Unique Building Pty Ltd v Brown
[2010] SASC 106
•21 April 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
UNIQUE BUILDING PTY LTD ACN 008 107 837 v BROWN & ANOR
[2010] SASC 106
Judgment of The Full Court
(The Honourable Justice Sulan, The Honourable Justice Vanstone and The Honourable Justice Layton)
21 April 2010
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - REMEDIES FOR BREACH OF CONTRACT - DAMAGES
DAMAGES - GENERAL PRINCIPLES - DIFFICULTY OF ASSESSING DAMAGES
Appeal against decision of a Judge as to liability and also the basis for assessment of damages for breach of contract – the appellant building company entered into an Agreement which consisted of three lump sum contracts to build four townhouses for the respondents – Judge found serious defects in building work constituting breaches of contract by appellant and that respondents were entitled to terminate the contracts – whether Judge erred in finding the appellant liable – new point raised on appeal as to whether respondents had the right to terminate the Agreement when allegedly in breach of contractual terms by failing to pay a progress payment due under the Agreement – whether this new point should be considered on appeal – whether respondents were in breach – respondents lodged new plans with Council varying original buildings, after building site abandoned by appellants – whether Judge erred in assessing damages as the cost of demolition, rebuilding and the additional cost to complete the Agreement.
Held: Appeal dismissed – a party may not, except in exceptional circumstances, raise an argument on appeal that had not been put before the Judge – rare exceptions to this rule do not apply here – in any event, on a proper construction of the Agreement, respondents were not in breach at the time of terminating the Agreement – the only reasonable way to bring about conformity with the contract was by demolition and rebuilding – what the respondents decide to do with the damages is a matter for themselves with the qualification that it is of restricted relevance in determining reasonableness.
University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Tabcorp Holdings Pty Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; Tito v Waddell (No 2) [1977] Ch 106; Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253; Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344; Bellgrove v Eldridge (1954) 90 CLR 613; De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28, considered.
UNIQUE BUILDING PTY LTD ACN 008 107 837 v BROWN & ANOR
[2010] SASC 106Full Court: Sulan, Vanstone and Layton JJ
SULAN J: I agree with the reasons of Layton J. I agree with the orders that she proposes. I would dismiss the appeal.
VANSTONE J: I would dismiss the appeal. I agree with the reasons provided by Layton J.
LAYTON J:
The appellant (the defendant at trial) is a building company which entered into three separate lump sum contracts (“the Agreement”) to build a total of four townhouses for the respondents (the plaintiffs at trial). The respondents are two brothers, each of whom had a contract with the appellant. The third contract was between the appellant and the respondents’ sister. The respondents brought their action in their own right and as assignees for their sister’s rights.
The respondents were successful in their action for damages for breach of contract, in the sum of $241,928.96 plus interest. The appellant was also successful on a counterclaim in the sum of $18,863 for an unpaid progress payment due under the Agreement.
The learned trial Judge (“the Judge”) found that the respondents were entitled to damages assessed to be the cost of demolition and re-building and with a further additional cost to complete the contract. The appellant appeals against both liability and the amount of damages. There is no appeal by the respondents in respect of the counterclaim.
The appeal is limited to two major issues. First, whether the respondents had the right to terminate the Agreement at a time when they were allegedly in breach of contractual terms, as they had not paid a progress payment due under the Agreement (Progress Claim No 3) at the time when notice to terminate the Agreement was given. The second question for consideration is the proper basis for assessment of damages. The appellant contends that the Judge erred in finding that damages should be awarded on the basis of demolition and re‑building, rather than the cost of repair and rectification. Essentially, the appellant did not challenge the factual findings of the Judge, nor did it allege any error of law. The appellant challenged the inferences which were drawn on facts as discussed hereafter, the application of the law to those facts and the Judge’s conclusions.
Brief background and overview
The first respondent, Michael Brown, is an architect. He acquired a portion of land to provide housing for himself, the second respondent, David Brown, and his sister, Roslyn Brown. The land is located in the CBD of Adelaide. The land was known as, and is referred to in the reasons of the Judge as, Lots A, B, C and D, Moger Lane. [1] Michael Brown was the registered proprietor of Lots A and C; Roslyn was the proprietor of Lot B and David Brown owned Lot D.
[1] Certificates of Title Register Book Volume 5800, Folio 774, 776, 770 and 775.
Michael Brown designed the four townhouses. On 21 December 2001, the respondents entered into three separate contracts. Michael Brown’s contract for two townhouses on Lots A and C was for a total sum of $340,000. David Brown’s contract for Lot D was $120,000 and Roslyn’s contract for Lot B was $155,000. The terms of each contract, apart from price, were identical. For convenience in these reasons, I refer to the contracts collectively as the Agreement. The date for practical completion of the Agreement was to be 18 July 2002, but was later amended to be 30 July 2002. I will return to an analysis of the terms of the Agreement later, however for convenience, the clauses of the Agreement which are relevant to this appeal are set out in Schedule 1 to these reasons.
The site was handed over to the appellant on 14 January 2002. An important physical feature of the building site was that it had very tight dimensions. The width of the building site was only some 13.4 metres, to accommodate the four residences.
Chronology
A relevant chronology against which to consider the issues on appeal is as follows.
In early April 2002, the floor slab was installed for the development. The respondents allege that there were a number of problems with the floor slab, which is discussed in greater detail hereafter. Briefly, it was said that the slab was too high, it restricted access, it encroached upon adjoining land on both the western and eastern elevations, and that the step did not comply with the drawings.
On 23 May 2002, the appellant issued a claim to the respondents seeking a progress payment of $109,483.28 (Progress Claim No 1).[2] The respondents paid $69,405.63, but disputed the balance of the progress payment. In short, the appellants disputed the claim for costs related to what the parties called the “rapid walls”, on the grounds that the rapid walls material was unfixed and because of some extra site preparation costs. On 31 May 2002, they sent a memorandum[3] to the appellant indicating that they were disputing Progress Claim No 1 and that, pursuant to clause 10.3.1 of the Agreement, they would put the matter before a referee. They enclosed with that memorandum a ‘Notice of Referral to Referee’ addressed to the appellant.[4] In the memorandum, the respondents drew attention to the fact that the Agreement nominated the referee as being “the President of the Australian Institute of Architects” and that there was no power of the President to nominate others. This was clearly very restrictive if the President was not available. They then requested permission from the appellant to vary the Agreement to allow the President to nominate another as referee. They also enclosed an Agreement to vary the referee and requested that this be counter-signed.[5]
[2] AB 4, 914.
[3] AB 4, 942.
[4] AB 4, 944.
[5] AB 4, 945.
A meeting occurred between the parties on 2 June 2002. That meeting did not resolve the dispute. Instead, on 4 June 2002 the appellant sent a letter to the respondents indicating that “the contract will be terminated” in consequence of the alleged failure by the respondents to comply with clause 12.7 of the Agreement.[6] Clause 12.7 essentially provided rights to the builder in respect of failure by the respondents to make payment of progress payments within 10 days. The details of this will be referred to later.
[6] AB 4, 919.
On 6 June 2002, the respondents sent a memorandum to the appellant in respect of an earlier formal notice of instruction which they had given to the appellant (Proprietor’s Instruction No 2).[7] The memorandum referred to the rapid walls installation and other alleged inconsistencies with the building specifications. They also requested the appellant to agree to vary the referee clause so that the parties could expedite consideration of the dispute relating to Progress Claim No 1.
[7] AB 4, 948.
Also in June 2002, the respondents became concerned about further particular aspects of the work. This was expressed in a letter dated 24 June 2002.[8] The situation was correctly summarised by the Judge:[9]
[8] AB 4, 953.
[9] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [23].
At about the same time the plaintiffs became concerned about certain aspects of the work. The plaintiffs wrote to the defendant by letter dated 24 June 2002. The issues raised by the plaintiffs were as follows:
·Inaccurate set out of works leading to misalignment of the slab step and some plumbing leading to delays for reworking and extra cost to builder for termimesh installation.
·Request by the builder for proprietors to pay for reinstallation of survey marks removed by the builder in the course of the works.
·Failure to coordinate installation of eastern most sewer line to the existing connection.
·Failure to coordinate the installation of termimesh until after the slab and plumbing were laid.
·Failure to install slab starter bars specified by structural engineer.
·Numerous minor contractual omissions.
·Overall delay of the works.
·Builder seeking variation from proprietors for works clearly within the contract in the first progress claim.
·Persistent dismissal of the means to present the builder’s claim to an independent third party for assessment.
·Builder’s refusal to meet the proprietors to resolve issues.
·Suspension of work.
[Footnote omitted.]
In July 2002, the rapid walls subcontractor, Rapid Building Services, erected the ground floor rapid walls. Subsequently, on 16 July 2002 the respondents discovered that the rapid walls were misaligned.
On 19 July 2002 Rapid Building Services left the site. All work ceased on the site on that date, save some remedial work which was required to be done by the Adelaide City Council to make the site safe.
On 24 July 2002, the respondents’ solicitors wrote to the appellant enclosing the first Notice of Default.[10] The Notice of Default alleged a failure to proceed diligently with the works and ignoring the request for the appellant to provide a means whereby the Notice of Referral to a Referee could be dealt with expeditiously by a referee. It is to be noted that the date of practical completion was 30 July 2002. The letter from the solicitors also indicated that, in accordance with clause 12.3 of the Agreement,[11] if the default continued for a period of 10 days the respondents had the right to determine (by which the Agreement means terminate) the Agreement, but at the same time expressed that the respondents’ wish was to persist with the Agreement and proceed to completion.
[10] AB 4, 920.
[11] See Schedule 1 to these reasons.
On 26 July 2002 the appellant in response informed the respondents that they were “not aware of any dispute”, but rather that the respondents had failed to meet full payments of the Progress Claim No 1. They also indicated that they would not be attending any preliminary conference with a referee.[12]
[12] AB 4, 1010.
On 30 July 2002 the appellant submitted another claim for a progress payment (Progress Claim No 2) seeking $36,550.98.[13]
[13] AB 4, 917.
On 2 August 2002, the respondents replied by indicating that they considered the claim to be invalid as it did not address the information required pursuant to the Agreement (clause 10.1.3) and, further, did not address the rapid walls problem. Consequently, they returned the claim and indicated that they would not “assess” it.[14] The appellant responded by returning Progress Claim No 2 and denying that the respondents had any reason for refusing to assess the claim.[15]
[14] AB 4, 965.
[15] AB 4, 968.
On 14 August 2002, the respondents issued a second Notice of Default setting out in detail the alleged defects with respect to the rapid walls and also complaining of delays in completion and requesting the appellant to provide a program setting out how it intended to rectify the defects.[16] A timeline of 10 days was given. The appellant did not respond. Instead, on 29 August 2002 it sent its own Notice of Default to the appellants for failure to pay Progress Claim No 2 and giving 10 days notice.[17] It also suspended work on the site.
[16] AB 4, 972.
[17] AB 4, 974-5.
Between late October and mid-November a firm of surveyors was appointed by the respondents to conduct a survey of the site. The reports provided by the surveyor expressed the opinion that the slab was higher than designed and that it deviated from the design position.[18]
[18] AB 3, 747-775.
After a date was obtained for a hearing by a nominated referee, on 28 November 2002, solicitors acting on behalf of the appellant sent a letter to the nominated arbitrator advising, inter alia, that he did not have jurisdiction, as the dispute was not concerning a determination of the “builder’s employment” as was required under the Agreement.[19]
[19] AB 4, 1012-13.
Eventually, on 4 December 2002, some six months after the initial request by the respondents, the appellants signed a consent to vary the Agreement to refer to a nominee of the President.[20] Thereafter, on 17 December 2002 Mr Earle Scott was nominated as the referee and he was duly appointed on 18 December 2002.[21]
[20] AB 4, 1015.
[21] AB 4, 1017.
The dispute then proceeded before Mr Scott in January 2003. On 12 February 2003 he issued an award (“the first award”).[22] The first award indicated that the appellant was entitled to be paid a sum of $54,569.95, plus interest. This figure comprised $40,077.65 in respect of Progress Claim No 1 and $14,492.30 for Progress Claim No 2.
[22] AB 4, 1023.
Two days later, on 14 February 2003, the appellant issued Progress Claim No 3 to the respondents.[23] The claim sought to take account of the referee’s award and claimed additional amounts, as discussed hereafter. The claim was for $18,863.00.
[23] AB 4, 918.
On 24 February 2008 the respondents responded by letter to Progress Claim No 3.[24] This was five days overdue. They again indicated that the claim failed to accord with the Agreement. In particular, that the Progress Claim failed to include confirmation of an insurance cover and failed to certify that the works complied with the Agreement. The same letter advised that the respondents reserved their rights in relation to the referee’s award and further noted that Progress Claim No 3 contradicted the referee’s first award. The respondents reiterated their request that the Agreement be proceeded with expeditiously.
[24] AB 4, 988.
On 26 February 2003 the appellant responded to the letter of 24 February 2003 stating, inter alia, that Progress Claim No 3 was in accordance with the Agreement, that it did not contradict the referee’s award. It further stated that, until such time as they received payment of the monies awarded by the referee and Progress Claim No 3, no work would be carried out on the site.[25]
[25] AB 4, 925-6.
On 11 March 2003 the respondents served a further Proprietor’s Instruction on the defendant.[26]
[26] AB 4, 992.
On 14 March 2003 the appellant served a third Notice of Default on the respondents,[27] referring to the failure to pay Progress Claim No 3, rapidly followed by a further letter dated 18 March 2003 from the appellant to the respondents advising about insurance and indicating that it “will not be providing any information requested by you, nor proceeding with any of your instructions.[28]
[27] AB 4, 927.
[28] AB 4, 929.
On 19 March 2003 the respondents served upon the appellant a Notice to Comply with the further Proprietor’s Instructions.[29] The appellant responded on 24 March 2003 indicating that it would not proceed with any instructions or provide any information until such time as the respondents met the three Progress Claims. Further, that unless payment was received within 7 days, a lien would be registered over the property.[30]
[29] AB 4 1003.
[30] AB 4, 1004.
On 11 April 2003 the respondents paid $25,212.41 to the appellant.[31]
[31] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [34].
On 14 April 2003 the respondents made further submissions to the referee. In consequence, on 22 April 2003 the referee issued a second award (“the second award”).[32] This amendment of the first award affirmed payment to the appellant of $40,077.65 plus interest on Progress Claim No 1, but reduced payment to the appellant on Progress Claim No. 2 to $1,207.00.[33]
[32] AB 4, 1025.
[33] AB 4, 1028-1029.
On 20 May 2003 the appellant registered a lien over the land.[34]
[34] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13 [34].
On 7 October 2003 the appellant issued proceedings in the Adelaide Magistrates Court seeking recovery of $37,693.05, being the amount due under the first award of the referee. On the same day the appellant also applied for summary judgment in the sum of $22,217.50 in respect of the amounts outstanding under the amended award.[35]
[35] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [36].
On 24 October 2003 the respondents paid $22,079.48.[36] The latter proceedings in the Magistrates Court were apparently settled on the basis of a payment by the respondents and the proceedings were discontinued by consent sometime prior to 7 November 2003. On 7 November 2003, the respondents paid a sum of $1,212.22.[37] Also on the same day, the respondents issued a Notice of Determination purporting to terminate the Agreement. This notice referred to the notices of default given on 24 July 2002 and 12 August 2002, which they alleged had not been complied with by the appellant. Importantly, the Notice of Determination also indicated that the respondents “hereby determined the contracts”.[38]
[36] AB 1, 170.
[37] AB 4, 1031.
[38] AB 4, 1005.
On 16 March 2004 the respondents made an application for development approval to demolish and build a seven storey apartment building on the premises.[39]
[39] AB 1, 247.
The proceedings the subject of the trial in the District Court, and this appeal, were issued on 30 December 2006.
Findings of Judge
One of the issues that was raised before the Judge, but not maintained at the hearing of this appeal, was whether or not the referee’s amended award of 22 April 2003 was a valid award. The Judge correctly found that the amended award was invalid, as the referee was functus officio and had not afforded procedural fairness to the respondents.[40] This finding is not disputed. There is, however, some further information that is relevant in respect to the consequences of that finding.
[40] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [51].
The Judge found that the first award, and the amended award of the referee, were an adjudication in respect of the appellant’s claim for monies payable under Progress Claims Numbers 1 and 2.[41]
[41] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [49]-[53].
Importantly, in her reasons, the Judge further indicated that in the first award it was plain that it was agreed between the parties:[42]
that the payments awarded in respect of progress certificates do not constitute proof or admission of the acceptability of the works, or that the works have been executed in accordance with drawings and specifications. Taken in conjunction with the clear intent of the dispute resolution clauses that prompt determinations be made about such disputes to avoid delay to the progress of the works, it appears to me that the referee’s decision concerning the works can be no more than a finding that the builder was entitled to payment of progress claims no. 1 and 2 on the basis of the material before him. It does not amount, in my view, to a finding that the works were appropriately conducted and executed in accordance with the drawings and specifications. It does not preclude the plaintiffs from subsequent proceedings of the nature presently before me seeking damages for breach of contract or breach of statutory warranty.
[42] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [54].
Consequently, the referee’s award and the subsequent Magistrate’s Court proceedings did not constitute a bar to the respondents making a claim for damages. This was not disputed.[43]
[43] T8-12, 19-22.
There were several important primary findings of the Judge relevant to the liability of the appellant for damages for breach of contract. The breaches of contract are summarised in her reasons in the following terms:[44]
To summarise I find that the plaintiffs have proven that the defendant was in breach of contract in the following respects:
•The layout of the slab was defective reducing the dimensions of the laundry of Lot D, causing an encroachment onto neighbouring Council land and repositioning of the cross walls.
•The slab layout also caused a misalignment of the Rapid Wall on the southern boundary.
•The slab is too high preventing vehicle access to all four garages and rendering the side door on the western boundary of the unit on Lot A unusable.
•The Termimesh was not installed properly; and
• The sewer riser in Lot C is inappropriately placed.
[44] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [103].
The Judge also found that the appellant as at 14 March 2003 considered the Agreement was still on foot and that its position would be that it would carry out the Agreement if progress payments were made. The Judge also found that the appellant had not, prior to the determination of the proceedings before her, acknowledged any problem with the slab height or the slab layout. The appellant’s intention was to build the now admitted defects into the building. Further, the appellant continued to deny other defects which the Judge had found proved. The Judge concluded that the appellant was in breach of the Agreement at the time of the respondents’ refusal to pay Progress Claim No 3.[45]
[45] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [56], [111].
Argument as to liability
The appellant’s argument before this Court regarding liability focussed upon the finding by the Judge in the following terms:[46]
Given my findings in respect of the defective workmanship and the terms of the contracts, I find that the plaintiffs were entitled to serve the second notice of default and, in the absence of compliance by the defendant, were further entitled to terminate the contracts by their notice of determination dated 7 November 2003.
[46] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [112].
This argument of the appellant in relation to liability is one raised by the appellant for the first time in the course of this appeal. It was never argued before the Judge by either party and the particular point raised by the appellant was not therefore dealt with by the Judge.
The appellant’s argument is that as a result of the provisions of clause 12.3 of the Agreement, there was no valid termination of the agreement by the respondents. Clause 12.3 provides that, if the respondents were in breach of the Agreement at the time of giving a Notice of Determination, then the Notice “shall be deemed to be void and of no effect”. The appellant submitted that the respondents were required by Clause 10.3.1 of the Agreement to pay Progress Claim No 3 or refer the dispute regarding that progress claim to a referee. The argument continues that as at 7 November 2003, when the Notice of Determination was given, Progress Payment No 3 had not been paid nor referred by the respondents to a referee, and therefore the purported termination of the Agreement was void. It followed, as was submitted by counsel, that the termination was wrongful and that the respondents had thereby repudiated the Agreement.[47] It was further submitted that the appellant had accepted the repudiation by its conduct, in that it had not returned to the site.[48] Thus, it followed, according to the appellant’s counsel, that the respondents were not entitled to any damages for termination and, in particular, any claim for the sum of $109,223.96 for “additional cost to complete”.
[47] T 27.
[48] T 28.
The respondents had a three-fold approach in relation to this argument.
First, the respondents contended that the appellant should not at this point, on appeal, be permitted to raise this new argument given that it was never the subject of evidence or consideration before the Judge and had never been contended for previously by the appellant.
Secondly, it was submitted that, if there was permission to argue this point, then the appeal should fail because there was no breach of the Agreement in respect of their response to Progress Claim No 3. At the time the Notice of Dispute was given, no amount was due and owing on Progress Claim No 3, the whole amount of that claim was disputed and it had never been the subject of a referee’s decision under clause 10.3.1.
Thirdly, it was submitted that in any event, at the time when the Notice of Dispute was given on 7 November 2003, the appellant was in breach of the Agreement in fundamental respects, as was indeed found by the Judge. Hence, it was argued that there was a valid right of termination of the Agreement by the respondents and that there was therefore no error by the Judge.
One of the matters raised as being an issue in respect of this argument was the construction of clause 10.3.1 of the Agreement and, in particular, whether or not this clause placed an obligation on the respondents to refer a disputed matter to a referee, as contended for by the appellant; or whether it was open to either party to refer the matter to a referee, therefore the respondents were not in breach of that clause in not referring Progress Claim No 3 to a referee.
In considering these arguments, I have considerable sympathy for the respondents’ submission that this ground of appeal should not now be able to be raised for the first time on appeal. It is elementary that a party may not, except in the most exceptional circumstances, raise an argument on appeal that had not been put before the Judge.[49] The rare exceptions to this may be where evidence relevant to the new appeal point has been established beyond controversy in the court below[50] or where the new point could not possibly have been met at trial.[51] Neither of these exceptions applies here. The point raised here gives rise to quite complex legal issues, and relies upon certain findings of fact by the Judge that were never made because they were never the subject of contention by the parties.
[49] University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481, 483.
[50] National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668, 679-680.
[51] Suttor v Gundowda Pty Ltd (1950) 81 CLR 418.
It is quite clear when reading the helpful summation of law set out in Breach of Contract,[52] that the issue of the effect of an election to terminate performance of a contract at a time when the party who so elects is in breach of contract, is a vexed area of law. The author refers to the difficulty of analysis of the factual circumstances[53] and that some of these difficulties have the “tendency in the cases to eschew strictly logical analysis, and to rely on the general circumstances of the case”. The legal and factual complexities include the interaction of common law and the specific terms of the contract; the need to consider the nature of the alleged breach and whether it is a breach of warranty or breach of a fundamental condition such that it amounts itself to a repudiation; as well as matters of causation where both parties are in breach of a contract and each claim that the other is to blame. None of these factors were canvassed before the Judge and this would lead me to conclude that this ground of appeal should be dismissed, as not being open to the appellant to raise at this point. Having said that, I consider that, even if the ground was permitted now to be raised on appeal, the appellant would fail in its application in the circumstances of this case without the need to canvass more complicated legal argument. This is because, the pre-condition for this limited ground, namely that there was a breach of the Agreement by the respondent in respect of Progress Claim No 3, was not met.
[52] JW Carter 2nd ed [1033]-[1037].
[53] JW Carter 2nd ed [1034].
The termination provisions
The Agreement refers to a “determination” by a proprietor. The word “determination” in its context is a reference to “termination” of the Agreement, in this case, by the respondents, as contained in clauses 12.2 and 12.3. Clause 12.2 enables the respondents to give a written notice specifying default by the appellant. In this case the default was set out in the Notice of Dispute, in which there was an allegation of a breach by the appellant of clause 12.2.3 for failing to comply with the respondents’ notices. Further, there were substantial breaches of the provisions of the Agreement, as later found by the learned Judge.[54]
[54] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [103].
Clause 12.3 provides that if the appellant continues in default for ten days after receipt of the notice, then the respondents may give notice by certified mail of the determination of the employment of the appellant. The qualification is that this should not be given unreasonably or vexatiously. Then follows the important additional stipulation:
If the Proprietor is at the time of such notice in breach of this Agreement, then the said notice of determination of the employment of the Builder shall be deemed to be void and of no effect.
Before discussing this last sentence, I turn to consider the provisions in relation to determination of the Agreement by the builder.
Clause 12.7 sets out the rights of termination of the Agreement by the builder. This clause provides that if the respondents fail to make any payment due under the provisions of clause 10.3 within 10 days after it becoming due, then the builder may give a written notice by certified mail specifying the default; may immediately suspend the carrying out of works; and may, if the default is not remedied by 10 days after receipt of the notice, give notice to the respondents, to determine the employment of the builder. There is also a similar provision to that in 12.3, that the notice shall not be given unreasonably or vexatiously.
However, the additional clause requiring the builder not to be in breach of the Agreement, as set out in 12.3, is not contained in clause 12.7. There is no contractual requirement of the builder not to be in breach of the Agreement at the time of giving a notice of termination to the respondents. This reveals an imbalance between the parties as to the pre-requisites for termination.
What then is meant by the final sentence in clause 12.3? Is this a clause which is purporting to state that termination of employment of the builder can never be given if the respondents are themselves in breach of the Agreement? Alternatively, is it a matter of process only, which provides that the notice of termination, as distinct from the right to terminate, is void and of no effect?
It would be a grave omission in the contractual terms between the parties if there could never be a circumstance in which the respondents would be able to terminate the contract of the builder if they were themselves in breach of the contract, no matter how minor. The right to terminate is left to common law so far as the builder is concerned. But is it a viable construction of the contract to say that the common law right of the respondents to terminate was restricted and indeed is excluded under the contract?
Given that the appellant in this case has never taken the point that the Notice of Termination itself was void and unenforceable, and that the point was not taken until such time as the appeal was argued, this would seem to me to potentially give rise to estoppel by conduct. However, it is not necessary to decide that point.
The common law position as to the right to terminate by a party itself in breach is aptly expressed by Carter in article 57 of his work, Breach of Contract:[55]
Article 57.
(1) The fact that a party who has elected to terminate performance of the contract was, at the relevant time, in breach of contract, or not ready and willing to perform contractual obligations, does not necessarily operate to impede the effectiveness of the election.
(2) In deciding whether a breach of contract or absence of readiness or willingness precluded termination regard may be had to:
(a) the terms of the contract; and
(b) all relevant circumstances, including—
(i) the nature of the breach; and
(ii) the extent to which the party in question was not ready and willing to perform.
[55] JW Carter 2nd ed [1033].
Another relevant legal principle in relation to contractual requirements regarding the exercise of the right to terminate a contract is summarised in Carter:[56]
Compliance with contractual requirements. Whether or not the requirements of election provided for by a contractual right to terminate have been complied with will depend on the particular circumstances of the case and is a question of fact. Contractual rights to terminate are fairly strictly construed. For example, where the contract requires notice to be given to the promisor of the breach relied upon, the promise will be required to specify the breach which is relied on and to indicate clearly that termination may occur if the notice is not complied with. However, substance is more important than form, and what is crucial is the information conveyed to a reasonable person in the position of the promisor.
[Citations omitted.]
[56] JW Carter 2nd ed [1012].
This latter principle suggests that the last sentence in clause 12.3 may be interpreted as a procedural requirement relating to the giving of the notice and that a court, in considering whether there has been a valid termination of employment under the contract, is to be governed by the substance rather than the form of the notice of termination. This is particularly so in circumstances where the parties clearly operated on the basis that a valid notice of termination had been given and only later was there an issue as to whether or not there was a valid basis for termination by the respondents, having regard to the nature of the breach of the Agreement by the appellant. If the respondents had been earlier alerted to this argument, any deficiency could have been remedied.
Clause 10.1.3
Fundamental to the argument of the appellant is that the respondents were in breach of the Agreement by reason of their failure to satisfy Progress Payment No 3. If they were not so in breach of the Agreement, then there is no issue that the Notice of Termination could be appropriately maintained by the appellant under clause 12.3. The respondents’ submission is that they were not in breach by not paying Progress Claim No 3 and they were not in breach of clause 12.3.1 of the Agreement. Their argument relies on clause 10.3.1 requiring that payment is only required to be made in relation to that part of the claim which is not in dispute. The respondents contend that the whole of Progress Claim No 3 was in dispute by reason of the breach of the appellant, as previously discussed in [51]. Further, that the only way in which the respondents could be said to be in breach is if the disputed Progress Claim No 3 had been referred to a referee who in turn had made an award that it should be paid. In the absence of a referee’s award, the respondents submit there was no breach in failing to pay Progress Claim No 3.
Their argument continued that there was no obligation by them to refer Progress Claim No 3 to a referee. It was submitted that the last sentence of clause 10.3.1, which states that “any part of such claim disputed by the Proprietor shall be referred to the Referee” did not place an obligation on the proprietors to so refer it. Instead, the sentence enabled either party to refer the matter to a referee. Thus, the builder had the right to refer the disputed claim to a referee.
The appellant, on the other hand, submits that this sentence indicates that there is an obligation or onus on the respondents to refer a disputed claim to a referee. Thus even if the respondents were not in breach by virtue of their failure to pay the portion of the progress payment that was disputed, they were, at very least, in breach of their duty to refer the dispute to a referee.
In my view, the sentence is ambiguous. In the absence of specific wording, I am not satisfied that it should be interpreted in the manner submitted by the appellant, namely that there was an obligation by the respondents to refer Progress Claim No 3 to a referee, and in the absence of so doing, the respondents were obliged to make the whole of the payment before being able to give a valid notice of dispute under clause 12.3.
This is particularly so given that here, the breach which is alleged of the respondents arises in response to the very breach for which it seeks to terminate. That is, the respondents refused to pay progress payments because the appellants were in fundamental breach of the Agreement which ultimately led to its termination.
Finally, the fact that the Judge found that the appellant was entitled to payment of Progress Claim No 3 does not determine the issue as to whether, at the time of giving the Notice to Determine, there was a dispute about the claim, which had not been the subject of a referee’s decision. A later decision by the Judge who found that the appellant was entitled to Progress Claim No 3 does not necessarily translate into a finding that the respondents were thereby in breach of contract in not paying the claim.
Progress claims and their payment
It is common ground between the parties that as of the last payment by the respondents on 7 November 2003 of a sum of $1,212.22, that Progress Claim No 1 and Progress Claim No 2, as amended by the referee, had been paid.
As to Progress Claim No 3, it was expressed in the following terms:[57]
[57] AB 4, 918.
Progress Claim No 3
a. Rapid Wall Progress Claim
- Amended Tax Invoice No 2 dated 22 July 2002 $28,600.00
Less Referee Award dated 12 February 2003 $14,492.00 $14,408.00
b. Clean of Site and rubbish removal $ 1,240.00
c. Builders preliminaries (20% of $19,550.00) $ 4,301.00
$19,649.00
Less Retention (4%) $ 786.00
Total Progress Claim No 3 – Now Due and Payable $18,863.00
This was provided by letter of 14 February 2003.
Upon receipt of that Progress Claim by letter dated 24 February 2003 the respondents replied in the following terms:[58]
Please find enclosed our Progress Payment Summary of your Claim No.3. We note, again, that your Claim fails substantially to accord with the agreement, eg: - it fails to include confirmation of insurance cover and fails to certify that the works comply with the agreement.
As you are aware, any payments made to you are “on account”, subject to necessary rectification works. Your claim has been assessed with reference to the Referee’s Award. Please note that the Proprietors have reserved their rights in relation to this Award. We note that the amount you claim directly contradicts the Referee’s Award, and you appear, thereby, to Object to his Award. Please ensure that a copy of any future correspondence in relation to your Objection is also forwarded to the Proprietors.
We draw your attention to those clauses in the contract – particularly Clause 13.13 – that require you to proceed with the works expeditiously. The Proprietors will seek recovery against any future claims for those costs we expended to make the site safe, assess your previous claims and related other costs normally borne by the Builder. Upon receipt of the Referee’s award you will have been overpaid by $28,249.82 for the actual work on site. If you do not proceed immediately with the works the Proprietors will seek to recover all these amounts as a debt against you.
[58] AB 4, 988.
Schedules were annexed to that letter, which relevantly for this purpose, were summarised as follows:[59]
[59] AB 4, 989.
Items $ Sub-total $ Total
Total amount claimed by Builder in this claim
$18,863.00Trade / Price supported by proprietors (refer Page 2) 84,854.28
Variations supported by proprietors (refer Page 2) 7,965.64
92,819.92
Less Retention as per Contract Clause 10.12 9,281.99
83,537.93
Plus GST (10%) 8,353.79
92,891.72
Plus GST of Variations (Refer Summary) 632.17
93,523.89
Less Claims previously paid ($67,203.76) and amount $121,773.71
the subject of Referee’s ruling ($54,569.95) 28,249.82TOTAL SUPPORTED THIS CLAIM Minus
(subject to qualifications in letter of cover to this claim) $28,249.82It can be seen from that documentation that the respondents challenged the amount of $18,863 on a three-fold basis. First, that the Progress Claim failed to accord with the Agreement, which included a failure to certify that the works complied with the Agreement. Secondly, that the purported claim contradicted the referee’s award (presumably with regard to the Rapid Walls invoice No 2). Thirdly, that the costs for rectification and other matters claimed by the respondents far exceeded any amount which may be due to the appellant. The net effect of the respondents’ approach was that they disputed the appellant’s progress claim based upon a right to set off their costs against the appellant’s claim.
This aspect was not discussed in the judgment of the Judge. The Judge simply noted[60] that the appellant was entitled to the full amount of the Progress Claim No 3, without giving reasons. This may simply reflect that this was a common position held by the parties at that point. On appeal, neither of the parties demurred from the correctness of this finding, although there appear to be some problems with understanding the basis of the calculation.
[60] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [145].
In any event, as I have said, the fact that the Judge subsequently found that the appellant was entitled to $18,863 as claimed for Progress Claim No 3 does mean that there was no valid dispute by the respondents at the point at which they gave their Notice of Termination on 7 November 2003. Nothing turns on this.
Was there an appropriate basis for termination?
The appellant does not challenge the findings as to the summary of its breaches.[61] These are the matters of which the respondents had complained and were still referred to in the final Notice of Dispute of 7 November 2003. For reasons to which I have referred, the appellant should not be permitted to argue the ground of appeal stating that the respondents could not terminate the Agreement as they were themselves in breach of the contract. Even if the appellant were permitted to argue that ground, I would dismiss the appeal on the ground that the respondents, on a proper construction of the Agreement, were not in breach at the time of terminating the Agreement. Additionally, the appellant was, at the time of termination by the respondents, in breach of the Agreement such as would entitle the respondents to terminate the Agreement as found by the Judge. Thus, even if the appellant was permitted now to argue this ground of appeal, I would dismiss this ground of appeal.
[61] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [103].
Measure of damages
The second issue on appeal was the proper basis for assessing damages in law. The appellant agreed that the Judge had correctly stated the law, relying as she did upon the case of De Cesare v Deluxe Motors Pty Ltd (“De Cesare”).[62] She said:[63]
I note the decision of the Supreme Court of South Australia in De Cesare v Deluxe Motors Pty Ltd in which the Full Court confirmed that, in the case of incomplete and defective building work, the usual remedy will be the cost of completing the building work in accordance with the building contract and that the primary measure of damages is the cost of remedying the defective contractual performance subject to the test of reasonableness.
[62] (1996) 67 SASR 28.
[63] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [119].
The High Court had previously indicated in Bellgrove v Eldridge[64] that the appropriate remedy is “the reasonable cost of rectifying the departure or defect so far as that is possible”, with the rider that “it must be a reasonable course to adopt”.
[64] (1954) 90 CLR 613, 617 - 618.
More recently, in Tabcorp Holdings Pty Ltd v Bowen Investments Pty Ltd (“Tabcorp”),[65] the High Court discussed the meaning of unreasonableness in this context. In doing so, the proviso set out in Bellgrove v Eldridge was reinforced and an illustration given of the test of reasonableness.
[65] (2009) 236 CLR 272, 288-89.
The approach taken by the High Court suggests that the first issue is what is reasonably required to be done to conform to the contract. This would include consideration of whether repair work would bring about conformity with the contract which was reasonable, or whether instead, demolition and rebuilding is reasonably required. If it is the former, then the question of the reasonableness of the costs of repair is required to be considered. If it is the latter, then again, it is the reasonableness of the costs associated with demolition and rebuilding which is to be assessed.
Three separate arguments were put by the appellant in respect to alleged error by the Judge. First, it was submitted that the Judge erred in finding “the test of reasonableness is an objective one and is not affected by the intention of the plaintiff”. It was submitted that, contrary to her Honour’s conclusion, the question of intention goes to the issue of the reasonableness of what is required in order to conform with the contract. In the circumstances of this case, it was submitted that the respondents did not intend to complete the townhouses and that this was therefore relevant to the issue of the extent of the loss assessed by the Judge. The appellant contended that the Judge found that the cost of demolition and rebuilding was the sum of $132,605, when instead she should have found damages at a figure of $41,348 for rectification.
I reject the appellant’s argument.
The Court does not ordinarily require of a plaintiff that money awarded for breach of contract be applied directly to the loss which is the subject of the damages. Damages are compensatory but it is a matter for the plaintiff whether the money received as damages is in fact spent on remedying the particular loss for which it is awarded. Thus in De Cesare, the plaintiff was able to receive damages for rectification of building defects notwithstanding that the plaintiff had no intention to perform works rectifying the damage and had in fact sold the property and so was actually in no position to perform such works. Doyle CJ explained:[66]
The award of such amount is not conditional upon the [plaintiff] having first done the necessary work, upon the [plaintiff] undertaking to the court to do so or upon the [plaintiff] proving that the [plaintiff] will do so.
[66] (1996) 67 SASR 28, 30.
However this is not to say that intention is never relevant. The Chief Justice in De Cesare referred to the following quote from Tito v Waddell (No 2)[67] where Megarry VC described a qualification to the general rule discussed above (at 332):
[I]f the plaintiff has suffered little or no monetary loss in the reduction of value of his land, and he has no intention of applying any damages towards carrying out the work contracted for, or its equivalent, I cannot see why he should recover the cost of doing work which will never be done. It would be a mere pretence to say that this cost was a loss and so should be recoverable as damages.
[67] [1977] Ch 106, 332.
A similar approach can be observed in the case of Ruxley Electronics and Construction Ltd v Forsyth (“Ruxley”),[68] a case to which Doyle CJ referred with approval in De Cesare. In Ruxley, the defendant built a swimming pool on the plaintiff’s land but erroneously built it one and a half feet shallower than the depth for which they had contracted. In determining that rectification damages were not appropriate, the House of Lords considered it relevant that the plaintiff had no intention to rebuild the pool. However, Lord Jauncey explained that there was a quite restricted relevance for intention in determining the appropriate measure of damages:[69]
The appellant argued that the cost of reinstatement should only be allowed as damages where there was shown to be an intention on the part of the aggrieved party to carry out the work. Having already decided that the appeal should be allowed I no longer find it necessary to reach a conclusion on this matter. However, I should emphasise that in the normal case the court has no concern with the use to which a plaintiff puts an award of damages for a loss which has been established. Thus irreparable damage to an article as a result of a breach of contract will entitle the owner to recover the value of the article irrespective of whether he intends to replace it with a similar one or to spend the money on something else. Intention, or lack of it, to reinstate can have relevance only to reasonableness and hence to the extent of the loss which has been sustained. Once that loss has been established intention as to the subsequent use of the damages ceases to be relevant.
[68] [1996] AC 344.
[69] [1996] AC 344, 359.
Accordingly, Giles JA (with whom McColl and Campbell JJA agreed) in Westpoint Management Ltd v Chocolate Factory Apartments Ltd[70] considered that intention of the plaintiff to rectify would only be relevant to the question of whether rectification is a reasonable measure of damages. He said:[71]
Relevance of the plaintiff’s intention to carry out the rectification work to reasonableness is accepted in, for example, Chitty on Contracts, 29th ed, at 20-016, and Hudson’s Building and Engineering Contracts, 11th ed at 8-138. It appears to have been accepted in De Cesare v Deluxe Motors Pty Ltd – indeed, sale of the building may have relevance through whether or not the rectification work will be carried out. If truly going to reasonableness, I do not think consideration of whether or not the plaintiff will carry out the rectification work is inconsistent with Bellgrove v Eldridge, since the regard to it is part of arriving at the plaintiff’s compensable loss. Once there is compensable loss, the court is not concerned with the plaintiff’s use of the compensation.
But the plaintiff’s intention to carry out the rectification work, it seems to me, is not of significance in itself. The plaintiff may intend to carry out rectification work which is not necessary and reasonable, or may intend not to carry out rectification work which is necessary and reasonable. The significance will lie in why the plaintiff intends or does not intend to carry out the rectification work, for the light it sheds on whether the rectification is necessary and reasonable. Putting the same point not in terms of intention, but of whether or not the plaintiff will carry out the rectification work, whether the plaintiff will do so has significance for the same reason, and not through the bald question of whether or not the plaintiff will carry out the rectification work. That question is immaterial, see Bellgrove v Eldridge.
So if supervening events mean that the rectification work can not be carried out, it can hardly be found that the rectification work is reasonable in order to achieve the contractual objective: achievement of the contractual objective is no longer relevant. If sale of the property to a contented purchaser means that the plaintiff did not think and the purchaser does not think the rectification work needs to be carried out, it may well be found to be unreasonable to carry out, the rectification work. An intention not to carry out the rectification work will not of itself make carrying out the work unreasonable, but it may be evidentiary of unreasonableness; if the reason for the intention is that the property is perfectly functional and aesthetically pleasing despite the non-complying work, for example, it may well be found that rectification is out of all proportion to achievement of the contractual objective or to the benefit to be thereby obtained.
[70] [2007] NSWCA 253.
[71] [2007] NSWCA 253, [59]-[61].
This approach seems to resonate with the approach of the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd[72] where their Honours said:[73]
The [defendant] stressed that in Bellgrove v Eldridge this Court pointed out that there was a qualification to the rule it stated in regard to damages recoverable by a building owner for the breach of a building contract. "The qualification ... is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt." The example which the Court gave of unreasonableness was the following:
“No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks”.
That tends to indicate that the test of "unreasonableness" is only to be satisfied by fairly exceptional circumstances. The example given by the Court aligns closely with what Oliver J said in Radford v De Froberville, that is, that the diminution in value measure of damages will only apply where the innocent party is "merely using a technical breach to secure an uncovenanted profit." It is also important to note that the "reasonableness" exception was not found to exist in Bellgrove v Eldridge. Nothing in the reasoning in that case suggested that where the reasoning is applied to the present circumstances, the course which the Landlord proposed is unnecessary or unreasonable.
[citations omitted]
[72] (2009) 236 CLR 272.
[73] (2009) 236 CLR 272, 288.
This analysis is consistent with the discussion and findings of the Judge.[74] The respondents’ decision in this case to adopt an alternative course rather than to proceed with the contracted development does not amount to securing profit on a mere technical breach. It does not undermine the reasonableness of demolition and rebuilding as a means for measuring damage. Since this is so, the respondents’ intention has no bearing on the proper measure of damages in this case.
[74] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [116]-[120].
The measure of damages is the difference between the contract and the cost of making it conform to the contract with consideration of the reasonableness of what is necessary to conform to the contract. This does not require consideration to be given as to the future intention of the respondents as to whether they subsequently wish to continue with the contracted building, or even whether they wish to sell the site. If the only reasonable way to bring about conformity with the contract is by demolition and rebuilding because rectification and repair in itself would not be adequate to bring about conformity with the contract, and if such a course is reasonable, then demolition and rebuilding will be the measure of the damages. What in fact the owner decides to do with the damages which arise from the decision of any court is a matter for itself.
Further, the mere fact in this case that the respondents had put in a plan to Council for a variation of the building upon which there had been no decision, should not affect the issue as to whether demolition and rebuilding is required to bring the building the subject of the contract into conformity with the contract. At best, this reflected a potential future intention which would render it even less relevant to the assessment of damages. The Judge was correct in her conclusions.
A second argument of the appellant was that the encroachment of the western edge of the floor slab of up to 12 millimetres at the front and 23 millimetres at the centre of the wall, was minor. The appellant also adds that the mere fact that the defective slab work resulted in the side door on the western boundary of Unit A being unusable, does not make this any more than a minor defect. It was therefore submitted that demolition by reason of both of these defects was out of all proportion to the nature of the defects.
In this case, it is necessary to consider the nature of the defects and their cumulative effect. In relation to the slab, the Judge found that the slab layout was not square to the eastern end and to the western boundaries. Instead of running east/west, it deflected to the north by a maximum of 217 millimetres on the eastern boundary. Three consequences arose from that misalignment. The first consequence related to the laundry in Unit D. The effect of the deflection is to reduce the size of the laundry. There was a net loss of 81 millimetres out of a total of 2900 millimetres,[75] such that there was no longer enough room to allow a shower in the laundry area as planned. This is clearly the loss of an amenity. A second consequence of the slab deflection is that the rapid walls adjacent to that deflection (referred to as “the cross-walls”), could not be installed as designed. Without consultation with the respondents, the appellant had repositioned those cross-walls.[76] The Judge found that although the repositioning was somewhat different, in the net result this was regarded as of little practical significance.[77] A third consequence of the deflection was that the slab encroached over the western and eastern boundaries, onto land which was owned by the Adelaide City Council, and that this would require negotiation with the Council. The Judge noted that, even if that could be negotiated with the Council, it would mean that two of the exterior walls of the premises would be on land not owned by the owner of the premises.[78]
[75] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [60]
[76] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [62].
[77] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [62], [123].
[78] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [63].
In my view, the building of the structure such that it encroaches on land not owned by the respondents is not a minor problem. The Judge found that she was not satisfied that the Council would necessarily regard the encroachment as being minor and consequently allow the matter to be remedied. She correctly noted that a cautious approach was indicated. On the face of it, such an encroachment would offend the very basis of entitlement upon which the lands title system is based. There would be a likely need for the encroachment to be appropriately recorded on the Certificates of Title. Given that circumstance, it seems to be that there is an evidentiary onus on the appellant to prove, on the balance of probabilities, that the Council would in fact regard the encroachment as minor. Like the Judge, I am not persuaded that the encroachment was a minor defect.
The Judge also found that there was a defect with the slab height and that there were two main consequences to this. The first relates to the garages for each of the units. As a result of the increased slab height, the ramps to each of the garages were affected so that every car would encounter a steep rise, and one car in 20 would be unable to get in a garage at all.[79] The Judge in making her findings preferred the evidence of Mr Knowles over that given by Mr Colin Boots. Further, she also accepted the evidence of Mr Vreugdenburg. As to potential remedies, shaving the floor was not regarded as a satisfactory outcome. Further, if the floor was shaved, the footings would thereby be exposed. Each of the units was designed so as to provide the amenity of polished concrete floors and if shaving were used the retro-fitted Termimesh would be exposed and would be unsightly.[80] Thus, the Judge concluded that the repair work as suggested by the defendant would not bring the building in to conformity with the Agreement in a way that was reasonable.
[79] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [67]-[82]; AB 2, 482.
[80] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [99].
A further defect found as a result of the increased slab height was that the side door step in Lot A is 95 millimetres higher than it should be, owing to the increased height of the slab. The Judge found that the original design step-up was to be 225 millimetres. She concluded that the step-up of some 95 millimetres higher was clearly too high. The Judge discussed the evidence in some detail and concluded that the slab height on the side door was significantly in excess of the designed height and that it was a substantial defect.[81] Further, she found that the rectification proposals, as suggested by the appellant in relation to the side door, were likely to affect the structural integrity of the building. She concluded that there were only two options, namely, demolition of the building or abandonment of the side door. The respondents submitted that, if a side door was not built, there would be a loss of an amenity, because Michael Brown required separate access from his proposed home office in Lot A.
[81] Brown & Brown v Unique Building Pty Ltd [2009] SADC 13, [91].
These defects and failures to conform with the Agreement should be assessed individually and collectively. Save for the defect in the cross-walls which has already been addressed, the remaining instances of non-compliance are not simply minor shortfalls of conformity such that repair work would reasonably rectify the defects or departures from the Agreement. These departures and defects could only be reasonably rectified to bring the building into conformity by demolition and rebuilding. The conclusions and detailed reasoning by the Judge was correct.
Conclusions
I would make the following orders:
1I would reject the right of the appellant to pursue grounds 1 and 2 of the Notice of Appeal and in the alternative I would dismiss those grounds of appeal.
2I would dismiss grounds 3, 4 and 5 of the appeal.
Schedule 1
…
5.3.1All instructions given by the Proprietor to the Builder shall be in writing, and signed by the Proprietor, and must be within the general scope of the Works as contemplated by this Agreement.
5.3.2The Builder shall comply promptly with all Proprietor’s instructions.
…
6.7QUALITY OF WORK AND MATERIALS
Prior to Practical Completion, any dispute between the parties that cannot be resolved is to be referred to the Referee in Accordance with Section 13.
6.8VARIATIONS
The Builder shall not vary the Works without written instructions. The Proprietor without invalidating this Agreement may instruct Variations.
Notwithstanding the previous provisions of this clause the Builder shall not be obliged to make any Variation which is beyond the scope of this Agreement (except a Variation arising from the provisions of clauses 3.2 or 6.3) if within 5 days of receiving the instruction to do so the Builder shall make to the Proprietor written objection stating reasons provided always that such objection is not made unreasonably or vexatiously.
6.9MAKING GOOD DEFECTS
Any defects, excessive shrinkages, and other faults apparent and notified in writing by the Proprietor to the Builder during the Defects Liability Period and which are due to materials or workmanship not in accordance with this Agreement shall be made good by the Builder within 20 days of the date of notification. Unless the Proprietor shall otherwise instruct the Builder shall make good at the Builder’s own cost.
…
SECTION 10 PAYMENT AND ADJUSTMENT OF THE CONTRACT SUM
10.1PROGRESS CLAIMS
At intervals of not less than the period stated in item K of the Appendix the Builder may submit to the Proprietor claims for progress payments including:
10.1.1A detailed statement by trades of the Contract Sum and showing the Builder’s valuation of work done by trades including work completed on agreed Variations;
10.1.2evidence of compliance with clause 8.9;
10.1.3certification by the Builder that the work has been carried out in accordance with this Agreement;
10.1.4a schedule of Contract Sum Adjustments required by sub-clause 10.6.2.
…
10.3 PROGRESS PAYMENTS
10.3.1Within the time stated in Item L1 of the Appendix of receiving any Progress Claim, the Proprietor shall pay to the Builder the amount stated on the Claim or any part of such claim that is not in dispute. Any part of such claim disputed by the Proprietor shall be referred to the Referee.
10.3.2Any payment made pursuant to sub-clause 10.3.1 shall be subject to adjustment for Retention in accordance with the provisions of sub-clause 10.3.3 or clause 10.12.
10.3.3Where a Lending Institution is named in Item B3 of the Appendix, Progress Payments shall be at the rate that is customary for such Lending Institution, and as set out in Item L2 of the Appendix, provided that the rate shall be the Lending Institution’s reasonable valuation of the Works executed and material incorporated in the Works less any payment previously made, and less any moneys, not exceeding 10 percent, normally retained by the Lending Institution.
10.3.4Should the Builder request a Progress Payment which necessitates an inspection on behalf of the Proprietor by a person appointed by the Lending Authority, and such inspection is later found to have been premature, then the cost of such inspection shall be borne and paid by the Builder and if not so paid, may be deducted by the Proprietor from any Progress Payment due and owing to the Builder.
10.3.5The making of any payment to the Builder shall not be taken as proof or admission of the acceptability of the Works, or that the Works have been executed in accordance with the Drawings and Specifications but shall be taken to be a payment on account.
10.4 FAILURE TO PAY PROGRESS CLAIMS
Should the Proprietor fail to pay the Builder in accordance with the provisions of clause 10.3 then the Builder shall be entitled to interest at the rate stated in Item M of the Appendix compounding monthly upon all overdue payments from the date on which such payments were or should have been due until the date of payment.
…
12.2PROPRIETOR’S NOTICE OF BUILDER’S DEFAULT
If the Builder makes default in any one or more of the following respects:
12.2.1If the Builder, without reasonable cause, wholly suspends the carrying out of the Works before Practical Completion thereof; or
12.2.2fails to proceed diligently with the Works; or
12.2.3fails to comply with the Proprietor’s notices; or
12.2.4is in substantial breach of the provisions of this Agreement
Then the proprietor may given written notice sent by certified mail to the Builder specifying the default.
12.3 DETERMINATION BY PROPRIETOR
If the Builder either shall continue in default for 10 days after receipt of a notice issued in accordance with clause 12.2 or shall at any time repeat such default (whether previously repeated or not) then the Proprietor without prejudice to other rights or remedies may within 10 days of such continuance or repetition by written notice sent by certified mail to the Builder immediately determine the employment of the Builder under this Agreement provided that notice pursuant to this clause shall not be given unreasonably or vexatiously. If the Proprietor is at the time of such notice in breach of this Agreement, then the said notice of determination of the employment of the Builder shall be deemed to be void and of no effect.
…
12.6CONSEQUENCES OF DETERMINATION BY PROPRIETOR
In the event of determination under clauses 12.3, 12.4 or 12.5, then without prejudice to any other rights which the Proprietor may possess, the Proprietor shall be entitled:
12.6.1To purchase materials and goods and employ persons as necessary to carry out and complete the Works and to use all temporary buildings, plant, tools, equipment, materials and good intended for and delivered to the Works.
12.6.2To have the Builder assign to the Proprietor without payment but subject to any necessary consent the benefit of any agreement for the supply of materials or goods and/or the execution of work for the purposes of this Agreement and to pay any supplier or sub-contractor for any materials or goods delivered or work executed (whether before or after the date of determination) insofar as payment has not already been made by the Builder.
12.6.3To have the Builder, when so required and not before, remove from the Works any temporary buildings, plant, tools, materials and goods.
12.6.4Not to make any further payment to the Builder until completion of the Works.
As soon as practicable after completion of the Works, the Proprietor shall ascertain and notify the costs properly incurred by the Proprietor under this clause, any other expense and/or loss caused to the Proprietor by the determination and any other liability of the Builder to the Proprietor under this Agreement. Should the total of such amounts and any amounts already paid to the Builder result in a total amount in excess of or less than that which would have been otherwise payable under this Agreement, then the difference shall be a debt payable by the Builder to the Proprietor or the Proprietor to the Builder as the case may be.
12.7 DETERMINATION BY BUILDER
Without prejudice to any other rights and remedies which the Builder may possess if the Proprietor shall make default in any one or more of the following respects:
12.7.1If the Proprietor fails to make any payment due under the provisions of clause 10.3 within 10 days of its becoming due or commits any other breach of this Agreement, or
12.7.2If the Proprietor or any person for whom the Proprietor is responsible seriously interferes with or obstructs the carrying out of the Works or fails to more than 20 days to make the Site available for the Builder in accordance with clause 1.4; or
12.7.3If the Proprietor fails to produce evidence of the capacity to pay the Contract Sum in accordance with sub-clauses 1.4.5 and 10.10.1; or
12.7.4If the Proprietor intimates that he is unable or unwilling to make any payment required by this Agreement
the builder may give a written notice sent by certified mail to the Proprietor specifying the default and immediately suspend the carrying out of the works and if after 10 days of receipt of such notice the Proprietor has not remedied the default then the Builder may by notice in writing left at or forwarded by certified mail addressed to the Proprietor immediately determine the employment of the Builder under this Agreement provided that notice pursuant to this clause shall not be given unreasonably or vexatiously.
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SECTION 13 DISPUTE RESOLUTION AND ARBITRATION
13.1 REFEREE (Refer to sub-clause 1.2.4)
13.1.1Subject always to the provisions of sub-clause 13.1.3 any dispute or difference whatsoever that shall arise from the performance or as to the meaning of this Agreement before Practical Completion shall be submitted to the Referee.
13.1.2In the event that any dispute or difference whatsoever shall arise from the performance or as to the meaning of this Agreement after Practical Completion and before Final Payment such dispute may be submitted to the Referee.
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13.1.5the Referee’s determination shall be binding on both parties unless it is overruled by an Arbitrator’s Award.
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13.2 LETTER OF DISPUTE AND RESPONSE
13.2.1The Claimant shall give written notice, detailing the subject of the dispute and the proposed remedy, to the Referee and the Respondent.
13.2.2Within 5 days of receipt of the Claimant’s notice the Respondent shall provide to the Referee and the Claimant a written reply to the notice of dispute.
13.3 PROCEDURE
The following rules shall apply to the process of resolving the dispute.
13.3.1Neither party shall be represented by a legal practitioner.
13.3.2In submitting the notice to the Referee the Claimant shall pay the Referee’s fee in full. The Referee is not obliged to act until this sum has been received.
13.3.3The Referee shall give equal opportunities to both parties to put their case.
13.3.4The Referee shall be allowed access to the Works and the subject of the dispute.
13.3.5The Referee’s determination including allocation of the costs of the reference shall be provided in writing, without reasons, to both parties.
13.4 DETERMINATION BY THE REFEREE
13.4.1The Referee shall determine the dispute or difference no later than 5 days from receipt of the Respondent’s reply or 10 days from receipt of the Claimant’s letter of dispute and if appropriate after discussion with both Claimant and Respondent.
13.4.2The Referee may determine that the dispute or difference shall be arbitrated in accordance with clause 13.5.
13.4.3The Referee’s award and costs of the reference as allocated by the Referee may be dealt with as an adjustment to the Contract Sum Adjustment.
13.5 ARBITRATION
13.5.1Notwithstanding anything to the contrary in clauses 13.1, 13.2, 13.3 and 13.4 neither party to this Agreement shall be prevented from submitting to arbitration or litigation in accordance with clause 13.6 a dispute concerning the determination of the Builder’s employment under this Agreement.
13.5.2After Practical Completion either party to this Agreement may submit to arbitration or litigation any dispute arising out of this Agreement in accordance with clause 13.6.
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13.13 PROCEEDING WITH THE WORKS
Notwithstanding the foregoing provisions of this Section the Builder shall if the Works (including the making good of any defects under clause 6.9) have not been completed at all times (subject as otherwise may be provided for in this Agreement) proceed without delay to continue to perform and execute the Works and in so doing shall comply with all written instructions provided that the same shall not touch upon or involve the subject matter of the dispute or difference in respect of which notices have been given pursuant to clause 13.2 and 13.6.
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