Ecroplot Pty Limited v Wheeler & Anor [2010] HCATrans 235 (3 September 2010)

Last Updated: 8 September 2010

[2010] HCATrans 235

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S103 of 2010

B e t w e e n -

ECROPLOT PTY LIMITED

Applicant

and

DAVID WHEELER AND ALISON WHEELER

Respondents

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 3 SEPTEMBER 2010, AT 11.59 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR S.V. SHEPHERD, for the applicant. (instructed by Creaghe Lisle Solicitors)

MR R.J. WEBB, SC: May it please the Court, I appear with my learned friend, MR S.B. LOUGHNAN, for the respondent. (instructed by Commins Hendriks Solicitors)

GUMMOW J: Yes, Mr Jackson.

MR JACKSON: Your Honours, this case concerns the approach for the calculation of damages for breach of a building contract. It merits the grant of special leave, in our submission, because it gives rise to issues commonly encountered in relation to such contracts and an issue, with respect, not resolved by the decision of the Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd, which is page 41 of the book of materials.

Your Honours, may I go to the facts for just a moment to identify a little more precisely the issue that is involved. This was a case where, in relation to the building of a house, there were three in which there had been cracking appear in it. Three breaches of contract by us, the builder, were alleged.

The first one was too much fill underneath the part of the house where there was some filling and the respondents failed for the reasons which appear at page 134, paragraphs 68 to 71. That issue is now at an end.

The second breach was that the fill had been allowed to dry out before the concrete slab was laid, with the result that if water got into it, it expanded. The respondent succeeded in that regard. You will see that at page 106, paragraph 6. The damages, your Honours, are relatively small. I think the figure is $9,200 or $9,600. We do not challenge that finding. You will see that amount referred to in the draft notice of appeal in page 149. I am sorry I think I said $9,000 sum – it should have been $5,900 at about line 24.

But, your Honours, one comes then to the third issue and that was the question of underpinning into the underlying ground. To put it shortly the underpinning should have been to a depth of 300 millimetres and was, in fact, to a depth of 100 millimetres. That is the issue that arises.

That issue was dealt with by the Court of Appeal at various places, but could I give your Honours one reference? Page 136, paragraph 74 and if I could just pause at that point, your Honours. There had been, as is referred to by the Court of Appeal at paragraph 75 on the same page, a finding by the primary judge that the breach was not a cause of the damage that had been observed.

Your Honours, what is not referred to is that the primary judge had made other findings and she had discussed the need for underpinning at some length and had found that there was no need for it. You will see that at page 86 commencing at line 24 in the passage which goes – you see the heading “No proven need for underpinning” on page 86. The passage goes through to page 88 about line 19 where she concludes by saying:

I find no need for underpinning, deep or otherwise. There is no need for any associated demolition –

and so on. So she goes on to the end of that sentence. Could I just invite your Honours to note that under the heading at page 86, to which I have referred, and going through to the conclusion, to which I have referred on page 88, there is a consideration of the expert evidence given in relation to that issue.

Could I go back then, your Honours, to the Court of Appeal at page 136, paragraph 75. Your Honours will see in paragraph 75 that it is said in the second line:

the appellants did not make a specific case in those documents that the judge’s finding that this breach –

Your Honours will see the heading at the top of the page –

was not a cause of the observed damage to the house was erroneous.

I am sorry, I have expressed that in a rather clumsy way, but your Honours will see what is said. But your Honours will then see in the last four lines it is said:

As a result, it should be concluded that there was no challenge to the judge’s finding that this breach of the respondent was not causally related to the deformation and cracking of the house which had been observed.

Your Honours, that last sentence does not, of course, refer to the full effect of the finding by the primary judge that there was no need for there to be any underpinning and that it had not been demonstrated that any actual damaged had been demonstrated. Now, your Honours, it was in those circumstances that the Court of Appeal entered upon the issue which is referred to in paragraph 76 and following and particularly about line 45 his Honour said:

I agree that the appellants have suffered loss as a result of the breach and are entitled to damages reflecting the cost of underpinning to bring the depth of the footings to the contractually required depth.

Now, your Honours, that seems, with respect, to pay no attention to the actual findings of the judge, but it also raises for consideration the question which was adverted to by the Court in Tabcorp. If I could take your Honours to page 57 – they are numbered at the bottom right-hand corner - of the book of materials. What your Honours will see is, in paragraph 17 on that page and the last paragraph on the page after the quotation, it is said:

That tends to indicate that the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances.

The concept of reasonableness that was being spoken of is the one which is referred to in the earlier case in the Court of Bellgrove v Eldridge which your Honours will see is the first of the pages in the book. But your Honours will see the relevant part of it at page 618 in the paragraph commencing about point 6 on the page – page 6 of the book:

The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.

That occurred in circumstances where, as your Honours can see at the page numbered 3 about point 3 on the page in that case:

there had been a very substantial departure from the specifications and, indeed, such a departure as to result in grave instability in the building.

The reason why I take your Honours to that observation is just that if one goes back to page 57 of the book of materials in Tabcorp your Honours will see at the bottom of that page it is said:

It is also important to note that the “reasonableness” exception was not found to exist in Bellgrove v Eldridge.

One can see why. But one comes back then to the present case where there is, in our submission, a stark contrast between the findings at first instance and the amount which was awarded.

Your Honours, could I come back to the question of underpinning and the references to the Australian Standard 2870, which one sees in the judgment. It was clear that so far as underpinning was concerned the parties treated the standard as applicable. You can see that in the Court of Appeal, page 107, paragraph 10. It is apparent also, from the observations of the trial judge at page 23 that the plaintiff relied on them at the trial. Your Honours will see that about line 13 or 14:

The plaintiffs set up AS 2870 as the measure of the breach –

and so on. Now, your Honours, much of Justice Macfarlan’s reasoning on the question of reasonableness was reliant on that standard. If I could just take your Honours to paragraph 76 at page 137 you will see at the bottom of page 136, top of page 137 he found, by reference to that standard:

that the primary purpose of the specifications was to assist in achieving stability –

Then if one goes to paragraph 77, in the first five lines, he used the general term:

stability-related requirements considered appropriate by the consulting engineer –

and by the standard. Now, your Honours, what his Honour did not refer to is what appears in the standard in appendices B and C and your Honours can see those at page 120 to 123 of the materials. Appendix B at page 120 your Honours will see with the heading “Performance Criteria and Foundation Maintenance” and then at page 123 you will see a heading “Classification of Damage due to Foundation Movements”.

The trial judge found that the damage to the house was within appendix category 2. You will see where that category is at page 123 and in the table at the top of the page where it is said the third category:

Cracks noticeable but easily filled.

Doors and windows stick slightly -

That is category 2. Now, your Honours, the findings made by the primary judge in that regard can be seen commencing at page 15. There is a discussion of the issue at the bottom of that page setting out at about line 49 that both parties had invoked that standard. The purpose of the standard is there set out. Your Honours will see that the discussion of the issue goes through to page 21 in the first place, where, at about line 48, the judge accepts:

that the damage is relevantly classed as category 2 damage within the meaning of AS 2870.

Then, your Honours will see the conclusion at page 23 in a passage commencing about line 13, to which I referred earlier, and it goes through to about 35. Now, if I could just say this, that you will see particularly in relation to the observations at about line 33 that:

AS 2870 starts on the premise there will be some cracking, and classifies cracking as significant or insignificant, and allocates responsibility accordingly. In this case, classification resulting in a finding of insignificant cracking for which responsibility is allocated to the owner.

What is meant by that, your Honours, is that if one goes back to the standard, one sees that at page 121 of the volume, about three-quarters of the way down the page it is said:

For Category 1 or 2 damage, remedial action should consist of –

and your Honours will see that it is said that it is –

part of the normal maintenance of houses on reactive clays.

Your Honours will see the next paragraph and then at the top of page 122:

Underpinning should generally be avoided where the problem is related to reactive clays, although it is recognized there may be occasional situations –

Now, this was reactive clay and the Court of Appeal held – your Honours will see this at page 140, paragraph 84, about line 39, “This submission”, which is in a previous sentence:

assumed that the only damage was cracking observed on the internal walls –

The damage was significantly more extensive –

The damage was in my view well beyond what was contemplated by the Standard to be within normal tolerances.

Well, your Honours, one would ask why is there not some attention devoted to the fact that there had been a finding by the primary judge in relation to the matter and the provision of the standard to which I referred earlier had been referred to specifically by the primary judge at page 87, about line 26 – sorry, I have just given your Honours the wrong reference, I think. Could I come back to that? In some stage in her reasons the primary judge

referred to the passage to which I referred earlier about the lack of need for underpinning in reactive clays.

HEYDON J: I think it is page 86 about line 28.

MR JACKSON: Yes, I am sorry, your Honour, that is so. That is the point, your Honour, I am sorry. Now, could I just say this, that without any reference to appendices B and C, the result is that the Court of Appeal has imposed a standard really beyond that contemplated by 2870, but yet used 2870 as the basis for decision that the rectification of the defect by the manner, the subject of the judgment, was something that was reasonable.

Now, your Honours, if unchallenged, we would submit the approach taken by the Court of Appeal was itself unsatisfactory in the way it went about it, but also the circumstances of such, that it really involves disregarding the fundamental matter on which the court itself based its decision, namely what had to be done to comply with the national standard AS 2870. Your Honours, those are our submissions.

GUMMOW J: We do not need to hear from you, Mr Webb.

We are not satisfied that any question of principle respecting the assessment of damages arises on the facts of the case, nor do the interests of justice call for a grant of special leave. Special leave is refused with costs.

AT 12.17 PM THE MATTER WAS CONCLUDED