Ilvariy Pty Ltd trading as Craftsman Homes Northern Rivers v Moss & Ors [2009] NSWCA 207 | Case summary

The appellant, a builder, sued the proprietors in the District Court for a progress payment under a contract for the construction of a home. The action failed because the referee found that the necessary work to entitle the builder to the progress payment had not been completed, and judgment was given for the proprietors. The proprietors made a claim on their home builders policy based on breaches of warranty by the builder and appealed to the Consumer Trader and Tenancy Tribunal from a deemed refusal of the claim. The insurer joined the builder as a respondent and both applied for summary dismissal based on res judicata estoppels flowing from the District Court proceedings. The Tribunal dismissed the applications and the builder appealed to the Supreme Court on questions of law and attempted to raise a new point. A Divisional judge dismissed the appeal and the builder appealed to the Court of Appeal. HELD: dismissing the appeal (1) under section 67 (1) of the Tribunal Act in new point of law could not be entertained on an appeal from the Tribunal; Bahadori v Permanent Mortgages Pty Ltd (2008) 72 NSWLR 44 applied; (2) the issue estoppel from the judgment for the proprietors in the builder's action for the progress payment was limited to the actual ground upon which that action failed: Blair v Curran (1939) 62 CLR 464, 532 applied; (3) there were no res judicata estoppels from the District Court judgment relating to the quality of the builder's work: Davis v Hedges (1871) LR 6 QB 687 applied. ORDERS

MONDAY 17 AUGUST 2009 ILVARIY PTY LIMITED t/as CRAFTSMAN HOMES NORTHERN RIVERS v MOSS & 3 ORS Judgment 1 CAMPBELL JA: I agree with Handley AJA. 2 YOUNG JA: I agree with Handley AJA. 3 HANDLEY AJA: This appeal was brought as of right from the decision of Rothman J. in the Administrative Law List dismissing an appeal from the Consumer Trader and Tenancy Tribunal (the Tribunal). It originally raised questions of res judicata, Anshun estoppel, and abuse of process. The proceedings arose out of a contract dated 18 November 1999 between the appellant builder and the first and second respondents as proprietors for the construction of a home which was insured, under a Home Builder's policy, with the third respondent. 4 On 27 June 2000 the builder made a progress claim on the proprietors for the amount which would become due on completion of Stage 3 of the works. The proprietors refused to pay this claim. They purported to suspend the works on 30 June and to terminate the contract on 7 July. At some stage the builder ceased work on the site. On 8 August the proprietors made a claim under the Home Builders policy. On 15 September the builder sued in the District Court for the progress payment for completion of Stage 3. 5 The proprietors filed a defence and cross-claim (Blue 1/203) which denied any indebtedness to the builder, asserted that work had not been carried out in a proper and workmanlike manner, and that as a result the builder was not entitled to payment. It also asserted that the proprietors would be put to expense in having defective work rectified. In their cross-claim they claimed damages for various breaches of the contract. 6 On 3 May 2002 the proceedings were referred out to a referee. At some stage, which does not appear in the material before us, the proprietors appealed to the Tribunal from the deemed refusal of their insurance claim. On 22 May 2002 the Tribunal ruled that it had jurisdiction, but the Senior Member raised concerns about the duplication of the proceedings. On 30 May the insurer agreed to be bound by the referee's report. In July the proprietors discontinued their appeal to the Tribunal from the deemed refusal of their insurance claim (2/835). 7 On 5 June 2002, following a conclave of the experts with the referee, the proprietors' solicitors wrote to the solicitors for the builder (2/898) lifting their suspension of the works, and acknowledging that the contract was still on foot. The builder's solicitors then notified the proprietors' solicitors that their client acknowledged that the contract was still on foot, that the suspension had been lifted, and that it was required to complete the works (2/899, 901). The builder returned to the site and work resumed (Red 42). 8 On 13 September 2002 the proprietors discontinued their cross-claim in the District Court. On the same day the referee, acting as an independent expert with the consent of the parties, inspected the property. On 18 September he advised the parties that "at the time of his inspection" Stage 3 had been completed (1/131). 9 On 26 November the referee filed his report in the District Court. He found that on 27 June 2000, when the builder made its progress claim "the works had not reached Stage 3" (1/403). The builder again stopped work. The proprietors applied for the adoption of the report and the matter came before Twigg DCJ on 18 December 2002. The report was adopted and judgment was entered for the proprietors with costs, and the costs of the discontinued cross-claim (1/546). 10 On 10 February 2003 the proprietors purported to terminate the contract (2/880), and on 19 May 2004 they again appealed to the Tribunal from the insurer's deemed refusal of their claim of 8 August 2000 (2/1185). The insurer later joined the builder as a party. The proprietors' points of claim lodged on 15 April 2005 (2/1187, Red 33) alleged breaches of statutory warranties by the builder but sought relief only against the insurer. 11 On 19 December 2005 the Tribunal adjourned the case to allow the proprietors to make a claim on the insurer for defects which may not have existed in August 2000. That claim became the subject of a further application to the Tribunal (reasons of Senior Member 14 February 2007 paras [8] - [9]). 12 In August 2004 the insurer foreshadowed a strike out application based on res judicata, issue estoppel and abuse of process from the proceedings in the District Court. However its application, as pressed at the hearing in December 2006, was limited to the prejudice allegedly suffered by it in pursuing its subrogated rights against the builder because of res judicata estoppels from the District Court proceedings. The proprietors were said to be in breach of their obligations under the statutory policy which was a defence to their claims. The builder supported the insurer and acted as the primary applicant. 13 The Tribunal (Senior Member Mr R Connelly) found that the appeal of May 2004 was not barred by res judicata estoppels and was not an abuse of process. It seems that there was no application to strike out the other appeal. The builder appealed to the Supreme Court pursuant to s 67(1) of the Tribunal Act. 14 Rothman J found that there were no relevant res judicata estoppels and dismissed the appeal. Counsel for the builder attempted in reply to raise a new ground of abuse of process based on Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248 which had not been raised in the Tribunal. His Honour indicated during argument that he would not entertain the point (Black 48 - 52). 15 In this Court counsel for the builder renewed the submission that the appeal to the Tribunal was barred by res judicata estoppels Dialogue with the Court exposed the difficulties and the res judicata grounds were abandoned. 16 Although the Court is no longer required to determine the res judicata questions, it may be helpful to the parties and the Tribunal for the Court to indicate briefly why counsel's decision to abandon them was correct. 17 The builder sued in the District Court to recover the Stage 3 progress payment. The proprietors denied that this was due, but their defence included allegations of bad workmanship and their cross-claim sought damages for breach of contract. The discontinuance of their cross-claim did not create any cause of action or issue estoppels. 18 The referee's findings, when adopted, entitled the proprietors to judgment on the builder's claim for the Stage 3 payment. 19 As Dixon J made clear in Blair v Curran [1939] HCA 23, 62 CLR 464, 532, in the passage cited by Rothman J, the focus for issue estoppel is that: "… a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order. Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded … Where the conclusion is against the existence of the right or claim … the estoppel covers only the actual ground upon which the existence of the right was negatived." 20 The judgment for the proprietors was the only substantive judgment in the District Court. The only fact necessarily decided by the judgment which created an issue estoppel was, as the referee found, that on 27 June 2000 the builder was not entitled to be paid for Stage 3. There was a cause of action estoppel for that claim but no other cause of action or issue estoppel. 21 It has been established since Davis v Hedges (1871) LR 6 QB 687, if not earlier, that a purchaser of goods sued for the price is not bound to rely on any breach of warranty to reduce the price, but can bring a separate action for breach later. Judgment for the seller for the price is not inconsistent with, and does not bar, an action by the purchaser for damages for breach of warranty. The principle applies to contracts for work and labour. Thus judgment for the proprietors in the action for the progress payment did not create any res judicata estoppels against an action by the proprietor for breach of warranty. For similar reasons there is no Anshun estoppel or abuse of process on res judicata grounds. 22 The builder's remaining ground was abuse of process based on statements of principle by Hodgson JA in Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248. It was submitted that these applied to the proprietors' situation on 8 August 2000 when they made their first claim on the insurer. The relevant statements were: "53. … the misconception was that the Council could claim damages from Beckhaus for defective and incomplete work while the work was still in Beckhaus' possession and while Beckhaus was still obliged (and entitled) to execute the work to practical completion. … 65. No provision of the Contract prevented the Council from suing Beckhaus for damages for breach of contract under common law; but that is not to say that, simply by reason of a failure, by the date for practical completion, to complete the work to the standard required, the Council would be entitled to damages for defective or incomplete work. … 68. While …. the Council may have been entitled to claim damages for delay arising out of Beckhaus' failure to achieve practical completion by the date for practical completion, it could not sue Beckhaus' for defective or incomplete work. As long as Council maintained that the contract was alive and had not been terminated, and held Beckhaus to its obligation to complete the work in accordance with the specification, on its contention the work remained lawfully in Beckhaus' possession. In other words, it was an inevitable incident of the Council's argument that the work had not been delivered to and accepted by the Council … While the work was in Beckhaus' possession the Council suffered no loss by reason of defective or incomplete work; the work not being in the Council's possession …" 69. This situation would have changed when the Contract was terminated. When that occurred, the work (in its defective and incomplete state) was handed over to the Council. At that stage the Council suffered loss by being in possession of defective and incomplete work." 23 The relevant facts, so far as they appear at this stage, are that the proprietors suspended the works on 30 June 2000 (2/897) and purported to terminate the contract for breach on 7 July. Their letter of termination is not in evidence, and the grounds relied on are not known to the Court. It appears that the builder then left the site, and no further work was done until after the arrangements in June 2002 (2/898, 901). 24 The Brewarrina point raises a number of issues which were not explored in the Tribunal, and the necessary findings have never been made. On what ground did the proprietors purport to terminate the contract on 7 July 2000? Was the termination valid? If it was not and was a repudiation by the proprietors was that repudiation accepted by the builder? Was the contract abandoned during the period of almost 2 years when no further work was done? What was the legal effect of the exchange of correspondence on 6 June 2002? If the contract had earlier been terminated was it reinstated or did the parties make a new one? In either case did this take effect by contract or by estoppel? What effect did those arrangements in June 2002 have on the insurance claim made on 8 August 2000? 25 An appellate court will only entertain a point of law raised before it for the first time if it arises on facts which have been fully found, or are not in dispute. The point must be one which could not have been answered by evidence if it had been raised at the trial: Suttor v Gundowda Pty Ltd [1950] HCA 35, 81 CLR 418. The Brewarrina point does not meet these requirements but there is an even greater difficulty. 26 The right of appeal from the Tribunal to the Supreme Court is conferred by s 67(1) of the Tribunal Act which provides: "If, in respect of any proceedings, the Tribunal decides a question with respect to a matter of law, a party in the proceedings who is dissatisfied with the decision may, subject to this section, appeal to the Supreme Court against that decision." 27 The Tribunal did not decide the Brewarrina point which was not raised before it, and therefore it cannot be raised on appeal. Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150, 72 NSWLR 44. 28 The point does not go to the jurisdiction of the Tribunal and cannot therefore be raised in judicial review proceedings assuming that s 65, a privative section, allows some scope for such proceedings. 29 The appeal therefore fails and is dismissed with costs, including the costs of the third and fourth respondents as submitting respondents.

Ilvariy Pty Ltd trading as Craftsman Homes Northern Rivers v Moss & Ors

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