Fullinfaw v Neil Fletcher Design Pty Ltd
[2019] VSC 142
•12 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2018 01516
| ENID FULLINFAW | First Plaintiff |
| NIGEL FULLINFAW | Second Plaintiff |
| v | |
| NEIL FLETCHER DESIGN PTY LTD (ACN 087 852 328) | Defendant |
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JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 February 2019 |
DATE OF JUDGMENT: | 12 March 2019 |
CASE MAY BE CITED AS: | Fullinfaw v Neil Fletcher Design Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 142 |
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DOMESTIC BUILDING CONTRACT – ‘No fault’ termination of major domestic building contract – Liquidated damages claim – Extension of time claim not proven – Builders entitlement – Effect of cap – Recovery of liquidated damages from builder – Domestic Building Contracts Act 1995 (Vic) ss 8(d), 41, 53.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr H Foxcroft QC | Guymer Lawyers |
| For the Defendant | Mr N Phillpott | Macpherson Kelley |
HIS HONOUR:
Introduction
An innovative and important feature of the Domestic Building Contracts Act 1995 (Vic) (‘Act’) was the introduction of ‘no fault’ termination of major domestic building contracts by owners if the contract price rose by 15% or more after the contract was entered into, or if the contract was not completed within 1½ times the period by which it was to have been completed, and if the reason for the increased cost or time could not have been reasonably foreseen by the builder when the contract was made.[1]
[1]Act s 41.
In the present case, the plaintiffs (‘owners’) ended their major domestic building contract (‘building contract’) with the defendant (‘builder’) using the ‘no fault’ provision in s 41 of the Act. The main issue before the Court is whether the owners can deduct liquidated damages for delay, payable under s 8(d) of the Act and under the building contract, from the amount payable to the builder for the work already done before the contract ended.
The owners seek leave to appeal under s 148(2) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (‘VCAT Act’) and, if leave is granted, appeal from the decision of the Victorian Civil and Administrative Tribunal (‘Tribunal’) that rejected their claim for liquidated damages.[2] Before turning to the circumstances of the present case, it is appropriate to consider the applicable principles of statutory construction, and the purposes and objects of the Act.
[2]Neil Fletcher Design Pty Ltd v Fullinfaw [2018] VCAT 188 (‘Tribunal decision’).
Principles of statutory construction
The principles of statutory construction are well established. In Project Blue Sky Inc v Australian Broadcasting Authority, McHugh, Gummow, Kirby and Hayne JJ said:
... the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.[3]
[3]Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355, 384 [78] (McHugh, Gummow, Kirby and Hayne JJ) (citations omitted).
The plurality of the High Court emphasised the importance of context in SZTAL v Minister for Immigration and Border Protection:
The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected.[4]
[4]SZTAL v Minister for Immigration and Border Protection(2017) 91 ALJR 936, 940–941 [14] (Kiefel CJ, Nettle and Gordon JJ).
In CIC Insurance Ltd v Bankstown Football Club Ltd, the majority of the High Court said:
... the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous.[5]
[5]CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408 (Brennan CJ, Dawson, Toohey and Gummow JJ).
These principles are consistent with s 35 of the Interpretation of Legislation Act 1984 (Vic), which requires that when interpreting a provision of an Act, a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object.
Purposes and objects of the Act
The main purposes of the Act are set out in s 1:
(a)to regulate contracts for the carrying out of domestic building work; and
(b)to provide for the resolution of domestic building disputes and other matters by the Victorian Civil and Administrative Tribunal; and
(c)to require builders carrying out domestic building work to be covered by insurance in relation to that work.
The objects of the Act are set out in s 4:
(a)to provide for the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to both builders and building owners; and
(b)to enable disputes involving domestic building work to be resolved as quickly, as efficiently and as cheaply as is possible having regard to the needs of fairness; and
(c)to enable building owners to have access to insurance funds if domestic building work under a major domestic building contract is incomplete or defective.
The emphasis on fairness is conspicuous. The need for fairness to owners and builders features prominently in two of the three objects of the Act. The third expresses the object of enabling builders to have access to insurance funds.
In HIA Insurance Services Pty Ltd v Davy, the Court of Appeal held that the object underlying the Act is:
to provide a legislative framework for contracts and disputes concerning building work of a more modest character and to protect parties to more conventional building projects from the consequences of an inequality of bargaining power rather than to interfere with major commercial transactions.[6]
[6][2003] VSCA 73, [36] (Eames JA, Callaway and Vincent JJA agreeing), quoting Fletcher Construction Australia Limited v Southside Tower Development Pty Ltd (Supreme Court of Victoria, Byrne J, 9 October 1996).
In Shaw v Yarranova Pty Ltd, the Court of Appeal described the intention of the Act as to protect ‘individual homeowners rather than commercial developers’.[7]
[7][2006] VSCA 291, [10] (Warren CJ), quoting Winslow Constructors Pty Ltd v Mt Holden Estates Pty Ltd (2004) 10 VR 435, [104] (Hansen AJA).
In JG King Pty Ltd v Patel, Kyrou J described the Act as containing many provisions which seek to protect owners from unfair practices by builders, including restrictions to the circumstances in which a builder could charge more than the price in the contract, and options for owners to terminate the contract in some cases where the contract price is to be increased. The Act cannot be excluded by contract.[8]
[8][2014] VSC 58, [40].
To achieve those objects, the Act contains salient provisions as to general warranties that apply to all domestic building contracts.[9] In the present case, the builder’s implied warranty found in s 8(d) of the Act that the work will be completed within the period specified by the contract is applicable to the owners’ claim for liquidated damages.
[9]Act pt 2.
In the second reading speech to the Domestic Building Contracts and Tribunal Bill, the Minister for Housing said:
The public policy rationale for this proposal is the intention to provide a single, inexpensive, time-efficient and expert forum for the resolution of domestic building disputes. Domestic building disputes are a special category of dispute where timeliness of resolution is critical and where less formal proceedings are more likely to reach the heart of the matter than the full panoply of the law.[10]
[10]Victoria, Parliamentary Debates, Legislative Council, 15 November 1995, 541 (Rob Knowles, Minister for Housing).
As a result, the Tribunal was given very wide powers, including a power to make any order it considers fair to resolve a domestic building dispute.[11]
[11]Act s 53.
‘No fault’ termination under s 41
The law of contract has long permitted a party to terminate a contract before completion in certain circumstances where there has been a breach, repudiation or failure by the other party to perform the contract. There is often extensive disputation about the right to terminate a contract.
Section 41 of the Act introduced an important new remedy for owners of ‘no fault’ termination where the cost had increased by 15% or more, or the contract was not completed within 1½ times of that contemplated by the contract, and the reason for the increased cost or time could not have been reasonably foreseen by the builder when the contract was made. In the present case, the termination of the contract by the owners under s 41(1) is not in dispute. What is in dispute are the consequences of termination under s 41(1).
Under s 41(3), termination of the contract takes effect when the owner gives the builder a signed notice containing the required details. Often when a contract is terminated under s 41(3), the building work will only be partially completed. The work may not have been completed in accordance with the plans and specifications. The work may have been delayed or completed late. The builder may have unmet claims for payment, while the owner may have claims for breach of the warranties contained in s 8 of the Act or in the contract itself. Section 41(5) and (6) deal with claims made by the builder following termination under s 41(1) by defining and capping what the builder can claim.
There are a number of termination scenarios which frequently arise. The first is where the builder has claimed for work to a value exceeding the sum of the progress payments made under the contract. A second scenario is that the owner may have paid the builder more than the builder is entitled to receive, having regard to the value of the work actually completed and the builder’s entitlement under the contract after making due allowance for defects and delays. A third scenario is where defects in the work are not identified or known when the respective entitlements of the owner and builder are resolved following termination of the contract but emerge later during the warranty period or when the property is in the hands of a purchaser or subsequent owner.
A reasonable price for the work under s 41(5)
Section 41(5) provides that if a contract is terminated under s 41, the builder is entitled to a reasonable price for the work carried out under the contract prior to termination.
The Macquarie Dictionary defines ‘price’ as ‘the sum or amount of money or its equivalent for which anything is bought, sold or offered for sale’.[12] In
s 41(5), the word ‘price’ is used in its ordinary meaning. Section 41(5) adds the word ‘reasonable’ to the word ‘price’ which then has to be determined for the work carried out to the date of termination.
[12]Macquarie Dictionary (online at 1 March 2019) ‘price’ (def 1).
Section 41(5) provides that the builder is entitled to a reasonable price for the work carried out under the contract to the date the contract is ended. It contemplates a process whereby an expert, such as a quantity surveyor or an estimator will inspect the work completed by the builder and determine ‘a reasonable price for the work carried out under the contract’. Section 41(5) contemplates that the expert is fully informed about the work that has been completed, including the extent, condition and suitability of the work and all known defects. The expert will then be in a position to determine a reasonable price for the work carried out by the builder prior to termination of the contract.
The cap under s 41(6)
Section 41(6) imposes an important qualification on the builder’s entitlement under s 41(5). It provides that a builder may not recover more than what the builder would have been entitled to recover under the contract.
Under s 41(6), it is the builder’s entitlement under the contract that must be determined.[13] The rights and obligations of the parties are found in the Act and the contract. Any breaches of warranties found in s 8 or in the contract must be taken into consideration.
[13]‘Domestic building contract’ is defined in s 3 to mean a contract to carry out, or to arrange or manage the carrying out of domestic building work, other than a contract between a builder and a sub-contractor.
Effect of s 41(5) and (6)
The combined effect of s 41(5) and (6) is that, the builder can recover the lesser of a reasonable price for the work already completed at the time of termination, or the amount that the builder is entitled to under the contract. By this means, the legislature protects owners by ensuring that the entitlement of the builder following termination under s 41(1) does not exceed a reasonable price for the work, or the builder’s entitlement under the contract.
While s 41 imposes no express restriction on the owner’s entitlements under s 8 or the terms of the contract, as a matter of fairness there can be no double dipping. The owner cannot simultaneously rely on a defect to reduce the amount of the builder’s claim under s 41(5) and (6) and then make an additional claim for the rectification of the same defect under s 8. If due allowance is made for the owner’s entitlements under the Act or the contract when the builder’s entitlements are calculated under s 41(5) and (6), the owner cannot claim the same items again.
One party’s contractual rights are the other party’s obligations. The concept of ‘entitlement’ involves both rights and obligations. In determining a builder’s ‘entitlements’ under s 41(6) of the Act, it is essential and fair not only to consider the builder’s rights but also the builder’s obligations to the owner under the Act and the contract.
Having determined the builder’s entitlements under s 41(5) and (6), it is the lower level of entitlement that is awarded to the builder by way of recovery.
Legislative framework
I was referred to a number of cases in the Court and Tribunal which illustrate the legislative framework.
In Shao (No 1), the owner terminated the building contract under a clause of the contract and under s 41.[14] The Tribunal held that the right to terminate a contract under s 41 could be exercised after the time when it first arose. It was not inconsistent for the owner to insist upon performance of the contract while it was on foot and later to exercise the right to terminate it under s 41.[15]
[14]Shao v AG Advanced Construction Pty Ltd [2017] VCAT 903 (‘Shao (No 1)’).
[15]Ibid [175].
The Tribunal said in Shao (No 1), and I agree:
The right to determine a contract under s.41 is not dependent on a Builder being in breach. The language is neutral. All an owner has to show in the present context is that the work under the contract has not been completed within one-and-a-half times the period in which it was to have been completed and that the reason for the increased time was something that could not have been reasonably foreseen by the builder on the date the contract was made.[16]
[16]Ibid [177].
Importantly, when a contract is terminated under s 41, neither party is entitled to damages resulting from the termination of the contract.[17] However, in considering what is a reasonable price for the work carried out under the contract prior to termination under s 41(5), the cost of rectification of defects is taken into account. The amount to be deducted in regard to any particular defect should be what it would reasonably cost for the owner to rectify it.[18]
[17]Ibid [202].
[18]Ibid [212].
In reviewing the Tribunal’s decision, Daly AsJ held in Shao (No 2) that the terms of s 41 do not preclude an owner (or subsequent purchaser) making a claim against a builder under the warranty provisions of the Act, observing that such a construction would lead to absurd and unjust results.[19] An owner was not precluded from relying on accrued statutory or common law rights, including the warranty provisions of the Act, simply because the owner has terminated the contract under s 41. It would be unfair that an owner who terminated under s 41 would have less rights than an owner who terminated for breach, or an owner following completion of a contract. Her Honour observed that such an outcome of the Act could not have been intended by the legislature.[20]
[19]AG Advanced Construction Pty Ltd v Shao [2018] VSC 116, [55] (‘Shao (No 2)’).
[20]Ibid [56]–[57].
Daly AsJ also held that the legislature also could not have intended, in circumstances where the builder was entitled to a ‘reasonable price’ for the work completed following a termination under s 41, that the builder could be required, in effect, to pay twice for defects for which it was liable. The provisions of the Act should not be applied in such a way that unduly penalises the builder, and provides a windfall for the owner.[21]
[21]Ibid [57].
Her Honour observed as to the construction of the Act:
·reliance upon s 41 of the Act precludes an owner from claiming damages for loss of bargain consequent upon termination;
·reliance upon s 41 of the Act does not preclude an owner (or subsequent purchaser) from claiming damages for defective works under the warranty provisions of the Act, whether discovered or discoverable prior to or after termination of the building contract;
·the cost of rectification of defects may be utilised to calculate the reasonable price for the work carried out for the contract, or be the subject of a separate award of damages under s 8 of the Act, but not both; and
·while the terms of s 41 of the Act do not expressly confer upon VCAT the right to order a refund of any overpayment, they do not preclude the making of such an order under s 53 of the Act if there is a proper legal basis to do so.[22]
[22]Ibid [59].
I agree with these observations as to the construction of ss 8, 41 and 53 of the Act.
Background facts
In the present case, the owners entered into a building contract with the builder on 22 January 2015. On 23 June 2016, they terminated the building contract, completing the project themselves. It was agreed by the owners and the builder that the building contract was validly terminated under s 41 of the Act.[23]
[23]Tribunal decision (n 2) [6].
After reviewing the evidence at length, and after making allowance for variations and defects, the Tribunal found under s 41(5) that the reasonable value of the work performed by the builder was $849,500.[24]
[24]Ibid [252].
After making allowance for variations and defects, the Tribunal found that the amount of the cap under s 41(6) was $824,980.54.[25] As a result, it was s 41(6) that was the governing provision as the amount under s 41(6) was less than that under s 41(5). $824,980.54 was therefore the amount recoverable by the builder. After deducting the owners’ payments of $811,065, this left the owners with $13,916 payable to the builder.[26]
[25]Ibid [263].
[26]Ibid.
Tribunal proceeding
The owners claimed liquidated damages for the 28 weeks between 13 December 2015 (the date when the works should have been completed) and 24 June 2016 (the date of termination). It was common ground that the rate for liquidated damages was increased by agreement from the contracted figure of $250 to $500 per week during the course of the contract.[27] The owners relied on breaches of the contract and s 8(d) of the Act. They claimed $500 per week for a total of $14,000 as part of their delay losses.
[27]Ibid [235].
The building contract was in the standard HIA form. Clause 40.0 gave the owners an entitlement to damages for each week after the end of the building period to the date the contract was terminated. Clause 40.1 gave the owner the right to deduct the amount of any such damages from the final payment.
The sole defence relied on by the builder in answer to the liquidated damages claim was that the builder was entitled to an extension of time for inclement weather under cl 34.0.
Tribunal hearing
In opening submissions, counsel for the owners pressed the claim for liquidated damages, describing it as an accrued right and set-off, and submitting that as the contract went over time, liquidated damages followed.
Mr Fullinfaw’s witness statement sets out his evidence in support of the liquidated damages claim. He referred to the amount of liquidated damages payable per week, and the construction period of 270 days ending on 13 December 2015. He calculated the amount of liquidated damages payable to 24 June 2016, the day when the owners ended the building contract, at the agreed increased rate of $500 per week, amounting to $14,000 overall. He was not challenged on this evidence, and his calculation of $14,000 for liquidated damages was not disputed. The builder did not lead any evidence in support of its claim for an extension of time or dispute the evidence of Mr Fullinfaw as to the liquidated damages claim. No evidence as to the duration of any inclement weather was provided by the builder.
Closing submissions to the Tribunal were made in writing. The owners pressed their claim for liquidated damages, submitting that liquidated damages were payable independently of any other right that the owner or the builder had under the contract. Termination of the contract under s 41 of the Act did not deprive the owners of their accrued right to liquidated damages. They noted that the builder led no evidence in support of an extension of time. Accordingly, they should be entitled to liquidated damages in the amount of $14,000.
In its closing submission, the builder contended that no breach showing delay had been demonstrated as the termination was under s 41 of the Act.
The owners responded by highlighting that the right to liquidated damages was not a right dependent on the termination of the contract. Liquidated damages were available even where there was no termination of the building contract and the builder completed all the works.
Tribunal findings
In discussing the owners’ claim for general damages, the Tribunal said:
Section 41(5) provides a complete formula for the financial adjustments to be made between the parties. The builder is entitled to a reasonable price for the work carried out to the date of termination, and unless some loss or damage incurred, or to be incurred, by the owners is relevant to the assessment of that reasonable price, it must be disregarded. Damages for breach of contract are accordingly irrelevant, unless an entitlement to such damages has crystallised prior to the date of termination of the contract, and in this way has affected the value of the works performed to that date.[28]
[28]Ibid [39].
As to the claim for liquidated damages, the Tribunal said:
A claim for liquidated damages is a claim for damages for breach of contract where the damages have been pre-agreed or ascertained. Accordingly, whether such a claim can be made under s 41 is to be determined on the same basis as whether a claim for general damages exists. It follows that the claim for liquidated damages must fail, unless an entitlement to such damages had crystallised prior to the date of termination of the contract.[29]
[29]Ibid [42].
After noting that the cap on damages under s 41(6) was lower than the amount claimed under s 41(5), the Tribunal said:
I do not see any necessary conflict between the operation of s 41(5) and s 41(6). It seems to me that they can each be given room to operate if a two-stage process is adopted. First, an assessment must be made on the evidence of ‘a reasonable price for the work carried out under the contract to the date the contract is ended’. Second, the sum that the builder will be entitled to recover under the contract must be identified in order to establish whether the cap upon the builder’s recovery arising under s 41(6) operates.[30]
[30]Ibid [46].
The Tribunal then referred to Shao (No 1),[31] quoting a passage where the Tribunal there referred to the need to consider each variation, or other alleged ground for an extension of time, and make a finding as to its impact on the critical path of construction, and that this would require detailed evidence.[32]
[31]Shao No 1 (n 14) [183]–[185].
[32]Tribunal decision (n 2) [246].
This led the Tribunal to conclude:
The fact that the issue of time is in dispute is sufficient to dispose of the owners’ claim for liquidated damages in the present case. As I noted above, I consider that liquidated damages may be taken into account under s 41 of the DBC Act only if, as at the date the contract is terminated, the operation of the contract gives the owners a crystallized entitlement to liquidated damages. In circumstances where the builder has claimed an extension of time, and that claim has been disputed by the owners, the builder’s entitlement must be assessed on evidence which facilitates a critical time path analysis. Accordingly, I find that the owners had no crystallized entitlement to liquidated damages as at the date the contract came to an end.[33]
[33]Ibid [247].
On the basis of these findings, the Tribunal found that the owners failed in their claim for liquidated damages.[34]
[34]Ibid [265].
Leave to appeal
The question of whether leave to appeal should be granted is determined according to the test laid down in Secretary to the Department of Premier and Cabinet v Hulls,[35] and may be summarised:
A pivotal requirement is that an applicant must identify a question of law for which there is a real or significant argument to be put that error exists. The Court will also have regard to the justice of the particular case, and whether the applicant has identified a question of law that is of general or public importance. The applicant must show that there is sufficient doubt attendant the question of law to justify the grant of leave.[36]
[35][1999] 3 VR 331.
[36]Zumpano v Banyule City Council [2016] VSC 420, [10].
Proposed ground of appeal
The owners contend that the Tribunal erred in law by finding that the claim for liquidated damages had not crystallised at the time the contract was terminated for the following reasons:
(i) the owners’ claim to liquidated damages had accrued by the date the contract was terminated;
(ii) there was no evidence to support the builder’s disputed extension of time claim; and
(iii) the liquidated damages claim of $14,000 was supported by uncontroverted evidence.
Owners’ submissions
The main submissions of the owners may be summarised:
(a)the builder led no evidence and did not prove its claim for an extension of time;
(b)the Tribunal had uncontroverted evidence from the owners supporting the claim for liquidated damages;
(c)the Tribunal failed to recognise that the claim for liquidated damages was payable independently of any other right that the owners or the builder may have;
(d)liquidated damages are an accrued right once the building period is exceeded;
(e)liquidated damages are recoverable as a debt, and not as damages;
(f)the Tribunal failed to determine the claim for an extension of time; and
(g)determination of the reasonable price of the building work carried out was analogous to a quantum meruit available to a builder upon termination of a contract where a builder has to make allowance for delay.
Builder’s submissions
The main submissions of the builder were:
(a)to sustain a claim for liquidated damages, the owners had to do more than demonstrate the builder failed to complete by 12 December 2015;
(b)the owners led no evidence as to the cause of the delay to the completion of the works;
(c)the concept of ‘a reasonable price for the work carried out under the contract’ was different from a quantum meruit, and was capped by s 41(6);
(d)if the legislature had intended the test in s 41(5) of the Act to be in the nature of a quantum meruit, it would have used different language; and
(e)the Tribunal’s decision was not erroneous.
Was there error on a question of law?
The owners’ claim for liquidated damages
The meaning of liquidated damages is well-established. ‘Liquidated damages’ are a sum fixed by the parties to a contract as a genuine pre-estimate of damage in the event of breach, whether a pre-determined lump sum, or by means of a specific calculation or scale of charges or other positive data.[37]
[37]Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656, [11]; Clydebank Engineering & Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, 86; Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358, 385 [79] (Nettle JA, Ashley and Dodds-Streeton JJA agreeing) (‘Peerless’); Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) [2012] WASCA 53 (McLure P, Newnes and Murphy JJA).
Moreover, it has long been held that a claim for liquidated damages for an amount agreed in a contract to be payable as a genuine pre-estimate of damage in the event of breach is recoverable as a claim for debt.[38] In this respect, it is dissimilar to claims for breach of contract for unliquidated damages, or for losses for breach of contract sought to be recovered under the rules laid down in Hadley v Baxendale.[39]
[38]Peerless (n 37) [81]; Alexander v Ajax Insurance Co Ltd [1956] VLR 436.
[39](1905) 2 CLR 509.
Clause 40 of the building contract proceeds on the basis that a claim for liquidated damages is of the nature of a claim for debt. It provides for the entitlement for liquidated damages to accrue weekly in the agreed amount of $500 per week, and authorises the owners to deduct the amount from the final payment.
While the Tribunal correctly described a claim for liquidated damages as a claim where the damages have been pre-agreed or ascertained, it misunderstood the nature of the claim, holding that it should be determined on the same basis as a claim for general damages. It erred in holding that the owners’ claim for liquidated damages failed because the entitlement had not crystallised by the date the contract was terminated.
The Tribunal appears to have overlooked that the agreed damages under cl 40 accrued weekly and that the owners were entitled to deduct them from the final payment.[40] Their rights stemmed from s 8 of the Act and cl 40 of the contract, and were not affected by any provision in s 41.
[40]Tribunal decision (n 2) [42], [236].
Conclusion as to the liquidated damages claim
The owners’ claim for liquidated damages should have been upheld by the Tribunal. It is supported by the terms of cl 40 and by the owners’ unchallenged evidence. The owners had plainly established that they were entitled to liquidated damages in the amount of $14,000.
The builder’s claim for an extension of time
Under cl 34, the builder can have extensions of time where the works are delayed because of inclement weather. In such circumstances, cl 34 also relevantly stipulates that:
34.1The Builder is to give the Owner a written notice informing the Owner of the extension of time. The written notice must state that cause and the extent of the delay.
34.2To dispute the extension of time the Owner must give the Builder a written notice, including detailed reasons why the Owner disputes the claim, within 7 Days of receiving the Builder’s notice.
Schedule 1 of the contract provided that the 270 day building period included six days for inclement weather and the effects of inclement weather. No extension of time was available under cl 34 and sch 1 for inclement weather unless the delay exceeded six days. The onus of proof of a claim for extension of time was on the builder.
The builder purported to make a claim for an extension of time under cl 34 but gave no evidence about delays to the works.[41] The owners disputed any entitlement to an extension.[42] Whilst finding that there was a want of evidence, the Tribunal did not determine the builder’s claim for an extension of time.[43]
[41]Ibid [240].
[42]Ibid [244].
[43]Ibid [247].
In failing to determine the builder’s extension of time claim, the Tribunal referred to a passage in Shao (No 1), where the need for a finding as to the impact of a variation on the critical path of construction, and for detailed evidence as to an extension of the construction period is discussed.[44] While this may be the position in some cases, it was not the case here. Here, no evidence at all was provided by the builder in support of the claim for an extension of time with the result that the claim failed.
[44]Ibid [246].
Conclusion as to the extension of time claim
The builder’s extension of time claim was necessarily dismissed for lack of proof. The Tribunal was required to determine the builder’s claim for an extension of time on the evidence before it but did not do so.
The effect of the cap
As I have said, it was the cap under s 41(6) which was the operative provision in determining the builder’s claim under s 41. The Tribunal determined that after allowing for variations, defective works and the cost to complete, the amount recoverable by the builder under s 41(6) was $13,916.
The owners’ claim for liquidated damages of $14,000 was made under cl 40 of the building contract. Section 41(6) precludes a builder from recovering under s 41(5) any more than the builder would have been entitled to recover under the contract. Given that the owners’ claim of $14,000 by way of liquidated damages should have been upheld, the builder’s entitlement is reduced to nil. The owners’ payments to the builder exceeded the owners’ entitlement under the building contract by the amount of $84.
Recovery of the balance of liquidated damages
Under s 8(d) of the Act, a builder under a domestic building contract warrants that the work will be completed within the period specified by the contract. In addition, cl 40 of the contract makes express provision for the deduction or payment of liquidated damages in the event that the work is not completed within the period specified by the contract. In the present case, when the contract was terminated, the works were 28 weeks late.
Apart from the builder’s unsubstantiated claim for an extension of time for the completion of the works, no reason was advanced by the builder as to why the liquidated damages claim should not succeed. It was not contended that the amount agreed for liquidated damages was a penalty, or that the owners prevented or interfered with the works, or that a variation resulted in an extended period for completion.
In a case where an owner ends a contract under s 41, and the builder’s entitlement under s 41(5) or (6) is more than offset by the owners’ claims against the builder under the warranties in s 8 of the Act or the contract itself, an owner can recover the amount due provided that there is no amount claimed for loss of bargain, and no double dipping. In the present case, this means that the owners are entitled to an award of $84.
Quantum merit
The owners also relied on the law relating to quantum meruit claims by way of analogy.[45] In Kane Constructions Pty Ltd v Sopov (No 2) liquidated damages for delay, as well as an allowance for defective work were deducted from the amount of the builder’s claim.[46]
[45]Referring to Felton v Wharrie (1906) 2 Hudson’s BC (4th ed) 398, 400–401.
[46]Kane Constructions Pty Ltd v Sopov (No 2) [2005] VSC 492, [42] (Warren CJ).
Likewise, in Candetti Constructions Pty Ltd v M & I Samaras (No 1) Pty Ltd, Blue J held that as the value of a quantum meruit can be increased for due delay for which the supplier was not responsible, it seemed to be inconsistent to assert that the quantum can never be reduced on account of delays for which the supplier is responsible.[47]
[47][2011] SASC 165, [87].
While the law relating to quantum meruit claims is informative, it does not apply. It is the construction of the relevant provisions of the Act that is determinative of the present case.
Conclusion
I uphold the ground of appeal, and find in summary:
(a)the right to liquidated damages had accrued by the date of termination of the building contract;
(b) and (c)the builder did not call evidence as to the extension of time claim which inevitably failed; and
(d)there was probative and uncontroverted evidence before the Tribunal which supported the owners’ claim of $14,000 for liquidated damages. This claim should have been upheld.
Outcome
The Court will grant leave to appeal, and allow the appeal for error of a question of law on the ground relied on by the owners. The owners are entitled to have the Tribunal’s orders set aside to the extent necessary for them to be awarded the sum of $84.
Remitter to the Tribunal
I have considered whether the proceeding should be remitted to the Tribunal for further hearing and determination as to the amount of the award to the owners. However, there is only one possible result, and it is appropriate for the Court to finally resolve the amount of the award to the owners.[48] The sums in dispute in this proceeding are very small, and it would be doing the parties a disservice to have them incur the unnecessary costs of a remitter. The Tribunal has stated that it intends to resolve the issues of interest and costs, and should do so on the basis of an order dismissing the claim and awarding $84 to the owners on the counterclaim.
[48]Osland v Secretary to the Department of Justice (No 2) (2010) 241 CLR 320, 332–333 [20] (French CJ, Gummow and Bell JJ); Trombone Investments Pty Ltd v TBT (Victoria) Pty Ltd& Anor [2016] VSCA 108, [23] (Ashley, Redlich and Tate JJA); Pham v Victims of Crime Assistance Tribunal & Anor [2016] VSCA 102, [52] (Tate, Ferguson and McLeish JJA).
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