Chapman v. Taylor & Ors; Vero Insurance Ltd. v. Taylor & Ors. [2004] NSWCA 456

Chapman v. Taylor & Ors; Vero Insurance Ltd. v. Taylor & Ors. [2004] NSWCA 456 - NSWCA 2004 case summary — Zoe

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CIRCUMSTANCES 4 The proceedings in the CTTT were instituted by a claim by Mr. and Mrs. Taylor for damages from Mr. Chapman for breaches of a building contract, and for indemnity from Vero under an insurance policy issued pursuant to the Home Building Act 1989 (HBA). 5 The Senior Member's decision, the subject of the appeal to the Supreme Court, was of a question which the parties agreed should be determined at a preliminary hearing, namely, whether the building contract between Mr. and Mrs. Taylor and Mr. Chapman was frustrated. The effect of a finding that it was frustrated would be to leave Mr. and Mrs. Taylor with remedies against Mr. Chapman only for breaches shown to have occurred up to the date of frustration, which would severely limit the amount of their recovery. The parties had also posed a further question for this preliminary hearing, namely whether, if the building contract was frustrated, was this covered by the contract of insurance between Mr. and Mrs. Taylor and Vero; but no answer was given to this question, as it was unnecessary given the Senior Member's answer to the first question. 6 The parties agreed on the following facts for the preliminary hearing: 1. [Mr. and Mrs. Taylor] and [Mr. Chapman] entered into a contract on 29 August 1999 ("the Building Contract") for residential building work ("the Work") to be carried out at Lot 13 Dabbage Place, Kurrajong Heights, in the State of New South Wales ("the Property"). 2. [Vero] issued a Certificate of Insurance, pursuant to section 92 of the Home Building Act 1989, in relation to the Work. 3. On 15 April 2000 [Mr. Chapman] was injured on a building site that was not the Property, receiving injuries that included an injury to the brain. 4. [Mr. Chapman] was admitted to Westmead Hospital on 15 April 2000, and remained in a coma as a result of his injuries for a period of approximately five (5) weeks. 5. [Mr. Chapman] was unable to undertake or supervise the Work until at least about September 2000. 6. [Mr. Chapman] was not, at any material time for the purposes of this preliminary question from 15 April 2000, able to personally or physically undertake the Work as a result of his injuries. 7 The parties had filed statements of evidence in the CTTT, some of which annexed documents; and although there was no procedure whereby any of this material was received into evidence, the material was referred to in submissions by the parties, without any objection, and was adverted to in the Senior Member's decision. 8 In his decision, the Senior Member referred to submissions of the parties, and to cases referred to, including Davis Contractors Ltd. v. Fareham Urban District Council [1956] AC 696, Codelfa Construction Pty. Limited v. State Rail Authority (1982) 149 CLR 337, and Simmons Limited v. Hay [1964-5] NSWR 416. He rejected a contention for Mr. and Mrs. Taylor that Mr. Chapman could not rely on an injury caused by his own negligence or that of a third party to escape liability. He addressed the questions of whether the contract was with Mr. Chapman's company rather than Mr. Chapman personally, whether the contract was to be performed by Mr. Chapman personally, and whether the injury to Mr. Chapman frustrated the contract, in the following paragraphs: 17. I have also found the decision of Sir Bernard Sugarman in the Simmons Limited v Hay case of considerable assistance. This is a contract which on the face of it did not call for the personal intervention of Mr Chapman. However, when I look at the letters written by the solicitor for the Applicants to Mrs Chapman after the accident, I feel comfortable in concluding that the Applicants were most concerned that this contract was to be performed by Mr Chapman, and is not by a third party.

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CONTRACTUAL TERMS 15 The building contract between Mr. and Mrs. Taylor and Mr. Chapman was signed on 29 August 1999. It identified the contractor as David Chapman, and gave the number of his licence under the HBA and also the expiry date of that licence (4 May 2000). The contract provided for commencement of work within 15 days after satisfaction of certain conditions as to finance or the signing of the contract, whichever was the later; although it is common ground that work could not in fact commence until there was Council approval of the relevant plans, and this was not notified to Mr. Chapman until 24 December 1999. 16 Delays and extensions of time were dealt with in cl.6 of the contract, which was in the following terms: If the Building Work is delayed by reason of: (a) any alteration to the attached Plans & Specifications; (b) an act of God, fire, explosion, earthquake or civil commotion; (c) adverse weather affecting directly or indirectly the Contractor, sub-contractors of the Contractor or suppliers of materials for the Building Works; (d) any industrial dispute or disputation affecting the progress of the Building Works; (e) disputes with adjoining or neighbouring residents or owners; (f) any instruction of the Owner or the failure of the Owner to give any instruction(s); (g) any order of a court or tribunal that the Building Works be stopped or suspended by reason other than by the fault of the Contractor; (h) the unavailability of any Prime Cost item or material specified for the Building Works which is not the fault of the Contractor; (i) the period known as "Industry Shutdown" during the five (5) week period commencing on or about 22 December in each year; (j) a variation of the Building Work; (k) a suspension of the Building Work by either party; or (I) any other reason over which the Contractor has no control. THEN the Contractor is entitled to a fair and reasonable extension of time PROVIDED that the Owner is notified in writing (such notification is not required where the delay is in relation to "Industry Shutdown") within ten working (10) days of the event.

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SUBMISSIONS 20 Dr. Azzi for Mr. Chapman submitted that the question whether this contract had been frustrated was a question of mixed law and fact, and therefore could not be the subject of appeal under s.67 of the CTTT Act, which was confined to a pure question of law. He submitted that the question depended on a judgment as to whether the frustrating event was such as would render performance "radically different" from that contracted for, and that question had a large factual content. 21 In any event, he submitted, the Senior Member was not wrong in finding to the effect that, in the context of a contract to be completed in 20 weeks, requiring personal performance or at least supervision by Mr. Chapman, by the beginning of May, when Mr. Chapman had been in a coma for over two weeks with no indication as to if or when he would recover, the delay then reasonably anticipated was such that performance would be radically different. 22 Mr. Jacobs QC for Vero supported those submissions, referring particularly to Codelfa 149 CLR at 376-383. 23 Mr. Donaldson for Mr. and Mrs. Taylor submitted that, generally speaking, a party that promises to do something assumes the risk that he or she may be unable to do so. He referred to Scanlan's New Neon Limited v. Tooheys Limited (1943) 67 CLR 169 at 200, per Latham CJ, where the following appears: Some of the cases appear to me to fail to recognize the fact that, when it is said that one party cannot be supposed to take a certain risk, it is assumed in an arbitrary manner that the other party is prepared to take the risk so far as loss may fall upon him. I can see no reason why such an assumption should be made. I suggest, with respect, that it is much safer, when parties have chosen to contract in absolute terms, to hold them to the terms of their contract. If they desire the contract to be conditional, they can readily so provide in express terms. 24 Mr. Donaldson submitted that the Senior Member erred in law in moving away from his view that the contract on the face of it did not require personal intervention by Mr. Chapman, particularly in taking into account post-contract correspondence and evidentiary material outside the agreed facts. 25 In any event, he submitted, in accordance with Brisbane City Council v. Group Projects Pty. Limited (1979) 145 CLR 143 at 159-161, and Codelfa 149 CLR at 356-8, the preferable test as to frustration is the question whether the contract, on its true construction, is "wide enough to apply to the new situation"; and that is a question of law. 26 Mr. Donaldson submitted that there was an error of law by the Senior Member in his statement of the test in par.[19] of the judgment, and in the result he arrived at, especially in so far as this depended on going outside the agreed facts. Furthermore, he submitted, the contract was plainly wide enough to apply to the new situation, and indeed made provision for it in cl.6(l). He submitted that there was no error by the Master in par.[30] of her judgment: she was merely saying that temporary injury was not necessarily sufficient for frustration. 27 In reply, Mr. Jacobs submitted that looseness of language or unhappy phrasing by the Master in statement of the test was insufficient to amount to an error of law: Lennell v. Repatriation Commission (1982) 4 ALN N54; Freeman v. Defence Force Retirement & Death Benefits Authority (1985) 5 AAR 156 at 183; Politis v. Federal Commissioner of Taxation (1988) 16 ALD 707 at 708.

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DECISION 28 In my opinion, Mr. and Mrs. Taylor cannot complain that the Senior Member took into account matters outside the six agreed facts. Where there is to be a decision of a separate or preliminary question, it is in my opinion highly desirable that the basis on which this is to be decided is clearly set out; and it is unsatisfactory that a tribunal deciding such a question should rely on facts outside agreed facts without any ruling as to what facts are to be considered and as to how any conflicts in evidence are to be resolved. However, in the present case, all parties participated and acquiesced in the procedure taken. 29 I accept Mr. Donaldson's submission that the reasoning process of the Senior Member, from a prima facie view that personal participation was not required to a view that it was, was not entirely satisfactory, inter alia in that he relied on post-contract documents without explaining how he did so. However, in my opinion the conclusion, that Mr. Chapman's personal participation was required, was clearly correct. Work under the contract could only be done by or under the supervision of the licensee Mr. Chapman, or an employee of his who held a supervision certificate: see HBA ss.12, 13, 16. The evidence made it clear that there was no employee with a supervision certificate. Under cl.15 of the contract, the contract could not be assigned by Mr. Chapman without Mr. and Mrs. Taylor's consent; and cl.15 only permitted Mr. Chapman to engage sub-contractors and others to do part of the work. The requirement of personal involvement by Mr. Chapman is confirmed by pre-contract circumstances, including the inspection by Mrs. Taylor by arrangement with Mr. Chapman of his other work. The post-contract correspondence, referred to by the Senior Member, contains admissions on behalf of Mr. and Mrs. Taylor confirmatory of these matters. 30 In my opinion, the Master erred in her statement of reasons in par.[30] of her judgment. It is not correct to say that a temporary injury is not sufficient to frustrate a contract of employment: it may or may not be, depending on whether it would make performance of the contract radically different from that promised. Even if one corrected the statement of principle by reading it as asserting that a temporary incapacity is not necessarily sufficient for frustration, this would highlight that there was a lack of reasons as to why the temporary incapacity in this case was not sufficient; and it would also confirm that in substance the Master was addressing a mixed question of fact and law. 31 The authoritative decision of Codelfa substantially adopts two alternative statements of the relevant test. First, there is that of Lord Radcliffe in Davis to the effect that there is frustration where the circumstances in which performance is called for would render performance radically different from that promised. Second, there is the statement of Lord Reid in the same case to the effect that the question is whether the contract is wide enough to apply to the new situation. In Codelfa, these were treated as being to similar effect. 32 Mr. Donaldson argued that the statement of Lord Reid is preferable, and that the question of construction is a pure question of law. In my opinion, at least in circumstances such as the present, the question whether the circumstances would render performance "radically different" from that promised does involve a substantial factual element; and in my opinion, the question posed by Lord Reid also does so, because in deciding whether a contract is "wide enough", one must take into account the relevant surrounding circumstances and their impact on this question. It could be argued that, if one had a precise and exhaustive statement of all the surrounding circumstances and all the factual inferences that were to be drawn (including inferences as to reasonable expectations), then one would be left with a pure question of law; and indeed, it would be argued that this would also remove the factual element from the question whether performance would be "radically different". One did not have such a statement in this case; and in my opinion it is unrealistic to expect that there could in cases such as the present be a precise and exhaustive statement of all surrounding circumstances and factual inferences, as an exercise distinct from that of reaching a conclusion, of mixed fact and law, in terms of either test. 33 Accordingly, in my opinion, to establish an error of law by the Senior Member, it was necessary to show that he applied a wrong principle of law. That could be shown either from what he said, or because the ultimate result, associated with the facts that he expressly or impliedly found, indicates that he must have applied the wrong principle of law. 34 In par.[20] of his decision, the Senior Member did not precisely reproduce either the test stated by Lord Radcliffe or that stated by Lord Reid; but he had referred to the relevant part of Lord Radcliffe's statement in par.[4] in setting out the submissions of Counsel. In my opinion, what was said by the Senior Member did not indicate that he applied the wrong principle, or amount to a deficiency of reasons. In my opinion also, the result was not such as to indicate that he applied a wrong principle. 35 The Senior Member did not refer to cl.6(l), and we were not referred to any submission about that provision made to him. In my opinion, cl.6(l) could apply to the temporary incapacity of a builder; but in my opinion it was clearly open to find that it did not apply so as to deal with the circumstance that the builder was in a coma, and remained in a coma for a period of over two weeks, with no indication over that period as to if or when he would ever regain capacity. In my opinion, the Senior Member determined that frustration occurred automatically at the beginning of May; and he was not shown to have committed any error of law in doing so. 36 For those reasons, in my opinion, Mr. Chapman's appeal should be allowed. There seems no reason why leave to appeal should not be granted to Vero, and Vero's appeal allowed. There may be a question as to Vero's costs.

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STATUTORY WARRANTIES 37 The Court sought submissions on the question whether discharge by frustration of the building contract necessarily absolved the builder from the statutory warranties under s.18B of the HBA. This was not directly raised by the decision of the Senior Member or the Master, or in the grounds of appeal; but the Court raised the question in the interests of avoiding multiplicity of proceedings. 38 It was submitted by Mr. Jacobs that the warranties were, by s.18B, made part of the contract, and so were subject to affectation by events subsequent to the making of the contract in the same way as other terms of the contract. Plainly, he submitted, if an owner committed a fundamental breach of the contract and the builder terminated it, the owner could not claim that the builder was still bound by the statutory warranties. As Mr. Jacobs put it, once the contract had been "killed" by termination or frustration, and the builder thereby relieved from further performance, the owner's remedies must be limited to remedies for breaches occurring up to that time. 39 I accept that this must be so where the contract is terminated for the owner's breach. However, it could still be argued that the statute requires warranties, including a warranty to the effect that the building work will be done within the time stipulated in the contract, and specifications, and thereby puts the risk of non-completion through frustration onto the builder rather than the owner; so that, even if the builder is discharged from further performance by frustration, the owner still has the warranty that the building will be completed within the stipulated time. It could be said that this would fit in with the consumer protection objective of the legislation, and the requirement for insurance against the risk of loss to the owner from non-completion of the works. 40 However, the HBA makes specific provision in s.99(1)(a) for insurance against non-completion due only to the death, disappearance and insolvency of the builder, but omits that provision where non-completion is due to supervening incapacity of the builder. The facts of this case suggest that this is an anomalous omission in the legislation. There is some tension between a proposition that the builder is absolved by frustration from further performance of the contract, yet remains liable under the warranty if the building is not complete. On the whole, I think the Court must recognise an inadequacy in the provisions of the HBA in this respect, rather than hold that the statutory warranties can still in effect require completion by the builder when the contract is put an end to by frustration. 41 I would however flag one further issue, which the Court is not in a position to decide. It seems to me open to Mr. and Mrs. Taylor to argue that, even though the builder is discharged, the insurance policy still covers them in the circumstances that have happened. The insuring clause of the policy provides that the owners will be indemnified against loss through the builder's breach of statutory warranties, which are stated in the policy to include warranties to the effect that the building will be completed. The insurance contract does not say there is no liability in the insurance company if the contract is frustrated through incapacity of the builder. It seems to me arguable that, in those circumstances, the insurance company cannot rely on the frustrating event, because in ordinary usage, the word "breach" could be read as including "non-fulfilment through incapacity of the builder", and thus as extending to the present circumstances. 42 The Court cannot decide this matter: it is some distance from the issues actually raised, and was not fully argued.

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