Khanna v Kulathayendran
[2012] VSC 250
•15 June 2012
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted | |
JUDICIAL REVIEW AND APPEALS LIST
S CI 2011 02926
| RAKESH KUMAR KHANNA and | Appellants |
| SUDHA KHANNA | |
| – and – | |
| NADA KULATHAYENDRAN | |
| Respondent |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 February 2012 | |
DATE OF JUDGMENT: | 15 June 2012 | |
CASE MAY BE CITED AS: | Khanna v Kulathayendran | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 250 | |
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APPEAL ― Appeal from Tribunal on a question of law ― Domestic building contract ― Builder’s claims for variations and final payment under contract ― Owners’ claim for incomplete or unperformed works under contract ― Owners’ additional claim for damages for overdue completion under separate agreement which modified contract ― Tribunal’s decision based apparently on a quantum meruit basis and credibility findings ― No apparent regard to contractual or statutory provisions ― Appeal allowed
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Northrop | Scammell Black Mileo |
| For the Defendant | Mr M T Lapirow | Davies Moloney |
HIS HONOUR:
This appeal from an order of the Victorian Civil and Administrative Tribunal concerns a dispute under a domestic building contract.
The appellants are the owners of land at 8 First Street in Clayton South. They engaged the respondent to build, behind their existing home, a single storey unit to be made available as a rental property. The contract price under the standard form “New Homes Contract” published by the Master Builders Association was $171 200. As the price exceeded $5000 it was a “major domestic building contract “as defined in the Domestic Building Contracts Act. Under the Act a builder must not make a major domestic building contract unless it is in writing, sets out in full all the terms of the contract, and the contract must include the plans and specifications of the work.[1] Such a contract also attracts the provisions of Part 3 of the Act which includes laws about the variation of plans and specifications, progress payments, completion of works, and the entitlement of a builder to demand final payment under the contract.
[1]Section 31
The case in the Tribunal was conducted by “pleadings” in, I think, good form and content. In his points of claim which was all predicated on the written contract (as it had to be), the builder claimed payment for the cost of six variations of $7390 and $17 120 as payment of the Final Claim on Completion of the Works. (I am using terminology in accordance with defined terms in the contract.) That makes a total claim of $24 510. As an indicator to what will unfold in this appeal, the variations were alleged to be unwritten and made in conversations between the builder and the first appellant Mr Khanna (who is the husband of the second appellant). But for the purposes of this appeal there are only three variations that matter, which are small in amount, but as can happen in these cases, they spawn legal disputes and attrition at a cost that exceeds the amount at stake. The relevant variations were:
(a) the conversion of a study into a third bedroom. The plans showed the study to be part of a open plan living, dining and kitchen area. The conversion involved the enclosure of the open study area by the installation of a stud wall, timber door, door jamb, plasterboard, painting and labour. The claim was $1900.
(b) The provision of an additional shelf in each bedroom. The claim was $450.
(c) The installation of a television and laundry holders. The owners said they provided these fittings and the carpenter screwed them into the wall. The claim was $300.
The builder also claimed payment of $17 120 as payment for the “Final Stage”. There is no such stage described under the Act or the contract.[2] It was really to be understood as a claim for final payment[3] which of itself attracts special provisions of the Act as reflected in the contract. That is a prominent subject of this appeal.
[2]See s 40.
[3]See s 42 of the Act.
I shall not refer in detail to the owners’ points of defence and counterclaim. There are three elements to it for the purposes of this appeal. First, they said the Works started on 4 June 2009; disputes broke out in June and July 2009; and in a separate written and signed agreement called an “undertaking” made in July 2009, the parties agreed to vary the contract by stipulating the Completion Date to be 31 October 2009, failing which the builder would pay liquidated damages equivalent to the market rent of the home. (On my calculations, under the contract the construction period was 223 days allowing for weekends, inclement weather, and delays etc[4]; but in the undertaking, the period was 149 days.[5]) The owners said the builder did not complete the Works, did not obtain an Occupancy Permit and therefore the builder was not entitled under the contract or the Act to make a claim for Final Payment. Secondly, of the variations claim, they made a general denial. For one variation which was not relevant on this appeal[6] they said there was non compliance with s 38 of the Domestic Building Contracts Act which stipulates manner and form requirements for variations. Thirdly, on the counterclaim the owners said: the builder did not complete the Works and that conduct was repudiatory; they had to spend $8568 to complete the Works or rectify them; and they claimed liquidated damages of $9714 for 160 days at a market rental of $425 per week.
[4]Apendix, clause 9.2
[5]i.e., from 4 June 2009 to 31 October 2009.
[6]It concerned stormwater plans: see para 5 (iv) of the Points of Claim.
The builder filed a reply. The case escalated. I shall avoid the details and confine myself to exposing that the builder pleaded that the undertaking for liquidated damages was “vague, confusing, and unable to be read consistently with the building contract…”.[7] Thus there appeared to be an issue about the legal validity or enforceability of the undertaking. I cannot tell if there was a factual issue about the completion of works to attract the obligation to pay damages under the undertaking.
[7]See para 4D
One thing is clear. On the pleadings, and by its nature, the parties’ rights and obligations had to be determined according to the building contract and the Act. A distinct issue concerned the discrete or ancillary undertaking (which was borne of disputes under the main building contract) concerning the liquidated damages for non compliance with the Completion Date.
After the Tribunal Member reserved and then produced a written decision, the result was an allowance for the builder’s final claim; a disallowance for certain variations; a rejection of the owners’ claim for liquidated damages but an allowance for $3916 on the owner’s counterclaim which, when set off against the builder’s claim, gave a net monetary order in favour of the builder for $15 854.
There was real acrimony in this case. The owners said that after they terminated the contract, they were met by two men at the premises who were unknown to them, one of whom was carrying a cricket bat and who threatened them. Police were called. The owners subsequently obtained an intervention order against the builder. At the evidentiary level, it will give some idea what the Tribunal member was dealing with when he said of the builder and one of the owners:
Neither witness impressed me as being extremely candid. Both were prepared to shift ground when confronted, were evasive and argumentative. As much of what is to be determined is based on their respective versions of conversations and events which took place between them the task of the Tribunal in determining the dispute is made more reliant on probability.
Therein lies the gist of the owners’ case on appeal. They say in essence that the parties’ legal rights and obligations were based on a comprehensive written agreement, yet the Tribunal’s decision does not make any reference at all to the terms of the contract and the stipulations that govern variations to works, completion of works, and entitlement to seek final payment. As a result, they say the builder’s claims for variations (but there are only 3 of them in question on appeal) and final payment were not decided according to the contractual provisions. Moreover, they say that their substantial claim for liquidated damages was based on an ancillary written undertaking by the builder given to them. Yet, they complain, the Tribunal did not consider the legal effect of that agreement nor the evidence relevant to that part of the claim. On the claim for rectification works, they say the Member simply erred obviously in his comprehension of the building plans.
I have, in reserving my judgment on this appeal, been ever so mindful of the position of the Tribunal in this sort of case trying to do justice between warring parties. Courts on appeal from decisions of specialist tribunals have said repeatedly that tribunals have to deal with an enormous volume of cases with unrepresented persons and with an imperative or expectation for cost cutting dispatch. For that reason, depending on the nature of the case, courts will not scrutinise reasons with a fine tooth comb or too fastidious an eye for the presence of appellable error. Perhaps the Tribunal member, with time constraints in a fractious case with unreliable witnesses was looking to do practical justice according to the substantial merits of the case, as he saw it. But as I will expound in this judgment, he was bound in my view to conduct the adjudicative exercise, albeit informally, by reference to rights and obligations under the contract and the Act. Indeed I would say, broadly speaking, the problems that are frequently encountered as between owners and builders in domestic building works is what lead over time to statutory intervention to ensure that relations between owner and builder are governed by clear and comprehensive written agreements. This helps minimise protracted disputations about the content of conversations or un-business like dealings.
In the Tribunal there is of course a statutory direction to act fairly and according to the substantial merits of the case[8] and to conduct proceedings with as little formality and technicality “as the proper consideration of the matter before it permits”. Of course, a “proper consideration of the matter” would require, in a case based on a contract, a proper analysis of the contractual provisions and a consideration of the parties’ rights and obligations under that contract by reference to the applicable facts. It is obvious, as Mr Northrop counsel for the owners submitted, that the Tribunal’s reasons do not refer to the contract or in any explicit way or to the evidence. The whole case seems to have been decided as a matter credibility and probability, oblivious to the contract and the legislation. I do not say the case required no such considerations of credibility or probability when it came to fact finding. But it has to occur by reference to the contract and to the Act. That is what governs the parties’ rights and obligations. The Member seems to have decided the variation claims from beginning to end purely on a quantum meruit (“as much as he has deserved”) basis, and the other substantial claims as a matter of credibility or just desserts.
[8]See s 97.
For the reasons that follow, I think this appeal must be allowed. Under s 148 of the VCAT Act the Court is empowered to make any of the following orders on appeal:
(a)an order affirming, varying or setting aside the order of the Tribunal;
(b)an order that the Tribunal could have made in the proceeding;
(c)an order remitting the proceeding to be heard and decided again, either with or without the hearing of further evidence, by the Tribunal in accordance with the directions of the Court;
(d)any other order the Court thinks appropriate.
I am not willing, as invited, to isolate certain parts of the case (such as the variations claim) and make an order on the available evidence and then remit the balance of the case. That causes fragmentation. I am afraid to say the matter (and by that I mean the items on appeal, not the whole matter anew) has to be remitted to the Tribunal in a precise way I shall state ultimately in this judgment. I cannot help but feel this will prolong the acrimony and the delay and the cost for a relatively small case. But this is the course that has been set. The most this Court can do is, by this judgment, expose the objective facts and the legal elements of the case so as to show why I think there has been error, and to assist the Tribunal on a remittal as to what is required to decide the matter according to law.
The facts
The building contract was made on 23 March 2009. The salient provisions were:
(a)the contract incorporated technical specifications which themselves included detailed plans. The Builder was obliged under the contract to carry out the Works in accordance with the plans and specifications.
(b)A deposit, including GST, was payable for $8560.
(c)There were four stages of construction:[9] the Base Stage (10%); the Frame Stage (15%); the Lock Up Stage (35%); and the Fixing Stage (25%). The Builder was entitled to make written Progress Payment Claims for the percentage amounts at the completion of each of those four stages.
[9]Consonant with s 40 of the Act
(d)There is a dichotomy between progress claims and the final claim for payment. The Builder was entitled to give to the Owner a Final Claim (which is what the builder claimed in the Tribunal) which was defined under the contract to mean the claim upon “Completion of the Works for the balance of the Contract price together with any other moneys payable by the Owner (including any interest) under the Contract.” Completion was defined to mean when the Works had been completed in accordance with the plans and specifications and (if, as here, there was a building permit issued) the owner is given an Occupancy Permit by the building surveyor under the Building Act.
(e)The Owners incurred the responsibility of obtaining the necessary planning and building permit to commence the works.
Clause 12 of the contract concerned variations by the owner. These provisions reproduce in substance the content of s 38 of the Domestic Building Contracts Act. When the contract speaks of variation, it is directed to a variation of the plans or specifications. In essence, the contract (and the Act) stipulates as follows:
(a)if the owner wishes to vary, then he gives the builder a written notice describing the variation requested;
(b)if the builder believes that the variation will not require an amendment to any permit, and will not cause delay and will not add any more than 2% of the original contract price, then the builder may carry out the variation at his discretion;
(c)but, if the builder believes that the requested variation may require an amendment to any permit or would delay completion or would add more than 2% to the original contract price then the builder can either refuse to carry out the variation, or, agree to carry out the variation in which case, amongst other things, the builder must give notice stating the effect of the variation on the works, state the cost of the variation and an estimate in delay and “state whether or not an amendment to any permit will be required”. In the case of a significant variation, the builder could not commence any variation unless the owner gave to the builder a signed written request for the variation attached to the notice.
(d)Where the builder accepts the obligation to carry out the variation, then under the contract the owner was bound to pay the builder either the agreed variation price or if the variation is a minor variation (that is, not requiring any amendment to the permit and not causing any delay in completion) and no price is agreed to the variation, then to pay “the documented cost of carrying out the variation plus 15% of that cost for the builder’s margin”.
Under the Act, non-compliance with the variation provisions is not fatal. The Act does not recognise quantum meruit claims in terms, but recognises that it is unfair, or an unjust gain, for an owner to be relieved of having to pay for variations because the documented process was not followed by the parties. But it requires the Tribunal to be satisfied of a number of matters under s 38(6) and then have evidence about the documented cost or proof of cost of the variation: see clause 12.2 of the contract and s 38(7) of the Act.
Pausing there, the builder’s claims for variation concerning the study wall came, as I will show, to fall within the category of a significant variation because they required an amendment to the building permit. The claims for variation for the installation of the shelves and the television and laundry holder were not significant variations and thus absent an agreed variation price would require the owners to pay the “documented cost” of carrying out the variation.
The next clause of relevance concerns the obligations of both parties upon completion of the works. Clause 17.1 of the contract states:
17.1 Submission of final claim and notice of completion by builder
On Completion, the Builder will give to the Owner:
· the Final Claim; AND
· if a building permit was issued for the Works a copy of the Occupancy Permit, if required, or in any other case a copy of the certificate of final inspection, if required,
AND
· a written notice:
(i)stating that the Works are complete and the date on which the Works reached Completion; AND
(ii)requesting a final inspection of the Works with the Owner or the Owner’s Agent at a date and time specified in the notice.
Clause 17.4 states:
17.4If owner agrees works are complete final claim becomes due and payable
If at the final inspection of the Works the Owner agrees that no defects exist and the Works have reached Completion, then the Owner must:
· sign a notice to that effect; AND
· pay the Final Claim to the Builder in accordance with item 13 of the Appendix.
I shall put to one side other provisions of the contract which concern the conduct of a final inspection of the works and the identification of any defects in the works to the builder. The important point for present purposes is that a final claim under contract could only be submitted on completion of the works. Moreover, on completion of the works the owner is given not only a final claim but also a copy of the occupancy permit. It is only after completion and the giving of a permit (and the exercise undertaken of identifying the defects on an inspection) that the owner is bound to pay the final claim to the builder.
The contract also contains a typical liquidated damages clause in clause 18, which in this case came to be displaced by the ancillary agreement or undertaking made by the parties. But it is just as well to recite its contents. The clause says:
18.1Owner’s entitlement to liquidated damages
If the Builder fails to bring the Works to Completion by the Completion Date, the Builder will pay or allow to the Owner by way of pre-estimated and Liquidated Damages, a sum calculated at the rate stated in Item 17 of the Appendix for the period from the Completion Date until the Works reach Completion or until the Owner takes Possession, whichever is earlier.
18.2Liquidated damages may only be deducted from final payment
The amount of any Liquidated Damages may be deducted by the Owner from the Final Payment only and any deficiency may be recovered by the Owner as a debt due to the Owner by the Builder.
Under the Appendix to the agreement, the rate for liquidated damages was $150 per week.
The course of works
It is convenient if I set out in chronological fashion the essential events that occurred, none of which seems to have been in real dispute:
(a)the contract was made on 23 March 2009;
(b)the deposit of $8560 was paid on 5 April 2009;
(c)on 1 June 2009 the building permit was issued by KZB Building Surveying Services under the hand of Kamram Zan Basiri, the relevant building surveyor. The permit stated that an occupancy permit was required prior to occupation, and that the building work had to commence by 1 June 2010 and be completed by 1 June 2011. One of the attached building permit conditions was that there could be no alterations or additions to approved drawings without the approval of the relevant building surveyor.
(d)The works commenced on about 4 June 2009. In the form the contract was in when initially prepared, the Appendix made an allowance of 223 days for the total constructing period including delay days.
Then on 23 or 24 July 2009 a written undertaking was given by the builder after the parties had experienced disputations based upon letters and invoices that had passed. This undertaking is an important document and needs to be set out in full. It said:
UNDERTAKING by
N Kula Nada Domestic Builders
In the contract for construction dated 23/3/09 with
Rakesh Kumar Khanna & Sudha Khanna (Onwers) (sic)
8 First Street Clayton South 3169
Dated: July 23, 2009
Further to contract dated Mar 23, 2009, followed by letters and invoices
Issued by me asking payment of $4307/- and $2400/- and
Legal notice dated 24/6/09 issued by my lawyer.
I am agreed to withdraw the invoices and notice issued by my lawyer.
1 The total full and final contract price dated 23/3/09 i.e. $171200/- will stay same. There will be no variation in the contract amount and I will not ask for money for concrete i.e. $4307/ and piers $2400/- in future.
2 I will construct the unit strictly as per building permit issued on the basis of engineering drawings approved by the relevant authorities like as City of Kingston, South East Water, Building surveyor etc., and will not increase the contract amount.
3 I will complete the construction with in (sic) 90 day (sic), latest by i.e. 30th
Sep, 2009 31 Oct 2009 otherwise will pay market rent of equivalent value of same type of house for the extended period.Nada Kula
Nada Domestic Builders
There were various handwritten annotations to that document which do not matter for present purposes. What matters is that there were signatures by the architect, the owners and the builder. The last dated signature was that of the builder dated 24 July 2009. The significance of this document is twofold. First, it stipulates unconditionally a fixed completion date of 31 October 2009. Secondly, it alters the obligation to pay the liquidated damages from $150 per week to a measure based on the market rent of an equivalent value of the same type of house.
On 19 October 2009, the builder rendered a written progress claim for the fixing stage of works, which is the last of the four stages under the contract before the rendering of a claim for final payment. That was for $42 800. That amount was paid. That left only a short time until the effluxion of time to the agreed completion date of 31 October 2009. It is not clear what works were done after October 2009, but it appears quite little. The next event occurred on 5 February 2010 when the builder rendered what was called a progress claim but was on the face of it a claim for final payment for $17 120. At that time, a Certificate of Occupancy had not been issued by the building surveyor. The owners would say work was not completed.
Documentation shows that the building surveyor gave directions under s 37 of the Building Act after an inspection of the premises on 29 January 2010. One of those directions was to require the owners to provide amended approved town planning drawings showing all changes. Subsequently the surveyor on 6 March 2010 issued a building notice under s 106 of the Building Act giving his opinion that the works contravened the Act and the building regulations in that the study area had been enclosed by a wall and door contrary to the approved drawings in the town planning permit. In other words, before the builder undertook the conversion of the study into a third bedroom, there should have been an amendment to the building permit. By the same notice, the owners were required to show cause why they should not remove the study wall and the door.
The documentation before me shows much correspondence and disputation. The building surveyor concluded that some time after the frame inspection and prior to his final inspection on 21 January 2010, the wall was added to the structure. The building surveyor made it clear that because of this and other problems the building was not suitable for occupation as there was non‑compliance with the building laws and that it was “illegal to occupy the building without an Occupancy Permit” and that “appropriate action will be taken accordingly.”
It was amidst this controversy that on 15 February 2010 the builder sent the owners a “progress claim” for “extra works” for a total of $8061. The bill was dated 15 February 2010. This bill included a charge of $1900 to turn the study into a bedroom, $300 to install the TV and laundry holders and $400 for the supply and installation of an extra shelf in each bedroom.
I shall pass over subsequent facts beyond saying that relations got to a point that the owners then terminated the contract on 26 February 2010 in the face of what they contended were repudiations by the builder. An Occupancy Permit was not issued until 9 April 2010. Then came the dispute in the Tribunal.
Were the Tribunal’s reasons sufficient?
This is the appellants’ platform of their attack. Section 117 of the Victorian Civil and Administrative Tribunal Act states that the Tribunal must give reasons for any order it makes and “must include in those reasons its findings on material questions of fact”. Of course, compliance with that imperative has to be understood, and assessed, bearing in mind the statutory requirements for the conduct of hearings in the Tribunal. “The Tribunal must act fairly and according to the substantial merits of the case” s 97 says. And, under s 98 the Tribunal is not bound by the rules of evidence, may inform itself on any matter as it sees fit, and:
must conduct each proceeding with as little formality and technicality, and determine each proceeding with as much speed, as the requirements of this Act and the enabling enactment and a proper consideration of the matters before it permit.
Enough has been said about the purposes underlying the judicial obligation to give reasons in judicial proceedings, which on principle but with some adaptation also inform an assessment of the adequacy of a tribunal’s reasons: see generally Fletcher Constructions Australia Ltd v Lines Macfarlane and Marshall Pty Ltd.[10] Justice will not be seen to be done if the losing party is not told, or cannot understand from the reasons, why there was an adverse result. The duty to give reasons is a means of judicial accountability against arbitrary decision making, and consequently, enables an appeal court to determine whether there was an appellable error. If a court does not refer to relevant evidence, and state material findings of fact (especially where there is a conflict on a significant question or an issue about the credibility of witnesses) and does not then apply the law to the facts, it might be thought that the evidence was overlooked or ignored or the legal exercise for the disposition of the case was not understood.
[10][2002] 6 VR 1 (C.A.).
They are the rules of the judicial process. Many authorities in this Court recognise that allowances in the stringency of the test have to be made for the work of the tribunals, not all of which are constituted by lawyers, although this one was. Those authorities are identified in Pizer’s Annotated VCAT Act,[11] and I shall not refer to them. Overall, this Court recognises that the imperative of access, despatch and low cost means that there cannot be fastidious or zealous assessment of the adequacy of reasons or the way in which they are expressed by a tribunal. Reasons are meant to inform. Not every issue has to be addressed like an historical thesis. What is required is findings on material facts upon which the decision turns and an explanation of the steps of the reasoning in reaching the ultimate conclusion. The depth to which that ought to occur depends so much on the case.
[11]3rd ed. at [4235].
True it is the Tribunal’s reasons say nothing about the contract, but I think the appellants have wrongly characterised this as an “inadequate reasons” case on appeal. If the working test for adequacy of reasons is to ask whether one can understand why the Tribunal reached its decision, then for my part, I certainly can. The Tribunal Member has published reasons to show that he regarded this as a quantum meruit case which called to be decided on a competition of evidence between the owner and the builder about “their respective versions of conversations and events which took place between them”.[12] From there, it is plain to me that the Member regarded the case as “more reliant on probability”. In other words, where he could not decide who was telling the truth, he would look to what objectively was more likely than not. In short, the case was decided on the basis of credibility. The claim for final payment seems to have been merged with a claim for variations and subsumed under the general credibility and probability exercise. The claim for liquidated damages seemed to have been decided on who was at “fault”. In all of this, the contract and the legislation and the law of contract (for the undertaking) were not considered.
[12]See para 8.
I think rather than seize upon the “adequacy of reasons” as a ground of attack, the error that has occurred here and which sets the conditions for how this Court should approach this appeal is that the case was decided by the Tribunal without any regard being had whatsoever to the building contract and, consonant with it, the applicable legislation. In other words, the Tribunal gave its reasons, but did so having taken a wrong course. It is plain on the pleadings that the claim and countervailing claim came to be propounded according to rights and obligations under the contract and the Act. Mr Lapirow sought to contend that arguments were being made on this appeal that were not put below. I think that is unfair. The transcript shows counsel for the owners making submissions to the Tribunal according to the contract and the legislation, although I sense submissions were abbreviated (and not as developed as they were before me) because there were time constraints. The course of evidence was, as Mr Lapirow stated, occasionally unstructured and confusing.
Of course, the Member had to deal with the substantial merits. But on this, I have this firm view. First, when the Act directs the Tribunal to act according to the substantial merits, that means procedural fairness and eschewing technicalities and lawyers’ games. It is not the same as substantially fair outcomes. Secondly, the permission to act without formality and technicality does not relieve the Tribunal from applying the law of the land to the dispute. When two parties decide to govern their relationship according to a written agreement, then as a beginning at least, the case ought to be decided by reference to that agreement. That is that the law would require and to my mind that is what “a proper consideration of the matters” means.
The claim for final payment
The builder gave the owners a progress claim dated 19 October 2009 for works done to the fixing stage. According to the Act that is the stage when all internal cladding, architraves, skirting, doors, built‑in shelves, baths, basins, troughs, sinks, cabinets and cupboards of a home are fitted and fixed in position. The amount of the progress claim was for $42 800, as stipulated in the contract. The amount was paid on 28 October 2009. That left the prospect, according to the contract, of a Final Payment of $17 120 “upon Completion”.
Section 42 of the Act states:
42.A builder must not demand final payment under a major domestic building contract until –
(a)the work carried out under the contract has been completed in accordance with the plans and specifications set out in the contract; and
(b)the building owner is given either –
(i)a copy of the occupancy permit under the Building Act 1993, if the building permit for the work carried out under the contract requires the issue of an occupancy permit; or
(ii)in any other case, a copy of the certificate of final inspection.
In this case the building permit issued by the building surveyor on 1 June 2009 required an occupancy permit prior to occupation.
The builder delivered a final claim to the owners on 5 February 2010 for $17 120. Yet, there was no certificate of occupancy issued. Not only was there no certificate of occupancy but there was a real issue about the legality of the construction of the study. The building surveyor had conducted an inspection on 29 January 2010. He issued a building notice stating that the works contravened the Act or the Building Regulations in that “study area has been enclosed by a wall and door contrary to approved drawings & Town planning permit”. The owners were required to show cause why they should not remove the wall and door. It was soon after that notice of the building surveyor that on 26 February 2010 a notice of termination was sent and contentions made by the owners’ lawyers that the variations were not in written form as required by the law, that the claim for final payment was premature as works were incomplete and there was no occupancy permit and there was still works to be done to complete the works for which the owners would incur the costs. Indeed, it was not until 9 April 2010 that an occupancy permit was issued. Before then, the building surveyor in some forceful correspondence had said that at the time of the frame inspection in August 2009 the wall (to convert the study into a third bedroom) was not constructed and he believed that some time after the frame inspection and prior to his final inspection in January 2010 the wall was added to the structure. The building surveyor did not mince his words when he said in a letter dated 16 March 2010, “I believe the building is not suitable for occupation as the compliance with building Regulations & Planning Permit has not been achieved” and more virulently “it is illegal to occupy the building without an occupancy permit and appropriate action will be taken accordingly”.
It is correct as Mr Northrop submitted that the Tribunal’s reasons do not discuss the claim for the final payment at all. It is also correct as he submitted, that the Member seems to have assumed the builder was entitled to the amount of the final claim without reference to the provisions of the contract and the necessity for the builder to prove that completion had occurred and a certificate of occupancy had been issued. The fact is it had not. And there is no doubt that the transcript of proceedings before the Tribunal shows that counsel for the owners had specifically made submissions on that matter.[13] Paragraph 9 of the Tribunal’s reasons says only this:
It is common ground that the contract price was $171,200.00 including GST. It is also common ground that the owners made payments to the builder totalling $154,080. The owners also claim that they paid a further $1,600.00 to a plumber. There was disagreement as to whether the works performed by that plumber fell within the scope of works set out in the contract.
[13]See transcript at p 102, ln 27 to p 104, ln 10.
The Tribunal Member, so the transcript reveals seems to have considered the question of the builder’s entitlement for the final payment to be based upon quantum meruit.[14] But that is not how the builder’s claim was put. Even recognising that the law in these cases could allow claims on a quantum meruit where work was done, and benefit conferred, but not in accordance with the statutory regime, there was no evidence or any other basis upon which the Tribunal could actually make an assessment of quantum meruit for work done by the builder between 28 October 2009 (after the last progress payment was made) up to 5 February 2010 (when the final claim was made).
[14]See transcript at p 103, ln 18.
To ignore the provisions of the contract concerning final payment and to ignore that the works had not been completed by the time the final payment was made is I think an error of law.
The builder’s claim for variations
On 15 February 2010, that is ten days after the date of the final claim, the builder submitted another progress claim for “Extra works and Not in the plan and Technical specification”. There were six items but the only relevant ones for present purposes were items 1, 5 and 6 (and I shall reproduce it exactly according to the document):
1. Make Study room to Bedroom
(Timber, Door. Door jamb, Plaster Board, Painting and Lab our:$1900.00 2. Extra Power point in the car board $120.00 3. Extra Power point in the Pergola area $120.00 3. Strom water plan (Not in the specification) $4500.00 5. Extra self each bed rooms $ 450.00 6. Install yours Tv and laundry holders
(lab ours only Materials supply by you)$ 300.00 TOTAL Payments
Total payments for GST
$671.00
The builder’s witness statement that dealt with these variations said this about the third bedroom:
Mr Khanna asked me to convert the study into a third bedroom by the installation of a wall including a timber door, door jamb, plaster board, painting and labour. I charged Mr Khanna the sum of $1900.00 for these works. I considered this to be fair and reasonable. Mr Khanna sought these additional works even though it was not on the building permit nor the plan. The reason for converting the study into the third bedroom was that it significantly increased the value of the house.
In the owners’ witness statement in the Tribunal he said:[15]
… so far as those items are concerned I say:
(1)I did not instruct the builder to close off the study
…
(5)I accept that an extra shelf has been placed in each of the bedrooms.
(6)I supplied the brackets which were affixed by the carpenter. Each bracket required three or four screws to be fixed to the wall. I watched as the carpenter instal (sic) these. He took approximately ten minutes.
[15]Paragraph 25.
The Tribunal found that the owners did request the installation of a wall and door to convert the study area into a bedroom. The owners do not seek to go behind that finding. But, as permeates so much of this appeal, they contend that the conversion required an amendment to the building permit. They point to clause 12.3 and clause 12.4 of the contract and say that the obligation was on the builder in considering whether or not to perform the variation to state whether an amendment to any permit would be required. Clause 12.4 specifically prohibits the builder from commencing any variation unless the builder reasonably believes that the variation requested would not require any amendment to any permit. The builder’s own witness statement recognised that the additional works sought was not on the building permit nor on the plan. Thus, the case for the owners was that the builder had not observed his legal obligations under the contract for the performance of this particular variation; the building surveyor issued a notice for the demolition of the variation works; the owners therefore did not get any benefit for this variation so as to give rise to some sense of unfairness if the builder could not recover the charges; and moreover the owners themselves had to incur expense to have the variation works demolished. Thus, so it would be said, it was not a case where the owners were unconscientiously looking to deprive the builder of payment for works done for which they obtained a benefit. It was the case where the owners were saying the builder under the law was not allowed to even do these variations without obtaining an amendment to the building permit, and the owners gained no benefit from the works because they were illegal. The question might be: despite all that would it be unfair to deprive the builder of payment for the works under the builder and does it call for the application of s 38(6)?
Similar problems I think infected the two other claims for variations. These really are tiny claims but as often happens in these cases they take up a disproportionate amount of time, energy and judicial resources. But they have to be dealt with. For the variation claim for the additional shelf in each bedroom the Tribunal said:
12.… The owners accept that an extra shelf has been placed in each of the bedrooms. Mr Khana’s witness statement confirms this. He also states that he supplied the brackets which were affixed by the carpenter, that each bracket required three or four screws to be fixed to the wall and that the carpenter took approximately ten minutes. No reference is made to any other aspect of this variation such as details of the shelves, their size or finish. No evidence as to a more appropriate cost was given. Under the circumstances this item must be allowed.
I think it is correct as Mr Northrop submitted that the Tribunal Member has misunderstood the evidence. The evidence concerning the screwing of the bracket onto the walls did not concern the extra shelf in the bedrooms. It concerned the TV and laundry holder. The Tribunal has confused the two. Even overlooking the manner and form provisions of the contract, and the Act, concerning variations, the Tribunal seems to have simply accepted the figure of $450 without any form of substantiation or documentary support by the builder. Indeed as the Tribunal itself said, there was no evidence at all about the details of the shelves, their size or finish. There was no evidence of the basis upon which the figure of $450 was claimed.
The same confusion I am afraid infects the Tribunal’s allowance of the variation claim for the installation of the TV and laundry holders. On this part of the claim the Tribunal said:
13.The builder states in his witness statement that TV and laundry holders were installed at the request of Mr Khana at a charge of $300.00. No reference is made to this item in Mr Khana’s witness statement nor in his witness statement in reply to the builder’s witness statement. No other evidence was placed before the Tribunal in relation to this item. Under the circumstances, this item must be allowed.
There is error here. Mr Khanna’s witness statement to which I have already referred specifically said that he supplied the brackets for the holders and the carpenter took ten minutes to screw them into the wall. There was no evidence that Mr Khanna agreed to a charge of $300. More to the point, there was no evidence from the builder to in any way substantiate or document the charge of $300, especially as it is clear that the challenge being made by the owner was that the affixation of the bracket took only ten minutes.
As I read the reasons, the approach of the Tribunal was to:
(a)decide if the variation was sought by the owners;
(b)decide if the work was done; and
(c)accept the builder’s figure.
I do not see in the materials anything to suggest that the Tribunal was led to decide the case that way or to take that approach. I am not saying this could not be a quantum meruit case, for the contract allows such claims (not in those terms) but only if certain antecedent facts or conditions occur, and even then, only on documented proof of the cost of works. For the study wall, there was a real question of an amendment to the building permit. The point is this: what the case did require on this part of the case as well as others, was as a commencement point, a proper analysis of the contractual provisions and an examination of the evidence applicable to them.
The liquidated damages claim
I have already referred to the precise contents of the written undertaking given by the builder to the owners. The claim under this undertaking was squarely before the Tribunal on the pleadings and on the evidence. Moreover, there was before the Tribunal a “market rental valuation report” prepared for the proceedings by a valuer, Property Probe Pty Ltd, which made an assessment that the market rent for the constructed unit from November 2009 to March 2010 would be $400 per week. There seemed to be no contest about this.
According to the builder’s pleading, the resistance to this claim was based upon a contention that the undertaking was vague and not enforceable because it was inconsistent with the main contract. But the owners’ case was that this was a binding agreement which varied obligations under the main contract. And, the owners contended, the works were not completed by 31 October 2009 as the builder had promised and therefore on its terms the obligation to pay damages had accrued, and should be enforced at law.
On this claim, the Tribunal refused the claim saying only this:
29.The owners claim 160 days at $400.00 per week, being $9,142.86. I am satisfied that relations between the builders and the owners broke down and that both parties became unreasonable. The owners withheld payment. The builder did not meet time requirements. There were confrontations. On one occasion, Police were called to the property. Both appeared to be at fault. Under the circumstances, I decline to award liquidated damages.
I think it is correct, as was submitted, that the Tribunal’s decision is not based on any consideration of the contractual relationship or the rights of the parties under the written undertaking. Moreover, it is, as Mr Northrop said, unclear whether the Tribunal is referring to events that occurred prior to the signing of the undertaking or after. If before, then that is not pertinent for the claim for liquidated damages. If the words referred to post undertaking events, then there is quandary. The builder did not run a case contending that at law he ought be excused from the effect of the undertaking by reason of some supervening facts, or impossibility or some other basis the law of contract might excuse him from his promise. The Member’s reference to the withholding of payments is not clear because, as I have exposed, the owners paid the progress claims but did not pay the final claim because by that stage they had terminated the agreement, and works had not been completed. Reference to confrontations are irrelevant as they occurred in April 2010. The reference to both parties “appearing to be at fault” seems to suggest that the Tribunal Member was making a general comment about the acrimony that had occurred. But that is immaterial to the legal analysis and the fact finding that was required concerning the liquidated damages claim. The Member seems to have regarded an award of liquidated damages as involving a discretionary judgment dependent on an assessment of who was at fault.
As best as I can understand it, there were disputations between the builder and the owners including some outstanding invoices. The owners’ witness statement refers to a meeting occurring at the architect’s office in late July 2009 to try and resolve all differences about the outstanding notices, invoices and the ongoing performance of the works at the site. As for the builder, his witness statement had this to say:[16]
It is impossible to read this [the deed of undertaking] consistently with the Contract entered into between the parties. It was forced upon me by Mr Khanna who sought to have the works completed with an unworkable time frame because he wished to rent the property as soon as possible. I only signed the document on the basis that Mr Khanna would pay the monies that were outstanding and I could pay the concreter who was threatening me.
[16]See para 22.
The inconsistency point can only be a reference to the fact that the agreement was reached as a departure from the liquidated damages clause in the contract itself. It is apparent that there were many deletions made to the contract but, as best as I can understand the evidence, the deletions were by agreement.
On the hearing of the appeal, Mr Lapirow sought to sustain the Tribunal’s decision by reference to matters which were not only not pleaded but as far as I can see form no part of the evidence of the hearing. His written submission said:
At no stage was it suggested by any evidence called by the Appellants that the time frame specified was reasonable. It was open to the Tribunal to accept that the Owners were applying economic pressure through the deliberate breach of the contract, in order to obtain a promise of an earlier completion date, but there is no suggestion that there is any contractual force to such a promise.
Later, he submitted that the Tribunal’s determination that there was “fault on both sides” indicates an acceptance by the Tribunal of the builder’s evidence of the reasons for the delay. He also submitted that as the Tribunal was charged with determining such disputes with as little formality and as expeditiously as it can, to provide economic and prompt resolution of such disputes, it must rely upon the parties who come before it to define the issues; and when that is not done, it is left to its own devices.
I do not accept this. The issues I think were reasonably defined by the pleadings. The question concerning the undertaking was a contractual one. There seemed to be no issue the undertaking was given and acted on as part of a resolution of a dispute to stabilise relations and enable work to proceed, which it did. There might have been disputations about its provenance or the difficulties encountered in reaching agreement. But the fact is it was made. The question for the Tribunal was whether it was enforceable at law on its terms at the instance of the owners when there was non‑compliance with the completion date.
In the Tribunal the builder’s reply said the agreement was uncertain or inconsistent with main contract. The suggestion on this appeal (not pleaded) was that it was void for a lack of consideration. Although the builder was not represented at the hearing it was incumbent I think on the Tribunal to tackle the question by reference to the principles of law that are applicable to the making of any agreement. That is, was it an enforceable agreement? What are its terms and how are they to be construed? On the facts, was there a breach of an undertaking? What are the consequences?
This ground of appeal is made out.
The owners’ claim: panel lift-up door on the car port
Paragraph 19 of the owners’ counterclaim sought payment of $992 for the purchase and installation of a garage door panel lift-up. Their case was that the builder had wrongly installed a roller door whereas the contract required the installation of a panel lift-up door. The builder’s response in his witness statement to that claim was to say that “If the agreement and specifications are examined a car port door is not contained in either.”
The first point of reference is the technical specifications which form part of the contract. Page 4 of those specifications refer to the “Garage…General” and stated “Lift up panel door front, clear opening to rear … “. There is no reference to car port, I suppose because a car port is not a garage. But under the heading of “Floor…Flooring…Driveway…”it says “Carport Included”. The builder’s point I gather was that the technical specifications do not refer to a panel door for the car port. But, the plans clearly do. The floor plan (drawing no. 2070410/03) show there was to be a single garage on one side of the dwelling with the conspicuous notation “PANEL LIFT UP DOOR”. The same plan shows a single car port at the end of the driveway with the conspicuous notation “PANEL LIFT UP DOOR”. Likewise on the East Elevation plan (drawing no. 2070410/04) there is an even more diagrammatically conspicuous notation on the car port stating “PANEL LIFT UP DOOR”. Then to put the matter beyond doubt, on the electrical lay-out plan (drawing No. 2070410/07) there is the same conspicuous notation.
On this claim, the Tribunal Member said:
The owners claim $1,572.00 for the cost of installing a panel lift door to the car port. There is no reference to any door to the car port in the plans and specifications. This item is disallowed.
It is incorrect to say there is no reference to any door in the car port in the plans. I have shown that they do. It is true that the technical specifications do not explicitly refer to a lift-up panel door for the car port. It is more correct to say that the lift-up panel door as referred to under the heading of “garage” but nothing is said about a lift-up panel door for the driveway. I cannot see how that somehow displaces what is plainly shown on the plans. Mr Lapirow points to the well‑known order of precedence clause in these contracts which say that “any discrepancy or ambiguity in or between any document comprising the Contract shall be resolved by adopting the following order of precedence… “. Under the clause, the specifications take precedence over the Plan. But that is in the event of a discrepancy or ambiguity. As Mr Northrop submitted, the obligation of the builder under both the contract and under the Act is to carry out work “in accordance with the Plans and Specifications”, not the “Plans only so far as they are expressly reflected by the Specifications”.
This ground of appeal is made out.
Fees to building surveyor
There was in evidence a letter from the building surveyor dated 7 April 2010 sent to the owners’ solicitor attaching a tax invoice. He claimed $1265 for the cost of issuing the Building Notice, attending various meetings, correspondence, and the conduct of the final inspection. On this claim, the Member said:
The owners paid a building surveyor $1,265.00 in relation to final certification. The building surveyor declined to certify until the unauthorised wall was removed. I have already found that the owners had requested the installation of that wall. Having regard to the additional work on the part of the building surveyor arising from this work, I find that the cost of the building surveyor should be shared equally between the builder and the owners. Accordingly, I allow $632.50 in relation to this item.
The resolution of this claim comes to be connected with what I have already said about the attempt to convert the study into a third bedroom and the requirement for an amendment to the building permit. The whole issue concerning these additional fees all emanated from the problem with the failure to amend the building permit and the subsequent giving of a building notice to bring the wall down. The question about who was responsible for this payment comes to be logically connected with the primary question about the builder’s contractual and statutory obligation to abstain or refuse to do the additional work on the study until he obtained an amendment to the building permit. The evidence shows that the granting of the occupancy permit was delayed due to the incomplete work and the need for amended drawings. The owners paid amounts to the surveyor to secure the Occupancy Permit, something that the builder was obliged to obtain.
There is no apparent legal basis for the Member to have decided that the fees were to be paid equally. This ground of appeal is made out.
Summary and disposition of the appeal
I accept the principal submission of the appellants that the Tribunal’s reasons do not reveal a consideration of the claim and counterclaim by reference to the parties contractual rights and obligations. That goes not so much to the adequacy of reasons, but goes to reveal an erroneous approach by the Tribunal. The Tribunal was bound to decide the claim, and the counterclaim according to the applicable contractual provisions and the comcomitant legislation. Any claim for a quantum meruit would only be visited, according to the contract and the legislation, where the builder was seeking to be excused from compliance with section 38 or clause 12, and even then upon proof of the costs involved. The claim for a final payment likewise depended on clause 17 of the contract and section 42 of the Act and fact finding on matters integral to those provisions. The claim for liquidated damages under the “undertaking” required a legal determination of the enforceability and effect of that document and fact finding about the matters which the owners said attracted the obligation on the builder to pay damages under it. The owners claim for additional costs seemed to have proceeded upon some mistaken view of the facts.
I realise that determination might be said to infect the whole of the decision, and the whole dispute ought therefore go back and the parties start all over again. But the appeal was confined to certain parts of the claim only and I think it would be such a waste, and productive of more delay and expense and frustration (and acrimony) if there was a complete rehearing of all the components of the original claim. Depending on the outcome, the Tribunal will then have to make adjustments to the figure of $15 854 some of which concerned matters not under this appeal. Thus to be certain, the remittal ought be confined to the claims identified on the appeal, being:
(a) the claim for market rent under the “undertaking” dated 23 July 2009 for $9142.86;
(b) the builder’s variation claims for the conversion of the study to a bedroom ($1900), the additional shelf in the bedrooms ($450) and the TV and laundry holders ($300);
(c) the builder’s final claim (as it has been called in this appeal ) being Progress Claim Tax Invoice – 6 dated 5 February 2010 for $17 120;
(d) the owners’ claim for the car port door ($1572), fees to surveyor ($632) and cost of removing bedroom wall ($810).
I will hear submissions, but I propose making the following orders:
1. The appeal be allowed.
2. Subject to paragraph 3, the whole of the order made by the Victorian Civil and Administrative Tribunal on 16 May 2011 in its proceeding no. D269/2010 shall be set aside.
3. The proceeding shall be remitted and decided again by the Tribunal (which is to be constituted not by the same member who made the original order) in accordance with these reasons for judgment, and with the reception of any further evidence as the Tribunal may think fit PROVIDED THAT the remittal is confined to those parts of the claim and counterclaim as are identified in paragraph 73 of this Court’s reasons for judgment.
4. The respondent shall pay the appellants costs of this appeal.
5. The Court grants the respondent an indemnity certificate in respect of costs under s 4 of the Appeal Costs Act.
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