J Corp Pty Ltd and Chudy & Anor
[2008] WASAT 79
•10 APRIL 2008
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
STREAM: COMMERCIAL & CIVIL
ACT: BUILDERS' REGISTRATION ACT 1939 (WA)
CITATION: J CORP PTY LTD and CHUDY & ANOR [2008] WASAT 79
MEMBER: MR C RAYMOND (SENIOR MEMBER)
HEARD: 15 OCTOBER 2007
DELIVERED : 10 APRIL 2008
FILE NO/S: CC 413 of 2007
BETWEEN: J CORP PTY LTD
Applicant
AND
JOZEF CHUDY
SHIMI MARIA CHUDY
Respondents
Catchwords:
Application for leave to review decision of Building Disputes Tribunal - Whether Building Disputes Tribunal acted within jurisdiction - Whether factual findings open on evidence - Duty to mitigate - Whether substantial injustice would result from refusal of leave
Legislation:
Builders' Registration Act 1939 (WA), s 36, s 41
Home Building Contracts Act 1991 (WA), s 16
(Page 2)
Result:
Application for leave to review refused
Application dismissed
Category: B
Representation:
Counsel:
Applicant: Mr A MacPherson
Respondents : Mr R Shaw
Solicitors:
Applicant: Hotchkin Hanley
Respondents : Lavan Legal
Case(s) referred to in decision(s):
Commodore Homes (WA) Pty Ltd v Standley [2001] WADC 89
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Harling v Eddy [1951] 2 KB 739
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
Pearce & Anor and Germain [2006] WASAT 305
Tangent Nominees Pty Ltd and Edwards & Anor [2005] WASAT 119
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd [1938] 38 SR (NSW) 632
Watson v Wallington [1999] WADC 84
Weher v Thom [1969] WAR 39
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REASONS FOR DECISION OF THE TRIBUNAL:
Summary of Tribunal's decision
The applicant applied for leave to review a decision of the Building Disputes Tribunal under s 41 of the Builders' Registration Act 1939 (WA).
The proposed grounds for review raised four principal issues for determination.
Firstly, whether the Building Disputes Tribunal had jurisdiction in relation to an estoppel asserted by the respondents. The Tribunal concurred with the decision of the Building Disputes Tribunal in terms of which the estoppel was characterised as common law estoppel, which consequently did not call into question the Building Disputes Tribunal's jurisdiction.
Secondly, whether particular factual findings upon which the decision was founded were wrong. The Tribunal examined each of the findings and found in all but one finding that it had not been demonstrated that the decision of the Building Disputes Tribunal was wrong or attended with sufficient doubt. Although the Building Disputes Tribunal had erred in finding that the builder should have paid a licence fee to the copyright owner of a design adapted by the builder, the Tribunal found that the finding was not essential to the Disputes Tribunal's overall conclusion.
Thirdly, whether the Building Disputes Tribunal erred in relation to the basis upon which it had found that the applicant made the relevant representation because of specific provisions in the contract whereby the respondents warranted that any plans constituting part of the contract did not infringe intellectual property of any third party and further, that they had not relied on any representation, express or implied, not contained in the contract document. The Tribunal found that it was not open to the owners to rely on any representation not incorporated in the contract and therefore the Building Disputes Tribunal had erred in finding that the estoppel found by it prevented termination of the contract. However, the owners' claim did not rely exclusively on the estoppel and the Tribunal observed that the builder had no right to terminate in respect of the breach of copyright alleged by it so that no substantial injustice arose by refusing leave to review the decision on this ground.
Fourthly, the applicant asserted that the Building Disputes Tribunal had erred in finding that the respondents were not required to mitigate
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their loss after termination of the building contract. The Tribunal concluded that a finding by the Building Disputes Tribunal that the applicant had occasioned the uncertainty to which the respondents had been subjected and that consequently the respondents' actions were reasonable, was wrong or at least attended with sufficient doubt as to justify the grant of leave. However, the Tribunal found that no substantial injustice arose by a refusal of leave to review the decision once account was taken of the correct basis for the assessment of damages which was well in excess of the jurisdictional limit of compensation awarded, and the Building Disputes Tribunal had also not assessed some of the owners' claims.
The application
Pursuant to s 41 of the Builders' Registration Act 1939 (WA) (BR Act), the applicant (builder) seeks leave to review a decision of the Building Disputes Tribunal (Disputes Tribunal) made on 22 February 2007 which resulted in an order against it to pay the respondents (owners) compensation of $100,000, reserving the question of costs and otherwise dismissing the owners' complaint. In the event that leave be granted, the builder seeks further orders that upon review, the decision of the Disputes Tribunal be set aside, that the owners' complaint to the Disputes Tribunal be dismissed, alternatively that the compensation ordered to be paid be varied in an amount to be determined by this Tribunal, and that the owners pay the builder's costs of the application.
The issues between the parties in the Disputes Tribunal were defined by pleadings. The owners' Particulars of Claim reflect that the total loss claimed was:
a)$82,114 being the increased cost of building a dwelling house, claimed on the basis that the owners had accepted the builder's repudiation of a contract to build the dwelling (although as the case was conducted the amount claimed was increased);
b)$9,225 in respect of rental costs pending entry into a contract with another builder to construct the dwelling;
c)$2,500 in respect of the alleged loss of a landscaping rebate; and
d)$238.60 in respect of land tax.
The total claim was expressed as being for damages not exceeding $100,000 that being the monetary limit to the Disputes Tribunal's
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jurisdiction under s 16 of the Home Building Contracts Act 1991 (WA) (HBC Act).
The decision sought to be reviewed and background
The Disputes Tribunal published written reasons for decision on 22 February 2007. The background to the dispute is set out in the decision. The parties had entered into a written contract in terms of which the builder was to construct a house for the owners at 22 Bradshaw Street, Canning Vale for a contract sum of $150,340. The contract is dated 19 May 2005.
The owners had previously resided in South Australia and had plans prepared by a builder in that State, AV Jennings. The owners wanted to use the same design on their land in Western Australia, and as AV Jennings did not build in Western Australia, the owners approached the builder. There was a dispute on the evidence as to what transpired in the initial dealings with the builder's sales representative, Mr Burns, and in relation to subsequent discussions with him.
The Disputes Tribunal set out a summary of the conflicting evidence. Mr Burns told him that they testified that the owners had permission to use the AV Jennings design. The owners both said that they did not tell Mr Burns that they had permission. It was noted that the owners' version was unshaken in crossexamination and that both versions of the discussion cannot be correct. The Disputes Tribunal found that the owners had given an accurate version of their discussions with Mr Burns and that Mr Burns had not. The Disputes Tribunal expressly stated that it came to this view in observing the answers of the owners during their evidence, their demeanour and the frankness with which they answered questions. While Mr Burns did not admit the owners' version of events and maintained his account, the Tribunal noted that he did not convince it.
The Disputes Tribunal concluded that Mr Burns' version of events was implausible. The reasons for that conclusion are set out in [27] [30] of the Disputes Tribunal's reasons for decision. Particular attention was given during the course of the leave hearing to [28] and it is convenient to set it out in full.
"28.The complainants (owners) say that Mr Burns stated that the plan needed to be modified '10%' so as not to infringe copyright and other witnesses say that this is an industry belief. Mr Burns denies saying this. The Tribunal is of the view, however, that the discussions between him and the complainants can only be understood in this context. To put it shortly, it is implausible for
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Mr Burns to have gone to the extent of arranging the modifications to the AV Jennings designs if he was of the view that the respondent did not need to do so if he was relying on assurances that the complainants had obtained permission from AV Jennings to use their design."
In the following paragraphs, the Disputes Tribunal went on to state that the documents also support the owners' version of the relevant discussions. It was noted that there is no contemporary reference to the assurances said by the builder to have been made by the owners and that the letter terminating the contract made no mention of the assurances. Reference was also made to a hand-drawn design made by Mr Burns which modified the AV Jennings design. The Disputes Tribunal found that the modification was made because of Mr Burns' view that he had to do so to avoid violating the copyright of AV Jennings.
The builder sent a letter to the owners, dated 23 May 2005, (four days after entry into the contract), terminating the contract on the basis that it believed the plans prepared for the owners breached copyright and accordingly put the builder at risk of prosecution. The builder recommended that the owners contact Ventura Homes "to contract and build your new home". Although the reasons for decision do not reflect the significance of the reference to Ventura homes, it is common cause that the owners contended that the hand-drawn design referred to above was an alteration made to the rear elevation of the design which incorporated some changes to the shape of the alfresco area. The owners contended these changes had been adapted from a Ventura Homes design, but that they were informed by Mr Burns that this presented no difficulty as Ventura Homes was part of the same group as the builder. The builder disputed this contention. It is also common cause that the termination letter referred in error to a breach of Ventura Homes' copyright and that it should have referred to a breach of copyright of the AV Jennings design.
The reasons for decision also do not expressly reflect, but it can be gleaned from the documentation referred to, that the modified drawing was produced in May 2003. The parties had therefore been dealing with each other for approximately two years prior to the contract being signed on 19 May 2005.
The Tribunal then went on to make a number of findings as to what it referred to as the effect of the contract. Whether or not the contract involved a breach of AV Jennings' copyright, the Disputes Tribunal found that the builder nevertheless entered into the contract in the full
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knowledge of what it was contracting to do. It was held that the builder had induced the owners to enter into the contract.
The Disputes Tribunal specifically found:
"34.The respondent (builder) drafted the contract documents and specifications. In doing so, the respondent, through its various employees and agents involved and especially through Mr Burns, have represented to the complainants (owners) that they could construct the design contained in the terms of the contract. The complainants have relied upon these representations to their detriment in agreeing to the contract. The respondent is therefore estopped from terminating the contract, and in purporting to terminate the contract the respondent is in breach of the contract."
The reasons for decision note that if the builder was genuinely of the view that the design violated the copyright of AV Jennings, then the evidence made it clear that the respondent could have obtained AV Jennings' permission to build the design by way of "making a payment to AV Jennings", which is understood to be a reference to AV Jennings granting a licence to use the design in consideration for the payment. Consequently, the Disputes Tribunal found that the contract could have been fulfilled.
It is necessary to return to the Disputes Tribunal's finding that the builder was estopped from terminating the contract, which, in context, must be understood as meaning estopped from terminating the contract on the ground of there being any breach of copyright by AV Jennings.
The owners pleaded in their Particulars of Claim that the builder was estopped "from claiming that there was any copyright infringement" on the part of the builder. That conclusion was based upon matters referred to in par 6 par 9 of the owners' particulars of claim. In condensed form, those paragraphs assert the following:
(a)That in or about May 2003, the owners met with Jason Burns, a sales representative of the builder, at which time they provided Mr Burns with a copy of drawings prepared by AV Jennings, informed Mr Burns that they had a verbal agreement with AV Jennings to use the drawings and could obtain a written licence, if required, inquired if the builder would be able to build a house to the drawings with some modifications, and that Mr Burns advised that he would modify the drawings and that the builder could build the drawings as modified, without the need for a written licence from AV Jennings (par 6).
(Page 8)
(b)It was alleged that at all material times, the owners were able to obtain a written licence from AV Jennings (par 7).
(c)Further, that over the next two years, the parties engaged in discussions to finalise the design details and specification, the builder produced versions of these drawings pursuant to a preparation of plans agreement dated 3 June 2003 and 9 February 2005, and that the builder prepared a modified version of the drawings which were to the satisfaction of the owners (par 8).
(d)Also, that in about May 2005, the owners again asked the builder if they needed a written licence from AV Jennings to use the modified drawings and were advised that this was not required (par 9).
The builder requested further particulars, which were provided by the owners' solicitors by letter dated 21 April 2006. Relevantly, in relation to par 9 of the particulars of claim, it is alleged that for two years prior to entering into a final contract with the builder, the owners were advised by the builder that:
(a)they were happy to build the modified version of the AV Jennings house; and
(b)there was no need to obtain permission or a licence agreement from AV Jennings to use the drawings.
It is noted that the estoppel pleaded is that the builder is estopped from claiming that there is any copyright infringement on the part of the owners, whereas the estoppel found by the Disputes Tribunal was that the builder was estopped from terminating the contract.
Prior to the hearing on the merits, the builder's solicitors applied for a preliminary hearing seeking orders that the estoppel plea be struck out and that the matter be transferred to the District Court of Western Australia. The Disputes Tribunal directed that written submissions be filed, and announced its ruling on the first day of the hearing. The Disputes Tribunal declined to transfer the matter to the District Court, and found that it had jurisdiction to deal with the estoppel claim.
The Disputes Tribunal's reasons for decision record more fully the reasons for declining the orders sought relating to the estoppel plea. After setting out the contentions on the part of the builder and referring to the authorities dealing with whether or not the Disputes Tribunal has power to grant any equitable remedy, or have regard to an equitable defence, the Disputes Tribunal found that in this matter, the issue of estoppel operates
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as a rule of evidence only and had to be addressed in determining the true nature of the "contractual position of the parties". The Disputes Tribunal went on to expressly state that this:
"[I]s not to say the Tribunal has any power to order any equitable remedy. The Tribunal's powers are limited entirely to those granted by statute, by the two Acts referred to or otherwise. In determining this claim, the Tribunal does not make any order in the nature of an equitable remedy."
In relation to the appropriate remedy, the Disputes Tribunal referred to quotations which had been provided to the owners from two builders, Plunkett Homes and Highbury Homes, and also from a quantity surveyor, Mr Barry Hogan. Reference was also made to evidence given by Mr William Hughes, who had occupied a number of senior management positions with building companies, and had been a senior estimator for Dale Alcock Homes. In those management positions, he had set house prices and at one stage, had set up an estimating system. His qualifications to give expert evidence on pricing were not challenged.
The reasons for decision reflect that the estimates provided were: from Plunkett Homes in February 2006 an amount of $235,454; from Highbury Homes at 19 August 2005 and in July 2006 in amounts of $226,158 and $269,786 respectively. Mr Hogan's estimate at the date of the hearing in July 2006 was $285,817. The difference between these estimates and the contract sum ranges from $82,114 for the Plunkett Homes estimate to $132,447 based on Mr Hogan's estimate. The Disputes Tribunal observed that there were differences in the specifications between the estimates used by the above and the contract estimate, on which Mr Hughes based his evidence. The Disputes Tribunal noted that counsel accepted that the cost differential attributable to the differences in the specification was in the order of $5,000 $6,000. Reference is then made to Mr Hughes' evidence and it is noted that he estimated that the cost to build the residence pursuant to the specifications in the contract was $202,000 in February 2006 and $212,000 in August 2006. The Disputes Tribunal observed that:
"[T]his is less than a 5% increase in building costs over six months. The Tribunal finds this assertion inherently lacks credibility as it is too low. Contrast this with the escalations of costs referred to in the Highbury Home[s] quotes referred to in par 37".
The Disputes Tribunal indicated it preferred to apply the estimate by Mr Hogan "at July 2006 in the amount of $116,446".
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It is observed there appears to be some arithmetical error in the reference to what is understood to be the difference between the original contract sum and Mr Hogan's quote. As mentioned above and noted at par 37 of the Disputes Tribunal's reasons for decision, the difference is $132,447. The Disputes Tribunal went on to observe that this amount would have to be reduced by the amount conceded by counsel in the amount of $6,000, although the amount would have to be increased to reflect the escalation of prices since the date of the estimate. However, the Disputes Tribunal stated that the appropriate assessment of damages would be in excess of $100,000, and observed that because of the jurisdictional limit of $100,000, counsel for the owners had stated that the owners abandoned any claim for an amount in excess of that limit.
It appears likely that also because of this the Disputes Tribunal did not carry through its assessment of damages to make any adjustment for price increases subsequent to July 2006 to the date of the hearing. It is also noted that the Disputes Tribunal did not address in any way the additional claims made for rental, the landscaping rebate and land tax, no doubt for the same reason.
The reasons for decision then address the issue raised as to whether the owners had mitigated their loss. The Disputes Tribunal rationalised that the owners were put into a situation of some considerable uncertainty.
"It must be recalled that the builder's stated justification for termination of the contract was because the plans had violated the copyright of Ventura Homes and AV Jennings. There was some considerable uncertainty and, indeed, that uncertainty was occasioned by the representations of the respondent".
Further, having misrepresented to the owners that the contract design was in violation of the copyright of Ventura Homes and then making allegations regarding the AV Jennings design, the Disputes Tribunal found it was not open to the builder to expect that the owners should have proceeded to build the dwelling in any event, as the builder had occasioned the uncertainty and the owners' actions were reasonable in all the circumstances, given what they faced. Although there is no express conclusion stated, it is obvious that the Disputes Tribunal concluded that there was no duty to mitigate by proceeding as soon as possible to construct the dwelling.
Orders were made for the builder to pay the owners an amount of $100,000 and costs were reserved. An order was also made that the complaint was otherwise dismissed.
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The proposed grounds of review
There are 11 separate grounds set out in support of the application and a number of them have subparagraphs. The grounds are set out in the paragraphs numbered 6 to 16 of Annexure A to the application. Those paragraphs are referred to as grounds 1 to 11, respectively. While the Tribunal has given consideration to all the grounds, and the parties' written and oral submissions, they may be distilled down into the following issues which will be determinative of the application.
1)Did the Disputes Tribunal have jurisdiction in relation to the estoppel claimed?
2)Did the Disputes Tribunal err, either in fact or in law, in relation to its findings that:
(a)it was an industry belief that a plan needed to be modified by 10% so as not to infringe copyright;
(b)it was not plausible for Mr Burns to have made the modifications to the AV Jennings design if he was of the view that the builder did not need to do so, having regard to the evidence as to the reasons and extent of modifications to the AV Jennings plan and the documents and evidence which supported the builder's version of events, in particular, that the builder was not aware that the owners did not actually have a licence from AV Jennings to use its plan;
(c)the builder could have (or by inference, should have) paid for the licence from AV Jennings, and if it had done so, the contract could have been fulfilled; and
(d)in finding that the owners' assessment of increased building costs was to be preferred over the builder's assessment, and in particular, by failing to give any or sufficient reasons for the finding that Mr Hughes' evidence of building costs inherently lacked credibility.
3)The Disputes Tribunal erred in fact and in law in finding that in drafting the contract document specifications, the
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applicant represented to the respondent that it could construct the contract design and that the owners relied upon those representations to their detriment in agreeing to the contract in circumstances in which the owners warranted that any plans constituting part of the contract did not infringe intellectual property rights of any third party, and the owners warranted that they had not relied on any representation, express or implied, not contained in the contract document.
4)The Disputes Tribunal erred in fact and in law in finding that the owners were not required to mitigate their loss after termination of the building contract by proceeding with another builder, and that accordingly, the damages awarded need not be reduced.
It will be convenient to refer to the parties' submissions when dealing with each issue because the builder's original submissions take up some 24 pages and supplementary submissions a further five pages, and it would lengthen these reasons unnecessarily to have to summarise the parties' submissions separately. Both parties filed supplementary submissions at the request of the Tribunal subsequent to the hearing, dealing with the issues raised in par 4 above relating to the effect of the contract. All of the written and oral submissions made by the parties have been taken into account.
The following principles must be applied in relation to the application for leave to review the decision of the Disputes Tribunal.
Principles on application for leave
The applicable principles are discussed in Tangent Nominees Pty Ltd and Edwards & Anor [2005] WASAT 119 at [35] and following. The following criteria, relevant to this application, may be extracted from that decision.
1)It must be shown that the decision in respect of which leave is sought is wrong, or at least attended with sufficient doubt to justify the grant of leave.
2)In addition, it must be shown that a substantial injustice would be done by leaving the decision unreversed.
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3)The requirement that a substantial injustice be shown is no more than a guideline for the exercise for what must necessarily be and remain a broad discretion to grant or withhold leave. What is a substantial injustice must depend on all the circumstances of the case.
4)It would frustrate the intent and purpose of the legislation on which the Disputes Tribunal's jurisdiction is founded to adhere strictly to ordinary principles of appeals so that the Tribunal should be slow to grant leave in cases except where there is no discernible basis for the decision or where fundamental rules of natural justice have been breached.
I turn to address the issues identified within the grounds of the proposed review.
1) Jurisdiction (Ground 1)
It is fundamental to the builder's position that the estoppel relied upon be properly characterised as an equitable promissory estoppel. If it is so characterised, the builder relies on Commodore Homes (WA) Pty Ltd v Standley [2001] WADC 89 at [58] and Pearce & Anor and Germain [2006] WASAT 305 to support its argument that the Disputes Tribunal does not have jurisdiction in relation to an equitable estoppel.
It is submitted for the builder that the allegations made in par 6 of the particulars of claim point to the true nature of the estoppel as being a promissory estoppel. As summarised above, par 6 includes allegations that Mr Burns advised the owners that he would modify the AV Jennings drawings and that the builder could build in accordance with the drawings as modified, without the need for a written licence from AV Jennings. That particular allegation could readily be characterised as being promissory in nature. But, the difficulty facing the builder's submission is that the basis relied upon for the estoppel is founded not only on the initial meeting, in which the above statement was made, but a course of conduct over the ensuing two year period. During this period, it is alleged that the builder modified the drawings, and provided a specific assurance in May 2005, as detailed in the further particulars provided, that the builder was happy to build in accordance with the modified drawings, and that there was no need to obtain permission or a licence agreement from AV Jennings.
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Thus, although there was a promise in the initial meeting to proceed to prepare plans, that promise had been fully executed. The owners are now not endeavouring to hold the builder to that promise. The preparation of the plans forms part of the background to the final event in May 2005, which resulted in the owners relying upon an assurance that the builder was happy to proceed with the modified drawings, and by implication, that they had been modified to such an extent, that, as expressly pleaded, it was not necessary to obtain any licence from AV Jennings.
I do not consider that the Disputes Tribunal erred in its characterisation of the estoppel as one which did not call upon it to grant any equitable remedy. While it will be necessary to address further below the Disputes Tribunal's findings as to the terms of the estoppel found and whether reliance could be placed on any representation to found the estoppel, I consider that it was correct in its conclusion that it had jurisdiction, and accordingly, it is not demonstrated that the decision is wrong, or attended with sufficient doubt on this issue.
2)(a) Industry belief (Ground 2)
The builder contends that the Disputes Tribunal erred in fact in finding that it was an industry belief that a plan needed to be modified by 10% so as not to infringe copyright.
With respect, this ground is misconceived. As set out above, at [28] of its reasons for decision, the Disputes Tribunal found that Mr Burns stated that the plan needed to be modified by 10% so as not to infringe copyright and that "other witnesses say that this is an industry belief". It is of no significance as to whether any such belief was correct or not. The significance was the finding that Mr Burns made such a statement. The Disputes Tribunal's finding was open to it on the evidence, as a number of witnesses made reference to the fallacy to that effect. For instance, one of the builder's expert witnesses, Mr Standen, dealt with this issue under crossexamination as follows:
"Mr Shaw:Mr Standen, are you aware of the common fallacy out there in the industry where people seem to think that they can change the design by 10% and avoid copyright?
Mr Standen:I have heard that often, yes."
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2)(b) Reason for modification of plans (Grounds 3, 4 and 5)
This issue overlaps three grounds of review. Ground 3 asserts error in the finding that it was not plausible for Mr Burns to have made the modifications to the AV Jennings design if he was of the view that the builder did not need to do so based on evidence as to the reasons for and extent of modifications. Ground 4 asserts an error of law in the Disputes Tribunal's finding, at [29] of its reasons for decision, that the documents supported the owners' version of the relevant discussion and that the Disputes Tribunal failed to have regard to evidence that the builder was not aware that the owners did not actually have a licence from AV Jennings to use its plan until after termination of the contract. Ground 5 asserts error in the finding, at [30] of the Disputes Tribunal's reasons, that Mr Burns' hand-drawn modification to the AV Jennings plan was done because Mr Burns was of the view that he had to do so to avoid breach of the AV Jennings copyright. In support of those grounds, it is said that the Disputes Tribunal failed to have regard to particular evidence and documents.
There is a danger in isolating particular paragraphs of the Disputes Tribunal's reasons for decision and endeavouring to found grounds of review on a narrow reading of what is stated in a particular paragraph. The reasons for decision must be read as a whole, and a nit-picking analysis is not appropriate: see Watson v Wallington [1999] WADC 84.
On a proper reading of the reasons for decision, the reasons for the Disputes Tribunal finding that it was implausible for Mr Burns to have gone to the extent which he did of arranging the modifications to the AV Jennings design are not only those stated in [28], but also the reasons stated in [27] and [29] [31]. Those paragraphs must also be read in the context of the Disputes Tribunal's findings as to the conflict of evidence concerning a meeting at which Mr Burns produced a modified drawing and was alleged by Mr Chudy to have said that the modifications had been taken from a Ventura Homes design. Those findings are set out in [26] and [27]. The Disputes Tribunal concluded that it preferred the evidence of the owners. It came to that conclusion based on the advantage which the Disputes Tribunal had in observing the demeanour of the witnesses, and as stated at [27], because of what it considered an implausibility in Mr Burns' version of events.
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The following four points can be gleaned from the reasons for decision as the basis upon which it was concluded that Mr Burns' version of events was implausible.
1)Mr Burns said that the assurance given by the owners (that they had permission to use the AV Jennings design) was verbal and that he never asked for it in writing.
Not only is the doubt about the likelihood of this evidence being true raised by comparison with what one might consider general good business practice necessary to protect a builder's interests, but it is entirely inconsistent with evidence that was given on behalf of the builder. The builder's drafting manager, Mr Peter Jeffrey Hall, testified that if he was told that an owner said it was permissible to copy the plan of another builder, then his first comment would be "have you got some documentation please? Can you demonstrate that is the case? … but I would still go back to the manager and say we've been told this and get the manager's go ahead on that basis. I wouldn't go ahead on anybody's basis without management approval".
Mr Burns was given the AV Jennings drawings and knew that he was copying them as the basis for the dealings with the owners, subject to such modifications as might be agreed. In those circumstances, it was all the more important for him to insist on some written evidence, either granting permission or that it would be granted, upon payment of a licence fee. It is noted that a logical explanation for not requiring written confirmation is that Mr Burns may have believed the fallacy that if the drawings were modified by 10% no breach of copyright would occur.
2)That the discussions between the owners and Mr Burns could only be understood in the context of Mr Burns stating that the plan needed to be modified by 10% to avoid copyright infringement.
Under crossexamination, Mr Burns conceded that he remembered a conversation (with the owners) about Doug Tidy (of AV Jennings) having said something along
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the lines that if the plans were changed by 10%, the house could be built without "any problems and no builder can claim design rights" (T:224). Consequently, little turns on the way in which the Disputes Tribunal has formulated its finding. There was a contest between the owners and the builder as to whether there had been a reference to the 10% modification fallacy, and whether or not the builder was happy to proceed on any basis other than that the owners had permission to use the AV Jennings drawings. Mr Burns' own evidence, under crossexamination, as referred to above, elicited that there had been a discussion about the ability to modify the drawings by 10% to avoid any breach of copyright claim.
While there may be some doubt as to who informed the other about the 10% modification fallacy, there can be no doubt that the understanding that a licence was not required if there was a 10% modification to the plans was discussed. The discussions between the parties and the process of modification of the plans took some two years to complete. Clearly, those discussions must be understood in the context of what occurred at the first meeting when there was a reference to the ability to modify up to 10% to avoid infringing any copyright. Why would there have been such a protracted course of dealings if the builder was not of the view that it would get a return on the time it had invested by carrying out the contract?
It is submitted for the builder that evidence as to the actual extent of modifications to the AV Jennings plans militates against there being any understanding about the 10% modification fallacy. Specific reference is made in the written submissions to evidence from the various witnesses. Consideration has been given to all of that evidence, but I do not consider that it is inconsistent with the findings of the Disputes Tribunal. An assessment of the extent of modifications is subjective and dependant on expert knowledge which neither the builder's representatives nor the owners had. The understanding that the parties then had must be considered in the context of the correspondence between the parties to which reference is made below. It was that correspondence or
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documentation which the Disputes Tribunal was referring to in concluding that the documentation supported the complainants' version. As reflected below, shortly prior to signature of the contract documents by the owners, they raised whether the house had been modified sufficiently, with a specific reference to a minimum of 10%, and the builder's response, as discussed more fully below, conveyed that the builder was happy to proceed and could discuss any copyright issues with Ventura Homes or any other builder. Given that the AV Jennings design had been used as the basis for the contract with the owners, the correspondence can only be taken to convey that the AV Jennings design had been sufficiently modified as to not present any copyright problems. Against that evidence, attempting to assess the actual extent of modifications, which evidence was directed more towards whether or not there was a breach of copyright, than a precise measure of the percentage change in design, does not provide any basis for doubting that the parties proceeded with the dealings with each other on the basis that a 10% modification of the AV Jennings design would obviate any copyright issues.
3)The documents support the owners' version of the relevant discussions.
As noted by the Disputes Tribunal, there is no contemporaneous note of what was discussed at the initial meeting in approximately May 2003. Reference was made to the termination letter and it was noted that it contained no mention of the assurance alleged by the builder to have been given by the owners (that a licence had been granted to use the AV Jennings design).
This omission is indeed a glaring one. If there was any belief that permission had been granted, one would have expected that, having realised that no evidence of it had been provided at the outset, the builder would have required the owners to produce evidence of permission within a specific time and that termination would then have followed any failure to provide that evidence. However, at the very least, one would have expected that the termination letter would have made some reference to
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what was at the heart of the alleged basis for termination according to the builder.
The reference that the documents supported the owners' version relates to a chain of email communications, copies of which were annexed to the builder's solicitor's affidavit sworn 3 August 2007, in support of the application for leave, and identified as "Annexure ARM6" to that affidavit. The first is an email from the owners to the builder dated 11 April 2005 which refers to a meeting between the owners and Mr Burns the previous week and a subsequent telephone conversation, and requests confirmation of a number of points thereafter stated. The email includes a statement recording that the owners had been advised that the house "has been enough modified (min by 10% as you advises [sic]) you can built [sic] the house without any problems and no other builder can claim the design rights". Incorporated in the exchange is Mr Burns' response, providing confirmation in relation to the various other points referred to, and in relation to the copyright question, stating:
"In regard to any copyright issues with Ventura [H]omes we are more than happy to follow this up with them and inform them of the house that we are going to construct for you. I am also more than happy to follow this up with any other builder that you would like me to. I have spoken to the general manager and he is more than happy to have a chat with you during prestart and go through any issues you may have."
In these circumstances, the finding that the documents supported the owners was open and is not wrong or attended with sufficient doubt. Nothing further turns on the assertion in ground 4 that the Disputes Tribunal failed to have regard to evidence the builder was not aware that the applicants (clearly intended to be a reference to the owners) did not actually have a licence from AV Jennings to use its plan until after the building contract was terminated. It is implicit in the Disputes Tribunal
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findings that the licence would only be required if insufficient design changes were made.
4)That the modifications reflected in document 2 of Exhibit 3 (identified as being document 64 in the owners' bundle of documents (OBOD)) were effected by Mr Burns' because he was of the view that he had to do so to avoid breach of the AV Jennings copyright.
That finding at [30] refers to only part of the wider ranging modifications over a two year period referred to in [28] of the reasons for decision. In relation to the latter, as set out in 1 above, the point is made that ongoing modification over a two year period could only be understood in the context of an arrangement that if the plan was sufficiently modified, there was no need to obtain any permission from AV Jennings. The point made in [30] is more specific and refers to the alterations which Mr and Mrs Chudy said in evidence was explained to them as reflecting alterations made to the alfresco area and rear elevation, which had been adapted from the Ventura Homes design.
The builder, in its submissions, referred to evidence given as to the reasons for the design change. Those reasons were based on the extra cost of providing an alfresco area with the configuration shown in the AV Jennings drawings.
The argument becomes somewhat circular. Mr Burns' acknowledgement under cross‑examination leads to the conclusion that there was a discussion about the 10% modification fallacy at the initial meeting, and credence is therefore lent to the owners' version as to why this alteration took place. Of course, it may well be that part of the motivation was to effect cost saving and to work to a design in relation to the alfresco area which was used by another building company within the group, Ventura Homes, and was therefore known to be workable. Both Mr and Mrs Chudy gave evidence that they were told that the modification had been adapted from the Ventura Homes design. Mrs Chudy acknowledged that one of the reasons for the changes
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given was that the Ventura Homes' rear elevation would be easier to build (T:12 and T:161 respectively).
Given what is said above in relation to point 1, and the conclusion reached as to the unlikelihood that the builder would have effected alterations to the plans and negotiated over a two year period, unless it was relying on the principle that it could effect sufficient alterations to the design so as to not have to be concerned about copyright, it becomes more likely than not, that the alterations effected by the changes made to the design, at page 64 OBOD, was the first step of that course.
I conclude that there is nothing within this issue concerning the reason for modification of the plans (grounds 3 - 5) which warrants the grant of leave.
2)(c) The builder could or should have paid for the licence and the contract could have been fulfilled (Ground 8)
It is submitted that the Disputes Tribunal erred in law in finding that the builder could have (or by inference, should have) paid for the licence from AV Jennings and that if it had done so, the contract could have been fulfilled.
The Disputes Tribunal, found that the builder was estopped from terminating the contract and then proceeded in the next paragraph of its reasons for decision to state that if the builder was genuinely of the view that the design violated the copyright of AV Jennings, then the evidence makes it clear that the builder could have obtained AV Jennings' permission to build that design by making a payment to AV Jennings, and that the contract could have been fulfilled (par 35). These findings were not essential to the reasons for decision. Once it was found that the builder was not entitled, by reason of the estoppel, to terminate the contract, its purported attempt to do so, which the owners accepted as a repudiation of the contract, entitled the owners to claim damages. No further finding was necessary.
Insofar as the finding may suggest that it was the obligation of the builder to obtain a licence from AV Jennings, I accept that the decision is wrong or attended with sufficient doubt. However, nothing flows from that finding. The evidence establishes that although the owners had not been granted any permission from AV Jennings, they had been told that permission could be obtained, and as at the date of hearing before the
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Disputes Tribunal, it remained open to the owners, against payment of a licence fee, to obtain such licence. That is not disputed. AV Jennings confirmed to the owners by letter dated 2 June 2005 that it would allow the use of its designs for a fee of $5,000.
In the circumstances, to the extent that the Disputes Tribunal is in error, nothing turns or flows from the error and no substantial injustice results, so that there is no basis for leave to be granted in respect of this issue.
2)(d) The assessment of building costs (Grounds 9 and 10)
It is asserted that the Disputes Tribunal erred in fact and in law in preferring the owners' assessment of increased building costs to that of the builders. Paragraph 10 of the proposed grounds asserts that the Disputes Tribunal erred in law in failing to give any or sufficient reasons for the finding that the evidence of its expert witness, Mr Hughes, in relation to building costs inherently lacked credibility.
As outlined above, the Disputes Tribunal considered the evidence of cost estimates from a number of sources. It rejected Mr Hughes' evidence on the basis that less than a 5% increase was allowed between his estimate of the costings as at February 2006 in an amount of $202,000 and as at August 2006 in an amount of $212,000. The Disputes Tribunal, as a specialist tribunal which includes a builder member, would be able to assess whether such an increase was too low or not. The Disputes Tribunal considered it to be low and contrasted the costs with the quotations obtained from Highbury Homes as at 19 August 2005 in an amount of $226,158 and as at July 2006 in an amount of $269,786. That equates to an increase of 19.29% in that year.
The Disputes Tribunal went on to state that it preferred to apply the estimate obtained from the owners' quantity surveyor, Mr Hogan, which as at July 2006, was stated to amount to $116,446 above the original contract sum. It is not clear how the Disputes Tribunal arrived at this figure because at [37] of its reasons for decision, it refers to the estimate from Mr Hogan as being $285,817, which is $132,447 in excess of the contract sum.
It is to be noted that Mr Hogan's costings, as such, were not challenged under crossexamination. Instead, the builder contends that the evidence of its expert witness, Mr Hughes, should be preferred because Mr Hughes based his estimates on precisely the same contract drawings and specifications as applied to the contract between the parties,
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whereas the other quotes and estimates obtained by the owners were based on documents which were different. Mr Hughes was crossexamined on these differences, and the result was to identify some $5,000 $6,000 in extra costs contained within the owners' quotations, which could be attributed to the differences. It was submitted that crossexamination had only dealt with the differences which could then be identified. That may well be, but the Disputes Tribunal had to do the best which it could on the evidence before it.
In these circumstances, although the reasons for decision do not deal adequately with the reasons for rejecting Mr Hughes' evidence and preferring Mr Hogan's estimate, it is evident that on the evidence, there was a basis for the Disputes Tribunal to be cautious about the rates provided by Mr Hughes, because according to his figures, there had been less than a 5% increase between February and July 2006. Given that the rates applied by Mr Hogan were not challenged, it was clearly open to the Disputes Tribunal to prefer to assess damages on his figures.
A difficulty which I have in relation to the Disputes Tribunal's reasons for decision is that there is no reasons given as to why, if the detailed costings of Mr Hogan stood up to scrutiny, the lump sum quotation from Highbury Homes as at July 2006 in an amount approximately $16,000 less than Mr Hogan's estimate, should not have been accepted. It appears that there may be some omission in the Disputes Tribunal's reasoning, because at [42], the Disputes Tribunal stated that it preferred to apply the estimate of Mr Hogan as a starting point, at July 2006 in the amount of $116,446. As already pointed out, that figure appears to be in error, because the difference between the contract sum of $153,340 and Mr Hogan's estimate of $285,817 was $132,447, as reflected in [37] of the reasons. It is of note that the difference between the contract sum and the Highbury Homes quote of $269,786 is $116,446. Thus, the Disputes Tribunal appears to have proceeded to assess its damages on what I consider to be the correct starting figure, being the difference between the Highbury Homes quote in July 2006 and the contract sum. Perhaps the answer to this lies in the reason given by Mr Hughes, in his evidence, as to why it was difficult to use the Highbury Homes quotation for comparison purposes. That was because the quotation reflected that some items were not finalised (T:258). If so, how is it that the Disputes Tribunal has adopted a price differential of $116,446? If not based on the Highbury Homes quote, it cannot be discerned from where this amount came.
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It is not every inadequacy in reasons for decision which amounts to a reviewable error. While there is a sufficient basis on which to discern why Mr Hogan's estimate was preferred to that of Mr Hughes, there are no reasons given as to why the price deferential of $116,446 was adopted, apparently based on Highbury Homes' estimate, to which I have referred, without any attempt to address any price adjustment to take into account the matters which were not finalised. In any event, the acceptance of the amount of the Highbury Homes quotation as the basis for the assessment of damages, to the extent that it is an error to have done so, is an error that operates in favour of the builder. There is accordingly no substantial injustice which arises by refusal of the opportunity to impugn the decision on this ground and leave should therefore be refused in respect thereof.
3) The effect of the contractual provisions warranting no infringement of copyright or reliance on representations (Ground 6 & Ground 7)
Firstly, it is asserted in proposed ground 6 that the Disputes Tribunal erred in fact and in law in finding that in drafting the contract document specifications, the builder represented to the owners that it could construct the design contained in the terms of the contract and that the owners relied upon those representations to their detriment in agreeing to the contract. That is asserted to be so because the contract contained provisions by which the owners warranted that any plans constituting part of the contract documents did not infringe intellectual property rights of any third party and that they had not relied on any representation, express or implied, not contained in the contract documents. Secondly, ground 7 asserts that further to ground 6, if the Disputes Tribunal "has found the respondents (owners) relied to their detriment on the alleged representations by Jason Burns as to modification of the plans at their first meeting (which is not stated in the reasons for decision)", then the Disputes Tribunal erred in fact and in law, in circumstances where the owners had not secured or attempted to secure a licence from AV Jennings after termination of the building contract, despite evidence they still intended to build the same design.
It is clear that the Disputes Tribunal's finding at [34], which is the subject of the criticisms raised by the proposed grounds of review, is that the representation was found to be constituted by the drafting of the contract documents and specifications by its various employees or agents especially through Mr Burns. The finding was that in so doing, the builder represented to the owners that the builder could construct the design reflected in the contract documents. It was that representation
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which was found to have been relied upon by the owners to their detriment in agreeing to the contract.
The representation that the builder could construct the design is not inconsistent with the terms of the contract, which contain a warranty on the part of the owners that the design did not constitute any infringement of intellectual property rights subsisting in third parties and that the owners indemnify the builder against any claim or demand made against the builder arising from a breach of the warranty (cl 7.4 of the contract). That warranty continued to apply, but it does not alter the fact that the owners in effect sought assurance from the builder that the builder was happy to proceed with the contract. The existence of this provision does not prevent the estoppel in question being relied upon.
The builder also submits that the Disputes Tribunal should not have found that the respondents relied upon the representation made to their detriment because of the contractual provision whereby they warranted that they did not rely on any representations, whether express or implied, which are not contained in the contract documents (cl 7.5 of the contract).
Both parties, at the invitation of the Tribunal, addressed supplementary submissions dealing with the effect of this clause and cl 7.4, referred to above. The owners' submissions referred to Weher v Thom [1969] WAR 39 which is authority for the proposition that in a claim for damages from contractual misrepresentation, a no-representation clause will be read down so as not to apply in relation to a representation which goes to the root of the contract. It was submitted for the builder that a distinction has to be made between oral representations made virtually at the time of contract, which in particular circumstances might still be relied upon, as opposed to where the oral representation is made some time prior to entry into the contract: Harling v Eddy [1951] 2 KB 739.
The parties' supplementary submissions also addressed whether the manner in which cl 7.4 of the contract was expressed impacted on the ability of the builder to terminate the contract because of a breach of copyright. This issue is, in my view, related to the "no reliance" provision in cl 7.5 because it assists in determining whether or not the representation found by the Disputes Tribunal goes to the root of the contract, cl 7.4 reads as follows:
"7.4The Proprietor warrants that any plans or writings constituting part of the Contract Documents are accurate and do not infringe any intellectual property rights subsisting in third parties, and the
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Proprietor shall indemnify the Builder against any claim or demand against the Builder, or costs or expenses incurred by the Builder, arising from any breach of this warranty."
It is submitted for the builder that cl 7.4 is a condition of the contract, breach of which entitles the builder to terminate. The builder concedes that a breach of warranty would not give rise to a right of termination under the common law. But the builder further submits that the term "warranty" is often used to refer to any binding promise or executory undertaking, or an essential binding promise: Halsbury's Laws of Australia par 110 - 2370.
Alternatively, the builder submits if cl 7.4 of the contract is not a condition it should be classified as an intermediate term, such that the rights of the innocent party following a breach would depend on the seriousness of the breach: Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
Whether or not a contractual provision is to be regarded as a condition depends upon whether the particular provision is so essential to the contract that the promisee, that is the builder, would not have entered into the contract unless assured of a strict or substantial performance of the promise: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd [1938] 38 SR (NSW) 632 at 641 642 and see the discussion in Cheshire and Fifoots' Law of Contract, 8th Australian Edition, LexisNexis Butterworths 2002 at p 933 and following. Further, the quality of essentiality depends on a judgment of the general nature of the contract and its particular provisions, taking close account of the importance which the parties have attached to the provision, as evidenced by the contract itself as applied to the surrounding circumstances: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431.
In my view, cl 7.4 of the contract cannot be characterised as a condition entitling the builder to terminate the contract under the common law (reference will be made further below to whether there is a contractual right based on other provisions of the contract to terminate). In this case, the first indicator, which supports this conclusion is the subject matter of the clause itself. Breach of copyright can occur within a very wide range of circumstances. The works which are copied might range from copying of a garden feature constituting a minor portion of the entire building to be constructed under the contract, to a blatant copying of the entire building. In the absence of some strong countervailing indicators, which I do not consider are present, this alone supports a conclusion that the clause is not to be regarded as a condition of the
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contract. The existence within the clause of an indemnity, in these circumstances, also supports the conclusion.
It is necessary to consider whether cl 7.4 of the contract could be classified as an intermediate or innominate term. For that purpose I assume that the design constitutes a breach of copyright. It is then necessary to assess whether the consequences of the breach are sufficiently serious for a right to terminate to arise: see JW Carter and DJ Holland, Contract Law in Australia (4th ed) LexisNexis Butterworths, 2002 at par 732 and the following discussion. In this instance, the evidence establishes that, consistent with what the owners had stated from the outset, AV Jennings were prepared to grant a licence for the use of the design on payment of a fee of $5,000. This is not a case in which the owners hid the author of the design and misled the builder. To the contrary, it was the builder who took the clearly marked AV Jennings original drawing and reproduced it without any reference to AV Jennings, as the basis for further agreed modifications. Right up to the entry into the contract and thereafter, until the termination letter was sent, it was the builder, as reflected in the correspondence referred to above, who provided comfort to the owners that there was no issue with copyright. In the light of that course of conduct, and the evidence of the builder's drafting manager, Mr Peter Jeffrey Hall (referred to under issue (2)(b) above - point 1), the obvious course which the builder should have followed, on becoming concerned about copyright, was to request that the owners obtain a licence, or if there was a genuine misunderstanding on the part of Mr Burns, to request documentary proof that a licence had been provided. Had either course been followed, it would soon have become apparent that the consequences of the breach were not significant because the licence could have been obtained. In the circumstances, termination for breach of an intermediate or innominate term was not justified.
The issue is not finally determined at this point, because the builder in any event contends that cl 14 of the contract provides an express right to terminate, in addition to the common law rights to terminate on the principles already discussed above. Clause 14 provides that in addition to any rights at law under the contract, the builder may elect, in its absolute discretion to terminate, relevantly, for any substantial breach of the contract. The answer to this submission lies in the discussion above in relation to termination on the basis of breach of an intermediate or innominate term, which must result in the conclusion that the breach in question does not constitute a substantial breach of the contract.
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It should be added, that in the course of the builder's supplementary submissions, it was submitted that a conclusion that the builder was obliged to perform building works in contravention of a third party's copyright would be to contract to permit a legal wrong which would be unenforceable and/or illegal. For the reasons given as to the range of possible breaches of copyright which might occur, I do not accept the broad submission made. On the face of it, in the case of a breach which has serious consequences and therefore can be regarded as a substantial breach of the contract, cl 14 would clearly come into operation. I was not referred to any authority which would suggest that a breach of copyright in itself would render performance of a building contract illegal and contrary to public policy.
Having reached the above conclusions, I revert to cl 7.5 of the contract. Consistent with the above, a representation, as found by the Disputes Tribunal, that the builder could construct the design contained in the terms of the contract (par 34) is arguably not a representation which goes to the root of the contract. Arguably, therefore, cl 7.5 excludes reliance on the representation and the decision of the Disputes Tribunal finding the existence of an estoppel, as it did, is therefore either wrong, or must at least be regarded as of sufficient doubt to justify the grant of leave, subject only to consideration of whether any substantial injustice would result if leave were not to be granted.
It is necessary to revert to the case as pleaded before the Disputes Tribunal. Apart from pleading the estoppel, the owners specifically pleaded in par 14 in the particulars of claim that there was no breach of the contract on the part of the owners that entitled the defendant to terminate. A claim for damages is then pleaded as a result of the unlawful termination of the contract (par 15). That pleading was in no way dependent on the estoppel.
In the circumstances, and on the conclusions reached above, the builder had no right to terminate the contract, and it follows that no substantial injustice would arise if leave were to be refused in respect of this particular ground because if the builder succeeded in establishing on final hearing that reliance could not be placed on the estoppel, it would not affect the final outcome of the matter.
Finally, it is no answer to the estoppel finding that the owners did not procure a licence from AV Jennings after the cancellation of the contract. There were reasons for that course being followed, as canvassed more fully under heading 4 below relating to mitigation of loss.
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4) Mitigation of loss (Ground 11)
The builder asserts that the Disputes Tribunal erred in fact and law in finding that the owners were not reasonably required to mitigate their loss after termination of the building contract by proceeding with another builder and by not reducing the damages to which the owners would otherwise have been entitled, as a result of the failure to mitigate.
The Disputes Tribunal found that there was no obligation on the owners to mitigate their loss because the builder had created uncertainty in relation to whether or not proceeding would result in a breach of copyright. That uncertainty was compounded by the unintended reference in the termination letter to the plans constituting a breach of copyright of Ventura Homes.
The evidence establishes that the owners spent some time investigating and communicating with Ventura Homes in order to clarify whether or not any breach of copyright was asserted. Ultimately, a rather ambiguously worded letter was received from Ventura Homes, which the owners interpreted as conveying that no claim was made for breach of copyright. The owners also went back to AV Jennings. By 2 June 2005, the owners had procured a letter from AV Jennings confirming that it would allow the use of its design for payment of a licence fee of $5,000 subject to entering into a licence agreement. A letter was obtained from Ventura Homes on 18 July 2005, and although it was far from clear, it was treated as indicated above. Based on the receipt of those letters, the owners endeavoured to persuade the builder that it was wrong to have terminated the contract, although the objective of that correspondence was to obtain compensation, because the owners contended in the correspondence that they had lost confidence in the builder as a result of the termination. It is evident that the owners went about endeavouring to get quotations from other builders, and were aware, therefore, that they would be facing a substantial increase in cost.
In addition, there was uncertainty as to whether the builder could make any claim concerning breach of copyright of any part of the design, given that until the termination letter, it had proceeded on the basis that the plan had been modified to a sufficient extent to enable the builder to proceed with the construction.
All of that is sufficient to explain why the owners did not proceed immediately to obtain the necessary licence from AV Jennings and proceed with the construction of the dwelling with another builder. Both Mr and Mrs Chudy were cross-examined as to why they had not
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proceeded with the building. Mr Chudy made it clear that they wished to proceed with the modified AV Jennings design and their advice was that they could not do so because of the risk of the builder claiming copyright as well. It was put to Mrs Chudy in cross‑examination that during an appearance before the Disputes Tribunal in May 2006, she had raised that the owners wanted an undertaking from the builder to be able to take the plan to other builders and that the undertaking had been given. Mrs Chudy acknowledged that to be so (T:174). It appears from the crossexamination of Mr Chudy that the first consideration that was given to seeking such an undertaking from the builder was in February 2006 (T:62).
The Disputes Tribunal's reasons for decision do not reflect any of the evidence extracted from Mr and Mrs Chudy in crossexamination. The confusion concerning copyright had been dealt with in relation to Ventura Homes and by AV Jennings well before February 2006. Why did it not occur to the owners prior to February 2006 to clarify whether or not the builder asserted copyright? Under crossexamination on this point, Mr Chudy endeavoured to explain it by reason of the builder having rejected any liability for compensation (T:62). That response does not appear logical. A denial of liability does not preclude the possibility of a statement being obtained that no copyright is claimed.
I conclude that ground 11 raises issues which indicate that the Disputes Tribunal's finding (at [46]) that the builder had occasioned the uncertainty to which the owners had been subjected and that consequently, the owners' actions were reasonable, is wrong or at least attended with sufficient doubt. Leave should be granted if a substantial injustice would result if the opportunity to have the decision reversed was denied.
For the reasons which follow, I do not consider any substantial injustice arises from a refusal of leave on this ground. Even if the owners had obtained clarification that no copyright claims would be asserted by Ventura Homes and the builder by as early as August 2005 that would on the evidence have resulted in a reduction of the cost of construction by approximately 20% (see the Highbury Home quotes and the discussion under issue (2)(d) (grounds 9 and 10) above). Further, for the reasons given above (issue (2)(d)) the true measure of the owners' loss is something in excess of the amount of $116,446 determined by the Disputes Tribunal. A 20% reduction reduces that figure to only slightly below the jurisdictional limit of $100,000 awarded by the Disputes Tribunal. And that takes no account of the additional claims of
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the owners for rental costs, loss of landscaping rebate and land tax totalling approximately $12,000 which the Disputes Tribunal failed to address.
Conclusion
For the above reasons, the criteria for the grant of leave are not established.
The parties have not made any submissions in relation to costs. The starting point in the Tribunal is that each party should pay their own costs. The Tribunal will therefore need to be persuaded that costs should be awarded. In the circumstances, the parties will be provided a limited time within which to apply for costs, if so advised, failing which the matter will be regarded as finalised.
Orders
For the above reasons, the Tribunal orders:
1.The applicant is refused leave to review the decision of the Building Disputes Tribunal made on 22 February 2007.
2.The application for leave to review the said decision is dismissed.
3.The parties have leave to apply for costs subject to:
(a)a written application for costs detailing all costs claimed and particularly the basis upon which the costs have been calculated, together with:
(b)an outline of submissions supporting such application;
being filed with the Tribunal and served on the other party by no later than 30 April 2008.
4.If any party makes a cost application in accordance with order 3 above, the other party must file with the Tribunal and serve on the first party, any written submissions in opposition to that application on which it wishes to rely, on or before 14 May 2008.
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5.Unless otherwise ordered, the Tribunal will determine any application for costs on the documents.
I certify that this and the preceding [88] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________
MR C RAYMOND, SENIOR MEMBER
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
STREAM: COMMERCIAL & CIVIL
ACT: BUILDERS' REGISTRATION ACT 1939 (WA)
CITATION: J CORP PTY LTD and CHUDY [2008] WASAT 79 (S)
MEMBER: MR C RAYMOND (SENIOR MEMBER)
HEARD: 15 OCTOBER 2007
DELIVERED : 10 APRIL 2008
SUPPLEMENTARY
DECISION :17 OCTOBER 2008
FILE NO/S: CC 413 of 2007
BETWEEN: J CORP PTY LTD
Applicant
AND
JOZEF CHUDY
SHIMI MARIA CHUDY
Respondents
Catchwords:
Application by respondent for costs - Leave to review decision of Building Disputes Tribunal dismissed - Reviewable error established - No substantial injustice found on decisive issue not raised by respondent
Legislation:
Builders Registration Act 1939 (WA)
State Administrative Tribunal Act 2004 (WA), s 87(1), s 87(2)
Result:
Application for costs dismissed
Category: B
Representation:
Counsel:
Applicant: Mr A MacPherson
Respondents : Mr R Shaw
Solicitors:
Applicant: Hotchkin Hanley
Respondents : Lavan Legal
Case(s) referred to in decision(s):
J & P Metals Pty Ltd and Shire of Dardanup [2006] WASAT 282 (S)
J Corp Pty Ltd and Chudy [2008] WASAT 79
Lai and Costa [2006] WASAT 116 (S)
Rainbow Pty Ltd and Hawkins [2007] WASAT 216 (S)
REASONS FOR DECISION OF THE TRIBUNAL:
Summary of Tribunal's decision
The respondent sought an award of legal costs of $8,870 incurred in opposing the applicant's application for leave to review a decision of the Building Disputes Tribunal.
The State Administrative Tribunal concluded that the recoverable costs, if costs were awarded, were of borderline significance when considered against the benefit obtained by the preservation of the order of the Building Disputes Tribunal which was for payment of compensation of $100,000.
Although the matter was complex and it was necessary for the respondents to obtain legal representation to properly oppose the application, a significant factor in the exercise of the State Administrative Tribunal's discretion was that leave to review the decision would have been granted, but for adverse findings made by the State Administrative Tribunal on issues which were not raised by the respondents. Further, there were a number of aspects of the decision of the Building Disputes Tribunal which were cause for concern so that the commencement of proceedings by the applicant was justified. It was obvious to the State Administrative Tribunal that the applicant had incurred significantly higher costs than the respondents.
Taking all factors into account, the State Administrative Tribunal concluded that the most appropriate outcome was that each party should bear its own costs and the respondents' application for costs was accordingly dismissed.
The application for costs
On 10 April 2008 the Tribunal delivered written reasons for decision refusing the applicant's (builder) application for leave to review a decision of the Building Disputes Tribunal; see J Corp Pty Ltd and Chudy [2008] WASAT 79. The respondents (the owners) have applied for the costs of opposing the application for leave in an amount of $8,870.
The parties have filed written submissions in support and in opposition to the application, respectively.
Conclusion
For the reasons which follow, the application for costs should be dismissed.
In Lai and Costa [2006] WASAT 116 (S) and Rainbow Pty Ltd and Hawkins [2007] WASAT 216 (S) (Rainbow Pty Ltd and Hawkins), the Tribunal set out a number of factors relevant to the consideration of whether or not to award costs in relation to proceedings for the review of a decision of the Building Disputes Tribunal under the Builders Registration Act 1939 (WA) (BR Act). The starting point in relation to an application for costs is that each party should bear their own costs in accordance with s 87(1) of the State Administrative Tribunal Act 2004 (WA) (SAT Act). However, there is a broad discretion to award costs as provided for under s 87(2) of the SAT Act and the above decisions acknowledge that a relevant factor in considering the award of costs is that it would not be in the public interest if the cost of legal representation and expert witness fees could not be recovered in some cases, because of the effect that might have on limiting the use of the Building Disputes Tribunal. It is also relevant that there will be cases where the nature of the case are such that legal representation is necessary.
However, where the costs incurred are relatively incidental to the benefit obtained from the proceeding, that may be a sufficient basis to decline to make any award of costs in favour of a party.
It is of course necessary, by reason of the provisions of s 87(4) of the SAT Act, for the Tribunal to have regard to whether a party genuinely attempted to enable and assist the decisionmaker to make a decision on its merits.
In Rainbow Pty Ltd and Hawkins the Tribunal also outlined the basis upon which the Tribunal would assess the costs to which a party might be entitled, following the principles stated by Deputy President Chaney in J & P Metals Pty Ltd and Shire of Dardanup [2006] WASAT 282 (S). As the costs incurred by the owners are a factor featuring significantly in the Tribunal's consideration of the matter, it is convenient to deal with this aspect first. The owners have provided no detail of the basis on which the $8,870 is claimed; that is, by reference to time spent in attendance at directions hearings, preparation and getting up, or attendance at the hearing. All that is provided is a statement that the amount claimed represents 7.1 hours work by junior practitioners, charged at a rate of $253 per hour, and 19.5 hours work by a senior practitioner, charged at $363 per hour.
There is no prescribed scale in relation to the conduct of proceedings before the Tribunal but regard can be had to statutory scales as a guide. The Legal Practitioners (District Court Appeals) (Contentious Business) Report and Determination 2006 provides the District Court Appeal Scale of costs (the District Court Appeal Scale). The District Court Appeal Scale provides some guidance in relation to the subject proceedings. However, the District Court Appeal Scale deals only with an appeal, whereas proceedings in this Tribunal in applications to review and the review of Building Disputes Tribunal decisions require a combination of that process, with an application for leave, and a merits review, which in some instances may require a substantial body of new evidence. The District Court Appeal Scale allows relevantly $1,243 for proceedings in chambers, $1,243 for getting up the appeal for hearing, and counsel's fee on hearing, including preparation, of up to $4,356.
In the absence of any details of the time taken and costs charged for relevant activities, based on the Tribunal records and documents filed on record, I would assess the recoverable costs, if awarded, as set out below:
| 1. | 4 directions hearings @ $150 each | $600 |
| 2. | Drafting submissions in opposition to leave: - 3 hours (junior practitioner) @ $250/hour - 1 hour (senior practitioner) @ 360/hour | $110 |
| 3. | Getting up: - 4 hours (senior practitioner) @ $360/hour - 3 hours (junior practitioner) @ $250/hour | $2,190 |
| 4. | Hearing: - 3.5 hours (senior practitioner) @ $360 | $1,260 |
| 5. | Supplementary submissions: - 1.5 hours (junior practitioner) @ $250 - 7.5 hours (senior practitioner) @ $360 | $645 |
| 6. | Submissions on costs: - .5 hour (junior practitioner) @ $250 | $125 $5,930 |
The above costs weighed against the benefit of preservation of the order made by the Building Disputes Tribunal for payment of damages of $100,000 can be considered as being on the border of a significant amount.
The Tribunal accepts that due to the complexity of the matter, the owners could not have properly conducted these proceedings without legal representation. Further, there is nothing to suggest that the owners did anything other than genuinely attempt to enable and assist the Building Disputes Tribunal to determine the matter. In the absence of the further factors, referred to below, the Tribunal would be inclined to award costs.
In this case the Tribunal made a number of findings reflecting aspects of the Building Disputes Tribunal's decision which were either wrong, or attended with sufficient doubt as to meet those particular criteria necessary for the grant of leave. Significantly, the Tribunal accepted that cl 7.5 of the building contract entered into between the parties arguably excluded reliance on the representation on which the Disputes Tribunal based its finding of the existence of an estoppel which precluded termination of the contract. The only reason that leave was not therefore granted was because the Tribunal also found that the builder had no common law or contractual right to terminate the contract. That conclusion was reached only because the Tribunal raised the issues and called for further submissions, after the substantial hearing of the matter, in order to enable it to discharge its obligation to determine the substantial merits of the matter. Based on that conclusion, the Tribunal found that no substantial injustice would result from the refusal of leave. The builder, who had had the carriage of the matter, has filed extensive submissions and it is obvious to the Tribunal that the builder will have incurred significantly more costs than the owners. There were a number of aspects of the decision of the Building Disputes Tribunal which were cause for concern and although the application for leave ultimately failed, the proceedings were certainly justified.
Having regard to all of the above factors and circumstances, and having regard to the marginal significance of the costs potentially recoverable weighed against the preservation of the Building Disputes Tribunal's order, the Tribunal concludes that the most appropriate outcome is that each party should bear their own costs. That outcome will result from a decision to dismiss the owners' application for costs.
Order
For the above reasons, the Tribunal will issue an order:
1.The respondents' application for costs is dismissed.
I certify that this and the preceding [18] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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MR C RAYMOND, SENIOR MEMBER
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