Australia: Do I have to let the builder back on site to rectify defective work?

There is no question that it is one of the principles on which damages are assessed that a party to an agreement suffering injury from the other party's breach of its terms is bound to exercise reasonable care in mitigating the injurious consequences of the breach, and is not entitled to recover from the party in default any damage which the exercise of reasonable care on his part would have prevented from arising.

The Conwells had in addition claimed for the cost of rectifying snagging items. They had not given Woodlands Oak the opportunity to rectify these defects which, so the Recorder found, Woodlands could have put right by subcontractors at no cost to themselves and, more importantly, no cost to Mr and Mrs Conwell. The Recorder held that the Conwells had failed to mitigate their loss and awarded them nothing for this.

[T]he overarching principle is that a plaintiff is not entitled to recover losses attributable to its own unreasonable conduct.

Generally speaking, a person who suffers loss as a consequence of a breach of contract is required to act reasonably in relation to that loss in order for the loss to be recoverable. An important aspect of this general principle is that the party who has suffered a loss is under a duty to mitigate its loss . Rather, the principle is that the plaintiff is not entitled to recover losses attributable to its own unreasonable conduct.

As noted above the general principle is that a person who suffers loss must take all reasonable steps to act reasonably with respect to the extent of that loss, and in particular, to mitigate the loss . That is, the wronged party is not entitled to recover losses attributable to its own unreasonable conduct.

[t]he principle sought to be invoked here is that the plaintiff is not entitled to recover for avoidable loss, through any failure to take reasonable steps to mitigate the loss flowing from the breach of contract. It is the demonstration of failure to avoid loss, through unreasonable action or inaction, which is necessary.

One can see that, generally speaking, when a builder is actually working on a job it will ordinarily be cheaper for him to remedy defects rather than to have them remedied by some other contractor. In such a case it is clear that a building owner must generally give the original contractor the opportunity to rectify the defects unless, I should say, there is some good reason to the contrary.

. [t]here is no necessity for a building owner to give notice to a builder who has stated he will not remedy the defects or execute repairs, and it seems to me that such a proposition is sound in principle.

In the case of building contracts, it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects . [t]he owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs . That obligation may be an aspect of the duty to mitigate, since it may be less expensive for the builder rather than a third party to rectify the defects, particularly if the builder is still on site.

Properly understood, the passage from the reasons of Ball J in The Owners -Strata Plan No 76674 v Di Blasio Constructions Pty Ltd relied upon by the trial judge is consistent with the above. In that case, Ball J was considering the position as a matter of common law, and reasoned that an owner was required to give a builder a reasonable opportunity to rectify defects, by way, it would seem, of an implied term, or at the very least as an aspect of the principles governing mitigation of loss.

. in cases involving building contracts, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs.

It has been over 60 years since the High Court recognised in Belgrove v Eldridge (1954) 900 CLR 613 that a plaintiff whose property is damaged or defective as a consequence of a defendant's breach is generally entitled to recover the costs of reinstating the property so that it corresponds to the contractual promise, except to the extent that it is unreasonable to insist on reinstatement.

Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did . Whether the plaintiff acted unreasonably is a question of fact.

The question of what is reasonable depends on all the circumstances of the particular case.

It is suggested, however that this latter view fails to take account of the not uncommon case of an owner who, by reason of a past history of unsatisfactory work or dilatoriness, may have reasonably lost confidence in the contractor's willingness or ability to remedy the defects satisfactorily, and who therefore reasonably prefers to bring in another contractor. .. Since explicit language is rarely used in the clauses on this particular point, it is submitted that the Courts should . be slow to imply a term that the contractor would in all cases have an unqualified right to re-enter and remedy defects himself for breach of which damages would be recoverable from the owner.

The Builder also referred to Woodlands Oak Ltd v Conwell & Anor, which raises the possibility that a failure to give the builder a chance to rectify might amount to a failure to mitigate, but not surprisingly, the question turns on the facts of the case . There are good reasons in an owner's self-interest why a builder, unless plainly incompetent or dangerous, should be given an opportunity to rectify. One is that if other defects are discovered later, they can only be the fault of the original builder. Where the original builder repairs, there is the potential for losses to the owner and the original builder to be minimised.

The Court of Appeal of England and Wales in Woodlands Oak Limited v Conwell and Anor held that where the employer fails to give the contractor an opportunity to rectify defects in the work that may amount to a failure to mitigate the losses . there may well be circumstances in which it is entirely reasonable not to give the contractor that opportunity . The Court of Appeal in that case indicated that this might be satisfied where an owner, through past experience, was not satisfied that a particular sub-contractor would satisfactorily rectify the defect.

The question of what is reasonable depends on all the circumstances of the particular case. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder's conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work.

The Builder's attitude in ignoring the terms of the contract during construction and again when rectification is contemplated, plus the Builder's consistent refusal to admit most of the defects until well into the trial demonstrates that the Owners' attitude is reasonable in refusing to consent to the Builder rectifying the work . if the [owner] denies the [builder] a contractual right to rectify the defects, the [owner's] quantum of damages for breach of contract will generally not be allowed to exceed what would have been the cost to the [builder] . The difference in this case is that the Owners have reasonably refused to consent to have the Builder rectify outstanding defects. The measure of damages is thus the reasonable cost to them of having an independent builder complete or rectify items which the Tribunal finds are incomplete or defective.

I accept the Builder's submission that . the Owner must take all reasonable steps to mitigate the loss flowing from the breach of contract . In Ryan, I found that the owners were reasonable in refusing to allow the builder to rectify where it refused to admit "most of the defects until well into the trial". As submitted for the Owner on 22 March 2013, until the hearing commenced the Builder's proposed scope of repairs was substantially less than that agreed upon by the experts during the hearing.

The Builder argues that because the Owners were aware of the water ingress since June 2017 and as they took no steps to stop the water ingress and it is the water ingress which caused the mould, the Owners failed to exercise reasonable case in mitigating their loss with respect to this defect . I do not accept this proposition. It places an unfair burden on a wronged party when equally, the Builder chose not to undertake all the rectification works in June 2017 when he returned to site and undertook some rectification works or at any time since then. The expert evidence before me is that there is water leak causing the water ingress. The water ingress has caused the mould. The water ingress is occurring by reason of a defect in construction of the house. The mould has arisen as a consequence of the water ingress . The obligation on the Owners to mitigate their loss applies equally to the Builder to attend the premises and rectify its defective works. It chose not to do so and therefore must compensate the Owners for the cost of them having to undertake the rectification works themselves using third parties.

It is clear from the factual matters recited by the Tribunal that there were bone fide attempts to reach a solution whereby the builder could attend to rectify the defect, but no agreement could be reached. Once of the reasons why no agreement could be reached was that there was a genuine disagreement about the manner in which the builder proposed to rectify the defect. The owner's architect regarded that method as unsatisfactory. The owner was not acting unreasonably in relying on the architect's opinion that the builder's proposed method of rectification was unsuitable. As in Di Blasio here the owners did not have confidence that the builder's proposed method of rectifying the defects was the correct method. As it turns out, this opinion was validated by the expert evidence.

The Tribunal rejects the respondent's submission that the applicant failed to mitigate his loss. The applicant had engaged in a dialogue with the respondent and on the advice of Messrs Grave and Novkovic had decided the application of a sealant would not fix the problem. The respondent did not propose an alternative solution and the applicant had reasonably concluded that he was not going to reach an agreement with the respondent . In the Tribunal's opinion, the applicant was justified in engaging another tradesperson to undertake the rectification work to minimise the damage from the water leaks.

The rectification work ultimately proposed on the Builder's behalf by Mr Seeto fell far short of that which Ms Grey has now determined was needed. This points strongly to the conclusion that it was reasonable for the Owners Corporation not to permit the Builder to rectify the work on the basis proposed by Mr Seeto.

It appears that the Builder made some inadequate attempts to repair defects that were identified initially. As the defects continued to emerge, the Owners Corporation took the reasonable step of engaging an expert to identify the defects and took the reasonable position that the Builder should prepare a scope of works to remedy the defects that had been identified. In my opinion, the Builder's response was inadequate . In my opinion, the Owners Corporation could reasonably have taken the view that it no longer had confidence in the Builder and that it wanted someone else to undertake the rectification work.

Next it was said that the plaintiff had failed to mitigate its damage in that it should, so it was said, have sought from the Commonwealth an extension of time for performance of the contract and made arrangements to obtain another crushing machine capable of carrying out the necessary work. But it was for the defence to show that the plaintiff had failed to mitigate damages .

Foreseeability extends until it would be unreasonable for the injured party to fail to act to mitigate his loss, and the onus of proving such a failure is on the party in breach. Unless the respondent (defendant) showed that the appellant (plaintiff) unreasonably failed to avoid the losses incurred after July 1978, those losses were as foreseeable after July 1978 as they were before.

The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not.

It is for the defendant to prove that the plaintiff has acted unreasonably. It is not for the plaintiff to prove that it acted reasonably: TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130 at 138; Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653 at 673 per Brennan J; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 158 per Hope JA (with whom Priestley and Meagher JJA agreed); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187] per Giles JA (with whom Handley and Stein JJA agreed).

The onus is on Thallon Mole to prove that Mrs Morton has acted unreasonably, it is not for her to prove that she acted reasonably.