Champion Homes Sales Pty Ltd v Biggs; Biggs v Champion Homes Sales Pty Ltd

[2023] NSWCATCD 117

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Champion Homes Sales Pty Ltd v Biggs; Biggs v Champion Homes Sales Pty Ltd [2023] NSWCATCD 117

Hearing dates:

11 and 12 May 2023

Date of orders:

18 September 2023

Decision date:

18 September 2023

Jurisdiction:

Consumer and Commercial Division

Before:

H Woods, Senior Member

Decision:

In matter HB 22/51876

(1) The respondents are to pay the applicants the sum of $61,595.60 within 28 days.

In matter HB 23/12205

(2) The application is dismissed.

Costs

(3) If any party wishes to seek an order other than each party is to pay its own costs, it is to file and serve submissions and any evidence in support of its application for costs within 21 days of the date of these orders;

(4) Any submissions or evidence in response are to be filed and served within a further 7 days.

(5) Any submissions in respect of costs are to state whether the party consents to the question of costs being determined on the papers, and if not why.

Catchwords:

BUILDING AND CONSTRUCTION — Contract — Termination — Repudiation

BUILDING AND CONSTRUCTION — Contract — Agreed damages — Penalty

Legislation Cited:

Home Building Act 1989 (NSW)

Cases Cited:

Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd

By Bon Investments Selvarajah [2008] NSWSC 1251

Issa v K & K Quality Constructions Pty Ltd [2020] NSWCATAP 74 (4 May 2020)

Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 90 ALJR 835.

Ringrow Pty Ltd v BP Aust Pty Ltd [2005] HCA 71;224 CLR 656

Syed Ahmad Shoaib Ali Pty Ltd v Jandson Pty Ltd [2018] NSWCATP 228 

Texts Cited:

Nil

Category:

Principal judgment

Parties:

HB 22/51876
Champion Homes Sales Pty Ltd (Applicant)
Darren Biggs and Dana Biggs (Respondent)

HB 23/12205
Darren Biggs and Dana Biggs (Respondent)
Champion Homes Sales Pty Ltd (Applicant)

Representation:

Counsel:

Matter HB 22/51876
C Stomo (Applicant)

Matter HB 23/12205
C Stomo (Respondent)

Solicitors:
Matter HB 22/51876
Self-represented (Applicant)
Family Focus Legal (Respondents)

Matter HB 23/12205
Family Focus Legal (Applicants)
Self-represented (Respondent)

File Number(s):

HB 22/51876 and HB 23/12205

Publication restriction:

Nil

REASONS FOR DECISION

INTRODUCTION

1. These proceedings concern whether Darren and Dana Biggs (the homeowners) were entitled to terminate a contract between them and Champion Homes Sales Pty Ltd as the builder (Champion Homes) for the construction of a new house (the Contract) at 39 Bligh Street, Camden South (the Property) and if not, whether Champion Homes is entitled to agreed contractual damages of 15 per cent of the contract price plus identified expenses incurred to date, and whether the homeowners are entitled to be repaid what has been referred to as a deposit or tender fee of $15,000.00 paid to Champion Homes (the Deposit).

THE APPLICATIONS, POINTS OF CLAIM, POINTS OF DEFENCE AND CROSS CLAIM

2. Champion Homes’ argue that the homeowner wrongfully terminated the Contract, that it accepted that wrongful termination as a repudiation and terminated the Contract, and that is entitled to agreed damages of 15 per cent of the contract price plus expenses, which Champion Homes says the homeowners are still liable for pursuant to clause 5.3 of the Contract, less the Deposit. At the hearing, Champion Homes informed the Tribunal that claimed expenses totalled $11,344.00.

3. The homeowners argue that:

1. Champion Homes made representations to the homeowners prior to the homeowners entering the Contract which were false or misleading and deceptive, and which induced the homeowners to enter the Contract.

2. That but for the alleged representations, the homeowners would not have entered the Contract.

3. The fact of the false or misleading representations entitled the homeowners to terminate the Contract.

4. The homeowners validly terminated the Contract.

5. The clauses in the Contract that provided for “pre-estimated damages” of 15 per cent of the contract price are a penalty and “invalid and unenforceable as a genuine pre-estimate” or void and unenforceable under the Contracts Review Act 1980 (NSW) (CRA).

6. Champion Homes claim for expenses should be rejected because the expenses resulted from the making of the alleged false or misleading representations by Champion Homes.

7. An order that Champion Homes pay to the homeowners by way of damages, the Deposit.

4. At the hearing, the homeowners:

1. Were granted leave to file an amended defence which asserted to the effect that pursuant to clause 14.6 of the Contract, because the estimated price of the work had exceeded 10per cent of the Contract price, they were entitled to terminate the Contract; and

2. Informed the Tribunal that the Contracts Review Act defence was not pressed.

ISSUES

5. The issues for consideration were:

1. Whether:

1. the builder made false or misleading representations prior to the entering of the Contract in respect of:

1. whether a gumtree on the nature strip in front of the Property could be removed or whether construction could proceed without its removal; and

2. the council would allow structures at the rear of the Property to remain;

2. whether the homeowners relied on the alleged representations in entering the Contract; and

3. subject to a consideration of (a) and (b), whether the fact of the false or misleading representations (if found to have been made) entitled the homeowners to terminate the Contract.

2. Whether the homeowners were entitled to terminate the Contract.

3. Subject to a consideration of (2), whether the homeowners purported termination of the Contract was a breach or repudiation which Champion Homes accepted, and which entitled Champion Homes to terminate the Contract.

4. Subject to a consideration of (2) and (3), whether Champion Homes is entitled to agreed damages of 15per cent of the contract price. The homeowners assert that the claimed agreed damages is a penalty.

5. Whether Champion Homes is entitled to reimbursement of the claimed fees and charges incurred by it.

6. Whether the homeowners are entitled to reimbursement of the Deposit.

JURISDICTION

6. Section 48K (1) of the Home Building Act 1989 (NSW) (the HBA) provides that the Tribunal has jurisdiction to hear and determine "any building claim" that is brought before it under Pt 3A of the HBA, and which is under the $500,000 limit for amount claimed and is within time.

7. Section 48A (1) of the HBA relevantly defines "building claim" to mean a claim for the specified relief (empowered by s 48O) "that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods or services.

8. "Building goods or services" are relevantly defined in the same provision to mean "goods or services supplied for or in connection with the carrying out of residential building work".

9. "Residential building work" is relevantly defined in HBA Sch 1 para 2(1) to mean "any work involved in or involved in co-ordinating or supervising any work involved in: (a) the construction of a dwelling". The proposed house was clearly a dwelling as defined in para 3.

10. Although jurisdiction was not raised as an issue, I note that the work performed by Champion Homes at the time of termination could only have been preparatory work including, which included the preparation of amended drawings, the preparation of variations and the obtaining of a construction certificate.

11. In Syed Ahmad Shoaib Ali Pty Ltd v Jandson Pty Ltd [2018] NSWCATP 228 (Syed) the Appeal Panel commented (at [280]) that “[t]he language and purpose of the provisions relating to insurance seem to us to favour an interpretation of residential building work as including the preparatory work which precedes construction”, and concluded (at [298]) that the preliminary work done in that case, which consisted of obtaining structural engineering drawings, a BASIX report, a BAL certificate, a s149 certificate, a pre-assessment for the CDC application and landscape architectural services, was “residential building work”.

12. In circumstances where jurisdiction was not raised as an issue and mindful that there could be no issue that the Contract was for the provision of residential building work and of what the Appeal Panel said in Syed and in Issa v K & K Quality Constructions Pty Ltd [2020] NSWCATAP 74 (4 May 2020) at [37], I am satisfied that the claim concerned goods or services supplied for or in connection with the carrying out of preparatory work as that term is used in Syed.

13. Relevant to the relief claimed, s 49 O of the HBA provides that in determining a building claim, the Tribunal is empowered to make orders that relevantly include:

1. an order that one party to the proceedings pay money to another party or to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person; and

2. an order that a specified amount of money is not due or owing by a party to the proceedings to a specified person, or that a party to the proceedings is not entitled to a refund of any money paid to another party to the proceedings.

14. I am therefore satisfied that the Tribunal has jurisdiction to hear and determine the respective applications.

EVIDENCE

15. Champion Homes relied on statements of its director, Steve Malesev dated 15 February 2023 and 6 April 2023 together with exhibits SM-1 and SM-2, a statement of Peter Petkovski dated 6 April 2023 and exhibit PP-1, and a statement of John Trotter dated 24 March 2023 and exhibit JT-1.

16. The homeowners relied on a bundle of documents marked DB-1 filed with the Tribunal on 9 March 2023 that included affidavits of Darren and Dana Biggs dated 6 March 2023 and an unsigned experts report of a Mr Peter Evans.

17. Mr Malesev, Mr Petkovski, Mr Trotter, Mr and Mrs Biggs and Mr Evans were cross-examined.

18. Champion Homes relied on written submissions supplemented by oral submissions made at the close of the hearing. The homeowners relied on oral submissions made at the close of the hearing.

CONSIDERATION

Background facts and the alleged false or misleading representations

19. The homeowners’ first contact with Champion Homes in August 2021, was with Champion Homes salesperson, John Trotter.

20. In August 2021, the homeowners emailed plans that had been prepared by Devine Drafting and Design to Mr Trotter.

21. The Plans included an “Existing Site Plan”, “Demolition Plan” and “Site Plan” with the proposed dwelling (the Plans).

22. The Plans relevantly identified the existing dwelling, other structures and paths to be demolished, sheds at the rear of the Property to be retained and a gumtree at the front of the Property “to be removed prior to CDC lodgement” (the gumtree).

23. Dana Briggs says that after she sent the plans to Mr Trotter, she had a conversation with him in which enquired as to whether the project was viable for the Property and whether the gumtree could be removed or whether it would be a problem to which Mr Trotter replied to the effect “that removal [of the gumtree] won’t be a problem”.

24. Dana Briggs also says that on 28 August 2021 she and Darren Briggs had a further conversation with Mr Trotter in which he said that keeping a cubby house and aviary in the back yard and having access to them through the back gate and the removal of the gumtree should not be a problem. She says that she and Darren Briggs then told Mr Trotter to go ahead and draw up the tender.

25. Both Dana and Darren Briggs also say that between 28 August and 15 September 2021 September they had further discussions with Mr Trotter in which Mr Trotter said to the effect that the gumtree did not present any issue or impediment to the build as it could be removed, that the sheds and animal dwellings could be left on site for the whole of the duration of the build and that if Darren and Dana pulled out of the contract a deposit of $15,000.00 would be non-refundable.

26. Mr Trotter said that he responded in respect of the “cubby house and aviary” that it should be okay but that he would have to check with Champion Homes marketing and sales manager, “who indicated that it would be okay provided the owners put up their own site fence”, but that after signing the Contract, Dana Briggs said that they would no longer need the “cubby house”.

27. Mr Trotter said that he had a general discussion regarding the removal of trees and that he said to the effect that “the Council would need to give their approval” and denied saying to the effect that “it would not be a problem to remove the [gumtree]”.

28. Mr Trotter otherwise agreed that he discussed the gumtree and the sheds with the Homeowners and that the discussions generally accorded with what was set out in the Plans. He denied that he said that there will not be a problem getting Council approval in relation to the gumtree and denied saying or that a variation was agreed to the effect that the sheds would remain at the property during demolition and construction and would not be demolished.

29. Mr Trotter completed a “Consultant Checklist” and a “Tender Amendment Request by Owner”, which, together with the plans were provided to his manager and then the Champion Homes estimates team for the preparation of a tender.

30. A tender with a “Total Building price GST inclusive” of “$468,350.00” dated 7^th September 2021 (the Tender) and a “Tender Amendment no. 1” identifying “Revised Total Building price GST inclusive” of “$509,350.00” (the Amendment) were there after prepared and provided to the homeowners on 12 September 2021.

31. The Tender and the Amendment record that they were signed electronically on 14 November 2021.

32. Although the evidence included several emails between the homeowners and Mr Trotter, none of them were to the effect of confirming or otherwise repeating the homeowners’ version conversations regarding the gumtree or the sheds or structures at the rear of the Property, and none of them repeated or confirmed the making of the alleged false or misleading representations because of which the homeowners say they were entitled to terminate the Contract.

33. Given the lapse of time since when the representations were claimed to have been made and the fact that there is nothing in writing contemporaneous with the making of the alleged representations, that corroborates the making of the alleged representations, and that it is for the homeowners to prove that the representations, I am not satisfied that Mr Trotter represented to the effect that the removal of the gumtree would not be a problem or that the sheds at the rear of the Property would remain on site throughout and after the construction of the new house.

34. The Contract, being a Champion Homes “Building Contract New Residential Dwellings”, was dated 15^th November 2021 and electronically signed by the homeowners and for Champion Homes on 15 November 2021. The Contract price was stated as being “GST inclusive: $509,350.00”.

35. On 16 November 2021, the homeowners, having already paid Champion Homes $1,000.00 on 24 August 2021 and $5,000.00 on 14 November 2021 towards the “tender fee” paid a further $9,000.00 to Champion Homes for the “tender fee”.

36. On 1 February 2022, the homeowners signed Variation No 1 which identified a revised total building price GST inclusive of $509.350.00 and noted “Plans to indicate retention of sheds abutting rear boundary if permissible”.

37. In about February 2022, Mr Petkovski who was employed by Champion Homes as a Pre-Construction manager came to the view that it was unlikely that the Council would approve the removal of the gumtree.

38. On 2 February 2022, Champion Homes emailed the homeowner stating:

I was just confirming you received my previous email as I believe you have just spoken to Peter Petrovski.

Could you please confirm in writing that you wanted following:

the garage location to stay as it is.

the gumtree on the council nature strip to be removed.

39. The homeowners replied on 2 February 2022 stating

Attached please find signed variation as requested again as with the tree not sure why this needed to be signed as we signed all this in the original tender.

40. On 3 February 2022, Mr Petrovski emailed the homeowner stating:

Following our phone chat a couple of days ago about our concerns that Council may not allow you to remove the large gumtree in the nature strip. We will as per your instructions submit the DA documents to Council with this tree identified to be removed. We will therefore leave the House with Garage on the right hand side as requested.

41. The homeowners replied on 3 February 2022 stating:

If council denies this removal is there a Plan B

42. Mr Petrovski replied to the homeowners on 3 February 2023 stating:

I believe Council will not allow you to remove the tree. I did discuss with Darren that your best option is to mirror reverse the House and have the Garage on the left hand side. This would be Plan B

43. On 8 February 2023, Mr Malesev emailed the homeowners stating:

The plans that you provided to us… have been prepared to be approved under Comply & Develop (CDC)

Unfortunately, the way the plans have been prepared there are numerous non compliances and approval under CDC cannot be obtained without major amendments to the plans.

…

The other problem with submitting the application to council are the unauthorised dwellings that are currently on site, we don't know what councils view will be in relation to that.

The additional issue is the tree at the front of the site that you would like to have removed.

We do not think that council will approve the removal of that tree.

44. On 14 February 2022, Champion Homes emailed the homeowner stating

I just tried calling you regarding your plans and whether you wanted to proceed with the garage on the right hand side. As advised by Peter Petrovski, if cancel does not allow you to remove the tree, a redraw fee of $5000 will apply to redesign the house with the garage on the left hand side”.

45. The homeowners replied on 14 February 2022 stating:

Yes swap the garage to the other side so to save the $5000 just in case council doesn't allow the tree to be removed, …

46. On 23 February 2022, Mr Petrovski emailed the homeowners a concept plan of the dwelling with the garage on the heft hand side and stating:

Below is a concept sketch oh how your new home will need to be configured to fit on your block with Garage on LHS. We have had to mirror reverse the front portion of the House, wall retaining the dining family on the RHS, so as your rear stacker door exits on the high side of the block.

Please call me if you guys need to discuss the new layout or if all looks good, please let me know, so as we can prepare the new plans and documents.

47. The homeowners replied on 23 February 2022 inquiring as to whether the sizes of the rooms are “still the same as before?”

48. Mr Petroski responded on 24 February 2022 stating to the effect that the room sizes will be similar in size and that Champion Homes will attempt to keep the sizes as close as possible, but some slight dimensional changes may be required. He then noted to the effect that the laundry external door will require a landing and steps to reach ground level and asked the homeowners if they are okay to proceed so that champion homes can finalise the plans.

49. On 7 March 2022, Mr Petrovski emailed the homeowner stating:

Attached are your latest plans with changes as discussed.

Unfortunately, we have had to indicate that the outbuildings and cubby house have to be removed, as to allow for the required private open space area allocation of 6.0 m x 4.0 m.

Please let me know if all is OK, so as we can proceed with the CDC application.

50. The homeowners emailed Mr Petroski on 14 March 2022 stating:

As per phone call with Darren today we have had a look at the drawing and have agreed on the setbacks and would like to proceed with the construction.

51. The evidence establishes that as of 14 March 2022, the homeowners had agreed to the plans being revised to provide for the gumtree remaining and the sheds at the tree of the Property being removed. It is also clear that such agreement was provided without reference to the alleged false or misleading reparations regarding the gumtree and the sheds at the rear of the Property.

51. Development consent was granted, subject to conditions, on 14 June 2022.

52. The Notice of Determination of the development application identified the approved drawings as being those prepared by Champion Homes. The approved demolition plan identified the structures at the rear of the Property as being demolished and the house constructed with the garage on the left hand side (looking from the street), rather than the right hand side.

53. The homeowners and Champion Homes exchanged emails on 24 June in which the homeowners enquired as to the refund they would receive as the gumtree was not being removed and Champion homes responded that “The tree was to be removed free of charge so there would be would not be a refund.”

54. Variation No 4 dated 4 July 2022 and signed by the homeowners on 27 July 2022 noted additional works that were required “Following mirror reversal of the house to position garage on left and side...” and identified a revised Total Building Price GST inclusive of $496,164.00.

55. Having regard to: the emails between Champion Homes and the homeowners dated 14 February and 7 and 14 March 2022; the approved plans; and agreed variations numbered 1 and 4, I am satisfied that the homeowners had agreed in writing to the plans being amended so that the garage would be built on the left hand side and the structures at the rear of the property demolished.

56. Further, because the homeowners agreed for the revised plans for the mirror reversing of the garage so that the gumtree could remain and to Variation 4 for additional costs in relation to site conditions relevant to the moving of the garage from the right-hand side to the left-hand side, I would not be prepared to find that but for the alleged representations, which I am not satisfied were made, the homeowners would not have entered the Contract.

Termination

58. In September and October 2022, Champion Homes and the homeowners exchanged several emails in respect of the requirement of a retaining wall for a price of $792.00 per metre GST inclusive for 28 lineal metres, being approximately $22,176.00; the demolition of the existing dwelling, the appointment of a principal certifier for the homeowners and the obtaining of construction certificate.

59. The homeowners also gave evidence that they were concerned that a quote to demolish the existing house for $17,270.00 which had been arranged by Champion homes exceeded what they say was a previous quote for $5,000.00.

60. An email from Champion Homes to the homeowners dated 4 October 2022 informed the homeowners that they were in breach of the Contract and that Champion Homes would be entitled to serve a “Notice of Breach of Contract” and goes on to explain the effect of such a notice, including that if the contract was terminated following the issuing of such a notice, that Champion Homes would be entitled to terminate the Contract and sue for damages, being 15 per cent of the contract price.

61. There was no evidence of such a notice having been issued.

62. On 14 and 28 October the parties exchanged letters and emails marked “without prejudice save as to costs”. The letters were put into evidence without objection, and neither party claimed privilege in respect of the letters.

63. The homeowners’ solicitor emailed a letter to the homeowners dated 14 October 2022 stating:

Our clients instruct that they are contemplating terminating the contract with you.

We invite you to participate in dispute resolution at our office in the week commencing Monday, 24 October 2022…

…

We note our clients have a list of grievances in respect to the building contract to date, being the conduct of Champion Homes, the provision and timing of critical information, communication generally, bullying tactics and overcharging by Champion Homes.

64. Mr Malesev, the director of Champion Homes replied by email on 14 October 2022 stating:

I am not aware of a dispute

Please provide the list of “grievances”

I am happy to have a meeting with you and your clients, however not in your office

you can come to my office or we can have a video link meeting, or on neutral grounds

once I have reviewed the list of “grievances” I will advise suitable dates

if you wish to terminate the contract, that is a matter for you and we will deal with that accordingly

I reserve our rights

65. On 28 October, the homeowners solicitor emailed a letter to Champion Homes stating:

We refer to your correspondence of 25 October 2022

Our clients instruct that they are contemplating terminating the build contract unilaterally. However, prior to terminating the contract unilaterally, we are instructed to obtain your instructions on terminating the contract by agreement and in entering a deed of mutual termination.

The respective position of the parties has been articulated previously and do not require repetition. However, in respect to your reliance on a liquidated damages clause in a building contract for residential building work under the Home Building Act, not a commercial construction contract, our client is doubtful of its enforceability as the clauses is prima facie a penalty.

Due to your conduct to date and recent events, our client has lost all faith in the builder, and it is untenable for the consumer to consider progressing the contract any further in the current circumstances.

Please provide us with the settlement sum you require, for our client consideration, to terminate the contract by agreement.

We request a response by 4:00 PM on Friday, 4 November 2022

66. As of 31 October 2022, the demolishing of the existing house had not commenced.

67. On 31 October 2023 the homeowners solicitor emailed a letter to Champion Homes (Exhibit A) stating:

We refer to your correspondence dated 28 October 2022.

Our client notifies you of their termination of the building contract between Champion Homes Sales Pty Ltd and Darren and Dans Biggs in respect to building works at 39 Bligh Ave, Camden South dated 15 November 2022.

The termination date is 1 November 2022.

As set out in previous correspondence there are a multitude of reasons for the termination, however the most pressing is that your radical departure as soon as the contract was entered and significant increases to date have placed our client in the position that if they were to proceed with the contract it would be to their further detriment.

Our client maintains the position that Champion Homes have not to date demolished one brick at the property, let alone commenced construction of the newly built home and therefore and loss is negligible to the builder, however, to continue with the contract would cause significant losses to our clients.

We further enclose our client without prejudice offer of compromise.

We are instructed to accept service should you determine to pursue damages for termination of the contract.

68. On 2 November 2022 the homeowners solicitor emailed a letter to Champion Homes stating:

We refer to your correspondence of 1 November.

Our client maintains their position to terminate the contract effective 1 November 2022.

Our clients maintain that they should have been informed prior to entering the contract on 15 November 2021 about the reversal of the house design and the extra costs involved prior to entering the contract and not immediately after, especially where you flagged the issue prior to submitting plans to Council.

69. The letter then went on to refer to an invitation “to engage with dispute resolution” and set out the reasons why the homeowners were effectively declining that invitation.

70. Champion Homes responded to the homeowners’ solicitor’s letter by letter dated 11 November 2022 stating:

We refer to your letter of 2 November 2022 in which you confirmed that your clients have terminated the building contract as from 1 November 2022

… your clients have committed a fundamental breach of the contract with their wrongful termination and consequent repudiation of the contract.

Champion Homes accepts that repudiation and will shortly be commencing proceedings in the NSW Civil and Administrative Tribunal seeking damages for breach of contract

71. Champion Homes application was then lodged on 22 November 2022.

72. Champion Homes argues that the homeowners purported termination amounted to a repudiation of the Contract, that it accepted that repudiation and terminated the Contract, or terminated for substantial breach following the giving of a ‘notice of default, and that it is entitled to agreed damages of 15 per cent of the Contract price pursuant to clause 29 or special condition 44.15 of the Contract, plus certain costs it had incurred to date pursuant to clause 5.3.

73. The homeowners argue that they were entitled to terminate the contract and that in any event the agreed damages clause is a penalty.

74. Relevant principles were summarised by Ball J in Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd (No 9) [2016] NSWSC 1005 (22 July 2016) from [170].

Relevant legal principles relating to termination

170. A party is entitled to terminate a contract in accordance with an express term in the contract: Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441-2. A party may also be entitled to terminate the contract for breach of an essential term (a condition) of the contract or a serious breach of an intermediate term: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115. Lastly, a party may be entitled to terminate the contract if the other party repudiates the contract. Repudiation occurs where one party evinces an intention “no longer to be bound by the contract ... or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way”: Shevill v Builders’ Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 625-6 per Gibbs CJ, referred to with approval in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 634; see also Koompahtoo at [44].

171. A party who gives reasons for termination is not bound by those reasons. The termination is effective so long as a basis for termination existed at the time of termination: Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 262.

172. A party in breach of a non-essential term is not prevented by that breach from terminating the contract for a fundamental breach or repudiation by the other party. An exception exists where the breach or the repudiation was caused by the terminating party’s breach. A party whose breach causes a breach by the other party or makes performance by the other party futile is not entitled to terminate the contract for non-performance by that party: Nina’s Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 632; Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (Rec and Mgr apptd) [1997] NSWSC 473; (1997) 42 NSWLR 462, 479ff per Gleeson CJ, Handley JA and Brownie AJA.

75. The homeowners rely on clause 14.6 of the Contract, which provides, that:

If the estimated price of the extra work exceeds 10% of the contract price, the owner may end this contract by giving the builder I written notice to that effect within 5 working days of receiving the estimated cost from the builder under subclause 14.2 and sub clause 14.7 applies.

76. Putting to one side that the notice of termination was not given within five working days of receiving the estimated cost of extra work exceeding 10 per cent of the contract price, clause 14 is headed “Hidden Site Conditions”, and is concerned with circumstances where extra works are required because “(a) either party believes that the subsurface conditions of the site may not support the building works, or (b) rock is found at the site…”. That is not the case here.

77. The evidence of the homeowners indicates that in large part that the homeowners’ reason for terminating the Contract was because prices had increased and they were worried about what would happen in the future, and the homeowners did not point to any other a clause in the Contract entitling them to terminate the contractor, nor any substantial breach that entitled them to terminate the Contract.

78. Having already found that I am not satisfied that the alleged representations were made, in circumstances where the homeowners do not point to any other term of the Contract having been relied on to justify the termination, nor any intermediate clause of the contract that the homeowners say the Champion Homes was in substantial serious breach of, nor any essential clause that the homeowners say Champion Homes was in breach of nor any repudiatory conduct by Champion Homes that would entitle the homeowners to terminate the Contract, I am satisfied, and find, that the homeowners’ purported termination of the Contract on or about 1 November 2022 was wrongful and clearly evidenced an intention to no longer be bound by the Contract, and was a repudiation of the Contract.

79. Clause 40.4 of the Contract provided that “This contract may be terminated in circumstances provided by common law” and “This does not limit the circumstances in which the contract may be terminated”.

80. Champion Homes was entitled to accept the Homeowners repudiation and terminate the Contract. It did that by its letter dated 11 November 2022.

Agreed damages / Penalty

81. Champion Homes claims the agreed damages pursuant to clause 29.1 or Special Condition 44.15

82. Clause 29.1 provides:

If the for the builder end this contract under close 14, close 26, close 27 or clause 28, then at the election of the builder, the owner must pay as I did you and payable either:

(a) the greater of the cost of the market value of the building works to date including the cost of any materials on the site or already ordered from suppliers and the cost of quitting the site list the amount already paid by the owner; or

(b) damages in the sum of 15% of the contract price which the parties acknowledge to be a genuine pre- estimate of the builder’s loss, where the builder ends the contract under clauses 14, 26, 27 or 28.

83. The Builder could not claim the agreed damages of 15 per cent of the contract price and an amount to reflect the market value of the work performed plus costs incurred. It had to elect between the two.

84. Clauses 14 and 28 are not relevant here. In so far as clauses 26 and 27 are concerned, a party may end a contract where a breach is not remedied within 10 days after a written notice of the breach is given stating: (a) the details of the breach; and (b) that if the breach is not remedied, then that party will be entitled to end the contract.

85. Although, as noted above, an email was sent referring to Champion Homes entitlement to issue a breach notice and the describing the effect of such a notice, there was no evidence of such a notice having been issued.

86. I am therefore not satisfied that Champion Homes terminated the Contract pursuant to clause 27 of the Contract. It follows that Champion Homes is not entitled to claim the agreed damages of 15 per cent of the contract price pursuant to clause 29.1.

87. Champion Homes also relies on Special Condition 44.15. It states:

If, prior to physical commencement of works on the site, the owner wrongfully ends this contract the owner must pay to the builder damages in the sum equivalent to 15% of the contract price, which the parties acknowledge to be a genuine pre estimate of the builders loss or damage.

88. Putting to one side the issue of penalty, having found that the homeowners wrongfully terminated the Contract and that Champion Homes accepted that repudiation and terminated the Contract, I am satisfied that clause 44.15 applies and that Champion Homes is entitled to damages equivalent in the sum of 15 per cent of the contract price.

89. The contract price is defined to be “the amount stated in item 2 (a) of schedule one, as changed by this contract”. The amount stated at Item 2 (a) of schedule 1 is $509,350.00 incl GST. As at Variation 4 which had been signed by the homeowners on “22/7/22”, the Contract Price had been changed to $496,164.00 including GST.

90. Subject to a consideration of whether the agreed damages are a penalty, the agreed damages, being 15 per cent of $496,164.00 are $74,424.60.

91. As noted by the High Court in Ringrow Pty Ltd v BP Aust Pty Ltd [2005] HCA 71 (Ringrow);224 CLR 656, at [10], the law of penalties, in its standard application, applies where a contract stipulates that on breach the contract breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre - estimate of the damage likely to be caused by the breach.

92. Relevant principles were summarised by the Court of Appeal in Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328 at [69] to [76] with reference to Ringrow; Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30; and Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 90 ALJR 835. They include:

1. The question of whether a sum stipulated is a penalty is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged at the time of the making of the contract, not as at the time of the breach.

2. Tests to assist this task of construction, include: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach; (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid; and (c) There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage”.

3. The essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach, and thus to compel performance.

4. One way of testing whether the impugned stipulation is intended to punish is to inquire whether the sum that it stipulates to be payable on breach is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach.

5. “Damage” in that sense is not limited to damages recoverable upon breach of contract, but may extend to damage, or losses, caused by the impairment of other legitimate commercial interests that were intended to be protected by the stipulation

6. Mere disproportion between the stipulated sum and the possible damage is not enough to indicate “penalty”; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation.

7. The onus of proving that a contractual stipulation amounts to a penalty rests with the person asserting it.

93. Having regard to the above principles I note that the agreed damages provision at special condition 29.1 is the same as that which appears in clause 14.1 and only arises where there has been a wrongful termination by the homeowner. As noted above, Champion Homes would still need to accept that wrongful termination as a repudiation, and itself terminate the Contract, which I have found it did.

94. Mindful that the agreed damages only arise following a wrongful termination by the homeowners and operate in lieu of a claim for damages generally, and that the only evidence the homeowners point to establish that the amount is unconscionable or extravagant is the Contract itself and the alleged representations, I am not satisfied that the agreed damages is out of all proportion to, or unconscionable in comparison with the maximum amount of damage that might be anticipated to follow from the breach.

95. I am therefore not satisfied that the impugned clause is intended to punish.

96. The homeowners claim that the agreed damages clause is a penalty is therefore rejected.

Claimed expenses and the Deposit

97. Champion Homes claims the amount of $11,344.00 (as calculated at [15] of its Points of Claim and [46] of Mr Malesev’s 6 April 2023) pursuant to clause 5.3 of the Contract, which Champion Homes submits provides that various planning fees and costs are to be borne by the homeowner.

98. Consistent with the position in respect of the operation of clause 29.1, in circumstances where Champion Homes has elected to claim agreed damages, it is not open to also be paid for the value of work performed or expenses incurred in performing the contract work.

99. It needs to establish that the amounts claimed are additional amounts that the homeowners are liable for pursuant to clause 5.3 of the Contract.

100. Clause 5.3 provides that notwithstanding that the builder may be named in item 10 of schedule one, unless otherwise stated in this contract, at all times the owner is responsible for the payment of all fees, charges, taxes, costs and levies, however described, associated with: (a) inspections conducted by the principal certifying authority; (b) registrations relating to title to the site; (c) planning and building approvals for the building works; (d) complying with the conditions of the development consent; and (e) all engineering and survey details and certificates another plans that may be required in order to allow the builder to carry out the building works.

101. Champion Homes has not invoiced the homeowners for the amounts claimed, and although Mr Malesev identifies how the amount for “fees and charges” is calculated and exhibits copies of invoices and payment records, he does not given evidence to assist with a consideration of how the amounts are payments to which clause 5.3 relates.

102. The homeowners amended defence does not admit the fact of the payments and denies Champion Homes entitlement to the amounts claimed.

103. At the hearing the homeowners, accepted that the expenses had been incurred by the builder, and further submitted that the expenses had been incurred because of the alleged false and misleading misrepresentations.

104. Champion Homes has the onus of establishing that the claimed “fees and charges” incurred by Champion Homes and identified at paragraph [15] of its Points of Claim and [46] of Mr Malesev’s affidavit are amounts that the homeowners are indebted to Champion Homes for in addition to the agreed damages.

105. Mindful that Champion Homes cannot claim for the value of work performed or the costs in performing that work, and in the absence of evidence identifying how each of the claimed fees and expenses fall within clause 5.3 of the Contract, the only amount which I am satisfied that Champion Homes is entitled to, is the amount of $2,171.00 for development fees paid to Camden Council which are the subject of the Development Fee Estimate and receipt from Camden Council at pages 24 and 25 of exhibit SM-2.

106. Champion Homes accepts in their calculations that the Deposit of $15,000.00 ought to be deducted from the agreed damages.

ORDERS

107. The amount that the homeowners are to pay Champion Homes is $61,595.60, being $74,424.60 plus $2,171.00 less $15,000.00.

108. Having deducted the Deposit from the amount to be awarded to Champion Homes and found that I am not satisfied that the alleged representations were made, it follows that the homeowners application ought to be dismissed.

109. The Tribunals orders will be:

In respect of matter HB 22/26300:

1. The respondents are pay the applicants the sum of $61,595.60.

In respect of matter HB 23/12205

1. That the application be dismissed.

In respect of costs

1. If any party wishes to seek an order other than each party is to pay its own costs, it is to file and serve submissions and any evidence in support of its application for costs within 21 days of the date of these orders;

2. Any submissions or evidence in response are to be filed and served within a further 7 days.

3. Any submissions in respect of costs are to state whether the party consents to the question of costs being determined on the papers, and if not why.

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

Registrar

Decision last updated: 29 September 2023