First Applicant v Second Applicant

1 In a quiet residential street in Huntingdale sits a rather curious development. From the outside, it is hard to tell, because the structure is shrouded in protective tarpaulin. But, hiding underneath, are two sad, unfinished townhouses. They have been standing there - frozen, each just short of the frame stage - for nearly four years now. The works that created them came to a halt when the relationship between the owners and the builder disintegrated in mid-2017. Had a reasonably conciliatory approach been taken by the parties - especially the builder - the townhouses would have been finished long ago. They would be occupied by now, have established gardens and be a welcome addition to the neighbourhood. The whole project could have been a credit to the builder. Instead, common sense went west. The result is an eyesore and a monument to human obstinacy. This is what happened.

2 In January 2017, Michael Gianacopoulos and Claudia Hlavati ("the owners") entered into a major domestic building contract ("the contract") with DJJ Promotions Pty Ltd ("the builder"). The contract was to build two townhouses on the owners' land in Huntingdale for a total price of $887,918.80. Works began in about March 2017.

3 Unfortunately, however, disputes arose between the parties concerning the scope of the works and contractual matters. Relations soured considerably. On 14 August 2017, with the frame stage said to be complete (which, itself, was a matter in dispute), the builder sent the owners a notice of intention to terminate the contract. On 6 September 2017, by notice, the builder terminated the contract.

4 On 3 November 2017, the builder commenced a proceeding in the Victorian Civil and Administrative Tribunal ("VCAT") seeking payment of amounts it claimed were due and damages for breach of the contract. The owners defended the matter and issued a counterclaim alleging repudiation of the contract by the builder and seeking damages for defective and incomplete work.

5 The matter was heard over six days in early-October 2018. On 6 February 2019, the senior member handed down extensive written reasons[1] and made an order in favour of the builder. He made four findings adverse to the owners that are challenged on this application. In particular, he found that the owners had breached the contract by failing to provide the builder with either (1) reasonable evidence of their financial capacity to pay the contract price or (2) the necessary directions regarding prime cost items. The senior member also rejected the owners' claims (3) that it was unreasonable of the builder to terminate the contract and (4) that the builder was in substantial breach of the contract. After assessing lost profit and offsetting other matters, he ordered that the owners pay the builder a total of $227,738.17.

6 The owners now seek leave to appeal to this Court against that order on questions of law.[2] In short, as argued, their case is that the senior member erred in law in his approach to, and his resulting conclusions in respect of, each of the four issues I have just identified. In my view, the application (and the appeal) must succeed.

7 While it is no small thing to overturn a decision of a specialist tribunal on a complex matter that has been so carefully considered by a senior member who is an expert in his field, I am satisfied that there is no other course open in this case. Mr Sharkey, who appeared for the builder, was correct to caution against an "overly pernickety examination of the [senior member's] reasons".[3] But I do not accept that the owners' identification of any of these errors, or my acceptance of their submissions, amounts to any such thing. Instead, I have sought to take "a practical and principled approach ... to the interpretation of the ... decision, [and] not a minute or overzealous review to identify inadequacy or error".[4] In the end, I consider this outcome to be necessary because the owners have established several critical errors of law that must result in a reversal of three of the principal findings made below. A summary of these errors follows.

8 First, for the purposes of assessing whether the owners had provided the builder with reasonable evidence of their financial capacity to pay, the senior member misconstrued the extended meaning of the term "contract price". He did so by including in that concept an estimate of the (increased) costs of prime cost items said to be "adjusted and payable under [the contract]" based on information that had not been provided to the builder by the owners at the relevant time. Under the terms of the contract, and in the circumstances that obtained here, it was only the owners who could provide the updated information on increased (or decreased) costs of prime cost items so as to bring any such change within the notion of what was "adjusted and payable under [the contract]". Had the senior member applied the correct construction for this purpose and thereby performed an accurate calculation, instead of finding that the relevant contract price exceeded the owners' capacity to pay, he would have been compelled to reach the opposite conclusion.

9 Secondly, and alternatively, even if the better view is that the costs of prime cost items, as estimated to be adjusted and payable based on other sources of information, were to be included in the contract price for the purposes of this assessment, the senior member still erred by including an increased estimated cost of at least one of those items (namely, for cabinetry) in the required calculation. This is because the evidence of the increased cost of cabinetry upon which the senior member relied simply did not exist at the relevant time. Again, the result is that the finding concerning financial capacity to pay the contract price should have been in the owners' favour.

10 The third error of law is related to the last. It concerns the senior member's findings that the owners were providing another builder (named Peter Matherson) information regarding two prime cost items at a time when, despite requests to do so, they were not providing the same information to the builder. The fact of the matter - about which there is no dispute in this Court - is that the owners did not provide this information to Mr Matherson at the relevant time but, rather, did so twelve months later (and for the purposes of obtaining a quotation to rectify and complete the work). These erroneous findings meant that the senior member took into account irrelevant considerations. This, in turn, infected his approach to whether the owners had failed to provide the necessary prime cost information to the builder, and/or whether they had remedied the potential breach, by providing some of this information and promising to provide further information in the future.

11 The consequence of these errors is that the findings that the owners breached the contract must be set aside. There is no basis for directing VCAT to rehear the point concerning capacity to pay. Instead, that issue now must be regarded as determined conclusively in favour of the owners.

12 There was, however, other evidence before VCAT that, Mr Sharkey submitted, supported the view that the owners were dealing with a different builder (not Mr Matherson) at the relevant time, which, in turn, was said to render these errors nugatory.

13 In my view, despite that evidence, there are several reasons why that submission should be rejected and this issue should be regarded as being decided conclusively in favour of the owners as well. For example, first, the remaining evidence has a speculative quality about it, or is at least very thin. Secondly, that the owners may have been consulting a different builder does not mean that they were failing to give the existing builder the necessary information or that they had failed to remedy the alleged breach.

14 Thirdly, the senior member erringly construed the contract so that the provision of some prime cost item information coupled with a promise of further information would not satisfy the builder's request to provide necessary directions regarding prime cost items. Nor, on this construction, would it amount to a remedy of the alleged breach. Contrary to the senior member's approach, in the circumstances of this case, that information either satisfied the request or at least remedied the alleged breach.

15 The next point is that, while I took the owners to submit that the senior member was manifestly wrong in failing to find that it was unreasonable for the builder to terminate the contract, that ground - at least as it stood at the commencement of this application - need not be decided now. This is because, when regard is had to the foregoing errors of law and the consequential setting aside of the findings of breach of contract by the owners, there is, in my view, no basis left for the builder to have terminated the contract. Thus, termination necessarily becomes unreasonable.

16 In the alternative, even if the owners were in breach in failing to provide the necessary information regarding prime cost items, I still would conclude that it was unreasonable for the builder to terminate the contract. This is especially so when that breach is measured against the builder's unjustified demands for payments of sums for concrete works never due, its unjustified demand for payment of the frame stage before completion, the owners' previous history of paying that which was (and was not) properly claimed from them, and the owners' preparedness to take the matter to conciliation at Domestic Building Dispute Resolution Victoria ("DBDRV"). In my view, the builder was far too quick to resort to VCAT. Cooler heads should have prevailed. Had that occurred, the sad mess that this case has become could have been avoided.

17 In the further alternative, I would take the same view even if I accepted, as Mr Sharkey argued, that the senior member's findings also implicitly supported a finding of breach of contract based on a failure to provide good and suitable plans for the canopies. This is because, if there were such a breach (which I very much doubt), it must be regarded as very minor in the scheme of things.[5]

18 Thus, either way, I am persuaded that it was unreasonable for the builder to have terminated the contract.

19 Finally, in view of the latter conclusion, it becomes unnecessary to determine whether the senior member erred in failing to find that the builder was in substantial breach of the contract. This is because, as I see it, in the circumstances of this case, a successful argument on that score could have no more favourable consequences for the owners than could acceptance of the proposition that it was unreasonable for the builder to have terminated the contract.

20 In the result, I would grant leave to appeal and allow the appeal. I would set aside the order that the builder be paid $227,738.17, as well as the first three of the four adverse findings mentioned above. This, in turn, means the findings that the owners breached the contract and that the builder terminated the contract lawfully also must be set aside.

21 My present thinking as to further consequential orders is that I should:

a) make declarations substituting the necessary findings;

b) direct that the issues remaining for determination be remitted to VCAT, differently constituted, for further hearing in accordance with these orders, findings, declarations and reasons; and

c) leave it to VCAT to determine whether the further hearing is to proceed with or without the hearing of any further evidence.

22 Despite these suggestions, my views on the appropriate consequential orders are only preliminary. Counsel indicated that they would seek to be heard on this question if I were to grant leave and allow the appeal. It may be, for example, that, if the matter were to be remitted to VCAT, the tribunal should not be differently constituted. Or it may be that, instead of remitting the matter to VCAT, I should determine the final orders to be made. Since I am now across the materials and many of the issues, this may be a more efficient and cost-effective way of disposing of the matter. Accordingly, I agree that it is appropriate that I hear from counsel on the proposed orders after they have had a chance to read these reasons.

23 I shall also hear counsel on whether the builder should pay the owners' costs of the application and the appeal. My present thinking is that such an order should be made, but perhaps with some qualification, such as the owners bearing the costs (or part thereof) of the affidavits and the chronology filed in this Court.

24 There is also the question whether the builder should have an indemnity certificate under ss 4 and 5 of the Appeal Costs Act 1998 (Vic), which, as presently advised, I would be inclined to order.

P****ART 2: EVIDENCE, ARGUMENTS AND FINDINGS AT VCAT

25 Before turning to the arguments in this Court, and their resolution, it is necessary that I set out the background to this matter, part of the evidence given and the main points taken at VCAT, as well as the findings and reasons of the senior member. In doing so, I shall draw heavily on the senior member's written reasons, which are comprehensive.

26 In the builder's case, the senior member heard evidence from Darren Jolly (who is the director of the builder) and Raymond Martin (a building expert). In the owners' case, there was evidence from Mr Gianacopoulos, Ms Hlavati, Mr Matherson, Thomas Casamento (an engineer) and Jeffrey Beck (another building expert). All witnesses gave evidence-in-chief by adopting written statements and were then cross-examined. The senior member also visited the building site with the parties, the experts and counsel.

27 The credit of each party was attacked. Of the three, the senior member preferred the evidence of Mr Jolly to that of the owners. He considered that Mr Jolly made significant concessions with respect to a couple of issues (namely, a concreting variation and the proposed canopies) and that his evidence was consistent with the documents. He also said, however, that the outcome did not turn upon the credit of the lay witnesses.

28 I disagree, in part. As foreshadowed a moment ago, and as will be seen later, the senior member proceeded on an erroneous understanding of important aspects of the evidence. In my view, those factual errors must have impacted adversely on his assessment of the owners' credit, especially vis-à-vis their explanations concerning the provision of information about prime cost items, and, in turn, upon the senior member's related findings.

29 Following completion of the evidence, both written and oral submissions were made by counsel. The senior member informed the parties that he would provide a written decision at a later date. Happily, both the written submissions and transcript of the oral submissions are before this Court.

30 Unfortunately, however, neither the senior member nor counsel had the benefit of a running transcript of either the oral submissions or the viva voce evidence at VCAT. This may explain how the senior member fell into error, especially given the length and complexity of the hearing and the need to reserve his decision for a goodly period. While I should not like this to be my epitaph, I confess that I, for one, could not function adequately as a judge without transcript in such a factually and legally complex matter. Surely, if the parties have not sought transcript, in these days of sophisticated speech-recognition technology, there must be the resources available to provide VCAT members with transcript of hearings of this nature at a comparatively modest cost.

31 The absence of transcript below was also the reason why the materials were incomplete before this Court. As I understand it, the owners were directed by a judicial registrar to provide any transcript of the VCAT hearing upon which they intended to rely. But the owners chose not to take that course and filed their own separate affidavits and a chronology instead (to which I shall return shortly). The only part of the transcript placed before this Court was that which was obtained by the builder's solicitors, which was incomplete.[6] The reasons supplied for the provision of an incomplete transcript were cost related, as well as there being limited resources.

32 Usually, I would consider it unsatisfactory to hear an application (or at least an appeal) of this nature without the benefit of the complete transcript of the hearing below. In the end, however, the parties were content to proceed on that basis. And, as a result, in this case, I too was content with this course.

33 Earlier, I mentioned that the owners' separate affidavits and the chronology might feature in costs considerations. Initially, Mr Andrew, who appeared in this Court with Mr Phillpott for the owners, sought to rely on (at least some of) that material.

34 Mr Sharkey objected to the admission of those documents in this hearing on the bases that (at least in part) they contained new evidence and were tendentious.

35 In the end, as I understood him, Mr Andrew withdrew reliance on the affidavits and the chronology. As a result, I have ignored their new and tendentious parts. Instead, I have had regard only to the materials in the court book that I understand were before VCAT (even if they were also exhibited to the impugned affidavits), as well as the limited transcript provided, and, of course, counsel's written and oral submissions. I understood both parties to be content with this course.

36 The contract was in the form of the Master Builders Association's "New Homes Contract" (HC-6, Edition 2, 2014). It was signed by the parties on 9 January 2017.

37 The contract provided, in items 7 and 8 of the appendix, that the work was to be carried out in accordance with six pages of plans (dated September 2016) prepared by Designworx[7] Architects ("the architect"), and 21 pages of engineering plans and computations (dated August 2016) prepared by Matrix Engineering Group ("the engineer"). There were, however, no specifications listed in the space provided in item 6 of the appendix.

38 The "contract price",[8] inclusive of GST, was recorded in item 10.1 of the appendix as $887,918.80. This price included an allowance for six categories of prime cost items totalling $159,000.

Notice of intention to terminate, notice of termination and proceeding commenced

39 While the works commenced in about March 2017, it was not long before various disputes arose and relations between the parties soured.

40 Numerous emails and letters were exchanged, and conversations were had, up until 14 August 2017, when the builder's solicitors sent the owners a notice of intention to terminate the contract. The notice, by reference to the following descriptions and clauses in the contract, alleged several "substantial breaches" by the owners, namely:

a) failing to pay the progress payment for the frame stage (the claim being $133,187.76) within seven days of the invoice dated 2 August 2017, in breach of clauses 11.8 and 11.9;

b) failing to meet their continuing obligation to provide the builder with evidence of capacity to pay the contract price within 14 days of requests by the builder on 26 June 2017 and 13 July 2017, in breach of clauses 11.2 and 11.3;

c) failing to provide plans and specifications to the builder which were accurate and correct and good and suitable for the purpose for which they were to be used, in breach of clause 11.12;

d) failing to give the builder all necessary written and signed directions regarding the selection and supply of the prime cost items within seven days of receiving a request from the builder on 13 July 2017, in breach of clause 9.2.1; and

e) failing to provide the builder information about the electrical plan, requested from the builder on 13 July 2016, and the brick selection requested by the builder on 4 July 2017, in breach of clause 11.15.

41 The notice (which was received by the owners on 17 August 2017) also stated that, if the owners did not remedy the substantial breaches of the contract within 14 days after receipt of the notice, then the builder would be entitled to terminate the contract. (This is consistent with terms of clause 22.2.)

42 On 6 September 2017, the builder served on the owners a notice to terminate the contract.

43 On 3 November 2017, the builder commenced the VCAT proceeding seeking payment of amounts it claimed were due and damages for breach of the contract.

44 Earlier, I mentioned that the owners defended the matter and issued a counterclaim alleging repudiation of the contract by the builder and seeking damages for defective and incomplete work.

45 Instead of rehearsing the detail of the points of defence and counterclaim here, it will be convenient to refer to some of the owners' arguments when addressing the main points in issue at VCAT. In doing so, and in order to place the application to this Court in its proper context, it will be necessary to go beyond the senior member's reasons in respect of the four findings challenged directly by the owners.

46 I shall commence with the dispute concerning the canopies.

47 As the senior member noted, the architectural drawings that formed part of the contract included outlines of, and rudimentary information about, a canopy to be constructed in front of each unit. There was, however, nothing about the canopies in the engineering drawings of the contract. A full design for the canopies had appeared in the preliminary issue of the architectural drawings (dated 6 July 2016), but this design was omitted from the drawings in the contract. According to Mr Jolly's evidence, it was not until after discovery in this proceeding that he saw this preliminary design. The senior member observed that no reason was ever given for omitting details and dimensions of the canopies in later versions of the plans, and the contract drawings in particular.

48 As the senior member also pointed out, neither the canopies as finally designed, nor the brick pillars said to support them, were shown in the planning permit drawings. One planner from the municipality said in an email that the canopies were shown, while another planner from the same municipality said that the supporting pillars were not shown and that the planning permit would need to be amended if they were to be constructed.

49 On 11 May 2017, the architect forwarded the second building permit drawings to the parties. These included plans with some information concerning the cladding of the piers but no design for the canopies.

50 On about 19 May 2017, when the builder was constructing the second-floor frame, Mr Jolly asked the architect to provide details for the canopies so that he would know how they connected to the unit in each case. The architect replied on 31 May 2017 to the effect that he (the architect) would have to follow that up with the engineer.

51 On the same day, Mr Jolly sent an email to the owners stating (inter alia):

There will also be extra costs involved in building this canopy that your Engineer didn't include in your plans. There is no detail on how it's connected to the house, there's no detail on what timber sizes are needed. There is no detail on anything. Anything that was not included in the plans at time of contract signing and has now been raised has to be a variation to cover the extra costs that hasn't been included that will now incur as a result of costs to build it. I don't know what they'll be yet until I get a plan on how to build it.

52 On 1 June 2017, the engineer sent a further set of plans to the builder, including a sheet showing some engineering of the two canopies. Essentially, these plans provided for the canopies, whatever they might be, to be supported by three pieces of timber, one projecting out from the unit on each side and one across the front. The end of the front beam that was closest to the front door of each unit was to be supported by the brick pier. A design was provided in separate drawings for pad footings to support the piers. The senior member noted, however, that neither set of drawings had been stamped by the building surveyor and the piers did not accord with the planning permit drawings.

53 In a telephone conversation the same day, the architect informed Mr Jolly that the canopies were not pergolas but were to have a roof. He provided a design. This design provided for a graded "Klip-lok" style of roof supported by timber rafters draining into a box gutter. In the accompanying email, the architect said that the downpipe for the drain would sit next to the pier in the front.

54 Despite the fact that only rudimentary drawings of canopies were included in the contract documents, Mr Jolly accepted in evidence that he always understood that he had to build something in the positions indicated by the lines on the drawings. He thought, however, that they were to be of a simple construction in the nature of a pergola. To that end, he said that he had allowed in his pricing for the cost of some timber to construct what might be required.

55 Despite this (partial) concession, on 6 and 13 June 2017, Mr Jolly advised the owners that the cost of building the canopies would be an extra $2,750. This variation was not accepted by the owners.

56 In response, in an email sent on 26 June 2017, Mr Jolly raised the stakes by giving the owners two options. One option was that he would not build the canopies. The other was a variation that represented the "new cost" of constructing the canopies, which was said to be $7,920. In substance, the owners maintained that the canopies had been on the plans from the outset and that no variation was warranted.

57 On 28 July 2017, the builder's solicitors wrote to the building surveyor, with copies to the owners and their solicitors, pointing out that the canopies were not shown on the planning permit drawings; that the builder could not lawfully carry out works that were not permitted by the planning permit; and that the builder did not intend to do such works unless the permit was amended. The solicitors also said that it was the obligation of the owners to obtain an amendment to the permit.

58 As the senior member noted, items 7 and 8 of the appendix to the contract provided that both the architectural and the engineering plans were supplied by the owners. Further, according to item[9] 11.3 of the appendix, no planning permit needed to be obtained because the owners had already obtained it, and the building permit was also to be obtained by the owners. By clause 11.12 of the contract, the owners warranted that the plans were good and suitable for the purpose for which they were to be used and that it was reasonable for the builder to rely upon them. Apart from that, the senior member concluded, until such time as a proper design was provided, the builder could not have assessed the cost of construction.

59 The senior member was unsure why the canopies and the supporting pillars were not included in the planning permit drawings. He went on to find that, whatever the reason, only limited information was included in the contract drawings, and only that information was within the builder's scope of works. He also accepted that the design subsequently provided by the architect could not have been constructed lawfully until such time as the planning permit was amended and the building permit drawings were amended by the building surveyor. In the senior member's view, it was the owners' responsibility to do those things and also to request or agree to a variation if they wanted the further work required by the new design to be built by the builder.

60 The senior member observed that the contract, by item 5 of the appendix (read with the definition of "Works" in clause 1), specified that the works to be carried out by the builder were the construction of two four-bedroom townhouses described in the plans and specifications. In his view, it was therefore the contract plans that defined the builder's scope of works, not any drawings that were prepared after the contract was signed.

61 The senior member referred to the evidence of Mr Beck and Mr Martin. Mr Beck opined that the information on the contract drawings was "more than enough" to allow the builder to include the canopies in the contract price. He also said that the builder ought to have requested further information from the owners or the architect before finalising any fixed price quotation. He costed the construction of the canopies at $4,690 for each unit, which included a margin and GST.

62 Mr Martin, on the other hand, opined that a reasonable builder could make only a provisional allowance for the canopy structures based on the original plans. He considered that it was only when the construction details became available that a reasonable builder would have been able to identify the nature of the materials required and to price the work. Mr Martin went further and offered that it would be reasonable to request a variation for the final canopies designed and to claim the increased cost of construction over that which had been allowed for the basic concept. The senior member accepted and preferred Mr Martin's evidence.

63 The senior member went on to say this:[10]

[37] The canopies were not a provisional sum item and it is not known what amount Mr Jolly allowed in his costing for what he thought he had to build. However, both experts appear to agree that the Builder was not in a position to accurately assess the cost of the canopies since, apart from a bare outline, they had not been designed at the time of the Contract. The Builder was contractually bound to provide what the plans showed but no more. Anything beyond that was properly the subject of a variation. Mr Jolly said that he had allowed in his costing for timber to construct two open pergolas. He subsequently issued a variation for $2,500.00 plus GST for the additional work required by the amended plans. This figure compares favourably with Mr Beck's costing of $9,380.00 for the full cost of constructing both canopies.

[38] On that state of the evidence it seems likely that the variation requested by the Builder was reasonable but since the Planning Permit was not amended before the Contract was terminated, it was never possible for the Builder to construct the canopies.

[39] The Contract drawings required the Builder to build what was on the plans and the cost of doing that is not clearly established on the evidence. However, I think that a reasonable approach would be to take the cost of the construction as finally designed, which Mr Beck has assessed, and deduct the amount of the variation.

64 After performing the foregoing calculation, the senior member arrived at a variation figure of $4,114 with respect to the canopies for the purpose of assessing the builder's lost profit.[11]

65 The senior member did not, however, expressly find any breach by the owners on this basis. Instead, later in his reasons, he observed that "refusing to consent to the variation for the canopies was not one of the grounds set out in the Builder's notice".[12] I shall return to this issue later.

66 I turn now to the dispute concerning the builder's request for payment of the frame stage. This claim (for an amount of $133,187.76) was made on 2 August 2017.

67 The owners declined to pay the claim, as they believed that the frame stage had not yet been completed.

68 The deposit (of $44,395.92) and the base stage claim (of $88,791.88) each had been paid by the owners, as had a variation (of $11,990.00) for additional concrete (about which I shall say more shortly).

69 By clause 11.8 of the contract, the builder was entitled to be paid a progress claim for each specified stage of the work upon completion of the work as described under that stage.

70 The term "Frame Stage" is defined in clause 1 of the contract as being "when the home's frame is completed and approved by a building surveyor".

71 By late-July 2017, the builder had largely completed the frame stage. Inspections were carried out on behalf of the building surveyor on 25 and 27 July 2017. On neither occasion, however, was the frame passed as various aspects were incomplete. The builder carried out some further work, but the building surveyor subsequently sent an email identifying things still to be done in order that approval could be obtained.

72 One of those things included amended architectural drawings of the canopies. On 11 August 2017, the builder's solicitors requested that the owners correct and clarify the issues with the canopies raised by the building surveyor, and advised that the work was at a standstill until the owners complied with the building surveyor's requirements. The owners' solicitors advised that their clients had instructed the architect to liaise with the municipality and that they would forward the details as soon as they received them. The owners applied for an amendment to the planning permit on 9 September 2017, three days after the builder's notice to terminate the contract was served.

73 It was submitted at VCAT that, by the time of the request for payment of the frame stage, the builder had complied with all of the building surveyor's requirements, except for the canopies (which could not lawfully be completed).

74 The senior member, however, acted on the evidence of the experts to the effect that, even putting aside the dispute about the canopies, there were numerous items of outstanding work still to be performed, which meant that completion of the frame stage had not been reached in any event.

75 Accordingly, the senior member found that, contrary to its claim, the builder was not entitled to any payment for the frame stage.

76 As will be seen, however, the senior member rejected the owners' argument that this amounted to a substantial breach of the contract by the builder.

77 On 19 April 2017, the builder requested that $11,990 be paid for additional concreting.

78 While the owners paid for this variation, they nevertheless disputed it.

79 Related to this dispute was Mr Jolly's concern that the owners had entered the building site and spoken to and/or called the concreters. Plainly, the owners were deeply suspicious of the claim and Mr Jolly was incensed by this. Indeed, in an email of 6 June 2017, Mr Jolly, in effect, admonished Mr Gianacopoulos for "calling [his] concreter" and "go[ing] behind [his] back" to contact him.

80 Another contextual consideration was that, earlier on during the works, the builder had also made a claim for payment of $1,790 for concreting. The owners disputed this, and the builder ultimately withdrew the claim.

81 It was not until the VCAT hearing that Mr Jolly acknowledged that the $11,990 claimed for the extra concreting was not due and that it was to be credited back to the owners.

82 The senior member, however, otherwise made no express finding that this was a breach of contract by the builder.

Whether owners provided necessary directions as to prime cost items

83 In clause 1 of the contract, "Prime Cost Item" is defined as:[13]

an item (for example, a fixture or fitting) that either has not been selected, or whose price is not known at the time the Contract is entered into and for the cost of supply and delivery of which the Builder must make a reasonable allowance in the Contract.

84 At least two aspects of the prime cost items are important to the outcome of this application. First, the way in which the altered cost of prime cost items is to be assessed is central to the calculation of the applicable contract price when considering whether the owners had provided reasonable evidence of their financial capacity to pay that contract price (or the balance thereof) for the purposes of clauses 11.2 and 11.3. That issue will be dealt with under the next heading and again later in these reasons.

85 The second respect in which prime cost items are important concerns the "necessary ... directions" to be provided by the owners in order to satisfy the builder's request pursuant to clause 9.2.1. This issue is dealt with under the current heading, as well as later in these reasons.

Initial cost of prime cost items may be borne by either the builder or the owner

86 In the first instance, the cost (and supply) of prime cost items may be the responsibility of either the builder or the owner, depending upon the particular term or terms of the standard contract agreed by the parties.

87 Clause 9 of the contract governs the situation where the builder is given the responsibility of selecting the sources of, and obtaining, the prime cost items based on information provided by the owner. For example, clauses 9.2.1, 9.2.2, 9.6, 9.7 and 9.8 provide as follows:[14]

9 P****RIME COST ITEMS AND PROVISIONAL SUMS[15]

9.2 Owner to provide directions relating to prime cost items or provisional sums

9.2.1 If this Contract makes allowance for any Prime Cost Item or a Provisional Sum, the Owner will give to the Builder all necessary written and signed directions requested by the Builder regarding the selection or supply of the goods or work represented by either a Prime Cost Item or a Provisional Sum within seven (7) days of receiving a request from the Builder for such directions.

9.2.2 In the absence of prior written agreement to the contrary - the Builder will select the sources of, and will obtain, all Prime Cost and Provisional Sum Items; and these will remain part of the Builder's Contract.

9.6 Contract Price to be adjusted for amount expended in excess of prime cost item or provisional sum allowed

If the amount expended on a Prime Cost Item or Provisional Sum is in excess of the sum allowed for that Item, the excess amount plus the Builder's margin as stated in Item 21 or Item 22 (as applicable) in the Appendix will be added to the Contract Price and paid to the Builder in the next payment payable under this Contract.

9.7 Prime cost allowance includes the cost of supply and delivery

In making an allowance for a Prime Cost Item, the amount allowed for includes the cost of supply and delivery for the Prime Cost Item, and the amount stated is based upon prices obtained from the Builder's usual or preferred suppliers.

9.8 Amount for installation, Builder's profit and overheads is included in the contract price

Any amount for installation, Builder's profit and overheads for a Prime Cost Item is included in the Contract Price unless otherwise stated in this Contract.

88 In this case, the builder initially quoted for the construction of the two units without the prime cost items because Mr Gianacopoulos said that he thought he could source them himself at a better price by paying cash. The owners' mortgage broker, however, advised the owners that, for the purpose of obtaining finance, the prime cost items should be included in the contract price.[16]

Contract price includes allowance for prime cost items

89 As a result, a fresh quotation was then given by the builder, which meant that the new contract price (namely, $887,918.80) included an allowance for those prime cost items (which, as indicated earlier, totalled $159,600).[17]

90 The specific amounts allowed per prime cost item are shown in a schedule to item 21 of the appendix to the contract, and are set out in the table below.[18]

Tiles $18,000 Floorboards $42,000 Bathroom Items $27,000 Appliances $17,600 Cabinetry $40,000 Heating and cooling $15,000 Total $159,600

91 The heading to item 21 reads: "Prime Cost Allowances for Prime Cost Items (if applicable)". Under that heading, in brackets are the words "These schedules are to be read in conjunction with Clause 9". There is then a note in these terms: "The Owner should read the warning notice contained in Clause 9". Under the schedule (or table), the following is noted:

Note: These figures are based on prices obtained from the Builder's usual or preferred suppliers, and include the cost of local delivery of that item to the land (refer to Clause 9.7). The cost for installation, profit and overhead is generally included in the Contract Price (refer to Clause 9.8) unless the amount expended on the Prime Cost Item is in excess of the sum allowed for that item.

92 The heading to item 19 reads: "Materials to be supplied by or work to be carried out by the Owner". Under that heading, the words "Strike out table if not applicable" appear in brackets. Then, before the table, the following is said:

Materials to be supplied by or work to be carried out by the Owner are to be stated in this Table. No warranties are given by the Builder, either express or implied, as to the suitability or otherwise of those materials or items of work stated in this table (Clause 11.11).

93 Instead of having strike-out lines drawn through it (as, for example, items 18 and 20 had), however, item 19 contained in its schedule or table the same prime cost items as mentioned in item 21, but without any corresponding prices.

Whenever the Owner supplies materials for use by the Builder in the works, those materials must be good and suitable for the purpose for which they are to be used. Unless otherwise stated in the Contract, they must also be new. The Builder's warranties do not apply to any such material.

95 The senior member dealt with the potential conflict between item 19 (as completed) and clause 11.11, on the one hand, and item 21 (as also completed) and clause 9, on the other, in the following way:[19]

[48] Item 19, the table and Clause 11.11 of the standard Contract appear to have been intended for use in a case where an Owner was supplying materials at his own cost. They are not appropriate for use in regard to a Prime Cost Item in this case because such an Item was part of the Contract works for which the Builder was responsible and for which it was to give the statutory warranties. It may be that the parties completed this part of the Contract because it was agreed that the Items were to be sourced in the first instance by the Owners, although the reason for it was not explored in the evidence.

[49] Notwithstanding these provisions, it is clear from the evidence that, although the Items in question were to be obtained by the Owners, they were Prime Cost and Provisional Sum Items, the amount for each of them was included in the Contract Price and they were to be paid for by the Builder. Consequently, the provisions of the Contract in regard to Prime Cost and Provisional Sum Items applied.

96 I did not understand the owners to challenge these conclusions in this Court. That said, as will be seen later, there are perhaps vestiges of the notion that the owners were to source the prime cost items in the first instance in the special conditions in the contract.

Details of prime cost items unknown to builder at time of entering contract

97 The senior member found that "[w]hat the Owners intended to select or choose in regard to any of the [prime cost] items was unknown to the Builder at the time of entering into the contract". He also found that "it was not until the Builder sent a number of emails to the Owners requesting details of the prime cost items that some information was provided".[20]

98 Several of the builder's emails in this email chain raise both prime cost items and the owners' capacity to pay. For example, in his email dated 27 February 2017, as well as speaking of the need for a variation for the tiles they had selected, Mr Jolly told the owners that he needed to know what fixtures and fittings were to be chosen and what their final cost would be; and that he needed confirmation that finance had been approved and that they "have the money to complete the build".

99 In his email of 26 June 2017, after indicating that the canopies would not be built without a variation, Mr Jolly continued as follows:[21]

Also, Mick [i.e. Mr Gianacopoulos,] you mentioned to me last Monday when I spoke to you on the phone that you would provide me with more financial information. I told you that the financials you provided weren't sufficient enough and was not going to be enough to pay the rest of the contract. It is extremely important that you provide me with information I'm entitled to receive. You have to provide me with proof that you can pay for the rest of the contract including if you go over your PC allowances stated in the contract plus any variations.

You should know by now how much the PC items you are supplying will cost you. I need to see the cost of those items including proof that you can pay for them. Another variation coming up will be the extra labour cost to lay your marble tiles, which you already know about, and any changes you both make that aren't in the plans.

Failing to provide me with this information will result in my suspending work and issuing you with an extension of time until all matters are resolved.

100 On 2 July 2017, in her email to Mr Jolly, Ms Hlavati said this (inter alia):[22]

As for PC items, we will be providing you with this information once our PC items have been selected [and] then run by you, then purchased in full so we can then provide you with the necessary information. You will also need to let us know well in advance when certain PC items are required so we can have them ready.

The capacity to pay and the PC items are not a problem, you seem to be making them a problem for some reason. Until these matters are in progress and yet to be resolved we still need to be working together and communicating. Your attitude towards us during our most recent visit to the site on [26 June 2017] was not very professional on your part as a builder. We too would like this matter resolved as soon as possible so we can focus on the build moving forward.

101 In his email of 13 July 2017, after raising matters concerning the owners' capacity to pay, Mr Jolly also said this:

There are a significant number of prime cost items set out in the Contract. I have previously asked you for details of these items so that I can plan construction and trades accordingly. I have also expressed concern about your capacity to pay should you choose items beyond the allowances made in the contract. By clause 9.2 of the contract, you are required to provide me with all necessary written and signed directions regarding the selection and supply of prime cost items within 7 days. Can you now please proceed to do so.

Notice of intention to terminate contract - prime cost items

102 As indicated earlier, the notice of intention to terminate the contract was sent on 14 August 2017. The part of that notice concerning prime cost items asserted that the owners were in substantial breach of the contract because they had failed to give the builder all necessary written and signed directions regarding the selection and supply of the prime cost items within seven days of receiving a request from the builder on 13 July 2017, contrary to clause 9.2.1 of the contract.

Notice of intention to terminate contract - electrical works and brickworks

103 At this point, it is convenient to touch upon another complaint in that notice as well - namely, the assertion that the owners were in substantial breach of the contract because they had failed to provide the builder information about the electrical plan and the brick selection, contrary to clause 11.15.

Whenever under the provisions of the Contract it is, or becomes, necessary for the Owner to make any decision or selection, or to supply any information, instruction, advice, equipment, materials and/or labour, or to do any other act, the Owner shall ensure that such act is done at the time and in a manner that enables the Builder to meet its program.

105 In response to the notice of intention to terminate the contract, on 25 August 2017, the owners' solicitors wrote to the builder's solicitors. Among other things, the owners addressed the particular complaint about the alleged failure to give the builder all necessary information concerning the prime cost items (as well as the complaint about information concerning brick selection and the electrical plan). They did so in the following terms:[23]

We are instructed that, despite the Builder's insistence on being provided with the above information, the works have not yet reached a stage wherein the information is required and advise that, as a matter of course, our clients are in the process of formulating the selections required and will provide same to the Builder. We refer to Special Condition 3 of the building contract wherein it provides:

The Owner shall choose all items noted in the Prime Cost section and arrange delivery of those Items to site when needed.[24]

We question how it is that, given the Frame Stage is incomplete and the Builder alleges that works cannot continue, the Prime Cost directions are immediately required regarding Tiles, Floorboards, Bathroom items, Appliances, Cabinetry and Heating and Cooling.

Given the works have not yet reached a stage where these directions or items are required, the Builder has no basis upon which to purport to terminate the contract. Should the Builder purport to terminate the contract on this basis this conduct would constitute a repudiation of the contract. On behalf of our Clients, we reserve all rights regarding the repudiation.

We note that your Notice of Intention alleges that our Clients have failed to provide information regarding the electrical plan ... and regarding the owners' brick selection.

As advised in regards to Prime Cost selection, the works have not yet reached the stage where the above information is required. On one hand, your Notice of Intention alleges that the works cannot proceed past Frame Stage, yet on the other the Builder alleges that this information is required immediately.

Further, you will be aware that the electrician that has been engaged to perform the works has been away on leave and, as a consequence, our clients have not been able to speak with him regarding the necessary information required to provide direction to your client.

However, we are instructed that our clients are in the process of collating the requested information relating to electrical work and brick selection and will provide it to your client as soon as it is confirmed.

106 The senior member, however, rejected these arguments concerning "Special Condition 3" ("SC3"), the lack of need for the information at this time and the promise of provision of the information in the future. I shall set out his reasons in detail later. Suffice it to say for the moment that the senior member concluded (1) that SC3 does not qualify the general conditions requiring the owners to provide prime cost item information to the builder, (2) that it was not for the owners to say that the builder did not require the information until some later time and (3) that saying that the information would be provided at some future time was not the same as providing it.[25]

107 These conclusions, it will be seen, are attacked under cover of Grounds 1(b) and 1B.

108 Later in his reasons, the senior member addressed the owners' further letter of 5 September 2017, which, along with several attachments, was sent to the builder's solicitors under cover of an email dated 6 September 2017. In this letter, the owners did and said several things.

109 First, they provided further information regarding their financial capacity.

110 Second, they reiterated their position that the works had not yet reached the stage at which the requested information regarding prime cost item selections, electrical directions and brickwork selections was required.

111 Nevertheless, and thirdly, they made, inter alia, the following additional points.

112 First, they asserted that the owners' brick selection had been provided to the builder via email on 20 January 2017. Further, they enclosed a copy of that email and information regarding brick selection.

113 Secondly, they provided "electrical information", including appliance specifications, an electrical plan for both units and a completed "UE Connection Application Form".

... [A]s previously discussed with the Builder, our Clients will require consultation regarding placement of all electrical sockets, TV and telephone points.

Regarding consultation with the Electrician, we are instructed that, as the Builder has tasked our Clients with sourcing their own Prime Cost items, it is necessary to receive advice from the electrician regarding amperage required for selected appliances. We note that, in a further effort to task our Clients, the Builder provided the Electrician's details to our Clients rather than agreeing to liaise with the Electrician himself.

115 Fourthly, they provided the following information concerning prime cost items in an attached list entitled "PC Item Selections: Approximate Pricing" ("the PC list"):

a) Tiles: Detailed information concerning the brand, colour, size and area of tiles was provided, but it was also said that "[n]othing has been purchased or a deal made on the tiles due to delays in the project". Also, under the heading "PC Items approx. Pricing" beside the category "Tiles" in the summary at the end of the PC list, this was said: "Unable to determine at this stage".

b) Floorboards: Again, detailed information concerning the brand, model, sizes and area of the timber flooring was provided, as was an estimated cost of $38,000 (which was $4,000 less than the amount allowed for in item 21 of the appendix to the contract).

c) Bathroom items & appliances: (These two categories, which included kitchen items and appliances, were combined.) Again, detailed information concerning the brands, models, descriptions, quantities and prices of the appliances and fittings was provided, as was the total cost of $45,361 (which was $761 more than the amount allowed for in item 21).

d) Cabinetry: Again, detailed information about the finishes, benchtops, woodwork and other features of the cabinetry was provided, but the owners added this: "Note: No cabinetry can be constructed and determined until fixing stage so onsite final measurements can be made and determined". Also, as with the tiles, under the heading "PC Items approx. Pricing" beside the category "Cabinetry" in the summary at the end of the PC list, this was said: "Unable to determine at this stage".

e) Heating & cooling: It was said that the "Heating and Cooling is unable to be determined at this stage until the roof is on so the chosen supplier can access site and make an assessment of what heating and [c]ooling units are suitable for both townhouses". Again, as with the tiles and the cabinetry, under the heading "PC Items approx. Pricing" beside the category "Heating & Cooling" in the summary at the end of the document, this was said: "Unable to determine at this stage".

116 In addition, in each category, the applicable prime cost figure contained in item 21 of the appendix to the contract was mentioned in the PC list, as well as in the summary at the end of that document.

117 The following additional evidence was relevant to the senior member's reasoning with respect to the six (or now five) groups of prime cost items. I shall commence with the tiles.

118 The senior member referred to an email of 27 February 2017, in which the builder had requested a variation of $5,880 for the tiles, should they be marble. While, in a reply email sent the same day, Mr Gianacopoulos had said he would get back to him soon regarding the extra price on the marble tiles, he also said in his second witness statement that the owners had not made any decision about tiles or selected any tiles.

119 Yet, in the owners' own specification sent to their finance broker on 18 January 2017 (which was not given to the builder until discovery in the VCAT proceeding), they had specified polished stone marble tiles of given dimensions and named a supplier. Further, in an email of 30 June 2017, Mr Jolly referred to the laying of marble tiles, yet Mr Gianacopoulos did not say in his response that they were not using marble tiles.

120 In those circumstances, said the senior member, it was understandable that Mr Jolly considered that there would be an additional cost of $5,880 for the marble tiles.

121 The senior member observed that the name "Adrienne" was noted in the PC list next to the specifications of the flooring but that there was no evidence of the identify of Adrienne. He also said that the level of detail suggested that perhaps the owners had received a quotation.

122 The senior member observed that some of the figures making up the total amount of $45,361 for bathroom (and kitchen) items and appliances (in the PC list) appeared to have been taken from a quotation from E & S Trading that had been obtained by Ms Hlavati (the latter of which was said to be dated 1 August 2017 - but see below). However, he also said that an overall comparison between the items in the PC list on the one hand and the quote on the other was not possible because not all items were the same.[27]

123 The quote from E & S Trading was in fact dated 1 August 2018, not 2017. That said, given that the senior member applied the price estimate given by the owners in the PC list provided in September 2017, this particular factual error is not of quite the same moment as others. As will be seen, however, in my view, the error still demonstrates the senior member's confusion about important matters of fact. I think it is also likely to have added to his adverse view of the owners when it came to assessing their responses in general to the builder's request for information concerning prime cost items pursuant to clause 9.2.1, which is the topic addressed under cover of Grounds 1(b) and 1B. More of this later.

124 The senior member remarked that, despite the owners' stated inability to determine the price for heating and cooling, it appeared that, at the time the PC list was sent, they had obtained a number of quotes for that item. He then set out a series of quotes, including one (for $28,486.48) that, he understood, Ms Hlavati had emailed to builder Peter Matherson on 23 August 2017. He observed that the wording of the email suggested that, at the time that it was sent, the owners proposed to accept this quotation and also to engage Mr Matherson to complete the construction of the two units.[28]

125 One of the other quotes for heating and cooling listed by the senior member was addressed to the building surveyor and received (inadvertently, it seems) by Mr Jolly's wife from a company called Woodpecker. This quote (at $22,452) was the cheapest of those listed.[29]

126 The fact of the matter is that the senior member was fundamentally mistaken about Ms Hlavati's email to Mr Matherson. This in fact occurred on 23 August 2018, not 2017. As we shall see, this is part of the vitiating error under Grounds 1(b) and 1B, even though the senior member ended up adopting the lesser quote (of $22,452).[30] We shall also see that the senior member's reliance on the latter quote forms part of the error under Ground 1A.

127 The senior member made essentially the same errors about two quotes (totalling $92,654) and an email concerning cabinetry that were sent to Mr Matherson. Again, the error was the mistaken belief that they were created and sent in August 2017, when this all occurred twelve months later.[31] Further, nothing like these quotes existed at the relevant time (i.e. in August 2017). These errors form parts of Grounds 1A, 1(a), 1(b) and 1B.

VCAT's findings on anticipated shortfall on the prime cost items

128 The senior member then concluded in this way:[32]

1. what the Owners say about the tiles and the floorboards;
2. that although they got a bulk discounted price of $50,833.00 from E & S Trading for all of their fittings and appliances, they will only spend $45,361.00;

1. that, notwithstanding the recent email from Ms Hlavati to Mr Matherson, they will choose the cheapest alternate quotation for the heating and cooling rather than the one they appeared in that email to be proposing to accept; and

1. despite the above indications, they will not use the marble tiles;

the Prime Cost allowances in the Contract would still fall short of the likely actual cost by at least $ 56,867.00, calculated as follows:

Tiles (if standard tiles) $18,000 $18,000 Floorboards $42,000 $38,000 Bathroom Items $27,000 $45,361 Appliances $17,600 Incl. Cabinetry $40,000 $92,654 Heating and cooling $15,000 $22,452 Totals $159,600 $216,467 $159,600 Shortfall $56,867

VCAT's findings on failure to comply with builder's notice of intention to terminate

129 Much later in his reasons, the senior member said the following:[33]

[149] For the reasons given, I find that the Owners by this letter[34] did not comply with the Builder's [notice of intention to terminate] in that they:

• failed to provide information requested under Clause 9.2;

• failed to produce evidence of capacity to pay the Contract price.

[150] By Clause 22.2, of the Contract, if a notice of breach was not complied with, the Builder would be entitled to " ... give further written notice by registered post to the Owner immediately terminating the Contract."

[151] As already seen, Clause 24.3 provides that any notice given by registered post is deemed to have been received by or given to the addressee on the date of actual receipt or two clear business days following the date of posting, whichever is the earlier. They received the Notice of Termination on 8 September 2017. In the meantime, the Owners' solicitors provided a further response to the notice of intention to terminate the Contract.

[152] The further response was by letter dated 5 September 2017, which was sent to the Builder's solicitors under cover of an email dated 6 September 2017. This provided some electrical information and brickwork selection.

[153] As to the Prime Cost items, these were identified as:

(b) Bathroom, laundry, and kitchen fittings for both units $29,200.00

[157] This letter does not take the matter any further, in that proof of capacity to pay and details of the Prime Cost and Provisional Sum items were still not given. In any case, once the time provided to rectify the breaches specified in the notice of intention had expired, the right of the Builder to terminate arose, although actual termination did not occur until service of the notice of termination was [effected]. However, the contents of this email become relevant in considering whether it was unreasonable in the circumstances for the Builder to have terminated the Contract.

130 Five things may be observed about these passages at this point.

131 First, I shall return to the detail of the evidence upon which the senior member acted to come to the conclusion that the owners had failed to provide the necessary information requested under clause 9.2.1 when addressing the complaint that he erred in his approach to this and related questions.

132 Secondly, despite the senior member's reference to "the time provided to rectify the breaches specified in the notice [having] expired", I did not understand Mr Sharkey to take any point to the effect that the owners were time-barred from relying on the material in their solicitors' letters of 25 August and 5 September 2017 in an attempt to argue that there was compliance with the request for information concerning prime cost items (or electrical work and brickwork) or that any of the breaches alleged had been remedied. Equally, I gather that the senior member's use of the word "still" in the phrase "still not given" suggests that he would have allowed himself to reach a different conclusion if he had regarded the information provided (in either letter) as answering the request under clause 9.2.1 or as amounting to remedial action under clause 22.2.

133 Thirdly, it is notable that, despite his remarks extracted earlier regarding the failure to provide information about electrical work and brick selection,[35] and despite the builder's complaint (in his notice of intention to terminate) to the effect that the owners failed to provide information about such issues contrary to clause 11.15, the senior member nevertheless made no finding that the contract had been breached on this basis.[36] This may be explained, perhaps, by the senior member's observation, vis-à-vis the owners' letter of 5 September 2017, that "this provided some electrical information and brickwork selection".[37] Another possibility is that he took counsel for the builder to concede the point when at the VCAT hearing he said, "Let's accept that [the] electrical plan and the brick selection [spoken of in that letter] might have satisfied that notice of intention to terminate, so that item is checked off."[38] I shall return to this issue later.

134 Fourthly, as the senior member said, the contents of the email of 6 September 2017 (and the enclosed letter and annexures), like the letter of 25 August 2017, did become relevant in considering whether it was unreasonable in the circumstances for the builder to have terminated the contract. As will be seen later, the same is true when assessing that question in this Court.

135 Finally, the second of the senior member's findings in the first paragraph in the extract - concerning the owners' capacity to pay the contract price - is the issue to which I now turn.

Whether owners provided reasonable evidence of capacity to pay contract price

136 Earlier in these reasons, I referred to some of the emails between the parties in which there was discussion of both the owners' capacity to pay the contract price and the provision of prime cost item information.

137 For example, it will be remembered that, in his email of 27 February 2017, Mr Jolly said that he needed confirmation that finance had been approved and that the owners "have the money to complete the build".

138 Over the next few months, various emails and letters addressing financial capacity were exchanged between the builder, the owners, their mortgage broker and their bank. There was a dispute, in particular, about whether Mr Gianacopoulos had access to funds in a trust.

139 Ultimately, Mr Jolly sent the emails of 26 June and 3 July 2017, parts of which I have set out above.

140 It is unnecessary to detail either that correspondence or the minutiae of this side of the equation concerning capacity to pay, other than to say that it culminated in the notice of intention to terminate the contract. It is sufficient to remember, at this point, that one of the "substantial breaches" alleged by the builder was that the owners failed to meet their continuing obligation to provide evidence of their capacity to pay the contract price within 14 days of the requests on 26 June 2017 and 13 July 2017, in breach of clauses 11.2 and 11.3.

141 As the senior member pointed out, the owners' obligation to provide proof of their financial capacity to pay the contract price was imposed by clause 11 of the contract. Relevantly, that clause provides as follows:[39]

11.1 Evidence of capacity to pay the contract price

The Owner will within fourteen (14) Days of the Owner signing the Contract, provide written or other reasonable evidence to the Builder that the Owner has the financial capacity to pay the Contract Price.

11.2 Continuing obligation upon Owner to provide evidence of capacity to pay

The obligation of the Owner to provide evidence of capacity to pay the Contract Price is a continuing obligation until the Works have reached Completion.

11.3 Builder may request evidence of capacity to pay during the Contract

The Builder may at any time until the Works have reached Completion, request the Owner to provide written or other reasonable evidence of capacity to pay the balance of the Contract Price or any variation notwithstanding the fact that the Owner has previously provided such evidence to the Builder under the Contract, and the Owner will, within fourteen (14) days of any request, provide evidence of such capacity to pay.

11.4 Owner's obligations if capacity to pay is reduced or ceases

The Owner will immediately notify the Builder if it any time during the works the Owner's capacity to pay the Contract Price for the balance of the Contract Price is in any way reduced or ceases.

142 It is convenient at this point to set out a large portion of the senior member's reasons for his conclusion that the owners failed to provide proof of their financial capacity to pay the contract price:[40]

[107] On one view, the Owners' obligation under Clause 11 is to provide evidence of their capacity to pay "the Contract Price". The Contract price is that specified in the Contract and, by the terms of Clause 9.6, an adjustment to the Contract price with respect to a Prime Cost item will only occur when the expenditure has been made. It might be argued that, until then, the obligation of the Owners to provide evidence of capacity to pay only applies to the Contract Price as at the date of the request for that evidence. I think that is an artificial analysis.

[108] In the first place, "Contract Price" is defined in Clause 1 of the Contract as meaning:

either the sum stated in Item 10.1 of the Appendix or that sum as may be[41] adjusted and payable under this Contract.

[109] In the second place, Clause 9.6 is concerned with when the excess is to be paid. The evidence required by Clause 11 is of capacity to pay money that will fall due in the future and that would include any extra cost of a Prime Cost Item that will be required to carry out the work.

[110] I think that the Contractual requirement was for the Owners to provide such evidence as would satisfy a reasonable person in the Builder's position that they had the financial capacity to pay for the work and materials that the Contract required the Builder to provide. That would require an assessment of what the cost of that work and those materials was reasonably expected to be at the time the request was made and also, what financial resources were revealed by the evidence the Owners produced. If the second were to fall short of the first, then the requirement would not have been satisfied.

[111] Although it is not shown that the money held in the name in the Trust is the property of Mr Gianacopoulos, it is clear from the company search and the email from the bank manager that he is able to draw out and use the funds and he has said that he proposes to do that and use the money towards the construction. How that would have worked in the context of the Trust is not established but I think that a reasonable person in Mr Jolly's position would have considered that those funds were available to the Owners.

[112] I also think that sufficient evidence was produced to satisfy a reasonable person in Mr Jolly's position that the construction loan of $650,000 ... was still available to the Owners.

[113] On this evidence, the Owners demonstrated a capacity to pay as follows:

Already paid (including the concrete variation) $145,177.76 Bank facility $650,000.00 Amount available from the Trust $104,965.24 Total $900,143.00

[114] The amounts that they would need to pay under the Contract were:

The Contract Price $887,918.00 Minimum additional cost of Prime Cost Items $ 56,867.00 Total $944,785.00

[115] On that basis, there would be a shortfall of at least $44,642.00 without taking account of the canopies, the marble tiles and any other variations. A requirement to produce evidence to pay the Contract price is not satisfied by evidence of capacity to pay a substantially lesser sum.

[116] In addition, Mr Jolly said he had been told by the Architect that he could not come to the site because the Owners had not paid his bill and that he (Mr Jolly) was concerned that the Owners may not have sufficient funds for the construction. On the above figures, that concern was understandable.

[117] The Builder was entitled to request proof of ability to pay and the Owners were required to provide it. They failed to do so.

[128] For the reasons given, I am not satisfied that the Owners provided satisfactory evidence of their ability to pay the Contract price.

143 I shall return to these reasons when addressing the owners' complaints concerning capacity to pay the contract price and the estimated prices of prime cost items.

Whether builder in substantial breach of contract

144 Clause 22.3 of the contract is set out in the following way:

22.3 Builder may not terminate contract in certain circumstances

The Builder may not terminate this Contract unreasonably or vexatiously or if the Builder is in substantial breach of this Contract.[42]

145 In reliance on the latter part of that clause, the owners submitted at VCAT that, because it was in substantial breach of the contract, the builder was not entitled to terminate the contract.

146 One alleged substantial breach was said to be constituted by the builder's claim for the frame stage payment when, in fact, the frame was still incomplete.

147 This claim was also said to be evidence that the builder intended no longer to be bound by the contract and therefore to amount to an act of repudiation.

148 The senior member accepted that, because the builder had failed to complete the frame stage, it was not entitled to claim any such payment. But he did not consider that the making of such a claim, without more, amounted to a breach of contract. On the contrary, he said, merely asserting an entitlement under a contract would not be a breach unless coupled with either an actual or threatened suspension of work were the claim not paid. In that case, the breach would be the actual or threatened suspension, not the prior service of the claim. But, here, the senior member found, the builder did not suspend work or threaten to do so.

149 The senior member also rejected the owners' argument that the builder had breached s 40(2) of the Domestic Building Contracts Act 1995 (Vic) ("the DBC Act"), which is in the following terms:

A builder must not demand or recover or retain under a major domestic building contract of a type listed in column 1 of the Table more than the percentage of the contract price listed in column 2 at the completion of a stage referred to in column 3.

150 As the senior member said, by its terms, this provision is directed to the proportion of the contract price that can be claimed at a particular stage and applies only after the particular stage in question has been completed.

151 Nevertheless, he went on to consider whether, if (contrary to his view) the provision is directed to premature claims, such a claim might be a breach of the warranty implied into the contract by s 8(c) of the DBC Act and amount to a substantial breach. Section 8(c) provides that:

the builder warrants that the work will be carried out in accordance with, and will comply with, all laws and legal requirements including, without limiting the generality of this warranty, the Building Act 1993 and the regulations made under that Act[.]

152 The senior member referred to John Dixon J's discussion of the meaning of "substantial breach" in the context of a building dispute in Stojanovski v Australian Dream Homes.[43] He referred, for example, to his Honour's view that the proper approach to determining whether the builder was in substantial breach of a contract requires that the Court should first identify the term (or terms) breached, and then evaluate the breach by considering its nature and consequences.[44] The senior member then concluded this point as follows:[45]

[146] In the present case, the breach that is said by the Owners to have been "substantial" is the making of a claim under the Contract that was not justified. If that was a breach of Contract, then no damages appear to have flowed from it because the Owners did not pay the claim and the Builder did not suspend work or refuse to continue to perform the Contract when payment was not made. The "nature and consequences" of such a breach would not suggest that it was substantial, nor could it be said to have been "large or weighty" or "real or of substance". The Owners would have been entitled to only nominal damages with respect to it since no actual damage was suffered. Consequently, I do not believe that it could sensibly be said that the breach was substantial.

153 The owners alleged other substantial breaches in this Court. They concerned the builder's claim for payment for concreting; evidence of Mr Jolly's related remark to Mr Gianacopoulos that "this is going to get ugly"; and the builder's intention to construct the frame without the canopies without waiting for a DBDRV case manager to be appointed.

154 It is not entirely clear, however, to what extent, if at all, these arguments were raised below under this heading or, if raised, whether they were treated by the senior member as going to the question of substantial breach.

155 In the end, given that I consider it unnecessary to the outcome of this application (or the appeal) to deal with the owners' complaint in this Court that the senior member erred in failing to find a substantial breach by the builder, it is also unnecessary to deal with the antecedent question about what occurred below in this regard.

156 That said, it has been necessary to set out the foregoing findings by the senior member on the question of substantial breach in order adequately to place the other complaints in this Court in their proper context.

Whether builder terminated contract unreasonably

157 It will be remembered that, in addition to its reference to substantial breaches, clause 22.3 provides that the builder may not terminate the contract unreasonably. At VCAT, the owners submitted that that is precisely what the builder did. The senior member disagreed.

158 In order to explain why he came to that view, it is convenient to reproduce the senior member's reasons on the point:[46]

[159] [Counsel] referred me to Australian Dream Homes v Stojanovski ... where the Court of Appeal, referring ... with approval to the findings of the primary judge, said:[47]

The judge then stated that, in determining whether the owner had acted reasonably in the circumstances, the court must examine not just the default notice and its context, but also the responses of the builder and the owner after service of the default notice up to the time of service of the termination notice. Accordingly, his Honour examined the correspondence that passed between the parties during that period.

[160] It is for the Owners to show that it was unreasonable or vexatious in the circumstances for the Builder to terminate the Contract. Those circumstances include all that occurred up to the moment of termination.

[161] The grounds for termination established were the failure of the Owners to provide information as to the Prime Cost items and their failure to provide reasonable evidence of their capacity to pay for the work and materials the Builder was required by the Contract to supply. The two are linked in that it became apparent that the figures provided by the Owners for the Prime Cost items substantially understated the cost of, not only what they intended to select, but of what they would have[48] to select, if the two units were to be built.

[162] Before incurring the cost of completing the construction and paying for the Prime Cost items to be selected by the Owners, it would be important for any Builder to be satisfied that it would be paid. That is why these provisions appear in the Contract. I accept that the director of the Builder, Mr Jolly, was particularly concerned about that, being a small Builder and this being his only project. The Builder could not have claimed payment for the Prime Cost items in advance. It was required to outlay the money first and then seek repayment afterwards. He was aware that the Architect on one occasion had said that the Owners had not paid him.

[163] Whether or not there was capacity to pay required a consideration of the funds available and what the job was going to cost. It is clear from the evidence and it was also clear to Mr Jolly that the Prime Cost figures did not represent what the Builder would be required to pay for the items listed. He was therefore entitled to know exactly what the final selections were and where the money was to come from. That information had to come from the Owners and the Contract entitled the Builder to seek it. The Builder gave numerous opportunities to the Owners to show that they were able to afford to complete the construction, but they never did so up to the moment of termination. Yet they were able to provide to their intended replacement builder, Mr Matherson, information concerning the heating and air conditioning and the cabinetry at the very time they denied that same information to the Builder.

[164] The Owners also made it clear that they did not propose to pay the Builder anything extra to construct the canopies in accordance with the amended drawings.

[165] I do not find that it was unreasonable of the Builder to terminate the Contract in all the circumstances. For these reasons, I am satisfied that the Contract was validly terminated by the Builder by the Notice the Owners received on 8 September 2018.

159 I shall return to these reasons later in this judgment when dealing with the owners' complaint that the senior member erred in failing to find that the builder's termination of the contract was unreasonable.

Builder's entitlement following lawful termination

160 The senior member, having found that the builder terminated the contract lawfully (or, strictly, in accordance with clause 22), explained that clause 22.4 had the effect that:

the Builder will be entitled to recover from the Owner all loss, expense and damage caused to the Builder resulting therefrom as if the Owner had wrongfully repudiated this Contract.

161 The senior member went on to make the following findings:[49]

[169] By the premature termination of the Contract, the Builder has lost not only the opportunity to complete the Frame Stage and earn the Frame Stage payment but also the opportunity to complete the construction and earn whatever profit it would have made by doing so.

[170] From any payment for work already done by the Builder, there would need to be deducted the cost it would have incurred in rectifying the defects in it as well as the cost of completing it. Also, the completion cost to the Builder of the other stages will need to be deducted from the remaining payments to be made under the Contract.

162 After a painstaking analysis of the various considerations to and fro, and numerous calculations, the senior member reached the following conclusions:[50]

[262] The Owners have paid the deposit and the base stage. The Frame Stage, lock-up stage, the fixing stage and final stage, totalling $754,731.24, have not been paid. If the Contract had not been determined and the Builder had completed the work, it would have been entitled to this sum, less GST, and less the cost to it of completing the work. That cost would have been as follows:

Cost of completion as above $446,939.79 Cost to construct the canopies as per Contract $ 4,114.00 Cost to rectify the minor defects referred to $ 2,887.98 Replacement of fence $ 7,827.12 Termite system $ 2,000.00 Plumbing defects $ 1,250.00 Total completion cost to the Builder $465,018.89

[263] The loss of profit would therefore have been:

Balance of Contract price after deducting GST $679,258.12 Less completion cost $465,018.89 Loss of profit $214,239.23 Less: Credit for concrete variation $ 11,990.00 Balance $202,249.23

163 The senior member then calculated the interest as amounting to $25,488.95. When that figure was added to the lost profit of $202,249.23, this was said to produce a total figure of $227,738.17,[51] which sum he ordered the owners to pay the builder.

P****ART 3: ARGUMENT AND CONCLUSIONS IN THIS COURT

Questions of law and proposed grounds of appeal

164 I turn now to the substance of the arguments put in this Court and my resolution of them.

165 Just before doing so, however, I shall set out the questions of law and grounds of appeal contained in the owners' notice of appeal.

1. Did [VCAT] err in law in finding that the [builder] had validly terminated the building contract in circumstances where:

a) [the owners] had provided sufficient response to the [builder's notice of intention to terminate];

b) [the builder] was in substantial breach of the contract; and

c) [it] was unreasonable for the [builder] to terminate the contract.

1. [VCAT] erred in law in finding that the [owners] had not provided sufficient response to the [builder's notice of intention to terminate the contract], in that:

1. [VCAT] at [107]-[117] misconstrued clause 11 of the contract and misdirected itself by calculating the contract price by reference to [prime cost] items in accordance with prices obtained by the [owners] in 2018 (see at [73]), rather than the estimates available in August 2017;

1. [VCAT] misdirected itself by finding that the [owners] "were able to provide to their intended replacement builder, Mr Matherson, information concerning the heating and air conditioning and the cabinetry at the very time they denied that same information to the Builder" (see [163]), in circumstances where the information that they provided to Mr Matherson occurred after the termination of the contract with the [builder];

1. [VCAT] misdirected itself by failing to take into account the credit owing to the [owners] for the concrete variation in the sum of $11,990.

2. Under clause 22.3 of the contract, the [builder] was not permitted to terminate the contract if the [builder] was in substantial breach. The [builder] was in substantial breach in that ... :

1. the [builder] had claimed and retained payment for an unwritten variation in the sum of $11,990, and persisted in its rights to hold onto that amount until closing submissions in the VCAT hearing;

1. when questioned about this payment, the [builder] told [Mr Gianacopoulos] that "this is going to get ugly";

1. the [builder] demanded payment of the frame stage progress claim in circumstances where the frame stage had not been completed (even disregarding the canopies) and without the building surveyor passing the frame, contrary to the provisions of the contract and in breach of the [DBC Act];

1. the [builder] informed the [owners] on 2 July 2017 that it would not construct the canopies, and would proceed with construction of the frame without waiting for a DBDRV case manager ... , despite the contract drawings showing canopies as part of the works;

1. the [builder] intimated an intention to terminate the contract on the basis, inter alia, that the [owners] had not paid the frame stage payment claim, when the frame stage payment claim was not due and payable, and subsequently purported to terminate the contract and persisted in claiming an entitlement for the frame stage payment during the VCAT hearing.

3. Under clause 22.3 of the contract, the [builder] was not permitted to terminate the contract unreasonably or vexatiously. In the circumstances of the case, it was unreasonable and vexatious to terminate the contract where:

1. the [owners] had legitimately challenged the [builder's] entitlement to the contract variation in the sum of $11,990;

1. the [owners] had legitimately challenged the [builder's] entitlement to a variation for the canopies;

1. the [owners] legitimately declined to pay the frame stage until the frame was completed and certified by the building surveyor;

1. the [builder] informed the [owners] on 2 July 2017 that it would not construct the canopies, and would proceed with construction of the frame without waiting for a DBDRV case manager ... , despite the contract drawings showing canopies as part of the works;

1. the [builder's] insistence on payment of the frame stage, in contravention of the contract and the [DBC Act];

1. the [owners] had advised the [builder] of their wish to have these disputes settled at a conciliation convened by DBDRV;

1. the [owners] otherwise refer to and rely on the facts set out in the affidavit of Michael Gianacopoulos sworn 5 March 2019 and filed herewith.

166 As I understood Mr Andrew, each aspect of the grounds marked with a strike-through was abandoned.

167 Counsel's argument on behalf of the owners arguably went beyond the questions of law and the terms of the grounds of appeal. Indeed, as will be seen, the grounds were expanded in the running. There was no objection to this course by Mr Sharkey.

Ground 1A: Owners' capacity to pay - Error in construction of "contract price"

168 I turn first to the complaint concerning the senior member's finding that the owners lacked the financial capacity to pay the contract price. In particular, the complaint is that the senior member erred in his construction of the extended meaning of the term "contract price" for the purposes of assessing the owners' financial capacity to pay.

169 While this point arguably did not strictly come within the owners' grounds of appeal, the matter was argued as if it did and without any objection by Mr Sharkey. In so far as may be thought necessary to do so, I shall grant an application to amend the grounds of appeal by adding Ground 1A in the following terms:

Ground 1A: The senior member erred in failing to construe the extended meaning of the term "contract price", for the purposes of assessing whether the owners had provided reasonable evidence of their financial capacity to pay the contract price under clauses 11.2 and/or 11.3, as being confined to the amount stated in item 10.1 of the appendix plus and/or minus the increased and/or reduced cost of prime cost items listed in item 21 of the appendix based on information provided by the owners to the builder in response to the request for such information pursuant to clause 9.2.1.

The importance of the construction of the term "contract price" in the present case

170 As we have seen, on the senior member's construction, the relevant contract price against which to measure the owners' capacity to pay was the sum of the contract price stated in item 10.1 of the appendix ($887,918) and the estimated increase in the cost of the prime cost items over and above the $159,600 allowed for in item 21 of the appendix at the time of entry into the contract - i.e., an amount of $56,867. This made a total figure of $944,785.

171 The senior member then set this figure against his assessment of the owners' financial capacity pay at that time, which, as I have said, he found to be $900,143. Thus, there was a shortfall of $44,642, which the senior member considered to be substantial. Hence his conclusion that the owners had failed to provide reasonable evidence of their financial capacity to pay the relevant contract price.

172 On the application to this Court, there was no dispute about the senior member's calculation of the owners' financial capacity to pay at that time (of $900,143). Instead, the principal complaint by the owners under this heading concerned the senior member's incorporation within the relevant contract price the estimated increased price of prime cost items over and above the figures stated in item 21 of the appendix to the contract.

The meaning of "contract price" for the purposes of assessing capacity to pay that price

173 As I indicated in the overview to these reasons, I am persuaded that the senior member erred in his construction of the applicable contract price for this purpose.

174 As we have seen, the senior member rejected, as an "artificial analysis", the view that, by the terms of clause 9.6, an adjustment to the contract price with respect to a prime cost item will occur only when the expenditure has been made; and that, until then, the obligation of the owners to provide evidence of capacity to pay only applies to the contract price as at the date of the request for that evidence.[52]

175 At this point, it is convenient to extract again some of the relevant passages in which the senior member explained why he rejected the foregoing construction and arrived at a different construction:[53]

[108] In the first place, "Contract Price" is defined in Clause 1 of the Contract as meaning:

either the sum stated in Item 10.1 of the Appendix or that sum as may be[54] adjusted and payable under this Contract.

[109] In the second place, Clause 9.6 is concerned with when the excess is to be paid. The evidence required by Clause 11 is of capacity to pay money that will fall due in the future and that would include any extra cost of a Prime Cost Item that will be required to carry out the work.

[110] I think that the Contractual requirement was for the Owners to provide such evidence as would satisfy a reasonable person in the Builder's position that they had the financial capacity to pay for the work and materials that the Contract required the Builder to provide. That would require an assessment of what the cost of that work and those materials was reasonably expected to be at the time the request was made and also, what financial resources were revealed by the evidence the Owners produced. If the second were to fall short of the first then the requirement would not have been satisfied.

[161] The grounds for termination established were the failure of the Owners to provide information as to the Prime Cost items and their failure to provide reasonable evidence of their capacity to pay for the work and materials the Builder was required by the Contract to supply. The two are linked in that it became apparent that the figures provided by the Owners for the Prime Cost items substantially understated the cost of, not only what they intended to select, but of what they would have[55] to select, if the two units were to be built.

176 In my view, neither the construction of the term "contract price" rejected by the senior member nor his preferred construction is correct. Let me explain.

177 As for the first construction considered (but rejected) by the senior member, I do not accept that the applicable contract price, for the purposes of clauses 11.1 to 11.4, is "adjusted and payable under [the contract]" only when the expenditure - whether increased or not - for the prime cost item or items has been made. While clause 9.6 speaks of the amount "expended", and therefore employs the past tense, that term is directed to a different (albeit related) issue - namely, that which must be "added to the Contract Price and paid to the Builder in the next payment payable under [the] Contract".[56] To that extent, I agree with the senior member.

178 Equally, however, I reject the view (as embodied in the senior member's preferred construction) that the evidence required by clauses 11.1 to 11.4 is of capacity to pay money "that will fall due in the future and that would include any extra cost of a Prime Cost Item that will be required to carry out the work", if that which will fall due includes extra costs of prime cost items based on information beyond that which was provided to the builder by the owners in response to the builder's request under clause 9.2.1. Similarly, I do not accept that it is correct to say that the true assessment of the applicable contract price is "of what the cost of that work and those materials was reasonably expected to be at the time the request was made", if, again, such a reasonable expectation goes beyond that which has been the subject of information provided by the owners in response to the builder's request under clause 9.2.1.

179 The senior member's preferred construction appears to treat the words "as may be" within the definition of "contract price" in clause 1 as connoting a future tense - or perhaps as if the words "in the future" were inserted after the words "adjusted and payable". But I do not think that is the correct reading of those words, in context. Indeed, such an approach tends to focus on the words "as may be" in isolation. Moreover, it is apt to read into the definition words (i.e. "in the future") that are simply not there.

180 The preferable approach is to have regard, inter alia, to the fact that the words "as may be" are part of a larger concept within the definition in clause 1 - namely, "that sum as may be adjusted and payable under this Contract". When that is done, and when regard is had as well to the surrounding terms (including clauses 9 and 11) in which the notion of a changeable contract price must be considered, it can be seen that the concept must be understood with the following thoughts in mind. The words "adjusted" and "payable" respectively connote a past tense and (at least) a present tense. The words "as may be" simply allow for the fact that the relevant sum may be adjusted (i.e. increased or decreased) and rendered payable at any point during the life of the contract. While the word "payable" can connote that a price is payable now or in the future, the words "as may be" do not allow the term "contract price" to be construed as allowing the prices of prime cost items that have not yet been "adjusted" to be included in the relevant contract price for the purposes of assessing whether the owners presently have the capacity to pay.

181 Instead, the term is to be construed in this way. Self-evidently, the relevant contract price, for the purposes of assessing evidence of financial capacity to pay under clauses 11.1 to 11.4, is "the sum stated in Item 10.1 of the Appendix ... as may be adjusted and payable under [the] Contract". In the present context, which concerns possibly varying costs of prime cost items, this sum is the amount stated in item 1 of the appendix plus or minus the increased or decreased cost of prime cost items as at the time of the owners' provision of information in response to the builder's request for evidence of capacity to pay the contract price under, say, clause 11.3.

182 Importantly, however, the cost of prime cost items as "adjusted and payable" at the time of the response under clause 11.3 can include only those amounts which, prior to or at that moment, have been or are the subject of provision, by the owner to the builder, of the "necessary written and signed directions ... regarding the selection or supply of the goods ... represented by ... a Prime Cost Item" pursuant to clause 9.2.1. This is because the request for such information was made of the owner by the builder pursuant to clause 9.2.1 - for the words employed are that "the Owner will give the Builder all necessary ... directions [etc]". In such circumstances, it is not for VCAT, this Court, the builder or anyone else to substitute its, his or her view of what particular prime cost items or prices the owners would or might have chosen if they have not in fact provided that information to the builder. In other words, if, by the time of an owner's response to a builder's request for evidence of capacity to pay under clause 11.3, new prime cost item information has not been provided by the owner to the builder in response to the latter's request under clause 9.2.1, then no such new prime cost item information ascertained by any means other than as authorised by another term of the contract may be included in the calculation of the (increased or reduced) contract price.

183 In coming to this view, I have had regard as well to the fact that clause 11.3 speaks of "reasonable evidence of capacity to pay the balance of the Contract Price". Since the emphasised words necessarily connote part of the contract price yet to be paid, it might be said that they support the senior member's construction, which incorporates "the cost of, not only what [the owners] intended to select, but of what they would have to select, if the two units were to be built".[57] In my view, however, there is no warrant for reading into clauses 11.1 to 11.4 and/or 9.2.1 a power reposed in someone other than the owner to determine the detail or prices of prime cost items the owner might or would have to select, if the build were completed. To repeat, the better view is that the increased or decreased cost of prime cost items "as may be adjusted and payable" at the time of the response to a request under clause 11.3 (or, for that matter, without any request by the builder under clauses 11.1, 11.2 or 11.4) can include only those amounts which, prior to or at that moment, have been or are the subject of provision, by the owners to the builder, of the "necessary written and signed directions ... regarding the selection or supply of the goods ... represented by ... a Prime Cost Item" pursuant to clause 9.2.1. When this is understood, "the balance of the Contract Price", for the purposes of clause 11.3 (or simply "the Contract Price", for the purposes of clauses 11.1, 11.2 and 11.4), still incorporates a future component, but only in respect of that which is "adjusted and payable" in the way I have described.

184 This construction of the relevant contract price also would embrace the following situation. Suppose that, prior to the request for evidence of capacity to pay, because a prime cost item selected by the owner was unavailable, the owner has specified to the builder an alternative item that differs in price from the original (as per clause 9.3). In this case, of course, the parties should act on the basis that this altered price is included in what is "adjusted and payable under this Contract".

185 This construction also would allow for the situation where, prior to the request for evidence of capacity to pay, the builder has selected and supplied an alternative prime cost item, as near as reasonably possible in quality to the original prime cost item, because the owner has failed to specify to the builder in writing the alternative item to be supplied pursuant to the builder's request under clause 9.4.

186 Thus, it becomes apparent that this construction of the extended meaning of the term contract price, and its potentially changeable quality, is not only consistent with the language employed in the definition in clause 1, but also sits harmoniously with the other terms in which it has work to do, such as clauses 9 and 11.

Other reasons why this construction of "contract price" to be preferred

187 This construction also allows for a fair balance between the contractual rights and obligations of owners and builders, consistently with one of the objects of the DBC Act, which, pursuant to s 4(a), is "to provide for the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to both builders and building owners".

188 An owner's financial capacity to pay should be measured against an estimated increased (or reduced) cost for prime cost items based on information about the details and prices for prime cost items that are of the owner's choosing (unless, of course, say, clause 9.4 applies, in which case the owner's choices may be qualified somewhat). In the usual case, there will be no room for those choices to be overridden by a guess or an inference drawn by the builder, VCAT or this Court. It is, after all, the owner's project that is the subject of the contract. This construction reflects the importance of these considerations.

189 Equally, it is understood that a builder must have reasonable confidence that the owner will be able pay the balance of the total contract price, whatever that may turn out to be. This, of course, is especially so when it comes to the increased cost of prime cost items beyond that which is spelled out in item 21 of the appendix to standard contracts. After all, in cases like the present, it is the builder, in the first instance, who will bear the cost of providing those items.

190 If, however, a builder is concerned about an owner's capacity to pay as a result of suspected increases in the costs of prime cost items, that concern is not to be addressed by calculating the relevant contract price by reference to estimates of such increased costs made by those other than the owner - i.e., by someone other than the party whose contractual right it is to choose those items (again, subject to any qualification caused by operation of clause 9.4). Instead, if the circumstances warrant it, a builder can always require an owner to give any necessary directions regarding prime cost items, pursuant to a request under clause 9.2.1. In that way, the builder will know whether the costs of prime cost items are going to increase. And, if so, the builder then can measure that increase against any reasonable evidence of financial capacity to pay the contract price.

191 It may be said that my preferred construction makes it more likely that a builder will be lumbered with the risk of bearing the cost of prime cost items well beyond that which was bargained for in the contract. But there are several obvious, albeit imperfect, answers.

192 First, in my view, a builder should be far more demanding of the owner as to the details and prices of prime cost items, and far more careful about whether such estimates are realistic, when entering into a contract in the first place.

193 Secondly, if this is done, the owner will be more likely to understand that, if the chosen prime cost items end up taking the contract price beyond a given capacity to pay, there will be a greater risk that the builder will seek to terminate the contract, leaving the owner with an unfinished build and a damages bill.

194 Thirdly, the definition of prime cost item in clause 1 already provides that "the Builder must make a reasonable allowance in the Contract" for such items.

195 Fourthly, s 21(1)(a) of the DBC Act already provides that it is an offence for a builder to enter into a domestic building contract that contains an amount, or an estimated amount, for a prime cost item that is less than the reasonable cost of supplying the item. Further, s 21(3) provides that, in determining what is a reasonable cost, regard must be had to the information that the builder had, or reasonably should have had, at the date the contract was made; and the nature and location of the building site.

196 Of course, these are imperfect answers because the nature of prime cost items is that their details and prices can vary markedly, and it may not be reasonable to know all relevant variables fully until other features of the build have occurred. But, still, there is room for careful planning and estimation by the builder and the owner, in consultation with each other, well before any bargain is struck.

197 While I do not profess to have sufficient experience or knowledge to suggest the usual industry practice in this area, it appears to me that the details recorded in item 21 of the appendix to the standard form contract employed in this case were grossly lacking. Indeed, all that is recorded are broad descriptions of six categories of prime cost items and the total price allowed for such items within each category. Yet the schedule itself contains columns for specific prices per item and specific quantities of components or materials, neither of which contains any such information in this case. Of course, the building plans would give other vital information to a builder as well. But, still, it appears that the builder in this case was prepared to enter into this contract with only very limited information about the prime cost items. That strikes me as a careless thing to do, particularly in circumstances where it was apparent from an early stage that Mr Jolly had doubts about the owners' capacity to pay the contract price.

Application of the preferred construction of "contract price" to the evidence

198 When this construction of the relevant contract price is applied to the evidence led at VCAT, it becomes clear that, instead of about $944,785, the true figure should have been calculated at $884,679.

199 This is because, while the owners provided some information concerning price and details of the prime cost items in the letters from their solicitors on 25 August and 5 September 2017, as we saw earlier, the upshot is that it was said that the owners were unable to determine at that stage the pricing for tiling, cabinetry and heating and cooling.

200 Since the price for tiling in item 21 of the appendix and the amount on which the senior member ultimately relied were identical (both $18,000), no correction needs to be made to that part of the calculation.

201 On the other hand, since the owners did not provide the builder with any new prices for cabinetry or heating and cooling, the figures allowed by the senior member (of $92,654 and $22,452 respectively) must be removed from the calculation and in their stead the existing figures in item 21 (of $40,000 and $15,000 respectively) must be substituted.

202 Further, the owners provided estimates of $38,000 for flooring (which was $4,000 less than the amount allowed for in item 21) and $45,361 for bathroom (and kitchen) items and appliances (which was $761 more than the amount allowed for in item 21). Thus, those adjustments were correctly made and therefore need not be altered.

203 The table below shows precisely how it is that, when the necessary changes are made, the resulting adjusted and payable contract price comes to $884,679. This, of course, is $3,239 less than the original contract price, and, more importantly, is nearly $15,000 less than the owners' financial capacity (of $900,143) as found by the senior member.

Prime cost Item 21 Adjusted cost of item allowance prime cost items

Tiles (if standard tiles) $18,000 $18,000 Floorboards $42,000 $38,000 Bathroom Items $27,000 $45,361 Appliances $17,600 Incl. Cabinetry $40,000 $40,000 (not $92,654) Heating and cooling $15,000 $15,000 (not $22,452) Totals $159,600 $156,361 Total item 21 allowance: $159,600 Less total of adjusted cost of prime cost items $156,361 Reduction in total cost of prime cost items $3,239 Contract price in item 10.1 $887,918 Less reduction in total cost of prime cost items $3,239 Contract price after adjustment $884,679

204 Accordingly, if this construction be correct, the senior member erred in law by applying an erroneous construction of the meaning of contract price, by his calculation of the applicable figure as $944,785 and by reaching the conclusion that the owners had failed to provide reasonable evidence of their financial capacity to pay the contract price.

205 Instead, they did provide such evidence, because the estimate of financial capacity to pay, at $900,143, exceeded the true relevant contract price, which, when properly calculated, was $884,679.

Ground 1(a): Owners' capacity to pay - No evidence of increased cost of cabinetry

206 I turn now to the alternative argument concerning capacity to pay that was foreshadowed in the overview to these reasons.

207 And it is this. Even if, consistently with the construction adopted at VCAT, the prime cost items, as estimated to be adjusted and payable in the future, were to be included in the contract price for the purposes of the assessment of capacity to pay under clauses 11.2 and 11.3, the senior member still erred by including an estimate of at least one of those prime cost items (namely, for cabinetry) in the required calculation. This is because there was no reasonable evidence of that (increased) cost at the relevant time. Again, the result is that the adverse finding concerning capacity to pay was not open because, on this calculation, the true contract price was less than the owners' established capacity to pay. Let me explain why that is so.

208 As mentioned earlier in these reasons, the senior member relied on the information concerning quotations and an email to arrive at the increased figure of $92,654 for cabinetry (up from the $40,000 allowed in item 21). In particular, he said this:[58]

[64] In the [PC] list [annexed to the letter of 5 September 2017], the Owners acknowledged that the Prime Cost figure was $40,000.00 but said in regard to cabinetry: "Unable to determine at this stage". ...

[65] Six days earlier, on 30 August 2017, the Owners had received a quotation (part of Exhibit "E") for $68,289.00 (GST inclusive) for the supply of the cabinetry from a cabinet maker called Grant for whom Ms [Hlavati's] father worked. In an email that Ms [Hlavati] sent that same day to Mr Matherson and someone else in his company, she said that that did not include installation, which her father would do for her, or the cost of the Caesar-stone bench tops. A quotation dated 31 August 2017 (also part of Exhibit "E") for the stonework for the cabinetry was $24,365.00 for both units (GST inclusive), making an overall total of $92,654.00 (GST inclusive) for the cabinetry for both units.

209 The difficulty, however, is that both of these quotes and the email were in fact created, not in August 2017, but a year later, in August 2018. Thus, somehow, it is not clear why, the senior member simply misunderstood the evidence.

210 It will be remembered that his preferred construction of the applicable contract price included that which "would require an assessment of what the cost of that work and those materials was reasonably expected to be at the time the request was made".[59] But it cannot reasonably be the case that the price of a prime cost item obtained a year or more after the request was made by the builder would meet the senior member's own test. This is particularly so in the present case, where the builder had purported to terminate the contract in September 2017, had ceased works on the build completely and instead had instituted proceedings at VCAT in November 2017; and the owners, in August 2018, were consulting another builder (Mr Matherson) for the purposes of obtaining a quotation to rectify and complete the work.

The importance of the error as to the increased cost of cabinetry

211 As I mentioned earlier, the error may have resulted from the difficulty in recalling the detail of important matters, without the aid of transcript, when called upon to deliver a decision four months after a long and factually complex hearing.

212 Whatever the cause, this error as to the cost of cabinetry means that the finding that the owners failed to provide the builder with reasonable evidence of their financial capacity to pay the contract price must be set aside on this basis as well.

213 This is because the increased cost of the cabinetry, at $92,654, exceeded the $40,000 allowed for cabinetry in item 21 by $52,654. Once that increased cost of the cabinetry alone is removed from the contract price calculated by the senior member (i.e. $944,785), the true applicable contract price is only $892,131, which is about $8,000 less than what was found to be the owners' financial capacity to pay ($900,143).

214 It follows that this erroneous finding in respect of the estimated increased cost of cabinetry is by itself an error sufficient to cause to be set aside the senior member's finding that the owners failed to provide reasonable evidence of capacity to pay the estimated contract price.

Consequences of errors concerning financial capacity to pay

215 In my view, there was no other satisfactory evidence upon which the senior member could have acted to come to a view that, at the relevant time, the owners had arrived at a figure of $92,654 for cabinetry, or anything like it.

216 Contrary to Mr Sharkey's submission, it makes no difference whether or not the owners were always intending to use the particular supplier upon whose 2018 information the senior member erroneously relied. The simple fact is that, on my preferred construction of the extended meaning of the contract price, the information concerning the two prime cost items in issue was not supplied to the builder by the owners. And, even on the senior member's construction, the information concerning cabinetry did not exist at the relevant time.

217 Accordingly, there is no basis for directing VCAT to rehear the point concerning capacity to pay. On either construction of the relevant contract price, and given the senior member's finding as to their financial capacity, the owners had in fact met both clauses 11.2 and 11.3 of the contract.

218 It follows that the issue of financial capacity to pay the contract price now must be regarded as determined conclusively in favour of the owners.

219 Further, this means that the first of the two bases for holding that the owners breached the contract has fallen away.

220 While this next point did not feature in my reasoning, since it was raised at the hearing, I consider that I should mention it in this judgment anyway.

221 There was some discussion on this application concerning whether the merest falling short of financial capacity to pay the contract price still would amount to a breach (or a substantial breach) of any of clauses 11.1 to 11.4. I also wondered whether, if the answer to that question is no, how far short of the estimated contract price of about $944,000 might the owners have been entitled to be without breaching the contract. Put another way, what would amount to something less than the "substantially lesser sum" mentioned by the senior member?[60] Or, put the other way around, how much more than the $900,000 the owners were able to pay did they need to have in order to satisfy the test of capacity to pay the contract price?

222 While it is clear that the contractual terms regarding provision of evidence of capacity to pay are designed, at least in part, to give builders reasonable assurance that the contract price they have agreed will be paid, and while $44,000 is not an amount to be sneezed at, I should have thought that an estimated shortfall of that amount, on an estimated contract price of about $944,000, at least in the context of this case, might have been regarded as failing to constitute a substantial breach of contract.

223 The relevant context here includes the following circumstances. First, there seems to have been no consideration given to whether the owners might have been able to raise additional funds over time. Second, the owners had paid the deposit and for the base stage. Third, the owners had paid for concreting for which they should not have been charged. Fourth, the owners were proved correct in their belief that the builder had wrongly claimed payment for the frame stage when it was incomplete. Fifth, despite the dispute about the canopies, the builder had quoted for the job without raising any concerns about that issue. Sixth, as it turns out, the builder was held to be wrong in questioning aspects of the owners' financial resources. Finally, as will be seen, the builder, quite carelessly, it seems, did not request anywhere near the level of detail about the prime cost items that might have been expected of a builder for inclusion in item 21 of the appendix to the contract.

224 Thus, it might have been argued, on this basis alone, that the senior member was manifestly wrong to have found that there was a failure to provide reasonable evidence of capacity to pay the contract price. Alternatively, it might have been submitted that, error having been shown, it was open to say that, even if there were other acceptable evidence of the increased cost of cabinetry beyond the $40,000 allowed for in item 21 and up to about $92,000, there was still sufficient evidence of financial capacity to pay the contract price.

225 Further, it seems to me that, even if the shortfall found by the senior member amounted to a breach (or a substantial breach), the same factors would suggest that, arguably, it would be quite unreasonable for the builder to have terminated the contract on that basis.

226 But, as I say, these points did not feature in my reasoning. Nor do they need to be decided in this case.

Ground 1(b): Prime cost items - Error concerning Mr Matherson

227 The next error of law is related to the last. It concerns the senior member's findings that the owners were providing another builder (namely, Mr Matherson) information regarding two prime cost items (namely, cabinetry and heating and cooling) at a time when, despite requests to do so, they were not providing the same information to the builder.

228 It is convenient, at this point in the judgment, to extract the relevant passages in the senior member's reasons (some of which were extracted earlier):[61]

[57] The Owners acknowledged that the Prime Cost figure was $15,000.00 but said in regard to heating and cooling: "Unable to determine at this stage". Despite this stated inability, it appears that at the time the list was sent, they had obtained a number of quotations for ducted heating and cooling.

[58] Mr Gianacopoulos obtained a quotation on 14 December 2016 ... , from a supplier called iEnergy for $25,801.40 for a Panasonic system or $24,906.20 for a Daikin system for both units.

[59] A quotation addressed to the Building Surveyor dated 16 June 2017 was received by Mr Jolly's wife from a company called Woodpecker for $22,452.00 ... for two Daikin systems.

[60] On 23 June 2017, Mr Gianacopoulos obtained a quotation from a company called Mercury for $22,500.00 ... for two 12.5kw Fujitsu systems.

[61] Ms [Hlavati] obtained another quotation (Exhibit D) from iEnergy for $28,486.48 for a 14 kw Panasonic system. On 23 August 2017, she sent a copy of this quotation by email to Mr Matherson and someone else in his company. The text of this email was as follows:

Here are the details for the heating and cooling quote from Mike Faulkner from iEnergy for each townhouse just double the price for the quote as it's only for TH1 [i.e. townhouse one] quote but he said the quote is the same for TH2 [townhouse two]. I also remember Mike telling me that we will most likely have to bring the wardrobes in bedroom 4 upstairs in both townhouses from 600 mm to 800 mm in depth to allow room for the ducting to come through from the lower level. Which means there may be a small void created in those two wardrobes that we need to allow for.

Also Mike realised that as we don't have any room for the unit to go outside on ground level it will have to be positioned just adjacent bedroom 4 of each townhouse and he mentioned to let you the builder know to make some extra soundproofing against that wall of bedroom 4 where the unit will be positioned so there is less noise heard from the inside of the house.

Attached is his most current quote after his site visit the other week. If you need any further info on this please let me know or you can ring Mike Faulkner for any further details required [ - ] he has been very helpful and a pleasure to deal with.

[62] The wording of this email would suggest that, at the time that it was sent, the Owners proposed to accept this quotation and also engage Mr Matherson to complete the construction of the two units.

[63] On this evidence, it appears that the cost of the heating and cooling the Owners required was $28,486.48 or, if they changed their minds, and opted for the lowest quotation, at least $22,452.00.

[64] In the list, the Owners acknowledged that the Prime Cost figure was $40,000 but said in regard to cabinetry: "Unable to determine at this stage". This was on 5 September 2017.

[65] Six days earlier, on 30 August 2017, the Owners had received a quotation (part of Exhibit E) for $68,289.00 (GST inclusive) for the supply of the cabinetry from a cabinet maker called Grant for whom Ms [Hlavati's] father worked. In an email that Ms [Hlavati] sent that same day to Mr Matherson and someone else in his company, she said that that did not include installation, which her father would do for her, or the cost of the Caesar-stone bench tops. A quotation dated 31 August 2017 (also part of Exhibit E) for the stonework for the cabinetry was $24,365.00 for both units (GST inclusive), making an overall total of $92,654.00 (GST inclusive) for the cabinetry for both units.

1. that, notwithstanding the recent email from Ms Hlavati to Mr Matherson, they will choose the cheapest alternate quotation for the heating and cooling rather than the one they appeared in that email to be proposing to accept; and

the Prime Cost allowances in the Contract would still fall short of the likely actual cost by at least $56,867.00 ...

[163] Whether or not there was capacity to pay required a consideration of the funds available and what the job was going to cost. It is clear from the evidence and it was also clear to Mr Jolly that the Prime Cost figures did not represent what the Builder would be required to pay for the items listed. He was therefore entitled to know exactly what the final selections were and where the money was to come from. That information had to come from the Owners and the Contract entitled the Builder to seek it. The Builder gave numerous opportunities to the Owners to show that they were able to afford to complete the construction, but they never did so up to the moment of termination. Yet they were able to provide to their intended replacement builder, Mr Matherson, information concerning the heating and air conditioning and the cabinetry at the very time they denied that same information to the Builder.

229 Despite the foregoing, the fact of the matter - about which there is no dispute in this Court - is that the owners did not provide any of the information mentioned in these passages to Mr Matherson at the relevant time but, rather, did so twelve months later (and for the purposes of obtaining a quotation to rectify and complete the work). These erroneous findings meant that the senior member mistook the evidence and thereby took into account irrelevant considerations.

230 Further, in my opinion, the inference is inescapable - especially when regard is had to the stinging remarks in the last of these passages - that these irrelevant considerations infected the senior member's approach to his determination of whether the owners had failed to provide the necessary prime cost information to the builder and/or whether they had remedied the potential breach by providing some such information and promising further information.

231 True it is that, for the purpose of calculating the applicable contract price, the senior member ended up acting on a quote (of $22,452) for heating and cooling that was sent to Mr Jolly's wife in June 2017, instead of the more expensive quote (of $28,486.48) that he wrongly believed was sent by Ms Hlavati to Mr Matherson in August 2017. But that is not to the point under this complaint. For, as the last passage of his remarks extracted above shows, the senior member still wrongly believed that the owners were providing such information to Mr Matherson "at the very time they denied that same information to the Builder".

232 And, while he did not refer to bathroom and kitchen items in that same passage, as I mentioned much earlier, I think that the error he made as to the date of the more expensive quote from E & S Trading for such items (namely, believing it was generated on 1 August 2017, when in fact it was 2018), while immaterial to his calculation of the true contract price, demonstrates the senior member's general confusion about important aspects of the facts. Further, while it is unnecessary to my ultimate conclusion, I think the error is likely to have added to his adverse view of the owners when it came to assessing their responses in general to the builder's request for information concerning prime cost items pursuant to clause 9.2.1.

233 There was, however, other evidence before VCAT that, Mr Sharkey submitted, supported the view that the owners were dealing with a different builder (not Mr Matherson) at the relevant time and that they could have obtained the necessary prime cost information when it was requested by the (respondent) builder.

234 This evidence, in turn, it was submitted, showed that any error the senior member made concerning Mr Matherson was not a vitiating error in considering whether the owners had failed to provide the necessary prime cost directions to the builder and/or to whether they had remedied the alleged breach.

235 Let me turn to that evidence and those submissions.

236 Mr Sharkey pointed to three pieces of evidence and made two additional points.

237 First, on 29 August 2017, the owners' architect and Ms Hlavati exchanged emails in which each referred to "the new builder". The architect mentioned sending "the Tender Package to the new builder". Ms Hlavati, in responding to the architect's email, mentioned "the new builder" when referring to a proposal to alter the bathroom to allow for a larger vanity unit.

238 Second, Ms Hlavati was questioned about her email in cross-examination at VCAT. Ms Hlavati denied that, at that stage, she was either "looking to engage a new builder" or "looking to engage a different builder to complete the job". After re-examination, the senior member asked, by reference to her email, "Who are you referring to there as the new builder?" Ms Hlavati responded, "No, I'm referring to - because we had to obtain quotes from other builders. I'm trying to explain. How can I explain this?" No further questions were asked arising from this exchange.

239 Third, in cross-examination, Mr Gianacopoulos conceded that the quote for heating and cooling sent to Mr Matherson (in August 2018, which the senior member mistakenly thought was sent in August 2017) was based on a quote (with the same quote number) that they had received in December 2016, but was more expensive and had the prices of grilles added. He also conceded that they never provided the builder with the original quotation (i.e. the one of December 2016).

240 Mr Sharkey submitted that this evidence, together with the fact that the owners were able to seek quotes a year later, showed that they did have, or would have had, access to information or quotes for prime cost items at the time the builder was seeking directions, but that they chose, for their own reasons, and unreasonably, not to provide all of that information.

241 Finally, Mr Sharkey went so far as to submit that, whenever the senior member referred to Mr Matherson, I should treat that as a reference to the unnamed builder mentioned in Ms Hlavati's email and about whom she was questioned.

242 In my view, for reasons that follow, despite the foregoing evidence and Mr Sharkey's submissions, the senior member's errors still vitiate his findings and this particular issue should be regarded as being decided conclusively in favour of the owners as well.

243 First, as I see it, this remaining evidence has a speculative quality about it, or is at least very thin. True it is that Ms Hlavati's answer to the senior member's question was hardly the most convincing of responses, but the fact is that she denied that she was either "looking to engage a new builder" or "looking to engage a different builder to complete the job". As Mr Andrew submitted, her response may have meant no more than that the owners were concerned that the builder was going to terminate their contract and that they consulted their architect about new drawings in the event that a new builder was required. While it is not known on the evidence presented, that seems to me to be a more likely explanation of the evidence.

244 Secondly, while Mr Sharkey submitted that the owners' failure to call the architect to give evidence should carry the day for the builder, I disagree.[62] Even if I assume that the architect could have said nothing to assist the owners' case, that cannot supply the missing inference that Mr Sharkey would have me draw. There are simply too many other neutral inferences, or inferences in the owners' favour, that I cannot exclude on the civil standard.

245 Thirdly, even if the owners were consulting a different builder or builders, that does not mean that they were to be regarded as having failed to give the existing builder the necessary information or as having failed to remedy the breach. Any owner is entitled to consult another builder for an opinion or advice. Further, and contrary to Mr Sharkey's submission, in the circumstances of this case, such behaviour could not reasonably be regarded as amounting to an act of repudiation.

246 Fourthly, there was other evidence that put quite a different complexion on things than the inference Mr Sharkey sought to draw from Ms Hlavati's reference to "the new builder". For example, in the course of the same cross-examination mentioned a moment ago, Mr Gianacopoulos went on to say that they, the owners, did not refuse to provide the prime cost information but that several things were operating at the relevant time. They had lost trust with Mr Jolly; they were dealing with DBDRV; they were still looking at other quotes (for prime cost items); they did not think that the builder was ready for those particular items, given the stage the works had (or had not) reached; and they did not think they needed to provide the information at that time.

247 Fifthly, I cannot accept Mr Sharkey's submission about treating the references to Mr Matherson in the senior member's reasons as if they were references to the unnamed builder. There is no warrant for doing so. Unfortunately, for whatever reason, it is plain that the senior member simply misunderstood or otherwise confused the evidence. To adopt this particular submission would be simply to heap speculation and fundamental legal and factual error upon existing fundamental legal and factual error.

Ground 1B: Prime cost items - Provision of some information, promise of more

248 Finally, and in any event, I am satisfied that the senior member made another error of law by construing the contract as disallowing the provision of some prime cost item information and promising further information, as the owners did here, from satisfying the builder's request to provide necessary (or reasonably necessary) directions regarding prime cost items and/or as amounting to a remedy of the alleged breach. Contrary to the senior member's approach, in the circumstances of this case, that information either satisfied the request or at least remedied the alleged breach. Let me explain why I take this view.

249 Before turning to that explanation, however, I should address the question whether an amendment of the grounds of appeal is necessary to capture the point. As in the case of Ground 1A, while this point arguably did not strictly come within the owners' grounds of appeal, the matter was argued as if it did and without any objection from Mr Sharkey. In so far as may be thought necessary to do so, I shall grant an application to amend the grounds of appeal by adding Ground 1B in these terms:

Ground 1B: The senior member erred in his construction of clauses 9.2.1, 22.1 and/or 22.2 and/or Special Condition 3 of the contract; and, in particular, he erred in construing any or all of those terms as disallowing the provision of some prime cost item information and promising further information:

i. from satisfying the builder's request to provide "necessary written and signed directions requested by the Builder regarding the selection or supply of ... Prime Cost Item[s]"; and/or

ii. as amounting to a remedy of the alleged breach.

250 It will be remembered that clause 9.2.1 speaks of giving "all necessary written and signed directions requested by the Builder regarding the selection or supply of the goods or work represented by ... a Prime Cost Item".[63]

251 Thus, on the face of it, it is only those directions requested by the builder that are "necessary" that must be provided by the owner.

252 Further, Mr Andrew argued, and Mr Sharkey conceded, that an element of "reasonableness" must be brought to account when determining whether a request is necessary and whether there has been compliance with the request.

253 The first bullet-point of clause 22.1, when combined with the opening and closing remarks of that clause, reads in this way:

• refuses or persistently neglects to comply with this Contract, including failing to provide the Builder any information requested by the Builder under Clause 9.2 relating to Prime Cost Items ...

THEN the Builder may give written notice by registered post to the Owner:

• describing the breach or breaches of the Contract by the Owner; AND

• stating the Builder's intention to terminate the Contract unless the Owner remedies the breach or breaches within fourteen (14) days after the Owner's receipt of the above notice.

254 In my opinion, while the word "necessary" does not appear in clause 22.1, the effect of the words "failing to provide ... any information requested" contained in that clause must be qualified by the use of that word in clause 9.2.1. This is because the words "under Clause 9.2 relating to Prime Cost Items" are also included in that first bullet-point. Put another way, there will not be a relevant failure to provide information under this limb of clause 22.1 unless the direction requested by the builder was necessary, in accordance with clause 9.2.1. Nor would there be such a failure if, in the particular circumstances, the builder's request was unreasonable or the owner's response was reasonable.

255 The senior member's reasons, however, show that he did not consider whether the requests for prime cost information were necessary or reasonable or whether there was reasonable compliance with the requests. Instead, he said this (and, again, for convenience, I reproduce parts of the senior member's reasons):[64]

"Selection and supply of Prime Cost items not required yet"

[129] [In their letter of 25 August 2017, the owners] referred to Special Condition 3, which provided that:

"The owner shall choose all items noted in the Prime Cost section and arrange delivery of those items to site when needed."

and said that the works had " ... not yet reached a stage where these directions or items are required ... ".

[130] Special Condition 3 does not purport to read down or qualify the general conditions requiring the Owners to provide information to the Builder when requested. Consequently, this is not an answer to the claim that the Owners were required to provide the information sought nor was it the provision of that information.

[131] They said that, the works had not reached a stage where the information was required, that the Owners' electrician was on holidays and that they were in the process of collating the requested information relating to electrical work and brick selection and would provide it as soon as it was confirmed.

[132] I am satisfied that the Builder was entitled to request the information and it was not for the Owners to say that it did not require it until some later time. Saying that information will be provided at some future time is not the same as providing it.

256 I make the following additional points about these reasons, commencing with Special Condition 3 ("SC3").

257 It will be remembered that SC3 was extracted and relied on by the owners in the letter sent by their solicitors on 25 August 2017. It is convenient to reproduce SC3 again here:

SC3: The owner shall choose all items noted in the prime cost section and arrange delivery of those Items to site when needed.

258 Mr Andrew submitted that the obligations under clause 9.2 must be read and construed together with SC3.

259 Mr Sharkey pointed out that this submission was not made at VCAT by the owners. Instead, despite the builder's submission (in response to a query from the senior member) that SC3 had no work to do vis-à-vis prime cost items, the owners did not take up the issue in reply.

260 In my view, the latter fact, if it be so, does not disentitle the owners from relying on the point in this Court. The argument is either good and important or it is not. In any event, as will be seen, the point is unnecessary to the success of this aspect of the case, as the use of the word "necessary" in clause 9.2.1 has much the same effect.

261 Turning back to SC3 itself, I should say at once that, at first blush, I considered it difficult to know what to make of this condition. On the one hand, SC3 addresses both the choice of the prime cost items and their delivery. It requires that both obligations and prerogatives are placed on the owner. But, given the structure of the sentence forming SC3, I think it also reads more happily if the words "when needed" are taken to apply to both the choice of the items and their delivery. This is so because the auxiliary verb "shall" must be taken as applying to both "choose" and "arrange", which in turn makes it more likely that the words "when needed" attach to the express compound verb "shall choose" as well as the implied compound verb "[shall] arrange". If that is all correct, then, since the choice of item ordinarily must precede (or at least must coincide with) the attainment of knowledge of its detail and price, and contrary to the senior member's reasons, SC3 appears to be capable of qualifying the requirement to provide the "necessary directions" about prime cost items in clause 9.2.1.

262 On the other hand, if the words "when needed" apply only to the delivery of the items and not to their choice, then the point falls away, and the senior member must be correct (at least with respect to choice). I accept that reasonable minds might differ in this respect, and that SC3 might be read in this way, especially given that it might be said that it would be more common to speak of the delivery of a prime cost item "when needed" than it would be to speak of the choice of such an item "when needed". Put another way, delivery would seem to be a more time-specific concept than choice.

263 In the end, however, for reasons that follow, I am persuaded that the former reading of SC3 is to be preferred. First, as indicated a moment ago, I think that the condition reads more happily if the words "when needed" are taken to apply to both the choice of the items and their delivery.

264 Secondly, such a reading is consistent with the inclusion of Special Condition 4 ("SC4"), which is in the following terms:

SC4: The builder will inspect all PC items the owner chooses to make sure that they are good quality.

265 Read objectively, it seems plain that both SC3 and SC4 represent attempts by the parties to make clear which of them carried which particular prerogatives and obligations with respect to prime cost items, whatever the standard terms of the contract might provide.

266 Thirdly, given the history of this matter - which, as we have seen, initially, saw the prime cost items left out of item 21 so that the owners could source them for cash, but, later, saw them included in item 21 - it is not surprising that the parties, by use of special conditions, may want to clarify and qualify their respective prerogatives and obligations that might otherwise have obtained if instead they had merely adopted one or other of the standard terms of the contract vis-à-vis prime cost items. That is what they have done.

267 In those circumstances, a question arises as to the meaning of "when needed" in SC3.

268 Despite my view that the insertion of SC3 into the contract is an attempt to make clear that the owners are to enjoy both the prerogatives and the obligations of choosing and delivering prime cost items "when needed", these words cannot import a purely subjective concept. Were that so, it would mean that the timing of the choice and the delivery of prime cost items would be subject to any idiosyncratic whims of the owners as to when such things were thought to be needed. The parties cannot sensibly have intended that.

269 Instead, I think the concept must be measured at least partly objectively. That said, I think it is unnecessary to spell out the contours of any such test, because, as will be seen, the word "necessary" in clause 9.2.1 has much the same effect. I turn now to that issue.

Meaning of "necessary" (or reasonably necessary) directions

270 Thus, even if I am wrong in concluding that SC3 is capable of qualifying the meaning of clause 9.2.1, I think it makes no meaningful difference in this case. This is because, when regard is had to (what I consider to be) the meaning of the word "necessary" in clause 9.2.1, the scope of that clause, while perhaps narrower than it might be if SC3 alone were treated as qualifying or applying to its construction, would be such as to produce the same outcome in this case.

271 And this, in turn, results from the view that what is a "necessary direction" to be provided by an owner in response to a request by a builder under clause 9.2.1 must be measured partly objectively, and partly subjectively. Again, it could not be purely subjective for that would mean that the timing and extent of the directions sought and given would be subject to any idiosyncratic whims of either the owner or the builder or both.

272 The point is only confirmed when regard is had to Mr Andrew's submission and Mr Sharkey's concession that an element of reasonableness must be brought into account when determining whether a request under clause 9.2.1 is necessary and whether there has been compliance with the request.

273 Instead of a purely subjective approach, the question to be asked would be whether a reasonable person - and, in particular, one with a basic knowledge of the stages at which prime cost item directions are necessary for a competent builder adequately to manage its project - might consider that the stage had been reached at which a request for a given direction (whether it be as to particulars or price) for the prime cost item in question was necessary (or reasonably necessary) and whether any response thereto was reasonable.

274 In my view, it is clear from his reasons that the senior member did not apply any such test to the evidence in this case.

275 As well as rejecting the applicability of SC3, the senior member concluded that it was not for the owners to say that the builder did not require the information sought until some later time. This approach relies only on what appears to be the implicit primacy of the builder's request and has no regard to what might have been necessary (or reasonably necessary) when measured objectively. While it is true that the owners were not qualified builders, and the builder was, that did not automatically make the builder's request necessary (or reasonably so); nor did it make the owners' response unreasonable. Instead, the senior member should have posed a question of the type identified above - concerning that which was objectively necessary or reasonably so.

276 Further, the senior member remarked that "[s]aying that information will be provided at some future time is not the same as providing it". Again, as I see it, these remarks demonstrate no regard to what might be objectively necessary or reasonable.

277 Thus, in my view, the senior member has erred in law in his approach to this question on the foregoing bases as well.

Application of these constructions of the applicable tests to the evidence

278 The next question concerns the application of this test to the evidence.

a) provided detailed information regarding particulars and prices for floorboards;

b) provided detailed information regarding particulars and prices for bathroom (and kitchen) items and appliances;

c) provided detailed information regarding particulars for tiles but added that "[n]othing has been purchased or a deal made on the tiles due to delays in the project" and therefore pricing was "unable to [be determined] at this stage";

d) provided detailed information regarding the particulars for cabinetry but added that "[n]o cabinetry can be constructed and determined until fixing stage so onsite final measurements can be made and determined" and therefore pricing was "unable to [be determined] at this stage"; and

e) said of heating and cooling that this "is unable to be determined at this stage until the roof is on so the chosen supplier can access [the] site and make an assessment of what heating and [c]ooling units are suitable for both townhouses"; and that they were unable to determine pricing at this stage.

280 Thus, on any view, the builder's request under clause 9.2.1, in so far as it concerned floorboards and bathroom (and kitchen) items and appliances, must be regarded as being met.

281 As for the tiles, since the senior member was prepared to act on the cost listed in item 21, it might be thought appropriate to treat the builder's request vis-à-vis that item under clause 9.2.1 as being met as well. I think the fairer view, however, is to treat the failure to specify price as open to argument as to whether clause 9.2.1 was satisfied.

282 The same must be said, and with increasingly greater force on behalf of the builder, for cabinetry and then heating and cooling, given that some particulars were provided for cabinetry (but no price) and that no particulars were provided for the latter item.

283 That said, I do not think it was open to be satisfied - and, in any event, I am not satisfied - that it was necessary (or reasonably necessary), at that time, to provide any further directions to the builder regarding the selection, supply and/or price of tiles, cabinetry and heating and cooling. Indeed, I am affirmatively satisfied that, considered objectively in the way outlined above, it was not at all necessary to provide that information at that time. There are several reasons why.

284 First, despite the claim to the contrary, the builder had not yet completed the frame stage. While the builder might have preferred to know of the final particulars and prices of the tiles, the cabinetry and the heating and cooling, that information was not necessary for him to continue to plan, organise and perform the work required to carry on with the contract. Even those only moderately familiar with the building process would know that the need to choose, purchase and supply those prime cost items was still quite a way off.

285 Secondly, for the following reasons, I think each of the explanations for failing to provide the further directions was reasonable:

a) Tiles: Considerable information was provided about the tiles, but not the price. That there had been delays in the project meant that there was still plenty of time for the builder to meet its schedule without immediate knowledge of the price of the tiles.

b) Cabinetry: Similarly, as for the cabinetry, while detailed particulars were provided, it was reasonable to say that "[n]o cabinetry can be constructed and determined until fixing stage so onsite final measurements can be made and determined". Remembering that the frame stage was not complete, the next stage was the lock-up stage and only after that would the fixing stage be reached.

c) Heating and cooling: Finally, it was reasonable to say that heating and cooling "is unable to be determined at this stage until the roof is on so the chosen supplier can access [the] site and make an assessment of what heating and [c]ooling units are suitable for both townhouses". The roof would not go on until the completion of the lock-up stage.

286 Thirdly, while the owners, via the letters written by their solicitors on 25 August and 5 September 2017, had asserted that the directions requested were not necessary at those times, it is also important to recognise that they had not flatly refused to provide any such information. Instead, they had provided wholly complete directions concerning the floorboards and bathroom (and kitchen) items and appliances, and some directions concerning tiles and cabinetry; they had promised to provide further information concerning tiles, cabinetry and heating and cooling; and they had explained with some precision at what stage the further information would be able to be provided concerning cabinetry and heating and cooling. In my view, in all the circumstances, these were reasonable responses.

287 Accordingly, the owners did not breach clause 9.2.1 or clause 22.1 of the contract.

288 In the alternative, if I am wrong in concluding that there was no breach of either clause 9.2.1 or clause 22.1, I am satisfied that the same matters demonstrate that the owners had remedied any such breach pursuant to clause 22.2.

Consequences of errors concerning information re prime cost items

289 It follows that there is no basis for directing VCAT to rehear this point. Either there was no breach of clause 9.2.1 or clause 22.1 at all or any such breach was remedied pursuant to clause 22.2.

290 Thus, the question concerning the provision of information regarding prime cost items now must be regarded as determined conclusively in favour of the owners.

291 In those circumstances, the second of the two bases for holding that the owners had breached the contract has fallen away as well.

Grounds 3(a) & (c)-(f): Unreasonable of builder to terminate contract

292 I turn next to the complaint that it was unreasonable for the builder to terminate the contract. I shall deal with this briefly.

293 As indicated earlier, I took the owners to submit in this Court that the senior member was manifestly wrong in failing to find that it was unreasonable for the builder to terminate the contract.

No basis left for builder to have terminated contract

294 As also indicated earlier, however, that ground - at least as it stood at the commencement of this application - need not be decided now. This is because, when regard is had to the foregoing errors of law and the consequential setting aside of the findings of breach of contract by the owners, there is, in my view, no basis left for the builder to have terminated the contract in any event.

Even if breach re prime cost information, still unreasonable to terminate

295 That said, the question arises as to whether that still would be the outcome if, in the alternative, the owners were in breach by failing to provide the necessary information regarding prime cost items, but were not in breach concerning their financial capacity to pay the contract price.

296 It will be remembered that the senior member relied on the Court of Appeal in Australian Dream Homes v Stojanovski,[65] where Kaye JA (speaking with the concurrence of Ashley JA and Osborn JA) quoted, with apparent approval, John Dixon J's remarks in this Court to the following effect. In determining whether a party to a contract of this type has acted reasonably in the circumstances, the court must examine not just the default notice and its context, but also the responses of the parties after service of the default notice up to the time of service of the termination notice.

297 When that approach is applied to the circumstances of this case, I can say, with a high degree of satisfaction, that, even if the owners were in breach by failing to provide the necessary prime cost information (but were not in breach concerning capacity to pay), I still would conclude that it was unreasonable of the builder to terminate the contract. This is because, given the information the owners provided, and promised to provide, any such breach must be regarded as partial and relatively minor. Further, when that breach is measured against other considerations - including the builder's unjustified requests for payments of sums for concrete works never due, its premature request for payment of the frame stage before completion of that stage, the owners' previous history of paying that which was properly requested of them, and the owners' preparedness to take the matter to conciliation at DBDRV - the notion that the builder might terminate the contract becomes unthinkable.

298 As to the last of those considerations, while the senior member remarked that what happened with DBDRV was unclear, and that no copy of any complaint appears to have been served on the builder,[66] it is plain, from an examination of the correspondence between the parties, that the owners were keen to take the matter to conciliation. By way of contrast, the builder made no serious attempt to engage in that process and was far too quick to terminate the contract and resort to VCAT.

299 This was a case crying out for conciliation. Instead, the builder, in my view, acted precipitously and unreasonably in terminating the contract. Had the builder seriously engaged in conciliation, there is a high chance that the VCAT hearing would have been avoided and that the owners would have had their units completed three years ago.

Even if breach re canopies, still unreasonable to terminate

300 In the further alternative, I would take the same view, even if I accepted, as counsel for the builder argued, that the senior member's findings implicitly supported a finding of a breach of contract based on a failure to provide good and suitable plans for the canopies. This is because such a breach (if indeed there be any) must be regarded as very minor in the scheme of things.

301 As I see it, there are at least three potential explanations for the senior member's failure to find a breach against the owners regarding the canopies in any event. First, he did say that it was likely that the variation requested was reasonable, but that, since the planning permit was not amended before the contract was terminated, it was never possible for the builder to construct the canopies.[67] Thus, he may have considered that this type of impasse meant that it would not be fair to hold any such alleged breach against the owners.

302 Secondly, as I mentioned earlier, despite the limitations of the plans, Mr Jolly accepted that he always understood that he had to build something and even allowed in his pricing for the cost of some timber to construct what might be required. Thus, while the senior member may have considered that, once the contract was breached by other behaviour, the builder was entitled to damages that included an assessment of a variation to the canopies, it was not a breach of contract to refuse to consent to such a variation.

303 Thirdly, while the foregoing may explain the failure to find a breach of clause 11.12, on a closer reading of the reasons, however, the answer is clear. As I mentioned earlier in these reasons, soon after setting out the alleged "substantial breaches", the senior member noted that "refusing to consent to the variation for the canopies was not one of the grounds set out in the Builder's notice".[68] In other words, whatever he may have thought about it, there was no alleged breach concerning the canopies of which he may have been satisfied.

304 The same may be said of the senior member's remarks about the owners' alleged failure to provide information regarding the electrical plan and brick selection. In any event, for the reasons given earlier, it is difficult to see how there was any breach of the contract in that regard.

305 Thus, either way, I am persuaded that it was unreasonable for the builder to have terminated the contract.

Grounds 2(a)-(e): Whether builder in substantial breach of contract

306 Finally, in view of the latter conclusion, it becomes unnecessary to determine whether the senior member erred in failing to find that the builder was in substantial breach of the contract. This is because - at least in the circumstances of this case - a successful argument that the builder was in substantial breach can have no more favourable consequences for the owners than the acceptance of the proposition that it was unreasonable for the builder to have terminated the contract.

307 Relevantly, s 148 of the VCAT Act provides as follows:

(7) The Court of Appeal or the Trial Division, as the case requires, may make any of the following orders on an appeal -

(a) an order affirming, varying or setting aside the order of the Tribunal;

(b) an order that the Tribunal could have made in the proceeding;

(c) an order remitting the proceeding to be heard and decided again, either with or without the hearing of further evidence, by the Tribunal in accordance with the directions of the court;

(8) If the court makes an order under subsection (7)(c), it must give directions as to whether or not the Tribunal is to be constituted for the rehearing by the same members who made the original order.

308 Accordingly, and subject to hearing from counsel, my present thinking is that, pursuant to ss 148(7) and (8) of the VCAT Act, the orders, declarations and directions I should make are as follows:

1. Leave is granted to amend the notice of appeal by adding Grounds 1A and 1B;

a) is granted in respect of Grounds 1A, 1(a), 1(b), 1B, 3(a) and 3(c)-(f);

b) is otherwise refused in respect of Grounds 1(c) and 3(g); and

c) is not determined in respect of Grounds 2(a)-(e) and 3(b).

3. The appeal is treated as instituted and heard instanter and is allowed.

a) the owners failed to provide the builder with reasonable evidence of their financial capacity to pay the contract price;

b) the owners failed to give the builder all necessary written and signed directions regarding the selection or supply of the goods or work represented by the prime cost items;

d) the builder's termination of the contract was not unreasonable; and

e) the builder's termination of the contract was lawful.

5. The order of VCAT that the builder be paid $227,738.17 is set aside.

a) the owners provided the builder with reasonable evidence of their financial capacity to pay the contract price;

b) the owners provided the builder with all necessary written and signed directions regarding the selection or supply of the goods or work represented by the prime cost items; and, alternatively, the owners remedied any failure to provide such necessary directions;

d) it was unreasonable for the builder to terminate the contract; and

e) the builder did not terminate the contract lawfully.

7. The matter is remitted to VCAT, differently constituted, for further hearing in accordance with the Court's reasons, findings, declarations, directions and orders.

8. The builder is to pay the owners' costs of the application for leave to appeal and the appeal to this Court on a standard basis (except that the owners shall bear their own costs of preparing their affidavits and their chronology in this Court).

9. Pursuant to ss 4 and 5 of the Appeal Costs Act 1998 (Vic), the builder is granted an indemnity certificate in respect of costs, including:

a) an amount equal to the owners' costs of the application for leave to appeal and the appeal to this Court that the builder has been ordered to pay and has actually paid;

i. of the application for leave to appeal and the appeal to this Court (in respect of which the indemnity certificate was granted); and

ii. of the new trial (i.e. rehearing), if any, that is to be held as a consequence of that order -

that have not been ordered to be paid by any other party, as assessed by the Appeal Costs Board ("the Board") on a standard basis, or as agreed to by the Board and the builder; and

c) if the costs referred to in paragraph (b) are assessed, an amount equal to the costs incurred by the builder in connection with the assessment.

[1] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177.

[2] Pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) ("the VCAT Act").

[3] For this proposition, Mr Sharkey relied on Kirby J's judgment in Roncevich v Repatriation Commission [2005] HCA 40; (2005) 222 CLR 115 at 136[64] (in which his Honour referred to Minister for Immigration and Ethnic Affairs v Guo (1997) 191 CLR 559 at 575 at 597; and compared Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323 at 348[74]).

[4] For this proposition, Mr Sharkey cited Garde J's judgment in Residential Aged Care Services Pty Ltd v Stonnington City Council [2018] VSC 652 at [68] (in which his Honour also referred (at [67]) to the Court of Appeal's remarks in Secretary to the Department of Justice & Regulation v OUX [2018] VSCA 178 at [36] (per Priest, Beach and Weinberg JJA)).

[5] The same may be said of the senior member's remarks about the owners' alleged failure to provide information regarding the electrical plan and brick selection. In any event, it is difficult to see how there was any breach of the contract in that regard. See below.

[6] That transcript was of the fourth, fifth and sixth days of the hearing at VCAT, which comprised Mr Jolly's re-examination; the evidence of Mr Gianacopoulos, Mr Matherson and Ms Hlavati; and the submissions of counsel.

[7] Throughout the materials, the first name of this organisation is variously described as Designworx, Designworks, DesignWorks or Designwork. A logo and an email address in some documents in the court book suggested that Designworx was the correct spelling.

[8] In fact, the term was capitalised thus: "Contract Price". The same is true of many other terms in the contract, but on an inconsistent basis. It is less confusing if I avoid that capitalisation in these reasons, which is what I have sought to do, unless quoting directly from the senior member's reasons, the contract itself or the other exhibits, where I have attempted to remain faithful to the text.

[9] The senior member referred to "Clause 11.3", but this was just a slip. See DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [32].

[10] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [37]- [39].

[11] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [40]- [41].

[12] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [120]- [121].

[14] My emphasis in bold italics and in underlining.

[15] Clause 2.1 of the contract provides as follows: "Clause headings, sub-clause headings, and boxed explanatory notes contained in this Contract shall not form part of and shall not be used in the interpretation of this Contract". I have borne this in mind when construing this contract.

[16] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [43].

[17] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [43].

[18] The total figure (of $159,600) was not mentioned in the table, but there is no dispute that that is the correct figure.

[19] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [48]- [49] (my emphasis).

[20] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [50]. As I shall explain later, in this case, I think that it was at least careless of the builder to have entered into the contract with such a lack of knowledge concerning prime cost items.

[23] My emphasis unless otherwise indicated.

[25] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [129]- [132]; see also [149] & [157].

[27] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [52]- [53].

[28] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [57]- [62].

[29] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [59]; see also [73].

[30] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [60], [63] & [73].

[31] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [64]- [65] (my emphasis).

[32] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [73] (my emphasis).

[33] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [149]- [153] & [157] (my emphasis).

[34] Read in context, this is a reference to the letter of 25 August 2017 from the owners' solicitors.

[35] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [130]- [132].

[36] It will be remembered that a similar conundrum was presented concerning the way in which the senior member dealt with the complaints about the canopies.

[37] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [152].

[38] See, for example, the submission made to the senior member by counsel for the builder on 9 October 2018 (T 236.29-31; Court Book 2386).

[40] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [107]- [117] & [128] (my emphasis except where indicated otherwise).

[41] This emphasis is found in the senior member's reasons.

[43] Stojanovski v Australian Dream Homes [2015] VSC 404.

[44] Stojanovski v Australian Dream Homes [2015] VSC 404 at [56]. The senior member also referred to several other aspects of John Dixon J's consideration of the meaning of substantial breach (see DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [145]).

[45] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [146].

[46] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [159]- [165] (emphasis added, except where indicated).

[47] Australian Dream Homes v Stojanovski [2016] VSCA 133 at [39] (per Kaye JA; Ashley JA and Osborn JA agreeing).

[48] This particular emphasis - i.e. underlining - was added by the senior member.

[49] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [169]- [170].

[50] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [262]- [263].

[51] Those two figures add up to $227,738.18, but I doubt that anyone is troubled about one cent.

[52] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [107] (my emphasis).

[53] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [108]- [110] & [161] (my emphasis except where indicated otherwise).

[54] This particular emphasis (i.e. underlining) is in the senior member's reasons.

[55] Again, this particular emphasis (i.e. underlining) is in the senior member's reasons.

[56] My emphasis. Of course, if, prior to a request for evidence of capacity to pay under clause 11.3, the amount expended on a prime cost item exceeded the sum originally allowed in item 21 and, pursuant to clause 9.6, an extra amount plus a margin had been added to the contract price and was due to the builder in the next payment payable under the contract, that extra amount (plus the margin) would be part of the relevant contract price for the purposes of assessing whether the owner had provided reasonable evidence of capacity to pay the balance of the contract price.

[57] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [161].

[58] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [64]- [65].

[59] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [110] (my emphasis).

[60] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [115].

[61] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [57]- [65], [73](c) & [163] (my emphasis).

[62] Mr Sharkey relied on Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

[64] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [129]- [132] (my emphasis); see also [149] & [157].

[65] Australian Dream Homes v Stojanovski [2016] VSCA 133 at [39] (per Kaye JA; Ashley JA and Osborn JA agreeing).

[66] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [149].

[67] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [38].

[68] DJJ Promotions P/L v Gianacopoulos [2019] VCAT 177 at [120]- [121].