Cyrilak Homes Pty Ltd and Siriwardeena v Weerasooriya; Weerasooriya v Cyrilak Homes Pty Ltd and Siriwardeena

[2014] NSWCATCD 220

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Cyrilak Homes Pty Ltd & Siriwardeena v Weerasooriya; Weerasooriya v Cyrilak Homes Pty Ltd & Siriwardeena [2014] NSWCATCD 220

Hearing dates:

22 October 2014

Decision date:

12 December 2014

Jurisdiction:

Consumer and Commercial Division

Before:

S F Smith, General Member

Decision:

The builder must rectify the roof line so that it conforms with the plans and specifications on or before 1 March 2015.

Homeowner is to pay the builder $6,697.00 plus interest calculated under the contract on or before 15 January 2015.

Each party to pay their own costs but this order stayed until 31 December 2014 for the parties to make any submissions by that date.

Legislation Cited:

Consumer Claims Act 1998
Home Building Act 1989
Australian Consumer Law

Cases Cited:

L’Estrange v Graucob [1934] 2 KB 394
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Riverside Motors Pty Ltd v Abrahams [1945] VLR 45
Hadley v Baxendale ((1854) 9 Exch 341) Jones v Dunkel (1959) 101 CLR 298

Category:

Principal judgment

Parties:

Cyrilak Homes Pty Ltd & Laksha Siriwardeena (applicants/cross respondents)
Nishantha Weerasooriya (respondent/cross applicant)

Representation:

Counsel: Mr Lee for applicants/cross respondents
Mr Gruzman for respondent/cross applicant
Solicitors: Messrs Dilinachian for the applicant

File Number(s):

HB 13/29176HB 13/38465

Publication restriction:

Unrestricted

reasons for decision

APPLICATION

1. This was an action brought by builder against a homeowner who was alleged to have refused to pay the balance owing under a cost plus contract. Subsequently the homeowner brought a cross claim against the builder who was said to have failed to progress the works and to have carried out defective and incomplete work.

APPEARANCES

2. Applicants/cross respondents were represented by Mr Lee instructed by Messrs Dilinachian, Lawyers and the respondent/cross applicant was represented by Mr Gruzman of counsel.

JURISDICTION

3. The jurisdiction of the Tribunal is to be found in the Consumer Claims Act 1998 and Home Building Act1989.

PROCEEDINGS

4. The builder’s claim was filed on 27 May 2013. It was listed for directions on 26 June 2013. On 11 July the homeowner’s cross claim was filed and there were subsequent directions hearings on 16 September and 17 December 2013 and then on 10 March 2014 and 6 May 2014.

5. The matter was listed for a one day hearing in Penrith on 4 August, 2014 but evidence was not completed on that day. It was adjourned for a further full day hearing on 22 October 2014 when the evidence was completed and submissions were taken.

EVIDENCE and OTHER MATERIAL

6. In deciding the matter I had the benefit of evidence from Mr Siriwardena and from Mr Fleming (plumbing contractor) for the applicant. The applicant had a deal of material on file including a statement of Mr Siriwardena who is a director of Cyrilak, plans of the extension, construction certificate, HOW certificate, a copy of the contract, invoices from the builder and various suppliers and subcontractors as well as bank statements showing payments.

7. For the home owner Mr Weerasooriya gave evidence and Mrs Jayanthi Weerasooriya also filed a statement but was not cross examined on it. The respondent also placed on file several statements by Mr Weerasooriya, an expert report by Hills Engineering Consultants which included colour photos, plus a host of invoices etc from subcontractors, suppliers and a locum tenens for his business.

BACKGROUND

8. Mr and Mrs Weerasooriya were interested in building additions to their home in Glenwood, an outer suburb of Sydney. In about March or April 2011 they consulted Mr Siriwardena and discussed the cost and the construction period of their project and showed him some plans.

9. It was their evidence, and I accept it, that it was indicated that the cost would be about $70,000.00. I also accept that it was represented that the project could be complete by Christmas at which time the homeowners were expecting visitors and needed the extra space.

10. A development application was filed and a construction certificate was issued by Blacktown Council in August 2011. In late September 2011 a certificate of Homeowners Warranty Insurance was issued to Mr Siriwardena and, on his evidence before work commenced, a contract was signed by the parties on 11 October 2011.

11. A copy of the contract was before me and it was an HIA “Cost Plus” agreement. Although the contract form notes that the final price was not known, the cost is estimated in the document at $70,000.00 which is consistent with the HOW policy. The homeowner states that he did not appreciate that the contract was ‘cost plus’.

12. By early December Mr Weerasooriya feared that the project would not be completed in time to accommodate his visitors and confronted Mr Siriwardena. The builder conceded that he was having trouble finding subcontractors and, even worse, was faced with the imminent Christmas shut down period.

13. The homeowner then informed Mr Siriwardena that he was taking control of the project and would be finding his own tradesmen with a view to finishing the project before Christmas. This does not seem to have been resisted by the builder and all seem to agree that the contract was terminated in about mid December 2011.

14. During and after the work the builder issued invoices for work under the contract plus $17,150.00 for variations. That totalled $95,629.00 of which $71,762.00 was paid so that the claim against the homeowner was for $23,867.00. However, whatever the fate of the rest of the claim I must disallow GST on interest and other items which are really ‘costs’, so that the claimable amount is $20,618.00 plus interest of $1,653.00, a total of $22,271.00.

15. The homeowner claimed tiling ($7,000.00) and electrical work ($4,820.00) plus amounts paid to a locum to work in his radiography practice while he supervised the job ($5,977.00) a total of $17,797.00plus what might be called ‘costs’ and interest amounting to a further $7,368.00. There was a also a challenge to some of the builder’s invoices.

THE ISSUES

Late amendment

16. During the second day of the hearing Mr Gruzman for the homeowner sought to amend the application to add a work order for the realignment of the roof. Photographs showed that the roof and associated flashing impinged on or obscured the sill of a first floor window. The amendment was opposed by the builder on the basis of prejudice caused by not being unable to respond to such a late change in the case.

17. The question was not an easy one to decide as the amendment was very late. On the other hand the defect was obvious and was of such a class that it would have to be remedied and clearly was inconsistent with the plans. It was not the kind of fault that an occupier could choose to accept and tolerate.

18. I am mindful of the Tribunal's duty under its statute, in particular s.36(1), wherein the guiding principle is "the just, quick and cheap resolution of the real issues" in a dispute. The roof problem is one of the real issues in this dispute (perhaps the chief issue) and how its remediation escaped mention in the application is a mystery to me. Nevertheless the builder must have known of this grievous defect from an early stage.

19. Another consideration is the nature of the prejudice to the builder in allowing the amendment. The prejudice is not clear to me. When I questioned Mr Lee on this matter at the hearing the main matter he put to me was the possibility of a lost opportunity to mitigate. In the circumstances of the case before me, this did not seem to be a significant issue.

20. Had a money order been sought I think the question of prejudice would have been much more serious and would have militated against the amendment. The builder would need to have the opportunity to explore and present his case on the proper cost of the work involved. However, a work order only requires the builder to do what he should have done in the first place and the issue of defending oneself takes on a different complexion.

21. I am satisfied that, balancing the factors I have mentioned above, the interests of justice require that the roof be considered in the case and I allow the amendment.

Who is the builder?

22. One of the significant issues in the matter was the identity of the builder. This was important because all of the invoices were issued in the name of Cyrilak Pty Ltd but the builder's licence was held by Mr Siriwardeena, the contract was in his name and the HOW policy was held by him. During the proceedings the application was amended to include both Cyrilak and Siriwardeena as applicants.

23. The homeowners put to me that Cyrilak being unlicensed, it could not lawfully carry out any home building work and if it contracted to do any work the arrangement would be unenforceable pursuant to s.10 Home Building Act. It was suggested that there was no evidence of assignment of the debt to Cyrilak and as a result there was no basis upon which Cyrilak could claim any amount from the homeowners yet it has issued numerous invoices.

24. As I survey the evidence, the only factor (apart from some dubious statements made in the witness box) suggesting that Cyrilak might be the builder is that the invoices were issued (and some correspondence conducted) on its letter head. The important formal documents of written contract and the HOW policy both unambiguously referred to Mr Siriwardeena as the contracting party. He was naturally enough a shareholder and director of Cyrilak.

25. The lay public frequently has an inadequate understanding of the importance of distinguishing a corporation from its owners and managers, as if the corporate veil is but a formality.

26. The evidence indicates to me that Mr Siriwardeena was, as a matter of fact and law, the builder although he used the Cyrilak letterhead for some purposes. Objectively ascertained, it must have been the intention of the parties that payment of a Cyrilak invoice or even a deposit into its bank account was a matter of detail or business convenience only and the true effect of any such actions was the satisfaction of the personal debt to Mr Siriwardeena under the contract. No other interpretation of the conduct of the parties makes sense in the context of the transactions between builder and homeowner. To find otherwise would be to allow form to triumph over substance.

27. That being so I am satisfied that Mr Siriwardena is the builder for the purposes of these proceedings and that the references to Cyrilak did not effect the underlying legal relationship between him and the homeowner.

Misleading and Deceptive Conduct

28. One of the main contentions for the homeowner is a claim based on misleading and deceptive conduct. He calls in aid ss. 18 and 29(1)(i) of the Australian Consumer Law which provide as follows:

18 Misleading or deceptive conduct

(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

29 False or misleading representations about goods or services

(1) A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services ..…….(i) make a false or misleading representation with respect to the price of goods or services;

29. The homeowner says that the builder misled him about the cost of the building project and that, had he known that the price would go beyond $70,000.00, he would not have proceeded with the job. He says that as a result he is entitled to orders that payment to the builder should be limited to the quote.

30. As evidence about the representation Mr Weerasooriya points to the $70,000.00 mentioned in the quotation, the contract and the HOW insurance policy and the $48,000.00 in the DA.

31. The Australian Consumer Law provides for compensation in the form of damages in s.236:

236 Actions for damages

(1) If:

(a) a person suffers loss or damage because of the conduct of another person; and

(b) the conduct contravened a provision of Chapter2 or 3;

the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.

32. It will be seen that the applicant must suffer ‘loss’ and the loss must be incurred ‘because of’ the conduct of the respondent. Both of these elements must be proven by the homeowner but the element of “in trade or commerce” seems to have been conceded and was not argued before me.

33. It is not clear that the homeowner has suffered any loss in the ordinary sense of the term. It does not seem to be suggested, for example, that he was charged more for the building work than it was worth.

34. If the works genuinely were worth more than $70,000.00 and a ceiling of that amount were placed on the payment to the builder, the net effect would be that the homeowner would enjoy an unjust enrichment at the builder’s expense.

35. The threshold issue is whether there has been misleading or deceptive conduct by the builder as to the cost of the project. It does not seem to be disputed that the builder represented that the proper cost of project for the extensions to the house was something in the order of $70,000.00. Indeed I accept the evidence that the homeowner put that figure to the builder as the upper limit of his finances. If any corroboration of the project estimate were required it is to be found in the HOW policy and the contract itself.

36. I think it is fair to say that there was no frank evidence that the builder’s assessment was not bone fide. I am however mindful of the fact that a builder’s estimate of cost and completion time is nearly always one based on optimism about how the job will go. It is usually made on the basis of good weather, uninterrupted availability of materials and labour, favourable site conditions and the like.

37. Although it was an essential ingredient of some aspects of the homeowner’s claim, no actual evidence was put before me indicating that the builder lacked honest belief that the project should cost about $70,000.00 and be ready by Christmas.

38. I do not think it is open to me to draw such an inference of bad faith from the other evidence emerging from the case.

39. Similarly I do not think I can draw an inference that the builder made the estimates negligently. There was no evidence that the estimates were erroneous and that no competent builder would have made them.

40. I think it should be borne in mind that the essence of a ‘cost plus’ contract is that the owner, not the builder, takes the risk of the cost of the job. With a fixed price contract it is the builder who takes the risk that the works can be done for a stated price. Naturally the builder must build a contingency amount into the price for a fixed price arrangement but not where the contract is ‘cost plus’.

Was it a Fixed Price Contract?

41. To some extent this issue in the case overlaps with that touching misrepresentation.

42. One of the major issues in the case was that the homeowner said that he believed until some late stage that the contract was fixed price and $70,000.00 was the contract sum. In truth the written contract was a ‘cost plus’ arrangement where the builder was to be paid the actual cost of the subcontractors’ charges, labour and materials plus a builder’s margin.

43. The written text of the contract at page 1 makes it crystal clear that the amount mentioned in the contract is only an estimate and not the final cost. Schedule 1- Particulars of Contract is headed as follows in bold type:

“WARNING: The contract price is not known. This is a cost plus contract.”

44. Mr Weerasooriya concedes that he signed the contract, a copy of which was in evidence before me. He does suggest that it might have been altered after signature but in other evidence said that he trusted Mr Siriwardeena and signed it without reading it. No real evidence merged of any alteration. It will be recalled that the printed text of the contract stated it to be ‘cost plus’.

45. When I turn to the evidence on these matters I come first to Mr Weerasooriya’s own evidence. At paragraph 10 of his statement of 21 April 2014 being part of his evidence in chief, he says: “On 11 October 2011 my wife and I met with Laksha to sign the Cost Plus Contract...”. He goes on to recount that the contract was signed.

46. The problem for Mr Weerasooriya is that there is a rule of law that a person who signs a document is taken to know and approve of its contents. See for example L’Estrange v Graucob [1934] 2 KB 394 with the classic formulation of the rule at 403. There are more modern formulations of in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.

47. If Mr Weerasooriya has signed the document he cannot be heard to say that he has not read it. The only exception usually understood is where there is fraud or misrepresentation as to the effect of the document. This exception or qualification is also discussed in the Toll case.

48. So it must be considered whether the contract was misrepresented to Mr Weerasooriya as one with a fixed price. In my notes of his cross examination, Mr Weerasooriya replies as follows:

“The contract was cost plus?       Yes

You knew it was not fixed price?   Yes

So it was not a $70000 contract?   Yes”

49. It does not seem to be a consistent feature of the case, or indeed a consistent theme of the homeowner’s evidence, that there was a candid representation to him that the contract was fixed price.

50. That being so, it is not possible to find that there was operative misrepresentation to oust the normal operation of the rule in L’Estrange v Graucob.

51. The evidence both in the statements of the parties and in the witness box indicate that the builder sees his statements about cost and time for completion as estimates and predictions but all of this was understood by the homeowner as firm promises. But even the homeowner’s Amended Points of Claim (paragraph 31) refer to the homeowner relying on the builder’s “estimate” of the cost of the project.

52. Although the builder was an unconvincing witness, the evidence is insufficient to satisfy me that he ever made unqualified promises of completion by Christmas or an upper price limit of $70,000.00.

53. I am satisfied that Mr Weerasooriya is bound by the contract and that it is for a project charged on a ‘cost plus’ basis. It would follow that the homeowner must pay for the works done pursuant to the contract on the basis of the invoice cost to the builder plus the agreed margin.

Variations

54. It was not contested that the variations were not claimable under the contract and that the builder was obliged to rely on a quantum meruit. For the most part Mr Weerasooriya was of the opinion that the variations claimed by the builder were in fact part of the scope of works. As the agreement was ‘cost plus’, ‘do and charge’, it might make little difference.

55. For the builder to succeed on the variations claim by quantum meruit, I would have to be satisfied as to the value to the homeowner as the items were executed. Mr Siriwardena’s case relied for ‘value’ on the invoice cost to him of various works which he asserted were outside the original scope and thus variations.

56. Where a builder is reduced to a quantum meruit it is for him to prove to the Tribunal’s reasonable satisfaction the objective value of the works ordered, done and not paid for. See the discussion in Riverside Motors Pty Ltd v Abrahams [1945] VLR 45.

57. In this case the builder has simply relied on a few invoices from sub-contractors. This is insufficient. There must be some independent evidence of the nature of the works, their quality and the objectively ascertained proper value of them as executed.

58. There being no such evidence I must dismiss this part of the builder’s claim.

Other Aspects of Homeowner’s claim

Payments to Jung Gee Ko

59. An amount of $5,977.00 was claimed which the homeowner said he paid to a locum radiographer to husband his business while he supervised the building work after Mr Siriwardena left the works.

59. There was extensive cross examination on this part of the claim and it could only succeed if it were not too remote and there was no failure to mitigate loss. Remoteness is assessed on the principle of the two rules in Hadley v Baxendale (1854) 9 Exch 341 and the question of mitigation turns on whether the supervision required Mr Weerasooriya’s absence for all of the hours worked by Mr Ko.

60. In my opinion there was nothing like adequate evidence of the need for such absences to justify the claim. It just seemed that Mr Weerasooriya decided to take the whole time off to devote to the work at his home. I was unable to conclude that such full time attention to the extension work was necessary and this part of the claim is dismissed.

61. There was little argument at the hearing about remoteness so I do not express a view on it.

Tiling and Electrical

63. The other two items claimed by the homeowner relate to tiling and electrical work. The contract was ended before the works were complete and Mr Weerasooriya arranged for these two aspects of the job. In a cost plus contract I am not satisfied that these claims can be pursued. Certainly Mr Weerasooriya paid for them but he would also have had to pay for them if the builder had organised them. He has suffered no loss.

64. It seems to me that the only amount claimable would have been the premium price paid to have the works progressed as a matter of urgency or over the Christmas close down period. However the claim was never put to me this way and certainly never evaluated as a money amount. In any event I cannot be satisfied that there was a breach of contract touching delay by the builder which would make any premium paid by the homeowner a loss to him compensable by the builder.

65. Those two items are therefore dismissed.

Looking Behind the Invoices

66. The contract provides that (Clause 13) the builder is to furnish invoices for progress payment and the owner is to pay them. Clause 13.7 provides as follows:

Unless the owner disputes the amount of a progress claim by giving the builder a written notice detailing the dispute within 5 working days…the claim is accepted by the owner.

67. It was not put to me that the owner’s dispute of the invoices was out of time and there was extensive cross examination on some of the fine details of the invoices touching contract work and variations.

68. The disputed invoices included those of M J Kitchens, Mr La Greca and Bunnings Hardware.

69. I find that the effect if clause 13.7 is that the builder’s invoice amounts to a debt and that it is for the homeowner to adduce evidence that the account so rendered is wrong. The evidence on this part of the claim never got beyond raising queries about what was delivered to the homeowner’s site or used on his project. There was no frank evidence of wrong or error by Mr Siriwardena.

70. I was asked to draw a Jones v Dunkel (1959 101 CLR 298) adverse inference because of the builder’s inability or refusal to deal in detail with each doubt raised. However, to treat the matter that way is to reverse the onus of proof. It was for Mr Weerasooriya to provide some persuasive evidence about faults in the invoicing which he did not do.

Termination of the Contract

71. I accept the evidence that Mr Weerasooriya confronted Mr Siriwardeena in December 2011 concerned at the difficulty in finalising the job before Christmas. It is not easy to interpret how the contract ended but I find as a set out below.

72. The homeowner’s action in employing his own subcontractors to do the work he had retained Mr Siriwardeena to do must be interpreted as being a repudiation of the contract.

73. It does not appear that Mr Siriwardeena argued in detail about whether he was in default under the agreement nor for example his rights to extension for weather or other vicissitudes. Rather he seems to have accepted the homeowner’s decision to terminate and he was within his rights in so doing.

74. Whether or not the homeowner had a right to terminate, the builder would still be entitled to payment for all works done by him up to the date the contract was ended. This must include interest on unpaid balances as provided for in the HIA contract.

CONCLUSION

75. I am satisfied that the homeowner is entitled to a work order relating to the defective roof. However, I am not satisfied that any other aspect of his case has been established.

76. As for the builder I find that he is entitled to payment for works he had done pursuant to the contract at the specified rates. I do not find that the builder can claim for variations, i.e. works outside the scope or the original HIA contract, where he must rely on a quantum meruit and the evidence of value is inadequate.

77. Invoices totalling $95,629.00 were rendered including variations. The value of works done under the contract seems to amount to $78,479.00 of which $71,762.00 was paid. This left an unpaid balance of $6,697.00. To that amount any interest payable would have to be added as provided for in the HIA contract.

COSTS

78. The power to award cost is heavily circumscribed by the Civil and Administrative Decisions Tribunal Act. If the ordinary 'cost follow the event' rule applied it is unlikely that there would be a costs order as the parties have both achieved only a modicum of success on the claims they have made.

ORDERS

1. The builder must rectify the roof line so that it conforms with the plans and specifications on or before 1 March 2015.

2. Homeowner is to pay the builder $6,697.00 plus interest calculated under the contract on or before 15 January 2015.

3. Each party to pay their own costs but this order stayed until 31 December 2014 for the parties to make any submissions by that date.

S F Smith

General Member

Civil and Administrative Tribunal of New South Wales

12 December 2014

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: 05 February 2015