Mrocki v Mountview Prestige Homes Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 219 of 2010

LEON MROCKI & ANOTHER	Plaintiffs
v
MOUNTVIEW PRESTIGE HOMES PTY LTD (ACN 092 818 669) & ANOTHER	Defendants

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JUDGE:	DIXON J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	27, 28 OCTOBER 2010
DATE OF JUDGMENT:	22 DECEMBER 2010
CASE MAY BE CITED AS:	MROCKI v MOUNTVIEW PRESTIGE HOMES PTY LTD
MEDIUM NEUTRAL CITATION:	[2010] VSC 624

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Administrative Law – Appeal from tribunal - VCAT – Domestic Building List – Use of printed form HIA cost plus contract with amendments for an agreement for contract management - Builders warranties - Meaning of Building Works – Extent of warranties – Error of law by tribunal in holding signed written contract for completed project uncertain and void – Decision affirmed on different grounds - No breach of warranties as properly construed – Appeal dismissed - Victorian Civil and Administrative Tribunal Act1998 s 148 - Domestic Building Contracts Act 1995 ss.3, 5, 8.

Contract - Construction and Interpretation - Uncertainty - Project completed - Signed written agreement using amended printed form HIA cost plus contract – Objective interpretation – Reference to factual matrix when contract formed – Uncertain matters when contract formed rendered certain in performance and not in dispute – Scope of warranty not uncertain - No breach of warranty.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I.D. Martindale SC with Mr R.N. Cameron	Fetter Gadanski
For the Defendant	Mr B.B. Carr	Neil McPhee & Associates

HIS HONOUR:

One purpose of a written contract is to record the benefits, obligations and expectations of the parties to it. Contract law is concerned with the enforcement of promises; it provides the rules which determine when one party is liable to another under or in connection with a contract.

A requirement of contract law is certainty as to the essential terms of the bargain to be enforced by a court. In contemporary commerce, the use of standard form contracts where a common set of contractual terms, reflecting the standard requirements of that type of bargain and the legislative regulation which governs it, is commonplace, moulded to the particular needs of the parties by schedules or particulars. Such standard form contracts save much time and expense in commonly occurring commercial bargains.

Residential construction is one area of economic activity where the use of standard form published contracts is common and convenient. Banking and finance, and property transactions are other examples.Should enforcement become necessary, the benefits of employing a solicitor to ensure that an agreement is properly and appropriately documented can never be underestimated. As this case shows, the enforcement of standard form contracts drawn without the assistance of a solicitor shows that the bargain created risk rather than certainty.

The issues, which arise in this proceeding, flow from the decision of the parties to adapt the HIA Victorian Cost Plus, October 2003 edition Standard Domestic Building Contract to a bargain which was not an agreement for a builder to carry out domestic building work for an owner on a cost plus basis.

The subject matter of this dispute is domestic building work.The dispute was originally heard and determined in the Victorian Civil and Administrative Tribunal (“VCAT”) in the Domestic Building List. The plaintiffs, Mr Leon Mrocki and Mr Harry Mrocki (“the Owners”), claimed, in two proceedings, substantial damages against the defendant Mountview Prestige Homes Pty Ltd (“Mountview”) in breach of a building contract for the construction of a domestic building and for negligence. Defective work in the construction of two luxury apartments in Brighton was alleged. It is common ground that the apartments, as constructed, contain defects. Who is to bear the responsibility for these defects remains at the heart of the dispute. VCAT, by orders dated 21 December 2009, dismissed the Owners’ claims against Mountview in each proceeding.

The applications come to this Court pursuant to s.148 of the Victorian Civil and Administrative Tribunal Act which confers an original jurisdiction in the nature of judicial review to examine for legal error what has been done in an administrative tribunal. The jurisdiction is confined to appeals on questions of law.[1]
[1]Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (2001) 207 CLR 72, 79 at [15]; [2001] HCA 49; Osland v Secretary to the Department of Justice [2010] HCA 24 at [17]-[19].

The following are the questions of law upon which this appeal is brought:

(a)Is the written agreement signed by both parties uncertain to such an extent that it is no contract?
(b)If the written agreement was not a binding contract was there a contract between the owners and the builder? If so, how was it constituted and what were its terms?
(c)In respect of what was constructed, are the owners to be characterised as “owner builders” or was Mountview the builder?
(d)Were the two swimming pools included in the works which were the subject of the contract between the owners and Mountview?
(e)Were the owners or Mountview responsible for the work performed by the trades and other suppliers who were engaged in constructing the building?

(f) Did the contract include, by variation, paving and landscaping?
Background Circumstances

The Owners are real estate developers. The building which was constructed is located at Lot 27, St Ninians Road, Brighton. A single building comprising a basement, two storeys and a roof area, configured as two apartments, with swimming pools, was constructed. The project was finished to a very expensive high standard.It was the intention of the Owners to live in the two apartments.

Mountview is a company controlled by Mr Martin Vella, who has had prior experience in supervising the construction of expensive residential developments. When Mr Vella was first approached by the Owners regarding the development he was already supervising a project in close proximity to St Ninians Road.

In November 2006, the Owners obtained a town planning permit for the development. Mr Harry Mrocki obtained estimates of construction costs from a number of builders using the town planning drawing for such estimates. At this point in time, the town planning drawings were the only drawings of the development. The estimates received from builders ranged from less than $4 million to in excess of $6 million. Mr Harry Mrocki then rang Mr Vella, with whom he was already acquainted. He asked for Mr Vella’s estimate of construction costs.

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% 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.

On 28 November 2006, Mr Vella informed the Owners that his estimate of the cost of construction was between $4.4 and $4.5 million. The Owners insisted that the cost of construction would be around $3.5 million. They asked that Mr Vella base his fee on that figure. Mr Vella quoted his fee at $245,000. After negotiation, this fee was reduced to $225,000 and, with GST payable, the final figure was agreed to be $247,500. It is common ground that, at this point in time, the landscaping and the paving was not included in Mountview’s work.

An agreement had been reached, at least in principle, for Mr Vella to be employed for a set fee as construction manager to manage construction of the St Ninians Road apartment development, and that the Owners would pay for the materials, plant hire, contractors and any other associated costs. Mr Vella requested a form of contract for construction management from the Housing Industry Association Limited (“HIA”). A staff member of the HIA informed him that he could not, under the insurance he held, enter into a construction management agreement. He was advised to instead use the form for a “cost plus contract”.

The term “cost plus” when used in connection with a building contract is well understood. In respect of domestic building, it is now defined in the Domestic Building Contracts Act1995 (“DBC Act”) as follows:

Cost plus contract means a domestic building contract under which the amount the builder is to receive under the contract cannot be determined at the time the contract is made, even if prime cost items and provisional sums are ignored.[2]

Mr Vella purchased a copy of the standard form HIA cost plus contract and attempted to customise it to express the agreement he understood Mountview had reached with the Owners. Once he had completed this process, by crossing out various printed terms and filling in schedules and particulars, the contract was executed in the amended form by the Owners and Mountview (Mr Vella) on 30 November 2006. I will use the term “the Contract” to refer to the signed printed form Contract signed by the parties.

[2]Section 3(1).

The Contract

The structure of the Contract is as follows. The particulars and schedules identify specific information referable to the particular building project and the agreement between the parties in relation to it. Sections A to F specify the general terms and conditions agreed between the parties as qualified or better defined by the particulars and schedules.

Particulars of Contract
Schedule 1
Schedule 2 Prime Cost Items and Provisional Sum Items
Schedule 3 Progress Payments
Attachment 1, Form 1 of the Regulations
Progress Payments

Schedule 4               Cost of the Building Works
Schedule 5          Builder’s Fee
Schedule 6               Special Conditions
Schedule 7               Excluded items
Terms and Conditions of Contract
Section A                 Interpretation
Clause 1        Definitions
Clause 2        Headings, Footnotes Etc
Clause 3        Contract Complete in Itself
Clause 4        Joint and Several Obligations
Clause 5        Assignment and Sub-letting
Clause 6        Notices

Section B                  Main Obligations of the Parties
Clause 7 Building Act Insurance
Clause 8        Finance
Clause 9        Deposit
Clause 10       Commencement and Building Period
Clause 11 Statutory Warranties
Clause 12Owner Must Pay the Price of the Building Works
Clause 13Owner Must Provide Essential Information

Section C                  Before Work Begins
Clause 14       Owner to Supply Documents
Clause 15       Copyright
Clause 16       Interpretation of Contract Documents
Clause 17       Owner Must Identify the Land
Clause 18       Building Permit Fees
Clause 19       Planning Approvals and Building Permits
Clause 20       Insurance

Section D                  During Work
Clause 21       Variations to Statutory Laws
Clause 22       Requested Variations
Clause 23       Effect of Variations
Clause. 24      Possession
Clause 25       All Weather Access
Clause 26Owner Must Not Direct Builder’s Workers
Clause. 27Owner Must Arrange Lending Body Inspections

Clause 28       Builder to Claim Progress Payments
Clause 29       Owner Must Make Progress Payments
Clause 30       Builder^’s Right to Agreed Damages
Clause_. 31       Unfixed Materials on Site
Clause 32Prime Cost Items and Provisional Sum items

Clause 33 Builder’s Right to Extensions of Time
Clause 34 Suspension of Work

Section E                  Completion of Works
Clause 35       Final Inspection
Clause 36       Listing of Defects and Final Payment
Clause 37       Handover and Final Payment
Clause 38       Defects Within the 3 Month Period
Clause 39       Owner^’s Claim for Agreed Damages
Clause 40Ending this Contract- Bankruptcy or Liquidation

Clause 41       Builder^’s Right to End this Contract
Clause 42       Owner’s Right to End this Contract
Clause 43       Subcontracting
Clause 44       No Waiver
Clause 45       Severance

Section F Disputes, Conciliation and Tribunal
Attachment 2 Directors’ Guarantee

The Particulars of Contract, dated 30 November 2006, identify the parties to be “Leon & Harry Mrocki”, the plaintiffs, as Owner, “Mountview Prestige Homes” as Builder and “Mr Martin Vella” as the registered building practitioner. There is no issue that the defendant is the party identified as Builder. The “warranty/professional indemnity insurer” is identified as “Lumley General Insurance” and the “insured” as Martin Vella.

The “building works” are described as:

2 apartments with basement (Brief description) as set out in the Specifications and Plans. The SPECIFICATIONS include … pages that were prepared and supplied by CBG Architects. There are 6 sheets of plans and they were prepared and supplied by CBG Architects. There are … sheets in the ENGINEER’S DESIGN/S and it/they/was/were, prepared by … for the OWNER.[3] (sic)

The Owners claimed, and Mountview disputed, that the specifications were provided at the time of contracting. The Senior Member preferred the evidence of Mr Vella, and found that the specifications were not provided, stating that if they had been provided at that time, they would have been described in the building works definition in the Contract. It was common ground that no engineer’s drawings were then available. Only the six sheets of concept drawings being used at this time formed part of the Contract. These drawings included elevations but few dimensions and incorporated a square area, outlined within the area of each apartment and marked with a “P” in the centre, which obviously represented swimming pools. Thus, the description of the building works included in the written contract was very limited.[4]

[3]The italicised words are those that were handwritten into the Contract.

[4]Note s.5 DBC Act.

Section 1 of the Contract identifies variable factors providing content to the general operative clauses, a drafting scheme typically employed in standard form contracts. Various sections of Schedule 1 to the Contract have been ruled out and the words “By Owner” and “N-A” (which I assume to mean not-applicable) inserted in handwriting. Relevantly:

(a)In Item 1 of Schedule 1, the time for completion, the building period, is set at 390 days;
(b)In Item 2 of Schedule 1, in the box for “Estimated Price Clause 12” all words have been crossed out and “N-A” has been inserted. Clause 12 has not been crossed out from section B of the contract headed “Main Obligations of the Parties”. That clause defines the obligation of the Owner to pay the price of the Building Works;
(c)In Item 1 of Schedule 1 in a further box, where the parties to the Contract identify the items not included in the estimated price of the building works and the items payable to third parties which are excluded from the estimated price, all words have been crossed out and “By Owner” has been inserted;
(d)In Item 3 of Schedule 1 “Deposit Clause 9” provision is made for payment of a deposit of “$15,000 + GST”;
(e)In Items 4 and 5 of Schedule 1, which refer to clause 19 and allow for identification of the person responsible for obtaining and paying for planning approval and the building permit, all words have been crossed out and “By Owner” has been inserted. Clause 19 has not been crossed out from section C of the contract headed “Before Work Begins”;
(f)In Item 6 of Schedule 1, in the box for Builder’s Margin (for variations and where the contract is ended) which refers to clauses 17.2, 19.4, 21.2, 21.4, 22.6, and 41.5 of sections C, D “During the Works”, and E “Completion of Works”, all words have been crossed out and “N-A” has been inserted;
(g)Item 7 of Schedule 1 nominates seven as the number of days for making progress payments (clause 30);
(h)Item 9 of Schedule 1, which specifies for clause 39 the agreed weekly rate of damages for late completion of the Building Works is marked “N-A”;
(i)Schedule 2 to the Contract, entitled “Prime Cost Items and Provisional Sum Items and Allowances”, has been crossed out and the words “N-A” inserted;
(j)Schedule 3 to the Contract concerns progress payments. It has been amended to provide that the progress payments fixed by s.40 of the DBC Act do not apply and instead the contract price is payable by “Progress claims to be submitted by the Builder at the end of each month”, which has been handwritten;
(k)Schedule 4 to the Contract defines, for the purposes of the definition of “Cost of the Building Works” in clause 1, what is included in that expression. The effect of the handwritten amendment to this Schedule – the section specifying rates per hour for the cost of labour and services supplied wholly in connection with the Building Works has been crossed out and the words “By Owner” inserted – is to make a limited variation to that definition.
(l)Schedule 5 to the Contract defines the Builder’s fee for the purposes of the definition of that term in clause 1, and the sum of $247,500 has been specified. Other provisions of that Schedule, which could provide for the Builder’s fee to be a percentage of the Cost of the Building Works paid progressively, have been crossed out.
(m)Schedule 6 provides as a special condition that:
“All accounts for project to be paid by the owner
Mountview Prestige Homes to approve invoices for payment”.

(n)Schedule 7 provides, under the heading “Excluded Items”, that the Owner acknowledges that the Building Works do not include “All external paving and landscaping. This work will be done by Owners”.

Section A of the Contract, headed “Interpretation”, contains the following definitions:

·“Building Works” means the works to be carried out and completed by the Builder as shown in the Contract Documents and as varied in accordance with this Contract.
·“Contract Documents” means this signed Contract and the Conditions, signed Specifications, signed Plans and an Engineer’s Design.
·“Plans” means the drawings showing the layout and design details of the Building Works with dimensions and elevations, including Engineer’s Design.
·“Price of the Building Works” means the total of the cost of the Building Works and the Builder’s Fee.
·“Specifications” means the Contract Document that shows the full details of the Building Works and includes the details of the material to be supplied.
·“Sub-Contractor” means a person, partnership or company who contracts with the Builder to carry out part of the Building Works.

Clause 3 of section A states:

This contract is complete in itself and overrides any earlier agreement, whether made verbally or in writing.

Section B of the contract, headed “Main Obligations of the Parties” contains, inter alia, the following terms:

(a)Clause 12 provides that the owner must pay the Builder the price of the Building Works in accordance with clause 28 or as otherwise stated in this Contract.
(b)Clause 28 entitles the Builder to claim progress payments as set out in schedule 3, the terms of which are outlined above.
(c)Clause 11 is central to this dispute. Headed “Statutory Warranties” it provides:
To the extent required by the Domestic Building Contracts Act the Builder warrants that:
· 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;
· all materials to be supplied by the Builder for use in the Building Works will be good and suitable for the purpose for which they are used and that, unless otherwise stated in this Contact, those materials will be new;

·     the Building Works will be carried out in accordance with, and will comply with, all laws and legal requirements, including, without limiting the generality of this warranty, the Building Act 1993 and the regulations made under that Act;
·     the Building Works will be carried out with reasonable care and skill and will be completed by the end of the Building Period;
·     if the Building Works consists of the erection or construction of a home, or is work intended to renovate, alter, extend, improve or repair a home to a stage suitable for occupation, the home will be suitable for occupation at the time the Building Works are completed; and
·     if this Contract states the particular purpose for which the Building Works are required, or the result which the Owner wishes the Building Works to achieve, so as to show that the Owner relies on the Builder’s skill and judgement, the Builder warrants that the Building Works and any material used in carrying out the Building Works will be reasonably fit for that purpose or will be of such a nature and quality that they might reasonably be expected to achieve that result.

The warranties of the Builder, by clause 11 of the Contract, reflect the statutory warranties set out in s.8 of the DBC Act.

Conduct of the Parties in Relation to the Building Project

Following the execution of the Contract, engineering drawings were prepared by Antonov & Snashall Pty Ltd (“the Engineers”) in December 2006. On 11 December 2006 further plans of the development were prepared by GBG Architects Pty Ltd (“the Architects”).

On 15 December 2006, the building permit was applied for and on 21 December 2006 the revised plans by the Architects were submitted to the council.

On 18 January 2007, further plans were prepared by the Architects. In the same month, the Engineers prepared engineering computations for the development.

On 21 January 2007, Mr Blagojce Romanovski, the building surveyor, issued a Building Permit Stage 1 that only authorised the construction of the basement and ground floor.

On 9 February 2007, V.C. Gallagher Pty Ltd (“the Swimming Pool Engineer”) prepared structural engineering drawings for the swimming pools intended for each apartment.On 19 September 2007, the Swimming Pool Engineer issued the Certificate of Compliance.

On 3 May 2007, Mr Romanovski issued a Building Permit Stage 2. On 9 October 2007, a “Variation Building Permit” was purportedly issued by Mr Romanovski. This document was identical to the Stage 2 permit except that it identified the Swimming Pool Engineer and identified the variation as being:

Variation to include the swimming pool engineering as prepared by V.C. Gallagher Pty Ltd received from Mountview Prestige Homes.

Mr Vella denied that he ever applied for this permit, the authenticity of which was challenged. The Senior Member found that it had been fabricated by Mr Romanovski.

During the construction project, Mountview used a printed form entitled “Project Trade Contract” to engage contractors and materials suppliers. The manner of use of these forms was in issue before VCAT. These contracts mostly identified “Harry & Leon Mrocki” as the engaging party of the supplier or contractor. Mr Vella gave evidence that the Owners knew and approved of this use of the forms. The Owners denied authorising Mountview to engage suppliers and contractors in this manner.

At about the midway point of construction, Mr Vella complained to the Owners that the true value of the work he was supervising was considerably more than $3.5 million, the figure on which he had based Mountview’s fee. On 25 February 2008, MrVella wrote requesting a further $30,000 from the Owners, who agreed to pay the extra fee. However, in VCAT a contentious issue was whether the further $30,000 fee was in consideration of the increased value of the Building Works, above the original estimate, or was consequent upon variation of the Contract works to include the previously excluded paving and landscaping work. Mr Vella denied agreeing to a such a variation, contending that the landscaping and paving never formed part of the work he was to manage.

The project was completed and Mountview was paid the “Builder’s fee”.

On completion, a number of defects in the constructed building were evident, most of which involved water penetration issues. An unidentified musty smell was detected in the bathrooms of the apartments and leaks were identified in the swimming pools, scum gutter around the swimming pools, spa areas and roof. In addition, various issues with the flooring both in the basement and in the garden area were identified. The Senior Member made findings in relation to these defects which were not in issue on appeal.

The central issue in the proceeding before VCAT was who should bear the cost of rectifying these defects. The Owners contended that by reason of the warranties under clause 11 of the Contract, Mountview was responsible for rectification.

Summary of the VCAT Decision

The proceedings were heard in VCAT on 31 August 2009. There were two proceedings because the issues in relation to flooring defects involved another party, a contractor Blagoy Blageov, who was the second respondent to the first of the two proceedings. Mr Blageov is not a party to this appeal and the issues in each proceeding in respect of the claims against Mountview are identical. The Owners sought orders that Mountview rectify the defective workmanship in the development. The Senior Member dismissed the Owners’ applications and reserved costs.

The project, which had a total value in excess of $5M had been completed, yet the Senior Member found the Contract to be void for uncertainty. The Senior Member stated:

[53]In this case therefore I am satisfied that there was an ascertainable and determinative intention of the parties to contract and so if it can be ascertained what they agreed upon I should give effect to that intention. The problem is, what was the agreement?

The Senior Member’s conclusion was that:
[57]Although the parties have signed the Printed Contract its terms are so contradictory both internally and with what the parties had agreed that it cannot be given any effect, even to supplement what the parties had agreed upon orally.

The reasoning that the Contract was void for uncertainty was founded on several factors. The Senior Member concluded:

[50]… It is impossible to give effect to the whole of the Printed Contract and equally impossible to give any effect to any part of it because one would have to choose which part should be relied upon and which part should be ignored. There is no definite and ascertainable definite meaning to be derived from the document upon which I can safely act so I have no choice but to say that it is no contract. Such a position may not be often found but it is found in this case.
[51]It seems likely that the parties signed this document assuming that it recorded what they had agreed upon but it clearly does not. If they had understood what they were signing I doubt they would have signed it, at least in this form.

The Senior Member characterised the concept drawings as “rudimentary”. He found these drawings could not provide a sufficient description of the scope of works; it was not possible for Mountview to construct the development based on these drawings. The Senior Member also relied on the absence of specifications and an engineer’s design at the time of execution, documents which were specifically identified and contemplated by the printed terms of the Contract. Such findings, he reasoned, led to the Contract being uncertain.

The Senior Member stated:

[40]The obligation of the Builder, according to the Contract Document, was to build in accordance with its terms and that was clearly impossible. It was contemplated by the parties that specifications, engineering drawings and dimensioned working drawings would be provided and that the Builder would build from these. ...
[41]Clause 14 of the Printed Contract requires the Owners to supply a sufficient number of these documents to allow the Builder to construct the building works but that refers only to the plans, specifications and engineer’s design within the meaning of the Printed Contract which in this case could refer at most only to the six town planning or design development drawings which were clearly intended to be superseded by working drawings.
[42]Further, in the absence of specifications, it would have been open to the Builder to use any materials it liked so long as it achieved a result equivalent to what was depicted in the six sheets of town planning drawings. Quite obviously, that was not contemplated by the parties.

The Senior Member found that what had been agreed between the parties, before the Contract was signed, was that the Owner would supply Mountview with working drawings prepared by the architects, engineering drawings, and proper specifications. Mountview would manage the construction project to be built in accordance with these drawings and specifications, except for the landscaping and paving. The Senior Member also found that the parties had agreed Mountview would obtain quotations from trade contractors and suppliers for the building work and submit them to the Owners, who would have the ultimate say in which contractors or suppliers were engaged. The Owners would, and later did, pay these suppliers and contractors directly.

Mountview’s agreed role was to manage the project, and it had to do this with all reasonable care and skill, but Mountview was not responsible to the Owners for the work performed by the suppliers and contractors. The Senior Member found there was no evidence that the parties ever discussed that Mountview would guarantee the work, despite the existence of the warranties clause in the Contract. The Senior Member also found that the use of the “Project Trade Contract” form resulted in a contract between the Owners and the particular contractor or supplier, and not between that person and Mountview.

The Senior Member was satisfied that the swimming pools never formed part of the contemplated scope of works agreed to by Mountview. In so doing, the Senior Member referred to what he described as the usual practice of the trade that swimming pools were normally excluded from the scope of the builder’s work and were a matter for separate agreement with a specialist pool contractor. The Senior Member found that the building permits, applied for by Mountview, did not include the swimming pools and that Mountview gave no instructions to, and did not deal with, the pool contractor, Red Tag Pty Ltd. The Senior Member was also satisfied that there was never any agreement to vary the Contract to include the landscaping and paving in the scope of works to be supervised by Mountview.

The inconsistency between this earlier oral agreement and the Contract, and between the terms of the Contract as altered in handwriting, led to the conclusion that the Contract was void for uncertainty. The Owners were accordingly unable to enforce the warranties in clause 11 or make any claim for damages against Mountview for defects. Rectification of the written agreement was not sought by Mountview. That no such relief was sought was raised before VCAT.

Summary of the Owners’ Contentions

For the Owners, counsel submitted VCAT had erred in failing to give effect to the Contract; it had been fully performed by the parties. The findings, firstly, of inconsistencies between the signed document and a prior oral agreement between the parties and, secondly, that the terms of the written Contract were internally contradictory, did not support either the conclusion that the agreement between the parties was uncertain or that the written agreement had no effect, even to supplement what the parties had agreed orally.

The Owners contended that such findings offend the parole evidence rule and are inconsistent with the principle of merger. The Senior Member’s reasoning was contrary to the principles expressed by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[5] and Equuscorp Pty Ltd v Glengallan Investments Pty Ltd.[6] Further, the Owners submitted, this reasoning was inconsistent with the primacy to be accorded to signed written agreements.
[5](1982) 149 CLR 337.
[6](2004) 218 CLR 471.

The Owners contended the conclusion by VCAT, that the contract between the parties was too uncertain to be enforced, was not based on proper factual analysis and that there was in fact no uncertainty in the Contract. Mr Martindale submitted that the Senior Member should have opened his “judicial toolbox” to save the Contract, rather than “destroying” it through his finding of invalidity. Counsel submitted it is now well accepted that the task of construction of contracts by courts should be done with a bias towards upholding an agreement. This is particularly so when, as here, the substance of the agreement has been performed.

Referring to York Air Conditioning and Refrigeration (A/Asia) Pty Ltd v Commonwealth,[7] where it was stated that if the Court “comes to the view that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise”, the Owners contended that, instead of following this approach, the Senior Member fell into error. Having found that intention, by failing to focus solely on the terms of the Contract, as supplemented by the subsequent detailed drawings and engineers’ drawings that were adopted by the parties for the construction of the project, the Senior Member erred in failing to identify the terms of the agreement by which the project was completed. Confusion in the Senior Member’s reasoning must be evident since, in spite of finding an intention to agree, he still set aside the Contract. Despite the execution of that intention leading to a completed project, the arrangement between the parties was held void for uncertainty.
[7](1949) 80 CLR 11, per Williams J, 26.

The lack of construction drawings formed a substantial basis for the Senior Member’s finding of uncertainty. Counsel argued that there were several options to have found a binding contract. It was open to the Senior Member to find the parties had contemplated that the detailed specifications, engineering drawings and dimensioned construction drawings necessary to actually build the project would be provided by the Owner later, after execution of the Contract. An implied term to that effect could have been found. It was never intended by either party that the apartments could have been built from the concept drawings.

Alternatively, it was open to resolve the lack of construction drawings through the proper construction of the Contract. VCAT ought to have found that Mountview had agreed to “construct” the apartments on detailed drawings that the Owner would later supply referring to clauses 14 and 16, for a fee based on the concept drawings which were available at the time. A third avenue for dealing with the lack of construction drawings was to find that the date of contract creation was deferred until the detailed drawings were supplied.

The Owners submitted I should be mindful of the maxim: Id certum est quod reddi potest.[8]It supports the contention that a court should be reluctant to find a contract void for uncertainty at the time of agreement when certainty is reached in performance.
[8]“That is certain which can be rendered certain”.

Counsel contended that the Senior Member was drawn into error by having regard to the definition of a “costs plus contract”, confusing the proper interpretation of the terms of the written agreement. The form of contract used had been so amended by the parties as to render it no longer a “cost plus contract”. Thus it was not relevant in determining whether it was certain and valid to use the concept or definition of a “cost plus contract”. The Senior Member should have looked at the effect of that which was signed by the parties.

The Senior Member found further inconsistencies arose regarding both retention and ownership of materials under the Contract and, in so doing, it was argued he again fell into error. Counsel contended that the provisions in the Contract, concerning neither retention nor ownership of materials, raised issues of inconsistency and that the parties could enter into any agreement they so desired, as long as it was lawful.

VCAT wrongly concluded that, by the Contract, Mountview was not undertaking responsibility for the works. One reason for such finding was the absence of an agreed margin on labour and materials for Mountview. The Senior Member considered this omission to be inconsistent with the notion that Mountview had agreed to accept responsibility for trades and materials. The Owners contended there was no inconsistency raised by the lack of a builder’s margin because Mountview freely entered into the agreement and was paid a substantial Builder’s fee in consideration. Further, Mountview was relieved of the burden of financing the construction costs pending progress payments. The Owners again contended that in this context the parties may choose to make any bargain that is lawful. That such a bargain seems unusual or results in an allocation of commercial risk not usually adopted by parties in like bargains is not a proper consideration.

Turning to the question of whether the swimming pools were included in the scope of the Building Works, the Owners maintained that the finding that the pools did not form part of the work of Mountview, depended on the antecedent error of law that the Contract was void for uncertainty. If the Contract was found to be valid, then it necessarily follows that there was no sufficient basis for saying the pools never formed part of the Contract. This follows because the swimming pools were incorporated into the concept drawings included in the Contract, and only the paving and landscaping were expressly excluded from the Contract by Schedule 7. Finding that the swimming pools were excluded from the works was based on facts outside the written agreement. Further, the Senior Member’s reasoning that the variation building permit was a forgery was inconclusive, but highly prejudicial.

Counsel asserted the Senior Member fell into error in failing to provide proper reasons for finding that the agreement between the parties had not been varied to include the paving and landscaping in the works. No process of reasoning was evident and no reasons were given as to why the evidence of the Owners was rejected in favour of that of Mr Vella on this issue.

The Owners attacked the finding that the use by Mountview of a printed form to engage contractors in the name of the Owners founded an agreement between the contractors and the Owners.Counsel submitted that the Senior Member had failed to fully deal with the question of authority and had instead arrived at this finding by relying solely upon the acquiescence of the Owners. Knowledge of and acquiescence by the Owners in the form used by Mountview was insufficient to create a contract between the Owners and the contractors engaged. The Senior Member failed to adequately reason why the Owners were precluded from denying Mountview’s authority to engage contractors in this manner.

Summary of Mountview’s Contentions

Mountview supported VCAT’s finding that the Contract was void.

Alternatively, it contended that, if this submission faltered and the written contract was valid and enforceable, the Owners must still fail as no breach of the clause 11 warranties had been alleged or proved. The warranties contained in clause 11 were conditional on the “Building Works” which, by contractual definition, could only apply to those services which Mountview agreed to perform, not to the work performed by others under contractor and supply agreements.

Advancing the first proposition, counsel for Mountview submitted that the Owners had failed to show error in the Senior Member’s findings. Relying on Minister for Immigration and Ethnic Affairs v Wu Shan Liang,[9] counsel argued that the reasons of the Senior Member are not to be “analysed minutely and finely with an eye keenly attuned to the perception of error”. That there should be a bias towards saving the Contract is a proposition which only applies where there is a choice between a contract or no contract at all. The role of VCAT was to ascertain the objective intention of the parties, not to stretch judicial reasoning to make the terms of the written Contract certain. The correct question for VCAT to answer was “What were the terms of the agreement between the parties?”. What the Senior Member did was sever the written Contract from the agreement between the parties for uncertainty. There was no vitiating error of law.
[9](1996) 185 CLR 259, 271.

Mountview’s alternative proposition, if the Contract was found to be certain, is that this consequence does not result in the appeal succeeding. The warranties under clause 11 apply only to, or in relation to, Building Works. The proper reading of the Contract, particularly the construction of the term “Building Works” to be carried out by Mountview, is that the term in the Contract encompasses the provision of construction management services only and does not extend to the building work of contractors employed on the project. Mountview reasoned that because the “Cost of the Building Works” is defined by the Contract to be zero, when objectively viewed, Mountview was not responsible for the construction of a multimillion-dollar development. Further support was said to be found in the fact that it was not possible to build the development from the concept plans provided at the time of Contract.

Relying on statements made by Lord Wilberforce in Reardon Smith Line Ltd v Yngvar Hansen-Tangen[10] that when a court is construing a contract it must place itself in the same factual matrix as the parties were in when the contract was made, Mr Carr submitted that the Senior Member was entitled look at the surrounding circumstances when determining how to objectively construe the Contract;the Senior Member had not fallen into error in doing so. It may no longer be necessary to find ambiguity or uncertainty in a contract before extrinsic sources and evidence of the surrounding sources can be used. Mr Carr cited the view expressed in a leading Australian Contract Law textbook in support of this point.[11]
[10][1976] 1 WLR 989, 995.
[11]Seddon and Ellinghaus, Chesire and Fifoot’s Law of Contract (Butterworth, 9^th Australian Edition, 2008) 406−411 [10.12].

In any event, Mountview submitted, here the subject matter of the Contract was found to be ambiguous and unclear, opening the factual matrix to scrutiny. VCAT had not used prior oral terms to contradict later written terms. By his reasoning, the Senior Member had considered prior negotiations and their content to interpret the ambiguous and unclear subject matter of the Contract. Referring to the recent decision of this Court in 3143 Victoria St Doncaster Pty Ltd v Retirement Services Australia (RSA) Pty Ltd,[12] Mr Carr submitted that it was permissible to have regard to the surrounding circumstances in order that the contract might be construed to give effect to its commercial purpose. Thus the Senior Member had not fallen into error by using extrinsic materials to interpret the Contract.
[12][2010] VSC 317.

Submitting it might be thought a controversial issue in Australian law whether subsequent conduct should be considered when construing a contract, Mountview contended that if such conduct is examined there were a multitude of relevant facts presented to VCAT. For example, Mountview’s use of printed forms to engage contractors in the name of the Owners and Mr Vella’s submission of invoices noting his services as “construction management” support the construction of “Building Works” for which Mountview contends. Mountview pointed to an objective framework of facts found before VCAT to support this contention, including the evidence given by Mr Leon Mrocki supporting the finding that the Owners were to pay for all trades and retained authority to choose the trade contractors. This finding was also consistent with an objective reading of the Contract. Mountview was to be paid a fixed fee for construction management services; the warranties in clause 11 only related to building work identified by reference to these services and not the work carried out by contractors.

Mountview developed a further contention. Clause 11 is qualified by the words, “To the extent required by the Domestic Building Contracts Act the Builder warrants that …”. Mr Carr submitted that, should I find the written Contract valid and for the provision of construction management services only, the obligations undertaken by the “Builder” are not “work” under s.5 of the DBC Act.

To follow this submission, it is desirable that I set out some of the relevant provisions of the Act.

3.Definitions
builder means a person who, or a partnership which—
(a)     carries out domestic building work; or
(b)     manages or arranges the carrying out of domestic building work; or
(c)     intends to carry out, or to manage or arrange the carrying out of, domestic building work;
domestic building contract means a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a sub-contractor;
domestic building work means any work referred to in section 5 that is not excluded from the operation of this Act by section 6;
sub-contractor means a person who enters into a contract with a builder to carry out part of the work that is to be carried out under a domestic building contract;
5.Building work to which this Act applies
(1)This Act applies to the following work-
(a)the erection or construction of a home, including-
(i)any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home (such as retaining structures, driveways, fencing, garages, carports, workshops, swimming pools or spas); and
(ii)the provision of lighting, heating, ventilation, air conditioning, water supply, sewerage or drainage to the home or the property on which the home is, or is to be;

(b)the renovation, alteration, extension, improvement or repair of a home;
(c)any work such as landscaping, paving or the erection or construction of retaining structures, driveways, fencing, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home;
(d)the demolition or removal of a home;
(e)any work associated with the construction or erection of a building-
(i)on land that is zoned for residential purposes under a planning scheme under the Planning and Environment Act 1987; and
(ii)in respect of which a building permit is required under the Building Act 1993;

(f)any site work (including work required to gain access, or to remove impediments to access, to a site) related to work referred to in paragraphs (a) to (e);
(g)the preparation of plans or specifications for the carrying out of work referred to in paragraphs (a) to (f);
(h)any work that the regulations state is building work for the purposes of this Act.

(2)A reference to a home in subsection (1) includes a reference to any part of a home.

Mountview contended that the Contract did not require it to carry out or perform the construction work, that is to actually construct the project. The question is, in performing the construction management services required of Mountview under the Contract, whether Mountview is a “Builder” and its work, “work” to which the Act applies. Mountview contended for the negative. In support of this contention, I was taken to the decision of the Court of Appeal in Shaw v Yarranova Pty Ltd & Another[13] as to the proper construction of the statute.
[13][2006] VSCA 291.

Next, Mountview contended that the Senior Member’s finding that the swimming pools did not form part of the scope of Mountview’s work was one of fact, not one of law. Having regard to the nature of the process before me, this finding, it was submitted, should not be disturbed.

Mountview contended that the Owners’ submission, that the Senior Member did not refer to any evidence on which to base a finding rejecting the alleged variation to include the external paving and landscaping, was incorrect. The Senior Member referred to the oral evidence of both Mr Leon Mrocki and Mr Vella, as well as observing the absence of any written evidence to support the alleged variation. Mountview commended to me, as relevant, the observations of Eames J (as his Honour then was) in Eiken v Housing Guarantee Fund Ltd,[14] when he stated, and with respect I agree:

It may well be that the reason for decision of a specialist tribunal, especially a busy one, should not be required to provide the same comprehensiveness of analysis as might be required of superior courts and, as Fullagar J held in Michaelis Baily (Vic) Pty Ltd v MMBW (1980) 44 LGRA 65 at 67, the decisions of such a tribunal should “not be set aside by over legalistic analyses of reasons stated or by over-zealous drawing of inferences from things not stated”.

The simple question of whether the evidence adduced was sufficient to establish a relevant fact to the Senior Member’s satisfaction was not a question of law if the finding was open. On this point, it could not be said that no evidence was put forward to support the relevant finding, or that the body of evidence in support of a finding of the variation was so overwhelming that failure to accept it was perverse.

[14][2001] VSC 23 at [42].

Mountview contended that if the Court accepted the propositions advanced by the Owners, the remedy they sought, of remitting the proceedings to a differently constituted VCAT tribunal for rehearing, was inappropriate. It would necessarily disturb the finding of fact made below. Further, if the Contract is found to be enforceable, but the warranties are not applicable to the defects alleged, there is no relevant breach of the Contract referable to the building work provided by Mountview and no reason to send the matter back to VCAT.

The Issues for Determination

The issues which may arise for resolution are these:

(a) Is the written Contract uncertain to such an extent that it is no contract?
(b)If the written Contract is not a binding contract was there a contract between the Owners and Mountview? If so, how was it constituted and what were its terms?
(c)In respect of what was constructed, was Mountview the builder and was the work provided by Mountview “building work”?
(d)Was Mountview warranting, in the usual terms, the work performed by the trades and the material provided by suppliers used in the construction of the building?
(e)Were the two swimming pools included in the contract works?

(f) Did the contract works include, by variation, paving and landscaping?
Is the Written Contract so Uncertain that it is No Contract?

As in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[15] the critical point in issue concerns not the creation of legal relations but the nature of the legal relations created. There is no suggestion of error in the finding[16] that the signed Contract was intended to create legal relations.
[15][2004] HCA 52; 219 CLR 165; 79 ALJR 129; 211 ALR 342.
[16]Set out above at [35].

In Alphapharm, an issue was whether a party who signs a contractual document may, nonetheless, not be bound by its terms because its representative did not read the document. The High Court reaffirmed the significance which the law attaches to the signature (or execution) of a contractual document, whether or not read by an executing party, as consistent with the objective approach to the determination of the rights and liabilities of contracting parties. The Court restated that objective approach in these terms:

This Court, in Pacific Carriers Ltd v BNP Paribas (2004) 78 ALJR 1045 at 1050-1051[22] has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.

Having found contractual intention, the Senior Member correctly focussed on the question “What was the agreement?”.

In Equuscorp Pty Ltd v Glengallan Investments,[17] an issue in the appeal was whether a written loan agreement, on which the appellant’s claim for debt was based, must fail, it being inconsistent with the terms of an alleged prior oral agreement that the loan was a limited recourse loan. As the limited obligations of the respondents had been met, the debt claim must fail. The respondents executed a written loan agreement. They alleged that the “operative agreement” was not contained in that writing but was reached earlier and was wholly oral. As in this proceeding, rectification was not sought.
[17][2004] HCA 55; 218 CLR 471; 211 ALR 101; 79 ALJR 206.

The High Court found the loan agreement to be recorded wholly in the signed written agreement. In a joint judgment, Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ stated:

The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents’ case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither.
There are reasons why the law adopts this position. First, it accords with the “general test of objectivity [that] is of pervasive influence in the law of contract”. The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions.
Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. … The obligations of written agreements between parties cannot simply be ignored or brushed aside.
The conclusion that the respondents are bound by the written loan agreements may leave open the possibility that an earlier consensus reached by the parties was in each case a collateral agreement (made in consideration of the parties later executing the written agreement), but that has never been the respondents’ case. In another case it may leave open the possibility that the contract is partly oral and partly in writing. But that cannot be so here. The oral limited recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral, consensus, it was discharged and the parties’ agreement recorded in the writing they executed. It is the written loan agreement which governed the relationship between Rural Finance and each respondent. (citations omitted)

In Vroon BV v Foster’s Brewing Group Ltd,[18] an issue before Ormiston J concerned implication of terms to an apparently incomplete, but substantially performed, bargain. His Honour analysed at some length the debate in the cases and amongst academics on this issue, observing:

In Didymi Corp v Atlantic Lines and Navigation Co Inc … the Court of Appeal approved a passage in the earlier decision in which Lord Denning MR said at 57: “In a commercial agreement the further the parties have gone on with their contract, the more ready are the courts to imply any reasonable term so as to give effect to their intentions. When much has been done, the courts will do their best not to destroy the bargain. When nothing has been done, it is easier to say there is no agreement between the parties because the essential terms have not been agreed. But when an agreement has been acted upon and the parties, as here, have been put to great expense in implementing it, we ought to imply all reasonable terms so as to avoid any uncertainties”. … for the present I would accept that in those circumstances where the court is satisfied that the parties have reached agreement, judged by objective standards, then it should be more generous in giving effect to what is necessary to achieve business efficacy and the parties’ intentions, although their communications may have had an air of uncertainty and incompleteness about them. (Citations omitted)

[18][1994] 2 VR 32, 71.

The Senior Member considered applicable a principle expressed in York.[19] He must be taken to have concluded that this was one of those rare, exceptional cases where it is impossible to give effect to the evident contractual intention, impossible to find the means of applying the maxim id certum est quod reddi potest and consequently, as a last resort, considered he was constrained, in respect of an arrangement which had effectively been performed, to declare it void for uncertainty.
[19]York Air Conditioning and Refrigeration (A/Asia) Pty Ltd v Commonwealth (1949) 80 CLR 11.

In so doing, the Senior Member has fallen into error.

Williams J expressed that principle in York thus:

If the court comes to the conclusion that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise. In Scammell and Nephew Ltd v Ouston (1941) AC at pp268, 269 Lord Wright said “the object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation … it is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain”. In Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 LT 503 at p 512 Lord Tomlin, referring to the words “of fair specification” said “that is something which if the parties fail to agree can be ascertained just as much as the fair value of a property”. Lord Thankerton said “I am affected by the consideration that the contract is a commercial one and that the parties undoubtedly thought that they had concluded a contract” (1932) 147 LT at p 513. Lord Wright referred to “the legal implication in contracts of what is reasonable, which runs throughout the whole of modern English law in relation to business contracts … it is unnecessary, in my judgment, to multiply illustrations of this principle, which goes far beyond matters of price. After all, the parties being business men ought to be left to decide what degree of precision it is essential to express in their contracts, if no legal principle is violated” (1932) 147 LT at p 517. In the present case it is clear that the parties believed that they had made a concluded and enforceable contract and the provisions of the standard conditions are in my opinion sufficiently definite to enable the court to give them a practical meaning.

Where, as here, the project had been completed, the Senior Member ought to have directed the inquiry only to the practical meaning to be given to the terms of the Contract which remained in issue between the parties. Whether, properly construed, contractual terms are definite, clear, and capable of enforcement, should primarily be directed to those terms which remain in contention between the parties, particularly where the agreement is evidenced by a detailed written contract signed by the parties.

Whatever uncertainty there may have been about construction drawings, retentions, or ownership of materials, to highlight some examples, will not likely be to the point where contractual relations are reflected in a completed project. For reasons to which I shall return, not all of the practical difficulties, evident upon abstract textual analysis of the Contract and created by the form of expression of the bargain, rendered it impossible to find clarity and certainty in the terms alleged to have been breached when concentrating on matters of substance relevant to the current dispute. The issue is whether the terms alleged to have been breached are susceptible to being given a practical operative interpretation implementing, objectively, the contractual intention of the parties.

VCAT did not approach the question of construction in this way.Its approach, evident in paragraph [50] of the Senior Member’s reasons,[20] was to engage in global abstract textural analysis of the whole of the printed contract.This approach is erroneous.
[20]Set out above at [36].

Much complexity in the proceeding before VCAT emanated from matters of form, not substance. Uncertainty was perceived as introduced into the documented bargain by the handwritten amendments made to the printed form Contract. Some areas of ambiguity or uncertainty which arise on abstract textual analysis of the Contract do so in respect of matters which the parties have rendered certain when performing their obligations. For example, the inquiry before VCAT as to the lack of certainty in the concept drawings only obfuscates the issue. The project was built. It is common ground that dimensioned architectural drawings, engineering drawings and computations became available after the Contract was signed. There is no issue that the project was able to be, and was, constructed in accordance with these drawings. Equally, there was no issue that use of these later drawings was not inconsistent with any term of the Contract. The Court need hardly be concerned with the respects in which the parties to a contract may have deviated from its strict terms in ways which, being satisfactory to those parties, have not resulted in a dispute.

The lack of utility in inquiry into every aspect of uncertainty in the bargain was explained this way by the authors of Cheshire & Fifoot’s Law of Contract.[21] Noting that whether the subsequent actions of the parties can clarify what was previously unclear is a matter of some controversy.[22] They comment that the logical objection, commonly proffered, to using subsequent conduct or statements to ascertain intention at the time of contract formation, loses force when it is understood that a contract is a dynamic thing and that the parties’ conduct, subsequent to contract formation, may expressly or by implication clarify or illuminate what was once uncertain.[23]
[21]LexisNexis, 9th Aust Ed. at [6.6].
[22]See for example Sports Vision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103, 115-6; Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310.
[23]Farmer v Honan and Dunne (1990) 26 CLR 183, 197; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 and Re Galaxy Media Pty Ltd (2001) 167 FLR 149; [2001] NSWSC 917 at [74]; affirmed on appeal in Walker & Sherman & Anor v Andrew & Ors [2002] NSWCA 214; Custom Credit Corporation v Gray [1992] 1 VR 540; See also Carter et al, Contract Law in Australia (LexisNexis, 5^th Ed, 2007) 4-12.

The Owners correctly submitted that both they and Mountview were bound by the signed written Contract. Mountview agreed to accept a fixed fee; the Owners would pay all the bills. Further, the Owners contended there was no uncertainty as to the services to be performed by Mountview under the Contract.

The Owners submitted, and I accept, that this is not a case of last resort where the consequences reached in Scammell v Ouston[24] must obtain. I find VCAT erred in law in holding that the Contract was void for uncertainty or that it was too uncertain to constitute the agreement between the parties. Each party is bound to it and it is the repository of their agreement by which the project was completed. The proceedings had to be resolved on this basis.
[24][1941] AC 251.

How is the Contract Now Being Enforced by the Owners?

The next question is whether any relevant contractual term is uncertain in the dispute remaining between the parties post project completion.Starting with the pleadings, the issues of contractual terms and their breach were limited and were consistent with the project having been completed.

The pleadings alleged that the Contract, the terms of which had been breached, was a contract to construct two double-storey apartments (with basements) and two swimming pools, which were defined as “the Works”. The particulars clarified that the contract alleged is partly in writing and partly to be implied. Insofar as it was written, the document is the Contract identified above. The particulars alleged that insofar as the Contract is to be implied, it is implied to give business efficacy to the agreement between the parties. The pleading does not identify what part of the agreement between the parties, relevant to the dispute, is implied.

The Owners alleged breach of clause 11 of the Contract and the warranties given in three respects, supported by particulars (which I will not set out):

(a)The Builder failed to ensure that the Works were carried out in a proper and workmanlike manner or in accordance with specifications incorporated into the Contract;
(b)The Builder failed to ensure that all material used in the Works were good and suitable for the purpose for which they were used;

(c) The Builder has failed to ensure that the Works were suitable for occupation.

By its defence, Mountview denies the Contract as alleged. The pleading is vague and imprecise. It appears to contemplate, despite the denial, that there was a contract between the parties asserting “that the Contract never included the swimming pools and that its role as Builder was limited to that of a construction manager”. Further, Mountview admits the terms of the Contract, but alleges “that the warranties and terms and conditions were limited to its role as a construction manager”. What is plainly not raised on the pleadings is any allegation that the contract is void for uncertainty, but Mountview did identify in a rudimentary way the core issue that the warranties were limited, having regard to the extent of works for which it was responsible.

No other, or different, issues were raised in opening addresses. The Owners complained that Mountview, in final address, first invited VCAT to find the Contract void for uncertainty, calling in aid an often cited passage from the judgment of Lord Wright in Scammell v Ouston, a submission which found favour with VCAT.

As VCAT ought to have found that the agreement between the parties was that alleged by the Owners, namely the Contract, and as the issue raised in the dispute was whether Mountview had breached clause 11, the relevant issue of construction concerned clause 11.

The Construction of Clause 11

The meaning of clause 11 is to be determined by what a reasonable person would have understood it to mean. That requires consideration not only of the text of the Contract, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. This statement, it was submitted, might be pre-conditioned by a requirement of ambiguity in the clause. The issue was said to be controversial. The pre-condition of ambiguity is the traditional view, based on Codelfa.[25] As recently as 2002 in Royal Botanic Gardens and Domain Trust v South Sydney City Council,[26] the High Court was, it was submitted, adhering to that view.
[25]Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352.
[26][2002] HCA 5.

It is now settled that in Pacific Carriers[27] and then in Alphafarm,[28] the High Court has removed the condition of ambiguity before the surrounding circumstances or factual matrix, so the context and purpose of the transaction may be taken into account in construing commercial contracts.[29] In International Air Transport Association v Ansett Australia Holdings Ltd (Subject to DOCA):[30]

In giving a commercial contract a business-like interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market. This is a case in which the court’s general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The agreement has a history; and that history is part of the context in which the contract takes its meaning. (Citations omitted)

[27]Pacific Carriers Ltd v BNP Paribas (2004) 78 ALJR 1045.

[28]See paragraph [71] above.

[29]At intermediate appellate level, some relevant decisions include: Victoria - Agushi v Spiteri [2008] VSCA 89 at [29]; Federal - Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144 at [44], [100], [238]; Colby Corp Pty Ltd v Federal Commissioner of Taxation (2008) 165 FCR 133; [2008] FCAFC 10 at [34]-[49]; NSW - Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 at [107]–[109], [263]-[265]; Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64; Qld - Callide Power Management P/L v Callide Coalfields (Sales) P/L [2008] QCA 182.

[30](2008) 234 CLR 151; [2008] HCA 3, at [8] per Gleeson CJ.

In determining the contractual allocation of responsibility agreed between the parties by clause 11, it is important to distinguish between the project, which was to be constructed for the Owners, and the work which was to be carried out and completed by Mountview, a distinction evident, as the Owner’s counsel put it, in the difference between the value of the project to the Owner and the consideration paid to Mountview under the Contract. The former can, realistically, only be identified by the detailed architectural drawings, engineer’s design, and specifications which were, apparently, made available to those who carried out the construction work during the course of the project. The latter is evident from the terms of the Contract.

Clause 11 of the Contract had not, per se, been altered by the parties prior to executing the Contract. However, the proper scope and application of that clause depends upon definitions. Through those definitions some of the handwritten alterations and additions to the printed form Contract are brought into play.

The most significant question about the proper scope of clause 11 is: what are the Building Works which are the subject of the warranties? The definition of that expression in clause 1 refers to “the Works to be carried out and completed by the Builder as shown in the Contract Documents and as varied in accordance with this Contract”. In the present circumstances, the significant part of this definition is the words “the Works to be carried out and completed by …”. This part of the definition raises two issues to be resolved: what are the Works and what is to be carried out and completed by Mountview?

The word “Works” is not specifically defined. Contextually it refers to the work which is shown in the “Contract Documents and as varied in accordance with this Contract”. “Contract Documents” is another defined term. It means “this signed Contract and the conditions, signed Specifications, signed Plans and an Engineer’s Design”. The reference to “signed” is to the process of initialling or signing a copy to identify that copy document as forming part of the Contract. These documents are separately identified by the entry in the particulars of sale set out above at [17]. The purpose of this entry is to specify for the proper construction of the terms, the incorporated documents, which define what is to be built and how, its dimensions, the materials to be used and other matters of detail.[31]
[31]A detailed description of the building work is required by s.31(1) DBC Act.

Mountview agreed to give the clause 11 warranties when the Contract was formed. At the time of contracting, there was no detailed description of the construction works. The evidence given by the architect, Mr Genovesi, to VCAT was that it was not possible to build the project from the six sheets of concept drawings. Thus, it could be contended, and was before VCAT, that there was considerable uncertainty at that time as to what could be constructed under the Contract. Two observations are pertinent. The extent of the Works to be constructed does not form part of the dispute, as the project has been completed. Rather, the issue is the extent of the Building Works warranted. The construction work was not to be undertaken by Mountview. The question which arises in this context is whether the fact that the Contract documents were limited to the signed Contract, the conditions and the six sheets of concept plans, is sufficient to give certainty to the obligations being assumed by Mountview by clause 11. What had Mountview undertaken to carry out and complete under the Contract?

Where construction work, paid for by the Owners, is being carried out by others, not Mountview, using materials supplied by others to the Owner’s specifications, the lack of certainty in what was to be actually constructed, in terms of detailed dimensions, materials specifications and the like, may not render uncertain the scope of Mountview’s warranty obligations. Further, the Owners engaged and paid a site supervisor. What remains for Mountview, “the Builder” to carry out and complete under the Contract, its scope of “building works”, is administration, supervision and like tasks, which can be described as the role of a contract manager. That this is the scope of the Building Works for Mountview under the Contract is not in my view uncertain or ambiguous. It might be thought that the role of contract manager is not the subject of detailed specification but I do not think this renders the role uncertain in its scope. The role of contract manager excluded onsite supervision of trades, as Mr Adam Vella was employed directly by the Owners to supervise on-site and his role was a known circumstance between the parties at the time of contracting.

There was no issue raised in the proceeding that Mountview may have negligently discharged its duties as a contract manager, although the Owners have alluded to the possibility of such an allegation. There was no challenge to the finding of the Senior Member that “while I am satisfied that these [referring to stated findings] are defects, I am not satisfied they arise by reason of the failure of the builder to supervise the work with reasonable care and skill”.

Further, I consider that this construction of the scope of Building Works under the Contract is unaffected when regard is had to the surrounding factual matrix. Mr Martindale described the scope of the Building Works as being to build two apartments and basement for a fixed fee with the Owner paying all the bills. I do not accept this contention.

Although ambiguity is not a pre-condition to open the surrounding factual matrix to assist in construing the contract, for Mountview, Mr Carr submitted that ambiguity is to be found in the scope of Mountview’s work as defined by the Contract. He submitted if there is no cost of Building Works, how can there be a contract to build? If the Contract is not for Mountview to build, what defines the precise scope of the builder’s works? I consider this question is answered, with sufficient certainty, by the terms of the Contract, but either way, the conclusion as to the scope of Building Works of Mountview is not altered when the surrounding factual matrix is examined. Once it is seen that the scope of the Building Works is contract management, there is no difficulty or uncertainty arising from the generic description of the project provided by the concept drawings.Such drawings cannot, with certainty, define the constructed project but can define a management role.

There is a second path to this conclusion through the terms of the Contract. By clause 12, the Owners must pay Mountview the Price of the Building Works in accordance with clause 28. Clause 28 entitled Mountview to claim progress payments as set out in schedule 3 which, in turn, provided for progress claims to be submitted at the end of each month. The Price of the Building Works to be paid by the Owners is defined; it means the total of the Cost of the Building Works and the Builder’s fee. Each of those items is also defined; Cost of the Building Works means the amount determined in accordance with schedule 4 and Builder’s fee means the amount determined in accordance with schedule 5.

The Cost of Building Works, for Mountview, is nil. Schedule 4 has been partially amended in handwriting, as noted above. These costs are allocated to the Owners by the terms of the Contract.Schedule 4 includes a list of items which form part of Cost of the Building Works. Further, the special condition in schedule 6, set out above, provided that all accounts for the project were paid by the Owners after being approved for payment by Mountview. Unsurprisingly, in executing the project, the practical effect of this term was that all the trades and materials were paid for by the Owners, not Mountview.Schedule 5 set the Builder’s fee at $247,500, thus the Price of the Building Works was nil plus $247,500. As I have noted above, the value to the Owners of the project was in excess of $5M.

That the responsibility for financing the project was agreed in this way is significant in determining the contractual allocation of risk intended by the parties. The handwritten special condition carries greater significance in identifying the intention of the parties than the printed terms. The special condition, when read with the terms which define the payments which Mountview was to receive, does not leave uncertainty as to the works to be undertaken and completed by the Builder under this Contract. Not included on the Builder’s account is responsibility for the work of the contractors and materials supplied.

The difference between the Cost of the Building Works, as incurred by the Owners in the project, and the Price of the Building Works payable to Mountview, as defined by the Contract, renders clear that the scope of the Building Works, in the context of the special condition and other handwritten additions and amendments, is contract management. This interpretation is arrived at by construing the terms of the Contract and is, in my view, clear of vitiating uncertainty. It is in the clarity of what is to be paid by whom, rather than what can be built from the concept drawings, that the scope of the Building Works under the Contract is identified with certainty.

The terms of the written Contract do not require Mountview to carry out and complete the construction works involved in the project or to supply the materials used. Such works, being the Works which are usually specified in detailed dimensioned drawings, an engineering design and specifications, did not need to be detailed in the Contract Documents when the Contract was entered into. The evident intention of the parties was that such works would be performed by contractors engaged and paid by the Owners on construction drawings supplied to them or the on-site supervisor.

The commercial purpose of the agreement is identified. Objectively construed, control of construction work was retained by the Owners. The allocation of the risk associated with inadequate performance was, objectively, distributed in a like way. The Owners and/or their trade contractors and material suppliers were responsible for warranty defects in construction and materials, and Mountview was responsible for such failings in management of the Contract. The cost structure of the Contract is different from a true cost plus contract or a fixed price contract where the owner pays the builder and does not directly pay the trades and suppliers, thereby allocating control, and thus responsibility for, the construction work.

There was nothing in the surrounding circumstances known to the parties, and the purpose and object of the transaction to affect the conclusion reached by analysing the text of the Contract. The surrounding circumstances known to the parties, and the purpose and object of the transaction, emerge from the findings of the Senior Member. Mountview agreed it would obtain quotations from contractors and suppliers. There is nothing inconsistent with a contract management or administration role in agreeing to that task. Consistently with that role, the Contract provided that the Cost of the Building Works paid by Mountview was to be nil. In performance of the Contract, quotations from contractors and suppliers were submitted to the Owners, who directed Mountview as to whom to engage. Primary liability to pay contractors and suppliers was undertaken by the Owners.

Much earlier in this judgment, I noted some of the surrounding factual matrix. One matter I noted is that the Owners were not interested in Mountview’s offer to undertake the construction for cost, plus a 10% margin. Other additional matters that are consistent with this construction of the term “Building Works” include the evidence of Mr Leon Mrocki that at the time of contracting:

· There was no building permit;

· The Owners intended to pay for all trades, there was to be no mark-up for Mountview;

· The Owners were to pay all costs and insurances apart from the builder’s fee; and

· The Owners would employ Mr Adam Vella directly as an on-site building supervisor.

In support of a submission that the Senior member erred in finding the Contract void for uncertainty, this construction of the Contract, identifying the obligation of the Owners to pay merely the Builder’s fee and not the cost of carrying out the work plus the Builder’s margin, was put by counsel for the Owners as the proper construction. The consequences of this submission, however, extends further than the uncertainty finding. It flows through into the interpretation of clause 11. The content of Building Works in clause 11 is the content of “Works to be carried out and completed by” in the definition. The consistent interpretation of what it was that was to be carried out and completed by Mountview identifies the allocation of risk in the commercial purpose which, on objective analysis, the Contract expresses.

It is not necessary that I enter into the debate whether regard can be had to subsequent conduct to construe a contract. Although I have at times noted what occurred on the project, I do not find it necessary to have regard to the consistency between the terms of the Contract and the subsequent conduct examined by the Senior Member in construing the scope of the clause 11 warranties.

One issue in this context, which was the subject of submissions before me, was that in its role as contract manager using the HIA standard form Project Trade Contract, MrMartin Vella engaged the trades, signing these contracts on behalf of the Owners. VCAT found that MrVella’s use of these forms created valid contracts between the Owners and the contractors. The Owners attacked this finding. I have noted the submission made.[32]Such conduct appears consistent with the role of Mountview as a contract manager, the special condition in schedule 6, and the fact, known at the time of contracting, that the owners would, and did, employ an on-site works supervisor. I do not rely on that conduct in construing clause 11. Its relevance, if any, is to issues of breach of that clause.
[32]At [55] above.

There were no disputes arising in the proceeding on these contracts between the Owners and the relevant contractors. The Owners were unable to deny the authority of Mountview to do so in any contest between them and the contractor. Mr Martindale did not suggest otherwise. MrMartindale directed his submission to issues between the parties to this proceeding, about Mountview’s authority to so act. This issue does not arise for determination and I need not give it further consideration. Any error of law which might be attributed to VCAT on this issue, and I do not so attribute, is of no consequence.

Mountview developed a submission that the obligations undertaken by it were not “work”, for the purposes of s.5 of the DBC Act. As I have concluded that there is no breach of clause 11 established, it is not necessary to deal with this submission. However, I will briefly state my view that the introductory words to clause 11, “To the extent required by the Domestic Building Contracts Act the Builder warrants that …”, do not produce the consequence that the warranty is devoid of content because the Act has no application. Section 8 of the DBC Act applies to the Contract because the statutory warranties are given by a “builder” about the work to be carried out under a domestic building contract. “Builder” includes a person who manages or arranges the carrying out of domestic building work and a “domestic building contract” means a contract to arrange or manage the carrying out of domestic building work. Mountview is a builder for the purposes of the Act by reason of being a party to a construction management contract, which is a contract to manage the carrying out of domestic building work. The work being managed falls within the description of building work to which the Act applies in s.5 of the DBC Act.

The facts of Shaw v Yarranova, which Mr Carr cited in support of this submission, are distinguishable from the present circumstances; a distinction made evident by comparing the reasoning of the majority, Eames and Neave JJA, with the dissent of the Chief Justice. The majority held the words “manage or arrange” and “carrying out of domestic building work” were to be read down as referring to the practical activities involved in the work of constructing a building. In distinction to the present circumstances, in that case the “builder” was a developer who, as vendor, contracted with Shaw as purchaser to sell an apartment “off-the-plan”. It was to be constructed in Boyd Tower at Docklands. The contract was based an REIV standard form sale of land contract. The total purchase price was $657,500 ($642,431 of which was attributed to the construction cost). A special condition of the contract contemplated that the vendor would enter into a major domestic building contract with “a Builder for the Works” to construct Boyd Tower and the residential apartments, retail facilities and associated facilities within the tower. The assignee of the vendor entered into a design and construct contract with a registered builder, Bovis Lend Lease Pty Ltd, to undertake the construction and development of Boyd Tower. On completion of Boyd Tower, Shaw withheld payment of the balance of the money due under the contract, alleging defects. The issue was whether the contract was a “major domestic building contract” in which case the builder could not, by reason of s.42 of the DBC Act, demand final payment. While the work of the assignee of the vendor in Shaw was not held to be characterised as part the practical activities involved in the work of constructing a building, I consider that no such distinction can be drawn about the work of Mountview.

Conclusion

I consider that the learned Senior Member erred in law in the conclusions that he reached about the Contract and in the reasoning that he adopted. I consider that the extent of the warranties provided by clause 11 of that Contract are not uncertain and are capable of enforcement. The question then arising was whether the alleged breaches of the clause 11 warranties were proved. On the proper construction of clause 11, the warranties are limited to Building Works constituted by the services provided by Mountview under the contract. Such services were limited to contract management. Mountview did not warrant, and here I am summarising the effect of the clause 11 warranties, the workmanship of the trades and contractors who built the project and the quality and suitability of the materials supplied to the project. Such workmanship and materials were performed or supplied by or under contracts to which the Owners, not Mountview, were parties. The Owners paid for such construction services and supervised, by their employee or agent MrAdam Vella, the provision of that work and materials.

Could the Outcome in VCAT Have Been Different?

Although I have determined that VCAT erred, I will not vary or set aside the disposition of the proceedings by VCAT. When the nature of the alleged breaches is examined in the light of both what is alleged in the pleading and the findings made by VCAT, no reason emerges to remit the proceeding. Having regard to the proper construction of the contract as I find it, there is no allegation of breach of clause 11, nor is there any finding of breach. Rather, there is no challenge to the finding made by the Senior Member when recording his findings in respect of the breaches alleged, that “While I am satisfied that these are defects, I am not satisfied they arise by reason of the failure of the builder to supervise the work with reasonable care and skill”.

As there is no basis in the pleadings or the evidence for findings of breach of clause 11 properly construed, were I to remit the matter to be heard and decided again in accordance with my reasons, the outcome must be the same. It would not be appropriate to permit any further evidence to be adduced or to allow any amendment of the pleadings to raise a different case on which further evidence might be relevant; it was not suggested the proceeding be remitted for that purpose.

In view of my findings, it is not necessary to consider the remaining matters raised by counsel in respect of the swimming pool, and the landscaping and paving.

Error of law having been shown, I will allow the appeal. For the reasons given, pursuant to s.148(7)(a), I affirm the decisions of VCAT in each proceeding. The Owner’s claims against Mountview in each proceeding are dismissed. I will hear counsel on the question of the costs of the appeal.

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[2010] VSC 624

22 DECEMBER 2010