Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd - [2004] NSWSC 273

No judgment structure available for this case.

CITATION: Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273

HEARING DATE(S): 08/03/04, 09/03/04

JUDGMENT DATE:
7 April 2004

JURISDICTION:
Equity Division
Technology and Construction List

JUDGMENT OF: Barrett J

DECISION: Short minutes to be brought in

CATCHWORDS: CONTRACT - building, engineering and related contracts - residential premises - whether contract breached by builder's failure to effect insurance under Home Building Act - whether "requirement" to obtain such insurance - whether proprietor validly terminated builder's employment - whether purported termination by proprietor was repudiation as against builder - builder's statutory claim to quantum meruit - whether quantum meruit recovery "just and equitable" - relevance of terminated contract to quantum meruit claim - relevance of actual costs - relevance of defects and cost to rectify - MORTGAGES - mortgages and charges generally - bank guarantees lodged by builder as security for performance of building contract - right to recover guarantees after contract terminated

LEGISLATION CITED: Home Building Act 1989
Home Building Legislation Amendment Act 2001

CASES CITED: Cominos v Cominos (1972) 127 CLR 588
Cope v Rowlands (1836) 2 M&W 149
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2001] NSWSC 1136
Loch v John Blackwood Limited [1924] AC 783
Pavey & Matthews Ltd v Paul (1987) 162 CLR 221
Premier Pacific Pharmaceutical Industries Ltd v Australian Stock Exchange Ltd (1995) 17 ACSR 426
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Ray Somerville Surveys Pty Ltd v Logan City Council [1994] 1 Qd R 440
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Riverside Motors Pty Ltd v Abrahams [1945] VLR 45
Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344
Stephenson v State Bank of New South Wales (1996) 39 NSWLR 101
Sullman v Sullman [2002] NSWSC 169
Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549
Re Switzerland Insurance Australia Ltd and Capricornia Electricity Board (unreported, QSC, Demack J, 7 February 1997)
Thomas v MacKay Investments Pty Ltd (1996) 22 ACSR 294
Walker v Jones (1866) LR 1 PC 50
Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48

PARTIES :

Eddy Lau Constructions Pty Limited - Plaintiff
Transdevelopment Enterprise Pty Limited - Defendant
Transdevelopment Enterprise Pty Ltd - First Defendant

FILE NUMBER(S): SC 55035/01; 55009/02

COUNSEL: Mr G J McVay - Plaintiff
Mr J B Simpkins SC - Defendant

SOLICITORS: James A Moustacas & Co - Plaintiff
Henry Davis York - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY AND
CONSTRUCTION LIST

BARRETT J

WEDNESDAY, 7 APRIL 2004

55035/01 - EDDY LAU CONSTRUCTIONS PTY LTD v TRANSDEVELOPMENT ENTERPRISE PTY LTD & ORS
55009/02 - EDDY LAU CONSTRUCTIONS PTY LTD v TRANSDEVELOPMENT ENTERPRISES PTY LTD

JUDGMENT

The proceedings

1 The plaintiff, Eddy Lau Constructions Pty Ltd, is a builder. Transdevelopment Enterprise Pty Ltd (the first defendant in 55035/01 and the sole defendant in 55009/02) retained the plaintiff in 1998 to construct 27 home units at 8-12 Horsley Road, Homebush West. I shall refer to the latter company as simply “the defendant”. In proceedings 55035/01 (instituted in 1999 as 2277/99), the plaintiff sought damages from the defendant on the footing that the defendant had wrongfully terminated (and thereby repudiated) a building contract made between them on 4 August 1998. The plaintiff also claimed the return of certain bank guarantees. These claims against the defendant were eventually pleaded in a third further amended statement of claim, together with related claims against the partners at the relevant time of Allen Allen & Hemsley. The latter claims played no part in the matters ventilated in the hearing before me on 8 and 9 March 2004.

2 Part of the defendant’s defence to the claim for damages brought against it by the plaintiff, set out in the defence to the third further amended statement of claim, is that the plaintiff contravened s.92 of the Home Building Act 1989, with the result that the termination of the contract by the defendant was not wrongful, that there was no breach of contract by the defendant and that the plaintiff was in any event precluded by statute from recovering any sum for any breach. By a cross-claim, the defendant alleged breaches of contract by the plaintiff and sought damages accordingly. By that cross-claim, the defendant also alleged conduct on the part of both the plaintiff and its principal, Mr Lau, contrary to certain provisions of the Trade Practices Act 1974 (Cth) and sought relief against them principally by way of damages.

3 The core factual basis of the controversy between the parties is straightforward. When the building contract was entered into between them on 4 August 1998, a contract of insurance complying with the Home Building Act was not in force in relation to the work that became the subject of the contract. At this stage of the proceedings, that proposition is not in dispute. It is also accepted that the provisions of that Act concerning insurance applied in the particular circumstances. The position I have just described is, in part, the product of answers given to certain questions that became the subject of an order for separate determination in 55035/01. Those questions were dealt with by Einstein J who, in a judgment delivered on 13 December 2001 (Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2001] NSWSC 1136), answered them as follows:

"Question 1(a): Sections 92 and 94 of the Home Building Act 1989 (NSW) in force at the relevant time precludes the plaintiff from recovering as against the first defendant any damages or other remedy in respect of a breach of contract or the recovery of money in respect of work done under the contract;

Question 1(b): The execution on 4 August 1998 by the plaintiff and the first defendant of the document entitled "Building Works Contract 8-12 Hornsey Road Homebush" was a contract "to do any residential building work" within the meaning of and for the purposes of section 92(1) of the Home Building Act 1989 (NSW);

4 These answers had the effect of forestalling the plaintiff’s attempts to pursue the main claims against the defendant in its third further amended statement of claim. The plaintiff later embarked upon a new course, relying on subsequently enacted provisions of the Home Building Act obviously intended to mitigate the severity of those which had caused Einstein J to answer the separate questions as he did. That new course entailed the initiation by the plaintiff of separate proceedings 55009/02 by summons filed on 28 February 2002. In those proceedings, the plaintiff seeks an order that the defendants pay it $521,932.44 pursuant to s.94(1A) of the Home Building Act (as now in force) or, in the alternative, such sum as the court deems just and equitable pursuant to that section. By its defence, the defendant denies that the plaintiff is entitled to recover $521,932.44 and says that the plaintiff has been paid the full value of the work undertaken after making appropriate deductions for defects; also that, for reasons stated in the defence, it would not be just and equitable for the plaintiff to recover $521,932.44. Among these reasons are that the defendant has entitlements to recover greater sums from the plaintiff, including the entitlement the subject of the cross-claim in 55035/01.

5 On 13 June 2002, certain questions were referred to a referee under Part 72 rule 2(1) of the Supreme Court Rules for enquiry and report. Those questions were:

“1. What was the value of the work done by the Plaintiff on a quantum meruit basis as at 23 April 1999 at the premises known as 8-12 Hornsey Road, Homebush West?

2. Assuming that Transdevelopment Enterprise Pty Limited was entitled to terminate the building contract between Eddy Lau Constructions Pty Limited and Transdevelopment Enterprise Pty Limited on 23 April 1999, to what extent, if any, is Transdevelopment Enterprise Pty Limited entitled to the relief sought in paragraph 15 of Transdevelopment Enterprise Pty Limited’s Cross Claim filed 3 September 1999?”

6 Paragraph 15 of the defendant’s cross-claim filed on 3 September 1999, being the aspect involved in Question 2, involves a claim for damages by the defendant against the plaintiff for cost of repairs and rectification, additional costs to complete the whole of the works, additional project financing costs and loss of income due to delayed sales.

7 The referee in due course delivered a report dated 21 November 2003 in which the two referred questions were answered as follows:

“1. $1,098,858.

2. $9,461, or alternatively, if Transdevelopment is ultimately required to pay Eddy Lau the quantum meruit value of the work, the figure is $317,295.”

8 On 28 November 2003, it was ordered that any motions in respect of the referee’s report be filed and served by 5 December 2003, returnable on 8 March 2004; and that the following questions be separately determined:

1. Whether it is just and equitable (within the meaning of section 94(1A) of the Home Building Act 1989 (“the Act”)) for Eddy La Constructions Pty Limited (“the Builder”) to receive any, and if so what, sum of money on a quantum meruit basis;

2. Whether the Builder by failing to have Home Owners Warranty Insurance as required by the Act breached its contract with Transdevelopment Enterprise Pty Limited (“the Developer”);

3. If so, whether the Developer was entitled to terminate the employment of the Builder under such contract;

9 The short minutes of the orders of 28 November 2003 contained a note after the fourth question:

“[note: the intent of this statement of the remaining issues is to resolve all issues other than those directly affecting Allens].”

10 By notices of motion filed on 8 December 2003 and 17 February 2004, the plaintiff and the defendant respectively sought orders in respect of the referee’s report. In each case, it is contended that the court should reject numerous parts of the report, although the parts in question differ as between the two notices of motion.

The matters for determination

11 On 8 and 9 March 2004, I heard these two notices of motion, as well as argument on the questions ordered on 28 November 2003 to be separately determined. At my request, Mr McVay of counsel who appeared for the plaintiff and Mr Simpkins SC who appeared for the defendant prepared an agreed statement of issues arranged in such a way as to indicate what flowed, in terms of the remaining matters for determination, if a particular point was decided in a particular way. The agreed statement of issues (omitting certain brief interpolations as to respective contentions) is as follows:

“1. Was clause 6.05 of the Contract breached because the Plaintiff had no relevant contract of insurance for the purposes of the Home Building Act at the time of entry into the Contract?

2. If 1 is answered in the affirmative, was such breach a ‘substantial’ breach for the purposes of clause 12.2.05 of the Contract?

4. If both parts of 2 are answered in the affirmative, was the clause 12.02 notice valid given the Plaintiff’s inability to rectify the breach within the period provided?

5. If 4 is answered in the affirmative, has a certificate been issued pursuant to clause 12.05.04 of the Contract?

6. If 5 is answered in the affirmative, does that certificate preclude any quantum meruit claim since it shows a net balance in favour of the Defendant?

7. If 5 is answered in the negative, does the absence of a certificate preclude any quantum meruit claim given the terms of clause 12.05.04?

8. If 6 is answered in the negative, does the certificate as a discretionary matter preclude any quantum meruit claim given the absence of any attempt by the Plaintiff to have a certificate issued?

9. If 1, 6, 7 or 8 are answered in the negative, have or will the works the subject of the Contract cost the Defendant more to complete than they would have cost had the Plaintiff performed its Contract (either presently or if any award for the payment of any further amount is ordered)?

11. If it just and equitable to allow the Plaintiff’s claim without regard to clause 12.05.04 or the increased cost to the Defendant of completing the Works, in assessing the quantum meruit claim of the Plaintiff, do the terms of the Contract set a cap on recovery?

(a) whether Progress Certificate 5A was validly issued by the Architect; and

(b) if so, whether it sets the cap on recovery at $780,836;

(c) alternatively sets the cap on recovery at $780,836 plus the reasonable cost (if established) or work performed by the Plaintiff after the date of the certificate?

13. If 11 is answered in the negative, whether in assessing the reasonable cost of the works it is appropriate to have regard to the fact that on some items of cost, the Plaintiff actually incurred less than the assessed reasonable cost?

14. Regardless of the answer to 10, whether a deduction ought to be made from the reasonable cost for defects?

17. If yes to 15(c), whether the quantum meruit value found by the Referee after deduction for defects should be the value without deduction for defects. [The Defendant contends that any answer to 15(c) is only relevant to its cross claim for defects if they are not taken account of as part of a valuation of the Plaintiff’s quantum meruit claim.]

18. Whether the Plaintiff can enforce the Contract in respect of the banks bonds provided as security having regard to the terms of the Act?

19. If 18 is answered in the affirmative, whether the Plaintiff has demonstrated an entitlement to the return of the bank bonds under the Contract?

20. If 19 is answered in the affirmative, whether the Plaintiff has demonstrated any damages for breach of the Contract in respect of the non-return of the bank bonds?”

12 It was accepted by the plaintiff and the defendant that decisions on these matters would lead to determination of the whole of the controversy between them, with the exception of the defendant’s claims under the Trade Practices Act advanced in its cross-claim in 55035/01. The fact that that aspect was not covered in a direct way by the notices of motion and the separate questions the subject of the order of 28 November 2003 – and, indeed, that evidence had not been led at the hearing before me with a view to proof of those claims by the defendant – was raised by Mr Simpkins in last the few minutes of the two day hearing. He submitted that the note to the short minutes of 28 November 2003 (which, it was recognised, were drafted by the parties’ representatives rather than by the court) reflected a misconception and should not be taken to preclude the defendant’s pursuing the claims in question should it be minded to do so after the determination of the issues that were squarely before me. Mr McVay submitted, however, that the note should be taken at face value and that, as the defendant had not led evidence in relation to the Trade Practices Act claims and had therefore failed to prove them, they should be dismissed.

13 Several matters are relevant to the way those claims should be treated at this stage. The first is the course that the proceedings – indeed, two proceedings - have taken over a period of several years, with two orders for separate determination, one of which led to the judgment of Einstein J and the initiation of the second proceeding, and one reference to a referee, which resulted in a report which neither party considers should be adopted in an unqualified way. The second is the clear substantive content of the short minutes of 28 November 2003. The third is the fact that there was discussion at the start of the hearing before me as to precisely what was to be covered which resulted in a decision that, in addition to the matters arising from the two notices of motion and the order for separate determination in the short minutes of 28 November 2003, I would deal with one claim of the plaintiff not mentioned in the short minutes, being a claim for damages said to have been occasioned by the defendant’s wrongful failure to surrender certain bank guarantees. Neither party mentioned the Trade Practices Act claims at that point. Taken in combination, these factors make me think that, in reality, neither party intended those claims to be among the issues for determination at this stage and that the note included in the short minutes cannot somehow be raised from its apparent status as an aid to interpretation and made to produce some substantive result. I therefore propose to make no order at this stage with respect to the claims concerned, leaving them to be dealt with in whatever way proves appropriate in due course.

14 I therefore proceed to a consideration of the issues delineated in the agreed statement of issues.

Approach to the agreed issues

15 The issues set out in paragraph 11 above relate to different aspects of the two proceedings before the court. Some issues relate to claims that are squarely before the court for decision. In other cases, the particular issue concerns a matter that has already been the subject of attention by the referee and is therefore pertinent to the question of adoption, rejection or variation of some part of the referee’s report.

16 The latter aspect and the part it plays in the matters the court is now required to address make it necessary to note the approaches to be taken when the question of adoption, rejection or variation of a referee’s report is before the court. The guiding principles are, in large measure, stated in the judgment of Gleeson CJ in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. A convenient list of relevant considerations extracted from that source is provided in the judgment of Hunter J in Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48. The substance of that list is as follows:

1. The hearing of a reference should not be equated with a hearing at first instance in this Court. So much may be extracted from the fact that a referee may be appointed by reason of his or her technical expertise (not necessarily in legal matters) and from the provisions of Part 72 rule 8.

2. It is untenable to construe the power of the Court under Part 72 rule 13 as falling within the umbrella of a proposition that all litigants are entitled to have a judge decide all issues of fact and law that arise in any litigation. The procedure that Part 72 rule 13 establishes is not that of an appeal from a referee to a judge. The concept of “a re-hearing” which is itself ambiguous, at best provides an imperfect analogy.

3. Part 72 rule 13 does not require a judge to reconsider and determine afresh all issues, whether of fact or law which a party desires to contest before the judge. It would be a radical departure from the history of the rules to treat them as giving a dissatisfied party an automatic right to a hearing de novo . What is involved in an application under Part 72 rule 13 is not an appeal, whether by way of a hearing de novo , or a more limited re-hearing.

4. In so far as the subject matter of dissatisfaction with a referee’s report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine the matter afresh.

5. If the referee’s report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it. So also would perversity or manifest unreasonableness.

The Home Building Act provisions

17 The first issue for consideration (item 1 in the agreed statement of issues at paragraph 11 above) is whether the parties’ contract was breached because the plaintiff did not hold insurance in accordance with the Home Building Act when the contract was made. This issue is central to the defendant’s contract-based claims in the cross-claim and the second, third and fourth of the questions the subject of the order for separate determination made on 28 November 2003. It is necessary to look first at the statutory provisions.

18 When the contract was made on 4 August 1998, s.92(1) of the Home Building Act was in the following form:

“A person must not contract to do any residential building work unless a contract of insurance that complies with this Act is in force in relation to the proposed work.

Maximum penalty: 100 penalty units.”

19 Section 92, as it existed at the relevant time, forbade, upon pain of penalty, the act of contracting. A contract of the relevant description must therefore be regarded, upon a preliminary examination at least, as expressly prohibited by statute. In the absence of any contrary indication in the statute itself, the consequence, so far as contract law is concerned, would be as described by Parke B in Cope v Rowlands (1836) 2 M&W 149 at 157:

20 In the present case, however, the statute itself threw light on the status and effect of a contract purportedly made in breach of the statutory prohibition. Section 94, as in force in August 1998, was headed “Effects on contract of contravention” and was in the following terms:

(2) This section does not affect the liability of any such person for an offence against a provision made by or under this or any other Act.”

21 This section made it clear that a contract entered into in contravention of s.92(1) was capable of being breached by the person the subject of the statutory prohibition (s.94(1)(b)) and by another “party to the contract” (s.94(1)(a)). It was thus recognised that a contract came into existence and subsisted, despite the prohibition. This is at odds with any notion that the statute rendered the contract void. Section 94 preserved the contractual liability of the person affected by the prohibition but deprived that person of certain entitlements flowing from breach of the contract by another party.

22 The recognition of the contract as a source of rights and liabilities and as capable of breach means that there was no statutory intention that it be void. A contract to do work purportedly made by a person forbidden by s.92(1) to make that contract was, despite the illegality attending its formation, still a contract, albeit one upon which the contravening party could not only rely as a source of any entitlement of the kind described in s.94(1)(a).

23 Section 94 of the Act was amended in 1999 and 2001. The present form of the section is not relevant to the matters just discussed but represents the foundation of the claim made by the plaintiff in 55009/02. It is therefore convenient to note its terms at this point:

uninsured work

(1A) Despite section 92(2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.

(1B) A contractor who applies to a court or tribunal for a remedy under this section, or who is awarded money under this section, is not guilty of an offence under section 92 (2) by virtue only of that fact.

(2) However, the contractor remains liable for damages and subject to any other remedy in respect of any breach of the contract committed by the contractor.

(3) Residential building work that is uninsured work at the time the work is done ceases to be uninsured work for the purposes of this section if the required contract of insurance for the work is subsequently obtained.

(4) If a person commenced residential building work before 30 July 1999 and entered into a contract of insurance that complies with this Act in relation to that work after the contract for the residential building work was entered into, that contract of insurance is, for the purposes of this section or any previous version of this section, taken to have been in force in relation to the residential building work done under the contract for the residential building work whether that work was done before or after the contract of insurance was entered into.

24 Of particular relevance to the claims in 55009/02, to be addressed presently, are ss.94(1A), (1B) and (1C). These were added by the Home Building Legislation Amendment Act 2001. By virtue of clause 66 of Schedule 4 to the principal Act, ss.94(1A), (1B) and (1C) extend to a contract entered into before the commencement of those subsections on 10 August 2001. The subsections thus apply in relation to the contract with which I am presently concerned.

The contract provisions and the omission said to entail breach

25 The defendant contends that the absence, at the time of contract formation, of the insurance referred to in s.92 of the Act as then in force gave rise to a breach of contract which, in the events that happened, led to a valid and effectual termination of the plaintiff’s employment as builder. The plaintiff’s position is that there was no such breach and that the purported termination was wrongful.

26 The contract is in the form of the 1994 edition of Building Works Contract JCC-D issued by the Joint Contracts Committee, with amendments. The provision said to have been breached is clause 6.05:

“The Builder shall comply with the requirements of the provisions of all Acts of Parliaments, ordinances, regulations or by-laws of all competent authorities and with the lawful requirements of public, municipal and other authorities which have jurisdiction over the Site or the Works and which arise by reason of the execution of the Works, including all Variations, subject to the following …”

27 The provisions upon which the defendant purported to rely in terminating the plaintiff’s employment are clauses 12.02 and 12.03:

“12.02 PROPRIETOR’S NOTICE OF BUILDER’S DEFAULT

If the Builder shall make default in any one or more of the following respects:

…

12.02.05 if otherwise he is guilty of a substantial breach of the provisions of this Agreement

then in any such case the Architect may deliver by hand to the Builder or send by certified mail addressed to the Builder a written notice stating the intention of the Proprietor to determine the employment of the Builder under this Agreement. That notice shall specify the default and, except for a default as referred to in paragraph 12.02.01, provide details of the default.

12.03 DETERMINATION BY PROPRIETOR FOR BUILDER’S DEFAULT

If the Builder fails to remedy in terms consistent with this Agreement a default of which he had been given notice under Clause 12.02 within ten (10) days of receipt of such notice then the Proprietor, without prejudice to any other rights or remedies, may within a further period of ten (10) days, by written notice delivered by hand to the Builder or sent by certified mail addressed to the Builder, determine the employment of the Builder under this Agreement.”

28 On 25 March 1999, the defendant’s architect gave to the plaintiff a document headed “Notice of Intention to Determine Pursuant to Clause 12.02 Dated 25th March 1999”. That document recited the making of the contract, the part of clause 6.05 concerning compliance with Acts of Parliament and the like, a requirement that the plaintiff comply with the Home Building Act and an obligation to obtain a complying contract of insurance, the obtaining of a contract in purported compliance with the obligation and the fact that that contract did not cover the works under the contract. The notice continued:

“2. NOTICE

2.1 For the reasons given above, Eddie Lau Constructions Pty Limited is in substantial breach of the provisions of the Contract.

2.2 Substantial breach of the nature set out in paragraph 2.1 above entitles Transdevelopment Enterprises Pty Limited, pursuant to clause 12.02.05 of the Contract, to issue this notice.

Home Building Act

29 Subsequently, there was delivered to the plaintiff an undated document executed by the defendant and headed “Notice of Determination of Contract Pursuant to Clause 12.03”. That document recited the contract, the giving of the notice dated 25 March 1999 and the fact that that notice “specified the default and provided details of the default”. The document said that “the Clause 12.02 Notice expired on 13 April 1999” and that the plaintiff had failed to remedy the notified default, nor had it “shown cause … as to why the default had not been remedied”. The document then said:

“Transdevelopment hereby determines the employment of Eddy Lau under the Contract in accordance with Clause 12.03 of the Contract.”

Was there a breach of clause 6.05?

30 In addressing the question whether the plaintiff’s failure to have insurance in force as envisaged by s.92 of the Act entailed a breach of clause 6.05, the first matter to note is the words of obligation that introduce that clause. Those words are, “The Builder shall comply with”. This indicates a contractual promise by the builder to do something, namely, to comply with the various stipulations and provisions referred to in the clause. The contract itself was the source of that promise. In the absence of the contract, the promise did not exist. The question whether the promise was performed must therefore be answered wholly by reference to what the builder did and did not do after the contract became binding so as to be the source of the promise and the obligation it entailed. Performance and, by the same token, non-performance are matters that can only be judged by reference to conduct of the promisor at a time when the contract was operative.

31 The provision in question is distinguishable from a promise (or warranty) as to a state of affairs existing at the time of the contract formation. Clause 6.05 does not say anything about things done or required to be done before the formation of the contract or as to any state of affairs existing at that point. It contains no more than a contractual promise by the builder to do certain things. The words “shall comply with” cannot cover “requirements” which, of their nature, were to be obeyed before the contractual promise was given and were not capable of being obeyed thereafter. For this reason alone, failure of the plaintiff to ensure that, at the time the contract was made, the particular kind of insurance was in force did not represent a breach by the plaintiff to comply with any requirement there may have been to effect that insurance.

32 Was there, in any event, any such “requirement”? The judgments of members of the Full Federal Court in Premier Pacific Pharmaceutical Industries Ltd v Australian Stock Exchange Ltd (1995) 17 ACSR 426 contain discussion of the differences and similarities between a “requirement” and a “condition”. There is like discussion in the judgment of Thomas J in Ray Somerville Surveys Pty Ltd v Logan City Council [1994] 1 Qd R 440. In my view, s.92(1) of the Home Building Act gave rise to a condition, not a requirement, so far as the effecting of insurance was concerned. It made the ability of a person lawfully to become party to a particular type of contract conditional on the existence of a particular type of insurance. It in no way commanded that anyone obtain such insurance. The statutory command was that, where the insurance was not in force, a contract not be made. No one broke the law by failing to obtain or effect insurance or to see that it was in force. A person broke the law by contracting to do building work.

33 To the extent that s.92(1) may properly be regarded as the source of a “requirement”, the “requirement” was one with respect to contracting to do building work. By forbidding a particular act by a person (i.e, the making of a contract to do building work) “unless” a particular condition was satisfied (i.e, insurance of the relevant kind is in force), the section imposed a “requirement” that no contract be entered in the absence of satisfaction of the condition concerning insurance introduced by the word “unless”. It follows that, even if, contrary to the opinion I have already expressed, the clause 6.05 promise of the plaintiff could be seen as operating in relation to the matter of the insurance in the absence of which the contract could not lawfully be made, there was no “requirement” with respect to the obtaining of such insurance, being a “requirement” upon which the contractual promise of the plaintiff in clause 6.05 operated.

34 The conclusions already expressed make it unnecessary to decide whether, if s.92(1) was the source of a “requirement” to effect insurance, that “requirement” was of the description in clause 6.05 and, in particular it was among the requirements “which arise by reason of the execution of the Works”. I proceed nevertheless to consider that question.

35 The phrase “which arise by reason of” describes a particular kind of connection or association between, on the one hand, the “requirement” in question and, on the other, the “execution” of the works to be performed under the contract. “Execution” no doubt means “doing”, so that the question is whether there is a relevant connection or association between the requirement to effect insurance and the doing of the contracted work. The expression “by reason of” generally connotes a relationship of cause and effect. In construing an insurance policy providing cover in respect of liability to pay compensation “by reason of” personal injury or property damage caused in a certain way, Demack J said, in Re Switzerland Insurance Australia Ltd and Capricornia Electricity Board (unreported, QSC, Demack J, 7 February 1997):

“In my opinion, the words ‘by reason of’ mean ‘resulting from’, See Kanbur v Adams (1984) 55 ALR 158 at 172, Vickers v Minister for Business and Consumer Affairs (1982) 43 ALR 389, at 407, and Kimberley-Clark Ltd v Commissioner of Patents (1988) 84 ALR 685, at 691. In other words, there must be a causal link between the liability for compensation and the bodily injury to the worker. In the case of a spouse’s claim for loss of consortium there is that clear link between the bodily injury suffered by the worker and the claim for loss of consortium.”

36 In the present case, the relevant question is accordingly whether, if there was, by virtue of s.92, a “requirement” to effect insurance, that “requirement” resulted from or was generated by the doing of the building works or the proposal or intention to do it. The provisions of the Home Building Act show that there is no such relationship of cause and effect. The Act does not say that building work of the kind with which it is concerned may not be carried out unless insurance is in force. Nor does it say that anyone doing or proposing to do relevant building work must obtain insurance or ensure that it is in force. Section 95, for example, makes it clear that an “owner-builder” may carry out such work even to the point of completion without coming under any obligation with respect to insurance. It is only when an “owner-builder” proposes to enter into a contact to sell land that anything that might be regarded as a requirement to effect insurance or to have insurance in force arises. The position under s.92, as it existed at the relevant time, is conceptually similar. Again, it is only when a person proposes to enter into a contract to do relevant building work that anything that may be regarded as a requirement with respect to insurance arises. The actual doing of such work does not attract any insurance requirement.

37 Returning to item 1 in the agreed statement of issues at paragraph 11 above, my conclusion is that, for all the reasons just discussed, the fact that insurance in conformity with the Act did not exist when the plaintiff entered into the building contract with the defendant does not in any way lead to or justify a conclusion that the plaintiff was thereby in breach of clause 6.05 of the contract.

Consequence of the defendant’s purported termination

38 It follows from my conclusion that there was no breach of clause 6.05 by the plaintiff upon which the defendant could rely in giving its “Notice of Determination of Contract Pursuant to Clause 12.03” not only that the defendant’s attempt to terminate the plaintiff’s employment was unsuccessful, so far as the provisions of the contact were concerned, but also that the defendant, although acting on a bona fide but mistaken belief as to its rights under the contract, exhibited an absolute refusal to perform its obligation to continue to employ the plaintiff. This was a repudiation (see Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17). The plaintiff was within its rights to accept that repudiation and did so by leaving the site and removing its equipment.

39 The natural consequence of these events would be that the contract came to an end. In the present case, however, it is necessary to consider whether that consequence is forestalled by s.94 of the Home Building Act, in so far as that section, in both the form in which it existed at the time and in its present form, says that a person in the position of the plaintiff “is not entitled … to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract”. Einstein J decided in December 2001 that the section in its earlier form precluded the plaintiff’s claim for damages for breach by repudiation, as well as recovery of any other remedy in respect of any such breach. The position under the present section which, in material respects, is unchanged must be the same.

40 But I do not think it can be said that a conclusion that a repudiated contract has come to an end can, of itself, be said to entail the enforcement of any remedy in respect of the breach leading to the termination. A determination that a contract is at an end does not, without more, crystallise or change the rights of anyone as regards the breach. I read “remedy” in s.94 as referring to a remedy awarded by a court, given its juxtaposition with “damages” and “recover money”. Recognition that the parties are, as a result of repudiation and its acceptance, no longer bound as to future performance does not, in my view, entail award of any “remedy in respect of a breach”. I therefore proceed on the basis that the natural consequence to which I have referred, that is, that the contract came to an end by reason of the defendant’s breach and the plaintiff’s acceptance of it.

Cost to complete

41 According to the agreed statement of issues at paragraph 11 above, resolution of item 1 in the negative leads on to the question in item 9:

“If 1, 6, 7 or 8 are answered in the negative, have or will the works the subject of the Contract cost the Defendant more to complete than they would have cost had the Plaintiff performed its Contract (either presently or if any award for the payment of any further amount is ordered)?”

42 I must confess, however, that I cannot see at this point how that question is relevant where, as I have found, there has been no breach of contract by the plaintiff and there has been a wrongful repudiation by the defendant. The claim for additional costs to complete is made by the defendant in the cross-claim and is predicated on a breach of contract by the plaintiff justifying termination of the contract (or the contractor’s employment) by the defendant. Because such a position is at odds with my findings, I leave item 9 to one side and proceed to the next item in the agreed statement of issues.

The “just and equitable” criterion under s.94(1A)

43 That next issue is item 9 which is relevant to the first of the separate questions the subject of the order for separate determination made on 28 November 2003:

“If 1, 6, 7 or 8 are answered in the negative, is it just and equitable to allow the plaintiff’s quantum meruit claim having regard to any one or more of the following:- …”

44 It is not possible to approach this particular aspect in any fully informed way without first coming to a view as to the meaning of “just and equitable” in the particular statutory context which, as already noted, involves s.94(1A) as now in force:

“Despite section 92(2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.”

45 The phrase “just and equitable” is commonly used in legislative drafting: see, for example, Corporations Act 2001 (Cth), s.461(1)(k), Family Law Act 1975 (Cth), s.75(2); Motor Accidents Act 1988, s.74(3); Property (Relationships) Act 1984, s.20(1); Conveyancing Act 1919, s.66M. Numerous cases have considered the significance of the phrase. The conclusions drawn are reflected in the words borrowed by Lord Shaw of Dunfermline in Loch v John Blackwood Limited [1924] AC 783 at p.791 from Neville J in Re Bleriot Manufacturing Aircraft Co (1916) 32 TLR 253 at p.255:

“The words ‘just and equitable’ are words of the widest significance and do not limit the jurisdiction of the Court to any case. It is a question of fact, and each case must depend on its own circumstances.”

A court directed by statute to proceed according to what is “just and equitable” is given a wide discretion. There is, as Owen J observed in Thomas v MacKay Investments Pty Ltd (1996) 22 ACSR 294 at p.302, “no necessary limit on the generality of the words”. They are “to be applied in their ordinary meaning as calling for the exercise of judgment in the conventional way.”

46 In Stephenson v State Bank of New South Wales (1996) 39 NSWLR 101 Sheller JA, in considering s.66M of the Conveyancing Act 1919, said (at p.113):

47 Cominos v Cominos (1972) 127 CLR 588 was a case in which the High Court was asked to consider the constitutional validity of s.86 of the Matrimonial Causes Act 1959 (Cth), which granted the court power to order the settlement of property in the manner it considered “just and equitable”. Gibbs J said at p.599:

“It is true that in determining an application under s.86 the court, after deciding such questions of fact and law as have arisen, is called upon to make a discretionary judgment. The discretion, although wide, must, as was said by Windeyer J. in Sanders v. Sanders (1967) 116 CLR 366, at pp 379-380, "be exercised according to accepted principle, for what is just and equitable in this jurisdiction is not a matter of unfettered individual opinion". It is not discretion of an arbitrary kind. The standard imported by the familiar words "just and equitable" is "by no means foreign to the judicial function" (cf. Steele v. Defence Forces Retirement Benefits Board (1955) 92 CLR 177, at p 188 nor is it "so indefinite as to be insusceptible of strictly judicial application" (cf. Reg. v. Commonwealth Industrial Court ; Ex parte The Amalgamated Engineering Union, Australian Section (1960) 103 CLR 368, at p 383 ). It is also true that s. 86 enables the court to create new rights and impose new duties and not merely to enforce legal rights already existing, but the fact that a court is authorized to create or alter rights and not merely to declare and give effect to pre-existing rights does not necessarily show that the powers conferred are not judicial powers : Peacock v. Newtown Marrickville and General Co-operative Building Society No. 4 Ltd. (1943) 67 CLR 25, at pp 35, 46 and 54-55.”

48 Section 94(1A) of the Home Building Act must therefore be seen as conferring a discretion that is wide but must be exercised judicially in the light of the whole of the circumstances surrounding the relevant subject matter. Lord Wilberforce explained this exercise in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at p.379:

“It [the phrase ‘just and equitable’] does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”

49 The present context is one in which the court is called upon to say whether it is “just and equitable” that a quantum meruit sum be awarded for work done. The quantum meruit sum itself will, of its nature, reflect a fair remuneration, having regard to the extent of the work actually done. That is of the essence of a quantum meruit: see Pavey & Matthews Ltd v Paul (1987) 162 CLR 221 at p.262 per Deane J. The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression “quantum meruit”. The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it. It is to those circumstances that I now turn.

The factors bearing upon the “just and equitable” assessment

50 The defendant in its defence refers to two principal reasons why it is not just and equitable for the plaintiff to recover the quantum meruit amount. Although they were not pressed in written submissions or during the hearing, both of these matters can be dealt with briefly. The defendant first argues that it is not just and equitable that the plaintiff should recover a quantum meruit because the failure of the plaintiff to obtain insurance in compliance with s.92 caused a delay of two years in the completion of the development. In answer to this, the plaintiff contends, among other things, that the delay was not caused by a failure to obtain insurance but by the defendant’s subsequent wrongful termination of the builder’s employment. Having regard to my conclusion on the questions concerning breach and termination of the contract, there is substance in what the plaintiff says.

51 The defendant’s second contention in its defence is that it would not be just and equitable for the plaintiff to recover the quantum meruit sum because the defendant has a claim under clause 12.05.04 of the building contract against the plaintiff. As already discussed, I do not consider the defendant to have such a claim. This issue is, for that reason, irrelevant for present purposes.

52 Item 10 of the agreed statement of issues at paragraph 11 above sets out at (a) to (i) factors considered by the parties as bearing upon the “just and equitable” question. The first such factor is that the plaintiff breached the Act. I do not consider that to be a relevant consideration. Section 94 as a whole is, after all, predicated on the existence of a contravention by the builder. The contravention is the simple and clear-cut one of contracting to perform building work without the pre-condition as to insurance having been satisfied. The circumstances in which the insurance was not obtained and the pre-condition was not satisfied are relevant, but the objective fact of absence of insurance itself cannot be a consideration that s.94(1A) requires or permits the court to entertain.

53 The defendant in oral submissions argued that ignorance of a statutory requirement does not make it just and equitable for a party to recover on a quantum meruit basis after having failed to do what was required of it. This must be so. Ignorance alone would not justify the exercise of the court’s discretion. In the same way, however, the fact of ignorance of the obligation would not preclude a finding that it is just and equitable to grant the relief sought. In general, contravention through ignorance will be more deserving of favourable assessment in the “just and equitable” inquiry than deliberate contravention will be.

54 The next matter to be considered is the fact that the Act prevents recovery of money, under the contract or otherwise, in respect of the work done. This is the effect of s.94(1). The defendant submitted that this is a relevant consideration. I disagree. Section 94(1A) empowers the court to award a remedy on a quantum meruit basis, despite the statutory directive that recovery may not be made. That, to my mind, means that the court is to approach its task without attaching any significance to the statutory denial of a right to recovery otherwise than through s.94(1A) itself.

55 The next matter raised - failure by the plaintiff to obtain the insurance at any time prior termination of the contract - is, however, of significance. Because the contravention was committed when the contract to perform building work was entered into in the absence of insurance and subsequent effecting of insurance would not cure the contravention, the plaintiff was never able, as a matter of strict statutory compliance, to rectify the matter. But that is not to say that subsequent action by the plaintiff to effect insurance would not have served to mitigate the position. This follows from the nature of the insurance which, as it emerges from s.99, is to protect the proprietor against the risk of loss through either the builder’s failure to complete the work or the builder’s inability, because of insolvency, death, disappearance or otherwise, to rectify a breach of the statutory warranty applying to the work or to meet a claim for compensation under the warranty. Against this, the plaintiff says that, because he was precluded from bringing any claim against the defendant by way of reward for doing the work (remembering that the relevant works were carried out at a time before the enactment of s.94(1A) made a quantum meruit claim available subject to the court’s “just and equitable” assessment), it was not reasonable to expect it to obtain the insurance – being an expense it could never recoup from any profit from the project. The plaintiff also says that all reasonable steps were taken in an attempt to obtain the insurance. In evaluating these submissions, it is necessary to go to some matters of fact.

56 The evidence shows that a certificate of insurance was issued on 21 August 1998, that is, seventeen days after the contract was entered into. It provided coverage for the period between that date and 21 August 1999. But the terms of the insurance were such that cover was provided only in respect of work the subject of contracts made within the specified period, being work “anywhere in New South Wales”. It was not until later that the parties became aware of this and of the consequence that, because the contract was made before the period of insurance began, the work undertaken pursuant to it was not insured. Christopher Tran, a director of the defendant, deposed that at a site meeting on 17 September 1998 he was present when the architect, Simon Chan, requested that the plaintiff obtain a letter of confirmation that the project and the proprietor’s name were included in the certificate of insurance. That request is reflected in the minutes of the site meeting. It is not clear from the evidence what steps the plaintiff then took in relation to this. However, on the 19 October 1998 a new certificate of insurance was issued, this time specifically including the address of the development in the “location” description.

57 On 19 February 1999 Mr Tran received a letter from the plaintiff’s insurance brokers providing somewhat ambiguous information. It was not until 4 March 1999 that Mr Tran telephoned FAI Insurance direct and was told that the policy did not cover the work in question. This was confirmed in a letter to Mr Tran from FAI dated the 12 March 1999. Mr Tran expressed concern about this at a site meeting on the 17 March 1999 at which time Mr Eddy Lau said that he would get his broker to fix the problem. The evidence does not disclose what the plaintiff did after this meeting. On 22 March 1999, Payment Certificate 5A was purportedly issued under the contract in respect of a sum of ”$0.00” for work completed. Three days later, on 25 March 1999, the defendant issued the “Notice of Intention to Determine Pursuant to Clause 12.02 Dated 25th March 1999” to which reference has already been made. On 7 April 1999, a site meeting was scheduled but the plaintiff did not attend. A document purporting to be minutes was nevertheless prepared. It notes that the insurance had still not been obtained. On 23 April 1999, the defendant issued the “Notice of Determination of Contract Pursuant to Clause 12.03”.

58 The plaintiff could have done more to ensure that insurance was in effect in relation to the works. At the same time, however, he did not sit idly by in the face of the protestations of the plaintiff and the architect. A new certificate of insurance was obtained, specifically referring to the site as requested – although this did not cure the defect arising from the period of cover. The problem concerning the period of cover was not pointed out to the plaintiff until 17 March 1999. I do not accept that this problem was consciously created by the plaintiff. It seems to have been a simple mistake. But the plaintiff’s failure to do more in the period of one month after being put on notice of the defect does count against it. Counsel for the plaintiff submitted, however, that this must be seen in light of the fact that both the purported Payment Certificate 5A and the notice of intention to determine the contract were issued within eight days of the plaintiff becoming aware of the defect in the insurance policy. That is a matter to which some weight should be attached. Even though the plaintiff was precluded by the Act from bringing any claim against the defendant for payment for work done, that cannot have operated as any form of justification for obtaining the insurance, especially in light of the nature of the protection the insurance would have provided, as described in s.99. It was reasonable for the defendant to want the works insured and to expect the plaintiff to provide the insurance. This failure by the plaintiff counts against it in the assessment of whether it is just and equitable that quantum meruit recovery should be allowed, although the fact that the defendant acted promptly after disclosure of the defect in an attempt to remove the plaintiff and to avoid paying it any more money tends to count in favour of the plaintiff.

59 I refer next to the circumstance that the defendant wrongfully repudiated the contract. The defendant, for its part, submitted that the notice to terminate was issued in a bona fide belief the defendant was entitled to terminate, so that the fact that the termination was eventually found to be unjustified should be afforded little weight. Although the defendant may have proceeded in the belief that it was entitled to do as it did, the fact remains that its actions have been found to be wrongful, in the sense of amounting to a breach of contract. That is something that must count against the defendant in the “just and equitable” assessment.

60 The failure of the defendant to seek to enter into a new contract with the plaintiff however does not, as the plaintiff contends, favour recovery. Given the bona fide belief by the defendant that it was entitled to terminate the employment and the factual circumstances regarding the plaintiff’s failure to insure the works, it was reasonable for the defendant to consider other contractors for the remainder of the project.

61 The defendant submitted that the increased cost it had to incur to complete the works is another factor that is relevant to the “just and equitable” inquiry. As I have already said, the increased costs flowed from the defendant’s wrongful termination of the plaintiff’s employment. It would not be appropriate for the plaintiff to be denied recovery of money because of the defendant’s mistake. This factor can only be relevant to the quantum of recovery, if at all. That is a matter that should have been, and indeed was, put to the referee in her determination of the value of the quantum meruit claim: see pp 88-97 of the referee’s report.

Conclusion on the “just and equitable” question

62 The policy behind s.94(1A) is, clearly enough, that the statutory disentitlement under s.94(1) to sue for damages under or otherwise to enforce the contract made in contravention of s.92(1) may be offset by the court’s allowing recovery on a quantum meruit basis, provided that it is satisfied, according to the “just and equitable” criteria, that the builder is deserving of such recovery.

63 Having regard to the whole of the considerations I have mentioned as relevant to that question in this particular case, I consider the most telling factor to be that, if the plaintiff is not granted relief under s.94(1A), the defendant will have the benefit of the work without having to pay for it. In the absence of conduct of the plaintiff (over and above the default that gave rise to the contravention of s.92) operating in a relevant way to the detriment of the defendant, the plaintiff should not be denied the quantum meruit recovery. The only additional criticism levelled at the plaintiff is that it did not act with sufficient diligence in attempting to remedy the insurance default. I do not consider that criticism to be sufficient to deny recovery upon the quantum meruit. I would add that there is no apparent reason why the defendant, if it was as concerned as it professed to be about obtaining the relevant insurance protection, should not have made attempts of its own, in consultation with the plaintiff and at the plaintiff’s cost, to negotiate an appropriate contract with an insurer. It seems that the defendant was more interested in bringing the contract to an end than it was in working with the plaintiff to address the insurance deficiency.

64 I am satisfied that the conduct of the plaintiff, viewed in the whole of the surrounding circumstances, did not exhibit blameworthiness such as to make it inappropriate to provide a reasonable reward for work actually done by it and that it is therefore just and equitable for the plaintiff to recover a quantum meruit sum for that work under s.94(1A).

Do the terms of the contract set a limit on quantum meruit recovery?

65 Item 11 of the agreed statement of issues is the first item concerning an aspect of the referee’s report, namely, determination of the quantum meruit sum (that being the first of the referred questions). The principles extracted from Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (see paragraph 16 above) are therefore relevant.

66 Item 11 poses the question whether, if it is just and equitable to allow the plaintiff’s claim, the terms of the contract set a limit on the amount that may be recovered. Given that what s.94(1A) allows to be recovered is “money in respect of that work on a quantum meruit basis”, the question raised by item 11 is really whether the parties’ contract sets a limit on quantum meruit recovery.

67 That specific question must be addressed in the light of the general nature of a quantum meruit award for work done. The general principle is stated as follows by Keith Mason and J W Carter at p.569 of “Restitution Law in Australia” (1995):

“The basis for valuing a restitutionary claim for reasonable remuneration is not usually the actual increase in the defendant’s wealth. Generally, the plaintiff is entitled to recover the market value of the services themselves, rather than the amount by which the defendant’s assets have in fact been increased. Restitution is more concerned with the cost of rendering performance than the amount by which the defendant is in fact better off by reason of the work done. What is valued is the work done or the service rendered. It follows that where a claim for reasonable remuneration succeeds on the ground of acceptance of a requested benefit, the defendant may be held liable to pay for work, such as preparatory work, which the defendant would not have had to pay for as such if an anticipated contract had come into existence. Generally, where the services are rendered by a professional, they will be valued by reference to the commercial rate applicable to work of the type done by a person of the plaintiff’s standing. However, account may be taken of custom, for example to justify an award on a commission basis.”

68 The particular matter of the relevance of a terminated contract was referred to by Deane J in Pavey & Matthews Ltd v Paul (above). At p.257 his Honour said:

“The fact that the action which can be brought on a common indebitatus count consistently with the Statute of Frauds is founded on an obligation arising independently of the unenforceable contract does not mean that the existence or terms of that contract are necessarily irrelevant. In such an action, it will ordinarily be permissible for the plaintiff to refer to the unenforceable contract as evidence, but as evidence only, on the question whether what was done was done gratuitously. In many cases, such as where the claim is for money lent or paid, the obligation to make restitution will plainly involve the obligation to pay the precise amount advanced or paid. In those cases where a claim for a reasonable remuneration or price is involved, the unenforceable agreement may, as Jordan CJ pointed out in Horton v Jones (No 1) (see above), be referred to as evidence, but again as evidence only, on the question of the appropriate amount of compensation. If the unenforceable contract has not been rescinded by the plaintiff or otherwise terminated, the defendant will be free to rely on it as a defence to the claim for compensation in a case where he is ready and willing to perform his obligations under it (see Thomas v Brown (1876) 1 QBD 714). The defendant will also be entitled to rely on the unenforceable contract, if it has been executed but not rescinded, to limit the amount recoverable by the plaintiff to the contractual amount in a case where that amount is less than what would constitute fair and reasonable remuneration.”

69 Reference should also be made to Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, a case where, as here, a principal had purported to exclude a builder pursuant to a power in that behalf in the building contract but no proper occasion for doing so had arisen and the principal was, as here, held to have repudiated the contract which was then terminated. It was held that the builder was entitled to recover upon a quantum meruit for the work done. A question arose as to the relevance, to the quantum meruit calculation, of the terms of the contract. It is relevant to quote from the judgment of Meagher JA (with whom Priestley and Handley JJA agreed on the matter) at pp.276-278:

Williston on Contracts

Journal of Contract Law

Essays on Restitution

The cases to which I refer have been received with somewhat lukewarm enthusiasm by certain academic writers (see Goff and Jones The Law of Restitution , 2nd ed (1978), at 379-380, Greig and Davis The Law of Contract , 1st ed (1987), at 1286-1287) on the apparent ground that they are ‘anomalous’. But to my mind this criticism of them is superficial. They are right in principle as well as justified by authority. The law is clear enough that an innocent party who accepts the defaulting party's repudiation of a contract has the option of either suing for damages for breach of contract or
suing on a quantum meruit for work done. An election presupposes a choice between different remedies, which presumably may lead to different results. The nature of these different remedies renders it highly likely that the results will be different. If the former remedy is chosen the innocent party is entitled to damages amounting to the loss of profit which he would have made if the contract had been performed rather than repudiated; it has nothing to do with reasonableness. If the latter remedy is chosen, he is entitled to a verdict representing the reasonable cost of the work he has done and the money he has expended; the profit he might have made does not enter into that
exercise. There is nothing anomalous in the notion that two different remedies, proceeding on entirely different principles, might yield different results. Nor is there anything anomalous in the fact that either remedy may yield a higher monetary figure than the other. Nor is there anything anomalous in the prospect that a figure arrived at on a quantum meruit might exceed, or even far exceed, the profit which would have been made if the contract had been fully performed. Such a result would only be anomalous if there were some rule of law that the remuneration arrived at contractually was the greatest possible remuneration available, or that it was a reasonable remuneration for all work requiring to be performed. There is no such rule of law. Nor can one say that as a matter of observable fact there is any such rule. The most one can say is that the amount contractually agreed is evidence of the reasonableness of the remuneration claimed on a quantum meruit; strong evidence perhaps, but certainly not conclusive evidence. On the other hand, it would be extremely anomalous if the defaulting party when sued on a quantum meruit could invoke the contract which he has repudiated in order to impose a ceiling on amounts otherwise recoverable.”

70 It is thus clear that, in a case such as the present, the price or rate provided for in the terminated and no longer operative contract does not limit the quantum meruit sum but forms part of the evidentiary base to which regard may properly be had in fixing or arriving at that sum. I am satisfied that the referee treated the contract price as a relevant consideration in this way and that this is reflected in her report. There is no need to disrupt her findings by reference to this matter. To the extent that the question in item 11 at paragraph 11 above requires an express answer for the purpose of deciding whether relevant aspects of the referee’s report should be adopted, that answer is “no”.

Relevance of evidence of actual cost of certain elements

71 Item 13 is the next issue in the statement of issues at paragraph 11 that must be addressed:

“If 11 is answered in the negative, whether in assessing the reasonable cost of the works it is appropriate to have regard to the fact that on some items of cost, the Plaintiff actually incurred less than the assessed reasonable cost?”

72 In the course of the reference, evidence was received as to certain of the costs actually incurred by the plaintiff in performing the works. Evidence was also received from quantity surveyors concerning the value that should be ascribed to various components of the work. The significance of item 13 in the statement of issues may be illustrated by referring to three areas of the services provided, being the provision of scaffolding and a hoist, the provision of site supervision and the provision of formwork, reinforcement and concreting.

73 The quantity surveyors, in estimating costs relevant to the calculation of the quantum meruit sum, allowed $59,964 for scaffolding and hoist ($53,664 for scaffolding and $6,300 for hoist) whereas, according to the defendant, evidence before the referee showed that these had in fact been obtained from Sydney Hoist at a cost of $19,440 ($15,686 for scaffolding and $3,754 for hoist). On site supervision, the quantity surveyors allowed $50,000, whereas the defendant says that evidence before the referee identified the site supervisor as a Mr Ghossein to whom only about $25,500 was paid. In relation to formwork, reinforcement and concreting, the quantity surveyors allowed $552,559 as against what the defendant says to be an actual outlay of $360,000 as shown by the evidence.

74 The referee considered various alleged discrepancies of this kind and identified only two areas – one being site supervision and the other formwork, reinforcement and concreting – in which there was evidence warranting a finding that the sum ascribed to the particular element by the quantity surveyors was greater than the cost actually incurred by the plaintiff. The referee’s conclusion was that the adoption of actual cost figures where they were established by the evidence was not warranted because of distortions that would introduce. As the referee observed, it would be wrong to adopt actual cost figures where they were less than the allowances made by the experts without at the same time adopting an identical approach where it could be shown that the actual cost exceeded the experts’ assessments. It was also recognised that there was a significant element of incongruity in attempting to combine some actual costs with some assessed costs.

75 In my opinion, the passage I have quoted from the judgment of Meagher JA in Renard Constructions (above) supports the approach the referee took in this respect and indicates that, while evidence of actual expenditure may be relevant to an assessment of what is a reasonable reward for work done and expenditure incurred, the amount of such actual expenditure as may be proved does not operate in any way as a controlling factor. The quantum meruit sum is the reasonable cost of the work done and expenditure incurred, with the assessment of reasonableness being undertaken by reference to the results produced and evidence of what it would in the ordinary course of things be necessary to outlay in order to produce those results. The fact that some actual outlays were larger and others were smaller is not relevant to the inquiry.

76 The question posed in item 13 of the statement of issues should therefore be answered “no”. I do not consider the referee’s report to exhibit, in this area, any shortcoming warranting review in accordance with the Super Pty Ltd principles.

The relevance of defects

77 The question posed by issue 14 at paragraph 11 above is whether the quantum meruit sum should be adjusted by way of a deduction for defects in the work done by the plaintiff. Again, this goes to the question of adoption, rejection or variation of the referee’s report.

78 The referee found that the reasonable cost to rectify defects in the work done by the plaintiff was $38,995 if rectification was carried out by the plaintiff or $55,495 if carried out by another builder. The approach the referee took was described as follows in her report:

“79 Below, I have adopted the approach contended for by Transdevelopment, that defective work is worth less than defect free work, and that the appropriate measure of the loss of value, is the cost to rectify. The adoption of this measure was based on findings, in each case, that, because of the nature of the defect, it would have been reasonable at the time of Eddy Lau’s determination, to rectify. As will be seen from the summary of the evidence set out below, there was no direct evidence, in most instances, as to whether or not the work had been rectified. Given the general quality of the brickwork, in particular, however, it was, in my professional view as an architect, implausible that the work could have been satisfactorily completed without some rectification, although, in most instances, there was no direct evidence to this effect.”

79 The referee made an allowance of $38,995 for defects in calculating the quantum meruit sum, this being the reasonable cost of rectification if carried out by the plaintiff.

80 The plaintiff submitted that, in the absence of evidence that the defendant had actually incurred expenditure in rectifying the defects, there should have been no deduction on account of assumed or assessed cost to rectify. The plaintiff referred, in this connection, to the decision of the House of Lords in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 where it was held that, where a proprietor did not intend to do additional work to remedy a departure from specification amounting to breach of contract, there was no loss to be compensated by an award of damages.

81 I do not consider this to be an appropriate approach in determining a quantum meruit sum. The real question in such a case goes to quantification of what Deane J described in Pavey & Matthews Ltd v Paul (above) at p.257 as “a reasonable remuneration or compensation for a benefit actually or constructively accepted”. Regard must therefore be had to the work actually done and to its quality. A plaintiff’s task in such a situation was described by O’Bryan and Martin JJ in Riverside Motors Pty Ltd v Abrahams [1945] VLR 45 at p.53:

quantum meruit

82 The quality of the work and matters such as its correspondence with specification and fitness for its intended purpose are thus elements of the process of valuation of work for quantum meruit purposes. It follows that the referee was correct in applying a deduction for defects rectification in determining the quantum meruit sum.

The onus in relation to defects

83 Item 15 in the statement of issues at paragraph 11 above raises the question of onus in relation to proof of the value of defects.

84 Consistently with what was said by O’Bryan and Martin JJ in Riverside Motors v Abrahams (above), I consider the onus of proof to be upon the plaintiff, in that it is for the plaintiff to prove the value of the work done. In the present context, however, the matter does not seem to me to be one of any great importance. The referee appears to have had no difficulty, on the material available to her, in reaching the figures of $38,995 and $55,494.76 for rectification cost. Some elements were agreed, others were the subject of evidence by experts. It has not been suggested that any of the findings on the subject was perverse or unwarranted. I therefore do not see any significance at this point in the answer to the question in item 15.

Amount for rectification of defects

85 Item 16 in the statement of issues raises the question whether the amount to be taken into account for defects in determining the quantum meruit sum is the $38,995 referable to hypothetical rectification by the plaintiff or, as the referee found, the $55,495 referable to hypothetical rectification by a third party contractor.

86 The answer, to my mind, is to be found in the extract from Mason and Carter’s work at paragraph 65 above. There is reference there to valuation having regard to “the commercial rate applicable to work of the type done by a person of the plaintiff’s standing”. Particular economies (as well as particular wastages or inefficiencies) that may have attended the doing of the work by the plaintiff are, on this basis, beside the point. The inquiry is an objective one as to what would reasonably have been charged by an equivalent professional performing the work in a reasonable manner.

87 I am therefore of the opinion that, as a matter of law going to the nature of a quantum meruit, the deduction for defects should have been the sum of $55,495 referable to rectification by a third party builder, not $38,995 assessed as the cost of the doing of the rectification work by the plaintiff. The correctness of this approach is, to my mind, reinforced by the fact that the contract had been terminated and the plaintiff had left the site. There was therefore no basis for a view that the plaintiff might in fact have carried out the work at a cost equal to the smaller sum.

88 According to the Super Pty Ltd principles, the referee’s report should be varied so that $55,595 rather than $38,995 is taken into account in this part of the quantum meruit calculation.

The bank guarantees

89 Issues 18, 19 and 20 in the statement of issues at paragraph 11 above may be considered together. They are as follows:

“18. Whether the Plaintiff can enforce the Contract in respect of the banks bonds provided as security having regard to the terms of the Act?

19. If 18 is answered in the affirmative, whether the Plaintiff has demonstrated an entitlement to the return of the bank bonds under the Contract?

20. If 19 is answered in the affirmative, whether the Plaintiff has demonstrated any damages for breach of the Contract in respect of the non-return of the bank bonds?”

90 Clause 10.20 of the contract required the plaintiff, as builder, to

“provide security to the amount or percentage of the Contract Sum stated in Item S of the Appendix as to the amount of security for the due performance of his obligations under this Agreement.”

91 Against “Amount of Security” in Item S of the appendix to the contract appears “See Schedule of Amendments”. The schedule of amendments attached to the contract directions insertion in Item S of the following:

“Security shall comprise $260,000 in the form of two Bank Guarantees (each in the sum of $130,000) to be provided on or before the date of this Agreement.”

92 It is accepted, as I understand it, that the plaintiff duly delivered the two bank guarantees to the defendant and that the defendant continues to hold them. It is said by the plaintiff that it has continued to incur expenses in the form of charges for the maintenance of the guarantees by the issuing bank.

93 The claim to which items 18 and 19 in the agreed statement of issues are relevant is a claim by the plaintiff in its third further amended statement of claim. The plaintiff there claims simply “return of its bank guarantees”. There is also a claim for “damages for breach and repudiation of the Contract” under which the plaintiff seeks to bring a claim for reimbursement of the periodic charges that it has incurred in keeping up the bank guarantees since the contract was terminated, being the claim to which item 20 in the agreed statement of issues.

94 The only provisions of the contract envisaging release of the bank guarantees are provisions concerned with completion of the works by the contractor. That, of course, never occurred. On my findings, the contract was repudiated by the defendant and terminated by the plaintiff while the works were in progress. There is accordingly no express provision of the contract to which the plaintiff can point as a source of any right to have the bank guarantees surrendered to it. Nor does the plaintiff seek to plead any implied term in this respect. It follows that relief by way of an order in favour of the plaintiff for “return of its bank guarantees” cannot have a contractual basis. This makes it unnecessary to consider the operation of s.94(1) of the Home Building Act in this context. Because the contract confers no relevant right to recover the bank guarantees, an order that they be returned on some non-contractual basis cannot have implications under that section.

95 I am satisfied that such a non-contractual basis exists. In accordance with the parties’ bargain, the plaintiff furnished the bank guarantees under a provision requiring it to “provide security for the due performance of his obligations under this Agreement”. The situation was thus, from the outset, one in which the defendant held the bank guarantees as “security” only, that is, on the footing that resort might be had to them should the plaintiff default in due performance of its obligations.

96 In the events that have happened, there is no longer any contract that is capable of being the source of performance obligations on the part of the plaintiff. Furthermore, the only continuing claim by the defendant for a remedy under the contract (being the claim for damages for breach of contract) has not been upheld. There is accordingly nothing for which the bank guarantees can stand as security. The situation is the same as one where a mortgagor has paid off the secured moneys and there is no payment obligation in respect of which the mortgaged property is capable of standing as security; or where a repairer retains possession although paid for his work.

97 Because the occasion for retention of the bank guarantees by the defendant has passed, a right of the plaintiff to have back the subject matter of the security must be taken to have arisen automatically, regardless of any provision of the contract with respect to its release. Where the obligation for which security was given no longer subsists, such a right arises by implication of law or equity, depending on the nature of the security. In the case of a pledge, the right to re-take possession is a legal right. In the case of a legal mortgage, the right to redeem is an equitable right enforceable against the mortgagee in whom the legal estate is vested. The right is also equitable in the case of an equitable charge. Assertion of the equitable right may be by way of proceedings in the nature of a redemption suit. The basic concept, as it relates to a mortgage, was stated by Turner LJ for the Privy Council in Walker v Jones (1866) LR 1 PC 50 at pp.61-62:

“It is also clear that every mortgagor has the right to have a re-conveyance of the mortgaged property upon payment of the money due upon the mortgage; and that every mortgagee is charged with the duty of making such re-conveyance upon such payment being made. This, indeed, is no more than the necessary result of the relative positions of the parties, the mortgage being only a security for the debt.”

98 In the present case, there is no need to pay close attention to the precise type of security involved. The fact that the bank guarantees came to be held by the defendant as “security” for the performance by the plaintiff of obligations now no longer in existence is sufficient to establish that the plaintiff has a right, independent of the rights conferred by the contract, to have the bank guarantees released to it. In asserting that right, the plaintiff does not need to sue under the building contract or seek to enforce any remedy for breach of it. Rather, the plaintiff can resort to an independently arising equitable right to redeem. There is therefore no occasion to consider the scope of the disentitling provisions in s.94(1) of the Act, apart from noting that s.94(1)(a) cannot apply because there is no attempt to rely on the contract and s.94(1)(b) cannot apply because the claim to recover the bank guarantees is not a claim to recover money in respect of work done.

99 It follows that the question posed by issues 18 and 19 should be answered by saying that the plaintiff cannot enforce the contract as a means of obtaining return of the bank guarantees (because there is no provision supporting such a claim) but is nevertheless entitled to their return by virtue of an equitable right and without any need to rely on the contract.

100 This leads on to issue 20 where the question is, in essence, whether the plaintiff is entitled to damages because of non-return of the bank guarantees. The third further amended statement of claim does not state any explicit basis on which any such claim for damages is advanced. As I have already said, the plaintiff’s claim in this respect comes within its prayer for “damages for breach and repudiation of the Contract”, thus making it clear that whatever damages are sought are seen as damages for breach of contract. A claim for damages for non-return of the bank guarantees, founded on the contract, cannot succeed for reasons already stated: there is no express provision requiring their return in the circumstances which happened and the plaintiff does not seek to assert any implied term to that effect. The right of the plaintiff to return of the bank guarantees is, on my finding, an independently existing equitable right. Non-fulfilment of that equitable right may have consequences in the nature of a right to equitable compensation but it is by no means clear that that, even if pleaded, would have produced a monetary award equivalent to the bank fees and charges outlaid by the plaintiff in keeping up the bank guarantees after the requirement that they be returned had come into operation. Generally speaking, equity is concerned to see restored to a plaintiff that which has been withheld from him in breach of an equitable obligation and to deprive the equitable wrongdoer of benefits wrongfully derived. These matters are, however, academic in the present context since the asserted claim is confined to an unsustainable claim for damages for breach of contract.

101 The answer to the question posed by issue 20 is “no”.

Conclusion

102 The appropriate course at this point will be for the parties to consider the answers to the several questions given in these reasons and to bring in short minutes disposing of such parts of the two proceedings as are determined by those answers. The short minutes should be accompanied by either an agreed statement of the steps the parties consider necessary to bring both proceedings to a conclusion or, if there is no agreement, each party’s statement of the steps it considers necessary. The question of costs can be dealt with after these matters have been addressed.

**********

Last Modified: 04/08/2004

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Citations

Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273

Most Recent Citation

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CITATION:	Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273
HEARING DATE(S):	08/03/04, 09/03/04
JUDGMENT DATE:	7 April 2004
JURISDICTION:	Equity Division Technology and Construction List
JUDGMENT OF:	Barrett J
DECISION:	Short minutes to be brought in
CATCHWORDS:	CONTRACT - building, engineering and related contracts - residential premises - whether contract breached by builder's failure to effect insurance under Home Building Act - whether "requirement" to obtain such insurance - whether proprietor validly terminated builder's employment - whether purported termination by proprietor was repudiation as against builder - builder's statutory claim to quantum meruit - whether quantum meruit recovery "just and equitable" - relevance of terminated contract to quantum meruit claim - relevance of actual costs - relevance of defects and cost to rectify - MORTGAGES - mortgages and charges generally - bank guarantees lodged by builder as security for performance of building contract - right to recover guarantees after contract terminated
LEGISLATION CITED:	Home Building Act 1989 Home Building Legislation Amendment Act 2001
CASES CITED:	Cominos v Cominos (1972) 127 CLR 588 Cope v Rowlands (1836) 2 M&W 149 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2001] NSWSC 1136 Loch v John Blackwood Limited [1924] AC 783 Pavey & Matthews Ltd v Paul (1987) 162 CLR 221 Premier Pacific Pharmaceutical Industries Ltd v Australian Stock Exchange Ltd (1995) 17 ACSR 426 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Ray Somerville Surveys Pty Ltd v Logan City Council [1994] 1 Qd R 440 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Riverside Motors Pty Ltd v Abrahams [1945] VLR 45 Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 Stephenson v State Bank of New South Wales (1996) 39 NSWLR 101 Sullman v Sullman [2002] NSWSC 169 Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Re Switzerland Insurance Australia Ltd and Capricornia Electricity Board (unreported, QSC, Demack J, 7 February 1997) Thomas v MacKay Investments Pty Ltd (1996) 22 ACSR 294 Walker v Jones (1866) LR 1 PC 50 Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48
PARTIES :	Eddy Lau Constructions Pty Limited - Plaintiff Transdevelopment Enterprise Pty Limited - Defendant Transdevelopment Enterprise Pty Ltd - First Defendant
FILE NUMBER(S):	SC 55035/01; 55009/02
COUNSEL:	Mr G J McVay - Plaintiff Mr J B Simpkins SC - Defendant
SOLICITORS:	James A Moustacas & Co - Plaintiff Henry Davis York - Defendant