Durastyle Homes Pty Ltd v Gosling; Gosling v Durastyle Homes Pty Ltd

[9]

Is the contract a cost plus contract?

I have referred to the affidavit of Ty Gosling. Mr Gosling deposes that he said to the builder during a conversation in about June 2019 in which the parties spoke of a generalised scope of work in the following terms:
"We want to do the renovations to replace all of the tiling on the bottom floor, put in a new kitchen, to make the bottom area more of an open plan, put in a new ensuite, new carpet and also carry out some renovation to the exterior of the property…we have a budget of around $300,000".
It is the owners' submission that this conversation constituted a contract to perform a specified scope of work for a fixed price.
For the following reasons I find that the parties entered into a cost plus contract.
First there was no agreed scope of work between the parties and the initial agreement to renovate the kitchen and floor covering of the residential premises clearly changed after the work commenced and after further instructions were received from the owners from time to time.
It is more likely than not on the balance of probabilities that the builder agreed to an estimated cost of $300,000 but was unable to fully quote a fixed price contract in the absence of any plans and specifications being provided by the owners. The parties agree that a rough sketch of the premises was the only document exchanged between the parties at the formation of the contract.
The invoices adding an overall margin of 15% are indicative of a cost plus contract.
The builder did not issue progress payments as are included in all fixed price contracts, but rather the builder issued invoices for payment after an instruction from the owners to perform specific tasks when was carried to completion.
The fact that the owners paid $380,000 approximately to the builder, is contrary to the owners' assertion that the parties entered into a fixed price contract for $300,000.
There was no agreement to finish the works within three months. It is open to the Tribunal to infer that the owners were content to live in the premises for an extended period of time, in circumstances where the builder erected a mobile laundry and kitchen area under the exterior pergola and the family resided in the premises while the renovations were ongoing. I draw an inference from the fact that the owners were prepared to live in the premises with outside cooking facilities that the parties had not agreed to a fixed term of three months. Further there is no complaint made to the builder in writing that the terms of the contract had been breached by reason of a delay of the building work. There is certainly no evidence that there was an agreement that time was of the essence.
For these reasons I am satisfied that the parties entered into an oral do and charge, or "cost plus" contract.

[10]

A cost plus contract

The owners seek damages for incomplete work in the sum of only $284.44.
By reason of the finding that the parties entered into a cost plus contract, the owners' entitlement to damages for incomplete work falls away.
Further in the context of these applications it is not relevant to determine how the contract ended. If a claim for damages for incomplete works arises out of termination of the contract prior to completion, then the circumstances of the termination may be important in relation to incomplete work as, if the contract was repudiated by the builder then the owner will be able to seek damages for any costs associated with completing the works, however if the owner repudiated the contract then no such claim can be made: Torua Pty Ltd v Sariklis [2012] VCAT 144.
The issue of repudiation and or termination has not been pleaded or particularised by either party. Both parties' pleadings are silent on the issue but the evidence states that the builder ceased work on the premises in or about August 2020 after the owners refused to pay further outstanding invoices.
Insofar necessary I am satisfied that the contract ended by agreement of the parties in or about August 2020. Neither party has alleged that the other party repudiated the contract or evinced an intention to no longer be bound by the terms of the contract. In these circumstances the contract between the parties does not preserve a continuation of any obligations on the parties following the end of the agreement. Any accrued rights during the term of the contract are preserved. In so far as the owners' claim is for incomplete works, the Tribunal is not satisfied that under a costs plus contract such a claim can be warranted once the rights and obligations of the parties have been determined.
The builder is entitled to be paid for the work he performed until the termination of the contract in August 2020, albeit only on a "just and equitable" basis pursuant to s94 (1A) of the Act. Effect of failure to insure residential building work 94 EFFECT OF FAILURE TO INSURE RESIDENTIAL BUILDING WORK (1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the "uninsured work" ), the contractor who did the work-- (a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and (b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit). (1A) Despite section 92(2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.
I note that the issue of "incomplete" work is relatively unimportant in this case as the owners' expert states on page 2 of his report (CB 378) that "I have estimated the value of incomplete works as $284.44 and the value to rectify defective works is $88,119.68."

[14]

Item 3 - $13,134 -support the load bearing wall in the pantry

Dr Cunniffe's report observed that a large pantry has been added to the kitchen area. The expert does not state that the stud wall in the pantry is a load bearing wall. The expert merely generically states "the internal walls are load bearing walls" and that "the internal walls are loadbearing wall (sic) supporting first floor walls and roof". There is no explanation in the Cunniffe report why the expert concludes that the stud wall at the back of the kitchen is a load bearing wall or why it requires support. Dr Cunniffe did not inspect the wall, and instead relied on a photographs provided by the owners.
It is submitted by the builder that Dr Cunniffe's opinion should be given little weight because the builder inspected the original house plans and they support a conclusion that the existing wall, at the back of the kitchen and since removed, was not a load bearing wall. I accept that submission, a copy of the plans was provided. I accept and prefer the submission of the builder that there is no evidence provided to support the generalised contention that the stud wall is a load bearing wall or that it requires support. I accept the submission that there is no sagging or cracking to the ceiling that would support a contention the wall requires support. Had Dr Cunniffe attended the premises it may be that the usual observations would have been recorded: for example, whether the stud wall runs perpendicular to the floor joists or any other markers that would support the opinion the wall is loadbearing or that it requires support. As the expert did not inspect the wall and as I am satisfied that he has not actually expressed an opinion that this wall is a load bearing wall or why it requires support, I am satisfied that the expert has not actually established that this wall is defective. I conclude that the owners have not discharged their onus of proof in respect of this defect and I decline to make an award.

[17]

Item 6 - patch and paint all dents - $1765

The owners seek damages to rectify dents and scratches in the architraves and skirtings in the sum of $1765. It is Dr Cunniffe's opinion that there are numerous dents in the architraves, skirtings, mouldings and trims and that this is defective work. Mr Nisbett agrees that there are defects but says that a painter was engaged by Mr and Mrs Gosling. The question to be determined is therefore whether the rectification of skirting boards and architraves formed part of the scope of work agreed between the parties as part of the cost plus contract.
I refer to the affidavit of Andrew Gibbs of 26 May 2021. On balance I find that the affidavit of Mr Gibbs is persuasive and gives weight to the builder's version of events. Mr Gibbs states that "the property is an old and large home, the [owners] did not want to replace all the gyprock and skirting to the entire home. … Instead of gyprocking the whole property I recall the [owners] hired a painter named Han to patch and repair any damaged plasterboard. This was separate to the works I organised and supervised. This was therefore not part of the works undertaken by Durastyle or the Contractors and Durastyle is not responsible [for the work]".
Mr Gibbs was cross examined. On balance I am not of the view that the cross examination has impugned his version of events. He deposes that he tried to contact Mr Han the painter but that the painter was not able or willing to give a statement on the builder's behalf as the painter was retained by and on behalf of the Goslings. I accept this also. Although the account of the conversation between Mr Gibbs and Mr Han is hearsay, as the rules of evidence do not apply, I accept the evidence and it is admitted and was not objected to. Finally I cannot locate nor was I taken to any evidence in the affidavits of Mr and Mrs Gosling that the architraves and skirting boards formed part of the contract work. Lastly, it was open to the owners' to obtain an affidavit of Mr Han, in the event Mr Han supported their version of events, but no evidence has been obtained from the painter. I infer that had the owners obtained a statement from Mr Han, it would not have supported their case. On balance, I am satisfied that the architraves and skirting boards did not form part of the scope of work agreed between the parties and on balance I reject the owners' claim for damages in respect of this defect.

[18]

Item 7 (Item R5 in the joint report) - Unblock and correct the upstairs toilet plumbing.

The exact words in the Cunniffe report are that he has "reason to believe the sanitary plumbing was not correct" and "I have allowed for a plumber to be fully investigate (sic) the seals and pipework relating to the toilets".
In my view this is not sufficient to establish that the builder has carried out defective work. I am not satisfied that the expert has expressed an opinion that the work performed by the builder is defective.
Even if Dr Cunniffe had stated that a defect exists, (as opposed to stating he has reason to believe it exists), the mere finding of a defect does not establish a breach of the statutory warranties under section 18B of the Act which is implied into every contract for residential building work. Something more is required, other than to state that the expert had reason to believe the plumbing was not correct and further investigation is required. The nature of the evidence required to establish a breach was considered by the Appeal Panel in Deacon v National Strategic Constructions Pty Ltd; National Strategic Constructions Pty Ltd v Deacon [2017] NSWCATAP 185 (Deacon).
The Appeal Panel considered that although objective standards such as Australian Standards, the Building Code of Australia and the Guide to Tolerances are of significant relevance in establishing whether work has been performed in a proper and workmanlike manner (Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 at [10]), the absence of such evidence does not automatically mean a homeowner has failed to establish a breach of statutory warranty. The reverse applies also. Even if evidence of a defect was established, which it is not in this instance, this does not of itself establish a breach by the builder of the statutory warranties.
In the Appeal Panel's view, the relevant principle was succinctly stated by Senior Member Goldstein in G MacFayden and Anor v G Tadrosse [2014] NSWCATCD 194 at [46] as follows: …[E]vidence that work does not comply with the Building Code of Australia would establish a basis for a finding that sub section 18B(c) of the Act has been breached. Evidence of the details in which work does not comply with the contractual plans and specifications would form the basis for a finding that sub section 18B(a) of the Act has been breached. Evidence of work not being carried out in a proper and workmanlike manner would in my view involve identification of the work in question, a statement of how the expert would expect it to be carried out in in a proper and workmanlike manner and then identification of the factors which establish that the way in which the work has been carried out falls short of it being carried out in a proper and workmanlike manner. Evidence of this nature, if accepted, would form the basis for a finding that sub section 18B(a) of the Act has been breached.
I am satisfied that the opinion expressed by Dr Cunniffe falls short of establishing a breach of statutory warranties and the claim is dismissed.
In light of dismissal of the owners' claim for damages in respect of this item it is not strictly necessary for me to arrive at a finding whether or not the toilet in the upstairs bathroom formed part of the scope of work agreed between the parties. However for the sake of completeness and to give finality to the parties, I have considered whether this item formed part of the agreed scope of work. The builder submits that the ensuite toilet upstairs did not form part of the scope of work. It is the evidence of Mr Gibbs that the upstairs toilet had previously caused problems and was the defective work of a plumber who had previously been engaged by the owners.
The builder states that he was not engaged to rectify the previous' plumber's work but was only engaged to install electricity to the upstairs bathroom. Mr Gosling was cross examined about emails he had sent to the plumber engaged by the builder: Mr Gosling conceded in the email that the renovation of the upstairs bathroom was partially renovated before the builder attended the site. A problem with the toilet was identified during the work and the builder's plumber was asked if he could assist. The plumber, engaged by the builder, warned that the fall in the bathroom was inadequate and any work fixing the problem would involve removing the ceiling. Mr Gosling instructed the plumber: "No just get it unblocked and fixed as best you can." It is submitted that the plumber "warned Mr Gosling about future potential problems" but Mr Gosling was adamant that the builder's plumber should not cut access to the ceiling to rectify the fall. It is submitted by the builder that "the very thing that the plumber forecast would happen came indeed to pass, the toilet got blocked and is now listed by the homeowners' expert as a defect". Mr Gosling denies he instructed the plumber not to cut the ceiling and stated that he had instructed the plumber to cut the ceiling and that the plumber had acted on the instruction, but had failed to fix the fall, and that the toilet was then blocked.
I find the following facts on the evidence. A previous builder/plumber had renovated the bathroom and installed the toilet. The toilet is slow to flush and a smell is present. The owner instructed the builder (or his subcontractor) to fix the problem. The parties had a conversation about cutting the ceiling and fixing the fall. The builder's subcontractor may or may not have cut the ceiling. Either way, the problem remains, the toilet is easily blocked. There is inconclusive evidence that the builder (or his subcontractor) did any work rectifying the toilet, or of the precise nature of the work; or that the builder received payment for the work; or that the builder carried out defective work, as opposed to the builder before him. On balance I am not satisfied that the owners have discharged their onus of proof. The owners have not established that they instructed the builder to cut the ceiling, or that the builder cut the ceiling or that any action by the builder or his subcontractor is causative of the blocked toilet.

[31]

Item 26 (Item R24 in the Joint Report) - Build Ramp to Garage

In the joint report Dr Cunniffe expresses the opinion that when tiles were laid in the garage, a ramp should have been installed. Mr Nisbett agrees that there is no ramp but says that this is incomplete work and not defective work. It is submitted that when the weight of a car is placed on the tiles the tiles will break and that builder's failure to install a ramp is therefore defective work. The builder relies on the written submissions on page 22 and states "this is simply work not undertaken by the builder and is not a defective item but an incomplete item." The builder did not do the work and did not charge for the work and at the time of the inspection there were no broken tiles and any claim for defective or incomplete work should be rejected.
I agree with the builder's submissions. There is no allegation that the builder built the ramp or that work he performed is defective by reason of the missing ramp. It is clearly incomplete work. I refer to the reasons set out at paragraphs [31] above. The contract between the parties, being a cost plus contract, does not preserve a continuation of any obligations on the parties following the end of the agreement. Only accrued rights during the term of the contract are preserved.
In so far as the owners claim damages for incomplete works I am not satisfied that under a cost plus contract such a claim can be maintained once the rights and obligations of the parties have been determined. The owners have not established a claim for damages for incomplete work in respect of the ramp.
The owners' claim for damages for defective work, and not incomplete work is summarised as follows: Defects Item 4 R2 $710 Item 5 R3 $783 Item 8 R6 $250 Item 12 R10 $81 Item 13 R11 $1212.50 Item 14 R12 $120 Item 19 R17 $850 Item 20 R18 Item 21 R19 Item 22 R20 Item 23 R21 $535 Item 24 R22 $4579.85 Item 25 R23 $98 Total $9219.35 Preliminaries15% $1382.90 Subtotal $10,602.25 20% margins $2120.45 Subtotal $12,722.70 GST 10% $1272.27 Total $13,994.97

[32]

The owners' loss of value claim

I refer to the document at tab 7 of the owners' folder entitled "Property Assessment Report of a Freehold Residential Property to Assess the Likely Reimbursement for Costs to make good completed building works which have no Home Warranty Insurance" dated 25 March 2021 prepared by a Mr Handley of Searchfield Properties Pty Ltd. Mr Handley is a certified practicing valuer, and a licensed real estate agent. The writer did not provide a curriculum vitae and there is no expert code of conduct attached to the report and I therefore do not give the report much weight. Mr and Mrs Gosling rely on the opinion of Mr Handley. It is Mr Handley's opinion that as a consequence of the incomplete and defective work and the builder's failure to obtain homeowners warranty insurance for the property, the property has suffered a diminution in value "equal to the cost to makegood plus a contingency sum of 30%". Mr Handley's report was tendered in the proceedings without objection and he was not cross-examined. Mr Handley's opinion therefore must be admitted into evidence. The effect of Mr Handley's opinion is that in the event the Tribunal finds that the value of the defective work is $56,212.08 as was initially claimed by the owners, a further sum equal to 30% of the damages for defective work should be added, by way of damages. In his report Mr Handley assumes that the value of defective work is $88,400 and determines that the loss of value sum is represented by a 30% "premium" which he applies to the sum of the defective work. The owners submit that "as a consequence of the incomplete and defective work and builder's failure to obtain Home Warranty Insurance for the Jolly Street, Castlereagh property, the property has suffered a diminution in value equal to the cost to make good plus a contingency sum of 30%."
The builder's submissions state that if the Tribunal finds items are defective and allows an amount that is the alleged loss of value in the property and nothing further should be awarded as compensation. Adding a 30% premium or contingency onto the alleged loss of value has no sound basis in fact or law. The builder relies on its written submissions to assert that the building experts have already allowed 15% preliminaries and overheads and 20% margin plus GST. The 30% loss of value claim by Mr Handley is speculative and amounts to a windfall to the homeowners and nothing more. I agree with the builder's submission. I find that there is no basis in fact or law to add to make an award for loss or damage for a further 30% as a "contingency". There is no evidence before me that the failure to obtain homeowners warranty insurance has resulted in a 30% loss of value calculable by reference to the amount of damages awarded for breach of statutory warranty. There is no evidence to support a contention that the owners are forced to sell at a discount by virtue of the fact that the builder has failed to obtain home owners' warranty insurance. I have not been provided with any caselaw that would support a reduction in value on the basis of Mr Handley's assessment of 30%. Nor does Mr Handley provide an opinion that in his experience as a licensed real estate agent, generally homes that have undergone renovations in the last six years, but are sold without home owners' warranty insurance, suffer a diminution in value in the open market. I reject Mr Handley's contention that a 30% contingency must be awarded, referable to any amount awarded for defective work, and I dismiss this head of damage.

[33]

Quantum meruit

The builder claims he is entitled to payment in the sum of $73,013.95 on a quantum meruit basis see submissions bundle on page 14, of the written submissions dated 17 February 2022.
I have taken into account the pleadings, the affidavit of Mr Gibbs and exhibits A and One, as well as submissions of counsel in the joint agreed submissions folder.
In respect to the entitlement to a claim for quantum meruit the builder must establish: the work involved must be outside the work required under the contract; the owners must have knowledge of the variation as it was executed; the owners knew that it was outside the contract; the owners knew that the builder expected to be paid; and the builder has evidence that the amount claimed was fair value. (Nayack v Rockwell Constructions Pty Limited [2017] NSWCATAP 18 at [30]).
The builder's submissions are contained at pages 8 and following. It is submitted that because the parties were socially acquainted that the builder was not required to provide homeowners warranty insurance. I reject this submission. The builder failed to provide a written contract contrary to the writing provisions of the Act and failed to comply with section 92 of the Act. The nature of the relationship is irrelevant and cannot be a defence to non-compliance with the builder's statutory and license requirements. Insofar necessary I am satisfied that the breach of the Act is established and it must follow that the builder can only recovery any sum outstanding on a restitution basis and only if such recovery is just and equitable (see s94 of the Act).
The builder cites the decision of Urban Construction (NSW) Pty Ltd v Brett Shearer & Anor [2015] NSWCATCD 9 and the well-known authority of Eddy Lau. However, unfortunately I am not addressed on the issue of quantum at all. The critical invoices are not in evidence. Mr and Mrs Gosling provided detailed affidavit evidence attaching many hundreds of invoices that were provided by the builder during the course of the work and may be relevant to some of the invoices the builder says remain outstanding. However no attempt was made by the builder to identify the relevant third party invoices that were not paid. As is cited by Senior Member Goldstein in Urban, "the courts task is not to assess damages for breach of contract but to ascertain what is fair and reasonable compensation for the benefit of the services performed and accepted actually or constructively by the recipient…. Actual cost should not be ignored…any price or commission agreed between the parties may be received as evidence of the value of the parties themselves put on the services performed even where the services have not been totally performed, but the agreed amount is not determinative of the matter."
The evidence tendered by the builder is scant. I refer to the builder's affidavit at paragraph 16 which merely summarises in a table the invoices he claims remain unpaid.
Quantum meruit claims arise where a builder has performed work under unenforceable provisions of a contract, and it would be unjust for the homeowner to retain the benefit of the work done without paying for the reasonable value of the work.
Relevant principles have been discussed in a plethora of decisions, including Suecha Pty Ltd v VSD Glass & Timber Pty Ltd [2020] NSWCATAP 170; Woodward v Warwick Green Building Pty Ltd [2021] NSWCATAP 210; Rekrut and Scott v Champion Homes Sales Pty Ltd [2017] NSWCATAP 187; Roude v Helwani [2020] NSWCA 310; Rice v JR and SD Farmer t/as Urban Bespoke Homes [2020] NSWCATAP 208; and Paraiso v CBS Build Pty Ltd [2020] NSWSC 190.
The principles can be summarised as follows:
If the quantum meruit claim involves an unenforceable variation, the builder must prove the homeowner had actual knowledge of the additional works; that the works were outside the contract; and the builder expected to be paid for the additional work.
In respect of all quantum meruit claims, the onus is on the builder to establish the reasonable value of the work that performed and accepted by the homeowner. This is a question of fact. Relevant evidence will include any invoices/receipts of the builder; time sheets of the builder; rates under the contract for labour and materials; and expert evidence that analyses the work actually performed and the reasonable cost of such work.
The amount recoverable in a quantum meruit claim cannot exceed the amount that would have been payable under the contract for that component of the work.
In this case I have not been provided with any evidence by the builder that establishes a claim for restitution. The builder's invoices have not been tendered; the builder has not identified the labour rates charged nor does he particularise the work that was performed by the builder to support each invoice; nor is there any evidence that I have been taken to that speaks to the amount spent by the builder on materials relevant to the outstanding invoices. The evidence of the builder does not contain any documents sufficient for the Tribunal to be able to identify what work was done by the builder and the value of such work.
The submissions assert that the invoices attached to the owners' affidavit show that the builder purchased household goods on behalf the owners from time to time. However, other than to list the purchases on page 14, it is not attempted to show which of those remain unpaid or are relevantly linked to an outstanding invoice rendered by the builder for payment by the owners. There is no analysis of the hundreds of third party invoices attached to the owners' affidavits, or any attempt to identify which of those third party invoices may relevantly be linked to the builder's unpaid invoices, although most of the invoices attached appear to span the relevant time period between 19 March and 25 June 2020. The owners were not cross examined on the third party invoices in their evidence.
I note that the builder sought to tender a bundle of third party invoices on day two of the hearing.
The hearing was listed for hearing on 2 September 2021. On the morning of the hearing the builder sought to tender an affidavit of Andy Gibbs dated 2021 attaching two hundred invoices. The owners objected on the basis that the bundle was served on the morning of the hearing and as the owners had no opportunity to reconcile hundreds of invoices. After argument from both sides I ruled that the evidence was not admissible. I stated that I would deliver reasons in writing and these are those reasons.
The builder pleaded a claim in quantum meruit in December 2020. The parties were directed to exchange evidence and the builder's evidence was due on 30 March 2021. At a directions hearing on 22 June 2021 the builder indicated he had filed and served all documents he sought to rely upon.
The builder failed to file and serve lay or expert evidence in support of its quantum meruit claim.
The application to adduce fresh evidence on the morning or the hearing gave rise to a procedural unfairness as the respondents were unable to scrutinise the builder's affidavit and bundle of invoices. To admit the late affidavit of Mr Andy Gibbs was contrary to the just, quick and cheap resolution of the issues between the parties, see s36 of the Civil and Administrative Tribunal Act 2013, in circumstances where the builder had been directed to file and serve its evidence more than six months prior and confirmed in April that its evidence in chief had closed. The builder did not seek an adjournment.
The Tribunal pointed out to the legal representatives of the builder that the two hundred invoices that were attached to the builder's affidavit, appeared to have been tendered by the owners and were attached to the owners' affidavits, exhibit A. The owners conceded that any submission using the owners' invoices in support of the builder's claim would not be objected to. No attempt was made to quantify the builder's quantum meruit claim by reference to the owners' invoice bundle which would have been admissible.
At the conclusion of the hearing on 1 September 2022 the builder did not seek to renew the tender. During the adjournment period between September 2021 and February 2022 no attempt was made to file an application for miscellaneous orders, to seek an order from the Tribunal to renew the tender. In the absence of such a renewed application the Tribunal excluded the evidence.
I am satisfied that there is no evidence that the builder's claim represents fair and just compensation for the enrichment of the owners received because the value of the work the builder performed is not independently verified or verifiable. Mr Gibbs says that that the total value of the works is $477,055.57 and it is not in dispute that he has been paid $398,727.37. Mr Gibbs has led no evidence that the builder has performed work over and above the value of $398,727.37 or that the owners' have been unjustly enriched by that or any other amount.
For these reasons I dismiss the builder's application.

Durastyle Homes Pty Ltd v Gosling; Gosling v Durastyle Homes Pty Ltd - [2022] NSWCATCD 106 - NSWCATCD 2021 case summary — Zoe

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