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[2008] QSC 48
General information, not legal advice.
Supreme Court of Queensland
2008-03-14
McMurdo J
Original judgment source is linked above.
[1] The plaintiffs, Mr and Mrs French, are the owners of Gilberton Station, a property 460 kilometres west of Townsville and held under various leases from the Crown.
[2] In 2003 they contracted with the defendant (called "Ark Homes") for the construction of a new homestead. This was a modular house, in that the house was to be constructed in modules at the defendant's premises and then taken to the site where the modules were to be connected and affixed to the land. By Christmas 2003 this was substantially completed and the plaintiffs took possession. They were then dissatisfied with the builder's performance and remain so.
[3] The building contract contained an unusual term, whereby the plaintiffs could require the defendant to remove the house, restore the land to its unimproved state and repay in full the price if the plaintiffs were "not happy that [the defendant] had met and exceeded the specifications [the defendant] agreed on in full ..." In these proceedings the plaintiffs claim specific performance of that agreement, which I will call, as the arguments have called it, the guarantee. It was in these terms:
As the builders of your new Ark home, we respect the trust you have placed in us, and we offer you a genuine commitment to deliver on every promise we make to you. We want your new home to be 100% worry free. That's why we offer you this iron-clad, money back guarantee.
We guarantee that we will manufacture and deliver your new home as specified in our initial contract, at the price we agreed.
If you wish to make modifications to the specifications after we have commenced the project, these modifications will be quoted to you in writing before being done, and will only proceed after your signed approval.
At the time of hand over to you, you will be given the opportunity to inspect your new home and confirm it has been manufactured and installed exactly to the terms of our written agreement.
If for any reason your new Ark home does not meet the specifications defined in writing in our initial agreement, we commit to make any necessary repairs or modifications to your new home at our expense.
If after making these modifications, you are not happy that we have met and exceeded the specifications we agreed on in full, we commit to remove the building in question (including any other additions eg carports), dig out the stumps, and return your home site to its original, unimproved condition before we commenced work, and to refund any monies paid in full.
We guarantee to perform, or you will not pay a cent - guaranteed."
[4] The defendant says that the house does meet the agreed specifications and that the plaintiffs' dissatisfaction with their house is unreasonable. It further argues that there are other terms of the contract which, upon their proper interpretation and in the events which have happened, have put paid to any obligation of the defendant to remove and repay. And quite apart from those arguments, the defendant says that the guarantee has become unenforceable because of the result of proceedings brought by the plaintiffs against the defendant in the Commercial and Consumer Tribunal.
[5] From the time they took possession the plaintiffs complained of several defects. Some of them were structural matters. They wrote to the defendant demanding that the defects be rectified. They were not satisfied with the defendant's response. On 14 December 2004 they commenced proceedings in the Tribunal.
[6] By the statement of claim lodged with the Tribunal they pleaded that subsequent to a certificate of practical completion provided by the defendant (said to have been provided in November 2003), they noticed defects caused by inadequate foundations. Those defects were pleaded as follows:
"(a) the house footings, in several locations were not correctly located and were required to be relocated;
(b) the relocation of the house footings by the Respondent required them to be severed and re-welded so that the top of the pier was no longer flush with the bottom of the pier, removing the stability of the footings;
(c) the footings were encased in concrete whose dimensions were significantly smaller than those required under the plan. In all locations the concrete encasing was circular in dimension and had diameters ranging from 200mm to 390mm, rather than the 450mm x 450mm required under the plan;
They alleged further defects in that the defendant had failed to:
"(a) provide fire buffer walls to the slow combustion and gas stoves in accordance with the plans;
(b) install the slow combustion stove and hot water system in accordance with the relevant manufacturers specification;
(c) provide suitable weather protection to be installed to the laundry and living area entry doors;
(d) adequately install screen doors to the laundry and living area doors;
(e) provide and install a servery panel of adequate size for its purpose;
(f) provide and install smoke detectors in accordance with the Plans;
Those two groups of defects, said to be the result of various breaches of contract and of an alleged duty of care, were together pleaded as "the Damage".
[7] Within that statement of claim the plaintiffs also pleaded the terms of the guarantee, a copy of which was attached to the pleading.
[8] The orders claimed in the Tribunal were as follows:
"A. An order under s 77(2)(g) of the Queensland Building Services Authority Act 1991, that the Respondent immediately take steps to remedy the Damage to the Building.
(a) Certification that the building is rated to W50C, such certification to be provided by an Engineer registered in Queensland;
(b) A final inspection certificate provided by a Building Certifier.
[9] At the hearing in the Tribunal, only four of the alleged defects were argued. The defendant agreed that it should be ordered to do something about the other defects. But as appears from the Tribunal's written decision and the written arguments in the Tribunal, the parties had not agreed on the terms of the orders to be made for those undisputed defects. It was left to the Tribunal to decide on the appropriate terms, and it made the orders proposed by the defendant's submissions. As to the four items which were disputed, the Tribunal found for the plaintiffs and made orders substantially as they had sought. The defendant's counterclaim for the balance of the contract price was upheld and the plaintiffs were ordered to pay the defendant that sum of $7,105.58 together with interest (pursuant to the contract) from 14 January 2004.
[10] By the Tribunal's decision, which was delivered on 23 May 2006 after a hearing on 6 March 2006, it was ordered that:
"(a) The respondent will hand over the property and keys to the applicants and carry out all necessary and appropriate rectification work to remedy the following defects:
(i) Electrical installation - all lights, switches and power points that are defective, including the second bathroom and pantry that do not turn off, and the four power points in the pantry, laundry, kitchen and lounge room;
(ii) Slow Combustion Stove/Oven - rust and corrosion on the inside of the oven;
(iii) Inside polished floors - two split boards in the main living/lounge area, together with a height differential at the juncture of the two building modules;
(iv) Vinyl floor covering - the vinyl outside the entry to the main bedroom has ripped;
(v) The agreed defects listed in schedule "C" attached to the applicants' written submissions filed on 9 March 2006;
(vi) Make all necessary corrections and certifications to the plans and engineering certifications in accordance with local authority requirements, by:
(b) The rectification work will be carried out in accordance with the obligations contained in the contract.
(c) The applicants will pay the respondent amount of seven thousand, one hundred and five dollars and fifty-eight cents ($7,105.58) together with interest calculated as follows:
(ii) one thousand, two hundred and thirty-nine dollars and eleven cents ($1,239.11) for 433 days from 11 March 2005 to 18 May 2006;
(iii) two dollars and eighty-six cents ($2.86) per day from 18 May 2006 until the date of payment, by:
In paragraph (a)(v) of those orders, the "agreed defects listed in schedule 'C'" were the undisputed defects. The reference to a schedule C as attached to the applicant's written submissions was an intended reference to the present defendant's submissions. That schedule described some 30 items. It included four items respectively described as "foundations", "chassis", "wall framing" and "roof trusses", for each of which, by the terms of the schedule which became part of the orders, the order made was as follows:
"(The defendant) will supply written engineering certification of the building to C2 (W50C). Certification of the building will be provided by Steve McKenzie Consulting Engineers Pty Ltd after an inspection of the completed works. Where required, works are to be undertaken [by the defendant] to allow such certification."
The reference to "C2 (W50C)" was to an engineering code or standard for structural stability in cyclonic wind conditions. It was a term of the contract that there would be an engineer's certification about that but the identity of the engineer was not there agreed. It was by these orders that Mr McKenzie became the engineer whose certification was both necessary and sufficient.
[11] For a number of other defects within this schedule "C", the defendant was ordered to repair or replace things as required by a Mr Jorgensen. There was no provision of the contract to the same effect, whereby some third party, Mr Jorgensen or otherwise, was to decide what had to be built or rectified. For these items, the Tribunal's orders thereby went beyond the terms of the contract, and depending upon Mr Jorgensen's opinion, had the potential for the work required by the orders to differ from that required by the contract. Further, by item 28 of the schedule, it was ordered that Mr Jorgensen was to conduct a final inspection of the rectification of all items and certify that they had been completed to his satisfaction. The evident intent of these orders was the avoidance of further disputes.
[12] The respective written submissions to the Tribunal are in evidence here. They show the differences between what was ordered and what had been sought by the plaintiffs. But in all respects what the plaintiffs sought was that work to be done towards rectifying the house, rather than that it be removed pursuant to the guarantee.
[13] The defendant argues that in the conduct of their case in the Tribunal the plaintiffs made a binding election to seek rectification of the defects rather than the relief they alternatively pleaded in the Tribunal, which is the relief which they now claim: removal and repayment. The defendant further argues that the plaintiffs' contractual rights, including its rights under the guarantee, became merged in the Tribunal's decision.
[14] The plaintiffs argue that there was no election because the right to require removal and repayment had not then accrued. They say that any cause of action on the guarantee did not accrue until such time as the defendant had performed rectification works. They point to two promises within the guarantee: the first that the defendant would make "the necessary repairs or modifications" and the second that the defendant would remove the house "if after (its) making these modifications", the plaintiffs remained unhappy with the result. When the parties were litigating in the Tribunal the defendant had been asked to rectify defects but had not done so. The plaintiffs say that upon the proper interpretation of the guarantee, it was only after the defendant had made "the necessary repairs or modifications" promised by the guarantee that there was the circumstance in which the plaintiffs, if still dissatisfied, could require removal and repayment. Upon the same basis the plaintiffs say there could have been no merger of the cause of action upon the guarantee because that cause of action had not then accrued.
[15] The guarantee provided for a sequence of events as follows. The first was "at the time of handover", when the plaintiffs were to be given the opportunity to inspect the house and confirm (or dispute) that it had been manufactured and installed according to the terms of the contract. Then the defendant was to make any necessary repairs or modifications if the house did not "meet the specifications defined in writing in our original agreement." The defendant argues for a particular and narrow meaning to be given to the term "specifications" here. But in context, it is clear enough that "the specifications defined in writing in our initial agreement" is synonymous with "the terms of our written agreement" in the preceding sentence. In other words the builder was to make any necessary repairs or modifications so that the building would conform "exactly to the terms of our written agreement". And even on the defendant's argument as to the term "specifications", it is clear that the defendant had not then (December 2003) met the specifications in that, for example, it had not provided the required "engineer's certification of the design and construction of the building as per plan to W50C", which the defendant concedes was a term of the "specifications".
[16] Through insurance loss adjusters, the plaintiffs sent a list of matters requiring rectification in April 2004. It is not suggested that none of these matters was something which required repair or rectification according to the contract. There was then some correspondence in which the defendant proposed that an independent inspector be retained (at its cost) to assess what had to be rectified, and that in exchange for the plaintiffs' deposit into the trust account of the defendant's solicitors of the final payment of $7,105.58, the defendant would undertake to rectify any defects identified by the inspector. The plaintiffs replied that they would not pay that sum until there had been "full repair of the property". In August 2004, the defendant said that it would "rectify all agreed defects" but only upon an undertaking from the plaintiffs' solicitors that they held the amount of $7,105.58 with instructions to pay it to the defendant upon completion of the rectification. The defendant then conceded that there were certain defects and disputed others. Still it did not unconditionally offer to rectify any of them. Some of the alleged defects which it was disputing appear to have been matters which subsequently the Tribunal, over its objection, ordered it to rectify (such as floorboards).
So by this time, there were several defects which the defendant was obliged to rectify. Yet because the defendant, wrongfully, had failed to remedy those defects, the plaintiffs say that they were not then entitled to require removal and repayment.
[17] The defendant was entitled to the opportunity of rectifying the defects before being required to remove and repay. In my view the words "if after making these modifications" were intended to provide that opportunity, and not to deprive the plaintiffs of the benefit of the guarantee, should the defendant do nothing. Otherwise the effect of the guarantee, and in particular the words "we guarantee to perform, or you will not pay a cent - guaranteed", would be considerably eroded: the builder could deprive the owner of the benefit of the guarantee by refusing to do the rectification work required by the contract.
[18] Accordingly, by the time of the Tribunal hearing, the plaintiffs had become entitled to require the defendant to remove the house and repay in full. At that stage they could have sought orders for rectification or instead orders for removal and repayment as they pleaded in their statement of claim in the Tribunal. Orders of either kind were within the powers of the Tribunal. In particular, the Tribunal was empowered by s 77 of the Queensland Building Services Authority Act to order "restitution"[1] or "rectification or completion of defective or incomplete ... work"[2]. By seeking, as they did, orders for rectification, the plaintiffs were precluded from obtaining at the same time an order for restitution under the guarantee. However, the question is whether they were thereby precluded subsequently from enforcing the guarantee, in the event that the defendant failed to remedy the defects after being ordered to do so.
[19] In an action for specific performance of a contract for the sale of land, a plaintiff may alternatively claim damages but must elect between those remedies at the hearing[3]. But having made an election to seek specific performance, a plaintiff may thereafter terminate the contract and seek damages for a subsequent repudiation by the other party[4], even after having obtained a decree for specific performance for repudiatory conduct subsequent to that decree[5]. So in a case of that kind, a plaintiff's election for specific performance at the trial will not preclude the pursuit of the alternative remedy upon the basis of circumstances subsequently arising. That is because where a plaintiff is granted a decree of specific performance of a contract for the sale of land, the contract does not merge in the order[6]. The court, by its decree, enforces the contract so that the contract remains on foot. To say then that the plaintiffs here were put to an election at the Tribunal hearing does not answer the question of whether their restitutionary right was later exercisable. Instead, it is necessary to consider the effect of the Tribunal's orders upon the contract.
[20] If the present case is analogous, in that the Tribunal was ordering the specific performance of this building contract, then a subsequent default by the defendant could have grounded the present claim for restitution. However the Tribunal's orders were not of that kind. Rather than ordering the specific performance of the contract, the Tribunal made various orders, some of which corresponded with the defendant's contractual obligation, and others which did not. As already discussed, the obligations under the orders requiring the direction and approval of
Mr Jorgensen were not identical with the contractual obligations. Those orders were intended to provide the plaintiffs with a result, in the sense of a building, which was equivalent to that which they were to have had by their contract. The Tribunal's power to decide or resolve the dispute is conferred by s 77 of the Queensland Building Services Authority Act which provides:
(1) A person involved in a building dispute may apply to the tribunal to have the tribunal decide the dispute.
(2) Without limiting the tribunal's powers to resolve the dispute, the tribunal may exercise one or more of the following powers -
(a) order the payment of an amount found to be owing by one party to another;
(b) order relief from payment of an amount claimed by one party from another;
(c) award damages, and interest on the damages at the rate, and calculated in the way, prescribed under a regulation;
(e) declare any misleading, deceptive or otherwise unjust contractual term to be of no effect, or otherwise vary a contract to avoid injustice;
(f) avoid a policy of insurance under the statutory insurance scheme;
(g) order rectification or completion of defective or incomplete tribunal work;
The dispute is a "domestic building dispute" as defined by the Act to include, relevantly for this case, a claim or dispute between a building owner and a building contractor relating to the performance of reviewable domestic work or a contract for the performance of reviewable domestic work. This was "reviewable domestic work" as defined[7] because it was "domestic building work"[8] under the
[21] The Tribunal has the specific powers conferred by s 77(2) of the
Queensland Building Services Authority Act as part of its general power to resolve the dispute. It can be seen from at least s 77(2)(e), which empowers the Tribunal to "declare any misleading, deceptive or otherwise unjust contractual term to be of no effect, or otherwise vary a contract to avoid injustice", that the Tribunal's powers extend beyond the determination and enforcement of contractual obligations. And in other respects, the powers specified within s 77(2) are more extensive than those at least ordinarily exercised by courts in determining claims under building contracts: ordinarily damages are considered an adequate remedy for a breach of such a contract, and courts are reluctant to order specific performanc[9]9.
[22] Thus as the parties accept, the Tribunal was empowered to make the orders made in this case. In particular it was empowered to make orders which diverted from the contractual obligations by ordering that such work be done as required and approved by Mr Jorgensen. The plaintiffs' argument accepts that the Tribunal has ordered something different from simply the performance of the contract. Still they argue that their right to restitution under the guarantee remains exercisable, because they are not satisfied that the defendant has met and exceeded the specifications within the contract. Their argument expressly distinguishes that contractual obligation from the defendant's obligation to comply with the orders[10]. On their case then, the defendant became subject to two parallel sets of obligations. The defendant became subject to the Tribunal's orders and it remained subject, at least if it wished to avoid having to make restitution under the guarantee, to its contractual obligations. So in several respects, it became simultaneously obliged to repair certain things to the satisfaction of Mr Jorgensen and to repair the same things to the satisfaction of the plaintiffs.
[23] The plaintiffs do not argue that they are entitled to restitution if dissatisfied with the defendant's compliance with the Tribunal's orders. Their case is that it is their dissatisfaction with the defendant's contractual performance which entitles them to restitution. Their case is premised upon the contractual obligations continuing to exist after the Tribunal's orders.
[24] In my view the defendant was not under such parallel obligations. The Tribunal's orders became the source of any obligation of the defendant. They resolved the dispute by comprehensively defining what had to be done by each party. The Tribunal did not simply order that the contract be performed. Rights under the contract merged in the Tribunal's decision.
[25] A cause of action is merged into a judgment where it was a cause claimed in that proceeding[11]. For the purposes of this rule, as Giles J said in Onerati v Phillips Constructions Pty Ltd (in liq)[12], "there is but one cause of action for breach of contract founded upon breach of a promise such as to carry out the work in a good and workmanlike manner. There is not a number of causes of action according to particular defects or classes of defect resulting from the breach"[13]. So it does not matter that the plaintiffs' present complaints do not precisely restate those made in the Tribunal. The cause of action was the plaintiffs' right to performance of their contract, including the guarantee, so that the restitutionary entitlement under the guarantee merged in the Tribunal's decision. Alternatively, if the cause of action was the right to have the house built according to the contract, then the merger of that cause of action put paid to the guarantee, because (as the plaintiffs accept) the plaintiffs could call for restitution only if (in their view) the defendant was not performing the contract, and by the time the plaintiffs called for restitution, they were no longer entitled to that performance but instead to compliance with the orders.
The plaintiffs sought a stay of the Tribunal's orders against the defendant, which the Tribunal granted on 10 January 2007. The orders[14] were stayed pending the outcome of the present proceedings or until further order. The plaintiffs' purpose in seeking that stay is not clear, particularly as by then they had paid to the defendant what they had been ordered to pay and the defendant had performed or purported to perform the work as ordered. In any case the plaintiffs do not argue that the stay affected any merger. Nor do they argue that for any other reason the Tribunal's orders were not final in the necessary sense. The Tribunal may vary its orders according to s 96 of the Commercial and Consumer Tribunal Act 2003 if "there are problems with interpreting or implementing the order". But this power does not detract from the finality of an order if and when made under s 77 of the Queensland Building Services Authority Act. In contrast the Tribunal is empowered by s 82 of that Act to make interim orders "before finally deciding a building dispute":
s 82(1). By s 93 of the Commercial and Consumer Tribunal Act 2003, a party may register a decision by the Tribunal by filing in a court of competent jurisdiction a copy of the decision and an affidavit proving non-compliance. On registration of the decision, "a proceeding may be taken on the decision" as if it had been originally given as a judgment of the Court and entered on the day of registratio[15]. Again, it is not argued that the registration or otherwise of a decision would affect its finality or otherwise affect the question of merger. The registration of a decision pursuant to s 93 involves no further judicial decision.
[27] Accordingly the plaintiffs' contractual rights became merged in the Tribunal's orders. At least for this reason the present claim must be dismissed. For the most part it is unnecessary then to discuss the alternative arguments but some factual findings should be made.
[28] At this trial there was considerable evidence as to the present state of the building and particularly as to its structural soundness having regard to the engineering standard W50C. This evidence was relevant to whether the plaintiffs were in truth unhappy with the defendant's performance, and whether (as to the defendant's argument) they were unreasonable in that. The contract required an "engineer's certification of the design and construction of the building as per plan to W50C". The defendant conceded that this was part of the "specifications" for the purposes of the guarantee. The Tribunal ordered that the defendant do such work as required by Mr McKenzie for him to give that certification. The defendant argued that by
Mr McKenzie's letter of 10 August 2006 the necessary certification, both according to the orders, and if still relevant according to the contract, was given. Nevertheless the plaintiffs remained dissatisfied and pleaded in these proceedings that the certification was wrong.
[29] Based on some evidence of Mr McKenzie, the plaintiffs argued that Mr McKenzie's certification had not extended to the critical detail which was the altered form of some of the stumps. It is necessary to summarize the controversy about the stumps. The defendant dug holes for the concrete footings for the steel stumps, but in several instances the holes were not quite where they should have been. When the modules of the house arrived and the defendant was installing them, the house did not rest on the stumps as it should have done. Instead of moving the footings and the stumps, the defendant had the relevant stumps cut, with the lower part of the stump remaining unmoved in the footing and the upper part then correctly positioned under the building. The two parts of the stump were then bridged by a metal plate running horizontally between them. The plate was affixed to the concrete footing by bolts. All of this occurred in 2003 but there had been no certification of its compliance with W50C. I am satisfied, having regard to the attachments to Mr McKenzie's certificate of 10 August 2006, that the "stump details" referred to in that letter were not the details of these stumps as altered. So until this trial, there had been no certification as to W50C as required by the contract or the Tribunal's orders. However in his evidence, Mr McKenzie gave an unequivocal engineering opinion to the effect that the altered detail does comply with W50C. Perhaps there is still no written certification as to that, but having regard to Mr McKenzie's evidence, he would surely provide it. At the trial the plaintiffs called evidence from an engineer, Mr Burnell. In his opinion the altered stump detail does not comply with W50C. Mr Burnell was asked to look at that question only in the week or so prior to the trial. I find that now with Mr Burnell's evidence, the plaintiffs do have a reasonable basis for thinking, as I accept they do, that their house does not comply with this standard. It is not necessary to determine whether Mr McKenzie or Mr Burnell is correct in this. It would suffice for the plaintiffs' argument that they might reasonably accept Mr Burnell's opinion.
[30] That matter of compliance with the engineering standard W50C seemed to be the most important of the plaintiffs' complaints, although it should be noted that the standard is one used for areas affected by cyclones and it seems undisputed that this site was hundreds of kilometres west of such an area.
[31] I accept the plaintiffs' evidence that they are genuinely dissatisfied in the other respects of which they complain. And I find that their dissatisfaction is reasonable at least in relation to some items. In particular, accepting as I do the evidence of
Mr Burnell and Mr Cooper on these other matters, I find that some walls are out of plumb by between 25 mm and 30 mm. Mr Leck, a quantity surveyor called in the defendant's case, said that this was not his observation or measurement. But
Mr Leck failed to notice other problems such as what seem to be serious cracks around windows and in a strip in the ceiling in the living area. I also accept the evidence that there is an unacceptable defect in the flooring where one module has been joined to another but there is misalignment. So at least in relation to those matters of the out of plumb walls, the cracking in and under the ceiling and the flooring, the plaintiffs do have reason to be unhappy with the defendant's compliance with the "specifications".
[32] It is unnecessary to discuss an alternative argument for the defendant, which was that by clause 25.8 of the Conditions of Contract, the plaintiffs' payment of the final claim is conclusive evidence of the discharge of the defendant's obligations "in connection with the subject matter of this contract". The plaintiffs have paid "the final claim", as they were ordered to do by the Tribunal. The facts as to this argument are clear enough but the substantial question, which need not be resolved, was whether clause 25.8 is void by s 50 or s 93 of the Domestic Building Contracts Act 2000 (Qld).
[33] The plaintiffs' claim is dismissed. I shall hear the parties as to costs.
French
NPM Group Pty Ltd
(1976) 136 CLR 444
(1989) 16 NSWLR 730
(1981) 147 CLR 589