Lucic v Henry
[2021] VSC 548
•3 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2020 04260
| VINKO LUCIC | Applicant |
| v | |
| SEBASTIAN HENRY and PIPPA JOSEPH | Respondents |
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JUDGE: | Richards J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 August 2021 |
DATE OF JUDGMENT: | 3 September 2021 |
CASE MAY BE CITED AS: | Lucic v Henry |
MEDIUM NEUTRAL CITATION: | [2021] VSC 548 |
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ADMINISTRATIVE LAW – Appeal from Victorian Civil and Administrative Tribunal – Domestic building disputes – First proceeding between owner and builder resolved by terms of settlement – Mutual release – Owner commenced second proceeding for defective work – Tribunal found claimed defects not covered by release given in terms of settlement of first proceeding – Leave to appeal – Where party seeks to raise a point on appeal not argued below – Whether Tribunal misconstrued release – Whether Tribunal failed to consider that owners ought to have known of claimed defects when terms of settlement signed – Adequacy of reasons – Domestic Building Contracts Act 1995 (Vic), ss 8, 10 – Victorian Civil and Administrative Tribunal Act 1998 (Vic), ss 117, 148.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr JAF Twigg QC | Ferdinand Zito & Associates |
| For the Respondents | Mr MT Flynn QC with Mr TL Bevan | David Joseph & Co |
HER HONOUR:
In October 2012, Vinko Lucic entered into a domestic building contract with Sebastian Henry, and subsequently built a three-storey house in St Kilda for Mr Henry and Pippa Joseph. In 2014, Mr Lucic and his company Ontrak Homes Pty Ltd brought a proceeding in the Victorian Civil and Administrative Tribunal, seeking to recover money they claimed was owing for work done on the house. Mr Henry counterclaimed for damages in respect of defective work, having already terminated the contract.
The first Tribunal proceeding settled on 30 October 2014, with Mr Henry agreeing to pay Mr Lucic and Ontrak a total of $40,000. The terms of settlement, signed by Mr Henry and Mr Lucic on 30 October 2014, included a mutual release.
In about April 2015, Mr Henry and Ms Joseph noticed water leaking into the first floor living room, apparently from the second floor balcony above. Ms Joseph contacted Mr Lucic, who did some work on the balcony in an attempt to fix the leak. His efforts were unsuccessful, and the leaking continued. Mr Henry and Ms Joseph also identified a water leak into the kitchen from the first floor balcony, and a large leak from the skylight above the lightwell.
Mr Henry and Ms Joseph brought a second Tribunal proceeding in October 2019, claiming damages in respect of four items of defective work (the claimed defects), including the three water leaks. Mr Lucic’s response was that the claimed defects did not exist, or alternatively they were covered by the terms of settlement in the first Tribunal proceeding.
The Tribunal, constituted by Senior Member Walker, heard the second Tribunal proceeding on 6 and 7 August 2020. Both sides were represented by counsel. On 15 October 2020, the senior member found there to be three of the four defects claimed, none of which were captured by the release in the terms of settlement. The Tribunal ordered Mr Lucic to pay Mr Henry and Ms Joseph a total of $78,434.08 for rectification costs and alternative accommodation.[1] On 26 November 2020, the Tribunal made a costs order in favour of Mr Henry and Ms Joseph.
[1]Henry v Lucic (Building and Property) [2020] VCAT 1153 (Reasons).
In this proceeding, Mr Lucic seeks leave to appeal from the orders of the Tribunal pursuant to s 148(1)(a) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act). His central complaint concerns the Tribunal’s findings that the claimed defects were not caught by the release in the terms of settlement. In particular, he contends that the Tribunal erred in the way it dealt with the question of whether the owners knew or ought reasonably to have known of the claimed defects when the terms of settlement were signed in October 2014.
For the reasons that follow, leave to appeal will be refused and the proceeding will be dismissed.
First Tribunal proceeding
Mr Lucic and Ontrak brought the first Tribunal proceeding against Mr Henry, claiming $289,502.52 on a quantum meruit, or alternatively $94,989.29 in damages. Mr Henry counterclaimed for damages amounting to $393,128.50.
The points of claim and the points of defence in the first Tribunal proceeding were not included in the material filed in this proceeding. However, the following expert reports relied on by the parties in the first Tribunal proceeding were available:
(a) inspection report of Nick Kukulka of the Victorian Building Authority, who was appointed by the Building Commission to inspect the property, dated 10 December 2013;
(b) report of Rob Lees of Faulkner Lees Constructions Pty Ltd dated 7 May 2014, prepared for the owners;
(c) report of Robert Lorich of Australiawide Building Consultants dated 24 June 2014, prepared for the builder;
(d) report of Robert Quick of QP Consulting dated 29 August 2014, prepared for the owners; and
(e) report of Jeff Beck of JWB & Associates Pty Ltd dated 7 October 2014, prepared for the builder.
The reports of Mr Lees and Mr Quick were particularly detailed, and itemised numerous defects identified by them on inspection of the house.
The significant issues of concern identified by Mr Lees were:
• The suspended ground floor slab is displaying flexural cracking.
• The finish to the floor slab is neither polished or burnished as contracted.
• The hydronic heating system is incomplete and there are doubts the pipework has been installed by a licensed plumber.
• The painting and plaster finishes are of a relatively low standard throughout.
Mr Lees noted a number of issues with the lightwell cladding, which was rendered blue board rather than the selected metal cladding. He also noted that the windowsill flashings were directing water toward the window rather than away from the window. He provided a scope of works necessary to rectify these defects, which involved temporarily removing the skylight to allow for replacement of the cladding with colorbond sheet cladding ‘along with flashings’.
At item 16 of his report, Mr Lees also identified issues in relation to the balconies on the first and second floors, in particular that the downpipe penetrations on both decks had not been sealed in accordance with the requirements of the relevant standard. While the penetrations were not leaking at the time of his inspection, he recommended rectifying the defect.
Mr Quick’s report noted defects in relation to the installation of the hydronic heating, the stormwater and sewer drainage, the plumbing installation, the roof installation, the waterproofing of the bathroom, and the window installations. He noted the lack of purpose-made flashings to the windows in the lightwell, and the fact that the skylight was fixed solely by silicone and not by mechanical means. As to the rectification of these defects, he said:
The non-installation of the flashing to the windows of the lightwell will be rectified when the non-specified cement sheet is replaced with metal cladding. The re installation of the cladding will require provision to be made for the mechanical fixing of the skylight, and the proper drainage including the installation of an adequate overflow.
The first Tribunal proceeding resolved at a compulsory conference on 30 October 2014. Mr Lucic and Mr Henry signed terms of settlement, which appear to be in the standard form provided by the Tribunal for the use of parties to a domestic building dispute. The heading included the Tribunal proceeding number D155/14, and identified the applicant to be Mr Lucic and Ontrak, and the respondent as Mr Henry.
The recitals summarised the background, as follows:
I.On or about October 2012 the Applicant and the Respondent entered into a contract (“the contract”) for the performance of building works at [street address], St Kilda in the State of Victoria (“the building works”).
II.A dispute arose between the Applicant and the Respondent in relation to the building works performed and/or monies owed under the contract (“the dispute”).
III.The Applicant and the Respondent has/have lodged an Application in VCAT to determine the issues comprised in the dispute (“the proceeding”).
Following the recitals, there was a statement that:
In the interests of avoiding further costs and expense, the parties have agreed to a settlement of the proceeding and the dispute on the following terms …
The terms were that Mr Henry agreed to pay Mr Lucic and Ontrak the sum of $40,000 by 1 December 2014. The parties agreed to the Tribunal striking out the proceeding with a right to apply for reinstatement, and making no order as to costs.
Clause 5 of the terms of settlement contained the release, as follows:
In consideration of the parties entering these terms of settlement, the parties hereby release and discharge each other from liability for the claims made in the proceeding (inclusive of costs) and from any further claims of whatsoever nature arising out of or in connection with the dispute and/or the proceeding. This release from liability applies to claims a party has or may have for breach of a statutory warranty in respect of domestic building work, but only in so far as that party knows, or ought reasonably know, of the breach as at the time these terms of settlement are executed.
Second Tribunal proceeding
The claims made by Mr Henry and Ms Joseph in the second Tribunal proceeding were set out in their amended points of claim:[2]
In carrying out the works, the respondent carried out defective works (“defective works”) in that he:
a. failed to properly waterproof the intersection point between the external concrete wall panels and aluminium capping flashing leading to an … active water leak in the kitchen causing water damage to the kitchen bulkhead (“Item 1”).
b. failed to properly waterproof the upper balcony which has resulted in an active water leak causing damage to the upper balcony and the ceiling of the second level rear room (“Item 2”).
c. failed to properly install flashing around the ground floor skylight such that there are now open gaps allowing water to penetrate (“Item 3”).
d. failed to extend the waterproof membrane to the drainage outlet in the master bedroom ensuite shower base … contrary to AS 3740 Waterproofing of domestic wet areas (“Item 4”).
[2]Amended points of claim dated 3 March 2020, [9].
Mr Henry and Ms Joseph pleaded that Mr Henry did not know and ought not reasonably have known of the claimed defects when he entered into the terms of settlement. They alleged that they became aware of items 1 to 3 in about May 2015, when leaking and water stains became visible, and item 4 on receipt of an expert report in October 2019. They claimed damages for these breaches of warranty amounting to $94,064.75 for rectification costs, and an additional $7,200 for the cost of alternative accommodation while the work was carried out.
Although Ms Joseph was not a party to the first Tribunal proceeding or the terms of settlement, it was common ground that she was bound by the release.
In his amended points of defence, Mr Lucic denied the existence of the claimed defects, and said further that, if they existed, they were defects that were known or ought to have been known to Mr Henry when he signed the terms of settlement.[3] He also claimed that the terms of settlement covered the claimed defects, on the basis that they had been identified in the reports of Mr Lees and Mr Quick. Schedule A to the amended points of defence contained a summary of the claimed defects that Mr Lucic said were known before the settlement of the first Tribunal proceeding:
[3]Amended points of defence dated 5 May 2020, [9].
Schedule A - Summary of defects prior to Terms of Settlement
1. Failure to properly waterproof intersection between external concrete wall panels and aluminium capping flashing leading to an active water leak in the kitchen causing water damage to kitchen bulkhead.
(a) Discussion of improper sealing of downpipe penetrations and how it affects waterproofing in Item 16 of Rob Lees Report.
2. Failure to properly waterproof upper balcony leading to damage to upper balcony and ceiling of second level rear room.
(a) Discussion of improper sealing of downpipe penetrations and how it affects waterproofing in Item 16 of Rob Lees Report.
3. Failure to properly install flashing around ground floor skylight leading to leaking from skylight.
(a) Discussion of improperly placed flashing in item 3 of Rob Lees Report.
(b) Discussion of insufficient flashing around the ground floor skylight leading to leaking from the skylight in item 12.3 of Robert Quick Report.
Early on in the hearing on 6 August 2020, the senior member identified the main issue in dispute to be the extent to which the current claim was caught by the terms of settlement. Counsel for Mr Henry and Ms Joseph agreed, and said later in his opening:[4]
… in my submission, what they ought to have known of is clearly what was in the reports. I mean, they - everyone has commissioned experts to assess the building, it couldn’t possibly be reasonable that they should know more than the experts and so, unless it can be shown that the defects are sort of identified in those reports, we would say that we ought to be able to make up defect claim.
[4]Tribunal transcript, 6 August 2020, 23:7–14.
At the start of his opening, counsel for Mr Lucic expressed his agreement that the key issue for the Tribunal to determine was to what extent the claimed defects were identified in the first Tribunal proceeding, and whether there was any duplication in what was being claimed in the second Tribunal proceeding.[5] He then outlined the way in which he would put Mr Lucic’s case that the claimed leaks were covered by the terms of settlement.
(a) The source of the water leaks into the kitchen and into the first floor sitting room had been identified by Mr Lees in item 16 of his report, when he noted that the downpipe penetrations on the balconies had not been sealed to the required standard.[6] In addition, the owners could not conclusively show where the leaks were coming from, and so it was not certain that the leaks were not captured by the terms of settlement.[7]
(b) Mr Quick had identified that the glass in the skylight was not securely mechanically fixed in position, and so Mr Henry ought reasonably have been aware of the lack of flashing around the ground floor skylight when he signed the terms of settlement.[8]
[5]Tribunal transcript, 6 August 2020, 28:3–7.
[6]Tribunal transcript, 6 August 2020, 28:19–29:17.
[7]Tribunal transcript, 6 August 2020, 30:15–20.
[8]Tribunal transcript, 6 August 2020, 28:10–18.
Ms Joseph said in her evidence in chief that there were no active leaks at the time the terms of settlement were entered into. She said that at that time she was ‘absolutely not’ aware of any defects other than those identified in the expert reports prepared for the first Tribunal proceeding.[9] She was cross-examined on that evidence, as follows:[10]
You gave evidence earlier when you were asked about when you first noticed the leaks. You gave evidence that there were no active leaks until or after the terms of settlement, until you noticed them. Do you recall that?---I recall I noticed the leaks after settlement, yes.
But you were aware at the terms of settlement, weren’t you – at the time of the terms of settlement, that there were defects that could cause leaks?---No, I wasn’t aware that there was defects.
You weren’t aware of that?---No.
You weren’t aware that there were defects listed that could cause leaks?---No. I was not aware of that.
[9]Tribunal transcript, 6 August 2020, 34:9–21.
[10]Tribunal transcript, 6 August 2020, 60:30–61:11.
Mr Henry also said that, when he signed the terms of settlement on 30 October 2014, there were no active leaks. He had read the expert reports prepared for the first Tribunal proceeding – they were quite extensive, and he had read and tried to understand as much as he could. He confirmed that, other than the defects in those reports, he was not aware of any defects in the property when he signed the terms of settlement.[11] In cross-examination, he repeated that he was not aware of any active leaks at the time of the settlement. He acknowledged that there might have been a leak that he did not know about. He was asked about his understanding of the expert reports in the first Tribunal proceeding, and said that he had legal representation and experts and could understand as much as was explained to him.[12]
[11]Tribunal transcript, 6 August 2020, 65:18–66:8.
[12]Tribunal transcript, 6 August 2020, 66:12–67:14.
Mr Henry and Ms Joseph relied on two reports of Simon Brownhill of SRB Building Consultants, dated 29 October 2019 and 23 March 2020. Mr Lucic relied on a further report of Mr Lorich of Australiawide Building Consultants, dated 6 December 2019. The Tribunal heard the evidence of the two experts concurrently.
The experts gave different opinions as to the cause of the water leaks.
(a) Mr Brownhill considered that the leak into the kitchen was caused by an unsealed join between two concrete panels on the balcony above. Mr Lorich said that it more than likely came from the stormwater pipe penetration, which had been the subject of the first Tribunal proceeding.
(b) In relation to the leak into the first floor sitting room, Mr Brownhill’s opinion was that it was due to a failure of the waterproofing system applied to the balcony surface above. Mr Lorich again considered that the leak may be related to the stormwater pipe penetration, as claimed in the first Tribunal proceeding.
(c) Mr Brownhill considered that the water damage in the lightwell was related to open gaps in the perimeter flashing installed above the skylight, which had not been identified in the earlier reports of Mr Lees or Mr Quick. Mr Lorich said that the defect was generally covered by Mr Lees’ report in the first Tribunal proceeding.
Mr Lucic’s evidence was that he did not see any leakage between the panel joint on the balcony above the kitchen and that the joint was perfect.[13] He had ‘no idea’ where the leak into the first floor sitting room was coming from.[14] He thought that the claim concerning the skylight had been covered in the first Tribunal proceeding.[15]
[13]Tribunal transcript, 7 August 2020, 158:25–162:17.
[14]Tribunal transcript, 7 August 2020, 162:20–21.
[15]Tribunal transcript, 7 August 2020, 163:7–9.
In closing submissions, counsel for Mr Lucic made no submission that, in October 2014, Mr Henry or Ms Joseph knew or ought to have known of the specific defects that were the subject of the second Tribunal proceeding. Rather, he argued that the point of entry had not been pinpointed for the water leaks into either the kitchen or the first floor sitting room. Counsel submitted that the terms of settlement covered defects of a similar nature, and referred to the identified problems with the downpipes through the balconies, and the lack of a collar around the downpipes. He said that, having not rectified those defects, the applicants ought be precluded from making the second claim.
In relation to the skylight flashing, the submission was that it would have been fixed if the identified defects in the lightwell had been rectified following the settlement. Mr Lucic conceded that the ensuite shower had not been waterproofed in accordance with the applicable standard, but argued that it was not leaking and so there was no need to rectify the work.
Tribunal’s Reasons
The Tribunal’s Reasons published on 15 October 2020 set out the background facts and procedural history, and identified three issues for determination:[16]
(a) whether the defects complained of are established;
(b) whether the defects complained of formed part of the subject matter of the earlier proceeding; and
(c) whether, having regard to the release contained in the Terms of Settlement entered into to resolve the earlier proceeding, the claims with respect to the defects complained of had been compromised.
[16]Reasons, [11].
The senior member observed that the primary defence was the release in the terms of settlement, and so he examined that first. He set out the relevant parts of the terms of settlement,[17] and summarised the effect of the release:[18]
The release would therefore be for liability arising out of or in connection with either the claim or counterclaim but would only affect a claim for defective workmanship insofar as the Owners knew or ought reasonably to have known of its existence at the time the Terms of Settlement were signed.
[17]See [14]–[18] above.
[18]Reasons, [17].
The next section of the Reasons dealt with the defects known at the time of the first Tribunal proceeding:[19]
[19]Reasons, [18]–[21].
By his further amended points of defence and counterclaim dated 17 October 2014 and filed in the earlier proceeding, Mr Henry referred to the following expert reports as identifying the defects requiring rectification:
(a) report of Nick Kukulka, dated 10 December 2013 (“the Kukulka report”);
(b) report of Robert Lees is dated 7 May 2014 (“the Lees report”);
(c) report of Robert Quick dated 29 August 2014 (“the Quick report”);
(d) report of Robert Lorich dated 27 June 2014 (“the Lorich report”);
(e) report of Jeff Beck dated 7 October 2014 (“the Beck report”).
There is much overlap between the reports and it appears that the Builder carried out some of the work after the Kukulka report was prepared.
In the prayer for relief in the counterclaim, Mr Henry claims the cost of rectification of the items set out in the Lees report and the Quick report.
There is no evidence that Mr Henry knew or ought to have known of any other defect apart from those referred to in these reports.
The Tribunal then considered each of the claimed defects in turn.
In relation to the water leak into the kitchen, the Tribunal set out the competing opinions of Mr Brownhill and Mr Lorich, noting Mr Lorich’s evidence that he did not see the gaps identified by Mr Brownhill.[20] The Tribunal preferred Mr Brownhill’s opinion to that of Mr Lorich. The senior member accepted that there were gaps allowing water to enter the join between the two concrete panels, noting that the plaster damage was closer to the gap than to the stormwater pipe penetration.[21]
[20]Reasons, [47].
[21]Reasons, [49].
The Tribunal considered and rejected Mr Lucic’s contention that the water leak into the first floor sitting room was due to the stormwater pipe penetration, and so was part of the first Tribunal proceeding:[22]
Further, although there was reference to the penetration of the stormwater pipe in Item 16 of the Lees report, the defect that Mr Lees identified was the absence of a proper collar and flashing in order to prevent future water penetration. He noted that the downpipe penetrations were not leaking at the time of his report.
After the Terms of Settlement were signed, the Builder returned to the site, removed some tiles, patched the membrane and reworked the penetration, cutting off the downpipe so that it terminated above the level of the deck and inserting a grated drain to receive the water coming out of the open end of the shortened downpipe that he had created.
Consequently, if that penetration is now leaking, that is not the defect that was identified in Mr [Lees’] report and so it cannot be said that it was the subject of the release in the Terms of Settlement.
[22]Reasons, [63]–[65].
The senior member found that water was leaking into the first floor sitting room because the waterproofing of the balcony above it was ineffective, as opined by Mr Brownhill. The Reasons dealt specifically with whether the defect was covered by the terms of settlement:[23]
On balance I think that Mr Brownhill’s evidence on this issue is to be preferred and I should find that, although there appears to have been a membrane applied to the balcony at the time of construction, it has not been effective to prevent water penetration into the room below. I find this to be a defect. It was not raised in any of the experts’ reports that were filed in the earlier proceeding, nor was there an allegation made in the earlier proceeding that the balcony was leaking. It is therefore not caught by the release given in the Terms of Settlement.
[23]Reasons, [67].
As to the missing flashing around the skylight, the Tribunal accepted that the defect would have been rectified if the scope of works recommended by Mr Lees, in his report for the first Tribunal proceeding, had been done. However, that was not an answer to the claim:[24]
I also accept that the absence of this flashing around the skylight roof was not one of the defects identified in the previous hearing. The Builder cannot complain that the Owners have failed to use the notional proceeds of settlement to rectify the other defects that were identified and so they were under no duty to rectify the absence of that flashing.
[24]Reasons, [84].
The Tribunal rejected the fourth claim, concerning the waterproofing in the master bedroom ensuite, because there was no evidence of any leaking, and no basis to assume that the waterproofing was defective.[25]
[25]Reasons, [91].
The cost of rectifying the three defects was assessed at $73,934.08, broken down as follows:[26]
[26]Reasons, [93].
Item 1 - Water leak in kitchen
$ 9,642.79
Item 2 - Water leak in ceiling of sitting room
$ 46,139.36
Item 3 - Missing flashing in light well
$ 16,075.42
Total
$ 71,857.57
Plus Preliminary works
$ 2,076.51
Total
$ 73,934.08
In addition, the Tribunal allowed a further $4,500 for the cost of alternate accommodation while the work was carried out. The Tribunal therefore ordered Mr Lucic to pay Mr Henry and Ms Joseph a total of $78,434.08.
Leave to appeal
Section 148(1) of the VCAT Act provides that a party to a proceeding may appeal on a question of law from an order of the Tribunal in the proceeding, with leave of the Court.[27] Mr Lucic seeks leave to appeal from the Tribunal’s orders on the following questions of law:[28]
1. Did the Tribunal misconstrue clause 5 of the Terms of Settlement and read down the respondents’ release of the appellant to his liability for a claim arising out of or in connection with the claim or counterclaim (as defined in the Terms [of] Settlement) and for defective workmanship insofar as the respondents knew or ought reasonably to have known of its existence at the time the Terms of Settlement were signed?
2. With respect to each of the defect claims made [by] the respondents in the proceeding, did the Tribunal fail to find, on the evidence, whether the respondents knew or ought to have known of each of the claims at the time they signed the Terms of Settlement?
3. Did the Tribunal neglect to find facts and circumstances, which were available on the evidence, from which it could infer that the respondents knew or ought to have known of each of the claims made in the proceeding at the time they signed the Terms of Settlement?
4. Are the Tribunal’s reasons inadequate because they do not clearly set out the factual and legal issues for determination, the conclusions on those issues and the thought process that has been applied in reaching those conclusions?
[27]In this case, the Tribunal was constituted by a senior member, and so an appeal lies to the Trial Division of the Supreme Court, under s 148(1)(b).
[28]The notice of appeal included a fifth question of law: ‘Did the Tribunal act fairly and in accordance with the substantial merits of the case when deciding the dispute?’ This question was not pressed at the hearing: transcript, 13 August 2021, 3:23–25.
I may grant leave to appeal only if I am satisfied that the appeal has a real prospect of success.[29] Mr Lucic must demonstrate that his appeal’s prospects are real and not fanciful; he need not demonstrate that it is likely to succeed.[30]
[29]VCAT Act, s 148(2A).
[30]Note Printing Australia Ltd v Leckenby (2015) 50 VR 44, [82] (Tate JA, Whelan and Ferguson JJA agreeing), applying Kennedy v Shire of Campaspe [2015] VSCA 47, [11]–[14].
While it is necessary to be satisfied that the appeal has a real prospect of success, that does not dictate that leave must be granted.[31] Once the discretion to grant leave to appeal is enlivened, a number of other considerations may bear on whether leave should be granted in the particular case.[32] In this case, a relevant consideration is whether the questions of law set out in the notice of appeal were raised before the Tribunal.[33] The overriding consideration in determining an application for leave to appeal under s 148 is the justice of the case, to all parties, not only the applicant for leave.[34]
[31]Metricon Homes Pty Ltd v Softley (2016) 49 VR 746, [29] (Warren CJ, Tate JA and Robson AJA agreeing).
[32]Chopra v Department of Education and Training [2019] VSC 488, [23].
[33]Dura (Australia) Constructions Pty Ltd v Victorian Managed Insurance Authority [2012] VSC 114, [70]–[72]; Kornucopia Pty Ltd v Zhang [2019] VSC 439, [60]–[65].
[34]Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331, [16] (Phillips JA, Tadgell and Batt JJA agreeing).
For the reasons given below, I am not persuaded that any of the questions of law set out in the notice of appeal has a real prospect of success. For that reason, I must refuse leave to appeal.
I would have refused leave to appeal in any event, because the arguments that Mr Lucic sought to raise on appeal were not put before the Tribunal. The senior member decided the questions that were presented for his determination by the parties at the hearing, and that is reflected in his Reasons.
The case for Mr Lucic below was that the claimed defects did not exist, or alternatively that they were covered by the terms of settlement in the first Tribunal proceeding. He made no submissions about the proper construction of the release in the terms of settlement. He did not argue that Mr Henry and Ms Joseph ought reasonably to have known about the claimed defects at an earlier time. He did not lead any evidence, and asked no questions in cross-examination, as to whether the sources of the leaks could reasonably have been discovered before October 2014. That is clearly a question of fact, which Mr Henry and Ms Joseph could have met with further evidence. It would be unjust to permit Mr Lucic to raise new arguments on appeal, which are at odds with the case he chose to put to the Tribunal, and which Mr Henry and Ms Joseph had no opportunity to meet.[35]
[35]Whisprun v Dixon (2003) 200 ALR 447, [51] (Gleeson CJ, McHugh and Gummow JJ). See also Medical Practitioners Board of Victoria v Lal (2009) 23 VR 702, [41] and Jones Lang Lasalle (Vic) Pty Ltd v Korlevski [2012] VSCA 305, [3]–[7] (Warren CJ), [67]–[70] (Neave JA, Ferguson AJA agreeing).
It is the case that Mr Lucic’s amended points of defence pleaded that, if the claimed defects existed, they were defects that were known or ought to have been known to Mr Henry when he signed the terms of settlement in the first Tribunal proceeding.[36] However, that point was not pursued at the hearing of the second Tribunal proceeding. Whether a party is seeking to raise a new point on appeal is to be determined by looking at the actual conduct of the proceeding; the pleadings or particulars are not conclusive.[37]
[36]Amended points of defence dated 5 May 2020, [9].
[37]Whisprun v Dixon, [52] (Gleeson CJ, McHugh and Gummow JJ), citing Water Board v Moustakas (1988) 180 CLR 491, 497 (Mason CJ, Wilson, Brennan and Dawson JJ).
Question 1 – Did the Tribunal misconstrue the release?
Mr Lucic’s first ground of appeal was that the Tribunal wrongly construed clause 5 of the terms of settlement to mean that the release was only for liability arising out of or in connection with defects identified within the claim and counterclaim settled by the terms of settlement. He submitted that the plain meaning of the clause was that it released him of all claims that were known or ought reasonably to have been known at the time Mr Henry signed the terms of settlement.
Mr Lucic argued that the Tribunal’s summary of the effect of the release, set out at [33] above, was wrong in two respects.
(a) First, the release was not narrowly confined to ‘liability arising out of or in connection with either the claim or counterclaim’. Rather, it comprised all defects in the building work that were either known or ought reasonably have been known, without limitation to a liability connected with the claim and counterclaim in the first Tribunal proceeding.
(b) Second, the test for whether a defect ought reasonably have been known was objective, not subjective. It extended beyond matters within the direct knowledge of the respondents at the time the terms of settlement were executed, and discharged Mr Lucic from liability for all defects that were known or ought to have been known, regardless of the subject matter of the first Tribunal proceeding.
Mr Lucic said that the senior member’s error was in reading the second sentence of clause 5 as a condition or limitation on the mutual release in the first sentence. He argued that the two sentences of clause 5 were two separate releases: the first sentence was a mutual release of all claims made in the proceeding or arising out of or connected with the dispute and the proceeding; the second sentence released Mr Lucic from liability for all breaches that Mr Henry knew or ought reasonably have known of when he signed the terms of settlement.
Mr Lucic submitted that the second sentence did more than spell out that the mutual release was subject to ss 8 to 10 of the Domestic Building Contracts Act 1995 (Vic) (DBC Act). That would have been unnecessary, because the law – in particular s 10 of the DBC Act – already has that effect. His contention was that it was a standalone release, which covered any breach of warranty that was known or ought reasonably have been known when the terms of settlement were signed.
Consideration
I accept Mr Lucic’s submission that the terms of settlement, in particular the release, are to be construed in accordance with the principles set out in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[38]
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.
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 inquiry 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.
[38](2015) 256 CLR 104, [46]–[47] (French CJ, Nettle and Gordon JJ) (citations omitted); see further [48]–[51] (French CJ, Nettle and Gordon JJ).
Applying those principles, I find that the construction of the release put forward by Mr Lucic is untenable. A reasonable builder would not have understood the clause to release him from liability for breaches of warranty beyond claims made in, arising out of, or connected with, the dispute and the proceeding.
The text of clause 5 of the terms of settlement indicates that its two sentences are to be read together, with the second sentence clarifying the extent of the mutual release given in the first sentence. The second sentence starts with the words ‘This release from liability’, which plainly relate to the release given in the first sentence.
The immediate context in which clause 5 appears is in the terms of settlement in resolution of ‘the proceeding’ and ‘the dispute’. The dispute was defined in the recitals to be the dispute that had arisen between parties to the proceeding in relation to the building works performed and money owed under the contract. The proceeding was Tribunal proceeding D155/14, concerning ‘the issues comprised in the dispute’. That context indicates that clause 5 is a release of claims related to the dispute and the proceeding, and not some wider class of potential claims.
The broader context of clause 5 is the statutory background of the DBC Act, and in particular the statutory warranties in s 8 of the DBC Act. Section 10 of the DBC Act provides that a person cannot sign away a right to take advantage of a warranty:
A provision of an agreement or instrument that purports to restrict or remove the right of a person to take proceedings for a breach of any of the warranties listed in section 8 is void to the extent that it applies to a breach other than a breach that was known, or ought reasonably to have been known, to the person to exist at the time the agreement or instrument was executed.
As Mr Henry and Ms Joseph submitted, the evident purpose of the second sentence of clause 5 was to ensure that the release given in the first sentence was consistent with s 10 of the DBC Act. I reject Mr Lucic’s submission that reading the second sentence in this way gives it no work to do. Its function was to clarify the scope of the release agreed between the parties, without the need to refer to the DBC Act.
The purpose of the terms of settlement was to resolve ‘the dispute’ and ‘the proceeding’, in the interests of avoiding further costs and expense. Its purpose was not, as Mr Lucic submitted, to end the relationship between the parties. That is not a purpose that could have been achieved, given the effect of s 10 of the DBC Act.
Having considered the text, context and purpose of clause 5, and what a reasonable builder would have understood it to mean, I can find no error in the Tribunal’s summary of the effect of the release.[39] In any event, the Tribunal’s decision did not turn on the construction of the release; the critical issue was whether Mr Henry knew or ought reasonably to have known of the claimed defects when he signed the terms of settlement in October 2014.
Questions 2 and 3 – Did the Tribunal fail to consider whether the owners ought to have known of the claims when the terms of settlement were signed?
[39]Reasons, [17], set out at [33] above.
Mr Lucic contended that the Tribunal had failed to decide whether the claims made in the second Tribunal proceeding ought reasonably have been known by the respondents when Mr Henry signed the terms of settlement. He submitted that there was evidence of facts and circumstances from which that finding could have been made, but that it was not considered by the Tribunal. His central complaint was that the Tribunal failed to determine, from all of the facts and circumstances, that Mr Henry and Ms Joseph ought reasonably have known of the claimed defects when the first Tribunal proceeding settled.
The argument was that the Tribunal wrongly focused on what was known – by reference to the reports relied on in the first Tribunal proceeding – and did not also address the question of whether, objectively, the claimed defects ought reasonably to have been known at the relevant time. It was not to the point that the leaks were not noticed until after the terms of settlement were signed – the question was whether the defects that caused the leaks could reasonably have been discovered by October 2014.
Mr Lucic was particularly critical of the Tribunal’s finding that there was ‘no evidence’ that Mr Henry knew or ought to have known of any other defect apart from those referred to in the reports relied on in the first Tribunal proceeding.[40] He submitted that this involved a failure to consider the particular defects the subject of the second Tribunal proceeding, which were not latent but patent, and were apparent on visual inspection. He relied on Mr Brownhill’s evidence as to the causes of the leaks, which was based on his visual inspection. Given that evidence, Mr Lucic submitted that it was wrong for the Tribunal to find that there was no evidence that the claimed defects ought reasonably have been known.
[40]Reasons, [21], set out at [34] above.
Consideration
I do not consider there to be any merit in these arguments.
The senior member approached the question of whether the claimed defects were caught by the release in the terms of settlement in the way in which it was argued by the parties. As noted, the case for the owners was opened on the basis that the main issue was the extent to which the claim was caught by the terms of settlement, and that the only defects that could reasonably have been identified were those found by the experts, in particular Mr Lees and Mr Quick.[41] Counsel for Mr Lucic agreed that was the key issue.[42]
[41]See [23] above.
[42]See [24] above.
Mr Lucic’s case below was that the claimed defects either did not exist or had been identified in the first Tribunal proceeding. He did not put any case that the water leaks into the first floor sitting room and the kitchen were defects that ought to have been detected by Mr Henry or the experts he retained in the first Tribunal proceeding, in addition to those identified in the various expert reports.
Mr Lucic’s counsel did suggest in opening that Mr Henry ought reasonably have been aware of the lack of flashing around the skylight, because Mr Quick had identified that the glass in the skylight was not securely mechanically fixed into position.[43] However, the issue was not explored with Mr Henry or Ms Joseph in cross-examination, or with the expert witnesses, and the argument was not put in closing submissions. Rather, Mr Lucic argued that the skylight defect would have been rectified if Mr Henry and Ms Joseph had carried out the rectification of the lightwell recommended by Mr Lees and Mr Quick in 2014.[44] The Tribunal considered and gave detailed reasons for rejecting this argument.[45]
[43]Tribunal transcript, 6 August 2020, 28:14–18.
[44]Tribunal transcript, 7 August 2020, 179:23–180:2.
[45]Reasons, [76]–[84].
Overall, the Reasons include a careful examination of the evidence concerning each of the claimed defects, and the facts and circumstances that were drawn to the Tribunal’s attention. The senior member determined that the cause of each of the leaks was a defect that had not been identified in the reports relied on in the first Tribunal proceeding.[46] The second and third questions of law set out in the notice of appeal do not arise, in circumstances where the Tribunal was not asked to address the issue that Mr Lucic now says it overlooked.[47]
[46]See [36]–[39] above.
[47]Hussain v Minister for Foreign Affairs (2008) 169 FCR 241, [37]–[41].
Further, there was no error in the Tribunal’s conclusion that there was ‘no evidence’ that Mr Henry knew or ought to have known of defects other than those identified in the reports for the first Tribunal proceeding. It was not in dispute that no-one noticed the water leaks until after 30 October 2014. Five separate experts had inspected the building before then, and none of them had noticed the unsealed gap that caused the leak into the kitchen, the defective waterproofing of the upper balcony, or the missing flashings on the skylight. Indeed, even after the water damage had become apparent, neither Mr Lucic nor Mr Lorich could find the causes of the leaks into the kitchen and the first floor sitting room.
Before me, Mr Lucic identified no evidence that any of the claimed defects was observable upon reasonable inspection before 30 October 2014. The high point of his submission was that Mr Brownhill observed the unsealed gap on the first floor balcony and the missing flashings on the skylight when he inspected the property in October 2019. Not having pursued the issue at the hearing of the second Tribunal proceeding, Mr Lucic could point to no evidence that these defects ought reasonably to have been known five years earlier, before any water damage appeared. In particular, there was no basis to suggest that the ineffective waterproofing of the upper balcony – involving a membrane that had been tiled over – could have been detected at any time before the owners noticed the leak into the first floor sitting room.
Question 4 – Were the Reasons adequate?
The final question of law raised in the notice of appeal was whether the Reasons were adequate. Mr Lucic contended that the Reasons were inadequate because they did not identify or decide the issue of whether the respondents ought reasonably to have known about the claimed defects when the terms of settlement were signed. Further, he argued that the Reasons did not disclose a proper basis for the Tribunal’s finding that there was ‘no evidence’ that Mr Henry knew or ought to have known of any other defect apart from those referred to in the reports in the first Tribunal proceeding.
I do not consider there to be any defect in the Reasons. I had no difficulty understanding how the senior member found three of the four claimed defects to exist, and how he determined that they were not caught by the terms of settlement.
The Reasons explained the Tribunal’s process of reasoning with admirable clarity, and met the standard required by s 117 of the VCAT Act. They identified the issues that were in dispute at the end of the hearing, dealt with the substantial points raised by the parties, made findings on the material questions of fact by reference to the evidence, and provided a path of reasoning from the evidence to the findings to the Tribunal’s ultimate conclusions.[48]
[48]Dimatos v Coombe [2011] VSC 619, [20]; Burgess v McGarvie [2013] VSCA 142, [65].
As discussed, there was no error in the Tribunal’s finding that there was no evidence that Mr Henry knew or ought to have known of any defect other than those identified in the reports in the first Tribunal proceeding. It is clear from the Reasons how the senior member reached this conclusion. It was not necessary for the Reasons to address a submission that was not made by Mr Lucic to the Tribunal.
Disposition
Leave to appeal will be refused, and the proceeding will be dismissed.
I will hear the parties on the question of the costs of the proceeding.
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