MADISON CONSTRUCTIONS PTY LTD & the OWNERS UNITS PLAN 2735 (Civil Dispute)

[2011] ACAT 38

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

MADISON CONSTRUCTIONS PTY LTD & THE OWNERS UNITS PLAN 2735 (Civil Dispute) [2011] ACAT 38

AA 4 of 2011

Catchwords:             CIVIL DISPUTE – water damage caused by construction of “vergolas” – cost of repair – did email communication and gratuitous contribution to the cost of some repairs constitute acceptance of liability for future damages? – payment of cost for seeking to protect commercial reputation – was there an interference with contract? – does a contract exist? - what is the nature of a statutory warranty?

List of legislation:      ACT Civil and Administrative Tribunal Act 2008, s 82

Building Act 2004, s 88

List of Texts/Papers: The Law of Torts, R.P. Balkin and J.L.R. Davis, chapter 21, section 1.

Tribunal:                  Mr C.G Chenoweth, Acting Presidential Member

Date of Orders:  2 June 2011
Date of Reasons for Decision:         2 June 2011

AUSTRALIAN CAPITAL TERRITORY            )
CIVIL & ADMINISTRATIVE TRIBUNAL       )          AA 4 of 2011

BETWEEN:

MADISON CONSTRUCTIONS PTY LTD

Appellant

AND:

THE OWNERS UNITS PLAN 2735

Respondent

TRIBUNAL:            Mr C.G Chenoweth, Acting Presidential Member

DATE:  2 June 2011

ORDER

1.That the order for payment of $5,000 by the appellant to the respondent in the decision under review be set aside.

2.That there be no order as to costs.

………………………………..

Mr C.G Chenoweth

Acting Presidential Member

REASONS FOR DECISION

1. This is an appeal against a decision of the Tribunal of 20 January 2011 made by Senior Member Anforth. The terms of the order required that the appellant in this matter pay a sum of $5,000 to the respondent within 28 days. The order included an order against another respondent in the original application. That respondent (Total Outdoors Living Concepts Pty Ltd or "Total") has not appealed. The first respondent in the original application, and now the appellant, Madison Constructions Pty Ltd ("Madison") appeals against that part of the order which imposed a liability on it. The statutory owners corporation for the block of units in which the damage has occurred is the respondent in this appeal, and is referred to as "the Owner".

Background

1. The Owner is the unit title plan owner of a block of units at Manuka ACT. Madison is a company that acted as project manager for the development company ("Keffoe") that developed the block of units. The units were built by a well-known building company, Kell and Rigby, for Keffoe as the developer. Madison was the project manager for Keffoe. I take note that generally in the building industry, a project manager does not accept liability for a project independent of the developer for whom the project manager is the agent. While a project manager may act on behalf of the developer and can bind it as agent, the relationship itself does not give rise to a separate head of liability in the project manager.

1. Total installed structures called “vergolas” at the units. These structures are for shade and rain protection. Their installation required the drilling of holes for the support structures into or through the external balconies outside some of the units. In the construction of the balconies, a waterproof membrane had been applied to protect the balconies below. The units were completed in December 2004, including the installation of the vergolas. Keffoe was de-registered in June 2007.

1. The evidence at the initial hearing indicated that the work undertaken by Total was unsatisfactory, and resulted in leaking and water damage to parts of the units. This evidence was not challenged on appeal. The damage was repaired on the instructions of the Owner by an unrelated company ("R and B") and costs were paid for by the Owner. Madisons made a contribution to the first set of costs for rectification.

1. Proceedings for damages for the recovery of cost of repairs to the units were instituted by the Owner against Madison on 28 July 2010. On 5 October 2010, Total was joined by the Owner as a second respondent.

1. When the matter was heard before the Senior Member, the evidence from the parties included a number of e-mails that had passed between them. He ordered that Madison and Total were each to pay $5000 to the Owner, in full and final satisfaction of all claims arising from water damage to the units 7 to 10, caused by the installation of the vergolas. Madison has appealed against the order, but Total has not.

1. Written reasons for the decision were issued. Paragraphs 1 -- 32 and 37 and 38 set out the facts of the matter in detail. These facts were not the subject of dispute in this appeal. It is the legal conclusions that should be drawn from them that the subject of contention.

The findings leading to the Appeal

1. The findings of the Senior Member were based on two grounds: firstly that Madison had made a decision to gratuitously accept liability for the cost of repairing the drainage and leakage problems at the units, and that once that was communicated to the Owner it had a legal effect of imposing a liability on Madison for the costs; and secondly, that Madison had committed the tort of unjustified interference in contractual relations between the Owner and Total, arising from the statutory warranty imposed on Total under section 88 of the Building Act 2004.

1. I advised the parties at the hearing that this appeal should not be dealt with as a new application under section 82 (a) of the ACT Civil and Administrative Tribunal Act 2008 (“ACAT Act”) and that the matter would be heard as a review of part of the original decision under section 82 (b). Accordingly, the hearing was confined to legal arguments on the facts as found in the original hearing. Those facts have been set out in detail in the decision under appeal.

The appellant’s submissions

1. Counsel for Madison submitted that the decision under appeal was correct in finding that while Madison was acting as project manager and agent for Keffoe, it incurred no personal liability in contract or in tort to either the Owner or Total.

1. Counsel further submitted that the evidence did not support a finding that Madison had at some stage decided to gratuitously accept liability for the cost of all the repairs to the drainage and leakage problems at the units and that this had been communicated to the Owner. Madison had made an initial payment gratuitously for commercial reasons, and the payment that it had made, and the efforts made to attempt to get Total to repair its work, were motivated by a desire to solve the problem as a matter of commercial reputation and goodwill.

2. As to the second basis of liability referred to in paragraph 8 above, counsel submitted that the finding confused the existence of a contract between the Owner and Total on the one hand, and the benefit of a statutory warranty that the Owner had under section 88 of the Building Act on the other.

1. Because the Owner’s damages arose from the negligence of Total in installing the vergolas, Madison was attempting to assist the Owner to get a resolution of the problems. This was done as a matter of commercial goodwill. The evidence does not support a finding that at some later stage after that payment was sent, Madison had accepted a liability to pay the costs of whatever damage in the future could be demonstrated to have occurred at the units, and had communicated that to the Owner.

The respondent’s submissions

1. The respondent's solicitor acknowledged that the initial payment of $6,390 (made, as the agent for the Owner noted in its letter of 21 May 2008 to "cover the cost to rectify the vergolas and the balconies at the complex") did not, of itself,  impose a liability on Madison to pay for all of the future damages and costs that flowed from the faulty work by Total. He submitted that the continuation of the e-mail exchanges after that payment and the failure to simply hand the problem over to Total constituted a new enforceable agreement or representation by Madison to be responsible for damages caused by the actions of Total. It is from these e-mail exchanges that such an obligation, albeit an implied obligation, can be construed. The solicitor for the respondent acknowledged that there was no express representation by Madison to be responsible for all costs that may arise in the future, whether known or unknown.

1. The respondent’s solicitor supported the argument in paragraph 46 of the decision under appeal, that there had been a gratuitous decision by Madison to accept liability for the whole of the drainage and leakage problems and that once that decision was communicated to the Owner it carried legal effects. He did concede that there was no specific acceptance by Madison of liability following the payment in May, and was also unable to clarify which particular e-mail or other communication constituted a communication of that acceptance and communication of liability.

Consideration of the e-mails

1. Having carefully considered the e-mails in evidence before the Tribunal, I do not consider that they can constitute an acceptance of liability for future damage by Madison, beyond the damage apparent in May 2008 and for which Madison had provided a payment for its own commercial and reputation reasons. Madison had a common director with Keffoe, and even though Keffoe had been de-registered, it is understandable that Madisons would seek to protect its commercial reputation, at least amongst those who may be aware of the relationship. As noted earlier, it was accepted by both parties that the initial payment did not itself give rise to a legal commitment that Madison would be responsible for future damage costs.

1. Madison’s manager changed and the new manager took some time to get across the issue. The new manager in an email of 7 July 2009 told the Owner that the property had been built by Kell and Rigby and that “all maintenance should be dealt with through them.” Nothing in the emails after that date could be pointed to as an unconditional acceptance by Madison of future and open-ended acceptance of liability. The manager’s efforts were focussed in attempting to engage Total in the resolution of the problem.

1. The Owner did not specifically enquire whether Madison accepted liability for the repairs. I am not satisfied that the e-mail exchanges prior to 7 July 2009 can be construed as an acceptance of liability by Madison. It should have been clear to the Owner after that date that whoever might be imposed with liability for the rectification (if any one) it could not be Madison on the basis of any implied acceptance of liability. I am therefore satisfied that no liability can be imposed upon Madison on the basis of an implied future obligation to accept liability for the damage, following its gratuitous payment in May 2008.

1. In the decision under appeal, the Senior Member referred to the fact that the developer Keffoe had been de-registered and ceased to be a legal entity. The Senior Member concluded, in my view correctly, that it was not possible for Madison to act as the agent for Keffoe after de-registration. However, this does not in my opinion support the proposition that because Madison was no longer acting for Keffoe, it had accepted a liability on its own account. Any such obligation must have arisen from an intention by Madison to accept that liability and the communication of that intention to the Owner. In my opinion, no such inference can be drawn from the evidence.

Interference with contractual relations

1. In paragraph 49 of the decision under appeal, the Senior Member found that Madison had committed the tort of unjustified interference in the contractual relations between the Owner and Total. A wilful interference with the contractual relations of others is a well-known ground for recovery of damages under the law of torts. It requires that there be a contract in existence between the party claiming and a third party, and that there is an intention on the part of the party charged with interfering in the contract to deliberately do this with the intention of causing damage to the party who has the benefit of the contract. See generally, The Law of Torts, R.P. Balkin and J.L.R. Davis, chapter 21,
   section 1.

1. The difficulty to my mind with the conclusion that there has been a tortious act is, that at the time that the emails were being exchanged and the parties were discussing the damage, there was no contract in existence between the Owner and Total. Total denied any liability and was not prepared to enter into any contract to repair the damage. If there was no contract to which Total was a party, then Madison could not have wilfully interfered with it.

1. The finding in paragraph 49 of the decision under review, that there were actions by Madison that constituted the tort of unjustified interference in the contractual relationships between the Owner and Total, confused the possible existence of a contract between the Owner and Total with the benefit that the Owner had to a statutory warranty under section 88 of the Building Act.

1. A contract is a legal relationship entered into by parties of their own volition, having determined that the relationship would constitute a legally binding agreement and with appropriate consideration. It may be terminated or amended by the parties at will, and does not require any existing statutory provision for it to be created and enforced. The terms of a contract are entirely a matter between the parties themselves to determine.

1. The warranty as to the standard of building work is a different matter. It is a statutory benefit or protection, imposed by legislation for the benefit of the original and subsequent owners. It is not a contract although it may be referred to in a contract. There is no agreement between the builder and a beneficiary of the warranty that is required to bring it into existence. While it is brought into being because of the prior existence of a building contract, it exists independently of the terms of that contract and survives the termination or completion of the contract.

1. As a statutory warranty, it cannot be extinguished or limited by the action of the beneficiary: it continues in accordance with its terms for the benefit of the Owner. As it is a statutory right, there can be no "interference" with it by a third party in a way in which limits its effect or causes damage to the beneficiary of the warranty.

1. It should also be noted, that at no time was there a commercial contract between the Owner and Total: the original contract for the construction of the vergolas appears to have been between Keffoe and Total, as the vergolas were installed after the completion of the building works by Kell and Rigby. If there was no contract between the Owner and Total, it is difficult to see how there can be interference with that contract which results in damages payable by Madison. While the Owner can argue that Madison should have brought the attention of Total to the situation at an earlier date, that failure (if failure it was) cannot amount to an interference with any right or obligation that Total may have had to repair the damage.

Conclusion

1. I am satisfied that both grounds upon which the Senior Member made an order against Madison do not support the order, and the order against Madison should be set aside.

1. In accordance with the usual practice of the Tribunal, and the provisions of section 48 of the ACAT Act, there will be no order as to costs.

………………………………..

Mr C.G Chenoweth

Acting Presidential Member

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A  FILE NO:      

APPELLANT:               MADISON CONSTRUCTIONS PTY LTD

RESPONDENT:            THE OWNERS UNITS PLAN 2735

COUNSEL APPEARING:       APPELLANT:         

RESPONDENT:      

SOLICITORS:  APPELLANT:         

RESPONDENT:      

OTHER:  APPLICANT:          

RESPONDENT:      

TRIBUNAL MEMBER:            Mr C.G Chenoweth

Acting Presidential Member

DATE/S OF HEARING:  PLACE: CANBERRA

DATE OF DECISION:  2 June 2011  PLACE: CANBERRA

PART B

RECOMMENDATION:

FULL REPORT ( )        CASE NOTE ( )        UNREPORTED DECISION ( )

COMMENTS: