Sand & Surf Design Pty Ltd v Surrey & Anor
[2014] QCATA 225
•22 August 2014
| CITATION: | Sand & Surf Design Pty Ltd v Surrey & Anor [2014] QCATA 225 |
| PARTIES: | Sand & Surf Design Pty Ltd (Applicant/Appellant) |
| v | |
| Kevin Surrey Alexis Surrey (Respondents) |
| APPLICATION NUMBER: | APL209-14 |
| MATTER TYPE: | Appeals |
| HEARING DATE: | 12 August 2014 |
| HEARD AT: | Brisbane |
| DECISION OF: | Senior Member Oliver Member Dr Cullen |
| DELIVERED ON: | 22 August 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. Insofar as leave to appeal is necessary it is granted. 2. The Tribunal’s decision of the 17 April 2014 is set aside. 3. It is declared that the contract entered into between the parties dated 23 June 2013 was lawfully terminated by the applicant on 28 October 2013. |
| CATCHWORDS: | BUILDING CONTRACTS – TERMINATION – where contrary to the terms of the contract homeowners disturbed the building site – whether concrete footing system compromised – where findings of fact that footing system “disturbed” – whether warranties under the building contract and the Domestic Building Contracts Act invalidated – where obligation of builder to comply with law under the contract – where builder issued a Notice of Variation to replace the footing system – whether reasonable to issue notice – where homeowners alleged the conduct of the building was repudiatory – whether the homeowners termination of the contract was lawful in the circumstances – where tribunal failed to have regard to all of the evidence on termination. Queensland Civil and Administrative Tribunal Act 2009 (Qld)s 146 Foran v Wight (1989) 168 CLR 385 |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Self represented by Mr Ferguson |
| RESPONDENTS: | Self represented |
REASONS FOR DECISION
The applicant is a registered builder. Mr Ferguson is a director of the applicant and dealt with the respondents. On 23 June 2013 the applicant and the Surreys entered into a Master Builders Residential Building Contract for the applicant to construct a residential dwelling at 55 Forbes Road, Sandy Creek. A deposit was paid and work commenced in July 2013.
Following some initial earthworks and preparation of the building pad, the applicant set about constructing a footing system for the house. The footing system was comprised of a number of concrete piers with metal casting support brackets. The brackets were to take stumps upon which the flooring system would be constructed with bearers and joists. The pier footing system was completed by the end of July. Subsequent to this, in late August, the applicant says that the Surreys brought machinery onsite to undertake further earthworks.
The machine(s) worked inside the timber profiles setting out the job and around the pier footing system. Mr Ferguson was concerned that the presence of machinery around the concrete piers may have compromised the integrity of the concrete footings. There was a dispute about this and ultimately the respondents purported to terminate the building contract on 17 October 2013. This was followed by the Applicant’s purported termination on 28 October 2013.
Soon after the purported terminations, the applicant filed an Application for a Domestic Building Dispute in the Tribunal on 12 November 2013. The applicant claimed $39,221 damages for breach of contract. The respondents filed a Response and Counter-Application alleging the applicant was in breach and claimed $56,696 damages for ‘frivolous accusations, delays, loss of income and fees’.
A compulsory conference was held soon after the proceeding commenced, but the matter could not be resolved. At a directions hearing held on 5 March 2014, it became obvious that this building dispute required proactive management to get to an early finalisation. That is not only because the concrete pier system had been installed, but also the floor of the proposed dwelling was partly constructed. Any protracted delay could compromise the integrity of the floor. Also, the Surreys were extremely anxious to get their house built. The position of both parties was that the other was in breach. Therefore, in consultation with the parties at the directions hearing, the Tribunal made the follow direction:
The hearing of this application is limited to the preliminary issue of whether the building contract the subject of these proceedings was lawfully terminated by the applicant.
A transcript of the directions hearing indicates that once the question of who lawfully terminated the contract was decided, there was a prospect that this might lead to a sensible resolution of the dispute. This course was adopted because there did not appear to be any serious factual dispute about the circumstances leading to the purported termination as these reasons will demonstrate. This is particularly so given the specific correspondence emanating from the parties.
The matter was then listed for hearing on 1 April 2014. After hearing evidence from the parties on the preliminary issue, the Tribunal made the following declaration on 17 April 2014:
The building contract the subject of these proceedings was not lawfully terminated by the applicant.
The Appeal
After that decision the applicant filed an application for leave to appeal or appeal. The grounds of appeal alleges, inter alia, a denial of natural justice because:
(a)there was reliance on a basis for the termination was not contended for by either party; and there was an erroneous interpretation of the process by which the applicant asserted a right to terminate;
(b)there was a further denial of natural justice because the Tribunal failed to take into account or give sufficient weight to:
(i)the Applicant’s notice of intention to terminate dated 11 October 2013 given pursuant to clause 22.1 of the Contract (Notice of Intention to Terminate), upon which (amongst other things) the Applicant’s termination of the Contract relied;
(ii)the Applicant’s obligations under Part 4 of the Domestic Building Contracts Act 2000 (Qld) and the Respondents’ breach of clause 13.3 of the Contract, as raised by the Applicant in its Notice of Intention to Terminate and upon which (amongst other things) the Applicant’s termination of the Contract relied;
(iii)the contractual process in relation to termination by the Applicant as provided by clauses 13 and 22 of the Contract;
(iv)the Applicant’s alternative basis for termination of the Contract in respect of the Respondents’ unlawful repudiation of the Contract (by their purported termination of the Contract as set out in their letter dated 17 October 2013) and the Applicant’s acceptance of that repudiation and termination of the Contract;
(c)the Tribunal applied contractual provisions and considered evidence that were not pursued or relied upon by the parties in respect of the issue of termination of the Contract and/or were not relevant to the Applicant’s termination of the Contract as set out in the Notice of Intention to Terminate and termination letter dated 28 October 2013 (Termination Letter);
(d)if clause 11 of the Contract was relevant to the Applicant’s termination of the Contract by way of its Termination Letter (which is denied):
(i)the Tribunal failed to properly follow the contractual process in relation to termination pursuant to that clause and clause 22 of the Contract;
(ii)the Tribunal failed to give clause 11.12 of the Contract its proper construction, and did not properly apply that clause to the facts in evidence before it;
(iii)erroneously construed clause 11.12 of the Contract in that it found the Applicant was required to demonstrate that the integrity of the Works (as that term is defined in the Contract) had been compromised prior to the Applicant serving a notice under that clause;
(iv)erroneously construed clause 11.12 of the Contract to include a requirement that a notice issued by the Applicant under that clause must be reasonable;
(v)the Tribunal failed to consider the express provisions of clause 11.12 in relation to the requirement that the Respondents must not “obstruct, interfere with or hinder the carrying out of the Works”, and failed to consider the meaning and effect of those terms in light of its finding that the Respondents had undertaken unauthorised earthwork on the site and “disturbed the pier and footing system as set out by [the Respondent]…’.
The grounds of appeal generally demonstrate that the appeal is on a question of law, namely the proper interpretation of the various clauses of the contract and the effect of the various notices given insofar as they relate to the facts as found by the Tribunal below. Therefore, pursuant to s 142 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) leave to appeal is not necessary.
Even if the appeal is on a question of mixed fact and law, this distinction can be quite blurred, such that leave to appeal ought to be granted. For the reasons set out below, this case raises some substantial issues, in particular failing to have regard to all of the evidence concerning termination and denial of procedural fairness resulting in substantial injustice to the parties.
Background
Some history of this dispute is relevant to the appeal.
The land on which the house was to be constructed is a large acreage block. There is an existing structure on the site where a caretaker/tenant resides. Considerable earthworks had been carried out prior to the installation of the new dwelling’s concrete footing system. On 31 July 2013 when the footing work was complete, the person who carried out the earthworks attended the site. He spoke to Mrs Surrey about being paid for the work he had done. Mr Ferguson was present and witnessed the conversation between Mrs Surrey and the earthmover. A heated discussion developed about payment with Mrs Surrey insisting that the earthmover undertake further earth works at the site, presumably before payment would be made. Mr Ferguson says he intervened to break up the argument.
Having heard the conversation and concerned that machinery might be back onsite, before the concrete footing had cured, Mr Ferguson said that he spoke to Mrs Surrey about her obligations under the contract. He reminded her that (1) no persons were to enter the building site without his specific authorisation; (2) that no machinery was to work on or near the building pad because it might cause movement to the concrete footings, especially as there was uncontrolled fill in a section of the building pad. Mr Ferguson also told Mrs Surrey that if that was to occur, and because the applicant had a responsibility for ensuring the warranty of the building, he would want to supervise all activities onsite.
After leaving the site, to reinforce the Surrey’s obligations under the contract, Mr Ferguson sent an email to them that evening in which he said:
In regards to today’s site incidents, we wish to advise you that prior to arranging other persons to enter the building site, pursuant to the Residential Building Contract, General Conditions Clause 7.2 and 11.2, you are required to obtain authorisation from Sand & Surf Design. We reserve the right to ensure all personal are adequately trained in workplace health and safety and have completed our onsite induction. We are also concerned with any damage others may cause to the construction.
As advised today, the footings have just been installed and the concrete requires a minimum of 28 days to cure prior to any loading by heavy machinery. We will not allow any machinery onsite until further notice.
Between 31 July 2013 and 13 September 2013 Mr Ferguson did not return to the site and no further building work was carried out by the applicant. There were two reasons for this; firstly, the concrete footings needed time to cure, and secondly; there was a dispute between the parties about the progress payment schedule. In respect of the latter, the Surrey’s contended that the schedule in the contract did not comply with the Domestic Building Contracts Act 2000 (Qld) and therefore the financier, the Commonwealth Bank, would not make payments in those terms. Solicitors became involved and there was an exchange of correspondence, but eventually the original payment schedule in the contract was agreed to. Sand & Surf received a payment for the base stage of $57,000 on 11 September 2013 in accordance with the terms of the original payment schedule.
Mr Ferguson went onsite on 13 September 2013 to resume work. He noticed that there were machinery tracks adjacent to the pier footing system within the set out profile pegs and that some of the metal casting support brackets imbedded in the concrete piers were no longer in the line as originally installed by the applicant on 31 July 2013. A photo showing a string line clearly demonstrates that brackets are out of alignment. This, Mr Ferguson contended indicated movement in the piers into which the support brackets were cast.
This raised an immediate concern on his part. If the concrete footing system had been interfered with, he could not ensure the integrity of the system and thus warrant the building as he is required under Part 4 of the Domestic Building Contracts Act. He would remain liable for any rectification work or damage to the structural support system if, after the building was completed, there was any compromise to it. He would also be subject to directions from the Queensland Building and Construction Commission if there was any failure or damage to the building as a result of it.
Photographs were taken of the building site and tendered in the hearing, which supported Mr Ferguson’s contentions about machinery being onsite. Also, it is not disputed that on 26 and 27 August 2013 the respondents engaged MNK Earthmoving to undertake cleanup works to the embankment on the side of the building pad.
Mr Ferguson, sensibly, obtained advice as to how he could ensure that the integrity of the footing system had not been interfered with. The certifying consulting engineer, Mr Gehrmann, who designed and inspected the footings before they were poured, provided a report dated 19 March 2014 in which he advised Mr Ferguson, after a description of what was seen at the site was relayed to him, that:
It would be virtually impossible to tell from visual inspection, and the only way he would be able to remove doubt as to the integrity and performance of the pier footing system would be to conduct excavation works, exposing each pier footing concerned, or remove and replace those pier footings.
Mr Gehrmann[1] also inspected the site on 1 October 2013. After this inspection and looking at the set out profiles and the casting brackets, he confirmed his original opinion that he would not be able to determine the existence or the extent of any damage simply from a visual inspection.
[1]From ENG Consulting.
Interference with the building site – Clause 11.2 of the contract
As a consequence of these concerns, Mr Ferguson instructed his solicitors Mills Oakley to write to the Surreys on 20 September 2013. In that letter, it was alleged that the Surreys were in breach of Clause 11.2 of the contract, which obliged them not to obstruct, interfere with or hinder the carrying out of the works. The letter enclosed a Notice to Remedy Breach under Clause 22.1 of the contract, which sets out the circumstances when a contractor has a right to serve a Notice of Intention to Terminate the contract. That section includes where the owner:
(b)fails to comply with any of its obligations under clause 11;
…
(f)is in substantial breach of this contract;
…
The contractor may give a written notice to the owner:
(i)describing the breach or breaches of the contract by the owner; and
(ii)stating the contractor’s intention to terminate the contract unless the owner remedies the breach or breaches within ten (10) business days after receiving the contractors notice.
Not only did the applicant give a Notice to Remedy Breach, it also delivered a Notice of Variation of Contract under s 13.1(d) of the general conditions of the contract. The Notice of Variation was delivered to ensure compliance with statutory requirements relating to the work, in particular under the Domestic Building Contract Act, and presumably also the Building Code. The variation was to replace the pier footing system with a new footing system at a total cost of $42,660. This had the effect of increasing the contract price from $190,726 to $233,386. The reason for the variation is that that the applicant was of the opinion, based on the advice of his engineer, that the only way to tell whether the footing system had been truly compromised was through a destructive process, the best and cheapest solution to the problem was to replace the footing system. Clause 13.3 provides that the owner must not unreasonably withhold consent to the variation.
The respondents remedied the Notice to Remedy Breach relating to Clause 11 by giving the undertaking sought therein in an email sent to the applicant on 25 September However, they would not agree to the variation of the contract for the new footing system.
In so refusing, the Surreys rely on reports obtained from NJA Consulting. NJA Consulting challenged the notion that that footing system had been compromised, but also agreed that the integrity could not be determined simply from a visual inspection. In fact, NJA Consulting laid blame for any difficulties at the applicant’s feet, contending that the offset brackets amounted to faulty workmanship, and further claiming that the machinery that was onsite would not have damaged the footings. It is difficult to see how NJA Consulting could arrive at this conclusion independently.
The Applicant’s letter of 27 September 2013 – Notice to Remedy Breach
In any event, after the Surrey’s response, a further letter was sent on the applicant’s behalf by Mills Oakley on 27 September 2013, referring to the notice of variation and the notice of breach of contract dated 27 September 2013. In that letter, there was further discussion about the works, with the applicant acknowledging that:
It is obliged to protect the existing works to ensure that they do not deteriorate, and will continue to honour this obligation until such time as you either consent to the notice of variation or the contract is lawfully terminated.
It is appropriate to interpolate here that the photographs depict that there is one section where a floor is built, which includes floor bearers and joists with flooring. This work was done after the footings were poured and before the dispute about the base stage payment. When this dispute arose, work stopped. The applicant, after taking advice from the timber supplier, Harvey Holt, put a protective membrane on those timbers to preserve them.
In response to that letter of 27 September, the Surreys advised that they would have their engineer onsite for a further inspection on the following Thursday. It is evident that the contract remained on foot.
The Applicant’s 11 October 2013 – Notice of Suspension
Nothing further happened, and the Surreys maintained their position so on 11 October 2013 the applicant’s solicitors delivered a Notice of Suspension under Clause 16.1 of the contract and a Notice of Intention to Terminate under Clause 22.1(d) of the contract. The Notice to Suspend the works was essentially because, as the applicant contended, the Surreys could not unreasonably withhold their consent under Clause 13.3 of the contract to a notice of variation, the applicant alleged the Surreys were in breach of the contract and had 10 days to remedy the breach under Clause 16.3. On 16 October 2016 Mills Oakley acknowledged an email response from the Surreys, but maintained the applicant’s position with respect to the Notice of Intention to Terminate and the Notice of Suspension, giving the Surreys a time to comply.
The Surreys claim unlawful repudiation and terminate on 17 October 2013
That letter elicited a response from the Surrey’s new solicitors, Hemming & Hart, on 17 October 2013. On instructions from the Surreys, Hemming and Hart contended that (1) the applicant had failed to progress the works; (2) had wrongfully claimed that the Surreys had caused damage to the footing system; (3) refused to arrange for an engineer to attend site; (4) wrongfully stopped work because of the claimed damage; (5) unreasonably demanded the respondents sign a variation to replace the footing system; and (6) unlawfully suspended the works on the unreasonable refusal to sign the variation. Because of these matters, the Surreys contended that the applicant’s conduct evinced a clear intention on its part that it did not intend to comply with the contract and continue with the works, amounting to an unlawful repudiation by the applicant. The Surreys elected to accept what they said was an unlawful repudiation by the applicant, and terminated the contract. It was also contended that the Surreys had written to the applicant giving them notice of their intention to terminate for these breaches but formal notices under the contract were not given to the applicant.
The applicant terminates on 28 October 2013
On 28 October 2013, Mills Oakley wrote to Hemming and Hart. The applicant terminated the contract in reliance on the Surrey’s conduct as follows:
(a) The unlawful termination in the letter from Hemming and Hart of 17 October 2013;
(b) Unreasonably withholding consent to the proposed variation;
(c) Failing to take steps to remedy the breach set out in the Notice of Suspension and Notice of Intention to Terminate;
(d) Attempting to terminate in circumstance where the applicant contends the owner is in substantial breach contrary to Clause 20.3 of the contract.
(e) In reliance of the unlawful repudiation by the Surreys the applicant was denied access to the site when the contract remained on foot; and
(f) In reliance on the Surrey’s non-compliance with previous notices sent to them and the Surrey’s purported termination the applicant terminated the contract under Clause 20.2.2 of the building contract.
There can be little doubt that after this letter the contract was at an end.
The Decision below
It was against this background that the learned Member had to decide the preliminary question about termination. In coming to a decision, the learned Member made the following findings of fact:
a) The track marks on the site on seen by Mr Ferguson on 13 September 2013 were the result of the unauthorised earthworks work undertaken by the Surreys at the end of August 2013.
b) The bobcat involved (in those earthworks) had disturbed the pier and footing system as set out by the applicant and the Surreys carry that responsibility.[2]
[2]Reasons at paragraphs [16] and [17].
It is well settled that conclusions of fact made by the primary tribunal will not be disturbed on appeal unless those conclusions of fact were not open on the evidence before it. Here, there is sufficient oral evidence from both parties, as well as photographs showing track marks inside the profiles and around the footings together with a string line against the metal brackets, to indicate that there had been some interference with the site. On that basis, we are compelled[3] to adopt the conclusions of fact as found by the Tribunal below.
[3]Fox v Percy (2003) 214 CLR 118.
However, despite making those findings of fact, the learned Member concluded that as the applicant was unable to prove that there was any actual compromise to the integrity of the pier footing system at the time of issuing the first Notice to Remedy Breach, or at the time of the hearing, this was not a sufficient basis for the applicant to have issued the Notice. What followed from this was the Tribunal’s conclusion that the applicant’s termination of the contract was not lawful.
Consideration of the solicitors’ correspondence
Unfortunately, the learned Member did not, in the reasons, have particular regard to the correspondence passing between the parties’ solicitors, and the further notices that each issued, other than in a cursory fashion. The learned Member did not consider whether the purported termination by the Surreys, in the letter delivered on their instructions by Hemming and Hart on 17 October 2013, was lawful. If it was not lawful, it was then open to conclude that applicant’s 28 October termination, on the ground that the Surrey’s conduct was repudiatory, was lawful. Had the learned Member considered these matters, it would have been apparent that the applicant’s termination was not only under Clause 11 for interference with the site, but was also because of the Surrey’s failure to sign the Notice of Variation.
What is abundantly clear from the correspondence is that the applicant was at pains to ensure that the contract remained on foot by following the contractual requirement of giving the Surreys an opportunity to comply with the notices. Had the Surreys not sought to terminate prematurely, and the applicant terminated on the basis of the Notices relied upon, and it was subsequently found that there was no valid ground to issue the notices, it would then follow that the applicant’s termination would have been unlawful. But, the first issue that ought to have been addressed by the learned Member was whether the Surrey’s termination was lawful, as the question the learned Member was asked to decide follows on from consideration of this matter.
Before progressing to the grounds of appeal, there is one other observation we would like to make. At first blush, it appears inconsistent to conclude that the Surreys were responsible for “disturbing” the pier footing system and then also finding that there was an absence of proof as to whether this disturbance compromised the system. We say this because it seems reasonable to not only infer, but the learned Member found, that the only way this could be proved was to carry out a destructive inspection. On this basis, it does seem that the action taken by the applicant to ensure the integrity of the footing system was reasonable.
Given the absence of any consideration of the Surrey’s conduct in terminating the contract, and as this may necessarily involve questions of fact, this is a case where leave to appeal should be granted. We also consider, given that this matter has taken a significant period of time to progress nowhere close to resolution, that we should also go on to determine the matter, in preference to sending the matter back to another Tribunal. In this regard, both parties consented to this course of action at the Directions Hearing held by the Appeal Tribunal.
Grounds of Appeal
As there are no pleadings in the Tribunal, it can sometimes be difficult to identify the issues required for determination. As such, there is an enhanced importance for Tribunal members to themselves identify the issues from the application, response, the statements of evidence and the parties’ submissions during the course of the hearing. Fortunately, here Mr Ferguson’s comprehensive statement of evidence was very much in the nature of a statement of claim. It was obviously prepared with the assistance of his solicitors. It traversed the chronology of events, identified the material facts relevant to the relief sought and was supported with evidence both from himself and others. It also annexed all of the relevant correspondence from both parties. At the hearing a separate book was handed up which contained the correspondence.[4]
[4]Exhibits 1-5.
However, in this case, there was only one issue for determination - that being whether the applicant’s termination on 28 October 2013 was lawful. Despite this being the only issue upon which a declaration had to be made, the learned Member should have considered all of the evidence to make the other necessary findings, particularly in relation to the Surrey’s conduct, that were necessary to reach a conclusion about the issue for determination.
It is against this background that we now consider the grounds of appeal raised by the applicant.
We have set out, in some detail, the factual background leading to the purported termination of the contract by the Surreys and the termination by the applicant. In summary, the grounds of appeal contend that (1) the learned tribunal Member made a decision on a basis not agitated by the parties; (2) failed to give any consideration to the Surrey’s actions in terminating the contract; (3) failed to consider the applicant’s rights and obligations under the contract; and (4) failed to consider whether the applicant’s conduct in suspending the works and issuing the Notice to Remedy Breach for failing to sign the variation notice was reasonable.
The only Notice to Remedy Breach referred to in the learned Member’s reasons is that of 20 September 2014. That notice was confined to the Surrey’s alleged breach of Clause 11.12 of the contract which was not to obstruct, interfere with or hinder the carrying out of the works by themselves or others. Although reference is made to the request for the Surreys to agree to the variation of the works, their failure to do so was not the subject of that notice, but of a later notice. They were, of course, aware of the request because this was done informally in a letter from the applicant’s solicitors Mills Oakley on 11 October 2013.
The Applicant’s 20 September 2013 Notice to Remedy Breach was reasonable
Following on, if the case was confined to the 20 September 2013 Notice to Remedy Breach, the answer to the question posed in paragraph [57] of the reasons - was it reasonable for the applicant to issue this notice - must be “yes”. That is because not only was there proof of earthworks to the site subsequent to the applicant leaving the site, but also because the Surrey’s acknowledge this in giving the unqualified undertaking contained in the Surrey’s email of 25 September 2013. On this basis alone, the appeal should be allowed.
Going forward from the 20 September 2013 Notice to Remedy Breach, and despite the issuing of further notices, it is apparent in the further Notice of Intention to Terminate (for the reason that the Surreys did not agree to sign the variation), and the Notice to Suspend Works, that the applicant's position was that the contract remained on foot. This is so arguably until 17 October 2013 when the Surreys terminated, and certainly until 28 October 2014 when the applicant terminated.
The reasonableness of the applicant’s conduct in issuing the notices must be measured against not only the primary Tribunal’s findings of fact, but also the builder’s statutory obligations under the applicable legislation. It is these matters that were relied upon at the hearing. In confining the case to whether it was reasonable to issue the first Notice to Remedy Breach on the basis of interference with the site only, the Tribunal below has proceeded to decide the case on a basis not contended for by the parties. It did not have regard to both the purported termination on 17 October 2014 or that of 28 October 2014.
To consider whether the applicant had reasonable grounds for the issuing of the various notices requires, as a starting point, a consideration of the regime under which the building industry, and this contract, operates which we touched on earlier.
Clause 10.1 of the contract sets out the contractor’s obligations. Not only do the obligations include all of the warranties provided for in the Domestic Building Contracts Act 2000, Part 4, but also contractually obliges the builder to warrant that the works will, inter alia, be carried out “in accordance with all relevant laws and legal requirements including, for example, the Building Act 1975”.
Under the Queensland Building Construction Commission Act 1991 (Qld), a builder remains liable for “Category 1 defects” (e.g. structural defects) for a period of 6 years and 3 months from the date of practical completion.[5] This means that if there is any movement in the building as a result of structural failure of a footing system, the builder can be subjected to a direction to rectify by the Commission for this period.
[5]Section 72(8).
The builder may also be liable at common law in negligence if there is a breach of the duty of care, resulting in compensable damages.
In circumstances where there was a finding of fact that the Surreys had disturbed the pier footing system, and there was objective evidence to support this conclusion, in view of both the contractual and statutory obligations that are cast upon building contractors, we do not consider that the applicant’s position was unreasonable. This is certainly so up until the 17 October 2013 when the Surreys terminated.
The Surreys did not have reasonable grounds to terminate
The next question for consideration on appeal is whether the Surreys had grounds for bringing the contract to an end. They rely upon the following grounds:
(a) Failing to progress the works from early August 2013;
(b) Wrongly claiming the Surreys caused damage to the footing system;
(c) Refusing to arrange an engineer to attend site;
(d) Stopping work on the basis of the claimed damage to the footing system;
(e) Demanding the Surreys sign a variation of $46,660.00 to replace the footing system;
(f) Unlawfully suspending works.
Because of the above matters, the Surreys contended that the applicant evinced a clear intention not to perform the contract. This they say amounted to repudiation on the part of the applicant.
During the hearing of the appeal, the Surrey’s submitted that the applicant’s conduct, as particularised above, amounted to a fundamental breach of contract, entitling them to elect to terminate. Although not directly submitted, as they were unrepresented, the conduct in issuing the Notice of Intention to Terminate, without grounds (according to the Surreys) could also amount to an anticipatory breach by the applicant. If so, this means that the Surreys did not then have to wait for the applicant to terminate, but could elect to treat the applicant’s conduct as repudiatory, giving them a right to elect to terminate. In Foran v Wight[6] the High Court set out the relevant principles as follows:
24. In the light of this discussion, I would state the relevant principles thus: if an executory contract creates obligations which are mutually dependent and concurrent and, before the time for performance of the obligations arrives, one party, A, gives the other party, B, an intimation that it will be useless for B to tender performance and B abstains from performing his obligation in reliance on A's intimation, B is dispensed from performing his obligation and A's obligation is absolute provided that B had not repudiated the contract and he was ready and willing to perform his obligation up to the time when the intimation was given. It is immaterial that A's intimation amounts to a repudiation of the contract unless B terminates the contract by accepting the repudiation. If, at the time when the intimation was given, B was substantially incapable of future performance of his obligation or had already definitively resolved or decided not to perform it, B was not ready and willing. If B was not then ready and willing, A's failure to perform his obligation when the time for performance arrives is no breach of contract.
[6]Foran v Wight (1989) 168 CLR 385 at 441.
The Queensland Court of Appeal (per Muir, JA) has also considered the issues surrounding “anticipatory breach” in Filmana Pty Ltd & Ors v Tynan & Anor.[7] Where it can be said that an “innocent party” to the contract accepts the repudiation of the other, the “innocent party” may:
[r]escind for anticipatory breach if they themselves were able and willing to perform their contractual obligations.
[7]Filmana Pty Ltd & Ors v Tynan & Anor [2013] QCA 256.
In light of these principles, it simply cannot be said that the applicant gave any intimation that it would not proceed with the contract. It is true that the applicant’s performance of its obligations, as at 17 October 2013, was dependant upon the Surreys taking certain steps in accordance with the notices issued by the applicant. However, if the Surreys complied with the notices, it is apparent that the applicant was ready and willing to perform the contract.
Certainly, the applicant’s conduct might suggest to the Surreys that if its notices were ignored, it would elect to terminate. Even though the Surreys knew and told the applicant that they would not agree to the variation, it still cannot be said that as at 17 October 2014, the applicant evinced an intention not to perform the contract entitling the Surreys to terminate for an anticipatory breach. Such a conclusion is not open on the evidence, and is in fact contrary to the evidence.
No basis to terminate for failure to progress works
We now deal with the other grounds of fundamental breach, using the Surrey’s terminology, set out in the letter from Hemming & Hart.
Failing to progress the work - No further work could be carried out on site until the end of August at the earliest, as the concrete footings needed time to cure. In addition, a dispute arose as to the payment of the base stage under the contract. The Surreys wanted to vary the payment schedule, and did not pay for the base stage as they were required to do until 11 September 2013. Mr Ferguson returned to site to continue with the works on 13 September when he noticed that the site had been interfered with, contrary to his express warnings to the respondents. It was reasonable then for the applicant to act with caution to ascertain whether the footing system had been compromised.
The applicant’s conduct thereafter, and in the circumstances, was reasonable. This included returning to the site to apply a protective membrane to the timber already installed on the metal castings. The respondents had an opportunity to have their engineer from NJA Consulting inspect the works and provide a report. That report did not include any forensic testing of the piers to ensure integrity. It was confined to observations and assumptions.
By mid-October, the applicant considered the contract on foot, sought a signed variation from the respondents, issued various notices and was waiting for the time to pass under the contract before making an election to terminate, or proceed with the works.
During this period, the parties were working through legal and construction issues to progress the works. Before delay can constitute an unwillingness to perform the works, the delay must be protracted and clearly demonstrate an abandonment of the obligations under the contract.[8] The Surreys say such intent is evidenced by the applicant’s removal of timber from the site, but the applicant contends that the timber was required for another job. This conduct is not decisive.
[8]Carr v JA Berriman Pty Ltd (1953) 89 CLR 327.
Wrongfully claiming the respondents caused damage to the footings - This cannot be a ground for termination, or for that matter, fundamental breach. There was evidence of interference or disturbance with the footing system and as we have said above, because of the statutory obligations on a builder in Queensland, the applicant was entitled to investigate the integrity of the footings. This was not a hollow complaint on the evidence, and the applicant was justified in acting on the advice of the certifying engineer.
Refusing to arrange for an engineer to attend site - This ground, even if made out, is not conduct which would constitute a repudiation. As matters transpired, the Surreys did have a consulting engineer attend site, which they could have done at any time.
Wrongly stopping work on the basis of the claimed damage - We have previously addressed the reasonableness of this conduct. Until the issue of the integrity of the footing system was resolved, there was no point in progressing the works. To do so might, and we stress might, have compounded the problem if the footings were ultimately found to be defective. This is not repudiatory conduct.
Demanding the Surreys sign the variation - Once a basis has been established both factually and under the contract that the works need to be varied to comply with “all legal requirements”, it is at least reasonable for the applicant to submit the variation. The difficulty here is that, without destructive testing, it is uncertain whether the variation is absolutely necessary. However, Mr Gehrmann’s evidence indicates that this was a reasonable course.
If the contract was terminated on this ground alone, then the validity of that termination could be tested through expert evidence. But, on the applicant’s evidence, it cannot be said that strictly applying Clause 13.1(d) of the contract in the circumstances amounted to repudiatory conduct. Although the learned Member made a finding that she was not satisfied there was damage to the footings, it is difficult to see how this finding could be made where the experts agreed that conclusive determination as to whether damage occurred required testing that would require the footings to be reconstructed in any event. It was therefore a finding that was neither available to the Tribunal at that point in time, nor was it necessary given that the work needed to be redone in any event. Also it was not an issue that went directly to termination.
Unlawfully suspending the works - We have already discussed the reasonableness of this conduct. The statutory warranties and warranties under the contract were, at least prima facie, compromised by the earthworks which disturbed the footing system. We accept that, again in the circumstances, the applicant was entitled to suspend the works and did so in strict compliance with Clause 16 of the contract.
We have come to the view that each of the particulars of either repudiatory conduct by the applicant (whether individually or collectively) do not amount to a fundamental breach, or anticipatory breach, of the contract that would thereby entitle the Surreys to terminate.
The Applicant’s grounds for termination
We have set out the applicant’s grounds for termination in [30] above (this is already set out in paragraph 30 and need not be repeated) therefore given our conclusion about the Surrey’s termination, it is unnecessary to consider the other grounds for termination relied upon by the applicant, that is grounds (b) – (e) inclusive.
Therefore, the answer to the question the learned Member was required to consider should have been that the contract was lawfully terminated by the applicant and that the respondent’s purported termination was unlawful.
Orders
The appeal must be allowed, the decision of the learned Member set aside and instead, the Tribunal will make a declaration in the terms of these reasons.
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