Mobile Building System International Pty Ltd v Hua
[2013] QCAT 636
| CITATION: | Mobile Building System International Pty Ltd v Hua [2013] QCAT 636 |
| PARTIES: | Mobile Building System International Pty Ltd (Applicant) |
| v | |
| Koji Hua (Respondent) |
| APPLICATION NUMBER: | BDL271-12 |
| MATTER TYPE: | Building matters |
| HEARING DATE: | 22 – 23 April 2012 |
| HEARD AT: | Brisbane |
| DECISION OF: | Member McLean Williams |
| DELIVERED ON: | 28 November 2013 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The applicant is to pay to the respondent the sum of $168,149.50: within 28 days of the date of these orders. 2. Pursuant to s .39 of the Domestic Building Contracts Act, the applicant is to deliver to the respondent all original contract related documents and building certificates within 28 days of the date of these orders. |
| CATCHWORDS: | Residential building dispute – termination of contract – whether properly terminated – entitlement of homeowner to terminate for failure to remedy breaches – whether builder entitled to claim for undocumented variations – whether builder entitled to claim progress payments in circumstances where work under that stage incomplete and special conditions requiring all works for that stage to be “fully completed”. Domestic Building Contracts Act 2000 ss39, 65, 69, 84, 93 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 339 |
APPEARANCES and REPRESENTATION (If any):
| APPLICANT: | Mr Nicholas Vale |
| RESPONDENT: | Mr Tim Matthews of Counsel, instructed by Romans & Romans, Lawyers. |
REASONS FOR DECISION
Preliminary
Mobile Building System International Pty Ltd (the applicant) is a residential building company operated by Mr Nicholas Vale.
On 29 August 2012, the applicant commenced these proceedings against the respondent, Mr Koji Hua, seeking payment of $127,960.35 that the applicant contends it is still owed for outstanding stage payments, variations, and default interest. These claims arise in relation to a residential duplex that the applicant constructed for Mr Hua, at 18 Sapium Street, at Kingston.
In his response to that claim filed on 12 September 2012, Mr Hua contends that no monies are owed for progress payments, by reason that the stages claimed (being stages 5 and 6) have not been fully completed. Mr Hua also says that the applicant has no entitlement to any of the claimed variations, because the claimed amounts are for matters that were already within the agreed scope of works; or arise because of changes made without Mr Hua’s prior written approval.
Because of the applicant’s failure to complete the works in conformity with the scope of works required by the contract, Mr Hua asserts that he has validly terminated the contract, and now brings a counterclaim before QCAT, seeking:
1. $260,845.82 for the completion of the duplex, including various necessary rectification works;
2. $20,236 pursuant to section 69 of the Domestic Building Contracts Act 2000 for the refund of over-paid amounts;
3. $4,620 for prime cost items;
4. $22,633.60 for interest as a consequence of delays by the builder;
5. $865 for the cost of disturbance caused by the applicant and its agents on 5 & 7 September 2012;
6. $450 for the costs of storing the applicant’s equipment;
7. $8,036 in legal costs incurred when it became necessary to terminate the contract and respond to the Applicant’s BCIPA adjudication;
8. $3,802.37 as restitution pursuant to s 100 of BCIPA;
9. orders pursuant to s 39 of the Domestic Building Contracts Act 2000 requiring the Applicant to produce the originals of all contract related documents and building certificates; and
10. Costs.
Matters for Determination
In the resolution of this dispute it becomes necessary for QCAT to determine:
(i) whether the applicant is entitled to payment for variations;
(ii) whether the applicant is entitled to the claimed payments for stages 5 and 6;
(iii) whether, as a consequence of (i) & (ii) above, the builder is entitled to interest;
(iv) whether the respondent has validly terminated the contract; and
(v) whether the respondent is now entitled to lay claim to the costs of completion of the construction project (including rectification works), and various consequential costs.
Factual Background
In October 2011, Mr Hua advertised on the “Service Seeking” website, seeking a builder for the construction of his proposed development project at Kingston, involving the construction of a residential duplex, on a steeply sloping site.
The applicant contacted Mr Hua expressing interest in submitting a quotation. Mr Hua then sent an e-mail to Mr Vale, the principal of the applicant.[1] Attached to that e-mail were detailed plans and other relevant specification documents. Included among these were three-dimensional CAD images, showing how Mr Hua expected the various elements of the townhouses to look, once they had been completed. The CAD images also portray the construction in a series of progression images, from initial site cut, all the way through to project completion.
[1] Annexure 19 to Mr Hua’s statement of evidence.
In part, Mr Hua’s e-mail to Mr Vale dated 11 October 2012 said:
I am planning to have the duplex constructed. The DA has been approved. The duplex is not big, each unit is approximately 129 sqm of main floor area, lightweight construction with suspended split levels, sitting on steel posts on a sloppy [sic] site. As you will see in the drawings, the earthwork is kept to a minimal, [sic] leaving as much natural ground as possible beneath and around the suspended duplex. The roofs are kept to simple skillion roofs primarily.
I have prepared the following documents, which contains details of information of what are to be included in your quotation and for the ease of quoting/construction. Please take your time to peruse, and if you need more information or any discussion, please email me or call me as often as you wish.
…./
…I have not done the footing design yet, but you can just allow typical footings for mid-range soil type until I get my engineer to design the footings at a later time.
On 4 November 2011 the applicant sent its quote for the job, via e-mail to Mr Hua. That quote was specified to include the costs of infrastructure services for water, sewer, electricity and telephone connection.[2] The quote was acceptable to Mr Hua, such that the parties then entered into further negotiations.
[2] Annexure 22 to Mr Hua’s Statement provides a copy of the applicant’s quote
A preliminary issue: insertion of extra terms by the owner?
The evidence heard before the Tribunal was that the signing of the contract took place at a Singaporean restaurant at Calamvale, on 10 November 2011. The contract that was signed on that day includes ten hand-written, “bullet point” special conditions. Mr Vale’s initials appear on the special conditions page.
It was Mr Hua’s evidence that at the meeting at the restaurant in Calamvale, Mr Vale was accompanied by a woman by the name of Barbara, who checked the final hand-written version of the contract, before Mr Vale then signed it.
Mr Vale agrees that he signed the contract with Mr Hua in the restaurant, at Calamvale. He also agrees that a colleague named Barbara Albert accompanied him, and that she examined the contract on his behalf, before he signed it.
In the applicant’s final written submissions filed with QCAT on 24 May 2013 (yet at no time prior to this, including during the hearing of evidence), the applicant alleges that the parties had previously agreed - by e-mail on 7 November 2011 - to a different version of the special conditions, that did not contain all the same terms (more onerous for the builder), as those that now are contained in the hand-written version, signed in the restaurant.
It is the applicant’s contention that two clauses, (6) and (10), have been unilaterally inserted into the contract, by Mr Hua, some time after Mr Vale had already signed the contract. These two special conditions provide:
(6)Clauses 4.7, 33, 34 & 28.8 of the general conditions are waived.[3]
(10)Builder must carry out the works specified in stage 1 of the progress payment as soon as builder has received the deposit. For each of the other stages of progress payments, builder can only claim payments after all the works specified under the stage are fully completed.
[3] These clauses are those that give the builder an entitlement to interest.
I am unable to accept that. No evidence has been adduced by the applicant in support of the contention that the contract terms had already been agreed by 7 November 2011. At the very least, one would have expected to see the exchange of e-mails, culminating on 7 November 2011, in order to be able to discern from them the crystallisation of some agreement, that pre-dates 10 November 2011. That has not occurred.
Nor has any other evidence been adduced to show that further hand-written terms were inserted into the special conditions, after the point at which Mr Vale had already signed the contract; other than to now include - as part of the applicant’s final submissions – an earlier, typewritten version, that reveals only 8 special conditions, that did not include either of special conditions (6), or (10).
If additional special conditions were surreptitiously put into the contract by Mr Hua, then one would ordinarily expect for this issue to have seen the light of day very early in the dispute, rather than as late as it did. One would certainly have expected that Ms Barbara Albert would have been called to testify to the effect that the contract is now different to that which was agreed by Mr Vale after she had examined it. Yet, Ms Albert was not called to give any evidence. Presumably then, her evidence would not have assisted the applicant in that regard.
I find therefore that the special conditions are the ten hand-written “bullet point” terms that appear under the heading ‘Special Conditions’ in the contract signed by Mr Vale and Mr Hua, on 10 November 2011.
The Contract
The contract dated 10 November 2011 is a “HIA QC1 plain language new home construction contract”, for the construction of a split-level, timber duplex at 18 Sapium Street, Kingston, Queensland for the fixed price of $353,500.00 (including GST).
Although Mr Hua’s earlier e-mail to Mr Vale of 11 October 2011 had contemplated that the owner would have an engineer prepare the footing design and do the soil test, the contract that was eventually signed by the parties instead required for the builder to provide both the soil test report, and the slab and footing design.
On the basis of the evidence heard by the Tribunal it appears likely that Mr Vale did not appreciate the significance of that change, nor the extra costs that would undoubtedly be caused for the builder because of it. Although that is unfortunate, it is also the case that Mr Vale did sign the contract, and must be taken to have read that term before agreeing to it. As a registered builder, Mr Vale should have been conscious of the fact that his price was predicated on assumptions about the site’s geology that might subsequently be shown to be inaccurate, once the results of the soil test were available.
As already noted, the site at 18 Sapium Street presented particular challenges, particularly due to the steep slope (a drop exceeding 8 metres) from the rear boundary down towards the street frontage. Yet, it is also the case that the contract took account of these difficulties. Rather than adopting a standard (‘prescribed’) progress payment schedule (Part A of Schedule 2), this has been ‘lined through’ by the parties, who instead utilised Part B in Schedule 2 - thereby adopting a ‘customised’ progress payment schedule – one that afforded the builder greater sums at an earlier stage during construction; no doubt so as to cover costs associated with excavation and foundation works.
In Part B of Schedule 2 the following explanation is given by the contracting parties for their departing from the standard ‘prescribed’ progress payment schedule:
Elevated block (steep slope), confined space for earthwork, provision for surveying, clearing vegetations [sic], preparation for retaining and fencing, require rock breaker
Pursuant to clause 36 the builder warranted to conduct the works in accordance with the plans and specifications to the contract. Pursuant to item 12, the contract was expressed to include:
(i) The building plans (ver BA/A-29/11/10) by Project A building Design;
(ii) The specifications (Annexure S2-04/11/2011);
(iii) An approved soil test report (“to be prepared by the builder”); and
(iv) Approved slab and footing designs (“to be prepared by the builder”).
The works were agreed by the parties to be completed within 240 days from the commencement date, which was specified in the special conditions to be the day upon which Mr Hua received finance approval.
From among the various special conditions, the following, in particular, warrant reproduction as part of these reasons for decision:
(9)Builder shall build in accordance with the approved building plans and engineering designs. If the builder proposes a variation (eg a change to the building facade or external finishes), the builder must obtain the owner’s permission for such variation, and such variation shall be at no additional cost to the owner.[4]
(10)Builder must carry out the works specified in stage 1 of progress payment as soon as builder has received the deposit. For each of the other stages of progress payments, [the] builder can only claim payments after all the works specified under the stage are fully completed.
[4]It is to be noted that this clause also appears in the earlier (typed) version of the special conditions that the Applicant claims had been agreed by the parties on 7 November 2011.
The progress claim stages agreed by the parties were:
No
Stage
%
Amount
1
Deposit (submit all plans for approval, surveyors and engineer, civil infrastructure in place)
5
$17,675.00
2
Excavations, retaining walls, slabs and footings, block plinth for separating walls
20
$70,700.00
3
Install posts, sub-floor and drainage, wall, floor and roof framings, roof sheeting
20
$70,700.004
Enclosed, wall claddings, soffit lining, windows & doors, electrical & plumbing, stairs &decks
35
$123,725.00
5
Fixing, painting, landscaping, fences, site clearing, building cleaned
15
$53,025.00
6
Practical completion
5
$17,675.00
TOTAL (including GST)
100
$353,500.00
Work on the project commenced in late November 2011. The deposit sum ($17,675) was invoiced to the respondent on 22 November 2011, and was paid by Mr Hua, on 24 November 2011.
From the perspective of the builder, problems quickly arose. On 2 December 2011 the soil test revealed the site to be a “P” (or problematic) site, given its steep slope, obvious issues with surface drainage, and the presence of weathered rock, close to the surface of the ground. Yet, the plans and other drawings - as had been drawn by Mr Hua and then provided to the applicant at the stage of initial quoting - all pre-dated the soil survey, and had assumed a soil survey result in only the mid-range. Herein is to be found the core of the problem, and one that has ultimately given rise to this dispute. The builder’s fixed price has been set much too low, and takes no account for such a risk. Special condition (9) apparently compels the builder to assume all the risk for any expensive, unforeseen, latent conditions.
However, this new information also does not appear to have acted as any form of trigger for the builder to at least try and renegotiate the contract with Mr Hua. Although special condition (9) is particularly onerous for the builder, it would not seem that this would have necessarily precluded the builder from relying on clause 15.2, to attempt to renegotiate arrangements. Had the owner refused to re-negotiate at that juncture then it seems at least likely that the builder would have had grounds to bring the contract to an end, thereby terminating his contractual obligation to complete the project at a loss. However, at this stage of things, the issue is one that is of only academic interest, given the systematic failure by the applicant to comply with any of the requirements of either of clause 15 (unforeseen circumstances), or clause 20 (contract variations). Instead, the applicant has tried to build the duplex by means of a series of unapproved workarounds.
On 30 December 2011, Mr Hua sent the first of what was to become a succession of e-mails to Mr Vale, noting that the earthworks undertaken by the applicant departed very radically from those specified by the contract drawings; with Mr Hua observing that the builder had completely omitted to install the subfloor drainage system, clearly marked on the plan. Examination of the 3D drawings that comprise part of the contract documents (and as was also adverted to by Mr Hua in his e-mail of that date) also reveals that the site earthworks were supposed to include a substantial bench section, cut into the side of the slope, towards the front of the duplex complex, beneath what was to eventually become the bedrooms. Yet, for reasons that never became clear from the evidence, this bench has been completely omitted by the builder, thus laying the basis for compounding errors, later in the project.
No response to Mr Hua’s e-mail of 30 November 2011 was forthcoming from Mr Vale. By the time this matter had become a dispute before QCAT the applicant’s position was that the earthworks plan and stormwater drainage plan provided by Mr Hua were misleading, due to their failure to account for the specific results of the soil survey, and as a result of their failing to take any account of additional drainage onto the site from up-slope allotments. I do not accept the contention that the plans have misled the builder. It was always for the builder to raise a query regarding these issues prior to agreeing to a contract price, and even then to insist on agreed contract terms that would still ensure adequate financial provision to the builder from the owner for any unforeseen issues. That just did not occur.
Problems of this ilk continued:
· On 2 January 2012 Mr Hua again advised Mr Vale by e-mail in relation to the applicant’s omissions of key earthworks, and of a retaining wall. The applicant did not respond to that complaint.
· On 12 February 2012 (and again by e-mail) Mr Hua again raised the omission of the subfloor drainage system. The applicant did not respond to that complaint.
· On 13 March 2012, Mr Hua advised the applicant by e-mail about the omission of earthworks, retaining walls, and the sub-floor drainage system, as well as in relation to the unauthorised substitution of tap ware. Once again, the applicant did not respond to that complaint.
· On 15 May 2012, Mr Hua advised the applicant by e-mail about the omission of earthworks and the subfloor drainage system. Again, the applicant did not respond.
· On 29 May 2012, and again by e-mail, Mr Hua advised that he was not willing to accept the applicant’s verbal proposal to alter the landscape design (ostensibly so as to better account for the steepness of the site and problems caused by surface water). Despite that, the applicant never responded to Mr Hua’s e-mail, and simply proceeded to alter the landscape design, in all events.
· On 5 June 2012, Mr Hua advised the applicant, by e-mail, that all variation works it had performed thus far were not authorised by the owner, and were not in accordance with the contract.[5] The applicant did not respond in writing to this e-mail.
· On 1 July 2012, Mr Hua again emailed Mr Vale and reiterated that the work that the applicant had performed thus far was not in accordance with the building plans and the requirements of the contract.[6] Again, the applicant did not provide any written response to this e-mail.
[5] See annexure 16 to the Statement of Evidence of Mr Koji Hua.
[6] See annexure 17 to the Statement of Evidence of Mr Koji Hua.
On 13 July 2012, the applicant issued the owner with invoice 0149 for stage 5 of the contract. Stage 5 requires fixing, painting, landscaping, fences, site clearing, and a builder’s clean, and represents 15% of the total contract price, or $53,025.00. Mr Hua did not pay that invoice. Then, as now, he contends that the applicant was not entitled to make claim to the stage 5 payment, by reason that the contract required that all of the works required at stage 5 to be fully complete, before the builder became entitled to make any claim.
On 2 August 2012, the applicant issued the owner with invoice 0167 for the stage 6 (practical completion), payment, in the amount of $17,000.00. Again, this invoice was not paid by the owner. Mr Hua says that by this stage, and as is evidenced by his stream of unanswered e-mails, he was challenging the builder in relation to a number of very substantial departures from the contract specification, yet none of these issues were satisfactorily addressed, by Mr Vale.
In evidence before QCAT, Mr Hua told the Tribunal that he had continued to make progress claim payments up until stage 5, even notwithstanding his stream of concerns expressed in e-mails, because of Mr Vale’s on-site assurances that these issues would all be rectified before the end of the project. Mr Hua says that, finally, on 13 July 2012, he ‘put his foot down’ and refused to pay anything further, until his concerns had been addressed.
On 7 August 2012, Mr Hua’s solicitors sent a Notice To Remedy Breach to the applicant.[7] The breaches alleged in that letter were:
[7] See annexure 3 to the Statement of Evidence of Mr Koji Hua.
1. failing to complete the works in accordance with the building plans and specifications to the contract pursuant to Clause 1.1(a);
2. failing to complete the works on or before the end of the building period stated in item 10 of the contract, pursuant to Clause 3.1;
3. failing to advise Mr Hua of prime cost item unavailability so he could provide the builder with an alternative selection, pursuant to Clause 21.2;
4. failing to provide evidence of the cost of the prime cost items when claiming payment for that item, pursuant to Clause 21.9 of the contract;
5. breaching its warranty that the works would be conducted in accordance with the plans and specifications to the contract pursuant to Clause 36.1(d) of the contract; and
6. breaching the special conditions, specifically:
(i)to build in accordance with the approved building plans and engineering design;
(ii)to obtain permission from the owner for any variation proposed; and
(iii)that any variation proposed by the builder should not be at any additional cost to the owner.
On 9 August 2012, Mr Hua’s solicitors sent a second (parallel) Notice to Remedy Breach to the builder. The grounds for the second Notice to Remedy Breach were that the builder had issued a notice to suspend the works to the owner without being lawfully entitled to do so.
The applicant has never satisfactorily answered the Notice to Remedy Breach sent to it by the owner on 7 August 2012. The only response thereto being a letter dated 16 August 2012, sent by a firm of solicitors that rather baldly asserts that any alleged defects had already been rectified, yet otherwise denying the existence of any defects (at all) on the project. Inspections at the property by Mr Hua at that time however revealed that no steps had been taken by the applicant to remedy any of the defects that had been drawn to its attention.
On 27 August 2012, Mr Hua terminated the contract, pursuant to clause 28.4, on the basis that the applicant had failed to remedy the breaches that had been specified to it within ten business days of receiving the Notice to Remedy Breach, on 7 August 2012. Even if some of the defects specified in the Notice to Remedy Breach had been remediated by the builder (and it would seem that at least a few of these had been rectified by that date), the ongoing existence of any one of them, beyond the rectification period afforded by the Notice to Remedy Breach, still affords the respondent with sufficient grounds to terminate the contract: see Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359, at 377-378.
On 31 August 2012 the applicant served Mr Hua with its QCAT Application for Domestic Building Dispute, which included amongst its supporting materials invoice 0151, this time for variations, in the sum of $56,045.00. Mr Hua had never previously seen any invoices for variations.
During cross-examination, Mr Vale conceded that a copy of the variations invoice had never been given to Mr Hua, prior to the filing of the applicant’s QCAT claim. In evidence, Mr Vale said that these variations had all been agreed orally by Mr Hua; or were otherwise necessary in order to comply with the Building Code of Australia.
Even if Mr Hua had issued verbal instructions to vary the scope of works (which he of course denies),[8] the Domestic Building Contracts Act mandates (by the regime created by ss 79, 80, 82 and 83), that any variations to the contracted works must be reduced to written form. Also, section 93 of the Act provides that a domestic building contract is void to the extent that it purports to be conducted in a manner that is contrary to the Act. For all those reasons, I cannot accept that there were any orally agreed variations.
[8]Mr Hua’s denials are then amply corroborated by his string of contemporaneous e-mails, in which he points out to the builder that there had been a host of unapproved variations.
Is the Applicant entitled to claim for urgent variations?
Although the builder contends, at least in part, that the undocumented variations were nonetheless required on an urgent basis in order to comply with the (legislative) requirements of the Building Code of Australia, the applicant has not produced any evidence of that urgency.
At the conclusion of this hearing I have been left with the distinct impression that there was simply no element of urgency attending any of the applicant’s departures from the agreed scope of works, excepting the matter of the electrical mains supply and electrical meter, which I will deal with separately, further below. In all other respects the claim regarding urgently required variations is an after-the-fact rationalisation, by the builder.
Ultimately, I conclude that pursuant to the provisions of the contract (and in particular because of the special condition in relation to variations); and because of the statutory impediments caused by the Domestic Buildings Contracts Act, the applicant is not entitled to any remuneration for variations, other than for that related to the power connection.
In having come to this conclusion, which is clearly very harsh for the builder, I have particularly considered the builders’ ‘life-raft’, contained in s 84(4) of the Domestic Buildings Contracts Act. Yet, I determine that the applicant’s circumstances do not fit within the requirements of it. I can see no basis to award any sum to the builder for variations on a quantum meruit basis; at least without being unfair to Mr Hua; as required by s 84(4)(b).
More fundamentally, the various matters covered in invoice 0151, for the most part, do not even amount to variations. Rather, these are for matters that are already within the agreed scope of works. Any matters that might qualify as a legitimate variation are then covered by special condition (9), as agreed to by the builder, and must be at no additional cost to the owner.
Although the applicant contends that it was required to substantially alter the front stairs in order to comply with BCA standards, I am not satisfied that the stairs needed to be changed for the reasons alleged by the applicant. The applicant contends that, if built as specified, the stairs would have impeded on a Council sewerage line, such that he changed the design of the stairs to include a return, in order that the base of the stairs be further away from that sewerage line. There is no satisfactory evidence before me that this was the only effective solution to that problem, particularly when it seems that a relaxation could have been sought and obtained from the Logan Council. In all events, the report prepared by Mr Groom reveals the stairs to be so defective that these must be demolished and then rebuilt.
The Electrical Mains Connection, and Meter Box
As referenced earlier in these reasons, one of the matters covered in the variation invoice is for approximately $3,700.00 for rectification of the electrical mains supply and metering installation. I note that this matter has been previously allowed in a Building and Construction Industry Payments Act (BCIPA) adjudication (see now exhibit 21, at page 18 therein), and has already been paid to the applicant by Mr Hua. I concur with the adjudicator that this sum should have been an allowable item, by way of variation. This was, in my view, the only instance of an urgent variation, and thus one that could be effectuated by the applicant pursuant to clause 20.6 of the contract, without the need for a written variation document. I do not accept the respondent’s contrary submissions on this point.
With the exception therefore of the sum allowed previously in the BCIPA adjudication result given on 22 February 2013, none of the sums claimed by the applicant for variations will be awarded by QCAT.
Is the Applicant Entitled to the Stage 5 Progress Claim?
The applicant issued Mr Hua with invoice 0149 for the Stage 5 progress claim on 13 July 2012. This was in the sum of $53,025.00.
Stage 5 of the contract required that fixing, painting, landscaping, fences, site clearing, and builder’s cleaning all be completed. Mr Hua contends that when the invoice was presented, stage 5 was not yet complete, in circumstances where special condition (10) states that for each of the stages of construction the builder can only claim payment after all of the works specified under that stage are “fully complete”.
As a simple matter of evidence I conclude (subject, of course, to ordinary defects and omissions as contemplated by any building contract), the “fixing” and “painting” sub-components of stage 5 have each been essentially completed. Yet, I find that that the “landscaping”, “fences”, “site clearing”, and “builder’s cleaning” sub-components do not factually qualify as essentially complete.
That, however, is not the simple end of the matter. There is still a contractual protocol that must be kept in mind. It is the role of Courts - and of this Tribunal - wheresoever possible, to act as the upholder of bargains, and not to become the destroyer of agreements. In this regard, consider QCoal P/L & Anor v Cliffs Coal P/L & Anor [2010] QSC 479 at [40], per Ann Lyons J; and Velvet Glove Holdings Pty Ltd v Mount Isa Mines Limited [2011] QSC 95 (at [16], per Wilson J), and the various authorities referred to by their Honours therein.
Clause 4.3 of the standard conditions requires that the builder give to the owner a written claim for a progress payment for the completion of each stage. Although arguments obviously remain as to whether the builder was entitled to issue the progress claim, it is certainly the case that the builder has delivered the stage 5 progress claim in purported conformity with clause 4.3. Clause 4.5 then provides that the owner “must” pay a progress claim to the builder within five working days of receiving that claim.
The term completion - as used in clause 4.3 - is not defined therein, although it is to be noted that (and as will become relevant in the case of the stage 6 claim), the term practical completion is elsewhere specifically defined. Although certain obligations are created by clause 4 for the builder, it does not require that the builder actually warrant that the works comprising that stage be, in point of fact, fully complete. Indeed, oftentimes matters are not fully complete when builder’s make claims for progress payments, and nor often can they be. The standard contract takes that reality into account by the ‘notice of practical completion’ process that it mandates by clause 25. This process is one included in the contract in order that the contracting parties can have orderly discussions about defects and omissions. In order for the scheme of the contract as a whole to still make sense, special condition (10) needs to be construed contra proferentem against the owner, lest any minor defect or omission be used as a pretext by the owner to refuse to pay the builder’s stage claims.
I take the view that, consistent with the intended scheme of the HIA contract and in circumstances where (as here) the owner contends that the works covered by the stage claim are not complete, then that ought be a matter either for an “owner’s notice” to the builder, pursuant to clause 25.5, delivered in response to a builder’s notice of practical completion; or, if at an earlier stage, should be the basis for either a Notice to Remedy Breach and/or a written notice of dispute, pursuant to clause 37. In this case, neither of those things have occurred. When the builder delivered his stage 5 progress claim, the time for payment started to run against the owner, pursuant to clause 4.5.
In his refusing to pay the stage 5 progress claim Mr Hua points to special condition (10), and also s 65(2) of the Domestic Buildings Contracts Act, which provides that a building contractor under a regulated contract (of which this contract is) must not demand or receive an amount under the contract, other than a deposit, “unless the amount is directly referable to the progress of the works, either (a) carried out under the contract; or (b) the carrying out of which has been managed under the contract”.
However, neither of special condition (10), nor s 65(2) of the Domestic Buildings Contracts Act can prevent the applicant from receiving payment for stage 5. This result must pertain, even notwithstanding the factual reality of non-complete works, because of the mechanism of the contract, and the process it requires in the event that Mr Hua wished to dispute that claim.
In my view, the payment claim entailed by the builder’s presentation of invoice 0149 is a matter that is “directly related to the progress of the works carried out under the contract”, in the terms used by s 65(2) of the Act, such that the statutory provision cannot act as an impediment to the builder’s claim. At the same time, I do not think it sufficient to point to special condition (10), because general condition 4.5 still continues to run against the owner, and its effect has not been constrained by a special condition, in the same manner that, for example, special condition (6) has waived for the builder the benefit of the general conditions otherwise found in each of clauses 4.7, 33, 34, & 28.8. In my view, general condition 4.5 could have been just as easily harmonised with special condition (10), by means of another special condition. This did not happen.
It follows therefore that Mr Hua was not entitled to withhold the stage 5 progress claim. I conclude that Mr Hua was obligated to pay the stage 5 progress payment, by no later than 19 July 2012. That date is prior to Mr Hua’s (first) Notice to Remedy Breach, dated 7 August 2012.
Is the Applicant entitled to the Stage 6 Progress Claim?
Although I have concluded that Mr Hua was contractually obligated to pay the Stage 5 progress claim, by parity of reasoning, a contrary result must pertain in the case of the stage 6 (‘practical completion’) claim.
Once again, the derivation of that conclusion is to be obtained from the scheme of the contract, itself. As a starting point, ‘practical completion’ is defined in the contract as part of Schedule 2 and means the stage when the works:
1. have been completed in accordance with this contract and all relevant statutory requirements, apart from minor defects or minor omissions; and
2. reasonably suitable for habitation.
Not, by any stretch then, can it be said that the project has attained practical completion.
Next, Clause 25 of the contract mandates specific steps that must be taken by the builder upon attaining practical completion. In accordance with Clause 25.2, the builder must give to the owner:
1. a notice of practical completion stating the builder’s opinion of the date of practical completion; and
2. the final claim.
In this instance the applicant has not complied with Clause 25.2. Then, in accordance with Clause 25.4, the final claim does not become due until such time as the builder:
1. gives the owner a defects document signed by the builder listing minor defects and minor omissions:
(i)that are agreed to exist and the time for when those items will be completed or rectified; and
(ii)that the owner claims to exist but the builder does not agree with; and
2. makes all reasonable efforts to have the owner sign the document to acknowledge its contents.
The applicant has not yet complied with clauses 25.4.
I therefore conclude that the applicant was not entitled to be paid for Stage 6 at the time when the progress claim was presented. That state of affairs still applied when Mr Hua delivered his notice on 27 August 2012, terminating the contract. Indeed, on the evidence heard by QCAT it remains the case that the Applicant is still not entitled to receive any payment for the practical completion stage.
Has the Respondent Validly Terminated the Contract?
In my view, the grounds for the Notice of Termination sent on 7 August 2012 were well made out. That is to say there had been numerous clear departures from the contract’s scope of works, that had not been agreed as variations between the parties. When those matters were not rectified by the applicant in conformity with the Notice to Remedy Breach delivered on 7 August 2012, the respondent became entitled to terminate. Equally, Mr Hua would have been entitled to send the notice much earlier in the piece than he did, but did not.
Examination must now turn to the question of the reasonable cost of rectifying the defects, so far as possible, subject to the qualification stated in Bellgrove v Eldridge[9], at 617:
The measure of the damages recoverable by the building owner for breach of the building contract is… the difference between the contract price of the work or building contracted for and cost of making the work or building conform to the contract, with the addition, in most cases of the amounts of profits or earnings lost by the breach… The qualification however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.
[9] (1954) 90 CLR 613.
On the basis of the evidence before the Tribunal, and in particular the report given by the Building Consultant, Mr John Groom, dated 25 January 2013, the Tribunal is satisfied that there were outstanding works as at the date of termination, being 27 August 2012.
In his final submissions, Mr Hua relies upon the report of Mr Groom to contend that he will now be required to expend $260,845.82 (inclusive of GST) to rectify and complete the contracted works. Although I agree that the sum that must now be expended to rectify the breaches and complete the project is substantial, I do not agree that it is a reasonable course to adopt all the remediation steps now proposed by Mr Groom in his report.
Having particular regard to the Scott Schedule, and in light of the evidence heard by me, I determine that the following reductions should be made from Mr Groom’s estimates.
(i) retaining walls: An allowance of $4,000 rather than $8,830 + GST, on the basis that it is not now reasonable to remove and replace the sandstone retaining wall installed by the builder in lieu of the specified timber retaining wall.
(ii) Internal tap ware (Item 8.1 on the Scott Schedule): a refund to the owner of $288.
(iii) Hot water system (Scott Schedule item 9.1): $322, on the basis that it is not now reasonable to remove and replace the extant hot water systems when the size of unit installed is sufficient for the level of intended occupancy.
(iv) Pantry Ceiling Manhole (Scott Schedule item 10.1): Nil allowance. The evidence of the Applicant on this point is accepted.
(v) Ceiling fans (Scott Schedule item 10.3): Nil allowance. It is accepted that the applicant was given a different version of the energy efficiency plan to that now championed by Mr Hua, one that notes only one (1) ceiling fan per unit, in the outdoor living area. The applicant’s belief in that regard was then confirmed by the owner’s later provision of the electrical plan, which did not show any other ceiling fans.
(vi) Stumps and piers (Stage 2 defects items 6 & 9): one half the sum claimed ($5,120), on the basis that Mr Groom’s report comments entail supposition regarding those elements, that may not be borne out on further investigation.
(v) WC toilet roll holder (Stage 2 Defects item 24): Nil allowance, on the basis that the applicant’s evidence on the point is accepted.
(vi) Installation of security screens (Stage 2 Defects item 30): Nil allowance, on the basis that the applicant’s evidence on the point is accepted.
(vii) External taps – locations (Stage 2 Defects item 34): Nil allowance, on the basis that the applicant’s evidence on the point is accepted.
(viii) External wall installation (State 2 Defects item 49): Nil allowance, on the basis that the applicant’s evidence on the point is accepted.
In light of the above findings the costs of rectification and completion should be reduced by $55,651.20, inclusive of GST.
The Counterclaim Amounts
In addition to the costs of rectification and completion, the respondent seeks $20,236.00 pursuant to s 69 of the DBCA as an overpayment to the applicant for works not performed by the applicant when required during stages 2, 3, and 4; and $4,620 for prime cost items not supplied as required by the applicant. I decline to award either of those amounts. Mr Hua was always contractually obligated to pay the stage payments when presented with a stage claim, consistent with the obligation that inured in him, by reason of clause 4.5. In all events, any putative overpayment by Mr Hua, or any entitlement arising out of unsupplied prime cost items will be sufficiently compensated by means of the sum that will be ordered paid by the applicant.
For reasons already given by me in relation to the costs of urgent rectification of the mains power supply and electrical meter, I decline to award Mr Hua $3,802.37 as restitution, arising out of the previous BCIPA adjudication, as is now sought by him. It follows that any legal costs associated with that are also non-compensable. Nor am I persuaded that Mr Hua should be entitled to the alleged costs to him of disturbances by the applicant on 5 and 7 November 2012; or that he may lay claim to storage costs for storing some of the applicant’s building equipment. Mr Hua also seeks $22,633.60 for interest, as a consequence of delays by the builder that have caused the owner extra interest costs and bank charges, yet that claim is misconceived. Instead, interest should be awarded on any sum that is awarded to Mr Hua by QCAT, running from the date of termination.
Conclusion
The Stage 5 payment ($53,025) should have been paid by Mr Hua to the applicant on or before 19 July 2012. Pursuant to clause 33.1 of the contract the builder would ordinarily be entitled to default interest under the contract on that sum, at 15.68%. Interest at that rate until the date of judgement (496 days) amounts to $11,298.36.
Ordinarily, I would have no hesitation in awarding that interest amount to the applicant. However, in this instance I cannot award it, as the applicant has, by special condition (6), waived the benefit of clause 33.1. The respondent is therefore required to pay to the applicant the sum of $53,025 in relation to the Stage 5 progress claim, only. That sum is however eclipsed by the costs of rectification, such that it should be considered as no more than an initial offsetting deduction from the cost of rectification and completion ($205,194.62) that must be borne by the applicant. Accordingly, the applicant should be required to pay to the respondent the sum of $152,169.62.
The contract was validly terminated by Mr Hua on 27 August 2012. In accordance with s 58 of the Civil Proceedings Act 2011 and Supreme Court Practice Direction No. 7 of 2013, Mr Hua should be awarded interest on that sum in accordance with the following:
· From 27 August 2012 until 18 April 2013 at 10% (233 days);
· From 19 April 2013 until 30 June 2013 at 7% (72 days);
· From 1 July 2013 until 26 November 2013 at 6.75% (148 days)
· Total interest entitlement: $15,979.88
Costs and Orders
In circumstances where each party has been at least partly successful as against the other, I decline to depart from the standard position whereby each party is expected to bear their own costs, of and incidental to this QCAT proceeding.
I order as follows:
1. The applicant is to pay to the respondent the sum of $152,169.62 plus interest thereon assessed as $15,979.88, making for a total judgement sum of $168,149.50: within 28 days of the date of these orders.
2. Pursuant to s 39 of the Domestic Building Contracts Act that the applicant deliver to the respondent all original contract related documents and building certificates within 28 days of the date of these orders.
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