//
[2015] WASAT 66
General information, not legal advice.
State Administrative Tribunal (WA)
2015-06-17
Original judgment source is linked above.
The applicant sought compensation from the respondents for wrongful termination of a home building contract pursuant to which the applicant agreed with the first respondent to carry out the formwork and concreting work on a house to be occupied by the first respondent. The contract was not entered into with the second and third respondents and the claim against them was dismissed. The Tribunal found that the first respondent was not entitled to terminate the contract at the time he purported to do so because, at that time, he had arranged for work the subject of the contract to be carried out by others, so he was not ready, willing and able to perform the contract. His conduct amounted to a repudiation of the contract, which the applicant accepted, bringing the contract to an end. The applicant was entitled to an HBWC remedy order for payment of $30,536, plus interest. The applicant was not entitled to claim for materials and equipment left on site which it ought to have retrieved.
Vitol SA v Norelf SA (The Santa Clara) [1996] AC 800
1 This matter arises out of a contract pursuant to which the applicant, a formwork and concreting firm, agreed to carry out the cellar and ground floor formwork and concreting for a house at No 139 Flynn Road, Beela.
2 The second and third respondents are the parents of the first respondent and the owners of the land on which the house was to be built. The first respondent, Mr Matthew Rawlinson (Mr Rawlinson), is not an owner of the land, but was to occupy the house. It was he who dealt with the applicant.
3 The applicant alleges that the contract was wrongfully terminated and that it is entitled to payment for work which it had done but had not been paid for, loss of the profits it would have earned carrying out the contract and compensation for materials and equipment which was left at the premises when the contract came to an end. The applicant initially claimed a total of $76,415.08, plus interest.
4 The respondents contended that the contract was lawfully terminated by Mr Rawlinson, and that the applicant was only entitled to payment for the work done up to the date of termination.
6 Section 5(2) of the Building Services (Complaint Resolution and Administration) Act 2011 (WA) (BSCRA Act) permits a builder to make a complaint to the Building Commission about a matter referred to in s 17 of the HBC Act. Such a complaint, if unresolved by the Commission, may be referred to the Tribunal.
7 It is necessary, therefore, for it to be established that the applicant's claim is for breach of a home building contract. If there is no contract, or if the contract is not a home building contract, the Tribunal cannot deal with it under the BSCRA Act.
8 At the request of Mr Rawlinson, the applicant sent a quotation to Mr Rawlinson dated 13 November 2012 (quotation). The quotation was accepted by an email from Mr Rawlinson to 'Hellen' at the applicant's office on 3 December 2012. Although the quotation was accepted after the date the quotation was expressed to expire, the applicant did not object to the late acceptance at the time and the parties proceeded to carry out the contract. I find that a contract was formed on the terms of the quotation on acceptance on 3 December 2012.
9 Subject to qualifications which are not presently relevant, the expression 'home building work contract' is defined in s 3 of the HBC Act to mean 'a contract for the performance of home building work'. 'Home building work' is defined to include the whole or part of the work of constructing a dwelling.
10 The quotation identified the work to which it related as 'Project: Proposed Residence'. The site was identified as Lot 8 (No 139) Flynn Road, Beela. The applicant was provided with plans which showed that a house was to be built.
11 The contract was, therefore, for the performance of home building work by the applicant and was a 'home building contract' within the meaning of that expression in the HBC Act.
12 Mr Rawlinson was not registered as the proprietor of the land on which the house was to be built. The land belonged to his parents, the second and third respondents. However, the expression 'owner' is defined in s 3 of the HBC Act to mean the person for whom home building work is to be done. The concept of 'owner' under the HBC Act is divorced from the concept of actual ownership of the dwelling to be constructed. The fact that Mr Rawlinson was not the registered proprietor of the land on which the dwelling was to be built does not mean that the contract was not a 'home building contract' for the purposes of the HBC Act.
13 I find that the contract was a home building contract in respect of which the applicant was entitled to bring a claim under the s 17 of the HBC Act and s 5(2) of the BSCRA Act.
14 I note that s 4(1) of the HBC Act requires that a home building contract be in writing setting out all the terms, conditions and provisions of the contract and signed by both parties. If the contract is not signed, the owner is entitled to terminate the contract by notice in accordance with s 19 of the HBC Act. Failure to comply with s 4 does not automatically invalidate the contract.
15 By order made on 2 December 2014, the second and third respondents were added as respondents to the proceedings, although the question whether they were liable for the applicant's claim and ought properly to be jointed was deferred to the hearing.
16 As indicated above, the quotation and the acceptance passed between the applicant and Mr Rawlinson. The second and third respondents were not overtly involved in the formation of the contract.
17 The applicant gave evidence that his invoice of 7 March 2013 was paid by the second respondent's business, although it was addressed to Mr Rawlinson. The applicant also pointed out that Mr Rawlinson was not registered as a proprietor of the land. Mr Rawlinson gave evidence which confirmed that he was not an owner of the land. These matters are not sufficient to have the effect that the contract was entered into with a person other than Mr Rawlinson.
18 The second and third respondents were not parties to the contract. The applicant does not have any rights against them under the contract. Insofar as the claim relates to the second and third respondents, it must be dismissed.
19 Neither party contended that the contract remained on foot. That is clearly correct. The applicant has not been to site since before 20 May 2013. At that time, the work was incomplete. The work has since been completed by another contractor engaged by the applicant. How the contract came to an end is, however, a matter of dispute between the parties.
20 The circumstances surrounding the termination are as follows.
21 By 16 May 2013, the cellar had been done. Some work was done on the ground floor on Thursday, 16 May 2013 and Friday, 17 May 2013 but a significant amount of work remained to be done. On 17 May 2013, the applicant's crew left for the weekend. When the crew left site on 17 May 2013, tools and quantities of equipment and material were left on site in anticipation that the crew would return and complete the work.
22 There were two telephone conversations on the morning of Monday, 20 May 2013 between Mr Rawlinson and Mr Mark Grbavac (Mr Grbavac). Mr Grbavac was a director of the applicant. Mr Rawlinson's response of 4 January 2015, which he affirmed in oral evidence, alleged that:
[H]is crew would be there [on] Monday ... or not at all, your choice[.]
Mr Grbavac denied that he said words to the effect set out at paragraph (b) above. In oral evidence he also said that he subsequently made the necessary plans for his crew and a pump to attend on site on 27 May 2013.
23 Mr Rawlinson did not take any immediate steps to bring the contract to an end. In his statement, Mr Rawlinson recounts that, on 22 May 2013, he reached an agreement with an 'alternative local contractor' to complete the work. In the response of 4 January 2015, Mr Rawlinson said:
On Wednesday 22/05 agreement was reached with an alternative local contractor to complete the work. I chose to delay terminating [the applicant] until the morning of Friday 24/05 as Mark Grbavac's threatening and abusive manner led me to believe that he might cause trouble if he knew any sooner rather than dealing with the situation in a rational manner[.]
24 On 24 May 2013 at 8.15 am, Mr Rawlinson sent the following email to Mr Grbavac. It reads:
...
Due to the increased probability of rain and the increasingly deteriorating conditions on site, I have decided to go with the second option you offered on the phone last Monday, that is for you to 'not come at all'. Thank you for the work you have already completed.
As there has already been problems with trucks getting stuck at the site, I will arrange for your formwork and equipment to be stacked at our top gate, where it will all be available from Monday 3rd of June and you can pick it up at your convenience. Please just let me know which day you intend to come so I can add the machinery which was left, which has been stored out of the weather in one of our sheds. If you need to pick up tools/machinery earlier [then] please let me know and I can arrange access to the property for you. It would be appreciated if our green broom and red/yellow extension cord could be returned.
Please send through an itemised invoice for the outstanding labour charges. We will also drop excess materials at the top gate so you can invoice us for what has been used[.]
25 The applicant replied by an email dated 25 May 2013, which read:
...
You are juggling words around to suit your own purpose.
Not at any stage have I or any of my staff offered or suggested to you or any other party that we wish to terminate our agreement. Suburban & Country Formwork Contractors Pty Ltd is a registered Company that has been operating for almost three decades under the same directors. We take our work and contractual obligations very seriously.
26 On 26 May 2013, Mr Rawlinson sent a further email to the applicant saying:
Please do not send your crew tomorrow (Monday 27 May 2013). Should they turn up they will be denied access to the site. You will receive a more comprehensive reply to your e-mail early in the week when we have had a chance to seek further legal advice regarding our position in this matter[.]
27 The applicant's crew did not come to site on 27 May 2013.
28 Mr Rawlinson did send a further email on Wednesday, 29 May 2013. The email complained about delays in performance of the work. The email recounts the two conversations with Mr Grbavac of 20 May 2013 in substantially the same terms as set out above. It states that, in the circumstances, Mr Rawlinson felt that he had no workable choice than to find another contractor. The email concluded:
Given that we have no written, signed contract outlining specific termination conditions, I believe that, under the Home Building Contracts Act 1991, this notice serves as sufficient termination of contract. I will forward a copy signed by myself to your office[.]
29 Four possibilities in relation to termination of the contract arise:
I will deal with each of these possibilities in turn.
30 The first of the termination options depends on what was said during the second conversation between Mr Rawlinson and Mr Grbavac on 20 May 2013 and its effect.
31 In oral evidence, Mr Grbavac denied saying 'his crew would be there [on] Monday ... or not at all, your choice', or words to that effect. He said that he had not offered not to come to site.
32 On balance, I consider it likely that Mr Grbavac did make a statement along the lines alleged by Mr Rawlinson because Mr Grbavac presented at the hearing as a fairly dogmatic, outspoken man. Mr Grbavac was not a person who was careful with words. The remark seemed typical of him. Based on Mr Rawlinson's behaviour in giving evidence, I consider it more likely that he would have seized on particular words used during the course of a conversation, rather than inventing what was said.
33 However, I do not consider that the statement made by Mr Grbavac was sufficient to entitle Mr Rawlinson to bring the contract to an end. Contracts can, of course, be terminated by agreement. A written contract can be terminated by acceptance of an oral offer to terminate the written contract. However, in order for an agreement to terminate a contract to be effective, the agreement must be a complete agreement and the parties must intend to enter into an agreement to terminate the contract. The intention of the parties is ascertained objectively. In circumstances where it is alleged that an offer has been accepted, the offeror must intend to make an offer capable of acceptance.
34 In the present case, the 'offer' to terminate was made by Mr Grbavac during the course of a conversation which Mr Rawlinson alleges was a heated conversation. The offer did not deal with all the matters which one might expect to be dealt with if the contract between the parties had been terminated. The offer did not deal with what the applicant was to be paid, how the applicant's material and equipment on site was to be dealt with and whether the applicant would be entitled to loss of profit. These are matters which Mr Grbavac brought up in his email of 25 May 2013. It will be recalled that the contract was entered into by an exchange of emails, rather than orally. I regard the statement made by Mr Grbavac as an emphatic assertion of the way in which he intended to continue to perform the contract, along the lines of 'it's my way or the highway', rather than an offer to Mr Rawlinson.
35 It is also clear that, if there was an offer, Mr Rawlinson did not accept it at the time. I consider that any offer would have lapsed at the end of the conversation. The Tribunal finds that, after the conversations on 20 May 2013, a reasonable person in the situation of Mr Grbavac would not have considered that the contract with Mr Rawlinson was over or liable to be terminated by Mr Rawlinson. At the end of the second conversation on 20 May 2013, the matter was left on the basis that the work was going ahead.
36 The second way in which the contract might have come to an end is if:
Termination does not follow automatically from a breach of the type described in paragraph (a). The 'innocent' party has the option of affirming a contract notwithstanding that the other party has breached it. The contract must be terminated. It is not necessary for the innocent party's termination to be in writing. An oral termination or conduct may suffice.
37 There is an additional requirement as well. In order for an 'innocent' party to terminate a contract on the basis that the other party has breached the contract, the innocent party must be ready, willing and able to perform his or her side of the contract. Where a party has expressed, in advance, an intention to not perform the contract, the innocent party need not go through the pretence of tendering performance, knowing the other party will not perform. An innocent party will not be entitled to terminate for breach, however, if the innocent party was at the time of the purported termination, already unwilling or substantially unable to perform.
38 It is arguable that the applicant's delay in progressing the works and Mr Grbavac's insistence on coming back to site on 27 May 2013, but no sooner, were breaches of the contract that entitled Mr Rawlinson to terminate the contract.
39 However, by the time Mr Rawlinson purported to terminate the contract on 24 May 2013, Mr Rawlinson had engaged in conduct which was inconsistent with the further performance of the contract with the applicant. On 22 May 2013, Mr Rawlinson entered into an agreement with an alternative contractor to complete the work (see Mr Rawlinson's statement dated 4 January 2015). Ms Karen Stannard, Mr Rawlinson's partner, said in evidence that the other contractor started later that week, being the week commencing 20 May 2013. According to Mr Rawlinson's statement, work was done by the alternative contractor on 23, 24 and 27 May 2013. Materials supplied by the applicant, which were on site, were used by the other contractor to complete the work. At the time Mr Rawlinson purported to terminate the contract with the applicant, Mr Rawlinson had no intention to perform his part of the contract. He had prevented the applicant completing the contract by having part of the work carried out by others using the applicant's materials. At the time of his emails of 24 May 2013 and 26 May 2013, he was not willing to perform his side of the contract, and indeed had prevented the applicant performing, and was not, therefore, entitled to terminate the contract.
40 Mr Rawlinson asserted that he did not inform the applicant about his decision because he thought that Mr Grbavac might 'cause trouble'. This may have included concern that the applicant might have attempted to remove materials and equipment belonging to the applicant which had been left on site on 17 May 2013. Mr Rawlinson's alternative contractor used some of those materials when completing the works. Had the applicant removed its materials, that may well have delayed completion of the works by the alternative contractor. Whether Mr Rawlinson's concerns were justified or not, the effect of his conduct meant that he could not terminate the contract when he purported to do so.
41 The Tribunal finds that the contract came to an end in the third of the scenarios described at [29] above. After having purported to accept Mr Grbavac's 'offer' to bring the contract to an end, Mr Rawlinson told Mr Grbavac by email of 26 May 2013 not to attend on site the next day. In the context of the previous communications between the parties, this was a clear indication that Mr Rawlinson intended that the contract not continue, which was a repudiation of the contract. In light of Mr Rawlinon's statement that the applicant's workforce would not be admitted to the site, it was not necessary for the applicant's workforce to travel to Beela. The applicant's conduct in not attending site on 27 May 2013 was an acceptance of Mr Rawlinson's repudiation of the contract (Vitol SA v Norelf SA (The Santa Clara) [1996] AC 800).
42 The final way in which the contract might have been terminated is by notice under s 19 of the HBC Act. The email of 29 May 2013 makes the assertion that there was no written contract signed by both the parties. As mentioned earlier, s 4(5) provides that a home building contract may be terminated if the contract does not comply with s 4(1) of the HBC Act. It is not necessary to consider the extent to which the Electronic Transactions Act 2011 (WA) applies to the contract. The contract had been terminated on 27 May 2013. The email of 29 May 2013 was, therefore, too late to terminate the contract.
43 It is noted that, if the contract had been terminated under s 19 of the HBC Act, s 20 of the HBC Act permits a builder to seek payment of an entitlement to loss of profit. The outcome of the present case may not have been substantially different had the contract been terminated under s 19 of the HBC Act on 29 May 2013.
To what damages, if any, is the applicant entitled?
44 For the reasons given above, Mr Rawlinson repudiated the contract in circumstances which entitled the applicant to bring it to an end. The applicant is entitled to an HBWC remedy order under s 41(2)(b) and s 41(2)(d) of the BSCRA Act. Those provisions enable the Tribunal to make an order for payment of a specified amount owing under the contract and an order for payment of compensation for loss and damage caused by any breach of the contract. In the present case, this means that the applicant can claim:
45 The amount claimed by the applicant in its notice of complaint was a total of $74,415.08, which reflected two invoices issued after the termination of the contract. One, numbered 3963, was dated 18 June 2013 and was for $47,721.07. The other was for $28,696.01. It was dated 23 February 2014 and was numbered 4100. However, the applicant later issued amended invoices which were relied on at the hearing. The version of invoice 3963 relied on at the hearing was for $42,498 and the version of invoice 4100 was for $18,382.55. The total of the amended invoices is $60,880.55. (Except where specifically indicated all figures used are GST inclusive).
46 The approach which the applicant took to calculating its claim for compensation was to seek payment of the whole of the purchase price and then deduct from and add to that price various items. This calculation will cover any entitlement the applicant may have to work done, together with any entitlement the applicant may have to loss of profit. It is convenient to adopt this approach, although there are difficulties with the quality of evidence in relation to a number of items.
48 There was evidence from both parties that the design of the work was changed. The change related to the cellar, rather than the ground floor foundation and slab. Mr Grbavac gave evidence that when he received copies of the drawings of the works, it was apparent that there was an error. Reinforcement bar was shown, rather than mesh, and this was corrected. In addition, it appears that the dimensions of the cellar were changed. Mr Alan Croker, a quantity surveyor, prepared a written report for Mr Rawlinson. Mr Croker was not called to give oral evidence. Mr Croker asserted that the area of the cellar was reduced from 47.6m² to 31.4m². I accept that this is correct.
49 There was dispute about whether the changes should result in any significant change in the price.
50 Mr Grbavac asserted that the change in the reinforcing material did not result in any significant changes. He contended that, although less reinforcing was used, it was more expensive and an extra trip to site was required. He also contended that, although the floor area of the cellar became less, there was only a reduction in the length of the cellar, not its width. Mr Croker assessed the value of the work done by the applicant, and put a separate value on constructing the cellar of $24,343 (on page 6 of his report). This may be compared with the allowance made for that work in the applicant's quotation of $32,351 (inclusive of GST). It is not appropriate to simply deduct the difference between Mr Croker's value and the applicant's allowance from the price for all the works, because it has not been shown that the whole of that difference is due to the change in design. It might be that Mr Croker would have assessed the value of the work on the cellar as originally designed at an amount which was significantly less than the applicant's price for that work. I also accept that the cost to build the cellar may not be directly proportional to the area of the cellar.
51 On balance, I consider that some allowance should be made in the price for the changes to the cellar. Doing the best I can with the evidence, I consider that the change in the design of the cellar ought to have resulted in a decrease in the price of $5,000.
52 The amount already paid by Mr Rawlinson in respect of the applicant's invoice 3896, being $26,950, must be deduced from the amount payable by Mr Rawlinson.
53 In its invoice, the applicant accepted that it would have incurred labour and accommodation costs to complete the works, which it did not spend because the contract was terminated. A deduction of $8,954 was included in the invoice based on two men being engaged for four days each and two men for three days at $500 per day, together with three nights' accommodation at $380 per night. I do not accept that this is adequate because no allowance was made for Mr Grbavac's time in connection with the project. Although Mr Grbavac did not attend site regularly, he did attend from time to time. I consider that a further allowance of one day at $500 per day ought to be made in that regard. This means that there was a saving of $9,454.
54 The applicant also accepted that termination of the contract meant that it did not have to pay for the concrete and membrane that would have been used in finishing the job. An allowance of $28,897 was made for 142m³ of 25MPa concrete, an allowance of $858 was made for 4m³ of 32MPa concrete and $357 for five rolls of membrane. This allowance is appropriate.
55 The applicant also made an additional claim for the cost of formwork materials, rebar and mesh, and sundries which the applicant alleged had been delivered to site and either used or not returned on termination of the contract. In his email of 25 May 2013, Mr Grbavac contended that the materials would have been sufficient to complete the work with a substantial amount left over. It may be accepted that the applicant might take to site somewhat more materials than was strictly required, in case of an error in estimating quantities, but a prudent contractor would also try and minimise transportation costs and waste. It seems unlikely that a 'substantial amount' would be left over. The formwork materials taken to site included new and second hand formwork materials owned by the applicant and formwork materials which had been hired. Mr Grbavac gave evidence that formwork can be reused, provided that it is cleaned properly once it has been disassembled.
56 Some of the materials delivered to site were used by the alternative contractor to complete the works. Others were not used and remained on site. This is apparent from a number photographs taken by Mr Rawlinson and by a Mr Taylor, a builder engaged by the applicant, who went to site in mid to late November 2014 and took photographs of what he saw.
57 There was email correspondence between the parties about the applicant collecting its tools. On 1 July 2013, the applicant sent an email to Mr Rawlinson proposing a time for the applicant's tools to be collected. It appears that a trowel machine and a shovel were collected. Quantities of formwork materials, rebar and mesh and sundries were not collected by the applicant. Mr Rawlinson did not deliver them to the applicant.
58 No additional allowance should be made in respect of the formwork materials, rebar and mesh and sundries. To the extent that the materials were going to be consumed in carrying out the work, the cost of the materials would have formed part of the expenses which the applicant would have taken into account in calculating the price for the work. To the extent that the materials were not going to be consumed in the works, they ought to have been collected from site by the applicant. The applicant is under an obligation to mitigate the loss and damage it suffered. It may be that Mr Rawlinson should, as a matter of courtesy, have returned the unused materials to site. However, when he did not do so, the applicant ought to have collected them itself. Reasonable additional costs for retrieving the unused materials could have been claimed from Mr Rawlinson.
59 The applicant included an allowance of $2,634.23 described as 'Hanson Concrete $77.50/m³'. Mr Grbavac contended that he had struck a special deal with his concrete supplier, Hanson Concrete, pursuant to which he got a special price for the concrete if he ordered and used a large quantity, but the applicant had to pay the normal price if that quantity was not used. He asserted that the price difference was $77.50/m³. Mr Rawlinson disputed that an arrangement of this nature existed. The applicant did not produce documentation evidencing this arrangement or evidence of an additional payment to Hansen reflecting this claim, despite having the opportunity to do so during one of the adjournments. I am not satisfied that this expense was incurred by the applicant.
60 The applicant contended it had had to pay Rowland Contractors a cancellation fee for hire of a 28 metre boom pump. It claimed $671 for this item, but again, evidence of payment was not tendered. I am not satisfied that this expense was incurred by the applicant.
61 A copy of an invoice from Morgan Alteruthemeyer, a firm of lawyers, for $10,097.76 was tendered by the applicant. Legal expenses do not usually form a component of a damages claim, although a court or tribunal may make an order for payment of legal costs. From the description of the work done in the invoice, it appears that the work related to proceedings between the parties in the Magistrates Court. This expense does not form part of the damages suffered by the applicant or its legal expenses in these proceedings. It may be that the Magistrates Court can make an order in respect of those costs. The invoice cannot be claimed in the present proceedings.
62 During the course of the works, Mr Rawlinson provided assistance to the applicant on a number of occasions. Mr Rawlinson contended that an allowance ought to be made for the value of that assistance in calculating the applicant's entitlement in these proceedings. I am satisfied that, had the work gone well, no charge would have been made for these services. They were intended as gratuitous assistance. The termination of the contract does not change their nature. No allowance should be made in respect of them.
63 The amount payable by Mr Rawlinson to the applicant should be calculated as follows:
Less adjustment to contract price on account of variation to the works
64 The sum of $30,536 includes GST. Less GST, the amount payable is $27,760. Because the contract did not contain a term specifying the rate of interest, the applicant is entitled to interest at the standard prejudgment rate of 6% per annum from the date of termination to the date of this decision on the GST free component of this sum. This comes to $3,427.03.
I certify that this and the preceding [64] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
___________________________________