Fraser v Sperling
[2015] VSC 698
•11 December 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW & APPEALS LIST
S CI 2014 6044
| MAUREEN FRASER and DESMOND THOMAS FRASER | Plaintiffs |
| v | |
| GUNTRAM SPERLING and HEIDI KASTNER | Defendants |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 September 2015 |
DATE OF JUDGMENT: | 11 December 2015 |
CASE MAY BE CITED AS: | Fraser and anor v Sperling and anor |
MEDIUM NEUTRAL CITATION: | [2015] VSC 698 |
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JUDICIAL REVIEW AND APPEAL – Appeal from the Victorian Civil and Administrative Tribunal on a question of law – Appeal dismissed - Building contract relied upon by the plaintiffs not in evidence before VCAT, and not established as a valid and enforceable contract – Section 31(2) of the Building Contracts Act 1993 (Vic)
CONTRACT – Domestic building contracts – Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635 considered – Legal obligations of the parties established by the terms of the contract, not the actual commercial arrangements of the parties – Obligations of builder assumed under contract – Building contract not discharged by later agreement.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L P Wirth | Just Law |
| For the Defendants | In person |
HER HONOUR:
This appeal from the Victorian Civil and Administrative Tribunal (‘VCAT’) concerns, in essence, who ought to bear the financial consequences of a trouble plagued residential development of a number of properties at the Dinner Plain ski resort. The plaintiffs (‘the Frasers’) were the owners of lot S2, Roney Mac Twist, Dinner Plain (‘the land’), one of three lots which were the subject of the redevelopment (‘development project’). However, they are retired people, and it appears that the driving force behind the development project was Mrs Fraser’s son, Michael Atwell. Funding for the purchase of the land and the development project was provided by the National Australia Bank Ltd (‘NAB’). These loans were secured by mortgages over the land and the Frasers’ residential home in Corowa, Victoria.
Mr Atwell was the controller of, among other entities, Snowy Corner Pty Ltd (‘Snowy’). Snowy had purchased two lots adjacent to the land (‘Snowy properties’), with the intention of constructing homes on each of the Snowy properties as part of the development project.
Mr Atwell arranged for the two homes to be constructed on the land to be sold ‘off the plan’, one to his sister and another to a company controlled by him. In late 2010 he met a Mr Demetriou, the director of Modern 1 Design Pty Ltd (‘Modern’), a building company. Apparently not known to Mr Atwell (or the Frasers) at the time, Mr Demetriou was not a registered building practitioner within the meaning of the Domestic Building Contracts Act 1995 (Vic). A building surveyor must not issue a building permit for the construction of any proposed building works without being satisfied that the builder is a registered building practitioner covered by the required insurance under s 24A of the Building Act 1993 (Vic). As such, Modern could not undertake building projects in its own right. Nonetheless, Mr Demetriou agreed that Modern would construct two homes on the land and one home on each of the Snowy properties, and would also (although this is not relevant for current purposes) purchase the Snowy properties after the completion of the development project.
In order to obtain the building permits required for the development project, Modern was required to come to some arrangement with a registered building practitioner. He approached Mr Guntram Sperling, who was a registered building practitioner operating in the alpine region. Mr Sperling conducted a home renovation business in partnership with his wife, Dr Heidi Kastner, trading as ‘Alpine Woodpecker’.
The chronology of events is canvassed in some detail in the reasons of Senior Member Farrelly (‘Senior Member’) dated 16 October 2014 (‘reasons’), and in even further detail in the affidavits and submissions relied upon by Mr Sperling and Dr Kastner at the hearing before VCAT (‘VCAT hearing’), and this appeal. Most of the latter were prepared by Dr Kastner. The couple emigrated from Germany to Australia in 2003, and Dr Kastner’s command of English seems significantly better than that of Mr Sperling. They represented themselves during the course of the VCAT hearing and at the hearing of the appeal. However, they did have solicitors and counsel acting for them in this proceeding, until I granted their solicitors leave to act on 7 July 2015, and have had some subsequent legal assistance in preparing documents. The key events are summarised below:
(a) after some discussions with both Mr Demetriou and Mr Atwell, Mr Sperling agreed to assist Modern with the development project, and as part of that assistance, would enter into building contracts with Snowy in respect of the two homes to be constructed on the land, and the two homes to be constructed on the Snowy properties;
(b) on 2 December 2010, Mr Sperling and Dr Kastner met Mr Demetriou, and were presented with three contracts, being HIA standard form ‘New Home Contracts’, with Snowy nominated as the owner, and Modern and Alpine Woodpecker nominated as the named builders. Each of the three contracts were signed, in duplicate, by Mr Demetriou on behalf of Modern, and Mr Sperling on behalf of Alpine Woodpecker. None of the contracts had been signed by or on behalf of the Frasers or Snowy at that time;
(c) on 8 December 2010, Modern and Alpine Woodpecker agreed that Alpine Woodpecker would receive a fee of $10,000 for each of the four homes, and Modern would retain the builder’s profit. This agreement was not reduced to writing and signed by Mr Demetriou and Mr Sperling until February 2011. At the VCAT hearing, Mr Atwell disclaimed any knowledge of this agreement;
(d) on 17 December 2010, QBE Insurance, on the application of Mr Sperling, issued a warranty insurance certificate for each of the two homes to be constructed on the land;
(e) on 12 January 2011, a building surveyor issued building permits for ‘Stage 1 – footings only’ for the two homes to be constructed on the land. The building permits were issued to the Frasers, with Alpine Woodpecker as the builder, and Mr Sperling as the designated registered building practitioner. Mr Sperling apparently did not sight the building permits until March 2011, when the stage 2 building permits were issued;
(f) construction on the land commenced in late 2010/early 2011. There was an aspiration to complete the development project before the commencement of the 2011 ski season;
(g) in March 2011, for whatever reason, there was a falling out between Mr Atwell and Mr Demetriou, and Modern abandoned the development project. Shortly after, Mrs Fraser telephoned Mr Sperling and asked him what he was going to do about ‘our buildings’. At the VCAT hearing, Mr Sperling gave evidence that he did not know who Mrs Fraser was at the time she called him; and
(h) on 4 April 2011, Mr Atwell’s solicitors sent Mr Sperling an email which identified the Frasers as the owners of the land, and asserted that the responsibility for completing the works lay with Mr Sperling as the signatory to the three building contracts for the development projects, and as the registered building practitioner for the development project.
It was in this context that Mr David Winchester arrived on the scene. He had, through Mr Atwell (a real estate agent), purchased a lot adjacent to the land and the Snowy properties, intending to construct a modular home in time for the forthcoming ski season. He found that his lot, along with the land and Snowy’s properties, were enclosed by security fencing and his lot strewn with building materials and other debris. He contacted Mr Atwell, and was informed about the difficulties troubling the development project.
It appears that Mr Winchester was regarded by the Frasers, Mr Atwell, and Alpine Woodpecker as the saviour of the development project. Mr Winchester proposed, first to Mr Atwell, and then to Mr Sperling, that an entity controlled by him, Fingal Holdings Pty Ltd (‘Fingal’), take over the role of Modern in the development project. The parties (Fingal, Snowy, and Alpine Woodpecker) entered into an agreement (‘April 2011 agreement’), the key terms of which were as follows:
AGREEMENT
(h)Fingal Holdings Pty Ltd (David Winchester) takes on the obligations of Modern 1 Design Pty Ltd to complete the construction of Lots 5 & 6 and Lot S2. This will be done under the framework of the existing building contract arrangements with Guntram Sperling.
(i)Fingal Holdings Pty Ltd does not take on any obligation Modern 1 Design Pty Ltd has to any subcontractor prior to its (Fingal) commencement on site.
(j)Snowy Corner Pty Ltd (Atwell) place $50,000 in the Trust account of Burke & Associates to assist payment of the outstanding creditors as per above. Payments to be made from these funds on the authorisation of Guntram Sperling, David Winchester and Michael Atwell.
(k)From the payment of the Lock Up Stage claim for S2[1] of $196,700 an amount of $72,000 to be paid into the Trust account of Burke & Associates to assist payment of the outstanding creditors as per above. Payments to be made from these funds on the authorisation of Guntram Sperling, David Winchester and Michael Atwell.
(l)Progress Claims for Building Works to be made on the invoice of Fingal Holdings Pty Ltd. The claim is to be supported by photographic evidence that works to that stage have been completed. The Progress Claim is to be paid directly by the NAB to Fingal other than for the $72,000 referred to above which is to be paid to Burke & Associates.
(m)David Winchester to take on the plumbing compliance obligations for all plumbing works on each of the 4 buildings.
[1]The land was described in a number of documents, including the Tribunal member’s reasons, as ‘S2’.
The reason why payments were to be made to Burke & Associates’ trust account (‘trust account’) was to ensure that sub-contractors engaged by Modern were paid the amounts owing to them at the time Modern abandoned the development project. Payment of those accounts was considered to be essential, because apparently it can be difficult to procure tradespeople to work in alpine areas. However, for reasons which never became clear, Snowy did not make any payments into the trust account, but rather, payments were made by Snowy to Fingal directly, apparently at the request of Mr Winchester. Further payments were made by the Frasers directly to Fingal, which were described as ‘advance payments’. None of these payments were made with the knowledge or authorisation of Mr Sperling, despite the terms of the April 2011 agreement.
The subcontractors remained unpaid. The NAB refused to release any more funds to enable the Frasers to pay Fingal to complete the development project. Neither the Frasers or Snowy were in a position to or were prepared to advance any further funds to enable the completion of the development project on terms acceptable to Fingal. Works ceased on the development project in August 2011. Despite assurances by Mr Winchester to Mrs Fraser as late as 25 November 2011 that the building works on the land would continue, Fingal never returned to carry out any further works, and, despite requests by Mrs Fraser, did not return any of the advance payments made to it in respect of the development project. What happened next is succinctly stated in paragraphs 62 to 64 of the reasons:
Although it is not entirely clear on the evidence, it appears that by December 2011 Mr Atwell and Mrs Fraser reached the conclusion that Fingal would not be returning to complete the building works. On 22 December 2011, Snowy commenced this proceeding against Modern, Fingal and Mr Sperling and Dr Kastner. Fingal subsequently filed a counterclaim against Snowy and Mr and Mrs Fraser claiming it was owed money in respect of the building works it carried out at lot S2. Subsequently, on 29 November 2012, Mr and Mrs Fraser commenced their Crossclaim in the proceeding against Mr Sperling and Dr Kastner, Modern and Fingal. Snowy was subsequently placed into liquidation, and Modern and Fingal were subsequently deregistered leaving only Mr Sperling and Dr Kastner as the ‘live’ respondents to Mr and Mrs Fraser’s Crossclaim.
Mr and Mrs Fraser took no action, after December 2011, to bring the construction of the lot S2 homes to completion or to otherwise mitigate their loss. Mrs Fraser says in her witness statement:
The non completion of S2 [the homes at Lot S2] put us in an impossible position financially. We were unemployed pensioners and NAB refused to advance further funds until further work was completed. We could not afford to pay anyone else to complete the project.
In February 2013, the NAB took possession of the incomplete lot S2 homes and sold them for a combined sum of $275,000, and in April 2013, the NAB took possession of Mr and Mrs Fraser’s home in Corowa and sold it for $250,000. The sale proceeds were insufficient to meet the debt owed to the NAB. As at June 2013, Mr and Mrs Fraser’s residual debt to the NAB was around $524,000, and it continues to escalate.
The VCAT hearing proceeded over six sitting days in September 2014. The only parties (or relevant parties for the purposes of this appeal) which remained solvent by the time of the VCAT hearing were the Frasers, and Mr Sperling and Dr Kastner as the partners of Alpine Woodpecker.
The Frasers, in their Further Amended Points of Cross Claim (‘Points of Claim’) alleged that on or about 28 November 2010, Snowy entered into a building contract on their behalf for the building works on the land. The Frasers alleged that in September 2011 ‘the builder’ (that is, Alpine Woodpecker) abandoned the development project, and, as a result, the Frasers have suffered the following loss and damage:
(a) $58,000, being the profit they say would have been made had the homes been completed and sold;
(b) $250,000, being the value of their home in Corowa which was sold by the NAB; and
(c) $524,000, being their residual debt to the NAB (as at June 2013).
The Senior Member dismissed the Frasers’ claim against Alpine Woodpecker. The reasons traversed the events summarised in the paragraphs above in some detail. During the course of the reasons, the Senior Member made certain observations and findings regarding the provenance of certain contractual documents which are of some significance to the disposition of this appeal. I shall return to these matters later.
The key findings of the Senior Member are contained in paragraphs 65 to 79 of the reasons, which are summarised below:
(a) it was ‘open to find’ that the Frasers were, through the agency of Snowy, parties to the ‘lot S2 building contract’ (presumably, the building contract pleaded by the Frasers in the Points of Claim);
(b) however, Alpine Woodpecker are not liable for the loss and damage claimed by the Frasers, because they have not caused that loss;
(c) the payment of funds into the trust account in order to facilitate the payments to subcontractors was a critical factor in the April 2011 agreement, as the outstanding amounts owed to the subcontractors had to be addressed;
(d) Snowy and Mrs Fraser paid the funds required by the April 2011 agreement to be paid into the trust account directly to Fingal. Alpine Woodpecker did not authorise these payments to Fingal, and there was no evidence that either Mr Sperling or Dr Kastner had any knowledge of any such payments;
(e) at paragraph 70 of the reasons, the Senior Member stated as follows:
On the evidence before me, I find that the failure to establish the trust fund, and the resulting failure to pay subcontractors, was a significant factor in the collapse of the building project at lots S2, 5 and 6. Mrs Fraser, along with Snowy and Fingal, had a direct hand in the failure to establish the trust fund. Mr Sperling and Dr Kastner had no hand in it at all.
(f) by the time it ceased work in August 2011, Fingal had been paid in excess of the amount due to it under the building contract. As such, it was not surprising that the NAB refused to advance further funds until the building works were completed. To the extent that the inability of the Frasers to access funds was a factor in the cessation of the development project, Alpine Woodpecker played no part in that circumstance arising;
(g) it was clear that, contrary to what Mr Sperling and Dr Kastner believed at the time of the entry into the building contracts, Alpine Woodpecker was brought into the development project by Modern ‘for the sole purpose of delivering Mr Sperling’s RBP status which was required to obtain the building permit and the warranty insurance, and without which the works could not proceed’;
(h) the actions of Mr Winchester and Mr Atwell were behind the failure to pay the funds into the trust account pursuant to the April 2011 agreement, Mr Sperling had nothing to do with it;
(i) it is clear that the Frasers, Snowy, and Fingal all acted on the basis that Fingal, not Alpine Woodpecker, was the ‘builder’ who was responsible for the carrying out of the building works, issuing progress payment claims and receiving payment in respect of those claims;
(j) Fingal bears much responsibility for the cessation of the development project and the ensuing loss to the Frasers;
(k) the allegation that Alpine Woodpecker abandoned the development project was ‘unsustainable’, as there was no evidence that Mr Sperling was unable and unwilling to continue in his technical advisory role in the development project;
(l) the claim by the Frasers that they made overpayments in respect of the building works based upon the false representations of Alpine Woodpecker and Fingal is not sustainable against Alpine Woodpecker, as Alpine Woodpecker played no part in the issue or approval of progress payment claims; and
(m) finally, at paragraph 79 of the reasons, the Senior Member stated as follows:
On all the evidence, I am not satisfied that Mr Sperling or Dr Kastner have breached any contractual responsibility to Mr and Mrs Fraser, or that their actions have caused the loss and damage claimed by Mr and Mrs Fraser. Accordingly, Mr and Mrs Fraser’s claim must fail.
On or about 13 November 2014, the Frasers applied to this Court for leave to appeal the orders of the Senior Member dismissing their claim against Alpine Woodpecker. The process by which the Frasers obtained leave to appeal from Derham AsJ on 27 February 2015 was somewhat protracted, and is also of some significance to my disposition of the appeal.
The application for leave to appeal was supported by an affidavit of Mr James Gray, the Frasers’ solicitor, affirmed on 13 November 2014. Mr Gray appeared for the Frasers at the hearing at VCAT. This affidavit exhibited the orders made by the Senior Member on 16 October 2014, the reasons, and a proposed notice of appeal. The proposed notice of appeal contained the following questions of law and grounds of appeal:
Questions of Law
1.Whether the Tribunal failed to take into account relevant matters, namely:
(a)whether the Respondents were bound by the building contract to complete the building works for the Appellants;
(b)whether the Respondents had breached the building contract with the Appellants and were for that reason liable for the Appellants’ loss and damage.
Grounds of Appeal
1.The Tribunal erred in failing to consider a relevant matter, namely whether the Respondents were bound by the building contract complete the building works for the Appellants.
2.Alternatively, having found that:
(a)the Appellants and the Respondents were party to a building contract pursuant to which the Respondents were required to undertake building works on the Appellants’ land; and
(b)the building works that the Respondents were required to undertake on the Appellants’ land were not completed;
the Tribunal erred in holding that the Respondents were not liable for the Appellants’ loss and damage for breach of contract.
The application was originally returnable before Lansdowne AsJ on 17 December 2014. Two days prior, the associate sent an email to the parties informing them that the Court would not be in a position to deal with the application on the appointed date, and that the application would be re-listed for hearing on 27 February 2015. The email went on to say as follows:
Irrespective of the above, her Honour has had an opportunity to review the material and raises the following for the parties’ consideration prior to appearing before an Associate Judge on the above date:
·whether the questions of law require reframing and whether a proposed amended notice of appeal should be filed;
·filing any other material before the Tribunal below including the pleadings, transcript, any exhibits and the written submissions of the parties.
On 13 February 2015, Mr Gray affirmed a further affidavit which exhibited the email referred to above, a revised proposed notice of appeal, and, at exhibit ‘JG‑6’ to this affidavit, a purported copy of a building contract between the Frasers and Alpine Woodpecker (exhibit ‘JG-6’), which was described in the affidavit as
a copy of the building contract that was admitted into evidence in the Tribunal below, to which, the Tribunal held, the defendants were party as a builder.
This statement is not, as is apparent from the reasons and the evidence before me in this proceeding, accurate. Indeed, it is arguably misleading.
The revised proposed notice of appeal included the following questions of law and grounds of appeal:
Questions of Law
1.Were the Respondents bound by the building contract to complete the building works for the Appellants?
2.Did the Respondents breach the building contract with the Appellants?
3.Did the Respondents’ breach of contract, namely their failure to complete the building works set out in the building contract, cause the Appellants’ loss and damage?
Grounds of Appeal
1.The Tribunal erred in failing to consider a relevant matter, namely whether the Respondents were bound by the building contract complete the building works for the Appellants.
2.Alternatively, having found that:
(a)the Appellants and the Respondents were party to a building contract pursuant to which the Respondents were required to undertake building works on the Appellants’ land; and
(b)the building works that the Respondents were required to undertake on the Appellants’ land were not completed;
the Tribunal erred in holding that the Respondents were not liable for the Appellants’ loss and damage for breach of contract.
The application returned before Derham AsJ on 27 February 2015. On that day, Alpine Woodpecker was represented by counsel, and resisted the application for leave on the grounds that the revised notice of appeal did not articulate a question of law. His Honour granted leave to appeal in respect of the questions of law in the form of the Notice of Appeal before me, and relisted the matter for further directions on 13 April 2015 for the purpose of determining
whether it is necessary for this proceeding that the appellants, respondents or parties jointly to obtain a transcript of the hearing below[2]
[2]See paragraph 4 of ‘Other Matters’ of the Orders made on 27 February 2015.
While no orders were ultimately made requiring the provision of the transcript, the following matters are apparent from the transcript of the hearing before Derham AsJ on 27 February 2015: first, that Alpine Woodpecker was pressing for the transcript of the VCAT hearing to be before the Court on the hearing of the appeal, and that this was resisted by the Frasers. Further, the final version of the Notice of Appeal finally relied upon was drafted in response to various suggestions made by Derham AsJ, including a suggestion that the Frasers identify the building contract relied upon by them for the purposes of the appeal.
The final Notice of Appeal was filed on 6 March 2015, and contained the following questions of law and grounds of appeal.
Questions of Law
1.Were the Respondents bound by the building contracted dated 24 November 2010 (Exhibit JG-6 to the affidavit of James Gray affirmed on 13 February 2015) (Building Contract) as Builder (as defined in the Building Contract)?
2.Was the Building Contract discharged by entry into the agreement of 12 April 2011 (set out in paragraph [42] of the Tribunal’s reasons as contained in Exhibit JG-1 to the affidavit of James Gray affirmed on 13 November 2014 (Reasons)) (April 2011 Agreement)?
3.Did the Respondents breach:
(a)the Building Contract; or
(b)the April 2011 Agreement;
causing loss and damage to the Appellants?
Grounds of Appeal
1.The Tribunal erred in holding that, although named as a Builder under the Building Contract, the Respondents were not responsible under the Building Contract, as Builder.
2.The Tribunal erred in holding that the April 2011 Agreement ‘subsumed’ the Building Contract (Reasons, [65]).
3.The Tribunal erred in failing to assess the damages alleged by the appellants in the light of breaches by the Respondents of contractual terms that subsisted between the parties following the execution of the April 2011 Agreement, in particular clause 10 of the Building Contract.
It is clear from the terms of the first question of law that the Frasers rely on exhibit ‘JG-6’ as being the contract upon which they say ‘bound’ Alpine Woodpecker. This document was signed by Mr Sperling, Mr Demetriou, and the Frasers. However, contrary to the evidence of Mr Gray in his affidavit of 13 February 2015, and the written submissions filed on behalf of the Frasers on 10 July 2015, this was not a document that the Senior Member had found to be the contract to which the Frasers and Alpine Woodpecker were parties.
Indeed, the Senior Member did not make a positive finding that the Frasers and Alpine Woodpecker were parties to any building contract, because he did not find it necessary to do so, by reason of his findings regarding causation. At paragraph 65 of the reasons, the Senior Member stated as follows:
In my view, it is open to find that Mr and Mrs Fraser were, through the agency of Snowy, parties to the lot S2 building contract. At the time Mr Sperling signed the contract on behalf of the Alpine Woodpecker partnership, the agency of Snowy was undisclosed. However, at the time Mr Sperling signed the April 2011 agreement, an agreement which subsumed the lot S2 contract, the agency of Snowy was, or ought to have been, apparent to Mr Sperling and Dr Kastner. That Mr and Mrs Fraser were the owners of lot S2 was made clear in the email of 1 April 2011 from Burke & Associates lawyers to Mr Sperling.
However, the ‘lot S2 building contract’ was not the same document as exhibit ‘JG-6’. The lot S2 building contract was referred to and described in paragraph 25 of the reasons, as follows:
Mr Atwell says he signed the three building contracts in his capacity as director of Snowy. He says also that, in respect of the contract for the building works to be carried out to lot S2 (‘the lot S2 building contract’), Snowy executed the contract as agent of Mr and Mrs Fraser. Mr Atwell says that, about a week or two after he signed the lot S2 building contract, he amended the contract so that it recorded Mr and Mrs Fraser as the ‘owners’ in place of Snowy, and he then arranged for Mr and Mrs Fraser to sign the amended contract. As discussed below, the amended contract was not produced in this proceeding until the fourth day of the hearing.
The description in paragraph 25 of the reasons does not accord with the document which is exhibit ‘JG-6’. Exhibit ‘JG‑6’ includes ‘particulars of contract’ which is substantially identical to the particulars of contract in respect of the land exhibited to Dr Kastner’s affidavit affirmed on 12 June 2015. That document identifies Snowy as the owner, and is signed by Mr Sperling and Mr Demetriou in the signature box provided for the builders to sign, and each page is initialled by Mr Sperling and Mr Demetriou. The document exhibited to Dr Kastner’s affidavit includes only the particulars of contract and schedule 1 to 3 of the particulars, and not the entirety of the HIA Standard form contract, but I doubt much turns on this.
The document at exhibit ‘JG-6’ is a complete contract, and the reference to Snowy as the owner next to the heading ‘This Contract is between’ is struck out, and the names ‘Maureen Fraser’ and ‘Desmond Fraser’ added underneath and initialled ‘DF’. The Frasers have also signed in the signature box provided for the owners, their signatures having been witnessed by Mr Atwell, and the Frasers have initialled each page. However, when I compare this document with the document described in the reasons, I cannot be satisfied that exhibit ‘JG-6’ was before the Senior Member at all, let alone found by him as being the building contract to which the Frasers and Alpine Woodpecker were parties. Exhibit ‘JG-6’ was not signed by Mr Atwell other than in his capacity as a witness, which is inconsistent with his evidence at the VCAT hearing regarding him signing the building contract first, and then getting the Frasers to sign an amended document.
This much is also evident from the reasons, and the evidence given by Mrs Fraser in her witness statement relied upon by her at the VCAT hearing. In her witness statement dated 14 August 2014, Mrs Fraser deposed as follows:
Des & I had a building contract with Guntram Sperling and Modern 1 Design Pty Ltd. We understood Guntram Sperling (‘Sperling’) was a registered builder. It was signed, on our behalf, initially by Michael Atwell, as our Agent for a build price of $562,000 for both townhouses, described as S2. Shortly after the contract was signed by Michael the bank asked Des and I to sign the contract instead and so we did so. I have subsequently seen a copy of the contract attached as ‘A’ is a copy of the contract page I signed.
The page of the document marked ‘A’ differs from both exhibit ‘JG-6’ and the document exhibited to Dr Kastner’s affidavit in a number of respects, as follows:
(a) while the formal parts of the document appears to have been completed by the same person in all three instances, there are some slight differences in the handwriting in ‘A’, suggesting that this document might have been completed on a different occasion;
(b) the document marked ‘A’ is signed and initialled by Mr Demetriou, but not by Mr Sperling;
(c) there is a signature in the signature box for the owner which is crossed out, but the signatures of the Frasers in ‘A’ are different in style than in exhibit ‘JG -6’, and are not witnessed, and their initials are in different positions at the foot of the page; and
(d) the signature of the witness to Mr Demetriou’s signature is purportedly that of the same person, but the signatures themselves are somewhat different.
To complicate matters further, it appears that the Senior Member did not accept into evidence the document referred to in paragraph 25 of the reasons, as demonstrated by the observations at paragraphs 26 to 29 of the reasons:
Mr Atwell and Mrs Fraser gave evidence as to the signing of the lot S2 building contract by Mr and Mrs Fraser. The evidence is confusing and unconvincing. The confusion is due largely to the fact that Mr Atwell, who assisted his parents in obtaining the NAB finance, had prepared an alternative lot S2 building contract for presentation to the NAB. The alternative contract identifies a higher contract price of $635,000. Mr Atwell apparently considered it acceptable to produce a false contract document for the limited purpose of obtaining bank finance. It is understandable, if not excusable, that Mr and Mrs Fraser went along with the ruse because they trusted Mr Atwell to manage their affairs in respect of the lot S2 building contract.
I heard much evidence from Mrs Fraser and Mr Atwell as to the circumstances surrounding their signing of the lot S2 building contract, both the ‘real’ contract and the ‘alternative’ contract presented to the NAB. Their evidence was materially different in some respects.
Quite remarkably, Mr Atwell announced on the fourth morning of the hearing that he had, just that morning, found the ‘real’ original lot S2 building contract as amended and signed by Mr and Mrs Fraser. Having regard to the fact that the proceeding commenced in December 2011, and during the interlocutory stages of the proceeding a number of orders had been directed at the production of building contracts, it is very surprising that it took until the fourth morning of the hearing for Mr Atwell to discover the original contract.
Although I have reservations as to reliability of Mrs Fraser’s and Mr Atwell’s evidence as to the signing of the lot S2 building contract, I do not dwell on the issue because, in the end, it is not a determinative factor in my decision.
Indeed, the Senior Member rejected an application by the Frasers to amend the Points of Claim to rely upon the document produced by Mr Atwell at the trial, as shown by paragraph 80 of the reasons:
For completeness, I note that in the course of the hearing Mr and Mrs Fraser sought leave to amend their Further Amended Points of Crossclaim. The effect of the proposed amendment was to add, as an alternative to the allegation that the lot S2 building contract was formed through the agency of Snowy, the allegation that Mr and Mrs Fraser entered the lot S2 contract directly and not through the agency of Snowy. The application to amend the pleading was pressed on the fourth day of the hearing after Mr Atwell produced, for the first time, the original lot S2 contract as amended and signed by Mr and Mrs Fraser. I refused the application for two reasons. First, having regard to the length of the proceeding prior to the hearing and the multiple pleadings already filed, I do not consider it fair to Mr Sperling and Dr Kastner to allow the late amendment. Second, having heard the evidence of Mrs Fraser and Mr Atwell as to the circumstances of the amendments to, and the signing of, the lot S2 contract by Mr and Mrs Fraser, I did not consider the proposed alternative allegation to be sustainable.
There is no reference in the reasons to a building contract which meets the description of exhibit ‘JG-6’.
The further evidence filed on behalf of the Frasers does not assist. Mr Gray affirmed a further affidavit on 20 March 2015, exhibiting, among other things, the pleadings, witness statements, and submissions before the Senior Member at the VCAT hearing. Exhibit ‘JG-11’ is described as ‘Building Contract signed by Respondents’. However, this exhibit does not meet that description. It is the particulars of contract for one of the Snowy properties, signed only by Mr Demetriou on behalf of Modern, and not Mr Sperling on behalf of Alpine Woodpecker.
The issue of what was the correct version of the building contract was the subject of some discussion at the hearing of the appeal. Counsel for the Frasers, when referring to exhibit ‘JG-6’, stated that ‘I’d almost say it was an error to exhibit that version’,[3] and noting that the evidence of Mr Atwell at the VCAT hearing was that he had signed the building contract and then had the Frasers sign an amended contract. However, counsel for the Frasers took me to an exhibit to Dr Kastner’s affidavit affirmed on 12 June 2015, which, among other things, exhibited ‘three building contracts signed by the respondents’, and pointed out the similarities between that document and the document at exhibit ‘JG-6’, and submitted that, I should accept that exhibit ‘JG-6’ is the proper version of the building contract, notwithstanding what the Senior Member found at the VCAT hearing. Counsel went on to say:[4]
Because there is in effect no dispute that this is the version, as it were, that the defendants signed. What the defendant says is, ‘Well we weren’t party in an agreement with the Frasers, we were party to agreement with Snowy Corner, because Snowy Corner’s name was what appeared when we signed’. Then that’s cured by the Tribunal’s finding that Snowy Corner in any event was the agent for the Frasers.
[3]Transcript 3, 12.
[4]Transcript 4, 18-25.
Of course, Alpine Woodpecker does not deny having signed a building contract for the construction of two dwellings upon the land. They assert that the building contract was made with Snowy, not the Frasers, that any building contract did not reflect the true terms of the agreement between the parties, and that, in any event, it was subsumed by the April 2011 agreement. In their evidence and submissions, they rely upon the parts of the reasons referred to above which express some concerns about the evidence of Mrs Fraser and Mr Atwell regarding the execution of the building contracts, and point to the findings in the reasons that ‘sham’ contracts had been provided to the NAB to obtain more funding for the development project.
I will dismiss the appeal, on the basis that I am not satisfied that the document relied upon by the Frasers for the purposes of this appeal as being the building contract by which Alpine Woodpecker was bound was even in evidence at the VCAT hearing, let alone the subject of any findings on the part of the Senior Member. In effect, the Frasers are, in their Notice of Appeal, asking me to make a finding that Alpine Woodpecker is bound by a document which was not, at least on the evidence before me, an exhibit before the Senior Member, in circumstances where the Senior Member had serious doubts regarding the provenance of another version of the building contract referring to the Frasers as parties to a building contract with Alpine Woodpecker, and indeed rejected an application by the Frasers to amend their points of claim based upon that version of the building contract. The clearly erroneous description of exhibit ‘JG-6’ in Mr Gray’s affidavit of 13 February 2015 serves to underscore my view that the existence of several different versions of the building contract should not simply be glossed over.
What the Frasers are submitting I ought to do is make an assumption that the Frasers and Alpine Woodpecker were parties to an agreement in substantially similar or identical terms to exhibit ‘JG-6’. However, in putting exhibit ‘JG-6’ before the Court, and relying upon that version of the building contract in their Notice of Appeal, the Frasers have made a deliberate forensic choice. Coincidentally or otherwise, the document they seek to rely upon includes only the signatures of the Frasers, and not Mr Atwell, thus enabling them to put their best foot forward in relation to what I consider would be a relatively low risk that the Court might make an adverse finding against them on the question of Mr Atwell’s role as their agent, given the operation of the doctrine of the undisclosed principal. In doing so, the Frasers have not established the factual foundation for their contentions in their Notice of Appeal. That may seem like a harsh outcome, but it is a consequence of the forensic choices they and their legal team have made.
The position might have been different had there been direct evidence before me as to the circumstances in which exhibit ‘JG-6’ had come into existence, such as affidavits from Mrs Fraser and/or Mr Atwell regarding the circumstances in which exhibit ‘JG-6’ was executed. There was ample opportunity for them to do so, and the question of the identification of the contract upon which the Frasers were intending to rely was raised squarely by Derham AsJ at the hearing before him on 27 February 2015. However, the only evidence before me is plainly incorrect, and counsel for the Frasers effectively conceded as such.
The question of whether the building contract signed by Mr Sperling was also signed by either the Frasers or by Mr Atwell in his capacity as agent for the Frasers is not merely a question of semantics. Section 31(2) of the Domestic Building Contracts Act 1995 (Vic) provides that:
A major domestic building contract[5] is of no effect unless it is signed by the builder and the building owner (or their authorised agents).
[5]Defined as a domestic building contract in which the contract price exceeds $5,000.
In the absence of transcript, it is not clear whether Alpine Woodpecker relied upon this provision at the VCAT hearing. But if they had (noting that they were and are once again self-represented), the absence of a building contract signed by the owner and the builder might have been, in the context of the other findings made by the Senior Member, the end of the matter.
In circumstances where the reasons and the evidence before me in this proceeding suggest that exhibit ‘JG-6’ only came to light after the conclusion of the VCAT hearing (as it presumably would have been relied upon by the Frasers at the VCAT hearing had they had it in their possession at that time), where there is no evidence before me of when and in what circumstances the Frasers executed exhibit ‘JG–6’, and where the Senior Member made a finding that Mr Atwell’s and Mrs Fraser’s evidence regarding the signing of another version of the building contract was ‘confusing and unconvincing’, I would be loath to proceed on the assumption that exhibit ‘JG-6’ was signed by the Frasers on or shortly after the date of the document, or prior to the issue of the VCAT proceeding. That is, I cannot be satisfied that what was before this Court was a valid and legally enforceable contract.
However, if it is held elsewhere that I have taken an unduly pedantic approach to this issue, and ought to have found that on or about 24 November 2010 the Frasers and Alpine Woodpecker entered into a building contract in the same terms as exhibit ‘JG-6’, I would make the following findings with respect to the questions of law identified in the Notice of Appeal:
(a) at the time of executing the building contract, Alpine Woodpecker assumed the obligations of the builder under the building contract, including the obligation to complete the works for the price of $562,000;
(b) the building contract was not terminated, discharged, or ‘subsumed’ by the April 2011 agreement; and
(c) the proceeding ought to be remitted to VCAT for rehearing and determination according to law. I would have heard further submissions on the question of whether it ought to have been a differently constituted tribunal, as foreshadowed during the hearing of the appeal, given that Dr Kastner submitted that if I allowed the appeal the proceeding ought to be remitted to the Senior Member.
I would make these findings substantially in accordance with the submissions advanced on behalf of the Frasers, on the basis that the Senior Member failed to address the obligations and liabilities of Alpine Woodpecker under the building contract. Further, it seems to me that the Senior Member impermissibly accepted parol evidence regarding the actual role of Alpine Woodpecker in the development project to construe Alpine Woodpecker’s obligations under the building contract and to inform his determination on the question of causation, as is clear from his findings that Alpine Woodpecker had only a relatively limited technical and advisory role in the development project.[6]
[6]reasons, at [73]-[74].
Despite the submissions advanced on behalf of Alpine Woodpecker that the decision of the High Court in Lumbers v W Cook Builders Pty Ltd (in liquidation)[7] (‘Lumbers’) is distinguishable from the current case on the basis that in Lumbers, the relevant owner was unaware of the nature of the commercial relationships between the nominated builder under the contract and the party that actually did the work, I accept that the reasoning in Lumbers applies to the current proceeding. In Lumbers, the High Court reversed the decision of the Full Court of South Australia which held that an owner was liable to pay a company associated with the builder with whom the owner had entered into a building contract for work and labour done by the associated company. The headnote to the authorised report succinctly and accurately summarises the factual issues and the findings of the Court.
The owner and a lessee for life of an allotment of land (the owners) entered into a contract with a building contracting company for the construction of a house on the land. During the course of construction, unbeknown to the owners, the contractor entered into an arrangement with an associated company for that company to perform much of the work required by the building contract, which included the engagement of sub-contractors and the supervision of their work. There was no assignment or novation of the building contract. The associated company did what was required of it under the arrangement with the building contractor. The owners paid all amounts claimed by the building contractor but the contractor paid the associated company less than the amount incurred in construction and in the supervision and payment of its sub-contractors. The house was completed to the satisfaction of the owners. The associated company claimed from the owners an amount for payments made to sub-contractors, allowances for defects and a fee for supervision and management less the amount received from the contractor.
Held, that the associated company had no claim against the owners for the price of any work and labour performed or for any money it might have paid in relation to the construction. It had no claim because it had no contract with the owners and it had not performed the work or made the payments to the sub-contractors at their request.
[7](2008) 232 CLR 635.
The factual position in the current case is somewhat different than in Lumbers, in that in Lumbers, the builder who was not a party to the agreement was seeking to enforce an obligation owed by the owner to the builder under the building contract. Here, the owner is seeking to enforce an obligation owed by the builder nominated in the building contract, notwithstanding the fact that the responsibilities for performing those obligations were assumed by another party. But that does not provide a basis for finding that the principles which emerge from Lumbers do not apply: in particular, the need to look at the legal obligations assumed by the parties, rather than the question of ‘who did the work’. The High Court’s reasoning is succinctly encapsulated in the following paragraph:
To say, in these circumstances, that Builders ‘did the work’ obscures what were the legal relationships that brought about the result described. The end result described is as consistent with Builders having performed or procured performance of the work in satisfaction of an obligation it owed to Sons, as it is with Builders performing or procuring performance of the work in satisfaction of an obligation it understood that it owed to the Lumbers. And if Builders performed or procured performance of the work in satisfaction of an obligation it owed to Sons, Sons thereby procured the performance of the obligation it owed the Lumbers. [8]
[8]Ibid [107].
The next question is whether the building contract was discharged by entry into the April 2011 agreement. The building contract had certainly not been discharged by performance as at April 2011. The question is whether the Senior Member’s findings that the April 2011 agreement ‘subsumed’ the building contract is a concept known to the law. I agree with counsel for the Frasers that it is not, and that Alpine Woodpecker (in the absence of any finding of any estoppel or any remedy for misrepresentation arising in respect of Alpine Woodpecker’s entry into the April 2011 agreement) retained any obligations owed by it under the building contract, including the obligation to carry out the works on the land. Indeed, the April 2011 agreement expressly states that (Fingal’s assumption of the obligations of Modern) ‘will be done under the framework of the existing building contract arrangements with Guntram Sperling’. I agree that the April 2011 agreement had two functions, to vary the building contract to substitute Fingal for Modern, and secondly, to provide a mechanism by which the unpaid subcontractors could be paid. It did not alter Alpine Woodpecker’s obligations to perform the works under the building contract. Once again, the Senior Member seemed to accept Mr Sperling’s evidence of what he actually did under the building contract to represent what he was obliged to do under the building contract.
Accordingly, I would be prepared to make declarations that:
(a) at the time that the building contract was executed, Alpine Woodpecker assumed the obligations of the builder under the building contract; and
(b) the April 2011 agreement varied, but did not of itself discharge or subsume the building contract.
However, I would not be prepared to make orders remitting the proceeding back to VCAT for an assessment of damages only, or make findings which would preclude Alpine Woodpecker from maintaining other defences and contentions at a remitted hearing, such as potential estoppels or other defences arising out of the April 2011 agreement or the representations and conduct made prior to Alpine Woodpecker’s entry into the April 2011 agreement. The Senior Member did not deal with Alpine Woodpecker’s defences based upon estoppel owing to his findings on causation, but it may well have been open for him to make findings in Alpine Woodpecker had it been necessary for him to consider them. Further, while my findings regarding Alpine Woodpecker’s obligations under the building contract make it harder for Alpine Woodpecker to avoid any liability to the Frasers for breach of the obligation to complete the works, it is clear from the reasons that there are real issues concerning causation, and, on the question of damages, whether the Frasers took reasonable steps to mitigate their loss. Of course, these questions only arise if I felt in a position to find that the Frasers had made out the evidentiary foundation for their appeal.
Accordingly, the appeal will be dismissed.
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