//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2015] ACTSC 58
Supreme Court of the ACT
2015-07-16
Mossop AsJ
Original judgment source is linked above.
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
CONTRACT - standard form building contract - floor slab stage of construction not completed - claim for progress payment from owners dependent on completion of the relevant and any preceding stages of construction - test for completion of stage - failure by owners to make payment found not in breach of contract - termination of contract by builder found wrongful - no alternative basis for liability of owners pleaded by builder
CONTRACT - implied duty to cooperate - failure to obtain bank loan - no breach of duty where no obligation under contract to obtain the loan
Building Act 2004 (ACT)
Adrija Pty Ltd v Mohamed [2013] ACTSC 120
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613
Cardona v Brown [2012] VSCA 174
Elders IXL Ltd v National Employers' Mutual General Insurance Association Ltd (1988) 5 ANZ Insurance Cases 60-847
Eminent Forms Pty Ltd v Formosa [2004] SASC 192
Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303
Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126
Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571
Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272
Hudson's Building and Engineering Contracts (12th edition, Sweet & Maxwell)
1. The plaintiff is a building company. It has brought proceedings against the first and second defendants, the joint owners of a property which is located in Roy Marika Street in Bonner in the Australian Capital Territory (the premises).
2. The claim arises out of a relatively simple standard form building contract. It seeks payment of an amount said to be owed by the defendants following termination of the building contract by the plaintiff.
3. The determination of the claim is complicated by four factors. The first is the fact that during the construction project that has led to the claim the person responsible for the plaintiff's construction of the dwelling died and the record keeping by the plaintiff was not as good as it might have been. The second is the fact that the defendants, for whom English is a second language, were unrepresented during the course of the proceedings. The third is that because of the scope of the oral evidence called and the documentary evidence tendered it was not possible to be confident that a comprehensive picture of the transactions between the parties was before the Court. The fourth is that neither party provided discovery and some significant sources of documentary material, such as the building file, were not obtained by the parties or, if they were obtained, were not put into evidence.
4. Because of these difficulties it is at the outset necessary to pay particular attention to the pleadings, such as they are, in order to identify the issues that must be determined.
5. In summary, the plaintiff's claim as set out in its statement of claim dated 30 October 2013 (SOC) is as follows. The parties are alleged to have entered into a building contract on 12 July 2011 (the Contract): SOC [4]. The Contract required the plaintiff to build a house on the premises for $289,000. Between July 2011 and March 2012 the plaintiff carried out building works pursuant to the Contract: SOC [5]. The works alleged to have been carried out are identified in particulars as: floor slab stage, roof frame stage, close up stage, fixings stage and painting stage. It is also alleged that certain supplementary items were provided. The floor slab stage, the roof frame stage and the close up stage are stated to have been completed. The fixings stage and the painting stage are not explicitly stated to have been completed.
6. On 10 August 2011 the defendants paid $14,600 for 'Progress Claim No 1' (an amount due upon the signing of the Contract): SOC [6].
7. On 27 February 2012 the plaintiff served in accordance with clauses 17, 18 and 21 of the Contract a claim for adjustment of the contract price in the sum of $3,585.70 for certain particularised supplementary items requested by the defendants and provided by the plaintiff: SOC [7]. The plaintiff alleges that in breach of the Contract the defendants failed or refused to pay that claim: SOC [8].
8. The plaintiff suspended building work pursuant to clause 24 of the Contract on 6 March 2012 because of the alleged breach: SOC [9].
9. By 21 March 2012 the plaintiff alleges that it had not received any further monies and that a sum of $222,585.70 was due and payable: SOC [10]. The facts that would make that amount payable are not pleaded. The plaintiff claims that in breach of the Contract the defendants failed or refused to pay any amount to the plaintiff: SOC [11].
10. On 10 October 2012 the plaintiff terminated the Contract and served notice on the defendants: SOC [12]. As at that date the plaintiff alleges that it had not been paid the cost of the building works carried out pursuant to the Contract, namely $326,227.42 and the cost of materials on the site at that date and ordered from suppliers in the amount of $3,101.70: SOC [13]. Paragraph 14 of the statement of claim pleads that as a result of the matters pleaded in paragraph 13 the plaintiff has suffered and is continuing to suffer loss and damage. That would appear to be a stand-alone pleading of damage but then in paragraph 15 the plaintiff claims that under clause 25(8) of the Contract the defendants owe the plaintiff the sum of the two amounts referred to in paragraph 13, namely $329,329.12. Thus, rather than being a claim for damages, paragraph 15 of the statement of claim is a claim for payment in accordance with a provision of the Contract.
11. There is also a claim, based on clause 4 of the Contract, that the defendants would provide, within 30 days after the Contract was signed, written proof that they could pay the plaintiff in accordance with the terms of the Contract and that any loan that they were relying upon to pay the plaintiff was approved: SOC [16]. The plaintiff alleges that the defendants represented to it that they had obtained a loan from Westpac Banking Corporation to fund the balance of the monies that would become due and payable: SOC [17]-[18]. The plaintiff alleges that it was an implied term of the Contract that the defendants would take all reasonable steps, including signing documents, making applications and forwarding documents, in order to draw down the loan funds from Westpac Banking Corporation to have them paid to the plaintiff as required by the Contract: SOC [19]. The plaintiff alleges a breach of that implied term because the defendants failed to take all reasonable steps to draw down the loan funds and claims damages for that breach: SOC [20]-[21].
12. The plaintiff therefore claims $329,329.12 as well as damages, interest and costs. In his opening, counsel for the plaintiff indicated that the liquidated sum claimed was in fact $326,426.96. There is no pleading of any entitlement to relief in the event that the Contract was not validly terminated by the plaintiff on 10 October 2012.
13. The defendants were not legally represented and appeared for themselves. It is apparent that English is not their first language. Their amended defence dated 12 May 2014 (Defence) is not easy to understand. The Defence does traverse each of the paragraphs of the statement of claim and, save in relation to paragraphs 1, 2, 3 and 6 of the statement of claim, either denies or does 'not agree' with each of the paragraphs of the statement of claim. It also raises the following matters:
(a) The copy of the Contract relied upon by the plaintiff is different in some respects to the copy of the Contract held by the defendants. (I note that this issue went away because the plaintiff was prepared to rely upon the defendants' version of the Contract.)
(b) The defendants do not agree that the construction was completed to the stages identified in paragraph 5 of the plaintiff's claim: Defence [4]-[5]. They point to 17 defects in the construction by quoting from the terms of an expert report which they had obtained. I will return to two of those alleged defects later in these reasons.
(c) In answer to paragraph 7 of the statement of claim (which relates to the service of the adjustment claim) the Defence asserts that on 27 February 2012 the plaintiff issued five invoices, four being progress payment claims (for a total amount of $219,000) and one being an invoice for supplementary items (for an amount of $3,585.70). It asserts that the supplementary items were not installed, except for the 'brick upgrade': Defence [6].
(d) The defendants deny the breaches of the Contract alleged arising from a failure to pay the claim: Defence [7].
(e) In relation to the alleged suspension of works they allege that by making the demand for interest on late payments at the rate of 10.25% the plaintiff was in breach of the Contract because the Contract provided that the interest rate on unpaid amounts was zero: Defence [8].
(f) The defendants deny paragraphs 13 to 15 of the statement of claim in relation to the cost of works and the liability under clause 25(8) of the Contract. They allege that the plaintiff never demanded or claimed an amount of $329,329.12 and plead that proceedings claiming the amount of $219,000 were commenced in the Magistrates Court but then withdrawn in September 2013: Defence [9].
(g) The defendants deny that there was a term of the Contract that required them to provide proof of capacity to pay. In relation to the claim of a breach of the term the defendants say they provided proof of their loan to the plaintiff and signed all documents for the loan: Defence [10].
(h) In answer to the allegation that the defendants breached an implied obligation to take all reasonable steps to draw down the loan funds and have loan monies paid to the plaintiff the defendants plead (Defence [12]):
- (i) they signed all the documents for the loan and the plaintiff was aware that the loan was approved;
- (ii) the lending authority required the builder's risk insurance to cover the building work to completion before it released the funds;
- (iii) it was an obligation of the builder to insure the building work and obtain public liability insurance and to show proof to the defendants; and
- (iv) this obligation was breached by the plaintiff and consequently the lending authority was unable to release funds to the plaintiff.
14. In answer to the claim for relief the defendants say (Defence [13]):
Because plaintiff breach contract and lodge caveat over land title again so defendants unable get finance this cause defendants hard financial condition. When the contract end the plaintiff without right to lodge the caveat. Defendants not owed plaintiff claimed amount and have a query for plaintiff alleged building contract; defendant never sign plaintiff alleged version contract. Plaintiff not give future particulars of the claim and evidence support their claim.
15. Finally, there is a reference in paragraph 14 of the Defence to the death of a director of the plaintiff and efforts by the defendants to resolve the proceedings.
16. A reply to defence was filed on 26 May 2014 which effectively joined issue with the allegations made in the Defence. In relation to the allegations in paragraphs 4 and 5 of the Defence the plaintiff pleads:
(i) all building work was executed by a licensed builder;
(ii) any defects in the work, which allegation is denied, were "maintenance matters" and not defects and were not "significant defects";
(iii) all roof insulation was installed in accordance with the building contract specifications;
(iv) the slab was constructed in accordance with the building contract specifications; and
(v) with respect to the "maintenance matters" the plaintiff has never been afforded the opportunity to attend to them.
17. In relation to the suggestion that the building was not properly insured the plaintiff says 'at all times it was insured in accordance with the terms of the building contract' and denies any breach of clause 15 of the Contract.
18. The Contract which was dated 12 July 2011 was a standard form Housing Industry Association 'ACT Residential Building Contract for New Dwellings' edition 4 (June 2006).
Progress claims
1. The builder must give the owner a written claim for each progress payment on completion of each stage set out in Item 13 of Attachment A.
Progress payments
2. The owner must make progress payments on completion of each of the stages set out in Item 13 of Attachment A. Payment must be made within 5 days after receiving a progress claim from the builder.
Interest on late payment and suspension of building works
3. If the owner does not make a progress payment or any payment after it becomes due, the builder is entitled:
a. to interest on the unpaid amount, at the rate set out in Item 11 of Attachment A. This is calculated from the date when the payment was due until the date when the payment is made; and
b. to immediately suspend the building works without notice to the owner, until 5 days after the date when payment is made.
20. Item 13 of Attachment A (which identified the stages for the purposes of clauses 12.1 and 12.2) described the following stages with their respective amounts payable:
1. Deposit on signing of contract (should not exceed $10,000) 5% $14,600
2. Floor slab complete:
Footings poured. Stumps, piers or columns complete. Bearers and joists complete, base brickwork complete. Internal and external drainage complete. Electrical, gas and plumbing rough in below the floor complete. Floor slab poured.
10% $29,200
3. Roof frame complete:
Wall frame complete and braced. Roof frame complete and braced. Fascia installed. Windows installed. All structural supports installed. Wall framing complete.
15% $43,800
4. Close up complete:
All frames straightened. Windows nailed off. Electrical, gas and plumbing rough in complete. Bath installed. Front and back door complete with locks. Eaves, barge, external wall cladding and roof covering is fixed.
35% $102,200
5. Fixings complete:
All internal architraves, skirtings, doors, cupboards and detailed joinery installed. Plasterboard finished, sanded and cornices fixed. Exterior down pipes fitted and penetrations complete. Decks and landings complete.
15% $43,800
6. Painting complete:
All ceramic tiling installed. Prime cost items installed. Interior and exterior painting completed.
15% $43,800
7. [blank]
8. Practical completion:
All interior fit-off items installed including door furniture, robe rails, bathroom accessories. Electrical, plumbing and gas fit-off installed. House cleaned internally and externally. Site cleaned and all excess items removed from site.
5% $11,600
TOTAL 100% $289,000
21. The Contract bears an annotation that indicates that the sum of $7001 was paid on 24 July 2011. It was common ground that the balance of the deposit was paid by the defendants.
22. Unusually for this kind of contract, Item 11 of Attachment A (which provided the interest rate payable on late payments for the purpose of clause 12.3) provided that the interest rate on late payments was '0%'.
25. The definition of 'practical completion' also makes reference to 'minor omissions'. It provides:
practical completion means that the building works have reached the stage where the builder certifies that they have been completed in accordance with the contract, except for minor omissions and, where applicable, has done all that the builder is required to do under the contract to enable a certificate of occupancy to be obtained.
26. Clause 25 'Ending the contract' relevantly provided:
2. The builder may end the contract if:
a. 10 days have passed since the builder gave notice of the breach;
b. the owner is still in breach of the contract; and
c. the builder notifies the owner in writing by certified mail or personal service that the contract is at an end.
...
Monies owed by the owner to the builder
8. If the contract is ended, then the owner must pay the builder:
a. the cost of the building works to date;
b. the cost of any materials on the site or already ordered from suppliers;
c. the cost of leaving the site; and
d. the builder's margin, applied to the total of (a) plus (b) plus (c).
27. Unusually for this kind of contract, the builder's margin (referred to in clause 25.8) was also identified in Item 10 of Attachment A as '0%'.
28. Exhibit 9 was a copy of the building plans and exhibit 17 was a building quotation which included lists of finishes and inclusions. I find that both formed part of the Contract.
29. Exhibited to an affidavit of Kenyon Hopkins, the plaintiff's building expert, was the copy of the Contract held by the plaintiff. Although differing in some respects from the defendants' version of the Contract, it did include as one of the annexures an assessor certificate which includes an energy rating assessment and which appears to be initialled by both defendants, and I find that this also formed part of the Contract.
30. The defendants were given a quotation by Agostinho (Tony) Martins, one of three directors of the plaintiff at the time, on or about 10 July 2011. The Contract was dated 12 July 2011. The plans which formed part of the Contract were subject to building approval, which was granted on 6 August 2011.
31. The defendants paid the deposit of $14,600. On 12 August 2011 QBE issued a certificate in relation to insurance addressed to the defendants. The certificate indicated that a contract of insurance complying with the 'Building Act 2004 and Regulations' had been issued by QBE Insurance (Australia) Limited in respect of residential building works on the premises. The certificate identified the builder as A & A Martins Pty Ltd, the contract price as $289,000 and the contract date as 12 August 2011. The 'Building Owner/Beneficiary' was identified as the defendants. The certificate provided:
Subject to the Building Act 2004 and Regulations and the conditions of the insurance contract, cover will be provided to the Building Owner/Beneficiary named in the domestic building contract and to the successors in title to the Building Owner/Beneficiary or the immediate successor in title to the contractor or developer who did the work and subsequent successors in title.
32. The document itself does not explain why the builder is identified as A & A Martins Pty Ltd or why the contract date is 12 August 2011. The policy wording of the insurance contract was not in evidence. The certificate itself does not indicate the extent of any public liability insurance provided under the policy.
33. Construction work proceeded from August 2011. In late August 2011 Agostinho Martins, who appears to have been the plaintiff's contact person for the defendants, was diagnosed with cancer.
34. On 20 September 2011 the second defendant emailed Ruth Martins (Agostinho Martins' wife and at that time a director of A & A Martins Pty Ltd) two questions one of which was '[d]id you install insulation R1.0 for slab?'
35. On 22 September 2011 an officer of the Westpac Banking Corporation wrote to the first defendant seeking 'a copy of the Builder's Risk Insurance policy, covering the property during construction through to completion'.
36. Agostinho Martins died on 9 October 2011. It is apparent that the death of Agostinho Martins was a matter of considerable significance for the operations of the plaintiff which, as I will explain, was one of a small number of companies forming a family-run building business.
37. Building work continued until about January 2012. On 31 January 2012 the plaintiff sent a form to the defendants to change the nominee builder for the job. The defendants signed the form the same day. The form was entitled 'Appointment of Builder & Application for Commencement Notice'. The form appointed Gungahlin Developers Pty Ltd as the builder in relation to the building works and Walter Pinto as the nominee who would supervise the building works. A statement from Walter Pinto dated 30 May 2014 and tendered by the defendants was to the effect that because of the disputes between the plaintiff and the defendants he did not in fact carry out any building work on the premises.
38. On 27 February 2012 the plaintiff served four progress claims and an additional invoice for 'Supplementary Items'.
39. The four progress claims were for stages 2 to 5 and their respective amounts that I have set out at [20] above. The additional invoice was headed 'Supplementary Items Claim Contract Builder'. This invoice provided:
Maples Winterview are submitting a claim for payment for the Supplementary items detailed below, which have been completed at [the premises].
Additional cost for splashback tiles: $ 194.70
Additional cost for door handles: $ 122.00
Rainwater tank lowered: $ 287.00
Alpine white kitchen benchtop: $ 590.00
Brick upgrade & mortar colour change: $ 1,000.00
Additional concrete path from garage to laundry & widening path
from laundry to rear fence to 1500mm: $ 1,392.00
Total for claim incl GST $3,585.70
40. On 6 March 2012 notice was given by the plaintiff to the defendants of their default under the Contract and the suspension of building works. The notice provided:
On 27/2/12 we issued you with progress claims, in accordance with clause 12 of the contract, for substantial completion of Stages 2-5 of the building works $219000.00 along with the Supplementary Items claim of $3585.70. To date those final progress claims remain unpaid and you are therefore in breach of subclause 12.2 of the contract.
As a result of your breach the building works at the abovementioned address are suspended pursuant to subclause 12.3. If you fail to correct the breaches within 10 days of the date of this notice we may end the contract.
Please note, pursuant to clause 12.3 of the contract interest at the rate of 10.25% is now payable on the amount.
41. On 29 March 2012 the plaintiff lodged a caveat over the property pursuant to clause 30 of the Contract. On the same day Maria Martins, one of the two remaining directors of the plaintiff after Agostinho Martins' death, wrote to the first defendant addressing a series of matters which were apparently in dispute. The email commenced:
As we discussed work will only resume at your property when the outstanding invoices are paid in full. Once again I mentioned to you that we also have loans and interest to pay for your property on the costs incurred to date.
Should you not be able to secure finance for the build, we propose that the best option for you is to sell. At which point documents will be drawn up guarantying that Maples Winterview will be reimbursed all monies outstanding on settlement of sale, including legal and additional costs incurred.
42. In relation to an issue about insulation of the slab, the email provided:
43. The email also referred to interest on late payments being paid at a rate of 10.25% on outstanding amounts. That was notwithstanding that the Contract specified 0% as the rate of interest payable in relation to outstanding amounts. In relation to an issue of building insurance, the email provided:
44. On 2 April 2012 the defendants sent an email to the plaintiff in the following terms:
For your require make all issued invoice to pay within 14 days, so we states payment schedule and reason below.
we received Builder warranty insurance carry out building work name is: A & A MARTINS PTY LTD BUILDER LICENCE NO: 200212660, HIA contract carry out builder is MAPLES WINTER VIEW PTY LTD LICENCE NO: 19936644. The insurance we can not accept, this is big problem for us.
Mr Martins passed away last year, plumber told us his wife can control all the building work, we still think his wife Mrs Ruth Martins and MS Leonie and Maria hold a builder licence, but they did not. so we think from Martins death date to January 2012, you corporate did not have licence builder to carry out the building work.
Please provide all complete stage certificate
1, floor slab stage is $29,200.00
we can not make this payment because you did not install R1.0 insulation under slab, you must give us satisfying solution.
2, roof frame stage is $43,800.00
we can not make this payment because porch area roof was slant. Rainwater pipe not install for porch area.
3, close up stage is $102,200.00
we can pay that after 1 and 2.
4 Fixing stage is $43,800.00
we can pay that after 1, 2 and 3,
5 extra cost is $3585.70
rainwater tank $287.00 we can not pay details by approved plan.
we hope you complete this building asap, we will make payment on time.
45. On 14 April 2012 Maria Martins wrote to the first defendant outlining the options that might be available to resolve the issues between the parties, namely sale of the property, the defendants obtaining another mortgage, delayed payment of the amounts owing or resorting to lawyers. She sent a further email demanding payment on 8 June 2012.
46. On 10 July 2012 the Westpac Banking Corporation sent a letter to the first defendant confirming approval in principle for a loan of $231,200 to the defendants.
47. On 20 August 2012 Maria Martins emailed Jane Zhang, the defendants' mortgage broker, asking whether settlement would occur that day. Ms Zhang replied:
Yes, the loan is ready for book settlement, but need client prepare the 20% bank cheque to settlement, you need discuss with [the first defendant].
48. On 21 August 2012 the first defendant wrote to the plaintiff saying '[b]ank still not accapet your insurance please provied as soon as possible'. The first defendant wrote again on 27 August 2012 referring to reports in the Canberra Times about houses under construction in Bonner and Harrison burning down and concluding '[b]ecause it not under insurance cover, so please solve it asap'.
49. On 24 August 2012 Maria Martins sent an email to the first defendant recording that she had spoken to the bank which was waiting for the defendants to submit the plaintiff's progress payments. She said:
They are not holding anything up and wish to make payment to us. Please send our progress payments to them so that we can be paid.
This is financially a very difficult situation for us and we are struggling to meet our payments and commitments.
I implore you to forward our progress payments to the bank.
50. The first defendant replied on 30 August 2012 saying:
I told Mr Walter this morning about insurance issue. I really want make payment. No times to waste, i want have meet if you think necessary.
51. On 27 August 2012 Maria Martins emailed Ms Zhang seeking an update. The same day she received a reply from Ms Zhang saying '[j]ust confirmed with Westpac, [the first defendant's] loan is ready for booking settlement'.
52. On 10 September 2012 the defendants wrote to the plaintiff:
Director Agostinho Martins passed away last year, we sure this is sad, so the building work not carried put by licensed builder with more defects and not comply approved plan and you can not provied correct Builder risk insurance for current development project.
we bought this small block land for living, currently it lost role, you will compensate for all the land cost and development cost and rent cost.
This is last notice if you can not response to us for resolution all disputes, we will go to judgement.
53. By letter dated 10 October 2012 the plaintiff terminated the Contract.
54. A facsimile from Westpac Banking Corporation to Ms Zhang on 13 December 2012 indicates that the discrepancy between the identity of the builder in the certificate of insurance and in the building contract remained an issue. The facsimile said that in order to settle the loan the bank required the documents indicated in the facsimile. Those documents were the builder's contract and the builder's risk insurance. In relation to the builder's contract the comment on the facsimile was 'Req Building Contract, As Adv By Broker The Builder's Company Name In The Building Contract Is Different To The Building Insurance'. In relation to the builder's risk insurance the comment on the facsimile was 'Builders Risk Public Liability Insurance, Must Show Public Liability Amount, In Builder's Name'.
55. On 23 May 2013 the plaintiff wrote to the defendants seeking a 'final positional statement' by 30 May 2013. On 28 May 2013 the defendants replied by letter:
Thank you your email refer 23 May 2013.
We want state some standpoints below.
1, We are not quite agree Mr Ron (your solicitor) amended Agreement for sell the property .... That Agreement appear we will resume the HIA Building Contract (we entered contract on 12 July 2011 with Mr Agostinho Martins, Maria Martins terminated the contract on 10 October 2012) it means every building work comply the HIA contract. You allege building cost already or future increased and some building item not included this is unreasonable and unrealistic between Mr Ron and us conversation. Li was not reneges and frustrate to resolve the matter, she still open any point for negotiation. We want save unnecessary incur legal cost to resolve the matter but you repeatedly said go to court its means you are not negotiable to us if we can not resolve matter that will be final option. We acknowledge it will significant effect for our family.
2, We had major compromise for sell the property to resolve matter. Because Mr Agostinho Martins absented was painfully and sadly for his family and us.
we looking forward hear from you soon.
Plainly enough this correspondence was not as clearly expressed as it might have been.
56. On 4 July 2013 the defendants wrote again to the plaintiff asking for its decision and asking for a reply before 8 July 2013.
57. On 1 August 2013 a lapsing notice was served on the plaintiff in relation to the caveat lodged in March 2012. On 27 August 2013 I heard the plaintiff's application to maintain the caveat and the application was dismissed with costs as a result of the application of the reasoning in Adrija Pty Ltd v Mohamed [2013] ACTSC 120.
58. On 17 September 2013, notwithstanding the dismissal of the earlier application to maintain the caveat, the plaintiff lodged a further caveat. The terms of that caveat do not disclose any caveatable interest in the land.
59. The property was inspected on 18 September 2013 by a representative of Peak Consulting for the purposes of preparing a defect inspection report. That report was the subject of evidence from Peter Leary, to which I will refer below.
60. On 20 September 2013 the first defendant was issued with an owner builder licence under the Construction Occupations (Licensing) Act 2004 (ACT).
61. On 24 October 2013 the private certifier originally engaged for the building project issued a further Building Commencement Notice identifying the first defendant as the builder.
62. On 26 November 2013 a Certificate of Occupancy and Use was issued under s 69(2) of the Building Act 2004 (ACT) in relation to the residence by the Planning and Land Authority.
63. These proceedings were commenced by originating claim filed on 30 October 2013.
64. A defence was filed on 9 December 2013. An amended defence was filed on 12 May 2014. A reply was filed on 26 May 2014.
65. The plaintiff is a company which was registered in 2005. At the time of entry by the plaintiff into the Contract the three directors of the company were Maria Martins, Antonio Martins and Agostinho Martins. Agostinho Martins was the son of Maria Martins and Antonio Martins. The company has 30 shares currently held equally by Antonio Martins and Maria Martins but Agostinho Martins was previously a shareholder.
66. A & A Martins Pty Ltd is a company which was registered in 1996. Antonio Martins and Maria Martins are the current directors of the company. Agostinho Martins was a director of the company until his death and Ruth Martins was also a director of the company from 2008 until 2012. The company has three shares which were held by Antonio Martins, Maria Martins and Agostinho Martins. There are two other companies in the 'Martins Property Group' namely Primavera Holdings Pty Ltd and Primavera Vista Pty Ltd. The details of their directors and shareholders were not in evidence.
67. The entitlement of the plaintiff to recover in accordance with its claim is dependent upon it having validly terminated the Contract by reason of a breach by the defendants of their obligation to pay one or more of the payment claims made. If the Contract was validly terminated then the obligation on the defendants is to pay the amounts required by clause 25.8. The defendants have substantially not admitted or denied the allegations made by the plaintiff and, in particular, have alleged a series of defects in the building works. Because there is no claim of an entitlement to set off amounts required to rectify those defects and there is no counterclaim seeking damages for those defects, the only relevance of the existence of the defects is in so far as they may deny the entitlement of the plaintiff to the payments which it claimed, the non-payment of which formed the basis for its termination of the Contract.
68. In order to succeed the plaintiff must demonstrate that one or more of the payments which it claimed on 27 February 2012 was in fact due and payable on that date. The issues that therefore arise for determination are as follows:
(a) What is required to be demonstrated to prove completion of a stage?
(b) Is the entitlement to payment of a later stage dependent upon completion of each earlier stage?
(c) Was Stage 2 completed?
(d) Was the fixings stage completed?
(e) Was payment due for the supplementary items?
(f) What amount would be due under clause 25.8?
(g) Was there a breach of an implied duty to cooperate?
69. When dealing with each issue I will endeavour to describe in more detail why it arises and is of significance.
What is required to be demonstrated to prove completion of a stage?
70. In determining whether or not the plaintiff had an entitlement, as it has alleged, to payment of any of its progress claims it is essential to understand what it was required to have done in order to make the progress claim payable under clause 12.
71. The descriptions of the items that must be completed in order for a stage to have been reached (set out at [20] above) do not include detailed descriptions of every item that must be carried out. However they are sufficient to provide a reasonably ascertainable basis for determining what must be completed in order for there to exist an entitlement to payment for that stage.
72. The issue that was argued between the parties was the relationship between the entitlement to progress payments and the obligation upon the builder to rectify items which are defective or unfinished pursuant to clause 23. At what point does a defect in construction or an item being unfinished deny the entitlement of the builder to make a progress claim in the light of the existence of the obligation on the builder to 'promptly rectify the defective or unfinished work' in clause 23.3?
73. Notwithstanding that residential building contracts in this form are very common I was not referred to any authority addressing this issue.
74. The definition of practical completion which contemplates that there may be 'minor omissions', the clause addressing practical completion which imposes an obligation to rectify 'defective or unfinished work' and the 'maintenance services period' referred to in clause 23.7 which addresses 'defects resulting from work or materials not being in accordance with the contract' are all indicators that a standard of perfection is not required in relation to completion of each stage prior to the builder having an entitlement to make a progress claim.
75. Hudson's Building and Engineering Contracts (12th edition, Sweet & Maxwell) at [3-076] states:
The great majority of substantial construction contracts contain express provisions for interim payment. The two most common forms of these provide either for stage payments of stipulated sums on completion of various defined stages of the work ("stage payments"), or regular periodical payments based on interim valuation of work done to date ("periodical valuation payments"). ...
In the case of stage payments, on the other hand, there will be no room for any theory of substantial performance, it is submitted, save in regard to purely trivial failures, although sometimes it may not be an easy question of fact, when dealing with stipulated stages of construction of an uncompleted project, to determine when sufficient completion of a stage of the work on which an instalment depends has been achieved. Since the purpose of such provisions is to secure an interim payment on account, with a possibly substantial retention, extreme exactitude is no doubt not envisaged, but effective and satisfactory completion of the required stage will be a condition of any instalment payment, it is submitted, and there could be no question of substantial performance arguments entitling a Contractor to sue for the instalment while giving credit for incomplete or defective work, such as might be possible with the price or a final balance due for work on completion.
(Footnote omitted)
76. This paragraph was referred to with approval in Cardona v Brown [2012] VSCA 174 at [74] ('Cardona') where Tate JA (with whom Bongiorno and Osborn JJA agreed) said:
74 It is necessary for there to be 'effective and satisfactory completion of the required stage ... [as] a condition of any instalment payment' and while trivial failures, or failures borne of impracticalities, do not preclude effective and satisfactory completion, it is noteworthy that the dispute in relation to the trusses was not resolved until the first day of the hearing before VCAT.
(Footnote omitted)
77. The approach outlined in Hudson's Building and Engineering Contracts and adopted in Cardona is a relatively strict one which only requires progress payments to be made where non-compliance with the documented requirements for that stage is 'purely trivial' and, while 'extreme exactitude' is not envisaged, 'effective and satisfactory completion' of the stage is required. The approach expressly rejects any doctrine of 'substantial performance' in relation to the entitlement to interim payment.
78. In Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124 at 133-134 Thomas J was considering whether or not the owner had repudiated the contract by refusing to make a progress payment until some 47 alleged defects were rectified. His Honour said:
It is true that the progress claims were made at a time when some defects remained in the building. On the findings I have made, these were not substantial, and they were certainly not so substantial as to make it impossible for the builder to complete the building properly. Putting it another way, the continuation of the builder's building program would not make it impossible for the defects to [be] remedied in due course. The lists of defects I have found to exist are not untypical of the "defects liability" lists which builders are commonly required to meet during the defects liability period under recognised building contracts, the rectification of which will entitle the builder to final payment. Such defects are commonly rectified at the end of the job. It is not to the point that the builder would have been able to rectify more economically had he attended to them earlier.
The existence of these defects at that stage was not enough to justify the stand taken by the owner. Nor were they serious enough to disqualify the builder from entitlement to progress payments.
79. Although the report of the case does not set out all of the defects with which his Honour was dealing so as to be able to fully assess his Honour's remarks, his Honour's decision is significant in impliedly identifying that defects which make it 'impossible for the builder to complete the building properly' will be defects that preclude an entitlement to a progress payment based on the completion of a stage.
80. In the light of these authorities, in my view the tension between the obligation to complete a stage for the purposes of clause 12 and the recognition that there may be defective or unfinished work in clause 23 may be resolved by reading the unqualified requirement to have completed the stage as satisfied if all matters are completed except for minor defects or omissions and where continuation of the work would not render it impractical to remedy the defect or omission if the works progress past that stage.
81. I note that the strictness of this approach can be addressed by alternative drafting such as that reflected in the contract considered in Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303 at [31] which imposed an obligation to make a progress payment for the 'substantial completion' of each stage or alternatively clause 12 of the NSW Fair Trading 'Home building contract for work over $20,000' which refers to a stage of work being complete 'when it has been finished in accordance with the contract documents and any variations agreed to and there are no omissions or defects that prevent that stage of the work from being reasonably capable of being used for its intended purpose.' Further, although a builder may have failed to complete the requirements of a stage so as to become entitled to a progress payment that failure will not preclude payment of the overall contract price so long as the defects are ultimately remedied pursuant to clause 23 or, if they are not so remedied, subject to an adjustment to take into account the cost of rectification, or if that is not reasonable in the sense referred to in Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 618-619, the loss in value (see also Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 at 300 [17]).
82. Finally, as will be apparent from the above, I have interpreted the Contract so that completion, in the sense described above, of each stage is a condition precedent to the plaintiff's entitlement to make progress payment claims. I do not consider that the doctrine of substantial performance, at least in so far as it would be less strict than I have outlined at [80] above, can be applied to the stages under the Contract so as to permit recovery of the stage 2 progress payment prior to the substantial completion of the Contract as a whole: cf Eminent Forms Pty Ltd v Formosa [2004] SASC 192 at [59].
Is the entitlement to payment of a later stage dependent upon completion of each earlier stage?
83. Counsel for the plaintiff submitted that in order for the plaintiff to be entitled to make a claim under clause 12 the plaintiff was only required to demonstrate that the items referred to in that clause were complete and it was not necessary to demonstrate that each of the preceding stages was complete. The effect of that submission would be that even if stage 2 was found not to be complete then payment for stage 3 could nevertheless be recoverable if the items referred to in the description of that stage had been completed. It would avoid the completion of the earlier stages being preconditions to the entitlement to claim for later stages.
84. I do not accept that submission. It appears to me to be inconsistent with giving to the Contract a reasonably practical and commercial operation. Clearly enough the stages identified in the Contract are intended to reflect the sequential completion of different aspects of the building. It is the nature of such a construction that the completion of one stage is, generally speaking, a precondition for the completion of the next. For example, there would be difficulty in erecting the wall frames (stage 3) if the footings had not been poured (stage 2). Nor would it be a commercially reasonable construction of a contract which contemplates the involvement of a lender to require payment for the wall frames stage when the footings had not been poured. Therefore, in my view, a claim for a progress payment under clause 12 for a particular stage may only be made when the previous stages are complete. This is the same conclusion reached by the Victorian Court of Appeal in a relevantly similar situation: Cardona at [71]-[72]. Therefore if the plaintiff does not demonstrate that each earlier stage has been completed it cannot show that a progress payment for a later stage was due.
85. This issue arises because Stage 2 'Floor slab complete' is the first unpaid stage for which a progress payment claim was made on 27 February 2012. If it was not completed and hence there was no entitlement under the Contract for the builder to make a progress claim, then not only could a failure to pay the claim not be a ground for termination of the Contract but also a failure to pay claims for any of the subsequent stages could not provide a ground for termination. The issue arises because the non-payment by the defendants of the claims for progress payments (including the Stage 2 progress payment) was pleaded as one of the breaches of contract relied upon by the plaintiff which provided the basis for termination (SOC [10]-[12]) and that breach was denied (Defence [7]).
86. The plans for the building which formed part of the Contract showed that the slab was to have R1.0 insulation or to be constructed as a 'waffle pod'. This appears from the annotations on Drawing A06 in exhibit 9. The evidence clearly established that the slab was not constructed using the waffle pod method. Therefore the contractual plans required that the slab have 'R1.0 slab insulation' and noted a requirement to 'provide R1.0 slab insulation to slab'.
87. The absence of such insulation is an issue raised in the Defence as one of the defects relied upon by the defendants. Further, the report of Mr Leary upon which those pleadings are based (exhibit 32) provides in relation to the slab:
The approved plans and specifications instruct to provide R1.0 slab insulation to slab or construct as waffle pod system. Based on photographs supplied by the owner, there is no evidence to suggest that either has been installed.
88. The report prepared by the expert called by the plaintiff, Mr Hopkins, (exhibit 8) addressed the issue in the following manner:
The only drawing I have been provided with is drawings A06 dated 17/6/2011. The slab heating installed page 539 BCA. This specification shows on drawing A06 is not compliant with BCA 3.12.1.5 subsection C1 which requires perimeter insulation only on the ground with slabs with in slab heating or cooling. No Information has been provided to me that in slab heating has been provided to the slab therefore I am of the opinion that no slab edge insulation is required (See Appendix "D")
89. The appendix to which this part of the written report refers provides:
(c) A concrete slab-on-ground-
(i) with an in-slab heating or cooling system, must have insulation with an R-Value of not less than 1.0, installed around the vertical edge of its perimeter; and
(ii) when in climate zone 8, must have insulation with an R-Value of not less than 2.0 installed under the slab.
90. In oral evidence Mr Hopkins stated that in his opinion the reference to providing R1.0 slab insulation was to insulating the edge of the slab. His evidence was that it was not possible to determine whether the edge of the slab was insulated without excavation [T 80-81].
91. In his oral evidence Mr Leary described the method of slab construction as being an infill slab rather than a waffle pod design. His evidence was that R1.0 insulation was required to be underneath the slab and that while there were various products which provided R1.0 insulation below slabs, the most common product was a high density foam product which is laid in a layer before slab placement. In cross-examination counsel for the plaintiff suggested that the R1.0 insulation requirement could be achieved by the insulating properties of the concrete itself or alternatively through the installation of carpet on the upper side of the slab. Mr Leary did not accept that suggestion, pointing to the 'Thermal Performance Specifications' table on Drawing A00 in exhibit 9 which indicated that insulation was dealt with separately to any covering on the floor and hence that the reference to R1.0 in relation to the slab was indicating that the insulation needed to be added to the slab not that the slab was an R1.0 slab.
92. I prefer the evidence of Mr Leary over that of Mr Hopkins and find that the reference to R1.0 slab insulation is to the provision of insulation underneath the concrete slab and not a reference either to slab edge insulation or to the thermal properties of the concrete slab itself. That is for the following reasons:
(a) Mr Leary was a more impressive witness better able to explain his opinions by reference to the facts, giving me more confidence in his capacity and expertise in interpreting the requirements of the plans and his expertise in building matters.
(b) Mr Hopkins' opinion, which refers to the mandatory requirements of the Building Code of Australia, does not address the contractual point that arises in this case. While slab edge insulation and under slab insulation may only be required by the Building Code of Australia in the circumstances outlined in paragraph 3.12.1.5(c), that observation does not determine whether or not under slab insulation was required in the present case. The plans do not expressly or impliedly incorporate the qualifications in relation to when under slab insulation must be installed which are set out in the Building Code of Australia. Therefore, the fact that the dwelling in this case did not involve in-slab heating or cooling or was not otherwise within the category of cases identified in the Building Code of Australia as requiring under slab or edge slab insulation does not determine the contractual question of whether under slab insulation was required in this case.
(c) Mr Leary's opinion appears to me to be more consistent with:
- (i) the Thermal Performance Specifications table on Drawing A00;
- (ii) the terms of the annotations on Drawing A06 which refer to providing 'R1.0 slab insulation to slab' (emphasis added);
- (iii) the arrows on Drawing A06 which are consistent with the insulation being provided to the underside of the slab rather than at the edge of the slab; and
- (iv) the references in the working papers for the 'Assessor Certificate' in relation to energy rating (which I have found formed part of the Contract) which describe the floor as 'Concrete Slab on Ground Bulk Insulation In Contact with Floor R1.0'.
93. The next question becomes whether or not that insulation was installed. The evidence in the report of Mr Leary is set out at [87].
94. Photograph 5 in exhibit 33 shows the empty formwork for the concrete slab prior to it being poured. The photograph depicts timber formwork defining the shape of the slab, with black builder's plastic lining the ground beneath metal reinforcing. There is no evidence of any insulation visible in the photograph. It is not possible to tell from the photograph what, if anything, was laid under the black plastic although it can be said that:
(a) the plastic appears to be laid at the same level as the packed fill (that is at the base of the timber formwork), which would leave little space for insulation (exhibit 33 photographs 2, 3, 4 and 5);
(b) the photograph of the edge of the slab after it was poured and the formwork removed shows no evidence of any layer of insulation but does show some evidence of the black plastic shown in photograph 5 (exhibit 33 photograph 7).
95. There was no evidence of any inspection report or certificate from a certifier indicating that the specifications on the plans were complied with.
96. The plaintiff did place some significance upon the issuing of the certificate of occupancy which was ultimately issued on 26 November 2013. As at that date s 69(2) of the Building Act 2004 (ACT) provided:
(2) If building work involving the erection or alteration of a building as completed is not strictly in accordance with the prescribed requirements for the building work but is substantially in accordance with the requirements, the construction occupations registrar may, on application made by the owner of the parcel of land where the building work has been carried out, issue a certificate that the building as erected or as altered is fit for occupation and use as a building of the class stated in the approved plans for that building work.
97. Section 66 identified what were the prescribed requirements:
prescribed requirements, in relation to building work, means -
(a) if the building work involves handling asbestos or disturbing friable asbestos - the requirements of this Act; or
(i) the requirements of this Act; or
(ii) the approved plans for the work.
...
98. Section 69(2) and the definition of 'prescribed requirements' only require that the building work be 'substantially in accordance' with the approved plans, accommodating some departures from those plans. As a consequence the issue of such a certificate does not of itself demonstrate full compliance with the contractual obligations of the builder. Further, the certificate of occupancy was issued only after the first defendant became the owner builder and there was no evidence as to precisely what steps were taken in order to complete the building and how the issue of insulation or energy rating was ultimately addressed through the certification process.
99. It is clear that the defendants had enquired as to the installation of insulation in September 2011 (see [33]). The email from the plaintiff dated 29 March 2012 that I quoted at [42] above appears to contain an admission that there was an insulation issue in relation to the slab that needed to be remedied by the installation of additional insulation in the house to ensure that the overall energy rating was maintained. While there is an assertion of an on-site agreement being reached as to how this issue was to be dealt with, no variation of the terms of the Contract is alleged in the pleadings or, having regard to the requirements of clause 21 of the Contract, disclosed in the evidence. Finally, there is no evidence that either of the measures referred to in the email, namely, an upgrade to the heater and wall/ceiling insulation to ensure that the energy rating was kept, were implemented by the plaintiff after 10 January 2012 (the date referred to in the email dated 29 March 2012) or at any time prior to termination of the Contract.
100. In July and August 2012 the first defendant corresponded with an inspector at the Investigation Unit of the ACT Planning and Land Authority in relation to whether or not the specifications for his slab, particularly in relation to insulation, had been complied with. On 3 July 2012 the inspector said 'I have checked your building file and everything is okay. The slab insulation is placed under the black plastic sheeting before the concrete is poured.' The first defendant asked the inspector to double check as he said he had been to the site every day and could confirm that the builder had not placed insulation. It then emerged that the inspector was proceeding on the mistaken basis that the method of construction that had been adopted was the waffle pod method. Although it is likely that all the communications between the first defendant and the inspector were not in evidence the inspector told the first defendant on 14 August 2012 that he was waiting to see the certifier on 20 August and would let the first defendant know once he had seen the file (Exhibit 21). The evidence does not explain what, if anything, happened after that. It is not clear whether the inspector did in fact discuss the issue with the certifier then involved or what the outcome of those enquiries were. Neither the building file nor the certifier's file was in evidence.
101. Finally, one of the annexures to the affidavit of Michael Francis Riley, the chief executive officer for the Martins Property Group, affirmed on 19 December 2014 was a document which he created listing the plaintiff's responses to the defects alleged by the defendants. In relation to this issue it identified that this was a disputed item and under the heading 'Plaintiff's Response to Alleged Defect' was recorded '[t]he R1.0 rating is achieved using the concrete type and dimensions installed. The defendants claim for installation of waffle pad [sic] is not valid.' This statement is impliedly an admission that separate under slab insulation was not provided because of its contention that the R1.0 rating is achieved using the concrete type and dimensions installed.
102. In the light of this evidence I am satisfied that the R1.0 insulation was not installed beneath the slab. Most significant in reaching that conclusion is the admission contained in the email dated 29 March 2012. The admission in that email is consistent with the other evidence that is available even though there is no direct evidence about what, if anything, was underneath the black plastic laid beneath the metal reinforcing mesh shown in photograph 5 in exhibit 33.
103. Because that insulation was not laid I am not satisfied that stage 2 ('Floor slab complete') had been completed. Although there is no reference to the installation of insulation in the description of stage 2 in Item 13 of Attachment A to the Contract, the reference to 'Floor slab poured' necessarily requires the completion of those things which are necessarily antecedent to that process including, for example, appropriate compaction or treatment of the material under the slab, installation of a vapour barrier and the installation of any necessary insulation. As a consequence I interpret the reference to the floor slab having been poured to necessarily imply that the specified insulation was required to have been installed.
104. Having regard to my interpretation of the relationship between the requirements of the various progress payment stages and the obligation to rectify defective or unfinished work under clause 23 of the Contract which I have outlined above, in my view the failure to install under slab insulation is an omission or defect which precludes the payment stage being reached rather than being a matter able to be rectified after practical completion. That is because it is a matter which is not practically possible to rectify at that point. Further, it was not a matter that was 'purely trivial'. Failing to install insulation under the slab which was intended to affect the thermal performance of the house as a whole and appears to have been of some significance to its energy rating means that the builder had not achieved 'effective and satisfactory completion' of the slab stage.
105. The result of this is that stage 2 was not completed and hence there was no entitlement, in the absence of some variation of the Contract, to make a payment claim in relation to that or subsequent stages.
106. I make specific reference to the absence of some variation of the Contract because a defect in the works such as this was a matter which could have been addressed by a variation to the Contract either to provide a reduction in the price or by alternative steps to achieve the contractual level of thermal performance of the building as a whole. In the present case, because payment was not claimed for the stage until well after its completion and the completion of subsequent stages, the issue of how to deal with the defect was not addressed until the builder had committed very significant additional resources to the project. At that point there appears to have been a discussion as to how to address the issue although that, on the evidence before me, was never formalised in a variation to the Contract so as to permit payment for that stage to be claimed.
107. (I note that even though the unaddressed defect relating to the floor slab stage may have precluded claiming payment by way of progress payments for that and subsequent stages, had the building been completed, then the builder would have been able to recover the contract price less any damages or loss in value attributable to that defect as described at [81] above.)
108. Having regard to my conclusions outlined above this is not an issue which is essential to deal with. However I record that the issue here was the claim for completion of stage 5 'Fixings complete' when a downpipe shown on the plan was not installed. That downpipe is the downpipe shown on Drawing A03 in exhibit 9 at the southern edge of the portico above the front door. The absence of that downpipe resulted in the pool of water identified in defect number 2 in Mr Leary's report which became exhibit 32. It is clear that at the date of inspection by Mr Leary's assistant water was pooling in the gutter at the point where the downpipe should have been installed. This is demonstrated by the photographs taken at that time namely photographs 1, 2 and 3 in exhibit 34.
109. Item 13 of Attachment A to the Contract includes as part of stage 5 'Exterior downpipes fitted and penetrations complete'. In my view, while the failure to install a downpipe is something which can practically be remedied after practical completion, it is an item of such significance that it cannot be said that the stage which requires its fitting is substantially complete. It is an item specifically mentioned in the description of the stage and not a minor defect or omission. Therefore, had it been necessary, I would have found that stage 5 was not complete.
110. The statement of claim specifically outlines in paragraph 7 what is described as 'the adjustment claim' and alleges in paragraph 8 that the defendants breached the Contract by failing or refusing to pay the adjustment claim. Relevantly in relation to paragraph 7 the defence provides 'One invoice is supplementary items (total $3585.70), all supplementary items not install and supplied (except brick upgrade).' The defendants do 'not agree' with paragraph 8. I have treated the pleadings as involving an admission that some 'upgraded' bricks were installed but otherwise either not admitting or denying the balance of paragraphs 7 and 8.
111. The terms of the claim for supplementary items are set out at [38] above. The invoice itself does not make clear which contractual provision is being relied upon.
112. Clause 17 of the Contract permits adjustments arising out of variations in the values of 'prime costs' for items which are listed in Attachment D. The entry at Attachment D is that the items are 'As per inclusions list'. Similarly, clause 18 provides for provisional sums which are allowances for particular categories of work. These are listed in Attachment E which simply provides 'As per inclusions list'. Clause 21 provides for variations. It provides for different types of variations: automatic variations, variation by agreement and variation requested by the owner.
113. The finishes and inclusions list (exhibit 17) does not specifically address the prime cost of items and provisional sums. However it is possible to discern from the terms of the finishes and inclusions list where allowances have been made for the cost of particular items or particular work. There is also, in some cases, information available from the plans (exhibit 9) related to what was required under the Contract.
114. However, in relation to the whole of this claim, each of clauses 17, 18 and 21 requires that where the contract price is adjusted by operation of the clause then payment for any adjustments must be made 'at the next progress payment stage': clauses 17.6, 18.5, 21.6. In the light of my conclusion that stage 2 was not completed and that as a result of non completion of that stage, the remaining stages could not be completed, there was no 'next payment stage' reached and hence no entitlement to payment of the amounts claimed at paragraphs 7 and 8 of the statement of claim.
115. I will, in any event, deal with each of the items in the supplementary claim below. That examination leads to the conclusion that even if a 'next payment stage' had been reached the plaintiff has not demonstrated any entitlement to additional payments.
116. Splashback tiles: The finishes and inclusions list provided:
$35/m2 Ceramic tile allowance to wet areas & kitchen splashback. Borders, features and diagonal patterns not included.
117. Having regard to the terms of the finishes and inclusions list this entry appears to be an allowance for particular goods and hence within clause 17. A claim for an increase in the cost of these items beyond that which is allowed for may be recovered under clauses 17.5 and17.6 which provide:
118. In order to be recoverable the first threshold that must be met is that the actual price needs to be more than the prime cost item allowance, in this case, more than $35 per square metre. There is no evidence of how the splashback tiles differed from those which were specified. Further, there is no evidence as to how the amount of $194.70 was arrived at.
119. Door handles: The finishes and inclusions list provided:
DOOR FURNITURE - Gainsborough Collection
- Entrance set to front door & internal access
*Stronghold Series 840 GOV Governor Range
- Internal door furniture includes privacy function to Ens, Bath, WC & Bed 1
*800 GOV Governor passage set, 390 Radius flush pulls to CSD
120. There is no evidence to explain the claim in relation to door handles or explain how the amount of $122.00 was arrived at having regard to the terms of the Contract. Having regard to the fact that the finishes and inclusions list does not identify this as either a prime cost or provisional sum item, the entitlement to claim would need to be established under clause 21. There is no evidence that would support the existence of any one of the three different types of variation contemplated by that clause.
121. Rainwater tank: On the first page of the building quotation is a sub item 'Water tank and pump for irrigation $3,500'. That appears in a list of sub items some of which are identified expressly as allowances. Having regard to the context in which it appears I would not interpret it as an allowance but rather a component of the overall price. In the list of finishes and inclusions the tank is referred to as follows:
4000 Litre round rain water tank. Pump connection included
122. On the plans that formed part of the Contract there is a reference to a 4000 litre Slimline water tank connected to a minimum of 50% of the roof water collection. The water tank was to be connected to one external tap and irrigation system where possible and toilet flushing to achieve a minimum 40% reduction in water usage (exhibit 9 Drawing A01). The tank is shown on Drawing A04 sitting at a level slightly below the finished floor level.
123. Having regard to the terms of the finishes and inclusions list, which does not identify the tank or its installation as either a prime cost item or provisional sum, the basis for this item must be a variation under clause 21. There is no evidence as to how the tank was installed or any variation was required from the levels indicated on the plan or other evidence that would bring it within one of the three categories of variations contemplated by clause 21.
124. Kitchen benchtop: In the finishes and inclusions list there is a reference to a $12,500 joinery allowance which includes a variety of items one of which is 'Granite bench top'. Having regard to the fact that the finishes and inclusions list deals with the benchtop as part of an allowance for goods, the relevant clause appears to be clause 17. However there is no evidence to indicate whether the 'Alpine white Kitchen benchtop' referred to in the supplementary items claim was installed. Further, having regard to the fact that there was an overall allowance for the joinery items in the kitchen including a benchtop of $12,500 there is no evidence that the allowance was exceeded and hence no evidence as to how the amount of $590 was calculated having regard to the overall allowance of $12,500.
125. Bricks and mortar: In the finishes and inclusions list there is a reference to bricks as follows:
Face brick work from range, $850 per 1000 bricks
126. Having regard to the fact that what is specified is a rate for goods, the relevant clause must be clause 17. The evidence as to the price of bricks is contained in exhibit MFR 1 to the affidavit of Michael Francis Riley affirmed 16 February 2015. Included in that exhibit are a number of invoices for bricks (pages 64, 76, 77, 103, 104 and 107). Those invoices disclosed that 12,800 bricks described as 'Governor Haigh Exp 1sts' were purchased at a rate of $717 per thousand exclusive of GST or $788.70 inclusive of GST. The invoices also disclosed that 1200 bricks described as 'Universal Commons Plant 3 1sts' and 1200 'GP std commons commercial 1sts' both at a rate of $404 per thousand bricks exclusive of GST, the equivalent of $444.40 inclusive of GST, were purchased. There is insufficient evidence to establish that the face bricks used cost more than $850 per thousand. Further there is no evidence of the basis for the claim of $1000.
127. Additional concrete path from garage to laundry and widening path from laundry to rear fence to 1500 mm: The finishes and inclusions list provides:
Concrete footpath from external access to clothes line. Reinforced with steel mesh & buried expansion joints. Natural colour finish. As per plan
128. Drawing A01 shows an addition to the plans by hand which appears to show a concrete path from the external door of the laundry to the rear of the property and a rectangular concrete slab in the rear corner of the property. There is no evidence as to whether what was built departed from what was shown on the plan. The plan shows the concrete path being approximately 750 mm wide whereas the claim is based on it being 1500 mm wide, that is, the whole of the distance between the house and the fence line. There is no evidence to show how the figure of $1392 is arrived at. There is no evidence to support the making of any one of the different types of variation set out in clause 21. Further, there is no evidence demonstrating that the amount claimed was either a price or the cost of the work.
129. Notwithstanding that it was the contracting party, no building work was in fact undertaken on the site by the plaintiff. Rather, building work was undertaken by A & A Martins Pty Ltd (A & A Martins). The costs incurred by A & A Martins were then the subject of accounting entries in the accounts of the companies. There was evidence that in relation to another project an invoice was generated by A & A Martins to another company in the group which included a principal sum and then added a 15% builder's margin. I did not admit an equivalent invoice related to the construction of the defendants' house which was generated during the course of the hearing in the present case.
130. There is no evidence of any contract between A & A Martins and the plaintiff. There was however evidence that by reason of the companies being part of a group of companies controlled by a single family that the costs incurred by the plaintiff were treated as liabilities of the plaintiff and recorded in A & A Martins' financial records as work in progress. The evidence was that as at 30 June 2013 A & A Martins recorded work in progress of $444,599.30 as an asset. The oral evidence of Mr Riley, the recently appointed chief executive officer of the plaintiff, was that within that figure was an amount attributable to the defendants' house 'sitting at around about 220, 230,000 or so' (Transcript 131). If I was to infer that there was an agreement to pay the costs incurred by A & A Martins plus a 15% builder's margin then the evidence does not establish what was incorporated in the 'costs incurred' amount, in particular, whether that included both materials and some allocation of labour costs associated with the employees of A & A Martins and whether the 'costs incurred' extended beyond the amount identified by the work in progress entry.
131. In the absence of a contract it is clear enough that the work was carried out by A & A Martins at the request of the plaintiff and that there would be an entitlement to reasonable remuneration That remuneration would be assessed on the basis of the market value of the services provided. In the present case there was no evidence to indicate that the contract price under the Contract did not represent the market value of the services provided. In those circumstances I accept that it is evidence of reasonable remuneration for the construction of the house on the defendants' land. Therefore while a claim for reasonable remuneration in relation to an ineffective contract is not capped by reference to the contract price (see Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 276-278), in the case of an entitlement to reasonable remuneration as between A & A Martins and the plaintiff the claim could not exceed $289,000.
132. The evidence of Mr Riley was that he had examined the business records of the company and identified those invoices paid by A & A Martins which related to the job at the premises. Copies of those invoices were annexed to his affidavit affirmed 16 February 2015. They came to a total of $247,818.96. All except one, for an amount of $6,600, had been paid. There were some items such as insulation which were bought in bulk, which could not be attributed to a particular project, and in relation to which no claim was made. One of the invoices, claiming $275 for work described as being 'Re assess EER for new insulation specs', is dated 17 January 2013. Having regard to the plaintiff's position that it terminated the Contract by letter dated 10 October 2012 and the fact that on the balance of probabilities the invoice relates to work done after that date I am not satisfied that it was a cost incurred by the plaintiff in relation to the work under the Contract. Therefore the total of the invoices demonstrating costs incurred in carrying out the work under the Contract should be reduced by $275 to $247,543.96.
133. The plaintiff submitted that it was entitled to have added to that figure an amount claimed for labour of $74,052. In relation to this claim, Mr Riley's evidence was that there were a number of employees of A & A Martins who performed work on the Bonner site. Exhibit 10 identified those employees. Exhibits 11 and 12 provided evidence of their wages during the period 1 July 2011 to 30 June 2012. Exhibit 13, which I admitted on a limited basis, provided calculations made by Mr Riley which led to the total amount claimed of $74,052. I did not admit the document to prove the assumptions which underpinned the calculations.
134. The methodology in exhibit 13 is, in summary, as follows:
(a) The types of labour applied to building projects undertaken by A & A Martins were identified and categorised as 'Direct', 'Indirect 1' and 'Indirect 2'. 'Direct' involved labour applied directly to the site, 'Indirect 1' involved labour that was not applied on site but directly related to and contributed to the construction work on the site and 'Indirect 2' involved labour that was not directly attributable to the construction work on the site.
(b) The three residential construction projects being undertaken at the time of the Bonner development were identified and a percentage of resources of the different categories of labour was attributed to each project.
(c) The employees of A & A Martins were identified and put into one or more of the three categories referred to in (a) above.
(d) Each employee's wage during the period was calculated and then the percentage of that wage over the period during which the Bonner project was running was calculated.
135. For example one employee was paid $12,732 in the 2011-2012 financial year. 50% of his effort was attributed to the Bonner project ($6,366) and then that amount was reduced in proportion with the duration of the Bonner job (62.5% of the year) giving a total amount claimed of $3,979.
136. In my view the plaintiff has not established that the amounts claimed for labour were costs to it of the building work. That is because, firstly, the evidence as to intercompany arrangements did not extend to demonstrating that the costs of company employees were allocated to other companies in the group. Consistent with a lack of intercompany accounting in relation to labour was the absence of any allocation within the company records of the time spent by employees on particular jobs and hence the necessity to undertake the exercise undertaken in exhibit 13.
137. Secondly, the plaintiff has not established the accuracy of the assumption about how much time the particular workers spent working on the different jobs. No business records (such as timesheets) were tendered to support the allocation of time devoted by different employees to the Bonner job.
138. Thirdly, in my view the cost of the building works for the purposes of clause 25.8 does not extend to an apportionment of overhead costs such as time spent by directors in the general management of the company. The evidence in the present case was insufficient to tie the activities of office staff or directors to the building works. While I accept that there may be situations where off site costs could be recoverable, the evidence in the present case was insufficiently detailed to demonstrate that what was claimed was a 'cost of the building works' to the date of the termination of the Contract.
139. Based on the evidence I am satisfied that the plaintiff incurred a liability of $247,543.96 in relation to the construction of the dwelling for the defendants. That is a liability because of the entitlement of A & A Martins to reasonable remuneration for the work undertaken. There is no doubt that it is entitled to the reasonable costs of materials and subcontractors employed on the site and no evidence that the costs of materials or subcontractors identified in the materials annexed to Mr Riley's affidavit were not reasonable. Further, the amount bears a reasonable relationship with the contract price between the plaintiff and the defendants having regard to the unfinished state of the premises and the absence of evidence as to the amount of work necessary to complete the house to a point where a certificate of occupancy could be issued. However I have not found any amount beyond that to be a liability of the plaintiff to A & A Martins because the evidence does not establish the entitlement to the amounts asserted to be labour costs and the building was not completed so as to permit the assessment of reasonable remuneration to be made by reference to the contract price of $289,000.
140. I have not found that there was a contract between A & A Martins and the plaintiff. However if I am wrong in that conclusion then:
(a) the terms of that contract have not been established so as to demonstrate an entitlement going beyond the amount that I would find to be reasonable remuneration; and
(b) in so far as there might have been an intercompany arrangement for tax or other reasons that permitted recovery by A & A Martins of an uncommercial amount from the plaintiff then I do not consider that this would fall within the scope of 'the cost of the building works to date' in clause 25.8 of the Contract.
141. As a result, whether by reason of reasonable remuneration or by contract, the cost to the plaintiff of the building work that has been proved for the purposes of clause 25.8 is $247,543.96. The amount already paid under the Contract was $14,600 and therefore the outstanding cost of the building work that has been proven is $232,943.96.
Was there a breach of an implied duty to cooperate?
142. The plaintiff pleaded that it was a term of the Contract that the defendants would provide within 30 days after the Contract was signed, written proof that the defendants could pay the plaintiff in accordance with the terms of the Contract and that any loan they were relying upon to pay the plaintiff was approved: clause 4. It also pleaded that the defendants represented that they held funds of $56,000 but required a loan to pay the balance of the monies that would become due and payable pursuant to the Contract: Attachment A items 4, 7. In the light of this the plaintiff pleads that it was an implied term of the Contract that the defendants would take all reasonable steps in order to draw down the loan funds from the Westpac Banking Corporation loan and have them paid to the plaintiff as required under the Contract.
143. Relying upon a breach of this implied term the plaintiff claimed that it suffered losses totalling $3,995.71 which reflects interest in the period from the suspension of building works (6 March 2012) to the termination of the Contract (10 October 2012). The reason for this claim is that under the Contract the interest rate payable upon unpaid progress payments is identified as 0%. That would preclude any interest accruing in the period between 27 February 2012 and 10 October 2012 when the Contract was terminated. The plaintiff seeks to avoid the contractual provision setting the interest rate at zero by alleging a breach of the implied duty to cooperate which in turn led to the delay during that period for which it can recover damages.
144. The evidence in relation to this issue was limited. There was no evidence that the plaintiff ever requested the defendants to comply with the obligation under clause 4 of the Contract. The plaintiff appears to have acquiesced in the non-compliance with that clause. On 22 September 2011 Westpac Banking Corporation wrote to the first defendant in relation to the progress of a loan that would permit funding of the progress payments of the Contract. The letter indicated that the bank required 'a copy of the Builder's Risk Insurance policy, covering the property during construction through to completion'.
145. On 10 July 2012 Westpac Banking Corporation sent a letter indicating that approval had been granted in principle for a loan. That was a loan introduced by the defendants' mortgage broker, Ms Zhang. The document indicated that the in principle loan amount was $231,200 and that it related to the property in Roy Marika Street, Bonner. There were various conditions set out that needed to be met before unconditional approval was given to the loan.
146. On 20 August 2012 Ms Zhang communicated by email to Maria Martins: 'Yes, the loan is ready for book settlement, but need client prepare the 20% bank cheque to settlement, you need discuss with Bin Liu' [sic]. An update was provided on 27 August 2012 which provided: 'Just confirmed with Westpac, Bin Liu's loan is ready for booking settlement' (exhibit 14).
147. On 13 December 2012 (after the termination of the Contract by the plaintiff) Westpac Banking Corporation wrote to the defendants' mortgage broker identifying matters that were outstanding in relation to the settlement of a loan from the bank. The bank required a copy of the builder's contract and the builder's risk insurance. The comments on the facsimile noted that the building company name was different to that identified in the building insurance.
148. The plaintiff relied upon the general proposition that there is implied by law in every contract a duty that each party will do all things necessary on its part to enable the other party to have the benefit of the contract. The plaintiff submitted that the defendants were required to do all things reasonably necessary to secure a loan from Westpac Banking Corporation to permit the building to proceed. It pointed to the letter of 10 July 2012 which stated that the loan application had been approved in principle. It pointed to the notification on 27 August 2012 that the loan was ready to be settled. It submitted that the failure to secure the loan from Westpac Banking Corporation amounted to a breach of the defendants' duty of good faith and duty to cooperate.
149. There are two reasons why the plaintiff's claim cannot succeed.
150. First, Samuels JA pointed out in Elders IXL Ltd v National Employers' Mutual General Insurance Association Ltd (1988) 5 Australia and New Zealand Insurance Cases 60-847 at 75,297:
The cases about cooperation apply that doctrine to the contract as it is ultimately formulated between the parties. It may be that the condition of cooperation itself arises from an implication, but the cooperative steps to be taken can only be assessed once the full extent of the parties' mutual obligations has been determined.
Thus in a case such as the present, the starting point must be the content of the contractual obligations that exist. '[T]here cannot be a duty to cooperate in bringing about something which the contract does not require to happen': Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 124; see also Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126 at [51]. The submissions of the plaintiff proceeded on the basis that the defendants were obliged to obtain a loan from the Westpac Banking Corporation. It is only if there was such an obligation that any duty to cooperate could operate or any obligation on the part of the defendants consistent with that duty could be implied. However, I am not satisfied that there was an obligation to obtain a loan from Westpac Banking Corporation. While the Contract did include information consistent with an intention on the part of the defendants to obtain a loan from Westpac Banking Corporation, the Contract did not impose an obligation upon them to do so. They remained free to obtain the funds to make the payments required under the Contract in any way they saw fit. The information provided in the Contract about their intentions was provided so as to better enable the plaintiff to exercise the powers given under the Contract that would provide it with some comfort in relation to the defendants' ability to pay, rather than impose a duty on the defendants to obtain a loan from Westpac Banking Corporation. Because there was no obligation to obtain a loan from Westpac Banking Corporation under the Contract it is not, in my view, necessary to imply an obligation to take reasonable steps to obtain such a loan. Even if there had been an obligation to obtain such a loan then the implication that the defendants take reasonable steps to obtain such a loan would not have been necessary. That is because the failure to obtain such a loan would itself amount to a breach of contract and the failure to take reasonable steps to obtain such a loan would add nothing to the obligation under the Contract. Only if the Contract was made conditional upon the obtaining of such a loan would there be a proper basis for the implication of an obligation to take reasonable steps to obtain such a loan: Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571 at 591, 598. For these reasons, the term contended for by the plaintiff was not a term of the Contract and hence this aspect of the claim must fail.
151. Second, while the evidence does establish that no loan monies have been paid by the defendants to the plaintiff, the evidence does not establish the reason that no such payments have been made. There is no clear explanation as to why no progress claims were put in prior to Agostinho Martins' death. There is no clear evidence as to why the Westpac Banking Corporation loan was not completed. It is not clear whether the issue concerning the identity of the insured was the issue which prevented the loan being obtained or whether the defendants, being by that time in dispute with the plaintiff, chose not to pursue it. Ultimately the burden of proving a breach by the defendants of any such obligation lies upon the plaintiff. I am not satisfied that it has discharged that burden.
152. In the light of the above it is not necessary to determine whether, in the light of the terms of clause 25.8 of the Contract, the builder can also claim damages outside the terms of that clause or whether it is confined to any interest actually incurred which falls within the concept of 'the cost of the building works to date' in clause 25.8.a.
153. As a consequence of the above, even if the substantive claim to payment had been made out, the plaintiff has not established its entitlement to damages for a breach of an implied duty to cooperate.
154. Had the plaintiff been entitled to payment under the Contract then a question would have arisen as to its entitlement to interest.
155. Clause 12.3 of the Contract provides that if the owner does not make a progress payment or any payment after it becomes due the builder is entitled to interest on the unpaid amount at the rate identified in Item 11 of Attachment A. As pointed out above that rate is identified as 0%.
156. However upon termination of the Contract under clause 25 the obligation to pay is that identified in clause 25.8. That identifies the various amounts that must be paid. The costs there referred to are costs as at the date of termination. The Contract does not specifically provide for the interest rate that is payable in those circumstances. Item 11 in Attachment A is limited in terms to clause 12.3 and does not apply to monies owed under clause 25.8. As a consequence had the plaintiff been entitled to payment under that clause it would be entitled to pre-judgment interest under the Court Procedures Rules 2006 (ACT) from the date of the termination.
157. My conclusions in relation to the issues dealt with above have the following consequences:
(a) because of the failure of the plaintiff to install under slab insulation the plaintiff had no entitlement to progress payment for stages 2 and following;
(b) because the plaintiff had no entitlement to make those progress claims it had no entitlement to further monies by reason of adjustment of the contract price under clauses 17, 18 and 21 which could only be claimed as part of the next progress payment claim;
(c) as a result, the plaintiff was not entitled to make the claims that it did on 27 February 2012 and the defendants were not in breach of the Contract by failing to make payments in response to those claims;
(d) because the defendants were not in breach of the Contract by failing to make progress payments, the plaintiff was not entitled to terminate the Contract under clause 25.2 of the Contract;
(e) the entitlement to payment under clause 25.8 of the Contract is dependent upon the Contract being terminated in accordance with that clause and because it was not terminated by the plaintiff in accordance with that clause, the plaintiff has no entitlement to payment under clause 25.8;
(f) the failure of the defendants to obtain a loan from Westpac Banking Corporation has not been demonstrated to be a breach of the Contract;
(g) no other basis for liability of the defendants was pleaded by the plaintiff, and in particular, it was not alleged that the defendants terminated the Contract under clause 25 which would also have enlivened the obligation for them to make payment under clause 25.8;
(h) had the defendants been liable under clause 25.8 then the plaintiff would have been entitled to recover $232,943.96 plus interest from 11 October 2012 to the date of judgment at the rates specified in the Court Procedures Rules 2006 (ACT).
158. I observe that this outcome is less than satisfactory. It appears to be an inappropriate outcome that a building company which has incurred the expense of substantially constructing a house for the owners does not recover any of the costs of that exercise. However the conclusion that I have reached is the result of my finding that the plaintiff had no entitlement to insist upon payment of its progress claims because of its failure to complete the stage of the construction relating to the slab. The failure to install insulation under the slab was an issue which inevitably created difficulties in complying with the terms of the Contract. Had the matter been addressed at an early stage it would have been possible to formally vary the Contract so as to address the issue one way or another or alternatively to remove the slab that had been poured and construct a new slab in accordance with the contractual requirements. Alternatively it would have been open to the plaintiff to complete the Contract without insisting on the making of progress payments and then claim payment for the entire cost of the works at the conclusion of the project at which point it could take the benefit of the definition of practical completion so long as a certificate of occupancy could be obtained. In that situation some agreement would need to be reached as to the consequences of the failure to install insulation under the slab or damages would have been payable. The quantum of those damages may have been a contested issue under the statement of principle in Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613. Plainly enough continuing with the project would have increased the financial exposure of the plaintiff but would have met its obligation to complete the entire Contract.
159. Finally, I note that the manner in which the case has been pleaded has precluded me, having rejected the plaintiff's claim, from going further to work out the relationship that existed between the parties following the purported termination. Apart from the claim by the plaintiff that it had validly terminated the Contract, the pleadings of the parties did not address the legal relationship between the parties following the purported termination by the plaintiff. Therefore there was no capacity to address the case on the basis for example:
(a) that the defendants had terminated the Contract pursuant to clause 25;
(b) that the wrongful termination of the Contract amounted to a repudiation which was accepted by the defendants; or
(c) that the Contract was abandoned or otherwise treated at an end by the parties.
(2) The plaintiff is to pay the defendants' costs of the proceedings.
(3) Order 2 does not take effect for a period of 14 days and, if any party notifies the Registrar in writing that the party wishes to be further heard in relation to costs, does not take effect until further order of the Court.
I certify that the preceding one hundred and sixty [160] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop.
Maples Winterview Pty Ltd
Liu and Li [2015] ACTSC 58
(1998) 43 NSWLR 104
(1954) 90 CLR 613
(1982) 149 CLR 571
(1992) 26 NSWLR 234
(2009) 236 CLR 272