Clonan v Lewis

[2014] VCC 58

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-13-05506

SEAN CLONAN	Plaintiff
v.
KENNETH LEWIS & ANOR	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	6 February 2014
DATE OF JUDGMENT:	11 February 2014
CASE MAY BE CITED AS:	Clonan v. Lewis & Anor
MEDIUM NEUTRAL CITATION:	[2014] VCC 58

REASONS FOR JUDGMENT

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Catchwords:              Practice and procedure – Stay of proceedings – Joint development of property with the construction of two units – Responsibility of the plaintiff included arranging a builder to construct the units – Whether the proceeding arises “predominantly from a domestic building dispute” – Section 57 Domestic Building Contracts Act 1995 (Vic).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A. Beck-Godoy	MGA Lawyers
For the Defendant	Ms S. Kirton	Meier Denison Guymer

HIS HONOUR:

1The defendants seek to have the proceeding stayed on the basis that it arises “wholly or predominantly from a domestic building dispute”. Such disputes are, by reason of section 57 of the Domestic Building Contracts Act 1995 (Vic) (“the Act”), to be determined by the Victorian Civil and Administrative Tribunal.

2The determination of this issue requires careful examination of whether the claims made in the proceeding meet the definition of a “domestic building dispute” in section 54 of the Act.

3Two questions must be answered:

a.is each claim in the proceeding “a dispute or claim arising…between a building owner and…a builder, or…a building practitioner…in relation to a domestic building contract of the carrying out of domestic building work…”; and

b.does the proceeding arise “wholly or predominantly from a domestic building dispute”?

Claims in the proceeding

4The statement of claim makes two claims:

a.a claim for damages of $162,444.91 for breach of a “development agreement” entered into between the parties in about September 2009;

b.an alternative claim for restitution of the sum of $291,034.10 which the plaintiff alleges the defendants should repay because they have been unjustly enriched as a consequence of the dealings between the parties.

5The “development agreement” involved an oral agreement for the parties to “jointly develop a property at Safety Beach” in Victoria. This allegation in the statement of claim is admitted by the defendants in their defence. The defendants admit that the development agreement involved:

a.the defendants purchasing the property in the joint names of themselves and the plaintiff (or his nominee);

b.the defendants initially paying for the purchase of the property;

c.the defendants arranging for the subdivision of the property into two lots; one to be registered in the defendants’ names and one in the name of the plaintiff (or his nominee);

d.the plaintiff arranging for a builder to construct two units, one on each lot;

e.the defendants’ son preparing town planning documents and construction documents for the two units;

f.the plaintiff initially paying for the builder to construct the units;

g.the builder would be Hummingbird Homes Pty Ltd, a company of which the plaintiff was a director and shareholder.

6The principal dispute in the proceeding is the agreed basis for the financial reconciliation between the parties upon completion of the project. The respective positions are:

a.the plaintiff says that upon completion of the units the parties would calculate the total of the land purchase costs, “the costs of subdivision, holding costs and related costs” and the defendants would be responsible for 50% of the total costs of the development and an adjustment would be made if the plaintiff or the defendants had paid a greater sum;

b.the defendants say that they would pay for the purchase of the land and the subdivision costs, but the construction costs of the defendants’ unit would be “for a total fixed price not exceeding $200,000 inclusive of GST”.

7The dispute about this aspect of the agreement is critical. The plaintiff alleges that the constructions costs and general costs totalled $628,855.72 whereas, the total paid by the defendants for purchase costs and general costs was $303,965.90. This required payment of $162,444.91 by the defendants to the plaintiff to equalise their contributions to the project.

8As part explanation, the plaintiff refers to the defendants having “requested numerous increases to the quality of the finishes, fixtures and fittings in the units”. The cost of these “upgraded/additional items for defendants’ unit” was said to be $45,100. The defendants say that generally these items were “included in the original scope of works or were not requested”. Items costing about $4,000 were admitted as additional work.

9By the alternative claim, the plaintiff alleges that the defendants have been unjustly enriched because they have acquired a valuable unit in their own names worth $595,000 whereas their financial contribution to the project was only $303,965.90.

10The plaintiff is a registered builder. The company Hummingbird Homes Pty Ltd relied upon his builders registration number in order to obtain a building permit and insurance for the construction works. The statement of claim asserts that:

a.the plaintiff’s responsibility under the development agreement was to “arrange and initially pay for a builder…to construct 2 units on the property”;

b.the plaintiff “arranged for the builder to construct the units”;

c.the construction costs of the units included the sum of $29,520 as the plaintiff’s charges as supervisor for 41 days or 328 hours at $90 per hour.

11Ms Kirton of counsel for the defendants submitted that the defendants were the “building owner”, as defined in section 54 because they were initially joint owners of the purchased property and after the subdivision, the owners of their lot. Construction of the units took place on the purchased property. The defendants were in dispute with the plaintiff, a building practitioner who was also a “builder” within the meaning of the Act as he had managed or arranged “the carrying out of domestic building work”.

12Ms Kirton submitted that the parties’ dispute in the proceeding was “in relation to a domestic building contract or the carrying out of domestic building contract or the carrying out of domestic building work”, as the determination of the proceeding would involve consideration of the items of work carried out, the cost of those works, whether the work was within the original scope of work or had been later requested or authorised and whether the building work had been carried out within the fixed price of $200,000 inclusive of GST for the defendants’ unit.

13Mr Beck-Godoy of counsel for the plaintiff submitted that the proceeding arose from a “dispute as between joint developers as neither party was the relevant builder under the building permit or builder’s warranty insurance”. He submitted that the proceeding arose “predominantly from a dispute as to the terms of the development agreement and is not a dispute between the relevant builder and owners”. The plaintiff had “issued proceedings in his capacity as owner developer against his co-owner developers thus seeking to enforce the terms of their development agreement”.

14Mr Beck-Godoy submitted that there was no “dispute with the builder, Hummingbird Homes Pty Ltd”. The only agreement between the plaintiff and the defendant was the development agreement and there was “no contract between the parties for the carrying out [of] domestic building work”. In fact, there was no contractual arrangement at all between the defendants and the person all parties agree was the “builder”, namely Hummingbird Homes Pty Ltd.

15Ms Kirton referred to the decision of Habersberger J in Presser v Ocean View Properties Pty Ltd [2006] VSC 143 (“Presser”); also an application for a stay of proceedings pursuant to section 57 of the Act. Justice Habersberger at paragraph 35 suggests that, generally in the consideration of such applications, “it is more important to see what was in fact agreed between the parties rather than concentrating on what is alleged in the pleadings, which may not necessarily be the correct analysis of a relationship”.

16Justice Habersberger had before him a proceeding involving not simply a plaintiff and defendant, but also third, fourth and fifth parties. The dispute involved the rectification of alleged defective parquetry flooring in a newly constructed penthouse apartment which the plaintiffs had purchased off the plans from the defendant. The other parties to the proceeding included persons allegedly with responsibilities in relation to the flooring works during the construction of the apartments. These included the building contractor and the parquetry sub-contractor.

17In reaching the conclusion that the proceeding was an “action arising…predominantly from a domestic building dispute”, Habersberger J said at paragraph 43 that:

“this proceeding is now all about which, if any, of the several contracting parties is liable to the [plaintiffs] for the defects in their parquetry flooring, which can be regarded as an issue arising in “the erection or construction” of the [plaintiffs’] home (s. 5(1)(a) of the Act)…Once that issue has been decided, everything else will fall into place”.

18Justice Habersberger had some doubt as to whether the “construction and sale agreement” between the plaintiffs and the defendant, by which the plaintiffs “agreed to complete the completed property” was, because of section 3(4) of the Act, a “domestic building contract” within the meaning of the Act.

19Justice Habersberger relied instead upon a subsequent “settlement agreement” between the plaintiffs and defendant by which the defendant had finalised the purchase of the apartment on the basis that it would have its solicitors establish a retention fund of $100,000 to provide security for the completion of outstanding defects (including the flooring) and specifically “to secure the long term performance of the parquetry floor”. Therefore, the defendant “fell within the statutory definition of a ‘builder’” and “the plaintiffs’ claim in this proceeding against [the defendant] was a ‘domestic building dispute’”(paragraphs 25, 37 and 38).

20Ms Kirton submitted that Habersberger J’s conclusion that the settlement agreement was a domestic building contract supported a conclusion in the present case that the obligations of the plaintiff under the development agreement were comparable with the responsibilities the defendant in Presser had accepted by entering into the settlement agreement.

21I am not persuaded by that submission. I consider, however, that there is some similarity between the obligations of the defendant in Presser under the construction and sale agreement and the obligations of the plaintiff in the present proceeding, under the development agreement. Justice Habersberger was prepared to “assume” that the construction and sale agreement was not a “domestic building contract” because of the exception contained in section 3(4) of the Act. Section 3(4) excludes from the definition of “domestic building contract” a contract for the sale of land upon which a home is being or will be constructed and which will be completed before the completion of the contract, provided the construction of the home is itself being constructed under a domestic building contract.

22Section 3(4) was inserted by an amendment to the Act in 2004. At paragraph 36, Habersberger J referred to two earlier decisions where the amending provision did not apply; Shaw v Yarranova Pty Ltd [2006] VSC 45 (Bell J) (“Shaw”) and Mirvac (Docklands) Pty Ltd v Philp [2004] VSC 301 (Byrne J) (“Philp”). These two decisions discussed the inclusion in the definition of “builder” in the Act of, not just a person who “carries our domestic building work” (sub-paragraph (a)), but also a person who “manages or arranges the carrying out of domestic building work” or intends to do so (sub-paragraphs (b) and (c)).

23Justice Byrne concluded that where a developer accepted responsibilities under a sale contract with a purchaser to manage or arrange the carrying out of the construction work by entering into a contract with a building contractor, the sale contract should also be regarded as a “domestic building contract” under the Act.

24Justice Bell reached a different conclusion, and as Habersberger J stated in Presser at paragraph 36 in relation to the reasoning of Bell J, “I respectfully prefer this approach to the broad construction given by Byrne J to the words ‘arrange or manage’ in Mirvac (Docklands) Pty Ltd v Philp. Also, it is probable that on the approach of Bell J, any work required to be carried out by [the defendant] under the construction and sale agreement would not be considered as a ‘domestic building work’”.

25In the present case, section 3(4) has no application, although the discussion of the extended definition of “builder” in Philp, Shaw and Presser may be relevant to the submissions made by Ms Kirton. I am not, however, persuaded that this should lead to a conclusion in the present case that the development contract is a “domestic building contract” or that the dispute arising in the proceeding is “predominantly” a “domestic building dispute” arising in relation to a “domestic building contract or the carrying out of domestic building work”.

26Insofar as the reasoning of Bell J in Philp has relevance in the present case, I respectfully adopt those parts of the judgment particularly following paragraph 47. As Bell J said at paragraph 60, “each contract has to be interpreted according to its terms and understood in its own setting”.

27In the present case, the development agreement was oral. There is little dispute as to its terms, save for the term the defendants rely upon which places a maximum price of $200,000 inclusive of GST, on the construction price of the defendants’ unit. I do not consider that the proceeding arises predominantly from a domestic building dispute. Essentially, I accept the submissions in this regard made on behalf of the plaintiff by Mr Beck-Godoy.

28Accordingly, the defendants’ summons filed 18 December 2013 will be dismissed. I will hear further submissions from the parties in relation to costs and the future conduct of the proceeding.

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Certificate

I certify that the preceding 6 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 11 February 2014.

Dated: 11 February 2014

Catherine Kusiak   

Associate to His Honour Judge Anderson