CORAM: MR M CUOMO (CHAIRMAN) MR P DE BRUIN (MEMBER) MR G KEATING (MEMBER)

BETWEEN: JOZEF CHUDY AND SHIMI MARIA CHUDY COMPLAINANTS

CATCHWORDS: Jurisdiction of the Tribunal; intellectual property in

drafted designs; contractual claim greater than statutory limit; credibility of witnesses

Commodore Homes (WA) v. Standley [2001] WADC 89.

Kelly v Norrish (2003) SR (WA) 379 Yovich v Collier [1972] WAR 143

Robinson v Harman [1848] EngR 135; (1854) 1 Ex 850

Complainants: Mr R Shaw (of counsel) Respondent: Mr A McPherson (of counsel)

1. This complaint concerns a contract ("the contract") made between the complainants and the respondent for the respondent to construct a house for the complainants at 22 Bradshaw Street, Canning Vale ("the residence"). The complainants agreed to pay the amount of

$153,340.00 ("the contract value") to the respondent to construct the residence. The contract is dated 19 May 2005.

1. The complainants had come to this state from South Australia because of Mr Chudy's employment. The complainants had plans prepared by AV Jennings in South Australia for a home design that they liked ("the AV Jennings home"), and wanted this design built on their land in Western Australia. AJ Jennings did not build in Western Australia, so the complainants approached the respondent and sought to build a house of similar design to the AV Jennings home. The AV Jennings home was the basis for discussions between the complainants and agents or employees of the respondent, and the contract plans were prepared in circumstances to be discussed further in this decision.

1. Mr Mike Russell, General Manager of the respondent, sent the complainants a letter dated 23 May 2005 (page 137 in the Book of Common Papers ("BCP")) in which he states:

I am writing to advise you of our decision to cancel the building contract to construct the dwelling at lot 971 Bradshaw Street, Canning Vale.

I have made this decision as I believe the plans prepared for you breach copyright and accordingly put us at risk of prosecution.

I would recommend you contact Ventura Homes to contract and build your new home.

1. The complainants' case is that that there was a contract between the complainants and the respondent to construct the residence for a fixed sum. The respondent purported to terminate the contract on a ground now acknowledged to be incorrect; that is that the drawings that formed part of the contract ("the contract drawings") infringed the copyright of Ventura Homes.

1. The complainant's case is that the respondent now seeks to rely on an allegation that the contract drawings infringed the copyright of AV Jennings. The complainants say that the respondent is estopped from claiming any copyright infringement. They also say that the termination

of the contract by the Respondent amounts to a repudiation that the complainants had no choice but to accept.

1. The respondent claims that the complainants engaged in misleading and deceptive conduct by falsely representing to Jason Burns, a salesman employed by the respondent, that they had permission to use the AV Jennings plan on which the plans prepared by the Respondent as the contract drawings was based. The complainants induced the respondent to copy the AV Jennings plan, infringing their copyright by this misrepresentation. In the alternative, the respondent says that the complainants failed to advise that any permission that they had was subject to conditions that had not been satisfied.

1. The respondent says that this conduct of the complainants entitled it to terminate the contract, either at common law or pursuant to section 15 of the Home Building Contracts Act 1991 ("the HBC Act")

1. Counsel for the respondent submitted that this matter ought be remitted to the District Court, pursuant to section 42 of the Builders' Registration Act 1939, ("the BR Act") which allows the Tribunal to state a case for the District Court where a question of law arises. The basis for the submission was the contention of the complainants that the respondent was estopped from claiming breach of copyright, and that

this was an equitable matter that ought not be determined by the Tribunal.

1. Counsel for the respondent referred to the decision of Yeats DCJ in Commodore Homes (WA) v Standley [2001] WADC 89. While the facts and matters of law considered by the Court in that matter are not relevant to the questions here, Her Honour did make some observations regarding the matters that this Tribunal could deal with.

1. Her Honour stated, at page 21 of the decision that:

The specialised nature of the Disputes Committee constituted as it is by two lay persons and one legal practitioner is in my opinion inconsistent with any expectation that equitable remedies will be considered. Equitable or promissory estoppel is a complex remedy unsuitable for consideration by a predominantly lay tribunal.

1. It is to be noted that Her Honour is referring to the predecessor of the Tribunal, and that the creation of the current Tribunal and of the State Administrative Tribunal has altered this situation somewhat, with appeals from decisions of the Tribunal now within the jurisdiction of the State Administrative Tribunal.

1. The Tribunal also notes the requirements of section 36(2) of the BR Act, which states:

At all sittings of the Disputes Tribunal the person referred to in section 35(2)(a) shall preside and determine any question relating to the admissibility of evidence and any other question of law and procedure.

1. It appears that the BR Act then contemplates that this Tribunal, constituted by the Chairperson or Deputy Chairperson who is a legal practitioner may determine questions of law.

1. In considering the jurisdiction of the Tribunal, the first place to start is the statutes that confer power, both the BR Act and the HBC Act. While section 36(1) of the BR Act requires that the Tribunal "shall act according to equity, good conscience and the substantial merits of the case and without regard to technicalities and legal forms", that section instructs the Tribunal in the exercise of its jurisdiction and does not define it.

1. A Deputy Chair of this Tribunal, Mr Raymond, addressed similar issues in Kelly v Norrish (2003) SR (WA) 379. At 381, the Deputy Chair reviewed the submission before him that the Tribunal had no cause to enquire into, and indeed no jurisdiction, to any contracts between the parties there. He states:

There can be no doubt, in my view, that the Tribunal has power to inquire into a contract entered into by the parties if it is relevant. The Builders' Registration Act and the Home Building Contracts Act 1991 (WA) are cognate Acts and must be read in conjunction.

1. The Deputy Chair then canvassed the sections of both Acts that confer jurisdiction. In particular, he states that section 36(1) of the BR Act and its reference to "equity, good conscience and the merits of the case" does support a duty for the Tribunal to enquire into the circumstances, which constitute part of the substantial merits of the case.

1. In this matter, the issue of estoppel operates as a rule of evidence only, and must be addressed by the Tribunal in determining the true nature of the contractual position of the parties.

1. That is not to say the Tribunal has any power to order any equitable remedy. The Tribunal's powers are limited entirely to those granted by statute, by the two Acts referred to or otherwise. In determining this claim, the Tribunal does not make any order in the nature of an equitable remedy.

1. Both of the complainants gave evidence. On the issues of the formation of the contract, their evidence agrees on the salient points. Both say that they dealt initially with Mr Burns and that they raised with him their personal circumstances and that they wished to build a home on their land in Canning Vale. They gave evidence regarding the building of a home with AV Jennings in Adelaide referred to above, and they both say that they told Mr Burns that they wished to build the same home with his company.

1. Their evidence agrees on the discussions that they had with Mr Burns. They say that he told them that the plans drawn by AV Jennings could

be used to build the residence, and that all that was needed to be done was to modify those plans.

1. The contract documents took some time to draw, as the title to the land on which the complainants wished to build took some considerable time to be granted, and the complainants were at some pains to modify the plans to reflect their desires for the final plans and specifications of the residence.

1. Mr Chudy says that Mr Burns told him that he had taken the proposal to build the residence to the "General Manager" of the respondent and that Mr Burns came back to them with a drawing with a modified rear elevation. Mr Chudy also says that Mr Burns told him that the modification had been taken from a Ventura Homes design and that this would be acceptable as Ventura Homes were part of the same group of companies as the respondent.

1. Both the complainants say that they did not tell Mr Burns that they had permission from AV Jennings to construct the residence in accordance with the AV Jennings design. This was unshaken in cross-examination.

1. Mr Burns says that the complainants told him that they had permission to use the AV Jennings design.

1. Both versions of these discussions cannot be correct. The Tribunal is of the view that the complainants have given the Tribunal an accurate version of their discussions with Mr Burns. Mr Burns, for whatever reason, has not.

1. The Tribunal comes to this view in observing the answers of the complainants during their evidence, their demeanour and the frankness to answer the questions asked of them. That is not to say that Mr Burns admitted the complainant's version of events as he stuck to his story. He did not, however, convince the Tribunal.

1. There is implausibility in Mr Burn's version of events. He says that this assurance by the complainants was verbal and that he never asked for it in writing.

1. The complainants say that Mr Burns stated that the plan needed to be modified "10 percent" so as not to infringe copyright and other witnesses say that this is an industry belief. Mr Burns denies saying this. The Tribunal is of the view, however, that the discussions between him and the complainants can only be understood in this context. To put it shortly, it is implausible for Mr Burns to have gone to the extent of arranging the modifications to the A V Jennings designs if he was of the view that the respondent did not need to so do if he was relying on assurances that the complainants had obtained permission from A V Jennings to use their design.

1. The documents also support the complainant's version of the relevant discussions. There is no contemporary reference to the assurances referred to above and said to be made by the complainants. Indeed, the letter terminating the contract quoted above at paragraph 3. does not mention these assurances, but merely mentions the violation to the copyright of Ventura Homes.

1. There is a hand-drawn design made by Mr Burns in Document 2 of Exhibit 3, which modifies the A V Jennings design. The Tribunal finds that he did so because he was of the view that he had to so to avoid violating the copyright of AV Jennings.

1. The rest of the respondent's case then falls away. No attempt was made to defend the termination for the reason stated in the letter referred to in paragraph 3. above. It must also be noted that the letter did not refer to the licence from AV Jennings. The Tribunal finds that the respondent terminated the contract for its own reasons, which have not been stated to the Tribunal.

1. The respondent has gone to some pains to show that the contract involved a violation of A V Jennings copyright. Whether this is so or not, the Tribunal finds that the respondent nevertheless entered into

the contract, in full knowledge of what it was contracting to do. If the final design that the respondent produced does violate the copyright of A V Jennings, then nevertheless Mr Burns had induced the complainants to enter into the contract.

1. Counsel for the respondent puts the issue aptly when he submits that the complainants rely upon the representations of Mr Burns to argue that the respondent is estopped from terminating the contract for the reasons that the respondent asserted. He further stated that the complainants must prove that they were induced to act by these representations, to their detriment. In this regard, counsel cites Yovich v Collier [1972] WAR 143 at 146.

1. The respondent drafted the contract documents and specifications. In doing so the respondent, through its various employees and agents involved and especially through Mr Burns, have represented to the complainants that they could construct the design contained in the terms of the contract. The complainants have relied upon these representations to their detriment, in agreeing to the contract. The respondent is therefore estopped from terminating the contract, and in purporting to terminate the contract the respondent is in breach of the contract.

1. Indeed, if the respondent was genuinely of the view that the design in the contract did violate the copyright of A V Jennings then the evidence

makes it clear that the respondent could have obtained their permission to build that design by making a payment to A V Jennings. The contract could have been fulfilled.

1. The contract value for the construction of the residence was $153,340 including GST.

1. A number of other estimates were provided. These were Plunkett Homes in February 2006 at $235,454, Highbury Homes at 19 August 2005 at $226,158 and in July 2006 at $269,786 and by a quantity surveyor, Barry Hogan, at $285,817. The differences range between the $82,114 for the Plunkett Homes estimate to $132,447 estimated by Mr Hogan.

1. Counsel for the complainants made clear that the claim was for the difference between the contact value and the cost of constructing the residence, in accordance with the contract drawings and specifications.

1. The Tribunal notes that the starting point in assessing damages is referred to in the statement by Parke B in Robinson v Harman [1848] EngR 135; (1854) 1 Ex 850 at 855:

Where a party sustains a loss by reason of a breach of contract he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract has been performed.

1. Counsel for the complainant accepts that there may be some differences in the specifications between the estimates mentioned in paragraph 37. above and the specifications in the contract. Counsel accepts that there is a cost difference in the order of $5000 to $6000.

1. William Hughes gave evidence that the cost to build the residence pursuant to the specifications in the contract was $202,000 in February 2006 and $212,000 in August 2006. This is less than a five percent increase in building costs over six months. The Tribunal finds that this assertion inherently lacks credibility as it is too low. Contrast this with the escalations of costs referred to in the Highbury Home quotes referred to in paragraph 37.

1. The Tribunal prefers to apply the estimate by Mr Hogan as the starting point, at July 2006 in the amount of $116, 446. This would have to be reduced by the amount conceded by counsel in the amount of $6000, though the amount would have to be increased, a measure of the escalation of prices since. The appropriate assessment of damages then would be in excess of $100,000. Indeed the complainants make other claims but these would put the amount claimed above $100,000.

1. There are limits to the jurisdiction of this Tribunal in making such an order. These proceedings require the Tribunal to consider a remedy pursuant to section 17(1) of the HBC Act. The amount that the Tribunal

may order to be paid however is limited to $100,000 by section 16(2) of the HBC Act. Indeed, in his submissions, counsel for the complainants stated that the complainants abandon any claim for an amount in excess of $100,000.

1. Counsel for the respondent submits that the complainants had a duty to mitigate their loss and that they ought to have commenced instruction immediately after the purported termination of the contract to avoid the increase of loss caused by the increase of costs incurred in the time between the termination of the contract and the decision of the Tribunal. Counsel refers to various cases as authority for this proposition.

1. Counsel for the respondent concedes that Mr Chudy stated that they could not proceed with another builder until they knew the outcome of the proceedings. Notwithstanding the concession that Mr Chudy was said to have made in cross examination to the effect that he could have afforded to build at any time, it can be seen that the complainants were put into a situation of some considerable uncertainty. It must be recalled that the respondent's stated justification for termination of the contract was because the plans had violated the copyright of Ventura Homes and AV Jennings. There was some considerable uncertainty

and, indeed, that uncertainty was occasioned by the representations of the respondent.

1. Having misrepresented to the complainants that the design that the respondent made and contracted to build was in violation of a copyright of Ventura Homes and then making allegations regarding the AV Jennings, the respondent cannot then come and say, in effect "you just should have built the home anyway". The respondent had occasioned the uncertainty and the complaints' actions were reasonable in all the circumstances, given what they faced.

The Tribunal makes no order for costs, and will consider any application made within 28 days of the date of this decision.

Accordingly, the Tribunal makes the following orders:

1. That the respondent do pay the complainants the amount of

$100,000.00, within seven days of the date of this order;