(The Honourable Justice Debelle, The Honourable Justice Sulan and The Honourable Justice Vanstone)
21 December 2007
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - EFFECT OF ILLEGALITY OR INVALIDITY - SEVERANCE
Agreement compromising dispute between builder and building owners – agreement purported to resolve claims in respect of defects known to exist at date of execution of agreement as well as claims for future defects – whether by reason of s 42 of Building Work Contractors Act 1995 mutual release of claims void so far as it constituted a settlement of claims in respect of future defects – whether it is possible to sever void part of clause - appeal dismissed.
PROCEDURE - COSTS
Successful party ordered to pay costs of unsuccessful party – whether successful party entitled to recover some of their costs – relevant principles – appeal allowed.
DEBELLE J: This appeal from a decision of a judge of the District Court involves an important issue for consideration when resolving disputes arising out of a domestic building work contract as defined by the Building Work Contractors Act 1995.
A Building Dispute
The appellant Forlyle Pty Ltd (“Forlyle”) is a developer. It purchased an allotment of land in Stanley Street, North Adelaide and subdivided it into three allotments. In 2002 it sold one allotment to the respondents John Tiver and his wife Margaret Tiver. Forlyle entered into a separate agreement to construct a townhouse on that development. That agreement was called “the development agreement”. It is dated 26 September 2002.
The performance of the building work under the development agreement led to disputes between the parties. Forlyle claimed money said to be due and owing under that agreement. The Tivers alleged defective workmanship in the performance of the agreement. On 1 July 2004, Forlyle instituted proceedings in the District Court of South Australia. By order made on 30 July…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Forlyle Pty Ltd v Tiver [2007] SASC 464
Case
[2007] SASC 464
Decision Date
CaseChat Overview and Summary
The case of Forlyle Pty Ltd v Tiver involved a dispute between a builder and building owners regarding a contract that aimed to resolve both existing and future defects in a building project. The crux of the case revolved around whether the contract's mutual release of claims was void in regard to future defects, as well as the possibility of severing the void part of the clause. The matter was heard in the Supreme Court, where the court had to determine the validity and enforceability of the agreement in light of statutory provisions.
The primary legal issues before the court were whether the mutual release of claims regarding future defects was void under section 42 of the Building Work Contractors Act 1995, and if it was possible to sever the void portion of the clause from the valid parts of the contract. The court examined the nature of the agreement and its implications under the Act, and assessed whether the illegality could be separated from the rest of the agreement.
The court found that the mutual release of claims for future defects was indeed void under the statutory provision, rendering that part of the agreement unenforceable. However, it was also held that the void part of the clause could be severed from the rest of the contract, which remained valid and enforceable. Consequently, the appeal was dismissed regarding the severability of the clause. Regarding costs, the court ruled that although Forlyle was entitled to recover some of its costs, it was not entitled to recover all costs incurred in relation to the failed claim for consequential losses. The court ordered that each party bear their own costs, but Forlyle was required to pay the Tivers' costs associated with producing an accounting report in response to Forlyle's claim for damages.
The final orders of the court provided that Forlyle would pay the Tivers' costs related to the production of the accounting report, but each party would bear their own costs for the rest of the litigation. This decision underscored the importance of carefully considering the implications of statutory provisions on contractual agreements and the potential for severing unenforceable parts of a contract from the enforceable parts.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
The trial lasted five days. The judge found that the claim for consequential losses had occupied approximately two thirds of the trial. In addition, Forlyle had obtained an accounting report in support of its claim. The Tivers were put to the cost of obtaining a report in answer to that claim as well as the costs of defending the claim. Forlyle later abandoned one of the heads of consequential damage. After reviewing the authorities, the judge concluded:23As has been seen, the plaintiff pursued a separately identifiable cause of action occupying at least two thirds of the trial. It generated the need for the exchange of extensive and costly expert accounting reports. In the result these were in one respect abandoned and in another barely used in the trial. The maintenance of that cause of action locked the defendants into defending it. The plaintiff on two occasions, wrote what might be conveniently described as Calderbank letters trying to break the deadlock, substantially but not quite in accordance of the ultimate orders made by the court. Their weakness lay in the fact that full costs were claimed, but they were nevertheless genuine efforts to settle: ACCC v Universal Music (No 2) (2002) 201 ALR 618 at 631-632. These were not accepted by the defendants because of their maintenance of what was ultimately found unjustified claim that the whole contract fell. 24No doubt the plaintiff was annoyed and if not frustrated by the failure of the defendants to pay monies due under the original building contract; even so the proper remedy always lay in interest. Insofar as it sought the additional head of damages, it seemed obvious these stemmed – if at all - from breach of the building contract rather than from the settlement. In any event that claim would always have struggled in view of the bare details provided by the plaintiff through Mr Packer of what was proposed with respect to the McKinnon Parade development. 25A number of points can be made at this juncture. First, the plaintiff was entitled to the benefit of a consent judgment, which left it with no other alternative than to sue because of the intransigence of the defendants. It wrote two letters trying to break the deadlock, to which the defendants did not respond. As a consequence, a narrow legal argument delayed the plaintiff in obtaining its due. On the other hand, it overreacted in pursuing a claim for an exaggerated and speculative claim in damages, a claim that ultimately failed. That claim was separate and distinct. As mentioned, it is possible to attribute approximately two-thirds of court time to the failed damages limb.26To sum up, there are weighty arguments, as well as fault, on both sides. These have led to protracted litigation on unnecessary issues on both sides. Two attempts to provoke settlement, fell on deaf ears. Conclusion27Doing the best one can in these divisive circumstances, judiciously exercising a rather blunt but discriminating discretion as to costs, the court considers each party should bear their own costs of the litigation, but that the plaintiff should pay the defendants’ costs of the disbursements incurred in the production of its accounting report in response to the claim for damages which failed at first instance. This order embraces the orders relating to discovery, the subsequent hearing in relation to the issue of costs as well as the failed claim for summary dismissal. The reference in paragraph 25 of the judge’s reasons to “an exaggerated and speculative claim in damages” is a reference to Forlyle’s claim for consequential losses. However, the judge did not find that the claim for consequential losses by Forlyle was unreasonably or improperly made, although he found that it “would always have struggled in view of the bare details provided by the plaintiff”.