Royal & Sun Alliance Insurance Ltd and Ors v Buttigieg and Ors
[2001] VSC 475
•14 December 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 5046 of 2001
| ROYAL & SUN ALLIANCE INSURANCE AUSTRALIA LTD | Appellants |
| V | |
| PAULINE BUTTIGIEG, STEPHEN BUTTIGIEG & JAMES NOON | Respondents |
No. 6602 of 2001
| COMO CONSTRUCTION COMPANY PTY LTD (ACN 072 411 959) | Appellant |
| V | |
| PAULINE BUTTIGIEG, STEPHEN BUTTIGIEG & JAMES NOON | Respondents |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19, 20 and 21 November 2001 | |
DATE OF JUDGMENT: | 14 December 2001 | |
CASE MAY BE CITED AS: | Royal & Sun Alliance Insurance v Buttigieg | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 475 | |
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Two appeals by the builder and insurer appellants against orders of the Victorian Civil and Administrative Tribunal, which awarded the respondent owners damages in relation to a building contract – whether the owners’ termination of the building contract was unlawful; and hence whether the insurer was not liable to indemnify the owners under the insurance policy, and whether the builder was entitled to damages.
Domestic Building Contracts Act 1995 – sections 3 and 42.
Victorian Civil and Administrative Tribunal Act 1998 – section 148.
Foran v Wight (1989) 168 CLR 385.
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants in No 5046 of 2001 | Mr P Zappia | Herbert Geer & Rundle |
| For the Appellant in No 6602 of 2001 | Mr E Riegler | Minter Ellison |
| For the Respondents | Mr GF Hellyer | Secombs |
HER HONOUR:
Introduction
These two appeals from decisions of the Victorian Civil and Administrative Tribunal (“the Tribunal”) constituted by Senior Member Walker in its Domestic Building List arise out of the same circumstances and were by agreement heard together. The appeals were brought under section 148 of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”), which provides that a party to a proceeding may appeal to this Court, on a question of law, from an order of the Tribunal in the proceeding.
On 25 May 2001 Master Wheeler gave leave to the appellants in No 5046 of 2001 (“the insurers”) to file and serve a notice of appeal incorporating the following questions of law:
1.Having regard to clause 13 of the insurance contract did the Tribunal err in awarding the Respondents damages for delay?
2.The Tribunal having held that the building works were suspended by mutual agreement, was it open to the Tribunal to hold that the owners had lawfully served a notice pursuant to clause 43 of the building contract?
3.Did the Tribunal overstate the compensation payable to the Respondents by an amount of $1,545.88 by adding an allowance for the goods and services tax to the building costs of Mr Atchison which were relied upon by the Tribunal, when those costs already included an allowance for such a tax?
On 13 July 2001 Gillard J gave leave to the appellant in No 6602 of 2001 (“the builder”) to file and serve a notice of appeal incorporating the second and third questions in the order of Master Wheeler. It is convenient to refer to them in the case of both appeals as the first, second and third questions respectively, ignoring the fact that the first question is not relevant to the appeal by the builder.
The facts were found by the Tribunal in reasons for decision (“the reasons”) occupying 52 pages after a hearing lasting twelve days. I note that the parties were represented before the Tribunal by the same counsel who appeared before me. The documentary evidence which was before the Tribunal was before the Court, but there was no transcript of the oral evidence. The facts are lengthy and detailed, and only essentials need be summarised here.
The builder entered into a contract (“the building contract”) with the owners (and two other people no longer relevant) to build three townhouses or units at Niddrie. The owners intended to live in two of the units and to rent out the third. The building contract was on a form entitled Housing Industry Association Plain English Building Contract and carrying the endorsement “For the exclusive use of members of HIA”. The insurers provided the owners with building insurance in respect of the building works under a domestic building insurance policy (“the policy”). Numerous difficulties arose between the parties in the performance of the building contract, leading to the proceedings in the Tribunal.
After allowing some items to be credited in favour of the builder, the Tribunal ordered that the builder pay the owners the sum of $16,226.96, and that the insurers pay that amount to the owners under the policy. Both the builder and the insurers here appeal against those orders.
The second question
It is convenient to consider first the second question in the Master’s order. The submission of Mr Zappia, for the insurers, was that the termination of the building contract was unlawful, for reasons which are considered below, and accordingly no insurable event arose under the policy such as to entitle the owners to indemnity. Mr Riegler, for the builder, generally adopted the submissions of Mr Zappia and submitted further that, the termination being unlawful, the owners had repudiated the building contract by their conduct in purporting to determine it, and that repudiation had been accepted by the builder. Accordingly the builder was entitled to damages.
The relevant provisions of the building contract are clauses 37, 43 and 44, which read, so far as relevant:
Listing defects and Final Payment
37.0On final inspection, if the Owner agrees that there are no defects or incomplete Building Works, the Owner must make the Final Payment within 14 Days of the Notice of Completion. If the Owner claims that there are defects or incomplete Building Works, the Owner must give the Builder a list of them. The Builder and the Owner must sign the list and each must keep a copy. The Builder must carry out any necessary Building Works within 14 Days or as soon as reasonably practicable. The Owner must make the Final Payment within 7 days after both:
§ the defects are fixed and or outstanding work is completed; and
§ the Owner has received notice to that effect from the Builder.
.. .
Owner’s right to end this Contract because of a breach by the Builder
43.0The Owner may bring this contract to an end by giving written notice by certified mail to the Builder, if the Builder:
§ fails to proceed with the Building Works competently and diligently; or
§ suspends the Building Works unreasonably; or
§ refuses or persistently neglects to comply with the requirements of local or other authorities; or
§ refuses or persistently neglects to fix or replace faulty work or materials; or
§ is unable or unwilling to complete the Building Works or abandons this Contract; or
§ is in breach of this Contract.
43.1However, the Owner may only do so if the Builder remains in breach 10 Days after receiving a notice from the Owner specifying the breach and indicating that the Owner intends to bring this Contract to an end.
43.2The Owner may not bring this Contract to an end unreasonably or while the Owner is in breach of it.
Owner may get another Builder to finish work
44.0If the Owner brings this Contract to an end under Clause 43, then the Owner’s obligations to make further payment to the Builder is [sic] suspended for a reasonable time to enable the Owner to find out the reasonable cost of completing the Building Works and fixing any defects. The Owner is entitled to deduct that amount from the unpaid balance of the Contract Price.
44.1If that amount is more than the unpaid balance of the Contract Price, the Builder must pay the difference to the Owner within 7 Days of demand.
44.2If the amount is less than the unpaid balance, then the Owner must forthwith pay the difference to the Builder.
Also relevant is section 42 of the Domestic Building Contracts Act 1995 (“the Domestic Building Contracts Act”) which reads:
42.A builder must not demand final payment under a major domestic building contract until -
(a)the work carried out under the contract has been completed in accordance with the plans and specifications set out in the contract; and
(b)the building owner is given either -
(i)a copy of the occupancy permit under the Building Act 1993, if the building permit for the work carried out under the contract requires the issue of an occupancy permit; or
(ii)in any other case, a copy of the certificate of final inspection.
The building contract is a “major domestic building contract” within the terms of the definition of that expression appearing in section 3 of the Domestic Building Contracts Act.
The Events
The significant events relevant to the second question began on 23 March 1999, when the builder sent to the owners a document described as “final settlement statement”, showing a balance owing of $61,829. By a letter dated 30 April 1999 the solicitors for the owners (“Secombs”) wrote to the builder setting out several problems which they were instructed had arisen and stating that the final settlement statement was wrong, and included items which had not been installed. The builder replied with a letter of 5 May stating among other things that the final settlement statement was correct.
On 26 May 1999 the builder wrote to the owners requesting a “practical completion inspection” for 2 June and dealing with arrangements for final settlement. This was apparently intended to refer to a “final inspection” in terms of clause 37 of the building contract.
On 2 June 1999 Secombs wrote to the builder in the following terms (omitting formal parts):
We refer to our conversation on 31 May, 1999.
We confirm our agreement to delay the practical completion inspection so as to allow our client the opportunity to engage an expert consultant who will inspect and report on matters raised by our client.
We anticipate the report to be completed within three weeks of our experts initial inspection.
We propose the parties then engage in “without prejudice” negotiations, which will incorporate the Practical Completion Inspection, so as to try and settle the dispute and avoid the expense and delay of litigation.
So as to assist our expert (and settlement negotiations) we would greatly appreciate copies of your reports received from the home and soil engineers who indicated the proposed timber sleepers for the retaining wall would be inappropriate.
Upon receipt of same our expert can commence his inspection.
We look forward to your response.
Correspondence between Secombs and the builder continued. On 16 June Secombs wrote asking again for the reports from the home and soil engineers, and asking for invoices in respect of certain items set out in the final settlement statement. They asked that the documents be sent to them prior to the site inspection to be available to the expert consultant, who would attend the property on 22 June.
In reply, the builder wrote on 21 June, confirming the arrangement for 22 June, denying the request for the reports because no payment had been made by the owners in respect of those reports, refusing to produce the invoices until (apparently) after the amounts to which they related had been paid, and concluding:
After the site meeting on the 22nd June 1999, building works will cease until all moneys are paid as per the contract. This includes all the variations currently outstanding. The matter of Interest charges have [sic] not been addressed by this Company, as yet.
I would appreciate your clients fulfilling their obligation under the Contract.
Arrangements were made for the owners’ expert consultant to inspect the site on 22 June, and this was done. On 19 July the builder wrote again to Secombs repeating that “as previously instructed, building works were to cease after the inspection until such time as all outstanding moneys were paid”. The expert’s report was never provided to the builder, and the invoices and the reports relating to the retaining wall were never provided to the owners. No without prejudice negotiations took place. Indeed, the builder never responded to the proposal for without prejudice negotiations contained in Secombs’ letter of 2 June.
On 2 August 1999 Secombs wrote to the builder in the following terms (omitting formal parts):
We refer to previous correspondence referred to herein.
We are instructed that no work has been carried out by you since.
In your letter dated 21 June, 1999 you advised that “the works would cease until all monies are paid as per the contract” (which we take to be a reference to your purported final settlement statement dated 23 March, 1999).
There is no legitimate basis for you to cease work because:
a)Pursuant to section 42 of the Domestic Building Contracts Act you must not demand final payment until:
i)the works have been completed in accordance with the plans and specifications set out in the building contract; and
ii)the owners have been given a copy of the occupancy permit under the Building Act 1993.
b)There are numerous defects in the works carried out by you and the works are incomplete. We refer you to the detailed list of defective and incomplete works which is attached hereto. Also, we note that no occupancy permit has issued.
c)You have failed and neglected to provide any proper explanation in relation to the purported prime cost adjustments contained in the purported final settlement statement.
d)In your letter dated 21 June, 1999 you have failed and refused to provide a copy of the Home and Industrial Report which is relevant to your purported final settlement statement.
e)Your purported final settlement statement includes claims for items to which you are not entitled and/or for works which have not been carried out by you such as:
i)the sum of $10,650 in respect to the retaining wall works which have not been carried out by you and for which you have indicated unilaterally you would be providing a credit to our clients.
ii)the sum of $11,000 in relation to alleged prime cost adjustments for items which were not the subject of any prime cost allowance in the contract.
Accordingly, we hereby give you notice on behalf of our clients pursuant to clause 43 of the HIA Plain English form of building contract dated 15 June, 1997 that you have:
a)Failed to proceed with the works competently and diligently;
b)Suspended the building works unreasonably;
c)Refused or persistently neglected to comply with the requirements of local or other authorities, inter alia, in relation to the construction of the retaining walls and the fences;
d)Neglected to fix or replace faulty work or materials;
e)Intimated that you are unable or unwilling to complete the building works and you have abandoned the contract;
f)You are in breach of this contract for the reasons referred to above.
Further, or in the alternative, the foregoing matters constitute a repudiation of the agreement by you.
Please take notice as that if you remain in breach 10 days after the date of service of this notice our clients intend to bring this contract to an end pursuant to clause 43.2 of the agreement and/or at common law.
The list referred to in the first paragraph b) contained 137 items.
On 4 August the builder wrote to Secombs referring to clause 42 of the building contract and stating that the owner was in breach of the building contract for failure to pay for variations, and that ten days after service of that notice “all money payable by the owner to the builder shall become due and payable”. In the context of section 42 of the Domestic Building Contracts Act, set out in [9] above, it should be noted that the Tribunal found that certificates of occupancy for all three units had been received by the builder on 18 June 1999 but that the owners were not aware of this until December of that year.
On 10 August Secombs wrote to the builder rejecting the allegation that their clients were in breach, and on 16 August they wrote stating that none of the breaches of contract outlined in their previous letter had been rectified, and accordingly the owners had instructed them to bring the building contract to an end pursuant to clause 43.1, and intended to exercise their rights pursuant to clause 44 and obtain quotations from other builders to finish the work.
The Findings of the Tribunal
The Tribunal referred in several places in the reasons to the suspension of the building works. Paragraph 53 of the reasons reads, as to the conversation of 31 May to which the letter of 2 June refers:
53.On 31 May the owners’ solicitor, Mr Quilty, rang Mrs Andrulis [the managing director of the builder] and said that he would like to defer the inspection until such time as he was able to organise an expert to go over the job and report. This was agreed to and was confirmed by a letter from Mr Quilty on 2 June. The wording of this letter is significant and its effect in my view was that time was to cease to run for either party from that date until the report of the expert was received.
I would have some doubt as to whether the letter of 2 June went as far as that, but it is not necessary that I make any finding on the matter, and in the absence of transcript of the oral evidence before the Tribunal, I do not do so.
Referring apparently to Secombs’ letter of 2 August 1999, the Tribunal said at paragraph 64:
. . . at the time the letter was served upon Como, it had been agreed between the parties to suspend all activity pending the receipt of the expert’s report. The wording of Clause 43 requires that the Builder be in breach at the time the notice is given. If the inactivity of the builder at that time is by agreement, it cannot be said to be in breach in this respect. It was therefore not open to the owners to serve a notice on the ground of inactivity at that time. [emphasis in the original.]
In paragraph 66 the Tribunal listed a number of reasons as to why it thought that the builder did not proceed with the work competently and concluded:
All of these matters demonstrate to my mind a lack of competence in the carrying out of the work but again, the work had been suspended by agreement so to my mind it is impossible to say that this situation was continuing at the date the notice was served.
In paragraph 67 the Tribunal said:
. . . There had been earlier suggestions by [the builder] that it had suspended work and the letter of 21 June says that it will remain suspended until the money is paid. However the cause of the suspension at the time the notice was served was the agreement, which was then still operative.
And in paragraph 70:
. . . I am not satisfied that it had abandoned the works at the time the notice was served. . . . some work continued to be done up to the time it was agreed to suspend work and the suspension had not been lifted when the notice was served.
Thus the Tribunal did find, as the second question in the Master’s order recites, that the building works had been suspended by mutual agreement. In each of paragraphs 53, 64, 66, 67 and 70, the Tribunal referred to that situation. Nevertheless, it found that, despite that agreement to suspend the works, it was still open to the owners to serve the notice of default contained in the letter of 2 August.
It is clear that the view of the Tribunal was that, while that agreement remained in force, as it did at the time of service of the notice contained in the letter of 2 August 1999 set out in [16] above, the owners were not entitled to serve a notice under clause 43 of the building contract which relied on grounds relating to inactivity by the builder.
However, there are grounds set out in clause 43 entitling the owner to terminate the contract which are not related to inactivity. The Tribunal said in paragraphs 69, 71 and 72 of the reasons:
69.As to paragraph d) [of the notice contained in the letter of 2 August], . . . To suggest that the works have reached completion without attending to them and inviting the owners to attend an inspection indicates that [the builder] does not consider the defects to be present. . . . By representing the work as complete and inviting the owners to an inspection it is saying in effect: “This is what you are getting.” It is proffering defective work and materials in purported satisfaction of a contractual obligation to provide work and materials of a proper standard. Insofar as many of these items are concerned, its performance was complete. . . . I am satisfied, from the nature and extent of the defective work, that [the builder] neglected to fix or replace faulty work and materials and that this allegation was sufficiently particularised in the annexure to the letter. I am therefore satisfied that the notice was valid on this ground.
71.As to paragraph f) [of the notice contained in the letter of 2 August], I believe [the builder] was in breach of the contract in at least two respects:
(a)Carrying out defective and incomplete work, coupled with the suggestion that the work had reached completion, thereby proffering defective work and materials in purported satisfaction of a contractual obligation to provide work and materials of a proper standard; and
(b)The improper insistence upon payment of the monies to which it was not entitled and the express refusal to resume work after the agreed suspension until that sum was paid. Both of these matters are particularised on page 1 of the letter and incorporated in paragraph f) by the words “. . . referred to above”.
72.I therefore find that the letter of 2 August was an effective notice for the purposes of Clause 43.1 of the contract.
I have set out paragraph 71 as it appears in the reasons. However, reading the paragraph as a whole, and reading it with the letter of 2 August, I am satisfied that the final sentence, beginning “Both of these matters . . . “ has been inadvertently printed under sub-paragraph (b) and is actually intended to qualify each of sub-paragraphs (a) and (b).
The Tribunal’s reasons for finding that the termination was valid on the basis of grounds (d) and (f) are unrelated to inactivity, and accordingly are unaffected by the finding that the agreement to suspend the works was still in force at the date of service of the notice.
Mr Riegler submitted as to ground (d) that “proffering defective work and materials in purported satisfaction of a contractual obligation to provide work and materials of a proper standard” (reasons paragraph 69) could only give rise to a right to serve a notice of default under clause 43 if there was a refusal or persistent neglect to repair that defective work and materials; and this could not be so in the present case because the parties had agreed to suspend the works.
However, whatever may have been the situation between 31 May, the date of what the Tribunal found to be an oral agreement to suspend the works, and 21 June, when the builder informed Secombs that after the site meeting the next day, building works would cease until all moneys were paid as per the contract, I do not consider that it can be said that after 22 June the builder was relying on the agreement as a justification for not proceeding with the works. Indeed, an inference could be drawn from the letter of 21 June that works had been proceeding until that date. This is a different issue from the question of whether any agreement entered into on 31 May was, as the Tribunal found, still in operation after 22 June.
From 22 June onwards it is clear that the builder, in the mind of those directing it, was refraining from doing any more work not because of any agreement, but because of its own unilateral decision, stated in the letter of 21 June and repeated in the letter of 19 July, to do no more work until payment was made. The use in the letter of 19 July of the expression “as previously instructed” is significant; there is no suggestion in the letters of 21 June or 19 July of any agreement that work should cease. Given that the builder was acting in accordance with that unilateral decision, the Tribunal was correct in relying upon its refusal to do any more work as giving a ground for service of a notice by the owners under clause 43. I note that the letter of 2 August expressly relies on the statement in the letter of 21 June of the decision of the builder, and denies the legitimacy of that decision.
Mr Riegler’s submissions as to the termination on the basis of ground (f) are premised on the assumption that the Tribunal found that the builder was demanding an extra-contractual payment. I do not read the reasons as having that meaning. The expression “the monies to which it was not entitled” in sub-clause 71(b) of the reasons appear to me to refer to monies to which the builder was not entitled because of its failure to comply with section 42 of the Domestic Building Contracts Act which is particularised on page 1 of the letter of 2 August. The builder was prohibited by section 42 from demanding final payment, and thus was not entitled to that final payment, until the requirements of the section had been met, which had not occurred.
Unreasonableness
Mr Zappia submitted that it was unreasonable for the owners to abandon the agreement for suspension unilaterally. Accordingly, in his submission, the termination found by the Tribunal to have been effected by the notice contained in the letter of 2 August was ineffective by virtue of the provision in clause 43.2 of the building contract that the owner might not bring the contract to an end unreasonably. However, as I have said, the Tribunal’s reasons for finding that the termination was valid are unrelated to the agreement to suspend the works and unaffected by it. There is nothing unreasonable about terminating the building contract on the grounds which the Tribunal found to be valid, given the specification of those grounds in the letter of 2 August and in the enclosure to it which is referred to on page 1 of that letter.
Mr Zappia submitted that the giving of only ten days notice to the builder to rectify the defects also constituted unreasonable conduct in terms of clause 43.2. He referred to the extent of the defects claimed and the difficulty of arranging for tradesmen to come on site and rectify any defects in such a short time. However, the ten day period is prescribed in clause 43 of the building contract and it must be assumed, given the form on which that building contract was prepared, (see [5] above) that the form was provided by the builder. Accordingly by analogy with the contra proferentem rule, it is not for the builder to submit that the building contract should not be enforced against it on the ground of unreasonableness. Further, I would adopt the view of the Tribunal, expressed in paragraph 73 in the following terms:
I agree that, on the evidence, all the matters complained of could not have been rectified or completed within that period, but 10 days is the period the clause specifies. Had [the builder] resumed work within that period and at least started the rectification work, it may well have been argued that it was then no longer in default or at least, that it would then have been unreasonable for the owners to bring the contract to an end.
Mr Zappia’s final submission as to unreasonableness was that the requirement for reasonableness in clause 43.2 overrode the prescription of the ten day period in clause 43.1. I find no justification in clause 43 for that submission. Had the parties wished, they could no doubt have amended the form of the building contract to have that effect, but they did not do so.
Waiver or Election
Mr Zappia submitted that the proposal for without prejudice negotiations contained in the letter of 2 June 1999 was agreed to by the builder, so as to have the effect of varying the building contract. Thus, he submitted, by entering into that agreement for variation the owners had waived their right under the building contract to issue a notice under clause 43, or alternatively had elected to pursue without prejudice negotiations rather than exercise that right. However, it is clear from that letter that the proposal for without prejudice negotiations formed no part of the matters said to have been agreed to on 31 May, and it was not suggested that there was any evidence that the builder agreed to that proposal after receiving the letter of 2 June. Accordingly those submissions must fail.
Estoppel
Mr Zappia submitted further that the owners were estopped from issuing the notice of default on 2 August. He relied on the following passage from the judgment of Dawson J in Foran v Wight[1] as to the doctrine of promissory estoppel:
[1](1989) 168 CLR 385 at 449-450.
The principle which survived was expressed by Lord Cairns in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439, at p 448., in a familiar passage as follows:
" ... it is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results — certain penalties or legal forfeiture — afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties."
The same principle was expressed by Bowen LJ in Birmingham and District Land Co v London and North Western Railway Co (1888) 40 Ch D 268, at p 286., as follows:
" ... if persons who have contractual rights against others induce by their conduct those against whom they have such rights to believe that such rights will either not be enforced or will be kept in suspense or abeyance for some particular time, those persons will not be allowed by a Court of Equity to enforce the rights until such time has elapsed, without at all events placing the parties in the same position as they were before."
Mr Zappia also relied on the well-known passage from the judgment of Brennan J in Waltons Stores (Interstate) Ltd v Maher[2]:
In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
[2](1988) 164 CLR 387 at 428-9.
Mr Zappia submitted that the agreement to suspend the building works considered in [19] and following above created rights and expectations in the builder and that the builder acted in reliance on that agreement by deferring the practical completion inspection and awaiting the expert report and proposed negotiations. The owners had intended the builder to act in reliance on the agreement, and their conduct in issuing the default notice constituted a departure from the agreement by reason of which the builder suffered detriment.
However, on the basis set out in [29] and [30] above, I do not consider that it can be said that after 22 June the builder was relying on the agreement to suspend the works in such a way as to raise an estoppel against the owners. From that date onwards, it is clear that the builder, in the mind of those directing it, was refraining from doing any more work not because of the agreement, but because of its own unilateral decision, stated in the letter of 21 June and repeated in the letter of 19 July, to do no more work until payment was made. That decision could not be said to be attributable to the owners.
For the reasons given, I find the answer to the second question in the Master’s order to be Yes.
The first question
The first question is in issue only between the insurers and the owners. An unexecuted form of insurance policy in the materials before the Tribunal was entitled HIA Insurance Services Pty Ltd Victoria Home Building Work Insurance Policy (Building Owner Policy) 1998 Policy. It appears to have been tacitly accepted as being the form of the contract entered into between the insurers and the owners. Clause 13 of the section of the policy headed “When is cover limited or excluded?” reads:
We will not pay any delay damages (including liquidated damages for delay) but this exception does not extend to any increase in rectification costs caused by the effluxion of time.
The building contract provided that the agreed damages for late completion were $100 per week. The Tribunal found, on the evidence, that that amount was intended to mean $100 per unit per week.
Paragraph 88(p) of the reasons reads, so far as relevant:
(p)The owners claim liquidated damages for delay. Under the contract, the work should have started on 8 May 1998 and the period provided in the contract was 190 days. Without any extensions, the work should therefore have been completed by 14 November 1998. To this must be added the extensions provided in the variations the owners have signed. . . . [After extensive consideration of the appropriate period referrable to delay] That is 155 days at $300 per week, which amounts to $6,642.85.
In paragraph 88(q) of the reasons, after dealing with a number of claims and other items in dispute, the Tribunal accepted the claim by the owners for general damages for rental of the places where they were living during the period of the delay and allowed an amount of $1,075 in that regard. It also allowed $900 in respect of the unavailability of one of the units for rental. Thus to the sum of $6,642.85 for liquidated damages for delay, the Tribunal added another $1,975.00 unliquidated damages, making a total of $8,617.85 under the head of delay.
At paragraph 91 the Tribunal found the insurers to be liable on the policy for the amount which it had found to be payable to the owners by the builder. In paragraph 92 it continued:
92.A number of defences were taken. First, Mr Zappia argued that certain parts of the claim against [the builder] are not recoverable under the policy. Without going through each of these in detail I accept that this is the case. However, substantially more than the net sum due from [the builder] falls within the risks covered. The claim is reduced to the modest sum of $16,226.96 only by the credits due to [the builder].
Mr Zappia referred to his written submissions made to the Tribunal, which included at paragraphs 113 and 114 a submission relying on clause 13 of the policy and concluding:
The insurers are therefore not liable for the delay damages claimed by the applicants or which are payable under the building contract.
He pointed out that in paragraph 92 the Tribunal had by implication accepted that submission and accordingly, he submitted, it should not have included the sum of $8617.85 in the amount payable by the insurers.
Mr Hellyer, for the owners, relied on the first page of the policy under the heading “Your insurance cover”, which reads, so far as relevant:
If (and only if) you, the insured, have complied strictly with all your obligations in this policy then, subject to the terms of the policy, we, the insurers, will at our option make good or pay you all your loss or damage resulting from –
.. .
2.non-completion of the home building work due to any of the specific events set out in clause 2.2.2 of the Ministerial Order (a non-completion claim”)
.. .
5.alternative accommodation, removal and storage costs reasonably and necessarily incurred as a result of any of the above events.
The “Ministerial Order” is defined in the policy as:
The Ministerial Order under s. 135 of the Building Act 1993 made by the Minister for Planning and Local Government and gazetted on 1st October 1996 and entitled “Domestic Building Insurance Policy Issued in the Name of Building Owner”.
The events set out in clause 2.2.2 of the Ministerial Order include:
(g)early termination of the major domestic building contract by the building owner as a result of the builder’s wrongful failure or refusal to complete the building work.
On that basis, Mr Hellyer submitted that the amount of $1,975 had been allowed in respect of rental paid by the owners and thus could be described as “alternative accommodation costs reasonably and necessarily incurred as a result of [one] of the above events” (clause 5), that event being the “early termination of the major domestic building contract by the building owner as a result of the builder’s wrongful failure or refusal to complete the building work” (clause 2.2.2), and accordingly that amount was payable under the policy.
As to that submission I note first that $900 of that amount of $1,975 was in fact allowed in respect of the unavailability for rental of one of the units, and thus as loss of income, leaving only the amount of $1,075 to be considered under the head of alternative accommodation.
Mr Hellyer submitted further that it would have been open to the Tribunal to find that the whole of the amount of $6,642 awarded as liquidated damages was in fact incurred in respect of alternative accommodation.
Issues arise as to whether these matters were raised before the Tribunal, as to the reviewability of the Tribunal‘s findings of fact, as to whether or not the amounts in question are properly described as “accommodation expenses”, and as to whether clause 2.2.2 of the Ministerial Order appropriately describes the basis of the termination of the building contract.
However, without considering those issues, it is apparent that the amounts claimed are in any case, as the Tribunal appears to have found, [3] not allowable under the policy. The exclusion of “delay damages” in clause 13 of the policy, occurring as it does several pages into the policy, and given the heading under which it appears, is clearly intended as a limitation on the operation of the heads of cover set out on page 1 of the policy, including clause 5. Thus if any item claimed under clause 5 can be described as “delay damages” that item is excluded from the general provisions of clause 5. While “delay damages” is not the most elegant of descriptions, it appears to me to be undeniable that the various amounts totalling $8,617.85 are all properly so described, having been found by the Tribunal as being attributable to the delay which it found to have occurred. Accordingly, the submissions of Mr Hellyer must fail, and the answer to the first question must be Yes.
[3]See [43] above.
The third question
As to the third question, counsel were in agreement that there had been an overstatement of goods and services tax of the kind described. There was some dispute as to the amount involved, but at the end of the hearing I understood that agreement had been reached that the amount was $2,465. Accordingly, it is not necessary that I consider this question and I have not done so.
Conclusion
As to appeal number 5046 of 2001 by the insurers, as a result of my finding as to the answer to the first question, the amount of $8,617.85 is to be deducted from the sum payable by the insurers to the owners. As a result of my finding as to the answer to the third question a further amount of $2,465 is to be deducted from that sum, giving a final figure payable by the insurers to the owners of $5,144.11.
As to appeal number 6602 of 2001 by the builder, as a result of my finding as to the answer to the third question, the amount of $2,465 is to be deducted from the sum payable by the builder to the owners, giving a final figure payable by the builder to the owners of $13,761.96.
There will be orders in accordance with those findings. Counsel may wish to make submissions as to costs.
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I have considered the question of costs in each case. While the appellants succeeded on the first and third questions, the significant question was the second question, dealing with the validity of the termination of the contract by the respondents. The respondents succeeded on that issue, and I consider it appropriate, therefore, that their costs of the proceeding be borne by the appellants.
For the reasons given, there will be the following orders:
In respect of appeal number 5046 of 2001:
1.The order of the Tribunal under appeal is varied by the substitution of the amount of $5144.11 for the amount of $16,226.96.
2.The appellants are jointly and severally liable to pay the costs of the respondents, including any reserved costs.
In respect of appeal number 6602 of 2001:
1.The order of the Tribunal under appeal is varied by the substitution of the amount of $13,761.96 for the amount of $16,226. 96.
2.The appellant is to pay the costs of the respondents, including any reserved costs.
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