This presentation looks at the history of awards of damages for demolition and reinstatement of property, including Bellgrove v Eldrige (1954) 90 CLR 613, Ruxley Electronics and Constructions Limited v Forsyth [1996] AC 344 and Tabcorp Holdings Limited v Bowen Investments Pty Ltd (2009) 236 CLR 272. The presentation then discusses the two recent cases of Softley v Metricon Homes Pty Ltd [2014] VCAT 1502 and Hooper v Metricon Homes Pty Ltd [2014] VCAT 277 in which the Tribunal made an award of damages for demolition and reinstatement, rather than rectification, where the slab was found to be unstable.

1. SLAB HEAVE, WINDFALL GAINS
and everything in between
Andrew P. Downie
Melbourne TEC Chambers
Young’s List

2. OUTLINE OF DISCUSSION
• Outcome in Softley v Metricon Homes Pty Ltd [2014]
VCAT 1502 (“Softley”) and Hooper v Metricon Homes Pty
Ltd [2014] VCAT 277 (“Hooper”).
• Why is this outcome controversial?
• A brief history, including Bellgrove v Eldrige (1954) 90
CLR 613; Ruxley Electronics and Constructions Limited v
Forsyth [1996] AC 344 and Tabcorp Holdings Limited v
Bowen Investments Pty Ltd (2009) 236 CLR 272.
• Facts of Softley and Hooper and what led to outcome.

3. SOFTLEY AND HOOPER
• Both concerned houses in suburbs of Melbourne
exhibiting slab heave because of ground conditions.
• Hooper was decided in March 2014. SM Walker ordered
Metricon pay the cost of demolition and reconstruction
in the amount of $264,000.
• Softley was decided in December 2014. Judge Macnamara
and M Cameron ordered Metricon pay the cost of
demolition and reconstruction in the amount of
approximately $250,000.

4. WHY IS THIS CONTROVERSIAL?
• The owner may never carry out the demolition and
reconstruction and yet he or she may be awarded
damages for this to occur.
• The house has value and is saleable, even at a lesser
value.
• The money received therefore may be a windfall gain in
the event that this doesn’t occur.
• Yet, an owner is entitled to get what he or she contracted
and paid for.

5. HISTORY – BELLGROVE V ELDRIDGE 1954
• Wrong mix used in concrete foundations and in mortar for bricks,
and court held (and it was not challenged) that the building was
unstable.
• The builder argued that the proper measure of damages was the
difference between the value achieved at a sale and the value it would
have achieved if the contract was performed (i.e., had the correct mix
been used).
• HCA disagreed and said the proper measure of damages is that to give
the owner substantially what she contracted for, that is, the difference
between the contract price for the works and the cost of making the
work or building conform. Where conformity can only be achieved by
demolition, then that course is to be adopted (618).

6. HISTORY – BELLGROVE V ELDRIDGE 1954
• The work undertaken must be necessary and reasonable (618).
Example used is a claim for demolition where second-hand bricks
specified but new bricks used.
• Diminution of value may be appropriate where remedial work
unreasonable (619).
• Alternatives (e.g underpinning) would be doubtful remedies (620).
• Fact of a windfall gain in the event that the house is not demolished
and rebuilt is immaterial (620).

7. HISTORY – RUXLEY V FORSYTH 1996
• An owner contracted with builders to build a pool with maximum
7ft6in deep. The completed pool was maximum 6ft9in deep and 6ft
deep at the diving area. The owner sued for demolition and
reinstatement.
• There was expert evidence that there was no diminution in value of
the land as a result of the lack of depth because the pool remained
safe for diving.
• There was evidence that the owner did not intend to demolish and
reinstate, and therefore an award of damages for this would be a
windfall.
• The owner argued that because there was no diminution in value,
the only way he could be compensated is with demolition and
reinstatement costs.

8. HISTORY – RUXLEY V FORSYTH 1996
• The Primary Judge awarded a nominal sum for breach of contract,
the Court of Appeal allowed the appeal and awarded the costs of
demolition and reinstatement and the House of Lords upheld the
Primary Judgment (that is, a nominal sum for breach of contract).
• The main difference was whether the intention to demolish and
reinstate was relevant.
• The House of Lords focused on the reasonableness of recovery of
reinstatement costs where there is no intention to reinstate, and
therefore a windfall gain would be achieved.
• Lord Mustill said that damages awards are not so inflexible as to
prevent the Court awarding somewhere in between the zero value
for diminution and the high value of reinstatement.

9. HISTORY – TABCORP V BOWEN 2009
• A tenant demolished a foyer to a building and constructed a new
foyer. The works were carried out without the landlord’s consent.
The landlord claimed the demolition and reinstatement costs.
• The new foyer did not result in a diminution of value, and would
require refurbishment in any event when the lease ended much
later.
• The landlord wanted its foyer reinstated.
• The landlord alleged a breach of a covenant to not undertake works
without consent.

10. HISTORY – TABCORP V BOWEN 2009
• High Court ordered damages for demolition and reinstatement
($1.38m) instead of diminution of value ($34,000) as its measure of
damages was the loss sustained by the tenant in failing to perform
the obligation to preserve the premises.
• High Court held that reinstatement costs are the prima facie
measure, provided it is necessary and not unreasonable.
Unreasonable only where exceptional circumstances exist.
• Whether “the innocent plaintiff was using a technical breach to
secure an uncovenanted profit” remains relevant, but this was not
the case here as landlord wanted its original foyer back.
• Betterment in the demolition and reinstatement costs where the
foyer required refurbishment in the future in any event could have
been argued but was not.

11. HOOPER V METRICON
• Contract signed in 2006. Occupancy permit in 2007. Waffle pod slab
designed and built. Site was a problem site, P, with reactive clay.
• Tenanted property and tenants complained of cracking and jamming
windows and doors.
• Builder found to have failed to construct the slab in accordance with
the engineering plan by not compacting the fill under the slab in
accordance with the engineering design [145], and by using scoria as a
fill material [153], and as a result breached the implied warranties in s8
DBCA.
• Evidence that the slab had not stabilised and it was unclear when it
would stabilise. Because of ongoing repairs and uncertainty of the
home’s stability, demolition and reinstatement costs appropriate [220].

12. HOOPER V METRICON
• Engineer found to have owed, and breached, a duty of care by
specifying rolled fill instead of controlled fill and by not carrying out
proper calculations and computation and simply adding more steel to a
standard design on the assumption that it would be sufficiently stiff.
However, despite the lack of calculations, there was no proof of damage
resulting from this. As a result, the engineer’s negligence did not cause
any loss.
• Subject to appeal by Metricon

13. SOFTLEY V METRICON
• Contract signed in 2009 for $200,140 for home in Melton West. Occupancy
permit issued in February 2010. Four months later, cracks were noticed.
• Home built on highly reactive clay soil. Waffle raft slab employed.
• There were two pebble gardens in the front, one of which was built by
Metricon, the other by the owners.
• November 2010, drought broke and cracking got worse. Internal and external
cracking, including requiring the replacement of a wall in 2011. Trusses
supporting external walls lifted and as a result there was gap between the
trusses and the internal wall.
• Subsidence in the rear and heave in the front. The distress areas were not near
the pebble gardens.
• AS2870 “Residential slabs and footings – construction”. Avoid standard that are
unduly conservative to keep costs low. Buildings designed in accordance with
standard are expected to experience usually no damage, and a low incidence of
cracking between 1mm and 5mm width.

14. SOFTLEY V METRICON
• Slab was considered to not be performing either pursuant to the cracking
requirements (extending to category 3) or the differential movement (limit
of 30mm but exhibiting 44mm) performance requirements of AS2870 [39],
[40].
• Uniform movement of slab acceptable, but differential movement (ie
bending) not [43].
• Heave is dishing effect where water ingress causes edge to move [44].
• Cause of subsidence considered to include a cracked stormwater pipe,
pebbled gardens at the front of the house and lack of attention to drainage
during construction, all being the responsibility of the builder. The owner
avoided culpability because the pebble garden constructed by him was not
near a distress site. Also, lack of maintenance and preventative works by the
owner did not impact the Tribunal’s view.

15. SOFTLEY V METRICON
• The Tribunal had to virtually use a crystal ball to guide it in its remedy:
[100] The choice which confronts us, therefore, in framing an appropriate remedy in damages is to
determine whether, in the circumstances, it should be concluded that the worst is over and that
the damage and distress which the structure has suffered already are referrable to ‘one off’ events
during construction and that further large scale movements will not occur having regard to the
‘covered structure’ phenomenon and the protective effect of the pathways constructed by the
Softleys. Or on the other hand if there are further factors in play that perhaps had not been fully
explained, with the result that further movement beyond the parameters assumed to be reasonable
in accordance with AS2870 will occur.
[101] If the former conclusion is reached then damages should be awarded sufficient to fund a
rectification of the existing structure. If the latter conclusion is reached, then the funding should
be sufficient to allow for a demolition and reconstruction.
• The fact that rectification work was performed and those areas still undergoing
distress suggested that the worst was not over, and therefore demolition and
reinstatement costs appropriate [102].
• Subject to appeal by Metricon.