Langov v Denkov; Denkov v Langov

[2017] NSWCATCD 69

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Langov v Denkov; Denkov v Langov [2017] NSWCATCD 69

Hearing dates:

5 and 6 June 2017Submissions Close 16 June 2017

Decision date:

23 August 2017

Jurisdiction:

Consumer and Commercial Division

Before:

S Thode, Senior Member

Decision:

1.   In HB 16/23186 Kole Denkov shall pay to Linda Langov the sum of $161,066 within 28 days of the making of these orders.

2.   HB 16/56088 is dismissed.

Catchwords:

BREACH OF STATUTORY WARRANTIES - abandonment of contract – damages for defective work – findings where expert report unopposed

Legislation Cited:

Civil and Administrative Tribunal Act 2013; Home Building Act 1989

Category:

Principal judgment

Parties:

Linda Langov and Lupco Langov (homeowners)
Kole Denkov (builder)

Representation:

Counsel:
Ms Blackadder of counsel (homeowners)
Mr Jovan Sarai , Safe Harbour Lawyers (builder)

File Number(s):

HB 16/56088 (builder’s claim)HB 16/23186 (homeowners’ claim)

Publication restriction:

Nil

reasons for decision

The proceedings

1. For convenience I shall refer to Mr and Mrs Langov as “the homeowners” and Mr Kole Denkov as “the builder”, although the Tribunal is required to determine whether Mr Denkov was, in fact “the builder” within the meaning of the Home Building Act 1989 or whether Mr Denkov was a project manager. The nomenclature of “homeowner” and “builder” has been adopted for convenience and consistency.

The homeowners’ claim

2. The homeowners filed application HB16/23186 on 16 May 2016 seeking damages in the sum of $169,864 for defective and incomplete work.

3. The homeowners contend that the parties entered into a contract for the provision of residential building work, namely the construction of a new dwelling in Bardia, NSW for $1.5 million.

The contract

4. The parties entered into a written building contract naming Linda Langov as the “owner” and Kole Denkov as “the builder”.

5. The contract commenced on 9 February 2015. The contract is a standard Housing Industry Association or HIA Building contract issued June 2014. The front page of the contract invites the homeowner to “verify that your Builder is a Member of the HIA call xxxxxx “. It states at paragraph 4 of the contract that the contractor must provide the owner with a certificate of home warranty insurance for work over $20,000 before commencement of work.

6. Ms Langov obtained an owner builder permit. She also obtained home owners warranty insurance naming her as the Insured in respect of the building works. Neither party has sought to argue that the existence of an insurance policy in Ms Langov’s name relieves the builder of his statutory obligation to obtain Home Owners Warranty insurance in respect of works over $20,000. I find that, in accordance with the requirements of the Contract and having regard to the statutory requirements of s 92, the builder was required to obtain HWI in his name. The requirements of s 92 will be addressed further below in these reasons.

7. The contract nominates the “builder” as the party named in item 3 of Schedule 1. Item 3 of Schedule 1 contains the “Particulars of Contract”. It states “warning the contract price is not known this is a cost plus contract. Any estimate provided is only an “estimate” and not a representation of the contract price.” Schedule 1 identifies the parties to the contract. It contains the following information:

Builder(s) (Clause 1)

Name Kole Denkov

Address 18 xx xxx Street Picnic Point

ABN xx xxx xxx xx Builder’s Licence No 2xxxxxC

Email address Kolemain Constructions @xxxx.com

8. The contract is signed by Kole Denkov. The ABN number is that of Kolemain Constructions Pty Ltd. The builder’s licence number is that of Mr Kole Denkov. Mr Denkov states that Kolemain Constructions Pty Ltd was not a party to the contract and that he included the ABN number by mistake. This aspect of the claim will be addressed further below in these reasons.

9. Page 3/40 of the contract, Schedule 2, sets out the “Price of the Building Works”. This is separate and distinct from the schedule which identifies the parties. In schedule 2 the word “Builder” is crossed out and the word “Project Manager” is inserted. The Project Manager shall charge 10% of the total value of the building work; a tradesman is charged out at $45 per hour; and any employee of the builder is charged out at $35 per hour.

10. On page 7, the signature panel, the BUILDER panel is signed by Kole Denkov and it is stated that the “contract is made between the owner and the builder”.

11. Clause 2 of the contract stipulates that “the builder must carry out and complete the building works in accordance with the contract.”

12. On page 30 of the contract, in “Attachment B - Consumer Building Guide” the contract explains “what does a builder do” in the following terms:

“many builders do not actually do building work themselves they manage and co-ordinate home building or renovation projects; manage the purchase and delivery of materials; co-ordinate the work of tradespeople such as plumbers, painters and carpenters involved in the project.

What does a tradesperson do? A tradesperson in a particular field in the home building industry. The term tradesperson includes all licensed concreters; bricklayers; carpenters; electricians; plumbers; rooftilers.”

13. It is not in dispute that the builder has been paid $101,774 to date. The application sought an order for payment of $48,225. In final submissions the builder sought to substantially amend his claim and now seeks damages on a quantum meruit basis up to $139,000.

The homeowners’ submissions

14. The homeowners filed submissions dated 16 June 2017.

15. It is the homeowners’ submission that Mr Denkov is a builder because he signed a NSW Residential Building Contract for Works on a Costs Plus basis on 9 February 2015 in his capacity as a “builder”. The contract is not for project management work. It is inconsequential what Mr Denkov may call himself, the test to be considered is whether Kolemain Constructions Pty Ltd and/or Mr Denkov, in his personal capacity, entered into a contract for provision of residential building work within the meaning of the Home Building Act 1989 and whether the first and or second respondents jointly are liable for defective and incomplete works.

16. The homeowners rely on Exhibit 1, an email sent by Mr Denkov to the Langovs setting out residential building work undertaken by him. The email dated 30 November 2015, is written after the Langovs complained about the defective state of the work. It commences with a disclaimer:

At this point Kolemain Constructions will not supply anything else except project management personnel to coordinate with the site foreman, suppliers and subcontractors per our written agreement until we come up with a better way to deal with your project”

17. The remainder of the email deals with the execution and description of the performance of residential building work on site by Mr Kole Denkov and his agents and or employees. The email sets out the following:

“You asked me what the boys did after Simon left the site on 26/11/2015 Kiro was knocking the wall in the granny flat for the door with my jackhammer (free of charge for jackhammer) Daniel and Dylan were positioning columns at the bottom of the verandah where long stairs are (using my tools free of charge)

I had to call professionals on my own expense to work out why the welder is not working and the problem was solved within 10 minutes and your mate (professional welder and shop fitter) wasted our time and your money spent all morning, could not work out what was the problem and how can be fixed. He did not admit that he was part of the reason why the wrong order of steel was delivered, where clearly labelled on the plan that top plates were not to be welded (he blames China) I was a lot more than upset that he put the blame to others but I had no choice I had to move on. Chris and Marcus were working on request by you to pick up the pallets with the timber flooring in and take them inside the garage. I am not sure if you remember it was 40° outside and worst weather conditions we had experienced on your site…

Unacceptable for work but I did not want to say no to you as a valuable client. I told you the day before we call the Thursday off. We started 6 am we had only one break so we can go home at 2 pm we ended up being there till 3:15 pm working in the worst conditions I've ever experienced. I’m going to make a short statement soon for the work up to date and send it to you so you know what is my reason for having a meeting ASAP.

In a further email of 30 November 2015, Mr Denkov continues

I supplied you a form-workers and I cut your cost in half.

I supplied you a concrete that saved you cost of at least 20%.

I supplied you with reinforcement with minimum 30% savings.

I supplied you with blocks and bricks on cost price and saving up to 15 to 20%.

…

I have been able to supply you with the tradesman and charge you for a labour supply. …

One more thing I need to say is to ask you if you want me to continue to work on the site you need to supply the material, labour and site supervisor.

18. The applicants submit that the email sets out in significant detail that Mr Denkov was undertaking, supervising and coordinating activities on site, and that Mr Denkov was, in his capacity as a builder, performing the usual task of a builder, supplying labour, material and supervision of the site to “get the job finished”.

19. One of the issues to be considered is whether a work order should be entered as the “preferred outcome” pursuant to s 48MA of the Home Building Act 1989:

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.

20. The homeowners submit that the Tribunal should not consider a work order because the builder, Mr Denkov, is not currently licenced and has provided no evidence of renewal of his carpenter’s licence. In the absence of evidence of a valid licence it is not open to the Tribunal to enter a work order. It is acknowledged that Kolemain Constructions Pty Ltd (the second respondent) is licensed, but another factor which militates against a work order is that another builder is currently on site performing rectification work and has significantly progressed the work since Mr Denkov left the site in February 2016. It would therefore be impracticable to have Mr Denkov or his company resume control of the site and continue with the work. The homeowners further submit that they have lost all confidence in Mr Denkov and his company and that he is incapable of rectifying defective work and that he should not be permitted to return to site. He has given ample opportunity to rectify the defective slab and was unable or unwilling to rectify the defects.

21. The homeowners seek damages for defective work and rely on the statutory warranties contained in section 18B of the Home Building Act (the Act). It is submitted that the Tribunal should award the damages as set out in the report of Mr Cavallo. The report remains untraversed and unopposed. The builder has elected, whilst legally represented at all relevant times, not to obtain a defect report in reply. It has been acknowledged by Mr Denkov, through his legal representative, that in in the event that Mr Denkov and Kolemain Constructions are found to be liable for defective work, the damages are assessed as per the Cavallo report of June 2016. No expert evidence in reply to the Cavallo report has been filed or served.

22. The homeowners seek an order for damages for defective work in the sum of $163,706.40 as per the opinion expressed in the Cavallo report.

The builder's claim for outstanding payments

23. The builder filed proceedings 16/56088 on 23 December 2016. He seeks orders that he not have to pay $206,000 for defective and incomplete work.

24. In addition the builder seeks an order that the homeowners pay $48,225.38 to him for outstanding project management costs pursuant to the contract.

25. The claim is set out as follows:

This is a cross application for the existing case number HB 16/23186.

The applicants/cross-defendants and the respondent/cross-claimant have entered into a contract on 9 February 2015 for the respondent to supply project management services to the applicants with reference to property situated at 45 xxx Street Bardia our New South Wales 2565 (the site).

The contract inter alia provides that the applicants were to pay 10% of the total cost of the building works on the site.

The applicant has paid to the respondent the sum of $101,774.62. The total cost of the building works is yet to be ascertained but it is estimated by the applicants to be 1.5 million.

In breach of the contract the applicants have refused neglected or ignored to pay the respondent the full fee for his project management services estimated to be $150,000-$200,000.

The respondent seeks payment of his project management fees in full, costs and interest.

26. The application form further states that the contract terminated in February 2016 when the builder was prohibited access to the site and that the works were completed on 29 January 2016, being the last day the builder worked on site.

27. The builder relies on the expert opinion of AUBC Consulting Quantity Surveyors a report under the hand of Mr Tsung Hoang Nguyen. He was retained on behalf of by Mr Kole Denkov and Kolemain Constructions Pty Ltd to assess “the Bardia site labour costs”. It was assessed that the labour costs “Total for indicative construction “labour costs estimate” to be $2,594,681. He estimates the total building cost, including materials and labour costs to exceed $4m. Mr Nguyen was asked to prepare “a construction budget cost estimate indication for proposed new residence lot xxxx at Mount Olympic Street Bardia”. Mr Nguyen assessed the project value of the completed work, not the value of the work undertaken by the builder.

28. It was initially submitted by the builder that he is entitled to the outstanding project management costs under the contract. Mr Denkov denies he is the builder, he states he was not a party to the building contracts entered into by the applicants an states that he entered into a multi prime contract with project or construction management. He submits that he does not and never has performed a role of a head contractor or builder and is not liable for defective or incomplete work.

29. At the hearing of the matter the builder agreed that he may only claim damages on a quantum meruit basis, and only if the Tribunal finds that it is just and equitable to do so.

consideration

Are Kole Denkov and/or Kolemain Construction Pty Ltd “the builder” within the meaning of the Home Building Act (1989) (the Act)?

30. I am satisfied that the first respondent performed residential building work and is the “builder” within the meaning of the Act.

31. I am not satisfied that the second respondent is a party to the contract, or is liable for defective residential building work.

Is Mr Kole Denkov the builder?

32. The contract document speaks for itself. I am satisfied that the execution of a standard form HIA Home Building Contract is evidence of the fact that Mr Denkov, in his personal capacity, entered into a contract for the provision of residential building work.

33. The contract nominates the relevant parties in Schedule one. Mr Denkov, in his personal capacity executes this part of the contract. I find it is irrelevant that Mr Denkov strikes out the word “builder” and replaces it with the word “Project Manager”. The change of descriptor in the price schedule does not change a contract for provision of residential building work into a contract for project management work.

34. A contract for project management work must specify that in performing duties as a project manager only, a manager may be the limited agent of the owner, for the purpose of reviewing and discussing with the owners all quotes and bids by contractors. There was no evidence led by Mr Denkov that he discussed with the owners all quotes and bids by contractors.

35. While two contracts were signed by Ms Langov with separate tradespersons (a plumber and a bricklayer), there was no consistent effort by Mr Denkov to ensure that all (emphasis added) residential building work performed on site was performed by tradespersons pursuant to separate written contracts entered into with the homeowners. Mr Denkov would perform building work by supervising and co-ordinating work on site, and from time to time employees of his company would attend site and perform residential building work. Importantly there is evidence to suggest that he paid most of the tradespersons. I refer to exhibit 10, a diary entry of Friday 11 September 2015, that demonstrates that the bricklayer, although he had signed a separate contract with Linda Langov, was supervised and paid by Mr Kole Denkov. Similarly, Brad Smith a supplier of bricks was paid by Kole Denkov for delivery of bricks on 2 April 2015 (see Kole Denkov site diary entry exhibit 9). If Mr Denkov acted as a project manager only it was important to make it clear to the trade contractors that he was acting as mere agent of the owner and any payments due to the trade contractors were at all times (emphasis added) payable by the principal or owners and not by the project manager. I find that the mere fact that Linda Langov signed a single page contract with the bricklayer does not detract from the overwhelming evidence that Mr Denkov coordinated and supervised all tradespersons, their work and was with few exceptions, responsible for their payment.

36. The building contract sets out for the contracting parties that the work of a builder does not necessarily consist of performance of physical work. Insofar relevant, it was the homeowners’ understanding, when entering the contract, that Mr Denkov would execute the contract work in his capacity as the builder. I accept Ms Langov’s evidence (page 1 of her affidavit of Linda Langov dated 5 August 2016) that Mr Denkov explained he would “take care of everything and arrange everything and I’ll get the contracts with the other trades organised and I’ll take control and have all the necessary work done to have it built.”

37. I am satisfied that the execution of a contract for the provision of building work by Mr Denkov is probative of itself to establish that he is “the Builder” and that the statutory warranties for defective work apply. Insofar Mr Denkov deposes that he was not responsible for structural beams , roof sheeting and windows (see Denkov affidavit of 17 October 2016) I reject this contention. I note that the signed contract did not provide for such exclusions. On page 5 of 40 the contract specifically provides for “excluded items where the owner acknowledges that the builder is not responsible for the supply and installation of materials or the provision of services listed in that section.” The section is left blank. I am satisfied that the builder was responsible for the totality of the building work with the exception of the plumbing and electrical services as these were excluded by admission (and in any event no defects are claimed in respect of these works). I note that the six defects which are claimed to be defective are:

1. brick work ($20,300)

2. Steel beams ($5380)

3. Defective concreting (23,380)

4. Basement waterproofing ($62,460)

5. Correcting roof sheets ($3640)

6. Defective window installation ($4860)

38. Unfortunately the submissions filed by the homeowners (16 June 2017) make no mention of the evidence. I have not been provided with a transcript. Having regard to the affidavits of Linda and Lupco Langov, I am satisfied that the evidence establishes that Mr Denkov carried out residential building work. I refer to those aspects of the evidence which were addressed by the parties during the hearing. I make the following findings in support of the proposition that Mr Denkov acted in his capacity as a builder.

1. Mr Denkov signed a contract for the provision of residential building services as a “builder”.

2. I find that Mr Denkov was on site on a daily basis, with employees from time to time carrying out actual residential building work while wearing uniforms emblazoned with “Kolemain Construction” (cross examination of Linda and Lupco Langov and affidavit of Lupco Langov attaching photographs.)

3. I accept that Mr Denkov was not responsible for ordering steel beams from China but find that he supervised the work of steel fixers “James” and “Killey” and the steel installation. I accept the Langovs had engaged engineers to certify the Chinese steel beams, but that Ms Langov relied on Mr Denkov to co-ordinate the site and to oversee the installation of the beams (see affidavit of Lupco Langov dated 5 August 2016 para 31). In an email dated 5 February 2015 Mr Langov specifically requested that Mr Denkov co-ordinate the steel shop drawings for the first floor slab with the engineer (Exhibit 1). I am satisfied that this is residential building work, not project management work.

4. I accept Ms Langov’s evidence that Mr Denkov and his team were incapable of installing the steel beams and that Mr Langov and Mr Denkov agreed to bring outside tradespersons on site to assist with the steel construction. When steel fixers attended the site, Mr Denkov continued to provide instruction for the installation of the beams until he was asked to “stop interfering” (see paragraph 35 of the Langov affidavit).

5. Further, I am satisfied that Mr Denkov was on site and oversaw the pouring of the concrete and that Mr Denkov, in his capacity as the builder, oversaw and coordinated the pool area concreting, and that he was responsible the concrete being poured, free of defects, and in accordance with the plans and specifications (see affidavit of Lupco Langov 5 August 2016 para 34).

6. I am satisfied that Mr Denkov, using the Kolemain Constructions trade account ordered materials such as steel ( joint tender bundle p290); excavators (p288); Forklifts (p 289); reinforcement steel (p290); brick (p291); aggregate (p292); and other building materials for the site from time to time.

7. I am further satisfied that, once the slab was poured Mr Denkov knew or ought to have known that the slab was not poured in accordance with plans and specifications. Alternatively, once the steel beams were unable to be installed Mr Denkov was aware of the defective nature of the slab.

8. After Mr Denkov refused to provide bricklaying services a bricklayer was sourced by Mr and Mrs Langov but was supervised and paid for by Mr Denkov in his capacity as the supervising builder on site. The homeowners paid Mr Denkov and Mr Denkov paid the bricklayers in cash (see diary entries Exhibits 10 and 12 as set out in paragraph 35 above).

9. In respect of the pool area, I am satisfied that Mr Denkov sourced the concreter and organised a concreter to attend site. I accept Ms Langov’s evidence under cross-examination that she did not enter into a contract with a concreter and there is no evidence of a separate contract, oral or otherwise between the Langovs and a concreter.

10. Invoices were regularly issued by Kolemain Constructions Pty Ltd and were made payable to a bank account in the name of Kolemain Constructions Pty Ltd. I accept the evidence of the homeowners that payments were made to the company and not Mr Denkov in his personal capacity. A tax invoice issued on 14 December 2015 for “management fees” and GST in the sum of $16,487.28 remains outstanding.

11. I accept Mr Lupco Langov’s evidence of 9 December 2016 that Mr Denkov was on site on a daily basis (see affidavit paragraph 4).

12. I accept Ms Langov’s concession that the electrician and the plumber were retained separately by the Langovs and no defects are claimed in respect of these trades. I also accept Mr Langov’s evidence that he suggested a series of concreters to Mr Denkov and that Mr Denkov was responsible for choosing the contractors he permitted on site. On one occasion he informed Mr Langov “we are not using him”. I accept this as evidence that Mr Denkov was in control of the selection, coordination and supervisions of the sub-contractors and trades persons and that he performed work as a builder.

13. I note that the contract contained no exclusions and that the contract works carried out by Mr Denkov attract warranties pursuant to s 18B of the Act.

Two separate subcontracts

39. I have had regard to the affidavit of Mr Korkmaz. He deposes that he was a bricklayer who was retained directly by the homeowners but was paid by Mr Denkov. I accept Ms Linda Langov’s evidence that Mr Denkov emailed a contract to her, which she was required to sign, before the bricklayer commenced work. She was unaware why Mr Denkov sent a contract to her, and required her to sign it. She assumed that this was a pre-requisite for the bricklayer to enter site. Ms Langov denies that by entering a single page contract with the bricklayer she acknowledged that Mr Denkov was a “project manager” as opposed to “the builder” on site.

40. Mr Denkov ensured that he was provided with evidence of licensing and insurance before the bricklayer commenced (see email from the bricklayer to Kolemain Constructions dated 19 March 2015). I am not of the view that, when viewed in the overall context of the work, that the contract between Ms Langov and the bricklayer detracts from the fact that Mr Denkov was responsible for the overall progress, supervision and co-ordination of the residential building work on the site. Had there been a “project management” arrangement, Mr Denkov would have ensured that all subcontractors not just the bricklayer, would enter into separate and distinct contracts with Ms Langov. This would have ensured that Mr Denkov was nothing more than a contract administrator. I find that the fact that the bricklayer sought and received payment from Kole Denkov and was supervised by Kole Denkov is evidence of the fact that Mr Denkov was the builder carrying out residential building work on site.

41. I find that the correspondence issued by Mr Denkov around December 2015 which refers to himself as the “project manager” was designed to give the impression that he was not performing residential building work. I do not find the email, (marked Exhibit one), probative of the fact that the work carried out was not, in fact, residential building work. The first paragraph of exhibit one , in my view, designed to disassociate himself from the defective work, at a time when the homeowners were asking him to return to rectify certain aspects of the work undertaken.

Did Ms Langov enter into a contract with the Kolemain Constructions Pty Ltd?

42. On balance I am satisfied that only Mr Denkov and not Kolemain Constructions Pty Ltd entered into the contract for the provision of residential building work.

43. Firstly, Mr Denkov in his personal capacity signed the building contract.

44. Secondly, the company, in its defence denies it was a party to the written contract, did not charge the applicant homeowners margins, or benefitted from the contractual arrangement in any way. The company admits that the applicants benefitted from using Kolemain Constructions’ trade account for ordering materials at heavily discounted prices and this arrangement did not benefit the company, or give rise to any liability in the absence of a contractual arrangement. The second respondent company admits it issued the invoices, but that this was a mechanism of collection on behalf of the first respondent only, it denies it obtained any benefit from the contractual arrangement.

45. Importantly, the points of claim filed by the homeowners plead as follows:

“the first applicant and the first respondent entered into an agreement whereby the first respondent agreed to carry out home building work”.

46. Thereafter the points of claim speak of the respondents (plural) but the points of claim make no mention of the company and plead no cause of action against the company.

47. Whilst an application was granted on 24 November 2016 to join the company to the proceedings, the pleadings and submissions were not amended to set out why the company, as well as Mr Denkov was being pursued. The applicants’ were legally represented at all relevant times, but no amended points of claim were filed alleging on what basis the company is liable, nor did the written submissions make any mention of the basis of the allegations against the company.

48. I have had regard to the decision of Dennis Pethybridge v Stedikas Holdings Pty Ltd. In the decision cited, Campbell JA discussed all of the relevant authorities in detail and then concluded on the question whether a particular contract is made with a company or with an individual:

At the risk of some repetition, I will seek to draw the threads together. Identification of the parties to the contract must be made in accordance with the objective theory of contract: Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65 at [262]-[266] and cases there cited. It was the Respondent who bore the legal onus of proving that the Appellant was the other party to the contract that had undoubtedly been entered for the performance of the work on the two car parks. It was relevant, for that purpose, to establish who was carrying on business under the name C & D Asphalt Service. That is because the correct conclusion to draw from the objective evidence is that a reasonable observer of the communications that led to the entering of the contract, together with the background facts known to the parties, would conclude that the parties intended that the contract would be with whomever it was that was carrying on business under the name C & D Asphalt Service.

49. Ms Langov’s evidence shows that she clearly thought she was entering into pre-contractual negotiations with Mr Denkov. The contract documents speak for themselves. Other than the ABN number at schedule 1 there is no mention of the company as a contracting party. And the signature panel indicates that if a director signs on behalf of a company he must sign “by A. Smith, Director Signed for and on behalf of XYZ Pty Ltd”. The signature panel is not executed on behalf of Kolemain Constructions. I am satisfied that on the objective evidence a reasonable observer would conclude that Mr Denkov and not Kolemain Constructions Pty Ltd entered into a contract and carried out the work.

Did Mr Kole Denkov enter into a multi prime contract?

50. It is submitted on behalf of Mr Denkov that he entered into a Multi Prime contract with project or construction management. A feature of such a contract is said to be “the function of the construction manager is to administer the several trade contracts on behalf of the principal or where appropriate as an independent certifier”. Mr Denkov however leads no evidence to establish how he administered trade contracts. Further, he insists that he did not negotiate or administer any of the contracts with the steel supplier, the windows supplier, the worker for windows related work, steel workers, Nemo concreting who “may” (emphasis added) concreted the pool and possibly the basement (see submissions para 34). There is no evidence to suggest that Mr Denkov administered the trade contracts on behalf of the principal. Even in instances where a separate contract was signed with Ms Langov, such as with the bricklayer, Mr Denkov supervised and coordinated the work and paid the bricklayer. The evidence does not establish that Mr Denkov entered into a “Multi Prime Contract”.

51. Further, I reject the builder’s submission that Mr Denkov’s liability is limited to any loss suffered “as a result of inadequate coordination or supervision”. For the reasons set out above he is not held liable as a project manager, but as a builder, and in his capacity as the builder the first respondent is liable for defective work by reason of the statutory warranties as set out in s 18B of the Act.

Assessment of Damages for defective work

52. The homeowners rely on the report of Mr Cavallo of June 2016. It is concluded that “the building works within is in appropriate for its intended use, or does not comply with Australian Standards /BCA and therefore warrant a refund as requested at $163,706.” The expert attached a scott schedule setting out 6 defective items. The losses claimed total $124,020. By far the largest defect claimed is for the defective excavation and construction of the basement which is said to have leaks as a result of “not incorporating the waterproofing design on plan and was backfilled with soil”. For this defect alone Mr Cavallo estimates rectification costs in the sum of $62460.

53. By reason of the fact that the contract was abandoned (see further below in these reasons) the builder is not liable for incomplete components as found. I accept Mr Cavallo’s evidence in the witness box that about $2000 of the defective workmanship arising from the installation of the steel beams is attributable to incomplete work. I accept Mr Cavallo's evidence as to loss and have adjusted the claim downward accordingly, I have deducted $2000 from the finding of $124,020 to arrive at a finding for defects in the sum of $122,020. Adding 20% builder’s margin I arrive at a finding of $146,424 and adding 10% GST, I arrive at a final finding of $161,066 in the homeowners’ favour.

54. The findings the Tribunal is required to make is whether the work was built in accordance with the terms of the contract and if it was not built in accordance with the plans and specifications, the Tribunal must enquire whether the owner is entitled to the reasonable cost of correcting the defective work (Craftsmen Restoration & Renovations Pty Ltd v Boland [2011] NSWCA 147).

55. Mr Cavallo states in his report that the work is defective, and no evidence is led by Mr Denkov to dispute this. However, the damages allowed must be necessary to produce conformity with the contract and also a reasonable course to adopt. Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613.

56. I refer to the decision of Tabcorp Holdings Pty Limited v Bowen Investments Pty Limited [2009] HCA 8 (12 February 2009) in support of the position that the owners are entitled to the work in constructing a residence being performed in accordance with the contractual requirements. Damages that ordinarily flow from a failure to perform building work in accordance with the contractual requirements will be the costs of rectification, subject to the qualifications expressed in Bellgrove v Eldridge.

57. The builder’s position is that it is not reasonable for a slab to be demolished and rebuilt in circumstances where no evidence of leakage has been established. In the absence of any evidence to the contrary I accept Mr Cavallo’s evidence that the basement excavation does not comply with the plans. In Tabcorp Holdings Pty Limited v Bowen Investments Pty Limited the High Court of Australia discussed reasonableness as referred to by the High Court in Bellgrove v Eldridge. The Court stated:

‘The example which the Court’ (in Bellgrove v Eldridge) ‘gave of unreasonableness was the following [26]:

"No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks."

That tends to indicate that the test of "unreasonableness" is only to be satisfied by fairly exceptional circumstances.’

58. Given that there has been a breach of contract and or a breach of statutory warranties in accordance with the Cavallo findings, the homeowners are entitled to the cost of making the work or building conform to the contract, subject to the qualification that the work must be necessary to produce conformity to the contract, and the undertaking of the work must be a reasonable course to adopt. The excavation of the basement in order to achieve conformity with the contract is not an exercise of futility or betterment as the example provided in Bellgrove v Eldridge, (namely demolition to replace new bricks with second hand bricks).

59. The High Court in Tabcorp Holdings Pty Limited v Bowen Investments Pty Limited stated that ‘the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances.’ An example of such exceptional circumstances was stated to be closely aligned with a party ‘merely using a technical breach to secure an uncovenanted profit’ as referred to by Oliver J. in Radford v De Froberville [1977] 1 WLR 1262 at 1270. There is no suggestion of the owners engaging in such conduct in this case.

60. In my view there is nothing exceptional in an owner of a new residence requiring a builder to construct the basement in compliance with contractual terms and in accordance with an Australian Standard which is admitted by the builder to be relevant to the question waterproofing. The builder had every opportunity in the course of construction (particularly when laying the slab) to exercise all necessary supervision of tradesmen to ensure compliance with the contract and other regulatory requirements such as the Building Code of Australia.

61. I find on the evidence that the builder has not constructed the basement in conformity with the contract and that the proper measure of damages in the circumstances is the cost of rectification required to restore the homeowners to the position that they should have been in, had the work been properly executed in the first instance, subject to the qualification that the rectification work is both reasonable and necessary. I rely on Bellgrove v Eldridge (1954) 90 CLR 613 at 617:

"In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract”.

62. In the light of the uncontested evidence led by the homeowners, I am satisfied that the findings as to cost of the rectification work as set out by Mr Cavallo is reasonable under the circumstances and I award $161,066 for loss and damages for rectification to bring the works in conformity with the contract. I make orders in accordance with paragraph one above.

Is the contract at an end?

63. During the hearing neither party maintained that the contract remained on foot. The pleadings remain entirely silent on the issue of termination. In submissions filed by the builder on 13 June 2017 the builder has changed its position and maintains that that “the first respondent considered such notice [of termination] invalid and that the contract remains on foot”. The issue that may arise is that if the contract remains on foot, strictly speaking the builder would remain in control of the site and would have the contractual obligation and right to complete the contract and the homeowner would be precluded from claiming damages. See Brewarrina Shire Council v Beckhaus NSWCA [2005] at [53] per Ipp JA:

The notice of contention raises the question whether the Contract was terminated by mutual agreement. The Council long denied this proposition but, on the third day of the appeal, assented to it. Despite the Council’s late acceptance of the proposition, the question remains relevant as it exposes a misconception by both parties in the way the issues were addressed at trial. The misconception was that the Council could claim damages from Beckhaus for defective and incomplete work while the work was still in Beckhaus’ possession and while Beckhaus was still obliged (and entitled) to execute the work to practical completion.

64. On the evidence I am not satisfied that the contract remains on foot. The site was relinquished by the builder more than 18 months ago and no steps were taken by the builder either to perform the contract. The builder, who was at all times legally represented, has not argued that the owners repudiated the contract and he took no steps to accept the repudiation and to terminate the contract.

65. For the reasons that follow I am of the view that the contract is not on foot but was abandoned by the parties or about 26 February 2016.

66. The contract was not terminated in writing in accordance with the terms of the contract and the termination provisions of clause 30. I accept the parties’ submissions that in or about February 2016 the builder was refused entry to site. In a heated email exchange dated 29 January 2016 (see p 497) between the parties Mr Langov demands that Mr Denkov remove his belongings from the site over the weekend. Mr Denkov agrees to relinquish the site but sought five working days to “remove everything”. Significantly, Mr Denkov did remove his belongings from the site. The owner did not send any further communication purporting to terminate the contract until five months after refusing entry to the builder. I am satisfied that by demanding possession of the site and by relinquishing the site, the parties mutually evinced an intention not to be bound by the terms of the contract and that the contract was effectively abandoned by both parties on or about 26 February 2016, when the builder vacated the site.

67. Submissions by the builder refer to Mr Denkov’s affidavit dated 15 September 2016 (attachment 17) dated 16 February 2016. Mr Denkov states “I have never resigned from a position of project manager or terminated the contract”.

68. Five months later, in a letter dated 2 June 2016 the homeowners send a letter to the builder purporting to terminate the contract (see annexure of affidavit of Linda Langov). The homeowners state they gave notice on 11 February 2016 to rectify a series of defects, and that the builder failed to rectify the defective work. The owners gave notice on 2 June that, in reliance of clause 30.3 of the contract “our clients hereby formally exercise their right to terminate the contract.”

69. However, as at the date of that communication, I find that the builder had already relinquished the site, and the homeowners had sought possession, and the contract had been terminated. The parties through their actions had evinced an intention that they no longer wished to be bound by the terms of the contract.

70. I am satisfied that neither party took steps to terminate the contract in accordance with the contract provisions. I have had regard to the homeowners’ points of claim dated 30 September 2016. I refer to the builder’s application form filed and served on 23 December 2016.

71. Neither homeowner nor builder allege that the other party engaged in repudiatory conduct. The pleadings, insofar prepared by lawyers remain entirely silent on the issue of contract termination or repudiation. The builder submits only after the completed hearing that the contract “remains on foot”. Neither party alleges that the contract was terminated at common law. In the absence of any pleadings or submissions concerning the issue of whether or not the contract was terminated or repudiated, I am satisfied that the facts support a finding that the parties abandoned the contract.

72. I have had regard to the authority of Ryder v Frohlich [2004] NSWCA 472: “Where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract.” Neither party availed itself of the mechanisms of termination as set out in the contract and, once the builder removed his belongings from the site, neither party to steps to further perform the contract and conducted themselves as to abandon the contract.

73. In any event, even if I have erred and the contract was not abandoned, this is of little consequence. Ms Langov, by reason of the finding that the respondents performed residential building work, is entitled to the benefit of the statutory warranties. The builder, who is limited in his claim for damages on a quantum meruit basis and only if it is found to be just and equitable, may bring a claim for restitution regardless of whether the contract was abandoned or terminated.

74. It is incumbent upon the builder to prove, why he should be paid damages for any period on a “just and equitable basis”, for any period either before or after the date the contract came to an end.

Is the builder entitled to payment on a just and equitable basis?

75. It is common ground between the parties that the builder did not provide Home Owners’ Warranty insurance. It is a requirement of the Home Building Act and a requirement of the contract that the builder provide HOW insurance.

76. Section 92 of the Act provides that the contractor may not undertake residential building work unless the works are insured:

92 Contract work must be insured

(1) A person must not do residential building work under a contract unless:

(a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and

(b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.

Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case.

77. Subsection 2 provides that a contractor, who in contravention of the Act does not insure the works is not entitled to demand payment under the contract.

(2) A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless:

(a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and

(b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.

Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case.

78. It is common ground that, although Ms Langov was insured in her capacity as an owner builder, that Mr Denkov was also required to obtain insurance, in his capacity as a builder.

79. The effect of the above sections is that the builder is not entitled to recover on his claim for money due under contract.

80. Further, section 94(1)(b) of the Act provides that the builder is not entitled to payment under the contract and is not entitled to payment on a quantum meruit basis unless the Tribunal finds that it is just and equitable to do so.

94 Effect of failure to insure residential building work

(1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the

"uninsured work" ), the contractor who did the work:

(a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and

(b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit).

(1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.

81. The builder has made submissions that he should receive payment of alternatively $139,000, $38,000 or $73,000 on a “just and equitable basis”.

82. These amounts were claimed for the first time in written submissions filed by the legal representative after the concluded hearing. The homeowners were not given the opportunity to lead evidence or to address the Tribunal during the hearing. They object to the damages now sought, and, they deny that that the builder is entitled to payments as he has been fully renumerated.

83. The builder seeks payment of $139,393 for payment on a quantum meruit basis for his time spent on site supervising the work.

84. The first question the Tribunal has to determine is whether it is “just and equitable” to allow the builder to make a claim on quantum meruit basis.

85. The builder bears the onus of persuading me that it is just and equitable that he recover on a quantum meruit.

86. The relevant principles in relation to discharging the burden of proof in civil cases were summarised by McDougall J in the New South Wales Court of Appeal in Nguyen v Cosmopolitan Homes [2008] NSWCA 246 at [55] as follows:

1. A finding that a fact exists (or existed) requires that the evidence induce, in the mind of the fact-finder, an actual persuasion that the fact does (or at the relevant time did) exist;

2. where on the whole of the evidence such a feeling of actual persuasion is induced, so that the fact-finder finds that the probabilities of the fact’s existence are greater than the possibilities of its non-existence, the burden of proof on the balance of probabilities may be satisfied;

3. where circumstantial evidence is relied upon, it is not in general necessary that all reasonable hypotheses consistent with the non-existence of a fact, or inconsistent with its existence, be excluded before the fact can be found; and

4. a rational choice between competing hypotheses, informed by a sense of actual persuasion in favour of the choice made, will support a finding, on the balance of probabilities, as to the existence of the fact in issue.

87. Barrett J observed that this approach was endorsed by Campbell J in Sullman v Sullman [2002] NSWSC 169.

88. At paragraph 49 of his judgement Barrett J. stated in connection with section 94(1A) of the Act:

‘The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression “quantum meruit”. The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it.’

89. I have had regard to the affidavit evidence served by the builder. It appears not in dispute that it was a requirement of the builder to obtain home owners warranty insurance. The requirement of a threshold question, whether the builder must persuade me that it is just and equitable to assess his claim on a quantum meruit basis is therefore not controversial. I find that that the builder’s refusal to acknowledge his responsibility as a builder, forcing the homeowners to prove this aspect of their claim was unreasonable. I am not persuaded that it would be just and equitable to allow assessment on a quantum meruit basis. The builder claims he was a mere contract coordinator with the primary task to “administer the trade contracts” (submissions para 36). However, he has led no evidence to support this contention. I have made findings that the builder was responsible for coordination and supervision of the various contractors on a daily basis as opposed to merely administering the contracts. It has been submitted that Mr Denkov visited the construction site at least 364 days between 9 February 2015 and 16 February 2016 before he removed his items from the site. I cannot reconcile the builder’s willingness to charge $101,000 for his time and his unwillingness to take responsibility for defective work that was performed whilst he was supervising and coordinating the work. For these reasons I am not persuaded that the builder should be entitled to charge on a “just and equitable basis”.

90. Even if I have erred, this finding is of little consequence. I find that the builder has not discharged his onus of proof and has led no admissible or persuasive evidence that he is entitled to restitution.

Quantum Meruit

91. The builder has provided no evidence of costs expended by him up to and including the date he last performed work on site. It was open to the builder to provide evidence as to the value of actual labour cost incurred and evidence of the cost of materials he has paid for, and from which the homeowners have derived a benefit. Such evidence is usually provided through third party invoices from suppliers and labourers. The test to be applied is whether the builder has provided goods and services, from which the owners have derived a benefit and for which builder has not been renumerated.

92. The builder tenders the QS report. However, no reliance is placed on the report in the claim for restitution set out at paragraphs 89 to 104 of the written submissions. Although the report was tendered into evidence, it is for all intents and purposes irrelevant. Mr Nguyen did not assess the value of the work undertaken by the builder. Nor did the report assess what if any moneys were owing to the buidler for labour and material costs up to the date the builder last attended site. The QS report is essentially a valuation report and the assessment undertaken in December 2016 does not distinguish between labour and materials supplied by the respondent, and labour and material supplied by subsequent builders who had, at the time of the assessment been on site for approximately 10 months.

93. In support of a claim for payment for $123,000 for outstanding project management fees, the builder’s solicitor cites a site diary as evidence of Mr Denkov’s time spent on site. However, the site diary was not tendered into evidence, even though the Tribunal asked the builder’s legal representative at the hearing whether the diary was available. In the absence of such a tender, any submission which relies on the assessment of damages based on the site diary must be rejected. I refer to the judgment of JLW (Vic) v Tsiloglou and Ors [1994]1 VR 237 setting out leading authorities on the assessment of damages, particularly in cases where damages are uncertain and the plaintiff has failed to lead its best evidence. Brooking J states as follows.

Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can: Biggin and Co Ltd v Permanite Ltd [1951] 1 KB 422, at 438; The Commonwealth v Arnann Aviation Pty Ltd, at CLR at 83, per Mason CJ and Dawson J. The nature of the damage may be such that the assessment of damages will really be a matter of guesswork, as in the well-known case of Chaplin v Hicks [1911] 2 KB 786, where the plaintiff had lost a chance of winning an engagement as an actress as a prize. So damages will be assessed for the wrongful detention of a racehorse even though it may be necessary to guess at the amount: Wilson v Matthews [1913] VicLawRp 54; [1913] VLR 224; compare Howe v Teefy [1927] NSWStRp 41; (1927) 27 SR (NSW) 301. Claims for damages for loss of publicity are another example of cases of inherent difficulty in assessing the plaintiff's loss with any approach to certainty: see the decisions cited in Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286, at 301. An interesting decision is Aerial Advertising Co v Batchelors Peas Ltd (Manchester) [1938] 2 All ER 788, where the loss suffered could not have been proved with precision. Atkinson J. awarded three hundred pounds as all he could allow on an absolutely safe basis, saying that it was undoubtedly too little, but that the plaintiff could have called better evidence if it had wanted a larger figure.

94. The builder sought an assessment of damages based on his attendance at site, based on evidence that was clearly available as at the time of the hearing but was not tendered. The evidence to support the proposition that the owners have derived a benefit from Mr Denkov’s services above and beyond those already paid for, has not been provided.

95. The builder’s claim appears to be misconceived. It is based on the contractual arrangement of a 10% project management fee, when the builder through his legal counsel has admitted that he is not entitled to recover any debt outstanding pursuant to the contract, but proceeds on a quantum meruit basis. In a quantum meruit claim the Tribunal awards a money payment that is not determined by reference to a contract.

96. I reject the builders claim for $123,760 for project management fees. I find there is no evidence to support this sum and I am not persuaded that it is just and equitable to make an award as claimed. In addition, and in the alternative, it would be procedurally unfair to allow this claim, as it constitutes a late amendment of the builder’s application, brought without prior leave, and without giving the owners a fair opportunity to be heard, or to cross examine on the elusive diary.

Is the builder entitled to payment of $16,487 for the final invoice rendered No 151214 (statement 15018).

97. The submission sets out the basis for the “just and equitable claim” as follows:

The homeowners have been ordering various materials using the Kolemain constructions (sic) builders (sic) account with various suppliers and as a result received significant costs savings ‘sometimes up to 30% of the RRP” (see SD – p.4. pg 452)… One of the invoices No 151214 (statement 105018) in the sum of $16,487 has not been paid to Kolemain Constructions Pty Ltd. The respondents have paid the costs of materials in the amount of $14,853.41 delivered to the homeowners out of their pocket (SD –p5 pg 452, Annexure 1 pg 23; pg 473.)

98. The evidence refers to the affidavit of Svetlana Denkova deposed on 20 December 2016. The page numbers referred to in submissions do not correlate with the tender bundle before the Tribunal and as best I can I have guessed at the actual evidence referred to. At paragraph 2 Ms Denkova deposes “At all relevant times the second respondent’s trading account was eligible for high discount for ordering materials with numerous suppliers sometimes up to RRP 30%.” However there is no evidence attached that would support a finding that, in respect of invoice 151214, the homeowners have derived a benefit in the form of a 30% discount. The invoice remains completely silent on the materials provided, it simply states “Total supply $14,853”.

99. The builder bears the onus of proof and has not provided any evidence of supplies provided by the company, to the benefit of the owners, with a 30% discount. There is no evidence tendered that the applicant, Mr Kole Denkov, has incurred a loss for which he has not already been renumerated. There is no actual evidence as to an entitlement to restitution. I am not satisfied that it would be just and equitable to make an award of $16,487.

100. Even if I was satisfied that there was an order of supply of materials by Kolemain Constructions Pty Ltd, for which the company has not been compensated, the company is not the claimant. The applicant on the builder’s claim is Mr Denkov only. Mr Denkov insists that the company is not a party to the related cross claim, and I have made findings in his favour to that effect. The company is not jointly and or severally liable for defective and incomplete work. Nor is the company entitled to claim losses and damages on the application as framed. I am not satisfied on the evidence that Mr Denkov or the company have established an entitlement to restitution in the sum of $16,487.

Should the Tribunal make a work order in accordance with s 48 MA of the HBA as the “preferred outcome”.

101. A work order was not sought by the builder in submissions.

102. In the event that the work order is pressed, I decline to make such an order. The builder , Mr Denkov, is not currently appropriately licensed and the Tribunal is precluded from entering a work order. In light of the finding that Kolemain Constructions is not liable, no work order can be entered in respect of Kolemain Constructions Pty Ltd.

103. Finally I note that only Linda Langov is a party to the contract. Accordingly I make orders in favour of Ms Langov only.

Summary of findings

104. In HB 16/23186 Kole Denkov shall pay to Linda Langov the sum of $161,066 within 28 days of the making of these orders.

105. HB 16/56088 is dismissed.

Costs

106. The homeowners may make written submissions on the question of costs on or before 4 September 2017.

107. The builder shall file and serve any application and or submission on costs on or before 18 September 2017.

108. Both sets of submissions should address section 60 and Regulation 38 of the Civil and Administrative Tribunal Act 2013.

109. The question of costs will be determined chambers unless the parties request, in writing, an oral hearing on the question of costs.

S Thode

Senior Member

Civil and Administrative Tribunal of New South Wales

23 August 2017

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: 08 September 2017