Onslow v Cullen - [2022] NSWSC 1257 - NSWSC 2022 case summary — Zoe

NSWNSWSC

Onslow v Cullen

[2022] NSWSC 1257

Supreme Court of NSW|2022-09-14|Before: Adamson J

View original source

At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2022-09-14

Before

Adamson J

Catchwords

[1990] HCA 11 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
[1982] HCA 24 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
[1991] HCA 54 Dare v Pulham (1982) 148 CLR 658
[1982] HCA 70 Director of Public Prosecutions (NSW) v Illawarra Cashmart Pty Ltd (2006) 67 NSWLR 402

Source

Original judgment source is linked above.

Catchwords

[1990] HCA 11 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337[1982] HCA 24 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64[1991] HCA 54 Dare v Pulham (1982) 148 CLR 658[1982] HCA 70 Director of Public Prosecutions (NSW) v Illawarra Cashmart Pty Ltd (2006) 67 NSWLR 402(2009) 199 A Crim R 199 Re Minister for Immigration and Multicultural and Indigenous AffairsEx parte Lam (2003) 214 CLR 1[2003] HCA 6 Robinson v Harman (1848) 1 Exch 850

Judgment (25 paragraphs)

[1]

iginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 MGIL Pty Limited v Maria Di Giannantonio as Executrix of the deceased estate of Michele Di Giannantonio [2013] NSWSC 1113 R v A [2004] NSWCCA 292 R v Birks (1990) 19 NSWLR 677 R v PL [2009] NSWCCA 256; (2009) 199 A Crim R 199 Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6 Robinson v Harman (1848) 1 Exch 850; 154 ER 363 Scoway Pty Ltd v Faxon Pty Ltd [2004] FCA 249 Seltsam Pty Limited v Ghaleb [2005] NSWCA 208 Wright v Australian Broadcasting Commission [1977] 1 NSWLR 697 Texts Cited: John Carter, Carter on Contract (7th ed, 2018, LexisNexis), Ch 14 Category: Principal judgment Parties: Adam Onslow (Plaintiff) Gary Cullen (First Defendant) Melanie Cullen (Second Defendant) Representation: Counsel: M Klooster (Plaintiff) M Walsh (Defendants)

[3]

The background

By contract dated 22 January 2016, Adam Onslow, the plaintiff (the builder) agreed with Gary and Melanie Cullen, the defendants (the owners) that he would perform certain building work on their residential property at Neutral Bay (the contract). On 6 April 2017, before the work was completed, the builder left the property.
On 14 August 2019, the owners commenced proceedings in the New South Wales Civil and Administrative Tribunal (NCAT) (the NCAT proceedings). On 13 July 2020, the proceedings were transferred from NCAT to the Local Court (the Court below).
On 20 August 2020, the owners filed a statement of claim in the Court below in which they claimed, of present relevance, damages for breach of contract. In his defence filed on 16 September 2020, the builder relied on s 18E(1) of the Home Building Act 1989 (NSW) (the Act), which provides that proceedings for a breach of statutory warranty must be commenced before the end of the warranty period, being two years, for defects other than major defects. All references to legislation in these reasons are, unless otherwise stated, references to the Act.
On 19 November 2021, Hosking LCM ordered judgment for the owners in the sum of $35,634.37, including pre-judgment interest from 4 April 2017 in the sum of $6,686.87 on the principal sum of $28,947.50. Her Honour also ordered the builder to pay the owners' costs as agreed or assessed on the ordinary basis up to and including 18 June 2021, and thereafter on an indemnity basis.
By summons filed on 16 December 2021, the builder appeals (or, in the alternative, seeks leave to appeal), against the orders of Hosking LCM made on 19 November 2021 in the Court below. It was common ground that the summons was filed within 28 days of the material date, being the time prescribed by Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 50.3(1)(a).
As the owners were the plaintiffs in the Court below and the defendant in this Court and the builder was the defendant in the Court below and the plaintiff in this Court, it is convenient to describe the parties as owners and builder to avoid confusion.

[5]

The contract

The contract was in the standard form issued by the Housing Industry Association (HIA) and entitled "NSW Residential Building Contract for Renovations and Additions." It was edition 5, being the form dated May 2015. The contract price was $211,528, exclusive of GST. The contract provided that the building works were required to reach a stage of practical completion no more than 20 weeks after the building period commenced. The defects liability period under cl 24 was 13 weeks after practical completion: that is, the builder is obliged to remedy any defects which the owners have notified within 13 weeks of practical completion.
The top of the signature page of the contract (which is on page 10 of 32 and appears before the substantive clauses of the contract), said: "This contract is made between the owner and the builder. The Schedules form part of this contract. The Consumer Building Guide in Attachment B does not form part of this contract. … The owner has received the Checklist in Attachment A and the Consumer Building Guide in Attachment B before signing this contract. The owner has read and understood this contract."
Clause 39 provided as follows: "Clause 39. Statutory Warranties 39.1 To the extent required by the Home Building Act, the builder warrants that: (a) the building works will be done with due care and skill and in accordance with the plans and the specifications attached to this contract; (b) all materials supplied by the builder will be good and suitable for the purpose for which they are used and that, unless otherwise stated in this contract, those materials will be new; (c) the building works will be done in accordance with, and will comply with, the Home Building Act or any other law; (d) the building works will be done with due diligence and within the time stipulated in this contract, or if no time is stipulated, within a reasonable time; (e) if the building works consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the building works will result, to the extent of the building works conducted, in a dwelling that is reasonably fit for occupation as a dwelling; and (f) the building works and any materials used in doing the building works will be reasonably fit for the specified purpose or result, if the owner expressly makes known to the builder, or other person with express or apparent authority to enter into or vary contractual arrangements on behalf of the builder, the particular purpose for which the building works are required or the result that the owner desires to be achieved, so as to show that the owner relies on the builder's skill and judgment." [Emphasis in original to indicate defined terms.]
Clauses 40.1 and 40.3 ("Mandatory Conditions") are also prefaced with the words "To the extent required by the Home Building Act …".
The Consumer Building Guide, entitled "Fact Sheet", is included in the contract document at pages 31 and 32 of 32, thereby complying with the builder's obligation under s 7AA of the Act to provide the document to the owner before entering into a contract. It includes the following: "When things go wrong Statutory warranties Builders and tradespeople must guarantee that their work is fit-for-purpose, performed diligently and delivered in a reasonable timeframe, in line with the contract. Unless otherwise specified, materials should be new and appropriately used. These warranties are time-limited: legal proceedings to enforce them must be commenced within 2 years for all defects, and 6 years for 'major defects'. There is another 6 months for both warranty periods if the defect only becomes apparent after 18 months or 5 and a half years. Find out more about these warranties on the Fair Trading website."

[9]

The Act

Section 7 of the Act relevantly provided: "7 Form of contracts (other than small jobs) … (1) A contract must be in writing and be dated and signed by or on behalf of each of the parties to it. (2) A contract must contain: … (f) any statutory warranties applicable to the work …"
Part 2C of the Act relevantly provided as follows: "Part 2C Statutory warranties … 18B Warranties as to residential building work (1) The following warranties by the holder of a contractor licence, or a person required to hold a contractor licence before entering into a contract, are implied in every contract to do residential building work: (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment. … 18BA Duties of person having benefit of statutory warranty (1) Breach of a statutory warranty implied in a contract constitutes a breach of the contract and accordingly: (a) a party to the contract who suffers loss arising from the breach has a duty to mitigate their loss, and (b) the onus of establishing a failure to mitigate loss is on the party alleging the failure. … 18E Proceedings for breach of warranties (1) Proceedings for a breach of a statutory warranty must be commenced in accordance with the following provisions: (a) proceedings must be commenced before the end of the warranty period for the breach, (b) the warranty period is 6 years for a breach that results in a major defect in residential building work or 2 years in any other case, (c) the warranty period starts on completion of the work to which it relates (but this does not prevent proceedings from being commenced before completion of the work), (d) if the work is not completed, the warranty period starts on: (i) the date the contract is terminated, or (ii) if the contract is not terminated - the date on which work under the contract ceased, or … … (4) In this section: major defect means: (a) a defect in a major element of a building that is attributable to defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code (or any combination of these), and that causes, or is likely to cause: (i) the inability to inhabit or use the building (or part of the building) for its intended purpose, or (ii) the destruction of the building or any part of the building, or (iii) a threat of collapse of the building or any part of the building, or (b) a defect of a kind that is prescribed by the regulations as a major defect. … 18G Warranties may not be excluded A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void."
It can be seen from a comparison that cl 39 of the contract replicates the statutory warranties in s 18B(1).
Schedule 1 of the Act defined statutory warranty as "a warranty established by Part 2C". Thus the warranties in s 18B are statutory warranties.

[12]

Opening written documents

Before the commencement of the hearing in the Court below on 21 June 2021, the parties had filed case summaries and statements of facts and issues in compliance with the Practice Note referred to above.
The builder submitted, in his case summary, that the warranty period started, at the latest, from 31 October 2016 when the work was completed (albeit not to the owners' satisfaction). Thus, he submitted that even the NCAT proceedings were out of time since the effect of s 18E is that the proceedings had to be brought by 31 October 2018. Accordingly, the builder contended that the owners' claim for damages under cl 31 of the contract, in so far as it related to completed works (items 1 and 3, which amounted to a total of $15,641.25, not including interest), ought be dismissed.
The owners relevantly submitted, in their case summary filed on 18 June 2021, as follows on the limitation question: "7. The Plaintiffs claim against the Defendant in their Statement of Claim is pleaded in Breach of Contract and it is not pleaded seeking to enforce the Statutory Warranties under the Home Building Act 1989 (as amended) ("the HBA"). 8. The reason being is that the defects identified by the Expert for the Plaintiffs are non-structural in nature and therefore out of time. 9. The Plaintiffs will assert at the hearing that the contract was breached by the Defendant in that the defects identified and, to some extent agreed upon by the Experts in the Joint Conclave Report, were the Defendants failure to satisfy the express terms of the cont[r]act that the works would be completed in compliance with: (a) Statutory Warranties as expressed in the contract; (b) The Building Code of Australia ("BCA"); and (c) All other relevant codes, standards and specifications that the work was required to comply with; and (d) The conditions of any relevant Development Consent, and Construction Certificate."
Of present relevance, the owners submitted in their case summary as follows on the question of quantum: "13. In relation to point 54 of the Defendant's Affidavit sworn 12 February 2021 the Plaintiffs will seek leave to amend their evidence in the following terms dealing with the Defendant's claims for the following Variation: Main bathroom and en-suite wall tiling $1,889 Patch gyprock after air conditioning installation $681 Thermoglaze laundry floor and skirting tiles $1,584 Supply and install new wardrobe and linen press $2,897 Total of Defendant's Variations: $7,051. 14. The Plaintiffs' position on the Defendant's Variation claims, if leave is granted, is as follows: 15. There is no evidence to support the Defendant's claim of $681.00. 16. The Defendant is to reimburse the Plaintiffs $297.00 for the removal of the carpets as it is part of the demolition that is in the contract. 17. Not including the amounts of $681 and $297, The Plaintiffs at the Hearing will acknowledge the Variation amount of $6,073 [of the $7,051 claimed]. 18. In addition, the Plaintiffs acknowledge the Builders' margin of [$]3,134. 19. In summary the Plaintiffs acknowledge a total of the Defendant's claim for Variation of $9,207 and acknowledge that the Plaintiffs owe the Defendant $1,321 as opposed to Defendant owing the Plaintiffs the sum of $7,886.00 [being the overpayment]. The Plaintiffs Claim 20. … 21. Defects and Incomplete work in the sum of $41,577.00 (see page 572 Ct Book). 22. Variation adjustment $1,321.00 (see paragraphs 13-19 above.) 23. Plaintiffs total claim $42,898.00. 24. Interest. 25. Costs." [Emphasis in italics added.]

[16]

Submissions on the limitation issue

Her Honour invited Mr Guy, counsel for the builder in the Court below, to address first on the limitation defence. Mr Guy addressed the builder's case summary (and submitted that the limitation period for minor defects was two years. In argument, her Honour expressed the view that by inserting the statutory warranties into cl 39, the builder had lost the benefit of s 18E, and that the owner was entitled to sue for damages for breach of contract, for which the limitation period was 6 years. Mr Guy submitted that it was not just the warranty, which was implied into agreements, but also the limitation period. He relied on the prefatory words to cl 39(1): "To the extent required by the Home Building Act," in support of that submission. The owners' counsel, Mr Snelgrove, submitted that the pleaded claim was a claim for breach of contract and not for breach of statutory warranty and that, accordingly, s 18E did not apply.
Before hearing submissions on other topics, her Honour proceeded to give what her Honour subsequently identified as her reasons as follows: "HER HONOUR: Absent any authority, I see my role as going back to first principles, which is I have a written contract. It is not a claim that's couched as a breach of statutory warranties claim, it is a claim that is couched as a contractual claim. These aspects have been adopted, the contract was prepared by the builder, the builder could have included clarification if he wanted to rely on the limitation period as well as the warranties being in here. Given that, it was the decision to put them in here. If you're considering a situation where two competing parties are actually preparing a contract and it's not just a standard form contract, then you would expect that these sorts of warranties as to due care and skill, all of these would be clauses in the contract. Whether the Home Building Act had been introduced or not, they're clauses of the nature that you would expect to find in the contract. So, I'm not reading them down in relation to the Home Building Act, unless there's some authority. And if there's a suggestion that there are some cases out there to assist, then it's up to those at the bar table to find those cases and provided them to me to assist. So, we'll park the limitation issue again until tomorrow. I'm just a bit disappointed that that wasn't ready to go. I mean, the limitation, hearing Mr Snelgrove could have brought your whole case to an end, so it would have been helpful to find those cases and have them here before me. But we'll proceed with your other -"
There were further exchanges between Bar and Bench regarding authorities before her Honour said: "I've pretty much given my decision, subject to whether there's [sic] any cases that say anything inconsistent with what I've just said."
The owners' counsel proceeded to address the Court below about the particular items in respect of which damages were claimed. When addressing the damages claimed by the owners in respect of the courtyard, the following exchange occurred between her Honour and the owners' counsel: "SNELGROVE: When we go to the joint conclave report, page 739, Mr Waddell's cost is $12,736 that would cost the Cullen's to do that work now. And of course, Mr Coombe quite roughly points out that there was a provisional sum allowance of $3,300 which is like a credit, so that should come off that - HER HONOUR: So that should come off that, because yes. SNELGROVE: Because we haven't paid any money towards the paving. HER HONOUR: Yes, so they would have to pay the first $3,300 effectively. SNELGROVE: Anyway. HER HONOUR: So that becomes? SNELGROVE: $9,436, I think, I stand to be corrected."
Before the Court below adjourned at the conclusion of the second day of hearing, the builder's counsel raised the issue of a credit of $1,321 to the builder which had been conceded in the owners' case summary. The following exchange occurred: "GUY: Yes, indeed, your Honour. As I understand it, and I'm sure my friend will correct me if I'm wrong, there is a concession made by the plaintiffs that there is some money owed to the defendant and that should be - I'm just making this submission now, and if anything needs to be said tomorrow morning about it for my friend, I - HER HONOUR: There's no counter claim though, is there? SNELGROVE: No. GUY: No, there is not. SNELGROVE: And in fact, the amount that the defendant came to court with of $2,900 has been withdrawn. HER HONOUR: Yes, so where does 19 [paragraph 19 of the owners' case summary, extracted above which acknowledged that the builder was entitled to a credit of $1,321] go? SNELGROVE: Nowhere. HER HONOUR: Why have you got it in your submissions? SNELGROVE: I might just look at that overnight, your Honour, if I may? GUY: Because if there's a concession there's something owed to my client, I of course hope that no order is made against my client, well there will be with respect for the columns at the very least. But that should be taken into account we would submit to the court in respect of the final amount. HER HONOUR: Everyone's case is closed and not one person has shown me an invoice of payments made or drawn me to how much the contract was worth or what payments were actually made in accordance with the contract. So, I've got not evidence in relation to 19 [paragraph 19 of the owners' case summary, extracted above]. GUY: I hear your Honour on that. Yes, I will take that on notice, I will consider it overnight and I will make submissions on it in the morning."
It is important to explain at this juncture that the "$2,900" referred to by Mr Snelgrove corresponded with the sum of $2,219 in paragraph 12(iii) of the statement of claim. However, paragraph 19 of the owner's case summary (as set out above), about which her Honour asked, did not concern the $2,219 credit, which was not pressed by the builder. Rather, it concerned the owners' acknowledgement (in paragraph 19) that they owed the builder $9,207 for the new variations, being the sum of $6,073, the total of the variations, and $3,134, for the builder's margin, and that the builder was entitled to a credit of $1,321. This passage of transcript is relevant to ground 2 and ground 3(b) (addressed below).

[17]

The third day: 18 November 2021

Shortly after the commencement of the third day of hearing, the following exchange took place between her Honour and the builder's counsel regarding the limitation issue: "GUY: Your Honour, I'll very briefly just deal with the statutory warranty [limitation] issue. Your Honour has heard me on it. HER HONOUR: No. As far as I'm concerned I made a decision on that subject to whether there was anything that anyone could take me to adverse to that so I confirm that for the reasons outlined yesterday I have found that the limitation period in relation to a breach of - was it cl 39 of the contract? GUY: Yes. HER HONOUR: The limitation period which applies is the ordinary contract limitation period of six years and this claim is not statute-barred but the reasons for that were articulated yesterday and can be found in the transcript there."
The builder's counsel then drew her Honour's attention to the concession made by the owners (referred to in the passage extracted from the first day's transcript in which Mr Snelgrove described it (the $1,321) as a "very small amount") in the following passage: "GUY: … The first is - and it was a matter that I raised late yesterday in respect of the concessions made by the applicant at the commencement of the proceedings and also in their written submissions. Now, I have heard what your Honour has had to say in respect of that. I have considered it overnight. The position of the defendant in this matter is that a concession was made - and I can take your Honour, it's on p 3 of the transcript - in respect of moneys owed to my client by the plaintiff. That was made squarely and it is at - the paragraph commences at line 10."
Her Honour, at that point, invited the owners' counsel to respond. The following exchange occurred: "SNELGROVE: My position is this, your Honour. This deals with the allegation that was raised that there was an amount of money owing to the builder of $2900 in round figures. That was not pressed. HER HONOUR: No, and there's no cross-claim - SNELGROVE: And there's no cross-claim and no notice of set off - HER HONOUR: --and this is not a jurisdiction of counter-claim. SNELGROVE: No. HER HONOUR: I'll be corrected but as I understand it if you want to make effectively a counter-claim - SNELGROVE: You've got to bring a cross-claim. HER HONOUR: --you've got to bring a cross-claim. SNELGROVE: Correct, that's right. HER HONOUR: There's no cross-claim on foot."
It would appear that both Mr Snelgrove and her Honour had forgotten that the discussion on the first day in the passage to which Mr Guy referred was a reference to the $1,321, a concession by the owners on which the builder relied and not to the figure of $2,219, which was no longer pressed by the builder.
The issue continued to be debated with the following exchange between her Honour and the builder's counsel: "HER HONOUR: Now, you can sit down. I was trying to see if there was any concession. Absent any agreement, there is no cross-claim, so there is nothing under which I can make an order. GUY: There is one final point I wish to make before your Honour makes a final decision on that. Again, when looking at the transcript, that my submission is that there was a concession made and is indeed made in the outline of submissions [the owners' case summary]."
At the conclusion of submissions, her Honour gave ex tempore reasons. It is not necessary to reproduce them in full. Her Honour said, of present relevance: "HER HONOUR: … On or about 22 January 2016, the plaintiffs and the defendant entered into a contract pursuant to which the defendant agreed to perform building works at the plaintiffs' residence at ... Neutral Bay. The contract price was $211,528. Mr and Ms Cullen bring a claim on two bases. First, they seek damages for breach of contract plus interest and costs against Mr Onslow. The damages claimed are comprised of the costs of rectifying defective building work and the costs of completing the contracted works. In relation to the damages claim, there was a limitation threshold issue which was determined yesterday subject to the provision of any authorities none of which were provided today, and that while there was an authority provided, if it did anything, it supported the findings I made yesterday. So for the reasons articulated yesterday I find the claim is not statute barred. … SO BASED ON THOSE FIGURES AND SUBJECT TO ANY COMMENTS IN RELATION TO MY CALCULATION, I GET A TOTAL OF 23,158 AND PROPOSE ENTERING JUDGMENT IN THAT AMOUNT IN FAVOUR OF THE PLAINTIFFS [OWNERS]."
It was common ground that there was no reference in the reasons to the admitted credit of $1,321 due to the builder.
On 19 November 2021, her Honour made the orders set out above.

[18]

Ground 1: whether the limitation in s 18E applies to a claim brought under cl 39 of the contract

The first question that arises is whether leave is required to argue ground 1. I consider ground 1 to involve a process of construction and therefore to constitute a question of law. It is not a question of law alone: see the distinction drawn by Spigelman CJ (McClellan CJ at CL and R A Hulme J agreeing) in R v PL [2009] NSWCCA 256; (2009) 199 A Crim R 199 at [27]. However, s 39(1) of the Local Court Act does not require that it be a question of law alone for there to be a right of appeal without leave.
Section 7(a) of the Limitation Act has the effect that, if there is another limitation period specified in another "enactment", the other limitation period will apply rather than the one specified in the Limitation Act. Thus, if the owners' claim is properly to be characterised as one for breach of statutory warranty, the limitation period of two years in s 18E applies and not the limitation period of six years in s 14 of the Limitation Act for claims for breach of contract.
In the present case, the owners argued, and the Court below found, that the owners' claim was not one for breach of a statutory warranty, but rather a claim for breach of contract. Thus, it is necessary, for the purposes of ground 1 to examine this proposition to assess whether such a distinction is maintainable in the present case.
It was common ground that, if cl 39 had not been included in the contract, the owners had a claim against the builder for breach of statutory warranty (under s 18B) but that their right to commence proceedings had become statute-barred by the time they in fact commenced proceedings either in NCAT or in the Court below: (s 18E).
Section 7(2)(f) of the Act required that the statutory warranties (defined as a warranty established by Part 2C) be included in the contract. If her Honour's construction were correct, it would mean that a builder who complied with s 7(2)(f) by expressly including the warranties implied by s 18B into the contract would be in a worse position than a builder who was party to a contract which did not contain warranties in its written form. On her Honour's construction, a builder who had not included the warranties would be entitled to rely on s 18E but one who had would not be.
It is important to read the contract in light of the Act. Clause 39 of the contract is plainly designed to comply with s 7(2)(f) and replicate the warranties in s 18B. The prefatory words of the clause, "[t]o the extent required by the [Act], the builder warrants that" (emphasis added) are, in my view significant because the warranties in sub-clauses (a)-(f) are given subject to the rider in the prefatory words. Thus, the objective intention of the parties is that the warranties are given only in so far as they are required by the Act. The Act requires only warranties in respect of non-major works that are enforceable for two years. In these circumstances, the builder ought not to be taken to have given wider warranties than those which the Act implied into the contract.
If there is any ambiguity in cl 39, regard can be had to the surrounding circumstances: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 (Mason J); [1982] HCA 24. Such surrounding circumstances include matters known to both parties at the time the contract was entered into. In the present case, such matters included the Consumer Building Guide which was Attachment B to the contract which said in part, of the statutory warranties (in s 18B): "These warranties are time-limited: legal proceedings to enforce them must be commenced within 2 years for all defects and 6 years for 'major defects'."
Nor is there a sensible distinction in these circumstances between an action for "breach of statutory warranty" and an action for "breach of contract". A warranty is merely a term of a contract, which is neither a condition (any breach of which will entitle the injured party to terminate), nor an innominate or intermediate term (a fundamental breach of which will entitle the injured party to terminate), breach of which will not entitle a party to terminate: see the summary of principles in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [47]-[53] (Gleeson CJ, Gummow, Heydon and Crennan JJ) and the discussion in John Carter, Carter on Contract (7th ed, 2018, LexisNexis) at Ch 14 "Classification of Terms". A statutory warranty is a term which is implied, by legislation, into a contract, irrespective of the intentions of the parties. It thereby becomes a term of the contract between the parties. In the present case, the warranties in cl 39 did not lose their character as statutory warranties merely by having been expressed in the contract document. As referred to above, s 7(2)(e) required that they be included in the contract.
Further, s 18G makes it clear that the parties cannot exclude the statutory warranty "to remove the rights of a person" and any provision which purports to do so, is void. It is significant that s 18G refers to "rights of a person". The word "person" in this context includes not only the owners but also the builder. The owners have a right to the benefit of the statutory warranties in terms but the builder has the right not to be sued in respect of non-major defects after the two year period has elapsed. That "person" ought be construed in this way derives some support from the use of the different expression "person entitled to the benefit of a statutory warranty under this Act" in s 18D(1). The owners might reasonably be thought to be the persons entitled to the benefit of a statutory warranty but "person", without that qualification in s 18G, includes not only the owners but also the builder.
While it may be accurate to describe Part 2C of the Act as "consumer protection legislation", this description is unhelpful. The legislature has inserted into contracts to do residential building work the warranties in s 18B(1), subject to the limitation in s 18E that proceedings for breach of them must be commenced within 2 years.
In their notice of contention, the owners argued that the principle of contra proferentem had the effect that, as the builder had prepared the contract, the contract should be construed against the builder. They argued that, on this basis, her Honour had been correct to find that the 6-year limitation period applied.
The form of the contract was a standard form issued by the HIA. In these circumstances, I do not accept that it was "prepared" by the builder. However, in any event, I consider the effect of the statutory provisions referred to above, and in particular s 7(2)(f), which requires the statutory warranties to be included in the written contract is such as to put beyond doubt that the limitation in s 18E applies to the warranties replicated in cl 39.
Accordingly, ground 1 has been made out. Mr Klooster, who appeared for the builder in this Court, submitted that the judgment for incomplete works (item 2) of $13,306.25, excluding interest, was not affected by the error and ought, accordingly, stand. However, he submitted that the recovery of the amount of $15,641.25 (for items 1 and 3) was statute-barred and that this part of the judgment ought be set aside. Mr Walsh, who appeared on behalf of the owners in this Court, accepted that, if ground 1 was made out, this would be the consequence.

[19]

Ground 2: alleged errors with respect to calculation of damages

Mr Klooster submitted on behalf of the builder that the owners, in their case summary, acknowledged that they owed the builder $1,321, and that the builder conducted his case, and was entitled to conduct his case, on that basis. I accept that an important forensic effect of these acknowledgments or admissions in the owners' case summary was that the builder's counsel in the Court below did not ask either of the owners any questions about the disputed variations or about the credit of $1,321. Mr Klooster submitted that, because the owners accepted, in their case summary, that they owed the builder a credit of $1,321, the net amount had to be adjusted by that sum. He contended that, on the basis that ground 1 had been made out, this would result in the amount of $13,306.25 being reduced by $1,321, thereby giving a net amount of $11,985.25.
Although the builder's counsel in the Court below relied on the concession made in the owners' case summary, her Honour considered that the builder was not entitled to a credit in the absence of a cross-claim having been put on by the builder. Her Honour did not make findings about monies owed to the builder (this is the subject of ground 3(b)).
Written submissions were made about the proper measure for damages for breach of contract: the injured party (in this case, the owners) is to be put in the same position, as far as money can do it, as if the contract had been performed: Robinson v Harman (1848) 1 Exch 850; 154 ER 363, approved in Commonwealth v Amann Aviation (1991) 174 CLR 64 at 80-82 (Mason CJ and Dawson J); [1991] HCA 54. However, it does not appear that these principles are at issue. Nor were they referred to in the proceedings in the Court below.
The builder's entitlement to a credit of $1,321 turns on the way in which the case was conducted. As set out above, the owners accepted the credit in their case summary. The case summary was prepared and served to comply with the standard directions, which are annexure A to the Practice Note, which, in turn, were intended to serve the purpose in s 57 of the Civil Procedure Act.
Thus, the case summary was a significant document which, in addition to the pleadings, notified the Court below of the "real issues in the proceedings". Having regard to the contents of the owners' case summary, the builder and the Court below were entitled to proceed on the basis that it was common ground that the builder was entitled to a credit of $1,321.
Pleadings have a significant function to delineate the issues in the case (Dare v Pulham (1982) 148 CLR 658 at 664 (Murphy, Wilson, Brennan, Deane and Dawson JJ); [1982] HCA 70; Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 (Mason CJ and Gaudron J); [1990] HCA 11. Although the pleadings are the traditional foundation for the identification of the issues, documents such as case summaries, which are required by the standard directions in the Practice Note, can further refine the issues, just as oral concessions in the course of litigation are capable of doing so.
As the owners made an express concession in their case summary of a credit to the builder of $1,321, it was not necessary for the builder to file a cross-claim or plead a set-off by way of defence. Even aside from Part 6 of the Civil Procedure Act, the owners' concession and the builder's reliance on it amounted to an exception to the general principle that the parties are bound by the pleadings. In Dare v Pulham, the High Court said, at 664: "Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings … But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence …"
Her Honour (and the owners' representative in the Court below) appears to have failed to appreciate that the circumstance that the builder no longer pressed his claim for $2,219 was separate from, and irrelevant to, the owners' concession that the builder was entitled to a credit of $1,321. Her Honour's failure to give effect to the way in which the owners had conducted their case and on which the builder was entitled to rely amounted, in the circumstances of the present case, to a denial of procedural fairness: see the discussion of the principles of procedural fairness in the context of court proceedings in Seltsam Pty Limited v Ghaleb [2005] NSWCA 208 at [69]-[79] (Ipp JA, Mason P agreeing). The present falls into the category described by Ipp JA in that case at [91]: "There has been a clear and serious denial of procedural fairness to the appellant. The judge did not only go beyond the case as conducted by the parties. He ignored what in effect were concessions by the respondent and, on material issues, made findings contrary to those concessions."
The procedural fairness arose from the detriment suffered by the builder as a result of her Honour disregarding the concession. In Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6 (a case concerning an administrative decision), Gleeson CJ said at [37], in terms apposite to the present case: "A common form of detriment suffered where a decision-maker has failed to take a procedural step is loss of an opportunity to make representations. … A particular example of such detriment is a case where the statement of intention has been relied upon and, acting on the faith of it, a person has refrained from putting material before a decision-maker. In a case of that particular kind, it is the existence of a subjective expectation, and reliance, that results in unfairness. Fairness is not an abstract concept. It is essentially practical. Whether one talks in terms of procedural fairness or natural justice, the concern of the law is to avoid practical injustice."
I am satisfied that the builder did not challenge the owners about the credit of $1,321 because the owners had conceded a credit in that sum. Her Honour's disregard of the concession, despite the builder's counsel reminding her of it on more than one occasion after the evidence had closed, amounted to a denial of procedural fairness which resulted in practical injustice in the present case.
The owners were bound by the way in which their case was conducted, including as to the contents of the case summary served on their behalf in which the concession as to $1,321 was contained: see the discussion in R v Birks (1990) 19 NSWLR 677 at 684-685 (Gleeson CJ, McInerney J agreeing).
For these reasons, I am satisfied that ground 2 has been made out and the builder is entitled to a credit of $1,321. As I have found that the error amounted to a denial of procedural fairness, I am satisfied that the appeal is on a question of law within the meaning of s 39(1) of the Local Court Act. Accordingly, leave to appeal is not required.

[21]

The reasons with respect to the proper construction of the contract and the limitation defence

The issue to be decided was whether, having regard to the terms of cl 39 of the contract and ss 18B and 18E of the Act, the owners were required to bring proceedings within a time limit of two years or whether they had the benefit of the longer period provided for under s 14 of the Limitation Act. If they were required to bring proceedings within two years, a substantial portion of their claim against the builder would be out of time. The determination of this issue required her Honour to construe the Act and the contract.
Her Honour's approach to the delivery of reasons was unorthodox. After hearing argument on the limitation issue, her Honour purported to give reasons. However, her reasons were not related to orders since she had not assessed damages and therefore was in no position to determine the effect of her finding on the limitation issue on the quantum of damages, if any, for which the builder was liable to the owners. Moreover, her reasons, in terms, expressed a preliminary view in that they were couched in the qualification that they were subject to the parties finding authorities on the question and bringing them to her attention after the delivery of reasons.
Some latitude is to be given to magistrates when giving reasons, which are commonly given ex tempore and without the benefit of the timely provision of transcript. The most charitable construction of the reasons was that, on 17 November 2021, her Honour articulated her reasons for her preliminary view regarding the limitation issue (whether the limitation in s 18E of the Act applied to the owners' claim), which was expressed to be subject to any authorities to which the parties might direct her attention on 18 November 2021. On 18 November 2021, when no authorities were forthcoming, her Honour confirmed that her preliminary view was her final view.
As no point was raised about the unorthodox timing of the giving of reasons, it need not be addressed further.
Mr Klooster's sole challenge to the reasons was that they failed to address the builder's argument that the prefatory words of cl 39 meant that the warranties contained in that clause were statutory warranties under s 18B and that s 18E applied to them.
Taking into account the latitude to be extended to ex tempore reasons given by magistrates, I read her Honour's reasons as disclosing the following path of reasoning: 1. the builder agreed to make warranties to replicate the statutory warranties in s 18B of the Act; 2. as the builder did not include in the contract the limitation in s 18E of the Act, his warranties were not so limited; 3. a claim for breach of statutory warranty is not a claim for breach of contract; and 4. as the warranties were expressed in the contract, the owners' claim was a claim for breach of contract (or, breach of a contractual warranty) and not a claim for breach of statutory warranty.
Mr Walsh argued that it was necessarily implicit in her Honour's reasons that the effect of the prefatory words, "[t]o the extent required by the [Act], the builder warrants …", was limited to the warranties in s 18B and did not extend to the limitation in s 18E.
In some cases, findings which are "necessarily implicit" will be sufficient to discharge the judicial obligation to give reasons. However, in the present case, her Honour failed to address the builder's principal contention: that the prefatory words of cl 39.1 imported the limitations in ss 18E and 18G of the Act into the warranties given in that clause. Her Honour did not purport to engage in a process of construction to ascertain the meaning of these words in cl 39.1.
While this question had been the subject of debate between her Honour and the builder's trial counsel (extracted above), her Honour did not refer to the debate in her reasons or endeavour to explain why she rejected the builder's submission. It is open, in certain circumstances, for a court to express reasons in a short-hand way, by adopting the submissions made by one party. For example, in Scoway Pty Ltd v Faxon Pty Ltd [2004] FCA 249, Hely J said: "[10] Counsel for the applicant, Mr Insall SC, helpfully prepared a document styled 'Applicant's Outline of Submissions' which I have had marked as filed in court. It will therefore remain with the papers. That document identifies the misleading and deceptive conduct which is the subject of the claims under s 82 of the Trade Practices Act 1974 (Cth) ('the Trade Practices Act') and s 68 of the Fair Trading Act 1987 (NSW) ('the Fair Trading Act'). The document also indicates where the evidence as to the making of the pleaded representations and their falsity is to be found. [11] I have read that evidence. For the reasons contained in the outline of submissions I find that the pleaded representations were made, and that the applicant entered into the contract to purchase the business known as 'McGinty's Irish Bar and Restaurant' in reliance upon those representations."
Her Honour did not employ this shorthand method in the present case.
In order to be sufficient, the Court below was required to explain why the prefatory words in cl 39.1 added, in effect, nothing to the words which followed and were insufficient to qualify the balance of the clause. No such explanation is apparent from the reasons given. Accordingly, I am persuaded that ground 3(a) has been made out in respect of the construction argument.
This finding has no consequential effect (except on costs) since it was common ground that, the question of construction being one of law for this Court to determine, inadequacy of reasons would not result in the matter being remitted to the Court below.

[22]

The reasons with respect to the assessment of damages

The sole complaint made by the builder in respect of her Honour's reasons was that there was no reference to the amount of $1,321 which the owners had accepted in their case summary ought be credited to the builder.
There was discussion about this figure in the transcript and it is plain from what her Honour said in the course of debate that she did not propose to allow any such credit.
Exchanges between Bar and Bench cannot be used to augment or challenge reasons for decision. In the context of sentencing, the Court of Criminal Appeal (Wood CJ at CL, Hulme and Bell JJ agreeing) in R v A [2004] NSWCCA 292 said at [12]: "… Exchanges between the Bench and Counsel in the course of the proceedings do not form part of the reasons, and it would not be safe to assume that some observation passed by a Judge, during submissions, necessarily represents a considered or final view as to the basis upon which a particular case is decided: R v Kain [2004] NSWCCA 143 at para 56."
In Director of Public Prosecutions (NSW) v Illawarra Cashmart Pty Ltd (2006) 67 NSWLR 402; [2006] NSWSC 343 (DPP v Illawarra Cashmart), Johnson J said, in the context of reasons given by a magistrate: "It is not satisfactory that an appeal court is left to undertake an analysis of exchanges between the bench and counsel during submissions in an attempt to ascertain a magistrate's reasons for determination … The provision of concise reasons as required by law will avoid this circumstance occurring." [Citations omitted.]
This passage from DPP v Illawarra Cashmart has been applied in a civil context in Fillipou v Coates Hires Operations Pty Limited [2011] NSWSC 986 at [34] (Johnson J) and MGIL Pty Limited v Maria Di Giannantonio as Executrix of the deceased estate of Michele Di Giannantonio [2013] NSWSC 1113 at [86] (Bellew J).
The builder was entitled to reasons which explained why he was not entitled to an admitted credit of $1,321, particularly in circumstances where he had conducted his case on that basis. It is not sufficient to leave the builder and this Court "to speculate from collateral observations as to the reasoning on which a critical decision is made": Wright v Australian Broadcasting Commission [1977] 1 NSWLR 697 at 701 (Moffit P, Glass JA agreeing). Although the amount concerned was $1,321, the issue was nonetheless important to the builder and to the requirements of procedural fairness.
It would appear, as set out above, that her Honour misunderstood the effect of the owners' concession. This misunderstanding serves to explain, but not excuse, the lack of adequate reasons.
In this respect, her Honour's reasons were inadequate. I am satisfied that ground 3(b) has been made out.

Onslow v Cullen

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (25 paragraphs)

Parties

Legislation Cited (7)

Cases Cited (22)

Cited By (1)