VADAKKUMKARAPUTHAVEEDU and KULOWALL CONSTRUCTION PTY LTD

[2023] WASAT 29

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL

ACT: HOME BUILDING CONTRACTS ACT 1991 (WA)

BUILDING SERVICES (COMPLAINT RESOLUTION AND ADMINISTRATION) ACT 2011 (WA)

CITATION:   VADAKKUMKARAPUTHAVEEDU and KULOWALL CONSTRUCTION PTY LTD [2023] WASAT 29

MEMBER:   DR B DE VILLIERS, MEMBER

MR R AFFLECK, SENIOR SESSIONAL MEMBER

HEARD:   14 MARCH 2023

DELIVERED          :   11 APRIL 2023

FILE NO/S:   CC 1249 of 2022

BETWEEN:   NEETHA MADHUSUTHANANPILLAI VADAKKUMKARAPUTHAVEEDU

First Applicant

SUDHEESKUMAR JANARDHANA KURUP

Second Applicant

AND

KULOWALL CONSTRUCTION PTY LTD

Respondent

Catchwords:

Building dispute - Extension of time - Variation of contract price - Unforeseen circumstances - Impact of COVID-19 on building price and time to complete build - Cessation of contract - Meaning of 'only of' in the standard HIA contract

Legislation:

Building Services (Complaint Resolution and Administration) Act 2011 (WA), Pt 2, s 5(1), s 36, s 38, s 41, s 43
Home Building Contracts Act 1991 (WA), s 3, s 4, s 7, s 8, s 9, s 13

Result:

The applications for award of damages and for remedial work are successful
The quantum of damages will be set after further submissions

Category:    B

Representation:

Counsel:

First Applicant	:	In Person
Second Applicant	:	In Person
Respondent	:	In Person

Solicitors:

First Applicant	:	N/A
Second Applicant	:	N/A
Respondent	:	N/A

Case(s) referred to in decision(s):

Chellem and Kulowall Construction Pty Ltd [2022] WASAT 95

REASONS FOR DECISION OF THE TRIBUNAL:

Background

1. This proceeding principally concerns a dispute pursuant to the WA HIA Lump Sum Building Contract (contract) whereby the decision of the builder to pass on to the owners increases in the cost of labour and material after entering into the contract, as well as an extension of time to complete the works, is being challenged.  The builder says, in essence, that since the parties entered into the contract on 18 November 2020, the costs to build have increased substantially as a result of a combination of factors, being COVID-19, closure of state borders, supply shortages, delays in supply, and increased cost of labour.  The builder says it is entitled to pass on those costs to the owners and it could extend the time to complete the works, since those circumstances had not and could not have been foreseen and had arisen as a result of events out of the control of the builder.  The owners say that the costs cannot be passed on to them since this was a fixed price contract and although allowance was made in the contract for a contract price variation, those do not apply to variations of the kind the subject of this dispute.  The owners say that the extension of time and the increase in costs were imposed on them arbitrarily; without adequate justification; and without the builder adhering to the contract.  The owners therefore refused to sign a variation to authorise an extension of days and increase in contract price.  The builder, in response to the refusal of the owners to sign the variation, terminated the contract.  The owners now seek compensation.

2. We split the proceeding into two tranches whereby in the first tranche the contractual issue and a single workmanship issue are determined, whilst in the second tranche parties will be better able to make submissions about costs and compensation based on the finding arising from the resolution of the contractual dispute.

Materials and submissions

1. The parties filed with the Tribunal their respective material on which they sought to rely, and they were also invited to give oral evidence and to make oral submissions.  The materials were included in a bundle (Exhibit A) with pages 1-677.  The hearing book was sent to the parties prior to the hearing.  During the hearing reliance on or reference to relevant material was as far as possible accompanied by reference to the relevant page number in the bundle.  In these reasons, unless otherwise indicated, page numbers refer to the page in the bundle as are marked as 'A:  page number'; references to the transcript is marked 'ts, page number, 14 March 2023'; the applicants are referred to as the owners; and the respondent is referred to as the builder, or as the context may require, Mr Salman, who is the construction manager of the builder and who had carriage of this matter.  The parties were self­represented.

Introduction

1. The parties entered into the contract on 18 November 2020 for the builder to erect for the owners a residential dwelling in Canning Vale.  (A:  35).  The parties used the standard WA HIA Lump Sum Building Contract.  The total contract price was fixed at $368,850 (Schedule of Particulars, item 6, A:  38).  The site of the build is at 18 Seddon Way, Canning Vale.  Seven progress payments were to be made (Schedule of Particulars, item 4, A:  38).  The time to complete works was 320 working days from the date that the works commenced, or should have commenced (clause 9(a), A:  48).  Finance had to be approved within 45 working days from the date of the contract (Schedule of Particulars, item 6, A:  38).  A deposit of $23,000 was payable on signing of the contract (clause 7(a), A:  47).

2. Although the work commenced as per the intention of the parties, it never progressed beyond some basic ground works and the pouring of the slab.  The slab was poured on 3 May 2021, but at the time of termination of the contract on 22 March 2022, the work remained only at the slab-stage (ts 39, 14 March 2023).  At the time of termination of the contract, the builder had issued four notices of extension of contract for a total of 555 working days for the work to be complete, and a notice of variation to increase the contract price by $110,959.96 (A:  360).  The owners had rejected the extensions of time and refused to sign the variation of contract price.  The builder issued a 'Notice of Cessation' to the City of Cockburn on 1 May 2022.  Mr Salman said in evidence that he understood a Notice of Cessation to imply a suspension of the contract, whilst the owners say they interpreted it as a termination of contract.  As explained in our reasons, we find that the builder intended to terminate the contract.

3. Mr Salman says that the builder acted lawfully by terminating the contract.  Mr Salman said during the hearing that he relies exclusively on clause 6(b) of the contract which deals with the contract price, and that he does not seek to rely on clause 12 of the contract which deals with variations.  We will nevertheless in our reasons consider the effect of both these clauses.  Mr Salman contended that since the builder acted lawfully by extending the time to build and passing on the increase in costs, there was no breach on its part of the contract and that the claim for compensation should be dismissed.  The owners on the other hand contend that the notices of extensions of time were not compliant with the contract, and that the variation in contract price was also not compliant with the contract.  They say that they acted within their rights by refusing to sign the variation of 20 March 2022; that they acted consistent with the terms of the contract; and that the builder unlawfully terminated the contract.  They are therefore entitled to damages.

Agreed timeline

1. The parties agreed about the timeline of the works.  At the commencement of the hearing, we gave to them a summary in table form of the essential times as drawn from their submissions and materials accompanied by a page reference in the bundle.  We gave them time to read it; to comment on it; to correct it; and finally at the conclusion of the hearing those times were confirmed as accurate.  The relevant timeline is as follows:

Number	Date	Timeline/Works
1	18 November 2020	Entered into Home Building Contract (A:  33)
2	18 November 2020	Home Warranty Insurance issued
3	Due date:  22 January 2021	Finance approval required (45 working days, A:  38)
4	Actual date:  9 April 2021	Finance approval obtained (96 working days)
5	8 January 2021	Building permit issued (A:   231)
6	15 January 2021	Invoice for owner to pay deposit
7	8 April 2021	Earthworks commenced (A:  351)
8	16 April 2021	Payment of deposit
9	28 April 2021	Foundation poured (A:  351)
10	3 May 2021	Slab complete (A:  351)
11	8 June 2021	Stormwater complete (A:  351)
12	28 May 2021	1st notice of extension (A:  338 - 60 working days)
13	29 June 2021	2nd Notice of extension (A:  351 - 5 working days)
14	2 August 2021	3rd notice of extension (A:  353 - 20 working days)
15	20 March 2022	4th notice of extension (A:  359 - 150 working days for total of 555 working days to complete build)
16	September 2021	1st discussion about price increase
17	15 September 2021	Payment by owners of $22,500 'variation' (A:  467-468)
18	December 2021	2nd discussion about price increase
19	21 February 2022	3rd discussion about price increase (A:  355)
20	20 March 2022	4th formal increase in price (A:  359-360)
21	21 March 2022	Owners refuse extension and increase in contract price (A:  360)
22	22 March 2022	Builder - intention by respondent to lodge notice of cessation (A:  361)
23	1 May 2022	Builder - Notice of Cessation to City of Cockburn (A:  365)
24	10 June 2022	Owners' lodgement of application with Building and Energy (A:  6)
25	14 June 2022	City - Notice of Cessation to owners (A:  364)

Statutory framework

1. The dispute falls within the original jurisdiction of the State Administrative Tribunal pursuant to the two statutes under which the dispute is brought:  the Home Building Contracts Act 1991 (WA) (HBC Act) and the Building Services (Complaint Resolution and Administration) Act 2011 (WA) (BSCRA Act). The contract complies with the requirements of a home building work contract (HBC Act, s 3) and the dispute about the slab falls within the scope of sub-section 5(1) of the BSCRA Act since it is a regulated building service about which a complaint is made of the work not being proper and proficient or being faulty or unsatisfactory. The contractual dispute and remedy sought fall within the scope of s 36; s 38, s 41 and s 43 of the BSCRA Act. Relevant portions of the respective acts will be referred to below under appropriate questions to be determined.

2. The relevant portions of the respective acts for purposes of this proceeding are as follows.

Home Building Contracts Act 1991 (HBC Act)

4.Contracts to be in writing; prescribed explanatory notice to be given

(1)A contract —

(a)must be in writing —

(i)setting out all of the terms, conditions and provisions of the contract; and

(ii)showing the date of the contract;

and

(b)must be signed by the builder and the owner or their respective agents.

(2)A notice containing an explanation of the relevant provisions of this Act is to be prescribed.

(3)The owner must be given a notice referred to in subsection (2) before the owner signs a contract.

(4)A builder who is a party to a contract must ensure that the requirements of subsections (1) and (3) are complied with in respect of that contract.

Penalty: $2 000.

(5)If any requirement of subsection (1) is not complied with by the builder the contract may be terminated by the owner in accordance with section 19.

1. It is accepted by the parties that the contract complies in all material respects with s 4 of the HBC Act.

   7.Variation of contract to be in writing and given to owner

   (1)A variation of a contract —

   (a)must be in writing —

   (i)setting out all of the terms of, and the cost of, the variation;

   (ii)showing the date of the variation;

   and

   (b)must be signed by the builder and the owner or their respective agents.

   (2)The owner or his agent must be given a copy of the signed variation —

   (a)as soon as is reasonably practicable after it has been signed by both parties; and

   (b)before the work to which the variation relates is commenced.

   (3)A builder who is a party to a variation of a contract must ensure that the requirements of subsections (1) and (2) are complied with in respect of that variation.

   Penalty: $500.

   (4)This section has effect subject to sections 8 and 13(4) and clause 5 of Schedule 1.

   (5)In this section and in section 8 contract includes any previous variation of the contract.

2. The variations sought to be made by the builder by extending the time for the build and increasing the contract sum, are in dispute and dealt with below.

   8.Exceptions to s. 7 and related provisions

   (1)Section 7(1) and (2) does not apply to a variation of a contract that is made necessary by —

   (a)any written direction lawfully given by a person acting under a written law; or

   (b)circumstances that could not reasonably have been foreseen by the builder at the time when the contract was entered into,

   if the builder gives to the owner, within the time allowed by subsection (2), a statement setting out the reason for, and the cost to be incurred on account of, the variation and a copy of any direction referred to in paragraph (a).

   (2)A statement under subsection (1) must be given within 10 working days after the builder —

   (a)received notice of the direction under paragraph (a); or

   (b)became aware, or should reasonably have become aware, of the circumstances referred to in paragraph (b),

   of that subsection, as the case may be.

   (3)Where —

   (a)a statement is given to the owner by the builder for the purposes of subsection (1)(b); and

   (b)the owner considers that the variation is not one to which subsection (1) applies,

   the owner cannot make a complaint as provided in section 17 unless the owner makes the complaint within 10 working days after the statement was given to the owner.

   (4)Subsection (1)(b) does not enable a builder to vary a contract, except in accordance with section 7(1) and (2) or 13(4) or clause 4 of Schedule 1, by reason only of an increase in the costs of labour (including related overhead expenses) or materials, or both, to be incurred by the builder.

   9.Building permit etc., implied conditions and terms as to

   (1)Subject to subsection (5) every contract is conditional upon —

   (a)a building permit being granted, in respect of the home building work included in the contract, within 45 working days from the date of the contract; and

   (b)where a condition is attached to the permit which will result in a variation of the contract, the owner and the builder acknowledging in writing within that period that each of them accepts that condition; and

   (c)it becoming lawful under the Water Services Act 2012 section 82, within 45 working days from the date of the contract, for the home building work to be commenced; and

   (d)where a direction is given by a licensee under the Water Services Act 2012 section 82 in connection with the carrying out of the work which will result in a variation of the contract, the owner and the builder acknowledging in writing within that period that each of them accepts that direction.

   (2)It is a term of every contract that —

   (a)the builder will —

   (i)do all things that are reasonably necessary to be done to ensure that any condition referred to in subsection (1)(a) and (c) applicable to the contract is fulfilled; and

   (ii)not unreasonably decline to accept a condition or direction referred to in subsection (1)(b) or (d) that applies to the contract;

   (b)the owner will —

   (i)do all such things as may be required to be done by the owner to ensure that any condition referred to in subsection (1)(a) and (c) applicable to the contract is fulfilled; and

   (ii)not unreasonably decline to accept a condition or direction referred to in subsection (1)(b) or (d) that applies to the contract.

   (3)If a builder properly submits to the relevant authorities within 20 working days after the date of the contract all necessary applications required for the purpose of having conditions referred to in subsection (1)(a) and (c) fulfilled, the builder is to be taken to have complied with the builder's obligations under subsection (2)(a)(i).

   (4)If a condition implied by subsection (1) is not fulfilled the consequences to, and the rights and remedies of, the parties are as set out in Schedule 1.

   (5)A condition referred to in a paragraph of subsection (1) does not apply to a contract —

   (a)to the extent that the subject matter of the condition was completed before the contract was entered into; or

   (b)where the only work to be performed under the contract is the construction or carrying out of associated work; or

   (c)for any other prescribed home building work.

   …

   13.Rise‑and‑fall clause prohibited

   (1)A builder must not enter into a contract that contains a rise‑and‑fall clause.

   Penalty: $10 000.

   (2)A rise‑and‑fall clause in a contract is void.

   (3)In this section rise‑and‑fall clause means, subject to subsection (4), a provision under which a price stipulated for the performance of home building work may change to reflect changes in the costs of labour (including related overhead expenses) or materials, or both, to be incurred by the builder.

   (4)A provision of a contract is not within the definition in subsection (3) by reason only that it allows a builder to increase the stipulated price to reflect further costs actually imposed on or incurred by the builder —

   (a)as a direct consequence of a written law of the State or the Commonwealth; or

   (b)on account of an increase in any tax, duty or other charge imposed under any such law after the date of the contract; or

   (c)by reason of a delay in the commencement of home building work beyond 45 working days after the date of the contract being a delay —

   (i)that is caused solely by the failure of the owner to comply with a condition imposed on the owner by the contract, including a condition to the effect that the owner produce satisfactory evidence of the owner's ability to pay the contract price or of the owner's title to the land on which the work is to be performed; or

   (ii)that occurs without any failure on the part of either the owner or the builder to comply with his or her obligations under the contract.

   (5)Where subsection (4)(c) applies the consequences to, and the rights and remedies of, the parties are as set out in clauses 4 and 5 of Schedule 1.

3. It is noted that the contract reflects the relevant statutory provisions of relevance to this proceeding.

Building Services (Complaint Resolution and Administration) Act 2011 (WA)

5.Making complaint about building service or home building work contract matter

(1)Subject to the regulations, a person may make a complaint to the Building Commissioner about a regulated building service not being carried out in a proper and proficient manner or being faulty or unsatisfactory[.]

…

36.Building remedy order

(1)A building remedy order consists of one of the following —

(a)an order that a person who carried out a regulated building service remedy the building service as specified in the order;

(b)an order that a person who carried out a regulated building service pay to an aggrieved person such costs of remedying the building service as the Building Commissioner or State Administrative Tribunal, as the case requires, considers reasonable and specifies in the order;

(c)an order that a person who carried out a regulated building service pay to an aggrieved person a sum of money specified in the order to compensate the aggrieved person for the failure to carry out the building service in a proper and proficient manner or for faulty or unsatisfactory building work.

(2)A building remedy order may require that the order be complied with within a time specified in the order.

…

38.How State Administrative Tribunal may deal with building service complaint

(1)If the Building Commissioner refers a building service complaint to the State Administrative Tribunal, the Tribunal may —

(a)if the Tribunal is satisfied that the regulated building service that is the subject of the building service complaint has not been carried out in a proper and proficient manner or is faulty or unsatisfactory, deal with the building service complaint by making a building remedy order; or

(b)otherwise, decline to make a building remedy order.

(2)The State Administrative Tribunal cannot make a building remedy order requiring a respondent who is not a registered building services provider —

(a)to do any work of a value estimated by the Tribunal to exceed the prescribed amount; or

(b)to pay any amount exceeding the prescribed amount,

unless —

(c)the order is made in respect of a building service that has been carried out by the respondent in contravention of the Building Services (Registration) Act 2011 section 7; or

(d)the respondent consents to the order being made.

…

41.HBWC remedy orders

(1)In this section —

specified means specified in the HBWC order.

(2)A HBWC remedy order in respect of a complaint by an owner or builder under a home building work contract referred to in the Home Building Contracts Act 1991 section 17 (other than a complaint about a breach of section 15 of that Act) consists of one or more of the following —

(a)an order —

(i)restraining any specified action in breach of the contract or of a provision in the Home Building Contracts Act 1991 Part 2;

(ii)requiring any specified work to be done in the performance of the contract;

(iii)requiring any specified work to be done to ensure compliance with a provision of the Home Building Contracts Act 1991 Part 2;

(iv)requiring any specified work to be done to remedy a breach of the contract or of a provision of the Home Building Contracts Act 1991 Part 2;

(b)an order that a person pay a specified amount payable under the contract;

(c)an order declaring that a specified amount is not payable to a person under the contract and, if already paid, an order that the builder or owner repay that amount;

(d)an order that a person pay specified compensation for loss or damage —

(i)caused by any breach of the contract or of a provision of the Home Building Contracts Act 1991 Part 2; or

(ii)referred to in the Home Building Contracts Act 1991 Schedule 1;

(e)an order declaring that a specified amount of money claimed or money claimed for specified work is not payable by a person.

(3)A HBWC remedy order in respect of a complaint by an owner referred to in the Home Building Contracts Act 1991 section 17 about a breach of section 15 of that Act consists of one or more of the following —

(a)an order declaring the contract or any provision of the contract against which relief is sought to be void from the beginning;

(b)an order modifying the provisions of the contract in such manner as the State Administrative Tribunal considers just;

(c)an order providing for the repayment to the owner of any specified amount paid by the owner under a contract or a provision that has been declared void or modified as referred to in paragraph (a) or (b).

(4)A HBWC remedy order in respect of a complaint by an owner or builder under a home building work contract referred to in the Home Building Contracts Act 1991 section 20 consists of —

(a)an order providing for the return or repayment of the whole or part of any specified consideration, or the specified value of any consideration, given by the owner under or in relation to the contract; or

(b)an order providing for specified payment to the builder in respect of —

(i)any materials supplied by the builder; or

(ii)any home building work or other services performed by the builder; or

(iii)costs, including overhead expenses and loss of profit, incurred by the builder,

under or in relation to the contract.

(5)A HBWC remedy order in respect of a complaint by an owner under a home building work contract about a price increase referred to in the Home Building Contracts Act 1991 Schedule 1 clause 5 consists of an order confirming, varying or disallowing the amount of the price increase.

(6)If a HBWC remedy order referred to in subsection (5) is made in respect of a complaint by an owner under a home building work contract, the contract has effect in accordance with the HBWC remedy order.

(7)A HBWC remedy order may require that the order be complied with within a time specified in the order.

…

43.How State Administrative Tribunal may deal with HBWC complaint

(1)If the Building Commissioner refers a HBWC complaint to the State Administrative Tribunal, the Tribunal may —

(a)if satisfied that the order is justified, make a HBWC remedy order; or

(b)otherwise, decline to make the order.

(2)The State Administrative Tribunal cannot make a HBWC remedy order requiring a party —

(a)to do work of a value estimated by the Tribunal to exceed the prescribed amount; or

(b)to pay an amount exceeding the prescribed amount,

unless the party consents to the order being made.

(3)Unless a greater amount is prescribed by the regulations, in subsection (2) the prescribed amount is $500 000[.]

Issues to be determined

1. Although the principal finding sought by the owners is that the builder breached the contract and therefore the owners should be compensated for the losses suffered arising from the breach, there are several sub­issues that must be determined to ascertain whether the variations imposed by the builder and the termination of contract by the builder, were consistent with the provisions of the contract:

   1)Was financing obtained in time by the owners?

   2)Was the contract price varied by the builder at the time when financing had been obtained?

   3)Did the extensions of time claimed by the builder meet the requirements of the contract?

   4)Did the variation in contract price meet the requirements of the contract?

5)Was the demand by the builder for the owners to pay an additional $22,500 consistent with the contract?

6)Did the Notice of Cessation terminate or suspend the contract?

7)Did the refusal of the owners to sign the variation of 20 March 2022 meet the requirements of the contract?

8)Did the termination of contract by the builder on 20 March 2022 meet the requirements of the contract?

1. Each of these sub-issues are considered and determined below.

Was financing obtained in time by the owners?

1. It is agreed that whilst financing had to be obtained by the owners within 45 working days from the date of the contract (Schedule of Particulars item 4, A:  38), the owners only secured financing on 9 April 2021, some 96 working days after the date of the contract.  Mr Salman said in evidence that the builder had been aware that the owners required additional time to secure financing; that the builder had not objected to the additional time being sought; and that the builder was satisfied for the contract to remain on foot.  Both parties confirmed that they had been aware that clause 3(c) of the contract enabled either of them to terminate the contract if financing had not been secured within 45 working days, but neither of them sought to terminate the contract (ts 44, 14 March 2023).  The parties agree that financing was obtained 51 working days later than the 45 working days allowed by the contract. 

2. We find that although financing was not obtained within the 45 working days provided for in the contract, the contract remained on foot.

Was the contract price varied by the builder at the time when financing had been obtained?

1. The parties agree that at the time when financing had been obtained by the owners on 9 April 2021, the builder neither served a notice to increase the contract price for the delay, nor an extension of time attributable to the late commencement of works.  The builder had sought to adjust the contract price some 11 months later, on 20 March 2022 (ts 45 and 49, 14 March 2023).  It is however conceded by Mr Salman that the proposed adjustment to the contract price on 20 March 2022 did not particularise any increase in cost of the work specifically to factors that arose during the 51 working days when financing had been delayed (ts 45, 14 March 2023).  The building permit was issued on 8 January 2021, but the foundation and slab could only be poured on 28 April 2021 and 3 May 2021 respectively due to the delay caused in the financing.  Mr Salman filed for the purposes of the hearing several letters in which the increases in the price of different materials are explained (A:  607-658).  Although some of the notices of increased materials are dated to the period prior to the date upon which the owners secured funding (A:  607; 612; 614; 621; 624; 636; 645; 648; 649; 654; 655), the builder did not seek to adjust the contract price when finance had been secured on 9 April 2021.  Upon approval of funding on 9 April 2021, the contract price therefore remained as originally agreed and the builder commenced with the works.

2. We find that the contract price of $368,850 agreed by the parties on 18 November 2020 remained fixed regardless of the delay on the part of the owners to secure financing within 45 working days from entering into the contract.  We also find that although the builder had for the purposes of the hearing filed letters from suppliers to indicate an increase in the costs of materials, those letters had not been provided to the owners at the time when finance had been secured; the contract price had not been increased by the builder at the time when finance had been secured; and that the builder proceeded with the works on the basis of the contract price as agreed on 18 November 2020.  We furthermore find that the letters were formulated in general terms and did not refer to this specific build; to the specific plans or costings of this dwelling; or to the builder.  The letters related in general to increases in materials such as concrete, timber, steel, bricks, insulation, and tiles, but with no specificity as to the impact of the increases on this contract or the works provided for in this contract.

3. Clause 6 and clause 22(d) and (e) of the contract provide as follows:

   6(a)The price for the Works shall be the amount set out in Item 6 of the Schedule which shall be subject to the adjustments and variations provided for in this Contract.  The price so adjusted or varied shall hereinafter be called the "Contract Price".

   (b)If there is a delay in the commencement of the Works beyond the period of FORTY-FIVE (45) working days after the date of this Contract being a delay:

   (i)that is caused solely by the failure of the Owner to comply with a condition imposed on the Owner by this Contract, including the provisions of Clause 3(c) or (d); or

   (ii)that occurs without any failure on the part of either the Owner or the Builder to comply with his or her obligations under this Contract,

   then the consequences to, and the rights and remedies of, the parties are set out in Clause 22(d) and (e).

   (c)If further costs are actually imposed on or incurred by the Builder as a direct consequence of a written law of the State of Western Australia or the Commonwealth of Australia or on account of an increase in any tax, duty or other charge imposed under any such law after the date of this Contract then the Builder shall be entitled to increase the Contract Price to reflect such further costs.  The Builder shall notify the Owner in writing of such further costs and specify to the Owner when such further costs are payable.

   22(a)If any condition set out in Clause 2(a) is not fulfilled solely because the Builder has failed to comply with the Builder's obligations under Clause 2(c), this Contract is not affected but remains in force on the same terms and conditions except as otherwise agreed between the parties.

   (b)If any condition set out in Clause 2( a) is not fulfilled solely because the Owner has failed to comply with the Owner's obligations under Clause 2( d) this Contract remains in force on the same terms and conditions until the parties agree otherwise but subject to the provisions of Clause 22(d).

   (c)If any condition set out in Clause 2(a) is not fulfilled and both the Owner and the Builder have, or neither the Owner nor the Builder has, failed to comply with their respective obligations under Clause 2(c) and (d), this Contract remains in force on the same terms and conditions until the parties agree otherwise but subject to the provisions of Clause 22(d).

   (d)Where Clause 22(b) or (c) or Clause 6(b) applies:

   (i)the Builder may by notice in writing to the Owner:

   a.increase the Contract Price by an amount set out in the notice; and

   b.specify when any increased amount is payable, which must be either:

   1)not later than TEN (10) working days after the notice is given; or

   2)at the time of the next progress payment.

   (ii)if the amount of an increase exceeds FIVE (5)% of the Contract Price, the Owner may terminate this Contract in accordance with Clause 17 within TEN (10) working days after receipt of a notice under paragraph (i) of this sub-clause; and

   (iii)if the Owner so terminates this Contract, the Owner is liable to compensate the Builder for reasonable costs inclusive of supervision, overhead and margin incurred by the Builder up to the date of termination.

   (e)If the Owner considers that the amount of a price increase notified under Clause 22(d)(i) is excessive or unjustified the Owner may apply to the Building Commissioner or State Administrative Tribunal, within TEN (10) working days after receipt of a notice under that Clause, for a review of that amount and on a review under this sub-clause:

   (i)the Builder is required to show that the price has been increased to reflect actual increases in costs inclusive of supervision, overhead and margin between the date of this Contract and the date of the notice under Clause 22(d)(i);

   (ii)the Building Commissioner or State Administrative Tribunal may confirm, vary or disallow the amount of the price increase, and this Contract shall have effect in accordance with the Building Commissioner's or State Administrative Tribunal's decision.

4. The parties have different interpretations of clause 6. The parties agree that this is a fixed price contract that can only be adjusted pursuant to the terms of the contract. The contract can only be amended through a variation to which the parties agree (HBC Act, s 7) or by way of an exception (HBC Act, s 8 and clause 12(b); clause 22(d) of the contract).

5. The owners contend that although there was a delay beyond 45 working days to obtain funding, the builder did not elect to terminate the contract pursuant to clause 3(c)(iii) of the contract.  The owners say furthermore that the builder may, pursuant to clause 22(d), have increased the contract price at the time when financing had been secured to reflect any variations in labour or material that had arisen as a result of the 51 working days delay to secure financing.  But, they say, the builder did not seek a price variation and hence the contract remained on foot as agreed on 18 November 2020.  The owners explained that they had been aware that the contract price could at that stage be increased and if so, they could cancel the contract or dispute the increase (ts 67, 14 March 2023).  According to the owners the builder cannot, pursuant to clause 6 of the contract pass on any other increases in material or labour cost during the entirety of the build, but only an increase that can be attributed to the delay of 51 working days to secure financing.  The owners say that builder must therefore show that whatever contract price variation was sought on 20 March 2022, it had arisen during the additional 51 working days that it took the owners to secure their finance approval.  Mr Salman says that clause 6 and clause 22(d) establish a contractual basis for the builder to pass on all increases in costs in labour and materials that had arisen during the entirety of the build due to unforeseen circumstances (ts 49, 14 March 2023).  Mr Salman also says that it is public knowledge that the home building industry faced serious challenges, delays, and increases in costs of material and labour because of disruptions in supply, COVID­19, and closure of state borders.  Mr Salman concluded that the builder cannot possibly absorb those increases since those had been unforeseen, and furthermore that the builder could not have mitigated the risk of potential increases into its margins.

6. We find that the increased contract price demanded by the builder had not been varied pursuant to clause 6 of the contract.  We note that the owners caused a delay of 51 working days to secure funding.  The potential implication of the delay is to be ascertained pursuant to clause 22(d) of the contract.  Clause 22(d) does not give rise to a general entitlement for the builder to pass on any increase in costs, labour, or material during the entirety of the build to the owners.  Clause 22(d) is discreet in that it specifically relates to any increases that may be experienced by the builder during the period of delay to secure financing before the works commence, which in this case was 51 days.  The implication is that the builder could adjust the contract price to reflect increases during that period of delay prior to the commencement of works.  The logic that underlies the contract is simple - since it is a fixed price contract, the builder may have sought a variation in contract price before the works proceeded.  This is to ensure both parties agree about the exact price of the build prior to commencement of works.  The additional sum that may have arisen from the delay to secure financing should in the case of a valid variation have been paid to the builder by not later than 10 working days after the notice had been given (clause 22(d)(i)(1)), or at the time of the next progress payment (clause 22(d)(i)(2)).  If the owners were not in agreement with the variation demanded by the builder, their rights are set out in the contract, namely they could terminate the contract (clause 22(d)(ii)(1)) if the increase amounted to more than 5% of the contract price, or if they regarded the increase as excessive or unjustified, they could seek a review of the proposed variation by Building and Energy or the State Administrative Tribunal (clause 22(e)).  If the variation had been referred to Building and Energy or the State Administrative Tribunal, the builder would be required to show that the increase in contract price reflected the actual increase in costs between the date of the contract and the date of the notice of increase (clause 22(e)(i)).

7. We therefore find that the contract price variation issued by the builder on 20 March 2022 does not meet the requirements of clause 6(b) and clause 22(d)(i) of the contract.

8. In summary, although the builder was entitled pursuant to clause 6(b) of the contract to increase the contract price pursuant to clause 22(d), the builder did not issue a notice of increase pursuant to clause 22(d)(i) for the increase in costs that had arisen as a result of the approval of finance being delayed by 51 working days.  The contract price as fixed by the contract therefore remained fixed regardless of the 51 working day delay to secure finance approval.  

Did the extensions of time claimed by the builder meet the requirements of the contract?

1. The parties agree that the works were intended to commence within 40 days from the date when the owners secured finance (clause 9(a)(ii)).  The works commenced within the 40 days after the owners had secured finance (clause 9(a)(ii) and clause 3(c)).  Mr Salman later, after works had commenced, issued four extensions of time to the owners, taking the time for the works to be completed from 320 working days to 555 working days.  It is however agreed that after the pouring of the slab on 3 May 2021, no further work had been done.

2. Mr Salman says the respective extensions were necessary due to a combination of closure of state borders, COVID-19, rain, supply delays, increased cost, and unavailability of labour.  The owners say that they accept that some delay may have arisen as a result of COVID­19 and its side-effects, but the owners say that by the time they entered into the contract the impact and risk of COVID-19 had already been known; the parties had agreed to a 320 working day period which allowed, according to Mr Salman at the time of their negotiations,  adequate time for the impact of COVID-19 and supply and cost issues to be absorbed by the builder; and that the lack of progress in the works beyond the slab shows that the builder did not attempt to progress the works, but that the builder had rather used the circumstances as unreasonable justification for ongoing delays.  The owners say the builder breached the contract by issuing extensions of time notices that were unjustified and did not comply with the contract.

3. The contract regulates in clause 9 the time for performance of the contract and extensions in time to complete the work, if any, to which the builder was entitled.  Clause 9 of the contract reads as follows:

   9.(a)Subject to this Contract the Builder shall commence the Works within the number of working days specified in Item 9(a) of the Schedule or as soon thereafter as may be reasonably practicable calculated from the latest of the following dates:

   (i)on which the Owner shall have complied with the conditions referred to in Clause 2;

   (ii)on which the Owner satisfied all requirements under Clause 3(c), if applicable, and Clause 3(d);

   (iii)on which the Builder is satisfied that the boundaries of the Site have been adequately delineated;

   (iv)on which the Builder is satisfied that both an adequate water supply and an adequate power supply for the carrying out of the Works are available to the Site;

   (v)on which the Builder has received approval from all relevant authorities.

   (b)Subject to this Contract the Builder shall complete the Works (bring the Works to Practical Completion - Clause 19(a)) by the time specified in Item 9(b) of the Schedule.  The Builder is entitled to an extension to the time for completion of the Works due to delay from a cause beyond the Builder's sole control including:

   (i)any of the following events which affect directly or indirectly access to or the condition of the Site or the Works or any person engaged on or material employed in or to be employed in or in relation to the Works, namely: acts of God, fire, explosion, earthquake, civil commotion, theft or acts of vandalism, flooding, inclement weather,strikes, industrial action, lockouts or holidays granted in accordance with industrial awards, vehicle accidents, unavailability of labour, vehicles or equipment or permits required;

   (ii)any alterations to the Works;

   (iii)any instruction or delay in instruction by or any omission of the Owner;

   (iv)any deliberate and substantial prevention of or interference with the Works or the progress thereof caused by the Owner;

   (v)any delay in the supplies of materials or transport or labour;

   (vi)any dispute with or proceeding being taken or threatened by adjoining or neighbouring owners concerning the continuation or variation of delivery to or completion of the Works upon the Site;

   (vii)any cessation of work pursuant to Clause 7(e)(ii);

   (viii)any delay caused by the Owner providing materials, goods or work;

   (ix)any delay in the commencement of or continuance with the Works, caused by or resulting from an order or directive of a relevant authority or proceeding before the Building Commissioner or State Administrative Tribunal, a mediator, an arbitrator or a Court; or

   (x)any delay caused by proper investigation of any of the above by the Builder or the Owner.

   (c)The Builder shall give to the Owner a notice of any extension of time to which the Builder is entitled within TWENTY (20) working days of the Builder being aware of both the cause and the extent of the delay.

4. Mr Salman says that several causes associated with COVID-19 justified an extension of time for completion of the work referred to in clause 9(b) of the contract.  He further says that the builder gave the owners proper notice of the extensions of time and the reasons for the extension as required by clause 9(c) of the contract.  Mr Salman says there was no contractual obligation on the builder to provide any detail about the cause and extent of each delay, other than to inform the owners that there would be an extension of time to complete the works and the duration of the extension.  The owners take issue with the notices of extension and say that they are entitled to be fully informed about the cause and extent of an extension since a dispute may arise about the merit of an extension notified by the builder.  Such a dispute can then be dealt with pursuant to clause 18 of the contract.  The builder concedes that he did not at the time of him claiming additional time provide the owners with the letters of suppliers that are now contained in the bundle (A:  607-658).

5. In order to assess the appropriateness of the notices for an extension of time given to the owners, each notice is considered below:

1^st Notice dated 28 May 2021 (A:  338)

1. In this notice the builder only refers to the shortage of bricks and bricklayers in Western Australia to claim 60 working days extension.  Mr Salman adduced as evidence three websites in which he says adequate evidence is contained of the cause and extent of the delay in bricks and bricklayers in Western Australia.  In preparation for the hearing the builder gave to the owners' additional letters in which price increases are identified (to be dealt with below), but we note only a few of those letters refer to delays to deliver material.  We are not satisfied that the materials relied on by the builder support the rationale for the extension of time as set out in the 1^st notice.  We find so for the following reasons:  (a) the websites referred to by the builder contain general information, but no specific evidence in regard to delays experienced by a supplier engaged by the builder for purposes of these works; (b) the letters referred to by the builder (A:  607-657) relate to increases in price in general of certain material, but with no specific reference to bricks or bricklayers or the extent of delays regarding this contract; and (c) Mr Salman could not provide upon questioning by us any other evidence to support its proposition that a delay in bricks or bricklayers justified the first notice.  We furthermore accept the evidence of the applicants that the bricks they had chosen were made in Western Australia; that they had visited the brickmaker in March 2021 and were told that the bricks they had chosen were in stock; and therefore, the delivery of the bricks ought not to have been affected by delays due to border closures (ts 55, 14 March 2023).  We find that the 1^st notice was not supported by adequate evidence of the cause and extent of the delay for the notice to be valid pursuant to clause 9 of the contract.

2^nd Notice dated 29 June 2021 (A:  352)

1. In this notice the builder refers to the 'surge' in COVID-19 and the 'WA lockdown' to inform the owners of a five working day extension.  The builder did not provide any other evidence at the time of issuing the notice, or for purposes of the hearing, to explain why the events sought to be relied on had impacted on these works to the extent that five additional working days would be required for the work to be complete.  It must further be noted that at the stage of the 2^nd notice the works had not progressed beyond the slab, which was poured on 28 April 2021, which further renders the estimate by the builder that the events added five days to the time to complete, as unrealistic and not supported by fact.  We find that the 2nd notice was not supported by adequate evidence of the cause and extent of the delay in regard to these works for the notice to be valid pursuant to clause 9 of the contract.

3rd Notice dated 2 August 2021 (A:  353)

1. In this notice the builder refers only to the 'continued rain' in July 2021, followed by an estimate that the completion time of work must be extended by 20 working days as a result of the rain.  Mr Salman relied on evidence in a chart of the Bureau of Meteorology, Western Australia in which it is stated that the Perth Metro area experienced rain on 28 days of July 2021 (A:  353).  We invited Mr Salman during evidence to provide additional evidence to explain how the specific works on site were impacted upon by rain; what trades had been affected; the duration of rain at site; a schedule of actual rainfall at site; or the nature of work that had been impacted.  Mr Salman could not provide any additional evidence, other than the chart (ts 36, 14 March 2023).  We do not accept the evidence of Mr Salman that the rainfall in July 2021 impacted on these works to an extent that the 3^rd notice was justified.  We find so for the following reasons:  (a) there is inadequate evidence to establish the nature and extent of the impact of rain during July 2021 on this build; (b) Mr Salman did not produce any record of the number of days or part days where rain had actually impacted the site; (c) Mr Salman did not explain what works had been impacted by the rain or the scope and duration of the impact; (d) although Mr Salman said that bricklaying could not occur, there was inadequate evidence for us to find that bricks had been delivered on site or that bricklayers could not work on some days or part days; and (e) in the 4^th notice in March 2022 Mr Salman admits that the builder had not yet secured bricklayers to commence with bricklaying.  This admission renders unbelievable that rain had in July 2021 delayed works for which bricks had not even been ordered.  We find that the 3rd notice was not supported by adequate evidence of the cause and extent of the delay in regard to the works the subject of this contract for the notice to be valid pursuant to clause 9 of the contract.

4^th Notice dated 20 March 2022 (A:  359)

1. In this notice, which in essence repeats the 1st notice, the builder says that due to COVID-19 and 'previous' WA border closures, it was unable to 'find labour to start the brickwork and subsequent trades'.  In this notice the builder sought to increase the time for the work to be completed from the contracted 320 working days to 555 working days.  As referred to in our reasoning under the 1^st notice, in preparation for the hearing Mr Salman gave to the owners' letters in which price increases are identified (to be dealt with below), but only a few of those letters refer to delays to deliver material.  We are not satisfied that the material relied on by the builder support the rationale for the extension of time as set out in the notice.  We find so for the following reasons:  (a) the letters relied on by the builder provide no specific information about delays in supplies or trades as far as this build is concerned; (b) the letters referred to by the builder (A:  607-657) relate in general to increases in price of material, and to what Mr Salman calls 'common knowledge' about shortages (ts 36, 14 March 2023), but with no specific reference to availability of bricks or bricklayers regarding this build; and (c) Mr Salman could not provide upon questioning by us any other evidence to support its proposition that a delay in bricks or bricklayers justified the 4th notice.  We note that regardless of Mr Salman not being legally trained, it would have been relatively simple for the builder to adduce additional evidence about the cause and extent of delays, for example by calling subcontractors or suppliers to give evidence about the impact of COVID-19 and related events on this build.  It seems however as if the builder sought to take licence to issue notices of extension by utilising the events faced by the state, but without demonstrating the causal link between those events and the delays concerning this project.  We find that the 4th notice was not supported by adequate evidence of the cause and extent of the delay in regard to these works for the notice to be valid pursuant to clause 9 of the contract.

2. We note that Mr Salman says that the owners contributed to the delay in deliveries and the increase in costs due to them purportedly having requested the builder to delay the build in the hope that prices would decrease (ts 33, 14 March 2023).  The owners dispute the evidence of Mr Salman and say they not only wanted to proceed with the build, but they even paid an additional $22,500 for bricks to be ordered.  We do not accept the evidence of Mr Salman.  Mr Salman could not present any written evidence in which the owners requested or instructed him to delay the works.  Furthermore, the owners paid at the demand of Mr Salman an additional sum of $22,500 for bricks to be bought.  The actions of the owners show that they were keen for the build to be progressed and to be completed, with no supportive evidence that they had sought to delay it.

3. In summary, as an expert panel we are acutely aware of delays and shortages experienced in the home building industry in supplies, labour, and rising costs of material.  It is however incumbent on the builder who seeks an extension of time, to provide to the owners and the Tribunal cogent evidence of the link between the general state of the building industry and actual delays that affect the dwelling the subject of the proceeding.  The builder cannot rely on the general situation of the building industry without addressing the specifics of how the contractual relationship between builder and client is affected by those circumstances.  We are therefore not satisfied that any of the four extensions of time was supported by adequate evidence of cause for the extension and the extent of the delay.  The builder may seek an extension of time for an extension to complete the build due to delays in supply of material (clause 9(b)(v)), but firstly, that does not give a basis to increase cost, and secondly, reasons must be given at the time for the delay.  If the builder does not give proper reasons at the time of seeking a variation and the owner refuses to accept the variation (clause 16(g)), the builder cannot terminate the contract unilaterally. 

Did the variation in contract price meet the requirements of the contract?

1. The builder issued a written price variation to the owners on 20 March 2022 in which the contract price was adjusted by $110,959.96 (A:  360).  Mr Salman stated in the notice that the adjusted sum was only an estimate since the actual costs of delays and increase in prices still needed to be accurately ascertained.  The owners rejected the variation on 21 March 2022 (A:  360).  This contract price increase followed several informal discussions Mr Salman had with the owners during the build, but at none of those informal discussions was any formal price variation issued.  In the notice of 20 March 2022, the builder explained the increase of contract price as follows:

   … Due to the current industry boom, there is a shortage of trades and a delay in deliveries and materials.  To facilitate and work around these factors, we attempt to schedule brickwork to commence at a reasonable timeframe when trades/supplies are available or when we can have an estimated timeframe for the trades/supplies that they will be available.

   As discussed before, due to labor and material shortage resulting from COVID-19 and state border closure, there is a big increase in the cost in labour and material and our rough estimate shows the cost increase for your project as follows as we are yet not covering every item/trade of your construction.

   Under clause 6(b) of the contract, our company is entitled to adjust the contract Sum to reflect further costs imposed on, or incurred by Opus homes because of a delay in the commencement of works beyond 45 business days after the date of the contract.

2. Mr Salman, in response to our questions, reiterated during his evidence that the builder only relies on clause 6(b) of the contract as the basis to vary the contract price and that the builder does not seek to rely on clause 12 of the contract which deals specifically with variations (ts 52, 14 March 2023).

3. We have already found above as follows regarding the application and scope of clause 6(b) of the contract to price variation, namely:

   a)The variation to contract price pursuant to clause 6(b) of the contract could only have been made prior to the commencement of the build on the basis of the additional time it had taken for the owners to secure their financing for the build;

   b)The builder had not at the time when the owners had secured financing on 9 April 2021 sought to adjust the contract price in response to the delay that had been caused;

   c)The builder proceeded with the works on the basis of the fixed contract price that had been agreed on 18 November 2020; and

   d)The builder was not entitled to claim any other increases in costs or materials pursuant to clause 6(b) of the contract after the owners had secured their finance.

4. Based on the above reasoning, we reject the proposition by the builder that it could pursuant to clause 6(b) of the contract pass on to the owners the increases in labour and materials that had occurred after the owners had secured funding on 9 April 2021.  The increases, if any, in the cost of labour or material after 9 April 2021 is as far as clause 6(b) of the contract is concerned for the account of the builder.  The contract price increase of 20 March 2022 purportedly based on clause 6(b) of the contract was therefore not valid, and the owners acted within their contractual rights to reject it.

5. This finding brings the claim of the builder for a contract price variation to an end.  However, since the builder was not legally represented, we put to Mr Salman during the hearing the proposition that the contract price variation might also have been considered pursuant to clause 12 of the contract.  Mr Salman insisted that he did not issue the notice pursuant to clause 12 of the contract.  He remained of the opinion that clause 12 of the contract does not apply to the contract price variation of 20 March 2022.  The owners were also given an opportunity to make a submission regarding the applicability of clause 12 of the contract to the purported price fluctuations experienced by the builder.  The owners were also of the view that clause 12 of the contract does not apply to the variation of 20 March 2022 because according to them the proviso of clause 12(b) specifically excludes price variations (unless agreed to by both parties) being passed on to them as owners since it would undermine the purpose of a fixed price contract.

6. Clause 12(b) of the contract provides as follows:

   (b)The Builder shall be entitled to vary all or any of the Works or Contract Documents made necessary by:

   (i)any written direction lawfully given by a building surveyor or other person acting under a written law; or

   (ii)circumstances that could not reasonably have been foreseen by the Builder at the time when this Contract was entered into if the Builder gives to the Owner, within the time specified in Clause 12(c), a statement setting out the reason for, and the cost to be incurred on account of, the variation and a copy of any direction referred to in Clause 12(b)(i) PROVIDED THAT Clause 12(b)(ii) shall not enable the Builder to make any variation by reason only of an increase in the costs of labour (including related overhead expenses) or materials or both, to be incurred by the Builder.

   PROVIDED ALSO THAT where an Owner is given a statement by the Builder for the purposes of Clause 12(b)(ii) and the Owner considers the variation is not one to which Clause 12(b)(ii) applies then the Owner may make an application to the Building Commissioner or State Administrative Tribunal for relief under Section 17 of the Home Building Contracts Act 1991 within TEN (10) working days of being given the statement.

   (c)The Builder shall give the statement referred to in Clause 12(b)(ii) to the Owner within TEN (10) working days after the Builder:

   (i)received notice of the direction under Clause 12(b)(i); or

   (ii)became aware or should reasonably have become aware, of the circumstances referred to in Clause 12(b)(ii) as the case may be.

   (d)If any variation to the Works or the Contract Documents is required pursuant to Clause 3(h), 4(c), 5(a) - (e) or 21 not as a result of a direction under Clause 12(b)(i) or the circumstances referred to in Clause 12(b )(ii) then the Builder shall prepare and give to the Owner a variation document setting out the terms of and the cost to be incurred on account of the variation so required and;

   (i)if the Owner signs and returns the variation document to the Builder then the provisions of Clause 12(a)(iii) and (iv) shall also apply to the variation; or

   (ii)if the Owner does not sign and return the variation document to the Builder within FIVE (5) working days of being given the variation document then the Builder shall be entitled to either carry out the work required but without any adjustment to the Contract Price or to terminate this Contract pursuant to Clause 16(g).

   (e)The price of a variation is, unless previously agreed in writing:

   (i)if the amount is additional to the Contract Price, the reasonable price for the variation, including an amount for the Builder's margin being that percentage of such costs as set forth in Item 11 of the Schedule, and it shall be added to the Contract Price, and unless previously paid, shall be added to the next progress payment due after the execution of such work; or

   (ii)if the amount results in a deduction from the Contract Price, the reasonable price for the variation and it shall not include any amount for the Builder's margin and such decrease shall be deducted from the final payment hereunder.

   (f)The Owner shall obtain the consent of his or her Lender (if any) prior to requesting or authorising the Builder to carry out extra work or to vary the Works in any way.

   (g)The Builder may, at any time prior to the commencement of any building work that is to be performed by way of a variation pursuant to the provisions of this Contract, by notice in writing require the Owner to satisfy the Builder that the Owner is able to pay the cost to be incurred on account of the variation by production of evidence in writing and if the Owner shall fail to do so within TEN (10) working days of the receipt of such notice the Builder may terminate this Contract immediately by notice in writing given to the Owner within a further TEN (10) working days.

   (h)If the Builder is unable to obtain any materials or items selected by the Owner after the date of the Contract as and when the Builder shall require them, the Owner shall immediately, upon request from the Builder, select alternative available materials or items. Any delay or additional costs (including freight and transport insurance) in obtaining the same shall be dealt with in accordance with Clause 12(b) or (d).  In the event that the Owner declines to select alternative available materials or items the Builder may terminate this Contract on giving TEN (10) working days notice to the Owner that unless alternative available materials are selected the Contract is terminated in accordance with Clause 16.

1. The relevant parts of clause 12 to this dispute would potentially be clause 12(b) and clause 12(c) of the contract since it regulates the circumstances when the builder was entitled to a variation.  Other sub­clauses dealing with variations, namely clause 12(a), clause 12(d) and clause 12(h) are not applicable to this dispute.

2. Clause 12(b) of the contract allows limited scope for the contract price to be adjusted by the builder.  There are basically two principal grounds for a lawful adjustment namely (clause 12(b)(i) and (ii)):  (a) as the result of a written direction lawfully given by a building surveyor or other person acting under a written law.  The sub-clause does not apply to this dispute; or (b) a price variation due to circumstances that could not have been reasonably foreseen by the builder at the time when the contract was entered into, provided that the sub-clause does not empower the builder to make a variation to the contract 'by reason only' of an increase in the costs of labour (and related overhead expenses) or materials or both.

3. We shall deal with each of the respective elements of clause 12(b)(ii) of the contract separately to the extent that it may potentially apply to this dispute:

   a)The builder may contend that the circumstances he describes in the notice of 20 March 2022 were not reasonably foreseen at the time when the contract was entered into, but as has been noted by the owners, the contract was entered into on 18 November 2020 some several months after COVID-19 had first presented itself in February/March 2020.  The owners say, and we accept their evidence, that the reason why the contract provided for the 320 working days to complete the works and for the costs associated therewith was specifically as a result of the parties having discussed COVID-19 and its potential impact on the additional time and increased cost to complete.  The time to build and costs had therefore already been adjusted in light of the change in circumstances brought about by the COVID-19 pandemic.  Mr Salman did not deny or contradict the evidence of the owners.  It would therefore be incorrect to propose that the builder could not have reasonably foreseen the circumstances as set out in the notice of variation of 20 March 2022.  Even if the builder were to rely on this part of sub­clause 12(b)(ii) of the contract, we would reject the proposition.

   b)If there had been circumstances that the builder could not have reasonably foreseen at the time of entering into the contract, then pursuant to sub-clause 12(b)(ii) of the contract, the builder had to give to the owners pursuant to sub-clause 12(c)(ii) of the contract within 10 working days a statement setting out the reason for, and the cost to be incurred, as a result of the direction. The builder should therefore have given to the owners' adequate information about the unforeseen event and the impact on the contract price so they could consider a possible review pursuant to clause 12(b)(ii) of the contract and s 17 of the HBC Act. In this dispute the builder did not in the notice of 20 March 2022 inform the owners when it became aware of the purported unforeseen circumstances; the impact of the circumstance on the build; and the nature and extent of the variation. The builder furthermore did not within 10 working days of becoming aware of the circumstances set out the reasons or the costs to be incurred on account of the variation. We therefore find that the notice of 20 March 2022 did not comply with the requirements of clause 12(b)(ii) of the contract.

   c)Clause 12(b)(ii) of the contract rules out an increase in the costs of labour (including related overhead expenses) or materials or both incurred by the builder. This contractual provision is further explained in the notice issued to homebuilders pursuant to s 4(3) of the HBC Act in which it is stated that a home building contract pursuant to the HBC Act may not contain a 'rise and fall' clause whereby the builder can pass on increases in costs to the homeowner after the contract is signed, subject to some exceptions (A: 91). Notably, according to the explanatory guide, an exception does not include 'unforeseen labour or cost increases' (A: 92). The question is what the implication is of the words 'any variation by reason only of an increase' in cost of labour and material. We construct these words to imply that an increase in cost of labour and material that would ordinarily be foreseeable in the building industry, for example on account of inflation, may not be passed on to the client pursuant to clause 12(b)(ii) of the contract. However, an increase in cost in labour and material that arise from circumstances that could not reasonably have been foreseen, may be passed on to the client, but it depends on the factual situation of the particular build. It is therefore possible that an unforeseen event such as the COVID­19 pandemic may give rise to an increase in cost in labour and material and that a builder may seek to pass those increases on to the client. In the facts before us, we are however not satisfied that the words 'by reason only' enlivened the opportunity for the builder to claim for increased costs due to the reasons associated with COVID-19 in general, or the reasons identified by the builder particularly in the notice of 20 March 2022. We accept firstly the evidence of the owners that at the time when the contract had been entered into, they and the builder had been aware of COVID-19 and that they had reflected its possible impacts on the time and contract price; and secondly, we accept the contention of the owners that the builder had failed to demonstrate that this build became delayed by the impact of COVID-19 with resultant increased costs. At the time of the contract in November 2020, COVID-19 was no longer a circumstance that could not have been reasonably foreseen. The builder had not provided any specific information in regard to this contract that satisfies the threshold set by clause 12(b)(ii) for a valid increase in costs to be passed on to the owners. The letters that the builder sought to rely on were not given to the owners at the time when the price variation was sought; the letters were of a general nature and not directed to the builder, or to this particular build; and the letters did not break down to any level of detail the increased costs for this project. We therefore find that the contract price as set on 18 November 2020 remained fixed regardless of the variation in contract price sought by notice of 20 March 2022.

4. In summary, as an expert panel we do not dispute that the home building industry in general has experienced delays and increases in costs of an extraordinary nature.  The question for us is, however, to determine whether the increases in costs set out in the notice of 20 March 2022 can, pursuant to the contract be passed on to the owners.  The builder does not rely on clause 12(b) of the contract and we also find that the sub­clause does not provide a lawful basis for those increases raised in the notice of 20 March 2022 to be passed on to the owners.  Furthermore, we have already found that clause 6(b) of the contract also does not provide a lawful basis for those increases raised in the notice of 20 March 2022 to be passed on to the owners.  The notice of 20 March 2022 was therefore not lawfully issued, and the owners acted within their rights to refuse to sign it.  If the owners had caused the commencement of build to be delayed (as they did by the delay in finance), the builder could adjust the contract price (clause 6(b)), but such adjustment must relate to the period of delay and not to events that later occur - hence the contract provides that the adjusted sum must be paid at the next progress payment or within 10 days of invoice (clause 22(d)(i)(a)).  Since the builder failed to exercise this right, it cannot later enliven a claim for costs for increased materials/labour that arose long after the delay, or that was not related to the delay to secure financing.

Was the demand by the builder for the owners to pay an additional $22,500 consistent with the contract?

1. The owners say, and it is not contradicted by the builder, that during the course of September 2021, Mr Salman had requested them to make an unscheduled payment of $22,500 for the purchase of bricks (A:  467/8).  This payment fell outside of the progress payment schedule (A:  38).  The owners say, and this is not contradicted by Mr Salman, that the amount was to be treated as a contract variation in addition to the contract price in order to enable the builder to purchase bricks for the house.  The owners say, and we accept it, that they made the payment in desperation to progress their build since no work had been done since the pouring of the slab on 3 May 2021.

2. The owners say that the builder was not entitled to claim the variation; that the claim of the builder was unauthorised under the contract; that bricks had not been ordered or delivered; and that they are entitled to a refund (ts 59, 14 March 2023).  Mr Salman says that the variation was justified because of the challenges faced at the time by the building industry.  Mr Salman could not provide, despite our questions, any material to support its claim for $22,500, nor did Mr Salman provided evidence that the builder used the money to order or pay for bricks, nor could Mr Salman refer us to the relevant clause in the contract according to which the builder could claim this variation.

3. We find that the payment of $22,500 made by the owners in two instalments on 12 and 15 September 2022 was not made in accordance with a valid variation to the contract price.  We furthermore note that Mr Salman in evidence conceded that the heading of the notice, which referred to 'COVID-19', was incorrect and that none of the elements of the invoice related to COVID-19 (ts 63, 14 March 2023).  The builder acted in breach of the contract by demanding and receiving the payment of $22,500.  Orders will in due course be made for the builder to refund the owners the sum of $22,500.

Did the notice of cessation terminate or suspend the contract?

1. It is not contested that after the builder had sent the notice of contract price variation on 20 March 2022, the owners rejected the proposed variation on 21 March 2022 (A:  360).  The builder responded by email of 23 March 2022 to inform the owners that it would issue a Notice of Cessation (A:  361).  The owners says that they continued discussions with the builder in an attempt to keep the contract on foot and for the works to progress since at that stage they had depleted their financial reserves and were desperate that the work on the dwelling not cease entirely.  Mr Salman filed a Notice of Cessation on behalf of the builder with the City of Cockburn dated 1 May 2022 (A:  366).  In the Notice of Cessation Mr Salman stated that the builder now 'cease to act as the responsible person' in relation to the building permit that was issued on 8 January 2021.  The owners referred the dispute to Building and Energy on 10 June 2022 (A:  6).  The City of Cockburn informed the owners of the Cessation to Build on 14 June 2022 (A:  364).  The letter from the City of Cockburn mentioned that Building and Energy may guide the owners to engage another builder.

2. The question arose during the hearing if the Notice of Cessation constituted a termination or suspension of the contract.  The builder said the Notice of Cessation was not intended to be a termination of the contract, but rather a suspension of the contract until such time the dispute is resolved by Building and Energy or the State Administrative Tribunal.  The owners say the Notice of Cessation was a termination of the contract.  The termination of contract explains why they decided to approach Building and Energy for assistance.  The owners also say that the builder had removed his signage, disconnected electricity, and removed security from the building site, and had informed the City of Cockburn that it is no longer responsible in relation to the building permit.

3. We asked Mr Salman to explain with reference to the contract where the builder derived the power to conclude that the Notice of Cessation implies a suspension rather than a termination of contract.  Mr Salman could not refer to any clause of the contract, but he says the Notice of Cessation is the official documentation required by the City of Cockburn when a builder ceases to have responsibility for a build pursuant to a building permit issued by the City (ts 22, 14 March 2023).  We note that in Chellem and Kulowall Construction Pty Ltd [2022] WASAT 95 (Chellem), in which the same respondent had involvement in a question whether a building contract had been terminated, the Tribunal found that there was no agreement between the parties to terminate and there was also no unilateral termination by either party (at [26] and [52] - [54]).

4. We find that the Notice of Cessation did terminate the contract.  We reject the evidence of Mr Salman that the Notice of Cessation only had the intention and effect to suspend the operation of the contract.  Our reasons for this finding are:

   a)The contract sets out the process to be followed when a builder wants to terminate a contract (clause 16) and for disputes to be resolved (clause 18).  There is no power under the contract for the builder to unilaterally suspend the contract due to delays or increases in costs; to issue a Notice of Cessation; or to otherwise cease doing work without the builder adhering to the provisions of the contract.  Mr Salman could not explain to us why he did not declare a dispute pursuant to clause 18 after the owners had rejected the price variation on 20 March 2022.  Furthermore, Mr Salman could not identify a clause in the contract whereby the builder could unilaterally suspend the build following the refusal of the owners to sign the cost variation.  We note that issuing the Notice of Cessation would be a logical step to be taken by a builder after the contract had been terminated to inform the issuing authority that the contract had been terminated and that the builder was no longer responsible pursuant to the building permit.  The actions of the builder were therefore consistent with a termination of contract.

   b)The terms of the Notice of Cessation made it clear that the builder 'cease to act' from 1 May 2022 as the responsible person in relation to the building permit.  This can only be interpreted to imply that the contract had been terminated.  This is different to the Chellem matter in which a Notice of Cessation had not been lodged and neither of the parties had terminated the contract.

   c)The contract provides in clause 16(g) that the builder may terminate the contract if the owners failed to sign and return a variation document that meets the requirements of the contract.  The decision of Mr Salman as communicated to the owners by email of 22 March 2022 (one day after the owners had rejected the proposed variation) that the builder would issue a Notice of Cessation, supports a finding that the builder had intended to terminate the contract by the issuing of the Notice of Cessation.

   d)The word cessation of a contract is not a term of art, and its meaning must be taken from the circumstances and context in which it is used.  The term, generally, can imply cease, discontinuance, or suspension (Macquarie Concise Dictionary).  In the context of this proceeding, we find that the appropriate meaning of the word is to discontinue or terminate.  

5. In summary, we find that the builder by issuing the Notice of Cessation terminated the contract on 1 May 2022.

Did the refusal of the owners to sign the variation of 20 March 2022 meet the requirements of the contract?

1. We have already found above that the refusal of the owners to sign the variation of contract price put to them by notice on 20 March 2022 was proper and within their rights.

Did the termination of contract by the builder on 20 March 2022 meet the requirements of the contract?

1. We have already found above that the termination of the contract on 1 May 2022 when Mr Salman issued the Notice of Cessation, did not meet the requirements of the contract.  As explained in our reasons the variation demanded by the builder was not lawful; the resolution of a dispute must take place in accordance with the contract; a termination of the contract must take place in accordance with the contract; the contract does not provide for Notice of Cessation; and the issuing of the Notice of Cessation was in breach of the contract.

2. In summary we found as follows regarding the issues to be determined:

   1)Was financing obtained in time by the owners?  No, the financing was obtained 51 working late on 9 April 2021.

   2)Was the contract price varied by the builder at the time when financing had been obtained?  No, the contract price was not varied by the builder.

   3)Did the extensions of time claimed by the builder meet the requirements of the contract?  No, the purported variations did not meet the requirements of the contract.

   4)Did the variation in contract price meet the requirements of the contract?  No, the purported variation did not meet the requirements of the contract.

   5)Was the demand by the builder for the owners to pay an additional $22,500 consistent with the contract?  No, the demand did not comply with the requirements of the contract.

   6)Did the Notice of Cessation terminate or suspend the contract?  The Notice of Cessation terminated the contract.  The termination did not take place pursuant to the termination requirements of the contract.

   7)Did the refusal of the owners to sign the variation of 20 March 2022 meet the requirements of the contract?  Yes, the owners acted lawfully and consistent with the terms of the contract.

   8)Did the termination of contract by the builder on 20 March 2022 meet the requirements of the contract?  No, the termination did not meet the terms of the contract.

Finding and orders to be made regarding contractual dispute

1. We find that the builder breached the contract of 18 November 2020 in material respects found above by (a) seeking to extend the time for completion of works in breach of the contract; (b) to increase the contract sum in a manner in breach of the contract; and (c) to terminate the contract in breach of the contract.  The owners are therefore entitled to claim damages pursuant to the contract and the HBWC.  In light of the findings above, orders will be made for the owners to file and serve with greater specificity their claim for costs, including the reimbursement of the $22,500 payment that was unlawfully demanded by the respondent.

Workmanship complaint regarding slab

1. The owners contend in item 5 of the complaint that the concrete slab, which was poured by the builder and completed on 3 May 2021, was defective. The complaint is lodged pursuant to s 5 of the BSCRA Act. The owners rely on an expert report by Mr Phillip Scott (A: 514-517). The owners called Mr Scott to give evidence. The builder did not file a witness report and did not call an expert. Mr Scott confirmed that he had visited the site; that he had taken detailed measurements as well as an in­depth inspection; and that he had done calculations of the cost of remedial work to the slab.

2. Mr Scott has found that the slab does present work that was not carried out in a proper and proficient manner and being faulty and unsatisfactory.  The essence of the evidence and opinion of Mr Scott can be summarised as follows:

   a)There is a 'significant discrepancy' between the architectural drawings, structural engineer drawings and building certification.  These inconsistencies do not affect the integrity of the slab, but they must be brought to consistency.  It is the responsibility of the builder to ensure those drawings are consistent with the slab as built.  Mr Scott estimates that it would cost around $2,000 to bring the respective plans to consistency and to achieve certification.  We accept the evidence of Mr Scott.  Mr Salman asked questions of little substance and did not rebut the evidence of Mr Scott.

   b)There are significant lengths of the perimeter of the slab edge that exhibit honeycombing.  This implies a poorly compacted slab edge resulting in porosity.  Mr Scott estimates that the remedial work to address the deficiencies would amount to around $8,000.  The work would in essence include filling the defective slab areas with repair mortar.  Since the waterproof treatment as specified in the structural drawings has not been met, those must also be remedied. We accept the evidence of Mr Scott both in regard to the workmanship defect and the estimation.  The remedial work to be undertaken is set out in paragraph 6 of the report (A:  516).  Mr Salman asked questions of little substance and did not rebut the evidence of Mr Scott.

   c)There are two 'significant diagonal slab surface cracks' in an area that is intended to be covered by tiles.  Mr Scott says it is likely that those cracks would transmit to the tiles.  The cracks must therefore be remedied.  We accept the evidence of Mr Scott.  Mr Scott sets out in A:  517 the proposed remedial work to be done.  His estimate is that the cost of the remedial work would amount to around $2,000.

   d)The external footing of the alfresco is not consistent with the required design dimensions of 800 millimetres by 800 millimetres.  The actual size as measured by Mr Scott is 860 millimetres by 640 millimetres.  The 640 millimetres dimension is out of tolerance by AS 3600 and under the 'Western Australia Guide to Standards and Tolerance'.  In addition, the pad footing had been poured without its required central cogged starter bar.  We accept the estimation of Mr Scott that to remedy the absence of the starter bar would be around $1,000.

   e)The compact test required to be lodged to confirm that the slab as poured complies with the structural drawings, has not been lodged.  We accept the evidence of Mr Scott that it is incumbent on the builder to lodge such certification.  We accept the evidence of Mr Scott that the cost would be around $500.

   f)It is accepted by the builder that the slab as poured is not complete, since areas such as the alfresco, front concrete porch and garage remain to be poured.  Mr Salman said these areas are usually poured at the end of the build.  The question arose whether the $55,000 paid by the owners as first progress payment (A:  38) included the entirety of the slab, or just the parts that had been poured, excluding the alfresco, porch and garage.  Mr Scott expressed the opinion that the first progress payment is likely to include all concrete work, even if some were to be done at a later stage.  Mr Scott did however also concede that it is possible that the invoicing for the final part of the slab could only have been done at a later stage.  He is therefore equivocal in his opinion, and he did not cite the breakdown of costs that made up the $55,000.  Mr Salman said the first progress payment was just for the slab as poured, and that the final concrete work would be paid from the last progress payment at practical completion.  The owners said that Mr Salman had not explained to them at any time that the first progress payment would not include all concrete work.  We are not satisfied that the owners have shown on the balance of probabilities that the first instalment included all the concrete works.  The owners may have a suspicion, but they did not provide an adequate analysis of the first progress payment to satisfy their allegation that it had included the cost of all concreting.  We find that the owners are not entitled to any reimbursement for the part of the concrete that had not been poured.

Orders

The Tribunal orders:

1.Since the builder had breached the contract by:

(a)extending the time to complete the works;

(b)increasing the cost of the works; and

(c)terminating the contract without justification, the owners are entitled to compensation,

the owners shall by no later than 27 April 2023 file and serve a detailed submission, supported by the documents on which they intend to rely, about the quantum claimed.  The bundle so filed shall be paginated and documents of material sought to be relied on shall be cross-referenced to the relevant page number.

2.The builder shall by not later than 11 May 2023 file and serve a detailed submission in reply to the cost application, supported by the documents on which the builder intends to rely.  The bundle so filed shall be paginated and documents of material sought to be relied on shall be cross-referenced to the relevant page number.

3.The builder shall reimburse the owner the amount of $22,500 that was unlawfully claimed by the builder as a cost variation.  The date upon which the payment shall be made is yet to be set by the Tribunal but will be determined after the claim for compensation is made.

4.The builder shall pay to the owner the amount of $13,500 for remedial work to be done to the slab.  The date upon which the payment shall be made is yet to be set by the Tribunal but will be determined after the claim for compensation is made.

5.The application for costs and damages is set for a hearing to commence at 10.00 am on 30 May 2023 for a duration of two days.

6.If either party wishes to call a witness to give evidence, it must arrange for the witness to attend the hearing in person.  The party calling the witness must also include in its bundle a statement of evidence the witness intends to give.

I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.

DR B DEVILLIERS, MEMBER

11 APRIL 2023