Whitaker v F.P & H.S Keogh Pty Ltd (Building and Property) [2024] VCAT 708

Chris Hey  |  Michael Lo  |  Stacey Clough 

Key takeouts

Damages may be awarded based on the costs for demolition and reconstruction where there has been a complete departure from the contract and building permit, the departure has a significant adverse effect on the functional utility and amenity of the building, and that breach of contract is egregious.

Facts

The Whitakers (owners) engaged Keogh (builder) for the construction of a house.  The owners expressed concerns about slab movement due to reactive soil on the site and agreed to pay a higher price for a waffle slab design recommended by the builder to prevent movement. The builder failed to follow that design.

Following completion of the house, the owners sued the builder for defects caused by excessive slab movement, asserting that the appropriate rectification method was to demolish and reconstruct the house on a new slab.

One of the issues before VCAT (Tribunal) was whether damages on the basis of demolition and reconstruction was appropriate in the circumstances.

Decision

Assessment of damages

The Tribunal determined that damages based on demolition and reconstruction was appropriate. This was on the following two grounds:

1. It would be cost effective to demolish and rebuild the house because it had been established that the slab had not been tied to the piers, the underlying condition of the piers beneath the slab could not be verified, and there was a lack of evidence to support the builder’s proposed methodology to level the slab.
2.  The Tribunal referred to the full Court of the Supreme Court of South Australia in Stone v Chappel [2017] SASCFC 72 and the relevant considerations regarding rectification damages. Where the owners explicitly requested and paid the builder for a specific engineering design, the Tribunal held there was a stark deviation from the contractual and building permit requirements, as the slab was not anchored to the piers as stipulated, significantly undermining the building’s structural integrity.  This breach was considered egregious.

Apportionment of liability

The Tribunal determined that the owners’ claims were apportionable claims and apportioned liability as between the builder the building surveyor on a 50/50 basis, under the Wrongs Act 1958 (Vic).

The building surveyor had breached its duty of care owed to the owners and duties under the Building Act 1993 (Vic) because:

• the building surveyor had ignored two inspection certificates issued by the building inspector warning that the building inspector had not been able to inspect the piers;
• it must have been clear to the  building surveyor from the building inspector’s photographs that the piers were not going to be tied to the slab; and
• the building surveyor ignored the documentary record and inexplicably issued an occupancy permit at the request of the builder even though two final inspections had been failed and there was no record of a further final inspection having been passed.