In Pattersons Insurerbuild Pty Ltd v AWS Services Vic Pty Ltd [2021] VSC 639, the Supreme Court of Victoria (on appeal from VCAT) recently considered a simple contractual damages claim that did not fit comfortably within orthodox contractual damages assessment principles.

Where a party breaches a contract by failing to perform works in accordance with the standard required by the contract, the claimant’s loss is for expectation damages (Commonwealth v Amann Aviation (1991) 174 CLR 64), with the measure of damages typically being the cost to produce conformity with the contract, subject to the reasonableness criterion set out in Bellgrove v Eldridge (1954) 90 CLR 613 and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272. 

So, where a waterproofing subcontractor breached a contract by failing to lay a membrane on a tiled balcony in accordance with AS 4564.2, usually, the measure of damages would be cost to rectify the breach, such as by lifting the tiles above the membrane, removing the defective membrane, relaying a new membrane and then relaying new tiles on top. 

However, in this case, the simple factual situation was subject to an additional consideration: that the head contractor who brought the proceeding against the subcontractor was itself required to do works to replace a leaking grate drain adjacent to the membrane, and those works (which were separate to the works contracted to the waterproofing subcontractor) required the head contractor to also replace the defective membrane when it replaced the grate drain.

On a legalistic view, within the ‘four walls’ of the waterproofing contract that was the subject of the proceeding, the subcontractor had breached that contract, so was liable for the costs to rectify that breach. Could the subcontractor absolve responsibility for its breach of contract by pointing to a third party who would be responsible for rectifying the defective works?

The Court found that while the subcontract had been breached due to membrane being defective, damages were not recoverable. The Court observed that that the claim against the subcontractor suffered the obvious artificiality of overlooking that the head contractor had to repair the defective membrane in any case. It appears the Court was (it is submitted correctly) motivated by the damage claimed being too remote, perhaps that the parties could not have contemplated the subcontractor being liable for this kind of breach when such work was required to be performed by the head contractor. The case is a reminder that Courts will be slow to assess contractual damages in a vacuum.

Hat tip to fellow MTECC member, James Shaw, who appeared for the successful respondent.
 
James Waters

Liability limited by a scheme approved under Professional Standards legislation.