Chapman v Taylor
[2004] NSWCA 456
•13 December 2004
Reported Decision:
(2005) Aust Contract Reports 90-205
Court of Appeal
CITATION: Chapman v. Taylor & Ors; Vero Insurance Ltd. v. Taylor & Ors. [2004] NSWCA 456 HEARING DATE(S): 15 November 2004 JUDGMENT DATE:
13 December 2004JUDGMENT OF: Beazley JA at 1; Hodgson JA at 2; Tobias JA at 47 DECISION: CA40120/04: 1. Appeal allowed 2. Mr. and Mrs. Taylor to pay Mr. Chapman's costs of the appeal, and to have a certificate under the Suitors Fund Act if otherwise eligible. 3. Order of Master set aside, and in lieu thereof order that the summons be dismissed with costs; CA41106/03: 1. Leave to appeal granted. 2. Notice of Appeal to be filed within 7 days. 3. Appeal allowed. CATCHWORDS: CONTRACTS - Building and construction - Frustration of contract - Builder suffers brain injury which causes him to be in a coma for 5 weeks and unable to undertake or supervise work for about 5 months - Whether contract frustrated - Whether error of law by CTTT - Whether home building insurance applies - Inadequacy in provisions of Home Building Act. LEGISLATION CITED: Consumer, Trader and Tenancy Tribunal Act 2001 s.67
Home Building Act 1989 ss.4, 7, 12, 13, 16, 18B, 18G, 99CASES CITED: Brisbane City Council v. Group Projects Pty. Ltd. (1979) 145 CLR 143
Codelfa Construction Pty. Ltd. v. State Rial Authority (1982) 149 CLR 337
Davis Contractors Ltd. v. Fareham Urban District Council [1956] AC 696
Freeman v. Defence Force Retirement & Death Benefits Authority (1985) 5 AAR 156
Lennell v. Repatriation Commission (1982) 4 ALN N54
Lobb v. Vasey Housing Auxiliary (War Widows Guild) [1963] VR 239
Politis v. Federal Commissioner of Taxation (1988) 16 ALD 707
Scanlan's New Neon Ltd. v. Tooheys Ltd. (1943) 67 CLR 169
Simmons Ltd. v. Hay [1964-5] NSWR 416PARTIES :
David Neil Chapman - appellant
Ernest & Fredericka Taylor - 1st respondents
Vero Insurance Ltd. - 2nd respondent
Consumer, Trader & Tenancy Tribunal - 3rd respondentFILE NUMBER(S): CA 40120/04; 41106/03 COUNSEL: Dr. J. Azzi for 1st appellant
Mr. M.S. Jacobs QC with Mr. P.J. Bambagiotti for 2nd appellant
Mr. S.R. Donaldson SC with Mr. Carolan for respondentsSOLICITORS: Herbert Weller, Windsor for appellant
G.P. Bartels, Eastwood for 1st respondent
McLachlan Chilton, Sydney for 2nd respondent
Robert Ellis, Crown Solicitor's Office, Sydney for 3rd respondent
LOWER COURTJURISDICTION: Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S): SC 12971/02 LOWER COURT
JUDICIAL OFFICER :Master Harrison
CA 40120/04
CA 41106/03
SC 12971/02
CTTT No.HB 00/83497Monday 13 December 2004BEAZLEY JA
HODGSON JA
TOBIAS JA
CHAPMAN V. TAYLOR & ORS.
VERO INSURANCE LTD. (formerly ROYAL & SUN ALLIANCE INSURANCE AUSTRALIA LIMITED) V. TAYLOR & ORS.
1 BEAZLEY JA: I agree with Hodgson JA.
2 HODGSON JA: On 4 November 2003, Master Harrison gave a decision in proceedings in which building owners Mr. and Mrs. Taylor appealed to the Supreme Court against a decision of Senior Member Mr. G.J. Durie in the Consumer Trader & Tenancy Tribunal (CTTT), whereby the Senior Member had decided a preliminary point in proceedings in the CTTT in favour of a builder (Mr. Chapman) and an insurance company (Vero). In her decision, the Master upheld the appeal, remitted the matter to the Senior Member, and ordered Mr. Chapman and Vero to pay Mr. and Mrs. Taylor’s costs of the proceedings.
3 Mr. Chapman appealed from that decision. Vero applied for leave to appeal, and the application for leave has been argued on the basis that, if leave is granted, the appeal will be decided without further argument.
CIRCUMSTANCES
4 The proceedings in the CTTT were instituted by a claim by Mr. and Mrs. Taylor for damages from Mr. Chapman for breaches of a building contract, and for indemnity from Vero under an insurance policy issued pursuant to the Home Building Act 1989 (HBA).
5 The Senior Member’s decision, the subject of the appeal to the Supreme Court, was of a question which the parties agreed should be determined at a preliminary hearing, namely, whether the building contract between Mr. and Mrs. Taylor and Mr. Chapman was frustrated. The effect of a finding that it was frustrated would be to leave Mr. and Mrs. Taylor with remedies against Mr. Chapman only for breaches shown to have occurred up to the date of frustration, which would severely limit the amount of their recovery. The parties had also posed a further question for this preliminary hearing, namely whether, if the building contract was frustrated, was this covered by the contract of insurance between Mr. and Mrs. Taylor and Vero; but no answer was given to this question, as it was unnecessary given the Senior Member’s answer to the first question.
6 The parties agreed on the following facts for the preliminary hearing:
- 1. [Mr. and Mrs. Taylor] and [Mr. Chapman] entered into a contract on 29 August 1999 (“the Building Contract”) for residential building work (“the Work”) to be carried out at Lot 13 Dabbage Place, Kurrajong Heights, in the State of New South Wales (“the Property”).
2. [Vero] issued a Certificate of Insurance, pursuant to section 92 of the Home Building Act 1989, in relation to the Work.
3. On 15 April 2000 [Mr. Chapman] was injured on a building site that was not the Property, receiving injuries that included an injury to the brain.
4. [Mr. Chapman] was admitted to Westmead Hospital on 15 April 2000, and remained in a coma as a result of his injuries for a period of approximately five (5) weeks.
5. [Mr. Chapman] was unable to undertake or supervise the Work until at least about September 2000.
6. [Mr. Chapman] was not, at any material time for the purposes of this preliminary question from 15 April 2000, able to personally or physically undertake the Work as a result of his injuries.
7 The parties had filed statements of evidence in the CTTT, some of which annexed documents; and although there was no procedure whereby any of this material was received into evidence, the material was referred to in submissions by the parties, without any objection, and was adverted to in the Senior Member’s decision.
8 In his decision, the Senior Member referred to submissions of the parties, and to cases referred to, including Davis Contractors Ltd. v. Fareham Urban District Council [1956] AC 696, Codelfa Construction Pty. Limited v. State Rail Authority (1982) 149 CLR 337, and Simmons Limited v. Hay [1964-5] NSWR 416. He rejected a contention for Mr. and Mrs. Taylor that Mr. Chapman could not rely on an injury caused by his own negligence or that of a third party to escape liability. He addressed the questions of whether the contract was with Mr. Chapman’s company rather than Mr. Chapman personally, whether the contract was to be performed by Mr. Chapman personally, and whether the injury to Mr. Chapman frustrated the contract, in the following paragraphs:
17. I have also found the decision of Sir Bernard Sugarman in the Simmons Limited v Hay case of considerable assistance. This is a contract which on the face of it did not call for the personal intervention of Mr Chapman. However, when I look at the letters written by the solicitor for the Applicants to Mrs Chapman after the accident, I feel comfortable in concluding that the Applicants were most concerned that this contract was to be performed by Mr Chapman, and is not by a third party.
18. This was a contract between the Applicants and Mr Chapman. Despite the affidavit evidence of Mr Taylor, I consider that the document of the contract speaks for itself. I should not look to parole evidence to determine who the contracting parties were when the document is so unambiguous. The contract was not with the company.
20. That of course leave the parties in the position that the Taylors are able to maintain an action against Mr Chapman in respect of any causes of action which had accrued by 15 April, and in turn Mr Chapman is able to bring an action against the Taylors for any similar cause of action. I refer to the provisions of the Frustrated Contracts Act 1978 generally and in particular to s8. As a cause of action which may be open to the Taylors against Mr Chapman is one of breach of statutory warranty, I cannot at this stage dismiss the application against the Second Respondent.19. The conclusions I reach overall therefore are that this was a contract which was to be performed either by Mr Chapman personally or else under his supervision. The fall he suffered on 15 April meant that he was unable to continue to perform those tasks. Whilst perhaps it could not have been said on 15 April that the contract was frustrated, a person looking back on events by the beginning of May would have said that the contract could not have gone ahead as envisaged by the parties by reason of the fall. To use the words of Lord Radcliffe, the thing undertaken would, if performed, be a different thing from that which contracted for. The Applicants would not be receiving performance of the contract by Mr Chapman.
MASTER’S DECISION
Thus, he found that the contract was frustrated at the beginning of May 2000.
9 In her decision, the Master referred to authorities including Simmons, and also Lobb v. Vasey Housing Auxiliary (War Widows Guild) VR 239. She concluded:
31 It is my view that the facts of this case are not ones which would invoke the doctrine of frustration. The appeal is upheld. This matter is remitted to the Tribunal Member to be determined according to law.30 Simmons and Lobb refer to a permanent state of events which frustrated performance of the contract. In this appeal an injury to the brain rendered the first defendant temporarily unable to undertake or supervise the work from 15 April to September 2000. As Sugerman J indicated, a temporary injury is not sufficient to frustrate a contract of employment. The doctrine of frustration is not to be lightly invoked.
GROUNDS OF APPEAL
10 Mr. Chapman relies on the following grounds of appeal:
1. The appeal to the Master was not on a question of law within the meaning of section 67(1) of the Consumer Trader and Tenancy Tribunal Act 2001 (NSW) and should have been dismissed as incompetent.
2. Having held that the contract dated 29 August 1999 between the Appellant and First Respondent for residential building work (the "building contact") was required to be performed or supervised by the Appellant personally the Master erred in holding that the injury to the Appellant was not sufficient to frustrate the contract.
3. The Master erred in rejecting extrinsic evidence of the surrounding circumstances in which the contract was made.
5. The learned Master misapplied Sugerman J's dicta in Simmons v Hay (1964-5) NSWR 416 when concluding that a "temporary injury is not sufficient to frustrate a contract of employment".4. The Master incorrectly applied the doctrine of frustration by relying on hindsight to determine whether a fundamentally different situation arose as a result of the unexpected brain injury sustained by the Appellant rather than focussing on whether the injury put an end to the contract in a business sense.
11 Vero seeks to rely on the following grounds of appeal:
(a) The Master should have held that the issues before the Tribunal Member and hence the issues on appeal concerned matters of fact, alternatively concerned matters of mixed fact and law, and as a consequence the decision of the Tribunal Member was not appellable.
(c) The Master should, on the facts, found by the Member and, which had been agreed to by the parties, and by which the Master was bound, viz:(b) In para [31] of the Master's judgment, she held that the facts of the case do not invoke the doctrine of frustration, but she gave no reasons or sufficient reasons for coming to that conclusion.
- (i) the parties had entered into a residential building contract on 29 August 2003;
(ii) on 15 April 2000, the builder, Mr Chapman, injured himself on another building site and received an injury to the brain. He as (sic) admitted to hospital on 15 April 2000 in a coma and he did not recover from the coma for some 5 weeks;
(iii) Mr Chapman was incapable of undertaking or supervising any work until at least September 2000.
12 Mr. and Mrs. Taylor seek to rely on the following Notice of Contention:
2. The Senior Member erred as a matter of law in paragraph 19 of his reasons for decision in that he failed to apply the proper test to determine if the contract had been frustrated.1. The Senior Member erred as a matter of law in paragraphs 17 and 19 of his reasons for decision in that, having recognised that the contract "on the face of it" did not call for the personal intervention of Mr Chapman, he drew conclusions as to what the contract "envisaged" by reference to inappropriate extraneous material, namely, letters written by the solicitors for Mr Taylor which post-dated the contract and Mr Chapman's accident.
STATUTORY PROVISIONS
13 The question of what appeals lie to the Supreme Court from the CTTT is dealt with by s.67(1)-(4) of the Consumer, Trader & Tenancy Tribunal Act 2001 (CTTT Act), in the following terms:
- 67 Appeal against decision of Tribunal with respect to matter of law
(1) If, in respect of any proceedings, the Tribunal decides a question with respect to a matter of law, a party in the proceedings who is dissatisfied with the decision may, subject to this section, appeal to the Supreme Court against the decision.
(2) An appeal is to be made in accordance with the rules of the Supreme Court. The rules of the Supreme Court may provide that an appeal (or such classes of appeal as may be specified in the rules) may be made only with the leave of the Court.
(3) After deciding the question the subject of such an appeal, the Supreme Court may, unless it affirms the decision of the Tribunal on the question:
(a) make such order in relation to the proceedings in which the question arose as, in its opinion, should have been made by the Tribunal, or
(b) remit its decision on the question to the Tribunal and order a rehearing of the proceedings by the Tribunal.
(4) If such a rehearing is held, the Tribunal is not to proceed in a manner, or make an order or a decision, that is inconsistent with the decision of the Supreme Court remitted to the Tribunal.
…
14 There are provisions of the HBA relevant to this appeal, notably ss.4, 7, 12, 13, 16, 18B, 18G and 99. Those provisions are as follows:
7 Form of contracts4 Unlicensed contracting
A person must not contract to do:
(a) any residential building work, or
(b) any specialist work,
except as or on behalf of an individual, partnership or corporation that is the holder of a contractor licence authorising its holder to contract to do that work.
(1) A contract must be in writing and be dated and signed by or on behalf of each of the parties to it.
(2) A contract must contain:
- (a) the names of the parties, including the name of the holder of the contractor licence shown on the contractor licence, and
(b) the number of the contractor licence, and
(c) a sufficient description of the work to which the contract relates, and
(d) any plans and specifications for the work, and
(e) the contract price if known, and
(f) any statutory warranties applicable to the work, and
(g) in the case of a contract to do residential building work—a conspicuous statement setting out the cooling-off period that applies to the contract because of section 7BA.
12 Unlicensed work(3) The contract must comply with any requirements of the regulations.
(4) If the contract price is known, it must be stated in a prominent position on the first page of the contract.
(5) If the contract price is not known or may be varied under the contract, the contract must contain a warning to that effect and an explanation of the effect of the provision allowing variation of the price. The warning and explanation must be placed next to the price if the price is known.
(6) A contract must not include in the contract the name of any person other than the holder of a contractor licence as, or so it may reasonably be mistaken to be, the holder’s name.
(7) This section does not prevent the holder of a contractor licence with a business name registered under the Business Name Act 2002 from also referring in such a contract to the business name.
An individual must not do any residential building work, or specialist work, except:
- (a) as, or as a member of a partnership or an officer of a corporation that is, the holder of a contractor licence authorising its holder to contract to do that work, or
(b) as the holder of an owner-builder permit authorising its holder to do that work, or
(c) as an employee of the holder of such a contractor licence or permit.
13 Unqualified residential building work
(1) An individual must not do any residential building work, except:
- (a) as the holder of an endorsed contractor licence, a supervisor or tradesperson certificate or an owner-builder permit, authorising its holder to do that work, or
(b) under the supervision, and subject to the direction, of the holder of an endorsed contractor licence or supervisor certificate authorising its holder to supervise that work.
(2) If the same facts establish an offence under this section and an offence under another provision of this Act or under any other Act or law, an individual is not liable to be convicted of both offences.
16 Obligations of holders of contractor licences
The holder of a contractor licence must ensure that, when residential building work, or specialist work, for which the contractor licence authorises the holder to contract is being done by or on behalf of the holder, the work is done:
(a) by the holder of an endorsed contractor licence, or of a supervisor or tradesperson certificate, authorising its holder to do the work, or
(b) under the supervision, and subject to the direction, of the holder of such an endorsed contractor licence or supervisor certificate, but only if the work is done so as not to contravene a requirement made by or under this or any other Act.
18B Warranties as to residential building work
The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work:
(a) a warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract,
(b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,
(c) a warranty that the work will be done in accordance with, and will comply with, this or any other law,
(d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time,
(e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling,
(f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment.
99 Requirements for insurance for residential building work18G Warranties may not be excluded
A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void.
(1) A contract of insurance in relation to residential building work required by section 92 must insure:
- (a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor, and
(b) a person on whose behalf the work is being done and the person’s successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor:
- (i) to recover compensation from the contractor for a breach of a statutory warranty in respect of the work, or
(ii) to have the contractor rectify any such breach.
- (a) a developer on whose behalf residential building work is being done,
(b) any other person belonging to a class of persons prescribed by the regulations for the purposes of this section.
CONTRACTUAL TERMS
15 The building contract between Mr. and Mrs. Taylor and Mr. Chapman was signed on 29 August 1999. It identified the contractor as David Chapman, and gave the number of his licence under the HBA and also the expiry date of that licence (4 May 2000). The contract provided for commencement of work within 15 days after satisfaction of certain conditions as to finance or the signing of the contract, whichever was the later; although it is common ground that work could not in fact commence until there was Council approval of the relevant plans, and this was not notified to Mr. Chapman until 24 December 1999.
16 Delays and extensions of time were dealt with in cl.6 of the contract, which was in the following terms:
If the Building Work is delayed by reason of:
(a) any alteration to the attached Plans & Specifications;
(b) an act of God, fire, explosion, earthquake or civil commotion;
(c) adverse weather affecting directly or indirectly the Contractor, sub-contractors of the Contractor or suppliers of materials for the Building Works;
(d) any industrial dispute or disputation affecting the progress of the Building Works;
(e) disputes with adjoining or neighbouring residents or owners;
(f) any instruction of the Owner or the failure of the Owner to give any instruction(s);
(g) any order of a court or tribunal that the Building Works be stopped or suspended by reason other than by the fault of the Contractor;
(h) the unavailability of any Prime Cost item or material specified for the Building Works which is not the fault of the Contractor;
(i) the period known as "Industry Shutdown" during the five (5) week period commencing on or about 22 December in each year;
(j) a variation of the Building Work;
(k) a suspension of the Building Work by either party; or
(I) any other reason over which the Contractor has no control.
THEN the Contractor is entitled to a fair and reasonable extension of time PROVIDED that the Owner is notified in writing (such notification is not required where the delay is in relation to "Industry Shutdown") within ten working (10) days of the event.
Should the Owner not pay a Progress Claim, expense, variation or extra within five (5) days of the due date OR where a Lending Authority is involved an inspection is delayed for more than three (3) days, the Contractor is entitled to an automatic extension of time equal to the number of days such payments are late or inspection delayed.Where the cost of the Building Works has increased as a result of a delay as outlined above, the Contractor is entitled to a reasonable increase in the Contract Price together with the Builders Margin.
17 The question of assignment and sub-letting is dealt with in cl.15 of the contract, which is in the following terms:
However, the use of such people does not relieve the Contractor from the overall responsibility for the Building Works to be completed in accordance with this Agreement.Neither Contractor, nor the Owner, is allowed to transfer the benefit of this Agreement or the obligations under this Agreement, without the prior written consent of the other party. The Contractor may use sub-contractors and other trades people to perform part of the Building Works.
18 Schedule 4 of the contract required completion within 20 weeks from commencement of the work.
19 As regards the insurance contract between Mr. and Mrs. Taylor and Vero, the insuring clause was in the following terms:
- If (and only if) you, the insured, have complied strictly with all your obligations in this policy then, subject to the terms of this policy, we will at our option make good or pay you your loss or damage resulting from:-
1. non-completion of the work because of the insolvency death or disappearance of your builder (a 'non-completion claim’) or
2. a breach by your builder of a statutory warranty (as defined in the Act)* in respect of the work or
3. faulty design of the work if (and to the extent) your builder provided that design or
4. non-completion of the work because of early termination of the contract because of your builder’s wrongful failure or refusal to complete the work (also a 'non-completion claim’) or
5. the cost of alternative accommodation, removal and storage costs reasonably and necessarily incurred as a result of an event in 1 or 2 above or
6. loss of deposit or progress payment due to an event in 1 or 2 above or
7. any act or omission of a person contracted by your builder to do the work which results in loss or damage of the kind mentioned above.
Cover is subject to the limits, exceptions, conditions and terms below.
* In essence, the statutory warranties require your builder to do the work
· in accordance with the plans and specifications in the contract
· in a proper manner
· using good and suitable materials
· using new materials unless otherwise stated
· in accordance with laws
· within the time specified in the contract .
· so as to be fit to be occupied when completed and
· so as to live up to any result your builder agrees it must achieve.
SUBMISSIONS
20 Dr. Azzi for Mr. Chapman submitted that the question whether this contract had been frustrated was a question of mixed law and fact, and therefore could not be the subject of appeal under s.67 of the CTTT Act, which was confined to a pure question of law. He submitted that the question depended on a judgment as to whether the frustrating event was such as would render performance “radically different” from that contracted for, and that question had a large factual content.
21 In any event, he submitted, the Senior Member was not wrong in finding to the effect that, in the context of a contract to be completed in 20 weeks, requiring personal performance or at least supervision by Mr. Chapman, by the beginning of May, when Mr. Chapman had been in a coma for over two weeks with no indication as to if or when he would recover, the delay then reasonably anticipated was such that performance would be radically different.
22 Mr. Jacobs QC for Vero supported those submissions, referring particularly to Codelfa 149 CLR at 376-383.
23 Mr. Donaldson for Mr. and Mrs. Taylor submitted that, generally speaking, a party that promises to do something assumes the risk that he or she may be unable to do so. He referred to Scanlan’s New Neon Limited v. Tooheys Limited (1943) 67 CLR 169 at 200, per Latham CJ, where the following appears:
- Some of the cases appear to me to fail to recognize the fact that, when it is said that one party cannot be supposed to take a certain risk, it is assumed in an arbitrary manner that the other party is prepared to take the risk so far as loss may fall upon him. I can see no reason why such an assumption should be made. I suggest, with respect, that it is much safer, when parties have chosen to contract in absolute terms, to hold them to the terms of their contract. If they desire the contract to be conditional, they can readily so provide in express terms.
24 Mr. Donaldson submitted that the Senior Member erred in law in moving away from his view that the contract on the face of it did not require personal intervention by Mr. Chapman, particularly in taking into account post-contract correspondence and evidentiary material outside the agreed facts.
25 In any event, he submitted, in accordance with Brisbane City Council v. Group Projects Pty. Limited (1979) 145 CLR 143 at 159-161, and Codelfa 149 CLR at 356-8, the preferable test as to frustration is the question whether the contract, on its true construction, is “wide enough to apply to the new situation”; and that is a question of law.
26 Mr. Donaldson submitted that there was an error of law by the Senior Member in his statement of the test in par.[19] of the judgment, and in the result he arrived at, especially in so far as this depended on going outside the agreed facts. Furthermore, he submitted, the contract was plainly wide enough to apply to the new situation, and indeed made provision for it in cl.6(l). He submitted that there was no error by the Master in par.[30] of her judgment: she was merely saying that temporary injury was not necessarily sufficient for frustration.
27 In reply, Mr. Jacobs submitted that looseness of language or unhappy phrasing by the Master in statement of the test was insufficient to amount to an error of law: Lennell v. Repatriation Commission (1982) 4 ALN N54; Freeman v. Defence Force Retirement & Death Benefits Authority (1985) 5 AAR 156 at 183; Politis v. Federal Commissioner of Taxation (1988) 16 ALD 707 at 708.
DECISION
28 In my opinion, Mr. and Mrs. Taylor cannot complain that the Senior Member took into account matters outside the six agreed facts. Where there is to be a decision of a separate or preliminary question, it is in my opinion highly desirable that the basis on which this is to be decided is clearly set out; and it is unsatisfactory that a tribunal deciding such a question should rely on facts outside agreed facts without any ruling as to what facts are to be considered and as to how any conflicts in evidence are to be resolved. However, in the present case, all parties participated and acquiesced in the procedure taken.
29 I accept Mr. Donaldson’s submission that the reasoning process of the Senior Member, from a prima facie view that personal participation was not required to a view that it was, was not entirely satisfactory, inter alia in that he relied on post-contract documents without explaining how he did so. However, in my opinion the conclusion, that Mr. Chapman’s personal participation was required, was clearly correct. Work under the contract could only be done by or under the supervision of the licensee Mr. Chapman, or an employee of his who held a supervision certificate: see HBA ss.12, 13, 16. The evidence made it clear that there was no employee with a supervision certificate. Under cl.15 of the contract, the contract could not be assigned by Mr. Chapman without Mr. and Mrs. Taylor’s consent; and cl.15 only permitted Mr. Chapman to engage sub-contractors and others to do part of the work. The requirement of personal involvement by Mr. Chapman is confirmed by pre-contract circumstances, including the inspection by Mrs. Taylor by arrangement with Mr. Chapman of his other work. The post-contract correspondence, referred to by the Senior Member, contains admissions on behalf of Mr. and Mrs. Taylor confirmatory of these matters.
30 In my opinion, the Master erred in her statement of reasons in par.[30] of her judgment. It is not correct to say that a temporary injury is not sufficient to frustrate a contract of employment: it may or may not be, depending on whether it would make performance of the contract radically different from that promised. Even if one corrected the statement of principle by reading it as asserting that a temporary incapacity is not necessarily sufficient for frustration, this would highlight that there was a lack of reasons as to why the temporary incapacity in this case was not sufficient; and it would also confirm that in substance the Master was addressing a mixed question of fact and law.
31 The authoritative decision of Codelfa substantially adopts two alternative statements of the relevant test. First, there is that of Lord Radcliffe in Davis to the effect that there is frustration where the circumstances in which performance is called for would render performance radically different from that promised. Second, there is the statement of Lord Reid in the same case to the effect that the question is whether the contract is wide enough to apply to the new situation. In Codelfa, these were treated as being to similar effect.
32 Mr. Donaldson argued that the statement of Lord Reid is preferable, and that the question of construction is a pure question of law. In my opinion, at least in circumstances such as the present, the question whether the circumstances would render performance “radically different” from that promised does involve a substantial factual element; and in my opinion, the question posed by Lord Reid also does so, because in deciding whether a contract is “wide enough”, one must take into account the relevant surrounding circumstances and their impact on this question. It could be argued that, if one had a precise and exhaustive statement of all the surrounding circumstances and all the factual inferences that were to be drawn (including inferences as to reasonable expectations), then one would be left with a pure question of law; and indeed, it would be argued that this would also remove the factual element from the question whether performance would be “radically different”. One did not have such a statement in this case; and in my opinion it is unrealistic to expect that there could in cases such as the present be a precise and exhaustive statement of all surrounding circumstances and factual inferences, as an exercise distinct from that of reaching a conclusion, of mixed fact and law, in terms of either test.
33 Accordingly, in my opinion, to establish an error of law by the Senior Member, it was necessary to show that he applied a wrong principle of law. That could be shown either from what he said, or because the ultimate result, associated with the facts that he expressly or impliedly found, indicates that he must have applied the wrong principle of law.
34 In par.[20] of his decision, the Senior Member did not precisely reproduce either the test stated by Lord Radcliffe or that stated by Lord Reid; but he had referred to the relevant part of Lord Radcliffe’s statement in par.[4] in setting out the submissions of Counsel. In my opinion, what was said by the Senior Member did not indicate that he applied the wrong principle, or amount to a deficiency of reasons. In my opinion also, the result was not such as to indicate that he applied a wrong principle.
35 The Senior Member did not refer to cl.6(l), and we were not referred to any submission about that provision made to him. In my opinion, cl.6(l) could apply to the temporary incapacity of a builder; but in my opinion it was clearly open to find that it did not apply so as to deal with the circumstance that the builder was in a coma, and remained in a coma for a period of over two weeks, with no indication over that period as to if or when he would ever regain capacity. In my opinion, the Senior Member determined that frustration occurred automatically at the beginning of May; and he was not shown to have committed any error of law in doing so.
36 For those reasons, in my opinion, Mr. Chapman’s appeal should be allowed. There seems no reason why leave to appeal should not be granted to Vero, and Vero’s appeal allowed. There may be a question as to Vero’s costs.
STATUTORY WARRANTIES
37 The Court sought submissions on the question whether discharge by frustration of the building contract necessarily absolved the builder from the statutory warranties under s.18B of the HBA. This was not directly raised by the decision of the Senior Member or the Master, or in the grounds of appeal; but the Court raised the question in the interests of avoiding multiplicity of proceedings.
38 It was submitted by Mr. Jacobs that the warranties were, by s.18B, made part of the contract, and so were subject to affectation by events subsequent to the making of the contract in the same way as other terms of the contract. Plainly, he submitted, if an owner committed a fundamental breach of the contract and the builder terminated it, the owner could not claim that the builder was still bound by the statutory warranties. As Mr. Jacobs put it, once the contract had been “killed” by termination or frustration, and the builder thereby relieved from further performance, the owner’s remedies must be limited to remedies for breaches occurring up to that time.
39 I accept that this must be so where the contract is terminated for the owner’s breach. However, it could still be argued that the statute requires warranties, including a warranty to the effect that the building work will be done within the time stipulated in the contract, and specifications, and thereby puts the risk of non-completion through frustration onto the builder rather than the owner; so that, even if the builder is discharged from further performance by frustration, the owner still has the warranty that the building will be completed within the stipulated time. It could be said that this would fit in with the consumer protection objective of the legislation, and the requirement for insurance against the risk of loss to the owner from non-completion of the works.
40 However, the HBA makes specific provision in s.99(1)(a) for insurance against non-completion due only to the death, disappearance and insolvency of the builder, but omits that provision where non-completion is due to supervening incapacity of the builder. The facts of this case suggest that this is an anomalous omission in the legislation. There is some tension between a proposition that the builder is absolved by frustration from further performance of the contract, yet remains liable under the warranty if the building is not complete. On the whole, I think the Court must recognise an inadequacy in the provisions of the HBA in this respect, rather than hold that the statutory warranties can still in effect require completion by the builder when the contract is put an end to by frustration.
41 I would however flag one further issue, which the Court is not in a position to decide. It seems to me open to Mr. and Mrs. Taylor to argue that, even though the builder is discharged, the insurance policy still covers them in the circumstances that have happened. The insuring clause of the policy provides that the owners will be indemnified against loss through the builder’s breach of statutory warranties, which are stated in the policy to include warranties to the effect that the building will be completed. The insurance contract does not say there is no liability in the insurance company if the contract is frustrated through incapacity of the builder. It seems to me arguable that, in those circumstances, the insurance company cannot rely on the frustrating event, because in ordinary usage, the word “breach” could be read as including “non-fulfilment through incapacity of the builder”, and thus as extending to the present circumstances.
42 The Court cannot decide this matter: it is some distance from the issues actually raised, and was not fully argued.
CONCLUSION
43 For those reasons, in my opinion the following orders should be made.
44 In Mr. Chapman’s appeal (CA40120/04):
- 1. Appeal allowed
2. Mr. and Mrs. Taylor to pay Mr. Chapman’s costs of the appeal, and to have a certificate under the Suitors Fund Act if otherwise eligible.
3. Order of Master set aside, and in lieu thereof order that the summons be dismissed with costs.
45 In Vero’s application (CA41106/03):
- 1. Leave to appeal granted.
2. Notice of Appeal to be filed within 7 days.
3. Appeal allowed.
46 As mentioned earlier, there may be some question about Vero’s costs. It had exactly the same interests as Mr. Chapman in the appeal, and chose to proceed by seeking leave to appeal. It may be that this case has significance for Vero beyond the particular case, and for that reason Vero has separately sought leave to appeal and been separately represented. I would consider submissions on costs provided by Vero within 7 days, and submissions in response by Mr. and Mrs. Taylor provided within a further 7 days.
47 TOBIAS JA: I agree with Hodgson JA.
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