Stephens v Cameron
[2021] VSCA 208
•30 July 2021
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2021 0031
| LUCAS STEPHENS | Applicant |
| v | |
| PAUL CAMERON | First Respondent |
| - and - | |
| JOSEPH ALESCI | Second Respondent |
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| JUDGES: | KYROU, McLEISH and NIALL JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 15 June 2021 |
| DATE OF JUDGMENT: | 30 July 2021 |
| MEDIUM NEUTRAL CITATION: | [2021] VSCA 208 |
| JUDGMENT APPEALED FROM: | [2021] VCC 127 and County Court of Victoria, 11 March 2021 (Judge Woodward) |
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BUILDING AND CONSTRUCTION – Major domestic building contracts – Contract for management of construction of two townhouses – Owners contracted with registered builder, who engaged trade contractors – Substantial amounts paid to builder for incomplete works – Whether contract a ‘domestic building contract’ for purposes of Domestic Building Contracts Act 1995 – Whether implied criterion of ‘responsibility’ limiting application of Domestic Building Contracts Act to contracts with persons responsible for works – No implied criterion – Contract for managing and arranging carrying out of construction of home a ‘domestic building contract’ – Whether applicant not a ‘builder’ for purposes of Domestic Building Contracts Act because respondents ‘owner-builders’ for purposes of Building Act 1993 – Respondents not ‘owner-builders’ – Applicant treated as builder for statutory building permit and insurance requirements – Concept of ‘owner-builder’ irrelevant to characterisation under Domestic Building Contracts Act – Leave to appeal refused – Domestic Building Contracts Act1995 ss 1, 3–5, 8, 29, 31, 132–3, Building Act 1993 24A, 25E, 135–6, 137B.
STATUTORY CONSTRUCTION – Whether s 40(2) of Domestic Building Contracts Act creates statutory entitlement to repayment of amounts retained by builder above prescribed progress payment limits – Imerva Corporation Pty Ltd v Kuna [2017] VSCA 168, considered, Cook’s Construction Pty Ltd v SFS 007.298.633 Pty Ltd (2009) 254 ALR 661, distinguished – No statutory entitlement – Whether contravention of s 40(2) founds unjust enrichment claim and forecloses defences – Contravention of s 40(2) may be vitiating factor in unjust enrichment claim, but does not foreclose all defences – Leave to appeal granted – Appeal allowed – Domestic Building Contracts Act ss 3, 13, 40, 132–3.
PRACTICE AND PROCEDURE – Interest – Whether ‘free-standing’ right to interest in action for moneys had and received – Heydon v NRMAPty Ltd[No 2] (2001) 53 NSWLR 600, Chow v Yang [2010] SASC 96, Peet Ltd v Richmond (2011) 33 VR 465, considered – Whether Domestic Building Contracts Act 1995 a ‘written instrument’ by virtue of which amount liable to be paid – Supreme Court Act 1986 ss 58, 60.
WORDS AND PHRASES – ‘contract price’ – ‘domestic building works’ – ‘domestic building contract’ – ‘major domestic building contract’ – ‘builder’ – ‘owner-builder’– ‘written instrument’.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr B B Carr with Ms M Clarkin | David Naidoo & Associates |
| For the Respondents | Mr S W Stuckey QC with | DSA Lawyers |
| Mr N A Andreou |
KYROU JA
McLEISH JA
NIALL JA:
In 2012, the respondents Paul Cameron and Joseph Alesci contracted with the applicant Lucas Stephens, for Mr Stephens to manage and arrange the construction of two townhouses on a property in Mornington. The relationship between the parties began to deteriorate not long after construction began. The applicant ceased work in late 2012, and the contract ended in early January 2013.
Some five years later, the respondents commenced a proceeding in the County Court. Among other things, they claimed recovery of amounts they had paid to the applicant said to exceed the maximum amount to which he was entitled under s 40(2) of the Domestic Building Contracts Act 1995 (‘the Act’).[1]
[1]Section 40 of the Act is summarised at [28]–[33] below.
On 19 February 2021, a judge upheld that claim.[2] The judge relevantly held that the contract between the parties was a ‘domestic building contract’ for the purposes of the Act and that s 40 of the Act provided a basis for the respondents to recover amounts paid to the applicant in excess of his entitlement as a ‘builder’ under that section.
[2]Cameron v Stephens [2021] VCC 127 (‘Reasons’).
The judge awarded the respondents $171,103. This amount was nominated at trial by the respondents as the amount paid in excess of the value of the works completed under the contract (less the cost of remedying defective work). It was less than the amount which the judge considered the respondents were entitled to recover pursuant to s 40.
On 11 March 2021, the judge heard argument and delivered reasons on the questions of interest and costs. He made orders awarding interest in the amount of $143,124.07, calculated from 27 November 2012, which was the date of the last payment by the respondents to the applicant.
The applicant now seeks leave to appeal from the judge’s decision on four proposed grounds. He contends that the judge erred by:
(a) holding that the Act applied to the work done by the applicant under the contract;
(b) identifying the applicant as the relevant ‘builder’ for the purposes of the Act, rather than identifying the respondents as ‘owner-builders’;
(c) holding that s 40 of the Act conferred a right of recovery on the respondents; and
(d) awarding interest on a restitutionary basis from 27 November 2012 rather than pursuant to ss 58 or 60 of the Supreme Court Act 1986.
By notice of contention, the respondents contend that the judge erred by failing to find that the Act was a ‘written instrument’ for the purposes of s 58(1) of the Supreme Court Act.
For the reasons that follow, leave to appeal will be granted in respect of the third and fourth of these proposed grounds, and the appeal will be allowed. Leave will otherwise be refused.
Background
In 2011, the respondents obtained planning permits for the construction of two townhouses on a property owned by Mr Cameron. They sought a builder. Discussions with the applicant commenced in late 2011. On 14 December 2011, the applicant sent an email containing an estimate of costs (‘the 14 December estimate’). The estimated costs totalled $850,316 plus a 15 per cent management fee and GST. The applicant later agreed to change his management fee from a percentage to a fixed sum of $100,000, yielding a total, GST-inclusive estimated cost of $1,045,347.60.[3]
[3]Ibid [7].
On 14 February 2012, the parties executed a contract entitled ‘Construction Management Contract’. The applicant was defined as the ‘Construction Manager’ but was also described in a schedule as the ‘builder/construction manager’. Under the contract, he was obliged to act as agent of the respondents (described as the ‘Principal’) in providing construction management services. In particular, the applicant was required to: provide an estimated cost for the works to the respondents for their approval; organise the commencement of the works; and coordinate construction. His obligations included arranging to have the works set out, engaging trade contractors on behalf of the Principal, and coordinating the work of the trade contractors in order to have the works carried out and completed. The contract did not expressly specify either a contract price or a date for completion of the works.
Clause 9 of the contract required the Principal to pay each trade contractor in accordance with the trade contracts. The Construction Manager was under no obligation to pay trade contractors and then seek reimbursement from the Principal. Instead, the Construction Manager was required by cl 16 to submit regular statements setting out the ‘costs and expenses incurred by the Construction Manager and the Principal in connection with the construction’ of the works, and the Principal was required to pay those costs, including amounts the Construction Manager had paid.
On 22 May 2012, a building permit was issued for the project. The applicant’s company was identified as the builder. The applicant was identified as one of three building practitioners involved in the ‘building work’. His registration number under the Building Act was listed. The permit identified the requisite domestic building work insurance policy,[4] and a copy of the policy certificate was annexed to the building permit. The policy certificate also identified the applicant’s company as the builder.
[4]The contract of insurance met the requirements of the relevant Ministerial Order for Domestic Building Insurance issued under the Building Act 1993 s 135: see [42] below.
By late 2012, with work now well under way, the respondents had paid the applicant a total of $567,000. This comprised a series of payments in satisfaction of progress payment statements issued by him. The final such payment, of $44,000, was made to the applicant on 27 November 2012.[5]
[5]All but $4,659.27 of the amounts paid to the applicant were in respect of invoices issued by trade contractors, although there was some doubt — unresolved at trial — as to whether certain of those invoices were truly incurred or paid: Reasons [17], [69(g)].
By this time, the parties’ relationship had fractured. There were mutual allegations of contractual breaches, the details of which are not presently relevant. Work ceased on the site in December 2012. The applicant sent the respondents a formal termination notice on 8 January 2013, pursuant to a contractual right to terminate upon 10 days’ notice.
Much later, on 12 February 2018, the respondents commenced the present proceeding. They claimed that the applicant had: breached the contract, including by breaching contractual warranties implied by the Act; engaged in misleading and deceptive conduct; breached fiduciary duties; and contravened the Act by demanding, recovering and retaining amounts in excess of his entitlement under s 40 of the Act.
The trial judge upheld the s 40 claim and did not need to decide the others. It is convenient briefly to describe how that claim was pleaded.
The respondents pleaded that, for the purposes of the Act, the works consisting of the construction of the townhouses were ‘domestic building works’, the contract was a ‘domestic building contract’ and the applicant was a ‘builder’. The applicant admitted that the works were ‘domestic building works’ and that he was a ‘builder’ to the extent that he managed and arranged the carrying out of domestic building work, but he denied that he performed domestic building work himself. He also denied that the contract was a domestic building contract, saying that the works were to be constructed by the trade contractors under contracts with the respondents.
In relation to s 40, the respondents pleaded:
24 As at January 2013, the Works had not reached frame stage as defined in section 40 of the Act, and the [Defendant was] entitled to demand, recover or retain pursuant to the Contract no more than 10% of the contract price, namely $104,534.76.
25 The [Defendant has] demanded and the Plaintiffs have paid $567,000, being $463,065.24 more than 10% of the contract price as defined, to which the [Defendant was] not entitled and [is] not able to retain pursuant to section 40(2) of the Act.
26 The Plaintiffs are entitled to recover from the … Defendant the amount of the overpayment, namely $463,065.24.
The applicant denied that the Act had any application to the contract, and pleaded that, in any event, he was entitled to retain any amount of the alleged overpayment ‘by way of restitution in the category of unjust enrichment’.
Statutory framework
Section 1 of the Act states that its main purposes relevantly include:
(a)to regulate contracts for the carrying out of domestic building work; and
…
(c)to require builders carrying out domestic building work to be covered by insurance in relation to that work.
Section 4 of the Act states the following related objects:
(a) to provide for the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to both builders and building owners; and
…
(c)to enable building owners to have access to insurance funds if domestic building work under a major domestic building contract is incomplete or defective.
Section 3(1) of the Act sets out a series of defined terms, including the following:
builder means a person who, or a partnership which—
(a) carries out domestic building work; or
(b) manages or arranges the carrying out of domestic building work; or
(c) intends to carry out, or to manage or arrange the carrying out of, domestic building work;
domestic building work means any work referred to in section 5 that is not excluded from the operation of this Act by section 6.[6]
[6]The exceptions in s 6 are not relevant for present purposes.
Section 5 relevantly provides:
(1) This Act applies to the following work—
(a) the erection or construction of a home,[7] including—
[7]Defined in s 3(1) to mean residential premises, subject to specified exceptions.
(i) any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home … ; and
(ii) the provision of lighting, heating, ventilation, air conditioning, water supply, sewerage or drainage to the home or the property … ;
(b) the renovation, alteration, extension, improvement or repair of a home;
…
(2) A reference to a home in subsection (1) includes a reference to any part of a home.
Section 3(1) also provides for other definitions, including:
domestic building contract means a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a sub-contractor;
major domestic building contract means a domestic building contract in which the contract price for the carrying out of domestic building work is more than $5,000 (or any higher amount fixed by the regulations);[8]
[8]The amount fixed by the regulations is presently $10,000: Domestic Building Contracts Regulations2017 r 6.
contract price means the total amount payable under a domestic building contract and includes—
(a) the amount the builder is to receive and retain under the contract; and
(b) the amount the builder is to receive under the contract for payment to another person;
…
cost plus contract means a domestic building contract under which the amount the builder is to receive under the contract cannot be determined at the time the contract is made, even if prime cost items and provisional sums are ignored.[9]
[9]At the relevant time, it was permitted to enter into a cost plus contract for work reasonably estimated to cost $500,000 or more: Act s 13, read with Domestic Building Contracts Regulations 2007 r 11(1).
Section 8 of the Act contains a series of warranties to be implied into any domestic building contract, including as to the quality of the work and building materials, and as to compliance with all legal requirements, including under the Building Act 1993. Section 9 provides that these warranties run with the building or land in respect of which the relevant domestic building work was carried out, so that successors in title have the benefit of the warranties.
Section 29 at the relevant time prohibited a builder from entering into a major domestic building contract unless (subject to exceptions that are not relevant) he or she was registered as a builder under the Building Act.
Section 31 also prohibited a builder from entering into a major domestic building contract unless a series of procedural requirements were satisfied, including that the contract state the builder’s registration number under the Building Act and detail the ‘required insurance’ under the Building Act applicable to the work to be carried out.[10]
[10]Section 31(1)(f) and (l). As to the ‘required insurance’, see [42] below.
Section 40 is entitled ‘limits on progress payments’. Subsection (1) defines a progression of ‘stages’, in terms that are not currently relevant.
Subsection (2) relevantly provides:
A builder must not demand, recover or retain under a major domestic building contract of a type listed in column 1 of the Table more than the percentage of the contract price listed in column 2 at the completion of a stage referred to in column 3.
Penalty: 50 penalty units.
For the column 1 item ‘Contract to build all stages’, the Table provides in columns 2 and 3 as follows:
Percentage of contract price Stage
10% Base stage
15% Frame Stage
35% Lock-up stage
25% Fixing stage
It is common ground between the parties that the ‘base stage’ was the only stage achieved before work ceased. However, it was also agreed that other work had been done, without yet reaching the ‘frame stage’.
Subsection (3) applies to a major domestic building contract not listed in the Table — that is, a contract which is neither a contract to build ‘all stages’ nor a contract to build to a specified stage. It provides that, in such a case, ‘a builder must not demand or receive any amount or instalment that is not directly related to the progress of the building work being carried out under the contract’, again stipulating a penalty of 50 penalty units.
Subsection (4) permits the parties to contract out of sub-ss (2) and (3), in the manner set out in the regulations.
Section 40 relevantly continues:
(5) If a Court finds proven a charge under subsection (2) or (3) against a builder, it may order the builder to refund to the building owner some or all of the amount the building owner has paid the builder under the contract.
(6) This power is in addition to the power the court has to impose any other penalty.
Section 132 of the Act prohibits contracting out of the Act. Any term in a domestic building contract that is contrary to the Act, or purports to annul, vary or exclude any provision of the Act is void, except where a departure from the Act imposes more onerous obligations on the builder.
Section 133 provides that a failure by a builder to comply with any provision of the Act in relation to a domestic building contract does not make the contract illegal, void or unenforceable unless the contrary intention appears in the Act.
The Act interrelates in key respects with the Building Act.[11] The Building Act picks up the definitions of ‘domestic building work’ and ‘major domestic building contract’ contained in the Act. ‘Domestic builder’ is defined to mean ‘builder’ within the meaning of the Act.
[11]While many of the provisions of the Building Act referred to below have been amended since the relevant time, it is convenient to refer to them in the present tense, not least because the provisions in their current form are broadly to the same effect.
The Building Act prohibits the carrying out of any building work unless a building permit under the Act has been issued.[12] Building permits are issued by a building surveyor.
[12]Building Act s 16(1).
At the relevant time, s 24A of the Building Act provided three routes by which a building surveyor might issue a building permit. The first, which is not presently relevant, is where the building work is not domestic building work.[13]
[13]Ibid s 24A(1).
The second, which is relevant, is where the building work is domestic building work to be carried out under a major domestic building contract.[14] In such a case, the surveyor must not issue the permit unless satisfied that:
(a) the work is to be carried out by a builder who is registered under Part 11 in the appropriate class of domestic builder and is covered by the required insurance …
[14]Ibid s 24A(2).
The third route is where the work is domestic building work (the estimated cost of which exceeds $12,000) but is not carried out under a major domestic building contract.[15] In such a case, the surveyor must not issue the permit unless satisfied that either: the work is to be carried out by a registered (and therefore insured) builder or architect; the applicant for the permit is the Director of Housing; or the applicant has been issued with a ‘certificate of consent’ as an owner-builder for the work.
[15]Ibid s 24A(3).
The Building Act describes as an ‘owner-builder’ a person who constructs a building (defined to include managing or arranging the erection of a building) and contracts to sell it within a specified period.[16] In that regard, s 25B prohibits an owner (other than a registered builder or architect, the Director of Housing, or an owner otherwise authorised by statutory order) from carrying out building work estimated to cost more than $12,000 on their land or building unless they have been issued with a ‘certificate of consent’ as an ‘owner-builder’. The requirements for issuing such a ‘certificate of consent’ relevantly include that the application relate to a single dwelling, in which the applicant resides or intends to reside, and that the applicant has not been issued with a building permit as an ‘owner-builder’ in the past three years.[17]
[16]Ibid s 137B(2), (7).
[17]Ibid s 25E (c),(d), (e).
In respect of the latter two routes for the issuing of a building permit, the Building Act also ensures that domestic building works are appropriately insured. First, as to engaging a registered builder, s 136 of the Building Act prohibits a builder from carrying out, or managing or arranging the carrying out of, domestic building work under a major domestic building contract unless the builder is covered by the ‘required insurance’.[18] In the case of a builder managing or arranging the carrying out of domestic building work, this requirement is satisfied where the relevant work is covered by the required insurance.[19] What constitutes the required insurance is specified by a Ministerial Order issued under s 135(1) of the Building Act.[20]The Ministerial Order at the time relevantly provided that the policy must indemnify the building owner (and any successors in title) in respect of loss and damage resulting from breach of the warranties implied under s 8 of the Act for at least six years after completion of the work[21] or termination of the contract.[22]
[18]Ibid s 136(2).
[19]Ibid s 135(6)(c).
[20]The applicable order at the time was: Minister for Planning (Vic), ‘Domestic Building Insurance Ministerial Order’ in Victoria, Victoria Government Gazette, No S 98, 23 May 2003, 1 (‘Ministerial Order’).
[21]Defined to be the date of issue of the occupancy permit or (if no occupancy permit is issued) the date of issue of the certificate of final inspection; or (if neither an occupancy permit nor certificate of final inspection has been issued) the date of practical completion.
[22]Ministerial Order cl 12(2). A shorter minimum period of two years is applicable to non-structural defects.
Secondly, as to seeking permission as an owner-builder, s 137B of the Building Act (subject to certain exceptions which are not presently relevant) prohibits an owner-builder from contracting to sell the relevant building unless they are covered by the required insurance, and have provided a certificate of insurance to the purchaser.[23] The Ministerial Order specified that the required insurance must cover the domestic building work done on the building, and indemnify the purchaser in respect of loss and damage resulting from breach of the warranties implied under s 8 of the Act. As with builder’s insurance, the policy must indemnify for breach of the statutory warranties for at least six years after completion of the works.[24] In addition, s 137C provides that every contract of sale within the scope of s 137B is subject to comparable statutory warranties.
[23]Building Act s 137B(2)(b).
[24]Ministerial Order cl 23(2). A shorter minimum period of two years is applicable to non-structural defects.
As may be seen, the Act and the Building Act together create a consumer protection scheme by which domestic building works above a certain minimum threshold value, whether carried out by a registered builder or a permitted owner‑builder, are covered by home owners’ warranty insurance for a prescribed minimum period.
Judge’s reasons
The judge upheld the claim under s 40 of the Act. First, he was satisfied that the contract was a ‘domestic building contract’ for the purposes of the Act. The judge considered that the contract was plainly one to ‘manage and arrange domestic building work’ — specifically, the construction of the two townhouses. The contract permitted the applicant to carry out the building work by, for example, empowering him to control the site, determine the progress of works, receive progress payments, and select, supervise and direct the trade contractors. The judge said that the fact that certain contractual provisions appeared to conflict with the terms of the Act was not to the point; the very purpose of the Act was to superimpose a statutory allocation of risk irrespective of the parties’ contractual arrangements. The definition of ‘domestic building contract’ contained in s 3 of the Act was, in the judge’s view, plainly designed to prevent avoidance of the Act by contractual drafting.[25]
[25]Reasons [31]–[33].
Secondly, the judge considered that s 40 the Act conferred on the respondents a right of recovery against the applicant. In doing so, he rejected the submission that s 40 is a penalty provision which does not provide a private law cause of action, either contractual or restitutionary in nature.[26] An aspect of that submission had been that s 40(2) made no provision for the monetary remedy sought by the respondents, nor had they pleaded any general law basis for such a remedy.
[26]Ibid [47].
The judge emphasised that s 40(2) explicitly prohibits the demand, recovery or retention of amounts in excess of the prescribed percentages. As a result, no contractual or restitutionary basis needed to be identified before a private law remedy would arise; breach of the provision sufficed of itself.[27] In the judge’s view, s 40(2) ‘creates a discrete obligation on a builder who has received amounts in excess of the entitlements in the table to disgorge those amounts’.[28] The judge regarded that obligation as absolute. It was irrelevant whether the recipient builder had provided any consideration for excess amounts.[29] The judge also considered the obligation to be separate and additional to the power of the Court in sub–s (5) to order a builder who has contravened sub–s (2) to refund all or part of the contractual payment. As a result, the judge was satisfied that the respondents had adequately pleaded their claim in reliance on s 40(2) of the Act.[30]
[27]Reasons [58]; see Cook’s ConstructionPty Ltd v SFS 007.298.633 (2009) 254 ALR 661, 667–8 [58] (Keane JA); [2009] QCA 75 (‘Cook’s Construction’).
[28]Reasons [50].
[29]Ibid [61]–[63].
[30]Ibid [59].
Thirdly, the judge considered that it followed that the respondents were entitled to the relief sought, specifically the full amount they paid to the applicant in excess of his entitlement under s 40(2). As the contract was to ‘build all stages’, and only the base stage was achieved, the applicant’s maximum entitlement was
10 per cent of the contract price. The contract did not expressly specify a contract price, but the judge considered that the ‘contract price’ for the purposes of the Act could be ascertained by reference to the 14 December estimate, as amended.[31] This yielded a contract price of $1,045,347.60, and a maximum ‘base stage’ entitlement of $104,534.76. As the applicant had demanded (and the respondents had paid) $567,600, the judge considered that the respondents were entitled to an order requiring that the applicant repay to them the amount they had paid to him in excess of his ‘base stage’ entitlement, namely $463,065.24.[32]
[31]See [9] above.
[32]Reasons [61]–[63].
However, at trial, the respondents waived their claim to that full amount. They characterised this as an exercise in ‘restraint’, given the potentially ‘harsh’ operation of the provision and the fact that they had the benefit of some work past the ‘base stage’. They instead sought $171,103, being the amount paid to the applicant less their assessed value of work performed, adjusted for defects.[33] The judge, while accepting that this was a necessarily arbitrary figure, made orders for the repayment of that lesser amount.
[33]Ibid [64].
Written submissions were provided on the question of costs and interest. After a short hearing addressing those issues, the judge made orders and gave reasons.[34] He ruled that interest should be awarded, at the statutory rate, from the date of the last payment by the respondents, being 27 November 2012. The judge characterised the successful claim under s 40 of the Act as a ‘restitutionary claim for monies had and received’ arising from the operation of that provision. So characterised, the claim enlivened a ‘freestanding’ right to the recovery of interest in respect of restitutionary claims. The judge held that s 58 of the Supreme Court Act was inapplicable, including because there was not the requisite ‘written instrument’ by virtue of which the amount was liable to be paid; in particular, the Act was not such an instrument. As a freestanding basis for an interest award was identified, the judge did not address the respondents’ alternative submission that interest should be awarded under s 60 of the Supreme Court Act.
[34]Cameron v Stephens [No 2] (County Court of Victoria, Judge Woodward, 11 March 2021).
Proposed grounds of appeal
As mentioned, there are four proposed grounds of appeal, as follows:
1. The Court incorrectly determined that the provisions of the Act applied to the Construction Management Contract entered into by [the] parties on 12 February 2012.
2. The Court incorrectly identified the Applicant as the builder, rather than deciding that the Respondents were owner builders.
3. In determining that the [Respondents] had a right of recovery under s 40(2) of the Act the Court:
i) wrongly determined that the subsection, of itself, confers a right of recovery for any overpayment of progress payments, rather than construing the subsection as a purely penal provision; and
ii) failed to give due, or any, consideration to the provisions of sub-s 40(5) when considering whether an order should be made against the Applicant to refund any alleged overpayments of progress payments.
4. In awarding interest on the award from November 2012, the Court:
i) incorrectly determined that a ‘free standing right’ to interest existed at common law, rather than applying the provisions of ss 58 and 60 of the Supreme Court Act; and
ii)alternatively, if interest is available at common law, it failed to properly apply the correct restitutionary principles on which such interest awards are based.
By notice of contention, the respondents submit:
The learned trial Judge’s decision that the [Act] was not a ‘written instrument’ for the purposes of s 58(1) of the Supreme Court Act 1986 was in error, and interest was able to be awarded thereunder.
Proposed ground 1— scope of the Act
The applicant submitted that the judge erred in characterising the contract as a domestic building contract for the purposes of s 3 of the Act. He submitted that s 3 was a ‘blunt instrument’, the operation of which must be limited by s 5. It was submitted that the definition of ‘domestic building contract’ in s 3 would otherwise be excessively broad, and lead to absurd results, such as a contract of employment between builder and foreman or a subcontract between builder and contractor being treated as a domestic building contract.
Specifically, it was contended that s 3 should be limited by a notion of responsibility said to be located in s 5. Such a notion could readily be applied to identify which of the many workers on a building site, exercising varying degrees of supervision, and in a variety of contractual relationships, was subject to the Act. This was said to derive support from the statement of Neave JA in Shaw v Yarranova Pty Ltd,[35] that the question for decision in that case was whether the contract was one under which the party in question was ‘responsible for managing and/or arranging for domestic building work’ within s 3 of the Act.
[35](2006) 15 VR 289, 301 [35] (Eames JA agreeing at 298 [17]).
The applicant submitted that, properly construed, s 5 of the Act limits the application of the Act not only to relevant work, but implicitly also to the person(s) responsible for the particular work. This result could be reached by reading down the opening words of s 5(1), ‘This Act applies to the following work’ to read ‘This Act applies to those persons who are responsible for the following work and the contracts they enter into’.
The essential preliminary enquiry was therefore said to be whether a person satisfies this implied criterion of responsibility for the relevant works. That requires an examination of the terms of the relevant contract. In this case, it was submitted that the applicant did not satisfy the implied criterion. Among other things, the contract lacked plans, specifications and a price. The applicant’s role was to manage the trade contractors as agent for the respondents, who maintained responsibility for the project. Because the applicant lacked the requisite responsibility for the works, the works under the contract fell outside the scope of the Act.
In our opinion, there is no support in the text, structure or purpose of the Act for the approach advocated by the applicant. The suggested ‘reading down’ is in truth a rewriting of s 5.
First, the notion of ‘responsibility’, said to be critical to the Act, is a limitation without any textual support in the Act. It is not found at all in its text. The use of the word ‘responsible’ in passing in a judgment of this Court does not provide a basis for importing that word into the statute. In the passage in question, Neave JA was doing no more than paraphrasing the definition of ‘domestic building contract’.
It is not merely that the Act provides no textual foundation for the applicant’s argument. It is flatly inconsistent with it. Section 5 is about ‘work’ and says nothing at all about who performs that work, still less who is responsible for its performance. It states that the Act applies to the identified work. But the applicant would have it that the Act only applies to the identified work in respect of the person responsible for performing it.
The Act’s purpose is revealed in its express purposes and objects, and also in its very structure. The purposes of the Act in s 1 include to regulate contracts for carrying out domestic building work and to require builders carrying out that work to be insured in relation to it. The objects in s 4 include the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to builders and building owners, and enabling building owners to have access to insurance for incomplete or defective domestic building work (under a major domestic building contract). The Act is thus about the carrying on of domestic building work.
The defined expression ‘domestic building work’ is critical because it delimits the scope of the Act as a whole, consistently with its purposes and objects. So, s 5 sets out the work to which the ‘Act applies’, and supplies the primary content of the defined term ‘domestic building work’. That key concept having been identified, the Act uses other defined terms which themselves deploy the concept of ‘domestic building work’, including ‘builder’, ‘domestic building contract’ and ‘major domestic building contract’. It then attaches consequences by reference to that concept and those terms, including by implying warranties into defined contracts and otherwise imposing standard terms into those contracts including, relevantly, the provisions as to progress payments found in s 40.
It would fundamentally undermine the structure of the Act to read in to s 5 a requirement of responsibility as the applicant urges. The central conception in the Act would cease to be the scope of work within its ambit, and the whole Act would become limited by the notion of responsibility. This additional limitation would have consequences for every operative provision in the Act. The Act’s purposes and objects, identified as extending to domestic building work as defined, would be thwarted by confining its operation to the conduct of those responsible for performing such work.
In any event, the applicant’s arguments about absurd consequences are unpersuasive. A contract between a builder and subcontractor is expressly excluded from the definition of ‘domestic building contract’,[36] and a contract of employment would also fall outside the definition as it would not be a contract to ‘carry out, or to arrange or manage the carrying out of’ domestic building work. It is plain from other provisions of the Act, including its objects, that a domestic building contract is a contract between a builder and a building owner, and so does not include a contract of employment between builder and worker.[37]
[36]Act s 3(1).
[37]Ibid (definitions of ‘building owner’, ‘domestic building contract’ and ’domestic building work’); s 4(a).
Once the implied criterion contended for by the applicant is rejected, the application of the Act to the works in the present case is straightforward. The work was ‘domestic building work’ because, as the applicant admitted in the pleadings, it was for the construction of a home. The contract was a ‘domestic building contract’ because, as was also admitted, it involved arranging and managing the carrying out of that work.
Leave to appeal on the first proposed ground should be refused.
Proposed ground 2 — ‘owner-builder’ provisions
The applicant submitted that the judge erred in charactering him as a ‘builder’ rather than characterising the respondents as ‘owner-builders’. He contended that, despite the respondents not meeting the statutory requirements applicable to an ‘owner-builder’ (among other things, because they proposed building more than one home on the land) the respondents ought nonetheless have been so characterised. This was said to be because, among other reasons, they:
(e) owned the land, which they wished to develop for sale;
(f) engaged the applicant as their agent under the contract;
(g) empowered him to enter into contracts with suppliers and trade contractors on their behalf; and
(h) took contractual responsibility for defects, time overruns and the costs of construction.
As a result, it was said to be appropriate to characterise the respondents as ‘owner-builders’. This was said to mean that their contract with the applicant fell entirely outside of the Act and was regulated only by contract and tort.
This argument must also be rejected. In the first place, as the applicant accepted, the respondents did not satisfy the requirements to be treated as ‘owner-builders’ under the Building Act.[38] Secondly, and in any event, the question whether they were ‘owner-builders’ under the Building Act was entirely irrelevant to the question in issue, namely whether the contract was a ‘domestic building contract’ for the purposes of the Act. Characterising the respondents as ‘owner‑builders’ would not alter the legal relations between them and the applicant; the only consequence would be to alter their legal relations in respect of the ultimate purchasers of the townhouses. That is plain from the fact that the concept of ‘owner-builder’ plays no role in the Act; its relevance is confined to the Building Act.
[38]See [41] above.
In that regard, given that the respondents were not ‘owner‑builders’, the effect of the applicant’s argument would seem to be that, because he was merely managing work for which the respondents were responsible, there was neither a ‘builder’ nor an ‘owner-builder’ in respect of the domestic building work performed under the contract. That would be a startling result. It would mean that the consumer protection objectives of the Act, together with the Building Act, were not met in respect of that work. There would be no implied warranties and no insurance. It would be remarkable if recourse to the notion of ‘owner-builder’, not found in the Act, and used but not defined in the Building Act, had that result.
The result would also be inconsistent with the operation of the statutory regime at earlier stages of this very case. The applicant put his company forward as the builder for the purpose of procuring the requisite building permit and the home warranty insurance. The building permit duly issued identified his company as the builder, as did the insurance that was obtained.[39] Yet on the applicant’s argument, the only parties who should have been so identified were the respondents, who need
not have obtained domestic building insurance at that stage.[40]
[39]See [12] above.
[40]See [43] above: an ‘owner-builder’ need not obtain domestic building insurance prior to the domestic building work occurring, but must obtain it prior to entering into a contract of sale: Building Act s 137B(2); Ministerial Order cl 19.
Leave to appeal on the second proposed ground should be refused.
Proposed ground 3 — claim for breach of s 40(2)
Under the third proposed ground of appeal, the applicant first submitted that s 40(2) of the Act had no application to the contract, because the contract lacked the requisite ‘contract price’ upon which the table of maximum entitlements in s 40(2) operated. It was submitted that the amount to be paid was uncapped and necessarily flexible. As a result, only s 40(3) could have had any application. It was said that that provision was complied with because the applicant did not demand or receive any amount not directly related to the progress of the building work.
This argument was advanced only obliquely in the applicant’s written case, and briefly by way of oral submissions. As the respondents pointed out, it was not raised by the proposed grounds of appeal. Nor did the applicant seek to amend his grounds. Further, the point does not appear to have been raised at trial.[41] In the circumstances, in our view the applicant is not entitled to raise it by way of appeal. However, we make some short observations about the argument below.
[41]Instead, the applicant submitted at trial that s 40(2) did not apply because the contract was not a contract ‘to build all stages’ within the meaning of that provision. That submission was rejected and was not sought to be renewed by way of appeal.
The respondents contended that ‘contract price’ is defined broadly in the Act, and includes contracts such as the present where the ultimate cost is not ascertainable at the time of execution. They submitted that where, as here, the contract is a ‘cost plus contract’, the ‘contract price’ is the relevant estimate. Here, that was the 14 December estimate, which was also ‘operational’ for the purpose of calculating amounts due to the builder. That estimate was the relevant ‘contract price’ for the purposes of s 40(2).
It is not necessary to decide whether, as the respondents submitted, the present contract was a ‘cost plus contract’, under which the amount the builder was to receive could not initially be determined. If it was such a contract, it was required to contain a fair and reasonable estimate by the builder of the total amount of money the builder was likely to receive under the contract, and how that amount was to be determined: ss 13(2), 31(1)(j). If it was not, it was required to state the contract price: s 31(1)(j). In either event, the ‘contract price’ was still the total amount payable under the contract: s 3(1).[42] That figure became a question of fact for determination by the trial judge applying s 40(2). The applicant did not seek to show that the judge erred in relying on the 14 December estimate for that purpose.
[42]The definition of ‘major domestic building contract’ also makes it apparent that the Act assumes that every domestic building contract has a ‘contract price’. The fact that the contract price under a cost plus contract may be determined by reference to estimates does not distinguish a cost plus contract from any domestic building contract that provides for prime cost items or provisional sums, as to which estimates are also required to be provided: s 22.
It follows that there was a ‘contract price’ for the purposes of s 40(2) and that provision operated according to its terms. As a result, the case was not governed by s 40(3), and the argument floated by the applicant would not have availed him in any event.
Secondly, the applicant submitted that, in any event, the judge erred by treating s 40(2) as founding a civil cause of action. It was said that s 40(5) expressly provides for whole or partial civil recovery based on conviction of either the s 40(2) or s 40(3) offences, and that this should be presumed to be the only avenue for civil recovery as a result of non-compliance with s 40(2) and (3). Even assuming that s 40(2) provided some basis for civil recovery, it was said only to have the effect that contractual payments in excess of the entitlements are ‘void’ or without legal effect.[43] That alone was said not to provide a complete cause of action or an entitlement to a remedy. Instead, it provided a basis for pleading an action for money had and received in which some relevant vitiating factor is identified. It was said that such an action ought to have been, but was not, pleaded. One of the reasons it was necessary that such an action be pleaded was that it would have permitted the applicant to plead applicable restitutionary defences, including change of position. The applicant submitted that, since the respondents pleaded the s 40(2) claim as a statutory cause of action, the claim should have failed.
[43]Act ss 132 and 133.
The respondents accepted that contravention of s 40(2) gave rise to a restitutionary claim. However, they submitted that the pleading adequately articulated such a claim. Essentially, the claim was a restitutionary claim in which the vitiating factor was illegality: ‘money paid in circumstances where its retention was illegal’. It was said that the prohibition against retention in s 40(2) was directed to retention ‘against the owner’. The respondents also submitted that the statutory prohibition against retaining excess amounts displaced ordinary restitutionary defences such as change of position, and that there was therefore no error in the judge not addressing the possibility of any such defence. The respondents accepted that the strictness of the prohibition might, somewhat unusually, give rise to a restitutionary claim in which the claimant owner receives a ‘windfall’. Although this was an admittedly ‘peculiar’ outcome, it was said to be consistent with the position the parties would have been in if the builder had simply elected not to complete the stage and been unable, by virtue of s 40(2), to charge for the work done.
The argument for the respondents which found favour with the trial judge had two aspects. The first was that s 40(5) did not operate to limit the private law remedies of an owner. The second was that s 40(2) created a right of recovery where amounts above the permitted sum were retained by a builder. The applicant challenges both conclusions, but only needs to succeed on one of them in order to displace the judge’s ultimate conclusion that moneys were required to be repaid.
In our view, the judge’s first conclusion was correct. Section 40(2) prohibits a builder from demanding, recovering or retaining certain amounts. There is no issue here of contracting out under s 40(4) and so s 40(2) overrides any inconsistent term in the contract, by virtue of s 132. However, s 40(2) is a penal provision which does not address any civil implications of a breach.
Against that background, s 40(5) confers an additional power on a court which finds a charge under s 40(2) proven. It is not a power to be exercised in a civil proceeding, but an ancillary power that arises when a penal charge is made out. In that regard, it is telling that s 40(6) describes the power in s 40(5) as being ‘in addition to the power the court has to impose any other penalty’. That language serves to confirm that, when a court makes an order to refund an owner under s 40(5), it is imposing a penalty on the builder.
If Parliament had intended to make s 40(5) the only avenue for an owner to recover a refund for non-compliance with s 40(2), it would have had to use clear words. The effect would be to deprive a party from whom money had been unlawfully retained of the ability to pursue any remedy for its return, short of attempting to initiate a criminal proceeding. Otherwise, the owner would effectively be at the mercy of the authorities who may or may not be minded to pursue the matter. There is no apparent reason why Parliament would have sought to limit the effectiveness of the prohibition in s 40(2) in this way, and the language of s 40(5) provides no support for that outcome.
However, although we agree with the judge that s 40(5) did not operate as a bar to the respondents’ claim under s 40(2), we do not agree that s 40(2) created an independent right to recovery of any amount retained contrary to its terms, or ‘a discrete obligation on [the] builder … to disgorge’ such an amount.[44]
[44]Reasons [50].
This second aspect of proposed ground 3 raises the issue whether the relevant effect of s 40(2) of the Act is simply to prohibit retention of moneys above the specified limit, rendering such retention unlawful, or to go further and create a right on the part of the person who paid the excess moneys to sue for their recovery. As such, the argument presents a question of construction of the provision.
While the respondents in this Court were content to characterise the right which they submitted s 40(2) created as restitutionary in nature, so that s 40(2) supplied the ‘unjust factor’ that would support an unjust enrichment claim, they contended that the terms of s 40(2) excluded any defences that might be raised in response to such a restitutionary claim. The suggested right of recovery was therefore restitutionary in name only, partaking in the nature of a statutory entitlement. As described below, the judged treated the provision as creating such a right.
The effect of the judge’s reasoning was that ‘the corollary of not being permitted to retain money is that one must give it back’.[45] That meant that there was an obligation, arising by virtue of s 40(2), to repay moneys retained contrary to the terms of the provision, and that, because s 40(2) was absolute in its terms, there was no defence available to a builder called upon to make such repayment. As the judge put it, the amount the respondents were entitled to recover was:
not based on any assessment of [their] actual loss based on the true value of the work performed or paid for by the [applicant], any defects in that work or other similar considerations.[46]
[45]Ibid [51].
[46]Ibid [63].
The judge drew on two decisions in support of that conclusion. In the first, Imerva Corporation Pty Ltd v Kuna,[47] Tate JA (with whom Kyrou and McLeish JJA agreed), said by way of obiter dicta that, where s 40(2) has been breached, the contract price remains but progress payments revert to the statutory regime. She said that a finding made below that the builder ‘owed a refund’ to the owners was ‘made within that context’.[48] However, the Court did not need to decide the basis upon which recovery could occur, and it did not address that issue at all. On one view of the passage in question, the Court characterised the right of recovery as based in contract. It fell well short of identifying a statutory right of recovery.
[47][2017] VSCA 168 (‘Imerva’).
[48]Ibid [98].
The second case, Cook’s Construction Pty Ltd v SFS 007.298.633 Pty Ltd,[49] concerned comparable, but different, legislation in Queensland. Section 42(1) of the Queensland Building Services Authority Act 1991 (Qld) (‘the QBSA Act’) prohibited a person from carrying out building work without a licence. By s 42(3), a person who carried out building work in contravention of sub-s (1) was ‘not entitled to any monetary or other consideration for doing so’, subject to a right under sub-s (4) to claim ‘reasonable remuneration’ as defined. An unlicensed builder had made claims which had been paid by the contracting party, which then sought recovery of the amounts in question. Keane JA (with whom Fraser JA and Daubney J agreed), said this of these provisions:
It is clear from the terms of s 42(3) and s 42(4) that neither provision purports to create a right of action to recover money in any person. Rather, each subsection is concerned to regulate a cause of action for payment which is assumed to have arisen, either under contract or under the principles of the common law which permit claims for payment for work done at the request of another. These common law claims have been variously described as claims for quantum meruit or in quasi-contract or to prevent unjust enrichment.
Section 42(3) is, in terms, concerned to sterilise any claim which might otherwise be made under a contract or under the common law by an unregistered builder. Section 42(4) is concerned to impose limitations upon the right of action at common law which it preserves against the sterilising effect of s 42(3). Without s 42(4), the entitlement of an unregistered builder to payment which would, apart from the Act, arise upon the performance of work by the builder, would be defeated by s 42(1) and s 42(3).[50]
[49](2009) 254 ALR 661; [2009] QCA 75.
[50]Ibid 671 [37]–[38] (emphasis in original) (citation omitted).
The question in the case was then what legal effect s 42(3) had on the rights of the parties in circumstances where the builder was not relying on a cause of action to recover moneys, but was seeking to resist returning moneys already received from the other party. Keane JA went on to adopt an analysis undertaken by McPherson JA in an earlier case, as follows:
In Marshall v Marshall,[51] McPherson JA identified the entitlement in the payer to recover moneys paid to an unlicensed builder as the reciprocal of the builder’s disentitlement to receive the payment. On this analysis, no other fact, such as, for example, mistake on the part of the payer, is necessary to give rise to the payer’s cause of action for recovery of the moneys paid. McPherson JA said:
In my opinion, the effect of s 42(3) is to prevent an unlicensed builder, in proceedings of any kind, from recovering the price or any part of it payable under a contract for building work carried out in contravention of the section. Taken by itself, that might perhaps not prevent a builder from receiving money voluntarily paid by the other party. The terms of s 42(3) are, however, very wide. A person who carries out work in contravention of s 42 is ‘not entitled’ to any ‘monetary consideration’ for doing so. According to the ordinary meaning of those words, a person receives a ‘monetary consideration’ for carrying out work if he is paid for doing it. The sum of $51,000 paid by the plaintiff to the defendant satisfies that description. Counsel were unable to refer the Court to authority bearing in any relevant way on the meaning of ‘entitled’ in a context like this. But s 42(3) expressly declares it to be money to which the recipient is ‘not entitled’, which can only mean that it is money to which he has in law no right or title. If that is so, there is no identifiable basis on which he can, as against the person who paid it, claim to keep or retain it or its equivalent. [Emphasis added.][52]
[51][1999] 1 Qd R 173, 176.
[52]Cook’s Construction (2009) 254 ALR 661, 673–4 [49]; [2009] QCA 75 (emphasis in original).
Keane JA pointed out that McPherson JA relied extensively on the legislative history of s 42 and preceding provisions, which had been amended to overcome judicial decisions, including by introducing the right to reasonable remuneration in s 42(4). But it is also apparent from the passage set out above that the word ‘entitled’, which does not appear in s 40 of the Act, played an important role in the conclusion that the builder had no right or title to the money.
A further distinction is that the QBSA Act provided a statutory right to reasonable remuneration, including for amounts paid for materials and third party labour, meaning that the effect of s 42(3) as interpreted above was significantly ameliorated. While Keane JA considered that the operation of s 42(3) was unaffected by sub-s (4), this point of difference with s 40(2) of the Act remains.
In our opinion, there is considerable difficulty in applying the reasoning in Cook’s Construction to s 40(2). In the first place, s 40(2) is a penal provision whereas s 42(3) of the QBSA Act addressed the contractual or general law consequences of breach of a penal provision. It was in that context that the word ‘entitled’ was used. In that context, it is clear enough that when the legislation expressly directed its attention to the entitlements of the parties, it was doing so definitively and declaring the entitlements of the parties which could then be enforced according to their terms. In contrast, s 40(2) is directed at prohibiting certain conduct, rather than the consequences for parties when those prohibitions are breached. At least in part, those matters are left to contract, as affected by the statutory terms, and to the general law.[53]
[53]Sections 132 and 133 otherwise preserve the contract in the absence of any contrary intention, and none is apparent.
In the second place, the language of entitlement in s 42(3) of the QBSA Act directly addresses the subject which, at best, s 40 of the Act is said to address by implication. A firm foothold is required in order to imply that general law rights of recovery have been replaced or circumscribed by a statutory regime. In that regard, the policy underlying s 42(3) was much broader than that in s 40 of the Act. Section 42 of the QBSA Act provided for the consequences of a builder doing work while not licensed. It is not surprising that those consequences might be very severe and extend to the denial of any entitlement to payment for the work (at least before the introduction of sub-s (4)). Such a result sits much less comfortably with s 40, which is more narrowly concerned with the mechanics for progress payments. The narrower purpose of s 40 is apparent from the fact that s 40(4) permits the parties to contract out of its terms.
When these features are all taken into account, in our opinion, neither of the authorities upon which the judge relied points to there being a statutory entitlement in an owner to recover amounts retained by a builder contrary to s 40(2). In that regard, as we noted at the outset, a distinction must be drawn between a statutory right of recovery and an action for recovery under the general law which relies upon the fact of illegality to found the necessary cause of action. As the judge pointed out, the right in Cook’s Construction was expressly of the former kind. The judge explained:
Keane JA also expressly confirmed in Cook’s Construction that the right to recovery arises by virtue of the relevant legislation, not as a species of restitutionary relief in equity. In that regard, I took plaintiffs’ counsels’ references in submission to ‘restitution’ as a shorthand for the practical effect of their clients’ claim under s 40(2) of the DBC Act (that is, restoring the amounts paid), not as referring to an equitable claim. In dealing with a submission by the appellant builder that the respondent’s counterclaim was a restitutionary claim which is barred if restitutio in integrum is not possible, Keane JA held (emphasis added, citation omitted):
There are a number of points to be made about this submission. The first is that the only decisions which support the necessity for restitutio in integrum are concerned with cases of rescission of contract, and the respondent’s counterclaim does not depend upon the exercise of a right to rescind the subcontract. Accordingly, no question of a mutual restoration of the parties to their pre-contractual position arises
Secondly, the respondent’s cause of action was to recover moneys paid by the respondent to the appellant in circumstances where it was a consequence of s 42(3) of the Act that those moneys were recoverable by the respondent. Since the respondent’s counterclaim arose by virtue of the terms of the Act, the question whether restitutio in integrum was a condition of the appellant’s liability to refund the moneys to which it has no title was to be determined against the appellant as a matter of legislative intention. As Dixon CJ explained in Mayfair Trading Co Pty Ltd v Dreyer, while principles of equity may require restitutio in integrum as a condition of making orders to restore parties to their respective pre-transactional positions, that position may be altered by the terms of the legislation which allows the transaction to be impugned. To argue that the absence of restitution (in money or money’s worth) is fatal to the respondent’s counterclaim is necessarily to ignore that s 42(3) of the Act affords the basis for the recovery of money paid by any owner to an unlicensed builder. To the extent that s 42(4) ameliorates the position of the builder, it is an exhaustive statement of that amelioration.[54]
[54]Reasons [58] (emphasis in original) (citation omitted).
For the reasons given earlier, we can find no warrant in s 40 for concluding that, alike with the express provisions of s 42(3) of the QBSA Act, the Victorian provision by implication displaces the general law governing recovery of moneys unlawfully retained and replaces it with a statutory right of recovery. This case shows the potential effects of such a construction, because the applicant seeks to deploy equitable defences to what he submits was truly a claim in restitution. On the judge’s construction of s 40, no such defences were provided for by the statute and so none were available. Very clear language would be needed in order to achieve that result, and it is not there.
Although s 40(2) does not create a statutory cause of action, and only supplies the vitiating element to found a claim in restitution,[55] its effect is not so confined. It may also have an impact on potential defences to such a claim. In that regard, the respondents pointed out that to permit a claim in quantum meruit would undermine the express terms of s 40(2). So much may be accepted. For the applicant to pursue a quantum meruit claim would be to seek the very payment for work done which the statute forbids. The coherence of the law and the need to avoid stultifying the statutory purpose of s 40(2) mean that this could not be permitted.[56]
[55]See Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498, 516 [30] (French CJ, Crennan and Kiefel JJ) (‘Equuscorp’), citing David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353.
[56]Cf Equuscorp (2012) 246 CLR 498, 523 [45] (French CJ, Crennan and Kiefel JJ); Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560.
The respondents went on to submit that it would be equally anomalous if a builder could not recover any amount for work done beyond the last ‘stage’ reached in the table in s 40(2), but could advance defences if such amounts had been paid to the builder already and the owner sought their return. In particular, a defence asserting that the owner had received value (in the form of work done) for the payment made would, like a claim for quantum meruit, be inconsistent with the prohibition on demanding, recovering or retaining payment for work done beyond the stage reached. We accept those submissions.
But it does not follow that all equitable defences to a claim for money had and received would be inconsistent with the provision. For example, a defence of change of position might avail a builder who had dissipated the moneys, including by disbursing them to trade contractors, depending of course on all the circumstances of the case. Such a defence may not necessarily be inconsistent with the prohibition on demanding, recovering or retaining the amounts in question, because it would rely, not on the performance of work done under the contract, but on the builder’s change of positon in respect of the moneys in question. The anomaly identified by the respondents does not support the conclusion that there are no equitable defences available at all.
As mentioned earlier, the respondents submitted that the claim at trial had been run as an unjust enrichment claim, with the vitiating factor being supplied by the unlawfulness of retaining the moneys in question.[57] That may suffice to show that the applicant was prima facie unjustly enriched. But even if so, it fails to foreclose any relevant equitable defences. In particular, it does not explain why the applicant could not seek to establish that an order for restitution would be inequitable because, on receipt of the moneys, he had paid trade contractors on the respondents’ behalf and was not able to recover from those contractors the amounts in question.
[57]David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 393 (Brennan J).
However, it must be emphasised that the extent of the defences that might potentially be available to the applicant was not the subject of detailed submissions in this Court, or at trial. We are therefore not to be taken as having concluded that any particular defence is available consistently with s 40, only as acknowledging the possibility that this may be proved to be so upon full argument.
The issue then becomes what should happen as a result of the error we have identified in the approach taken by the judge. The starting point is that judgment in favour of the respondents must be set aside. As to what ought to happen then, the applicant submitted that the respondents had advanced a statutory claim and that, if no statutory right existed, the claim should have been dismissed.
It is true that the respondents’ pleading did not in terms raise an unjust enrichment claim. The judge treated the claim as reliant on the statutory right, but in his reasons for awarding interest he also attributed a restitutionary character to it. It seems therefore that the case was treated as going beyond what was pleaded. In the circumstances, we do not think it would be just to order that the claim be dismissed on the basis of the pleadings. Instead, the matter should be remitted for further hearing and determination of any defence(s) sought to be relied on by the applicant. The further hearing may also need to determine the other claims made by the respondents which the judge has so far not needed to decide.
Proposed ground 4 and notice of contention
It is convenient to address proposed ground 4 and the notice of contention together, as they both address the question of interest.
As to proposed ground 4, the applicant disputed the existence of a general law right to interest on a restitutionary claim. He pointed to obiter dicta doubting the existence of such a right, and submitted that any such right had been overtaken by the enactment of ss 58 and 60 of the Supreme Court Act. In any event, even if such a right existed, the applicant contended that it would not support the award of interest in this case, given that the respondents had the benefit of the work, and that the applicant had passed on all but a small amount of the monies received to the trade contractors.
The respondents submitted that the existence of a general law right to interest on a restitutionary claim is well established in the decisions of intermediate appellate courts,[58] and is supported by observations of this Court in Peet Ltd v Richmond.[59] The judge’s approach to interest, it was said, was an entirely orthodox application of the law.
[58]Heydon v NRMA Ltd [No 2] (2001) 53 NSWLR 600 (‘Heydon’); Chow v Yang [2010] SASC 96 (‘Chow’).
[59](2011) 33 VR 465, 491 [126] (Nettle JA, Neave JA and Judd AJA agreeing at 492 [135] and [136]) (‘Peet’).
As to the notice of contention, the respondents submitted that the ‘written instrument’ requirement in s 58 of the Supreme Court Act was satisfied because the Act answers the description of a written instrument. Alternatively, it was submitted that interest would be available under s 60 of the Supreme Court Act on the basis that the proceeding was for the recovery of a debt.
The applicant contended that the amount awarded pursuant to the s 40 claim was not a sum certain, as required by s 58 of the Supreme Court Act. The award was not of the actual excess amount, but an arbitrary lesser amount nominated by the respondents at trial. Further, it was submitted that a statute is not a ‘written instrument’ for the purposes of s 58, and that no case law provided to the contrary.
Finally, the applicant submitted that if interest was to be determined under s 60 of the Supreme Court Act, this was an appropriate case for the Court to exercise its discretion to decline to award interest because the applicant had given substantial consideration for the funds received.
The question of interest strictly need not be decided on this appeal, as the order for interest must be set aside as a result of the success of the third ground of appeal. However, since the issue may well arise again on the remitted hearing, it is desirable that we address the main issues raised, albeit briefly.
In their work Restitution Law in Australia,[60] Mason and Carter argued for a ‘free-standing cause of action to recover interest’. This involved a ‘right’ or ‘entitlement’ to interest, based on the principle of unjust enrichment. Such a right to recovery of interest, in the context of moneys had and received, has to some degree been recognised by intermediate appellate courts in New South Wales[61] and South Australia.[62] At the same time, in Commonwealth v SCI Operations Pty Ltd,[63] McHugh and Gummow JJ held that the existing state of authority did not support the proposition that there was a free-standing right to interest where a defendant had the use of the plaintiff’s money in circumstances indicating an unjust enrichment at the expense of the plaintiff.[64]
[60]Keith Mason and J W Carter, Restitution Law in Australia (Butterworths, 1995) 950ff.
[61]Heydon (2001) 53 NSWLR 600, 603–7 [12]–[21] (Mason P, Beazley JA and Ipp A-JA agreeing at 613 [57] and [58]).
[62]Chow [2010] SASC 96, [34]–[35] (Nyland and Gray JJ, Vanstone J agreeing at [39]).
[63](1998) 192 CLR 285 (‘SCI Operations’).
[64]Ibid 316 [72].
None of these authorities can be regarded as settling the question whether there is a general (or ‘free-standing’) right to interest in an action for moneys had and received. The issue in Heydon was the narrower one of interest upon repayment of a judgment subsequently set aside on appeal, as to which the entitlement to interest is well established.[65] The decision in Chow appears to have depended on the Court’s view of the justice of the case, on the unstated assumption that interest was payable to prevent a windfall or ‘unjustified betterment’. The correctness of that assumption appears not to have been the subject of argument. In SCI Operations, the remaining members of the Court did not address the point. Moreover, the case involved the application of a statutory compensation regime which left no room for interest in any event.
[65]See Meerkin & Apel v Rossett Pty Ltd [No 2] [1999] 2 VR 31, 33–4 [3]–[4] (Callaway JA, Charles JA agreeing at 33 [1], Batt JA agreeing at 37 [17]).
Against this background, in Peet,[66] Nettle JA (with whom Neave JA and Judd AJA agreed) said that, in light of the interstate cases mentioned, ‘it may be’ that this Court is bound to follow them in respect of a claim for moneys had and received. However, he did not decide whether that was so, because the case did not involve a claim for moneys had and received.
[66](2011) 33 VR 465.
The point was not argued in the present appeal beyond reference to these inconclusive authorities. In all the circumstances, it would not be appropriate for this Court now to embark on an analysis of the position. However, in the meantime, the tentative observation of Nettle JA in Peet should not be regarded as constraining lower courts in how they approach the question. In our view, Nettle JA was doing no more than stating one possible way of understanding the case law to which he referred.
It would equally be undesirable now to enter into the ancillary questions relating to how, if the ‘free-standing’ right to interest exists, that interest is to be calculated. The questions that would arise include the possible application of equitable doctrines including laches and ‘doing equity’, any of which may bear on the identification of the date from which interest should run, the rate of interest and whether interest may be compounded.[67]
[67]See, eg, SCI Operations (1998) 192 CLR 285, 316–7 [73]–[75] (McHugh and Gummow JJ).
In the present case, the judge considered that he was ‘obliged’ to follow the decisions to which Nettle JA referred in Peet. That view seems to have been based on the observation of Nettle JA that this Court may be bound to follow those decisions. As explained above, the judge’s reasoning was in error in this respect.
The judge went on to say that he was ‘reinforced in that approach’ by the fact that interest was awarded in Cook’s Construction from the date of last payment. However, while Cook’s Construction may support a particular method of determining interest, it cannot assist in deciding whether the ‘free-standing’ right exists. That is because the Court there applied a statutory provision for interest and had no occasion to consider the free-standing right.
For these reasons, leave should be granted in respect of the fourth proposed ground of appeal. However, as explained, the legal questions which that ground then presents should be dealt with afresh as part of the remitted hearing.
There remains the notice of contention, concerning s 58 of the Supreme Court Act. The respondents seek to sustain an award of interest under that provision, if the judge was incorrect to recognise the free-standing right to interest. Necessarily, that question must also be decided at the remitted hearing. But it is possible to address the notice of contention.
Section 58 relevantly provides:
58Interest to be allowed when debts or sums certain recovered
(1)If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 … from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
….
(3)A debt or sum payable or a date or time is to be taken to be certain if it has become certain.
The judge upheld the applicant’s argument that s 58 was not available because there was no ‘written instrument’ by virtue of which the debt or sum certain in question was payable. The respondents contend that the Act itself is such a written instrument, pointing to the familiar use of terms such as ‘legislative instrument’ to describe documents which are legislative in nature.
While in a literal sense it may be possible to describe an Act of Parliament as a ‘written instrument’, we do not think that this is the proper construction of the expression as it is used in s 58. Section 58 provides for interest in cases where a sum is payable by virtue of a written instrument. If a sum is payable by virtue of an Act of Parliament, it is the terms of that statute which might be expected to govern any right to interest. The respondents’ construction would have the surprising result of reading an entitlement to interest into every statutory right to payment. Instead, the question of interest must depend on the proper construction of the relevant statute. This was the approach taken by the High Court in SCI Operations, where the specific provision creating the entitlement, rather than a general provision for interest, was held to govern entitlement to interest.[68]
[68]See, eg, SCI Operations (1998) 192 CLR 285, 304–5 [39] (Gaudron J).
But in any event, for the reasons set out in relation to the third ground of appeal, this was not a case where an amount was liable to be paid by virtue of a statute. The statute made retention of the money unlawful, but the liability to pay the money to the respondents arose under the law of restitution, on a claim for moneys had and received. It therefore did not matter whether the Act was a ‘written instrument’.
The notice of contention must therefore be rejected. Since the other issues that might arise in the application of s 58, and any issues regarding s 60, were not the subject of argument before this Court, we say nothing more about those provisions. Their application will fall to be determined, if at all, on the further hearing in the County Court.
Conclusion
Leave to be appeal will be granted on proposed grounds 3 and 4, but otherwise refused. The appeal will be allowed. The orders of the County Court giving judgment, including interest, and as to costs, will be set aside and the matter will be remitted for further hearing in accordance with the judgment of this Court. It will be for the County Court to make orders for the costs of the entire trial as it sees fit. We will hear the parties as to costs in this Court.
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