Applicants v Respondents

Supreme Court of Victoria|2017-08-18|Before: Kennedy J

[2016] VCAT 688 (Senior Member Farrelly)

JUDICIAL REVIEW - Decision of VCAT - Building dispute involving 'cost plus contract' and provision of estimate - Alleged misleading and deceptive conduct in provision of estimate - Whether failure to consider evidence of inducement and loss given 'cost blowout' - Whether failure 'to apply the law of negligence' - Whether question of law raised in relation to alleged common law claim for delay damages - Whether discretion miscarried in refusing amendment - No merit to the extent any question of law was raised - Leave refused (Vic)

1 This is an application for leave to appeal to the Court pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act) against orders made by the Victorian Civil and Administrative Tribunal (VCAT) (constituted by Senior Member Farrelly) at Melbourne on 5 May 2016.[1]

2 The Senior Member was concerned with a building dispute wherein the owners (1A Enfield Street St Kilda Pty Ltd and Gaycel Pty Ltd controlled by Mr Ken Yucel) engaged the builder (found by the Senior Member to be, collectively, Mr Amet Eski and Heski Carpenters Pty Ltd) to extend and renovate a two storey, eight unit apartment block in St Kilda.

3 Senior Member Farrelly ordered that the applicant builder pay the respondent owners the net sum of $107,618.09 and, further, that the first joined party, Mr Ergun Gulcan, pay the builder $43,351 in respect of defective cabinetry.

4 The owners now seek leave, relying on four alleged questions of law. As highlighted by the respondents, however, no question of law is raised pursuant to these questions. There was also considerable variance between the questions; the alleged associated grounds; and the matters raised in submission purportedly in support.

5 In the result, in an effort to justly and efficiently resolve the real issues in dispute,[2] I have endeavoured to resolve the application as best as I can on the basis of the alleged grounds as actually framed in the proposed Amended Notice of Appeal dated 18 July 2016.

6 However, in order to assess these grounds, it is necessary to set out some (uncontested) background as outlined in the Senior Member's Reasons.

7 By a building contract dated 15 July 2012 (the building contract) the owners engaged the builder to undertake the works.

8 The building contract did not specify a fixed price for the building works. Rather, the building contract provided that the contract price would be the total of the direct costs incurred by the builder in carrying out the works; the builder's fee calculated at 16% of the direct costs; plus GST.

9 Section 13 of the Domestic Building Contracts Act 1995 (Vic) (the Act) makes special provisions in respect of 'cost plus' contracts as follows:

Restrictions on cost plus contracts

(1) A builder must not enter into a cost plus contract unless -

(a) the contract is of a class allowed by the regulations for the purposes of this section; or

(b) the work to be carried out under the contract involves the renovation, restoration or refurbishment of an existing building and it is not possible to calculate the cost of a substantial part of the work without carrying out some domestic building work.

Penalty: 100 penalty units.

(2) A builder must not enter into a cost plus contract that does not contain a fair and reasonable estimate by the builder of the total amount of money the builder is likely to receive under the contract.

Penalty: 100 penalty units.

(3) If a builder fails to comply with this section -

(a) the builder cannot enforce the contract against the building owner; but

(b) the Tribunal may award the builder the cost of carrying out the work plus a reasonable profit if the Tribunal considers that it would not be unfair to the building owner to do so.

10 In order to arrive at the prescribed estimate for the purposes of s 13(2), the builder engaged an experienced engineer, Mr Michael Odicho, to provide an estimate for the direct costs. However, although he provided an estimate of $976,383 excluding GST, the estimate actually provided by the builder was based on an estimate of only $903,005 (a difference of $73,378).

11 Thus, item 10 of Section C of the contract stated that the builder's 'fair and reasonable estimate of the total amount of money that the builder is likely to receive under the Contract' was $903,005 (and $1,047,485.80 with the 16% builder's fee).

based on the information reasonably available to the builder at the time the Contract is executed. It will be adjusted in accordance with the provisions of the Contract; and it is not and it does not pretend to be the contract price. The contract price is arrived at set out in Item 11 below and it will supersede this estimate.

Had the builder's contract price estimate been founded on Mr Odicho's "true" direct costs estimate, it would have been significantly higher. After adding the agreed 16% builder's fee, the estimate would have been $1,132,604 that is $85,119 more than the estimate inserted in the contract by Mr Eski.

14 A building permit was issued on 21 August 2012 and the builder commenced works around that time. The due date for completion was 2 May 2013.

15 As the project continued the owners exercised substantive control over the costs incurred by the builder. Thus, as the Senior Member recorded:

Mr Yucel was thoroughly involved in the progression of the building works from the outset. He attended the building site frequently to inspect the progress of works and, on occasions, gave directions to the builder in respect of various works.
At Mr Yucel's request, quotations for works obtained by the builder from sub-contractors were provided to Mr Yucel, and Mr Yucel had discussions with the builder as to which quotations would be accepted. Further, at Mr Yucel's direction, all payment claims of sub-contractors engaged by the builder were to be forwarded to Mr Yucel who would arrange for payment of those claims to be made directly by Gaycel Pty Ltd to the subcontractors. As part of this arrangement, many of the subcontractors' invoices were, at the direction of the builder, addressed to Gaycel Pty Ltd.
Under these arrangements, Mr Yucel had control of the financial records as to the cost of the building works. The builder kept records of its own workers' labour time, but otherwise relied on information provided by Mr Yucel as to the accruing "direct cost" of building works.

16 In September 2012, a sub-contractor was engaged to supply and install cabinetry in the 8 units. However, after this sub-contractor fell into financial difficulty, the cabinetry was taken over by a business known as 'Winlife Cabinets'. Mr Gulcan was the proprietor of this company.

17 Mr Yucel became dissatisfied with the quality of the cabinetry and he and Mr Eski agreed to terminate the Winlife Cabinets contract by forwarding a letter on 31 May 2013.

18 However, Mr Yucel was also subsequently dissatisfied with the builder. By letter dated 16 July 2013, the owners thereby purported to terminate the building contract.

19 This was followed by a letter dated 31 July 2013 wherein the builder also purported to terminate for non-payment of an outstanding invoice.

20 By June 2013, Mr Yucel informed the builder that the total costs for the building works had reached approximately $1,350,000.

21 In the result, the builder claimed that the sum of $129,200.50 was owed in respect of the total costs due under the contract (this took into account amounts already paid).

22 The owners in return claimed that the estimate was not a fair and reasonable estimate and made a variety of other claims against the builder including:

• A claim for over payment of $356,159 (the 'overpayment amount', which will be described below);

• A claim for misleading and deceptive conduct also for the alleged 'overpayment amount';

• A claim for supervision time of Mr Yucel post termination of $28,551;

• An overcharge claim of $86,124 based on alleged overcharging for the builder's own labourers/employees (which claim was sought to be added during the hearing); and

• A claim for repair of defective works at $286,328.

23 There was also a contribution claim by the builder against Mr Gulcan in respect of the defective cabinetry.

24 In terms of the builder's claims, the Senior Member found that the builder's contract price estimate was not a fair and reasonable estimate as to the total amount of money the builder was likely to receive under the contract. As such, the builder could not enforce the building contract.

25 The Senior Member first rejected the suggestion that non-compliance with s 13(2) of the Act was assessed by simply comparing the builder's price estimate in the contract with the costs subsequently incurred. Rather, it was necessary to assess the fairness and reasonableness of the contract estimate at the time the contract was entered.

26 The Senior Member went on to find that this was the first 'cost plus' contract the builder had entered and that it was prudent for the builder to obtain a cost estimate from an independent experienced estimator such as Mr Odicho. Further, that it would also have been prudent for the builder to base his estimate on Mr Odicho's estimate.

27 The Senior Member found that this did not occur given the discrepancy between the builder's estimate and that of Mr Odicho. The Senior Member concluded:

I can only speculate as to why Mr Eski would "lower" Mr Odicho's estimate. Perhaps he was more focused on "winning" the building contract than providing a genuine contract price estimate. Whatever his motivation, I am satisfied on the evidence that the builder's contract price estimate, inserted into the contract by Mr Eski, was not the builder's genuine reasonable estimate of the total amount of money the builder was likely to receive. As such, I find that the builder has failed to comply with s13(2) of the Act and, accordingly, pursuant to s13(3) of the Act, the builder cannot enforce the building contract.

28 Despite this, the Senior Member found that it was fair that the builder be awarded a reasonable profit for the building work it carried out, including the works of its sub-contractors pursuant to s 13(3)(b) of the Act. This was assessed as $119,605.36, and after deducting the sum of $108,400 already paid to the builder by the owners, the balance owed was $11,205.36.

29 In terms of the owners' claims the Senior Member's findings included that:

• The owners were entitled to terminate the building contract, which they did on 16 July 2013.

• The owners were entitled to liquidated damages for delay, assessed at $26,071.50.

• The owners were also entitled to compensation for the cost of rectifying defects in the works carried out by the builder or the builder's sub-contractors, at $92,751.95.

• The owners' other claims for damages failed (which included the claims for overpayment; misleading and deceptive conduct; and supervision of Mr Yucel).

30 The 'overpayment' amount took on some significance in this appeal. The Senior Member recorded the way this amount was calculated in paragraph [178] of the Reasons as follows:

The owners say that they have "overpaid" the builder $356,159. They arrive at this figure as follows:

First, they say that the total sum properly payable by them for the works under the building contract should not, under any circumstance, have exceeded a reasonable sum. They say a reasonable sum is $1,099,860, calculated as the builder's contract price estimate specified in the building contract, $1,047,485.80, plus 5% of that estimate as a reasonable extra allowance for contingencies.

Next, they say that the total sum paid for works carried out up to the date they terminated the building contract, excluding the 16% builder's fee, was $1,288,805.55. To this figure they:

- add 16% allowance for builder's fee, $206,208.89,

- subtract $138,402.94 as allowance they say ought be made for variation reductions in the scope of the building contract works, and

- add $99,407.72 as the cost they say they have incurred to complete some, but not all, of the building contract works after they terminated the building contract, to arrive at a total of $1,456,019.22.

From this figure they subtract the abovementioned "reasonable" contract sum, $1,099,860, to arrive at the claimed "overpayment" of $356,159.

31 The Senior Member went on to reject the overpayment claim finding that it was based on a fundamental misconstruction that the parties' entitlements under a cost plus contract can be derived by reference to some nominal fixed price (reached by adding a reasonable allowance on top of the contract price estimate). Instead, a cost plus contract, by its very nature, has no fixed price and cannot be treated as a fixed price contract.

33 After setting off the sums owed as between the builder and the owners referred to above, the net result was that the builder was to pay the owners $107,618.09. Mr Gulcan was also to pay the builder $43,351, for the cost of rectifying the defects in the cabinetry.

34 Under s 148(1)(b) of the VCAT Act a party to a proceeding may, by leave, appeal on a question of law to a Judge of the Supreme Court from an order of the Member of the Tribunal in a proceeding.

35 In the recent decision of Patsuris v Gippsland and Southern Rural Water Corporation (Patsuris),[3] the Court of Appeal highlighted the limited nature of appeals under s 148. Section 148 does not confer a general right of appeal on the merits of a case. If no threshold question of law can be identified, the case is not suitable for the type of restricted appeal that s 148 provides. The Court stated:

The 'question of law' requirement in s 148 confers a limited capacity on the Court to review findings of fact made by a Tribunal member. The requirement in s 148 to state a question of law is germane to the capacity of the Court to review findings of fact made by a Tribunal member. The identification of a question of law is not merely a precondition to the exercise of a right to appeal, but the subject matter of the appeal itself. It is not sufficient for the parties to identify a point of law between them on appeal that was not raised before the Tribunal.[4]

36 The Court also highlighted four (non-exhaustive) examples of mistakes that might constitute errors of law, pursuant to the Court of Appeal decision in Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Ltd,[5] as follows:

(a) whether the tribunal has identified the relevant legal test;

(b) whether the tribunal applied the correct legal test;

(d) whether the facts found fall within a statute properly construed.[6]

37 In Macedon Ranges Shire Council v Romsey Hotel Pty Ltd (Macedon),[7] the Court of Appeal dealt with the circumstances in which there may also be an error of law by reason of a failure to have regard to relevant considerations. The Court stated:

As the High Court made clear in Craig v South Australia, and again in Minister for Immigration and Multicultural Affairs v Yusuf, an administrative tribunal makes an error of law if it ignores "relevant material" such that its exercise, or purported exercise of power, is thereby affected. Earlier, in Minister for Aboriginal Affairs v Peko-Wallsend Ltd, Brennan J said:

The facts to be brought to mind are the salient facts which give shape and substance to the matter: the facts of such importance that, if they are not considered, it could not be said that the matter has been properly considered.[8]

38 In hearing an appeal, courts are also to be concerned to respect the role of a tribunal and not to seek out error. In particular, a court should avoid an overly pernickety or overly legalistic examination of the reasons.[9]

39 Additionally, '[o]n appeal this Court must recognise the forensic realities of the way in which the case was put to the Tribunal. It is these realities to which a Tribunal must respond in its reasons'.[10]

Did the Respondents engage in misleading and deceptive conduct and/or unconscionable conduct by providing the Appellants with an estimate of the proposed building costs when that estimate was significantly less than the actual building costs of the project?

41 It is immediately apparent that no question of law is properly identified. No question arises by asking whether the respondents engaged in misleading and deceptive conduct which is clearly a question of fact.

42 The associated alleged ground of appeal is as follows:

The Tribunal erred in concluding (Reasons, [188] to [192]) the Respondents had not engaged in misleading and deceptive conduct and/or unconscionable conduct in providing an estimate of proposed building costs significantly less than the actual building costs considering the Tribunal failed to consider relevant matters, being the evidence of the principal of the Appellants Ken Yucel, to the effect that:

(a) The Appellants were induced into entering the building contract on the basis of the estimate provided by the Respondent;

(b) if he had known the actual building costs he would not have proceeded with the building works and the Appellants would have been financially advantaged; and

(c) the losses to the Appellants arising from the misleading and deceptive conduct and/or unconscionable conduct were in excess of $356,159.

43 Although it was not entirely clear from submission, ground one appears to raise an allegation that the Senior Member failed to consider relevant matters relating to inducement and loss. This will be considered, below.

44 At paragraph [188] of the Reasons, the Senior Member notes that as an alternative to an overpayment claim the owners had claimed the sum of $356,159 by reason of misleading and deceptive conduct, or the unconscionable conduct, of the builder. As the Senior Member understood it, the alleged conduct was the builder's false representation contained in the building contract as to the total amount the builder was likely to receive under the contract.

The owners say that the representation was made without reasonable cause, and was false, as is demonstrated by the significant "cost blowout" in the actual cost to carry out the works. The owners say they were induced to enter the building contract by reason of the builder's misleading and deceptive/unconscionable conduct.

46 The Senior Member then stated that he did not accept this claim for two reasons:

First, I am not satisfied on the evidence that the owners [through Mr Yucel], were induced to enter the contract on the basis of the builder's contract cost estimate as written into the building contract by Mr Eski. There is no evidence as to what Mr Yucel might have done had the contract price estimate been based on the [true] estimate of Mr Odicho. The evidence before me is that the owners, through Mr Yucel, were agreeable to a cost plus contract under which Mr Yucel would exercise considerable control in relation to the selection and payment of subcontractors.
Second, even if I found that the owners entered the contract in reliance on false or misleading conduct on the part of the builder, I do not accept that the owners suffered the loss claimed, $356,159, as a result. The calculated sum is, as discussed above, founded on a misconception. There is no evidence upon which one might quantify a detriment, if any, to the owners arising from the alleged false or misleading conduct.

47 In written submissions the applicants highlighted that there were two aspects of the misleading and deceptive conduct:

(a) the false estimate provided by the respondents whereby the respondents simply reduced the figure provided by the estimator to the respondents by $73,278;

(b) the respondents representing to the appellants that the estimate was a fair and reasonable estimate of the cost of the works when the works in fact cost an additional $356,159.

48 The submissions cited various evidence of Mr Yucel which was apparently not taken into account in relation to inducement. A complaint was also made that the Senior Member ignored the second aspect of the impugned conduct, above.

49 The submissions further attacked the finding that there was 'no evidence' upon which one might quantify a detriment. In so saying the Senior Member allegedly ignored clear evidence of the cost overrun of $356,159. Alternatively, reference was made to specific evidence of a long range financial loss of $78,000 per annum contained in Mr Yucel's witness statement.

50 In relation to inducement, the Court was taken to a series of extracts from the evidence of Mr Yucel which were said to have been ignored.

51 In particular the Court was taken to an extract from the evidence from Mr Yucel at VCAT, which was said to be the 'best' example, as follows:

What I'm putting to you, sir, is that you understand that there's a world of difference between a fixed-price contract and a costs-plus contract which, by definition, does not have a fixed price in relation to the contract. Correct? ---- But the words used here are "fair and reasonable".

That could mean anything. A fair and reasonable estimate is provided but you understand that under 11.1 the actual contract price is the total of the direct costs which had not yet been fixed or ascertained. Correct? ---- I understand that, yes.

Plus the builder's margin? ---- Yes. And GST? ---- Yes

I don't want to get bogged down on the point, sir, because it's a very simple point. You can concede it or not depending on how? ---- No, I don't concede it because the estimate was provided as a fair and reasonable cost to do the project and if that wasn't the case I wouldn't have proceeded.

52 It was also submitted that the Senior Member failed to identify the 'correct test' by ignoring the 'cost blowout' claim of $356,159.

53 In the Amended Counterclaim of 19 September 2014 (the Counterclaim),[11] the owners alleged (at paragraph [6]) that the builder represented prior to and as a term of the contract that a fair and reasonable estimate of the total costs to the respondents of the building works was $1,047,485.80. Further, that (at paragraph [7]) this was false and was made 'without reasonable cause'. In written submissions it was framed as being 'false' because 'it was clearly and deliberately based on numbers that had been fiddled with compared to the estimate provided by the estimator [Mr Odicho]' and 'made without reasonable cause, since the estimate was based on numbers that had been fiddled with compared to the true estimate'.[12]

54 A theme of the applicants' case appeared to be that the fact of the cost blowout, without more, demonstrated that the estimate was misleading. However, given that the effect of statements impugned under the Australian Consumer Law must be determined 'at the time they were made', the mere fact that representations as to future conduct do not come to pass, without something more, does not make them misleading or deceptive.[13] Rather, consistent with the case put by the applicants, the question of whether the estimate was misleading turned on whether there were reasonable grounds for making it. Given the only grounds relied on were Mr Odicho's estimate, this issue turned on whether the builder's estimate was properly based on information received from Mr Odicho.

55 Consistent with these principles, and the Senior Member's earlier findings, the Senior Member implicitly accepts (for the purposes of the misleading claim) that the estimate was made without reasonable grounds on the basis that it was inconsistent with Mr Odicho's estimate. He nevertheless rejects the claim on the basis of inducement and loss.

56 Given this finding, and given the way the claim was framed, it was irrelevant to consider what Mr Yucel would have done had he 'known the actual building costs' (as suggested by ground 1(b)). Rather the relevant inquiry is whether the misleading builder's estimate (which was inconsistent with Mr Odicho's estimate) induced the owners to enter into the contract and whether this caused loss.

58 Consideration will however be given to the other grounds raised below.

59 In terms of inducement, the allegation as framed asks whether the Senior Member failed to consider evidence 'that the appellants were induced into entering the building contract on the basis of the estimate provided'.

60 The highest this allegation went was the alleged failure to refer to parts of the transcript, particularly the piece of transcript evidence identified above,[14] allegedly directed to inducement.

61 The complaint is not sustainable for three reasons.

62 First, I have examined the transcript references cited. The references cited do not directly deal with what would have occurred if the estimate had matched Mr Odicho's estimate of $976,383 (excluding GST). Even the 'highpoint' extracted above is insufficient since it is unclear whether Mr Yucel was really giving evidence as to what he would have done had the estimate been based on the true estimate of Mr Odicho. Rather, the evidence appears directed to the more generalised position wherein the estimate was broadly not 'fair and reasonable'.

63 Second, the overall finding of the Senior Member is that he was not satisfied 'on the evidence' that the owners were induced to enter the contract on the basis of the estimate. This does not demonstrate that evidence was ignored. To the contrary, it suggests that the self-serving statements cited above were implicitly rejected. Further, although the second sentence states that there is 'no evidence' as to what Mr Yucel would have done, I am unable to satisfied that discrete oral evidence was thereby ignored. Rather, this finding appears to be directed to the absence of objective evidence when considered with the final sentence, given the final sentence highlights that the available objective evidence suggested that Mr Yucel was intent on entering a cost plus contract so as to exercise control.

64 Thus, even if the identified transcript identifies some (self-serving) evidence as to what Mr Yucel would have done, I am unable to be satisfied that this was not taken into account (presuming this would otherwise be an error of law[15]).

65 Finally, even if these two matters are wrong, any error is immaterial given no loss whatsoever was demonstrated (as highlighted below).

66 There is no merit therefore in relation to both grounds 1(a) and (b).

67 The alleged error was that the Senior Member 'failed to consider' the losses which were in excess of $356,159.

68 The short answer is that the Senior Member did consider the loss claimed and rejected it. No error of law therefore arises.

69 In any event, the Senior Member was also correct to reject the amount claimed for reasons that follow.

70 The case on loss was that the sum of $356,159 as calculated above was sustainable. The applicants further appear to have been putting a 'no transaction' case as is suggested by the transcript references above i.e. that they would not have entered the contract at all if they had known of the true estimate.[16]

71 In a 'no transaction case' the prima facie measure of loss is the difference in value between what was paid and the real value of what was received.[17] However, as stated by the High Court in Gates v City Mutual Life Assurance Society Ltd, it is more accurately:

a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place.[18]

72 The difficulty for the applicants is that it was never proven that they were worse off by entering the transaction. Rather it was simply presumed that they were worse off by reason of the 'cost blowout'. However, simply because the amount paid exceeded the estimate does not establish that they were worse off to the extent of such a 'cost blowout'.

73 Other than defects in the works which were accounted for with rectification damages, there was also no finding of fact that the amount paid by the owners exceeded the value of what they obtained. To the contrary, the overpayment claim was rejected - and it is not the subject of any challenge.

74 There was therefore no error for the Senior Member to state that he did 'not accept the owners suffered the loss claimed, $356,159'.

75 There was also no error in observing that the calculated sum was, as discussed above, based on a 'misconception'. Thus, as the Senior Member had highlighted in relation to the overpayment claim, the $356,159 was premised on the notion that any amount paid beyond some nominal fixed price [the estimate (plus 5%)] necessarily amounted to an 'overpayment' or loss. This fundamentally misconstrues a costs plus contract wherein the contract price is unknown but determined by the actual costs of undertaking the work.

76 Finally, in relation to the reference to long range financial loss of $78,000 per annum, this appeared to be a reference to a jumble of calculations in a witness statement of Mr Yucel from which the Senior Member was meant to calculate the loss (which would not exceed $356,159). As best as can be determined, this figure appeared to be calculated on the basis that if the applicant had never entered the transaction it would have lost less on its loan commitments i.e. that given before the renovation it was losing $65,000 and afterwards it was losing $138,000 it was entitled to the difference (which actually appears to be $73,000).[19]

77 The Senior Member appears to make reference to some of these calculations when attempting to assess damages for delay. Thus, the Senior Member states (at [205]): 'It is difficult to understand the commentary and calculations in his witness statement, and no further explanatory evidence was given at the hearing.'

78 There is no error in such an approach. Thus, the Senior Member should not be forced to work out the applicants' case from a plethora of figures without a cohesive explanation.

79 In any event, this claim also appears to be misconceived. Thus it appears to ignore a whole range of other factors including whether rent might increase following the renovation works. More significantly, it again ignores the value of the works received.

80 There was no error in the Senior Member's Reasons at paragraph [192]. To the contrary, the Senior Member was correct to find that there was no evidence upon which one might quantify a detriment, if any, to the applicants arising from the alleged false or misleading conduct.

Were the Respondents negligent in managing and supervising the building project?

83 Again, then, the question fails to identify any question of law and rather seeks to open up an ultimate question of fact.

84 The associated alleged error does not take the matter further. It was as following:

The Tribunal erred in failing to properly apply the principle of the law of negligence to the facts found by failing to conclude the Respondents were negligent in managing and supervising the building project considering the actual building costs of the project far exceeded the estimate of the building costs.

85 The written submissions simply repeated the alleged error and suggested that 'prima facie' the cost overruns were due to the poor management of the respondents. Further, that the Senior Member failed to address the issue of negligence 'in relation to cost overruns.'

86 In oral submissions there was emphasis on the fact that the claim for negligence had been made in paragraphs [25]-[26] of the Counterclaim as follows:

Further the builder is liable to the Respondents for specific additional costs incurred due to the failure to supervise the project works competently and diligently and in allowing the works to be built contrary to the warranties implied into the contract by section 8 of the Act as follows.

The building works were, over an extended period, significantly defective and the builder failed to perform his obligations under the contract to work competently and diligently as described in the letter from the Respondents solicitors to the builder dated 19 June 2013.

87 The loss alleged was again said to be the 'cost blowout' which ultimately became $356,159.

88 However, no further elaboration was provided as to the basis for a negligence claim, nor was the Court taken to any evidence in support of it (beyond the alleged cost blowout).

89 Rather, it was submitted that 'common sense' would suggest the estimate was either grossly inaccurate or there was gross incompetence in the management of it.

90 No question or error of law has been identified.

91 There can be no error in failing to conclude the respondents were negligent simply by reason that the actual building costs of the project exceeded the estimate.

Are the Appellants entitled to compensation or damages on account of delay at common law for the period between termination of the building contract and completion of the project by the Appellants?

The Tribunal erred by awarding inadequate compensation and damages to the Appellants on account of delay at common law for the period between termination of the building contract and completion of the project by the Appellants ("completion period"), on the basis there was "no satisfactory explanation" for the length of the completion period (Reasons [206]), by failing to consider there were no challenge to the length of the completion period ever made by the Respondents.

95 In his reasons the Senior Member noted that the building contract provided for liquidated damages for delay at a rate of $2,483 for each week.

96 Further, that, following updated particulars filed during the hearing, the owners' delay damages were made up of:

(a) $26,071.50 as liquidated damages pursuant to the contract, calculated at $2,483 per week for the period 3 May 2013 (the day following the due date for completion) to 16 July 2013 (the date the owners terminated the building contract); and

(b) common law damages at $2,483 per week, for the period 17 July 2013 to the date of the issue of occupancy permits on 20 November 2013.

97 The Senior Member was satisfied that the applicants were entitled to liquidated damages for delay in the sum of $26,071.50 up to 16 July 2013 under the terms of the building contract.

98 However, the nature of delay damages claimed by the applicants over and above the contractual liquidated damages post termination was said to be unclear. In updated particulars it was characterised as interest costs on borrowings, however in other submissions it was characterised as lost rent. The Senior Member also made observations about the confusion in Mr Yucel's witness statement cited earlier.

The common law delay damages are claimed for the period 17 July 2013 to 20 November 2013. I accept that further works, including replacement of much of the cabinetry, were required to bring the building works to completion. However, there is no satisfactory explanation as to why it took 4 months (after the owners terminated the building contract) to complete the works necessary to obtain occupancy permits for the units.
The owners counterclaim filed in this proceeding makes no reference to common law damages of this nature.
On all the evidence, I find that the owners have failed to prove their claim for delay damages allegedly incurred after the termination of the building contract.

100 The applicants submitted that the Senior Member erred by awarding inadequate compensation for delay on the basis that there was 'no satisfactory explanation for the length of the completion period' by failing to consider that there was no challenge to the length of the completion period ever made by the respondents.

101 In oral submissions, it was highlighted that the claim was made in paragraph [32(b)] of the Counterclaim where a total figure of 'delay damages' $72,007 is cited which was said to be inclusive of both contractual and common law damages. Further, that there was reference to both liquidated damages until termination 'and damages at common law' in written submissions of 24 December 2015.

102 It was submitted that the amount of liquidated damages in the building contract was a good estimate of the loss.

103 As a preliminary matter, the Counterclaim does not clearly identify a common law claim for damages, nor the conceptual basis for it. Thus, at paragraph [24] it simply pleads the contractual rate for the payment of liquidated damages at $2,483 per week which gives $72,007 for 29 weeks. Similarly, although the written submissions make reference to damages 'at common law' they provide no conceptual basis for such a claim.

104 In any event, there is no error of law raised as claimed.

105 The Senior Member, as fact finder, was entitled to be dissatisfied with the state of the evidence about the length of time claimed regardless of whether a direct challenge was made. Any 'failure to consider' an absence of a challenge cannot amount to an error of law.

106 In any event, even if there is some error in the reference to 'no satisfactory explanation' in paragraph [206], it is of no consequence.

107 The starting point is that where a party sustains a loss by reason of a breach of contract that party is, so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed.[20]

108 Thus, as well as damages for delay pursuant to the contract, the applicants may have been entitled to claim damages at common law provided they proved the loss suffered by reason of the extra delay between termination and November 2013. This might have taken the form of some lost rent or other income but it would have been necessary to prove it.

109 The primary finding of the Senior Member (at [208]) was that on all the evidence the owners had failed to prove their claim. This finding was not criticised and was well open to the Senior Member given the lack of clarity in the way the claim was put. It is also insufficient to simply utilise the liquidated damages rate as a substitute for such proof.

110 No arguable error is raised in relation to ground 3.

Were the Appellants entitled to amend their claim against the Respondent builder to include overcharging for day labour work and are the Appellants entitled to damages or compensation therefrom?

112 Again, no question of law is properly framed. Instead, the question simply seeks a substitution of the Senior Member's decision.

113 The associated alleged error also does not assist. It reads:

The Tribunal's discretion miscarried by refusing leave for the Appellants to amend their claim against the Respondents to include overcharging for day labour work during the hearing in circumstances where:

(a) the fact the Appellants were unable to identify and quantify the claim until evidence was elicited from the Respondents;

(b) there were no relevant prejudice to the Respondents; and

(c) variations to the written building contract could only be made in writing.

114 Thus, although the applicants appeared to accept that, given a discretion was involved, the Senior Member's finding would need to be vitiated by the application of the principles in House v The King,[21] the ground as framed appears to be no more than a bare assertion that the discretion miscarried without any distillation of how this occurred. It does not even amount to an allegation that there was a failure to take into account some material consideration given the words 'failing to take into consideration' have been deleted.

115 The Senior Member noted that it was only during the course of the hearing that the owners sought to bring a further new claim for damages for $86,124 for the builder's alleged overcharging for its own workers or employees.

116 The Senior Member highlighted that item 11.2 of the appendix to the building contract provided that the 'direct costs' of the builder included the 'reasonable rates' for carrying out work where the builder carried out any work directly (at 11.2.9). However, that the owners claimed that the $500 per day per worker was an unreasonable charge rate and in excess of the builder's actual costs.

117 The sum claimed was therefore the owner's estimate as to the difference between the sum charged by the builder and the estimated actual cost to the builder for its own labourers. Based on the business records produced by the builder during the hearing, 'incomplete as they were,' the owners estimated that they paid the builder approximately $86,124 more than the actual cost to the builder of its own workers.

In my view the claim should not be allowed. I do not accept that the owner was unable to identify this claim well prior to the commencement of the hearing. There is no reason why the owners could not have raised this claim early in the proceeding and sought discovery of relevant documents. To allow the claim so late in the proceeding, without notice and without full discovery of all relevant documentation would, in my view, raise and unfair prejudice against the builder.
In any event, even if I allowed the claim to be brought, I would dismiss it because the charge rate for the builder's workers was the rate agreed to by the owners and the builder. In my view, it is not open to the owners to now, in hindsight, seek to amend that agreement or set it aside on the basis that the agreed rate was not reasonable. Further, as discussed above, Mr Yucel discussed his concerns with Mr Eski when Mr Eski returned from his honeymoon in January 2013. The outcome of that discussion was an agreement whereby the builder agreed to remove his workers from site once the frame rectifications were completed, and the builder also agreed to discount its charges by $10,000. Again, it is not open to the owners to now, in hindsight, seek to change the prior agreement with the builder.

119 The reference to the agreements referred to findings made earlier in the Senior Member's reasons. Thus, at the outset, Mr Yucel and Mr Eski agreed on a charge rate of $500 per day per worker for each of the workers in the builder's team. However, Mr Yucel subsequently became dissatisfied with this arrangement given he believed the builder was content to proceed slowly because it meant more profit for him. On 29 December 2012 he wrote to Mr Eski (who was on his honeymoon at the time) stating that he could not justify the costs with the builder's team any longer and that the project would continue from that time with a different crew brought into the project by Mr Yucel.

120 The two men subsequently met on site and the Senior Member found that an agreement was reached at that time as follows (at [89]):

(a) The builder would attend to the rectifying the framing works, as per the engineers instructions, at no extra cost; and

(b) After attending to the framing rectification works, the builder's team of workers would play no further part in the project. That is, Mr Eski accepted that the builder's team would be replaced by Mr Aaron Johnson and his team; and

121 The submissions were difficult to follow and failed to address any clear error of law. The applicants emphasised that they could not specify the claim prior to the hearing because of the respondents' breach of discovery orders. Further, that variations to the contract needed to be in writing.

122 It was further suggested that a proper application of Aon Risk Services Australia Ltd v Australian National University[22] suggested the amendment ought to have been granted. Further, that by reason of a range of other factors (some of which were not related to the ground as claimed) the Senior Member 'erred.'

123 In oral submissions the applicants claimed the discretion miscarried because final evidence only happened in August 2015, so there was ample opportunity for the respondents to deal with any evidence. Second, that it was the respondents who refused to produce documents.

124 It was highlighted that it was only once Mr Eski was cross-examined that the applicants could formulate a breach of contract claim in relation to the labour overcharging upon the production of wage records on 15 December 2014 (though the application appeared to have been made on 22 December which was on the 12th day of the hearing.)

125 The Court was not taken to the transcript of the making of the application before the Senior Member. Rather, the Court was taken to the transcript wherein the builders' wage records were produced (on 15 December 2014). These appear to be a hotchpotch of handwritten wage records which are not clearly complete. No explanation was offered as to why it still took between 15 December 2014 and 22 December 2014 to make the application.

126 The applicants also highlighted that variations to the written contract (beyond seeking actual direct costs) had to be in writing so that the 'agreement' cited by the Senior Member was irrelevant.

127 The principles upon which a review of this discretion are allowed are described in House v The King:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.[23]

128 In neither written nor oral submissions did the applicants address the requirements of House v The King.

129 In any event, I am not satisfied that any error has been demonstrated of the kind required on the basis of the 'error' as framed.

130 First, the discretion did not miscarry by reason that the applicant was 'unable to identify and quantify the claim until evidence was elicited from the respondents.' The Senior Member directly considered and rejected this suggestion on the basis that the owners could have raised this claim early in the proceeding and compelled discovery. No error arises in this approach.

131 Second, although the applicants now allege that there was no relevant prejudice to the respondents, the Senior Member dealt with this and rejected it by reason that the claim was late, without notice, and without full discovery of all relevant documentation. In circumstances where the records produced were already 'incomplete' this finding was not only open but appropriate in the context of an application being made on the 12th day of a 17 day hearing.

132 Finally, there is nothing to suggest that the Senior Member failed to consider that 'variations could only be made in writing.' The reasoning adopted was that, given the $500 per day rate had been agreed, it should be taken to have been accepted as 'reasonable' pursuant to item 11.2. It was thereby incumbent on the owners (not the builder) to amend or set aside this agreed reasonable rate. No error was raised in relation to this reasoning. It is also not extraneous to generally consider agreements made in the exercise of a discretion of this kind. Moreover, given the reference to 'in any event', the observations by the Senior Member in paragraph [218] are unnecessary to his material findings on the application.

133 No question of law was ever identified in relation to this ground.

1A ENFIELD ST, ST KILDA PTY LTD (ACN 145 050 255)

[1] Heski Carpenters Pty Ltd v Gaycel Pty Ltd [2016] VCAT 688 (Reasons).

[2] Consistent with the overarching purpose contained in s 7 of the Civil Procedure Act 2010 (Vic).

[6] Patsuris [2016] VSCA 109, [45].

[8] Ibid 435 [47] (citations omitted).

[9] Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd [2016] VSC 244, [10] citing Roncevich v Repatriation Commission [2005] HCA 40; (2005) 222 CLR 115, 136 [64]; Vegas Nominees Pty Ltd v Werribee Sports & Community Club Inc (Unreported, Supreme Court of Victoria, Ashley J, 21 December 1994) [13].

[10] Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd [2016] VSC 244, [10] citing The Gombac Group Pty Ltd v Vero Insurance Ltd [2005] VSC 442, [59].

[11] A proposed further amended counterclaim of 24 December 2017 (Exhibit JG-7 of the First Gray Affidavit) was also tendered as evidence, however leave was not given by the Senior Member to file and rely on this proposed version of the Counterclaim.

[12] Exhibit JG-11 of the First Gray Affidavit: Appellants' 1st written submissions, 24 December 2015, [116].

[13] Bill Acceptance Corp Ltd v GWA Ltd ( 1983) 50 ALR 242, 250; McGrath and Another v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230, 284 [198].

[15] There is also a distinction between a failure to consider a relevant consideration and a mere failure to consider a piece of evidence: See e.g. Paul v Minister for Immigration and Multicultural Affairs [2001] FCA 1196; (2001) 113 FCR 396, 423 [78]-[79]; Cameron v Board of Trustees of the State Public Sector Superannuation Scheme [2003] FCAFC 214; (2003) 130 FCR 122, 131 [32].

[16] See also Appellants' Amended Notice of Appeal, 18 July 2016, Ground of Appeal 1(b); Appellants' Outline of Submissions, 30 June 2017, [16(c)]; and note that no 'alternative transaction' was ever identified.

[17] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 12.

[19] In fact the $78,000 is referred to in the Appellants' 1st written submissions to VCAT (Exhibit JG-11 of the First Gray Affidavit, [114(e)]) though the same Yucel witness statement is cited as evidence.

[20] Robinson v Harman [1848] EngR 135; (1848) 1 Ex 850, 855.

Civil and Administrative Tribunal Act 1998

Building Contracts Act 1995

At a glance

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Judgment (189 paragraphs)

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Legislation Cited (3)

Cases Cited (9)