Ewert v Audehm [2001] VSC 380

Supreme Court of Victoria|2001-09-24|Before: Ashley J

Appeal - leave to appeal - determination of Victorian Civil and Administrative Tribunal - whether a judge of Trial Division may rescind leave granted by a Master. Proceeding in Tribunal - standing of applicants to initiate and pursue proceeding against builder and architect - previous claim by applicant owners on Housing Guarantee Fund - Release and Authority executed in respect of claim on Fund - moneys paid by Statutory guarantor - assignment to guarantor of rights of action by applicant owners - what rights of action assigned - interpretation of Release and Authority.

HGF was and is the approved guarantor for the purposes of the House Contracts Guarantee Act 1987 ("the Act"). It relevantly guaranteed to the owners "the performance of the builder's obligations under the .... contract"[1]. The liability imposed by the guarantee is described in s. 7(3). Pertinently, the sub-section imposes liability to make good loss or damage suffered by the owner on account of the failure of the builder to fulfil the builder's obligations under the contract, or a defect caused by bad workmanship. The maximum liability of HGF, fixed by s. 7(4), was relevantly $40,000.

Returning to the chronology, the claim on HGF foreshadowed by the letter of solicitors for the owners dated 7 May 1997 was not then pursued. It appears that the contract was reinstated[2]. But HGF evidently gave the claim, or foreshadowed claim, a number - 95513. So much is evident from page 2 of an Incomplete Works Claim which was apparently received by HGF on 14 August 1998.

It seems that, the contract having been reinstated in 1997, some work continued until early 1998. But in April of that year, the work being still incomplete, the owners terminated the contract. By then they had paid, it seems, $367,926.84, this including $18,500 in a retention fund.

The Incomplete Works Claim, evidently an HGF pro-forma, required the owners to provide, inter alia, quotes from two approved builders for completion of the works. Two quotes were provided, but at a time after the Incomplete Works Claim was submitted. A quote from Hurtob Homes Pty Ltd was date stamped received on 20 August 1998; whilst a quote from Arcstar Builders was date stamped received on 14 September 1998.

The Incomplete Works Claim said no more than what was conveyed by its heading. It asserted that the contract had been terminated before completion.

The two quotes dealt with the cost of rectification and completion of works. Hurtob quoted $183,890. Arcstar quoted $167,700; but its quote was apparently not for completion of all works.

The HGF assessed the claim as "valid". It informed the builder. He did not appeal, as he might have done, to the Victorian Civil and Administrative Tribunal ("the Tribunal") against this decision.

HGF then had the premises assessed. An inspector confirmed that the contract had not been completed. He identified certain defective works. In a report to HGF he made the point that the owners had paid far more than they had been required to do under the contract. Depending upon the significance of that fact the losses were either far in excess of HGF's maximum liability; or were extremely small.

HGF then rejected the owner's claim. It did so essentially on the basis that, had the owners made payments according to the contract, they would have had money in hand sufficient to enable completion and rectification. Its attitude was evidently based on the Tribunal's determination in Lin v HGF Ltd & Anor[3].

The owners appealed to the Tribunal, as they were entitled to do, against HGF's decision[4]. The appeal, however, did not proceed to hearing. HGF, by letter dated 18 January 1999, confirmed that the owners' solicitors would "provide us with details of the items you claim are defects and HGF will consider these further".

What followed was that a list of 66 alleged defects, evidently compiled by the owners, was provided by their solicitors. HGF then had a second assessment made. A report received by HGF on 1 March 1999 recommended acceptance of the claim for rectification of all or most of those alleged defects. HGF then sought a quote for rectification. The owners provided a quote by Hurtob. The amount quoted was $54,883. Then, by letter of 19 April 1999, HGF advised the owners' solicitors, pertinently:

"On the information available to HGF and as per your recent advice, we have assessed your client's (sic) loss at the maximum amount of $40,000."

The builder was informed of HGF's decision, for he had a right of appeal against it, by letter dated 19 April 1999. He was not told how the claim had been formulated or what matters had been considered by HGF in arriving at its decision.

By the same letter HGF formally demanded the amount of $40,000 from the builder "in accordance with Company Rules". Those Rules, the warrant for whose making remained obscure at the end of the hearing before me, provide by Rule 41 that:

" The Company shall be entitled to recover from an Approved Person (or from a person whose name has been removed from the appropriate Register) as a debt due and payable any sum paid or payable under the Act or Division 1A of Part XLIX of the Local Government Act 1958 in relation to a domestic building work contract or supervision contract entered into by that person or in relation to domestic building work carried out or to be carried out under a supervision contract entered into by that person."

The builder did not appeal. HGF then forwarded to the owner's solicitors a document, plainly a pro-forma, entitled "Release and Authority" (conveniently `the Release'). A covering letter was dated 21 May 1999. This is what it said:

"We refer to the recent letter advising you of the view of the Housing Guarantee Fund Limited (HGF) in relation to your client's claim. The time within which the builder is entitled to appeal against a decision of HGF has now expired. Accordingly, we are pleased to be able to confirm that your clients' claim has now been accepted and that the decision has been made to pay your client the sum of: $40000.00 (forty thousand dollars) Enclosed is a Release and Authority. Could your client please sign the Release and Authority and return it as soon as possible."

The owners' solicitors evidently understood that their clients must sign the Release in order to obtain the settlement moneys[5].

The Release left undated, was signed by the owners. It was forwarded by their solicitors to HGF on about 16 June 1999 and the $40,000 was remitted by HGF.

Thereafter, apparently in late August 1999, the owners commenced a proceeding in the Tribunal against the builder, an architect involved in the project, and the architect's company (I will refer to the architect and the company simply as 'the architect'.) Amended Points of Claim were filed on or about 18 April 2000. Relief was sought against the builder with respect to:

[diamond] miscellaneous rectification and other costs

[diamond] damages for physical inconvenience, loss of enjoyment and distress.

Relief was also sought against the architect, on a number of legal bases. The relief was for the most part of the same type as that pursued against the builder. As against both builder and architect, and giving credit for the $40,000 received from HGF, the owners claimed damages not exceeding $250,000, together with interest and costs.

Insofar as the claim related to defects, the list of 66 defects identified by the owners in early 1999 had expanded by 4 July that year to 79.

Reading the Amended Points of Claim overall, it could not be said, I think, that the actions of the architect and builder had been subjected to anything but the most microscopic examination. That circumstance, however, cannot determine the fate of this appeal.

The builder and the architect, by Points of Defence largely in the same form, in part asserted that the owners had no standing to bring the proceeding. The basis on which they so contended had to do with the terms of the Release and what was said to have been the exercise of assigned rights by HGF in its dealings with the builder concerning the $40,000 which it had paid to the owners.

It seems crystal clear to me that both the builder and architect treated as being critical, by their Points of Defence, the circumstance that HGF had acted against the builder to recoup moneys paid by it to the owners, this being said to have culminated in a compromise the effect of which was that the assigned rights no longer existed, having merged in the compromise. I mention the matter only to note that this was no more than a small part of the argument pursued before me.

The issue of standing, it is convenient so to describe it, it was argued out before the Tribunal on 25 September 2000. The Tribunal made a determination on 24 January 2001. It found in favour of the owners. The effect of the determination was that a hearing on the merits should proceed.

From the Tribunal's determination, pursuant to s. 148(1) of the Victorian Civil and Administrative Tribunal Act 1998, the builder and architect now appeal. They do so pursuant to leave granted by a Master on 11 April 2001.

The question of law identified by the Master's order was as follows:

"Given that:- i) By a `Release and Authority' in consideration of the payment by the Housing Guarantee Fund Ltd (HGF) of $40,000 (the statutory maximum) the Plaintiffs assigned to HGF all their rights against any persons against whom they could have brought a claim or suit in relation to the Claim, and authorised HGF to commence Court proceedings against all such persons. ii) The builders agreed to pay $40,000 to HGF. are there any (and what) circumstances in which the Plaintiffs can sue for defects in the house in respect of which the said Release and Authority relates?"

Before me, counsel for the builder and the architect proposed a different question. Thus:

"Were the owners entitled to instituted and maintain the VCAT proceedings against - (a) the builder; and (b) the architect and the architect's company in circumstances where - (c) the owners had entered into the Release and Authority in favour of HGF; or (d) where they had entered into that Release and Authority and HGF and the builder had entered into a compromise agreement with HGF?"

Counsel for the owners said nothing in opposition to the reformulated question.

There was no debate whether either question raised a question of law. I do not intend to conduct a debate upon that matter in these Reasons. I simply note, in passing, that the question of interpretation involved consideration not only of the Release itself, but also the factual matrix in which it came to be executed.

There was no debate whether, the question of law framed by the Master having been incorporated in an order of the court, it could now be amended. Presumably the parties considered that r. 4.11(3) of Chapter II was a sufficient warrant. I will assume that the rule permits amendment of a question of law stated in an order of the court.

In the event, I regard neither the question framed by the Master nor the alternative version as being quite suitable. The question framed by the Master assumed that there had been agreement by the builder to pay HGF $40,000. It further assumed, in effect, that the plaintiff only sought to sue " for defects in the house". Yet it was very wide in asking whether there were any circumstances in which the owners could sue. The alternative question is more suitable. On the other hand (a) and (b) are in truth both conjunctive and disjunctive possibilities; whilst there is in-built in (d) an assumption that HGF and the builder entered into a compromise.

Having heard argument I consider that the matters in issue are exposed by a question as follows:

"Were the owners entitled to institute and maintain the VCAT proceedings against (a) the builder; and/or (b) the architect in circumstances where (c) the owners had entered into the Release and Authority; or (d) the owners had entered into the Release and Authority and there were certain dealings between HGF and the builder concerning the $40,000 paid by HGF to the owners?"

Before dealing with the substance of the matter I should say something about the grant of leave in this case. It is understandable that the Tribunal, faced with a lengthy hearing, decided to resolve what I have called the standing issue at the outset. If resolved in favour of the builder and architect there was prospect of the Tribunal saving valuable time. On the other hand, the Tribunal should reasonably have anticipated that its determination of the issue was likely to lead to an application for leave to appeal by the unsuccessful parties; a step that carried with it the prospect of appeal, cost and delay. That said, the issue was dealt with and it did lead on to an application for leave to appeal.

In general, the fragmentation of proceedings by the granting of leave to appeal from what are, in effect, interlocutory determinations is to be discouraged. What JD Phillips JA said in Secretary to the Department of Premier and Cabinet v Hulls[6] in this connection is, with respect, undoubtedly correct. It is entirely consistent with discouragement by superior courts of the practice of fragmenting criminal proceedings.

In the present case the effect of the Tribunal's determination was interlocutory. Although the standing issue was finally determined, the merits of the dispute were left open for resolution. At the end of a merits hearing the owners might not succeed for one dollar. If that occurred, then by having had recourse to available procedures[7], the builder and architect could be thoroughly protected on the question of costs. Moreover, if the owners were to lose on the merits, the issue as to standing would be irrelevant.

As events have transpired, however, the court is asked to deal with an appeal the resolution of which, if favourable to the owners, may yet prove to be an entirely arid exercise. I appreciate that it would be otherwise were the builder and architect to succeed on the appeal. Nevertheless, I consider that there was a powerful case for refusing leave to appeal notwithstanding that it was possible for the prospective appellants to show that they had arguments of some worth. The subject-matter of the intended appeal, I add, was readily seen to raise, in substance, an issue of interpretation of the meaning of a contract. The pertinent context in which the contract was made would be important. No question of broad principle would have been seen to arise.

Before parting from the issue of grant of leave I should refer to an additional matter. At the close of the hearing I asked counsel to make submissions upon the question whether it was open to me to rescind the leave to appeal which the Master had granted. Very useful written submissions were provided by all counsel. In the event I decided that, leave having been granted, I should in the particular case, and despite my doubts whether the grant had been appropriate, deal with the substance of the appeal. I will therefore say no more than this upon the question of rescinsion: section 148(1) of the Victorian Civil and Administrative Tribunal Act requires that leave to appeal be granted in an applicable case by the Trial Division. Rules 4.08(1) and 4.09(1) of Chapter II of the Rules confer a jurisdiction to grant or refuse leave upon a Master. Those Rules are consonant with s. 75A(4) of the Constitution Act 1975. The Rules are able to provide for an appeal from a decision of the Trial Division constituted by a Master to the Trial Division constituted by a judge[8]. In the case of a grant of leave to appeal by a Master, there is a right of appeal to a judge[9]. That is a course that could here have been taken; and I think that it would have been an appropriate course. Beyond that, the general rule is that an order of the court once drawn up and signed cannot be discharged by the judge who made it or by another judge sitting in the same jurisdiction. But the matter stands otherwise with respect to an order granting leave or special leave to appeal, at least in some cases. A grant of leave to appeal is interlocutory, and in general such orders may be varied or set aside in appropriate circumstances. See Sanofi v Parke Davis Pty Ltd (No.1)[10], see also Re Simanovic's Application[11]. It has been said by the Court of Appeal in this State that it does not have power to rescind a grant of leave to appeal by a judge of the Trial Division[12]. But that seems to have depended on the statutory separation of the Court of Appeal and the Trial Division[13]. I incline to the view that, notwithstanding the existence of a right of appeal from a Master's decision to a judge of the Trial Division[14], a judge of the Division does have power to rescind a Master's grant of leave to appeal. I think such power could be said to be part of the armory necessary to prevent abuse of process. It is, however, another question as to what circumstances would justify the exercise of that power[15]. It might well be the case, assuming for the moment that in some circumstances it would be open to a judge to rescind a Master's order granting leave, that it would be more advantageous for a respondent to an appeal authorised by grant of leave to appeal against the order making the grant; for under r. 77.05(8) the appeal is by re-hearing de novo.

Before me, argument centred on the proper interpretation of the Release.

"2. The Purchasers have made a Claim against HGF. The Claim is known as claim number 95513. 3. HGF has offered to settle the claim on the basis set out in HGF's letter (`the letter') dated 21/5/99. The Purchasers have accepted HGF's offer. 4. HGF shall pay the amount of $40000.00 to R & V Audehm. The Purchasers consent to HGF making this payment to the person described. 5. The Purchasers release and forever discharge HGF from all liability in relation to those matters in respect of which the payment is made which matters are described in the letter. 6. The Purchasers now assign to HGF all their rights against any persons against whom the Purchasers could have brought a claim or suit in relation to this claim. The Purchasers authorise HGF to commence court proceedings against all such persons. Such proceedings to be in the name of the Purchasers in order for HGF to recover the amount paid to the Purchasers and related costs."

It will be seen that by cl. 2 reference is made to "a Claim". It is identified this way: "The Claim is known as 95513."

By paragraph 3 reference is made to an offer "to settle the claim on the basis set out in .... a letter... dated 21 May 1999".

The letter said very little about the basis of settlement. I have already set out its text at [15].

Clause 5, it should be noted, involved the release of HGF "from all liability in relation to those matters in respect of which the payment is made which matters are described in the letter". The matters in respect of which payment were made were not described in the letter.

Further note, with respect to clause 5, that it did not involve a release from all liability in relation to "the Claim" or "this Claim". The significance of the variation in language was debated before me.

Submissions for the builder and the architect summarised

Against the background described, it was submitted by senior counsel for the builder, and for the most part similarly submitted by counsel for the architect, that critical to resolution of this appeal was clause 6 of the Release. It was conceded by Mr Shand QC, for the builder, that in the absence of clause 6 the owners would not have been precluded from suing the builder or the architect for the consequences of breach of contract, and in the case of the architect for the consequences of breach of common law duty[16].

Mr Shand submitted that the key content of clause 6 was to be found in its first sentence. There was an assignment by the owners of "all their rights" "in relation to this claim" against his client and any other persons against whom the owners could have brought a claim or suit.

The assignment was, Mr Shand submitted, an assignment in law of the legal chose in action thus defined. It satisfied the requirements of s. 134 of the Property Law Act 1958. In consequence, although by clause 6 HGF was authorised to sue in the name of the owners to enforce the chose in action assigned to it, the owners for themselves had no standing to sue. They had neither a legal nor a beneficial interest in the chose in action. Yet what they were attempting to do in the Tribunal proceeding was to sue upon that chose in action. If, however, by the assignment the owners had made an equitable assignment of a legal chose in action defined as above, they had divested themselves of a beneficial interest in that chose in action. In those circumstances they should not be permitted to bring proceedings at the Tribunal founded on their bare legal rights in the chose in action. It could not be said that in doing so they were suing for the benefit of HGF because HGF had by its demand on the builder under Rule 41 of the Company Rules recovered (or would recover) what it had paid the owners.

There was a further and different thread to Mr Shand's submissions. HGF, he contended, had acted in pursuit of the rights of action assigned to it when it concluded a compromise with his client by which his client agreed to make instalment payments amounting in all to $40,000 to HGF. The assigned rights merged in the compromise. There were no rights of action for the owners to exercise.

Before I deal with the arguments which I have just sketched, and expansions of them, I should make one point. Certain written submissions were filed before trial. But what counsel did was to address me viva voce. This was not a case in which written arguments were simply read to the court. Not in all respects did the oral submissions mirror what was put in writing. The submissions were, in the event, those made orally, save where a particular written submission was orally adopted.

It is convenient to deal straightaway with the submission concerning compromise. Apart from the fact that, if the builder's primary submissions were correct, the owners retained no pertinent legal or beneficial rights of action, it is clear that HGF did not purport to exercise any assigned rights. It acted in reliance on Rule 41 of the Company Rules. No question of compromise upon an exercise of assigned rights could arise. Further, I consider that it is wrong to speak in the language of compromise. I agree with the submission of Mr Neal for the owners that what HGF did was to extend indulgences to the builder in respect of the debt which, by the Rule, was a debt due and payable to it by the builder. Again, and this harks back to the last point made in the primary submissions, it was inconsistent for the builder to claim that the owners (if they had a bare legal right in respect of the assigned chose in action) could not be said to be suing for the benefit of HGF because the latter had recovered (or would recover) what it had paid the owners. For according to Mr Shand - contrast the submission of Ms Lim for the architect - what had been assigned were rights of action in a way which entitled HGF to recover the full amount resulting from exercise of those rights, not simply the amount which it had paid out.

I turn to the primary submissions made for the builder and the architect. There was a major dispute between the parties as to the meaning of the words "this Claim" in clause 6. I have already noted the meaning contended for by the builder and architect. For the owners it was contended that it meant either a claim for defective work specifically identified, or a claim for defective work generally, or - having regard to the last sentence of clause 6 - a claim for defective work (either specific or general) but limited to $40,000 plus "related costs".

Counsel for both the builder and the architect submitted that the terms of the Release were clear cut. Each submitted, however, that the Release must be interpreted in the context of or by reference to documents which passed between the parties[17]

It is, I think, very clear that clause 6 of the Release, standing alone, is ambiguous. Recourse may properly be had to other material to establish its meaning. "This Claim" may be taken to refer to "the Claim" referred to in clauses 2 and 3. That immediately requires the reader to know something about claim 95513. It also requires reference to the HGF letter of 21 May 1999. That letter, whose text I have already set out, takes the reader nowhere in itself. But it refers to earlier correspondence, most obviously HGF's letter of 19 April 1999 to the owners' solicitors. That letter, in turn, takes the reader back to the correspondence which passed between HGF and the solicitors between January and March 1999, and to the inspection report received by HGF on 1 March 1999. Then, as to claim 95513, the reader must go back to the Incomplete Works Claim which in turn alerts one to the fact that the claim number had attached to or followed the letter of 7 April 1997 from the owners' solicitors to HGF. In all, there is a body of documentation to which reference may be made in order to resolve the meaning of "this Claim" where it appears in clause 6.

It was common ground that the Release was a contract. The issue which arises is thus one of interpretation of a clause in a contract, not one of statutory construction. Moreover, the contract had a commercial flavour. In interpreting the contract the approach commended by the authors of Cheshire and Fifoot, Law of Contract, Seventh Australian Edition, paragraphs 10.32 - 10.34 is generally in point.

The documentation to which I referred a few moments ago does in my opinion establish the meaning of the words "this Claim". It does so because it forms part of the material which goes to establish the objective background facts known to HGF and the owners, that bearing upon the presumed intention of the parties - a matter pertinent to deciding what meaning should be given to clause 6; and because by reference it demonstrates the content of the term. Whichever approach be taken, or if the two approaches be melded, in my opinion the outcome is the same.

At the time when the Release was executed the following facts, at least, were known to HGF and the owners:

[diamond] As at mid 1998 building works were both incomplete and defective.

[diamond] One builder had quoted a sum of nearly $184,000 to complete the works and remedy identified defects; another builder had quoted a sum of a little less than $168,000 to perform most but not all of the necessary work.

[diamond] In August 1998 the owners had made a claim on HGF supported by the two quotes. That was the first claim upon HGF which had been reduced to dollars and cents. But a year earlier the owners' solicitors had informed HGF that their clients had terminated the contract with the builder and had suffered loss and damage. They had given notice of a possible claim on HGF. The number 95513 had been assigned to that (foreshadowed) claim - which was not, in the event, pursued.

[diamond] HGF had denied its statutory liability on the claim made in August 1998. It had done so in reliance on authority. Had the owners not paid amounts in excess of their contractual obligation, there would have been money in hand to complete the works and rectify the defects.

[diamond] Following the denial of liability, the owners had appealed to the Tribunal. But the appeal had not proceeded. Discussions had led to an invitation by HGF that the owners provide details of claimed defects, which would be further considered. Details had been provided, and rectification had been costed at more than $54,000.

[diamond] The maximum statutory liability of HGF, if liability was established, was $40,000.

[diamond] Subsequent to the identification of alleged defects, and costing of their rectification, HGF had offered the owners the maximum statutory amount.

[diamond] By that time the owners had engaged a builder to complete the works and to rectify defects. Work was proceeding. The owners would be paying more than $150,000 in excess of the contract price plus variations to have the job finished and rectified.

[diamond] The basis for rejection of the claim as first formulated turned on the statutory liability of HGF. It would not be relevant to a claim at law upon the architect; and probably not to a claim at law against the builder.

[diamond] At no stage had the owners in communication with HGF said anything about delay losses, consultants' fees/investigative costs, or an entitlement for physical inconvenience, loss of enjoyment and distress.

[diamond] HGF had already acted upon the right given it by Rule 41 of the Company Rules to recover from the builder, as a debt due and payable, the amount payable by it to the owners.

In my opinion those circumstances, revealed by correspondence and other documents passing between or known to both HGF and the owners, make it extremely improbable that the intention of the parties, objectively ascertained, was that the assignment should deprive the owners of their rights to sue the builder or the architect or both in respect of matters which had played no part in HGF's determination of the existence and extent of its liability under the statutory guarantee; to sue, moreover, for an amount which far exceeded the amount paid by HGF under the statutory guarantee. They further make it extremely improbable that the intention of the parties, objectively ascertained, was that the owners would assign to HGF a bundle of rights whose nominal value far exceeded the amount which HGF had paid (together with, I should have thought unarguably, any "related costs").

Consider a different approach. According to the argument for the builder and the architect, as I earlier noted, "this Claim" was the claim raised by the Incomplete Works Claim and the two quotes. It was a claim upon a guarantee which guaranteed the builder's obligations under the contract. More particularly, it was a claim to make good loss and damage suffered by the owners on account of the builder's failure to complete works, and performance by the builder of defective works.

One of the threads of that argument was that "this Claim" had a meaning which equated with the statutory liability which was imposed by s. 7(1) of the Act and was described in s. 7(3). I could not accept that proposition. Section 7(3) describes the reach of the guarantee given by s. 7(1). It says nothing about the claim made in a particular case. I think it clear that the Release, initially by clause 2, identified a claim which had a particular subject matter. Had it been intended to say that the claim simply mirrored the language of the statute, that could easily have been said.

Another thread of the argument was that the claim was immutable. Once it was established to be a claim for incomplete and defective works it must always be such a claim. I see no reason why that should be so. The submission took as its starting point a stage in a process that had its origin (though nothing became of it) a year earlier than the stage relied upon; and it ignored the fact that HGF had rejected the claim so formulated,[18] but had later accepted liability upon a claim which had been narrowed down by reformulation.[19] It may be accepted that a claim for rectification of defective works was a claim falling within s. 7(3)(a) of the Act; just as the Incomplete Works Claim was such a claim.[20] But that says no more than that liability under the statutory guarantee may arise upon claims which have a common statutory foundation although they are in fact different. I do not accept, then, that the claim once made was immutable.

In the present case the claim as formulated in August and September 1998 was not rejected on the basis that it was plainly outside the words of the statute; but rather on the basis that, as formulated, although within the language of the statute, by earlier decision of the Tribunal it yielded a zero liability. In either case reformulation of the claim must have been required if there was to be successful resort to the guarantee.

In my opinion it is very clear that in this case there was such a reformulation. I think it is not decisive against that conclusion that there was, contained within the Incomplete Works Claim, reference to defective works and to cost of rectification. For the loss or damage then alleged to trigger liability under the guarantee was cast in a way which yielded a zero liability.

Ms Lim submitted that the owners had never formally abandoned their Incomplete Works Claim. No doubt that may be so. But the reality is that such claim was rejected; and that a reformulated claim was made in its stead.

I consider that "the Claim", for the purposes of clauses 2 and 3 of the Release, was a claim that loss and damage had been suffered by the owners on account of defects caused by bad workmanship. That carried through to clause 6, in the reference to "this Claim". The meaning thus given to the term in clause 6 accords with the meaning which in my opinion should be attributed to it by presumed intention of the parties. The precise parameters of the term - that is, whether it pertained to defects generally, or specified defects, and in either case whether it was confined in some way to the sum of $40,000 - must later be considered.

Before parting with this aspect of the matter I should refer to a number of submissions made by Mr Shand; and I should say why I do not accept them.

First, he submitted by analogy with claims in contract that the claim should be regarded as one for loss or damage in consequence of the builder's failure to fulfil its obligations under the contract - that is, a claim in the widest possible terms. He cited Conquer v Boot[21] and Onerati v Phillips Constructions Pty Ltd (in liquidation) and Anor[22]. They were cases dealing with the problem of res judicata - whether arising from previous court or arbitration proceedings. They certainly proceeded on the footing that there was but one cause of action for defective workmanship arising out of a building contract[23]. But I do not consider that this advances the case for the builder and the architect. First, it was a matter for the owners what claim they made on the guarantee. If it was the case that they had some other claim which they could not or did not articulate, what of it? Second, at least some authority suggests that an owner may have resort to the statutory guarantee in respect of a builder's failure to fulfil obligations on more than one occasion: Revelle-Thomas and Anor v Thorpe and Ors[24].

63 Conquer and Onerati might be relevant in another connection. I shall further refer to them later.

Second, Mr Shand submitted that Revelle-Thomas supported a conclusion that claims upon the guarantor, for the purposes of the Act, attach to the object which is claimed. That object is the making good of loss or damage. "This Claim", where used in the Release, in light of the documents which had passed between HGF and the owners, should be given a similarly wide meaning.

The passage in Revelle-Thomas to which Mr Shand directed my attention arose in the course of resolution of a very different problem to that which presently arises. I do not consider that it provides an answer to the point of interpretation here in issue. Moreover, as I earlier pointed out, Judge Mullaly contemplated the prospect of there being multiple claims under a guarantee arising out of performance (or non-performance) of the one building contract.

Third, Mr Shand submitted it would not be anomalous, or outside the presumed intention of the parties, if the effect of the assignment was to yield HGF a windfall - in that its recovery might far outstrip its payout. Rather, he argued, that was indeed the intention of parties objectively ascertained.

There were a number of threads to that submission. One of them was that, in terms, clause 6 made an assignment of rights. This was not a case of subrogation. Under the general law, an assignee for value may recover more than 100% of its loss, whereas by subrogation the same party may only recover up to 100% of its loss[25]. Moreover, it was sensible that the assignment should be in such terms. For it might be the case that a prospective defendant would be in liquidation, in which case, to recover the amount paid out, HGF might need a judgment much in excess of such amount.

There was a tension in the last aspect of the submission with other matters counsel advanced. The proposition that HGF as assignee became entitled to a potential windfall has no real connection with the proposition that HGF might need to obtain a large judgment to recoup the amount of its payout.

Although the Release was a pro-forma it must be taken to have been pertinent to the circumstances in the present case. The builder, so far as I can see, was a sole trader. No question of liquidation could arise. Perhaps bankruptcy could be pertinent. But the papers placed before the Tribunal did not suggest any possibility of the builder becoming bankrupt.[26] Further, in the case of the architect there was nothing to suggest, so far as I am aware, that his company might be placed in liquidation or that he might become bankrupt.

In the event, it seems to me in the circumstances of this case that Mr Shand's submission must be considered on the footing of presumed intention of the parties to the Release that HGF be given the ability to recover an amount exceeding by three and a half times the amount which it had paid out.

Let it be assumed that clause 6, in form an assignment, was an assignment in fact. Let it be assumed that the general principle applies so that an assignee for value may recover more than 100% of its loss.[27] Note then the declared purpose of proceedings brought in pursuance of the assignment: "in order for HGF to recover the amount paid to the (owners) and related costs".

It would be compatible with such purpose that in this case the parties intended the nominal value of the rights of action assigned to HGF to somewhat exceed $40,000. For it could not be assumed that, on trial of proceedings, the nominal value of the rights would be reflected in a court order. Moreover, there may have been some "related costs". But it strains credulity to accept, in the circumstances of the case, a presumed intention of the parties that the owners would assign to HGF rights of action whose nominal value exceeded by three and a half times the amount which HGF had paid to them.

Because I do not accept the presumed intention of the parties to have been that by the assignment HGF would acquire the potential of obtaining a large windfall, the contention for the builder and architect that such intention cast light on the breadth of "this Claim" gets nowhere.

Before parting from consideration of the windfall issue, I should add this: Ms Lim submitted that the effect of clause 6 of the Release was that the owners assigned to HGF all their rights of action against any person arising out of or connected with the contract. But no doubt mindful of the declared purpose of the assignment, she submitted that HGF was limited to recovering the amount of $40,000.[28]

I could not accept that submission. It would make no sense at all to impute to HGF and the owners an intention that, in return for payment by HGF of $40,000, the owners would assign rights of action having a nominal value of, say, $184,000; but that HGF could only exercise those rights to the point of recovering $40,000 plus related costs.

Fourth, a submission was made which turned on the variant language of clauses 5 and 6 of the Release.

I understood Mr Shand to say, early in his submission, that he did not press an argument that the subject-matter of the release and the assignment were different[29]. On the other hand, at all times he maintained the position that clause 6 was of critical importance. Clause 5, he said, was part of the context.

Later in his argument, however, Mr Shand relied upon the variation in language between clauses 5 and 6. He argued that the release was in respect of matters which did not necessarily correspond with and which might be less than the matters comprehended by "this Claim". The assignment of rights , moreover, was in respect of the subject matter of the claim as extended by the phrase "in relation to".

I think that this submission had some merit. But it does not provide an answer to the question of what in this particular case was comprehended by the words "this Claim" in clause 6.

I go to a separate argument advanced for the builder and the architect. Counsel contended that the phrase "in relation to" in clause 6, to be read in association with "this Claim", picked up all the elements of the Tribunal proceeding instituted by the owners. That was so whether or not all those elements could have been the subject of claim in connection with the statutory guarantee. [30]

I readily accept the expansive nature of the phrase "in relation to". That the phrase has such a character was not denied by Mr Neal, who submitted however, I think with force, that consideration must be given to the context in which it appears.

Taking as a starting point my conclusion that "this Claim" was a claim for loss and damage suffered by the owners for defects caused by bad workmanship, I consider that claims or suits made or brought for completion of contract works, or with respect to delay costs, or for distress damages should not be said in context to be "in relation to" that claim. It is true that there would be, at least in the case of suit against the builder, a common origin to the subject matter of "this Claim" and a suit for damages in respect of those other matters. But I consider the respective subject-matters to be very different, the more so in that some of the other matters were either not pursued or could not be pursued in connection with the claim on the guarantee. I should add that to read "in relation to" so as to produce the result contended for would be to produce a consequence, in the context of a commercial agreement, that seems to me to be unreasonable.

I must refer to another submission advanced for the builder and the architect. It turned upon the assignment by the purchasers of "all their rights". This was said to be absolute and all-embracing.

Clear it is that by the assignment the owners assigned all their rights. But the balance of the first sentence of clause 6 cannot be ignored. There are two possible readings of the sentence. First, that the owners assigned all their rights of action against persons who fitted a particular description - that is, persons against whom the owners could have brought suit that was in any way connected with the claim on HGF. Second, that the owners assigned all their rights of action "in relation to this Claim" against persons against whom they could have brought suit concerning such matters.

As I understand it, counsel for the builder and the architect argued for the second meaning, as did counsel for the owners. So, Mr Shand referred to the "qualifier" of rights assigned - the reference to "this Claim", and use of the phrase "in relation to."[31] Again, whilst Ms Lim emphasised that this was an assignment of all and not some rights, she highlighted the phrase "in relation to this claim."[32] She went on to contend that "all rights in relation to bringing a defective (and) incomplete works claim have been assigned."[33]

Let it be assumed, in line with counsel's submissions, that the sentence should be given the second of the meanings to which I referred a few moments ago. No particular significance then attaches to the owners' assignment of "all their rights". For that assignment was qualified by reference to a subject matter; and on the view I take the subject-matter was by presumed intention of the parties a good deal narrower than was contended for by the builder and the architect.

Could the owners assign their rights of action for loss and damage attributable to defects caused by bad workmanship?

The presumed intention of the parties and pertinent documents each lead to the conclusion that the owners assigned to HGF all their rights of action against all persons concerning loss and damage suffered by them because of defects caused by bad workmanship. Is there any reason why such an assignment could not have been made?

In my opinion the answer to that question is no. That is so whether the assignment was of all or part of a chose in action. If the chose in action was defined by the subject-matter of "this Claim", then what the owners assigned was all their rights of action in respect of a complete chose in action. But if it was necessary to define the chose in action possessed by the owners more widely - for instance, as rights of action arising out of the building contract, and in contract or tort against some person(s) other than the builder in connection with the building works - then what was assigned by the owners was all their rights in respect of part of that chose in action - that is, as confined by the subject matter of "this Claim" in conjunction with the phrase "in relation to".

It may be the case, having regard to Conquer and Onerati, that at least so far as the owners' rights of action against the builder were concerned, they were rights dependent upon breach of contract, exercisable once only. In that case it would be right, I think, to treat the assignment as being a partial assignment only of the chose in action. Such an assignment is possible[34]. It operates as an equitable assignment. That is a reason why, if this be the correct analysis, the assignment was not a legal assignment of a legal chose in action.

If, on the other hand, the assignment was an assignment of all rights in a chose in action confined by the subject matter of "this Claim" in conjunction with the phrase "in relation to", then the assignment could have operated as a legal assignment of a legal chose in action if compliance with the requirements of s. 134 of the Property Law Act was established.

That takes me to the question whether the assignment was legal or equitable. It was a matter debated by counsel. But the answer to that question seems not to matter in the particular circumstances of this case. Had I concluded that the subject matter of "this Claim" in conjunction with the phrase "in relation to" was as wide as was contended for by counsel for the builder and the architect, and had I concluded that there had been a legal assignment of a chose in action so defined, then it could have been said that the owners had no rights of action upon which to bring suit in the Tribunal. Had the chose in action been so defined, and had assignment been in equity only, then it would have been open to the builder and architect to argue that the owners should be disentitled to sue in reliance on their bare legal rights. But neither of those situations here applies.

All that I would say about the matter is this: if there was assignment of part of a chose in action it was necessarily an equitable assignment. But if there was assignment of an entire chose in action I consider that it was also an equitable assignment because compliance with s. 134 of the Property Law Act was not shown to have been satisfied. Nothing was placed before the Tribunal, so far as I was informed, which should have satisfied it that express notice in writing of the assignment had been given either to the builder or the architect. The most that could be said, according to Mr Shand, was that it could reasonably be assumed that his client had notice of the assignment when the Points of Defence in the Tribunal proceeding were prepared[35]. It can be concluded that the builder by some means had became aware of the assignment and its form. But that is all that can be concluded. Whether notice satisfying s. 134 had been given could be no more than speculation. Finally, I note but do not further address an argument raised by Mr Neal that the second and third sentences of clause 6 were necessarily inconsistent with an intention that legal assignment of rights of action be effected.

I have rejected the key submissions advanced for the builder and the architect. It remains to give precise meaning to clause 6. There are, I think, three possibilities concerning the content of rights of action assigned. Thus:

[diamond] rights in respect of claims for rectification of defective works;

[diamond] rights in respect of claims for rectification of 66 specified defects;

[diamond] rights in respect of rectification claims but limited to $40,000.

The distinction between the first two possible approaches is not academic. As I noted earlier, the owners have discovered additional items of allegedly defective work since providing the list of 66 specified defects to their solicitors.

The additional allegedly defective work was performed long before presentation of the reformulated claim which culminated in HGF paying the owners $40,000. One would have thought that by then the owners, who appear by their correspondence to be extremely meticulous people, would have identified all the allegedly defective work. Be that as may, the reformulated claim was based upon only 66 specific items. Nonetheless, I consider that it would be wrong to interpret the phrase "in relation to this claim" in clause 6 so as to confine the assignment of rights to those which pertained only to the 66 defects. That would give the phrase "in relation to" no work to do. I consider, then, that the proper interpretation of clause 6 requires a conclusion that the owners assigned all their rights of action concerning claims for rectification of defective work generally.

That takes me to the question whether the rights assigned were in some way limited so that HGF could recover no more than $40,000 plus related costs. I do not think that they were. For reasons explained it was consistent with the presumed intention of the parties, having regard to the purpose of the assignment, that the nominal value of the rights of action assigned would to some extent exceed $40,000. I do not think that HFG, were it to exercise such rights, would be bound to decline an award for more than the amount which it had paid the owners plus related costs. Whether, in the event that the assignment operated in equity, HGF would have some obligation to account to the owners for any balance that if recovered is another matter, about which I say nothing. For present purposes it is enough to say that, subject to one consideration, the owners are not entitled to sue for the cost of rectification work in the Tribunal proceedings.

The consideration is this: it may be the case, having regard to what was said in Conquer and Onerati, and perhaps having regard also to what has been called Anshun estoppel[36], that it would not be open for HGF in the name of the owners and for the owners in their own right to bring separate proceedings. It may be, then, if HGF wishes to act in pursuance of the rights assigned to it, that it should in substance become involved in the Tribunal proceedings, this necessitating some amendment of the Points of Claim. That is a matter, I think, which the owners should take up with HGF. The fact that there was, apparently, some purported re-assignment of rights of action by HGF to the owners[37] does not affect what I have just said. Even assuming that the re-assignment was effective, no doubt HGF retained certain of the assigned rights.

In all, then, the Tribunal was correct in resolving the issue of standing favourably to the owners. It is, however, the consequence of my Reasons that the owners are disentitled from pursuing for their own benefit a proceeding against the builder or architect seeking a remedy for works which were allegedly defectively performed. That is, they may not do so in their own right; though contrast the situation if HGF sought to exercise its assigned rights in the extant proceeding. The question in the appeal which I framed should be answered yes, the Order of the Tribunal dated 24 January 2001 should be affirmed, and the proceeding in the Tribunal should be heard and determined in accordance with these Reasons by the Tribunal as previously constituted. I shall hear the parties as to the precise form of the orders.

[2] In Amended Points of Claim in the Tribunal proceeding which gave rise to this appeal there is reference to a "variation agreement"; see paragraphs 10 and 11.

[3] Member Kincaid, decision 9 December 1997; see paragraph [2] of the Interim Determination and paragraphs [13] - [18] of the Reasons for Determination.

[5] See letter, Guymer Naidoo to HGF, 24 May 1999.

[7] See ss. 109 and 112-114 of the VCAT Act.

[10] [1982] HCA 9; (1982) 149 CLR 147 at 153, a case in which the High Court said, in effect, that the Federal Court had power to rescind a grant of leave to appeal on the footing that it was always open to a court which had granted leave to appeal to rescind that grant.

[12] Coles Myer Ltd v Bowman [1995] VICSC 219; [1996] 1 VR 457 at 460.

[14] And, for that matter, to the Court of Appeal from refusal by a judge of the Trial Division to grant leave to appeal, see The Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue [2001] HCA 49.

[15] Perhaps an analogy could be established with the circumstances in which a court would entertain an application to re-open an application for special leave; as to which see Simanovic at paragraph 7.

[17] See, eg, Mr Shand at T21 and Ms Lim at T84-86.

[18] Something of which the builder, as a respondent to the owners' appeal, must have been aware.

[19] The builder was informed of the later acceptance, but not of the reformulation.

[20] As to which see Housing Guarantee Fund Ltd v Johnson and Ors (1985) V Conv R 54-524 per Tadgell J at 66222 and per JD Phillips J at 66232-662233.

[23] See per Sankey LJ in Conquer at 342; and per Giles J in Onerati at 737-749.

[24] Judge Mullaly, County Court, judgment 19 November 1993, pp. 8-9 and 16.

[25] He cited Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at 121 per Roskill J, as his Lordship then was.

[26] At least, there was no suggestion of this before the Release was signed.

[27] Though query the applicability of the rule in the case of this statutory guarantor.

[29] See T20, line 25-T21, line 5. The verb "can" recorded by the transcription service is plainly incorrect. The negative "cannot" was used.

[30] Authorities cited were, concerning the phrase "in relation to", Law Society of New South Wales v Bruce & Ors (1996) 40 NSWLR 77 at 84-86, Bourke Appliances Pty Ltd v Wonder [1965] VicRp 69; [1965] VR 511 at 518-519; and, concerning the phrase "with respect to", Workers Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642 per Wilson and Gaudron JJ at 646-647 and per Deane, Dawson and Toohey JJ at 653-654. See also Sharp and Anor v Associated Pulp and Paper Mills Ltd [1989] VicRp 12; [1989] VR 139 at 146.

[34] Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9 at 29-30 per Windeyer J, Shepherd v Federal Commissioner of Taxation [1965] HCA 70; (1965) 113 CLR 385 at 390-391 per Barwick CJ.

[36] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. The existence and operation of this form of estoppel has been a matter of lively debate.

[37] It has not been necessary to consider that re-assignment in order to decide the present appeal.

Contracts Guarantee Act 1987

Civil and Administrative Tribunal Act 1998

Constitution Act 1975

At a glance

Court

Decision date

Before

Source

Judgment (156 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (6)