Darin v Olzomer

Court of Appeal (NSW)|2012-03-26|Before: Basten JA, Meagher JA

M R Gracie/D A Neggo - Applicants F P Hicks - First Respondent Submitting Appearance - Second Respondent Solicitors:

Spinks Eagle Lawyers - Applicants Sparke Helmore Lawyers - First Respondent I V Knight, Crown Solicitor - Second Respondent File Number(s): CA 2011/253094 Decision under appeal Jurisdiction: 9101 Citation: Darin v Olzomer [2011] NSWDC 51 Before: Johnstone DCJ File Number(s): DC 2010/414921

HEADNOTE [This headnote is not to be read as part of the judgment] In 2006 the applicants ('the owners') engaged the respondent ('the builder') to construct a residential building. In May 2006 the owners approved a variation to the plans with the effect that the building would be built as a "split-level" building ('the split-level variation'). The builder advised the owners that the variation would involve an additional cost of at least $50,000. The variation was not in writing. There were also a number of other variations to the plans. The building was completed by 14 April 2008. The owners did not pay the final invoice presented by the builder. The builder commenced proceedings to recover the unpaid amount in the Home Building Division of the Consumer, Trader and Tenancy Tribunal. The owners did not adduce any evidence before the Tribunal. The builder's evidence was that the "fair and reasonable" cost of the work, including all variations, was $781,085.67 and that the amount of $54,054.82 remained unpaid. The Tribunal found that the builder was entitled to the unpaid amount on the basis of a quantum meruit claim. The Tribunal did not distinguish between the cost of the split-level variations and the other variations. The owners appealed from the orders of the Tribunal to the District Court, suggesting that the Tribunal had committed an error with respect to a question of law pursuant to the Consumer, Trader and Tenancy Tribunal Act 2001 (NSW), s 67. The relevant error was said to be that there was no evidence to support the calculation of the unpaid amount in circumstances where the Tribunal had failed to make a finding in relation to the other variations. The District Court dismissed the appeal. The owners sought an order in the supervisory jurisdiction of this Court quashing the orders of the District Court. The issues for determination on review were: (i) whether the District Court committed an error of law on the face of the record by holding that there was evidence upon which the Tribunal was entitled to rely in assessing the quantum payable by the owners, and (ii) whether the failure of the builder to file a notice in the District Court contending for an inference that the Tribunal allowed the other variations constituted a denial of procedural fairness. The Court held (per Basten JA, Meagher JA and Sackville AJA agreeing), dismissing the application: In relation to (i)

Judgment 1BASTEN JA: John and Valda Darin ("the owners") own land on Wiseman's Ferry Road at Somersby, in the Gosford City Council local government area. They engaged Richard Anthony Olzomer ("the builder"), a licensed builder, to construct a house on the land. During the course of construction, the owners expressed concern that the kitchen and living room areas would look into an excavation area and lose the possibility of broader views. In the course of a conversation on 10 May 2006, the builder explained that the only practical way to resolve that problem would be to change to a split-level construction. He noted that that would take some redesigning, an amendment to the development approval, at an additional cost expressed as probably within, but not less than, the range from "$50,000 to $60,000 and maybe more". 2The owners approved the change in plan. Further architectural drawings and engineer's plans were obtained and an amendment application was made to Gosford City Council and approved. The building proceeded to practical completion, which occurred on about 14 April 2008. 3The owners paid each tax invoice presented by the builder other than the final invoice provided to them on 14 April 2008, in an amount of $58,313.86. 4For the builder to be entitled under the contract to payment of the amount claimed, it was necessary that any variation be in writing: Home Building Act 1989 (NSW), s 10. The Tribunal (constituted by Senior Member G J Durie) was satisfied that the split-level variation was not in writing. He therefore considered the claim on the basis of a quantum meruit entitlement for the fair and reasonable value of the work done at the request of and with the consent of the owners. He concluded that the amount of $58,313.86 was payable on account of the unpaid variations and ordered payment by the owners accordingly: Olzomer v Darin (Home Building) [2010] NSWCTTT 518. 5An appeal to the District Court was dismissed and an application was made to this Court in its supervisory jurisdiction to review the decision of the District Court. That application was heard on 26 March 2012. At the completion of the hearing, the Court made the following orders: (1) Dismiss the application. (2) Order the applicants to pay the costs of the first respondent in this Court. 6Reasons were reserved. Reasons for the orders follow.

(a) the claims 7On 29 June 2008 the builder commenced proceedings in the Consumer, Trader and Tenancy Tribunal, Home Building Division. The amended points of claim filed on behalf of the builder identified separately the split-level variation and what were described as "other variations", said to have been requested by the owners during the course of the performance of the building works. Although particulars of the other variations were said to be identified in a document entitled "Final Account Summary" provided to the owners on 14 April 2008, it is clear that the invoices referred to in that document included amounts relating to the split-level variation. After an allowance of some $4,000 by way of credits, the sum additional to the contract price was approximately $80,000. A claim was made in contract for payment of the total amount of $780,000, less amounts paid of $727,000, leaving an unpaid balance of $54,000. In the alternative, the builder asserted that he was entitled to the same amount on a quantum meruit basis: pars 29-31. 8Mr Darin made his own application (to which Mrs Darin was later joined as second applicant) with points of claim and the owners filed a defence to the builder's claim. These documents identified with a degree of clarity the issue at the heart of the dispute. The owners did not deny that the plans had been varied to build the house on a split-level: they said this was necessary because the builder had commenced construction at an incorrect level. Accordingly, the change in design was, the owners alleged, the builder's attempt to rectify in part the erroneous construction for which he was responsible. The owners agreed that they had consented to the amended plans, as the only way "to bring at least half the house to the desired level (or as close as practicable)": points of claim, par 10. The points of claim continued: "11. The builder wrongly charged the owner for that rectification work which was in fact caused by the builders breach as described above and the owner [then only Mr Darin] seeks repayment of that sum (amount charged was approximately ($80,000.00) of which Approximately $40,000.00 would not have been charged had the dwelling been built at one level. (see report of Senogeles dated 13.5.08) and the owner seeks to have that sum deducted from the adjusted contract price." 9The owners' points of claim accepted that they requested variations and agreed that those variations increased the contract price, identifying amounts totalling $50,368.70: par 13. They also made some other claims, the detail of which is not pertinent to the issues before this Court. In their points of defence, the owners repeated their position that the split-level was not a variation under the agreement but rather "was rectification works" to bring the building into line with the terms of the contract, so far as practicable: points of defence, par 10. The defence further denied that the kitchen relocation was "in any way related to the split level issue": par 11. They denied, in relation to paragraph 12 of the builder's points of claim, that they had "requested the variations as referred to therein save as agreed in the points of claim" served on the builder: par 13. 10It might be inferred from this material that, based on the pleadings, the owners were conceding variations in an amount of some $50,000 in addition to the contract price and, while not accepting liability for the split-level variation, acknowledged that the cost incurred was of the order of a further $40,000.

(b) decision of Tribunal 11Before the Tribunal, the owners did not give evidence. The Senior Member noted that there was no evidence to support their application and dismissed it: reasons, at [34]. So far as the substantive issues raised by the builder required identification of the plans which formed the basis of the contract, the Senior Member found that the plans approved by the Council were the basis of the agreement: at [21]. The Tribunal also accepted that, when challenged by Mr Darin that the house was "too low", Mr Olzomer had stated, "[a]ll my levels are OK and are 105mm above the required levels due to the concrete block courses". The accuracy of that statement was also accepted. The rest of the conversation, in which it was agreed that the practical solution to obtain a higher house was to split the levels, was also accepted. However, the Tribunal further found at [25]: "What Mr Olzomer did not do was to follow the procedure under the contract and obtain a written variation from the Darins. ... It is therefore necessary to consider if there had been an oral variation, not in accordance with the contract ... and if so, the consequences of such a variation." 12At [30] the Senior Member identified and relied upon principles drawn from Liebe v Molloy [1906] HCA 67; 4 CLR 347. As a matter of law, the factual preconditions identified in Liebe were sufficient to form a basis from which the party obtaining the benefit of the work done outside the contract and not covered by a written variation might be found impliedly to have promised to pay for it. That principle was not directly in point. In accordance with the reasoning in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; 162 CLR 221, where there is a statutory prohibition on enforcement of an oral agreement, a claim may be brought in quantum meruit upon the builder proving that the work was done and the owners had accepted the work, but without paying fair value. What was to be paid was not the agreed amount as such, but a fair and reasonable price for the benefit obtained and accepted: see generally, Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277 at [23]-[26] (in my judgment), at [106]-[110] (Macfarlan JA) and [122]-[127] (Sackville AJA). 13The findings of fact, set out by the Tribunal at [31], related to "the work involved to build to a split-level design". For reasons which are not challenged, the Tribunal accepted that the builder was entitled in law to recover the cost of that variation on a quantum meruit basis: at [32]. The Senior Member then stated at [33]: "The schedule attached to [the builder's] submissions is taken from the account summaries attached to Mr Olzomer's statement. From those he has calculated that the shortfall in payments by the Darins after credits totalled $58,313.86. That figure is reached by taking the total of variation claims, adding that to the contract price, and deducting the total payments made. I have carried out the same calculation and reach the same figure. There is no contrary evidence at all which would cast doubt on the Builder's claims. ... I find that to be the sum owing."

(c) appeal to District Court 14The owners appealed to the District Court, alleging an erroneous decision of the Tribunal with respect to a question of law, pursuant to the Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) ("the Tribunal Act"), s 67. The matter was heard by Judge Peter Johnstone who, on 20 May 2011, dismissed the appeal with costs: Darin v Olzomer [2011] NSWDC 51. 15The judge noted that although three grounds of appeal had been identified in the summons, only one was pressed. That ground asserted that there was 'no evidence' to support the calculation of the amount payable, as found by the Tribunal. The judge indicated a degree of difficulty in identifying the question of law relied upon by the owners on the appeal: at [11]. He noted that the owners had not called evidence to refute the evidence of the builder, and in particular the summaries attached to his statement, and noted that the result was to leave the Tribunal with "the builder's final account summary as the only evidence before it as to the value of the additional work performed pursuant to the variation": at [13]. In this Court this statement was seized upon by the owners as revealing error, the judge having proceeded on the basis that the calculation undertaken by the Tribunal appropriately identified the cost of the split-level variation, whereas in fact the material before the Tribunal failed to permit it to separate the costs of the split-level variation from the costs of all other variations. 16Whether or not the trial judge in fact made this error is unclear. He summarised the case put by the owners in the following terms, at [7]: "The plaintiffs submit that there was no evidence concerning the other variation claims relied on by the Tribunal in making its calculation, such that it made the following errors: (a) It treated the total amount claimed as the reasonable cost of the split level variation when in fact the amount claimed by the builder ... was not the amount claimed in relation to the one variation allowed. Rather, [it] was an amount calculated by taking the contract price, adding all the variations (including the other variations) and then applying deductions. There was no evidence in relation to the 'other variations' or as to why or how they should be allowed and indeed they were not specifically allowed or even referred to. (b) It did (by default) allow the amount claimed for the other variations in circumstances where it made no finding (and indeed there was no evidence in support of the contention) that the other variations should be allowed. (c) It allowed on one variation (the split level) representing the entire amount claimed by the builder for the entire works. (d) In the absence of any evidence, it made a finding that the deductions allowed by the builder were fair and reasonable. (e) To the extent that it found all the works claimed related to the split level variation that was allowed (which is not clear) then there was no evidence that all the works claimed related to the split level variation. In fact, such a finding would be inconsistent with the submissions of the builder, the points of claim filed by the builder and the evidence of the builder. (f) There was no evidence as to what invoices or hours claimed related to which variation." 17The trial judge correctly identified the submissions again at [10]. Although thereafter, at [11] and [13], the judge referred to "the variation" (in the singular), it seems doubtful that the judge had entirely missed the point of submissions which he had stated with some precision and which, on the basis of the similar submissions proffered in this Court, correctly identified the owners' position. The better view is that his Honour had understood and adopted the calculation undertaken by the Tribunal at [33] and set out at [13] above. His conclusions, at [18] and [19], were consistent with that approach.

(d) review of District Court judgment 18There is no right of appeal from that judgment to this Court, but the owners sought judicial review, in the supervisory jurisdiction of the Court, pursuant to s 69 of the Supreme Court Act 1970 (NSW). They sought an order quashing the judgment of the District Court on the basis that Johnstone DCJ had erred in law in concluding that there was evidence upon which the Tribunal was entitled to rely in assessing the quantum payable by the owners. This approach involved, in effect, a rehearing of the appeal in the District Court. The respondent took no objection to that course, which is no doubt appropriate in the absence of a privative clause. 19The owners adopted a second ground in this Court, namely denial of procedural fairness. That was, however, only a different way of making the same point. The owners submitted that the Tribunal had "transposed the cost of all variations claimed for other aspects of the works as being the cost of the split-level works". This, it was said, the builder had acknowledged to have happened: written submissions, par 11. The submissions continued: "The only way to reach that figure would be for the Tribunal to have firstly allowed all the other 25 disputed variations. There was no finding made by the Tribunal in relation to those other disputed variations. For the builder to seek to sustain the correctness of the Tribunal's finding that it was entitled to $58,313.86 by contending for an inference that the Tribunal allowed the other variations, and by also then contending that the builder's accounts summary identified components of the quantum meruit being claimed where the Tribunal did not make any express findings in that regard, it was incumbent upon the builder to file a notice of contention." 20This formulation of the challenge took the matter no further. If the Tribunal failed to make findings of fact essential to its award, its decision, if challenged on that basis, should be set aside. It could not be defended by a notice of contention on an appeal limited to a decision of a question with respect to a matter of law, as that would require the appellate court to engage in fact finding which was beyond its remit. There was in substance only one challenge raised, both on the appeal to the District Court and by way of review in this Court. It involved two propositions: (a) although there were a number of variations to the work contracted to be undertaken by the builder, the Tribunal accepted only one as forming the basis of an entitlement to a quantum meruit payment, namely the split-level variation; (b) because the only evidence before the Tribunal was an undifferentiated set of accounts relating to all variations, it was not possible for the Tribunal to identify a figure relevant to the split-level variation alone. 21If the District Court judge failed to identify correctly the manner in which the Tribunal had reached its conclusion, he may well have made an error of law. For the reasons noted, it is doubtful that he did make the mistake attributed to him, but that issue need not be resolved because, for the reasons which follow, the Tribunal did not determine any question of law erroneously and therefore any error on the part of the District Court would have been immaterial.

(a) issues in dispute 22Remarkably, a matter which had involved oral evidence from one witness (the builder) and had been completed before the Tribunal in one day, led to the tender in this Court of "Court Books" running to over 1,000 pages. In part, that was due to the ability of an appellant in the District Court to assert that there was 'no evidence' to support a particular finding made by the Tribunal and in part because an issue was raised with respect to procedural fairness (in the District Court). 23It was not in doubt that a true case of a total absence of evidence (or other relevant material where the rules of evidence do not apply) to support a factual finding could fall within the scope of s 67 of the Tribunal Act, even if the Tribunal had not in terms identified such an issue as requiring determination: Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390. However, care is required in identifying the nature of the factual determination under challenge when dealing with a 'no evidence' ground. In Kostas, the critical question was whether the owners had lawfully terminated the building contract. Their notice seeking to terminate would have been valid unless the builder had served notices claiming extensions of time in accordance with the contract. The question was whether there was any evidence before the Tribunal that such notices had been sent. That question attracted a yes/no answer. By contrast, the assessment of the fair and reasonable value of work undertaken was not such a question. 24Further, in order to rely on a 'no evidence' ground, it may be necessary to identify with precision what issues were in play before the Tribunal. 25The first assumption relied on by the owners was that there was more than one variation and that the liability of the owners to make payments in respect of all variations other than the split-level variation was in issue before the Tribunal. That assumption was not made good. Indeed, it was entirely inconsistent with the case pleaded by the owners before the Tribunal. As has been noted, the points of claim, originally filed on behalf of Mr Darin, but in proceedings to which Mrs Darin was later added, accepted that variations valued at more than $50,000 had been authorised. 26Secondly, the reasons of the Tribunal were directed to the issue which remained in dispute, namely whether the builder was entitled to recover the cost of the split-level variation. The Tribunal held that he was, a conclusion largely based on findings of fact which are not challenged. 27The volume of material, nevertheless, allowed the Court to address two subsidiary points raised by the owners, namely that: (a) there was a live issue in the Tribunal as to whether there were 25 unauthorised variations, and (b) the claim based on quantum meruit, except in relation to the split-level variation, had not been pursued in the Tribunal. 28In relation to the first issue, the written submissions for the builder had expressly dealt (at paragraphs 68-84) with evidence of the owners' consent and acceptance of the split-level variation works. At paragraphs 85-98, the submissions dealt with the calculation of the amounts owing, by reference to the builder's final account summary. In particular, the submissions stated: "93. Had the owners disputed the claimed 25 variations in the builder's final account summary it would reasonably have been expected for the owners to have provided evidence from themselves and expert evidence such as a quantity surveyor to challenge the builder's claim for 25 variations and credits as contained in the builder's final account summary. 94. The owners have not served any expert evidence to counter the evidence contained in the builder's statement ..., nor was any evidence adduced by the owners that they did not agree to the variations or that they disputed the variations done." 29In response, the owners stated that there was "no entitlement to a quantum meruit where the work is either mitigation of damage or rectification of unapproved works performed in breach of a contract": written submissions, par 21. The premises upon which the works were to be so characterised had been addressed. Further comments were made to the effect that "[t]he issues on which the [builder] fails to meet the threshold are legal issues": par 25. With specific reference to the builder's submissions at paragraphs 68-98, the owners said that, the builder not having established liability, no response was required from the owners and that "[t]his is not a dispute about quantum but rather legal liability": at par 27. 30The proper conclusion from this material is that, consistently with the issues and concessions identified in each party's points of claim and the owners' defence, there was no suggestion that any of the variations claimed by the builder were unauthorised or otherwise matters for which the owners did not accept liability, with the exception of the split-level variation which was expressly determined by the Tribunal. 31The second point raised by the owners in respect of the live issues was whether a claim in quantum meruit was actually pursued before the Tribunal. This may be dealt with briefly. First, as noted at [7] above, the alternative basis of claim (in addition to the contract claim) was expressly raised in the builder's points of claim. Secondly, it was expressly dealt with by counsel for the builder in opening: Tribunal Tcpt, 08/06/10, pp 30(35)-31(15). Thirdly, Mr Olzomer gave evidence that the total cost of the works was "fair and reasonable", an assessment which would not have been relevant to a claim based purely on contract in the circumstances of this case. Fourthly, the Tribunal having decided the matter on that basis, one would have expected an appeal based on the ground of procedural unfairness had the point been available. That was not a ground pursued on the appeal.

(b) the "all variations" assessment 32For reasons already identified, the approach adopted by the Tribunal was to award an amount on account of quantum meruit by reference to the total sum payable under the contract, plus the amount claimed on account of variations, less certain allowances and less the amount already paid. Although much was made of the reference to "25 variations", there was some ambivalence on the part of counsel for the owners as to whether those variations included the split-level variation or not. That ambivalence was curious: the assumption upon which the owners sought to rely was that there was no material which permitted the separate evaluation of the split-level variation. Consistently with that approach, it might have been conceded that the final account summary provided by the builder included all variations. 33In fact, the final account summary did not identify variations by reference to the plans and departures therefrom. Rather, the items were, for the most part, identified by reference to discrete trades and suppliers. Some were not additions but deductions, and some were not separate 'variations' at all: thus, items 16 and 18 merely referred to costs identified elsewhere and item 17 referred to "door furniture" which was deducted because supplied by the owners. Despite that, as counsel conceded, there were a number of items which clearly related to the split-level variation, including, using round figures - "extra excavation" ($13,000); changed concreting "as per new design" ($5,900); additional bricklaying "as per new engineers [sic] design" ($33,570); extra roofing "due to new roof design with split in centre of building as per new plans" ($2,300) and roof plumbing, following an allowance, ($3,760). This exercise would permit a calculation on account of the split-level variation well in excess of $40,000. Clearly the split-level variation costs were included in the "final accounts summary", as were the other variations. 34The builder gave evidence that the total costs of the works incorporating the split-level variation was a little more than $781,000 and that he had been paid a little more than $727,000. He further stated that the total cost of the works represented "a fair and reasonable sum for the works including the split-level variation": statement, par 61. That evidence was said to be unchallenged, but it would not matter if it had been challenged, so long as to the builder did not renege on the substance of the statement. Such a concession was not suggested. Accordingly, the Tribunal was entitled to rely on that evidence to find that all the work not within the terms of the written contract was undertaken at a fair and reasonable value.

(c) cost of split-level variation 35If, contrary to the view taken above as to the exercise in fact undertaken by the Tribunal, it had purported to award an amount only on account of the split-level variation, its conclusion would nevertheless be supportable on the evidence. First, there was the concession in the pleadings by the owners that an amount of $40,000 was attributable to the cost of the split-level variation, excluding the cost of relocating the kitchen ($18,588), which the owners agreed was an authorised variation. Secondly, this amount appears to have been based on a figure provided to the owners by an expert instructed by them and came into evidence indirectly through a report by an independent expert instructed by the builder to comment on the owners' expert's report. Thirdly, there was the estimate given by the builder when the proposed split-level variation was discussed with the owners. Fourthly, there was the fact that the owners had paid an amount of $27,000 on account of variations which were apparently not in dispute, leaving outstanding an amount of approximately $55,000. It may be inferred from the pleadings that it was the split-level variation for which the owners were not willing to pay and that the amount outstanding, which fell squarely within the range of cost estimated by the builder, was understood by them to amount to the cost of that variation. Fifthly, there was the unchallenged evidence of the builder that the cost of all works was "fair and reasonable". 36It was not ultimately in dispute that the work the subject of the split-level variation had been undertaken. Nor was there any challenge to the preliminary figures quoted by the builder, having a range from $50,000 to $60,000 or possibly more, as representing fair value for that work: see [34] above. In the absence of any contradicting evidence, the Senior Member was undoubtedly entitled to accept that evidence, as he did. Whether challenged or not, there was, in short, evidence capable of supporting an award based solely on the split-level variation.

Conclusions 37The Tribunal was entitled to conclude, as it implicitly did, that the sole matter of liability in dispute, absent evidence in support of the owners' application, was the entitlement of the builder to be compensated for the split-level variation. There may have been a number of other more minor variations, but the owners did not dispute the entitlement of the builder in relation to those variations, some of which probably fell within the amount already paid in excess of the contract price. 38There was evidence supporting the conclusion that the additional amount claimed by the builder was fair and reasonable value for the work done outside the terms of the contract. There was thus evidence to support an order to pay so much of that amount as remained unpaid. 39In these circumstances, the 'no evidence' challenge must fail. There being no error on the part of the Tribunal in deciding any question of law, the appeal to the District Court was properly dismissed. No error of law on the face of the record, nor jurisdictional error, was shown in respect of the judgment of the District Court. If there had been such error it would have been immaterial. It follows that the summons must be dismissed with costs. 40MEAGHER JA: I agree with the reasons of Basten JA for the making of the orders made at the conclusion of argument on 26 March 2012. 41SACKVILLE AJA: I agree with Basten JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 March 2012

Consumer, Trader and Tenancy Tribunal Act 2001(NSW)

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Judgment (13 paragraphs)

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