| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : MAZZEO -v- McNAMARA & ANOR [2003] WADC 231 CORAM : DEANE DCJ HEARD : 28 MAY 2003 DELIVERED : 31 OCTOBER 2003 FILE NO/S : CIV 3047 of 2000 BETWEEN : GAETANO (GUY) MAZZEO Plaintiff
AND
DAVID McNAMARA
REBECCA McNAMARA
Defendants
Catchwords: Building dispute - Interpretation of clause in Housing Industry Lump Sum Building Contract - Application for order that a preliminary question of law arising as to interpretation and application of clause in the contract should be referred to the trial Judge for determination - Turns on own facts
Legislation: Nil
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Result:
Application dismissed Representation:
Counsel:
Plaintiff : Mr T H Brickhill
Defendants : Mr R D Shaw
Solicitors:
Plaintiff : Brickhills
Defendants : Phillips Fox
Case(s) referred to in judgment(s):
American Home Assurance Co v Ampol Refineries Ltd (1987) 10 NSWLR 13
Del Borrello v Friedman and Lurie (a firm) [2001] WASCA 348
Primary Building Co v Beris Pty Ltd, unreported; SCt of WA; Library No 8801137; 19 April 1988
Roberts v Roberts (1994) 12 WAR 505
Smith v Maloney (1998) 19 WAR 209
Case(s) also cited:
Nil
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1 DEANE DCJ: In this matter the plaintiff applies to have an issue referred to a Judge for a determination as a preliminary issue in the action whether as pleaded in par 45 of the amended reply and defence to counterclaim by the defendants taking possession of a house at 3 Klenk Road, Attadale, on or about 7 November 2000 without the prior written consent of the plaintiff and by virtue of the operation of cl 17(e) of the Housing Industry Association Lump Sum Building contract ("the contract") dated 4 November 1999 between the plaintiff and the defendants:
"(a) all moneys payable under the building contract between the plaintiff and the defendants are immediately due and payable; (b) the defendants having waived, released and discharged the plaintiff against any claim they have against the plaintiff, including the counterclaim in the action; and (c) the plaintiff is discharged, released and relieved absolutely from any further obligations and responsibilities under the building contract." 2 Paragraph 45 of the amended reply and defence to counterclaim pleads that: "(a) the Contract contained the following express term: By clause 17(e) of the HIAC if without the prior written consent of the plaintiff the defendants took possession of the site such action would constitute an absolute waiver, release and discharge to the plaintiff from the defendants of any and every claim which the defendants had or might have had against the plaintiff under the Contract and the plaintiff would thereupon be discharged, released and relieved absolutely from all his obligations and responsibilities under the Contract (other than his obligations pursuant to cl 12 – Defects Liability Period) and all moneys payable under the Contract would become immediately due and payable. (b) the defendants took possession of the site on 7 November 2000 without the prior written consent of the plaintiff.
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(c) as a result of the matters pleaded at par 45(a) and par 45(d) herein all moneys payable under the Contract became immediately due and payable and the defendants waived, released and discharged the plaintiff against any claim they had against the plaintiff including the counterclaim in this action." 3 The plaintiff's application is not that the Court in the hearing of this application determine the preliminary issue but rather that the Court make a determination on the material before it as to whether or not the preliminary issue should be referred to the trial Judge to be heard and determined as a preliminary issue. Essentially counsel for the plaintiff argues that the preliminary issue raises a question of law and the determination of the issue in the action being the legal effect of cl 17(e) will resolve a defined issue in the action. Further it is said if the preliminary issue is determined in favour of the plaintiff the bulk of the claims by the defendants will fall away. 4 Counsel for the plaintiff submits that the procedure whereby a preliminary issue is referred to the trial Judge for determination is one designed to permit issues to be isolated and determined with a view to resolving a dispute without the need for a fuller investigation of the dispute thereby saving both time and money: Roberts v Roberts (1994) 12 WAR 505. There is no doubt that the Court has power to order a separate issue to be tried at any stage of the proceedings: American Home Assurance Co v Ampol Refineries Ltd (1987) 10 NSWLR 13 at 18. 5 As against this counsel for the defendants argues that the procedure involving a preliminary determination of a point of law is exceptional and does not apply in this case. Preliminary questions of law it is said should generally only be isolated for a separate decision in circumstances where there will be no necessity for the matter to go back to the primary court whichever way the point of law raised is determined or decided. From a practical perspective counsel for the defendants submits that the procedure, rather than simplifying matters, often complicates them by adding to the difficulties of courts of appeal which in itself results in an unnecessary expenditure of time and increases the costs of legal proceedings: Smith v Maloney (1998) 19 WAR 209 at 202. 6 Both Mr Mazzeo, the plaintiff, and Mr McNamara, one of the defendants, have filed lengthy affidavits relevant to this matter but it is not necessary to refer in great detail to the contents of those affidavits. It
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would appear that the plaintiff and the defendants entered into a contract being a Housing Industry Association Lump Sum building contract ("HIAC") on 4 November 1999 relating to the construction by the plaintiff of a house for the defendants at 3 Klenk Road in Attadale. A copy of that contract is annexure "GM1" to Mr Mazzeo's affidavit sworn 20 February 2003. In particular cl 17(e) of that contract states: "If, without the prior written consent of the Builder, the Owner shall take possession of the site, permit work outside this Contract or deliver goods or chattels to the Site before practical completion or before paying all moneys due and payable hereunder (whichever is the earlier) such action shall constitute an absolute waiver, release and discharge to the Builder from the Owner of any and every claim which the Owner had or might have had against the Builder hereunder and the Builder shall thereupon be discharged, released and relieved absolutely from all his obligations and responsibilities under this Contract (other than his obligation pursuant to cl 12- Defects Liability Period) and all moneys payable under this Contract shall be become immediately due and payable together with any interest thereon for late payment at the rate specified in Item 8 of the Schedule calculated from the date of the Owner taking such action." 7 The plaintiff asserts there was practical completion of the residence or the works pursuant to the contract. The works is defined in par 1(a) of the HIAC to include the works outlined in the contract and the drawings, plans and specifications for the residence as referred to in par 8 of the plaintiff's affidavit. The plaintiff further asserts that it is not in dispute that there was practical completion and indeed that there was prior to entry a pre-handover inspection of the residence in the presence of the plaintiff and defendants on 18 October 2000. Annexure to the plaintiff's affidavit "GM2" is a facsimile dated 20 October 2000 from the plaintiff's solicitor to the defendants' solicitor containing a list of items that were raised by the defendants at that pre-handover inspection which the defendants claimed needed to be addressed or undertaken by the plaintiff in order to fulfil his obligations under or pursuant to the contract. 8 The plaintiff's position is that although certain issues were raised with respect to particular items at the time of the pre-handover inspection some of them were matters outside the ambit of the contract and there were others which the plaintiff claims he attended to as requested.
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9 According to the plaintiff, the defendants' residence was practically complete prior to and as at 8 November 2000 and he says it is not in dispute that the defendants and their children moved in and inhabited the residence from that date. As a result the plaintiff claims that there was possession of the residence by the defendants on 8 November 2000 prior to full payment being made. At that time the plaintiff asserts $101,497.65 remained outstanding.
10 Mr McNamara in his affidavit takes issue with this assertion and claims that the defendants took possession of the residence only because the plaintiff had exceeded the time allowed under the contract for completion of the building by two months and further the plaintiff refused to provide a breakdown or proper account as to the moneys due under the contract. In addition the defendants claim that the plaintiff refused to complete defective work and engaged in taking active steps to delay the process whereby the defendants could take possession of the residence in order to force the defendants to pay moneys claimed, but which were not actually due. 11 The plaintiff says further that it is not in dispute between the parties that on 14 November 2000 after the defendants had taken possession and after a preliminary meeting between the parties and an arbitrator was nominated by the HIAC, the defendants paid to the plaintiff the sum of $70,736.60 leaving a balance, according to the plaintiff, of $30,761.05. 12 In par 10 of his affidavit of 11 March 2003 Mr McNamara on behalf of the defendants deposes that although the arbitration did not proceed that sum of money was paid to the plaintiff by the defendants as a result of a plea from the plaintiff to allow the subcontractors to be paid and also a plea from the plaintiff's wife to Mrs McNamara that the moneys be paid. 13 Both Mr Mazzeo and Mr McNamara in their respective affidavits canvass at some length the history of attempts to take the dispute to arbitration but in the end the reason or reasons that this did not eventuate are not of great moment in the context of this application. 14 As has been noted earlier counsel for the plaintiff submits that if the preliminary issue is referred to the trial Judge and the preliminary issue is determined with the relevant clause interpreted in the plaintiff's favour then the claims against the plaintiff by the defendants, which are apparently now greater than outlined in the pre-handover inspection list, then a large part of the claim being the bulk of the items claimed by the defendants will fall away as a matter of contract between the parties.
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15 Put another way counsel for the plaintiff asserts that a determination of the preliminary issue in favour of the plaintiff would have the effect that the defendants would be prevented from raising at trial several pleaded issues thereby avoiding considerable waste of time and funds. It is the plaintiff's position that whilst ultimately it is a matter for the Court, cl 17(e) of the contract is not a penalty clause.
16 As practical completion had occurred and provision was made in cl 12 of the contract for the defendants to claim under the defects liability period it is said that it is arguable that this is the case. Reference was made to Del Borrello v Friedman and Lurie (a firm) [2001] WASCA 348 at 114 where the Court observed that a distinguishing feature of a clause of this nature would be whether or not the clause extended beyond the responsibility to complete the building to include any obligation to remedy defects. 17 Counsel for the defendants referred to Primary Building Co v Beris Pty Ltd, unreported; SCt of WA; Library No 8801137; 19 April 1988 where a very similar clause was held by the Court to be a penalty clause. For this reason the defendants contend the plaintiff will not succeed in his application. Counsel for the plaintiff argues that in the latter case there was not a clause similar to cl 17(e) as in the contract in the present case with respect to the issue of defects liability and the defects liability period. 18 Counsel for the plaintiff submitted to the Court that the defendants' position is that they are willing and prepared to pay the sum of $16,947.18 of the outstanding balance of $30,761.05 the subject of the plaintiff's claim on the basis that there were some credits which the defendants have specified. The defendants' position, however, is that the plaintiff's claim is the balance of the contract sum less credits to the defendants plus variations (paragraphs 4-24 of the statement of claim) and these credits and variations will remain in dispute. 19 As I understand the position of the plaintiff it is that as a matter of contract the defendants took possession of the residence when payment was still due and owing and as a result there has been a waiver of any claims by the defendants against the plaintiff, save for those claims in relation to any defects. As a result it is said that the only obligation on the plaintiff as a builder is to address and rectify the defective items and under the contract there is a procedure and time period in place for doing so. 20 This matter has been on foot since November 2000 with little progress occurring. Counsel for the defendants point out that the parties
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have prepared for a hearing and there have been directions given by the Court regarding the exchange of experts' reports. 21 In January 2003 the matter proceeded to a pre-trial conference but has progressed no further with respect to a listing for trial. From a practical perspective counsel for the defendants highlighted that if the matter is further listed for a determination of a preliminary issue then as a matter of commonsense it will be some time before that matter is set down for hearing and it could well be that whatever the outcome of that hearing there could be further delay depending on the attitude of the unsuccessful party. 22 Considerable emphasis was placed by counsel for the plaintiff on the argument that the plaintiff should be granted the opportunity to persuade a court that the preliminary issue be determined in his favour because if he is successful then it will substantially reduce the trial length and complexity of the trial because many of the issues raised on behalf of the defendants would simply fall away and not require determination. This is obviously an argument which has some attractions but the situation would not appear to be quite as simple as one may consider at first instance. 23 The firm position taken on behalf of the defendants is that a determination of the preliminary issue, whatever the outcome, will in no way resolve the matters in issue between the parties and will not shorten any hearing or result in any saving of costs. It is said that the hearing will be in the region of four to five days whether it is confined to the preliminary issue or not. 24 The defendants say that the plaintiff's claim for $30,761.05, being the balance due and owing on the contract, is entirely in issue despite the fact that a percentage of the claim relates to matters of credits and variations and what they should be. This will obviously be a matter for evidence. The defendants' position is that they owe the plaintiff approximately $15,000 only. It is said that whilst the plaintiff claims that cl 17(e) of the contract precludes the defendants from making any claims because they took possession of the premises without written permission of the plaintiff and therefore could only claim for defective workmanship and materials in a limited manner, that is by no means the end of the matter. 25 By par 39 of the defence and counterclaim, which is denied by the plaintiff, the defendants plead that the plaintiff repudiated the contract (by reference to par 24 to par 38 of the amended defence and counterclaim) and that on 7 November 2000 the defendants elected to terminate the
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building contract by re-entering and taking possession of the site. The defendants' position is therefore that no matter what the outcome or determination of the preliminary issue, the issue of alleged repudiation of the contract remains live and if that issue were to be resolved in the defendants' favour cl 17(e) would be irrelevant in that sense. It should be noted that in par 40 of the amended defence and counterclaim the defendants plead in the alternative that the plaintiff engaged in misleading and deceptive conduct and the contract should be varied pursuant to s 77 of the Fair Trading Act to relieve the defendants from any obligations under the contract following re-entry on 7 November 2000. 26 Further, the defendants have issued a counterclaim which essentially falls into two parts. The first part relates to defective works which are itemised in a Scott's schedule which covers a range of items, the total claims for which are substantial in that there are claims for defects and defective workmanship totalling some $70,000 to $80,000. It is said that if cl 17(e) is interpreted as a penalty clause only then all that is discharged are the obligations under the contract save for those covered by cl 12. With respect to cl 12(a) of the contract the defendants argue that regardless of the outcome of the interpretation of cl 17(e) there remains live the claim under the defects liability clause. 27 The defendants say they have notified the plaintiff of each one of these defects and the plaintiff has not rectified them therefore the defendants have a claim pursuant to cl 12(a) for faulty workmanship. The second part of the defendants' counterclaim can conveniently be described as one with respect to levels of the house, being a claim in the region of $50,000 to $125,000 as particularised in the pleadings. 28 As I understand it there is considerable argument as far as the defendants are concerned regarding the effect that the levels of the house now have on the available views of which the defendants cannot now take advantage. The defendants' position is that pursuant to the direction of the local council the plaintiff built the house to certain levels and failed to disclose or discuss this variation with the defendants. In the end result there has been a substantial negative impact on the value of the property because the levels of the house as built prevent the occupiers of the premises being the defendants having full enjoyment of the views which would have been available had the levels been as originally envisaged. 29 This claim is pleaded in both negligence and contract as a result of which counsel for the defendants asserts that even if cl 17(e) of the contract is interpreted in favour of the plaintiff and even if the plaintiff is
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correct in his argument that this would preclude the defendants pursuing their claim in contract they are nonetheless not prevented from pursuing their claim in negligence as it relates to the claimed levels of the house or the claimed defective workmanship with respect to this aspect of the claim. 30 The practical effect of this is that notwithstanding a determination of the preliminary issue in the plaintiff's favour, which it is said is by no means likely, the defendants still retain their right to pursue a claim for defective workmanship and a claim in negligence with respect to the allegations concerning the alterations in the levels at which the house was built. 31 For these reasons it is said that referring the preliminary issue to the trial Judge for determination would be to little or no avail and would not achieve the savings in time and costs referred to by counsel for the plaintiff, nor would it streamline matters in the sense of reducing the complexity of issues in question or the length of any hearing. It is said that one simply cannot argue the issue of the interpretation and application of cl 17(e) without investigating and arguing the issue of repudiation of the contract raised on the pleadings by the defendants. 32 If the defendants were to succeed in their argument on this point the practical effect it is said would be that one does not even arrive at the point of needing to address the issue of the interpretation and application of cl 17(e) of the contract in the context of this case. 33 Whilst it is not for the Court on the hearing of this application to determine the preliminary issue, on balance I am not persuaded that the procedure urged by counsel for the plaintiff is desirable, in that it appears that whatever the determination of the preliminary issue, it would not result in the clarification of matters or in saving of time and expense. The matter has languished for a considerable period of time and in my view it is desirable that all the issues raised be aired in the one hearing at trial sooner rather than later. 34 For these reasons in my view there is considerable merit in the argument raised on behalf of the defendants, and the plaintiff's application is dismissed. |