Chen & Anor v Kevin McNamara & Son Pty Ltd & Anor [2009] VSC 294

1 The plaintiffs (collectively 'the owners') own a residential property in Toorak with frontage to the Yarra River. They engaged the first defendant, Kevin McNamara & Son Pty Ltd ( 'the builder'), to perform certain works on the property. The works involved the construction of a tennis court on the property, the construction of a large concrete water tank underneath the tennis court and landscaping works.

2 Disputes have arisen between the owners and the builder in relation to these works. Following service of a notice of dispute, the second defendant was nominated, at the request of the builder, to act as arbitrator to resolve the dispute ('the arbitrator').

3 Immediately following notification that the arbitrator had been nominated, the solicitor for the owners wrote to him and asserted that his appointment was void under s 14 of Domestic Building Contracts Act 1995 ('the Act').

4 The arbitrator called a preliminary conference to determine the issue of jurisdiction. Following submissions made by the parties, he determined that he did have jurisdiction and proceeded to make directions for the progress of the arbitration. After a short delay, proceedings were issued in this Court.

5 The arbitrator has informed the Court and the parties that he does not intend to take an active part in the proceeding.

6 The owners' principal contention is that the arbitrator has no jurisdiction to determine the disputes between them and the builder in relation to the water tank and associated site works. In summary, the owners make the following contentions.

7 First, the owners contend that there were three separate contracts entered into at different times, as follows:

(1) a contract in writing for the construction of the tennis court and associated works ('the tennis court contract'). The owners concede that this contract contains an agreement to refer any disputes to arbitration;

(2) a contract for the construction of the water tank ('the water tank contract'). They concede that this contract also includes an agreement to refer any disputes under it to arbitration;

(3) an oral contract for further landscaping works ('the landscaping contract'). They contend that this contract contains no agreement to refer disputes to arbitration.

8 Second, the owners contend that the water tank contract is a 'domestic building contract' within the meaning of the Act.

9 Third, the owners contend that the arbitration clause contained in the water tank contract requires disputes under that contract to be referred to arbitration and is therefore rendered void by s 14 of the Act. Accordingly, they contend the arbitrator has no jurisdiction in relation to the dispute between the parties under the water tank contract.

10 Fourth, the owners contend that, in these circumstances, the Court should exercise its discretion to stay the whole of the arbitration, so as to enable all of the disputes between the parties to be determined together in either the Victorian Civil and Administrative Tribunal or, if both parties agree, in a court of competent jurisdiction.[1]

11 In summary, the builder makes the following contentions in response:

(1) It did not agree to carry out any 'domestic building work' within the meaning of the Act. Accordingly, none of the contractual arrangements between the parties constituted a domestic building contract and the Act has no application.

(2) If the Act has application, the arbitration clause is in a form which permits, but does not require, disputes between the parties to be referred to arbitration. Accordingly, it is contended that s 14 of the Act has no application and the arbitration clause is valid and enforceable.

(3) The decision of the arbitrator to accept the reference and to exercise jurisdiction was an 'interim award' within the meaning of the Commercial Arbitration Act 1984 (Vic). Accordingly, it is contended that the only method of challenging the arbitrator's decision to accept jurisdiction is by first obtaining leave to appeal under s 38(4)(b) of that Act. As no such leave has been sought, it is contended that this proceeding is incompetent. Alternatively, it is contended that no leave should be granted in any event because the conditions contained in s 38(5) of the Commercial Arbitration Act have not been established in this case.

(4) Further and in any event, the builder contends that the owners either waived their right to challenge the arbitrator's decision to accept jurisdiction or are estopped from doing so.

12 In June 2008, the builder provided a written quotation to the owners for the construction of a synthetic grass tennis court and associated works. The associated works included some landscaping works. The quotation was accepted by Mr Chen on 11 June 2008 when he signed a copy of it.

13 The attached terms and conditions contain the following arbitration clause:

This Agreement shall be deemed an Arbitration Agreement within the meaning of the Commercial Arbitration Act 1984 ('the Act'). Either party may refer any dispute to arbitration pursuant to the Act seven days after notice of such dispute is served on the other party. The arbitrator shall be a nominee of the Victorian Chapter Chairman of the Institute of Arbitrators Australia whose decision and award in respect of the dispute and any costs shall be binding on the parties. Neither party shall maintain an action upon the dispute until after the dispute has been resolved by arbitration and then only for enforcement of the decision and award of the arbitrator.

14 The builder commenced works preparatory to constructing the tennis court in early August 2008. At about this time, the builder also commenced some extra landscaping work on behalf of the owners. The extra work was not specified in the tennis court contract. It was performed following discussions between the parties in July and August, the provision of some quotations by the builder and the acceptance of those quotations. None of those quotations contained an arbitration clause. The extra landscaping works were invoiced by the builder to the owners as 'variations' for work performed in August and September 2008 and 'extra cost items' for work performed in October 2008.

15 On 19 August 2008, the builder provided a written quotation to the owners for the construction of the water tank. The water tank was described in the quotation as a 100,000 litre 'under court water tank' with dimensions of 10 metres long, 6 metres wide and 1.8 metres deep. The quotation included the same standard terms and conditions as are contained in the tennis court contract, including the arbitration clause. About a week after provision of this quotation, Mr Chen telephoned the builder and accepted the quotation. Although the quotation has not been signed by or on behalf of the owners, it is accepted that the arbitration clause contained in the standard terms and conditions forms part of the water tank contract.

16 It was submitted on behalf of the builder that there was only one contract. It was submitted that the tennis court contract was varied by the subsequent inclusion of the extra landscaping works and, later, the water tank contract. Having regard to my conclusion below that the construction of the water tank did not constitute domestic building work, and that the Act therefore has no application to the water tank contract, it is unnecessary to decide whether the water tank contract was a separate contract or proceeded as a variation to the tennis court contract. This is because the parties agree that the arbitration clause applies to any dispute arising under the water tank contract. However, the issue remains as to whether the arbitration clause contained in the tennis court contract applies to disputes relating to the extra landscaping works.

17 Taking the evidence as a whole, I find that the extra landscaping works proceeded as a variation to the tennis court contract and were thus subject to the arbitration clause contained in that contract. The builder's agreements to proceed with the extra landscaping works were of varying degrees of informality. None of these agreements was attended by any reference to the terms and conditions governing it, other than the nature of the works and the price. In circumstances where the parties had already agreed that there would be certain landscaping works undertaken as part of the tennis court contract, upon the terms and conditions of that contract, it is objectively likely that the parties intended that the same terms and conditions would apply to the extra landscaping works to be undertaken at the same time as, or in substitution for, the landscaping works specified in the tennis court contract. I do not think that it is reasonable to attribute to the parties an intention that the standard terms and conditions, including the arbitration clause contained in the tennis court contract, would apply to the landscaping works specified in the tennis court contract only, and not to the extra landscaping works. The conduct of the parties supports this conclusion. As noted above, the extra landscaping works were invoiced as either 'variations' or 'extra cost' items. No objections were raised by the owners to this course being adopted. Further, the parties agreed that the blockwork retaining walls specified in the tennis court contract would not be constructed, and would be replaced by a rock wall or a rockery. This also indicates that the landscaping works specified in the tennis court contract were the subject of variation as the works progressed.

Did the water tank contract require the builder to carry out domestic building work?

18 As appears above, the owners contend that the arbitrator has no jurisdiction to determine the disputes arising under the water tank contract because the water tank contract is a 'domestic building contract' within the meaning of the Act.

19 Section 3(1) of the Act defines a domestic building contract. Relevantly, it provides that a contract to carry out 'domestic building work' is a domestic building contract.

20 Section 3(1) also defines 'domestic building work'. Relevantly, domestic building work means any work referred to in s 5 of the Act.

21 It is common ground that the only work referred to in s 5 which is capable of applying to the construction of the water tank is that specified in sub-paragraphs 5(1)(e) and (f) of the Act. Those paragraphs provide:

5. Building work to which this Act applies.

(1) This Act applies to the following work -

...

(e) any work associated with the construction or erection of a building -

(i) on land that is zoned for residential purposes under a planning scheme under the Planning and Environment Act 1987; and

(ii) in respect of which a building permit is required under the Building Act 1993;

(f) any site work (including work required to gain access, or to remove impediments to access, to a site) related to work referred to in paragraphs (a) to (e);

22 It is also common ground that the requirements of sub-paragraph 5(1)(e)(i) were satisfied in relation to the construction of the water tank. This involves agreement that the water tank is a 'building' within the meaning of the Act and that the owners' land is zoned for residential purposes.

23 Accordingly, the only issue for determination is whether or not the construction of the water tank required a building permit under the Building Act 1993 ('the Building Act').

24 Section 16 of the Building Act provides that a person must not carry out building work unless a building permit has been issued in respect of that work, or unless the building work is exempted under that Act or the regulations made thereunder. It is common ground that the only relevant exemption is that contained in regulation 1802 and item 5 of schedule 8 of the Building Regulations 2006 ('the Building Regulations').

25 Regulation 1802 provides that the buildings and building work specified in column 2 of the table in Schedule 8 are exempt from the regulations specified in column 3 of the table. Relevantly, item 5 of Schedule 8 provides that any building that is not of a class listed in clause 1.3.2 of Volume Two of the Building Code of Australia 2008 ('the Building Code') is exempt from the permit requirements.

26 Finally, it was agreed that the only possible classification of the water tank under clause 1.3.2 of the Building Code was class 10b.

27 Relevantly, clause 1.3 of the Building Code provides:

1.3.1 Principles of classification

The classification of a building or part of a building is determined by the purpose for which it is designed, constructed or adapted to be used.

1.3.2 Classification

Class 1 and 10 buildings are classified as follows:

...

Class 10 - a non-habitable building or structure being -

(a) Class 10a - a non-habitable building being a private garage, carport, shed, or the like; or

(b) Class 10b - a structure being a fence, mast, antenna, retaining or free-standing wall, swimming pool, or the like.

28 The structures specified in class 10b do not constitute a class of similar structures. For example, a mast or antenna bears no similarity to a swimming pool. Accordingly, each specified structure 'or the like' is a class 10b structure. The submissions of the parties proceeded on this basis.

29 It was submitted on behalf of the owners that the water tank is a class 10b structure for two reasons. First, because it consists, in whole or in part, of a series of retaining walls, or is at least a structure which is 'like' a retaining wall. Second, because it is a structure which is 'like' a swimming pool.

30 Both the owners and the builder rely upon expert evidence as to whether or not the water tank is a class 10b structure. The owners' expert was Rodney Johnston. There was some criticism by counsel for the builder of his qualifications. It was submitted that his qualifications were less pertinent to the task than were those of the expert called on behalf of the builder. I do not accept those criticisms. Mr Johnston represents the Association of Consulting Engineers Australia on the Building Codes Committee, which is the peak technical advisory committee to the Australian Building Codes Board. In turn, that Board prepares the Building Code and Mr Johnston has expert knowledge of that Code and its requirements. The builder's expert was Andrew Matiszak. Mr Matiszak is registered as a building surveyor, building inspector, building draftsperson, private certifier and is a member of the Building Practitioners Board in Victoria. There were no criticisms of his relevant expertise.

31 Mr Johnston prepared an expert report in which he concluded that the water tank was a class 10b structure. Mr Matiszak prepared a report to the opposite effect. After reading that report, Mr Johnston provided a second report reinforcing his initial opinion.

32 The experts were directed to confer and prepare a joint report. That joint report was helpful, in that it revealed a significant amount of agreement which has served to narrow the issues in dispute. The experts agreed in their joint report that the only relevant classification under the Building Code was class 10b. They also agreed that the water tank 'consists, in part, of a series of retaining walls.'[2] However, the experts remained divided on the central question for determination.

33 The experts were called to give their evidence concurrently and no party objected to this. Before they were called to give evidence, I drew to the attention of the parties that the evidence which was sought to be given went largely towards the ultimate issue of statutory interpretation which the Court must determine and that, although the expert evidence might assist the Court in its task, acceptance of one view or the other could not be determinative as the question remained one for the Court.

34 In summary, the difference between the experts was as follows.

35 Mr Johnston expressed the opinion that all components of the water tank, including that part of the tennis court concrete slab which acts as a roof or lid on the water tank, comprise a retaining wall system which both holds back soil from entering the tank and holds water inside the tank. In his view, this means that the water tank is a retaining wall or the like. Further, because the purpose of the tank was to contain water, it was also like a swimming pool.

36 Mr Matiszak expressed the opinion that, although parts of the water tank act as retaining walls, it is necessary to consider the tank as a whole structure and then determine whether that structure falls within class 10b. In his view, the water tank is not a retaining wall or the like or a swimming pool or the like, because its purpose is to collect rainwater and store it in an 'enclosed vessel' for future use. In his opinion, this purpose distinguishes the water tank from a retaining wall, which is designed to hold back soil or water from moving to the other side of the wall. This purpose of the water tank is also inconsistent with the obvious purpose of a swimming pool.

37 As can be seen from the above summary, the experts were endeavouring to express their opinions upon the ultimate issue for decision. Notwithstanding this, their evidence, which was conducted concurrently in the form of a discussion in which the Court, counsel and the experts all participated, was helpful in raising relevant issues which bear upon the Court's interpretation task. Further, their agreement that the component parts of the water tank include a series of retaining walls was relevant and admissible, this being a matter within their expertise.

38 Mr Matiszak also relied upon two practice notes and advice issued by the Building Commission established under the Building Act. He relied upon them to inform his interpretation of the definition of class 10b structure contained in the Building Code. However, those practice notes and advices have no statutory force or effect. They form part of the information providing function of the Building Commission under s 196 of the Building Act. They have formed no part in my decision making process.

39 It was submitted on behalf of the owners that the joint opinion of the experts that the water tank 'consists, in part, of a series of retaining walls' necessarily means that the water tank is a class 10b structure. I do not accept this submission. The words used are 'a structure being'[3] a specified structure or the like. Accordingly, to be classified as a class 10b structure, the structure must be a specified structure or the like. A class 10b structure is not any structure which includes, as a component part, a specified structure or the like.

40 The natural meaning of the words used requires consideration of the structure as a completed whole. This interpretation is supported by clause 1.3.1 of the Building Code, which requires focus on the purpose of the structure in determining whether it is within any particular class.

41 In this case, the water tank was obviously designed and constructed for the collection and storage of rain water for subsequent use in garden watering. It was not designed or constructed to hold back soil or water, which is the purpose of a retaining wall. Nor was it designed or constructed for the purpose of being used as a swimming pool.

42 It was submitted on behalf of the owners that such a result would be inconsistent with protecting the safety and health of people who use buildings, which is one of the objects specified in s 4 of the Building Act. In this regard, reliance was placed upon the fact that the water tank is a highly engineered structure of considerable size. I do not accept that this public safety object of the Building Act alters the ordinary meaning of the words used in the Building Code to define a class 10b structure. Further, the owners did not identify any relevant risk to the safety and health of users of an underground water tank such as that in issue.

43 For the above reasons, I conclude that the building work associated with the construction of the water tank did not require a building permit under the Building Act. Accordingly, the water tank contract was not a domestic building contract and the Act has no application. In these circumstances, it is unnecessary to consider the remaining questions raised for determination.

44 The proceeding will be dismissed. As all of the works which the builder agreed to perform on behalf of the owners are subject to the arbitration clause, the arbitration should proceed on all issues. I will hear the parties as to costs.

[1] Section 57 of the Act.