In most civil cases, the objective of the remedy awarded by the Court is to “restore the plaintiff to its position had the wrong not occurred. This involves a counterfactual analysis – where would the plaintiff been had the wrong not occurred. In tort, this is where the plaintiff would have been had the tort not been commissioned. In contract, this is where the plaintiff would have been had the contract been properly performed.

Money in the form of “damages” is generally awarded by civil courts as the remedy. In monetary terms, damages attempt to restore the plaintiff to as good a position as it would have been had the wrong not been commissioned. This is by no means the exclusive remedy in civil cases, as sometimes damages will be inadequate – this is another discussion for another article, however.

The question then arises with monetary damages – how do we measure them? How do you properly measure the loss sustained by a plaintiff in a particular case. This, to all of those reading, is one of the law’s most vexed questions. It might seem simple, but it is most certainly not.

Building and Property Cases – A Special Kind of Case

The law has a special ‘soft spot’ as it were for land and buildings. Unlike commodities, land and buildings, amongst some other things, are considered unique and very hard to replace. Accordingly, a special measure of damages must be awarded.

It is not the measure of damages in these cases to determine what their replacement value would be, or what the diminution in value of the property would be. Ordinarily what is valued is the cost of repairing or rectifying the loss arising out of property. The cost of rectification can, in many instances, be far greater than the diminution in value.

Rectification Damages

The reason rectification damages can be so much more than the diminution in value is because a technical defect or noncompliance with specifications can, in many instances, barely affect the value of the building. Stylistic touches, or quality of building products, in the grand scheme of things affect the value of a property quite minimally.

Rectification damages hinge on the principle that when a party bargains for a certain and particular product, as one does with a building, that bargain should be made good. In Bellgrove v Eldridge the rectification measure was spelt out as follows: “the difference between the contract price for the works and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach”.

The Law insists on being pedantic here because the “same position as if the contract had been performed” does not always mean “as good a financial position as if the contract had been performed” – these sometimes align, but the fundamental precept of contractual damages is known as the performance interest. One ought to get what one bargained for. If this were not so, Courts and Tribunals across the common law world would repeatedly by sanctioning breaches of contractual promises.

An Overstated Qualification – “Reasonable and Necessary”

As with many principles, there are qualifications to the rule. The principal qualification to the rectification measure for damages in cases involving building and construction defects cases is that the awarding of rectification damages must be “necessary and reasonable”.

This qualification was first set out in the case of Bellgrove v Eldridge (1954) 90 CLR 613 (‘Bellgrove’). The general idea was that in certain cases, even if the remedial steps were necessary they might not be reasonable, or vice versa. The problem was that in that case, the question of whether demolition and re-erection was reasonable or not did not arise as the foundations were so defective they seriously threatened the stability of the house. This case has often been used over-zealously.

Some 55 years later, the High Court handed down the decision of Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 (‘Tabcorp’), which in many ways clarified the “qualification” in Bellgrove. In Tabcorp the plurality of the High Court stated at [17] that “the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances.” The case largely confirmed that in cases where what is sold is not a marketable commodity, such as a building or land, the diminution in value damages will not restore the innocent party to the “same situation as if the contract had been perfomed”.

In Tabcorp, the following excerpt from Radford v De Froberville was quoted approvingly by the High Court:

“If he contracts for the supply of that which he thinks serves his interests – be they commercial, aesthetic or merely eccentric – then if that which is contracted for is not supplied by the other contracting party I do not see why, in principle, he should not be compensated by being provided with the cost of supplying it through someone else or in a different way.”

Radford v De Froberville

The endorsement by the High Court of this dicta from Radford is fairly telling, and emphasises the very narrow application of the Bellgrove “qualification”.

The only kind of exceptional circumstances found in appellate courts in Australia to satisfy the qualification in Bellgrove include very extreme examples such as those considered in Stone v Chappel (2017) 128 SASR 165 (‘Stone v Chappel’).

That case involved a retirement home where after the building had been constructed and occupied, it was found that the ceilings were a mere 40mm lower than the specified height. This did not create any noncompliance with codes or standards. The rectification measure, if applied, would have required the total demolition of the structure, which would have been totally unfeasible as numerous occupiers occupied the buildings, and would have been only for a very minor difference.

It was held that what would be awarded was not rectification damages, as this would not have been reasonable, and would be “manifestly disproportionate to the attaining of the contractual benefit. Instead, it was held that damages would be awarded for loss of amenity.

Even then, Stone v Chappel has been criticised as being inconsistent with High Court dicta in Tabcorp.

Conclusion

The above cases go to show that it depends on the particular facts and circumstances of a particular case as to what kind of measure of damages or compensation a claimant is going to receive, if successful.

They also show that construction cases are a very special kind of case, where the rectification measure features most prominently. It is therefore very important that appropriately experienced legal practitioners well versed in the area of construction law are engaged to advise on what remedy a claimant will be likely to receive, or, on the flip side, what kind of liability a builder will be liable for.

To this day, the breadth of the “qualification” in Bellgrove remains a vexed area of the law, with great debate amongst construction law practitioners and academics.

Disclaimer

This article is not legal advice and discusses it’s topic in only general terms. Should you be in need of legal advice, please contact construction law firm. Lovegrove & Cotton Lawyers and our experienced lawyers will assist you based on the facts and circumstances of your case.

Lovegrove & Cotton Lawyers to the building industry

For thirty years, Lovegrove & Cotton have represented property owners, builders, building surveyors, and building practitioners in Melbourne, Canberra, Sydney and Queensland. Lovegrove & Cotton can help property owners and building practitioners resolve any type of building dispute. If you wish to engage the firm, feel free to contact us via our website, by emailing enquiries@lclawyers.com.au, or via phone at (03) 9600 4077.

^{Written by Jordan Davies, Former Lawyer at Lovegrove and Cotton.}