Mareva Building Consultants v Zevon
[2013] ACTCA 28
•12 July 2013
MAREVA BUILDING CONSULTANTS v HARRY ZEVON AND VIDA ZEVON
[2013] ACTCA 28 (12 July 2013)
APPEAL AND NEW TRIAL – CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – contract for the construction of a house – whether contract abandoned – whether mutual consensus existed between the parties that the contract not be performed – whether the conduct of the parties manifested a mutual intention – facts of case inconsistent with claim that contract remained on foot – whether contract discharged by agreement – no error in trial judge’s findings on abandonment renders argument in alternative moot – appeal dismissed
APPEAL AND NEW TRIAL – CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – contract for the construction of a house – conditional abandonment – whether trial judge erred in failing to conclude that any abandonment or discharge was conditional upon the appellant building a different house for the respondent – conduct inconsistent with the condition alleged – appeal dismissed
APPEAL AND NEW TRIAL – JURISDICTION, PRACTICE AND PROCEDURE – PLEADINGS – failure by respondent to plead abandonment or discharge: Court Procedures Rules 2006 (ACT), r 407 – no prejudice to the appellant for the respondent’s failure to plead – open to the trial judge to raise issues with the parties – appeal dismissed
Court Procedures Rules 2006 (ACT), r 407
DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423
Fitzgerald v Masters (1956) 95 CLR 420
Mareva Building Consultants v Zevon [2012] ACTSC 18
Mareva Building Consultants v Zevon (No 2) [2012] ACTSC 24
Morris v Baron and Company [1918] AC 1
Summers v The Commonwealth (1918) 25 CLR 144
Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279
ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
No. ACTCA 2 – 2012
No. SC 676 of 2009
Judges: Burns and Cowdroy JJ and Nield AJ
Supreme Court of the ACT
Date: 12 July 2013
IN THE SUPREME COURT OF THE ) No. ACTCA 2 – 2012
) No. SC 676 of 2009
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:MAREVA BUILDING CONSULTANTS
Appellant
AND:HARRY ZEVON AND
VIDA ZEVONRespondents
ORDER
Judges: Burns and Cowdroy JJ and Nield AJ
Date: 12 July 2013
Place: Canberra
THE COURT ORDERS THAT:
The Appeal be dismissed.
The Appellant pay the costs on appeal of the Respondents.
IN THE SUPREME COURT OF THE ) No. ACTCA 2 – 2012
) No. SC 676 of 2009
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:MAREVA BUILDING CONSULTANTS
Appellant
AND:HARRY ZEVON AND
VIDA ZEVONRespondents
Judges: Burns and Cowdroy JJ and Nield AJ
Date: 12 July 2013
Place: Canberra
REASONS FOR JUDGMENT
The appellant (‘Mareva’) appeals from two decisions of the primary judge.
The first such decision was delivered on 27 January 2012, in which the trial judge awarded damages of $19,887 in favour of Mareva: see Mareva Building Consultants v Zevon [2012] ACTSC 18 (‘the liability decision’). In a separate judgment delivered on
8 February 2012 the primary judge ordered that the respondent pay one half of the costs of Mareva in the proceedings: see Mareva Building Consultants v Zevon (No 2) [2012] ACTSC 24.
FACTS
Martti Honkanen is a licensed builder who operates the building consultancy firm Mareva in partnership with his wife Eva. The respondent (‘Mr Zevon’) knew Mr Honkanen from their association with a church.
During November 2004, Mr Zevon contacted Mr Honkanen and informed him that he and his wife wanted to build a house in Gungahlin. Mr Zevon provided Mr Honkanen with drawings for the house which had already been prepared by DUB Design Pty Ltd.
On 17 January 2005, Mr Honkanen provided Mr and Mrs Zevon with the first of two quotations for the construction of the proposed dwelling. The first quotation was $434,000 plus GST, but following a request from Mr Zevon to reduce the cost a further quotation was prepared by Mr Honkanen for $399,600 plus GST (‘the revised quotation’).
During May 2005, extensive discussions regarding the terms of a contract took place between the parties. On 30 May 2005, the Zevons accepted the revised quotation by email to Mr Honkanen. By return email dated 2 June 2005, Mr Honkanen thanked Mr Zevon for ‘accepting the quote for the building of your new home’.
On 28 June 2005, planning approval was granted and Mr Zevon sent Mr Honkanen the development conditions sometime thereafter. Mr Honkanen then made inquiries in way of preparation work, namely checking quantities, contacting suppliers and sub-contractors, and investigating alternative heating and cooling options, including the possible use of geo-thermal systems. Several quotations were obtained from various sub-contractors.
In early August 2005, Mr Zevon informed Mr Honkanen that he was thinking of ‘putting the Gungahlin house on hold’. Mr Zevon asked Mr Honkanen whether he would build a house on a property in Bruce instead of the Gunghalin house.
In accepting Mr Honkanen’s evidence the primary judge found that Mr Honkanen informed Mr Zevon that he would be ‘happy to have a look at it’ since he had time available and if the Gungahlin house did not proceed it did not really matter to him which house he built. This statement by Mr Honkanen will hereafter be referred to as ‘the critical statement’.
Thereafter meetings took place between Mr Honkanen and Mr Zevon in early August 2005 concerning a building similar to the Gungahlin house. Mr Zevon informed Mr Honkanen that he had been looking at project homes whereupon Mr Honkanen explained that in effect he could not compete with the cost of a project home. Discussions regarding the cost of the Bruce house continued for the remainder of 2005.
In January 2006, Mr Honkanen indicated to the Zevons that he could not continue work on the proposed house at Bruce without payment. He explained that he had prepared the concept plans without an expectation of being paid, and nominated a price of $10,000 plus GST to prepare the drawings for the Bruce house.
The Zevons were not pleased at the prospect of paying separately for drawings, and commented that such costs, in respect of project homes, were included in the cost of the home. Mr Honkanen then suggested that the amount could be included in the overall price of the building. The primary judge found that Mr Zevon had reluctantly agreed to the costs for the drawings of the Bruce house.
On 4 May 2006, Mareva sent an email to Mr and Mrs Zevon attaching a detailed quotation of the cost of the building work in the amount of $381,500 plus GST. Included in that sum was an amount of $9,500 for the original drawings (noting the drawings were originally quoted at $10,000), $2,500 for the redesign of the Bruce house (noting it was originally quoted at $3,000), to which 10 percent GST was added. Thereafter Mr Zevon decided that he could not continue with the building project because their bank would not provide finance for the project and Mr Honkanen conducted no further work.
Proceedings were instituted by Mareva against the Zevons in which Mareva claimed $65,000 for loss of profit under the Gungahlin contract, $13,000 for the drawings of the Bruce house, interest and costs. A quantum meruit claim was made in the alternative, but was later abandoned. The respondents defended all claims.
FINDINGS OF THE PRIMARY JUDGE
The primary judge rejected defences raised by the respondents to the effect that payment of any monies to Mareva was conditional upon finance being approved by Mr Zevon’s bank. Her Honour was also satisfied that Mareva and Mr Zevon had made a binding contract for the construction of the house at Gungahlin (‘the Gungahlin contract’).
The primary judge then considered Mareva’s claim for damages on the basis that the respondents had breached the Gungahlin contract. Her Honour found that by relinquishing the proposal to construct the Gungahlin house, Mr Zevon made it plain that he would not be proceeding with the contract and that Mr Honkanen, by the critical statement, acquiesced to such a proposal. Specifically the primary judge found that “the parties must be taken to have agreed to abandon a contract”, but as a further ground found that alternatively “the contract was discharged by agreement, the consideration for which was the opportunity to design and build on the Bruce land, if not the right to enforce the original contract”: see [80], [82] of the liability decision.
In the event that her Honour was in error, the primary judge assessed the damages for the alleged breach of the Gungahlin contract. The primary judge noted that the amount claimed by Mareva was $65,000, but having considered the various relevant matters, her Honour assessed the damages as being $60,000 for the alleged breach.
The primary judge found in favour of Mareva’s claim for the fees relating to the drawings of the Bruce house. Her Honour assessed such costs at a total of $19,887, being $13,200 in combination with interest of $6,687. Judgment was entered in favour of Mareva for this amount.
GROUNDS OF APPEAL
Mareva challenges the findings of the primary judge that the Gungahlin contract was abandoned or alternatively discharged by agreement. Such challenges are founded both on the evidence, and due to the fact that the Zevons did not plead abandonment nor discharge in the court below.
In the alternative, Mareva submits that the primary judge erred in failing to conclude that any such abandonment or discharge was conditional upon Mareva being able to build a house for the respondent at Bruce.
ABANDONMENT & DISCHARGE
Mareva submits that the evidence in the court below did not support the finding that the Gungahlin contract had been abandoned or discharged, but rather that the contract remained on foot. To this end, Mareva relies upon an extract from the evidence of Mr Honkanen when the cessation of the project at Gungahlin and the development of the property at Bruce were raised. Mr Honkanen said:
I said to Mr Zevon that yes I would be happy to have a look at it because I have the time now available anyway. If the Bruce – Sorry – if the Gungahlin house doesn’t proceed, it doesn’t really matter to me which house I build’.
Further, when Mr Honkanen was asked if he said anything to Mr Zevon, Mr Honkanen replied:
Only that I said to him that I would be happy for us to get together and talk about the Bruce project.
If a contract is to be abandoned, there must be mutual consensus between the parties that the contract not be further performed. This fundamental requirement was reinforced in Fitzgerald v Masters (1956) 95 CLR 420. In that case, the High Court considered a contract for the purchase of a half share or interest in a farm. A year had elapsed since the agreement was made and there had been no attempt to proceed with the transaction to secure the half interest in the farm. When the plaintiff commenced an action for specific performance of the contract, abandonment was raised as a defence.
Dixon CJ and Fullagar J rejected such defence at 431-433, in part because conversations between the parties as to the continued existence of the agreement were ambiguous. In reference to such conversations, their Honours said at 431:
But something much clearer is required to justify holding that the contract was discharged.
Whilst consensus between the parties to abandon a contract must be clear, it need not necessarily be announced or otherwise communicated. This principle is supported by Kiefel J in Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279, where her Honour said at [40]:
While the Australian cases may not have discussed the theoretical basis for abandonment to any great extent it is clear that regard is to be had to the conduct of the parties and what might be inferred from it. Abandonment may be seen as a conclusion that parties have no further interest in a contract continuing, even though they may have said nothing to that effect. It may nevertheless be clear that they both regard it as at an end. This can more readily be discerned where one or more of the parties have ineffectively attempted to bring the agreement to an end and both behave as if it was ended as occurred in Summers v The Commonwealth (1918) 25 CLR 144 and DTR Nominees Proprietary Ltd v Mona Homes Proprietary Ltd (1978) 138 CLR 423.
In Morris v Baron and Company [1918] AC 1, the House of Lords considered whether a letter purporting to offer a settlement of a dispute between two trading partners constituted an abandonment. Lord Finlay L.C. found at 12:
The evidence in the present case points to the conclusion that the parties intended not merely to vary the original contract but to set it aside and substitute another for it, giving a mere option to take delivery of the parcel undelivered. This is the effect of the language of the memorandum of April 22, 1915, and it was on this assumption that all the subsequent dealings and correspondence of the parties proceeded.
To similar effect, in Summers v The Commonwealth (1918) 25 CLR 144 Isaacs J said at 151:
Whatever the terms of a contact may be, it is possible for the parties so to conduct themselves as mutually to abandon or abrogate it.
With these principles in mind, the Court now considers the facts of the present proceeding to determine whether the conduct of Mr Zevon and Mareva, through the conduct of Mr Honkanen, manifested a mutual intention to abandon the Gungahlin contract.
There is no doubt that the Zevons intended that the Gungahlin contract be abandoned. The only question then is whether the conduct of Mr Honkanen manifested such an intention. The pertinent conduct of Mr Honkanen is as follows:
a. At the time of the critical statement, no mention was made by Mr Honkanen of his belief that he was entitled to payment for the work performed by him under the contract for the Gungahlin property.
b. With respect to the Bruce property, Mr Honkanen made it plain that he could not be expected to prepare the drawings without payment and for this reason he informed Mr Zevon, as the primary judge found, that the cost of preparing the plans would be $10,000. There was no suggestion by Mr Honkanen at this stage that the contract to construct a house, either at Gungahlin or Bruce, remained on foot so far as he was concerned.
c. When it became known that Mr Zevon was abandoning the Bruce project, Mr Honkanen rendered an invoice on 19 May 2006 to Mr Zevon for the design drawings for the Bruce project. No reservation of any claim for loss of profits was foreshadowed.
d. Significantly, on 20 June 2006 Mr Honkanen sent an invoice to the Zevons for ‘preparation work’ done in respect to the Gungahlin project, included his preliminary work. No invoice was sent for the loss of profit arising from the contract, and nor did Mareva seek to reserve any such right.
Considered together, these facts are inconsistent with Mareva’s claim that the contract to build the Gungahlin house remained on foot, despite Mr Honkanen being offered the Bruce project.
The primary judge considered that neither Mr Honkanen nor Mr Zevon intended that the contract for the construction of the Gungahlin house should be further performed. Her Honour adopted the words of Stephen, Mason and Jacobs JJ, with whom Aickin J agreed, in DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423 where their Honours said at 434:
Neither party intended that the contract should be further performed. In these circumstances, the parties must be regarded as having so conducted themselves as to abandon or abrogate the contract.
Objectively, the facts of the meetings between Mr Honkanen and Mr Zevon confirm such a factual circumstance and the primary judge’s finding. Mr Honkanen’s conduct, at least up to 20 June 2006, is wholly consistent with the finding of the primary judge that the contract to build the Gungahlin house had been mutually abandoned. There was ample evidence before her Honour to draw the conclusion that Mr Honkanen acquiesced in the proposal that the construction of the proposed dwelling at Gungahlin should not proceed. There was no evidence that at any stage Mr Honkanen said anything contrary to that proposal. Mr Honkanen did not, for example, express any reservation of his rights, nor even raise with the respondents any question relating to payment for any of his services rendered in respect of the Gungahlin project.
Accordingly, the Court is satisfied that there was no error by the primary judge in the finding that the contract had been abandoned. An objective analysis of the facts shows clearly that such an inference was available.
The Court notes the primary judge’s alternative finding that the Gungahlin contract was discharged by agreement. There is no need for this finding to be considered as the Court has found no error with her Honour’s reasoning in relation to abandonment.
In these circumstances, it follows that there was no breach of the building contract between Mareva and Mr Zevon.
For the above reasons the Court dismisses the submission that the primary judge erred in finding that the subject contract had been abandoned by mutual agreement.
CONDITIONAL ABANDONMENT OR DISCHARGE
In the alternative, Mareva submits that if the Gungahlin contract was abandoned or discharged by agreement, it only did so on the condition that Mareva would be able to build a house for the Zevons in Bruce.
The primary judge briefly considered this issue in the court below. Her Honour found at [82]:
Mr Honkanen did not make discharge of the Gungahlin contract conditional on the Bruce project proceeding to completion. How could he? At the time he agreed to walk away from the building of the Gungahlin house he had not even quoted on the Bruce house.
On the evidence before the court below, it was clear from the conduct of Mr Honkanen after the Gungahlin contract was abandoned that he did not believe that Mareva had the contractual right to construct a house in Bruce.
On 21 December 2005, Mr Honkanen wrote to the Zevons in relation to the concept plans he had drawn for the Bruce property. In that letter, he said:
Please give me a call to discuss where to from here. Options include to pick another design… take this concept plan to other builders to see what they are prepared to quote, etc.
In or around August 2006, Mr Honkanen sent an account of Mareva’s dispute with the Zevons to the Master Builders Association. In a statement made 8 June 2006, he said in relation to the Bruce property:
It was always open to the Zevons to walk away from the building component if they chose to do so after the plans were completed.
For these reasons, the Court finds that Mareva did not abandon the Gungahlin contract on the condition that it would build a house for the Zevons in Bruce. Accordingly the Court rejects Mareva’s submission.
PLEADINGS
The Zevons did not plead that the Gungahlin contract had been abandoned or discharged by agreement in the court below. Rather, the primary judge raised the issue of abandonment with the parties at the close of evidence at the hearing, whilst discharge by agreement was not considered until the judgment. Mareva submits that had abandonment or discharge by agreement been pleaded in the defence, it would have argued in reply that any abandonment or discharge was conditional upon the construction of another house by Mareva for the Zevons at Bruce.
The Court considers that it was open to the primary judge to raise with the parties the legal issues of abandonment and discharge by agreement. Whilst such defences had not been raised by the defendant and the appellant submitted that it would be prejudiced if such issue were raised because it ‘could have called evidence’, it is difficult to comprehend, bearing in mind the factual circumstances, what further evidence could have been called on this issue. The critical statements were in evidence before the primary judge. Obviously the primary judge considered that there were applicable legal doctrines which the parties had overlooked. Her Honour invited the parties to make submissions on these issues, and the parties made such submissions. It is also notable that there was no application to re-open the proceeding to call any additional evidence.
Whilst it is correct that r 407 of the Court Procedures Rules 2006 (ACT) requires matters such as abandonment and discharge by agreement to be actually pleaded, the Court does not accept that Mareva has suffered any prejudice by reason of the Zevons failing to do so.
It follows that the appeal fails and that the appellant must pay the costs on appeal of the respondents.
I certify that the preceding forty five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of Court.
Associate:
Date: 12 July 2013
Counsel for the Appellant: Mr P Walker
Solicitor for the Appellant: Charles Filgate Giles & Associates
Counsel for the Respondents: Mr J Hutton
Solicitor for the Respondents: Bradley Allen Love
Date of Hearing: 18 February 2013
Date of Judgment: 12 July 2013
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