Beecraft Pty Ltd v Tudor;Tudor v Beecraft Pty Ltd

[2021] NSWCATCD 119

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Beecraft Pty Ltd v Tudor;Tudor v Beecraft Pty Ltd [2021] NSWCATCD 119

Hearing dates:

22, 23 November 2021

Date of orders:

13 December 2021

Decision date:

13 December 2021

Jurisdiction:

Consumer and Commercial Division

Before:

Graham Ellis SC, Senior Member

Decision:

In HB 20/52532:

1. The application is dismissed by reason of the orders made in the related proceedings (HB 21/12757).

2. Any submissions as to costs are to be included in submissions made in those related proceedings.

In HB 21/12757:

1. The respondent (builder) is to pay the applicants (owners) $44,985.82 immediately.

2. Any submissions the respondent wishes to make as to costs are to be filed and served on or before 24 December 2021.

3. If such submissions are lodged, any submissions in response from the applicants are to be filed and served on or before 14 January 2022.

4. Any such submissions are to indicate whether it is agreed that costs should be decided on the papers, ie without the need for a further hearing.

5. Leave is granted for any submissions on the question of costs to be lodged electronically.

Catchwords:

BUILDING AND CONSTRUCTION – Whether contract varied – Whether variation enforceable

BUILDING AND CONSTRUCTION – Quantum meruit claim assessed – Whether defective work

Legislation Cited:

Civil and Administrative Tribunal Act 2013 (NSW)

Civil and Administrative Tribunal Rules 2014 (NSW)

Home Building Act 1989 (NSW)

Cases Cited:

Bonita v Shen [2016] NSWCATAP 159

Brambles Holdings Pty Limited v Bathurst City Council [2001] HCA 61

Brooks v Gannon Constructions Pty Limited [2017] NSWCATCD 12

County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193

Day v Quince’s Quality Building Services [2021] NSWCATAP 296

Galdona v Peacock [2017] NSWCATAP 64

Kalokineros v HIA Insurance Services Pty Ltd [2004] NSWCA 312

Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23

Latoudis v Casey [1990] HCA 59

Lym International Pty Ltd v Marcolongo [2011] NSWCA 303

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305

Mann v Paterson Constructions [2019] HCA 32

Nationwide Builders Pty Ltd v Le Roy [2019] NSWCATAP 220

News v Cotes [2019] NSWCATAP 186

Oshlak v Richmond River Council [1998] HCA 11

Paraiso v CBS Build Pty Ltd [2020] NSWSC 190

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5

Taylor v Johnson [1983] HCA 5

The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067

Thompson v Chapman [2016] NSWCATAP 6

Tom v Jenkins [2018] NSWCATCD 24

Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277

Texts Cited:

Nil

Category:

Principal judgment

Parties:

In HB 20/52532:
Beecraft Pty Ltd (Applicant)
Barry Tudor and Karina Tudor (Respondents)

In HB 21/12757:
Barry Tudor and Karina Tudor (Applicants)
Beecraft Pty Ltd (Respondent)

Representation:

Counsel:
B Ilovski (Beecraft Pty Ltd)
D Hand (Barry Tudor and Karina Tudor)

Solicitors:
Bradbury Legal (Beecraft Pty Ltd)
Howard S Charles & Co (Barry Tudor and Karina Tudor)

File Number(s):

HB 20/52532, HB 21/12757

Publication restriction:

Nil

REASONS FOR DECISION

Outline

1. These proceedings involve an application by a builder dated 10 December 2020 (HB 20/52532) and a cross-application by owners dated 19 March 2021 (HB 21/12757), both relating to residential building work carried out by the builder at the owners’ home in Wahroonga.

2. The issues raised may be summarised as: (1) whether a contract made in May 2018 was varied in August 2018 by either a variation in the scope of works and contract price (as suggested by the owners) or a variation to a cost plus arrangement (as suggested by the builder) and, if so, what amount is payable, (2) if not, to what amount is the builder entitled on a quantum meruit basis, and (3) allegations of defective work.

3. After considering the evidence and submissions, the Tribunal determined (1) there was no valid or enforceable variation, (2) the builder was entitled to $1,229,124.18 on a quantum meruit basis with the result that the owners were entitled to be refunded $41,685.82, and (3) the owners, having established two items of defective work, were entitled to be paid $3,300. As a result, the owners are entitled to be paid a total amount of $44,985.82 by the builder.

Hearing

4. At the hearing, four volumes of documents became Exhibit A, and a Joint Report became Exhibit B. Written submissions for the owners and builder were marked for identification as MFI 1 and MFI 2 respectively. An email attaching a page in the same form as page A144 (ie page 144 in Exhibit A) became MFI 3, being what was suggested to be a copy of the attachment referred to in the email at A134.

5. On the first day of the hearing, the builder’s Mr Baker was cross-examined as was Mr Tudor but not Mrs Tudor. The expert witnesses, Mr Seeto for the owners and Mr Pickering for the builder, gave evidence on the second hearing day, after which counsel made closing submissions.

Jurisdiction

6. It is clear these proceeding relate to residential building work, that the definition of “building goods or services” in s 48A of the Home Building Act 1989 (HBA) is satisfied. As these proceedings include a claim for an amount of money, they involve a “building claim” within the meaning given to those words by s 48A of the HBA. Likewise, it is clear these proceedings have been commenced within time. The amount claimed exceeds the lower limit of $5,000 set by clause 2(3)(a) of the HBA and clause 12 of the Home Building Regulation 2014 and is below the upper limit of $500,000 set out in s 48K of the HBA. Accordingly, the Tribunal has jurisdiction under the HBA.

Relevant law

7. So far as is relevant to these proceedings, s 6 of the HBA provides:

1. Sections 7–7E apply to a contract under which the holder of a contractor

licence undertakes:

(a)   to do, in person, or by others, any residential building work or any specialist work, or

(b)   to vary any such undertaking to do residential building work or any

specialist work or the way in which any such work is to be done

1. …

2. Section 7 (2) (f) and (5) do not apply to a contract referred to in subsection (1) (b).

   8. The following words with s 7 are also relevant:

3. A contract must be in writing and be dated and signed by or on behalf of each of the parties to it.

…

1. If the contract price is not known or may be varied under the contract, the contract must contain a warning to that effect and an explanation of the effect of the provision allowing variation of the price. The warning and explanation must be placed next to the price if the price is known.

   9. It is convenient to here noted that, while s 7(5) applies to a contract, by reason of s 6(3), it does not apply to any variation of that contract.

   10. The first words of s 7E are as follows:

2. A contract must include (and is taken to include) each of the terms set out in Part 1 of Schedule 2. A contract that contains a term that is inconsistent with a term set out in Part 1 of Schedule 2 is unenforceable to the extent of the inconsistency.

   11. Schedule 2 contains the following words in clause 1(2):

Any agreement to vary this contract, or to vary the plans and specifications for work to be done under this contract, must be in writing signed by or on behalf of each party to this contract.

12. Headed “Enforceability of contracts and other rights”, s 10(1) of the HBA is set out in full below:

1. A person who contracts to do any residential building work, or any specialist work, and who so contracts:

(a)   in contravention of section 4 (Unlicensed contracting), or

(b)   under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entered into in the circumstances described in section 6 (2)), or

(c)   in contravention of any other provision of this Act or the regulations that is prescribed for the purposes of this paragraph,

is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person.

13. However, s 11 indicates that:

This Division does not affect any right or remedy that a person (other than the person who contracts to do the work) may have apart from this Act.

14. As was made clear by the High Court in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5, when the HBA renders a contract unenforceable, that does not preclude recovery by a builder on a quantum meruit basis.

15. The requirements for recovery on a quantum meruit basis may be summarised as follows: (1) there was a request for services to be performed, (2) part or all those services were performed, (3) the recipient obtained a benefit from those services, and (4) it would be unjust for the recipient to retain that benefit without paying some a reasonable amount for the work done and materials supplied.

16. More recently, in Mann v Paterson Constructions [2019] HCA 32 (Mann), the High Court observed that the contract price imposed a ceiling on recovery in a quantum meruit claim. Further, in Paraiso v CBS Build Pty Ltd [2020] NSWSC 190 (Paraiso), which was recently applied by an Appeal Panel in Day v Quince’s Quality Building Services [2021] NSWCATAP 296, that principle of a ceiling was applied to the rates set out in the contract.

17. The statutory warranties that are implied in every contract to do residential building work, set out in section 18B of the HBA, are as follows:

(a)   a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,

(b)   a warranty that all materials supplied by the holder or person 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,

(c)   a warranty that the work will be done in accordance with, and will comply with, this and any other law,

(d)   a warranty that the work will be done with due diligence and within the time stipulated in the contract or, if no time is stipulated, within a reasonable time,

(e)   a warranty that, if the work consists of the construction of a dwelling, the marking or alternations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,

(f)   a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes know to the holder of the contractor licence or person required to hold a contractor’s licence, or another person with express or apparent authority to enter into or vary any contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires that work to achieve, so as to show that the owner relies on the holder’s or person’s skill or judgment.

18. Next, it is necessary to consider section 48MA of the HBA which provides:

A court or tribunal determining a build claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome.

19. Prior decisions which have considered those words assist in its consideration in this case.

20. Galdona v Peacock [2017] NSWCATAP 64 is an Appeal Panel decision which noted that s 48MA provided for a preferred outcome, not a mandatory outcome. That case suggested that a work order would not be appropriate where (1) the relationship between the parties has broken down, (2) the builder has not acknowledged a poor standard of work, and/or (3) there are reservations as to the ability of the builder to rectify the work with due care and skill. However, those categories cannot be regarded as confining the operation of s 48MA since the test to be applied is not that decision, but the words of the statute set out above.

21. Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 at [32] suggests section 48MA operates as a preference rather than a right and only operates to prevent unreasonable refusal by the owners to prevent the builder from carrying out rectification work.

22. Consistent with the view of the Appeal Panel in Nationwide Builders Pty Ltd v Le Roy [2019] NSWCATAP 220 at [18], the Tribunal considers relevant what was said by Ball J in The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [45]:

23. The question of what is reasonable depends on all the circumstances of the particular case. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder’s conduct, the Owner has reasonably lost confidence in the willingness and ability of the builder to do the work .

24. It is clear the Tribunal is required to weigh up the factors in each case and make an evidence-based decision: Brooks v Gannon Constructions Pty Limited [2017] NSWCATCD 12 at [64].

Evidence of Mr Baker

25. To the extent that the affidavits of Mr Baker detail the relevant events, those events are summarised below. During his cross-examination, Mr Baker suggested that the fixed price contract was left behind in August 2018 when there was a transition to a cost plus arrangement between the builder and the owners. He conceded that he was aware that contracts for residential building work should be in writing. When taken to the spreadsheet he provided Mr Tudor on 28 August 2019, which was said to show the original work in white and the additional work in yellow, Mr Baker did not accept that Mr Tudor was opposed to a cost plus arrangement at that time but conceded Mr Tudor had reservations about such an arrangement.

26. In response to questions directed to the additional resources the builder devoted to the project late in 2018, Mr Baker suggested that was because the owners wanted to move in before Christmas so they could move out of another property they owned and rent it during the holiday season.

Evidence of Mr Tudor

27. Both in his affidavit and in his oral evidence Mr Tudor did not accept that he agreed to a transition from a fixed price contract to a cost plus arrangement. His affidavit suggested the pace of the builder’s work increased in mid-September 2018 at a time when Mr Baker told him the builder had taken on a new job at Roseville. He also recounted instances where Mr Baker carried out tasks such as cleaning despite his role being that of supervisor.

28. In relation to landscaping work, Mr Tudor’s evidence was that what he referred to as the variation quotation only included hard landscaping work and that he and his wife intended to carry out the soft landscaping work themselves. His evidence was that he neither accepted nor rejected the builder’s offer to undertake soft landscaping at no cost to the builder.

29. Mr Tudor also said that between late November 2018 and early February 2019 Mr Baker’s attendance was intermittent, the work did not appear to be co-ordinated and that there were a lot of workers on site. The affidavit of Mr Tudor recounted instances where work was not carried out as planned or as instructed. He noted that the builder’s claims included charges for a project manager, site supervisor and site manager. His affidavit also referred to a fast pace of work which he suggested was an explanation for the alleged defects.

30. During his cross-examination, Mr Tudor suggested that Mr Baker was “always trying to go cost plus”. He denied living at a property he and his wife owned at Terrigal, maintaining that they only went there at weekends, except for one period, and that it was not rented during the December 2018 holiday season.

Evidence of Mrs Tudor

31. The unchallenged evidence of Mrs Tudor covered changes in the builder’s staff, the owners being steered by Mr Baker to use the builder’s preferred supplier for the kitchen, a lack of co-ordination by the builder, including unsupervised deliveries, and the pace of work becoming “frantic” by September 2018.

32. Mrs Tudor also provided evidence of Mr Baker carrying out tasks more suited to an apprentice than a site manager and of an occasion where the property was not properly protected from inclement weather. Further, that there were occasions when lights were left on and windows left open. The evidence of Mrs Tudor was that she raised work considered defective as early as November 2018.

Mr Pickering’s report

33. In his 10 November 2021 report, which followed an inspection on 26 October 2021, Mr Pickering indicates that he is a licensed builder with 25 years of industry experience. His area of specialty appears to be waterproofing. Mr Pickering indicated that he applied the Schedule of Rates that was included in the contract when estimating labour costs but used Rawlinsons Australia Construction Handbook (Rawlinsons) when those rates were not considered appropriate.

34. The estimate of Mr Pickering of the work done by the builder, a quantum meruit basis, excluding defects, was $1,396,256.43 which, when GST is added, gives $1,535,882.07. In the section of the report which arrived at that figure, Mr Pickering said: “I have analysed the Cost Lists provided to me by Beecraft and have set out below in table format a schedule of those costs with adjustments for errors noted under the Comments column.” That schedule, which was less than two pages in length, listed the details of the builder’s invoices.

35. In that comments column there were only three entries, each in the same form, indicating: “Cost adjusted as original amount … was calculated with GST added before builders margin and Contractors All Risk Insurance”. The total difference in those three amounts was to decrease the total amount invoiced by $3,792.25.

36. Thus, apart from that single aspect, applied three times, Mr Pickering made no comment on or adjustment to what was invoiced by the builder. What Mr Pickering said in relation to the components of the defects claim is considered below.

Mr Seeto’s report

37. Following a site inspection on 31 March 2021, Mr Seeto, who is quantity surveyor, prepared a report dated 13 May 2021. As to his methodology, Mr Seeto indicated that he reviewed the builder’s invoices, included those costs where he considered them to be reasonable, and that he used rates provided in Rawlinsons. His estimate for the work carried out by the builder, excluding defects, was $1,112,920.66 plus GST, ie $1,224,212.73. The basis for that amount was set out in a detailed, eight-page spreadsheet, which considered each aspect of the subject building work. The comments of Mr Seeto in relation to the alleged defects are also considered below.

The Joint Report

38. In relation to the quantum meruit claim, in the Joint Report of Mr Pickering and Mr Seeto, it was noted that they had used different methods. There was a twelve-page spreadsheet and the first eleven pages set out Mr Seeto’s comments in relation to a variety of components before suggesting an amount of $1,117,385.62. Mr Pickering’s comments did no more than provide the cost list numbers and the associated amounts which gave the total of $1,396,256.43, as set out in his report. Adding GST to amounts gives $1,229,124.18 for Mr Seeto and $1,535,882.07 for Mr Pickering.

39. On the second day of the hearing, when cross-examined, Mr Pickering conceded he had no formal qualifications in costing and that he relied on his experience. While he denied that his figure for the quantum meruit claim was more akin to verification than independent assessment, he said his assessment was based on the costings provided by the builder. He suggested he assessed the reasonableness of the amount charged and adjusted for errors.

38. It should be noted that, in the reports of Mr Pickering and Mr Seeto and in the Joint Report, there +was an analysis of what amount was payable on what may be termed a contract plus variations basis. The differences between the experts in aspects of that assessment were the subject of cross-examination.

39. The first such item was a disputed amount of $500 for asbestos removal in relation to which Mr Seeto’s position was that no supporting information was available while Mr Pickering’s view was based on what appeared in the cost list numbered 4 and, in the absence of further information, he assumed the removal of asbestos was required.

40. There were other items where the difference was the result of Mr Seeto making an assessment while Mr Pickering adopted what the builder had claimed. For example, in relation to an amount of $5,000 said to have been for additional excavation, Mr Pickering’s view was based on what the builder advised him while Mr Seeto’s view was that no supporting evidence had been provided.

41. Mr Pickering favoured the inclusion of $72,606.06, based on that being an additional project management cost, calculated the difference between the preliminaries figure and the builder’s claim of $157,592. On the other hand, Mr Seeto considered the allowances he made for preliminaries and builder’s margin to be sufficient. When questioned about this aspect, Mr Seeto noted that the effect of what the builder was claiming, having regard to this amount and preliminaries and margin, was $314,944.53 which he said amount to a on costs of 55% which he did not consider fair and reasonable for what was required.

42. Under cross-examination, Mr Pickering accepted that if there were difficulties and delays on site caused by the builder, he would need to allow for that. He also indicated that his view as to acceleration was that it was requested by the owners. It is convenient to here indicate that the Tribunal does not consider Mr Baker’s evidence on that aspect convincing and prefers Mr Tudor’s evidence plus the unchallenged evidence of Mrs Tudor on this point.

The builder’s case

45. Written submissions provided for the builder suggested the 11 May 2018 fixed price contract changed from being a lump sum contract to a cost plus contract from 28 or, in the alternative, 31 August 2018. The contended result was that the owners owed the builder $262,600.01, being reduced from $268,139.79 due to an “arithmetic error in the calculation of the builder’s margin”.

46. After referring to evidence summarised below, it was suggested that the contemporaneous documents were consistent with a fixed price contract until late in August 2018 and a cost plus contract thereafter. It was noted that it was the builder who referred the dispute to Fair Trading and that the owners failed to participate in conciliation.

47. Reference was made to cases relation to the variation of contracts, notably what was said by Heydon J in Brambles Holdings Pty Limited v Bathurst City Council [2001] HCA 61 at [81], to the effect that there should be either offer and acceptance or a basis upon which mutual assent to a variation may be inferred by reference to what would be the view of a reasonable person in position of the parties.

48. The builder’s case is that there was express agreement in writing to amend the contract which satisfied the requirements of the HBA and that the builder was thereby entitled to be paid the amounts claimed. In the alternative, a claim was made by the builder on a quantum meruit basis.

49. As to the landscaping, it was suggested that the builder’s offer was not binding and that the builder was entitled to charge for that work as its invoices were not paid.

50. On the topic of the defects claims, it was submitted that the owners’ expert, Mr Seeto merely assessed the rectification cost and that only the builder’s expert, Mr Pickering, assessed whether there was defective work. It is sufficient to here note that the items which were pressed were disputed. Further, in relation to defects which the owners had remedied by others, it was said the owners had failed to mitigate their loss and that in relation to any other defects, the Tribunal should make a work order.

51. Omitting oral submissions which covered was what already in the written submissions, it was submitted that the spreadsheet provided by Mr Baker to Mr Tudor when they met on 28 August 2918 was a cost estimate and not a quotation. As to the contest between the opinions of Mr Seeto and Mr Pickering on the assessment of the quantum meruit claim, it was contended that the evidence of Mr Pickering should be accepted as he reviewed and verified the amounts charged by the builder. It was also noted that Mr Tudor conceded that he did not notify the builder before he engaged contractors to rectify work of the builder alleged to have been defective.

52. In submissions in reply, it was contended that Mr Tudor acted on behalf of his wife and that, while grafting a cost plus agreement on a fixed price contract was messy, it was not unworkable. There was also a submission that the variation for which the builder contended was not a variation falling within clause 18 and that such variation only needed to be in writing and did not need to be signed.

The owners’ case

53. In written submissions for the owners, it was contended that the owners accepted a quote which resulted in a revised contract price of $988,625 (inclusive of GST). Matters said not to be in dispute were the amount invoiced by the builder, the amount paid by the owners and that the builder’s invoices included landscaping work which the builder had offered to carry out free of charge.

54. It was noted that there was no written cost plus contract, that the only written contract is the May 2018 fixed price contract and that the 15 April 2019 Notice of Suspension, the builder’s Points of Claim and the evidence of Mr Baker each treated that contract as still being in force but suspended. The Tribunal’s attention was directed to provisions in both the HBA and that May 2018 contract document.

55. If the Tribunal accepted there was a variation of that contract, it was suggested the owners are entitled to repayment of their overpayments, with interest. Even if there was no variation, the owners still claimed to be entitled to be repaid the difference between the amounts paid to the builder and the contract price. The decision in Paraiso was said to support that proposition.

56. As to the builder’s claim there was a cost plus contract, it was noted that the particulars in the builder’s Points of Claim suggest such a contract was partly written and partly oral. In the event the Tribunal was satisfied there was such a contract, it was submitted that contract did not comply with the requirements of the HBA.

57. Further, relying on what was said in Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277 at [23-24, 29] and Kalokineros v HIA Insurance Services Pty Ltd [2004] NSWCA 312 at [34], it was submitted that the builder is not entitled to damages or any other remedy as that contract is unenforceable by the builder but that the builder remains liable to the owners for any breach of such an agreement.

58. It was noted that the builder is entitled to pursue a quantum meruit claim despite its failure to provide a written contract but that, in assessing such a claim, it was necessary to assess whether the claims made were reasonable and that the rates set out in the May 2018 contract operated as an upper limit. The written submissions for the owners also addressed their defects claim.

59. Additional points made in oral submissions may be summarised as follows. It was suggested that Mrs Tudor was not involved in the discussions said to have resulted in a variation of the contract to a cost plus basis. Also, that no warning was provided by the builder to the owners, as required by s 7(5) of the HBA. There were also submissions made to aspects of the quantum meruit claim and the defects claim which are considered below.

60. It was submitted that the evidence of Mr Seeto should be preferred on the quantum meruit claim because he conducted an analysis whereas Mr Pickering only reviewed and verified the amounts claimed by the builder.

Consideration

61. It is convenient to first consider the competing versions of the parties: the builder asserting a variation from a fixed price to a cost plus contract; the owners claiming there was a variation in the scope of work and contract price. Secondly, it is necessary to consider what amount is payable, either under a varied contract or on a quantum meruit basis. Thirdly, the defects claim requires determination.

Variations

62. On 27 April 2018 a quotation was provided for $408,100 for residential building work which was confined to the ground floor of the owners’ home. It is noted that, even in that quotation, the builder was suggesting “This work could be carried out on a ‘Cost Plus’ basis.” As a result of that quotation, a fixed price contract in the HIA format for renovations and additions dated 03 May 2018 was prepared and was signed by the owners on 11 May 2018. That document included a schedule of rates and specified a builder’s margin of 20%.

63. Only one variation was subsequently issued and that primarily involved crediting the amount allowed for prime cost (PC) items, obviously so that the actual cost could simply be added later rather than calculating the difference between the cost and the amount allowed for each PC item.

64. Following discussions an estimate dated 20 July 2018 was provided by the builder for work on the first floor which as to cost, said “Allow approximately $90,000 to $120,000 plus GST”.

65. On 02 August 2018 Mr Tudor sent an email to Mr Baker which included the words: “We’d formally like to advise that we would like to proceed with the upstairs extension.” The use of the plural pronoun “We” is to be noted as it indicates Mr Tudor was speaking for both his wife and himself.

66. On 15 August 2018 Mr Baker sent an email to the owners which suggested: “As the job has become significantly larger we can convert the work done so far to cost plus as we have the original quote and the Proposal costs for upstairs as a guide.”

67. The 20 August 2018 reply from Mr Tudor said: “I’m familiar with cost plus. The quoted costs on the original work, and estimate on upstairs work allowed me some certainty around the overall budget, notwithstanding the additional variations to this work. I’d like to discuss to see if there is a way that we can maintain the original quote and the upstairs estimate.”

68. On the following day, Mr Baker replied, saying: “I’ll add all the extra ground floor work to a spreadsheet and keep updating it. That way we can compare the estimated costs to the actual quote and Building estimate for upstairs. As it’s turning into a fair bit of work we can do a 15% builders margin instead of the 20%.” That is not surprising since a cost plus arrangement transfers the risk of costs exceeding the estimated amount from the builder to the owner.

69. There was an on-site meeting, attended by Mr Baker and Mr Tudor on 28 August 2018, at which a spreadsheet was provided, after which Mr Baker sent an email to Mr Tudor which said: “… thanks for meeting with me today we can do the work on a cost plus basis at 15% builder Margin as discussed. Please let me know if you are happy to proceed.”

70. On 31 August 2018 Mr Tudor sent an email to Mr Baker the last sentence of which read: “my concern now that we are on a cost plus is that things get ahead of us and I have to pay extra for changes to Undo”.

71. According to Mr Tudor, on 03 September 2018 he verbally accepted a variation to the contract sum to the amount set out in the spreadsheet which had been provided at the meeting on 28 August 2018.

72. Next, on 05 September 2018 the builder’s Ms Cliff sent an email to the owners which began with the words “I am in the process of converting your project from Fixed Price to Costs Plus …” and attached a page headed “Cost Plus” which contained explanatory information.

73. The builder issued progress claims numbered 1 to 24, totalling $1,195,810, which were paid. On 20 December 2018 the 25^th progress claim, for $110,000 was issued but was not paid. Four further progress claims were later made, bringing the total amount claimed by the builder to $1,538,949.79.

74. On 27 November 2018 Mr Baker sent an email to Mr Tudor, the body of which read as follows:

… we’ll do the landscaping at rear at no cost.

*   Supply and install, Japanese Buxus required to the rear area.

*   Supply and install Buffalo turf.

*   Install drip irrigation system to existing controller.

*   Mulch gardens as required.

*   We can supply some mature trees that we have in stock if you wish TBD

*   Plants from our nursery.

75. When Mr Tudor asked why that was being offered, the reply was that the builder was trying to find ways to keep the cost down and finish the project. Asked why that work later became the subject of an invoice, Mr Baker said the reason was that the owners were not paying the builder’s invoices.

76. During a site visit in March 2019, Mr Tudor raised alleged defects which it appears were not addressed by the builder due to unpaid invoices. An email from Mr Tudor to Ms Cliff referred to previous emails which were said to have raised “significant concerns relating to defects, poor workmanship and other issues”.

77. On 15 April 2019 the builder served a document headed “Notice of Suspension of Building Works (Clause 25 of Contract dated 3 May 2018)” which referred to clauses 17 and 25 of that contract. When questioned about that notice, Mr Baker suggested that contract was still on foot as it had never been replaced with a different contract.

78. On 09 May 2019 the owners made what Mr Tudor referred to as an ex gratia payment of $75,000. It is not in dispute that the owners paid the builder a total of $1,270,810 with the result that, based on the cost plus method, an amount of $268,139.79 was not paid (ie $1,538,949.79 less $1,270,810).

79. When it appeared to the owners that a stalemate had occurred, they had work carried out to address alleged defects.

80. There is no dispute as to the written contract in May 2018. There is a dispute as the whether that contract was varied to a cost plus arrangement, for which the owners contend, or whether the scope of works and contract price were varied, for which the owners’ contended.

81. Clause 18 of that contract dealt, which dealt with variations, commenced with the words: “A variation must be in writing signed by the builder and the owner.” While a consideration of the remaining words of clause 18 suggests it envisaged changes to the scope of works and/or the contract price, those additional words do not remove the need created by that initial sentence.

82. It is not surprising that the words of clause 18 in this HIA form of contract do not appear to cater for a change to a cost plus arrangement as there is a separate form of HIA contract for such an arrangement. In this case, once the builder desired to move to a cost plus arrangement it should have prepared and provided the owners with a costs plus contract so that there would be no doubt as to the terms of its agreement with the owners.

83. However, these proceedings must be determined not by reference to what should have happened but by reference to what did happen. It is beyond doubt that neither of the contended variations was valid by reference to the terms of the contract, notably clause 18.

84. As to the applicable provisions of the HBA, s 6 required both the May 2018 contract and any variation in August 2018 to comply with both s 7 and s 7E and. Further, s 7 requires a contract to be in writing and signed and the May 2018 contract was both in writing and signed. The builder’s argument appears to be that, despite s 6(1)(b), s 7 does not require a variation to be signed by the parties.

85. As to any variation in August 2018, s 7E(1) required the inclusion of each of the terms set out in Part 1 of Schedule 2 and clause 1(2) in that schedule required the inclusion of a term which provided that: “Any agreement to vary this contract, or to vary the plans and specifications for work to be done under this contract, must be in writing signed by or on behalf of each party to this contract.”

86. A failure to comply with s 7 renders a contract unenforceable by reason of s 11(1)(b), and s 11(1)(c) operates to like effect on any contract which does not comply with any provision of the HBA.

87. The builder’s case was that there was a valid variation in August 2018, which was in writing, and which did not have to be signed. It would be curious result if a statute requires the inclusion of a provision requiring a both a contract and any variation of it to be signed and then permits a variation to be enforced when it was not signed since that would not only defeat the purpose of the statute and would be contrary to an express written provision of the contract.

88. The Tribunal considers any August 2018 variation was required to be signed since s 6(1)(b) extends the application of s 7 to variations and by clause 18 of the May 2018 contract. However, even if it could be said that there was no requirement for the variation to be signed, the Tribunal is not satisfied that the August 2018 variation for which the builder contends was in writing for the reasons set out below.

89. When an alleged agreement is not wholly in writing but is either oral or partly written and partly oral, it is necessary to make findings of fact as to what the parties have agreed: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [7-27]. Post-contract conduct is both admissible and relevant: Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [141-143].

90. When it is necessary for a court or tribunal to determine an issue relating to the formation of the contract or its parties or its terms, that question is not determined by reference to what either of the parties thought or what they intended. Many decisions, such as that of the High Court of Australia in Taylor v Johnson [1983] HCA 5, have held that contract law is concerned not with the subjective intentions of the parties to a contract, but rather with the outward manifestations of those intentions. That is sometimes referred to as the objective theory of contract because the assessment is not made from the subjective view of either party but objectively, as if a reasonable person was considering what was said and done by both parties at the relevant time.

91. The relevant sequence of events, set out above, warrants the following findings based on the evidence and having regard to the written and oral submissions:

1. On 20 July 2018 the builder’s Mr Baker provided to the owners a cost estimate, not a quotation, for work on the first floor of their home.

2. On 02 August 2018 Mr Tudor, on behalf of the owners, indicated that he wished to proceed with that work but there was no cost plus arrangement in place at that time, only the fixed price contract.

3. On 15 August 2018 Mr Baker proposed a cost plus arrangement, having first raised that in the initial quotation dated 27 April 2018.

4. On 20 August 2018 Mr Tudor replied that he wished to discuss that matter and sought to achieve a cost of the 27 April 2018 quotation plus the 20 July 2018 estimate.

5. On 21 August 2018 Mr Baker sought to enhance his proposal by reducing the builder’s margin from 20% to 15%.

6. On 28 August 2018 Mr Baker and Mr Tudor met, a spreadsheet was provided by Mr Baker and they had a discussion.

7. That discussion resulted in Mr Tudor’s reluctant acceptance of a costs plus basis between the builder and the owners as he has ostensible, if not actual authority to represent his wife.

8. Later that day Mr Baker, in an email, sought approval to proceed which was understandable in that (a) Mr Tudor would need time to consider the contents of the spreadsheet provided earlier that day, (b) the approval to proceed with the additional work given by Mr Tudor on 02 August 2018 was prior to any discussion of a cost plus arrangement.

1. On 31 August 2018 Mr Tudor sent an email which included the words “now that we are on a cost plus basis” which, as they in past tense form, indicate that an agreement had previously been reached at the meeting on 28 August 2018.

2. The 05 September 2018 email from the builder’s Ms Cliff served to confirm that an agreement had previously been reached.

3. After the 28 August 2018 meeting the work proceeded, the builder issued invoices on a cost plus basis and the owners did not complain about the builder’s use of that basis.

92. In view of those findings, the variation for which the builder contends was not in writing because it was based on an oral agreement that was reached at the 28 August 2018 meeting.

93. The variation for which the owners contend is contraindicated by the parties’ subsequent conduct, such as the words of Mr Tudor’s 31 August 2018 email, and the absence of any response by the owners to the 05 September 2018 from Ms Cliff explaining the operation of a cost plus arrangement.

94. Further, (1) there is no signed variation to the effect for which the owners contend, (2) what was in writing was deficient in that there was only a cost estimate and not a quotation, and (3) the subsequent conduct does not accord with such a variation. Accordingly, the variation for which the owners contend is also rejected.

95. For those reasons, the Tribunal does not consider either of the variations for which the parties contended were either valid under the contract or enforceable by reason of the provisions of the HBA. However, the builder is entitled to maintain a claim on a quantum meruit basis.

96. As to the soft landscaping work, being what was set out in the 27 November 2018 email from Mr Baker to Mr Tudor, the Tribunal is not satisfied that the builder is entitled to charge the owners for that work for the following reasons.

97. First, there is nothing in that 27 November 2018 email or elsewhere to suggest that offer was conditional of the builder’s invoices being paid.

98. Secondly, there does not appear to be any agreement in relation to that work and, if there can be said to have been an agreement, it was not in writing and, if there was an agreement in writing, it was not signed.

99. Thirdly, the Tribunal is not satisfied the builder can recover for that work on a quantum meruit basis because there is no evidence of any request by the owners for that work and it would not be unjust to permit the owners to retain the benefit of that work without paying for it since they were told it would be provided free of charge. Indeed, in this instance it would be unjust to expect the owners to pay for something they never requested and were told would be provided at no cost.

Quantum meruit

100. As to the contest between the amounts of $1,229,124.18 suggested by Mr Pickering and $1,535,882.07 assessed by Mr Seeto, the Tribunal prefers the evidence of Mr Seeto for the reasons set out below.

101. First, even though the Tribunal is not bound by the rules of evidence, procedural fairness requires that the opinion of an expert have an accurate factual foundation and indicate the process of reasoning upon which the opinion is based: Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305 at [64] per Heydon JA (as he then was). Mr Pickering’s report did not contain any indication of reasoning beyond a suggestion that he analysed the Costs Lists provided to him by the builder.

102. Secondly, Mr Pickering indicates that the rates set out in the Schedule of Rates in the contract were his starting point. That suggests he did not make any assessment of whether those rates were reasonable and decisions such as Paraiso suggest those rates should provide a ceiling and not a starting point.

103. Thirdly, Mr Pickering did not allow for matters relating to the conduct of the builder, as indicated in the evidence of Mr Tudor and the unchallenged evidence of Mrs Tudor. It is also noted that he conceded that difficulties and delays would have an impact on the cost.

104. Fourthly, there is ample evidence of excessive labour charges (1) in the evidence of the owners, which includes a project manager carrying out tasks more appropriate for an apprentice, (2) the Costs Lists which show amounts for both a site manager and a project manager for a home renovation, and (3) the opinion of Mr Seeto on this point.

105. Fifthly, Mr Seeto was a qualified quantity surveyor who carried out a traditional for of analysis, provided full details of how he arrived at the amounts he used and clearly carried out an assessment of what is the reasonable amount for the work done and materials supplied.

106. Sixthly, a comparison of the reports of Mr Pickering and Mr Seeto reveals that Mr Pickering was content to rely on what he was told by the builder and his analysis was little more than a verification of what the owners charged the builder.

107. Seventhly, it is difficult to accept that, in relation to residential building work for which more than $1.5 million was charged, an independent assessment of the reasonableness of the amount charged only resulted in the detection of three instances of the same error of calculation, giving rise to differences of $1,199.74, $1,568.10, and $1,024.41: a total of $3,792.25.

108. Further, the oral evidence of Mr Baker was that the soft landscaping work was added to an invoice because the owners had stopped paying. Accordingly, those amounts, which the Tribunal does not consider the builder is entitled to recover, would appear to have been included in Mr Pickering’s analysis, which was based on the cost lists plus what he was told by the builder.

109. As there is no dispute that the owners paid the builder a total of $1,270,810, it follows that the overpayment of $41,685.82 (ie $1,270,810 less the amount of $1,229,124.18 provided by Mr Seeto in the Joint Report) should be refunded by the builder to the owners, subject to the following consideration of the builder’s work that was alleged to have been defective.

Defects

110. The unusual aspect of the owners claims for defective work is that there was no expert evidence on the question of liability as Mr Seeto only assessed the cost of rectification, based on what the owners told him. In closing submissions, it was submitted that the basis for the claims of liability for defective work was the evidence of the owners plus the concessions made by Mr Baker during his oral evidence on the first day of the hearing. However, Mr Baker also indicated that the builder relied on what its expert said in relation to defects.

111. Working from the closing written submissions for the owners, there are eight items to be considered. They are dealt with below, using the same heading as appears in those submissions together with the Tribunal’s decision in relation to that item. It is noted that the owners’ Amended Points of Claim replaced a list of alleged defects with a reference to Mr Seeto’s report. The first three items listed by Mr Seeto namely “Shed – leak”, “Shed – levelling” and “Towel rails – too high” were not included in the table of defects in the owners’ closing submissions.

112. In considering each of those defects, it is potentially necessary to consider: (1) the affidavit and oral evidence of Mr Tudor, (2) the affidavit of Mrs Tudor, (3) the affidavits and oral evidence of Mr Baker, (4) the documents annexed to those affidavits, (5) the expert reports of Mr Seeto and Mr Pickering, (6) the Joint Report, and (7) the very brief submissions of counsel for the parties.

113. It is noted that a table of alleged defects was provided by the owners to the builder and that there was a ‘without prejudice’ response dated 22 October 2019. As that document was included in the joint tender bundle and no objection was taken to its inclusion, the Tribunal proceeds on the basis that the schedule dated 22 October 2019 expresses the builder’s opinion at that time, although undoubtedly with an element of compromise as it was sent on a ‘without prejudice’ basis with a view to achieving a resolution of the issues.

Kitchen sink – claim accepted

114. During his oral evidence, Mr Baker accepted there was a defect and said the builder was willing to carry out rectification work within a reasonable time. Mr Pickering’s report accepted that the over cut opening around the sink was a defect in that work had not been performed with due care and skill. The written submissions for the builder incorrectly suggested this item was not pressed in the cross-application. Mr Seeto suggested a cost of rectification of $2,000, inclusive of a 20% margin but exclusive of GST.

Bathroom floor tiles – claimed rejected

115. The alleged defect was said to be that every tile is scratched but there are no supporting photographs nor is there any expert evidence in support of this item as to liability: only Mr Seeto’s suggested cost of rectification of $5,000 plus GST. While the 22 October 2019 response of the builder contained an acceptance that tiles had been scratched, Mr Pickering’s unchallenged evidence is that scratches or marks were only evident when viewed from less than 30cm, and only under critical or glancing light and that there was no defect. He provided supporting photos and based his opinion on the Guide to Standards and Tolerances. That being the evidence, this item has not been proved by the owners.

Pool – sealing of limestone – claim rejected

116. Mr Seeto suggested a cost of rectification of $4,948 for this item, based on the owners’ supporting invoice. However, Mr Pickering’s observations were that there was no defective installation, that the limestone tiles are susceptible to staining because they are porous, that those tiles are in an area that is surrounded by trees, and that he observed similar stains to those tiles despite the owners having had them sealed or resealed. On that basis, his opinion is that there was no defective work, and the Tribunal accepts that view.

Pool – retiling of steps – claim accepted

117. An amount of $1,000 plus GST was suggested for this item which was based on the contrasting colour of three mosaic steps at the entry to the pool. The builder’s submissions in this instance suggested this item was not pressed in the cross-application yet it was pursued in the cross-examination of Mr Baker who suggested the builder was willing to fix this item if it was paid. While the report of Mr Pickering suggests this is not a defect, but his opinion was said to be based on the design drawings not specifying how many rows of contrasting mosaic tiles were to be installed. As that does not appear to be an adequate basis for Mr Pickering’s opinion, the Tribunal considers the concession made by Mr Baker provides sufficient support for this item, noting that such evidence from Mr Baker was consistent with the 22 October 2019 response: “Can be fixed when outstanding overdue account is paid”.

Retiling of main pool – claim rejected

118. In relation to this item, Mr Baker relied on the opinion of the builder’s expert, Mr Pickering. Mr Seeto suggested a rectification cost of $5,000 plus GST. It appears this item was included due to irregularities in grout joints within the pool shell. There is a lack of evidence as to liability from the owners and Mr Pickering’s observations and supporting photos provide a reasonable basis for his opinion that there is no defect which opinion is accepted by the Tribunal.

Landscaping – claim rejected

119. This item relates to landscaping to rear of the site, between the house and the pool terrace. In the spreadsheet which contained the 22 October 2019 response of the builder, the owners suggest the builder hurriedly laid turf on compacted underlay. There is no supporting expert evidence for the owners other than Mr Seeto referring to a quotation for $17,800. The builder’s response in October 2019 was that the owners had not been charged for that work and that the cause was excess shade and not poor workmanship. Mr Pickering did not accept there was a defect. Faced with competing explanations as to the cause of this alleged defect, the absence of supporting expert evidence tells against the owners. The Tribunal does not consider this claim to have been proved.

Pool fence – replace – claimed rejected

120. While Mr Seeto contends for $1,304.48 for the replacement of the pool fence, there is otherwise a deficit of supporting evidence from the owners and, while there appears to have been a concession made by the builder in October 2019, that was conditional upon payment of outstanding invoices. It is understandable that a builder who believes it is owed a considerable sum would make such a concession. The report of Mr Pickering sets out what he observed, including supporting photos, and set out the basis for his opinion that there is no defect, which included that there was compliance with the relevant Australian Standard. The Tribunal is not satisfied that the owners, who bear the onus of proof in relation to alleged defects, have established any entitlement in respect of this item.

121. Although an item relating to expansion joints in external stonework was included in the Joint Report, that item was not included in the owners’ closing written submissions. In case that was an oversight, the Tribunal notes that (1) it is difficult to understand the nature of the claim of the owners other than that Mr Seeto expresses the view that an amount of $3,300 paid by the owners is fair and reasonable, (2) the evidence of Mr Baker was that joints were provided to address cracking, and (3) Mr Pickering noted that he had not been provided with information that would enable him to express an opinion. This alleged defect has not been proved.

Pool – coping tiling works – claimed rejected

122. In the spreadsheet which contains the builder’s 22 October 2019 responses, it appears the owners’ complaint was that: “This should be completed asap. Why has this not been completed? There is no reason to delay this beyond the existing 10 months.” Those words suggest this item relates to incomplete work and not defective work. In the context of a cost plus arrangement for building work, a builder cannot be held liable for the cost of completing work. This claim is, for that reason, rejected.

Work order or money order

123. The Tribunal has only found in favour of the owners in relation to two of the items considered above for which the total cost of rectification, including GST, is $3,300. While the builder expressed a willingness to comply with a work order, and the owners do not appear to have provided strenuous evidence to the contrary, if a work order were to be made in respect of two items and a dispute arose in relation to that remedial work then the resulting cost would soon exceed the amount in issue.

124. It appears preferable to regard the position of the parties, by reason of the each commencing proceedings against the other, to have reached the point where the statutory preference set out in s 48 MA of the HBA has been displaced, and to make a money order instead of a work order. In all the circumstances of this case, the Tribunal is satisfied that the owners have lost confidence in the builder and that the relationship between the parties has deteriorated to the point where a money order is the preferable outcome.

Summary

125. Thus, the defect claims of the owners warrant an additional payment of $3,300 by the builder to the owners. As it is plainly preferable to make a single money order, adding that amount to the $41,685.82 determined in relation to the quantum meruit claim gives a total amount payable by the builder to the owners of $44,985.82.

Costs

126. In the Civil and Administrative Tribunal Act 2013 (CATA), the effect of s 60 is that each party is to bear their own costs unless there are special circumstances which warrant an order for costs. However, s 35 of the CATA operates to make s 60 subject to Rule 38 of the Civil and Administrative Tribunal Rules 2014 which provides as follows:

1. This rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal.

2. Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if:

(a)   the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $30,000 and the Tribunal has made an order under clause 10(2) of Schedule 4 to the Act in relation to the proceedings, or

(b)   the amount claimed or in dispute in the proceedings is more than $30,000.

127. When rule 38 applies there is a general discretion to award costs and it is well established, by decisions such as News v Cotes [2019] NSWCATAP 186, Bonita v Shen [2016] NSWCATAP 159 and Thompson v Chapman [2016] NSWCATAP 6, that: (1) the starting point is that the usual order for costs should be in favour of the successful party, (2) the award is not to punish the unsuccessful party but to compensate the successful party for the costs incurred in the proceedings, and (3) departure from the usual order is permissible if the circumstances favour that course of action.

128. Simply stated, when rule 38 applies it is not necessary to establish special circumstances and the usual order is that costs follow the event (ie follow the outcome of the case) unless there is disentitling behaviour by the successful party: Latoudis v Casey [1990] HCA 59, Oshlak v Richmond River Council [1998] HCA 11. When rule 38 applies, as was observed in Tom v Jenkins [2018] NSWCATCD 24 at [12], the successful party can be said to have a reasonable expectation of being awarded costs.

129. Since both the application and cross-application involved claims for more than $30,000, it appears that the owners are entitled to an order for costs in relation to both their (cross-)application and the application of the builder. However, the orders will provide two weeks for the builder, being the unsuccessful party, to make any submissions as to costs. If no such submissions are lodged, then orders will be made for costs to be paid on the ordinary basis, as agreed or as assessed in the absence of any such agreement. On the other hand, if submissions are lodged by or for the builder then the owners, being the successful party, will be given three weeks (allowing for the Christmas and New Year holidays) in which to provide any submissions in response.

130. Any submissions on costs may be provided electronically to the Tribunal’s portal.

Orders

131. For the reasons set out above, the orders that will be made are as follows:

In HB 20/52532:

1. The application is dismissed by reason of the orders made in the related proceedings (HB 21/12757).

2. Any submissions as to costs are to be included in submissions made in those related proceedings.

In HB 21/12757:

3. The respondent (builder) is to pay the applicants (owners) $44,985.82 immediately.

4. Any submissions the respondent wishes to make as to costs are to be filed and served on or before 24 December 2021.

5. If such submissions are lodged, any submissions in response from the applicants are to be filed and served on or before 14 January 2022.

6. Any such submissions are to indicate whether it is agreed that costs should be decided on the papers, ie without the need for a further hearing.

7. Leave is granted for any submissions on the question of costs to be lodged electronically.

**********

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 10 February 2022