Mohamed v Adrija Pty Ltd (No 2)
[2022] ACTSC 89
•28 April 2022
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Mohamed v Adrija Pty Ltd (No 2) |
Citation: | [2022] ACTSC 89 |
Hearing Dates: | 19, 24 February 2021 |
| Submissions last received: Decision Date: | 17 March 2021 28 April 2022 |
Before: | McWilliam AsJ |
Decision: | See [139] |
Catchwords: | APPEAL – CIVIL LAW – Appeal from Magistrates Court – whether error in finding building contract between owners and builder lawfully terminated by builder – whether error in finding owners failed to notify builder of a change of address as required by the contract – whether notice of breach sent by builder in accordance with the contract – whether builder entitled to payment under agreed damages clause in contract CONTRACT – BUILDING CONTRACT – interpretation – whether error in implied finding that builder’s notice of breach was valid – whether subsequent termination by builder was lawful – whether error in finding no agreement or acquiescence by builder to communicate by email rather than by post as required by the contract – whether agreed damages clause in contract applied EVIDENCE – HEARSAY – whether evidence of verbal communication by the owners that they had changed address was properly excluded under hearsay rule |
Legislation Cited: | Court Procedures Rules 2006 (ACT) sch 2 Evidence Act 2011 (ACT) s 69 |
Cases Cited: | Adrija Pty Ltd v Abdiwahaab Barkhadle Mohamed & Anor (Magistrates Court of the ACT, Magistrate Morrison, 27 April 2016) Adrija Pty Ltd v Abdiwahaab Barkhadle Mohamed & Anor (Magistrates Court of the ACT, Magistrate Morrison, 1 June 2016) Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598 |
Parties: | Abdiwahaab Barkhadle Mohamed ( First Appellant) Sagal Ahmed (Second Appellant) Adrija Pty Ltd (ACN 119 998 720) ( Respondent) |
Representation: | Counsel A Bartzis ( Appellants) S Onitiri ( Respondent) |
| Solicitors Starnet Legal Pty Ltd ( Appellants) WMG Legal ( Respondent) | |
File Number: | SCA 2 of 2020 |
Decisions under appeal: | Court/Tribunal: Magistrates Court of the ACT Before: Magistrate Morrison Date of Decision: 7 November 2019; 6 December 2019 Case Title: Adrija Pty Ltd v Mohamed & Anor; Adrija Pty Ltd v Mohamed & Anor (No 2) Court File Number: CS 504 of 2013 |
McWilliam AsJ:
This appeal concerns a residential building dispute between two owners and the builder with whom they had contracted. The appellant owners are Mr Abdiwahaab Barkhadle Mohamed and Ms Sagal Ahmed. The respondent builder is Adrija Pty Ltd.
The parties entered into a contract whereby the respondent was to construct a two‑storey dwelling in Bonner for a fixed sum of $365,000 (inclusive of GST). The subject of the dispute is the lawfulness of the builder terminating the contract between them, and the monetary consequences as a result.
Procedural history
There have been two substantive hearings on the merits of the dispute in the Magistrates Court (the court below). On the first occasion, the respondent builder, who was the plaintiff in the court below, obtained judgment in its favour: Adrija Pty Ltd v Abdiwahaab Barkhadle Mohamed & Anor (Magistrates Court of the ACT, Magistrate Morrison, 27 April 2016) (Adrija No. 1). Following a further hearing on costs and the form of final orders giving effect to the reasons in Adrija No. 1, a second judgment was delivered on 1 June 2016: Adrija Pty Ltd v Abdiwahaab Barkhadle Mohamed & Anor (Magistrates Court of the ACT, Magistrate Morrison, 1 June 2016) (Adrija No. 2). Those judgments were appealed by the present appellants, who were successful: see Mohamed & Anor v Adrija Pty Ltd [2017] ACTSC 158 (Mohamed v Adrija).
The proceeding was then remitted to the primary judge, to be conducted in accordance with an order of Ashford AJ in Mohamed v Adrija, which was in the following terms:
The matter be remitted to the Magistrates Court for rehearing and determination in respect of the breach notices and of the “fixings complete” issue.
On 7 November 2019, the court below again held that the respondent lawfully terminated the building contract and entered judgment in the builder’s favour in the sum of $244,703.56: Adrija Pty Ltd v Mohamed & Anor (Magistrates Court of the ACT, Magistrate Morrison, 7 November 2019) (Adrija No. 3). The appellants were separately ordered to pay two-thirds of the respondent’s costs in relation the entirety of the proceedings on a “party-party” basis: Adrija Pty Ltd v Mohamed & Anor (No 2) (Magistrates Court of the ACT, Magistrate Morrison, 6 December 2019) (costs judgment).
Out of three breaches relied upon at first instance (failure to pay a progress payment, failure to meet about the dispute and failure to notify of a change in address), the only one accepted in the court below was that the appellants were in breach of an express contractual term (cl 27.3), which required: “[t]he owner and the builder must promptly notify each other if they change address.” Following that finding, the court below found the respondent was entitled to certain amounts stipulated under an agreed payment clause (cl 25.8), which (the magistrate found) was triggered upon the contract being “ended”, regardless of who brought the building contract to an end.
The appellants have appealed Adrija No. 3, being the primary judgment on remittal, and the associated costs judgment. They did not seek to put further evidence before this Court on appeal.
Issues on Appeal
The issues for determination are contained in a number of grounds of appeal, which have been grouped or summarised as follows:
(a)Error in excluding hearsay evidence concerning the appellant owners’ notification of a change of address (Ground 1).
(b)Error in finding there was no agreement between the parties to communicate by email rather than by post, with such finding being against the weight of the evidence (Ground 2).
(c)Error in failing to find that the respondent builder acquiesced in communications by email, or that the builder was estopped from relying on notification of a change of address by post in circumstances where the builder continued to correspond and serve notices under the building contract by email (Ground 3).
(d)Error in finding that the termination of the contract on the basis of a failure to notify of a change in address was lawful – the finding was against the weight of the evidence and glaringly improbable (Ground 4).
(e)Error in the construction of clause 27.3 of the building contract (Ground 5).
(f)Error in first failing to find that the Notice of Breach dated 21 April 2011 (April Breach Notice) was invalid in its entirety, and secondly finding that the termination based on the April Breach Notice was lawful (Ground 6).
(g)Error in the construction of clause 25.8 of the building contract, which resulted in recovery of a contractually prescribed amount that in all the circumstances was extravagant, unconscionable and/or a penalty (Ground 7).
(h)Error in finding that the builder was entitled to 2/3 of the costs of the proceedings in the court below (Ground 8).
The respondent has filed a notice of contention, arguing that the orders of the court below should be confirmed on another ground. The conclusion of Adrija No. 3 is stated at [131]:
In the end result, my conclusion is that the builder:
(a)Has lawfully terminated the contract under cl 25.5; and
(b)Is entitled to payment of an amount calculated in accordance with cl 25.8.
The contention is that the court below ought to have held that the respondent builder was entitled to payment of an amount calculated in accordance with clause 25.8 of the building contract, irrespective of whether the respondent had lawfully terminated the contract under clause 25.5.
These are the issues for determination on the appeal.
Facts relevant to the grounds of appeal
The facts relevant to the grounds of appeal are drawn from Adrija No. 1, Adrija No. 2, Adrija No. 3, and the documents that were before the court below and this Court on appeal, the factual contents of which (as opposed to the legal effect) were uncontroversial.
The contract in question is what was at the time the standard form Housing Industry Association ACT Residential Building Contract dated 23 September 2009. The parties in the court below proceeded on the basis that notwithstanding that date, the contract was formed in about April 2010. Nothing turns on the discrepancy.
The respondent builder commenced work on 28 June 2010.
The building contract contained a number of terms which are relevant to some of the grounds of appeal. Clause 1 contained the owners’ particulars, including their address. At the time the contract was signed, that was an address in Tharwa Road, Queanbeyan.
The material parts of the contractual terms are as follows (the emphasis for defined contractual terms in the original has been omitted):
Clause 25
Ending the contract for owner’s breach
1.If the owner breaches the contract the builder may suspend the building works and must notify the owner of the breach in writing by certified mail or personal service.
2.The builder may end the contract if:
(a) 10 days have passed since the builder gave notice of the breach;
(b) the owner is still in breach of the contract; and
(c) the builder notifies the owner in writing by certified mail or personal service that the contract is at an end.
3.If the owner disputes the builder’s notice before the contract is ended, the owner must notify the builder in writing by certified mail or personal service. The builder may suspend the building works and the dispute must be taken to dispute resolution. (See Clause 26).
Ending the contract for builder’s breach
4.If the builder breaches the contract, the owner must notify the builder of the breach in writing by personal service.
5.…
6.…
Other ways to end the contract
7.The owner or the builder may also end the contract by written agreement or by sending the other written notice by certified mail or personal service:
(a) if the other becomes bankrupt or goes into liquidation;
(b) if an automatic variation makes the contract price rise by more than 10 per cent; or
(c) if planning or building approvals cannot be obtained within the time specified in Clause 7.
Monies owed by the owner to the builder
8.If the contract is ended, then the owner must pay the builder:
(a) the cost of the building works to date;
(b) the cost of any materials on the site or already ordered from suppliers;
(c) the cost of leaving the site; and
(d) the builder’s margin, applied to the total of (a) plus (b) plus (c)
Clause 26
Notice of dispute
1.If there is a dispute between the owner and the builder, either one must promptly give the other written notice of the dispute.
Procedure for dispute resolution
2.Disputes must be resolved according to Territory laws that govern the resolution of building disputes.
3.The owner and the builder must meet within 7 days to discuss the matters in dispute and attempt to resolve them by negotiation, mediation or other agreed method.
Clause 27
1.A notice is received when delivered in person, transmitted by facsimile or sent by post and 2 days have passed after it is sent.
2.This does not include notices that must be sent by certified mail.
3.The owner and the builder must promptly notify each other if they change address.
Clause 27.3 is the only clause that was accepted by the court below to have been breached.
On 11 August 2010, the appellants sent an email (August 2010 email) to Ms Magdalena Juric, a director of the respondent, who undertook the majority of administrative tasks for the company. The substantive part of the email was as follows (grammar and spelling as per the original):
We are waving our right to have a written letters send to us to our address as advised by your solicitor. We are happy any means of communication that is convenient for your be an email, telephone or sms.
We know, juggling family and work it is not always easy to ran to the post just to send a letter were we know there are other ways which are more convenient.
On 11 February 2011, the respondent issued the appellants with a tax invoice for $69,127.71 (inclusive of GST). This invoice was subsequently revoked and a second invoice issued, also dated 11 February 2011, in the sum of $54,750. The monies claimed under the invoice were for the “fixing” stage of construction. This was referred to in the court below as the “Fixing Invoice”.
The appellants did not pay this invoice. They disputed it was payable.
On 23 February 2011, the Builder sent by email a Notice of Breach (February Breach Notice). It was addressed to the appellants at an address in Queanbeyan. Underneath the address the following was written:
(note: Adrija Pty Ltd have been informed by the owner that they have moved, however, they have not provided updated address details. Correspondence has been via email.)
The breach named in the February Breach Notice was a failure to pay the Fixing Invoice. Notice was given to remedy the breach pursuant to cl 25(1) within 10 days. The February Breach Notice also referred to the suspension of building works from 23 February 2011.
On 27 February 2011, the respondent issued the appellants with a tax invoice for $54,750, being a claim for painting and tiling progress payment.
On 2 March 2011, the respondent served the appellants with a second Notice of Breach (March Breach Notice). This time, “the breach” was said to be a failure to pay a progress claim of $9,987.44. However, the March Breach Notice then stated:
In addition, the builder was verbally advised by the client that he no longer resides at …Queanbeyan… The client has failed to promptly notify the builder of their new address as per Clause 27 of the contract, within the said period.
The March Breach Notice notified the appellants that unless “the breach” was remedied within 10 days, the respondent would end the contract. Again, work under the contract was suspended.
On the same day, the appellants served their own breach of contract notices on the respondent via email, asserting breaches of the contract by varying the contract without consent and invoicing an incomplete stage.
On behalf of the appellants, a letter was sent by Capital Lawyers to Adrija Pty Ltd, dated 18 March 2011. The appellants also apparently wrote an email to the solicitors for the respondent dated 11 April 2011.
On 21 April 2011, the solicitors for the respondent wrote to the appellants at an address in Holt, as they had been informed that Capital Lawyers was not acting for the appellants. On the face of the letter, which is referred to here as the April Breach Notice, it was apparently not sent by certified mail to either the Holt address or the Queanbeyan address, but instead was emailed to the appellants’ known email address. The letter stated as follows:
FURTHER NOTICE OF BREACH OF SECTION 26(3) PURSUANT TO SECTION 25(1) OF HIA RESIDENTIAL BUILDING CONTRACT, DATED 23 SEPTEMBER 2009
…
We refer to the letter from Mr David Chen of Capital Lawyers to Adrija Pty Ltd, dated 18 March 2011 and to your email to Ross Reid of this office, dated 11 April 2011. We have received instructions from Adrija Pty Ltd in relation to the dispute with you regarding construction works completed at the above property. In writing to you directly, we note your advice to Mr Reid that you have ceased to instruct Mr Chen of Capital Lawyers and that you are self-represented.
Notice of further breach
The residential development at the above property is governed by the terms of a HIA Residential Building Contract for New Dwellings, duly executed by the parties on 23 September 2009. We are writing to inform you that you remain in breach of the contract pursuant to our clients Notice of Breach, dated 2 March 2011… and that you are further in breach of the contract due to your failure to engage in the dispute resolution provisions contained within the contract, specifying that parties must meet within 7 days of a dispute arising.
In the event that you do not provide an acceptable proposal for resolving this dispute within 10 days of the date of this letter, it is our client’s intention to terminate the contract pursuant to their rights under clause 25 of the contract.
Particulars of breaches of contract
As you may be aware, the contract includes the following clauses:
…
The letter then set out a number of clauses of the contract. In general, they relate to automatic variations where something happens that the builder could not reasonably have foreseen, clauses dealing with excavation, a requirement that the owner not give directions to the builder’s subcontractors and clause 26(3) set out above. The April Breach Notice then dealt with a number of disputed issues between the appellants and the respondent. The following extracts are of relevance to the appeal (emphasis added):
5. On 2 March 2011, our client sent to you by email and by registered post a copy of a notice of breach with respect to your non-payment of the invoice and your failure to provide your current address. You responded by disputing the notice, but did not make arrangements to meet with our client to discuss the dispute.
6.On 18 March our client received a letter from your solicitors at the time, Capital Lawyers, claiming to be a notice of dispute and outlining your position with respect to several items invoiced by our client. Our client responded in writing on 23 March 2011. This response included a request that the parties meet to discuss the issues in dispute in accordance with the dispute resolution provisions of the contract. You have not responded to this request to meet to date and have, in the intervening period, contacted the HIA and requested that they intervene in the dispute.
…
8.Other than the issues raised above, we acknowledge that a range of issues have arisen between the parties with respect to variations, access to the premises, unauthorised contact with tradespeople, painting and appliances. We are still in the process of taking instructions with respect to these issues, but reserve our client’s rights to make claims in relation to those items at a later date.
The April Breach Notice then stated (underlining in original, bold emphasis added):
Right of termination of the contract
In light of your ongoing breaches of contract, including:
1.Failure to make payment of the progress claim issued by our client on 2 December 2011 within the time required by the contract in breach of clause 12(2);
2.Failure to promptly (or at all) notify our clients of their change of address, including a new address to which notices could be served in breach of clause 27; and
3.Failure to meet with our client within 7 days of issuing a notice of dispute as required by clause 26(3),
we consider that our client has a valid right of termination under the contact. For the sake of avoiding any doubt we serve this notice of further breach in accordance with the provisions of the contract. It is our client’s intention to rely upon this notice, as well as the previous notice of breach to terminate the contract in 10 days’ time pursuant to clause 25 of the contract. If our client terminates the contract we are instructed to issue court proceedings immediately to recover the sum owed to our client under the contract.
The April Breach Notice went on to encourage a “commercially sensible” resolution by negotiation at an early stage without recourse to litigation and gave a 10-day timeframe for response.
Between April and August there appear to have been a number of communications and steps taken concerning an expert report that the appellants had requested by carried out. One of those steps included the new solicitors engaged by the appellants, Nicholl & Co, writing to the solicitors for the respondent on 23 May 2011 and confirming that they acted for the appellants. Further communications occurred between the solicitors in June 2011.
Relevant to the appeal, on 8 August 2011, the respondent sent a letter stating that it considered the contract was terminated. There was no reference in that letter to any ongoing breach of cl 27.3 as being the reason for termination.
Ground 1 – Was there error in excluding evidence on the basis that it was hearsay?
In the court below, the following findings were made at [105]-[107] (emphasis added):
105.I mention here that Ms Juric also gave unchallenged evidence that her father said that he had been told by Mr Mohamed that they – that is, the owners – no longer lived at their previous address. No objection was raised to the admissibility of that evidence. It is hearsay and, Mr Abric not having been called, was not admissible under s 64 of the Evidence Act 2011 (ACT). There was no suggestion that the communication between Mr Mohamed and Mr Abric included disclosure of a new address.
106.That assertion also appears in the notice of breach, which refers to the builder having been verbally advised that the owners no longer reside at their former address. The evidence is no less hearsay because the assertion appears in written form in the breach notice.
107.No objection was raised to the admission of that evidence. The owners were, however, unrepresented. The record does not indicate that I told them of their right to object at the time. In the circumstances, I attach no weight to that evidence to the extent that it is intended for a hearsay purpose – that is, as proof of the prior representation.
Among the appellants’ complaints is the submission that the March Breach Notice was a business record of the respondent and was therefore an exception to the hearsay rule under s 69 of the Evidence Act 2011 (ACT). The appellants also point to the contents of the March Breach Notice and the evidence of Ms Juric as constituting an admission.
The reason the appellants take issue with the discussion in the court below of whether the evidence was admissible is because they want to submit that although the Magistrate found that the owners did in fact change address, a further finding should have been made that the respondent was informed of that fact.
I accept that the appellants’ submission that the March Breach Notice was a business record and admissible pursuant to the business records exception, however the appellants’ argument is misconceived for two reasons.
The first is that, as the respondent submits, when those three paragraphs of the reasons in the court below are read as a whole, what was being said was that although the evidence was admitted without objection, it should not have been admitted and no weight would be placed on it. The complaint about admissibility should really be a complaint about the weight given to that evidence.
Secondly, the evidence in question does not support the point the appellants want to make. The notes in the breach notices about the owners no longer living at their previous address have been set out in the factual chronology part of these reasons at [21] and [24] above.
Such evidence only supports a finding that the appellants notified the respondent they were no longer living in Queanbeyan. It does not support a finding that the appellants, at that time, notified the respondent of a new address. The same may be said of the evidence of Ms Juric referred to in the magistrate’s reasons at [105]. The words that have been emphasised in the extracted [105] of the reasons are the critical aspect of the magistrate’s finding and what his Honour said there was plainly correct.
Accordingly, although the appellants have established that there may have been a failure to discuss the business records exception in a passing discussion about admissibility of two previous representations, because the evidence was in fact admitted, any complaint about evidence being excluded is without substance. Further, even if the complaint were treated as being that weight should have been given to the evidence and then that a different inference or finding should have been made, it has not been demonstrated that the magistrate erred in that regard.
For these reasons, Ground 1 is not made out.
Ground 5 – Was clause 27.3 misconstrued?
I have dealt with Ground 5 out of order, because a proper understanding of the meaning and effect of clause 27.3 is a necessary precursor to dealing with the complaints made by the appellants in Grounds 2, 3 and 4, being whether cl 27.3 was varied by agreement, whether there was acquiescence or other conduct on the part of the respondent giving rise to an estoppel, and whether termination on the basis of a failure to comply with the clause was lawful.
Clause 27.3 was not itself the subject of any consideration in either the primary judgment, or the earlier judgment that was overturned on appeal. That is not to be taken as any criticism of the court below. The focus of the issues throughout the protracted proceeding in the Magistrates Court was clearly on a variety of other different disputed questions of fact and law and this appeal concerns only the very limited ground on which the respondent builder ultimately succeeded. When regard is had to the number of issues and the overall complexity of the proceeding, this limited point about notice of a change of address emerged almost as an afterthought (albeit one with significance), after all other matters raised had been found not to provide any valid reason for termination by the respondent.
In light of the result in the court below, the parties’ focussed their attention on appeal on what cl 27.3 actually required. The appellants argued that the words of the clause required nothing further than that the owners notify the builder “if they change address”. It did not require that any new address details be provided, nor that such details be provided within a specified time.
The respondent submitted that the clause is clearly intended to ensure that each party to the contract has a fixed address for service of notices under the contract, by which the various mechanisms necessary for the proper functioning of the contract could be carried out. In effect, the respondent was arguing for a construction of the words in cl 27.3 “must promptly notify each other if they change address” as requiring parties to promptly notify each other of any change in address.
I accept the respondent’s submission, in that it is a nonsense to say that cl 27.3 only required the parties to inform each other that their address had changed, without also impliedly requiring that particulars be given of the change. If it be necessary to imply such an obligation because of the infelicity of the words, I consider the additional words (or implied term) to meet the established requirements set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-283. Applying them here:
(a)The term is reasonable;
(b)The term is necessary to give business efficacy to the contract (because of the mandatory obligations to serve certain notices by certified mail);
(c)The term is so obvious that it goes without saying;
(d)The term is capable of clear expression; and
(e)The term does not contradict any express term of the contract.
As to the submission that no time was specified, the requirement was that notification be prompt, by reference to the point in time when the address changed. I accept that the word “promptly” is language of approximation, so that time may not have been of the essence (see, for example, DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 430-1, where the words “proceed with all due dispatch” were held to be non-essential), but it does not follow that the party entitled to the information could not make it so. It is unnecessary to go further than that because on the facts of this case, the argument was not about whether there was a delay in notification. The issue was whether notification occurred at all.
The next step in understanding the meaning of what are seemingly plain words in cl 27.3 is what is meant by: (a) “notify”, and (b) “address”?
There is no express requirement for notification of a change of address to be in any particular form. That may be contrasted with other clauses, where notification is at times required to be in writing, and by certified mail or personal service.
Because some mention was made of it on appeal, consideration has been given to whether cl 27.1 is of any assistance with the proper construction of cl 27.3, but it is dealing with a different point. As set out above, it is directed to when a “notice” is received; that is, the clause fixes a time for receipt. The word “notice” is not defined, other than to exclude notices that must be sent by certified mail from the operation of the clause (cl 27.2). The clause deals with three possibilities. First, when delivered in person, the notice is received immediately. Those words may include notice of an issue or notification of information by telephone or during a conversation on a building site. Second, if faxed, the notice is received at the time of transmission. Third, if by post, the notice is deemed to be received 2 days after it is sent. Accordingly, cl 27.1 does not assist – certainly there is nothing in that clause by which a requirement might be inferred that all notices be in writing.
Thus, the meaning of the ordinary words of cl 27.3 is that verbal notification of a change of address is sufficient. Even if I am wrong on that construction, it makes no difference on the facts here, because the respondent’s case was that no notification of the new address was given at all – verbal or written.
As to what a change in “address” means, the respondent submitted the requirement was simply for particulars of “the new address”. In using that language, it was unclear whether the respondent meant a new postal, street or residential address or a new address for service which may have been any of those alternatives. I have assumed the latter. As far as I have been able to discern, there is nothing in the contract that requires the address details given as part of the owner’s particulars required in clause 1 to be the owner’s residential address. Where there is no such requirement to begin with, any notification of a change in the address referred to in clause 27.3 would not be construed differently.
For example, the address notified might be that of the architect involved as agent for the owner, or a party who is in dispute with their builder may notify the builder that all future correspondence is to be sent to the address of their solicitor. While not a change in the owner’s residential address, these may fall within notifications of a change of address sufficient to comply with cl 27.3.
Finally on the construction of the clause, consideration has been given to whether the provision of an email address falls within the meaning of “address”. In my view, on the proper construction of the clause, because of the mandatory requirements of other clauses to serve certain notices not just in writing but by certified mail, provision of an email address is not sufficient to comply with the requirements of cl 27.3.
With that understanding of cl 27.3, the following paragraphs of Adrija No. 3 are where the issue was addressed by the court below (emphasis added):
Failure to notify change of address
101.The builder says that the owners changed address and did not notify them of that change contrary to cl 27.3 of the contract.
102.The owners say that there was no obligation to notify any change of address because they did not change address. In the alternative, the owners say that there was, in any event, an agreement for communications between the parties to be by way of email.
103. The basis for the builder’s assertion that the owners did in fact change address is two-fold. In the course of giving her evidence, Ms Juric said that she became aware of the change because a letter sent to the owners at their previous address was returned to the builder… She said that it was addressed to the owners at their Tharwa address. The envelope has a “return to sender” sticker attached and the sticker, in part, obscures the address. The envelope is marked as a registered post communication. Of the options marked on the sticker, what is ticked is that shown as “unclaimed”.
104. In addition, Ms Juric said that she also subsequently received communications from the owners “from a different address” in Holt. As I understood the evidence, some of these communications were letters written by the owners to others, copies of which were then passed to the builder, while some were also direct communication between the owners and builder. There is no submission that those communications amount to compliance with cl 27.3 of the contract or the breach notice.
Paragraphs [105]-[107] have already been set out when dealing with Ground 1. The appellants’ first argument, that they did not change address, was addressed at [108]-[117] of the reasons. The court below did not accept that Mr Mohamed (the first appellant) had given truthful evidence. The key part of the reasoning is to be found at [115]-[117] as follows:
115.If Mr Mohamed’s testimony is to be believed, the owners engaged in a ruse to deliberately mislead the builder about the owners’ address out of fear and as a result of threats by the builder. The address used, however, was one occupied by friends of the owners, and in any event the owners did not directly notify the builder of a different address nor respond one way of the other to the builder’s breach notice asserting that the owners were in breach because they had failed to notify a change of address.
116.Against that background what is asserted by Mr Mohamed about the reason for the owners using a different address on their correspondence is incongruous.
117.The combined effect of the evidence, including the manner in which Mr Mohamed gave his testimony, lead me to believe that his evidence on this subject was not truthful. I reject his testimony on this subject. I find that the owners did in fact change address within the meaning of cl 27 of the contract.
From the above, it can be seen that the court below focused on the residential address of the appellants and a requirement for direct notification. However, when regard is had to the evidence and submissions (summarised in the reasons of the court below but not repeated here), that was a product of the arguments made at the hearing, rather than any misconstruction of cl 27.3.
The appellants had contended first, that they did not move from the Tharwa address. Accordingly, no obligation arose under cl 27.3. As seen from the reasons at [115]-[117], this was not accepted on the basis of Mr Mohamed’s credit when giving oral evidence.
Second, the appellants said that at times they used their friends’ address in Holt. There is a registered post envelope that formed part of the evidence before the Court on appeal. It is addressed to the respondent, states that the sender is the first appellant, and the address provided as his address is the Holt address. The appellant said in oral evidence in the court below that he told the respondent the Holt address, but he also said that the address was only used to correspond with his own lawyers and to make a complaint to the regulatory body.
It may have been that notification to the builder of the Holt address by including it as the sender’s address on registered mail, or verbal notification to the builder of the Holt address, would have been sufficient to comply with cl 27.3. However, that was not what the appellants argued, as seen from the emphasised words in [104] of Adrija No. 3, extracted above. The Holt address was accordingly put to one side in the court below.
Third, there was a letter sent to the builder from a solicitor at Capital Lawyers, seemingly on the appellants’ behalf. Again, it may have been sufficient if the appellants, either directly or through their solicitor, had indicated that all formal correspondence was to be addressed to the solicitors. Here though, Mr Mohamed said that such correspondence from Capital Lawyers was not sent on the appellants’ instruction, the appellants proceeded to engage different solicitors (Nicholl & Co), and any response to Capital Lawyers in the meantime was not forwarded to the appellants or their solicitor.
As I have not accepted the appellants’ submission as to how to construe cl 27.3, I do not accept that there was any error in the court below proceeding to determine whether the appellants had changed address and if so, whether they had notified the respondent of a new address. Further, as the above consideration demonstrates, the way that the magistrate approached that task reflects the way that the case was argued on the facts, not any misconstruction of the requirements of cl 27.3.
That brings into focus the alternative argument propounded by the appellants, which was considered in Adrija No. 3 at [118]–[119]:
118.As to the alternate argument that there was an agreement between the parties that communication would be by way of email rather than by post, the evidence does not support a conclusion that any such agreement existed.
119.Contrary to the owners’ submission, the builder did not concede that any such agreement existed. Mr Juric did refer to the owners having waived their right to receive written letters. Ms Juric’s testimony, and indeed the owners’ submissions, appear to rely upon the terms of an email sent to Ms Juric on 11 August 2010… That email, sent by Mr Mohamed, relevantly states as follows…
The contents of the August 2010 email (which appears at [18] of these reasons) were then set out. The court below continued at [120]–[123] (emphasis added):
120.In addition, it is apparent from the exchanges which are in evidence that it was common practice between the parties to communicate by email.
121.Neither of those aspects of the evidence, nor the owners’ argument that the main purpose of the requirement to notify change of address was “to receive notice” can elevate the arrangement between the builder and the owners to one amounting to an agreement to vary the terms of the contract, or a waiver by the builder of its right to require compliance with cl 27.3 of the contract. No question of acquiescence arises.
122.I have already found that the owners did in fact change address within the meaning of cl 27 of the contract. I also find that they failed to promptly notify the builder of the change as required by cl 27.3, and that they were still in breach of the contract for the purposes of cl 25 when the builder purported to terminate it for reasons which included that breach.
123.I acknowledge that the basis for termination might, in all the circumstances, be seen as meagre.
The alternative argument does not involve the court below construing cl 27.3. It was not argued during the hearing on remittal that notification of an email address for communication of correspondence was sufficient to comply with the notification requirement in cl 27.3, (and in any event, I have found that an email address is not within the meaning of ‘address’ in that clause). Instead, the argument was that cl 27.3 did not arise because the parties had agreed to communicate by email, and as a result, there was no obligation to inform each other of any change of residential or street address. That is, the argument was that whatever the obligation was under cl 27.3 of the contract did not matter, because it had been varied by conduct. That is a separate issue, not requiring construction of the clause.
In summary then, although the court below did not engage in any express consideration of how cl 27.3 was to be construed, and the reasons dealt with whether the appellants had notified the respondent of a change in their residential address and not a broader category of address, that was not a result of any misconstruction of the clause. Rather, it was a product of the arguments and evidence before the magistrate. For those reasons, Ground 5 is not made out.
Ground 2 – Was there error in failing to find an agreement between the parties to communicate by email, rather than by post?
What was found by the magistrate at [120]-[122] of Adrija No. 3 has been set out above at [65].
The appellants argued that the conduct of the parties and their relevant representations, both in writing and orally between them, should have resulted in a finding by the magistrate that there was a sufficient agreement to communicate by email (with the result that cl 27.3 did not apply).
They relied on evidence of Ms Juric, where she said that the appellants voided the right to receive written notice (by the August 2010 email), and that as a result, the respondent communicated with the appellants verbally or via email.
The respondent submits that the willingness on the part of the owners to receive notices under the contract by any means of communication and the subsequent use of email by the respondent to serve notices under the contract does not correspond to an agreement by the builder not to require compliance with cl 27.3. That is the essence of what was held in the court below and the respondent contends there was no error in such reasoning.
I accept the respondent’s submission. It is important to read Ms Juric’s evidence as to an informal practice in context. She said as follows:
[Ms Juric] …I sent one of the notices of breach and I also sent some notices of delay to the owner by registered post. My understanding was that [there] was a requirement under the contract. I note though, that the owner did void his right to receive written notice.
…
[His Honour] You said something before about the defendant having voided or waived something. What’s that about? [Ms Juric] --- So I sent those notices via registered post even though the owner waived his right to receive written letters.
[His Honour] In what way do you say that they waived their rights? [Ms Juric] --- There’s an email ….That email was important to us because instructions that we received via email or verbally we took as given from the owner based on that.
[His Honour] It would be usual practice, would it not, for a lot of communications these days to be in that fashion? [Ms Juric] --- Yes, your Honour.
Later in the evidence, Ms Juric said:
…we tried to contact [the owners] on 8 March. They weren’t answering calls, they weren’t responding to emails. The notices of breach were getting returned to us by registered mail.
There was also evidence in the court below about Mr Mohamed’s email communication of 2 March 2011, the subject of which was notices of breach sent by the appellants to the respondent. In that email, Mr Mohamed indicated that he would send the notices of breach by certified mail. Ms Juric’s evidence was:
[Mr Mohamed] Ms Juric, what, if any, have you done to confirm or check that the fixing stage was recovered. Was there anything that you checked? [Ms Juric] --- There was nothing to respond to. There was a contention in this email stating it wasn’t complete and that I would receive a copy of the letter by certified mail, which I responded to, saying, “I will respond to your notices of breach once I receive them”, which I never did.
…
[Mr Mohamed] Have you received that email, yes or no? [Ms Juric] --- The email. Not the certified mail.
The reason these passages from the evidence are important is to show that, while the parties may have had an agreement to send documents by email, and regularly did so, they both also had an understanding of the requirements for formal notice of certain documents under the contract, and their conduct was consistent with continuing to abide by those formal requirements. Ms Juric continued to send the notices of breach by registered post even though she also sent them by email. Similarly, when Mr Mohamed emailed his notices of breach, he indicated an intention to send a copy of the letter by certified mail.
The alternative way to view the evidence is that whatever agreement there was leading up to 2 March 2011 (or 8 March 2011 at the latest) the parties’ conduct after that point was consistent with what was required under the express terms of the contract, brought about in part because the respondent was unable to communicate with the appellants by telephone or email.
Either way, that has consequences for the argument that the “agreement” to communicate by email excluded or overrode cl 27.3. Contrary to the appellants’ submission, on the evidence before the court below, the findings at [120]-[122] were open to the magistrate. I do not consider they were contrary to the evidence or otherwise affected by error.
For these reasons, Ground 2 is not made out.
Ground 3 – Was there acquiescence or estoppel by conduct?
The appellants separately took issue with the last sentence of [121] in the reasons of the court below, namely that no question of acquiescence arose. The appellants complain that not only did the question arise, but the evidence showed the respondent acquiesced in the appellants receiving notices by email and thereby not requiring provision of an address under cl 27.3 from the moment the respondent had been informed of a “change” in address.
The appellants submitted that it was open to find the respondent was estopped, whether at common law or in equity, from relying on cl 27.3, due to the conduct following the August 2010 email and the subsequent service by the respondent of notices via email in substitution for the requirements of cl 27.3.
Before that argument may be considered, the respondent raised the fact that the issue of acquiescence and estoppel was only raised in the context of the appeal. The Court would not now entertain such an argument because the question was not fully ventilated in the evidence in the court below. It relied on what was said in PND Civil Group Pty Ltd v Bastow Civil Constructions Pty Ltd [2017] NSWCA 159 at [38]:
The only basis on which this court could consider permitting PND to rely on accord and satisfaction would be that the question had been fully ventilated in the evidence (even though the issue was not pleaded), so that, as a practical matter, each party had had the opportunity of adducing whatever evidence it required, and putting whatever submissions it wished, on all the evidence bearing on that issue. Plainly, that did not happen.
The principles being applied in that paragraph are of the kind referred to in Coulton v Holcombe (1986) 162 CLR 1 at 7-8, and Suttor v Gundownda (1950) 81 CLR 418 at 438. Parties are ordinarily bound by the conduct of the trial. A point not taken at the trial will not be permitted to be argued on appeal unless it could not possibly have been met by further evidence at the trial: Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598 (Whisprun) at [51]-[52] and the cases there-cited.
The respondent argued that for acquiescence or estoppel to arise, there would need to be a number of facts found (relying on Legione v Hateley (1983) 152 CLR 406 at 435-437). Facts to be established include:
(a)That the appellants had adopted an assumption as to the terms of an agreement;
(b)The respondent induced or acquiesced in that assumption;
(c)The appellants acted in reliance on the assumption;
(d)The respondent knew or intended that the appellants would rely on the assumption; and
(e)The appellants will suffer detriment if their assumption as to the agreement is not upheld.
The respondent argued that the evidence in the court below was incomplete. The respondent was not on notice of that case and had not led evidence to meet it. By way of example, the court below was not provided with the totality of the communications between the parties. There was a significant gap in the evidence between the August 2010 email and the parties’ communications in February and March 2011. Assessing whether or not there was acquiescence or estoppel on the basis of the evidence in the court below now was not only difficult; it was impossible.
There must be a degree of understanding or appreciation for the position in which the appellants now find themselves on appeal. No pleading or issue concerning acquiescence or estoppel was raised by the appellants because of the way the case was brought initially by the respondent and the way the proceeding then evolved following the first appeal to this Court. The nature of the breach that would have been the subject of a defence of acquiescence or estoppel was what the magistrate aptly described as “meagre”. However, that does not change the fact that the respondent is right – the issue was not properly ventilated in the court below and it would be unjust to deal with it now without giving the respondent an opportunity to meet the point through evidence, including cross-examination.
What is in the interests of justice includes considering the additional expense and inconvenience that would arise in permitting the respondent to meet the argument (Whisprun at [51]). The hearing in the court below on remittal was of six days’ duration. There have been two days of hearing on appeal with supplementary submissions. In addition, the earlier hearing was itself conducted over seven days with a subsequent appeal, and separate costs hearings on each occasion. To send the matter back to the Magistrates Court to deal with a belatedly raised defence, in circumstances where the issue has only arisen following a passing comment by the magistrate that the issue did not arise, would not only be out of all proportion to the dispute between the parties (which the Court below assessed at approximately $140,000 plus interest), it would be unconscionable.
For those reasons, Ground 3 does not succeed.
Grounds 4 and 6 – Was there error in finding that the termination of the contract on the basis of the April Breach Notice and/or a failure to notify of a change in address was lawful?
Some of the submissions made by the appellants in relation to this ground depended upon the Court accepting the appellants’ argument about the proper construction of cl 27.3 (the subject of consideration in relation to Ground 5 above). The arguments considered below are those that have not already been addressed elsewhere in these reasons. I have dealt with Grounds 4 and 6 together as they are both concerned with the lawfulness of the termination on the sole basis of a failure to notify of a change in address and there is considerable overlap.
The appellants made four discrete arguments about the April Breach Notice. They challenged the validity of the notice, the contents of the notice, the ambiguity of what the notice required and whether the breach itself, being “meagre” in nature, could justify termination.
First, the appellants argued that the court below erred in finding (albeit impliedly) that the April Breach Notice was valid. The finding challenged in that regard is at [88] of Adrija No. 3:
What remains for consideration are the builder’s assertions about the following alleged breaches of the contract by the owners as set out in the [April Breach Notice], namely:
(a)the alleged failure to meet with the builder as required by cl 26(3); and
(b)the alleged failure to notify change of address.
Secondly, the appellants argued that neither the March Breach Notice nor the April Breach Notice validly or sufficiently notified them of a breach under cl 27.3, as required by cl 25.2. That was a direct result of the appellants’ failure to fulfil the requirement under cl 27.3 not being included within the definition of “breach” in the March Breach Notice. The appellants submitted that because the April Breach Notice incorporated the contents of the March Breach Notice, it too should have been found to be invalid.
Thirdly, the appellants argued that when each of the said breach notices are examined closely, there was no demand for compliance with cl 27.3. Any allegation of failure was submitted to have “grossly lacked the required accuracy and specificity” to found valid termination.
Fourthly, the appellants submitted that the contract did not distinguish between essential and non-essential terms. Clause 27.3 was not an essential term of the contract. To elevate a non-essential term to essential status, a notice was required to be served requiring compliance, with a statement that the contract could be ended in the event of default on the notice: Balog v Crestani (1975) 132 CLR 289 at 296-300; Louinder v Leis (1982) 149 CLR 509 at 526 per Mason J, Gibbs CJ, Stephen J, and Wilson J agreeing; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 638. The appellants contended that not enough was done in either the March Breach Notice or the April Breach Notice which incorporated it to make clause 27.3 essential.
The respondent argued that the April Breach Notice was valid, and that it explicitly listed the failure to comply with clause 27.3 in two places. First, the respondent points to it being mentioned in the description of breaches, through the words “failure to provide [their] current address”, and secondly, the respondent relies on the fact that it was set out as a distinct breach under the heading Right of termination of the contract (the relevant passage is the emphasised words in the extract at [30] above).
Consideration
The procedural history is relevant to this ground. In Adrija No. 1, the only breach notice considered by the court below was the February Breach Notice. In Mohamed v Adrija, Ashford AJ at [27] held:
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.
Her Honour went on to find at [33] that she had no basis upon which she could consider those further notices or whether they were valid. Her Honour returned to the point at the conclusion of the reasons for judgment, stating at [41]:
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.
On remittal, the respondent did not rely upon the March Breach Notice. However, the reasons in Adrija No. 3 did not first consider whether the April Breach Notice was a valid notice, which is what was envisaged by Ashford AJ when the matter was remitted. That is perhaps a product of the way the case was then argued in the court below. It must be acknowledged that the court below did not have the benefit of the advocacy of the counsel who appeared for the parties on the appeal, including refining the arguments with the benefit of the magistrate’s considered reasons. That said, howsoever the approach taken in the court below came about, it is apparent from [90] of Adrija No. 3 that the three breaches asserted in the April Breach Notice were the only matters determined, with the assumption that if any one of those breaches was substantiated, termination by the respondent was lawful.
I do not accept the argument as to invalidity of the April Breach Notice by virtue of incorporating an earlier breach notice that was itself invalid. However, there is merit in the appellants’ other arguments. In summary:
(f)The April Breach Notice was invalid as it was not sent in accordance with the contract;
(g)Further, the contents of the April Breach Notice are ambiguous and confusing;
(h)Separately, there is a question as to whether the April Breach Notice remained a valid basis for termination after 23 May 2011, when Nicoll & Co solicitors formally came on record for the appellants; and
(i)In view of the finding that the notice was not sent in accordance with the contract, I do not accept that breach of cl 27.3, being the sole breach found, was such as to otherwise justify termination.
As to service of the April Breach Notice, it was addressed to the Holt Address and also contains a note that it was copied to the Tharwa Road address in Queanbeyan. However, the evidence was that it was only emailed to the appellants. While the appellants did not apparently take issue with receipt of the document at all, the transcript reveals that Mr Mohamed did raise the issue, somewhat obliquely by reference to how the April Breach Notice came to be in his possession and at what time. In any event, there was certainly no evidence that the notice was sent to either address by certified mail, as required under cl 25.1 of the contract.
The respondent has relied upon there being no agreement to documents required to be sent by certified mail being sent by email. That argument was accepted by the court below and I have found no error in the magistrate’s finding. As such, the respondent cannot then rely on a breach notice served by email, or even by ordinary post, as constituting a valid breach notice served under cl 25.1 of the contract.
If that conclusion is wrong, I agree that the contents of the notice (set out at [30] above) are confusing, in that the notice communicates an intention on the part of the respondent to terminate the contract in 10 days pursuant to cl 25, apparently regardless of whether the breaches were rectified or not. However, for termination to occur pursuant to that clause, there must first be a validly sent notice, and then cl 25.2 not only requires that 10 days have passed, but that the breaches specified in the notice have not been rectified. The letter reads as if the decision has already been made by the respondent to terminate the contract and that such termination will take effect in 10 days. There is some ambiguity about it, as the last sentence of the document commences with the words “if the contract is terminated” not “when the contract is terminated”, but that is why I accept the submission of confusion, rather than error. If it is necessary to make a finding, I accept that the April Breach Notice does not transparently reflect the requirements of clause 25.3 as to what would bring about an entitlement to end the contract.
Even if I had found that the April Breach Notice was valid, and that the contents of the letter were impliedly to the effect that the appellants still had an opportunity to remedy the asserted breaches within 10 days, the respondent did not in fact terminate the contract at that point, and what occurred was arguably that an address for service was provided by Nicholl & Co formally engaging on behalf of the appellants with the solicitors for the respondent. There was no suggestion after that point that there was any issue with a failure to notify of a change of address. On one view, the breach had been rectified prior to termination.
However, as neither party addressed whether Nicholl & Co providing their address and contact details as the agent for the appellant was sufficient to comply with cl 27.3 either in the court below or on appeal, I will not make any finding about whether that resolved the builder’s apparent lack of a means to serve documents required to be formally served under the contract. Due to the other reasons given here, it is unnecessary to do so.
Had I not had the concerns about the validity of the April Breach Notice in the first place, I would also have accepted the appellants’ argument that the nature of the breach did not justify termination (either of itself, or in circumstances where, although not “promptly”, the breach had been remedied).
In this regard, the finding in the court below was as follows:
[124] The express right to terminate in clause 25.2 does not distinguish between conditions and warranties – that is, between terms of the contract which are essential and those which are not. In the circumstances, the termination was lawful.
[125] Similarly, cl 25.8, dealing with what the owner is required to pay following the contract being “ended” does not depend upon the basis for termination.
…
[128] In particular, I conclude that even if the obligation under cl 27 is a non-essential term, such that loss following termination is attributable to the builder’s election to terminate, the express terms of clause 25.8 permit recovery of the amounts referred to therein.
An essential term is one which is of such importance to the promisee that it would not have entered into the contract unless assured of strict performance. Clause 27.3 is perhaps not in that category, but more critically, the approximate timing of the obligation to notify points to the term not being essential: see Perri v Coolangatta (1982) 149 CLR 537 at 554-555 (as to approximate times). It might more properly be characterised as an intermediate term, in the sense explained in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 at [49]–[52].
As submitted by the appellants, the wording of the language used in the April Breach Notice was insufficient to make time of the essence for “a failure to promptly notify” an address change. However, that conclusion is only by way of completeness in addressing the appellants’ arguments on termination outside the contract. While the court below was plainly correct in stating that cl 25 does not distinguish between essential and non-essential terms for its application, that finding is based on the underlying validity of the April Breach Notice, which was not expressly considered in the court below and has not been established on appeal. It follows that I do not accept that the respondent complied with cl 25, and contrary to what was found by the magistrate at [124] that the termination for breach was not lawful.
Accordingly, the appellants have succeeded on Grounds 4 and 6.
Ground 7 and the respondent’s notice of contention
The findings in Adrija No. 3 at [125] and [128] are critical to the outcome of the appeal. The court below held that it does not matter how the contract came to an end, because cl 25.8 governs what is payable regardless of how such a result is brought about. That is the subject of Ground 7 and the respondent’s notice of contention and accordingly they are dealt with together.
The appellants argue that:
(a)the court below erred in the analysis and operation of clause 25.8, and
(b)the court below applied aspects of the clause that are penal in their ultimate effect.
The respondent, by its notice of contention, argues that the court below ought to have held that it was entitled to payment of an amount calculated in accordance with cl 25.8 irrespective of whether it lawfully terminated the contract pursuant to cl 25.5.
The appellants relied upon Cardona v Brown [2012] VSCA 174; 35 VR 538 and Maples Winterview Pty Ltd v Liu & Anor [2015] ACTSC 58 (Maples Winterview). The respondent also drew attention to a separate dispute litigated between the parties before Master Mossop (as his Honour then was) surrounding a caveat lodged by the respondent on 19 April 2011. The Master ordered that the caveat be removed: Adrija Pty Ltd v Abdiwahaab Barkhadle Mohamed & Ors [2013] ACTSC 120 (the Caveat decision).
In Maples Winterview, Mossop AsJ (again, as his Honour was) considered cl 25.8 of the same standard form building contract as that in dispute here, the terms of which were set out in his Honour’s judgment at [26]. In relation to cl 25.8, Mossop AsJ stated at [67]:
The entitlement of the plaintiff [the builder] to recover in accordance with its claim is dependent upon it having validly terminated the Contract by reason of a breach by the defendants [the owners] of their obligation to pay one or more of the payment claims made. If the Contract was validly terminated then the obligation on the defendants is to pay the amounts required by clause 25.8.
Mossop AsJ then considered the dispute between the parties, which was similarly termination of the contract based on an unpaid progress claim for a particular stage of construction. The claim was unpaid due to what the owners there alleged were substantial defects. His Honour found at [105] that the stage was not complete. The consequences of that finding were drawn together by Mossop AsJ at [157] (emphasis added):
My conclusions in relation to the issues dealt with above have the following consequences:
(a) because of the failure of the plaintiff to install under slab insulation the plaintiff had no entitlement to progress payment for stages 2 and following;
(b) because the plaintiff had no entitlement to make those progress claims it had no entitlement to further monies by reason of adjustment of the contract price under clauses 17, 18 and 21 which could only be claimed as part of the next progress payment claim;
(c) as a result, the plaintiff was not entitled to make the claims that it did on 27 February 2012 and the defendants were not in breach of the Contract by failing to make payments in response to those claims;
(d) because the defendants were not in breach of the Contract by failing to make progress payments, the plaintiff was not entitled to terminate the Contract under clause 25.2 of the Contract;
(e) the entitlement to payment under clause 25.8 of the Contract is dependent upon the Contract being terminated in accordance with that clause and because it was not terminated by the plaintiff in accordance with that clause, the plaintiff has no entitlement to payment under clause 25.8;
(f) the failure of the defendants to obtain a loan from Westpac Banking Corporation has not been demonstrated to be a breach of the Contract;
(g) no other basis for liability of the defendants was pleaded by the plaintiff, and in particular, it was not alleged that the defendants terminated the Contract under clause 25 which would also have enlivened the obligation for them to make payment under clause 25.8;
(h) had the defendants been liable under clause 25.8 then the plaintiff would have been entitled to recover $232,943.96 plus interest from 11 October 2012 to the date of judgment at the rates specified in the Court Procedures Rules 2006 (ACT).
In the Caveat decision, Mossop J held at [40]:
The Builder submitted that this is an unusual clause because, if read as generally applicable to all terminations under cl 25, even if the builder is the one in breach of the contract and it is terminated by the owner under cl 25.5, the obligation on the owner is still to pay all of the builders costs as well as the cost of ordered materials, the costs of leaving the site and a profit component on top of all of those categories of expense. This, the Builder submitted, would be an unusual result if the Builder was the party in breach of the contract because it is very favourable to the Builder, who recovers everything spent plus a profit component. As a consequence, the Builder submitted that the operation of cl 25.8 should be confined to the situations where the contract is ended under cl 25.7. I do not accept this submission. Whilst there may be sound reasons of fairness for such a limitation on the scope of cl 25.8 there is no justification for such an interpretation in the text of cl 25 or arising in any other way from the contract as a whole. Subclause 8 is in general terms, coming at the end of the clause dealing with termination and there is nothing in its text to suggest it is to operate in a manner limited to only one of the categories of termination provided for in the preceding clauses. In my view, cl 25.8 applies to each of the methods of termination under cl 25.
I respectfully agree with his Honour’s construction of cl 25.8. These two passages from separate judgments confirm that the operation of cl 25.8 is dependent upon the contract coming to an end in accordance with the methods of termination “provided for in the preceding clauses” of the contract.
In the present case, on the findings of the court below and the conclusion I have reached about the validity of the April Breach Notice, the contract did not come to an end in accordance with any of the methods for ending the contract in cl 25. The finding in Adrija No. 1 was that the appellants treated the respondent’s purported termination in August 2011 as a repudiation, which they accepted. That finding was not challenged in Mohamed v Adrija and was not challenged in the court below on remittal.
Accordingly, the respondent had no entitlement to payment under cl 25.8. It is thus unnecessary to deal with the appellants’ second argument concerning whether cl 25.8 as applied by the magistrate constituted a penalty.
The appellant succeeds on Ground 7 and the Notice of Contention will be dismissed.
Ground 8
The appellants have succeeded in relation to Grounds 4, 6 and 7, and that has consequences for the costs order made in the court below. However, as the costs judgment was in part influenced by offers of settlement, the issue of the appropriate costs order will be addressed following the determination of the appeal.
Is the respondent entitled to payment pursuant to a quantum meruit claim?
The respondent has pleaded a quantum meruit claim in the alternative to the contractual claim in the court below. The parties were invited to provide further submissions on a number of matters, one of which was what should occur in the event that the appellant succeeded in setting aside the findings of the court below in relation to cl 25.8.
The respondent contended that the Court should deal with that alternative claim on appeal and that the quantum was the same as that assessed by the magistrate. The appellants opposed that course, submitting that the quantum meruit claim was not part of the notice of contention and further, that the assessment conducted in the court below was not directed to the quantum meruit claim, and required different considerations.
That being so, the consequence of the conclusions on the appeal will be that the quantum meruit claim falls to be determined. For the same reasons as those given in relation to Ground 3 at [86] above, I consider that it is appropriate for the Court to resolve the alternative claim now. Unlike the matters sought to be raised in Ground 3, the claim was pleaded by the respondent; it is not a new claim. Evidence necessary to determine that issue has been ventilated in the court below. The parties each relied upon expert evidence from quantity surveyors, Mr David Warren for the respondent builder, and Mr Jason Shepheard for the appellant owners, both of whom were cross-examined.
Quantum meruit is available independently of the basis of termination, and as the respondent submitted, has its genesis in restitution based on the concept of unjust enrichment. That is a label or a unifying concept, not a legal principle applied as a direct source of liability or a cause of action: Pavey & MatthewsPty Ltd v Paul (1987) 162 CLR 221 (Pavey & Matthews) at 256-257 per Deane J; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 378-379, per Mason CJ, Deane, Toohey, Gaudron, McHugh JJ, and 401 per Dawson J.
Such label describes the type of circumstances where the law recognises an obligation on the part of the defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff: Muschinski v Dodds (1985) 160 CLR 583 at 617.
Common features for a successful restitutionary claim for unjust enrichment may be drawn from a number of the authorities: see Pavey & Matthews at 256-257, Roxborough v Rothmans of Pall Mall [2001] HCA 68; 208 CLR 516 at [139] n 257; Australia and New Zealand Banking Group Ltd v Westpac Banking Corp (1988) 164 CLR 662 at 673-674 per Mason CJ, Wilson, Deane, Toohey and Gaudron JJ; Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; 253 CLR 560 at [16]-[20], [73], [74], [141]; Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [No 3] [2014] WASC 162 per Edelman J at [51] and the cases there-cited. Although it is perhaps obvious from the very words ‘unjust enrichment’, an entitlement to restitution on that basis will arise when, subject to defences, three components exist:
(a)The defendant is enriched (or benefited);
(b)The enrichment has come at the expense of the plaintiff; and
(c)The enrichment (or its retention) is unjust.
It is not necessary on the facts of the present case to give detailed consideration as to what constitutes a benefit or the circumstances in which the benefit obtained might be ‘unjust’, as the appellants have clearly obtained a benefit in the respondent working to construct a partially built house owned by the appellants. The relevant underlying principles are sufficiently encapsulated in Pavey & Matthews at 263 and in Lumbers v W Cook Builders Pty Ltd (in Liquidation) [2008] HCA 27; 232 CLR 635 (Lumbers) at [79], [89].
Pavey & Matthews, Deane J observed at 263 that the concept of monetary restitution (emphasis added):
...involves ... the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or “enrichment” actually or constructively accepted. Ordinarily, that will correspond to the fair value of the benefit provided (e.g. remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied).
In Lumbers, Gummow, Hayne, Crennan and Kiefel JJ said at [79] (emphasis added):
The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a “benefit” at the “expense” of another which the recipient “accepts” and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this Court’s decision in Steele v Tardiani [(1946) 72 CLR 386], an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with any particular contract the parties have made. ...
Both Pavey & Matthews and Lumbers were discussed by the Court of Appeal in Beagle v Australian Capital Territory and Southern New South Wales Rugby Union Limited [2017] ACTCA 29 at [79]-[84].
Applying these principles, what the respondent is entitled to is payment for services rendered or goods supplied, and the fair value of the benefit provided takes account of the particular contract the parties have made here. As the appellants submitted, that is a different assessment to what was carried out by the magistrate in the court below, but such assessment remains of considerable assistance in considering the question from a quantum meruit perspective.
The costs of building works undertaken (services rendered) and for goods supplied was assessed in the court below, after some adjustments, at $338,083.66. There was nothing to suggest that figure did not represent fair market value. I adopt it.
The court below then applied a builder’s margin to that figure, being 20%. In the circumstances of this particular contract, which was for a fixed sum of $365,000, applying that margin as profit is not a fair value of the benefit provided. The contract was a commercial bargain made at arm’s length. There is no doubt that the respondent builder was carrying out the commercial agreement it had made at a known loss; that is, because the entire contract had been underquoted, the service was being provided by the respondent at below market rates. I will allow a small profit margin on the costs and materials supplied figure, but not over and above the contract price.
From the $365,000 sum payable on a quantum meruit basis, the following amounts must be deducted:
(a)$243,900 already paid by the appellants;
(b)$33,042, being the amount established by the appellants on their counter claim, which was set off in the court below (and that approach was not challenged here).
That results in a total sum payable by the appellants of $88,058.
Interest and Costs
Interest will be awarded at the rates set out in Schedule 2 to the Court Procedures Rules 2006 (ACT), from the date of termination (8 August 2011). Interest on the judgment sum is calculated at $55,623.83. That brings a total figure payable by the appellants to the respondent of $143,681.83.
As to costs, the success of the appellants on appeal means that they are entitled to their costs. The appellants have also been substantially successful in relation to many of the issues involved in the proceedings in the court below. Overall, those issues were dominant when regard is had to the arguments, transcript, evidence and various reasons for judgment in the court below, including the appellants’ success on their counter-claim as a further discrete issue. Plainly though, the respondent builder also achieved success in establishing its alternative claim in quantum meruit and judgment overall in its favour. Given the mixed success on issues, a number of which were clearly discrete, it is appropriate that the parties each bear their own costs of the proceedings in the court below.
As disclosed in Adrija No. 3, there were a number of settlement offers exchanged throughout the proceedings in the court below. In the event that there are matters outside the knowledge of the court and either party wishes to seek a different costs order from that indicated, they are to do so by notifying chambers within seven days of the date of judgment.
Orders
The orders of the Court are as follows:
(1) The appeal is allowed.
(2) The orders in proceeding CS 504 of 2013 dated 7 November and 6 December 2019 are set aside, and in lieu thereof, judgment is entered for the respondent (the plaintiff in the court below) in the sum of $88,058.
(3) Interest is awarded pursuant to r 1619 of the Court Procedures Rules 2006 in the sum of $55,623.83.
(4) The notice of contention is dismissed.
(5) The respondent is to pay the appellants’ costs of the appeal.
(6) The parties are each to pay their own costs of the proceeding in the court below.
(7) Orders 5 and 6 are stayed for seven days, and in the event that either party notifies the court by email that a variation to either order is sought, will be stayed pending further order.
| I certify that the preceding one hundred and thirty-nine [139] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam Associate: Ross Mackey Date: 28 April 2022 |
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