 10 of the Contract, namely:

We acknowledge that you have engaged and instructed at your cost all consultants necessary to design the works and that you have provided us with design and other documents that are sufficient to enable us to do the works for the GMP.

The Owners assert that this matter should not have been relied upon as a ground for an extension of time particularly when the Builder did not seek an extension of time when the events occurred.
The Owners also contend that the assertions that they contributed to the delay by directly dealing with the trades, frustrating the progress of the works and by failing to provide information to the Builder in a timely manner, are both in the nature of an allegation of “disobedience” of the Contract by the Owners. That would enliven cl 12.3 of the Contract. The Builder did not avail itself of the procedures to extend time under the Contract and accordingly those matters should have been ignored by the Judge.
The Owners further contend that the assertion that they contributed to the delay by making fundamental changes to the building is effectively a variation. That is specifically excluded under cl 14.8 of the Contract and should have been ignored by the Judge. Clause 14.8 provides:

We are not entitled to any extension of time for any variation unless you agree in writing.

If fundamental changes to the works were going to cause delay, the Builder should have informed the Owner at the time it quoted for the variation as required by cl 14.5:

When we give you a quote under clause 14.4, we will also tell you of any delay that carrying out the variation may cause to the finish date.

The Owners additionally submit that the assertion that they contributed to the delay by insisting upon variations being performed, but refusing to sign variation authorities, should have been ignored by the Judge. The Builder had the protection of clause 14.6 of the Contract, which reads:

We were not obliged to start work on the variation until you have accepted our quotation.

The Owners further contend that there was no contractual obligation on their part to accept a variation. Thus, a refusal would not enliven cl 12.3 as a disobedience of the Contract by the Owners. Even if 12.3 was enlivened, the Builder did not avail itself of the procedures to extend time under the Contract. Accordingly, those matters should have been ignored by the Judge. Further, in the absence of approval, the Builder would have been entitled not to proceed with the variation and to carry out the works in accordance with the Contract.
The Owners contend that it is an incorrect statement of the prevention principle to say that they are not entitled to delay damages when they are the cause of any delays. The principle was correctly explained by Blue J in Built Environs Pty Ltd v Tali Engineering Pty Ltd, where his Honour said:^[17]

Where a building contract contains a provision which gives to the contractor a right to an extension of time for delays caused by the principal’s breach of contract, the prevention principle has no operation.

(Footnote omitted)

The Owners contend that if this ground is successful but Ground 12A fails, then the damages may be quantified on two alternate bases. The primary claim made at the compounding commercial rate of return for the period 1 January 2012 to 26 February 2013 is $106,647. The alternative claim for the same period using the simple interest rate in the District Court Supplementary Rules for pre-judgment interest is $94,064.
The Owners contend that if they succeed on this ground, and Ground 12A is also successful, then the damages may be quantified on two alternate bases. The primary claim at the compounding rate of return for the period from 1 January 2012 to 1 June 2015 is $324,311. The alternative claim at a simple interest rate (as above) is $251,273.

The Builder’s submissions

The Builder asserts that the Owners’ claim for delay seems to be an ipso facto claim – that is, there is a contract date for practical completion and a date of actual completion, and the Builder is responsible for everything in between.
The Builder accepts that it did not obtain extensions of time under the Contract mechanism. However, it contends that this does not entitle the Owners to damages for delay.
The Builder repeats its submissions at trial concerning delays said to have been caused by the Owners, which were summarised by the Judge at [487] (and [191] above).
Additionally, the Builder contends that the Owners further contributed to the delay by failing to supply building materials to the Builder (e.g. tiles) and failing to provide information to the Builder in a timely manner. They contend that all of these events and circumstances contributed to delays in bringing the works to practical completion.
The Builder further asserts that the Owners insisted upon variations being performed but refused to sign variation authorities, and towards the end of the Contract unilaterally refused to authorise anything by signing variations. The Builder submits that the effect of the prevention principle is that the Owners are not entitled to delay damages when they have caused the delays and in respect of which no extensions of time were granted.
The Builder contends that the evidence of Mr Tincknell established that the Owners were themselves unsure as to whether their claim for damages was based upon the loss of an investment opportunity or the loss of rent upon their holiday home at Mannum, which they had continued to occupy pending completion of the subject property. They had not advanced a claim based upon the loss of an investment opportunity until two months before the originally scheduled trial date.
The Builder submits that the investment claim documents are unworthy of being considered a proper claim. Investments are held by the Owners’ company. Other investments are held by the Owners as trustees of a superannuation fund. The Builder asserts that the Court is unable to determine which entity has suffered loss. They also assert that there is no proper calculation of the loss and there is no supporting report from an accountant. They submit that the evidence from the Owners is “wafer thin”.
The Builder also contends that the claim must fail because it is too remote and the Owners have still not made good either limb in Hadley v Baxendale.

Consideration

The Owners have not challenged the finding by the Judge that they had contributed to the delay in practical completion by the conduct referred to at [191] above. The Judge also found that the Builder had contributed to the delay. While finding that both parties shared responsibility, her Honour was unable to determine the extent to which the respective parties were responsible for the delay. I have found at [329] below that the Judge correctly found that the date of practical completion was 26 February 2013.
Although the Builder sought and obtained an extension of time from 29 September 2011 to 20 October 2011, it otherwise failed to exercise its rights under cl 12.3 and cl 12.8 of the Contract to secure a further extension of time.
I accept the correctness of the statement of principle by Blue J in Built Environs that where a building contract confers upon a contractor a right to an extension of time for delays caused by the owner’s breach, the prevention principle has no operation. Thus, because the Builder failed to protect itself by the exercise of its contractual right to seek an extension, it is prima facie liable for the losses arising from the delay in practical completion of the works after 20 October 2011^[18] until practical completion on 26 February 2013.
In this light, the crucial question is whether the Judge erred by finding that the claim for delay damages should be rejected because the Owners had not moved into the house. Their failure to do so prevented them from selling the nearby holiday home in which they were living and investing the net proceeds of that sale.
I have carefully considered the passages of transcript where Mr Tincknell sought to explain the delay in moving into the house and why the basis of the claim for damages arising from the delay in completion was changed from a loss of rental to a loss of investment income a relatively short time before the trial. His answers were, at best, unequivocal.
Mr Tincknell proffered a number of reasons for not moving into the house. These included the fact that legal action was being pursued, there were problems with leaking box gutters, the spa bath could not be used, there were problems with the electrical system and the external power supply, the security system backup was not operative and the toilets had not been commissioned or connected.
The Owners did not become aware of problems with the hot water system until September 2014, when they stayed overnight in the house. The Judge found that the problems with the hot water system were easily fixed and Mr Tincknell had delayed getting the gas connected.
The Builder conceded at trial that there were problems with the box gutters. The Judge ordered that the Builder carry out remedial work and allowed the claim in the sum of $4,200. Notwithstanding the deficiencies in the box gutters, the Owners moved the contents of their Dernancourt home into the house in January 2014. At some point before trial, the house was also curtained and carpeted. These facts suggest that the Owners did not regard the risk of flooding as being significant. Consistently with that observation, the Judge clearly did not consider that the defects in the box gutters were of such significance as to preclude practical completion having occurred on 26 February 2013.
The Judge also found that the spa bath pump had not been installed in a location that permitted safe access. Her Honour ordered the Builder to carry out remedial work and allowed the claim in the sum of $3,807. Once again, her Honour clearly did not regard the issues with the spa as a barrier to practical completion on 26 February 2013. There was no claim made by the Owners in relation to the security system, the electrical system or the external power supply.
I have also considered carefully the passages in transcript where Mr Tincknell was asked to explain why the Owners had only advanced a claim based on lost investment opportunity a few months prior to the trial. Before that time their claim was based on loss of rent from the holiday house. Once again, no clear explanation was provided.
Both Mr and Mrs Tincknell referred in their evidence to the strong criticism made by sectors of the Mannum community to the size and design of the house at 9 River Lane. The Judge found that this criticism had caused Mrs Tincknell distress. Mrs Tincknell also referred to certain features of the house that she did not like. Her Honour found that Mr Tincknell had deliberately avoided taking up occupation at the house.
The failure of the Owners to move into the house was only relevant after practical completion. Prior to practical completion, the house was not habitable and the question of taking up residence there did not arise. However, in light of the matters to which I have referred at [219] to [226] I am not persuaded that the Judge erred in rejecting the claim for delay damages because the Owners had not moved into the house. In my view, it is clear that their failure to move into the house after practical completion was the reason why the Mannum holiday home was not sold and the proceeds invested. Thus, even if practical completion had occurred on 20 October 2011, the evidence clearly points to the fact that the Owners would not have moved into the house at that time and sold the holiday home. While the Builder was not entitled to rely upon the prevention principle because of its failure to obtain an extension of time, the chain of causation leading to loss was broken by the choice of the Owners not to move into the property upon it becoming suitable for occupation.
For this reason it is unnecessary to consider the Builder’s contention that the Owners have not made out their claim for damages under both limbs of Hadley v Baxendale and nor is it necessary to consider the Builder’s submission that the Owners have failed to establish that they, rather than related entities, suffered a loss of the opportunity to invest the proceeds of sale.
I would dismiss Ground 13.

Ground 21: Expert evidence of the cost of remedial work

The Owners assert in Ground 21 that the Judge erred in finding that it is likely that the real cost of any remedial work lies somewhere between the opinions expressed by the two experts, Mr Sale and Mr Fuss, and by adopting a value that is half way between the figures advanced by those experts. The Ground asserts that the Judge should have preferred the evidence of Mr Sale and failed to have any, or any proper regard, to certain concessions made by Mr Fuss.

The Owners’ submissions

Counsel for the Owners contend that the Judge failed to have any regard to the fact that there was no substantial challenge to any aspect of Mr Sale’s expert opinion. The Owners also contend that the Judge failed to have any regard to a following concessions made by Mr Fuss:
1. He did not do the primary work in relation to the costings;
2. He failed to report that his report was based on the work of someone else;
3. He made adjustments to the original views expressed by his employee but the report was not presented in a way which enabled the reader to understand what the original author’s views were and how they had been modified;
4. He did not inspect the property;
5. If the works were not staged it would be necessary to remove all of the contents and joinery and have those items removed and stored; and
6. If the cost of removal and storage off site is incorporated into the costings then the cost will be more expensive than if the works were not staged. He had made the unstated assumption that this would be an owners’ cost and had ignored it.
Counsel for the Owners referred to the decision of Deputy Judge Burrell in the Hong Kong Court of First Instance in Chan Huan Kei v Hong Kong Construction (Hong Kong) Ltd.^[19] This was a construction dispute. The Hong Kong Judge noted that many of the outstanding issues could not be resolved because of the difference in methodology and principle adopted by the two experts. His Honour found that the two experts were equally impressive as witnesses. In these circumstances, his Honour suggested that there were three possible outcomes. These outcomes were:

Firstly, the court should endeavour to decide on one figure or the other, based on evidence. Secondly, if the evidence does not justify a simple choice of one or the other, then an interim figure may be selected, again, based on the evidence. Thirdly, and as a last resort, where neither expert has persuaded the court of the merits of their approach to the exclusion of the other, split the difference. Hopefully, this third option should only apply where the difference is relatively small.

Counsel for the Owners contend that because there was a divergence of views and one expert did not appear to be able to present a proper basis for his opinion, the Judge should have preferred the opinion of Mr Sale rather than adopting the midpoint. The Owners submit that the Judge made general observations only without disclosing the basis for her reasons.
If the appeal is allowed on this ground, the calculation effects the damages in Appeal Grounds 2, 3, 7 and 9. The relevant figures ae as follows:

		Sale	Fuss	Reasons [94]	Difference
Ground 2	Waterproofing	$198,913	$133,100	$166,007	$32,906
Ground 3	Termites
	with waterproofing	$90,629	$66,437	$78,533	$12,096
	without waterproofing	$234,443	$150,100	$192,272	$42,17
Ground 7	Tiling – first floor	$29,175	$25,030	$27,103	$2,073
Ground 9	Tiling drainage	$17,205	$15,355	$16,280	$925
		$4,114	$3,641	$3,878	$236

The Builder’s submissions

Counsel for the Builder contends in its written outline that there is no proper basis to interfere with the Judge’s finding. The Builder did not advance any further oral arguments in support of that position.

Consideration

Because I have found that the Builder is not liable for the cost of rectifying the deficiencies relating to waterproofing and termite proofing, tiling on the first floor (including both colour and design of the tiles and drainage), it is not necessary to decide whether the Judge erred in “splitting the difference” between the different opinions of the experts, Mr Fuss and Mr Sale, concerning the cost of rectification. However, if it had been necessary to decide this issue, I would have given considerable weight to the criticism made by the Owners relating to the weight that should be attached to the report of Mr Fuss.
I would dismiss Ground 21.

Ground 22: Remedial work - hot water service

The Owners assert in Ground 22 that the Judge erred in finding that the Builder should be permitted to carry out remedial work in respect of the hot water service, pursuant to an order under s 37(6)(a) of the Building Work Contractors Act, in accordance with the recommendations of the Builders’ expert, Mr Ienco,^[20] rather than the Owners’ expert, Mr Mitchell.^[21] The Owners assert that the Judge should have ordered that the Builder be permitted to carry out remedial work as recommended by Mr Mitchell.

Reasons for Judgment

The Judge noted that the claim concerned the following issues:
- Pipe sizing.
- Lagging.
- Insulation.^[22]
- Pipes not being labelled.
- The hot water services had never been commissioned.
The Owners consented to an order that the Builder engage Mr Goodman, the master plumber who carried out the plumbing work, to carry out any remedial work.
Mr Goodman gave evidence that he started the plumbing work in September 2010 and completed that work in February 2013, save for the commissioning of the hot water service as there was no gas supply to the house at that time. He also stated that there were several changes to components of the plumbing after he started work. Initially, separate hot water units were to be installed to each unit on level one. However, that was changed to require three instantaneous gas hot water services. Once the property had been pre-plumbed for the three instantaneous hot water services, the requirements were again changed to provide for installation of a Smart Start service. That system delivers hot water much faster. The main advantages are that there is not “dead” water in the pipeline that is wasted before the water becomes hot and reticulates through a loop back to the hot water service.
Mr Goodman stated that on about 90 per cent of the occasions that he was at the site, Mr Tincknell was also there and would give small directions as to the way he would like the work done. He noticed that Mr Tincknell checked the work that he had done. He described Mr Tincknell as being “extremely particular”. Mr Tincknell acknowledged that he was regularly at the site and raised issues with Mr Goodman.

Pipe sizing

The Owners contended at trial that the plumber did not use the relevant standard to calculate flow rates and pipes sizes. They alleged that the pipe size is several sizes too small.
The Judge noted the evidence of Mr Goodman that the diameter of the mains water pipes into the house is 20mm. Mr Goodman initially ran a 20mm water service through the ground floor and extended it up to the first and second floors. Mr Goodman agreed with Mr Tincknell to increase the size of the pipes to 25mm. He stated in evidence that the usual guide for selecting the size of pipes is the size of the water meter, i.e. in this case 20mm.
In his report dated January 2015, Mr Mitchell opined that the pipes installed are several sizes too small. His evidence was that he would expect 32mm pipes for the cold-water supply.
Mr Mitchell recommended steps to:
- Discuss with SA Water the possibility of upgrading the water meter from 20mm to 25mm.
- Re-pipe the cold-water installation using 32mm copper from the water metre.
- Operate the irrigation system outside of peak water usage times within the building.
A site visit was conducted in May 2015 by Mr Goodman, Mr Tincknell and Mr Ienco and another TMK employee. Mr Goodman found that only lukewarm water flowed from each outlet. Due to the prior commitments of Mr Tincknell and the TMK employee, Mr Goodman was not permitted to be on site long enough to ascertain the cause.
During the trial, on 10 May 2016, Mr Goodman attended the site with Mr Mitchell and Mr Ienco. Mr Tincknell was also present. Mr Goodman brought his own gas bottle so as to ensure that any problems were not caused by the gas system. He disconnected the gas to the house and connected his gas bottle. This resulted in immediate success. He used a flow rate cup device to measure the flow through the taps. The flow rate was compliant even when multiple taps were running. Mr Ienco later tested the flow rate cup used by Mr Goodman and found it to be “very accurate”.
On 14 May 2016, Mr Goodman, Mr Ienco and Mr Mitchell again attended the site. Mr Mitchell carried out testing of the water flow but this time using his own apparatus. That comprised a flow cup consisting of a two-litre milk carton, a hose and a stopwatch. He recorded a flow rate different to that achieved on 10 May 2016. Mr Goodman was not critical of the process used by Mr Mitchell to measure the flow.
Mr Ienco’s opinion was that, following on-site inspections, the hot water systems were all able to be used. He referred to the results of the flow test carried out by Mr Goodman on 10 May 2016. Mr Ienco’s position was that, if Mr Goodman’s test results were correct, then the pipe sizes were adequate and there was no need to do anything about them. He said that if Mr Mitchell’s results were correct, this would not necessarily mean something needed to be done about the pipe sizes, although he accepted that the rate of flow would then be non-compliant with the BCA.
The experts agreed that the water demand calculated for the site is 0.75L/s. On 10 May 2016, the flow was measured at 0.8L/s. Mr Ienco considered that this indicated adequate pipe size. The supply pressure at outlets was in excess of 50 kPa and compliant with AS3500.
The Judge found it difficult to accept Mr Mitchell’s evidence as to why he had used a different apparatus, devised by himself, about which there is no literature, after having witnessed the operation of the flow cup by Mr Ienco on 10 May 2016. The Judge preferred the evidence of Mr Ienco where it conflicted with that of Mr Mitchell.

Insulation and length of pipe loops

Mr Goodman accepted at trial that the pipes had not been insulated. He contended that there was no requirement to do so because of the Rehau pipes that were installed. He said that he had heard at a conference some 15 years ago that Rehau pipe has an insulating effect. However, he was not aware of the extent of its insulating property.
Mr Goodman’s evidence was that he had regard to the installation instructions when considering how to get the existing pipework back to the Smart Start heater. He stated that the installation instructions provided that the total length of pipe in the loop could not exceed 60 metres. He believed that the loops he installed were within that range.
Mr Mitchell stated that a lack of insulation adds to the loss of heat and thus the cost of operating the system. The absence of thermal lagging is contrary to the manufacturer’s recommendations.
Mr Mitchell said that, whilst the route of the piping loops was mostly not sighted because it is built into the structure, it seems likely to be in the range of 60 to 80 meters. That exceeds the manufacturer’s instructions.
Mr Mitchell recommended:
- Replacement of all piping on the hot water loops; and
- Incorporation of pipe insulation, requiring ceiling and wall removal and replacement.
Mr Mitchell recommended the insulation of all hot water pipes to the standards required by AS3500. He recommended:
- Insulation of existing piping located in the ceiling of level 2 and accessible in all roof spaces; and
- Insulate all new pipes within the building.
Mr Ienco agreed that the need to maintain the heat of the water within the loop is reflected in the manufacturer’s requirement that the loop be insulated. Without insulation, the unit would have to work harder to maintain the nominated temperature at the point of delivery. He agreed that more energy would be expended to achieve this. However, he said that in this particular case the additional energy requirement is “marginal”.
Mr Ienco was unable to satisfy himself as to the loop lengths. However, the test he conducted during the trial utilised a pre-set temperature for the hot water service. The actual temperature at outlets was in the order of 2° or 3° below that set temperature. He considered this to be within the manufacturer’s recommendations.
Mr Ienco recommended that all Rehau hot water pipe work emanating from the hot water units be lagged and all cold-water pipe work within the second-floor roof space also be lagged.
The Judge determined to limit the work order so as only to require the Builder to carry out the work recommended by Mr Ienco.

Pipes not being labelled

The Builder agreed that the piping needs to be labelled so as to comply with the relevant Australian Standard. Mr Ienco considered that this issue should be resolved on site. The clear inference is that Mr Ienco was of the view that not all piping needs to be labelled. The Judge ordered that the work should be carried out as recommended by Mr Ienco. The Owners have not complained about this aspect of her Honour’s decision.

The Owners’ submissions

The Owners contend that the Judge erred in her consideration of the required remedial work. They contend that her Honour failed to have any, or any proper regard to the manufacturer’s requirements in respect of the Smart Start hot water system and the properties of the Rehau pipe. The Owners assert that the scope of the works order to be carried out did not result in works which met the contractual standard. The relevant issue is not making a choice between the divergent expert opinions, but rather considering the terms of the Contract and what the Contract required the Builder to do.
The Owners observe that the purpose of the hot water service is to maintain a continuous flow of hot water. The system is also intended to be energy efficient. Accordingly, they contend that there are two aspects which were not met by the Builder’s performance interest. First, the loops emanating from the hot water service (there are three discrete systems) which channel the continuously flowing hot water were to be, in accordance with the manufacturer’s specifications, no longer than 60 meters. Secondly, the pipe work was to be insulated in accordance with the manufacturer’s specifications.
Mr Mitchell’s calculations confirmed that the pipe loops exceeded the required lengths. Those calculations were not challenged. Both experts agreed that the pipe work was not insulated. Mr Ienco initially considered that the pipework needed to be insulated but recanted from that position when testing carried out during the trial established that the system could deliver hot water at the required temperature.
The Owners assert that they are entitled to receive the system that was to be supplied in accordance with the manufacturer’s specifications. The effect of having a shorter length of pipe and insulation is that less energy will be used over the life of the house to maintain the temperature of water running in the loop.
The Owners assert that the Judge’s order that insulation occur on those parts of the pipes that are accessible, only partially satisfies the manufacture’s recommendations and also fails to address the lengths of the three loops and the requirement to insulate all pipework within the walls and ceilings. The Judge should have ordered that remedial work be carried out as recommended by Mr Mitchell.
If the appeal is allowed on this ground, the Owners have indicated that they are content for a remedial work order to be made in terms similar to the orders made by the Judge on 3 April 2018.

The Builder’s submissions

The Builder asserts that the gas fitting was carried out and completed competently. The plumbing system for the house has functioned perfectly well. It refers to the observations of Mr Ienco that the “hot water systems as originally installed were always able to be used”. It also contends that Mr Ienco’s opinion was correctly preferred over that of Mr Mitchell.
Mr Mitchell’s opinion after the joint meeting on 10 May 2016 is that the plumbing system was ready to be handed over. After an eight-hour inspection of the site on 19 May 2016, all five persons present agreed that the system works.
The Builder contends that the plumbing design adopted by Mr Goodman is based on performance criteria. Those criteria are to be used when assessing the competence of the work that he performed. The system complies with the temperature requirements. The measurements taken on 10 May 2016 using an agreed and industry recognised flow cup proved that the flow rates are suitable. The Builder asserts that the protocols insisted on by the Owners in relation to the site visit on 14 May 2016 are unbecoming and obstructive and unhelpful in revealing the true position. In essence, the Owners insisted that Mr Goodman and Mr Ienco not conduct any testing and only observe what was done by Mr Mitchell.
The Builder submits that Mr Mitchell was not instructed to be practical in his report and his evidence was also not practical. It submits that Mr Tincknell behaved peculiarly in relation to the rectification of the hot water issues. The real and decisive investigations into the issues were only undertaken after the trial had commenced.
The Builder also submits that there is no requirement to alter the installation, which was shown to be perfectly functional. The Builder acknowledges that the pipes should be labelled and insulated in easily accessible areas and will attend to that work.
The Builder further submits that the Owners had removed the hot water appliance connection from the work required of the Builder. They were to attend to the gas supply and commissioning of their appliances after the Builder had completed the work. Because the Owners had not carried out that work, the Builder could not connect the hot water system to the gas supply to check the system, including the water temperature. The extent of the claimed defect is excessive. Only the loops in the hot water pipes have to be insulated, and not all of the hot water pipes. The Conclave report seems to accept this.

Consideration

I accept the correctness of the Owners’ submission that the relevant question to be decided by the Judge was whether or not the plumbing work satisfied the performance standard required under the Contract. The performance standard required the work to be carried out in accordance with the relevant manufacturer’s specifications.
The Owners allege a failure to comply with two aspects of those specifications. These are the requirements that the pipe loops not exceed 60 metres in length and that the piping be insulated. The parties agree that the piping is not insulated. However, the length of the piping loops is disputed.
The particular type of hot water service installed at the house (there are actually three hot water services) is intended to reduce delay in the delivery of hot water and save on energy costs through the use of a piping loop. Hot water is taken through the loop from the hot water service and warm water is returned back to the service. The manufacturer’s instructions require that the pipe loop should not exceed 60 metres in length.
The Owners contend that the unchallenged evidence of Mr Mitchell was that the pipe loops exceed the permitted maximum length of 60 metres referred to in the manufacturer’s specifications. In fact, Mr Mitchell stated at page 13 of his report dated January 2015 that “whilst the piped route was largely not sighted because it is built into the structure it seems likely to be in the range of 60 to 80 metres which exceeds the manufacturer’s specification.” He stated in cross examination that he did not know the length of the pipe loops.
Mr Ienco was unsure as to the length of the loops but thought that they may be about 60 metres. He made this inference on the basis that the water temperature at the outlets was only 2° or 3° below the temperature of 50° produced by the hot water services. The plumber, Mr Goodman, believed that the loops that he had installed did not exceed 60 metres in length.
It is apparent that none of the three relevant witnesses were sure as to the length of the pipe loops and no measurements were made. In this light, I consider that the evidence did not clearly establish that the pipe loops exceed 60 metres.
Testing by Mr Ienco established that water is supplied at an appropriate pressure. He also gave unchallenged evidence that the drop in temperature of 2° or 3° between the hot water services and the outlets was within the manufacturer’s tolerance level. He acknowledged that the hot water system will consume marginally more energy because of the lack of insulation.
Mr Mitchell expressed the opinion that all cold water piping should be insulated whereas Mr Ienco considers that it is only necessary to insulate the cold water pipes to the extent that they are located in the ceiling space. Once again, the Judge ordered that this work should be carried out in accordance with the recommendation of Mr Ienco.
Upon the hot water piping being insulated as recommended by Mr Ienco, it may be inferred that the marginal difference in energy costs he referred to in evidence should be further reduced. In that light, and as it has not been established in evidence that the length of the piping loops exceeded 60 metres, I consider that the Judge did not err in finding that the relevant plumbing work be rectified in accordance with the recommendation of Mr Ienco rather than on the more extensive basis recommended by Mr Mitchell.
I do not consider that the Judge erred in her findings and orders relating to the hot water system.
I would dismiss Ground 22.

Ground 12A: Practical completion

The Owners contend in Ground 12A that the Judge erred in finding that the building works were practically complete on 26 February 2013. They assert that the Judge failed to have any, or any proper, regard to her Honour’s own findings that as at 26 February 2013:
- The hot water services had not been commissioned, were not constructed in accordance with the manufacture’s specifications and had water cross flow issues; and
- The gas works were defective.
The Owners assert that the Judge should have found that the works will be practically complete after the remedial works relating to the hot and cold water services foreshadowed in [343] of the judgment are completed.
It was agreed between the parties that the issues raised in this Ground are as follows:
1. What is the meaning of clause 19.1.1 of the Contract.
2. What is the date when the works were practically complete for the purposes of the Contract.
3. Whether the failure of the Builder to carry out the second fix of the gas works meant that the works were not practically complete.
4. Whether the failure of the Builder to ensure that the hot water service to the house worked meant that the works were not practically complete.

Reasons for judgment

At trial, the Builder asserted that the works had reached practical completion when it issued the last progress claim to the Owners on 18 December 2012. The Owners asserted that the works were not brought to practical completion on that date because:
- The hot water service had not been commissioned.
- The hot water services were not able to supply hot water to the home.
- The gas works were incomplete, defective and dangerous.
- The toilets could not be used.
They asserted that considerable work remained to be carried out to repair existing defects.
The Judge summarised the clauses of the Contract dealing with practical completion and the defects liability period at [126]:
- ‘Practical completion’ occurs when the Works are substantially complete and reasonably fit for their intended use and the Owners have received all satisfactory test results where Works require testing or commissioning and all relevant warranties, technical information and certificates.
- When the Builder believes the Works are practically complete, the Builder is to notify the Owners and give them a final account.
- Within 7 days the owner is to inspect the Works for defects and give the Builder a list of defects or incomplete Works.
- If there is such a list, the Builder attends to the defects for which it accepts responsibility, within 14 days and having done so, gives a fresh notice of practical completion.
- If the Builder fails to fix the items they are responsible for, the Owners may engage other Builders at the Builder’s cost.
- Within 14 days of completion of the listed defects, the owner must pay the final account.
- Once the final account is paid, the Builder returns possession of the Site to the owner.
- The schedule to the Contract provided that the defects liability period ran from 12 months after the practical completion of the Works.
- At the end of the defects liability period, the Owners may give the Builder a list of defects.
- If problems arise during the defects liability period that might cause damage unless fixed immediately, the owner should tell the Builder straight away.
- The Builder must, insofar as it accepts responsibility for the defects, fix the defects within no more than 14 weeks after notice.
- If the Builder fails to fix the items they are responsible for, the Owners may engage other Builders at the Builder’s cost.
The Judge noted the evidence of the parties as follows. Following receipt of the final progress claim, on 20 December 2012 the parties attended the house to inspect the works for defects. Mr Tincknell asserted that he then provided the Builder with a list of back charges and explained the remedial work that was required before handover could occur. His evidence was that Mr Duthy acknowledged an obligation to carry out the remedial work.
Mr Tincknell asserted that on 8 January 2013, he again provided Mr Duthy with a list of defects. He alleged that Mr Duthy agreed to carry out some of the remedial work. Mr Tincknell asserted that he told Mr Duthy that the final figures on his invoice were incorrect. Mr Duthy became angry and subsequently refused to perform any further work without payment.
That exchange was followed by correspondence between the Owners’ solicitor and the Builder’s solicitor from January to April 2013. On 8 February 2013, the Owners served the Builder with a “Notice to Remedy Breach” and enclosed the February 2013 defects list. That list was based on the inspection held on 11 and 12 January 2013. The Builder responded on 13 February 2013, undertaking to perform certain remedial works. Thereafter, on 26 February 2013, the Builder issued a revised notice of practical completion.
On 4 March 2013, the Owners served the Builder with a notice to the effect that due to its failure to remedy, the Owners would engage others to perform that remedial work. On 27 March 2013, the Owners informed the Builder that they had taken possession of the site and that the Builder was no longer permitted on the site without permission. Police action was threatened if the Builder entered the site. In April 2013, the Owners issued a revised defects list (the April 2013 defect list).
The Judge took the view that steps then taken by Mr Tincknell between December 2012 and August 2014 to make the gas operational were not bona fide.
Photographs showing the state of the works as at 18 December 2012 indicated that the toilets in the house could not be used. The Judge found at [134] that because the toilets could not be used in December 2012, and there was doubt as to when the hot water services were installed, the works were not practically complete on 18 December 2012. Her Honour concluded at [135] that the works were not practically complete until the remedial work order had been carried out by the Builder between 7 and 26 February 2013 and the second notice of practical completion was served.

The Owners’ arguments

The Owners contend that whilst the concept of practical completion is a term commonly used in building contracts, in each case the question of what constitutes practical completion will depend upon the particular terms of the contract.
The Owners observe that cl 19 of the Contract sets out a number of prerequisites for the Builder to establish before the works can be said to be practically complete.
First, the works must be “substantially complete”. Secondly, they must be “reasonably fit for their intended use”. Neither of these concepts are defined by the Contract. The Owners contend that whilst it is not clear from the Judge’s reasons, it may be that her Honour only addressed the question of “substantially complete” and did not address the other requirements. The Owners contend that without hot water it cannot be said that the works were “reasonably fit for their intended use”.
Thirdly, cl 19.1.1 requires “satisfactory test results for all services and items forming part of the works which appropriately require testing or commissioning”. The Owners contend that no commissioning test results were provided by the Builder in respect of the hot water services. It was common ground at trial that the hot water needed to be commissioned.
The Judge did not make a finding as to whether the commissioning of services was part of the Builder’s scope of works. However, the Owners contend that both of the subcontractors engaged to carry out the relevant works, Mr Goodman and Mr Schmidt, believed that it was within the scope of their work to commission the respective systems. The Builder failed to lead evidence at trial that it had informed the subcontractors otherwise.
The Owners contend that the question of commissioning the hot water is the critical consideration in relation to the date of practical completion. There was no provision in the Contract that the Owners were required to commission the hot water and gas services. The Owners contend that the Judge should have found that the Builder was liable to commission those services.
The hot water service is the subject of Ground of Appeal 22. The Owners contend that the finding by the Judge that a remedial work order was necessary supports a finding that the works were not practically complete at any time up until the remedial work was carried out as required by the 3 April 2018 order. On 3 May 2018, the Builder lodged a certificate certifying that the work had been carried out in accordance with that order.
The Owners contend that the Judge erred by failing to give weight to Mr Goodman’s evidence that when he left the premises in February 2013 he had “completed all work within his trade except for commissioning the hot water service”. This is in direct contravention of the requirement that the Builder provide test results for services that require testing or commissioning.
The Owners contend that the Judge erred in failing to give weight to the evidence of Mr Goodman that when he inspected the house in May 2015 there was only lukewarm water, which was caused by a cross flow issue. It was not until after the gas lines had been purged on 10 May 2016 and other work had been completed that Mr Goodman was able to achieve the delivery of hot water. Further, Mr Goodman admitted that as at 10 May 2016 he had not completed the commissioning of the hot water service. The Owners contend that the Judge should have found that, at the very least, the works were not practically complete until 10 May 2016.
The minutes for a site meeting on 26 November 2010 record that Mr Duthy had discussed with the plumber that “they” will connect the gas to the premises once the gas bottles are in place. The Owners contend that the minutes are consistent with the Builder being responsible for the commissioning of the gas services after the bottles were installed.
The minutes of a site meeting dated 17 June 2011 noted the change from an electrical hot water service to three gas services. The gas appliances were to be serviced by gas bottles. The minutes do not record that the Owners were responsible for the commissioning of that service after the gas bottles were installed. The provision of the gas bottles was delayed by the supplier.
The Judge found that gas bottles were connected on 23 September 2013 and gas was first delivered to the house on 21 March 2014. The Owners contend that the delay with the supply of the gas bottles did not prevent the hot water services being commissioned. They refer to the evidence of Mr Goodman that he could have commissioned the hot water using portable gas. In this light, the Owners contend that the Judge erred in finding that the evidence did not support the conclusion that the hot water services could have been commissioned prior to the delivery of gas to the house.
The Owners further contend that the Judge’s finding that the steps taken by Mr Tincknell between 18 December 2012 and 4 August 2014 to get the gas system operational were not bona fide efforts, does not support a finding that the works were practically complete at 26 February 2013. They assert that the real issue was that the Builder claimed that it was not responsible for commissioning the gas services.
In any event, the Owners contend that the dominant question in relation to practical completion was the commissioning of hot water services. The evidence concerning the gas services only serves to confirm that, in addition to the hot water services, the works were not practically complete in a further area. The Owners contend that this Court should find that the works were not practically complete until either 3 May 2018 or 10 May 2016.
The Owners contend that the Court should reject the Builder’s submission that the fact of the Owners taking possession of the house is evidence that it was reasonably fit for purpose. They assert that this would only be the case unequivocally if the Contract deemed this result. There is no such provision in the Contract. Further, even if there was such a provision, this would not overcome the statutory warranty in s 32(2)(e) of the Building Work Contractors Act that if the building work consists of the construction of a house, the house will be reasonably fit for human habitation. Pursuant to s 42 of that Act any exclusion, limitation, modification or waiver of a statutory warranty under the Act is void. The Owners further contend that the critical defect, being the absence of hot water, was not known to the Owners until 9 September 2014. The question of practical completion is a matter of fact and not a matter of election.

The Builder’ s arguments

The Builder contends that the date for practical completion is a question of fact only. The material fact is whether the works were “substantially complete” and “reasonably fit for their intended use as a house”. The fact of the Owners taking possession of the house shows that it was reasonably fit to be used as a house. They contend that upon practical completion, all that is left to be done by the Builder is to address minor omissions and defects.
The Builder asserts that Mr Tincknell inspected the works regularly. He often discussed matters with Mr Duthy and significant matters were noted in site meeting minutes. Mr Tincknell “diligently and scrupulously” watched the building works and if he was dissatisfied with something, he raised it. The Builder also asserts that Mr Tincknell would then unilaterally hold back part of the current progress claim until the works were done to his satisfaction. If Mr Tincknell paid the progress claim, he was satisfied that the relevant building works were properly completed.
The defects claims were made after Mr Tincknell had paid the progress claims for the work. The Builder asserts that Mr Tincknell failed to avail himself of numerous opportunities to complain about the building works. These opportunities included his regular inspections and substantial communications with the Builder during construction, site meetings, the Owners’ seven-day list of defects, when the Owners took occupation of the house and in response to the Builder’s seven-day list.
The Builder asserts that pursuant to clauses 19 and 20 of the Contract, there are three occasions that enable the Owners to give defect notices. The first opportunity is during the seven-day period. A second chance arises if the defect might cause damage unless fixed immediately. The third opportunity presented is at the end of the defect liability period. The Owners failed to provide any compliant defect notices. This is incompatible with the Owners’ case that the building works were not practically complete and also congruous with the Judge’s finding as to practical completion.
The Builder contends that the Owners’ action in taking possession of the site is fundamentally inconsistent with their assertion that the works were substantially incomplete and defective. Taking possession is an intentional act, done with knowledge. The enjoyment of a right to possession must result in the extinction of any other inconsistent right. Once the Owners took possession of the site, the Builder had no practical means of rectifying the claimed substantial defects. The Builder submits that there is an inconsistency in conduct by the Owners preventing the Builder from carrying out substantial work and claiming damages for the costs of that work. The Owners cannot approbate and reprobate.
The Builder contends that the only claim that the Owners did not know about as at 20 December 2012 was that relating to the hot water supply. All other defect claims were, or ought to have been, known by that date. They had possession of the site for a year. The court appointed expert, Mr Trenorden, determined that the works were practically complete on or about 18 December 2012. That determination was adopted by the Court.
The Builder further contends that the evidence establishes that the works were practically complete in December 2012 or at latest February 2013 when the Owners moved furniture and clothing into the home, changed the locks and excluded the Builder from rectifying defects.

Consideration

The date of practical completion is relevant to the issue of damages for delay. As previously noted, the Builder agreed to bring the works to practical completion by the finish date of 29 September 2011. It was common ground that the Owners agreed to one extension of the date for practical completion to 20 October 2011. As I have noted, the Court appointed expert, Mr Trenorden, considered that practical completion occurred on or about 18 December 2012.
The Judge found that practical completion did not occur until 26 February 2013 when the Builder issued a revised notice of practical completion after having performed various remedial work. Soon thereafter, the Owners moved the entire contents of their former family home at Dernancourt into the house at 9 River Lane. The property moved into the house included furniture, bedclothes, clothing, liquor and the full range of household items. Curtains and carpets have also been fitted. The Owners changed the locks and thus excluded the Builder from the site under threat of police action. Nevertheless, the evidence of Mr Tincknell was that he did not become aware that the hot water outlets were not producing hot water until 9 September 2014.
Mr Tincknell acknowledged in cross examination that it was his responsibility to have the gas connected to the house. However, he asserted that the gas fitting had not been competently performed by Mr Schmidt. A report was provided to Mr Tincknell by Haig & Menzel, a firm of plumbing contractors, dated 14 February 2013 that listed a number of alleged deficiencies in the gas fitting work identified on 11 February 2013. On 16 May 2013, the Office of the Technical Regulator (OTR) gave notice to Mr Tincknell of deficiencies in the gas installations and identified the remedial action that was required. The gas tanks were connected on 23 September 2013. On 19 August 2014 OTR again wrote to Mr Tincknell concerning deficiencies in the gas installation. The letter noted that the OTR had attended the site to witness the commissioning of the gas service by Haig & Menzel but did not state when this had occurred. Mr Tincknell acknowledged in cross examination that the deficiencies referred to in the letter of 19 August 2014 relating to patio heaters and the like were his responsibility.
By letter dated 8 February 2013, the solicitors acting for the Owners forwarded a notice to remedy breach to the Builder. The handwritten list of defects prepared by Mr Tincknell extended over 11 pages. Two of the alleged defects related to gas fitting. The solicitors for the Builder provided its response to the alleged defects on 13 February 2013. The Builder indicated its willingness to deal with the great majority of the complaints. The Builder noted that if a particular gas complaint was correct it would be resolved, while the other complaint concerned the installation of a heater and that was clearly the responsibility of the Owners. As I have previously noted, the Judge was satisfied the various alleged defects referred to in this correspondence were resolved by the Builder on or before 23 February 2013, when it issued the revised notice of practical completion.
On my reading of the transcript of the cross examination of Mr Tincknell, he was unable to provide a coherent or plausible explanation for the long delay in attending to the issues relating to the gas installation. Accordingly, I am not persuaded that the Judge erred in concluding that the steps taken by Mr Tincknell between December 2012 and August 2014 to make the gas operational were not bona fide.
I note the occasions referred to by the Builder (see [316] above) when the Owners failed to exercise their specifically conferred right to seek rectification of defects relating to the gas and hot water. That failure is difficult to reconcile with the regular attendances by Mr Tincknell at the site^[23] and the close interest he took in the work being performed, which no doubt drew upon his own experience as a builder.
Consistently with that observation, I note that Mr Tincknell regularly sent lengthy fax messages to Mr Duthy expressing his concern that particular matters must be attended to. Thus, by way of example, I refer to the facsimile message of three closely handwritten pages sent to Mr Duthy on 12 September 2012 and the similar facsimile message of eight pages sent on 31 October 2012. Both of these documents set out in considerable detail, often of a technical nature, the various concerns held by Mr Tincknell about further work that he considered necessary.
Despite the close interest taken by Mr Tincknell in the work being performed, thorough testing of the hot water service did not occur until May 2016, during the course of the trial. The testing established that the problems with the delivery of hot water were easily rectified.
That outcome is consistent with a letter sent by Mr Goodman to Mr Tincknell on 4 May 2015. He suggested that the problems with the hot water system may be caused by air locks, and noted that most of the issues identified by Mr Mitchell could be easily fixed. Mr Goodman provided an assurance that he would rectify any defects at no cost to the Owners. Mr Goodman did not receive a reply to this letter. Mr Goodman also referred in his evidence to the fact that he had been contacted by Mr Tincknell around Christmas 2012 and had left telephone messages in early January 2013 with Mr Tincknell.
I am not persuaded that the Judge erred in finding that practical completion occurred on 26 February 2013. In my view, the evidence indicates that the lack of hot water could have been readily resolved in February 2013 if that defect had been included when the list of defects was provided to the Builder on 8 February 2013. The work performed by Mr Goodman using his own gas supply established that the problems with the hot water could be resolved without relying on the house gas supply. Moreover, the latter issue was the responsibility of the Owners.
I would dismiss Ground 12A.

Ground 16: Back charges – concrete panels

Ground 16 relates to the claim by the Owners for back charges representing the profits and overhead component in the price for concrete panels which were ultimately removed from the Contract. The Owners assert that the Judge erred in dismissing their claim for $20,000 and in finding that without proper particulars, or an accounting opinion as to how the claim is arrived at, the claim cannot be made out.
It was agreed between the parties that the issue raised in this ground is whether the Builder is entitled to retain $20,000 in the nature of profits and overheads when payment was made by the Owners for precast concrete panels.

Reasons for judgment

The Judge summarised the Owners claim as follows. The external walls of the house are made up of precast concrete panels. The Contract originally included a Prime Cost allowance of $200,000 plus GST for precast concrete panels. By 3 June 2010 Mr Tincknell had negotiated a fixed price with the precast panel supplier in the sum of $320,000 inclusive of GST. Accordingly, when the Contract was prepared the panels were no longer a prime cost item but rather a fixed item from a nominated supplier at a known price and was included in the Builder’s Guaranteed Maximum Price (GMP) of $2.3 Million.
The Builder did not take responsibility for payment of the $200,000. The concrete panels were paid for directly by Mr Tincknell. Accordingly, the Owners claimed that they are entitled to receive a back charge from the amount payable to the Builder in the sum of $20,000.
The Judge held that although an allowance was made in the GMP for the panels to be provided by the Builder but in fact they were provided by the Owners, without either proper particulars or an accounting opinion as to how the claim was arrived at, the claim cannot be made out. Her Honour dismissed the claim (at [561]).

The Owners’ arguments

The Owners refer to cl 1.15 of the Contract, which reads:

The GMP [is] the guaranteed maximum price in item 4 of the Schedule which is the maximum that [the Builder] can charge [the Owners] to do all of the works.

Item 4 to the Schedule provides that GMP is $2.3 Million inclusive of GST. Pursuant to cl 13.1.11, GMP includes “overheads, administration charges and profit”. The parties recognised in the pricing regime contained in clauses 15.5 and 15.6 that the Builder was entitled to an allowance of 10 per cent for its profit and overheads.
Clauses 15.5 and 15.6 of the Contract deal with price adjustments as follows:

15.5 If the actual cost of the item is higher than the prime cost amount for that item the GMP will increase by the difference between the prime cost amount and the actual cost. Then 10% (which included overheads) will be added to that difference. GST will be added to the total of that difference and the 10%.

15.6 If the actual cost of the item is lower than the prime cost amount for that item the difference between the prime cost amount and the actual cost plus 10% on that difference will be deducted from the GMP. GST will then be adjusted and the GMP will be reduced accordingly.

The Owners refer to the Judge’s finding at [557] that the Builder did not pay the sum of $200,000 for the precast panels, a fact which was admitted by Mr Duthy during the giving of evidence at trial.
The Owners contend that the Judge erred by finding that any further particulars or accounting evidence was required. The Builder did not meet the cost of $200,000 and should not be entitled to retain the benefit of the contribution to profits or overheads that it otherwise would have enjoyed if it did pay that sum, namely $20,000.

The Builder’ s arguments

The Builder relies on the findings of the Judge that the claim is not particularised and was never properly explained or proved.

Consideration

It is not apparent to me why the Judge concluded that additional accounting evidence was required to explain the basis for the claim made by the Owners. The point is simply that upon the Owners assuming responsibility for meeting the cost of the precast panels, the Builder ceased to be entitled to the allowance of 10 per cent for profit and overheads fixed by cl 15.5 and cl 15.6. The Builder has not suggested that the claim made by the Owners should be assessed in the light of any other set off or adjustment that may have been made between the parties.
I would uphold Ground 16 and find that the Owners are entitled to a back charge of $20,000 against the amount payable to the Builder.

Ground 17: Back charges – engineering fees

Ground 17 relates to back charges for engineering fees. The ground asserts that the Judge erred in dismissing the Owners claim for $34,701.70 in relation to engineering fees (back charge #15) which were incurred for the reworking of engineering designs.
It was agreed between the parties that the issues raised in this ground are:
1. Who bore the risk under the Contract in respect of the “buildability” of the works designed by the engineers; and
2. If the contractual risk was borne by the Builder, were the four amounts claimed properly to be characterised as a credit to be given by the Builder in favour of the Owners.

Reasons for judgment

At trial, the Owners’ claimed back charges for the payment of the following invoices for engineering fees which they claimed were incurred due to the re‑working of engineering designs:
- $148.50 – Back charge # 9
- $1,188.00 – Back charge #13
- $138.60 – Back charge #14
- $34,701.70 – Back charge #15
The Builder denied liability for the invoices. It contended that the fees were incurred due to poorly designed footing and waterproofing systems that were not capable of construction.
As the Judge was not satisfied that the Owners had demonstrated that the initial design was able to be constructed, her Honour was not satisfied that the Builder was responsible for these fees.

The Owners’ arguments

The Owners observe that the building works involved the excavation back into an ancient riverbank of the River Murray. The property would be excavated up to the boundary on each side of the block adjacent to land owned by other persons.
The early works contract in the sum of $41,000 included sums of $13,500 for excavation and $25,000 for strip footings. Clause 10 provides:

[The Builder] acknowledge[s] that [the Owners’] have engaged and instructed at [the Owners’] cost all consultants necessary to design the works and that [the Owners] have provided [the Builder] with design and other documents that are sufficient to enable [the Builder] to do the works for the price.

The definition of the price and the scope of the risk associated with that price is set out in cl 13.1:

...[the Builder] agree[s] that the price includes all the works, risks, compliance with all duties and obligations under this Contact unless expressly excluded elsewhere in this Contract and without limiting this [the Builder] agree[s] that the price includes but is not limited to the following... all site conditions whether obvious or hidden.

The Owners assert that the acknowledgement set out in cl 10 and the recognition of risk in cl 13 in the early works contract means that the contractual risk of constructing the works in accordance with the design was carried by the Builder and not the Owners.
The relevant plans had been the subject of building rules consent prior to execution of the early works contract. There is no evidence that the works could not be carried out as distinct from being difficult to do so.
Clause 6.1 of the early works contract provided:

...[the Builder] would immediately refer any ambiguity or discrepancy to [the Owners] but [the Builder] will not be entitled to claim any extra amount above the GMP for work associated with correcting any ambiguity or discrepancy.

The Contract contains mirror provisions to the same effect as cl 6.1.
The Contract Specification was executed after the early works contract was performed and notes that “All Engineers fees and charges relating to the footing shall be the responsibility of the Builder”. The Builder had the opportunity before it submitted a quote to identify any buildability issues from the approved drawings.
The Owners contend that the Judge failed to give any weight to her findings at [80] to [82] that the Builder ignored a direct instruction from the Owners’ engineers not to commence pouring the footings in late September 2010. Rather than advising prior to pouring the footings that the work set out in the plans could not be built, the Builder chose to construct the footings in an unauthorised manner. Accordingly, the engineers were required to redesign the waterproofing and strip drains. Part of the engineering fees relate to work done to provide waterproofing and drainage that would work with the footings as laid by the Builder.
The Owners concede that the following invoices to the total sum of $3,760.90 were issued before the Contract was entered into and are no longer pressed:
- 31.05.10 Tax Invoice No TJA15703; and
- 31.05.10 Tax Invoice No TJA15704.
They contend that each of the other invoices related to engineering services that the Builder was liable for under the Contract and seek $30,940.80 of the $34,701.70 originally contended for.
The Owners submit that the Judge erred in finding at [564] that the claims could only succeed if the Owners had demonstrated that the initial design was able to be constructed. This ignored the terms of the early works contract and also the Contract. Each placed the contractual risk with the Builder.
The Owners further contend that the Judge erred in failing to have any regard to the detail of the engineering services provided. Only two of the invoices listed relate to the footings issue.

The Builder’ s arguments

The Builder relies on the findings of the Judge. It asserts that the claims are not particularised, nor have the Owners demonstrated that the charges were occasioned due to the Builder’s breach of the Contract. The Builder continues to assert that the additional engineering fees were incurred due to the poorly designed footing/waterproofing system prepared by the Owners’ consultant.

Consideration

I accept the correctness of the contention by the Owners that the effect of the provisions in the Contract and the early works contract referred to above was that the Builder carried the risk that difficulties and extra cost may be incurred because of the nature of the site. For that reason, I consider that the Judge erred in deciding the claim on the basis that the Owners had failed to prove that the work could be constructed in accordance with the plans provided by their engineers.
The finding by the Judge that the Builder had chosen to ignore a direct instruction from the Owners’ engineers not to commence pouring the footings until the work required to install strip drains and waterproofing had been completed is also significant. That action required the plans to be re-worked. The Owners have indicated that an invoice in the sum of $5,322.90 described as having been incurred for “waterproofing/strip drain details” and a further invoice in the sum of $299.20 with the narrative “pre-cast panels shop drawings review” relate to the footings. I accept that the work referred to in those invoices was required because of the action taken by the Builder contrary to the engineering advice. For that reason, I consider that the sum of $5,622.10 claimed under those two invoices is properly payable by the Builder.
An invoice in the sum of $2,451.90 is described as being for “waterproofing/footing slab revised”. I accept that the need for this work is likely to have arisen because of the failure of the Builder to deal properly with the waterproofing issue and the installation of agricultural drains.
There is some force in the submission by the Builder that the invoices for additional engineering work lack particularity. In particular, the description “construction stage” is singularly uninformative. Nevertheless, because the Builder had accepted the liability for additional engineering fees, I find that the Owners are entitled to an adjustment in their favour of $30,940.80. I would uphold ground 17 to this extent.

Ground 18: Back charges – Prime cost items

Ground 18 relates to the Owners claim for back charges for prime cost Item adjustment. The ground asserts that the Judge erred in finding that the claim could not be quantified with any certainty. It asserts that the Judge failed to have any, or any proper, regard to:
- Clause 15 of the Contract;
- Item 7 of the Schedule to the Contract which provided that the prime cost items were included within the GMP;
- The fact that the total cost of the prime cost items supplied by the Owners was $414,998; and
- As the Owners paid for the prime cost items directly they are entitled to the mark-up which was otherwise included within the guaranteed maximum price.

The Owners assert in this ground that the Judge should have found that they were entitled to a charge back of $31,614 in relation to this aspect of their claim.

It was agreed between the parties that the issues raised in this ground are:
1. What is the meaning and effect of clause 15 of the Contract;
2. Whether the value of the works excluded from the provisional cost items totalled $316,140; and
3. Whether the Owner is entitled to recover 10 per cent of the amounts which were excluded from the scope of the works for items supplied by the Owners.

Reasons for judgment

At trial, the Owners contended that as a matter of contractual interpretation, they were entitled to the Builder’s mark up of 10 per cent on prime cost items.
The Judge noted that cl 15 of the Contract relates to prime cost items included in the GMP. Those items are listed in item 7 of the Schedule. The Owners contended that they supplied all the prime cost items save for air‑conditioning, roof tiling and sarking, paving and supply and door hardware supply. Her Honour noted that the Contract made allowance of 10 per cent for the Builder’s profit in relation to prime cost items that it supplied. The Owners contended that if the Builder did not supply those items, the Owners were entitled to a credit for that margin of 10 per cent.
At trial, the Owners asserted that the Builder only supplied the abovementioned items and if they are excluded from the list, the balance, supplied directly by the Owner is in the sum of $316,140. They claimed 10 per cent of that figure.
The Judge accepted that the claim was one of contractual interpretation. However, without a proper accounting analysis of the figures, the claim could not be quantified with any certainty. Her Honour dismissed the claim (at [571]).

The Owners’ arguments

The Owners summarise prime costing as a technique used in building contracts where there is uncertainty at the time the contract is entered into as to the precise cost associated with a particular item of work. Parties use a nominal price called the “prime cost” and make adjustment to the contract price at the conclusion of the contract when the prime cost is compared to the actual cost.
The Owners contend that the list of prime cost items set out in item 7 of the Schedule was updated in the Builder’s Building Specification dated 30 August 2010. The items listed in that updated list total $414,998. Immediately before the list of prime cost items the following words appear: “should the Owners requirements and selections amount to less than the nominated sums, the Owner will be credited the difference of the two sums as a variation”.
The final progress claim submitted by the Builder on 18 December 2012 included a schedule of prime cost items. The Builder has not disputed that it did not supply eight of the listed items.^[24] The value nominated for those prime cost items is $316,140.
Accordingly, the Owners contend that the Judge erred in finding that the absence of full accounting or particulars precluded her from making a decision in respect of the claim. All the relevant information necessary for the Judge to determine the claim was available. It was simply a matter of interpreting the Contract.
There was no dispute at trial about the prime cost items or the value of those items. There was also no dispute as to the quantum on which the claim was based.
The Owners contend that cl 15.6 is clear. The prime cost amounts did not include a margin for profit and overheads. If the actual cost of an item is lower than the prime cost then the difference in cost between the two is deducted from the prime cost together with 10 per cent of that difference for profit and overheads. The Owners contend that this mirrors cl 15.5 which provides that if the actual cost exceeds the prime cost amount then the difference together with 10 per cent of the difference for profits and overheads is added.
Accordingly, the Owners contend that because the Builder did not supply a significant portion of the prime cost items at the agreed nominal value of $316,140, the profit and overheads of $31,614 that the Builder would otherwise have enjoyed on that sum, and which was built into the GMP of $2.3 Million, should be refunded to the Owners.

The Builder’s arguments

The Builders rely on the findings of the Judge. It contends that the claim is not particularised and is misconceived. The Owners have not shown that that the Contract entitled them to receive as a credit the Builder’s profit on a prime cost item. The principle of prime cost items is that the Builder charges the cost it incurs and an agreed margin for the prime cost items as an adjustment to the contract sum. The Builder contends that the Judge, reasonably so, could not divine a claim which is contrary to that principle.

Consideration

I do not accept the correctness of the submission by the Builder that the Owners have not demonstrated that the Contract entitled them to receive as a credit the Builder’s profit on a prime cost item that it did not supply. That submission may be correct if cl 15.5 of the Contract were to be read in isolation and cl 15.6 were not included in the Contract. However, I consider that cl 15.5 and cl 15.6 must be read together as the two provisions are obviously intended to complement each other.
Clause 15.6 specifically provides that if the actual cost of an item is less than the prime cost amount for that particular item, the difference between the prime cost amount and the actual cost, together with the sum of 10 per cent of the difference in the two amounts, will be deducted from the guaranteed maximum price or GMP. The operation of cl 15.6 was recognised in the note included in the updated Schedule in the building specification dated 30 August 2010 (see [374] above).
Counsel for the Builder submitted at trial that the contentions advanced by the Owner relating to the prime cost adjustment tortured the language in the Contract. It appears that counsel may have been referring to the fact that cl 15.6 only deals with the situation where the actual cost of a relevant item or piece of work is less than the prime cost. Thus, under this interpretation, cl 15.6 would not apply to a situation where the Builder is not required to supply a particular item included in the list of prime cost items as distinct from the item being secured at a lower price. If that reading were correct, the Builder would be entitled to its profit margin of 10 per cent, even though it was not required to supply a particular item.
Adopting an objective interpretation, and taking the view that cl 15.5 and cl 15.6 are intended to deal not only with the situation where the actual cost of an item is less or more that the prime cost but also the position where an item allocated a prime cost is not supplied by the Builder, I reject the Builder’s contention that it is entitled to retain the profit margin of 10 per cent on items that it did not supply.
I also consider that the Judge erred in concluding that the Owners’ claim could not be quantified with any certainty in the absence of a proper accounting analysis. The information before the Court was sufficient to determine with certainty the sum in dispute.
I would uphold the appeal on Ground 18. I would order that the sum of $31,614 is payable to the Owners.

Ground 27: Damages under the Trade Practices Act

Ground 27 asserts that the Judge erred in finding that the Owners were not entitled to an award of damages for breaches of the TPA by the Builder and accessorial liability of Mr Duthy for those breaches.
It was agreed between the parties that the issues raised in this ground are:
1. Whether a relief under the TPA was available to the Owners.
2. Whether the reasonableness of the representation made should be characterised by the subjective view of the representee.

Reasons for judgment

The Judge observed that by way of recital C to the Contract and by virtue of cl 26, the Builder represented that it had the necessary skill and expertise to carry out the building works on the site.
The Judge noted the Owners’ claim that they relied on that representation when entering into the Contract and that it was a representation made during the course of trade or commerce within the meaning of the TPA. The Owners contended that the evidence was indicative that neither the principal of the Builder, Mr Duthy, or the subcontractors that were engaged, had the necessary skills and expertise. The Owners contended that the series of problems throughout the build demonstrates that the representation was false and actionable. The defects complained of are so rife throughout the building and so important in terms of its ultimate construction that it is not just a minor matter. The Owners contended that they would never have engaged the Builder but for the representation that it had the ability. They would have engaged another builder who would have presumably done the work properly. Counsel for the Owners conceded that there are no authorities on this point.
The Judge considered that the claim is curious and not recognised in law. In any event, her Honour found that the representation made was, arguably, made reasonably as Mr Tincknell was impressed by Mr Duthy’s work at the outset of their dealings. Her Honour referred to the determination of Mr Trenorden and her own observations at the view and determined to dismiss the claim (at [502]).

The Owners’ arguments

The Owners assert that the Judge erred in finding that the claim is not recognised in law. They refer to Kavanagh v Blissett,^[25] a decision of the New South Wales Court of Appeal, which dealt with claims for defective work and delay under the TPA in relation to domestic building works and, inter alia, an accessorial liability claim against the builder’s directors.
The Owners assert that their case at trial was that the relevant representation in recital C of the Contract was in respect of a present fact. The timing of the representation is in the period up to the date of the execution of the Contract on 7 October 2010. The Owners assert that the Judge erred by approaching the claim on the basis that the representation was in respect of a future matter.
The Owners contend that the Judge should have found that the representation was misleading or deceptive, or likely to mislead or deceive contrary to s 52 for the following reasons. First, the Builder was based in Adelaide and the work was conducted in Mannum. Mr Duthy admitted that he had never undertaken work in Mannum before. Secondly, the work was done by the Builder’s subcontractors. There was no evidence that the Builder did any work on the house other than organising the subcontractors and supervising their work. Thirdly, there was no evidence that at the time the representation was made that the Builder had identified the subcontractors that it intended to use and also satisfied itself of their skill and expertise to carry out the works.
Finally, the lack of skill and expertise of both the Builder in failing to coordinate and supervise the work and its subcontractors in performing the work could be inferred. The Owners contend that this inference can be drawn from the time taken to carry out the works, the number of defects, the magnitude of defects and the extent to which the works are incomplete. Such defects included problems with the excavation of the site which lead to a stop work from the local council, the action of Mr Duthy in allowing the footing contractor to proceed with work that was not approved by the engineers, problems with the waterproofing work carried out which needed to be replaced, defective internal tiling works which needed to be redone, the gas plumber’s work was defective, the hot water service did not work and there were numerous other defects as recorded in the minutes of meetings, the defects lists and those subject to a remedial order by the Judge.
In all the circumstances, the Judge should have found that the Builder was in breach of s 52 of the TPA in that the representation was misleading or deceptive, or likely to mislead or deceive.
The Owners contend that the Judge did not specifically deal with the claim that Mr Duthy “aided, abetted, counselled or procured” the Builder’s contraventions of the TPA and, or alternatively, that he was “directly or indirectly, knowingly concerned in” the Builder’s contravention.^[26]
The Owners contend that the position of Mr Duthy as shareholder, director and supervisor of the Builder, is on all fours with the directors in Kavanagh. In that case, the Full Court determined that the directors were liable for damages for defective work and delay. The Owners rely on the following comments of Brownie AJA where his Honour said:

[23] The appellants say, however, that as a matter of general principle, it is necessary to approach the task of assessing damages under s.82 [of the TPA] in a different way. One should compare the actual position of the respondents with what their position would have been but for the breach of the provisions of s.52, and not by comparing their actual position with what their position would have been but for the breach by [the builder] of its contractual obligations.

[24] There is no doubt that, generally speaking, this is the correct approach: Marks v GIO Australia Holdings Limited [1998] HCA 69; (1998) 196 CLR 494. However, this generality is not to be elevated into some absolute rule of law, not justified by the words of the statute and where, as is the case here, the conduct found to have constituted a breach of the provisions of s.52 led the respondents into entering into a contract, it may be that the contract would have produced the very benefit that was the subject of the representation, so that it might be appropriate to assess damages by reference to the contract: Marks at 504.

...

[26] The conduct of the appellants which infringed s.52 consisted of representations that [the builder] would do the work in question in a workmanlike manner, and in a timely manner. The loss or damage suffered by the respondents “by” that breach consisted of the cost of completing the work, and of rectifying the faulty work, $189,676, together with the further sum of $10,640 in respect of the delayed completion of the work. The latter sum represented rent of $190 per week, for 56 weeks: a rent expense incurred by the respondents as the result of the failure of [the builder] to complete the work in a timely manner. That is, in the circumstances of this case, the damages awarded against [the builder] for breach of contract coincided with the damages payable by the appellants, assessed under s.82.

The Builder’ s arguments

The Builder contends that there is no representation relied upon beyond recital C to the Contract. They contend that recital C begets a contract claim and not a TPA claim. A TPA claim is for conduct which has induced the claimant to enter into the contract. It is not a claim for a breach of the contract made by the parties.
The Builder asserts that in any event, the alleged “representation” was reasonably made. Mr Tincknell was impressed by the quality of the Builder’s work that he inspected. Further, the court appointed expert, Mr Trenorden, determined that the quality of the Builder’s work on the house was “well above that considered to be the level of finish found broadly in the housing industry in South Australia”.

Consideration

Recital C to the Contract states:

The builder has represented that it will obtain the requisite licence under the Building Work Contractors Act before commencement of the works and the necessary skill and expertise to carry out the works on the site and the owners have relied upon such representations in entering into this contract.

The accuracy of the recitals is agreed at cl 26.

Section 52 of the TPA (now repealed) mirrors s 18 of the Australian Consumer Law. Section 52 formerly provided:

52 Misleading or deceptive conduct

(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).

It is clear from the decision of the NSW Court of Appeal in Kavanagh that the observation by the Judge that the claim advanced under the TPA was not recognised in law is not correct. However, her Honour specifically questioned counsel as to whether there was any authority dealing with a claim made under the TPA in similar circumstances. She was informed by counsel for the Owners that he had been unable to locate any such authority.
The Owners contend that the Builder represented that it had the expertise to build the particular house on the relevant site. Recital C records that the Owners relied on this representation in deciding to enter the Contract. The Owners submit that the numerous deficiencies make clear that the Builder did not have the expertise necessary to perform the work competently. Thus, the representation is said to be false.
While there was clearly a number of problems with the performance of the Contract, the evidence establishes that Mr Tincknell was impressed by the quality of the work performed by the Builder on previous jobs that Mr Tincknell had inspected. The significance of those inspections is greater than it might ordinarily be because of the fact that Mr Tincknell was himself an experienced builder, and apparently well capable of assessing the competence of the work performed by other builders. Moreover, as the Builder has noted, the independent expert, Mr Trenorden, described the quality of the work performed on the house by the Builder as being well above that ordinarily found in South Australia. The Judge also referred to the apparent high quality of the work observed she at the view.
Whether a representation made in the course of trade and commerce is misleading and deceptive cannot ordinarily be determined by the subjective belief of the person to whom the representation was made. However, in the particular circumstances of this case, Mr Tincknell’s opinion that the Builder had competently performed other work is relevant to the assessment of the accuracy of the representation. That is because of the special knowledge possessed by Mr Tincknell and the fact that he based his opinion on the inspection of other work previously done by the Builder.
While in this case there were clearly problems with some of the work performed by the Builder, I am not persuaded that the evidence is anywhere near sufficient to establish that the representation as to the skill and expertise of the Builder was actually misleading or deceptive at the time it was made. I consider that a more substantial degree of incompetence and lack of capacity to perform the work would need to be demonstrated to prove that the representation as to skill and expertise was misleading or deceptive when it was made. I take that view regardless of whether the representation referred to an existing state of affairs or to future action by the Builder.^[27]
I also note that in Kavanagh, Brownie AJA and Ipp AJA held that the assessment of damages under the TPA would be on the same basis as for a breach of contract. Thus, even if the Owners were to succeed on their claim under the TPA, the damages would not be increased.
I would dismiss Ground 27.

The costs appeal

The Judge awarded the Builder 60 per cent of its costs on a party/party basis. The Builder seeks permission to appeal against that order. It seeks an order that it is entitled to all of its costs on a party/party basis.
The right of appeal provided by s 43(1) of the District Court Act 1991 (SA) is subject to the requirement in s 43(3) that permission be obtained, if required, “according to the rules of the appellate court”. Pursuant to r 288(1)(b) of the Supreme Court Civil Rules 2006 (SA) (the Rules), an appeal to this Court requires permission if the appeal is limited to a question about costs. Accordingly, permission to appeal is required.
The Builder asserts one ground of appeal, namely:

The learned trial Judge erred by unreasonably or unjustly exercising her discretion at [25] of the Reasons in finding that [the first respondent] was entitled to 60% of the District Court action on a party/party basis. The learned Judge failed to have sufficient regard to:

The parties’ respective successes in their Claim and Counterclaim in the District Court action, that is to say, the money outcomes in the action;
The time spent in the action and during trial on unsuccessful [appellants] Counterclaims (being the most substantial claims);
Proper and fair proportionality between the few successful elements of the [appellants’] Counterclaim and the costs order made by the Court;
That the [first respondent was] successful overall in the District Court.

The learned Judge ought to have found that the [respondents] were entitled to all of their costs of the action on a party/party basis,

The Court ordered that the costs appeal be dealt with by way of written submission. The parties agree that the issues raised in the appeal are as follows:
1. The appropriate order for costs on the judgment.
2. As the order was discretionary whether the judge:

2.1 acted upon a wrong principle;

2.2 allowed extraneous or irrelevant matters to guide or affect her;

2.3 mistook the facts; or

2.4 did not take into account some material consideration.

The Owners contend that permission to appeal should be refused and the appeal struck out.

Reasons for judgment on costs

The Judge summarised the principles relevant to the determination of costs issues stated by the Full Court in BHP Billiton v Parker.^[28] Her Honour observed that:^[29]
- I have an unfettered discretion as to costs, subject to the District Court Civil Rules 2006.
- It will generally be the case that costs follow the event.
- I can award costs on any basis I think appropriate.

(Footnotes omitted)

The Judge noted that there were no relevant offers made by either party in relation to their claims.
The Builder asserted that it had been wholly successful in its claim, apart from its claims in relation to variations to the Contract. The latter had been abandoned at trial. Thus, costs should follow the event. It asserted that only a small part of the trial was spent on its claim compared to the Owners. The Owners succeeded on only a small percentage of their claim and set-off. They had claimed to $2 Million whereas their award was less than $100,000.
The Builder relied on Badge Construction Pty Ltd v Penbury Coast Pty Ltd^[30] as authority governing the award of costs in construction disputes. Her Honour noted the principles stated by Debelle J:

[11] The overriding principle is that the order for costs is fair and just in all the circumstances. The arbitrator has a broad discretion to ensure such a result. Thus, it will be appropriate when considering what award should be made as to costs to have regard to the conduct of the parties. So, a party may not be entitled to costs if he has advanced an inflated claim or counter-claim with the apparent purpose of frightening the other party by the fear of the costs of proceedings to drop the claim or accept less than the claim: Archital Luxfer Ltd v Henry Boot Construction Ltd [1981] 1 Lloyds Rep. 642.

[12] The reasoning underlying the principles so far as they apply to cases arising out of building contracts are expressed in these terms in Hudson:^[31]

“It should be remembered that in building and engineering cases the issue between the parties is almost invariably financial, and that the machinery of the sealed offer is available to protect the position on costs. Though there may be many issues, in legal pleading terms, of claim, set-off, and counterclaim, the parties' eyes will always have been fixed on the final balance owing one way or another. Whoever secures or avoids paying that balance in effect has won. Only in the case of wildly exaggerated claims, or separate and costly issues on which the successful party has failed and which it was wholly unreasonable for him to raise, can there be, it is submitted, any justification for departing from the rule that the party ultimately successful on a final balance of claim and counterclaim should be paid his costs. There are cases in other situations where separate orders for costs on claim and counterclaim are appropriate, but counterclaims on building and engineering contracts arise out of the same transaction and are equitable set-offs, and the basic commercial realities, in the vast majority of cases argue very strongly, it is submitted, for a single award of costs in favour of the party ultimately successful on balance, unless the balance is so small as to justify the view that a party responsible for initiating the litigation and obtaining such a balance can be regarded as having been effectively unsuccessful.”

In this context it is relevant to note that in cases under a building contract, where both the claim and the cross-claim arise under the building contract, the cross-claim constitutes an equitable set-off: Hanak v Green [1958] 2 QB 9 at 25-26 and at 29. That principle will usually have important consequences in respect of costs since, if the cross-claim exceeds the amount of the claim, the claim will be treated as having failed: Hanak v Green (supra) and see also the discussion in Hudson (11^thedition) para 8.118.

[13] Given the particular issues which arise when determining costs where both the claim and counter-claim arise out of a building contract and both claim and counter-claim are successful, it might be putting the principle too high to assert that exceptional circumstances are required to justify a departure from the general principles noted above. It is not necessary to decide that issue here. But it can at least be said that there must be good cause for departing from the general principles.

[14] In this case there was a claim and cross-claim or counter-claim. The builder claimed certain items as variations. The building owner cross-claimed for an entirely separate item, namely, the failure of the builder to construct a cross-over, which failure was in breach of the building contract. Since both the claim and the cross-claim arose out of the same building contract, the cross-claim constituted a set-off. In the result, the award substantially favoured the builder. It justified a single costs order in favour of the builder or at least that an order that each party have its costs. If the arbitrator applied settled principles, he would have ordered the building owner to pay the builder's costs on the balance recovered by the builder. The arbitrator should not have made any other order unless there was good reason to depart from that general principle.

The Owners submitted that Badge simply represented one approach to the question of costs. Costs need to be considered in the context of all the facts and circumstances.
The Owners conceded that the Builder was entitled to its costs of the claim, but submitted that the amount should be reduced by 50 per cent because of the variations, which were put in issue by the Builder but not abandoned until trial or until closing address.
The Owners also contended that they should be entitled to party/party costs on the cross-claim, however, it would be appropriate to reduce that amount by 50 per cent to reflect the fact that they were unsuccessful on some of their claim.
The Builder contended that the claim and the cross-claim should not be dealt with as discrete matters as to do so would cause significant issues in taxation.
It is necessary to set out her Honour’s analysis in full:^[32]

[17] In Formosa & Anor v Eminent Forms Pty Ltd,^[33] Bleby J at [27] accepted that as a general rule, a party who secures a judgement for the balance after arbitration of a series of contested claims and counterclaims, will generally be regarded as the successful party and that generally it may be appropriate for costs to be awarded in his favour, but not necessarily for the full amount which might be expected if there were a single issue in contest.

[18] His Honour said that although the arbitrator in Badge was “obviously influenced by that part of the passage from Hudson,” he did not consider that the passage represented the law in South Australia and that he was comforted in that view by the decision of Hasluck J of the Supreme Court of Western Australia in Miles v Palm Bridge Pty Ltd.^[34] His Honour went on to note that the relevant passage was not repeated in the 11^th edition of Hudson and that in any event it must be read in the context of what was decided in that case.

[19] While his Honour agreed with Debelle J at [11], he added that the matters to which Debelle J said it was proper to have regard, are not exhaustive. They are merely given by way of example. The error from the passage from the 10^th edition of Hudson relied on by the arbitrator is the assertion that only in the circumstances stated, that is, in the case of wildly exaggerated claims, or separate and costly issues on which the successful party has failed and which it was wholly unreasonable for him to raise, can there be any departure from the general rule that the party ultimately successful on the net balance awarded should be paid his costs.

[20] In my view, the Builder is entitled to its costs on the claim on a party and party basis.

[21] In relation to the cross-claim, a good deal of the trial was spent on the issues of whether the contract had been breached as regards waterproofing and protecting the building from termites. In relation to both issues, I found that there had been breaches by the Builder but that there was a lack of proportionality between the cost of the proposed remedial work and the benefit that would be achieved. In relation to the claims concerning the supply of hot and cold water to the house, the Builder acknowledged at trial that certain work should be undertaken and agreed the plumber who installed the system should attend to remedy the defects. I ordered the work as recommended by the Builder’s expert be undertaken.

[22] While I found there was simply no basis for a number of the complaints and claims made, and questioned the genuineness of claims made as regards drainage and the layout of the front pavers, there were in a number of respects complaints made by the Owners that were justified in the sense that the building was defective. On the one hand, I accept Mr Jenner’s submission that the Owners had the support of experts with respect to a number of their claims, however, as Mr Ross-Smith pointed out, those claims ultimately failed.

[23] While in my view the counter-claim was exaggerated in some respects and a great deal of time was taken up by issues that should never have been raised, there should be some adjustment in relation to the costs on account of the merit in a proportion of the Owners’ claims.

[24] I am mindful of the concerns raised by [the Builder] of making any taxation of costs a more laboured and complicated process than necessary.

[25] In all of the circumstances a just award of costs is for the Builder to receive a portion of its costs of the whole action to arrive at a less complicated result. Arriving at an appropriate percentage is difficult however doing the best I can, I find that the Builder is entitled to 60% of its costs of the District Court action on party/party basis, to be taxed or agreed.

The Builder’s submissions

The Builder asserts that the Judge’s award of costs was unreasonable and unjust. Her Honour should not have departed from the ordinary rule as to costs, being that costs follow the event and that the successful party in litigation receives their costs. The Builder contends that it should not have been awarded merely 60 per cent of its costs.
The Builder submits that the Judge should have applied the four principles set out in Badge, namely:
- (1) where (as it was in the case at bar) the trial judgment substantially favoured the Builder;
- (2) there should be a single costs order (the learned trial judge here so ordering);
- (3) the party ultimately successful on a final balance of claim and counterclaim should be paid its costs (“the general principle”);
- (4) there has to be either good cause or exceptional circumstances to justify a departure from the general principle.
The Builder asserts that Badge articulates the principles to be applied in determining an award of costs in construction disputes. It refers to a number of cases which have followed that decision.
The Builder also contends that it succeeded in its claim less variations (which it had earlier abandoned) and only a small part of the trial was spent on the Builder’s claim. In contrast, the Owners succeeded on only a small percentage of their claim and set offs (of the $1,923,802.63 claimed, the Owners were awarded only $68,315.07) and an overwhelming proportion of time and the expense of the trial was spent on those claims.
The Builder contends that the claims by the Owners were inflated and wildly exaggerated and obviously tactical. Those claims were predominantly rejected by the Court. The Builder also asserts that the costs order does not fairly reflect the conduct of the trial and the outcomes of the issues determined.
The Builder does not assert that the Judge has applied the wrong principles, rather it asserts that her Honour has erred in her application of those principles. The exercise of the Judge’s discretion is said to be flawed.
The Builder asserts that the costs order demonstrates that the Judge:
- Failed to apply the general principle; and
- Failed to give sufficient weight to the considerations identified above.
The result suggests that the Judge took into account irrelevant matters.
The Builder’s solicitor/client costs of the proceedings are $598,000 inclusive of GST. The Builder contends that the diminution by 40 per cent of those party/party costs is a significant consequence to a party who succeeded overall and succeeded on most issues and who recovered a significant portion of the final progress claim. It further contends that this consequence justifies a grant of permission. To leave the decision unaltered would perpetuate an injustice.
The Builder further contends that the appeal is an opportunity for the Full Court to restate the principles in Badge and to review the extent to which trial courts should attempt a percentage approach to costs orders when one of the parties is overwhelmingly successful.

The Owners’ submissions

The Owners contend that the Judge was entitled to exercise her discretion in the way she did and that no error of principle has been identified. They assert that the order does not give rise to any injustice.
The Owners rely on the decisions of Stanley J in Rasch Nominees Pty Ltd v Barthomaeus^[35] and Gray J in Hutchinson v Ellis.^[36] They contend that leave to appeal should be refused. They submit that the Notice of Appeal fails to raise any important question of principle requiring resolution. Rather, the appeal involves the application of settled principles concerning the exercise of the costs discretion to the facts of the case.
The Owners assert that the decision is not one attended by sufficient doubt to warrant a grant of permission, nor has the Builder demonstrated that it is sufficiently arguable that the Judge fell into error.
The Owners contend that the quantum of costs expended by the Builder does not of itself provide a basis for the grant of leave. They submit that the precise nature of the injustice is not articulated.
The Owners contend that the Builder has failed to explain the submission that it is timely for the principles in Badge to be restated. They assert that there is no suggestion that Badge has been misunderstood or been subject to differing interpretations in the lower courts.
The Owners further contend that this is not an appropriate case to review the issue of a percentage approach to costs, as it would require the Court to form a view about “overwhelming success” when this was clearly not the view of the Judge as evidenced by her Honour’s findings at [21] and [22] of the costs decision. Those findings have not been challenged on appeal. The Owners contend that this would require the Court to have a detailed understanding of how the case was run at first instance and the timing and extent of the Builder’s submissions during the trial.
The Owners contend that this is not a case where:
- A clear error has been shown of the nature identified in House v The King; or
- There is an identifiable error in the exercise of discretion; or
- The exercise of discretion was so unreasonable that it requires interference from this Court.
The Owners contend that the decisions referred to by the Builder do not establish binding principles for the award of costs in construction disputes. They refer to the decision of Racsh Nominees, where Stanley J said at [60] that “even if guiding rules of principles and practice have developed, the discretion remains unfettered and each case must be decided on its own facts”. The Owners also refer to the decision of Gray J in Stubing v Halling at [26] to [28].^[37]
The Owners submit that the Judge gave due consideration to the relevant principles at [5], [7] to [9] and [17] to [19] of her reasons, and in particular the legal principles relied upon by the defendants.
The Owners assert that the Builder issued proceedings claiming $271,434.65 and received judgment for $173,049.41. The Builder was ordered to carry out extensive remedial work.
The Owners assert that their claim of $1.9 Million included over $1 Million for delay but that aspect occupied virtually no hearing time. They assert that they succeeded in liability on three very significant issues, being the hot water systems, waterproofing and termite protection. The majority of the hearing on these issues was directed at liability and the Judge made an extensive remedial work order in respect of the hot water systems. They point out that no concession was made by the Builder about liability in respect of these three matters. If the Builder had conceded its breaches, the duration of the trial would have been significantly reduced.
If leave to appeal the costs decision is refused, the Owners seek costs on a solicitor/client basis. They assert that the application for leave to appeal was doomed to fail.

The Builder’s reply

The Builder submits that the Owners’ submission that they succeeded on liability on three significant issues misses the point. All three of those claims were dismissed. It further asserts that detailed evidence was required by the Judge to determine whether the claimed remedial work was necessary and reasonable.

Consideration in relation to costs

I accept the correctness of the submission by the Owners that no important question of principle requiring resolution by the Full Court arises from the Judge’s decision in relation to costs. Her Honour applied settled principles and exercised the broad judicial discretion in relation to costs in light of the conduct and outcome of a complex trial that she well understood.
While, on balance, the Builder succeeded at trial, it did not succeed on all points and was also required to undertake significant remedial work in relation to the hot water services and to a lesser respect in relation to some other defects. In that light, I am not persuaded that the Judge erred in awarding the Builder only 60 per cent of its costs on a party/party basis. If it were not for the result of the substantive appeal, I would have refused permission to appeal on the question of costs.
I have indicated that I would uphold the Owner’s appeal on three of the grounds raised in the substantive appeal. That would result in the reduction by $82,554.80 in the award made by the Judge in favour of the Builder. On that basis, I would award the Builder 50 per cent of its costs on a party/party basis.

Conclusion

I would dismiss the appeal on Grounds 2, 3, 7, 9, 13, 21, 22, 12A and 27.
I would uphold Ground 16 and find that the Owners are entitled to a back charge of $20,000.00 against the amount payable to the Builder.
I would uphold Ground 17 and award the Owners $30,940.80.
I would uphold Ground 18 and order that the sum of $31,614.00 is payable to the Owners.
Thus, I would reduce the order against the Owners by the sum of $82,554.80. That would result in a reduction of the award made by the Judge to the Builder from $173,049.41 to $90,494.61. I would hear the parties as to the effect of that decision on the award of interest.
I would order that the bank guarantee, which is currently the subject of a stay granted by a judge of this Court pending the outcome of the appeal, be released to the Builder.
I would vary the costs order made by the Judge and order that the Owners must pay 50 per cent of the costs incurred by the Builder on a party/party basis. I would otherwise dismiss the costs appeal.
I would hear the parties as to the costs of the appeals.
DOYLE J: I agree with the reasons of Parker J, and with the orders he has proposed.

^[1] Mr Tincknell passed away after the conclusion of the trial but before the appeal was heard.

^[2] “The works” is defined at cl 1.1.11 of the Contract as “the construction works shown in the contract documents”.

^[3] Christopher Sale is a quality surveyor retained by the Owners to provide an opinion on “the amount that it would cost to carry out remedial work so as to bring the work into compliance with the Contract”.

^[4] Philip Prider is an engineer engaged by the Owners to inspect the works and provide a report concerning ‘any and all engineering work that you consider to be defective and incomplete’.

^[5] John Goldfinch is an engineer and a director of FMG Engineering, engaged by the Builder to respond to Mr Prider’s report.

^[6] [2010] NSWCA 61.

^[7] [1954] HCA 36; (1954) 90 CLR 613.

^[8] [2009] HCA 8; (2009) 236 CLR 272 at [17].

^[9] (2017) 128 SASR 165.

^[10] Ibid at [253].

^[11] I understand the reference to building “boundary to boundary” to refer to the fact that three of the four ground floor walls are built immediately against the earth in the excavated area.

^[12] A handwritten note on the document, apparently in Mr Tincknell’s handwriting, records that it was provided to Ms Lewis (an employee of the Builder) at a site meeting on 15 July 2011.

^[13] The building consultant engaged by the Owners to “inspect the building works and provide a report concerning all of the defects and incomplete works that you detect during your inspection”.

^[14] The building consultant engaged by the Builder to provide advice in relation to “claims of faulty and incomplete building work” at the house.

^[15] [1854] EngR 296; (1854) 9 Ex 341 at 354.

^[16] Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 69 LGR 1.

^[17] [2013] SASC 84 at [152].

^[18] In fact the owners have claimed from 1 January 2012.

^[19] [2014] HKEC 590.

^[20] The Director of TMK Consulting Engineers retained on behalf of the Builder to provide a report responding to that of Mr Mitchell.

^[21] A senior hydraulic engineer with Systems Solutions Engineering Pty Ltd engaged by the Owners to provide a report about the plumbing.

^[22] In this case, the lagging and insulation are the same issue. Lagging is the wrapping of insulating or protective material around a pipe.

^[23] He and his wife were living very close to the site. The plumber, Mr Goodman, said that Mr Tincknell was present on about 90 per cent of the occasions that he attended the site.

^[24] The listed items that were not supplied by the Builder were: JPS lift; balcony floor grates; sanitary ware and tap ware; supply and installation of mirrors; supply and installation of shower screens; supply and installation of joinery; supply and installation of stone bench tops and supply and installation of splashbacks.

^[25] [2001] NSWCA 79.

^[26] See Trade Practices Act 1974 (Cth) s 75B.

^[27] In which case the representation would be subject to s 51A of the TPA.

^[28] (2012) 113 SASR 206 at [261].

^[29] Duthy Homes Pty Ltd v Tincknell [2018] SADC 30 at [5].

^[30] [1999] SASC 6 at [11]- [14].

^[31] Hudson's Building and Engineering Contracts (10th edition).

^[32] Duthy Homes Pty Ltd v Tincknell [2018] SADC 30 at [17]- [25].

^[33] [2005] SASC 35.

^[34] [2001] WASC 42.

^[35] [2013] SASCFC 105 at [52] and [55]-[61] (with Gray and Sulan JJ agreeing).

^[36] [2010] SASCFC 71 at [17] (with Doyle CJ agreeing).

^[37] [2012] SASCFC 123.

Subsequent Judicial Consideration0