Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : BGC CONSTRUCTION PTY LTD -v- ELVIDGE PTY LTD [2005] WADC 103

Contract - Building contract - Contractual variation or estoppel - Scope of pleading - Illegality raised in the appeal - Turns on own facts

Home Building Contracts Act 1991 (WA), s 7

Local Government (Miscellaneous Provisions) Act 1960 (WA), s 374(5)

Amadio Pty Ltd v Henderson [1998] FCA 823; (1998) 81 FCR 149

Australian Breeders Co-operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153

Burton v Palmer [1980] 2 NSWLR 878

Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520

Commonwealth v Crothall Hospital Services (Australia) Ltd [1981] FCA 117; (1981) 54 FLR 439

Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1

Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1

Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101

Great City Pty Ltd v Kemayan Management Services (Australia) Pty Ltd [1999] WASC 70; (1999) 21 WAR 44

Integrated Computer Services Pty Ltd v Digital Equipment Corp (Australia) Pty Ltd (1988) 5 BPR 11,110

Knowles v Fuller (1947) 48 SR (NSW) 243

M K & J A Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39

Mackay v Dick (1881) 6 App Cas 251

Metwally v University of Wollongong (1985) 59 ALJR 481

Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538

Newcombe v Newcombe (1934) 34 SR (NSW) 446

Re Griffiths; Ex parte Homestyle Pty Ltd [2005] WASCA 103; (2005) 139 LGERA 178

Sprague v Booth [1909] AC 576

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491

Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410

Allan Rowlands Holdings Pty Ltd v Gaye (No 1) Pty Ltd [1992] NTSC 32; (1992) 107 FLR 313

Beneficial Finance Corp Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510

Beresford v Royal Insurance Co Ltd [1937] 2 KB 197

Canberra Pools Pty Ltd v MMI General Insurance Ltd [2000] FCA 751; (2000) 98 FCR 296

Doug Rea Enterprises Pty Ltd v Hymix Australia Pty Ltd [1987] 2 Qd R 495

Garden City Wallpaper and Curtain Centre Pty Ltd v Barenfar Pty Ltd, unreported; FCt SCt of WA; Library No 980544; 18 September 1998

Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18

Greenwood v Martins Bank Ltd [1933] AC 51

Hayes v Cable [1961] NSWR 610

Holdcroft v Market Garden Produce Pty Ltd [2000] QCA 396; [2001] 2 Qd R 381

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26

Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538

North-Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221

Plumor Pty Ltd v Handley (1996) 41 NSWLR 30

Potato Producers Co-operative Ltd v Pavone [1962] VicRp 35; [1962] VR 231

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267

Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507

Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251

2 McLURE JA: The appellant (defendant) appeals from the decision of learned Commissioner Keen made on 9 June 2005 to enter judgment against it in the sum of $74,165.48 being the amount found to be owed by the appellant to the respondent (plaintiff) under a building contract.

3 The appellant owned Lot 160 Battery Road, Parkerville. By an agreement in writing between the appellant and the respondent made on 13 January 1999, the respondent agreed to construct a house on Lot 160 for the sum of $67,650 ("the building contract"). Under the building contract the appellant was to undertake the site works which included cutting and preparing the ground and forming the sand pad prior to the commencement of construction of the works under the building contract. The contract plans provided for a sand pad level ("SPL") for the house of 14.5 m. The appellant, without obtaining approval of the Mundaring Shire Council ("Shire"), caused the ground to be cut and the sand pad to be prepared and compacted at SPL 13.5 m. Thereafter the respondent constructed the house. The appellant made progress payments during the course of construction. Save for the level of the sand pad, the house was otherwise in accordance with the building contract.

4 The respondent commenced proceedings to recover the balance of the amount due under the building contract upon practical completion. The appellant denied that the house had reached practical completion because it had been built at SPL 13.5 m rather than 14.5 m.

5 The Commissioner found that the building contract had been varied to amend the SPL from 14.5 m to 13.5 m, alternatively, the appellant was estopped from denying such a variation. In making these findings, the Commissioner relied on the further findings that the appellant caused a compaction certificate to be provided to the respondent and the respondent, to the appellant's knowledge and intention, relied on that certificate to proceed with the construction of the house.

6 The appellant relies on four grounds of appeal. In substance, they are that the learned Commissioner erred in:

1. making findings of variation and estoppel on matters that had not been pleaded by the respondent or otherwise identified and properly litigated at trial;

2. finding that there had been a variation by conduct based on the provision of the certificate;

3. finding that the appellant was estopped from denying that the respondent had performed the building contract; and

4. failing to find that the respondent's claim was not maintainable "for illegality as a matter of public policy".

7 The respondent filed a notice of contention to the effect that if the Commissioner erred in any of the ways contended for by the appellant, then the Commissioner erred in failing to find that the Works performed by the respondent at SPL 13.5 m were practically complete as they were capable for their intended use or alternatively were deemed to be practically complete pursuant to cl 2(d)(ii), cl 2(d)(iii) and cl 10(e) of the building contract.

8 Clause 1 of the building contract materially provides:

"The Builder shall complete all works described in item 2 of the Schedule ('the Works') in accordance with this Contract and the drawings, plans and specifications, including all addenda and schedules, to be drawn in accordance with the Contract Particulars Sheet ... ('the Contract Documents') and signed by the Proprietor, for the price described in item 3 of the Schedule ('the Contract Price')."

9 The Works are described in item 2 of the Schedule as "Single Stor[e]y Residence". The building contract was conditional upon, inter alia, a building licence being obtained. Clause 2 materially provides:

(i) ...

(ii) a building licence ... being issued in respect of the Works within FORTY FIVE (45) days from the date of this Contract, provided that within a period of 5 days of receipt by the Builder of the building licence, neither the Proprietor nor the Builder gives notice in writing to the other that any condition attached to the building licence is unacceptable to the party giving such notice;

(iii) all other approvals required to be obtained under any statute or subsidiary legislation before construction can commence being obtained within FORTY FIVE (45) days from the date of this Contract ...

(b) The Builder shall apply for the building licence and all approvals required by any statute or subsidiary legislation, and shall pay all necessary fees for such a licence or approvals.

(c) The Builder shall:

(i) do all reasonable things required to be done to obtain any building licence or approval required to be obtained pursuant to clause 2(a);

(ii) ...

(iii) ...

(i) ...

(ii) to the extent to which the Proprietor is required by law, or otherwise elects to apply for a building licence or obtain any approval pursuant to any statute or subsidiary legislation, do all reasonable things required to obtain such building licence or approval, and shall act promptly and diligently in so doing;

(iii) do all things that are necessary to comply with any condition that may be attached to the building licence or approval ... "

10 Clause 5 relates to variations. In essence it provides that if the Proprietor wishes to vary the Works, it is required to give notice thereof in writing to the Builder. If the Builder agrees to the variation, it must give the Proprietor a variation order setting out, inter alia, the nature and cost of the variation and the Proprietor must sign and return the variation order.

11 Clause 10 deals with commencement. It relevantly provides that the Builder shall commence the Works by the time specified in the Schedule and shall complete the Works within the time specified in the Schedule provided that, inter alia, "the Builder has received all necessary approvals from the relevant authority" and "there is no other sufficient reason why the Works should not commence". Clause 10(d) and (e) relate to practical completion. They provide:

"(d) Practical completion of the Works is deemed to have taken place when:

(i) the Works are completed except for any omissions or defects which do not prevent the Works from being reasonably capable of being used for its intended purpose; or

...

(e) If the Works are not reasonably capable of being used for its intended purpose only because of any act or omission by the Proprietor or by a relevant local or state authority, the Works shall nevertheless be deemed to be practically complete."

12 Clause 20 relates to works carried out by the Proprietor. It materially provides in subpar (i):

"Where site works involve a cut and fill to create a levelled area for the Works, and expose steep banks of excavation or overfill within the Site boundaries, the Proprietor shall be responsible for stablising the banks at his cost."

13 In December 1998 plans for the house were lodged with the Shire. The plans provided for a set back of 12 m. In late December 1998 Mr Alan Black on behalf of the appellant discussed amendments to the plans with a Shire officer. The amendments related to reducing the set back from 12 m to 7 m and the reduction in the SPL from 14.5 m to 13.5 m. The appellant lodged an amended plan with the Shire showing the reduced set back and a handwritten amendment of the SPL to 13.5 m. Although the Shire approval stamp was affixed to the amended plan, the affixation was not signed on behalf of the Shire.

14 The Shire issued a building licence dated 23 February 1999. It was a condition of the licence that the building work be carried out in accordance with plans approved by the Building Surveyor. An amended plan dated 6 January 1999 was approved by the Shire's Building Surveyor on 23 February 1999. The parties accepted that this was the contract plan. It shows the SPL at 14.5 m. The contract plan is marked "Unless otherwise noted retaining walls are by owner" and "Retaining not included/in addition to contract remains owners [sic] responsibility".

15 Mr Black's evidence was that he advised the respondent of the amended SPL of 13.5 m by noting it on variation order 47205. That variation order is dated 21 December 1998 and provides "Reposition house front setback to 12 000 to meet council requirements". Mr Black wrote on the variation order that application had been made to the Shire to reduce the set back to 7 m and "SPL on L160 No 13.50 m".

16 In January 1999, Mr Black on behalf of the appellant contracted with Mr Christopher Mitchell to "cut, supply sand fill, 600 mm sand pad. Level pad to 13.400 and compact with engineers [sic] certificate". In early April 1999 Mr Mitchell commenced the earthworks on Lot 160. When cutting and levelling the site to 13.4 m, he noticed this created a large cut approximately 4 m high on the eastern boundary of Lot 160. He was concerned that the height and angle of the cut might render it unstable and contacted the Shire.

17 The parties signed variation order no 48723 in late April and early May 1999. It contains two relevant items. The first is "Site Works By Owner" and the second "Retaining Wall By Owner".

18 By facsimile of 6 May 1999, the Shire informed the respondent to secure the site and make it safe, advising that no further Works were to proceed until a resolution could be found as to the retaining of the earthworks on Lot 160.

19 The appellant consistently refused to undertake the rectification and remedial work occasioned by the site works it had caused to be undertaken, claiming the remedial work was the respondent's obligation. By mid-October 1999, the Shire's position was that its approval for the construction of a retaining wall on the eastern boundary was required before the respondent could commence constructing the house at SPL 13.5 m.

20 On 29 September 1999, Mr Black wrote to Mr Mitchell requiring him to proceed and finish the works the subject of the contract between them by 13 October 1999 "ready for the builders to start". That work was done and a firm of engineers, Structerre, carried out compaction tests on the sand pad and provided a compaction certificate dated 6 October 1999. The compaction certificate was sent by Mr Mitchell to Mr Black. The respondent commenced construction work after the compaction certificate came into existence.

21 By facsimile dated 15 October 1999, the Shire informed the respondent that no building licence existed for the construction of the retaining wall and required application for approval to be made prior to any works commencing on site. The respondent took possession of the site in October 1999 and commenced construction in about November 1999.

22 The Commissioner made the following findings of fact. The house was practically complete in the sense that the Works were carried out satisfactorily and would be reasonably capable of being used for their intended purpose. The appellant knew the respondent commenced the Works in about November 1999. The appellant had caused Mr Mitchell to complete the site works, compact the site and cause the engineer to issue a compaction certificate which was passed on to the respondent to enable it commence the Works. The Commissioner found that the appellant caused all these things to be done in the knowledge, and with the intention, that building work should commence. The appellant was at all material times aware that the Shire was not satisfied with the eastern boundary and required it to be retained.

23 Findings 6, 7 and 8 are of particular significance. They provide:

"6. Notwithstanding that the contract provides a mechanism for variation to the contract namely as set out in cl 5 of the contract, I find that the contract was varied to provide for a sand pad level at 13.5 metres. I do not make that finding solely relying upon variation order 47205 ... upon which Mr Black had endorsed the words 'Please also note SPL on L160 No 13.5M'. I accept that this document pre-dates the contract and the plans which were signed and could not be classed as a variation. However, I find that the variation occurred subsequently by reason of a combination of that letter, the [appellant] arranging the cut to 13.5 metres and thereafter compacting the site at that level and handing to the [respondent] the compaction certificate with the intention (as I have so found) of the [respondent] proceeding on that basis. Whilst that variation has not been dealt with strictly with accordance with the terms of the contract I nevertheless find that such a de facto variation has occurred.

7. To the extent that such a variation might be said not to be a variation under the contract because the contract spells out precisely how variations should take place I find that the [respondent] has changed its position relying upon that de facto variation. I find that the [respondent] relied upon the compaction certificate and all that that implies and commenced work on the site at 13.5 metres to the knowledge of the [appellant].

8. The [appellant] was responsible for the site works ... The uncontested evidence of Mr Purich [of Structerre] is that site works includes necessary retaining and I find that this was the responsibility of the [appellant]. I further find that, consistent with that responsibility the [appellant] engaged upon those works through Mr Mitchell at the level of 13.5 metres. I further find that it was the [appellant] that took upon itself the obligation of varying the works and was responsible for stabilising the eastern boundary within the meaning of the contract. It is also apparent from the evidence, and I so find, that the [appellant] entered into negotiations with the Shire with the view to achieving the cut at 13.5 metre[s] and altered the plan to that effect. He directed Mr Mitchell to carry out the works to that level and I find that the [appellant] took on the obligation to ensure that the approved plans were amended accordingly ... "

24 Thus, the Commissioner found, correctly in my view, that the appellant was contractually responsible for the site works, which included stabilising the eastern boundary, and had the obligation of obtaining Shire approval for the amendment to the approved plans. Eventually, the appellant built a retaining wall on the eastern boundary of Lot 160 and the Shire regarded the problem as resolved.

25 Before dealing with the grounds of appeal, I propose to address a submission put by the respondent for the first time on appeal. As I understand it, the submission is to the effect that, on a proper construction of the building contract, the respondent's obligation was to construct the house on site works provided to it by the appellant without regard to whether the sand pad level complied with the contract plans. I do not accept that submission. It is the case, as the Commissioner found, that the appellant was contractually obliged to do the site works. Additionally, the appellant's contractual obligation was to do the site works in accordance with the contract plans. That must be the case having regard to the respondent's express obligation to construct the house in accordance with, inter alia, the contract plans. It follows that the appellant's obligation to provide the respondent with a sand pad at 14.5 m was not a condition exclusively or even primarily for the appellant's benefit which it was entitled to unilaterally waive (see Greig and Davies, The Law of Contract at 375; Chitty on Contracts: General Principles Vol 1, 29th ed at [22-045]). For a helpful discussion of the relationship between waiver, variation, election and estoppel, see Greig and Davies at 120 - 124. Further, this is not a straightforward case of the respondent "waiving" the appellant's breach in failing to provide site works at the agreed level because the respondent proceeded to construct the house at the reduced level notwithstanding its inconsistent contractual obligation under the building contract.

26 In my view, it is correct to characterise the respondent's obligation to construct the house at the level specified in the contract plans as a "dependant" contractual obligation as that phrase is explained by J W Carter, Breach of Contract 2nd ed at [108] - [113]. What neither party explored in the appeal is whether the appellant's breach of its obligation to do the site works at SPL 14.5 m disqualified it from relying on the respondent's non-fulfilment of the condition to build the house at 14.5 m or bound it to treat the condition as having been satisfied (see by analogy Mackay v Dick (1881) 6 App Cas 251; Sprague v Booth [1909] AC 576). If that is the correct analysis, the respondent would in effect have the right to choose (elect) to build at the sand pad level presented to it by the appellant ("the election analysis"). However, that was not the respondent's case at trial or in the appeal and I will proceed on the assumption that the election analysis is incorrect. I turn now to ground 1.

27 The appellant contends that the basis for the findings of variation and estoppel had not been pleaded or properly litigated at trial. The respondent is confined to its particulars which provide that the variation and estoppel were based on the appellant's conduct up to and including 5 May 1999 whereas the Commissioner made his findings based on the appellant's conduct after 5 May 1999 in particular, compacting the site and handing the compaction certificate to the respondent.

28 The appellant had pleaded in its defence that by building the house at SPL 13.5 m, the respondent had failed to carry out the Works in accordance with the building contract and had breached that contract. That allegation is addressed in pars 8, 9 and 10 of the Reply. It is necessary to set out the pleading which relevantly provides:

(a) by variation order number 47205 ... the Plaintiff and the Defendant agreed that the Works would be carried out at a level of 13.5 metres;

(b) by variation order number 48723 ... the Plaintiff and the Defendant varied the Contract Documents by agreeing that the Defendant shall be wholly responsible for, among other things, the site works on the Land;

(c) in or about January 1999 Alan Black on behalf of the Defendant instructed Chris Mitchell of Chris Mitchell Earthworks to carry out the site works on the Land, including levelling the pad to a level of 13.4 metres.

(d) in or about April/May 1999 the Defendant caused the Land to be levelled at about 13.4 metres and thereafter permitted the Plaintiff to carry out the Works at that level.

(e) in or about December 1998 the Defendant elected to apply for approval, alternatively a building licence, to have the Works carried out at a level of 13.5 metres;

(f) in breach of clause 2(d)(ii) of the Building Contract the Defendant failed to do all reasonable things required to obtain that approval or licence and to obtain that approval or licence promptly;

9. In reliance upon variation orders numbered 47205 and 48723 and the conduct of the Defendant pleaded in the preceding paragraph, the Plaintiff carried out the Works at a level of 13.5 metres.

10. Accordingly, it would be unconscionable for the Defendant to resile from the agreements and its subsequent conduct, pleaded in paragraph 8 hereof, and the Defendant is estopped from seeking to rely upon any prior agreement between the parties that the Works would be carried out at a level other than 13.5 metres, alternatively, it has waived any requirement for the works to be carried out at any level other than 13.5 metres." (Emphasis added)

29 There is no foundation for the appellant's claim that the respondent's pleaded case of variation was based solely on the appellant's conduct up to and including 5 May 1999. That is apparent from the italicised words in par 8(d) and par 9. In particular, the appellant's conduct in permitting the respondent to construct the house from October/November 1999 is relied on. It is the case that the pleading does not expressly refer to the appellant causing the installation and compaction of the sand pad at 13.5 m in September/October 1999 or the handover of the compaction certificate. However, the facts, save for the certificate handover, were established beyond controversy, were closely linked with the conduct expressly pleaded, were directly relevant to the pleaded issues and were expressly relied on by the respondent in closing submissions. I am satisfied that the matters relied on by the Commissioner emerged during the hearing and were in substance joined and litigated by the parties (Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491 at 496, 497. I would dismiss ground 1.

30 The appellant relies on five particulars in support of the claim that it was not reasonably open on the evidence to find a variation by conduct. The first particular is that there was no evidence the appellant handed the compaction certificate to the respondent. It is the case that there is no evidence to that effect. Earlier in his reasons (at [152.4]) the Commissioner said the appellant caused the compaction certificate to be handed to the respondent. That finding also goes beyond the evidence. However, these findings are not necessary to the ultimate finding of variation.

31 The parties and the Commissioner appear to have proceeded on the assumption that, if the alteration of the SPL from 14.5 m to 13.5 m was a variation, it was a variation under the building contract to which cl 5 applies rather than a variation of the terms of the building contract. Whether it be a variation of the terms of the building contract or a variation covered by cl 5, there must be a contract of variation: Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 at [22]. As with any contract, it may be inferred from conduct: Commonwealth v Crothall Hospital Services (Australia) Ltd [1981] FCA 117; (1981) 54 FLR 439; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [71] - [80]; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Australia) Pty Ltd (1988) 5 BPR 11,110 at 11,117 per McHugh JA.

32 The uncontested evidence was that the appellant, by its agents, caused the site to be cut and the sand pad formed and compacted at SPL 13.5 m following which the respondent constructed the house at that level. When the parties' conduct is considered against the nature and extent of their respective obligations under the building contract (and the election analysis is rejected), there is a strong (if not irresistible) inference that the objectively determined intention of the parties was that the building contract be varied to provide for an SPL of 13.5 m.

33 The second particular relied on by the appellant is that it was not reasonably open to infer agreement by the appellant to the construction of the house at an SPL of 13.5 m on the basis that it would be responsible for the retaining wall. That is to misunderstand the finding of variation. The Commissioner did not make a finding that the variation was not only that the house be constructed at an SPL of 13.5 m but also that the appellant be responsible for the retaining wall to the eastern boundary. The Commissioner found, correctly in my view, that under the original building contract, the appellant was contractually obliged to undertake the site works, which included any retaining wall necessitated by the site works. That finding is consistent with the references to retaining walls in the contract plan as well as cl 20 of the building contract. In any event, the destabilisation of the eastern boundary resulted from the appellant's breach of its obligation under the building contract to do the site works at 14.5 m. I see no arguable basis for shifting legal responsibility for the stabilisation work from the appellant to the respondent.

34 The third particular relied on by the appellant is that the variation "would have been illegal and unenforceable by virtue of s374(5) of the Local Government (Miscellaneous Provisions) Act 1960" (WA) ("the Local Government Act"). I deal with the substantive issue in ground 4. Even if the variation is illegal and unenforceable, that would not prevent a finding of a contract of variation, by conduct or otherwise. Indeed, on the facts in this case I am not persuaded that the prospect of it being illegal and unenforceable is a relevant consideration in assessing the objectively determined intention of the parties.

35 The fourth particular is that the parties failed to follow the agreed variation provision under the building contract. That is a reference to cl 5 which requires, inter alia, a variation to be in writing and signed by the Proprietor. The failure to follow the contractual procedure does not prevent a finding of a variation agreement by conduct or otherwise; at most it is a relevant consideration in determining the parties' intention: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1 at 62. However, the failure to follow the manner and form requirements prevents it from being a variation under cl 5, as indeed the Commissioner found.

36 Finally, the appellant relies on the fact that the variation would have resulted in the respondent breaching s 7 of the Home Building Contracts Act 1991 (WA). Section 7(1) requires a variation of a home building contract to be in writing and signed by the parties. A builder who is a party to such a variation must ensure the s 7 requirements are complied with and failure to do so attracts a maximum penalty of $500 (s 7(3)). However, a breach of s 7 does not render the contract or a provision of the contract illegal, void or unenforceable (s 27(1)). This matter does not alone, or in combination with the other particulars, prevent a finding of variation by conduct. To the contrary, the finding was reasonably open. I would dismiss ground 2.

37 The appellant relies on three particulars in support of its claim that it was not open on the evidence to find that the appellant was estopped from denying the respondent had performed the building contract.

38 The first particular is that there was no evidence the appellant handed the compaction certificate to the respondent. As with the finding of variation, that is not necessary to sustain the ultimate finding that the appellant was estopped from denying the variation. The unchallenged findings are that the appellant, by its agents, caused the site to be cut and the sand pad formed and compacted at SPL 13.5 m in the knowledge, and with the intention, that the respondent construct the house at that level. Whether or not the appellant handed or caused the certificate to be handed to the respondent is of no significance. It is sufficient that the respondent was aware of its existence. Secondly, the appellant contends there was no or no sufficient evidence of reliance by the respondent to its detriment on the conduct of the appellant held to give rise to the estoppel. There is no proper foundation for this claim. It was reasonably open to the Commissioner to draw the inference that the respondent relied on the fact that the sand pad had been constructed, compacted and certified to commence work. By letter dated 29 September 1999, Mr Black instructed Mr Mitchell to proceed with the site works and to finish the job by 13 October 1999 "ready for the builders to start". Structerre, a firm of engineers used by both the appellant and the respondent, carried out compaction tests on the sand pad and provided a compaction certificate dated 6 October 1999. Mr Miles Noon, the respondent's site supervisor, gave evidence that he did not recall receiving a copy of the compaction certificate but that it was his practice and that of BGC Concrete not to commence or authorise the pouring of footings or the slab until a compaction certificate is received. Further, the building work commenced after the provision of the compaction certificate.

39 Finally, it is said the Commissioner failed to make any finding that it would have been unconscionable for the appellant to insist on compliance with the written building contract, and there was no or no sufficient evidence for such a finding in any event.

40 In Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 the plaintiff was able to enforce a contract alleged against the defendant on the basis that the defendant was estopped by its conduct in denying the existence of the contract. The elements of equitable and promissory estoppel are encapsulated in the following passage from the judgment of Brennan J in Waltons (at 428 - 429):

" ... It is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise."

41 The unconscionability derives from the establishment of these elements; it is not a separate requirement. In this case, the Commissioner made all the necessary findings to support the ultimate finding of estoppel. In particular, the respondent assumed there was an agreement with the appellant to vary the building contract by reducing the SPL from 14.5 m to 13.5 m; the appellant induced the respondent to adopt that assumption in the ways specified by the Commissioner; the respondent acted in reliance on the assumption; the appellant knew or intended it to do so; building the house would occasion detriment if the assumption was not fulfilled and the appellant failed to act to avoid that detriment by seeking to depart from the assumption. I would dismiss ground 3.

42 The appellant contends that in order to establish it had achieved practical completion under the building contract, the respondent was required to rely on its own illegal conduct, namely the knowing and deliberate construction of a building not in conformity with the plans approved by the Shire contrary to s 374(5) of the Local Government Act.

43 The appellant did not plead illegality. A court will not entertain a defence of illegality which has not been pleaded unless (1) the contract sued upon is ex facie illegal; (2) the plaintiff cannot prove its case without also proving that it is claiming under an illegal contract; or (3) exceptionally, where a fact comes to light in the course of the trial that the contract sued upon is illegal, in which event the court must be satisfied that all relevant facts are before the court: Knowles v Fuller (1947) 48 SR (NSW) 243 at 245. This case falls in the last category.

44 Not only did the appellant fail to plead illegality, the issue was not litigated at trial and was raised for the first time on appeal. A point cannot be raised for the first time on appeal when it could possibly have been met by calling evidence below: Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7. Further, save in exceptional circumstances a party will not be permitted to raise a new issue on appeal that was not put at trial: Metwally v University of Wollongong (1985) 59 ALJR 481 at 483. A new claim of illegality can fall within the exceptional category.

45 The respondent did not identify any specific evidence that it would or could have adduced if it had notice of the illegality claim. The appellant conceded that it should be assumed in the respondent's favour that Shire approval was granted to the amended SPL after July 2002 (or would, if sought, be granted). However, if it had notice, the respondent would have made an alternative claim in restitution for a quantum meruit. In that event, the respondent would have to adduce evidence as to what was reasonable remuneration for the unpaid work and materials. On the other hand, that would not justify this Court's refusal to consider the illegality claim if there was a good defence to the restitutionary claim.

46 Illegality is a good defence to a restitutionary claim unless the parties were not in pari delicto (equally at fault). There is some uncertainty as to the scope of the in pari delicto principle. At its narrowest, it is confined to specific categories (including lack of knowledge, oppression, duress, mistake and fraud), none of which are capable of applying on the established facts in this case. At its widest, it is a general comparative fault analysis (Cheshire and Fifoot's Law of Contract 8th Australian edition at [18 - 41]). In addition, there is authority to suggest that the illegality defence in restitution is not as wide as the contractual doctrine: Australian Breeders Co-operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488 at 540 - 541; Amadio Pty Ltd v Henderson [1998] FCA 823; (1998) 81 FCR 149 at 194 - 195; Great City Pty Ltd v Kemayan Management Services (Australia) Pty Ltd [1999] WASC 70; (1999) 21 WAR 44. In each of these cases, restitutionary relief was granted where the relevant statute rendered the contracts unenforceable and the conduct in question an offence notwithstanding the absence of an express determination that the parties were not in pari delicto. However, as these issues were not addressed in submissions and because the illegality question can be determined without determining the quantum meruit claim, I propose to take that course.

47 The appellant conceded, correctly in my view, that the Local Government Act did not expressly or impliedly prohibit the formation or performance of the building contract as varied. The appellant contended the case fell in the last category enumerated by Gibbs ACJ, as he then was, in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410 at 413, namely that the building contract as varied, although lawful according to its terms, was performed in a manner prohibited by s 374(5) of the Local Government Act. Section 374(5) materially provides:

"Without prejudice to the operation of s 411, if a person without the prior approval in writing of the building surveyor, does or causes to be done any work in connection with the construction, amendment, alteration, extension or enlargement of a building not in conformity with the specifications and plans relating thereto and which have been approved by the local government under this section, the person commits an offence.

Penalty: $5 000."

48 The first issue is whether the respondent or the appellant or both were in breach of s 374(5). Having regard to the width of the relevant connector ("in connection with"), my view is that both the appellant and the respondent breached s 374(5). In doing the site works (cutting the ground and forming and compacting the sand pad) at SPL 13.5 m, the appellant did work in connection with the construction of a building which was not in conformity with the approved plans. The respondent in building the house at SPL 13.5 m also did work in connection with the construction of a building which was not in conformity with the approved plans.

49 The legal principles that apply in these circumstances were considered by the High Court in Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215. In that case, a driller claimed monies owing under a contract with a landowner for the drilling of bores to obtain water. It was an offence under the Water Act 1992 (NT) to construct a bore unless it was authorised. The landowner had failed in his obligation to obtain permits under the Water Act. The High Court held that the formation or performance of the drilling contract was not expressly or impliedly prohibited by the Water Act. The only question was whether the drilling contract was unenforceable on public policy grounds. Dawson and Toohey JJ (at 220) said no because the driller did not have to rely upon an unlawful transaction to establish his cause of action. Neither does the respondent in this case. The Local Government Act renders the conduct, not the transaction, an offence. Kirby J said no because the illegality was committed incidentally in the course of the contract, although the result would have been different if the parties had "a specific agreement deliberately to breach the Act".

50 McHugh and Gummow JJ took a different approach. They noted (at 227) that the refusal of courts to enforce a contract tainted by illegality on grounds of public policy does not stem from express or implied legislative prohibition but that "[r]egard 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". They identify (at 229) four exceptions or qualifications where relief is granted despite the presence of illegality. They are where:

1. the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal;

2. the statutory scheme rendering the contract or arrangement illegal was enacted for the benefit of a class of which the claimant is a member;

3. an illegal agreement was induced by the defendant's fraud, oppression or undue influence; and

4. the illegal purpose has not been carried into effect.

51 These exceptions correspond with the narrow range of categories when parties are not in pari delicto. However, those exceptions are not exhaustive. McHugh and Gummow JJ approve (at 230) the statement of McHugh J in Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538 at 613 as follows:

"Accordingly, in my opinion, even if a case does not come within one of the four exceptions ... 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."

52 I accept the observation in Cheshire and Fifoot's Law of Contract 8th Australian Edition at [18.16] that under this approach, the statute is the primary determinant of the nature of the public policy in any given case and that factors which tend against implying a prohibition also tend to preclude non-enforcement on the ground of public policy.

53 The Local Government Act discloses a legislative intention that the sanctions and remedies in that Act be the only legal consequences of a breach of its provisions. It establishes an elaborate and comprehensive scheme for securing compliance with its terms. In addition to providing a fine for breaching s 374(5), a local government may give to the builder or owner of the building written notice of anything in the construction of the building which is not in compliance with approved plans requiring him to pull down or alter the building so as to remove the cause of the objection: s 401(1) of the Local Government Act. The local government has a discretion under s 401(1): Re Griffiths; Ex parte Homestyle Pty Ltd [2005] WASCA 103; (2005) 139 LGERA 178 at [22]. The appellant received a s 401 notice from the Shire requiring the removal of the house. As already noted, the matter was subsequently resolved to the Shire's satisfaction. The builder or owner is obliged to comply with the notice unless it applies to the State Administrative Tribunal ("SAT") for a review of the decision (s 401(3)). If the builder or owner does not apply to SAT for a review or the review is dismissed and the builder or owner does not comply with the requisitions in the notice, the local government can apply to the Magistrates Court for an order that it comply with the requisitions in the notice (s 401(7)). If an order made by the Magistrates Court is not complied with, the local government may enter on the land and give effect to the requisitions and recover the expense from the builder or owner (s 401(8)).

54 Section 411 is similar in scope to s 401 save that it applies once a person has been convicted of an offence. Under s 401A, a local government authority can give a stop work notice when work is being done in contravention of the Act. Moreover, it is accepted by the parties that a local government has the power to approve amended plans after the building works have been constructed. This power is significant. In this case it means that at the time of trial the variation to the sand pad level was lawful.

55 The Local Government Act discloses an intention to cover the sanctions/penalties field; it does not disclose an intention that the parties' contractual rights should be unenforceable and nor is that sanction necessary to protect the statutory objects or policies. That being the case, it is of no significance that the appellant's and the respondent's breaches were calculated and intentional and it is unnecessary to assess comparative fault. However, I address it for the sake of completeness. The fault balance weighs heavily against the appellant. The appellant was contractually responsible for the site works; it breached its obligation to undertake the site works in accordance with the approved contract plan; it breached its obligation to stabilise the eastern boundary; it breached its obligation to seek and obtain approval for the amended SPL at 13.5 m; and by its conduct requested the respondent to proceed with the works in

the knowledge that the only impediment to approval of the reduced SPL was the appellant building a retaining wall that was in accordance with plans approved by the Shire. There was no specific agreement between the parties to deliberately breach the Local Government Act. It is the case that, like the appellant, the respondent's breach of s 374(5) was calculated and intentional but it was the appellant's misconduct that was the sole cause of the position in which the respondent found itself before agreeing to the variation. In addition, the reduced SPL was subsequently approved by the Shire. In the circumstances, public policy does not require that the building contract be unenforceable. I would dismiss ground 4.

56 In order to determine the notice of contention it would be necessary for this Court to determine issues that were not considered by the Commissioner or fully ventilated in the appeal. That includes, for example, whether the Works were reasonably capable of being used for its intended purpose and how that is affected by the appellant's concessions on the illegality issue. Further, the correctness of the election analysis may have to be determined for the purposes of cl 10(e) of the building contract. In view of the result in the appeal, it is unnecessary and in the circumstances undesirable to determine the issues.

57 BUSS JA: The material facts and the grounds of appeal are set out in the reasons of McLure JA.

The proper characterisation of the respondent's obligation to construct the house at the level specified in the contract plans

58 Whether a contractual obligation is dependent or independent depends upon the intention of the parties. If the contract does not expressly state whether an obligation is dependent or independent, the intention of the parties is to be ascertained by implication from the other terms of the contract and any admissible evidence of surrounding circumstances. See Burton v Palmer [1980] 2 NSWLR 878 at 895 [76]; Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 450 - 451.

59 I agree with McLure JA that the respondent's obligation to construct the house at the level specified in the contract plans is properly to be characterised as a dependent contractual obligation. In other words, the respondent's obligation to construct the house at a sand pad level of 14.5 m was conditional upon the appellant fulfilling its obligation to provide the respondent with a sand pad at that level.

60 I also agree with McLure JA that as neither party relied on (or even raised) this issue as part of its case in the appeal (or in its pleadings or in the case as litigated before the learned Commissioner), the appeal must be determined within the confines of the grounds of appeal and the submissions of counsel.

61 I agree with McLure JA, for the reasons she gives, that grounds 1 and 2 have not been made out.

62 The respondent pleaded equitable estoppel. In par 10 of its "further amended reply to re-amended defence and defence to re-amended substituted counterclaim", it alleged:

" ... it would be unconscionable for the [appellant] to resile from the agreements and its subsequent conduct, pleaded in paragraph 8 hereof, and the [appellant] is estopped from seeking to rely upon any prior agreement between the parties that the Works would be carried out at a level other than 13.5 metres ... "

63 Equitable estoppel does not operate by establishing an assumed state of affairs. It has its basis in unconscionable conduct, rather than the making good of representations. See Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, per Mason CJ and Wilson J at 405 and per Brennan J at 416. As Brennan J explained, at 416:

"An equitable estoppel is binding in conscience on the party estopped, and it is to be satisfied by that party doing or abstaining from doing something in order to prevent detriment to the party raising the estoppel which that party would otherwise suffer by having acted or abstained from acting in reliance on the assumption or expectation which he has been induced to adopt."

In Waltons Stores, Brennan J summarised, at 428 - 429, the matters which a plaintiff must prove to establish an equitable estoppel. His Honour said:

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs."

The appropriate relief is that which is required to do equity and avoid unconscionable conduct. See Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at 112 - 113 [7]; M K & J A Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 at [71].

64 I agree with McLure JA, for the reasons she gives, that it was properly open to the learned Commissioner, on the evidence, to find that the appellant was estopped from denying that the respondent had performed the building contract. Ground 3 is without merit.

65 I agree with McLure JA, for the reasons she gives, that each of the appellant and the respondent breached s 374(5) of the Local Government (Miscellaneous Provisions) Act 1960 (WA) ("the Act").

66 I also agree with McLure JA, for the reasons she gives, that the Act evinces a legislative intention that the sanctions and remedies specified in the Act are an exhaustive statement of the legal consequences of a breach of s 374(5). It is unnecessary, for the purposes of this appeal, to decide or express an opinion on whether the sanctions and remedies in the Act are an exhaustive statement of the legal consequences of a breach of any other provisions. The Act does not disclose an intention that, where work is done or caused to be done under a contract in contravention of s 374(5), any rights or remedies under or in connection with the contract should be unenforceable. Further, I agree with McLure JA, for the reasons she gives, that, in the circumstances of the present case, public policy does not require that the building contract be unenforceable.

68 It is unnecessary, in the circumstances, to consider the notice of contention.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : ELVIDGE PTY LTD -v- BGC CONSTRUCTION PTY LTD [2006] WASCA 264 (S)

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : BGC CONSTRUCTION PTY LTD -v- ELVIDGE PTY LTD [2005] WADC 103

District Court of Western Australia Act 1969 (WA), s 87(1)

Rules of the Supreme Court 1971 (WA), O 24A, O 66 r 10

Supreme Court (Court of Appeal) Rules 2005 (WA), r 5, r 66

Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160

Elvidge Pty Ltd v BGC Construction Pty Ltd [2006] WASCA 264

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

Fotheringham v Fotheringham (No 2) (1999) NSWLR 194

Kschammer v R W Piper & Sons Pty Ltd [2003] WASCA 298

Sands & McDougall Wholesale Pty Ltd (In Liq) & Anor v Commissioner of Taxation (Cth) (No 2) [1999] VSCA 36; [1999] 2 VR 114

Sloane v McDonald & Sutherland, unreported; FCt SCt of WA; Library No 980012; 22 January 1998

South Sydney Council v Morris (No 3) [2001] NSWCA 200

1 JUDGMENT OF THE COURT: This Court delivered its reasons for decision in this appeal on 1 December 2006 (Elvidge Pty Ltd v BGC Construction Pty Ltd [2006] WASCA 264). The matter was adjourned to enable the parties to make submissions as to the orders to be made, in particular the costs orders. The respondent seeks orders that:

2. The appellant pay the respondent's costs of the appeal on an indemnity basis.

3. The appellant pay the respondent's costs of preparing and filing the respondent's answer, notwithstanding that it was not filed within the time allowed by the Supreme Court (Court of Appeal) Rules 2005 (WA) ("Court of Appeal Rules") for the filing of that document.

2 Rule 66 of the Court of Appeal Rules provides that a party who does not file a document in accordance with the Rules within the time specified is not entitled to the costs of preparing and filing the document unless the Court of Appeal otherwise orders. The respondent was one day late in filing its answer. The delay is adequately explained and the appellant quite properly does not oppose proposed order 3. We would make the proposed order.

3 The appellant objects to the proposed order for indemnity costs. In the proceedings below, the respondent (plaintiff) made an O 24 offer which was less than the judgment awarded to the respondent as a result of which costs were awarded to the respondent on an indemnity basis from the date of that offer under O 24A r 10(4) of the Rules of the Supreme Court 1971 (WA) ("Supreme Court Rules").

4 The respondent's O 24A offer was made in the District Court proceedings from which the appeal was brought. Order 24A of the Supreme Court Rules applies in District Court proceedings by virtue of s 87(1) of the District Court of Western Australia Act 1969 (WA).

5 Rule 49 of the Court of Appeal Rules governs offers of compromise in an appeal. Rule 49 provides that O 24A applies with appropriate amendments to reflect that it is an offer of compromise in an appeal.

6 The policy of O 24A is to encourage a party to whom a fair and reasonable offer of compromise has been made to accept the offer and bring the proceedings to an end. That policy is achieved in r 10 by providing that in specified circumstances the party who made the offer is entitled to costs on an indemnity basis from the date of the offer unless the Court otherwise orders. However, it is apparent from the language of r 10 that the prima facie entitlement to indemnity costs only applies to the costs of the proceedings in which the O 24A offer is made. That is, the O 24A offer made by the respondent in the District Court proceedings does not bind the Court of Appeal in exercising its discretion as to the costs of the appeal. Such an offer may, in appropriate circumstances, be a relevant consideration in the exercise of the Court's discretion as to costs: Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160.

7 The Court of Appeal is empowered to deal with the costs of the appeal and with the costs of the proceedings below: O 66 r 10 of the Supreme Court Rules and r 5 of the Court of Appeal Rules. Order 24A and other offers aside, the general rule is that a successful party to a proceeding recovers his or her costs on a party/party basis. Ordinarily, indemnity costs are ordered where there has been some unreasonable or delinquent conduct on the part of the party against whom the order is made: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 89.

8 In support of its claim for indemnity costs, the respondent relies on its O 24A offer in the District Court proceedings, the fact that the appeal was "all or nothing" and the statement in par 33 of the reasons that there was no arguable basis for shifting legal responsibility for the stabilisation from the appellant to the respondent. That observation relates to one particular of one ground of appeal and does not reflect on the merits of the appeal as a whole. The merits of the appeal in this case is not a factor in favour of an award of indemnity costs. Further, although the appeal was confined to liability, there being no issue as to the quantum of the judgment below, that does not prevent the respondent from providing a financial incentive to the settlement of the appeal which is a separate proceeding to which O 24A also applies. Having regard to all relevant matters, including the respondent's failure to make an offer of compromise in the appeal, we are of the opinion that the costs of the appeal should be assessed on a party/party basis. Accordingly, we order that:

2. The appellant pay the respondent's costs of the appeal, including the respondent's costs of preparing and filing the respondent's answer, to be taxed.

• The building contract
• Background facts and findings
• Ground 1
• Ground 2 - Variation
• Ground 3 - Estoppel
• Ground 4 - Illegality
• Notice of contention
• The proper characterisation of the respondent's obligation to construct the house at the level specified in the contract plans
• Grounds 1 and 2
• Ground 3
• Ground 4
• Notice of contention
• Conclusion