VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP695/2019	
CATCHWORDS	
DOMESTIC BUILDING – contract to renovate existing premises and construct two new dwellings –defective workmanship – sections 8 and 53 of the Domestic Building Contracts Act 1995 (Vic) – wrongful termination of Contract – breach of contract – damages – delay – interest – costs – sections 97, 98 and 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic).	

FIRST APPLICANT
SECOND APPLICANT	Anthony Said
Naomi Moir	
RESPONDENT	Sophies Homes Pty Ltd (ACN: 087 711 519)	
WHERE HELD	Melbourne	
BEFORE	H. Nash, Member	
HEARING TYPE	Hearing	
DATE OF HEARING	13 April 2021	
DATE OF WRITTEN SUBMISSIONS	27 April 2021	
DATE OF ORDER	12 July 2021	
CITATION	Said and Moir v Sophies Homes Pty Ltd (Building and Property) [2021] VCAT 754	

Order
For the reasons set out below, the Tribunal orders:
1.	The respondent must pay to the applicants the sum of $103,644.45.
2.	The respondent is to pay the applicants interest in the sum of $3,426.34.
3.	Pursuant to s115B and 115C of the VCAT Act the respondent is to reimburse to the applicants the application fee in the sum of $778.90 and the hearing fee in the sum of $181.45.
NOTE: The total amount payable by the respondent to the applicants is $108,031.14.

H. Nash
Member			
APPEARANCES:		
For Applicant	In person	
For Respondents	No appearance	

Reasons
1	This is a claim brought against a builder claiming for the cost of rectifying defective works and consequential loss. Despite the proceeding being undefended by the builder, the applicants (owners) requested written reasons. These are those reasons.
2	The respondent (builder) had filed a counterclaim against the owners. In the absence of the builder at the hearing and there being no evidence in support of the counterclaim, the counterclaim made by the builder is dismissed.
Background
3	On about 15 May 2017 the owners bought land in the Geelong region with an existing dwelling and plans for a subdivision involving the construction of two further units on the land.
4	The owners entered into a building contract with the builder on 8 September 2017 for the construction of two units behind the existing dwelling on the land. The existing house was to be renovated as well. The contract price was $309,200 with $9,200 attributed to the renovation works and the balance being the cost of constructing the two new units (the Contract).
5	The initial deposit of $15,460 was paid on 9 October 2017. This included payment for the renovation work of $9,200 and the balance was a deposit towards the new construction.
6	The building permit was issued on 12 April 2018. During the period between signing the contract and the building permit issuing there were some issues which needed resolving including the builder having to arrange new Home Warranty insurance as the insurer his current policy was with went into insolvency. In addition, the planning permit was due to expire in December 2017 and the owners attended to applying for, and obtaining, an extension of the planning permit.
7	The renovation of the existing dwelling included converting the existing house from 3 bedrooms to 2 bedrooms to reduce the number of car spaces required as there was not enough space on the block; increasing the number of windows and removing the wall and wardrobe in the third bedroom (the renovation work). It was estimated that the renovation work would take about 2 months to complete.
8	It was originally intended that units 2 and 3 would be built first as there were tenants residing in unit 1. Then once the tenants vacated unit 1 the renovation work to unit 1 would be undertaken. The tenants were amenable to the construction work being undertaken while they were living there, and the owners agreed a rental discount with them to compensate for the inconvenience.
9	On 24 April 2018 the owners informed the builder that the tenants of unit 1 would instead be vacating and that the renovation work could be completed while the property was vacant. The tenants vacated in early May 2018 and the builder commenced the renovation work.
10	The Contract provided that the owners would be responsible for the site clearance including the removal of the shed and pergola and preparing the site for the site cut.
11	The owners did not obtain the site survey until they were told they needed to in order to get the building permit.
12	On 10 May 2018 the builder commenced the renovation work and the slab for the units.
13	On 26 July 2018 a variation to accommodate “drafting discrepancies” relating to a change from a wind beam to full stud walls in Unit 2 in relation to the walls adjoining the stairwell was raised by the builder with a value of $5,934. The owners disputed the variation.
14	The owners then referred the issue to the engineers to understand what the proposed change was for and whether it was something the builder ought to have identified prior to commencing work.
15	The relationship between the owners and the builder then broke down quickly and by 13 August 2018 the builder indicated its intention to terminate the Contract. The builder informed the owners it would complete the renovation work and then the Contract would be terminated, and they should find another builder to complete the new construction work.
16	On 20 August 2018 the owners identified several issues which they considered to be defective or incomplete work done by the builder in undertaking the renovation work. These included that the new bricks used to fill in where the window was removed did not match the existing bricks, no builder’s clean had been undertaken so the oven was covered in builder’s rubble and the sink was full of broken tiles and the carpets had not been cleaned. The builder responded that the bricks were all that were available, and that Unit 1 was as clean as it had been when handed over by the tenants.
17	On 21 August 2018 the builder served a notice of termination (the Notice) which states
NOTICE OF TERMINATION
RE: Construction of units 2 & 3 / 16 Nott St Belmont
Under the relevant clauses & conditions of the Head Contract, Sophies Homes advise that this contract is now terminated
Yours sincerely
TM Blyth
Director
18	The owners subsequently identified further defective works including the internal painting at Unit 1 which was inconsistent throughout and the walls had only been patched rather than repainted. The builder disputed that he was contractually obliged to paint the walls or to fix pre-existing cosmetic or structural defects.
19	On 24 September 2018 the builder sent a final invoice to the owners for $9,155.20 being the costs claimed of $24,615.30 less the deposit paid of $15,460. The additional costs claimed were:
i	Contract price of 								$11,200
ii	Architectural drafting amendments to building permit 		$770
iii	Engineering requirements 							$1,500
iv	Site cut to units 2 & 3 							$3,300
v	Posi-strut floor joists for units 2 & 3 					$5,885
vi	HOW Insurance for units 2 & 3						$1,960.20 (to be refunded once insurer reimburses builder)
vii	Builder’s margin @ 20%								$0.00. (this was amended to $2,383.00 in an invoice dated 6 October 2019 for the same items).
20	The owners dispute some of the items claimed in this invoice. They argue that
i	The contract price was $9,200.
ii	The owners query why the builder used a firm based in New South Wales and do not understand what work the invoice is in relation to as the plans were not altered after the Building permit had been issued and plans stamped.
iii	The engineering invoice is agreed. It was for drainage.
iv	The site cut was part of the contract for units 2 & 3.
v	The Posi-struts were never delivered to site.
vi	The insurance was not refunded as there remains a dispute between the builder and the owners and the work had commenced.
21	The owners also allege the builder should reimburse them the cost of replacing the bricks used to brick up the window, with bricks the same as the existing. The cost of this was $1,770 plus a delivery cost of $200 to obtain 1000 bricks.
22	After the builder’s purported termination of the Contract, the owners did not immediately commence seeking out a new builder. They waited to see if the builder wanted to return to the site and continue with the work and fix the defects identified.
23	It was not until March 2019 that the owners sought out quotes from new builders. They obtained several quotes and accepted a quote for $376,500. The new builder commenced work on 8 May 2019 and completed the work on about 18 June 2020.
24	The building permit was due to expire on 13 May 2019. The owners applied, and paid the relevant fees, for it to be extended.
25	The units are all currently tenanted with tenants paying $380 per week for the house and $330 per week each for the units.
26	The owners claim that the builder wrongfully terminated the Contract and they are entitled to damages as a consequence of the wrongful termination.
27	The owners claim damages as follows:
i	Increase in construction cost of $76,500.
ii	Cost of extending the building permit $416.
iii	Return of the deposit of $15,460.
iv	Travel costs for owners to travel from home to site on 34 occasions between 1 August 2018 and 28 March 2019 of $6,011.20.
v	Loss of rent – Unit 1 at $305 per week and Units 2 & 3 at $320-340 per week.
vi	Rectification costs for Unit 1 for carpet cleaning $210.
vii	Cost of grass slashing on site $99.
viii	Cost of re-doing site cut $3,300.
ix	Increased cost of plan of subdivision due to not being lodged within 2 years of commencement of the date of permit being issued $350.
x	Increased cost of 2% levy for public open space associated with subdivision, increase due to increase in value of land during period of delay, of $3,000.
xi	Refund of $480 overcharge as were charged $1,980 for engineering invoice which was only $1,500.
xii	Interest on monies claimed.
xiii	Administrative costs of preparing case for VCAT including printing costs and postage costs.
28	The total amount claimed by the owners is $147,591.21 plus interest in the amount of $26,624.32 being interest on each item claimed calculated as compounding interest at the rate of 10% per annum.
The Law
29	For the owners’ claim for damages for defective works at Unit 1 to be successful, the owners must establish that the work done was defective.
30	For the owners’ claim for damages for breach of contract with respect to units 2 and 3 to be successful, they must establish that the builder wrongfully terminated the Contract and that the losses then claimed were each a reasonably foreseeable loss which would arise from the wrongful termination of the Contract.
Unit 1
31	The owners claim that the builder failed to undertake the works with due care and skill contrary to the obligations and warranties implied into a domestic building contract under the Domestic Building Contracts Act 1995 (Vic) (the Act).
The Domestic Building Contracts Act 
32	Section 8 of the Act provides that certain warranties as to the building works are implied into domestic building contracts (the warranties). Clause 11 in the contract confirms the warranties, including the following:
-	the builder warrants that the work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract;
-	the builder warrants that all materials to be supplied by the builder for use in the work will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new;
-	the builder warrants that the work will be carried out in accordance with, and will comply with, all laws and legal requirements including, without limiting the generality of this warranty, the Building Act 1993 and the regulations made under that Act;
-	the builder warrants that the work will be carried out with reasonable care and skill and will be completed by the date (or within the period) specified by the contract.
Damages
33	What the owners are asking for is effectively, a free renovation of Unit 1 by asking for a refund of the deposit of $15,640 which included the full cost of the renovation work of $9,200. This is not what they are entitled to by reason of defective work.
34	The general rule with respect to damages for breach of contract is that where a party sustains a loss by reason of the breach, that party is, in so far as money can do it, to be placed in the situation he would have been had the contract been properly performed. The general rule is subject to the qualification that in some cases circumstances may exist such that it would be unreasonable to rigidly apply it.
35	The primary measure of damages for the owners is the estimated reasonable cost they will incur, over and above the contract price (that is, the adjusted contract price as discussed above) to have the contract works rectified where they are defective and completed where they are incomplete.
36	Based on the evidence at the hearing, I accept that the brickwork is defective work. The owners have identified the cost of replacing those bricks at $1,970 which I will allow.
37	The owners gave evidence that rather than clean the carpets, they chose to replace them. They are therefore not entitled to any damages for this item.
38	The owners had a quote for the painting but chose to undertake the work themselves. As such, they have not suffered a financial loss for this item.
Units 2 and 3
Termination of Contract 
39	The owners also allege that the builder’s Notice was not given in accordance with the terms of the Contract and therefore resulted in a wrongful termination of the Contract by the builder.
40	The Contract is a Master Builders Association of Victorian standard new homes contract.
41	Clause 22 sets out the entitlement of the builder to terminate the Contract. It states, inter alia,
22.1 Builder’s right to serve notice of intention to terminate contract
If the Owner:
•	refuses or persistently neglects to comply with this Contract, including failing to provide to the Builder any information requested by the Builder under clause 9.2 relating to Prime Cost Items or Provisional Sums; OR
…
•	obstructs, interferes with, or hinders the carrying out of the Works, including giving any directions to the Builder’s workers or subcontractors or failing to supply any Materials or provide information required to be supplied or given to the Builder under this Contract or refusing to consent to any reasonable or necessary variation requested by the Builder under clause 13; OR
… 
•	is in substantial breach of this Contract
THEN the Builder may give written notice by registered post to the Owner:
•	describing the breach or breaches of the Contract by the Owner; and
•	stating the Builder’s intention to terminate the Contract unless the Owner remedies the breach or breaches within fourteen (14) days after the Owner’s receipt of the above notice.
22.2 If owner fails to remedy breach builder may terminate contract
If the owner fails to remedy the Owner’s breach or breaches of this Contract as stated in the above notice within fourteen (14) days of the Owner’s receipt of the notice then the Builder may, without prejudice to any other of the Builder’s rights or remedies, give further written notice by registered post to the Owner immediately terminating this Contract.
22.3 Builder may not terminate contract in certain circumstances
The Builder may not terminate this Contract unreasonably or vexatiously or if the Builder is in substantial breach of this Contract.
42	The Notice was not sent to the owners by registered post. Rather it was sent by email.
43	Contrary to the requirement of clause 22 of the Contract the Notice does not specify the reason for the Notice being given. Nor does it afford the owners 14 days within which to remedy the breach prior to the Contract being able to be terminated.
44	I find that the Notice was not an effective notice under the Contract and therefore, the termination of the Contract by the builder was not done in accordance with the Contract. Accordingly, the owners are entitled to damages which flow from the wrongful termination of the Contract.
Refund of overpayment for engineering invoice
45	The owners accept that they were liable to pay $1,500 for the engineering costs but say they paid the sum of $1,980 in September 2017 for this invoice and seek a refund of the overpaid amount of $480. I will allow reimbursement of the sum of $480.
Additional cost of construction work
46	In addition, the owners claim damages for the additional cost of the construction work payable under the new contract with a third-party builder.  That building contract was entered into on 16 May 2019 at a cost of $376,500, $76,500 more than the Contract.
47	I find that the additional cost of the construction works is a type of damage which has resulted by reason of the builder’s wrongful termination of the Contract as it is an additional cost the owners have had to pay as a consequence of the termination of the Contract. I therefore find that the owners are entitled to damages of $76,500.
Refund of deposit
48	The owners paid a deposit of $15,640, of which $9,200 was for the renovation work and the balance of $6,440 was a deposit towards the construction work.
49	Of this deposit, the out of pocket expenses are $770 for the cost of amending the plans and $1,960.20 for the building insurance; a total of $2,730.20. The balance is the deposit in the amount of $3,709.80. This is not refundable to the owners, otherwise they would receive a double benefit as I have found above that they are entitled to be compensated for the increased cost of the contract.
Duplicated works
50	In addition, the owners claim the cost of having to have the grass slashed and the site cut re-done at their expense. The cost of these were $99 and $3,300 respectively. I find that these costs were incurred by the owners because of the termination of the Contract. But for the Contract being terminated, the original site cut would have been utilised and the grass would not have grown in that area of the land. I therefore allow the sum of $3,399.
Cost extending permits and registering subdivision
51	The building permit also had to be extended and transferred to the name of the new builder. The cost of registering the subdivision at the conclusion of the construction work was also increased as the plan of subdivision was not registered within the 2-year time limit required under the planning permit. These are costs which would not have been incurred by the owners but for the wrongful termination of the Contract. These out of pocket expenses cost the owners $416 and $350 respectively. I will allow damages in the amount of $766.
Cost of delay in completion of construction
52	The owners also seek damages for the delay in the construction work being completed due to having to engage a new builder. In this regard they seek the maintenance costs of the land together with the lost rent.
Public open space fee
53	A cost incurred by the owners when registering the Plan of Subdivision is a public open space fee payable to the Geelong City Council. The fee is calculated as two percent of the land value at the time the plan of subdivision is registered. In 2018/2019 the council valued the land at $300,000 and the fee payable would have been $6,000. However, as the Contract was terminated the completion of the construction work was delayed. The following financial year the council valued the land at $450,000 thus resulting in the owners paying a public space fee of $9,000. An increase of $3,000 from what they would have paid if the builder had completed the construction works in accordance with the Contract.
54	I find that the increased costs associated with registering the Plan of subdivision, including the public space council fee are not costs which are reasonably foreseeable by the builder as damages which would arise by reason of the wrongful termination of the Contract. Further, the increase in value of land is by reason of appreciation of the land value which the owners benefit from having made a windfall profit from the increase in the value of the land.
Loss of rental
55	The owners claim a loss of rent from each of the 3 units for the period of delay in completion of the construction work.
56	The owners say that even though Unit 1 was available they waited until 28 March 2019 to get new tenants. They did so because they had referred the dispute to the DBDRV on 19 August 2018 and were awaiting the DBDRV appointed assessor to inspect the renovation work before they undertook any rectification work. The inspection occurred on 6 December 2018 and the report was received from the DBDRV assessor on 25 January 2019. The owners and builder attended a DBDRV conciliation conference on 28 February 2019. When the dispute was not resolved at the conciliation conference, the owners undertook the rectification work themselves and were able to let unit 1 to tenants from 28 March 2019. It therefore took 4 weeks for the rectification work to be completed.
57	While it is not unreasonable for the owners to wait for the DBDRV assessor to undertake an inspection and prepare a report, the delay in rectifying the defects was caused by waiting for these steps to be undertaken. It is not a cost the builder should bear. It was open to the owners to obtain their own independent expert’s report as to the renovation work and any necessary rectification work which is likely to have reduced the delay in undertaking those works. I therefore find that the delay attributable to the builder’s defective work is 4 weeks, the time it took for the rectification works to be completed.
58	The market rent for unit 1 was $300 per week. I therefore allow $1,200 being 4 weeks rent.
59	With respect to the construction work, the Contract provided for the construction work to take 210 days. That 210 days is to be calculated from the commencement date. The owners concede that despite 1 November 2017 being recorded in the Contract as the commencement date, the builder could not have commenced then as the building permit had not issued as yet. Therefore, the more appropriate commencement date is the date of the building permit which is 12 April 2018. The owners have argued that despite the Contract stating that the builder had to commence works within 14 days after receipt of all necessary documents (and the building permit was the last document required), they concede that an allowance of 30 days was reasonable. Thus, the owners’ position is that the completion date should have been 7 March 2019.
60	The new builder, Hudson Ridge commenced works on 22 July 2019 with a completion date of 26 February 2020. It too had a construction period of 210 days. Therefore, the damages claimed by the owners is for the loss of rent for the period between when the builder ought to have completed the construction work and when the new builder did complete the construction work. This is 356 days from 8 March 2019 (the day after the work ought to have been completed) and 26 February 2020.
61	The owners obtained a quote from possible new builders in December 2018 and January 2019 both of which were significantly higher than the contract price with the builder. The owners gave evidence that these quotes were beyond their financial means. They then waited until the DBDRV process and rectification work was completed before seeking out further quotes, eventually entering into the contract with Hudson Ridge.
62	As referred to above, it is not the builder’s fault the owners delayed in obtaining quotes and choosing a new builder to proceed with. The owners were under an obligation to mitigate their loss. That obligation involves the owners taking all reasonable steps to minimise their loss. When the loss is associated with delay costs, then the obligation is to do all things as expeditiously as possible.
63	In this case, the owners knew they needed to get a new builder to undertake the construction work and obtained one quote in December 2018. They could have obtained more quotes at this time. It was their choice to delay a further 5 months. This is not a cost the builder should bear. I therefore reduce the period of the claim by 5 months or 151 days. Thus, the delay claim is for loss of rent for 205 days.
64	The owners rely on evidence of the market rent for the units from a real estate agent based in Geelong. That evidence indicates that each of unit 2 and 3 had a market rent of between $320 and $340 per week. The owners have adopted the median price of $330 per week per unit for this claim.
65	$330 per week per unit is a daily rate of $47.145 per day per unit or $94.29 per day for both units; 205 days equals $19,329.45 which is the loss of rent caused by the delay arising from the builder’s wrongful termination of the Contract I will allow.
Claim for owners’ travel costs of attending site
66	The owners have also claimed the cost of travelling from their home in Frankston to the site (being about a 250km round trip) on 34 occasions between 1 August 2018 and 28 March 2019. The owners say this was necessary to ensure their insurance policy did not lapse as they had to visit the empty property once per week.
67	This is a cost of having an investment property such a significant distance from your place of residence. The owners had other options they could have taken such as engaging a real estate agent to check the property or a gardener to cut the grass and maintain the garden which may have been less costly than commuting to the property so frequently, or undertaking the rectification works earlier and having tenants in situ which would mean the property was no longer empty for insurance purposes. Further this cost is not a reasonably foreseeable head of damage. I therefore will not allow this claim.
68	The total amount of damages awarded to the owners as set out above is $103,644.45.
Interest
69	Section 53 of the Act provides, in part:
(1)	The Tribunal may make any order it considers fair to resolve a domestic building dispute.
(2)	Without limiting this power, the Tribunal may …
(b)	…order the payment of a sum of money-
…
(ii)	by way of damages (including … damages in the nature of interest);
…
(3)	In awarding damages in the nature of interest, the Tribunal may base the amount awarded on the interest rate fixed from time to time under section 2 of the Penalty Interest Rates Act 1983 or on any lesser rate it thinks appropriate.
70	The Act does not provide that interest is always paid. It does not even provide, like section 60(1) of the Supreme Court Act 1986 (Vic) that the Tribunal:
…must, unless good cause is shown to the contrary, give damages in the nature of interest…
71	The test for entitlement to interest is whether it is “fair”, then the rate of interest is the PIR Act rate or any lesser rate I consider “appropriate”.
72	The owners’ source of funds is from a loan from the National Australia Bank. It is costing them interest on the amounts they have spent in excess of what they should have by reason of the builder’s conduct.
73	Section 97 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act) requires the Tribunal to “act fairly and according to the substantial merits of the case …” and section 98(1)(c) entitles it to “inform itself on any matter as it sees fit”, subject, of course, to being bound by the rules of natural justice.
74	I consider in this case it would not be fair to award interest at the penalty interest rate, and also unfair to award no interest. I therefore allow interest at the actual rate incurred by the owners. The bank statements indicate that the interest rate from 13 March 2019 to 21 July 2020 was 2.97% and from 22 July 2020 to 13 April 2021 was 3.28%. I apply these rates.
75	The date from which interest ought to be paid is different depending on the head of damage being claimed. The relevant date for the increased cost of the construction work is the date when the construction work was completed. The relevant date for the other out of pocket expenses and rectification costs is the date the Points of Claim were filed and served because this is when the owners’ claim, and heads of damage, were clearly articulated to the builder. This is when the builder ought to have paid these amounts to the owners. The Points of Claim were filed and served on 26 August 2019, but the construction work was not completed until 18 June 2020 at which time the increased amount payable was finalised and payment made to the new builder.
76	The owners requested reasons in writing, which they are entitled to do, which has resulted in a delay in the orders being made. This is not a period for which the builder should be penalised.
77	Therefore, for the increased contract costs of $76,500, the relevant period is from 18 June 2020 to 13 April 2021 (the date of hearing) being a period of 298 days at 3.28%, which is $2,048.61.
78	Interest on the other heads damage, being loss of rent and out of pocket expenses, totalling $27,144.45 is to be calculated from 26 August 2019 to the date of hearing. The period between 26 August 2019 and 21 July 2020 is 330 days at 2.97% which is $728.88 and between 22 July 2020 and the date of the hearing is 266 days at 3.28% which is $648.85. The interest payable on these heads of damage is $1,377.73.
79	Total interest payable is therefore $3,426.34.
Costs
80	The owners seek reimbursement of their out of pocket expenses only. They seek reimbursement of the application fee of $778.90 and hearing fee of $181.45.
81	They also seek reimbursement of the ASIC search fee of $9 for the search required as part of their application together with the printing costs of the Tribunal Book being the cost of paper, printer ink and cost of purchasing the folders for the Tribunal Book and postage costs of $146.93; a total of $155.93.
82	Section 109 of the VCAT Act says in part:
(1)	Subject to this Division, each party is to bear their own costs in the proceeding.
(2) 	At any time, the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding.
(3) 	The Tribunal may make an order under subsection (2) only if satisfied that it is fair to do so, …
83	I find that it is not reasonable to allow the owners the costs associated with the Tribunal book, postage ($146.93), and ASIC search fee ($9) in the total amount of $155.93. These are administrative costs incurred by parties in pursuing their claim in the Tribunal. They are not costs that fall within section 109 of the Act.
84	I find that it is fair to allow the owners the application fee of $778.90 and hearing fee of $181.45 under s115B and 115C of the VCAT Act.
85	It must be noted that there is no entitlement to interest on any costs allowed to the owners and that aspect of their claim is dismissed.
86	I will make orders accordingly.

H. Nash
Member