Dalcon Constructions Pty Ltd v Jones & Ors

[2007] HCATrans 298

[2007] HCATrans 298

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P33 of 2006

B e t w e e n -

DALCON CONSTRUCTIONS PTY LTD

Applicant

and

CHRISTINE JONES AND TREVOR JONES

First Respondents

PHIL. D. FAIGEN

Second Respondent

Application for special leave to appeal

KIRBY J
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 15 JUNE 2007, AT 10.27 AM

Copyright in the High Court of Australia

MR N.W. McKERRACHER, QC:   May it please the Court, I appear with my learned friend, MS S.B. ARMSTRONG, for the applicant.  (instructed by Zilkens & Co)

MR G.M. ABBOTT:   May it please the Court, I appear for the first respondent and there is a submitting appearance for the second respondent.  (instructed by Stephen Josland)

KIRBY J:   Yes, Mr McKerracher.

MR McKERRACHER:   If your Honours please, the special leave question is whether in this standard form building contract that is in wide use in Western Australia the owner should pay on the progress claim submitted by the builder and refer any dispute to arbitration thereafter if the dispute cannot be resolved or whether the owner is entitled to withhold payment for part of the progress claim which is said to be invalidly made.  Your Honours will know that an arbitration in this matter did proceed.  The arbitrator found against the builder.  He recorded, as is reflected in the transcript, that the parties had orally agreed to variations instead of complying with the contractual requirement that variations be in writing and signed by both parties. 

That then went on appeal to Master Sanderson in the Supreme Court of Western Australia and the learned Master took the view that the effect of the payment provision under the contract was that payment had to be made to the builder in any event because it was important to keep the builder on the job.  Your Honours will know that there are a number of cases dealing with that philosophy but, at the same time, all the rights of the owner were reserved in the sense that the payment was only on account and the rights to pursue a dispute as to any part of the claim were fully retained.  That went on appeal by the owners and on appeal the owners succeeded in the majority who concluded that the invalid method of approving the variations meant that the progress claims could not be relied upon for the full amount of the claim pursued by the builder. 

KIRBY J:   It is true, given the difference of judicial opinion, that you can argue both ways in this case but is not the result that the majority have reached the better one from the point of view of the practice in the building industry that everyone knows you have got to sign on the dotted line, it has to got to be agreed and that that will therefore reduce the incidence of litigation and disputes which are so disproportionately expensive in the ordinary building case?  At least it seems to me to be a clear principle that the majority have embraced.

MR McKERRACHER:   Your Honour, I have to accept that point undoubtedly.  However, the only real question is whether it complies with the contractual requirements, whether it is consistent with what the contract provides.

KIRBY J:   I know that, but when Justice McHugh was here he would always say by the time it gets up to us, whether it is a matter of statutory interpretation or contract interpretation, you can argue both ways and that normally is the case and that is why we have different views within the Court and within courts, as in the Court of Appeal.

MR McKERRACHER:   Well, your Honour, in relation to variations the point your Honour makes is well made, with respect, but there could be any range of claims which arise for determination and be sent to arbitration under the provisions of clause 25 and the owner retains all its rights, the payment is made without admission, and to balance the need for formality or, should I say, the need for recording variations in writing on the one hand with the need to ensure that the job gets done, this contract between the parties provides that a builder has to be paid to stay on the job.  He has to be paid and then the dispute referred if it cannot be resolved, so there is a real interest ‑ ‑ ‑

KIRBY J:   After the Court of Appeal decision in this case, builders and owners are going to know that there is a clear principle, they have to comply with it and that, it seems to me – I may be wrong and help me if I am wrong – seems to be, from the point of view of the operation of this area of the law, a better way to control the conduct of parties to building contracts.

MR McKERRACHER:   Your Honour, we cannot argue for a moment with the proposition that variations should be in writing and if they are in writing there would be fewer disputes.  But, as against that, the fact of the matter is that the owners’ rights are fully protected under this contractual provision and the contract gets performed so that the builder is protected and the owners are protected.  That is what the parties agreed to in this contract.

KIRBY J:   Both will be protected if they put it in writing and then the builder says, “Look, there is this decision of the courts and I have got to get everything in writing and you have just got to sign,” then you obviate litigation which surely in this area where the disproportion between the issues of dispute is often such as to make effective resolution in litigation, or even arbitration, comparatively too expensive.  That is a clear rule that seems to me to be a desirable one that the majority have ended up with.

MR McKERRACHER:   I cannot argue with the proposition that performance of the contract in accordance with the contract is highly desirable.  That requires variations to be in writing.  They were not in this case, but the rights of the owner are protected under this clause by making no admissions, expressly making no admissions, and referring the matter off and any payment being on account.  This was a relatively small payment in the context of a large contract and if the payment had been made the builder would still be on site and the dispute would still have been resolved in favour of the owners.  The point to all of that being that this contract is geared this way in favour of the completion of the contract and preservation of the owner’s rights.

HAYNE J:   Underpinning what you have just said are some assumptions about what is the factual base on which all this proceeds.  In her reasons at page 61 of the application book, paragraph 26, Justice McLure pointed to the absence of any convenient summary of the facts, pointed to the fact that the progress claims and supporting documentation where not before the Court of Appeal and then at page 66, paragraph 39, noted the possibility that the course of events between these parties may perhaps have been understood as constituting some waiver or variation.  All of that goes to the general point which I think you need to deal with; assuming even that the principle is one that should be considered by this Court, is this case a sufficiently useful vehicle in which to do it where there are uncertainties of the radical kind I have just referred to?

MR McKERRACHER:   Your Honour, there are a number of things which are eliminated which make it a good vehicle for the Court.  There is no waiver issue.  There is no set‑off issue.  There is no real issue about the nature of the variations because, on our argument, it does not matter what sort of variations they are.  At each level in the Supreme Court of Western Australia the court was dealing simply with the point of principle and that is why it is a succinct case to come before this Court, in our respectful submission.

Could I deal with another point raised by her Honour Justice McLure.  Her Honour raises the point that the essence of progress claims is to pay the contractual sum and only the contractual sum, but, with great respect, we submit that is not the nature of a progress claim.  Of course, at the end of the contract the builder is only entitled to the contract sum plus variations but in the course of the project this contract, clause 25 specifically, expressly contemplates submission of progress claims not more often than every four weeks and payment with preservation of rights. 

The other aspect which makes the case in its relative simplicity significant is that contracts of this nature are very common around Australia, that is to say, a contract for small to medium works without an architect.  Now, the principles which flow from the question of whether one should pay first and dispute later or otherwise are capable of being

influential not just in Western Australia but elsewhere as well.  Beyond that, your Honours, I doubt whether I can assist the Court at this stage.

KIRBY J:   Yes, thank you very much.  Mr Abbott, the Court does not need your assistance.

MR ABBOTT:   Thank you, your Honour.  I seek an order then that the application be dismissed and the applicant pay the first respondent’s costs.

KIRBY J:   Yes, that will follow.

MR ABBOTT:   Thank you.

KIRBY J:   This application concerns the meaning of provisions of clauses 16 and 25 of the contract for building work in use in Western Australia and elsewhere and liability for variations in the contract sum.

The applicant succeeded at trial before Master Sanderson.  That decision was reversed by the Court of Appeal of Western Australia, Wheeler and McLure JJA in the majority, and Pullin JA, dissenting.  The majority held that a variation had to be made in accordance with clause 16, that is, in writing, and signed by both parties before a valid progress claim could be made. 

There are arguments both ways.  However, in the end we are not convinced that the majority of the Court of Appeal erred.  Their interpretation tends to draw a clearer line than the alternative one.  As McLure JA pointed out in the Court of Appeal, there are deficiencies in the evidence.  This might make the present case an unsuitable vehicle for the point of principle, were special leave granted.  An appeal to this Court would not therefore enjoy reasonable prospects of success.  Special leave is accordingly refused.  The applicant must pay the respondent’s costs.

AT 10.39 AM THE MATTER WAS CONCLUDED