Mohamed v Adrija Pty Ltd
[2017] ACTSC 158
•21 June 2017
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Mohamed & Anor v Adrija Pty Ltd |
Citation: | [2017] ACTSC 158 |
Hearing Date: | 8 May 2017 |
DecisionDate: | 21 June 2017 |
Before: | Ashford AJ |
Decision: | 1. The appeal be upheld. 2. The judgment and orders of the Magistrates Court of 1 June 2016 be set aside. 3. The matter be remitted to the Magistrates Court for rehearing and determination in respect of the breach notices and of the “fixings complete” issue. 4. The Respondent pay the Appellants' costs of the appeal, unless there is any further submission. 5. Her Honour recommends that the parties attempt mediation. |
Catchwords: | APPEAL – CIVIL LAW – Appeal from the Magistrates Court – appeal against decision finding termination of contract lawful – appeal against damages arising from termination of contract – Magistrate erred in finding breach notice valid – substantive issues still requiring determination at first instance – matter in part remitted to the Magistrates Court CONTRACT – BUILDING CONTRACT – Termination of contract – whether failure to make payment at certain stage of contract entitles termination of the contract – validity of breach notice – Magistrate erred in not making any determination as the validity of the subsequent breach notices |
Cases Cited: | Cardona v Brown [2012] VSCA 174; 35 VR 538 Maples Winterview Pty Ltd v Liu & Anor [2015] ACTSC 58 |
Parties: | Abdiwahaab Barkhdale Mohamed (First Appellant) Sagal Ahmed (Second Appellant) Adrija Pty Ltd (ACN 119 998 720) (Respondent) |
Representation: | Counsel Mr N Philpott (First and Second Appellants) Mr D Hand (Respondent) |
| Solicitors Starnet Legal (First and Second Appellants) Vertex Legal Group (Respondent) | |
File Number: | SCA 47 of 2016 |
Decision under appeal: | Court/Tribunal: ACT Magistrates Court Before: Magistrate Morrison Date of Decision: 1 June 2016 Case Title: Adrija Pty Ltd v Abdiwahaab Barkhadle Mohamed & Sagal Ahmed Court File Number: CS 504 of 2013 |
ASHFORD AJ:
Background to the appeal
By Notice of Appeal filed on 29 June 2016, the appellants appealed the decision of the ACT Magistrates Court made on 1 June 2016 and seek the decision be set aside and the proceedings remitted to the Magistrates Court for hearing and determination.
The three grounds of appeal as set out in the notice are:
(a)The learned Magistrate erred in finding that the respondent (‘the Builder’) was entitled to terminate the building contract with the appellants (‘the Owners’) on the basis that the Owners had failed to make payment on the “Fixings Complete” stage invoice.
Particulars:
(i)the building contract provided that the Builder was entitled to serve a progress payment for the “fixings complete” stage after the completion of the “fixings complete” stage as defined within the building contract;
(ii)the Builder served a progress payment claim upon the Owners in the sum of $54,750. The learned Magistrate found the works performed by the Builder under the building contract contained defects to the value of $25,130, being 46 per cent of the value of the “fixings complete” stage claim;
(iii)the Builder was therefore not entitled to serve the progress payment claim for the Owners and the learned Magistrate ought to have found that the Owners were not required to pay the progress payment claim for the “fixings complete” stage, and that by such conduct, the Builder had repudiated the building contract (relying upon Maples Winterview Pty Ltd v Liu & Anor [2015] ACTSC 58 (‘Maples Winterview’) and Cardona v Brown [2012] VSCA 174; 35 VR 538 (‘Cardona’).
(b)The learned Magistrate erred by finding that the Builder's termination of the building contract was based on a notice of breach dated 23 February 2011.
Particulars:
(i)the Builder served a Notice of Breach on the Owners on 23 February 2011, alleging that the Owners were in breach of the building contract by failing to pay the fixings complete stage progress payment;
(ii)at the trial the Builder's evidence was that it did not seek to rely on the Notice of Breach dated 23 February 2011. Further, the Builder submitted that such notice had been revoked by the Builder;
(iii)it was therefore not open to the learned Magistrate to find that the Builder could have validly terminated the building contract in reliance on the Notice of Breach dated 23 February 2011 in circumstances where the Builder had revoked such notice.
(c)The learned Magistrate erred by finding that the Builder was entitled to damages arising from a valid termination of the building contract.
Particulars:
(i)the building contract was not validly terminated for the reasons contained in grounds (1) and (2) herein. It was therefore not open to the learned Magistrate to make any award for damages in favour of the Builder when the Builder had repudiated the contract
The initiating claim filed in the Magistrates Court on 21 May 2013 recited, inter alia:
On or about 11 February 2011 the plaintiff (the Builder) issued a payment claim upon the first and second defendant (the Owners) in which it claimed a progress payment of $54,750 under the contract, such progress payment to be made within five days of its receipt by the defendants.
In breach of the terms of the contract the defendants failed or refused to pay the plaintiff the sum claimed in its tax invoice of 11 February 2011 within five days of its receipt.
On 21 April 2011, the plaintiff through its solicitors served a notice pursuant to clause 25.1 of the contract on the defendants. The defendants failed to remedy their breaches of the contract within 10 days of the giving of the notices as described or at all. On
8 August 2011, the plaintiff through its solicitors, issued a notice on the defendants terminating the contract.
That claim was amended by the filing of an amended statement of claim, which was amended on 23 April 2014 pursuant to leave given on 15 April 2014. The claim recites, inter alia:
9. On 2 December 2010 or, alternatively, on 2 March 2011, the plaintiff served a payment claim in the sum of $9,987.44 on the defendants for the variations.
9A. In or about February 2011 the plaintiff completed the works in respect of stage 5 of the progress payments schedule of the contract.
10. On 11 February 2011, the plaintiff served a payment claim on the defendants in which it claimed a progress payment of $54,750 in respect of stage 5 of the works under the contract.
11. The defendants failed to pay the plaintiff the sums claimed in its tax invoice of 2 December 2010 for its progress claim of 11 February 2011 within five days of that receipt or at all.
12. On 21/4/2011, the plaintiff through its solicitors served a notice pursuant to subclause 25(i) of the contract on the defendants in respect of the breaches set out in that letter.
13. The defendants failed to remedy their breaches of the contract, as pleaded in paragraph 12, within 10 days of the giving of the notices described above or at all. On 8 August 2011, the plaintiff through its solicitors gave notice to the defendants terminating the contract.
Counsel for each of the parties spoke to helpful written submissions before me.
Counsel for the Owners defined the issues for consideration thus: (1) what notice of breach did the Builder rely on to terminate the contract; and (2) was the Builder entitled to terminate the contract based on the relevant notice of breach.
Background to the dispute
The Owners and the Builder entered into a standard form Housing Industry Association ACT Residential Building Contract for construction of a two‑storey dwelling in the sum of $365,000 at 10 Elphick Place, Bonner, in about April 2010. The Builder commenced work on 28 June 2010.
On 11 February 2011, the Builder issued the Owners with a tax invoice for $69,127.71. This invoice was revoked and a second invoice issued, also on 11 February 2011, in the sum of $54,750, being a claim for payment of the “fixing complete” stage (‘the Fixing Invoice’). The Owners did not pay this invoice and in evidence disputed it was due and payable.
On 23 February 2011, the Builder served the Owners with a Notice of Breach pursuant to clause 25.1 of the contract for failing to pay that invoice. That notice also suspended work under the contract (‘the February Notice’).
On 27 February 2011, the Builder issued the Owners with a tax invoice for $54,750, being a claim for painting and tiling progress payment. On 2 March 2011, the Builder served the Owners with a second Notice of Breach pursuant to clause 25.1 of the contract for failing to pay progress claims of $9,987.44 and for failing to promptly notify the Builder of the Owners' new address for service under the contract (‘the March Notice’). That notice again suspended work under the contract.
On 21 April 2011, the Builder through his solicitor served the Owners with a third Notice of Breach pursuant to clause 25.1 of the contract for the reasons set out in the March Notice, as well as failing to meet with the Builder within seven days of issuing a Notice of Dispute under the contract (‘the April Notice’).
On 4 August 2011, the Builder's then solicitors wrote to the Owners then solicitors requesting a copy of an expert report, failing which the Builder had instructed the contract be terminated pursuant to the April Notice. On 8 August 2011, the Builder purported to terminate the contract by letter from its then solicitors to the Owners then solicitors.
On 5 May 2013, the Builder commenced proceedings in the Magistrates Court. The trial occupied some six days in September 2015. A decision was given on 27 April 2016 in respect of liability and on 1 June 2016 final orders were made giving judgment for the Builder.
Was the breach notice of 23 February 2011 valid?
The Owners submit the learned Magistrate erred in finding the purported termination of the contract was based on the February Notice on the basis that this was neither the case pleaded nor run by the Builder. In support of that submission, the Owners say the amended statement of claim filed on 28 April 2014 pleaded the April Notice and did not rely on the February Notice. As well it is submitted the evidence of Ms Juric, a director of the Builder's company, was to the effect that she was not relying on the February Notice and further, in closing submissions before the Magistrate, counsel for the Builder submitted that the February Notice was not relied upon.
The Owners therefore submit the Magistrate erred in finding the February Notice founded a valid termination of the contract. The learned Magistrate, having made that finding, did not feel it necessary or incumbent upon him to go on and consider the March or April notices at all.
The Builder submits it was evident from the evidence of Ms Juric that the Builder did not intend to abandon reliance on the fixings complete claim and the pleadings did not demonstrate the Builder did not seek to rely on the February Breach Notice.
In his reasons the learned Magistrate stated at [50]:
The evidence about the notice of breach dated 23 February 2011 came out in something of an unusual fashion. It appears Ms Juric did not recall that the plaintiff had issued a breach notice on 23 February 2011 when she started giving her evidence. She was reminded of doing so when she came across the notice in the bundle of material to which she was referred in the course of giving her evidence. I accept that oversight in her early evidence was a genuine mistake.
The learned Magistrate went on to note the defendants' submission in respect of the February Breach Notice, that Ms Juric had recalled building works being suspended on 23 February 2011, but "We came to know that I believe it was the electrician went back on site of his own volition to complete works, which is why I ultimately adjusted the date to 2 March 2011".
It was further submitted Ms Juric's assertion was that if a subcontractor went back to work at a suspension work site then the notice could not be sustained and required another notice in order for the suspension to operate, saying the defendants disagree as to how it was cancelled. Nevertheless, this notice was cancelled and the Builder is not relying upon it.
In dealing with the submission that the Builder did not rely on February Breach Notice and the alleged reasons for not doing so the Magistrate concluded that Ms Juric's evidence about the March Notice did not refer to the earlier fixings complete claim because of an oversight, but did not necessarily mean the earlier breach could not be relied upon and Ms Juric's evidence was to the effect that the Builder did not intend to abandon reliance on the unpaid fixings complete claim.
The learned Magistrate also held the pleadings did not demonstrate the Builder did not seek to rely on February Breach Notice. Of course, neither the initiating statement of claim nor the amended statement of claim make any reference to February Notice, nor did counsel for the Builder place any reliance on that February Notice at the initial hearing or in submissions and submitted the February Notice had been revoked. There is no dispute that the invoice of 11 February 2011 was not paid.
The evidence of Ms Juric in respect of the February Notice included a question, "Last time you were here you said that you cancelled the 23 February 11 breach notice," to which she replied, "I don't recall cancelling it. This was the document that wasn't tendered or I happened upon it." She agreed a workman had gone back onto site after the February Notice. She could not recall having used the word "cancelled" but she said quite clearly, "The one on 2 March 2011 was the one I was upholding."
The Magistrate asked, "So you were not relying on the notice of 23 February 2011," to which she replied, "Correct." That reply places the March Notice as being the notice relied upon by the Builder probably as a result of the work performed in the intervening period. Suspension of the work following February Notice was effected as the workman had gone back on site and thus the March Notice was served.
The learned Magistrate, as I have said, did not go on to determine the validity of either the March or the April notices having found the February Breach Notice was valid. That finding cannot be substantiated in the face of the pleadings and the specific evidence of Ms Juric that the Builder was not relying on that notice as well as the clear closing submissions made by counsel for the Builder before the Magistrate that the Builder had revoked the February Notice.
In the matter before me, counsel for the Builder submitted the March Notice advised building works had been suspended, the reason being that between 23 February and 2 March 2011 the electrician had gone back on site to perform work. Counsel also submitted that the reference to reliance on the notice was in respect of the suspension of work and not the February Notice. Again, that submission does not deal with the state of the pleadings nor the specific submission before the Magistrate that the Builder did not rely on the February Notice but on the March Notice. No differentiation was made in the evidence as to cancellation or suspension. The evidence was the February Notice had been cancelled.
I am thus satisfied the Magistrate fell into error by determining the February Notice was a valid notice as it had been revoked by the Builder and the Magistrate did not make any determination as to the validity of the subsequent March or April notices. On that finding, the orders of the Magistrate made should be set aside.
However, I go on to deal with consideration as to whether the March Notice or the April Notice were valid claims. Of course, neither notice appears to have been considered by the Magistrate. He noted:
A number of notices were given by the plaintiff to the defendants under the contract and it is convenient to start by reference to the termination notice dated 23 February 2011 relating to the invoice for the fixings complete stage progress payment.
Further at [35]: “As to the assertion that the plaintiff does not rely upon the February Breach Notice, there were three relevant notices of breach put into evidence”, and at [36]: “The first was 23 February 2011, which is the notice under consideration”.
The learned Magistrate said at [37]:
The second is dated 2 March 2011. This was put before the court at tab 4 of folder MFI A. It was subsequently received into evidence under the general exhibit P14. It refers to alleged breaches of non-payment of the claim for $9,987.44 dated 2 December 2010 and that the defendants had changed address and failed to promptly notify the Builder of the new address in accordance with clause 27 of the contract.
At para [38]:
insofar as the amount of $9,987.44 is concerned the plaintiff describes this claim as being for extras. That notice advised the Builder had suspended building works. From submissions made, it seems Ms Juric had given evidence that because of a “mistake” the notice did not include reference to the amount owing in respect of the fixings progress claim.
The Magistrate noted the third notice had "informed the defendants they remain in breach of the contract pursuant to the notice of 2 March 2011". That third notice was apparently 21 April 2011 and sent by the then solicitors for the plaintiff to the defendants' then solicitors. The Magistrate expressly noted at [49], "No express reference is made in the Meyer Vandenberg letter of 21 April 2011 to the breach notice of 23 February 2011 which refers to ongoing breaches in nonspecific terms".
The learned Magistrate then went on to consideration of the February Notice with no further reference to the March or April notices at all. Thus I really have no basis upon which I can consider those further notices or whether they are valid.
The “fixings complete” issue
I feel it incumbent upon me to give some consideration to the “fixings complete” issue. “Fixings complete” is described at stage 5 of the contract thus: “All internal architraves, skirtings, doors, cupboards and detailed joinery installed, plasterboard finished, sanded and cornices fixed, exterior downpipes fitted and penetrations complete, decks and landings complete”.
In evidence Ms Juric said the fixings complete stage was complete as far as it could be completed at the time and thus issued the invoice. She said there had been an agreement with the Owners that the skirting would be placed on top of the main floor tiles and in order to install the skirting it would have been necessary to lay the ceramic tiling to the main floor first and then go back to the fixing and install the skirting. She was not sure if the downpipes had been installed, nor was she able to clarify “landing complete” stage, which the Owners referred to and is in the definition.
The Magistrate accepted Ms Juric's explanation in respect of later installation of the skirtings. He held he did not need to determine the issue of the landings. He referred to a decision of Mossop AsJ (as he then was) in Maples Winterview, and he referred also to a quote from Hudson Building and Engineering Contracts [(Sweet and Maxwell, 12th ed, 2010) [3–076]] in Cardona at [74] which looked at the issue of what a builder is required to have done in order to make a progress payment claim payable, further noting:
In my view the tension between the obligation to complete a stage for the purposes of clause 12 and the recognition that there may be defective or unfinished work in clause 23 may be resolved by reading the unqualified requirement to have completed the stage as satisfied if all matters are completed except for minor defects or omissions and where continuation of the work would not render it impractical to remedy the defect or omission if the works progress past that stage.
The evidence of Ms Juric was that there had been an agreement with the Owners that the skirting would be placed on top of the main floor tiles, and that seems to be a suitable arrangement, but that was never explained further and the Magistrate
concluded that he did not need to decide the question of the landings which did not appear to have been the subject of any further evidence but were left unexplained.
Counsel for the Owners submitted that there was no agreement between the parties in respect of delaying the installation of skirtings until the tiling was complete. Counsel for the Builder submitted there was an agreement and submitted the omission of the skirting was minor in the circumstances of the project and the explanation was plausible. He referred to Cardona, (supra) at [74], which found:
It is necessary for there to be “effective and satisfactory completion of the required stage … [as] a condition of any instalment payment” and while trivial failures, or failures borne of impracticalities, do not preclude effective and satisfactory completion.
Without further evidence as to any agreement which had been made between the parties and in the circumstance where it may have been impractical to fix the skirting prior to the tiling, further evidence is required as to whether this was impractical or trivial or if there had been some such agreement. In all the circumstances, it is my view that the evidence in respect of the fixings complete issue is deficient and does not permit me to make a determination of that issue either.
The learned Magistrate went on to consider rights and liabilities following determination of the cross-claim made by the Owners. Of course, determination of those issues is dependent on the issues of breach notices and fixings complete and whether there was a repudiation of the contract. Clearly there are significant factual issues which are still to be determined.
Counsel for the Owners submitted, therefore, that the only practical option is to remit the matter to the Magistrates Court for hearing and determination. That course was opposed by counsel for the Builder, who submitted that in the event I find the February Breach Notice was not the notice relied upon, I should determine if either of the subsequent notices, the March and the April Notices, could then be relied upon. Unfortunately, as I have said, the evidence as it stands does not permit me to make such findings, and I decline to do so under those circumstances.
Accordingly, and unfortunately, noting the large volumes of material in this matter, I have come to the conclusion the matter should be remitted to the Magistrates Court.
Orders
I therefore make the following orders:
(a)The appeal is upheld.
(b)The judgment and orders of the Magistrates Court of 1 June 2016 be set aside.
(c)The matter be remitted to the Magistrates Court for rehearing and determination in respect of the breach notices and of the “fixings complete” issue.
(d)I intend to make the usual costs order that the Respondent pay the Appellants' costs of the appeal, unless there is any further submission.
(e)I recommend that the parties attempt mediation.
| I certify that the preceding forty-three [43] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Acting Justice Ashford. Associate: Date: 12 December 2017 |
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