Champion Homes Sales Pty Ltd v Biggs; Biggs v Champion Homes Sales Pty Ltd

Termination

1. In September and October 2022, Champion Homes and the homeowners exchanged several emails in respect of the requirement of a retaining wall for a price of $792.00 per metre GST inclusive for 28 lineal metres, being approximately $22,176.00; the demolition of the existing dwelling, the appointment of a principal certifier for the homeowners and the obtaining of construction certificate.
2. The homeowners also gave evidence that they were concerned that a quote to demolish the existing house for $17,270.00 which had been arranged by Champion homes exceeded what they say was a previous quote for $5,000.00.
3. An email from Champion Homes to the homeowners dated 4 October 2022 informed the homeowners that they were in breach of the Contract and that Champion Homes would be entitled to serve a "Notice of Breach of Contract" and goes on to explain the effect of such a notice, including that if the contract was terminated following the issuing of such a notice, that Champion Homes would be entitled to terminate the Contract and sue for damages, being 15 per cent of the contract price.
4. There was no evidence of such a notice having been issued.
5. On 14 and 28 October the parties exchanged letters and emails marked "without prejudice save as to costs". The letters were put into evidence without objection, and neither party claimed privilege in respect of the letters.
6. The homeowners' solicitor emailed a letter to the homeowners dated 14 October 2022 stating: Our clients instruct that they are contemplating terminating the contract with you. We invite you to participate in dispute resolution at our office in the week commencing Monday, 24 October 2022… … We note our clients have a list of grievances in respect to the building contract to date, being the conduct of Champion Homes, the provision and timing of critical information, communication generally, bullying tactics and overcharging by Champion Homes.
7. Mr Malesev, the director of Champion Homes replied by email on 14 October 2022 stating: I am not aware of a dispute Please provide the list of "grievances" I am happy to have a meeting with you and your clients, however not in your office you can come to my office or we can have a video link meeting, or on neutral grounds once I have reviewed the list of "grievances" I will advise suitable dates if you wish to terminate the contract, that is a matter for you and we will deal with that accordingly I reserve our rights
8. On 28 October, the homeowners solicitor emailed a letter to Champion Homes stating: We refer to your correspondence of 25 October 2022 Our clients instruct that they are contemplating terminating the build contract unilaterally. However, prior to terminating the contract unilaterally, we are instructed to obtain your instructions on terminating the contract by agreement and in entering a deed of mutual termination. The respective position of the parties has been articulated previously and do not require repetition. However, in respect to your reliance on a liquidated damages clause in a building contract for residential building work under the Home Building Act, not a commercial construction contract, our client is doubtful of its enforceability as the clauses is prima facie a penalty. Due to your conduct to date and recent events, our client has lost all faith in the builder, and it is untenable for the consumer to consider progressing the contract any further in the current circumstances. Please provide us with the settlement sum you require, for our client consideration, to terminate the contract by agreement. We request a response by 4:00 PM on Friday, 4 November 2022
9. As of 31 October 2022, the demolishing of the existing house had not commenced.
10. On 31 October 2023 the homeowners solicitor emailed a letter to Champion Homes (Exhibit A) stating: We refer to your correspondence dated 28 October 2022. Our client notifies you of their termination of the building contract between Champion Homes Sales Pty Ltd and Darren and Dans Biggs in respect to building works at 39 Bligh Ave, Camden South dated 15 November 2022. The termination date is 1 November 2022. As set out in previous correspondence there are a multitude of reasons for the termination, however the most pressing is that your radical departure as soon as the contract was entered and significant increases to date have placed our client in the position that if they were to proceed with the contract it would be to their further detriment. Our client maintains the position that Champion Homes have not to date demolished one brick at the property, let alone commenced construction of the newly built home and therefore and loss is negligible to the builder, however, to continue with the contract would cause significant losses to our clients. We further enclose our client without prejudice offer of compromise. We are instructed to accept service should you determine to pursue damages for termination of the contract.
11. On 2 November 2022 the homeowners solicitor emailed a letter to Champion Homes stating: We refer to your correspondence of 1 November. Our client maintains their position to terminate the contract effective 1 November 2022. Our clients maintain that they should have been informed prior to entering the contract on 15 November 2021 about the reversal of the house design and the extra costs involved prior to entering the contract and not immediately after, especially where you flagged the issue prior to submitting plans to Council.
12. The letter then went on to refer to an invitation "to engage with dispute resolution" and set out the reasons why the homeowners were effectively declining that invitation.
13. Champion Homes responded to the homeowners' solicitor's letter by letter dated 11 November 2022 stating: We refer to your letter of 2 November 2022 in which you confirmed that your clients have terminated the building contract as from 1 November 2022 … your clients have committed a fundamental breach of the contract with their wrongful termination and consequent repudiation of the contract. Champion Homes accepts that repudiation and will shortly be commencing proceedings in the NSW Civil and Administrative Tribunal seeking damages for breach of contract
14. Champion Homes application was then lodged on 22 November 2022.
15. Champion Homes argues that the homeowners purported termination amounted to a repudiation of the Contract, that it accepted that repudiation and terminated the Contract, or terminated for substantial breach following the giving of a 'notice of default, and that it is entitled to agreed damages of 15 per cent of the Contract price pursuant to clause 29 or special condition 44.15 of the Contract, plus certain costs it had incurred to date pursuant to clause 5.3.
16. The homeowners argue that they were entitled to terminate the contract and that in any event the agreed damages clause is a penalty.
17. Relevant principles were summarised by Ball J in Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd (No 9) [2016] NSWSC 1005 (22 July 2016) from [170]. Relevant legal principles relating to termination 170. A party is entitled to terminate a contract in accordance with an express term in the contract: Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441-2. A party may also be entitled to terminate the contract for breach of an essential term (a condition) of the contract or a serious breach of an intermediate term: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115. Lastly, a party may be entitled to terminate the contract if the other party repudiates the contract. Repudiation occurs where one party evinces an intention "no longer to be bound by the contract ... or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way": Shevill v Builders' Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 625-6 per Gibbs CJ, referred to with approval in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 634; see also Koompahtoo at [44]. 171. A party who gives reasons for termination is not bound by those reasons. The termination is effective so long as a basis for termination existed at the time of termination: Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 262. 172. A party in breach of a non-essential term is not prevented by that breach from terminating the contract for a fundamental breach or repudiation by the other party. An exception exists where the breach or the repudiation was caused by the terminating party's breach. A party whose breach causes a breach by the other party or makes performance by the other party futile is not entitled to terminate the contract for non-performance by that party: Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 632; Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (Rec and Mgr apptd) [1997] NSWSC 473; (1997) 42 NSWLR 462, 479ff per Gleeson CJ, Handley JA and Brownie AJA.
18. The homeowners rely on clause 14.6 of the Contract, which provides, that: If the estimated price of the extra work exceeds 10% of the contract price, the owner may end this contract by giving the builder I written notice to that effect within 5 working days of receiving the estimated cost from the builder under subclause 14.2 and sub clause 14.7 applies.
19. Putting to one side that the notice of termination was not given within five working days of receiving the estimated cost of extra work exceeding 10 per cent of the contract price, clause 14 is headed "Hidden Site Conditions", and is concerned with circumstances where extra works are required because "(a) either party believes that the subsurface conditions of the site may not support the building works, or (b) rock is found at the site…". That is not the case here.
20. The evidence of the homeowners indicates that in large part that the homeowners' reason for terminating the Contract was because prices had increased and they were worried about what would happen in the future, and the homeowners did not point to any other a clause in the Contract entitling them to terminate the contractor, nor any substantial breach that entitled them to terminate the Contract.
21. Having already found that I am not satisfied that the alleged representations were made, in circumstances where the homeowners do not point to any other term of the Contract having been relied on to justify the termination, nor any intermediate clause of the contract that the homeowners say the Champion Homes was in substantial serious breach of, nor any essential clause that the homeowners say Champion Homes was in breach of nor any repudiatory conduct by Champion Homes that would entitle the homeowners to terminate the Contract, I am satisfied, and find, that the homeowners' purported termination of the Contract on or about 1 November 2022 was wrongful and clearly evidenced an intention to no longer be bound by the Contract, and was a repudiation of the Contract.
22. Clause 40.4 of the Contract provided that "This contract may be terminated in circumstances provided by common law" and "This does not limit the circumstances in which the contract may be terminated".
23. Champion Homes was entitled to accept the Homeowners repudiation and terminate the Contract. It did that by its letter dated 11 November 2022.

Agreed damages / Penalty

1. Champion Homes claims the agreed damages pursuant to clause 29.1 or Special Condition 44.15
2. Clause 29.1 provides: If the for the builder end this contract under close 14, close 26, close 27 or clause 28, then at the election of the builder, the owner must pay as I did you and payable either: (a) the greater of the cost of the market value of the building works to date including the cost of any materials on the site or already ordered from suppliers and the cost of quitting the site list the amount already paid by the owner; or (b) damages in the sum of 15% of the contract price which the parties acknowledge to be a genuine pre- estimate of the builder's loss, where the builder ends the contract under clauses 14, 26, 27 or 28.
3. The Builder could not claim the agreed damages of 15 per cent of the contract price and an amount to reflect the market value of the work performed plus costs incurred. It had to elect between the two.
4. Clauses 14 and 28 are not relevant here. In so far as clauses 26 and 27 are concerned, a party may end a contract where a breach is not remedied within 10 days after a written notice of the breach is given stating: (a) the details of the breach; and (b) that if the breach is not remedied, then that party will be entitled to end the contract.
5. Although, as noted above, an email was sent referring to Champion Homes entitlement to issue a breach notice and the describing the effect of such a notice, there was no evidence of such a notice having been issued.
6. I am therefore not satisfied that Champion Homes terminated the Contract pursuant to clause 27 of the Contract. It follows that Champion Homes is not entitled to claim the agreed damages of 15 per cent of the contract price pursuant to clause 29.1.
7. Champion Homes also relies on Special Condition 44.15. It states: If, prior to physical commencement of works on the site, the owner wrongfully ends this contract the owner must pay to the builder damages in the sum equivalent to 15% of the contract price, which the parties acknowledge to be a genuine pre estimate of the builders loss or damage.
8. Putting to one side the issue of penalty, having found that the homeowners wrongfully terminated the Contract and that Champion Homes accepted that repudiation and terminated the Contract, I am satisfied that clause 44.15 applies and that Champion Homes is entitled to damages equivalent in the sum of 15 per cent of the contract price.
9. The contract price is defined to be "the amount stated in item 2 (a) of schedule one, as changed by this contract". The amount stated at Item 2 (a) of schedule 1 is $509,350.00 incl GST. As at Variation 4 which had been signed by the homeowners on "22/7/22", the Contract Price had been changed to $496,164.00 including GST.
10. Subject to a consideration of whether the agreed damages are a penalty, the agreed damages, being 15 per cent of $496,164.00 are $74,424.60.
11. As noted by the High Court in Ringrow Pty Ltd v BP Aust Pty Ltd [2005] HCA 71 (Ringrow);224 CLR 656, at [10], the law of penalties, in its standard application, applies where a contract stipulates that on breach the contract breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre - estimate of the damage likely to be caused by the breach.
12. Relevant principles were summarised by the Court of Appeal in Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328 at [69] to [76] with reference to Ringrow; Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30; and Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 90 ALJR 835. They include: 1. The question of whether a sum stipulated is a penalty is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged at the time of the making of the contract, not as at the time of the breach. 2. Tests to assist this task of construction, include: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach; (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid; and (c) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage". 3. The essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach, and thus to compel performance. 4. One way of testing whether the impugned stipulation is intended to punish is to inquire whether the sum that it stipulates to be payable on breach is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach. 5. "Damage" in that sense is not limited to damages recoverable upon breach of contract, but may extend to damage, or losses, caused by the impairment of other legitimate commercial interests that were intended to be protected by the stipulation 6. Mere disproportion between the stipulated sum and the possible damage is not enough to indicate "penalty"; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation. 7. The onus of proving that a contractual stipulation amounts to a penalty rests with the person asserting it.
13. Having regard to the above principles I note that the agreed damages provision at special condition 29.1 is the same as that which appears in clause 14.1 and only arises where there has been a wrongful termination by the homeowner. As noted above, Champion Homes would still need to accept that wrongful termination as a repudiation, and itself terminate the Contract, which I have found it did.
14. Mindful that the agreed damages only arise following a wrongful termination by the homeowners and operate in lieu of a claim for damages generally, and that the only evidence the homeowners point to establish that the amount is unconscionable or extravagant is the Contract itself and the alleged representations, I am not satisfied that the agreed damages is out of all proportion to, or unconscionable in comparison with the maximum amount of damage that might be anticipated to follow from the breach.
15. I am therefore not satisfied that the impugned clause is intended to punish.
16. The homeowners claim that the agreed damages clause is a penalty is therefore rejected.

Claimed expenses and the Deposit

1. Champion Homes claims the amount of $11,344.00 (as calculated at [15] of its Points of Claim and [46] of Mr Malesev's 6 April 2023) pursuant to clause 5.3 of the Contract, which Champion Homes submits provides that various planning fees and costs are to be borne by the homeowner.
2. Consistent with the position in respect of the operation of clause 29.1, in circumstances where Champion Homes has elected to claim agreed damages, it is not open to also be paid for the value of work performed or expenses incurred in performing the contract work.
3. It needs to establish that the amounts claimed are additional amounts that the homeowners are liable for pursuant to clause 5.3 of the Contract.
4. Clause 5.3 provides that notwithstanding that the builder may be named in item 10 of schedule one, unless otherwise stated in this contract, at all times the owner is responsible for the payment of all fees, charges, taxes, costs and levies, however described, associated with: (a) inspections conducted by the principal certifying authority; (b) registrations relating to title to the site; (c) planning and building approvals for the building works; (d) complying with the conditions of the development consent; and (e) all engineering and survey details and certificates another plans that may be required in order to allow the builder to carry out the building works.
5. Champion Homes has not invoiced the homeowners for the amounts claimed, and although Mr Malesev identifies how the amount for "fees and charges" is calculated and exhibits copies of invoices and payment records, he does not given evidence to assist with a consideration of how the amounts are payments to which clause 5.3 relates.
6. The homeowners amended defence does not admit the fact of the payments and denies Champion Homes entitlement to the amounts claimed.
7. At the hearing the homeowners, accepted that the expenses had been incurred by the builder, and further submitted that the expenses had been incurred because of the alleged false and misleading misrepresentations.
8. Champion Homes has the onus of establishing that the claimed "fees and charges" incurred by Champion Homes and identified at paragraph [15] of its Points of Claim and [46] of Mr Malesev's affidavit are amounts that the homeowners are indebted to Champion Homes for in addition to the agreed damages.
9. Mindful that Champion Homes cannot claim for the value of work performed or the costs in performing that work, and in the absence of evidence identifying how each of the claimed fees and expenses fall within clause 5.3 of the Contract, the only amount which I am satisfied that Champion Homes is entitled to, is the amount of $2,171.00 for development fees paid to Camden Council which are the subject of the Development Fee Estimate and receipt from Camden Council at pages 24 and 25 of exhibit SM-2.
10. Champion Homes accepts in their calculations that the Deposit of $15,000.00 ought to be deducted from the agreed damages.

ORDERS

1. The amount that the homeowners are to pay Champion Homes is $61,595.60, being $74,424.60 plus $2,171.00 less $15,000.00.
2. Having deducted the Deposit from the amount to be awarded to Champion Homes and found that I am not satisfied that the alleged representations were made, it follows that the homeowners application ought to be dismissed.
3. The Tribunals orders will be:

In respect of matter HB 22/26300: 1. The respondents are pay the applicants the sum of $61,595.60.

In respect of matter HB 23/12205 1. That the application be dismissed.

In respect of costs 1. If any party wishes to seek an order other than each party is to pay its own costs, it is to file and serve submissions and any evidence in support of its application for costs within 21 days of the date of these orders; 2. Any submissions or evidence in response are to be filed and served within a further 7 days. 3. Any submissions in respect of costs are to state whether the party consents to the question of costs being determined on the papers, and if not why.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 September 2023