Beyond breach: assessing proportionality in claims for rectification damages

Understanding the Court's application of concepts of reasonableness 6 min read

In this Insight, we consider the recent decision of the Supreme Court of Victoria in Stanley v EWH Constructions West Pty Ltd [2025] VSC 699 (Stanley), which clarifies the matters a court will consider in determining whether to grant rectification damages pursuant to Bellgrove v Eldrige (1954) 90 CLR 613 (Bellgrove).

Per Bellgrove, the prima facie measure of damages for non-conformant works is the amount to rectify the defects where the work performed is 'necessary' to produce conformity and a 'reasonable' course to adopt. Stanley focuses on the assessment of reasonableness when assessing rectification claims.

This decision confirms that Bellgrove does not require a binary choice between the costs of rectification damages and diminution of value. If an innocent party cannot claim rectification damages or a diminution in value, they will not be left without a remedy for defective works.

Key facts and background

• The Stanleys were 'caravaning enthusiasts' who wished to build their 'dream home', capable of storing their caravan such that it could be reversed down the driveway and through a garage into their backyard. The dispute arose under a domestic building contract with their builder, EWH. EWH had constructed the driveway and garage in breach (as found at first instance and affirmed by the Supreme Court, albeit for different reasons) of a contractual requirement; the fixed floor level of the garage was 130mm lower than specified, with the effect that it was impractical for the caravan to be manoeuvred into the garage as intended.
• Relying on the principles established in Bellgrove, the Plaintiffs argued that the appropriate remedy for the breach was rectification damages, which necessarily involved demolishing and rebuilding of the house and garage to conform with the specifications (it was common ground between the parties' experts that the issue could not be rectified without demolition.
• At first instance, the Victorian Civil and Administrative Tribunal (VCAT) rejected the Plaintiffs' submissions, finding that it would not be reasonable to demolish and rebuild the house to rectify the driveway. The Plaintiffs appealed VCAT's decision.

The decision: why the court rejected demolition as a disproportionate remedy  

Justice Watson upheld the finding of VCAT in relation to the Plaintiffs' claim for the costs of demolishing and rebuilding the house but found they were nevertheless entitled to general damages for physical inconvenience and loss of amenity, as well as rectification damages for other defects.

Justice Watson accepted that the 'reasonableness' qualification to the prima facie rule in Bellgrove applies only in 'fairly exceptional' circumstances, as confirmed by the High Court in Tabcorp Holdings Ltd (2009) 236 CLR 272.¹ His Honour accepted that the circumstances here were exceptional, denying the Plaintiffs the rectification damages claimed.

In determining whether the rectification works were 'reasonable', Justice Watson had regard to the considerations listed by Chief Justice Kourakis in the Full Court of the South Australian Supreme Court decision of Stone v Chappel,² a case where the builder had constructed an apartment with a ceiling height less than contractually required. In that case, the Full Court unanimously held that rectification was not a reasonable course but that the plaintiffs were entitled to more than nominal damages.

Those considerations in that case included:

• the degree of departure from the contractual stipulation
• the adverse effect of the departure on the functional utility, amenity and aesthetic appearance of the building
• the reasons, objectively ascertained and commonly known, for which the innocent party made the stipulation that was breached
• the practical feasibility of rectifying the work, including the effects on third parties of attempting to do so
• any lack of proportionality between the proposed work and cost, and the benefit to be achieved by the innocent party through the work.³

While many of these factors weighed in favour of the Plaintiffs' rectification case, Justice Watson was satisfied (agreeing with VCAT) that the degree of disproportion between the cost of the rectification work (exceeding $650,000) and the Plaintiffs' interest in the performance of the contractual stipulation were such as to make the remedy unreasonable in the circumstances.⁴

In finding that there was a lack of proportionality, it was relevant that the defect did not impact the structural integrity of the house or make it more prone to flooding.⁵

Availability of damages for physical inconvenience and loss of amenity

Despite rejecting the Plaintiffs' claim for rectification costs to demolish and rebuild the house, Justice Watson considered that VCAT had erred and that the Plaintiffs were entitled to damages for:

• the loss of amenity
• the cost of storing the caravan away from their home
• the physical inconvenience arising from its storage elsewhere.

While the VCAT member concluded that these amounts would be insubstantial, Justice Watson held that this approach was too restrictive, citing Stone v Chappell.⁶ In declining to assess damages and remitting that assessment to VCAT, His Honour directed that the member 'should not approach the task on the basis that any…award will be insubstantial'.⁷

Rectification damages for other defects

Justice Watson also upheld VCAT's finding that the Plaintiffs were entitled to rectification damages in relation to other building and plumbing defects.

In arguing that that the Plaintiffs failed to mitigate their loss for these claims, the Defendant suggested that the Plaintiffs were required to give it the opportunity to rectify the defects. Following the recent decision of the New South Wales Court of Appeal in Ceerose Pty Ltd v Owners Strata Plan No 89074 [2025] NSWCA 235 (see our Insight here: NSW Court: No Automatic Right to Rectify Defects), Justice Watson reaffirmed that, in Victoria, there is no requirement for an innocent party to provide the defendant with an opportunity to rectify.⁸

Insights

In this case, the Supreme Court of Victoria rejected the Defendant's contention that Stone v Chappel is inconsistent with the High Court's decisions in Bellgrove and Tabcorp, and Justice Watson was clear that the Plaintiffs, as innocent party, should not be deprived of a remedy because (a) rectification damages would be unreasonable and (b) diminution in value was unavailable.

The High Court has not yet considered the court's reasoning in Stone v Chappel and it will be interesting to see if the considerations of that case are adopted in due course.

Subject to further guidance from the High Court, plaintiffs will need to carefully consider whether an action for rectification damages will succeed where the relevant non-conformity is minor and the costs of rectification are significant. Important considerations include:

• whether rectification works are proportionate to the value of the contractual benefit
• whether the non-conformity impacts safety
• the impact on third parties
• whether damages for loss of amenity and physical inconvenience are available.

In light of this decision, claimants should carefully consider the costs and impacts of any proposed rectification works and the broader implications of defects on contractual performance.