CORRADINI & ANOR v O'BRIEN LOVRINOV CRAFTER P/L No. SCGRG-99-1662 [2000] SASC 224

Supreme Court of SA|2000-07-06|Before: Doyle CJ, Nyland JJ

Judgment No. [2000] SASC 224

On Appeal from DISTRICT COURT (HIS HONOUR JUDGE LEE)

CORRADINI & ANOR v O'BRIEN LOVRINOV CRAFTER PTY LTD

DOYLE CJ. This appeal arises from a dispute of a not uncommon kind. A firm agreed to design and supervise extensive renovations to an existing house, the client being the owner of the house. At an early stage the cost of the work was estimated at about $200,000. The work finished up costing about $375,000. The total cost is unclear, because the parties are at issue as to amounts paid, including amounts paid by the defendants directly to some suppliers. Be that as it may, the cost of the work has substantially exceeded the original estimate. When the firm sued for the balance that it claimed was owing, the owners defended and counterclaimed mainly on the basis that, part way through the work, there was an agreement that the work would be completed at a cost not exceeding a stated sum, that that sum had been paid, and that no further amount was payable by the owners. The owners also claimed that the contract was unenforceable by the firm for failure to comply with certain statutory requirements applicable to the contract.

It is now necessary to turn to the matter in greater detail.

The plaintiff is a company carrying on business as builder and architect. I will refer to it as "the firm". Most of the relevant dealings on behalf of the plaintiff were conducted by Mr Lovrinov, a qualified architect.

The firm issued proceedings in the District Court against Mr and Mrs Corradini ("the Corradinis"). The claim was for payment for work done by the firm in connection with alterations and additions ("the renovations") carried out on the Corradinis' house. The work was carried out between about March 1994 and early 1995.

The claim was for a balance alleged to be owing to the firm. The balance allowed for payments already made by the Corradinis to the firm. The claim was for the balance of an amount with three components. First, a fixed fee for preparing working drawings of the work, needed to obtain Council approval and, presumably, for the purposes of the renovations themselves. Secondly, a fee for supervising the work, which I gather comprised obtaining quotations, advising on them, advising the Corradinis generally on the work, and supervising the work. It is convenient to refer to this aspect of the work as "project management". I do so simply for convenience, and not using that expression in any technical sense. This fee was calculated at 10 per cent of the value of the work, although that statement requires some modification as will appear later. The third component of the balance was the amount of payments made by the firm to subcontractors and suppliers who worked on the renovations and supplied materials for the renovations.

The amount claimed was $102,993. I ignore questions of interest.

The firm sued on a contract of engagement contained in a letter of 16 March 1994 written by the firm to the Corradinis. That letter specified a fixed lump sum fee for the preparation of working drawings, and a further fee for project management, the fee being 10 per cent of the value of the project. The letter contemplated that the Corradinis would pay contractors and suppliers directly. The letter concluded "Please sign below if you agree with the above." The letter was signed by the Corradinis. The firm alleged that later the contract was varied orally, by an arrangement between Mr Lovrinov and Mr Corradini, to provide that the firm would pay contractors and suppliers, and that the Corradinis would reimburse the firm. There was no dispute that this variation occurred. The firm alleged that in November 1994 the contract was further varied by an agreed reduction in the fee to be paid for supervision. Again, it does not seem to be disputed that this occurred.

The claim was met by a Defence by the Corradinis. In essence the Corradinis pleaded that in March 1994 the only contract entered into was for architectural services. The Defence does not in terms identify the services or the fee to be paid, but as both parties relied upon the same letter, it seems tolerably clear that the Corradinis' defence was that the letter of 16 March 1994 gave rise to a contract only for the preparation of working drawings and specifications.

The Corradinis denied making any agreement or contract in March 1994 for project management by the firm.

The Corradinis further pleaded that between February 1994 and September 1994, by correspondence and discussion or negotiation, Mr Lovrinov and Mr Corradini worked towards establishing a final contract price for the renovations and a contract to carry out the work for that final price, to be expressed as a lump sum. In other words, the Corradinis apparently deny that the letter of 16 March 1994 gave rise to a contract to pay a fee for project management based on 10 per cent of the value of the project. In their defence the Corradinis go on to claim that on 5 and 6 September 1994 agreement was reached between Mr Lovrinov and Mr Corradini for the carrying out of the renovations for a lump sum of $199,059, which sum included an "administrative fee" of 10 per cent payable to the firm. It is relevant to record that the work was well in progress by this time, having begun some months earlier. The project management had begun back in March or April. The Corradinis pleaded some minor adjustments to the contract sum, resulting in a final lump sum payable for the work of $204,059.

The Corradinis went on to plead that they had paid a total of $274,737.15. Their defence was, therefore, that they had paid the full amount to which the firm was entitled for the renovations. They went on to counterclaim the amount of the overpayment, being the amount in excess of the agreed lump sum.

There was also a Counterclaim by the Corradinis for defective work, but that is not an issue in this appeal.

The Corradinis also pleaded that s 23 of the Builders Licensing Act 1986 (SA) operated to deny the firm an entitlement to recover anything under the alleged contract. It is convenient to set s 23 out now. It provides as follows:

"23. (1) The following requirements must be complied with in relation to a domestic building work contract: (a) the contract must be in writing; (b) the contract must set out in full all the contractual terms; (c) The contract must set out the name in which the builder carries on business under the builder's licence, the builder's licence number and the names and licence numbers of any other persons with whom the builder carries on business as a builder in partnership; (d) the contract must comply with any requirements of the regulations as to the contents of domestic building work contracts; (e) the contract must be signed by the builder and the building owner personally or through an agent authorised to act on behalf of the builder or building owner; (f) the building owner must be given a copy of the signed contract as soon as reasonably practicable after it has been signed by both parties together with a notice in the prescribed form containing the prescribed information; and (g) the copy of the contract and the notice given to the building owner must (apart from signatures or initials) be readily legible. (2) If any of the requirements of subsection (1) is not complied with, the builder shall be guilty of an offence. Penalty: $2,000".

There was no dispute that the contract did not comply with the requirements of s 23. I proceed on that assumption. The Corradinis pleaded that the result of non compliance with s 23(1) was that the contract was unlawful and unenforceable by the firm.

In its Reply the firm met this last plea by advancing a claim on a quantum meruit or based upon unjust enrichment.

The Judge embarked on a trial, limited by an earlier order, to four questions. The questions are:

3. Is the plaintiff's claim precluded by the provisions of s 23 of the Builders Licensing Act 1986?

4. If yes, is the plaintiff entitled to recover on the basis of quantum meruit and/or unjust enrichment?

The Judge received voluminous exhibits, and heard a lot of oral evidence. The hearing occupied eight days.

2. The terms of the contract were as set forth in the letter of 16 March 1994 (exh P1-19). The contract was varied in about early June 1994 by the oral agreement of the parties that the plaintiff rather than the defendants would make payments to contractors and suppliers.

3. The plaintiff's claim is not precluded by the provisions of s 23 of the Builders Licensing Act 1986.

The answers to questions 1, 3 and 4 require no explanation. The answer to question 2 reflects an acceptance by the Judge of the substance of the firm's case as pleaded, and the rejection of the Corradinis' claim that in September 1994 the parties entered into a contract for the completion of the renovations for an agreed lump sum.

It is convenient to summarise the Judge's reasons here. The Judge found that the letter of 16 March 1994 from the firm to the Corradinis was a firm proposal to carry out design work for a fixed fee and to supervise the renovations (what I have called project management) for a percentage of the value of the project. He found that that proposal was accepted by the Corradinis when they signed the letter addressed to them. Thus, he found that the contract entered into that day related to design work and to supervision, and not just to design work as the Corradinis pleaded.

He found that in early June 1994 the parties agreed that the firm would make payment to contractors and suppliers rather than the Corradinis.

He found that later discussions and correspondence, mainly between Mr Lovrinov and Mr Corradini about the overall cost of the work, did not amount to "any collateral contract or variation of the contract or substitution of a fresh contract". There was certainly a lot of talk between Mr Lovrinov and Mr Corradini about the likely cost of the renovations. There were also dealings with Mr Corradini's bank, which was providing finance to Mr Corradini, about the cost of the renovations. The Judge treated these discussions as no more than discussions and arrangements about the overall cost, and not as giving rise to a contract, either by variation of the contract of March, or by a new contract, with a requirement for the work to be completed for a specified amount.

The Judge found that the contract did not comply with the requirements of s 23. He held that while the firm was exposed to a monetary penalty, and disciplinary action under the legislation, its ability to enforce the contract was unaffected.

The Judge's decision leaves for further hearing and determination the amount of the firm's claim, and the counterclaim alleging defective work.

The submissions for the Corradinis on appeal appear to be, in substance, a reargument of the case at trial. Accordingly, it is necessary to summarise the facts as they were before the District Court Judge.

In January 1994 Mr Corradini approached Mr Lovrinov with plans of the renovations that had been prepared by another architect. He asked Mr Lovrinov about the proposal, presumably as disclosed by the plans, and for his estimate of the cost of the job. Mr Lovrinov made some estimates, working from the plans, and including some changes that he was proposing to suggest. Mr Corradini also asked Mr Lovrinov to indicate what the firm's fee would be for their services if retained for the renovations.

By letter dated 9 February 1994 Mr Lovrinov proposed a fee for the preparation of drawings, and a fee totalling 15 per cent of the value of the work for supervision and administration. There was subsequently some negotiation about the fees, Mr Corradini arguing that they were too high, and in the end Mr Lovrinov agreed to a reduction. My impression from Mr Lovrinov's evidence is that not long after that letter was written, there was an oral agreement on fees, and the firm then began more detailed work on the project. During February Mr Lovrinov made a preliminary estimate of the cost of the work, in an amount of $191,800. This was before subcontractors had been asked to quote for the work. (T87)

Work on the drawings was already well underway when the letter of 16 March 1994 was written. This letter appears to reflect discussions that had already taken place between Mr Lovrinov and Mr Corradini. (T88) Mr Corradini had already been given a copy of the preliminary estimate of $191,800. (T90)

Mr Lovrinov then wrote the letter of 16 March 1994. After the formal parts, the letter reads as follows:

"Further to our previous meeting, we confirm the fee offer for the architectural service to be as follows:- 1. For preparation of working drawings for council approval, fixed fee $6000.00 Less the estimated work done by M. Roberts & Associates $ 500.00 Balance $5500.00 Terms of payment to be in two stages:- (a) at the submission to council $3500.00 (b) at granting of approval by council $2000.00 2. For supervision of the project, organising trade packages and tendering, our fee will be 10% of the value of the project. Fee to be paid progressively, as each stage of the works is completed. We have measured the house and incorporated your brief in the latest drawings. Engineering calculations from Koukourou & Partners do not really cover the requirements of the latest plan, so we have requested three engineering firms to submit the fee proposal for the project, excluding soil test which has already been done. As far as the schedule of the work is concerned, we are ready to start anytime, but the following is required:- 1. Australian Taxation - to issue 'householder No' for prescribed payments, as you will make payment to subcontractors and suppliers. 2. Construction Insurance - to cover the house and workers, which would also include identity at minimum of $5 million. 3. Building Approval - for the whole of the works. Please sign below if you agree with the above. Yours faithfully"

There was a meeting between Mr Lovrinov and the Corradinis, and at this meeting the matters in the letter were discussed. At the end of that discussion the letter was signed, and the Corradinis were given a copy. (T93)

After the letter was signed the firm proceeded to obtain quotations, and proceeded with drawings and specifications. Obviously enough, there were discussions with the Corradinis about the quotations and aspects of the work.

On 23 April 1994 Mr Lovrinov wrote to Mr and Mrs Corradini. Enclosed with the letter was a document headed "Estimating - Summary" which appears to contain estimated costs for the various aspects of the renovations. The total of these estimates is $196,631. The covering letter read as follows:

"Please find attached the latest summary of quotes at hand. We had to make number [sic] of assumptions and allowances for items that are not itemised in the specification. This is something we need to do quickly so that the idea of total cost is found. The summary includes only those prices which are either the lowest as a quote, or closest to the actual extent of works required (since some subcontrator [sic] did not quote for everything we asked of them to quote). In the total amount of $196,631 there are numerous PC sums which you need to evaluate ... "

After a reference to items to be supplied by the Corradinis which would reduce the price to $188,531, the letter continued:

"Thus, the price could be reduced further by this amount whichever way we do the costing, we cannot see you getting through this project for much less than the above figures. We await your instructions."

The letter is, obviously enough, inconsistent with there being a firm price for the renovations at that stage, but it is neutral on the question of whether the parties were working towards a fixed price contract. However, for what it is worth, there is no reference to that in the letter. It should also be noted that the firm was already embarking up on the task of project management.

Shortly thereafter Mr Corradini wrote to his bank seeking funding from the bank to pay for the renovations. He referred to a quotation, which he enclosed, for approximately $200,000. That was the "Estimating - Summary" to which I have already referred.

Quotations continued to be obtained, and contact between Mr Lovrinov and Mr Corradini continued. Council approval was obtained. The parties agreed that the firm would pay contractors and suppliers, and be reimbursed by the Corradinis.

By letter dated 14 June 1994, Mr Corradini's bank approved a loan to him of $200,000. One of the conditions was that the work was to be completed by 31 December 1994 and that the completion cost was not to exceed $200,000. The plans that had been submitted to the bank were not to be altered without approval of the bank.

Work on the renovations got underway and continued. Progress claims were made by the firm. The progress claims were accompanied by documents recording invoices received and paid, and balances owing. The progress claims included certificates recording the amount required to complete the renovations. These certificates consistently recorded the amount to complete the project as $199,095.

The progress claims were submitted by the firm to the Corradinis, who presented them to the bank. The Corradinis made the required payments from their own funds, and obtained a reimbursement from the bank.

A progress claim was submitted directly to the bank by the firm, dated 18 August 1994. This was done at Mr Corradini's request. The addition of the amount claimed to the date of that claim, and the balance showing as required to complete the project, was an amount slightly in excess of $222,000. On the same day Mr Lovrinov forwarded to the bank a document headed "Summary of Construction Cost" which showed the total cost of the renovations as "$222,360.60. The bank refused to pay this claim. As the Judge said, presumably it refused because the total cost now exceeded $200,000. After some discussions between Mr Corradini and Mr Lovrinov, a new document headed "Summary of Projected Construction Costs" and dated 5 September 1994 was faxed by Mr Lovrinov to Mr Corradini, and forwarded by him to the bank. This document showed the total projected cost as $199,059. On the same day Mr Lovrinov submitted a further progress claim certificate to the bank, and the amounts on this also indicated a total project cost in the same amount. Thereafter, the bank continued to meet progress claims.

Mr Lovrinov gave some oral evidence about these events. He said that at a meeting with Mr Corradini on 31 August he was given a copy of the letter from the bank to Mr Corradini, the letter being the letter that stated that the completion cost was not to exceed $200,000. Mr Lovrinov said that this was the first he knew of this. He said that he told Mr Corradini that the job would cost more than that, and that he said to Mr Corradini that Mr Corradini knew that. Mr Corradini then produced a "Summary of Construction Cost" in the amount of $222,360.60. Mr Lovrinov says that in the discussion that day he said that the likely cost was closer to $250,000. Mr Corradini, by reference to the Summary, told Mr Lovrinov that he wanted to reduce the estimate to a figure under $200,000. He made handwritten alterations to the Summary, apparently with a view to producing that result. There were some errors in the Summary, and correcting these also reduced the amount. Some items were deleted, and some varied. Mr Corradini asked Mr Lovrinov to produce another Summary that would reflect a construction cost of $199,000. He said that he wanted this for the bank. That led to the firm preparing the revised Summary of Costs, dated 5 September 1994, in the sum of $199,059, and to the firm faxing that to Mr Corradini.

The effect of Mr Lovrinov's evidence was that he understood that all of this was done, to keep the bank happy, and that Mr Corradini understood that he would have to pay any amount in excess of $200,000 from his own resources. Indeed, Mr Lovrinov's file note relating to the meeting of 31 August 1994 records:

"Bank requires budget/invoices - $200,000 total, the rest paid by client."

Mr Lovrinov said that the problem arose because when he submitted the progress claim to the bank, which showed an amount in excess of $200,000, he was unaware of Mr Corradini's arrangement with the bank, and unaware of the problem that could flow from the disclosure of the fact that the cost would exceed $200,000.

It is this sequence of events upon which the Corradinis rely in support of their claim that, on 6 September 1994, the firm and the Corradinis agreed on a final contract price of $199,059. Their claim is that what transpired at this time was not done to keep the bank happy, but represented an agreement between the parties as to the cost of the renovations.

It is relevant to record that no contract was signed at this time, nor is there any other document recording the contract upon which the Corradinis rely.

At about this time the Corradinis were due to go overseas. On 7 September 1994 the Corradinis signed a document headed "Homeowners Warranty" in connection with insurance. The document provides for a brief description of the works. Against the item "Date of Written Contract" is written in hand "16/3/94 (letter)". Against the item "Contract Value" is written "$222,360 (est)".

The Corradinis returned from overseas early in October 1994. Mr Corradini expressed concern about the difference between work done and payments made. There were apparently a number of discussions between the parties about this, and it appears that the relationship had begun to deteriorate.

Mr Lovrinov said (T261) that at some stage in November at a site meeting, when discussing a Cost Construction Report, it was apparent that the renovations were going well over budget, and Mr Corradini said that he wanted to know how much the renovations were going to cost. Mr Lovrinov said that he would work that out. Mr Lovrinov then wrote a letter of 29 November 1994 to the Corradinis, saying that as the project was nearing completion "it will be necessary that the additional funds required to enable the work to continue, be put in place". He also said that his firm "will be happy to continue work on your house provided guarantees from your bankers are given that the funds are available when required". This letter produced a very angry response from Mr Corradini. According to Mr Lovrinov he insisted that he had the money, and that it was not necessary for him to provide a guarantee from his bank. There was a heated conversation. (T262)

After this angry meeting, Mr Lovrinov wrote again to the Corradinis on 30 November 1994. The letter was as follows:

"RE: COMPLETION COST FOR - 73 NORTHGATE STREET, UNLEY PARK Further to our last meeting on Tuesday 29th November, 1994 we hereby acknowledge your request to put the final figure to complete your project as per most recent specification. A number of changes have taken place since April of this year when we lodged plans to Council. Not only did the job turn out to be more difficult, thus we exceeded the budgets as previously explained, but your brief also expanded, including appliances and all new skirtings, architraves, cornices, more areas of tiling, etc. You explained to us that you want to keep the selection as discussed with you and Barbara. Our records have shown that you will require additional $98,000 to complete the project. This takes into consideration the fact that we reduce our fee by $10,000 across the board, and the balance to claim on last invoice to you. A number of items have been estimated in the above figure, and it relates to plasterer, Council, cross over fees, E&WS fees for shifting the meter and two labourers. The cost plus systems that we have adopted on your project cannot be changed into fixed price contract, as you were indicating, unless we completely stop one contract and start afresh. But the time does not permit us to do so. All our efforts are now focused on finishing your project on time. Yours faithfully"

Mr Lovrinov said that Mr Corradini came to see him again, more or less straight away. Mr Corradini had a copy of the letter with him. Together they went through the latest Construction Report, with Mr Corradini making observations about how much he thought it would cost to finish the job. In the course of the discussion Mr Corradini said that he would accept a figure of $90,000 to finish the job, but not $98,000. On a copy of the letter in question, he struck out the figure $98,000 and wrote in the figure of $90,000. At the bottom of the letter he wrote:

"I, Robert Corradini, agree to the above figure for the fully completed project provided that it is completed by no later than ... "

and he signed below that. Mr Lovrinov said that Mr Corradini asked Mr Lovrinov to sign it, but he refused to do so.

Mr Lovrinov said (T265) that there was a discussion on this occasion about the reference in the letter to the "cost plus systems that we have adopted". He said that he explained to Mr Corradini that he could not consider a fixed price arrangement. There were bills coming in, and he did not know how much they were. He would have to stop the job to work out a fixed price. He said that Mr Corradini insisted that Mr Lovrinov should be able to get to a final figure, and give him a fixed price. Mr Lovrinov maintained that he could not do that.

Mr Lovrinov said that this was the first occasion on which Mr Corradini raised the question of a fixed price contract. (T267)

He said that at the end of the conversation the instruction given to him was to speed the job up and finish it off, and not to stop the job and make an assessment of cost with a view to arriving at a fixed price contract. (T268)

Mr Lovrinov gave evidence that there was a further meeting on 16 December 1994. (T270) He said that on this occasion there was a further discussion about the fee payable to the firm. Mr Corradini said that he objected to paying at the rate of 10 per cent, and proposed a fixed fee of $20,000. Mr Lovrinov agreed to that. Mr Lovrinov asked Mr Corradini whether he had made arrangements for funds. (T271) Mr Corradini told Mr Lovrinov not to worry, because he had the money, and Mr Lovrinov should just do the job. Mr Lovrinov said that Mr Corradini was still trying to get Mr Lovrinov to agree to a fixed price contract, but Mr Lovrinov refused, and reiterated that it was "cost plus". After this meeting Mr Lovrinov wrote again to Mr Corradini, by letter dated 16 December 1994. The material part of the letter is as follows:

"We refer to our meeting held at our office today, 16 December, 1994 and our correspondence dated 31 November, 1994. We hereby confirm the following:- 1. This office shall not charge the 10% fee on any amount above the $200,000 budget. 2. At the conclusion of the project it will be necessary to reconcile all invoices and see the cost situation and further discuss fees. 3. We are not prepared to take the job on any different arrangement but 'cost plus system' as noted on our earlier correspondence."

Mr Lovrinov said that some time after sending that letter he saw Mr Corradini on site, and Mr Corradini acknowledged receipt of the letter. Mr Corradini confirmed that he would pay a fee of $20,000, in addition to the costs, and that he wanted Mr Lovrinov to "get on with the job".

The Corradinis eventually moved into the house in early January 1995. By that time the total amount paid by the Corradinis was, according to the Judge, $275,340.93. Subsequently the firm claimed a further amount of $98,993. In the period between February and April 1995 Mr Corradini made direct payment to a number of contractors who complained that they had not been paid. Again, according to the Judge, these payments brought total payments by the Corradinis to $306,645.

So far I have referred mainly to Mr Lovrinov's evidence. A comparison of his evidence with that of Mr Corradini indicates that there is no dispute that most of the events referred to occurred. To the extent that their evidence conflicts, the conflicts relate mainly to details and to the emphasis of certain discussions.

I have read the evidence of Mr Corradini. Several things stand out.

As I read his evidence, he does not appear to deny that after 16 March 1994 the firm was entitled to a fee for project management at the rate of 10 per cent. (T514) He agrees that later it was agreed that the firm would pay contractors and suppliers. (T518) He says this arrangement was made late in April.

As to the dealings with the bank in August, it is significant that to some extent Mr Corradini's evidence is consistent with that of Mr Lovrinov. Mr Corradini asserted in evidence that the cost of the renovations was of no concern to the bank, and that the bank's only role was to advance its $200,000. He said (T641) that he did not really know what the bank meant by its condition that the cost of the renovations was not to exceed $200,000. He said it was up to him what he spent in addition to the $200,000. (T642) This evidence is not decisive, but it does not sit easily with his claim that at this time the parties agreed on a fixed price just below $200,000.

Reading Mr Corradini's evidence about events between about May and September, I get the clear impression that what he was saying was that he wanted Mr Lovrinov to give him a final cost, that he realised as the renovations progressed that the cost was increasing, and that towards the latter stages of the renovations he became more insistent about getting a reliable figure. But by and large that is as far as it goes. It is not surprising that he was shocked to find out in about November how much was still to be paid. This is understandable in the light of Mr Lovrinov's own admissions in cross examination that he never put in writing to the Corradinis the later cost estimates, although he claimed that he often told Mr Corradini that the cost was rising.

I read with particular care Mr Corradini's evidence about the events of 5 September and 6 September 1994. In this material I found no evidence of a firm agreement that the renovations were thereafter to be done on a fixed price basis. My impression is that Mr Corradini's own evidence was consistent with him wanting a reliable estimate of what the renovations would cost. Mr Corradini never identified a conversation in which a fixed price was agreed. Indeed, he himself spoke (T562) of wanting a "finalising cost summary". His evidence went no further than that.

Mr Corradini's evidence about events surrounding the letters of 30 November 1994 and 16 December 1994 is inconsistent with his case. He did not give evidence of any assertion to Mr Lovrinov at that time that the firm was in breach of a contract to carry out the renovations for a lump sum. His evidence was about understandable anger and surprise about such a substantial excess over the expected price emerging at that late stage. Even at that late stage he spoke in evidence of trying to get Mr Lovrinov to commit to a fixed price, but he acknowledged that Mr Lovrinov refused to do so. (T666, T677 and T678) This is very difficult to reconcile with the claim that there was already a fixed price contract.

I add that Mr Corradini more or less acknowledged that when he signed the "Homeowners Warranty" shortly before going overseas, and at about the time of the crucial conversations, the document referred to the letter of 16 March as the contract and to the estimated price of $222,360. (T656) This concession is also inconsistent with his case, although not decisively so, since the amount shown can be "reconstructed", as it was for the bank, to amount to a payment by the Corradinis to the firm of just under $200,000.

There is no dispute that a contract was entered into on 16 March 1994. The Corradinis submit that the contract was limited to the provision of architectural services, principally the preparation of the relevant drawings.

Mr Floreani, counsel for the Corradinis, submits that the letter of 16 March does not determine the cost of the renovations with any certainty. That submission is obviously correct. He submits that there could be, or was to be, an agreed price for project management, only when the cost of the renovations had been determined and thus became certain.

I do not accept that submission. There is nothing uncertain about a contract for remuneration at a rate equal to a stated percentage of the cost or value of building work to be performed. Such contracts are not uncommon, whatever their disadvantages may be. There is simply no reason why the parties could not have entered into a contract for project management in terms of the letter of 16 March. In saying this I put to one side the impact of s 23 of the Builders Licensing Act. The submission that the price or value of the renovations was an essential term, in the sense that the price or value had to be established before there could be a contract to remunerate the firm for project management, cannot be accepted.

Mr Floreani was on firmer ground in submitting that, standing alone, the letter of 16 March did not give rise to an enforceable contract for a fee for project supervision because the arrangement it reflected was incomplete.

On 16 March no agreement on what renovations would be carried out had been reached. Indeed, there was no binding agreement to perform any renovations. And, as Mr Floreani submitted, the letter was silent as to whether the 10 per cent fee was a fee of 10 per cent of the amount of a fixed price contract, 10 per cent on a cost plus contract, or 10 per cent of the value of work done on some other basis.

I consider that the letter of 16 March should be read as referring to 10 per cent of the value of such renovations as the Corradinis might later authorise to be carried out under the project management of the firm. That is consistent with the dealings between the firm and the Corradinis. It remained to be seen what work would be authorised, and on what terms that work would be authorised. But from 16 March there was an agreement that if the Corradinis authorised work under the project management of the firm, the firm would be paid 10 per cent of the value of that work. The process of authorisation would itself resolve the matters raised by Mr Floreani. Thus, if as was to be expected, the Corradinis authorised a series of separate items over a period of time, the fee would be payable by reference to the properly incurred cost attributable to those items. That is what happened. Had the evidence supported the conclusion that the Corradinis withheld their authorisation until all of the work to be performed had been identified, and a firm cost for that work had been arrived at, then the fee would have been payable only by reference to the agreed cost of that work. But that is not what happened.

The parties never having been more precise, the firm's entitlement to the fee, and later to reimbursement of amounts paid to contractors and suppliers, turns upon proof by the firm of authorisation by the Corradinis to carry out the relevant aspect of the renovations. The Judge concluded, and I agree, that the authorisations were given on a piecemeal basis. The Corradinis did not withhold authorisation until all of the work had been identified and an overall price had been fixed. Although authorisations were given on a piecemeal basis, there remains plenty of scope for disputation. It is conceivable that the facts will show that the Corradinis intended to authorise work, albeit on a piecemeal basis, only against the provision of a definite price based upon a quotation. Alternatively, it may appear that they were prepared to act on the basis of an estimate, or even without regard to the cost of the work. Different approaches might have been taken to different parts of the renovations. These possible questions of fact will have to be determined item by item.

But the practical problems in implementing the agreement for payment of the fee, and more importantly the later agreement for reimbursement, do not alter the fact that there was an agreement to pay a fee, and later to reimburse the firm, for such renovation work as might subsequently be authorised, and those authorisations were provided on a piecemeal basis. What is left to be resolved is the question of fact of what payments were in fact authorised by the Corradinis.

The contract found to have been made on 16 March is brief, but in my opinion it is complete and certain, although dependent for its operation upon later authorisations to proceed with renovations.

For those reasons this attack upon the Judge's conclusions fails.

The second part of Mr Floreani's submission turns upon a finding as to the intention of the parties at the time. The Judge took the view that this turned "mainly on the documents, and the credibility of the parties is not an issue that I need to decide".

The letter of 16 March can readily be regarded as giving rise to a contract for the performance of project management, and as fixing the fee to be paid. It was conceded that it gave rise to a contract for the preparation of drawings.

The discussions that preceded the letter, the form of the letter, and the fact that it was signed at the meeting that day, all tend to support the Judge's finding. There is nothing in the evidence about the parties' dealings that day inconsistent with that finding.

Mr Floreani submits that the Court should have regard to subsequent dealings between Mr Lovrinov and the Corradinis to decide whether the letter of 16 March gave rise to a contract for the performance of project management.

I am not sure that that submission is correct. It may well be that the question of whether a contract was entered into on that day is to be determined by reference to the evidence of events before that day and on that day, subject to the possibility of any evidence of later events constituting an admission by a party contrary to the case being made out by that party. But it may be that regard can be had to later events when the issue is whether there was a concluded agreement. My view is that, in any event, there is nothing in the later dealings between the parties that leads to the conclusion sought by Mr Floreani or that leads to a rejection of the Judge's conclusion.

The fact that there was later considerable discussion about the final cost of the renovations is neutral. For all sorts of reasons, including the financial arrangement with the bank, one would expect the Corradinis to want to keep track of the final cost. One would expect them to want to do that even if they had already agreed on a fee referable to that cost. Indeed, that might be another reason for keeping an eye on the final cost.

As well, it seems unlikely although not impossible that the firm would carry out as much work as it did in connection with the renovations, including agreeing to pay subcontractors and suppliers, without a definite agreement for payment. The work was well advanced by early September 1994, when the Corradinis claim a contract for project management was first entered into.

I can find nothing in the later events inconsistent with the contention by the firm that a contract was entered into on 16 March, in the terms found by the Judge. Indeed, my view is that taken as a whole the evidence supports the conclusion of the Judge.

It remained open to the parties to vary the arrangement between them if they saw fit, and to agree that the renovations would be completed for a specified or fixed lump sum. The agreement of 16 March was varied in other respects, and might have been varied or supplanted in this respect as well.

The District Court Judge appears to have implicitly rejected this submission. I am not satisfied that his conclusion is wrong. Indeed, on my reading of the material, it is the right conclusion.

I consider that the dealings between Mr Lovrinov and Mr Corradini to early September 1994 provide no support for the contention advanced by Mr Floreani. The dealings about the overall cost are readily explicable, for reasons that I have indicated, without reference to a contract for a lump sum. The dealings with the bank in August 1994, while somewhat confusing and possibly involving an element of deception of the bank, do not support the suggestion that at that time the parties made a significant change in their existing arrangement. The more natural explanation for these dealings is the one that the Judge gave, namely, that Mr Corradini wanted to keep the bank happy and that Mr Lovrinov helped him do that. Another point is that after the renovations began, many decisions affecting cost remained to be made, and numerous changes in the work occurred. In that context it seems unlikely that the firm would agree to a fixed price without a definite arrangement about later variations, because there was no reason to think in September 1994 that all of the costs were now firm and that further variations were unlikely. It also seems to me quite unlikely that the firm would have committed itself on 6 September, to a lump sum contract, without recording that event in correspondence at least, bearing in mind the obvious significance of fixing a lump sum for the completion of work like this. The manner in which the events of 6 September came about does not support the construction put upon them by the Corradinis. Later conduct by the Corradinis seems inconsistent with their claim. I refer in particular to the later variations, and to the manner in which they were handled. The response to the letters of 29 November 1994 and 16 December 1994 is inconsistent with the Corradinis' contention. These letters, of course, emanated from the firm, but they did not give rise to a protest from the Corradinis of the type one would have expected if the arrangement was now one for a fixed lump sum price.

As I said earlier, Mr Corradini's evidence provided very little support at all for his case as pleaded.

In the end, the Corradinis challenge a conclusion of law based upon the Judge's findings of fact. The findings of fact appear to me to be sound, as does the Judge's conclusion. I would not interfere.

I would, however, vary the answer to Question 2, and for that purpose only allow the appeal.

First of all, it is inappropriate to attempt to identify all of the terms of the contract. There are likely to be implied terms. For example, terms as to the standard of the services to be provided. It is not necessary to decide that now. The answer to Question 2 should indicate that the answer is a limited one. Second, the letter of 16 March does not spell out under what circumstances the fee of 10 per cent is payable. I refer to my earlier remarks about that. The Judge's answer to Question 2 does not state under what circumstances that fee is payable, nor does it state under what circumstances there is an entitlement to reimbursement for amounts paid to contractors and to suppliers. I have earlier explained that the letter should be read as referring to a fee referable to such renovations as might later be authorised by the Corradinis, and to reimbursement for such payments as might later be authorised by the Corradinis. The answer should so provide.

Certain provisions of the contract are set out in Exhibit P1-19, the letter of 16 March 1994 from the plaintiff to the defendants. That contract is to be interpreted as providing for a fee in respect of the services referred to in the letter to be payable to the plaintiff, in the amount of 10 per cent of the value of such of the works referred to in the letter as the defendants might subsequently authorise the plaintiff to carry out. It is not necessary to decide whether there are any other and if so what terms to be implied. The contract was varied in about June 1994 by an oral agreement between the plaintiff and the defendants to provide that the plaintiff would make payments to contractors and suppliers for work authorised by the defendants, and to provide that the defendant would reimburse the plaintiff for such authorised payments.

Clearly enough this is a project that got completely out of hand. It is not for me to identify who was at fault. But the sympathy one might feel for the Corradinis cannot obscure the fact that their claim of a new agreement or a first agreement in September 1994 for a lump sum contract cannot be maintained.

Submissions on Appeal - The Builders Licensing Act

There is no dispute that the firm did not comply with the requirements of s 23(1) of the Builders Licensing Act.

The failure to comply with s 23(1) exposed the firm to a prosecution for an offence against s 22(2), and to disciplinary action under s 19 of the Act.

It may be that the firm also breached s 24. Section 24 requires a domestic building work contract to stipulate a specific price for the performance of the building work. However, by s 24(5) it is lawful for a contract to give the builder the right to recover actual costs incurred together with an additional amount not exceeding 10 per cent, or such other percentage as may be prescribed, of that cost. But in that event the contract must contain certain provisions, not included in the letter, alerting the building owner to the nature of the contract.

The Corradinis submit that the consequence of non compliance with the Builders Licensing Act is that the contract is unenforceable. They do not deny that the firm may claim a reasonable remuneration on a quantum meruit: cf Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 and Nunkuwarrin Yunti v A L Seeley Constructions Pty Ltd (1998) 72 SASR 21.

In Yango Pastoral Company Pty Limited v First Chicago Australia Limited [1978] HCA 42; (1978) 139 CLR 410, Gibbs ACJ said at 413:

"There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits."

In the present case the contract was not to do something which the statute forbids. It does not forbid the carrying out of renovations. Nor was the contract made to effect a purpose that the statute rendered unlawful. Nor was it a contract liable to be performed in a manner that the statute prohibits. The present case appears to fall within the second category identified by Gibbs ACJ. I say probably, because s 23 does not expressly prohibit the making of a contract in the form in which it was made, it merely requires a contract of the relevant type to include certain matters that were not included. But I consider that the case is properly described as one of an implied prohibition, for the reasons identified by Jacobs J in Yango at 431:

"If a statute imposes a positive obligation to make contracts in a certain way, a prohibition against making contracts in another way can be implied as a matter of construction and will be implied unless the purpose of the statutory requirement is merely to protect the revenue: Victorian Daylesford Syndicate Ltd v Dott [1905] 2 Ch 624. ..."

I proceed on the basis that the making of the contract made in this case is, by implication, prohibited by s 23. But it is important to remember that the prohibition goes only to the form of the contract, and not to the things to be done under the contract.

It is then necessary to consider the effect upon the enforceability of the contract of the statutory provision. In Yango, Gibbs ACJ said at 413-414:

"Where a statute imposes a penalty upon the making or performance of a contract, it is a question of construction whether the statute intends to prohibit the contract in this sense, that is, to render it void and unenforceable, or whether it intends only that the penalty for which it provides shall be inflicted if the contract is made or performed. The question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes. 'The determining factor is the true effect and meaning of the statute' St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 at 286. ...The question whether the statute was passed for the protection of the public is one test of whether it was intended to vitiate a contract made in breach of its provisions, but I am with respect in full agreement with the views expressed in St John Shipping Corporation v Joseph Rank Ltd [supra] at 287 and Shaw v Groom [1970] 2 QB 504 at 518 that it is not the only test. It would be contrary to reason and principle to allow one circumstance to override all other considerations in the interpretation of a statute."

A more definite approach was taken by Jacobs J, when he said at 430:

"When a statute expressly prohibits the making of a particular contract, a contract made in breach of the prohibition will be illegal, void and unenforceable, unless the statute otherwise provides either expressly or by implication from its language."

More recently, the matter was expressed this way by Dawson J and Toohey J in Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 at 220:

"... It has sometimes been said that a contract is illegal if its performance involves breach of a statute passed for the protection of the public Anderson Ltd v Daniel [1924] 1 KB 138 but, stated in that way, the proposition is too broad. The purpose of the statute may be served by the imposition of a penalty, notwithstanding that it is for the protection of the public Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 138 CLR 410 at 427."

Also relevant to the present case is the following statement by Kirby J in Fitzgerald. He said (at 244):

"One principle, however, which tends to reinforce the reluctance of courts to imply a prohibition on a contract, the formation or performance of which involves some breach of the law, is the conclusion which will often be derived from the express terms of the legislation itself. Thus, if the legislation provides in a detailed way for sanctions and remedies for breach of its terms, courts will require good reason to add to those express provisions additional civil penalties, such as the deprivation of contractual rights, which Parliament has not chosen to enact. Were it otherwise, the parties would be subject to the penalties (in the present case criminal) expressly provided by the legislation and still more (civil) by the deprivation of their property (contractual) rights..."

As will appear, I consider that this statement is of considerable significance in the present case.

But it cannot be overlooked that this is a case in which there is illegality in the formation of the contract, in the sense that the contract was made in a form which is impliedly prohibited by the statute, because the contract did not contain the matters that the statute required it to contain. In a number of such cases a contract has been held to be invalid because it was a contract expressly prohibited by the statute. Where the plaintiff has done the very thing which the statute forbids, courts have more readily concluded that the contract is invalid: see, for example, Yango at 416 Gibbs ACJ. As Kirby J said in Fitzgerald, just after the passage cited above (also at 244):

"A distinction may be drawn between cases where there is nothing illegal in the formation of the contract or necessarily illegal in its performance and those cases where (as here) the performance has in fact involved a breach of the law."

The present case falls in the former category. However, as I said before, the prohibition relates to the form of the contract, and not to what is done pursuant to the contract. At the end of the day the question is one of statutory interpretation.

Quite apart from the question of statutory interpretation, it is necessary to consider matters of public policy, if the contract is one that is expressly prohibited by the statute. The role of public policy in this area was identified in Fitzgerald by McHugh and Gummow JJ at 227:

"... The refusal of the courts in such a case to regard the contract as enforceable stems not from express or implied legislative prohibition but from the policy of the law, commonly called public policy Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410 at 429-430, 432-433; Nelson v Nelson (1995) 184 CLR 538 at 551-552, 593, 611. Regard is to be had primarily to the scope and purpose of the statute to consider whether the legislative purpose will be fulfilled without regarding the contract as void and unenforceable Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (supra) at 434."

The proper approach to the doctrine of illegality, considered as a matter of public policy, was considered in some detail by McHugh J in Nelson v Nelson (1995) 184 CLR 538. Although the context was very different there, McHugh J stated the relevant principles in a manner applicable to a case like the present, where the court is concerned with the enforcement of civil remedies in the context of a breach of statutory provisions. McHugh J said (at 613):

"Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b) (i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies. (Elements (ii) and (iii) may often overlap.)"

That passage was referred to with approval by McHugh J and Gummow J in Fitzgerald at 230, but I note that they appear to have regarded it as applicable only "where the contract was not made in breach of a statutory prohibition upon its formation or upon the doing of a particular act ... " (at 229). The same passage was referred to with apparent approval by Kirby J in Fitzgerald at 250.

I agree that it will not be often that a court will enforce a contract, the making of which is expressed or impliedly prohibited by statute. But my conclusion is that to permit the contract to be enforced is not inconsistent with s 23, nor is it contrary to public policy.

First of all, the Act imposes its own penalty for breach of s 23. That penalty comes in the form of a fine as a result of prosecution, and in the form of disciplinary action. The provision of a penalty may lead to the conclusion that no further consequence of non compliance was envisaged. These matters are of limited significance, because the statutory penalties or consequences might merely emphasise the seriousness of the breach or indicate particular consequences which Parliament contemplated, without implying that there are to be no other consequences.

It is also notable that s 23 does not provide that a contract made contrary to its requirements is unenforceable, nor deny a claim for payment under such a contract. In the context of the Builders Licensing Act 1986 this is notable, because there are other provisions that expressly prohibit the recovery of payment in certain circumstances and that prohibit the enforcement of a contract by a party in certain circumstances: see, for example, s 25(1) and s 39.

In that context it is also of some, although slight, significance that the Act does not contain a prohibition against the carrying out of work under a contract that does not comply with the requirements of the Act.

Another matter of considerable significance is to be found in s 31. That section gives a right to a building owner under a domestic building work contract to terminate the contract by giving notice in writing to the builder before "the prescribed time". The section specifically provides that where, as here, there has been a failure to comply with the requirements of Division 1 of the Act, (s 23 is in Division 1) the notice may be given at any time up to the time of completion of the building work under the contract. This provision suggests that Parliament did not regard a contract in breach of the requirements of Division 1 as unenforceable. It does no more than suggest it, because it is conceivable that Parliament took the view that the provision should be included even if the contract were unenforceable because consequences favourable to a building owner might flow from the determination of such a contract that would not flow from its mere unenforceability. I also consider s 31(3)(b) to be of some significance. That provision provides that if a contract is terminated under s 31, the Tribunal or a Court may, on application by the builder make an order providing for payment to the builder in respect of materials supplied or work done. It would be odd if, upon termination of a contract by the building owner, and only the building owner can do so, an order can be made providing for payment to the builder, but if such an order cannot be made (by a court) when the building owner does not chose to terminate the contract.

Another factor to be considered is the draconian consequence of treating the contract as unenforceable, even if, as was conceded, the firm would be able to recover on a quantum meruit. It must be borne in mind that a provision like s 23 could be breached in a quite trifling or unimportant manner, and to visit such a consequence on such a breach seems disproportionate. It should also be said that while it may well be that if the contract is unenforceable, it is unenforceable only at the suit of the builder, that consequence does not necessarily follow. There are reasons why Parliament might have taken the view that it is the obligation of each party to such a contract to ensure that it is in writing. Treating the contract as unenforceable might have drastic results for the builder and for the building owner.

I also regard as of some slight relevance the fact that s 27 of the Act provides for statutory warranties to be implied in every domestic building work contract, and that s 34 renders void any purported exclusion, limitation, modification or waiver of a right conferred, or contractual conditional warranty implied by the Act. Thus, the fact that a contract is not in the form required is not to affect these rights available to a building owner.

Taking all these matters into account, I am not satisfied that Parliament intended, by implication, in enacting s 23 to render a contract made in breach of its requirements unenforceable. It seems to me that the Act provides in some detail for the consequences of non compliance with various provisions, and for the enforcement of various rights and remedies. Of course, Parliament will have assumed the application despite that of ordinary principles of interpretation. But I am reluctant to draw an implication in favour of a further significant consequence to which Parliament has not adverted, particularly bearing in mind the potentially erratic and draconian operation of the suggested consequence. And, I add, the consequence of non enforceability by a builder could not be remedied by an order under s 32(6), which enables the Tribunal to make an order for payment of amounts due under a contract, because that power only arises when the Tribunal is dealing with a breach of contract or a failure to perform a contract.

Having so concluded, it is relatively easy to conclude that the considerations of public policy earlier adverted to do not lead to the conclusion that the contract should not be enforceable. My view is that considering the scope and purpose of the statute, regarding the contract as void or unenforceable by the builder would not advance the legislative purpose, and would, for the reasons indicated, in fact be contrary to the legislative purpose. For similar reasons it follows, although not necessarily so, that in my opinion the illegality involved in the making of the contract does not require, as a matter of public policy, that the contract be regarded by the common law as unenforceable.

I agree with the Judge's conclusions on this aspect of the matter.

The parties propose to refer to arbitration the issue of the amount payable to the firm under the contract of 16 March, and also to refer to the arbitrator the counterclaim for defective work.

The contract is for the payment of a fee and for reimbursement of the plaintiff by reference to the cost of work authorised by the Corradinis. The contract does not entitle the firm to recover whatever the firm has expended on the works. The question of the fee seems to be irrelevant, because it was later agreed that no fee would be claimed in respect of work in excess of a cost of $200,000.

The firm's claim for reimbursement depends upon the firm proving that the Corradinis authorised each payment in respect of which a claim is made.

Whether a given payment was authorised is a question of fact. The arbitrator will have to examine how the parties conducted their dealings, and how as a matter of practice the process of authorisation was dealt with. It may be that in some instances a payment by the firm is to be treated as authorised only once there was agreement as to the scope of the work to be done and as to the actual cost of the work, based upon quotations received. It may be that in some instances work was in fact authorised on the basis of an estimate. In some instances work might have been authorised without reference to the likely cost. The arbitrator will have to examine the circumstances surrounding each payment, to decide whether there was in fact an authorisation of that payment. Of course, an authorisation might be express or by implication.

Mr Kourakis QC, counsel for the firm, accepted that this was so. He also accepted that if work, and payment for that work, was authorised upon the basis of an estimate, and the actual cost was higher, an issue will arise as to whether the Corradinis are liable for the higher amount. That again will be a question of fact. In the nature of things, a moderate excess over the amount of an estimate might well be recoverable. But an amount substantially in excess of an estimate might not be recoverable, if the authorisation was given on the basis of the estimate and the Corradinis were given no warning that the excess was likely to be received. Once again, these are issues of fact.

The "Summary of Projected Construction Costs" dated 5 September 1994 is of some significance to these issues. It represents the firm's statement of authorised works as at 5 September 1994, and either agreed or estimated costs as at 5 September for those works. Obviously, other work might have been authorised later, other prices might have been agreed upon, and estimates might have been revised and accepted as revised by the Corradinis. I merely make the point that assuming, as appears inevitable, the firm claims more than is shown on that document for work referred to in the document, the firm will have to show some basis for recovering a greater amount than the amount shown in the document. An amount in that document that reflects firm quotes received would, prima facie, be the limit of recovery for the work referred to.

I make these points, which I understood Mr Kourakis QC to accept, merely to emphasise that all the way through authorisation by the Corradinis is the basis of recovery, and summaries from time to time of the scope of the works and of the costs are of some significance in deciding what it is that the Corradinis had authorised. There can be no suggestion that the contract of 16 March as varied was one that entitles the firm to recover whatever it expended on the renovations, merely because that expenditure was for the benefit of the Corradinis.

For all those reasons, subject to varying the answer to Question 2 in the manner proposed by me, I would dismiss the appeal.

It is most unfortunate that the parties should have to face further proceedings, after a lengthy hearing in the District Court, over a project the cost of which has greatly exceeded the originally anticipated cost. Unfortunately, there is nothing that the Court can do to help the parties in this respect, because the problems arise from the casual basis upon which the parties dealt with each other.

DEBELLE J. I agree with the order proposed by the Chief Justice but for slightly different reasons.

The facts as recited by the Chief Justice show that this is one of those unhappy building cases where the parties have proceeded with the building work without agreeing the terms on which the work will be done. I will call the appellants "the Corradinis" and the respondent "Lovrinov".

The form in which the first question was asked was unfortunate. The real issue between the parties was whether they had entered into an agreement as to the scope and nature of the building work and its cost. Lovrinov referred to the letter of 16 March 1994 and submitted that it was a cost plus contract, that is to say, the final price would be the actual cost of materials and labour plus a fee of 10 percent. The Corradinis said that the letter concerned no more than the fees they were to pay Lovrinov for architectural services and that a later agreement was made relating to the work and the cost of the work. They said that they had entered into a fixed price contract in about September 1994. The true issue was whether the parties had entered into an agreement to do building work and, if so, whether they had agreed the scope of the work and its cost. That was not the question which was asked of the trial judge.

The only agreement made by these parties concerned the terms on which Lovrinov was to prepare drawings and supervise the contract. It was in no respect a contract concerning the scope nor the cost of the building work. That is quite apparent from the terms in which the letter of 16 March was expressed. The letter confirms first, the fees for the preparation of the working drawings for Council approval and, secondly, the fee for supervision of the project, organising trade packages and tendering. It is, in short, the engagement of Lovrinov to perform architectural services and the fees payable for those services. The letter is entirely silent on the question of the scope and nature of the proposed building work and its cost. It is quite apparent from the balance of the letter that a plan called "the latest plan" had not been fully costed since engineering calculations from Koukourou and Partners did not cover the requirements of the latest plan. Further, given that the letter states that the work would be started on a schedule of works, the scope of the work had not been agreed. In addition, the evidence of later events quite clearly shows that the parties had not agreed on the scope and cost of the work. It is sufficient to refer to a letter dated 24 April 1994 from Lovrinov to the Corradinis which begins, "Please find attached the latest summary of quotes at hand". There was later correspondence regarding further quotations.

The trial judge held that the contract dated 16 March 1994 had been varied. The evidence shows that it was, but only as to who would pay contractors and suppliers. There was no variation which concerned the nature, the extent and the cost of the building work.

In support of the contention that the contract made on 16 March 1994 and varied in June 1994 was a cost plus contract, Mr Kourakis QC, who appeared for Lovrinov, submitted that the letter dated 16 March 1994 constituted an agreement by which Lovrinov agreed to design and supervise the renovations to the Corradinis' house, to discuss with them what they wanted to be done, and that the Corradinis would pay for the work and materials and pay Lovrinov 10 percent for the supervision. The effect of the argument is that the Corradinis gave Lovrinov carte blanche and were not concerned about the cost. That would be an extraordinary kind of contract into which to enter. Common sense suggests that it is unlikely that the Corradinis would have entered into such a contract. It would require very clear evidence to prove that they had done so. There is no such evidence. Further, there is nothing in the letter dated 16 March 1994 nor in the conduct of the parties which justifies that submission. I repeat, the nature and extent of the building work had not been agreed. In March 1994, drawings and specifications were not complete and quotations for the cost of the work were still being obtained. The very fact that quotations were still being obtained for different aspects of the building work demonstrates that the Corradinis had not agreed to give Lovrinov carte blanche. Finally, if any one fact emerges from the evidence of Mr Corradini, it is that he was concerned as to the cost of the work.

There is further reason which plainly demonstrates that this was not a cost plus contract. There is a degree of uncertainty about the agreement as to fees for supervision in that a fee of "10 percent of the value of the project" may be, as Mr Floreani submitted, 10 percent of the amount of the fixed price contract, 10 percent on a cost plus contract, or 10 percent of the value of the work done determined on some other basis. Whatever uncertainty might have existed, it was later cured when Lovrinov agreed on 16 December 1994 that he would not charge the fee of 10 percent on any amount above $200,000.

For all of these reasons, the letter dated 16 March 1994 was simply a contract regarding architectural services and the fees for those services.

However, the rejection of the submission on behalf of Lovrinov that the parties agreed a cost plus contract does not mean that the parties agreed a fixed price contract as the Corradinis contend. Just as the evidence clearly shows that the Corradinis were continually pressing for Lovrinov to determine the final cost of the work, it is equally clear that Lovrinov was not prepared to agree a fixed price contract. In addition, there is no evidence of any agreement as to the cost of the work. Although the set of plans and drawings signed by the Corradinis on 7 September 1994 appear to constitute an agreement as to the nature and extent of the works and the summary of projected construction costs dated 5 September 1994 point to an agreed cost of $199059, the evidence does not show that the parties agreed upon the cost. For these reasons, and in particular the fact that Lovrinov was not prepared to sign a fixed price contract, I conclude that the parties did not agree a fixed price contract. This is an instance where parties have proceeded with building work before agreeing its scope and cost.

I agree with the trial judge that the failure of Lovrinov to comply with s 23 of the Builders Licensing Act 1986 does not have the consequence that Lovrinov is not entitled to recover the cost of the building work. I agree also with the substance of the trial judge's reasons for that conclusion. What is significant is that s 23 does not in terms invalidate a contract to perform building work which is not in writing. It merely imposes a penalty for a breach of s 23. In that respect, s 23 is to be contrasted with s 33 and s 39.

The consequence of these reasons is that Lovrinov is entitled to be paid but only for the works authorised by the Corradinis. I agree with the substance of the concluding part of the reasons of the Chief Justice on this issue.

For these reasons, I would dismiss the appeal.

NYLAND J: I agree that the appeal should be dismissed for the reasons given by the learned Chief Justice.

Builders Licensing Act 1986

At a glance

Court

Decision date

Before

Source

Judgment (166 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (6)