Smith and Anor v Chesterton as administratix of the Estate of Southion deceased
[2012] QCATA 117
•9 July 2012
CITATION:Smith and Anor v Chesterton as administratix of the Estate of Southion deceased [2012] QCATA 117
PARTIES:Baydon Smith Desiree Smith (Applicant/Appellant) v
Judith Chesterton as administratix of the Estate of Demound Laurence Southion deceased (Respondent)
APPLICATION NUMBER: APL276-11
MATTER TYPE: Appeals
HEARING DATE: 2 April 2012
HEARD AT: Brisbane
DECISION OF: P Stilgoe, Senior Member W LeMass, Member
DELIVERED ON: 9 July 2012
DELIVERED AT: Brisbane
ORDERS MADE: [1] Leave to appeal is granted.
[2] The appeal is allowed.
[3] The decision of the Tribunal dated 7 July 2011 is set aside and the following decision is substituted:
That Mr Baydon Smith and Mrs Desiree Smith1 pay to Ms Chesterton the sum of $129,210.92 being $84,739.89 plus interest until paid, calculated at the date of this judgement at $44,471.032 ($84,739.89 x 15% x 1277 days =
$44,471.03) within 21 days.
CATCHWORDS: DOMESTIC BUILDING CONTRACT – death of
builder prior to practical completion – entitlement to a progress payment – owner purported to terminate – whether termination lawful – costs to complete and rectify defects
1Decision amended by order of the Tribunal 18 November 2013.
2Decision amended by order of the Tribunal on 23 October 2012.
Ownit Homes Pty Ltd v Bachelor [1981] 2 Qd R 124
APPEARANCES and REPRESENTATION (if any):
APPLICANT: Mr G Thompson of counsel instructed by O’Keefe Mahoney Bennett Solicitors
RESPONDENT: Mr A Wallace of Counsel instructed by
Hemming and Hart Solicitors
REASONS FOR DECISION
[1]This is an appeal by Mr Smith against the decision of the tribunal delivered on 7 July 2011 in which Mr Smith was ordered to pay Ms Chesterton $117,632.58 together with interest at the rate of 15% per annum.
The grounds of appeal can be summarised as follows:
a)Fixing stage:
i)The learned Member erred in fact and in law in concluding that Ms Chesterton was entitled to receive payment for the “fixing stage”.
ii)The learned Member erred in fact and in law by concluding that Ms Chesterton was entitled to receive a fixing stage payment based on the doctrine of “substantial performance”.
iii)The learned Member erred in law by finding that the fixing stage progress claim was valid.
iv)The quantum of the learned Member’s calculation is incorrect.
b)The learned Member erred in fact and in law by finding that the 17 notices of intention to terminate the contract were vexatious and unreasonable.
c)The learned Member erred in fact and in law in finding that the notice of termination Mr Smith served on the respondent on 17 December 2011 was invalid.
d)The learned Member erred in fact and in law in determining that Mr Smith had no right to terminate the contract because he was in “substantial breach” by failing to consent to variations 006 or 007.
e)The learned Member erred in fact and in law by finding that, if Mr Smith validly terminated the original contract Ms Chesterton was entitled to recover on a quantum meruit basis.
f)The learned Member erred in fact and in law by finding that the additional costs to complete the construction work were not properly recoverable by Mr Smith.
g)In refusing Mr Smith leave to call witnesses, the learned Member denied him natural justice.
Leave to appeal
[3]Leave to appeal will ordinarily only be granted where there is some question of general importance upon which further argument, and a decision of the Appeal Tribunal, would be to the public advantage; or, there is a reasonably arguable case of error in the primary decision and a reasonable prospect that the applicant would obtain further substantive relief. Another question sometimes asked is: is leave necessary to correct a substantial injustice to the applicant, caused by some error?
[4]Mr Smith’s grounds of appeal allege errors of fact, or mixed law and fact, and under s 142(3)(b) of the QCAT Act they must therefore obtain the Appeal Tribunal’s leave before their appeal can be considered. An applicant seeking leave to apply to appeal must establish a case of error in the primary decision, and that there is a question of importance upon which further argument and a decision of the Appeal Tribunal would be of public advantage.
[5]Upon consideration, we find that there is such an error as to justify leave being granted.
Facts
[6]We will not set out in length all the facts and circumstances of the matter which are recorded in the original decision. The important facts for the determination of the present application are:
a)Mr Smith and Mr Southion entered into a domestic building contract on 8 May 2007;
b)Mr Southion issued a claim for the fixing stage on 28 November 2007.
c)Mr Southion died on 4 December 2007 prior to the works reaching practical completion.
d)Within two days of Mr Southion’s death, Mr Smith issued 17 notices to remedy breach and then purported to terminate the original contract on 17 December 2007.
e)Mr Smith entered into a building contract with a second building contractor, East Coast Building Pty Ltd on 29 January 2008.
The fixing stage
[7]While the peculiar aspects of this case (including the untimely death of Mr Southion and the overtly aggressive stance adopted by Mr Smith) make it an attractive proposition to consider that the true amount payable under the contract is the amount claimed for at the end of the fixing stage, those issues cloud the important facts upon which this decision should turn.
[8]The learned Member’s finding that there had been substantial performance of the fixing stage was clearly correct. The relevant findings are set out below:
The only carpentry work which was required to be performed to reach Fixing Stage was that five lineal metres of skirting need to be put in place and that work would take approximately 20 minutes to complete.3
Jeffrey Hills and Associates prepared a report dated 17 January 2008. It listed incomplete works and allegedly defective works as at 20 December 2007 and stated that the interior fix out was approximately 98% complete.4
For the reasons outlined above in respect of the first fixing stage claim and because further work had been performed after that claim was issued I find that there had been substantial performance of the fixing stage and that an entitlement to be paid $117,632.58 on 20 December 2007 arose. 5
[9]For reasons we later identify, any rights to insist upon payment of the progress claim merges into damages upon termination and leads to a consideration of what should be the appropriate calculation of monies payable.
Mr Smith’s termination
[10]Mr Smith says that the learned Member has erred as a matter of fact and law in finding that Mr Smith is in default with respect to finding that notices of termination were vexatious and unreasonable or that he was in substantial breach by failing to consent to variations 06 and 007. The learned Member dealt with the question of termination in paragraphs 55 to 58 of her decision:
[55] If they did not validly terminate and the purported termination was in effect a repudiation then Ms Chesterton had an election, to affirm the contract and seek to assign or to accept the repudiation and terminate. Ms Chesterton appeared overtly to do neither.
[56] However it is clear from the actions of the parties that neither party took steps to have the Original Contract continue. Mr and Mrs Smith appointed East Coast. Ms Chesterton was therefore no longer in a position to seek their consent to assign the Original Contract to another party and did not press for this. The parties could be said to
Chesterton as administratix of the estate of Southion Deceased v Smith and Anor
[2011] QCAT 458.
Supra at [19].
Supra at [41].
have abandoned the Original Contract and brought it to an end by consent.18
[57] If I am wrong and the parties did not abandon the Original Contract then I find that Ms Chesterton by not pressing for an assignment of the Original Contract by conduct accepted Mr and Mrs Smith’s repudiation.
And
[68] The 17 Notices effectively sought to re-open the validity of all progress claims, notices of escalation and suspensions and the agreements reached through “mediation” and effectively sought to impose a unilateral time limit on locating a suitable assignee and obtaining consent. I accept Ms Chesterton’s submission that in giving these Notices there was no reasonable expectation that they could be remedied because it would require the repayment of all of the moneys paid under the Original Contract with the exception of the deposit and would leave Mr and Mrs Smith with a substantially completed house having paid nothing other than the deposit.
[69] I therefore find that the notice of termination was of no force or effect under clause 20.2.
[78] Mr and Mrs Smith’s refusal to consent to the Extension of Time or permit the Builder to provide a written estimate of the likely delay (as required under the Original Contract and under the Domestic Building Contracts Act 2000) was an unreasonable failure to consent to variation 007, particularly given that the variation was requested by Mr and Mrs Smith.
[79] As a result of their refusal to consent to either variation 006 or 007 or both, I find that Mr and Mrs Smith were in substantial breach of the Original Contract and were not entitled to terminate it.
[11]The conclusions drawn by the learned Member above are the subject of submission by the parties. Ms Chesterton says she found correctly; Mr Smith says that for “a “substantial breach” to be a breach significant enough to give rise to a right to terminate, it must follow that this also is a consequence not to be lightly inferred”.6 We agree with Mr Smith on this point. The factual background against which this must be judged is that on 29 January 2008, some 2 months after the death of the builder, Ms Chesterton was not pressing for assignment to a third party builder. “Ms
Chesterton had an election, to affirm the contract and seek to assign or to accept the repudiation and terminate. Ms Chesterton appeared overtly to do
neither.” Mr Smith, naturally wishing to avoid waste appoints another builder.
We agree with Mr Smith’s submission:
“23. First of all, death of the contracting builder must surely be the ultimate case of inability to complete works under clause 20.1 (d)” This will not
Subs para 35.
apply to corporate builders but it did here because there was no one apparently, 2 months after death who was overtly available. Therefore, the owner was entitled to terminate, was not robbed of this right by not accepting variations or serving vexatious notices and did so by the act of appointing alternate builders.
[13]The learned Member addresses this exact circumstance as an alternative conclusion at paragraph 81:
If I am wrong and Mr and Mrs Smith validly terminated the Original Contract then it is necessary to consider what damages for breach Mr and Mrs Smith are entitled to recover. In doing so, it is necessary to consider if they mitigated their loss (as was their duty) and what was the reasonable costs of completing the scope of work under the Original Contract and rectifying any defects in the work performed prior to Mr and Mrs Smith’s termination.
[82] Clause 20.4 of the General Conditions provides that the reasonable cost to complete is to be set off against the unpaid balance of the Contract Price.
[14]Further the learned Member has also calculated the alternate position between the parties in paragraphs 211 of the reasons and paragraph 227 where:
Total Cost
[211] For the reasons set out above I find that the reasonable costs of completing the scope of work under the Original Contract and rectifying any defects in the work performed prior to Mr and Mrs Smith’s purported termination less appropriate credits is
$54,481.99, calculated as follows:
Plumbing $ 2,826.09 Supply Water Pump $ 366.00 Electrician $ 2,489.20 Carpenter $ 3,177.83 Rangehood Installation $ 385.00 Window Hoods $ 3,883.00 Painting $ 6,800.00 Upstairs floors $ 3,877.50 Door remotes $ 88.00 Flyscreens and screened $ 8,706.00 verandah Site clean $ 500.00 Builder's clean $ 600.00 Sub-total $33,698.62 Builder's margin 25% $ 8,424.66 Total $42,123.28 PC Items $13,358.00 defective work $ 1,229.34 Total for all costings $56,710.61 less credit flooring -$ 1,478.12 credit on sewage connection -$ 247.20
credit on temp fencing -$ 503.31
Total Cost to Complete and Rectify
$54,481.99
[227] If Mr and Mrs Smith validly terminated then I find the following amount is payable by Mr and Mrs Smith as provided by Clause 20.4(b) of the General Conditions:
Amount owing to Ms Chesterton for Fixing Stage $117,632.58 Plus Practical completion payment $ 22,821.30 Sub-total $140,453.88 Less reasonable costs to complete & rectify $ 54,481.99 Amount payable by Mr and Mrs Smith as a debt due and payable to Ms Chesterton $ 85,971.89.
[15]The construction of the contract and in particular clause 20.4(b) of the contract is addressed by counsel for Mr Smith in, paragraphs 16-18 of the submissions. He does not cavil with the method of calculation of the amount payable under the contract as being the sum of $85,971.89.
[16]At paragraph 17 and 18 of the submissions counsel does submit as unreasonable the calculation of the cost to completion upon the basis of the availability of relevant evidence and the natural justice of refusal of leave to call that evidence. Nowhere does he criticise the method of calculation.
Quantum meruit
[17]Given that the parties’ rights are fully described by the contract by which they are bound there is no need to consider discretionary remedies or quantum meruit any further.
Natural justice
[18]Mr Smith contends that the learned Member in making findings regarding the cost of works to complete the contract, failed to observe the rules of natural justice and failed to ensure all the evidence was before her.
[19]During the hearing, Mr Smith sought leave to call evidence from the subsequent builders. Ms Chesterton objected on the basis that no statements had been filed in accordance with the directions of the Tribunal or prior to commencement of the hearing. There had been five separate directions requiring Mr Smith to file and serve the statements upon which he sought to rely commencing with the order of Ms Schafer of
14 May 2009 in the former Commercial and Consumer Tribunal and concluding with the order of Senior Member O’Callaghan on 2 February 2011.
[20]Mr Smith was represented by a firm of solicitors up to the week prior to the hearing.
[21] It is submitted by counsel for Mr Southian (at paragraph 58 Submissions of the 31 October 11) that section 28(3)(e) of the Act must be read subject
to, and in the context of section 28(3)(a) to ensure that natural justice was observed by not permitting trial by ambush.
[22]Mr Smith and his legal counsel decided that expert evidence on this topic would be given by Mr Hills. Mr Hills prepared and filed statements and attended experts conclaves. He gave evidence on point to the tribunal.
He did not come up to proof:7
[114] When Mr Hills attended the Tribunal he did not attend with copies of all the expert reports in this matter nor his working papers. He was not well prepared and gave evidence in what appeared an off the cuff way rather than in a way which appeared to convey considered opinions.
[115] His approach was not as thorough, logical or in my view reasonable as that adopted by Mr Haskard and therefore I generally prefer Mr Haskard’s approach and his evidence.
Mr Smith’s submission that ( Paragraph 57):
“Last of all, the Members decision not to allow Mr Smith …to call further evidence…seemingly has worked a substantial injustice.”
is quite incorrect and to the allow the contrary position would have been an injustice to Ms Chesterton. We are satisfied that in the circumstances Mr Smith has not suffered any breach of natural justice in the learned Member’s refusal to hear evidence from parties who had not provided any statement at all at the latest possible stage in the proceedings.
Conclusion
[24]The learned Member did not have the advantage of being addressed on the significance of the decision of Thomas J in Ownit Homes Pty Ltd v Bachelor8 which we find the following to be the more appropriate interpretation of the parties’ rights and position at the conclusion of the fixing stage and/or when the contract was subsequently terminated.
“The so called progress payments in the present case were not conditioned upon anybody’s certification. They were payments at specified convenient stages in the construction towards the full contract price. Such payments were obviously to be provisional and subject to adjustment at the end of the contract … I do not regard the builders rights under the present contract as “accrued due” in the sense that they can independently survive a subsequent decision … it seems to me that when a rescission ensues the right to recover a progress claim becomes merged in the right to recover damage for breach of contract.”9
[25]Accordingly we find that the learned Member, after finding that the amount payable for fixing stage was due and payable, should also have found that
See paragraph 114 and 115 of the original decision.
[1981] 2 Qd R 124.
[1981] 2 Qd.R. 124
following the termination of the contract Mr Smith was entitled to set off amounts for defects, rectification and cost to complete.
[26]We therefore conclude that the learned Member erred in her decision to award the whole of the amount outstanding at fixing stage to the respondent. We have concluded that the learned Member should have in accordance with the treatment of Thomas J in Ownit Homes and in accordance with the terms of the contract allowed Mr Smith a reduction of such amount for allowance for defects and completion.
[27]The submissions for both parties are void of any specificity as what the alternate quantum position should be save that it is specifically referred to Mr Smith’s material set out above and not traversed.10 In the circumstances we have arrived at what we consider to be the substitution of the right and proper decision with respect to the calculation of quantum
and order that the Mr Smith pay to Ms Chesterton the sum of $85,971.89 less the amount calculated by the learned Member at paragraph 214 and set out below at paragraph 256:
[256] If I am wrong and Mr and Mrs Smith validly terminated then I have found that the reasonable costs to complete and rectify would be
$54,481.99. Accordingly, the amount payable by Mr and Mrs Smith to Ms Chesterton as a debt due under Clause 20.4(b) of the Original Contract would be $85,971.89. Mr and Mrs Smith would be entitled to
offset other damages in the sum of $1,232 against this amount.
Hence a final sum of $84,739.89
Interest
[28]The learned Member’s finding with respect to interest payable under the contract is correct. Moneys were owing to the builder, have not been paid and should rightly bear interest at the contract rate from the 20 December 2008, for the reasons set out by the learned member in paragraphs 250 and 251:
[250] Ms Chesterton’s primary claim was for the Fixing Stage progress claim under the Original Contract. By making the second claim on 13 December 2007, the first claim made on 28 November 2007 was impliedly withdrawn. On the basis of the doctrine of substantial
performance I have found that an entitlement to payment of the amount of $117,632.58 arose on 20 December 2007 in respect of the claim issued on 13 December 2007.
[251] I have also found in relation to the primary claim that interest is payable on $117,632.58 at the rate of 15% per annum calculated on a daily basis as from 20 December 2007 until the amount due is paid.
Costs
Paragraph 16 above.
[29]The issue of costs has been dealt with by separate decision and should not be varied by this decision, and each party to bear their own costs of the appeal.
Orders
Leave to appeal is granted.
The appeal is allowed.
[3]The decision of the Tribunal dated 7 July is set aside and the following decision is substituted:
That Mr Baydon Smith and Mrs Desiree Smith11 pay to Ms Chesterton the sum of $129,210.92 being $84,739.89 plus interest until paid, calculated at the date of this judgement at $44,471.0312 ($84,739.89 x 15% x 1277 days
= $44,471.03) within 21 days.
Decision amended by order of the Tribunal 18 November 2013.
Decision amended by order of the Tribunal on 23 October 2012.
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