Farthing v Wagg and Hackett; Wagg and Hackett v Farthing [2015] NSWCATCD 12 | Case summary

Farthing v Wagg and Hackett; Wagg and Hackett v Farthing [2015] NSWCATCD 12 | Case summary | Zoe

[3]

PROCEDURAL HISTORY

Following the issue of the builder's application that matter came to a directions hearing on 27 September 2011 wherein leave was granted to both parties to be legally represented and orders were made as to the filing of evidence . Following that first directions hearing there were a number of return dates in late 2011 and early 2012 for return of summonses issued at the request of the homeowners . Access orders were granted to the parties during this period with respect to such documents produced.
Both matters were before the Tribunal for directions next on 23 January 2012 when the time for the homeowners to file and serve their evidence was extended to 7 February 2012 in the builder's application and 20 February 2012 in their own application respectively and any reply by the builder to 28 February 2012 and 2 April 2012. The matters were next before the Tribunal for directions on 16 April 2012 and orders made included the following : "2 . The time for the applicant (homeowners) in proceedings HB11/62299 to file and serve its evidence be extended to 7 May 2012. In the event of default, the Tribunal notes that on the next occasion the Tribunal may entertain an order to prevent reliance on evidence served after that date. 5 The tribunal notes that evidence in proceedings HB 11/43514 has been completed by both parties."
On 1 June 2012 the matters came on for directions again and the following relevant orders were included Tribunal's directions : "2 By consent the time for the homeowners in proceedings HB11/62299 to file and serve their expert evidence is extended to 13 June 2012. 3 Without leave of the Tribunal any evidence served by the homeowners after 13 June 2012 is inadmissible and cannot be relied upon by the homeowners. 4 The homeowners are to pay the builder's cost of and incidental to today as agreed or assessed."
At a directions hearing on 7 September 2012 an application for leave to file and serve an expert report of Helen Bousamra was granted over objection from the builder. At a subsequent directions hearing on 20 November 2012 the matters were ordered to be listed for a three day hearing, later fixed for 13, 14 and 15 may 2013. The matters proceeded on those days.
On day three of the hearing, formal objection was taken by Mr Bradley to the homeowners' expert reports of Mr Macneal and Mr Maglis on the basis of non compliance with the Expert Witness Code of Conduct and they were ruled in admissible with one small exception. The hearing was not concluded on day three but it was made plain to the parties that the time for filing of further evidence had closed. Prior to the first resumed hearing date on 2 July 2013 the homeowners sought, obtained and served a further report from Mr Maglis and a statement from Mr Terry. The builder obtained a report from Mr Pyke. Further applications were made on day four to rely on this new evidence .The applications to rely on such further expert evidence by the parties was rejected on the basis that it was not compliant with the earlier orders of the Tribunal .

[5]

BACKGROUND FACTS

Prior to entering into the contract the subject of this dispute the parties had been known to one another on a personal basis for some number of years as the builder was close friends with the homeowners sister/daughter respectively , who had introduced them .
In 2009 the homeowners purchased the 9 acre parcel of land at Candelo with the intention of building a residence upon it.
Prior to appointing the builder the homeowners had sought a quote from a project builder, on whose behalf Scott Halfpenny had visited the property with them both in around February or March 2010. Halfpenny and Wagg discussed a location for the house and Halfpenny had placed some pegs at the approximate location of the corners of the house but suggested a surveyor be retained to properly identify the location. BE 5 is a survey plan produced by Caddey Searle and Jarman surveyors in February 2010 upon instructions from the homeowners and the survey plan prepared by the surveyors generally locates the dwelling in similar position to where it was constructed by the builder.
In early 2010 Wagg had inspected some other premises constructed by the builder following upon which inspections Wagg ask him to design and construct a home suitable to their requirements.
Around mid-2010 DF inspected the site with Wagg and discussed the intended location for the house. The existing pegs were observed by DF. After taking levels DF recommends moving the proposed house site marginally to the North East to a more level location.
In around July 2010 DF commences design preparation for a proposed dual occupancy dwelling for the homeowners.
DF attended the site again with both the homeowners in around July 2010 and marked out location, dimensions and orientation for the proposed house. The orientation was changed to a more Westerly position at Wagg's request to avoid a view of the neighbour's property. On 10 August 2010 DF sends a construction estimate by email to Wagg. The email itself is in evidence but DF's evidence is that he could not locate a copy of the construction estimate forwarded with the email of 10 August 2010 .
A further longer email from DF to Wagg dated 10 August 2010 iis in evidence as attachment A to the statement of Wagg dated 30 May 2012. The following details from this further email are noted: "Just did the worst scenario as far as budget without going down to nuts and bolts .Will submit at 420K but Council might increase if deemed to low……What's your thoughts on estimate."
On 16 August 2010 the parties execute the MBA form of Costs Plus Contract for the construction of a dual occupancy dwelling with an estimated cost of $420,000.00. The construction period stated in this contract is 280 business days excluding public holidays and the period between Christmas and New Year.
On 17 August Wagg sends back to DF a base budget forecast for an amount of $519402 which he said in his evidence that he prepared using a template he had obtained while working with a previous employer .He indicated also that he had completed the budget using the information previously provided by the builder .
Bega Council approval for the development was granted in early October 2010 from about which time site works including excavation and preparation commenced. The builder had already issued invoices 1 and 2 for the design work in July 2010. Invoice 3 for the deposit was issued on 4 October 2010 noting the works description as 'Received DA approval, Excavation started'.
Works progressed during October, November and December 2010 consistent with the work described in the November and December invoices 4 and 5 issued by the builder for about $70,000.00 and $28,000.00 respectively.
It is evident from the Bureau of Meteorology rainfall records in evidence that December 2010 rainfall in the area of the subject site was three times average consistent with the builder's assertions that some time was lost as a consequence .
The contract required that the builder provide monthly budget updates on the construction costs which the builder failed to do in October or November 2010. Wagg's perception as to the pace of the works and the costs incurred to December 2010 was that the spend was over budget and behind in time. Wagg by email dated 20 December 2010 sought an up to date budget forecast which the builder indicated would be provided after Christmas 2010.
Two incidents occurred on Boxing Day 2010 at the builder's home and on the 29 December 2010 at the Candelo hotel involving less than friendly exchanges between Wagg and DF at which it appears that Wagg had expressed his concerns and frustrations with the project based upon a likely perception (whether properly based or not) that some advantage of the homeowners was being taken by DF regarding the project .
On 29 December 2010, DF directed an email to Wagg indicating that henceforward the relationship was to be kept on a "business arrangement only" basis. This email arose because of the incidents referred to in the preceding paragraph and due to the fact that up to that time , because of the prior personal relationship there had been regular social contact between the parties which had also involved discussion about the project .
The builder provided the updated budget on 3 January 2011 and a meeting between the homeowners and DF took place on 4 January 2011 to discuss issues relating to the project .The minutes of the 4 January meeting prepared by Wagg indicate the various issues discussed and the conclusions reached for the forward management of those issues . Nothing in those minutes indicates that any of the issues were incapable of resolution It is noteworthy that the minutes record that the failure by DF to supply paperwork was attributable to miscommunication. Wagg raised the possibility of all future communication being through Hackett because of "both AW / DF being headstrong" but the consensus was noted to be not in agreement with such suggestion
It can be inferred from invoice 6 and 7 dated 27 January 2011 and 15 February 2011 respectively that work continued significantly during that period having regard to the extent of works therein identified.
In spite of the evident progress of the physical building works, tensions continued arising as a result of the homeowners' desire to be able to randomly visit the site and monitor progress of the works and DF wishing to restrict such visits consistent with the terms of the contract given the builder's possession of the site for the course of the works . Wagg's perception remained that the progress of the job was too slow and that the budget was being exceeded.
On 17 February 2011 a formal Notice pursuant to Clause 24 of the contract was prepared on behalf of the homeowners by Maccallum Lawyers. The Notice asserted that the builder was in breach of the contract because of: "1 A failure to comply with the provisions of clause 17(c) of the contract when making claims for payment in that you have failed to: provide documentation in support of your claims for payment provide documentation for the payment of the $24000 deposit , and that you have been reluctant to respond to reasonable requests to supply documentation supporting your claims A failure to provide documentation for variations to the works as per clause 14 for the following reasons: there is no variation documentation for the extra excavation and site works." The 17 February letter also requested a further budget report and a meeting to discuss the alleged breaches and other issues .It also warned that: "our client is entitled to determine your employment 25 days after the forwarding of this notice if you do not attend the meeting or satisfactorily resolve the breaches."
A meeting then took place pursuant to the notice on 19 February 2011 at which meeting Mr Phil Baker was appointed to represent the homeowners . The detailed minutes of the 19 February meeting prepared by Baker are in evidence as attachment 17 to Wagg's 20 February 2012 statement. Certain issues were clarified at the meeting. Work at the site resumed on 24 February 2011. Correspondence continued with various exchanges between Baker, the builder and the homeowners and Maccallum Lawyers. The letter of Maccallum Lawyers dated 3 March 2011 sets out details of outstanding issues. Works progress through this period although the builder issues suspension notices because payment of invoices are still not made .The payment of invoice 8 totalling around $54,000.00 on 18 March 2011 marked the apparent resolution of the issues arising out of the 17 February 2011 notice .
Works continued on site after 18 March 2011. Invoice 9 is issued by the builder on 3 April 2011 for $32,184.00. The payment for this invoice was not made within the 5 days stipulated by the contract. The evidence confirms that some supporting documentation for invoice 9 was not provided by the builder until 6 April 2011.The builder threatened to suspend the works for non payment of invoice 9. Wagg attended the site to make payment of invoice 9 on 12 April 2011 but found the site locked and made the assumption that a suspension had occurred. Following telephone contact being made DF returned to the site but a verbal altercation between DF and Wagg ensued. The verbal exchanges as reported in both Wagg's and the DF's statement were of an aggressive and heated nature. As a consequence of this event the homeowners together concluded that "enough was enough" as far as their continued dealings with the builder were concerned.
On the 13 April 2011 the homeowners served the letter titled "notice of determination" prepared by Maccallum Lawyers purportedly relying on the earlier notice of breach letter dated 17 February 2011 and the alleged breaches of contract identified in it ,as well as the purported unauthorised suspension on 12 April 2011 . The 13 April 2011 notice sought immediate possession of the site . The builder responds to the Notice of Determination by letter dated 14 April 2011 disputing its validity and asserting it amounted to a repudiation of the contract. The builder proposes a further dispute resolution meeting pursuant to Clause 24 (c) of the contract.
On 15 April 2011 the homeowners confirm by letter from Maccallum Lawyers that the Notice Of Determination remains and that possession of the site has been taken by the homeowners.

[12]

FACTUAL ANALYSIS

Having regard to the evidence it must be concluded that Wagg at least had sufficient corporate experience to be able to understand the nature of the Costs Plus Contract that had been entered with the builder which he claimed to have carefully read. The fact that Wagg was able to utilise a template to create his own budget forecast using the figures he conceded were obtained from the builder is further testament to his commercial ability .
There can be no issue that Wagg produced the budget forecast of $519,000.00 one day after signing the contract namely on 17 August 2010. The conclusion is inescapable that the latter estimate of the likely cost of the project was based on the DF estimate of $498,100.00, as set out at attachment B to Wagg's statement of 30 May 2012. The explanation, afforded by DF that he was unable to produce his original estimate sent with the one line email of 10 August 2010 , because the original estimate document had not been saved and was subsumed by later versions of it , is not unreasonable .
It is not credible having regard to the latter that the homeowners could have had reason to believe that the likely cost of the project would be limited to $420,000.00. The terms of the 10 August 2010 longer email from DF, attachment A to the Wagg's statement of 30 May 2012, in referring to "the worst scenario without going down to nuts and bolts" is clearly not a reference to the $420,000.00 figure mentioned in the email itself. The breakdown of figures set out in the Wagg's estimate of $519,000.00 are so closely aligned with DF estimate of $498,100.00 to render it probable that the latter document was the basis for the estimate produced by Wagg on 17 August 2010 and that DF estimate attachment B to Wagg's 30 May 2012 statement was in fact the estimate sent with the DF email of 10 August 2010 a copy of which DF had been unable to provide himself.
The evidence relating to where the house should have been constructed on the site having regard to the survey plan BE 5 is not consistent with the homeowners' claim that the house should have been constructed near to the gate. BE 5 was obtained by the homeowners in February 2010 long before the builder was formally retained. The site layout plan referenced in the contract which was prepared by the builder is largely consistent with BE 5 even though the orientation of the house is slightly changed .The pegging out which occurred both by Halfpenny and by the surveyor is consistent with the location of the constructed dwelling and that pegging all occurred prior to the builder's involvement on direct instruction from the homeowners.

[13]

THE HOMEOWNERS

The homeowners' written submissions do not rely on all grounds nominated in the termination notice but seek only to assert that the contract was validly terminated because the builder was allegedly in breach of it on three grounds in the alternative and additionally say that the termination notice itself could be characterised as a notice pursuant to Clause 14 varying the contract to reduce the further work under it to zero.

Firstly it is asserted that the homeowners had a right arising under Clause 26(a)(ii) of the contract.
Secondly it is asserted that the builder breached conditions( ie essential /fundamental terms) of the contract .
Thirdly it is asserted that the builder breached inessential terms of the contract in such a manner as to deprive the homeowners of the true benefit of the bargain that they had entered with the builder.
In relation to the Clause 14 argument it is a submitted that the homeowners retained the right to vary the work under the contract subject to the consent of the builder which consent could not be unreasonably withheld. The right extended under such Clause 14 (e) to deletions as well as increases to the scope. It is submitted that if it is determined that the contract was improperly terminated that the formula in this clause should be used to calculate the builder's loss.

As a prerequisite to each ground the homeowners assert that the builder was in breach of Clause 17(d) in not providing supporting documents to invoices in a timely fashion and Clause 2A(c) in that the builder failed to act co-operatively with the homeowners .
In support of the first ground it is asserted that the meaning of the word "works" within Clause 26 (a)(ii) is extended to include not just the physical building work but also the administrative work and provision of information incidental to the management of the contract , because the nature of a costs plus contract is such that the homeowners need to be able to monitor costs and change the scope of the work if necessary to accord with their budget .
Alternatively if the meaning of "works" within Clause 26(a) (ii) is limited to building work then it is asserted that "the building work is not done 'in a competent manner" and the building work is not done with 'due diligence' if the builder is merely physically progressing the building work without proper administration of the contract, without providing information on a timely basis and without co-operation".
The second and third grounds rely on a common law right to terminate. It is asserted firstly that because the subject contract was a cost plus contract, for the homeowners to obtain 'the benefit of the bargain' they were entitled not just to the building of the house but also "the building of the house in circumstances that the owner has the capacity to plan ,control and manage and pay the total budget and pay individual invoices as and when required". It is submitted that where the builder has breached terms of the contract that deprive the homeowners of the capacity to "plan control and manage the total budget etc…" the homeowners are entitled to terminate on the basis that the relevant clauses breached are conditions of the contract because substantial performance of them was essential to the contract . In the alternative it is submitted that if the breaches related to inessential terms those breaches were such as have deprived the homeowners of what was intended under the contract.

[14]

THE BUILDERS

The builder primarily argues that the second and third grounds relied upon by the homeowners being the common law grounds cannot be made out . It is submitted in reliance on the authority primarily in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) CLR 115 (Koompahtoo) that "the conduct complained of has to deprive the terminating party of the substantial benefit to which it is entitled under the contract, with the consequence that it would be unfair to the innocent party to hold it to its bargain and leave it to its remedy in damages. The breach must amount to a renunciation of the contract, namely, an unwillingness or inability to render substantial performance of it. The test is whether a reasonable person would conclude that the builder intended to renounce the contract as a whole or a fundamental obligation under it."
The builder argues that the evidence establishes that the building works were progressing in a timely fashion and that any dispute in relation to the contract administration was being managed by the builder in attending the dispute resolution meeting and agreeing to provide access to supporting documents. Any failure to provide documentation it submits "did not deny the owners the substantial benefit of their bargain with the builder, namely the construction of a new home." It is argued that a reasonable person would not conclude that the builder's conduct evinced an intention to renounce the contract noting that following the purported termination the builder initially refused to accept it and sought to call a dispute resolution meeting.
The builder submits that the common law grounds cannot succeed and that any right to terminate must be found within the terms of the contract itself . It is then argued that the alleged failures under Clause 17(d) to provide supporting documentation could not be regarded as conditions precedent to payment of the invoices and that therefore the homeowners remained under obligation to pay the invoice within the stipulated 5 days and thus even if a suspension of work were established, which is denied, it would have been validly suspended.
The builder submits that the extended meaning of "work" to include contract administration sought to be applied by the homeowners cannot be accepted . Having regard to the definition of "work or works" within Clause 31 (c) of the contract, on the basis of the principles set out in the submission and having regard to an overall reading of the contract it is argued that in each instance the word appears within the contract it is concerned with the performance of building works or the actual constructed buildings themselves and not with contract administration.
The builder further argues in any event that the even if a breach of Clause 26 could be established the termination notice was invalid because it failed to give 25 days notice to the builder to remedy any default. In so far as the termination notice seeks to rely on the prior meeting notice of 17 February 2011 it is argued that such prior notice was given pursuant to Clause 24 relevant to a request for a meeting and not pursuant to Clause 26 and therefore could not be a proper notice to support the termination. In any event conduct of the parties subsequent to the meeting notice involving the building works continuing and payments from the homeowners being made with directions to the builder to continue the works constituted an affirmation of the contract which would negate any right to terminate on the basis of the meeting notice if it existed.

[15]

LIABILITY - ALLEGED BREACH OF CLAUSE 26(a) (ii)

The question whether this clause has been breached requires the homeowners to establish to the required standard that the "works had not been performed with due diligence and in a competent manner". To answer this question requires firstly to determine what is meant by the word "works" as it appears within the clause.
The contract itself in Clause 31 (c) provides as follows : "'work or works' means the work the builder is or may be required to carry out and complete under the contract, and includes variations and rectification and includes provision of material."
The builder has argued that there is no ambiguity arising from this definition and therefore that reference to 'work' or 'works' as used throughout the contract is a reference to the physical building work as it is identified in Schedule 3 of the contract which states in paragraph (a) the following : "New dual occupancy - attached as per drawings on pages 1 to 8 dated 1 /8/10." Notably paragraph (b) of this schedule excludes from the work "landscaping, fencing , driveway " all aspects of a physical nature .
The builder submits that there is no reference to contract administration as being included within such identified work .It is argued that the meaning of the words have to be derived from a reading of the contract as a whole by reference to " words (which) should be given their ordinary meaning with the attention to 'language used by the parties ,the commercial circumstances which the document addresses and the objects which it is intended to secure.' McCann v Switzerland Insurance Australia (2000) 203 CLR579 at 589. The builder's submissions at paragraph 39 make reference to various instances in the contract where the words 'work' or 'works' are used none of which can be related to contract administration . Adopting this approach , forming a conclusion that the extended meaning sought to be derived by the homeowners should be adopted , would indeed be contrived as references to 'work or works' throughout the contract not just those instances specifically referenced are clearly all concerned with the performance of the physical building works or the actual constructed buildings.
Whilst the homeowners' submission argues that proper contract administration is an essential element of a costs plus contract to ensure the best possible outcome for them, even accepting that such a proposition were true , adopting the approach established in the authorities for interpreting such words , such fact alone would not of itself establish it to be within the meaning of 'work or works' for the purpose of this contract .
The homeowners further rely on the decision of Bergin CJ in Floruit Holdings Pty Ltd v Sebastian Builders and Developers Pty Ltd [2009]NSWCA 303 as providing support for the extended meaning of work they are seeking .The latter case involved the interpretation of the meaning of Clause 23(d) of the relevant contract which is in precisely the same terms as Clause 21(d) being the relevant clause under review in this matter ,namely " The owner is not entitled to take possession of the works until payment to the builder of all monies due under this contract". The homeowners argue that " Bergin CJ expressly acknowledged that ' the works' when used in the context of services included contract administration such as providing a plumbing certificate". From my reading of that decision the homeowners seek to rely on Bergin CJ's words out of context where she indicated that the provision of a plumbing certificate "may have fallen within what was described as the 'work' the builder was required to do" because the submission fails to include the remainder of Bergin CJ's statement immediately following which states: "however it is not part of 'the works' as the expression is used in Clause 23(d)."
Having regard to such qualification I find that the homeowners' reliance on Floruit cannot assist their position, but to the contrary more supports the builder's contention.
The homeowners' submission that proper contract administration is a critical element of a costs plus contract if accepted as true would suggest that it would have been prudent to have included contract administration etc as part of the works required to be performed " with due diligence." but that to read such additional element into the meaning of the words 'work or works' as they appear in the contract , I find is simply not a meaning that is reasonably derived upon the true construction of the contract . I am not satisfied that there is any ambiguity in the terms of the contract as it exists and to look further at surrounding circumstances to clarify the meaning of the 'work or works' is not a necessary exercise for the purpose of this contract .
The builder asserts that as far as the physical building works are concerned it must be accepted that they were progressing well. The photographic depictions in evidence are claimed to support such a contention. The homeowners do not seek to seriously challenge the latter proposition. On that basis I am not satisfied to the required standard that the alleged breach of Clause 26(a)(ii) is made out .

[16]

COMMON LAW GROUNDS

The homeowners place significant reliance on the decision in Koompahtoo in support of their contention that the builder breached conditions of the contract giving rise to a right to terminate. Both the majority reasoning in that decision, as well as that of Kirby J (the latter of whose separate concurring decision was for different reasons) make it clear that an underlying principle of contract law is that "the interests of justice are promoted by limiting rights to rescind to instances of serious and substantial breaches of contract".
The homeowners' submissions assert that if the alleged breach can be established to go to "the root of the contract" then such a breach would be determined to be a breach of a condition giving rise to a right to terminate .It is asserted that the "benefit of the bargain" here was not just the building of the house "but the building of a house in circumstances that the owner has the capacity to plan control manage etc …" the contract . It is asserted that the very nature of a costs /plus contract is such that for it to be successful in delivering the benefit such type of contract seeks to achieve the homeowners must be given "the capacity to plan, control and manage etc…" and that the builder in allegedly failing to abide the terms of Clause 17(d) and Clause 2A(c) of their contract denied the homeowners that capacity.
Relevant passages from Kampahtoo at paragraphs 54 to 56 of that decision are relied upon by the homeowners in support of their contention and are cited as follows : "…at the time a contract is entered into , it may not be possible to say that any breach of a particular term will entitle the other party to terminate, but that some breaches of the term may be serious enough to have that consequence ……breaches of this kind are sometimes described as 'going to the root of the contract', a conclusory description that takes account of the nature of the contract and the relationship it creates , the nature of the term , the kind and degree of the breach and the consequences of the breach for the other party. Since the corollary of a conclusion that there is no right of termination is likely to be that the party not in default is left to rely upon a right to damages , the adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract …….A judgment that a breach goes to the root of a contract ……'such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract ' rests primarily on a construction of the contract …..A judgment as to the seriousness of the breach, and the adequacy of damages as a remedy, is made after considering the benefit to which the injured party is entitled under the contract …… A question as to contractual intention, considered in light of the language of the contract, the circumstances in which the parties have contracted and their common contemplation as to future performance is different from a question as to the intention evinced by one of the parties at the time of the breach, such as arises in cases of alleged renunciation."
Paragraph 68 of Koompahtoo although not referenced in the homeowners' submission , is most relevant to an understanding of both the rationale of that decision in determining that the breaches in the circumstances of that case satisfied the criteria outlined as well as illustrating the distinguishing features in the present case , and it reads as follows : ".The focus of attention should be the contract and the nature and seriousness of the breaches …….The intention that is relevant is the common intention of the parties, at the time of the contract, as to the importance of the relevant terms and as to the consequences of the failure to comply with those terms . This is a question of construction of the contract to be decided in light of its commercial purpose and the business relationship it established .The contract established a joint venture for a land development project of considerable size and complexity, to be carried out over a number of years. Koompahtoo brought to the joint venture its land. Sanpine brought its management and financial expertise .Sanpine's obligations as to dealing with joint venture funds ( which were borrowed on the security of Koopahtoo's land) and maintaining proper books and accounts were of importance , not only to working out the ultimate result of the joint venture when the land had been developed and sold but also enabling the parties ( and a person such as the administrator ) to know the material facts, and to make decisions and judgments informed by that knowledge .The inability of Sanpine to inform the administrator , or even the trial judge ,of the true financial position of the joint venture , and to produce informative joint venture accounts , exemplifies the point ."
In Koompahtoo many breaches were established which occurred and were repeated over a long period of time ,all such breaches relating to management and financial matters , when it was such precise services that were the essential basis of the agreement .While the breaches may have been inessential on an individual basis , the consequences of the breaches in totality were serious in that because of the failures to perform the basic requirements , the administrator appointed was unable to properly assess the financial position of the joint venture . The purpose of the joint venture agreement was to obtain management and financial expertise and such was lacking to such an extent that it was determined as a consequence of the numerous failures of Sanpine that same did "go to the root of the contract" in depriving Koompahtoo of the benefit for which it had contracted .
The same formula that is outlined in the quoted paragraphs above of Koompahtoo needs to be applied to the facts of this matter. There is a significant difference with this contract in that the commercial purpose of the contract was the building of a house and that was the nature of the contract. In a matter of this nature one could only expect what is reasonable for a relatively small builder to deliver in respect of administrative and accounting services. The homeowners were entitled to expect delivery of the physical building works at a cost reasonably close to the estimated figure. I have already outlined in the factual analysis above that the available evidence does not support the homeowners' contention that the builder's estimate was only $420,000.00. Wagg's concerns regarding the builder "having a lend of them" may have been formed on the basis of an erroneous assumption that the project estimate was $420,000.00.
From the point of view of contract management it was not a contract that was running smoothly. There is little doubt that there was a breakdown in the trust relationship between the parties .There had been failures on the part of the builder to comply with Clause 17 in relation to the provision of supporting documentation with invoices. It is asserted by the homeowners that the builder's conduct was also in breach of Clause 2A(c) in failing to co-operate, but I am not satisfied that the evidence establishes it .The evidence supports the builder's continued attempts at cooperation and compliance with terms as to the provision of documentation and reports but clearly it is established that the paperwork was not fully compliant with the contractual requirements. The homeowners submit that the builder's conduct from the outset involving repeated failures to comply in relation to provision of budgets and supply of supporting documentation notwithstanding the builder's co-operation in rectifying earlier failures, should all be relevant in assessing the seriousness of the breaches not just the failure to supply some of the supporting invoices with respect to invoice 9 dated 3 April 2011.It is asserted that the breaches were serious because provision of such detail was so integral to the type of contract in order for the costs to be kept under control and within the relevant estimate.
The nature of the contract highlighted the fact that the builder's estimate was just that, namely, an estimate and while it could be expected that it should be reasonably accurate, minor variations to the final price either for or against the homeowners would not render the builder in breach as such variations were clearly within the contemplation of such a contract from the outset . A major variation from the original estimate for the original scope of work could give rise to an allegation that the builder was at fault for badly estimating and misleading the homeowners or for badly managing the works so as to cause a costs blowout , in which event any fault attributable to the builder could be actionable if it were established that any damage followed as a consequence One would expect in such a circumstance that a finite figure would be easily ascertainable , suggesting that damages would then be an adequate remedy .
The builder has argued that any requirement imposed by Clause 17(d) to provide supporting documentation with claims for payment , having regard to such requirement being qualified by the words "as far as possible" would weigh against it being determined as an essential term of the contract .The homeowners argue the nature of the costs plus contract is such that it makes compliance with the requirements of Clause 17(d) an essential term on the basis that it is reasonable to find that the homeowners would not have entered into the contract unless assured of strict compliance with such clause and therefore the breach of it gave rise to the right to terminate. Having regard to the formula outlined above in Koompahtoo and having considered all the relevant criteria relative to such formula for assessing whether a term is essential I am simply not satisfied that homeowners' position is sustainable . The requirement to pay invoices within 5 days of service I find to have been mandatory, however the words of Clause 17 (d) which qualify the supply of supporting documentation in such manner , I find do not make such supply essential to the validity of the invoice
The homeowners' alternative position is that if Clause 17(d) is not accepted as an essential term then it is an inessential or intermediate term the breach of which has deprived the homeowners of the benefit of their bargain . Even if it is accepted that there were repeated failures to comply with Clause 17 (d) and that the homeowners were entitled to rely on the earlier breaches asserted in the 17 February 2011 meeting notice , I am not satisfied such failures would establish in the circumstances of this case that the homeowners would have been deprived of the real benefit of their bargain sufficient to justify unilateral termination .The commercial purpose of this contract was the building of the house not the contract administration and financial management as was the case in Koompahtoo. If the cost estimate for the works was so greatly exceeded through the builder's fault, if established, then the appropriate remedy would be damages. I am not satisfied on the evidence that the physical work of building the house was not being progressed reasonably in accordance with the contract. Any perception the homeowners may have had as to costs being beyond budget estimate on the basis that such estimate was $498,000.00, was not justifiable on the evidence before me. I am similarly not satisfied that such breach deprived the homeowners of the benefit of their bargain.
The homeowners make the same submissions with respect to the alleged breach of Clause 2A(c) relating to the alleged failure of co-operation by the builder. At paragraph 67 above I indicated that I was not satisfied that this breach is made out on the evidence . Even accepting that the builder did hang up on Baker when certain information was requested that in itself does not prove a breach of this clause given the overall history of meetings and positive responses to requests for details at other times. I find however that Clause 2A( c) does not meet the criteria discussed earlier to be classified as an essential term .Such a failure to co-operate of itself , if established would constitute a breach of an inessential term which would not deprive the homeowners of the real benefit of their bargain .
I am thus not satisfied for the reasons outlined that the homeowners had a common law right to unilaterally terminate the contract.

[17]

VALIDITY OF THE TERMINATION NOTICE PROCEDURALLY

Having regard to my finding that there was not a failure by the builder to comply with Clause 26(a)(ii) it is not necessary in determining this matter to decide whether the termination notice , in so far as it relies on Clause 26 , was valid from the procedural standpoint . The builder has argued that the homeowners did not give 25 days notice of the alleged default as required by Clause 26 before issuing the termination notice. The homeowners' position on this issue is to rely on the 17 February meeting notice which provided that "the Owner may terminate the contract for default". It is clear however that the meeting notice was a notice pursuant to Clause 24 and not Clause 26 .Thus even if it was accepted that Clause 26 had been breached in so far as such breach could be related to the failure to provide supporting documentation as regards invoice 9, which seems to have been the immediate precipitator of the termination notice , same would clearly be a new event not covered by any earlier notice . Similarly whether or not the builder actually suspended the works on 12 April 2011, notwithstanding Wagg's perception that he had in fact done so, is not essential to be determined. Even if such a suspension did occur and it was wrongful, in so far as such a suspension on 12 April 2011 is concerned , the homeowners clearly failed to give a proper notice pursuant to Clause 26(a) of the contract which states as follows : "If the builder is in default in any of the following respects …. (iii) if without reasonable cause he wrongfully suspends ….the works…. AND if, ……in the case of any default that is capable of remedy , the default continues for twenty five (25) clear days after notice in writing ….stating the owners intention of determining the builder's employment…."
On that basis the challenge to its validity argument put forward by the builder, in relation to lack of notice in accordance with the contract, is not without substantial merit.

[19]

DAMAGES

In oral submissions on the final day of the hearing Ms Catanzariti raised the argument that the termination notice, if determined not to be valid could be characterised alternatively as a notice under Clause 14 ( e) , varying the work under the contract to zero .I am not satisfied that such a claim is a valid one having regard to the process required under that clause for the builder to be given the opportunity to consent to or oppose such a purported variation. Such a process was not followed and the purported termination notice of 13 April 2011 makes no reference to such clause.
The builder relies on the decision of the High Court in Carr v JA Berriman Pty Ltd (1953) 27 ALJ 273 where reliance was placed on a clause in similar terms to Clause 14(e) and it was determined that "a principal was not entitled to omit work simply on the grounds that it wishes to have it done by someone else other than the contractor". That principle has been affirmed by the various decisions outlined in the builder's submissions which I do not propose to repeat here , but such principle I find is applicable to the circumstances of this matter , had a proper application been made at the time . It clearly was not , and the attempt by the homeowners to change that and make such an application by seeking to characterise what was a purported termination notice , as a notice pursuant to Clause 14 (e) , when there was never any reference to such clause has to be rejected .
The builder is entitled to be compensated having regard to the homeowners' breach in accordance with the age old principle in Robinson V Harman ( 1848) 1 Ex 850 , so as to be placed in the same position he would have been had the contract been performed .
The summary of claims and attached explanatory schedules tendered during oral submissions on 1 September 2014 sets out the builder's claimed loss as follows ; 74.1 Outstanding Amounts Due ( Inv. 12) $2,100.45-GST $210.04 74.2-Loss of Income $31,768.75 74.3-Loss of Profit $3,353.33 74.4 -Builder's Margin $19,805.37 74.5-Miscellaneous $2,064.19

[20]

Total $59,302.12

The homeowners do not challenge the outstanding amounts due. Loss of income is challenged on the basis firstly that the amount claimed is excessive because having regard to past performance of the number of hours worked per week it would not be reasonable to accept the builder's claim that the assessment of any loss of income should be based on 40 hours per week for 17 weeks and secondly that any allowance for loss of income, if applicable , should be discounted by an allowance for time , labour and expense saved by the builder being relieved of his obligation .
The builder submits that there is no legal principle disentitling him to lost income from his own foregone labour in addition to any loss of profit entitlement .On the basis that I find such would have been payable to him were the contract not unlawfully terminated an entitlement based on his estimated number of work hours required to complete the contract is not unreasonable. There is no evidence from the homeowners challenging the builder's estimate as to the work hours required to complete the contracted works and on that basis I find that the 680 hours asserted by the builder should be accepted as reasonable. The issue as to whether such hours would be worked in more or less than a seventeen week period is not relevant to the exercise of determining the builder's reasonable loss. However the homeowners have also argued that the builder has failed to properly mitigate his loss and for the reasons given at paragraph 93 below I accept their contentions in this regard .Taking account of such I find that a reasonable period to allow for loss of income is 10 weeks or 400 hours in total which results in an amount of $21,200.00 before the deduction of $4,271.25 is applied to it .The resulting figure is $16,928.75.
As regard the homeowners' claim that some allowance should be made for time labour and expense saved by being relieved of the obligation to perform the work, whilst I accept the authority cited by the builder , North Sydney Leagues Ltd v Synergy Protection Agency Pty Ltd [2012] NSWCA 168 that there is no absolute principle that account must be taken of overhead expenses , that case also indicates that the true principle overriding is that "the plaintiff is entitled to such damages as place it in the same position as it would have been had the contract been performed ." I find that there would have been overheads for the builder had the contract been performed and in the absence of evidence substantiating such overheads I find that an allowance based upon 15 percent would not be unreasonable. On that basis an amount of $2,539.31should be deducted from the total indicated in paragraph 76 above. The resulting balance for the builder's loss of income is $14,389.44.
The homeowners also challenged the builder's claim for loss of profit for the carpenter and labourer set out in annexure C of the schedule attached to the claims summary. The builder's claimed loss is calculated on the basis of the difference between contract allowance for these employees and the actual amount that would have been paid to them by the builder. I am satisfied that this amount claimed is a direct loss to the builder for the same reasons set out in paragraph 80 above as regards the builder's loss of income . I find that there would however have to be applied a discount to allow for saved overheads in the same way as determined and for the same reason as indicated at paragraph 81 and a discount of 15 percent should thus apply to it .The resulting loss of profit after this reduction is $2,850.34 .
The builder's loss of margin is only challenged as to the amount because it is claimed that there has been an overcharging in respect of labour hire workers and any claim in futuro on the same basis using a mark up for labour hire workers would equally be inappropriate. The builder submits that relevant workers, Lennon, Stanford and White were engaged by the builder, having been sourced through Kestrel a labour hire company. It is submitted that these workers were common law employees and entitled to be charged out at the relevant classified rate agreed between the parties in the building contract. These individuals were not trade contractors in the true sense as envisaged by Schedule 1 A (d) of the contract as they individually did not undertake work pursuant to a subcontract direct with the builder to provide goods or services. Individually they did not invoice the builder in respect to the services they provided on site. I am satisfied on the evidence that they were "common law employees" and as such were entitled to be costed out by the builder in accordance with the rates applicable in the schedule to the " builder and his employees" . I propose to allow the amount claimed by the builder in respect of this category namely $19,805.37.
The homeowners challenge the miscellaneous items in regards to the container and the security camera. The costing set out in annexure E to the claim summary indicates the basis upon which a rental for the container has been assessed .I am satisfied this allowance is reasonable in the absence of any alternative method of valuing the cost by the homeowners. The cost of the security camera I find would have been an appropriate expense only if the item were left on the premises. I accept the homeowners' evidence that it was not and therefore that it should be deducted in the amount of $271.82 The total figure I find that should be allowed under miscellaneous items is $1,792 .37.
The total value of the builder's damages having regard to my findings in the preceding paragraphs under this heading , before any offset amount with respect to any entitlement of the homeowners with respect to their claims is $41148.01 .

[22]

INCREASED DRIVEWAY COSTS

In relation to the homeowners' claim that the costs of the driveway were increased because of the failure of the builder to accept instructions to build the house closer to the gate, I refer to my findings at paragraph 41 above . Further to those findings, I am not satisfied having regard to the evidence as to Wagg's regular presence on the site in 2010 and the evidence as to his direct dealings with Jason Sirl at the time the ground excavations were being performed that if there had been any issue as to the location required for the house there would be some more convincing or corroboratory evidence as to the homeowners' assertions subsequently that it was being constructed in a place contrary to instructions. The position the house is constructed accords with the drawings attached to the contract and those drawings subsequently approved by Bega Council.
Wagg and Hackett's evidence is consistent to the extent that they both claim that the builder insisted the house position should remain largely in the position where it had been pegged out and claim that such advice was given by him in direct response to requests for advice as to the most suitable place to put it.
The homeowners assert that the builder failed to advise that the positioning of the house where it is now situated would involve greater costs and loss of amenity then would be involved were it positioned near the gate where they wanted it. It is asserted that had the builder warned them they would have acted differently and avoided such cost .It is asserted that the builder had a duty of care to warn of these greater costs being incurred by positioning the house where he insisted it should be , in its current position . Reliance is placed on the decision in Chappel v Hart (1998) 195 CLR 232 in support of this contention . In that case a failure was established against Dr Chappel to warn Mrs Hart in relation to specific risks of surgery in advance of it being performed. The specific risk eventuated and a liability was established against Dr Hart as a consequence. I am not satisfied however the latter decision assists the homeowners in this case as the risk of which Dr Chappel failed to warn Mrs Hart about was a risk that one would expect only a doctor to know about . The facts of this case can be distinguished given Wagg's corporate background to suggest that he would need to be warned by the builder that the cost of a fifty metre driveway would be considerably more than a twenty five metre one is simply common sense and should have been well within his knowledge without the builder having to advise of it . For the foregoing reasons the homeowners' claim for increased costs incurred by the location of the house where it has been constructed is not established to the relevant standard of proof.

[23]

ALLEGED DEFECTIVE WORK

The homeowners' claim in respect of alleged defective work is unsupported by expert evidence because of the ruling made by me on day three of the hearing that such opinions as were expressed by their experts were inadmissible except for Maglis' opinion regarding items 16 and 17 of the Scott Schedule . My formal reasons for excluding such evidence are set out below at paragraph 94 and following.
The homeowners continue to press their claim for defects in respect to items 11, 13 , 16 and17 .My findings in relation to each of these items are as follows:

Item 11. The builder's evidence in his statement dated 16 October 2012 makes it clear that there was work to be completed to satisfy the "deemed to comply" requirements of the BCA. I am not satisfied that this work was defective but was incomplete and would have been so completed by the builder were his contract not terminated. No allowance is made for this item. Even if it were determined to be defective, the homeowners' claim in respect to it must fail for lack of admissible evidence on quantum.
Item 13. It is alleged that certain windows / doors delivered to site were not to specification. The builder's evidence in his statement of 16 October 2012 is that Wagg signed off on the revised window specifications before delivery. This assertion is corroborated by the quotation copy purportedly signed by Wagg dated 21 February 2011 in respect to final window /door specification. This document has not been challenged. The windows were delivered after the builder was terminated if they were not in accordance with the order it would have been the homeowners' responsibility to challenge any variance with the supplier. I am not satisfied that this claim is established to the relevant standard against the builder on the evidence before me.
Item16. The homeowners' claim that the step up between garage and laundry exceeded the BCA height requirement. The claim is based on that part of the Maglis report which I have ruled admissible. The builder's submission is that the builder's evidence and the photographs provided by the builder establish that a proper allowance was taken for the tiles and that Maglis has not provided measurements. I prefer Maglis' view and allow the sum of $325.00 assessed by Maglis as the reasonable cost of rectification.
Item 17. I accept the admissible evidence of Maglis that the door rebates at the time of inspection were defective. The builder's evidence is that this situation had arisen because the correct rebates were not available at the time of installation .Whilst I accept the builder's evidence that further work was going to be done to rectify this deficiency and on that basis it should be regarded as incomplete work rather than defective work it is clear that the wrong rebates were installed and at the date of termination, I accept the Maglis view that it was a defect. I therefore allow the sum of $800.00 under this head as opined by Maglis .

The total allowance in favour of the homeowner for defective work is therefore $1,125.00.

[24]

MITIGATION

The homeowners assert that the builder failed to mitigate his loss following the termination of his contract with them. As asserted in the builder's submissions the onus of establishing this alleged failure rests with the homeowners .It is submitted that the builder's claim that he was unable to secure substantial replacement work during the four months period he would have been otherwise engaged on the subject contract is not consistent with his own representations to the homeowners and as asserted in his affidavit that he was an experienced builder with good clients and a good work supply. Given the matters raised at paragraph 74 of the homeowners submission and particularly the builder's assertion at paragraphs 215 of his statement of 16 October 2012 that he was typically booked out for one or two years in advance, does give reason to doubt he would not have been able to obtain some replacement work in respect of that four months period. The fact that he was able to bring work forward immediately demonstrates that the builder was at least proactive in attempting to mitigate. However at paragraphs 216 to 219 he explains the position with another job referred to as the Windra job which also had to be postponed. The builder's claim that the loss attributable to the breach which arose long after the immediate four months following the termination is challenged by the homeowners . The builder explains that he brought the work forward to fill the gap post termination and was then unable to replace it in the later period and thus claims it still remains directly attributable to the breach. I am satisfied that the builder did take steps to mitigate by bringing work forward, however given the additional lead time that would have been available by doing so, in the absence of evidence as to specific steps taken subsequently by the builder to address the gaps in work and the fact of the postponement of the Windra job which could also have been relevant in creating the hiatus , I find that a reasonable period to allow for lost income would be 10 weeks.

[25]

REASONS RELATING TO REJECTION OF EXPERT EVIDENCE

I refer now to the procedural history was outlined at paragraphs 5 to 9 above. When I rejected the applications of the parties to rely on fresh expert evidence on day four of the hearing it was indicated that I would publish formal reasons for doing so. Subsequent to that hearing on 2 July 2013, the homeowners filed on 5 July 2013 formal written submissions confirming the basis of their application and the Builder's response submission was filed on 19 July 2013, which submissions were reviewed post the decision to exclude the evidence.
It was the homeowners' assertion that the builder's objection, on day three of the hearing, to their expert evidence on the basis of its non compliance with the Expert Witness Code requirements, amounted to "trial by ambush" consistent with principles outlined in Nowlan v Marson Transport Pty Ltd (2001)NSWCA 346 and a number of other authorities which confirm it , referred to in paragraphs 6 and 7 of the homeowners 5 July 2013 submission.
The builder's response to that contention is that "the prohibition against 'trial by ambush' is concerned with ensuring that parties to a dispute do not proceed to hearing without proper notice of the issues in dispute". The builder submits that the subject issue to which the proposed expert evidence related was "defective work" which was an issue known to be in dispute . Further the builder says that "the principle does not extend to impose on parties to litigation an obligation to inform opponents that evidence sought to be led in response to a known issue in dispute is inadmissible." It is clear from a reading of the authority relied upon by the homeowners namely White v Overland (2001) FCA 1333 that Allsop J ruled specifically in relation to the admissibility from an evidentiary standpoint with respect to each of the various paragraphs of the affidavit in question in that matter . I find that this supports the builder's contention that the principle of requiring parties to disclose all issues in advance does not extend to making it known in advance of all possible objections to admissibility of evidence. Such questions only arise often during the running of a hearing and to grant adjournments in such circumstances for one party to obtain fresh evidence in admissible form would indeed likely be prejudicial to the interests of the opponent, who would then have to be given opportunity to respond. Such a process would likely cause unwarranted and unacceptable delay and would be contrary to this Tribunal's charter of providing efficient effective and fair decision making.
The homeowners had a number of extensions to file their evidence as outlined earlier in the procedural history The ruling was that " without leave any evidence served by the homeowners after 13 June 2012 is inadmissible and cannot be relied upon" .The deadline for the filing of evidence without leave having ended almost twelve months earlier with the parties legally represented throughout the relevant period , the responsibility falls to the legal representatives to not only comply with deadlines but also to ensure that the evidence filed in relation to the disclosed issues meets the time deadlines but also that it complies with relevant rules or codes of practice, to be in admissible form .
For the foregoing reasons I was not satisfied on day 4 of the hearing that the homeowners had established proper grounds to justify leave being granted to vary such earlier order as to the filing of evidence. This was not a case of "trial by ambush" all the evidence was filed and served and the issues were clearly known to both sides. The quality or admissibility of the homeowners' evidence was not the responsibility of the builder.

Farthing v Wagg and Hackett; Wagg and Hackett v Farthing

At a glance

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Judgment (27 paragraphs)

Cases Cited (6)