NSW Court expands measures of loss in construction cases involving misleading or deceptive conduct

From time to time, players in the construction sector will claim there has been misleading or deceptive conduct and seek damages. The conventional view has been that courts will assess loss by looking at the diminution in value of (usually) the project caused by the misleading or deceptive conduct. If the end result is no loss in the value, then no damages would be awarded.

That conventional view has been overturned by the NSW Court of Appeal, which has taken a broader view of measure of loss caused by misleading or deceptive conduct claims in the construction context, and opened the door to potentially more claims and larger awards of damages (Larsen as trustee for the Larsen Superannuation Fund v Tastec Pty Ltd (formerly Wonders Building Company Pty Ltd) [2025] NSWCA 145).

The construction project, the misleading and deceptive conduct, and the alleged loss

In November 2018, the Larsens entered into a contract with Tastec Pty Ltd for supply and assembly of a pre-fabricated "EcoShelta" home in the Blue Mountains.

In line with the Larsens' aesthetic preference for their house to be clad with a narrow panel, the contract specified a steel sheeting product called Maxline 340, which:

• has 340mm spacing between the ribs at sheet junctions; and

• would be cladded over a structural insulated panel (SIP) called Bondor Shademaster 580 (which has 580mm spacing between sheet junctions) (Bondor 580).

Following entry into the contract, the builder made three attempts to get the Larsens to abandon Maxline 340, asserting that it created buildability difficulties which would prevent doors opening, unless overcome at the expense of resetting various walls and thickening the roof of the house. Twice the builder touted a "new" product with a 580mm panel width, which the Larsens promptly rejected on both occasions, restating their preference for Maxline 340 as per the contract.

In a further attempt to procure departure from Maxline 340, the builder proposed to exchange it with a purportedly custom Bondor product with 294mm spacing between ribs (a narrower panel as per the Larsens' preference), which would overcome the noted buildability issues and have the benefit of Bondor warranties. The Larsens signed a variation to effect this substitution (known as Variation 6).

In fact – and as the Larsens discovered upon their delivery to the site – the supposed custom panels were Bondor 580 panels (which, as an external panel, the Larsens had already rejected twice) to which the builder had affixed metal "t-strips" to reduce the (580mm) spacing between junctions so as to resemble Maxline 340. The Larsens immediately drove to Sydney to confirm the genesis of the modified panels at the builder's warehouse. For several reasons, they instructed the builder to proceed only with the unmodified Bondor 580 panels (that is, without affixing the t-strip).

Following installation, the Bondor 580 panels deflected in the heat (being without the protective barrier afforded by an external aluminium panel – such as Maxline 340 – being placed atop timber battens). As a consequence, the house's interior sustained significant cracking and damage.

The Larsens commenced proceedings in the District Court against the builder for breach of contract and misleading or deceptive conduct. Their claims of breach of contract and misleading or deceptive conduct failed. Upon appeal, the Larsens only argued misleading and deceptive conduct, and were successful. The Court of Appeal found that the builder had misled and deceived the Larsens into signing Variation 6 – driven by an aversion to the costliness of Maxline 340 and the buildability issues it generated. Additionally, it did not accept that the Larsens' decision to proceed with Bondor 580 alone amounted to a waiver of their contractual right to Maxline 340 (ie. absent the now impugned Variation 6). Factors informing this conclusion included that:

• at the time of delivery of the panels to site, the Larsens had paid all but $4000 of the contract price, had other tradespeople coming to the (remote) site, and, if they refused installation of the panels, would not be able to live in the house in the context of an already substantially delayed project; and

• where the original contract contemplated Maxline 340 being cladded over Bondor 580, directing installation of the Bondor 580 panels is not inconsistent with having Maxline 340 installed (ie. at a later date).

The matter then went back to the District Court for assessment of damages, which said that as the new panels had not diminished the house's value, damages could not be awarded for misleading or deceptive conduct under the Australian Consumer Law. The Larsens then took their second, successful trip to the NSW Court of Appeal.

Assessing damages for misleading and deceptive conduct: expectation losses and the victim induced into relinquishing contractual rights

The Court of Appeal allowed the Larsens' appeal, handing down a detailed judgment worthy of examination.

In traversing the general principles governing measure and quantification of damages, the Court distils a useful chronology of authorities from which the following observations may be drawn:

• Where a person buys a property in reliance on misleading or deceptive conduct, unless the value of the property is less than the price paid, the person will have suffered no loss.

• However, it does not follow that diminution in value is the only measure of damages for misleading or deceptive conduct. Rather, the appropriate measure will turn on inquiry into "what would have been the victim's position but for the contravening conduct?"

• Indeed, expectation losses may be recoverable where the victim of the contravening conduct would, but for the conduct, have entered into a different contract. In those circumstances, the victim is entitled to damages to put them in the position they would have been in – i.e. had they entered into the different contract.

In the present case, the relevant inquiry concerned not some different contract into which the Larsens would have entered, but rather the contract into which they had initially entered but were induced to vary.

The Court concluded that, but for the builder's misleading or deceptive conduct, the Larsens would not have agreed to Variation 6 and would have retained "an enforceable contractual right to require …Maxline 340".

This it described as a "compelling inference" based not only on the Larsens' direct evidence, but also that "Tastec had tried twice before to induce the Larsens to abandon their entitlement under the contract for Maxline 340 and that it required misleading or deceptive conduct on the part of Tastec to induce the Larsens to relinquish this right."

While the Larsens had not claimed expectation loss for breach of contract, in the circumstances the Court considered the Larsens to have the same entitlement in claiming reliance loss under the Australian Consumer Law:

"The amount required to put the Larsens in the position they would have been in had they not been induced by the respondents' [ie. builder's] contravening conduct to relinquish their rights under the contract by agreeing to Variation 6 is the same as the value to them of the contractual benefit of being entitled to performance of the contract according to its terms. In both cases, the prima facie measure of damages is the cost of reinstatement: Bellgrove v Eldridge (1954) 90 CR 613; [1954] HCA 36 and Tabcorp [Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8." [emphasis added]

This tacit enforcement of the Larsens' contractual right to Maxline 340 precluded any weight being given to the aesthetic nature of the departure effected by Variation 6 (save for that this was noted by the Court as remaining relevant to the question of reasonableness). Its remarks are instructive on this point:

"As is evident from the authorities referred to above, the comparison of price with value is relevant when the contravening conduct has induced the victim to buy property but is not determinative in a case such as the present. People, including victims of contravening conduct, are entitled to overcapitalise their residences. The circumstance that the contracted-for Maxline 340 did not add monetary value to the residence was not something that had to be taken into account for the benefit of the wrongdoer, although it is relevant to the question of reasonableness (discussed below). Thus the primary judge was in error to require a differential in value to be proved before damages could be awarded to the Larsens." [emphasis added]

For the above reasons, the Larsens were held to be entitled to the cost of reinstatement – that is, the amount required to install Maxline 340 as per the original contract, subject to questions of proportionality.