In 85 Princess Pty Ltd v Fleming [2025] NSWCA 261, the New South Wales Supreme Court of Appeal dismissed an appeal concerning the appropriate measure of damages for defective building work. In doing so, the Court of Appeal reaffirmed the principle that a party’s entitlement to damages for defective work is qualified by what is reasonable and necessary.

85 Princess Pty Ltd purchased a Crown lease over land on which stood two recently constructed warehouses from Fleming Investments (ACT) Pty Ltd. The Sale Contract included several personal warranties from Mr Fleming that the warehouses were properly constructed, structurally sound, and compliant with the relevant regulatory requirements.

Soon after the warehouses were constructed, cracks began appearing in the concrete slab. The cracks were the subject of a dilapidation report obtained by 85 Princess as part of purchasing the property. Following completion of the Sale Contract, further cracks began to appear in the concrete slab.

85 Princess commenced proceedings against Mr Fleming in the Supreme Court of New South Wales, claiming $5,313,595.49 in rectification damages. Justice Brereton accepted that the slab was defective and that Mr Fleming had breached several warranties. However, his Honour held that:

• replacing the slab was not “a rational or reasonable commercial response” to the cracking; and
• an appropriate response was “to repair the cracks that now exist as required and then to implement a program to monitor for any new cracks and to have them repaired in a timely way…”.

Since 85 Princess did not lead any evidence on the cost of alternative remedial works, his Honour awarded it $100 in nominal damages. 85 Princess appealed the Supreme Court’s decision.

Both parties accepted that the starting point for damages, in the case of a breach of warranty involving defective work, is the cost of making the building conform to the contract. The issue on appeal was whether Mr Fleming had proven that replacing the slab was not reasonable.

Mr Fleming contended, and the Court of Appeal agreed, that it was unreasonable to replace the slab because:

• 85 Princess bought the property as an investment;
• when 85 Princess bought the property, it was the subject of a long-term sublease;
• under the terms of the sublease, the landlord only had to repair structural defects, and the defect in the slab that caused the cracking was not a structural defect; and
• at the time of entering into the Sale Contract, the parties contemplated that any new cracks would be repaired.

In assessing what is reasonable, the Court of Appeal emphasised that this is a question of fact which depends on the particular circumstances of the case. In this case:

• there was no suggestion that 85 Princess had any interest in the state of the slab beyond its effect on the value of the property and the ability to earn rent;
• there was no evidence that:
  • the value of the property was affected by the cracking;
  • the tenant was unwilling to pay rent under the sublease because of the cracking; or
  • the tenant had complained about the cracking; and
• it was unlikely that 85 Princess intended to replace the slab in the circumstances; in fact, it did not have the right as a landlord under the sublease to enter the warehouse to carry out repair works for anything that was non-structural.

In all of the circumstances, the Court of Appeal upheld the Supreme Court’s decision and dismissed 85 Princess’ appeal.

The decision can be found here.