Naraki v Dream Design Building Pty Ltd ACN 167 817 030 (Civil Dispute)

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

NARAKI v DREAM DESIGN BUILDING PTY LTD ACN 167 817 030 (Civil Dispute) [2021] ACAT 18

XD 1027/2020
Catchwords: CIVIL DISPUTE – oral contract for shop fit-out – unpaid final invoice – previous debt recovery claim – claim for defects and variations – claim for costs of completion – dispute as to terms of agreement and approved variations

Tribunal: Senior Member K Katavic

Date of Orders:  15 March 2021
Date of Reasons for Decision:      15 March 2021
AUSTRALIAN CAPITAL TERRITORY          )
CIVIL & ADMINISTRATIVE TRIBUNAL     )          XD 1027/2020

BETWEEN:
VAHID NARAKI
Applicant

AND:
DREAM DESIGN BUILDING PTY LTD ACN 167 817 030
Respondent

TRIBUNAL:Senior Member K Katavic

DATE:15 March 2021

ORDER

The Tribunal orders that:
(1)The respondent is to pay to the applicant the sum of $922.50 comprising:
(a)     $330 for the shop sign;
(b)     $583.50 for the ACAT filing fee; and
(c)     $9 for the ASIC search fee.
(2)The applicant’s claim is otherwise dismissed.

………………………………..
Senior Member K Katavic

REASONS FOR DECISION

Introduction

This matter paints an all too familiar picture about the pitfalls of parties entering into an oral agreement for building work. This matter illustrates the importance of ensuring terms of a contract are agreed in writing and any variations to such a contract are equally recorded in writing.
Mr Naraki, the applicant, engaged Dream Design Building Pty Ltd, the respondent, to complete a shop fit-out for a hair salon at the Australian National University (ANU). Mr Mehdi Mahadavi is a director and the licenced builder responsible for that company.
The parties in this matter have some history with the tribunal in respect of this dispute. The matter for determination by this Tribunal is a claim made by the applicant regarding the performance of a contract and compensation he claims he is owed by the respondent because the respondent failed to complete the work at all, or otherwise not in accordance with what was agreed. Determining what may or may not have been agreed between the parties has been a challenging but not insurmountable task for the Tribunal.

Background and the applicant’s claim

The respondent commenced debt recovery proceedings in the tribunal in respect of its final invoice that the applicant had not paid. In those separate proceedings on 11 August 2020, the tribunal ordered the applicant pay to the respondent the sum of $18,645 comprising $17,500 damages and the tribunal filing fee of $1,145. That dispute related to the same contract which is the subject of this dispute. Ordinarily, if there is a dispute regarding that payment and the performance of the contract a party would make a counterclaim and the matters would be heard together. That did not happen in this case, and because the applicant had not properly made a counterclaim at the time the respondent’s application was heard, the tribunal made an additional order to the effect that the applicant may make a counterclaim. The applicant did make a subsequent claim, however, it was, properly, a new civil dispute application.
The applicant claimed compensation, initially for more than $25,000, which exceeds the tribunal’s jurisdictional limit. At the hearing of this matter he reduced that claim to $7,560. This was particularised in a document dated 17 January 2021.[1]
[1] Exhibit A1
The applicant claims the parties entered into an oral agreement for construction of a shop fit-out based on agreed drawings containing design and material specifications, which was to be completed during a three-week rent free fit-out period. He claims the respondent abandoned the project on or about 7 October 2019 and he was unsuccessful in getting the respondent to return to the site and complete the works. The applicant claims he completed the fit-out at his own expense and obtained a certificate of occupancy, but has not been able to commence trading at the shop as a final certificate of the contracted works has not been provided. He submitted that what he got was not what he set out to achieve and was not consistent with the contract.
The applicant seeks to recover from the respondent:
(a)Amounts for plumbing, electrical and fire sprinkler works he says he carried out, including a management fee at 5% of the cost of those works totalling $8,464 (the completion items).
(b)Amounts for various items he claims have not been completed and formed part of the contract plus a management fee of 5% of the cost of those items totalling $3,778 (the variation items).
(c)$12,818 for rent paid after the end of the rent-free period for which the shop has not been operational.
The applicant’s total claim for $7,560 is the difference between the agreed contract sum of $45,000 and his claim (as set out above), plus amounts already paid under the contract, totalling $52,560. The calculation is silent on whether the applicant accepts he owes the respondent $17,500 as ordered by the tribunal. I assume it does. The only rational way of explaining the applicant’s position is that while he owes the respondent $17,500, he claims the respondent owes him $7,560 which is to be set off against that debt. The practical net effect is that he only owes the respondent $9,940. In any event, he has asked this Tribunal for an award of $7,560.
The respondent denies the claim and says that all work was completed as agreed and as varied by agreement. The final certification has not been completed because the applicant has refused to pay the outstanding amount of $17,500. It says the only outstanding step is a plumbing certificate which would have been completed had payment been made. The respondent says it is not responsible for any delay in opening the shop as this was caused by the applicant withholding payment. Had he not done so the shop would have opened in October 2019. The respondent submits it is not liable for the variation items as these were agreed by the applicant. The completion items were either not part of the agreement or varied by the applicant.

The hearing

This matter was listed for hearing and the usual directions preparing the matter for hearing were made at a preliminary conference on 14 December 2020.
In accordance with those directions, the applicant filed and served a series of emails, invoices, and other documents,[2] but no witness statements. The Tribunal also had regard to documents lodged with the application. The respondent filed and served a witness statement from Mr Mahadavi dated 19 February 2021 with several annexures.[3]
[2] Exhibit A1 email dated 19 January 2021 attaching various invoices and quotes
[3] Exhibit R1
At the commencement of the hearing, the Tribunal heard Mr Mark Southwell intended to represent the applicant. Mr Southwell has qualifications relevant to a building dispute such as this one but, problematically, was neither an authorised representative of the applicant nor a witness.
The applicant confirmed he wanted Mr Southwell to give evidence even though he had not filed and served a witness statement or report. To avoid vacating the hearing to enable witness statements to be prepared, the respondent’s representative agreed to Mr Southwell giving oral evidence. The Tribunal allowed Mr Southwell to give oral evidence but not represent the applicant as well. He did so and was cross-examined.
Mr Mahadavi also gave oral evidence and was cross-examined by the applicant. As the applicant had not filed a witness statement, he made submissions only and did not give any evidence before the Tribunal.
The Tribunal did not have reference to any evidence that was given in the earlier proceedings as this was regarded to be a separate dispute and findings had been made in that matter on that evidence previously.
Mr Southwell gave evidence for the applicant. He holds various building and construction qualifications which were not challenged by the respondent. He told the Tribunal that he concluded what had been constructed at the shop was not consistent with the agreed drawings. He based this conclusion on comparing what he had seen on site, sometime after 11 August 2020, and the drawings prepared by the respondent.[4]
[4] Exhibit R1 annexure 1
Mr Southwell took the Tribunal to each of the drawings and identified those items he considered had either not been done or had been done differently. I have set out below each of the items identified:
(a)The air conditioning unit was not installed by the respondent (and not required to be), but Mr Southwell considered it was the responsibility of the builder and the plumber to make provision for a condensation line which was not done.[5]
(b)The “Hair Crew” sign was not done.[6]
(c)The furniture layout showed a hair wash chair which required a hot and cold water service and should form part of the contract.[7]
(d)The reflected ceiling plan showed a track with six lights fitted to it, fixed to the ceiling, which was not installed.[8]
(e)The drawings specified benchtops being midnight black quartz, which was not installed, and a different benchtop was installed.[9]
(f)The west elevation showed a benchtop height of 860mm which was constructed 900mm high making the benchtop and mirror higher requiring a pelmet of 160 millimetres to be left out to ensure the mirror could fit.[10]
(g)The west elevation showed four draws but five were installed.[11]
(h)The south elevation showed open shelves with a pair of down lights illuminating each shelf which was constructed with cupboard doors instead and additional modifications to accommodate the installation of a hot water system.[12]
(i)The east elevation showed a waiting bench seat comprised of a ‘soft seat’, combined with a higher bench accommodating the till and POS machine. The cushions for the bench seat were not installed.[13]
[5] Exhibit R1 annexure 1, drawing page 1 of 4
[6] Exhibit R1 annexure 1, drawing page 1 of 4
[7] Exhibit R1 annexure 1, drawing page 2 of 4
[8] Exhibit R1 annexure 1, drawing page 2 of 4
[9] Exhibit R1 annexure 1, drawing pages 2, 3 of 4
[10] Exhibit R1 annexure 1, drawing page 3 of 4
[11] Exhibit R1 annexure 1, drawing page 3 of 4
[12] Exhibit R1 annexure 1, drawing page 4 of 4
[13] Exhibit R1 annexure 1, drawing page 4 of 4
Mr Southwell opined that this kind of fit-out could be completed within three weeks. His opinion was based on a rent-free period being offered to the tenant. He regarded it normal practice for a fit-out to be completed during the rent-free period, in this case three weeks, which was ample time to finish the job. He opined that a tenant would incur damages if it continued beyond the three weeks.
Mr Southwell also told the Tribunal based on his review of the applicant’s material, further plumbing and electrical costs were incurred to complete the job to obtain a certificate of occupancy. He considered it was normal practice for the builder to issue a final certificate, which in this case was required before the shop could open, with the final payment becoming due and payable upon the issuing of that final certificate.
Under cross examination, Mr Southwell accepted that he had no idea what was agreed between the parties or how the parties had agreed on variations. He was not privy to any of those discussions before or during construction. He considered the parties may have agreed on variations orally, but he expected that they were usually written down and not agreed without written consent. He conceded he had no specific knowledge of what had transpired between the parties. He further conceded that none of the defects on the drawings that he had identified prevented the shop from opening but he considered that the shop could not open because the final certificate had not been provided by the builder.
In relation to the hot water system, he told the Tribunal that because the hair wash chair had been shown on the drawings it impliedly required a hot and cold water service which the builder should have known. He could not identify the provision of a hot water system on the plans or say what was agreed between the parties. He further accepted that a condensation line for the air-conditioner was not depicted on the drawings but said it was implied and part of the plumbing.
When cross examined about the track lighting, he accepted that a manhole had been installed in the ceiling, not by the builder, but considered the track lighting could have been installed over the manhole without preventing access to it.
Mr Mahadavi gave evidence before the Tribunal in addition to relying upon his witness statement. He told the Tribunal that the parties had agreed to proceed with the construction of the shop fit-out based on the drawings, changes were made after the work started and during construction. He said these variations were on the instruction and approval of the applicant. He said the applicant was on site every day full-time and would make decisions and request changes while tradespersons were on site. He said what was installed was what the applicant agreed.
Mr Mahadavi gave evidence that the hot water system was never part of the agreement. He said the applicant believed the hot water system was to be provided by the ANU, and as such, no provision was made for it. He told the Tribunal that after the applicant checked with the ANU, further alterations to the design were required to accommodate the installation of a hot water system, which included changing joinery. The hot water system was subsequently purchased, but according to Mr Mahadavi it was not installed as the respondent had suspended works until the applicant paid outstanding monies owing to the respondent.
Mr Mahadavi informed the Tribunal that the construction work had passed its final electrical inspection and certification by the certifier. Only the final plumbing certification remained outstanding to issue a final certificate of completion. Mr Mahadavi said this plumbing certification would have been obtained and the plumber would have returned to complete the work had the respondent’s invoice been paid.
In relation to the various items Mr Southwell had identified as being constructed inconsistently with the drawings, Mr Mahadavi said the following:
(a)The strip lighting was not installed as the applicant met the electrician onsite and cancelled the item due to its cost and he was not charged for this item.
(b)After the ceiling sheets had been installed, a third party cut a manhole in the ceiling in the location where the track lighting was intended. It was not possible to install the track lighting as intended and the applicant agreed not to proceed.
(c)Cushions to the bench seat were not part of the agreement.
(d)The sign had not been designed and would have been installed had the applicant paid the outstanding invoice.
(e)The pelmet was removed at the applicant’s instruction to the joiner due to insufficient space being between the mirror and the ceiling.
(f)The applicant met with the joiner and selected stone for the benchtop which was installed. The applicant was on site and discussed the joinery with the joiner, carried out measurements with the joiner and approved the joinery as it was installed.
(g)The condensation line required for the air-conditioning unit was not part of the agreement and the responsibility of the applicant and the air-conditioning installer.
Mr Mahadavi denied the respondent was responsible for the air-conditioning remote control as it was not engaged to do any work in relation to the air-conditioner. He said the washbasin was installed during the fit-out. He also rejected that the fire sprinklers where part of the agreement and this was never included on the drawings. He also said the payment to the certifier was the responsibility of the applicant and not the respondent. He further rejected that the plans included a power point next to the cash register and that the applicant had agreed that a power point to service a cash register was on the back wall. In his statement he said this was because the wires could not be installed into the cement wall and adding a frame in a cavity would reduce the area of the shop which the applicant did not want to do.
Mr Mahadavi denied the agreement included a time frame. Under cross-examination he rejected the proposition that the parties agreed the job would be completed within three weeks. He said a time frame was never agreed.
Mr Mahadavi told the Tribunal that around 15 October 2019 he saw the shop being advertised as open on a Facebook page. A final certificate of completion had not been provided by the respondent because the applicant had not paid its invoice. Mr Mahadavi says he told the ANU that the applicant was trading without a final certificate and the shop was subsequently closed.
Mr Mahadavi was cross-examined by the applicant on various issues which was made difficult by the applicant making general commentary and statements without asking Mr Mahadavi a question. The Tribunal afforded the applicant some latitude in this regard however the Tribunal did not permit the applicant to offer his version of events during his questioning of Mr Mahadavi. Mr Mahadavi reiterated that all variations where based on the instruction and approval of the applicant.

What did the parties agree?

It is common ground that the parties entered into an agreement for the construction of the applicant’s shop fit-out at the ANU. The terms of that agreement where mainly oral and based on four drawings.
The applicant paid the respondent a deposit of $10,000 and a second payment of $17,500. The applicant must also pay the sum of $17,500 to the respondent in accordance with the orders made by the tribunal on 11 August 2020.[14] The tribunal, having made such an order, means the total contract sum is $45,000.
[14] The tribunal also awarded the respondent $1,145 for the tribunal filing fee
The task for this Tribunal is to determine the terms of the agreement. Agreements can be in writing, oral or partly both. The Tribunal in this case must determine what the terms of the agreement were in circumstances where variations were made during construction orally between the parties. The parties in this matter dispute what was and was not agreed during construction.
Having regard to all the evidence, the Tribunal makes the following findings:
(a)The agreement between the parties was oral and based on four drawings.
(b)Some of the items described and specified in those drawings were the subject of variation.
(c)The applicant had considerable oversight in relation to the construction. I accept he was on site every day on a full-time basis.
(d)The applicant gave instructions as to variations and approved those variations orally with the respondent and other tradespersons.
(e)There was no agreed time frame for the works to be completed.
(f)The applicant was required to pay they respondent’s final invoice.
Very little about this case suggests normal practice was adopted, therefore I cannot be satisfied that the parties agreed the final invoice was due and payable after a final certificate of completion was issued.
The applicant withheld payment of the respondent’s invoice causing the respondent to suspend work. Had he paid the invoice the respondent would have completed the job and issued a final certificate of completion. This would have enabled the applicant to commence trading. Any defects of the kind referred to by the applicant and Mr Southwell would not have prohibited the shop from trading and may not have been the subject of dispute between the parties. It would not have prevented the applicant from exercising his rights in relation to any defects.
I accept the evidence given by Mr Mahadavi. The applicant did not give evidence to the contrary as I have explained above. Although Mr Mahadavi was cross-examined, his evidence is unchallenged.

I find that the shop fit-out the applicant received as at the point the respondent ceased work was consistent with the terms agreed between the parties and performed in accordance with the agreed drawings,[15] as varied by oral agreement upon the applicant’s instruction. The agreement did not include a timeframe for completion. The respondent’s final invoice was due and payable when issued, not after the final certificate of completion had been provided.
[15] Except for the shopfront signage as discussed further in these reasons
The issues raised by the applicant are discussed below.

What, if anything, is the applicant entitled to?

The applicant seeks to recover, amongst other things, costs associated with completing the fit-out and the cost of items considered defects.
I am not satisfied what has been described by the applicant and Mr Southwell in this case are defects.
I am satisfied the applicant instructed the respondent and other trades in relation to the performance of the work and approved variations according to the instructions he had given. This includes a cash register power point, strip lighting, the track lighting, the joinery, bench top, and the mirror.
I am not satisfied the supply and installation of the hot water system formed part of the agreement. I am satisfied that a variation to include a hot water system was approved by the applicant but the respondent did not take steps to complete the installation and did not charge the applicant for such work in its final invoice. I am satisfied that various changes were made to the joinery to accommodate the hot water system and this was approved by the applicant.
I am not satisfied the respondent was responsible for the air-conditioning, including the installation of a condensation line. Whether this is a matter of common sense and to be implied as the responsibility of the builder, I am not satisfied in this case that it was. This is because it is not referred to in the drawings and I am not satisfied the respondent was engaged to do anything in relation to the air-conditioning unit and is further not responsible for the remote control.
I am not satisfied the agreement included provision of cushions to the bench seat. All that is referred to in the drawing is a ‘soft seat’.
The applicant has claimed plumbing, electrical, and fire sprinkler costs, as he incurred these expenses to complete the building work to obtain a certificate of occupancy. In relation to the plumbing costs, had he paid the respondents invoice I am satisfied this cost would not have been necessary. I am not satisfied the applicant is entitled to recover this cost.
In relation to the electrical cost, I find the power point, plumbing, air-conditioning pipeline, and strip lighting were not the responsibility of the respondent as these were the subject of agreed variations by the applicant. In relation to the electrical costs associated with the three-phase hot water system, this was beyond the scope of works for which the applicant was charged by the respondent and therefore not recoverable.
I am not satisfied the fire sprinklers formed part of the agreement between the parties and therefore the applicant is not entitled to this cost.
The evidence in relation to the shopfront signage is difficult to reconcile. On the one hand Mr Mahadavi said it was going to be installed after the respondent’s invoice had been paid but gave oral evidence it was not included in the agreement. It is depicted in the drawings. I do not know whether they respondent’s final invoice included provision for the supply and installation of the shop front signage. There is no reference to the signage amongst the invoices annexed to Mr Mahadavi’s witness statement. I therefore conclude the shop front signage was part of the agreement and the respondent did not perform this aspect of the agreement. The applicant is therefore entitled to the $330 as claimed.
In relation to both the completion costs and the variation costs, the applicant has sought to recover a management fee at a rate of 5% of those total costs. I am not satisfied there is a basis for seeking such a fee and would not have awarded such amounts even if I had found the applicant was entitled to recover the completion costs and the variation costs.
I am not satisfied the applicant is entitled to recover rent paid from the end of the rent-free period while the shop remained closed. I have found that there was no time frame specified as a term of the agreement and the applicant elected not to pay the respondent’s final invoice which was due and payable. Had he done so, the respondent would have completed the work and provided a final certificate of completion. The applicant could have commenced trading and any of the items that were claimed to be defects would not have prevented him from doing so. As I have found though, these items were the subject of agreed variation.

Conclusion

The parties entered into an agreement to construct a shop fit-out. The agreement was mainly oral and based on agreed drawings. What was depicted on those drawings was the subject of variation agreed orally between the parties.
The applicant is entitled to the cost of the shop front signage as I am satisfied this was part of the agreement and not provided. He is not entitled to other items characterised as defects as I am satisfied these were the subject of variation approved by him. I am not satisfied the applicant is entitled to costs he incurred to complete the works as these were either not part of the agreement or would not have been incurred had he paid the respondent’s invoice. Upon payment the works would have been completed and the final certificate issued.
The applicant has been successful in relation to only one item in his claim. In such circumstances the tribunal may award the application fee be recovered by a successful applicant. In this case the applicant has claimed $583.50 for the ACAT filing fee and $9 for the ASIC search fee. I award the applicant those amounts.
The applicant also confirmed at the hearing the total sum he was seeking. This did not include interest. The application is not clear as to whether he seeks interest. In those circumstances I decline to make any award for interest.
The Tribunal orders:
(a)The respondent is to pay to the applicant the sum of $922.50 comprising:
(i)      $330 for the shop sign;
(ii)     $583.50 for the ACAT filing fee; and
(iii)   $9 for the ASIC search fee.
(b)The applicant’s claim is otherwise dismissed.
………………………………..
Senior Member K Katavic

Dates of hearing:	23 February 2021
Applicant:	In person
Solicitor for the Respondent:	Mr W Warton, WMG Legal

[2021] ACAT 18

15 March 2021

Key Legal Topics

Areas of Law

Contract Law

Legal Concepts

Breach of Contract

Unpaid Final Invoice

Claim for Costs of Completion