The NSW Supreme Court has confirmed that defects in a concrete slab don’t automatically justify full removal and replacement. In 85 Princess Pty Ltd v Fleming, the Court found breaches of warranty but declined to award remediation and replacement costs and only awarded nominal damages, because damages for monitoring and repair were not claimed or supported by evidence.
In issue
- Whether a concrete slab was defective,
- if so, whether the defendant breached his contractual warranties, and
- if so, what was the correct measure of damage.
The background
Mr Fleming (defendant) was the director, secretary and sole shareholder of Fleming Investments (ACT) Pty Ltd (Fleming Investments), who owned land located at 16 Spongolite Street, in the Australian Capital Territory (land). Fleming Investments constructed two warehouses (premises), each with a concrete slab, which was poured in April 2020 (slab). In early 2021, 85 Princess Pty Ltd (plaintiff) and Fleming Investments entered into negotiations for the purchase of the land. Before contracts were exchanged, cracking appeared in the slab.
On 20 September 2021, the parties entered into a contract of sale for the leased land with a purchase price of $5,050,000 (contract). The land was sold subject to a long sublease for the premises with Reece Australia Pty Ltd for 10 years commencing on 1 April 2021. The contract contained various conditions including a series of personal warranties from the defendant, concerning the building works that had been carried out on the land, including work to rectify the defects that had been identified. Reece never took physical occupation. Rather, it underleased the premises to Go Troppo Fruit Market Pty Ltd (Go Troppo), which commenced on 15 July 2022 with a termination date of 31 Match 2031. Go Troppo took possession and installed various fixtures and fittings.
At the time Go Troppo took occupation in July 2022, the plaintiff had notified the defendant about multiple defects concerning the building, including the cracking of the slab. The plaintiff issued proceedings on 17 August 2022 against the defendant. However, only the slab claim was maintained
The plaintiff contended that the slab needed to be removed and replaced, at a cost of $5,313,593.39. The defendant contended that there was no breach of warranty and that the steps of removing and replacing the slab were unreasonable and unnecessary. He asserted that more modest steps were available to remedy any cracking, such as filling the cracks with an epoxy product.
Decision at trial
Both parties served evidence from engineering experts. The plaintiff’s expert opined there was structural failures which were likely to exacerbate over time.
The Court found that the slab was not properly constructed, which meant that the defendant had breached the warranties in the contract. Once the breaches of warranty were established, the plaintiff argued for a complete removal and replacement of the slab. The defendant argued that a reasonable response was to repair the slab and/or implement a monitoring program as suggested by his expert, rather than completely replacing it, and therefore nominal damages should be awarded. Essentially, each party argued its case on an all or nothing basis.
Ultimately, His Honour preferred the defendant‘s expert evidence over the plaintiff’s, which suggested that the cracks were unlikely to cause any structural issue, and that a monitoring and repair program to fix any cracks that existed or would exist was appropriate and reasonable.
The Court found that implementing a monitoring program would reduce the risk of slab failure to a low level and there was no evidence of a risk of catastrophic failure. It also considered that the plaintiff’s interest in performance of the contract was commercial and could be secured by something less than the removal and replacement of the slab. Relevantly, as there was no evidence of the cost the plaintiff would need to occur in implementing the monitoring & repair program, the Court could not assess damages by reference to that cost.
Therefore, in noting that quantification of nominal damages is discretionary, the Court confirmed it would only award damages of $100 on the basis that nominal damages were vindicatory rather than compensatory. The alternative to damages, being specific performance, was also rejected.
Implications for you
This case is a useful reminder of the principles a court will apply when interpreting contractual warranties and how it will exercise its discretion in the context of nominal damages.
The case is also illustrative of the dangers of putting 'all of your eggs in one basket' in terms of liability and quantum evidence. As the plaintiff only adduced evidence to support a full removal and replacement of the slab, the Court was unable to award any damages for an alternative scenario, such as repairing the current cracking and putting in place a monitoring programme.
