Mann & Anor v Paterson Constructions Pty Ltd

[2018] HCATrans 261

[2018] HCATrans 261

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M151 of 2018

B e t w e e n -

PETER MANN

First Applicant

ANGELA MANN

Second Applicant

and

PATERSON CONSTRUCTIONS PTY LTD ACN 135 579 770

Respondent

Application for special leave to appeal

KIEFEL CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

FROM SYDNEY BY VIDEO LINK TO MELBOURNE

ON FRIDAY, 14 DECEMBER 2018, AT 9.30 AM

Copyright in the High Court of Australia

MR T.J. MARGETTS, QC:   If the Court pleases, I appear on behalf of the applicants with MR G.F. HELLYER and MR A.C. ROE.  (instructed by Telford Story & Associates)

MR F.J.J. TIERNAN, QC:   If the Court pleases, I appear on behalf of the respondent with MR A.J. LAIRD.  (instructed by Kalus Kenny Intelex)

KIEFEL CJ:   Mr Margetts, the Court might be assisted to hear from Mr Tiernan in the first instance, thank you.

MR MARGETTS:   If the Court pleases.

KIEFEL CJ:   I suppose the question, Mr Tiernan, most obviously is, given the state of authority and the comments made in the Court of Appeal here about previous authority, why special leave should not be granted.

MR TIERNAN:   Two reasons.  We say that this case is not the proper vehicle for consideration of that, having regard to the fact that it is a domestic building dispute.  Your Honours might have seen from the documentation filed in relation to the stay application before the Court of Appeal that the financial condition situation of both parties is grave by reason of this proceeding.  In circumstances where grounds 1 and 2 have not been raised until now, until this hearing, it would be unjust in the extreme, in our submission, to now force the successful respondent builder to be, as it were, a test case in relation to points which were not raised before VCAT.  Had they been raised before VCAT the proceeding would have taken a substantially different path and ‑ ‑ ‑

KIEFEL CJ:   There are a number of things said against you, are there not?  In the first place it might be a domestic building dispute but the quantum meruit claim made by the respondent was for an amount of $1.6 million which was in excess of the contract sum and the applicant in his reply explains that there was no point raising the matter in VCAT because it was bound by the authority to which I have referred.  He says he did raise the principal issue before the primary judge but again there was no point pressing it in anything more than a formal submission because the primary judge was bound by that authority.

MR TIERNAN:   Yes, and it was mentioned in passing before the Court of Appeal only.

KIEFEL CJ:   Well, there was an explanation for why it was not said that the earlier Court of Appeal authority was plainly wrong.

MR TIERNAN:   Yes, there was no submission made by the applicants before the Court of Appeal that the existing authorities were plainly wrong in circumstances where it was perfectly open for the applicants to make that submission.  Going back to one thing that your Honour had said about the difference between the claim – the contract sum and the quantum meruit claim, can I deal with that?

The concept that you are dealing here with a claim on a quantum meruit basis which will be vastly different from the contract claim we would resist any conclusion in that regard.  This point was dealt with, both by the primary judge and by the Court of Appeal.  What needs to be kept in mind in this case is that the base contract does not really account for the increase in the claim recovered on the quantum meruit.  Almost all of it is comprised by very substantial variations and so the idea that there has been some windfall on the quantum meruit claim is unfounded.

There is a certain futility about this case being used as a vehicle for this point to be taken because, as I will outline to your Honours, ultimately if the appeal is successful and the matter goes back before VCAT we are going to have to have probably a new VCAT member undertake the hearing and reach a determination on 51 variations and four provisional sum items which, had these grounds been raised at the initial instance, would not have had to occur.

Now, just on this issue of whether there is a huge difference between a quantum meruit claim and a contract claim, can I refer your Honours to application book page 133, paragraphs 37 and 38 of the primary judge’s decision.  He there deals with this contention made before him that on the quantum meruit basis our client would be recovering a windfall.  You can see in the fourth line of paragraph 37 that that contention is rejected and it is further detailed as to why it is rejected in the body of those paragraphs.

KIEFEL CJ:   It is there said that it is not a windfall because it is a reasonable value of the work performed.  That is not quite the same thing as what you were saying before, namely that there is no windfall because it is mostly variations rather than the effect of a quantum meruit determination.  Can you make good that point, that it is really - variations account for the excess of the contract value?  Is there some point in the reasons below to which you can take us which make good that point?

MR TIERNAN:   In the Court of Appeal if I could refer you to application book 188 at paragraph 83 where the Court of Appeal is dealing with this issue.  It says:

Thirdly, such evidence of actual costs as was before VCAT was insufficient to cast any serious doubt on the appropriateness of the methodology adopted by Mr Pitney or the accuracy of his calculations.  We accept the respondent’s submissions summarised at [66] above that the difference between Mr Pitney’s estimate of overall costs ($1,580,220) and his quantum meruit assessment ($1,722,611) was not disproportionate, particularly when interest is taken into account.

Now, the VCAT member did not award interest on the basis that – it being a judgment in respect of a quantum meruit claim representing the value for the benefit of the work provided.  There was no basis for an interest claim.  The interest claim, as I understand it, was about $70,000 or $80,000.  So that indicates that the actual estimate of overall costs and the quantum meruit assessment was not very different.  When you factor in interest you can see that the Court of Appeal has once again rejected the idea in the final line of paragraph 83 that there was any “windfall gain”.

That is very important because as I have said we have a situation where grounds 1 and 2 were not agitated before the VCAT member.  When he made his finding he said “Look, I’m finding in favour of the builder on the issue of repudiation.  Therefore I am not going to make findings on each of the 51 variations and four provisional sum items because they are included in the quantum meruit assessment”. 

Now, had grounds 1 and 2 been raised before the VCAT member we would have requested the member to make findings on both contract and quantum meruit.  We also are likely to have pleaded an alternative basis of quantum meruit based upon a total failure of consideration.  Your Honours will see from the various academic writings that that has been put forward as an alternative basis for the quantum meruit claim.  We would have done that.

We were denied that opportunity because these points were not taken and we are now left in a situation where if the appeal is successful, as I said a moment ago, instead of going back to a VCAT hearing to really just tick off the final details apropos of the High Court decision we will have a very substantial and costly hearing which has all been brought about by the failure by the applicants to take these points.

In Victoria we are all aware of Sopov.  It was only decided a short period before this case and that an exemplar by reason of that case where similarly the Court of Appeal dismissed the appeal on the basis that this issue – these two issues – the points had not been taken.  So are we to take it that the applicant was aware of these points on a quantum meruit claim.  One assumes they were.  They made a decision not to plead them. 

We are now left in a situation where, in circumstances where we contend it is a futile exercise because the difference will not be that much, our client who is in a very parlous financial situation has been through four proceedings – he now stands the prospect as a result of the error or deliberate decision by the applicants not to run these points of facing another year of a hearing in the High Court on the appeal, return to VCAT and then possible appeals again.

The reality is, out of attrition, who knows where it will end up.  We strongly submit that the justice in this case does not warrant this case being used as a vehicle for this honourable Court to embark upon a consideration of all the academic writings.  We do note that although there are academic writings favouring this, all the judicial decisions support the ongoing principle applied by Justice of Appeal Meagher in Renard.  No one really disputes his decision and what he said.  He expressly accepted the ab initio fallacy but he said there are subsequent decisions which have applied the principle. 

You also have Hudson in the most recent texts.  They do not criticise the application of this principle, especially in the context of building law where it most often arises.  So although there are lots of academic writings, there is no court which I think anyone could point to supporting the idea that the principles should be rejected. 

Importantly, if one looks at application book 190, this is the judgment of the Court of Appeal in this case, and starting at paragraph 91 the court considers a multitude of points supporting the retention of the principle.  In paragraph 91 they refer to the fact that Justices Deane, Dawson and McHugh refused special leave in Renard and they set out an excerpt from that judgment.  They then, at the start of 92, refer to the chorus of criticism and as Justice of Appeal Meagher pointed out, yes, there is a lot of academic disquiet about it but not judicial decisions.  The court in paragraph 92 is quoting from Sopov and going to page 191 at line 30 they refer to that statement by the Court of Appeal in Sopov where they said:

In our respectful view, these criticisms are very powerful.  Unconstrained by authority, we might well have upheld the principal’s argument that Kane’s only remedy in these circumstances was to sue on the contract.  But we are heavily constrained by authority, as explained earlier.

Now, following that statement they go on to make numerous points as to why the principle should be applied.  First of all they refer to the statement by Justice of Appeal McPherson in the Iezzi decision where he said the principle was “too well settled by authority to be shaken”.  In the next line they refer to the High Court’s refusal of special leave in the decision in Renard.  They say that is of “particular significance”.  Dropping down a few lines ‑ ‑ ‑

GAGELER J:   That is the problem, though, is it not?  If a refusal of special leave to appeal in a case is going to be treated as reinforcing this line of authority then it will continue to be reinforced until such time as special leave to appeal is granted in the case.

MR TIERNAN:   I hear what your Honour says but maybe this, as I say, is not the vehicle for this occasion out of submissions based on justice as I have outlined them.  At the end of the day we are dealing with a domestic building contract.  We are not dealing with the State of Victoria against the Metro Rail Authority.  We are dealing with a home owner and a small builder and he has run his case based upon the law, grounds 1 and 2 were not taken, he has seen it through to now the fourth proceeding and we submit that it therefore ought not be raised by way of an appeal.  Going back to page 191 of the application book, in the second‑last paragraph, and continuing the point supporting it, in Sopov it says:

The right of a builder to sue on a quantum meruit following a repudiation of the contract has been part of the common law of Australia for more than a century.  It is supported by decisions of intermediate courts of appeal in three States, all of which postdate McDonald –

That is the Dennys Lascelles decision:

and two of which postdate Pavey & Matthews.  If that remedy is now to be declared to be unavailable as a matter of law, that is a step which the High Court alone can take.

They then refer to what the High Court – this is in paragraph 93 at the bottom of application book 191 – they once again – and this harks back to your point, Justice Gageler – that the High Court refused special leave to appeal in Sopov. When you read the transcript the main reason it appears that they refused it was not because there was not some disquiet as to the principle, but because it was raised too late. Then over the page at paragraph 94 the High Court decision in Southern Han the point made there is that Sopov was referred to by the High Court as the prevailing authority. 

So for those reasons we say that what lies ahead if the appeal were successful is a very costly, time‑consuming and completely debilitating exercise which will not result, even if our client is constrained to a contract claim – if he is constrained to that claim.

Do your Honours want me to deal with also the ground 3, section 38 point at this stage?

KIEFEL CJ:   Yes, thank you.

MR TIERNAN:   With respect to the ground under 38, once again it was not a matter that was raised before the VCAT member, that is whether section 38 applies to variations – sorry, work claimed as part of a quantum meruit claim.  That point is made clear by the primary judge at paragraphs 50 and 51 of the application book at 140 and by the Court of Appeal at paragraph 114, application book 202. 

Had the issues been raised about section 38 the respondent would have pleaded equitable estoppel in accordance with Justice Beach’s decision in Sevastopolous v Spanos [1991] 2 VR 194 a Victorian case which dealt with a predecessor Act under section 19(1) of the House Contracts Guarantee Act.  In that decision, whilst the equitable estoppel claim was not upheld, Justice Beach left open the possibility that it could be made. 

In any event in respect of the section 38 ground, we say that the Domestic Building Contracts Act is a State Act.  There is no uniform legislation throughout Australia.  We say that section 38 as interpreted by the Court of Appeal in this proceeding followed a very detailed analysis by the Court of Appeal, including an extensive review of extrinsic materials.  The Court of Appeal, in our submission, has given section 38 a fair, sensible and workable meaning that was plainly open and consistent with the authorities on statutory interpretation and in accordance with the principle of legality.  They are our submissions.  May it please your Honours.

KIEFEL CJ:   Mr Margetts, we do need to hear from you in relation, in particular, to why this would be a suitable vehicle.  The question is, of course, one of some interest and importance, but whether this is a suitable vehicle, given in particular that there are no findings made by VCAT.

MR MARGETTS:   If I can address, firstly, the issue that our learned friends contend and that is that there would have been a similar amount awarded if the contractual claims had been pursued by virtue of the payment for an order on the contract sum plus variations.

KIEFEL CJ:   Yes.

MR MARGETTS:   In fact the member of VCAT found differently to that and he acknowledged it – and this is at application book page 106, paragraph 533.  There the senior member stated:

I might add that, by succeeding in a claim for a quantum meruit, the Builder has recovered considerably more than it might have recovered had the claim been confined to the Contract.

We say that is also evident from the findings of the Court of Appeal, or the observations of the Court of Appeal and if I could take your Honours to application book 165 there the Court of Appeal set out quite conveniently what the claims were in paragraphs 19 and 20.  The Court can see straight away by looking at paragraph 19 that the respondents initially made a claim for the amount of $446,000 roughly for the claim for the variations plus claims for the contract sum and this is in circumstances where the applicants had in fact paid out the contract sum.

The Court may not be aware but these variations and adjustments to prime cost items were first presented as being part of the claim made at VCAT.  They were not presented during the course of the works.  It goes back to this old…..issue that disputes arise because builders do not provide written notifications of variations and have these matters resolved and determined under the contract during the course of the works.  This is exactly what has happened in this case.

That is why your Honours can see that the claim under the contract was $446,000.  An alternative claim was $518,000 on a basis of just work and labour done so not under the contract and then what happened was that a quantity surveyor is retained and the case was changed and the quantity surveyor of course then assessed the works initially at $1.89 million.  That is set out in paragraph 21.  So that led to the claim of $944,000 referred to in paragraph 20. 

So the Court can see straight away that the variation or the change in the amounts claimed is significant and it is very significant to a homeowner when in fact the contract price for this job was about $950,000.  So we have a contract price for two units about $950,000 eventually a quantity surveyor has priced at $1.9 million.

So we say that the principle that emerges out of that and those observations is why we say this Court needs to review the availability of quantum meruit and the reason being is that the present availability of quantum meruit remedy encourages – I use the word “encourages” and in substance rewards builders, both big and small, to accept breaches giving rise to repudiation and therefore termination of the contract.

Therefore our submission is that the current state of the law encourages disputation.  It does not discourage disputation.  It encourages contractors in circumstances that may arise that upon breach they may be better to choose an acceptance of the breach as an act of repudiation and determination.

KIEFEL CJ:   Yes, we can follow that.  What do you say about the point, though, that there have been no findings made by VCAT because of the way in which it was run?

MR MARGETTS:   Yes.  We say that it is unrealistic to expect that VCAT would in any circumstances make alternative findings.  So even if the applicant had made such a submission it is reasonable to suggest, in fact highly likely, that any VCAT member would not see it as necessary to make alternative findings when the law as stated by the Victorian Court of Appeal is such that quantum meruit is an available remedy. 

So to expect that the member, in those circumstances, would go about the burdensome task of making the alternative findings in the remote possibility in most cases that an appeal may be lodged and if that was made a prerequisite of lodging an appeal it would mean that from now on every party that goes before VCAT and/or other domestic building tribunals throughout Australia would be requiring the member to make two sets of findings in the expectation or remote possibility that an appeal be lodged.  We would say that would be imposing an intolerable burden upon the members at those tribunal levels to go and make alternative findings in each and every case to reserve a possible right of appeal. 

So we say that there is no prejudice by reason of the fact that the matter would need to be remitted.  It would be remitted and power to be dealt with at VCAT on that occasion obviously is a matter that would have to be determined in due course.  But to suggest that the right of appeal now is dependent upon the tribunal making alternative findings at first instance, we say is an unrealistic expectation and it will not happen.  It will never happen.

KIEFEL CJ:   We do not need to hear from you on the section 38 point.

MR MARGETTS:   Thank you.  Yes, and the point that I just briefly raise, as was pointed out by my learned junior, was in fact in Sopov, if one goes to application book 245, in paragraph 7 we point out the concession made by our learned friends before the primary judge.  As we recall the observations of the Court of Appeal in Sopov v Kane – I will just briefly draw that to the Court’s attention – I do not know if your Honours have a copy of the decision of Sopov v Kane [2009] 24 VR 510 ‑ ‑ ‑

KIEFEL CJ:   No, we do not.  You will have to read it out for us.

MR MARGETTS:   Sorry, yes, your Honour.  At paragraph [18], there the court observed, when dealing with this issue of prejudice the court said:

If the matter had been put in issue in the pleadings, or in the course of the trial, the obvious course for Kane to have adopted would have been to formulate, and endeavour to establish, an alternative case for contractual damages consequent upon termination of the contract.  This was never done.  In these circumstances the principal cannot be permitted to raise the matter now.

Well, that was done in this case.  There was the alternative pleading and the alternate claims were made.  So we would submit that if one accepts that general proposition set out by the Court of Appeal in Sopov v Kane, we would say that in this particular instance the prejudice does not arise that our learned friend is so contending.

Again, as the Court has observed – or may have observed, those concessions were quite properly made by my learned friend’s junior counsel, Mr Laird, before Justice Cavanough.  They are footnoted and cited in our reply submissions and are referred to at application book 245, paragraph 7.  Again, they are also, as I recall the Court has ‑ ‑ ‑

KIEFEL CJ:   We have been provided with a copy of the transcript recently, yes.

MR MARGETTS:   We say that is a very powerful consideration in consideration of the manner by which the objection is now made to this matter moving forward.  It is in those circumstances, if the Court pleases, we say there is good reason, very strong reason as to why the – it is in the public interest that this issue of the question of the availability of the quantum meruit remedy be determined and considered by this Court at final appeal level.

KIEFEL CJ:   Yes, thank you, Mr Margetts.

MR MARGETTS:   If the Court pleases.

KIEFEL CJ:   Mr Tiernan, anything in reply?

MR TIERNAN:   There are two points, your Honours.  In respect of what you put to Mr Margetts about no findings having been made by the VCAT member on the contract claim, there is absolutely no doubt that if grounds 1 and 2 had been pleaded, Mr Laird, who has practised in this area for decades, would have ‑ ‑ ‑

KIEFEL CJ:   I think you have already made that point.  Do you have a reply point?

MR TIERNAN:   The only other reply point was that your Honours were referred to what the VCAT member said about the difference between the contract claim and the quantum meruit claim.  If you look at that paragraph – it is on application book 106, he really dealt with that only in passing.  He referred to the original pleadings and he dealt with it only as part of dealing with the issue of interest. 

On the other hand, the primary judge dealt with it in great detail apropos of a schedule that was provided by Mr Laird during the course of the appeal and based upon those detailed submissions which were not controverted by way of any submissions by the applicants before the primary judge he said that there was no windfall.  May it please, your Honours.

KIEFEL CJ:   Yes, thank you.  There will be a grant of special leave in this matter.  Do the parties estimate it would take one day, or shorter?

MR MARGETTS:   Yes, your Honour.  I do not believe it would be any greater than one day.

KIEFEL CJ:   Yes.  Mr Tiernan.

MR TIERNAN:   Yes, your Honour, we think one day is sufficient.

KIEFEL CJ:   Yes, thank you.  Could you ensure that your solicitors obtain a copy of the directions to be followed in relation to the chronology of events, so to speak?

MR TIERNAN:   Yes, your Honour.

KIEFEL CJ:   The Court will adjourn.

MR MARGETTS:   Sorry, your Honours, just one further matter that I wish to briefly raise, if I may?

KIEFEL CJ:   Yes.

MR MARGETTS:   I apologise to the Court – and that is that the Court may be aware there is a stay that has been granted to the applicants in relation to the payment of the judgment and that has now been defined and further considered by the Court of Appeal on 22 November.  The stay was granted ‑ ‑ ‑

KIEFEL CJ:   That is part of the reason for the urgency of this matter.

MR MARGETTS:   It is, yes.

KIEFEL CJ:   Yes.

MR MARGETTS:   The difficulty is, if the Court pleases, at the moment, we have now been instructed by our clients that the CBA Bank have refused to advance them any further money.  They have also now put one of the apartments on the market and it is going to be auctioned on 23 February.

KIEFEL CJ:   Mr Margetts, this is an application for special leave which has been granted.  If there are other applications you need to bring, you bring them.

MR MARGETTS:   If the Court pleases.

KIEFEL CJ:   You may need to consider, of course, whether they are brought before the Court of Appeal before the matter comes before the High Court.

MR MARGETTS:   If the Court pleases.

KIEFEL CJ:   The Court will adjourn.

AT 10.03 AM THE MATTER WAS CONCLUDED