Heaven Builders Pty Ltd v Moustafa (No 2) - [2024] ACTMC 13

MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:	Heaven Builders Pty Ltd v Moustafa & Anor (No 2)
Citation:	[2024] ACTMC 13
Hearing Dates: Last submissions:	4, 5 and 6 June 2024 19 July 2024
DecisionDate:	26 July 2024
Before:	Magistrate Theakston
Decision:	See orders set out at [79].
Catchwords:	CIVIL LAW – BUILDING AND CONSTRUCTION – Breach of Contract – Progress payments - Painting stage not completed - Deemed practical completion – Builder wholly suspends building works – Liquidated damages for delay – Damages for completing building works
Legislation Cited:	Building Act 2004 (ACT) Court Procedures Rules 2006 (ACT), rules 473, 1619, 1622
Cases Cited:	Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24 Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337 Hera Project Pty Ltd v Bisognin (No 3) [2017] VSC 268 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 Wilkie v Gordian Runoff Ltd [2005] HCA 17
Parties:	Heaven Builders Pty Ltd ( Plaintiff) Nour Moustafa Abeldhameed Moustafa (First Defendant) Marwa Mohamed Elsaeid Hassan Keshk ( Second Defendant)
Representation:	Counsel W D B Buckland ( Plaintiff) Self-represented ( Defendants)
Solicitors Bradley Allen Love ( Plaintiff) Self-represented ( Defendants)
File Number:	CS 182 of 2022

MAGISTRATE THEAKSTON

Introduction

This matter involves mutual claims between a home builder and the owners of the home being built. The building company claims full payment under the contract including a variation, notwithstanding the build being incomplete, on the basis that the owners took possession of the site, and the company was unable to complete the building works. The owners claim the costs of completing the building works minus the amount unpaid on the contract. They also claim $25,000 from the builder due to missing out on a homeowners’ grant and liquidated damages, as provided in the contract, for the delay in the completion of the build.

Background

The following facts were not controversial, and I make findings accordingly.
The plaintiff is the building company Heaven Builders Pty Ltd. Initially, the two directors of the company were Muhammad Niazi and Khalil Khattak. At one point during the project, Mice Kljusuric was appointed as an additional director. He had previously been the nominated person with a builder’s licence engaged by the company to supervise the project. It appears the project in question was the first, or at least one of the first, projects for the builder. Neither of the initial directors held a builder’s licence. However, not much turns on that as the company held a builder’s licence for all but three hours during the material period.
The defendants, Dr Moustafa and Dr Keshk, are husband and wife and the owners of the land on which the home was being built.
There were some complexities leading up to the relevant contract. An initial contract was signed by the parties to build a single storey home on the owners’ land in the suburb of Taylor in the Territory. However, that plan changed, and a subsequent contract was signed by the parties to build a two-storey home on that site. During the hearing some time was spent on whether the initial excavation of the site was done before relevant approvals were in place, whether it was done incorrectly and whether that mistake led to a need to change the plans. Ultimately, I was persuaded that that issue was not part of the owners’ claim as filed and I need not address those aspects further.
The second contract was signed in mid-April 2021. Unfortunately, that document did not attach the anticipated approved plans or list of inclusions/finishes. Evidence was presented that the owners were copied into an email that attached that document. The owners denied receiving that email or otherwise a copy of the annex. The directors did not appear to appreciate the importance of the contract being all-inclusive or complete, or that the attachments for the first contract may not automatically apply to the second contract. In any event, there was no real controversy about what was and what was not included in the building works.
A dispute arose when the builder issued an invoice for just under $64,000 for the painting stage of the building works, and shortly thereafter an invoice for a variation amounting to just under $37,000. The owners had paid the invoices for the previous stages, as well as an additional $6,000 to cover a change from timber to steel framing. At this point in time, the owners did not agree that the painting, or the previous fixing stage, had been completed. Various correspondence was exchanged, and meetings held. The builder claims the stage was completed and that the owners took possession of the site, which under the contract deemed practical completion and therefore the full amount under the contract, including variations, was payable. They have not since been paid. The owners claim the builder refused to do any more work until the invoices were paid in full. In these circumstances, the following questions arise:
(a)Is the builder liable to compensate the owners for missing out on the homeowners’ grant of $25,000?
(b)Did the builder complete the building works up to the painting stage?
(c)Were the building works deemed to have reached practical completion?
(d)What is the consequence of practical completion?
(e)Was the builder prevented from completing the building works?
(f)Do the liquidated damages provisions of the contract for delay apply in these circumstances?
(g)What are the losses suffered by the builder, including do they include the amount claimed on the variation?
(h)What are the losses suffered by the owners?

Is the builder liable to compensate the owners for missing out on the homeowners’ grant of $25,000?

The owners claim that they suffered a loss of a $25,000 ACT Home Builder Grant. The relevant pleadings appear to be at paragraph 3 of the owners’ Defence, which essentially claim:
(a)in November 2020, the parties entered a preliminary agreement to build the home, and the owners applied for the ACT Home Builder Grant;
(b)in January 2021, the ACT Revenue Office refused the grant because the builder was not licenced as at a date in November 2020; and
(c)in January 2021, Mr Moustafa and an agent of the builder met and agreed that the builder would compensate the owner for that loss.
In his evidence, Mr Moustafa claimed he was told:
We’ll lower the price by $25,000 and that way, you won’t be out of pocket.
Mr Niazi denied that before the builder acquired its licence there was any discussion where he held the builder out to be the holder of a building licence, or that he agreeing to provide compensation or a reduction in price as a consequence of the owners missing out on a grant. In any event, in April 2021 and months after that alleged conversation, the parties entered into the second contract.
It remains unclear from the pleadings and the evidence what were the requirements of any grant and what precisely is the basis of the owners’ claim the builder is liable.
Considering the owners’ evidence at its highest, there is no apparent basis for a claim in equity, tort or for breach of contract to succeed. If the claim involves reliance based, promissory or equitable estoppel, then according to the owners there was an agreement to reduce the price and a new price was subsequently agreed for different building works in the second contract. While there may have been an initial loss due to the owners’ reliance on the builder’s claim to be licenced or a promise to reduce the price to prevent a termination of the contract, that loss or reduction was subsequently resolved within the new arrangements.
The owners did not point to, nor is it obvious to me, that any particular tort could form the basis of this claim.
If the loss is said to have arisen as a result of a breach of contract, the initial contract was replaced by the second contract and the second contract was in writing and expressly describes the price for the building works. As there is no ambiguity about the price of the building works, the parol evidence rule operates to exclude consideration of the surrounding circumstances, including any previous discussions about the reduction of the price due to the owners missing out on receiving a grant: Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 352.
In those circumstances the owners have not established their claim against the builder for $25,000, due to them missing out on a government grant.

Did the builder complete the building works up to the painting stage?

Clause 22 of, and Annex B to, the second contract provides for progress payments at various stages of the building works. Those stages are the ‘base’, ‘frame’, ‘lock-up’, ‘fixing’, ‘painting’ and ‘practical completion’ stages. Payments became payable upon the completion of the relevant stage, despite any minor omission and or minor defects which do not prevent the building works from progressing to the next stage. The builder claim when they invoiced the owners on 7 June 2022, the painting stage had been completed. The owners dispute this. There is no controversy that the invoice had been transmitted between the parties, or that the owners had paid for the previous stages when invoiced.
Mr Niazi testified that the painting works had been substantially completed, while not contradicting or qualifying Dr Moustafa’s evidence that the following issues remained at the site:
(a)garbage throughout the premises,
(b)water leaking damage in the garage, kitchen, laundry, bedrooms and the second-floor ceiling,
(c)missing joinery to the kitchen, pantry and laundry areas,
(d)missing door handles and doors,
(e)missing electrical work,
(f)missing carpet in the bedrooms, and
(g)missing handrails to the staircase in the garage.
Mr Niazi, also indicated that the third and final coat of paint had not been applied at all, as they were waiting to complete other work first. I accordingly find that the above issues remained unresolved at the time the builder issued their painting stage invoice, as well that final coats of paint had not yet been applied.
In his second affidavit, Mr Niazi stated he did not consider the absence of the final coat of paint to be unusual. During cross-examination, Mr Niazi explained that he had trouble arranging tradesmen and materials due to COVID disruptions. In relation to painting, he explained:
So when we say the substantial, it's not – we have to finish all the painting and then we start the second stage. So they are depending, like I explained, joinery thing. Joinery was installed. Doors was not and that was an invoice before painting which we advised, they inspect, they agree and they paid. Then we started the painting. Now, painting, when the main paint is done, then we put the joinery and then we do the touch-up if we need to do and – and before we hand over. If even they find out that this thing is not right at this stage, we fix that as well, and then the certifier come and inspect the property, and if they happy that, yes, all the stages are complete, then they issue a ... (inaudible) ... On the base of that we apply for the last invoice
Mr Niazi conceded that he was waiting to complete some plumbing and lighting before completing the painting and volunteered that some ceilings had not been painted because there had been water leaks, which had been fixed and they were waiting for the gyprock to dry.
Dr Moustafa gave evidence that at the painting stage, the joinery stage had not been completed, notwithstanding he had paid for it. That evidence is consistent with Mr Niazi’s evidence above, as he conceded the painting could not be completed as the joinery was yet to be fully installed.
Mr Broadhurst, a builder and architect, gave evidence about a litany of inexplicable deficiencies in the building works at the time. In relation to painting he explained:
Painting wise, I can see that, yes, it mightn't be a wise idea to sort of paint everything all at once, right, but if it's the painting stage, right, then I would expect that, yes, it would have two coats, or the three coat, whatever's finished, to complete the stage, right. But you are going to mess it up, right, put stuff in that you're going to scuff and knock and bash and whatever. Tradesmen are tradesmen, right. And so you're going to have to have a little bit of an allowance that this stage is not the completion of the work, it's the completion of this stage.
I understood that evidence to mean that at the end of the painting stage the finishing or final coat of paint should have been applied, but further painting may still be required in order to repair any damage arising due to subsequent work. He also explained why it would be important to complete the painting before some joinery is installed, when he said:
But before the cupboards are in, you need to have the stage finished. ... So you want to have all the paint – because when the cupboards are in, you can't go in and repaint everything where the edge of the cupboard is, because you can't go down the side. It's got to be finished, right.
The standard contract used in this case, is clearly designed to provide staged payments at pre-defined and sequential stages of the building work. That is obviously for the purpose of striking a balance between safeguarding owners by limiting their financial exposure should work unexpectedly stop or be incomplete, with the need to provide a builder with the necessary cash flow and limiting their financial exposure should the owners fail to pay when requested. Here the contract described three relevant stages, namely: ‘Lock-up stage: Roof covering on, external wall cladding substantially completed, electrical and plumbing rough-in completed’; ‘Fixing Stage: Internal doors and joinery completed’ and ‘Painting Stage: Internal and external painting completed’. The first uncontroversially related to installing services to some degree; the second to installing internal linings, doors and joinery; and the third to completing the final coat of painting inside and out. The builder’s explanation for not completing the painting was because some joinery, plumbing and light fittings were yet to be installed and some ceilings needed to dry. While the qualifications described by Mr Broadhurst provide some degree of flexibility, as does the qualification in the contract in relation to minor omissions and defects, the work still needs to be otherwise completed before the stage can be said to be completed. It makes no sense to claim that the painting stage was completed, notwithstanding painting being incomplete because work for the earlier lock-up and fixing stages remained incomplete. If anything, any work expected at the lock-up and fixing stages that was delayed pending painting, should then be completed by the end of the painting stage.
The other examples of incomplete work from Mr Broadhurst’s unchallenged evidence that I accept and find included:
(a)gyprock missing at various locations, including where masonry, heating or cooling appliances and ducting protruded into the living space, and where no framing or bulkheads were installed to secure the gyprock around those protrusions;
(b)a pedestrian door frame with exposed and protruding foam and without the architrave fitted and painted;
(c)missing external cladding adjacent to windows;
(d)front door not installed;
(e)missing external ceiling cornices;
(f)missing external tiles;
(g)missing balustrade and carpet on stairs;
(h)missing lights and electrical fittings, including associated electrical wiring behind gyprock;
(i)missing joinery, toilets and taps in the bathrooms and ensuite;
(j)no carpet in the house;
(k)unrepaired water leak damage;
(l)incomplete joinery in the kitchen, pantry and laundry, including missing bench tops, doors, drawers, sinks, plumbing fittings, tiles and appliances;
(m)top surfaces of internal doors not painted;
(n)missing balustrade and incomplete tiling on balcony;
(o)missing window flashing;
(p)missing guttering and down pipes;
(q)missing eave sheeting;
(r)water tanks not installed;
(s)power boards and air conditioning not installed; and
(t)electrical power not connected.
Mr Broadhurst observed that some of that missing work should have been completed earlier in the sequencing of work, in order to minimise costs.
Some time was spent obtaining concessions from the owners that they had earlier certified to their bank that the fitting stage had been completed to their satisfaction, for the purpose of arranging the release of the relevant progress payment. Explanations were provided, but ultimately I do not see how that action by the owners should affect my findings that the above works were not completed, including in particular the final coats of paint.
Ultimately, I was satisfied comfortably on the balance of probabilities that the building works had not been completed up to and including the painting stage.

Were the building works deemed to have reached practical completion?

The builder claimed that the owners took possession of the building site and prevented them from completing work. That, they say, triggered a provision in the contract that deemed there to be ‘practical completion’ and therefore the full amount under the contact became payable.
They claim that the taking of possession is evidence by an email sent by Dr Moustafa, which notified the builder that the builder was not to return to the site, and that they observed the doors to the building were internally locked, except for one door at the rear where the owners had installed a digital lock.
Clause 8(a) of the building contract provides that the owner will ensure that the builder has exclusive and uninterrupted possession of and access to the site to perform the contract. It also provides at clause 24(f):
If the Owner possesses or uses the Works or any part of them without the written agreement of the Builder, the date of practical completion is the date of possession or use, unless Practical Completion has already been reached.
The term works is defined as:
the building and construction work being undertaken by the Builder pursuant to this contract, as described in the terms of the Contract, the Specifications and Approved Plans or as varied under the Contract.
Of note, the contract does not, of itself, authorise or provide access or possession to the site, and certainly does not purport to do so irrevocably. Rather it creates a contractual obligation on the owners to ensure that the builder has that possession. At law the term ‘possession’ involves control and the ability to exclude others, rather than any necessary physical custody, proximity or contact. It also involves a degree of intention.
On 26 July 2022, Dr Moustafa sent an email to the builder on behalf of Dr Keshk and himself. That email, among other things, claimed that there was eight business days remaining in a dispute resolution period, and directed:
The builder and/or their sub-contractors are not permitted to enter, or do any work, at the owners’ work site during the dispute resolution period.
Clearly, that direction unequivocally revoked the builder’s right to attend the work site during that eight-day period, and expressly and intentionally exerted control over the work site. It revoked their right to possess the site and axiomatically amounted to an interruption to the builder’s possession. It amounted to the owners exercising their possession of the site, and all the works at that site, to the exclusion of the builder. Accordingly, at that time the owners possessed the works, and in accordance with clause 24, the building works were deemed to have reached practical completion. That is the case, notwithstanding the direction was only for a relatively short period or that there was a dispute or a dispute resolution period occurring at that time.

Out of completeness, I note that on 1 August 2022, before the end of the claimed dispute resolution period, the owners sent an email to the builder’s lawyers inviting them back to continue with the unfinished work when they stated:
The builder can still access the site if they want to proceed with the incomplete and defective works in the previous and painting stages.

What is the consequence of practical completion?

Clause 24 of the contact provides for an exchange of notices following a claim of practical completion. However, they do not apply in the case of deemed practical completion and is therefore not necessary. Clause 25 provides that upon practical completion of the building works, the builder is entitled to receive the unpaid balance of the sum payable under the contract, and that payment is due within 10 business days after the builder has served on the owner a written request for that final payment. If unpaid, interest runs at an annual rate of 20%.
In this case the unpaid balance would be the sum of the following outstanding amounts:
(a)painting stage - $63,750,
(b)practical completion - $21,250, and
(c)any other money payable under the contract, including any variation or actual cost provided under the contract.
A letter in evidence from the builder’s lawyers to the owners, dated 28 July 2022, makes the following observations about the consequences of practical completion:
The significant consequences of this is that Practical Completion has been reached and our client is entitled to receive the unpaid balance of the Contract Sum together with all other money payable under the Contract including interest of 20% per annum on late payments: clause 25a. of the Contract.
While that is a fair description of the consequence, the letter did not go so far as to request final payment, such as an invoice may. For example, it does not identify how much was to be paid and when it should be paid by. It did not itemise or give particulars about what was said to be owing. Accordingly, that letter could not be characterised as ‘a written request by the Builder giving particulars of the claim for final payment’ as contemplated within the contract, and which would create the payment date 10 business days after the request.
Similarly, a purported Notice of Dispute from the builder’s lawyers to the owners of 29 August 2022 observes relevantly:
F.     The Owners failed, refused or neglected to pay the Progress Claim within 10 business days after service of the written claim and following Practical Completion.
…
EE. By Clause 25(a) of the Contract, on Practical Completion, the Builder is entitled to receive the unpaid balance of the Contract Sum together with any other money which is payable under the Contract.
FF.   The Owner has failed, refused or neglected to pay the Builder the unpaid balance of the Contract Sum together with other money which is payable under the Contract.
NOW TAKE NOTICE
A.The Owner is in breach of their obligations under the Contract as a result of:
…
IV.        not paying the Builder the unpaid balance of the Contract Sum together the (sic) other money which is payable under the Contract in accordance with clause 24f. of the Contract
While the observation about entitlement to be paid following practical completion is correct; in the absence of a request for final payment, a payment date does not emerge. Again, this correspondence does not make a request for payment, nor give particulars for such a payment.
A further letter from the builder’s lawyers to the owners of 31 August 2022 contains the statement:
To be clear, our client:
a. claims the sum of at least $103,527.50 plus interest in accordance with the Contract;
Once again, that could not be said to a request for final payment with associated particulars. The amount, while quantified to a degree, remains equivocal and there is no explanation about how it was calculated. There is also no precision about why or when it may be payable.
I was unable to locate within the evidence, and my attention was not drawn to, any other correspondence that could be characterised as a request for final payment due to practical completion as contemplated by the contract. I also note that the originating claim is an application to this Court for orders. It, in itself, could not be characterised as a request to the owners for final payment, as contemplated by the contract.
Accordingly, while the owners are liable to pay the outstanding amounts, the date of payment has not emerged and interest under the contract is not yet payable.

Was the builder prevented from completing the building works?

The builder claims that following being directed not to attend the building site, they were prevented from completing the building works. It says that it was locked out of the site by the owners by the installation of a digital lock on the back door to the building and were directed not to attend the site.
However, the owners’ direction in the email of 26 July 2022 was clearly limited by reference to time. I do not accept there was any uncertainty about this. The words used were clear and precise and were not concealed by voluminous text or other distractions. I also note that, curiously, the correspondence from the builder’s lawyers to the owners excluded that qualification when quoting the direction.
The builder claimed that the letter from the builder’s lawyers to the owners of 28 July 2022 evidence that they had been locked out. That letter claimed a digital electronic lock had been fitted by the owners to the back door of the building, and that is the only access to the house as the other doors are locked from the inside. However, under cross examination, Mr Niazi conceded that while he had attended the site the week before and observed the digital lock on that door, he did not touch it and did not ‘try to get in’. The letter was simply self-serving and is of little evidential value.
On 1 August 2022, Dr Moustafa responded by email. There he indicated that he had not locked any door and that the builder could access the site if they wished to proceed with completing the painting and earlier stages. On 16 August 2022, Dr Moustafa emailed a letter and advised the ‘site is open to the public’ and claimed that the same was evident from the bank valuer notice. He also quoted his earlier direction, including the qualification about it applying during the dispute resolution period. Dr Moustafa also gave evidence, which I accept, that in consultation with Mr Khalil, he arranged for the installation of the digital lock, it was a ‘smart’ lock and it was not operational. This is particularly plausible in the circumstances where there was no power to the house and therefore no Wi-Fi service. I note that the latter of which is an ordinary requirement for ‘smart’ devices to function fully.
There is also unchallenged evidence that the building had several doors on the lower level, including glass sliding doors, and that the builder had keys to those doors. Further, it would ordinarily be expected that the builder would retain the keys to the building prior to the completion of the building works. That would be for a range of reasons, including practical ones such as access and the ability to open doors for the purpose of further building works. Additionally, clause 25(e) of the contract contemplates the keys being provided by the builder to the owner, only once all payments have been made.
The evidence therefore demonstrates that following the owners’ refusal to pay the painting stage invoice, a dispute arose between the parties about whether the builder had access to the site. However, the builder did not try to enter, and the owners invited the builder to finish the incomplete work. There is also no evidence of the builder expressly requesting access or information, such as a code, to facilitate access to the site. I find it to be inherently implausible that a builder who genuinely wanted to access the site to continue with the building works would not at least physically attempt to enter the building, for example by using the handle of the digital lock to see if the door remained unlocked. I therefore approach Mr Niazi’s evidence with some disbelief. I also find it inherently implausible that the owners, who wished the incomplete work to be completed and repeated requested the same in correspondence, locked the building such as to prevent the builder from continuing building works. It is far more probable that the builder used the claim, without any request for access, as a further justification to pause the work.
On 21 July 2022, the builder’s lawyers sent the owners’ lawyers a letter which indicated a number of things. The most obvious, is the builder’s refusal to continue to proceed with any work until they received further payments. That was said to be in the context of subcontractors seeking payment of their invoices and the builder requiring funds to make those payments. The claim for further funds to pay subcontractors also occurs in circumstances of a contract with a staged payment plan, and where elements of the stages already paid had not been completed. The letter expressly used the claim that the builder was locked out of the site and directed not to attend the site to justify their reasons for not continuing work until they received further payments.
In the above circumstances I find that the builder had cash flow difficulties in that they required further funding to pay existing invoices and therefore either would not or could not continue with building works until the owners made additional payments. I also find on the balance of probabilities that they were not locked out of the site, and that as of 1 August 2022, there was no ongoing direction by the owners prohibiting them from returning to the site and continuing with the building works.

Do the liquidated damages provisions of the contract for delay apply in these circumstances?

The contact provides for the owners’ entitlement to liquidated damages from the builder at the rate of $400 per week for each week of delay reaching practical completion. The date for practical completion is defined within the contract as 180 days after the commencement date. In this contact the date of commencement is 20 business days after the later of the owners provided the builder with satisfactory evidence of title to the site and capacity to pay the contract sum and a commencement notice issued under the Building Act 2004. There was no evidence about whether the owners satisfied the builder about title and capacity to pay, but the builder conceded that as early as 9 July 2021 the commencement date may have occurred. However, the commencement notice was not issued until 25 June 2021. Accordingly, I find that the commencement date was 23 July 2021. Accordingly, the due date for practical completion was 19 January 2022.
As described above, the building works were deemed to have reached practical completion on 26 June 2022, some 22 weeks, 4 days after the due date. Accordingly, the liquidated damages for delay equal 22 4/7 x $400 = $9,028. I note that this amount falls between what was claimed by the owners and what was conceded by the builder.
Clause 10(c) of the contract provides that this amount may be deducted from any amount otherwise owned by the owners to the builder.

What are the losses suffered by the builder, including do they include the amount claimed on the variation?

As described above, the owners are liable to pay the builder the following amounts:
(a)painting stage - $63,750, plus
(b)practical completion - $21,250, plus
(c)any other money payable under the contract, including any variation or actual cost provided under the contract; minus
(d)liquidated damages for delay - $9,028;
although the date for payment has not yet emerged.
The builder claims the balance of an extra amount due to changing to a steel frame. It was agreed between the parties that the final amount requested for that purpose was $15,000 and the owners had paid only $6,000. It was also clear that no variation notice was issued for that purpose. Dr Moustafa gave evidence that any payment of the balance was contingent on the builder completing their build by a particular date and receipt of a ‘written variation’. Mr Niazi gave slightly different evidence, which is best set out in full:
We say, 'Project going to get delayed. We have to wait a long to get the framing, timber framing or we go for the steel framing,' and they say, 'So what that mean?' I say, 'If you go for the steel framing, it's expensive. It's a back-up order but it expensive, otherwise we have to wait for the timber and they – if you pay 50 per cent of the cost,' I suppose, by example, I'm just making a figure, if it a $30,000 extra to have a steel frame as compared with the timber, so we, 'Okay, you pay 15, we will put the 15,' so we agreed. And that's the kind of obligation he give me. He agree and then he say, 'Okay, I don't have the money but I will pay you in part.' So we took the 50 per cent of the burden and they took the 50 per cent of burden moving from timber to the steel frame, but they agreed with that, 'Okay, just go for the steel. Better product. Okay, we will pay that 50 per cent extra.' (Emphasis added)
What is clear from Mr Niazi’s evidence, is that, at best, the amount of $15,000 was based on an estimate, and that fact was communicated to Dr Moustafa. Accordingly, it is entirely plausible and unremarkable that Dr Moustafa would ask for that figure to be confirmed in some way, including in writing. Additionally, as the conversation was originally about delay due to timber framing supply issues, it is also not surprising that Dr Moustafa would link any agreement to pay extra with the builder completing the building works within the agreed time. Accordingly, I accept Dr Moustafa’s evidence and find that his agreement to pay any further additional amount for the steel framing would depend upon him receiving a variation notice and the building works being completed on time.
As the build was not finished within time and no variation notice was issued under the contract with respect to the steel framing, the owners are not liable for any additional amount.
The builder also claims variations to the building contract. This variation was initially quantified in a spreadsheet attached to an email dated 22 June 2022. That email followed the owners’ refusal to pay the invoice issued for the painting stage.
A starting point for this claim is the contract. The contract is a fixed price contract, which does not use the standard provisions for prime cost items or provisional sums, which can be used in circumstances where the supply of goods and installation of work, goods or services are not known or cannot be entirely foreseen. However, the contract does allow for variations. Unsurprisingly, those variations need to be agreed in writing between the parties. Clause 15 of the contract requires the builder to serve a written cost variation notice on the owners for their approval. That needs to occur before the variation work is agreed, undertaken or forms part of the contract. Clearly this process allows the parties to reach a clear understanding of what a variation may involve and cost before agreeing to the same, and has the features of precision and prospectivity. It also produces a documentary record of the negotiation.
In the instant case, there is no evidence of any variation notice being issued by either party before the email of 22 June 2022. That claim purports to describe costs already incurred by the builder, but without copies of receipts that would document the amounts actually paid. It also contained items, amongst others, yet to be installed, such as lighting, joinery, appliances and front door. It was uncontroversial that the owners did not accept that claim and indicated as such in an email four days later on 26 June 2022. That timing may be important because the contract deems the owners to have agreed to a notice if they did not response within five business days. Accordingly in this case, there was no agreement and in the absence of a variation agreement in accordance with the contract, any variation does not form part of the contract.
I note out of completeness, that the same clause provides an alternative liability for actual costs plus builder’s margin. However, that provision at clause 15(g) is only applicable if the contract was terminated by the owners because the proposed variation was more than 5% of the contract price. While that possibility was discussed between the parties, that step was never taken by the owners. I also note that the builder’s claim for quantum meruit was abandoned.
Further I note that during the hearing the builder spent some time on evidence going to whether the list of inclusions was provided to the owners and whether the builder paid for certain inclusions that may exceed that list. In the absence of an agreed variation or a claim for quantum meruit, it is difficult to see how the latter of that evidence is of any relevance. Except in very limited circumstances, the owners have no obligation to reimburse the builder for its actual expenses, just as it has no control over what those actual expenses may be.
Accordingly, I find that no other money is payable to the builder under the contract, including any variation or actual cost.

What are the losses suffered by the owners?

On 16 August 2022 and where there had been no building works since the issue of the invoice for the painting stage, the owners issued a notice to the builder under clause 27 of the contract requesting, amongst other things, the builder remedy the incomplete works and warned that the contract would otherwise be terminated. On 23 August 2022 the owners issued a notice to the builder indicating that they had terminated the contract due to, amongst other things, the work had without reasonable cause been wholly suspended before practical completion.
Clause 27 provides:
a. The Owner may, without affecting the Owner’s other rights, by written notice served on the Builder, terminate this Contract if the Builder:
…
iii. without reasonable cause wholly suspends the carrying out of the Works before Practical Completion; or …
…
c. If the Owner so terminates this Contract, the Owner may engage another person to carry out the Works and:
i. if the reasonable cost of the works exceeds that which would have been otherwise payable under this Contract, then the amount of that excess is a debt due and payable by the Builder to the Owner;
ii. if the reasonable costs of the Works is less than that which would have been otherwise payable under this Contract, then the difference is a debt due and payable by the Owner to the Builder.
d. The Owner may not terminate this Contract if the Owner is in breach of it.
In this case it is uncontroversial that the builder wholly suspended work on 7 June 22 pending payment of their invoice. This continued up to the deemed practical completion date of 26 July 2022 and beyond. The suspension was due to the non-payment of an invoice for a stage that was not adequately completed. Accordingly, that suspension occurred initially before practical completion and was without reasonable cause. Incidentally, I see no reason to read into the clause the requirement that any such termination need occur before practical completion. This is consistent with the purpose of the provision to provide an owner with a self-executing remedy should there be issues with the builder’s performance in accordance with the contract, and it would make no practical or commercial sense to limit that remedy due to the operation of the deeming practical completion provision. Where the build works have, in reality reached practical completion, there would be little work for the termination provision to do. I note I should prefer a construction supplying a congruent operation to the various components of the whole of the contract: Wilkie v Gordian Runoff Ltd [2005] HCA 17 at [16]; and avoid any interpretation that would be a commercial nonsense or cause commercial inconvenience: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 at [51].

It is also clear that during the period when the owners directed the builder not to ‘enter, or do any work’, the owners were in breach of the contract to provide exclusive and uninterrupted possession of, and access to, the site to perform the contract. However, that breach ended on 1 August 2022 when the owners invited the builder to continue with the unfinished work. Incidentally, any application of the ‘prevention principle’ would have ended on the same date. That principle provides by implied term or positive rule of law that a party cannot bring about an event to terminate a contract and then insist upon a stipulation within the contract: See for example Hera Project Pty Ltd v Bisognin (No 3) [2017] VSC 268 at [105].
For the above reasons, at the time of the termination the owners were not in breach of the contract. I have interpreted the reference to ‘in breach of [the contract]’ as meaning a current or ongoing breach, as opposed to one that had occurred and been resolved. That makes practical and commercial sense, as the contract could be breached by the owners in a variety of ways, including in very minor ways, and the utility of clause 27 would be defeated if the builder could simply point to a historic and trivial breach to avoid the operation and consequences of clause 27.
Accordingly, the owners had the option to terminate the contract and did so with the necessary notice requirements.
The owners were then entitled to arrange the completion of the work and to be compensated by the builder, should the cost of such completion exceed what would otherwise have been payable to the builder under the contract.
The owners pleaded an itemised list of costs for the purpose of completing the building works and provided invoices and receipts for a number of the components. In the pleadings, the builder did not deny those costs, nor challenge the evidence from the owners about those costs or that such costs were reasonable due to the incomplete building works. Accordingly, the only evidence I have about such costs are those provided by the owners, without any challenge to their quantum or causation. On their face they appear to be reasonable and would not have arisen but for the builder’s failure to continue with the building works. There were no submissions otherwise, and in those circumstances, I accept that evidence. Those costs total $148,939.

Conclusion

For the reasons described above, the owners are liable to pay the builder the amounts for the painting and practical completion stages of $63,750 and $21,250 respectively, sub-totalling $85,000, minus the amount for liquidated damages due to delay, namely $9,028, totalling $75,972. However, that amount is not yet due and will also be taken into account in the owners’ counter claim, and further the court may in any event give judgment for the balance: rule 473 of the Court Procedures Rules 2006.
For the reasons described above, the builder is liable to pay the owners their reasonable costs of completing the build being $148,939, less the $75,972 that would otherwise be payable by the owners under the contract, equating to $72,967.
The owners also claim pre-judgment interest. The unchallenged evidence was that the owners incurred those costs up to 24 December 2022. My view is interest from that time to the day before judgment in accordance with the rates prescribed in Schedule 2, 2.2 of the Court Procedures Rules 2006, would be appropriate for the purposes of rule 1619. That amounts to $9,071 and, with the above judgment debt, totals $82,038. I will also make the usual order in relation to interest after judgment in accordance with rule 1622.

Orders

The Court makes the following orders:
1.Judgment be entered for the defendants in the amount of $82,038, with the usual order as to interest after judgment;
2.The plaintiff pay the costs of the defendants as agreed or assessed, and
3.Order 2 only takes effect after 14 days, or not at all if the plaintiff contacts my associate in writing within 14 days requesting to be heard about the question of costs.

I certify that the preceding seventy-nine [79] numbered paragraphs are a true copy of the Reasons for Decision of his Honour Magistrate Theakston

Associate: Alyssa Zanardo

Date: 26 July 2024