| JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : BUILDING SERVICES (COMPLAINT RESOLUTION and ADMINISTRATION) ACT 2011 (WA) CITATION : CREIGHTON and GRAHAM POHLE T/As GRAHAM POHLE BUILDERS [2013] WASAT 133 MEMBER : MR S ELLIS (SENIOR SESSIONAL MEMBER) MR R MACHELL (SESSIONAL MEMBER)
HEARD : 12 AND 13 JUNE 2013 - FURTHER SUBMISSIONS FILED ON 25 JUNE 2013 DELIVERED : 22 AUGUST 2013 FILE NO/S : CC 25 of 2012 BETWEEN : JOHN CREIGHTON LYNNE CHAMBERLAIN-CREIGHTON
Applicants
AND
GRAHAM POHLE T/As GRAHAM POHLE BUILDERS
Respondent
Catchwords: Building and construction - Defective work - Termination - Assessment of damages
(Page 2)
Legislation: Building Services (Complaint Resolution and Administration) Act 2011 (WA), s 5(1), s 5(2), s 36, s 36(1)(b), s 38, s 41, s 42(2)(d), s 43
Home Building Contracts Act 1991 (WA), s 17(1) Result: Application successful
Building and HBWC remedy orders made in favour of the applicants
Summary of Tribunal's decision: The applicants sought orders under s 36 of the Building Services (Complaint Resolution and Administration) Act 2011 (WA) in respect of the costs of remedying defects in work carried out by the respondent at two houses in Port Hedland. Work was carried out by the respondent pursuant to two fixed price contracts dated 8 July 2008. The Tribunal found that the work carried out by the respondent had not been carried out in a proper and proficient manner or was faulty or unsatisfactory. The Tribunal made a building remedy order requiring the respondent to pay $55,135 in respect of the house known as House 2 in the proceedings, and $77,855 in respect of the house known as House 3.
In addition, the respondent breached the two contracts with the applicants such that the applicants were entitled to bring the contracts to an end and were entitled to engage another builder to complete the works. The Tribunal found that the additional costs to the applicants of that process was $40,192.78 for House 2 and $53,155.11 for House 3, after taking into account monies expended by the applicants on the works while the contracts with the respondent were on foot. The Tribunal made HBWC remedy orders for those amounts.
The applicants were given the opportunity seek further orders in respect of costs.
Category: B
Representation: Counsel:
Applicants : Mr A Prime
Respondent : No appearance
(Page 3)
Solicitors:
Applicants : MDS Legal
Respondent : N/A
Case(s) referred to in decision(s):
Nil
(Page 4)
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction 1 The applicants seek orders that the respondent pay them $226,337.89 in connection with two dwellings which the respondent agreed to build for the applicants at 20 Reynolds Road, South Hedland. The dwellings were described in the proceedings as 'House 2' and 'House 3'. The application was made under the Building Services (Complaint Resolution and Administration) Act 2011 (WA)(BS(CRA) Act). 2 The applicants allege that: a) work carried out by the respondent on the two houses was defective within s 38 of the BS(CRA) Act and that, as a consequence, they were entitled to building remedy orders under s 36 of the BS(CRA) Act requiring the respondent to pay the cost of remedying the defects; and b) the respondent breached the contracts by failing to complete the work, with the consequence that they were entitled to bring the contracts to an end and engage another builder to complete the works. They seek an order that the respondent pay them the additional costs of completing the work pursuant to s 41 and s 43 of the BS(CRA) Act. 3 The breakdown of the claim is as follows: House 2 | House 3 | Remedial costs
(s 36 BS(CRA) Act) | $55,135.00 | $77,855.00 | | Additional completion costs (s 41 and s 43 BS(CRA) Act) | $40,192.78 | $53,155.11 |
Total | $95,327.78 | $131,010.11 | Background 4 This decision is the second decision made in these proceedings. In an earlier decision made on 25 July 2012, the Tribunal found that the (Page 5)
applicants and the respondent had entered into two 'home building contracts', within the meaning of that expression in the Home Building Contracts Act 1991 (WA) (HBC Act), with the consequence that the Tribunal had jurisdiction to hear all aspects of the application. Issues other than jurisdictional issues (ie the merits) were left for determination at a further hearing. The further hearing took place on 11 and 12 July 2013 and is the subject of this decision. The respondent did not appear at the hearing on 11 and 12 July 2013 and was not represented. The respondent sent correspondence to the Tribunal indicating that he was unable to attend the hearing on 11 and 12 July 2013, asserting that he did not agree with the decision of 25 July 2012 and saying that he wished to appeal the Tribunal's finding that the contracts between the parties were home building contracts. His letter did not address the merits of the applicants' case. The respondent's argument about the nature of the contracts was rejected in the Tribunal's first decision and cannot be revisited on this occasion. 5 Although the claims in respect of the two houses differed in detail, the general factual background was the same, and is as follows. 6 The applicants and the respondent entered into two contracts, both dated 8 July 2008, pursuant to which the respondent agreed to build House 2 and House 3 for a fixed price of $421,000 for House 2 and $437,000 for House 3 (original contracts). The respondent was a registered builder at the time. The original contracts were both based on the Master Builders Association standard contracts (2007 edition), although, of course, the particulars of the original contracts differed. The original contracts provided for progress payments to be made on completion of various stages of the work, for example, when the works reached lock up stage. 7 The respondent carried out a substantial amount of work on House 2 and House 3. The applicants purchased a number of items for House 2 and House 3, incurred expense in connection with the work and, in response to progress claims made by the respondent under the original contracts, made a number of progress payments to the respondent. The payments made by the applicants will be detailed later. 8 There was a falling out between the applicants and the respondent in or about December/January 2008. It appears that little or no further work was done by the respondent on House 2 or House 3 after that time. (Page 6)
9 On 12 October 2010, the applicants' solicitors sent a letter to the respondent giving notice under cl 22A of each of the original contracts requiring the respondent to remedy breaches within seven days. The letter alleged that the respondent had breached the original contracts by failing to complete the houses and by failing to remedy various defects in them. There was no response from the respondent. On 19 October 2009, the applicants, by letter from their solicitors, terminated the original contracts. 10 At the time the original contracts were terminated, the applicants had already entered into a further contract in respect of each house dated 25 August 2009, with a Mr Robert Martin (new contracts). Mr Martin trades as Briden Homes. The new contracts were expressed to be conditional upon the applicants validly terminating the original contracts with the respondent and upon the Town of Port Hedland replacing the existing building licences with new licences in the name of Mr Martin. The work the subject of the new contracts had two distinct components: first, remedying the existing work and, second, finishing off House 2 and House 3. The new contracts referred to the same specifications that had formed part of the original contracts with the respondent. The new contracts separately identified remedial work that needed to be performed. The new contracts broke up the price as follows: House 2 | House 3 | | Deposit | $7,278 | $8,895 | | Weekly payments | $47,857 | $68,960 | | Practical completion | $56,835 | $56,835 | | Total | $111,970 | $136,850 | 11 The applicants' case proceeded on the basis that the deposit and the weekly payments should be attributed to the remedial work, while the practical completion payment was for finishing off the work. The amounts of the final payments in the new contracts are the same as the amounts specified in the original contracts for the practical completion stage. 12 The new contracts required the applicants to supply various components of the works, supply some materials, carry out various components of the work (such as assembling the shower units and (Page 7)
installing the dishwasher) and to provide various facilities (such as the site toilet and accommodation for up to four workers). Mr Creighton gave evidence that he was on site for substantial periods of time during the remedial and completion work and assisted in carrying out that work. No separate claim has been made for the supply of these items or for Mr Creighton's labour. Some of the owner supplied items had previously been obtained or were to be supplied under the contracts with the respondent. However, there was no obligation under the original contracts for Mr Creighton to provide any labour. 13 The work was carried out by Mr Martin. Mr Creighton gave evidence that the applicants paid the amounts stipulated under the new contracts to Mr Martin
Defective works 14 The applicants provided a Scott Schedule for each of the houses, which set out in detail the respects in which the applicants contended that the work carried out by the respondent had not been carried out in a proper and proficient manner or was faulty or unsatisfactory. The Scott Schedules also contained estimates of the costs of carrying out remedial works. 15 The Scott Schedules were based in part upon two reports compiled by Mr Gary Chamberlain dated 14 May 2009. Mr Chamberlain has been a registered builder since 1971 and now carries on business as a consultant builder. Those reports set out in detail Mr Chamberlain's views as to the condition of the houses when he inspected them in April 2009. Mr Chamberlain affirmed the accuracy of his reports in oral evidence. Mr Chamberlain's evidence was corroborated and supplemented by the evidence of Mr Creighton who was directly involved in carrying out the remedial and completion work. 16 Mr Martin gave evidence via telephone from Port Hedland that he had inspected the premises before pricing the new contracts. His view about the condition of the works reflected the opinion of other witnesses called on behalf of the applicants and the evidence of the applicants themselves, although he was unable to recall detail of the defects. 17 The Tribunal accepts that the building service provided by the respondent in respect of both houses was not carried out in a proper and proficient manner and was faulty or unsatisfactory within s 38 of the BS(CRA) Act. The Tribunal accepts that the defects were as described in the Scott Schedules. It is not necessary for the Tribunal to make findings (Page 8)
in respect of the cost of remedying specific defects because of the way in which the defects were remedied. As indicated previously, the applicants entered into contracts with Mr Martin to carry out both the remedial and completion work. A portion of the overall contract price for each of the new contracts was allocated to the remedial work. The Tribunal accepts that the amount allocated in those contracts to the remedial work (including the deposit) is a fair and reasonable amount of compensation for the overall work of remedying the various defects in the building service provided by the respondent for the following reasons: 1) Mr Martin gave evidence that he had estimated the cost of carrying out the remedial work after an inspection of both houses and that the price he charged was a reasonable one. Although the applicants did not get a number of competing quotes for carrying out the remedial and completion work, it is not apparent that there were any other builders available in Port Hedland who were prepared to carry out the work. Information about the costs of carrying out the remedial work identified in the Scott Schedules was given by Mr Handsley, a principal of Mitie Construction, another Port Hedland based builder. Although Mr Handsley gave evidence about the costs of doing the work, his company was not prepared to actually carry out the work. 2) The Scott Schedules also calculated the cost of carrying out the remedial work identified in them. The figures given in the Scott Schedule were based, in large part, on prices for carrying out work given by Mr Handsley. Mr Handsley's prices were not based on a personal inspection of the works but were, in the main, unit prices for carrying out particular types of work. Mr Creighton gave evidence about the extent of the work that was required in respect of particular defects, which augmented the description in Mr Chamberlain's reports of the defects and necessary remedial work. The costings derived in this way are, of course, approximate, but broadly reflect the price allocated to the remedial work by Mr Martin. 3) There was no evidence that the prices given by Mr Martin for the remedial work (which has been paid by the applicants) were inflated. If anything, the prices for the work under the new contracts were too low because, (Page 9)
18 The Tribunal concludes, therefore, that a building remedy order should be made under s 36(1)(b) of the BS(CRA) Act requiring the respondent to pay the applicants the following amounts: Completion 19 Section 43 of the BS(CRA) Act provides that the Tribunal may make an HBWC remedy order under s 41 of the BS(CRA) Act where the Building Commission has referred an HBWC complaint to the Tribunal and the Tribunal considers that the order is 'justified'. An HBWC complaint is a complaint under s 5(2) of the BS(CRA) Act. The effect of s 17(1) of the HBC Act and s 5(1) of the BS(CRA) Act is that an HBWC complaint is a complaint arising under a home building works contract other than a complaint in respect of a breach for which a building remedy order may be made under s 36 of the BS(CRA) Act. The various defects in the performance of the works may not be the subject of an order under s 41 of the BS(CRA) Act because they are breaches in respect of which a building remedy order under s 36 can (and will) be made. However, the failure to complete the work, which was the subject of the default notice issued by the applicants, is not a breach in respect of which an order under s 36 can be made. An HBWC remedy order under s 41 is therefore open to the Tribunal. 20 The Tribunal must consider whether the making of an HBWC remedy order in respect of this conduct is 'justifiable'. The Tribunal considers that it is 'justifiable' to make an HBWC remedy orders in this case because the respondent did not complete the houses after notice (Page 10)
under the original contracts had been given. This conduct was a breach of contract entitling the applicants to terminate the original contracts. 21 Section 42(2)(d) of the BS(CRA) Act provides that an HBWC remedy order may include an order that a person pay specified compensation for loss or damage caused by any breach of the contract. 22 In the present case, the applicants seek orders that the respondent pay them the additional costs incurred by them in completing the works. As a matter of principle, this is an appropriate measure of damages for the loss caused to the applicants. 23 While the original contracts were on foot, the applicants made a number of progress payments which were referable to the stages of completion under the contract but had not made the final progress payments of $56,835 and $58,995 attributed in the original contracts to practical completion of House 2 and House 3 respectively. The fact that the payments attributable under the new contracts to practical completion were also $56,835 and $58,995 might suggest that the applicants suffered no loss as a result of having to terminate the contracts and find a new builder. It might be argued that it cost the applicants as much to have Mr Martin finish off the houses as it would have cost them to have the respondent finish off the houses. 24 However, the applicants contend that, in addition to the progress payments payable under the original contracts, they had incurred considerable additional expense which ought to be taken into account in calculating the amount they had paid under the contracts. This was, in part, the cause of the falling out between the parties in December 2008/January 2009. 25 The Tribunal accepts that all the payments made by the applicants in connection with the original contracts ought to be taken into account in determining the amounts which the applicants had paid under them, not just the payments made in respect of progress claims by the respondent. The Tribunal reaches this conclusion in part because of evidence given by Mr Creighton, which the Tribunal accepts, that this was the understanding between the applicants and the respondent. Mr Creighton said that the respondent had asked the applicants to make various payments because he was short of funds from time to time. It is also implicit in the nature of the original contracts. The original contracts specify a price for carrying out the whole of the works, which, of course, includes providing the goods and services necessary for that work to be carried out. (Page 11)
If the applicants separately paid for or supplied goods or services which formed part of the respondent's scope of works under the contracts, the respondent would be unfairly advantaged. This cannot have been the intention of the parties where, as here, the parties entered into a fixed price contract. 26 The applicants provided, by way of written closing submissions, details of the amounts which had been paid by the applicants in connection with the construction of each of the houses. The payments were vouched by documentation included in the hearing book. On occasions, a single payment had been made in connection with both houses. In such cases, an allocation was made between the two houses by the applicants. The Tribunal accepts the allocations made between the two houses, which, of course, make no difference to the total liability of the respondent. On other occasions, the applicants made a single purchase which included items which did not relate to either of House 2 or House 3. Mr Creighton gave evidence as to the allocation of expenditures between the houses and the other projects in which the applicants were engaged. The Tribunal accepts those allocations and concludes that the applicants have included only the costs which were referable to House 2 and House 3. 27 The payments made in connection with House 2 (excluding the payments made to Mr Martin) are as follows: | Description | Amount | | 'Deposit' to pay NuSteel | $91,395.00 | | Progress Claim ('P/C') Plate High | $70,765.00 | | P/C Roof Cover | $84,200.00 | | P/C Lock Up | $84,200.00 | | NuSteel Deposit | $10,555.00 | | Kitchens & Fittings | $9,706.34 | | Water Corporation (50% of Invoice) | $5,410.95 | | Bathroom/Laundry Fittings | $4,233.97 | | Freight | $29,590.66 | | Abbot Design | $1,980.00 |
(Page 12)
| Town of Port Hedland | $597.75 | | Pilbara Waste (bins) | $928.00 | | Laminate Floors | $3,233.03 | | Acelect | $7,012.08 | | MakJap survey pegs | $550.00 | $404,357.78 |
28 The payments made in connection with House 3 are as follows: | Description | Amount | | Deposit for NuSteel | $97,388.90 | | P/C Plate High | $88,205.00 | | P/C Roof Cover | $87,400.00 | | P/C Lock Up | $87,400.00 | | NuSteel Deposit | $10,832.11 | | Kitchens & Fittings | $6,860.02 | | Water Corp (50% of invoice) | $5,410.95 | | Bathroom/Laundry Fittings | $5,104.59 | | Freight | $28,995.65 | | Town of Port Hedland (55% of invoice) | $730.59 | | Laminate Floors | $3,711.97 | | Acelect at discount (as per evidence of Rick Creighton) | $8,570.33 | | MakJap (50% of invoice) | $550.00 | $431,160.11 | 29 The additional costs incurred by the applicants may be calculated as follows:
(Page 13)
| Payments made to or on account of the respondent | $404,357.78 | $431,160.11 | | Completion payment to Mr Martin | $56,835.00 | $58,995.00 | | Total payments | $461,192.78 | $490,155.11 | | Less original contract price | $421,000.00 | $437,000.00 | | Additional costs | $40,192.78 | $53,155.11 |
30 An order should be made under s 41 and s 43 of the BS(CRA) Act as follows: Costs 31 In their written submissions, the applicants sought the opportunity to make further submissions in relation to the costs of the proceedings. The applicants should have this opportunity as details of the costs incurred have not been provided. Directions will be made to this end.
Orders 32 The Tribunal will cause orders to the following effect. 1. Pursuant to s 36(1)(b) of the Building Services (Complaint Resolution and Administration) Act 2011 (WA) the respondent pay the applicants $132,990 within 21 days. 2. Pursuant to s 41 of the Building Services (Complaint Resolution and Administration) Act 2011 (WA), the respondent pay the applicants $93,347.89 within 21 days. 3. The applicants do by 5 September 2013 provide to the Tribunal and to the respondent any materials in relation to the costs of the proceedings on which they intend to rely. 4. The respondent do by 19 September 2013 provide to the Tribunal and to the applicants any materials in relation to the costs of the proceedings on which he intends to rely. (Page 14)
5. Unless either party by 26 September 2013 requests an oral hearing in relation to costs, the Tribunal will be at liberty to determine the question of costs on the papers. |