Brad Teal Pty Ltd v Evr Group Pty Ltd
[2024] VCC 485
•22 April 2024
Codeanalysishardin102A
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
Case No. CI-20-05201
| Brad Teal Pty Ltd as Trustee for the TEAL FAMILY TRUST (ACN 006 210 439) | Plaintiff |
| v | |
| EVR Group Pty Ltd | Defendant |
(ACN 605 728 701)
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JUDGE: | HER HONOUR JUDGE BURCHELL | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8-9 November 2023, written submissions 28 November 2023, 18 January 2024 and 26 February 2024 | |
DATE OF JUDGMENT: | 22 April 2024 | |
CASE MAY BE CITED AS: | Brad Teal Pty Ltd v EVR Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 485 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT – IMPLIED TERMS
Catchwords: “off-the-plan” purchase – whether the developer made implied warranties to the purchaser – whether developer breached implied warranties – whether the developer exercised due diligence in selection of builder – whether the developer failed to enforce its contractual rights to compel the builder’s compliance – trial on liability only
Legislation Cited: Building Act 1993 (Vic), s169G; Building Regulations 2006 (Vic); Building Regulations 2018 (Vic); Building Code of Australia 2019; Sale of Land Act 1962 (Vic), s9AA; Domestic Building Contracts Act 1995 (Vic), ss8 and 9
Cases Cited:Hawkins v Clayton (1988) 164 CLR 5; BP Refinery (Westernport) v Shire of Hastings (1977) 180 CLR 266; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCR 424; Lawrence v Cassel (1930) 2 KB 83; Miller v Cannon Hills Estates Ltd (1931) 2 KB 113; Perry v Sharon Development Co Ltd (1937) 4 All ER 390; Jennings v Tavener [1955] 1 WLR 932; Lynch v Thorne (1956) 1 All ER 744; Dean v Gibson [1958] VR 563; Streeter v McLennan [1959] Qd R 136; Hancock v B. W. Brazier (Anerley) Ltd [1966] 1 WLR 1317; Lowden v Lewis [1989] TasR 254; Vella v Ayshan [2008] NSWSC 84; Sterling Estates Development Corporation Pty Limited v Malouf [2003] NSWCA 278; Yau’s Entertainment Pty Ltd v Asia Television Ltd (2002) 54 IPR 1; Realestate,com.au Pty Ltd vHardingham [2022] HCA 39; Dean v Gibson [1958] VR 564; Hart v MacDonald (1910) 10 CLR 417; Byrne v Australian Airlines (1995) 185 CLR 411; Byrne v Australian Airlines (1995) 185 CLR 411; Eezypak Pty Ltd v Byron Bay Superfoods Company Pty Ltd [2020] NSWLC 7; Hays Personnel Services (Australia) Pty Ltd v Motorline Pty Ltd [2008] QCA 375; La Rosa v Nudrill Pty Ltd [2013] WASCA 18; Harry Kendall and Sons v William Lillico and Sons Ltd [1969] 2 AC 31; Barrymores v Harris Scarfe Ltd (2001) 25 WAR 187, Premium Grain Handlers Pty Ltd v Elite Grains Pty Ltd [2005] WASC 103; Codelfa Construction Pty Ltd v State Railway Authority (NSW) (1982) 149 CLR 337; Grocon Constructions (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Commonwealth Bank of Australia v Barker (2014) 312 ALR 356; Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54; Simply IrresistiblePty Ltd v Couper & Ors [2010] VSC 601; University of Western Australia v Gray [2009] FCAFC 116; Gaut v Patterson (1931) 31 SR (NSW) 612; Perry v Sharon Development Co (1937) 4 All ER 390; Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228; Masters Home Improvement Australia Pty Ltd v North East Solutions Pty Ltd [2017] VSCA 88; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; Council of the City of Sydney v Goldspar Australia Ltd [2006] FCA 472; Perre v Apand (1999) 198 CLR 180; Browne v Dunn (1893) 6 R 67; Butt v McDonald (1896) QLJ 68; Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 240 CLR 45; Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Woolcock Street v Brookfield Multiplex [2013] HCA 36; Bryan v Maloney (1995) 182 CLR 609; Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84; Jobern Pty Ltd v BreakFree Resorts (Victoria) Pty Ltd [2007] FCA 1066; Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534
Publications: Cremean, Whitten & Sharkey, Brooking on Building Contracts (6th ed LexisNexis 2019), [4.13]; J D Heydon, Heydon on Contract (Thomson Reuters 2019) [10.300] – [10.310]; Fenwick Elliot LLP, Dictionary of Construction Terms; Halsbury’s Laws of Australia, [110-2090]; Carter on Contracts at [10-180]; Williams, “Language and the Law IV” (1945) 61 Law Quarterly Review 384, 403; Williams Jr, RO, “Developments in Actions for Breach of Implied Warranties of Habitability in the Sale of New Houses” 10 Tulsa Law Review 445; McLauchlan DW, “Merger in the Conveyance and the Effect of Settlement” VUW Law Review 412; Principles of Contract Law Jeannie Paterson, Andrew Robertson, Arlen Duke Fifth Edition
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | C Banasik | Kennedy Guy Lawyers |
| For the Defendant | J Silver | WMB Lawyers |
Table of Contents
Introduction
Issues
Background Facts
Brad Teal’s submissions
Implied terms of the contract
The Undertaking
EVR Group’s submissions
The witnesses
Brad Teal
Michael Lynch
Jose Romero
The interpretation of the contracts of sale
Brad Teal’s submissions
First implied term – fitness for purpose
Second implied term – compliant with legislation and building permit
Third implied term – workmanlike standard and proper materials
EVR Group’s submissions
First implied term – fitness for purpose
Second implied term – compliant with legislation and building permit
Third implied term – workmanlike standard and proper materials
Analysis of primary case
First implied term – fitness for purpose
Oral term, alternatively, implied by a course of dealings
Terms implied “in fact”
Terms implied by law
Second implied term – compliant with legislation and building permit
Terms implied “in fact”
Third implied term – workmanlike standard and proper materials
Terms implied “in fact”
Alternative Case
Obligation to engage a registered builder – terms implied in fact analysis
Brad Teal’s submissions
EVR Group’s submissions
Obligation to co-operate
Brad Teal’s submissions
EVR Group’s submissions
Duty of good faith
Brad Teal’s submissions
EVR Group’s submissions
Obligation to act reasonably
Brad Teal’s submissions
EVR Group’s submissions
Analysis of Alternative Case
Duty to co-operate
Duty of good faith and to act reasonably
The interpretation of the Undertaking
Brad Teal’s submissions
EVR Group’s submissions
Analysis of Undertaking
Conclusion
Certificate
HER HONOUR:
Introduction
1The plaintiff (“Brad Teal”) purchased two commercial lots “off-the-plan” from the defendant (“EVR Group”) in a proposed mixed-use building. Brad Teal contends that EVR Group (who is not a builder but retained a third-party builder (“Merrion 6”) who was accepted by the financier to construct the building) has impliedly warranted that the lots would meet the level of finish/completion of a “retail shell” and the building would be in conformity with relevant legislation, documentation, and standards of workmanship, and that it breached those warranties. Brad Teal further contends that EVR Group did not exercise due diligence in its selection of builder and did not seek to enforce its contractual rights to compel the builder’s compliance resulting in in-complete and defective works. EVR Group denies each of those allegations. There is also a dispute around quantum.
2By orders made on 31 October 2023, the trial proceeded on the question of liability only.
3In my judgment, in the circumstances, a reasonable person in the position of the parties would not have known that in a formal contract of sale of real estate would include terms that:
(a) the premises would be fit for use as a shell;
(b) it would be in accordance with relevant legislation and the building permit; and
(c) it would be completed in a workmanlike standard and of proper materials.
4It is not a natural and obvious implication of real estate contracts that a purchaser of commercial real estate can sue a vendor for the third-party builder’s breach of construction warranties. My reasons are set out below.
5Accordingly, there will be judgment for EVR Group, and the proceeding is dismissed. I will order that Brad Teal pay EVR Group’s costs of and incidental to the proceeding on the standard basis, in default of agreement (unless either party has a basis for a different order as to costs). I invite the parties to prepare draft orders to give effect to these reasons. I will determine any issue concerning costs on the papers.
Issues
6The issues in the liability dispute are as follows:
(a) The interpretation of the contracts of sale of real estate for the two lots, including (but not limited to):
(i)what was required to complete the two lots to “shell”;
(ii)the existence of the implied terms articulated in the statement of claim; and
(iii)whether the terms pleaded by Brad Teal merged on conveyance, or were collateral rights that survived the conveyance;
(b) the interpretation of the Undertaking, in particular, what was to occur if the parties did not agree the 6 items in the Undertaking were completed (by a particular time, or generally) and assuming (subject to quantum findings) the items were not completed, including:
(i)whether the $100,000.00 held in EVR Group’s solicitor's trust account was to be released to Brad Teal (in full)?
(ii)whether the $100,000.00 was to be held as security for performance of the 6 items, to the satisfaction of Brad Teal, or otherwise?
(iii)whether the $100,000.00 was to be released to Brad Teal to cover the costs of attending to any of the items itself?
(iv)whether the funds were simply to be released to EVR Group on satisfaction of the Undertaking?
(c) the evidence of the lay witnesses concerning the above.
7The parties did not make submissions on the issue of whether Brad Teal mitigated its losses, or otherwise acted reasonably in respect of the defects. If Brad Teal succeeds on liability, this issue would be relevant in the quantum trial. Similarly, any issues arising from elements that affect common property should be left to the next stage of the proceeding for determination, if required.
Background Facts
8On 6 December 2019, the parties entered into two Contracts of Sale of Real Estate for Lots 1 and 2 of Draft Plan of Subdivision 8182820 (“the Lots”) at 102A Maribyrnong Road, Moonee Ponds (“the Contracts”). Once subdivided, the Lots became 102A and 104 Maribyrnong Road. It is common ground between the parties that each lot was to be constructed as a “shell” with further work to be performed by EVR Group at its own discretion.
9There is a dispute between the parties as to whether the Contracts were other than in writing.
10Brad Teal claims that the Contracts contained the following implied terms:
(a) EVR Group would appoint a registered building practitioner to undertake the building works in respect of the Lots.
(b) The Lots would be built in accordance with the building permit, including stamped plans and specifications.
(c) The Lots would be fit for use as a retail shop “shell”, meaning they would be ready for immediate commencement of fit-out works upon settlement.
(d) The Lots would be built in accordance with the relevant legislation, including, inter alia, the Building Act 1993 (Vic) (“Building Act”), the Building Regulations 2006 (Vic) and its successors, being the Building Regulations 2018 (Vic) (“Building Regulations”) and the Building Code of Australia (“BCA”).[1]
(e) The Lots would be built using proper materials and to a workmanlike standard.
(f) EVR Group would co-operate with Mr Teal and his nominee so as to do all things necessary to enable Brad Teal to have the benefit of the Contracts, and would act in good faith and would act reasonably including that EVR Group would:
(i)appoint a registered building practitioner to undertake the building works in respect of the Lots;
(ii)undertake reasonable due diligence in selecting a competent building practitioner to undertake the building works in respect of the Lots;
(iii)reasonably manage or superintend the building works in respect of the Lots; and
(iv)reasonably enforce its contractual rights against the builder as to require that the works are completed in accordance with the building contract between EVR Group and Merrion 6 Pty Ltd dated 26 March 2018 (“the Building contract”) and relevant legislation.
[1] NCC 2019
11In January 2020, EVR Group called for settlement of the Lots.
12On 31 January 2020, Brad Teal agreed to settlement under protest. Brad Teal claims that it agreed to settle on the basis that EVR Group undertook to withhold $100,000.00 in its solicitor’s trust account subject to the following works being completed in 90 days:
(a) The vendor’s building surveyor certifies that the Properties have disabled access that is compliant with relevant legislation;
(b) The essential safety measures (“ESMs”) are all installed, and the vendor’s building surveyor certifies them as being compliant with the requirements of the Building Act;
(c) The carpark and stackers are made available for use by the Purchaser and the residents in accordance with condition 10 of the Planning Permit;
(d) The lift is installed and is operational;
(e) The drain is installed at the front door of 102A to redirect water runoff; and
(f) Power, water and NBN services are provided to the Properties and the Purchaser is able to connect to those services (collectively, “the Outstanding Works”).
13There is a dispute between the parties as to whether the Outstanding Works were completed by EVR Group within 90 days or, alternatively, if EVR Group breached the Undertaking.
14On 30 October 2020, Brad Teal demanded that EVR Group instruct its solicitor to release the Undertaking sum to Brad Teal.
15EVR Group did not release the funds to Brad Teal.
16Brad Teal contends that the dispute arises because the premises delivered by EVR Group to it were incomplete and defective in some very fundamental ways. The first major issue was that water and moisture entered the premises along the East wall (due to control joints not being sealed and some panels not waterproofed), South wall (due to no waterproofing of the planter boxes) and South entry (as the strip drain was not plumbed). The second major issue was that the concrete floor was unfinished. Brad Teal argues that it seeks to have a building that is compliant with legislation and basic standards of workmanship adhered to so that it could be fit out and used as an office space.
Brad Teal’s submissions
Implied terms of the contract
17Brad Teal submits that, to the extent that the terms of the Contract are oral, it was contained in conversations between Jose Romero (an agent of EVR Group) and Mr Teal during the period 17 November 2017 – 6 December 2017. Some of these conversations were said to be in the presence of Michael Lynch. During the conversations. Mr Teal said that he wanted to purchase two retail shells that he could fit out upon settlement. Mr Romero allegedly said at various times in the conversations, words to the effect “you’ll get what you want here” and “I won’t let you down”.
18To the extent that the terms are implied in fact, Brad Teal argues that the parties have not attempted to spell out the full terms of the Contracts in writing. This includes:
(a) Not making any provision for the appointment of a building practitioner to undertake the building works in respect of the Lots;
(b) Not fully describing the specifications of the Lots or building to be constructed;
(c) Not stating EVR Group’s role or obligations in respect of appointing and supervising a builder to complete the building works, in circumstances where the building works were to be for the use and benefit of Brad Teal; and
(d) Not stating the standard to which the Lots or building would be constructed.
19Brad Teal contends that the terms ought to be implied in fact, alternatively by law, or implied by course of dealings. It says that the implication of the terms is necessary for the reasonable and effective operation of the contract.[2] In the alternative, they are necessary to give business efficacy to the agreement.[3] To the extent that the term is implied by a course of dealings, Brad Teal refers to the conversations between the parties referred to above.
[2] Hawkins v Clayton (1988) 164 CLR 539 per Deane J.
[3] BP Refinery (Westernport) v Shire of Hastings (1977) 180 CLR 266 (“BP Refinery”).
20Brad Teal claims that EVR Group breached the Contracts for the following reasons.
21First, EVR Group did not appoint a registered building practitioner to undertake the works. It submits that the works were undertaken by ACN 620 427 545 Pty Ltd (formerly named Merrion 6 Pty Ltd). Brad Teal contends that Merrion 6 was named as the builder in the Building Contract and held itself out to trade as Kingcon Construction (“Kingcon”). It says that Merrion 6 was not, at the material times, a registered building practitioner and did not have any nominee director who held a domestic building registration. The works were required to be constructed by a builder holding a domestic builder unlimited practitioner registration or by a building company having a nominee director with a domestic builder unlimited practitioner registration. Frank Nadinic DB-U 9939 and CB-U 3540 was noted on the building permits as the builder, but he did not undertake the works and he was not a director of Merrion 6.
22Second, the Lots were not in accordance with the Building Permit, including the stamped plans and specifications (once issued).
23Third, the Lots were not fit for use as a retail shop “shell”.
24Fourth, the Lots were not in accordance with the Building Act, Building Regulations and BCA.
25Fifth, the Lots were not built of proper materials and to a workmanlike standard.
26Sixth, EVR Group did not cooperate with Brad Teal to do all things necessary to enable Brad Teal to have the benefit of the contracts in that:
(a) EVR Group did not appoint a registered building practitioner to undertake the works in respect of the Lots;
(b) EVR Group did not undertake reasonable due diligence in selecting a competent building practitioner to undertake the works in respect of the Lots;
(c) EVR Group did not reasonably manage or superintend the building works in respect of the Lots; and
(d) EVR Group did not reasonably enforce its contractual rights against the builder so as to require that the works were completed in accordance with the Building Contract and relevant legislation.
27Seventh, EVR Group did not act in good faith, in that it did not appoint a registered building practitioner to undertake the works in respect of the Lots, did not undertake reasonable due diligence in selecting a competent building practitioner to undertake the works in respect of the Lots and did not reasonably manage or superintend the building works in respect of the Lots.
28Eighth, EVR Group did not act reasonably in that it did not appoint a registered building practitioner to undertake the works in respect of the Lots, did not undertake reasonable due diligence in selecting a competent building practitioner to undertake the works in respect of the Lots and did not reasonably manage or superintend the building works in respect of the Lots.
The Undertaking
29Brad Teal submits that on 31 January 2020, it agreed to settlement under protest on the basis that EVR Group undertook to withhold $100,000.00 in its solicitor’s trust account subject to alleged outstanding works being completed within 90 days.
As noted above, Brad Teal contends there were Outstanding Works, when it agreed to settlement at 31 January 2020.
30At trial, Brad Teal focussed on items (a) and (e). Brad Teal argues that there are implied terms of the Undertaking that EVR Group would act in good faith in the performance of its obligations pursuant to the Undertaking, that if the outstanding works were not completed by EVR Group within 90 days, or if EVR Group breached the Undertaking, the $100,000.00 held on trust by its solicitor would be released to Brad Teal, alternatively, that Brad Teal would be entitled to recover the value of any remaining outstanding works from the $100,000.00 held by EVR Group’s solicitor.
31Brad Teal submits that the Undertaking terms are implied in fact, as the parties have not attempted to spell out the full terms of the Contracts and the implication of the terms are necessary for the reasonable and effective operation of the Contracts, having regard to Brad Teal’s vulnerability in lacking any control over EVR Groups’ consultant’s performance of their duties. Alternatively, Brad Teal contends that the terms are implied to give business efficacy to the agreement.
32Brad Teal argues that the outstanding works were not completed within 90 days. It relies on the reports of Peter Collina of BSS Group (“the BSS Report”) identifying that the disabled access is not compliant with ss 1.2 and 1.3 of the BSS Report, the ESMs are not compliant with ss 1.5 and 1.6 of the BSS Report and the drain installed at the front of Lot 1 is defective as it does not redirect water runoff and is not connected to a legal point of discharge pursuant to ss 1.2 of the BSS Report.
33Brad Teal further argues that, as at 1 May 2020, the car stacker was unreliable and defective, no FOBs had been provided for the lift and the lift was unreliable and not fully operational.
34On or about 6 August 2021, Brad Teal says it discovered that the water point in the disabled toilets was not connected to the water main.
35Brad Teal claims that EVR Group did not act in good faith in respect of the Undertaking, by:
(a) purporting to rely on the letter from Justin Barlow dated 9 July 2020 in circumstances where the disabled access was not compliant with all relevant legislation; and
(b) purporting to rely on the letter dated 3 July 2020 from Sam D’Orio of the D’Orio Architects Group, in circumstances where the strip drain did not redirect water runoff and was not connected to a legal point of discharge and failing to disclose that the disabled toilet water had not been connected to the main.
36Brad Teal caused its solicitor, Kennedy Guy, to send a letter of demand to EVR Group on 30 October 2020, seeking that EVR Group instruct its solicitors. Essendon Legal & Business Services, to release the Undertaking sum to Brad Teal.
37Brad Teal claims that EVR Group is in breach of its Undertaking in failing or refusing to instruct its solicitors to release the Undertaking sum to Brad Teal.
EVR Group’s submissions
38EVR Group submits that the Contracts contain no written terms to the effect that it warranted the quality of the works completed by a third-party builder hired after the fact.
39EVR contends that whatever the rights Brad Teal had arising from incomplete or non-compliant works, such as to decline settlement of the property, were rights merged upon conveyance of the Lots. On the assumption any implied warranties would not merge (which is not clear), EVR Group alternatively submits that is immaterial, as they were never given.
40EVR Group submits that Brad Teal is an experienced real estate agent who is familiar with standard form contracts of sale, together with warranties available at law to purchases in off-the-plan contracts of sale and those which require negotiation.
41EVR Group contends that Brad Teal approached it after it had acquired the development site and sought to purchase the ground floor lots (Lots 1 and 2) based solely on the planning approval. EVR Group argues that Brad Teal did not attempt or request to negotiate alternate terms, including special conditions (such as vendor warranties) when presented with the draft contract of sale.
42EVR Group’s position is that, even if the implied terms are made good, that is a distinct matter from proof of such breaches causing the damage pleaded: as a matter of causation, most of the breaches pleaded do not lead where Brad Teal says it does, such that only nominal damages would follow. Brad Teal only succeeds if it establishes that EVR Group warranted the builder's work in the Contracts.
43EVR Group submits that it appointed a company to undertake construction whose director was a registered builder as required (of a company) by s169G of the Building Act. On 26 March 2019, it executed a building contract (AS4300-1995) with Merrion 6. From 14 December 2017 to 8 April 2019, Andrew Nadinic was a director of Merrion 6. He held and continues to hold a commercial building licence unlimited (CB-U 36944) in accordance with s169G of the Building Act.
44EVR Group submits that on 19 April 2018, Contracts Works Insurance was issued in the name of Merrion 6 for the relevant work and that it did not retain an entity called “Kingcon”. It notes that the building permit BS-U1113/20181396/1 issued on 19 June 2018 identifies a number of registered building practitioners, including Frank Nadinic (DB-U9939) and his son, Andrew Nadinic (CB-U36944).
45EVR Group contends that the Undertaking, given by its then solicitor, was expressed in the following terms, the effect of which was that the monies were security for performance within the period of 90 days, with the funds released on 90 days (or earlier if work was completed): “[p]lease see below the terms of agreement that are to be included in my undertaking for the amount of $100,000.00 withheld in our trust account for 90 days”.
46EVR Group argues that the relevant building surveyor provided approvals for the disability access and ESMs on 9 July 2020. It also notes that Brad Teal’s expert says that the car stacker and the lift work is complete.
The witnesses
Brad Teal
47Mr Teal gave evidence at the trial. He presented as opinionated and argumentative and was reluctant to give any concessions or qualifications. Mr Teal struggled to answer questions directly. He refused to concede that paragraph 23 of his witness statement contained legal language when it included terms such as “it was implied that the building would be compliant with laws and being fit for purpose and habitable”.
48Further, he sought to object to paragraph 94 of his own witness statement after having adopted it as true and correct, and, following the conclusion of the hearing objections by counsel upon being cross examined on the sentence “they may win the threat and illegal action war but they cannot and will not win the legal and moral war.” He claimed that in his 50 years of being in the real estate business, he has sold about 30,000 properties. I find this implausible, and that Mr Teal was only willing to amend his evidence in an attempt to improve his prospects of success.
49Mr Teal said that he had not bought off-the-plan before.
50Mr Teal said that the reason why he was in Court today was not about the Contracts. He said that the Lots still facing leaking issues and were non-compliant and, as a result, one cannot be let. Mr Teal said that he did not get what he bought. He conceded that nothing came to mind immediately as to which term of the Contracts had not been complied with.
51Mr Teal said that Mr Romero promised him that he “would not let [Mr Teal] down” and made a commitment to Mr Teal personally. Mr Teal claims that Mr Romero had let him down and, therefore, he had a right to sue him.
52Mr Teal said that he did not call off the Contracts because, in his view, he did not have a right to. His position is that the cooling off period did not apply to the present case, being commercial premises.
53Mr Teal said that he did not know that if he wanted EVR Group to be responsible for the builder’s warranties it had to be a term in the contract of sale.
54Mr Teal did not seek legal assistance prior to signing the Contracts. He said that he has used about 10 different solicitors in his line of work.
55Mr Teal did not ask Mr Romero for a warranty. He thought that the law would “protect him”. Mr Teal claimed that he did not need to ask Mr Romero for a warranty because Mr Romero was not a lawyer.
56Mr Teal was taken to clause 5.1 of the Contracts in relation to representations.
“The parties agree and acknowledge that this Contract contains and sets forth all of the terms and conditions of and relating to the sale of the said land by the Vendor to the Purchaser and that there are no conditions, warranties or other terms affecting or relating to this sale other than those embodied herein and that the Purchaser shall not be entitled in any way to rely on any representation or warranty made or claimed to have been made by the Vendor or on the Vendor's behalf as to the fitness for any particular purpose or otherwise of the property or that any structures comply with the current or any building regulations and the Purchaser expressly releases the Vendor and/or his servants or agents from any claims or demands in respect thereof.” (emphasis added)
57In relation to clause 4.1 of the Contracts, Mr Teal said that he did not need to have a discussion with Mr Romero about it, as it was not relevant given the transaction was off-the-plan. Clause 4.1 provides:
“The Purchaser acknowledges that he has inspected the property and chattels prior to the day of sale.
He agrees that he is purchasing and will accept delivery of the property and chattels in their present condition and state of repair and with any defects existing at the date hereof.
He agrees that the Vendor is under no liability or obligation to carry out repairs, renovations, alterations or improvements of any kind whatsoever including without limitation repairs, renovations, alterations or improvements that may be required to the property and chattels at any time up to and including settlement date.” (emphasis added)
58Mr Teal said that he would not, in the ordinary course, advise his commercial or residential clients to get lawyer’s advice. They bear the risk for what they buy. Mr Teal noted that residential clients have the three-day cooling off period.
59At paragraph 94 of his witness statement, Mr Teal cites an email to Mr Romero in June 2020 referring to the following: “they may win the threat and illegal action war but they cannot and will not win the legal and moral war”. He said that this email refers to the Builder. He wants “the principle”, and he wants to be heard because he thinks he is right. Mr Teal said that the $100,000.00 held in trust is part of the relief he sought. He said does that it does not “touch the sides” of what he has lost.
60Mr Teal acknowledged that he had not pursued legal action against Merrion 6 or any related entities. Mr Teal did not accept an assignment with its terms. This has been offered to him several times, but he says that it is not his issue as he did not contract with Merrion 6.
61Mr Teal said that he did not understand that Mr Frank Nadinic and Mr Andrew Nadinic as individuals were still registered as builders with the Victorian Building Authority (“VBA”). He believed that they had been deregistered.
62Mr Teal said that Frank had called him on Monday before the trial after reading the Herald Sun article published on 6 November 2023, restating the pleadings in this proceeding. He claimed that his offer was that he would give evidence to support Mr Teal. Mr Teal has not called Frank to give evidence at trial.
63The Undertaking was in the following terms:
“The parties agree that the sum of $100,000 is held back in trust and only released to the Vendor with the Purchaser’s consent when:
a. The Vendor’s building surveyor certifies that both 102A and 104 Maribyrnong Rd have disabled access that is compliant with relevant legislation.
b. The ESMs are all installed and the Vendor’s building surveyor certifies them as being compliant with the requirements of the Building Act.
c. The carpark and stackers are made available for use by my client and the residents in accordance with condition 10 of the Planning Permit.
d. The lift is installed and is operational.
e. The drain is installed at the front door of 102A to redirect water runoff.
f. Power, water and NBN services are provided to the Properties and the Purchaser is able to connect to those services.”
64Mr Teal conceded that the Undertaking does not include a demand that the works be completed in 90 days. He claimed it was implied that the $100,000.00 would be released once the items had been completed.
65Mr Teal said that he observed water ingress on about 20 occasions. The water came in all the way across 50 square meters, down the step and into the bottom shop from the east wall. He said that he had not seen water ingress from the south wall with the planter boxes. Mr Teal said that water ingress continues to date from the front door with the strip drain. He observed water ingress through the front door approximately 50 times with about 10 square meters of water running down into the bottom shop. When Whitehart Developments did the work in March to April 2022, they did some excavations where 12-14m of the wall and 300mm of edge needed to be added and waterproofed.
66Mr Teal retained Whitehart Developments because no-one could fit out the building with the ingress of water. He also engaged them to do the grinding of the floors as it was becoming very dusty. Every time it was swept, the floor de-fabricated. He engaged them to put epoxy on the floor to stop the dust because they were ready to get the floor fixed to mitigate the loss of rent and spending of money.
67Mr Teal did not raise the warranties with Mr Romero. He said that he assumed that the “protections” in the BCA, Building Regulations and Building Act would mean that he would get what he paid for.
68Mr Teal conceded that he has had the financial capacity to pay for the rectification works and has done so.
Michael Lynch
69Michael Lynch gave evidence on behalf of EVR Group. He presented as a careful and considered witness. It is noted that the auction occurred some six years ago, and any memory lapses occurred given the effluxion of time involved in this case.
70On the day of the auction, Mr Lynch saw Mr Teal cross over the road and they greeted each other. Mr Lynch said that he has known Mr Teal for 20 years. Mr Teal expressed his interest in the property. Mr Teal explained to Mr Lynch that he wished to secure the ground floor office space and an apartment for his former wife. Mr Lynch assumed that Mr Teal wanted the office space for his business.
71Mr Lynch recalled discussions that the ground floor would be constructed as a shell. He recalled the three of them (Mr Teal, Mr Romero and himself) being present at Mr Teal’s office, post auction. He did not recall further discussion about its use. He assumed it was for Brad Teal Real Estate Agency.
Jose Romero
72Jose Romero presented as a careful, considered witness who was ready to make appropriate concessions. I have generally found the account of Mr Romero to be cohesive, plausible and consistent with the objective documentation, to the extent there is any. Although not a perfect witness, I generally preferred the account of Mr Romero over that of Mr Teal, particularly in the events leading up to the execution of the Contract.
73Mr Romero said that the finance company chose the Builder not him. When he applied for finance, Jadig Finance engaged in an internal process of builder selection. This was explained to Mr Romero during the application for finance. Jadig Finance asked for a building contract. EVR Group had meetings with the architect who narrowed it down to two builders, being Legacy Homes and Merrion 6. EVR Group had concerns that Legacy Homes was not big enough to handle the project. He presented the Building Contract to Jadig Finance who appointed their own surveyor and a quantity surveyor, Charter Keck Kramer. They did a feasibility study and costing of the whole project and quantified how much the development was going to cost. Jadig Finance then went to their credit committee, and they accepted the builder and the finance, and then provided Mr Romero with a letter of offer with conditions.
74Mr Romero said that he never had any conversations with Mr Teal promising to warrant the quality of the builder’s workmanship.
75Mr Romero said that he knew that Mr Teal was interested in the ground floor tenancies to run his Brad Teal Real Estate Agency. He agreed that they had approximately 3 meetings after the auction. Mr Romero was the last bidder at the auction. He did not buy at the auction. It was passed in at around $1.8m. He went to a purchase price of $1.95m because he was confident that he could obtain finance because he had secured a couple of pre-sales. The financiers were interested in the numbers.
76Mr Romero needed to borrow $7.5m to package the purchase price and development in the finance application and requested a long settlement.
77Mr Romero said that he employed a builder, a building surveyor and professionals to do their job to construct the building.
78Mr Romero conceded that he had a contract with the builder and the consultants.
79Mr Romero gave evidence that, in contracting with EVR Group, Mr Teal did not commit to developing the site himself. He did not ask for any additional rights, such as to be able to choose the Builder or veto payments to them. Mr Romero said that he personally took on the risk in developing the site.
80Mr Romero said that, initially his wife signed the Contracts as she was the director of EVR Group at the time. After that, Mr Romero transferred it to himself as he did not want his wife to do this development. His wife was not really involved and does not do construction.
81The certificate of practical completion was signed by Mr Romero as superintendent on 24 April 2020. His understanding was that in issuing the certificate that he had formed the view, as superintendent of the works, that they had reached a state of practical completion.
82Mr Romero retained Coplan Management (“Coplan”) to complete rectifications. Coplan attempted to inspect in March 2020, and they reported that Laura Teal, Mr Teal’s former wife, refused to let them onsite.
83Mr Romero said that the total site costing summary was prepared by his independent quantity surveyor, Stephen Foley, in the sum of $4,114,800.00. The total build price figure was $4,233,800.00 from Legacy Homes for estimates from the drawings. The costings did not make an allowance for consultants. These were initial discussions and were for a construct-only quote and dated 10 November 2017. This was before the engineer and architect were involved. Mr Romero’s budget was for $3,900,000.00 for the construction works. Mr Foley stated that the $3.9m-$4.0m figures “looks achievable”. Mr Romero said that usually quantity surveyors are “over”. The architect and engineer design the project and get the cost down. Mr Foley was “right on the money” in estimating that $3.9m-$4m cost.
84Mr Romero then sought a fee proposal for an architect from Legacy Homes. They also sought a fee proposal from Creative Building Designers. The cost was $92,500.00 (plus GST). Mr Romero used D’Orio Architects Group as his architect.
85By email dated 7 February 2018, Mr D’Orio contacted Merrion 6 attaching preliminary drawings for the project with a budget of $3.8m. The cost came in at $4m which was consistent with the costing summaries prepared by Mr Foley. The project was estimated to make a $2m profit but came in at the low $1m profit mark. This was spread across Mr Romero’s projects that made losses during COVID and he lost about $5m during this period. Mr Romero did not obtain a wage from his companies.
86Mr Romero said that Legacy Homes was not big enough for the project, as they were domestic builders, and subsequently went into liquidation. Mr Romero said that it turned out to be the correct decision and that price was not a factor.
87By email dated 22 November 2017, Mr Romero advised Legacy Homes that they were not successful on this occasion as “it was a fair bit higher than what was signed off on”. Mr Romero said that he was being diplomatic. Mr Romero denied that Merrion 6 was the only one that could meet his budget. He thought they were bigger than Legacy Homes.
88Mr Romero dealt with Andrew Nadinic, not Frank. He did research on the internet and saw that Frank was not a good character and was not a person he wanted to be dealing with. Mr Romero thought he was a “crook”. He had problems in Queensland and was on “A Current Affair”. He initially cancelled the original contract on 23 February 2018 during the cooling off rights period.
89Subsequently, Mr Romero signed the contract with Merrion 6. He was told that Kingcon was a subcontractor. He said that it “sounds about right” that Frank was not paying his subcontractors and was de-registering companies.
90Mr Romero said that Andrew told him that he had nothing to do with his father. Frank had no involvement in the development.
91By email dated 21 February 2018, Mr Romero wrote to Andrew stating that:
“It would be foolish of me not to be slightly concerned about some of your families past history and some of the publicity that has been received.
My main concern are the unions and the effect that they can have on the progress of this development.
There is no doubt that they have your family in the gun.”
92There were no issues with payment of subcontractors or unions on this project. Mr Romero said that by “your family” he meant Andrew’s father as he had a reputation of not paying his subcontractors.
93Mr Romero said that when the finance company did their due diligence, they needed a domestic licence in addition to the commercial licence. The finance company, building surveyor and quantity surveyor all approved the inclusion of Frank on the building permit. Mr Romero was not happy with the inclusion as he did not want Frank involved in his development. Notwithstanding his concerns, Mr Romero said that he was not going to wait six months and waste holding costs, to find another builder.
94Mr Romero said that the major component on the build was commercial, and it was deemed a commercial building.
95Mr Romero found out just before Merrion 6 started works, that they needed Frank’s domestic building registration on the permit. It made no difference as Frank was not onsite and had no involvement on the day-to-day running. Essentially, it was a name on a piece of paper. Mr Romero had already signed the Building Contract and the financier had already accepted it.
96Mr Romero said that there were various entities entitled Merrion and Kingcon. Merrion 6 told him that they were getting other people to do the works. Whilst they were different entities, his contracts were with Merrion 6.
97Mr Romero conceded that, in his email dated 12 March 2019, he does not refer to Kingcon as a subcontractor. He said that was not his business.
98Mr Romero said that Merrion 6 operated initially out of Level 1/174 Queen Street, where he signed the contract. Later on, Mr Romero said that Andrew had a consulting room located at 17-23 Williamson Road, Maidstone. Merrion 6, Coplan, and Red Door (which had a shareholding in Coplan) all operated from the same building.
99Mr Romero said that he had not joined Merrion 6 as a second defendant to this proceeding. He knows that Merrion 6 has been de-registered. He said that it will depend on whether he is found liable to Mr Teal, as to what his next steps might be against Merrion 6.
100Mr Romero accepted that it is common practice that Merrion 6 was a shelf company and there would be nothing to go after. He did not anticipate problems with the builder. Mr Romero said that the financier, quantity surveyor and building surveyor had all done their due diligence on Merrion 6 and accepted it as the entity in control of the project.
101By email dated 30 April 2020, Mr Romero wrote to Merrion 6 in relation to liquidated damages in the sum of $196,000.00. An amount of $190,000.00 retention was withheld for retention and the contract between Merrion 6 and EVR Group would be settled in full. This offer was accepted by letter dated 1 May 2020. These documents were discovered in this proceeding for the first time in the further supplementary affidavit of documents on 14 February 2023. Mr Romero said the financier took the $190,000.00 retention to pay the outstanding bills of the tradespeople who were owed money. They put in their last progress claim and the money went to paying those claims.
102At the time of offering to assign rights to Mr Teal, Mr Romero conceded that he did not disclose to Mr Teal that he had settled his contract with the builder in full. He said that the builder had done all the work and they had been paid. He said the letter could have been worded differently that all the monies owed by EVR Group had been paid.
103By email dated 16 March 2020, Mr Romero’s then solicitors sent a letter of demand to Merrion 6 wishing them to finish the project.
The interpretation of the contracts of sale
Brad Teal’s submissions
104At trial, Brad Teal’s primary case was put on the basis that the contracts contained three implied terms as to the characteristics of the premises that would be handed over to it. First, that it would be fit for use as a “shell”, namely that it would be ready for immediate commencement of fit-out works without Brad Teal being required to undertake further building works (other than fit out works). Second, that it would be completed in accordance with the relevant legislation and the building permit. Third, that it would be completed in a workmanlike standard and of proper materials.
105The alternative case is that the Contracts contained three obligations on EVR Group as to its conduct, being the appointment of a registered builder, the duty to co-operate and the duty to act in good faith and reasonably. The content of the duty to cooperate and to act in good faith and reasonably arguably includes the appointment of a registered builder, the undertaking of reasonable due diligence in the appointment of the builder, the reasonable management and superintending of the building works and that EVR Group would enforce its contractual rights against the Builder so as to require that the works be completed in accordance with the building contract.
106Brad Teal submits that when the parties entered the Contracts, EVR Group promised two things. First, that it would, on a date within 14 days of the registration of subdivision, convey the land identified in the Contracts. Second, EVR Group would construct (or cause to construct) a building on the site which would be completed to the level of a “shell”.
107Brad Teal contends that the agreement to construct a “shell” is difficult to pin down because it was not the subject of clear contractual language. Brad Teal relies on the following matters.
108First, the attachment of drawings to one (being 102A) of the Contracts. There are no terms in the Contracts addressing the purpose of the attachment of such drawings. Brad Teal submits they were attached deliberately and not by accident. It argues that it is necessary to give some meaning to the attachment of such drawings. Brad Teal contends that, given the context of this being an “off-the-plan” sale, the obvious implication is that the drawings were attached to say, in effect: “this is what the vendor will cause to be constructed.”
109Second, Brad Teal relies on the parties’ oral discussions and agreement that the level of completion expected, was to that of a “shell”. This agreement does not appear anywhere in the written document and, therefore, Brad Teal submits it is necessary to have regard to parole evidence to determine the meaning of the Contracts.[4]
[4] Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCR 424 at [440]-[441]
110Brad Teal refers to its statement of claim pleads at paragraph 3 that:
“On or about 6 December 2017 the Defendant agreed to sell [and] to be constructed retail shop “shell” to Brad Teal or nominee […]”
111EVR Group’s defence pleads at sub-paragraph 3(b):
“It admits that each lot would be constructed as a “shell”, with further work to be performed by the defendant at its own discretion;”
112In Mr Teal’s witness statement, he says at paragraph 14:
“I said that I wanted to have them constructed to a shell level which would enable me to bring in people to do the fit out immediately.”
113In Mr Romero’s statement he says at paragraph 22:
“It seems that all Mr Teal and I agree on is that the premises would be completed to “shell”, without any fixtures, fitting or furnishings, being completion to lock-up (meaning the completion of the structure of the lots), with all service connections installed ahead of further works (such as electrical configurations, plumbing, floor covering and paltering, and other rough-ins) […]”
114Brad Teal states that the starting point in this case is that all parties are in furious agreement that there was a term of the Contracts to the effect that EVR Group would cause premises to be constructed, to the stage of completion of a “shell”. Moreover, the parties appear to be in broad agreement as to the level of completion that a “shell” entailed.
115Brad Teal notes that the term “shell” does not appear anywhere in the written Contracts. It contends that this has two consequences, being, the “whole agreement clause” does not negate the existence of implied terms relating to the construction of the premises and the Contracts were incomplete on its face and “it is apparent that the parties have not attempted to spell out the full terms of their contract”.
116Brad Teal argues that the real question for determination is the meaning of causing premises to be constructed to the level of completion of a “shell”. Brad Teal submits that the following is required to complete the two lots to “shell”:
(a) EVR Group agreed to sell a premises that would be fit for that use, meaning to immediately fit out and use as commercial premises, without needing to first perform further building work to bring it up to the level of a “shell”;
(b) In the context of a highly regulated building industry in Victoria, it would cause the premises to be completed to the level and standards as prescribed by the relevant building laws and building permit; and
(c) The meaning of “construct” within the phrase “cause to construct” means “construct to a workmanlike standard and with proper materials”.
117Brad Teal submits that, although these contentions may seem novel on first blush, they are not. It relies on “a long and well-established line of authority that, absent any express term to the contrary, a contract for the sale of an off-the-plan dwelling has implied as a matter of law each of the contended terms”.[5] Brad Teal contends that the only novelty is that these principles have yet to be applied in a commercial premises context. It argues that the underlying reasoning to find the existence of terms in residential off-the-plan contracts ought to have equal force in a commercial context.
[5] Lawrence v Cassel (1930) 2 KB 83; Miller v Cannon Hills Estates Ltd (1931) 2 KB 113; Perry v Sharon Development Co Ltd (1937) 4 All ER 390; Jennings v Tavener [1955] 1 WLR 932; Lynch v Thorne (1956) 1 All ER 744; Dean v Gibson [1958] VR 563; Streeter v McLennan [1959] Qd R 136; Hancock v B. W. Brazier (Anerley) Ltd [1966] 1 WLR 1317; Lowden v Lewis [1989] TasR 254; Vella v Ayshan [2008] NSWSC 84, [18]; Sterling Estates Development Corporation Pty Limited v Malouf [2003] NSWCA 278, [63] – [71]; Cremean, Whitten & Sharkey, Brooking on Building Contracts (6th ed LexisNexis 2019), [4.13]; J D Heydon, Heydon on Contract (Thomson Reuters 2019) [10.300] – [10.310].
118Brad Teal submits that whether this is an implication in the sense of being a true implied term, or an inference from the express terms, is an instance of the line being difficult to draw. However, it contends that is not necessary to distinguish as the real point is that there was a significant subject matter which was not subject to detailed express language in the Contracts. Brad Teal argues that EVR Group concedes that there is ambiguity in this respect.
119Accordingly, Brad Teal submits that, in relation to the promise to build a premises, the Contracts are one where the parties have not attempted to spell out their bargain. It contends that the fact that the Contracts are long and detailed regarding half of their subject matter, but not the other half, does not make them a “complete and comprehensive statement of the parties’ bargain” (citing Yau’s Entertainment Pty Ltd v Asia Television Ltd[6]).
[6] (2002) 54 IPR 1 at [33].
120Finally, Brad Teal argues that where matters concern the conveyance of the land, there is much to be said for the proposition that the test articulated in BP Refinery has full force.[7] However, Brad Teal contends that to seek to apply a test designed for detailed written contracts to the promise which is inferred or implied from the loose attachment of plans to the Contracts and/or oral conversations between the parties, has the propensity to lead to injustice and error.
[7] (1977) 180 CLR 266.
First implied term – fitness for purpose
121Brad Teal relies on the fact that the sale was for an “off-the-plan” Contract, that the parties agreed that the premises were to be finished to the state of a “shell” and that during the pre-contractual negotiations, Brad Teal expressed to EVR Group that it intended to use the premises as an office space for its real estate business.
122Brad Teal notes that, given the purchase was off-the-plan, it could not inspect the building before executing the Contracts. Therefore, it submits that the principle of “caveat emptor” does not apply.
123Brad Teal relies on the definition of “shell” contained in Fenwick Elliot LLP, Dictionary of Construction Terms. It provides the following:
“The construction of a building (usually commercial) to the stage of completing the main structure and services, but without fitting out the internal space for its intended use. Commonly required by property developer who then sells or leases premises to end user, who employs own contractor for fit out works.”[8]
[8] Fenwick Elliot LLP, Dictionary of Construction Terms, p 251.
124Brad Teal contends that the completion to “shell” means the vendor is responsible for the building works up to pre-fit out works. The purchaser undertakes the fit out works.
125Brad Teal argues that it intended to fit out and occupy the premises as a commercial office, and EVR Group knew this. It contends that it was “the very nature and essence of the transaction between the parties” that EVR Group would hand over a premises that Brad Teal could use for this purpose. Brad Teal subsequently relies on Kiefel CJ and Gageler J in Realestate,com.au Pty Ltd vHardingham[9] that this was “the mutual understanding on which they dealt”.
[9] [2022] HCA 39 (“Hardingham”).
126Brad Teal submits that there was a contractual term, that the completed building would be fit for the purpose of fitting out and subsequent use of it as commercial premises. It was not the bargain that Brad Teal would undertake further pre-fit out building work itself, in order to bring the premises up to a level where it could commence fit out works. It was not the role of Brad Teal to, for example, to apply missing waterproofing and sealing so that water did not leak into the premises, damage floor coverings and plaster, or grind and fill the floor as a pre-requisite to putting down floor coverings. It was to be delivered in that condition by EVR Group.
Second implied term – compliant with legislation and building permit
127Brad Teal submits that given the Contracts attached the plans, it was a representation of what EVR Group would construct. However, Brad Teal observes that the plans lack the necessary detail required. They only specify that there will be walls of some sort, a floor of some kind and a ceiling of some nature. Also, the Contracts did not specify any particular building material.
128Brad Teal contends that at the time of entering into the Contracts, both parties were aware of the existence of the body of regulations governing the construction of buildings. Brad Teal submits that the drafter of the plans could have included a note to the effect that “the building must be constructed in accordance with the Building Code of Australia” but such commentary is so obvious, that it need not be said.
129Brad Teal argues that the BCA “sets the minimum required level for the safety, health, amenity, accessibility and sustainability of certain buildings”.[10] However, there remains a wide discretion to the vendor. It can build the building however it likes, using whatever materials it chooses, so long as the end result meets the standard of compliance with the BCA.
[10] NCC 2019 vol 1, p 9.
130Brad Teal contends that the term to be implied, being that the Lots would be in accordance with the relevant legislation, is necessary for the reasonable or effective operation of the Contracts. Such implication was argued as necessary given the nature of the transaction, the premises was to be constructed by EVR Group without any possibility for Brad Teal to inspect it or make any assessment of its suitability for use or adequateness of construction, prior to commencing fit-out works. This is so where the Contracts contained no real specifications for what EVR Group was to construct.
131Brad Teal relies on the principles in Dean v Gibson [11] and Mr Romero’s correspondence with Mr Teal in which he stated “[i]f the law states that I need to provide it, I have”.
[11] [1958] VR 564 at [571] (“Gibson”).
132Brad Teal notes that EVR Group asserts that the obligation to construct in accordance with the relevant legislation is not an obligation on EVR Group, but rather is an obligation on its builder and consultants. Brad Teal contends that they are not mutually exclusive. Brad Teal points out that it was EVR Group that engaged the builder and the building surveyor, they did not do it themselves. Brad Teal submits that it was open to EVR Group to seek indemnity or contribution from either of those entities in this proceeding, but it has failed to do so.
133Brad Teal further contends that there is no more basic requirement than compliance with the BCA and the building permit. As such, a reasonable person in the position of the parties would not interpret the lack of detail in the plans and specifications as carrying an intention that the bargain was that Brad Teal agreed to buy whatever EVR Group could get through council, even if the premises leaked and contained fire hazards. Brad Teal asserts that the most obvious answer is that the parties intended that they adopt the minimum standards of workmanship prescribed by law.
Third implied term – workmanlike standard and proper materials
134Brad Teal submits that construction to a level of “workmanlike standard” and of proper materials is a commonly understood, baseline standard of construction. It concedes that if it wanted a high standard, then it would have had to specify that in the Contracts. However, Brad Teal argues that that does not mean that the parties agreed that EVR Group could construct the premises to any standard. Instead, it says that the word “construct” should mean to a “workmanlike standard” and should not mean “to whatever standard the builder wishes, even if they are completely negligent”. Brad Teal cites the case of Lawrence v Cassel in support of this proposition that “[t]here is a good deal to be said for the view that a contract to complete a house is not performed by making a house full of defects”.[12]
[12] [1930] 3 KB 83, at [83] - [89] (“Cassel”).
135Brad Teal seeks to dispense with special condition 5.1 of the Contracts which contains two parts: a “whole agreement” part (stating “the parties agree … than those embodied herein”) and a “no representation or warranty” part (stating “and that the Purchaser ….in respect thereof”) by relying on the authority of Hart v MacDonald.[13] Brad Teal claims that a whole agreement clause does not defeat an implied term.
[13] (1910) 10 CLR 417 (“MacDonald”).
136Brad Teal submits that MacDonald considered whether a term could be implied into a contract that contained a clause which stated “[i]t is to be understood that there is no agreement or understanding between us not embodied in this tender and your acceptance thereof”.[14]
[14] Ibid at [420].
137Brad Teal cited Griffith CJ in MacDonald who reasoned as follows:
“As was said by Bowen LJ. in Oriental Steamship Co. v. Tylor: “The case comes within the well known rule that when the contract as expressed in writing would be futile, and would not carry out the intention of the parties, the law will imply any term obviously intended by the parties which is necessary to make the contract effectual.
The application of that rule is not affected by the inclusion in the contract of the [whole agreement] term I have read, that it is to be understood that there is no agreement or understanding not embodied in the tender. A contract to the effect stated in the first count of the declaration arises by necessary implication upon a proper construction of the express words. The question is whether there has been a breach of that contract by the defendant.”[15]
[15] (1910) 10 CLR 417 at [421].
138Brad Teal further relies on O’Connor J who held:
“Every implication which the law makes is embodied in the contract just as effectively as if it were written therein in express language.”[16]
[16] Ibid at [427].
139In addition, Isaacs J held:
“[the whole agreement clause] excludes what is extraneous to the written contract: but it does not in terms exclude implications arising on a fair construction of the agreement itself, and in the absence of definite exclusion, an implication is as much a part of a contract as any term couched in express words.”[17]
[17] Ibid at [430].
140Brad Teal contends that the above statement by O’Connor J was recently endorsed Edelman and Steward JJ in Hardingham[18] where their Honours further said:
“A basic source of confusion in terminology and in thought can be seen in the common statement that implied terms are terms that are “implied into” a written contract. Implied terms are not “implied into” a contract at all: they already exist in the contract. Implied terms are therefore recognised by the court, not created by the court.”
[18] [2022] HCA 39 at [110]-[112].
141Brad Teal concludes that, in special condition 5.1 of the Contracts, the terms “embodied herein” accordingly include the implied terms. If the clause was to defeat implied terms, it would have to expressly do so.
142Brad Teal submits that the “no representation” part of special condition 5.1 of the Contracts is a question of interpretation. As this is an exclusion or limitation clause, in the case of ambiguity, it contends that the contra proferentem rule applies.
143Brad Teal observes that the clause as to the exclusion of warranty regarding compliance with building regulations, states: “the Purchaser shall not be entitled in any way to rely on any representation or warranty made or claimed to have been made by the Vendor or on the Vendor’s behalf […] that any structures comply with the current or any building regulations […]”. It contends that the use of the present tense “comply” shows that the clause is directed at structures which exist on the land as at the date of the contract, not structures which are to be constructed at a later time. It says that this is consistent with the context of the clause, in particular that it follows clause 4 of the Contracts, which contains an acknowledgement that the purchaser has inspected the property and chattels and agrees to purchase the property in its “present condition and state of repair and with any defects existing at the date hereof” (emphasis added). Brad Teal argues that if the clause is ambiguous, the ambiguity is to be construed against the EVR Group.
144As to fitness for purpose, Brad Teal notes that the precise wording of the clause is “the Purchaser shall not be entitled in any way to rely on any representation or warranty made or claimed to have been made by the Vendor or on the Vendor’s behalf as to the fitness for any particular purpose or otherwise of the property”. Brad Teal acknowledges that this does not contain the same temporal language, given the context and contra proferentem, and argues that the clause should be interpreted to refer only to the condition of the property as at the time of execution.
EVR Group’s submissions
145EVR Group submits that the parties executed two Contracts. It contends that Brad Teal agreed to purchase two commercial lots, as proposed in a proposed planning permit, and to settle upon the registration of the plan of subdivision. EVR Group states that this involved the Lots being built to what the parties are calling “shell” stage (meaning no fit-out works would occur).
146EVR Group notes that the approved planning permit drawings were annexed to the 102A Contract and the architectural drawings and building permits were yet to come.
147EVR Group relies on the statutory warnings contained in s9AA of the Sale of Land Act 1962 (Vic) and special conditions 5.1 (entire agreement clause) and 4.1 (no liability or obligation to carry out repairs clause) of the Contracts. It says that Brad Teal declined to negotiate additional terms to those offered in the Contracts, such as the right to “veto” EVR Group’s chosen builder or that EVR Group warranted the builder’s workmanship.
148EVR Group submits that the Contracts were lengthy and detailed and the 102A Contract annexed the planning permit drawings. It comprised of 146 pages, that included 3 pages of particulars, 6 pages of special conditions, 1 page of further special conditions, 6 pages of general conditions and 130 pages of a vendor’s statement which include the original contract of sale between EVR Group and the past owner together with planning permits. EVR Group contends that the Contracts are not “informal agreements” or Contracts where the parties have not attempted to reduce their agreement to writing.
149EVR Group submits that the fact that the Contracts were for the sale of a “shell” does not mean that they were incomplete or require implication of terms because the word “shell” does not appear. EVR Group contends that in the absence of fit-out specification, it is clear what the parties agreed.
150EVR Group concedes that the Contracts do not contain the word “shell” and the evidence before the Court does not show that the parties used the term “shell” prior to signing the Contracts.
151EVR Group submits that the word “shell” accurately describes what the Contracts contained. That is, no fit-out specification. The registration of the plan of subdivision did not require fit-out and no fit-out obligation was agreed between the parties.
152The issue becomes, what was required to complete the two Lots to “shell”?
First implied term – fitness for purpose
153EVR Group observes that Brad Teal seeks to imply a term into the Contracts that ‘the Lots would be fit for use as a retail shop “shell”, meaning that they would be ready for immediate commencement of fit-out works upon settlement and the pleaded case asserts that this term is:
(a) oral (based on the alleged statements by Mr Romero that “you’ll get what you want here” or “I won't let you down”);
(b) alternatively, “implied by law” (no particulars given);
(c) alternatively, “implied in fact” (either based on Hawkins[19] or BP Refinery[20], based on the argument that the Contracts do not expressly include the statement that “the lots were to be completed to the standard of retail shells”); or
(d) alternatively, “implied by a course of dealings”, being the same dealings said to arise on the oral component.
[19] (1988) 164 CLR 539
[20]
154EVR Group submits that the facts relied on by Brad Teal are minimal, and do not evidence that the parties’ minds met on a term concerning “fitness for purpose”: at most, the evidence shows that Mr Teal made Mr Romero aware he would use the Lots as an office. EVR Group says that that fact alone does not mean much, nor does the fact that the lots were being built “off-the-plan.”
155EVR Group contends that while Brad Teal relies on the use of the word “shell”, it is of no real significance as “shell” is not a “magical legal phrase”. Rather, it turns on the absence of what Mr Teal said it was agreed to mean.
156EVR Group argues that the first implied term is unnecessary to effect a conveyance of the Lots following subdivision, or to give business efficacy to the Contracts, nor is it so obvious that it went without saying.
157EVR Group says that Brad Teal’s dissatisfaction with the quality of the Lots does not, as argued, mean it has not received the benefit of the transaction. Further, it claims that Brad Teal’s arguments as to “caveat emptor” are misconceived: Mr Teal could have asked for the first implied term, but he did not.
Second implied term – compliant with legislation and building permit
158EVR Group refers to the pleaded case for the second implied term where it is asserted by Brad Teal that this term was “implied in fact” (either based on Hawkins[21] or BP Refinery[22], on the argument the Contracts do not state “specifications of the Lots or building to be constructed”).
[21] (1988) 164 CLR 539.
[22] (1977) 180 CLR 266.
159EVR Group submits that Brad Teal does not identify the evidence by which it contends the parties’ bargain was agreed (expressly or by inference) to include such a term, being an effective warranty by EVR Group of the third-party builder’s work, for details yet to be determined, nor how such terms would satisfy the BP Refinery criteria.
160EVR Group concludes that, being a conveyancing contract, which has been effective, compliance with legislation and a building permit is not a necessary term.
Third implied term – workmanlike standard and proper materials
161EVR Group refers to the pleaded case for the third implied term, where it is asserted by Brad Teal that “the Lots built of proper materials and to a workmanlike standard” is an alleged term “implied by law” (no particulars given), or alternatively, “implied in fact” (either based on Hawkins[23] or BP Refinery[24], based on the argument that the Contracts do not state “the standard to which the Lots or building would be constructed”).
[23] (1988) 164 CLR 539.
[24] (1977) 180 CLR 266.
162EVR Group submits that Brad Teal’s closing submissions conflate the legal and factual argument.
163EVR Group contends that the Contracts are not contracts of a “certain class” by which terms are implied as legal incident of contracts being in that class (unrelated to the parties' intentions), such as the home building contracts mentioned in Cassel[25] (which Brad Teal relies on). EVR Group argues that, in seeking to make this argument, the Court is being asked by Brad Teal to take the significant step of recognising implied terms (by law) in all commercial off-the-plan real estate contracts.
[25] [1930] 3 KB 83.
164EVR Group submits that Courts only recognise such terms if there is a concern (by the Court) that without the implication, “the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or perhaps, be seriously undermined,” raising a more general policy question of “necessity”.[26] EVR Group says that putting aside that Brad Teal does not plead that this term should be recognised in all “off-the-plan” contracts of sale, simply pleading that a term is implied in law is not enough to properly raise a novel term in an entire class of contract, given its potential impact beyond the present case. Nor, it contends, is this case a suitable vehicle for that discussion.
[26]Byrne v Australian Airlines (1995) 185 CLR 411 at [73].
165EVR Group concludes that the contracts are off-the-plan commercial contracts of sale, not a building contract. Therefore, the factual argument for inferring or implying such a term is weak, as there is no evidence that it was agreed, nor that its implication is necessary to ensure the conveyance.
Analysis of primary case
166Brad Teal relies on the principles set out Hawkins[27] and contends that the question is not of form, but of substance. Brad Teal submits that, having regard to the substance of the contracts, it is abundantly clear that the parties agreed on two things:
(a) Firstly, they agreed on the sale of an identified plot of land by reference to a proposed plan of subdivision subject to the registration of that plan of subdivision, which, Brad Teal concedes is very well documented; and
(b) Secondly, that prior to completion, EVR Group would construct or cause to be constructed a commercial premises to the state of completion of a “shell”.
[27] (1988) 164 CLR 539.
167Brad Teal argues that EVR Group admits in its defence that each Lot would be constructed as a shell, with further work to be performed by the defendant at its own discretion. However, Brad Teal submits that the state of completion is not a term contemplated in the Contracts. It says that the only reference to that agreement is the fact that only the 102A contract attaches a bundle of town planning plans. I do not accept Brad Teal’s argument that this shows that the contracts are incomplete on its face, as attached in one of the contracts are drawings with no explanation as to what relevance they have to the bargain, or any terms associated with them.
168I further do not accept Brad Teal’s submission that the content of EVR Group to construct a premises to the state of a shell is necessary to “put meat on the bones”. It contends that the bare words do not do enough to explain what EVR Group was selling to Brad Teal because a “shell” could mean “anything at all”. Brad Teal acknowledged that the proposition for the word “shell” means four walls, a floor, a ceiling, and services connected. However, it says the characteristics of those things are not prescribed.
169I accept EVR Group’s contention that, although it admitted that each Lot would be constructed to a “shell” with further work to be performed by Brad Teal at its own discretion, it did not make any concession in its defence as to the implied terms.
170Whist the parties’ pleadings agreed that the Lots would be constructed as a “shell”, I accept EVR Group’s submissions that it is a matter of useful language and that reference to the definition of “shell” as set out in the Fenwick Elliot LLP Dictionary Reference distracts from the examination of the evidence of this particular case.
171Although the word “shell” appears in Mr Teal’s witness statement, cross-examination to develop the significance of the word did not occur. It is noted that the term “Shell only” was used by Mr Romero in an email to Andrew Nadinic and was also included in the Building Contract. However, Mr Romero was not cross-examined on this point, or the other contents of those emails, as to suggest what the term “Shell only” meant.
172In my view, there is no submission made by Brad Teal that the Lots were not conveyed in accordance with the general markings on the plan of subdivision. I find that the drawings attached to the 102A contract show the layout of the planning permission and identified the land by reference to the attached plans for the purpose of the particulars of sale the description of the land pursuant to General Condition (“GC”) 3 and 9 of the contracts. The registration of the plan of subdivision was effected by the Registrar of Titles under Part under Part 4 of the Subdivision Act 1998 (Vic), following certification by Council under Part 2 of that Act, following the issuance of a statement of compliance under sub-sections 20A(2)-(3) and 21. Brad Teal does not contend that the Lots as-built do not comply with configuration in the drawings in the 102A contract.
173In my view, Brad Teal’s observation that practical completion was not certified until some three months after the plan of subdivision was- granted, is not to the point. The contracts provided that, on registration of a plan of subdivision, the Lots would be conveyed to Brad Teal. Lots must (as a matter of practical reality) come into existence to trigger settlement. I, therefore, do not accept Brad Teal’s submissions that the drawings were mere loose attachments to the 102A contract. The drawings were attached for a reason and that reason is specified in the contract. Because the plan of subdivision had not been lodged and there was no certificate of title in existence for the Lot at the time of the signing of the contracts, the identification of what was being sold was by reference to the plans attached to the schedule of the contracts. There is nothing to be gained in the criticism of the lack of clarity in the drawings and that they could not be used by a builder to construct. That was not their purpose. These drawings were for planning permission only.
174I agree with EVR Group that, given the contracts contained no fit-out specification, the term “shell” accurately describes this as a matter of ordinary language. It is not necessary to include the term “shell” into the contracts as they already provide for an absence of fit out specification. The vendor had the discretion on how the building contract would be executed, including the choice of the builder. The discretion was left to the vendor to decide what comprises a “shell” for the purposes of the present contracts. Brad Teal conceded that there is nothing wrong with some discretion to the builder.
175I further agree with EVR Group the absence of details as to what the fit‑out works contained is not solved by an implication of terms into the contracts’ details. It does not mean that more detail necessarily is needed for the contracts to be effective. The conveyance of the Lots was effective, and it was effective in conveying what was contracted between the parties.
First implied term – fitness for purpose
Oral term, alternatively, implied by a course of dealings
176First, Brad Teal contends that the “fit for purpose” term is oral. It also relies on the same conversations in support of its assertion that the term is implied by a course of dealing.
177A course of dealing occurs when the contract at issue between the parties is preceded by a series of transactions over time, and that such a course of dealing may have the effect of incorporating or implying terms into the contract.[28] The course of dealing must be consistent and sufficiently long.[29] To rely on a course of dealing as incorporating terms , a party also does not need to show the other party had actual knowledge of terms.[30] If there is inconsistency in dealings, the Court may conclude there is no relevant course of dealing to give rise to an implied term.[31]
297EVR Group accepted that the Contracts contain (as do all contracts) an implied requirement that each party agrees to do all that is necessary to secure performance of the contract. EVR Group cited Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd.[132] However, it says that that does not mean Brad Teal succeeds, or that the nature or content of the implied term is agreed.
[132] (1979) 144 CLR 596 at [607]–[608] per Mason J (“Secured Income”).
298EVR Group submits that the requirement to cooperate is not a mechanism for alleviating the consequences of hard, harsh or unconscionable terms, and does not require parties to be nice or “even reasonable” to each other.[133]
[133] Council of the City of Sydney v Goldspar Australia Ltd [2006] FCA 472 at [162] per Gyles J.
299EVR Group relies on Mason J’s observations in Secured Income[134] that it is:
“… not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract… In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.”
[134] Secured Income at [607].
300EVR Group contends that this means that, as with terms implied under the BP Refinery[135] test, cooperation does not require any more from the parties than to cooperate in doing what they have agreed.
[135](1977) 180 CLR 266.
301EVR Group argues that the highest Brad Teal’s argument appears to go in relation to cooperation and “good faith”, in its closing submissions is to suggest that the vendor did not cooperate by:
(a) contracting the third-party builder that it did (based on a “sins of the father” type argument, not being a common law maxim); or
(b) exercising contractual rights against the builder, although it is not said precisely what rights were not exercised, when, or how they should have been exercised.
302EVR Group submits the matters concerning Andrew Nadinic (who was, at the time of the contract, and remains, a registered domestic builder in Victoria) and his father were “far from a crystal ball” for the defects alleged by BSS Group.
303EVR Group notes that the Purchaser is not privy to the Building Contract, nor did the Contracts refer to it, because the Contracts were not building contracts under another name but, Contracts where the benefit was the conveyance of two retail Lots, which is what occurred.
304In relation to the superintending of the building works, EVR Group states that Mr Romero was not a registered building professional. Nothing in the Contracts stated that he was to act as a clerk of works (involving personal supervision), and as such, cooperation does not require it.
305EVR Group concludes that an agreement to cooperate is to cooperate in delivering what was agreed, not to supplement what was already agreed it.
Duty of good faith
Brad Teal’s submissions
306Brad Teal submits that the present case is one where the duty of good faith is implied “to protect a vulnerable party from exploitative conduct which subverts the original purpose for which the contract was made”.[136]
[136] Esso at [25].
307Brad Teal’s submissions in relation to good faith were dealt with concurrently with cooperation set out above.
EVR Group’s submissions
308EVR Group refers to Brad Teal’s pleading that the vendor would “act in good faith” which is said to be implied by law, alternatively, implied in fact on the same argument as the obligation to cooperate in that the Contracts do not state the “role or obligations [of the Vendor] in respect of supervising a builder”.
309EVR Group submits that it is dangerous to accept that, even though the parties did not agree that the vendor would warrant the third-party builder’s work, EVR Group must nevertheless do so as a matter of “good faith”. EVR Group denies the implication of the duty of good faith. It contends that completely laissez faire “off-the-plan” contracts does not present an obstacle to a developer cutting corners, looking to increase its own profit where the costs will be externalised to the purchasers.
310EVR Group contends that is not the law of Victoria where commercial contracts are a class of contracts into which an implied term of good faith applies as a legal incident. Such a term can only be implied in accordance with the BP Refinery criteria.[137]
[137] Esso at [25] per Buchanan JA.
311EVR Group claims that Brad Teal misunderstands Buchanan JA’s suggestion in Esso that it may be appropriate to imply a term “to protect a vulnerable party” as being the same as “vulnerability” in duty of care arguments, which is where a duty is recognised because the plaintiff is unable to take steps to protect themselves from economic loss (for example, by entering into a contract to protect themselves from that loss, as opposed to not having signed a contract including what in hindsight are said to be necessary terms).[138]
[138] Perre v Apand (1999) 198 CLR 180 at [225] per McHugh J (“Perre”).
312EVR Group submits that Buchanan JA’s reference in Esso to BP Refinery and use of the phrase “vulnerable party” (rather than “vulnerability”) indicates no more than an obligation may be implied in the circumstances of each case.[139]
[139]Esso.
313Further, EVR Group contends that in any event the evidence does not show that Mr Teal was vulnerable in the Perre v Apand [140] sense, given he had the opportunity to contract after negotiating terms, and was not forced to sign the Contracts under duress.
[140]Perre.
314EVR Group further relies on Warren CJ’s observations in Esso that the standard of good faith in contractual conduct is nebulous, given good faith cannot be defined with certainty.[141]
[141] Esso at [3] per Warren CJ.
315EVR Group argues that Brad Teal encounters the same difficulty in its Alternate Case that it did in its Primary Case, which is that unless there is evidence to suggest the Contracts were more than real estate contracts, and involved some form of covenant by the vendor that it would warrant the third-party builder’s work, establishing an obligation of good faith is moot, because there is no obligation to do, in good faith, what was not already agreed.
316EVR Group says that the sorts of covenants Brad Teal advocates for, go far beyond the standard terms in a contract of sale. Further, the fact the sales were “off-the-plan” is no reason in and of itself to say, (inter alia) that it “goes without saying” that a purchaser required more than a conveyance.[142]
[142]BP Refinery.
317EVR Group submits that Brad Teal relies on extremely vague facts to amount to the breach of contract – it not having been put to Mr Romero that there was anything in particular, at a particular time, that he could have done but chose not to do, goes beyond the general proposition there must have been something he did not do (which is vague and does not satisfy Browne v Dunn[143]). As such, EVR Group concludes that Brad Teal must fail on the good faith implied term.
Obligation to act reasonably
[143] (1893) 6 R 67.
Brad Teal’s submissions
318Brad Teal did not argue this term distinctly.
EVR Group’s submissions
319EVR Group noted that although this term was pleaded separately, it is superfluous as an obligation to act “reasonably” is part of any “good faith” obligation, rather than separate duties.
320The duty is to act “reasonably and in good faith”.
Analysis of Alternative Case
Duty to co-operate
321An implied duty to co-operate in performance of a contract is well established and may be seen as an aspect of a more general duty of good faith in contract performance. It was common ground between the parties that as a matter of law there is an implied duty to cooperate.
322In Secured Income,[144] the High Court affirmed Griffith CJ’s statement in Butt v McDonald, being:
“[The duty to co-operate] is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his or her part to enable the other party to have the benefit of the contract.”[145]
[144] Secured Income.
[145] (1896) QLJ 68at [607] (“Butt”).
323It is important to note that whilst the High Court in Secured Income broadly affirmed the Butt doctrine, Mason J (with whom Barwick CJ, Gibbs, Stephen and Aickin JJ agreed) did qualify aspects of the duty to co-operate. Particularly, Mason J stated:
“It is easy to imply a duty to co-operative in the doing of acts which are necessary to the performance by the parties or by one of the parties’ fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract.”[146]
[146] Ibid.
324Ultimately, his Honour opined that the question as to whether the duty to co-operate is enlivened is to be addressed by reference to the “intentions of the parties, as manifested by the contract itself”.[147]
[147] Ibid at [608].
Duty of good faith and to act reasonably
325The duty of good faith performance looks to supplement the express terms of a contract, acting to preclude certain types of unco-operative or unfair conduct in the course of performing a contract or exercising contractual powers. [148]
[148] 14.90, 348. Principles of Contract Law Jeannie Paterson, Andrew Robertson, Arlen Duke Fifth Edition
326The High Court is yet to recognise a universal implied duty of good faith in contract performance. In Royal Botanic Gardens and Domain Trust v South Sydney Council, the High Court deliberately left this issue open.[149] Gleeson CJ, and Gaudron, McHugh, Gummow and Hayne JJ,[150] as well as Callinan J,[151] considered that such a case was not the appropriate test case for considering the question of whether a duty existed.
[149] (2002) 240 CLR 45.
[150] Ibid at [40].
[151] Ibid at [156].
327Later, in Barker[152], the High Court also declined to comment on whether there is an implied duty to act in good faith in the performance of contracts in Australian law.
[152]Barker.
328Chief Justice Warren in Esso, summarised the general status of recognition, stating:
“Courts have, more often than not, decided these matters on other bases and thereby avoided the conceptual difficulty that can attend the concept of a duty of good faith.
Therefore, the current reticence attending the application and recognition of a duty of good faith probably lies as much with the vagueness and imprecision inherent in defining commercial reality. The modern law of contract has developed on the premise of achieving certainty in commerce. If good faith is not readily capable of definition, then that certainty is undermined.”[153]
[153]Esso at [3] per Warren CJ.
329It is important to note that Warren CJ’s assessment of the current state of duty of the good faith, is predicated on if a duty exists. Ultimately, Esso[154] did not feature the distinct qualities necessary (as per Warren CJ and Buchanan JA’s assessment) to fully contemplate the existence of the duty in Australian contract law. As it stands, the implied duty of good faith remains undefined and unacknowledged by the High Court. Buchanan JA in Esso also expressed reluctance “to conclude that commercial contracts are a class of contracts carrying an implied term of good faith as a legal incident … so that an obligation of good faith applies indiscriminately to all the rights and power conferred by a commercial contract”.[155] However, his Honour did not need to conclude on the point, as “even if such an obligation was imposed … it was not breached”.[156]
[154] Ibid.
[155] Ibid at [25].
[156] Ibid.
330In Burger King Corporation v Hungry Jack’s Pty Limited[157], the Full Bench of the New South Wales Court of Appeal (Sheller JA, Beazley JA and Stein JA) considered the existence and scope of an implied obligation of good faith and reasonableness in a commercial contract. Ultimately, the court concluded that such an obligation did affix to an agreement made between parties.
[157] [2001] NSWCA 187 (“Burger King”).
331However, the Court did not venture to define reasonableness, nor make a distinction between the obligation to act reasonably and in good faith. The Full Bench noted that “Australian cases make no distinction of substance between the implied term of reasonableness and that of good faith”.[158] The Full Bench further affirmed Priestley JA’s statement in Renard Constructions (ME) Pty Ltd v Minister for Public Works, being:
“The kind of reasonableness I have been discussing seems to me to have much in common with the notions of good faith. “[159]
[158] Ibid at [169].
[159] (1992) 26 NSWLR 234 at [263] (“Renard”).
332The Court in Burger King did refer to Sir Anthony Mason’s suggestion that good faith “embraced” the concept of “compliance with standards of contract which are reasonable having regard to the interests of parties”.[160]
[160] Burger Kingat [171].
333In Renard, Priestley JA found that the fundamental purpose of the contract in dispute, was to have work completed in return for payment – as the contract could only have business efficacy if the respondent’s powers were subject to a requirement of reasonableness.[161] Therefore, Priestley JA considered the law should imply an obligation of reasonableness within the duty of good faith. His Honour’s approach was since applied in Burger King[162], but it does not have distinct unanimity across state jurisdictions and is yet to be approved by the High Court.[163]
[161]Renard..
[162]Burger King. .
[163] See Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at [96]-[97]; Jobern Pty Ltd v BreakFree Resorts (Victoria) Pty Ltd [2007] FCA 1066 at [134]-[136].
334Brad Teal submits that it was a financially advantageous arrangement for EVR Group to engage Merrion 6 as a builder, because their price was significantly cheaper than the alternative builder that they had obtained a quote from. However, now EVR Group leaves Brad Teal to deal with the fallout of dealing with the incomplete and defective works as a result of this decision with a deregistered entity.
335Brad Teal contends that EVR Group’s conduct in this case would not be consistent with acting in accordance with the duty of good faith, and alternatively a duty of cooperation, to cause, or allow Brad Teal to have the benefit of the contract which is a completed premises that it can take its fit‑out contractors into, undertake fit‑out works and then occupy it.
336I do not accept EVR Group’s submission that Brad Teal uses the term “vulnerability” in a Perre sense. [164] Brad Teal does not contend for a formation of duties of care for pure economic loss in a building case, for which there are five salient features such as in Woolcock Street v Brookfield Multiplex[165] and Bryan v Maloney[166]. Brad Teal refers to the term “vulnerability” in the context of whether an obligation of good faith is to be implied into the Contracts in an Esso[167] sense. In that case, Warren CJ expressed the view that the interests of certainty in contracts should only be interfered with when the relationship between the parties is unbalanced. Buchanan JA observed that it might be appropriate to imply such a term in circumstances to protect a vulnerable party from exploitative conduct which subverted the original purpose for which the contract was made.
[164] (1999) 198 CLR 180.
[165] [2013] HCA 36 (see also Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 205 ALR 522).
[166] (1995) 182 CLR 609.
[167]Esso at [4] per Warren CJ
337In Esso, Warren CJ held:
“… the interests of certainty in contractual activity should be interfered with only when the relationship between the parties is unbalanced and one party is at a substantial disadvantage, or is particularly vulnerable in the prevailing context. Where commercial leviathans are contractually engaged, it is difficult to see that a duty of good faith will arise, leaving aside duties that might arise in a fiduciary relationship. If one party to a contract is more shrewd, more cunning and out-manoeuvres the other contracting party who did not suffer a disadvantage and who was not vulnerable, it is difficult to see why the latter should have greater protection than that provided by the law of contract.”[168]
[168] Ibid.
338It is clear in Esso[169] that the Courts will be slow to come to the aid of a party to a contract who, absent suffering special disadvantage or vulnerability, is simply out-manoeuvred by the other party.
[169] Ibid.
339In the present case, I do not accept that Brad teal was vulnerable in an Esso[170] sense. Mr Teal is a real estate agent with more than 50 years’ experience. He is a party with more experience than most parties to a real estate contract and knows the importance of the terms contained in a contract.
[170] Ibid.
340I accept EVR Group’s position that not all bargains are perfect bargains. Sometimes, where there is freedom of contract, there is a “raw end of the bargain” or somebody does not necessarily get exactly what they sought. Nor does EVR Group owe warranties or have a duty to protect Brad Team because the builder has subsequently been deregistered. The Court does not fulfil the role of rewriting contracts between parties simply because one party is aggrieved.
341In the present case, Mr Teal did not take care of his own interests in negotiating the terms of his Contracts. Mr Teal made an informed decision to purchase off-the-plan and decided what rights he wanted in the Contracts. He is an experienced vendor’s agent of commercial real estate. Mr Teal is not a vulnerable party at the mercy of the vendor, such that the Court must come to his aid to ensure that he obtains the original purpose for which the Contracts was made.
342The evidence before the Court is that the builder is a registered building practitioner who, as at the date of final submissions, was still registered with the VBA. I accept EVR Group’s position, that, merely putting to Mr Romero that he was aware of the builder’s father’s troubles and disputes with subcontractors, does not prove that there was a failure to cooperate or act in good faith in contracting with the son.
343Brad Teal criticises EVR Group for choosing the cheaper builder of the two prices, who had been approved by his financier who did their due diligence, to suggest that this is the cause of all the problems in respect of the Lots. I accept the position of EVR Group that when parties make promises of the nature contained in the Building Contract, the builder has the ability to fill those bargains for the price agreed to. There is no evidence before the Court from a quantity surveyor in support of Brad Teal’s case to suggest that it was in some way impractical to use Merrion 6 as the builder for the project for the price quoted. I accept that there were other relevant considerations taken into account by EVR Group in engaging Merrion 6. These included the fact that Legacy Homes was smaller and were domestic builders who subsequently went into liquidation, and putting the project out for another tender would have resulted in a further delay of six months on the project resulting wasted holding costs.
344I further accept EVR Group’s submissions that arguments as to a duty of good faith or cooperation cannot contradict the express terms which state to the contrary. As set out above, clause 5.1 on its proper construction, refers to no warranty as to the quality of the works as constructed, which includes future works.
345Mr Romero is not a builder. He performed the contractual superintending responsibilities under the building contract. However, he did not serve the function of the on-site supervisor in the nature of a foreman. Brad Teal failed to identify what Mr Romero did or failed to do in respect of a particular matter or item which was said to be a breach of the Contracts. Further, it was not put to Mr Romero in cross examination that he was aware of any of the matters raised in the BSS Report or that he wilfully chose to disregard those alleged defects or incomplete works.
346The mere existence of alleged defects or incomplete works does not mean that if EVR Group hired a “dodgy builder” that it would be responsible for any defective work. EVR Group relied on others who were professionally qualified in construction, such as his architect and quantity surveyor reports provided on the financier’s inspections.
347Finally, the evidence before the Court indicates that EVR Group did seek to enforce its contractual rights against Merrion 6 around March to April 2020 when Mr Romero became extremely frustrated with its inability to finish the project. Mr Romero gave evidence that he had lengthy discussions with the builder as he wanted “things rectified for Brad”. Mr Romero said that Coplan agreed to go on site and started fixing items. By letter dated 30 April 2020, Mr Romero wrote to Merrion 6, withholding the $190,000.00 retention moneys and stating that no monies are owing due to liquidated damages owed by Merrion 6, and the contract was settled in full.
348In my view, even if such terms requiring the exercise of cooperation, good faith or to act reasonably were to be implied in the present case, they have not been breached in the circumstances. The terms of the Contracts did not prevent the performance of the Contracts or deny Brad Teal its contractual benefits of the transfer of the sale of land.
The interpretation of the Undertaking
Brad Teal’s submissions
349Brad Teal contends that, on a proper construction of the terms of the Undertaking, it is entitled to have the $100,000.00 held on trust released to Brad Teal for the purpose of rectifying defects, alternatively, that it is entitled to have recourse to those funds to the extent it has incurred costs rectifying defects.
350In its closing submissions, Brad Teal’s focus in terms of the Undertaking are the following two terms:
(a) The vendor’s building surveyor certifies that both 102A and 104 Maribyrnong Rd have disabled access that is compliant with relevant legislation (item (a)); and
(b) The drain is installed at the front door of 102A to redirect water runoff (item (e)).
351In relation to the disabled access term, Brad Teal contends that, given the context related to the performance of the building works (as opposed to their design), the proper construction of the term is that the Relevant Building Surveyors (“RBS”) had to certify that the as built condition of the disabled access was compliant with relevant legislation. Brad Teal says that the letter relied on by EVR Group does not, on its face, reveal an inspection was undertaken or that the RBS was certifying the as built condition as opposed to the design. To the contrary, it submits that the use of the past tense phrase “has been approved” suggests that the approval the RBS refers to is the issuance of the building permit. If the RBS had inspected the 102A entrance to determine compliance of the disabled access, Brad Teal asserts it is likely he would have identified that the slope was non-compliant, as Mr Collina did. Brad Teal argues that EVR Group has chosen not to call its RBS and the Court may infer that his evidence would not assist the defendant.
352Regarding the drain condition, Brad Teal submits that important context is that the 102A entry was at a lower level than the footpath outside, creating a fall for water to flow underneath the door and into the premises. Brad Teal contends that the Undertaking should be construed to mean that EVR Group must install a drain which meets a performance standard of “redirecting water runoff” from entering the premises, in circumstances where it is directed into the premises due to the constructed falls. Brad Teal claims that the drain did not perform to that standard, before or after the works undertaken by Coplan.
353Brad Teal concedes that the Undertaking is not explicit about the consequences of a failure by EVR Group to comply with it. The email relevantly states as follows:
“Please see below the terms of agreement that are to be included in my undertaking for the amount of $100,000.00 being withheld in our trust account for 90 days:
The parties agree that the sum of $100,000 is held back in trust and only released to the Vendor with the Purchaser’s consent when …”
354Brad Teal observes that email was preceded by two further emails. The first was from EVR Group’s solicitor which relevantly provided that:
“We will withhold $100,000.00 in our trust account at settlement subject to the mortgagee's approval until the following items have been completed: …”
355The second was from Brad Teal’s solicitor which set out the following:
“2. The parties agree that the sum of $100,000 is held back in trust and only released to the Vendor with the Purchaser’s consent when: …”
356Brad Teal submits that the reference to the funds being held for 90 days must have some relevance. It says that the most sensible interpretation is that if, at the end of the 90 days, the conditions have not been completed, there is some consequence. Brad Teal observes that EVR Group appears to submit that the consequence is that the money is released to it nonetheless. Brad Teal argues that this is contrary to the express terms of the Undertaking itself, as well as the extrinsic material, which make clear that the only circumstances in which the funds could be released to EVR Group is if the items are completed (subject to Brad Teal’s consent, which cannot be unreasonably withheld).
357Brad Teal contends that the remaining alternatives are:
(a) The funds are forfeited to Brad Teal; or
(b) Brad Teal may have recourse to the funds as security for the Undertaking of rectification works itself.
358Brar Teal submits that the first alternative set out above is consistent with the purpose of the Undertaking as being to incentivise EVR Group to complete the outstanding items. It claims that it also avoids EVR Group’s conveyancer being placed in the position of having to determine competing claims or being forced to interplead.
EVR Group’s submissions
359EVR Group submits that the wording of the Undertaking was proposed on 30 January 2020 by Brad Teal’s solicitor and accepted by EVR Group. It says that the Undertaking was expressed to the effect that on the purchaser settling on the Lots, EVR Group’s solicitor would hold the sum of $100,000.00 in a trust account as security for the completion of the six items set out in the correspondence and set out above.
360EVR Group contends that, on the evidence, the parties did not “agree” the works would be complete in 90 days (90 days was subsequently mentioned, after the agreement, by Mr Adrian Skinner, rather than by Mr Peter Guy as part of a condition of the Undertaking).
361Further, EVR Group argues that it was not agreed that if the works were not completed by a particular time, all or any of the funds (without an assessment of the works completed) would be released to Brad Teal, or alternatively made available to Brad Teal only to attend to “rectification works” (being the works identified in the Undertaking).
362EVR Group submits that what was provided was “no performance security” and that even if a “complete release” was agreed, in its view, it would be unenforceable as a penalty as it is not a genuine pre-estimate of Brad Teal’s loss or damage if the 6 items listed in the Undertaking were not performed.
363EVR Group contends that the words of the Undertaking have ordinary meaning and do not support either of Brad Teal’s alternative interpretations. The Undertaking means that until such time as EVR Group complies, it would not get the $100,000.00.
364EVR Group then turns to the question of whether it has fulfilled the Undertaking.
365EVR Group observes that Brad Teal’s closing submissions focusses on terms (a) and (e) of the items. It says that there is nothing in either Mr Teal’s evidence or the BSS Report that suggests that the other four items are outstanding.
366EVR Group contends that terms (a) and (e) are dealt with as BSS Group’s Item 1.2, for which BSS gives a rectification sum of $18,202.00, and when the combined 27.5% for margin and GST of 10% is added, the cost is $25,428.19 (plus GST) to rectify. It is agreed by the parties that the cost of rectification at the reporting date (18 September 2020) is appropriate. EVR Group says that this estimate is its worst-case scenario.
Analysis of Undertaking
367Brad Teal relies on the following two terms of the Undertaking provided on 31 January 2020:
(a) The vendor’s building surveyor certifies that both 102A and 104 Maribyrnong Rd have disabled access that is compliant with relevant legislation (item (a)); and
(b) The drain is installed at the front door of 102A to redirect water runoff (item (e)).
368For the reasons already given in the Alternative Case, I find that there is no express good faith term and, in a commercial transaction such as the Undertaking, the Court will not imply one. In the present case, I have found that Brad Teal is a sophisticated party (and for the negotiation of the Undertaking, both parties were legally represented) and Brad Teal does not suffer from “vulnerability” in an Esso sense. In addition, in my view, the obligation of good faith does not require a party to subordinate its own interest to those of the counterparty to the contract.[171]
[171] Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534 at [149].
369In relation to contractual terms implied by law, per Barker, I do not accept that a good faith term ought to be implied into the Undertaking as a particular class of contracts in accordance with the test of “necessity”. A duty of good faith is not needed for the effective working of the Undertaking as a contract of that class. Considerations of justice and policy are not relevant in the inquiry in relation to the Undertaking. Further, for the reasons that follow, the elements of BP Refinery have not been met to imply a term of good faith in the Undertaking.
370The first issue for determination is whether these two items in the Undertaking have been completed in accordance with the terms. This is separate and distinct from whether they are free from defects or not of expected quality.
371In my view, the Undertaking was to incentivise the EVR Group to undertake the Outstanding Works within a reasonable period of time, with the assurance that the sum of $100,000.00 was sitting in EVR Group’s solicitor’s trust account and waiting completion. Reasonably, the 90-day time period establishes both a time frame for completion of the six items and the time frame for Brad Teal’s monies to be held in trust and, therefore, inaccessible to EVR Group. This is a commercial interpretation of the terms of the Undertaking as evidenced by the relevant emails that articulated it.
372If the Outstanding Works had not been completed within the 90-day period and further had not been completed within a reasonable time, then the no performance security should have been returned to Brad Teal until the Outstanding Works had been completed (subject to Brad Teal’s consent, which cannot be unreasonably withheld). Here, the evidence before the Court is that EVR Group did complete the works by 9 July 2020 for item (a), and by 3 July 2020 or at the latest by mid-2021 for item (e), which in my view, is a reasonable period of time in the context of the then existing COVID restrictions in Victoria. There is no breach of any good faith term in EVR Group relying on the letters of 9 July 2020 in relation to the disabled access and 3 July 2020 in respect of the strip drain as evidence of compliance with items (a) and (e) of the Undertaking.
373The terms of the Undertaking do not provide for an interpretation that the $100,000.00 was to be held indeterminately on account of covering Brad Teal’s future rectification costs. I further agree with Brad Teal that EVR Group’s contention that the full release of the monies to Brad Teal so it may have recourse to the funds for the rectification works itself, is an unenforceable penalty that was not pleaded in the defence and cannot be raised in closing submissions. However, given my construction of the Undertaking, there is no need to go further.
374Brad Teal seeks to rely on its expert, Mr Collina’s report, to contend that the two items above were not completed. However, in relation to item (a) above, the terms of the Undertaking are that it was for the RBS to consider in his sole discretion and not for a building consultant to provide an opinion on.
375By letter dated 9 July 2020, the RBS stated that the relevant item had been completed as follows:
“Disabled Access - The Retail 1 and Retail 2 “Shell” tenancies have been approved and Disabled Access to and within the open tenancy floor area/s, via the two Street footpath/s. Retail 2 (ie. No. 102a) has its Disabled Access via its door opening directly to the Maribyrnong Road footpath. Retail 1 (ie No. 104) has it Disabled Access via its rear Entry door, and the Common Property corridor access from Union Rd footpath. Retail 1 has an internal Step Ramp near its rear Entry door, to address the internal difference in floor level RL. There is no Disabled Access linkage between the two Retail tenancies, as Council has approved them as separate tenancies.”
376In my view, on a proper reading of the 9 July 2020 letter, the RBS certified that the built condition of the disabled access was compliant with relevant legislation. Indeed, the RBS has not subsequently refused an occupancy permit or applied conditions to the permit.
377Item (e) concerned the drain outside the front door, which involved existing drainage completed by the third-party builder. EVR Group acknowledged that it seems to be accepted that there was a strip drain installed at or about the time of conveyance (being Item 1.2 of Mr Collina’s expert report dated 18 September 2020), but that it was not properly installed. Mr Romero arranged for this to be rectified by mid-2021 by Coplan as noted in the Defect Inspection Report dated 19 July 2021. There is no updated expert report in relation to the drainage after the Defect Inspection Report. There was only lay oral evidence at trial from Mr Teal that he has observed water ingress into the property after these works to the strip drain had been completed “to this day”. However, Mr Teal’s evidence on the effectiveness of the drainage or whether it was built in accordance with the builder’s workmanship obligations under the building contract or the approved plans, is not how the term of the Undertaking is worded.
378Ultimately, where EVR Group has satisfied the conditions for the release of the no performance security, then the monies ought to be released to EVR Group. Until such time that EVR Group complies with the terms of the Undertaking, it would not get the sum of $100,000.00.
Conclusion
379For the forgoing reasons, I find that there is judgment for EVR Group, with costs.
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Certificate
I certify that these 89 pages are a true copy of the judgment of her Honour Judge Burchell delivered on 22 April 2024.
Dated: 22 April 2024
Alexandria Peck
Associate to Her Honour Judge Burchell
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