Tsoukalas v Pickersgill & Harvey - [2008] SADC 32

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
TSOUKALAS v PICKERSGILL & HARVEY
[2008] SADC 32
Judgment of His Honour Judge Barrett
3 April 2008
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - MATTERS NOT GIVING RISE TO BINDING CONTRACT
No meeting of minds - written fixed price contract a sham - insufficient evidence of an oral cost plus contract.

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - RECOVERY ON QUANTUM MERUIT
Reasonable remuneration for cost of building materials and labour recoverable where building work performed at defendant's request and where defendant obtains a benefit. Where valuation of benefit not practicable, recovery is for reasonable remuneration.

PROCEDURE - COURTS AND JUDGES GENERALLY - COURTS - RULES OF COURT
Plaintiff entitled to quantum meruit not sought in pleadings where available on the evidence and not unfair to the defendant - rules 6R99.35 and 6R223.
Building Work Contractors Act 1995; Builder's Licensing Act 1971 (NSW), referred to.
Equuscorp Pty Ltd and Ano v Glangallan Investment Pty Ltd and Ors (2004) 218 CLR 471; Laidlaw v Hillier Hewitt Elsley Pty Ltd [2007] NSWSC 727 (6 July 2007) ; Esanda Ltd v Burgess and Ano [1984] 2 NSWLR 139; Corradini and Ano v Lovrinov Crafter Pty Ltd (2000) 77 SASR 125; Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221; Nunkuwarrin Yunti v AL Seeley Constructions Pty Ltd (1998) 72 SASR 21; Angelopoulos v Sabatino (1995) 65 SASR 1; Lopresto v Sam and Ors [2000] SASC 31; Kane Constructions v Sopov [2005] VSC 237; Vordermeier v Alguna Developments Pty Ltd and Anor (No.3) (1997) 195 LSJS 472; Banque Commerciale South Australia En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279, considered.

TSOUKALAS v PICKERSGILL & HARVEY
[2008] SADC 32
Introduction

This is a building dispute. The defendants, a married couple who are both architects, bought a block of land in Bowden which they subdivided into two blocks. On the larger block they planned to build a house for themselves. They sold the smaller block to a Mr Price as a house and land package. They employed the plaintiff to build the two houses. The plaintiff built the houses together. He finished Mr Prices’ house, and was paid the agreed price. The defendants paid four progress payments but ran out of money. They then fell into disagreement with the plaintiff, who stopped work. The house was eventually completed by other builders.
The plaintiff claims from the defendants the balance owing under an oral cost plus contract. He said that pursuant to the contract he rendered invoices adding an agreed 10% profit margin each time. He was paid on that basis until the defendants realised they would run out of money. He denied that there was ever a fixed price contract. He said that he did not and would not enter such an agreement. He said that the document he and the defendants signed (“the September document”) was said by the male defendant, Mr Pickersgill, to be for the sole purpose of obtaining a loan from the bank for the building work, because the bank would not otherwise lend money on the project. Specifically it would not lend money on a cost plus basis.
The defendants claim that they contracted with the plaintiff on the basis of a written fixed price contract for the construction of their house. They produced a document in the form of an apparent contract signed by them and the plaintiff. The male defendant, Mr Pickersgill, acted as agent for his wife. She had almost nothing to do with any discussions with the plaintiff. I will use the term “defendant” (singular) to refer to Mr Pickersgill. The defendant said that, as an architect, he would never have entered into a cost plus agreement. He said that he paid invoices as they were presented until he realised that the cost was going to exceed the agreed fixed price. He denied the plaintiff’s claim and he counterclaims for repudiation, failure to complete the construction and for defective workmanship.
Issues at Trial
There are two principal issues with important secondary issues. The principal issues are:
1.Was there a contract between the plaintiff and the defendant?
and,
2.If there was a contract, was it an oral cost plus contract as the plaintiff claims, or was it a written fixed price contract as the defendant contend?
Background to the parties meeting
The defendants purchased the subject land at 30 Eleventh Street, Bowden in December 1999 for $100,000[1]. There was a mortgage of $80,000 over the property[2]. At first the defendants planned to build a house just for themselves on the land, but they later decided to sub-divide it into two unequal blocks, to sell the smaller block as a house and land package and to build their own house on the larger block. The local council gave approval for the subdivision in about February 2001.
[1] settlement statement Exhibit P46
[2] Exhibit P19
On 2 February 2002, the defendants executed a sale and purchase of land agreement for the smaller block with Mr Craig Price[3]. The contract price was $80,000. A special condition of that agreement was that on or before 18 February 2002, the defendants would enter into a building contract with a builder for the construction of a house on Mr Price’s block for a fixed price of $115,000 with a completion date on or before 30 September 2002[4]. The total price of the house and the land package was therefore $195,000. On 17 August 2002 Mr Price himself entered into a written building contract with the plaintiff (see paragraph [24] herein).
[3] Exhibit P1page 30 - see also Exhibit P51
[4] Exhibit P1 page 40
On 2 February the defendants had no immediate prospect of entering a contract with a builder. They had not yet received a quotation from a builder (T524). The defendant regarded himself as bound to have Mr Price’s house built for $115,000 and, if he could not find a builder to construct it for that amount, he himself would have to make up the difference (T524-5). He adhered to that agreement.
The first quote the defendant obtained for the construction of the two houses was from a Mr Farina in early March 2002[5]. The defendant considered that quote too expensive (T531-2).
[5] Exhibit P52
The defendant consulted Mr John Karidis. The first correspondence from him was dated 26 March 2002[6]. The costings by Mr Karidis were too expensive as well.
[6] Exhibit P19
The defendant’s drawings for the project were from a company called Lion Designs. Through that company the defendant heard of the plaintiff. He met him in May 2002 (T542). The defendant and the plaintiff agree that at the first meeting the plaintiff declined to undertake the project if the construction was to be in steel as the plans required. The plaintiff was not familiar with steel construction and would only proceed if the houses could be timber framed. There was no agreement at the first meeting.
The defendant quickly agreed to change from a steel framed house to a timber framed one. When the plaintiff was told that, he recommended that an acquaintance of his, Mr Peter Williams, do the drawings for the timber framed buildings. Mr Williams’s drawings were signed by both parties as part of the document signed on 4 September 2002 (T32).
Thus far the parties accounts do not differ. Their accounts do differ about discussions which followed. These discussions must have occurred in the period from the first meeting in May to their execution of the September document on 4 September 2002[7].
[7] Exhibit P1, pages 58-84
Discussions prior to 4 September 2002
The plaintiff said that in May the defendant asked him to provide a written quote for the proposed work. He told the defendant that would take him six to eight weeks. The defendant said he did not have that sort of time because he had already contracted the sale of the house and land package with Mr Price. In fact he was obliged to enter into agreement with a builder in February, three months earlier, and complete the works by September, five months hence. He said that he already had basic costings from other builders and, as an architect, he had a good idea of what the project would cost. The plaintiff said:
Well, we might as well do it as a supervisional aspect and I will do it for cost plus (T34).
He said he told the defendant that he normally quoted a 15 percent margin. The defendant asked if he could do it for a better price and he agreed to reduce it to 10 percent (T37). He could not remember whether that conversation was over the phone or whether it was in person.
The plaintiff’s evidence was really that the defendant impliedly agreed to the cost plus agreement at that stage. Nowhere in his evidence did he clearly assert a clear agreement on the part of the defendant.
The defendant’s account of these conversations is different but really no clearer. He said the plaintiff suggested he liked to work on a cost plus basis. He said he told the plaintiff that his preferred arrangement was for a fixed price building contract. He said:
I think as I recall we [the defendants] were always clear on requiring a fixed price building contract (T397).
Further he said that he explained that his bank would not fund a cost plus contract. When asked what the plaintiff’s response to that was he replied:
I think he just understood that was the scenario, the situation we were in. I assumed he said that’s OK, because if he said it was impossible we would have had to abandon the project and found someone else to do it (T398).
At one stage before the September document there was discussion between the parties about the plaintiff providing a quote for the construction of the defendants’ house up to the lockup stage. In an undated fax sent by the defendant to the plaintiff he refers to the “lockup plus quote” that had been discussed[8]. While that expression might suggest that at that stage they were discussing a cost plus basis for construction, it might also mean simply that there was to be a quote to the lockup stage and then there would be further consideration later. I draw no inference from that fax. That proposal was not pursued[9].
[8] see Exhibit P2
[9] per the plaintiff at T42 and per the defendant at T550
The plaintiff gave to the defendant a blank Master Builders Association Cost Plus Contract. That contract was never executed. It is not clear what happened to it. The plaintiff said that he had done work on both a cost plus and a fixed price basis in the past. He said that if he was working on a fixed price basis he would determine the specifications, put them out for quotes and then prepare a summary of costs. That summary would include provision for contingencies and a percentage for his builder’s commission. There would then be a formal detailed quote. It is not disputed that none of this was done in this case. There was never a quote by the plaintiff. The documents which were the basis of discussions between the plaintiff and the defendant were cost summaries prepared not by the plaintiff but by the defendant. Four of them were produced in court. I will refer to them later.
It is clear that in late June 2002 there was still no agreement between the parties. The defendant was conscious that he had contracted with Mr Price to reach agreement with a builder by 18 February 2002[10]. In a letter to Mr Price dated 21 June 2002 the defendant proposed compensating Mr Price for the delay[11]. It is clear he was anxious to keep faith with his purchaser.
[10] Exhibit P51
[11] Exhibit P17
Another relevant part of the discussions between the parties was on the topic of who would get quotes. It seems to be common ground that it was agreed that both parties would obtain quotes. The plaintiff identified twenty seven quotes obtained by the defendant,[12] and about twenty by himself[13], some before the date of the September document and some after that date. That would be unusual if there was a fixed price contract, particularly in the case of quotes obtained by the defendant after the contract was signed. The plaintiff said he would not do that if he was working on a fixed price basis (T211).
[12] They comprised Tab A of Exhibit P18
[13] They comprised tab B of Exhibit P18
The written contract between the plaintiff and Mr Price is dated 17 August 2002[14]. It is for a fixed price of $115,000. It is common ground that the price was effectively guaranteed by the defendant. Apart from extras to be negotiated separately by Mr Price, he would have to pay the plaintiff $115,000 for his house and the defendant would pay the rest[15]
[14] Exhibit P1 pages 102-133
[15] See per the plaintiff at T45 and for the defendant at T524-5
The plaintiff said that shortly before Mr Price met with him and the defendant to sign the contract he asked the defendant what figure to put down for the cost of Mr Price’s house. The defendant told him the figure to put in (T45).
The plaintiff said that he was not very happy with a fixed price contract with Mr Price, so he included in the special conditions a clause he saw as providing a link between the contract with Mr Price and work he was going to undertake for the defendants[16]. He and Mr Price signed the Scope of Work document which had been prepared by the defendant’s designers and which referred to both houses[17].
[16] Exhibit P1 page 114
[17] see page 123 to 133 of Exhibit P1
The plaintiff said he told the defendant he would only enter into the written agreement with Mr Price if he had “something in writing regarding my 10% cost plus” (T46). He said the defendant agreed to do that later. The plaintiff said he was comforted by the fact that he had not, and could not be said to have, ever given Mr Price a written quote. He also said that the building summaries that the defendant was compiling had “10% cost plus” in them. Words like that were in fact used in the summaries produced in court except for the one where it was overlooked[18]. The meaning of the words will have to be considered.
[18] Exhibit P1 pages 134-35
Discussions between 17 August and 4 September 2002
The plaintiff’s contract with Mr Price was signed on 17 August 2002. With that contract out of the way the parties continued discussions on the project as a whole. It is impossible from the evidence to identify when particular discussions took place but the signing of the written fixed price contract between the plaintiff and Mr Price probably drew the attention of each side to how they would devise the agreement between them. The plaintiff had already insisted on a clause in the Price contract linking that agreement with the building cost summaries being prepared by the defendant. The plaintiff said he gave the defendant a blank cost plus agreement form. The defendant said the plaintiff gave him two forms, one a cost plus form and the other a fixed price form. There was further discussion over the telephone when the defendant told the plaintiff that his bank would not accept a cost plus agreement. When the defendant said that the plaintiff asked where that left him. In evidence he said,
The defendant replied ‘We will work something out. We’ll work out a figure and then I’ll work out the rest with you. What we do between us is our business’ and that was my agreement with him, basically everything was over a handshake, over a coffee, over a drink. We had a very good relationship and I trusted him (T226)... He [the defendant] said we can sign something at a later date after this contract was written but we never did it (T227)… In my mind I was going to use the building cost summary which had my cost plus and everything stated on there. Basically that’s what I worked on with him. That what’s was – what clicked in my mind is that I have to have some document to prove my situation… I did not speak to him about it, that’s what I thought (227).
It is fairly plain that the parties had not reached agreement before 4 September.
4 September 2002
The defendant said that on 4 September the plaintiff arrived at his house for the execution of the written agreement, bringing with him only the fixed price contract form. The plaintiff does not dispute that (T151). When the two met there were discussions about the agreement. The plaintiff said he told the defendant that he was willing to sign the fixed price agreement only to help the defendant to get his finance. He said that as he was about to sign the written agreement he said,
I am signing this contract purely for your benefit, for the bank reasons, to get your money from the bank, but you know our agreement was cost plus for both dwellings.
Further he said,
… I was intending that I needed to cover this contract with an agreement between us in regard to the cost plus (T154).
He said he regarded the September document as a sham (T155). He insisted on the insertion of the handwritten term clause 27.2[19]. It read,
This contract is to work in conjunction with specification/building cost summary drafted by Sean Pickersgill numbered 0124 dated 4 September 2002
In relation to that clause the plaintiff said,
I wanted to prove the cost plus situation… I wanted to involve this summary into the agreement that we had (T170).
As to the defendant’s reaction to the addition of that clause the plaintiff said,
He agreed with me. That’s why he permitted me to add it into the contract… Basically, he said ‘Add it in if you like’ (T171).
[19] Exhibit P1 page 75
The plaintiff said when he later went to photocopy the September document he realised the summary did not include the 10% builder’s commission. With the defendant’s agreement he added it in handwriting[20].
[20] Exhibit P1 pages 134-5
The plaintiff’s counsel submitted that the words “plus 10% builder’s commission” can only mean a cost plus agreement. In my view, the words are capable of another meaning. They might equally mean the builder’s commission component of a fixed price contract. While it might be unusual in a fixed price contract to disclose the builder’s margin the words at least are capable of that interpretation. They are equivocal.
The defendant denied that on 4 September there was any discussion about cost plus (T425). He denied that the building cost summary was signed on 4 September despite being so dated. He said that it was signed later (T424). He said the plaintiff later rang and said that the 10% was not on the building cost summary and he wanted to come around and get him to sign it(T431). He said that is what happened. Only the two men were present. Only they signed. Ms Harvey did not sign the building cost summary although she had signed the contract form. This is consistent with the defendant’s account of how the building cost summary came to be signed, but it does not clarify why the defendant signed it.
The defendant’s explanation for signing the building cost summary is not easy to follow. He was asked in examination in chief whether there was ever any discussion about why this was being done. He said,
I guess inasmuch as this, the final figure that we had – that had sort of been arrived at for all the estimates – was the $301 plus 10% commission. It didn’t appear, or he didn’t have this extra page, and so I think he was concerned that.
There was then this exchange between the defendant and his counsel (T431).
QSorry, just tell us what he said…
ASorry, and that this estimate included his – should include his 10% commission. I agreed.
In cross-examination the defendant said he signed the building cost summary “because Peter wanted it as a record” (T602). He denied that the plaintiff told him that he wanted it signed because he was operating on a cost plus basis.

There is an aspect of the four building cost summaries produced at the hearing that suggest a cost plus agreement. Each of them has a total cost at the end. The figure purports to be a total cost of the construction of the two units. Not one of the totals equals the sum of the two fixed contract prices, ie $228,000 (the fixed price in the September document for to the defendants’ house) plus $115,000 (the figure for Mr Price’s house) equals $343,000. Not one of the summaries has that total. No one was able to explain the discrepancies.
The special condition in the September document linking it to the building cost summary raises questions for each of the parties. If the September document represented the fixed price contract that the defendant required for himself and his bankers, why did he permit the reference in the document to the building cost summary? It referred to the 10% commission. Why did he sign the building cost summary? The summary did not have the same total cost as the purported agreement.
If the plaintiff “went along” with the sham September document to satisfy the defendant’s bankers, why did he insist upon the reference to the building costs summary? Did he not think that the bank might interpret this as a cost plus agreement and withhold finance?
The plaintiff’s counsel submits that the special condition represents,
An imperfect attempt to record the true nature of [the parties] cost plus dealings[21].
[21] Outline paragraph 9.20
I think that is the most likely explanation of the plaintiff’s position. Even if he saw the September document as a sham, the plaintiff wanted some written reference to what he saw as the oral cost plus agreement.
Even though the building summary was in some ways contrary to the September document, the defendant may have wanted to keep faith with the plaintiff, so he allowed him to create the link between the contract and the summary hoping it would not jeopardise the bank finance. He was under pressure to get the building started.
No Agreement on 4 September
I am satisfied that neither of the parties intended to be bound by the September document notwithstanding that they signed it. I am satisfied that they both signed it only so that the bank would lend the defendant the money to proceed with the project. I am satisfied they both regarded the September document as a sham. Their subsequent behaviour confirms my view about that.
The question then becomes, did they enter a contract at all. I am satisfied that at all times the plaintiff proceeded on the basis that he had a cost plus agreement with the defendant. However a contract is not to be construed from the subjective thoughts and intentions of the parties. It may only be construed in an objective way[22]. It may be that the defendant was sufficiently confident of his own ability as an architect to keep the costs of the whole project within the prices fixed in the Price contract and the September document. With that confidence he may have been willing to proceed with the plaintiff on a cost plus basis, but on the evidence I have heard I am not satisfied that there was an oral agreement reached on 4 September. I am not satisfied that there was a meeting of minds on a cost plus contract. That is so despite some of the subsequent behaviour between the parties suggesting that they were proceeding on a cost plus basis. Subsequent behaviour can be used to determine whether there has been an agreement although it may not be used to construe the terms of the agreement[23]. I am not satisfied that the subsequent behaviour proves that there was an oral cost plus agreement either on the 4 September or later. I will refer to that subsequent behaviour.
[22] Equuscorp Pty Ltd and Ano v Glengallan Investment Pty Ltd and Ors (2004) 218 CLR 471 at [34]
[23] Laidlaw v Hillier Hewitt Elsley Pty Ltd [2007] NSWSC 727 (6 July 2007) [25] and [26]
Events after the 4 September
Building work did not begin until December. Council consent was not given until November[24]. That was agreed to be the defendant’s responsibility. The plaintiff did not apply for a new Builder’s Warranty Insurance until November[25]. That was his responsibility (T575). In the meantime both parties continued getting quotes. The plaintiff appeared to respect the defendant’s professional skills and appreciated his cooperation. The defendant appears to have been happy with the plaintiff’s work and approach. This behaviour reinforces my view that the parties did not see themselves as bound by the fixed price written agreement.
[24] see Exhibit D57
[25] see Exhibit D25
The engineering drawings and changes to the footings were not attended to until November 2002[26]. It would be remarkable if a builder would enter a fixed price agreement not knowing what expense might be incurred in this important aspect of the construction.
[26] Exhibit P58
It is clear that there was a verbal agreement to change the construction from steel framed to timber framed. That happened before the document was signed, but the building cost summary signed at the same time still provided for the steel framed building.
There is another complete departure from the September document. Once building work began the plaintiff rendered invoices as work progressed. The way in which the invoices were rendered resembles what might be expected in a cost plus contract rather than a fixed price contract. The documents support the plaintiff’s believe that he was proceeding on a cost plus basis. Each time he made a claim he collated the invoices from the individual tradespeople. He listed the invoices in what he titled a cost summary. The cost summary in each case included reference to the 10% commission. He delivered the summary and the attached invoices to the defendant. Together they identified which of the invoices related to the defendants’ house and which related to Mr Price’s house. The plaintiff then produced an invoice for each client, only for the work done on that client’s house. The plaintiff said that he gave the trades invoices and cost summaries to the defendant partly so that they could together work out what each client would pay, but partly so that the defendant could see how much the project was costing him. In that way the defendant could check the plaintiff’s cost plus figures.
The defendant said that he never took any particular notice of the trades invoices or the summaries and that he did not really know why he was being given them. He thought they were just for information (T618). I do not accept that evidence. The defendant paid invoices in January, March, April and May of 2003[27]. He never queried why the plaintiff was not sending him progress claims as set out in the September document[28] or at 14 day intervals which was the alternative method set out in the document[29]. There would seem to be no reason why a builder with a fixed price contract would bother sending trades invoices to a client. There is every reason why he would do so if he were proceeding on a cost plus agreement.
[27] 16 January, 7 March, 12 April and 20 May 2003
[28] Exhibit P1 page 78
[29] Exhibit P1 page 77
While Mr Price continued to pay all the invoices rendered to him, to the completion of his house, the defendant stopped paying after the May invoice. He did not pay the next invoice which was dated 1 July 2003. He said he did not pay it because he realised that the cost to complete the house was likely to exceed the price fixed in the contract. That particular invoice did not take the cost over the fixed price but it appeared likely that this would happen eventually. Significantly, the defendant did not remonstrate with the plaintiff about that invoice. He did not remind the plaintiff of the fixed price and ask him how was it that the likely cost of the house would exceed it (T655-7).
The plaintiff said that the defendant never raised the fixed price topic with him. He said there was a heated discussion at the defendant’s house after the defendant stopped paying but nothing was said about a fixed price contract. Only when pressed in cross-examination did the defendant say that he thought he had raised the fixed price contract with the plaintiff (T666-8) but he effectively retracted that and said that he had not in fact raised the topic with the plaintiff because he feared litigation (T671-2). His final position was that he said he did not raise it until the meeting at his lawyer’s office when the plaintiff was present.
The defendants’ counsel submits that the defendant’s failure to confront the plaintiff with the fixed price contract might be explained by the ill health of his (the defendant’s) wife[30]. I do not accept that.
[30] Outline paragraph 10.2
I conclude that the defendant did not protest to the plaintiff that he had a fixed price contract because that would not have been true. Instead he went to the bank to see if he could borrow more money to complete the construction. At some stage before the house was completed he was going to have to see the bank anyway. He had not borrowed enough to cover even the fixed price figure. In the event the bank refused to lend him more money and advised him to see a lawyer.
It must be said that the defendant was clearly confused about his finances generally (T567-570). He could not remember what were the purposes of the moneys he borrowed from the bank but he was clear that he had not borrowed enough from the bank to build his house for the fixed price. He said that he always knew, and the bank always knew that he would have to apply for a top up loan to complete the project (T608-14).
The plaintiff’s solicitors sent a letter of demand on 23 July 2003[31]. The plaintiff said that after that, at a meeting he had at the defendants’ lawyer’s offices, he agreed to provide an estimate of the cost of completion. He had made a rough estimate on 1 July but he provided a handwritten estimate dated 30 July 2007[32]. That was amended on 10 August 2003[33]. It was typed up and dated 11 August 2003[34].
[31] Exhibit P12
[32] Cover sheet Exhibit P13, contents Exhibit P1 pages 165-166b
[33] Exhibit P1 page 167
[34] Exhibit P5 page 269
There are some miscellaneous pieces of evidence which bear on the question of what sort of contract existed between the parties.
The plaintiff employed a Mr Williams to prepare expert reports on the dispute between the parties. In a report dated 28 December 2005[35], Mr Williams said,
All assessments have been made on documentation provided and verbal instructions given by Peter Tsoukalas and on the basis similar to Rider Hunt that the contract is a fixed lump sum contract.
[35] Exhibit P26 page 28
The plaintiff denied telling Mr Williams that it was a fixed price contract. While the defendant was cross-examined on that point, Mr Williams was not. I do not think Mr Williams’s letter adversely affects the plaintiff’s credit.
The plaintiff was cross-examined on his pleadings. It is not necessary to canvas that topic. It is true that not all of the plaintiff’s pleadings correspond to his case at trial. The plaintiff said that he had a language difficulty with his solicitor who comes from overseas. I do not think that the inconsistencies in the pleadings affect the plaintiff’s credit. He appeared genuinely perplexed about the pleadings. The plaintiff did not call his solicitor to support his evidence. The defendant’s counsel submitted that failure as significant (Jones v Dunkel (1959) 101 CLR 298). I do not think that that evidence would have helped anyone.
Notwithstanding his assertion that he had a fixed price contract, the defendant hoped that he would benefit from any savings on materials or labour that the plaintiff was able to achieve. When asked if he thought he would have to pay more if there was an increase in cost he said he did not think that would be an issue (T599-600). In my view that hope is inconsistent with a fixed price agreement.
On several occasions the defendant presented invoices to the plaintiff which were fictitious, in the sense that they had nothing to do with the house construction. The defendant needed money on several occasions and he presented fictitious invoices to the plaintiff asking him to include them in his claim for periodic payments. The plaintiff said that because he did not regard himself as bound by a fixed price contract he agreed to the defendant’s request and included the invoices in the summaries. In my view the plaintiff would be unlikely to permit that to happen if he had a fixed price contract.
Was there an agreement?
Options
1.Was there a written agreement? It is no light matter to disregard a written and signed document purporting to be a contract. Generally parties will be held to their written agreements[36] Nevertheless I am satisfied that the parties did not regard themselves as bound by the written fixed price document. It was a sham entered into to enable the defendant to obtain the bank loan. No other written agreement is suggested. An agreement will be found to be a sham only in limited circumstances. In Esanda Ltd v Burgess and Anor[37] a majority of the Full Court of the New South Wales Full Court found that the agreement then under consideration was not a sham but it allowed that it was legally possible for such a finding. Huntley J (with whom Samuels J agreed) said,
For an agreement to be found to be a sham it is necessary for both parties to intend to enter into an agreement of a different kind and with different incidents from the legal form which they in fact adopt.[38]
I am satisfied that in this case the parties did intend to enter into an arrangement different from their written document. Whether they subsequently formed an agreement is a separate question but I am satisfied that on 4 September they regarded the written document as a sham while intending to proceed with the project on some other basis.
2.I am not satisfied that there was an oral cost plus agreement. The evidence satisfies me that the plaintiff proceeded on the understanding that he had such an agreement with the defendant but I am not satisfied that there was a meeting of minds between the parties about that. The evidence that there was an oral cost plus agreement is too vague. I have referred to it in paragraphs 15, 18, 19, 30-34, 38 and 39. I reject the defendant’s evidence that he told the plaintiff that he would not proceed on that basis. I find that he did not assert that he regarded himself and the plaintiff as bound by the written agreement until after he had obtained legal advice. However, it does not follow that he agreed with the plaintiff to proceed on the basis of a cost plus oral agreement. What is I think clear, is that he did nothing by words or actions to disabuse the plaintiff of his impression that there was a cost plus agreement. I do not think that he set out to deliberately mislead the plaintiff. He may not have thought about it at all.
3.Was there an agreement partly written and partly oral? The parties certainly proceeded on the basis of some written documents. The Architectural Specifications or the Scope of Work[39] was signed by the parties on 4 September and formed the basis of the construction albeit that there were oral variations. The defendant’s building cost summaries formed the basis of quotes they obtained. They both signed one of the summaries on about 4 September. They agreed orally upon the rendering and paying of progress payments. The plaintiff rendered claims for progress payments together with the relevant trades invoices. There was then discussion between the parties which resulted in separate invoices being sent to Mr Price and the defendant. The defendant made four progress payments pursuant to that oral agreement. However, I cannot find agreement between the parties as to the consideration component of a contract. For reasons already mentioned I am not satisfied that there was agreement on a cost plus or a fixed price consideration. That being so I cannot find proved a contract partly written and partly oral.
4.Was there no agreement at all? In my view that is how things stood between the parties. They went ahead with the project without having settled on an agreement.
[36] Equuscorp Pty Ltd and Ano v Glengallan Investment Pty Ltd and Ors (2004) 218 CLR 471 at [33]-[35]
[37] [1984] 2 NSWLR 139
[38] ibid 144
[39] Exhibit P1 pages 86-99
Does the plaintiff have a remedy?
Counsel for the defendant submitted that building contracts must be in writing[40]. Section 28 of the Building Work Contractors Act 1995 so provides. Counsel fairly drew attention to the decision of the Full Court in Corradini and Anor v Lovrinov Crafter Pty Ltd (2000) 77 SASR 125 at [111] to [113] in which it was held that a failure to have a written building contract does not necessarily mean that a builder is unable to recover compensation[41]. He may do so if there is an oral contract[42]. I have found there is no contract. Nevertheless, the plaintiff may recover not on the basis of any contract but on the basis of unjust enrichment or quantum meruit. The basis for such a claim is explained by Deane J[43] in Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 255:
In such a case the underlying obligation or debt for the work done, goods supplied, or services rendered does not arise from a genuine agreement at all. It is an obligation or debt imposed by operation of law which “arises from the defendant having taken the benefit of the work done, goods supplied or services rendered… and which can be enforced as if it had a contractual origin.
[40] Ontline paragraph 2
[41] Corradini concerns s.30 of the repealed Builders Licensing Act but s.28 of the Building Work Contractors Act is its equivalent.
[42] ibid [109] - [117]
[43] see also per Mason and Wilson JJ at page 227; see also Nunkuwarrin Yunti v AL Seeley Constructions Pty Ltd (1998) 72 SASR 21
In my view, the plaintiff is potentially this case to recover on that basis. On that principle if the defendant has derived a benefit from the plaintiff’s work then the plaintiff may recover a reasonable remuneration for the value of the work that he has done. That includes not just the costs he has incurred in the construction work but also for his labour.
Pavey concerned a claim by a plaintiff builder on a quantum meruit. The purported contract between the parties as unenforceable under the Builder’s Licensing Act 1971 (NSW) because it was not in writing. That case has been discussed and applied in South Australia. In Angelopoulos v Sabatino (1995) 65 SASR 1 the Full Court applied the decision to a claim for restitution made by a subcontract builder. Unlike in Pavey’s case, where there was an express contract which could not be enforced because of the legislative bar, the Full Court found that the principles enunciated in that case could be applied to a situation where it was not even suggested that a contract had been formed. Doyle CJ said at page 9:
It seems to me that the decision of the majority in Pavey’s case makes two important points which are relevant to the present case. First, that a claim in restitution is not founded on an implied agreement, and while facts which might support an implied agreement may be relevant to a claim in restitution, it is not necessary to search for something akin to an agreement or request from which a promise to pay might be implied. Second, there is a significant emphasis in the judgements of the majority upon the notion of acceptance of a benefit the performance by the claimant of an action which confers a benefit or enrichment upon the other person.
Duggan and Nyland JJ agreed with the Chief Justice.
I will return in a moment to refer again to Angelopoulos v Sabatino on the question of quantum in such cases.
The Full Court again applied Pavey in Lopresto v Sam and Ors (2000) 206 LSJS 442. Perry J referred to Pavey and applied it where no agreement between the parties could be discerned. His Honour said at para [21]:
The classic case of an entitlement to recover on the quantum meruit arises where there is no agreement as to price, but work and labour is done and materials are supplied simply at the request of the defendant. The facts of the case concern work done on tomato plantations. The defendant in that case had alleged a contract but the evidence did not support that claim.

Further His Honour said at para [22]:
… insofar as the right to recover on quantum meruit has its origin in concepts of unjust enrichment, it is assumed by the law that the defendant has benefited to the extent of the value of whatever work and labour was done and materials supplied. …
Applying those principles to the facts of this case it is clear that the work done by the plaintiff was done at the defendant’s request. The work was carried out by the plaintiff in accordance with the defendant’s directions. There is in the end no claim that the plaintiff was excessive in his charging nor was there evidence that there was any faulty work done.
The plaintiff completed Mr Price’s house and substantially completed the defendant’s house. Although the construction of the defendant’s house was completed by another builder, the defendant has the benefit of the plaintiff’s work.
In those circumstances I find that the plaintiff is able to recover on the basis of a quantum meruit. That was the conclusion I had reached by 9 October 2007.
Draft judgment
On 9 October 2007 I had the matter called on and handed to the parties a draft judgment. The draft judgment contained the following findings:
1.    I am satisfied that the parties did not agree to be bound by the September document.
2.    I am satisfied that the plaintiff agreed with the defendant to construct Mr Price’s house for $115,000 (plus extras which are not an issue in this case). The plaintiff and the defendant agreed that the plaintiff would recover from the defendant for work done and costs associated with Mr Price’s house in excess of $115,000.
3.    I am not satisfied that there was an oral cost plus agreement between the parties for the construction of the defendants’ house.
4.    The plaintiff is entitled to recover from the defendants for the construction of the defendants’ house and Mr Price’s house (less $115,000) on a quantum meruit basis.
I will hear the parties on the orders I should make in the light of these findings and I will publish a judgment incorporating those findings.
I indicated that I sought submissions on the propositions that the plaintiff was entitled to recover on a quantum meruit basis a sum equal to the invoices he had rendered and which had been unpaid, and that the evidence at trial did not disclose any defective workmanship (T 9/10/07 - T2). The matter was adjourned to enable the parties to consider these and any other submissions that they might put.
The matter was called on again on 11 October 2007. On that occasion the plaintiff tendered a supplementary outline of closing submissions dated 10 October 2007. Mr Jenner submitted that on a quantum meruit the sum payable to the plaintiff after deduction of payments made by Mr Price and by the defendants, is $119,695.49. After further deduction of items removed by the plaintiff from the building site there is left an outstanding balance of $115,265.93. That sum includes costs incurred by the plaintiff plus 10 per cent. There is a question whether an allowance for profit may be a component of a quantum meruit judgment.
May a quantum meruit judgment include an allowance for profit?
Mr Jenner for the plaintiff drew my attention to a case against his claim for profit. It is the Victorian case of Kane Constructions v Sopov (2006) 22 BLC 92. The trial judge was Her Honour Chief Justice Warren. At para [878] Her Honour said:
The plaintiff also included in the quantum meruit claim a component for overhead and profit margin of 10 per cent on the purchase order and subcontract payments. In my view, the margin does not arise. In the determination of the claim based on quantum meruit the approach of the courts is to assess an amount on the basis of work actually done on the basis that it is fair and reasonable in the circumstances (Pavey and Matthews Pty Ltd v Paul (1986) 162 CLR 221). It does not seem to me that a component of a margin is one contemplated by the authorities in the context of assessing a claim based on quantum meruit. It is the actual cost of the work done that is intended to be the subject of the assessment on a quantum meruit. A profit margin seems to me to lie properly with the contractual damages rather than on a quantum meruit. Accordingly, no allowance is included in the assessment on the quantum meruit for profit margin is claimed by the plaintiff.
That passage of Her Honour’s judgment does appear to support the contention of the defendant that no margin of profit may be permitted. Her Honour referred to “authorities” for that proposition but the footnote in the quote refers only to the High Court case of Pavey. No judge of the High Court in Pavey expressly excluded an allowance for profit. Of the majority judges in that case only Deane J appears to devote consideration to the question of quantum. Like the other members of the court he referred to the quantum as being “reasonable remuneration”22 but His Honour went into more detail. At page 257 His Honour said:
In a category of case where the law recognises an obligation to pay a reasonable remuneration or compensation for a benefit actually or constructively accepted, the general concept of restitution or unjust enrichment is, … also relevant, in a more direct sense, to the identification of the proper basis upon which the quantum of remuneration or compensation should be ascertained in that particular category of case.
The fact that the action which can be brought on a common indebitatus count consistently with the Statute of Frauds is founded on an obligation arising independently of the unenforceable contract does not mean that the existence or terms of that contract are necessarily irrelevant. In such an action, it would ordinarily be permissible for the plaintiff to refer to the unenforceable contract as evidence, as evidence only, on the question whether what was done was done gratuitously. … In those cases where a claim for a reasonable remunerational price is involved, the unenforceable agreement may, as Jordan CJ pointed out in Horton v Jones (reference deleted), be referred to as evidence, but again as evidence only, on the question of the appropriate amount of compensation.
Further, at page 263, His Honour said:
What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit, or “enrichment” actually or constructively accepted. Ordinarily, that will correspond to the fair value of the benefit provided (eg remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied).
In my view nothing said in those passages would exclude a margin for profit. The latter passage refers to a reasonable rate for work done.
22 see for example page 251
As mentioned earlier the Full Court of Australia has considered the question of quantum in the context of quantum meruit judgment. In Angelopoulos v Sabatino (1995) 65 SASR 1 at page 14 Doyle CJ said:
In my opinion it is appropriate, as a matter of principle, to take a flexible approach to the manner in which the amount of compensation is determined. The balance of authority favours the view that the normal measure of recovery is the value received by the defendant at the plaintiff’s expense: MJ Tilbury, Civil Remedies 1990 Volume 1 para 4027. But, apart from emphasising the fact that the cost to the plaintiff of the service provided is not decisive, the principle stated seems to me to be a starting point for enquiry rather than a conclusion. …
Further His Honour said:
In the present case His Honour based his judgment of the cost of the plant and equipment supplied by the plaintiffs and the value of their labour, less certain deductions which deductions were not challenged on appeal. His Honour made the point that it would be difficult indeed to determine with any precision the value to the defendant of the services provided. It would be necessary to embark upon a difficult valuation exercise, comparing the value of the premises with and without the work done by the plaintiffs. That exercise would be further complicated by the fact that Ditara subsequently carried out further work on the premises, and common sense suggest that it would now be difficult to identify the value added to the premises by the work done by the plaintiffs.
Be that as it may, it is my opinion that in a case like this, and I refer again to the factors upon the basis of which I concluded that the plaintiffs should succeed, the market value of the services provided is an appropriate basis, and that is what I understand His Honour to have done. It was not suggested on appeal that, assuming they provided a relevant basis, the plaintiff’s figures were nevertheless erroneous on matters of detail. It is also relevant to note that, as I understand things, the basis of assessment was in effect a determination of what it would have cost Ditara had it obtained the same services elsewhere.
In my view, those remarks are particularly pertinent in this case. It would be all but impossible to embark upon a meaningful valuation of the defendant’s house to work out the appropriate remuneration for the plaintiff. The building work was completed by another builder.
With great respect to Her Honour the Chief Justice in Kane Construction I think the decision of the Full Court of South Australia is binding upon me. There is no reference by the High Court in Pavey’s case excluding a reasonable profit margin nor is there any exclusion in Angelopoulos v Sabatino.
In this case the plaintiff’s only claim for his own labour is the profit margin. There is no separate claim for labour. There is certainly nothing in the cases excluding a claim for labour in a quantum meruit claim. In fact they include labour.
Therefore from a practical point of view, and in my view, consistently with principle, I conclude that the evidence in this case should lead me to fix the quantum of the plaintiff’s claim on the basis of the progress payment claims he sent to the defendant which include in each case, the 10 per cent margin. The plaintiff had originally sought a 15 per cent margin in his negotiations with the defendant, but the defendant persuaded him to reduce that to 10 per cent.
Are the plaintiff’s charges reasonable?
So far as the 10 per cent margin is concerned the defendant’s expert, Mr Tulla, accepted that a 10 per cent margin for a builder was reasonable23. The plaintiff’s quoted price is within range of other builders who quoted24.
23 T509 lines 14-17
24 see plaintiff's outline of closing submissions dated 27 April 2007 para [63]-[68]
The defendant’s submissions on 11 October 2007
Mr Heinrich for the defendant submitted that there was no jurisdiction upon which a quantum meruit judgment could be made. He submitted, correctly, that the plaintiff had not pleaded a quantum meruit claim and had only made such a claim in closing submissions. Mr Heinrich had objected to those submissions and had made no submission himself on the topic of a quantum meruit. The question then is whether a claim can be made so late in a trial and whether the judgment can be entered on that basis.
Quantum meruit not pleaded
There was no evidence directed specifically to the principles of quantum meruit although, as I have already mentioned, the defendant’s expert Mr Tulla, said that a 10 per cent profit margin was reasonable. During the trial the defendant made no suggestion that there was any unreasonableness in the items claims, although essential to the defendant’s case was the claim that the costs came to exceed the fixed price alleged to have been agreed upon by the parties. I have found that there was no agreement for a fixed price.
The plaintiff submits that there is authority for the proposition that the court can enter a judgment on a basis different from that put forward by either party. Mr Jenner refers to Vordermeier v Alguna Developments Pty Ltd and Anor (No 3) (1997) 195 LSJS 472 (“Vordermeier”). In that case Judge Lunn referred to the circumstances under which a court might so decide. At page 478 he said:
While for obvious forensic reasons the parties adopted at trial the position that their particular version of the contact was correct, there was always the potential for the court to find, as it has, a midway position that neither party has made out its version of the agreement. Any relief which is to be granted in that event must arise out of alternative causes of action which are not contractual. Alguna should have foreseen this possibility and had conducted its case so as to meet it if it had wanted to do so. The plaintiffs are not now seeking to allege any new facts, but merely to construct a different cause of action out of the facts which were before the court on the allegations about the contracts. The plaintiffs do not seek to rely on any additional facts which were not adduced in evidence at the trial. At the trial there was no objection taken to any of the evidence which is material for the present purposes on the grounds that it was outside the pleadings. Thus there is no consequent unfairness.
His Honour distinguished the High Court case of Banque Commerciale South Australia En Liquidation v Akhil Holdings Ltd (1991) 169 CLR 279. His Honour distinguished the case on the bases that that case involved a serious unpleaded allegation of fraud and it had to be read in the light of the provisions of r 46.04(4)25.
25 see page 478
That case was decided when the applicable District Court rules were rules 46.04(4) and 84.01(1). The corresponding rules now applicable are rules 6R99.35 and 6R223. The new rule 6R99 is the equivalent of the former rule 46.04(4). It reads as follows:
(a)    Relief not to be confined to that claimed
At the trial, subject to sub-rule (b) hereof, the court;
(i)     shall grant all such relief on any cause of action to which the parties might be entitled on the evidence whether or not the relief granted is expressly requested in the pleadings;
(ii)     will apply the rules as to admissibility of evidence, insofar as they require consideration of the issues raised on the pleadings, without undue technicality and with regard to the substantial merits of the case, and, while having regard to the issues raised on the pleadings, will not refuse to admit an item of evidence solely on the ground that it relates to facts or matters not expressly pleaded;
(b)    Nothing in sub-rule (a) hereof allows the court to grant relief or admit evidence if to do so would infringe the principles of case flow management as set out in rule 2 or if by reason of surprise, the course of the trial or for any other reason, it would otherwise be unfair to do so.
The new 6R223 is in very similar, if truncated, terms to that of the old rule 84.01. The former rule 84.01 reads (relevantly):
84.01(1)Court may direct the entry of judgment including relief not claimed in the pleadings
The court may at any stage of any proceedings on the application of any party, direct the entry of such judgment or make such order as the nature of the case requires, notwithstanding that the applicant does not make a claim for relief extending to that judgment or order in the summons, providing that such judgment or order can be made without injustice to any other party.
The new rule 6R223 reads:
The court may, in an appropriate case, give judgment for a form of relief that differs from the kind of relief sought by the plaintiff.
In my view, Vordermeier (and the cases referred to therein) is authority for the proposition that so long as it is not unfair to the defendant to do so, I may enter judgment for the plaintiff on the basis of a quantum meruit, notwithstanding that it has not been pleaded. The question is whether there is, in this case, an unfairness to the defendant.
Is there unfairness to the defendant?
The matter was recalled on 14 December 2007. The plaintiff had on an earlier occasion indicated that he was not going to seek to amend his Statement of Claim or to lead further evidence or to apply to re-open its case26. I specifically told counsel for the defendant, Mr Heinrich, that I was willing to hear submissions from him on the question of quantum meruit and I would consider any application he made to have witnesses recalled for further cross-examination or to call witnesses himself. He declined those invitations27. He claimed that there was unfairness to the defendant in entering judgment on the basis of a quantum meruit. In his supplementary outline of submissions dated 14 December 2007, he referred to oral submissions he had made on 11 October 2007. He had on that occasion spoken in rather general terms about unfairness saying that he did not know what case he had to meet on a quantum meruit claim by the plaintiff. He implied that experts had not been given the opportunity to direct their attention to the reasonableness of claim27. Specifically he that said the defendant had not investigated or pleaded whether there were any claims relating to Mr Price’s house in the work done by the plaintiff after the defendant asked him to stop building.
26 see 15 November 2007 (T2)
27 14 November 2007 (T2-3)
27 11 October 2007 (T19-21)
In respect of that last submission it would not in my view matter that there might have been some components relating to the Price house in that work. The one clear agreement to which I have already referred between the parties was that the defendant undertook to pay the plaintiff for any work done on Mr Price’s house over the fixed sum of $115,000 (ibid para [22]). The building work on Mr Price’s house was done at the defendant’s request and the completion of Mr Price’s house avoided any claim by Mr Price against the defendant. In any event the defendant has declined to make any submissions to me about work of this description and has declined to recall any witnesses or to call any witnesses.
In those circumstances I find that there is not any unfairness to the defendant to enter judgment on a quantum meruit basis.
Has the defendant received any benefit from the plaintiff’s work?
The plaintiff’s work was a large component of the work necessary to build the two houses. The work on Mr Price’s house was completed by the plaintiff and Mr Price moved into the house. The building work on the defendant’s house was completed by other builders but the defendant has been able to move into his house. While it is now probably impracticable to value the defendant’s house in such a way as to apportion the value attributable to the plaintiff and the value attributable to the other builder, the defendant concedes that he has received a benefit.
Conclusion
In all the circumstances it is appropriate to order that judgment be entered for the plaintiff on the basis of a quantum meruit in the sum of $115,265.93 (see para [71]).
Interest
I order that interest run from 8 August 2003 which is 7 days after the final invoice date 1 August 2003. That invoice specified that payment was due in 7 days28.
28 see Exhibit P5 page 229b
The interest rates set by the Third Schedule of the Court Rules are (i) 6 per cent up to 1 August 2004 and (ii) 6.5 per cent from 2 August 2004.
Based on the quantum of $115,265.93 the interest at 6 per cent from 8 August 2003 to 1 August 2004 (359 days) is $6,802.
The interest on the same sum from 2 August 2004 to 4 April 2008 (1,340 days) is $27,505.92
The total interest component is $34,307.92
Orders
1.I order judgment for the plaintiff in the sum of $115,265.93 plus interest of $34,307.92 making a total of $149,573.85.
2.I dismiss the counterclaims of the defendant.
I will hear the parties as to costs.