Krahe v Manfate Pty Ltd

The primary judge's reasons

1. I shall take the course of recounting, in greater detail than is usual, the reasons of the primary judge. I do that because: 1. it is only by doing so that one can understand the coherence of those reasons as a whole; and 2. by doing so, my discussion of the issues arising on the appeal can be much truncated.
2. The primary judge identified the parties and the issues in dispute. He then set out some undisputed "basic facts": 1. the builder did construct a building on the proprietors' land; 2. the builder did so at the request of the proprietors; 3. the bulk of the work was done between July 2007 and December 2008, although some further matters needed to be attended to enable the proprietors to obtain a final occupation certificate (which was issued on 26 November 2010); 4. the actual costs incurred by the builder amounted in total to $203,354, including an amount of $1,212 for unrelated work; 5. that (allowing for the unrelated work) the unpaid amount was indeed $92,142; and 6. there was no dispute as to the quality of the materials supplied or the workmanship performed by the builder; on the contrary, the proprietors were "perfectly content with the standard and quality of the building".
3. The primary judge referred to some matters of background, which included the close relationship between the parties (and indeed their families) in the past, and at the time the work was done. His Honour then considered certain authorities dealing with the basis on which the court might find a contract when precise offer and acceptance were difficult to identify.
4. The primary judge regarded as important, and spent some time in elucidating, the distinction between a "quote" (or "quotation") and an "estimate". In brief, his Honour took the former word to denote an offer that, upon acceptance, would create a legally binding contract. By contrast, his Honour took the latter word to denote an indicative or non-binding offer, one that (without more) could not be accepted so as to give rise to a binding contract.
5. The primary judge next referred to the significant lapse of time between the dates in 2006 to 2008 when the relevant events occurred, and the various dates in 2015 when the parties swore their principal affidavits (and in 2016 when they gave their oral evidence). His Honour observed that it was ordinary human experience that what had happened so long ago might be difficult to recall, absent some special circumstance that made it memorable. He concluded, for reasons that he gave, that there were no particular circumstances that would have made the events memorable to the parties, so as to support a detailed recollection of who had said what to whom.
6. In that context, the primary judge referred to the well-known observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319. It is not necessary to set out that passage. His Honour, having referred to Watson, gave an example of how even a slight variation to an account of a conversation could produce a significant change in its meaning, objectively regarded.
7. Next, the primary judge turned to earlier dealings between the parties, relating to various tasks of building work that the builder had undertaken for the proprietors over the years from 1997 to 2003. In the course of doing so, his Honour referred to a detailed account that Mr Krahe gave in his primary affidavit of a conversation that was said to have occurred between 28 August and 4 September 1998. Although Mr Krahe deposed that he was setting out the conversation in words "to the following effect", it is clear that he purported to have a clear recollection of the detail of the conversation. The primary judge, referring to the lapse of time (17 years) between event and affidavit, said: It is implausible in the extreme that anyone could recollect a conversation of that length, of that nature, after such a long period of time.
8. That implausibility, the primary judge said, "must give me caution in accepting the accuracy of other conversations recorded in the same affidavit which, although each is said to be words "to the following effect", is then set out as if it was a verbatim transcript of such a conversation".
9. Next, the primary judge turned to consider the facts relevant to the builder's construction of the proprietors' residence. His Honour concluded that the written contract that the parties made (in obedience to s 7(1) of the Home Building Act 1989 (NSW)) "ought to have governed the relationship between the parties", but noted that "neither party did as the party was required to do under the written contract".
10. The primary judge rejected the builder's contention that the contract for construction of the proprietors' residence was a "do and charge" contract. However, he reiterated, "the parties themselves did not adhere to the terms of their concluded contract". That indicated, to the primary judge, "a certain informality and flexibility in their arrangements" based on good faith and goodwill. His Honour said that "the parties were happy dealing with each other on an informal and trusting basis".
11. There was one aspect of the contract for construction of the residence that the primary judge regarded as significant on the question of credibility. Mr Krahe gave evidence that he asked Mr Murphy to use a particular product, but that Mr Murphy said he was not keen on using it because he had not used it before. Mr Murphy denied that, saying that he had had experience with the product. The primary judge appears to have accepted Mr Murphy's evidence in this regard. Regardless, the primary judge said, there was "an air of implausibility" in that particular aspect of Mr Krahe's evidence. In my view, the reasons that his Honour gave for that conclusion were sound.
12. The primary judge summarised his review of those previous dealings at [53], [54]. Because the analysis in those paragraphs was relevant to his Honour's decision on the principal question in contest between the parties, I set them out: [53] Each party wished me to take into account their dealings with each other concerning building work because each party wished the Court to believe that there had been a distinct pattern to their earlier dealings which, in effect, amounted to a practice. Mr Murphy, on behalf of the plaintiff, wanted me to believe that all the work that he performed for the defendants was on a "do and charge" basis. To the contrary, the defendants asked me to believe that they had always insisted on fixed price contracts and that all the work done for them by the plaintiff was done on a fixed price basis. [54] My analysis of the dealings thus far between the parties is that the relationship was marked by informality, trust and mutual convenience. Legally, the construction of the defendants' residence was governed by their written agreement, but as I pointed out yesterday, in addition to informality and trust, there was also a flexibility in the arrangements that the parties adopted. Even when documents said to be fixed priced quotations were provided, they themselves can be ambiguous. I pointed out yesterday that the "Quotation" addressed to the insurance company provided at the end of it an estimate and one quotation for the garage provided an estimate and the cost of the work came in under the estimate and, therefore, it was hardly a fixed price contract. I can discern in the building arrangements between the parties thus far both informality, flexibility and a mutual trust, that one would be the right thing by the other.
13. The primary judge then turned his attention to the contract that was the subject of the litigation. He commenced by setting out Mr Krahe's affidavit evidence of the conversations in which, it was said, the contract was made.
14. The primary judge noted that it was the proprietors' case that Mr Murphy had offered to "do my part of the work for you for $100,000", and had reiterated that position. As the primary judge noted, that was the basis of the proprietors' case that the contract was a fixed price contract.
15. However, the primary judge said, "the contract could only have been provisional", because Tenterfield Shire Council (the Council) had not given consent. There had been an earlier development consent. However, that consent had lapsed by 2007. In addition, work could not commence until a construction certificate was issued. The primary judge noted that the Council might well impose conditions of consent that would have an impact on the extent of the work required to be done. In those circumstances, his Honour said, it was implausible "that an experienced master builder who at the time of giving evidence in early 2016 had been a builder for 35 years would give a fixed price quotation capable of acceptance orally for a job that might never be performed, or for a job that might need to be the subject of further negotiation because Council made amendments to the plan".
16. I note at this point that Mr Reynolds, who appeared with Ms Hulmes of Counsel for the proprietors, attacked that passage of his Honour's reasons as demonstrating speculation or conjecture. I do not agree. In my view, what the primary judge said reflects plain common sense. The primary judge had had the opportunity to observe Mr Murphy giving evidence (including being cross-examined in detail). He was able to form his own appreciation of Mr Murphy's personality. It was open to the primary judge to inquire whether such a person as he found Mr Murphy to be would offer to undertake what was essentially a profitless job on such a risky basis.
17. I add that there were other variables affecting the scope of works to be done by the builder, and hence the practicality, or likelihood, that Mr Murphy would have ventured a fixed price. The primary judge referred to that evidence at [69], and found "validity" in that evidence at [70].
18. The primary judge referred to other aspects of Mr Krahe's affidavit evidence that he found to be "curious". Then, "[a]dding to this concern about plausibility", his Honour referred to some evidence given by Mr Krahe as to an application for modification of consent that was lodged on 10 May 2007. The primary judge found, for reasons that he gave and that in my view were valid, that this evidence must be, in part, "completely erroneous".
19. The primary judge then set out more of the detail of the works (more accurately, of the various steps taken before building work actually started). Having done that, he referred to the evidence of Mr Murphy that there were elements of the work that "had the potential to vary in cost depending on the item that was selected". Mr Murphy identified four such items, each of which could have an impact, or significant impact, on the final cost. They were: 1. the choice of bricks or besser blocks; 2. the type of decking to be erected and the timber to be used in that decking; 3. whether the handrails of the deck were to be constructed in timber or steel (the former, Mr Murphy said, being more expensive); and 4. the allowance for rendering, because "there are different types of rendering with different costs".
20. As the primary judge said at [70], "[w]ithout there being any specifications, how could there be a fixed price contract? One would not give a fixed priced quote if one did not know, for example, what sort of brick or blocks were to be used…". Further, his Honour noted, the arrangement reached between the parties was that the proprietors "would provide as much of the work themselves as they could". However, his Honour said, "if any of those arrangements fell through, then it would fall to Mr Murphy / the plaintiff as the builder to supply what Mr Krahe could not".
21. By way of illustration (and referring to the fourth item of variable cost of which Mr Murphy had given evidence), the primary judge noted that Mr Krahe had ultimately subcontracted out the work of rendering.
22. As the primary judge said at [71]: The idea of a fixed price contract in these circumstances is implausible. In fact, the more one considers the matter in detail, the prospect even becomes risible.
23. There were other factors that, to the primary judge, indicated that, regarded objectively, it was unlikely that Mr Murphy would have offered, on behalf of the builder, to do the work for a fixed price before the detail of the work was known.
24. The primary judge then turned to the builder's progress claims and the proprietors' payments. There were four progress claims, described as "first", "Stage 2", "Stage 3" and "Stage 4". As the primary judge noted, none of those was said to have been a final payment claim.
25. Each of the claims was paid. On the stub of the cheque by which the fourth claim was paid, Mr Krahe wrote the word "FINAL". The primary judge concluded that this word had been written after the cheque had been filled out, "because it is at an angle to the rest of the writing on the cheque stub". That is one of the matters of which the proprietors complain. In my view, that complaint goes nowhere; the primary judge expressly said: In any event, nothing probably turns on that because any post contractual dealings between the parties cannot be used to interpret what the contract means.
26. Although I shall return to this point in dealing with the submissions for the proprietors, it is apparent that the primary judge did not rely on the supposed subsequent writing of the word "FINAL" on the cheque stub as bearing in any way on Mr Krahe's credibility, let alone as having any impact on his assessment of the evidence overall.
27. The primary judge then referred to the interim occupation certificate issued by the Council, which included a requirement that there be a ramped entrance "to permit disabled access in accordance with" the relevant Australian Standard. According to Mr Krahe, Mr Murphy offered to carry out that work for an additional fixed price of $10,000. Mr Murphy denied that he gave such a fixed price quotation. He noted that the actual cost was $4,140 (as the primary judge found, that cost was in fact overstated because it included work done on the proprietors' house). The primary judge noted that in August 2009, Mr Murphy gave the proprietors a breakup of the costs incurred which revealed, among other things, a charge of $4,140 for the disabled access ramp. It is notable that although the proprietors had been given that breakdown before they paid the final amount of $10,000 (which on their account was referable to the "fixed price" for the ramp), they raised no protest at being charged well over twice the asserted value of the work.
28. Having set out the evidence, the primary judge turned to the resolution of the issues. He noted that the primary issue was whether there was a fixed price contract for $100,000, and that Mr Murphy denied that he had quoted such a sum to the proprietors. However, the primary judge noted, Mr Murphy had made "appropriate concessions" in his cross-examination, including by accepting that there was a possibility that he was asked for a "quote" and that "he gave them an answer and … just forgot". Mr Murphy added that "I don't believe there was ever a quote given".
29. The primary judge said that it was unlikely that the proprietors would have proceeded with the construction work unless they had some idea of its cost. He thought it was "highly probable that they did seek a "price" from Mr Murphy" and that it was "possible, indeed probable, that they were given a "price" of $100,000". But as his Honour said, there is a difference between giving an estimate of cost and giving a quotation that is capable of acceptance so as to constitute a binding contract.
30. His Honour concluded that it was likely that a price had been sought and given, but that it was an estimate, and not a quotation capable of acceptance so as to lead to a binding contract. In reaching that conclusion, his Honour took into account, among other things, that "it is implausible in the extreme that a person in Mr Murphy's place, bearing in mind his experience, would have quoted a price that could constitute a fixed price contract … when there was no approval for the work … and when no specifications at all had been made for a large number of variables that would affect the price of such a contract".
31. In those circumstances, the primary judge concluded, Mr Murphy's evidence was more plausible than the proprietors'. His Honour said specifically that Mr Murphy's imperfections of recollection were "more credible than the extensive recollections deposed to by the defendants".
32. His Honour then turned to the question of quantum. He noted that it was agreed that the amount underpaid was $92,142. The builder claimed interest from 26 May 2011, which in the view of the primary judge was a later date than would have been appropriate. Nonetheless, since that was what was claimed, that is what his Honour allowed.
33. For those reasons the primary judge gave verdict and judgment for the builder against the proprietors in the sum of $122,335.10.
34. The builder had propounded an alternative claim in quantum meruit, against the possibility that the primary judge might find that there was no contract. For obvious reasons, his Honour did not need to consider that alternative claim.

The grounds of appeal

1. The grounds of appeal were ill-drafted and undisciplined. In the course of the hearing, ground 1 was withdrawn. Mr Reynolds attempted to tame the grounds by grouping them into four categories of complaint: 1. the use of evidence of prior dealings and the implication of a "mates' rates" term; 2. the criticisms said to have been directed by the primary judge to the proprietors' evidence of conversations given in direct speech; 3. inferences said to have been drawn by the primary judge from the supposed alteration of the cheque stub; and 4. a grab bag (my words, not his) of miscellaneous attacks supposed to show in some way that there were incontrovertible facts or uncontested testimony that would demonstrate that the conclusions of the primary judge were erroneous, or that his Honour's decision was glaringly improbable or contrary to compelling inferences (Fox v Percy (2003) 214 CLR 118).
2. It is convenient to consider the grounds of appeal by reference to Mr Reynolds' categories.

First category: past dealings; implication of the "mates' rates" term

1. This complaint goes nowhere. The essential dispute between the parties was whether the contract was one to undertake the works for a fixed price, or was a "do and charge" contract. If the latter, there would be a contract under which the builder undertook to provide labour and materials, without an agreement as to a price. A reference to "mates' rates" could not of itself supplement that deficiency. However, where parties make a contract for the supply of goods and services, by which they intend to be bound, but do not specify the price to be paid by one to the other, the law implies a term that there will be a reasonable price paid.
2. The reference to "mates' rates", and the implication of the term to that effect, has no bearing on the fundamental dispute. First, it is devoid of legal effect. Second, and of more significance, if the contract were for the fixed price of $100,000, it would not matter if that sum were a gross over-estimate or a gross under-estimate. But if the contract were a "do and charge" contract, it would be necessary to inquire whether the rates in fact charged were, objectively, reasonable.
3. It is only at this subsidiary level that the question becomes even remotely relevant. If (which is doubtful) the "mates' rates" term means anything, it could indicate no more than that, in charging for the work, the builder would keep its prices as low as possible consistent with breaking even on the job. Whether that means the builder would charge only actual costs, or whether it means the builder might recover some small amount of profit in addition, does not arise for decision, because no one has suggested that the rates charged were, objectively, unreasonable. That is to say, no one has suggested that the rates actually charged were not rates that could be charged by one mate to another.

Second category: the use of direct speech

1. The primary judge did not, in his reasons, criticise the proprietors, or make findings adverse to their credibility, based on their use of direct speech. The point of his Honour's criticism of this aspect of their evidence was that he found it implausible in the extreme that anyone could have such a complete recollection, as the proprietors purported to possess, so many years after the relevant conversations had taken place.
2. Mr Reynolds pointed to passages in the transcript of the hearing where the primary judge had offered some reflections, not entirely uncritical, on the practice of solicitors in drawing affidavits that used the convention of deposing to conversations "to the effect" of words then given in direct speech. However, as was pointed out in the course of argument in this Court, appeals are brought against judgment or orders, and require the demonstration of error in the reasons given for those judgments or orders.
3. Mr Reynolds did not submit that the passages in the transcript to which he referred indicated such a predisposition on the part of the primary judge that his Honour's mind must be taken to have been infected with incurable prejudice. Nor could any such submission, if made, be sustained.

Third category: alteration to the cheque stub

1. This complaint goes nowhere. There is no suggestion in the reasons of the primary judge that his Honour regarded the supposed alteration to the cheque stub as having any relevant impact on Mr Krahe's credibility. On the contrary, as I have noted, the primary judge recorded that "nothing probably turns on" the supposed alteration.
2. Mr Reynolds submitted that his clients had been given no notice that the primary judge intended to make the finding that he did on this point, and thus that they had been denied procedural fairness. He relied on the decision of the High Court in Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88.
3. In that case, the Refugee Review Tribunal that heard the appellant's application for review of a decision by the respondent Minister had in its possession a letter from the Secretary of the Department making very serious allegations against the appellant. The Tribunal did not tell the appellant that it had received this letter or that the letter had made those allegations. Nor did it ask him any questions about those allegations.
4. The Court concluded that the letter was a significant matter, something that the decision-maker could not dismiss from its consideration. In those circumstances, the Court said at [18], the Tribunal's statement, that it gave no weight to the letter or its contents in reaching its decision, did not mean that there was no obligation to reveal the information to the appellant.
5. The circumstances of that case are very different to those of the present circumstances. In particular, the statement by the primary judge that "nothing probably turns on" his conclusion is fortified by a reading of his Honours reasons overall. It is abundantly clear, from those reasons, that his Honour found the purported detailed recollection that the proprietors had of the various conversations to which they deposed implausible, and that his Honour preferred Mr Murphy as a witness. It is equally clear that his Honour concluded that Mr Murphy's evidence accorded with the probabilities, viewed objectively. It might have been preferable for the primary judge not to speculate on the point. But irrelevant speculation leading to an irrelevant conclusion does not amount to any, let alone any material, denial of procedural fairness.
6. It is impossible to conclude that his Honour's review of and decision upon the facts was affected in any way by his speculation as to the subsequent annotation of the cheque stub.

Fourth category: Fox v Percy reviewable error

1. The relevant grounds of appeal itemised numerous supposed shortcomings in the fact-finding process, and Mr Reynolds' submissions pursued those alleged shortcomings with zeal and at length. However, those submissions failed to confront the essence of the reasoning of the primary judge. I have referred to it several times: his Honour's view that the evidence of the proprietors was implausible, and that the evidence of Mr Murphy was plausible (or, in my words, accorded with the probabilities, viewed objectively).
2. In outline, the approach taken by Mr Reynolds was to isolate individual aspects of the evidence, and to assert that they were consistent with his client's case, and inconsistent with the case for the builder. It may be accepted that there were aspects of the evidence that, unexplained and without context, were capable of supporting the proposition that there was a fixed price contract entered into between the proprietors and the builder. However, concentration upon those matters individually is totally at odds with the careful approach taken by the primary judge, which involved a consideration of the entirety of the evidence and of the probabilities that favoured acceptance of one parties' case or the other's.
3. Again, Mr Reynolds submitted that the primary judge had erred because he failed to address all those points in the evidence, and to explain why, nonetheless, he reached the conclusion that he did. I do not agree. It is not incumbent on a trial judge to fit every scrap of evidence emerging out of a five day hearing into the framework of her or his reasons for judgment. The decision on which Mr Reynolds relied, Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186, is not authority for that proposition.
4. The task of the primary judge was to consider the evidence, to reach a conclusion on it as to the key factual point in issue between the parties, and to give reasons sufficient to explain why he reached that conclusion. That is precisely what the primary judge did.
5. Many of the complaints made in the relevant grounds of appeal were, to put it neutrally, trivial. For example, ground 5.1 asserted that the primary judge erred in reversing "the onus of proof by in effect requiring the Appellants to prove that the Contract was a fixed price contract". The builder had pleaded that the contract was a "do and charge" contract partly oral, partly written, and partly arising from conduct. The proprietors admitted in their defence that there was a contract, but denied that it was a "do and charge" contract. They pleaded that it was a fixed price contract. On orthodox principles, the proprietors, as the parties who pleaded that the contract was a fixed price contract, bore the onus of proving that which they had pleaded. There was no reversal of the onus of proof.
6. Again, the grounds of appeal asserted that the primary judge had erred by failing to address and draw inferences from "[c]oncessions made by Mr Murphy concerning the Appellant's accounts of the conversations between them". That is simply wrong. The primary judge did take account of those concessions. Indeed, it was his Honour's view that Mr Murphy made appropriate concessions that helped to shape his preference for the evidence of Mr Murphy over that of the proprietors.
7. Again, the grounds of appeal referred to evidence of Mr Murphy, as to asking for and receiving cash payments, that the primary judge had referred to as "coy". The primary judge did indeed find at [21] that Mr Murphy had from time to time asked for cash, and had been paid in cash. He said that "Mr Murphy was very coy about admitting to ask for cash payments". The primary judge gave an example of that at [24]. However, it was never put to Mr Murphy that his motive in asking for and being paid in cash was to defraud the revenue, or that he was motivated by some other improper purpose that could reflect on his credibility. The primary judge accepted at [43] that there were legitimate reasons why a builder might ask to be paid in cash. Accordingly, he declined to make any credibility finding based on this evidence. Nor would it have been proper for Mr Reynolds to ask for such a finding, having failed to cross-examine as to the motive asking for payment in cash.
8. I do not propose to take up time and space by giving further examples of the trivial nature of many of the complaints raised in grounds 5 and 6 of the notice of appeal. The important points are these: 1. the primary judge delivered judgment effectively at the conclusion of the evidence and submissions, at a time when the evidence must have been fresh in his mind; 2. it is apparent from the judgment that the primary judge did indeed have a thorough grasp of the evidence; indeed, the judgment referred to many of the points that, the proprietors now say, the primary judge should have grappled with in his reasons; 3. the proprietors' notice of appeal to the extent that it underlies the fourth of Mr Reynolds' consolidated complaints, and the submissions in respect of those grounds and that complaint, overlook the fact that the primary judge gave coherent and structured reasons, involving a consideration of the whole of the evidence, for coming to the dispositive conclusion: namely, that he preferred Mr Murphy's evidence to that of Mr and Mrs Krahe; and 4. accordingly, these complaints simply do not come to grips with the way in which the primary judge approached and dealt with the issues.
9. I add that none of the matters of fact to which Mr Reynolds referred come remotely close to the descriptions of "incontrovertible facts and unchallenged testimony" or "compelling inferences", so as to come within the principles upon which appellate courts may review findings of fact made by trial judges.

The notice of contention

1. The builder relied on a notice of contention. By that notice, the builder argued that if there were no contract between the parties, then it was entitled to be paid on a quantum meruit basis, and hence to the same amount for which it had recovered judgment. (The builder had argued before the primary judge that in fact its claim on a quantum meruit basis was greater, but it did not press a claim for the supposed excess.) On the view to which I have come, the notice of contention does not arise for consideration.

Costs

1. For the reasons I have given, the appeal should be dismissed. In the ordinary way, costs should follow the event.
2. The primary judge ordered the proprietors to pay the builder's costs on the ordinary basis up until 24 February 2016 and on the indemnity basis thereafter. There was no separate challenge to that order. It was based on an offer of compromise (offering to settle for $35,000) made by the builder to the proprietors on 24 February 2016.
3. In my view, the same considerations demonstrate that the costs of the appeal payable by the proprietors to the builder should be assessed on the indemnity basis.

Proposed order

1. I propose the following orders: 1. Appeal dismissed with costs. 2. Costs to be assessed on the indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 December 2016