Metricon Homes Pty Ltd as trustee for Metricon Homes Unit Trust v Lipari [2024] NSWSC 566

Andrew Hales  |  Maciej Getta  |  Luke Sundercombe

Key takeout

A homeowner argued that she had bargained for but did not receive a particular type of slab for a residential building constructed by Metricon.  The homeowner argued that the house required a ‘knock down and rebuild’. 

The NSW Supreme Court found that:

1. The homeowner had in fact bargained for a superior slab than was strictly required for land, and did not receive that particular type of slab; and
2. The constructed slab possessed defects for a typical slab for the land which was not in conformity with the relevant Australian Standard.

In the absence of damage and where it was found that there was no real risk of failure of the slab, the appropriate measure of damages was reliance damages, which was the amount that the homeowner had paid for the slab. The homeowner secured judgment for only $55,020 of her total claim of $815,000.

Facts

This update relates only to the homeowner’s claims concerning the defective slab. The judgment involved several other issues, including the builder’s claim for unpaid amounts, the builder’s cross claim against the designer of the slab, and the homeowner’s claim against the builder for misleading or deceptive conduct in trade or commerce concerning the location of the pool on the homeowner’s property, and the homeowner’s claim for various ‘rats and mice’ defects.

In 2017 the homeowner and the builder entered a contract for the construction of a house on the homeowner’s property.  The contract initially provided that the house would be constructed on an ‘H1’ class slab, rather than a ‘M’ class slab (at additional cost).  This was specified while geotechnical investigations were conducted on the property to determine which class of slab was needed.  Class H1 can generally be described to have a higher performance than a class M slab to deal with differences in the reactivity of the geotechnical environment and moisture changes.  A site that is of H1 classification can be expected to be more reactive and susceptible to greater moisture changes than a site that is of M classification under AS 2870.

A geotechnical report was obtained for the property which indicated that it had a site classification of M rather than H1.  It was therefore not necessary for the house to be constructed with a H1 class slab.  Despite this, the homeowner confirmed that she wanted to pay the additional money to obtain an H1 class slab for her peace of mind in the longevity of the structure.

The slab was ultimately installed in a defective manner in September 2017, and the builder achieved practical completion in May 2018.

The homeowner alleged that there were 11 defects in the slab, being aspects of the slab design and construction that were alleged to not be in conformance with AS 2870.  These were:

• Drainage and waterproofing behind the central step
• Edge beam cover to bottom reinforcement
• Slab mesh for class H1
• Trimmer bars to re-entrant corners
• Piering to internal areas of the slab
• Lack of full continuity at the step
• Internal beans not being edge to edge
• Edge beam reinforcement not continuing 1m at re-entrant corners
• Step stem thickness
• Beam bottom reinforcement
• Garage edge beam depths

The two alleged defects underlined above were unique to the requirements of an H1 slab under AS 2870.  The remaining nine alleged defects were alleged to not meet the requirements common to all slabs under AS 2870 (including therefore class M slabs).

The builder and the structural engineer admitted the alleged defects in bold above, and disputed the balance.

Decision  

Nixon J found that the homeowner had not established any of the disputed alleged defects.

In having established that the slab contained the admitted defects and was in fact not constructed to the H1 classification that the homeowner had contracted for, the court then considered whether the homeowner should recover the cost to rectify the slab.  The homeowner contended this would require the demolition and reconstruction of the house at significant cost.

The court considered the nature and extent of the ‘risk’ of any damage being caused to the slab and the house as a result of the defects in the slab and their contractual non-conformance.  Three issues were relevant.

1. There was no challenge to the builder’s assertion that the only cracks in the slab (which were ‘slight’ or ‘very slight’ as those terms are used in AS 2870) were shrinkage cracks which develop during the plastic setting stage for concrete (ie within three to six hours of being poured).  It was acknowledged by the homeowner’s expert structural engineering witness that the slab did not have ‘major structural cracking’ and that ‘the currently observable level of cracking in the slab does not require rectification‘.
2. There was no evidence of any physical damage to the homeowner’s house.
3. AS 2870 recognises that cracks are expected, specifically that buildings are expected to have low instances of ‘noticeable cracks’ less than 1mm in width, and an occasional incidence of ‘distinct cracks’ less than 2mm in width.

Accepting that there was no (or negligible) physical damage to the house, the homeowner’s expert witness expressed the view that damage existed where there was a deficiency in the design of the slab or a reduction in its capacity and, in essence, that damage could manifest itself later on.  The expert considered that a reduction in capacity would lead to the slab’s failure even if there were no current signs or symptoms to indicate that such a failure would or might occur.  The expert relied on the existence of all 11 of the alleged defects and their combined effect.

The expert’s opinion was rejected by the court, first on the basis that the homeowner had only established three of the 11 alleged defects and secondly, that there was no evidence that any of the three established defects had had any effect on the strength, capacity or performance of the slab.

The court rejected the homeowner’s assertion that there had been any existing significant damage, or any real risk of future significant damage to the slab or house as a result of the non-compliances with AS2870.

Measure of damages

In assessing the measure of damages due to the homeowner, the court considered the compensatory principle set out in Bellgrove v Eldridge (1954) 90 CLR 613 at 617-618, which provides that generally speaking compensation for defective building work will be measured as the cost to bring the works into conformity with the contract (ie to rectify the defects).  The exception to that principle is that undertaking the necessary work ‘must be a reasonable course to adopt’. The High Court has said in a subsequent decision that ‘the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances’ (Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272).

In accepting that the homeowner did intend to rebuild her house if she was awarded damages to do so, the court considered whether the cost of rectifying the slab (including demolishing and re-building the house – a cost of $815,000) was out of all proportion to the benefit to be obtained from those works.

The homeowner submitted that the works were necessary to address the risk that the slab would fail.  This submission was rejected becasue the expert evidence did not establish that the house had suffered any damage, other than damage of a type considered to be ‘negligible’ or expected under the criteria in AS2870.  There was no basis to conclude that there was a real risk of any significant damage to the house in the future, particularly since the slab had performed well over the previous six years.

The court found that it would not be reasonable to demolish and re-build the house, and that an award of damages on that basis would be disproportionate to any benefit to be obtained from doing the work.

The court found that a more appropriate measure of damages would be the homeowner’s ‘reliance loss’, which was her loss in not receiving a slab that she had paid for.  On the basis that the slab was not a compliant M class slab due to non-conformances with AS2870 that were common requirements of both M and H1 class slabs, the court awarded the homeowner damages in the amount that she paid for the slab, being $55,020.