I. Ceiling Insulation
93 Particular (n) alleged that the plaintiffs failed to repair and replace ceiling insulation which was torn during the course of the remedial works. No attention was given to this at the hearing. Mr McDonald's evidence amounted to a bare assertion that "some of the ceiling insulation within the shed had been damaged during the remediation works and had not been repaired." This was denied by Mr Woodward who said that no damage was caused to the ceiling insulation during the works. Mr Sherson did not address the question of whether ceiling insulation had been damaged. He said that the insulation was repositioned back into the wire mesh. That is where the matter was left. In this state of assertion and counter-assertion, I am not satisfied that the breach alleged in particular (n) is made out.
94 For these reasons I conclude that the plaintiffs were in breach of the terms of settlement in the respects identified above. I have addressed the significance of those breaches.
95 I deal below with the question whether, by reason of these breaches, the plaintiff is not entitled to have the judgment set aside.
Clauses 8(b) and 23: The Council's Certificate
96 The next question is whether the plaintiffs obtained the certificate or confirmation from the council envisaged by clause 8(b). The defendant denied that council approval had been obtained as envisaged by clause 23. He submitted that the council had not certified or confirmed that the requirements of its notice no. 38970 had been complied with in respect of that part of the development consent that specified that the building had been satisfactorily erected in accordance with approved plans and specifications. That was so notwithstanding that the council had certified on 25 May 2007 that its requirements of notice no. 38970 in respect of certifying the structural adequacy of the shed's framework and suitability for wind to rain were satisfied. The reason for this submission is that the notice stated the location of one door and the deletion of the other door were without approval, and that in this respect the approved plans were not complied with.
97 However, the notice no. 38970 made no mention of the position of the doors. That notice stated that the shed had not been built in accordance with "engineer's details provided", but it was common ground that the "engineer's details provided" were the plans drawn by Mr Thomas showing the construction of the steel framing. Given that the relocation of the doors was not part of "the works", it is not a reasonable construction of clause 23 that it required the plaintiffs to relocate the doors to enable the certificate to be issued. The scope of clause 23 is limited by its reference to the satisfaction of the requirements of the council's notice no. 38970. In my view, clause 23 has been satisfied and accordingly clause 8(b) has also been satisfied.
Breach of Contract and Specific Performance
98 The question then is whether the plaintiffs are entitled to set aside the judgment where they have complied with clause 8(b), but have not fully complied with clause 8(a). There are two related, but distinct, questions. First, whether, as a matter of construction of the contract, the plaintiffs are entitled to the consideration set out in clause 8 (namely the setting aside of the judgment) only if they have fully and exactly performed their obligations under clause 8(a) and (b); or whether substantial performance of the works and obtaining the certificate entitled the plaintiffs to have the judgment set aside, with the defendant to be left to cross-claim for any damages he might have suffered by reason of the breaches of the agreement. In other words, is the contract an entire contract such that it appears "from the very nature of the obligation undertaken by one party that anything less than full and complete performance by him cannot be regarded as performance at all"? (Greig & Davis, The Law of Contract (1987) at 1224-1225).
99 If the answer to the first question is yes, it does not necessarily follow that the plaintiffs will be denied specific performance. The second question is whether, if, at law, the contract would be treated as an entire contract, will equity decree specific performance if the plaintiffs have substantially, although not exactly, performed their obligations whilst giving compensation (if sought) for the deficiency in performance? The analogy here is with contracts for the sale of land where the vendor is unable to convey the precise subject matter of the sale. The promise to convey the subject matter of the sale is a fundamental term such that any difference between the subject matter contracted to be sold and that able to be conveyed, if more than trifling, entitles the purchaser to refuse to complete and rescind the contract. The purchaser can say "this is not what I promised to pay for". The contract means the same in equity as at law, but equity will nonetheless decree specific performance unless the deficiency is so substantial as to give the purchaser something entirely different from what he had contracted to buy, but give compensation for the deficiency. (Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1 at 27-28; Batey v Gifford (1997) 42 NSWLR 710 at 716; Dainford Ltd v Lam (1985) 3 NSWLR 255 at 265-266; Vella v Ayshan [2008] NSWSC 84; (2008) NSW ConvR 56-209 at [73]-[81]).
100 Dealing with the first question, I use the expression "entire contract" in the sense of a contract where complete performance is a condition precedent to payment or counter-performance (GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1 at [703]; Greig & Davis, The Law of Contracts at pp 1224-1225, 1232).
101 The discussion of entire contracts in some of the texts and authorities is not always satisfactory. In some cases an entire contract is equated to a lump sum contract. Obviously a lump sum contract need not be an entire contract in the sense described above. Sometimes the so-called doctrine of substantial performance is treated as an exception to allow a contractor to recover payment for work done under what is nonetheless classified as an entire contract. As Greig & Davis point out (at 1234 ff) if an entire contract is understood in the sense described above, it does not admit of exceptions. By definition, if a contractor is entitled to be paid where he has substantially, but not exactly, performed the work he contracted to do, the contract is not an entire contract in the sense described above.
102 The difficulties of terminology are evident from cases such as Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 where Lord Diplock said (at 717) that "a building contract is an entire contract for the sale of goods and work and labour for a lump sum price payable by instalments as the goods are delivered and the work is done." However, that was said in the context of a discussion of the principle in Mondel v Steel (1841) 8 M&W 858 by which a defendant who is sued for the price by a plaintiff who is himself in breach of contract may set up the breach in diminution or extinction of the price. His Lordship said (at 718):
" So when one is concerned with a building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting up a breach of warranty in diminution or extinction of the price of material supplied or work executed under the contract. "
103 This is the antithesis of an entire contract in the sense described above, where the contractor would not be entitled to recover the price at all if it had not fully and exactly performed the contract. This has not prevented the application of his Lordship's dictum that building contracts are entire contracts, although the sense in which the expression "entire contract" is then used is not clear (Tan Hung Nguyen v Luxury Design Homes Pty Ltd [2004] NSWCA 178 at [20], [32]).
104 In Hoenig v Isaacs [1952] 2 All ER 176, Denning LJ, in a frequently cited passage, said (at 180-181):
" the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment. When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or, alternatively, set them up in diminution of the price. The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good. [Citation of authorities omitted.] It is, of course, always open to the parties by express words to make entire performance a condition precedent. "
105 In Tan Hung Nguyen v Luxury Design Homes Pty Ltd, McColl JA cited Hudson's Building & Engineering Contracts 11th ed at pp 476-477, [4.008], saying, in effect, that in the absence of express provision to the contrary, a building contract should be construed as being entire (at [20]-[44]). I do not understand the other members of the Court of Appeal (Hodgson JA and Einstein J) to have agreed with her Honour's reasoning. With respect, one of the difficulties with her Honour's reliance upon Hudson is that whilst Hudson says that the vast majority of priced building contracts, whether sophisticated or simple, will be construed as being entire, the learned author treats the so-called doctrine of substantial performance as being consistent with that characterisation (at [4.019]-[4.020]).