By: Robert Finnigan and Chris Knight

Di Lullo v JG King Pty Ltd (No 3) [2026] NSWDC 218

Introduction

When a home suffers serious foundation defects, the critical question for courts, and for the parties involved, is whether the problem can be fixed in place or whether the house must come down entirely. The answer can mean the difference between a repair bill in the hundreds of thousands of dollars range or a complete rebuild in the millions of dollars range. A recent NSW District Court decision offers important guidance on how courts approach that question.

Background

In Di Lullo v JG King Pty Ltd (No 3) [2026] NSWDC 218, the homeowners’ property suffered extensive internal and external damage after the builder used poorly compacted fill within the foundation system. When the fill became wet, it expanded upwards, causing the house to move and crack.

The Court found the builder had breached the statutory warranties under the Home Building Act 1989 (NSW) and the duty of care imposed by the Design and Building Practitioners Act 2020 (NSW).

The builder argued the house could be rectified for about $200,000 by replacing the poor fill and injecting resin into the existing foundation to raise it. This method usually involves injecting an expanding structural resin beneath the footing or slab through small, drilled holes. As the resin expands and hardens, it fills voids, compacts loose soils, increases the bearing capacity of the ground, and can lift or re-level parts of a structure.

The homeowners sought demolition and reconstruction of a new home at a cost of approximately $1.3 million.

The Court awarded the homeowners $1.25 million. This was effectively the full cost of knocking down and rebuilding the house.

Key legal principles

The Court applied well-established damages principles:

• an award of damages for breach of contract should, so far as money can do it, place the injured party in the position they would have been in had the contract been performed;
• where a contract requires a building to meet certain specifications, the measure of damages is the cost of achieving conformity with those specifications – provided that is a reasonable course to adopt.

In assessing what was “reasonable,” the Court emphasised two matters:

1. the homeowners’ subjective intention – what they actually intend to do with the property matters;
2. the nature of the property – when the building in question is a family home in which the owners live, concepts of reasonableness take on a different complexion. Courts are less inclined to force homeowners to accept a cheaper but uncertain fix for the place where they sleep at night.

The Court rejected the builder’s proposed repair method for the following reasons:

• the repair works would take nearly two years before the homeowners could return to the house;
• no evidence was led that the foundation movement had not compromised the structural integrity of the slab, which the builder proposed to retain;
• the proposed repair works could cause further damage, may not comply with Australian Standards, and may not be insurable or warrantable by a remedial builder;
• the closest scenario to actual performance of the contract was demolition and rebuilding;
• it would be unreasonable to impose so many uncertainties and vulnerabilities on the homeowners.

Practical implications

Homeowners are not necessarily required to accept a “patch-up” solution. Courts recognise that a family home is not a commercial asset to be assessed on purely economic grounds, and that homeowners are entitled to a remedy that restores what they were promised under their building contract.

The burden on builders, developers and other building professionals in defect disputes is clear. Where a defendant contends that the plaintiff’s proposed rectification scheme is unnecessarily expensive and that a cheaper alternative is available, it is not enough merely to assert that another method “might work” or is theoretically possible. The defendant must adduce cogent expert evidence demonstrating that the alternative method will reliably address the defect, restore the building to an acceptable standard, and do so on a durable, long-term basis.

The evidence must also establish that the proposed methodology complies with applicable building codes, Australian Standards and regulatory requirements, will not create further defects or performance risks, and can be accepted by regulators, certifiers, lenders and future purchasers.

In practice, courts increasingly expect evidence that the alternative solution is commercially and practically viable, including whether it can attract insurance cover, preserve warranties, and avoid adverse impacts on the value, marketability or insurability of the asset. A rectification strategy that remains experimental, contingent, uncertain or insufficiently tested is unlikely to be accepted as a legitimate basis for reducing damages.

This is not a novel proposition. In 85 Princess Pty Ltd v Fleming [2025] NSWCA 261, the Court of Appeal reaffirmed that a defendant who seeks to avoid the cost of full rectification bears an evidential burden to establish that a less expensive remedial approach will achieve an equivalent practical outcome. The Court emphasised that damages are ultimately directed towards reasonable compensation, and that an alternative repair methodology may justify a reduction in damages where it is proven to be an adequate and reasonable response to the defect.

What Di Lullo demonstrates, however, is the intensity with which courts will scrutinise that evidence. The court will not simply accept a cheaper repair option because it is advocated by an expert or because it reduces the defendant’s exposure. Rather, the court will examine whether the methodology has been sufficiently investigated, whether its assumptions are sound, whether there is evidence of successful implementation elsewhere, whether the proposed outcome can be guaranteed with reasonable confidence, and whether the rectification will leave the owner with an asset that is functionally, legally and commercially equivalent to that which was promised. Any uncertainty, qualification or residual risk in the expert evidence may prove fatal to the argument. The practical lesson is that defendants who seek to rely upon an alternative rectification methodology must prove not merely that it is cheaper, but that it is a genuine, effective and dependable solution. If they cannot do so, the court may prefer the plaintiff’s more comprehensive rectification scheme and award damages accordingly.

Put another way, the modern authorities signal a shift away from abstract debates about theoretical repair options and towards a rigorous evidentiary assessment of whether the proposed alternative will actually solve the problem in the real world. A builder seeking to reduce a multimillion-dollar remediation claim must therefore bring the court detailed engineering, regulatory, cost, insurance and practical evidence demonstrating that the alternative remedy is not merely possible, but proven. Mere optimism, engineering preference or cost-saving assertions will not suffice.

Get in touch

Rob and Chris have extensive experience defending builders, geotechnical engineers, and structural engineers against claims relating to foundation defects. If you have questions about a current or potential claim, please feel free to contact either of them for further advice.

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