Simmonds v Rust; Rust v Simmonds

[2018] NSWCATCD 75

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Simmonds v Rust; Rust v Simmonds [2018] NSWCATCD 75

Hearing dates:

17 and 18 September 2018

Date of orders:

29 November 2018

Decision date:

29 November 2018

Jurisdiction:

Consumer and Commercial Division

Before:

D Goldstein, Senior Member

Decision:

1. In HB 17/29871 Christopher John Rust must pay Benjamin Frank Hind Simmonds and Jessica Marion Simmonds the sum of $161,437.02.

 

2. In HB 18/15368 Benjamin Frank Hind Simmonds and Jessica Marion Simmonds must pay Christopher John Rust the sum of $37,663.03.

 

3. Any costs application must be lodged in the Tribunal and served on the costs respondent within 14 days of the date of this order either attaching or referring to the documents relied upon in support of the application.

 

4. The costs respondent will have 14 days after the date it receives the application to lodge in the Tribunal and serve on the costs applicant its submissions, if any, in response to the cost applicant’s costs application, such submissions either attaching or referring to the documents relied upon.

 

5. The cost applicant will have 14 days after the date it receives the cost respondent’s submissions to lodge in the Tribunal and serve on the costs respondent its submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon.

 

6.The parties must state in their submissions whether they consent to the costs application being determined on the basis of the parties written submissions and attached documents, if any, without the need for a hearing.

 7. Subject to considering the parties submissions regarding a hearing on costs, the Tribunal will determine any costs application on the basis of the papers lodged in the Tribunal.

Catchwords:

BUILDING AND CONSTRUCTION – Home building -Contracts – Standard form HIA NSW Residential Building Contract for New Dwellings – Payment of progress claims - Suspension of work, - Notices of breach - Termination - Cost to complete – Defective work

Legislation Cited:

Home Building Act 1989

Cases Cited:

Dimitropoulos v Capital Constructions Pty Ltd; Capital Constructions Pty Ltd v Dimitropoulos [2018] NSWCATAP 100
Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303
Lifestyle Designer Homes Pty Ltd v Choy (Home Building) [2012] NSWCTTT 217
Mitsiou v Zanatta; Jenalp Pty Limited v Mitsiou [2018] NSWCATAP 187
Palser v Grinling [1948] AC 291
Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd [1982] FCA 206; (1982) 44 ALR 557
Robinson v Harman (1848) 1 Ex.850
Sabemo Pty Ltd v de Groot (1992) 8 BCL 132
Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union & Ors [1979] FCA 85; (1979) 27 ALR 367
Triden Contractors Pty Ltd v Belvista Pty Ltd (1986) 3 BCL 203
Yendex Pty Ltd v Prince Constructions Pty Ltd 5 BCL, 74

Category:

Principal judgment

Parties:

In HB 17/29871:
Benjamin and Jessica Marion Simmonds (Applicants)
Christopher Rust (Respondent)

  In HB 18/15368:
Christopher Rust (Applicant)
Benjamin and Jessica Marion Simmonds

Representation:

Counsel:
Mr.T Bland (Applicants)
Mr B. Taylor (Respondents)
Solicitors:
Everingham Solomons (Applicants)
Stacks (Respondents)

File Number(s):

HB 18/15368 & HB 17/29871

Publication restriction:

Nil

REASONS FOR DECISION

1. In HB 17/29871 the applicants whom I will call the owners in these Reasons seek an order against the respondent who I will call the builder in the sum of $122,357.95. They also seek an order that they do not have to pay the builder the sum of $20,525.07.

2. In HB 18/15368 the builder seeks an order that the owners pay him the sum of $54,516.42.

3. There is no dispute that the owners’ and builder’s claims are building claims as defined in section 48A(1) of the Home Building Act 1989 (the ‘Act’) and that the Tribunal has the jurisdiction to hear this dispute and to determine it pursuant to the Act.

4. The proceedings were heard in Tamworth on 17 and 18 September 2017.

5. The evidence in the proceedings was a 3 volume bundle of documents which I marked as exhibit A. Unfortunately a number of documents in volume 3 of exhibit A were of very poor quality.

Contract

6. I find that the parties signed an undated NSW Residential Building Contract for New Dwellings published by the HIA (the ‘contract’) which required the builder to construct the building works therein described and the owners to pay the contract price of $363,442.85 by the progress payments therein described, subject to the terms conditions and covenants set out in the contract.

7. The contractual provisions which are relevant to the owners’ claims are set out below.

8. Clause 17 of the contract provided so far is relevant:

‘17.2 the owner must pay the contract price progressively as claimed by the builder.

17.3 the builder must give the owner a written claim for progress payment for the completion of each stage.

17.4 A progress claim is to state:

(a) the amount claimed and not paid for the stage substantially completed;

(b) the amount claimed and not paid for contract price adjustments;

(c) the amount claimed and not paid for variations; and

(d) the sum of the above amounts

17.5 The owner must pay a progress claim within 5 working days of the builder giving the claim.

17.6 Other than in relation to the final progress claim:

(a) payment of a progress claim is on account only; and

(b) the owner has no right of set off.’

9. Clause 27 of the contract provided so far is relevant:

‘27.3 If a party is in substantial breach of this contract the other party may give the party in breach a written notice stating:

(a) details of the break; and

(b) that, if the breach is not remedied within 10 working days, that party is entitled to end this contract.

27.4 If 10 working days have passed since the notice of default is given and the breach is not remedied then the party giving the notice of default may end this contract by giving a further written notice to that affect.

27.5 All notices to be given under this clause must be given by registered post or personally.

10. Clause 25 of the contract dealt with suspension. It stated:

‘25.1 If the owner is in breach of this contract the builder may suspend the carrying out of the building works.

25.2 The builder must give to the owner written notice of the suspension and details of the breach.

25.3 The builder must recommence the carrying out of the building works within a reasonable time after the owner remedies the breach and gives the builder written notice of that fact.

25.4 The builder’s exercise of the right of suspension does not prevent the builder from exercising any right to end this contract under clause 27 in regard to the same occurrence.’

11. During the course of the hearing it emerged that the owners were of the view that there was an arrangement with the builder that Mr Simmonds would carry out certain aspects of the building works. To the extent that Mr Simmonds would carry out work it was possible that he would perform the excluded work in Schedule 3 which was identified in the following way:

‘No Plumbing has been allowed for.

No tiling labour has been allowed for.

No plastering has been allowed for.

Excavation of rock has not been allowed for.’

12. I find that the contract did not specifically provide for Mr Simmonds to carry out any part of the building works that were not excluded by Schedule 3.

13. The special conditions to the contract stated that the builder’s quotation dated 9 July 2016 formed part of the contract. That quotation contained a progress payment schedule which was different to Schedule 2 to the contract thereby creating a discrepancy in the contract, namely the conflict between Schedule 2 and the builder’s quotation dated 9 July 2016. Clause 8 of the contract deals with ambiguities or inconsistencies between contract documents and contains a mechanism to resolve such matters. Unfortunately neither party gave a notice under clause 8 to resolve the inconsistency between the documents.

14. The issue is what progress payment schedule applied to the contract or what progress payment schedule did the parties follow.

15. I have had regard to pages 141 – 146 of Volume 1 of exhibit A which constitute the builder’s claims for progress payments. I find that these claims for progress payments correspond to the progress payment schedule contained in the builder’s quotation dated 9 July 2016. The owners’ evidence which I accept is that they paid the builder’s progress claims 1 – 5.

16. I find that the progress payments schedule contained in the builder’s quotation dated 9 July 2016 was the applicable progress claim schedule because:

1. The builder made his claims in accordance with that schedule and the owners paid those claims, without stating that Schedule 2 of the contract was to be followed, thereby indicating the parties acceptance of and adherence to the progress claim schedule in the builder’s quotation;

2. I find that the contract in clause 8.4 set out the parties intentions as to the order of precedence of the contractual documents, albeit that clause 8.4 applies in the event of a notice give under clause 8.2; and

3. To the same effect I find that special conditions are to be accorded priority over general conditions in construing a contract.

17. Progress payment 6 as referred to in the progress payments schedule contained in the builder’s quotation dated 9 July 2016 is described as follows:

‘Fit out Stage

Payment due once the Kitchen is installed and the Carpentry Fit out is complete   10.00%   36,344.29’

The owners claim

18. In their Points of Claim the owners admit that they have not paid the builder $54,516.42 of the contract price. The owners allege that they issued breach notices to the builder on 28 June 2017 and on 29 august 2017 and that they terminated the contract on 29 November 2017. As a result they claim damages of $122, 357.95.

19. The owners claim that they were entitled to terminate the contract. They claim damages arising from the termination.

The builder’s defence

20. The builder claims that there were 4 notices of default which unhelpfully he does not refer to by their date. He states that the notices were not served in accordance with clause 27.5 of the contract and are therefore invalid. The builder alleges that the owners wrongfully terminated the contract. As a result he claims damages as a consequence of the wrongful termination which he states that he will raise in his cross application.

21. The builder’s defence appears to have been prepared by him which may explain why parts of it appear difficult to understand.

The builder’s claim

22. The builder has claimed the sum of $54,516.42 together with interest and costs. The basis of the claim is that the owners repudiated the contract entitling the builder to damages. They are stated in paragraph 7 n) of the builder’s points of claim to be damages to place the builder in the position that he would have been had the termination of the contract not occurred giving rise to the claim for $54,516.42. Hence it seems that the claim is for the unpaid balance of the contract price.

The owners defence to the builder’s claim

23. The owners deny that they repudiated the contract and state that claiming the unpaid balance of the contract price is the wrong method of calculating loss.

The facts relating to the builder’s progress claim 6

24. I find that on 13 March 2017 the builder sent his 6th progress claim (referred to as invoice 6) to the owners claiming $36,344.29, the amount referred to in the progress payments schedule contained in the builder’s quotation dated 9 July 2016 for the Fit out stage. Certain variations were referred to leading to the sum of $30,035.66 being claimed which was inclusive of GST. Pursuant to clause 17.5 of the contract the owners were obliged to pay that amount within 5 working days of 13 March 2017.

25. The owners’ evidence is that progress claim 6 has not been paid by them.

Non-payment of the 6th progress claim

26. I have found that on 13 March 2017 the builder sent his 6th progress claim (referred to as invoice 6) to the owners claiming a net amount of $30,035.66 inclusive of GST.

27. The owners admit that they have not paid this claim.

28. Clause 17.5 stated that the owners must pay a progress claim within 5 working days of the builder giving the claim. (emphasis added).

29. In Triden Contractors Pty Ltd v Belvista Pty Ltd (1986) 3 BCL 203 Smart J in the Supreme Court dealt with a claim by a builder for payment of a progress payment issued by an architect appointed to administer the contract.

30. Clause 28(a) of the contract provided so far as is relevant:

‘Progress payments shall be paid by the Proprietor to the Builder and… the Builder shall on presenting any such certificate to the Proprietor be entitled to payment thereof within the period named in the Appendix. If not otherwise stated in in the Appendix the payment shall be made within 7 days.’

31. At p 211 Smart J held:

‘Although a question of considerable difficulty, I take the view that the amount of the certificate becomes due and payable on presentation of the certificate to the proprietor. The builder is entitled to payment within seven days and payment is to be made within this period.’

32. His honour went on to consider whether the proprietor was entitled to refuse to pay the certificate because it had a valid cross claim or set off. He held that it had no such entitlement. In the circumstances of this case I find that the owners had no right to refuse to pay progress claim 6 because of set off since clause 17 6 stated:

‘Other than in relation to the final progress claim:

(a) payment of a progress claim is on account only; and

(b) the owner has no right of set off.’

33. Similar issues were considered by Giles J albeit in connection with a different form of building contract in Sabemo Pty Ltd v de Groot (1992) 8 BCL 132.

34. Clause 10.07 of the contract in question, JCCB1985, stated:

‘On the Builder presenting to the Proprietor any Progress Certificate issued under Clause 10.02… the Builder shall be paid by the Proprietor the amount specified by that Certificate within the period stated in Item J of the Appendix to this Agreement or otherwise within five (5) days.’

35. Giles J held at 144 after a review of the contractual provisions that the proprietor

‘was obliged to pay the amounts of the progress certificates notwithstanding that it contested their amounts and claimed damages or other entitlements from Sabemo, and notwithstanding that those disputes had been referred to arbitration.’

36. The owners state that they are not obliged to pay the builder’s 6th progress claim because contrary to clause 17.4(a) of the contract which required a stage to be substantially complete, the stage referred to in the builder’s quote was not substantially complete.

Clause 17.4(a) of the contract

37. A matter raised by the owners at the hearing but not in their points of defence to the to the builder’s claim was that the builder’s claim for progress payment 6 did not comply with the contract in that the work the subject of progress payment 6 was not substantially completed as required by clause 17.4(a) of the contract.

38. While the procedure of the Tribunal does not require formal pleading, where parties file detailed and considered points of defence (as the owners have) there is an expectation that their points of defence will deal with all issues that they wish to raise. While allowing the owners to raise at the hearing an alleged failure to comply with clause 17.4(a) of the contract, I do not lose sight of the fact that the builder has had no opportunity to meet the issue in a considered way, given that it was raised at the last minute. This has the potential to cause difficulty to the builder since I understand that the owners submit that he bears the evidentiary onus of establishing that the work claimed in progress claim 6 was substantially completed. Given the way the issue has arisen I will have regard to the evidence that is available, even if in limited scope, in order to make the necessary findings of fact in connection with this issue.

39. A clause in identical terms to clause 17.4 was considered by Senior Member Buckley in Lifestyle Designer Homes Pty Ltd v Choy (Home Building) [2012] NSWCTTT 217. Senior Member Buckley stated at [18]:

‘What is meant by substantial completion? This same issue was raised before me in The Building and Construction Specialists Pty Limited v Jarjoura (Home Building) [2011] NSW CTTT 83

“25. The builder submits that all necessary building work had been substantially completed. The builder relies upon statements of Senior Member Durie in Littlewood v Castleton Developments [2009] NSW CTTT 505. In that case the Member stated:

“In my opinion, “substantially” does not mean simply more than half the work was done. On the other hand, it does not mean “to all intents and purposes”. It means somewhere between these extremes. The contrast between “substantially” and the provision in clause 26 for practical completion “but for minor omissions and defects” is useful and illustrative of the meaning to be given. I find that in this contract it means “in the main”. As this phrase expresses at best the balance between extremes of other suggestions. What is required is considerably more than half the work, but certainly not all but a few nails”.

In my view, as stated in the Building and Construction Specialists Pty Limited, it is important in assessing whether a stage of building work has been, within the meaning of clause 15.3, “substantially completed”, that the requirement is to be measured not only on a quantitative basis, but also on qualitative criteria against the background context of the building construction.’

40. In Palser v Grinling [1948] AC 291 Viscount Simon considered the meaning of “substantial” in the phrase “substantial proportion of the whole rent” and stated at 316-317:

‘It is plain that the phrase requires a comparison with the whole rent, and the whole rent means the entire contractual rent payable by the tenant in return for the occupation of the premises together with all the other covenants of the landlord. “Substantial” in this connexion is not the same as “not unsubstantial,” i.e., just enough to avoid the “de minimis” principle. One of the primary meanings of the word is equivalent to considerable, solid, or big. It is in this sense that we speak of a substantial fortune, a substantial meal, a substantial man, a substantial argument or ground of defence. Applying the word in this sense, it must be left to the discretion of the judge of fact to decide as best he can according to the circumstances in each case, the onus being on the landlord. If the judgment of the Court of Appeal in Palser's case were to be understood as fixing percentages as a legal measure, that would be going beyond the powers of the judiciary. To say that everything over 20 per cent of the whole rent should be regarded as a substantial portion of that rent would be to play the part of a legislator: if Parliament thinks fit to amend the statute by fixing percentages, Parliament will do so. Aristotle long ago pointed out that the degree of precision that is attainable depends on the subject matter. There is no reason for the House to differ from the conclusion reached in these two cases that the portion was not substantial, but this conclusion is justified by the view taken on the facts, not by laying down percentages of general application.’

41. In Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union & Ors [1979] FCA 85; (1979) 27 ALR 367 Deane J observed at 382:

‘The word “substantial” is not only susceptible of ambiguity: it is a word calculated to conceal a lack of precision. In the phrase “substantial loss or damage”, it can, in an appropriate context, mean real or of substance as distinct from ephemeral or nominal. It can also mean large, weighty or big. It can be used in a relative sense or can indicate an absolute significance, quantity or size. The difficulties and uncertainties which the use of the word is liable to cause are well illustrated by the guidance given by Viscount Simon in Palser v Grinling ([1948] 1 All ER 1 at 11; [1948] AC 291 at 317) where, after holding that, in the context there under consideration, the meaning of the word was equivalent to “considerable, solid or big”, he said: “Applying the word in this sense, it must be left to the discretion of the judge of fact to decide as best he can according to the circumstances of each case....”... In the context of s 45 D(1) of the Act, the word “substantial” is used in a relative sense in that, regardless of whether it means large or weighty on the one hand or real or of substance as distinct from ephemeral or nominal on the other, it would be necessary to know something of the nature and scope of the relevant business before one could say that particular actual or potential loss or damage was substantial. As at present advised, I incline to the view that the phrase, substantial loss or damage, in s 45 D(1) includes loss or damage that is, in the circumstances, real or of substance and not insubstantial or nominal’

42. In Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd [1982] FCA 206; (1982) 44 ALR 557 Lockhart J stated, at 563:

‘The word “substantial” is imprecise and ambiguous. Its meaning must be taken from its context. It can mean considerable or big: Palser v Grinling [1948] AC 291, per Viscount Simon (at p. 317). It can also mean not merely nominal, ephemeral or minimal. Sometimes it is used in a relative sense, and at other times to indicate an absolute size or quantity.’

43. On 7 March 2017 the builder wrote to the owners stating among other things that:

‘Before the next progress payment invoice is issued the kitchen installation needs to be completed as does carpentry fix out. The kitchen and laundry will be completed by Friday 10/03/17. The carpentry fix out will also be completed before then. The next invoice will be issued and sent on Friday 10/03/17.’

44. In the period 13 - 17 March 2017 there was correspondence between the parties regarding variations and insulation among other things. On 17 March 2017 the builder stated in the course of a long email to the owners about insulation:

‘I can confirm once the project is completed and ready for handover there will be no gap between the lintel and the windows.

I am still uncertain exactly what your concern with the quality of the fix out is, I can only assume that you are referring to the architrave on the sliding door near the garage. I have assured you on several occasions that this can easily be resolved by paint preparation, and if you or I were not satisfied with the finish of it that I would replace it.

……

I note that the fix out was completed barring the alfresco doors as soon as the kitchen went in on the 21st of February and the issues raised at the previous site meeting were attended to over the days that followed. I also note that the alfresco doors were re—hung on 6th of March and the fix out was completed on this day.

I have arranged for the alfresco floor to be levelled I am hopeful that this can be undertaken on Friday 17 March. I will advise you if this planned work does not go ahead’

45. The builder was cross examined and asked questions regarding the state of completion of the works at the time that progress claim 6 was issued. He stated that the kitchen was installed but conceded that the carpentry work didn’t appear to be completed. However I have doubts about the builder’s response to that question as it was preceded by questions about carpentry as referred to in the experts’ reports, which I find were not dealing with the question of substantial completion of work as referred to in clause 17.4(a) of the contract. He also explained that the dishwasher was not installed at the time in order to avoid damage. His evidence was clear that in his view of things that the kitchen was complete at the time of progress claim 6. Later when asked questions about his solicitors letter of 26 April which suspended the works, the builder stated that the kitchen and the carpentry was completed at that time. In re-examination the builder confirmed that in his view that the work was substantially complete.

46. The owner when cross examined agreed that when she received the builder’s invoice 6, also referred to as progress claim 6, she did not raise issues regarding the kitchen with the builder, that she thought that more work should be painted, that the carpentry and kitchen work was ‘done’ but that there were some issues. The owner stated that in her view the fit out stage had not been substantially completed and she thought that more work should have been done. The owner also conceded that she was seeking a credit regarding insulation and that was a basis for refusing to pay progress claim 6.

47. The owner also pointed that some appliances hadn’t been installed but conceded that they would have been installed after painting had been completed.

Experts report for the owner

48. The expert engaged by the owners, Mr Hill is Mrs Simmonds father. I find that prima facie Mr Hill has a conflict of interest that he was obliged to but did not disclose pursuant to paragraph 9 the Tribunal’s Procedural Direction 3. Mr Hill inspected the premises on 10 February 2018. He assessed the carpentry fix out to be 90%, joinery to be 90%. In the kitchen he said that painting not been commenced, tiling was not completed, there was a vent in the ceiling above the fridge yet to be installed, the electrical fit off had not been commenced and the air conditioning fit off had not commenced. In addition he said that there were some defective works.

49. The parties’ experts produced a joint report which in the main agreed with the incomplete work comments of the owners’ expert, except to state that there remained a kitchen splashback to be done in connection with tiling.

Finding on substantially complete

50. The evidence that I have referred to above easily satisfies me that the Fit out Stage made up of kitchen being installed and the carpentry fit out being complete was substantially complete within the meaning of clause 17.4(a) of the contract on 13 March 2017 when progress claim 6 was issued to the owners. The evidence that I have relied upon is the builder’s contemporaneous email correspondence, the builder’s evidence in cross examination, the owner’s evidence that the carpentry and kitchen work was done and the owners’ expert’s opinion that the carpentry fix out was 90% complete and that the joinery was 90% complete. In particular I find that this evidence establishes that the work to which I have referred was ‘in the main’ or ‘considerably’ completed. It follows that I find that progress claim 6 was properly issued by the builder under clause 17 of the contract.

Finding on obligation to pay progress claim

51. Given my findings in the previous paragraph, and based on the authorities referred to at [29] – [35] I find that the owners were obliged to pay the builder’s 6th progress claim 5 business days after 13 March 2017, namely 20 March 2017.

52. In Sabemo Pty Ltd v de Groot. Giles J identified the following factors as being relevant to the conclusion that he reached. First, the dispute resolution procedures required the builder to continue working despite the reference of a dispute to arbitration. There is no equivalent provision in this contact. Secondly, the builder was entitled to determine the contract if the proprietor failed to pay the amount due on any certificate issued by the architect within the period for payment of that certificate. In this contract the builder was entitled to issue a notice of breach in the event that the owner failed to pay any amount by the due date. As stated by Giles J, it is not to be expected that a right so important to the builder as issuing a notice of breach under clause 27 should be nullified by the raising of a cross-claim or a dispute over the amount of a progress certificate. I would add that the language of clause 17 and in particular clauses 17.2 and 17.5 taken together indicate by the use of the mandatory ‘must’ an intention that the owner is required to pay the contact price progressively, as claimed and in particular that progress claims are to be paid within 5 working days. In addition a failure to pay a progress claim as required will undoubtedly be a breach of contract enlivening the builder’s right to suspend. I find that such a right should not be nullified by the owner having the right to disagree the amount claimed in a progress claim. The right of the builder to suspend the carrying out of the works if he is not being paid is an important right, the exercise of which protects the builder from being obliged to continue with the building works with the expenditure associated with that, if the owner ceases payments by disputation of progress claims. The above matters are reasons in support of the finding made in the preceding paragraph.

Suspension of the building works

53. On 2 May 2017 the solicitors for the builder wrote to one of the owners stating among other things:

‘We note, that the last progress payments (sic) has been outstanding for some considerable time and as such, our client has elected under the Contract to suspend work until payment is made’

54. In Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303 it was held in connection with a Notice of Default that:

‘The Notice of Default should be construed non-technically, in accordance with business common sense, fairly in its context; the question was how a reasonable recipient would understand it.’

55. In my view the builder’s solicitor’s suspension letter should be construed in an identical manner to that stated in connection with a notice of default in Hometeam Constructions Pty Ltd v McCauley.

56. The builder’s suspension letter construed non-technically, in accordance with business common sense and fairly would, I find, lead a reasonable recipient to understand it as stating that the builder was stopping work until such time as the owners had paid the last claim for a progress payment, namely the 6th progress claim for the fit out stage. In cross examination Mrs Simmonds agreed that she was aware that work was suspended for a failure to pay, although later she stated her view that the work was not correctly suspended. This evidence allows me to find that the owners received the builder’s suspension notice, and understood that the builder was suspending the building works for their failure to pay progress claim 6.

57. I find for the reasons that I have provided that the owners were obliged to pay progress claim 6 within 5 business days of 13 March 2018, that in breach of the contract they did not do so within that time or at all and that the builder by its solicitor’s letter of 2 May 2017 suspended the carrying out of the building works under the contract.

Termination of the contract

58. I will deal with the material facts relevant to the process by which the owners purported to terminate the contract and then make a finding whether their termination was effective.

59. On 28 June 2017 one of the owners gave the builder four notices of breach under clauses 27.1 and 27.3 of the contract. The notices called for certain matters to be rectified within 10 working days and stated that if such matters were not rectified the owners might elect to end the contract in accordance with clause 27.4.

60. On 29 August 2017 one of the owners gave the builder a further notice of breach under clauses 27.1 and 27.3 of the contract which was sent by registered post. The notice also called for certain matters to be rectified within 10 working days and stated that if such matters were not rectified, the owners might elect to end the contract in accordance with clause 27.4.

61. The breach referred to in the 29 August notice was a breach of clause 27.1(b) which states that a substantial breach of contract by the builder includes a suspension of the carrying out of the building works other than under clause 25.

62. The owners notice stated:

‘The builder has suspended work other than in accordance with clause 25.

You have suspended works on the grounds that a payment claim due under the contract has not been paid. The next payment claim due under the Contract is for the ‘paint stage’ It requires the kitchen and tiling to be completed.

The stage is not substantially completed. Amongst other matters, the house has not been painted, the kitchen fit off has not been completed and the tiling has not been completed. In addition, the payment claim submitted by you does not include a contract price adjustment for the supply of tiles included in the contract price but supplied by the owner at the request of the builder.’

63. On 29 November 2017 the owners’ solicitor wrote to the builder’s solicitor by registered post referring to the notices of default that had been issued to the builder and asserting that more than 10 working days had passed and that the builder had not remedied the breaches. The letter then gave notice that the contract was terminated as a result of the builder’s breach of the contract.

64. On 19 December 2017 the builder’s solicitor responded to the owners’ solicitor stating the owners had wrongfully terminated the contract and that amounted to a repudiation of the contract which builder accepted and terminated the contract. The builder’s right to claim damages against the owners was reserved.

Service of Notices of Breach

65. Clause 27.5 of the contract stated that all notices to be given under clause 27 must be given by registered post or personally.

66. None of the 28 June notices were given by registered post. The builder has stated in his Response to the Owner’s Points of Claim that these notices were emailed to his solicitor and that they were not served in accordance with clause 27.5 of the contract and therefore were invalid.

67. The special conditions of contract stated that email was considered an acceptable form of written communication. I find the special condition to be sufficient to apply to notices given under the contract as well as to any other form of written communication required by the conditions of the contract. Notices while of special significance under the contract are nonetheless a means of written communication and thus I find subject to the special condition.

68. I also find that the owners having been in communication with the builder’s solicitors in connection with the contract, were entitled to give a notice addressed to the builder by email as permitted by the special conditions to him at his solicitor’s email address. There is no complaint by the builder that the owners’ notices did not come to his attention.

Was the owners termination effective?

69. Clause 27 of the contract only entitled the owners to give the builder a written notice if he was in substantial breach of the contract.

70. The first notice of breach given by the owners relied on the breach of clause 40.1(a) and (b) of the contract, namely that the building works did not comply with the Building Code of Australia and the Australian Standards. A defects schedule was said to be attached. There is no defects schedule attached to the notice of breach which is in evidence. On that basis I will find that the notice of dispute relying on these matters was not a proper notice since being served without a defect schedule attached the builder would have had no knowledge as to what was said to be a defect in the building works. I find that details of the breach were not provided as required by clause 27.3(a).

71. In Yendex Pty Ltd v Prince Constructions Pty Ltd 5 BCL, 74 Moynihan J stated:

‘I am content to approach the matter on the basis that the contractual provision which I have set out above required a notice which conveyed to a "commercial builder" what was said to be amiss so that he (in this case a subcontractor) could turn his mind to it and show cause as clause 41(a) contemplated. That seems to me a correct approach..… Such notice should be unequivocal in order to convey what was amiss so as to identify the default in respect of which cause was to be shown.’

72. Applying the above passage to this aspect of the owner’s notice of breach I find that the letter was not a proper notice of breach because the builder was not told what was amiss so that he could remedy the matter complained of. In this regard there is no difference between a commercial builder or a residential builder. The essential element is that the notice should identify what was said to be amiss to identify the alleged default and in this case what work the builder needed to do to remedy the situation.

73. The second notice of breach relied upon a breach of clause 39.1 (d) of the contract which was that the residence had not been completed in the time stated in the contract and that it 31 weeks late. I find that if established a delay of 31 weeks would constitute a substantial breach of the contract.

74. The third notice of breach asserted a breach of clause 39.1(a) of the contract that the residence had not been constructed with due care and skill and in accordance with the plans and specifications which formed part of the contract. I find that this notice of breach was not properly issued. There were no details of the breach provided as required by clause 27.3(a). In accordance with what was said in Yendex the builder was not told what was amiss so that he could remedy the matter complained of. The essential element is that the notice should identify what was said to be amiss to identify the alleged default and in this case what work the builder needed to do to remedy the situation.

75. The fourth notice of breach relied upon a breach of clause 27(1)(b) of the contract. It was stated that the builder had suspended works other than in accordance with clause 25 which deals with suspension.

76. I would add that the owners 29 August 2017 notice of beach was to the same effect.

77. I have found that the builder was entitled to suspend the works. As a result I find that the owners’ notices of breach which asserted that the builder had improperly suspended the building works were invalid and of no effect.

78. I find that the builder did not respond to any of the owners’ notices of breach.

79. The only notice of breach which I have found was effective was that notice which relied upon a breach of clause 39.1 (d) of the contract which was that the residence had not been completed in the time stated in the contract and that it 31 weeks late.

80. In cross examination the builder accepted that the contract was 16 weeks behind schedule. He also accepted that he had not applied for an extension of time pursuant to the contractual terms that allowed for that.

81. The contract required the building works to be brought to the stage of practical completion no more than 30 weeks after the building period commenced. The builder’s evidence is that the building work commenced on or about 12 April 2016. On any view at the time the builder suspended the building works on 2 May 2017, the 30 week period had long expired.

82. A substantial breach of contract was discussed by an Appeal Panel in Dimitropoulos v Capital Constructions Pty Ltd; Capital Constructions Pty Ltd v Dimitropoulos [2018] NSWCATAP 100 where at [68] the appeal panel stated in relation to a clause which seemed to be in identical terms to clause 27:

‘A notice of substantial breach issued under cl 33.3, by its terms, requires the giver of the notice to specify the breach. The breach must be substantial. The recipient of the notice must rectify such breach within 10 days. That is, the receiver of the notice must perform the contract and rectify the past breach in the specified time. It is the failure to remedy the breach within the specified time which gives rise to an entitlement to terminate under cl 33.4’

83. Further at [71] – [72] the appeal Panel stated:

‘Assistance in interpreting the expression “substantial breach” can be gained from various decisions of the State Supreme Courts.

In Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (formerly SC Land Richmond Pty Ltd) [2012] VSC 99, Dixon J was considering cl 44 of Australian Standard contract AS 2124-1992. This clause permitted termination for “substantial breach”, defined by an “inclusive” definition similar to the present clause. At [447] his Honour said:

I have already referred to cl 44.2, which states what the term ‘substantial breach’ includes. In Mazelow Pty Ltd v Herberton Shire Council the Queensland Court of Appeal considered the term, in the context of cl 44 of AS 2124-1992. MacPherson JA, with the other members of the court concurring, observed that:

The expression “substantial breach” is widely and not exhaustively defined. By cl 44.7, it includes various acts or omissions some of which might in some circumstances amount to repudiate conduct by the Principal. However, none of those defined acts or omissions extend to a final and definitive refusal to perform the contract any further.

In context, the court was distinguishing substantial breach from a breach that would justify common-law determination. The requirement of a substantial breach is not that high and, when read with cl 44.1, shows that the parties have agreed that the contractual right to terminate has expanded the common law rights that otherwise may be available. In each case there is no question that the nature of the breach can be substantial, having regard to the express provision of cl 44.2. As regards the place that the conduct in breach must reach on the continuum of trivial to repudiatory, the adjectival ‘substantial’, provides guidance. It requires that the conduct in breach be of real or actual significance in respect of the important qualities of the bargain. Trivial or inconsequential conduct will not suffice, but it is unnecessary to show conduct that ‘goes to the root of the contract’. The consequences of the conduct must be material, or important, to the substance of the contract.’

84. Of further relevance is the passage at [79] – [80]:

‘Similarly, when considering whether there was a substantial breach within the meaning of cl 33 of the contract to carry out residential building work with due diligence (in that case a requirement of cl 38 of the contract and s 18B of the HB Act), McColl JA in Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303 accepted that:

1. breach of the time obligation would be established by “a failure to carry out a reasonable amount of work by a given time; … measured by reference to all the work to be performed under the Contract or, in absolute terms, by reference to a lack of activity on site over a significant period that could not be satisfactorily explained”: at [181];

2. the onus of establishing the breach was on the party issuing the notice: at [166]-[167]; and

3. the particular failure must be substantial: at [165].

In this regard, the obligation to carry out work with due diligence is a relative term, a substantial breach of which will depend on what is a reasonable time in the circumstances and in the context of the contract as a whole: Hometeam at [177]-[179]. “Administrative neglect” in failing to claim extensions of time or to make proper claims for variations may not affect the enquiry about whether the work was being performed with due diligence: Hometeam at [194].’

85. As at the date of giving the notice of breach, 28 June 2017 the building works were suspended and had been since 2 May 2017. Nonetheless the builder had agreed to bring the works to practical completion 30 weeks from 12 April 2016. I find that he had not applied for extensions of time under clause 19. I therefore calculate that at 2 May 2017 he was at least 6 months late in bringing the works to practical completion, of which he admitted being at least 16 weeks late. I find that the builder in being late in bringing the works to completion within the time stipulated in the contract, namely 30 weeks, was in breach of clause 39.1 (d) of the contract and in addition was in substantial breach of clause 39.1 (d). I further find that it was a breach that was of real and actual significance affecting the highly important if not crucial aspect of the bargain, namely the completion of the building works. I would also add that the fact that the builder had the right to claim extensions of time does not diminish the extent or quality of the breach. It is significant that the builder has not claimed an extension of time despite the fact that he may have been entitled to. The fact is that he did not with the result that he was significantly late in completion, thus placing him in substantial breach of contract.

86. I further find that the builder did not remedy the breach with the result that the owners were entitled to rely upon such breach as the basis for terminating the contract which they did by their notice dated 29 November 2017.

Owners Damages

87. The owners’ claim damages being the cost to complete together with the costs of rectifying defective work which they state was carried out by the builder.

88. The parties’ experts prepared a joint experts report dated 7 June 2018 in which they agreed that the cost to rectify defective work would be $18,774.36 which amount included margin and GST.

89. In his written submissions the builder’s solicitor makes a number of submissions regarding the joint experts report. I reject the submissions regarding the French Doors. There is no evidence to support the submission, nor is there a reference to the evidentiary basis for the submission.

90. The builder seeks to get around the fact that his expert has agreed item 105 relating to fibre cement sheeting. I do not accept the builder’s submissions nor do I accept that when a parties’ expert agrees a defect item that the party can dispute the defect as if his expert’s agreement was never made.

91. The builder’s solicitor’s submissions also seek to avoid his expert’s agreement on the alfresco slab at item 112 of the joint experts report based on matters of fact, namely that the builder attended the site and cut the slab ready for removal and re-pour and that the homeowner then terminated the contract and would not allow the builder to remove or repour the alfresco slab.

92. I accept that the builder attended the site and cut the slab ready for removal and re-pour and then it was not possible to remove or repour the alfresco slab.

93. The joint experts report allows $6,700.00 for this rectification work. However the quote provided by TJ and MJ Cutcliffe the completion builder contracted by the owners allowed for:

‘Remove existing concrete from the Alfresco 42sqm

Re-instate concrete Alfresco 42sqm as per plans with step down and fall’

94. The quote was accepted by the owners and a contract was entered into with TJ and MJ Cutcliffe.

95. I find that the scope of work in the joint experts report relating to the alfresco slab is substantially the same as allowed for by TJ and MJ Cutcliffe. As a result I will reduce the amount agreed by the experts by $6,700.00 relating to the alfresco slab to avoid double recovery by the owners.

96. The builder’s solicitor’s submissions also seek to avoid his expert’s agreement on item 135 of the joint experts report relating to the Rainwater Tank. The matters of fact asserted in the builder’s solicitor’s submissions are not made good by the builder’s evidence. On that basis those submissions are rejected.

97. The costs to complete claimed by the owner are referred to in Mrs Simmonds affidavits dated 9 May and 12 September 2018.

98. Mrs Simmonds evidence is that three builders were asked to quote to complete the building works. Copies of their quotes are annexed to her affidavit dated 9 May 2018. In addition Mrs Simons has annexed to her affidavit a list of the work to be completed that the builders were asked to quote on. She also refers to the documents upon which the builders were requested to quote on.

99. The owners’ evidence is that they decided to contract with a builder, TJ and MJ Cutcliffe. A copy of the contract for that builder to perform the completion works is also annexed to Mrs Simmonds affidavit dated 9 May 2018. The contract price for the work to be carried out is $157,814.00. Mrs Simmonds has also given evidence that TJ and MJ Cutcliffe discovered some additional construction problems which she has referred to in paragraph 69 of her 9 May 2018 statement. A copy of the invoice reflecting the amount charged by TJ and MJ Cutcliffe in connection with that work is annexed to her affidavit

100. In her affidavit dated 12 September 2018 Mrs Simons provide copies of progress claims/tax invoices issued by TJ and MJ Cutcliffe as follows:

1. invoice in the sum of $15,781.00 being the deposit payable on the rectification contract;

2. invoice dated 27 April 2015 being the first progress claim in the sum of $21,672.00;

3. invoice dated 24 May 2018 being a progress payment for the rectification work $39,453.00;

4. invoice dated 19 June 2018 in the sum of $39,453.00;

5. invoice dated 10 September 2018 in the sum of $37,744.00 including PC items; and

6. invoice dated 10 September 2018 for rectification work $7,950.00.

101. The total of the amounts claimed by TJ and MJ Cutcliffe which the owners are liable to pay is $162,053.00.

102. The owners have made other claims for payment, namely:

1. Tiles - $2,116.80; and

2. Fireplace - $3,800.00.

103. In Mitsiou v Zanatta; Jenalp Pty Limited v Mitsiou [2018] NSWCATAP 187 at [68 ] – [69 ] an appeal panel stated:

‘Jenalp refers to the legal principle as stated by Justice Ipp (Hodgson JA and McColl JA agreeing) in Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248 at [85]:

“With respect to the cross-claims, the Council would only be entitled to judgment for the amount payable by Beckhaus to it were Macready AsJ to find, on reassessment, that the Council would incur greater costs in having the work rectified and completed in accordance with the Contract than the amount it would have paid to Beckhaus if the latter had duly completed the work. The Council would then be entitled to be paid the difference between the two amounts.”

This statement of the law reflects the principle that damages for breach of contract are awarded to put the plaintiff in the same position with respect to damages, so far as money can do, as it would have been in if the contract had been performed: see, for example, Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 at [7]ff, [27]ff and [106]ff.’

104. The contract price was $363,422.85. The evidence is that the owners had paid the builder $308,926.42 for stages 1 - 5. The builder has claimed $36,344.29 for stage 6 which has been reduced to allow for variations with a negative value. I have made an order, below, that the owners must pay the builder the sum of $30,035.66 for stage 6. However in determining the amount of the contract price that remains to be claimed by the builder for the purposes of the exercise referred to in the case cited above, I find that the builder claimed $36,344.29 for stage 6 despite the fact that such amount was reduced for other reasons. I find that the unpaid balance of the contract price is $18,172.14 for stage 7 which is to be a credit to the builder in accordance with the principles referred to in Mitsiou v Zanatta; Jenalp Pty Limited v Mitsiou, above.

105. In written submissions the builder states that the cost of the contract with TJ and MJ Cutcliffe is excessive.

106. The owners will not be entitled to claim damages from the builder for work that was not included in the original contract. To allow such damages would be contrary to the principle stated in Robinson v Harman (1848) 1 Ex.850:

“that where a party sustains a loss by reason of breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed.”

107. The builder has not tendered evidence which deals with this issue. However the matter is mentioned in submissions where a number of matters are raised at paragraph 288. Unhelpfully the submissions do not cross refer the submissions to the evidence, exhibit A, thus leaving the Tribunal to do that for itself.

108. The builder’s submissions refer to a number of items where an amount allowed in the original contract is said to be exceeded in price in the contract with TJ and MJ Cutcliffe. The fact that the contract with TJ and MJ Cutcliffe may charge an increased amount for the same work as the original contract does not I find bar the owners from recovery, unless it can be established by persuasive evidence that an amount charged is excessive having regard to the existing market for the relevant work or the relevant item. There is no evidence of excessive charging tendered by the builder. It will often be the case that a price for the same work or item will increase with the passage of time. What, as I have stated above is not permitted, is for the owners to contract with the completion contractor for an enhanced scope of work or an upgrade of the specification to higher quality or greater capacity than that specified in the original contract. There is no evidence tendered by the builder which deals with an enhanced scope of work.

109. I find based on what is stated in the preceding paragraph that the matters raised in the builder’s submissions paragraph 288 (a), (b), (f), (g), (i) and (j) are to be rejected. As explained a complaint based on an increase in price does not offend legal principles concerning recovery of damages based on the termination of the contract due to the builder’s substantial breach.

110. The builder’s submissions state that there was an enhancement of the specification insofar as the contract between the parties allowed for a 1500mm colour bond fence but the TJ and MJ Cutcliffe contract allowed for a 1800mm colour bond fence.

111. As I have stated, unhelpfully the builder’s submissions do not cross refer the submissions to the evidence, exhibit A.

112. The quote which formed part of the contract had attached to it a cost schedule which broke up every item of work contained within the contract price of $363,422.85. The cost schedule referred to landscaping – Fencing. It stated ‘Allowance – Colour bond Fence – Supply and Install Lm 74.6’. I reject the builder’s submission that the amount allowed for the fencing was 1500 mm colour bond. There is no evidence of that at all.

113. In paragraph 288 (d) of his written submissions the builder states that ‘Finish footing and form, pour laundry steps’ was not included in his quote but these items are listed in the TJ and MJ Cutcliffe quote. I accept this submission. However the builder does not state the amount by which the damages in favour of the owners should be reduced to reflect this additional work. I am unable to make any allowance in favour of the builder for this item given the lack of evidence.

114. In paragraph 288(e) of his written submissions the builder states that ‘The architraves, skirting, door furniture and trims’ are listed in the TJ and MJ Cutcliffe quote, but they were already completed by the builder. The TJ and MJ Cutcliffe quote is not to provide these items but to complete them. In finding that stage 6 was substantially complete, that was not a finding in favour of the builder that all items in that stage were 100% complete. It is possible that some work to complete those items was required. I therefore reject the submission in paragraph 288 (e) of the builder’s submissions.

115. I accept the builder’s submission in paragraph 288(h) of his written submissions that a microwave and grill is not included in this original quote whereas it is included in the TJ and MJ Cutcliffe quote. I will reduce the owners’ damages by $435.00 stated as being the cost of the microwave and grill.

116. The builder makes no submission that the owners ought not recover the amount paid to TJ and MJ Cutcliffe in connection with the replacement of the Alfresco slab. On that basis I will not take that issue any further. I also note that the issue is not raised by the builder in its pleadings as a separate issue in relation to which relief is claimed.

117. The amount found in favour of the owners is as follows, defect rectification costs - $12,074.36 + completion costs to TJ and MJ Cutcliffe $162,053.00 + additional completion costs $5,916.80 =$180,044.16. From this amount I will deduct the sums of $435.00 and $18,172.14 to arrive at an amount of $161,437.02 in favour of the owners.

Amount claimed by the builder

118. The builder claimed the sum of $30,035.66 via his counsel’s closing oral submissions, although that amount was not claimed in his points of claim. Despite the lack of the claim being made in his pleaded case, it has been necessary for me to determine his right to that amount in the course of determining the issues in these proceedings. Section 48O(3) of the Act states as follows in connection with determining a building claim:

‘Sections 79R and 79T-79V of the Fair Trading Act 1987 apply, with any necessary modifications, to and in respect of the determination of a building claim.’

119. Section 79U(1) of the Fair Trading Act states:

‘When making any orders under this Division, the Tribunal must be satisfied that the orders will be fair and equitable to all the parties to the claim.’

120. In circumstances where I have found that the builder is entitled to be paid $30,035.66 in connection with progress payment 6, I am satisfied that it would be fair and equitable to all parties to make an order requiring the owners to pay that amount to him. I find that there is no basis upon which to refuse to make such an order and to do so would mean that the builder has carried out valuable work for the owners without the right to be paid for that work.

121. The builder has also claimed interest. Clause 33 of the contract together with item 12 of Schedule 1 required the owners to pay interest of 15% on late payment. Based on that provision of the contract I will find that the builder is entitled to interest at the rate of 15% being $4,505.35 per annum or $12.34 per day from 20 March 2017 to the date of these orders, 28 November 2018. I have calculated that interest to be $7,627.37.

122. The total amount to be ordered in favour of the builder will be $37,663.03.

Section 48MA of the Act

123. On 15 February 2018 the builder by his solicitor stated that for the reasons he provided he would prefer not to do rectification work. Later in the same correspondence the builder stated that he would prefer an order under section 48MA.

124. The evidence establishes that certain defective work has already been undertaken by TJ and MJ Cutcliffe.

125. It is unclear on the state of the evidence whether the defective items referred to in the Joint expert’s report dated 7 June 2018 have been rectified. Given this uncertainty I have decided not to make an order under section 48MA of the Act since the precise extent of the work to be rectified cannot in my view be ascertained.

Costs

126. Any costs application must be lodged in the Tribunal and served on the costs respondent within 14 days of the date of this order either attaching or referring to the documents relied upon in support of the application.

127. The costs respondent will have 14 days after the date it receives the application to lodge in the Tribunal and serve on the costs applicant its submissions, if any, in response to the cost applicant’s costs application, such submissions either attaching or referring to the documents relied upon.

128. The cost applicant will have 14 days after the date it receives the cost respondent’s submissions to lodge in the Tribunal and serve on the costs respondent its submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon.

129. The parties must state in their submissions whether they consent to the costs application being determined on the basis of the parties written submissions and attached documents, if any, without the need for a hearing.

130. Subject to considering the parties submissions regarding a hearing on costs, the Tribunal will determine any costs application on the basis of the papers lodged in the Tribunal.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 01 February 2019