The case of Castellan v Icecorp Pty Ltd [2024] VCACT 1120 centres around a contractual dispute arising from a construction project involving two townhouses. The Owners alleged defective workmanship and breaches of statutory warranties, seeking rectification costs from the Builder. The Tribunal had to assess whether the claimed defects justified compensation and whether contractual expectations were met.
Assessment of Rectification Costs
The Owners relied on the principle established in Renown Corporation Pty Ltd v SEMF Pty Ltd [2022] NSWCA 233, asserting that damages should be measured by the cost of rectifying the defects. However, following Bellgrove v Eldridge (1954) 90 CLR 613, the Tribunal emphasised that rectification costs must not only be necessary but also reasonable. The High Court’s decision in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 83 ALJR 390 reinforced this by underscoring proportionality and objective reasonableness in awarding damages.
Causation and Burden of Proof
A key issue in the case was the requirement for clear evidence linking alleged defects to specific damages. The Tribunal cited Moody & Co Builders Pty Ltd v Foster Holdings (Sorrento) Pty Ltd (Building and Property) [2022] VCAT 908, ruling that some claims failed due to insufficient evidence. For instance:
- The absence of weep holes was deemed non-critical, as it did not materially affect the building’s functionality.
- Claims regarding missing water stops in showers lacked proof of resulting water damage.
Implications of Promissory Estoppel
A critical aspect of the dispute involved the Owners’ alleged waiver of liquidated damages in exchange for additional landscaping works by the Builder. The Tribunal upheld the Builder’s reliance on Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, which laid out the principles of promissory estoppel. The Tribunal found that:
- The Owners’ conduct led the Builder to reasonably expect that liquidated damages would be waived.
- The Builder relied on this expectation, incurring additional costs and refraining from claiming its final payment.
- The Owners’ acceptance of a $20,000 payment from the Builder confirmed the existence of an enforceable promise.
Key Legal Lessons
This case highlights essential considerations for both construction professionals and property owners:
- Evidence-Based Claims – Claimants must present clear, objective proof linking defects to quantifiable losses.
- Proportionality in Damages – Compensation should reflect reasonable rectification costs rather than an automatic entitlement to full remediation.
- Contractual and Estoppel Risks – Informal agreements can create enforceable obligations, emphasising the need for careful documentation of negotiations.
By reaffirming fundamental contract law principles, the Tribunal’s decision serves as a valuable precedent for future disputes in the construction sector.