[1963] HCA 11
UAERJ Pty Ltd v Jupiters Ltd [2014] NSWCA 213
Walker v Jeffreys (1841) 1 Ha 341
66 ER 1064
Water Board v Moustakas (1988) 180 CLR 491
Judgment (19 paragraphs)
[1]
[2013] NSWSC 391
Glencore Coal Queensland Pty Ltd v Aurizon Network Pty Ltd [2020] QCA 182
In re Robinson's Settlement; Gant v Hobbs [1912] 1 Ch 717
Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; 356 ALR 440
Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137
King v Poggioli (1923) 32 CLR 222; [1923] HCA 11
Lee v Lee (2019) 266 CLR 129; [2019] HCA 28
Leeda Projects Pty Ltd v Zeng (2020) 61 VR 384; [2020] VSCA 192
Lorrimar v Serco Sodexo Defence Services Pty Ltd [2014] NSWCA 371
Low Volume Vehicle Technical Association Inc v Brett [2019] 2 NZLR 808; [2019] NZCA 67
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25
McDonald v McMullen (1908) 25 WN(NSW) 142
Mehmet v Benson (1965) 113 CLR 295; [1965] HCA 18
Moore v Scenic Tours Pty Ltd [2020] HCA 17; 94 ALJR 481
Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 587; 16 BPR 31,011
Paff v Speed (1961) 105 CLR 549; [1961] HCA 14
Robinson v Harman (1848) 1 Exch 850; 154 ER 363
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8
Teubner v Humble (1963) 108 CLR 491; [1963] HCA 11
UAERJ Pty Ltd v Jupiters Ltd [2014] NSWCA 213
Walker v Jeffreys (1841) 1 Ha 341; 66 ER 1064
Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12
Wertheim v Chicoutimi Pulp Company [1911] AC 301
Wilson v Chan & Naylor Parramatta Pty Ltd atf Chan & Naylor Parramatta Trust [2020] NSWCA 62
Zisis v Knighton [2008] NSWCA 42
Texts Cited: Bullen, E and S Leake, Precedents of Pleadings (3rd ed, London, Stevens & Sons, 1868)
Cornish, W et al, The Oxford History of the Laws of England (Oxford University Press, 2010) Vol XI
Snelling, H, "Common Law Pleading - Conditions Precedent and the Onus of Proof" (1939) 13 Australian Law Journal 105
Tomlinson, F, The Judicature Acts and Rules of the Supreme Court 1883. With notes and index (London, William Clowes and Sons, 1883)
Category: Principal judgment
Parties: Rosario Cappello (First Appellant)
Maria Cappello (Second Appellant)
Hammond & Simonds NSW Pty Ltd (First Respondent)
John Re (Second Respondent)
Representation: Counsel:
T Breakspear (Appellants)
D O'Connor (Respondents)
[2]
Solicitors:
Nicholas George Lawyers (Appellants)
Adams & Partners Lawyers (Respondents)
File Number(s): 2020/255825
Publication restriction: Nil
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity - Technology and Construction List
Citation: [2020] NSWSC 1021
Date of Decision: 07 August 2020
Before: Ball J
File Number(s): 2019/8265
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
HEADNOTE
[This headnote is not to be read as part of the judgment]
Mr and Ms Cappello entered into a contract with Hammond & Simonds NSW Pty Ltd for substantial renovation works on their home in Haberfield, Sydney. Mr Re was a director of the builder and its nominated supervisor. The works were completed approximately seven months late and departed from the plans in certain respects. The builder issued a final invoice to Mr and Ms Cappello in the amount of $156,113.54, of which $75,000 was paid. The builder terminated the contract following non-payment of the balance of the invoice. Clause 15.4 of the contract required a progress claim to include, inter alia, details of the cost of the building works. Clause 15.5 required a progress claim to be accompanied by such invoices, receipts or other documents as may reasonably be expected to support the claim and evidence the cost of the building works being claimed.
Mr and Ms Cappello commenced proceedings in the Supreme Court in the Technology and Construction List seeking damages for defective works and overcharging, and for delay. The builder cross-claimed for damages in the amount unpaid on its final progress claim and a quantum meruit for other work performed. Mr and Ms Cappello originally had legal representation, but were not represented at trial. The primary judge found in favour of the builder in respect of its claim in debt, but dismissed its quantum meruit claim. His Honour substantially dismissed Mr and Ms Cappello's claim, allowing $10,363.65 in respect of six of the 17 claims associated with defective works and overcharging and $152 in liquidated damages under the contract for delay. Mr and Ms Cappello's claims for general damages for physical inconvenience and diminution in value of their property associated with the builder's delay were dismissed.
Mr and Ms Cappello appealed to the Court of Appeal. They were largely unrepresented but retained solicitors and counsel shortly before the appeal was listed to be heard. Some issues ultimately raised on appeal had not been raised at trial.
The issues on appeal were:
(i) whether the final progress claim made by the builder was invalid because it did not comply with the requirements in cll 15.4 and 15.5 of the contract;
(ii) who should bear the costs associated with re-pouring an internal slab, which had been done so that the ceiling height would comply with the plans;
(iii) whether the builder was entitled to amounts paid in respect of hours worked by its employees where the costs incurred by the builder in connection with these employees had not been established and rates charged for three of the builder's employees had not been specified in the contract, and
(iv) whether the owners were entitled to damages for diminution in value of the property or limited use and loss of amenity associated with the delayed completion of the building works.
The Court held (Leeming JA, Macfarlan JA and McCallum JA agreeing) allowing the appeal in part:
As to issue (i), per curiam:
It was for Mr and Ms Cappello to identify, in advance of the trial, whether they wished to put in issue whether cll 15.4 and 15.5 of the contract were satisfied, thereby disentitling the builder from suing on the debt created by the final invoice. It was necessary for that to have been pleaded with specificity, in circumstances where, by virtue of r 14.11 of the UCPRs, the builder's allegation carried with it an implied allegation that all conditions precedent to its claimed entitlement in debt had been satisfied: at [27], [29]. A condition precedent to the alleged debt was not put in issue merely by a general denial of breach in the appellants' defence to the cross-claim: at [32].
In re Robinson's Settlement; Gant v Hobbs [1912] 1 Ch 717 referred to.
A new point cannot be taken on appeal where, had the issue been raised in the court below, evidence could have been given which could have prevented the point from succeeding: at [37]. In the present case, where the spreadsheet of cost items referred to in the invoice in issue was not in evidence but certain primary invoices for building materials and construction services supplied at the time were, there is a powerful inference that had the alleged non-compliance with cll 15.4 and 15.5 been raised at the trial, the appellants' awareness of the individual items comprising the invoice would have been the subject of evidence: at [40]. The point should not be permitted to be raised for the first time on appeal: at [41].
Suttor v Gundowa Pty Ltd (1950) 81 CLR 418; [1950] HCA 35; Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33; Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12 applied.
Discussion of the history of the rules at common law to the effect that a party is not obliged to plead that a particular condition precedent has been satisfied: at [17]-[25].
As to issue (ii), per curiam:
Mr Cappello's instruction to lower the floor by re-pouring the slab was a consequence of the ceiling having been built inconsistently with the plans. Although expert evidence suggested the work could not be regarded as a defect, given it had been requested by Mr Cappello, the request was a natural consequence of the builder's breach: at [47], [49], [51]. Mr and Ms Cappello should not be required to pay for the work done: at [54].
As to issue (iii), per curiam:
The builder was not required to receive an invoice from or incur a liability to Mr Re in order to charge for his time at the agreed hourly rate: at [60]. The builder was required only to identify time spent by Mr Re: at [61].
In accordance with the principles applied in relation to issue (i), Mr and Ms Cappello were not permitted to raise on appeal submissions based on the absence from the contract of the hourly rates charged for the builder's other three employees: at [64].
As to issue (iv), per curiam:
Mr and Ms Cappello were not entitled to damages representing the difference between the value of the property at the time of actual delivery and the value of the property had the contract been performed as promised: at [79], [82]. They were entitled to damages for breach of contract to put them, so far as money can do so, in the same situation as if the contract had been performed as promised: at [81]. In circumstances where there was no guarantee Mr and Ms Cappello's home could be sold for the price indicated in the valuation report (it not being a marketable commodity in the relevant sense) and Mr and Ms Cappello had no intention to sell the home after the renovation was complete, no loss was made out: at [85].
Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 considered.
In light of reliability issues in Mr Cappello's evidence and scant affidavit evidence at trial, the primary judge was better placed than the Court of Appeal to determine whether a case for an award of general damages for limited use and loss of amenity caused by the delay had been made out, and there was no basis to interfere with his finding: at [91], [93].
Archibald v Powlett (2017) 53 VR 645; [2017] VSCA 259 considered.
Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 applied.
[5]
Judgment
MACFARLAN JA: I agree with Leeming JA.
LEEMING JA: The appellants, Mr Rosario Cappello and Ms Maria Cappello, own and live in a house in Haberfield, Sydney. They entered into a residential building contract with the first respondent, Hammond & Simonds NSW Pty Ltd, for substantial renovation works. The second respondent, Mr John Re, was a director of the builder and its nominated supervisor.
The appellants commenced proceedings in the Supreme Court in the Technology and Construction List seeking damages for defective works and delay. The builder cross-claimed for damages in the amount unpaid on its final progress claim, and a quantum meruit for other work performed. The appellants were originally represented, including when their defence to the cross-claim was filed, but they were unrepresented at trial.
After a three day hearing at the end of July 2020, the primary judge delivered judgment promptly on 7 August 2020: Cappello v Hammond & Simonds NSW Pty Ltd [2020] NSWSC 1021. Judgment was entered in favour of the builder in the sum of $76,510.68, with the proceedings against Mr Re dismissed. That outcome reflected four conclusions: (a) a finding that the contract was validly terminated by the builder upon non-payment of around half of the final invoice (invoice 0104); (b) substantial failure by Mr and Ms Cappello on their claim, all save $10,363.65 of which was rejected; (c) success on the builder's claim in debt for the amount outstanding on the builder's final invoice (invoice 0104), and (d) the failure of the builder's quantum meruit claim. It is convenient to note immediately that neither the validity of the builder's termination nor the failure of the builder's quantum meruit claim (ie conclusions (a) and (d) in the preceding sentence) was in issue on appeal, and for that reason an abbreviated summary of the background will suffice.
In a subsequent judgment, the primary judge ordered that Mr and Ms Cappello pay the defendants' costs on an indemnity basis, because their claim should have been commenced and prosecuted in NCAT (which has jurisdiction to hear and determine building claims up to $500,000) in accordance with the policy in ss 48K and 48L of the Home Building Act 1989 (NSW): Cappello v Hammond & Simonds NSW Pty Ltd (No 2) [2020] NSWSC 1199.
The appellants were largely unrepresented in the preparation of their appeal. However, shortly before the appeal was listed to be heard, Mr Breakspear of counsel was retained by newly appointed solicitors. He supplied a draft amended notice of appeal and written submissions in reply which had the considerable advantage of refining and focussing the issues in this Court. As will be seen below, some of what was propounded was new. The respondents were accommodated by a regime permitting further submissions on the merits of the appeal, as well as in opposition to some of the amended grounds of appeal, in the fortnight following the hearing.
[6]
The terms of the contract
The contract was based on the standard form drafted by the Housing Industry Association and stated prominently that it was a contract for works on a "Cost Plus Basis". The "cost of the building works" was defined in Schedule 2, relevantly, to include the costs of subcontracts and building materials, the "costs of labour and services supplied wholly in connection with the building works by the builder and its employees (this includes the builder's own time on and off the site. See rates below)" and the clause identified rates per hour of $100 for the builder as a supervisor/coordinator or as a tradesman, and did not specify otherwise the rates for trades. The "builder's fee" was defined as the percentage of the cost of the building works or set amount nominated in Schedule 2. The schedule nominated an amount of 20 per cent.
The substantive clauses of the contract were cl 2.1 requiring the builder to carry out and complete the building works in accordance with the contract, and cl 3.1 requiring the owner to pay the price of the building works in the manner and at the times stated in the contract.
The clause of central importance is cl 15 which, in its entirety, provides as follows:
"15.1 The builder cannot demand or receive any payment under this contract until warranty insurance described in Schedule 7 is in force and the owner is provided with a certificate of insurance for such insurance.
15.2 The owner must pay the price of the building works progressively as claimed by the builder. The price of the building works is an amount equal to:
(a) the cost of the building works plus;
(b) the builder's fee, plus
(c) any GST attributable to the supply of the building works at each progress stage, calculated on the value equal to the total of Clauses 15.2(a) and 15.2(b).
15.3 The builder must give the owner a written claim for a progress payment at each stage described in Schedule 3.
15.4 A progress claim is to include details of the cost of the building works for the building works carried out, the proportion of the builder's fee claimed, any GST payable and of any moneys then due to the builder pursuant to the provisions of the contract.
15.5 A progress claim is to to [sic] be accompanied by such invoices, receipts or other documents as may reasonably be expected to support the claim and evidence the cost of the building works being claimed.
15.6 The owner must pay a progress claim within 5 working days of the builder giving the claim.
15.7 Unless the owner disputes the amount of a progress claim by giving the builder a written notice detailing the dispute within 5 working days of receiving a progress claim, the progress claim is accepted by the owner as the cost of materials, labour and other items provided by the builder which are the subject of the claim. This clause does not limit the owner's right to claim that the building works done by the builder are not in accordance with this contract.
15.8 Other than in relation to the final progress claim the owner has no right of set off with respect to a progress claim."
[7]
(a) Validity of final payment claim
In this Court, the appellants maintained that invoice 0104 did not comply with cll 15.4 and 15.5. Mr Breakspear, candidly and appropriately, acknowledged that this was not a point ever raised before the primary judge, and insisted that his Honour was not to be criticised for not having dealt with it. Nevertheless, it was said that compliance with cll 15.4 and 15.5 was an essential precondition of the builder's entitlement to be paid, and therefore should have been addressed as an element of the builder's case. His point was that the contract was a "Cost Plus" contract, that it was necessary for the builder to establish that it had in fact paid the amounts it was seeking to recover from the appellants, and that because the invoice did not comply with cll 15.4 and 15.5, there was no contractual entitlement to be paid.
This new submission gives rise to questions of construction of the standard form contract. However, there are serious procedural and evidentiary problems with accepting that submission, even upon the assumption that cll 15.4 and 15.5 have the effect for which they contend.
[8]
The pleadings at trial
The builder pleaded an entitlement to be paid by reason of terms of the contract articulated as follows:
"i. The Owners must pay the price of the building works and other money that becomes payable under the Contract in the manner and at the times stated in the Contract;
ii. The Owner must pay the price of the building works progressively as claimed by the Builder;
iii. The Owner must pay the progress claim within 5 working days of the Builder giving the claim;
iv. Other than in relation to the final progress claim the Owner has no right of set off with respect to a progress claim."
The builder alleged that the owners had breached those terms of the contract (there is an immaterial cross-referencing error in this paragraph of the pleading but the sense is plain). By their response to cross-claim list statement, the appellants did not admit, inter alia, the terms alleged, and denied that they had breached those terms. There was no other articulation from the appellants as to the basis of the denial of breach.
[9]
The effect of UCPR r 14.11
As Mr O'Connor (who appeared for the builder at first instance and on appeal) submitted, r 14.11 of the Uniform Civil Procedure Rules 2005 (NSW) proceeds on the basis that whenever a party's claim turns on a condition precedent, "a statement to the effect that the condition has been satisfied is taken to be implied in the party's pleading". This is the modern version of a very old rule.
A rule in substantially similar terms has existed in New South Wales since 1972. It was found in Pt 15 r 11 of the rules which accompanied the Supreme Court Act 1970 (NSW), replacing the separate systems of pleading at common law and in equity which had hitherto prevailed.
An equivalent to r 14.11 was absent from the original rules governing procedure in the High Court of Justice established after the commencement of the Judicature legislation in 1875 (these were contained in a schedule to the 1875 Act and derived force from s 16 of that Act, just as the Supreme Court Rules which commenced in 1972 had been contained in Schedule 4 to the Supreme Court Act 1970 and derived their force from s 122 of that Act). However, Ord XIX r 14 of the 1883 Rules incorporated such a provision. F Tomlinson, The Judicature Acts and Rules of the Supreme Court 1883. With notes and index (London, William Clowes and Sons, 1883), p 182 reproduces the rule (as well as confirming that it had no counterpart in the 1875 rules):
"Any condition precedent, the performance or occurrence of which is intended to be contested, shall be distinctly specified in his pleading by the plaintiff or defendant (as the case may be); and, subject thereto, an averment of the performance or occurrence of all conditions precedent, necessary for the case of the plaintiff or defendant, shall be implied in his pleading."
In contrast to the position with many of the rules accompanying the Judicature legislation, which in many instances derived from chancery practice, there had been no equivalent in the rules governing chancery pleadings prior to 1875. This may be seen from the statements by A H Simpson CJ in Eq in McDonald v McMullen (1908) 25 WN(NSW) 142 at 143 and Higgins J in King v Poggioli (1923) 32 CLR 222 at 243; [1923] HCA 11, concerning the consequences of the delayed adoption of the judicature system in New South Wales. They were both decisions on the necessity for a plaintiff seeking specific performance to plead and prove that he or she was ready and willing to perform. The traditional position in chancery had been reversed by the rule: see for example Walker v Jeffreys (1841) 1 Ha 341 at 352; 66 ER 1064 at 1069 and Mehmet v Benson (1965) 113 CLR 295 at 314; [1965] HCA 18 (an appeal from a pre-Judicature suit) and the authorities there cited.
[10]
The substance of the appellants' submission
The submission now sought to be advanced on appeal is not without force. The construction of cll 15.4 and 15.5 is plainly informed by s 8A(2)(b) of the Home Building Act, which provided as follows:
"A progress payment for residential building work under a contract to which this section applies is authorised only if it is one of the following kinds of authorised progress payments:
…
(b) a progress payment for labour and materials in respect of work already performed or costs already incurred (and which may include the addition of a margin), with provision for a claim for payment to be supported by such invoices, receipts or other documents as may be reasonably necessary to support the claim and with payment intervals fixed by the contract or on an 'as invoiced' basis."
Section 8A(4)(a) made it an offence (speaking generally) to demand or receive payment of a progress payment unless it was authorised under the section, while s 10(1)(c) denied an entitlement to damages or any other remedy if the contract was in contravention of, relevantly, s 8A. Those statutory provisions lend weight to the proposition that compliance with cll 15.4 and 15.5 was a precondition to the builder's entitlement to be paid. Not lightly would the standard form contract be construed so that it was in disconformity with the legislative regime.
Further, although this Court was told that there were no decisions on point, there are dicta to that effect in the judgment of McDougall J (whose decisions in this area carry considerable weight) in relation to what appears to have been an earlier edition of the same standard form contract in Creative Building Services v Jolene Investments [2013] NSWSC 391 at [30].
However, for the reasons which follow, it is unnecessary for present purposes to express a concluded view on the construction of cl 15, which gives rise to issues not free from difficulty (including for example the effect of failing to attach details of all expenses).
[11]
Should a new case on appeal be permitted to be advanced?
Parties do not have an unrestricted right to present a new argument for the first time on appeal, even though an appeal to this Court is by way of rehearing. A new point cannot be taken on appeal where, had the issue been raised in the court below, evidence could have been given which "by any possibility" could have prevented the point from succeeding: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35; Coulton v Holcombe (1986) 162 CLR 1 at 7-8; [1986] HCA 33; Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12. If on the other hand there is a pure question of law, even one which was not even obliquely raised at first instance, there are occasions when it is appropriate to let that be advanced for the first time on appeal (noting this may be a basis for a departure from the ordinary rule that costs follow the event). A recent example is Wilson v Chan & Naylor Parramatta Pty Ltd atf Chan & Naylor Parramatta Trust [2020] NSWCA 62, where the point belatedly taken would inevitably arise in future disputes between the same parties.
It appears that the spreadsheet of cost items referred to in the invoice attached to the 23 August 2018 email was not in evidence, which speaks volumes as to this point not having been agitated at trial. However, as Mr Breakspear candidly and properly acknowledged, a large number of primary invoices for building materials and construction services supplied at the time were in evidence. Indeed, they had been adduced by Mr Cappello. By way of example, there were primary invoices tendered by Mr Cappello for plumbing work undertaken on 6, 7 and 8 August 2018 (amounts of $2,530, $8,305, $5,665, $7,288.60, $4,455 and $8,305), plasterwork of $5,170, kitchen joinery costing $41,415, lighting materials at $1,749.86 and work by Hitech Appliance Installations at $1,089. Those amounts comprise the large majority of costs incurred in the weeks prior to the critical invoice.
Further, there is reason to think that someone (it is not clear who) had access to, and was critical of, the cost components in relation to invoices rendered to the appellants. By way of example, invoice 0064, dated 20 October 2017, and the accompanying spreadsheet which were in evidence, appear to include some 38 individual cost items, in values ranging from $3.59 and $6.98 to $3,470 and $7,499.92. In relation to 10 of those items (for the most part relatively small) someone has written in hand either "no invoice" or "wrong job" or "double up". That might be an employee involved with the builder's accounts, or it might be one of the appellants; the evidence is unclear. But plainly someone was concerned to identify that the costs had been incurred, and related to work on the appellants' home.
[12]
The appellants should not be permitted to advance a claim based on cll 15.4 and 15.5
Not uncommonly when a new point is sought to be agitated on appeal, it is left as a matter of inference whether there is a prospect that the case would have been conducted differently had the point been raised at trial. In the present case, there is a powerful inference that had the alleged non-compliance with cll 15.4 and 15.5 been raised at trial, the awareness on the part of the appellants of the individual items comprising invoice 0104 would have been the subject of evidence.
All of those reasons lead to the conclusions that (a) even on the materials presently available, and accepting the construction for which the appellants contend, there seems to have at the very least been substantial compliance with the clauses and (b) this is not a point which should be permitted to be raised for the first time on appeal. I would have reached that conclusion even if the appellants had been unrepresented when their defence was filed. The fact that they were then represented fortifies the conclusion that it would not be fair to permit a new case to be run on appeal.
These submissions are based on grounds 11 and 12 of the original notice of appeal. I pass over the respondents' submission that the grounds, which gave no hint of the submission which has been addressed above, were incapable of sustaining it. It suffices to state that those grounds are not made out.
[13]
(b) Costs associated with re-pouring the slab
This was a discrete component of the appellants' claim for defects, and it was squarely raised by ground 10 of the notice of appeal. It was the subject of an exchange of evidence between experts retained by both sides, Mr Anthony Capaldi on behalf of the appellants and Mr Steven Nakhla of the part of the respondents. It comprised the first item of their joint report.
The primary judge dealt with this as follows:
"[43] This item relates to the pouring of a new internal ground floor slab which incorporated a step down from the hallway to the kitchen which would have the effect of increasing the ceiling height from 2.6m to 2.7m. It appears from a text message sent by Mr Cappello to Mr Re on 24 September 2017 that it had been agreed that the slab would be replaced. In that text message, Mr Cappello suggested that the height of the slab be decreased to increase the ceiling height. According to evidence given by Mr Re, he and Mr Cappello discussed Mr Cappello's text message on 25 September 2017. During that discussion, Mr Re said that he told Mr Cappello that the change would involve additional costs. Mr Cappello replied 'I agree with your approach and trust your judgment'. Mr Cappello denies that conversation. However, there can be no doubt that the floor height was dropped at Mr Cappello's suggestion.
[44] Mr Capaldi expresses the view that the plaintiffs are entitled to recover $22,039.36 in respect of this item. That amount is said to be the additional costs associated with lowering the floor. It is claimed on the basis that the dropping of the floor height was inconsistent with the plans and an error by the Builder that involved a breach of the warranty implied by s 18B(1)(a). In my opinion, that assumption is incorrect. The dropping of the floor height resulted from a request from Mr Cappello. In my opinion, the plaintiffs are estopped from asserting that the work was not done in accordance with the plans. Consequently, nothing should be allowed in respect of this item."
The appellants' submissions were to the effect that the primary judge had misapprehended the point. Although it was true that Mr Cappello had instructed Mr Re to replace the slab at a lower level so as to increase the height of the room, the underlying point was that the original ceiling was too low, and that was by reason of an error by the builder.
[14]
(c) Claim for wages
The contract entitled the builder to recover, as part of the "cost of the building works", the "costs of labour and services supplied wholly in connection with the building works". A substantial part of the appellants' claim was the recovery of amounts they had paid representing wages. As pleaded, this was $49,700, plus the builder's margin insofar as it was based on those wages.
Shortly before the trial, in response to various notices to produce, the builder confirmed that "[t]here are no documents in possession to produce in relation to wage records". The primary judge treated this claim as slightly expanded from what had been pleaded, presumably reflecting the response to the notices to produce. It seems that the response to the notice to produce was attached to the appellants' written submissions, supplied on the third day of the trial. Those written submissions, which comprise the entirety of what was said in support of this aspect of the claim (there were no oral submissions) were as follows:
"The first defendants' tax invoices and schedules which are annexure D to the affidavit of Rosario Cappello dated 30 May 2019 include substantial claims for 'wages' paid to John Re, Abdul, Ali, and John D. These invoices have been paid in full, save for the last invoice which was paid in part. Notices to Produce were served on the defendants. Attached hereto are copies thereof and the email from the defendants' solicitor stating that the defendants have no wage records for John Re, Abdul, Ali, and John D. It is noted that the defendants have not adduced any evidence proving the wages claimed were paid by the first defendant. The plaintiffs submit that these 'wages' do not form part of the 'cost of building works' which the first defendant was entitled to receive from the plaintiffs. The wages claimed from and paid by the plaintiffs are:
John Re $49,700.00
Abdul $11,585.00
Ali $13,720.00
John D $10,497.50
The plaintiffs claim re-imbursement thereof.
It follows that the first defendant was not entitled to claim GST on these 'wages'. The amount of GST claimed from and paid by the plaintiffs is 10% thereof. The plaintiffs claim re-imbursement of this.
It also follows that the first defendant was not entitled to claim the 20% builder's margin on the wages or on the GST. The plaintiffs claim re-imbursement thereof.
Although the builder observed that this went beyond the pleaded case, there was no challenge to the trial judge's decision to address the expanded form of the claim. His Honour's reasons were as follows:
"[87] The second claim in respect of overcharging is for wages charged by the Builder, including wages charged for Mr Re of $49,700.00, for 'Abdul' of $11,585.00, for 'Ali' of $13,720.00 and for 'John D' of $10,497.50. The plaintiffs say that they are entitled to recover those amounts because no wage records for those persons were produced by the Builder in respect of those persons in response to notices to produce.
[88] It is difficult to understand this submission. It seems clear that the four persons identified were the four employees of the Builder who worked on the job. Each invoice contained a breakdown of the number of hours each employee worked on the job on each day covered by the invoice and the rate that was charged for that work ($100 per hour). Under the terms of the Contract, the Builder was entitled to charge the costs of labour provided by the Builder and its employees at that rate. Payment of the invoices was not conditional on proof that the employees had been paid. In my opinion, there is no merit in this submission."
[15]
(d) The claim for delay damages
The building work should have taken six months, but extended for some 13 months. Although the contract permitted the builder to seek extensions of time, no such applications were made.
The appellants' claim for delay damages as refined on appeal had two components. The first was damages for the diminution in the value of the property between 5 March 2018 (when works should have been completed) and March 2019 (although the work had been completed in October 2018). This was based on valuation evidence to the effect that there had been a significant decrease in property values between March 2018 and March 2019 (some $100,000). A separate head based on the acquisition of a sub-stratum below the house, connected with the Westconnex project, was not pressed. Secondly, the appellants claimed general damages, in the amount of some $30,000, based on inconvenience and loss of amenity.
The trial judge addressed the claim for delay damages elaborately, at [24]-[41]. Favourably to the appellants, his Honour formed the view that the clause which purported to restrict damages for delay to $1 per day would be void under s 18G of the Home Building Act if that clause provided an exclusive remedy for delay. Consequently, as a matter of construction, the primary judge concluded that "the parties intended not to provide for a substantive right to claim liquidated damages and intended instead to leave the plaintiffs a right to claim damages they could prove they had actually suffered". There was no challenge to any part of that reasoning.
The primary judge nonetheless considered that the appellants' claim for diminution of the value of their property was misconceived. Relevantly for the aspects of this ground that were pressed on appeal, his Honour gave two reasons.
First, the primary judge held that the appellants had not suffered any loss, because the property had not been sold and "[a]ny loss they may suffer has not been crystallised and may be eliminated by future movements in the market": at [35].
Secondly, the primary judge regarded any loss as too remote:
"[37] Applying that test, the loss is plainly too remote. It was not a natural consequence of the delay. Nor was it in the contemplation of the parties at the time they signed the Contract. Mr Cappello does not contend that the risk of acquisition was present at the time they signed the Contract. Despite suggestions by Mr Cappello to the contrary, it is plain that the house was being renovated with the intention that he and his family would continue to live in it after the renovations were completed. That is evidenced by the detailed consideration both he and his wife gave to particular aspects of the renovation and the frequent suggestions they made for improvements. One example is an email Mr Cappello sent to Mr Re on 28 March 2017 in which he says that he was not sure what he wanted in the kitchen, made some suggestions and concluded 'I am sure that you will have some great suggestions as I have been waiting a long while for this kitchen!'. Another example is a text message Mr Cappello sent Mr Re on 17 December 2017 saying that he and his wife 'have a slight dilemma as rethinking about the fireplace' and asking for its installation to be postponed until the following year. These are not the sentiments of someone keen to see the work completed as quickly as possible so that the property could be sold. And despite statements in his affidavit evidence to the contrary, Mr Cappello accepted in cross-examination that he never told the Builder that he intended to sell the property once the renovations were completed.
[38] The plaintiffs submit that no test of remoteness applies in this case because their claim is based on s 18B of the HBA, not on contract. I do not accept that submission. Section 18B implies certain warranties into the Contract. Breach of those warranties is a breach of contract. Therefore, the normal principles applicable to breach of contract apply."
[16]
Damages for diminution in value
The appellants submitted that by analogy with the reasoning in Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 at [109], they were entitled to damages representing the difference between the value of the property at the time of actual delivery, and the value of the property had the contract been performed (some 26 weeks earlier). They contended that the trial judge erred in reasoning that any loss had not been crystallised. It was also an error, according to the appellants, to hold that any loss could be "eliminated" by future movements in the market.
This submission was elaborated in writing as follows:
"A residential home is not merely the acquisition of shelter but is also one of the most significant investments made by an average Sydney resident. The sale of that family asset from time to time occurs in the ordinary course of things, particularly at times where market prices are high. This loss should be recognised as part of the ordinary measure of loss from delayed possession of a valuable asset. It was a loss of a character within the first limb of Hadley v Baxendale. To the extent that the Judgment at [37] was directed at a claim for loss in market value generally, it was an error."
The appellants also challenged a factual aspect of the reasoning in their written submissions. It was said that "it ought to have been found that on the balance of probabilities the Owners were likely to have sold had they had a completed house in March 2018". This factual challenge was not elaborated in accordance with the requirements of UCPR r 51.36(2), nor was it advanced orally, and Mr Breakspear came close to renouncing it, if indeed he did not renounce it, during the hearing. But in any event, I do not accept that the appellants were likely to have sold had the house been completed in March 2018. There is force in the contemporaneous messages identified by the primary judge at [37], suggesting an intention to enjoy the renovated premises, which are "not the sentiments of someone keen to see the work completed as quickly as possible so that the property could be sold". The appellants' reliance upon market conditions in March 2018 ignores the fact that a seller in the peak market of their home nonetheless has to acquire alternative accommodation in that market; whether that accommodation be rented or purchased, there is a cost, in addition to the (substantial) transaction costs.
[17]
Damages for limited use and loss of amenity
The appellants contend that the evidence concerning the impacts of the delay ought to have been accepted, in circumstances where it was unchallenged and plausible, and maintained that it was wrong to have regard to considerations of who had been responsible for the delay. This was said to be legally irrelevant in the assessment of damages, as opposed to a determination of causation.
The latter submission is readily rejected. The inquiry is broad-ranging. The $30,000 is not susceptible to precise calculation, and thus falls within the class of "general damages" as opposed to "special damages", to use the distinction in Paff v Speed (1961) 105 CLR 549 at 558-559; [1961] HCA 14 and Leeda Projects v Zeng at [34] and [151]. Windeyer J said in Teubner v Humble (1963) 108 CLR 491 at 505; [1963] HCA 11 that "an amount to be awarded for general damages is a single amount that is appropriate in the circumstances of the case". In determining any such amount, it is not irrelevant to have regard to both contractual provisions dealing with procedures for extension of time, and the factual matrix giving rise to the delay of which complaint is made.
The primary judge correctly stated the general rule. In Archibald v Powlett (2017) 53 VR 645; [2017] VSCA 259 at [62], McLeish JA writing for the Victorian Court of Appeal said, by reference to authority, that:
"The general rule is that damages for anxiety, disappointment and distress are not recoverable in an action for breach of contract. The principal exceptions to that rule are where the contract is one whose object is to provide enjoyment, relaxation or freedom from molestation, and where the damages proceed from physical inconvenience caused by the breach." (footnotes omitted)
Archibald v Powlett predated the High Court's decision in Moore v Scenic Tours Pty Ltd [2020] HCA 17; 94 ALJR 481. The latter decision confirms a point touched on in oral submissions, namely, that the limitations in Pt 2 of the Civil Liability Act 2002 (NSW) have no application to a claim for damages of this type (cf Archibald v Powlett at [56]-[60]).
The primary judge proceeded on the basis, favourably to the appellants, that this head of damages for breach of their contract with the builder fell within the exception noted in Archibald v Powlett. His Honour was not satisfied that a case had been made out for an award of general damages under this head.
[18]
Orders
It follows that the appellants have been unsuccessful, except in relation to ground 10, based on items 1 and 3, being the costs associated with re-pouring the ground floor slab. Those items total $26,413.36. The appellants should have leave to amend their notice of appeal to the form annexed to the submissions in reply (noting that the new way in which it was sought to advance a claim based on cll 15.4 and 15.5 of the contract fell within the unamended grounds 11 and 12 of the notice of appeal, and that grounds 1, 7 and 13 were not pressed), but the appeal should otherwise be dismissed. The substantial lack of success on appeal should be reflected by an order that the appellants pay 75% of the respondents' costs of the appeal. In settling on 75%, I have borne in mind the respondents' submission that additional costs were incurred by the need for further submissions, and I have also rejected their submission that the case is one that is appropriate for indemnity costs. None of the grounds which were pressed was devoid of substance, and unrepresented parties should not be discouraged from retaining counsel and giving instructions to focus on the most arguable points.
Although the result of the appeal is a somewhat smaller judgment in favour of the builder, the discretion as to costs at first instance should be exercised in the same way. Costs follow the event of that judgment, and the reasons given by the primary judge for indemnity costs continue with undiminished force. Hence the orders below do not affect the costs ordered on 4 September 2020.
I propose the following orders:
Grant leave to amend, in terms of the draft notice of appeal annexed to the appellants' submissions in reply filed 1 March 2021, and dispense with the requirements of filing and service.
Appeal allowed in part, confined to ground 10.
Set aside the judgment for the first defendant in the sum of $76,510.68 entered on 7 August 2020, and in lieu thereof enter judgment for the first defendant in the sum of $50,097.32.
Otherwise dismiss the appeal.
The appellants to pay 75% of the respondents' costs of the appeal.
McCALLUM JA: I agree with Leeming JA.
[19]
Amendments
14 April 2021 - Coversheet - "Powell" changed to "Powlett" in list of cases cited
Headnote, issue (iv) - "Powell" changed to "Powlett"
[88] - "Powell" changed to "Powlett"
[89] - "Powell" changed twice to "Powlett"
[90] - "Powell" changed to "Powlett"
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Decision last updated: 14 April 2021
One consequence of the trial taking place in the Technology and Construction List is that there is an appeal by way of rehearing as of right if there is an amount in issue exceeding $100,000, as opposed to an appeal within NCAT to the Appeal Panel and then on a question of law to the Supreme Court. At one stage the respondents maintained that the appeal, limited to the grounds pressed, was incompetent and required leave. However, as will be clear from what follows, success on the grounds of appeal, as refined, would carry with it the prospect of the appellants' increasing their wealth by at least $100,000, so as to satisfy s 101(2)(r) of the Supreme Court Act 1970 (NSW): see Lorrimar v Serco Sodexo Defence Services Pty Ltd [2014] NSWCA 371 at [71]-[72] and the decisions there cited. Thus, notwithstanding that the litigation should have been commenced in and determined by NCAT, an appeal by way of rehearing lies as of right to this Court from the final judgment of the primary judge sitting in the Equity Division.
There was no cross-appeal. The issues ultimately pressed in this Court were more limited than those at trial, although there were some which had not been raised at trial. It will be convenient to follow the course adopted by both sides in oral submissions and address the issues arising on appeal by reference to four topics: (a) the validity of the final progress claim; (b) the claim based on the pouring of a new internal slab; (c) the claim for wages, and (d) the claim for loss of market value and loss of amenity by reason of delay. All issues turn on the terms of the contract, which is the necessary starting point for analysis.
The was no dispute that the Home Building Act 1989 (NSW) applied to the works, and that the Building and Construction Industry Security of Payment Act 1999 (NSW) was inapplicable: see s 7(2)(b) of the latter act as relevantly in force. That is of some significance because the progress claims and payments made pursuant to cl 15 bear a very different character from progress claims and payments made under the Building and Construction Industry Security of Payment Act. Payments under the latter act are required within a very tight timetable, but do not affect the parties' contractual rights, save that allowance must be made for amounts paid: s 32. In contrast, when the contractual obligation to pay progress claims pursuant to cl 15 was breached, the builder's rights deriving from the contract continued notwithstanding the subsequent termination, as Dixon J explained in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477; [1933] HCA 25. Thus, while the contract had come to an end long before the litigation was heard, the builder was suing on the debt created by cl 15.6 which had accrued following the service of its final progress claim, as well as damages on a quantum meruit. That distinction explained the builder's success in its claim for debt, and its failure to make out a claim for damages.
Unusually, but just as was the case with the provisions governing service out of the jurisdiction (see Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [46]), there was an antecedent at common law. UCPR r 14.14 may in fact be traced to the much maligned 1834 "New Rules" (as to which see W Cornish et al, The Oxford History of the Laws of England (Oxford University Press, 2010) Vol XI, pp 585-591). The rule was discussed in Ashby v Bates (1846) 15 M & W 589, in which Sir Frederick Pollock CB said at 593 that "the object of the New Rules was, to give specific notice of that which it is intended to rely on at the trial". As Lord Goddard LCJ explained in Bond Air Services Ld v Hill [1955] 2 QB 417 at 427, the rule was included in the Common Law Procedure Act 1852 where s 57 provided:
"It shall be lawful for the plaintiff or the defendant in any action to aver performance of conditions precedent generally, and the opposite party shall not deny such averment generally, but shall specify in his pleading the condition or conditions precedent, the performance of which he intends to contest."
While this rule did not imply an averment that all conditions precedent had been satisfied, it permitted a general averment to that effect. The third edition of Bullen and Leake described this as a "great improvement" and explained the evils of the former practice (E Bullen and S Leake, Precedents of Pleadings (3rd ed, London, Stevens & Sons, 1868)), p 147:
"Until this great improvement was effected, the pleader was obliged anxiously to determine what were conditions precedent to the right of action, etc, and to aver their performance with certainty and particularity ... If any condition precedent was omitted by mistake or oversight, he was exposed to a demurrer, and the pleading was liable to be held irremediably bad on motion for arrest of judgment, or for judgment non obstante veredicto, or on error; and if he inserted any unnecessarily, he was exposed to immaterial issues being raised ... The former practice was further productive of great expense and inconvenience by prompting the other side to traverse the several averments inserted, although wholly beside the merits of the case, and the questions really in dispute; and this most frequently occurred in those cases where there was least excuse for it, namely, where the chances of defence were summed up in instructions to deny all the allegations in the declaration."
The English rule was substantially enacted as s 52 of the Common Law Procedure Act 1853 (NSW), and became in due course s 66 of the Common Law Procedure Act 1899 (NSW), where it operated in actions at common law for most of the 20th century. Its operation was discussed in H Snelling, "Common Law Pleading - Conditions Precedent and the Onus of Proof" (1939) 13 Australian Law Journal 105.
The rule is complemented by the generally framed and long-standing obligation (now found in UCPR r 14.14) that parties must plead specifically any matter which, if not pleaded, may take the other side by surprise: see In re Robinson's Settlement; Gant v Hobbs [1912] 1 Ch 717 at 728. In litigation in the Construction List, that is reinforced by the requirement that a list response will set out "the issues which the defendant believes are likely to arise" and "the defendant's response to the plaintiff's contentions including the legal grounds for opposition to the relief claimed in the Summons".
The upshot is that for almost two centuries in actions at common law, and in all proceedings in New South Wales since 1972 (and for much longer in other jurisdictions), there has been no obligation to plead that a particular condition precedent has been satisfied. A plaintiff has been able either to plead the satisfaction of all conditions precedent generally (pursuant to the 1834 rule and its counterparts) or rely on an implication to that effect (pursuant to the 1883 rule and its counterparts). Instead, it has been left to the other side to raise non-satisfaction of one or more conditions precedent as an issue.
By their supplementary submissions in reply, the appellants contended that r 14.11 was inapplicable to their defence to the builder's cross-claim which was commenced by summons and proceeded by way of list cross-claim statement. I disagree. The "list statement" and "response to list statement" which identify issues in proceedings in the Construction List in accordance with Practice Note SC Eq 3 stand in the place of pleadings: Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; 356 ALR 440 at [260], and the rules governing pleadings in the UCPR apply: see for example UAERJ Pty Ltd v Jupiters Ltd [2014] NSWCA 213 at [26].
The appellants further contended that r 14.11 is merely a rule of pleading and does not alter the legal onus of proof. So much may be accepted. But that does not gainsay that the issues of fact on which a plaintiff or cross-claimant must succeed in order to make out a cause of action are those identified by the parties, generally through the exchange of pleadings. It was for the appellants to identify, in advance of the trial, whether they wished to put in issue whether cll 15.4 and 15.5 were satisfied, thereby disentitling their builder from suing on the debt created by invoice 0104, and if they wished to do so, the rules required them to do so specifically. Rules 14.11 and 14.14 were reinforced by the obligations to which the appellants were subject under s 56 of the Civil Procedure Act 2005 (NSW) to facilitate the just, quick and cheap resolution of the real issues in the proceedings. As this Court noted in Zisis v Knighton [2008] NSWCA 42 at [49]-[50]:
"The premise underlying Mr Mantziaris's submission was that the appellants were under no obligation to foreshadow the jurisdiction point to the respondents. This submission failed to take into account the rule that parties must plead specifically any matter which may take the opposite party by surprise: Uniform Civil Procedure Rules (2005) 14.14. ...
Secondly, it failed to recognise the obligation of legal practitioners to ensure that the real issues in proceedings are disposed of in accordance with the over-riding purpose expressed in s 56 of the Civil Procedure Act 2005. Finally, the submission failed to pay regard to the fact that 'the ambush theory of litigation was given its quietus by Heydon JA' (with whom Mason P agreed) in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 (at [22]-[30]). Parties are required to 'lay their cards on the table': Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 (at [60]) per Ipp JA, (Sheller and Hodgson JJA agreeing)."
It was submitted that the pleadings left it to the builder to demonstrate that cll 15.4 and 15.5 had been satisfied.
"So the pleaded case that came on for trial had as an essential element para 21 of the list statement, ascertainment of what the remuneration terms were, and had as an essential element in 22 a breach of those terms. It was the builder's onus to establish what the relevant terms were, and prove as a matter of fact that they were breached. In my submission, it ought to have been found that it had failed to do that, and the reason it was not found that it failed to do that is because the terms of the contract were not grappled with."
That submission cannot be accepted. Rather, the position is that the builder's allegation carried with it an implied allegation that all conditions precedent to its claimed entitlement in debt had been satisfied, and if the appellants sought to maintain that there were one or more conditions precedent which had not been satisfied, it was necessary for that to have been pleaded with specificity. If having failed to do so, they had sought to raise the point, then the position was substantially as stated by Buckley LJ in In re Robinson's Settlement at 728:
"[T]he Court will deal with it in one of two ways. It may say that it is not open to him, that he has not raised it and will not be allowed to rely on it; or it may give him leave to amend by raising it, and protect the other party if necessary by letting the case stand over."
There is a helpful discussion of these rules and the underlying principles in cases where a defendant is unrepresented by the New Zealand Court of Appeal in Low Volume Vehicle Technical Association Inc v Brett [2019] 2 NZLR 808; [2019] NZCA 67 at [62]-[68], concluding as follows:
"The failure to plead an affirmative defence properly does not mean the defence cannot be considered at all. Where justice requires that it be considered, there is room to do so. But justice must be done to both sides, as the passage quoted above ... makes clear.
In our view, an unpleaded affirmative defence should seldom be considered without an application to amend. The same is likely to be the case where the pleading is so deficient as to mislead or fail to comply with the rules of court. Where the deficiency is identified by the Court, it has a discretion to raise the matter of its own motion. Fairness may require exercise of the discretion where a defendant is self-represented and is proceeding in ignorance of the legal defences available. But in considering whether to then permit amendment, so that the defence is considered, the Court must also consider prejudice to the plaintiff. The degree of prejudice arising may be so great that the amendment should not be permitted. Or, if it is not of that order, then the amendment may proceed with such arrangements as needed to mitigate the plaintiff's prejudice. Only by following this precautionary approach is the question of prejudice by amendment likely to be properly evaluated." (original emphasis)
I respectfully agree with that as a statement of the principles applicable where there is opposition to the reliance on the unpleaded defence. It accords with what was said by Ward J in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 587; 16 BPR 31,011 at [25] and [27] (an appeal was allowed, but not insofar as the decision turned on the effect of the pleadings), in passages which well reflect the practical considerations involved:
"[R]ule 14.14 requires that matters be specifically pleaded that would otherwise take the opposing party by surprise, including matters pleaded in defence that the party alleges would make the claim of the opposing party not maintainable. This rule is grounded in a wider principle that each party is given a proper opportunity to prepare and present its case ...
In some circumstances it seems that a court may take into account … matters that are not specifically pleaded (see, for example, Sykes v Stratton [1972] 1 NSWLR 145 at 162, a case where restoration was sought of trust property in the context of a transaction that was considered by Helsham J, as his Honour then was, to be an illegal transaction). However, the general rule is that a court would not be required to consider a defence not raised by the parties (North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461; Knowles v Fuller (1949) 48 SR (NSW) 243) and that cases are to be determined on the issues raised by the pleadings. It is recognised that the parties may by their conduct of the case acquiesce in a departure from, or may disregard or enlarge, a pleaded case or, in the words of Spigelman CJ in Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; [2007] NSWCA 75 at [57], may choose to fight the case on a different basis. Nevertheless, in the present case, it could hardly be said, in light of Mr Hale's insistence on adherence to the pleaded case, that Nu Line Construction had acquiesced in any expansion of the issues raised expressly by way of defence in the pleadings ..."
I have dealt with this relatively elaborately because I do not accept the basic premise of the submission that a condition precedent to the alleged debt was put in issue merely by a general denial of breach in the defence to the cross-claim. These sorts of arguments have been addressed by courts for considerably more than a century. Judges sitting at first instance are generally not required to conduct an independent examination of unstated conditions precedent to a plaintiff's claim, of which no mention has been made by a defendant, even if unrepresented. Ultimately it is a matter for common sense and practical judgment, rather than the mechanical application of rules. But here, where the appellants advanced a swathe of defences, many quite technical, no criticism can soundly be made of the judge who omitted consideration of cll 15.4 and 15.5. The real issues in the proceedings to which the overriding purpose applied were the (numerous) issues raised by Mr and Ms Cappello, not the satisfaction of cll 15.4 and 15.5 of which no complaint was made.
The experts prepared a joint report in which they agreed that "there should have been no step down between the existing and the new internal ground floor slabs in accordance with the plans", "[t]he step downs contravene the plans" and "the ceiling height constructed is incorrect and contravenes the plans".
It seems tolerably plain that Mr Cappello's instruction to lower the floor was a consequence of the incorrectly built ceiling. In any event, there was evidence to that effect. The joint report records that Mr Capaldi (the appellants' expert) stated that:
"Additional works have been undertaken due to an initial error by the builder. The rectification was invoiced by the Builder to the Owner."
True it is, as the respondents submitted, that Mr Capaldi in cross-examination conceded that if work was built in accordance with an owner's instruction, that would not be regarded as a defect. That said, the witness maintained in his cross-examination, just as had been asserted in his reports, that although the work which had been performed was not a defect - in the sense that no rectification work was required - there was nevertheless a question whether the builder was entitled to charge for it. The cross-examination was as follows:
"O'CONNOR: I assume, can I, that the basis of this defect, is it that what you built is defective per se, what you're saying is that it hasn't been built to the plan and your instructions are that the owners didn't..(not transcribable)..the builders to do so?
WITNESS CAPALDI: Yes, it's more of a - it's more of a - a refund issue in - in relation to the way that the - the ground floor slab's been extended and constructed, there are now two steps in the ground floor levels where the plans actually show that there should be no steps."
The appellants are correct to submit that this point was not apprehended or dealt with by the primary judge. The primary judge correctly said that the relocation of the floor resulted from a request from Mr Cappello. However, that is not a sufficient response to the appellants' submission that the request was only made necessary by the incorrect construction of the ceiling. The request was a natural consequence of the builder's breach.
In oral submissions in this Court, the builder sought to defend the conclusion thus:
"MACFARLAN JA: Sorry, but that doesn't advert to the element the appellants put forward as critical. Namely that the need for lowering the slab resulted from an error on the part of the builder in the height of the ceiling.
O'CONNOR: Your Honour, there's no evidence as to that. All the expert says is that that part is not built to plan. It doesn't say why. Then Mr Cappello gives no evidence as to why. All that we have is - and as I was about to say, it's a curious point inasmuch as nobody actually says the work is defective. What they are rather saying is that it's really the appellant is entitled to a refund in relation to the way the ground floor slab has been extended and constructed."
I do not consider that this is a sufficient answer to the claim. There was evidence of an error on the part of the builder in constructing the ceiling, which I have reproduced above. The mere fact that Mr Cappello sent the text message does not disentitle him from a claim for damages caused by the incorrectly constructed ceiling. I see no reason to doubt that Mr Cappello's request to lower the floor was a natural and direct consequence of that error. The issue was treated as turning on causation (and in particular there was no dispute as to quantum).
In light of the late service of Mr Breakspear's submissions, the respondents were given the opportunity to supplement their response by written submissions after the hearing of the appeal. There was a vigorous exchange on this point. In addition to reiterating what has already been addressed, the respondents said that (a) it was not clear that the appellants had not instructed the builder to build the lower ceiling, (b) there was "nothing in the contemporaneous correspondence that suggest[s] the builder made a 'mistake' in concealing the beams", (c) Mr Cappello's evidence was that "the appellants knew that the height of the ceiling was going to be dropped", and (d) the payment of the relevant invoice constituted an admission.
However, as the appellants pointed out, the joint position of the experts was that the ceiling was non-compliant. The onus lay upon the builder to advance a case why it should not be liable for damages caused by that breach. The appellants are also correct to state that it is a misreading of the affidavit evidence, and the text message, to state that Mr Cappello knew that the height of the ceiling was going to be dropped, and that the payment of an invoice which did not articulate how it related to the consequence of the ceiling height did not constitute an admission.
I have concluded that the appellants are correct to submit that they should not be required to pay for work done, albeit on Mr Cappello's instruction, the need to do so being brought about by the incorrectly built ceiling. It follows that ground 10 is made out. The quantum was not in dispute. It was $22,039.36 (item 1) plus a claim for additional work directed to inadequate falls in the southern alfresco slab for $4,374 (item 3).
The appellants made a series of submissions challenging this part of the reasons. They noted that insofar as wages were a component of invoice 0104, the appellants relied on what they had said about noncompliance with cll 15.4 and 15.5. This has been addressed above. In addition, they made three submissions:
1. The appellants maintained that it was insufficient merely to claim that various hours had been spent by various employees, and that it was necessary, before an amount representing wages could be invoiced on the "Cost Plus" contract, for the builder to establish that those wages had in fact been paid.
2. The appellants noted that the rate of $100 per hour in Schedule 2 applied to the builder, whereas the rate against the line "Trades: employee of builder" had been left blank.
3. The appellants maintained that it remained necessary for the builder to establish that a cost had actually been incurred in connection with Mr Re's time.
The first and third points are confronted by a difficulty concerning builders who are self-employed sole traders. The contract expressly confirms that the cost of the building works "includes the builder's own time on and off the site". It is quite clear that such a builder is entitled to charge at the agreed hourly rate for his or her time, even though no cost has been incurred and no wages or salary paid. A self-employed sole trader cannot in any legally meaningful sense incur a liability to himself or herself for his or her time. Generally, courts should be wary when assessing a submission that a particular construction would be "commercial nonsense" or contrary to "commercial commonsense". Some aspects of the restraint that should be exercised were considered in Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55]-[65] and in Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [17]-[20]. However, in the present case, as was the case in Glencore Coal Queensland Pty Ltd v Aurizon Network Pty Ltd [2020] QCA 182 at [108], the uncommerciality of the appellants' construction is demonstrable. It is commercially absurd to construe the contract in a way which denies a sole trader all remuneration for his or her time.
Where, as here, building services are supplied through a company whose director is the site supervisor, it would be unusual if any different result obtained. It surely cannot be necessary, in order for the corporate builder to render an invoice under cl 15 for the time of its supervisor, for the company to receive an invoice from, or otherwise incur a liability to, the supervisor (who in many cases will be its sole director and shareholder).
Those considerations compel the conclusion that Schedule 2 proceeds on the basis that the hourly rate is fixed for the builder, with the consequence that all that needs to be identified is the time spent. This was identified on each spreadsheet accompanying each invoice in evidence, and there is no reason to doubt that it was identified in relation to invoice 0104.
The second point is slightly different. It turns also on the failure to identify any hourly rate for employees in the schedule, in contrast with the $100 per hour for the builder. Returning by way of example to invoice 0064, which was in the amount of $52,499 plus GST and was dated 20 October 2017, an email from Mr Re to Mr Cappello dated 3 October 2017 attached a spreadsheet with the "costing to date". The spreadsheet showed labour of $19,515 and went on to identify days, hours and hourly rates for each of Mr Re, and "John D", "Abdul" and "Ali". Mr Re was charged at $100 per hour, while smaller rates were charged for the other three men: $65 per hour for "John D" and $35 per hour for "Abdul" and "Ali".
Insofar as this point seeks to rely upon contraventions of cll 15.4 and 15.5 to deny the builder's entitlement to be paid, it may not be advanced for the first time in this Court for the reasons already given.
What remains is the contention that because no mention was made in the contract of hourly rates of $65 and $35, the builder was unable to charge anything for the three men's time. This had never been pleaded, or opened on. Indeed, a claim extending to the recovery of costs concerning the three men's labour was raised for the first time in submissions supplied after the close of evidence which are reproduced above. Even there, no point was made concerning the contract not specifying hourly rates. This is why the judge regarded the submission as "difficult to understand". If some point concerning the unspecified hourly rates of the three men had been made at any time prior to the close of evidence, and had been permitted to be advanced, then it is easy to see how the builder may have responded, including by reliance on informal agreement or estoppel by convention (for there could scarcely be doubt that the men had actually worked on the site or that the builder's invoices for their time, costed at $65 and $35 per hour, had been accompanied by spreadsheets such as that supplied to Mr Cappello on 3 October 2017). In accordance with the principles applied in relation to the new submissions based on cll 15.4 and 15.5, the appellants should not be permitted to raise in this Court submissions based on the absence from the contract of hourly rates for employees. It follows that no aspect of ground 2 is made out.
That said, it is odd that no wage records were provided in answer to the notice to produce. It is to be expected that the builder, complying with its obligations under the Corporations Act and taxation law would have produced and retained such records. However, no submission was made, still less was any allegation pleaded, based upon a failure to maintain records, beyond noting that nothing had been produced.
Although this was prominent in the appellants' submissions in this Court, and readily sustains an inference that there may have been a serious non-compliance with federal law, this is another aspect of the case which might, had the issue been flagged at trial, have resulted in an evidentiary response by way of explanation from the builder.
The primary judge turned separately to the claim for general damages based on inconvenience and loss of amenity. It is convenient to observe that the entirety of the evidence in support of that claim was a single paragraph in Mr Cappello's affidavit:
"Due to the failure of the defendants to complete the work within 26 weeks, my wife, my son and I had to live in a building site for 56 weeks instead of 26 weeks. We had to live on the second floor. We could not access the rear garden. We could not park our cars in the garage or on the driveway. We had to live with dust and noise. These are some of the inconveniences we had to live with. We claim general damages."
The trial judge proceeded on the basis that while in an appropriate case, damages might be awarded for physical inconvenience resulting from a breach of contract, he was not satisfied that this was an appropriate case, on the basis that the evidence was scant, such that it could not be said how significant the inconveniences (from alternative parking, lack of access to the rear garden, and living with dust and noise) were, in circumstances where both appellants worked full time: at [40]. His Honour also had regard to the fact that although no applications for extensions of time were formally made, the appellants were responsible for a substantial part of the delay because of their requests for variations: at [40]. The consequence was that damages for delay were limited to the agreed $1 per (working) day, amounting to $152.
The appellants challenged both those aspects of the findings and reasoning of the primary judge. Each is addressed in turn below.
The principal submission advanced on this issue was that damages should reflect the unrealised capital loss occasioned by the six month delay, and that no intention to sell was necessary in order to make out that head of damages. I do not accept that submission. I start by considering its consequences. Acceptance of the submission would mean that the appellants who, in 2021, continue to own the land, would have received the benefit of a short-term fluctuation in unrealised market value of their land over a seven month period. If, as may well be the case, property values have significantly increased in the ensuing years, then the appellants would be doubly compensated. More generally, acceptance of the submission would lead to the result that plaintiffs would be doubly compensated whenever they could establish a fall in property prices corresponding to the timeframe of the delay, if the market subsequently rose. But as Mason CJ and Dawson J said in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82; [1991] HCA 54, "The corollary of the principle in Robinson v Harman is that a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed."
A consideration of principle reveals why such an unintuitive result is not correct.
The builder was in breach, because the appellants were contractually entitled to have their home renovated by March 2018. The appellants were entitled to damages for breach of contract to put them, so far as money can do so, in the same situation as if the contract had been performed as promised. This is the "ruling principle" (in the words of Lord Atkinson in Wertheim v Chicoutimi Pulp Company [1911] AC 301 at 307) in Robinson v Harman (1848) 1 Exch 850 at 855; 154 ER 363 at 365 and endorsed as such in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13] and many other cases. However, there is no settled default principle governing the quantification of damages where real property, intended for personal use, is made unavailable by reason of a breach of contract: Leeda Projects Pty Ltd v Zeng (2020) 61 VR 384; [2020] VSCA 192 at [2] and [177]-[179]. Each case turns on its own facts.
The appellants say that they were entitled to a renovated house seven months earlier than occurred, and that is true. But it does not follow that they are entitled to damages for the difference in value in the meantime. This was explained in Tabcorp at [13]:
"In some circumstances putting the innocent party into 'the same situation ... as if the contract had been performed' will coincide with placing the party into the same financial situation. Thus, in the case of the supply of defective goods, the prima facie measure of damages is the difference in value between the contract goods and the goods supplied. But as Staughton LJ explained in Ruxley Electronics Ltd v Forsyth such a measure of damages seeks only to reflect the financial consequences of a notional transaction whereby the buyer sells the defective goods on the market and purchases the contract goods. The buyer is thus placed in the 'same situation ... as if the contract had been performed', with the loss being the difference in market value. However, in cases where the contract is not for the sale of marketable commodities, selling the defective item and purchasing an item corresponding with the contract is not possible. In such cases, diminution in value damages will not restore the innocent party to the 'same situation ... as if the contract had been performed'". (footnote omitted, emphasis added)
The result in Clark v Macourt reflects the principles in the first half of that passage. The company's trading stock was treated as a fungible which had been purchased for the sole purpose of sale at a profit.
But the appellants' home was not a marketable commodity in the relevant sense. While there is unquestionably a "housing market", and it may be said that that market may rise or fall from time to time, that does not mean that a seven month delay in renovating a house may be quantified in damages in the same way as a seven month delay in providing a marketable parcel of shares in BHP. The latter are fungibles for which there is a ready market on which they are convertible to money. The house is unique and can only be sold with a deal of effort and transaction cost. It is for this reason that the loss which the appellants claim is entirely notional unless there was, at the very least, a real intention to effect a sale.
Thus, not only was there no guarantee that the appellants' home could be sold at any time for the price indicated in the valuation report, there was not even an intention to sell the home after the renovation was complete. In those circumstances, the primary judge was correct to find that no loss had been made out. It is not necessary to address remoteness, and indeed it is somewhat artificial to do so in circumstances where no loss has been established.
The question is whether this Court should intervene. I am unpersuaded that it should. The entirety of the evidence adduced in support of the claim has been reproduced above. As the respondents submitted, determining whether the appellants had made out this aspect of their claim was a decision in relation to which the primary judge was far better placed than is this Court. There were some issues of reliability in Mr Cappello's evidence (for example, during cross-examination he repeatedly accepted that he had lied to his builder) and the respondents contended that implicit in the criticisms by the primary judge of the sufficiency of Mr Cappello's evidence at [40] was a general lack of reliability in his evidence.
In Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55], the High Court said:
"Appellate restraint with respect to interference with a trial judge's findings unless they are 'glaringly improbable' or 'contrary to compelling inferences' is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts." (footnotes omitted)
Both aspects of that clarification of the circumstances when an appellate court is to exercise restraint are relevant here. It is "likely" that his Honour's conclusion that the appellants had not made out a case for general damages was affected by what he saw and heard when Mr Cappello was cross-examined, and the conclusion was a finding of secondary fact based on the scant affidavit evidence read in light of the other evidence at trial, including Mr Cappello's cross-examination. I do not think a case has been made out to interfere with it.