Kostos Pty Ltd v Vellios; Vellios v Kostos Pty Ltd

[2019] NSWCATCD 13

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Kostos Pty Ltd v Vellios; Vellios v Kostos Pty Ltd [2019] NSWCATCD 13

Hearing dates:

18, 19 December 2017

Date of orders:

08 May 2019

Decision date:

08 May 2019

Jurisdiction:

Consumer and Commercial Division

Before:

F Corsaro SC, Senior Member

Decision:

In Application HB 17/21359, order:

 

1. The Respondents (the Owners, Dimitri Vellios and Vicki Vellios) are to immediately pay the Applicant (the Builder, Kostos Pty Ltd) the amount of $55,708.79 including GST.

 

In Application HB 17/38120, order:

 

1. The Respondent (the Builder, Kostos Pty Ltd) is to immediately to pay the Applicants (the Owners, Dimitri Vellios and Vicki Vellios) the amount of $17,052 including GST with the amount of Builder’s liability to the Owners to be set off by the Owners against the Owners liability to the Builder by the Tribunal’s order in HB 17/21359.

 

2. The Builder must carry out all of the item of work identified in the report of Mr Gerard Todarello of Precision Inspections dated 31 July 2017 (the Todarello Report) other than items 6.34, 6.35, 6.49, 6.61 and 6.69.

 

3. In Application HB 17/21359 and in Application HB 17/38120 any application for costs is to be determined as follows

 

(1) The Builder is to file and serve written submissions on the issue of costs within 14 days from the date of this decision. Such submissions are to include reference to whether or not the Builder agrees to costs being determined on the papers in accordance with s 50 (2) of the Civil and Administrative Tribunal Act 2013 (NSW);

 

(2) The Owner is to file and serve any written submissions on the issue of costs in response within 14 days after service of the Builder’s submissions

(3) Subject to the submissions of the parties, the issue of costs may be determined on the papers and without further oral hearing in accordance with s 50 (2) of the Civil and Administrative Tribunal Act 2013 (NSW).

Cases Cited:

Antworks Pty Ltd and Brendon Chhong Lee v Shixin (Cindy) Lee [2015] NSWCATAP 53
Bittania Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302
Bradshaw v Complete Coating Commercial Pty Ltd trading as CCC Civil [2017] NSWCATAP 209
Built Interiors Pty Ltd v Three Dinosaurs Pty Ltd [2003] NSWCA 290.
Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23
Leung v Alexakis [2018] NSWCATAP 11
Liebe v Molloy (1906) 4 CLR 347
Mobil Oil Australia Ltd v Kosta [1970] ALR 253
Morgan v Allen [1971] Tas SR 285
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104.
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Richard Evans v Astley [1911] AC 674
Trimis v Mina [1999] NSWCA 140
Update Constructions Pty Ltd v Rozelle Care Centre Ltd (1990) 20 NSWLR 251
Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277

Category:

Principal judgment

Parties:

Proceedings HB 17/21359:
Kostos Pty Ltd (Applicant)
Dimitri Vellios and Vicki Vellios (Respondents)

  Proceedings HB 17/38120:
Dimitri Vellios and Vicki Vellios (Applicant)
Kostos Pty Ltd (Respondents)

Representation:

Counsel:
Mr Jayasuriya instructed by Clyde & Co (Kostos Pty Ltd)
Mr Ilkovski instructed by GA Lawyers (Dimitri and Vicki Vellios)

File Number(s):

HB 17/21359; HB 17/38120

Publication restriction:

Nil

REASONS FOR DECISION

Introduction and procedural history

1. The present dispute arises out of the construction of a new, three-storey residence in suburban Sydney (the Residence) owned by Mr and Mrs Vellios (the Owners). Kostos Pty Ltd (the Builder) built the Residence for the Owners under a lump sum building contract dated 9 April 2014 (the Contract). The agreed contract price for that work was $880,000 including GST (the Contract Sum). The general conditions of the Contract were the Master Builders Association Residential (BC4 edition) standard form conditions.

2. The Owners have paid the Builder the Contract Sum.

3. The present dispute is about whether:

1. the Builder is owed money for “extras”;

2. the Builder’s liability for incomplete and defective works;

3. the Owners are entitled to set off or recover amounts paid for work included in the original scope of the Builder’s work which they paid for but which the Builder did not do (Negative Adjustments).

4. The Owners moved into the Residence on or about 28 November 2015. The Builder achieved practical completion of the works at that time by doing so. This is when defects liability period (DLP) under the Contract commenced.

5. There are two applications before the Tribunal. The first, HB 17/21359 (the Builder’s Application), is the Builder’s application. The Builder claims it did additional work for the Owners for which it has not been paid. The second application, HB 17/38120 (the Owners’ Application), is the Owners’ application. The Owners say that the Builder owes them money for allegedly defective, incomplete and damaged works, and where they claim for the Negative Adjustments.

6. The following procedural history is apparent on the face of the Tribunal’s files:

1. the Builder filed the Builder’s Application with the Tribunal on 9 May 2017. This quantified the Builder’s money claim in the amount of $57,264.59;

2. the Tribunal made procedural directions for the service of points of claim, a cross-application, defences and for the service of expert reports;

3. on 4 August 2017, the Owners filed the Owners’ Application. This quantified the Owners’ money claim in the amount of $82,682.30;

4. the Builder formally defined its money order claim in Points of Claim dated 28 June 2017 (the Claim);

5. the Owners formally responded to the Builder’s Claim in Points of Defence dated 12 July 2017 (the Defence);

6. the Owners formally defined their money claim in the “Cross-Applicants’ Points of Claim” dated 4 August 2017 (the Cross Claim); and

7. the Builder formally responded to the Cross Claim in the “Cross-Respondent’s Points of Defence” dated 28 August 2017 (the Response).

7. The following issues come out of the Claim and the Defence ([9] of the Claim and [9] of the Defence);

1. whether the Builder is entitled to be paid for the cost of emergency call out works to repair a damaged water meter (Variation 1). The Builder claims $1,200 for Variation 1. The Owners accept that provided liability is established, the Builder is entitled to set off the amount of $1,200 for Variation 1 against money ordered in their favour on the Cross Claim;

2. whether the Builder is entitled to payment for additional excavation work in the sum of $13,882 (Variation 2). The Owners do not admit the Builder’s entitlement to charge for Variation 2 ([14] to [27] of the Claim and [14] to [27] of the Defence);

3. whether the Builder is entitled to the actual amount spent by the Builder for windows over the provisional allowance for the windows in the Contract. The Builder claims the extra amount of $6,634.00 because the Builder purchased the Owners’ “preferred windows” (Variation 3). The Owners do not admit the Builder’s entitlement to this additional payment ([28] to [36] of the Claim and [28] to [36] of the Defence);

4. whether the Builder is entitled to recover extra scaffolding hire in the amount of $3,920.00 required for the completion of the cement render works due to a delay in the installation of the windows (Variation 4). The Owners do not admit the Builder’s entitlement to that extra sum ([37] to [43] of the Claim and [37] to [43] of the Defence);

5. whether the Builder is entitled to the cost associated with the supply and installation of external mouldings in the sum of $12,048.89 (Variation 5). The Owners accept that if liability is established, the Builder is entitled to set off the amount of $12,048.89 for the mouldings against money ordered in their favour on the Cross Claim ([44] to [52] of the Claim and [44] to [52] of the Defence);

6. whether the Builder is entitled to be paid the cost of joinery associated with additional stone works in the amount of $12,520 (Variation 6). The Owners accept that the Builder is entitled to set off the amount of $12,520.00 against money ordered in their favour on the Cross Claim ([53] to [62] of the Claim and [53] to [62] of the Defence);

7. whether the Builder is entitled to recover the cost of additional floor coverings in the amount of $1,530.00 (Variation 7). The Owners accept that the Builder is entitled to set off the amount of $1,530.00 for the additional floor coverings against money ordered in their favour on the Cross Claim ([63] to [69] of the Claim and [63] to [69] of the Defence);

8. whether the Builder is entitled to be paid for the installation of tile coping in the amount of $695.00 (Variation 8). The Owners do not admit the Builder’s entitlement to payment of that work ([70] to [75] of the Claim and [70] to [75] of the Defence);

9. whether the Builder was entitled to the costs of door hardware in the amount of $4,116.00 (Variation 9). The Owners did not admit the Builder’s entitlement to payment of that work ([76] to [84] of the Claim and [76] to [84] of the Defence), and ultimately the Builder did not press this claim: paragraph [9] of the Builder’s submissions;

10. whether the Builder is entitled to be paid the cost for “extra” work for the extension of a fence at the rear fence of the residence (Variation 10). The Owners accept that the Builder is entitled to set off the amount of $6,493.00 for the extension of the rear fence against any money ordered in their favour on the Cross Claim ([85] to [89] of the Claim and [85] to [89] of the Defence);

11. whether the Builder is entitled to the additional costs for laying natural stone rather than tiles in the external areas (Variation 11). The Builder’s claim was for $3,080.00. The Owners do not admit the Builder’s entitlement to payment for that work ([90] to [97] of the Claim and [90] to [97] of the Defence);

12. whether the Builder is entitled to payment for supplying and spreading soil in the backyard of the Residence in the amount of $1,111,00 (Variation 12). The Owners’ pleaded position was that they did not admit the Builder’s entitlement to payment for any part of the claim ([98] to [105] of the Claim and [98] to [105] of the Defence), but ultimately accepted that the supply of the soil was an “extra” cost. They denied instructing the Builder to spread the soil in the backyard;

13. the Builder’s entitlement the cost for the supply and installation of a reduced pressure zone (RPZ) valve claimed in the amount of $300.00 (Variation 13). The Owners did not admit the Builder’s entitlement to payment for the supply and installation of the RPZ ([106] to [110] of the Claim and [106] to [110] of the Defence). Eventually the Builder did not press this claim: paragraph [9] of the Builder’s submissions;

14. the Builder’s entitlement to the costs associated with the supply of strip drains for the showers (Variation 14). The Builder claimed payment for this item in the amount of $1,655.00. The Owners do not admit the Builder’s entitlement to payment for the installation of the strip drains ([111] to [115] of the Claim and [111] to [115] of the Defence);

15. the Builder’s entitlement to the cost for the supply of corrugated board panelling, or ‘coreflute’, in the amount of $348.50 (Variation 15). The Owners accept that the Builder is entitled to set off the amount of $348.50 for the supply of the coreflute. ([116] to [121] of the Claim and [116] to [121] of the Defence); and

16. the Builder’s entitlement to contractual interest the outstanding amount ([10] to [12] of the Claim and [10] to [12] of the Defence).

8. The Cross Claim refers to:

1. 82 specific items of work as either incomplete, damaged or defective ([5] of the Cross Claim) as set out in the expert report of Mr Gerad Todarello of Precision Inspections dated 31 July 2017 (the Todarello Report) (the Defective Items). The Owners quantified that part of their claim in the amount of $48,645.30; and

2. 11 items of work of Negative Adjustments claimed by way of set-off to the Builder’s claim. The Owners say that in relation to these items the Builder “failed to reduce the contract price or to set off against the value of variations claimed by [the Builder]” ([6] of the Cross Claim) (the Adjustment Items). The Owners quantified that part of their claim in the amount of $34,037.

9. The Owners did not press one of the items referred to in the Todarello Report (item 6.34). The Owners say that this reduced their claim for the Defective Items to the amount of $41,145.30.

10. The issues coming out of the Cross Claim and the Response were:

1. the effect that the Owners’ occupation of the Residence on 28 November 2015 had on the Owners’ claim for the Defective Items;

2. whether the Owners prevented the Builder from completing the works and rectifying the Defective Items;

3. whether the Owners agreed to delete various items of work from the Builder’s scope of works, and whether those deleted works were liable to be set off against the value of the variations carried out by the Builder; and

4. whether if the Tribunal were to find any defective works, it should proceed by way of rectification order under s 48MA of the Home Building Act 1989 (NSW) (the Act).

11. Having regard to paragraph [8] of the Response, the pleaded position relating to the Adjustment Items was as follows:

1. the Owners claimed a set off for the “front balustrade” valued in the amount of $6,000. The Builder admitted this claim;

2. the Owners claimed a set-off for the residence’s front gate motors valued in the amount of $1,400.00. The Builder valued that adjustment in the amount of $750.00, being $350.00 for each of the two motors. Eventually, the Owners accepted the quantification of the claim as $350.00;

3. the Owners claimed a set-off adjustment for the “Payment to Euro Iron – Elvis” valued in the amount of $3,450.00. There was no issue on this item. The Builder admitted the value of that adjustment;

4. there was no dispute that the Owners were entitled to a set off valued in the amount of $1,200.00 for the side walk way gates;

5. there was no dispute that the Owners were entitled to a set off valued in the amount of $1,000.00 for the glass panel of the Residence’s portico;

6. there was no dispute that the Owners were entitled to an adjustment valued in the amount $424.00 for Cornices;

7. there was no dispute that the Owners were entitled to an adjustment because the scope of the Builder’s work which included stencilling and colouring of the driveway was not done. The Owners claimed a set off valued in the amount of $1,728.00, whereas the Builder maintained the adjustment should be $200.00;

8. the Builder denied the Owners had any entitlement to set off:

1. the Fireplace Marble, which the Owners value in the amount of $4,570.00. Eventually, the Owners did not press this part of their claim;

2. the omission in the construction of 15 bored piers, which the Owners valued in the amount of $6,515.00; and

3. an allowance for the Front Door which the Owners valued in the amount of $1,200.00.

The hearing

12. Mr Jayasuriya of counsel, instructed by Clyde & Co appeared for the Builder at the hearing. Mr Ilkovski of counsel, instructed by GA Lawyers appeared for the Owners. Both applications were heard together. The parties agreed that the evidence in one application was to be evidence in the other.

13. The Defence did not generally advance a positive case in response to the Builder’s specific allegations. The Owners clarified their position at the commencement of the hearing:

1. the Owners accepted that except for Variation 12, the spreading of soil in the backyard of the Residence, the quantum of the Builder’s claims was not in issue:

B Ilkovski:   If I can put it more clearly. If the [Builder’s] entitlement is established for all fifteen [items of work claimed for], then quantum will not be an issue.

F Corsaro:   Another way of putting it is if [the Owners] were to convince me that the Contract did not apply, then the issue for you would be whether or not that forms part of the set off because quantum was not an issue. Is that the idea?

B Ilkovski:   For some of them.

F Corsaro:   Can you please tell me which ones are not admitted quantum wise?

B Ilkovski:   The only one that is not admitted quantum wise is item 12 where a lesser quantum is given, however, for every other item – if it is established, then the quantum will follow.

…

F Corsaro:   So, are you saying this – you do not put quantum in issue other than for item 12?

B Ilkovski:   Item 12 – that is the only one.

…

(and at p 5)

F Corsaro:   Thank you and what is the issue for the provisional sum items where the claim is that in fact there was a provisional sum in invoices provided to show that the provisional sums cost more.

B Ilkovski:   For those, it is whether the override has been demonstrated. It is a factual inquiry whether the onus has been proved.

F Corsaro:   So your clients want to put the builder to proof without asserting a positive case, is that serious?

B Ilkovski:   Yes…where there has been an allowance and with those would be, in this case, the type of example that there was a belief right there on me in my client, that the allowance was not over but the proof of the …. has not been established.

2. the Owners made clear that they challenged the Builder’s quantum meruit claim on the following grounds:

1. the Contract applied and there was no room for quantum meruit to operate when the Contract covered the field; and

2. the Builder had not established any factual basis for any quantum meruit entitlement.

3. the Owners admitted that there was no “scope issue” or quantum issue in relation to the quantum meruit claim:

F Corsaro:   Secondly, the only issue for the Tribunal relates to…whether or not in some way the contract shuts out the restitution claim being made. Is that correct?

B Ilkovski:   On one argument whether the contract shuts out the claim for variation and then, [the] second argument is whether the facts, if found, give an entitlement to any item and if they don’t’ those items will not allowed for any quantum.

…

F Corsaro:   So which one do you say requires me to construe the documents in order to determine whether or not the original scope of work includes these items? If they are all not admitted.

B Ilkovski:   None of them is a scope issue. The only issue is whether it was [varied] under the contract and if not varied under the contract, whether there was some informal [arrangement] by which an entitlement [in] restitution arises.

F Corsaro:   Well, go back – so the issue is whether or not the contract applies to bar [the] claim?

B Ilkovski:   That is so.

F Corsaro:   Right, but there is no quantum issue.

B Ilkovski:   There is no quantum issue.

F Corsaro:   And otherwise, if I were to find…that in some way despite the existence of this contract, the [builder] is entitled to bring a claim for restitution outside the terms of this contract, which is [what] I understand you to be saying, is that correct?

B Ilkovski:   In relation to variations.

F Corsaro:   In relation to variations, then you would say to the extent that I would find such for any of those amounts even on a restitution claim, it would then need to be set off against the amount which is owed to your clients.

B Ilkovski:   That is so.

F Corsaro:   If I were to find that set off doesn’t apply, there is no issue of quantum.

B Ilkovski:   That is so.

14. The issues relevant to the Owners’ claim were also clarified at the start of the hearing:

F Corsaro:   The defects case has various issues involved [in] it. The first is whether or not the works are [defective] – [the Builder] does not have [any] independent expert. There is one expert [Mr Todarello] who gives evidence in relation to the defective works – you take [an] admissibility argument about that, Mr Jayasuriya?

S Jayasuriya:   That is correct – it is relevan[ce].

F Corsaro:   You don’t take any form objection, you take objection on the basis that because of the way the contract operates, the amount is not recoverable as damages either because your client was not given written notification during the defects liability period or alternatively, your client has been deprived of the means by way of access [and] other interference [in] actually making defects good. Is that correct?

S Jayasuriya:   That is correct. There is a third argument that is in the submissions that is not in the pleading.

15. The Builder’s “third argument” was an allusion to the contention that:

1. the Builder maintained it had validly suspended work because it was not paid what it was owed, and that it exercised its contractual rights under clause 21 of the Contract; and

2. the Owners could therefore not maintain a claim for the Defective Items.

16. During the course of the hearing, the Tribunal indicated that it would be assisted by written submissions from the parties on the following issues:

1. the proper construction of clauses 24 and 25 of the Contract, and what rights and entitlements the parties had to have defects rectified during the defects liability period, and what particular findings each party contended for in respect of those clauses;

2. whether, if the Tribunal was satisfied the Builder breached the Contract because it carried out the work defectively and the works remained incomplete, and the Owners breached clauses 24 and 25 of the Contract, the Tribunal could nevertheless make a rectification order for the same defects and omissions;

3. the Builder’s claim for payment for the additional works contended for, in circumstances where the Contract remained on foot, and the Builder had made no contractual claim for variations. In this respect, the Tribunal drew the parties’ attention and invited submissions on how the principles of the law of restitution, as discussed in cases such as Update Constructions Pty Ltd v Rozelle Community Centre (1990) 20 NSWLR 251 (Update) bear on this issue;

4. whether the Builder had established claims for additional payment for work which was outside the original scope of work which the Builder had agreed to carry out of the Contract Sum; and

5. whether the Owners had established the Builder’s work as being either defective or incomplete, and the quantification of the amount of compensation or damages which the Tribunal should award.

17. At the conclusion of the hearing, the Tribunal reserved its decision but made directions for the service of written submissions which were intended to permit the Tribunal to decide the dispute on the basis of the evidence tendered to the Tribunal at the hearing, and the parties’ written submissions.

Jurisdiction

18. S 48K of the HB Act gives the Tribunal the jurisdiction to determine a ‘building claim’ in which the amount claimed does not exceed $500,000 (or any other higher or lower figure prescribed by the regulations). S 48A of HB Act defines a ‘building claim’ as a claim for:

1. the payment of a specified sum of money, or

2. the supply of specified services, or

3. relief from payment of a specified sum of money, or

4. the delivery, return or replacement of specified goods or goods of a specified description, or

5. a combination of 2 or more of the remedies referred to in paragraphs (a-d)

that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods and services, but not include a claim that the regulations not to be a building claim.

19. Section 48A of the HB Act also defines “building goods and services” to mean:

goods or services supplied for or in connection with the carrying out of residential building work or specialist work, being goods or services:

1. supplied by the person who contracts to do, otherwise does, that work, or

2. supplied in any circumstances prescribed by the regulations to the person who contracts to do that work.

20. The Tribunal has jurisdiction to hear and determine both the Builder’s Claim and the Owners’ Claim.

The terms of the contract

21. Page 1 of the Contract said:

The [Contract Sum] …is the amount payable based upon the work to be done under the contract as at the date of the contract.

If the work under the contract changes then the contract price may change.

22. The terms of the Contract included a term by which the parties agreed the scope of the Builder’s work under the Contract was as set out in Builder’s quote dated 10 December 2013 (the Quotation). Schedule 3(a) of the Contract states:

Description of the Works to be completed by the Builder

As per quote attached.

23. The copy of the Contract tendered in evidence (Tab 1 of Ex C4) did not have the Quotation attached. The evidence of Mr Kostopoulos at the hearing was that the Quotation was the document tendered at Tab 2 of Ex C4, and that the Quotation was attached to the Contract.

24. The Contract permitted the works to be varied (clause 14). The relevant provisions were that:

1. the original scope of the Works might be varied by, among other things:

1. the execution of additional work (14(a)(i)); or

2. decreases of omissions from the Works (14(a)(ii)); or

3. changes in quality or in the character of any material or work (14(a)(iii));

2. a variation was to be “established” by, among other things:

1. written instructions from the Owners (14(b)(i)); or

2. the supply of drawings to the Builder (14(b)(ii)).

25. The word “established” in this context connotes that a variation under the Contract was one where the Owners issued a written instruction to the Builder. This is further reinforced by:

1. clause 14(c) of the Contract, which provided that the Builder had no obligation to vary the Contract, or carry out any extra work, unless the Builder consented to do so, with that consent not being unreasonably withheld;

2. clause 14(d) of the Contract, which provided that if the Builder consented to carry out a variation, the Builder had no obligation to do so, unless the variation was in writing and signed by the Owners; and

3. clause 14(e) of the Contract which required the Builder to advise the Owners in writing of the value of any variation within a reasonable time.

The Builder’s claim – unpaid building work

SUBMISSIONS AS TO THE BUILDER’S ENTITLEMENT

26. Paragraph [10] of the Builder’s written submissions accept that:

1. clause 14(d)(i) of the Contract “required that variations to the original scope of the Builder’s work under the Contract were required to be detailed in writing and signed by the Owner and the Builder”;

2. that did not happen for any of the variations that are the subject of the Builder’s claim; and

3. the Builder did not seek to recover payment for those items pursuant to the Contract but limits its claim to quantum meruit.

27. The Builder relies on Pavey & Matthews Pty Ltd v Paul (1987) (Pavey) 162 CLR 221; [1987] and the Appeal Panel’s decision in Antworks Pty Ltd and Brendon Chhong Lee v Shixin (Cindy) Lee [2015] NSWCATAP 53 (at [43]) in support of its quantum meruit claim. The Builder submits:

1. that in assessing the value of the benefit obtained by the Owners, the reasonable cost of the work was an appropriate measure to allow for the quantum meruit entitlement. This includes the cost of materials, labour and an allowance for profit (a builder's margin); and.

2. in respect of each of the Variation claims pressed, the Builder had:

1. given evidence that “the variation was requested or sanctioned by the Owners”; and

2. the documentary evidence on which the Builder relied, which was principally in the form of invoices, established the cost of the works to the Builder.

28. The Owners submit that the Builder is not entitled to recover payment for the Variations on a quantum meruit basis because clause 14 of the Contract was a complete legal framework for the payment of extra work. The Owners submit that this follows from the proposition that the law does not countenance two conflicting sets of legal obligations subsisting concurrently, referring in this regard to the decision of Mason P in Trimis v Mina [1999] NSWCA 140 (Trimis) (at [54]). The Owners also relied on:

1. Deane J’s decision in Pavey at 256, where his Honour said that where a valid and enforceable agreement governed the right to payment there was:

neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration;

2. Basten JA’s decision in Xu v Jinhong Design & Constructions Pty Ltd [2011J NSWCA 277 (Xu) at [291] where the Owners say that his Honour confirmed that "a residential building contract cannot permit a variation which is not in writing" and "[a]n oral variation which would itself involve residential building work cannot be enforced as a separate contract because that contract would not be in writing", and which the Owners submit leads logically to the conclusion that the extras claimed by the Builder cannot be enforced under the Contract;

3. the following passages of Macfarlan JA’s decision in Xu, which the Owners submit explain why the principles in Update Constructions Pty Limited v Rozelle Care Centre Ltd (1990) 20 NSWLR 251 (Update) do not apply to residential building contracts under the HB Act:

[109] The Builder submitted in this context that in Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251 this Court treated work done pursuant to oral variations as work "within the contract" notwithstanding that the contract required variations to be in writing. That was not however a contract to which the Home Building Act applied, and accordingly the view was available that the proprietor was estopped by the conduct of its agent from relying upon the requirement in the contract for writing.

[110]    In the present case the requirement of writing was statutory and could not be overcome by the agreement or conduct of the parties to the building contract;

and

4. Built Interiors Pty limited v Three Dinosaurs Pty limited [2003] NSWCA 290 (Built Interiors), as another instance where the Courts had rejected a Builder's claim to recover unapproved variations on the basis of "unjust enrichment", and where Mason P (with whom Meagher and lpp JJA agreed) stated (at [54]) put the difficulty for the builder as follows:

The type of work involved in the disputed variations claims was very much part and parcel of the overall project. There was nothing to indicate that at any time the parties moved away from viewing the Contract as the complete framework by which their legal rights would be governed. Some of the items may well have qualified as "Variations" within the definition in Clause 1.2, but the procedural stipulations in Clause 6.7 had not been complied with. This offers no basis for the Builder ignoring the contract (by suing in restitution) and leaves the Builder far short of proving a case of contractual variation."

29. The Owners accept that unapproved variations may be the subject of an implied contract to pay for them, but that such a finding would ultimately depend on whether a separate contract might be implied. In this context, the Owners rely on the High Court’s decision in Liebe v Molloy (1906) 4 CLR 347 (Liebe) to submit that the following circumstances are relevant to the implication of a separate contract for works:

1. actual knowledge of the extra works as they were being done;

2. knowledge that the extra works were outside the contract; and

3. knowledge that the builder expected to be paid for them as extras (see Trimis at (591).

30. The Owners say that a contract to pay wiII not be implied "if the fact was that the owner did not know the particular works were extras or did not know or believe that the builder expected to be paid for them" (Trimis at (591). In response, the Builder submits:

1. the Owners' analysis of the legal position is based on the misconception that the Builder is seeking to recover payment under an implied contract as described in Liebe. The Builder accepts that s 6(1)(b) of the HB Act, and the decision of Basten JA (at [29]) and Macfarlan JA in Xu makes that clear;

2. Macfarlan JA at [106] of Xu also made clear that the fact that the Builder cannot have a claim for work outside the building contract on the basis of an implied contract, would not preclude the Builder being entitled to recover for the same work in quantum meruit in restitution. The Builder specifically relies on the following passage of his Honour’s judgment:

In these circumstances the Builder can have no claim in contract against the Owner in respect of the oral variations to the building work. Nevertheless it is likely to have (or have had) a quantum meruit claim to recover the value of the work done in pursuance of the oral variations (Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221). A claim of that type is one to restitution or one based on unjust enrichment and is not based upon the existence of an implied contract (Lumbers v W Cook Builders Pty Ltd [2008) HCA 27; (2008) 232 CLR 635 at [83) -[84).

3. the Appeal Panel’s decision in Bradshaw v Complete Coating Commercial Pty Ltd t/as CCC Civil [2017] NSWCATAP 209 (at [29)) (Bradshaw) as having correctly identified the following elements that the Builder has to establish in respect of the Variation claims to recover in quantum meruit, being:

1. whether the Variations had enriched the Owners by the Owners having received the benefit of the Builder’s work;

2. the benefit received by the Owners was at the Builder’s expense; and

3. it would be unjust in the circumstances to allow the Owners to retain the benefit without paying for it.

DETERMINATION AS TO THE BUILDER’S ENTITLEMENT IN GENERAL

31. As Mason P indicated in Trimis, the fundamental starting point in considering whether the Builder is entitled to recover for the Variations in quantum meruit, on restitutionary principles, is whether the provisions of the Contract amount to an inconsistent contractual promise between the parties in relation to the subject matter of those claims. The Owners submissions emphasise the following statement of Mason P in paragraph [54] of Trimis:

No action can be brought for restitution while an inconsistent contractual promise subsists between the parties in relation to the subject matter of the claim.

32. However, it is necessary to consider this statement by his Honour in its proper context. In [53] of the judgment, his Honour flagged an important issue in those proceedings:

There was a conflict of evidence, with the builder saying that Mr Trimis had agreed orally to the variations, but Mr Trimis saying that he had done so on the basis that there would be no additional cost. The trial judge did not refer to or seek to resolve this conflict of evidence.

This was what Mason P referred to in paragraph [54] as the “starting point” that was “fundamental”. It was in that sense his Honour said:

No action can be brought for restitution while an inconsistent contractual promise subsists between the parties in relation to the subject matter of the claim.

33. If the parties in Trimis had agreed that the variations were to be at no cost to the owner, as they did, then restitutionary principles could not operate to undermine that agreement. His Honour went on to say:

56 Parties to a contract may so frame their agreement that it does not encompass the whole of their business relations. Thus, a contract for work may not preclude a claim for additional work, under an implied contract or on a restitutionary basis, where the additional work is done "outside the contract" and in circumstances where the law would recognise a contract to pay for it or impose a restitutionary obligation to similar effect. But merely because the work differs from that contracted for will not suffice, even if delivered to the plaintiff or performed upon the plaintiff's land (see Liebe v Molloy [1906] HCA 67; (1906) 4 CLR 347 at 353-5; Steele v Tardiani [1946] HCA 21; (1946) 72 CLR 386 at 402).

34. This part of his Honour’s decision recognises that the principles of restitution may apply to enable a builder to recover payment for work “outside” a contract provided the circumstances are such that the law would impose a restitutionary obligation to similar effect as a Liebe implied contract. His Honour said that the mere fact that the work carried work which was different was not, of itself, sufficient to recover payment on restitutionary principles; something more was required. His Honour said:

Exactly what extra must be demonstrated before a restitutionary claim will lie is a matter of some controversy. Different positions are adopted depending on how essential one regards the need for the defendant's "benefit" to be established as an element in a restitutionary cause of action.

35. The New South Wales Court of Appeal had considered that issue in the context of a building contract involving variations in Update.

36. In Update, a builder wanted to be paid extra for variations carried out under a building contract. The contract required the builder to give notice, and then for the principal to give instructions before the additional costs could be added to the contract sum. The builder had not given the required notice before proceeding with the works. However, the work had been authorised by the architect.

37. Mason P provided an analysis of the significance of Update in Trimis. His Honour said:

58    The Court held that the work claimed for was work "within the contract" with the consequence that the contractual regime stipulated in clauses 6 and 8 governed the matter. Since, however, the architectural agent had acquiesced in the builder's proposals for variations without the requirement of written notice which led the builder to continue to its detriment with the work without complying with its formal contractual obligations, the proprietor was estopped from relying upon the requirement for written notice. The notice requirement thus being sidestepped, clauses 6 and 8 were worked out according to their terms.

59    In this context, Priestley JA (with whom Samuels JA concurred) considered the circumstances in which the builder could sue off or outside the contract. He held that a claim on an indebitatus assumpsit for quantum meruit was not available when a valid and enforceable contract, on foot between the parties, governed the situation between them. I have already indicated why this is the application of a fundamental principle of the law of restitution.

60    Priestley JA (at 271-2) discussed the early High Court decision of Liebe v Molloy, a case which (like the present) involved a claim for extras for which there was no order in writing in the context of a lump sum written contract that stipulated that such claims should be disallowed. The High Court held that if the proper inferences for the facts were (i) that the employer had actual knowledge of the extra works as they were being done, (ii) knew that they were outside the contract and (iii) knew that the builder expected to be paid for them as extras then a contract to pay them could properly be implied. If however the fact was that the owner did not know the particular works were extras or did not know or believe that the builder expected to be paid for them, then it would be proper to conclude that no contract to pay for them should be implied. In the light of those considerations, Griffith CJ (who gave the judgment of the Court) said (at 354):

“When a man does work for another without any express contract relating to the matter, an implied contract arises to pay for it at its fair value. Such an implication arises from an express request to do work made under such circumstances as to exclude the idea that the work was covered by a written contract. So it would arise from the owner standing by and seeing the work done by the other party, knowing that the other party, in this case the contractor, was doing the work in the belief that he would be paid for it as extra work...”

61    Priestley JA continued (at 272):

“One point which seems to me to be basic to the decision in Liebe is that if the work claimed for had been work required by the contract to be done, then the builder could not recover for it, because he had not complied with the contractual requirements. If however the work was work which the builder was not required to do by the contract ("outside the contract" in the words of the High Court) then, if certain further facts were found, the builder could recover. It may be that the basis of such recovery would these days be referred to ideas of restitution rather than implied contract.

62    His Honour pointed out that if the work in Update Constructions was "outside the contract" in the restricted sense in which the term was used in Liebe, then it would be irrelevant that the contractual requirements of notice and instructions did not occur. He then applied these principles to the particular contract and the claims in issue (see at 273-4).

63    The third member of the Court (Kirby P) considered that Pavey v Matthews meant that the builder's entitlement to have its claim considered on a restitutionary basis was "not liable to be defeated by the terms of the written contract or the statute" (at 262). I confess to some difficulty in understanding the meaning or scope of this remark in a context (like the present) where the statute does not render the contract unenforceable in its entirety. In the light of the principles stated earlier in this judgment I find myself content to follow the guidance of the majority in Update Construction to the extent that it may be at variance with the views of Kirby P.

38. The application of these principles to the facts in Trimis resulted in the Court finding that the builder was not entitled to recover for the variation claims which the trial judge had allowed. The Court came to this conclusion on the basis that:

1. the variations were not authorised in writing as the contract had stipulated; and

2. the trial judge had made no specific findings that:

1. the owners agreed to pay extra for the variations;

2. the variations cost the builder more than contractual performance; or

3. the owners received any benefit additional in value to that contracted for.

39. In other words, the result in Trimis came out of the Court not being satisfied that the principles explained by Priestley JA in Update had been established on the facts, and particularly because there had been no finding that the owner knew that the builder expected to be paid extra for the variations.

XU v JINHONG

40. The Builder and the Owners both rely on Xu.

41. That case concerned proceedings in which a builder sued to recover payment under personal guarantees where the owner was in liquidation. The question of the builder’s quantum meruit entitlement to payment for oral variations arose because the guarantors argued that the guarantee only covered variations in writing. Basten JA held that payment for work which the owner required pursuant to an oral instruction did not constitute a “variation” within the meaning of the building contract. The building contract there defined a “variation” as something that occurred which the contract “deemed” a variation, or where the builder and the owner agreed in writing to be a variation. His Honour recognised that the issue of whether the oral variations could be recovered on the basis of quantum meruit claim was an “open question”. His Honour said (with added underlining for emphasis):

21   …payment for work required to be done pursuant to oral instructions, not constituting a “variation” within the meaning of clause 17, will not be moneys agreed to be paid by the owner “under the contract”…They may constitute moneys which are payable pursuant to a quantum meruit entitlement in the builder arising under the law, and not by way of agreement. It is not necessary to determine this last point.

…

25    The grammatical structure of s 6 is awkward: the "undertaking to do residential building work" referred to in s 6(1)(b) must be the undertaking which arises as a result of the chapeau to the subsection, taken together with paragraph (a). The "contract" referred to in the chapeau must be the agreement pursuant to which residential building work is undertaken. If any work is to be given to paragraph (b), the term "contract" in the chapeau must apply to an agreement to vary the scope of the undertaking identified in the principal contract. Accordingly, I agree with Macfarlan JA, that the requirements in respect of such a contract, in particular the requirement of writing in s 7(1), must apply to the contract to vary the undertaking to do residential building work, including a variation provided for by the original contract.

26 I agree with the analysis given by Sackville AJA of the judgments of this Court in Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251. As explained by Priestley JA, the reasoning of the arbitrator in that case, referring to work done "outside the contract", was to be understood by reference to the judgment of Griffith CJ in Liebe v Molloy [1906] HCA 67; 4 CLR 347 at 354. The language of "implied contract" used in Liebe v Molloy is also ambiguous, although the ambiguity did not matter prior to statutory provisions rendering oral agreements unenforceable.

27 The respondent drew attention to the following passage in the judgment of this Court in Zhao v Goodman [2010] NSWCA 2 at [142]:

"I would be inclined to reject any submission by the respondents that a variation of that contract was unenforceable by the appellant by virtue of s 10(1) of the [Home Building] Act because it was not in writing. I would also doubt that any such variation was irrecoverable for non-compliance with clause 12 of the Home Building contract where otherwise it was agreed by the parties that the work was to be, and was in fact, performed."

28 It is clear that these remarks were obiter and did not form part of the decision. In relation to the first sentence, there was no analysis of the scope or operation of s 10(1), nor any discussion of the operation of s 6(1), and in particular paragraph (b), from which a contrary view might follow. Further, there was no consideration of the operation of s 7E, which must be read with cl 12 and Schedule 2, Part 1, item 1 of the Home Building Regulation 2004 (as in force for the purposes of this agreement). The effect of s 7E is that, where a regulation requires that a contract contain a clause in prescribed terms, it is taken to include that clause, and any term inconsistent with that clause is unenforceable. Clause 12 of the Regulation requires that certain conditions are included in contracts, as provided by Schedule 2; Schedule 2, cl 1 requires that all plans and specifications for work to be done under a contract are taken to form part of the contract and continues:

"(2)    Any agreement to vary this contract, or to vary the plans and specifications for work to be done under this contract, must be in writing signed by or on behalf each party to this contract."

29   It would follow that a residential building contract cannot permit a variation which is not in writing. An oral variation which would itself involve residential building work cannot be enforced as a separate contract because that contract would not be in writing. The tentative view set out in the first sentence of the passage cited from Zhao is not correct.

30   Reference in the second sentence of the passage cited from Zhao to whether "such variation was irrecoverable" is presumably a reference to the question whether an amount payable in respect of work done pursuant to such a variation is unable to be recovered in any circumstances. The possibility of recovery, not under the contract, but by way of quantum meruit, remains open: Home Building Act, s 11.

42. Macfarlan JA dealt with the oral variation issue in Xu in paragraphs [105] – [106]. In doing so, his Honour considered the claim for payment for the oral variations was based on unjust enrichment, rather than the building contract. The Builder says that Macfarlan JA’s judgment is strongly supportive of the Builder’s position because his Honour accepted that a quantum meruit entitlement existed where a contract stipulated that variations were to be in writing. His Honour said:

105   Section 6(1)(b) of the Act in my view clearly indicates that the requirement of writing imposed by s 7 applies to variations , as here, of the ambit of the residential building work. The breadth of operation of s 6(1)(b) is indicated by the fact that it is expressed to apply to the variation of "any such undertaking to do residential building work ... or the way in which any such work is to be done" and not simply to the variation of the contract under which such undertaking is given. This supports the view that the subsection operates on an agreement to change the nature or quantum of building work even if that is made under a provision of the building contract dealing with variations in the work and does not involve a variation of the building contract itself. To construe the subsection otherwise would be to render it largely inoperative.

106 In these circumstances the Builder can have no claim in contract against the Owner in respect of the oral variations to the building work. Nevertheless it is likely to have (or have had) a quantum meruit claim to recover the value of the work done in pursuance of the oral variations (Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221). A claim of that type is one to restitution or one based on unjust enrichment and is not based upon the existence of an implied contract (Lumbers v W Cook Builders Pty Ltd [2008] HCA 27; (2008) 232 CLR 635 at [83] - [84]).

BUILT INTERIORS

43. Built Interiors involved a claim for payment of variations under a building contract that defined “variations” in substantially similar terms to the Contract here. The claim which the Court had to consider there was a progress claim which included payment for work which the builder had allegedly done, but which had not been the subject of any prior written instruction or approval, as the contract required.

44. The builder accepted that it did not have any direct entitlement to payment for the alleged work under the contract, and that any contractual liability depended on the builder proving that:

1. the contract had been varied by oral or undocumented arrangements that did not comply with the contractual regime for variations; and

2. the additional work claimed as constituting a variation had, in fact, been requested and done and it was worth what the builder was claiming.

The builder also put forward an alternative quantum meruit claim.

45. The builder lost at trial and appealed the decision. In rejecting the builder’s appeal Mason P, with whom Meagher JA and Ipp JA agreed, said:

53 The Builder bore and assumed the difficult task at trial of establishing either that the Contract had itself been varied so as to permit contractual recovery on a different basis; or that restitutionary principles permitted the Builder to sue off the Contract. As I understand it, the Builder contended that a contractual variation, and/or unjust enrichment giving rise to a restitutionary claim, occurred every time an individual "Variation" was actually agreed upon and the necessary work done. This was in the context where the formal Contract continued in force as the framework for regulating the parties' rights during construction work and its aftermath, including the proceedings litigated in the District Court. This was a difficult task, all the more so because no question of repudiation or acceptance thereof was ever raised (Liebe v Molloy [1906] HCA 67; (1906) 4 CLR 347; Brooks Robinson Pty Ltd v Rothfield [1951] VicLawRp 58; [1951] VLR 405 at 409; Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251; Trimis v Mina [1999] NSWCA 140 (1999) 16 BCL 288).

54   The Builder's evidence was completely unmatched to any claim that the contract had been varied and the trial judge was correct to reject the alternative restitutionary claim (Red 181-2). The type of work involved in the disputed variations claims was very much part and parcel of the overall project. There was nothing to indicate that at any time the parties moved away from viewing the Contract as the complete framework by which their legal rights would be governed. Some of the items may well have qualified as "Variations" within the definition in Clause 1.2, but the procedural stipulations in Clause 6.7 had not been complied with. This offers no basis for the Builder ignoring the contract (by suing in restitution) and leaves the Builder far short of proving a case of contractual variation.

55   The Builder faced additional hurdles. Assuming that it was open for it to ignore Clause 6.7, the Builder could only recover additional recompense, either in contract or restitution (assuming availability), if it could show that:

.   work was done that went beyond the contractual works;

.   this was done at the request of the Proprietors (the possibility of "free acceptance" within restitutionary principles was never put into the ring); and

.   that work had a proven cost and/or value.

56   For many "variation" items there was simply no attempt to grapple with these matters. For others, the attempt was half-hearted or unsuccessful.

57   The trial judge dealt with this essential part of the Builder's case in the following terms (Red 182-3):

As to whether the Plaintiff should be entitled to recover for the unapproved variations upon a quantum meruit, or unjust enrichment basis, I am of the opinion that the evidence in the Plaintiff’s case lacks sufficient cogency to enable the court to conclude that the amounts claimed represent both variations to the contract and also reasonable and proper sums for the carrying out of such variations. The evidence of Mr Bath, in relation to these matters was, in my opinion, vague and unsatisfactory and did not provide a proper basis for the conclusions contended for by the Plaintiff.

Moreover, as it seems to me, the law does not permit recovery on a quantum meruit, or unjust enrichment, basis where there is, between the parties, as there was in this case, an existing and enforceable contract, which covers the situation. In my opinion, the amount claimed in respect of unapproved variations relates to works performed within the scope of the contract in order to complete that which was contracted for. In so far as the claims, in truth, constituted "variations" as defined, then the contract provided for the authorisation of such variations, for the valuation of the work done, and for the resolution of disputes. That being so, there is no room for the application of principles of quantum meruit or unjust enrichment (Pavey and Mathews Pty Ltd v Paul [1987] HCA 5; 162 CLR 221 and Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251, especially Priestley JA a t 275).

58   In my view these conclusions were entirely justified in light of the evidence and the legal principles to which his Honour refers.

46. The builder lost the appeal because it did not establish that the claims involved work “outside the contract” in the sense discussed by Priestley JA in Update and Mason P in Trimis. It had not satisfied the trial judge that the work in issue was “extra”, or that the owner had asked for it, and the Court of Appeal considered the trial judge’s findings as correct on the evidence.

BRADSHAW

47. The Appeal Panel decision in Bradshaw did not have to consider whether a builder’s claim to recover payment for work on a quantum meruit entitlement was shut out because the contract contained a variation regime.

48. There was no issue on appeal as to the builder’s entitlement to recover any payment for work on a quantum meruit basis. The issue concerned the findings made as to the quantification of the builder’s claim.

Summary of the Caselaw

49. In summary, the caselaw establishes the following propositions:

1. work that a builder is not required to do under a building contract is work “outside the contract”;

2. if a builder does work “outside the contract” the builder is entitled to recover payment for that work either on the basis of an implied contract or equivalent restitutionary principle in unjust enrichment, so long as the reasonable inference is:

1. the owner had actual knowledge of the extra works as they were being done;

2. the owner knew that the works were outside the contract; and

3. the owner knew that the builder expected to be paid for them as extras

The evidence

50. At the hearing, the Builder relied on:

1. a folder containing the Contract, the Quotation, the plans and engineering drawings (Ex C4);

2. the undated statement by Mr Kyriakos Kostopoulos, attachment 3 to the Points of Claim (Ex C1)

3. a number of invoices attached to Mr Kostopoulos’ statement being tabs 4 to 30 of the Points of Claim; and

4. the affidavit of Mr Kostopoulos sworn 28 August 2017, tendered and marked Ex C2 on the second day of the hearing (Ex C2);

5. the affidavit of Mr Kostopoulos sworn 20 September 2017, tendered and marked Ex C3 on the second day of the hearing (Ex C3);

6. an invoice tendered as a payment claim (Ex C5); and

7. the email sending the Owners a tax invoice and the invoice attached (Ex C6).

51. The Owners relied on:

1. the Todarello Report (Ex R1);

2. the affidavit of Mr Vellios sworn 12 July 2017 (Ex R2);

3. the affidavit of Mr Vellios sworn 4 August 2017 (Ex R3);

4. the affidavit of Mr Vellios sworn 11 October 2017 in response to the affidavit of Mr Kostopoulos’ September 2017 affidavit (Ex R4).

52. Mr Todarello, Mr Kostopoulos and Mr Vellios each gave oral evidence and were cross-examined at the hearing.

The Builder’s claim determined

VARIATION 1 – EMERGENCY CALL OUT WORKS

53. The Owners accept that Mr Kostopoulos arranged for a plumber to attend the Residence because Mr Vellios asked for the Builder’s assistance in carrying our urgent repairs to a water meter which was damaged during excavation works on site. The excavation had been arranged by the Owners.

54. Under clause 14(b) of the Contract, a “variation” under the Contract is one “established” by a “written instruction from the Owners”. The Tribunal construes this to mean that the Builder’s obligation to carry out variations under the Contract was limited to variations instructed in writing by the Owners.

55. The Builder did not have a contractual obligation to carry out work for the Owners where the Owners either chose not, or neglected to:

1. instruct the Builder in writing; and

2. to detail the variation in writing

(clauses 14(b), 14(c) and 14(d)(i) of the Contract).

56. There was no written instruction from the Owners for the emergency repair works. The Builder did that Work for the Owners at their request. In these circumstances, the Tribunal finds that Mr Vellios’ request for the emergency repair works did not constitute a “variation” established under the Contract, but related to work that the Builder was not obliged to carry out under the Contract. It follows that this was work which was “outside the contract”.

57. The Owners submit that the Tribunal should reject Variation 1 because the Builder did not establish that the Owners knew or believed that the Builder expected to be paid for the emergency repair work. They say that the Tribunal should make this finding because the Builder only raised a claim for payment for this work in the Builder’s Application, and was not referred to in a breakdown of the Builder’s costs provided to the Owners dated 17 December 2015 (Exhibit R3, Annexure F) (the Breakdown) or the Builder’s “final invoice” for payment (Exhibit C5) (the Payment Claim).

58. The Builder’s agreement to do the work the Owners orally instructed the Builder to carry out does not create the inference that the Owners expected not to pay for that work. The contrary inference is the more likely and reasonable. The Owners understood that the only agreement that they had with the Builder was for the Builder to do what the Builder was obliged to do under the Contract. A request for services from someone whose business is to charge for services, normally results in the expectation that the person will charge and the requesting party will pay. Here, the Owners expected to pay the Builder for the work it was doing for them.

59. The Tribunal rejects any suggestion that the Owners believed the Builder was not going to charge them for arranging the urgent repair of a damaged water meter, where that work had not been priced as part of the scope of work which the Builder agreed to carry out for the Contract Sum. The fact that the Builder did include this item in either the Breakdown or in the Payment Claim does not matter.

56. The Owners say that the Builder has not established the nature or the reasonable value of the works performed, “other than an assertion that it was $1,200.00”. The Tribunal rejects that submission.

57. At the hearing, the Owners informed the Tribunal and the Builder that they accepted the quantum of this claim, and that only the Owners’ liability to pay for the work in question was in issue.

58. The Tribunal does not permit the Owners to resile from their stated position at the start of the hearing. They give no explanation for seeking to depart from that original position, and put forward no specific submission as to why the Tribunal should allow them to do so. The hearing was conducted on the basis that the quantum of the Builder’s claim was not in issue. The Builder would understandably have conducted its case on the issues as ventilated at the start of the hearing. In any event, the Tribunal accepts that the Builder’s claim is established by the tax invoice from Buranis Plumbing Service dated 5 July 2014, on which the Builder relied. The Tribunal finds the Builder is entitled to recover payment from the Owners in the amount of $1,200.00 for Variation 1.

VARIATION 2 – EXCAVATION WORK

63. Page 3 of the Contract (Tab 1 of Ex C4) lists drawings prepared by Urban Style Design as contract documents. Those drawings depict the construction of the footings and basement slabs. These infer the requirement for both detailed and bulk excavation to build the footings and slabs.

64. The Owners submit the Builder’s work included the detailed excavation, and the Owner assumed responsibility for the bulk excavation. That does not appear on the face of the Contract. The Owners submit the Contract excluded bulk excavation work, but not detailed excavation work (Schedule 3(b)), and that accordingly the Builder has not established that:

1. the claim for Variation 2 was work done outside the Contract, in the relevant sense; and

2. that the Owners knew, or believed, that the Builder expected to be paid for the work, considering that the first time it was raised was in the Builder’s Application, and it was not raised in the Breakdown or in the Payment Claim.

65. The Builder submits that the Owners fail to grapple with why the Tribunal should construe the Contract as including part of the excavation only. The Builder reconciles the position in a simple way. It submits that:

1. the Quotation sets out the scope of the Builder’s work;

2. excavation was not mentioned as an element of the works in the Quotation at all;

3. therefore, all excavation work was outside the Builder’s scope of work under the Contract; and

4. the Builder took over the detailed excavation because it was asked to do so by Mr Vellios.

66. The general principles that apply in construing a contract are these:

1. the subjective beliefs or understandings of the parties are not relevant in the interpretation of a contract. The meaning of a contract or a term must be determined objectively. One asks what a reasonable business person would have the clause to mean based on:

1. a consideration of the language used by the parties;

2. the surrounding circumstances objectively known to them; and

3. the commercial purpose or objects to be secured by the contract; and

2. a tribunal will not permit departure from the ordinary meaning of the words used by the parties merely because the Court regards the result as inconvenient or unjust. If, after considering the contract as a whole, and the circumstances known to the parties, the tribunal concludes that the language of a contract is unambiguous, the tribunal must give effect to that language, unless to do so would give the contract an absurd operation.

67. French CJ, Nettle and Gordon JJ conveniently summarized the correct approach in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 as follows (omitting the citations and other references):

[46]   The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47]   In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48]   Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49]   However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

[50]   Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

[51]    Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".

68. The Owners take the Contract and do not consider the discussions which took place before the parties entered into it. They point to Schedule 3(b) of the Contract. They submit that this set out specific works shown on the drawings which the Builder specifically omitted, and that everything else shown or inferred as being required on the drawings was included in the Builder’s scope of works. The specific omissions mentioned in the Schedule are:

1. “air-conditioning”;

2. “PC items”;

3. “Tiles”;

4. “Landscaping”;

5. “Light fittings”;

6. “Appliances”; and

7. “External mouldings”.

This list of exclusions reflected what the Quotation expressly said was not included within the Contract Price. However, Part (c) of Schedule 3 of the Contract provided for the parties to identify the documents identifying the Builder’s work. It said: “As per documents attached”. The Tribunal takes this to be a reference to the Quotation.

69. The first page of the Quotation relevantly said:

Thank you for allowing us the opportunity to quote you for the works which are to be carried out…A brief description of the works is outlined as follows:

…

• Concrete

• ...

• Reinforce and pour new concrete footings as per engineering plans

• Form/Reinforce/Pour new concrete slabs to basement floor, ground floor and first floor.

• …

70. The Quotation provided for the construction of the footings and slabs, and the Owners say that the requirement for the Builder to construct the concrete footings and slabs for the Residence obliged the Builder to do the detailed excavation required for the completion of that part of the Builder’s scope of works. The Engineering drawings were tendered but were not contractual documents (Tab 4 of Ex C4). They provide details of the structural design of basement slab and footings. The nature and extent of the required excavation is not evident to the Tribunal on the face of these documents, and there is nothing to indicate which party was responsible for the excavation.

71. At the end of the day, it is necessary to go back to the Quotation to determine the scope of the Builder’s works. The brevity of the description of the Builder’s work in the Quotation, where the Contract states the Quotation provides the description of the work the Builder had to carry out, means that the Contract is sufficiently ambiguous or unclear to justify the Tribunal’s consideration of the surrounding circumstances to understand what the parties objectively understood the scope of the works to be.

72. The fact that the Builder was instructed to do detailed excavation, and the detailed excavation is not specifically referred to in the Quotation, does not automatically or necessarily mean that detailed excavation was “extra work” for which the Builder was entitled to be paid extra. It all depends on whether the parties agreed that detailed excavation, even though necessary for the construction of the footings and slabs, was something the Owners were to provide to the Builder.

73. Mr Kostopoulos rejected the suggestion that in preparing the Quotation he priced for the detailed excavation required for the construction of the Residence’s footings and slabs. Mr Kostopoulos gave evidence that he and Mr Vellios spoke about the need for the Builder to price for any excavation in the period before the Contract. Mr Vellios informed him that he should not include excavation in the Quotation because Mr Vellios’ uncle would carry out that work. At about the beginning of July 2014, Mr Vellios informed Mr Kostopoulos that the Builder should take over the excavation “as he was sick of dealing with his contractor”. Mr Kostopoulos’ sworn evidence was that:

I advised Mr Vellios that it was better for me to take over if he was not happy with the contractor as he may even excavate the footings incorrectly and we still may need to correct them.

74. The Tribunal accepts Mr Kostopoulos’ evidence as a credible and reasonable account as to why the Builder took over the detailed excavation works, and why the Owner assumed the responsibility for the bulk excavation works.

75. As in the case of Variation 1, the Owners submit that the Tribunal should reject Variation 1 because the Builder has not established that the Owners knew, or believed that the Builder expected to be paid for the detailed excavation. They say that the absence of any claim for the excavation in the Breakdown and in the Payment Claim is determinative that the works were regarded by the Builder as part of the original scope of works under the Contract. The Tribunal disagrees.

76. The issue remains whether:

1. the detailed excavation was work which the Owners asked for, which was originally outside the terms of the Contract;

2. the Owners accepted the benefit of the detailed excavation, where originally the Owners had assumed responsibility to do it;

3. the detailed excavation work was carried out at the Builder’s expense; and

4. it would be unconscionable for the Owners to have received the benefit of that work without making payment for it.

77. The Tribunal finds the Builder has proven each of these elements. Once it is accepted that the excavation work was not originally within the Builder’s scope of works under the Contract, the absence of any written instruction or written agreement to reflect Mr Vellios’ request, takes the excavation outside the Contract, for the reasons referred to in relation to Variation 1. Its absence from the Breakdown and the Payment Claim does not change its proper characterisation.

78. The Tribunal does not accept that the Owners failed to appreciate that the Owners did not expect to pay for the detailed excavation. Again, Mr Vellios’ request for the Builder to assume responsibility for the detailed excavation was a request made in the context of an existing building contract which obliged the Owners to pay the builder for work carried out on the Residence. In the circumstance, the Owners could not have reasonably anticipated that the Builder would do additional work on the Residence at no cost to them.

79. The costs are supported by the paid tax invoices of GPP Excavation & Demolition Contractors Pty Ltd in the amount of $13,882.00. The Tribunal finds the Builder is entitled to recover payment from the Owners in the amount of $13,882 for Variation 2.

VARIATION 3 - WINDOWS

80. The supply and installation of windows was included in the Builder’s scope of works as a provisional sum allowance in the amount of $60,000: item 11 of Schedule 2.

81. Clause 15(d) of the Contract relevantly said:

The sums listed at Item 11 of Schedule 2 are allowances. They are not guaranteed or lump sum amounts.

(b)   Where…provisional sum items are included in the contract price and works, the Owner must furnish to the Builder written directions regarding the selection and supply of the work and or goods represented by such sums in sufficient time to ensure that no delay is occasioned in the progress of the works…

…

(d)   In the event that the amount expended in respect of each…provisional sum item exceeds the amount allowed in Item 11 of Schedule 2 the Contract Price, the excess amount inclusive of GST, together with the percentage on the excess specified in Item 12 of Schedule 2, is to be added to the contract price. The price adjustment arising is to be properly adjusted to ensure that the correct amount of GST is paid by the owner.

82. The evidence establishes that:

1. Mr Vellios obtained quotations from B&W Windows and Nicco Joinery for the supply and installation of the windows;

2. Mr Vellios engaged the suppliers; and

3. the Builder paid for the contractors which Mr Vellios engaged.

83. The Owners submit that despite the evidence in paragraphs [11] to [17] of Mr Kostopoulos’ undated statement (Ex C1), the Builder has not established the actual cost of the windows was more than the provisional sum allowance for that work in the Contract.

84. Mr Kostopoulos said in paragraph [17] of Ex C1: “The additional cost for the purchase of the windows was $6,634”. There was no evidence to the contrary, and the Owners made clear at the hearing that they did not challenge the quantum of the claim, provided the Builder proved its entitlement to an additional payment.

85. The Tribunal is satisfied that the actual cost of the windows was $6,634.00 more than the provisional allowance in the Contract for this work. The Tribunal finds the Builder is entitled to payment of the amount of $6,634.00 for Variation 3.

VARIATION 4 – EXTRA SCAFFOLDING HIRE

86. Variation 3 is for costs associated with the Builder hiring scaffolding for the cement rendering of the Residence for longer than the Builder had allowed. This was due to a delay in the completion of the installation of the Residence’s windows by the window contractor selected by the Owners.

87. The Builder sent Mr Vellios an email on 18 February 2015 informing him that if the windows were not installed by 2 March 2015, there would be a delay and the Builder would have to charge additional expenses for scaffolding. On 23 February 2015, Mr Vellios wrote to B&W Windows acknowledging an obligation to pay for additional scaffolding costs if there was a delay to completion of the window installation beyond 2 March 2015.

88. The additional scaffolding costs meant that it cost the Builder more to complete the cement render works, than it otherwise should have cost. It may well be that as Mr Vellios took on the responsibility of nominating the window suppliers, he also assumed the obligation to comply with the Builder’s proposed construction for the completion of the cement render works. The Owners may have made the Builder’s work more expensive because the scaffolding was required for longer. They may have breached the Contract, or may have caused the nature and extent of the original works to be modified. However, this did not result in the Builder having to do additional work outside the Contract. The cement render work was required under the Contract. The additional scaffolding hire charge becomes an added incident to work under the Contract.

89. This is not a quantum meruit claim because it does not relate to work “outside the Contract” in any relevant sense.

VARIATION 5 - MOULDINGS

90. Mr Kostopoulos’ evidence on this claim is unchallenged. The Tribunal finds that:

1. external mouldings were excluded from the Builder’s scope of works;

2. the Owners’ requested the Builder to carry out the additional works which are the subject of this claim;

3. the claim for Variation 5 was work done outside the Contract, in the relevant sense;

4. the Owners knew or believed that the Builder expected to be paid for the work, for the reasons set out in the Tribunal’s determination of the earlier variation claims;

5. the Owners accepted the benefit of the external mouldings;

6. the work was carried out at the Builder’s expense; and

7. it would be unconscionable for the Owners to have received the benefit of that work without making payment for it.

91. Accordingly, the Tribunal finds the Builder is entitled to recover payment for Variation 5 on a quantum meruit basis in the amount of $12,048.89.

VARIATION 6 - JOINERY

92. Joinery was a provisional sum allowance for labour and materials in the sum of $90,000: item 11 of Schedule 2. Paragraph [54] of Builder’s written submissions deals briefly with the circumstances surrounding the actual costs for the joinery. The Tribunal accepts those submissions. The Owners accept the Builder is entitled to recover the amount by which the actual cost of the joinery exceeded the provisional sum allowance, being the amount of $12,520.00.

VARIATION 7 – FLOOR COVERINGS

93. Floor coverings were included in the Builder’s scope of works as a provisional sum allowance for labour and materials at a rate of $75 per square metre: item 11 of Schedule 2. The Owners say that the Builder’s reliance on paragraph [34] to [38] of Ex C1 does not establish that the actual cost of the floor coverings was more than the provisional allowance rate in the Contract.

94. On the proper construction of the Contract, the Builder had to prove to the Tribunal’s satisfaction that the actual cost of the flooring was more than the $75 per square metre. Mr Kostopoulos’ evidence includes a tax invoice from Hardwood Floors which proves that the Builder spent an amount of $18,480 including GST, in total, to supply and install American Oak tongue and groove flooring in the Residence. When one takes the square metre area of the Residence that the Builder allowed for when considering the supply and installation of the flooring (230 square metres x $75 per square metre), the total provisional allowance for flooring in the Contract becomes $17,250. The difference in the amount actually spent was $1,530.00.

95. The Tribunal rejects the Owners submissions. It finds the Builder is entitled to payment of the amount of $1,530.00 as a price adjustment for the extra over cost of the flooring supplied and installed by the Builder.

VARIATION 8 – TILE COPING

96. The Builder’s claim for Variation 8 depends on the Builder establishing that tiling was not part of the Builder’s original scope of works under the Contract, and therefore “outside the contract”.

97. The evidence of Mr Vellios establishes that the tiles in question are on the stairs leading into the backyard of the Residence. According to Mr Vellios, he considered the tiling to be included in the Builder’s scope of works as the area was a “walkable area”. Mr Vellios said that he was never informed at any time that the installation of the tile coping was work outside of scope of the Builder’s work.

1. that the Owners took occupation of the Residence before the Builder had actually finished construction, and that the Owners did so without the Builder’s consent;

2. the nature and extent of the Notified Items, and what a reasonable would have done in the circumstances;

3. how the Notified Items impacted on the amenity of the Residence; and

4. the fact that the Contract permitted the Owners to have the works completed or rectified by others if the Builder did not comply with its DLP obligations, but only after giving timely notice of an intention to do so, as the Builder submitted on this issue: paragraph [127] of the Builder’s reply submissions.

178. Secondly, the Tribunal does not accept that the Builder was prevented from completing the Notified List by the 31 January Email, and that the Owners excluded the Builder from returning to the Residence.

179. Having regard to all of the evidence, the Tribunal does not find that the Builder breached the Contract by failing to complete the Notified Items before 31 January 2016. However, the Tribunal does find that the Builder failed to rectify the Notified Items by not following up the 1 February Email, arranging suitable access to complete the Notified Items and rectifying and completing those works with a reasonable time.

180. The Notified Items are the following items in the Todarello Report:

1. the sealing of the windows, staircase and all joints, being items 6.23, 6.25, 6.27, 6.32, 6.33, 6.39, 6.40, 6.41, 6.45, 6.47, 6.52, 6.54, 6.60, 6.64, 6.65, 6.70 and 6.77 in the Todarello Report (the Sealing Items);

2. the grouting for the electrical room which is item 6.4 in the Todarello Report (the Grouting Item);

3. the cleaning of the windows which is item 6.51 in the Todarello Report (the Window Item);

4. the touching up of the external render, being items 6.10, 6.11, 6.18, 6.26 and 6.31 in the Todarello Report (the Render Items); and

5. the rectification of the cavity sliders, being item 6.67 of the Todarello Report (the Cavity Slider).

181. By reference to the Todarello Report, the Tribunal finds that the cost of making good the Notified Items to the Owners would be $5,883.19 including GST comprising:

1. $4,188.50 for the Sealing Items being $3,411.00 including GST plus 25% margin in the amount of $777.50 for those items:

2. $195.94 for the Grouting Item being $156.75 including GST plus 25% margin in the amount of $39.19 for that item:

3. $783.75 for the Window Item being $627 including GST plus 25% margin in the amount of $156.75 for that item; and

4. $715 for the Cavity Slider being $572 including GST plus 25% margin in the amount of $143 for that item.

THE OTHER DEFECTIVE ITEMS – UNKNOWN ITEMS

182. Mr Todarello’s first inspection of the Residence on 28 April 2016. This was less than 2 weeks before the DLP expired. A first report issued. Mr Todarello then had a “follow up” inspection on 7 June 2017. This was after the DLP had expired. The Todarello Report (Ex R1) modified the first report by the inclusion of a number of items, shaded in Part 6 of the Todarello Report, that were not seen by Mr Todarello during his first inspection, but were seen by Mr Todarello at the “follow up” inspection (the Shaded Items).

183. The reasonable inference is that the Shaded Items had not emerged before the DLP expired on 9 May 2016, but became evident afterwards. These items were

1. item 6.43;

2. item 6.62;

3. item 6.63;

4. item 6.79;

5. item 6.80;

6. item 6.81; and

7. item 6.82.

184. The Builder’s liability resulting from a breach of the s 18B warranties continued beyond the expiry of the DLP. Based on the expert evidence of Mr Todarello, the total cost of rectifying the Shaded Items to the Owners would be $7,657.75 calculated as follows:

1. $1,828.75 for the foyer linen closet doors referred to in item 6.43 of the Todarello Report, being $1463 including GST plus 25% margin in the amount of $367.75;

2. $825 for the cracking in the cornices of bedroom 1 referred to in item 6.62 of the Todarello Report, being $660 including GST plus 25% margin in the amount of $165;

3. $825 for the cracking in the render in bedroom referred to in item 6.63 of the Todarello Report, being $660 including GST plus 25% margin in the amount of $165;

4. $1,830.75 for the kitchen defects referred to in item 6.79 of the Todarello Report, being $1463 including GST plus 25% margin in the amount of $367.75;

5. $1,017.50 for the first floor foyer defects referred to in item 6.80 of the Todarello Report, being $814 including GST plus 25% margin in the amount of $203.50;

6. $1,017.50 for the fencing defects referred to in item 6.81 of the Todarello Report, being $814 including GST plus 25% margin in the amount of $203.50; and

7. $316.25 for the fencing defects referred to in item 6.81 of the Todarello Report, being $253 including GST plus 25% margin in the amount of $63.25.

UNNOTIFIED ITEMS

185. This leaves the following items referred to in the Todarello Report: items 6.1 to 6.3, items 6.6 to 6.8, items 6.12 to 6.16, item 6.19, items 6.21 and 6.22, item 6.24, items 6.28 to 6.30, items 6.36 to 6.38 (item 6.34 was not pressed by the Owners), item 6.42, item 6.44, item 6.46, item 6.48, item 6.50, item 6.53, item 6.55 to 6.56, item 6.59, item 6.61, item 6.66, item 6.68, items 6.71 to 6.76 and item 6.78 which were not notified to the Builder during the DLP (the Unnotified Items). Mr Vellios accepted that the Owners were aware of the existence of the Unnotified Items “shortly after” Mr Todarello’s 28 April 2016 inspection.

186. The Builder’s submission is that the reasonable inference is that the Owners must have been aware of the existence of the Unnotified Items before the end of the DLP, and the Owners chose not to give the Builder written notice of their existence as required under clause 24(b) of the Contract or to give the Builder the opportunity to carry out the necessary work or as required under clause 25(b)(i) to allow the Builder to “review” the work in question. The Builder’s submission is that consequence of the Owners’ failure to notify the Builder of the Unnotified Items is to prevent the Owners from successfully pursuing any claim for compensation for those items against the Builder.

187. On a proper construction of the Contract, the obligation in clause 25(b)(i) of the Contract was to give the Builder an opportunity to “review” any matter of concern raised by the Owners. The opportunity to “review” and the obligation for the owners to provide access during the DLP were different obligations. The Builder’s contractual entitlement to return to the Residence to rectify defects and omissions in the Builder’s work expired when the DLP expired, and therefore did not extend contractually to the Unnotified Items if they were not evident to the Owners before the expiry of the DLP.

188. It is not possible for the Tribunal to lay down in words any scale or standard by which the Tribunal is to measure the degree of proof which will satisfy the Tribunal on any particular conclusion of fact. Relevant to the present issue, namely the knowledge of the Unnotified Items to the Owners before 9 May 2016, it was for the Builder to prove the Owners knew the Unnotified Items existed, and that the Owners breached their obligation under clause 24(b) of the Contract by failing to give the Builder the written notice required under that clause. This does not mean that the Builder could only prove this only by clear and direct evidence. This could be established by inference, but the inference has to be the more probable conclusion: e.g. Lord Loreburn’s judgment in Richard Evans v. Astley [1911] AC 674 at 678.

189. The Builder points to Mr Vellios’ evidence of knowledge of the Unnotified Items “shortly after” 28 April 2016 as making it more probable than not that the Owners knew about the Unnotified Items before the end of the DLP. Having regard to the brief period of time between Mr Todarello’s inspection and the end of the DLP, the statement “shortly after” may just as probably have been after 9 May 2016. The Builder had to establish the breach of the Contract and the Tribunal is not satisfied on the evidence that the Owners knew about the Unnotified Items before, rather than after, the end of the DLP.

190. The Builder relies on the Builder’s suspension of works to justify why the Builder should not be held liable for the Builder’s breach of the Contract in failing to carry out the construction of the Residence in conformity with the s 18B warranties, but the Tribunal has already rejected that submission. The Builder further says that the Owners breached the Contract by not providing the Builder with access to rectify the Unnotified Items. That submission must be rejected:

1. the obligation to provide access related to defects known during the DLP. The Builder has not established the Unnotified Defects were known to the Owners before the expiry of the DLP;

2. the Tribunal has rejected the submission that the Owners refused the Builder access, in any event; and

3. even if the Owners had breached the Contract by indicating that they would not provide the Builder access to rectify the Unnotified Items, the Owners did not prevent the Builder from complying with its contractual obligations:

1. the Builder was not going to return to do any work without the Owner making an “up front” payment of 95% of the Payment Claim; and

2. the Builder considered that was entitled to suspend work because the Owners had refused to pay the Builder the Payment Claim as the Builder had demanded.

191. The Builder relies on Bittannia Pty Ltd v Parkline Constructions [2009] NSWSC 1302 (Bittania) to submit that the Owners’ breach of the Contract had the consequence that the Owners can only recover the amount that it would have cost the Builder to deal with the Defective Items, rather than recover the amount referred to in the Todarello Report. In Bittania:

1. the contract entitled (and obliged) the builder to rectify defects notified to it during the defects liability period, as the Contract does here;

2. Cole J held that the builder was entitled to make good notified defects in accordance with its entitlement and obligation in the contract, as is the case here;

3. the principal there had prevented the builder from doing the necessary work, but the Tribunal has already rejected that submission by the Builder; and

4. as the builder or its subcontractors would have carried out the necessary work, the principal’s entitlement for the builder’s breach of its obligation to do the work properly was limited to what it would have cost the builder to rectify the defective work.

192. There are therefore critical differences between the circumstances in Bittania and the present case.

193. The Owners submit s 18G of the HB Act is also relevant in preventing the Builder from making anything of the Owners’ failure to notify the Builder of the existence of the Unnotified Items, even if the Owners were aware of the existence of the Unnotified Items before the DLP expired. The Builder meets that submission by relying on in paragraph [81] of White J’s decision in Bittannia to submit that s 18G of the HB Act does not assist the Owners. His Honour said there:

...if the defective work was included on one of the lists given by the architect pursuant to clause 6.11, [the Builder] was both obliged and entitled to do the work. It is one thing to say thats 18G precludes the plaintiffs from being compelled to follow the procedures in clause 6.11 in the case of a breach of a statutory warranty. It is another to say that the section enables the plaintiffs to ignore the procedures in clause 6.11 once they have been invoked.

194. The Builder’s argument is that the Owners “invoked” the DLP regime by sending the Builder the Notified List and further by providing the Builder with the Todarello Report. It may be accepted that the Builder had a contractual entitlement to rectify the Notified Items, and the Tribunal accepts that s18G of the HB Act would not deprive the Builder of that entitlement in relation to any defects that were notified. The issue here concerns items that were not notified. The Tribunal has found that the evidence does not prove the Owners were aware of the existence of the Unknown Items and the Unnotified Items during the DLP, and accordingly they did not “invoke” the provisions of the Contract in regard to those items.

195. The Tribunal finds that even if the Owners were aware of their existence of the Unnotified Items during the DLP, and did not give the Builder written notification of their existence before the expiry of the DLP, that omission does not bar the Owners from pursuing a claim for compensation for the costs of rectifying errors and omissions in the Builder’s work which are the result of the Builder’s breach of the s 18B warranties.

196. The cost of making good the Unnotified Items are quantified in the Todarello Report in the amount of $13,921.87 made up as follows: $10,125.00 costs of the works plus GST of $1,012.50 plus 25% builder’s margin of $2,784.37.

RECTIFICATION ORDER

197. Section 48MA of the HB Act states:

48MA Rectification of defective work is preferred outcome in proceedings

A court or tribunal determining a building claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome.

198. The Tribunal has a discretion under s 48 O(1) of the HB Act. This allows the Tribunal to make an order for compensation, an order in the nature of a work order or some other order of the type set out in the section: Leung v Alexakis [2018] NSWCATAP 11 (Leung) at [139]. The application of s 48MA is almost presumptive. The Tribunal would tend to make a rectification order "unless the facts of a particular case make it inappropriate to order rectification of the defective work by the responsible party, an order should be made in terms that give effect to the principle": Leung at [140].

199. According to Leung, as further discussed by the Appeal Panel in Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23, there is considerable guidance to be found on the way that s 48MA is intended to operate in the Minister of Fair Trading’s Second Reading Speech which introduced the relevant amendment:

1. a homeowner should not to be permitted to unreasonably refuse a builder access to a building site to rectify defective work;

2. s 48MA was intended to ensure that, at least, builders who were liable to a person for defective work, should be able to return to carry out necessary rectification work if they are willing; and

3. the amendments were to "further support the timely and cost-effective resolution of disputes"; and

4. s 48 MA is to operate as a preference, not an absolute right. It was introduced to prevent unreasonable refusal of a homeowner to permit access to a building site to a builder who was willing to carry out rectification work.

200. The Builder submits that it is appropriate for the Tribunal to make a rectification order instead of an order for compensation in relation to the Defective Items. It submits the Owners did not grant the Builder access and this deprived the Builder of the opportunity to rectify the Defective Items. The Tribunal has already rejected that contention by the Builder on the basis that the Owners did not refuse the Builder access to the Residence, and in any event, the Builder had no desire or intention to do any work before being paid 95% of the Payment Claim.

201. The Builder further submits that a rectification order is appropriate because the Builder acknowledged that its works were incomplete. In opposing a rectification order, the Owners submit:

1. the Builder had a reasonable opportunity and time to complete the Notified Items yet failed to complete them;

2. they had no desire to return to the Residence to rectify any works after 1 February 2016;

3. the Builder did not attempt to obtain access to carry out the necessary work to rectify either the Notified Items or any other of the items referred to in the Todarello Report; and

4. the Builder has adopted the unjustified position of refusing to do any work on the basis that it has validly suspended works for non-payment of the Payment Claim.

202. The Builder says that the Tribunal should have no reason to doubt the Builder will not rectify the defective work if it makes a rectification order. The Tribunal accepts that submission and regards that as an important factor which must be given appropriate weight in deciding whether a rectification order is appropriate.

203. The Builder did not take any affirmative step after 1 February 2016 to follow up on its request for access to carry out the rectification works in relation to items it knew to require attention, and that reluctance was undoubtedly due to the belief that it was owed a substantial amount of money, as the Tribunal has now found that it was. Further, Mr Vellios was prepared to acknowledged that the Builder was a competent and good builder, even in circumstances where the parties were in dispute. The Builder remains licensed and that is also a relevant factor, as is the fact that the Builder has no history of a prior breach of any other rectification order.

204. It is important that the Tribunal also take into account that rectifying the Defective Items will cost the Builder less than if the Owner were to employ another builder to do the required work.

205. In submitting the Tribunal should exercise its discretion to make a rectification order, the Builder puts forward the proposition that only 2 to 3 days’ of work is all that is necessary to make good the Defective Items. There is no evidence to support that submission. The 2 to 3 day estimate provided by the Builder in the 1 February Email only concerned the Notified Items. There is no evidence as to how long it would take for the Builder to arrange for the rectification of all items of work in question and that is a factor that the Tribunal must also consider.

206. The Builder submits that the Tribunal should have regard to the Builder’s suspension of the Contract on this issue. The legality of the suspension has been rejected by the Tribunal, but the Tribunal believes that the Builder will comply with any rectification order made, and the Tribunal’s orders will provide payment of the money to which the Builder was entitled. The Builder’s conduct and attitude in taking no affirmative step in the period after 2 February 2016 is relevant, but having regard to the evidence, and the parties’ submissions, the Tribunal does regard a work order as appropriate in all the circumstances.

SET OFF FOR WORK NOT DONE

207. The Builder accepts the following negative contractual adjustments are appropriate to reduce the Contract Sum:

1. an adjustment for the front balustrade in the amount of $6,000;

2. an adjustment for the payment to “Euro Iron – Elvis” in the amount of $6,000;

3. an adjustment for the side walk way gates in the amount of $1,200;

4. an adjustment for the glass panel at the Residence’s portico in the amount of $1,000;

5. an adjustment for the cornices in the amount of $424; and

6. an adjustment for the front gate motors, agreed with the Owners to be the amount of $700.

208. The Owners did not ultimately press adjustments any negative adjustment to the Contract Sum for:

1. the floor tiles to the Residence’s patio; and

2. the fireplace marble.

209. This left the following claims for negative adjustments to the Contract Sum by the Owners:

1. an adjustment for the driveway slab in the amount of $1,728.00 (the Driveway Slab Scope);

2. an adjustment for 15 Bored Piers in the amount of $6,515.00 (the Bored Piers); and

3. an adjustment for the allowance for Residence’s front door in the amount of $4,000.00 (the Front Door Allowance).

210. As to each of these disputed items, the Builder submits that the Owners are not entitled to any adjustment because there were effectively “negative variations” and they were not detailed in writing and signed by the parties. In other words, the Owners varied the scope of work associated with the Residence’s driveway, the footings to construct them using an alternate to the bored pier system and the Owners not spending the allowance for the Front Door which formed part of the Contract Sum.

210. The Builder relies on the requirement for writing in clause 14(b) and (d) of the Contract, in the same way as the Owners rely on those clauses to resist the Builder’s claims for “extras”. The Builder submits that:

1. the Tribunal must reject the claims by the Owners because the variations to the scope of the Driveway Slab Scope and the method used to construct the footings rather than by the Bored Piers footings were variations under, rather than “outside” the Contract; and

2. the Owners have not established the value of the Front Door Allowance, other than for Mr Vellios’ bare assertion that $4,000 is what the value should be.

BORED PIERS

212. The Builder constructed the footings, but not by employing the “15 Bored Piers method” specified in the drawings. The change in the construction of the footings varied the scope of the Builder’s work by changing the character or quality of the work: see clause 14(iii) of the Contract.

213. The Owners’ claim for the Bored Piers, and Mr Todarello’s quantification of this item, assumes that the substitution of bored piers for an alternative form of construction should properly be regarded as a “decrease” or “omission form the work” (see clause 14(a)(ii)), and it may well have been. However, having regard to the change in the methodology in the construction of the footings, the Owners had to satisfy the Tribunal that the respective cost of one method of construction, as opposed to the other, results in an entitlement to payment of the amount claimed by way of set off.

214. The Builder submits that Mr Todarello did not attempt to cost the comparative cost of each footing system, and therefore the Owners have not discharged their onus of proving the appropriate reduction for the different footing system used. The Tribunal agrees. Even leaving the effect of the absence of written confirmation to one side, the Owners are not simply entitled claim a negative deduction for the omission of the piers, without allowing for the cost of the footing system adopted. The Owners have not established the appropriate value of this Negative Adjustment the Tribunal’s satisfaction.

215. The Tribunal dismisses this Negative Adjustment claim.

DRIVEWAY SLAB SCOPE

216. This adjustment relates to the omission of the stencilling and colouring of the driveway slab form the Builder’s scope of works. The dispute relates to the appropriate set off adjustment which should be allowed. The Builder approaches the issue by submitting that the Owners cannot demonstrate that they incurred “loss” by removing the stencilling and colouring. That is not the issue. That is not the real point however:

1. the Driveway Scope of Works included stencilling and colouring;

2. the Builder claimed the entire Contract Sum by way of the progress payment claims, and by the payment of the amounts claimed, the Owners paid for work that the Builder did not do;

3. the payment of the money for work that was not done resulted in the Builder receiving a benefit at the Owners’ expense, which it would be unjust and unconscionable for the Builder to maintain; and

4. the Owners have a claim in restitution for the payment, which represents money had and received by the Builder at their expense.

217. Mr Todarello’s independent expert opinion on the value of the omitted Driveway Scope of Works is $1,728. The Builder says that the Tribunal should accept Mr Kostopoulos’ cost for the work in question, being $200. The Tribunal accepts the independent expert opinion on the quantum of the claim, and accordingly, finds the Owners as entitled to set off the amount of $1,728 against the Builder’s entitlement as determined by the Tribunal.

FRONT DOOR

218. The Tribunal rejects the Builder’s submission that the provisional sum allowance included in the Contract for “windows” included doors, but accepts that the Owners evidence does not satisfy the Tribunal of the appropriate allowance. The Tribunal accepts the Builder’s submission that the Owners did not discharge their onus of establishing the amount they are entitled to set off for this item.

ULTIMATE FINDINGS AND ORDERS

219. In Application HB 17/21359, the Builder’s Application, the Tribunal orders the Owners to immediately pay the Builder the amount of $55,708.79 including GST.

220. In Application HB 17/38120, the Owners’ Application, the Tribunal makes the following orders:

1. the Builder is to immediately to pay the Owners the amount of $17,052 including GST with the amount of Builder's liability to the Owners to be set off by the Owners against the Owners liability to the Builder;

2. an order under s 48MA of the HB Act that the Builder must carry out all of the items of work identified in the report of Mr Gerard Todarello of Precision Inspections dated 31 July 2017 (the Todarello Report) other than items 6.34, 6.35, 6.49, 6.61 and 6.69.

221. In the Builder’s Application and the Owner’s Application, the Tribunal orders that any application for costs is to be determined as follows:

1. the Builder is to file and serve written submissions on the issue of costs within 14 days from the date of this decision. Such submissions are to include reference to whether or not the Builder agrees to costs being determined on the papers in accordance with s 50 (2) of the Civil and Administrative Tribunal Act 2013 (NSW);

2. the Owner is to file and serve any written submissions on the issue of costs in response within 14 days after service of the Builder's submissions; and

3. subject to the submissions of the parties, the issue of costs may be determined on the papers and without further oral hearing in accordance with s 50 (2) of the Civil and Administrative Tribunal Act 2013 (NSW)

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I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 09 May 2019