Construction cost claims and defect rectification counter claims – who came out on top?

A claim for unpaid fees to a residential home builder, and a cross claim alleging building & design defects and misleading and deceptive conduct results in mixed success for all parties.

The background

In 2017 to 2018, Metricon Homes Pty Ltd (as trustee for Metricon Homes Unit Trust) (Metricon) constructed a house for Antonia Lipari (Lipari) on a property in Leppington, New South Wales (the Property). The concrete slab upon which the house was erected was designed by Rafeletos Zanuttini Pty Ltd (Zanuttini).

Metricon brought proceedings against Lipari in the NSW Supreme Court claiming the unpaid balance of the contract price under the construction contract ($93,257.10). Lipari filed a Cross-Claim against Metricon and Zanuttini alleging that the concrete slab did not comply with relevant standards and that there were defects with the slab and Property, which required rectification. Lipari also claimed that the swimming pool was incorrectly installed by Metricon and alleged that Metricon made misleading representations regarding the pool location.

Lipari sought damages for the costs of remedying the defects and loss of Property value due to the positioning of the pool and costs of placement.

In issue

• Both Metricon and Zanuttini accepted that there were defects in the slab and that each of them was liable to Lipari.
• The key issue in dispute was the extent of the defects (pursuant to the Australian Standards), the proper measure of the associated loss to Lipari, and the associated unpaid amount owing under contract to Metricon.

The decision at trial

Each party obtained independent expert evidence regarding the concrete slab, the application of the Australian Standards and the subsequent damage to the Property, in addition to the costs of rebuilding compared to the cost of rectifying alleged defects. Unsurprisingly, the experts did not agree on the alleged damage and rectification costs.

His Honour, Judge Nixon, closely reviewed the evidence presented by each party and submissions made by the experts under cross-examination. His Honour also considered the evidence of Lipari regarding the alleged Property damage and claim for the costs of demolishing and rebuilding her Property. The court was critical of Lipari’s expert evidence and change of views in the reports compared to the evidence during trial.

While the court accepted Lipari’s evidence that she would have rebuilt the house if she was awarded the appropriate monies, his Honour was not satisfied that Lipari had established that there was any existing significant damage, or any real risk of future significant damage, to the slab or house as a result of the non-compliance with the relevant Australian Standard to allow an award of damages for the complete rebuild of her house.

Lipari had the benefit of living in the house for 6 years and there was not a single instance of damage which met the definition of 'significant' damage in the relevant Australian Standard. If there was 'significant' damage to the walls of the house as a result of movement of the slab, there were various steps which could be taken short of demolition. The 'last resort' option described in the relevant Australian Standard in cases of 'significant' damage was not demolition and reconstruction, but structural repairs to the footing system, such as deep underpinning.

The court held it would not be reasonable to demolish and rebuild the house. However, Lipari had suffered loss in respect of the construction of the slab and his Honour awarded damages to her in the amount paid for the slab, which was about $55,000. Lipari was entitled to set off this amount against the unpaid balance of the contract price owed to Metricon. As his Honour did not allow an award of damages for the funds to rebuild the Property, the court had to consider the additional claimed Property defects. Having regard to the evidence, his Honour made an allowance of $54,845.00 for general defects. His Honour held that Lipari was entitled to set off Metricon’s liability for the damages awarded against the unpaid balance of the contract ($93,257.10).

Lipari had otherwise not established that Metricon engaged in misleading or deceptive conduct in respect of her claims regarding the swimming pool. His Honour held that the Metricon design team had reasonable grounds to express an opinion that the initial pool design was not feasible, and that the pool’s location would need to be amended. Expert evidence on these issues was tended by the parties.

Finally, his Honour held that Metricon established its cross-claim against Zanuttini, and was entitled to be indemnified by him for any amount paid by Metricon to Lipari.

Final orders and costs

The parties were unable to agree on the form of final orders and his Honour invited the parties to provide written submissions in respect of the costs of the proceedings. The submissions raised issues with Calderbank offers, indemnity costs and the entitlement of the parties to claim interest.

Having considered the parties’ submissions and evidence before the court, his Honour held that:

1. Metricon claimed, and was entitled to, interest on any unpaid balance at the contractual rate of 12% per annum from 28 May 2018 up to judgment.
2. Lipari was not entitled to an award of interest on the damages for general defects for the period from 23 May 2018 to the date of judgment due to the award at trial being calculated based on annual increased rates of goods/services.
3. No party was entitled to an award for indemnity costs based on the Calderbank offers because:
   1. Lipari’s offer did not provide a basis for an award of damages in her favour due to the offer being based on a claim that the house was 'wrongly located' which was not supported by the evidence.
   2. It was not unreasonable for Lipari to reject Metricon’s offer given the uncertainty of any continued claim against Zanuttini and the indemnity issues as between Metricon and Zanuttini.
   3. It was not unreasonable for Lipari to reject the Metricon/Zanuttini joint offer served on the morning of the hearing which relied on new evidence which had not been tested by Lipari’s expert.
4. Ultimately, Lipari succeeded in establishing a larger number of defects than had been admitted, but fewer than the number for which she contended. Lipari succeeded in establishing an entitlement to damages in an amount significantly greater than the amount for which Metricon and Zanuttini contended, but significantly less than she sought.

Having regard to the issues in the case and above findings, his Honour determined that there should be no order as to the costs of the proceeding, which reflected the mixed outcome for all parties to the proceedings. The final orders were as follows:

• Judgment for Metricon against Lipari in the sum of $31,813.24.
• Judgment for Metricon against Zanuttini in the sum of $73,100.11.
• No order as to the costs of the proceedings.

Implications for you

The trial judgment and judgment as to costs highlight the following:

1. The importance of consistency between expert evidence provided in a report and that which is relied upon at the hearing and tested under cross-examination. Parties should ensure that all available data is provided to experts in preparing reports and the potential issues in the case are thoroughly tested before the trial.
2. The court’s determination as to the reasonableness of a Calderbank offer has regard to the timing of the offer and evidence relied upon by the party in making such an offer. An offer issued in close proximity to the hearing date is not necessarily unreasonable, but the evidence relied upon in making an offer needs to have already been tested or the party provided sufficient time to reasonably consider any new evidence.
3. Orders as to costs remain at the discretion of the court. In this case there were 'wins' on both sides which ultimately led to no order as to costs, such that parties need to be cognisant of the risk of not recouping costs even when there is judgment in their favour.

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

Metricon Homes Pty Ltd as trustee for Metricon Homes Unit Trust v Lipari (No 2) [2024] NSWSC 684