Appellant v Respondent

2 For the reasons which follow, I would grant leave to appeal and uphold the appeal.

3 The owner engaged the builder to construct 11 townhouses on two blocks of land in East Doncaster. The case before VCAT and before me relates to whether the owner owes the builder money, above what it has already paid, for work which the builder says he performed for the owner.

4 On 23 February 2013 the owner and the builder entered into a contract for the construction of the townhouses ('the first contract'). The first building contract was for a price of $3,018,000. Work commenced under the first contract in the first half of 2013, with the owner making payments using the funds of its director, Mr Chen, or monies he had borrowed from family and friends for that purpose.

5 In August 2013, the owner entered into a facility agreement with the National Australia Bank Limited ('NAB'). On 11 September 2013 the owner, the builder and NAB entered into a tripartite deed which contemplated the execution of a second contract to govern the construction of the townhouses.

6 On 30 October 2013 the owner and the builder entered into that second contract ('the second contract'). The second contract was for the same price as the first, $3,018,000. The second contract is a standard form Australian Building Industry Major Works Contract (2008) Victoria edition.

7 One critical difference between the second contract and the first contract was that under the second contract the owner was to appoint an architect to administer the contract ('the architect'). The architect assumed significant responsibilities under the second contract, including:

(a) Issuing instructions to the builder;

(b) Assessing claims for adjustment to the contract;

(c) Instructing whether variations were to proceed;

(d) Adjusting the cost of the building work to take account of the difference between actual cost and provisional sums or prime cost sums;

(e) Deciding whether the works have reached practical completion; and

(f) Assessing claims and issuing certificates for payment.

The architect acts as the owner's agent in giving the builder instructions but in acting as an assessor, valuer or certifier acts independently and not as the owner's agent.

8 Clause N3 of the second contract provides two options for the builder to submit progress claims. Under the second contract the parties had agreed the first option which permitted a monthly claim. Clause N5 requires the architect to assess the builder's claim and then issue to the builder and the owner within 10 business days a certificate setting out any payment due. Clause N7 creates an obligation on the owner or builder as the case may be to pay any amount in the certificate.

9 Clause N11 creates a procedure for the builder to submit a final claim, with clause N12 providing for assessment and issue of a final certificate by the architect and clause N14 creating the obligation to pay in relation to the final certificate. No final claim was submitted by the builder and no final certificate issued by the architect.

A8.1 If a party wishes to dispute a certificate, notice, written decision or written assessment issued by the architect, or to dispute the failure of the architect to issue something, the party must give the architect written notice under this clause within 20 working days after:

1. receiving the certificate, notice, written decision or written assessment or
2. becoming aware of the failure of the architect to issue something.

A8.2 If the party fails to give a notice under subclause A8.1, the party will not be entitled to dispute the matter at all.

11 The architect appointed by the owner under the second contract was Mr Thomas Lui of ATR Building Consulting.

12 Under the tripartite deed NAB appointed Charter Keck Cramer as its quantity surveyor ('the quantity surveyor'). Under the tripartite deed the builder was entitled to claim against NAB only in respect of 'Certified Costs' being those actual costs properly incurred by the builder under the second contract as certified by the quantity surveyor.

13 It is important to note for the purposes of the discussion below, that the quantity surveyor did not have a designated role under the second contract. It issued Progress Payment Recommendations which, as their name suggests, were recommendations to NAB to make payments to the builder.

14 The townhouses were completed somewhere between April 2015 and July 2015 (the exact date is disputed) and in September 2015 the last of the townhouses was sold. Around this time a dispute arose between the builder and the owner as to the amounts outstanding owed by the owner to the builder for the performance of works associated with the construction of the townhouses. This dispute made its way to VCAT.

15 VCAT handed down its reasons for the order on 31 August 2023 ('reasons').[1]

16 The reasons set out the nature of the claims made by the builder.

17 The first category of claims ('the progress payment claims') are:

The Builder claims that the Owner has failed to pay the following amounts certified by the Architect and Quantity Surveyor, in breach of the Second Contract:

a. $50,000 on Progress Payment Recommendation No 4 issued by the Architect on 2 June 2014; and

b. $71,924.78 on Progress Payment Recommendation No 11 issued by the Architect on 26 August 2015.[2]

18 The second category of claims ('the extras claims') are described in the following terms:

Also, the Owner requested further works which were not assessed or approved by the Architect, and these are claimed as variations to the Second Contract or as prime cost ('PC') sum adjustments. At the end of the hearing (after some concessions made by the Builder) these total $128,628.30.

The claim for these extras is put as a contractual entitlement, alternatively, the Owner was unjustly enriched to the extent of the upgrade of the fixtures and fittings in the townhouses and improved exterior fencing and landscaping.[3]

19 In addition, the builder claimed interest under the contract on the amounts it said it was owed.

20 The owner counterclaimed. For the most part that counterclaim was unsuccessful but, as will be seen, the Tribunal did allow the owner credit for some items in that claim.

21 At the hearing of the proceeding before the Tribunal, the owner was represented by Mr Chen, its director with the assistance of an interpreter. The builder was represented by counsel. The hearing went for eight days with lay evidence from Mr Nicholas Tofaris, a director of the builder and Mr Chen. The Tribunal found Mr Tofaris to be an honest and credible witness. It found that even with an accommodation for Mr Chen's first language not being English and his inexperience in property development, Mr Chan was a less credible and unreliable witness.

22 Ultimately, the Tribunal upheld the progress payment claims and the extras claims and gave the owner credit for 3 items in its counterclaim.

23 In relation to the progress payment claims it held:

(a) the owner had impermissibly deducted a sum of $50,000 from the amount certified by the architect and the quantity surveyor under Progress Payment Recommendation No. 4; and

(b) the owner had not paid any of the amount owing under Progress Payment Recommendation No. 11.

24 In relation to the extras claims the Tribunal found in essence that the builder had performed the work and incurred the costs he had claimed at the request of the owner or the Council or, in the case of extra building surveyor letters, NAB and that the builder was entitled to payment. The reasons do not state expressly whether the Tribunal had found that amounts owing in respect of the extras claims are owed pursuant to contract or as a result of the builder's claim for unjust enrichment. For reasons I discuss below, the better view is that the Tribunal found the amounts were owing pursuant to the unjust enrichment claim. Before me, however, the builder contended that those amounts were owing pursuant to contract or, alternatively, because the owner had been unjustly enriched. As a result, I consider both potential bases for the builder to recover in respect of the extras claims.

25 The Tribunal rejected most elements of the owner's counterclaim. The Tribunal upheld those aspects of the counterclaim relating to the installation of a round rather than a square water tank, the failure to supply and install 11 intercoms and a direct payment to the builder for timber flooring.

26 The most significant item in the owner's counterclaim related to liquidated damages. The owner claimed $93,585 for this item being a total of $135,585 less an amount of $42,000 which had already been deducted from the amount payable under the architect's certificate. The builder contended and the Tribunal accepted that the architect and the builder had agreed on a figure of $42,000 as the total amount owing for liquidated damages. In making that finding the Tribunal said:

The Architect was not called to give evidence. The only evidence I have of the agreement is that of Mr Tofaris and the contemporaneous documents. Based on that evidence, I am satisfied that the parties agreed to the amount of liquidated damages at $42,000. The Owner's claim is dismissed.[4]

27 The reasons contain a useful table showing the Tribunal's calculation of the amount it found was owing by the owner to the builder.

Plus variations/PC sums due to Builder (incl. GST)

28 Simple interest at 10% being the rate provided for under the second contract was then applied to the balance owing for the period 9 September 2015 to 31 August 2023.

29 The owner's Notice of Appeal contains six questions of law:

1. Did the Tribunal err in law by failing to assist a self-represented litigant, being the Appellant, to the standard, and in the manner, required by the law in circumstances where the Tribunal failed:

(a) to draw the Appellant's attention to defences available under sections 37 and 38 of the Domestic Building Contracts Act 1995;

(b) to assist the Appellant to conform to the principle in Jones v Dunkel and other procedural rules designed to avoid unfairness, in particular, calling the Architect as a witness; and

(c) draw the Appellant's attention to the relative weight to be given to emails of the Architect as opposed to sworn evidence from the Architect?

1. Did the Tribunal err in law in finding that the Appellant was liable to make payment of the balance of Progress Claim No. 4 in circumstances where:

(a) the Respondent did not prove/establish the alleged liability arose from a Progress Payment Certificate issued by the Architect as required under the Second Contract; and

(b) the Appellant had paid the full amount sought under Progress Claim No. 4?

1. Did the Tribunal err in law in finding that the Appellant was liable to make payment of the balance of Progress Claim No. 11 in circumstances where:

(a) the Respondent did not prove/establish the alleged liability arose from a Progress Payment Certificate issued by the Architect as required under the Second Contract; and

(b) the Appellant had paid the full amount sought under Progress Claim No. 11?

1. Did the Tribunal err in law in its application of sections 37 and 38 of the Domestic Building Contracts Act 1995 to find that the Appellant was liable to make payment of the additional variations in circumstances where:

(a) the Respondent failed to provide the relevant notices required by those sections;

(b) the Respondent failed to prove/establish, and the Tribunal failed to make relevant findings, that the Respondent would suffer a significant or exceptional hardship by the operation of the preceding paragraph; and

(c) the Respondent failed to prove/establish, and the Tribunal failed to make relevant findings, that it would not be unfair to the Appellant for the Respondent to recover the money?

1. Did the Tribunal err in law in finding that the Appellant was liable to make payment of the additional variations in circumstances where:

(a) the Respondent did not prove/establish the alleged liability arose from a Progress Payment Certificate issued by the Architect as required under the Second Contract;

(b) the Respondent had not disputed any certificate, notice, written decision or written assessment of the Architect or failure to issue same in respect of the alleged variations as required under the Second Contract; and

(c) in the absence of a notice under sub-clause A8.1 of the Second Contract by the Respondent in respect of each of the alleged unpaid variations, the Respondent was not entitled to dispute the matter?

1. Did the Tribunal err in law in finding that the Appellant was liable to make payment of the additional prime cost sum adjustments in circumstances where:

(a) there were no prime cost sum items specified in the Second Contract;

(b) the Respondent did not prove/establish the alleged liability arose from a Progress Payment Certificate issued by the Architect as required under the Second Contract;

(c) the Respondent had not disputed any certificate, notice, written decision or written assessment of the Architect or failure to issue same in respect of the alleged prime cost sum adjustments as required under the Second Contract; and

(d) in the absence of a notice under sub-clause A8.1 of the Second Contract by the Respondent in respect of each of the alleged prime cost sum adjustments, the Respondent was not entitled to dispute the matter?[5]

30 The owner points to a series of findings made by the Tribunal which it says demonstrate that the Tribunal had, in addition to forming a negative view of the evidence of Mr Chen, taken a negative view of the failure of the owner to call the architect. It says the Tribunal was, in effect, applying the rule in Jones v Dunkel[6] against the owner and then relies upon the decisions in Comaz (Aust) Pty Ltd v Commissioner for State Revenue ('Comaz')[7] and Downes v Maxwell Richard Rhys & Co Pty Ltd (in liq) ('Downes')[8] for the proposition that a failure to take appropriate steps to draw a self-represented litigant's attention to the possibility of a Jones v Dunkel inference will constitute a breach of procedural fairness.

31 Some of the findings on which the owner relies are, in my view, more properly described as complaints about the absence of documentary evidence to support the case of the owner. Although the owner says, and I accept that, in some of those instances it is likely that the architect given his role under the second contract would be the person with those documents, if they existed. However, the Tribunal does expressly refer on a number of occasions to the absence of evidence from the architect. I have referred above to the finding in respect of the owner's counterclaim in relation to liquidated damages. Other relevant findings include:

The Owner did not call the Architect to give evidence and I do not accept Mr Chen's hearsay evidence that the Architect was not involved in choosing the original location for the gas meter. [9]

Further, on Mr Chen's evidence it was the Architect who instructed the plumber to attend. The Architect was not called to give evidence and so there is no evidence before me as to what the terms of engagement of the subcontractor were.[10]

32 More generally as will be apparent from the discussion below, regarding other questions raised by the owner on appeal, the architect played a critical role under the contract and the absence of his evidence may well have had a significant adverse impact on the case of the owner, particularly in circumstances where the Tribunal had formed an adverse view of Mr Chen's evidence.

33 On the first day of the hearing at the outset Mr Chen raised the issue of calling the architect. Mr Chen apparently understood that the architect had given a witness statement. The Tribunal clarified that there was no witness statement in the Tribunal book but there was an email from the architect. There then followed a discussion between the Tribunal and Mr Chen about the possibility of calling the architect:

INTERPRETER: Can I still request him to be present as a witness.

SENIOR MEMBER: Okay. We have to ask the applicant what they say about that.[11]

34 The Tribunal asks for Mr Chen to indicate the evidence which the architect might give. Portions of the transcript are indistinct but it is clear Mr Chen wants the architect to give evidence regarding certification of payments and approval of variations. The Tribunal asks Mr Chen why a witness statement had not been prepared for or by Mr Lui and Mr Chen says he does not know. I should interpolate at this point that at earlier stages of the Tribunal proceeding, including the date for filing of witness statements, the owner had been legally represented but that by the time of the hearing Mr Chen was representing the owner. Then Mr Chen says he thinks he only needs the architect to prove that the email is his. The Tribunal says that if he needs more evidence that he would need to prepare a witness statement and show it to the applicant to see if they would allow it to be done so late. The Tribunal then ascertains that the builder does not dispute the email and advises Mr Chen that if he does not need the architect for anything else he will not need a witness statement from him.

35 Later in the hearing, on day four, there is an interchange between the Tribunal and counsel for the builder where the Tribunal indicates a concern regarding the second or third hand nature of some of the statements allegedly made by the architect being put to Mr Tofaris by Mr Chen. Counsel for the builder then states that he will be inviting the Tribunal to conclude that the architect's documents should not be taken at face value because the architect was aligned with the owner and suggests there may have been a degree of wrongdoing on the part of the architect. Following this interchange the Tribunal says:

Yes. Okay. All right. So just let me explain that to Mr Chen. So, Mr Chen, what Mr Sanger is saying is that: yes. You have an email from the architect. But I have to read that in light of the fact that, between 2015 and 2019, when he wrote this email, he's done things to prop up your position. For example, he authorised for the retention money to be paid to you.

The financial services inquiry that happened through the bank found that he'd done the wrong thing. So when he writes something to you in 2019, I have to read it in light - that he's protecting himself and protecting you and it may not be objective or independent, what he's written.

And because he's not here, we can't ask him these questions. So what I need you to do is go back - don't rely on what Thomas says. Don't rely just on his email. You need to show me - or show Mr Tofaris - every document you say he should have given you and didn't. Every example of where he sent progress claims or documents to the architect and he's been asked for more documents and they were never given.

So we go back to first principles. You can prove what Mr Tofaris did or didn't do. Simply saying 'Thomas told me he didn't do this' is not going to be enough. So that's why I thought maybe if we go back and look at each variation that's claimed, one by one, you'd be able to say you should've had these invoices; you should've sent them to Thomas; show me where you did.[12]

36 As those passages from the transcript indicate, the basis on which Mr Chen had been advised by the Tribunal he did not need to call the architect on day one of the hearing had plainly evaporated by day four. As the passages from the judgment indicate, the failure to call the architect may have had an adverse impact on the owner's case.

37 I do not accept however, that it is appropriate to characterise the Tribunal as having drawn a Jones v Dunkel inference in relation to the architect's evidence. The Tribunal commented on the absence of the architect's evidence but did not find that the failure to call the architect allowed an inference to be drawn that the architect's evidence would not have assisted the owner.

38 However, I do not regard the underlying principle in Downes and as limited to the circumstance in which a court or tribunal draws a Jones v Dunkel inference. Downes and Comaz are particular manifestations of the proposition that within the bounds of preserving neutrality in the litigation it will sometimes be necessary to provide advice or assistance to an unrepresented litigant as to the evidentiary rules and principles applicable to their case:

The right of an unrepresented party to be heard requires that he or she be able to understand the bases on which he or she might contest the evidence led in support of a claim against them, and the manner in which he or she might answer such claim by adducing evidence in response.[13]

39 The requirements of procedural fairness depend on the nature of the case and the course of the hearing.[14]

40 The builder said in submissions that there could be no denial of procedural fairness because at the time witness statements were filed the owner was legally represented and thus, it could be inferred that a considered forensic decision had been made not to call the architect. I do not accept this provides an answer to the question of whether the owner was accorded procedural fairness in the hearing when it was not legally represented.

41 In this instance the Tribunal had explained on the fourth day of the hearing that it was not inclined to accept the documentary representations of the architect at face value and referred to the potential hearsay nature of some of the evidence on which the owner wished to rely. The matter is finely balanced, but on balance I do not regard those indications as sufficiently drawing Mr Chen's attention to the change from the basis upon which he had been advised that it was unnecessary to call the architect on day one of the hearing and the evidentiary disadvantage to which he was potentially exposed if he did not call the architect.

42 In all the circumstances, I am satisfied there has been a denial of procedural fairness to the owner. The appeal should be upheld on this ground.

43 The Tribunal found the following facts in relation to Progress Payment No. 4:

(a) On 21 July 2013 the builder sent a claim for variations to the owner for extra site works and a retaining wall (which for convenience I will simply refer to as 'the extra site works'). The actual variations were not before the Tribunal but a covering email of 21 July 2013 and subsequent correspondence was.

(b) On 8 August 2013 the owner sent the builder an email which said 'if you agree the variations are subject to the bank quantity surveyor review, you give us a reply we are waiting for your reply before we can make $50,000 payment'.

(c) On 9 August 2013 the builder sent the owner a formal notice headed 'Variation Dispute'. The notice confirms the builder had received payment from the owner of $50,000. In that document the builder proposed having the siteworks and bulk concrete assessed by a quantity surveyor with any agreed figure to be treated as a variation. The builder indicated he thought the final figure might be $127,000 or more.

(d) Once the second contract came into effect the quantity surveyor and the architect assessed all the variations claimed by the builder to date as part of Progress Payment No. 4.

(e) The variations as assessed and approved by the architect under the second contract and recommended for payment by the quantity surveyor relevant to the extra site works (excl. GST) were:

(i) Variation 1: additional site works, bulk concrete and additional bored piers, $57,517.09;

(ii) Variation 3: retaining wall, part of, $4,755.00; and

(iii) Variation 4: additional site cut, $12,464.53.

(Collectively 'the siteworks variations')

(f) Mr Chen instructed NAB to pay all of the sum recommended in Progress Payment Recommendation No. 4 to the builder, less the $50,000 he had already paid.

(g) The builder did not give the notice required by ss 37 and 38 of the Domestic Building Contracts Act 1995 (Vic) ('DBCA') in relation to the variations described in (e).

44 In respect of the failure to give notice in accordance with ss 37 and 38 of the DBCA, the Tribunal finds that this 'defence' was not taken by the owner and if it had been the Tribunal says it would have been satisfied of the matters in ss 37(3)(b) and 38(6)(b).

45 Based on the evidence of Mr Tofaris for the builder, the Tribunal was satisfied that the builder never intended to cap its claimed amount to the $50,000 paid by the owner.

46 The Tribunal finds that the owner was not entitled to deduct $50,000 from Progress Payment No. 4. The effect of the Tribunal's conclusion is that, in respect of the extra siteworks, the builder was entitled to the initial $50,000 payment plus $74,736.62 being the amounts certified in Progress Payment No. 4, together a total of $124,736.62.

47 The owner says the Tribunal erred because it proceeded on the basis of a Progress Payment Recommendation from the quantity surveyor not a Progress Payment Certificate from the architect. The builder says that the Tribunal found as a matter of fact that the architect had approved the siteworks variations and that it can be inferred from the totality of the evidence that there was an architect's certificate to that effect.

48 I accept that the Tribunal has referred to the amounts claimed by the builder as arising under Progress Payment Recommendation No. 4 but I agree with the builder's submission that the Tribunal has made a specific finding that the architect had approved those amounts. There was evidence to support such a finding, including an email dated 18 February 2015, from the architect to the builder and copied to the owner, which refers to the siteworks variations (by their number) as having been approved. In the circumstances it seems to me that, despite the reference to the Progress Payment Recommendation No. 4, it is appropriate to treat the Tribunal as having inferred that a certificate from the architect had been issued.

49 I am however satisfied that the Tribunal has erred in its findings with respect to Progress Payment No. 4.

(a) neither party addressed the issues associated with ss 37 and 38 of the DBCA;

(b) there was no evidence to support a finding in relation to the matters in ss 37(3)(b) and 38(6)(b); and

(c) further, the Tribunal was obliged to put the owner on notice of those matters so that the owner could make submissions in relation to those issues.

51 The builder says that the owner had not raised non-compliance with ss 37 and 38 as a defence and therefore properly construed, the comments made by the Tribunal regarding ss 37(3)(b) and 38(6)(b), were not findings by the Tribunal at all and as a result, no issue of procedural fairness arose.

52 I do not accept the builder's submission in this regard. The builder has no entitlement to recover in a claim for a variation unless the conditions in s 37(3) or s 38(6) of the DBCA are satisfied.[15] It is not a matter of the owner needing to establish a defence, but an essential element which the builder needs to prove and of which the Tribunal needs to be satisfied. The Tribunal having found that notice had not been given in accordance with s 37 or s 38 of the DBCA, it was, in my view, obliged to consider whether s 37(3)(b) or s 38(6)(b) had been satisfied.

53 It is not apparent on what evidentiary basis the Tribunal would have found that there were exceptional circumstances or that the builder would suffer exceptional or significant hardship if the builder was not entitled to recover the amounts it claimed. In any event, having found that notices under those sections had not been given, the Tribunal was obliged to give the owner an opportunity to make submissions as to whether the builder had an entitlement under s 37(3)(b) or s 38(6)(b). All the more so, in circumstances where the owner did not have legal representation at the hearing before the Tribunal. It did not do so. I am satisfied that in this respect the Tribunal erred.

(a) the Tribunal was not obliged to consider compliance with ss 37 and 38 of the DBCA because it was not raised as a defence by the owner; or

(b) the Tribunal was not obliged to raise the issue of compliance with ss 37(3)(b) and 38(6)(b) of the DBCA with the owner.

I would still find the Tribunal erred in its holding that the owner owed the builder $50,000 under the Progress Payment No. 4.

55 In its decision the Tribunal characterises the owner as having argued that the builder's total claim for the siteworks variations was capped at $50,000. The Tribunal finds that it was never the builder's intention to cap the claim for the extra site works at that level. That evidentiary finding is unimpeachable. The Tribunal then concludes however, that because the owner has failed to demonstrate that the total claim for the siteworks variations was capped at $50,000, the owner was not entitled to deduct $50,000 from the Progress Payment No. 4. It is not clear that the conclusion follows from the premise. The amount certified by the architect was $74,736.62 but the effect of the Tribunal's decision is that the owner pays $124,736.62 for the extra siteworks.

56 The owner had paid $50,000 in August 2013 to the builder for the extra siteworks. The builder's claim was for the amount of $50,000 deducted by the owner from Progress Payment No. 4. If that amount was not deducted, the owner was paying $50,000 plus the $74,735.62 certified by the architect. The owner says all it had to pay was the amount certified $74,735.62 and so it was permitted to take into account the earlier payment of $50,000.

57 The Tribunal was required to consider whether the builder had any entitlement to the $50,000 in addition to the amounts certified by the architect for the siteworks variations.

58 The evidence makes clear that as at the time of entry into the second contract the question of the amount owing for the extra siteworks was not agreed between the parties:

(a) The email of 8 August 2013 from the owner to the builder refers to the amount being subject to bank quantity surveyor review;

(b) The builder submitted a 'variation dispute' on 9 August 2013 which also talked about a proposed assessment by a quantity surveyor; and

(c) The contract value for the second contract was the same figure as for the first contract - had the variation been accepted under the first contract, it would have been added to the price of that contract and presumably then reflected in the contract price for the second contract.

59 Neither party contended before me that there was a separate agreement to have the matter determined by the quantity surveyor. In the circumstances the entitlement to payment for the extra siteworks is governed by the second contract.

60 The builder contended that there was no requirement for the architect to certify any amount in respect of the extra siteworks (and in particular, there was no requirement to certify the payment of the initial $50,000) as these variations were governed by clause 12.8 or 14.3 of the first contract as incorporated into the second contract by Special Condition clause SC1.

61 This argument was not advanced before the Tribunal and did not form any part of its reasons (clause 12.8 and 14.3 of the first contract not having been referred to at all in those reasons).

62 Nor was the argument initially advanced before me. On the first day of the hearing, I was told that the first contract and its provisions were not before the Tribunal. After I had reserved my decision, the builder's solicitors sought leave to file an affidavit which exhibited the first contract and correspondence with the Tribunal during its hearing forwarding that first contract to the Tribunal. The owner did not object to the tender of the affidavit. Given the potential significance of clause SC1 to the issues before the Tribunal, I heard further submissions from the parties on the effect of that clause and the clauses of the first contract to which it refers.

63 I do not accept the builder's contention in this regard.

64 The second contract contains the following special condition SC1:

The Contract price covers all works (labour and material) as described and detailed in this contract, Specifications, soil report, engineering plans, landscape plan, drainage plans energy rating report and working drawings. The price is fixed unless the change in the contract price is allowed in this Contract pursuant to General Conditions 7.8 9.6 11.10 12.8 14.3 15.4 8 in old contract.[16]

65 The reference in SC1 to 'old contract' is plainly enough a reference to the first contract. Indeed SC1 is in precisely the same terms as SC1 in the first contract except for the words 'in old contract'.

Whenever the Builder has, under Clause 12.4 or 13.2, accepted an obligation to carry out a variation then the Owner hereby agrees to PAY to the Builder:

• if the variation falls within clause 12.2 and no price has been agreed for the variation, the documented cost of carrying out the variation plus 15% of that cost for the Builder's margin

• any deposit that the Owner may have already paid in respect of that variation under clause 12.6

The Builder may include in its payment claims amounts of money in respect of all additional work completed [and related materials and services provided] to the date of the claim.[17]

67 In relation to clause 12.8 of the first contract there is no evidence that the builder had 'under clause 12.4 or 13.2' of the first contract accepted the obligation to carry out the extra siteworks. Clause 12.4 of the first contract requires a signed written notice from the owner prior to commencement of the variation and clause 13.2 requires either a signed consent notice or a building notice or order under the Building Act 1993 (Vic) together with certain other requirements. Clause 12.8 of the first contract as incorporated by clause SC1 does not apply to the extra siteworks.

Owner to pay additional cost if builder entitled to extra amount

If the Builder is entitled to any additional amounts which could not reasonably have been ascertained for excavations or footings under this Contract or the Act, the Owner will pay to the Builder, in the Builder's next Progress Claim, the agreed cost of the additional work or, if the cost is not agreed, the cost incurred by the Builder plus 15 % for the Builder's margin.[18]

69 At least some of the works claimed as part of the extra siteworks related to excavations and footings.[19] The Tribunal has also found that the builder had established why it was unable to adequately estimate the cost of the works at the time of entering the first contract.[20] The difficulty the builder faces in this respect is that clause 14.3 to the extent it forms part of the second contract requires that any additional amounts 'could not reasonably have been ascertained for excavations and footings ... under this contract'. At the time of entry into the second contract the amount for the extra works could be ascertained, the builder having incurred those costs. Clause 14.3 as incorporated into the second contract by clause SC1 did not apply to the extra siteworks.

70 The architect was therefore required to certify payments for the extra siteworks under clause N5. It did so but only in the amount of $74,736.62. The builder was only entitled to the amount the architect had certified. Unless the architect had otherwise taken into account the $50,000 payment by the owner in his certificates (of which there is no evidence), the owner was entitled to deduct from the sum owing on Progress Payment No. 4 the $50,000 it had already paid for the extra siteworks. The Tribunal erred in finding the owner owed the builder the $50,000 it had deducted from that payment.

71 The builder claimed $71,924.78 on Progress Payment Recommendation No 11 issued on 26 August 2015. In the reasons the Tribunal describes this recommendation as issued by the Architect. The owner says this demonstrates an error on the part of the Tribunal. The Progress Payment Recommendation was issued by the quantity surveyor who has no role under the second contract and whose only role is under the tripartite deed to authorise payment by NAB. The owner says payment was only required on a certificate from the architect under section N and that the Tribunal, not having found that there was such a certificate, made an error of law in finding that the owner owed the builder the amount contained in the Progress Payment Recommendation.

72 I accept that the builder was not entitled to claim from the owner under a Progress Payment Recommendation and I also accept that the Tribunal's reference to the Progress Payment Recommendation having been issued by the architect is erroneous. I do not accept however that the owner has demonstrated any error in the Tribunal's ultimate finding that the owner owed the builder $71,924.78 for Progress Payment No. 11.

73 In the reasons the Tribunal extracts evidence from Mr Chen on this issue:

Chen: On 16 April 2015 the Builder sent an email to the architect saying it would not release the [compliance and occupancy] certificates until it had been paid. He told me verbally he needs another $80,000. So I asked the architect and quantity surveyor to make a progress claim for the bank to pay the Builder.

Counsel: You asked the architect and quantity surveyor to make PC11 to trick the Builder?

A: The purpose of PC11 is to trick the bank so I could pay the Builder. I have been trying to pay the Builder.

Q: All your loans settled on settlements of the properties. When did you try to pay the Builder?

A: It was not me who owed the Builder money. It was the bank as it was held in the trust account. The retention account. The purpose of PC11 is to allow the bank to release the retention to the Builder.

Q: That is not consistent. You got the retention money in September. You did not say give it to the Builder? The purpose of PC11 was to trick the Builder to finish the job?

Q: You had no intention of paying the Builder at the time of PC11, even though you had created PC11 and even though the Builder was still working?

A: That happened under special circumstances as I was threatened by the Builder that if I do not pay work would be delayed.

Q: The architect had certified certain amounts. The Builder has to get paid for his work?

A: Yes I begged the architect to certify an amount so the project could keep going. The architect certified without seeing the Builder's invoices because I begged him to.[21]

74 The Tribunal also records emails from Mr Chen apparently chasing payment from the bank for Progress Payment No. 11.

On or about 7 August 2015 Mr Chen sent an email to the Architect saying "Thomas, please try your best to pay Nick ASAP". On 1 September 2015 Mr Chen sent an email to the NAB manager asking her to "please chase Royston [the quantity surveyor] to approve the 11th QS report and make payment to [the Builder] ASAP".[22]

75 The owner did not contend before the Tribunal that there was any discrepancy between the amount certified by the architect and the amount in the recommendation of the quantity surveyor. The owner's argument before the Tribunal was that any amount owed under Progress Payment No. 11 should be offset by other amounts the builder owed the owner (amounts which the Tribunal found were not owing).

76 The Tribunal thus had the evidence on behalf of the owner that there had been a certificate issued for Progress Payment 11 and in the circumstances could properly conclude that the amount of that certificate was the same as the amount in the Progress Payment Recommendation No. 11. The owner has not demonstrated any error in the Tribunal's conclusion that the owner owed the builder $71,924.78 for Progress Payment No. 11.

77 Further, in evidence before the Tribunal was a Progress Payment Certificate No. 12 issued on 7 August 2015. That certificate shows an amount owing by the owner to the builder of $79,809.80. The certificate takes into account the cumulative value of all works performed by the builder and the cumulative amount of all payments paid by the owner together with various other allowances up until the date of the certificate. There is no suggestion the amount owing under that certificate was paid to the builder. It is not immediately apparent why the builder claimed amounts under Progress Payment 11 and not the higher amount under Progress Payment Certificate No. 12. The owner says I should ignore Progress Payment Certificate No. 12 because the builder did not sue on it but, the fact that it is in evidence and that the owner made no payment under it is a further reason there is no error in the Tribunal's finding in relation to the amount owing under Progress Payment No.11.

78 Finally, the owner says that the Tribunal erred because it found[23] that the builder had been paid the amounts withheld under the contract as retention amounts and so no amount could be owing under the progress payment. It is clear from the terms of the Progress Payment Recommendation No. 11 (or Progress Payment Certificate No. 12) that any amount owing to the builder is calculated after taking into account the retention amount. The payment of the retention amount does not affect the amount owing for Progress Payment No. 11.

79 The first category of the extras claims are four variations relating to extra building surveyor letters, extra fencing, relocation of a gas meter and a pit upgrade ('the extras variations').

80 The owner contends that the Tribunal erred because it did not have evidence that the builder was entitled to recover money in respect of the extras variations under s 37(3) or s 38(6) of the DBCA or alternatively, has not considered whether the builder was entitled to recover under those sections.

81 In dealing with the variations the Tribunal did not consider the terms of s 37(3) or s 38(6). The builder submitted,[24] and I accept, that the Tribunal made no findings in regard to ss 37 and 38 of the DBCA. The builder submits the Tribunal was not obliged to consider those sections because they had not been raised by the owner as a defence. As I have indicated above, I do not accept that it so. The builder has no entitlement to recover in a claim for unjust enrichment unless the conditions in s 37(3) or s 38(6) of the DBCA are satisfied.[25]

82 The Tribunal finds that the extra fencing was requested by the owner. There is no finding that the owner gave notice of this request as required by s 37(1) of the DBCA. Written notice is required.[26] If there has been no written notice the only right of recovery is under s 38(6)(b) of the DBCA.[27] The Tribunal's decision makes no findings regarding satisfaction of the matters in s 38(6)(b). Accordingly, I accept that in this respect the Tribunal has erred in law in finding the owner was required to pay the builder for this item.

83 The Tribunal found that each of the relocation of the gas meter and the pit upgrade occurred at the request of the Council. No finding is made that the Council's request was made in a building notice of building order under the Building Act 1993 (Vic) which would potentially enliven s 37(2)(b) of the DBCA. No finding is made that the builder gave notice in writing as required by s 37(1) of the DBCA and the Tribunal gives no consideration to whether there has been satisfaction of the requirements in s 37(3)(b) of the DBCA. In those circumstances, the Tribunal erred in finding that the owner owed the builder the amounts claimed for the relocation of the gas meter and the pit upgrade.

84 The extra building surveyor letters are treated by the Tribunal as a variation. No express finding is made as to whether they are to be treated as a variation requested by the owner or one requested by the builder. Implicitly perhaps the Tribunal has found that because the extra building surveyor letters were requested by NAB and the owner agreed to that as part of the tripartite deed they are a variation requested by the owner. In the circumstances, I am satisfied that the Tribunal has erred because it has not made any findings regarding compliance with s 37(1) or s 38(1) of the DBCA with respect to the building surveyor letters, nor any findings regarding satisfaction of the requirements of s 37(3)(b) or s 38(6)(b).

85 The Tribunal erred in holding the owner liable to pay the builder for the extras variations where it had not found there was an entitlement under ss 37 and 38 of the DBCA. In these circumstances, it is unnecessary to address the arguments raised in ground 5 of the notice of appeal regarding liability to make payment under the second contract but for completeness I note:

(a) I do not regard the reference in SC1 of the second contract to clause 12.8 of the first contract as obviating the need for certification under clause N5 of the second contract. This is because the builder had not accepted an obligation to carry out the extras variations under clauses 12.4 or 13.2 of the first contract which is a condition of the application of clause 12.8;

(b) The Tribunal found there had been no certification of the extras variations by the architect; and

(c) There would therefore have been no liability to make payment for those variations under the second contract.

86 The second category of extras claims are the items which the Tribunal treated as prime cost items. The owner says the second contract did not specify any prime cost items and so the Tribunal erred insofar as it found the builder was entitled to extra sums for expenditure incurred on those items.

87 The Tribunal records Mr Chen, on behalf of the owner, having agreed to pay the amount claimed in respect of the appliances item. It was not suggested before me that there was any error in the Tribunal's decision in this respect. In those circumstances no appeal can lie in relation to that item and so I treat the appeal insofar as it relates to prime costs items as relating to landscaping, sanitary items, tiling and water tapping.

88 Prime cost sums are defined by clause K1.2 of the second contract:

A prime cost sum shown in schedule 7 is a sum exclusive of GST included in the contract for:

1. a foreseeable item of material or equipment, the precise identity of which was not known or had. not been specified at the date of the contract or,
2. an allowance for payment of a fee or charge to a relevant authority.[28]

89 There are no items shown in schedule 7 of the second contract.

90 The builder says the second contract does contain prime cost items because they are part of the contract having formed part of a document entitled 'Omega Specifications'. The Omega Specifications at page 2 of 10 has a heading 'PC sums' and lists relevantly each of the items which the Tribunal treated as a prime cost item.

91 The 'contract documents' are defined in the second contract to include any special conditions shown in schedule 2, the conditions of the second contract, the specifications, the drawings and any other documents shown in schedule 3. Clause B2.1 provides for an order of precedence as follows:

b any owner occupation special conditions shown in schedule 2b

c the conditions set out in this contract and schedule 1

d the specifications for the works in the order shown in schedule 3

e the drawings for the works shown in schedule 3

f any other document in the order shown in schedule 3.[29]

92 There are no specifications shown in schedule 3 and there is no reference to the Omega Specifications elsewhere in the second contract. Those specifications were part of the first contract being specified in item 6 of the Appendix to that contract. The builder says the Omega Specifications became part of the second contract by means of a special condition and that, notwithstanding the absence of any items in schedule 7 of the second contract, the parties had agreed those items specified under the heading PC items in the Omega Specifications were prime cost items for the purposes of the second contract.

93 The builder points to clause 9.6 of the first contract as referred to in clause SC1 of the second contract. Clause 9.6 of the first contract provides:

Contract price to be adjusted for amount expended in excess of prime cost item or provisional sum allowed

If the amount expended on a Prime Cost Item or Provisional Sum is in excess of the sum allowed for that item, the excess amount plus the Builder's margin as stated in Item 21 or Item 22 (as applicable) in the Appendix will be added to the Contract Price and paid to the Builder in the next payment payable under the Contract.[30]

94 The builder says that I should construe clause 9.6 as in effect bringing in whatever else is necessary from the first contract to make sense of the clause and that includes the reference in item 6 of the Appendix to the Omega Specifications. I am unpersuaded by this argument.

95 I am required to interpret clause 9.6 as forming part of the second contract. SC1 is not, in my view, a sidewind by which provisions of the first contract which are not mentioned in that special condition become part of the second contract. This argument might have more force if prime costs items had been listed in item 21 of Appendix A of the first contract (which is headed prime cost allowances for prime cost items) but that item was struck through. SC1 does not bring item 6 of Appendix A of the first contract into the second contract.

96 Nonetheless, despite the absence of any reference to the Omega Specifications in schedule 3 of the second contract, I am satisfied that those specifications formed part of that contract and that the omission of a reference to those specifications was in effect an error.

97 In HDI Global Specialty SE v Wonkana No. 3 Pty Ltd[31] Hammerschlag J succinctly summarised the principles of construction where the parties have apparently made an error in their written contract:

If it is clear:

(1) on the face of a written contract that an error has been made;

(2) that the literal meaning of the words used by the parties is an absurdity;

(3) what the self-evident objective intention of the parties was; and

(4) what correction is to be made to cure the mistake,

orthodox canons of construction will displace the absurd literal meaning by a meaningful and sensible one.

This approach:

(1) is to be distinguished from rectification in equity;

(2) is premised upon absurdity, not ambiguity;

(3) applies even where the language used by the parties is unambiguous;

(4) does not apply where to give the words their literal meaning brings about a result which is inconvenient or unjust but not absurd; and

(5) does not give the Court a mandate to rewrite an agreement so as to depart from the language used by the parties merely to give a provision an operation which, it appears to the Court, might make more commercial sense.[32]

98 It cannot have been the objective intention of the parties to have a contract of this nature without any specifications. It would be an absurd result. The self-evident intention of the parties was that the Omega Specifications should form part of the contract. Once this is accepted it is evident that, notwithstanding the absence of any identification of prime cost items in schedule 7 of the second contract, the parties had agreed on prime cost items as described on page 2 of the Omega Specifications. More particularly for present purposes, I am satisfied that the Tribunal did not make any error of law in proceeding on that basis.

99 The reasons record that there was no dispute between the parties that:

(a) the prime cost allowance in the contract for landscaping was $33,000;

(b) the prime cost allowance in the contract for appliances was $33,000;

(c) the contract included a prime cost sum for sanitary items (that is, bathroom and laundry fittings) of $27,500; and

(d) the contract included a prime cost sum of $13,200 for floor and wall tiles.

Each of the items and each of the amounts referred to above is to be found on page 2 of the Omega Specifications.

100 The reasons do not record a similar agreement with respect to water tapping but the Tribunal did find that there was a prime cost item allowance for this item 'in the contract'.

101 In these circumstances, notwithstanding the absence of any prime costs items listed in schedule 7 of the second contract, it is apparent that at all times before the Tribunal the parties proceeded on the basis that the Omega Specifications formed part of the contract and that there were prime costs items in the second contract which were specified on page 2 of those specifications. The Tribunal did not err in proceeding on the same basis.

102 Before the Tribunal the builder claimed amounts for landscaping, tiles and water tapping that it said it had incurred in respect of those items beyond the amounts allowed in the Omega specifications. In respect of sanitary items it claimed the amount it said it had incurred beyond the amount allowed in the Omega Specifications and in addition to a further variation in the sum of $15,000 certified by the architect. The owner says that even if there were prime costs items specified in the second contract, the builder had no entitlement to the amounts it claimed because those amounts had not been certified for payment by the architect under section N of the second contract.

103 None of the amounts claimed by the builder before the Tribunal in respect of the prime cost items had been assessed or approved by the architect and it follows the amounts claimed had not been certified by the architect.

104 The builder says however, that the provisions of clause 9.6 of the first contract as applied by SC1 of the second contract mean that it was entitled to payment without any such assessment or approval. This argument like the argument regarding clauses 12.8 and 14.3 of the first contract was not advanced before the Tribunal and did not form any part of its reasons.

105 The builder says there is no reference to approval by the architect in clause 9.6 and so to recover under contract all the builder has to show is that the sums were expended on prime costs items in excess of the amount allowed for that item in the Omega Schedule (or in the case of the sanitary items the amount in excess of the amount in the Omega Specifications and the further amount certified by the architect).

106 I do not accept that clause SC1 and its reference to clause 9.6 have the effect for which the builder contends:

(a) Clause SC1 refers to the particular clauses of the first contract as clauses which allow a change in price.

(b) In fact clauses 7.8 and 8 of the first contract have nothing to do with a change in price but this does not affect the proper interpretation of the clause. Both parties agreed the references to clauses 7.8 and 8 were simply an error.

(c) Clause SC1 references a single clause in the first contract relating to prime cost items. If it were intended to create a completely separate regime replacing all other clauses in the second contract regarding prime cost items it would have referred at the very least to the entirety of clause 9.

(d) The reference in clause SC1 to clause 9.6 therefore does not create a completely separate regime for dealing with prime cost items replacing all other terms of the second contract dealing with such items.

(e) The reference to clause 9.6 in clause SC1 does not have the effect of overriding clause K2 of the second contract which provides that other than for a fee or charge paid to a relevant authority, 'nothing is to be done for which a provisional sum ... has been included ... except in accordance with an instruction from the architect'.

(f) Critically for the resolution of this aspect of the builder's claim, the reference in clause 9.6 to an amount being 'paid to the Builder in the next payment payable under the Contract' does not displace the requirement under section N of the second contract for any amount payable to be certified by the architect. The amount has to be 'payable under the contract'. The reference to 'the contract' must be the second contract (SC1 being part of the second contract) and amounts are only payable under the second contract upon certification by the architect.

107 For the reasons I have outlined above and, in my view, consistently with the approach the Tribunal took, the builder did not have any contractual entitlement to the amounts claimed by the builder for prime cost items before the Tribunal because those amounts had not been certified by the architect in accordance with section N of the contract.

108 In Pavey & Matthews v Paul[33] Deane J noted an important limitation on the right to bring an unjust enrichment claim:

Indeed, if there was a valid and enforceable agreement governing the claimant's right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.[34]

109 Here there was a valid and enforceable agreement governing the builder's right to compensation. The Tribunal has made no finding as to when the second agreement became frustrated, avoided or unenforceable nor precisely when the builder made its claims in respect of landscaping, tiles and water tapping. If the claims were made and the builder had not disputed the certificate within the time allowed under clause A8.1 whilst the contract was on foot, then the builder would have no right to claim for unjust enrichment.

110 The reasons note that the builder did make a claim under the contract in respect of sanitary items on 15 August 2015. The Tribunal notes this variation was certified in the sum of $15,000 by the architect. In Progress Payment Recommendation No. 11 the quantity surveyor provides a list of 'variations' which they say they have been advised by the architect are approved.

111 The builder did not dispute the architect's certificate in respect of the sanitary items under clause A8.1.

112 At the time the builder made its claim for sanitary items there was a valid and enforceable agreement governing the builder's right to compensation. Similarly at the time the architect approved the amount of $15,000. It is not apparent precisely when the time to dispute the architect's certificate in respect of the sanitary items would have expired under clause A8.1. More significantly, the Tribunal has not found when the second contract came to an end.

113 Critical findings of fact necessary for the builder's claim for unjust enrichment in respect of the prime costs items have not been made. It is appropriate to uphold the appeal in relation to these items and remit the matter back to the Tribunal. I would emphasise however, that an analysis of when claims were made and when the second contract came to an end may well demonstrate the builder is entitled to a claim for unjust enrichment in respect of all the sums it has claimed for the prime cost items.

114 For the reasons above, I grant leave to appeal and uphold the appeal. The matter should be remitted to VCAT to be heard and determined in accordance with the law.

[1] Omega Building Group Pty Ltd v Shininggarden Pty Ltd (Building and Property) [2023] VCAT 1024 ('Reasons').

[6] [1959] HCA 8; (1959) 101 CLR 298.

[7] [2015] VSC 294.

[8] [2014] VSCA 193; (2014) 46 VR 283.

[13] [2014] VSCA 193; (2014) 46 VR 283, 289 [22] (Osborn JA).

[15] Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 267 CLR 560.

[17] Affidavit of Domenico Luna dated 7 August 2024 ('Luna affidavit'), 30.

[24] Respondent's Further Submissions dated 5 August 2024, [16]; Trial Transcript 7 August 2024 116/4-8.

[25] Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 267 CLR 560 (Nettle, Gordon and Edelman JJ).

[31] [2020] NSWCA 296; (2020) 104 NSWLR 634.

[33] [1987] HCA 5; (1987) 162 CLR 221.