Visual Building Construction Pty Ltd v Armitstead [2019] NSWCA 280 | Case summary

Court of Appeal (NSW)|2019-11-11|Before: Bell ACJ, Macfarlan JA, White JA

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[This headnote is not to be read as part of the judgment] In proceedings brought in the District Court of New South Wales, Mr David Armitstead and Ms Maria-Luisa Patisso, the respondents in the current proceedings, sought damages for breach of a twice varied building contract (the Contract) with Visual Building Construction Pty Ltd (the appellant) for the construction of two duplex buildings on a block of land in Caddens, NSW. The respondents had purported to terminate the contract due to the appellant's failure to complete the works by the date for completion specified in the Contract, its failure to obtain the required Construction Certificate and its failure to rectify defective works. The primary judge held that the respondents had validly terminated the Contract, and entered judgment in their favour in the sum of $651,536. The appellant filed an appeal, contending that the primary judge erred in finding that the Contract had been validly terminated, as the respondents had not provided the required 10 business days' notice prior to termination to allow for the defaults to be remedied. By notice of contention, the respondents argued that there were grounds additional to those relied upon by the primary judge which supported the valid termination of the Contract. The Court held (Bell ACJ, Macfarlan and White JJA agreeing), dismissing the appeal with costs: 1. The primary judge did not err in finding that the Contract was validly terminated. To the extent that the Contract imposed any requirement to give 10 business days' notice prior to termination, such a requirement only applied if the default was capable of being remedied within this period. The primary judge correctly found that, as a matter of fact, at least one of the defaults relied upon to justify termination of the contract was incapable of being remedied within that 10 day period: [31]-[36] (Bell ACJ); [40] (Macfarlan JA); [41] (White JA). 2. Even if the Contract had not been validly terminated, however, the respondents were entitled to damages for breach of contract, as the appellant had failed to obtain a Construction Certificate prior to commencement of the works, or at all, as required under the relevant Development Consent. No challenge was made to the assessment of the award of damages for breach of contract: [5], [37] (Bell ACJ); [40] (Macfarlan JA); [41] (White JA).

Judgment

BELL ACJ: This is an appeal from the decision of Sorby ADCJ (the primary judge) of 21 August 2018. His Honour entered judgment in the sum of $651,536 for Mr David Armitstead and Ms Maria-Luisa Patisso, the plaintiffs in the court below and the respondents in these proceedings. The primary judge also held that the respondents had validly terminated a twice varied building contract (the Contract) with Visual Building Construction Pty Ltd (the appellant) for the construction of two duplex buildings on a block of land in Caddens, NSW.
In the only ground of appeal pressed, the appellant contended that the primary judge erred in finding that the Contract had been validly terminated.
By notice of contention, the respondents argued that there were grounds additional to those relied upon by the primary judge which supported the valid termination of the Contract.
In my opinion, the appeal should be dismissed. As will be seen, there were a number of distinct grounds by reference to which the Contract was validly terminated, and no error has been demonstrated in the judgment of the District Court.
More fundamentally, however, the respondents' claim was one for damages for breach of contract. Even if the Contract had not been validly terminated, it remained the case, and was not put in issue by the appellant, that the Contract had been breached most obviously, as shall be seen, by the failure of the appellant to obtain a Construction Certificate prior to commencement of the works, or at all. There was no challenge ultimately pressed to the primary judge's assessment of damages for breach of contract, although this had been a ground in the Notice of Appeal. The availability of those damages did not depend upon termination of the Contract.

The Contract

The Contract was entered into on 11 December 2013. Under the Contract, a Mr John Mhanna was described as "Project Supervisor".
Clause 4 of the Contract provided: "The Project Supervisor must diligently proceed and complete the work within 18 calendar weeks from the date the work is due to commence. The period of time allowed for completion has taken into account any public holidays and other days when it is known that work will not be performed. The time for completion may be subject to amendment in accordance with Clause 5."
Clause 12 of the Contract provided: "Unless obtained by one of the parties prior to the date of the contract, the Project Supervisor must promptly apply for and bear the cost of all necessary application fees for approval of the work. The Project Supervisor must also apply for and obtain at its expense all approvals required from any public authority to occupy and use the completed work. The cost of doing so and all fees are included in the contract price. The contract price does not include the cost of local government security deposits and these must be met by the owner."
Clause 15 of the Contract provided: "If the Project Supervisor: • Is unable or unwilling to complete the work or abandons the work; • Suspends the work before completion without reasonable cause; • Fails to proceed diligently with the work; • Fails to remedy defective work; • Without reasonable cause, fails to comply with an order or direction of a public authority with respect to defective or incomplete work, which would substantially affect the quality and/or progress of the work, the owner may, if such default can be remedied, notify the Project Supervisor in writing that unless the default is remedied within 10 business days, the owner will terminate the contract. If the default cannot be remedied, the owner may terminate the contract by giving written notice to this effect to the Project Supervisor. If the owner terminates the contract due to fault of the contractor, any unfixed materials or fittings on the site may be retained by the owner. No unfixed materials or fittings shall be removed from the site by the Project Supervisor." (emphasis added).

Development consent

By letter dated 24 June 2014 addressed to the second respondent, Penrith City Council enclosed a copy of a Development Consent and stamped approved plans. The letter advised that construction could not commence until such time as a Construction Certificate had been issued.
Clause 6 of the conditions of Development Consent provided that "[a] Construction Certificate shall be obtained prior to commencement of the remaining building works."
Section 109F(1A) of the Environmental Planning and Assessment Act 1979 (NSW) (the Act), as it then was, provided that a Construction Certificate has no effect if it is issued after the building work or subdivision work to which it relates is physically commenced on the land to which the relevant development consent applies.
It was not in issue that the appellant never obtained a Construction Certificate in respect of the works the subject of the Contract.

Variations to the Contract

During 2014, the respondents complained to the appellant about what they considered to be problems arising during the construction of the dwelling, with such concerns including the size of the ensuite bathroom and the wrong size steel beam being used in this construction. The respondents complained to the Department of Fair Trading (the Department) in November 2014 about the lack of progress on the building.
The Department issued a rectification order on 27 January 2015 (the rectification order).
On the following day, the respondents and the appellant through its director, Mr Youssef Shehata (Mr Shehata), entered into a variation of contract by which the appellant agreed to comply with the rectification order and to fix all building defects as contained in an independent building report to be provided by the respondents.
A second variation of the Contract was entered into on 18 May 2015 (the Varied Contract). Clause 13 of the Varied Contract contained a lengthy list of outstanding, incomplete or defective work as at 6 May 2015.
Clause 3 of the Varied Contract provided that: "The builder must diligently proceed and complete the work and all defects listed in Clause 13, within the agreed 4 calendar weeks from the first meeting with Engineer Kneebone, Beretta & Hall Pty Ltd which will take place w/c 18th May 2015. Once the engineers meeting has taken place, the owner will email the builder the new completion date. The period of time allowed for completion has taken into account any public holidays and other days when it is known work will not be performed. The time for completion may be subject to amendment in accordance to Clause 4." The email referred to in this clause was sent on 8 June 2015.

Notice of Intention to serve Order 19

On 5 June 2015, the respondents received a Notice of Intention to serve an Order 19 (Order 19 Notice) pursuant to s 121B of the Act. That Notice relevantly provided: "Council has conducted investigations on the premises regarding the development at xxx Cadda Ridge Drive, Caddens. The investigation and a search of Council's records indicate that there has been no Construction Certificate obtained for the development work being carried out with Development Consent (DA14/0269) dated 20 June 2014. Council is advising you of its intention to serve an Order Number 19 under the provisions of Section 121B Environmental Planning and Assessment Act 1979 to immediately cease all the building work being carried out at the property identified to be Lot 149 DP 1172506, xxx Cadda Ridge Drive, Caddens."
The terms of the Proposed Order were as follows: Proposed terms of Order Timeframe
Cease all building work being carried out at the property known to be Lot 149 DP 1172506, xxx Cadda Ridge Drive, Caddens Immediately
Prior to commencing any further development work, obtain a Building Certificate for the unauthorised work; and Within 7 days of the date of the Order
Obtain Construction Certificate as required to complete the development work. Before any further work is undertaken on the site

The reasons for the Proposed Order were stated to be as follows: "A. On 20 April 2015 Council Officer lndar Singh conducted an inspection of the premises at Lot 149 DP 1172506, xxx Cadda Ridge Drive, Caddens in relation to an enquiry regarding the construction site; B. The inspection revealed that development work on the site has commenced and reached up to the roof level. C. A search of Council's records indicates that Development Consent (DA14/0269) was issued dated 20 June 2014 for 'ResidentialConstruction of two storey semi-detached dwellings and associated Torrens Title Subdivision'; D. A further search of Council's records confirms that no Construction Certificate has been issued or obtained for the work being carried out on the property; E. I contacted Mr Joe Shehata of Visual Building Constructions Pty Ltd, builder responsible for the site and informed him of the enquiry and also asked him if he has obtained a Construction Certificate as required by condition 6 of Development Consent (DA14/0269) dated 20 June 2014 which stated, 'A Construction Certificate shall be obtained prior to commencement of the remaining building works.' F. The builder Mr Shehata confirmed that, 'Omar Zaher of A R Building Certifiers has issued the Construction Certificate and he does all the inspections for the development.' G. A telephone conversation with Omar Zaher of A R Building Certifiers has confirmed no Construction Certificate has been issued for the development at Lot 149 DP 1172506, xxx Cadda Ridge Drive, Caddens; H. This is a contravention of condition 6 of Development Consent (DA14/0269) dated 20 June 2014 under Section 76(A) (1)(b) of the Environmental Planning and Assessment Act 1979; I. It is in the public interest that all the work on the subject site cease until all the necessary approvals are obtained."
The Order 19 Notice and terms of the Proposed Order were provided immediately to the appellant by the respondents.
Notwithstanding this, no steps were taken by or on behalf of the appellant to obtain a Building Certificate or a Construction Certificate. It may be noted at this point that a Building Certificate, if obtained, would operate to preclude the Council from making an order or taking proceedings for the making of an order or injunction under the Act or the Local Government Act 1993 (NSW) requiring the building to be repaired, demolished, altered, added to or rebuilt: s 149E(1)(a) of the Act.

Termination of the Contract

On 13 July 2015, the respondents issued a formal Notice of Termination of the Contract. Clause I of this document recited that: "The Builder has defaulted under the terms of the Second Contract in that:- i) The Builder has failed to complete the works by 2 July 2015 being the date for completion under Clause 3 of the Second Contract; ii) The Builder has failed to obtain the necessary approvals from Penrith City Council for a Construction Certificate; iii) The Builder has failed to rectify the defective works as defined by the Second Contract; iv) The Builder has failed to proceed with due diligence; v) The Builder has breached the Statutory Warranty Provisions of the Home Building Act in that the work was not done in accordance with and or complied with the Home Building Act or other Law." Note that the reference to "Second Contract" is a reference to the Varied Contract, as outlined above in [17].
On 23 March 2017, the respondents commenced proceedings in the District Court of New South Wales seeking damages. The appellant put in issue in its defence the validity of the termination of the Contract.
It should also be noted that, in late February 2018, the Council refused the respondents' application for a Building Certificate in respect of the works that had been carried out as at the date of the termination. The Council's reasons for refusing to issue a Building Certificate were that: "1. The partially constructed building located at Lot 149 DP 1172506, xxx Cadda Ridge Drive, Caddens has been erected without prior construction certificate approval in a case where a construction certificate is required. 2. The engineers report no.HB 15/11481 issued by Barnson Pty Ltd for the partially constructed building at Lot 149 DP 1172506, xxx Cadda Ridge Drive, Caddens indicates that the footing slab is non-compliant with the design drawings in terms of provision of piers, lack of brick joints, reduced number of internal beams and concrete placement. 3. The engineers report no.HB 15/11481 issued by Barnson Pty Ltd for the partially constructed building at Lot 149 DP 1172506, xxx Cadda Ridge Drive, Caddens recommends demolition of the structure."
Further, on 1 March 2018, the Council issued a demolition order in respect of the work that had been unlawfully undertaken by the appellant.

Proceedings at first instance

The essence of the appellant's defence in the proceedings at first instance was that the termination of the Contract was defective because it was said that cl 15 of the Contract, extracted above at [9], required 10 business days to be provided to remedy defaults before the Contract could be terminated, and that the Notice of Termination had not allowed this period, or indeed any period of time, to remedy the alleged defaults.
In rejecting this argument, the primary judge held at [23] that "[t]echnically it would not have been possible for the [appellant] to remedy faults as the completion date for the project on 2 July 2015 had passed." He went on to hold at [24] of the judgment that: "More importantly the builder would not have had the time in 10 days to comply with Penrith City Council demands, in its notice of 5 June 2015 … to obtain the necessary documents that is a construction and building certificate. Further as was submitted by Mr Hand, the fact that the [appellant] could not comply with Council's demand in its 5 June 2015 notice, to obtain the necessary approvals is evidenced by: (a) the Council's subsequent refusal on 22 February 2018 to issue a building certificate in respect of the works that had been carried out as at the date of termination of the contract; (b) the Council's demolition order of 1 March 2018."

Arguments on appeal and notice of contention

The appellant in substance repeated its unsuccessful argument at first instance that the termination was not valid because 10 business days' notice had not been given to remedy the defaults detailed in the Notice of Termination.
To the extent that cl 15 of the Contract imposed any requirement to give 10 business days' notice prior to termination, such a requirement only applied if the default was capable of being remedied within 10 business days. Clause 15 did not require termination of the Contract to be delayed by 10 business days where to do so would not have achieved a remedying of defaults. The primary judge's finding, set out at [29] above, was a finding that a particular default relied upon in the Notice of Termination was incapable, as a matter of fact, of being remedied within that period. The appellant was critical of the primary judge's reference to the events of 2018 to support his factual conclusion in relation to the validity of the termination in 2015, as set out at [29] above.
In my opinion, it was quite legitimate for the primary judge to draw on the Council's 2018 refusal to grant a Building Certificate to fortify his factual conclusion that at least one of the defaults of the appellant relied upon to justify the termination of the Contract on 13 July 2015 was incapable of being remedied. It is perfectly plain from the terms of the Council's 2018 refusal to issue a Building Certificate, noted in [26] above, that that refusal related to the state of the building work that had been done at the time of termination of the Contract, as opposed to some subsequent deterioration in the intervening period between termination and the 2018 refusal to grant the Building Certificate.
Moreover, the fact that the appellant took no steps from 5 June 2015 to 13 July 2015 to seek to address the Proposed Order and the requirement to obtain a Construction Certificate for the balance of the works supported the conclusion that it would not have been possible to obtain a Construction Certificate within a 10 business day period. Given that, under the Varied Contract, the appellant only had 4 weeks from 8 June 2015, ie. until 6 July 2015 to complete the works, and as it was unlawful to continue construction until such time as a Construction Certificate had been obtained, one would have expected the appellant to obtain a certificate as quickly as possible after the Order 19 Notice had been issued, in order to give itself the best opportunity to complete the works by the revised completion date. That the appellant did not do so strongly suggests that it did not think that it could be done (or that it could be done and the outstanding works completed within the necessary time frame).
In addition to this, it was never possible to remedy the fact that a Construction Certificate was required prior to commencement of construction: see s 109F(1A) of the Act and [12] above.
That having been said, however, it may well have been the case that the issue of a Building Certificate in respect of the unauthorised works (which would have the effect under s 149E(1)(a) of the Act, identified in [23] above) together with the obtaining of a Construction Certificate in relation to the balance of the work under the Contract would have amounted to a remedying in substance (so long as it could be achieved within 10 business days). This is despite the fact that, technically, the failure to obtain a Construction Certificate prior to commencement was a "once and for all" breach which was never capable of being remedied: cf. Burger King Corporation v Hungry Jack's Pty Limited [2001] NSWCA 187 at [113]-[124] where, in a passage of the joint judgment that is not reported at (2001) 69 NSWLR 558 and which was strictly obiter, the Court of Appeal, citing Batson v De Carvalho (1948) 48 SR (NSW) 417; L.Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235; and Tricontinental Corporation Ltd v HJFI Ltd (1990) 21 NSWLR 689, endorsed the view that a "once and for all breach", such as the failure to comply with a time provision, was nevertheless capable of being cured.
It is not necessary to provide a definitive answer to that issue in this case (which did not involve non-compliance with a time provision) as the primary judge found, as I have pointed out, that the particular default was incapable of being cured within a 10 business day period as a matter of fact, and that finding has not been assailed.
More fundamentally, as I have pointed out at [5] above, it is not necessary to answer this question given the existence of undoubted breaches of the Contract and the absence of any challenge to the award of damages. That award, and the availability of damages, did not depend upon the termination of the Contract.
Even if, contrary to this point, termination was in truth relevant, it is plain, in my opinion, that by not taking any step to obtain either a Building or a Construction Certificate following the Order 19 Notice on 5 June 2019, the appellant repudiated the Contract. That repudiation was accepted by the respondents' conduct in terminating the contract on 13 July 2015 and, if not by that date, certainly by the commencement of proceedings in the District Court on 23 March 2017. In this context, the termination of a Contract on an available ground, even if not expressly relied upon, will still be valid: Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 377; [1931] HCA 21.
In my opinion, the appeal should be dismissed with costs.
MACFARLAN JA: I agree with Bell ACJ.
WHITE JA: I agree with Bell ACJ.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 November 2019

Environmental Planning and Assessment Act 1979(NSW)ss 109F(1A), 121B, 149E(1)(a)

Visual Building Construction Pty Ltd v Armitstead

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (12 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (5)