Wykes v MS & SJ Schols Pty Ltd; MS & SJ Schols Pty Ltd v Wykes

NCAT Consumer and Commercial|2017-03-23

D Sweeney (Respondent in HB 15/65625, Applicant in HB 17/05296)

Solicitors: Moroney Rutter Mantach (Applicants in HB 15/65625, Respondents in HB 17/05296) Barnes Law Group (Respondent in HB 15/65625, Applicant in HB 17/05296) File Number(s): HB 15/65625HB 17/05296 Publication restriction: Nil

REASONS FOR DECISION

These two applications under the Home Building Act 1989 (the HB Act) arise from the construction of a residential dwelling at XXX XXX Road Goulburn NSW. Matter HB 15/65625 was lodged on 8 December 2015 by Shannon John Wykes and Shannon Leigh Wykes, the owners of the property, against MS & SJ Schols Pty Ltd. Matter HB 17/05296 was lodged on 1 February 2017 by MS & SJ Schols Pty Ltd against Mr and Mrs Wykes. MS & SJ Schols Pty Ltd is a licensed builder, using the business name Endurance Constructions, and its directors are Mr Martin Schols and Mrs Sarah Schols. In these reasons Mr and Mrs Wykes are referred to as "the Owners", and MS & SJ Schols Pty Ltd is referred to as "the Builder".

HB 15/65625 - the Owners' Claim

In their Points of Claim (filed 1 August 2016) the Owners relevantly contend: 1. On or about 1 April 2015 the Owners entered into a HIA Building Contract for New Dwellings with the Builder; 2. The director and nominated supervisor of the Builder, Martin Lee Schols, holds a supervisors certificate, and is the guiding mind of MS & SJ Schols Pty Ltd; 3. The contract was a fixed price contract for $495,000 inclusive of GST subject to variations to the contract pursuant to the provisions of the contract; 4. The Builder obtained development consent on or about 1 April 2015 and according to cl 8(a) of the contract the date for commencement of works was to be on or about 29 April 2015; 5. Works did not commence until after 26 May 2015 when the deposit was claimed. The deposit was paid in full on 10 July 2015; 6. The works were not completed on or about 14 October 2015 nor was any extension of time applied for or granted; 7. On or about 10 November 2015 the house was between 55% and 65% complete, no variations in costing under the contract had been sought or approved. The Owners had paid approximately $250,000 to the Builder; 8. On or about 10 November 2015 Mr Schols attended a meeting called by him where in he asserted that he had spent $499,000 on the construction program; 9. On or about 11 November 2015 the Owners and Mr Schols attended the bank and met with the loan administration officer Jenelle Gay. The bank advised that the loan agreement was in breach and the bank was not going to release further funds to Mr Schols; 10. Mr Schols demonstrated an intention not to be bound by the contract by: 1. Offering on 10 November 2015 to go broke so as to give the owners access to insurance to complete the building program; 2. On 11 November 2015 advising the Owners he would pack up and leave the site if the bank were not going to keep paying him; 3. Advising Fair Trading on 20 November 2015 that the Owners were indebted to him for $250,000 on the basis of a cost plus contract; 4. Abandoning the site on or about 25 November 2015; 1. On or about 18 November 2015 the Owners served a breach notice on the builder, no proper response was received in respect to that notice within 10 days or at all; 2. On or about 2 December 2015 the Builder and Mr Schols retained lawyers who alleged a cost plus contract, and claimed $241,569.66 asserting rights under a cost plus contract and denying the validity of the notice sent under the contract thus demonstrating an intention not to be bound by the contract; 3. The Owners accepted the repudiation of the contract by the Builder and Mr Schols; 4. Section 48MA HB Act should not be applied, or if in the alternative the Builder is ordered to complete the contract conditions should apply; 5. The Owners are claiming: 1. damages as a result of the default and repudiation of the contract in accord with the defects and incomplete works as identified in the report of John Worthington & Associates, accepting that any award will be reduced by the $245,000 which is the outstanding contract amount; 2. rental of $300 per week from 14 October 2016 to 25 July 2016 and $340 per week from 26 July 2016 until the date of practical completion, and the sum of $100 per week for child care expenses from 3 May 2016; and 3. costs.
In the amended Points of Defence (filed 10 March 2017) the Builder: 1. Agrees that the Builder entered into a contract with the Owners to do residential building work involved in the construction of the Owners' home at XXX XXX Road, however denies that the contract was in the terms alleged by the Owners and says the contract was made on or about 28 February 2015 and was a cost-plus contract set out in a document of that date; and that on or about 31 March 2015 the parties entered into a fixed price contract document bearing the date 1 April 2015 and that the Builder had signed and which formed a variation to the cost-plus contract relating to the part of the work involved in constructing the home; 2. Denies the allegation that on 11 November 2015 Mr Schols advised the owners he would pack up and leave if the bank was not going to keep paying him; 3. Says that the owners indicated at the meeting at the bank and elsewhere on 11 November 2015 that they were unable or unwilling to honour their contractual obligations or pay for the work that was done, thereby repudiating the contract which the Builder accepted by leaving the site; 4. Does not admit that the Owners served a breach notice on or about 18 November 2015 and no proper response was received, and says in any event that at the time of the alleged notice the Owners had already repudiated the contract which repudiation was not cured, and the alleged notice was invalid.

HB 17/05296 - the Builder's Cross Application

In the amended Points of Cross Application (filed 10 March 2017) the Builder relevantly contends: 1. It entered into the cost plus and fixed price contract referred to in paragraph (1) of its Points of Defence to the Owners' application; 2. From late 2014 to late 2015 the Builder undertook work at the property pursuant to the contract, in the nature of the design and construction of a luxury home, incurred expenses purchasing materials and hiring labour and tradespeople, undertook and caused work to be undertaken in connection with the construction of the house; 3. The Builder did work pursuant to the contract until November 2015 when the Owners intimated an inability or unwillingness to pay the contract price, at which date the Builder ceased work and suspended performance of the contract pursuant to the terms of the contract; 4. Up to the date of it ceasing work the Builder supplied labour and trades and materials to the amount of at least $519,027.99, entitling it to payment of at least that amount pursuant to the contract; 5. The Builder issued payment claims/progress payments/invoices for its claim of at least $519,027.99; 6. The Owners paid $258,350 of the amount for which they were liable under the contract leaving at least $260,677.99 unpaid; 7. The Owners have failed and refused to pay that amount; 8. The Owners' denial that the contractual relationship between the parties is governed by the contract asserted by the Builder in its Points of Defence to the Owners' claim constitutes a repudiation of that contract; 9. The Builder has accepted that repudiation and terminated the contract, and claims the unpaid amount together with interest and costs; 10. In the alternative, and to the extent that the Tribunal finds that by virtue of s 10 of the HB Act or on any other basis, the Builder is not entitled to enforce or claim damages or payment in respect of some or all of the work done for the Owners, it is entitled to payment for the value of the work done on the basis of restitution measured on a quantum meruit basis: 1. At all material times the owners owned the property; 2. From October 2014 to late 2015 the Builder undertook work at the property in the nature of the design and construction of a luxury home and to that extent incurred expenses purchasing materials and hiring labour and tradespeople, undertook and caused work to be undertaken in connection with the construction of the house; 3. The work was undertaken at the owners' request and with their knowledge and consent and on the understanding they would pay a fair value for that work and materials and the construction of their house; 4. After the Builder did work and provided materials and claimed from the Owners the value of that work and materials the Owners, although they have paid for some of the work and materials, have failed or refused to pay for the balance of the work and materials, and the Builder claims the value of the work and materials that have not been paid for; and 1. The Builder claims $270,677.99 for work and materials not paid for together with interest and costs.
In their Points of Defence (dated 16 August 2017) the Owners relevantly contend: 1. The Owners admit the existence of a fixed price contract dated 1 April 2015; 2. The Owners were until the letter from the Builder's lawyer dated 2 December 2015 not aware of the claim in respect to a cost plus contract as alleged; 3. If the Tribunal finds that the cost plus contract governs the relationship the Owners rely on the special condition that the works would proceed under the fixed price contract and the exclusions listed therein would be provided on a cost plus basis; 4. The writing on each of the two fixed price contracts are representations as to future matters: 1. The price on the fixed price contract of $495,000 is a representation as to a future matter being the likely costs of construction of a house; 2. That representation is supported by a further representation of the value of the works submitted by the Builder to their insurance broker for statutory insurances under the HB Act; 3. The Builder has put into evidence a further copy of a fixed price contract which contains the same representation as to the costs to build the house; 4. Such representation was made untruthfully or recklessly in circumstances where the Builder knew or ought reasonably have known the Owners would rely upon that representation in respect of the cost to build the house, and thus was a breach of s 18 of the Australian Consumer Law (ACL); and 5. The Owners relied on that representation in executing the fixed price contract and as such any amount found to be owing to the Builder is damages to the Owners pursuant to s 236 of the ACL; 1. The Owners admit the works up until the development application was submitted to Council on 12 March 2015 but says that those works were paid for separately; 2. The Owners admit the existence of a contract but say the contract is the executed fixed price contract dated 1 April 2015; 3. The last day that the Builder attended the site was 3 November 2015; 4. The abandonment of works and the fixed price contract executed by the parties by the Builder amounts to repudiation; 5. The Owners admit that Mr Schols presented them with a bill for the amount said to be owed ($519,027.99) but otherwise say that the abandonment of works and the fixed price contract executed by the parties by the Builder amounts to repudiation; 6. The Builder was paid in accordance with the fixed price contract: as at the date of abandonment of the site the works completed were Stage 4 (supply and complete frame/floor pitch, roof/trusses, fascia and windows installed, structural heads installed), which represents 52.2% of the contract which is $258,390 based on the $495,000 in the contract; 7. The Owners admit an amount of up to $18,000 in variations but none of those variations were in accordance with the terms of the contract; 8. The Owners deny that any purported progress claim for $519,027.99 has been made. They admit that Mr Schols has made an ambit claim of that amount but they otherwise deny the claim that the Builder issued payment claims/progress payments/invoices for $519,027.99 and specifically being given any documents on the dates alleged or at any other time; 9. The Owners admit that payments totalling $258,350 were made and state that those payments were in accord with the terms of the fixed price contract executed by the parties; 10. The Owners say that as the works are only 52% complete they have paid all the required amounts for the works undertaken; 11. The Builder's alternative claim in quantum meruit should be dismissed because: 1. the insurance value is grossly inadequate; 2. the Builder has made misleading and deceptive statements which induced the Owners into the contract; 3. the Builder has abandoned the works and the contract; 4. the works are defective and require allowances to rectify; 5. the claim is excessive and does not represent the true value of the works undertaken; 6. the Owners have incurred costs by reason of the extensive delay in bringing the matter to hearing; and 1. In the alternative the Owners admit they own the property; that the Builder undertook work from October 2014 to late 2015 while denying that the works were pursuant to a design and construct contract or a cost plus contract, and say that the only contract is the executed contract dated 1 April 2015; say that payments were made in direct correlation with the fixed price contract dated 1 April 2015 executed by the parties; and say that the Builder is not entitled to any amount for the value of work and materials as claimed.

Jurisdiction of the Tribunal

The proceedings involve a "building claim" relating to "building goods and services" as defined in s48A of the HB Act, and the proceedings are within the monetary limit and have been commenced within the limitation period in s48K of the HB Act. The Tribunal has jurisdiction in both matters.

The Issues

The issues which require determination are: 1. What contract or contracts governed the relationship between the parties; 2. The circumstances in which any such contract or contracts came to an end; 3. Whether the Owners have established liability and loss in respect of the cost of completion of the building works, remediation of any defects, and the cost of rent or other consequential losses claimed; 4. Whether the Builder has established a claim for payment of amounts owing under a contract with the Owners, or a claim for compensation for the cost of work performed or services provided under the principle of quantum meruit.

Factual Background and Agreed Facts

The following summary of the background is based on facts which were not in dispute: 1. Mrs Shannon Wykes and Mrs Sarah Schols were friends, and the parties knew each other socially for some years; 2. Mr and Mrs Wykes were transferred to Goulburn for work in 2014, and sold their house at South West Rocks in August 2014; 3. Mr and Mrs Wykes purchased the block of land at XXX XXX Road in July 2014, exchanging contracts on 21 July 2014 for $295,000; 4. In July and August 2014 there were discussions between the parties about Mr Martin Schols, director of the Builder, doing the build; 5. Mr Schols introduced Mr and Mrs Wykes to Stephen Eldred, the draftsman who prepared the plans; 6. Finance was provided by the Commonwealth Bank, for a loan amount of $473,917.00 (which included a low deposit premium of $23,917.00); 7. A baby shower was held on 28 February 2015 before the birth of Mr and Mrs Wykes' first child in April 2015. Mrs Schols attended the baby shower and brought documents relating to the build, some of which were signed; 8. The development application with plans was lodged on 12 March 2015, and development consent was granted on 1 April 2015; 9. The plans were subsequently amended; 10. Earth works commenced on site on 11 June 2015; 11. On 10 November 2015 there was a meeting between Mr and Mrs Wykes and Mr Schols; 12. On 11 November 2015 there was a meeting between Mr and Mrs Wykes and Mr Schols at the Commonwealth Bank; and 13. Work ceased on the site in November 2015.
In the Statement of Agreed Facts the parties agree: Termination of contract Whichever contract was applicable to the building works has been terminated. Payments made by the Homeowner The homeowners have made the following payments to the Builder on or about the dates set out below: Date Payment amount 10 July 2015 $24,750 7 September 2015 $20,250 25 September 2015 $83,250 13 October 2015 $47,600 6 November 2015 $82,500 TOTAL $258,350 Expenses said to be incurred by the Builder The Builder has so far incurred the expenses set out below: Date Range Invoice Amount 17 October 2014-21 June 2015 $75,995.57 22 June 2015-9 August 2015 $54,663.50 10 August 2015-20 September 2015 $237,647.78 21 September 2015-1 November 2015 $133,072.50 1 November 2015-11 November 2015 $13,052.64 TOTAL $519,027.99 Experts' Positions according to initial reports The total contract price contended for the homeowners, alleged to include all of the building works is $495,000. The value of the work completed to date is between $432,000 (Homeowners expert) and $683,127.90 (Builder's expert). The amount said to be invoiced by the Builder to date for work completed and materials delivered to site is $519,027.99. The amount paid by or on behalf of the Homeowners in relation to the work completed is $258,350.00. Papers delivered to the Homeowners On 28 February 2015, the Builder by Sarah Schols delivered to the Homeowners papers in relation to the project, some of which were signed by the Homeowners on that date, following their delivery. Relief - s48MA To the extent that section 48MA of the HB Act is applicable, in the exercise of its discretion the Tribunal ought not make an order under section 48MA. The principal reasons for the exercise of the discretion in that manner are the history between the parties and the breakdown of trust between the parties.

Procedural background

The parties have been legally represented pursuant to leave granted at the first directions hearing in HB 15/65625 on 8 February 2016. It is not necessary for the purpose of these reasons to recount the procedural history in detail, other than to note that the conduct of the proceedings has been prolonged by many instances of non-compliance with the Tribunal's procedural directions, by both parties. While the Owners' application was lodged on 8 December 2015, the Builder's claim was not lodged until 1 February 2017, despite a direction made on 8 February 2016 that it was to do so by 22 February 2016. When the hearing commenced on 22 March 2017 the Owners had not filed their Points of Defence to the Builder's cross application, there was no joint tender bundle as directed, and the parties' experts had not conferred. It took some further time for the experts to confer, including a further site visit after the second day of hearing.
The agreed Joint Tender Bundle was provided to the Tribunal on 17 August 2017, after the first two days of hearing during which the contents had been separately tendered. References in these reasons to the documentary evidence provide page references to the three volume joint tender bundle as "JTB".
At the conclusion of the hearing on 23 August 2017 directions were made including for a further hearing date if Mr Wallace, one of the Builder's witnesses, was to give oral evidence. The directions included directions for exchange of written submissions if that hearing date was vacated, including provision of an agreed transcript.
The agreed transcript was received on 20 November 2017. References to the transcript in these reasons are recorded as "T..".
The written submissions provided by the Owners are: 1. Submissions on contract law handed up on 21 August 2017 (Owner submissions (1)); 2. Further written submissions in chief on 20 November 2017 (Submissions 20/11/17); 3. Supplementary submissions on 12 January 2018 (Supplementary Submissions); and 4. Submissions in reply on 2 February 2018 (Reply Submissions).
The Owners' supplementary submissions of 12 January 2018 were provided pursuant to a direction made on 20 December 2017. The directions made on 20 December 2017 extended the date for the Builder to provide submissions to 12 January 2018, and leave was granted for the Owners to provide supplementary submissions in chief by 12 January 2018 on the following matters: (a) whether any, and if so, which, matters identified in the Points of Claim in HB 15/65625 are no longer pressed; (b) clarification of paragraph (113)(c); (c) any necessary cross references to the submissions on Contract law document dated 20 August 2017; and (d) any further submissions in chief on items (2)(iv), (v), (vi), (viii)-(xiv) in the written submissions dated 14 November 2017.
Paragraph (113)(c) of the Submissions of 20 November 2017 stated that the Owners' entitlement to damages included "The cost to service the loan from the contract date of completion 24 weeks after 1 April 2015 (item 12 JTB 171) or 16 September 2015 (which requires quantification)". The Supplementary Submissions annexed additional evidence in support of the Owners' claim for costs to service the bank loan and the cost of rent. No leave was sought, or granted, on 20 December 2017 or subsequently for the provision of any further evidence, and that additional evidence has not been taken into account.
The Builder's written submissions are: 1. Submissions in chief provided on 15 January 2018 (Builder's submissions); 2. Submissions in reply dated 2 February 2018, received on 6 February 2018 (Builder's reply submissions).

The Evidence

The Owners rely on the following evidence: 1. Statement by Shannon John Wykes 20 May 2016 (referred to below as SJW (1)); 2. Affidavit (unsigned) by Shannon John Wykes filed 10 March 2017 (SJW (2)); 3. Statement by Shannon Leigh Wykes (unsigned) filed 1 August 2016 (SLW (1)); 4. Statement by Shannon Leigh Wykes (unsigned) filed 17 March 2017 (SJW (2)); and 5. Expert report by Michael O'Donnell 24 June 2016, and a supplementary report dated 17 August 2017.
Mr Shannon John Wykes and Mrs Shannon Leigh Wykes gave oral evidence and were cross examined.
Oral evidence was given on behalf of the Owners on 22 March 2017 by Mr Gavin Reid, Ruff Rock Pty Ltd.
The bank provided documents relating to the Owners' loan under summons (ex M, JTB 1381-1502).
The Builder relies on the following evidence: 1. Affidavit of Martin Schols 12 February 2017 (MS(1)); 2. Affidavit of Martin Schols 22 March 2017 (MS(2)); 3. Affidavit Sarah Schols 10 February 2017 (SS); 4. Affidavit Steven Eldred 10 February 2017 (SE); 5. Affidavit Thomas Wallace 10 February 2017 (TW); 6. Affidavit of David Binfield 9 February 2017 (DB), and supplementary affidavit filed 22 March 2017; 7. Affidavit of Neha Sameer Pandya filed 22 March 2017; 8. Affidavit of Patrick Byrne 22 August 2017 (PB); 9. Expert reports by George Zakos 13 March 2017, and 14 March 2017.
Mr Martin Schols, Mrs Sarah Schols, Mr Daniel Binfield, Mr Patrick Byrne, and Mr Steven Eldred gave oral evidence and were cross examined.
At the time of the hearing Mr Wallace was residing in the USA. The Owners required him for cross examination. At the conclusion of the fifth day of hearing on 23 August 2017 a further date was set to enable Mr Wallace to give oral evidence in person, with a timetable for submissions should the parties agree that he was not required to give oral evidence. On 25 August 2017 the parties advised the Tribunal that they had agreed that Mr Wallace would not be required to give oral evidence on 3 October 2017, providing an agreement as to his evidence. That agreement was as follows: 1.Mr Wallace's evidence (Exhibit E) is to be admitted in full without the need for him to be cross examined. 2.The Homeowners are precluded from: (a)raising any issue as to Mr Wallace's credibility; and (b)making any submission that Mr Wallace's evidence should be given less weight by reason of him not giving evidence personally. 3.The Builder is precluded from taking the point that Mr Wallace's evidence must be accepted by the Tribunal because he was not cross examined. For example, if the Tribunal was to find that Mr Wallace's evidence was inherently implausible in light of the totality of the other evidence, it would be open to the Tribunal to give his evidence less weight for that reason (but not by reason of Mr Wallace's credit). 4.The Homeowners are not precluded from making submissions, notwithstanding they do not cross examine Mr Wallace, that: (a)Mr Wallace's evidence is irrelevant in whole or part; (b)In regard to the meaning to be applied to comments made by Martin Schols; (c)even if Mr Wallace assisted in drafting with the document to which he refers: (i)the author of a particular clause is not relevant to the document; and (ii)It does not mean that the document he may have assisted drafting was ever given to the Homeowners. 5.The Builder is not restricted in the submissions it makes about the weight or relevance to be given to Mr Wallace's evidence, other than in respect of paragraph 3 above, and may make submissions contrary to paragraph 4 above.
The parties' experts, Mr O'Donnell and Mr Zakos, conferred and produced two joint reports on 20 August 2017: Defective Works (ex 5), and on the cost of the works to date and the cost to complete (ex 6). The experts gave oral evidence concurrently on 23 August 2017.

1.What contract or contracts governed the relationship between the parties

The Owners' case is that there was a single contract, a fixed price contract, dated 1 April 2015. That was the only contract that complied with the HB Act, and was signed by both parties.
The Builder's case is that on 28 February 2015 the parties entered into a cost plus contract dated 28 February 2015 and on the same date, the Owners were provided with a fixed price contract document dated 1 April 2015. That document is referred to in the Schedule to the cost plus contract. The Builder requested the Owners not to use the fixed price contract, and there was another document also dated 1 April 2015, which is a different version of the fixed price contract, with larger carve outs. The intention was to provide that document to the bank to satisfy its requirements for a fixed price contract with flexibility.

The Contract documents

There are four documents in evidence, one in the form of a cost plus contract and three in the form of fixed price contract. In oral evidence the witnesses were taken to these documents as presented in a folder marked MFI 1, behind respectively Tabs A, B, C and D, in order of asserted (and disputed) dates. In order to avoid confusion with transcript references, these reasons refer to each of those documents by reference to the MFI 1 ordering. The documents are: 1. Tab A: HIA NSW Residential Building Contract for Works on a Cost Plus Basis (part of ex A, JTB 638-679); 2. Tab B: HIA NSW Residential Building Contract for New Dwellings (part of ex A, JTB 680-721); 3. Tab C: HIA NSW Residential Building Contract for New Dwellings (part of ex F, JTB 1172-1220 ); 4. Tab D: HIA NSW Residential Building Contract for New Dwellings (ex 4, JTB 500-546).
The Owners' position is that the Tab D document dated 1 April 2015 for a fixed price contract at $495,000 is the only executed contract and the only contract agreed by the parties. The Builder's position is that the Builder never agreed to enter into, and the parties never entered into, either the Tab B or Tab D Fixed Price Contracts, rather on 28 February 2015 the parties entered into the Tab A Cost Plus Contract, and the only contract documents the parties entered into were the Tab A Cost Plus Contract and the Tab C Fixed Price Contract.
The Tab D document bears the signature of each of the relevant parties, however the Builder's case is that that document is not in the same form as the document provided to the Owners on 28 February 2015, as the Owners have substituted the Progress Payments Schedule page, and in any event the Builder did not intend to be bound by that document. The Tab A document in evidence is signed only by Mr Schols, and the Builder's case is that in fact the Owners signed it when Mrs Schols took it to the baby shower, but have retained the signed copy.
All four documents identify the Owners and the Builder as the contracting parties. The evidence of Mr Schols and Mrs Schols that the handwritten sections of all of these documents, other than the signatures of other people, were in Mr Schols' handwriting was not disputed.
The Tabs A, B and C documents are in evidence as photocopies. The Tab D document is the original HIA booklet which is exhibit 4, with the Progress Payments sheet as a separate sheet of paper stapled to the booklet.

(1)Tab A

The Tab A document in the HIA NSW Residential Building Contract for Works on a Cost Plus Basis form is dated 28 February 2015. It identifies as sources of funds $200,000 (owner) plus $500,000 (lending body), with pre approval to borrow up to $1,000,000. The contract period is 24 working days/weeks (not specified); liquidated damages $1.00; charge out rates of $70.00 + GST per hour; a builder's fee of 10%, and a builder's margin for variations as 10%. Progress stages are "Generally on a monthly basis". The Sch 5 Description of Work is described: Construction of new custom designed four bedroom residence (subject to special conditions below) Estimated cost of building works $600,000-$650,000 (with basic inclusions), plus site and administration costs (see special conditions below) Shed and pool to be independently contracted by owners.
The Special Conditions are: Conditions re: proposed fixed price contract. -The bank will not lend to the owners on a cost plus basis, which was the costs basis previously agreed between the parties for the work -the bank requires a fixed price contract to provide finance -the builder will only work on a costs plus basis -parties agree that an estimated $500,000 (five hundred thousand) of the costs of the shed and building works (excluding any inclusions or site costs), will be set out in a fixed price contract so that the owners can obtain finance of up to $500,000 (five hundred thousand) to fund those aspects -even so, the parties agree that despite any wording to the contrary in the fixed price contract, the "fixed price" in the fixed price contract, plus all costs of the shed and/or building works, and any other work undertaken by the builder in relation to the shed, pool, site, admin or project generally, are all to be calculated by the builder and charged to the owners solely on the costs plus basis set out this contract and are to be paid for by the owners from their savings, together with any additional borrowings as necessary up to the pre approved $1,000,000 (one million dollars) -the parties agree that this costs plus contract is to prevail over any later fixed price contract to the extent of any inconsistency. Costs Estimated total cost of project $750,000 (seven hundred and fifty thousand) to $800,000 (eight hundred thousand) Subject to the following See "special conditions" 2 attached.
Special Conditions continued onto a second page: Costs continued -1:project in Goulburn - outside builder's usual trade area, so not access to usual contractors, which may increase costs -2:builder's usual 20% margin reduced to 10% (friends & family) -3:owners have access to friends and family, who will provide electrical and plumbing services at discounted rates, which may reduce costs, owners will provide free labour -4:inclusions of a basic level only allowed for -5:pool to be built by Rough Rock Pty Ltd. Initial indication of cost of $30,000 (thirty thousand) received from Marshall -6: shed: shed components and shed slab to be supplied by Ranbuild as per quote to owners ($50,000) (fifty thousand). Shed to be erected by owners -7: site and admin costs estimated at $50,000 (fifty thousand).
This document is initialled and signed by Mr Schols, with his signature witnessed by Mr Thomas Wallace.
In the Builder's written submissions this document is identified as "the Cost-Plus Contract". The Builder's case is that this document was taken by Mrs Schols to the baby shower on 28 February 2015, signed by Mr and Mrs Wykes, and retained by them.

(2)Tab B

The Tab B document is in the form of a fixed price contract using the HIA NSW Residential Building Contract for New Dwellings, and is dated 1 April 2015. The Contract price is $450,000 plus GST, $495,000; deposit $24,750.000; builder's margin 10%; contract period 24 weeks; liquidated damages $1.00. The "Sources of funds" section is not completed.
Schedule 2 Progress payments and stages are recorded in handwriting on what appears to be a separate sheet: 1 - 5% deposit = $24,750 Stage 2 - 5% deposit plus - completion of excavations, completion of house slab, 50% deposit of pool contract, 50% deposit of shed contract (includes slab). Initial rough in of electrical, gas, plumbing T = $108,500 20.91% Stage 3 - Delivery and erection of shed (final 50%) Electrical rough in and final fix to shed Supply, instal 2x 10ltr tanks to sub floor Supply, instal sewer treatment tank & dispersion T = $47,600.00 9.62% Stage 4 - supply and complete frame/floor, pitch roof and trusses Fascia and windows installed, structural heads installed T = $82,500 16.67% Stage 5 - close up - all blockwork/cladding/eaves/barges and roofing completed, rough in of electrical & plumbing, all insulation completed All external doors completed/locked Concrete polishing first cut T= $117,000 23.64% Stage 6 - fix out - completion of all wall & ceiling linings, architraves & skirtings completed, internal doors & furniture, cupboards & joinery installed T = $60,000 12.12% Stage 7 - painting and tiling completed, completion of pool (50% of contract) T = 52,150 10.54% Stage 8 - practical completion T = $7500 1.52% TOTAL = $495,000 = 100.02% Check this out guys, see if you agree, obviously there will be a bit of juggling
The Sch 4: Description of work is "Construction of new four bedroom residence, with new inground pool and large storage shed". Sch 6: Prime Cost and Provisional Sum Items is left blank. There are no Special Conditions.
This document is signed by Mr and Mrs Wykes and Mr Schols, with all three signatures witnessed by Gregory Farmer. Each page is initialled by Mr Schols and by one of the Owners, other than the Progress Payments page which is not initialled.
In the Builder's written submissions this document is identified as "the Sham Contract". The Builder accepts in submissions (Builder submissions [63]-[65]) that the version of this document in evidence is not a copy of the version as provided to the Owners: it has the addition of the Owners' initials and signatures, the witnessing of the Owners' signatures, and the witnessing of Mr Schols' signature. The Builder's case is that the Owners used this contract to construct the Tab D document.

(3)Tab C

The Tab C document in an HIA NSW Residential Building Contract for New Dwellings form is also dated 1 April 2015. It differs from the Tab B document: 1. in the list of sources of funds: The owner: $200,000 plus The lending body: $500,000 Other: Pre approval to borrow up to $1,000,000 Total funds: $1,200,000 1. the terms of the handwritten Progress Payment sheet are the same as those in the Tab B document, however 1. the 5% deposit is specified separately as Stage 1, and 2. there is no note "Check this out guys, see if you agree, obviously there will be a bit of juggling".
On page 6 the Sch 4 Description of Work is the same. Sch 3 Excluded Items (clause 18) includes "Please see Schedule 6". Schedule 6 Prime Cost and Provisional Sums Items is a six page handwritten document. Two pages are a list headed "P.C.Schedule" listing a number of items as "Not allowed", other than for floor and wall tiles, respectively 80m2 and 50m2 at $45.00 m2. For Provisional Sums, allowances are stated for concreting, electrical, plumbing, and painting work; no allowance is included for floor coverings, joinery, outdoor BBQ/entertaining area, pool and spa, shed, on site shipping container, driveway, landscaping and unforseen conditions of site. Estimated costs are provided for joinery ($40,000), pool and spa ($80,000), shed ($75,000), shipping container ($850), driveway ($9,000).
At the end of Sch 6 is: Special conditions - In the event that the amount expended in respect of any prime cost or provisional sum item exceeds the amount allowed for in Schedule 6 above, then the amount by which the allowance for the item is exceeded is to be calculated on a cost plus basis in accordance with the information set out in Schedule 2 of the costs plus contract dated 28th February 2015 (previously provided to the owners) and is to be paid by the owners to the builder as and when invoiced.
This document is signed by Mr Schols, witnessed by Mr Wallace. Each page is initialled by Mr Schols.
In the Builder's written submissions this document is identified as "the Fixed Price Contract". The Builder's case is that this document was left by Mr Schols behind the screen door of the Owners' home on the morning of 31 March 2015. The Builder accepts (Builder submissions [427.5]) that there is no evidence that the Owners signed this document.

(4)Tab D

The Tab D document in the HIA NSW Residential Building Contract for New Dwellings form is dated 1 April 2015. The Contract Price details, builder's margin, contract period and liquidated damages provisions are the same as for the Tab B and Tab C documents. The Sources of funds section is not completed. The Schedule 4 Description of Work is the same as in the Tab B and C documents.
The Schedule 2 Progress Payments list is the same as that in the Tab C document, with two exceptions. In the Tab D document Stage 1 5% Deposit $24,750 is listed separately at the top of the page. The same information is recorded at the top of the page in the Tab B document; Stage 2 includes a reference to "5% deposit plus", and there are two figures shown for Stage 2, the higher one (which includes the amount of the deposit) being crossed out, leaving the final figure $103,500 the same as it appears in the Tab D document. The second difference is that the Tab D document does not include the handwritten comment at the foot of the page "Check this out guys, see if you agree, obviously there will be a bit of juggling". In the original document tendered as exhibit 4, the Progress Payments page is a separate sheet of paper stapled to the booklet. That page appears to be a photocopy.
There is no reference to Schedule 6 at Sch 3: Excluded Items, and no list of exclusions.
This document is signed by Mr and Mrs Wykes and Mr Schols, all three signatures witnessed by Mr Farmer. Each page, including the Progress Payments page, is initialled by Mr Schols and one of the Owners.
In the Builder's written submissions this document is identified as "the Homeowners Manufactured Contract". The Owners' case is that this document was brought by Mr Schols on 1 April 2015 and discussed with them, and they later signed it and had it witnessed. It was common ground that this was the document provided to the bank.

Insurance documents

The insurance documents in evidence are: 1. Statement of Cover for Home Building Compensation Fund, issued 13 May 2015, contract price $495,000 and date 28 February 2015, with covering letter on Elders letterhead dated 20 May 2015 (JTB 764-770); 2. CGU Insurance Ltd Public Liability and Product Liability certificate of currency for Endurance Constructions (the business name of the Builder) dated 27 October 2014 (JTB 771); 3. Certificate of Currency Annual Contract Works Insurance for 24 March 2015-24 March 2016, contract value $495,000 (JTB 892) (CWI); 4. Quotation for Contract Works and Public Liability cover dated 6 March 2015, contract value $495,000 (JTB 893-4).
The application for home warranty insurance (HWI) is at JTB 634-637. It is dated 20 February 2015, states the contract price as a "standard fixed price/lump sum contract" at $495,000, and estimated date for contract signing as 28 February 2015, and estimated start date 1 April 2015, and is signed by Mr Schols.

Owners' submissions

The Owners rely in support of their contention that the Tab D Fixed Price Contract for $495,000, and not any alternative or earlier dated contract, is the contract applicable to the building works, on the following: 1. The surrounding circumstances looked at objectively were that on 28 February 2015 the plans were not complete and so any price applied would be inaccurate; 2. Of the bank's pre-approval amount of $790,000 for the house and land the land component was known and the remaining $500,00 was for the building project; 3. The Builder was limited by reason of the cap on value of work by the insurer to an amount of $500,000; 4. The evidence of Mr Schols that on 31 March 2015 he went to the Wykes' property with the second version of the fixed price contract including a new Sch 6 so as to reduce costs to about $495,000; 5. Payments were made in accordance with the schedule of payments in the Tab D document; 6. The cost plus contract has a special condition which purports to make it dominant over the fixed price contract however there is no reference in the fixed price contract to the precedence of the contract documents. Clause 14 of the fixed price contracts lists all the contract documents and clearly ascribes the precedence of the documents; 7. There is no correspondence in respect of the claims said by the Builder to have been made under the cost plus arrangement, and the correspondence points to the job continuing and not being delayed save the delay in release of payments by the bank; 8. There is no evidence of any communication requesting the return of the cost plus contract said by the Builder to have been signed on 28 February 2015 by 31 March 2015, or during the works, and no subsequent mention until 10 November 2015; 9. Looking at the parties' conduct and the chronology of events according to the evidence of Mr Schols, and overlaying the statutory requirements of the HB Act, the agreement was fluid until development consent was lodged on 12 March 2015 or 1 April 2015 the date of approval, and fell into the third limb of Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72, so that the intention of the parties was not to make a concluded bargain at all unless and until they executed a formal contract; 10. Based on the evidence of Mr Schols, on 30 March 2015 he wrote a new form of fixed price contract including sch 6 exclusions, which was a new bargain. This amended document was unilaterally changed and did not have the consent of the Owners, the result being that the contract was unilaterally abandoned by Mr Schols hence the pleading in quantum meruit.

Builder's submissions

The Builder submits that: 1. There were a number of meetings after the Owners purchased the land and before 28 February 2015 at which the parties discussed the type of house the Owners wanted to build, the financial basis of the build, the Owners' budget, what the Owners would need to budget for, and the plans, following which the Owners agreed with the Builder that all the work would be charged at the Builder's family and friends rate of cost-plus 10%, and no other potential financial basis for the building works was discussed or agreed; 2. On 7 November 2014 the Owners met with the bank and obtained pre-approval for a loan of $474,025; were told their borrowing capacity was up to $1,000,000 to build the house; and were advised that the bank would not lend on the basis of a cost-plus contract for less than $1million and required a fixed price contract; 3. The Owners sought a loan of $450,000 as they had $136,000 partly proceeds from the sale of the South West Rocks house which added up to just under $600,000 which was their budget as it had been discussed with Mr Schols and Mr Eldred; 4. On 11 November 2014 the Owners requested that the Builder enter into two contracts with them, a cost plus contract using the family and friends rate of cost-plus 10% and a fixed price contract to satisfy the requirements of the bank; 5. There was a meeting on 30 January 2015 at which the request for two contracts, including a fixed price contract for approximately $500,000, was discussed. While the owners deny this conversation took place they do not give any evidence of an alternative conversation or indicate how the contract went (on their version of events) from an owner builder to fixed price; 6. From December 2014 to February 2015 the Owners enlarged the house increasing the cost by $50,000, added a large shed increasing the costs by $75,000, and added a pool and spa increasing the costs by over $150,000; 7. as at 30 January 2015 the pool and spa and the shed were being supplied and constructed by third parties and did not form part of the building works undertaken by the Builder; 8. in discussions with the Owners from the time of purchase of the land in July 2014 to February 2015, at some of which (22 October 2014, 24 November 2014, 18 January 2015) Steven Eldred was present, the financial basis of the build was always on a cost plus basis, which is the usual basis on which the Builder does large jobs, his usual rate being cost plus 20%; 9. from December 2014 to February 2015 the Owners enlarged the size of the house and garage, added a large shed to the building works, and added a pool and spa to the building works, which increased the estimated cost of the building work by over $150,000 from the initial $600,000 to just under $900,000; 10. Mr Schols discussed his concerns about the contracts with Mr Wallace who assisted in preparation of the cost plus contract. On 28 February 2015 Mr Schols and Mr Wallace drafted the Tab A Cost Plus contract which included special conditions noting that the parties agreed to enter into a fixed price contract however to the extent that the fixed price contract was inconsistent with the cost plus contract, that contract was to prevail. That contract included estimates of the cost of the building works at between $600,000-$650,000, with the overall cost of the project being $750,000-$800,000; noting that extra costs would be incurred due to the project being outside the Builder's usual trade area, inclusions of a basic level allowed for, and site and admin costs estimated at $50,000; 11. On 28 February 2015 Mrs Schols took that cost plus contract (signed by Mr Schols) to the baby shower, and the Owners signed it, so that on 28 February 2015 the parties entered into the Tab A document cost plus contract; 12. On 28 February 2015 Mr Schols also prepared the fixed price contract (Tab B) which Mr Wallace refused to sign. Mrs Schols also took that contract to the baby shower but instructed the Owners not to sign it unless and until the Builder gave the go ahead; 13. On 11 March 2015 after advice was received from Mr Binfield, the insurance broker, the Owners were told that they were not to use the Tab B contract; 14. The Tab C fixed price contract was drafted by Mr Schols and Mr Wallace on 30 March 2015, to contain a fixed price component and a cost plus component. The fixed price component included the final progress payment schedule and completed Schedule 6; 15. Mr Schols left the Tab C fixed price contract, signed by himself and witnessed by Mr Wallace, at the Owners' residence on 31 March 2015; 16. The Owners retained, and did not provide to the Builder, all three contracts as at 31 March 2015, namely the Tab A cost plus contract signed at the baby shower, the Tab B contract they received on 28 February 2015, and the Tab C fixed price contract received on 31 March 2015; 17. The Owners amended the Tab B contract by swapping the draft progress payment schedule with the final signed version they had received with the Tab C contract, signed and initialled it, and organised for Mrs Wykes' father to witness all the signatures on it, to create the Tab D contract which they used to hold out to the bank and the Tribunal that they had entered a fixed price contract for $495,000 with the agreement of the Builder.

Legal Principles

In their written submissions of 21 August 2017 the Owners submit that by reference to the objective materials, the concluded bargain is to be found by reference to the executed fixed price contract, and the only contract is that fixed price contract (the Tab D document). Reliance is placed on the following passage from the decision of the Court of Appeal in Kriketos v Livschitz [2009] NSWCA 96 where McColl JA (with whom Allsop P and Macfarlan JA agreed) stated the principles in the following terms: 106 It is trite law that there is no contract unless two parties mutually consent to be bound one to the other by one agreement. However, as Higgins J thought it necessary to add to that statement of the law, "it is one thing for two parties to settle what are to be the terms of an agreement, if it should be made; and quite another thing to make the agreement": Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 (at 650), approved on appeal per Griffith CJ (at 666); O'Connor J (at 671); Isaacs J (at 671). 107 Whether a contract has been formed, and the terms of any contractual arrangement, requires objective determination: Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 (at [22]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 (at [40]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 (at [34]) per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 (at [25]) per Gaudron, McHugh, Hayne and Callinan JJ. 108 The exercise of objective determination requires the court to consider the text of relevant documents, and also the surrounding circumstances known to participants, and the genesis, purpose and object of the transaction, but not the participants' subjective beliefs: Pacific Carriers Limited (at [22]); Toll (at [40]); International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 (at [8]) per Gleeson CJ; (at [53]) per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; (at [127]) per Kirby J. The surrounding circumstances include the parties' relationship to one another: Ermogenous (at [25]). 109 "[P]ost-contractual conduct is admissible on the question of whether a contract is formed": Brambles (at [25]) per Heydon JA; see also Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R ¶90-263 (at [59]) per Campbell JA (Beazley JA agreeing); Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 (at [99] ff) per Giles JA (Hodgson and Campbell JJA agreeing); special leave to appeal refused: Sagacious Procurement Pty Limited v Symbion Health Limited [2009] HCATrans 23. 110 The conventional approach to the question whether a contract has been formed turns on determining whether there has been offer and acceptance, that is to say, a "clear indication by one party of a willingness to be bound on certain terms, accompanied by an unqualified assent to that offer communicated by the other party": J Carter, E Peden, G Tolhurst, Contract Law in Australia, 5th ed (2007) LexisNexis Butterworths at [3-02]. Offer and acceptance analysis is "normal" and "conventional": Brambles (at [74]). As McHugh JA (with whom Samuels JA agreed) said in Empirnall Holdings Pty Ltd v Machon Paull (1988) 14 NSWLR 523 (at 534): "The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror." 111 The respondent accepts that the clear indications called for by the conventional approach cannot be identified in the three letters. In particular, he concedes that the only letter from Mr Roth, that of 2 May 2002, contains no words of acceptance. He relies, however, on the authorities which support the proposition that some, albeit limited, recognition has been given to finding a contract even though it is not easy to locate an offer and/or acceptance: Brambles (at [71], [74]) per Heydon JA. As Giles JA said in Hendriks v McGeoch [2008] NSWCA 53; (2008) Aust Torts Reports ¶81-942 (at [10]), "[a] contract need not be made by formal offer and acceptance, or by an overt course of negotiation [and] [e]ntry into a contract can be found in the conduct of the parties, in what they said and did towards each other." 112 In Empirnall (at 534) McHugh JA observed "communication of acceptance is not always necessary", giving as an example cases where the offeror will be bound if he dispenses with the need to communicate the acceptance of his offer: see Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (at 269). There is no suggestion there had been any such dispensation in this case. It was necessary, therefore, on the respondent's pleaded case, to identify from the letters some communication on the appellant's part of his acceptance of an offer communicated to him by EML. 113 Even on what I might call the "non-conventional" approach, in order to conclude there is a binding contract, the exchange of the three letters must be seen to have constituted the parties' mutual communication of their "respective assents to being legally bound by terms capable of having contractual effect": Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 (at 627) per McLelland J (as his Honour then was); affirmed G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; there must have been "final mutual assent": Barrier Wharfs (at 660-661) per Higgins J; see also Brambles (at [71] - [81]) per Heydon JA. 114 The question whether such mutual assent was communicated turns on whether "viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain": Meates v Attorney-General [1983] NZLR 308 (at 377) per Cooke J, approved in Vroon BV v Foster's Brewing Group [1994] 2 VR 32 (at 82) per Ormiston J in a passage cited by Heydon JA with approval in Brambles (at [75]); see also Australian Woollen Mills Pty Ltd v Commonwealth [1955] UKPCHCA 3; (1955) 93 CLR 546 (at 555); Maxitherm Boilers Pty Ltd v Pacific Dunlop Insurances Pty Ltd [1998] 4 VR 559 (at 567) per Buchanan JA (Ormiston and Callaway JJA agreeing).
In support of their position that it is the executed contract that is the concluded bargain, the Owners submit that the bargain was not complete until the development application was lodged on 12 March 2015 or on 1 April 2015 the date of consent, and the agreement therefore fell within the third limb of Masters v Cameron, relying on the discussion by Einstein J in ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 665: 37 As already indicated, the question as to whether or not the parties entered into a subcontract and if so when, and on what terms, lies at the heart of the proceedings. It is next convenient to briefly examine the relevant principles in relation to this matter. In what follows I adopt the statements of principle to be found in John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43. [It is convenient to note that the parties tended before the Referee, as well as before this Court, to refer to what is sometimes termed "the fourth Masters v Cameron class" as "the Baulkham Hills class"]. The following passages are taken from John R Keith at [217]-[238]. "In view of the …submission relying upon either the first or second, or alternatively the so-called 'fourth' class in Masters v Cameron it is necessary to recall the three classes for which the decision of the High Court is authority. The passage in question at 360 is in the following terms: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution… Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own…"
The Owners further submit that based on the "objective contract theory" and the offer and acceptance model, there is a contract only when the parties agree and witness their agreement, usually in writing, conforming with the requirements of the HB Act. The other contract documents do not have primacy because they are not executed, the assumption must be that they are not agreed, and they do not comply with the obligations of the HB Act.
The Builder does not dispute the objective theory of contract, or the proposition that the intention of the parties as to the content of the contract is to be determined objectively. However, the Builder submits that in the circumstances of this case the Tribunal is not only entitled to, but must, consider extrinsic evidence beyond the contract to determine whether or not there was an intention to create a legal relationship based on the document; whether a particular document was a sham; and whether a particular document was merely a piece of machinery to serve some other purpose or meant to cloak another and different transaction.
As to an intention to create legal relations, the Builder submits that there was no intent to create a legal relationship on the basis of the Tab B or Tab D documents: Mrs Schols told the Owners they were not to use the fixed price contract until the Builder had received advice and provided his consent; the Builder consulted a number of people about his concern with the fixed price contract; that contract was not completed as it needed the payment schedule to be confirmed; and the document was provided at the same time as the Tab A cost plus contract which provided how the relationship between the parties was to be governed. An alternative characterisation of the effect of the conduct is that the Owners effectively agreed to hold the Tab B contract in escrow pending further instructions from the Builder in the period 28 February 2015 to 11 March 2015, and when the Owners were told that the advice was not to use that contract the escrow came to an end.
The Builder submits that the Tab B contract, which was prepared at the same time as the Tab A cost plus contract, did not reflect the true intention of the parties and was created at the request of the Owners as their bank would not lend on a cost plus contract, and it was not intended to be operative according to its tenor at all, but was meant to cloak another and different transaction. Further, both the pre-contractual discussions and post contractual conduct are inconsistent with the Tab B contract and the Tab D contract. If the Tribunal were to find that the Tab D contract was the contract signed by the parties the same issue would arise.
The Builder relies on the decision of the Full Court of the Supreme Court of South Australia in Pickersgill v Tsoukalas [2009] SASC 357 (White J, Anderson and Kourakis JJ agreeing), in which the following principles were stated (citations omitted): 35.The conventional contractual principle is that, absent some vitiating element such as misrepresentation, duress or mistake, or a claim for equitable or statutory relief, a person signing a document which is intended to effect legal relations is bound by its terms. A second principle is that ordinarily direct statements by contracting parties of their subjective intentions are inadmissible to contradict the language of the written contract. These were the principles upon which the defendants relied, both at trial and on appeal. 36.The contractual principles just mentioned apply when the parties intend the signed document to effect their legal relations. They do not apply in the same way when the parties intend the document to be a sham, ie, that the document should not have any legal effect, or the apparent legal effect which it suggests on its face. 37.The term "sham" is one which can be given a variety of meanings. In this case, the plaintiff contended that the September document was not intended to have effect as a fixed price contract but was expressed as such a contract with a view to facilitating the defendants obtaining bank finance. The plaintiff's claim, in other words, was that the September document had been drawn as a fixed price contract for the purpose of assisting the defendants in a deception of their bank but not to reflect their true agreement. This is a sham in the strict sense discussed in the authorities. In Sharrment Pty Ltd v Official Trustee and Bankruptcy Lockhart J said: A "sham" is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive. 38.In Scott v Federal Commissioner for Taxation (No 2) Windeyer J expressed the concept in similar terms: On the other hand, if the scheme, including the deed, was intended to be a mere façade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, the words of the deed should be disregarded ... A disguise is a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a façade, a sham, a false front - all these words have been metaphorically used - concealing their real transaction ... In Raftland, Kirby J reviewed some of the Australian authorities and concluded that an essential element in the legal notion of sham was an intention by the parties not to give effect to the legal arrangements set out in their apparent agreement, understood only according to its terms. 39.The determination of whether a document is a sham in the sense discussed above involves an examination of the parties' subjective intentions. Despite the law's aversion to admitting evidence of subsequent conduct as an aid to the construction of contracts, such evidence is admissible in cases of alleged sham in relation to the subjective intentions of the parties at the date they entered into the impugned document. It is evidence going to the existence of the parties' contractual relationship rather than to the terms of that relationship.
The Builder further relies on the High Court decision in Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21; (2008) 238 CLR 516, where Gleeson CJ, Gummow and Crennan JJ said (citations omitted): 33…..In various situations, the court may take an agreement or other instrument, such as a settlement on trust, as not fully disclosing the legal rights and entitlements for which it provides on its face. If that be so, the parol evidence rule …does not apply. 34.One such case is where other evidence of the intentions of the relevant actors shows that the document was brought into existence "as a mere piece of machinery" for serving some purpose other than that of constituting the whole of the arrangement. … 35.The term "sham" may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd, Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a "sham"; the term, when "[c]orrectly employed", denoted an objective of deliberate deception of third parties. 36.The presence of an objective of deliberate deception indicates fraud. This suggests the need for caution in adoption of the description "sham". However, in the present litigation it may be used in a sense which is less pejorative but still apt to deny the critical step in the appellant's case….
The Builder submits, based on Raftland, (and Jervis v Berridge (1873) LR8 Ch351; Sunraysia Harvesting Contractors Pty Ltd (Trustee) v Commissioner of Taxation [2017] FCA 694), that while reference to agreements being a "sham" can connote an intention to defraud in some circumstances, it is clear that oral or other extrinsic evidence may be considered even where the facts do not amount to deliberate deception or fraud. Although much of the jurisprudence concerning sham agreements or agreements cloaking another transaction occur in cases concerning revenue or taxation law the same principles have been applied in other transactions, relevantly, building contracts (Pickersgill). The Builder submits that the facts support a finding that the Tribunal can, on the basis of extrinsic evidence, decline to give effect to the Tab B (or Tab D) document as a sham or as a piece of machinery to serve some purpose other than constituting the arrangement between the parties.
The primary case for the Builder is that the parties signed and entered into the cost plus contract (Tab A document). If the Tribunal does not accept that the evidence establishes that that document was signed by the Owners, the Builder submits that a contract on that basis was formed by the conduct of the parties, based on the evidence that the parties discussed the build being on a cost plus basis; the Tab B document was prepared so the Owners could obtain finance and was merely a piece of machinery for that purpose and did not reflect an intention of the parties to form legal relationship; and the build proceeded and was conducted in such a way that the Owners were trying to make cost savings and the Builder kept Mr Wykes appraised of quotes; and the Builder provided invoices for the cost plus contract to which the owners made no objection.
In summary, the Builder submits that the pre and post contract conduct of the parties is relevant to: 1. the Owners' proposition that the Builder's case of a cost plus contract is a recent invention; 2. determination of whether there was an intention to create legal relations by a particular contract; 3. whether there were inoperative agreements including sham agreements or agreements which mask the true transaction; 4. the assessment of the credibility of the witnesses' evidence; 5. whether a particular contract was entered into or its terms; 6. determination of whether there has been a variation to a contract; and 7. determination of whether there has been formation or acceptance of a contract by conduct.
In their submissions in reply (2 February 2018) the Owners respond at para [131] to the Builder's legal analysis at pp 122-147 of its submissions stating "These submissions are addressed in the sum total of the [Owners'] submissions". The Tribunal understands that to be a restatement of the Owners' reliance on the objective theory of contract and on the executed fixed price contract. At para [132] the Owners state that the one exception is the Builder's "direction to the matter of Tsoukalas v Pickersgill & Harvey on the basis that it is 'all fours' with the present proceedings", and the Owners submit that Pickersgill can be distinguished.
Given the difference of views as to the relevance of Pickersgill, it is helpful to discuss what that case decided. Pickersgill was a dispute between a builder claiming damages comprising the cost of work carried out together with a margin, and the developers in a counterclaim claiming damages for the costs incurred in having the construction of a dwelling completed by others. The development involved the subdivision of land owned by the developers into two parcels and construction of a dwelling on each, one to be the developers' residence and the other sold as a house and land package to a Mr Price. The contract with Mr Price was subject to a condition that the developer execute a contract with a builder for construction of a dwelling for $115,000. At first instance the developers asserted that the builder performed the work under two fixed price contracts, one with Mr Price and the other with themselves. The builder asserted that the written contract between himself and the developers was a sham, the real agreement being an oral cost plus agreement under which he would charge them the costs incurred in building both dwellings plus a margin of 10% with credit of $115,000 being the sum to be paid by Mr Price to the builder. The trial judge found that the fixed price contract was a sham but was not satisfied that the parties had agreed on an oral cost plus arrangement. He was satisfied that the developers had agreed to pay the builder the amount by which the costs of construction of Mr Price's dwelling (excluding variations) exceeded $115,000, and awarded the builder the amount of his claim on a quantum meruit. The developers' counterclaim was dismissed: Tsoukalas v Pickersgill & Harvey [2008] SADC 32.
The trial judge was satisfied that neither party intended to be bound by the fixed price contract notwithstanding that they signed it, and was satisfied that they both signed so that the bank would lend the developers the money to proceed with the project; and that both parties regarded that contract as a sham, and their subsequent behaviour confirmed that. On appeal, the trial judge's conclusion that the contract was a sham was upheld: Pickersgill at [94]. The Full Court held that the trial judge's conclusion that the parties had not agreed on an oral cost plus arrangement was inconsistent with that finding, and having considered the evidence before the trial judge concluded that the parties had agreed on a cost plus arrangement, notwithstanding that the evidence did not disclose a precise conversation or meeting at which the cost plus agreement was finalised, at which it could be said that with certainty that there had been a "meeting of the minds": Pickersgill at [72].
In reaching that conclusion, the Full Court relied on the NSW Court of Appeal decision in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11.110, in which McHugh JA (with whom Hope and Mahoney JJA agreed) had held (citations omitted): It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of "offer", "acceptance", "consideration" and "intention to create a legal relationship" which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship….Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words…The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract…Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances…. …Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled.
The Full Court concluded that the true arrangement between the parties was that the builder would build the two homes on a cost plus basis, giving the developers credit for the sum of $115,000 to be paid by Mr Price. The amount to which the builder was entitled on a cost plus basis was $115,265.93, which was the amount he was awarded on a quantum meruit basis. The Full Court rejected the developers' submission that the evidence had not disclosed the receipt by them of any relevant benefit so as to warrant a quantum meruit, and concluded that if, contrary to the conclusion that there was a binding cost plus agreement, the trial judge had been correct in making the award on the basis of a quantum meruit.
The Owners submit that Pickersgill can be distinguished from the present case on a number of grounds (Reply Submissions [133]-[141]). The Builder accepts that there are differences between Pickersgill and the present case, however submits (Builder submissions [306]-[307]) that the differences make the Builder's case even more compelling. It is not necessary to engage with the parties' disagreement as to the extent to which Pickersgill is distinguishable on its facts. That decision is authority for the proposition that even in circumstances where the only document in evidence signed by all the parties is a contract in a particular form, and even if the precise occasion on which the necessary meeting of the minds occurred cannot be identified, the evidence may support the finding that the contractual relationship between the parties was constituted by an oral agreement of a different form.
The Tribunal is required to determine what was the contractual relationship between the parties. The Tribunal must first consider whether, and if so, on what basis, there was a contract. Whether or not any such contract complied with the requirements of s7 of the HB Act is a separate issue, going to the issue of enforceability of that contract under s 10 of the HB Act. For there to be a contract there must have been an agreement between the parties as to the terms, and an intention to create a legal relationship. Whether a contract has been formed, and the parties' intention as to the content of the contract, are to be determined objectively. In making that determination the Tribunal is required to consider not only the text of the relevant documents, but also the surrounding circumstances known to the parties, including their relationship to one another: see Kriketos v Livschitz (and the authorities cited therein). The recognition in Integrated Computer Services that in an ongoing relationship it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled is particularly apposite in the present circumstances, not least because of the conflicts in the lay evidence. While this was not a "commercial arrangement", the relationship between the parties was one of longstanding friendship and ongoing social contacts. In the present circumstances, the Tribunal is entitled to have regard to the acts and conduct of all the parties, bearing in mind that the conduct of the parties must be capable of proving all the essential elements of an express contract: Integrated Computer Services.

The evidence as to the contractual relationship

The documentary and oral evidence as to the formation of the contractual relationship between the Owners and Builder is extensive. Mr and Mrs Wykes each provided two written statements, the second responding to the affidavit evidence of Mr Schols, Mr Eldred and Mr Binfield. Both were cross examined at length. Mr Schols provided two affidavits, the second after he had received the second affidavits of Mr Wykes and Mrs Wykes. Mrs Schols provided an affidavit. Mr and Mrs Schols were cross examined. The Builder relies on the further evidence of the draftsman, Steven Eldred, the insurance broker Daniel Binfield, carpenter Daniel Byrne, and friend Thomas Wallace.
The affidavit evidence of Mr and Mrs Wykes was consistent, and in summary is: 1. At a meeting with Michelle Milner of the Commonwealth Bank on 7 November 2014 they discussed their borrowing capacity at $900,000, and sought pre-approval for $400,000. At that meeting they inquired about the possibility of doing the build on an owner builder basis, and they were informed that the bank would not lend on that basis and they would need a fixed price contract (SLW (1)[4], SLW (2)[60]), SJW (1)[12]); 2. They did not want a project home or kit home and their original idea was for a four bedroom country style house with a verandah around it (SJW (1) [15]). They wanted polished concrete floors (SLW (2)[8]). In November 2014 they decided to include a pool and shed, and to extend their loan up to $500,000 (SJW(1)[15], SLW(2)[4]); 3. Their budget for the house build was always $400,000-$500,000 (SLW(2) [4]); 4. At the baby shower on 28 February 2015 Mrs Schols brought with her insurance papers which they signed (SJW(1)[24]); 5. On 1 April 2015 Mr Schols brought the fixed price contract which he had already signed and went through it with them, and they signed it later when they had a witness (SJW(1)[35], SLW(1)[10], SLW(2)[32]); 6. In June 2015 Mr Schols asked them to provide a list of inclusions for the bank. Mr Wykes states that Mr Schols emailed an inclusions list to him (SJW(1)[56]); Mrs Wykes states that she asked Mr Schols what was needed for the list (SLW(1)[12], SLW(2)[83]); 7. On 15 October 2015 there was a meeting on site with a representative from New Image Kitchens to discuss "Kitchen/Bathroom/Wardrobes" (SJW(1)[95], SLW(1)[15]); 8. On 10 November 2015 Mr Schols told them that he had spent over $499,000 on the build and would need another $300,000 to complete the house (SJW(1)[96], SLW(1)[18]); 9. The only invoices they received from Mr Schols were those relating to the progress payments in accordance with the fixed price contract (SLW(2)[33], SLW(2)[58]); 10. On 11 November 2015 there was a meeting at the bank with branch manager Janelle Gay and loans officer Michelle Milner, and when Mr Schols arrived Ms Gay stated that the matter was in dispute and the funds would be put on hold (SJW(1)[97], SLW(1)[19]).
The evidence of Mr Schols in summary is: 1. At a dinner on 5 July 2014 when the Owners discussed their proposed purchase of land, he told them that buying a 5 acre block and building a custom home would be expensive, and likely to be $2,500 per square metre instead of $1,500 for a project home, with higher site costs which could cost up to $100,000 extra. He said he could build for $600,000 if it was in the Southern Highlands but he did not know subcontractors in Goulburn (MS(1)[17]); 2. On that occasion he told the Owners he would try to build for $500,000, but would have to do it cost plus on which he would discount his margin from 20% to 10% (MS(1)[17]); 3. This was the first house he had been involved in designing and building from scratch (MS(1)[6]); 4. On 11 November 2014 after the bank said it wanted a fixed price contract, Mrs Wykes suggested having two contracts, a fixed price contract for $500,000 and a separate cost plus contract for whatever the cost was above that (MS(1)[41]); 5. On 19 January 2015 he borrowed $50,000 from his father to cover up-front costs of the draftsman, insurances, engineers reports, Council fees, earthworks and other costs (MS(1)[60]); 6. On 30 January 2015 with the plans almost complete he and the Owners discussed contracts, with the Owners saying they needed some sort of fixed price contract for $500,000 to give to the bank, and a cost plus contract for the cost of the whole job. The shed was discussed, and he estimated the cost of the build at $800,000 plus site costs if the shed and pool were included (MS(1)[63]); 7. On 28 February 2015 he sought advice about having two contracts, and he drafted a cost plus contract and a basic fixed price contract. He signed both and Mr Wallace witnessed his signature on the cost plus contract. He copied both, and Mrs Schols took both to the baby shower. He asked her to ask the Owners not to do anything with the fixed price contract until he had checked with Daniel Binfield about insurance (MS(1)[70]-[74]); 8. On 30 March 2015 he and Tom Wallace drafted a new Schedule 6 to the fixed price contract, which carved out everything except the basic house construction cost (MS(1)(94]); 9. On 31 March 2015 he left the new fixed price contract and insurance documentation behind the screen door of the Owners' home (MS(1)[99]); 10. He first became aware that the Owners had signed the first fixed price contract and provided that to the bank at the meeting with the bank on 11 November 2015 (MS(1)[101]); 11. He provided the invoices referred to in the Statement of Agreed Facts to the Owners on 22 June 2015 (17 October 2014-20 June 2015) (MS(1)[169]), 11 August 2015 (22 June-9 August 2015) (MS(1)[212]), 2 October 2015 (10 August - 20 September 2015) (MS(1)[266]), and 10 November 2015 (21 September-1 November 2015 ((MS(1)[290]), and the final invoice for the period 1-11 November 2015 was posted to them (MS(1)[323]).
Mr Schols' evidence as to the drafting of the cost plus and fixed price contracts is supported by Mr Wallace. In his affidavit (JTB1156-1165) Mr Wallace states that he has known Mr Schols since school and has been in regular contact with him since 2008. While not a lawyer, he has held various senior management roles and in his current role as general manager often deals with contracts, negotiating and drafting contracts to be settled by a lawyer. Mr Wallace states that he had discussed the project with Mr Schols in mid to late 2014, and that in February 2015 Mr Schols asked for his help in drafting the contracts, one to protect himself and one to help the Owners get their loan. In his affidavit he recalled that on 28 February 2015 when he and Mr Schols were preparing the documents, the fixed price contract was largely not filled out, had no PC or provisional sum items and the progress payment schedule had not been finalised, and made no allowances for any inclusions (TW [14]-[16]). Mr Wallace states that he understood that that was not necessary because those things were covered by the cost plus contract which was worded so it overrode the fixed price contract; as he understood it the only real purpose of the fixed price contract was to provide a fixed price to the bank from which the bank could provide finance. He drafted the wording for the special conditions for the cost plus contract, which appears at pp23-25 of the Tab A document. He witnessed Mr Schols' signature on the cost plus contract but declined to do so on the fixed price contract as he "was not sure it was above board". He suggested that Mr Schols talk to Mr Binfield to see if it was OK from an insurance point of view.
Mr Wallace states that on 30 March 2015 he helped Mr Schols write out the schedule for the fixed price contract which carved out the shed and pool as well as most of the inclusions and made allowances for other trades, and he came up with the wording of the special condition stating that he could charge for anything in addition to the allowances set out in the fixed price contract on a cost plus basis and by suggesting that he make references to the schedule in the various sections of the document he was leaving blank. As far as he could recall, the wording in the fixed price contract and the wording in Schedule 6 in the Tab C document is the wording he suggested (TW[18]). He witnessed Mr Schols' signature on the fixed price contract as that fixed price contract was in his view a legitimate contract (TW[20]).
The Tribunal notes the agreement between the parties as to the admission of Mr Wallace's affidavit evidence. The Tribunal accepts this evidence as supporting Mr Schols' evidence as to the drafting of contract documents on 38 February 2015, and 30 March 2015.
In his affidavit (JTB1141-1149) Mr Eldred states that he has worked as a draftsman for 40 years, and was contacted by Mr Schols in September 2014. In that conversation Mr Schols stated that he was trying to keep the cost for the completed house excluding site costs and other extras down to around $500,000 if possible, and that he was charging the Owners his usual cost plus rate for family and friends. Mr Eldred confirms that at the meeting on site with the Owners on 22 October 2014 the cost plus basis of the build and the ballpark budget of $500,000 were discussed. He records that on 24 November 2014 when discussing a preliminary design drawing with the Owners he offered to do detailed drawings for joinery for the kitchen bathrooms, laundry etc after he had done the full working drawing; and the Owners stated that they had no idea at that stage of inclusions, finishes or joinery; all they knew was they wanted a polished concrete floor (SE[22] JTB1146). His initial design for the house alone did not include a pool, spa, or shed. Mr Eldred confirmed Mr Schols' evidence as to the addition to the plans of the pool and shed plus spa late in 2014, and the increase in the size of the house and garage and consequent $50,000 increase in cost discussed with the Owners on 18 January 2015 (SE[33] JTB1148). He confirms the changes in May 2015 to the plans to move the location on the site of the shed and house, the changes to the windows, and the change to the doors (SE[36)]; and the amendment of plans in late May 2015 for a s96 application (SE[38] JTB 1149). In cross examination Mr Eldred confirmed that he redrew the site plan and altered the other drawings (T 444), and that was the end of his involvement with the project.
Daniel Binfield, the brother in law of Mr Schols, is the franchise operator/agency manager for Elders Insurance and has worked in the insurance industry since 1994. His affidavit evidence was that Mr Schols completed application forms for Contract Works Insurance (CWI) and Home Warranty Insurance (HWI) late 2014-early 2015, and that Elders was agent not underwriter for those. He confirmed Mr Schols' evidence that he had said it was his first time doing a new build from scratch, and states he was aware from discussions over many years in social situations that Mr Schols does "custom building work, including renovation and extension work, and was not a builder who was knocking out project homes"(DB[6] JTB1152). In early March 2015 when Mr Schols asked his advice about the two contract arrangement, he told him not only would two inconsistent contracts be a problem for the bank, but it would be a problem for his insurance (DB[9] JTB1153). He suggested doing the same thing another way, noting that he had already put on the insurance that the build was fixed price, and suggested that he only include in that what could easily be priced then exclude or have allowances for everything else.
The application for HWI is in evidence, but not the application for CWI. In oral evidence Mr Binfield could not explain why, stating that it would be his usual practice to keep it, however he had produced a copy of everything he had on his file (T 400). In any event there was no requirement for the homeowner to sign the CWI application as they are not party to the cover (T401). Mr Binfield stated that he had reviewed the file for the project and searched emails for the period 1 January 2015-30 June 2015, and there were no documents signed by either of the Owners in relation to insurance for the project, and no requirement for them to sign any insurance documentation.
On the final day of hearing, the day after Mr Binfield had given evidence, the Builder sought to tender additional documents, being a blank copy of the current application form for Contract Works Insurance, and a copy of the form said to have been signed by Mr Schols which had been retrieved from Mr Binfield's files and forwarded to the Builder's solicitor. The tender was objected to, and rejected, with reasons to be given later. In support of the tender the Builder's representative submitted that the issue of a CWI application form had not been raised until in cross examination of Mr Binfield, and it was the HWI that was critical until that point; the email from Mr Binfield to Mr Barnes attaching an email from his staff member could be tendered or Mr Binfield recalled; there was no real prejudice to the Owners; and in the absence of the document the Tribunal would have to rely on submissions. The Owners submitted that there was no utility in admitting the document as it provided only further circumstantial evidence which was available previously.
The reasons for the rejection of the tender were first, that directions had been made over the months leading up to the hearing for provision of all documentary evidence on which the parties proposed to rely; Mr Binfield's affidavit evidence, provided five and six months before he gave oral evidence, included his review of his file in terms consistent with his oral evidence; and both parties had had legal representation throughout the proceedings and there was no explanation as to why if Mr Binfield had provided his file the document had not been located earlier. Secondly, while the circumstances of the late production of the document could be clarified by some short further evidence from Mr Binfield, given the submissions made by the Builder as to the significance for the evidence of both Mr Wykes and Mr Schols, to admit the documents at the end of the hearing could well generate a need for further evidence from at least those two individuals, further extending the hearing time required. In the absence of those documents Mr Binfield's evidence, both affidavit and oral, that none of the insurance documents required a signature by the Owners, would stand. In those circumstances the Tribunal was not satisfied that to admit the documents, with the risk of delay and further cost, would be consistent with the obligations expressed in s36(2) or (4) of the Civil and Administrative Tribunal Act 2013 (NCAT Act), or the general principles for case management explained by the High Court in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27.

Consideration

It was common ground that there were discussions between the Owners and Mr Schols about the purchase of the land, and about building the house, and that Mr Schols introduced the Owners to Steven Eldred who prepared the plans for the house. There is a contest as to whether during those discussions the contractual basis for the build was discussed or agreed. There is a further contest as to what documents were provided to, and signed by, the Owners, both at the baby shower on 28 February 2015 and afterwards; and whether invoices were provided by the Builder to the Owner for work other than that reflected in the progress stages in a fixed price contract.
Much of the dispute between the parties as to those issues goes to the truthfulness of what each has recorded as to meetings, conversations and associated conduct. It should be noted that while in these proceedings the Tribunal is not bound by the rules of evidence (s38(2) NCAT Act), in making findings as to which version of events is to be believed the Tribunal is required to make findings of fact based on logically probative material. Each party bears the burden of proving in their respective application the matters raised in their Points of Claim, on the balance of probabilities. There are significant amounts of money at stake for each of the parties and other potentially serious consequences for each depending on the findings and the outcome. While fraud is not pleaded or alleged, the Builder's case depends in part on a finding that the contract on which the Owners rely was a sham, in the sense discussed in Pickersgill at [37] and Raftland at [33]-[34]. The Owners' case relies on the proposition that the evidence of Mr Schols and the other witnesses in the Builder's case supporting a finding that there was at least an oral cost plus contract should not be accepted. In those circumstances, the approach to be taken to the evidence is that identified by the High Court in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, noting that where there are serious consequences, it is insufficient to rely on "slender and exiguous proofs" (per Rich J at 350), or "inexact proofs, indefinite testimony, or indirect inferences" (per Dixon J at 362).
In order to make findings on matters where there is a contest, the Tribunal has where possible had regard to any external or independent corroborating evidence. In that regard, the Tribunal notes that other than on the issue of the identity of the concrete supplier and the bank records summonsed by them, the Owners' case is based primarily on their version of events and conversations as recorded in their affidavits and in oral evidence. While the Builder's case is supported by affidavit and oral evidence of others, much of the evidence as to conversations with the Owners, some of which is recounted in elaborate detail, does not distinguish between Mr and Mrs Wykes.
Given the extent of the documentary and oral evidence, and the detail to which the Builder in particular took the written submissions, it is simply not possible in these reasons to identify and respond to all matters of detail. In addressing the evidence and the submissions as to the findings to be made and conclusions drawn on that evidence, the following consideration focusses on the critical stages going to the issue of whether a contract was formed, and if so, what were its terms: the discussions between the parties as to the basis of the build; the preparation and amendment of the plans; the preparation and provision of the contract documents; and the progress of the build, including invoices and payments.

1.The basis of the build

It was common ground that Mr and Mrs Wykes and Mr and Mrs Schols discussed the build before the purchase of the land at dinner at the Schols' home on 5 July 2014, and after the land was purchased at a meeting on 31 August 2014 on site and later at a hotel, and at the Schols' home on 31 December 2014 and on 30 January 2015. It was common ground that there was a meeting between the Owners and Mr Schols on 24 September 2014, and meetings involving Mr Eldred on 24 November 2014 and 18 January 2015.
The Owners deny that on those occasions there were discussions about a cost plus contract, and their evidence, maintained in cross examination, was that they had not heard of a cost plus contract until the meeting at the bank on 11 November 2015. They deny ever telling Mr Schols that they intended to spend $600,000 on a house. They maintained in their affidavit evidence and in cross examination that while they had pre-approval from the bank to spend up to $900,000 (including the land purchase), they did not want to borrow that much and told Mr Schols that they only wanted to spend $400,000 and were assured that he could build them a house for that. Once the decision was made in January 2015 to include the pool, shed and spa in the plans, Mrs Wykes' evidence was that they went to the bank to seek an increase to $500,000; however in cross examination she could not recall when that was, only that it was before 1 April 2015. She subsequently stated that she spoke to the bank, that whether she went back or spoke to the bank on the phone or emailed, there was some form of communication (T94). The Owners deny ever having a conversation in which costs per square metre or extra site costs were discussed. The Owners deny ever receiving documents or invoices from Mr Schols for the work done, other than invoices in accordance with the fixed price contract, until 10 November 2015. They deny receiving contract documents left by Mr Schols behind the screen door on 31 March 2015. Their evidence is that the only contract document they saw was the document discussed on 1 April 2015 (SLW(1)[10], SLW(2)[70], [76]). Mrs Wykes denies ever asking the Builder for two contracts (SLW (2) [61], [70]).
The evidence of Mr Schols on the other hand was that from July 2014, before the Owners purchased the land and after, the discussions about him building the house were on the basis that the build would be a cost plus basis. His evidence was that at the dinner on 5 July 2014 in discussion about building on the 5 acre block he said he would be happy to build a custom home but it would be more expensive than a project home: the per square metre cost would be higher; there would be higher site costs on acreage; he did not know Goulburn trades; and he would do it cost plus which is what he always does for family and friends, at $70/hr plus 10% margin. Mr Schols' evidence was that there was a similar discussion at the hotel on 31 August 2014.
That evidence is supported by Mrs Schols, including her evidence that at the dinner on 5 July 2014 there was a reference to Mr Schols doing work for family and friends on a cost plus basis with a discounted rate of 10%, and a conversation on 30 January 2015 at which the Owners confirmed that they needed a fixed price contract to get their loan, in which the Owners said "If you do the fixed price contract we need for the bank we'll sign whatever cost plus contract you need to cover yourself" (SS[30] JTB 1135).
It is also supported by the evidence of Mr Eldred, who stated that the cost plus basis of the build was discussed at the meeting with the Owners on 22 October 2014 when he first met the Owners on site. His affidavit evidence was that at that meeting after discussing the Owners' brief of their requirements, he told them he had been given a ballpark budget of $500,000 for construction costs for the purpose of sizing the design, and for a small private builder like Mr Schols he would expect the costs to be around $2,500 per square metre. The Owners said in that conversation that the build was to be whatever it cost plus 10%, and that to keep costs down a brother who was an electrician would do the electrical work for free and other friends would supply discounted trades and they would do as much of the labouring as they could (SE[14] JTB1144). While in cross examination Mr Eldred agreed that he could not identify whether it was Mr or Mrs Wykes speaking on that occasion, as the conversation was around the table (T438), his statement that the Owners confirmed a cost plus basis for the build was not challenged in cross examination.
It is not plausible that during the period after the Owners had decided not to go with a project home, and while they were looking at houses and then blocks of land, and in particular when Mr Schols was consulted about the purchase of the land at XXX XXX, there was no discussion between the parties as to what the issues might be for building a custom house on a 5 acre block, in particular that the site costs would be higher. In involving Mr Schols in the search for the land, and in asking him to build the house for them, the Owners were relying on his expertise derived from his experience as a builder. Mr and Mrs Wykes deny knowing that this was Mr Schols' first build from scratch, however that is not consistent with what otherwise appears to have been a relatively close relationship between the two couples over a number of years. Even if their evidence that there was no mention of the square metre rates for construction of a project home ($1,500) compared with a one-off home ($2,500) is to be accepted, it is implausible that their discussions with Mr Schols did not alert them to the fact that construction of a one-off house on acreage would be more expensive than a project home on a suburban block. The likelihood that Mr Schols discussed the issues that would impact on the cost of the build is supported by Mr Wykes' concession in cross examination that he understood that because of the block there would be a need for excavation (T 232). That Mr Schols expressed caution about the costs for a build in Goulburn, where he had not built before, is consistent with the evidence of Mrs Wykes, who, while denying that she or her husband said on 5 July 2014 that they wanted to borrow $500,000-$600,000 agreed that Mr Schols had said while he could build a house in the Southern Highlands he was not sure about Goulburn (SLW(2)[51] JTB 384). Mr Schols' evidence that he cautioned them that he did not know Goulburn trades is supported by the several text messages where the Owners provided contacts for local trades, including a local bricklayer (30 January 2015), plumber (30 March 2015), earthworks (2 June 2015), and a roofer (17 August 2015).
The Tribunal is satisfied that it is more likely than not that the factors which the Builder would need to take into account in determining what it would cost to build the house as contemplated by the Owners were identified and discussed, if not before the purchase of the land, then at some time before the Owners applied for the loan in November 2014. Further, the Tribunal is satisfied that it is more likely than not that the different contractual ways to manage the build were discussed, before the Owners applied for the loan to build the house in November 2014. That is the only way to explain Mr Wykes' statement (SJW(2)[91]) that Mr Schols "wanted us to do owner/builder and he be the project manager". Mr Wykes maintained in cross examination that Mr Schols had recommended that it be an owner builder loan, and that is what they inquired about when they went to the bank in November 2014 to apply for a loan to build the house. However, that is not consistent with his apparent lack of understanding in cross examination of how an owner builder construction would proceed, other than by stating that Mr Schols would be the builder that built the house; his acceptance that he had not investigated what an owner builder construction would entail; and his inability to identify any conversation at which Mr Schols recommended an owner builder construction (T 250-251). Mr Wykes conceded only that at some point there must have been a conversation about an owner builder loan (T 249), and later that that had been in the initial stages of discussing ways to do it (T 251).
Even if Mr and Mrs Wykes cannot recall ever hearing the term "cost plus" at any time until November 2015, having regard to the extended period of discussion about the project from early to mid July 2014, the Tribunal does not accept that they were unfamiliar with the concept that an alternative to a fixed price contract was one where the builder billed the actual costs of the build plus a margin. In reaching that conclusion the Tribunal notes that Mr Wykes' familiarity with the Builder's 10% margin (T214) is equally consistent with his understanding that the total price for a fixed price contract would include such an amount, as recorded in the three fixed price contract documents in evidence.

2.Preparation and amendment of the plans

The Tribunal accepts the evidence of the Owners that while they had pre-approval from the bank to borrow around $900,000 for the land purchase and the house construction, they wanted to keep their borrowing at a more manageable level. However, the Tribunal is not satisfied that the evidence of the Owners that there was never a suggestion that the house could cost more than the $400,000 they stated they wanted to spend should be accepted. The Tribunal finds that it is more likely than not that in the preliminary discussions before the plans were being drafted Mr Schols had told the Owners that site costs would be higher than for a suburban block, that the budget would depend on what level of fit out costs was chosen, and that he was not sure about the Goulburn trades.
That uncertainty as to final cost, and the likelihood that a cost plus basis to the build had been discussed, is supported by the evidence of Mr Eldred as to the basis on which he prepared the plans. He did not specify all details in the plans as he understood it was a cost plus arrangement, and had it been a fixed price contract Mr Schols would have needed to make sure he was in a position to quote based on the plans (SE[24], [25] JTB1147). His evidence (at [27]) that there was no way a builder could have quoted a fixed price on the house he drew without adding in PC and provisional sum items, that the details were not there on the plans as many inclusions and finishes were yet to be selected, and that space was allocated on the drawings for sinks, fridges etc based on standard size, was not challenged in cross examination. In cross examination Mr Eldred confirmed that he was working on a budget of $500,000-$600,000 in October 2014 (T 437). Mr Eldred, a draftsman with 40 years of experience, was independent of the parties, and this was the first time he had worked with Mr Schols. The Tribunal accepts his evidence.
The plans drafted by Mr Eldred changed in late 2014 and early 2015, by the addition of the pool and spa and shed; the increase in size of the lounge/dining area and garage; the change in windows; and the change in the position of the house and shed on the land.
In their affidavits the Owners agree that they requested the change to the lounge/dining area and the garage at the meeting with Mr Schols and Mr Eldred on 18 January 2015. Mr Eldred's evidence was that Mr Schols told them it would add around $50,000 to the costs, and that with the pool, shed and larger house they were around $700,000 plus site costs and other extras (SE[33] JTB 1148). The Owners deny being told that would add about $50,000 to the costs. However, in cross examination Mrs Wykes conceded (T 117) that she realised that an increase in the size of the living area and garage might possibly have had an increase in the price of the house. Mr Wykes also accepted that these changes would add to the cost of the build, and while he disputed having been told that it was $50,000, accepted that it would increase the price (T 268). The Tribunal prefers the independent evidence of Mr Eldred, and is satisfied that the Owners were informed of the increase in costs consequent on the increase in size of the home.
It was common ground that the pool and shed were added to the plans in early 2015. There is a dispute as to what the agreement was as to how that was to be paid for. Mr Schols' evidence at paragraph [63] of his first affidavit was that the Owners stated on 18 January 2015 that they had a quote from Ranbuild for the shed for around $50,000, and they would supply it and do the site work and slab, and the owners would build it themselves. In that conversation Mr Schols stated that the pool would cost over $100,000, and the Owners stated that they had a pool builder, Marshall from Rock and Water. Mr Schols' evidence was that the Owners asked him to put the shed and pool in the progress payments schedule, so the bank loan would fund them, and that they would reimburse him from their money after he had paid and when the bank paid him he would refund their money (MS(1)[118]).
That evidence is denied by the Owners. Mrs Wykes refers at [68] of her second affidavit to the special condition 5 in the cost plus contract (Tab A) which states "Pool to be built by Rough Rock Pty Ltd. Initial indication of cost of $30,000 (thirty thousand) received from Marshall", and comments that Ruff Rock (contact Gavin) was the company engaged to pour and polish the concrete for the house, and Marshall operates a company called Rock N Water Landscapes. Mr Wykes states (SJW(2) [36]) that any conversation about the pool and shed was with respect to agreement that it was going to be part of the build and the contract. However he was clear in cross examination that he arranged the quote, and while Mr Schols would do the site preparation he and a friend would put the shed up; it was agreed that he would build it (T 308, 310).
The Owners maintained throughout their evidence, including Mr Wykes in cross examination (T224), that they had never agreed to a budget of $600,000, they had told Mr Schols that their budget was $400,000, and they relied on his assurances that he could build them a house for that, and that that only changed when they decided to add the pool and shed and the budget changed to $500,000. Mrs Wykes' evidence was that having made that decision they contacted the bank to increase the loan. However that is not supported by the bank records, where entries by Michelle Milner record that the loan amount requested did not change from $450,000 from November 2014 (10 November 2014, JTB 1395) through to April 2015 (27 April 2015, JTB 1396). The only contact with the bank recorded in exhibit M after that date related first, to the bank's request in June 2015 for a list of inclusions so that the valuation could be done, and secondly, to the review of the loan in July 2015 when it became apparent that the Owners had a dependent and Mrs Wykes was on maternity leave, and the bank requested further documents confirming her income.
The changes to the location of the house and shed, and the windows, came in May 2015, after the plans had been submitted to and approved by the council. Mr Eldred's evidence was that moving the house and shed 17m further south towards the rear and 15m downhill from the eastern boundary resulted in consequent changes to the driveway and landscaping and also affected the floor levels. That is consistent with Mr Schols' evidence that the increased length of the driveway increased the cost of excavation and the length of services required to reach the house and shed (MS(1) [111]).The reason for that change was disputed: Mr Wykes' evidence was that the change was so as to comply with the council covenant (T 312); whereas Mr Schols' evidence in cross examination was that Mr Wykes confirmed with the Council that the site was not controlled by the 50m setback requirement, it did not have to be moved, and it was more expensive to move it where the Owners wanted it (T389). It is not necessary to resolve the dispute as to the reason for the change: what is important is that, based on the evidence of Mr Schols confirmed by Mr Eldred, the change added to the costs of the build. There is no indication in the evidence that if the change was because of some error by the Builder, either Mr or Mrs Wykes raised the question of who would be liable for the additional costs.
It was common ground that the changes to the windows were at the Owners' request. Mr Wykes' initial evidence (SJW(1)[19]) was that that was because the windows shown on the plan were too expensive and were going to cost too much. In cross examination, however, he was insistent that the change was so that there could be flyscreens on sliding windows, and the windows were not what they wanted, and not because they would be more affordable (T 321). Mr Schols confirmed in cross examination that the change to the windows reduced the schedule of doors and windows from $80,000 to $50,000 (T 385).
Ultimately in cross examination (T 232) Mr Wykes acknowledged that it would be reasonable to suspect that at some point the prices of things you pick could affect cost, however maintained that they had looked to Mr Schols as the builder as to whether that would fit into the budget.
The decision to add the pool and shed to the build which the Owners understood to come at an additional cost; the change to the lounge and garage which they also understood would cost more; and their evidence as to an understanding that choices such as for the windows would affect cost, are all consistent with the proposition that the Owners were aware that the ultimate cost of the build would be higher than the number on which they were insisting, and that at the time the plans were being prepared they and the Builder were working on an understanding that the ultimate cost of the build was not settled.

3.The contract documents

Mr Schols' evidence, supported by that of Mr Wallace, was that he drafted a cost plus contract and a fixed price contract on 28 February 2015. The Tribunal is satisfied that as at that date the plans were not finalised. The Tribunal accepts, based on Mr Eldred's evidence reflecting 40 years as a draftsman, that even when submitted to council the plans were not sufficiently detailed to enable a full costing on a fixed price basis, without knowing what the PC and provisional sum items were. The Owners accept (Reply Submissions [90]) that a schedule could not be prepared for a fixed price contract until 1 April 2015 when development consent was granted. The fixed price contract drafted on 28 February 2015, on Mr Schols' evidence, made no provision for inclusions or PC items or provisional sum items.
The Tab A document refers to "Rough Rock Pty Ltd" as the proposed builder of the pool, with the initial indication of cost of $30,000 received from "Marshall". Mr Schols (MS(2)[8]-[32]) explained that was a mistake, as in early February 2015 he was trying to locate trades in the Goulburn area. His evidence that by 31 July 2015 he was aware that the correct name of the concrete polisher was Ruff Rock, and the pool contact was Marshall from Rock and Water Landscapes, is supported by the evidence of Gavin Reid of Ruff Rock that Mr Schols first contacted him some two weeks before 23 August 2015 (T63), and that either Mr or Mrs Wykes attended his showroom on 31 July 2015 (T65). Based on that evidence the Tribunal is satisfied that Mr Schols would not have made the mistake as to the identity of the concreter and the pool builder after 31 July 2015, and that the cost plus contract must have been drafted before that date.
The Tribunal finds, based on the evidence of Mr Schols and Mr Wallace, that two contracts were drafted on 28 February 2015. The issue is what then happened to those documents.
It was common ground that Mrs Schols attended the baby shower held on the afternoon of 28 February 2015 at Mrs Wykes' mother's place in Thirlmere, and that she brought documents with her, which the owners signed. What those documents were, and what was signed by the Owners, is disputed.
Mrs Schols' evidence was that Mr Schols asked her to take the yellow cost plus contract and red fixed price contract, and tell the Owners that the yellow one was ready to be signed now however he needed to talk to Mr Binfield about the red one (SS[33] JTB1136). He asked her to tell the Owners not to do anything with the red one until he had spoken to Mr Binfield. She copied both documents and took the originals to the baby shower, and gave Mrs Wykes both contracts, passing on the message. During the afternoon the Owners signed the cost plus contract in front of her, but asked if they could take it home to initial everything (SS[37]JTB 1137). In cross examination Mrs Schols said she saw Mrs Wykes sign the cost plus contract; and later said Mrs Wykes went and got Mr Wykes into the kitchen area and they both signed.
The Owners both record that Mr Wykes was in the yard area with family members when Mrs Wykes said that Mrs Schols needed them to sign insurance papers. Mr and Mrs Wykes' evidence was that the document they signed was an insurance document and not a building contract. Mr Wykes states it was a six page document which they signed and returned to Mrs Schols (SJW(2)[38]). He confirmed in cross examination that the document he signed was not the Project Application for Home Warranty Insurance, because it did not have anything to do with Elders on it (T273). Mrs Wykes refers to "insurance papers" and "paperwork" which they signed and returned to Mrs Schols (SLW(2)[27], [28]). In cross examination Mrs Wykes was certain that the document she signed was an insurance document, with the red and white Elders Insurance logo on it (T 120); subsequently she stated that she assumed it had Elders on it as the insurance was done through Elders (T 145). She denied that it was either the cost plus contract or the red covered fixed price contract (Tab B) (T 122).
There is no evidence from any of the family members or others present on 28 February 2015 to confirm that Mrs Wykes mentioned insurance papers as she went to the yard to ask Mr Wykes to come inside. The possibility that the documents signed on that date related to insurance is not consistent with Mr Binfield's evidence that none of the documents relating to the Builder's insurance cover required the signature of the Owners. It is also not consistent with Mr Schols' evidence in cross examination that the CWI cover did not include any public liability and did not need the consent of owners (T368). There are no documents related to insurance in evidence bearing the Owners' signature. The Tribunal does not find that the Owners signed documents relating to insurance on 28 February 2015.
If there were no insurance papers to be signed, the issue is what documents were signed. It may be that in fact the Owners signed one of the contract documents. Mrs Wykes' reference to the colour red would be consistent with having signed the fixed price contract, which has a red cover. However, that would be contrary to the request which Mr Schols said he had passed on through Mrs Schols that that document not be signed.
The primary difficulty with accepting that such a request was made, or that it was not Mr Schols' intention that the Owners could sign that contract, is that Mr Schols had signed the fixed price contract that he sent to the baby shower. There would have been no reason to do so, and every reason not to do so, if he did not intend that document to be the contract, or that he be bound by it. In cross examination Mr Schols confirmed that in early March 2015 he was not sure whether that contract was above board and he was waiting for advice (T 376). His explanation as to why he sent that contract was that the Owners had said they had not seen a fixed price contract and needed to read the terms and conditions; he initialled it because there was a chance it could end up being the contract; the clients had requested to put the pool and shed onto the progress payments, and he was after their opinions; and the pages he signed were fine (T 380). The Tribunal is not persuaded by that explanation, as had Mr Schols wished to give the Owners the opportunity to read the terms and conditions of a fixed price contract, or consider his proposed progress payment schedule, he could have sent a blank HIA booklet with a draft progress payment schedule.
There is also the possibility that the Owners signed the cost plus contract with the yellow cover, consistent with Mrs Schols' evidence. The Builder submits that that finding should be made, on the basis that the evidence of Mrs Schols, Mr Wallace, Mr Binfield and Mr Schols should be accepted, the issuing of the insurance cover on 13 May 2015 specifying 28 February 2015 as the contract date, the subsequent drafting of the fixed price contract, the prior application for HWI, and the evidence that Mr Binfield did not need the Owners to sign any insurance papers.
The evidence does not support a finding that the Owners signed insurance documents on 28 February 2015. However, the Tribunal is not persuaded that the evidence supports the finding urged by the Builder that the Owners instead signed a cost plus contract on that date. Not only is there no copy of that document signed by the Owners in evidence, there is a suggestion in Mr Binfield's affidavit evidence that casts some doubt as to whether it was signed that day. In recounting the conversation with Mr Schols in early March 2015, after he had received the application for HWI for $495,000 and when Mr Schols asked him for advice about having two contracts, Mr Binfield records that Mr Schols said that having filled out and sent both contracts to the Owners, "they haven't signed yet and nothings gone to the bank". Further, Mr Schols records (MS(1)[92]) that when he discussed the estimated construction costs workings and progress payments with the owners on 30 March 2015 they suggested he invoice them separately to the fixed price invoices for the bank so that he could deduct the bank payments from the overall costs. That record includes a statement said to have been made by the Owners that "we know it won't be in writing...", which in the absence of any challenge or comment is not consistent with a belief that the Owners had already signed the cost plus contract.
More fundamentally, it is not clear from Mr Schols' evidence why it was so important that the cost plus contract be signed on 28 February 2015. Mr Wallace records that on 28 February 2015 Mr Schols said it needed to be worked out that morning, the clients were anxious to move forward and so Mrs Schols was taking both contracts to the baby shower that afternoon (TW[15]). There is no indication in the affidavit evidence of Mr or Mrs Wykes or in the text messages on which their first affidavits appear to have been based that they were urging Mr Schols to provide a contract, and nothing in the bank records for the period between November 2014 to April 2015 to indicate that the bank was pressing for a contract. Mr Schols' evidence was that the relationship between him and the Owners was still good at that stage (T 390). If Mr Schols was concerned that the Owners have an opportunity to read the terms and conditions of a fixed price contract, it is not plausible that he would have requested that the Owners sign a cost plus contract which they had not seen, including the detailed terms specified in the Special Conditions, during the baby shower. That the Owners had limited time on that occasion to be dealing with these matters is confirmed by Mrs Schols' evidence in cross examination that the Owners started to sign but when they realised there was more to sign, and it was their baby shower, said they would drop it off later (T 353).
In his affidavit Mr Schols states (at [70]) that he had arranged for Mr Wallace to come and help him fill in the cost plus contract in such a way that it protected his position and put in context the proposed fixed price contract. Despite that professed concern, the only evidence that Mr Schols followed up on the cost plus contract was that on 11 March 2015 he asked the Owners about the contract documents and was told (denied by Mrs Wykes (T124)) that they had signed the page he had signed on the cost plus contract right away but took the contract away to initial every page and have it witnessed; they took it to work and "think it's still there"; and that the fixed price contract was with it ([80]). There is no other evidence that Mr Schols asked about the cost plus contract, either in his affidavit evidence as to conversations with the Owners or in the text messages in evidence, only his statement (at [100]) that the Owners never returned or gave him a copy of the cost plus contract, or the first or second fixed price contract. It is also inconsistent with the evidence of Mr Wallace and Mrs Schols that at least as at 30 March 2015 Mr Schols was confident that he could trust the Owners. Mr Wallace (TW[19]) records Mr Schols as saying that there is a "gentleman's agreement" between friends that if the build as reflected in the final version of the fixed price contract costs less than $495,000 they could pay the actual cost plus his margin and if more, they would pay the true cost. Mrs Schols's evidence (SS[40]) is to the same effect, referring to agreement on a "handshake" basis.
The bank documents do not assist in resolving this issue. The records in evidence do not include a reference to any request for, or receipt of, a contract. Mr Schols states (MS(1)[100]) that the Owners had led him to believe that they had signed and provided to the bank the second fixed price contract (the Tab C document) with Schedule 6, and that he became aware on or about 11 November 2015 that it was the first fixed price contract without the schedule that had been provided to the bank (MS(1)[101]). While Mr Schols states that he left the Tab C document at the Owners' home early on 31 March 2015, there is no indication as to how or when he thought that that had been signed and provided to the bank.
Having regard to all the above matters, the Tribunal is unable to be satisfied and find that the Owners signed a cost plus contract on 28 February 2015.
The Tribunal is satisfied that by the time the finalised plans had been submitted to council, Mr Schols was in a position to prepare a fixed price contract. The Owners concede (Reply Submissions [90]) that Schedule 6 for a fixed price contract could not have been prepared for a fixed price contract until after the development application was submitted, which was after 28 February 2015. Mr Schols' evidence was that he had not worked out his detailed construction costings until around 28 March 2015 (MS(1)[89]), which is consistent with the text messages between him and the Owners to locate local trades. By then he was able to be reasonably confident that the basic house, not completed and with no amounts for excavation, groundwork or landscaping was in the order of high $400,000 to $500,000 (T 277).
Mr Schols' evidence was that he saw the Owners on 30 March 2015 to show them his estimated construction costs and the finalised progress payment sheet he was intending to include in the contract (MS(1)[91]), and that after that he and Mr Wallace drafted Schedule 6 to the Tab C document based on his estimated construction costs (MS(1)[93], [94]) and finalised the Tab C fixed price contract. Mr Wallace confirms the drafting on 30 March 2015 (TW [18]-[20]).
The Owners deny that on 30 March 2015 there was a conversation about the costings and the contract. Mr Wykes' evidence was that Mr Schols did come on 30 March 2015, however that was to discuss a plumber (SJW(1)[33]); in cross examination he denied that there was a conversation about contracts or the estimated costs of the build, as stated by Mr Schols (T288-290), and stated that he and his wife had been present (T288). Mrs Wykes does not mention a meeting on 30 March 2015 in her first affidavit; in the second, she denies the conversation or that she had a meeting with Mr Schols. The discrepancy in the evidence was not put to Mrs Wykes in cross examination.
The Owners deny that the contract was left at their front door on 31 March 2015. Instead, they say that on 1 April 2015 Mr Schols came to their house and went through the fixed price contract, left the original (which he had already signed) with them and said that was the copy they could give to the bank [SJW (1) [35], (2) [39]; SLW (1)[10]). Mrs Wykes' evidence was that she and her husband did not sign the contract while Mr Schols was there; in response to a question as to her recollection of when she signed, stated that it was not then and there as Mr Schols was going through it (T133). Both Mr and Mrs Wykes confirmed that their signatures and Mr Schols' signature were witnessed later by Mr Farmer, Mrs Wykes father. Mrs Wykes stated it was the same day (T134); however Mr Wykes' evidence was that it may have been a day or two after (T300). In cross examination Mrs Wykes stated that she dropped the documents signed on 1 April 2015 to the bank "a day or so later" (T 132).
The most reliable evidence to support either version of events is Mr Schols' work diary. Mr Schols' diary records for 30 March 2015 (JTB 1022) "visit Goulburn - 5 hrs". The diary records for 31 March 2015 "Home - bookwork Goulburn 6 hrs Umina 2 hrs", and there is no record of a trip to Goulburn at which he could have dropped off the Tab C contract. Mr Schols' work diary for 1 April 2015 is not in evidence.
In cross examination Mr Schols rejected the proposition that his diary entries recording labour and people on site were made after the proceedings commenced (T394). Mr Byrne in cross examination confirmed from his observations of working with Mr Schols that Mr Schols used site diaries to record times as part of his invoicing practice (T 420). In the absence of any counter evidence, and given their relevance in Mr Schols' invoicing practice (discussed below), the Tribunal accepts the reliability of Mr Schols' diary notes as a contemporaneous record of where he was, and what projects he was working on, for any particular day.
The diary supports the agreed evidence that there was a meeting between Mr Schols and the Owners in Goulburn on 30 March. While there is no support either way as to what was discussed, it is unlikely that Mr Schols would arrange a meeting simply to discuss a plumber. It is more likely, given that the plans were settled and in council, that Mr Schols was by then in a position to cost the build with a degree of reliability and make provision for what should be included or excluded from the contract, hence the timing of the discussion between Mr Wallace and Mr Schols about the terms of the Tab C contract. The Tribunal is satisfied that it is more likely than not that Mr Schols discussed his costings with the Owners on 30 March 2015.
The Builder's submission that the parties entered into a fixed price contract in the terms of Tab C with the completed Schedule 6 depends on a finding that Mr Schols left the contract at the Owners' home on 31 March 2015 and that the Owners signed it. The Builder accepts that there is no evidence that this document was signed by the Owners. The content of Mr Schols' diary record for 31 March, and the absence of the entry for 1 April, mean that it is not possible to substantiate either Mr Schols' claim that he left the contract at the front door early on the morning of 31 March 2015, or the Owners' claim that on 1 April 2015 he was at their home explaining a different fixed price contract. On the Owners' case, the document they say they were given on 1 April 2015 was the only version of a contract they received: given the significance of that for the building of their house and their consequent financial commitments, it is implausible that they were unable to be certain when they signed or when the signed document was given to the bank. There is no evidence from Mr Farmer that might establish a date on which he witnessed the Owners' signatures on a contract document. The Tribunal is not persuaded that the Owners signed a fixed price contract in the form of the Tab D document on or about 1 April 2015.

4.Invoices and payments

The Statement of Agreed Facts records the payments made by the Owners. Some of those payments were progress payments by the bank under the loan recommended for approval on 15 July 2015, after the valuation dated 8 July 2015 confirmed the completed value at $790,000 (JTB 1426), and after the bank was provided further information as to Mrs Wykes' income while on maternity leave and the bank was satisfied that there were sufficient savings to assist with repayments if necessary (JTB1400). Following confirmation of insurance cover, on 24 September 2015 the Owners and the Builder were advised that progress payments would be made (JTB 1477, 1478). Mr Schols agreed that the Owners had paid $45,000 personally, and he had been paid by the bank in accordance with the schedule in the Tab C contract, up to stage 4. The first two payments ($24,750, 10 July 2015 (MS(1)[192], and $20,250, 7 September 2015 (MS(1)[236])) were made by the Owners, and the first payment made by the bank as a progress payment was $83,250 (MS(1)[252]).
The Progress Payment claims as held in the bank records are in the form of the HIA Progress Claim Certificate. The invoices on which the Builder relies for amounts due under the cost plus contract are on Endurance Constructions letterhead, stated to be "Balance of Progress Claim 1" 21 June 2015 (JTB874), "Balance of Progress Claim 2" 9 August 2015(JTB909), Balance of Progress Claim 3" 27 September 2015 (JTB926), and "Balance of Progress Claim 4" 1 November 2015 (JTB 957). Each follows the same format: a handwritten list for labour, and copies of invoices and receipts with a handwritten summary. The amount for that invoice is stated, together with a cumulative total, and a list of payments made distinguishing between personal payments (10 July, 7 September) and payments by the bank. The balance owing is expressed in each invoice as the difference between the cumulative amounts invoiced for all the work to date, less personal and bank payments made.
Mr Schols' practice for invoicing was explained in his first affidavit (MS(1) [171]). In contrast to Payment Claims which he emailed or handed over with no explanation, when presenting overall figures for the job he would give the Owners a rundown of all the totals for labour for himself and his crew, all the invoices for the subcontractors, and for all the materials. He went through the extras that the Owners were incurring which were not included in the fixed price, explaining what was included in the fixed price and why. At (MS(1)[174]) he states that he generally issued a payment claim when he assessed that he had finished a stage of the works under the fixed price contract. He generally issued invoices including all the extras every 6 weeks or so (MS(1)[175]), and in addition to going through the matters at the invoicing meetings the Owners would come out to site regularly to see how things were going (MS(1)[176]). In cross examination he stated that the Owners were on site regularly, if not during the day usually after work; and that was where the communication about his concerns for money was done (T392). He rejected the proposition that invoices attached from suppliers and trades were not all for the work on the site, or that diary entries recording labour and people on site were made after the proceedings commenced, stating that all of the documents and hours were forwarded to the owners on a regular basis and the Owners were there on a regular occasion and knew who was on site (T394).
Mrs Schols stated that she prepared the invoices for the Owners (SS[43]), and payment claims for the bank (SS[44]), confirming the dates of the invoices (SS[46]). While the Builder put to Mrs Schols in cross examination that she did not have any forensic evidence to support the date of the creation of the documents in evidence, having regard to the small scale of the business and her role in it, and the consistency of her evidence as to how the invoice documents were prepared with the documents themselves in evidence, the Tribunal accepts Mrs Schols' evidence. The issue is whether the invoices were delivered to the Owners.
Mr Schols' evidence that he gave the Owners the Endurance Construction invoices and discussed them with them at the meetings on 22 June 2015, 11 August 2015, and 2 October 2015 is denied by the Owners, who say that the first they knew of the amounts claimed was on 10 November 2015 when Mr Schols came to their house, told them that he had spent over $499,000, and pointed to a folder of paperwork (SJW(1)[96], SLW(1)[18]).
Mr Schols' evidence both as to his regular practice and his provision of invoices to the Owners is corroborated by Daniel Byrne, a carpenter engaged on the project between 17 September 2015 to 16 October 2015. Mr Byrne did his apprenticeship with the Builder and continued to work as a subcontracting carpenter for the Builder after 2011, and from 2013 until starting his own business in 2016 he worked for the Builder on a number of projects. Mr Byrne's affidavit evidence was that he took an interest in Mr Schols' billing procedures, and he had observed Mr Schols recording hours worked in his site diary and his practice of providing a summary sheet for labour costs and for material costs with a bundle of receipts. In early October 2015 he and Mr Schols were working on the timber frame roof structure when the Owners arrived, and Mr Schols got a bunch of papers from his car: he saw an invoice with Endurance Constructions letterhead and some handwritten sheets of paper, the papers appearing to him to be the usual handwritten summaries and invoices he had seen Mr Schols take clients through. The discussion with the papers took 5-10 minutes, and the paperwork was given to Mrs Schols. In cross examination, Mr Byrne stated that at the time Mr Schols handed the paperwork to the Owners he was standing 2-3m away. While he could not recall how many pages there were, or how thick the bundle of documents was, he confirmed that the top document was an Endurance Constructions letterhead (T 417, 421).
Based on the evidence of Mrs Schols, the Tribunal finds that invoices were prepared. Other than a receipt for a payment made by the Owners, the only documents in evidence on Endurance Constructions letterhead (as opposed to progress payment claim forms identifying Endurance Constructions as the builder) are the invoices prepared by Mrs Schols. The Tribunal is satisfied based on the evidence of Mr Byrne, that the invoice dated 27 September 2015 and accompanying documents were provided to the Owners on site. There is no similar evidence to corroborate Mr Schols' evidence that he gave the earlier invoices to the Owners on 22 June, or 11 August 2015.
The Owners pressed Mr and Mrs Schols on why, in July, August and September, when on their evidence they had borrowed to fund the build, they did not raise with the Owners their concerns about payment, by email, text or phone. Mrs Schols' evidence (T 357) was that while she was aware of the cost blow out in September 2015 when she could see amount remaining to be paid, she left dealing with it to Mr Schols: she did not say anything to the Owners directly, as she was trying to keep it at professional level, she was sick, and it was better for Mr Schols to handle it. That is consistent with her evidence as to her actual involvement with the business, namely that while she was a director her role was essentially to do the bookkeeping. The Tribunal accepts that evidence.
While Mrs Schols was not asking the owners about payment, on his evidence Mr Schols was: in early June, on 19 June (MS(1)[150]), 9 July (MS(1) [190]), 7 September (MS(1)[238]), 22 September (MS(1)[248]), 9 October (MS(1)[272]) and 30 October (MS(1)[280]). Mr Schols' oral evidence (T390) was that they were pretty good friends at that stage, they had been friends for a long time, there was communication between them about what was happening with the bank; he was getting concerned as he had done quite a bit of work before the bank letter advising that they were ready to start releasing funds. However, because they had agreed on what funds would be financing the job from their personal accounts he was told that would be forwarded. His evidence was that the Owners had "caught up" with payments by 27 September 2015 once the progress payment from the bank was made (MS(1)[262]); however at that time he had not given the Owners the invoice for the period 10 August to 20 September 2015 ($237,647.78). The majority of that invoice related to the polished concrete floors and the building materials required for the next stage of the job, being frame and trusses and windows and doors (MS(1)[260]).
Mr Wykes confirmed that there were a number of conversations with Mr Schols about issues with the bank (SJW(2) [57]), however he denied the details as to the conversations on 9 July 2015, 7 September 2015, 22 September 2015, 9 October 2015, and 30 October 2015. Mrs Wykes denied that the conversations of early June 2015, 9 October 2015, or 30 October 2015 occurred, and her position was that the first payments of $45,000 were the deposit, and at no time did she say that they wanted to use the bank's money first.
The Tribunal finds that the preparation and format of the invoices are consistent with the build proceeding on a cost plus basis, with progress payments coming from the bank after final approval in September 2015. The Tribunal is satisfied that it is more likely than not that Mr Schols raised the question of payment with the Owners: while work had started on site in June 2015, it was not until September 2015 that the final approval was given by the bank, and by then, based on the expenses documented in the invoices, Mr Schols had made substantial payments on the build. The evidence of Mr Schols that the Owners were on site frequently was not disputed, and the Tribunal is satisfied that oral discussions about payment occurred on those occasions, in addition to text message exchanges including on 21 September 2015 (JTB 367).

Findings

The Tribunal is not satisfied that the Tab D fixed price contract relied upon by the Owners, or any of the other fixed price contract documents in evidence, represents the entirety of the contractual relationship between the parties, for the following reasons: 1. The Builder disputes that it ever intended to be bound by a contract in the form of the Tab D document; 2. The only version of a fixed price contract which could have been reliably costed was the Tab C version, and the Owners deny ever receiving that document; 3. Based on the progress payments schedules (which are substantially the same in each of the three versions), the absence of any detail as to PC items or provisional sums in the tabs B and D documents, and Schedule 6 in the Tab C document, none of the three versions of fixed price contract suggest that it was for a completed house; 4. Despite Mrs Wykes' assertion that the contract price was for a house with "all its things that work inside" (T 110), and Mr Wykes' evidence that everything was included because "I didn't sign up for half a house" (T313), there were no inclusions specified in the document on which the Owners rely; 5. The inclusions list provided to the bank in June 2015 for valuation purposes was not accurate, for example by including an amount for an oven which the Owners were intending to provide, an amount for a slow combustion heater significantly higher than the one chosen, and amounts for toilets substantially more expensive than Mr Wykes was prepared to accept. That is consistent with Mr Schols' evidence that the list was not accurate because he was giving guidance as to what things might cost for the level of finish, and those things were supposed to be paid for out of the Owners' money (T388-9); 6. All versions of the fixed price contract state that the pool and shed were included, which is contrary to the arrangement under which the Owners contracted for the delivery of the shed and undertook the work to build it; 7. The substantial changes to the plans including the change in the position of the house and shed and the change to the windows and door did not result in any variations, either increase or decrease, to the fixed price; 8. The evidence does not substantiate either the Owners' or the Builder's version of how any of the possible versions of a fixed price contract came to be signed.
The Tribunal accepts that the parties agreed that a fixed price contract was intended to provide the basis for a loan to the Owners. The Tribunal is not satisfied that the Tab D version on which the Owners rely represents an agreement by parties as to the basis of their legal relationship, in terms of what the Builder was required to construct and what and how the Owners were to pay for it.
The Tribunal is also not satisfied that the Tab A cost plus contract drafted by Mr Schols and Mr Wallace on 28 February 2015 was the contract that governed the contractual relationship. The Tribunal accepts that a cost plus contract was drafted, however the evidence does not establish to the required degree of satisfaction that that document was ever agreed to or signed by the Owners.
The alternative is that the contractual relationship between the parties was an oral agreement that the Builder would do the build on a cost plus basis, with a 10% margin, and that part of the cost of the build would be funded by payments from the bank in accordance with the loan, which had to be based on a fixed price contract. That hybrid arrangement is consistent with the discussions between the parties both before the purchase of the land and after, the basis on which the plans were prepared, the requirement of the bank that the Owners provide a fixed price contract, and the way in which the Builder's invoices were structured. The Tribunal finds that it is more likely than not that that was in substance the agreement between the parties. On that basis, the fixed price contract provided to the bank by the Owners was, in the terms used by the Builder, a piece of machinery for the purpose of obtaining the loan and did not reflect the intention of the parties to form a legal relationship.
It is not possible to point with certainty to a particular date or event at which that agreement was reached. That is not, of itself, a barrier to a finding that there was a contract (Integrated Computer Services). On balance the Tribunal considers it more likely than not that the Owners and Builder agreed that the build was to be on a cost plus basis, with the underlying fixed price contract to obtain finance for part of the cost, at some time in early 2015 after the bank's position was known and once the plans were prepared as described by Mr Eldred.
If that conclusion is wrong, in the face of the differences between the parties as to the central elements and the many uncertainties in the evidence as discussed above, and the Tribunal cannot be satisfied that the parties had reached an agreement as to the terms of a contract with an intention to create a legal relationship, it follows that there was no legally operative contract.
The onus is on the party asserting a contract to prove that there was an intention to create legal relations based on that contract. The Owners have not discharged that onus. The consequence is that: 1. the Owners have not established an entitlement to be paid the cost of completion of the building in accordance with the fixed price contract on which they rely, or damages for the consequential losses including rent. They are entitled to enforce the statutory warranties in s 18B of the HB Act, if they can establish any breach in the form of defective works; 2. the Owners have not established that the Builder represented that the whole build including the home, site works, fittings, shed and pool would be built for $495,000, and so the claim asserted in the Owners' Points of Defence to the Builder's claim under the ACL(NSW) does not arise.
As to the Builder's case, even if the Tribunal could be satisfied that there was agreement on the hybrid arrangement described above at [147], there is no cost plus contract that complies with the formal requirements of s7(1) and (2) of the HB Act. The consequence is that: 1. pursuant to s10(1) of the HB Act the Builder is not entitled to damages or able to enforce any other remedy in respect of a breach of the contract, and the contract (if there was one) is unenforceable by the Builder; and 2. the Builder's only recourse is in its alternative claim, that it is entitled to payment for the value of the work done for the Owners based on quantum meruit.

2.How the contract came to an end

The parties agree that whatever contract was applicable to the building works has been terminated. Each party has contended that the contractual relationship came to an end by repudiation by the other. By December 2015, each party was denying the contract asserted by the other. The Builder ceased work on the site on 11 November 2015, and returned the shed key on 25 November 2015. The Owners refused to pay the invoices provided by the Builder on 10 November 2015.
Both parties rely in submissions on the decision of the High Court in Shevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47, in which Gibbs CJ said at 625-6 (citations omitted): As Lord Wright pointed out in Heyman v. Darwin Ltd., repudiation is an ambiguous word and is used in various senses. We are of course concerned only with a case in which it is admitted that there was a valid and binding contract. Such a contract may be repudiated if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract …or shows that he intends to fufil the contract only in a manner substantially inconsistent with his obligations and not in any other way…In such a case the innocent party is entitled to accept the repudiation, thereby discharging himself from further performance, and sue for damages …. It is convenient to say that the injured party in these circumstances rescinds the contract, although there is, of course, no rescission ab initio….
The Owners submit (supplementary submissions ([18]-[22]) in the alternative that the contract was mutually abandoned by the parties, relying on the decision in Beckhaus v Brewarrina (No 2) [2004] NSWSC 1160, including the statement (at [15]) of general principle that when a contract is found to have been abandoned the parties are relieved of their obligations ab initio. The Owners submit that the only rights then left are the Owners' rights under s18B of the HB Act.
The Builder (Builder reply submissions [50]-[51]) submits that this alternative submission should be rejected, on the basis that the parties have not walked away from their respective rights; and even if there was mutual agreement to abandon the contract from mid November (which is not accepted) it does not follow that the parties have abandoned their accrued rights up to that date, and any abandonment did not prevent either party from enforcing their accrued rights up to when the contract was abandoned.
The Tribunal accepts that any contractual relationship between the parties came to an end at the latest in December 2015, by repudiation, each denying the contract asserted by the other and refusing to be bound by that contract.

3.What compensation can the Owners claim

The Builder ceased work when the Owners refused to pay the amount the Builder said was owing for the cost of the work completed at 10 November 2015. The Owners have not established that the relationship was governed by the Tab D fixed price contract. The Builder was not in breach of any obligation arising under that contract when he ceased work. The Owners have not established their claim for damages for the cost of completion of the works or rental costs. However, they are entitled to enforce the statutory warranties under s18B of the HB Act, which are independent of any contract, and which relevantly require that the building work the work be done with due care and skill and in accordance with the plans and specifications set out in the contract (s18B(1)(a)), and that all materials supplied will be good and suitable for the purpose for which they are used (s18B(1)(b)).
The joint report of Mr O'Donnell and Mr Zakos dated 20 August 2017 (ex 5) provides their evidence as to whether there are defective works for which the Builder is liable, and if so, what the cost of rectification is. Photographs annexed to Mr O'Donnell's report of 24 June 2016 (JTB93-141) confirm his opinion that the shed is substantially completed. For the house, the concrete slab and footings, structural timber, works associated with the timber floor frame and roof are substantially completed, and the windows installed; there is no roof. Mr O'Donnell inspected the property in June 2016 and again in August 2017. Mr Zakos inspected the property in October 2016 and again in August 2017. On the latter inspection on 8 August 2017 the experts were accompanied by Mr John Algie, structural engineer, who provided a report as to two structural matters: the integrity of the framing resulting from prolonged weathering, and the method of tie down to the master bedroom wing. Mr Algie's report was annexed to Mr O'Donnell's supplementary report dated 17 August 2017 (ex 7).
In his report based on the inspection in August 2017 Mr Algie considered first the tie down to the master bedroom wing, noting that the method of construction in that wing is different to the balance of the residence, which is constructed on a reinforced waffle raft slab. The master bedroom wing is constructed on strip footings with a dwarf wall provided with bearers and joists and a platform particle board floor extending to the outer edge of the building. Mr Algie noted that the sub-floor tie downs, being Galvanised Iron straps, were untensioned and fixed in shear with two undersized masonry anchors. The dwarf wall consisted of partially filled blockwork. While it was unclear if that element had been considered complete when work was halted, the reinforcement in the bond beam remained exposed and core filling had not been completed. The wall was non-compliant with AS3700-Masonry Structures code. Mr Algie recommended that during core filling of the block work 10mm threaded "Brooker" rod should be cast into the bond beam to effect adequate sub floor tie down; Brooker rod should be provided, cogged under the reinforcement, at corners, either side of openings and maximum 1.2m centres to the perimeter of that wing.
Mr Algie stated that there was evidence of considerable weathering to the particle board structural flooring; the floor was uneven with significant cupping and evidence of water ponding; extreme cupping in some locations had led to nail pull-out and nail pull-through. Decay of the particle board was evident with the structural integrity of the flooring platform comprised, and due to the nature of the construction method the damaged flooring was sandwiched between the bottom plate and the nearer, compromising the bearing of the bottom plate. Mr Algie noted that all timber members had suffered extreme weathering, and the effect of expansion and shrinking of the timber on the nail plates in the trusses required repair involving consultation/redesign by the bracket connectors engineer in conjunction with the frame and truss manufacturers advice. Mr Algie recommended that all timber framing including roof, wall and subfloor framing should be checked for compliance; and made no comment as to whether the frame installation complied with AS1684-Residential Timber Framed Construction, as it was not clear if the frame installation was completed to the supplier's specification when work was halted.
An issue in considering defects is that the property has been exposed to the weather since work ceased in November 2015. One factor for the difference in opinion between Mr O'Donnell and Mr Zakos is the extent to which observed defects are attributable to the work done by the Builder or to the effects of rain and wind since November 2015.
There is independent evidence as to the work done by the Builder close to the time when work ceased, in reports prepared under the Building Contract Review Program Builder Performance Review by Archicentre on behalf of the insurer, QBE: the first dated 7 October 2015, based on a site visit on 7 October 2015 (JTB 844) and the second dated 5 November 2015 based on a site visit on 4 November 2015 (JTB 859). The first report notes that the polished concrete floor finish has been completed and is protected with a covering, and maintaining the covering is required; that there are no observed issues over the competence of trades, the contractor exhibits a good understanding of the detailed carpentry work required for the house and is planning ahead for roofing, barges, soffits and gutters. The second report repeats the comments about competence of trades and appropriateness of materials.
Mr O'Donnell had not seen the Archicentre reports in preparing his reports or before he gave oral evidence, but agreed that the reports about the state of the build would be a factor to take into account in determining whether observed defects such as warping were due to weather or what was on site at the time (T 463).
The Owners have not established that the Builder was in default of any contractual obligation when work ceased in November 2015, and accordingly the Tribunal has considered the issue of defects as at the time that work ceased.
There were six items considered by the experts, agreed to be defects subject to the question whether some defects were caused by passage of time and others as a result of construction defects performed by the Builder.
The Builder conceded the following defects and amounts: 1. Item3: install termite management: $3,679.87; 2. Item 5: Remove and reinstall living room window and sliding door: $875.13.
The experts agreed that for item 1, the existing wall sarking is damaged and has come away from the timber framing and that the cost if found to be a defect is $3,125.26. In oral evidence Mr O'Donnell agreed with Mr Zakos that the cause of the damage is exposure to rain and wind for some 24 months. The Tribunal does not find that this is a defect for which the Builder is liable.
For item 6, finishing the timber frame and roof, the experts agreed that parts of the timber elements to the wall and roof framing have become loose and need inspection by the manufacturers, and a reasonable cost for some manual carpentry work to renail fixing plates would be $4,304.00. In oral evidence Mr O'Donnell agreed with Mr Zakos that the cause of the damage is exposure to rain and wind rather than defective work. The Tribunal does not find that this is a defect for which the Builder is liable.
The experts agreed in relation to item 2, the flooring frame and roof to the master bedroom wing, that the work does not comply, consistent with the opinion of Mr Algie. Mr Zakos costed the rectification as in accordance with Mr Algie's recommendation at $3,404.00. Mr O'Donnell was of the opinion that the existing floor, frame and roof need to be demolished and the core filling carried out in accordance with the engineer's directions, and the work required could not be done now by retro fitting. Some of the bearers are sitting on an offcut of pine timber bolted to the concrete blockwork and are susceptible to termite attack. The plans required engaged piers to be attached to the blockwork, which had not happened. Mr O'Donnell costed the work at $18,071.80. Mr Zakos was not sure whether Mr Algie had been provided with the plans. Mr Zakos was of the opinion that the framing looked adequate to him, as observable when they walked into the area underneath. In the absence of an express opinion on this issue by Mr Algie, and given that Mr Zakos did not dispute Mr O'Donnell's reliance on the plans, the Tribunal prefers the opinion of Mr O'Donnell, and allows $18,071.80.
For Item 4: remove and replace timber reveals to windows and install window sashes and doors, the experts agreed that some of the timber reveals are bowed and warped, and the timber reveals do not extend for the full width of the frame. Mr Zakos was of the opinion that the windows were intended to have square set reveals; Mr O'Donnell's opinion was that the reveals are significantly deteriorated and need to be replaced whether or not they were meant to be square set. If the work was defective, the agreed cost of removal and replacement is $3,543.60. If the bowing and warping is a defect, rather than due to exposure, Mr Zakos considered that the cost would be $1,184.00. It was common ground that the plans did not specify whether the windows were to be square set; the experts disagreed as to whether it is common practice. Having regard to Mr O'Donnell's agreement on the effect of weathering for items 1 and 6, and the absence of any direct evidence as to an alternative cause, the Tribunal is not persuaded that the bowing and warping have been established as a builders defect. In the absence of a specified alternative method of construction of the reveals in the plans, the Tribunal is not persuaded that the narrow reveals are a result of defective work. The Tribunal does not find that this is a defect for which the Builder is liable.
The Tribunal allows the following amounts for builder's defects: 1. Item 2: $18,071.80 2. Item3: $3,679.87 3. Item 5: $875.13 4. Total: $22,626.80
The experts agreed on appropriate percentages for allowances, resulting in the total cost to rectify defects: 1. Items 2, 3 and 5: $22,626.80 2. Regional location allowance 8%: $1,810.14 3. Preliminaries and contingency 15%: $3,394.02 4. Builder's margin 15%: $3,394.02 5. GST 10%: $2,262.68 6. Total: $33,487.66
The amount owed by the Builder to the Owners for construction defects is $33,487.66.

4.Whether the Builder can claim on quantum meruit

The Builder's claim in the alternative is in quantum meruit, arising if the Tribunal finds there was a concluded contract but by virtue of s10 of the HB Act or on any other basis the Builder is not entitled to enforce that contract or claim damages, or if the Tribunal finds there was no concluded contract for the building works.
The Tribunal is satisfied that there is no contract document that would satisfy the formal requirements of s7(2) of the HB Act such that the Builder could enforce it. If the Builder cannot rely on an enforceable contract to recover any payment for work carried out for the Owners, it must rely on the law of restitution, the principle of unjust enrichment, which was explained in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 by Deane J at 256-7 as "a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case."
At 263 Deane J held: What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or "enrichment" actually or constructively accepted. Ordinarily, that will correspond to the fair value of the benefit provided (e.g. remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied).
For the Builder to succeed on a quantum meruit claim, it must establish: 1. It did work that "enriched" the Owners by them receiving the benefit of that work; 2. The benefit the Owners received was at the Builder's expense; and 3. It would be unjust in the circumstances to allow the Owners to retain the benefit without paying for it.
The Owners submit (Supplementary Submissions [63]ff) that if the Tribunal finds that the unsigned fixed price contract and cost plus contract govern the agreement, those agreements should be read together as it is clear from the wording of the cost plus contract that the fixed price contract forms part of the overall contract. On that basis, the Owners submit that, based on the agreement of the experts that the works reached stage 5 of the Schedule 2 stages of the various versions of the fixed price contract, and that the value of the works completed is $293,932.42, the additional works which would otherwise form part of the cost plus contract had not been reached nor performed.
That submission is not consistent with the evidence as to how the build had proceeded. Mr Schols' evidence, supported by the Endurance Constructions invoices which include a detailed breakdown of the work undertaken and substantiation of the amounts spent, was that the $520,000 he claimed to have spent included landscaping, earthworks, the shed, and other extras that went into the $520,000, including the need to move the house further south and more expenses on services. Those were (other than the shed) costs contemplated as included in the cost plus contract; and the Builder's invoices confirm that it paid for the shed and the concrete slab (JTB 876, 908).
The Owners submit that the Builder is not entitled to an award on a quantum meruit basis because (Submissions 20/11/17 [17]-[20]): 1. There can be no claim in quantum meruit when there is a contract; 2. There is no basis for the Tribunal to make a finding that the requirements of ss 4, 7 and 92 of the HB Act have not been met (which the Tribunal understands to be a reference to the fixed price contract on which the Owners rely); 3. The Tribunal has no power to make a declaration; 4. There is a specific pleading of a contract, regardless of fixed price or cost plus or some combination of the two, and in order to find the Builder in relation to quantum meruit the Tribunal would have to determine that no contract exists; 5. It is conceded that the contracts were written by Mr Schols and were for the purpose of obtaining finance from the bank in circumstances where the true nature of the contract was not disclosed; and Mr Schols was party to wrongdoing;
The Builder submits (Builder reply submissions [37]ff): 1. the proposition that there can be no claim in quantum meruit where there is a contract applies only to work fully completed under the terms of a contract which has not been terminated or repudiated: Sopov & Anor v Kane Constructions Pty Ltd (No 2)[2009] VSCA 141 at [5]-[6], and does not apply where there is not an enforceable contract; 2. an award of damages on a quantum meruit basis does not require the Tribunal first to make a declaration; 3. the claim in quantum meruit is clearly put as an alternative basis and not the primary claim; 4. the contract which the Builder seeks to enforce was not part of the sham.
The Tribunal is satisfied, for the reasons in the Builder's submissions above, that the Builder can make a claim in quantum meruit. The Builder has undertaken work, the extent of which was agreed between the experts and corroborated by the Archicentre reports; while the house is not complete, the Owners have received a benefit from having the work done; and unless s92 or 94 of the HB Act would preclude recovery, the Builder is entitled to fair remuneration for the value of that benefit.
The Owners submit that it is not just and equitable for the Builder to recover on a quantum meruit, submitting that the Builder did not have sufficient insurance for the build, and that if there was wrongdoing the Builder was party to it.
The Builder submits that ss 92 and 94 of the HB Act have no application in these proceedings: 1. Insurance was taken out in accordance with the legislation: the Owners do not plead to the contrary, and accept in their submissions that this is the case; 2. Under the cost plus contract the overall value of the work could not be known until such time as the Owners made their choices as to a large number of components, and the same applies to the later fixed price contract where the components carved out in the schedule had not been selected; 3. The insurance cover reflected the value of the works known to the Builder at the time of the application on 20 February 2015, and there is no express requirement in the HB Act as to the insured value of the works or when the value it to be calculated and no prohibition on increasing the insured value when the value of the works changes; 4. The insurance required under the HB Act only applies to the residential building work; the shed was comparable in size to the residence and was not constructed for use in conjunction with a dwelling, and so does not form part of the value of the works to be insured under the HB Act, and nor do significant other costs such as draftsman's fees the cost of the development application and preliminary site costs. Since the work on the shed was on the uncontested evidence of Mr Schols $65,319.73, the residential building work undertaken to date was well under the insured value; 5. No quantum meruit is claimed for the period following the fall out between the parties; Mr Wykes was on site regularly nearly daily during some periods of the build and had opportunity to reject the work being carried out on site.
The first issue is whether the Builder is precluded by s92 or 94 of the HB Act from recovering on a quantum meruit basis.
Section 92(2) of the HB Act provides: (2) A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.
Section 94(1) provides: (1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the uninsured work), the contractor who did the work: (a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and (b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit).
The Builder's insurance cover is described at [54] above. There is no issue taken with the form of cover or compliance with the formal requirements of the regulations, including the minimum insurance cover required: the issue is that the HWI was for an amount that would cover the contract price in the fixed price contracts, but which was less than the amount estimated by Mr Schols as the final cost of the build. The Tribunal does not accept the proposition as put by the Builder that the cost of the shed should be disregarded (paragraph 183 above); while large, there is no evidence that the shed was constructed or intended to be used other that in conjunction with the dwelling house.
The Tribunal finds that the Builder had a contract of insurance that complied with the HB Act, for an amount covered which reflected the estimated value of the basic shell contemplated by the fixed price contract, at the time of the application for cover. The actual cost of the completed build could not be known at that stage. The Owners have not identified any additional requirement in the HB Act or the Home Building Regulation 2014. The Tribunal is satisfied that ss 92 and 94 do not apply.
However, if that conclusion is wrong, the Builder may be able to rely on s94(1A), which provides: (1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.
Section 94(1A) was considered by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273. His Honour considered the authorities on the term "just and equitable", and held: 48.Section 94(1A) of the Home Building Act must therefore be seen as conferring a discretion that is wide but must be exercised judicially in the light of the whole of the circumstances surrounding the relevant subject matter. Lord Wilberforce explained this exercise in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at p.379: "It [the phrase 'just and equitable'] does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way." 49. The present context is one in which the court is called upon to say whether it is "just and equitable" that a quantum meruit sum be awarded for work done. The quantum meruit sum itself will, of its nature, reflect a fair remuneration, having regard to the extent of the work actually done. That is of the essence of a quantum meruit: see Pavey & Matthews Ltd v Paul (1987) 162 CLR 221 at p.262 per Deane J. The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression "quantum meruit". The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it. It is to those circumstances that I now turn.
On the facts of that case, Barrett J concluded: 64 I am satisfied that the conduct of the plaintiff, viewed in the whole of the surrounding circumstances, did not exhibit blameworthiness such as to make it inappropriate to provide a reasonable reward for work actually done by it and that it is therefore just and equitable for the plaintiff to recover a quantum meruit sum for that work under s.94(1A).
The Builder had insurance for a contract price of $495,000, an amount less than his estimate of the likely actual cost of the build. Mr Schols explained that the insurance cover reflected the value of the build as known to him at the he applied for the cover, 20 February 2015 (MS(1)([45]). In cross examination he confirmed that evidence, stating that he applied for CWI for $495,000 when he knew the build price would exceed it, because the price for the actual house not completed not with any excavations, ground works, landscaping was estimated to be around high $400,000, to $500,000: that was for the basic house, nothing else (T377). $500,000 was his limit at the time but he had other jobs which were finishing and once they were signed off on he could get more insurance (T377). There is no indication that Mr Schols subsequently, in particular once he had completed his detailed costings on 28 February 2015, attempted to increase his insurance cover or that he was by then in a position to do so.
The Tribunal does not regard that as evidence of a deliberate intention to underinsure the work. Further, while the evidence establishes that Mr Schols and thus the Builder were prepared to arrange the build on the hybrid arrangement described in paragraph [146] above, and to that extent enable the Owners to provide a document to their bank that may not reflect the full nature of the contractual relationship, that was an arrangement agreed upon by both Owners and Builder and not one pursued by the Builder alone, and was one in which Mr Schols considered he was assisting friends. The Tribunal is satisfied that when viewed in the whole of the surrounding circumstances, the Builder's conduct does not exhibit blameworthiness such as to make it inappropriate to provide a reasonable reward for work actually done by it. The Tribunal finds that it is just and equitable for the Builder to recover a quantum meruit sum for that work.
As the Appeal Panel in Bradshaw v Complete Coating Commercial Pty Ltd t/as CCC Civil [2017] NSWCATAP 209 discussed, the way in which a court or tribunal approaches the valuation of a quantum meruit claim will depend on the context and circumstances in which the claim arises, quoting Mason K and Carter JW, Mason & Carters Restitution Law in Australia, Third Edition, LexisNexis Butterworths, Sydney, 2016 at [1416] (footnoted references not included): Generally, the starting point, or prima facie position, for accepted services is that the plaintiff is entitled to recover the market value or price of the services. The amount will include a profit element. It follows that the amount by which the defendant's assets have in fact been increased is not usually the basis for assessment. Superficially at least, this suggests that valuation is more concerned with the cost of rendering performance than the actual benefit to the defendant. But it can equally be said that the benefit obtained at a plaintiff's expense is the amount which the defendant would have had to pay a third party to provide the benefit. However, the actual costs of the plaintiff in conferring the benefit may be taken into account. And where a claim for reasonable remuneration succeeds on the grounds of acceptance of a requested benefit, the defendant may be held liable to pay for work, such as preparatory work, which would not have been a distinct component of the price of the completed work, as where an anticipated contract fails to materialise. If the services to be valued were rendered by a professional, the above approach leads to a valuation at the commercial rate applicable to work of the same kind done a person of the plaintiff's standing. Account may be taken of custom and prevailing rates and practices in the relevant market. This may justify an award on a commission basis. Of course, account must also be taken of the extent to which the plaintiff was in fact remunerated. … Awarding market value assessed by reference to the cost of rendering services or doing work is not the starting point if the obligation is to make restitution for an incontrovertible benefit. In such cases, the claim is based on receipt of a realised benefit, or one which is realisable as a money sum. Thus, BP Exploration Co (Lybia) Limited v Hunt (No. 2) Robert Goff J said that if the 'sole basis of recovery' is that the defendant was incontrovertibly benefited, it may be legitimate to limit recovery to the actual increase in the defendant's wealth. Accordingly, the claim is limited to the money sum which has been realized (or which is realisable, unless that amount is in fact greater than the market value of the work done or other services rendered).
The Builder submits that the quantum meruit value of the work in this case is higher than the value recoverable under the contracts contended for by the Builder, since the margin a reasonable builder would charge for the work is higher than the margin charged by the Builder. In support of that submission the Builder relies on Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 in which Meagher JA held that the amount payable under a contract did not impose a ceiling on any quantum meruit claim, and commented (at 277-78): There is nothing anomalous in the notion that two different remedies, proceeding on entirely different principles, might yield different results. Nor is there anything anomalous in the fact that either remedy may yield a higher monetary figure than the other. Nor is there anything anomalous in the prospect that a figure arrived at on a quantum meruit might exceed, or even far exceed, the profit which would have been made if the contract had been fully performed. …The most one can say is that the amount contractually agreed is evidence of the reasonableness of the remuneration claimed on a quantum meruit; strong evidence perhaps, but certainly not conclusive evidence.
It is clear from the authorities considered in Bradshaw that a quantum meruit valuation can be done by reference to the Builders' cost of materials, goods and profit: Sopov v Kane Constructions [2009] VSCA 216. It may also be appropriate to ascertain what it would cost to have the works carried out by another builder in comparable circumstances, in dealing with the builder's profit margin. In that regard, the agreed contract price of the works can only be a piece of evidence that might be relevant in determining the value of the works to the Owners. The Appeal Panel referred at [38] to the decision in Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221, in which Byrne J applied a presumption of the quantification of quantum meruit claim based on what the defendant would have had to pay for the work carried out under a 'normal commercial arrangement' for the services rendered; in that case, there was a lack of reliable evidence on what a comparable person providing the services may have charged, and Byrne J, in the absence of that evidence, took the cost of rendering the services into account, to arrive at an appropriate remuneration.
The Statement of Agreed Facts stated the experts' positions as to the value of the works completed to date being between $432,000.00 and $683,127.90 (see paragraph [10] above). Mr O'Donnell revised his assessment in his report of 17 August 2017, to be $355,658.20. The experts agreed with Mr Schols' assessment that by early November 2015 the work was somewhere between stage 4 and 5 of the various versions of the fixed price contract. In their joint report of 20 August 2017 on the cost of the works to date and the cost to complete (ex 6) the experts agreed that the cost to complete the works would be $610,000.
In the joint report Mr O'Donnell valued the net cost of the work completed to date at $293,932.42. Mr Zakos accepted that value as the starting position, however his evidence was that adjustments were needed for the construction of the shed, pool, driveway and access road, sewer tank, additional electrical works, concreting costs, block laying costs, waterproofing, taking the subtotal to $373,708.15. Mr O'Donnell disputed Mr Zakos' adjustments other than allowing an additional $420 for waterproofing, taking his subtotal to $294,352.42. The experts disagreed on whether to the net trade value of the cost of the works completed a regional allowance of 8% should be added, and whether a builder's margin or builder's allowance for overheads should be added. They agreed on 10% for GST. Mr O'Donnell's final figure for the value of the work was $356.166.42, whereas Mr Zakos' was $543,389.42.
One difference between the experts was that Mr O'Donnell's analysis was based on Cordell's cost guide, whereas Mr Zakos had used Rawlinsons, and had also relied on Mr Schols' invoices for actual costs in making adjustments. Mr O'Donnell had not been briefed with the invoices, and his comments in the joint report point to a lack of evidence as to actual costs. In oral evidence Mr O'Donnell stated that he would have been assisted by seeing the additional material relied on by Mr Zakos to a certain extent and that may have affected his opinion in some matters (T471). He accepted that it would have affected his opinion had he seen the invoices for electrical work, which included the telecommunication lines which he had not included in his estimate as he was not sure if they were part of the contract (T 470).
The Tribunal is required to determine the value of the work done by the Builder to the Owners. Both Mr O'Donnell and Mr Zakos appear to have approached the task by considering what the Owners would have had to pay a comparable builder for the work undertaken, by reference to accepted costing guides, adjusted, in Mr Zakos' evidence, by reference to Mr Schols' invoices which reflect the actual costs. Mr Zakos accepted that the cost on an invoice may not be the value of the works (T 472). In using the invoices to adjust the estimates undertaken by Mr O'Donnell based on Cordell, Mr Zakos assessed their reasonableness and made adjustments that he considered appropriate, for example by not including GST as Mr Schols had done. The provisions of the fixed price contract on which the Owners relied, and to which Mr O'Donnell referred, could not be determinative of any finding as to what the Owners would have had to pay under a normal commercial arrangement, since that document was not the contractual basis for the build; and even if it were, an agreed contract price would be no more than a piece of evidence that might be relevant to a finding of the value of the work: Bradshaw at [37]. Overall, the Tribunal prefers the approach adopted by Mr Zakos to that of Mr O'Donnell, including his approach to allowances for regional location, builder's overheads and builder's margin, as better reflecting the determination of the actual value to the Owners of the work.
Mr O'Donnell's evidence that the shed cost was $49,039.00, and the pool excavation $6,713.89, was based on his estimate, whereas Mr Zakos also had regard to the invoices provided by Mr Schols. Mr Zakos was of the opinion that the invoices were fair and reasonable for the work and he assessed the shed at $55,441.48, $6,402.48 higher than Mr O'Donnell's estimate. For the pool excavation based on Mr Schols' invoices (and excluding GST and blockwork which was included elsewhere) and on the actual excavation required for the pool, Mr Zakos determined a cost of $15,886.00 as appropriate. The Tribunal accepts Mr Zakos' evidence.
The Tribunal also prefers, and accepts, the evidence of Mr Zakos for the cost for the sewer tank, for which he included the works associated with the sewer tank at a cost of $5,800.00.
In relation to the construction of the driveway and access road, Mr Zakos valued the works at $11,712.33 (excluding GST); Mr O'Donnell agreed to that amount, if the works formed part of the contract. However in oral evidence he accepted that if the works were valued by what existed on site and not what was in the contract, and if actually carried out by the builder, that value would be accepted (T 498). Mr Zakos' value was based on Mr Schols' invoices that established that the work was carried out, and not the contract, and should be accepted.
The engineering drawings specified waffle construction with cross beams at 1m (T 473). Mr Zakos's evidence was that Mr O'Donnell had costed the concreting at a stiffened slab with beams at 7m centres, whereas the construction is a waffle construction with cross beams at 1m, which is far more intensive than the Cordell's rate suggests (T 473); the additional $14,000 cost would be the cost of building piers, drilling, pouring, reinforcing piers and the extra cost of going to a waffle slab (T474). Mr O'Donnell did not agree that a waffle pod slab was more expensive than the stiffened beams in a conventional raft slab, because the waffle pod slab is thinner than a normal slab. By reference to the engineering drawings the experts were able to confirm that the slab was 100mm, which was a standard slab in waffle pod construction (T 476).
The experts ultimately did not reach agreement on whether a waffle pod slab was more or less expensive to construct than a stiffened raft slab. The Tribunal prefers the evidence of Mr Zakos as to the actual cost, which is consistent with the specifications in the engineering drawings, to Mr O'Donnell's estimate based on a stiffened slab.
The experts did not address in oral evidence the remaining items, that is, additional block laying costs and waterproofing. In the joint report Mr Zakos justified his adjustment for the former ($18,326.85) and the latter ($1,200.00) on his analysis of Mr Schols' invoices, which show the extent of the work done and the actual cost. The Tribunal accepts that evidence.
On the basis of the above findings, the Tribunal adds to the agreed $293,932.40 the additional costs not estimated by Mr O'Donnell for the shed ($6,402.48), pool excavation ($15,886.00), driveway and access road ($11,712.33), sewer tank ($5,800.00), additional electrical works ($5,969.10), and concreting costs ($14,478.99), block laying ($18,326.85), and waterproofing ($1,200.00). That brings the sub total to $373,708.15 as the net trade value of the works.
Mr O'Donnell's opinion expressed in the joint report that a regional allowance should not be applied was based on the absence of such a provision in the contract (T 477). He subsequently agreed in oral evidence that to the extent he was using Cordell's to estimate the value of the works he would apply a regional allowance to the Cordell value of Sydney prices (T 478). He considered that a regional allowance should be applied to those elements of the $293,000 that came from Cordells, however not to the windows, shed and the estimates he prepared based on his experience working in regional NSW (T 479). Mr Zakos applied a regional allowance only to the agreed $293,932.42 (T480), and he accepted that the regional allowance should not apply to windows, the shed and preliminaries, giving an allowance of $16,798.08.
The experts could not agree on how to allow for preliminaries and overheads. Mr Zakos's approach was that it would be appropriate to allow 10% of the net cost, whereas Mr O'Donnell's approach was to particularise preliminaries and put them in as a job cost, and had the Builder not specified a margin of 10% he would have put an amount for overheads and an amount for profit (T 492). On the builder's margin, Mr O'Donnell stated that in the absence of a contract he would include a builder's margin of about 20%, as fairly normal across the board (T484-5).
The joint report indicates that Mr O'Donnell included preliminaries in his estimate. The issue is whether an amount for builder's overheads should be separately specified, or is included in the builder's margin. Mr O'Donnell included a 10% builder's margin, which he understood to be profit and overheads (T 488), which was nominated in the contract. Mr Zakos included an allowance for builder's overheads at 10%, and a builder's margin of 15% which he considered was a reasonable percentage and consistent with Mr O'Donnell's approach in his original report of 21 June 2016. On balance, the Tribunal prefers Mr Zakos' approach to the issue of overheads and margin, which better reflects what the Owners would have had to pay under a normal commercial arrangement. The contract on which Mr O'Donnell relied reflected Mr Schols' lower family and friends margin, below Mr O'Donnell's understanding of the normal 20%.
The Tribunal is satisfied for the reasons given by Mr Zakos that a regional allowance should be added, other than for the windows, shed and preliminaries, in the amount of $16,798.08. To that amount should be added an allowance for overheads (10%), and builder's margin (15%).
While the experts disagreed on the applicable multiples, they agreed on the methodology for applying the multiples, and the Tribunal has adopted that approach.
The Tribunal is satisfied that the value of the works completed, and thus the benefit received by the Owners, is the net trade value of the work, $373,708.15, with a regional allowance of $16,798.08, being $390,506.23. To that amount should be added an allowance for overheads at 10%, that is $39,050.62, taking the subtotal to $429,556.85. A builder's margin of 15% adds a further $64,433.53, $493,990.38. The experts agreed that 10% should be added for GST, which would be $49,399.04.
The Tribunal finds that the total value of the works completed to date is $543,389.42. The Builder has been paid $258,350, being the payment of the deposit by the Owners and the further progress payments by the bank. On a quantum meruit basis the Builder is entitled to payment of the balance, $285,039.42.

Conclusion

For the reasons above, the Owners have established that the Builder is liable for defects totalling $33,487.66. The Tribunal is required by s48MA of the HB Act to have regard to the principle that rectification of the defective work by the responsible party is the preferred outcome. The parties submit that the Tribunal should not make such an order, on the basis of the history between the parties and the breakdown of trust between them.
In Kurmond Homes Pty Ltd v Marsden [2018] NSWCATAP 23 the Appeal Panel confirmed (at [44]) that s48MA confers a discretion, and does not mandate that a work order must be made in all cases, and that a range of factors may be relevant. The fact that there is a dispute which necessitated the commencement of proceedings by an aggrieved homeowner is not of itself sufficient to justify the Tribunal in departing from an application of the preferred outcome principle in s48MA: Kurmond at [55].
The relationship between the parties, which was one of friendship well before the decision that the Builder undertake the building work, has broken down. The Builder has established an entitlement to be paid an amount reflecting the value of the work performed on a quantum meruit basis. In the interests of finalising all the matters in dispute, the Tribunal is of the view that the preferable course would be to finalise both proceedings with a money order that includes an adjustment for the defects. On that basis the Owners pay the Builder the amount of $251,551.76, being the quantum meruit value of $285,039.42 less the $33,487.66 for defects.
Both parties sought costs of the proceedings, and agreed that the question of costs should await determination of the substantive issues. The directions made include an opportunity for an application for costs to be made and determined.

Orders

The Tribunal orders: 1. In proceedings HB 15/65625 and HB 17/05296, Shannon John Wykes and Shannon Leigh Wykes are to pay MS & SJ Schols Pty Ltd the amount of $251,551.76 within 28 days of the date of these orders; 2. Proceedings HB 15/65625 and HB 17/05296 are otherwise dismissed; 3. Either party may file written submissions within 14 days seeking an order in relation to the costs of the proceedings; 4. If either party files submissions in accordance with order (3), the other party may file submissions in response within a further 14 days; 5. Any submissions filed in accordance with orders (3) and (4) should address whether the question of costs may be determined on the papers and without a hearing pursuant to s50(2) of the Civil and Administrative Tribunal Act 2013.

Civil and Administrative Tribunal of New South Wales

I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 12 December 2018

At a glance

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Judgment (34 paragraphs)

Cases Cited (43)