WOODWARD PTY LTD v KELLEHER

Gleeson CJ This is an appeal from a decision of his Honour Judge Mahoney in the District Court in relation to a building dispute. The issues raised on appeal are considerably narrower than those which were litigated at first-instance, and for that reason it is unnecessary to go into the full details of the original disputes between the parties. It suffices to say that the appellants are a company which carried out certain building work at a residential property near Tamworth and the principal of that company. The respondents are the company which owns the property and the principal of that company, who engaged the services of the builders. The appellants propounded a claim for what was alleged to be the unpaid balance due under the relevant building contract. During the course of the hearing, and after argument, his Honour non-suited the appellants by reason of the provisions of s13I of the Builders Licensing Act 1971, the work having been carried out in contravention of s9 of that Act. The respondents propounded cross-claims against the appellants, in damages and tort, on the basis of deficiencies and defects in the building work. His Honour found in favour of the respondents on the cross-claims and entered a verdict and judgment in favour of both cross-claimants in the sum of $78,455.20 plus costs. For the purposes of this appeal it is unnecessary to go into the detail of the relationship between the

cross-claims or to consider how it came about that there was a judgment in an identical amount given in favour or both cross-claimants. Those matters are not the subject of the appeal. For purposes of presentation and argument of the appeal the matter has been treated in substance as though it were a dispute between a builder and a proprietor in which the builder was non-suited in respect of his claim for the unpaid portion of the contract price of the work and the proprietor succeeded in his cross-claim for damages for deficiencies and defects in the work.

There were three issues argued in the appeal, and it is convenient to deal with them separately.

The appellants contended, for reasons that will appear below, that the verdict and judgment entered in favour of the cross-claimants was "ultra vires and of no force or effect." This claim was based upon a contention that, by reason of the relevant provisions of the District Court Act 1973, and in the events that occurred, the cross-claims, and indeed the entire proceedings (including the appellants' own claim) were beyond the jurisdiction of the District Court. It was submitted on behalf of the respondents, correctly in my view, that such an argument could not properly be made the subject of an appeal, and should be the subject of a challenge to jurisdiction by way of an application either for declaratory relief or for an order in the nature of prohibition or certiorari (City Finance Co Limited v Mathew Harvey and Co Limited 14 SR NSW 438, 21 CLR 55). Thereupon senior counsel for the appellants sought leave to file in Court, returnable instanter, a summons seeking a declaration "that the verdict and judgment of his Honour Judge Mahoney in the action numbered 139 of 1984 in the District Court for an amount of $78,455.20 plus costs is ultra vires and of no force or effect." The Court reserved its decision on that application, but heard full argument both on the procedural and substantive issues. I am of the opinion that leave to file the summons as requested should be granted although, as will appear, I am also of the opinion that the summons should be dismissed.

In order to understand the jurisdictional point that is taken it is necessary to refer to the relevant provisions of the District Court Act 1973 and to the somewhat complicated history of the matter.

The District Court is a Court of limited statutory jurisdiction in the sense that the jurisdiction of the Court to hear and determine civil claims is, subject to one important qualification, limited by reference to the quantum of the claim being propounded. The actual limits, expressed in money terms, have varied from time to time. The present limitations are contained in s44 of the Act which is in the following terms:

"44. (1) Subject to this act, the Court shall have jurisdiction to hear and dispose of

(a) any personal action at law where the amount claimed does not exceed $100,000, whether on a balance of account or after an admitted set-off or otherwise; or

(aa) any action to recover goods that have been detained, or to recover the assessed value of such goods, where the value of the goods together with the amount of any consequential damages claimed for the detention of the goods does not exceed $100,000; or

(b) any action brought to recover an amount not exceeding $10,000, which is the whole or part of the unliquidated balance of a partnership account, or the amount or part of the amount of the distributive share under an intestacy or of a legacy under a will.

(2) Where the amount claimed in an action includes interest (being interest which the Court could, under s83A(1), order to be included in the amount for which it could give judgment), that interest shall be disregarded for the purposes of

(a) determining whether the maximum amount for which the action is authorised by this Act to be brought has been exceeded or not; and

(b) determining whether or not the Court has jurisdiction to hear and dispose of the action.

(a) an amendment to subs(1) which is enacted after, or was enacted before the commencement of Schedule 3 to the District Court (Procedure) Amendment Act, 1984, has or had the effect of increasing the amount specified in paragraph (a) or (aa) of that subsection; (b) an action in which an amount of money is claimed is pending at the time when the amendment has effect or, as the case may be, an action in which an amount of money is claimed was pending at the time when the amendment had effect and has not been finally determined, the Court may, on the application of the claimant, make an order altering the amount specified in the claim to an amount not exceeding that specified in paragraph (a) or (aa) of that subsection, as in force immediately after the amendment has or had effect."

Prior to 1 April 1983 the relevant money sum was $20,000. It was increased from $20,000 to $100,000 on that date.

The important qualification earlier referred to arises by reason of the provisions of s51 of the District Court Act 1973 which, at all times material to this appeal, were in the following terms:

"51. (1) In this section "memorandum of consent" in relation to an action or cross-claim means a document signed by each party to the action or cross-claim, or his solicitor, in which it is stated that each of those parties consents to the action or cross-claim being tried in the Court and is aware that, unless the document is filed, the Court will not have jurisdiction to dispose of the action or cross-claim.

(2) Where, but for this subsection, the Court would not have jurisdiction to hear and dispose of an action or cross-claim by reason only of the fact that the amount claimed exceeds $100,000, the Court shall have jurisdiction to hear and dispose of that action or cross- claim if a party to the action or cross-claim files a memorandum of consent in respect of the action or cross-claim.

(3) This section does not apply in relation to an action referred to in s44(1)(b)."

It is to be noted that, as a consequence of the provisions of s51, the District Court is not a Court whose jurisdiction is the subject of intractable limitations which are incapable of being expanded by the consent of the parties. On the contrary, the jurisdiction of the Court can be affected by the consent of the parties to proceedings before the Court. That circumstance serves immediately to distinguish the present case from cases, including cases concerning the District Court under legislation prior to 1973, relating to tribunals of strictly and unalterably limited jurisdiction. In cases of the lastmentioned kind it is correct to say that jurisdiction cannot be conferred by consent. The corollary of that proposition, where it applies, is that a party cannot, by acquiescence or estoppel, find himself in a position in which he is unable to assert want of jurisdiction (cf

Farquharson v Morgan [1894] 1 QB 552; Secretary of State for Defence v Warn [1970] AC 394; Essex Incorporated Congregational Church Union v Essex County Council [1863] AC 808; Honnery v Smith 57 SR NSW 598). By contrast, the District Court, under the District Court Act 1973, is a Court upon which in certain respects jurisdiction can be conferred by consent.

It should also be noted that the District Court Rules lay down a procedure by which a party may challenge the jurisdiction of the Court, and such a challenge has to be made within a certain time after commencement of the proceedings (District Court Rules Pt 10 13).

"143. (1) Where the Supreme Court is of opinion that any proceedings that are pending in the Supreme Court could properly have been commenced as an action in the Court, the Supreme Court may, if it thinks fit, on the application of any party or of its own motion, order that those proceedings be transferred to the Court sitting at such proclaimed place as the Supreme Court thinks fit. (2) Where the Supreme Court is of opinion that any proceedings that are pending in the Supreme Court could properly have been commenced as proceedings under Subdivision 2 of Division 8 in the Court, the Supreme Court may, if it thinks fit, on the application of any party or of its own motion, order that those proceedings be transferred to the Court sitting at such proclaimed place as the Supreme Court thinks fit."

It is to be observed that the power to make an order under s143 depends, not upon the existence of a certain state of affairs, but upon the holding by a Supreme Court Judge of an opinion as to the existence of such a state of affairs. No doubt an opinion formed pursuant to s143 may be shown, on an appeal against the making of an order, to be erroneous. However, an order made under s143 is an order of the Supreme Court and as such stands unless and until it is set aside on appeal. (cf Peacock v Bell and Kendal (1667) 1 Wms Saund 73 at 73-5, 85 ER 84 at 84-8; Re Ross-Jones ex parte Green (1985) 59 ALJR 132 at 141)

In an unreported decision in 1977 (Heron v Newell 28 June 1977) Master Allen, in dealing with an application made to him under s143, held that, upon its true construction, the words "where any proceedings...could have been commenced as an action in the (District) Court..." related to the time at which the Supreme Court proceedings in question were in fact commenced and that, therefore, the test to be applied at the time of an application under s143 was whether, having regard to the jurisdictional limits of the District Court as they stood at the time of the commencement of the Supreme Court proceedings, those proceedings could have been commenced in the District Court.

That is the background against which the following events fall to be considered.

The proceedings were commenced in the Supreme Court by the appellants in April 1981. At that time the amount referred to in s44 of the District Court Act 1973 was $20,000. The claim propounded by the appellants was for $21,491.27 plus interest. As was noted above, on | April 1983 the amount referred to in s44 of the District Court Act was increased to $100,000. On 27 January 1983 the respondents filed a defence and cross-claim. It is of some importance to observe that the amount claimed in the cross-claim was not then, and has not since, been specified. From time to time various particulars of individual items included, either cumulatively or in the alternative, in the cross-claim, have been provided. By far the largest element in the cross-claim was a claim for damages in the form of the estimated costs of carrying out certain rectification work in respect of the

relevant building, but that rectification work has not yet been carried out, and, as will appear in relation to the second issue the subject of the present appeal, his Honour gave judgment on the basis of an estimate of costs as at the date of the hearing. If the cross-claim had been brought originally in the District Court the failure to specify an amount claimed would have constituted an irregularity (see District Court Rules Pt 20). The District Court Rules require a party propounding a claim to specify the amount of the claim. This requirement is related to the scheme of the District Court Act concerning the monetary limits on the Court's jurisdiction.

On 10 August 1984 by the consent of all parties an order of the Supreme Court was made transferring the proceedings (that is, the claim and the cross-claim) to the District Court. No point was taken by either party at that stage, or at any later stage of the proceedings in the District Court, either as to the circumstance that the appellants' claim exceeded the amount of $20,000, which, at the date of the commencement of the Supreme Court proceedings (although not at the date of the making of the order for transfer), was the sum which appeared in s44 of the District Court Act, or as to the circumstance that the cross-claim did not specify the amount of the claim and that it was therefore impossible, by looking at it, to tell one way or the other whether the claim fell within the prima facie monetary limits of the District Court's jurisdiction. Furthermore, neither party filed any notice of objection to jurisdiction in accordance with the District Court Rules and, of course, any such notice would have been inconsistent with the original consent to transfer of the proceedings.

Both parties thereafter proceeded to litigate the matter in the District Court as though the only relevant limit on the Court's jurisdiction was the amount of $100,000. That the parties assumed that the jurisdiction was, in the events that occurred, limited, but that the limit was $100,000, is evident from their conduct at a stage prior to the final hearing when the respondents gave further and better particulars of the financial details of their cross-claim. There was an exchange of correspondence between the solicitors of the parties which makes it clear that both sides were proceeding on the basis just mentioned, and this was expressly stated by counsel in the course of certain interlocutory proceedings before his Honour Judge Flannery. The action and cross-claim in due course came on for hearing. The first hearing had to be aborted when, after it had been going for some days, the presiding judge resigned from office. Subsequently there was a lengthy hearing before Judge Mahoney, the outcome of which has already been stated.

Having been unsuccessful at the hearing, the appellants appealed to this Court and then, for the first time, called in question the jurisdiction of the District Court. The history recited above makes it clear that, if it is legally possible for the appellants by their conduct to have become disentitled to take the jurisdictional point, they should be treated as having put themselves in that position.

In Eyres v Butt [1986] 2 Qd R 243 the Full Court of the Supreme Court of Queensland dealt with a case that raised a similar, although not identical, issue. The District Court Act 1967 of Queensland contains, in s73, a provision to the same effect as s51 of the New South Wales legislation. In that case the parties to an action in the District Court agreed to an enlargement of jurisdiction but never signed the necessary memorandum of consent. In due course judgment was given for an amount which was beyond what I have called the prima facie jurisdiction. The appellants contended that the judgment was beyond jurisdiction and relied upon the principle stated in Spencer Bower and Turner, "Estoppel by

Representation", 3rd Ed at 144 in the following terms: "Not even the plainest and most express contract or consent of a party to litigation can confer jurisdiction on any person not already vested with it by the law of the land, or add to the jurisdiction lawfully exercised by any judicial tribunal; it is equally plain that the same results cannot be achieved by conduct or acquiescence by the parties. Any such attempt to create or enlarge jurisdiction is in fact the appointment of a judicial officer by a subject, and as such constitutes a manifest usurpation of the Royal prerogative."

Connolly J distinguished that principle, and the cases which support it, on the basis that, by reason of the provisions of s73 the District Court was not a Court of fixed jurisdiction. His Honour said:([1982] 2 Qd R 243 at 250) "To say in a case such as this that jurisdiction cannot be conferred by consent is apt to confuse the nature of the problem. Enlarged jurisdiction can indeed by conferred by consent because the statute so provides. The true question here is whether the parties having consented in fact and the learned trial judge having approved their consent, and the action having thereafter been tried to judgment on the footing of that consent the appellants are not estopped by their conduct from denying that s73 was strictly complied with."

His Honour went on to hold that there was an estoppel, the case being one where the effect of the estoppel was not to extend the jurisdiction beyond the legislative boundaries (bearing in mind s73) and where the representation was set up merely as a remedy for an irregularity in procedure. De Jersey J agreed. The judgment of Thomas J was to like effect, although it involved a somewhat different (but not inconsistent) process of reasoning.

Connolly J referred to the case as one in which the appellant was to "be allowed to waive the defect, or to be estopped by conduct from setting it up", although his ultimate resolution of the issue was couched in terms of estoppel rather than waiver.

In the present case there is some difficulty in identifying a specific representation of a kind which would found an estoppel. There would have been a problem in invoking s51 as the direct solution to the problem if the point had been raised because s51(2) does not precisely fit the case. The lack of jurisdiction arose not because the amount of the claim or cross-claim exceeded $100,000, but because (assuming the correctness of Heron v Newell) it exceeded $20,000. Whether the matter could have been dealt with under s44(3) is far from clear, because the amendments which increased the prima facie jurisdiction to $100,000 were made before the action became one which was pending in the District Court. One thing, however, is quite plain. If any problem had been raised prior to the hearing before Mahoney DCJ it could have been overcome simply by the filing of fresh originating process. That course would undoubtedly have been available if an objection to jurisdiction had been taken by the appellant within the time limited by the District Court Rules. By the time the point was ultimately raised, however, all the expense of the proceedings had been incurred and, moreover, the cross-claim was probably statute-barred.

The consent of the appellants to the transfer of the claim and cross-claim to the District Court, their failure to object to jurisdiction in the manner and within the time limited by the District Court Rules, or at all, and their participation in the proceedings right through to final judgment on the express basis that the Court had jurisdiction to deal with the matters before it all occurred in a situation where the jurisdiction of the Court, although prima facie limited, could be enlarged by consent and where, if the point had been taken, the problem could easily have

been solved. When Mahoney DCJ came to try the claim and cross-claim and to give judgment on the cross-claim even the prima facie jurisdiction of the Court comprehended the amounts claimed and the amount for which he ultimately gave judgment. If, as was argued in this Court by the appellants, the steps which had previously been taken were inadequate to secure the result that could otherwise have been achieved, and that was intended by all parties, that is to say, that the Court should have jurisdiction up to $100,000 then that, in my view, is properly to be treated as an irregularity which the appellants have waived. (London Chatham and Dover Rail Co v South Eastern Rail Co (1888) 40 Ch D 100; Lloyd v Great Western Dairies [1907] 2 KB 727; Eyres v Butt (supra)).

It thus becomes unnecessary to examine the validity of the premise upon which the entire argument for the appellants is based, that is to say, the correctness of Heron v Newell. It is a decision on an important matter of practice which has stood for twelve years. It turned upon a point of construction which, it might be thought, could easily have gone the other way. If one is considering the meaning of the words "could properly have been commenced" in relation to an action which is about to be transferred from the Supreme Court to the District Court it is difficult to see why the legislature would have intended to direct attention to the jurisdiction of the District Court, not at the time the action is transferred to it, but at the time when the action was commenced in the Supreme Court. One would have thought that the logical question to ask would be: "Does the District Court now have jurisdiction to deal with this matter?" However, the question posed by the section as construed in Heron v Newell is: "Did the District Court (at some otherwise irrelevant past time) have jurisdiction to deal with this matter?" The words "could properly have been commenced" are wide enough to cover any time up to the date of transfer, and I am, with respect, far from convinced of the correctness of Heron v Newell. However, as it is not necessary to decide the point in this appeal I express no concluded view on the matter.

2. TIME FOR ASSESSING COSTS OF RECTIFICATION The appellants' second complaint is that the learned trial judge, in assessing damages in respect of the cross-claim, based his award on estimates of the cost of carrying out the work of rectifying defects and remedying deficiencies in the building as at the date of the trial.

In my view his Honour's reasons for judgment disclose no error of principle. The work in question still has not been carried out. There was no unreasonable delay on the part of the proprietor either in failing to have the work done prior to the date of the hearing or in prosecuting the cross-claim. Where there is a complaint of breach of a building contract and the proper measure of damages is the cost of reinstatement, and where the defects have in fact been put right, the cost is to be assessed as at the time of the rectification work, provided there has been no unreasonable delay (East Ham Corporation v Bernard Sunley and Sons Ltd [1966] AC 406; Johnson v Perez (1988) 63 ALJR 51 at 52, 57, 60). Where at the date of the trial the defects have not yet been put right, then the essential question becomes one of fact as to the time in which, acting reasonably, the proprietor should have carried out the rectification work. If the proprietor has behaved reasonably, both in prosecuting his claim for damages and in delaying the carrying out of the work, then there is normally no reason why damages should not be assessed as at the date of the trial.

The judgment of Oliver J in Radford v De Froberville [1977] 1 WLR 1262 at 1287 makes it clear that in the ultimate analysis the question that arises in a case such as the present turns upon the reasonableness of the plaintiffs' actions or inaction. His Lordship said:

"once proceedings have been commenced and are defended, I do not think that the defendant can complain that it is unreasonable for the plaintiff to delay carrying out the work for himself before the damages have been assessed, more particularly where his right to any damages at all is being contested, for he may never recoup the cost. If, therefore, the proceedings are conducted with due expedition, there seems to me to be no injustice if by reason of the time that it takes for them to come to trial, the result of inflation is to increase the pecuniary amount of the defendant's ultimate liability."

I consider that, in the circumstances of this case, it was perfectly proper for Mahoney DCJ to assess damages by reference to building costs which were current at the date of the trial.

The final question argued on this appeal arose in the following manner. The respondents' cross-claim for damages for the builder's various breaches of contract was based substantially upon the estimated cost of carrying out the work necessary to repair the defects and remedy the deficiencies in the work performed by the builder. In Bellgrove v Eldridge 90 CLR 613 the High Court laid down the measure of damage to be applied in an action for damages for breach of contract brought by a building owner against a builder where the builder had departed substantially from the specifications with the result that the foundations were defective and the building was unstable. The Court held that the measure of damage was the cost, in excess of any amount of the contract price unpaid, of reasonable and necessary work to make the building conform to the contract plus consequential losses, if any. It is to be noted that the issue in Bellgrove was not as to the deduction of the unpaid balance of the contract price but as to whether a quite different basis of calculating damages was appropriate. In the present case, the trial judge non-suited the plaintiffs and held that the unpaid balance of contract price (which was agreed in this Court to amount to $11,652) could not be recovered by reason of the provisions of s13I of the Builders Licensing Act 1971. The question is whether the plaintiffs are nevertheless entitled to have that amount deducted in calculating the damages on the cross-claim. The learned judge answered that question in the negative. It is common ground that if his decision on that point is reversed then the damages should be reduced by $11,652.

In Bellgrove the High Court cited with approval the following statement in Hudson on Building Contracts 7th Ed (1946) at 343:

"The measure of the damages recoverable by the building owner for the breach of a building contract is, it is submitted, the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach."

The corollary of that proposition was stated in H Dakin and Company Limited v Lee [1916] 1 KB 566. In that case the matter was considered from the point of view of the builder, who had performed work which was defective, but not so defective as to produce the result that he could not recover anything for his services. He was held to be entitled to recover the unpaid balance of the contract price, less the cost of rectifying the defects.

In many cases, perhaps most, cases of a claim for damages for breach of a building contract made by a proprietor against a builder on the basis of defective work, there will be no doubt that the unpaid balance of any contract price is recoverable by the builder from the proprietor subject always, of course, to the possibility that it might be exceeded by the proprietor's claim for damages. Whether or not it is technically accurate to describe what is involved as a set-off, there is no conceptual difficulty involved in such a case in deducting the unpaid balance of the contract price from the cost of rectification and consequential damages. There may, however, be, for a number of possible reasons, cases in which the unpaid balance of the contract price could not be recovered in an action brought by the builder. For example, the contract may have been repudiated by the builder. The building work may be so radically defective as to disentitle the builder to sue. The building contract may, for one reason or another, be void. Or, as in the present case, the building contract may be unenforceable at the suit of the builder.

The ultimate object of the rule as to damages earlier quoted is simply to apply to the particular case of a building contract the general principle of measurement of damages for breach of contract established in Hadley v Baxendale (1854) 9 EX 341 which is that the injured party is entitled to be indemnified against any loss likely to arise in the usual course of things from the breach, and also such other loss as was in the contemplation of the parties at the time of the contract as the likely result of the breach of it. Where a builder contracts to construct a building of a certain kind and to a certain standard of workmanship, and fails to do so, prima facie the loss sustained by the proprietor is the difference between what it will cost him to have the promised work carried out by somebody else and the price he agreed to pay to have it done by the builder in question. If, for some reason or other, the builder could not have enforced the contract against the proprietor, that does not mean that the proprietor was entitled to have the building erected for nothing.

S131 of the Builders Licensing Act 1971 provides as follows:

"131 (1) A person who carries out any building work in contravention of s9(1) or (2) or 13A(1) or (2) is not entitled to damages or any other remedy in respect of a breach of any contract for the carrying out of the work committed by another party to the contract but is liable for damages or any other remedy in respect of a breach of any-such contract committed by him.

(2) Nothing in subs(1) affects the liability of a person for an offence under s9 or 13A. As the decision of the High Court in Pavey and Matthews Pty Limited v Paul (1987) 61 ALJR 151 demonstrates, contravention of the Act produces only the specific and limited consequence referred to in the relevant provisions. The builder may still sue on a quantum meruit. He may retain any instalments paid on account of the purchase price. And, of course, the contract may be enforced by the proprietor. If the builder fails to perform his contractual obligations in some respect there seems to be no reason in principle or logic why the proprietor's damages should be measured on the basis of the hypothesis that the proprietor was entitled to have the work performed, under the contract, but at no cost to himself. The considerations as to unjust enrichment underlying the High Court's decision in Pavey and Matthews Pty Limited v Paul point in the same direction.

In some respects the case of Mertens v Home Freeholds Company [1921] 2 KB 526 is the converse of the present case, and makes the point contended for by the appellants. That was a case in which the defendant builder entered into a

contract to build a house for the plaintiff for a fixed sum. Some months after the contract was entered into wartime regulations were promulgated making it unlawful to commence or carry on building or construction work without the licence of the Minister of Munitions. The defendant applied for a licence to proceed but then so conducted himself as to procure, deliberately, the result that a licence would not issue. The Minister of Munitions refused to grant the licence, and the proprietor sued the builder for damages for breach of contract. The Court of Appeal held that the defendant could not take advantage of the failure to issue the licence, which was brought about by his own act, and that the proper measure of damages was what it cost the plaintiff to complete the house substantially as it was originally intended and in a reasonable manner when he was ultimately allowed to proceed with the work, less any amount that would have been due and payable to the defendant by the plaintiff had the defendant completed the house in accordance with the terms of the original contract. The Court of Appeal approved and applied a statement of principle as to the measure of damages which had appeared in an earlier edition of Hudson on Building Contracts than that cited above to sue to like effect.

The appellants were, in my view, entitled to the deduction from the damages awarded on the cross-claim of the sum of $11,652.

The appeal should be allowed in part. The verdict and judgment on the cross-claims should be varied by substituting $66,803.20 the judgment to date from the same date as that pronounced below. The appellants should pay the respondents' costs of the action. The appellants should pay half the respondents' costs of this appeal.

Counsel for the Appellant: V Bruce QC and R Cameron

Solicitors for the Appellant: Patterson Byfields and Bryan, Tamworth, City Agents: Dibbs Crowther and Osborne

Counsel for the Respondent: J Spigelman QC and G Underwood