LMA Contractors Limited v Changizi

Evidence in the Appeal

1. The following documents were accepted into evidence in the Appeal without objection: 1. Bundle of Documents 1 - 16 tendered by the builder's solicitor; 2. Scott Schedule of variations tendered at first instance in the builder's case; 3. 'Report on Building Contract Payment Claim Dispute' tendered at first instance in the owners' case; 4. Folder containing exhibits to the owners affidavit sworn 11 September 2015 tendered at first instance in the owners' case, and 5. Exhibits to the builder's affidavit sworn 30 October 2015 tendered at first instance in the builder's case.

The statutory basis for an Internal Appeal

1. Section 80(2)(b) of the Civil and Administrative Tribunal Act 2013 states: 'Any internal appeal may be made: (a) in the case of an interlocutory decision of the Tribunal at first instance - with the leave of the Appeal Panel, and (b) in the case of any other kind of decision (including an ancillary decision) of the Tribunal at first instance - as of right on any question of law, or with the leave of the Appeal Panel, on any other grounds.'
2. In connection with Internal Appeals that are not made on a question of law, Clause 12(1) of Schedule 4 of the Civil and Administrative Tribunal Act states: 'An Appeal Panel may grant leave under section 80 (2) (b) of this Act for an internal appeal against a Division decision only if the Appeal Panel is satisfied the appellant may have suffered a substantial miscarriage of justice because: (a) the decision of the Tribunal under appeal was not fair and equitable, or (b) the decision of the Tribunal under appeal was against the weight of evidence, or (c) significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).'

The Amended Grounds of Appeal

1. The builder's Amended Grounds of Appeal limited to the two grounds that were pressed stated: '1.The decision is neither fair nor equitable. The decision maker was in error in reaching conclusions on fact that no tribunal properly directing itself could have reached in that the Member: a. Failed properly to weigh and assess the evidence; b. Reached conclusions on the basis of assumptions and not upon evidence; c. Did not take into account the relative positions of the parties including the facts that the homeowners: i. Continue to reside in one unit of the duplex and; ii. Sold the other unit for consideration that recouped all costs of construction of the duplex; d. (omitted) e. concluded (Para 21) that the "builder must have known that one and probably both dwellings were a commercial operation" i. this finding was perverse being an assumption reached in the absence of evidence; ii. that the builder either knew or would have known that the construction was a 'commercial operation'; iii. without explanation or consideration of the meaning of 'commercial operation' iv. despite evidence that the homeowner still reside in one unit; v. awarded interest costs in the absence of any evidence to show that interest should be awarded, or the basis upon which interest should be awarded; vi. Found that completion of the construction was delayed for 133 days contrary to documentary evidence that the stormwater drainage plan was not approved until 3 September 2014 a date substantially later than the date from which delay was calculated and on that basis of water damages for purported losses arising prior to 3 September 2014; vii. Accepted as an 'expert' report (para 17) the assessment by Peter Lee a Quantity Surveyor that the period of delay was 133 days. The report was accepted without proper consideration; viii. in the face of the Respondent's objection that Mr Lee is a quantity surveyor and as such not qualified as an expert in matters of delay - in the face of evidence that completion could not occur until the storm water plans were approved and constructed; -. made a wrong conclusion and law by stating that the calculation of 133 days delay should be accepted 'in the absence of compelling evidence to the contrary'. This is not the test for assessing evidence. (Note rules of evidence do not apply) 3. Refused the builder the extra cost of constructing a concrete slab and provision of a deck (para 35-40) despite implied acceptance that a quantum merit claim would be justified;'

First Ground of Appeal - damages due to late completion of the building works

1. This Ground of the Appeal states 'The decision maker was in error in reaching conclusions on fact that no tribunal properly directing itself could have reached' and in relation to the finding that the 'builder must have known that one and probably both dwellings were a commercial operation' it is said that 'this finding was perverse being an assumption reached in the absence of evidence'.
2. In John Prendergast & Vanessa Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 the Appeal Panel stated at [21] that a question of law would include 'Whether the decision is so unreasonable that no reasonable decision-maker would make it'. In addition the Appeal Panel stated in Prendergast at [20] that a question of law would include: 'Whether there was no evidence to support a finding of fact: Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 at 355-6; The Australian Gas Light Company v Valuer-General [1940] NSWSt Rp 9; (1940) 40 SR (NSW) 126 at 138.'
3. We therefore accept that the first Ground of Appeal raised a question of law for which leave is not required.
4. Although the Amended Grounds of Appeal does not specifically refer to the Tribunal Member's decision on the issue of the owners' entitlement to damages for late completion, the builder's solicitor confirmed that when he stated that the Grounds of appeal would be limited to the two issues stated above at [11].

Damages for late completion by the builder

1. The Tribunal Member dealt with this claim at [12] - [21] of the decision.
2. The owners claim was originally for liquidated damages at the rate of $300.00 per day for a period of 133 days. The amount claimed was $39,900.00. Ultimately the Tribunal Member found in favour of the owners in the sum of $33,306.06 being actual damages incurred for late completion
3. Paragraph [15] of the decision indicates that the Tribunal member was of the view that the rate of $300.00 per day for liquidated damages seemed high and was in truth a penalty. He invited the parties to address that issue in written submissions which the owners did on 21 September 2016. The owners put their claim on the basis of actual loss. The loss they relied upon was the interest charges they paid for 133 days their expert had calculated as being the period of time in which the builder had exceeded the contractual construction period. Their claim for actual interest charges was $33,306.06.
4. During the appeal hearing the owners counsel stated that the owners maintained their right to claim liquidated damages under the contract. Their claim for actual loss was made because of the Tribunal Member's observation at [15] of the decision and his invitation for them to submit written submissions on the issue. At [16] of the decision the Tribunal Member stated that the owners chose to pursue their claim on the basis of actual loss. There is no appeal by the owners against that finding. As a result it is not open to the owners to assert a right to liquidated damages.
5. At [18] of the decision the Member accepted the owner's evidence regarding delay and found that the building work was 133 days late.
6. At [21] of the decision the Tribunal Member stated: 'It seems to me that the homeowners might have been able to establish that $300 was a genuine and reasonable amount of liquidated damages where there were highly geared loans and lost rent for two duplexes built with at least one and perhaps both as an income producing project. The builder must have known that one and probably both dwellings were a commercial operation and that delay would cause significant commercial loss to the applicants. It seems to me therefore that the claim by the applicants for actual loss fits comfortably within the 2nd limb (and probably the first) in the rule in Hadley v Baxendale quoted by Mr Thomson in his written submissions.'
7. At [46] of the decision the Member allowed the owners $33,306.06 for actual loss for delay.
8. The basis for this aspect of the decision was the Member's findings that: 1. the owners chose to pursue their claim on the basis of actual loss and had calculated their claim on interest paid on borrowings for 133 days; 2. the builder did not argue that such course was not open to the owners; 3. 'The builder must have known that one and probably both dwellings were a commercial operation and that delay would cause significant commercial loss to the applicants'; and 4. the owners' claim for actual loss fitted within the second and probably the first limb of Hadley V Baxendale (1854) 9 Exch 341.

Second limb of Hadley v Baxendale

1. In Hadley v Baxendale it was stated where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, that is according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
2. What is often described as the 'second limb' of Hadley v Baxendale authorises the recovery of damages for breach of contract as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
3. The builder has provided a summary of arguments which we will treat as its submissions in support of the appeal as was ordered to be filed.
4. The builder submits that the passage set out below at [21] of the decision was not an evidence based finding and was an error of law and further, was so unreasonable that no reasonable decision-maker would make it. 'The builder must have known that one and probably both dwellings were a commercial operation and that delay would cause significant commercial loss to the applicants'
5. The finding of the Member under challenge, if properly made, would justify damages being found in favour of the owners under the 'second limb' of Hadley v Baxendale
6. The decision does not state the basis for the finding. The owners' counsel was unable to refer us to any evidence tendered before the Tribunal Member which would provide a basis for the finding. She did however refer us to the owners 2 February 2016 statement where at [52] one of the owner's stated 'At the time of contract price negotiations, and during the course of the build, I was very price sensitive'
7. This evidence, nor the evidence at [53] of the 2 February 2016 statement which related to the owners' building budget, could not in our view provide an adequate evidentiary basis for the finding which is being challenged.
8. We agree with the builder's solicitor that there is no evidence to support the Member's finding as extracted at [32] above. The builder has established that the Member made an error of law in making a finding which was not supported by the evidence.
9. The effect is that the Member's finding that the damage claimed by the owners for late completion of the building work came within the second limb of Hadley v Baxendale cannot be sustained.

First limb of Hadley v Baxendale

1. The Member also found that the owners actual loss of $33,306.06 being interest paid out in the 133 day delay period most probably came within the first limb of Hadley v Baxendale, that is being damages that may fairly and reasonably be considered as arising naturally, that is according to the usual course of things, from such breach of contract itself.
2. In Multiplex Constructions Pty Ltd v Abgarus and Anor 33 NSWLR 504 at 521(G), Cole J stated in context of a dispute about a liquidated damages clause in a building contract for a Sydney commercial office building: 'The parties to the construction contract do, however, know at the date of contract that delay in achieving practical completion will necessarily result in additional holding costs. Such damages in my view fall within the first rule in Hadley v Baxendale'.
3. This finding will apply in connection with a commercial building where the parties must know that the building to be constructed, once completed, is to be put to a commercial use by way of lease or sale.
4. This question of whether the damages of $33,306.06 as found by the Member came within the first limb of Hadley v Baxendale and whether the decision could be upheld on that basis, was a subject that was raised during the appeal hearing. The solicitor for the builder and counsel for the owners each made submissions on the issue.
5. The builder's submission was that financing costs for a residence must always be paid (and continue after completion) and do not arise naturally from the late completion of residential building work. It was further submitted on behalf of the builder that the true nature of an owner's loss arising out of late completion of residential building work will be the cost that the owner must pay to secure alternate accommodation in the delay period.
6. Based on the documents referred to in [13] of these reasons, it was known to both parties before and at the time of contract by reason of the builder's tender dated 13 March 2013 (which was a contract document), that the nature of the residential building work being undertaken by the builder was the construction of a new two storey dual occupancy development.
7. In addition there were hand written amendments to clauses 12 and 14 of the contract which dealt with progress payments and time for payments.
8. The first sentence of clause 12 was amended to state (amendments in italics): 'The owner must pay the contract price by progress payments within five business days of the owners' lender's approval of the progress claim which shall be arranged on completion of the stages of the work nominated in the schedule of progress payments.'
9. The first sentence of clause 14 was amended to state (amendments in italics): 'When the contractor claims against the owner a written claim for a progress payment or other amount due under the contract, the owner must pay, unless the owner notifies the contractor in the manner stated below, the amount of the claim within 5 business days of the owners' lender's approval of the progress claim (which must not be less than five business days).'
10. The decision records the finding that the contract concerned the construction of a duplex (par 6) and that there were two duplexes (par 21).
11. Based on the above finding and the contract which included the builder's tender, it is clear that the parties knew that the work being undertaken was the construction of a new two storey dual occupancy development and that the owners were relying on a lender to pay progress claims. Accordingly, it was open on the facts for the Tribunal to have found that that at least one of the two residences was to be put to commercial use by the owners either by way of leasing or by sale. In its outline submissions at first instance dated 28 August 2016 the builder conceded the possibility that one of the residences may have been sold when it submitted: 'This was a domestic building contract. Respondent not informed of intentions of the parties and no reason to assume letting. Most likely intended for use by relatives or to have been sold.'
12. On this basis the evidence before the Tribunal Member was capable of supporting a finding that that the actual costs of late completion claimed by the owners applied to one of the residences being constructed namely the occupancy that was not to be the owners residence, and that such costs flowed from the builder's breach.

Two further issues regarding the finding that the builder was 133 days late

1. It is necessary for us to refer to two further issues raised by the builder in connection with the Tribunal Member's decision that the owners were entitled to $33,306.06. These issues go to the finding by Tribunal Member that the builder was 133 days late in bringing the works to completion.
2. The first issue was that the Member accepted a quantity surveyor's report as the evidentiary basis to find that the builder was 133 days late in completing the works.
3. The builder submitted that the Tribunal Member erred in accepting the owners' evidence in relation to this issue because the owners' expert was a quantity surveyor and that assessment of delay was outside the expertise of a quantity surveyor. When it was pointed out to the builder's solicitor that the owners' quantity surveyor's 'Report on Building Contract Payment Claim Dispute' tendered at first instance in the owners' case stated that the expert's 20 years of experience in the building and construction industry included contract administration which would ordinarily include assessing time issues in building contracts, this ground of appeal was abandoned.
4. The second issue raised by the builder related to the stormwater delay issue. This issue was dealt with by the Tribunal Member at [26] - [28] of the decision, albeit in the context of a provisional sum allowance.
5. As stated in the introduction to these Reasons for Decision, the builder seeks leave to appeal. Its Amended Grounds of Appeal as set out above state in connection with this ground that: 'The Decision is neither fair nor equitable. The decision maker was in error in reaching conclusions on fact that no tribunal member properly directing itself could have reached in that the Member: vi. Found that completion of the construction was delayed for 133 days contrary to documentary evidence that the stormwater drainage plan was not approved until 3 September 2014 a date substantially later than the date from which delay was calculated and on that basis of water damages for purported losses arising prior to 3 September 2014;'
6. This aspect of the appeal is put on the basis that the decision was not fair and equitable. However since the complaint made is that the Member's finding of 133 days delay was contrary to the documentary evidence it is appropriate to consider the application for leave to appeal on the ground that the decision was against the weight of evidence pursuant to clause 12(1)(b) of Schedule 4 of the Civil and Administrative Tribunal Act.
7. In Collins v Urban [2014] NSWCATAP 17 the Appeal Panel considered the principles that apply on an application for leave to appeal on the basis that an appellant may have suffered a substantial miscarriage of justice on the grounds that the decision of the Tribunal under appeal was not fair and equitable or against the weight of evidence. At [76] - [78] the Appeal Panel set out the applicable principles as follows: 'Accordingly, it should be accepted that a substantial miscarriage of justice may have been suffered because of any of the circumstances referred to in cl 12(1)(a), (b) or (c) where there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstance in para (a) or (b) not occurred or if the fresh evidence under para (c) had been before the Tribunal at first instance. As to the particular grounds in cl 12(1)(a) and (b), without seeking to be exhaustive in any way, the authorities establish that: (1) If there has been a denial of procedural fairness the decision under appeal can be said to have been "not fair and equitable" - Hutchings v CTTT [2008] NSWSC 717 at [35], Atkinson v Crowley [2011] NSWCA 194 at [12]. (2) The decision under appeal can be said to be "against the weight of evidence" (which is an expression also used to describe a ground upon which a jury verdict can be set aside) where the evidence in its totality preponderates so strongly against the conclusion found by the tribunal at first instance that it can be said that the conclusion was not one that a reasonable tribunal member could reach - Calin v The Greater Union Organisation Pty Ltd [1991] HCA 23; (1991) 173 CLR 33 at 41-42, Mainteck Services Pty Limited v Stein Heurtey SA [2013] NSWSC 266 at [153]. If in either of those circumstances the appellant may have been deprived of a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved then the Appeal Panel may be satisfied that the appellant may have suffered a substantial miscarriage of justice because the decision was not fair and equitable or because the decision was against the weight of the evidence.'
8. The builder's solicitor has not referred us to the documentary evidence which it is contended is contrary to the finding of the 133 days extension of time except in connection with the approval of a stormwater drainage plan on 3 September 2014.
9. The builder's solicitor has not referred us to the approval of the stormwater drainage plan on 3 September 2014 in the documents referred to at [13] of these reasons. He does however in his Summary of Argument refer us to clause 16 of what appears to be the local authority Development Application Notice of Determination which states that no construction is to start on the stormwater system until the detailed stormwater plans have been approved by the Principal Certifying Authority.
10. The builder has failed to include the evidence of its director given at first instance in the documents it tendered in the appeal which are set out at [13]. As a result we cannot be satisfied that there was an evidentiary basis established by the builder before the Tribunal Member that there was a delay to the construction work that would have had an impact in favour of the builder to reduce the 133 delay period found by the Member. In these circumstances, we cannot be satisfied that there may have been a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant resulting in a substantial miscarriage of justice because the decision was not fair and equitable or against the weight of evidence. Accordingly, the Appeal Panel's discretion to grant leave to appeal is not enlivened. As a result, it is not necessary for us to consider the second step in the statutory process, namely whether the Appeal Panel ought to exercise its discretion to grant leave to appeal under s 80(2)(b) of the Act.
11. For these reasons we reject the builder's application for leave to appeal against the finding by the Tribunal Member that the delay period by the builder was 133 days.

Determination of appeal against award of damages for late completion by the builder

1. We have found that the Member erred in law in finding that an award of damages in favour of the owners for late completion by the builder could be made under the second limb of Hadley v Baxendale.
2. We have also found that the Member's finding that an award of damages in favour of the owners for the actual cost of interest paid to lenders due to late completion by the builder could be made under the first limb of Hadley v Baxendale only in connection with one of the residences being built.
3. Section 81 of the Civil and Administrative Tribunal Act states: 'In determining an internal appeal, the Appeal Panel may make such orders as it considers appropriate in light of its decision on the appeal, including (but not limited to) orders that provide for any one or more of the following: (a) the appeal to be allowed or dismissed, (b) the decision under appeal to be confirmed, affirmed or varied, (c) the decision under appeal to be quashed or set aside, (d) the decision under appeal to be quashed or set aside and for another decision to be substituted for it, (e) the whole or any part of the case to be reconsidered by the Tribunal, either with or without further evidence, in accordance with the directions of the Appeal Panel. The Appeal Panel may exercise all the functions that are conferred or imposed by this Act or other legislation on the Tribunal at first instance when varying, or making a decision in substitution for, the decision under appeal'
4. Having regard to the reasons set out above and the findings that were open to the member at first instance, we vary the decision under appeal pursuant to section 81(b) of that Act to reduce the amount awarded in favour of the owners on account of actual loss for delay by one half to $16,653.03. This will reduce the amount ordered in favour of the owners to $63,670.03. Orders are made accordingly.

Second Ground of Appeal

1. The builder's second ground of appeal was that the Member refused to award it the extra cost of constructing a concrete slab and provision of a deck [35] - [40] despite implied acceptance that a quantum merit claim would be justified.
2. The aspect of the proceedings before the Member related to one of the builder's 'informal' variation claims.
3. The builder seeks leave to appeal in connection with this ground of appeal on the basis that it may have suffered a substantial miscarriage of justice on the grounds that the decision was not fair and equitable or was against the weight of evidence.
4. In dealing with this claim which was for $59,000.00 the Member stated that the variation related to the construction of a concrete slab in substitution for a timber floor supported by bearers and joists sitting on piers.
5. The Member also stated that the builder's claim was founded on 'a scarcely detailed invoice whose details did not match those of the affidavit of Mr Raff which was the evidence in chief' for the builder's claim.
6. At [39] - [40] the Member stated: 'On a quantum meruit claim the builder might be entitled to the extra cost of the concrete slab over and above the timber floor provided for in the contract plans and specifications. Unfortunately the claim was never particularised in this way. The claim merely relied on the concreter's invoice for the whole of the slab. At the hearing Mr Raaff for the builder protested that some amounts had been wasted on commencing the timber floor foundations. However he was unable to verify beyond a guess the details of the works involved and their value. The result is that the builder has not been able to satisfy me about the amount, if any, by which the cost of the slab exceeded the allowance for foundations, piers etc in the contract. As a result this aspect of the claim must be dismissed'
7. The principles that apply on an application for leave to appeal on the basis that an appellant may have suffered a substantial miscarriage of justice on the grounds that the decision of the Tribunal under appeal was not fair and equitable or against the weight of evidence have been set out above at [56].
8. The invoice upon which the builder's quantum meruit claim was based in relation to the slab was not before the Appeal Panel. As a result it is not possible for us to reach a conclusion about whether this evidence in its totality would preponderate so strongly against the conclusion found by the Tribunal at first instance that it can be said that the conclusion by the Member dismissing the claim for the slab was not one that a reasonable tribunal member could reach.
9. In these circumstances, we cannot be satisfied that there may have been a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant resulting in a substantial miscarriage of justice because the decision was not fair and equitable or against the weight of evidence. Accordingly, the Appeal Panel's discretion to grant leave to appeal is not enlivened. As a result it is not necessary for us to consider the second step in the statutory process, namely whether the Appeal Panel ought to exercise its discretion to grant leave to appeal under s 80(2)(b) of the Act.
10. For these reasons Leave to Appeal in respect of Ground two is refused.

Orders

1. The Appeal Panel makes the following orders: 1. Leave to appeal is granted for the purpose of making order 3; 2. Order 1 made on 8 December 2016 in the proceedings the subject of this appeal is set aside; 3. The decision of the Tribunal dated 8 December 2016 is varied pursuant to section 81(b) of the Civil and Administrative Tribunal Act 2013 to require LMA Contractors Limited to pay Koroush Changizi and Sujitra Boonta the sum of $63,670.03 immediately; 4. Otherwise Leave to Appeal is refused and the Appeal is dismissed; and

The stay made by the Appeal Panel on 16 December 2016 in these appeal proceedings is lifted.Costs

1. In the event a party wishes to apply for costs, we make the following orders: 1. Any costs application must be lodged in the Appeal Division of the Tribunal and served on the costs respondent within 21 days of the date of these orders either attaching or referring to any documents relied upon in support of the application. 2. The costs respondent will have 21 days after the date it receives the application referred to in the preceding paragraph to lodge in the Appeal Division of the Tribunal and serve on the costs applicant its submissions in response to the cost applicant's costs application, such submissions either attaching or referring to any documents relied upon. 3. The cost applicant will have 14 days after the date it receives the cost respondent's submissions to lodge in the Appeal Division of the Tribunal and serve on the costs respondent its submissions, if any, in reply, such submissions either attaching or referring to any documents relied upon. 4. Subject to the right of the parties to make submissions under section 50(3) of the Civil and Administrative Tribunal Act, the Appeal Panel will determine any costs application on the basis of the papers lodged in the Appeal Division of the Tribunal. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 31 March 2017