Kalokerinos & Anor v HIA Insurance & Anor

Mr. Zaide admitted in cross-examination that at the time that the contract was being negotiated the relevant plans and specifications did not contain sufficient detail to provide a fixed price quote. The Applicants submit that it is not now open to the Respondent to argue that the plans and specifications were inadequate for the Builder to give a fixed quote. As I understand it, the Respondent points to the scant detail in those documents as support for its case that the Builder did not and was not required to give a fixed price under the agreement reached with the Applicants. An argument to which I attach significant weight.

Mr Zaide went on to give evidence that there was an arrangement that following the signing of document 8-Al, the Builder would produce the detail which had been discussed orally and on which the $350,000 fixed price had been set, in a standard Master Builders' home building contract. Mr. Zaide admitted that the Builder did not do this. His evidence, in response to questions, that he did not ask the Builder during the whole course of the dealings between the parties to provide this contract, is difficult to accept.

There is also the role played by Mr. Zaide, not only in preparing the document marked 8 at exhibitA1 but also in advising the Applicants generally. Their evidence was that they both relied on Mr. Ziade.

Mr. Zaide described himself both in his affidavit and his oral evidence as a licensed builder, a qualified supervisor and the holder of a supervisor's certificate in relation to home building. His oral evidence was that he is more than familiar with home building being the head of a company which is involved in the construction of large residential flat buildings and houses.

He confirmed the Applicants' evidence that he was advising them and they were relying on him. He produced a file at the hearing which he had compiled in this capacity. My impression from observing Mr. Zaide giving evidence is that he played an active role in the negotiations and once the building works commenced. His evidence was that he lived down the road from the premises and would drop in on Sundays when no one was working to inspect what was happening. There was a period, from July to September 1999, when he was not, to use his words, "on board" for personal reasons. From this I conclude that he was back "on board" around the crucial time of November 1999 when the building costs exceeded the $350,000.

Mr Zaide's evidence is that sometime in November, he could not give a date, he became aware that the Applicants had overpaid the Builder and asked Dr Kalokerinos how this could have happened. Dr Kalokerinos replied that he had "just paid the Builder".

I can only draw the inference therefore that it was with Mr. Zaide's knowledge that the Applicants paid the Builder $80,000 worth of cash payments from 29 November to 12 December 1999 and a further $15,000 in response to Progress claim no.6 on 24 January 2000.

More importantly, on the Applicants own evidence they were armed with the knowledge that the building works were costing in excess of $350,000 when they made those payments.

On 26 November 1999, the Applicants had paid Progress Claim 5 which states "Already claimed $382,243.72", "Already Paid $293,101.13", "Balance Due $89,142.59" and "Contract Balance $382,243.72".

This progress claim, like the four that preceded it, was issued directly to the Applicants and Dr Kalokerinos kept them in a file. AlI progress claims included schedules of labour rates and work rates and quite conspicuously state:- "Original Contract $0,00; Variations to Date... ...$0.00,' Amended Contract $0. 00. All contain specific amounts beside the words "Already Claimed"; "Already Paid"; "Contract Balance ",

The Applicants made much of the fact that they had no building experience and did not understand much of what transpired. Mr. Zaide's version of the Applicants' previous house renovations was somewhat different to that presented by the Applicants. His evidence suggested that these renovations were larger and more extensive (including kitchen, bathroom and general refurbishment) than the Applicants suggested in their evidence. It was my distinct impression of them giving evidence that the Applicants played down the role of their previous renovation experience.

Further, while Dr Kalokerinos may, as he stated, have a busy medical practice he was able to take time and attend weekly site meetings with the Builder. He was able to take it upon himself to make direct purchase when he thought that this would, in his own words, result in "a good buy" so as to reduce the overall cost. He was also sufficiently cognisant of building procedures to advise the Builder when he did so, so that the Builder could make the relevant adjustment under the contract.

It is difficult to accept in the light of these matters that the Applicants could mistakenly have made overpayments in excess of $100,000.

The Applicants point to the Builder's admission that the figure of $350,000 was discussed and that he undertook to try to meet that budgetary constraint at the time the parties were negotiating. It is the Respondent's case that this figure never assumed contractual significance or contractual force. It is the Applicants' case that by looking at various objective factors, I should arrive at the opposite conclusion.

In considering the evidence before me, in particular the matters I have traversed above, I am not persuaded by the Applicants argument and find that the figure of $350,000 was not a term of the contract

It is particularly difficult to accept that the Applicants could have expected the $350,000 figure to remain firm when they proceeded to make changes which were of a more expensive nature. For example, requiring floor to ceiling marble in the bathrooms and changing the walls from gyprock to brick. I note that these items were changed after November 1999, when on the Applicants' own evidence they were aware that the costs were in excess of the $350,000.

Finally, contrary to the Applicants' submissions, I am not persuaded that anything turns on the Builder being licensed. Nor am I persuaded that the Applicants ever relied on or were induced to enter the contract because of any representation made by the Builder to keep the work within the $350,000 estimate. In rejecting such submissions I have been particularly swayed by the active roles played by Dr Kalokerinos and his adviser, Mr Zaide, both of whom, as I have commented above, I observed to be experienced, I knowledgeable and astute in building matters.

I am therefore not satisfied upon an objective consideration of the facts surrounding the transactions between the parties that the Applicants have discharged the onus on them to establish that they entered into a fixed price contract with the Builder.

2: What the terms (sic) of the contract: (i) was there a fixed price not to exceed $350.001. (ii) was there a cost plus contract not to exceed $350,000. (iii) was it a cost plus contract with unknown price?

In light of the findings in 1 above I must answer question 2 (i) in the negative and question 2 (iii) in the affirmative.

The Applicants submit that such a finding is "inconceivable" as it would result in no limitation on the amount they could be required to pay for the work. It seems to me that it was to avoid this very result that the Applicants put in place the requirements that Dr Kalokerinos or Mr. Zaide approve all quotes and the Builder submit all day labour work itemised on a daily basis. (I refer here to the conditions in Document 8 at Exhibit A1).

In relation to the Applicants' argument of a cost plus contract not to exceed $350,000 Mr. Campbell, the Applicants' expert, gave evidence of a hybrid "open book contract" with a fixed "estimate of costs" which cannot be exceeded without a variation.

The Respondent's expert, Mr. C Martin, directly refuted such a concept. When cross-examined on this point, Mr. Zaide conceded that it does not make sense to argue that there is a cost plus agreement not to exceed a cost of $350,000.

Given the diverging views of the experts, the fact that the Applicants bear the onus of proof and that their own witness, Mr Zaide, an experienced builder, did not support this proposition, I am not satisfied that the contract was one for "cost plus not to exceed $350,000" and so answer question (ii) in the negative." 14 Further the plaintiffs submitted that in reaching her determination the Tribunal Member made the following errors of law outlined in ground 1 referred to in this judgment. It was not necessary for the Tribunal Member to determine all oral terms of the contract but rather her task was confined to answering specific questions raised by the parties in the document entitled "Statement of Agreed Facts and Issues". She referred to Mr Zaide (the plaintiffs' representative) who admitted that the builder did not incorporate the fixed price of $350,000 into the master builder's contract. The builder admitted that the figure of $350,000 was discussed and he undertook to meet that obligatory constraint at the time the parties were negotiating. At paragraph 52 the Tribunal Member concluded that she was not persuaded by the plaintiffs' argument and made a finding that the figure of $350,000 was not a term of the contract. It was open to the Member to make these findings and these findings depended in part on her assessment of the credibility of the witnesses' evidence. Both parties referred to paragraph 54 in which the Tribunal Member referred to reliance on representations. This was an additional and perhaps unnecessary finding but it does not amount to an error of law.

Sections 7 and 10 of the Home Building Act 15 The appellant submitted that the Member failed to consider the significance of the warning required by s 7(5) from any written pieces of paper which might have been said to form part of the written part of the contract and failed to apply the legal effect provided in s 10 of the Act (Ground 2). 16 Section 7 of the HBA provides that a contract must be in writing, and s 7(5) states: "If the contract price is not known or may be varied under the contract, the contract must contain a warning to that effect and an explanation of the effect of the provision allowing variation of the price. The warning and explanation must be placed next to the price if the price is known." 17 Sections 10 provides: "10 Enforceability of contracts and other rights (1) A person who contracts to do any residential building work, or any specialist work, and who so contracts: (a) … (b) under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entered into in the circumstances described in section 6(2)), or (c) … is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract by the person. …. (4) This section does not affect the liability of the person for an offence against a provision of or made under this or any other Act." 18 The builder did not institute these proceedings for breach of contract, nor was he entitled to do so. The Tribunal Member was not obliged to consider the absence of a s 7 warning in the partly written, partly oral contract. It was not necessary for the Tribunal Member to canvass this issue in order to answer the questions she was asked. 19 In relation to appeal ground 6, the Tribunal Member did not determine that the builder was entitled to enforce the remedy of termination, but rather she stated that she did not find that the builder wrongfully refused to continue with and rectify the work [para 68]. The Tribunal Member held that it was the applicants who repudiated the contract and the builder was entitled to accept it [para 69].

Subsequent conduct 20 The plaintiffs alleged that the Tribunal Member erred in construing a contract made by 14 August 1999 by referring to anything the parties said or did after it was made (Ground 1(c)). Both parties referred to Magill v National Australia Bank Ltd [2001] NSWCA 221 which has been the most recent decision in the New South Wales Court of Appeal on this topic. 21 In Magill the Court of Appeal (per Ipp JA with whom Meagher and Heydon JJA agreed) stated [at paras 50 and 51]: "The admissibility of subsequent conduct as an aid to the construction of a contract remains to be authoritatively resolved. It is sufficient to point to the differing views flowing from Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 expressed by Santow J in Spunwill Pty Limited v Bab Pty Limited (1994) 36 NSWLR 290 (where subsequent conduct was held to be potentially admissible) and by Bryson J in Sportsvision Australia Pty Limited v Tallglen Pty Limited (1998) 44 NSWLR 103 (where the contrary was held).

In my respectful opinion the views expressed in Sportsvision Australia Pty Limited v Tallglen Pty Limited are to be preferred. Like Bryson J, I consider the reasoning of Lord Reid in James Miller & Partners Limited v Whitworth Street Estates (Manchester) Limited [1970] AC 583 at 603 to be unanswerable. His Lordship there said: "I must say that I had thought that it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or year later". 22 However, the defendant referred to Asia Television Ltd v Yau's Entertainment Pty Ltd [2000] FCA 254 (10 March 2000); Great City Pty Ltd v Kemayan Management Services (Australia) Pty Ltd & Ors [1999] WASC 70 (24 June 1999); Amaca Pty Ltd formerly known as James Hardie & Coy Pty Ltd v CSR Ltd [2001] NSWSC 285 (18 April 2001); Magill; and Sasson v Fahevu [1999] NSWCA 400 (28 October 1999). The defendant submitted by reference to those authorities, that in none of them was it held that subsequent conduct of the parties was inadmissible in determining whether, on the probabilities, a term had been agreed on as contended for by one of the parties as part of an oral contract. The defendant further submitted that the Member was not in error in taking into account the ongoing commercial relationship as a relevant factor and she was saying no more than the fact that the ongoing commercial relationship was consistent with the probabilities that there was no such upper limit as contended for by the plaintiffs and the defendants' counsel referred to Port Jackson Stevedoring Pty Ltd v Salmond & Sparggon Aust Pty Ltd (1978) 139 CLR 231 at 252. 23 When the Tribunal Members reasons are read carefully she evaluates the evidence and concludes that she is not satisfied upon an objective consideration of the facts surrounding the transactions between the parties that the applicants have discharged the onus that they entered into a fixed price contract. However, when the Tribunal Member did evaluate the evidence, she did take into account subsequent conduct such as Dr Kalokerinos attending weekly site meetings, making "direct purchases", and being cognisant of building procedures so to advise the builder when he did so, so that the builder could make the relevant adjustment under the contract [para 49]. At paragraph 58 the Tribunal Member also referred to subsequent conduct but this is not of critical importance as it comes immediately after her conclusion as to whether the contract is for a fixed price. 24 There is conflicting authority in Australia as to the legitimacy of the use of post contract conduct in construction of a contract, and this conflict extends to the recent decisions of this Court. This is alluded to in the passage I have cited above from Magill. Nevertheless, it still remains the law that evidence of clear and mutual conduct is admissible as part of the factual matrix for the limited purpose of resolving ambiguities in the language of the contract. (see White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 267 at 315; Boranga v Flintoff (1997) 19 WAR 1 at 6; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR at 290 at 304-312 and the references to Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 307-308). Were these subsequent actions referred to by the Tribunal Member considered for the limited purposes of resolving the ambiguity as to whether the contract was for a fixed price. It is my view that the Tribunal Member's considerations of direct purchases and the ensuing adjustments fall into this category. Perhaps less so in relation to the attendance at site meetings, but Dr Kalokerinos may have attended for a number of reasons such as to ascertain the costs that were incurred. Hence it is my view that this does not constitute an error of law.

Costs of alternative accommodation 25 The parties agreed that by consent that the builder was liable to the applicants for items of defective building which were identified. A copy of the consent orders is annexed to the judgment. The respondent submitted that accommodation was only sought from the date when the works were due to be completed. However, in the points of claim at paragraph 23(a) to (c) reference is made to the damages sought for the cost of rectification of defective works. 26 In relation to the accommodation the Tribunal Member stated and paragraphs 98 to 101 of her reasons: "98. Clause 5 of the policy provides (as far as is here relevant) for "loss or damage resulting from... the cost of alternative accommodation... reasonably and necessarily incurred as a result of" non -completion of the work because of insolvency of the Builder (in accordance with clause 11 of the policy) or the Builder's breach of a statutory warranty (in accordance with clause 2 of the policy).

99. I have found that the Applicants, having entered into a cost plus contract with no fixed price, for which they have failed to make full payment under the final progress claim, have not sustained a loss. More specifically I have found that they have not suffered loss or damage as a result of the Builder being insolvent or in breach of a statutory warranty so as to fall under clauses l or 2 of the policy.

100. Clause 5 is premised on a loss stemming from the events provided for under either clauses 1 and 2. As I have found that the Applicants did not sustain a loss under either of these clauses it follows that the Applicants cannot succeed under clause 5. I

101. Even if this were not the case I accept the Respondent's submission that the evidence relied upon by the Applicants to establish the amount claimed is less than satisfactory. Dr Kalokerinos when giving evidence before the Tribunal stated that he had not actually paid the amount claimed but would do so at some future time. An unsworn letter signed by Mr Zaide and tendered at the conclusion of the proceedings suggests otherwise." 27 The finding that the applicants had not suffered loss or damage was open to the Tribunal Member on the facts as she found them. It was also open to the Tribunal Member to find that the evidence in relation to alternative accommodation costs was less than satisfactory. There is no error of law.

Costs in the Tribunal 28 The original consent orders contained provisions that the parties have liberty to apply to the Tribunal from matters arising from these orders. A copy of this decision was forwarded to the parties. The Tribunal Member ordered that the plaintiffs were to pay the defendant's costs. The plaintiffs did not have an opportunity to address the Tribunal Member as to why they should not have to pay the builder's costs in relation to the rectification of the defective work which was a significant issue in this case where orders were made in the plaintiffs' favour. 29 The defendant submitted that the correct procedure would have been to approach the Tribunal Member to seek the appropriate order for costs, but no such application was made. This may be so but in any event, the defendant has conceded that, provided it does not otherwise prejudice this appeal, it consents to having this issue remitted to the Tribunal Member for determination. This matter had a number of hearings and the Tribunal Member formed views on the witnesses' veracity, it is my view that it is more appropriate that the Tribunal Member determines this costs application. Hence, I accede to this request and make an order accordingly.

Costs of this appeal 30 Costs are discretionary. Normally costs follow the event. The plaintiffs are to pay the first defendant's costs of the appeal. 31 The Court orders:

(2) The amended summons filed 24 June 2003 is dismissed.

(3) The decision of Tribunal Member C Paull dated 25 July 2002 is affirmed except so far as costs referred to in Order (4) are concerned.

(4) The matter is remitted to the Tribunal Member for the determination of costs.

(5) The plaintiffs are to pay the first defendant's costs of the appeal. **********

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