Mrocki v Mountview Prestige Homes Pty Ltd
[2012] VSCA 74
•26 April 2012
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2011 0014 | |
| LEON MROCKI and HARRY MROCKI | Appellants |
| v | |
| MOUNTVIEW PRESTIGE HOMES PTY LTD (ACN 092 818 669) | Respondent |
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JUDGES: | BUCHANAN and HANSEN JJA and HOLLINGWORTH AJA | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 5 March 2012 | |
DATE OF JUDGMENT: | 26 April 2012 | |
MEDIUM NEUTRAL CITATION: | [2012] VSCA 74 | 1st revision, page 7, footnote 2 |
JUDGMENT APPEALED FROM: | [2010] VSC 624 (Dixon J) | |
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Contract – Building Construction – Construction of contract – Whether builder or contract manager – Surrounding circumstances – Contract ambiguous – Prior oral agreement rejecting a particular provision.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr I D Martindale SC with Mr R N Cameron | Sackville Wilks Pty Ltd |
| For the Respondent | Mr B B Carr | David Nairoo & Associates |
BUCHANAN JA:
This appeal is concerned with the role of the respondent in the construction of a building consisting of two apartments and swimming pools for the appellants. If, as the appellants contend, the respondent’s role was that of a builder, the respondent is liable for defects in the building and pools. On the other hand, if the respondent’s role was that of a contract manager, as the respondent contends, it is only liable if it failed to properly manage the contracts entered into by the appellants with those who constructed the apartments and swimming pools.
The appellants, who were real estate developers, owned land in Brighton upon which the building was to be constructed. The respondent was a company controlled by Martin Vella, who had experience in supervising the construction of expensive residential developments.
In November 2006 the appellants obtained a town planning permit for the development. They met Mr Vella and entered into negotiations with him for the construction of the development. Mr Vella was shown six sheets of town planning or concept drawings. He said he would undertake the construction for cost plus a margin of 10 per cent. The appellants refused this request and in turn proposed that the appellants would pay for the materials and labour and that Mr Vella would act as construction manager for a fee.
Mr Vella told the appellants that his estimate of the cost of construction was between $4,400,000 and $4,500,000. The appellants, on the other hand, said that the cost should be about $3,500,000. They asked Mr Vella to base his fee on that figure. Eventually a fee of $247,500 was agreed.
Mr Vella requested a form of contract for construction management from the Housing Industry Association (‘the Association’). He was told by a staff member of the Association that under the insurance he held he could not enter into a construction management agreement. He was advised to use the form for a cost plus contract. Mr Vella obtained a copy of a cost plus agreement form from the Association and proceeded to modify the agreement in an attempt to reflect the agreement he understood the respondent had reached with the appellants for the respondent to act as the construction manager of the project. The written agreement was executed on 30 November 2006.
The appellants directly employed Adam Vella, the brother of Martin Vella, to supervise the performance of the construction work.
The only plans in existence when the agreement was executed were the six sheets of concept drawings, to which I have referred. Detailed architectural and engineering plans and specifications were subsequently prepared.
Clause 11 of the written agreement contained warranties that, inter alia, ‘the building works will be carried out in a proper and workmanlike manner and in accordance with the plans and the specifications set out in this contract’, that ‘the building works will be carried out in accordance with and will comply with all laws and legal requirements’, that ‘the building works will be carried out with reasonable care and skill’ and that ‘the home will be suitable for occupation’.
The project was completed at a cost to the appellants of an amount in excess of $5,000,000 and the respondent was paid its fee.
The contractors who performed the construction work and supplied the materials were engaged pursuant to contracts which identified the appellants as the parties engaging each contractor and supplier. The Tribunal found that the parties agreed that the respondent would obtain quotations from the contractors supplying labour and materials and submit the quotations to the appellants, who would choose the contractors they would engage. The appellants paid the contractors and suppliers directly. Although the appellants contended in the Tribunal that they did not authorise the respondent to engage suppliers and contractors, the Tribunal held that the contracts were made between the contractors and suppliers on the one hand and the appellants on the other hand, not between the contractors and suppliers and the respondent.
Subsequently, a number of defects in the building became apparent, principally involving water penetration. There was a musty smell in the bathrooms of the apartments and leaks in the swimming pools, spas and roofs.
The appellants instituted two proceedings in the Victorian Civil and Administrative Tribunal (‘the Tribunal’). The first proceeding was an action against the respondent for damages for breaches of a contract to build the apartments caused by defective workmanship of a sub-contractor and against the tiling sub-contractor for breach of a tiling sub-contract. The second proceeding was an action by the appellants against the respondent for damages for breach of the same contract caused by defective workmanship additional to the defective work the subject matter of the first proceeding.
The tiling sub-contractor did not take any part in the trial of the proceedings in the Tribunal and an order was made at the beginning of the hearing that there be an assessment of damages against the tiling sub-contractor.
The proceedings were heard as if there was only one proceeding. The Tribunal held that the written contract was void for uncertainty, that the appellants and the respondent had entered into a prior oral agreement for the provision by the respondent of contractual management or supervision services and that none of the defects alleged by the appellants was the result of any failure on the part of the respondent to exercise due care in providing those services. The Tribunal also found that the swimming pools were outside the scope of work to be supervised by the respondent and that external paving and landscaping was not included in the builder’s work.
The appellants appealed to a single judge of this Court against the decision of the Tribunal. The judge held that the Tribunal had erred in holding the contract void for uncertainty. His Honour referred to events that took place after the written agreement was executed. For example, the agreement referred to plans consisting of the six sheets of concept drawings. The Tribunal member described them as ‘rudimentary’ and found that they could not provide a sufficient description of the scope of the works. After the agreement was signed, architectural and engineering plans and specifications were produced. The trial judge had regard to those documents, saying that he was not using subsequent conduct to ascertain the parties’ intention at the time of the formation of the contract, but was treating the contract as dynamic so that the parties’ conduct could clarify or illuminate what was once uncertain. I would prefer to describe the manifestation of mutual assent as being implied from the circumstances, one of which was the signing of the agreement.[1]
[1]See Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32.
Although the trial judge held that the agreement was not void for uncertainty, he nevertheless affirmed the Tribunal’s decision on the basis that there was no breach of the warranties contained in the written contract. His Honour held that upon the proper construction of the contract the respondent had not been engaged to build the apartments. The work which the respondent had undertaken to carry out was the provision of contract management services. Accordingly, the warranties contained in the written contract applied only to the provision of those services and no breach of the warranties on that basis had been demonstrated.
The appellants accepted that the agreement was not void for uncertainty but contended that the trial judge erred in holding that the respondent’s work was the provision of contract management services. The appellants contended that the respondent was engaged to construct the apartments and accordingly is liable for defects in the building.
Counsel for the appellants placed considerable emphasis upon the form of contract used by the parties, characterising it as a contract to build with some modifications. The assertion that the respondent’s contractual obligation was to construct the building appears to be based upon the fact that cost plus contracts generally oblige the contractor to bear responsibility for the construction. The next step in the argument was to contend that the modifications made to the form of contract supplied by the association did not alter that primary responsibility.
In my opinion, the nature of the respondent’s obligations under the contract is not to be determined by adopting a starting position and deciding whether that position has been altered, but rather to characterise the rights and duties of the parties by viewing the contract as a whole.
The written agreement provided that the owners would pay the costs of construction to those who performed work or supplied materials. Accordingly, the contracts for work and materials were made directly by the appellants or by the respondent acting as the appellants’ agent. The appellants played a significant role in selecting the suppliers of work and materials. The respondent had no legal ability to require work to be performed or rectified by those who contracted with the appellants or to recover compensation for faulty work or materials performed or supplied by those contractors. Another result of the appellants entering into the contracts for the supply of work and materials was that the cost of the building works as far as the respondent was concerned was effectively nil. The respondent’s remuneration was a fixed fee. The respondent did not receive a margin of the cost of labour or materials.
I think it hardly likely that the respondent assumed the risk in respect of work and materials supplied by persons chosen and engaged by the appellants, notwithstanding that the terms of clause 11 of the agreement were apposite to the respondent undertaking the obligation to build the apartments pursuant to a usual cost plus agreement. I think it is equally unlikely that the respondent would have executed a contract under which it undertook responsibility for the due performance of building work when that work was defined only by drawings described by the Tribunal as rudimentary and stigmatised as insufficient to enable the building to be constructed.
In holding that there was a sufficiently certain agreement, the trial judge had regard to plans and specifications which came into existence after the written contract was executed. The absence of detailed plans and specifications at the time the agreement was signed may be viewed as a circumstance supporting the respondent’s contention that it was not engaged to construct the building but rather to manage the contracts entered into by the appellants with the suppliers of work and materials. Detailed architectural drawings, engineering plans and specifications are necessary incidents of a normal building contract under which the builder accepts responsibility for the construction. Such a degree of detail, however, was not necessary at the point at which the contract was executed in the present case if the respondent’s obligation was to manage the contracts entered into by the appellants for the performance of work described in construction plans to be later supplied to them or the on site supervisor.
In the light of the circumstances of its creation, it is hardly surprising that the written agreement contained provisions that were not wholly consistent. In addition to clause 11, to which I have referred, a provision which suggested that the respondent undertook the responsibility of a builder under an orthodox building contract there was schedule 7, in which ‘the Owner acknowledges that the Contract Building Works do not include those items of building work and materials listed below and accepts full responsibility for this work and building materials.’ The building work listed was ‘All external paving and landscaping. This work will be done by Owners’.
I do not think that this provision and clause 11 overcame the effect of the other provisions of the agreement so as to render the respondent directly responsible for defective building work. Viewing the contract as a whole, I consider that the effect of schedule 7 was to exclude the work it listed from the contracts the respondent agreed to supervise.
It was submitted on behalf of the appellants that the trial judge erred in having regard to the matrix of facts surrounding the making of the agreement and its commercial purpose. It was said that such an approach could only be undertaken to resolve ambiguity. In Western Export Services Inc v Jireh International Pty Ltd,[2] Gummow, Heydon and Bell JJ reiterated the position established by Codelfa Construction Pty Ltd v State Rail Authority of NSW,[3] that a court is not to have regard to surrounding circumstances to construe unambiguous language.[4]
[2][2011] HCA 45.
[3](1982) 149 CLR 337.
[4]The position is otherwise in England. See Westminster City Council v National Asylum Support Services [2002] 1 WLR 2959, [5] (Lord Steyn).
The short answer to this contention is that the trial judge construed the agreement according to its text. He concluded that the words of the agreement meant that the work undertaken by the respondent was that of a contract manager. He then said that ‘This construction of the scope of building works under the contract is unaffected when regard is had to the surrounding factual matrix.’
In any event, I think that the agreement was at least latently ambiguous. The ambiguity did not consist in words or phrases that were capable of more than one meaning. Rather, the ambiguity lay in the absence of an express term describing the nature and scope of the work to be performed by the respondent and the presence of provisions pointing in different directions with respect to this question.
Counsel for the appellants also criticised the trial judge for impermissibly having regard to antecedent negotiations between the parties in construing the agreement.[5] In this connection, counsel relied upon his Honour’s recounting of part of what the judge termed ‘background circumstances.’. His Honour said:
The Owners and Mr Vella met on 27 November 2006. Mr Vella was shown six sheets of town planning and preliminary (concept) drawings. He expressed Mountview’s desire to undertake the construction for cost, plus a 10 per cent margin. The Owners were not interested. Mr Leon Mrocki proposed that the Owners would pay for the materials, plant hire, contractors and any other associated costs, and that Mr Vella, for a fee, should be the construction manager. Negotiations continued on this basis. Mr Vella agreed to provide the Owners with a fee proposal.
This was an accurate restatement of a finding made by the Tribunal.
[5]See, for example, Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501, [118] (Finn J).
The trial judge did not refer to this evidence in that part of his judgment in which he construed the agreement. In my opinion, however, it would have been legitimate for him to do so. In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J said:
There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties had made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contact a meaning which the parties are united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.[6]
[6]Above, 352-3. See also MCA International BV v Northern Star Holdings Ltd (1991) 4 ACSR 719, 727 (Rodgers CJ Comm Div); Lodge Partners Pty Ltd v Pegum (2009) 255 ALR 516, [31].
In my opinion, the finding by the Tribunal constitutes evidence of the actual intention of the parties that is admissible on the basis described by Mason J. The parties turned their minds to the role of the respondent and determined that it would not be engaged as a builder pursuant to an orthodox cost plus contract but rather as a supervisor. The nature of that supervision was apparent from the engagement of Adam Vella to supervise the performance of the building work. The evident agreement between the parties, which Martin Vella set out to document, was not merely the replacement of a percentage by a fixed sum as the ‘plus’ in a cost plus contract.[7]
[7]See B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227; 245 (Mahoney JA).
For the foregoing reasons I would dismiss the appeal.
HANSEN JA:
I agree with Buchanan JA.
HOLLINGWORTH AJA:
I also agree with Buchanan JA.
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