Gannon Construction Pty Ltd v Brooks

The contract

1. In February 2013, the parties entered into a standard NSW Fair Trading home building contract for residential building works over $5,000. The contract price for the works was $456,362.00.
2. The written contract stated that it consisted of the conditions set out in clauses 1 to 30 of the standard form contract, the plans and specifications signed by the parties and "any additional conditions agreed to by the owner and contractor which must be in writing…": clause 1. There were no such additional conditions.
3. Clause 2 of the contract was concerned with the "Quality of construction". It provided, in clause 2.1 that the work would comply with various requirements, including the Building Code of Australia and other codes and standards with which the work is required to comply under any law.
4. Of central importance on this appeal, clause 2.2 provided: This contract may limit the liability of the contractor for a failure to comply with (1) [ sic, 2.1] if the failure relates solely to: (a) a design or specification prepared by or on behalf of the owner (but not by or on behalf of the contractor), or (b) a design or specification required by the owner, if the contractor has advised the owner in writing that the design or specification contravenes (1).
5. Clause 9 of the contract was headed "Statutory warranties". It set out the six warranties otherwise specified to form part of the contract by s 18B(1) of the HBA. The concluding sentence of cl 9 provided: "No provision of this contract can reduce, restrict or remove these statutory warranties".

The Home Owner's successful claim at first instance

1. Given the decisive issue raised by this appeal, to which we have referred, it is unnecessary to explain the Home Owner's claim in any detail. It is sufficient to say that the successful parts of the claim concerned a failure to galvanise some exposed structural steel beams and that the construction of a Western Red Cedar balustrade was of materials not fit for purpose and that did not meet relevant Australian standards. Both defects were found by the Tribunal Member to involve breaches of the statutory warranties in s 18B(1) of the HBA.
2. On appeal there was no challenge to those conclusions.
3. The Tribunal rejected the Builder's defence based upon cl 2.2 of the contract for two reasons. First, if the works were within the contractual scope of the works and there was a breach of warranty (as there was found to be), then the only defence available to the Builder was the statutory defence contained in s 18F: at [26]. In so concluding, the Tribunal Member referred to various authorities and indicated that she adopted the approach taken in The Craftsmen Restoration and Renovations v Thomas Boland, Thomas Boland v The Craftsmen Restoration and Renovations [2008] NSWSC 660 and Pastrovic & Co Pty Ltd v Farrington [2011] NSWDC 94.
4. In arriving at this conclusion, the Member also reasoned that she was not satisfied that, in relation to a cause of action for breach of statutory warranty, the Builder could rely on a contractual defence because the cause of action arose out of statute and, hence, the defence needed to arise out of statute: at [26].
5. The Tribunal noted that the statutory defence in s 18F was not relied upon by the Builder. At the date of the contract in this case, that section provided: 18F Defence In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from instructions given by the person for whom the work was done contrary to the advice in writing of the defendant or person who did the work.
6. In at least one respect, s 18F sets a higher bar for the Builder to meet than a defence based upon cl 2.2(a) of the contract because the latter only requires that the design or specification be prepared by, or on behalf of, the owner. The subclause does not also require that, in such a situation, contrary advice be given by the builder.
7. The second reason given by the Tribunal for rejecting the Builder's defence based upon cl 2.2 was that, even if it was wrong, and the defence under cl 2.2 was available to the Builder, it was not made out on the facts: at [34], [44] and [45].
8. It does not appear that an issue was raised as to the effect of s 18G of the HBA upon cl 2.2, which section provides: 18G Warranties may not be excluded A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void.

The appeal

1. The grounds of appeal in the Amended Notice of Appeal lodged on 20 April 2017 were in terms: 1. The Tribunal erred in finding that: a) the defence contained in section 18F of the [HBA] was the only defence available for breach of statutory warranty; b) the contractual defence (contained in clause 2(2)(a) of the parties' contract) was unable to be relied upon by the Appellant as a defence to a claim for breach of statutory warranty; and c) the Appellant had failed to make out the contractual defence in relation to the structural steel and item 16 of the Scott Schedule (Western Red Cedar balustrade).
2. At the hearing of the appeal, we raised with Counsel for the Builder a point that appeared to raise a problem at the outset for the Builder in its reliance upon cl 2.2 of the contract, namely the absence of any provision in the contract which, as it were, took up the option provided by the clause to limit the Builder's liability and to define that limitation.
3. Counsel for the Builder accepted that if he could not overcome this problem with the construction and operation of cl 2.2, the appeal must fail. He also agreed that the issue raised by the Appeal Panel turned upon the proper contractual construction of cl 2.2.

The construction of clause 2.2 of the contract

1. In this regard, the task for the Builder was to persuade the Appeal Panel that one should read the opening words of cl 2.2 "[t]his contract may limit the liability of the contractor for…" as meaning that "the contractor has no liability for…" or that "[t]his contract excludes the liability of the contractor for…".
2. We reject the submission that such a meaning can or should be given to these words.
3. We start with the natural and ordinary meaning of the words used, with a particular focus on the word "may". That word is permissive and, in context, permissive of the step of making provision in the contract for a limitation of liability.
4. The meaning for which the Builder contends moves a considerable distance from such natural and ordinary meaning of the language of the clause.
5. Nevertheless, the Builder makes two submissions by which it argues that this adjustment from the ordinary meaning is to be achieved. First, it contends, the fact that the clause was a required term of the contract supports the conclusion that the clause, in itself, achieves exclusion of liability where the circumstances referred to in paragraphs (a) or (b) of cl 2.2 are established. In this respect, the Builder demonstrated that by force of s 7E of the HBA and Schedule 2 of the Home Building Regulation 2004, cl 2.2 was a prescribed term of the contract. As we understood it, the argument was that, with such origins, it would not be expected that, by itself, the clause would have no work to do.
6. No other legislative materials, directed to the purpose or intent of the clause, were identified.
7. Even if it be permissible to have regard to such background material, we fail to see how it advances the construction of the clause either way. If the clause has its ordinary meaning, it still has a function, namely to convey a message that a limitation of liability is permissible in respect of the obligations arising under clause 2.1. Further, cl 2.1 defines the circumstances in which such a limitation may be imposed.
8. Secondly, the Builder submits that the fact that the clause is part of a standard form contract weighs in favour of the construction for which it contends. This is because, so it contends, one would expect to find the contractual terms in the standard form: one would not expect there to find a term that depends for its operation upon an agreement between the parties for the insertion of an additional clause elsewhere in the contract.
9. We do not agree. The reference at the beginning of the clause to "[T]his contract…" encompasses a contract that is made up of more than the standard terms. Not only does the contract include the plans and specifications, it also includes "any additional conditions agreed to by the owner and contractor, which must be in writing…": cl 1. That clause contemplates that the parties might settle upon additional terms. Such an additional term might include a limitation of liability contemplated by cl 2.2. That limitation must be in writing and, presumably, any document evidencing or relevant to the additional term will be listed in the Table marked "Other documents" that forms part of cl 1.
10. Near the close of the hearing of the appeal, Counsel for the Builder sought an opportunity to consider and make any submissions about the decision of the Appeal Panel in Li v MACD Developments Pty Ltd [2105] NSWCATAP 287, which decision had come to his attention. The hearing of the appeal was adjourned for a short while to enable this to occur.
11. However, it became clear that the decision in Li was not concerned with the present issue about the construction of cl 2.2. The reasons in Li record that it was not in dispute that a builder may exclude certain liabilities under the contract (at [63]). It is also notable that the comparable contractual provision in Li was in terms that: 43.2 The builder is not liable if the building works did not comply with the requirements of subclause 43.1 if the failure relates solely to….." (Emphasis added.)

Other matters

1. In view of the point that has determined this appeal, it is unnecessary for us to deal with the two grounds of the appeal referred to above.
2. We should note, however, that: 1. The conclusions in the cases referred to by the Tribunal Member, expressed in terms that the defence in s 18F is the only available defence to a claim for breach of the statutory warranties in s 18B, must be based, at least, upon the assumption that liability for a breach of such warranty has otherwise been established. 2. In disposing of this appeal, we have not concerned ourselves with the issue as to the effect of s 18G upon the validity of a contractual provision that did take up the invitation or opportunity presented by cl 2.2 to limit liability. Nor have we concerned ourselves, with the question whether cl 2.2 was intended to apply to a breach of a statutory warranty in s 18B.

Orders

1. For the above reasons, we made the following orders on 23 June 2017: 1. The appeal is dismissed. 2. The stay granted on 18 April 2017 is lifted. 3. The Appellant is to pay the costs of the Respondent as agreed or assessed.

I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Principal Registrar I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 August 2017