Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST

S ECI 2020 02305

JOLIN NOMINEES PTY LTD (ACN 005 114 170)	Applicant
v
DANIEL INVESTMENTS (AUST) PTY LTD (ACN 090 946 446)	Respondent

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JUDGE:	Daly As J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 May 2021
DATE OF JUDGMENT:	27 October 2021
CASE MAY BE CITED AS:	Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd
MEDIUM NEUTRAL CITATION:	[2021] VSC 705

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JUDICIAL REVIEW AND APPEALS – Application for leave to appeal from VCAT under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) – Principles of statutory construction – Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, referred to – Whether Senior Member erred in applying the test pursuant to s 38(6)(b) of the Domestic Building Contracts Act 1995 (Vic) – Mann v Paterson [2019] HCA 32, referred to – Pratley Constructions v Racine [2004] VCAT 2035, referred to – Whether Senior Member took into account irrelevant considerations or failed to take into account relevant considerations – Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24, referred to – Construction of contract – Whether builder entitled to extension of time – Whether builder alternatively entitled to extension of time under s 39 of the Domestic Building Contracts Act 1995 (Vic) – Whether Senior Member provided adequate reasons – Leave to appeal granted in part – Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr T Margetts QC with Mr J A Ribbands	Defteros Lawyers
For the Respondent	Ms C M Harris QC with Mr B G Mason	Collins House Legal

HER HONOUR:

Introduction and background

This proceeding is an application for leave to appeal against a decision of a Senior Member of the Victorian Civil Administrative Tribunal (‘VCAT’) to award the respondent damages in the sum of $328,767.23, being the final payment and the cost of variations pursuant to a building contract for the construction of six townhouses in Coburg. The appeal raises important questions regarding the consequences of a builder’s failure to comply with the notification requirements of the standard form major domestic building contract (‘HIA contract’) and the Domestic Building Contracts Act 1995 (Vic) (‘DBCA’) concerning variations, along with the proper construction and application of the provisions of the HIA contract and the DBCA concerning extension of time claims by builders.

The applicant, Jolin Nominees Pty Ltd (‘owner’) is a property developer. Mr Muratti, its director, is himself an experienced builder. The respondent, Daniel Investments (Aust) Pty Ltd (‘builder’) is a builder. Its director, Mr Daniel, is a qualified civil engineer and registered building practitioner.

The owner acquired the site in 2014, at which time there was a single storey house on the site. In or about April 2014, the owner invited the builder to tender for the demolition of the house and the construction of the townhouses (‘works’). The owner provided the builder with some architectural plans and drawings, but no detailed specifications for the works, and advised the builder that the specifications would be the same as those for a previous development they had worked on together in Craigieburn.

On 7 September 2014, the owner accepted a quote for the works in the sum of $1,471,420 inclusive of GST.

On 1 March 2015, the parties entered into a contract in the form of the HIA contract (‘March contract’). The relevant terms of the March contract are discussed in further detail later in these reasons.

Due to difficulties in satisfying the requirements of the building surveyor, the building permit was not issued until 2 July 2015. The circumstances giving rise to the delay included the builder being unable to obtain insurance, the documents provided by the owner to the builder being inadequate for the purposes of obtaining a building permit, the failure of the owner to sell sufficient units “off the plan” to fund the commencement of the works, and council works taking place in an adjacent laneway limited access to the site.

On 16 June 2015, the parties executed a new contract (‘June contract’). The June contract is in the same terms as the March contract, save that the date of the contract was changed to 16 June 2015, the time for completion was changed to 330 days, and the agreed damages for late completion were increased from $650 per week for all six townhouses to $650 per week for each of the six townhouses.

The Senior Member devoted considerable attention in his reasons (‘reasons’) to the question of whether the relationship between the parties was governed by the March contact or the June contract, and to the various iterations of the plans and specifications prepared for the owner. These included plans and drawings prepared by Kavellaris Urban Design, which were sent to the builder in March 2015, and a series of plans prepared by Mr Cardamone, an architect appointed by the owner to supervise the builder and the works. It is not necessary for present purposes to go into any detail about the various versions of the plans and drawings, some of which were provided to the builder, and some of which were not, save to say that it appears that the plans and specifications for the townhouses evolved considerably over the course of the project.

The Senior Member held that the works were completed on 10 April 2017. Following the completion of the works, a dispute arose between the parties regarding the amount of the final payment due to the builder. In an email sent on 11 April 2017, Mr Daniel contended that numerous variations were required because of discrepancies between the plans and the specifications, engineering mistakes in the plans, and additional items requested by the owner. Further, while the builder admitted that there was a delay in completing the works, it rejected the owner’s claim for liquidated damages, based on, among other things, the time taken to complete the variations requested by the owner.

In 2018 the builder issued a claim in VCAT (‘VCAT proceeding’) seeking orders for the final payment under the March contract, and payment for a number of variations (‘variation claims’), notwithstanding the builder’s failure to comply with the notification requirements in the March contract and in s 38 of the DBCA (‘notification requirements’). The owner brought a counterclaim seeking liquidated and common law damages for the delay in completing the works.

The VCAT proceeding

The hearing of the VCAT proceeding took place over eight sitting days in the latter part of 2019, with further written submissions filed in December 2019. The Senior Member delivered his decision on 21 April 2020, accompanied by the reasons, which were lengthy and detailed. The Senior Member ordered that the owner pay the builder the sum of $328,767.23.[1] A substantial part of the hearing time and the reasons concerned whether the parties’ obligations were governed by the March contract or the June contract. The Senior Member’s findings to the effect that the March contract governed the relationship between the parties was ultimately not challenged by the owner in this appeal.
[1]As it turns out, the parties agree that the Senior Member made an arithmetical error, and that the correct figure is $230,376.34.

The key issues in the VCAT proceeding of relevance to this appeal were whether the builder was entitled to recover payment for the variation claims, and the amount of liquidated damages claimable by the owner, which, in effect, would be netted off any payment due by reason of the variation claims and the final payment due to the builder. However, practically speaking, the two issues were conflated in the VCAT proceeding, in that the variation claims not only gave rise to a money claim by the builder, but also in some instances, an extension of time claim which, if successful, would reduce the quantum of the owner’s liquidated damages claim by extending the time for the completion of the works. Accordingly, the Senior Member heard evidence and made findings on each of the variation claims having regard to both of these issues, being the payment (if any) due to the builder, and in some instances, the impact of the variations upon the time to complete the works.

The variation claims

The Senior Member noted that the builder’s variation claims were governed by cll 23 and 24 of the March contract, which provide as follows:

23.0Either the Owner or the Builder may ask for the Building Works to be varied. The request must be in writing, must be signed and must set out the reason for and details of the variations sought.
23.1If the Owner requests the variation and the Builder reasonably believes the variation will not require a variation to any permit and will not cause any delay and will not add more than 2% to the Contract Price the Builder may carry out the variation.
23.2 If the Builder requests the variation, the notice given by the Builder must state the following further particulars:
·what effect the variation will have on the building works;
·if the variation will result in any delays, the Builder’s estimate of such delays; and
·the cost of the variation and the affect it will have on the amount payable by the owner under this contract.

23.3If the Owner requests a variation and if the Builder has not agreed to carry out the variation under Clause 23.1, the Builder must give the Owner, within a reasonable time of receiving the notice under Clause 23.0, a notice:
·setting out the particulars listed in Clause 23.2; or
·stating that the Builder refuses or is unable to carry out the variation and stating the reasons therefore.

23.4Subject to subclause 23.1, the Builder must not give effect to any variation unless the Owner gives the Builder a signed consent to or request for the variation attached to a copy of the notice referred to in Clauses 23.2 or 23.3.
23.5If, within seven days of the Builder giving the Owner of the notice of particulars under clause 23.3, the Owner does not give the Builder:
·a signed request to the variation under Clause 23.4; and
·written evidence of the owner’s ability to pay the variation, the request by the Owner for the variation is deemed withdrawn.

Effect of variations
24.0When a variation has been effected under Clauses 12, 23 or 38:
·if the variation increases the amount to be paid by the Owner under this Contract the amount is added to the next Progress Payment after the work is done. If it decreases the amount to be paid by the Owner under this Contract the amount is subtracted from the next progress payment:
·the Contract Documents are read as if so varied; and
·the Completion Date or the number of Days required to finish the work are read as that date or number of days, as adjusted to take account of the variation.

It was common ground that none of the variations were the subject of any written requests or agreements. Most of the variations were found by the Senior Member to have been initiated by the owner.

The Senior Member noted that similar provisions to cll 23 and 24 of the March contract are to be found in ss 37 and 38 of the DBCA and stated as follows:

The provisions of Clauses 23 and 24 of the March Contract are intended to set out a procedure for variations which is to be followed by both parties, not just the Builder. If the intention of the parties had been to exclude the operation of s.37 and s.38 of the Act, that would have been stated expressly.
Under Clause 23.0 it was for the Developer to put any request in writing. If it did not do so, but nonetheless insisted that the extra work be done, it would be unconscionable for it to then refuse to pay for it on the ground of its own failure to put its request in writing. By such conduct, it would have waived compliance with the requirement in Clause 23.0 that the request be in writing, although the statutory requirements in s.37 and s.38 that the notices be in writing would nonetheless remain.[2]

[2] Reasons [222]-[223].

The Senior Member stated further, in regard to the builder’s claim for payment for the variation claims, as follows:

Clause 23.0 requires a request for additional work by the owner to be in writing. Further, although not stated in this section, it is now established that a notice by an owner under s.38(1) is also required to be in writing (see Mann v Paterson Constructions Proprietary Limited [2019] HCA 32).
At the time of construction Mr Muratti was in poor health. He was kept informed by Mr Daniel on a regular basis of various problems that arose on site and his response was generally that Mr Daniel was the Builder and it was for him to resolve the problem.
In many cases there was not a specific request by Mr Muratti or Mr Cardamone to perform a particular item of work in addition to that required by the plans and schedule of finishes. It was usually a general request to fix the problem. However, a request for a variation need not specify each nail and screw. It is sufficient for an owner to request that the scope of works be extended in the manner described.
In other cases, amended plans were produced that the Builder then followed. The provision of those amended plans in itself would amount to a request to build what they required.[3]

[3]Ibid [224]-[227].

The Senior Member then went on to refer to the test for determining whether a builder was entitled to recover payment for owner initiated variations when the builder failed to comply with the notification requirements. In short, the Senior Member concluded that the builder was entitled to recover payment for many, but not all of the variation claims, and made findings in relation to each variation claim, including the quantum of the claim allowed, and, in some cases, for the purpose of the owner’s liquidated damages claim, the delay occasioned by each allowed variation claim. The quantum of the individual variation claims ranged from quite modest amounts (for example, $485.10 for a stormwater pipe) to quite substantial amounts (for example, $44,585.75 for additional air‑conditioning units).

The Senior Member considered the variation claims by the builder individually, and with some care. It seems that, to the extent that the evidence advanced by the owner and the builder regarding the variation claims were in conflict, the Senior Member generally preferred the evidence of the builder.

The section of the reasons where the Senior Member considered the individual variations is lengthy, and in some respects, by reason of the nature of the task, repetitive, so I do not propose to reproduce the entirety of the Senior Member’s reasons in respect of each variation claim here. To provide an illustration of the issues involved, the quantum of the variation claims, and the Senior Member’s reasoning process, three examples will suffice, being the variation claims with respect to the installation of solar powered hot water units, the installation of meter enclosures, and the construction of a powder room in one of the townhouses. The applicable sections of the reasons are reproduced below.

Variation E.2.3 – The solar hot water units $36,663.94 – 7 days
According to the Schedule of Finishes which formed part of the specification document, the hot water systems were to be:
“Electric constant hot water system to Builder’s specification.”

As previously stated, the specifications were based upon the earlier project in Craigieburn that the parties had carried out, which required only water systems of that description.
The plans depict a solar hot water unit on the roof of each unit. By Clause 16 of the March Contract, where there was any inconsistency between the contract documents, the specifications took priority over the plans.
Mr Daniel said that he informed Mr Muratti that only the hot water systems described in the specifications had been included in the contract price. He did not say what Mr Muratti’s reaction to that was. Mr Muratti denied having discussed the hot water systems with Mr Daniel. He also said that, at that time, he was having no conversation with anybody, although he acknowledged that he was able to talk to his wife and children.
This was a very significant item and I think it unlikely that something was not said about it to Mr Muratti. I therefore prefer Mr Daniel’s evidence that the matter was discussed.
The Builder installed the solar hot water units and associated equipment at a cost of $21,926.30 for the units themselves, $3,091.74 for the supporting brackets and $9,900.00 for the plumbing required for their installation and commissioning.
Mr Daniel said that installing a solar hot water system involves additional work and materials and takes more time than an instantaneous hot water unit. He said additional battens were required to support the weight of the solar hot water units and that each of them had to be hoisted by crane onto a specially constructed frame. He said that he estimated the additional rough in and work to strengthen the trusses delayed the Builder’s work by approximately seven days.
Since the specifications override the plans, the Builder was only responsible to provide what the specifications required. The Developer nonetheless demanded that the solar hot water Units be supplied and the Builder supplied them. The variation was therefore requested, albeit not in writing as required by Clause 23.3 of the March Contract or s.38 of the Act.
I am satisfied that the Builder would suffer a significant hardship by the operation of s.38 if recovery were not allowed. The Developer has had the benefit of the hot water services that it requested, which are well in excess of what was required by the specifications and so I think that it would not be unfair to the Developer for the Builder to recover the money.[4]
[4]Ibid [250]-[257].
Variation D.1.6 – Meter enclosures $3,326.40
The contract drawings provided for the Meters for all Units to be installed in a single location near the entrance to the garage of Unit 6, immediately behind the letterboxes.
The Builder was informed that, because three-phase power was being supplied to the car stackers, the metre [sic] boxes needed to be larger than normal. Also, the gas meters needed to be kept separate from the electricity meters. Consequently, the meters would not fit in the space shown in the plans.
On 17 October 2016, Mr Daniel contacted Mr Muratti and Mr Cardamone, saying:
“An urgent meeting needs to be held tomorrow to discuss the location of the electrical, gas and water meters. All utility meters will not fit as it is shown on the Ground Floor Plan near/behind the letterboxes. This is urgent as we have already made applications to connect some services.”

Mr Cardamone responded, saying that he would be available two days later and asked the Builder to confirm the size of the service meters for the meeting. Mr Muratti sent an email to Mr Kavellaris asking for advice about the location of the meters and the letterboxes. Mr Daniel said that Mr Kavellaris did not provide a solution to the problem.
On 10 November 2016, Mr Daniel sent an email to Mr Muratti, saying:
“I call you twice yesterday to tell that the Gas company came yesterday to install the gas line but they couldn’t proceed as there is no place to install the gas meter they are now negotiation with there office to come with solution, please note that the application for Gas line was lodged August 2016 by my office on your behalf.” (sic.)

Mr Muratti responded with an email referring to the American elections, and how important they were, and saying that he had switched off his phone. He said that he saw no reason why he should be brought into the matter and continued:

“You seem to forget that you are the Builder, not me, and that written agreements must be complied with by both of us not just by me and that, furthermore and as you well know, your delays are adversely affecting my health because I have to delay surgery to my lungs as a result of such delays.
In any event, trust and hope that you will resolve this problem which, in my view, you should have foreseen from the outset.”

In cross-examination, Mr Muratti acknowledged that he was aware that adjustments were needed to accommodate the larger electricity meters and that the Builder needed to resolve the problem. Mr Muratti’s argument was that Mr Daniel should have seen the problem from the beginning. He agreed that the Builder had to do what needed to be done to take care of the problem.
The obligation of the Builder was to construct the Units in accordance with the contract documents, and that was not possible because the space allowed for the meters in the plans was inadequate. The plans were provided by the Developer and it was not the responsibility of the Builder to find and point out inadequacies in those plans before the March Contract was entered into. If the plans are deficient, that is the Developer’s responsibility.
Mr Daniel said that he resolved the problems with the authorities so that all meter boxes and letterboxes could be installed in the available area. He said it involved installing the electricity meter box on Nicholson Street, next to the garage entrance for Unit 1 (formerly called Unit 6). The meter box needed to be encased in a brick enclosure. Next to it was a gas manifold which allowed the meters to be installed on top of each other. Next to that were the water meters in series and the letterboxes.
The Builder claims for the cost of building the brick enclosure for the electricity meter boxes, which Mr Daniel calculated as follows:
(a) excavating and concreteing the base: $900.00
block work and steelwork to enclose

the electricity meter box $1,650.00

(b) rendering the brickwork enclosure $650.00
$3,200.00

No claim is made by the Builder for installing the meter box, which had been allowed for in the contract price.
Mr Mason submitted that the email Mr Muratti sent on 10 November was a “notice” for the purposes of Clause 23.0, in that it directed Mr Daniel to resolve the problem and that the Builder was therefore entitled to implement the variation because it reasonably believed that the variation would not require an adjustment to any permit, would not cause any delay and not add more than 2% of the contract price.
I think a fair interpretation of the email is that Mr Muratti asked Mr Daniel to find a solution to the problem which had been identified in the earlier emails in the chain. Those emails did not detail the items of work that might be needed to address the problem. Mr Muratti left that up to Mr Daniel. It was a request to fix the problem rather than a request to carry out any specific work.
It would be a significant hardship on the Builder not to allow recovery. It would not be unfair to the Developer for it to be ordered to pay for the work needed to resolve the problem that Mr Muratti had directed Mr Daniel to solve. There is no contrary evidence to challenge Mr Daniel’s assessment of the value of the work so I think the variation should be allowed.[5]
[5]Ibid [286]-[300].
Variation D.3.4 – Construction of the Unit 2 powder room $1,039.50
Mr Daniel said that, during lock up stage, Mr Muratti asked him to change the storeroom on the second level of Unit 2 to a powder room. He said that this change required plumbing to be installed for the toilet and basin, for the toilet bowl basin and mixer to be purchased and for the room to be waterproofed and tiled.
Mr Cardamone said that Mr Daniel “was aware of this since early September 2015”. Even if he was, that was after the date of the March Contract and so this was additional work. Mr Daniel said that the Builder carried out the work at a cost of $990.00, including GST, which the Builder paid.
Although less than some of the other variations, the cost incurred by the Builder in complying with Mr Muratti’s request is substantial and it would be a significant hardship to the Builder not to allow recovery. Since the work was requested by the Developer, it would not be unfair to order the Developer to pay for it.[6]

[6]Ibid [338]-[341].

Overall, the builder made eighteen variation claims. The Senior Member made orders for payment to the builder with respect to thirteen variation claims. Of these thirteen variation claims, the Senior Member allowed the builder’s extension of time claims with respect to seven variation claims, as not all variations caused the works to be delayed.

Five of the variation claims were rejected by the Senior Member, as follows:

(a) a claim concerning the form of cladding to be used on the roof of one of the townhouses, which resulted in a different material being used on the advice of the builder’s roofing contractor. The change in the materials used and method of construction cost the builder an additional $20,790.00 (which was paid to the roofing sub-contractor), and was said to have delayed the works for approximately three months. The Senior Member rejected this claim, saying as follows:

The difficulty that I have with this claim is that I cannot identify any request by the Developer for the work the Builder did. I am satisfied that there was a deficiency in the plans and there was certainly a request to carry out the work required by the amended plans that Mr Muratti told Mr Daniel to obtain from Mr Kavellaris’ office, but it does not appear that this alleged variation relates to what was shown in those amended plans. Mr Daniel said that he was dissatisfied with those plans because he felt that they did not deal with the box gutter issue.

(b) the supply and installation of telecommunications pits to enable the townhouses to be connected to the NBN, at a cost of $2,545.00. The Senior Member stated “It is not suggested that there was any request by [the owner] for this work”;

(c) changes to the specifications with respect to kitchen joinery, including additional island benches and stone benchtops, and the installation of a curved wall unit, which the builder paid approximately $25,000.00 to the builder’s joinery sub-contractor. The Senior Member rejected this claim, saying:

The problem I have with this claim is that, although there is evidence of how much the changed cabinetry cost the Builder, I do not have evidence of what the cabinetry required by the March Contract documents would have cost, and so I cannot make a finding that there has been an increased cost. I accept Mr Ribbands’ submission that it is only an increase in cost that can be allowed.

(d) an amount charged to the builder by the local council to effect repairs to the adjacent footpath and laneway damaged by the works. The Senior Member observed that there was nothing in the March contract which allowed the builder to pass this cost onto the owner; and

(e) the Senior Member rejected a claim by the builder seeking reimbursement of the additional cost charged by the cladding contractor of $21,703.00, on the basis that, as the cladding was not referred to in the March contract as a prime cost item or provisional sum item, the builder was not entitled to pass the additional cost onto the owner.

As can be seen from the above, a significant issue that the Senior Member took into account when determining whether to accept or reject the variation claims was whether there was any evidence that the owner requested the variations. The reasons show that the Senior Member gave careful attention to each of the variation claims. Given that one of the rejected variation claims (for the change to the roofing of one of the townhouses) was for the sum of $20,790, and was said to have caused a delay of three months, the builder did not achieve complete success with respect to its variation claims and extension of time claims, even where it could be inferred from the nature and cost of the works involved that the owner received a material benefit from the works, or that the works were required by external parties.

Extension of time claim

As previously noted, the builder submitted in the VCAT proceeding that not only did many of the variations requested by the owner entitle the builder to payment under s 38(6)(b), the completion of the variations also resulted in delays in the completion of the works, thus reducing the owner’s claim for liquidated damages.

Clause 40 of the March contract provides as follows:

If the Building Works have not reached Completion by the end of the Building Period, the Owner is entitled to agreed damages in the sum set out in Item 9 of Schedule 1 for each week after the end of the Building Period to and including the earlier of:
• The date the Building Works reach Completion;
• The date this Contract is ended; and
•The date the Owner takes possession of the Land or any part of the Land.

Clause 34 of the March contract provides, in part, as follows:

Builder’s right to extensions of time
34.0The date for Commencement is put back or the Building Period is extended if the carrying out of the Building Works is delayed due to:
·a variation or a request for a variation by the Owner in accordance with Clauses 16, 21, 23 and 24;
•a suspension of work in accordance with clause 35;
•inclement weather or conditions resulting from inclement weather in excess of the Days nominated in Schedule 1;
•disputes with neighbouring owners or residents, or proceedings brought or threatened by them, that are not the Builder’s fault;
•civil commotion or industrial action affecting the work of tradespeople or the work of a manufacturer or supplier of materials;
·anything done or not done by the owner or by an agent, contractor or employee of the owner;
·a delay in getting any approval, provided that is not the Builder’s fault. Refer to clause 19; or
·any other cause that is beyond the Builder’s direct control.

34.1The Builder is to give the owner a written notice informing the owner of the extension of time. The written notice must state that cause and the extent of the delay.
34.2To dispute the extension of time the owner must give the Builder a written notice, including detailed reasons why the owner disputes the claims, within seven days of receiving the Builder’s notice.

In relation to cl 34 of the March contract, the Senior Member stated as follows:

Mr Mason submitted that the Builder is entitled to an extension of time in any of the circumstances listed in Clause 34.0, even where the procedure set out in the succeeding parts of Clause 34 are not followed.
I think that is correct. Clause 34.0 is not prefaced by the words: “Subject to compliance with this clause ... “ or some similar phrase. The entitlement to an extension is prima facie absolute. Quite obviously, if the procedure is not followed, then the machinery set out in the clause cannot be used to establish an entitlement to an extension of time. However, Mr Mason says that the entitlement encompasses a variation under either of the sections.
The following extensions of time are claimed with respect to the variations that I have allowed:
Engineer’s inspection of excavation            1 day

Change to steel lintels:  2 weeks

Storm water pipe in unit 1:  2 weeks

Solar hot water Units:  1 week

Additional skylights:  13 weeks

Additional air-conditioning:  7 weeks

Additional work to internal walls:              3 weeks
Total:  28 weeks and 1 day[7]

[7] Ibid [421]-[423].

The Senior Member found that the owner was entitled to liquidated damages in the sum of $50,142.85 as a result of the delay in the completion of the works, stating as follows:

The commencement date was 7 July 2015 and the construction period was 11 calendar months so, without variations, the work should have been completed on 6 June 2016. With the extensions of time I have allowed, that becomes 19 December 2016. The delay is therefore 90 days. At the Contract rate of $650.00 per week per unit, liquidated damages to be deducted from the Builder’s claim are $50,142.85.[8]

[8] Ibid [429]-[430].

The Senior Member concluded his reasons as follows:

There will be an order that the Developer pay to the Builder the sum of $328,767.23.[9] Since the Developer’s liquidated damages are set off against the Builder’s claim to arrive at the amount of the order made, the Counterclaim will be struck out.[10]
[9]This figure should be $231,176.69.
[10] Reasons [438].

The notice of appeal

The draft notice of appeal enumerated nineteen grounds of appeal. On the day prior to the hearing of the appeal, the owner circulated an amended notice of appeal, which indicated that the owner abandoned grounds 1 to 9, 12, and 14 to 19, and sought to add a new ground 12 and an additional ground 20.

The grounds of appeal abandoned by the builder concerned, among other things, whether the Senior Member had erred in determining whether the March contract or the June contract governed the contractual relationship between the parties, thus leaving standing the Senior Member’s finding that the relationship between the parties was governed by the March contract. Many of the other grounds of appeal abandoned by the owner concerned the reasonableness of the Senior Member’s factual findings.

The amended notice of appeal also added two additional grounds of appeal: a new ground 12, being that the Senior Member had failed to provide adequate reasons for his conclusions with respect to the matters required to be established under s 38(6)(b) of the DBCA in order for the builder to recover the amounts it did for the variation claims, and the new ground 20 concerned the arithmetical error made by the Senior Member in his final orders. In regard to the latter ground, the builder does not dispute that such an error was made, but submitted that the appropriate remedy was for the parties to approach the Senior Member to request that the Senior Member amend the final orders under the VCAT equivalent of the slip rule. However, as the owner has undertaken not to press for costs in relation to this ground of appeal, the necessary amendment to the Senior Member’s orders can be accommodated within this proceeding, regardless of the fate of the other grounds of appeal. Accordingly, it is not necessary for me to deal with that ground of appeal in these reasons.

The amended notice of appeal provides as follows:

1.What is the correct test to be applied to assess a Builder’s claim for variations pursuant to section 38 of the Domestic Building Contracts Act 1995 (Vic)
2.Does Clause 34.0 of the HIA Major Domestic Building Works Contract allow for an absolute right to an extension of time for the Builder?

Grounds 10 and 11 concern the proper construction of s 38 of the DBCA for the purpose of assessing the builder’s variation claims. These grounds of appeal are reproduced below:

10.The Senior Member erred at [231] and [232] in finding that the correct test for assessing hardship to the builder pursuant to section 38(6)(b)(i) of the Domestic Building Contracts Act 1995 (Vic) requires:
(a)       consideration of:
(i)        the Builder’s financial situation at the time;
(ii)       the profit margin on the contract; and
(b)a finding that the mere fact of denial of payment causes significant or exceptional hardship

when, properly understood, the test for hardship concerns the effect of the Builder being required to comply with the prescriptive requirements of subsections section 38(1)-(5) of the Domestic Building Contracts Act 1995 (Vic) before it is able to recover the cost of variations plus a reasonable profit.
11.The Senior Member failed to apply the correct test under section 38(6)(b) of the Domestic Building Contracts Act 1995 (Vic) by taking into account irrelevant considerations and failing to take into account relevant considerations.
PARTICULARS
Irrelevant considerations include:
A.the Builder’s financial situation at the time;
B.the profit margin on the contract;
C.the fact that the Owner makes a request for variation;
D.the sufficiency or otherwise of drawings provided by the Owner;
Relevant considerations not taken into account include:
A.the inability of the Owner to have the benefit of the agreement between the parties, including:
(i)knowledge of the extent of potential delays that will be caused by the variation;
(ii)knowledge of the cost of the variation; and
(iii)the ability to alter or abandon the variation in light of said knowledge.

B.The relative cost of the variations to the contract price in assessing fairness to the Owner.

…

The particulars under ground 11 enumerated the paragraphs of the reasons said by the owner to evidence the erroneous approach of the Senior Member to the variation claims.

Ground 13 of the notice of appeal concerns the owner’s claim for liquidated damages, and is reproduced below:

The Senior Member erred at [422] in construing Clause 34.0 of the contract to allow for an absolute entitlement to an extension of time for any event where, upon its proper construction, an entitlement to an extension of time only arises upon compliance with the balance of the terms of Clause 34.
PARTICULARS
Clause 34.1 provides that the Builder is to give the Owner a written notice informing the Owner of the extension of time and that it must state the cause and extent of the delay.
Clause 34.2 provides a mechanism by which the Owner can dispute the extension of time, of which mechanism the Owner is otherwise disentitled.

During the course of the hearing of the appeal, the owner submitted that if the owner’s submissions concerning the proper construction of s 38(6)(b) were accepted, the variation claims should be remitted to VCAT to be reconsidered according to law. However, if the owner’s submissions with respect to the builder’s extension of time claim were accepted, the owner submitted that there would be no need for any remitter: rather, it would be open to this Court to adjust the value of the owner’s liquidated damages claim accordingly, as this would only involve a simple arithmetic adjustment to the orders made in the VCAT proceeding.

The owner relied upon the affidavit of its solicitor, Mr George Defteros, sworn on 28 July 2020. Exhibited to Mr Defteros’ affidavit are copies of the exhibits tendered during the VCAT hearing, and a copy of the Tribunal Book accepted into evidence by the Senior Member. However, given the late abandonment of a number of grounds of appeal, the only documents concerning the VCAT proceeding required to be reviewed for the purpose of the appeal were the March contract, the Senior Member’s reasons, the relevant provisions of the DBCA, and the parties’ written submissions in the VCAT proceeding.

The parties’ submissions
The proper construction of s 38 of the DBCA – grounds 10 and 11

Section 38 of the DBCA sets out the notification requirements and governs the entitlement of a builder to recover payment for variations requested by an owner. These grounds of appeal challenge, relevantly, the Senior Member’s construction and application of s 38(6)(b) of the DBCA, which governs the entitlement of a builder to recover payment for owner requested variations when the notification requirements have not been complied with by the owner and/or the builder.

As observed by the owner in its written and oral submissions, the notification requirements reflect the consumer protection objectives of the DBCA, by limiting the circumstances in which a builder can recover payment for variations not agreed in writing between an owner and a builder. Accordingly, the legislative scheme encourages builders to carry out variations only in circumstances where it has the informed written consent of the owner to those variations.

Section 38 of the DBCA provides as follows:

38. Variation of plans or specifications - by building owner
(1)A building owner who wishes to vary the plans or specifications set out in a major domestic building contract must give the builder a notice outlining the variation the building owner wishes to make.
(2)If the builder reasonably believes the variation will not require a variation to any permit and will not cause any delay and will not add more than 2% to the original contract price stated in the contract, the builder may carry out the variation.
(3)In any other case, the builder must give the building owner either-
(a) a notice that-
(i)states what effect the variation will have on the work as a whole being carried out under the contract and whether a variation to any permit will be required; and
(ii)if the variation will result in any delays, states the builder’s reasonable estimate as to how long those delays will be; and
(iii)states the cost of the variation and the effect it will have on the contract price; or

(b)a notice that states that the builder refuses, or is unable, to carry out the variation and that states the reason for the refusal or inability.

(4)The builder must comply with subsection (3) within a reasonable time of receiving a notice under subsection (1).
(5)A builder must not give effect to any variation asked for by a building owner unless-
(a)the building owner gives the builder a signed request for the variation attached to a copy of the notice required by subsection (3)(a); or
(b)subsection (2) applies.

(6)A builder is not entitled to recover any money in respect of a variation asked for by a building owner unless-
(a)the builder has complied with this section; or
(b)VCAT is satisfied-
(i)that there are exceptional circumstances or that the builder would suffer a significant or exceptional hardship by the operation of paragraph (a); and
(ii)that it would not be unfair to the building owner for the builder to recover the money.

(7)If subsection (6) applies, the builder is entitled to recover the cost of carrying out the variation plus a reasonable profit.
(8)This section does not apply to contractual terms dealing with prime cost items or provisional sums.

Section 39 of the DBCA is in similar terms to cl 24 of the March contract, and provides as follows:

39. Effect of a variation on the contract price
Unless the contrary intention appears, if the plans or specifications set out in a major domestic building contract are varied in accordance with section 37 or 38, any reference in this Act, the regulations or the contract to-
(a)those plans or specifications is to be read as a reference to them as varied; and
(b)the contract price is to be read as a reference to the contract price as adjusted to take account of the variation; and
(c)the completion date, or the number of days required to finish the work, is to be read as a reference to that date, or number of days, as adjusted to take account of the variation.

Section 37 governs the notification requirements with respect to variations requested by a builder, but, given that the variation claims largely concerned variations requested by the owner or said by the builder to have been requested by the owner, it is not necessary to reproduce or consider s 37 of the DBCA.

As can be seen from s 38(6)(b) above, a builder is not entitled to recover payment for variations requested by the owner if it has not complied with the notification requirements unless the builder can satisfy VCAT that there are exceptional circumstances, or that the builder would suffer significant or exceptional hardship, and that it would not be unfair to the owner to recover payment for the variations requested by the owner (emphasis added). What constitutes “significant or exceptional hardship”, and what may or may not be taken into account by VCAT in determining whether the builder would suffer significant or exceptional hardship are two of the critical issues in this appeal.

The Senior Member considered the operation of s 38(6) in the following section of the reasons:

In the case of owner variations, which is what the Builder principally claims in the present case, where the requirements of s.38 have not been complied with, the Builder is not entitled to recover any money with respect to the variation unless I am satisfied that:
(a)there are exceptional circumstances or that the Builder would suffer a significant or exceptional hardship by the operation of the section; and
(b)it would not be unfair to the Developer for the Builder to recover the money.

If I am so satisfied, then the Builder can recover the cost of the variation plus a reasonable profit. The reasonable profit claimed in this case is 5%, in accordance with Item 10 of Schedule 1 of the March Contract. That is smaller than any other percentage profit I recall having encountered in the course of dealing with building disputes over the years and is less than the 10% to 15% referred to by Mr Daniel in cross-examination.
Mr Mason[11] further submitted that, when considering whether the Builder would suffer significant or exceptional hardship, I should take into account the evidence that the Builder was suffering from financial difficulties and that there were many variations requested which, in the aggregate, amounted to a considerable sum. Mr Ribbands[12] said that I should look at each variation separately.
I think I have to look at each variation individually, but the question of hardship in each case must be assessed having regard to all the circumstances, including the Builder’s financial situation at the time. That must take account of the other expenses that the Builder has had to incur in complying with the Developer’s requests.
Another matter to be considered when assessing hardship to the Builder is that the profit margin on the contract was only 10 to 15%. Where a Builder has only a small profit margin, the consequence to the Builder of not being able to recover the cost of a requested variation is more significant, in that it is more likely that it will have to make up the cost from its own resources and the evidence was that the Builder was suffering financial difficulties.[13]

[11]Counsel for the builder at VCAT.

[12]Counsel for the owner at VCAT.

[13] Reasons [228]-[232].

The owner submitted that, assuming the Senior Member was correct to apply s 38(6) to the variation claims, the Senior Member applied the incorrect test under that section.

The owner referred to the discussion of the purpose of s 38 of the DBCA by the Court of Appeal in Mann v Paterson Constructions Pty Ltd[14] as follows (emphasis in submissions):

The evident purpose of s 38 is to protect owners from being liable for variations where builders do not provide sufficient information to the owners to enable them to make an informed decision whether to sign a contract or proceed with a variation. This purpose is borne out by statements made in Parliament prior to the enactment of the Act and its predecessor, the HCG Act. Those statements referred to an unscrupulous practice by some builders of underquoting building work and seeking to recover the difference by subsequent variations, the need for which was not readily apparent to the owners at the time they signed the building contract. Section 19 of the HCG Act and s 38 of the Act were enacted to prevent owners from being financially disadvantaged by additional costs concealed in subsequent undocumented and unsigned variations.[15]

[14] [2018] VSCA 231.

[15] Ibid [138].

The owner submitted that any significant or exceptional hardship suffered by the builder must be considered in the context that the builder would ordinarily have had an opportunity to comply with the notification requirements. Any compensable significant or exceptional hardship must arise in connection with the requirement to comply with s 38, and not simply hardship which arises because the builder has failed to comply with the notification requirements, and has incurred a cost in carrying out works which benefit the owner.

The owner submitted that the Senior Member failed to consider whether the builder was able to comply with the notification requirements, and there was no evidence as to why the builder was unable to comply with, or would suffer hardship by reason of the need to comply with the notification requirements. In contrast, Mr Muratti had undergone surgery on his larynx and was unable to speak except in very limited circumstances, and as a result requested that all correspondence be in writing. However, no notice of variations, or any indication that the builder considered any work done was a variation to the March contract was communicated to the owner until an email sent in April 2017, after the completion of the works.

The owner submitted further that in order for a builder to recover money for the variation claims, it must not be unfair to the owner. The owner submitted that in many instances, the Senior Member found that this requirement was satisfied because the variations were requested by the owner. The Senior Member’s findings in that regard fail to recognise the unfairness to the owner which arises as a consequence of the builder’s failure to comply with the notification requirements.

The owner submitted that that it would be unfair for the builder to recover money for the variation claims in circumstances where the purported requests by the owner simply communicated what the owner understood was required to be done by the builder to comply with its contractual obligations, rather than being specific requests for variations by the owner.

The owner submitted that the unfairness visited upon the owner by having to pay more for the works without prior notice of the effect that any variations would have upon the cost of the works and the time to complete the works is the very vice which the DBCA seeks to avoid. The owner submitted that the question of unfairness is not answered merely by considering whether the owner has benefited from the work, as that would be the case in almost every instance where a variation claim is made. Finally, the test as to what amounts to unfairness should not be applied differently to owners in different circumstances, as the Senior Member seems to have done in the current case.

In response, the builder submitted the Senior Member did not err in finding that the correct test for assessing hardship may include consideration of the builder’s financial situation at the time, the profit margin on the contract, and that the mere fact that the denial of payment for a variation claim may cause significant or exceptional hardship to the builder. The builder rejected the owner’s contention that the relevant hardship must be any difficulty the builder had in complying with the notification requirements.

The builder submitted that the reasons why a builder failed to satisfy the notification requirements can have no bearing on whether a builder suffers significant or exceptional hardship by reason of the enforcement of the notification requirements. Rather, any reasons for the failure to comply with the notification requirements are relevant to determining whether exceptional circumstances exist for the purposes of s 38(6)(b)(i). For example, an owner may refuse to consent to a variation the builder considered was necessary for the works to comply with legal or regulatory requirements, or, in urgent circumstances, may be unaware of the variation, and in such circumstances s 38(6)(b)(i) may be relied upon by the builder. Accordingly, any inquiry into the question of whether the builder had sufficient opportunity to satisfy the notification requirements only arises in determining whether exceptional circumstances exist, and is not relevant to the question of hardship.

The builder submitted that the Senior Member did not stipulate a test to be applied when determining the question of hardship, but rather correctly acknowledged that the question of hardship in each case must be assessed with regard to all the circumstances, including the builder’s financial situation at the time, and including the profit margin earned by the builder on the contract in question.

The builder submitted that the reference in s 38(6)(b) to the need for VCAT to be satisfied of the matters specified in ss 38(6)(b)(i) and (ii) indicates that the task necessarily involves an element of subjective determination and judgment on the part of VCAT. Given that the task before the Senior Member was an evaluative exercise, there should be some deference to the conclusions of the Senior Member on review. In support of that proposition, the builder referred to the following statement of the High Court in Minister for Immigration and Ethnic Affairs v Wu Shan Liang:[16]

The present appeal, of course, is not one which relies upon the common law. Rather, it is an application under the ADJR Act for an order of review in respect of a decision of an administrative character made under an enactment. Paragraph (f) of s 5(1) of the ADJR Act asks of the present situation whether the Minister’s failure to attain the requisite state of satisfaction was vitiated because it “involved an error of law”. However, while the subjective nature of the decision no longer can be said to immunise the decision from review, it is necessarily of relevance to the issue of whether there has been an error of law.[17] (emphasis added)

[16] (1996) 185 CLR 259.

[17] Ibid, 276.

The builder submitted that a builder’s entitlement under s 38(6)(b) is described in general terms, requiring the existence of exceptional circumstances or that the builder would suffer a significant or exceptional hardship if the notification requirements were strictly enforced, which reflects the statutory purpose referred to in Mann v Paterson.[18] The builder observed that in Mann,[19] the High Court did not comment upon what amounted to “exceptional circumstances”, “significant exceptional hardship”, or “unfairness to the owner”.
[18] [2019] HCA 32 (‘Mann’).
[19]Ibid.

The builder referred to the Senior Member’s findings that at the relevant time, Mr Muratti was in poor health. He was being kept informed by Mr Daniel on a regular basis as to problems which arose on the site, and Mr Muratti’s response was generally that Mr Daniel was the builder and it was for him to resolve the problem. The Senior Member found that:

In many cases there was not a specific request by Mr Muratti or Mr Cardamone to perform a particular item of work in addition to that required by the plans and schedule of finishes. It was usually a general request to fix the problem. However, a request for a variation need not specify each nail and screw. It is sufficient for an owner to request that the scope of works be extended in the manner described.[20]

[20] Reasons [226].

The builder noted that the Senior Member found that Mr Muratti was an experienced developer, who had previously worked with the builder, and it was open to the Senior Member to assess the question of hardship by having regard to all of the circumstances, including the builder’s financial situation at the relevant time, and there is nothing in s 38(6)(b) which precludes the builder’s financial position from being a relevant consideration. Indeed, there is a sufficient nexus between the builder’s financial position and the profit margin on the contract with the question of whether the builder would suffer significant or exceptional hardship as a consequence of not receiving payment for the variation claims for such matters to be relevant to the Senior Member’s determination.

In response to the owner’s submission to the effect that the Senior Member failed to consider the builder’s ability to comply with the notification requirements and its reasons for non-compliance with the notification requirements, the builder submitted that the reasons contain a detailed analysis of the communications between the parties. The builder referred to the Senior Member’s findings that Mr Muratti was an experienced builder, with a forceful and aggressive manner. The Senior Member also found that the plans and specifications were unclear, and that the owner communicated to the builder its request that the claimed variations be performed, or otherwise made clear to the builder that the builder was to resolve the problems revealed by the deficiencies in the drawings provided to the builder by the owner, as illustrated by the reasons concerning a variation claim for damages to the garage lintels. In circumstances where the owner did not issue written notices requesting any variations, the builder had no way of compelling the owner to provide them.

The builder submitted further that the owner’s submission that it would be unfair to the owner not to have notice of the cost of proposed variations would leave s 38(6)(b) redundant, as its operation is predicated upon a builder not having complied with the notification requirements. Put another way, s 38(6) is a provision which ameliorates, in certain circumstances, the hardship to a builder arising out of the strict enforcement of the notification requirements.

The builder submitted that the owner’s submissions to the effect that it would not be fair for the builder to recover the costs of the variations were unfounded, as the Senior Member accepted the amounts in question were significant, and those findings have not been challenged on appeal. Further, while each variation claim was considered individually, it was open to the Senior Member to conclude that the multiplicity of requests for variations could of itself cause hardship to the builder. The builder submitted further that the owner was aware of the work in question, as the owner either requested the work, or left it to the builder to address the deficiencies in the drawings provided by the owner. The owner therefore had an opportunity to negotiate with the builder about the price or scope of the variations, but declined to do so. The builder submitted further that the owner clearly enjoyed the benefits of the variations, as some of the variations were necessary to comply with the contracts of sale entered into by the owner with the purchasers of the townhouses. Accordingly, the builder submitted that, when the facts of the case are considered as a whole, the Senior Member was correct to find that it would not be unfair to the owner for the builder to recover payment for the variation claims which the Senior Member allowed, particularly given the deficiencies in the plans and specifications, and the fact that the owner planned to on-sell the townhouses for profit.

In reply, the owner submitted that the fact that an owner has not issued a notice under s 38(1) does not absolve a builder from having to comply with the notification requirements.

The owner submitted that the submissions advanced by the builder effectively seek to reverse the onus imposed upon a builder by s 38(6)(b). The owner submitted that, in failing to comply with the notification requirements, the builder denied the owner an opportunity to negotiate the cost of a variation, and to query the additional time required to complete the variation. In the current case, the builder did not provide any information as to the cost of the variations until well after the completion of the works.

Further, the owner submitted that the fact that an owner might be aware that work was being done does not absolve the builder from compliance with the notification requirements. The owner submitted that the carrying out of work by the builder in such circumstances may lead to an owner reasonably concluding that no cost consequences would follow, which underscores the consumer protection objective of the notification requirements.

The owner submitted that the test for the application of s 38(6)(b) involves three limbs, as follows:

(a) first, by reference to the builder’s conduct and the circumstances surrounding its non-compliance with the notification requirements;

(b) secondly, by considering the financial ramifications to the builder that arise from strict enforcement of the notification requirements; and

(c) thirdly, by reference to an overarching consideration as to whether it would be unfair to the owner to allow the builder to recover the price of the variation concerned.

The owner submitted that VCAT must weigh up the first two considerations and arrive at an assessment as to whether in all the circumstances the builder would suffer significant or exceptional hardship by operation of s 38(6)(a). The owner submitted that the Senior Member was in error by directing his attention to the cost consequences to the builder of the variations, and the benefits to the owner of the works concerned, and by failing to consider the circumstances surrounding the builder’s failure to comply with the notification requirements. The owner submitted that the error in this approach is illustrated by the Senior Member’s conclusions with respect to modest sums claimed by the builder with respect to some of the variation claims.

Ground 11 of the amended notice of appeal also concerned the Senior Member’s approach to the variation claims. The owner submitted that the Senior Member had taken into account irrelevant communications, and had failed to take into account relevant considerations in his application of s 38(6) of the DBCA to the variation claims.

To recapitulate, the notice of appeal identified the following matters as irrelevant considerations:

(a) the builder’s financial situation;

(b) the profit margin on the contract;

(c) the fact that a variation had been requested by the owner; and

(d) the sufficiency or otherwise of drawings provided to the builder by the owner.

The following matters said to be relevant considerations which the Senior Member failed to take into account included:

(a) the inability of the owner to have the benefit of the agreement between the parties, including having knowledge of the potential costs and delay occasioned by a variation, and the ability to alter or abandon the variation with the benefit of that knowledge; and

(b) the relative cost of the variation claims compared with the contract price when assessing any unfairness to the owner.

The paragraphs of the reasons identified in the particulars under ground 13 contain the Senior Member’s findings concerning whether the cost of the works was significant, whether denial of payment would cause the builder hardship, and his findings that it would not be unfair to the owner to award payment for the variation claims concerned, because the variations were either requested by the owner or were necessitated by deficiencies in the plans and specifications supplied by the owner.

Irrelevant considerations

The owner submitted that, on the proper construction of s 38(6)(b), the builder’s financial position at the time of carrying out a variation is irrelevant, as this provision only operates retrospectively. The owner submitted that a builder’s financial difficulties at the time the relevant variation was carried out cannot be relevant to an inquiry carried out at a later date into any financial hardship incurred by a builder in complying with the notification requirements. Further, having regard to the financial impact upon a builder of being denied payment for variations does not accord with the consumer protection objectives underpinning the notification requirements.

The owner noted that the Senior Member concluded there was hardship as a consequence of the builder having to incur the costs of the variations. The owner observed that for every variation carried out by any builder pursuant to an oral request, the builder will incur a cost, and if the Senior Member’s approach was applied across the board, the hardship test would be satisfied merely by virtue of the fact that the builder had incurred a cost in carrying out the works.

The owner submitted that the reasons show that Senior Member concluded that fairness to the owner was also equated with the owner having had the benefit of the works, with the consequence that, once the owner has received the benefit of the works, the test in s 38(6)(b)(ii) has been satisfied. The owner submitted that, again, if that approach was adopted across the board, such an approach would effectively undermine the consumer protection regime in the DBCA.

In that regard, the owner referred to the following statement of the High Court in Mann:[21]

The apparent purpose and legislative effect of these provisions is that a builder shall not be permitted to recover any money in respect of owner-initiated variations (other than for prime cost items and by way of provisional sums) except in accordance with these provisions. As such, they function as protective provisions, designed to prevent the kinds of problems likely to arise where domestic building contract variations are dealt with informally, as by oral request by an owner for a variation and compliance by the builder without first agreeing with the owner on the price and other consequences of giving effect to the variation; in particular, to avoid the surprises and consequent disputation likely to arise where plans and specifications under a major domestic building contract are varied without the degree of formality mandated by s 38(1) and (2) or (3). Hence, subject to only one exception, they prohibit a builder recovering any money in respect of owner-initiated variations unless the required degree of formality has been observed. The one exception reflects a legislative recognition that there can sometimes be instances of non-compliance which are in themselves exceptional or would result in the builder suffering exceptional hardship and in which it is not unfair to require the owner to pay a reasonable recompense for the variation, namely, the cost of the variation and a reasonable profit margin in accordance with s 38(7).[22]

[21] [2019] HCA 32.

[22] Ibid [157].

The owner referred to the decision of Beach J in Sevastopoulos v Spanos,[23] where his Honour considered a predecessor to s 38 of the DBCA, being s 19(1) of the House Contracts Guarantee Act 1987 (Vic) when rejecting a quantum meruit claim by a builder for variations, as follows:

It was argued that to interpret s19(1) in this fashion would be to produce draconian results. Again I am unable to agree. One is not dealing with a building contract as such. One is dealing with variations to a building contract or extras as they are sometimes called. As the learned author pointed out in Brooking on Building Contracts, 2nd ed., p. 90:
“the extra is the bane of the proprietor and a most fertile source of building cases. Many a building owner is or claims to be astonished when a job for which he was given a firm price ends up by costing half as much again. It may be the homely case of the interfering wife who every day visits the house being built and continually changes her mind by moving this or adding that. At a different level the proprietor who has signed a lump sum contract for the erection of a multi-storey office building at a cost of $2 million may be surprised to receive a final account for $3 million and will have to be reminded of the fact that he added two storeys and made numerous other costly suggestions many at a stage at which considerable expenses already incurred had to be thrown away by reason of the alteration. While proprietors often have only themselves to blame, the danger of ultimate dissatisfaction and dispute is at times increased by failure on the part of the architect to indicate sufficiently clearly to the proprietor the way in which things are going. The tendency of some proprietors to intermeddle by visiting the site and personally directing that this or that be changed is another contributing cause of the dispute which often develops later.”[24]

[23] [1991] 2 VR 194.

[24] Ibid, 202.

The owner also relied upon the decision in Pratley Constructions v Racine,[25] (‘Racine’) where Senior Member Young of VCAT described the relevant provision of the DBCA (in that case, s 37) as a “very onerous provision”, and went on to say as follows:

Would the builder suffer “significant hardship” if he was not allowed to recover the costs of the variations verbally agreed to and that were either requested or accepted by the owners? The use of the word “significant” requires that it add something to the meaning and purpose of the subsection. If adjectives had not been used to describe the hardship I consider any nontrivial actual identifiable hardship could be sufficient. ‘Significant’ according to the Macquarie Dictionary when used as an adjective means “important, of consequence, expressing a meaning, indicative, suggestive.” Used in the context of Subsection (3) I would adopt a meaning of “of consequence”.[26]

[25] [2004] VCAT 2035.

[26] Ibid [7.19].

While the owner disagreed with VCAT’s finding in Racine[27] to the effect that any variation claim exceeding $200.00 was significant for the purposes of s 38(6)(b)(i), the owner observed that “significant” means “important” or “of consequence”.
[27]Ibid.

The owner submitted that, if the Senior Member’s construction of s 38(6)(b) is correct, a builder experiencing financial difficulties would have an incentive not to comply with the notification requirements, in the expectation that it would be able to recover the cost of variations in accordance with s 38(6)(b) of the DBCA. The owner submitted that, as a consequence, the financial position of the builder ought not be taken into account in assessing whether there are exceptional circumstances, or whether the builder would suffer significant or exceptional hardship any failure to comply with the notification requirements.

The owner observed that the Senior Member considered that incurring the cost of variations at a time when the builder was in financial difficulty might constitute exceptional circumstances or amount to a significant or exceptional hardship. However, the owner submitted that, in light of the retrospective entitlement to recovery conferred by s 38(6)(b), it could not be said that a builder which has come into significant funds since the disputed variation was carried out could properly be held to have suffered significant or exceptional hardship, or would be able to make out exceptional circumstances, highlighting the error in the Senior Member’s approach.

Similarly, the owner submitted that the size of a builder’s profit margin cannot inform the consideration of whether there are exceptional circumstances or significant or exceptional hardship by reason of the need for the builder to comply with the notification requirements. The owner submitted that having regard to the builder’s profit margin fails to give effect to the commercial relationship between the parties, or the voluntary assumption of risk by a builder when agreeing to a modest profit margin.

The owner submitted further that the sufficiency or otherwise of drawings provided by an owner cannot be a relevant consideration given that the March contract expressly described the works required to be done by the builder. To find that exceptional circumstances are made out in such circumstances undermines the bargain struck between the parties.

Relevant considerations

The owner also submitted that the Senior Member failed to take into account relevant considerations in determining the variation claims. The owner submitted that, in order for a builder to recover money in respect of a variation claim, VCAT must be satisfied that it would not be unfair to the owner, which requires consideration of more than the simply the fact that the owner requested the variation concerned.

The owner submitted that the notification requirements are in place to protect owners, and therefore it can be assumed that, all other things being equal, it would be unfair to the owner for works to be carried out without the builder informing the owner of their cost, and the time required to complete the additional works.

The owner submitted that a further relevant consideration is the relative quantum of the variation claims compared with the contract price. Section 38(2) provides that a builder may carry out a variation requested by an owner without providing a further notice if the builder reasonably believes the variation will not cause delay, and the variation will not add more than two per cent to the original contract price. The owner submitted that, accordingly, where VCAT considers the cost of a variation is substantial, the cost of the variation may lead to a conclusion that it would be unfair to the owner for the builder to recover in respect of the relevant variation claim. Such a finding accords with the consumer protection objectives of the notification requirements, and in the present case there was no evidence of any discussion or agreement with respect to the cost of the variations or the consequent extensions of time prior to the builder undertaking the works for which it sought to recover payment under s 38(6)(b). The owner submitted that the Senior Member failed to take the absence of any such discussion or agreement into account when assessing the variations claims.

In response, the builder submitted that the owner’s submissions regarding this ground of appeal contain no considered analysis of the DBCA. Instead, the owner merely asserts that on the proper construction of s 38(6)(b) it is immaterial what a builder’s financial position was at the time of carrying out a variation. The builder submitted that there is nothing in s 38(6)(b) which supports the owner’s assertion that a builder’s profit margin on a contract cannot inform VCAT’s consideration of whether significant or exceptional hardship may be caused to the builder by the strict enforcement of the notification requirements.

The builder observed that s 38(6)(b)(ii) is expressed in general terms, and while VCAT must be satisfied that either there are exceptional circumstances or that the builder would suffer significant or exceptional hardship, the provision does not expressly identify any matters which must or must not be taken into account when determining whether a builder is entitled to recover payment for variation claims.

The builder submitted that in order to properly construe s 38(6)(b), it is necessary to consider the subject matter, scope and purpose of the DBCA. The builder noted that, as stated by the High Court in Mann,[28] s 38 is a protective provision, designed to prevent the kinds of problems which arise when contract variations are dealt with informally. The builder submitted that the notification requirements protect an owner by limiting the circumstances in which a builder is entitled to payment for variations. However, s 38(6)(b) protects a builder, by providing a mechanism to ameliorate the potentially harsh consequences of the strict enforcement of the notification requirements. The builder observed that the need for such protection may arise in a broad range of exculpatory circumstances, given that the DBCA regulates a wide range of construction work, from small residential homes built for first-time owner-occupiers to multi‑storey apartment complexes built for sophisticated developers. The builder submitted that the legislature can be presumed to have deliberately refrained from prescribing or limiting the considerations which might be taken into account by VCAT when determining whether the relevant circumstances are exceptional, or whether a builder would suffer significant or exceptional hardship by reason of the strict enforcement of the notification requirements.
[28] [2019] HCA 32. See paragraph 74 of these reasons.

The builder submitted that, accordingly, considerations relevant to the inquiry under s 38(6)(b) may include the builder’s financial position and the builder’s profit margin, as these factors are relevant to whether the builder may suffer significant or exceptional hardship if precluded from recovering payment for a variation claim. The builder went on to submit that a builder working to a low profit margin could be expected to sustain significant or exceptional hardship more readily than a builder enjoying a more generous profit margin, and the legislature could hardly have intended that the DBCA penalise builders who agree to a competitive contract price.

The builder submitted that, contrary to the owner’s submissions, having regard to the builder’s profit margin and financial position does not encourage a builder with a poor financial position in a better position to avoid the notification requirements, but are simply matters that VCAT may take into account, and it is for VCAT to determine the weight accorded to them. Contrary to the owner’s submissions, a builder in this situation is not incentivised to avoid compliance with the notification requirements, as a builder which has failed to comply with the notification requirements must persuade VCAT of its entitlement to recover payment, with the unavoidable costs, delay and uncertainty associated with litigation. As such, the asserted incentive is illusory.

As for the owner’s submission that the unfairness caused to an owner by a builder’s failure to comply with the notification requirements should be given primacy, the builder submitted that this submission cannot be accepted for two reasons. First, s 38(6)(b) is only engaged if the notification requirements have not been complied with, and the owner’s preferred construction as to what amounts to unfairness would prevent s 38(6)(b) from ever being engaged. Secondly, the Senior Member expressly found that the owner was aware of the work in question. The builder submitted that unfairness to an owner may not arise when the owner knowingly permits additional work to be performed for its benefit, as the Senior Member held was the case here.

The builder submitted that nothing in s 38(6)(b) limits the variations for which a builder is entitled to recover to those having a value greater than two per cent of the original contract price. The only relevance of the two per cent threshold in s 38(2) is to prescribe when a builder may perform a variation in response to an owner’s request without providing further notice of the likely cost consequences of the variation requested by an owner. The builder submitted that, while the cost of a variation is a relevant consideration when determining whether exceptional circumstances are present, or whether a builder would suffer significant or exceptional hardship, the statutory purpose of s 38(6)(b) indicates that its operation is not to be confined by inflexible thresholds of the kind contended for by the owner.

Ground 13 – extension of time claim

This ground of appeal is concerned with the proper construction of the extension of time provisions in the March contract, and, in particular, whether a builder is able to extend the time for the completion of the works by reason of variations where the builder failed to comply with the notification requirements in cl 34 of the March contract (‘notice requirements’). The relevant parts of cl 34 are reproduced in paragraph 25 of these reasons.

The Senior Member’s reasons with respect to the builder’s extension of time claim are quite brief, as set out in paragraph 26 of these reasons. While the Senior Member makes no express reference to ss 37 and 38 of the DBCA in this part of the reasons, when one reads paragraph 422 of the reasons together with the written submissions of the builder in the VCAT proceeding, it seems that the Senior Member’s statement that the builder’s “...entitlement encompasses a variation under either of the sections” is intended to refer to variations a builder is entitled to recover payment for under ss 37 or 38 of the DBCA. The reasons are somewhat unclear as to whether the Senior Member accepted the builder’s submissions that it was entitled to an extension of time as one or more of the matters enumerated in the bullet points in cl 34.0 had been engaged, but as he then proceeded to consider the builder’s claim for an extension of time with respect to the relevant variation claims, I can infer that he accepted the builder’s entitlement to an extension of time arose in accordance with the submissions advanced by the builder.

It is apparent from the reasons concerning the dealings between the owner and its director and/or agent with the builder, both in general terms, and with respect to the individual variation claims, that the Senior Member, far from adopting a “pro‑forma” approach to the variation claims, carefully analysed not only the quantum of the variation claims, but also the circumstances in which the variation was requested and carried out.

Having reviewed the paragraphs of the reasons identified by the owner in the particulars under ground 11 in the notice of appeal regarding individual variation claims, I accept that the question of whether the variations were required by the owner, or were necessitated by the deficiencies in the plans and specifications provided by the owner, were of some significance to the Senior Member’s determination of particular variation claim, as were his findings that the owner had the benefit of the variations. I also accept that, in assessing the individual variation claims, the Senior Member did not expressly refer to the question of whether it would be unfair to the owner to not have the benefit of the notification requirements, so as to enable the owner to consider the consequences of the proposed variation on the cost of the works and the time to complete the works. I accept that these are relevant considerations, but in my view, a fair reading of the Senior Member’s reasons concerning the communications between the owner and the builder indicates that the Senior Member found that the owner refused to engage with the builder regarding issues that had arisen during the course of the works, or regarding individual requests for variations, telling Mr Daniel that it was the builder’s role to fix any problems which arose. Also significant was the Senior Member’s finding that in some respects, the plans and specifications supplied by the owner to the builder were deficient. The owner’s submission to the effect that the works were specified in the March contract is somewhat beside the point: if the builder was practically unable to carry out the works in accordance with the plans and specifications by reason of the deficiencies in those plans and specifications, then the benefit of a variation to an order necessitated by deficient plans or specifications is self‑evident.

Finally, the owner submitted that the Senior Member failed to have regard to the two per cent threshold in s 38(2). If an owner provides the builder with a notice requesting a variation in accordance with s 38(1), and the builder reasonably believes that the variation will not, among other things, add more than two per cent to the contract price, the builder may carry out the variation without complying with the notification requirements. The owner submitted that the question of whether the two per cent threshold was exceeded was a relevant matter to be taken into account when determining to allow a builder to recover payment for a variation claim.

I agree generally with the builder’s submission to the effect that no reference to an inflexible threshold is to be found in s 38(6)(b). But, in any event, even if such a threshold was relevant, by my calculations, only two of the variation claims allowed by the Senior Member exceeded the two per cent threshold, being the installation of the additional solar hot water units, and the additional air conditioning units to three of the townhouses. I have already referred to the variation claim for the additional air conditioning units earlier in these reasons. The variation claim for the solar hot water units raises similar considerations: the units and the works were clearly outside the specifications in the March contract. While the plans included solar hot water units, cl 16 of the March contract provided that in the event of any inconsistency, the specifications overrode the plans. The Senior Member held that the solar hot water units were discussed by Mr Daniel and Mr Muratti, that the cost of the units and the associated works was significant, and that the units provided were “well in excess” of the specifications. The Senior Member’s reasons illustrate that, if the two per cent threshold was a relevant consideration in determining what was “not unfair” to the owner, that consideration may cut both ways, in that forcing the builder to bear the costs consequences of a variation when the cost of that variation exceeds two per cent of the total contract price might more readily be considered to cause the owner to have received an unwarranted windfall.

Ground 13 – extension of time claim

The evaluation of the merits of this ground of appeal is complicated by the rather brief and somewhat opaque reasons of the Senior Member regarding the builder’s extension of time claims arising out of some of the variation claims. However, I note that the proposed ground of appeal 12, which concerns the adequacy of the reasons, is confined to those parts of the reasons concerning the builder’s entitlement to payment of the variation claims under s 38(6)(b), and does not extend to the Senior Member’s reasons with respect to the builder’s extension of time claims.

The Senior Member’s reasons concerning the builder’s entitlement to an extension of time need to be read in the context of the builder’s submissions in the VCAT proceeding, as shown by the following passage of the reasons:

[Counsel for the builder] submitted that the Builder is entitled to an extension of time in any of the circumstances listed in Clause 34.0, even where the procedure set out in the succeeding parts of Claim 34 are not followed.[59]

[59]Reasons [421].

The builder’s submissions concerning the builder’s entitlement to an extension of time commenced as follows:

The variations outlined above entitle [the builder] to extensions of time under either the March Contract or the ‘New Homes Contract’. In each case, clause 34.0 entitles [the builder] to an extension of time where a variation under clause 23 delays its work. Similarly, clause 34.0 of each contract entitles [the builder] to an extension of time for ‘any other cause that is beyond the Builder’s direct control’. This encompasses a variation under sections 37 or 38 of the DBC Act, or a variation arising by reason of the town planning permit or deficiencies in the contract drawings.

The builder’s submissions to VCAT then went on to canvass and make submissions regarding the evidence in support of the builder’s extension of time claims, which appear to have been largely accepted by the Senior Member.

In paragraph 422 of the reasons, the paragraph immediately following his summary of the builder’s submissions extracted at paragraph 171 of these reasons, the Senior Member stated as follows:

I think that is correct. Clause 34.0 is not prefaced by the words: “Subject to compliance with this clause ... “ or some similar phrase. The entitlement to an extension is prima facie absolute. Quite obviously, if the procedure is not followed, then the machinery set out in the clause cannot be used to establish an entitlement to an extension of time. However, Mr Mason says that the entitlement encompasses a variation under either of the sections.

Accordingly, I understand the Senior Member to be saying as follows:

(a) the builder’s entitlement to an extension of time is not conditioned upon compliance with the notice requirements; and

(b) the Senior Member accepted the builder’s submission that a variation allowed under ss 37 or 38 of the DBCA falls within “any other cause that is beyond the owner’s direct control”.

The Senior Member did not address the alternative argument advanced by counsel for the builder in his oral submissions during the hearing of this appeal to the effect that s 39 confers upon the builder an entitlement to an extension of time in the event the builder is awarded payment for a variation claim under s 38(6). It is not apparent from the written submissions of the parties in the VCAT proceeding or the reasons whether this submission was made to the Senior Member in the VCAT proceeding. This argument was not advanced in the builder’s written submissions in this appeal either.

In relation to paragraph 174(a) above, I agree with the Senior Member that the builder’s entitlement to an extension of time is not conditioned upon the builder complying with the notice requirements. First, the absence of any qualifying words in cl 34.0 supports the builder’s contention that the entitlement is absolute, provided that the delay to the works is occasioned by one or more of the circumstances enumerated in the bullet points in cl 34.0.

My view that the builder’s entitlement to an extension of time is not conditioned upon the compliance by the builder with the notice requirements is borne out by a careful reading of cl 34 itself.

Clause 34.0 prescribes the circumstances in which an extension of time is allowed (or, more accurately, the completion date is extended). If the cause of the delay does not fall within any of the categories referred to in cl 34.0, no right to an extension of time arises, even if the notice requirements are complied with.

Clause 34.1 provides that a builder must provide the owner a written notice informing the owner of the extension of time, including the cause and the extent of the delay. Significantly, nothing in that clause prescribes the time when the obligation for the builder to provide a notice under cl 34.1 arises. Further, there is nothing in cl 34.1 which provides that the builder must provide such a notice before carrying out any works which will cause delay, or which prescribes any consequences for failing to provide such a notice. This reading of cl 34.1 is consistent with the submissions of the builder to the effect that a notice may be provided by the builder after a delay event has occurred, such as a suspension of works. Such a reading is consistent with common sense, in that the length of any delay caused by any of the matters enumerated in the bullet points in cl 34.0 may not be known at the time of the relevant events.

That the builder’s entitlement to an extension of time is not conditioned on the notice requirements is also illustrated by a comparison of the notice requirements and the notification requirements. Section 38(6) precludes a builder from recovering payment for a variation unless the builder complies with the notification requirements, or is able to satisfy VCAT of the matters set out in s 38(6)(b). In contrast, while cl 34.1 provides that a builder must comply with the notice requirements, no consequence for the builder’s failure to comply with the notice requirements is provided for in cl 34.

Accordingly, while cl 34.0 governs the entitlement to an extension of time, cll 34.1 and 34.2 amount to no more than a dispute resolution procedure, and an incomplete one at that, given that it fails to provide a mechanism for resolving any dispute between the owner and the builder concerning an extension of time claim to which an owner objects. The balance of cl 34 concerns the entitlement of the builder to delay damages and the time for payment of delay damages, which are not relevant to the current appeal.

Accordingly, the proper inquiry is whether one or more of the matters enumerated in the bullet points in cl 34.0 have been satisfied. Reading the reasons together with the builder’s submissions, it appears that the Senior Member accepted that a variation for which payment to the builder for a variation claim is allowed under s 37(6)(b) or s 38(6)(b) was a matter or cause beyond the control of the builder.

Conceptually, that does not seem to be quite correct. While there may be a factual overlap between the matters relevant to the consideration of a builder’s entitlement to payment under s 38(6)(b), and a builder’s entitlement to an extension of time claim under cl 34.0, the owner is correct in submitting that, of itself (subject to my conclusions concerning the effect of s 39), s 38(6)(b) does not confer an automatic entitlement to an extension of time under cl 34. To illustrate this proposition, one can envisage a scenario where the builder is not entitled to recover payment for a variation requested by an owner where the builder has failed to comply with the notification requirements, but has been unable to satisfy VCAT that there were exceptional circumstances, or that the builder would suffer significant or exceptional hardship by being denied payment for the variation claim. However, provided that the works fall within one or more of the bullet points under cl 34.0, the fact that the builder has been denied payment for the variation claim does not, in my view, preclude the builder from being entitled to an extension of time with respect to that variation, if one or more of the matters enumerated in the bullet points under cl 34.0 are satisfied.

It may well be that the Senior Member formed the view that, where the builder carried out works at the request of the owner, that was, by definition, a matter outside the control of the builder, or was something that was caused by the owner or its contractors or agents. They were factual findings which were open for the Senior Member to make, and in any event, the Senior Member’s factual findings are no longer challenged in this appeal. Similarly, while the Senior Member did not expressly refer to which bullet point under cl 34.0 he relied upon in his reasons, I can presume, by reference to the builder’s written submissions in the VCAT proceeding, he may have accepted that the variation claims were matters beyond the builder’s direct control, without expressly saying so in his reasons with respect to individual variation claims for which the builder also sought an extension of time.

Given that the singular focus of the owner’s ground of appeal was the builder’s failure to comply with the notice requirements, it is arguably not necessary for me to deal with the owner’s submission to the effect that the Senior Member erred in finding that the builder was entitled to an extension of time for variation claims where the Senior Member had allowed the builder’s claim for payment under s 38(6)(b). However, I will address this issue, and the other issue raised by the builder in its submissions, being the interaction between ss 38 and 39 of the DBCA, and their relevance to an extension of time claim by a builder. I do so, despite the line of authority which suggests that, in an appeal pursuant to s 148 of the VCAT Act, the questions of law upon which the appeal has been brought should be properly and sufficiently identified.[60] However, in Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Ltd,[61] the Court of Appeal stated that:

… Fairness dictates that the notice of appeal must not be read narrowly so as to eschew the supervisory jurisdiction of the court. …[62]

[60]See, for example, Osland v Secretary to the Department of Justice (No 2) (2010) 241 CLR 320; Hoe v Manningham CC [2011] VSC 37; McSteen v Architects Registration Board of Victoria [2017] VSC 276.

[61][2014] VSCA 353.

[62]Ibid [165].

Similarly, in Fraser v Sperling,[63] the Court of Appeal considered that at first instance I had taken an unduly restrictive view of the scope of the relevant notice of appeal, stating as follows:

… The existence of a question of law both founds the jurisdiction of the Court and constitutes the subject matter of the appeal itself. For that reason, the question or questions of law that are raised must be clearly stated, and not merely ascertained by reference to the grounds of appeal.
It does not follow, however, that a question of law articulated in a notice of appeal under s 148(1) is to be construed strictly or literally. Fairness dictates to the contrary. Accordingly, the Court will not read a notice of appeal narrowly, and will address questions of law that are identified in the notice of appeal as a whole and perhaps also from surrounding circumstances.[64]

[63][2017] VSCA 53.

[64]Ibid [55]-[56] (omitting citations).

Taking first the issue of whether the Senior Member erred by finding, at least impliedly, that the builder was entitled to allow an extension of time for any delay occasioned by a variation for which a payment was allowed under s 38(6)(b), I do not consider that the Senior Member erred in the result, but rather, the pathway he took to that result was perhaps too direct. As noted above, I agree with the owner that s 38(6)(b), in its terms, does not confer an automatic right to an extension of time upon the builder, at least pursuant to cl 34.0. Rather, it seems to me that it was open on the factual findings made by the Senior Member with respect to the variation claims for him to conclude that the builder was entitled to an extension of time by reason of one or more of the bullet points under cl 34.0 being engaged: that is, the delay was caused by anything done or not done by the owner, or by an agent, contractor or employee of the owner, or any other cause which is beyond the builder’s direct control. That is, the same facts, matters and circumstances may give rise to an entitlement to an extension of time under cl 34.0, as well as supporting the exercise of VCAT’s discretion under s 38(6)(b), but the builder’s entitlement under cl 34.0 does not automatically flow from its ability to obtain relief under s 38(6)(b).

The question remains though, given that the reasons disclose that the Senior Member may have acted on an erroneous understanding of the relationship between cl 34.0 and s 38(6)(b), what consequences should flow from that? None, in my view. While it would be open to me to reach a conclusion that the Senior Member’s findings regarding the source of the builder’s entitlement to an extension of time were tainted by an error of law, or at least were expressed in such terms as to not make clear the path of his reasoning in that regard, in my view, I would dismiss any appeal on those grounds.

First, while I accept that this Court, given its supervisory role, should not confine a party to its questions of law and grounds of appeal too strictly, there must be some limits on the leniency allowed to parties in appeals under s 148 of the VCAT Act, given that the identification of the questions of law goes to this Court’s jurisdiction to hear the appeal as well as the merits of the appeal. The notice of appeal contained nineteen grounds of appeal, suggesting that the owner’s legal team were acutely alert to any whiff of error on the Senior Member’s part. Any considered analysis of the Senior Member’s brief reasons would have identified the point now raised by the owner regarding the interaction between s 38(6)(b) and cl 34, but that issue was not referred to in the notice of appeal or the owner’s written submissions.

Secondly, while the Senior Member may arguably have been in error in assessing that there was a direct link between a builder’s entitlement to payment for a variation under s 38(6)(b) and its entitlement to an extension of time under cl 34 (if indeed such an error was made) any such error probably favoured the owner, not the builder.

As noted in paragraph 21 of these reasons, the builder’s claim for payment for five of the variation claims was rejected. One of these claims concerned substantial changes to the roofing material of one of the townhouses from that specified in the contract drawings. The change to the cladding material and the method of construction was made after the builder’s roofing sub-contractor and cladding sub-contractor advised that the cladding was unsuitable, and indeed refused to install the cladding. Mr Daniel also gave evidence that the builder would not obtain a certificate of compliance or a guarantee for the work if the cladding specified by the owner was used.

The Senior Member declined to make an order for payment of the sum of $20,790.00 claimed by the builder in this variation claim, being the sum of the invoice issued by the roofing sub-contractor, on the basis that, while he was satisfied there was a deficiency in the plans supplied by the owner, he could not identify any request for the work by the owner. A request by the owner to carry out the variation was, of course, a necessary precondition to the exercise of VCAT’s jurisdiction under s 38(6)(b). However, the builder also claimed that the change to the roofing material caused a delay of approximately three months, or thirteen weeks.

If I am correct in my analysis concerning the absence of any legal nexus (as opposed to any practical factual nexus) between the builder’s entitlements under s 38(6)(b) and cl 34.0, and assuming that the Senior Member would have accepted Mr Daniel’s evidence of the delay caused by the works (as he generally did), it would have been open for the Senior Member to find that the delay was occasioned by the roofing works was caused by one or more of the matters enumerated in the bullet points under cl 34.0, notwithstanding his refusal to award payment for that variation claim, given that the evidence suggested that the variation arose out of a matter which was not within the direct control of the builder. That omission was significant. In paragraph 430 of the reasons, the Senior Member stated as follows:

The commencement date was 7 July 2015 and the construction period was 11 calendar months so, without variations, the work should have been completed on 6 June 2016. With the extensions of time I have allowed, that becomes 19 December 2016. The delay is therefore 90 days. At the Contract rate of $650.00 per week per unit, liquidated damages to be deducted from the Builder’s claim are $50,142.85.

Accordingly, if the Senior Member had found that the builder was entitled to an extension of time by reason of the change to the roofing works, the owner’s liquidated damages award of approximately $50,000 would have been reduced to an amount near zero. If, contrary to the owner’s submissions, I had found any error in the Senior Member’s approach to the builder’s extension of time claims, in my view, it would have been necessary to remit the matter back to VCAT, to determine the builder’s extension of time claims having express regard to the applicable considerations in cl 34.0. If such a remitter was to be made, it would be unfair to the builder to preclude the builder from reagitating its claims for an extension of time with respect to the change to the roofing works for which the builder made a variation claim.

However, in my view, there is no need for any remitter, because I am satisfied that, even if the Senior Member was in error in determining that the requirements in cl 34.0 were satisfied by reason of him allowing payment for a variation claim under s 38(6)(b), I agree that s 39 of the DBCA operates to extend the completion date where a variation for which payment has been awarded under s 38(6)(b).

Section 39 provides that, unless the contrary intention appears (presumably in the contract itself), if the plans or specifications in a major domestic building contract are varied in accordance with ss 37 or 38, the completion date in the contract is to be adjusted to take into account the variation. Accordingly, the critical question is, whether a variation for which payment is allowed under s 38(6)(b) is a variation “in accordance with” s 38 of the DBCA for the purpose of s 39(c).

The owner criticised the builder for not filing a notice of contention to advance this submission. The builder’s response to that submission was to the effect that as ground 13 of the notice of appeal only concerned the question of whether a builder’s entitlement to a variation was conditioned on the builder’s compliance with the notice requirements, it was not necessary to advance this alternative argument until the owner made submissions during the hearing of the appeal to the effect that a finding favourable to the builder under s 38(6)(b) did not confer upon the builder an entitlement to an extension of time under cl 34.

Both positions have merit. However, I will consider this argument, as it is relevant to the appropriate disposition of the appeal, insofar as it concerns the builder’s extension of time claims. In particular, given that I have found that ground 13 of the notice is not made out, any concern I have about the Senior Member’s approach to the builder’s entitlement to an extension of time is answered by my agreement with the builder’s analysis of the relationship between s 38 (6) and s 39 of the DBCA.

The owner submitted that s 38(6)(b) only confers upon the builder an entitlement to be paid for undocumented variations in certain circumstances. If the legislature had intended that the builder would also be entitled to an extension of time with respect to any variation claims for which the builder was entitled to recover payment, it would have provided such relief in s 38(7), which provides that, if VCAT awards payment to a builder pursuant to s 38(6)(b), the builder is entitled to recover the cost of the variation plus a reasonable profit.

The builder, on the other hand, submitted that a variation for which the builder was entitled to recover payment for under s 38(6)(b) was a variation to the March contract “in accordance with” s 38, noting that construing ss 38 and 39 in that manner ensures the harmonious operation of the provisions of the DBCA regarding the entitlement of a builder to payment for variation claims and the effect of the variation claims on the terms of the contract concerned.

In my view, there is some ambiguity in the use of the phrase “in accordance with” in s 38 and s 39. On one view, s 39 cannot provide relief to a builder which has failed to comply with the notification requirements, given that the language of that phrase is arguably synonymous with “in compliance with”. Any variation claim by a builder under s 38(6)(b) is, axiomatically, a variation which has not been made “in accordance with” the notification requirements, which is the primary obligation imposed by s 38. Arguably, s 38(6)(b) does not authorise, or validate, a variation claim where the builder has not complied with the notification requirements. Rather, it is an ameliorative provision designed to relieve the potentially harsh consequences of the strict enforcement of the notification requirements.

However, notwithstanding the ambiguity in the use of the term “in accordance with”, I am persuaded that the construction of s 39 advanced by the builder is to be preferred. First, s 39 refers to variations made in accordance with s 38, and is not confined in its terms to variations made in compliance with the requirements in ss 38(1) to (5) inclusive, that is, the notification requirements. Further, the builder’s preferred construction promotes a more harmonious operation of the provisions of the DBCA concerning variation claims than the owner’s preferred construction, and, as noted in Project Blue Sky,[65] a statute “must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals”. A construction that provides that variations for which a builder is entitled to recover payment are said to be variations made “in accordance with” s 38 promotes the harmonious operation of those provisions: that is, undocumented variations are to be discouraged, but if a builder can overcome the relatively high bar imposed by s 38(6)(b), the relevant contract is varied so as to ensure that the builder is not automatically in breach of the warranties in s 8 of the DBCA, and the term of the contract prescribing the contract price and the completion date of the works.
[65](1998) 194 CLR 355.

Accordingly, in my view, the phrase “in accordance with” in s 39 encompasses not only variations where the builder has complied with the notification requirements, but also variations where VCAT is satisfied that builders should be relieved of the harsh consequences of the builder’s failure to comply with the notification requirements. Further, as noted by the builder in its submissions, this construction of s 39 does not provide a builder with a windfall, as the builder still needs to satisfy the strict test under s 38(6)(b).

For completeness, I have considered, but do not accept the owner’s submissions that, if the legislature had intended that a builder was entitled to an extension of time as well as payment with respect to variation claims for which VCAT allows the builder to recover payment under s 38(6)(b), it would have provided such a remedy in s 38(7). Section 38(7) provides that s 38(6) applies where VCAT determines that the builder is entitled to recover payment under s 38(6), (that is, where the builder has complied with the notification requirements, or is entitled to recover payment pursuant to s 38(6)(b)), the builder is entitled to recover the cost of carrying out the payment, plus a reasonable profit.

It certainly would have been open to the legislature to specify in s 38(7) that the builder was also entitled to a commensurate extension of time. However, in my view, s 38(7) is best read as a mechanism for determining the quantum of any amount a builder is entitled to recover from the owner for a variation claim, (in cases where the builder has complied with the notification requirements) or able to be awarded by VCAT under s 38(6)(b), where VCAT is satisfied of the matters set out in ss 38(6)(b)(i) and (ii). Section 38(7) does not vary the terms of the contract itself: that is the function of s 39, which, in my view, is the necessary machinery provision to ensure that, when a builder is entitled to recover payment for a variation claim, the critical terms of the contract, being the contract price, the plans and specifications, and the completion date are amended accordingly.

Accordingly, I will grant leave to appeal on ground 13 of the notice of appeal, but will dismiss the appeal.

Proposed new ground 12 – adequacy of reasons

The owner seeks leave to add a new ground of appeal, being that the Senior Member had failed to provide adequate reasons with respect to his findings regarding the variation claims.

In these reasons, I have made observations to the effect that the Senior Member’s reasons regarding the source of the builder’s entitlement to an extension of time were somewhat opaque. However, the proposed ground 12 did not seek to impugn VCAT’s determination of the builder’s extension of time claims. The challenge is to the adequacy of the reasons insofar as they concern the builder’s entitlement to recover payment for variation claims under s 38(6)(b).

I will not grant leave to appeal with respect to proposed ground 12. First, there was no explanation as to why this ground of appeal was raised so late, particularly in circumstances where the owner had initially formulated and relied upon no less than nineteen grounds of appeal, eight of which concerned the Senior Member’s application of s 38(6)(b) to the variation claims. More importantly, however, this proposed ground of appeal has no real prospect of success.

First, as noted above, the owner had no apparent difficulty in relying upon the reasons to formulate no less than eight grounds of appeal with respect to the Senior Member’s determination of the variation claims. Further, the adequacy of the reasons is challenged on the basis that the reasons fail to explain what other matters (apart from the Senior Member’s findings that the owner requested the variations, and the owner received a benefit from the variations) were taken into account in determining whether awarding the builder was “not unfair” to the owner. This submission is really just another way of expressing ground 11 of the notice of appeal, and to some extent rises or falls with that ground.

Finally, the Senior Member’s reasons with respect to the variation claims as a whole, and with respect to the individual variations, are difficult to fault. As can be shown by the examples extracted at paragraph 19 of these reasons, the Senior Member gave each individual variation claim quite careful and detailed consideration. He identified the relevant evidence and, where there was a conflict of evidence, he referred to which evidence he preferred. That there was some repetition in the reasons was inevitable by reason of the statutory test the Senior Member was required to apply to each variation claim. And, to the extent that the Senior Member made findings of broader application, such as the circumstances of the owner and the builder, and the dealings between the owner and/or its agents and the builder, they were set out succinctly but comprehensively in paragraphs 224 to 233 of the reasons.

Disposition

Each of grounds 10, 11 and 13 of the notice of appeal were arguable, and raise important questions of statutory construction and the proper construction of the HIA contract, which is widely used in the building industry, which have received little, if any, judicial consideration. Accordingly, leave will be granted with respect to these grounds of appeal, but the appeal will be dismissed.

I will refuse leave to appeal with respect to proposed ground of appeal 12, on the basis that no explanation has been provided as to why this proposed ground of appeal has been put forward so late, and, in any event, that ground has no real prospect of success.

Given my earlier indication that I am prepared to deal with the Senior Member’s arithmetical error in the disposition of the appeal, and my apprehension that there may be an application for an order for costs on a basis other than a standard basis, I will hear further from the parties on the appropriate form of order and the question of costs.

[2021] VSC 705

27 October 2021