Vizzari Builders P/L v Misale - [2011] SADC 86

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
VIZZARI BUILDERS P/L & ANOR v MISALE & ANOR
[2011] SADC 86
Judgment of His Honour Judge Clayton
14 June 2011
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - RECOVERY ON QUANTUM MERUIT
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK
Plaintiffs contracted to manage the construction of six units on Hindmarsh Island. Neither Plaintiff held necessary licence and there was no contract as required by the Building Work Contractors Act. Plaintiffs sued to recover sub-contractors and suppliers fees paid by the Plaintiffs. Defendants cross-claimed in respect of cost of rectifying defective work and the cost of completion.
HELD: Plaintiffs entitled to recover amounts paid to sub-contractors and suppliers and for project management fees on a quantum meruit. Plaintiffs not contractually liable to rectify allegedly faulty building work. Also extent of work claimed unreasonable.
Building Work Contractors Act 1995 subs 6(2); Builders Licensing Act 1986 s 39, referred to.
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; Brooking on Building Contracts 4th Edition p 41; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Mayfield Holdings Ltd v Meana Reef Ltd [1973] 1 NZLR 309; Harrod v Palyaris Construction Pty Ltd (1973) 8 SASR 54; Acorn Consolidated Pty Ltd v Hawkeslade Investments Pty Ltd (2000) 16 BCL 353; Hannan v Fyfe [1957] SASR 90; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1995] 2 Qd R 350; Nunkuwarrin Yunti v AL Seeley Constructions Pty Ltd (1998) 72 SASR 21; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571; Angelopoulos & Anor v Sabatino & Anor (1995) 65 SASR 1; Mason and Carter, Restitution Law in Australia para 1023; Cheshire & Fifoot’s Law of Contract 6th Australian Edition ; Kaufman v McGillicuddy (1914) 19 CLR 1; Ettridge v Vermin Board of District of Murat Bay [1928] SASR 124; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Australian Education Union (Formerly Sait Inc) v Grieve [2000] SASC 381; Bellgrove v Eldridge (1954) 90 CLR 613; De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28; Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253; Tito v Waddell (No2) (1977) Ch 106, considered.

VIZZARI BUILDERS P/L & ANOR v MISALE & ANOR
[2011] SADC 86

The plaintiff Francesco ("Frank") Vizzari is a builder. He carries on business under his own name and under the aegis of a company called Vizzari Builders Pty Ltd.
The defendant Carmine ("Charlie") Misale had been a friend of Mr Vizzari. They first met several decades ago when they were apprentice bricklayers and they have spent their separate working lives in the building industry.
Sometime prior to 2004 Charlie Misale and his wife Carmella Maria Misale acquired a dwelling on the waterfront at Hindmarsh Island. It is one of a block of identical two story terrace houses in an area which has been developed since the construction of the bridge from Goolwa. There are many similar terrace houses in the same area which real estate advertisements describe as luxury apartments.
In about 2004 the defendants decided to construct for profit another block of six similar units. A relative of Mr Misale suggested Frank Vizzari as a possible builder. Mr Misale spoke to Mr Vizzari and also obtained estimates from other builders. He decided to retain Mr Vizzari on what the parties have incorrectly called a "cost plus" contract.
The cost of the six units was estimated to be about $1.5 million. Sadly the arrangement was not evidenced in the way that is customary for building contracts. There was one short document which stated:
Carmine and Carmela Misale (as trustees for the Misale Family Trust) agree to pay $120,000 to Frank Vizzari / Vizzari Builders in monthly payments of $10,000 to cover project management fees (covering contingencies, locality allowance, etc) relating to the construction at Hindmarsh Island.
Documents in those terms were signed in counterpart by Mr and Mrs Misale on the one hand and Mr Vizzari personally on the other.
The document does not satisfy the requirements of the Building Work Contractors Act 1995. Additionally, neither Mr Vizzari nor the company had a licence which permitted them to construct a two-storey building. Their licences only permitted them to construct single storey buildings. I return to discuss the consequences of the failure to satisfy the statutory requirements later.
The units were to be constructed on land known as 81 to 86 Ventura Place, Hindmarsh Island.
While the parties described their arrangement as a "cost plus" agreement, the arrangement that they contemplated was not typical of a "cost plus" agreement. The scheme of a normal "cost plus" agreement is that the builder pays the actual cost of the work and materials to sub-contractors and suppliers and then adds a percentage which is passed on to the owner. The document signed by the parties provided for monthly payments of $10,000 for "project management fees". No percentage of the building costs was added and the amount payable for "project management fees" was unrelated to the building costs.
It was Mr Misale's accountant who had decided upon the form of the contract and its categorisation as a "cost plus agreement". Why "contingencies, localities allowance, etc" were referred to in an agreement to pay a project management fee is not clear.
Of all the deficiencies of the contract document the most significant is the fact that there was no actual undertaking by the plaintiffs to either manage the project or to construct the units. An obligation to manage the project can be implied from the fact that the plaintiffs were to receive project management fees. An obligation to manage the project is different from an obligation to construct the units.
Mr Vizzari was provided with plans and specifications for the six units and work commenced in about March or April 2005. He purchased materials and engaged appropriate sub-contractors to carry out work which he supervised. The sub-contractors and suppliers rendered the accounts for their work and materials to Vizzari Builders.
An arrangement was reached whereby the plaintiffs provided to the defendants' accountant monthly progress claims which included the sub‑contractors’ and suppliers’ invoices. The accountant then approved the invoices and made a claim for payment from the defendants’ bank.
The practical effect of the arrangement was that the builder financed the current months work up until such time as the bank reimbursed the builder. That was an unusual arrangement in circumstances where the remuneration of the builder was not tied to the cost of the sub-contract works. In reality the builder not only supervised the work but, in the first instance, financed the project.
The parties appear not to have applied their minds to the possibility that the project would extend beyond 12 months.
The first progress claim was dated 16 May 2005. The plaintiffs’ tax invoice was printed on stationery which purported to be a letterhead of Vizzari Builders. The stationery was fabricated by photocopying Frank Vizzari's business card onto the top right-hand corner of a page of blank paper. The business card contained the name Frank Vizzari and referred to his Builder's Licence GL56255. The tax invoice was signed by Frank Vizzari. I have mentioned the form of the stationery because of uncertainty as to whether Mr Vizzari or Vizzari Builders is the proper plaintiff.
The amount of the first progress claim was $97,050.91 inclusive of GST. It related to eight separate invoices from sub-contractors. Mr Lukic, an employee of the defendants’ accountant, approved the eight invoices and submitted them to the defendants’ bank which on 20 May 2005 paid $97,050.91 into the account of Vizzari Builders.
In all 12 separate progress claims relating to work carried out by sub‑contractors were submitted. However, as described later, not all of the progress claims by Vizzari Builders were approved by the defendants’ accountant for payment in full.
The second progress claim was dated 13 June 2005, although the full amount claimed of $21,776.04 had been paid into the account of Vizzari Builders on 6 June 2005.
The third progress claim, also dated 13 June 2005, was for an amount of $181,717.44. The full amount of that claim was paid into the account of Vizzari Builders on 1 July 2005.
The fourth progress claim was for $85,878.73. The full amount of that claim was paid into the account of Vizzari Builders on 17 August 2005.
The fifth progress claim, dated 16 September 2005, was for $152,951.72. The full amount of that progress claim was paid into the account of Vizzari Builders on 27 September 2005.
Up until the time of the fifth progress claim the stationery on which the claims were typed had referred to Mr Vizzari's personal ABN. The fifth progress claim was printed on stationery which referred to the ABN of Vizzari Builders.
Initially an undated progress claim 6, which referred to the ABN of the company, claimed an amount of $141,362.80.[1] However a further tax invoice dated 11 October 2005 for progress claim 6 was issued for $114,720.08, being the total of the invoices approved by the defendants’ accountant.[2] That sum was paid into the account of Vizzari Builders on 20 October 2005. The amount paid was $26,642.72 less than the amount originally claimed by Vizzari Builders.
[1] Exhibit P1 p 166.
[2] Exhibit P1 p 168.
There were alleged shortfalls on subsequent progress claims. Those shortfalls comprise one component of the plaintiffs' claim.
The seventh progress claim, dated 24 November 2005, was for $141,863.80. The accountants approved a payment of $141,751.60 which was paid into the account of Vizzari Builders on 7 December 2005.
Progress claim 8 was dated 15 December 2005. The invoices initially submitted by the plaintiffs totalled $261,173.35, but the defendants’ accountants approved $215,910.18 which was deposited into the account of Vizzari Builders on 21 December 2005.[3]
[3] Exhibit P1 pp 240 to 242.
With progress claim 9 Vizzari Builders submitted sub-contractors accounts totalling $167,539, but a later claim was submitted on 14 February 2006 for $155,896.10 which was deposited into the account of Vizzari Builders on 23 February 2005. Some of the items initially included by Vizzari Builders in progress claim 9 were transferred to progress claim 10.
In progress claim 10 dated 31 March 2006 Vizzari Builders initially claimed $152,766.70.[4] The defendants’ accountant approved sub-contractors invoices totalling $140,676.75 and a revised progress claim 10 dated 3 April 2006 was lodged for that amount. The amount of the revised claim was paid into the account of Vizzari Builders on 13 April 2005.
[4] Exhibit P1 pp 333 to 335.
On 30 April 2006 progress claim 11 was lodged for $286,528.10. On 12 May 2006 an amended progress claim 11 was lodged for $288,814.82.
Progress claim 12 for $206,287.45 was lodged on 30 June 2006.
From progress claim 9 onwards it is difficult to reconcile the sub‑contractors accounts, the amount of the progress claims and the amounts paid. What should have been a relatively simple process has given rise to confusion which has not assisted the resolution of this action.
By the end of June 2006 the works had been substantially completed. An objective assessment of the state of the works is described in a message which Mr Andrew Nobes, a Senior Property Consultant with the Commonwealth Bank, prepared on 29 June 2006.[5] Mr Nobes had inspected the property on 28 June 2006 in the company of Mr Misale and Mr Vizzari.
[5] Exhibit D7 p 47.
Mr Nobes reported that the dwellings were nearing completion and sub‑contractors were active on the site. He listed the outstanding work. He noted that Unit 3, Lot 83, had reached the practical completion stage and Mr Misale had been using that unit as the open house for inspections by prospective purchasers.
Mr Nobes suggested that the cost to complete was within the vicinity of $55,000-$60,000 in addition to any outstanding claims by the builder or sub‑contractors. He suggested that the development could be fully completed within three to four weeks. On the basis of the report of Mr Nobes the work was about 95% complete.
Mr Nobes commented that there were other units on the market but suggested that many of those were of an inferior standard. The asking price for the units was within the range of $600,000-$650,000. Mr Nobes suggested that asking prices in the mid to upper $500,000's would be more realistic. He wrote:
In summary the project has reached practical completion stage and requires what is considered to be some relatively minor finishing works for it to be fully completed…
Mr Nobes made no reference to defective work. As I have mentioned he had conducted his inspection in the presence of Mr Misale.
Mr Misale has considerable experience in the building industry. He visited the site regularly and observed the work as it was carried out. The relationship between Mr Misale and Mr Vizzari may at times have been tense, but there is no record of any significant complaint by Mr Misale about defects in the work prior to termination of the contract.[6]
[6] T 132 l3.
The contract came to an end early in July 2006 following a meeting at the office of the defendants' accountant.
Mr Vizzari was aware that Mr and Mrs Misale had suffered a financial loss as a consequence of a failed investment and were short of funds. For some months Mr Vizzari had been concerned about the shortfall in payment of the progress claims and the fact that project management fees were overdue. His evidence was:
…In that time there Charlie was involved in something which didn't concern me and still doesn't but I started getting a little bit worried about the situation. I still worked, I still ran the project, we still collected the invoices from subbies and suppliers, we still conducted the same thing that we had been doing in the past by presenting them to the accountant’s office. I had asked for another payment for myself. Charlie told me that he couldn't help me at that stage because there were a lot of things happening around him. I said "Fine, look, I need to get paid, I need some money", ... Towards the end of 2005 I didn't receive some money from him and I said "Look, you have got to keep paying me, I am travelling a fair bit and spending a fair bit of time down here, especially with the second fixing and that", and he said he would see how it goes and we left it at that…[7]
[7] T 129 l5.
Mr Vizzari gave evidence of further requests over the following months and said:
…I asked for other payments and that couldn't happen. Then we noticed the shortfalls in the progress claims, in what we received from the bank. I think if we go back to progress claims 6 and 7 when we noticed the difference we started printing our own invoices on our cover sheet, so we can start checking off. That continued virtually the same, then it got to the end where we couldn't work any more because we were sustaining a fair bit of personal moneys put into the project, and me and Charlie became fairly edgy with each other, there was a bit of friction which wasn't healthy for either of us. There was a last progress claim we handed over when there was a meeting at Battistella’s office and I told him if he didn't pay me I wasn't going to go back to finish off the job. And he kept insisting that I had to go back and he would pay me. I said "No, you give me some money I will go back and finish". At that stage there we had exchanged words, he left, I left, and I had decided that I was not going back, but I didn't tell him I wasn't going back until the following day.[8]
[8] T 129 l25 to T 130 l7.
The next day Mr Misale purported to terminate the contract.
It is common ground that the contract was terminated. There is a dispute as to whether it was terminated by Mr Vizzari on the basis of the defendants’ refusal to make further payments or whether it was terminated by Mr Misale as a consequence of the plaintiffs’ refusal to complete the work. The resolution of that dispute is inconsequential to the determination of this action.
The defendants have argued that at the time of the meeting they were not in arrears and the plaintiffs were not entitled to refuse to complete the work. Counsel submitted that the only debt outstanding at the time of termination was $143.92.[9] The defendants argued that because the plaintiffs’ only entitlement was for an amount to be determined on the basis of a quantum meruit there could not be an outstanding debt and therefore the plaintiffs were not capable of terminating the contract.
[9] T 862.
While there may not have been a contract sum due from the defendants to the plaintiffs pursuant to either the project management agreement or the “cost plus” agreement, the plaintiffs were, in my opinion, entitled to payment for both project management fees and the costs of sub-contractors and suppliers on the basis of quantum meruit. In my opinion a statement by Mr Misale that he would not make further payments until all the work was complete was a sufficient reason for the plaintiffs to refuse to carry out further work.
I reject the defendants’ submission that no payment based on a quantum meruit could be required until all of the work was completed. Up until the time of termination the previous practice had been for payments of sub-contractors costs to be made monthly. If no payment could be required until all of the work was completed the plaintiffs would have been required to carry the entire cost of the project.
I find that at the time of the discussion in early July 2006 the defendants had ceased paying the project management fee. The agreement expressly provided that the project management fee would be paid by consecutive monthly payments. The project management fee of $120,000 was not related to the progress of the work. As at the beginning of July 2006 only $85,000 had been paid towards project management fees and no payment had been made for several months.
Another of the defendants’ arguments was that no project management fees were payable because the plaintiffs had not delivered an invoice. I find that an invoice was not necessary. The delivery of an invoice had never been a pre‑requisite to payment. The reality of the situation is that Mr Misale had intimated that the defendants would not make any further payments until the work had been completed.[10] The delivery of invoices would not have made any difference.
[10] T 803 l4.
The arrangement between the parties was that the plaintiffs would receive reimbursement of costs of the sub-contractors and suppliers at the end of each month. That arrangement was followed with the first eleven progress claims. It was never contemplated that the plaintiffs would bear the entire cost of financing the project until completion. I find that the plaintiffs were entitled to treat Mr Misale's indication that no further reimbursement of sub-contractors costs would be made until the work had been completed as a repudiation of the contract by the defendants.
The defendants' case was that the plaintiffs demanded $80,000 for work yet to be carried out in the third fix, Mr Misale refused to pay and he was told by Mr Vizzari that he would not be coming back to the project. Mr Misale spoke to Mr Vizzari the following day and was told that Mr Vizzari would not return unless there was a payment for work yet to be done. Mr Misale then indicated that he would complete the work and pay what was due to the sub-contractors on progress claim 12 direct.[11]
[11] T 20.

I do not accept the defendants’ assertion that the plaintiffs demanded $80,000 for work yet to be carried out in the third fix. The allegation is contrary to the evidence of Mr Vizzari which I accept. I am satisfied that at the meeting in early July 2006 Mr Vizzari did not pursue payment for work yet to be carried out but only sought payment of amounts which were overdue.
I find that in July 2006 the plaintiffs were confronted with a situation in which the defendants expected them to complete the construction, to incur liabilities and make payments to sub-contractors notwithstanding the fact that the defendants had indicated that they would not pay monies which were due. Having regard to the defendants' financial position the plaintiffs were entitled to be concerned as to whether they would ever be paid the outstanding monies if they did complete the work.
Counsel for the defendants submitted that the non-payment of the project management fee arose from the plaintiffs’ failure to complete the works.[12] That submission does not accord with the evidence. Payment of the management fee was never dependent upon completion of the works but was to be made by successive monthly payments.
[12] T 21.
It is reasonably clear that neither party had regard to the provisions of the Building Work Contractors Act or the fact that the plaintiffs’ entitlement was not an entitlement to a sum due under a contract, but was an entitlement to a quantum meruit. However when assessing the actions of the parties it is appropriate to consider their beliefs, incorrect as they were, rather than the strict legality of the situation.
Neither Mr Vizzari nor Mr Misale was a perfect witness; but I prefer the evidence of Mr Vizzari. His evidence is supported by the objective facts. It is undisputed that part of the project management fee had not been paid. An obligation on the defendants to make monthly payments is one of the few things that the document does make clear. The evidence that Mr Misale was not prepared to make the payments contemplated by the document is consistent with the events that occurred. If there had been a binding agreement, as the parties believed that there was, the defendants would have been in breach.
At the time the contract was terminated there were no outstanding complaints by Mr and Mrs Misale about defects, although it had been the practice of Mr Misale to visit the site regularly and inspect the work.[13]
[13] T 136 l1 to 13.
After the meeting the plaintiffs did not carry out any further work and the project was finished by Mr Misale himself. No further payments were made by Mr and Mrs Misale, and a lien was lodged by Vizzari Builders. Notwithstanding an attempt at conciliation by a mutual friend Mr Vizzari refused to withdraw the lien. The lien was eventually withdrawn following the lodgement of a bank guarantee.
The Issues
These proceedings were commenced by Mr Vizzari and Vizzari Builders to recover amounts which they claim is due for unpaid project management fees and for costs paid to sub-contractors and suppliers of goods.
The plaintiffs claim that there were separate contracts for the management of the project and the cost plus construction contract. The defendant claims that there was only one contract.[14] In reality the parties never distinguished between the separate plaintiffs. The express terms of the document refer to payments "to Frank Vizzari/Vizzari Builders". Some of the progress claims made by the plaintiffs referred to the ABN of Mr Vizzari while others referred to the ABN of Vizzari Builders. No injustice will result if I proceed on the basis that there was only one contract.
[14] T 865 l18.
Mr and Mrs Misale dispute the amount of the plaintiffs’ claims and they cross-claim for the cost of completing the project and rectifying alleged defects. The defects were identified following an inspection of the property by Mr Peter Jankovic in September 2007. They are listed now in a very detailed Scott schedule prepared by Mr Jenner, counsel for the defendants.
The defendants’ cross-claim raises issues as to the obligations of the plaintiffs under the contract, including the responsibility of the plaintiffs for the work of sub-contractors, the obligations of the plaintiffs upon termination of the contract, the reasonableness of rectification work which is claimed by the defendants and the quantification of the cost of that work. The liability of the plaintiffs for outstanding work or rectifying defects must be determined according to the terms of the contract.
If the contract had not been terminated any work required to complete the project or to rectify defective work would have been carried out by sub‑contractors arranged by the plaintiffs at the cost of the defendants. If the work of sub-contractors was defective the plaintiffs could have required the relevant sub-contractor to make good the defective work at the sub-contractors’ expense.
There was no express term of a contract which placed personal liability upon the plaintiffs either for the cost of rectifying defective work of sub‑contractors or for work required to complete the project.
The contract itself was not a normal “cost plus” contract but was unusual. Because it was an unusual contract there was no trade custom or usage which would require a term to be implied. Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, 236-237.
The builder did not receive any margin on the actual cost of the goods and services. In the circumstances of this contract it would be inappropriate to imply a term that made the builder personally liable for the cost of defective work by sub-contractors. It is not necessary to imply such a term to give business efficacy to the contract. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 the majority of the Privy Council said that for a term to be implied certain conditions must be satisfied. First, it must be reasonable and equitable, secondly, it must be necessary to give business efficacy to the contract, so that no term will be implied if the contact is effective without it, thirdly, it must be so obvious that “it goes without saying”, fourthly, it must be capable of clear expression and finally, it must not contradict any express term of the contract.
In this case those conditions are not satisfied. An implied term would not be reasonable and equitable and it is not necessary to give business efficacy to the contract. The contract is effective without such a term.
In my opinion the plaintiffs only have personal liability in respect of specific defects which can be attributed to their own actions.
Mr Vizzari has acknowledged that at the time that he ceased work there was work, which he has referred to as the third fix, yet to be carried out. The third fix includes tidying up the loose ends and making good minor defects. Counsel for the plaintiffs, Mr Ross-Smith, described the outstanding third fix in the following terms:
…the final check is third fix work. So you have installed everything. The house is finished. You go through everything to make sure everything is as it should be. If there are knocks in the wall then you cover them over and paint them over. You make sure that all of the installations are competently finished and so on. There was some third fix to be done but not a lot before my client refused to finish off the job. It refused to finish off the job, because of the conduct of the company, the first plaintiff, because it hadn't been paid. The first plaintiff left the site.[15]
[15] T 4 l27.
The evidence of Mr Vizzari as to the "third fix" was as follows:
…When we get to the end of the project, like I did mention before earlier on, we go through a stage where we walk through the project and identify defects or any items that clients are not happy with. We would attend to them… We would rectify any items that are unsatisfactory, hand over the keys and move on, get your payments and move on. During that period there is also a three-month maintenance period which we maintain. If there are any breakdowns in the premises, for example, doors not closing properly, or leaking taps, or any plumbing, electrical, lights not working, we can go back and rectify the item. That is basically how we actually put it all together.[16]
[16] T 114 l16 to l32.
If the contract had not been terminated the "third fix" work would have been carried out pursuant to the "cost plus" agreement as an expense to the defendants’.
As to the cost of the third fix Mr Vizzari gave the following evidence in chief:
QIf the work is defective in a cost plus job, then there is no end cost to the builder, am I right, because the builder always calls up that defective work to be remedied by a subcontractor; correct.
AExactly.
QSo you have been permitted to continue on with the job and those acknowledged items were dealt with either: one, in a third fix or, two, as remedial work coming out of the third fix or coming out of the three-month maintenance period, then you would have called subcontractors back to do those jobs; correct.
AYes.
QAt no cost to you.
AYes.
QOr at no cost to your company.
AThat's right.[17]
[17] T 134 l18 to l33.
The Contract
Because there was no written contract for the construction of the units many of the rights and obligations of the parties must be implied. There are some terms which can in be implied in all contracts of a particular class. In this case it is necessary to imply terms to give business efficacy to the contract. Brooking on Building Contracts 4th Edition p 41. BP Refinery (Westernport) Pty Ltd v Shire of Hastings (supra). However it is not the function of the court to reconstruct an agreement between the parties on equitable principles. Mayfield Holdings Ltd v Meana Reef Ltd [1973] 1 NZLR 309, 318. Harrod v Palyaris Construction Pty Ltd (1973) 8 SASR 54 at 58. Acorn Consolidated Pty Ltd v Hawkeslade Investments Pty Ltd (2000) 16 BCL 353, 359.
The plaintiffs did not hold the appropriate licences and the contract did not comply with the legislative requirements. Apart from that the document which was signed was inappropriate and so naive as to be almost useless. While it referred to payment of the project management fees it said nothing about the actual construction of the units. There was no description of the works and no date for completion. There were none of the provisions that are normally found in a building contract. The agreed monthly payments of $10,000 for the management of the project were unrelated to the progress of the works. Even the obligation to manage the project must be implied. There was no obligation on the plaintiffs to carry out the construction of the project themselves. Importantly the contract did not prescribe what should happen in the event that the contract was terminated.
If the parties had entered into a domestic building work contract the contract would have been in writing and would have been required to either "stipulate a specific price for the performance of the building work specified in the contract, being a price that is fixed and not subject to change, and the terms of payment" or provide that the contractor may recover the actual cost to be incurred in acquiring materials and performing work "together with an additional amount not exceeding 10%, or such other percentage as may be prescribed, of that cost".[18] A "project management fee" is not specifically contemplated by the Act.
[18] Building Work Contractors Act 1995 s 29.
A contract of the second type, whereby the owner pays the actual costs incurred together with an additional percentage, is a true "cost plus contract". The arrangement between the parties differed from a true "cost plus" contract in that the owner was only required to pay the actual cost of the work and materials together with the separate project management fee which was unrelated to the cost of the work and materials.
The Building Work Contractors Act provides for certain warranties on the part of the contractor to be implied in every domestic building work contract. They include a warranty that the building work will be performed in a proper manner to accepted trade standards and in accordance with the plans and specifications agreed to by the parties; and a warranty that the building work will be performed in accordance with all statutory requirements. Purchasers of a property succeed to the rights of their predecessors in title in respect of the statutory warranties. Although there was no domestic building work contract the statutory warranties still apply.
Both parties acknowledge that it was a requirement that the plaintiffs would construct the works to the same standard as the plaintiffs' initial unit. They have referred to that as the “Quality benchmark”. In Hannan v Fyfe [1957] SASR 90 a builder agreed to sell a block of land and erect a home "Exactly the same" as a house which the plaintiff had inspected. Ligertwood J held that it was an implied term of the contract that the house would be erected in a workmanlike manner.
Subsection 6(2) of the Building Work Contractors Act provides:
(2) A person required by this Act to be licensed as a building work contractor is not entitled to any fee, other consideration or compensation under or in relation to a contract with another on whose behalf the person performed work as a building work contractor unless-
(a)the person was authorised to perform the work under a licence; or
(b)a court hearing proceedings for recovery of the fee, other consideration or compensation is satisfied that the person's failure to be so authorised resulted from inadvertence only.
Similar provisions are common in other States. Cases have decided that where the builder is not entitled to a fee under a contract as a consequence of a provision such as s 6 the builder will be entitled to remuneration for his work on a quantum meruit. It is similar to the situation where work is performed pursuant to an illegal contract, although in the present case the contract was not illegal. The plaintiffs’ claim is based on quantum meruit.
The principle to be applied was described by Deane J in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 257. His Honour's conclusion was summarised by Mason and Wilson JJ (at 227) as follows:
Deane J, whose reasons for judgment we have had the advantage of reading, has concluded that an action on a quantum meruit, such as that brought by the appellant, rests, not on implied contract, but on a claim to restitution or one based on unjust enrichment, arising from the respondent's acceptance of the benefits accruing to the respondent from the appellant's performance of the unenforceable oral contract.
A claim based on quantum meruit is not a claim to recover the agreed amount under the unenforceable agreement, but a claim to enforce an obligation to pay "reasonable remuneration".[19] The unenforceable contract may be referred to as evidence of what is "reasonable remuneration".[20]
[19] Deane J in Pavey at 253.
[20] Deane J in Pavey at 252 & Iezzi Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1995] 2 Qd R 350, 370.
The provisions of s 39 of the Builders Licensing Act 1986 (a predecessor to s 6 of the Building Work Contractors Act) were considered in Nunkuwarrin Yunti v AL Seeley Constructions Pty Ltd (1998) 72 SASR 21. Section 39 provided that an unlicensed person who performed building work in circumstances in which a licence was required was not entitled to recover any fee or other consideration in respect of the building work. Doyle CJ said:[21]
The principle established by the High Court's decision in Pavey relates to the recovery of payment for work performed under an unenforceable contract. As it happens, s 39 does not in terms declare the contract between an unlicensed builder and building owner to be unenforceable at all, or even at the suit of the builder. However, I consider that s 39 should be treated as if it rendered the contract unenforceable at the instance of the builder because the most important right of the builder, the right to payment under the contract for work done, is removed. There may, of course, be other contractual rights that the builder can still enforce. Nevertheless, I consider that a contract to which s 39 applies can be regarded as an unenforceable contract on the part of the builder for the purposes of the principle established in Pavey.
But does s 39 prevent the builder recovering any payment at all, including a payment under the principal established in Pavey?
The language of s 39 is wide enough to have this effect. I do not consider that the legislation under consideration in Pavey is so similar that the conclusion in Pavey that the legislation did not prevent a restitutionary claim determines the outcome in this case.
But, when the matter is considered more broadly, I reach the same conclusion as does Prior J. To begin with, the structure of the Act does not suggest that a contract for the performance of building work by a person without a building licence is an illegal or unlawful contract. The consequence of performing building work without a licence, when a licence is required, is that the builder commits an offence (s 9), is liable to disciplinary action by the Commercial Tribunal (s 19) and is unable to recover any fee or other consideration in respect of the building work, subject to the question of inadvertence (s 39). As I have already said, the contract appears to remain enforceable by the building owner, and there are probably other contractual rights on the part of the builder that can be enforced. In short, the consequences of the performance of building work by an unlicensed person who should have had a licence are relatively limited.
Returning to s 39, I agree that the expression "fee or consideration" is an expression suggestive of a contractual entitlement, although capable of being read more widely. I lean against the wider reading because of the consequences of giving that wider meaning. As I have already said, there seems no doubt that the contract remains enforceable at the suit of the building owner. It would be very harsh if the building owner could enforce the contract against the builder, leaving the builder with no entitlement to remuneration: see Pavey (at 229) per Mason and Wilson JJ. The scheme of the Act does not appear to require that the builder be denied a remedy in restitution in such a case.
It appears to me that the purpose of the Act is, broadly, to protect building owners from incompetent builders by requiring a builder to obtain a licence which in turn depends upon proof of competence. Allowing a restitutionary claim means that the building owner will pay only reasonable remuneration for the work done. If the work is poorly performed, the entitlement of the builder will be reduced accordingly…
When I consider the language of s 39, and the policy considerations, I conclude that s 39 should be read as denying an entitlement to recover only moneys due under the relevant contract, and is not moneys recoverable under a restitutionary claim of the type considered in Pavey. (my underlining)
[21] At p 22.
Prior J reached a similar conclusion. His Honour referred to an unreported judgment of Gleeson CJ in the New South Wales Court of Appeal where Gleeson CJ said:
“…As the decision of the High Court in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 demonstrates, contravention of the Act produces only the specific and limited consequence referred to in the relevant provisions. The builder may still sue on a quantum meruit. He may retain any instalments paid on account of the purchase price. And, of course, the contract may be enforced by the proprietor. If the builder fails to perform his contractual obligations in some respect there seems to be no reason in principle or logic why the proprietor's damages should be measured on the basis of the hypothesis that the proprietor was entitled to have the work performed, under the contract, but at no cost to himself. The considerations as to unjust enrichment underlying the High Court's decision in Pavey & Matthews Pty Ltd v Paul point in the same direction.”[22]
[22] Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571 at 586.

Prior J said there was no proper basis upon which s 39 or any other provision in the Builders Licensing Act called for a different result in this State. There is no reason why the same reasoning cannot be applied to subs 6(2) of the Building Work Contractors Act also.
The Plaintiffs Claim for the Cost of Services/Materials
The parties clearly contemplated that the plaintiffs would be entitled to recover the reasonable cost of goods or services supplied by sub-contractors. They referred to the arrangement as a "cost plus" contract. The goods and services were supplied to the defendants at their request, they were accepted by the defendants and there was a clear benefit to the defendants in that they added value to the defendants land. There would be an unjust enrichment if the defendants were allowed to retain the benefit of the work without paying the cost.
In Pavey Deane, Mason and Wilson JJ regarded the acceptance by the defendant of the plaintiff's work as an essential ingredient of the claim for reasonable remuneration in respect of work done pursuant to an inherently ineffective contract. That ingredient has been satisfied in the present case. Mr Misale conducted regular inspections of the building work as it proceeded. The progress payments by the defendants for both sub-contractors expenses and project management fees demonstrates acceptance of the work by the defendants.
At times the defendants have acknowledged that the plaintiffs are entitled to recover on a quantum meruit but their counsel also submitted in his final address that they never accepted the work and they never received any benefit.[23] I do not accept those submissions.
[23] T 17.
The defendants clearly accepted the work. At the time of the meeting in early July 2006 the defendants wanted the plaintiffs to continue with the work. The plaintiffs were not prepared to carry out further work unless there was some prospect of payment. I find that the defendants’ position established acceptance of the plaintiffs work to that time.[24]
[24] T 870 l1.
I simply cannot understand how the defendants can suggest that they have never received any benefit.[25] The defendants now have a block of six units.
[25] T 870 l10.
Following negotiations that took place as the trial proceeded the dispute for reimbursement of the costs incurred by the plaintiffs has been considerably narrowed. The plaintiff now claims $103,110.46.
That amount is made up of:

Balance of progress claims 1 to 11  $743.92
Balance of progress claim 12  $35,424.00
Balance of amounts paid to Mitre 10  $56,573.60
Additional claims  $10,368.82

The defendants admit $143.92 for the balance of progress claims 1 to 11, $35,424.12 for the balance of progress claim 12 and $6,727.82 for the additional claims.
The amounts in dispute under this head are therefore $600 in respect of progress claims 1 to 11, all of a Mitre 10 claim for $56,573.60 and $3,641 in respect of additional claims.
I find that the builder is entitled to reimbursement of the amounts which it has actually paid on the basis of quantum meruit. The award on the basis of quantum meruit should be an amount which represents the benefit to the defendants.[26] The amount paid to the sub-contractors is by itself evidence of reasonableness. The issue is whether the plaintiffs have paid the amounts which they claim.
[26] Deane J in Pavey at 167 & Angelopoulos & Anor v Sabatino & Anor (1995) 65 SASR 1.
The plaintiffs' record keeping was less than satisfactory. However that does not mean that their claim should be dismissed. The criterion is whether payment of the amount in dispute has been proved on the balance of probabilities.
The $600 in dispute for the balance of claims 1 to 11 is an amount claimed in progress claim 10 to have been paid to The Professionals Goolwa. The defendants assert that no invoice was supplied. I find that $600 was paid to The Professionals Goolwa for the accommodation of workmen.
Mr Vizzari gave evidence that the Mitre 10 expenses relate to materials purchased for the project. There was no other job to which the expenses could relate. The evidence as to the Mitre 10 debt could have been better, but in my opinion the evidence of Mr Vizzari does establish the claim. Payments to a collection agent in respect of Mitre 10 accounts total $49,774.[27] I am satisfied that the plaintiffs have proved that the amount paid to the collection agent were costs in connection with the project at Goolwa. I find that the plaintiffs are entitled to that amount. I do not accept that the balance of the Mitre 10 claim has been established.
[27] Exhibit P18 - Message dated 15 February 2011 from AMA group of companies.
I accept the plaintiffs have proved on balance that amount of $561 paid to Security House for the supply of locks is a Goolwa expense.[28]
[28] Exhibit P1 No P55.
I accept the defendants’ submission that a claim for $3,080 for Rotolo Transport has already been paid as part of progress claim 5.[29]
[29] T 387
There is no evidence which proves the remaining expenses.
The result therefore is the defendants should pay as a quantum meruit the following expenses paid by the plaintiffs:
Balance of progress claims 1 to 7  $743.92
Balance of progress claim 12  $35,424.00
Mitre 10 (payments to the collection agent)              $49,774.00
Locks - Security House  $561.00
Additional claims (agreed)  $6,727.82
Total  $93,230.74
Project Management Fees
The arrangement described in the document was that Mr Vizzari would be paid project management fees totalling $120,000 by monthly payments of $10,000.
During the course of the project Mr Vizzari went overseas leaving the management of the project with his wife. He gave evidence that he remained in contact with her by telephone. There was dispute between the parties about his absence with the result that the parties agreed that the project management fees would be reduced by $10,000 from $120,000 to $110,000.
The first instalment of the management fees was paid on 11 April 2005. If regular monthly payments of $10,000 had been made thereafter the full amount of $110,000 should have been paid by 11 March 2006. The defendants have only paid $85,000 towards the project management fees. Mr Vizzari claims the unpaid balance of $25,000.
Mr Misale said in evidence that he would pay the balance of the project management fee when the builder finished the work.[30] That was not the arrangement.
[30] T 803 l4.
The claim for project management fees should be treated as a claim for reasonable remuneration for the work done.[31]
[31] Mason and Carter, Restitution Law in Australia para 1023.
As I have mentioned the work was about 95% complete at the time the contract was terminated. While the whole fee would have fallen due under the unenforceable agreement between the parties, I find that on a quantum meruit the plaintiff should receive an amount which reflects the benefit received by the defendants. I find that the reasonable value of the project management services rendered by the plaintiffs should be assessed at 95% of $110,000 that is $104,500. The defendants have paid $85,000. I find that the defendant should pay a further $19,500 by way of remuneration for project management fees.
I am satisfied that the evidence establishes that the defendants have accepted the benefit of the project management.
Summary of Plaintiffs Claim
On the plaintiffs’ claim there should be judgment for the plaintiffs based on a quantum meruit for $112,730.74.
I will hear counsel on the question of interest.
The Defendants Cross-Claim
The 300 or so items which make up the cross-claim are listed in the comprehensive Scott schedule prepared by Mr Jenner.
The Scott schedule is based upon reports of Mr Jankovic who has verified his reports and comments which he made during the course of a view in evidence. In answer to Mr Jankovic the plaintiffs rely upon the evidence of Mr Short. I have had the benefit of concurrent evidence from Mr Jankovic and Mr Short.
For the cost of rectifying the alleged defects identified by Mr Jankovic the defendants rely upon the evidence of Mr Faehrmann, a builder. I have also had the benefit of concurrent evidence from Mr Faehrmann and Mr Short.
There are many differences between the defendants’ evidence and the evidence of Mr Short. Because of the conclusions I have reached it is unnecessary for me to descend to an examination of the detail of each item in dispute.
So far as the cross-claim is concerned the first question is what liability do the plaintiffs have for the alleged defects.
It is important to bear in mind the nature of the agreement. The plaintiffs had not contracted to carry out work themselves but they had agreed to be the project manager. It was always contemplated, as was the case, that the plaintiffs would arrange for the work to be carried out by other sub-contractors at the expense of the defendants.
There was no contractual term which made the plaintiffs responsible for the cost of work yet to be carried out. The cost of any work yet to be carried out at the time the contract was terminated would always have been a cost to the defendants.
Similarly, if the contract had not been terminated, there was no term of the contract which made the plaintiffs responsible for the cost of rectifying defective work of sub-contractors. The cost of rectification would either have been at the expense of the defendants or at the expense of the sub-contractors.
Mr Jankovic did not address the liability of the plaintiffs for the defects which he has identified. He has made the incorrect assumption that the plaintiffs are liable to personally complete the project and rectify all defects at the plaintiffs own cost. That is not what the contract required. If the contract had not been terminated, the completion of the work, the third fix work and the rectification of defects, would all have been carried out at no cost to the plaintiffs.
The plaintiffs refused to carry out further work as a consequence of the defendants’ refusal to pay outstanding monies and the defendants’ intimation that they would not pay the cost of the outstanding work until the completion of the contract. It would be most unjust if the termination of the contract, as a result of the defendants to pay monies, resulted in the plaintiffs being required to assume a liability which they otherwise would not have had.
I accept that the plaintiffs may have had personal liability to rectify defects caused by themselves. An example is the defendants’ claim in respect of the internal doorways in the garage of each unit which were reduced from the size shown in plans as a result of a decision by Mr Vizzari. I consider the merits of that claim later.
Mr Short has acknowledged the presence of some, but not all of the defects. There is however, a dispute as to the existence of many of the defects described by Mr Jankovic and the work required to rectify defects.
The vast majority of the allegedly defective work is not the work of the plaintiffs but the work of sub-contractors. Following the termination of the contract the plaintiffs have been denied access to the property and they have not been in a position to arrange whatever work may be required to be carried out by sub-contractors to rectify defects or to complete the work. In those circumstances it would be inappropriate to hold the plaintiffs responsible for defects which were not caused by them and which the termination of the contract prevented them from rectifying. There is no evidence of any complaint of an existing defect at the time the contract was on foot.
One alleged defect relates to the fact that the gap between the underside of the Juliet balconies on each unit and the floor is not parallel. That defect was not a consequence of any work of the plaintiffs. However Mr Jankovic attributes liability for rectifying that defect to the plaintiffs. The plaintiffs never had any personal liability to make good that defect.
The letter of instructions from the defendants’ solicitor to Mr Jankovic is instructive insofar as it describes the defendants’ belief as to the existence of defects at that time. That letter was written on 26 September 2007, more than 12 months after the contract was terminated.[32] The inspection by Mr Jankovic identified many defects of which the defendants themselves were apparently unaware.
[32] Exhibit D11.
If the defendants had made a request for defective work to be repaired whilst the contract was still on foot the plaintiffs could have required the relevant sub-contractors to carry out the remedial work. After the contract was terminated that was no longer possible. If the plaintiffs were able to request the sub‑contractors to carry out rectification or defective work the cost of that work would have been borne by the sub-contractors and any charges for the work yet to be done would have been passed on to the defendants pursuant to the cost plus arrangement. In either event the plaintiffs would not have incurred any personal liability.
It is relevant to bear in mind the circumstances in which the contract was terminated. The defendant was behind with payment of project management fees and the reimbursement of sub-contractors and suppliers costs. More importantly the defendants had intimated that they would not make further payments until the work had been completed. In those circumstances the plaintiff was justified in refusing to carry out further work. It was an example of the unfairness referred to by Doyle CJ in Nunkuwarrin Yunti (supra).
In these circumstances it would be inappropriate and unjust to hold the plaintiffs responsible for the cost of rectifying defective work of sub-contractors. More relevantly the contract did not make the plaintiffs liable for that cost. The plaintiff should not be held responsible for the cost of rectification by reason of the fact that the contract was terminated.
So far as any outstanding work is concerned that was always going to be at the cost of the defendants.
So far as defective work is concerned defendants may have claims against the sub-contractors, but it is unnecessary for me to determine that question. All that I need to consider is whether the plaintiffs have a liability to the defendants for the items which comprise the cross-claim.
The Defects Identified by Mr Jankovic
The ambit of the defendants’ cross-claim is demonstrated by Exhibit D5, a quotation from Innsbruck homes for $71,454.79 to carry out work to unit 2. On the assumption that the other five units had similar defects to unit 2 the quotation to repair/complete the works for all six units was $428,728.74. Exhibit D5 does not assist with the resolution of this dispute.
Mr Jankovic carries on business as S.A. Building Consultants. He began his association with the building industry in 1964 when he completed an apprenticeship as carpenter and joiner. His curriculum vitae shows that he has subsequently been involved in the building industry in many capacities.[33] His expertise as a building consultant is beyond question.
[33] Exhibit D12.
The letter of instructions to Mr Jankovic from solicitors who were formerly acting for the defendants gives some insight into the defendants’ belief as at 26 September 2007.[34] The solicitors wrote:
Our clients’ preliminary instructions are that there are a number of unsatisfactory features of Vizzari's oversight of the building project which include, but are not limited to, the following: -
1.   Inconsistencies between progress payments made to Vizzari and subsequent work invoices provided by the various trades…
2.   The overall project cost blew out from the proposed project cost of $1.62m to in excess of $2.1m;
3.   Vizzari left the site midway through the project and travelled overseas leaving the Misale's to manage the remainder of the unfinished project;
4.   Repair work that was needed to be undertaken by our clients to rectify warranty work not repaired by Vizzari or the trades responsible;
5.   Remaining repairs which remained unfinished, such as: -
a.Rusting front gate, rusting balustrades, sliding doors, outside concrete, unsatisfactory grouting, unsatisfactory wiring to hot water heaters, leaking stormwater sumps, balconies cracking, shadow mouldings on ceilings not straight, sliding doors on rear balconies leak, scratched mirrors.
[34] Exhibit D11.
Items 1, 2 and 3 are irrelevant for present purposes. Item 4 relates to unspecified work claimed to have been carried out by the defendants which does not form part of the present claim. It is only item 5 which is relevant to the present claim. The items listed in item 5 are different from the defects identified by Mr Jankovic.
Mr Short is the proprietor of Blue-Chip Building Consultants Pty Ltd. He is also a highly qualified building consultant. He was retained by the plaintiffs and has prepared a number of reports, the last of which is dated 2 March 2011.[35] He was retained to respond to the reports of Mr Jankovic and Mr Faehrmann.
[35] Exhibit P3.
The court had the benefit of a view during which the expert witnesses made observations which were recorded in the transcript. They later verified their observations in evidence. The view is not evidence but was for the purpose of assisting the court to understand the evidence.
For the purposes of the cross-claim it is necessary to first determine the legal basis for any liability of the plaintiffs.
It is common ground that the contract was terminated. The dispute as to whether it was terminated by the plaintiffs or the defendants is inconsequential. As a consequence of its termination the contract is at an end. Cheshire & Fifoot’s Law of Contract 6^th Australian Edition states that the effect of termination is to release both the terminating party and the party in breach from further performance of the contract.[36] The authors refer to Kaufman v McGillicuddy (1914) 19 CLR 1 and other authorities in support of that proposition. The contract is treated as valid to the moment of termination.
[36] para 2103.
Rights that accrued to a party under the contract before its termination remain enforceable. Ettridge v Vermin Board of District of Murat Bay [1928] SASR 124.
In McDonald v Dennys Lascelles Ltd Dixon J stated:
When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.[37]
[37] (1933) 48 CLR 457 at 476-477.
Accordingly the termination of the contract discharged the parties from further performance both as to obligations that had been partially performed at the time of termination and to obligations that would have fallen due for performance had the contract not been terminated. Termination did not bring the contract to an end but merely discharged the parties from future performance. Accrued rights such as the right to the project management fee and the right to reimbursement of sub-contractors and suppliers costs can be enforced Ettridge v Vermin Board of District of Murat Bay. (Supra)
The defendants never had a right to have the work completed at the cost of the plaintiffs. The only right which the defendants had under the "cost plus" arrangement was to have the plaintiffs supervise other contractors to carry out work at the defendants own cost.

Insofar as the work of other sub-contractors may have been defective the defendants had the right to have the plaintiffs arrange for that work to be rectified by the sub-contractors, but the plaintiffs never had an obligation to rectify the defective work themselves. When the contract was terminated the plaintiffs were released from the obligation to carry out further management of the project.
There was no provision in the contract which made the plaintiffs liable for the defective work of sub-contractors. A contractual term of the kind necessary to support the cross-claim is not one which should be implied to give business efficacy to the contract.
It is significant that the defendants had not identified any defective work at the time the contract was terminated. It was not until the plaintiffs made their claim that the defendants instructed Mr Jankovic to identify defects.
Mr Misale has spent decades in the construction industry. He visited the site as the work was being carried out and, while he did have disagreements with Mr Vizzari, there is no evidence that at the time of termination there was any outstanding request by Mr Misale to have any defective work made good. That suggests that the defendants had no problems with the work at the time of termination. The defendants did not have any accrued rights relating to the rectification of defects at the time when the contract was terminated. The plaintiffs challenge the genuineness of the cross-claim.
In order to ascertain what rights the defendants did have at the time the contract was terminated it is necessary to consider the 300 specific items claimed by the defendants.
I have formed the opinion that for the purpose of identifying defects and assessing the necessary remedial work case it is more appropriate to prefer the opinion of Mr Short to the opinion of Mr Jankovic.
One matter to be considered is the reasonableness of the claimed rectification work. In Australian Education Union (Formerly Sait Inc) v Grieve [2000] SASC 381 Williams J discussed the assessment of damages in a case where an architect had failed to properly carry out the terms of his engagement. His Honour referred to Bellgrove v Eldridge (1954) 90 CLR 613, 618 where the High Court said in its joint judgement:
“But the work necessary to remedy defects in a building and so produce conformity formerly with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure. And it is obvious that the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. Indeed - and such was held to be the position in the present case - there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its place. In none of these cases is anything more done than that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace only a small part, or a substantial part, or, indeed, the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner's loss.
The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt…”
In Australian Education Union Williams J said:[38]
The normal measure of damages in such a case is the reasonable cost of reinstatement at the time that the defects were discovered. However, if the cost of remedying the defect is disproportionate to the end to be attained, the damages fall to be measured by the value of the building in proper condition less its value as it stands.
[38] para 13.
Williams J criticised the plaintiff in that case because it had not confined "itself only to remedying the defect in a reasonable manner" but "instead it entered upon a project of considerable magnitude which went far beyond the end which was to be obtained …and its cost was quite disproportionate to the remedial work that was reasonably required".[39]
[39] para 14.
His Honour's observations are apt in the present case because some of the recommendations of Mr Jankovic and Mr Faehrmann involve the removal of work such as large areas of roofing and floor tiling. In the opinion of Mr Short the extensive work contemplated by Mr Jankovic is not necessary.
In my opinion many of the recommendations of Mr Jankovic go beyond what is required to remedy the defects in a reasonable manner and are quite disproportionate to the remedial work that is reasonably required. I prefer the evidence of Mr Short. I prefer his evidence because the solutions which Mr Short proffers are more reasonable and proportionate to the practical consequences of the defect. More importantly they accord with common sense.
At its highest, based on Mr Faehrmann’s assessment, the defendants claim is now $284,742.83. Based on Mr Short's assessment the total cost of rectifying the defects would be $44,669.22.[40] In my opinion $44,669.22 represents the ceiling of the defendants’ claims. That figure still leaves open the question of whether the plaintiffs are liable for the cost of rectifying the defects.
[40] Defendants Outline of Submissions paras 13 and 14.
Mr Short has identified the defects which he accepts in his report of 2 March 2011. I accept the identification of the defects by Mr Short and also his assessment of the cost of rectification. Without dealing with the items seriatim, I accept each of the conclusions reached by Mr Short.
Mr Short does not address liability for the defects. Generally the defects relate to the work of sub-contractors for which the plaintiffs are not responsible.
One exception relates to the doorways from the garages which Mr Vizzari decided to reduce from the size shown on plans. That item can be attributed to Mr Vizzari himself. However Mr Misale did observe and agree to the work as it took place. The same change was made in each of the six units. Mr Misale may initially have been unhappy about the reduction in the size of the doorways but he accepted what was done and in my opinion the defendants cannot now complain about that item.
The defendants also complain that the balcony rails should have been aluminium instead of wood. They complain that the protective coating on the wood has deteriorated. Again the defendants observed the wood being installed and in fact Mr Misale participated in the installation of the wooden balcony rails himself. He purchased some of the timber which was used. The defendants applied the protective coating themselves. The deterioration which is now evident on the balcony rails is a consequence of poor maintenance by the defendants. In my opinion, while the plaintiffs were involved in the installation of the balcony rails any personal liability which the plaintiffs may have had has been released by the conduct of the defendants.
So far as the stainless steel wires between the upright poles on the balcony are concerned the defendants complain that plastic sleeves should have been placed around the wires where they pass through holes in the stainless steel posts. That was work done by Mr Vizzari but again Mr Misale observed the work as it proceeded and made no complaint at the time. There is no evidence that the wire is deteriorating where it passes through the posts. In my opinion the plaintiffs have no liability for their work in respect of this item.
Most of the defects listed in the Scott schedule such as those relating to the floor grates in showers, tiling, drainage flanges, gaps in bench tops, the application of the excess silicon, placement of roofing sheets, downpipe brackets, poor painting and grouting are the responsibility of sub-contractors.
The evidence does not establish any defect with the membrane on the bathroom floors. I find that the waterproof membrane was laid in the way that was customary.[41] There is no evidence of defects manifesting themselves because the membrane was not laid correctly.
[41] T 366.
Some of the items complained of, such as the deterioration of the timber handrails and coatings are a consequence of the fact that the units are now 5 years old and have been poorly maintained. There is a marked difference between those units which have been properly maintained and those which have not.
The claims such as those for removing all of the roofing iron, the granite bench tops in the kitchens and all the flooring tiles in the bathrooms are unreasonable and would not be allowed in any event.[42] For example, so far as the roofs are concerned, Mr Short suggested a minor adjustment to the gradient of the gutters. That suggestion is supported by common sense and would be a much simpler and more cost effective way of resolving any problem.
[42] T 417-425 and T 463.
Items such as the doorway in the garage, the balcony rails and the stainless steel wiring between posts on the balconies may have been work carried out by the plaintiffs, but that work was approved by Mr Misale during his regular inspections. So was much of the other work that the defendants now complain of.
It is significant that despite his extensive experience Mr Misale had not himself identified many of the defects listed by Mr Jankovic. The failure of the defendants to refer to the defects for more than 14 months, while they did identify other items in their solicitors’ letter, is an indication that the defendants had accepted the standard of the workmanship.
I have considered separately each of the defects listed in the Scott schedule. It is unnecessary for me to discuss them individually in these reasons.
The onus of proof for the cross-claim rests with the defendants. They have the obligation of showing that the plaintiffs are liable for particular defects. I find that the defendants have not identified any defect listed in the Scott schedule for which the plaintiffs are responsible.
There is evidence of the payment of $5,500 to Mr Pellicone for gates which had rusted. I accept that is an expense which the defendants have incurred, but there is no basis for holding the plaintiffs liable to reimburse that expense.
Mr Short whose evidence I accept, described the quality of the plaintiffs work as exemplary.
In view of my findings it is unnecessary to consider the claim for lost rent during the time when the rectification work would be carried out.
I accept that the fact that two of the units have been sold would not preclude the recovery of damages. De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28. However on the findings which I have made the defendants have no entitlement to damages. If the defendants did have an entitlement the question of reasonableness of the claim would arise. I have already found that much of the work described by Mr Jankovic is not reasonable.
The claimed rectification work has not been carried out and there is no suggestion that it will ever be done. It is 5 years since the contract was terminated. Mr Misale conceded in cross-examination that the work to the garage doors, the kitchen configuration and the wooden handrails would never be done.[43]
[43] T 754-755, 762-765, 759-760.
The entitlement to the cost of rectification was considered in Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 where the court referred to the reasons of Megarry VC in Tito v Waddell (No2) (1977) Ch 106 where the Vice-Chancellor said:
“Per contra, if 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.”
If it was necessary I would disallow many of the items in the Scott schedule on that basis. However as I have said I disallow the defendants cross‑claim for other reasons.
The cross-claim in respect of allegedly defective work must be dismissed primarily because the defendants have not established any basis for the liability of the plaintiffs.
The Cost of the Bank Guarantee
The defendants lodged a bank guarantee for $85,185 so that the lien could be removed from the property. The plaintiffs acknowledge that the lien could not be maintained because no contract sum was due and that the defendants are entitled to the cost of providing the guarantee. That cost was $6,261.10.[44]
[44] Exhibit D31.
Conclusions
On the plaintiffs claim there will be judgment for the plaintiffs for the sum of $112,730.74 based on a quantum meruit.
On the cross-claim there will be judgment for the defendants for $6,261.10.
I will hear counsel as to interest and costs.