Avonwood Homes Pty Ltd v Jaffer [2003] VCAT 443

Medium Neutral Citation [2003] VCAT 443

Mr M Whitten of Counsel briefed by Russell Kennedy and he called as witnesses:

Mr Carr of Counsel briefed by S. Brkic and he called as witnesses:

1. The respondents pay the applicants the sum of $29,047.00

2. The hearing is reconvened for 2.15 pm on 1 May 2003 at 55 King Street, Melbourne with a hearing duration of one half a day.

1.1. This proceeding arose from an application by the liquidator, Mr Paul Pattison of Pattison Pty Ltd ("the liquidator"), of the builder, Avonwood Homes Pty Ltd ("the builder"), seeking an order for moneys owing under the domestic building contract plus interest from the owners, Paul and Christina Jaffer ("the owners"), at 12 Maurice Court, Narre Warren. A home had been partially constructed on the subject land by the builder before it went into provisional liquidation.

1.2. The liquidator claims that the owners wrongfully terminated the major domestic building contract ("the building contract") between the owners and the builder on the grounds that the owners were in breach of the contract at the time of termination in that they had failed to pay the fixing stage payment which was then due and payable under the terms of the building contract. This claim was not set out in the points of claim but put in the hearing. On this basis, the liquidator claims that the cost to complete should be assessed as the cost to the builder and not the cost to the owners. Alternatively, the liquidator claims that by employing a second builder the owners failed to mitigate their loss , what they should have done was allow the builder through the liquidator to complete the building contract which would have cost the owners no more than the contract price. The liquidator claims a total sum of $98,573.00.

1.3. The owners deny that their termination of the building contact was wrongful. They submit that fixing stage was not reached; therefore, under the building contract the fixing payment was not due and payable. They claim that their termination of the building contract was proper and in accordance with the terms of the contract as the time for completion of the contract had passed and there was no work being done on site. They claim that it was reasonable for them to deduct the cost of employing the second builder, G & F Bruinsma, to complete the works under the original building contract and to deduct this sum from the balance due to the liquidator under the building contract. Further, they claim they are entitled to liquidated damages until the building contract was terminated by them.

1.4. At the conclusion of the first day of the hearing the respondents sought leave to amend their points of defence by reducing the cost of variations by $550.00 on the grounds that the addition of the variations added up to $13,020.00 and not $13,570.00 as set out in paragraph 12 of the points of defence. The applicant did not oppose the request and leave was granted. Secondly, the respondent sought leave to amend its claims for loss and damage by the inclusion of a claim for liquidated damages for 16 weeks at $150 per week; again the applicant did not oppose the amendment and leave was given.

1.5. In their final submissions the parties agreed that if liquidated damages were applicable the period over which they would apply would be seven weeks and two days and the sum due would be $1,110.00.

2.1. I found this case to be complex in its tangled matrix of fact, the changing nature of the parties and the number of questions of law involved. For these reasons I wish to set out the format under which I will reach my determination in an attempt to give clarity to my decision.

2.2. Firstly, I will draw out from the parties pleadings the major issues that need to be answered to arrive at a decision in this proceeding.

2.3. Secondly, I will set out a chronology of the facts. Unless I draw specific attention to a dispute of fact, the facts in the chronology are broadly agreed. Alternatively, the facts are not in dispute as only one side is aware of the fact, an example of this are provisional liquidator's notices to home owners which the owners say they did not receive. I will only deal with disputes of fact where they bear upon and are relevant to my decision.

2.4. Thirdly, I will address each major issue taking into account the agreed facts, deciding any relevant factual dispute and apply my understanding of the principles of law; thereby, reaching a conclusion in relation to that proposition.

2.5. Finally, I will draw together my conclusions in relation to the major issues to reach a decision in this proceeding.

3.1. The following issues of fact and/or law arise from the applicant's points of claim and the respondent's points of claim and counterclaim;

(a) under the major domestic building contract had the builder reached fixing stage by the time it made its demand for payment for this stage;

(b) taking account of the answer in (a) was the owner's determination of the major domestic building contract by their notice of 1 June 2000 lawful;

(c) should the owners be denied the claim for the second builder's completion contract on the basis that they had failed to mitigate their loss;

(c) was there accord and satisfaction for the balance of contract monies due to the builder by the owners;

(d) what, if any, is the appropriate cost of rectification and completion?

The owner and the builder entered a major domestic building contract in the sum of $224,491.

Builder's letter re fixing stage payment claim due.

Builder's letter re fixing stage payment claim due.

Provisional liquidators circular to home owners and creditors. Provisional media release re meeting of 17 May 2000.

Meeting of provisional liquidator and home owners at Athenaeum Theatre.

Owners notice of default under the contract to the provisional liquidator.

Second builder's quote for rectification works: $68,024.

Provisional liquidators second notice to home owners and creditors.

R. Bird, of provisional liquidator discussed builder finishing house with P. Jaffer, owner on telephone.

Owner's solicitor letter to provisional liquidator terminating the major domestic building contract.

Owner's faxed notice, dated 31 May 2000, to provisional liquidator of balance of monies owing under contract and also giving notice of second builder's quote.

Mandie J approved the liquidator entering into an agreement with HIH Insurance for the funds to complete homes.

Provisional liquidator's third notice to home owners and creditors.

Further provisional liquidator's letter to home owners and creditors.

Owners sign completion contract with second builder, G & F Bruinsma.

Meeting at Avonwood's offices between M. Howell and R. Bird for the provisional liquidator and Mr P. Jaffer, owner. There is dispute as to when this meeting took place, the liquidator claimed it was approx. mid June before the owners had engaged the second builder. The owners claim it was near or on 20 June 2000.

Owner wrote to builder re proposed meeting of 4 July 2000 informing provisional liquidator that he would not be attending meeting notice and the owners had appointed a second builder to complete the dwelling.

HIH and liquidator enter the agreement whereby HIH would provide the liquidator with funds to complete home building contracts.

Second builder completes the dwelling and certificate of occupancy issued.

Further provisional liquidator's letter to home owners and creditors.

Further provisional liquidator's letter to home owners and creditors.

Avonwood letter signed by provisional liquidator to owners requesting balance of contract.

5.1. Mr Powell, an associate director of the liquidator, gave evidence that the fixing stage was complete on 21 March 2000 and the builder submitted a progress claim for that stage on that day in the sum of $56,123.00 via a letter to the owners. It is evidence of Ms K. Jaffer, owner, that when the owners received the claim for fixing stage she contacted the builder's foreman and met him on site. She pointed out that the sinks in the laundry and the kitchen, together with a significant length of cornice had not been installed as required by the definition of fixing stage, she informed the foreman that at that stage the owners were not paying for fixing stage. This evidence was not controverted or disputed by the builder and Mr Dawson, the foreman was not called. I accept Ms Jaffer's evidence.

5.2. The definition of 'fixing stage' in the contract, paragraph 3.7 of the general conditions of contract, states:-

"Fixing Stage means the stage when all the internal cladding, architraves, skirting, doors, built-in shelves, baths, basins, troughs, sinks, cabinets and cupboards of the home are fitted and fixed in position."

5.3. It was the evidence of Mr Paul Phillips of the BSS Design Group, in his report of his inspection of 20 June 2000, that the 1« bowl stainless steel kitchen sink had not been provided or installed; similarly for the laundry trough and sink set, it had not been provided or installed; the vanity including basin had not been provided or installed in the powder room, the ensuite and the bathroom; sliding doors had not been provided to the family room, the powder room or the ensuite; skirting was missing from the first floor passage.

5.4. The definition prepared by the builder is specific, it says particular works will have been carried out to reach fixing stage and I consider those works should be done it can be claimed that that stage of completion has been reached.

5.5. A contract for "staged payments" requires that a stage be complete before payment falls due. This is illustrated by the following extract from "Hudsons: Building and Engineering Contracts - 11th Edition 1995" at paragraph 4.024:

"In the case of staged payments there will be no room for any theory of substantial performance, it is submitted save in regard to purely trivial failures, although sometimes it may not be an easy question of fact, when dealing with stipulated stages of construction of an uncompleted project, to determine when sufficient completion of a stage of the work on which an instalment depends has been achieved. Since the purpose of such provisions is to secure an interim payment on account, with a possibly substantial retention, extreme exactitude is no doubt not envisaged, but effective and satisfactory completion of the required stage will be a condition of any instalment payment, it is submitted, that there could be no question of substantial performance arguments entitling a contractor to sue for the instalment while giving credit for incomplete or defective work, such as might be possible with the price or a final balance due for work on completion."

5.6. The items of work not completed here are not trivial and they are not difficult to identify. They are the basins, troughs and sinks in the building work. Mr W. Toogood, for the liquidator, gave evidence that the bathroom sink set and laundry sink set were not on site at his inspection after the builder had entered provisional liquidation and there is no evidence they were on site at the time the builder made its demand for fixing stage payment. Accordingly, I find that fixing stage had not been reached at the time the builder sought payment for that stage.

5.7. The liquidator argued that to the extent it was practical, fixing stage had been reached. A number of expert witnesses, Toogood for the liquidator and Hegarty for the owners, had given evidence that tiling which is normally a completion stage item, is normally carried out prior to installing any basins or sinks so as to provide a satisfactory and competent finish to the tiling; ie. it is less work with a better finish to place the sinks and basins with their pedestals and supports directly onto the tiling rather than installing them onto the floor base and having to cut the tiles around the sink and basin supports.

5.8. However, this is not what the contract drafted by the builder states, the statement of definition of the fixing stage is clear and readily understood. It is up to the builder to achieve what it says it will achieve. Therefore, I dismiss the builder's submission that it had practically reached fixing stage: I refer to the extract from Hudson which discourages such arguments.

6 Was the Owner's Termination of the Building Contract Lawful?

6.1. The builder submits that the termination was unlawful because;

(a) the notice did not specify the default as required by Yendex Pty Ltd v Print Constructions Pty Ltd (1989) 5 BCL 74 at 75 and In the matter of an application by White Industries (Qld) Pty Ltd (1991) 7 BCL 200 at 202; and,

(b) that the notice was given unreasonably in breach of clause 9.1.8 of the general conditions of contract and the principle of law in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) NSW LR 234 that any such notice must be given reasonably.

6.2. Dealing with the first submission, the insufficiency of detail, the first thing to note is that the clause requiring notice in the subject contract is very different from that in W_hite Industries._ In W_hite Industries_ the clause for notice required that:-

"That notice shall specify and,..., detail the fault relied upon"

In the ratio of the decision, it was noted by Byrne J that:-

"Plainly the requirement imposed by clause 12.01 that the notice must not only "specify" but also "detail the fault relied upon" was intended that the builder was adequately informed of the allegations of breach of contract made by the proprietor."

6.3. In the instant contract the clause for notice, at clause 9.1, requires:-

"and if in the case of such default as stated in this clause that is capable of remedy, the builder shall continue such default for five (5) business days after notice in writing specifying the same and stating the building owners' intention of determining the builder's employment has been given to the builder, or in case of any such default as stated in this clause, then the building owner may, without prejudice to any other rights or remedies, by notice, determine the builder's employment under this building contract. The building owner may not give a notice in pursuant to this sub-clause while the building owner is in breach of this building contract or which is given unreasonably or vexatiously."

6.4. This clause appears to be somewhat clumsily drafted, it is not all that clear, but one thing to note is that the only requirement for the notice is whether there is a default as stated in this clause being clause 9.1, then the notice in writing merely has to specify the same. Therefore, I do not consider that White Industries is applicable as no detail or description of the default is required under clause 9.1.

6.5. I accept the dicta of Monaghan J in Yendex that:-

"Such notice should be unequivocal in order to convey what was amiss so as to identify the default in respect of which cause was to be shown."

In this case notice was given on 24 May 2000, some month and half after the date for practical completion of the works under the contract and after the builder had gone into provisional liquidation. The notice was addressed to the provisional liquidator. I consider that the default specified as being that the builder had failed to proceed with the building work with due diligence or in a competent manner was sufficiently unequivocally and obvious as to satisfactorily raise with the acknowledged provisional liquidator what the owners considered amiss under the contract. It was common ground that, other than for small scale attendances of men and in time, no effective work had taken place since early April 2000. I consider that the notice was sufficient in form and description: Re Stewardson Stubbs and Collett Pty Ltd v Bankstown Municipal Council [1965] NSWLR 1671 at 1675.

6.6. In relation to the submission that the notice was unreasonable I do not consider that a notice is unreasonable in relation to a contract for building works that is incomplete and where the builder has gone into provisional liquidation and I reiterate the facts in sub-clause 6.5. So that even if I was wrong in finding that the notice was sufficient and that in effect the owners had breached the contractual requirements for termination, I would find, given that the builder had gone into provisional liquidation and was in no position to provide the owners with any specific details as to when the contract works would be complete, that the owners were entitled to terminate the contract at common law: see Cox v Franz (1987) 6 ACLR 35; I consider that the basis of the owner's notice was to try and get the builder to perform its required obligations under the contract.

6.7. The provisional liquidator did not contact the owners in the five days given under clause 9 for the builder to rectify the default. The builder's solicitor forwarded notice of termination of the contract on 1 June 2000. Accordingly, I find the owners termination of the contract to be valid.

6.8. I accept the parties evidence that there had not been a great deal of work by the builder within the last two months prior to the builder going into provisional liquidation. Mr Powell in his evidence for the builder stated that one of the reasons that the work was slow was that there would be no further work on the dwelling until the fixing stage had been paid. If this was so, then I consider that the builder would be in breach of the contract as the builder cannot unilaterally suspend work under the contract unless it is in accordance with the terms of the contract and it is a requirement at clause 13.2 that if the builder suspends the work then the builder must immediately notify the building owner in writing of the suspension and the reason for doing so. No such notice was produced in evidence. Therefore, any suspension by the builder without such notice would be in breach of the contract and could become further grounds for termination.

7.1. It is the liquidator's submission that, if his argument as to the illegality of the owners termination is unsuccessful, he maintains, in the alternative, that the owner's failed to mitigate their damage.

7.2. The liquidator's factual submissions in this regard, as do the owner's submission to some extent, tend to blur the unreasonableness of the owners termination of the contract with allegations that the owners were unreasonable in refusing to allow Avonwood to complete the contract; and, thus the owners failed to mitigate their damage. I think the liquidator's case is best summed up by paragraph 30 of the witness statement of Mr Howell:-

"In Patterson's view, it was not reasonable for the Respondents to engage Bruinsma or any other builder to complete the works. Patterson had clearly informed the respondents that Avonwood was or would very soon be in a position to be able to complete the works and could do so for far less expensively than any other builder, and within the contract sum amount."

7.3. This view is, I consider, the hinge upon which this issue turns. Were the owners unreasonable in going off and obtaining a quote from an independent builder to carry out the completion of the building works; and, not allowing the liquidator to sort out whether it would be in a position to complete the contract works?

7.4. I consider that this issue has two aspects; firstly, whether factually the owners behaved reasonably in obtaining a second quote; and, secondly, when assessed from the principles of law that govern the mitigation of damage was the price the owners accepted fair and reasonable in the circumstances?

7.5. As to the principles of mitigation of damage I accept the general statement in Hudson p_ara 8.115 at page 1033:-_

"Briefly, the injured party must, faced with the fact of a breach by the other party, conduct himself reasonably in dealing with its consequences if he wishes to recover damages. Being the innocent party, however, his conduct will not be examined in any very severe light, but, should he exacerbate the consequences of a breach by his own deliberate act or unreasonable neglect, he will not be able to recover the additional cost of occasioned thereby as damages."

7.6. Also from Construction Insolvency, 2nd Edition, observing that:-

"But if reasonable steps are taken, the employer can recover any additional expense incurred in taking them. The standard required of the employer in these circumstances is not a high one since the contractor is the wrongdoer."

"...he will not be disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken "

...An insolvency practitioner may argue a failure to mitigate by not accepting his offer to complete the contract. The contract may have provided for the automatic termination of the contractor's employment on the appointment of the receiver or the employer may have exercised a right of termination shortly afterwards. Time will have gone by between the termination and the practitioner's proposal. In order to succeed on a mitigation argument, the receiver would probably have to undertake to meet any loss caused by the termination even if it continued to accrue after the receiver resumed working on site, and to take account in the proposal of any change in circumstances following the termination: McIlwee v Foley Brothers (1916) WWR 5."

7.7. Dealing with the factual aspects of the parties negotiations, the witnesses for the liquidator said that they had forwarded to all owners circulars informing the owners of the liquidator's proposals to having the builder complete the contract works by selling completion contracts to other builders. Further, they had discussions with individual owners including the owner, Paul Jaffer. Both the parties agreed that there was at least one discussion at Avonwood's offices between employers of the liquidator, Mr Howell and Mr Bird and Mr P. Jaffer, however the date of that discussion is somewhat uncertain.

7.8. It is Mr Howell's evidence but although he could not be precise he thought that the discussion with the owner at Avonwood's offices took place prior to the owners signing the completion contract with the second builder on 16 June 2000. It was the Mr Jaffer's evidence that he considered the meeting took place after he had signed the contract with the second builder to complete the works and that it was sometime after 20 June 2000. Mr Jaffer's evidence does not fully square with his letter to Avonwood Homes of 26 June 2000 where he informed the builder that he did not wish to attend the meeting arranged with the builder and liquidator as arranged on 4 July 2000 as he had entered into a contract with another builder to complete the works and that he had faxed the details of that contract to the liquidator.

7.9. On balance I consider that it is more likely than not that the meeting at Avonwood between Mr Howell and Mr Bird for the liquidator and Mr Paul Jaffer took place prior to Mr Jaffer entering into the contract with the second builder on 16 June 2000. Did the owners act unreasonably in entering that second building contract following the discussions officers of the liquidator?

7.10. It was Mr Powell's evidence of the meeting that the liquidator was aware that the owners had obtained a completion quotation from a second builder, it had been faxed to the liquidator on 2 June 2000, they were trying to convince Mr Jaffer to allow the builder via the liquidator to complete the contract. This was important to the liquidator as substantially more work had been completed than had been accounted for in the money paid under the contract; therefore, if the liquidator could complete the works it would obtain at that time a substantial income for its outlay. Mr Howell said that they informed Mr Jaffer they were talking to the building unions and selling blocks of completion contracts to other builders. They also warned Mr Jaffer that home owners could lose their funds and it was best if home owners gave the liquidator their support.

7.11. Mr Howell said that Mr Jaffer was agitated at the meeting as his family was living with the parents in law which was not working out, they had a settlement coming up in late July on their previous house, his children were concerned and he and his wife were anxious to receive a date when they would move into their new home. Mr Howell said Mr Jaffer was very mindful of his time-frame and that he must have the house finished by the end of July and he was upset that this might not occur. At this stage, the liquidator had just entered into being given approval to enter into arrangement with HIH for the provision of funds for the completion of the homes. However, the liquidator was unable to tell the owners definitely when it could carry out and complete the work, it could not give any specific assurances as to a date at this time, Mr Howell gave evidence that the liquidator could not give any definite assurances at this time as it had not yet received approval to enter into contracts selling the completion contracts.

7.12. Although the liquidator could give assurances of comfort it was in no position to enter into any definite representation as to when the work could be completed; this was about the middle of June 2000 and I accept the owners needed the house finished by the end of July 2000

7.13. Given that the owner's concerns were known to the liquidator via their letter of 31 May 2000 and the meeting of mid June 2000, I do not consider that the owners acted unreasonably in proceeding to engage the second builder to complete their home, at that time the liquidator's officers could give no actual assurance whatsoever, that the liquidator would have, or when it could have, the authority and funds to enter into completion contracts with other builders. From the evidence this was not available at the earliest until 28 June 2000 when the liquidator signed the agreement with HIH for the provision of funds. I have sympathy for the liquidator's position at this time as things would be moving very fast and it would be very difficult for the liquidator to give specific undertakings to an owner as to the completion of work on their home; however, it should not be forgotten that the liquidator was representing a builder who had gone into provisional liquidation and had in effect reneged on its obligations under the building contract. Therefore, in the face of failure by the liquidator to provide specific undertakings as to dates of completion and the meeting of any consequential costs such as renting alternative accommodation or the storage of fittings and effects, I consider that the owners are entitled to make their own arrangements: McIlwee v Foley Brothers [1916] WWR 5.

7.14. The liquidator submitted that he had sent a number of circulars informing home owners and creditors of the progress towards approval being given for the liquidator, in the shoes of the builder, to complete the building contracts of the various home owners, there were a very large number of contracts to complete. The liquidator submitted that the owners in this proceeding should have been aware of the imminence of the liquidator getting approval to carry out the works and of the arrangements being made for the actual work to be done. The owners denied ever receiving these circulars. This factual dispute as to whether the owners received the circulars took up substantial part of the hearing time. However, I do not see how the receipt of the circulars by the home owners can be used to bind them to agreeing to allowing the liquidator to complete the contract.

7.15. I know of no authority or principle at law that says that where a contract has been in effect repudiated by a party the innocent party must provide the party in breach with an opportunity to mitigate its loss through the possibility of further negotiation: see McGregor on Damages 16th Ed. at para 316. The only exceptions identified in McGregor deal with contracts of sale and contracts of service, see para 317; citing the authorities of Payzu v Saunders [1919] 2 KB 581 and Stiros Shipping Inc. v Sameiet Solholt ("The Solholt") [1983] 1 Lloyd's Rep. 605.

7.16. Unlike McGregor, Grieg and Davis: The Law of Contract 1987, an Australian contract text, considers the two cases hold for the proposition that the plaintiffs should not be given the benefit of the doubt in relation to the mitigation of their damages where it was considered those plaintiffs acted as they did from an ulterior motive.

7.17. Grieg and Davis; at page 1396, considered both Payzu and the Solholt contrary to the principle that an innocent party is not required to hold off its election to bring the contract to an end so as to minimise the damages to the party in breach. And, secondly, that in those cases the courts had required the innocent party, on pain of being penalised by its inability to recover damages, to enter into a new contract with the defaulting party. Grieg and Davis noted that there are no circumstances in which the court takes upon itself to force parties into a contract on specified terms. They strongly suggest that the authority of Payzu and the Solholt should not be followed in Australia. I accept their guidance and on the factual side there were no allegations by the liquidator nor any evidence adduced that the owners were acting from any ulterior motive in entering the completion contract to Bruinsma.

7.18. In some ways the ratios of Payzu and the Solholt is what the liquidator is claiming in this case. Firstly, that the owners should have held off terminating the building contract with Avonwood until such time as the liquidator, who unsure at that time, could ascertain if it could arrange to have another contractor complete the works and if so at a reasonable price; and, that it would be unreasonable for the owners not to allow the builder arranged by the liquidator to complete the works. As I have found above, I do not consider that the owners are bound to wait for the liquidator, who is representing the party in default, to arrange for the satisfactory completion of the contract; particularly so when the date of practical completion was some time in the past. The innocent party is entitled to protect itself.

7.19. Although I do not consider it relevant, in the case that my conclusions are incorrect, I will make a finding of fact in respect of the circulars sent out by the liquidator. The owners claim that they received mail from the builder's office at their previous place of residence, examples being: the claim for payment for fixing stage and the reminders; however, they denied that any of the circulars to the home owners and creditors was received from the provisional liquidator, Pattersons. It was the evidence of Mr Powell that the provisional liquidator obtained a digital copy of the Avonwood database of clients and that he had someone check that the owners name and correct address was on that database and this was affirmed. There was no direct evidence that the owners were on the database or that their address was correct. However, if Mr Howell's evidence is correct which I accept then it is difficult to see how the owners did not receive the circulars.

7.20. This is a difficult factual situation to decide because none of the databases were produced in evidence. Looking at the correspondence in evidence it appears to me that the owners accept they received any document that was prepared on Avonwood letter head, presumably in the Avonwood offices, but not on the Patterson letterhead. As I have said before this includes the claims for the various stage payments, the letters of reminder and the letter under the signature of Paul Patterson on Avonwood letterhead of 1 December 2000. Without access to the database at Avonwood as checked against the database at Paul Patterson I do not consider that a completely confident factual conclusion can be reached, but on the evidence as it is, I consider it more likely than not that the owners received the circulars from the liquidator.

7.21. The second question for resolution in relation to the mitigation of damage is whether the cost of the contract to complete with the second builder, G & F Bruinsma, was reasonable in all the circumstances. The liquidator submits that the cost to the owners of the second builder's contract to complete should be compared against the cost to the builder of completing the contract, which was estimated by Mr Toogood at $24,089. We should note at this stage that we are not comparing apples with apples in that a number of items that are in the owners assessment of the cost to complete Mr Toogood left off eg. some defects and some completion items.

7.22. However, apart from that, I do not consider in any case, that the appropriate comparison is the difference between Mr Toogood's costs to the builder and the quotation of the second builder to the owners. I do not consider this is the appropriate difference by which one assesses a failure to mitigate. As long as the owners bear any cost to complete themselves, no matter how however extravagant, and do not seek to pass it on to the liquidator as a claim, then an argument of failure to mitigate is irrelevant, it does not arise. An argument that there is a failure to mitigate can only be raised where the owners are seeking to pass on their cost of completion on to the liquidator. In effect it is the cost claimed from, and what may be a cost to, the liquidator that is not mitigated. Therefore, I consider that the appropriate assessment is what is the cost that the owners seek from the liquidator compared to the cost that the liquidator would have to incur to complete the works himself.

7.23. I do not consider that it is appropriate to use some probable estimation of the cost to complete the works to the original builder, ie the Toogood estimate of $24,089.00. This is not an estimate of the actual cost of completion that would be incurred by the liquidator to complete the works. The Toogood estimate is theoretical, not real; the identity of the principal upon whom the estimate was based, the original builder, was no longer in existence at the time of the estimate. What is the appropriate benchmark cost for the liquidator is the price he would have to pay to have a competent and solvent builder carry out the completion of the works on the subject property. As noted in Mr Howell's evidence of the discussion with Mr Jaffer in June 2000, the liquidator was selling blocks of completion contracts to builders. There was very little evidence from the liquidator in relation to the sale of the completion contract; other than an assessment from Clarendon Homes of approximately June 2000 that assesses the cost to complete at $43,863.00. It is not possible to follow the assessment so as to understand how this cost of completion was calculated. There was no other evidence advanced as to what the cost of completion would be to the liquidator.

7.24. From an examination of the bad photocopy of the Clarendon assessment I can see no reference to GST which came into effect on 1st July 2000. Allowing 10% GST on the cost of complete gives a total cost of $48,249.00. I will use this estimate for comparison but it is the only valid information from the liquidator on which I can base a comparison; if this estimate was not available I would have no evidence on which to compare and the owner's and I would have to accept the owner's cost. I consider this is the appropriate figure to compare against the cost of the second builder's cost to complete.

7.25. The difference in the Toogood estimate and an estimate of the actual cost to complete it, ie. the Clarendon estimate, is an increase in cost as a result of the original builder's liquidation, it is not a price that should be borne by the owners as the innocent party.

7.26. What are the principles to be used in such a comparison? Again I take guidance from Hudson at paragraph 12.072 quoting Williams J in Fulton v Dornwell (1885) 4 NZLR 207:-

"Now when a contractor gets into difficulties...and the employer is in consequence put to the extreme inconvenience and annoyance of having himself to complete the work I think the employer should be allowed a large discretion in the way in which he completes it, and that the contractor, in the absence of fraud or extreme negligence, cannot complain if the work be carried out in an uneconomical manner. ...every allowance should be made in considering the conduct of the employer for the position in which the default of the contractor has placed him."

7.27. I also think it is appropriate to examine the context of the building industry and the owner's circumstances when comparing the quantum of the works actually carried out and the estimated cost to the liquidator, to assess whether the owners cost is unreasonable in the light of the estimate of actual cost to complete to the liquidator.

7.28. As I have noted above, this was at the time of the commencement of the goods and services tax ("GST") and, it was well known that the building industry was fully occupied and at full stretch. Mr Hegarty, building consultant for the owners, gave evidence that there was an over abundance of domestic building work available in Melbourne at that time, as well there was a large demand for tradesmen in Sydney due to preparation for the Olympic Games. As a consequence of this extraordinary amount of domestic building work, I accept that at this time, available tradesmen were hard to come by and it was hard to get builders to quote.

7.29. It was the owner's evidence that he had rung a number of builders in an attempt to get them to quote for the completion work and they had all refused on the basis that they did not want to be in the position of having to complete another contractor's work. I accept what Mr Hegarty submits, that a second builder has to be cautious in relation to the work that has gone before, making adequate allowance to ensure any risks of unsatisfactory work are covered. This means that the margin for profit and risk on completion contracts will be far higher than that placed on normal contracts to carry out the whole of the domestic building works.

7.30. In the light of the above information, I do not consider that the owners should be penalised because they only obtained a single quote, this is especially so where time was important to the owners, as I accept it was in this case. The second builder's contract price was $68,024.00, this included GST. This price had in it an allowance of $4,257.00 for rectification work and its GST which I do not consider should be in the assessment of the cost to complete. There was an allowance of $3,361.00 to carry out the window works in accordance with the A&L Windows quote which I do not consider should have been in the cost to complete as it was not in the Clarendon quote. I will deal with the claims for defects and the windows in the quantum section below but I do not think that it is appropriate that either of these are included in the cost to complete.

7.31. This means that a total of $7,618.00 should be deducted from the second builder's cost to complete giving a net completion cost of $60,406.00. This is 25% more that the Clarendon assessment with a GST component of $48,249.00. Given the nature of the domestic building market at this time and the fact that the second builder was undertaking to take over a failed builder's work and successfully complete it, I do not consider a 25% surcharge over a bulk builder's assessment when purchasing a block of contracts to complete, can be said to be unreasonable, particularly when the time factor is taken into account. Accordingly, on the value of the second builder's contract to complete I accept that the price was fair and reasonable in all the circumstances and under the principles of law relating to mitigation of damages I find that there was no failure by the owners to mitigate their damage.

8 Did the Owner's Provide Accord and Satisfaction

8.1. The owners submitted at the opening of the hearing that they would be submitting that their letter to the liquidator of 31 May 2000, faxed on 2 June 2000, advising that the owners considered that there was a balance owing to the builder under their domestic building contract of $21,638.00 was accord and satisfaction.

8.2. However, the claimant of accord and satisfaction must demonstrate that they were always ready and willing to perform a contract and that tender of the amount due has been made. In this case the owners did not say that they were ready to pay the sum they considered to be the balance of the contract nor did they ever physically tender the amount: para. 972, Vol. 9(1) of Halsbury's Laws of England, 4th Ed.

8.3. The defence of accord and satisfaction was only put hesitatingly in the owners closing submissions and I find that it is not made out.

9.1. We will deal firstly of the quantum of the second builder's contract to complete, the quote was for the sum of $68,024.00. Within this quote there was an allowance for five defects and I will deal with the defects in turn starting with the floor in Bedroom 3.

9.2. Floor in bedroom 3. Mr P. Phillips of BSS reported that there was a section of strip flooring located along the north wall under the window sill which is out of level by approximately 10mm and required removal and repair to relevel and eliminate the blemish. Mr Toogood who appeared for the liquidator, acknowledged that this was a defect and considered that its rectification would cost $147.00. In his quote, Mr Bruinsma allowed $840.00. The Toogood estimate would be the cost to the builder with no overheads whatsoever whereas the cost to Mr Bruinsma reflects his concern at what knowing what has caused the defects and what lies underneath it, I will allow the Bruinsma sum of $840.00.

9.3. Balcony. Mr Jaffer, the owner, claimed that the floor of the balcony was the same height at the internal floor and there was an unacceptable risk of water entry. Mr Toogood maintained that it was satisfactory and it was constructed as per the display home. There was no dispute by the liquidator's witnesses that the level of the balcony was at the same level of the internal floor and it can easily lead to water penetration. I do not consider this satisfactory and I will allow the defect. To rectify the defect Mr Bruinsmar allowed to cut a segment out of the joist at its connection to the pillar thereby lowering the level of the balcony. Mr Toogood did not comment on how the defect should be rectified nor provide an estimate of the cost. I accept the sum assessed by Mr Bruinsma of $450.00.

9.4. Repair Garage Ceiling. This was accepted as a defect by Mr. Toogood and his assessment of the damage was $435.00. Mr Bruinsma's quote was $150.00 and as actually Mr Bruinsma carried out the work under the second contract the actual damage to the owners is $150.00.

9.5. Render to Front of House. The owners claim that there was an incorrect colour change between colour of the rendered finish on the east elevation of the house and the colour of the paint used on the other external elevations of the house. This was supported by Mr Phillips' report of 20 June 2000. Mr Toogood for the liquidator gave evidence that he had taken a section of the render and had it identified as the correct colour by the paint manufacturer. He considered that the difference arose because of a shade difference arising from the different texture between paint and render, so that the render appeared darker. I accept Mr Toogood's explanation and I disallow this defect in the sum of $2,430.00.

9.6. In assessing the works to be completed Mr Toogood had disallowed the window sum in the Mr Bruinsma quote of $3,361.00 to fix and complete as per the "A & L" windows quote. This required the installation of bars on the windows to the ground floor of the house. It was Mr Toogood's evidence that this was not part of the scope of works. In his evidence Mr Jaffer produced drawings which I accept were the contract drawings and which showed bars to the ground floor windows. I will allow the windows to be fixed as per the "A&L" windows quote in the sum of $3,361.00.

9.7. Mr Toogood also did not allow any sum for any infill above the windows however he could not recall why and I ignore his denial for this item.

9.8. It was acknowledged by the owners that there was an allowance in the Mr Bruinsma quote for heating and cooling of $2,800.00 that was not applicable to the scope of works of the first builder.

9.9. The owners also acknowledged that a sum of $1,546.00 of GST was not paid as the work was carried out prior to the inception of GST on 1 July 2000. Therefore, the cost of the Mr Bruinsma contract to complete will be reduced by:- (a) render with GST $2,673.00, (b) heating and cooling $2,800.00; and, (c) GST not incurred $1,546.00. This gives a net sum of the Bruinsma contract for which the liquidator would be liable of $61,005.00

9.10. Mr Jaffer gave evidence that he paid the deposit under the Bruinsma contract of $309.20 by personal cheque and produced the cheque stub to verify this. He further gave evidence by reference to the statement from his Commonwealth Bank Home Loan Account that the bank had paid out to Mr Bruinsma a total of $66,168.80. This amount equals the contract sum of the Bruinsma contract of $68,024.00 minus the deposit paid by personal cheque of $309.20 and the GST that was not incurred of $1,546.00. Therefore, I accept that the owners have paid out the Bruinsma contract and incurred that cost.

9.11. As noted before liquidated damages were agreed at $1,110.00.

9.12. The owners claim damages following the termination of the contract for rent until the completion of the Bruinsma contract to complete. The owners gave evidence they entered into a written lease with Barry Plant to lease their previous dwelling which they had transferred $150.00 per week. I find this somewhat confusing as Mr Howell gave evidence that in his meeting with the owner and Mr Bird, the owner was upset and said that he was having trouble living with his inlaws. No lease from Barry Plant was produced. There was no evidence of payment. I disallow the owners claim for this rent.

9.13. Both parties agree that the contract price was $224,491.00 and that the owners had paid $145,919.00 of the contract sum to the builder. The parties also agreed to additional credits of $680.00 and $300.00.

9.14. The owners amended the variation claim from $13,570.00 to $13,020.00 for what they said was incorrect addition, but this was not established to me by any evidence and I will leave this sum as it was.

9.15. I can now carry out a contract reconciliation to ascertain the money flow in this decision:

10.1. I will order that the respondents pay the applicant the sum of $29,047.00.

10.2. I have reconvened the hearing to 2.15 pm on 1 May 2003 at 55 King Street, Melbourne to hear any further submissions of the parties in regard to interest, costs and when such sums as are ordered should be paid.