BUILDING AND CONSTRUCTION - Variation to domestic building contract - Where statutory notice provisions for variation not complied with - Whether builder can recover cost of variation - Whether completion date adjusted to take into account variation - 'Significant or exceptional hardship' included consequences of builder's inability to recover money - Meaning of 'varied in accordance with' - Completion date adjusted where VCAT satisfied of significant or exceptional hardship - Operation of statutory provision for adjustment of completion date unaffected by builder's non-compliance with contractual notice procedure - Leave to appeal granted - Appeal dismissed.

Domestic Building Contracts Act 1995, ss 38-9

Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 267 CLR 560, discussed.

1. This application for leave to appeal concerns the circumstances in which a builder can recover the cost of carrying out a variation to a domestic building contract which was not requested in writing by the owner. If the builder can recover, the second issue is whether the time for completion of the contract is extended to take into account the time spent in undertaking the variation.
2. The issues arise in the context of an appeal on a question of law from a decision of the Victorian Civil and Administrative Tribunal ('VCAT') in a domestic building dispute under the Domestic Building Contracts Act 1995 ('DBCA'). As will appear, the starting point under s 38 of the DBCA is that a builder is not entitled to give effect to any variation to a domestic building contract sought by the owner which is not requested in writing by the owner; and s 38(6)(a) provides that the builder may not recover any money in respect of a variation unless the builder has complied with the procedural notice requirements of s 38. However, the prohibition on a builder recovering for a variation when there has been non-compliance with s 38 may, under s 38(6)(b), be dispensed with by VCAT, in tightly prescribed circumstances. Relevantly, s 38(6)(b) provides that VCAT may allow recovery where it is satisfied that the builder 'would suffer a significant or exceptional hardship by the operation of' s 38(6)(a).
3. The first issue in this case concerns the ambit of the phrase 'significant or exceptional hardship'.[1] Daniel Investments (Aust) Pty Ltd ('the builder') had a major domestic building contract ('the contract') with Jolin Nominees Pty Ltd ('the owner'). The owner requested a number of variations and the builder carried out those variations. However, neither the owner nor the builder had complied with the statutory notice provisions. Thus the builder could not recover any money in respect of the variations unless the exception in s 38(6)(a) was engaged. The builder successfully argued before VCAT that it should be permitted to recover the variation costs under s 38(6)(b) of the DBCA because it would 'suffer a significant or exceptional hardship by the operation of' s 38(6)(a), and that 'it would not be unfair to the building owner for the builder to recover the money'. The relevant hardship that VCAT relied on was financial hardship that would be occasioned if the builder could not recover any money for the variations.
4. The owner contended that s 38(6)(b) is of narrow compass and is confined to hardship that prevented the builder from giving the written notice, and that it did not extend to financial hardship as a consequence of non-recovery. This construction was rejected both by VCAT and the Judge, who held that the statutory question is whether the prohibition on recovery would result in significant or exceptional hardship to the builder, and that this could include financial hardship. For reasons that we develop below, we have concluded that the trial judge did not err in this construction of s 38(6)(b); thus grounds 4 and 5 should be dismissed.
5. The second issue concerns the operation of s 39(c) of the DBCA.[2] That section relevantly provides that, if the plans and specifications in a major domestic building contract are 'varied in accordance with' s 38, then any reference in the contract to the completion date or to the number of days required to finish the work is to be read as a reference to the date, or the number of days 'as adjusted to take account of the variation'. The issue is whether s 39(c) operates where the builder has failed to comply with the procedural notice requirements of s 38, but where VCAT has permitted the builder to recover the costs of the variation under s 38(6)(b).
6. The Judge held that, as a consequence of falling within the exception provided by s 38(6)(b) of the DBCA, the builder was entitled to an extension of time for completion of the works under s 39(c) of the DBCA. The owner contends that the Judge erred in so concluding. It contends that there was no variation capable of triggering s 39. Alternatively, it contends that, if there was such a variation, s 39 requires that the builder complied with the requirements set out in s 38, and that it was insufficient that VCAT had determined that the builder was entitled to recover the cost of the variation under s 38(6)(b). For reasons that we develop below, we have concluded that the trial judge did not err in relation to this issue. Thus grounds 3 and 4 should be refused.
7. The third issue in the proceeding concerns the operation of cl 34 of the contract, which concerned extensions of time.[3] Clause 34.0 provided for the circumstances in which an extension of time was available; and cl 34.1 set out a notice procedure in relation to extensions of time. The contractual notice procedure was not followed by the builder. The issue is whether cl 34.0 had the consequence that the completion date was extended if one of the defined circumstances existed; or whether cl 34.0 was subject to cl 34.1, so that cl 34 as a whole only provided for an extension of time if the notice procedure was followed by the builder.
8. Before this Court, the owner contended that, even if s 39(c) was engaged, it was nonetheless also necessary for the builder to satisfy cl 34 of the contract. We do not accept that contention. Non-compliance with cl 34, by the failure to give a written notice (if indeed this is a requirement or pre-condition to an extension of time, as submitted by the owner), does not have any impact on the operation of s 39(c). That section, we have concluded, provides for the consequences of a favourable VCAT decision under s 38(6)(b). Accordingly, it is unnecessary to determine the correct construction of cl 34, because an extension of time is available under s 39(c). Thus it is unnecessary for us to resolve grounds 1 and 2.
9. In the result we would grant leave to appeal but dismiss the appeal.

1. The owner is a property developer. In or about April 2014, the owner invited the builder to tender for the demolition of a house in Nicholson Street, Coburg and to build six townhouses on the site ('the works'). The owner provided the builder with some architectural plans and drawings, but no detailed specifications for the works. The owner informed the builder that the specifications would be the same as those used in a previous development they had worked on together in Craigieburn.
2. On 7 September 2014, the owner accepted a quote from the builder for the completion of the works in the sum of $1,471,420 inclusive of GST.
3. On 1 March 2015, the parties entered into the contract (in the form of the Housing Industry Association Victorian New Homes Contract, which it appears was a standard form contract). The contract provided that the date for practical completion was to be 12 months from the date of the contract. The completion date and the amount of liquidated damages were altered by agreement in June 2015. After those changes, the completion date was fixed at 7 June 2016. In the event of non-completion by that date, liquidated damages were fixed at $650 per week per unit.
4. Demolition was completed in June 2015 and construction commenced on 7 July 2015. VCAT found that the works were completed on 20 March 2017.[4]
5. During the course of construction, the owner requested that the builder undertake a number of variations to the works ('the variations'). None of the variations were requested in writing. In response to the requests, the builder carried out the variations; but the builder did not provide any notice as to the estimated cost of carrying out the variations, or whether carrying out the variations would affect the date of completing the works.
6. Following the completion of the works, a dispute arose between the parties regarding the amount of the final payment due to the builder. The builder claimed the amount outstanding under the contract ($147,800), which had been withheld, together with an amount for the variations that had been carried out. In response, the owner claimed liquidated damages for the late completion of the project. The amount claimed by the owner was for a period of 49 weeks, and was in the sum of $159,900. These differing claims formed the subject of a 'domestic building dispute'[5] within the meaning of the DBCA.
7. In 2018, the builder commenced a proceeding in VCAT seeking orders for the final payment under the contract and payment for the variation claims, including under s 38 of the DBCA. The owner brought a counterclaim seeking liquidated and common law damages for the delay in completing the works.

1. Section 1 of the DBCA relevantly provides that the 'main purposes' of the DBCA are to regulate contracts for the carrying out of domestic building work, provide for the resolution of domestic building disputes by VCAT, and require builders carrying out domestic building work to be covered by insurance in relation to that work.
2. Section 3(1) of the DBCA defines a 'domestic building contract' as 'a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a sub-contractor', and defines a 'major domestic building contract' as 'a domestic building contract in which the contract price for the carrying out of domestic building work is more than $5000 (or any higher amount fixed by the regulations)'.
3. Section 16(1) provides that a 'builder who enters into a domestic building contract must not demand, recover or retain from the building owner an amount of money under the contract in excess of the contract price unless authorised to do so by this Act', under pain of 100 penalty units.
4. Section 27(1) provides in substance that a domestic building dispute exists between a builder and a building owner if the latter fails to pay the former any amount due to the former under a domestic building contract by the date it is due. Section 27(2) provides, however, that a building owner may still dispute any matter relating to work carried out under a domestic building contract notwithstanding having paid for the work.
5. Section 31 provides that a builder must not enter into a major domestic building contract unless the contract contains the requisite detail, including:

(a) all the terms of the contract;

(b) a detailed description of the work to be carried out under the contract;

(c) the plans and specifications for the work, which must contain enough information to enable the obtaining of a building permit;

(d) the date when the work is to start, or how that date is to be determined;

(e) the date when the work will be finished, or, if the starting date is not yet known, the number of days that will be required to finish the work once it is started; and

(f) the contract price or, in the case of a cost plus contract, how the amount that the builder is to be paid is to be determined.

1. Division 4 of pt 3 sets out a number of provisions that apply after the contract is signed. For present purposes, the critical sections of the DBCA are set out below:

38 Variation of plans or specifications - by building owner

(1) A building owner who wishes to vary the plans or specifications set out in a major domestic building contract must give the builder a notice outlining the variation the building owner wishes to make.

(2) If the builder reasonably believes the variation will not require a variation to any permit and will not cause any delay and will not add more than 2% to the original contract price stated in the contract, the builder may carry out the variation.

(3) In any other case, the builder must give the building owner either -

(i) states what effect the variation will have on the work as a whole being carried out under the contract and whether a variation to any permit will be required; and

(ii) if the variation will result in any delays, states the builder's reasonable estimate as to how long those delays will be; and

(iii) states the cost of the variation and the effect it will have on the contract price; or

(b) a notice that states that the builder refuses, or is unable, to carry out the variation and that states the reason for the refusal or inability.

(4) The builder must comply with subsection (3) within a reasonable time of receiving a notice under subsection (1).

(5) A builder must not give effect to any variation asked for by a building owner unless -

(a) the building owner gives the builder a signed request for the variation attached to a copy of the notice required by subsection (3)(a); or

(6) A builder is not entitled to recover any money in respect of a variation asked for by a building owner unless -

(i) that there are exceptional circumstances or that the builder would suffer a significant or exceptional hardship by the operation of paragraph (a); and

(ii) that it would not be unfair to the building owner for the builder to recover the money.

(7) If subsection (6) applies, the builder is entitled to recover the cost of carrying out the variation plus a reasonable profit.

(8) This section does not apply to contractual terms dealing with prime cost items or provisional sums.

Unless the contrary intention appears, if the plans or specifications set out in a major domestic building contract are varied in accordance with section 37 or 38, any reference in this Act, the regulations or the contract to -

(a) those plans or specifications is to be read as a reference to them as varied; and

(b) the contract price is to be read as a reference to the contract price as adjusted to take account of the variation; and

(c) the completion date, or the number of days required to finish the work, is to be read as a reference to that date, or number of days, as adjusted to take account of the variation.

1. Section 132(1) prohibits parties to a domestic building contract from contracting out of the DBCA. However, under s 132(2), parties may include terms in the contract that impose greater or more onerous obligations on a builder than are imposed by the DBCA.

1. The relevant clauses of the contract are as follows:[6]

23.0 Either the Owner or the Builder may ask for the Building Works to be varied. The request must be in writing, must be signed and must set out the reason for and details of the variations sought.

23.1 If the Owner requests the variation and the Builder reasonably believes the variation will not require a variation to any permit and will not cause any delay and will not add more than 2% to the Contract Price the Builder may carry out the variation.

23.2 If the Builder requests the variation, the notice given by the Builder must state the following further particulars:

• what effect the variation will have on the Building Works;
• if the variation will result in any delays, the Builder's estimate of such delays; and
• the cost of the variation and the effect it will have on the amount payable by the Owner under this Contract.

23.3 If the Owner requests a variation and if the Builder has not agreed to carry out the variation under Clause 23.1, the Builder must give the Owner, within a reasonable time of receiving the notice under Clause 23.0, a notice:

• setting out the particulars listed in Clause 23.2; or
• stating that the Builder refuses or is unable to carry out the variation and stating the reasons therefore.

23.4 Subject to Sub-Clause 23.1, the Builder must not give effect to any variation unless the Owner gives the Builder a signed consent to or request for the variation attached to a copy of the notice referred to in Clauses 23.2 or 23.3.

23.5 If, within 7 Days of the Builder giving the Owner the notice of particulars under Clause 23.3, the Owner does not give the Builder:

• a signed request to the variation under Clause 23.4; and
• written evidence of the Owner's ability to pay for the variation,

the request by the Owner for the variation is deemed withdrawn.

34.0 The date for Commencement is put back or the Building Period is extended if the carrying out of the Building Works is delayed due to:

• a variation or a request for a variation by the Owner in accordance with Clauses 16, 21, 23 and 24;
• a suspension of work in accordance with Clause 35;
• inclement weather or conditions resulting from inclement weather in excess of the Days nominated in Schedule 1;
• disputes with neighbouring owners or residents, or proceedings brought or threatened by them, that are not the Builder's fault;
• civil commotion or industrial action affecting the work of tradespeople or the work of a manufacturer or supplier of materials;
• anything done or not done by the Owner or by an agent, contractor or employee of the Owner;
• a delay in getting any approval, provided that it is not the Builder's fault. Refer to clause 19; or
• any other cause that is beyond the Builder's direct control.

34.1 The Builder is to give the Owner a written notice informing the Owner of the extension of time. The written notice must state that cause and the extent of the delay.

34.2 To dispute the extension of time the Owner must give the Builder a written notice, including detailed reasons why the Owner disputes the claim, within 7 Days of receiving the Builder's notice.

34.3 If there is an extension of time due to anything done or not done by the Owner or by an agent, contractor or employee of the Owner, the Builder is, in addition to any other rights or remedies, entitled to delay damages worked out by reference to the period of time that Building Period is extended and the greater of $250 per week or that amount set out in Item 12 of Schedule 1. Delay damages will accrue on a daily basis.

34.4 The Owner must pay any delay damages with the next Progress Payment.

1. There were a number of issues in dispute in VCAT. For present purposes the critical issues were as follows.

(a) Could the builder recover payment for the variations it had claimed, in circumstances where the variations had not been requested in writing and the builder had not given the information required by s 38 of the DBCA?

(b) Could the builder rely on the time spent in undertaking the variations to extend the time for completion under the contract, and if so, what was the duration of the extension?

(c) Was the owner entitled to liquidated damages because the works had not been completed within time?

1. The first issue turned on whether VCAT was satisfied of the matters set out in s 38(6) of the DBCA so as to permit recovery. On that issue, VCAT held that the builder would suffer significant hardship by the operation of s 38 of the DBCA if recovery was not allowed, and that it would not be unfair to the owner for the builder to recover payment. Therefore VCAT held that the builder was entitled to recover payment for many of the variations under s 38(6)(b) of the DBCA.
2. In reaching that conclusion, VCAT said that it was necessary to look at each claim individually, but that the question of hardship fell to be assessed 'having regard to all of the circumstances, including the Builder's financial situation at the time'. That included consideration of other expenses that the builder had to incur in complying with the owner's requests.[7] VCAT also took into account what it regarded was the small profit margin under the contract of 10 to 15 per cent. According to VCAT this meant that the consequence of the builder not being able to recover for a variation would be more significant 'in that it is more likely that it will have to make up the cost from its own resources and the evidence was that the Builder was suffering financial difficulties'.[8]
3. One example taken from its reasons will suffice to illustrate the reasoning of VCAT on this issue. The builder claimed $9,222.67 to use steel lintels in place of the timber lintels that had been specified, in the garages. This change was required by an engineer, and VCAT found that the builder was not responsible for the issue because both the architectural and engineering design was the responsibility of the owner.[9] VCAT concluded that the claimed amount was significant and it would be a hardship for the builder not to recover the cost.[10] As the owner had the benefit of the variation it was not unfair for the owner to pay for the cost plus a reasonable profit.[11] We note that VCAT applied the same reasoning even to more modest variations including for example allowing for the recovery of $485 in respect of a storm water pipe that needed to be rerouted to comply with regulatory requirements.[12]
4. VCAT found that the builder was entitled to recover money in respect of 13 of the 18 claimed variations. The amounts that were ordered in favour of the builder in respect of the variations totalled $133,519.19. In addition, VCAT found that the builder was entitled to the sum of $147,800 that the owner had withheld.[13]
5. VCAT also allowed the builder's extension of time claims with respect to the variation claims that caused the works to be delayed, under cl 34 of the contract. VCAT did so notwithstanding that the procedure set out in cl 34 had not been followed. In explaining this aspect of its decision, VCAT said this:

[Counsel for the builder] submitted that the Builder is entitled to an extension of time in any of the circumstances listed in Clause 34.0, even where the procedure set out in the succeeding parts of Clause 34 are not followed.

I think that is correct. Clause 34.0 is not prefaced by the words: "Subject to compliance with this clause ..." or some similar phrase. The entitlement to an extension is prima facie absolute. Quite obviously, if the procedure is not followed, then the machinery set out in the clause cannot be used to establish an entitlement to an extension of time. However, [Counsel] says that the entitlement encompasses a variation under either of the sections.[14]

1. Having found that an extension of time was available under cl 34 of the contract, VCAT did not consider the builder's alternative submission that, where recovery is allowed under s 38(6), a corresponding extension of time is available under s 39 of the DBCA.
2. Even with the extensions granted by VCAT, there was still a delay in completion. VCAT found that the owner was entitled to some liquidated damages, but in a lesser amount than had been claimed. VCAT determined that seven of the variation claims resulted in an entitlement for the builder to extend the time for completion of the works by 28 weeks and one day.[15] The liquidated damages that were payable by the builder to the owner were assessed at $50,142.85.[16] This amount was set off as against the amount payable by the owner to the builder. None of these findings are contested on the appeal.

1. The owner appealed from the decision of VCAT on a question of law under s 148 of the Victorian Civil and Administrative Tribunal Act 1998.

The role of hardship under s 38(6)(b)

1. The first issue before the Judge concerned the construction of s 38(6)(b) of the DBCA and in particular the meaning of the phrase 'that the builder would suffer a significant or exceptional hardship by the operation of paragraph (a)'.
2. The Judge held that s 38(6)(b)(i) of the DBCA should be interpreted broadly, and that 'hardship' 'is not concerned with any difficulties faced by a builder in complying with the notification requirements, but rather the consequences to the builder of the strict enforcement of the notification requirements'. Further, the Judge held that the financial position of the builder, and the profit margin on the contract, are matters that can be taken into account when determining whether a builder would suffer exceptional hardship for the purposes of s 38(6)(b)(i).[17]

Extension of time for completion under s 39 of the DBCA

1. As noted, the second issue before the Judge concerned whether VCAT was correct to extend the date for completion of the contract because of the variations. It will be recalled that VCAT had relied on cl 34 of the contract. The Judge considered that it was open to her to conclude that VCAT's approach was tainted by an error of law or involved a failure to give adequate reasons. However, the Judge held that the extension of time was available under s 39(c) of the DBCA, because that section operates to extend the completion date for a variation for which payment had been awarded under s 38(6)(b).
2. The Judge's reasons for construing s 39 so as to extend the completion date of the contract are as follows:

Section 39 provides that, unless the contrary intention appears (presumably in the contract itself), if the plans or specifications in a major domestic building contract are varied in accordance with ss 37 or 38, the completion date in the contract is to be adjusted to take into account the variation. Accordingly, the critical question is, whether a variation for which payment is allowed under s 38(6)(b) is a variation "in accordance with" s 38 of the DBCA for the purpose of s 39(c).

...

In my view, there is some ambiguity in the use of the phrase "in accordance with" in s 38 and s 39. On one view, s 39 cannot provide relief to a builder which has failed to comply with the notification requirements, given that the language of that phrase is arguably synonymous with "in compliance with". Any variation claim by a builder under s 38(6)(b) is, axiomatically, a variation which has not been made "in accordance with" the notification requirements, which is the primary obligation imposed by s 38. Arguably, s 38(6)(b) does not authorise, or validate, a variation claim where the builder has not complied with the notification requirements. Rather, it is an ameliorative provision designed to relieve the potentially harsh consequences of the strict enforcement of the notification requirements.

However, notwithstanding the ambiguity in the use of the term "in accordance with", I am persuaded that the construction of s 39 advanced by the builder is to be preferred. First, s 39 refers to variations made in accordance with s 38, and is not confined in its terms to variations made in compliance with the requirements in ss 38(1) to (5) inclusive, that is, the notification requirements. Further, the builder's preferred construction promotes a more harmonious operation of the provisions of the DBCA concerning variation claims than the owner's preferred construction, and, as noted in Project Blue Sky, a statute "must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals". A construction that provides that variations for which a builder is entitled to recover payment are said to be variations made "in accordance with" s 38 promotes the harmonious operation of those provisions: that is, undocumented variations are to be discouraged, but if a builder can overcome the relatively high bar imposed by s 38(6)(b), the relevant contract is varied so as to ensure that the builder is not automatically in breach of the warranties in s 8 of the DBCA, and the term of the contract prescribing the contract price and the completion date of the works.

Accordingly, in my view, the phrase "in accordance with" in s 39 encompasses not only variations where the builder has complied with the notification requirements, but also variations where VCAT is satisfied that builders should be relieved of the harsh consequences of the builder's failure to comply with the notification requirements. Further, as noted by the builder in its submissions, this construction of s 39 does not provide a builder with a windfall, as the builder still needs to satisfy the strict test under s 38(6)(b).[18]

1. The third issue before the Judge was whether VCAT had erred in its construction of cl 34 of the contract. In so far as VCAT had held that the builder's entitlement to an extension of time under cl 34 of the contract was not conditioned upon the compliance by the builder with the notice requirements in that clause, her Honour stated that she agreed with VCAT on that issue. Her reasons, in summary, were as follows:

First, the absence of any qualifying words in cl 34.0 supports the builder's contention that the entitlement is absolute, provided that the delay to the works is occasioned by one or more of the circumstances enumerated in the bullet points in cl 34.0.

My view that the builder's entitlement to an extension of time is not conditioned upon the compliance by the builder with the notice requirements is borne out by a careful reading of cl 34 itself.

...

That the builder's entitlement to an extension of time is not conditioned on the notice requirements is also illustrated by a comparison of the notice requirements and the notification requirements. Section 38(6) precludes a builder from recovering payment for a variation unless the builder complies with the notification requirements, or is able to satisfy VCAT of the matters set out in s 38(6)(b). In contrast, while cl 34.1 provides that a builder must comply with the notice requirements, no consequence for the builder's failure to comply with the notice requirements is provided for in cl 34.

Accordingly, while cl 34.0 governs the entitlement to an extension of time, cll 34.1 and 34.2 amount to no more than a dispute resolution procedure, and an incomplete one at that, given that it fails to provide a mechanism for resolving any dispute between the owner and the builder concerning an extension of time claim to which an owner objects. The balance of cl 34 concerns the entitlement of the builder to delay damages and the time for payment of delay damages, which are not relevant to the current appeal.[19]

1. Her Honour then observed that the proper inquiry was whether one or more of the matters enumerated in the bullet points in cl 34.0 had been satisfied. In that regard, her Honour observed that VCAT appeared to have accepted that a variation for which a claim was allowed under s 38(6)(b) was 'a matter or cause beyond the control of the builder', thus falling within one of the dot points in cl 34.0. The Judge expressed the view that that did not appear to be correct - s 38(6)(b) 'does not confer an automatic entitlement to an extension of time under cl 34'.[20]
2. The Judge then said this:

The question remains though, given that the reasons disclose that [VCAT] may have acted on an erroneous understanding of the relationship between cl 34.0 and s 38(6)(b), what consequences should flow from that? None, in my view. While it would be open to me to reach a conclusion that [VCAT's] findings regarding the source of the builder's entitlement to an extension of time were tainted by an error of law, or at least were expressed in such terms as to not make clear the path of his reasoning in that regard, in my view, I would dismiss any appeal on those grounds.[21]

1. However, her Honour explained that her conclusion as to error did not require that the matter be remitted to VCAT:

[T]here is no need for any remitter, because I am satisfied that, even if [VCAT] was in error in determining that the requirements in cl 34.0 were satisfied by reason of him allowing payment for a variation claim under s 38(6)(b), I agree that s 39 of the DBCA operates to extend the completion date where a variation for which payment has been awarded under s 38(6)(b).[22]

1. In essence, the Judge's reasoning was that any error by VCAT in relation to cl 34 was immaterial, because there was another, independent pathway to the same result, namely the operation of s 39(c).

(1) The Judge erred in finding that the builder's entitlement to an extension of time (and consequential change to the building period) was not conditional upon compliance with the notice requirements of cl 34.1 of the contract.

(2) The Judge erred in finding that cl 34.0 governs the builder's entitlement to an extension of time absolute, whilst cls 34.1 and 34.2 amount to no more than a dispute resolution procedure and an incomplete one at that.

(3) The Judge erred in finding that s 39 of the DBCA operates to extend the builder's completion date under the contract where there is a variation for which payment has been awarded under s 38(6)(b).

(4) The Judge erred in finding that the phrase 'in accordance with' in s 39 of the DBCA encompasses not only variations where the builder has complied with the notification requirement, but also variations where VCAT is satisfied that the builder should be relieved of the harsh consequences of the builder's failure to comply with the notification requirements.

(5) The Judge erred in construing s 38(6)(b) of the DBCA and should have found that the correct test for assessing hardship to the builder pursuant to s 38(6)(b)(i) requires consideration of the effect of the builder being required to comply with the prescriptive requirements of sub-ss 38(1)-(5) of the DBCA before it is able to recover the cost of variations plus a reasonable profit.

1. The questions arising in relation to ss 38 and 39 of the DBCA are, fundamentally, questions of statutory construction, requiring 'attribution of meaning to statutory text'.[23] The starting point for this exercise is the text of the provision, but the text is to be considered in light of its context and purpose.[24] Context includes the legislative context, because the meaning of a provision must be determined by reference to the entire Act.[25] Consideration of purpose is further reinforced by s 35(a) of the Interpretation of Legislation Act 1984, which provides as follows:

A construction that would promote the purpose or object underlying the Act or subordinate instrument (whether or not that purpose or object is expressly stated in the Act or subordinate instrument) shall be preferred to a construction that would not promote that purpose or object.

1. When determining which of two competing interpretations of a statute ought to be adopted, it is permissible to have regard to the consequences of each interpretation.[26]

Issue 1 - Construction of s 38(6)(b) of the DBCA

1. Issue 1, raised by ground 5, concerns the proper construction of s 38(6)(b). In summary, the owner contends that the hardship referred in that section to relates to the need for compliance with the notice requirements of the section; it does not involve any broader analysis and, in particular, does not encompass financial hardship arising from the inability of the builder to recover money in respect of the variation. In contrast, the builder contends that the text and context of the section do not compel such a narrow construction.
2. In our opinion, the construction advanced by the builder is to be preferred. The plain wording of the text compels such a construction.

(a) The 'significant or exceptional hardship' suffered by the builder is that occasioned by the 'operation' of s 38(6)(a) of the DBCA. Section 38(6)(a) operates to preclude the builder from 'recover[ing] any money' unless the builder has given the relevant notice. The hardship is therefore directed to the builder's inability to recover any money.

(b) The text of s 38(6)(b)(i) does not expressly link the hardship to either the notice requirement (which is imposed by s 38(3)) or to compliance with s 38 more generally.

(c) Accordingly, the language does not confine the hardship to that associated with complying with the notice. Rather, it is only confined by the requirement that such hardship be 'significant or exceptional'.

1. The owner repeatedly emphasised the consumer protection nature of the legislation and the need to protect owners and provide certainty in contractual arrangements. Unexpected cost and delay, the cause of much disputation, is substantively addressed by the transparency and certainty associated with the giving of a notice directed to these matters. So much may be accepted. It may also be accepted that s 38 has a protective purpose, as recognised by Nettle, Gordon and Edelman JJ in Mann v Paterson Constructions Pty Ltd:

The apparent purpose and legislative effect of these provisions is that a builder shall not be permitted to recover any money in respect of owner-initiated variations (other than for prime cost items and by way of provisional sums) except in accordance with these provisions. As such, they function as protective provisions, designed to prevent the kinds of problems likely to arise where domestic building contract variations are dealt with informally, as by oral request by an owner for a variation and compliance by the builder without first agreeing with the owner on the price and other consequences of giving effect to the variation; in particular, to avoid the surprises and consequent disputation likely to arise where plans and specifications under a major domestic building contract are varied without the degree of formality mandated by s 38(1) and (2) or (3). Hence, subject to only one exception, they prohibit a builder recovering any money in respect of owner-initiated variations unless the required degree of formality has been observed. The one exception [to s 38(6)(a)] reflects a legislative recognition that there can sometimes be instances of non-compliance which are in themselves exceptional or would result in the builder suffering exceptional hardship and in which it is not unfair to require the owner to pay a reasonable recompense for the variation, namely, the cost of the variation and a reasonable profit margin in accordance with s 38(7).[27]

1. Legislation 'rarely pursues a single purpose at all costs'.[28] In the present case, the legislature has not chosen to pursue its consumer protection purpose without any regard for the interests of the builder. Rather, as Nettle, Gordon and Edelman JJ pointed out, Parliament has included an exception to the stringent terms of s 38 (which, in broad terms, protects consumers) in s 38(6)(b) (which provides some limited protection to builders). That exception is designed to protect the builder only in cases of 'significant or exceptional hardship'. This is a high bar, particularly given that the builder is also required to establish that it would not be unfair to the owner for the builder to recover the money. The circumstances in which the exception in s 38(6)(b) operates, and the satisfaction required by VCAT, is not inconsistent with the consumer protection purpose of the legislation. Rather, the exception provides a balance between the protection of the owner and the protection of the builder.
2. For these reasons, we consider that the Judge was correct in her construction of s 38(6)(b) of the DBCA.

Issue 2 - Consequential extension of time under s 39(c) of the DBCA

1. Issue 2 (raised by grounds 3 and 4) concerns the proper construction of s 39. It is convenient to set out the section again:

Unless the contrary intention appears, if the plans or specifications set out in a major domestic building contract are varied in accordance with section 37 or 38, any reference in this Act, the regulations or the contract to -

(a) those plans or specifications is to be read as a reference to them as varied; and

(b) the contract price is to be read as a reference to the contract price as adjusted to take account of the variation; and

(c) the completion date, or the number of days required to finish the work, is to be read as a reference to that date, or number of days, as adjusted to take account of the variation.

1. In summary, the owner contends that, properly construed, s 39 only operates where the plans and specifications have been 'varied'; and that, it says, will not have occurred when s 38(6)(b) is engaged. The owner submits that under s 38(6)(b) VCAT merely allows the builder to recover the cost of the variation; VCAT does not require or authorise any variation to the plans or specifications. Without compliance with the notice provisions, s 38 does not provide any mechanism for the variation of the plans and therefore the plans will not have been 'varied in accordance with' s 38. Alternatively, the owner contends that the words 'varied in accordance with' s 38 mean that s 39 is only engaged if the builder has complied with the requirements of s 38. On that approach, s 39 is not engaged where the builder utilises s 38(6)(b).
2. In contrast, the builder contends that s 38(6)(b) operates when there has already been a variation - i.e. a variation to the plans or specifications - and that where VCAT is satisfied under that section, the variation is properly to be regarded as being 'in accordance with' s 38. The builder points out that s 39 does not require that the builder complied with s 38, which it could have done had that been Parliament's intention.

1. It is necessary to start with the text of s 39.
2. Section 39 commences with the words 'unless the contrary intention appears'. In our opinion, the contrary intention referred to in that phrase is likely to be a reference to an intention located in the contract; that is, the opening words indicate that s 39 may be contracted out of, notwithstanding s 132 of the DBCA. Thus it appears that the operation of s 39 is capable of being excluded or modified by the terms of the contract. We have used qualified language because no argument was directed to this issue; nor did the builder submit that the operation of s 39 in this case was excluded by the terms of the contract. We do not express any concluded view on the meaning and effect of these opening words.
3. Next, s 39 sets out the circumstances in which the section is engaged, namely 'if the plans or specifications set out in a major domestic building contract are varied in accordance with section 37 or 38'. It is thus necessary to turn immediately to those sections in order to construe s 39.
4. Section 37 is concerned with builder-initiated variations; section 38 is concerned with owner-initiated variations. They mirror each other in their content. It is the latter that is relevant for present purposes.
5. Section 38 contemplates that, in order for a variation (other than a minor variation[29]) initiated by the owner to be acted upon by the builder:

(a) the owner must give a notice requesting the variation;

(b) the builder must respond with a notice either:

(i) setting out the effect the variation would have on the work as a whole, the extent of any delay that would ensue and the cost; or

(ii) stating that the builder refuses or is unable to carry out the variation and giving a reason; and

(c) the owner must then give the builder a signed copy of the request attached to the builder's notice.

1. This last step ensures that, before the builder gives effect to any variation asked for by the owner, there will have been an exchange of information about the variation and its cost and effect, there will be a signed record of the exchange, and there will be a clear record of the owner's informed consent to the variation going ahead.
2. Although s 38 provides for when an owner-initiated variation may, or may not, be acted upon, and for when money for the variation may, or may not, be recovered, the section does not provide for other consequences of the variation. This is dealt with in s 39.
3. Where there has been compliance with the notice provisions in s 38, the operation of s 39 will be relatively straightforward. However, the interaction between ss 38 and 39, if any, is less clear in circumstances where a builder has given effect to a variation in breach of s 38(5).
4. With one exception, s 38 does not prescribe a particular consequence if a builder gives effect to a variation in breach of s 38(5). The exception is that s 38(6) prevents recovery of any money in respect of a variation where there has been non-compliance with s 38 (subject to VCAT's satisfaction under s 38(6)(b)). It would seem to follow that the builder would remain bound by the contractual terms and would be required to undertake the works in accordance with the plans and specifications and other contractual terms, including as to price and completion date, without regard to the variation, even though that variation had been carried out. However, the question is whether s 39 applies to adjust the contract price and completion date to accommodate a variation that has been carried out in breach of s 38(5).
5. In light of that statutory context, we return to the text of s 39.
6. First, we accept that s 39 is only engaged when there has been a variation to the plans or specifications. But, in the circumstances where s 38(6)(b) is engaged, there will necessarily have been a variation to the plans or the specifications, as a matter of fact. That is because a builder is only entitled to seek recovery of its cost under s 38(6) in respect of an owner-initiated variation which the builder has carried out. Of course, if the builder did not comply with the notice provisions, then it was prohibited by s 38(5) from giving effect to the variation; nonetheless, s 38(6) contemplates that in some cases of that kind the builder will in fact have carried out the variation. Thus we reject the owner's submission that in this case s 39 was not engaged because there was no variation.
7. We also reject the owner's submission that a variation carried out contrary to s 38(5), but for which VCAT is relevantly satisfied under s 38(6)(b)(i), is not a variation 'in accordance with' s 38.
8. As a matter of ordinary language, the phrase 'in accordance with' a statutory provision may mean 'consistently with', in 'conformity with' or 'in compliance with'. There is some divergence between the meaning of these different phrases. But in our view, understood in its statutory context, the phrase 'in accordance with' in s 39 is best understood as having a meaning closer to 'consistently with' than to 'in compliance with'. In our view, a variation made 'in accordance' with s 38 includes both a variation in respect of which the procedural requirements are satisfied and a variation which is completed by the builder and in respect of which VCAT has permitted the builder to recover the cost together with a reasonable profit. In both situations it is apt to describe the variation as being made in accordance with, in the sense of consistently with, s 38. While we accept that such a variation may not be properly described as being strictly 'in compliance with' s 38, that is not the statutory language; had Parliament intended[30] a strict focus on compliance with certain sub-sections within s 38, we think it would have adopted language more apt to convey that intention.
9. As noted earlier in these reasons, it is appropriate to have regard to the consequences of competing interpretations when determining which interpretation is correct. In the present context we observe that, once the variation requested by the owner has been completed by the builder and VCAT permits the builder to recover its costs and profit for doing so, the prohibition in s 38(5) ceases to have any meaningful work to do. In those circumstances, it would be anomalous for the owner to be able to insist on the contractual terms as if there had been no variation, even though the work has been completed and the owner is required to pay for it.
10. The point may be illustrated by reference to the statutory warranties in s 8 of the DBCA. As the builder points out, s 8 provides that a number of warranties are part of every domestic building contract. They include that the builder warrants that the work will be carried out 'in accordance with the plans and specifications set out in the contract'.[31] On the owner's construction of ss 38 and 39, despite the variation having been requested and carried out, and VCAT having authorised payment for the variation, the builder would be in breach of the warranty, and the work comprising the variation would not enjoy the benefit of the statutory warranties.
11. Unless s 39 applies to the situation in which VCAT allows for recovery, there will remain a major disconnect between the plans and specifications (which, on the owner's case, remain unvaried) and the completed work. Further, the amount payable to the builder will no longer reflect the contract price and the completion date may not fairly reflect the time required to complete the work. It would be anomalous, to say the least, that in circumstances where a builder is entitled to recover the cost of a variation, the builder is nevertheless not entitled to an extension of the completion date of the works occasioned by the variation, and that the builder also faces a claim for liquidated damages because of a delay caused by the variation. Such an outcome is unjust and in our view was not intended by the legislature.
12. This approach to s 39 treats that section as part of a suite of provisions that work together harmoniously to deal with variations to plans and specifications. Sections 37 and 38 deal with the process by which a variation is to be authorised, and provide for when a builder can and cannot recover money in respect of the variation; the other consequences flowing from variations are dealt with in s 39. So understood, the provisions form a coherent scheme that encompasses all the necessary steps for, and consequences of, a variation. In contrast, the owner's construction produces an anomalous lacuna in the manner in which the DBCA deals with variations.
13. Thus, where VCAT has reached the necessary state of satisfaction under s 38(6)(b), s 39(c) extends or adjusts the completion date 'to take account of the variation' - or, in this case, variations. The extension equates to the length of time it takes or has taken to effect the variations. In circumstances where s 38(6)(b) is invoked, the variations will have been carried out and the delay, if any, will be known. If there is a disagreement as to the reasonableness of the delay, that would be dealt with as a separate dispute. But there is no such dispute in this case.
14. For these reasons, we would reject grounds 3 and 4. The builder was entitled to an extension of time to reflect the time taken to undertake the variations.

Issue 3 - Does cl 34 of the contract preclude any extension of time?

1. Issue 3, raised by grounds 1 and 2, concerns the proper construction of cl 34 of the contract.
2. The owner initially conceded that it was necessary for it to succeed on both issue 2 and issue 3: that is, it initially accepted that if s 39(c) applied, then cl 34 of the contract had no work to do. In those circumstances, an extension of the completion date would occur by reason of s 39(c), and issue 3 would not arise. If that were so then, given our conclusion on issue 2, it would not be necessary to consider issue 3.
3. However, after further consideration, in his reply submissions, senior counsel for the owner qualified that concession, as reflected in the following exchange:

SIFRIS JA: My specific question is this: 39(c) says that the completion date is to be read as a reference to that date as adjusted to take account of the variation.

MR MARGETTS: That's right.

...

MR MARGETTS: No, but there's no contractual claim. If there is no contractual claim, how do you then have any adjustment?

SIFRIS JA: Well, the adjustment is by force of 39, including (c), which refers to the taking into account of the variation.

...

MR MARGETTS: But there's no contractual claims - what's the source of the extension of time? Where does it come from?

...

MR MARGETTS: It can only come from the contract or alternatively only come from the exercise of discretion by the tribunal. The tribunal doesn't have that power so you don't get - how do you get an adjustment of 39(c) if you don't satisfy 34? You can't. So when I said to the court earlier today that the court need not answer the issue about 34, in circumstances that it may go straight to 39, I was wrong, as debates moved today. I worked on the basis of course that my arguments would be accepted on 39. But if one tries now to look at the alternative argument ‑ ‑ ‑

SIFRIS JA: You've got to bring it back to contract, is your argument, yes.

MR MARGETTS: Yes, you always have to come back to the contract.

SIFRIS JA: So you would need compliance with 34, even if you rely on 39.[32]

1. As already noted, the owner did not put an argument that cl 34 of the contract revealed a contrary intention, so that s 39(c) is not engaged; rather, the argument was that, even if s 39(c) is engaged, cl 34 provides an additional hurdle before an extension of time for the completion date under s 39(c) is given effect.
2. The owner then contends that, on a proper construction of cl 34, the builder is not entitled to any extension of time unless a written notice is given as required by cl 34.1 of the contract. In contrast, the builder contends that the extension is enlivened by cl 34.0, regardless of compliance with cl 34.1, and submits that, in any event, s 39(c) of the DBCA provides the required extension so that it is not necessary to resort to the contract.
3. We do not accept the owner's contention that, if s 39(c) is enlivened, it is nonetheless necessary also to satisfy cl 34 of the contract. Clause 34 does not relevantly add to, affect or qualify the operation of s 39(c) in the manner advanced by the owner. In other words, non-compliance with cl 34, by the failure to give a written notice (if indeed this is a requirement or pre-condition to an extension of time as submitted by the owner), does not have any impact on the operation of s 39(c) which, as we have concluded, provides for the consequences of a favourable VCAT decision under s 38(6)(b). Accordingly, it is unnecessary to determine whether cl 34 of the contract applied to extend the time for completion in this case. Section 39(c) of the DBCA provides a complete answer.
4. In relation to cl 34, VCAT appears to have held that an extension of time is automatic if the works are delayed due to one of the circumstances outlined in the bullet points of cl 34.0, and that it is not necessary for a notice under cl 34.1 to be given for an extension of time to be effective.[33] The Judge agreed, holding that there is an automatic extension of time without the need for any notice, provided that the delay to the works was 'occasioned by one or more of the circumstances enumerated in the bullet points in cl 34.0'.[34] However, the Judge appears to have thought that VCAT had wrongly conflated cl 34 of the contract and s 38(6)(b) of the DBCA. The Judge went on to say that it would be open to her to find that VCAT's findings 'were tainted by an error of law, or at least were expressed in such terms as to not make clear the path of [its] reasoning in that regard'.[35] Were the Judge to have given effect to that conclusion, her Honour would have allowed the appeal; however, the Judge dismissed the appeal because s 39 of the DBCA provided for the extension of the completion date.[36]
5. Grounds 1 and 2 assume that the Judge held that cl 34 of the contract provided the foundation for the extension of time; the applicant then seeks to challenge that finding. The grounds are based on a false premise. The Judge held that, even assuming VCAT erred in applying cl 34, the builder was nonetheless entitled to an extension of time pursuant to s 39(c). As we explained above, we agree. Thus grounds 1 and 2 must be rejected because they would not result in overturning the Judge's decision. Given her Honour decided the appeal on a different basis, it is unnecessary for this Court to resolve the issue of construction of cl 34. That is particularly so where no argument was presented before VCAT or the Judge on whether the first bullet point of cl 34.0 deals exhaustively with delays due to owner-requested variations. Given that the first bullet point expressly refers to cl 23, which imposes notice requirements in relation to owner-requested variations, it is arguable that a delay due to a request for a variation made by the owner is not capable of falling within any other bullet point in cl 34.0 (such as the sixth bullet point, which contains the general description of 'anything done or not done by the Owner'). That is because to do so would avoid the requirements found in the first dot point.[37] Ultimately, however, given the way the case was argued and decided both before VCAT and before the Judge, and the way in which it was argued in this Court, it is unnecessary for us to determine the proper construction of cl 34.

1. Because the grounds of appeal were arguable, and are of sufficient importance, we will grant leave to appeal, but will dismiss the appeal.

[1] Raised by proposed ground of appeal 5 (hereafter proposed grounds of appeal are referred to as grounds of appeal, for convenience).

[2] Raised by grounds 3 and 4 of the appeal.

[3] Raised by grounds 1 and 2 of the appeal.

[4] Daniel Investments (AUST) Pty Ltd v Jolin Nominees Pty Ltd (Building and Property) [2020] VCAT 480, [419] ('VCAT reasons').

[5] DBCA, s 54.

[17] Reasons, [128(b)-(c)], [134]-[135], [137], [142], [145].

[18] Ibid [197], [202]-[204] (emphasis in original) (citations omitted).

[19] Ibid [177]-[178], [181]-[182].

[23] Thiess v Collector of Customs [2014] HCA 12; (2014) 250 CLR 664, 671 [22] (the Court); [2014] HCA 12.

[24] SAS Trustee Corporation v Miles [2018] HCA 55; (2018) 265 CLR 137, 149 [20] (Kiefel CJ, Bell and Nettle JJ), 157 [41] (Gageler J), 162-3 [64] (Edelman J); [2018] HCA 55. See also Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27, 46-7 [47] (Hayne, Heydon, Crennan and Kiefel JJ) and the several cases there cited at n 105; [2009] HCA 41.

[25] Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381 [69] (McHugh, Gummow, Kirby and Hayne JJ); [1998] HCA 28 ('Project Blue Sky').

[26] R v Young (1999) 46 NSWLR 681, 687-8 [15] (Spigelman CJ); [1999] NSWCCA 166. See also Project Blue Sky (1998) 194 CLR 355, 384 [78] (McHugh, Gummow, Kirby and Hayne JJ). See generally the discussion in Dennis Pearce and Robert Geddes, Statutory Interpretation in Australia (LexisNexis Butterworths, 8th ed, 2014) 79-83 [2.38]-[2.40].

[27] [2019] HCA 32; (2019) 267 CLR 560, 621-2 [157]; [2019] HCA 32 (citations omitted).

[28] Carr v Western Australia [2007] HCA 47; (2007) 232 CLR 138, 143 [5] (Gleeson CJ); [2007] HCA 47; Construction Forestry Mining & Energy Union v Mammoet Australia Pty Ltd [2013] HCA 36; (2013) 248 CLR 619, 632-3 [40]-[41] (Crennan, Kiefel, Bell, Gageler and Keane JJ); [2013] HCA 36.

[29] Under sub-s (2), if the builder considers that the variation will not require a variation to any permit, cause any delay, or add more than 2% to the original contract price, the builder may carry out the variation without complying with the formal requirements of s 38.

[30] We refer, of course, to the legislative intention in the sense discussed in Zheng v Cai [2009] HCA 52; (2009) 239 CLR 446, 455-6 [28] (the Court); [2009] HCA 52.

[31] DBCA, s 8(a).

[37] 'It has long been established that contractual or statutory provisions prescribing in positive terms a procedure to be followed necessarily imply that the same matter will not be dealt with under a different procedure': ABB Power Plants Ltd v Electricity Commission (NSW) t/as Pacific Power (1995) 35 NSWLR 596, 599 (Handley JA), approved in PMT Partners Pty Ltd (In liq) v Australian National Parks & Wildlife Service [1995] HCA 36; (1995) 184 CLR 301, 321-2 (Toohey and Gummow JJ); [1995] HCA 36.