Wykes v Ms and SJ Schols Pty Ltd; Ms and SJ Schols Pty Ltd v Wykes

[2018] NSWCATCD 50

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Wykes v MS & SJ Schols Pty Ltd; MS & SJ Schols Pty Ltd v Wykes [2018] NSWCATCD 50

Hearing dates:

22, 23 March 2017, 14, 21-23 August 2017; written submissions 21 August 2017, 20 November 2017, 12 January 2018, 2 February 2018

Date of orders:

30 August 2018

Decision date:

30 August 2018

Jurisdiction:

Consumer and Commercial Division

Before:

L Pearson, Principal Member

Decision:

(1) In proceedings HB 15/65625 and HB 17/05296, Shannon John Wykes and Shannon Leigh Wykes are to pay MS & SJ Schols Pty Ltd the amount of $251,551.76 within 28 days of the date of these orders;

 

(2) Proceedings HB 15/65625 and HB 17/05296 are otherwise dismissed;

 

(3) Either party may file written submissions within 14 days seeking an order in relation to the costs of the proceedings;

 

(4) If either party files submissions in accordance with order (3), the other party may file submissions in response within a further 14 days;

(5) Any submissions filed in accordance with orders (3) and (4) should address whether the question of costs may be determined on the papers and without a hearing pursuant to s50(2) of the Civil and Administrative Tribunal Act 2013.

Catchwords:

HOME BUILDING – residential building work – contract – whether fixed price or cost plus – whether written or oral – hybrid arrangement – whether sham – terms of contract – builder’s defects – quantum meruit

Legislation Cited:

Civil and Administrative Tribunal Act 2013
Home Building Act 1989
Home Building Regulation 2014

Cases Cited:

ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 665
Aon Risk Services Australia Limited v Australian National University [2009] HCA 27
Beckhaus v Brewarrina (No 2) [2004] NSWSC 1160
Bradshaw v Complete Coating Commercial Pty Ltd t/as CCC Civil [2017] NSWCATAP 209
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11.110
Kriketos v Livschitz [2009] NSWCA 96
Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Pickersgill v Tsoukalas [2009] SASC 357
Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21; (2008) 238 CLR 516
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47
Sopov & Anor v Kane Constructions Pty Ltd (No 2)[2009] VSCA 141
Tsoukalas v Pickersgill & Harvey [2008] SADC 32

Texts Cited:

Mason K and Carter JW, Mason & Carters Restitution Law in Australia, Third Edition, LexisNexis Butterworths, Sydney, 2016

Category:

Principal judgment

Parties:

HB 15/65625:
Shannon John and Shannon Leigh Wykes (Applicants)
MS & SJ Schols Pty Ltd (Respondent)

  HB 17/05296:
MS & SJ Schols Pty Ltd (Applicant)
Shannon John and Shannon Leigh Wykes (Respondents)

Representation:

Counsel:
T Bland (Applicants in HB 15/65625, Respondents in HB 17/05296)
D Sweeney (Respondent in HB 15/65625, Applicant in HB 17/05296)

  Solicitors:
Moroney Rutter Mantach (Applicants in HB 15/65625, Respondents in HB 17/05296)
Barnes Law Group (Respondent in HB 15/65625, Applicant in HB 17/05296)

File Number(s):

HB 15/65625HB 17/05296

Publication restriction:

Nil

REASONS FOR DECISION

1. These two applications under the Home Building Act 1989 (the HB Act) arise from the construction of a residential dwelling at XXX XXX Road Goulburn NSW. Matter HB 15/65625 was lodged on 8 December 2015 by Shannon John Wykes and Shannon Leigh Wykes, the owners of the property, against MS & SJ Schols Pty Ltd. Matter HB 17/05296 was lodged on 1 February 2017 by MS & SJ Schols Pty Ltd against Mr and Mrs Wykes. MS & SJ Schols Pty Ltd is a licensed builder, using the business name Endurance Constructions, and its directors are Mr Martin Schols and Mrs Sarah Schols. In these reasons Mr and Mrs Wykes are referred to as “the Owners”, and MS & SJ Schols Pty Ltd is referred to as “the Builder”.

2. The residential dwelling on the property is not complete. At the centre of the dispute between the parties is what contract governed the building works, it being common ground that whichever contract was applicable has been terminated. In summary, the Owners are seeking damages so that the building work can be completed, and the Builder is seeking payment of amounts owing, or payment for the value of the work done on a quantum meruit basis.

HB 15/65625 – the Owners’ Claim

3. In their Points of Claim (filed 1 August 2016) the Owners relevantly contend:

1. On or about 1 April 2015 the Owners entered into a HIA Building Contract for New Dwellings with the Builder;

2. The director and nominated supervisor of the Builder, Martin Lee Schols, holds a supervisors certificate, and is the guiding mind of MS & SJ Schols Pty Ltd;

3. The contract was a fixed price contract for $495,000 inclusive of GST subject to variations to the contract pursuant to the provisions of the contract;

4. The Builder obtained development consent on or about 1 April 2015 and according to cl 8(a) of the contract the date for commencement of works was to be on or about 29 April 2015;

5. Works did not commence until after 26 May 2015 when the deposit was claimed. The deposit was paid in full on 10 July 2015;

6. The works were not completed on or about 14 October 2015 nor was any extension of time applied for or granted;

7. On or about 10 November 2015 the house was between 55% and 65% complete, no variations in costing under the contract had been sought or approved. The Owners had paid approximately $250,000 to the Builder;

8. On or about 10 November 2015 Mr Schols attended a meeting called by him where in he asserted that he had spent $499,000 on the construction program;

9. On or about 11 November 2015 the Owners and Mr Schols attended the bank and met with the loan administration officer Jenelle Gay. The bank advised that the loan agreement was in breach and the bank was not going to release further funds to Mr Schols;

10. Mr Schols demonstrated an intention not to be bound by the contract by:

1. Offering on 10 November 2015 to go broke so as to give the owners access to insurance to complete the building program;

2. On 11 November 2015 advising the Owners he would pack up and leave the site if the bank were not going to keep paying him;

3. Advising Fair Trading on 20 November 2015 that the Owners were indebted to him for $250,000 on the basis of a cost plus contract;

4. Abandoning the site on or about 25 November 2015;

11. On or about 18 November 2015 the Owners served a breach notice on the builder, no proper response was received in respect to that notice within 10 days or at all;

12. On or about 2 December 2015 the Builder and Mr Schols retained lawyers who alleged a cost plus contract, and claimed $241,569.66 asserting rights under a cost plus contract and denying the validity of the notice sent under the contract thus demonstrating an intention not to be bound by the contract;

13. The Owners accepted the repudiation of the contract by the Builder and Mr Schols;

14. Section 48MA HB Act should not be applied, or if in the alternative the Builder is ordered to complete the contract conditions should apply;

15. The Owners are claiming:

1. damages as a result of the default and repudiation of the contract in accord with the defects and incomplete works as identified in the report of John Worthington & Associates, accepting that any award will be reduced by the $245,000 which is the outstanding contract amount;

2. rental of $300 per week from 14 October 2016 to 25 July 2016 and $340 per week from 26 July 2016 until the date of practical completion, and the sum of $100 per week for child care expenses from 3 May 2016; and

3. costs.

4. In the amended Points of Defence (filed 10 March 2017) the Builder:

1. Agrees that the Builder entered into a contract with the Owners to do residential building work involved in the construction of the Owners’ home at XXX XXX Road, however denies that the contract was in the terms alleged by the Owners and says the contract was made on or about 28 February 2015 and was a cost-plus contract set out in a document of that date; and that on or about 31 March 2015 the parties entered into a fixed price contract document bearing the date 1 April 2015 and that the Builder had signed and which formed a variation to the cost-plus contract relating to the part of the work involved in constructing the home;

2. Denies the allegation that on 11 November 2015 Mr Schols advised the owners he would pack up and leave if the bank was not going to keep paying him;

3. Says that the owners indicated at the meeting at the bank and elsewhere on 11 November 2015 that they were unable or unwilling to honour their contractual obligations or pay for the work that was done, thereby repudiating the contract which the Builder accepted by leaving the site;

4. Does not admit that the Owners served a breach notice on or about 18 November 2015 and no proper response was received, and says in any event that at the time of the alleged notice the Owners had already repudiated the contract which repudiation was not cured, and the alleged notice was invalid.

HB 17/05296 – the Builder’s Cross Application

5. In the amended Points of Cross Application (filed 10 March 2017) the Builder relevantly contends:

1. It entered into the cost plus and fixed price contract referred to in paragraph (1) of its Points of Defence to the Owners’ application;

2. From late 2014 to late 2015 the Builder undertook work at the property pursuant to the contract, in the nature of the design and construction of a luxury home, incurred expenses purchasing materials and hiring labour and tradespeople, undertook and caused work to be undertaken in connection with the construction of the house;

3. The Builder did work pursuant to the contract until November 2015 when the Owners intimated an inability or unwillingness to pay the contract price, at which date the Builder ceased work and suspended performance of the contract pursuant to the terms of the contract;

4. Up to the date of it ceasing work the Builder supplied labour and trades and materials to the amount of at least $519,027.99, entitling it to payment of at least that amount pursuant to the contract;

5. The Builder issued payment claims/progress payments/invoices for its claim of at least $519,027.99;

6. The Owners paid $258,350 of the amount for which they were liable under the contract leaving at least $260,677.99 unpaid;

7. The Owners have failed and refused to pay that amount;

8. The Owners’ denial that the contractual relationship between the parties is governed by the contract asserted by the Builder in its Points of Defence to the Owners’ claim constitutes a repudiation of that contract;

9. The Builder has accepted that repudiation and terminated the contract, and claims the unpaid amount together with interest and costs;

10. In the alternative, and to the extent that the Tribunal finds that by virtue of s 10 of the HB Act or on any other basis, the Builder is not entitled to enforce or claim damages or payment in respect of some or all of the work done for the Owners, it is entitled to payment for the value of the work done on the basis of restitution measured on a quantum meruit basis:

1. At all material times the owners owned the property;

2. From October 2014 to late 2015 the Builder undertook work at the property in the nature of the design and construction of a luxury home and to that extent incurred expenses purchasing materials and hiring labour and tradespeople, undertook and caused work to be undertaken in connection with the construction of the house;

3. The work was undertaken at the owners’ request and with their knowledge and consent and on the understanding they would pay a fair value for that work and materials and the construction of their house;

4. After the Builder did work and provided materials and claimed from the Owners the value of that work and materials the Owners, although they have paid for some of the work and materials, have failed or refused to pay for the balance of the work and materials, and the Builder claims the value of the work and materials that have not been paid for; and

11. The Builder claims $270,677.99 for work and materials not paid for together with interest and costs.

6. In their Points of Defence (dated 16 August 2017) the Owners relevantly contend:

1. The Owners admit the existence of a fixed price contract dated 1 April 2015;

2. The Owners were until the letter from the Builder’s lawyer dated 2 December 2015 not aware of the claim in respect to a cost plus contract as alleged;

3. If the Tribunal finds that the cost plus contract governs the relationship the Owners rely on the special condition that the works would proceed under the fixed price contract and the exclusions listed therein would be provided on a cost plus basis;

4. The writing on each of the two fixed price contracts are representations as to future matters:

1. The price on the fixed price contract of $495,000 is a representation as to a future matter being the likely costs of construction of a house;

2. That representation is supported by a further representation of the value of the works submitted by the Builder to their insurance broker for statutory insurances under the HB Act;

3. The Builder has put into evidence a further copy of a fixed price contract which contains the same representation as to the costs to build the house;

4. Such representation was made untruthfully or recklessly in circumstances where the Builder knew or ought reasonably have known the Owners would rely upon that representation in respect of the cost to build the house, and thus was a breach of s 18 of the Australian Consumer Law (ACL); and

5. The Owners relied on that representation in executing the fixed price contract and as such any amount found to be owing to the Builder is damages to the Owners pursuant to s 236 of the ACL;

5. The Owners admit the works up until the development application was submitted to Council on 12 March 2015 but says that those works were paid for separately;

6. The Owners admit the existence of a contract but say the contract is the executed fixed price contract dated 1 April 2015;

7. The last day that the Builder attended the site was 3 November 2015;

8. The abandonment of works and the fixed price contract executed by the parties by the Builder amounts to repudiation;

9. The Owners admit that Mr Schols presented them with a bill for the amount said to be owed ($519,027.99) but otherwise say that the abandonment of works and the fixed price contract executed by the parties by the Builder amounts to repudiation;

10. The Builder was paid in accordance with the fixed price contract: as at the date of abandonment of the site the works completed were Stage 4 (supply and complete frame/floor pitch, roof/trusses, fascia and windows installed, structural heads installed), which represents 52.2% of the contract which is $258,390 based on the $495,000 in the contract;

11. The Owners admit an amount of up to $18,000 in variations but none of those variations were in accordance with the terms of the contract;

12. The Owners deny that any purported progress claim for $519,027.99 has been made. They admit that Mr Schols has made an ambit claim of that amount but they otherwise deny the claim that the Builder issued payment claims/progress payments/invoices for $519,027.99 and specifically being given any documents on the dates alleged or at any other time;

13. The Owners admit that payments totalling $258,350 were made and state that those payments were in accord with the terms of the fixed price contract executed by the parties;

14. The Owners say that as the works are only 52% complete they have paid all the required amounts for the works undertaken;

15. The Builder’s alternative claim in quantum meruit should be dismissed because:

1. the insurance value is grossly inadequate;

2. the Builder has made misleading and deceptive statements which induced the Owners into the contract;

3. the Builder has abandoned the works and the contract;

4. the works are defective and require allowances to rectify;

5. the claim is excessive and does not represent the true value of the works undertaken;

6. the Owners have incurred costs by reason of the extensive delay in bringing the matter to hearing; and

16. In the alternative the Owners admit they own the property; that the Builder undertook work from October 2014 to late 2015 while denying that the works were pursuant to a design and construct contract or a cost plus contract, and say that the only contract is the executed contract dated 1 April 2015; say that payments were made in direct correlation with the fixed price contract dated 1 April 2015 executed by the parties; and say that the Builder is not entitled to any amount for the value of work and materials as claimed.

Jurisdiction of the Tribunal

7. The proceedings involve a “building claim” relating to “building goods and services” as defined in s48A of the HB Act, and the proceedings are within the monetary limit and have been commenced within the limitation period in s48K of the HB Act. The Tribunal has jurisdiction in both matters.

The Issues

8. The issues which require determination are:

1. What contract or contracts governed the relationship between the parties;

2. The circumstances in which any such contract or contracts came to an end;

3. Whether the Owners have established liability and loss in respect of the cost of completion of the building works, remediation of any defects, and the cost of rent or other consequential losses claimed;

4. Whether the Builder has established a claim for payment of amounts owing under a contract with the Owners, or a claim for compensation for the cost of work performed or services provided under the principle of quantum meruit.

Factual Background and Agreed Facts

9. The following summary of the background is based on facts which were not in dispute:

1. Mrs Shannon Wykes and Mrs Sarah Schols were friends, and the parties knew each other socially for some years;

2. Mr and Mrs Wykes were transferred to Goulburn for work in 2014, and sold their house at South West Rocks in August 2014;

3. Mr and Mrs Wykes purchased the block of land at XXX XXX Road in July 2014, exchanging contracts on 21 July 2014 for $295,000;

4. In July and August 2014 there were discussions between the parties about Mr Martin Schols, director of the Builder, doing the build;

5. Mr Schols introduced Mr and Mrs Wykes to Stephen Eldred, the draftsman who prepared the plans;

6. Finance was provided by the Commonwealth Bank, for a loan amount of $473,917.00 (which included a low deposit premium of $23,917.00);

7. A baby shower was held on 28 February 2015 before the birth of Mr and Mrs Wykes’ first child in April 2015. Mrs Schols attended the baby shower and brought documents relating to the build, some of which were signed;

8. The development application with plans was lodged on 12 March 2015, and development consent was granted on 1 April 2015;

9. The plans were subsequently amended;

10. Earth works commenced on site on 11 June 2015;

11. On 10 November 2015 there was a meeting between Mr and Mrs Wykes and Mr Schols;

12. On 11 November 2015 there was a meeting between Mr and Mrs Wykes and Mr Schols at the Commonwealth Bank; and

13. Work ceased on the site in November 2015.

10. In the Statement of Agreed Facts the parties agree:

Termination of contract

Whichever contract was applicable to the building works has been terminated.

Payments made by the Homeowner

The homeowners have made the following payments to the Builder on or about the dates set out below:

Date         Payment amount

10 July 2015      $24,750

7 September 2015   $20,250

25 September 2015   $83,250

13 October 2015   $47,600

6 November 2015   $82,500

TOTAL      $258,350

Expenses said to be incurred by the Builder

The Builder has so far incurred the expenses set out below:

Date Range               Invoice Amount   

17 October 2014-21 June 2015      $75,995.57

22 June 2015-9 August 2015         $54,663.50

10 August 2015-20 September 2015      $237,647.78

21 September 2015-1 November 2015   $133,072.50

1 November 2015-11 November 2015   $13,052.64

TOTAL               $519,027.99

Experts’ Positions according to initial reports

The total contract price contended for the homeowners, alleged to include all of the building works is $495,000.

The value of the work completed to date is between $432,000 (Homeowners expert) and $683,127.90 (Builder’s expert).

The amount said to be invoiced by the Builder to date for work completed and materials delivered to site is $519,027.99.

The amount paid by or on behalf of the Homeowners in relation to the work completed is $258,350.00.

Papers delivered to the Homeowners

On 28 February 2015, the Builder by Sarah Schols delivered to the Homeowners papers in relation to the project, some of which were signed by the Homeowners on that date, following their delivery.

Relief – s48MA

To the extent that section 48MA of the HB Act is applicable, in the exercise of its discretion the Tribunal ought not make an order under section 48MA. The principal reasons for the exercise of the discretion in that manner are the history between the parties and the breakdown of trust between the parties.

Procedural background

11. The parties have been legally represented pursuant to leave granted at the first directions hearing in HB 15/65625 on 8 February 2016. It is not necessary for the purpose of these reasons to recount the procedural history in detail, other than to note that the conduct of the proceedings has been prolonged by many instances of non-compliance with the Tribunal’s procedural directions, by both parties. While the Owners’ application was lodged on 8 December 2015, the Builder’s claim was not lodged until 1 February 2017, despite a direction made on 8 February 2016 that it was to do so by 22 February 2016. When the hearing commenced on 22 March 2017 the Owners had not filed their Points of Defence to the Builder’s cross application, there was no joint tender bundle as directed, and the parties’ experts had not conferred. It took some further time for the experts to confer, including a further site visit after the second day of hearing.

12. The agreed Joint Tender Bundle was provided to the Tribunal on 17 August 2017, after the first two days of hearing during which the contents had been separately tendered. References in these reasons to the documentary evidence provide page references to the three volume joint tender bundle as “JTB”.

13. At the conclusion of the hearing on 23 August 2017 directions were made including for a further hearing date if Mr Wallace, one of the Builder’s witnesses, was to give oral evidence. The directions included directions for exchange of written submissions if that hearing date was vacated, including provision of an agreed transcript.

14. The agreed transcript was received on 20 November 2017. References to the transcript in these reasons are recorded as “T..”.

15. The written submissions provided by the Owners are:

1. Submissions on contract law handed up on 21 August 2017 (Owner submissions (1));

2. Further written submissions in chief on 20 November 2017 (Submissions 20/11/17);

3. Supplementary submissions on 12 January 2018 (Supplementary Submissions); and

4. Submissions in reply on 2 February 2018 (Reply Submissions).

16. The Owners’ supplementary submissions of 12 January 2018 were provided pursuant to a direction made on 20 December 2017. The directions made on 20 December 2017 extended the date for the Builder to provide submissions to 12 January 2018, and leave was granted for the Owners to provide supplementary submissions in chief by 12 January 2018 on the following matters:

(a) whether any, and if so, which, matters identified in the Points of Claim in HB 15/65625 are no longer pressed;

(b) clarification of paragraph (113)(c);

(c) any necessary cross references to the submissions on Contract law document dated 20 August 2017;

and

(d) any further submissions in chief on items (2)(iv), (v), (vi), (viii)-(xiv) in the written submissions dated 14 November 2017.

17. Paragraph (113)(c) of the Submissions of 20 November 2017 stated that the Owners’ entitlement to damages included “The cost to service the loan from the contract date of completion 24 weeks after 1 April 2015 (item 12 JTB 171) or 16 September 2015 (which requires quantification)”. The Supplementary Submissions annexed additional evidence in support of the Owners’ claim for costs to service the bank loan and the cost of rent. No leave was sought, or granted, on 20 December 2017 or subsequently for the provision of any further evidence, and that additional evidence has not been taken into account.

18. The Builder’s written submissions are:

1. Submissions in chief provided on 15 January 2018 (Builder’s submissions);

2. Submissions in reply dated 2 February 2018, received on 6 February 2018 (Builder’s reply submissions).

The Evidence

19. The Owners rely on the following evidence:

1. Statement by Shannon John Wykes 20 May 2016 (referred to below as SJW (1));

2. Affidavit (unsigned) by Shannon John Wykes filed 10 March 2017 (SJW (2));

3. Statement by Shannon Leigh Wykes (unsigned) filed 1 August 2016 (SLW (1));

4. Statement by Shannon Leigh Wykes (unsigned) filed 17 March 2017 (SJW (2)); and

5. Expert report by Michael O’Donnell 24 June 2016, and a supplementary report dated 17 August 2017.

20. Mr Shannon John Wykes and Mrs Shannon Leigh Wykes gave oral evidence and were cross examined.

21. Oral evidence was given on behalf of the Owners on 22 March 2017 by Mr Gavin Reid, Ruff Rock Pty Ltd.

22. The bank provided documents relating to the Owners’ loan under summons (ex M, JTB 1381-1502).

23. The Builder relies on the following evidence:

1. Affidavit of Martin Schols 12 February 2017 (MS(1));

2. Affidavit of Martin Schols 22 March 2017 (MS(2));

3. Affidavit Sarah Schols 10 February 2017 (SS);

4. Affidavit Steven Eldred 10 February 2017 (SE);

5. Affidavit Thomas Wallace 10 February 2017 (TW);

6. Affidavit of David Binfield 9 February 2017 (DB), and supplementary affidavit filed 22 March 2017;

7. Affidavit of Neha Sameer Pandya filed 22 March 2017;

8. Affidavit of Patrick Byrne 22 August 2017 (PB);

9. Expert reports by George Zakos 13 March 2017, and 14 March 2017.

24. Mr Martin Schols, Mrs Sarah Schols, Mr Daniel Binfield, Mr Patrick Byrne, and Mr Steven Eldred gave oral evidence and were cross examined.

25. At the time of the hearing Mr Wallace was residing in the USA. The Owners required him for cross examination. At the conclusion of the fifth day of hearing on 23 August 2017 a further date was set to enable Mr Wallace to give oral evidence in person, with a timetable for submissions should the parties agree that he was not required to give oral evidence. On 25 August 2017 the parties advised the Tribunal that they had agreed that Mr Wallace would not be required to give oral evidence on 3 October 2017, providing an agreement as to his evidence. That agreement was as follows:

1.Mr Wallace’s evidence (Exhibit E) is to be admitted in full without the need for him to be cross examined.

2.The Homeowners are precluded from:

(a)raising any issue as to Mr Wallace’s credibility; and

(b)making any submission that Mr Wallace’s evidence should be given less weight by reason of him not giving evidence personally.

3.The Builder is precluded from taking the point that Mr Wallace’s evidence must be accepted by the Tribunal because he was not cross examined. For example, if the Tribunal was to find that Mr Wallace’s evidence was inherently implausible in light of the totality of the other evidence, it would be open to the Tribunal to give his evidence less weight for that reason (but not by reason of Mr Wallace’s credit).

4.The Homeowners are not precluded from making submissions, notwithstanding they do not cross examine Mr Wallace, that:

(a)Mr Wallace’s evidence is irrelevant in whole or part;

(b)In regard to the meaning to be applied to comments made by Martin Schols;

(c)even if Mr Wallace assisted in drafting with the document to which he refers:

(i)the author of a particular clause is not relevant to the document; and

(ii)It does not mean that the document he may have assisted drafting was ever given to the Homeowners.

5.The Builder is not restricted in the submissions it makes about the weight or relevance to be given to Mr Wallace’s evidence, other than in respect of paragraph 3 above, and may make submissions contrary to paragraph 4 above.

26. The parties’ experts, Mr O’Donnell and Mr Zakos, conferred and produced two joint reports on 20 August 2017: Defective Works (ex 5), and on the cost of the works to date and the cost to complete (ex 6). The experts gave oral evidence concurrently on 23 August 2017.

1.What contract or contracts governed the relationship between the parties

27. The Owners’ case is that there was a single contract, a fixed price contract, dated 1 April 2015. That was the only contract that complied with the HB Act, and was signed by both parties.

28. The Builder’s case is that on 28 February 2015 the parties entered into a cost plus contract dated 28 February 2015 and on the same date, the Owners were provided with a fixed price contract document dated 1 April 2015. That document is referred to in the Schedule to the cost plus contract. The Builder requested the Owners not to use the fixed price contract, and there was another document also dated 1 April 2015, which is a different version of the fixed price contract, with larger carve outs. The intention was to provide that document to the bank to satisfy its requirements for a fixed price contract with flexibility.

The Contract documents

29. There are four documents in evidence, one in the form of a cost plus contract and three in the form of fixed price contract. In oral evidence the witnesses were taken to these documents as presented in a folder marked MFI 1, behind respectively Tabs A, B, C and D, in order of asserted (and disputed) dates. In order to avoid confusion with transcript references, these reasons refer to each of those documents by reference to the MFI 1 ordering. The documents are:

1. Tab A: HIA NSW Residential Building Contract for Works on a Cost Plus Basis (part of ex A, JTB 638-679);

2. Tab B: HIA NSW Residential Building Contract for New Dwellings (part of ex A, JTB 680-721);

3. Tab C: HIA NSW Residential Building Contract for New Dwellings (part of ex F, JTB 1172-1220 );

4. Tab D: HIA NSW Residential Building Contract for New Dwellings (ex 4, JTB 500-546).

30. The Owners’ position is that the Tab D document dated 1 April 2015 for a fixed price contract at $495,000 is the only executed contract and the only contract agreed by the parties. The Builder’s position is that the Builder never agreed to enter into, and the parties never entered into, either the Tab B or Tab D Fixed Price Contracts, rather on 28 February 2015 the parties entered into the Tab A Cost Plus Contract, and the only contract documents the parties entered into were the Tab A Cost Plus Contract and the Tab C Fixed Price Contract.

31. The Tab D document bears the signature of each of the relevant parties, however the Builder’s case is that that document is not in the same form as the document provided to the Owners on 28 February 2015, as the Owners have substituted the Progress Payments Schedule page, and in any event the Builder did not intend to be bound by that document. The Tab A document in evidence is signed only by Mr Schols, and the Builder’s case is that in fact the Owners signed it when Mrs Schols took it to the baby shower, but have retained the signed copy.

32. All four documents identify the Owners and the Builder as the contracting parties. The evidence of Mr Schols and Mrs Schols that the handwritten sections of all of these documents, other than the signatures of other people, were in Mr Schols’ handwriting was not disputed.

33. The Tabs A, B and C documents are in evidence as photocopies. The Tab D document is the original HIA booklet which is exhibit 4, with the Progress Payments sheet as a separate sheet of paper stapled to the booklet.

(1)Tab A

34. The Tab A document in the HIA NSW Residential Building Contract for Works on a Cost Plus Basis form is dated 28 February 2015. It identifies as sources of funds $200,000 (owner) plus $500,000 (lending body), with pre approval to borrow up to $1,000,000. The contract period is 24 working days/weeks (not specified); liquidated damages $1.00; charge out rates of $70.00 + GST per hour; a builder’s fee of 10%, and a builder’s margin for variations as 10%. Progress stages are “Generally on a monthly basis”. The Sch 5 Description of Work is described:

Construction of new custom designed four bedroom residence (subject to special conditions below)

Estimated cost of building works $600,000-$650,000 (with basic inclusions), plus site and administration costs (see special conditions below)

Shed and pool to be independently contracted by owners.

35. The Special Conditions are:

Conditions re: proposed fixed price contract.

-The bank will not lend to the owners on a cost plus basis, which was the costs basis previously agreed between the parties for the work

-the bank requires a fixed price contract to provide finance

-the builder will only work on a costs plus basis

-parties agree that an estimated $500,000 (five hundred thousand) of the costs of the shed and building works (excluding any inclusions or site costs), will be set out in a fixed price contract so that the owners can obtain finance of up to $500,000 (five hundred thousand) to fund those aspects

-even so, the parties agree that despite any wording to the contrary in the fixed price contract, the “fixed price” in the fixed price contract, plus all costs of the shed and/or building works, and any other work undertaken by the builder in relation to the shed, pool, site, admin or project generally, are all to be calculated by the builder and charged to the owners solely on the costs plus basis set out this contract and are to be paid for by the owners from their savings, together with any additional borrowings as necessary up to the pre approved $1,000,000 (one million dollars)

-the parties agree that this costs plus contract is to prevail over any later fixed price contract to the extent of any inconsistency.

Costs

Estimated total cost of project $750,000 (seven hundred and fifty thousand) to $800,000 (eight hundred thousand)

Subject to the following

See “special conditions” 2 attached.

36. Special Conditions continued onto a second page:

Costs continued

-1:project in Goulburn – outside builder’s usual trade area, so not access to usual contractors, which may increase costs

-2:builder’s usual 20% margin reduced to 10% (friends & family)

-3:owners have access to friends and family, who will provide electrical and plumbing services at discounted rates, which may reduce costs, owners will provide free labour

-4:inclusions of a basic level only allowed for

-5:pool to be built by Rough Rock Pty Ltd. Initial indication of cost of $30,000 (thirty thousand) received from Marshall

-6: shed: shed components and shed slab to be supplied by Ranbuild as per quote to owners ($50,000) (fifty thousand). Shed to be erected by owners

-7: site and admin costs estimated at $50,000 (fifty thousand).

37. This document is initialled and signed by Mr Schols, with his signature witnessed by Mr Thomas Wallace.

38. In the Builder’s written submissions this document is identified as “the Cost-Plus Contract”. The Builder’s case is that this document was taken by Mrs Schols to the baby shower on 28 February 2015, signed by Mr and Mrs Wykes, and retained by them.

(2)Tab B

39. The Tab B document is in the form of a fixed price contract using the HIA NSW Residential Building Contract for New Dwellings, and is dated 1 April 2015. The Contract price is $450,000 plus GST, $495,000; deposit $24,750.000; builder’s margin 10%; contract period 24 weeks; liquidated damages $1.00. The “Sources of funds” section is not completed.

40. Schedule 2 Progress payments and stages are recorded in handwriting on what appears to be a separate sheet:

1 – 5% deposit = $24,750

Stage 2 – 5% deposit plus – completion of excavations, completion of house slab, 50% deposit of pool contract, 50% deposit of shed contract (includes slab). Initial rough in of electrical, gas, plumbing

T = $108,500

20.91%

Stage 3 – Delivery and erection of shed (final 50%)

Electrical rough in and final fix to shed

Supply, instal 2x 10ltr tanks to sub floor

Supply, instal sewer treatment tank & dispersion

T = $47,600.00

9.62%

Stage 4 – supply and complete frame/floor, pitch roof and trusses

Fascia and windows installed, structural heads installed

T = $82,500

16.67%

Stage 5 – close up – all blockwork/cladding/eaves/barges and roofing completed, rough in of electrical & plumbing, all insulation completed

All external doors completed/locked

Concrete polishing first cut

T= $117,000

23.64%

Stage 6 – fix out – completion of all wall & ceiling linings, architraves & skirtings completed, internal doors & furniture, cupboards & joinery installed

T = $60,000

12.12%

Stage 7 – painting and tiling completed, completion of pool (50% of contract)

T = 52,150

10.54%

Stage 8 – practical completion

T = $7500

1.52%

TOTAL = $495,000

= 100.02%

Check this out guys, see if you agree, obviously there will be a bit of juggling

41. The Sch 4: Description of work is “Construction of new four bedroom residence, with new inground pool and large storage shed”. Sch 6: Prime Cost and Provisional Sum Items is left blank. There are no Special Conditions.

42. This document is signed by Mr and Mrs Wykes and Mr Schols, with all three signatures witnessed by Gregory Farmer. Each page is initialled by Mr Schols and by one of the Owners, other than the Progress Payments page which is not initialled.

43. In the Builder’s written submissions this document is identified as “the Sham Contract”. The Builder accepts in submissions (Builder submissions [63]-[65]) that the version of this document in evidence is not a copy of the version as provided to the Owners: it has the addition of the Owners’ initials and signatures, the witnessing of the Owners’ signatures, and the witnessing of Mr Schols’ signature. The Builder’s case is that the Owners used this contract to construct the Tab D document.

(3)Tab C

44. The Tab C document in an HIA NSW Residential Building Contract for New Dwellings form is also dated 1 April 2015. It differs from the Tab B document:

1. in the list of sources of funds:

The owner: $200,000 plus

The lending body: $500,000

Other: Pre approval to borrow up to $1,000,000

Total funds: $1,200,000

2. the terms of the handwritten Progress Payment sheet are the same as those in the Tab B document, however

1. the 5% deposit is specified separately as Stage 1, and

2. there is no note “Check this out guys, see if you agree, obviously there will be a bit of juggling”.

45. On page 6 the Sch 4 Description of Work is the same. Sch 3 Excluded Items (clause 18) includes “Please see Schedule 6”. Schedule 6 Prime Cost and Provisional Sums Items is a six page handwritten document. Two pages are a list headed “P.C.Schedule” listing a number of items as “Not allowed”, other than for floor and wall tiles, respectively 80m2 and 50m2 at $45.00 m2. For Provisional Sums, allowances are stated for concreting, electrical, plumbing, and painting work; no allowance is included for floor coverings, joinery, outdoor BBQ/entertaining area, pool and spa, shed, on site shipping container, driveway, landscaping and unforseen conditions of site. Estimated costs are provided for joinery ($40,000), pool and spa ($80,000), shed ($75,000), shipping container ($850), driveway ($9,000).

46. At the end of Sch 6 is:

Special conditions - In the event that the amount expended in respect of any prime cost or provisional sum item exceeds the amount allowed for in Schedule 6 above, then the amount by which the allowance for the item is exceeded is to be calculated on a cost plus basis in accordance with the information set out in Schedule 2 of the costs plus contract dated 28th February 2015 (previously provided to the owners) and is to be paid by the owners to the builder as and when invoiced.

47. This document is signed by Mr Schols, witnessed by Mr Wallace. Each page is initialled by Mr Schols.

48. In the Builder’s written submissions this document is identified as “the Fixed Price Contract”. The Builder’s case is that this document was left by Mr Schols behind the screen door of the Owners’ home on the morning of 31 March 2015. The Builder accepts (Builder submissions [427.5]) that there is no evidence that the Owners signed this document.

(4)Tab D

49. The Tab D document in the HIA NSW Residential Building Contract for New Dwellings form is dated 1 April 2015. The Contract Price details, builder’s margin, contract period and liquidated damages provisions are the same as for the Tab B and Tab C documents. The Sources of funds section is not completed. The Schedule 4 Description of Work is the same as in the Tab B and C documents.

50. The Schedule 2 Progress Payments list is the same as that in the Tab C document, with two exceptions. In the Tab D document Stage 1 5% Deposit $24,750 is listed separately at the top of the page. The same information is recorded at the top of the page in the Tab B document; Stage 2 includes a reference to “5% deposit plus”, and there are two figures shown for Stage 2, the higher one (which includes the amount of the deposit) being crossed out, leaving the final figure $103,500 the same as it appears in the Tab D document. The second difference is that the Tab D document does not include the handwritten comment at the foot of the page “Check this out guys, see if you agree, obviously there will be a bit of juggling”. In the original document tendered as exhibit 4, the Progress Payments page is a separate sheet of paper stapled to the booklet. That page appears to be a photocopy.

51. There is no reference to Schedule 6 at Sch 3: Excluded Items, and no list of exclusions.

52. This document is signed by Mr and Mrs Wykes and Mr Schols, all three signatures witnessed by Mr Farmer. Each page, including the Progress Payments page, is initialled by Mr Schols and one of the Owners.

53. In the Builder’s written submissions this document is identified as “the Homeowners Manufactured Contract”. The Owners’ case is that this document was brought by Mr Schols on 1 April 2015 and discussed with them, and they later signed it and had it witnessed. It was common ground that this was the document provided to the bank.

Insurance documents

54. The insurance documents in evidence are:

1. Statement of Cover for Home Building Compensation Fund, issued 13 May 2015, contract price $495,000 and date 28 February 2015, with covering letter on Elders letterhead dated 20 May 2015 (JTB 764-770);

2. CGU Insurance Ltd Public Liability and Product Liability certificate of currency for Endurance Constructions (the business name of the Builder) dated 27 October 2014 (JTB 771);

3. Certificate of Currency Annual Contract Works Insurance for 24 March 2015-24 March 2016, contract value $495,000 (JTB 892) (CWI);

4. Quotation for Contract Works and Public Liability cover dated 6 March 2015, contract value $495,000 (JTB 893-4).

55. The application for home warranty insurance (HWI) is at JTB 634-637. It is dated 20 February 2015, states the contract price as a “standard fixed price/lump sum contract” at $495,000, and estimated date for contract signing as 28 February 2015, and estimated start date 1 April 2015, and is signed by Mr Schols.

Owners’ submissions

56. The Owners rely in support of their contention that the Tab D Fixed Price Contract for $495,000, and not any alternative or earlier dated contract, is the contract applicable to the building works, on the following:

1. The surrounding circumstances looked at objectively were that on 28 February 2015 the plans were not complete and so any price applied would be inaccurate;

2. Of the bank’s pre-approval amount of $790,000 for the house and land the land component was known and the remaining $500,00 was for the building project;

3. The Builder was limited by reason of the cap on value of work by the insurer to an amount of $500,000;

4. The evidence of Mr Schols that on 31 March 2015 he went to the Wykes’ property with the second version of the fixed price contract including a new Sch 6 so as to reduce costs to about $495,000;

5. Payments were made in accordance with the schedule of payments in the Tab D document;

6. The cost plus contract has a special condition which purports to make it dominant over the fixed price contract however there is no reference in the fixed price contract to the precedence of the contract documents. Clause 14 of the fixed price contracts lists all the contract documents and clearly ascribes the precedence of the documents;

7. There is no correspondence in respect of the claims said by the Builder to have been made under the cost plus arrangement, and the correspondence points to the job continuing and not being delayed save the delay in release of payments by the bank;

8. There is no evidence of any communication requesting the return of the cost plus contract said by the Builder to have been signed on 28 February 2015 by 31 March 2015, or during the works, and no subsequent mention until 10 November 2015;

9. Looking at the parties’ conduct and the chronology of events according to the evidence of Mr Schols, and overlaying the statutory requirements of the HB Act, the agreement was fluid until development consent was lodged on 12 March 2015 or 1 April 2015 the date of approval, and fell into the third limb of Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72, so that the intention of the parties was not to make a concluded bargain at all unless and until they executed a formal contract;

10. Based on the evidence of Mr Schols, on 30 March 2015 he wrote a new form of fixed price contract including sch 6 exclusions, which was a new bargain. This amended document was unilaterally changed and did not have the consent of the Owners, the result being that the contract was unilaterally abandoned by Mr Schols hence the pleading in quantum meruit.

Builder’s submissions

57. The Builder submits that:

1. There were a number of meetings after the Owners purchased the land and before 28 February 2015 at which the parties discussed the type of house the Owners wanted to build, the financial basis of the build, the Owners’ budget, what the Owners would need to budget for, and the plans, following which the Owners agreed with the Builder that all the work would be charged at the Builder’s family and friends rate of cost-plus 10%, and no other potential financial basis for the building works was discussed or agreed;

2. On 7 November 2014 the Owners met with the bank and obtained pre-approval for a loan of $474,025; were told their borrowing capacity was up to $1,000,000 to build the house; and were advised that the bank would not lend on the basis of a cost-plus contract for less than $1million and required a fixed price contract;

3. The Owners sought a loan of $450,000 as they had $136,000 partly proceeds from the sale of the South West Rocks house which added up to just under $600,000 which was their budget as it had been discussed with Mr Schols and Mr Eldred;

4. On 11 November 2014 the Owners requested that the Builder enter into two contracts with them, a cost plus contract using the family and friends rate of cost-plus 10% and a fixed price contract to satisfy the requirements of the bank;

5. There was a meeting on 30 January 2015 at which the request for two contracts, including a fixed price contract for approximately $500,000, was discussed. While the owners deny this conversation took place they do not give any evidence of an alternative conversation or indicate how the contract went (on their version of events) from an owner builder to fixed price;

6. From December 2014 to February 2015 the Owners enlarged the house increasing the cost by $50,000, added a large shed increasing the costs by $75,000, and added a pool and spa increasing the costs by over $150,000;

7. as at 30 January 2015 the pool and spa and the shed were being supplied and constructed by third parties and did not form part of the building works undertaken by the Builder;

8. in discussions with the Owners from the time of purchase of the land in July 2014 to February 2015, at some of which (22 October 2014, 24 November 2014, 18 January 2015) Steven Eldred was present, the financial basis of the build was always on a cost plus basis, which is the usual basis on which the Builder does large jobs, his usual rate being cost plus 20%;

9. from December 2014 to February 2015 the Owners enlarged the size of the house and garage, added a large shed to the building works, and added a pool and spa to the building works, which increased the estimated cost of the building work by over $150,000 from the initial $600,000 to just under $900,000;

10. Mr Schols discussed his concerns about the contracts with Mr Wallace who assisted in preparation of the cost plus contract. On 28 February 2015 Mr Schols and Mr Wallace drafted the Tab A Cost Plus contract which included special conditions noting that the parties agreed to enter into a fixed price contract however to the extent that the fixed price contract was inconsistent with the cost plus contract, that contract was to prevail. That contract included estimates of the cost of the building works at between $600,000-$650,000, with the overall cost of the project being $750,000-$800,000; noting that extra costs would be incurred due to the project being outside the Builder’s usual trade area, inclusions of a basic level allowed for, and site and admin costs estimated at $50,000;

11. On 28 February 2015 Mrs Schols took that cost plus contract (signed by Mr Schols) to the baby shower, and the Owners signed it, so that on 28 February 2015 the parties entered into the Tab A document cost plus contract;

12. On 28 February 2015 Mr Schols also prepared the fixed price contract (Tab B) which Mr Wallace refused to sign. Mrs Schols also took that contract to the baby shower but instructed the Owners not to sign it unless and until the Builder gave the go ahead;

13. On 11 March 2015 after advice was received from Mr Binfield, the insurance broker, the Owners were told that they were not to use the Tab B contract;

14. The Tab C fixed price contract was drafted by Mr Schols and Mr Wallace on 30 March 2015, to contain a fixed price component and a cost plus component. The fixed price component included the final progress payment schedule and completed Schedule 6;

15. Mr Schols left the Tab C fixed price contract, signed by himself and witnessed by Mr Wallace, at the Owners’ residence on 31 March 2015;

16. The Owners retained, and did not provide to the Builder, all three contracts as at 31 March 2015, namely the Tab A cost plus contract signed at the baby shower, the Tab B contract they received on 28 February 2015, and the Tab C fixed price contract received on 31 March 2015;

17. The Owners amended the Tab B contract by swapping the draft progress payment schedule with the final signed version they had received with the Tab C contract, signed and initialled it, and organised for Mrs Wykes’ father to witness all the signatures on it, to create the Tab D contract which they used to hold out to the bank and the Tribunal that they had entered a fixed price contract for $495,000 with the agreement of the Builder.

Legal Principles

58. In their written submissions of 21 August 2017 the Owners submit that by reference to the objective materials, the concluded bargain is to be found by reference to the executed fixed price contract, and the only contract is that fixed price contract (the Tab D document). Reliance is placed on the following passage from the decision of the Court of Appeal in Kriketos v Livschitz [2009] NSWCA 96 where McColl JA (with whom Allsop P and Macfarlan JA agreed) stated the principles in the following terms:

106 It is trite law that there is no contract unless two parties mutually consent to be bound one to the other by one agreement. However, as Higgins J thought it necessary to add to that statement of the law, “it is one thing for two parties to settle what are to be the terms of an agreement, if it should be made; and quite another thing to make the agreement”: Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 (at 650), approved on appeal per Griffith CJ (at 666); O’Connor J (at 671); Isaacs J (at 671).

107 Whether a contract has been formed, and the terms of any contractual arrangement, requires objective determination: Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 (at [22]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 (at [40]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 (at [34]) per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 (at [25]) per Gaudron, McHugh, Hayne and Callinan JJ.

108 The exercise of objective determination requires the court to consider the text of relevant documents, and also the surrounding circumstances known to participants, and the genesis, purpose and object of the transaction, but not the participants’ subjective beliefs: Pacific Carriers Limited (at [22]); Toll (at [40]); International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 (at [8]) per Gleeson CJ; (at [53]) per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; (at [127]) per Kirby J. The surrounding circumstances include the parties’ relationship to one another: Ermogenous (at [25]).

109 “[P]ost-contractual conduct is admissible on the question of whether a contract is formed”: Brambles (at [25]) per Heydon JA; see also Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R ¶90-263 (at [59]) per Campbell JA (Beazley JA agreeing); Sagacious Procurement Pty Ltd v Symbion Health Ltd(formerly Mayne Group Ltd) [2008] NSWCA 149 (at [99] ff) per Giles JA (Hodgson and Campbell JJA agreeing); special leave to appeal refused: Sagacious Procurement Pty Limited v Symbion Health Limited [2009] HCATrans 23.

110 The conventional approach to the question whether a contract has been formed turns on determining whether there has been offer and acceptance, that is to say, a “clear indication by one party of a willingness to be bound on certain terms, accompanied by an unqualified assent to that offer communicated by the other party”: J Carter, E Peden, G Tolhurst, Contract Law in Australia, 5th ed (2007) LexisNexis Butterworths at [3-02]. Offer and acceptance analysis is “normal” and “conventional”: Brambles (at [74]). As McHugh JA (with whom Samuels JA agreed) said in Empirnall Holdings Pty Ltd v Machon Paull (1988) 14 NSWLR 523 (at 534): “The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror.”

111 The respondent accepts that the clear indications called for by the conventional approach cannot be identified in the three letters. In particular, he concedes that the only letter from Mr Roth, that of 2 May 2002, contains no words of acceptance. He relies, however, on the authorities which support the proposition that some, albeit limited, recognition has been given to finding a contract even though it is not easy to locate an offer and/or acceptance: Brambles (at [71], [74]) per Heydon JA. As Giles JA said in Hendriks v McGeoch [2008] NSWCA 53; (2008) Aust Torts Reports ¶81-942 (at [10]), “[a] contract need not be made by formal offer and acceptance, or by an overt course of negotiation [and] [e]ntry into a contract can be found in the conduct of the parties, in what they said and did towards each other.”

112 In Empirnall (at 534) McHugh JA observed “communication of acceptance is not always necessary”, giving as an example cases where the offeror will be bound if he dispenses with the need to communicate the acceptance of his offer: see Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (at 269). There is no suggestion there had been any such dispensation in this case. It was necessary, therefore, on the respondent’s pleaded case, to identify from the letters some communication on the appellant’s part of his acceptance of an offer communicated to him by EML.

113 Even on what I might call the “non–conventional” approach, in order to conclude there is a binding contract, the exchange of the three letters must be seen to have constituted the parties’ mutual communication of their “respective assents to being legally bound by terms capable of having contractual effect”: Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 (at 627) per McLelland J (as his Honour then was); affirmed G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; there must have been “final mutual assent”: Barrier Wharfs (at 660–661) per Higgins J; see also Brambles (at [71] - [81]) per Heydon JA.

114 The question whether such mutual assent was communicated turns on whether “viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain”: Meates v Attorney-General [1983] NZLR 308 (at 377) per Cooke J, approved in Vroon BV v Foster’s Brewing Group [1994] 2 VR 32 (at 82) per Ormiston J in a passage cited by Heydon JA with approval in Brambles (at [75]); see also Australian Woollen Mills Pty Ltd v Commonwealth [1955] UKPCHCA 3; (1955) 93 CLR 546 (at 555); Maxitherm Boilers Pty Ltd v Pacific Dunlop Insurances Pty Ltd [1998] 4 VR 559 (at 567) per Buchanan JA (Ormiston and Callaway JJA agreeing).

59. In support of their position that it is the executed contract that is the concluded bargain, the Owners submit that the bargain was not complete until the development application was lodged on 12 March 2015 or on 1 April 2015 the date of consent, and the agreement therefore fell within the third limb of Masters v Cameron, relying on the discussion by Einstein J in ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 665:

37 As already indicated, the question as to whether or not the parties entered into a subcontract and if so when, and on what terms, lies at the heart of the proceedings. It is next convenient to briefly examine the relevant principles in relation to this matter. In what follows I adopt the statements of principle to be found in John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43. [It is convenient to note that the parties tended before the Referee, as well as before this Court, to refer to what is sometimes termed "the fourth Masters v Cameron class" as "the Baulkham Hills class"]. The following passages are taken from John R Keith at [217]-[238].

“In view of the …submission relying upon either the first or second, or alternatively the so-called 'fourth' class in Masters v Cameron it is necessary to recall the three classes for which the decision of the High Court is authority. The passage in question at 360 is in the following terms:

"Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution…

Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own…"

60. The Owners further submit that based on the “objective contract theory” and the offer and acceptance model, there is a contract only when the parties agree and witness their agreement, usually in writing, conforming with the requirements of the HB Act. The other contract documents do not have primacy because they are not executed, the assumption must be that they are not agreed, and they do not comply with the obligations of the HB Act.

61. The Builder does not dispute the objective theory of contract, or the proposition that the intention of the parties as to the content of the contract is to be determined objectively. However, the Builder submits that in the circumstances of this case the Tribunal is not only entitled to, but must, consider extrinsic evidence beyond the contract to determine whether or not there was an intention to create a legal relationship based on the document; whether a particular document was a sham; and whether a particular document was merely a piece of machinery to serve some other purpose or meant to cloak another and different transaction.

62. As to an intention to create legal relations, the Builder submits that there was no intent to create a legal relationship on the basis of the Tab B or Tab D documents: Mrs Schols told the Owners they were not to use the fixed price contract until the Builder had received advice and provided his consent; the Builder consulted a number of people about his concern with the fixed price contract; that contract was not completed as it needed the payment schedule to be confirmed; and the document was provided at the same time as the Tab A cost plus contract which provided how the relationship between the parties was to be governed. An alternative characterisation of the effect of the conduct is that the Owners effectively agreed to hold the Tab B contract in escrow pending further instructions from the Builder in the period 28 February 2015 to 11 March 2015, and when the Owners were told that the advice was not to use that contract the escrow came to an end.

63. The Builder submits that the Tab B contract, which was prepared at the same time as the Tab A cost plus contract, did not reflect the true intention of the parties and was created at the request of the Owners as their bank would not lend on a cost plus contract, and it was not intended to be operative according to its tenor at all, but was meant to cloak another and different transaction. Further, both the pre-contractual discussions and post contractual conduct are inconsistent with the Tab B contract and the Tab D contract. If the Tribunal were to find that the Tab D contract was the contract signed by the parties the same issue would arise.

64. The Builder relies on the decision of the Full Court of the Supreme Court of South Australia in Pickersgill v Tsoukalas [2009] SASC 357 (White J, Anderson and Kourakis JJ agreeing), in which the following principles were stated (citations omitted):

35.The conventional contractual principle is that, absent some vitiating element such as misrepresentation, duress or mistake, or a claim for equitable or statutory relief, a person signing a document which is intended to effect legal relations is bound by its terms. A second principle is that ordinarily direct statements by contracting parties of their subjective intentions are inadmissible to contradict the language of the written contract. These were the principles upon which the defendants relied, both at trial and on appeal.

36.The contractual principles just mentioned apply when the parties intend the signed document to effect their legal relations. They do not apply in the same way when the parties intend the document to be a sham, ie, that the document should not have any legal effect, or the apparent legal effect which it suggests on its face.

37.The term “sham” is one which can be given a variety of meanings. In this case, the plaintiff contended that the September document was not intended to have effect as a fixed price contract but was expressed as such a contract with a view to facilitating the defendants obtaining bank finance. The plaintiff’s claim, in other words, was that the September document had been drawn as a fixed price contract for the purpose of assisting the defendants in a deception of their bank but not to reflect their true agreement. This is a sham in the strict sense discussed in the authorities. In Sharrment Pty Ltd v Official Trustee and Bankruptcy Lockhart J said:

A “sham” is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.

38.In Scott v Federal Commissioner for Taxation (No 2) Windeyer J expressed the concept in similar terms:

On the other hand, if the scheme, including the deed, was intended to be a mere façade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, the words of the deed should be disregarded ... A disguise is a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a façade, a sham, a false front – all these words have been metaphorically used – concealing their real transaction ...

In Raftland, Kirby J reviewed some of the Australian authorities and concluded that an essential element in the legal notion of sham was an intention by the parties not to give effect to the legal arrangements set out in their apparent agreement, understood only according to its terms.

39.The determination of whether a document is a sham in the sense discussed above involves an examination of the parties’ subjective intentions. Despite the law’s aversion to admitting evidence of subsequent conduct as an aid to the construction of contracts, such evidence is admissible in cases of alleged sham in relation to the subjective intentions of the parties at the date they entered into the impugned document. It is evidence going to the existence of the parties’ contractual relationship rather than to the terms of that relationship.

65. The Builder further relies on the High Court decision in Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21; (2008) 238 CLR 516, where Gleeson CJ, Gummow and Crennan JJ said (citations omitted):

33…..In various situations, the court may take an agreement or other instrument, such as a settlement on trust, as not fully disclosing the legal rights and entitlements for which it provides on its face. If that be so, the parol evidence rule …does not apply.

34.One such case is where other evidence of the intentions of the relevant actors shows that the document was brought into existence “as a mere piece of machinery” for serving some purpose other than that of constituting the whole of the arrangement. …

35.The term “sham” may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd, Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a “sham”; the term, when “[c]orrectly employed”, denoted an objective of deliberate deception of third parties.

36.The presence of an objective of deliberate deception indicates fraud.

This suggests the need for caution in adoption of the description “sham”. However, in the present litigation it may be used in a sense which is less pejorative but still apt to deny the critical step in the appellant’s case….

66. The Builder submits, based on Raftland, (and Jervis v Berridge (1873) LR8 Ch351; Sunraysia Harvesting Contractors Pty Ltd (Trustee) v Commissioner of Taxation [2017] FCA 694), that while reference to agreements being a “sham” can connote an intention to defraud in some circumstances, it is clear that oral or other extrinsic evidence may be considered even where the facts do not amount to deliberate deception or fraud. Although much of the jurisprudence concerning sham agreements or agreements cloaking another transaction occur in cases concerning revenue or taxation law the same principles have been applied in other transactions, relevantly, building contracts (Pickersgill). The Builder submits that the facts support a finding that the Tribunal can, on the basis of extrinsic evidence, decline to give effect to the Tab B (or Tab D) document as a sham or as a piece of machinery to serve some purpose other than constituting the arrangement between the parties.

67. The primary case for the Builder is that the parties signed and entered into the cost plus contract (Tab A document). If the Tribunal does not accept that the evidence establishes that that document was signed by the Owners, the Builder submits that a contract on that basis was formed by the conduct of the parties, based on the evidence that the parties discussed the build being on a cost plus basis; the Tab B document was prepared so the Owners could obtain finance and was merely a piece of machinery for that purpose and did not reflect an intention of the parties to form legal relationship; and the build proceeded and was conducted in such a way that the Owners were trying to make cost savings and the Builder kept Mr Wykes appraised of quotes; and the Builder provided invoices for the cost plus contract to which the owners made no objection.

68. In summary, the Builder submits that the pre and post contract conduct of the parties is relevant to:

1. the Owners’ proposition that the Builder’s case of a cost plus contract is a recent invention;

2. determination of whether there was an intention to create legal relations by a particular contract;

3. whether there were inoperative agreements including sham agreements or agreements which mask the true transaction;

4. the assessment of the credibility of the witnesses’ evidence;

5. whether a particular contract was entered into or its terms;

6. determination of whether there has been a variation to a contract; and

7. determination of whether there has been formation or acceptance of a contract by conduct.

69. In their submissions in reply (2 February 2018) the Owners respond at para [131] to the Builder’s legal analysis at pp 122-147 of its submissions stating “These submissions are addressed in the sum total of the [Owners’] submissions”. The Tribunal understands that to be a restatement of the Owners’ reliance on the objective theory of contract and on the executed fixed price contract. At para [132] the Owners state that the one exception is the Builder’s “direction to the matter of Tsoukalas v Pickersgill & Harvey on the basis that it is ‘all fours’ with the present proceedings”, and the Owners submit that Pickersgill can be distinguished.

70. Given the difference of views as to the relevance of Pickersgill, it is helpful to discuss what that case decided. Pickersgill was a dispute between a builder claiming damages comprising the cost of work carried out together with a margin, and the developers in a counterclaim claiming damages for the costs incurred in having the construction of a dwelling completed by others. The development involved the subdivision of land owned by the developers into two parcels and construction of a dwelling on each, one to be the developers’ residence and the other sold as a house and land package to a Mr Price. The contract with Mr Price was subject to a condition that the developer execute a contract with a builder for construction of a dwelling for $115,000. At first instance the developers asserted that the builder performed the work under two fixed price contracts, one with Mr Price and the other with themselves. The builder asserted that the written contract between himself and the developers was a sham, the real agreement being an oral cost plus agreement under which he would charge them the costs incurred in building both dwellings plus a margin of 10% with credit of $115,000 being the sum to be paid by Mr Price to the builder. The trial judge found that the fixed price contract was a sham but was not satisfied that the parties had agreed on an oral cost plus arrangement. He was satisfied that the developers had agreed to pay the builder the amount by which the costs of construction of Mr Price’s dwelling (excluding variations) exceeded $115,000, and awarded the builder the amount of his claim on a quantum meruit. The developers’ counterclaim was dismissed: Tsoukalas v Pickersgill & Harvey [2008] SADC 32.

71. The trial judge was satisfied that neither party intended to be bound by the fixed price contract notwithstanding that they signed it, and was satisfied that they both signed so that the bank would lend the developers the money to proceed with the project; and that both parties regarded that contract as a sham, and their subsequent behaviour confirmed that. On appeal, the trial judge’s conclusion that the contract was a sham was upheld: Pickersgill at [94]. The Full Court held that the trial judge’s conclusion that the parties had not agreed on an oral cost plus arrangement was inconsistent with that finding, and having considered the evidence before the trial judge concluded that the parties had agreed on a cost plus arrangement, notwithstanding that the evidence did not disclose a precise conversation or meeting at which the cost plus agreement was finalised, at which it could be said that with certainty that there had been a “meeting of the minds”: Pickersgill at [72].

72. In reaching that conclusion, the Full Court relied on the NSW Court of Appeal decision in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11.110, in which McHugh JA (with whom Hope and Mahoney JJA agreed) had held (citations omitted):

It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of “offer”, “acceptance”, “consideration” and “intention to create a legal relationship” which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship….Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words…The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract…Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances….

…Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled.

73. The Full Court concluded that the true arrangement between the parties was that the builder would build the two homes on a cost plus basis, giving the developers credit for the sum of $115,000 to be paid by Mr Price. The amount to which the builder was entitled on a cost plus basis was $115,265.93, which was the amount he was awarded on a quantum meruit basis. The Full Court rejected the developers’ submission that the evidence had not disclosed the receipt by them of any relevant benefit so as to warrant a quantum meruit, and concluded that if, contrary to the conclusion that there was a binding cost plus agreement, the trial judge had been correct in making the award on the basis of a quantum meruit.

74. The Owners submit that Pickersgill can be distinguished from the present case on a number of grounds (Reply Submissions [133]-[141]). The Builder accepts that there are differences between Pickersgill and the present case, however submits (Builder submissions [306]-[307]) that the differences make the Builder’s case even more compelling. It is not necessary to engage with the parties’ disagreement as to the extent to which Pickersgill is distinguishable on its facts. That decision is authority for the proposition that even in circumstances where the only document in evidence signed by all the parties is a contract in a particular form, and even if the precise occasion on which the necessary meeting of the minds occurred cannot be identified, the evidence may support the finding that the contractual relationship between the parties was constituted by an oral agreement of a different form.

75. The Tribunal is required to determine what was the contractual relationship between the parties. The Tribunal must first consider whether, and if so, on what basis, there was a contract. Whether or not any such contract complied with the requirements of s7 of the HB Act is a separate issue, going to the issue of enforceability of that contract under s 10 of the HB Act. For there to be a contract there must have been an agreement between the parties as to the terms, and an intention to create a legal relationship. Whether a contract has been formed, and the parties’ intention as to the content of the contract, are to be determined objectively. In making that determination the Tribunal is required to consider not only the text of the relevant documents, but also the surrounding circumstances known to the parties, including their relationship to one another: see Kriketos v Livschitz (and the authorities cited therein). The recognition in Integrated Computer Services that in an ongoing relationship it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled is particularly apposite in the present circumstances, not least because of the conflicts in the lay evidence. While this was not a “commercial arrangement”, the relationship between the parties was one of longstanding friendship and ongoing social contacts. In the present circumstances, the Tribunal is entitled to have regard to the acts and conduct of all the parties, bearing in mind that the conduct of the parties must be capable of proving all the essential elements of an express contract: Integrated Computer Services.

The evidence as to the contractual relationship

76. The documentary and oral evidence as to the formation of the contractual relationship between the Owners and Builder is extensive. Mr and Mrs Wykes each provided two written statements, the second responding to the affidavit evidence of Mr Schols, Mr Eldred and Mr Binfield. Both were cross examined at length. Mr Schols provided two affidavits, the second after he had received the second affidavits of Mr Wykes and Mrs Wykes. Mrs Schols provided an affidavit. Mr and Mrs Schols were cross examined. The Builder relies on the further evidence of the draftsman, Steven Eldred, the insurance broker Daniel Binfield, carpenter Daniel Byrne, and friend Thomas Wallace.

167. The experts agreed in relation to item 2, the flooring frame and roof to the master bedroom wing, that the work does not comply, consistent with the opinion of Mr Algie. Mr Zakos costed the rectification as in accordance with Mr Algie’s recommendation at $3,404.00. Mr O’Donnell was of the opinion that the existing floor, frame and roof need to be demolished and the core filling carried out in accordance with the engineer’s directions, and the work required could not be done now by retro fitting. Some of the bearers are sitting on an offcut of pine timber bolted to the concrete blockwork and are susceptible to termite attack. The plans required engaged piers to be attached to the blockwork, which had not happened. Mr O’Donnell costed the work at $18,071.80. Mr Zakos was not sure whether Mr Algie had been provided with the plans. Mr Zakos was of the opinion that the framing looked adequate to him, as observable when they walked into the area underneath. In the absence of an express opinion on this issue by Mr Algie, and given that Mr Zakos did not dispute Mr O’Donnell’s reliance on the plans, the Tribunal prefers the opinion of Mr O’Donnell, and allows $18,071.80.

168. For Item 4: remove and replace timber reveals to windows and install window sashes and doors, the experts agreed that some of the timber reveals are bowed and warped, and the timber reveals do not extend for the full width of the frame. Mr Zakos was of the opinion that the windows were intended to have square set reveals; Mr O’Donnell’s opinion was that the reveals are significantly deteriorated and need to be replaced whether or not they were meant to be square set. If the work was defective, the agreed cost of removal and replacement is $3,543.60. If the bowing and warping is a defect, rather than due to exposure, Mr Zakos considered that the cost would be $1,184.00. It was common ground that the plans did not specify whether the windows were to be square set; the experts disagreed as to whether it is common practice. Having regard to Mr O’Donnell’s agreement on the effect of weathering for items 1 and 6, and the absence of any direct evidence as to an alternative cause, the Tribunal is not persuaded that the bowing and warping have been established as a builders defect. In the absence of a specified alternative method of construction of the reveals in the plans, the Tribunal is not persuaded that the narrow reveals are a result of defective work. The Tribunal does not find that this is a defect for which the Builder is liable.

169. The Tribunal allows the following amounts for builder’s defects:

1. Item 2: $18,071.80

2. Item3: $3,679.87

3. Item 5: $875.13

4. Total: $22,626.80

172. The experts agreed on appropriate percentages for allowances, resulting in the total cost to rectify defects:

1. Items 2, 3 and 5: $22,626.80

2. Regional location allowance 8%: $1,810.14

3. Preliminaries and contingency 15%: $3,394.02

4. Builder’s margin 15%: $3,394.02

5. GST 10%: $2,262.68

6. Total: $33,487.66

173. The amount owed by the Builder to the Owners for construction defects is $33,487.66.

4.Whether the Builder can claim on quantum meruit

174. The Builder’s claim in the alternative is in quantum meruit, arising if the Tribunal finds there was a concluded contract but by virtue of s10 of the HB Act or on any other basis the Builder is not entitled to enforce that contract or claim damages, or if the Tribunal finds there was no concluded contract for the building works.

175. The Tribunal is satisfied that there is no contract document that would satisfy the formal requirements of s7(2) of the HB Act such that the Builder could enforce it. If the Builder cannot rely on an enforceable contract to recover any payment for work carried out for the Owners, it must rely on the law of restitution, the principle of unjust enrichment, which was explained in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 by Deane J at 256-7 as

“a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case.”

176. At 263 Deane J held:

What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or "enrichment" actually or constructively accepted. Ordinarily, that will correspond to the fair value of the benefit provided (e.g. remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied).

177. For the Builder to succeed on a quantum meruit claim, it must establish:

1. It did work that “enriched” the Owners by them receiving the benefit of that work;

2. The benefit the Owners received was at the Builder’s expense; and

3. It would be unjust in the circumstances to allow the Owners to retain the benefit without paying for it.

178. The Owners submit (Supplementary Submissions [63]ff) that if the Tribunal finds that the unsigned fixed price contract and cost plus contract govern the agreement, those agreements should be read together as it is clear from the wording of the cost plus contract that the fixed price contract forms part of the overall contract. On that basis, the Owners submit that, based on the agreement of the experts that the works reached stage 5 of the Schedule 2 stages of the various versions of the fixed price contract, and that the value of the works completed is $293,932.42, the additional works which would otherwise form part of the cost plus contract had not been reached nor performed.

179. That submission is not consistent with the evidence as to how the build had proceeded. Mr Schols’ evidence, supported by the Endurance Constructions invoices which include a detailed breakdown of the work undertaken and substantiation of the amounts spent, was that the $520,000 he claimed to have spent included landscaping, earthworks, the shed, and other extras that went into the $520,000, including the need to move the house further south and more expenses on services. Those were (other than the shed) costs contemplated as included in the cost plus contract; and the Builder’s invoices confirm that it paid for the shed and the concrete slab (JTB 876, 908).

180. The Owners submit that the Builder is not entitled to an award on a quantum meruit basis because (Submissions 20/11/17 [17]-[20]):

1. There can be no claim in quantum meruit when there is a contract;

2. There is no basis for the Tribunal to make a finding that the requirements of ss 4, 7 and 92 of the HB Act have not been met (which the Tribunal understands to be a reference to the fixed price contract on which the Owners rely);

3. The Tribunal has no power to make a declaration;

4. There is a specific pleading of a contract, regardless of fixed price or cost plus or some combination of the two, and in order to find the Builder in relation to quantum meruit the Tribunal would have to determine that no contract exists;

5. It is conceded that the contracts were written by Mr Schols and were for the purpose of obtaining finance from the bank in circumstances where the true nature of the contract was not disclosed; and Mr Schols was party to wrongdoing;

181. The Builder submits (Builder reply submissions [37]ff):

1. the proposition that there can be no claim in quantum meruit where there is a contract applies only to work fully completed under the terms of a contract which has not been terminated or repudiated: Sopov & Anor v Kane Constructions Pty Ltd (No 2)[2009] VSCA 141 at [5]-[6], and does not apply where there is not an enforceable contract;

2. an award of damages on a quantum meruit basis does not require the Tribunal first to make a declaration;

3. the claim in quantum meruit is clearly put as an alternative basis and not the primary claim;

4. the contract which the Builder seeks to enforce was not part of the sham.

182. The Tribunal is satisfied, for the reasons in the Builder’s submissions above, that the Builder can make a claim in quantum meruit. The Builder has undertaken work, the extent of which was agreed between the experts and corroborated by the Archicentre reports; while the house is not complete, the Owners have received a benefit from having the work done; and unless s92 or 94 of the HB Act would preclude recovery, the Builder is entitled to fair remuneration for the value of that benefit.

183. The Owners submit that it is not just and equitable for the Builder to recover on a quantum meruit, submitting that the Builder did not have sufficient insurance for the build, and that if there was wrongdoing the Builder was party to it.

184. The Builder submits that ss 92 and 94 of the HB Act have no application in these proceedings:

1. Insurance was taken out in accordance with the legislation: the Owners do not plead to the contrary, and accept in their submissions that this is the case;

2. Under the cost plus contract the overall value of the work could not be known until such time as the Owners made their choices as to a large number of components, and the same applies to the later fixed price contract where the components carved out in the schedule had not been selected;

3. The insurance cover reflected the value of the works known to the Builder at the time of the application on 20 February 2015, and there is no express requirement in the HB Act as to the insured value of the works or when the value it to be calculated and no prohibition on increasing the insured value when the value of the works changes;

4. The insurance required under the HB Act only applies to the residential building work; the shed was comparable in size to the residence and was not constructed for use in conjunction with a dwelling, and so does not form part of the value of the works to be insured under the HB Act, and nor do significant other costs such as draftsman’s fees the cost of the development application and preliminary site costs. Since the work on the shed was on the uncontested evidence of Mr Schols $65,319.73, the residential building work undertaken to date was well under the insured value;

5. No quantum meruit is claimed for the period following the fall out between the parties; Mr Wykes was on site regularly nearly daily during some periods of the build and had opportunity to reject the work being carried out on site.

185. The first issue is whether the Builder is precluded by s92 or 94 of the HB Act from recovering on a quantum meruit basis.

186. Section 92(2) of the HB Act provides:

(2) A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless:

(a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and

(b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.

187. Section 94(1) provides:

(1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the uninsured work), the contractor who did the work:

(a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and

(b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit).

188. The Builder’s insurance cover is described at [54] above. There is no issue taken with the form of cover or compliance with the formal requirements of the regulations, including the minimum insurance cover required: the issue is that the HWI was for an amount that would cover the contract price in the fixed price contracts, but which was less than the amount estimated by Mr Schols as the final cost of the build. The Tribunal does not accept the proposition as put by the Builder that the cost of the shed should be disregarded (paragraph [183](4) above); while large, there is no evidence that the shed was constructed or intended to be used other that in conjunction with the dwelling house.

189. The Tribunal finds that the Builder had a contract of insurance that complied with the HB Act, for an amount covered which reflected the estimated value of the basic shell contemplated by the fixed price contract, at the time of the application for cover. The actual cost of the completed build could not be known at that stage. The Owners have not identified any additional requirement in the HB Act or the Home Building Regulation 2014. The Tribunal is satisfied that ss 92 and 94 do not apply.

190. However, if that conclusion is wrong, the Builder may be able to rely on s94(1A), which provides:

(1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.

191. Section 94(1A) was considered by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273. His Honour considered the authorities on the term “just and equitable”, and held:

48.Section 94(1A) of the Home Building Act must therefore be seen as conferring a discretion that is wide but must be exercised judicially in the light of the whole of the circumstances surrounding the relevant subject matter. Lord Wilberforce explained this exercise in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at p.379:

“It [the phrase ‘just and equitable’] does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”

49. The present context is one in which the court is called upon to say whether it is “just and equitable” that a quantum meruit sum be awarded for work done. The quantum meruit sum itself will, of its nature, reflect a fair remuneration, having regard to the extent of the work actually done. That is of the essence of a quantum meruit: see Pavey & Matthews Ltd v Paul (1987) 162 CLR 221 at p.262 per Deane J. The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression “quantum meruit”. The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it. It is to those circumstances that I now turn.

192. On the facts of that case, Barrett J concluded:

64 I am satisfied that the conduct of the plaintiff, viewed in the whole of the surrounding circumstances, did not exhibit blameworthiness such as to make it inappropriate to provide a reasonable reward for work actually done by it and that it is therefore just and equitable for the plaintiff to recover a quantum meruit sum for that work under s.94(1A).

193. The Builder had insurance for a contract price of $495,000, an amount less than his estimate of the likely actual cost of the build. Mr Schols explained that the insurance cover reflected the value of the build as known to him at the he applied for the cover, 20 February 2015 (MS(1)([45]). In cross examination he confirmed that evidence, stating that he applied for CWI for $495,000 when he knew the build price would exceed it, because the price for the actual house not completed not with any excavations, ground works, landscaping was estimated to be around high $400,000, to $500,000: that was for the basic house, nothing else (T377). $500,000 was his limit at the time but he had other jobs which were finishing and once they were signed off on he could get more insurance (T377). There is no indication that Mr Schols subsequently, in particular once he had completed his detailed costings on 28 February 2015, attempted to increase his insurance cover or that he was by then in a position to do so.

194. The Tribunal does not regard that as evidence of a deliberate intention to underinsure the work. Further, while the evidence establishes that Mr Schols and thus the Builder were prepared to arrange the build on the hybrid arrangement described in paragraph [146] above, and to that extent enable the Owners to provide a document to their bank that may not reflect the full nature of the contractual relationship, that was an arrangement agreed upon by both Owners and Builder and not one pursued by the Builder alone, and was one in which Mr Schols considered he was assisting friends. The Tribunal is satisfied that when viewed in the whole of the surrounding circumstances, the Builder’s conduct does not exhibit blameworthiness such as to make it inappropriate to provide a reasonable reward for work actually done by it. The Tribunal finds that it is just and equitable for the Builder to recover a quantum meruit sum for that work.

195. As the Appeal Panel in Bradshaw v Complete Coating Commercial Pty Ltd t/as CCC Civil [2017] NSWCATAP 209 discussed, the way in which a court or tribunal approaches the valuation of a quantum meruit claim will depend on the context and circumstances in which the claim arises, quoting Mason K and Carter JW, Mason & Carters Restitution Law in Australia, Third Edition, LexisNexis Butterworths, Sydney, 2016 at [1416] (footnoted references not included):

Generally, the starting point, or prima facie position, for accepted services is that the plaintiff is entitled to recover the market value or price of the services. The amount will include a profit element. It follows that the amount by which the defendant’s assets have in fact been increased is not usually the basis for assessment.

Superficially at least, this suggests that valuation is more concerned with the cost of rendering performance than the actual benefit to the defendant. But it can equally be said that the benefit obtained at a plaintiff’s expense is the amount which the defendant would have had to pay a third party to provide the benefit. However, the actual costs of the plaintiff in conferring the benefit may be taken into account. And where a claim for reasonable remuneration succeeds on the grounds of acceptance of a requested benefit, the defendant may be held liable to pay for work, such as preparatory work, which would not have been a distinct component of the price of the completed work, as where an anticipated contract fails to materialise.

If the services to be valued were rendered by a professional, the above approach leads to a valuation at the commercial rate applicable to work of the same kind done a person of the plaintiff’s standing. Account may be taken of custom and prevailing rates and practices in the relevant market. This may justify an award on a commission basis. Of course, account must also be taken of the extent to which the plaintiff was in fact remunerated. …

Awarding market value assessed by reference to the cost of rendering services or doing work is not the starting point if the obligation is to make restitution for an incontrovertible benefit. In such cases, the claim is based on receipt of a realised benefit, or one which is realisable as a money sum. Thus, BP Exploration Co (Lybia) Limited v Hunt (No. 2) Robert Goff J said that if the ‘sole basis of recovery’ is that the defendant was incontrovertibly benefited, it may be legitimate to limit recovery to the actual increase in the defendant’s wealth. Accordingly, the claim is limited to the money sum which has been realized (or which is realisable, unless that amount is in fact greater than the market value of the work done or other services rendered).

196. The Builder submits that the quantum meruit value of the work in this case is higher than the value recoverable under the contracts contended for by the Builder, since the margin a reasonable builder would charge for the work is higher than the margin charged by the Builder. In support of that submission the Builder relies on Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 in which Meagher JA held that the amount payable under a contract did not impose a ceiling on any quantum meruit claim, and commented (at 277-78):

There is nothing anomalous in the notion that two different remedies, proceeding on entirely different principles, might yield different results. Nor is there anything anomalous in the fact that either remedy may yield a higher monetary figure than the other. Nor is there anything anomalous in the prospect that a figure arrived at on a quantum meruit might exceed, or even far exceed, the profit which would have been made if the contract had been fully performed. …The most one can say is that the amount contractually agreed is evidence of the reasonableness of the remuneration claimed on a quantum meruit; strong evidence perhaps, but certainly not conclusive evidence.

197. It is clear from the authorities considered in Bradshaw that a quantum meruit valuation can be done by reference to the Builders’ cost of materials, goods and profit: Sopov v Kane Constructions [2009] VSCA 216. It may also be appropriate to ascertain what it would cost to have the works carried out by another builder in comparable circumstances, in dealing with the builder’s profit margin. In that regard, the agreed contract price of the works can only be a piece of evidence that might be relevant in determining the value of the works to the Owners. The Appeal Panel referred at [38] to the decision in Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221, in which Byrne J applied a presumption of the quantification of quantum meruit claim based on what the defendant would have had to pay for the work carried out under a ‘normal commercial arrangement’ for the services rendered; in that case, there was a lack of reliable evidence on what a comparable person providing the services may have charged, and Byrne J, in the absence of that evidence, took the cost of rendering the services into account, to arrive at an appropriate remuneration.

198. The Statement of Agreed Facts stated the experts’ positions as to the value of the works completed to date being between $432,000.00 and $683,127.90 (see paragraph [10] above). Mr O’Donnell revised his assessment in his report of 17 August 2017, to be $355,658.20. The experts agreed with Mr Schols’ assessment that by early November 2015 the work was somewhere between stage 4 and 5 of the various versions of the fixed price contract. In their joint report of 20 August 2017 on the cost of the works to date and the cost to complete (ex 6) the experts agreed that the cost to complete the works would be $610,000.

199. In the joint report Mr O’Donnell valued the net cost of the work completed to date at $293,932.42. Mr Zakos accepted that value as the starting position, however his evidence was that adjustments were needed for the construction of the shed, pool, driveway and access road, sewer tank, additional electrical works, concreting costs, block laying costs, waterproofing, taking the subtotal to $373,708.15. Mr O’Donnell disputed Mr Zakos’ adjustments other than allowing an additional $420 for waterproofing, taking his subtotal to $294,352.42. The experts disagreed on whether to the net trade value of the cost of the works completed a regional allowance of 8% should be added, and whether a builder’s margin or builder’s allowance for overheads should be added. They agreed on 10% for GST. Mr O’Donnell’s final figure for the value of the work was $356.166.42, whereas Mr Zakos’ was $543,389.42.

200. One difference between the experts was that Mr O’Donnell’s analysis was based on Cordell’s cost guide, whereas Mr Zakos had used Rawlinsons, and had also relied on Mr Schols’ invoices for actual costs in making adjustments. Mr O’Donnell had not been briefed with the invoices, and his comments in the joint report point to a lack of evidence as to actual costs. In oral evidence Mr O’Donnell stated that he would have been assisted by seeing the additional material relied on by Mr Zakos to a certain extent and that may have affected his opinion in some matters (T471). He accepted that it would have affected his opinion had he seen the invoices for electrical work, which included the telecommunication lines which he had not included in his estimate as he was not sure if they were part of the contract (T 470).

201. The Tribunal is required to determine the value of the work done by the Builder to the Owners. Both Mr O’Donnell and Mr Zakos appear to have approached the task by considering what the Owners would have had to pay a comparable builder for the work undertaken, by reference to accepted costing guides, adjusted, in Mr Zakos’ evidence, by reference to Mr Schols’ invoices which reflect the actual costs. Mr Zakos accepted that the cost on an invoice may not be the value of the works (T 472). In using the invoices to adjust the estimates undertaken by Mr O’Donnell based on Cordell, Mr Zakos assessed their reasonableness and made adjustments that he considered appropriate, for example by not including GST as Mr Schols had done. The provisions of the fixed price contract on which the Owners relied, and to which Mr O’Donnell referred, could not be determinative of any finding as to what the Owners would have had to pay under a normal commercial arrangement, since that document was not the contractual basis for the build; and even if it were, an agreed contract price would be no more than a piece of evidence that might be relevant to a finding of the value of the work: Bradshaw at [37]. Overall, the Tribunal prefers the approach adopted by Mr Zakos to that of Mr O’Donnell, including his approach to allowances for regional location, builder’s overheads and builder’s margin, as better reflecting the determination of the actual value to the Owners of the work.

202. Mr O’Donnell’s evidence that the shed cost was $49,039.00, and the pool excavation $6,713.89, was based on his estimate, whereas Mr Zakos also had regard to the invoices provided by Mr Schols. Mr Zakos was of the opinion that the invoices were fair and reasonable for the work and he assessed the shed at $55,441.48, $6,402.48 higher than Mr O’Donnell’s estimate. For the pool excavation based on Mr Schols’ invoices (and excluding GST and blockwork which was included elsewhere) and on the actual excavation required for the pool, Mr Zakos determined a cost of $15,886.00 as appropriate. The Tribunal accepts Mr Zakos’ evidence.

203. The Tribunal also prefers, and accepts, the evidence of Mr Zakos for the cost for the sewer tank, for which he included the works associated with the sewer tank at a cost of $5,800.00.

204. In relation to the construction of the driveway and access road, Mr Zakos valued the works at $11,712.33 (excluding GST); Mr O’Donnell agreed to that amount, if the works formed part of the contract. However in oral evidence he accepted that if the works were valued by what existed on site and not what was in the contract, and if actually carried out by the builder, that value would be accepted (T 498). Mr Zakos’ value was based on Mr Schols’ invoices that established that the work was carried out, and not the contract, and should be accepted.

205. The engineering drawings specified waffle construction with cross beams at 1m (T 473). Mr Zakos’s evidence was that Mr O’Donnell had costed the concreting at a stiffened slab with beams at 7m centres, whereas the construction is a waffle construction with cross beams at 1m, which is far more intensive than the Cordell’s rate suggests (T 473); the additional $14,000 cost would be the cost of building piers, drilling, pouring, reinforcing piers and the extra cost of going to a waffle slab (T474). Mr O’Donnell did not agree that a waffle pod slab was more expensive than the stiffened beams in a conventional raft slab, because the waffle pod slab is thinner than a normal slab. By reference to the engineering drawings the experts were able to confirm that the slab was 100mm, which was a standard slab in waffle pod construction (T 476).

206. The experts ultimately did not reach agreement on whether a waffle pod slab was more or less expensive to construct than a stiffened raft slab. The Tribunal prefers the evidence of Mr Zakos as to the actual cost, which is consistent with the specifications in the engineering drawings, to Mr O’Donnell’s estimate based on a stiffened slab.

207. The experts did not address in oral evidence the remaining items, that is, additional block laying costs and waterproofing. In the joint report Mr Zakos justified his adjustment for the former ($18,326.85) and the latter ($1,200.00) on his analysis of Mr Schols’ invoices, which show the extent of the work done and the actual cost. The Tribunal accepts that evidence.

208. On the basis of the above findings, the Tribunal adds to the agreed $293,932.40 the additional costs not estimated by Mr O’Donnell for the shed ($6,402.48), pool excavation ($15,886.00), driveway and access road ($11,712.33), sewer tank ($5,800.00), additional electrical works ($5,969.10), and concreting costs ($14,478.99), block laying ($18,326.85), and waterproofing ($1,200.00). That brings the sub total to $373,708.15 as the net trade value of the works.

209. Mr O’Donnell’s opinion expressed in the joint report that a regional allowance should not be applied was based on the absence of such a provision in the contract (T 477). He subsequently agreed in oral evidence that to the extent he was using Cordell’s to estimate the value of the works he would apply a regional allowance to the Cordell value of Sydney prices (T 478). He considered that a regional allowance should be applied to those elements of the $293,000 that came from Cordells, however not to the windows, shed and the estimates he prepared based on his experience working in regional NSW (T 479). Mr Zakos applied a regional allowance only to the agreed $293,932.42 (T480), and he accepted that the regional allowance should not apply to windows, the shed and preliminaries, giving an allowance of $16,798.08.

210. The experts could not agree on how to allow for preliminaries and overheads. Mr Zakos’s approach was that it would be appropriate to allow 10% of the net cost, whereas Mr O’Donnell’s approach was to particularise preliminaries and put them in as a job cost, and had the Builder not specified a margin of 10% he would have put an amount for overheads and an amount for profit (T 492). On the builder’s margin, Mr O’Donnell stated that in the absence of a contract he would include a builder’s margin of about 20%, as fairly normal across the board (T484-5).

211. The joint report indicates that Mr O’Donnell included preliminaries in his estimate. The issue is whether an amount for builder’s overheads should be separately specified, or is included in the builder’s margin. Mr O’Donnell included a 10% builder’s margin, which he understood to be profit and overheads (T 488), which was nominated in the contract. Mr Zakos included an allowance for builder’s overheads at 10%, and a builder’s margin of 15% which he considered was a reasonable percentage and consistent with Mr O’Donnell’s approach in his original report of 21 June 2016. On balance, the Tribunal prefers Mr Zakos’ approach to the issue of overheads and margin, which better reflects what the Owners would have had to pay under a normal commercial arrangement. The contract on which Mr O’Donnell relied reflected Mr Schols’ lower family and friends margin, below Mr O’Donnell’s understanding of the normal 20%.

212. The Tribunal is satisfied for the reasons given by Mr Zakos that a regional allowance should be added, other than for the windows, shed and preliminaries, in the amount of $16,798.08. To that amount should be added an allowance for overheads (10%), and builder’s margin (15%).

213. While the experts disagreed on the applicable multiples, they agreed on the methodology for applying the multiples, and the Tribunal has adopted that approach.

214. The Tribunal is satisfied that the value of the works completed, and thus the benefit received by the Owners, is the net trade value of the work, $373,708.15, with a regional allowance of $16,798.08, being $390,506.23. To that amount should be added an allowance for overheads at 10%, that is $39,050.62, taking the subtotal to $429,556.85. A builder’s margin of 15% adds a further $64,433.53, $493,990.38. The experts agreed that 10% should be added for GST, which would be $49,399.04.

215. The Tribunal finds that the total value of the works completed to date is $543,389.42. The Builder has been paid $258,350, being the payment of the deposit by the Owners and the further progress payments by the bank. On a quantum meruit basis the Builder is entitled to payment of the balance, $285,039.42.

Conclusion

216. For the reasons above, the Owners have established that the Builder is liable for defects totalling $33,487.66. The Tribunal is required by s48MA of the HB Act to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome. The parties submit that the Tribunal should not make such an order, on the basis of the history between the parties and the breakdown of trust between them.

217. In Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 the Appeal Panel confirmed (at [44]) that s48MA confers a discretion, and does not mandate that a work order must be made in all cases, and that a range of factors may be relevant. The fact that there is a dispute which necessitated the commencement of proceedings by an aggrieved homeowner is not of itself sufficient to justify the Tribunal in departing from an application of the preferred outcome principle in s48MA: Kurmond at [55].

218. The relationship between the parties, which was one of friendship well before the decision that the Builder undertake the building work, has broken down. The Builder has established an entitlement to be paid an amount reflecting the value of the work performed on a quantum meruit basis. In the interests of finalising all the matters in dispute, the Tribunal is of the view that the preferable course would be to finalise both proceedings with a money order that includes an adjustment for the defects. On that basis the Owners pay the Builder the amount of $251,551.76, being the quantum meruit value of $285,039.42 less the $33,487.66 for defects.

219. Both parties sought costs of the proceedings, and agreed that the question of costs should await determination of the substantive issues. The directions made include an opportunity for an application for costs to be made and determined.

Orders

220. The Tribunal orders:

1. In proceedings HB 15/65625 and HB 17/05296, Shannon John Wykes and Shannon Leigh Wykes are to pay MS & SJ Schols Pty Ltd the amount of $251,551.76 within 28 days of the date of these orders;

2. Proceedings HB 15/65625 and HB 17/05296 are otherwise dismissed;

3. Either party may file written submissions within 14 days seeking an order in relation to the costs of the proceedings;

4. If either party files submissions in accordance with order (3), the other party may file submissions in response within a further 14 days;

5. Any submissions filed in accordance with orders (3) and (4) should address whether the question of costs may be determined on the papers and without a hearing pursuant to s50(2) of the Civil and Administrative Tribunal Act 2013.

Linda Pearson

Principal Member

Civil and Administrative Tribunal of New South Wales

30 August 2018

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I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 12 December 2018