Zavodnyik & Ors v Alex Constructions Pty Ltd [2005] NSWCA 438 | Case summary

2 DECEMBER 2005 JOHN ZAVODNYIK & ORS v ALEX CONSTRUCTIONS PTY LTD Judgment 1 MASON P: I agree with Handley JA. 2 HANDLEY JA: The appellants (the proprietors) appeal by leave from the refusal of Quirk DCJ to summarily dismiss or strike out an action by the respondent (the builder) to recover the reasonable value of building work. The proprietors assert that the proceedings are barred by an Anshun estoppel based on proceedings between the parties in the Consumer Trader and Tenancy Tribunal (the new Tribunal). 3 On 16 March 1999 the builder, which was not then licensed under the Home Building Act 1989 (the Act), entered into a contract for residential building work with the proprietors. Because the builder was not licensed s 4, in conjunction with s 10(3), prevented it enforcing the contract. The builder acquired the necessary licence on 11 May 1999 but the contract was not retrospectively validated. 4 In 2000 the builder sued the proprietors in the Fair Trading Tribunal (the old Tribunal) to recover $698,711 for contractual variations. These were particularised in its points of claim of 24 May 2001 (blue 99). The builder claimed on the basis that each variation was the subject of a separate contract entered into when it was licensed and it could therefore recover the agreed price for such work. 5 The hearing of the claim commenced on 25 February 2002 before the old Tribunal but in the meantime the Fair Trading Tribunal Act 1998 (the 1998 Act) had been repealed by the Consumer Trader and Tenancy Tribunal Act 2001 (the 2001 Act) as from 1 February 2002 and its jurisdiction over claims by builders had been transferred to the new Tribunal. Under cl 6 of Sch 6 of the 2001 Act proceedings pending in the old Tribunal which had not been finally determined before it came into force could be continued and determined as if it had not been enacted. 6 If the hearing of such proceedings commenced before the final closure date (defined as the date eight months after the 2001 Act came into force) but had not been finally determined on that date the new Tribunal was to continue to hear and determine the proceedings (cl 7(2)) and could exercise all the functions of the old Tribunal (cl 7(3)). 7 The proceedings were not finally determined until the principal decision of 1 September 2003 and the subsequent decisions dealing with costs and amendments to the orders. 8 On 22 April 2002 the old Tribunal allowed the builder (blue 138) to rely on amended points of claim dated 1 March 2002 (blue 110-14). Its amended claim was for $843,023 made up of the balance of the original contract price together with the variations previously sued for. Its claim to recover under the variations was not changed but the new claim for the balance of the original contract price and the variations was based on s 27(3) of the 1998 Act which provided: "The Tribunal is to act with as little formality as the circumstances of the case permit and according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms." 9 The builder claimed that s 27(3) trumped s 10(3) of the Home Building Act and entitled the old Tribunal to enforce the contract. 10 The transcript records the submissions of counsel in support of and in opposition to the amendment (blue 122-138). The proposed points of claim asserted that it was "fair and equitable" that the builder recover $843,023 (blue 111, 113) on the basis that the relevant work was done "at the specific direction of" the proprietors who had "accepted and enjoyed the benefit thereof" but had not paid for it (112). 11 Section 45 of the Builders Licensing Act 1971 prevented a licensed builder enforcing a contract for the carrying out of building work unless it was in writing and sufficiently described the work. In Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 the High Court held that s 45 did not prevent a licensed builder bringing an action in restitution to recover the fair value of work done and materials supplied under an oral building contract. 12 Section 10(1)(a) of the 1989 Act prevents an unlicensed builder enforcing a building contact, and s 10(1)(b) prevents a licensed builder recovering under a contract that is not in writing or does not sufficiently define the work. Section 11 provides: "This Division does not affect any right or remedy that a person (other than the person who contracts to do the work) may have apart from this Act." 13 This section may or may not preserve an unlicensed builder's right to sue in restitution but there is nothing in the Act which takes away the right recognised in Pavey & Matthews Pty Ltd v Paul. 14 Counsel for the proprietors opposed the amendment on the ground that it added a claim in restitution for the first time and, if it was allowed, they would need a lengthy adjournment to answer the new case and qualify a quantity surveyor to assess the value of the work. He foreshadowed a claim that the fair value for the purposes of a restitution claim had to be applied to the whole of the work, and not just to what had not been paid for. The builder had been paid $3,170,298 (blue 112). 15 Counsel for the builder attempted to have the amendments allowed on the basis that any claim in restitution could be heard separately and later if necessary, but counsel for the proprietors would not accept this. The discussion concluded with counsel for the proprietors stating that he needed to understand the position being adopted by counsel for the builder. The latter then said: "it is only a legal issue; it is not a factual issue". Counsel for the proprietors said that he understood that this meant that he was not faced with a claim in restitution ("quasi ex contractu") and that "the amended points of claim should not be interpreted as introducing any claims extra the contract" (137). 16 The Tribunal member said that he would allow the amended points of claim on the basis that they alleged either that s 10 had been complied with because the builder was licensed when the variations were agreed to or in the alternative "that strict compliance with s 10 is not necessarily required … because of the perceived liberalising effect of the justice and good equity formulation" (137). The exchange concluded with counsel for the builder stating to the Tribunal member (138): "if we can't succeed on one or other of the bases that you have just formulated, I would not ask you to consider any other basis … that is the ambit of our claim". 17 The Tribunal member then allowed the amendment in terms of the amended points of claim "qualified as just expressed". The parties therefore adopted a conventional construction of the amended points of claim which displaced their ordinary meaning and estopped the builder from claiming in restitution under that pleading. 18 Thus the builder abandoned any claim to recover in restitution or on a quantum meruit under the amended points of claim and the Tribunal expressly so found in its decision of 1 September 2003 (blue 4, 5, 13, 14). It rejected both grounds on which the builder's claim had been advanced and following later amendments under the slip rule (blue 1) it awarded the proprietors $321,412.35 on their cross-claim. On 5 December 2003 the Tribunal made orders as to costs in their favour. 19 No application was made by the builder to reopen its case. There was an application to the Chairperson of the Tribunal under s 68 of the 2001 Act for a rehearing which failed because the amount in dispute exceeded $25,000: s 68(13). On 23 December 2003 the builder commenced proceedings in the Supreme Court seeking to have the decisions on the proprietors' cross-claim and on costs quashed by way of prerogative relief, or set aside by way of appeal (blue 70-80). There was no claim that the Tribunal had erred or denied the builder procedural fairness by refusing to entertain its restitution claim. The Supreme Court proceedings were dismissed. 20 Meanwhile on 2 October 2003 the builder made a fresh application to the new Tribunal to recover in restitution or on a quantum meruit. Because its then claim exceeded the jurisdictional limit of $500,000 fixed by s 48K of the Act (inserted by Act No 51 of 2001) the new Tribunal, by consent, transferred the proceedings to the District Court on 7 November 2003 (red 15). 21 On 16 March 2004 the proprietors applied by notice of motion to have the District Court proceedings permanently stayed or struck out under DCR Pt 9 r 17 on the grounds of res judicata estoppel or abuse of process. The notice of motion was dismissed by Quirk DCJ. She held that the causes of action sued on in the Tribunal and the District Court were "separate and distinct" and that the merits of the builder's claim had not been adjudicated on by the Tribunal. Ms Olsson SC who appeared for the builder in the District Court, but not before the Tribunal, referred to the transcript before the Tribunal (blue 128-138) and submitted that the builder "did not forever disclaim its entitlement to pursue a claim on the quantum meruit at some future time". 22 The Judge accepted this submission and said that the question to be decided was whether or not the builder's decision to leave for the future and refrain from litigating the quantum meruit claim was a decision which fell within the special circumstances exception to Anshun. She concluded: "… I am not satisfied that the plaintiff intended to make an unequivocal election in the CTTT as was submitted by Mr Davie. I am not satisfied that there is a res judicata defence in that the claim for the work done by the plaintiff was not decided on its merits, but on the basis of the inability to sue because of the operation of s 10 of the Home Building Act. In terms of the Anshun estoppel, again with some hesitation, I am satisfied it is reasonably open to find that the plaintiff did intend to bring, if necessary, a claim in the nature of a quantum meruit if unsuccessful on the contract claim and that therefore special circumstances apply. In the exercise of my discretion I do not consider that, in the circumstances, the pleadings or the plaintiff's claim should be struck out or stayed." 23 The builder did not make an unequivocal election to abandon any restitution claim but it abandoned any such claim in the original proceedings before the Tribunal. It could have applied to further amend its points of claim, notwithstanding what occurred on 22 April 2002, but it never did. Although the possibility of making a restitution claim in those proceedings was not expressly abandoned, the issue was not raised again before the Tribunal and the possibility was foreclosed when it gave its decision on 1 September 2003. 24 The proprietors' claim that the District Court proceedings are barred by Anshun estoppel is not answered merely because the builder did not expressly abandon any restitution claim for all time. Henderson v Henderson (1843) 3 Hare 100 [67 ER 313], which forms the basis of Anshun estoppel, makes it clear that res judicata estoppels are not limited to the issues actually litigated in the earlier proceedings. Wigram VC said at 115-6 [319-320]: "… where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought froward at the time … Now, undoubtedly the whole of the case made by this bill might have been adjudicated upon in the suit in Newfoundland, for it was of the very substance of the case there, and prima facie, therefore, the whole is settled." 25 The proprietors' claim in support of a stay or summary dismissal could be supported either on a cause of action estoppel or on the wider form recognised in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. The possibility of a cause of action estoppel flows from the decision of Gummow J in Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 36 FCR 406 (Trawl Industries) that the rejection of a claim under s 52 of the Trade Practices Act created a cause of action estoppel against a claim for negligently inflicted economic loss based on the same representations. The availability of a cause of action estoppel in those circumstances was held to flow from (418) "the substance of the two proceedings as distinct from their form". After reviewing the pleadings in the two actions he said (422): "What emerges from this review of the matter in broad terms is that in the present proceeding Trawl seeks to recover a loss measured in the same way and in the same quantum as it did on the trade practices claim it propounded in the Supreme Court proceeding. Not all of the misrepresentations alleged in this court are found in the pleading in the Supreme Court, but some are … But each set of claims in this court is particularised by reference to statements which were in evidence in the Supreme Court. Thus, this is a case where it can be said that the same evidence would be led to prove the case Trawl propounded in its pleadings in both actions. The one factual matrix has generated the controversy which is given legal form in the two pleadings. As a matter of substance, in this court Trawl seeks to attack Effem again upon a corresponding cause of action.

In my view Effem has made out its case of cause of action estoppel against Trawl. This is so, even though no claim previously was made in negligence. The substance of the controversy embraces such a claim. The gist of the recovery sought both in negligence and for contravention of the TP Act is the same." 26 The builder's contract case in the Tribunal was based either on the variations post-dating the grant of a licence or on s 27(3) of the 1998 Act. It sought to prove that the work was done at the request and with the consent of the proprietors under separate contracts, and to recover the agreed price. 27 A non-exhaustive comparison between the particulars of the builder's claims in the Tribunal (blue 85-98, 115-7, 118-120), and its claim in the District Court (red 5-6), allowing for the reduction in amount, demonstrates a very substantial overlap. The claims in the District Court are based, with one exception, on the same instructions from the architects. 28 The builder therefore is claiming in the District Court to recover the fair value of work done for the proprietors on the basis of the instructions or requests which were part of its earlier claims in the Tribunal. It would have to call again substantially all the evidence it called in the Tribunal. 29 The question, posed by Henderson v Henderson, is the characterisation of "the subject matter" of the litigation in the Tribunals. If a claim in restitution "properly belonged to the subject matter" of that litigation the District Court proceedings will be barred either by a res judicata or Anshun estoppel. They will be barred because those pleas cover matters which were not litigated, but should have been, whether the omission was due to negligence, inadvertence, accident, or otherwise. The fact that the restitution claim was not litigated on the merits in the Tribunal is not decisive. 30 When the analysis in Trawl Industries is applied, and the question considered as a matter of substance, it is evident that the restitution claim, although reduced in amount, is based on building work, architect's instructions, and evidence that were relied on by the builder in the Tribunal. As Gummow J said (above): "The one factual matrix has generated the controversy which is given legal form in the two pleadings … This is so, even though no claim previously was made in negligence. The substance of the controversy embraces such a claim." 31 Nothing turns in this case on the distinction between a cause of action in contract and one in restitution. They are different, but as a matter of substance in the present case they are alternative and inconsistent remedies based on the same facts. Because they are alternative and inconsistent a plaintiff is not entitled to judgment on both. If there was an enforceable contract there could be no recovery in restitution and vice versa. 32 The principle is well established. In United Australia Ltd v Barclays Bank Ltd [1941] AC 1 the House of Lords held that the true owner of a converted cheque had alternative and inconsistent remedies in tort for its conversion and in restitution for money had and received and could not take final judgment for both. The principle is not displaced because the amount recoverable in restitution could differ from that recoverable in tort. Such a plaintiff who elected to proceed in tort and failed who then sued in restitution would be met with a cause of action estoppel. As Lord Atkin said (above at 30): "… on a question of alternative remedies no question of election arises until one or other claim has been brought to judgment. Up to that stage the plaintiff may pursue both remedies together, or pursuing one may amend and pursue the other, but he can take judgment only for the one, and his cause of action on both will then be merged in the one." 33 There can be a cause of action estoppel, as Trawl Industries demonstrates, whether the plaintiff succeeds or fails in the first action. In my judgment there was such an estoppel in this case and the appeal should be allowed on that basis. 34 It is also appropriate to consider the proprietors' alternative case based on an Anshun estoppel. In Anshun the Authority was held estopped from enforcing a contractual indemnity against a co-tortfeasor by the existence of cross-judgments for contribution given in earlier proceedings. The majority (Gibbs CJ, Mason, Aickin JJ) stated the principle in terms quoted below which I have adjusted for the facts of this case (147 CLR at 602-3): "… there will be no estoppel unless it appears that the matter relied upon … was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking it would be unreasonable not to plead [an alternative claim] … if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the [plaintiff] would raise the [claim] and thereby enable the relevant issues to be determined in the one proceeding. In this respect we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings eg expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few." 35 In that case the critical factor was held to be the risk of conflicting judgments if the indemnity was enforced. That is not present in this case because a judgment for the builder in restitution would not conflict with a judgment for the proprietors in contract. 36 It is clear from the original points of claim of 24 May 2001 (blue 99) that the builder's advisers were aware of the effect of the absence of a licence. In view of Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 the advantages of convenience, importance, and economy of time and expense favoured including an alternative claim in restitution in the original points of claim. The importance of doing do became even clearer once the proprietors lodged their cross-claim. 37 When the builder sought to amend its points of claim in April 2002 it had a further opportunity to plead a claim in restitution and, although it would have faced terms relating to an adjournment and costs, and some delay, the advantages of including such a claim still greatly outweighed any disadvantages. In my judgment therefore none of the exceptions mentioned in the joint judgment are applicable and the facts do not establish any other exception. 38 The test of reasonableness in Anshun has been worked out in later cases. Those of particular relevance are Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 and Ling v The Commonwealth (1996) 68 FCR 180. Bryant was sued by the Bank in the Supreme Court of New South Wales for recovery of possession of mortgaged property and for debt. He raised various defences and cross-claims but later amended his pleadings to withdraw some of the cross-claims. He then brought separate proceedings in the Federal Court based on the cross-claims he had withdrawn. The Full Court held that they were barred by an Anshun estoppel. The Court (Beaumont, Wilcox and Moore JJ) considered the special problems that arise in the application of the Anshun principle to cross-claims and said (297-8): "… in contrast to defences, many cross-claims may have little or no connection with the principal claim in the action; there may be no more than an identity of parties. Where that is so, there may be no policy justification for forcing defendants to litigate their claims as cross-claims rather than as principal claims in separate actions in the forum of their choice. But, where, as here, a defendant's claim is intimately connected with that of the plaintiff, in the sense that each arises, substantially, out of the same matters of fact, there is every reason to require that both be litigated at the one time; thereby minimising costs and avoiding the possibility of inconsistent judgments … This is such a case. The matters sought to be raised by the appellant in this Court were all matters connected with the claims made by the bank. The appellant, and his former legal advisers, recognised this. They pleaded his claims as defences to the bank's two Supreme Court actions and as cross-claims to those proceedings." 39 In Ling v The Commonwealth (1996) 68 FCR 180 on the other hand the plaintiff's failure to plead his claim as a cross-claim in the earlier proceedings was held to have been reasonable and there was no Anshun estoppel. Wilcox J said (184): "In considering reasonableness … consideration must be given to all aspects of the case. They include the extent of the overlap between the facts underlying each claim; the greater the overlap, the easier it is to argue that it was unreasonable not to raise the matter in the first case. They also include any difficulties that existed, or might reasonably have been perceived, in raising the matter earlier … In assessing the reasonableness of Mr Ling's failure to raise his claim against the Commonwealth when he was sued by it in the earlier action, it is necessary to look at the whole of the circumstances that he then confronted. His claim involved facts that overlapped the Commonwealth's case to some extent but were substantially extraneous to that case." 40 In this case there is a substantial if not total overlap in the facts underlying both claims, and the amount now sued for was comprised within the earlier claim. There is therefore every reason to require that both be litigated at the one time, minimising costs and delay to both parties, and the demands on Court time. If there was no cause of action estoppel in this case there was certainly an Anshun estoppel, and I would allow the appeal on this basis as well. The following orders should be made:

Zavodnyik & Ors v Alex Constructions Pty Ltd

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Judgment (30 paragraphs)

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