SUPREME COURT OF QUEENSLAND
CITATION:
Mousa & Anor v Vukobratich Enterprises Pty Ltd & Anor [2019] QSC 49
PARTIES:
GAMAL MOUSA and MARGARET MOUSA
(Plaintiffs)v
VUKOBRATICH ENTERPRISES PTY LTD
ACN 074 668 161(First Defendant)
and
MARK VUKOBRATICH
(Second Defendant)
FILE NO/S:
Cairns Registry No 130 of 2017
DIVISION:
Trial
PROCEEDING:
Trial
ORIGINATING COURT:
Supreme Court at Cairns
DELIVERED ON:
11 March 2019
DELIVERED AT:
Cairns
HEARING DATE:
22, 23, 24, 25, 29, 30, 31 October 2018
JUDGE:
Henry J
ORDERS:
1. The plaintiffs’ claim against the second defendant is dismissed.
2. The first defendant’s counterclaims against the plaintiffs are dismissed.
3. I will hear the parties regarding the course to be taken in determining rectification costs in the plaintiffs’ successful claim against the first defendant at 10am 15 March 2019.
4. I will hear the parties as to interest and costs, if costs are not agreed, on a date to be fixed by mention at 10am 15 March 2019.
5. The Registrar will forward a copy of these reasons to Mr McGrath of Miller Harris lawyers, solicitors for the first defendant’s liquidator.
CATCHWORDS:
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – STATUTORY WARRANTIES FOR RESIDENTIAL BUILDING WORK – where the plaintiffs contracted the first defendant to build their dream home – where they claim the work did not meet the statutory standard of expectation – where they plead an entitlement to damages for breach of warranty on the basis that they have suffered or will suffer loss and damage, being the cost of carrying out remedial work to the house – whether the state of each item of work evidenced a breach of statutory warranty so as to require rectification
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGED, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON-PERFORMANCE – REPUDIATION – where the plaintiffs claim damages as against the first defendant for wrongful repudiation of the contract – where the amount claimed includes the cost of remedial work plus the cost of completing construction – whether the first defendant’s conduct manifested an intention to fulfil the contract only in a manner substantially inconsistent with their obligations under it and not in any other way
TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – DUTY OF CARE – where the first defendant was a licensed contractor and the second defendant its appropriately licensed nominee – where there existed a statutory duty for a licensed contractor to ensure building work is personally and adequately supervised – whether the scope of liability for the statutory duty could be extended to infer the second defendant also owed a duty of care in negligence to the plaintiffs
Civil Liability Act 2003 (Qld) s 11
Domestic Building Contracts Act 2000 (Qld) ss 9, 81(3), Part 4
Queensland Building and Construction Commissions Act 1991 (Qld) ss 43, 43ABrookfield Multiplex Ltd v Owners (2014) 254 CLR 185
Bryan v Maloney (1985) 182 CLR 609
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623
Moorabool SC v Taitapanui (2006) 14 VR 55
Koompahtoo Local Aboriginal Land Council v Sampine Pty Ltd (2007) 233 CLR 115
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
Shevill v Builders Licensing Board (1982) 149 CLR 620Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
COUNSEL:
CD Taylor for the Plaintiffs
MA Jonsson QC for the Second Defendant
SOLICITORS:
WGC Lawyers for the Plaintiffs
Holding Redlich for the Second Defendant
(No appearance for First Defendant)
The street on the ridgeline of the Cairns suburb of Parkridge is appropriately called The Peak. It provides some of the best views in Cairns across the city to Trinity Inlet and the Coral Sea beyond.
Cairns surgeon Gamal Mousa and his wife Margaret bought a vacant lot on The Peak to build their dream home on. The builder they selected was the first defendant, Vukobratich Enterprises Pty Ltd (“the company”), a company trading as MV Designer Homes, using the slogan “delivering the dream”.
The company contracted to build the Mousas’ home for $2.1 million. This was a step-up from the kind of residential construction work previously performed by the company and its sole director, licensed builder Mark Vukobratich, the second defendant. It was a step too far. The defendants’ construction work and dealings with the Mousas culminated in the Mousas terminating the contract on 7 December 2015. The construction was incomplete and defective. It remains so.
The Mousas filed a claim against the company and Mr Vukobratich on 20 March 2017. The relief sought has been variably articulated but by closing submissions it was:
(a) damages for breach of statutory warranty as against the company in the amount of $1,571,024.40, being the cost attributable to the rectification of alleged defects;
(b) damages as against the company for wrongful repudiation of the contract in the amount of $2,524,254.26, being the cost of the above alleged defects requiring rectification plus the cost to complete the construction in the amount of $953,229.86;
(c) damages as against Mr Vukobratich personally for negligence in the construction, in the alternative amounts of $1,803,529.40 or $1,571,024.40.[1]
[1] Plaintiffs’ written submissions p 1. Claims not pressed included a claim for restitution of payments in excess of contractual entitlement and various claims based on alleged misleading and deceptive conduct.
The negligence claim against Mr Vukobratich is founded on the argument that Mr Vukobratich can be personally liable in negligence to the Mousas for their economic loss, even though he was not the party with whom they contracted. Whether that argument can succeed is of more than academic interest given that on 2 August 2018 the company went into voluntary administration. The liquidator did not oppose the plaintiffs’ successful application for leave to continue the proceeding as against the company but elected to play no active role in the trial. This left live a counterclaim by the company.[2] It will be dealt with at the end of these reasons and requires no elaboration presently.
[2] See the second amended defence and counterclaim, the last pleading made before subsequent amendments to that document, by the second defendant only, eventually gave rise to the fourth amended defence of the second defendant.
Despite the importance of the Mousas’ argument that Mr Vukobratich ought be found personally liable in negligence, it is sensible to deal firstly with the cases against the company of breach of statutory warranty and wrongful repudiation of contract. That exercise will turn in part upon detail of the parties’ dealings and of the construction, detail which is also relevant in the case against Mr Vukobratich. Some of that detail is now reviewed by way of background.
Background
On 8 October 2012 Dr Mousa initiated enquiries with the company as a potential builder of their dream home. The company’s contracts administrator emailed him documents including the company profile, which included propositions such as:
“Started by Mark Vukobratich, MV Designer Homes operates under Mark’s philosophy ‘My team and I hold people’s dreams in our hands’ … We pride ourselves on delivering superior quality, elegant, imaginative, value for money homes, whatever the budget… Budgets from $100,000 to $10 million … We specialise in split level homes and sloping or difficult block builds.”[3]
[3] Ex 12.
The document concluded:
“Thank you for considering MV Designer Homes. We guarantee to provide you with a home – that will not only be a pleasure to live in – but could also be your award winning design.
Mark Vukobratich
Managing Director/Builder”[4]
[4] Ex 12.
The company’s contracts administrator emailed Dr Mousa to confirm an appointment “with Mark our builder and our designer Dragan”.[5]
[5] Ex 13.
The appointment proceeded on 14 October 2012 at the company’s office in Mulgrave Road at Cairns with Dr and Mrs Mousa, Mr Vukobratich and Dragan Vukelic, the company’s designer.[6] At that meeting Dr Mousa explained he was looking for a house which was elegant but not extravagant. He explained he wanted to build a house for his family in which they would eventually retire and wanted high ceilings, large open spaces and nothing blocking the view from their block of land – a block for which they had paid a lot of money to enjoy the view.[7] Dr Mousa sought Mr Vukobratich’s assurance that the company could cope with what would be a big house construction on a block with a slope component to it, and Mr Vukobratich so assured him.[8]
[6] T1-59 L13.
[7] T1-59 LL30 – T1-60 L8.
[8] T1-60 L37 – T1-61 L2.
Mrs Mousa later had some further general discussions with Mr Vukobratich about the house the Mousas wanted to build, delivering drawings and pictures to him.[9]
[9] T2-91 L24.
Momentum towards engaging a builder developed during 2013 after the Mousas sold their farm. Dr and Mrs Mousa met again with Mr Vukobratich and Mr Vukelic in September 2013.[10] Mr Vukobratich and Mr Vukelic showed the Mousas some drawings of what the house might look like. It showed three columns present on the first floor and one on the ground floor.[11] Dr Mousa indicated he did not want columns, both because he has an architectural dislike of them and because they would tend to obstruct the view outside. Dr Mousa also expressed concern that the plans showed large wall areas and little windows which tended to block the view from inside out.[12] Mr Vukobratich and or Mr Vukelic explained the columns were to provide structural support but that they would look into alternatives.[13] Dr Mousa testified that at a subsequent meeting prior to the finalising of the plans “they” – an apparent reference to Mr Vukobratich and or other company representatives – informed him that, having spoken with an engineer, they could get rid of some columns but one would have to remain and the windows could not be varied.[14] Dr Mousa explained he took the attitude he would “have to live with” that outcome, but only because it was said to be based on the expert advice of an engineer.[15]
[10] T1-62 L27; T3-36 L13.
[11] T1-63 L3; T1-64 L7.
[12] T1-63 LL3-27.
[13] T1-63 L39.
[14] T1-68 LL5-25.
[15] T1-68 LL10-21.
In their meeting of September 2013 Mr Vukobratich assured the Mousas they could trust in his experience and competency.[16] Mr Vukobratich caused some concern to Dr Mousa by indicating that he wanted to enter into the high end building market in Cairns by using his construction of the Mousas’ house as an example.[17] Dr Mousa explained he did not want his proposed house to be Mr Vukobratich’s “guinea pig” and sought further assurance he could build a house of the calibre contemplated.[18]
[16] T3-38 L27.
[17] T1-64 L40.
[18] T1-65 LL10-14.
Mr Vukobratich subsequently drove Dr and Mrs Mousa and their daughter Claire around Cairns, showing three or four residences his company had constructed.[19] None were on the scale of the Mousas’ proposed residence.[20] This troubled Dr Mousa but he acquiesced to his wife’s attitude, which was that it was desirable to have a builder who was motivated and enthusiastic to construct their desired home rather than one who regarded it as just a job.[21] They must now rue their decision to favour a company inexperienced in constructing dwellings at the high end of the residential market.
[19] T1-65 L31; T3-36 L32; T4-29 L25.
[20] T1-66 L21.
[21] T1-66 LL40-47; T3-37 L43.
On 30 September 2013 the company procured a soils report by an entity trading as Dirt Professionals in respect of the Mousas’ block.[22]
[22] Ex 1 p 208.
On 16 September 2013 the Mousas and a person signing as “Builder” signed a preliminary agreement said to be between “MV Designer Homes” and the Mousas. That document contained instructions to carry out preliminary works in preparation for building works upon the land.[23] The proforma works descriptions ticked in the agreement were:
“inspect site
preparation of building specification and estimate
arrange a soil test …
preparation of all working drawings (includes 2 final changes)
engineering approval …sewer jump up plan …”[23] Ex 1 p 1.
Page 2 of the document stipulated that money paid pursuant to the agreement would be treated as a preliminary deposit to be deducted from the amount of the building contract, if such a contract was entered into.[24] The total cost of the work specified by the preliminary agreement was $10,550, which was paid by the Mousas to the company on 16 September 2013.[25]
[24] Ex 1 p 2.
[25] Third amended statement of claim [7] – admitted.
In hindsight it is apparent the cost of the preliminary work, which included soil testing, drawings and engineering work in respect of a significant construction on a hillslope, was too low for what was required to be done properly. The complexity of the site and construction under contemplation required much more detailed soil testing, engineering, design and planning work. [26] This project should not have been approached, as it appears it was, was as a design and construct project. The lack of initial planning had significant ramifications as the project progressed.[27]
[26] Ex 7 p10.
[27] Ex 7 p39.
The preliminary works proceeded through to about 27 March 2014.[28] In the interim two further payments were made pursuant to the preliminary agreement, as agreed variations to it. The first further payment, of $3,630, was made on about 25 November 2013 for a geotechnical report entitled “Slope stability investigation” by an entity known as ETS, a report which was obtained in December (“the first geotechnical report”).[29] The second further payment, of $1,540, was made on about 19 February 2014 for services described as “extra for Dragan changeover”.[30]
[28] Third amended statement of claim [8] – admitted.
[29] Third amended statement of claim [9] – admitted.
[30] Third amended statement of claim [9] – [13].
When a draft building contract was provided by the company to the Mousas, Dr Mousa became concerned by the risk of prime cost items and provisional sums, which represented a substantial proportion of the overall contract price, drifting materially beyond the allowances made in the contract for them. He informed Mr Vukobratich that he did not want to proceed with the contract in light of that problem, however Mr Vukobratich emphasised that building the house was important to him “to go into this upper niche market” and that he would be able to build the home within budget.[31] Dr Mousa recalled a subsequent draft of the contract lowered the total contract price down by about $80,000,[32] causing him to think he had sufficient financial cushion for variations.[33]
[31] T1-70 LL5-29.
[32] T2-52 L33.
[33] T1-70 LL40-47.
Dr Mousa testified to thinking, in light of that cushion, “Everybody wants me to move on with the house and I seem to be the one blocking it, so let’s go”.[34] Such evidence reflects a theme, implicit in much of Dr Mousa’s testimony, of regret that he was not a more dominant player in his family’s dealings with the company and Mr Vukobratich. As it turns out, Dr Mousa’s work obligations and his own back ailment meant he did not play a particularly active role in dealings with the company during construction.
[34] T1-71 L1.
The Mousas and the company ultimately executed an undated residential building contract,[35] on about 3 April 2014,[36] The contract price to build the Mousas’ house was stipulated to be $2,106,756, to be paid in progress payments for the following stages:
Deposit 5% $105,337.80
Base stage 10% $210,675.60
Frame stage 15% $316,013.40
Enclosed stage 35% $737,364.60
Fixing stage 20% $421,351.20Practical completion stage 15% $316,013.40[37][35] Ex 1 p 3 et seq.
[36] Third amended statement of claim [15] – admitted.
[37] Ex 1 p 11.
The contract’s total allowances for prime cost items was $103,802.96 and its total allowances for provisional sums was $837,566.96. The latter figure is proportionately very high and bespeaks a degree of uncertainty which would not have been present had there been the more detailed design work which a residence of this complexity required.[38] Supporting quotes from various suppliers were included with the contract.[39]
[38] Ex 7 p 12.
[39] Ex 1 pp 53-121.
The contract included specifications and plans supplied by the company.[40] The home to be built would present from the west street front as a two-storey house – the first and second levels – with an underlying ground level below natural ground level, deck and pool stepped down the east facing slope at the rear of the property – the side with the excellent view.[41]
[40] Ex 1 p 5 per item 5, pp 35-49 specifications, pp 122-129 plans.
[41] Ex 1 p 126.
The contract also recorded that “foundations data” had been prepared by Dirt Professionals on 30 September 2013.[42] It is not apparent why it did not also refer to the first geotechnical report of about 25 November 2013 by ETS. The contract provided that the foundations data “must be obtained before entering into this contract”.[43] It defined foundations data thus:
“Foundations Data – means the information about the land needed for the preparation of an appropriate footings design for the land, if appropriate a slab design for the land and an adequate estimate of the cost of constructing the footings and concrete slab, eg. soil test, contour plan etc.”[44]
[42] Ex 1 p 5.
[43] Ex 1 p 5.
[44] Ex 1 p 14.
The contract incorporated various warranties by the company (described as “the contractor” in the contract) under part 4 of the Domestic Building Contracts Act 2000, including:
“10.1 …
(a) The contractor will carry out the works:
(i)in an appropriate and skilful way;
(ii)with reasonable care and skill;
(iii)in accordance with the plans and specifications; and
(iv)in accordance with all relevant laws and legal requirements including, for example, the Building Act 1975 ...
(c) Prime Cost items and Provisional Sums have been calculated with reasonable care and skill …”[45]
[45] Ex 1 p 17.
The contract included conditions relating to variations by agreement, variations required by law and variations for latent conditions.[46] A common theme of each was that the parties were to agree in writing to any variations before the carrying out of the work the subject of the variation.
[46] Ex 1 pp 19-20.
The contract included machinery provisions for termination of the contract, including for the giving of written notice of an intention to terminate, describing any alleged breach and allowing 10 business days for the remedy thereof.[47] A point highlighted on the defendants’ case is that in eventually terminating the contract the Mousas did not first afford the company an opportunity to remedy any breach as contemplated in the contract’s clause 20.
[47] Ex 1 pp 22-23.
The construction period was stipulated as 541 days and the date for practical completion was stipulated as 541 days from the date for commencement. The date for commencement was not stipulated by a date, but rather was described as “Earthworks Stage – day of excavation on site/preparation to house pad”.
On 20 May 2014 Cairns Regional Council granted a material change of use development permit to the company, subject to a variety of conditions including a geotechnical assessment, further to the report provided by Dirt Professionals of 30 September 2013.[48] The assessment was required to assess the level of risk with special reference to the pool area.
[48] Ex 1 p 208.
On 27 May 2014 the company evidently submitted the first geotechnical report from ETS in response to the above condition requiring a geotechnical assessment. The requirements of the Council’s geotechnical assessment condition were elaborated upon in a letter by Council to the company of 27 June 2014 wherein it was noted that the achievement of a low risk rating in the report from ETS relied upon crest stabilisation and the use of piers, methodology which needed to be properly identified by the further report so as to allow confirmation of its incorporation within the house design.[49]
[49] Ex 1 p 218.
On 1 July 2014 the company obtained a further geotechnical report from ETS (“the second geotechnical report”), which prompted the company to carry out a number of amendments to its design drawings for the proposed building.[50] In the present proceeding the Mousas assert such post-contract amendments would not have been necessary if the company had gathered appropriate foundations data pre-contract.
[50] Third amended statement of claim [28] – admitted.
Earthworks commenced on site on 7 July 2014.[51] On 9 July 2014 Mrs Mousa attended a meeting on site with Mr Vukobratich, an excavator driver called Mr Bugeja, and possibly Mr Vukelic.[52] The meeting had been arranged by Mr Vukobratich, who informed Mrs Mousa the house needed to be constructed 1.5 metres closer to the street than planned,[53] because of a problem encountered during earthworks.[54] There had been some clearing of the pad site by this time.[55] Mrs Mousa could not recall what specific problem had been encountered to require the change of plan but it appears to have been an unexpected problem with soil stability near the east facing slope at the rear of the property where the ground floor, deck and pool area were to be stepped down the slope.
[51] T3-56 L29; Ex 3 p 504.
[52] T3-55 L20.
[53] T3-55 L35.
[54] T3-56 L42.
[55] T3-56 L35.
On 11 August 2014 the company’s development application for the carrying out of building work was approved with conditions.[56]
[56] Ex 1 pp 223-228.
On 17 December 2014 Mrs Mousa attended upon Mr Vukobratich at his request to “go over the current spreadsheet for Earthworks and … Back Area works”.[57]
[57] Ex 3 p 511; T3-61 L35.
On the same date the company issued the Mousas with invoice MouVA02 in the amount of $85,610.85 for:
“Variation: Extras over allowance on rear patio works and Earthworks”.[58]
The invoice required payment within seven days and was accompanied by a schedule of invoices.[59] The schedule listed 91 invoices for work described under the sub-heading “Invoices received lower level to date”, totalling $139,911.10. A “specification/contract allowance” of $100,000.00 was deducted from that subtotal in the schedule to identify part of the variation amount as $39,911.10. The schedule also listed six earthworks invoices, all for “Heath’s Backhoe Hire” totalling $125,916.95. From that amount the schedule deducted a “specification/contract allowance” of $88,000.00, to give rise to a variation subtotal of $37,916.95. When combined with the other variation subtotal, this gave rise on the schedule to a total variation payable of $77,828.05 which, with the addition of GST, resulted in a total of $85,610.85 claimed by invoice MouVA02. The contract’s list of allowances for provisional sums included the sum of $88,000.00 for earthworks. The source of the other “specification/contract allowance” of $100,000.00 is not apparent. More concerningly, contrary to the requirements of the contract, there had apparently been no documenting of any agreement to the variation before the work, the subject of the variation, had been carried out.
[58] Ex 2 p 375.
[59] Ex 2 pp 234-235.
Shocked at the invoice amount Mrs Mousa discussed the issue with her family. Dr and Mrs Mousa and their son David then met with Mr Vukobratich.[60]
[60] T1-76 L35; T3-61 L44.
Mr Vukobratich explained the need for the additional works had not been known of at the time of the execution of the contract.[61] Dr Mousa complained of the absence of any documented agreement to vary and Mr Vukobratich asserted the need for the variation had been made known to Mrs Mousa.[62] This was apparently a reference to the meeting of 9 July 2014 at which Mr Vukobratich informed Mrs Mousa they were going to have to move the house forward by a metre and a-half.[63] Mr Vukobratich indicated that if the invoice was not paid, the company would stop progressing the building project.[64] Dr Mousa also challenged Mr Vukobratich about a number of the individual invoices, including surveyor’s invoices for five different dates, an individual invoice from Mr Vukobratich as director, and invoices for work by persons likely to have been the company’s own employees.[65] In the upshot, another MouVA02 variation invoice was then issued, this time in the amount of $81,619.74, that is, a reduction of about $4,000 from the initial invoice.[66] This amount appears to have been progressively paid by the Mousas between 5 January 2015 and 13 January 2015.[67] These were payments by direct deposits of $17,000, $20,000, $20,000 and $20,000, plus a payment by cheque of $4,649.74[68] with the cheque endorsed as payable to Cairns Coastal Plasterer. Mrs Mousa confirmed the payments were made because if they were not made Mr Vukobratich had indicated the project would not continue.[69]
[61] T1-77 L41.
[62] T1-77 L4.
[63] T1-79 L43.
[64] T1-77 L26; T1-80 L24.
[65] T1-78 L7 – T1-79 L40; T3-63 L22.
[66] Ex 2 p 376.
[67] Ex 2 pp 464-471.
[68] The payment was actually $30 more than necessary.
[69] T3-64 L45.
Mrs Mousa also signed an extension of time form relating to delays said to have been occasioned by the problem encountered during earthworks.[70] That document, dated 16 December 2014, contemplated an extension of time of 105 days for reasons nominated as:
“Subsidence to unstable soil (ie. unstable for construction work and placement of swimming pool), therefore Engineer and Builder had to re-design pool to suit Structural requirements for support of pool, concrete deck and other structures.”[71]
Curiously, the form also referred to a previous extension of time of 154 days, but that alleged extension does not appear to have been evidenced in the tendered materials.
[70] Ex 3 p 512; T3-66 L4.
[71] Ex 3 p 512.
The ensuing construction incorporated two levels of undercroft construction, giving rise, in effect, to a five-storey construction on the eastern side. One undercroft (“undercroft level 1”) was to support the ground level deck and the second undercroft (“undercroft level 2”) was to support the pool and its wet edge. These were significant additional structural components not present in the plans forming part of the contract.[72] Those plans merely showed supporting earth and some piers where in due course the undercrofts were built.[73] The vertical downwards dimension of the underlying structure as built compared to the plans increased significantly, by a factor of 1.8, and the additional earthworks required to accommodate all of this was considerably more than contemplated by the contract.[74] It all appears to have been work engaged in by the company without proper consultation of the Mousas and without following the contractual requirements for variation.
[72] Ex 7 p 12 [5.7].
[73] Ex 1 p 126; Ex 7 p 12.
[74] Ex 7 p 14.
As the project progressed Mrs Mousa had arranged with the company for its acquisition of extra items for installation not the subject of the contract, such as a Vacu Maid and special brand baths and fans. It was said to have been done through the company this way to preserve application of the builder’s insurance cover to the items.[75] The company apparently tracked those items of expenditure in a spreadsheet titled “Margaret’s spreadsheet for changes with clients”, referred to at trial as “Margaret’s spreadsheet”. It is not apparent why these expenses were treated differently than expenses arising in consequence of approved variations under the contract occurring during the construction.
[75] T3-41 L38.
Mrs Mousa made payments to the company from time to time. The payments did not correspond to specific invoices and rather were made on an ad hoc basis to accumulate credit to be applied when invoices fell due.[76] The payments were often made by delivering cheques to the company’s office. Not all such cheques were made payable to the company. Mrs Mousa completed a large number of cheques supplied to the company with the payee section left blank, anticipating, as with her husband’s medical practice, that the company would stamp its name as payee on the cheques. Instead, different payee names were later written in by someone else.[77] Mr Vukobratich’s name was written in as payee for four cheques in the amounts of $5,000, $5,000, $5,000 and $105,337.80; Cairns Coastal Plasterer (or CCP), likely a business of Mr Vukobratich’s,[78] was written in as payee for 15 cheques for $5,000, $5,000, $10,000, $5,000, $5,000, $5,000, $15,000, $10,000, $10,000, $4,649.74, $9,404.12, $5,000, $5,000, $10,000 and $20,000; and other Cleveland Pty Ltd was written in as payee for a cheque for $5,000.[79] Mr Vukobratich was asked about this by Claire Mousa later in 2015 and asserted the wrong deposit book must have been used.[80] That was no explanation for the endorsements of the payee name on the cheques. It was of course a matter for the company how it chose to apply payments by cheque to it but the obviously deliberate endorsement and the use of the cheques to the benefit of other entities demonstrates Mr Vukobratich’s controlling hand in the conduct of the company’s seemingly chaotic financial affairs.
[76] T3-50 LL38-44.
[77] T3-46 – T3-49.
[78] The historical company extract for Cairns Coastal Plasterers Pty Ltd, Ex 3 pp 713-720, reveals Mr Vukobratich to have been a former principal executive officer, director, secretary and shareholder and shows that at the relevant time it had the same principal place of business as the first defendant company (Ex 3 p 706).
[79] Ex 2 pp 447-485.
[80] T4-44 L28.
While Mrs Mousa had taken the lead in communications with the company, the Mousas’ son David and daughter Claire each became involved in dealing with the company on their parents’ behalf as 2015 progressed.[81]
[81] Eg, Ex 3 pp 569, 600.
In about April 2015, when the first floor blockwork to construct the column and walls surrounding the window spaces had been completed, Dr Mousa considered they gave rise to an unacceptable obstruction of the view.[82] He raised the issue with his son David, an architecture student who had been involved in initial design discussions.[83] David spoke with Mr Gianakis, the engineer used by the company, and discovered it was structurally possible for the window space to be larger and for there to be no column.[84] This was contrary to what Dr Mousa and David Mousa had been told the engineer’s advice was in the past and Mr Vukobratich castigated Mr Vukelic in David Mousa’s presence over what was represented as having been a breakdown in communication.[85] In the end result, the company removed the column and increased the relevant window space.[86]
[82] T1-84 LL15-20; Ex 5 photograph 39.
[83] T4-70 L15.
[84] T1-86 LL10-22; T4-73 L22.
[85] T4-74 L36.
[86] T1-88 LL1-12.
Throughout April and more sporadically through May into June there ensued various email exchanges and occasional meetings between David Mousa and Mr Vukobratich and Mr Vukelic regarding those and other design changes and clarifications.[87] This included the selection of a so-called spider window in substitution of an outer wall space on the first level facing east, addressing alignment issues as between the first and second level, additional design for second level bedroom veranda pods and many clarifications associated with windows and doors.[88] It is apparent in hindsight that while there were some design changes to the original plans, some of what was clarified in this era related to design at a level of detail which was not, but would usefully have been, included in the original plans.
[87] T4-76 L40 – T4-78 L44; Ex 3 p 531 et seq.
[88] Ex 3 pp 531-554, 556-564, 566-570, 572-580.
A further variation for earthworks was signed by Mrs Mousa on 1 May 2015.[89] The variation, in the amount of $57,445.54, was described as:
“Continuation of variation number 2 for works done to lower back section; over and above MV allowance of $100,000”.
The document recorded the amount was payable at the earthworks progress claim stage. Mrs Mousa did not have a clear recollection as to why she had signed this document.[90]
[89] Ex 2 p 243; T3-67 L29.
[90] T3-67 L30 – T3-68 L5.
Mrs Mousa signed another variation on 14 May 2015.[91] It was a variation cost of $37,037 described as being for:
“Set up suspended ply flooring/base to allow pool builders to start forming pool as per quote #72”
Curiously, the progress claim stage at which the amount was said to be payable was described as “on receipt”. Mrs Mousa appeared to have little active memory of how she came to sign this variation, explaining she had been asked on a regular basis to go in and sign piles of documents by the company.[92]
[91] Ex 2 pp 249-250; T3-68 L38.
[92] T3-69 L5.
On 3 September 2015 Mrs Mousa signed a variation costing $10,587.50 in respect of pod louvres[93] but that work has not been performed.[94] A similar situation pertains to:
· a variation she signed on 17 September 2015 in the amount of $615.99 for “MR Kitchens ventilation to cabinets in kitchen”;[95]
· a variation she signed on an unknown date in the amount of $15,859.47 for lounge room and dining room shelving and a theatre wall cabinet;[96]
· a variation not signed by her in the amount of $8,074.33 regarding changes made on site allegedly by her with MR Kitchens relating to lighting, mirrored surfaces and joinery in the theatre room;[97]
· a variation not signed by her in the amount of $959.78 for “extra to wedge wire shower grates”.[98]
[93] Ex 2 p 295.
[94] T4-4 L11.
[95] Ex 2 p 312; T4-4 L24.
[96] Ex 2 p 319; T4-4 L38.
[97] Ex 2 p 346; T4-4 L38, T4-5 L32.
[98] Ex 2 p 344; T4-5 L5.
Dr Mousa became concerned at the company’s apparently high volume of demands for payments based on variations. He was also troubled that the stress of his wife having to handle such minutiae was aggravating a heart condition for which she required treatment.[99] He arranged for their daughter Claire, an accountant, to look into the financial history of variations.[100]
[99] T2-4 L43 – T2-5 L28.
[100] Ex 3 p 607.
Claire Mousa met with Mr Vukobratich and Suzie Scoines, an employee of the company on 17 September, ostensibly to discuss variation 23 (“MOUVA23”) which had been received recently.[101] That discussion resulted in amendments being made to reduce the cost of the variation.[102] This heralded further, broader inquiries by Claire Mousa for financial information from the company, resulting in the disclosure of some documents to her[103] and then a further meeting, to try better understand the variation and payment history.[104]
[101] T4-30 L37 – T4-32 L31.
[102] Ex 2 pp 286-294.
[103] Ex 3 pp 600-606.
[104] T4-37 L46.
On 25 September 2015 Claire and David Mousa met with Mr Vukobratich, Ms Scoines, bookkeeper Peggy Walker (or Jackson) and another employee, Will Barnett.[105] Claire Mousa was supplied with more records from the company, including a copy of Margaret’s spreadsheet.[106] In the course of the meeting David Mousa complained about the slow progress of construction[107] and Claire Mousa raised various financial issues. It became apparent the company personnel there present could not reconcile the company’s own financial records. Claire Mousa commented on this confusion, pointing out the Mousas had little chance of understanding the records if the company could not reconcile them.[108] When she commented on the confusion, saying “It shouldn’t be this hard”, Mr Vukobratich responded:
“Yeah, … this is too hard, and from now on, any jobs over $1 million, we are going to get a QS and an architect”.[109]
David Mousa’s recollection of what Mr Vukobratich said was similar, namely:
“From now on, on all projects over $1,000,000, we will utilise both an architect and a quantity surveyor”.[110]
[105] T4-38 L17; T4-79 L47; Ex 3 p 607.
[106] Ex 2 p 365.
[107] T4-80 L34.
[108] T4-39 L3.
[109] T4-39 LL22-24.
[110] T4-81 L38.
Such a comment by Mr Vukobratich tends to confirm the impression arising from the whole of the evidence that a significant source of the problems with constructing and costing this building project was a failure from the outset to have assembled adequately detailed plans. Without such detail, the risk of error during construction and unanticipated cost was obviously heightened and unsurprisingly manifested itself as the construction progressed. Against that background it is hardly surprising there was tension and confusion associated with the financial management of the project.
Claire Mousa went on to ask questions of Mr Vukobratich about the making of stage claims including the fact that he had claimed 75% of a stage claim.[111] He commented that he was “bankrolling this job”, putting in “much of my own cash”.[112] Claire Mousa’s email note in relation to topics discussed at the meeting, made later the same day, contained the following, internally inconsistent, proposition:
“Variations that need revisiting will be dealt with by Mark.
We all agreed that the variations and the cost of the build to date correlated with all parties.”[113]
[111] T4-39 L32.
[112] T4-40 L1.
[113] Ex 3 p 607.
It is self-evident the parties were not satisfied the variations and cost to date correlated. Indeed the same email recorded there were variations to be revisited and went on to list a number of variations that Mr Vukobratich would be revising.
Mrs Mousa had not seen her namesake spreadsheet prior to it being disclosed to her daughter on 25 September 2015. The spreadsheet contained entries for items of expenditure Mrs Mousa had no knowledge of, including an additional cost excluding GST of $81,167.73 described as “Additions to main price” and endorsed “As per agreement with MV”.[114] This was (with a difference of one cent) the amount of the disputed earthworks associated variation, MouVA02, discussed above. Margaret’s spreadsheet also appeared to include amounts which were for variations rather than mere extra items for installation.
[114] Ex 2 p 365; T3-44 L5.
On 2 October 2015 Dr Mousa, Mrs Mousa and Claire Mousa met with Mr Vukobratich and Suzie Scoines. At that meeting Dr Mousa expressed his various concerns including:
· the company charging for additional items, which should have been covered by the fixed price of the contract;[115]
· the inclusion of structural cost items in Margaret’s spreadsheet;[116]
· variations not being approved in accordance with the contract;[117]
· variations not being linked to the timing of end stage progress payments;[118]
· the claiming of part payment of progress payments prior to completion of the stage, for example claiming payment for 75% of the enclosed stage progress claim,[119] claimed at invoice number MOUPC06A of 15 September 2015.[120]
[115] T2-8 L39.
[116] T2-9 L3.
[117] T2-10 L15.
[118] T2-10 L46.
[119] T2-11 L34; Ex 2 p 424.
[120] Ms Mousa’s notes of the matters discussed at the meeting became Ex 22.
Dr Mousa actually broke down at one point in the meeting when expressing his concerns about the prolonged stress caused to his wife and his desire for the house to be finally finished.[121] He and Claire Mousa requested the provision of an array of information, including about the variations and items included in the fixed price of the house. Dr Mousa reiterated the contents of the information he was seeking in an email of 5 October 2015 to Mr Vukobratich.[122] Dr Mousa completed that email by saying:
“If you cannot adhere to any of our requests this has to be communicated with me directly. I do not wish to delay the works for any current valid variations that may be due in the next 2 weeks however will not be paying them until this matter is resolved. Hopefully this can be resolved without the need for any further action.”
[121] T4-45 L2.
[122] Ex 3 pp 616-617.
Dr Mousa subsequently received a telephone call from Suzie Scoines indicating a box of papers would be delivered to him. She also advised it would include the documenting of variation 2, documents pertaining to it having been found in archives.[123] The box was delivered and the Mousas later went through its content.[124] It included further, seemingly dated, editions of Margaret’s spreadsheet.[125]
[123] T2-18 L17.
[124] T4-50 L3.
[125] Ex 2 pp 367, 368.
The box included a letter of 17 October 2015 to Dr and Mrs Mousa from Mr Vukobratich, addressing various of the concerns raised by Dr Mousa.[126] In respect of variations 2 and 6, regarding the variation to earthworks and the back patio, the letter asserted that when onsite digging began on the slope section of the building site on 9 July 2014, unstable soil, not revealed in the Dirt Professionals’ soil test, had been encountered. The letter emphasised that Mrs Mousa had agreed at the on-site meeting to moving the house forward 1.5 metres and that in the ensuing discussion about possible additional cost, Mr Vukobratich had offered and Mrs Mousa had accepted that the additional work would be performed with no builder’s margin. It was explained a spreadsheet itemising the additional cost invoices had been provided to Mrs Mousa when she allegedly signed a confirmation of variation on 27 August 2014. In referring to the confirmation of variation document the letter said:
“Confirmation of Variation dated “27/03/14”. This has been signed by Margaret. The date on this form however is a mistake, and should have actually read “27/08/14”. Margaret and Kamiila who signed the form will be able to confirm that. The form also attaches the spreadsheet dated 22/08/14 showing the cost of variations to date of $165,488.76.”[127]
[126] Ex 3 pp 633-635.
[127] Ex 3 p 634.
The apparent photocopy of the confirmation of variation document supplied with the letter identifies a total cost of $165,488.76.[128] The total identified in the spreadsheet is $153,943.03.[129] Neither total appears to coincide immediately with any variation claim totals. That oddity and the anomaly that the confirmation of variation bears the date 27 March 2014 – that is, a date before the building contract was signed – are not the only circumstances casting a cloud over the pedigree of the alleged confirmation of variation document.
[128] Ex 2 p 229; T4-52 L3.
[129] Ex 2 p 230.
Mrs Mousa testified that, while the signature in the “owner’s authorisation” section of the document looks like her signature, she did recall ever having seen the document before it arrived in the box and she did not sign the document.[130] Mrs Mousa’s evidence that she had not seen the document until it arrived in the box seemed more assured than her assertion it was not her signature on the document. When her evidence is considered in combination with that of a former employee of the company, Kamiila Bielski, it appears likely that the signature is an accurate representation of Mrs Mousa’s signature but that it was endorsed on the document as a result of dishonest means.
[130] T3-59 L27 – T3-60 L10.
Ms Bielski, the company contracts administrator who signed the confirmation of variation document, testified she produced it under instructions from Mr Vukobratich. Her testimony on the topic was as follows:
“Maybe if you could cast your mind back to those instructions. What was it that Mark said to you at the time he gave you those instructions and if you can remember the words spoken?--- I was basically given a spreadsheet at the time. That’s how variations were – information was passed on to me to raise a variation. So I did raise this variation, and I did – I signed it, and that’s it. There’s things that happened after it that I recall about this document. …
What’s the things that happened after it that you can recall?--- I was asked to sign the document falsely as the client.
And who asked you to do that?--- Mark Vukobratich.
And what did you say in response to that?--- Without swearing, I said I would not sign it, and it was – he said that we are losing money and need to recover money. So once I produced the document, I was then, later on, asked to – to forge the signature, which I flat out refused to.
Sorry. And which signature are you talking about?--- The client.”[131] (emphasis added)
[131] T3-26 LL1-20.
Ms Bielski’s evidence appeared credible and reliable. She had worked for the company from November 2013 to January 2015.[132] Although her evidence seemed to assume the relevant events occurred as at the date on the document, namely 27 March 2014, or within a few months after that,[133] they likely occurred later in the year once it had become apparent the earthworks were going to be more expensive than contemplated under the contract. However, the explanation in Mr Vukobratich’s letter that the document should have been dated 27 August 2014 – an explanation implying a mere misnumbering of the month (“03” rather than ‘08”) – is implausible. For instance, a month after that date, on 25 September 2014, Ms Bielski emailed Margaret Mousa at Mr Vukobratich’s instruction,[134] saying:
“Mark has asked me to send you a courtesy email advising that your earthworks are currently over the allowance by $16,307.56.
This is due to hitting rock and having to go further in depth. Please feel free to contact me if you would like to further discuss this.”[135]
The description of and explanation for the earthworks being “currently over the allowance” does not rest comfortably with the notion that Mrs Mousa had agreed to a variation involving a budgetary blow-out of $165,488.76 just one month earlier.
[132] T3-23 L1.
[133] T3-31 L17.
[134] T3-24 L27.
[135] Ex 3 p 507.
Claire and David Mousa met again with Mr Vukobratich and some of his staff on 29 October 2015. They discussed amounts in Margaret’s spreadsheet, particularly the $81,167.73 described as “Additions to main price” and endorsed “As per agreement with MV”. Mr Vukobratich indicated he would refund that money or part of it.[136] A credit adjustment note, dated 30 October 2015 and described as “Sub-contractors builders margin and overcharge of insurances on pool”, for -$74,507.48 was issued but did not actually result in the physical receipt of a cheque as had been sought by Ms Mousa.[137]
[136] T4-54 L28.
[137] Ex 2 p 435; T4-56 L31; T4-67 L44.
Dr Mousa and his daughter Claire met with Mr Vukobratich on 6 November 2015, further discussing the points of difference between them.[138] Mr Vukobratich generally maintained the position he had taken in his letter of 17 October. Of the additional earthworks said to have been occasioned by a latent condition Dr Mousa complained no opportunity had been extended for the Mousas to reconsider the project or change the design so as to avoid incurring such a large additional cost.[139] On the specific topic of the aforementioned confirmation of variation document for $165,488.76 Mr Vukobratich denied Dr Mousa’s suggestion that the document was a fraudulent piece of paper,[140] volunteering that he did not “cut and paste”.[141] Mr Vukobratich offered to provide duplicate copies of the document to demonstrate it was genuine but he did not make good on that offer and such duplicates have never been forthcoming.[142] Dr Mousa also complained that ceiling heights were lower than specifications, despite his emphasis at the outset of his desire for high ceilings.[143]
[138] Noted upon Ex 23.
[139] T4-58 L45 – T4-59 L3.
[140] T2-32 L18.
[141] T2-32 L5; T4-59 L38.
[142] T2-33 L11.
[143] T4-60 LL24-30.
On 11 November 2015 the company emailed Mrs Mousa and David Mousa noting it was awaiting responses from them about various design selections and decisions and that the delayed responses from the Mousas were “beginning to cause time delays”.[144]
[144] Ex 3 p 644.
On 12 November 2015 Dr Mousa emailed the company, complaining that they had been to the house many times in the preceding week and it did not appear that any material work was being progressed, apart from some gyprocking.[145] The email particularly highlighted the lack of progress with waterproofing and tiling. The company provided a response on the same date, asserting the work was progressing but explaining how the progress of some work was sequentially dependent upon the completion of other work. The response noted the completion of such other work was being delayed because the company was waiting for responses from David Mousa about design configuration.[146]
[145] Ex 3 pp 674-675.
[146] Ex 3 p 654.
On 13 November 2015 the Mousas had a without prejudice meeting with Mr Vukobratich.[147] On 16 November 2015 a solicitor of Preston Law wrote to the Mousas, explaining that firm had been instructed to act regarding their construction dispute and was seeking instructions regarding the matters in dispute.[148]
[147] T2-39 L30.
[148] Ex 3 p 660.
Another controversy arising in this era related to a suspended ceiling which had been installed beneath the concrete slab above the ground floor theatre room to leave space for cabling for the home theatre system.[149] Dr Mousa expressed concern that inadequate allowance had been made for the downstairs ceiling height, having the consequence that, with the addition of the suspended ceiling, the ceiling was too low. He demanded an allowance of $50,000 as compensation for the problem.[150] On 21 November 2015 Dr Mousa and his sons David, Paul and James, met on site with Mr Vukobratich and others to discuss the issue.[151] By the time of the meeting the company had begun removing the suspended ceiling, a source of surprise to Dr Mousa when he and his sons arrived there. When he asked what was going on he was informed the company was going to drill holes in the slab above in order to accommodate the cabling and other concealed theatre installations.[152] Dr Mousa expressed his dismay that they had initiated that process without consultation. Nothing was resolved. The ceiling height is about half a metre (514mm) lower than it should have been according to the specifications.[153]
[149] Ex 3 pp 661-662B.
[150] T2-73 LL30-43.
[151] T2-40 LL20-45.
[152] T2-43 L18; T4-85 L21.
[153] Ex 7 p 19.
On 24 November 2015 Suzie Scoines of the company emailed the Mousas a quotation of $14,672.83 for extra tile labour, seeking the Mousas’ approval for the variation “asap to enable tiling to commence”.[154] The need for the variation appears to have arisen because of changes sought by the Mousas, for example changing the proposed timber kitchen floor to concrete and tiles and the ground floor from Axolotl to tiles, although Mrs Mousa did not accept some of those changes were material.[155] David Mousa responded on his parents’ behalf on the same date, indicating new variations or quotes would not be considered “as there is currently a matter being handled between two lawyers”.[156] The company responded to the effect a stalemate had been reached because without the approval tiling could not commence and work would come to a standstill.[157] The Mousas were not obliged to agree to the proposed variation so their absence of agreement was not a legitimate reason to assert the works would stop.
[154] Ex 3 pp 663-665.
[155] Ex 3 p 664; T2-78 L47 – T2-79 L23; T4-25 LL25-33.
[156] Ex 3 p 666B; T4-87 LL19-38.
[157] Ex 3 p 666.
On 4 December 2015 the company’s solicitor wrote to the Mousas’ solicitor, referring to recent events, asserting that the Mousas’ recent statements and actions were acts of repudiation and asserting their client was entitled to terminate the building contract.[158] The letter included a complaint that on the afternoon of 24 November 2015 David and James Mousa had abused and intimidated staff at the company’s office and defamed Mr Vukobratich.[159] It was alleged that on the same date David Mousa had told the company’s Mr Barnett that they would close the job down and wanted him to take over construction. While David Mousa agreed in his testimony at trial that there had, around that era, been an argument when he and his brother had attended the office,[160] none of the testimony at trial supported the allegations made about that occasion in the solicitor’s letter of 4 December 2015.[161]
[158] Ex 3 pp 668-670.
[159] Ex 3 pp 669-670.
[160] T4-85 L30 – T4-86 L33.
[161] T4-94 L18 – T4-95 L22.
On 7 December 2015 the Mousas’ solicitors wrote to the company’s solicitors, outlining various complaints culminating in the following summary:
“Your client has failed to calculate prime cost items and provisional sum items with reasonable care and skill (clause 10 of the general conditions of contract).
Your client has failed to comply with the variations procedure (clause 12 of the general conditions of contract).
Your client has failed to comply with the procedure for variations for latent conditions (clause 14 of the general conditions of contract).
Your client has failed to construct the dwelling in an appropriate and skilful way, with reasonable care and skill and in accordance with plans and specifications or in a competent manner (clauses 10 and 20 of the general conditions of contract).
Your client has repeatedly engaged in dishonest and deceitful conduct.
Your client has engaged in fraudulent conduct.”[162]
[162] Ex 3 p 676.
The letter denied the Mousas had breached or repudiated the contract. The letter gave notice that the Mousas elected to terminate the contract at common law on grounds including breach of implied conditions of performance of the contract by legal means and in good faith, and repudiation, due to the seriousness and totality of the company’s breaches of the contract.[163]
Claim for breach of statutory warranty
[163] Ex 3 pp 676-677.
Nature of the claim
The Mousas claim damages for breach of statutory warranty as against the company in the amount of $1,571,024.40, being the cost allegedly attributable to the rectification of alleged defects.
The building contract was a regulated contract under the Domestic Building Contract Act 2000 (Qld).[164] At the time of the parties entering into both the preliminary agreement and the contract that Act relevantly provided:
[164] Per s 9.
“Part 4 Warranties
Division 1 Incorporation of warranties41 Implied warranties
(1) The warranties mentioned in division 2 are part of every regulated contract.
(2) A warranty mentioned in a section of division 3 is part of each regulated contract that is a contract of the type to which the section applies.
Division 2 Implied warranties for all contracts
…43 Compliance with legal requirements
The building contractor warrants the subject work will be carried out in accordance with all relevant laws and legal requirements, including, for example, the Building Act 1975.
44 Standard of work and exercise of care and skill
The building contractor warrants the subject work will be carried out—
(a) in an appropriate and skilful way; and
(b) with reasonable care and skill.
Division 3 Implied warranties for particular contracts
45 Adherence to plans and specifications
(1) This section applies to a regulated contract if plans and specifications form part of the contract.
(2) The building contractor warrants the subject work will be carried out in accordance with the plans and specifications.
…
48 Calculation of provisional sums
(1) This section applies to a regulated contract providing for a provisional sum.
(2) The building contractor warrants the provisional sum has been calculated with reasonable care and skill, having regard to all the information reasonably available when the contract is entered into (including information about the nature and location of the building site).”[165]
[165] On the repeal of the Domestic Building Contracts Act on 1 July 2015 like warranty provisions were incorporated into Schedule 1B of the Queensland Building and Construction Commission Act 1991 (Qld). Reliance upon the warranties was pleaded at paragraph 32 of the third amended statement of claim (the particulars of that paragraph failed to specifically mention s 48 but the terms of s 48 are nonetheless included within the words of the pleaded paragraph).
The wording of the aforementioned warranties does not qualify their longevity by reference to whether the regulated contract terminates. The only qualification on their longevity in the Act is s 51’s six and a half year limitation period on the right to institute proceedings for breach.
The Mousas plead an entitlement to damages for breach of warranty on the basis that they have suffered or will suffer loss and damage, being the cost of carrying out and completing remedial work to the house.[166] The pleaded premises in support of that pleading are that the company breached the statutory warranties and, because of the termination of the building contract, the Mousas will be required to engage an alternative builder to carry out and complete the works to the standard that was required under the building contract.[167]
[166] Third amended statement of claim [79]-[80].
[167] Third amended statement of claim [65], [69].
As to the nature of the breach of statutory warranties the Mousas plead:
“64. The work performed by the first defendant in construction of the house is
(a) Defective, and requires rectification by way of remediation work …; and/or
(b) below the reasonable standard of expectation of quality of work and level of finishes ordinarily associated with a prestige high-end dwelling…”[168]
[168] The pleading included particulars referred to in annexures to the third amended statement of claim and in the expert reports of George Thirkell and John Palmer.
The above pleading’s reference to a “quality of work and level of finishes ordinarily associated with a prestige high-end dwelling” introduces a form of words (an “inaccurate shorthand descriptor”) not found in either the contract or the statutory warranties. The relevant statutory standard of expectation is that dictated by the words of the statutory warranties – the most obvious of which is that work will be carried out “in an appropriate and skilful way” and “with reasonable care and skill”. The use of the inaccurate shorthand descriptor created a false distraction at trial because it or similar phrases, such as “quality high-value dwelling”, were adopted in some of the expert evidence. This prompted a submission that the expert opinion was valueless because it applied the wrong test.
It is as well to dispense with that distraction now. The use of the inaccurate shorthand descriptor appears to have been an unnecessary attempt to give context to the company’s obligation, pursuant to the statutory warranty, to carry out work in an appropriate and skilful way with reasonable care and skill. The author of the pleading presumably inferred that matters of degree might be involved in assessing expectations of what might be appropriate or reasonable in the context of a home being built for over two million dollars, as compared say to a project home being built for several hundred thousand dollars. That may be so but only by reason of the probability that some of the work required to construct the former may be more demanding than that required to construct the latter.
It is the specific nature of the work to be performed, not the intended salubriousness of the house, which provides the context in which the expected standards of appropriateness and reasonableness are applied. Despite their use of an inaccurate shorthand descriptor it is apparent from the nature of the below discussed defects and poor quality work singled out for criticism by the experts that it was work which was not performed in an appropriate and skilful way with reasonable care and skill, that is, it was work which did not meet the statutory expectation. Counsel for Mr Vukobratich was invited to make good his complaint by identifying, amidst the various works criticised by expert evidence using the shorthand descriptor, any work which he submitted did meet the statutory expectation. He did not take up that invitation.
The expert evidence generally
The only expert evidence in the case was adduced by the plaintiffs. The defendants did not go into evidence.
The three expert witnesses were:
1.George Thirkell, an experienced civil and structural engineer;
2.John Palmer, an expert in construction waterproofing;
3.Scott Pearson, a quantity surveyor.
Mr Thirkell’s reports[169] identified wide ranging defects, detailing the ways in which the defective works failed to comply with the National Construction Code’s (“NCC”) Building Code of Australia (“BCA”), a code given force in the Building Act 1975 (Qld)[170], and Australian Standards (“AS”), which are captured in the BCA.[171] He also explained the nature of rectification and completion works required.[172]
[169] Ex 7, 8, 9, 24.
[170] See, eg, s 30.
[171] Ex 24, the updated Appendix A to his first report tracks these in summary; they are elaborated upon in his reports.
[172] Again, summarised in Ex 24.
Mr Palmer’s evidence elaborated upon the serious waterproofing problems at the premises, including the water penetration into the ground level and into the surrounds of windows and doors in the dwelling. He also costed the rectification of defects he had found.
Mr Pearson costed the items of work identified from the evidence of Mr Thirkell and Mr Palmer as requiring rectification and completion.
Each of the experts was well qualified and experienced and provided apparently credible and reliable evidence. Further to the professional analysis of the rectification and completion requirements the supporting photographic evidence also demonstrated the experts’ opinions were well founded.
There was, inevitably, variation as between the costings of Mr Palmer and Mr Pearson regarding waterproofing rectification. Little argument was advanced by the Mousas as to why I ought to prefer the opinion of one to the other.[173] At best it was that Mr Palmer’s costings ought be favoured over Mr Pearson’s on the basis Mr Palmer performs the type of work referred to.[174] However, it is Mr Pearson whose primary expertise is in costing. I favour his costings. That is not to suggest Mr Palmer lacks expertise in his field and merely reflects my preference for the costings of an expert whose field of primary expertise lies in costing.
[173] Plaintiff’s written submissions p 37 [189].
[174] T7-33 L32 – T7-35 L2.
I accept Mr Pearson’s costing of required works is reasonable and accords with costs norms in the building industry for performing work of the kind identified.
It is convenient to approach the evidence by reference to each of the items which the Mousas complain require rectification. In each instance that will require determination of whether the state of the works associated with each item evidences a breach of warranty so as to require rectification and what the reasonable cost of that rectification ought be. I will, for simplicity, adopt the same work item subsets as adopted by Mr Pearson.
Mr Pearson divided some of his descriptions of those works into one group, described as “defect 1”, “defect 2”, et cetera, and divided the rest into another group, described as “reasonable expectation A”, “reasonable expectation B”, et cetera.[175] His use of numbered defects was for work which he regarded as defective or non-compliant, and his use of lettered reasonable expectations was for work which he considered fell below a reasonable expectation for work ordinarily associated with a high-end dwelling. To avoid creating more confusion I will use his system of numbering and lettering works, except that I will refer to all as defects (use of the term “reasonable expectation” might perpetuate the distraction already caused by the aforementioned inaccurate shorthand descriptor).
[175] Ex 10. Also see Ex 25 which added defects 17 and 18.
In turning to each numbered or lettered defect what will be considered is whether the state of the allegedly defective work evidences a breach of statutory warranty, for instance whether the state of the work compels the inference it was not carried out in an appropriate and skilful way with reasonable care and skill. As part of that process it is necessary to bear in mind that on-site work ceased prior to completion, that is, the apparently defective state of some work may merely be because it was incomplete and not because such work as was performed was in breach of the statutory warranty. This is not a realistic possibility in respect of many of the defects discussed below but will be referred to where it does arise as a realistic possibility.
The accumulation of monetary amounts identified below is recorded in Appendix A to these reasons.
Defect 1 – Groundwater seepage
Much of the ground level was cut into the slope with the consequence that all of its western side and much of its northern and southern sides serve as retaining walls. A substantial and convincing body of evidence shows that groundwater seeps through those walls, impacting their structural integrity,[176] damaging the plasterboard lining on their interior and leaving the ground level uninhabitable.[177] The prospect that a material source of that ingress is the incomplete state of the construction project, such as the unsealed atrium glass wall upstairs, is untenable on the whole of the evidence.[178] The conclusion is inescapable that water is penetrating from outside through the earth facing ground level retaining walls.
[176] Ex 7 p 34.
[177] Ex 7 p 21.
[178] Eg T5-40 L30 – T5-43 L5.
It is elementary that the walls of a dwelling should not leak. Where the walls of a dwelling are at or below ground level, it is self-evident that they must be constructed, treated, drained and backfilled in such a way as to ensure the groundwater does not penetrate the walls. The fact that the ground level walls of this dwelling leak makes it self-evident there has been a failure to carry out the construction work connected with it in an appropriate and skilful way with reasonable care and skill. Further, the waterproofing and groundwater diversion measures were inadequate and there was a failure to conform with the NCC’s BCA Part 2.2 Damp and Waterproofing.
There was a substantial body of evidence adduced regarding the manner, location and adequacy of waterproofing applied to the earth facing side of the retaining walls. This included evidence from the Mr Palmer, who considered a waterproofing membrane must not have been installed or installed properly behind the ground level retaining walls and or that such agricultural drainage as was installed to the rear of the walls must have been poorly constructed and ineffective. The importance of properly draining the rear of the walls was heightened by a structural configuration in the middle of the wall which is inset to the east and would tend to trap water.[179]
[179] Eg Ex 6 p 35.
Mr Brett Holgerson, the waterproofing contractor who performed work during construction, testified he applied waterproofing coatings and membrane and corflute board – to protect the surface from breach by stones in backfill – in various locations as directed. It is tolerably clear he performed waterproofing work on the ground level retaining walls,[180] not the undercroft retaining walls. Photographic evidence of the latter during the construction era suggests no waterproofing.[181] Significantly, the waterproofing work at ground level was not applied to the side walls abutting earth under both sets of concrete stairs.[182] This left the stairs and the undrained earth under them as ready sources of water ingress.[183]
[180] Marked by him in Ex 15.
[181] Ex 7 pp 33-34.
[182] Ex 15 suggests he waterproofed the stair walls on the stair sides furthest from the house.
[183] T3-15 L45; Ex 7 p 31.
It was difficult, given the lapse of time, for Mr Holgerson to relate the location of all of his work with precision. He was not to know whether the height at which he on instruction ceased the waterproofing matched the height at which wall surface would ultimately be above ground and not vulnerable to groundwater. Photographic evidence suggests that in the end result the waterproofing did not reach high enough.[184] Even assuming such waterproofing as was applied was applied with reasonable skill, a possible explanation for water ingress is that the retaining walls were not waterproofed far enough towards and past the edge of their reach of eventual contact against earth.
[184] Eg Ex 6 p73.
Other explanations for the apparent failure of waterproofing are that it may have been compromised by the presence of rain water and puddling prior to drying and that the corfluting and membrane may have been penetrated by stones or other rubble if the backfill process was not performed with proper care and skill. There is also evidence suggesting the backfill may have been applied before there was time for the waterproofing to fully cure.[185]
[185] Ex 14 p 7.
The location of the water ingress on the earth side of the retaining walls is largely inaccessible, having the consequence that it is impossible to look and see precisely what combination of the possible causes is in play. Nonetheless the severe nature of the water ingress speaks for itself. Whichever way the individual aspects of the waterproofing, drainage installation and backfilling were performed it must be that their overall execution and co-ordination was not performed in an appropriate and skilful way with reasonable care and skill.
The rectification works required to remedy this defect[186] are:
[186] See, eg, Ex 7 p 29 et seq.
· removal of existing plasterboard linings on the interior of the retaining walls;
· demolition of concrete stairs to enable access to apply waterproof membrane to otherwise inaccessible walls and demolish ground level floor slab to enable drainage trenches to be formed and provide for satisfactory waterproof details;
· the installation of additional drainage and connection to a new detention tank in the undercroft level, so as to allow groundwater to be dispersed appropriately;
· application of a waterproof membrane system internally to all retaining walls, installation of new interior plasterboard linings, and creation of a drainage cavity between the block wall and the plasterboard lining;
· installation of a drain in the abovementioned cavity to divert any wall that may enter through the rectified waterproofed wall;
· the amendment of door and window openings in consequence of building the cavity wall and reinstating the ground level slab at a lower level;
· installation of the new concrete stairs and ground level slab;
· alteration of pavement and trench drains to ensure surface water collection is diverted rather than entering behind the retaining wall.
Mr Pearson opines the cost of such rectification works would be $223,642 exclusive of GST.
Defect 2 – Retaining wall structural design life insufficient at undercroft levels 1 and 2
Water also seeps through the retaining walls of undercroft levels 1 and 2.[187]
[187] Ex 7 p 21.
The undercroft retaining walls were not protected by a waterproofing membrane or correctly placed drainage of groundwater.[188] It is a requirement of AS4678 Earth Retaining Structures that the undercroft should have had a design life of at least 60 years. While there are no residential spaces abutting the retaining walls, the undercrofts serve as structural support beneath the dwelling. In the absence of further structural support, the undercroft masonry blockwork and reinforcement will quickly deteriorate and corrode.[189] Quite apart from the requirement of the Standards, it is elementary that the integrity of the structural foundations of a dwelling built on a slope should be adequately protected. That this did not occur here bespeaks a failure to carry out the work in an appropriate and skilful way with reasonable care and skill.
[188] Eg Ex 6 p 75.
[189] Ex 7 p 34.
The rectification of this defect requires the strengthening of the undercroft level 1 and 2 retaining walls with new buttress columns, essentially providing a further structural support to provide the design longevity required. Mr Pearson opines the cost of this rectification will be $42,268 exclusive of GST.
Defect 3 – Defect number not used
Defect 4 – Groundwater collection at undercroft levels
This defect is really a component of defect 2 above in that the water seepage there mentioned is causing groundwater to collect in the undercrofts. As already discussed, the undercroft retaining walls should have been protected by a waterproofing membrane and correctly placed drainage of groundwater. The groundwater collection is a product of the same failure to carry out the works in an appropriate and skilful way with reasonable care and skill discussed in respect of defect 2. It needs to be rectified to avoid the health hazards occasioned by pooling of water on the concrete floors of the undercrofts.
The rectification work required is the provision of screeds to provide surface falls to the undercroft levels, the cutting of a hole for ventilation and drainage in order to allow water to collect in a gutter on the outside of the undercroft level 1 wall, and the provision of plumbing in turn to the detention tank.
Mr Pearson opines the cost of this rectification work will be $19,511 exclusive of GST.
Defect 5 – External doors and windows not weathertight
Rainwater seeps through the external windows and doors, causing water damage to the plasterboard linings.
The external doors and windows were not installed in accordance with the manufacturer’s details and industry standards. Door thresholds are not flush. Fully sealed rebates have not been provided. The installations do not conform with BCA Part 2.2 Damp and Waterproofing. They are not weathertight.[190] These are all manifestations of warranty breaches. Such extensive failings make it obvious the work could not have been performed in an appropriate and skilful way with reasonable care and skill.
[190] Ex 7 p 22.
The rectification works required are the removal of aluminium framed doors and windows, the cutting of rebates into the masonry wall, the provision of a waterproof membrane as nominated by the glazing contractor and the installation of new doors and windows including the application of appropriate seals and water stops. Mr Pearson opined the cost of this rectification work, if the existing doors and windows are replaced rather than re-used, will be $323,116 exclusive of GST. If they are re-used the cost would reduce to $160,000 exclusive of GST.[191] No evidence has been advanced to suggest they cannot be re-used so I will allow the cost based on such re-use.
[191] T5-19 L32; compare Ex 10 defect 5 to Ex 25.
Defect 6 – Level 1 and 2 walls damaged by rainwater ingress
The walls have been damaged by the ingress of rainwater in connection with defect 5 discussed above. The need for rectification is a consequence of the warranty breaches identified in connection with that defect. Mr Vukobratich’s counsel contended it was a consequence of the works being incomplete. It is conceivable a proportion of the damage may not have occurred so quickly if the works had been completed. However, in the long run, even if the company completed the construction, I am satisfied the deficiencies above were of such a nature as to have made all of the damage inevitable in time.
The rectification work required is the removal of the water damaged plasterboard lining on levels 1 and 2, and replacement of it with new plasterboard. Mr Pearson opines the cost of this rectification work will be $2,130 exclusive of GST.
Defect 7 – Atrium glass wall glazing cracked and not sealed
The glazed curtain glass wall spanning the middle-eastern side wall of levels 1 and 2 – the atrium wall – is not sealed. Further, one of its panels is cracked where it appears the spider fixings have not been tightened correctly.[192] Water penetrates through the glass wall.
[192] Ex 7 p 23.
The fact that the glass wall is not sealed and thus leaks water constitutes a failure to comply with NCC BCA Part 2.2 Damp and Waterproofing. Moreover, it is elementary that windows of a residence should not leak water and instead should be properly sealed. It is self-evident that the builder of a new building ought ensure window panels are not cracked. That having been said, it is conceivable that in the building of a residence some accidents may occur, for example, with an installed window being cracked. Whether this defect and the failure to seal constitutes a breach of the statutory warranty depends upon timing. That is, the failure to have installed sealant and the failure to have replaced the cracked window might merely be a symptom of the works having been interrupted and thus be a consequence of the works being incomplete, as distinct from them having been completed without reasonable care and skill. The evidence of the relevant timing is insufficient on this point and thus inadequate to conclude a breach of warranty.
Accordingly, I will not allow the required work, which Pearson opined cost $10,178 exclusive of GST as rectification work. I will however allow it later in these reasons as required completion work.
Defect 8 – No movement joints in walls at undercroft level 1
The undercroft level 1 slab does not have a movement joint between the 200 and 300 series blockwork.
The absence of such a movement joint constitutes a failure to conform with Australian Standard 3700 Masonry Structures. This constitutes a breach of the warranty to carry out the works in accordance with the legal requirements. As earlier mentioned, the standards are captured by the BCA which is in turn applied by the Building Act 1975.
The rectification work required is cutting and sealing movement joints. Mr Pearson opines the cost of this rectification work would be $1,650 exclusive of GST.
Defect 9 – Concrete pool cracking
Crack lines are apparent underneath the pool and water is leaking through the pool.
It is self-evident that the base of a pool of a domestic premises should be watertight. The very fact of the crack line and leaking bespeaks a failure to have carried out the works in an appropriate and skilful way with reasonable care and skill. Further, it appears there was non-compliance with AS 2783 Use of Reinforced Concrete for Small Swimming Pools and its application of AS 23600 and AS 3735 Concrete Structures Retaining Liquids.[193]
[193] Ex 7 p 28.
The rectification work required is the installation of a waterproof membrane to the inside of the pool and to the wet edge so as to provide a watertight base sufficient to undertake the pool lining works. Mr Pearson opines the cost of the rectification work will be $21,195 exclusive of GST.
Defect 10 – Roof not compliant with Building Code
Roof cladding has not been installed in accordance with NCC BCA 3.5.1 and AS1562.1.[194] The roof batons have not been sufficiently lapped. Roof beams are not adequately fixed at columns. The roof sheeting overhangs. The roof insulation has been installed upside down.[195] There are insufficient rainwater heads and downpipes and the box gutter is doglegged. The box gutters and downpipes do not comply with NCC BCA part 3.5.2 or AS3500.5 and are defective.[196]
[194] Ex 7 p 37.
[195] Ex 7 p 25.
[196] Ex 7 pp 22, 25.
Such an array of shortcomings in performing the core task of properly roofing a dwelling compels the conclusion the works were not carried out in an appropriate and skilful way with reasonable care and skill.
The rectification work required is:
· removal of all roofing sheeting, box gutters and insulation;
· the making of alterations and reinforcements to the roof structural members;
· the installation of new batons, insulation, roof decking, box gutter and additional rainwater heads and downpipes.
Mr Pearson opines the cost of the rectification work will be $116,025 exclusive of GST.
Defect 11 – Slab founded on inadequate material
It is not in issue that the company was a licensed contractor and that its appropriately licensed nominee was its sole director, Mr Vukobratich. It follows that, pursuant to s 43, he had a duty to ensure that the building work was personally supervised by him or another relevantly licenced person and, pursuant to s 43A, a duty to ensure that the building work was adequately supervised. The company had the same statutory duties.
The Mousas contend Mr Vukobratich failed in his statutory duties. On the face of the above quoted sections, if there were such a failing it would only expose Mr Vukobratich to a fine. The Mousas’ case, however, founded in this statutory duty to ensure personal and adequate supervision, is that Mr Vukobratich owed a duty of care in negligence to the Mousas, which he breached.
There was little informative evidence on the issue of whether the building works were personally supervised by Mr Vukobratich or a relevantly licenced person. However, the above discussed evidence of the extensive and significant defective building work compels the inference that such supervision of the building work as did occur must have been inadequate. If there had been adequate supervision there would not have been such defective work, that is, the failure was a necessary condition of the occurrence of the harm, per s 11 Civil Liability Act 2003 (Qld). It follows that, if Mr Vukobratich owed a duty of adequate supervision in negligence to the Mousas, I would hold that he breached that duty and that such breach was causative of a loss likely equating to that already assessed in respect of the company’s breach of statutory warranty. However, as will become apparent, I am unable to conclude it is appropriate to extend the scope of Mr Vukobratich’s liability for a breach of his statutory duty so as to impose a duty upon him in negligence to the Mousas.
It ought be noted at the outset that the creation of the aforementioned statutory duty merely reflects a policy choice of the Legislature and does not of itself extend the scope of the duty so as to also ground in negligence.[281] As to whether its scope should be so extended, something the Legislature refrained from doing, s 11 Civil Liability Act 2003 (Qld) deals so generally with deciding scope of liability as to be of no present assistance and the parties’ submissions necessarily drew upon case law.
None of the cases referred to were analogous to the Mousas’, heralding the novel nature of the Mousas’ claim against Mr Vukobratich.
Particular reliance was placed upon a line of High Court authority culminating in Brookfield Multiplex Ltd v Owners.[282] In that matter the appellant company, Brookfield, built a mixed-use retail and residential building pursuant to a contract with a property developer. The developer sold lots in the building under a strata scheme. An owners’ corporation had been created on registration of the strata plan by the property developer and held the building’s common property as agent for the lot owners. Latent defects in the common property later became apparent and the owners’ corporation sued Brookfield, seeking recovery of its loss and damage in negligence. At issue was whether Brookfield owed the owners’ corporation a duty of care to avoid loss to it, resulting from latent defects. The High Court concluded it did not.
[282] (2014) 254 CLR 185.
The earlier relevant High Court cases discussed in Brookfield Multiplex were Bryan v Maloney[283] and Woolcock Street Investments Pty Ltd v CDG Pty Ltd.[284] They were even less analogous than Brookfield Multiplex to the present case.Their focus was upon whether a company contracted to build a building owed a duty in negligence to avoid economic loss to subsequent purchasers of the property. Here the focus is upon what, if any, duty is owed to avoid economic loss to the contracting owner, not a subsequent purchaser, by an individual who is not the contracting building company.
[283] (1985) 182 CLR 609.
[284] (2004) 216 CLR 515.
In Brookfield Multiplex, French CJ explained there has been a shift of emphasis from proximity to vulnerability as the most material determinant of the existence of a duty of care for pure economic loss. His Honour explained the relevant vulnerability was “the plaintiff’s incapacity or limited capacity to take steps to protect itself from economic loss arising out of the defendant’s conduct”.[285] He reiterated the authorities’ emphasis on considering the salient features in the individual case under consideration:
“Consistently with the approach taken in Woolcock and, before that, in Bryan v Maloney, the determination of this appeal requires consideration of the salient features of the relationship between the Corporation and Brookfield, including whether Brookfield owed Chelsea a relevant duty of care and whether the Corporation was vulnerable in the sense discussed above.”[286]
[285] (2014) 254 CLR 185, 201.
[286] Ibid 203-204.
In the present case Mr Vukobratich was not a party to the building contract but that does not of itself preclude the existence of a duty of care owed by him to the Mousas under the law of tort.[287] For instance, in concluding there was no duty of care in Brookfield Multiplex, Hayne and Keiffel JJ observed:
“The conclusion does not depend, however, upon making any a priori assumption about the proper provinces of the law of contract and the law of tort. As McHugh J pointed out in Woolcock Street, “[t]he decisions in Hedley Byrne, Donahue, White and Hill make it difficult to argue that claims in negligence for pure economic loss should be excluded merely because such claims may outflank or undermine fundamental doctrines of the law of contract”. And as McHugh J also observed, this court rejected in Bryan v Maloney “the notion that in Australia contract and tort was so nearly compartmentalised that it would be an error to give a remedy in tort for economic loss”.”[288] (citations omitted)
[287] Bryan v Maloney (1985) 182 CLR 609, 619-620.
[288] Brookfield MultiplexLtd v Owners (2014) 254 CLR 185, 211; also see the observations of McHugh J on this point in Perre v Apand Pty Ltd (1999) 198 CLR 180, 227-228.
However, the fact that the construction and warranties regarding its quality were the subject of a contract entered into by the Mousas is a very important salient feature to consider in weighing up their vulnerability. The extent of the Mousas’ vulnerability to economic loss arising from defective construction is materially less than that of a plaintiff buying a building sold after its construction.
The latter class of plaintiff has sometimes succeeded in claiming economic loss negligence. For instance, the successful plaintiff in Bryan v Maloney[289] was the third owner of what turned out to have been a house built with inadequate footings. Similarly, the successful plaintiffs in the Victorian Court of Appeal case of Moorabool SC v Taitapanui[290] were the third owners of a house which turned out to have serious structural deficiencies resulting from design inadequacies which ought to have been apparent to the defendant building surveyor who issued the building permit.
[289] (1985) 182 CLR 609.
[290] (2006) 14 VR 55.
The Mousas’ counsel seemingly relied upon Moorabool SC v Taitapanui because it was an instance of success in negligence against a defendant who, like Mr Vukobratich, was not the contracting builder. The point in common between that defendant and Mr Vukobratich is that each had formal obligations they were relied upon to properly discharge in connection with the relevant building and neither was a contracting party. An important point of difference though is that the Taitapanuis did not have the protection of a construction contract and were thus materially more vulnerable than the Mousas.
The Mousas’ counsel highlighted that in Moorabool SC v Taitapanui Maxwell P seemingly did not think it controversial that the original building owner, who presumably would have had contractual protection regarding the quality of construction, would also have been owed a duty of care by the surveyor who approved the building permit despite the building’s obvious design inadequacies.[291] However, that appears to have been the subject of a concession and required no determination (and if it had been, such determination would only have been obiter).[292]
[291] T6-67 L40.
[292] Moorabool SC v Taitapanui (2006) 14 VR 55, 63.
In any event the present case is also different from Moorabool SC v Taitapanui because Mr Vukobratich’s statutory obligations coincided with the obligations of the contracting builder. Moreover, those supervisory obligations are obviously safeguards calculated at achieving the proper construction of the building, the very process which was the subject of the Mousas’ contractual protection.
The latter point exposes as illusory a submission by the Mousas’ counsel that the Mousas could not protect themselves against a failure of adequate supervision by Mr Vukobratich who, as it happens, was the sole director of the company. A failure of adequate supervision, whoever it was by, would only be relevant here if it was adverse to the Mousas, that is, causally connected with a failure to perform the building work properly, resulting in economic loss to them. Adequate supervision is inherently part of the broader process of achieving the proper construction of a building. The Mousas were able to safeguard the proper construction of their building by the mechanism of a building contract. They were not vulnerable to the adverse consequences of a failure of adequate supervision because, regardless of who was specifically responsible for that failure, they could protect themselves from such adverse consequences via the contract.
It is noteworthy that in Brookfield Multiplex the unsuccessful plaintiff owners’ corporation did have the benefit of contractual protection. The Court’s discussion of that feature exposes the determinative difficulty with the argument now advanced for the Mousas. For example, in explaining vulnerability did not turn upon reliance alone Hayne and Keiffel JJ observed:
“The owners corporation was in no better position to check the quality of the builder’s work as it was being done than the original purchaser of the lot. Because these parties could not check the quality of what the builder was doing, it can easily be said that each relied on the builder to do its work properly.
Reliance, in the sense just described, may be a necessary element in demonstrating vulnerability, but it is not a sufficient element. As noted earlier, vulnerability is concerned with the plaintiff’s inability to protect itself from the defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.
It is neither necessary nor profitable to attempt to define what would or would not constitute vulnerability. It is enough to observe that both the developer and the original purchasers made contracts, including the standard contracts, which gave rights to have remedied defects in the common property vested in the owners corporation. The making of contracts which expressly provided for what quality of work was promised demonstrates the ability of the parties to protect against, and denies their vulnerability to any lack of care by the builder in performance of its contractual obligations. It was not suggested that the parties could not protect their own interests.”[293] (emphasis added)
[293] Ibid 210, 211.
The latter observations resound in the present case. Admittedly Brookfield Multiplex involved the consideration of vulnerability in a commercial rather than domestic building setting. However it is elementary, even in the domestic building setting, that the building contract is a means by which owners are well able to protect themselves against economic loss.
Importantly, the authorities do not suggest vulnerability is assessed by reference to whether the steps actually taken to protect against economic loss have in hindsight been effective. If that were so the determination of the existence of an action in negligence would be a lottery. The focus in assessing vulnerability is necessarily upon whether a plaintiff was able to take protective steps. As Crennan, Bell and Keane JJ observed in Brookfield Multiplex:
“Vulnerability, in this field of discourse, is concerned not only with the reasonable foreseeability of loss if reasonable care is not taken by the defendant, but also, and importantly, with the inability of the plaintiff to take steps to protect itself from the risk of loss.”[294] (emphasis added)
[294] Ibid 229.
After then citing passages from Woolcock Street Investments, their Honours noted:
“These passages accord with the primacy of the law of contract in the protection afforded by the common law against unintended harm to economic interests where the particular harm consists of disappointed expectations under a contract. The common law has not developed with a view to altering the allocation of economic risks between parties to a contract by supplementing or supplanting the terms of the contract by duties imposed by the law of tort.”[295]
[295] Ibid 229.
Crennan, Bell and Keane JJ went on to observe that the purchasers of units in Brookfield Multiplex were protected by reason of the developer’s promises in the sales contracts against the risk of economic loss because of defects of quality. They observed:
“It is true that these provisions did not protect purchasers or the respondent against the possibilities that the developer would not be of sufficient substance to meet the liability or that any defect would not be discovered within time to make a claim under the warranty. But as to these possibilities, the appellant had nothing to do with the purchaser’s decision to accept the value of the developer’s warranty or the decision by the purchaser not to investigate for defects. Had a purchaser not been satisfied that its investment was adequately protected in this way, it could have avoided the risk of loss by taking its capital and investing elsewhere.”[296] (emphasis added)
Again, those observations resound here.
[296] Ibid 232.
The unfortunate reality for the Mousas is that they were well able to take steps to protect themselves financially from disappointed expectations. Despite being aware of the apparent inexperience of the company in constructing high end dwellings they made a considered choice to contract with it. They negotiated aspects of the building contract before contenting themselves and deciding to enter into it. They could have but did not insist upon additional contractual protection such as a Director’s guarantee. They could have but chose not to go elsewhere and contract with some other builder. They did as a matter of fact have ample opportunity to protect themselves from the risk of economic loss from inept building work and elected to do so by negotiating and entering into a building contract with the defendant. Their entry into a building contract which expressly provided for, indeed warranted, the quality of promised work demonstrates their ability to protect against and denies their vulnerability to a lack of care in the oversight and execution of the promised work.
It follows the duty in negligence propounded by the Mousas against Mr Vukobratich should not be accepted. The Mousas’ claim as against Mr Vukobratich must be dismissed.
The counterclaim
The company pleaded a counterclaim, seeking payment for unpaid work and loss of profits.
The evidence of what was paid and payable, discussed above and summarised in appendix C, demonstrates that the Mousas had paid more than what was owing when the contract was terminated. No evidence of a loss of profits has been advanced.
Quite apart from the absence of evidence of loss, the premise of the counterclaim has failed.
The pleading of the counterclaim relied upon the company’s denial it had repudiated the contract, characterising the Mousas’ termination letter of 7 December 2015 as a renunciation of the contract entitling the company to have elected to accept that renunciation and bring the contract to an end.
It will be recalled the letter of the Mousas’ solicitor of 7 December complained inter alia that the company had “failed to construct the dwelling in an appropriate and skilful way, with reasonable care and skill and in accordance with plans and specifications or in a competent manner”. I have found the company did so fail. The letter terminated the contract for a variety of reasons including the company’s repudiation of the contract. I have found the company did repudiate the contract.
It follows the counterclaim should be dismissed.
Orders
It will be necessary to hear the parties as to interest and as to costs if they are not agreed. I will not determine interest and costs, if costs are not agreed, until the determination of rectification costs.
A copy of these reasons should be forwarded to the liquidator’s solicitor to ensure the liquidator is aware of them and arrangements regarding the further conduct of the matter.
My orders are:
1.The plaintiffs’ claim against the second defendant is dismissed.
2.The first defendant’s counterclaims against the plaintiffs are dismissed.
3.I will hear the parties regarding the course to be taken in determining rectification costs in the plaintiffs’ successful claim against the first defendant at 10am 15 March 2019.
4.I will hear the parties as to interest and costs, if costs are not agreed, on a date to be fixed by mention at 10am 15 March 2019.
5.The Registrar will forward a copy of these reasons to Mr McGrath of Miller Harris lawyers, solicitors for the first defendant’s liquidator.
APPENDIX A
COST OF RECTIFICATION
| DEFECT DESCRIPTION | COST OF RECTIFICATION | |
| 1 | Groundwater seepage | $223,642 |
| 2 | Retaining wall structural design life insufficient at undercroft levels 1 and 2 | $42,268 |
| 3 | Defect number not issued | |
| 4 | Groundwater collection at undercroft levels | $19,511 |
| 5 | External doors and windows not weathertight | $160,000 |
| 6 | Level 1 and 2 walls damaged by rainwater ingress | $2,130 |
| 7 | Atrium glass wall glazing cracked and not sealed (not a breach) | $0 |
| 8 | No movement joints in walls at undercroft level 1 | $1,650 |
| 9 | Concrete pool cracking | $21,195 |
| 10 | Roof not compliant with Building Code | $116,025 |
| 11 | Slab founded on inadequate material | $3,680 |
| 12 | Adequate drainage to balconies has not been provided | $16,688 |
| 13 | Exposed reinforcement | $582 |
| 14 | Planter boxes not drained or membraned (not a breach) | $0 |
| 15 | Lack of bracing of level 2 internal walls | $8,634 |
| 16 | Mass concrete without reinforcement or joints | $16,600 |
| 17 | Inadequate steel support for feature window | $22,500 |
| 18 | Ground floor southern block wall spalling | $18,500 |
| A | Low ceiling heights | $44,348 |
| B | Bedroom 3 door too narrow | $14,099 |
| C | Access not provided to lower levels (not a breach) | $0 |
| D | Walls and ceiling do not align | $1,052 |
| E | Spalling concrete | $515 |
| F | Poor external painting | $65,494 |
| G | Level 2 pod soffits not concreted | $7,470 |
| H | Poor mastic seal between blockwork and acrylic panels | $1,150 |
| I | Hose taps wrongly located | $1,610 |
| J | Unrendered and unpainted undercroft level walls | $8,079 |
| K | Pool stepping stones inconsistently sized | $805 |
| Estimated cost of rectification (GST exclusive) | $818,227 | |
| Total estimated cost of rectification (GST inclusive) | $900,049.70 | |
APPENDIX B
COST OF COMPLETION
| ITEM | COST | |
| 1a | Superstructure – External Walls | $16,140 |
| 1b | Superstructure – External Soffits | $7,465 |
| 1c | Superstructure – External Doors | $6,500 |
| 1d | Superstructure – Internal Walls | $8,943 |
| 1e | Superstructure – Internal Ceilings | $10,930 |
| 1f | Superstructure – Internal Doors | $6,400 |
| 2a | Finishes – Wall | $16,095 |
| 2b | Finishes – Floor | $0 |
| 2c | Finishes – Ceiling | $10,540 |
| 3a | Fittings – Joinery | $7,500 |
| 3b | Fittings – Sundries | $20,000 |
| 4a | Building Services – Hydraulics | $34,550 |
| 4b | Building Services – Mechanical | $52,100 |
| 4c | Building Services – Electrical | $7,500 |
| 4d | Building Services – Drainage | $6,000 |
| 5 | External Works | $5,100 |
| Running total of measure works | = $215,763 | |
| 6 | Preliminaries and Margin of 22% to be applied | + $47,467.86 |
| GST exclusive sub-total of measured works | = $263,230.86 | |
| 7 | PC Sums (inclusive of GST) | $96,838.45 |
| 8 | Provisional Sums (inclusive of GST) | + $525,912.61 |
| Sub-total of PC & Provisional sums | = $622,751.06 | |
| Minus GST | - $56,613.73 | |
| GST exclusive sub-total of PC & Provisional sums | = $566,137.33 | |
| GST exclusive sub-total of measured works | $263,230.86 | |
| GST exclusive sub-total of PC & Provisional sums | + $566,137.33 | |
| Sub-total | = $829,368.19 | |
| Plus 6% escalation | + $49,762.09 | |
| Sub-total | = $879,130.28 | |
| Plus GST | + $87,913.03 | |
| Sub-total | = $967,043.31 | |
| Plus 15% construction contingency | + $145,056.50 | |
| Qualified total | = $1,112,099.81 | |
| GST exclusive costs re atrium glass wall and stairs to undercroft | $15,928 | |
| Plus 6% escalation | + $955.68 | |
| Sub-total | =$16,883.68 | |
| Plus GST | + $1,688.37 | |
| Sub-total | = $18,572.05 | |
| Plus insurance | + $14,989.81 | |
| Plus qualified total | +$1,112,099.81 | |
| Total cost of completion | = $1,145,661.67 | |
APPENDIX C
BALANCE OWING
| ITEM | PAID | PAYABLE | |
| Payments | |||
| Credit the preliminary agreement amount | $10,550 | $0 | |
| 4 x payments of the first four stages of the contract | $1,369,391.40 | $1,369,391.40 | |
| 17 x sundry payments | $130,000 | $0 | |
| Various payments to three suppliers/sub-contractors | $102,505 | $102,505 | |
| Sub-total | $1,612,446.40 | $1,471,896.40 | |
| So-called allowed variations | |||
| VA3 | Supply and fix solar including plumbing and electrical | $9,404.12 | $9,404.12 |
| VA4A | Cutting of lower floor wall | $1,320 | $1,320 |
| VA4B | Lopping of trees at rear to allow view | $726 | $726 |
| VA5 | Increase in joinery PS allowance | $17,599.45 | |
| VA9 | Changes to slab for ducted vacuum system | $550 | $550 |
| VA9A | Supply and fix ducted vacuum system | $11,259.05 | |
| VA10 | Adjustment to stone benchtop PS allowance | -$135 | |
| VA11 | Increase in roof size | $7,848.50 | $3,924.25 |
| VA13 | Delete PS allowance for pond front entry structure | -$6,171 | |
| VA16 | Render internal garage walls | $1,996.50 | |
| VA17 | Glass spider window wall (atrium glass wall) | $45,012.07 | |
| VA18 | Boral flush mounted door frames | $4,435.05 | $4,435.05 |
| VA19 | Steel beams required to pods | $2,269.54 | $2,269.54 |
| VA20 | Change glass to W34 | -$121 | |
| VA21 | Install sliding glass doors to pods | $6,413 | $6,413 |
| VA22 | Delete Crimsafe to upper floor | -$198 | |
| VA23 | Various variations | $6,901.84 | |
| VA24 | Install louvres to pods | $0 | |
| VA25 | Pipework to top storey vertical wall garden | $1,294.70 | |
| VA26 | Ventilation to cabinets in kitchen | $0 | |
| VA28 | Lounge and dining shelves/theatre wall cabinet/bar credit | $0 | |
| VA29 | Square set plaster | $9,875.39 | |
| VA32 | Power to motorised overhead cupboards | $145.20 | |
| VA33 | Extra to CBUS electrical | $8,076.26 | |
| VA34 | Shower grates | $0 | |
| VA35 | Theatre wall | $0 | |
| VA36 | Additional power to theatre wall unit | $544.50 | |
| VA37 | Move pipework for rainwater shower head | $338.80 | |
| MMOU2 | Big ass fans | $18,015.51 | |
| MMOU6 | Extra electrical to home theatre | $2,093.30 | |
| MMOU7 | Add 5 x external taps | $1,197.90 | |
| MMOU9 | Additional electrical work for fishtanks | $2,579.72 | |
| MMOU11 | Changes to electrical and additional robe | $3,315.16 | |
| Other 1 | Reduction in PS Allowance for pool | $0 | |
| Other 2 | Other 2 Supply Aquaplex to pool wall in lieu of glass | $0 | |
| Sub-total | $32,966.21 | $152,662.31 | |
| Disputed variations | |||
| VA2 | Excavation and lower pool | $81,649.74 | $0 |
| VA6 | Continuation of VA2 | $57,455.54 | $0 |
| VA14 | Credit re lower section part 1 | $0 | |
| VA15 | Credit re lower section part 2 | $0 | |
| VA30 | Credit re margin charged on earthworks section of VA2 | $0 | |
| VA31 | Credit re GST charged twice on VA6 | $0 | |
| VA7 | Suspend ply flooring for pool base | $0 | |
| VA8 | Changes to column to kitchen and upper floor | $28,096.20 | $28,096.20 |
| VA12 | Drop ceiling in garage | $2,274.80 | $2,274.80 |
| VA27 | Credit for drop ceiling in garage | -$2,274.80 | |
| VA39 | Increase in tile labour allowance | $0 | |
| MMOU1/12 | Tradelink extras | $0 | |
| MMOU4 | Additions to kitchen quote – slide out drawers | $0 | |
| Sub-total | $169,476.28 | $28,096.20 | |
| Remaining stage payments | |||
| Fixing stage | $421,351.20 | ||
| Practical completion stage | $316,013.40 | ||
| Sub-total | $737,364.60 | ||
| Total (Paid, Payable) | $1,814,888.89 | $2,390,019.51 | |
| Balance owing assuming completion (Payable less Paid) | $575,130.62 | ||
- AGLC
- Mousa v Vukobratich Enterprises Pty Ltd [2019] QSC 49
- Case
- [2019] QSC 49
- Decision Date
CaseChat Overview and Summary
The legal issues before the court included whether the state of each item of work evidenced a breach of statutory warranty, whether the company's conduct manifested an intention to fulfil the contract only in a manner inconsistent with their obligations, and if Mr Vukobratich owed a duty of care in negligence to the plaintiffs. The court examined the contractual relationship, the quality of the construction, and the statutory obligations of the company and Mr Vukobratich. It found that the company breached statutory warranties by not meeting the expected standard of work, repudiated the contract by its conduct, and that Mr Vukobratich did not owe a duty of care in negligence to the plaintiffs.
The court concluded that the plaintiffs were entitled to damages for the breach of statutory warranty and wrongful repudiation against the first defendant. It dismissed the plaintiffs’ claim against the second defendant for negligence. The court also dismissed the first defendant’s counterclaims against the plaintiffs and scheduled further hearings to determine the rectification costs and interest and costs. The judge ordered that a copy of the reasons be sent to the liquidator of the first defendant.
The court's final orders included dismissing the plaintiffs' claim against the second defendant, the first defendant's counterclaims against the plaintiffs, and scheduling further hearings to determine the rectification costs and interest and costs. The judge also directed that a copy of the reasons be sent to the liquidator of the first defendant.
Orders
Orders of the court
1. The plaintiffs’ claim against the second defendant is dismissed.
2. The first defendant’s counterclaims against the plaintiffs are dismissed.
3. I will hear the parties regarding the course to be taken in determining rectification costs in the plaintiffs’ successful claim against the first defendant at 10am 15 March 2019.
4. I will hear the parties as to interest and costs, if costs are not agreed, on a date to be fixed by mention at 10am 15 March 2019.
5. The Registrar will forward a copy of these reasons to Mr McGrath of Miller Harris lawyers, solicitors for the first defendant’s liquidator.
Background
Background to the litigation
Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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