CONTRACTS
DAMAGES FOR BUILDING
CONTRACT BREACHES
David Jury, Senior Associate
Laura Iskander, Solicitor
DLA Phillips Fox, Sydney
52 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #127 JULY/AUGUST 2009
INTRODUCTION
In Janet Campbell v CJ Cordony
& Sons Pty Limited [2009] NSWSC
63, the Supreme Court of New
South Wales confirmed that the
damages for breach of a building
contract are the costs of bringing
the defective work up to the
contract standard.
THE FA CTS
Mr and Mrs Campbell
(Campbells) decided to renovate
their house in Beecroft, New
South Wales. They entered into a
contract for $534,059 (plus GST)
(contract) with CJ Cordony &
Sons Pty Limited (builder). The
builder was represented by Mr
Cordony. The contract stated that
the builder had home warranty
insurance. However, the builder
never obtained this insurance.
Practical completion occurred
82 days after the contracted
completion date. The Campbells
engaged property inspectors who
found a number of incomplete
and defective items of work.
Negotiations between the
Campbells and the builder over
the rectification of the defective
items of work and completion
of the incomplete works failed.
The Campbells then lodged a
complaint with the Department of
Fair Trading.
Subsequently, the Campbells
sued the builder and Mr Cordony:
• To retrieve amounts paid for
work the builder had not done.
• For defects in the builder’s
work.
• For breach of section 52 of the
Trade Practices Act 1974 (Cth)
(TPA) by representing that it had
home warranty insurance, when
it did not.
• To recover their consequential
loss for rental and removal costs.
The builder cross–claimed for the
outstanding amount of $57,022.90
for work it had done.
The proceedings were
commenced in the Consumer
Tenancy and Trader Tribunal
and for procedural reasons were
transferred to the District Court
and finally to the Supreme Court
of New South Wales.
The proceedings were ultimately
set down for hearing before
Justice Hammerschlag.
HEARING
Legal principles
Justice Hammerschlag confirmed
that when claiming for breach of a
building contract:
• The cost of reasonable and
necessary work to make it
conform to the contract plus
consequential losses because
of the breach (in excess of any
amount of the contract price
unpaid) is recoverable (Bellgrove
v Eldridge (1954) CLR 613).
• The rectification of the work
must be a reasonable course to
adopt.
• Consequential loss is claimable
if the loss arose naturally from
the breach of contract, and if the
loss may reasonably have been
in the contemplation of both
parties at the time they made
the contract (the rule in Hadley v
Baxendale (1854) 9 Exch 341).
• The plaintiff bears the onus of
proving its loss.
• The plaintiff must mitigate its
damages arising from a breach
of contract. However, the onus is
on the defendant to show that the
plaintiff has not done so.
Contractual claim
Justice Hammerschlag reviewed
the evidence on the defective and
incomplete works and held that
the Campbells were entitled to
damages for breach of contract
for various claims of defective
building work. The builder argued
that by the Campbells painting
over the builder’s defective work
they had waived the right to
claim for the builder’s breach.
This argument was rejected as
painting over the work made no
practical difference to the builder
or to the work that would be
required to fix its defective nature.
TPA claim
Justice Hammerschlag found
that:
• The contract recorded that the
builder had insurance from Royal
& Sun Alliance.
• Mr Cordony assured the
Campbells before the contract
was signed that he had insurance
from Royal & Sun Alliance.
• Following this conversation, Mr
Cordony gave the Campbells a
certificate of currency from Royal
& Sun Alliance.
• A letter from the builder’s
solicitor admitted that the
builder had failed to obtain the
insurance and intended to obtain
retrospective cover.
Justice Hammerschlag held
that the builder engaged in
misleading and deceptive conduct
by representing that it held home
warranty insurance when it did
not. In addition, Mr Cordony knew
the builder had no such insurance
and was therefore knowingly
involved in the misleading and
deceptive conduct within the
provisions of section 75B of the
TPA.
Justice Hammerschlag stated
that even if he was to infer that
the Campbells would have
proceeded with another builder
at ‘a comparable price’, the
Campbells failed to lead evidence
about:
• The price at which they would
have proceeded.
• The terms on which the work
might have been done by any
other builder.
• Whether the quotes conformed
with the sets of documents issued
to other builders.
• Whether the other builders had
the ability to obtain insurance at
the time.
• The capability of any of the
alternative builders to have
performed the work.
Therefore, it was held that the
Campbells were not entitled to
damages for misleading and
deceptive conduct because
they failed to establish that they
suffered loss or damage in the
manner contended.
Further, Justice Hammerschlag
relying on Anema E Core Pty
Ltd v Aromas Pty Ltd [1999] FCA
904 stated that even if they had
suffered loss or damage, the
damage suffered was not caused
by the builder’s conduct. In
Anema, it was held that it was not
enough to show that the contract
resulted from the inducement.
What had to be shown was that
the loss flowed directly from
the inducement. Therefore, the
Campbells’ damage was actually
suffered by defective work being
done, not by the inducement to
enter into the contract.
Rental claim
Justice Hammerschlag found
that damages for removal and
rental expenses satisfied the
rule for claiming consequential
loss. Despite the fact that the
Campbells submitted that they
were required to move out due to
health reasons and the fact that
the husband ran his business
from home, the Court found
that the Campbells had failed to
establish that it was necessary for
them to move out, although it may
be highly inconvenient for them
to stay.
Additionally, the claim failed as
the Campbells failed to prove
any damage suffered by them as
they did not lead proper evidence
as to rental value. Justice
Hammerschlag stated that a
mere print out from an internet
website ‘Domain’ of rental prices
in the northern Sydney suburbs
did not establish the actual
rentals being paid in the area.
At best it established the asking
price of real estate agents but
did not even reach the level of
establishing an offer.
IMPLICATIONS
For builders and their insurers
this case confirms that if a
building contract is breached the
damages available to the innocent
party can include:
• The cost of labour and material
to remedy a breach of contract.
• Consequential loss such as loss
of profit.
• The cost of removal and rental
expenses.
For those seeking to claim for
breach of a building contract,
this case confirms that the claim
must be reasonable, arising
as a direct consequence of the
breach of contract and within the
contemplation of both parties
to the contract. In addition, it
is imperative to keep adequate
documentation throughout
the project to ensure there is
sufficient evidence to support any
future claim.
David Jury and Laura Iskander’s
article was previously
published in DLA Phillips Fox’s
Construction Bulletin—July
2009. Reprinted with permission.

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #127 JULY/AUGUST 2009 53