Plaintiff v Defendant

JUDICIAL REVIEW AND APPEALS - Owner sought order against builder for refund of overpayment pursuant to s 148(7)(b) of the VCAT Act after hearing of the application for leave to appeal - Whether appropriate in the circumstances to make a s 148(7)(b) order - Reliance upon s 41 of the Act not to preclude a party from seeking a s 148(7)(b) order - Christ Church Grammar School v Bosnich & Sehr [2010] VSC 476, applied - No claim for restitution made in VCAT proceeding - Section 148(7)(b) order not appropriate in the circumstances.

1 This is an application for leave to appeal from an order made by Senior Member Walker of the Victorian Civil and Administrative Tribunal ('VCAT') made on 21 June 2017, whereby the Senior Member ordered that the plaintiff in this proceeding ('builder') pay the defendant ('owner') the sum of $93,153. The builder seeks to have that order set aside. The sole issue in this application is whether an owner who has terminated a domestic building contract under s 41 of the Domestic Building Contracts Act 1995 (Vic) ('Act') is entitled to recover damages from a builder for defective work completed before termination. On 9 August 2017, Judicial Registrar Clayton ordered that the application for leave to appeal be heard together with the appeal.

2 The director of the builder, Mr Gurleyen, is a registered builder. The owner, Ms Wenli Shao, is the owner of land at 39 Lansdown Street, Balwyn North. The owner engaged the builder to construct a new home on her property pursuant to a domestic building contract dated 31 August 2013 ('contract'). Work commenced on 6 December 2013, and the contract provided for a construction period of 321 days and a contract price of $970,000 (inclusive of GST).

3 Clause 21 of the contract mirrors s 41 of the Act, save that sub-ss (6) and (7) of the Act were omitted from cl 21 of the contract.[1] Section 41 of the Act provides as follows:

1. Ending a contract if completion time or cost blows out for unforeseeable reasons

(1) A building owner may end a major domestic building contract if -

(a) either -

(i) the contract price rises by 15% or more after the contract was entered into; or

(ii) the contract has not been completed within 1½ times the period it was to have been completed by; and

(b) the reason for the increased time or cost was something that could not have been reasonably foreseen by the builder on the date the contract was made.

(2) For the purposes of subsection (1), any increased time or cost that arises as a result of a prime cost item or a provisional sum or that is caused by a variation made under section 38 is to be ignored in calculating any price rise or increase in time.

(3) To end the contract, the building owner must give the builder a signed notice stating that the building owner is ending the contract under this section and giving details of why the contract is being ended.

(4) The Director may specify that the notice is to be given in a form approved by him or her. If the Director does this, the building owner must give the notice in that form.

(5) If a contract is ended under this section, the builder is entitled to a reasonable price for the work carried out under the contract to the date the contract is ended.

(6) However, a builder may not recover under subsection (5) more than the builder would have been entitled to recover under the contract.

(7) Section 39 does not apply to this section.[2]

4 There were substantial delays in progressing and completing the works. These delays were attributed by the Senior Member to a number of causes, including, substantially, to the owner's 'own indecision and failure to provide instructions and plans to the Builder'.[3] By 20 August 2015, construction of the home was not complete, and the owner purported to terminate the contract by a letter from her solicitor dated 20 August 2015 ('20 August 2015 letter'). This letter relevantly provided:[4]

While the total construction period including delay days in the new homes [sic] contract stipulated 321 days, the work that you have done has taken much longer than this time period and the contract is still yet to be completed. The time you have spent on the contract already exceeds one and a half times of the original construction period and accordingly, our client hereby ends the contract in accordance with section 21.1 of the contract and section 41 of the Domestic Building Contracts Act 1995.

5 Work ceased after that, and on 25 August 2015, Mr Gurleyen wrote to the owner's solicitors in the following terms:[5]

Pursuant to your letter dated 20 August 2015, despite our continued frustration in your client's failure to undertake further fruitful productive discussions and numerous attempts by us to progress works in good faith with our continued wish to bring works to a successful conclusion, it appears that your client is resolute in instruction to terminate our contract, under section 41 of the Domestic Building Contracts Act, for building works at 39 Lansdown St. Balwyn North.

Please note that it is with the utmost disappointment and regret that as a result, and at your explicit instruction, we have made arrangements for the keys to site to be handed to you and for our plant and equipment to be removed from site.

If you could please make prompt arrangements to remit to us all unpaid invoices within 7 days with final accounts for Building Works to follow.

We reserve all our rights and entitlements for works both on and off site also for any loss and damage suffered as a result of your/your client's actions in this matter."

6 On 16 December 2015 the owner commenced a proceeding in VCAT seeking damages of $547,450 owing to the delay and defects in construction of the home. A substantial portion of the damages sought included a claim for the cost to complete the home following the termination of the contract.

7 The matter was heard by the Senior Member in late March and early April 2017, with orders made and reasons published on 21 June 2017. Both parties were represented by counsel. Evidence was led from two expert witnesses, along with evidence from the owner and a building consultant engaged by the owner, and from Mr Gurleyen on behalf of the builder.

8 The evidence before the Senior Member canvassed the engagement of the architect to prepare plans for the home, the signing of the contract, changes to the design of the home, variations, the progress of the work, the termination of the contract and the alleged defective and incomplete works. The reasons provide a comprehensive summary of the evidence. As the factual findings made by the Senior Member are not in dispute in this proceeding, it is not necessary to traverse the details of the evidence summarised in the reasons. It was common ground that construction extended beyond one-and-a-half times the contract period by a substantial degree, and that there was no formal suspension of work or claim for an extension of time under the provisions of the contract or the Act.

9 The parties' submissions before the Senior Member were largely directed to the basis for the owner's termination of the contract. The owner submitted that the builder had repudiated the contract by its conduct. The owner acknowledged that the 20 August 2015 letter did not refer to all of the alleged breaches relied upon by her before the Senior Member, but submitted that this did not preclude the owner from relying upon them as repudiatory conduct. In response, the builder submitted that even if the conduct of the builder had been repudiatory, the owner was not entitled to terminate the contract on those grounds, because she had elected to affirm the contract prior to terminating the contract pursuant to s 41 of the Act. The owner submitted that her conduct, when viewed objectively, was consistent with preserving her rights.

10 The Senior Member found that the owner had not established that the builder had repudiated the contract, and that even if the builder's conduct had been repudiatory, the owner had elected to affirm the contract.

11 The other findings of the Senior Member relevant to the current proceeding can be summarised as follows:

(a) the owner paid the builder a total of $1,040,700, being the instalments provided for by the contract, plus additional amounts to take account of variations;[6]

(b) the contract was terminated by the 20 August 2015 letter pursuant to cl 21 of the contract and s 41 of the Act;[7]

(c) it was not open to the owner to contend that the 20 August 2015 letter amounted to her acceptance of a repudiation of the contract by the builder;[8]

(d) alternatively, the owner did not establish that the builder repudiated the contract;[9]

(e) the builder was not to blame for all or even a substantial part of the delay in the construction of the home;[10]

(f) the builder could not have reasonably foreseen the numerous and substantial changes made by the owner to the scope of works or the time that would be taken for the owner to provide instructions concerning what she wanted;[11]

(g) warranties as to workmanship expressed in the contract or implied into it by s 8 of the Act apply so that the owner is entitled to damages for defective workmanship;[12]

(h) there were significant defects in the works completed prior to the termination of the contract, and the cost to rectify those defects amounted to $93,153;[13]

(i) the builder was entitled to a reasonable price for the work it has done pursuant to the contract up to the date of termination;[14]

(j) the reasonable value of the work was $917,802.02, being the value assessed by Mr Wilson ($1,006,073) less the cost of rectifying the defects ($93,153);[15]

(k) the owner was not entitled to claim for losses such as the cost of alternative accommodation during the period of delay, because the delay in construction was caused by the owner ;[16]

(l) termination under s 41 of the Act gives rise to no claim in damages, therefore neither party was entitled to damages resulting from the termination of the contract;[17]

(m) the work was not incomplete because of any breach by the builder but rather, because the contract was terminated under s 41 of the Act. Since such a termination does not arise because of a breach of contract on the part of the builder, no damages are recoverable for the cost of completing the work;[18] and

(n) the builder was paid more than the value of the work that it completed. However, neither s 41 of the Act nor cl 21 of the contract provides for a refund to the owner if the builder has received more than the reasonable value of the work.[19]

12 The Senior Member ordered the builder to pay the owner the sum of $93,153, being the cost of rectification of the defects in the works completed prior to the termination.

13 On 19 July 2017 the builder filed an originating motion seeking leave to appeal under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 ('VCAT Act'). The builder's proposed notice of appeal dated 25 July 2017[20] identified the following question of law:

Having elected to terminate the major domestic building contract made 31 August 2013 between the respondent and the appellant ('the Contract') pursuant to section 41 of the Domestic Building Contracts Act 1995 (Vic) ('the Act'), was the respondent entitled to recover damages from the appellant for defective workmanship under the Contract?

14 In support of its proposed question of law, the builder relied upon two grounds of appeal:

The learned Senior Member having held [in] his reasons for decision that:

"Neither party is entitled to damages resulting from termination of the Contract."

erred in law in holding ... that the respondent was entitled to recover damages for defective workmanship under the Contract in the sum of $93,135.00. The learned Senior Member should have held that by electing to terminate the Contract pursuant to section 41 of the Act, the respondent was not entitled to damages.

The learned Trial Judge having held [in] his reasons for decision that:

"Termination under s 41 gives rise to no claim in damages"

erred in law by finding that the respondent was entitled to recover $93,153.00 from the appellant for defective workmanship under the Contract. The learned Senior Member should have held that because the respondent elected to terminate the Contract pursuant to section 41 of the Act no further sum was payable by the appellant to the respondent under the Contract or otherwise.

15 The builder submitted that the owner, having elected to terminate the contract pursuant to s 41 of the Act, was bound by the terms of that section, namely that 'the builder is entitled to a reasonable price for the work carried out under the contract to the date the contract is ended.'[21] The owner was not entitled to recover damages, and accordingly the Senior Member erred in law by finding that the owner was entitled to recover damages of $93,153 from the builder for defective workmanship under the contract. This error was sufficient to warrant a grant of leave to appeal.

16 The builder submitted that termination under s 41 of the Act has the following unique features:

(a) it may be exercised by the owner only;

(b) it is not dependent on a breach by the builder;

(c) it does not require the owner to issue a notice of intention to terminate;

(d) it does not entitle the owner to damages;

(e) it does entitle the builder to the 'reasonable price' for works completed at the date of termination.

17 The builder contrasted s 41(5) of the Act with cl 20.4 of the contract, which concerns termination for breach, and provides:

If the Owner terminates this Contract in accordance with this Clause 20, the Owner may then engage another builder to complete the Works, and:

• If the reasonable cost to complete the Works exceeds the unpaid balance of the Contract Price, then the excess amount shall be a debt due and payable by the Builder to the Owner; OR
• If the reasonable cost to complete the Works is less than the unpaid balance of the Contract Price, then the remaining amount of the unpaid balance shall be a debt due and payable by the Owner to the Builder.

18 Similarly, loss of bargain damages at common law for breach of contract by the builder would involve a calculation based upon the contract price and a market-based assessment of the cost of obtaining substitute performance. The builder submitted that the express right of termination contained in s 41 of the Act does not provide for loss of bargain damages. The calculation required by s 41 of the Act is quite different - the reference point being a 'reasonable price' for the works completed, rather than the contract price.

19 The builder referred to the Senior Member's finding that '[n]either party is entitled to damages resulting from the termination of the Contract'[22] and that '[t]ermination under s 41 gives rise to no claim in damages',[23] and submitted that, having made those findings, the Senior Member erred in law in holding that the owner was entitled to recover damages for defective workmanship under the contract in the sum of $93,153[24] and should, instead, have held that by electing to terminate the contract pursuant to s 41 of the Act, the owner was not entitled to any damages.

20 In the alternative, the builder submitted that even if the owner had a right of termination for repudiatory breach, the remedy available under s 41 of the Act excludes any common law remedy for breach of contract. Accordingly, resort to s 41 of the Act is inconsistent with treating the contract as terminated by acceptance of a repudiatory breach, not least because the rights and obligations of the parties under this section are not triggered by a breach of contract.

21 The builder submitted that markedly different consequences arise according to whether there was a termination under s 41 of the Act, on the one hand, or acceptance of a repudiation, on the other hand. In these circumstances, the owner must elect between her inconsistent termination rights. To the extent that the owner had any other termination rights, which the Senior Member found she did not, she expressly elected to terminate under s 41 of the Act. As such, she is not now entitled to an award of damages.

22 The builder referred to the following extract from Carter's Breach of Contract:[25]

Following an election by a promisee to terminate the performance of a contract in the exercise of an express right of termination, loss of bargain damages are not recoverable unless:

(a) the contract validly so provides; or

(b) the promisee was also entitled to terminate the performance of the contract in exercise of a common law right.

23 The builder noted that the learned author identified from the authorities three situations in which loss of bargain damages are recoverable following an election to terminate the performance of a contract in the exercise of an express right of termination, namely:

(a) where the contract states that the breach which activates the clause is a breach of a condition, a fundamental breach or repudiation of the contract;

(b) the breach which activates the clause is a breach of a condition; or

(c) where the promisee can prove a concurrent or independent common law right of termination.[26]

24 The builder, relying upon the decision of Kyrou J in JG King Pty Ltd v Patel,[27] submitted that s 41 of the Act can be characterised as a remedial provision introduced to give owners an 'opt-out' in certain circumstances of cost or time blow-out. The builder submitted that the consequence of the owner electing to terminate under this section is that they can terminate without needing to prove breach or repudiation on the part of the builder, and proceed to appoint an alternative builder to complete the works within the scope of the contract. However, they forgo their right to sue for breach and recover damages for breach of warranty.

25 In oral submissions, the builder agreed that it was appropriate for the Senior Member to take into account the defects in calculating the reasonable price payable to the plaintiff pursuant to s 41(5) of the Act.

26 The builder agreed with the Senior Member's statement that:[28]

However a reasonable price for an item of work that is found to be defective must necessarily take into account the cost of rectifying any defects in it, with the cost of rectification being deducted from the value that it would otherwise have had. The amount to be deducted in regard to any particular defect should be what it would reasonably cost the Owner to rectify it.

...

On that basis, the reasonable value of the work would be $917,802.02, being the value assessed by Mr Wilson ($1,006,073.00) less the cost of rectifying the defects that I have found ($93,153.00). Since the Builder has already been paid more than that it has no further entitlement under the section.

27 The builder also relied upon the statement of the High Court in AMEV-UDC Finance Ltd v Austin that:[29]

The point is that when the lessor terminates pursuant to the contractual right given to him for breach by the lessee, the loss which he can recover for non-fundamental breach is limited to the loss which flows from the lessee's breach. The lessor cannot recover the loss which he sustains as a result of his termination because that loss is attributable to his act, not to the conduct of the lessee.

28 The builder explained that in the context of the current case, the loss which flows from the alleged breach is the loss of non-performance of the term which required that the construction be completed within the time prescribed by the contract. The specific remedy is dictated by and limited to the remedy provided by s 41 of the Act, which entitles the builder to only recover a reasonable price for the work completed.

29 The builder also relied upon the decision of the High Court in Shevill v Builders Licensing Board[30] in support of its submission that when a contract is terminated pursuant to s 41 of the Act (that is, terminated for reasons other than fundamental breach by the other party), loss of bargain damages are not recoverable. The builder characterised the relevant "bargain" as extending to having a building free from defects.

30 The builder distinguished the rights of subsequent purchasers of the home pursuant to the warranty provisions of s 8 of the Act from those of the owner under s 8 of the Act, and submitted that subsequent purchasers of the home have statutory rights distinct from that of the owner, and are entitled to the benefit of statutory warranties and mandatory domestic building warranties insurance as between themselves and the builder. Alternately, future purchasers have different rights to compensation arising as a result of different contracts or causes of action.

31 Further, the builder submitted, in response to the owner's submissions to the effect that the objects of the Act include 'to enable disputes involving domestic building work to be resolved as quickly, as efficiently and as cheaply as is possible',[31] that s 41 facilitates this objective by preventing disputes arising as to whether any failure in performance (relating to cost or time overrun) is sufficiently serious to justify termination, and by entitling the owner to terminate in circumstances where it is unlikely that she would be so entitled at common law. However, the certainty in relation to termination provided by s 41 comes at the price of the owner surrendering other available rights and remedies under the contract and the Act.

32 The owner submitted that the owner is entitled to claim damages for defective building work even though she brought the contract to an end under s 41 of the Act.

33 Section 8 of the Act outlines the warranties implied into all domestic building contracts ('warranty provisions'). The warranty provisions may be enforced by subsequent purchasers of a building,[32] and cannot be excluded by contract.[33] Of particular relevance are those warranties that work will be carried out in a proper and workmanlike manner in accordance with the plans and specifications, and in accordance with the Building Act 1993 (Vic), regulations made under relevant legislation, and the Building Code.[34] Any breach of the warranty provisions is a breach of contract, and damages for breach of contract accrue regardless of the terms of s 41 of the Act.

34 The owner referred to the contemporary approach to statutory interpretation, which requires the Court must construe a statutory provision by examining the context of that provision.[35] The relevant context in which the current matter is to be considered is that of a domestic building contract governed by the Act. The Act is an important piece of remedial legislation, intended to provide consumers in the domestic building industry with basic protections in relation to three main areas of concern:

(a) fairness of contract price, with controls over deposits, progress payments, variations, prime cost items, provisional sums, and final claims;

(b) timeliness and controls over the ability of the builder to gain extensions of time; and

(c) the quality of building work.

35 The owner referred the Court to s 35(a) of the Interpretation of Legislation Act 1984 (Vic), which requires the Court to prefer a construction that promotes the purpose or object of the Act over a construction which does not.

36 The owner submitted that the right to claim damages for defective work performed in breach of a building contract is a well-established common law right. It is an implied term of all building contracts that the work will be done in accordance with the contract, with proper materials, in a workmanlike manner, and that the building will be reasonably fit for its purpose.[36]

37 The owner relied on the principle stated by Dixon J in McDonald v Dennys Lascelles Ltd,[37] as follows:[38]

When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.

38 The owner submitted that this principle has been applied in building cases where both the owner has accepted a builder's repudiation and terminated the contract at common law, and also where the builder has accepted the owner's repudiation and terminated the contract at common law. In both kinds of cases the owner is entitled to maintain an action for damages for any defective work performed by the builder prior to termination.

39 The owner submitted that no part of s 41 of the Act purports, expressly or otherwise, to remove or otherwise limit any accrued common law right to claim damages for defective work. The owner relied upon the statements of Gleeson J in Electrolux Home Products Pty Ltd v Australian Workers' Union[39] to support her submission that there is a presumption against the modification or abrogation of common law rights founded in the general law system of law, as follows (citations omitted):[40]

The joint judgment in Coco went on to identify as the rationale for the presumption against modification or abrogation of fundamental rights an assumption that it is highly improbable that Parliament would 'overthrow fundamental principles, infringe rights, or depart from the general system of law' without expressing its intention with 'irresistible clearness'. In R v Home Secretary; Ex parte Pierson, Lord Steyn described the presumption as an aspect of the principle of legality which governs the relations between Parliament, the executive and the courts. The presumption is not merely a common sense guide to what a Parliament in a liberal democracy is likely to have intended; it is a working hypothesis, the existence of which is known both to Parliament and the courts, upon which statutory language will be interpreted. The hypothesis is an aspect of the rule of law.

40 The owner contended that if Parliament's intention had been to remove an owner's right to claim damages for defects upon termination pursuant to s 41 of the Act that would have been expressly stated. That Parliament did not include such a clear statement in the Act supports the owner's contention that no such removal was intended. As such, the construction contended for by the owner is consistent with the Act as a whole.

41 The owner contended that the builder's purported construction of s 41, removing the owner's rights to damages for defective building works, may have absurd and unfair results for future owners of the completed building, particularly in respect of latent defects not discernible at the time that construction was completed. The works were terminated pursuant to s 41 and the developer arranged for a new builder to complete the works before selling the units to new owners. Under the builder's proposed construction of s 41 of the Act, any subsequent owners would have no right to recourse under the s 9 of the Act, or under the mandatory domestic builder's warranty insurance. It was submitted that in the context of the Act as a whole it is unlikely that this was Parliament's intention. To imply an exclusion of access to damages for defective building works would undermine a central purpose and object of the Act, which is to protect consumers from defective building work.

42 The owner distinguished the current case from Shevill[41] on several bases. Shevill[42] concerned a claim for loss of bargain damages, being future rent, in relation to a lease. In that case the landlord terminated the lease pursuant to a clause of the contract that permitted termination for payment of rent more than 14 days late. The Court concluded that the future rent payable under the lease was not recoverable by the landlord, as the landlord's loss was a direct result of the termination of the lease, not the result of any breach of a fundamental term of the lease by the tenant. Here the loss or damage is a direct result of the builder's breach, being the cost to rectify the defective works. Shevill[43] concerned a lease which is a distinct species of contract, and great caution should be exercised in taking principles concerning leases and applying them generally, and in particular to consumer contracts. In any event, Shevill[44] supports the owner's case, because it acknowledges that unless a contract is terminated ab initio any accrued rights survive termination. In Shevill[45] the accrued right was the right to recover rent due up until the termination, in the current case the owner's accrued right is the right to damages for defective works performed up until termination.

43 The owner submitted that the decisions in Progressive Mailing House[46] and AMEV[47] can also be distinguished on the basis that they concern leases, not building contracts.

44 On 11 December 2017 I had my associate write to the parties and request additional written submissions in respect of the following questions:

If the construction of s 41 of the Act contended for by the plaintiff is accepted: that is, that the Tribunal was not entitled to make a separate award of damages for defects where the value of those defects had already been utilized in the calculation of the reasonable price under s 41(5) of the Act, whether, given that the plaintiff has received payments greater than the reasonable price, by reason of the terms of s 41(6) and ss 53(1) and (2) of the Act, it was open to the Tribunal to order that the amount of the overpayment be refunded.

This letter also requested that the parties make submissions as to:

[...] what would flow from such a construction of the Act, including, but not limited to, whether the matter ought to be remitted to the Tribunal in order to determine whether it would be 'fair' to make an order by way of restitution.

Further written submissions were filed by the parties on 31 January 2018.

45 The builder submitted that the effect of s 41(6) of the Act is to impose a ceiling on the 'reasonable price' payable to the builder, as absent such a provision it was possible for quantum meruit claims to be assessed as greater than the amount which would have been payable under the contract.[48] The builder submitted that the Senior Member correctly applied s 41(6).[49]

46 The builder referred the Court to the decision of Ginnane J in Versa-Tile Pty Ltd v 101 Construction Pty Ltd[50] and in particular to his Honour's review of s 53 of the Act. His Honour quoted with approval the following statement of Sifris J[51] in relation to a like provision granting discretion to the VCAT to 'make any orders it considers fair', as follows:[52]

In my opinion, although the matter is not free from difficulty, the Tribunal is required, when deciding the merits of a case, to apply the law and not merely be guided by it. Any flexibility relates only to the form of the order and of course, to procedural and evidential matters. If this was not the case absurd results could follow. To the extent that the Supreme Court of Victoria has concurrent jurisdiction different results could follow. The Court, not having the benefit of s 109, would have to apply the law while the Tribunal could do what it considered fair even if the law was to the contrary. Further, such a result would encourage idiosyncratic notions of fairness and justice. If the intention was to exclude the operation of the law (as a matter of substance and not merely procedure or form) a specific section to such effect, clear and unambiguous, should have been inserted.

47 The builder submitted that s 41 of the Act provides a complete code as to the consequences of an election to terminate a contract pursuant to that section.

48 The builder submitted that it would only be 'fair' for the VCAT to order the remedy of restitution if it was applying the law. A relevant cause of action would need to have been pleaded and evidence led to support that cause of action. The builder argued that the elements to make out a relevant cause of action, such as unjust enrichment, were not pleaded, no supporting evidence was led, and that no operative unjust factors exist on the facts. Further, the remedy of restitution was not sought by the owner in the VCAT proceeding.

49 The builder noted that the concept of fairness is not a proxy for an operative unjust factor or the exercise of idiosyncratic discretion, referring to the following extract from Edelman and Bant:[53]

Instead, the enquiry concerns (1) whether the plaintiff can prove an established legal ground or 'unjust factor' which permits restitution, and, if so, (2) whether the plaintiff can negate any right that the defendant asserts to retain the enrichment...A better description of the subject might have been 'unjustified' enrichment...On this matter, all courts and commentators speak with a single voice. Whichever approach is adopted, the 'unjust' element in unjust enrichment is 'not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate'.

50 The builder concluded that the remedy of restitution is not available to the owner, and accordingly, the matter ought not to be remitted to VCAT.

51 The owner submitted that s 53(2)(b)(iii) of the Act clearly provides for VCAT to award damages in the nature of restitution, and that the only limit upon VCAT making such an order is that the Tribunal must consider it fair to do so (s 51(1)). Section 41 of the Act does not prevent a claim being made in restitution for overpayment by an owner.

52 The owner submitted that the only restrictions imposed by s 41 of the Act are to restrict a claim for damages arising from a breach of contract, and to cap the amount a builder may recover as the reasonable price of the works to the entitlement under the contract. Therefore, it is open to VCAT to make an order for restitution in circumstances where an owner paid more than the reasonable price of the works as found by VCAT. Furthermore, the owner submitted that such a finding and order would be consistent with the language and purpose of the Act. The owner submitted that the effect of such an order would be that the builder would have to repay the owner the amount of the overpayment, being $122,897.98.

53 In relation to whether the matter should be remitted to VCAT, the owner submitted that if this Court finds that it is open for VCAT to order a refund of the overpayment there would be no proper basis for the builder to retain the overpayment. In the circumstances, remitting the matter to the VCAT would only create unnecessary costs and expense in circumstances where the Court could make an order in this proceeding.

54 In my view, the application for leave should be granted, the appeal should be allowed, and the order made by the Senior Member that the builder pay the owner the sum of $93,153 be set aside. However, I do so for different reasons than those advanced by the builder, as I accept some of the owner's contentions concerning the proper construction and application of the Act. I do not consider that the Senior Member misconstrued s 41 of the Act: rather, in making an award of damages for breach of the warranty provisions in circumstances where the cost of rectification of defects had already been taken into account in the calculation of a reasonable price, the Senior Member misapplied the provisions of ss 41 and 8 of the Act. Misapplication of a statutory provision or provisions is a vitiating error of law.[54]

55 In my view, the owner is correct in her contention that the terms of s 41 of the Act do not preclude an owner (or subsequent purchaser) making a claim against a builder pursuant to the warranty provisions of the Act. Such a construction of s 41 of the Act would be inconsistent with the consumer protection objectives of the Act, and, as submitted on behalf of the owner, would lead to absurd and unjust results. By relying upon s 41 of the Act to terminate a domestic building contract, an owner is merely taking advantage of a 'no-fault' provision to terminate the contract. The price to be paid for not having to establish a repudiatory breach of contract on the part of a builder is the loss of the right to claim damages for loss of bargain. In that respect, the submission of the builder is correct, as is the statement of the Senior Member that 'neither party is entitled to damages resulting from termination of the contract'. Such construction is not only apparent from a reading of the provision itself, but is also consistent with the decision of the High Court in Shevill, and the statements in Carter's Breach of Contract extracted at paragraph 22 above. I do not accept that authorities concerning the construction of leases relied upon by the builder are distinguishable from the current case: those authorities make it clear that they were determined upon ordinary contractual principles.

56 However, an owner is not precluded from relying upon otherwise accrued statutory and/or common law rights, including the warranty provisions of the Act, simply because the owner has terminated a building contract relying upon s 41 of the Act. A construction of the Act which did so preclude an owner suing for defective work would lead to unfair and/or absurd results, in that an owner who terminated under s 41 of the Act would have less rights than an owner who terminated for breach (or where the builder has terminated for breach),[55] or an owner where a contract had been completed. Such an outcome could not have been intended by the legislature.

57 However, the legislature could also not have intended that, in circumstances where a building contract has been terminated under the 'no-fault' provisions of the Act, a builder entitled to a 'reasonable price' for the work completed up until termination be required to, in effect, pay twice for defects for which it is liable. Applying the provisions of the Act in such a way not only unduly penalises the builder, it provides a windfall for the owner.

58 The unfairness of such an application of the provisions of the Act is perhaps not so clear cut in the current case, where the Senior Member found that the builder had been overpaid, and the effect of the order for payment in respect of defects required the builder to disgorge a substantial part, although not all, of that overpayment. But the justice of the result would have been substantially different if the builder had not been found to have been overpaid.

59 Accordingly, my findings concerning the proper construction of the relevant provisions of the Act can be summarised as follows:

(a) reliance upon s 41 of the Act precludes an owner from claiming damages for loss of bargain consequent upon termination;

(b) reliance upon s 41 of the Act does not preclude an owner (or subsequent purchaser) from claiming damages for defective works under the warranty provisions of the Act, whether discovered or discoverable prior to or after termination of the building contract;

(c) the cost of rectification of defects may be utilised to calculate the reasonable price for the work carried out for the contract, or be the subject of a separate award of damages under s 8 of the Act, but not both; and

(d) while the terms of s 41 of the Act do not expressly confer upon VCAT the right to order a refund of any overpayment, they do not preclude the making of such an order under s 53 of the Act if there is a proper legal basis to do so.

60 The fact that the builder was found to have been overpaid is relevant to the question of whether leave to appeal being granted, based upon the test laid down by the Court of Appeal in Secretary to the Department of Premier and Cabinet v Hulls,[56] which was succinctly summarised by Garde J in Zumpano v Banyule City Council[57] as follows:[58]

A pivotal requirement is that an applicant must identify a question of law for which there is a real or significant argument to be put that error exists. The Court will also have regard to the justice of the particular case, and whether the applicant has identified a question of law that is of general or public importance. The applicant must show that there is sufficient doubt attendant the question of law to justify the grant of leave. [citations omitted]

61 In the current case, given the Senior Member's findings, it could be queried whether 'the justice of the case' warrants setting aside an order requiring the builder to disgorge part of an overpayment he has benefited from. However, other considerations arise. It is well known that disputes concerning domestic building contracts are a substantial and important part of the jurisdiction and business of VCAT: therefore, it can be presumed that the proper construction and application of the Act is a matter of some public importance. Further, the Act is important consumer protection legislation. Accordingly, it is appropriate to grant leave to appeal.

62 The appeal should be allowed, and the order requiring the builder to pay the owner $93,153 be set aside, noting that only an order of VCAT can be the subject of an appeal, not the reasons of the Senior Member.[59] The question remains as to what follows from the issue raised in the letter to the parties of 11 December 2017 concerning the Senior Member's factual findings that the reasonable price of the works was $917,802.20, but that the builder had been paid $1,040,700, some $122,898 more than the sum to which he had been entitled. I consider that the owner may have been entitled to a restitutionary payment of the overpayment pursuant to s 53 of the Act, but having regard to the submissions of the parties made on 31 January 2018, I do not propose to make any orders in that regard.

63 Section 148(7) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) ('VCAT Act') provides as follows:

The Court of Appeal or the Trial Division, as the case requires, may make any of the following orders on an appeal -

(a) an order affirming, varying or setting aside the order of the Tribunal;

(b) an order that the Tribunal could have made in the proceeding;

(c) an order remitting the proceeding to be heard and decided again, either with or without the hearing of further evidence, by the Tribunal in accordance with the directions of the court;

(d) any other order the court thinks appropriate.

64 The owner submitted I should make an order pursuant to s 148(7)(b) of the VCAT Act to require the builder to refund the overpayment. The builder submitted that I should confine myself to making an order pursuant to s 148(7)(a) of the VCAT Act.

65 I accept the submissions advanced on behalf of the owner that it would have been at least open to the Senior Member to order that the builder refund to the owner the overpayment under s 53(2)(b)(iii) of the Act. Section 53 of the Act provides as follows:

(1) VCAT may make any order it considers fair to resolve a domestic building dispute.

(2) Without limiting this power, VCAT may do one or more of the following -

...

(b) order the payment of a sum of money -

(i) found to be owing by one party to another party;

(ii) by way of damages ... ;

(iii) by way of restitution;

66 As noted above, I do not consider that reliance upon s 41 of the Act precludes an owner from seeking an order of the kind contemplated in the letter of 11 December 2017. That view is consistent with any findings that reliance upon s 41 of the Act to terminate a contract does not disturb the parties' entitlement to rely upon accrued contractual and statutory rights. However, I agree with the submissions advanced on behalf of the builder that s 53 of the Act does not absolve VCAT of the obligation to determine the matters before it according to established legal principles, whether they are to be ascertained according to statute, the common law, or equity, as observed by Sifris J in Christ Church Grammar School v Bosnich & Sehr.[60]

67 As noted in the submissions relied upon by the builder, no claim for restitution was made in the VCAT proceeding, and neither party led evidence or advanced submissions on the basis that such an outcome was on the cards. Accordingly, it would not be appropriate to make an order myself in that regard pursuant to s 148(7)(b) of the VCAT Act, as given that such a course would involve making an enquiry as to whether it would be 'fair' to make an order of the nature sought by the owner under s 53 of the Act. The authorities indicate that it is generally not appropriate for the Court:[61]

...to embark upon the exercise of resolving disputed question of facts in appeals limited to questions of law.

68 If I were to determine the matter myself, I would need to, as contended by the builder in his further submissions, determine whether the remedy of restitution was available to the owner based upon a cause of action such as unjust enrichment, which requires a determination of:

(a) whether the environment was unjust; and

(b) whether any applicable defences arise.

69 While the reasons provide a comprehensive summary of the evidence before the Senior Member, the evidence itself is not before me. Further, in the reasons the Senior Member expressed some concerns about the credibility of both the owner and the builder, he noted that:[62]

I do not think that this is a case that turns significantly on the credibility of witnesses.

70 I doubt I could be so confident in reaching such a conclusion if I was required to determine whether the owner was entitled to a remedy in restitution.

71 Further, I also do not consider it appropriate to remit the matter to the Senior Member or another VCAT member pursuant to s 148(7)(c) of the VCAT Act for the express purpose of determining whether such an order ought to be made. It would be open for me to make such an order, and give directions for the further hearing of the proceeding, but again, I decline to do so. The proposition that the Senior Member ought to have made an order refunding any overpayment pursuant to s 53 of the Act was not raised or ventilated at VCAT, and was not the subject of any cross-examination or notice of contention in this proceeding. The principles of finality in litigation carry some weight in determining the nature of an order to be made under s 148(7) of the VCAT Act. I will leave it to the owner and her advisors to determine whether it is feasible to apply to VCAT to reopen the matter, although I accept the owner may face some significant hurdles in doing so.

[1] As cl 21 of the contract and s 41 of the Act are in substantially the same terms I will primarily refer to s 41 of the Act in these reasons.

[2] Section 39 of the Act concerns the effect of variations upon contract prices, which is not relevant to the current dispute.

[3] Shao v A G Advanced Construction Pty Ltd (Building and Property) [2017] VCAT 903, [186].

[4] Exhibit AG-3 to Affidavit of Abdulkadir Gurleyen affirmed 19 July 2017.

[5] Exhibit AG-4 to Affidavit of Abdulkadir Gurleyen affirmed 19 July 2017.

[20] Affidavit of Anthony Zita sworn 25 July 2017, exhibit AZ-1.

[25] J W Carter, Carter's Breach of Contract (LexisNexis Butterworths Australia 2011) [13-06].

[27] [2014] VSC 58 [47].

[29] [1986] HCA 63; (1986) 162 CLR 170 ('AMEV'), 186. See also Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17, 31 ('Progressive Mailing House').

[30] [1982] HCA 47; (1982) 149 CLR 620 ('Shevill').

[33] Section 132 of the Act. See also s 10 of the Act.

[35] See CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 [408], Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355

[36] Woolcock Street Investments Pty Ltd v CDG Ply Ltd [2004] HCA 16; (2004) 216 CLR 515 [81] (McHugh J) citing the House of Lords in Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454, 469.

[37] [1933] HCA 25; (1933) 48 CLR 457.

[39] [2004] HCA 40; (2004) 221 CLR 309.

[41] [1982] HCA 47; (1982) 149 CLR 620.

[46] [1985] HCA 14; (1985) 157 CLR 17.

[47] [1986] HCA 63; (1986) 162 CLR 170.

[48] Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 was referred to as an example.

[50] [2017] VSC 73.

[51] Christ Church Grammar School v Bosnich & Sehr [2010] VSC 476.

[52] Versa-Tile Pty Ltd v 101 Construction Pty Ltd [2017] VSC 73 [10] citing Christ Church Grammar School v Bosnich & Sehr [2010] VSC 476 [40].

[53] J Edelman and E Bant, Unjust Enrichment (Oxford and Portland, 2nd ed, 2016), 118-119.

[54] See Commissioner of State Revenue (Vic) v Arrigo [2016] VSCA 339, [46].

[55] See for example, the authorities relied upon by the owner in her written submissions. Where an owner who has been found to have repudiated a contract was still entitled to claim damages for breach of contract: Kane Constructions Pty Ltd v Sopov [2005] VSC 237, [90]; Trimis v Mina (2000) 16 BCL 288, [55].

[56] [1999] VSCA 117; [1999] 3 VR 331.

[57] [2016] VSC 420.

[59] Wright v VCAT [2001] VSC 35, [9].

[60] [2010] VSC 476, [40].

[61] M3 Property (Vic) Pty Ltd v Whitehorse Towers Pty Ltd [2012] VSC 109, [30]. See also X42 v State Trustees Ltd [2006] VSC 444; (2006) 25 VAR 402, [64], where Cavanough J stated: 'Generally speaking, it would not be appropriate to substitute a new decision for VCAT's decision unless it were the only decision open to VCAT as a matter of law'.