In a recent VCAT decision (Miller & Anor v Pomphrey (Building and Property) [2022] VCAT 140), the Applicants (“the Owners”) issued proceedings in the Victorian Civil Administrative Tribunal against the Respondent (“the Builder”) seeking damages for defective building work. This case shows how damages can be calculated by either the cost of replacement or the cost of diminution in value. Once again, we see how the success of a party comes down to their evidence and experts.
This case relates to Owners who engaged a Builder to carry out an extension and some renovation works to their home. Prior to the completion of the works, the Owners terminated the building contract based on alleged substantial delays and defective and incomplete building works. The Owners relied on the operation of s41 of the Domestic Building Contracts Act. Section 41 provides a right to terminate a building contract where the works are not completed within 1 ½ times the period nominated in the building contract, and the Owners had paid a reasonable amount for the works actually done.
The Owners then obtained quotations for the repair and completion of the Builder’s works, and they were advised it would be some $356,139.21. Given this, and their financial situation, they decided to demolish the building works and brought a claim for the cost to rebuild a ‘similar’ home.
The Owners’ particulars of loss and damage claimed was for a total of $899,468.13, not including rectification costs of $57,383.00. The Builder issued a counterclaim of $27,045.00, for alleged variations. The Tribunal found that the Builder’s counterclaim was not made out and was dismissed as the Builder did not engage the contractual process to validly issue variations as none of the alleged variations were in writing in accordance with the building contract. Again, a timely reminder about the importance of issuing proper variations.
The question therefore was, what was the most appropriate valuation of the defective works where the Owners had demolished the property to build a similar home. There were two alternative positions, either:
- The cost of building a replacement home in the sum of $548,216.00;
The Owners provided a copy of the building contract to rebuild the home in 2022. Together with other consequential losses such as rent, holding costs, fees incurred and wasted costs, the total claimed (not including interest and costs) is $823,188.28; or
- The diminution in value of the Property in the sum of $390,000.00.
The Owners relied on an expert report regarding diminution in value in which the value of the Property as built as at termination was contrasted with the value of the Property if the home was completed without defects as at termination. Together with other consequential losses such as rent, holding costs, fees incurred and wasted costs, the total claimed (not including interest and costs) is $664,972.28.
The Owners had gathered substantial evidence from two lay witnesses and their experts who each prepared expert reports and valuation evidence for their damages claim. Whereas the Builder only relied on the witness statements of the Builder and two tradesmen who worked on the property however, only the Builder gave evidence at the hearing in support of his case.
Her Honour Judge Burchell, Vice President found that the Owners attempted to mitigate their losses after termination in undertaking remedial works that they could afford at the time and sought to subdivide the property to sell part of the land in order to fund their new build. Her Honour provided commentary that where there has been a breach of contract, expectation damages are the primary measure of compensation. Accordingly, the Tribunal attempts to place the Owners in the net financial position they would have been in had the Builder performed the contract. The expectation damages are made by reference to the market price at the time of breach.
Her Honour found that the Builder was to pay the Owners the sum of $629,171.88, together with interest pursuant to the Penalty Interest Rates Act 1983 (Vic).
Her Honour further provided commentary regarding the impact of the COVID pandemic to the litigation process. Her Honour commentated that it is regrettable that delays in hearings occur from time to time through no fault of the parties. This is particularly relevant in the context of the recent COVID pandemic. However, in the present case, there is no suggestion that the Owners ever sought to delay the hearing and determination of this proceeding. On the contrary, given they were “homeless” and unable financially to rebuild their home without the final outcome of this case, the Owners have been anxious for the prompt determination of this matter. The Owners have been deprived of the damages that they seek against the Builder since the initiation of this proceeding.
This case demonstrates the importance of preparation for trial, given the success of a party relies heavily on evidence, witnesses, and expert reports.
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