Damages are intended to putting the person back into the position they should have been Intended to place innocent party in the same position as if breach had not occurred The ruling principle Robinson v Harman The plaintiff is, so far as many can do it, to be placed in the same situation as if the contract had been performed’ Hadley v Baxendale Award of damages should fall into one of the two categories First Limb - Damages that may fairly and reasonably be considered to arise naturally from the breach Second Limb - Damages that parties know or ought to have known, at time of entering contract, was likely result of a breach Damages for defective building work In cases of defective building work, innocent party entitled to damages to ‘demolish and replace’ but only if necessary and reasonable. Bellgrove v Eldridge Contract for construction of a house Contractor claimed final payment Owner counterclaimed for damages – substantial departure from specifications – concrete foundations Contractor argued foundations be ‘underpinned’ Held: Court not satisfied that underpinning would be successful. Departure so substantial that only remedy was to owner in same position as if contract had been performed That meant demolishing house & restricting High Court agreed General presumption in favour of ‘reinstatement damages’. But must be Necessary to produce conformity; and A reasonable course to adopt If not reasonable, the ‘true measure of damages will be’ The diminution in value ... if any, product by the ... defective workmanship Example House has been built perfectively EXPECT instead of pink tiles they are black tiles Breach of contract Diminution in the of your home – INSTEAD of the cost of ripping out the tiles and replacing them Ruxley Electronics v Forsyth Contractor agreed to building swimming pool Specification: 7’6 deep at the deep end Finish pool was only 6’9 deep at the deep end Pool was perfect in all respects claimed damages equivalent to cost of demolishing and replacing Evidence No doubt that owner had made clear his requirement 7’9 deep No doubt that was very annoyed Demolition & reconstruction would cost $21K Diminution value was $0 trial
Plan showing that the sandbank was 6ft wide and was not incorporated in the contract and was not referred to expressly or widely Sandbank was 12ft wall and Randwick Municipal sued Walker for ‘whole of the works’ Builder was stuck with extra cost of wall What if the plan had been incorporated into the Contract? Courts rarely conclude that the is defined exclusively in the technical contract documents. Reality is that this is uncommon. Williams v Fitzmaurice Specification didn’t refer to the floors of the house Mistake in the plans – builder said that floors were extra Court: Floors were ‘inferred’ in the contract and the ‘whole of the material mentioned or otherwise’ Courts will look for work that is indispensably necessary to achieve the contract result Dorter & Sharkey Lump sum contracts lump sum price specified in the documents ‘all work described here and shown in the Drawings, including but not limited to ...’ Highly relevant in ‘design & construct’ contracts because contractor undertakes to produce a building that is fit for purpose ‘Fit for purpose in every possible way’ Brief of requirements typically outlines what is required by principal ‘Design & construct’ – all risk is held with the builder AS 4300-1995 Design & Construct project – Builder is to do both design & construct Greater risk about variation in design ‘shall ... produce the Design Documents to accord with the Principals Project Requirements ...’ ‘shall ... complete the work under the Contract in accordance with the Design Documents so that the Works, when completed, shall be fit for the intended purpose’ The Power to Vary All standard from building contracts contain a power to vary the work Beware the contract that does not Standard form contracts normally give wide power Risk of no power to vary > power to vary since then no room to move Need a pricing control mechanism to determine what price is ‘reasonable’ AS2124 – Clause 40 [40.1] – Wide scoping power Contractor not vary the work under the Contract except as directed by the Superintendent Import aspect as cant rack up costs unless instructed Usually variations directed by Superintendent on behalf of Principal
Defects Defective Work Contractor obliged to carry out work free of defects Failure to do so constitutes breach of contract Implied obligation to perform work in ‘proper and workmanlike manner’ Usually express obligations Clause 30.3 – AS2124 for debt is easier Clause 4.1(e) – AS4300 ‘... execute and complete the works ... so that ... when completed ... shall Be fit for their stated purposes Comply with all requirements of the Contract What is a defect? Standards Australia contracts do not define ‘defect’ Objective considerations ‘a shortcoming or failure; a fault, blemish, flaw, imperfection in a person or thing’ Must also have regard to nature and purpose of contract Example ‘...any defect, shrinkage outside the tolerances permitted in the Project Brief, omission or fault or failure to confirm with the requirement of the drawings and specifications and design documentation’ Fertile ground for disputes Must be determined in the circumstances of the specific contract/project Classification of Defects Construction/workmanship defects Failure to construct in accordance with plans and specification Design defects Failure to design the Works in the manner required by the Principal Failure to achieve ‘fitness for purpose’ obligation? Contractual Procedures AS2124 – Clause 30.3
‘If the principal becomes entitled to exercise all or any of its rights under the contract in respect of the security, the principal may convert the security’ The Victorian Position Bachmann v BHP ‘A shall not convert into money security that does not consist of money until the party becomes entitled to exercise a right under the Contract in respect of this security.’ Clause 5.5 of the Contract – not dissimilar to Pearson Bridge ‘The Purchaser may deduct from monies otherwise due to the Supplier, any monies from the Supplier to the Purchase and if those monies are insufficient, the Purchase can have recourse to the security under the Contract’ Clause 22.4 – principal has security and can take that security. – its clear this was contemplated and allowed it An irreconcilable divide? Refurbishing & Construction Pty Ltd v John Goubran & Associates Pty Ltd Similar clause to Pearson Bridge – Distinguish between use of ‘whenever’ instead of ‘if’ as finding a negative stipulation Hughes Bros Pty Ltd v Telede Pty Ltd ‘whenever .. may be entitled’ is not the same as ‘is entitled’ Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd ‘shall be entitled’ required more than ‘may be entitled’ One for Victorians Approach in Bachmann is focussed on giving effect to the intention of the parties ‘may be entitled’ interpreted as ‘is entitled’ Who should be out of pocket in the event of a dispute? Parties have agreed contract as to who is out of pocket as to a dispute. Principal is entitled to call on the security before the dispute is resolved If found against them, then must pay it back. Contractor usually providing security for contractor obligations under the contract Entitlement Fletcher Construction v Vansdorf Contextual construction process ‘unconditional’ nature of performance bonds Trade usage Intended risk allocation Distinction between rights against a beneficiary versus rights against the surety
Elements D owed P a duty to take reasonable care D breached that duty by failing to take reasonable care D’s breach caused P injury or damage The injury/damage was not ‘too remote’ a consequence of the breach of duty What is a duty of care? Control mechanism Controls the circumstances in a person can be held liable for own careless actions Contract and Tort Duty of care can be owed in Tort Contract Suing in both Tort & Contract per Astley v Austrust Ltd Differences between contract and tort Elements Limitation periods Contract – date of contract breach Tort – date suffered the damage Can be timebarred under the contract but then sue in Tort i.e. cracked appear 7 years after building. Contract expired, but can sue in Tort Tests for remoteness Defence Existence of duty in contract does not preclude duty in tort of the contract exclude or modify a contract Limitation of liability clause By contract, limiting liability through all other aspects Contracts can limit tortuous duty Terms of contract can exclude/modify tortuous duty Limitation of liability Liability of nominated subcontractors to the Principal Junior Books v Veitchi Liability of subcontractors generally to the Principal Murphy v Brentwood District Council Must be nominated subcontractor by the principal – if not then there is not a duty to the principal Clause 10 AS2124 Liability of the Superintendent to the head contractor John Holland v Majorca Projects Pty Ltd Principal is liable to head contractor and not that of superintendent
Board may hold inquiries into conduct and ability to practice – s179 & 180 Grounds for inquiry are – s179(1) Fines, suspension or cancellation of registration Enforcement Notice and orders by MDS/RBS Emergency order – s102/103 ‘Show cause’ notice – s106 Building order – s111 Stop work order – s112 Offence not to comply – s118 Enforcement Proceedings for offences – s241 Offences under Act and Regulations Infringement notices – s225 Powers of entry, auditing and search warrants Building Appeals Board Functions and jurisdiction of – Part 10 Building and occupancy permits Protection work Notice & orders appeals from BPB Building regulations
Domestic Building Contract Cooling-off period – s34 & 35 Allowance for delays – weekends, holidays, RDO’s, etc – s32 Details of primes cost items & provisional – s22 & 23 Limits on deposits – s11 5% <$20K Restrictions on cost plus contract – s13 Variations – s37 & s38 Limits on progress payments – s40 Domestic Building Disputes Arbitration prohibited – s14 Actions in Supreme Court, Country Court, Magistrates Court must be stayed – s57 VCAT responsible for disputes Domestic building disputes – s53 Powers of the Tribunal – s53 Insurance claim disputes – s59A-62 jurisdiction Building Industry Regulation in Victoria Insurance – requirement for registration Application by natural person for registration If applicant required to have insurance, requires proof that Applicant is covered; or Builder engaged in domestic building work, applicant is eligible to be covered Builders – domestic building work Ministers to make insurance order – s135 Building Act Additional powers for orders for domestic building work – Insurance must be by a designated insurer – s137AA Offences Carry out domestic building work without insurance – s136(2) Claim to be insured when not insured – s137 Domestic Building Insurance Ministerial Order Applies when contract >$12K Must indemnify for loss or damage – clause 8 Non-completion Defective work Breach of statutory warranties Quality below required Breaches of TP act Additional cover – see clause 9 Domestic Building Insurance Ministerial Order