1. It does not seem to me that the circumstances relating to the changes that were made were exceptional. The Builder said that he was approached on numerous occasions by Mr Muzaferovic (and Joseph, in regard to his unit) with requests for changes to the work as shown in the drawings in regard to their respective Units. He said that he agreed to those wherever possible. He said that Mr Muzaferovic, who was unemployed at the time, was on site on a daily basis and Joseph, who worked an early shift, was on site frequently but less often.
2. The Builder's evidence in this regard is supported by the carpenter, Mr Marke and I accept that all of the changes made were requested by Mr Muzaferovic. It was not in the Builder's interest to change the design, particularly, when work that had already been done had to be taken down and re-done differently and when windows that had been ordered for the original design had to be discarded and new windows ordered in their place. All of this was at the initial cost of the Builder who was not to be repaid for any variations until the end of the job.
3. As to how this section should be applied, I said in the earlier case of Bodnarcuk v Gibbs [2008] VCAT 854 where there was a similar friendly situation between the parties:

"I think in the circumstances of this case and bearing in mind the casual relationship between the parties, arising as it did from the very friendly relationship that they had, that it would be most unfair to the Builder not to allow him to recover a reasonable price for the variations that the Owners wanted. It would certainly not be unfair to the Owners to allow it. I am satisfied that they knew they were variations and that they would be at an extra cost, albeit they were never told how much the cost would be. For these reasons I am satisfied that the Builder ought to be able to recover for these variations."

1. In the present case the failure to comply with the section arose from the same friendly relationship that gave rise to the very generous credit extended to the Respondents by the Builder, without which they could not have proceeded at all with the construction. The cost incurred by the Builder on behalf of the Respondents was considerable. He said that in order to be able to continue with the construction he had to meet that cost from his own resources, he had to divert profits from other projects, sell a property and obtain additional finance. The informal manner in which the parties proceeded and the very generous credit terms extended by the Builder both arose from the amicable and familial connections that they had. No arms length builder would have assisted the Respondents and acceded to their requests as the Builder did in this case. I am satisfied that the Builder would suffer a significant or exceptional hardship if he were not able to recover payment for these variations and that, since it was Mr Muzaferovic who requested the changes, it would not be unfair that the Respondents should pay for them.

1. The Builder said that, in February 2007, Mr Muzaferovic and Joseph requested changes to the carport design. The endorsed plans required the pillar supporting the front of each house to be positioned two metres in from the boundary. The space between the pillar and the boundary was to be landscaped. The effect of this design was that each unit would have a car port accommodating one car. Mr Muzaferovic and Joseph asked the Builder to move the pillar for each unit to the boundary and concrete the landscaped area so as to create a double carport. To construct it in this way would have been contrary to the endorsed permit drawings and so in breach of the town planning permit. The Builder agreed to this request, subject to the approval of the Architect and the Engineer. Amended drawings were provided by the Architect and the Engineer and the changes were made. The Builder's evidence is supported by Joseph. The amended plans showing the column moved are dated February 2007.
2. The Builder said that further changes were requested at a meeting that he had with Mr Muzaferovic and Joseph "around February 2009" when they requested that each car port be bricked up along the courtyard wall and then returned to the boundary so as to create an opening for a future garage door. He said that he told them that this would require changes to the endorsed plans and to the permits. He said that Mr Muzaferovic told him that he had a good friend at the Council and that he would arrange the necessary amendments. The Builder said that he agreed to proceed with the changes on the basis that Mr Muzaferovic took responsibility for the necessary changes to the permit.
3. The Respondents acknowledged in their Points of Defence that Mr Muzaferovic was to "arrange an amendment to the planning permit" for an extra four rows of bricks to the carport. Mr Muzaferovic did not suggest in evidence that any such arrangement was made by him. In any case, the required amendment related to much more than four rows of bricks.
4. The changes were made and, according to the Builder's evidence, the total cost was $29,915.70.
5. Joseph and the carpenter, Mr Marke, who were present at the meeting when this was discussed, verified the Builder's evidence. Joseph added that the Builder told them that if anything went wrong they would have to tear down the extra walls and re-build them in accordance with the plans.
6. No approach to the Council was made by Mr Muzaferovic. According to Joseph's evidence, Mr Muzaferovic told him later that his friend was no longer at the Council. Joseph said that he and Mr Muzaferovic decided to proceed with the changes in the absence of approval and take the risk, knowing that there was a possibility that the walls would have to come down.
7. Mr Muzaferovic said that he was not aware that the work was not in accordance with the Original Plans. That is in direct conflict with the evidence of the other witnesses and with his own Points of Defence. I do not believe him.

The enforcement and permit amendment proceedings

1. The Builder was subsequently contacted by an officer from the Council who informed him that a neighbour had complained about the changes to the carport and that the Council was seeking an enforcement order from this Tribunal. The Council stopped work on the site although it subsequently allowed some limited work unrelated to the changes to be done.
2. The Builder said that Mr Muzaferovic and Joseph told him they were unable to afford to engage legal representation and asked him to arrange for them to be represented at the enforcement proceedings with a view to try and retain the changes to the carports and the brick walls as built. Pursuant to this request the Builder engaged Best Hooper Solicitors, to represent the Four Owners and subsequently paid the legal fees on their behalf. An application to amend the permit was made on behalf of the Four Owners. An outcome was finally negotiated in regard to both units that some of the changes could remain but the side walls would need to be reduced in height. By Christmas 2009, amended plans were prepared and the permit was amended to reflect the agreement that had been reached.
3. According to the Builder both Mr Muzaferovic and Joseph agreed to the compromise but although the alterations to Joseph's Unit were made, Mr Muzaferovic refused to reduce the height of the wall on the Respondents' side and it remains as it was built.
4. Mr Muzaferovic's evidence in his witness statement was that this and the other changes from the Original Plans occurred without his knowledge, and that the application to the Tribunal was also without his knowledge and consent. He denied having authorized the Builder to instruct Best Hooper to represent the Respondents, denied that they were authorized to represent the Respondents and he refused to pay their fees. He denied that he had agreed to the compromise involving the reduction of the side walls. He claimed that all that he wanted was for the Unit to be constructed in accordance with the Original Plans. This evidence is inconsistent with his current refusal to reduce the size of the walls to what the Original Plans required.
5. In cross-examination he acknowledged that he knew about the bricks being laid next to the columns at the time and that he did not stop the Builder from doing so. He also agreed that the Original Plans showed no brick wall but a paling fence and that he "agreed 90%" that it was built in February 2009 to facilitate the construction of a future garage door.
6. Mr Muzaferovic also suggested that the changes to the plans arising from the compromise arose because of mistakes the Builder had made with levels. The compromise is directed to the changes made to the car park including walls built on the boundary and other matters. When asked by his own counsel in examination in chief whether the enlargement of the carport was discussed he did not answer directly although he acknowledged that once the double garage had been constructed he wanted to keep it.
7. He also seemed to agree in cross-examination that the only floor level in the Unit that increased in height was Level Two, and that that increased because of the flooring system.
8. Although Mr Muzaferovic denied ever having instructed Best Hooper, solicitors, denied that the Builder was authorized to instruct them on the Respondents' behalf and denied any responsibility for their fees, Joseph's evidence, which I accept, supports that of the Builder. He said (at p. 428 of the Transcript)::

"there's not a thing that was changed on that house that was done without Eddie's knowledge, or without mine, or without consultation between Mario, Eddie and me ..."

1. According to Joseph, he and Mr Muzaferovic agreed to fight the enforcement proceedings and attempt to retain the as-built walls and asked the Builder to arrange for them to be represented on the basis that they would pay him when the project was completed. The Builder's account is also supported by the carpenter, Mr Marke, and is more likely to be true. I do not believe Mr Muzaferovic's evidence about this.
2. I am satisfied that the Respondents requested and authorized the Builder to obtain and pay for legal representation on their behalf, not only to defend the enforcement proceedings the Council had brought against the Four Owners but also to seek to retain the changes that they had made which led to those proceedings. Despite his denial of having given any such authority, Mr Muzaferovic eventually admitted that he asked the Builder to "fix it". I am satisfied that the matter was eventually resolved with his agreement and that the plans endorsed to record the agreement ("the Endorsed Plans") were agreed to by him.
3. I am satisfied that the costs incurred by the Builder in regard to those proceedings including the obtaining of the amended permit and consultants' fees were properly incurred with the Respondents' authority.
4. The solicitor's fees incurred with respect to the enforcement proceedings were $9,570.00 which the Builder paid. The Respondents have not paid the Builder their half share, being $4,785.00. With the other expenses, the total expended by the Builder on their behalf of $13,747.90 is properly recoverable and the Builder is entitled to an order for that sum.

1. The Builder said that he increased the height of the brick wall in the courtyard at the request of Joseph and Mr Muzaferovic. The extra bricks were removed as part of the settlement. Mr Muzaferovic denied that he had asked for the increased height but I prefer the evidence of the Builder. The Builder is entitled to be paid for that work.

1. The Original Plans required that the second level of each unit be a concrete slab. However the new drainage system had resulted in a great deal of additional excavation. The Builder told Mr Muzaferovic and Joseph that to construct a suspended slab for level two would cost a great deal more than had been allowed for in his costing due to the additional support required. He said that he suggested to them that the floor should be of timber instead. He said that they agreed to the change and amended plans were prepared by their engineer. He said that he constructed the floor in accordance with those plans. His evidence is supported by Joseph, who said that he and Mr Muzaferovic agreed to go ahead with a timber floor at a reduced price in order to attempt to recover some of the considerable cost over-run on the project.
2. Mr Muzaferovic said that the change occurred without his knowledge. He said that when he asked the Builder why he had changed the design without his knowledge or permission the Builder told him that there were problems with the storm water pipe. He said that he did not ask for any design changes and that he always said that he wanted the Unit built according to the Original Plans.
3. I do not believe this evidence. This was a major change and since Mr Muzaferovic was on site virtually every day he could not have been unaware of it. Further, the Builder's account is supported by the evidence of the three other principal lay witnesses. Again, the Builder is entitled to be paid for this work.

1. The Builder said that Mr Muzaferovic and Joseph wanted to change the concrete on the first level of their respective units from the grey concrete required by the plans. Joseph wanted a black epoxy surface applied to the top of the concrete and Mr Muzaferovic wanted a special black concrete with a pebble aggregate. He said that he warned Mr Muzaferovic twice that the special concrete that he wanted was much more expensive than plain concrete but that Mr Muzaferovic instructed him to proceed with it. He said that in doing so he incurred an additional cost of $12,950.50 over what it would have cost to pour ordinary concrete.
2. Mr Muzaferovic agreed that he was to pay for the variation but claimed that the Builder had pushed the aggregate too far down into the concrete so that he would have to grind off an excessive amount of concrete in order to expose the aggregate. He said for that reason he was not liable to pay the extra. However it is not established that the aggregate was pushed down too far as Mr Muzaferovic alleges. The complaint about this floor is that it has not yet been ground and that it is out of level. Those allegations are addressed later in these reasons. The Builder is entitled to be paid for this variation, which was $12,254.00.

1. The Contract provided for the heating and cooling to be reverse cycle air conditioning but, according to the Builder, Mr Muzaferovic wanted hydronic heating. After some discussion, and on the advice of a heating contractor, it was agreed that Level 1 would have in slab electric heating and the rest would be ducted heating. The Builder said that he obtained a quote to install this type of heating at $4,378 for each Unit. He has paid the contractor.
2. The Builder's evidence about this variation is supported by Joseph and Mr Muzaferovic did not specifically deny it, except to say that he thought that the contract included heating. It did, but this claim is for an additional cost and was eventually conceded. The Builder is entitled to be paid for the variation, which was $2,189.00.

1. According to the Builder, the changes to the fame requested by Mr Muzaferovic occurred on almost a daily basis and he was consistently receiving telephone calls from Mr Marke for authorization of the changes Mr Muzaferovic was requesting. Mr Marke supported this evidence.
2. The Builder said that the largest change to the frame related to the Living Room on Level Two. This framed off an internal garden at one end of the room with glass and a fireplace between the Living Room and the garden. He said that both Joseph and Mr Muzaferovic complained that the Living Rooms were too small. Internal windows had already been partly framed to provide the internal garden and fireplace provided for in the plans. At Mr Muzaferovic's request the frames for the internal wall were removed which required structural changes and additional support for the floor above. In addition the windows, which were already on site, were discarded and new windows had to be ordered to replace them. The Builder said that he warned Mr Muzaferovic about the cost and the delay, which he said would be two or three months. Again, Joseph agreed with this evidence.
3. The Builder is entitled to be paid for the changes that were made.

1. The windows specified were Capral commercial grade double glazed windows in anodized aluminium frames. They were very expensive and in order to save money it was agreed early in the construction that Bradnams windows with powder coated frames would be supplied instead.
2. According to the Builder, when the framing was almost completely up, both Mr Muzaferovic and Joseph complained about the windows. He said that he walked through the Units with the plans, explaining that the windows were what the plans required. He said that some changes to the windows occurred because of changes they had made with the frames of the units. Because they were unhappy a meeting occurred with the window supplier the following day. Present at the meeting were the Builder, a representative of the window supplier, Mr Muzaferovic, Joseph and Mr Marke. Mr Muzaferovic and Joseph requested that changes be made and the window supplier provided a quotation for the replacement windows. Joseph agreed with this evidence.
3. The additional cost of the windows for the Respondents' Unit was $9,331.30 for the window frames and a further $8,586.60 for the glass. The Builder is entitled to be paid for that and any associated costs plus his margin. The total is $19,545.90.

1. By s.40(1) of the Domestic Building Contracts Act 1995 ("the Act"):

"...frame stage means the stage when a home's frame is completed and approved by a building surveyor;"

1. According to the Builder the frame was completed by 30 September 2008 and he invoiced the Respondents for $88,500, being the amount provided in the Contract Document for the frame stage based upon the fictitious price of $590,000. On the following day the Respondents signed an application to the Bendigo Bank for payment of the frame stage. The Builder faxed it to the Bendigo Bank and received payment on 20 October. At the time the invoice was rendered to the Respondents the Building Surveyor had looked at the frame but there were parts of the frame that were to be re-checked at a later time because Mr Muzaferovic had requested further changes.
2. In his witness statement the Building Surveyor said:

"Around the end of September 2008 I attended the subject site at the request of Mario Sumic to informally inspect the frame. At this point in time, the frame was completed however Mario advised me that Eddy and Joe had requested changes which, in turn, required re-engineering and changes to the architectural plans and engineering design. Whilst these changes to the plans and design were being prepared, Mario wanted to put in for a claim for the fame as it was built and completed in accordance with the plans notwithstanding that it would subsequently be amended.

Mario asked me to take a look at the frame to make sure that it was okay. At this time I recall the frame was up and complete. It looked okay to me but I did not inspect it in any detail. In the course of discussing various aspects of the project with Mario I told him the frame looked okay but I did not consider that I was making a formal inspection of the frame."

1. The regime for the inspection of Domestic Building work is set out in Part 4 of the Building Act 1993 and the accompanying regulations.
2. By s.33(1), a person in charge of carrying out the work must notify the Building Surveyor without delay after completion of each mandatory notification stage. On being so notified, the Building Surveyor must cause the work to be inspected (s.34). He may give directions to the person in charge of the work so that it complies with the permit, the Act or the Regulations (s.37).
3. When the work is completed there is provision for the issue of an Occupancy permit under Part 5 of the Building Act. Otherwise, if an occupancy permit is not required and all directions that he has given have been complied with, he must Issue a Certificate of Final Inspection pursuant to s.38.
4. The mandatory notification stages are prescribed by s.901 of the Building Regulations 2006 as follows:

(1) For the purposes of Part 4 of the Act the mandatory notification stages are-

(b) prior to pouring an in situ reinforced concrete member nominated by the relevant building surveyor; and

(2) The relevant building surveyor may vary a stage set out in subregulation (1) in relation to building work if it is inappropriate to the building work.

(3) The mandatory notification stages for building work determined in accordance with subregulation (1) or (2) must be set out in the building permit for that building work."

1. It will be seen from the foregoing that there is no mention in the Building Act or Regulations of the Building Surveyor "approving" any stage following an inspection. The purpose of each inspection appears to be to enable him to give any required directions to ensure that the work complies with the building permit, the Act and the Regulations. Where he is satisfied that the work complies he will no doubt say so to the builder and not give any direction under s.37. That would seem to be what amounts to an "approval".
2. I think that, when s.40(1) of the Act uses the word "approved", what is meant is that the Building Surveyor, after having conducted a sufficient inspection to be able to determine whether or not a direction under s.37 of the Building Act should be given, determines not to give any such direction.
3. Mr Marke swore that the frame was complete and there is no evidence that it was not. However, in order to satisfy the definition of "Frame Stage" in s.40(1), the frame had to be approved by the Building Surveyor. The Building Surveyor looked at it and thought that it looked all right but he did not inspect it in any detail. Accordingly, he could not have been satisfied that no direction under s.37 should be given and so he cannot be said to have "approved" the frame.
4. Mr Reid submits that the Builder should now be ordered to repay the amount of the frame stage payment to the Respondents.
5. A distinction must be drawn between what the Builder was ultimately entitled to receive under the Contract and the manner in which payments were to be made and the construction was to be financed.
6. What the Builder was entitled to receive was the cost of construction plus 15%. The financing was to come primarily from the Bendigo Bank and, to the extent that was insufficient, from the Builder in the first instance and he was to be repaid with his margin at the conclusion of the project.
7. The mechanism was for the Builder to make claims in accordance with the Contract Document in order for the Respondents to seek instalments from the Bendigo Bank. These would then be received by the Builder. If it was more than he was entitled to he would pay the surplus to the Respondents. If it was less then he would carry the shortfall until the end of the project.
8. The Act provides in s. 40(2) & (3) as follows (where relevant):

"2) A builder must not demand or recover or retain under a major domestic building contract of a type listed in column 1 of the Table more than the percentage of the contract price listed in column 2 at the completion of a stage referred to in column 3.

Type of contract Percentage of contract price Stage

......................................................

(3) In the case of a major domestic building contract that is not listed in the Table, a builder must not demand or receive any amount or instalment that is not directly related to the progress of the building work being carried out under the contract.

1. Since this is a cost plus contract, the Table cannot be applied because there is no contract price to be apportioned. However sub-section (3) prevents the Builder from demanding or receiving any amount or instalment that is not directly related to the progress of the building work being carried out under the contract. It seems to me that he has not done so.
2. Apart from s.40(3), the constraint upon the Builder's ability to claim payment was the mechanism for payment. He was to be paid from draw downs from the Bendigo Bank in the manner that had been agreed. Those draw downs could only be made following a claim by the Builder for a stage, purportedly under the Contract Document. However there was no reason, subject to compliance with s.40(3), why the Respondents could not pay him earlier if they wanted to. The absence of a formal inspection by the Building surveyor did not alter the fact that the amount of work with respect to which the claim was made had been done.
3. Mr Sumic said that he called for the inspection to make sure the frame was all right and to discuss the proposed changes with the Building Surveyor. He said that he made the claim because the frame was complete and they needed the funds to be able to continue with the construction and proceed with the variations and amendments which the Bendigo Bank would not fund. I am satisfied that the Respondents were aware of the need for funds and that they were satisfied that it was appropriate to make the claim. Construction could not have proceeded without funds, particularly because the Bendigo Bank would not fund the drainage variation, or indeed, any variations until the end of the project. All funds had to come either from the Bendigo Bank or from Mr Sumic.
4. According to the evidence of Mr Owen, before a progress payment was made a valuer was sent to inspect and provide a report that the work was complete which was then sent on to the Bendigo Bank. The Frame Stage payment was made on 20 October 2008.
5. Although I am satisfied that the work had not reached the frame stage within the meaning of s.40(1) of the Act, I am also satisfied that the work for the frame of the Unit was completed at the time the frame stage claim was made and that the parties agreed to claim the frame stage from the Bendigo Bank.
6. Generally, money paid voluntarily and not under compulsion cannot be recovered unless some mistake, misrepresentation or other vitiating element robs it of its voluntary nature (David Securities Pty Ltd v. Commonwealth Bank of Australia [1992] HCA 48). No compulsion, misrepresentation on the part of the Builder or mistake on the part of the Respondents has been proven. Not only was it in the interests of the Respondents for the payment to be made, it was a voluntary payment that they made and it cannot be recovered back.

1. Clause 30(1) of the Contract Document provided:

"If the owner is getting finance from a Lending Body, the Owner must give the Lending Body an authority, while this Contract lasts, to make payment direct to the Builder of any amount the Owner agrees has become due under this Contract. The Owner must notify the Lending Body when each stage is completed and the payment is due."

1. The second sentence of the Clause relates to individual claims. The authority in the first sentence appears to be a general authority which is to subsist "while this Contract lasts".
2. On page 16 of the Contract Document, the term "Lending Body" is defined to mean a person or corporation which has agreed or agrees to make a loan to the Respondents to enable them to make payments to the Builder under the Contract.
3. It is not disputed that the appropriate authority was given to the Bendigo Bank and the deposit, base stage and frame stage were all paid directly to the Builder by the Bendigo Bank.
4. In about September 2008, the Respondents approached the Commonwealth Bank to re-finance their construction loan with the Bendigo Bank. They did not tell the Builder they were doing that. If the facility with the Bendigo Bank, were terminated, the Builder would have no recourse to funds to finance the construction unless a similar arrangement were set up with a substitute lender.
5. The loan with the Commonwealth Bank was approved on 28 October 2008 and the Bendigo Bank was paid out on 16 December 2008. On that day the bank facility that was to finance the transaction ceased. Instead, the Respondents opened two accounts with the Commonwealth Bank, each for an amount of $480,000. One was a Viridian line of credit and the other was an Investment Home Loan.
6. Neither of these has any reference to the Builder and neither is a construction loan tied to the performance of the Contract. The terms of neither loan include an authorization to pay draw downs to the Builder.
7. Mr Muzaferovic said under cross-examination that he had given the Commonwealth Bank a copy of the Contract Document and that the Bank has lost it but there was no reference to the Contract Document in the Commonwealth Bank documentation. It would seem strange that the Commonwealth Bank would have provided construction finance in this way.
8. Specifically, there was no authority given to the Commonwealth Bank to make payment directly to the Builder, while the Contract lasted, of any amount the Respondents agreed had become due under the Contract.
9. Instead, according to the voluminous banking documents tendered, large sums of money were paid from the new accounts to a builder called Novo Homes and then a substantial part of those sums was on-paid to the Respondents themselves.
10. In cross-examination of Mr Muzaferovic the following facts emerged:
    • (a) "Novo Homes" is a name used by a builder who is a friend of Mr Muzaferovic.
    • (b) There does not appear to have been any building contract entered into between the Respondents and Novo Homes. No documents detailing their relationship were produced.
    • (c) On 4 June 2010, Novo Homes was paid $198,500 by the Commonwealth Bank. Of that sum, according to Mr Muzaferovic, $120,000 was retained by Novo Homes for work done for the lock up stage and the balance of approximately $80,000 was received by the Respondents.
    • (d) On 16 November 2010, Novo Homes was paid a further $156,500 by the Commonwealth Bank. Of that sum, according to Mr Muzaferovic, some of it was retained by Novo Homes for further work done and the balance, the amount of which he claimed to be unable to recall, was received by the Respondents.
    • (e) No tax invoice was ever rendered to the Respondents by Novo Homes.
11. These amounts that Mr Muzaferovic claims Novo Homes retained for the lock up stage total more than the Builder was paid and yet at the on-site inspection I saw no evidence that substantial work had been done beyond the lock up stage.
12. Although it appears from the Builder's evidence that some changes have been made to the building since the Builder was excluded from the site, in the absence of any invoice from Novo Homes or any evidence to substantiate what work that company did on the Unit, I am unable to find what it did or even find that anything substantial was done by it.
13. The effect of the re-finance was to move the construction loan funds out of reach of the Builder and enable the Respondents to gain control of them to the exclusion of the Builder. Yet, at the time the re-finance was first sought and for a long time afterwards, the Builder was, to the Respondents' knowledge, incurring substantial building costs on their behalf in bringing the Unit from frame stage to just short of lock up stage, in the belief that there were loan funds from the Bendigo Bank to pay him.
14. When Mr Muzaferovic was asked whether he gave the Builder the details of the Commonwealth Bank accounts so that he could direct claims for payment he said that he had not because, he said, he did not want to give that information to him.
15. When asked what the large sums that had been drawn from the accounts were for, Mr Muzaferovic appeared evasive. He said that he could not remember, that there was confusion about the accounts or that his wife handled all of the accounting. Yet these were very large sums of money and it would be astonishing if he did not know what they were for.
16. It is clear from the Banking documents that the Respondents were, throughout the whole of the relevant period, in a precarious financial position. I can only conclude that Mr Muzaferovic's purpose in approaching the Commonwealth Bank was to achieve the outcome that he did, that is, gain control of the money and avoid paying the Builder.
17. In the meantime the Builder continued construction from frame stage to lock up, unaware that the finance for the project with the Bendigo Bank had been cancelled

1. On 16 October 2010 the Builder invoiced the Respondents $206,500 for the lock up stage. The Builder said that Mr Muzaferovic told him that he would not submit the claim to the bank, first, because it would make no further payments until the Tribunal proceedings were resolved and secondly, because the Respondents were refinancing their loan with the Commonwealth Bank. According to Joseph's evidence, when the lock up claim was handed over, Mr Muzaferovic said that the lock up stage would be paid when he had finished refinancing. I accept that evidence.
2. The Builder also said that he told Mr Muzaferovic that no further building work would take place until the claim was paid and a letter of financial approval had been provided by the Commonwealth Bank. According to Joseph's evidence this occurred during a later conversation at which time Mr Muzaferovic then asserted for the first time that the Unit was not at lock-up stage.

1. By Schedule 3 of the Contract, "Lock-up Stage" means:

"the stage when a home's external wall cladding and roof covering is fixed, the flooring is laid and external doors and external windows are fixed (even if those doors or windows are only temporary);"

1. The Respondents' submissions concerning the state of the Unit at the time the lock up claim was made were partly based upon two sets of photographs. One of these was taken by the Builder in June or July 2010 and the other set was taken by the Respondents' expert, Mr Pavlekovich-Smith, in September and October 2010. By the time both sets of photographs were taken the Respondents had had possession of the site for at least five months and claim to have spent more than $250,000 in rectification work. Since there is no clear evidence as to what the Respondents or their contractors did in this period I cannot assume that either set of photographs depicts the state of the Unit as it was when the lock up claim was made. Indeed, the Builder said of the photographs of the rear elevation that that was not the way he left it.
2. Mr Reid submitted that the Unit was not at lock up stage in the following respects:
   • (a) Missing windows

This claim was based upon the photographs but the Builder said that the windows shown as missing in those photographs were removed after lock up. I am satisfied that the windows were all installed at the time the lock up claim was made.

The photographs show some cladding missing from the roof area. The Builder acknowledged that he could not be certain that it was there when he left the site because he did not get up on the roof. There is no apparent reason why the cladding in that area would have been removed if it had been already fixed and I agree with Mr Reid that the timber shown in the photographs is weathered. I think it likely that it was in this condition when the Builder left the site and, since there is no evidence that it had been put on and then removed, I find that it was like that when the lock up claim was made. The same cannot be said for the ground floor cladding at the rear where there appears to have been considerable interference with the work done by the Builder. The Builder said that a lot of cladding appeared to have been removed. In the carport area there is some external cladding missing which the Builder said he could not fix because of the Respondents' indecision about the wiring that was to go underneath. Miss Lardner submitted that this was not required for lock up because it was inside the car port and was to be lined by plaster board. She also said that access to the Unit from the storage area on the other side of the wall had been temporarily blocked off. The plans show there would be no connection with the interior of the Unit when completed. However the plaster was nonetheless to be the external wall cladding. The fascia boards and the undersides of the balconies were not completed and some decorative feature cladding at the front was not there. I do not believe that would prevent lock up being achieved. Overall, I agree with Mr Reid that the external cladding above the roof line was not fitted although I think that the rest was substantially installed.

There is a dispute as to whether a downstairs sliding door had been fitted but I think that the weight of the evidence, particularly that of the Builder and Mr Marke, is that it was. The documentary evidence, notably the invoices relied upon in Mr Reid's submissions, is equivocal.

The significance of the frame not having been approved

1. In addition to the missing cladding, Mr Reid submitted that, as a matter of law, because the Frame Stage had not been approved by the Building Surveyor, the Lock up stage was also not reached. He relied upon the recent decision by the Court of Appeal in Cardona v. Brown [2012] VSCA 174.
2. In that case a builder was paid the frame stage payment for a dwelling house although the frame had not been approved and was never approved by the Building Surveyor. The Builder later claimed the lock up payment and suspended work when it was not paid. At the time the lock up claim was made, some parts of the frame of the house had not been constructed and other, defective, parts of the frame had not been rectified or passed by the Building Surveyor, even by the time the litigation commenced. Amongst the findings made, the Court of Appeal held that the lock up stage could not be said to have been reached if the Frame Stage itself had not been reached. In her judgement, with which the other members of the Court agreed, Tate AJA said (at paras. 73 to 75):

"73. In any event, in the circumstances of the case, there is considerable doubt as to whether the frame stage was completed when the demand was made for payment of the lock-up stage on 13 February 2007. The issuing of the progress claim certificate for the frame stage on 4 December 2006 was clearly premature, as the requirement under the definition of 'frame stage' for a home's frame to have been approved by a building surveyor was not met. At this time no verbal approval of any kind had been given, even by Mr Kidd's assistant (who was not in any case a qualified building surveyor). The later approval on 12 February 2007, while preceding by one day the progress claim certificate for the lock-up stage on 13 February 2007, was given by Mr Kidd in reliance upon what he had been told by the builders, and he gave it without conducting a further inspection since his earlier inspection of 17 January. Moreover, Mr Kidd gave his approval on 12 February 2007 in the knowledge that there had been deficiencies in the trusses that required rectification.

74 It is necessary for there to be 'effective and satisfactory completion of the required stage ... [as] a condition of any instalment payment'( Hudson's Building and Engineering Contracts (Sweet and Maxwell, 12th ed, 2010), para 3-076) and while trivial failures, or failures borne of impracticalities, do not preclude effective and satisfactory completion, it is noteworthy that the dispute in relation to the trusses was not resolved until the first day of the hearing before VCAT. That resolution involved work being done on the trusses to strengthen them in accordance with the recommendations of a consultant engineer. The 'final approval' was not given until Mr Kidd undertook a personal inspection on 13 March 2007.

75 The marred history of the progress payment claim for the frame stage does not permit any finding to be made with confidence that the frame stage had been completed by the time the progress payment claim was made for the lock-up stage on 14 February 2007. It is most likely that the frame stage had not been completed by 14 February 2007 either because there had not been effective and satisfactory completion of the home's frame (given the deficiencies in the roof trusses, a major structural component of the home) or because the approval given by the building surveyor on 13 February 2007 was deficient (as it was based on assurances from the builders of what they had read and what adjustments they had made and not upon a personal and independent inspection of the completion of the frame stage when, at least in the circumstances, this appeared necessary). Alternatively, the frame stage had not been completed by 14 February 2007 because the final approval was not given until 13 March 2007 which post-dated the claim for lock-up stage."

1. In the present case there was an inspection by the Building Surveyor at the Frame Stage, albeit not one that he considered to be "formal" He said that he observed that the frame was "up and complete" and "looked okay to me" and said so to the Builder, although he acknowledged that he "...did not inspect it in any detail".
2. Saying that something "looks okay" is not the same as approving it but in this instance it was known to all parties that the frame was to be altered to suit the Respondents' requirements and that a more formal inspection of the frame would be pointless until those alterations were carried out. Those alterations were not contemplated by the Contract. I am satisfied that the work that the Contract required to be done for the Frame Stage was done by the Builder, that the frame as designed and altered to the Respondents' requirements to that date was "up and complete" and that the Building Surveyor did not notice anything wrong with it following whatb appears to have been an informal inspection. That is very different from the situation in Cardona v. Brown, where "no verbal approval of any kind had been given" and where the frame was defective up to the date of the hearing.
3. It is unnecessary to consider whether the factual differences between this case and Cardona v. Brown are material because I do not find that the Unit was at lock up stage when the Builder made his claim because the external cladding was incomplete and the degree of incompleteness was not trivial or due simply to practical issues.

1. Following the making of the lock up claim the Builder continued to assist the Respondents with the enforcement proceedings and their application to amend the permit. Those proceedings were resolved by consent on 11 November 2009. The Respondents consented to the settlement and the Builder paid the Respondents' share of the legal fees on 10 February 2010.
2. In the meantime, invoices appearing in the Tribunal Book show the supply of the following further work or materials to the site following the making of the lock up claim on16 October 2009:

1. There are other invoices that might relate to the Unit but do not identify it, whether by annotation or otherwise. Rendering was paid for on 12 November but the date upon which it was done does not appear from the invoice (Tribunal Book 1561.2). Rental continued to be paid on the scaffolding. A quotation was obtained for stair material on 7 December and the order to the supplier was signed by the Builder on 10 December.
2. Following the consent order made by the Tribunal, work was unable to recommence until the amended permit drawings were endorsed by the Council. These were received by the Architect on 23 December 2010. The Amended Building Permit was issued the following day. These matters were arranged by the Builder.
3. According to the Builder his office "...closes down over the Christmas January period each year." He said that during this time he was told by Mr Muzaferovic that the refinance had been delayed because of a mix up of titles between the Four Owners. He said that while on holiday he met Mr Muzaferovic at Portarlington on 9 January 2010 and discussed the possibility of resuming work after Australia Day.
4. The Builder said that when he returned from holidays on 18 January 2010 he found a letter from the Respondents dated 7 January 2010 ("the Termination Letter") in the following terms:

This letter is in the reference of the contract that was signed on 14th of November, 2006.

Please regard this as our official written notice to terminate all contractual arrangements that we have with your company, regarding the building of the Property at U2/59 Clifton Street, Essendon. We would also like to inform you to remove all of your belongings from this property as from 12th of January, 2010.

To finalise the financial matters, further notifications will take place.

1. The Builder said that later in January he telephoned Mr Muzaferovic and was told by him that the Respondents had only borrowed enough from the Commonwealth Bank to pay out the previous Bank and that they would be borrowing further money to complete the Unit using another builder. The Builder said that following this conversation he considered the Contract to be at an end and he removed surplus materials from the site.
2. There was a later meeting between the Builder, Mr Muzaferovic and others at a hotel to try and reach some agreement but nothing was resolved.

1. Termination of the Contract by the "Owner" is dealt with in Clause 34 of the Contract Document. However the procedure set out in that Clause was not followed. What then was the Respondents' ground of termination?
2. In their Points of Defence filed 17 May 2012, the Respondents say, in regard to the Termination Letter:

"The Respondents did advise the Applicant that he was not responding to the demands of completing the lock up stage and therefore had no choice but to terminate the Building Contract" (Paragraph 53);

"As the Applicant did not comply with the Respondents' request to rectify the lock up stage, the Respondents sent the letter to the Applicant to terminate the Building Contract " (Paragraph 65).

1. The reasons Mr Muzaferovic gave at the time for saying that lock up was not reached were as follows:
   • (a) The windows were not according to the plans
   • (b) The light well was wrong
   • (c) Windows were missing in various places
   • (d) No stairs in appropriate areas
   • (e) There were holes where water and pigeons were getting in
2. I am satisfied that the windows and the light well were as the Respondents had requested, and am I satisfied that no windows were missing. Stairs are not part of lock up. The "holes" were not identified but appear to have been where the external cladding was missing above the roof. In that respect the Unit was not at lock up.
3. Mr Muzaferovic said that he told the Builder that he would pay when the work was "brought to the required standard of the original endorsed plans" although he knew that he had requested substantial departures from the Original Plans that the Builder had implemented. He then said in his witness statement that he requested the Builder "on numerous occasions" after October 2009 to "rectify the works" but nothing was done. The Builder denies that and he is the more credible witness. In any case, from Mr Muzaferovic's evidence it is apparent that by "rectify" he meant, to alter the work so that it would accord with the Original Plans, even though the departures from those plans had been at his own request. I cannot find that a failure by the Builder to comply with such a request, even if it had been made, would have evinced an intention on his part not to be bound by the Contract.
4. It is not suggested, either in the current Points of Defence or the earlier Points of Defence that were signed by Counsel, that the Builder repudiated the Contract by suspending work, although it was pleaded in the earlier document that the Builder repudiated the Contract by (in summary):
   • (a) Defective work;
   • (b) Work not in accordance with the plans;
   • (c) Deficient materials;
   • (d) Lack of care and skill;
   • (e) Delay;
   • (f) Failure to remedy defects;
   • (g) Claiming for the frame stage when it was incomplete; and
   • (h) Claiming for lock up when it was incomplete.
5. By these actions, it is said, the Builder evinced an intention no longer to be bound by the Contract.
6. That case is not made out on the evidence. As will appear below, there was defective work, but not to an extent that would evince an intention on the part of the Builder not to be bound by the Contract. There was substantial delay but a great deal of evidence to explain how it occurred. The main causes were the drainage problem, the multitude of changes the Respondents requested and the stop work order of the Council. The Frame stage was claimed and also paid without the Building Surveyor having approved the frame and the Lock up claim was made before lock up was completed. The reason for the claim for the frame stage is dealt with above and although the Unit was not at lock up it was very close to lock up. I cannot find that on any or all of these grounds the Builder has evinced an intention not to be bound by the Contract.
7. In the end, Mr Reid's strongest argument was that the Builder suspended work without being entitled to do so and that by doing so, he repudiated the Contract. That is how the case was finally put in submissions.
8. Termination on an invalid ground may nonetheless be effective if at the time of termination, there were a valid ground for termination, even if the innocent party had been unaware of it. In Shepherd v. Felt and Textiles of Australia Ltd [1931] HCA 21 Dixon CJ adopted the following quotation from the judgement of Greer J. in Taylor v. Oakes Roncoroni & Co (1922) 127 L.T., at p. 269):

"It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not"

1. I must therefore examine the Respondents' claim for repudiation as it is now put by Mr Reid

1. Mr Reid submitted that the lock up claim was made on 16 October 2009, which is acknowledged, and that the Builder suspended work on 17 October. He said that the Owners were entitled to accept "the repudiation" and the contract was at an end from 17 October 2009. On and after that date, he said, the Builder had no right or entitlement to perform any work.
2. A party can be said to have repudiated a contract if he evinces an intention no longer to be bound by it or to fulfil it only in a manner substantially inconsistent with his obligations (see Cheshire & Fifoot Law of Contract 9th Australian Edition para 21.12 and the cases there cited).
3. In Shevill v. Builder's Licensing Board [1982] HCA 47 Wilson J sad (at para.8):

"Repudiation of a contract is a serious matter and is not to be lightly found or inferred: Ross T. Smyth & Co., Ltd. v. T.D. Bailey, Son & Co. (1940) 3 A11 ER 60, at p 71. In considering it, one must look to all the circumstances of the case to see whether the conduct "amounts to a renunciation, to an absolute refusal to perform the contract_": Mersey Steel and Iron Co. v. Naylor, Benzon & Co._ (1884) 9 App Cas 434, at p 439."

1. The conduct said to amount to repudiation must be looked at objectively. In Laurinda Pty Ltd v. Capalaba Park Shopping Centre [1958] HCA 23, Brennan J. said (at para 14):

"Repudiation is not ascertained by an inquiry into the subjective state of mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party's inability to perform the contract or promise or his intention not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way."

1. Mr Reid submitted that the Builder's "demand" for the lock up payment amounted to a repudiation. I do not accept that submission. Merely claiming a payment under a contract prematurely does not evince an intention to no longer be bound by the contract or an absolute refusal to perform it.
2. Mr Reid's more substantive submission was that the Builder repudiated the Contract by suspending work and "demobilising" from the site. This was not how the case was put in the Points of Defence but I shall consider it.
3. Suspension of building works is dealt with in Clause 35 of the Contract Document, which (where relevant) is as follows:

"35.0 The Builder may suspend the Building Works if the Owner:

• does not make a progress payment that is due within 7 days after it becomes due; or
• is in breach of this contract.

35.1 If the Builder suspends the Building Works, the Builder must immediately give notice in writing by registered post to the Owner. The Owner must remedy the breach within 7 days after receiving the notice. The Builder must recommence the Building Works within 21 days after the Owner remedies the breach and gives notice of this to the Builder."

1. When the Builder made the Lock up claim the Unit was, in terms of the work that had been done, very close to lock up. Mr Muzaferovic did not, at that time, assert that the lock up stage was not reached. He said that the bank would not pay because of the problems with the Council and also because he was refinancing. The Builder said, either at that time (on his evidence) or sometime afterwards (on Joe's evidence) that no further work would be done until the claim was paid and an approval of finance was obtained from the new bank.
2. Since the Unit was not at lock up, it was not open to the Builder to suspend work for non-payment of the lock up stage claim. However he specified two reasons for suspending work, the other being the re-finance.
3. The Builder said that he first became aware of the refinance in October 2009 when he handed over the claim for the lock up stage. He said that he asked Mr Muzaferovic who he was refinancing with and said that if a refinance was to occur that he (the Builder) would need a letter from the bank that construction funds would be available as per the previous letter that he had from the Bendigo Bank. He said that Mr Muzaferovic told him that he was going to the Commonwealth Bank and that he would let the Builder know who he was dealing with.
4. He did not do so. The Builder's evidence thereafter was as follows:

"Miss Lardner: Now was there any other part of that discussion that you recall, other than what you've already identified?

Builder: Other than we wouldn't continue works until such time that we knew that he had funding in place and that we would get paid.

Builder: Yes I did. Because he'd refinanced, or he was in the process of refinancing and that we would need the same terms and conditions of the finance that we had already in the contract, which is a formal approval and moneys withheld for construction by the bank."

He said that he later found out that the re-finance had already occurred.

"...as far as I was concerned, that the contract was not going proceed, unless somebody could prove that they could pay for the balance of the works. Hence the reason for I wasn't even going to send a welder there to weld one cleat until I knew that somebody was going to pay for what I was - firstly, what I was owed and, secondly, what I was going to continue to do."(sic.).

1. Mr Muzaferovic said that he had no recollection of the Builder telling him that no further work would be done until the lock up claim was paid. There is no evidence that he was informed in any other manner that work would be suspended and so it would seem that, if work was suspended, he was unaware of the fact.
2. No notice of suspension was served by the Builder. In fact, at this time, because of an undertaking given to this Tribunal, no work could be undertaken under the Contract in any case, except:
   • (a) any work in accordance with the Original Plans;
   • (b) the removal of brickwork along the boundary wall or fence line on either side that had been constructed beyond that which was permitted under the Original Plans; and
   • (c) any additional buildings and works that would allow the building to be fully weatherproofed.
3. The purpose of the permit amendment application was to enable the Respondents to retain the works in the car park and the wall. The only work able to be done by the Builder was therefore work to allow the Unit to be fully waterproofed.
4. Notwithstanding what the Builder said to Mr Muzaferovic, it does not appear that he ever did suspend work before the Respondents purported to terminate the Contract the following January. There is no evidence that he did and no evidence that he "demobilized" from the site as Mr Reid suggested. He said that he had removed his equipment before Christmas but no work was to be done over Christmas and January. He left the building materials on site and he continued to do work notwithstanding that the Respondents had not paid the lock up claim. In January he discussed with Mr Muzaferovic recommencing work after Australia Day.
5. I do not believe that the conduct of the Builder following the handing over of the Lock up claim objectively conveyed to the Respondents any inability on his part to perform the Contract or any intention on his part not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way.

1. Where one party to a contract evinces an intention no longer to be bound by the contract, the innocent party can elect to accept the repudiation and bring the contract to an end or, save in certain cases, leave the contract on foot and seek to enforce it. Until the election is made, the contract remains on foot and once an election to affirm the contract is made, the right to accept the repudiation is lost. An unaccepted repudiation of a contract is said to be "a thing writ in water and of no value to anybody" (Howard v Pickford Tool Co Ltd (1951) 1 KB 417 at 421 per Asquith LJ.
2. Mr Reid submitted that the Contract was at an end on 17 October 2011, but there is no evidence that anything was done by the Respondents that would have amounted to an acceptance of a repudiation, even if one had occurred. Thereafter, the Respondents agreed to the settlement of the enforcement proceedings the Builder had helped negotiate on their behalf.
3. The only evidence of anything that might have amounted to an acceptance of a repudiation is the letter of 7 January 2010. That makes no reference to any suspension of works. Indeed, it asks the Builder to remove his belongings from the site. It is also couched in apologetic language. Nonetheless, if the Builder had, at the time the letter was sent, repudiated the Contract and if it were still open at the date of the letter for the Respondents to accept the repudiation and bring the Contract to an end the letter might be an effective election on their part to do so, whether or not they were aware of the acts constituting the repudiation (Shepherd v. Felt & Textiles above).

Party accepting repudiation not ready and willing to perform

1. Miss Lardner submitted that, even if the Builder's conduct was repudiatory, the Respondents' own breaches were so serious as to disentitle them from accepting the repudiation and terminating the Contract. She referred me to Sopov & anor v. Kane Constructions Pty Ltd [2007] VSCA 257 at para 117 where the Court of Appeal entertained such an argument but did not have to determine it.
2. The general principle is that a party not ready and willing to perform the contract has no right to terminate it for breach by the other party (see Cheshire & Fifoot para. 21.26 and the cases there cited).
3. The serious breach Miss Lardner alleges is the refinance by the Respondents with the Commonwealth Bank, involving the termination of the existing finance arrangement with the Bendigo Bank upon which the Contract was based and not replacing it with any alternate source of finance for the Builder.
4. She referred me to Clause 13 of the Contract Document, which (where relevant) requires the Respondents to provide written evidence to the Builder of a number of things "...to enable Building Works to commence", including:

"satisfactory evidence of the Owner's capacity to pay the sum of the Contract Price and where moneys are to be borrowed, satisfactory evidence that any loan has been approved by the Lending Body and that the mortgage documents have been signed."

1. Although acknowledging that that was an obligation imposed upon the Respondents before the work commenced she said that it should be inferred that, if the Respondents should refinance during the performance of the works, proof of approval of the new finance must be provided to the Builder.
2. The payment regime was pivotal to the relationship between the parties. The money for the construction was to come from an acknowledged lender and not otherwise until the end of the construction when the other amounts were to become due. If the Respondents were free to refinance with another lender who would not have instructions to make payments under the Contract to the Builder, the Builder could find himself in the situation of having to complete a considerable amount of work in order to qualify for a progress claim and then find that there was no bank to pay him.
3. Miss Lardner argued that it was a substantial breach. As to the meaning of that term she referred me to the Tribunal's decision in Serong v. Dependable Developments Pty Ltd [2009] VCAT 760, where the learned Deputy President (as his Honour then was) said that, in the context of a building contract, it meant "considerable', "solid" or "big" and that only really important breaches would count. I respectfully accept that view.
4. If the Respondents are in substantial breach then they are unable to determine the Contract under Clause 42 of the Contract Document by reason of the wording of that Clause. They are also not able to terminate at Common Law by reason of the principle referred to.
5. I think that it is unnecessary to imply into the Contact a term of the nature described by Miss Lardner in order to give business efficacy to the Contract, because Clause 30.1 of the Contract Document required the Respondents to give the "Lending Body" an authority, while the Contract lasted, to make payment direct to the Builder of any amount they would agreed had become due under the Contract.
6. The "Lending Body" was the Bendigo Bank and the authority to pay was required to be given to it "while this contract lasts". It cannot have been the intention of the parties that, after giving the authority the Respondents could thereafter revoke it. The words "while this contract lasts" mean that the obligation to provide authorization is a continuing one and that the authority is to remain while the contract lasts.
7. As a consequence of that, upon a refinance it was necessary for the Respondents to give an authority to the new "Lending Body", which was the Commonwealth Bank to make payments that should fall due under the Contract to the Builder. It is clear that the Commonwealth Bank was given no authority to make payments to the Builder and that the refinance was in place over a year before the Contract came to an end.
8. The Respondents cancelled the authority and concealed the fact from the Builder. When, at the time the lock up stage claim was handed over, the Builder first discovered that they "were re-financing", he requested details from the Respondents but although MrMuzaferovic told the Builder he would provide it, on his own evidence did not want to give it to him and did not do so.
9. Some months later, Mr Muzaferovic informed the Builder that the Respondents had only borrowed enough money to pay out the existing mortgage and that he would have the Unit completed by another builder.
10. At the time they wrote the letter of 7 January, the Respondents had already breached their obligations under Clause 30(1). That was a serious breach and indicates that they were not ready and willing to perform the Contract themselves. Consequently, they were not entitled to determine it for breach, even if there had been a breach by the Builder that would otherwise have permitted them to do so.
11. Since the Respondents were in breach of the Contract the Builder was entitled to suspend work until such time as the breach had been remedied by providing him with the authority to the new lender, while the Contract lasted, to make payment direct to him of any amount the Respondents agreed had become due under the Contract. This was one of the two grounds upon which he said he was suspending work. No such authority was ever provided.

1. I am not satisfied that the Builder repudiated the Contract. As a result, the Respondents were not entitled to elect to bring the Contract to an end on 7 January 2010 when they wrote the letter to the Builder. Since they were then bound by the Contract and since their letter and their subsequent conduct clearly evinced an intention on their part no longer to be bound by the Contract, the Respondents repudiated the Contract themselves.
2. The Builder accepted the repudiation by removing his materials from the site and cancelling the Domestic Building Insurance Policy. Apart from some items of defective work I do not find that the Builder was in breach at the time he accepted the repudiation. He had discussed with Mr Muzaferovic about resuming work after Australia Day and appears to have been willing to do so.

1. The invoices show that the bulk of the materials and labour on the project were paid for by Esprit Homes Pty Ltd, which is a company of which the Builder is a director. Mr Reid submitted that, insofar as the labour and materials supplied to the site were paid for by Esprit Homes, the Builder has not suffered any "loss". He said that there was no evidence that the Builder was liable to repay Esprit Homes the amounts that it has expended. This argument is misconceived.
2. Insofar as the Builder is seeking payment of a sum of money that has fallen due under the Contract before termination, the cause of action is for a liquidated sum, not damages (see Alexander v. Ajax Insurance Co. Ltd.(1956) VLR 436 per Sholl J.). Such a sum is payable, notwithstanding the Builder's termination for breach after payment fell due (McDonald v. Dennys Lascelles [1933] HCA 35 per Dixon J, as he then was).
3. Insofar as it is a claim for damages for breach of contract, the measure of damages is, prima facie, what it would cost to put the innocent party in the position he would have been in had the breach not occurred (Tabcorp Holdings Ltd v. Bowen Investments Pty Ltd [2009] HCA 8). In this case, that "position" is that he would have received the payments that would have fallen due had the Contract continued. To put him into that position now would require that he be paid those payments.
4. If the Builder contracts to do work the interest of the other party is to have the work done. Where it is open to the Builder to employ sub-contractors or employees to carry out the work, it is of no concern to the other party how, or even whether, he pays them. If the Builder supplies materials it is of no concern of the other party how he does so. So long as the work that the Builder contracts to do is done or is caused to be done by the Builder he is entitled to be paid the contract price. It is his own business how he does it or causes it to be done. Of course, in quantifying the Builder's damages on a claim for loss of profits for work yet to be done, what it would reasonably have cost him to secure performance of his contractual obligations would have to be deducted from what he would have received under the Contract in order to assess his loss of profit but the obligation of the other party to pay the contract price for work done is not dependent upon the Builder first paying his own suppliers.
5. In Roman Catholic Trusts Corporation v Van Driel Ltd [2001] VSC 310 Hansen J said (at para.108) that it is not a relevant concern for a party in breach of a contract that the actual loss suffered as a result of the breach has been paid for by a third party. (Reference was also made to St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] AC 85 at p.87).

1. At the time the Builder accepted the repudiation neither the lock up payment nor the cost plus 15% of the rest of the work done had fallen due for payment. The first was not due because lock up had not been reached. The second was not due because that was agreed to be paid at the completion of all of the work. However by repudiating the Contract and causing it to be brought to an end, the Respondents have deprived the Builder of the ability to complete the lock up stage and the rest of the work and so have deprived him of the payments to which he would have been entitled had the work proceeded to completion. That is, the cost of the work that he has carried out, plus his agreed margin of 15%.
2. In his Points of Claim the Builder claims damages for breach of contract and, in the alternative, recovery of the reasonable cost of his work on a quantum meruit. These are alternate claims and are mutually exclusive. The first relies upon the Contract and the second does not.
3. Where the same facts would lead to different remedies, the Applicant may pursue both in the alternative but at the time of judgment must elect which he will have (Port of Melbourne Authority v. Anshun [1981] HCA 45). In Miss Lardner's final submissions the Builder elected to pursue the claim for quantum meruit. Miss Lardner said that, if the claim for quantum meruit should not succeed, she would seek damages in the alternative.

1. In Sopov v. Kane Constructions Pty Ltd (No.2) [2009] VSCA 141, the Court of Appeal pointed out (para.5) that the entitlement of a builder, following acceptance an Owner's repudiation, to sue on a quantum meruit rather than for contract damages is supported by high authority of long standing.
2. What is allowed is the reasonable value of the work he has done and the money he has expended. As to the value of work, the Court said (at paras. 30-31):

"30 At trial and again on appeal, it was contended for the Principal that proof of the costs incurred in performing the work did not establish the value of the work.... It was also contended that there had been no proof by Kane that the costs were reasonable. In our view, these submissions should be rejected. First, it is well-established that the value of the work done can be proved by evidence of costs actually incurred....It is hardly surprising that this should be so. The (reasonable) cost of constructing a building seems a perfectly sensible measure of the value of the benefit conferred.... Ex hypothesi, the owner would have incurred that cost had it undertaken the construction itself.

31 Secondly, Kane's entire quantum meruit case was founded on the proposition that the costs the subject of the detailed evidence led were reasonably incurred...So much should have been readily apparent to those representing the Principal, as it was to the trial judge. The Principal chose not to put in issue the reasonableness of the costs - either in the pleadings...or by cross-examination of Kane's witnesses or by the calling of expert evidence to challenge the quantum claimed. Had that matter been put in issue, it would have fallen to Kane to seek to meet the challenge. That not having occurred at trial, it is not an objection which can be raised on appeal."

1. As to the allowance of a profit margin, the Court said (at para 35):

"35 The existence of the entitlement to a profit margin seems entirely consistent with the restitutionary objective of measuring the value of the benefit conferred. The inclusion of a margin for profit and overhead means that the calculation approximates the replacement cost of the works. As we have said, it is an appropriate index of value to ascertain what it would have cost the Principal to have had these works carried out by another builder in comparable circumstances".

1. As to recovery for work done on a variation that was irrecoverable under the contract in that case, the Court said (at para.43):

"If the work the subject of the variations has been carried out - and there was no dispute here that it had been - the only question is the fair and reasonable value of the work. It is irrelevant whether or not the work fell outside the original contractual scope. All that matters is that the performance of the work has conferred a benefit on the owner, for the reasonable value of which the builder should be remunerated."

1. Mr Reid submitted that a quantum meruit was not available because the amount to be paid was already determined by the Contract. In support of that general proposition he referred me to Lumber v. W. Cook Builders Pty Ltd [2008] HCA 27. Although I accept the correctness of the principle, it does not apply where the Contract has been determined because of the Respondents' repudiation of it (Sopov).
2. Quantum meruit is a restitutionary claim to recover a debt owing in circumstances where the law imposes or imputes an obligation or promise to make compensation for a benefit accepted (Pickersgill at para.97; Pavey & Matthews Pty Ltd v Paul [1987] HCA 5)
3. As to the nature of such a benefit, Miss Lardner referred me to Brenner v. First Artists Management Pty Ltd [1993] 1 VR 221 where Byrne J. said (at p.258):

"In my opinion, "benefit" in this context must be seen from the benefit of the recipient who is, after all, the person to be charged. It may be that for some idiosyncratic reason a defendant seeks the performance of work which another would see as without benefit , or indeed, as a positive dis-benefit.....But where a person requests another to so something , it is not unreasonable for the law to conclude that the former sees some benefit in its performance however wrong this view may be on an objective basis and for the law to act on the perception of the recipient."

1. The fact that considerable sums were wasted by the Respondents' decisions to change work that had already been done, discard windows that had already been purchased, do work in breach of the town planning permit that had to be demolished or in extravagant extras, does not mean that the Respondents did not benefit from having their requests complied with. Having requested the work they should pay for it.

1. The Builder has produced the invoices for all sums he has expended in labour and materials for all stages of the work, which amount to $540,957.50. In his report Mr Browning said that he considered that those payments were reasonably made. He also said that the amount sought by the Builder of 15% for margin and supervision was fair and reasonable. He said that 10% to15% would be a reasonable margin and that a further 5% to 10% would be reasonable for supervision for work of this type
2. During the hearing a number of invoices were acknowledged as not relating to the Unit, reducing the figure spent to $540,597.04. This includes the $15,000.00 advance and the costs of the enforcement proceedings which are not part of the quantum meruit claim.
3. The reasonableness of those costs was not put in issue, either by challenging the figures or by calling contrary evidence. Mr Smith's evidence dealt with defects, incomplete work and contract departures but did not deal with the reasonable cost of what the Builder had done. As a consequence of that, all I have is Mr Browning's evidence which I accept.
4. On the quantum meruit, I find that the Builder is entitled to be paid for the work and materials supplied, less the amounts to be allowed as damages on the counterclaim plus his margin of 15% and less what he has been paid.
5. In addition, and apart from the quantum meruit, the Builder is entitled to an order for the repayment for the following sums:
   • (a) $15,000 advanced to the Respondent;
   • (b) $13,747.90, being the Respondents' share of the cost of the enforcement and permit amendment proceedings.

1. Since I am satisfied that the Builder is entitled to recover what he has spent plus his margin on a quantum meruit it is unnecessary to proceed further and assess damages for breach of contract and I do not do so.

1. In his report Mr Pavlekovich-Smith raises what he considers to be
   • (c) departures from the Original Plans;
   • (d) items of work that he says are incomplete; and
   • (e) defects.

1. Much of his report is based upon the notion that the construction should have proceeded in accordance with the Original Plans. However, as already discussed, the parties had agreed to a great many changes to those plans and numerous revisions were made by the Architect and the engineer.
2. I find that the Respondents requested these changes and I do not accept the contrary evidence of Mr Muzaferovic. Not only are the Builder, Joseph and Mr Marke more credible witnesses, it would not have been possible for these changes to have occurred without the Respondents' knowledge, given that Mr Muzaferovic was constantly on site and also given the extent of his involvement in the construction.
3. I would add that there was no written evidence of any complaint by the Respondents about any of these changes prior to the termination of the Contract. In the end, upon the settlement of the enforcement proceedings and the permit amendment application, the revised plans were drawn up and endorsed by the Council, regularizing the construction. That settlement was agreed to by the Respondents.

1. The Respondents claim damages for delay.
2. The Contract Document provided that the work was to be completed within 270 days starting on the day of commencement of work (Clause 10.1 and Schedule 1). Liquidated damages of $150 per week were payable for late completion (Schedule 1 paragraph 9).
3. The deposit was paid on 16 March 2007 but the Building Permit for the base stage was not issued until 13 April 2007. However this stage included the storm water and drainage system and Work and the first substantial delay occurred when it was discovered that there was no main storm water pipe in the Council easement. The system that was then designed by the Respondents' engineer was approved on 28 June 2007 but the works were extensive and, according to the Builder, the system was not completed until "approximately December 2007".
4. The Builder claimed that there was a further hold up with the swimming pool which had to be constructed before construction further up the site could be undertaken. That was a work scheduling problem that should have been foreseen but according to the Builder, the Respondents delayed in deciding what they wanted. Since the reinforcement for the pool shell was inspected on 26 October 2007 it appears likely that the concrete for it had been poured by the time the drainage work was completed. The pool however appears to have been constructed by December and so, although there may have been two causes of delay, there was only one period of time involved.
5. The main cause of delay appears to have been all of the changes. The Builder estimated that these caused delays of from nine to twelve months. The evidence does not permit me to find whether or not that was reasonable, except to say that the changes were substantial, involving the pulling down and reconstruction of what had already been done.
6. The final delay was due to the Council stopping work on the site. Both sides are to blame for that; the Respondents for requesting the changes and agreeing to change the permit and the Builder, who should have known better, for implementing the changes before the amendment to the permit was obtained. That held up work until just before the Respondents purported to terminate the Contract.
7. There was a procedure set out in the Contract Document for the Builder to claim extensions of time (Clause 34) but, like every other part of the Contract Document, it was ignored. I am satisfied that there were grounds for the Builder to have claimed extensions of time and possibly delay damages but he did not do so. The Respondents likewise made no complaint about delay but asked for further changes that would cause further delay.
8. If the Contract Document has any binding effect, I think that the Respondents have waived any entitlement to liquidated damages for delay, because they:
   • (a) knowing that the work was delayed they allowed the Builder to proceed on with the work at and incur expense in doing so without any complaint;
   • (b) requested further work and changes to the work which would cause further delay and expense to the Builder; and
   • (c) acquiesced in the informal manner in which the parties proceeded with the construction, entirely ignoring the provisions of the Contract Document;

1. The defects identified by Mr Pavlekovich-Smith are set out in a Scott Schedule appended to Mr Browning's report of 8 April 2011. For ease of reference I adopt the numbering system used. My findings as to the Defects claimed are as follows:

Item D1.Frame to south party wall in subfloor out of alignment

The wall is out of alignment and the top and bottom plates have not been secured to the adjoining structure. Mr Browning pointed out that the wall was out of alignment because it was not fixed. That does not seem to be disputed. I think it is properly categorised as incomplete work. Of course the framing stage payment had been made and so the frame ought to have been completed. The problem though is that after the building surveyor had visited the site and formed his opinion that the frame "looked okay", further work was done to the frame to modify it to the Respondents' requirements. After the Builder was terminated, there were others on the site and there is no clear evidence of what they did. It would seem unlikely that if a wall had not been fixed at the time the building surveyor visited, he would not have noticed it. I am not prepared to find that there was an unfixed stud wall at the time the framing payment was claimed. I think it is unfinished work because there can be no doubt that, had the Builder not been excluded from the site this would necessarily have been attended to before the wall was plastered.

Item D2 (a)-(c) Water tank not supplied / or in wrong position

The Original Plans showed a 5000 litre tank at the rear of the property. As part of the stormwater drainage variation it was relocated under the Unit. I do not find this to be a defect. Mr Pavlekovich-Smith suggested that there were access problems to do with the current location and that a square tank should be substituted and the present round tank cut up and removed. I had no difficulty accessing the tank at the on-site inspection. The Builder's evidence was that the required pump well was too large to locate in the back yard and that it required an openable grate and an electrical control panel. He said that it was Joseph and Mr Muzaferovic who decided to locate them under their respective units. He said that the Respondents had then moved the tank to its current position. This is not a defect.

Item D3. Window heads not installed above windows and sliding door

It was acknowledged that the window heads were not installed and I agree with Mr Browning that this is incomplete work.

Mr Pavlekovich-Smith said this should have been done before the timber framing work on Level one commenced to avoid additional costs due to difficulty of access. He said that the grinding machine is large and heavy and would be hard to get down to the lower level later on. In his oral evidence he said that the grinding had to be substantial in order to expose the aggregate. The Builder denied any difficulty of access. Mr Browning said that the builder's decision to leave it to the end of the construction was appropriate because the finished surface may get damaged by construction work. This is a scheduling decision to be made by the builder and I do not see any defect. The grinding is not done but that is incomplete work.

Mr Pavlekovich-Smith points out that the stainless steel grate to the patio area has been omitted and criticised the level at which the water was to be collected from the lowest collection point. All this relates to the stormwater drainage system and the rear yard that had to be re-designed due to there being no pipe in the stormwater easement. It is a variation. I find no defect.

Item D7. Concrete landing steps to the internal stair

Mr Pavlekovich-Smith has said that because there was a special concrete mix and polished concrete on the floor these three stairs should have matched it. He said that it will be difficult to match the mix when landings are poured separately at a future date. The Builder relies on the plans which shows the stairs to be clad in stone. On that basis, it was unimportant when the stairs were laid. This is properly categorised as incomplete work.

This was specified to be double glazing of "Low E" glass. Instead, 6mm toughened glass has been installed. This resulted from the changes to the windows and sliding doors in order to save money. It is a variation and not a defect.

This is 85mm lower than the specified finished floor level and the ceiling level is 600mm higher than the designed height because the Living Room finished floor level is 835mm higher than designed. Mr Browning said that the level changes of the whole Unit were changed because, as designed, it exceeded the maximum height and set-back requirements of the planning scheme. He said that this impacted on the height differences between the upper and lower levels. The evidence was that all these changes were the result of extensive discussion and agreement on site between the Builder, Mr Muzaferovic and Joseph. Again, this is a variation not a defect.

The sitting room floor Level is out of level by 22mm across the room and 19mm to the northern areas of the room. Mr Pavlekovich-Smith pointed out that this is well in excess of the limits sent out in the Guide to Standards and Tolerances. Mr Browning says that he was instructed by the Builder that the floors were to be screeded level at completion to remove the variation in level and an epoxy finish was to be applied which would resolve the problem of out of level floors. I think the important point here is that it was a concrete slab that was to be ground and finished. The present surface is not the final surface. On that basis I think that this is incomplete work.

This was not installed in accordance with the manufacturer's recommendations. Mr Browning agreed that this was a defect and that the EzyClad system should be stripped and replaced with a Uni-Tex system or similar.

Mr Browning agreed that this was also defective. It will be rectified as part of the previous item.

The Builder attached a Harditex wall cladding ("Blueboard") to clad external walls in various locations. The Builder's instructions to Mr Browning were that this was used to provide temporary protection and it was to be replaced by a product called Sycon compressed cement sheet cladding which would be the basis for "Stack stone" cladding and this was used on the carport west wall. I think that the Builder's suggestion that this would put in temporarily is unlikely and I find a defect.

Mr Pavlekovich-Smith said that sub-sills were required to prevent water penetration and that these needed to be set into the slab. Mr Browning said that at the time of his inspection the doors and windows had all been replaced with new and that they had sub-sills. I do not know what to make of this claim. I accept that aluminium windows generally require sub-sills unless it is to be a completely sealed window system but it is unclear whether they were originally supplied or not because the windows have now been replaced by others. No defect in the work and materials supplied by the Builder has been established.

The top rows of boundary wall block brickwork have been demolished and the tops left open to water ingress. They need capping. This was not disputed but I find it to be incomplete work.

Item D16. No sarking or thermal insulation to verandah floor

No sarking or thermal insulation has been installed underneath the compressed fibre cement floor and sheeting to the verandah floor. This is acknowledged. Mr Browning points out that it would be installed after tanking has been done. Since it seems to be a matter of scheduling I find this is incomplete work.

The specifications required any exposed steel to be galvanised. Mr Pavlekovich-Smith pointed out that steelworks supporting the rear balcony are not galvanised but since they are intended to be clad and so would not be exposed I do not find a defect established.

Mr Pavlekovich-Smith has pointed out that the design intent of the architect was that aluminium windows and doors be installed flush against steel columns at the corners and the Builder has not done that. It was agreed to use cheaper windows to save money and, as a consequence, the design intent of the architect could not be realized. The change in appearance is the consequence of this variation.

Mr Pavlekovich-Smith says that the floor on Level 2 is 240mm lower than designed, the timber deck is 965mm higher than designed, the finished floor level of the kitchen is 915mm higher than designed and the finished floor level of the living room is 835mm higher than designed. All of this was acknowledged. According to the Builder's evidence this was driven by two considerations. First, the substitution of a timber floor for a suspended concrete floor and the fall of the land which was not as shown on the plans. The floor levels were then, he said, adjusted to take account of these differences and preserve the stairways. As a consequence, as pointed out by Mr Pavlekovich-Smith, the side wall of the kitchen had to be chamfered to keep the building within the envelope. The construction as built is now in accordance with the final plans sealed by the Council. This a variation and not a defect.

Mr Pavlekovich-Smith refers to numerous respects in which the levels of the floor do not accord with the Guide to Standards and Tolerances 2007 edition. However it is the former edition that is relevant and in that regard, Clause 12.5 provides:

"Generally, the floor is to be within plus or minus 10mm of level over the entire room and at all times within plus or minus 5mm of level over any three metre length within the first 24 months".

Mr Pavlekovich-Smith says that the kitchen and sitting room are out of level by 19mm over 9 metres. This breaches the earlier Guide as well as the 2007 edition referred to by Mr Pavlekovich-Smith. Mr Browning said that his instructions from the Builder were that the floors were to be screeded level at completion to remove the variation and an epoxy finish applied. It was not suggested that this was provided for in the contract documents or by any variation. I find that the out of level floors are a defect.

Item D21. Gap between flooring and kitchen sliding door

There is a 30mm gap that needs to be made good. This was acknowledged by Mr Browning but it relates to the instructions of Mr Muzaferovic to refit the door so that the top of the sill was level with the particle board flooring. Making good the resulting gap would be part of that and I think that this is properly regarded as incomplete work.

Item D22. Sarking and insulation to Level 2 balcony

For the reasons already given in regard to the other balcony I think this is incomplete work.

Item D23. No capping to mini parapet on north west corner of courtyard

This was not denied. It seems to be incomplete work but it has to be replaced anyway when the polystyrene cladding is replaced.

Stormwater is running down the face of the walls. According to the Builder the flashing has not been completed. This is incomplete work.

The levels given by Mr Pavlekovich-Smith would exceed those specified in the relevant Guide to Standards and Tolerances. I accept this item. I do not accept the Builder's explanation that it was to be rectified by screeding and an epoxy finish. I find the defect proved.

This is the feature window at the front of the Unit facing the street and the criticism is that no over-flashing was installed. The plywood was a substrate over which shingles would have been placed and the capping would have been placed over the shingles. This is incomplete work.

I find that the gap should not be there and that it is a defect. However, since it is acknowledged that the polystyrene cladding has to be replaced it is of no practical consequence.

This is a variation. Steps installed by the Builder were temporary and so the steps are incomplete work.

1. A further issue was raised by Mr Pavlekovich-Smith in regard to efflorescence he observed at the base of the masonry boundary wall in a store room. He said that this indicated that water was flowing through the block work at this location.
2. Mr Browning said that there was a low level of efflorescence in the store and sub-floor areas only and that these were not habitable rooms.
3. Mr Pavlekovich-Smith explained how the wall should have been built and waterproofed. The Builder said that he built it in the manner described, with a membrane and drainage at the base of the footing. He said the bricks were laid overhand three rows at a time so as not to disturb the waterproofing. In the absence of further investigation there is insufficient evidence to establish a defect in regard to this efflorescence.

1. It is acknowledged by both sides and also quite apparent that the Unit is incomplete. Mr Pavlekovich-Smith said that he was not intending to identify every respect in which it is less than a complete but was pointing out the work that he believed should have been done by the time the lock up stage was claimed.
2. The amount to be awarded to the Builder is on a quantum meruit basis. It is unnecessary to consider or quantify incomplete work because it will not feature in the calculation of the amount to be awarded. However for completeness I should say that the items Mr Pavlekovich-Smith identified are as follows:
   • (a) The external concrete stairs and stone clad columns to the rear of the unit have not been completed;
   • (b) The water tank is not where the plans prescribe but is under the floor of the Unit;
   • (c) Window heads have not been installed above windows and sliding doors;
   • (d) Grinding and polishing of the concrete slab should, he said, have taken place before framing works. I have already commented on this item;
   • (e) Stainless steel grate to the patio has not been provided;
   • (f) The concrete landing to the internal stair was not constructed;
   • (g) Glazing to the sliding doors is not double glazing;
   • (h) The Easyclad frame cladding is incomplete;
   • (i) Harditex blueboard cladding is incomplete;
   • (j) The soffit lining in the various soffits and ceilings is incomplete;
   • (k) Some framing items remain incomplete. This is difficult to assess due to the presence on site of the replacement builder who, according to Mr Muzaferovic, did some substantial work on the frame;
   • (l) Installation of sarking and thermal and acoustic insulation (This will go under the Easyclad foam cladding);
   • (m) Render works to block work incomplete;
   • (n) Stacked stone cladding not complete;
   • (o) Roof flashing cap, capping and roof metal work incomplete;
   • (p) Compliance with the enforcement order. This is something that Mr Muzaferovic apparently does not want to comply with. He says that his neighbour does not object to the changes in question. That will be a matter between the Respondents and the Council.

1. Mr Pavlekovich-Smith has identified a number of contract departures. As well as cost of rectification he suggested that some changes, if authorized, would warrant credits to the Respondents. Because the amount to be awarded is only for what the Builder has done and not for what he has not done, no credits are due. The contract departures alleged are as follows:

Footings, retaining walls and suspended slab for stair landing omitted. It was acknowledged by the Builder that the stair landing and stairs have not been constructed as shown in the Original Plans and that the levels are quite different from those shown. However I accept that these were the result of changes to the back yard requested by Mr Muzaferovic. The amended plans at Tribunal Book ("TB") 702.21 and at TB 693 endorsed pursuant to the amended Town Planning Permit show a single level at the back yard and the steps as were later constructed by the Respondents. This was a variation.

In situ concrete stair from patio to the landing and from the landing to the verandah are omitted. That is also acknowledged and is as a result of a variation. The amended plans (see TB 693 and 702.21) show no landing. The stairs are shown but not what they are to be made from. The steps in the Original Plans were to be made of concrete but steel steps were later constructed by the Respondents. This was a variation.

Steel framing to the verandah to accommodate connection of the concrete steps omitted. There was an architectural detail as to how this was to be finished involving a strip drain and the support of a glass wall. It is acknowledged that that has not been constructed. The present steel stairs were constructed by the Respondents. Mr Browning said that the architect's detail was deficient and could not be constructed because it did not take account of the shapes of the various components. Mr Pavlekovich-Smith said the difficulties could have been accommodated. I think this was incomplete work.

The first three concrete steps to the internal stair omitted. This is the same item as the alleged defect mentioned above. The steps were to be stone clad and rendered. The rendering and cladding has not been done. That is incomplete work.

Stepped solid wall with stone cladding not constructed. The wall has not been clad. That is incomplete work.

An obscure glass privacy screen required by the original plans within the north boundary wall omitted. That is acknowledged. Mr Browning said that the Builder claims that this was a variation required by the engineer. Elevation 03 on the endorsed architectural plan on TB 697 shows a solid wall. That being so I find no defect.

Portion of the concrete slab to the end of the pool and adjoining steps were omitted. This is again part of the variation to the agreed re-arrangement for the backyard reflected in the endorsed plans...

Level one floor level and the patio level are lower than required by the Original Plans. This has already been referred to above. I am satisfied that the changes to the floor levels were agreed and the position is now regularized in the endorsed amended Town Planning drawings. This was a variation.

The block work of the retaining walls to the patio area is omitted. The Builder has constructed the whole wall from brick. Since the wall is nonetheless masonry and is to be clad with stone no practical consequence is demonstrated. The absence of cladding is incomplete work.

Omitted block work and suspended slab feature column. The column has not been constructed. Miss Lardner suggested that this was incomplete work but it seems to me to be a consequence of the redesign of the back yard. It was part of the original step plan and the final endorsed plans do not show it. It was a variation. If it had not been it would have been incomplete work.

The step from sitting room to the patio is in the wrong position and the sliding door and bottom rail are not rebated into the slab. The drawing relied upon in support of this claim was not a contractual drawing. There was also a dispute as to how this would be constructed. No design was provided by the architect as to how it should be done. Mr Browning also pointed out that in Section N10 the sill was not shown as being rebated into the slab. I am unable to make a finding that this is a breach or as to if or how the rebate, if required, could have been done.

Pre cast concrete panel wall substituted by block work. After some confusion between the experts this matter was resolved in favour of the view of Mr Pavlekovich-Smith. According to the Original Plans, the boundary wall in question ought to have been constructed of pre-cast panels whereas in fact it is constructed of filled block work. As well as supporting its own weight the wall in question is a supporting wall. After some discussion the experts concluded that this would require the certification of the engineer to ensure that what was built was structurally sufficient. No other consequence was suggested. In her submissions Miss Lardner includes a comment by the Builder to the effect that the change was agreed to and that it was due to difficulty of access for a crane. He did give evidence as to difficulty of access to this part of the site but that was only in relation to the construction of the swimming pool. The matter appears to have been resolved by the approval of the engineer to be found in the revised engineering drawings at TB 702.15 Section S 2.1 which specifies a reinforced concrete block wall. Ultimately, this boundary wall as constructed was part of the final endorsed plans agreed to by the Respondents. As such, I find no defect.

Multitude of footing departures as a consequence of above departures and substitutions. The lack of specificity here indicates that this is a comment.

The window in powder room has opaque glazing in lieu of clear, two panels in lieu of a single panel; windows numbered W02 similarly changed and windows and doors have Bradnams frames in lieu of Capral 40 narrow line series. I am satisfied that the windows were changed by agreement. This was a variation.

The windows specified were very expensive commercial grade windows and cheaper windows were substituted by agreement. This was a variation.

The substituted windows specified have not been covered with medium anodized bronze aluminium cladding but have been powder coated. According to the Builder's evidence it would have added an additional $30,000 per unit to anodize the windows in bronze. He said that it was agreed to have powder coated windows as close as possible in colour to save money. I find this was a variation.

Part of a stair landing has been omitted and the kitchen has been correspondingly enlarged. The Builder said this was done because the Respondents wanted to increase the size of the kitchen. It is a variation.

This was due partly to the change in the landing and partly due to the change of windows. Both changes were agreed to by the Respondents. It is a variation.

Mr Pavlekovich-Smith said that the entire stair detail was compromised due to the alteration of levels. That is undoubtedly true but the change in levels was agreed. It is a variation.

This is a repeat of Item C12. . I am unable to make a finding that this is a breach.

This was a consequence of the deletion of the internal garden and fireplace and the change to that part of the design that was requested by Mr Muzaferovic to increase the living room area. It is a variation.

Two skylights located within planter and providing natural lighting omitted. This is a consequence of the same variation.

Windows in the design garden area omitted This is a consequence of the same variation.

The south wall to the living room is changed. This is a consequence of the same variation.

The fireplace has been omitted. According to Mr Browning it would be supplied after lock up and so would be incomplete work. However its omission is, in any case, a consequence of the same variation.

Shelving structure to living room omitted. The same comment applies as for the last item.

Windows and doors have Bradnams frames instead of Capral frames and 6mm "Low E" glass instead of double glazing. The Builder alleges that many of the doors he supplied were in fact double glazed. I do not need to determine that dispute because the Respondents agreed with the substitution of the windows to save money. It is a variation.

The kitchen floor was to be concrete but a timber floor was constructed. This has already been referred to and was a variation.

Floor levels have been changed. This has been referred to above. It is a variation.

The garden bed and other features in the courtyard have been replaced with a graded concrete paving and timber deck. I am satisfied that this was an agreed change and has now been regularized in the endorsed plans. It is a variation.

A timber fence 1,800mm high on top of retaining wall is shown in the contract drawings. Instead, a masonry brick wall has been constructed. I find that this was requested by the Respondents. As part of the settlement with the Council this is to be reduced in height. The change was requested by the Respondents. It is a variation.

The concrete water feature was required by the Original Plans to be cast in concrete but it has been constructed instead of core-filled block work which the builder intended to tank. Construction of the feature is at an early stage and as such, it is incomplete work. What has been built matches the architectural drawing 004 (TB164) but core-filled block work is not what page S4 of the engineering plans required (TB 155). Mr Browning said that the method of construction adopted was commonly used and that did not appear to be disputed by Mr Pavlekovich-Smith. A section (2.6) on page S4 of the amended engineering drawings (TB 702.16) now shows the method of construction the Builder has used. Because of the involvement of Mr Muzaferovic in the construction process I am satisfied that he was aware of the method used. It was also in accordance with the original architectural plans and the amended engineering drawings. I find no defect.

The verandah has not been constructed to accommodate a frameless glazed balustrade and grated drains. Mr Browning said that this was a design error. There was a lot of discussion between the experts about this item. It appears that the detail could not have been built without modification and that the Builder would have needed to obtain instructions from the architect and engineer on how to deal with the problem. It seems from the evidence that the necessary provision could be made after those instructions were obtained and so I think this is incomplete work.

These were a sun control measure provided in the Original Plans. According to the Builder this was a variation to save money. They were deleted on the final endorsed plans.

The kitchen ceiling has been sloped to keep the building within the envelope. This was as a consequence of the change in floor levels. That has already been dealt with above. It is a variation.

There was to have been a pivoted glass door to provide maintenance access to the water feature. Instead there is a fixed window in that position. Access for maintenance must now be obtained under the timber deck. In general, because the changes to the doors and windows were requested by the Respondents and because of his constant attendance on site Mr Muzaferovic must have been aware of this change. The Builder pointed out that, due to the change in levels, stairs would have been required to access the water feature via the glass door if it had been built. Mr Browning said that a landing would have been required to have been constructed within the water feature area. Mr Pavlekovich-Smith acknowledged these problems but said that the door could have been kept locked and only used for service access. It is not simply a small service access door that is shown on the plans. Architectural drawing 004 in both the Original Plans (TB 164) and the final plans (TB 702.22) shows a full length and full width frameless glass door. I accept the evidence of Mr Browning and the Builder that, given the change in levels it could not have been lawfully constructed without a landing and steps on the other side which would have intruded into the water feature and light well. Its replacement with a window was therefore a consequence of the changes made to the levels. The window that has been constructed in its place is aesthetically pleasing whereas a door in that position with a landing as described by Mr Browning would have destroyed the appearance as well as the function of the water feature and light well. I think that this is part of the wider variation to do with the floor levels.

There were supposed to be steel stairs over the water feature. The steel frame has been built but only timber treads have been put on them. There is also no steel handrail. The number of stairs has been reduced, due to the change in levels. Both the treads and the timber hand rails did look temporary to me. I accept Mr Browning's evidence that this is incomplete work.

The original plans called for the windows to be anodised. Instead they have been powder coated. This was a variation to reduce costs.

This window was to have been four panels with an awning opening from the bottom. I am satisfied that the windows were changed by agreement. It is a variation.

The party wall between the units was to be stepped but it is raked at present. The Builder said that it would have been stepped before completion. Whether or not it would have been, the Builder has been denied the opportunity of doing it. This is incomplete works.

This is to do with the window substitution and has already been dealt with. It is a variation.

This has already been dealt with in C 8 above. It is a variation.

The landscaped area in the carport was replaced with a concrete slab. .This was at Mr Muzaferovic's request as detailed above. It is a variation.

Item C 50 & 51 North boundary and car port fence replaced with wall

I am satisfied that this was done at the request of Mr Muzuferovic. The endorsed plans (TB696) show a "brick fence".

It is claimed that, after the Builder left the site, an additional "I" beam needed to be put in to stiffen the floor. Mr Pavlekovich-Smith said that the beams for the floor were put in the wrong way. Mr Browning disagrees and said they were correctly installed. This claim is partly based upon a report of Mr Atchison, another building expert and an engineer, who was not called to give evidence. His report was appended to that of Mr Pavlekovich-Smith. The Builder denies the claim and I am referred to an invoice at TB1235 with a view to establishing that this beam was installed by the Builder but the document was not explained to me and I cannot make anything of it except that it shows a delivery of steel to the Builder. Given the conflict of the expert evidence that I have and in the absence of further evidence on this issue from the Builder and Mr Atchison I cannot make any finding. The framework in this area had not been covered and so if it were simply the absence of a beam that would seem to be incomplete work.

It is said that two raised paved areas at the stair entrance at the front of the property have been replaced by one raised paved area. It was suggested that this was a variation, although it appears to me that the plans do not specify two separate pads. There is a garden bed to go in that area but that is incomplete work.

It is claimed that the brick party wall has to be modified between the carport and the front boundary to accommodate the metre box. Mr Browning said there was no .instruction on the plan as to where it should be placed. I accept Mr Browning's evidence that the location is acceptable. I find no defect.

Floor levels to Bedroom 2, Bedroom 3 adjoining passage to Level 3. This relates to the levels issue and it follows on from the levels of Level two dealt with at C 32 & C 34 and Level one dealt with at C 8. It is a variation.

These were a sun control measure provided in the original plans. According to the Builder this was a variation to save money. They were deleted on the final endorsed plans. It is a variation.

Item C.58 Obscure glass screens omitted Level three

Obscure glass screens were to be installed on either side of the balcony but they have been omitted. The area in question is sheeted with blue board but since that area, as distinct from the surrounding areas, have not been rendered, the Builder's claim that he was intending to supply the screens is credible. This is incomplete work.

The balcony on Level three has not been constructed according to construction details. This raises the same issues as item C 38 and the same findings are made.

Bedroom 1, and adjoining walk-in robe, north walls are to be set further off the north boundary by 390 mm due to floor levels, areas of floor, light well and wardrobe diminished. Mr Pavlekovich-Smith said however in his report that the area of the bedroom overall had increased but that its architectural ambience and its effect upon Level two design features was significant. These changes are said to be due to the need to comply with the consent order of the Tribunal. However that order was agreed to by the Respondents. Any work following that settlement must have been done by others because the Builder was excluded from the site before he could resume work. This issue is based upon Mr Atchison's report and he was not called to give evidence. Insofar as this was to comply with the settlement of the proceedings before the Tribunal, the Respondents agreed to it. Insofar as it is due to the changes in levels, that was an agreed variation. Apart from that I cannot make any finding.

Items C.61 Bedroom 1 dimensions and then impact on Level three

Bedroom 1, and adjoining walk-in robe, north walls are to be set further off as screens were to be installed on either side of the balcony but they have been omitted. The area in question is sheeted with Blueboard but since that area, as distinct from the surrounding areas, have not been rendered, the Builder's claim that he was intending to supply the screens is credible. I find this to be incomplete work.

Items C.62 to C 65 Changes to windows on Level three

I am satisfied that the changes to the windows were at the request of the Respondents. This is a variation.

The spandrel has not been completed. Quite obviously, that is incomplete works.

The dimensions of these areas have been diminished for the same reason as the works to Bedroom 1. This would appear to be to comply with the consent order of the Tribunal. It is not as a result of defective work by the Builder.

Items C 68. Change of Level three windows to Bradnams

This issue is discussed above and the same findings are made.

This is a repeat of C18 and the same comments are made..

The walkway is said to have been modified so that it no longer resembles the design. That comment could be applied to a great deal of the Unit but I am satisfied that the changes to the walkway were agreed to by the Respondents. It was incomplete when the Builder was terminated but that is incomplete work

This is a repeat of C 44 and the same finding is made.

These are a repeat of C 42 & C 43 and the same findings are made.

These were set out in Mr Atchison's report but he was not called. He also did not inspect the frame until well after others purported to work on it. I am unable to make any finding as to defects in the frame, whether due to the Builder or to others.

Timber fascia half round profile Colorbond spouting specified in the original plans have been replaced with metal fascias and quad profile spouting. It was not suggested that any loss arose from the substitution. An elevation in the final plans (TB 702.24) shows Colorbond roof sheeting gutters and downpipes but does not seem to specify the profile. The fascias are to be rendered. Another elevation (TB 702.26) shows Colorbond Fascia. It would appear that the Respondents agreed upon the Colorbond fascia and that what is there is what the final plans require.

It is agreed that this is defective and will be replaced.

The original plans required doors to be 2400 high where ceilings were raked. The doorways were constructed for lower doors. This was acknowledged. The doorways will need to be extended in order to comply with the Original Plans. Since no doors have been fitted it was acknowledged that the cost of doing that would be modest. This is a defect.

1. Since there were so many allegations of defective work and departures from the Contract I ruled during the hearing that I would make findings as to the defects and then permit further evidence to be led in regard to the rectification cost of whatever defects I found. The defects established are:
   • (f) Item D11& D12. Strip and replace foam cladding and acrylic render.
   • (g) Item D13. Remove Harditex wall cladding from external walls and replace with Sycon compressed cement sheet cladding or some other suitable material
   • (h) Item D20. Level the floors of the sitting room, living room and kitchen on Level two.
   • (i) Item D25. Level the floors of Bedroom one, Bedroom two, Bedroom three and the rumpus room.
   • (j) Item C 77. For door openings where ceilings are raked, extend each door opening to accommodate a door jamb for a door 2400mm high.

1. The invoices produced by the Builder total $540,597.04. That figure includes the amount of $15,000 lent to the Respondents by the Builder and the sum of $13,747.90 for the legal and consultants' fees incurred on behalf of the Respondents in regard to the enforcement and permit amendment proceedings. Those are not building cost items and so the margin of 15% does not apply.
2. From the balance of $511,849.14 there must be deducted the amount of the damages to be assessed with respect to the items of defective work identified above. To that must be added a margin of 15%. After deducting from the total what the Respondents have already paid, which is $177,000, the balance will be awarded to the Builder along with the said sums of $15,000 and $13,747.90 as aforesaid.
3. Before final orders can be made, the damages on the counterclaim must be assessed.

1. I will make the following findings:
   • (k) that cost of the work and materials the Builder has supplied to the Respondents is $511,849.14,
   • (l) that the Respondents have paid to the Builder amounts totalling $177,000.00.
   • (m) that the Builder is entitled to an order for the payment of the value of the work and materials which shall be the cost of the work and materials plus a margin of 15%. The value of the work and materials shall be calculated by deducting the damages to be assessed on the Counterclaim from the sum of $511,849.14, and adding the margin as aforesaid;
   • (n) that the Builder is entitled to be paid the following further sums by the Respondents:
     • (i) $15,000.00, being the sum advanced to them by the Builder;
     • (ii) $13,747.90 being the legal and consultants' fees incurred on behalf of the Respondents in regard to the enforcement and permit amendment proceedings.

1. I shall also order that any further experts' reports relating to the quantification of damages to be allowed for the defects listed in these reasons must be filed and served by 18 November 2013. Each such report shall be verified on affidavit by the expert concerned. Following receipt of any such report, final orders shall be made.
2. There shall be liberty to apply generally and also liberty to apply to cross-examine any expert on a report filed pursuant to the last preceding paragraph. Costs shall be reserved.