Zeman v Bollard

The Hearing

1. The hearing of this dispute occurred over two days. The only witnesses required for cross examination were those of the respondent being: 1. Mr Symonds, who worked for the respondent as the respondent's leading hand and project/office administrator; and 2. The respondent.
2. Mr Symonds had provided a written statement dated 30 November 2013: see Exhibit B, volume 4 of 5, Tab 2. The respondent also provided a written statement which is part of Exhibit B. Various objections were taken to these statements and rulings were given and the results recorded on the statements.
3. At the hearing on 12 June 2014 Mr Symonds was cross-examined. The respondent was cross-examined at the hearing on 8 December 2014.
4. The parties also provided to the Tribunal, both before the hearing on 12 June 2014, after the hearing on 12 June 2014 and after the hearing on 8 December 2014, written submissions in support of their respective positions. As will be evident from the statement of issues, one of the questions for determination by the Tribunal is whether or not the respondent validly terminated the contract or whether the contract was abandoned. In this regard the respondent submitted he had validly suspended the works pursuant to a notice dated 23 September 2010: see Exhibit B volume 1 page 301 and following, and had subsequently terminated the contract by notice dated 4 September 2012: see Exhibit B volume 1 Tab 6 page 353-354.
5. The parties were asked whether or not they could agree the quantum of damages to which the applicant might be entitled depending on the conclusion of the Tribunal about whether the contract had been terminated or abandoned. The Tribunal was informed that the parties agreed that the amount of damages to which the applicant was entitled if the contract was abandoned was $100,000.00. However, the parties were unable to agree quantum in the event that the Tribunal determined the contract had been terminated by the respondent pursuant to the notice dated 4 September 2012.

Applicant's Submissions

1. The applicant's submission is that regardless of whether the contract was abandoned or terminated by the respondent, the applicant is entitled to damages in connection with the defective works. In relation to the quantum of damages, if abandonment is found they are agreed at $100,000. If termination is found the applicant submits it is entitled to the sum of $108,628.81 as set out in the "statement of quantum".
2. It is an agreed fact in the proceedings that the applicant's conduct in sending the letter dated 16 September 2010 purporting to terminate the contract constituted an act of repudiation for which the respondent was entitled to accept and either elect to affirm or terminate the contract.
3. In relation to whether or not the contract was terminated by the respondent, the applicant says that following the repudiatory conduct of the applicant the respondent affirmed the contract. The applicant says that the acts of affirmation included the issue of the notice of suspension dated 23 September 2010, denying the breaches and asserting he will abide by the contract and calling a meeting pursuant to clause 26 of the contract.
4. The applicant submits that insisting on a dispute resolution meeting under the contract precluded the respondent from terminating the contract on the basis of repudiation. Further, having affirmed the contract and having issued the notice of substantial breach dated 23 September 2010 no right to terminate the contract could be exercised for a period of 10 days following the issue of the notice in accordance with the provisions of clause 30.4 of the contract.
5. However, the applicant submits that having issued the notice of substantial breach and after the expiry of the 10 day period the respondent could not unreasonably delay any election to terminate the contract in accordance with its terms. Inter alia, the applicant relies on the decision of Young J in Majik Markets Pty Ltd v Motor Repairs Pty Ltd (No 1) (1987) 10 NSWLR 49 where the Court said: "When a party commits a breach going to the heart of the contract or repudiate his obligations then the situation arises under which the so-called innocent party has to elect whether or not to put an end to the contract. The time for making an election will not arise until a reasonable time has elapsed for the matter to be properly considered… After that time the innocent party must do one of two things, either elect to affirm the contract or to put an end to it. That election can be made by an intentional statement or by action or by conduct. That election must be communicated and is not complete until it is communicated.… All that is meant by "communication" is that the fact of election must come to the repudiating party's attention. It matters not whether the communication came from the innocent party or from a third party."
6. The applicant then submits that, after two years, the failure to issue a new notice of substantial breach meant that any purported termination at this time would have been unlawful.
7. The applicant submits that the Tribunal should accept that both parties sought to terminate the contract and, while neither party may have done so lawfully, the parties' conduct is consistent with them both having regarded the contract as being at an end and having been abandoned. Further, the applicant says that the circumstances in which the contract has been abandoned did not mean that any accrued rights had been forgone. Rather, the parties had agreed prospectively that no performance of the contract was required however the parties were, at least in the case of the applicant, insisting to enforce their accrued rights.
8. Alternatively, as indicated above, the applicant submits that the conduct of the respondent in purporting to terminate the contract by notice dated 4 September 2012 was itself a breach and, in any event, it was clear that the contract was at an end.
9. In relation to the rights which had accrued, the applicant contended that the construction of the works in a defective manner gave the applicant a cause of action for breach of statutory warranty at the date of performance of the defective work, regardless of awareness of damage. The applicant made submissions concerning the "Temporary Disconformity Theory" which relates to whether or not a contractor is in breach in constructing defective works in circumstances where the time for completion has not arisen. The applicant relied on the decision of Roskill LJ in Lintest Builders v Roberts (1980) 13 BLR 38 where the Lord Justice said "the building owner acquired a right at the time the defective work was done". Further, the applicant submitted that the performance of defective work (not just completion) gives rise to breach. The applicant referred to clause 2.1 of the contract which requires the builder to "carry out and complete" the building works in accordance with the contract. That is the performance obligation requires both the "carrying out" and "completion" of works in accordance with the contract.
10. The applicant referred to the decision of the Court of Appeal of the Supreme Court of New South Wales in Brewarrina Shire Council v Beckhaus Civil Pty Limited [2005] NSWCA 248, particularly the decision of Ipp JA at [68] - [69] and said that the reasoning in that decision also supports the proposition that a breach occurs at the date when defective work is performed however if the contract had not been terminated no loss is suffered at that time unless the time for completion had arisen.
11. In relation to the proper measure of damages, the applicant submitted that it is the costs of bringing the works into conformance with the contract. In this regard the damage is not the respondent's costs of performing rectification work. This is because the respondent lost the opportunity on termination of the contract to carry out rectification work and by terminating the contract, or otherwise abandoning it, the respondent failed to mitigate its loss.
12. In relation to the operation of clause 32 of the contract, the applicant says this clause has no operation in determining the party's rights in the present circumstances. This is because the respondent did not end the contract pursuant to the provisions of clause 30. Further, the operation of clause 30 did not affect the applicant's rights which had accrued in connection with defective work already performed. Rather, clause 32 is a mechanism provided for valuing the builder's entitlement to be paid for work already performed. Alternatively, the respondent was entitled to bring a claim for damages but again such a claim does not affect the applicant's entitlement in connection with any accrued rights arising from the carrying out of defective building work under the contract.
13. In summary, the applicant says that whether or not the contract has been abandoned or terminated, she has accrued rights arising from the carrying out of the building works which are defective.

Respondent's submissions

1. The respondent submitted that the applicant had repudiated the contract by her conduct in sending the solicitor's letter dated 16 September 2010. This is an agreed fact.
2. The respondent says that the applicant breached clause 25 of the contract by taking possession of the site on 17 September 2010. In paragraph 3 of his submissions dated 9 December 2014 the respondent says: "Clause 25 of the contract entitled the respondent to elect between: (a) Treating the applicant action as a repudiation of the contract and immediately accepting the repudiation. Or do either or both of the following: (b) Suspend the building work under clause 29 and/or issue a notice of default/ substantial breach under clause 30."
3. The respondent submits that he "opted on 23 September 2010 to suspend the building work and issue a notice of default/substantial breach".
4. Thereafter, the respondent submits that the applicant ignored the notice of substantial breach/suspension and asked Mr Symons to complete the construction of the dwelling on the basis that "the contract with (the respondent) has essentially gone". The respondent identified Exhibit B Volume 1, Tab 6 at page 331 as the document recording this request.
5. The respondent submits that there was no time limit imposed under the contract as to when he could exercise his rights to terminate the contract. Consequently, the respondent says that the notice dated 4 September 2012 was valid.
6. The respondent submits there was no basis to conclude that the contract had been abandoned and in circumstances where "the time for performance of the respondent to present the applicant with a defect free dwelling house in accordance with those warranties had not arisen at the time of the respondent was unlawfully removed from site or at any other time thereafter" the statutory warranties in section 18 B of the Home Building Act, 1989 had no application and there was no liability of the respondent to damages: see for example [8] of the respondent's submissions dated 9 December 2014.
7. In relation to affirmation, the respondent says that by issuing the notice of substantial breach to the applicant, the applicant was given a "second chance" to remedy her repute breaches of the contract within 10 working days and that thereafter the works remain properly suspended until the notice of termination was served in September 2012.
8. In relation to acts of repudiation, the respondent also relied upon the applicant's failure to provide evidence of ability to pay monies as they may become payable under the contract.
9. In short, the respondent says he was "entitled to rely upon the notice of suspension as indefinitely suspending all building work and do nothing more until the proceedings had given a finding as to whether the applicant had terminated the contract pursuant to the… letter dated 16 September 2010 or repudiated that contract.": See respondent's submissions dated 9 December 2014 at [47]. Further, the respondent says that all the applicant had to do after receiving the notice of suspension and the notice of breach was to: 1. give possession of the site back to the respondent; 2. allow the respondent back on site; 3. give evidence of her ability to pay; and 4. sort out invoice No. 190 dated 14 September 2014 claiming $19,245.44 (Exhibit B, Part 6, page 286). The respondent in paragraph 3 of the notice of substantial breach implied the respondent sought the opportunity to quantify his claim (Exhibit B, part 6, page 301.
10. In relation to the issue of abandonment, the respondent says that at all times he conducted himself in a manner consistent with the contract continuing to be further performed. In this regard he relies upon his statement found in Exhibit AA, paragraphs 7 to 14 inclusive and upon a DVD contained in exhibit B, volume 1 which confirms the respondent's attempts to obtain access to the site and that he was locked out.
11. In relation to Exhibit AA, the Tribunal notes that this statement was the subject of an application before the Tribunal on 16 October 2014. At that time the Tribunal made orders concerning what paragraphs of this statement would be admitted into evidence, what documents would be admitted into evidence and what statements would be treated as submissions. These rulings are recorded in the orders made 16 October 2014.
12. Finally, the respondent submits that if the Tribunal determines the contract was not validly terminated or abandoned it should conclude that the contract remains on foot and suspended.

Decision

1. The primary issue for determination in these proceedings is whether the notice of termination issued by the respondent on 4 September 2012 was effective to terminate the contract or whether the contract was otherwise abandoned.
2. The notice of termination purported to terminate the contract pursuant to clause 30, the respondent relying upon 5 alleged substantial breaches. The terms of the notice identified the breaches as follows: 1. You have failed to comply with your obligations under clause 30.2 (e) of the general conditions in that you have taken illegal early possession of the dwelling house. 2. You have, without obtaining our permission, moved into and commenced residing in the dwelling house. 3. You have, without obtaining our permission, change the locks to the dwelling house and we cannot access the dwelling house. 4. You have failed to comply with your obligations under clause 30.2 (b) of the general conditions in that you did not give evidence of ability to pay. 5. You failed to comply with your obligations under clause 30.2 (a) of the general conditions in that you did not (sic) our claim by the due date."
3. The respondent relies on the "Notice of Substantial Breach" given on 23 September 2010 (notice of substantial breach), requiring the identified breaches to be rectified within 10 working days. The respondents says the notice was given pursuant to clause 30.3 of the contract and has not been complied with and entitles the respondent to terminate the contract pursuant to clause 30.4 of the contract. The notice dated 23 September 2010 identified the following matters as constituting substantial breaches: 1. taking unlawful possession of the site; 2. not giving evidence of ability to pay as requested; 3. failing to pay any amount by the due date; 4. not giving a notice of dispute and seeking to terminate the contract based on repudiation.
4. In his notice dated 4 September 2012 the respondent also sought to terminate the contract by accepting the repudiatory conduct of the applicant constituted by the issue of the solicitor's letter dated 16 September 2010. The respondent purports to accept the repudiation as evincing an intention no longer to be bound by the contract and terminate the contract.

Could the respondent in September 2012 validly terminate the contract by accepting the repudiation constituted by the applicant issuing the solicitor's letter dated 16 September 2010?

1. It is common ground that the solicitor's letter dated 16 September 2010 constituted a repudiation of the contract by the applicant. Repudiation of the contract also constitutes a substantial breach within the meaning of clause 30 of the contract.
2. The notice of substantial breach given under clause 30.3 specified both the taking possession of the site and the giving of the notice in the solicitor's letter dated 16 September 2010 as substantial breaches. Also relied upon as substantial breaches were the failure of the applicant to provide evidence of ability to pay in failing to pay amounts due under the contract by the due date.
3. Terminating the contract by accepting a repudiation and terminating the contract under the provisions of clause 30 of the contract are alternative rights. The first effects an immediate termination of the contract and the second provides to the defaulting party an opportunity to remedy any breach within 10 days. When a notice of substantial breach is given, the right to terminate does not accrue until "10 working days have passed since the notice of default is given and the breach is not remedied".
4. As the respondent points out in its submission concerning clause 25 referred to above, the fact they are alternative rights is made clear by the contract. A substantial breach may be committed where the owner fails to give or interferes with the builder's possession of the site: see clause 30.2 (e) of the contract. The obligations of the applicant in relation to possession are found, inter alia, in clause 11 and clause 25 of the contract. Clause 11 requires the applicant to give the respondent exclusive possession of the site. Clause 25, Early Possession provides: "25.1 If the owner: (a) enters into occupation of the site or any part of the site; (b) takes control of the building works or the site; or (c) prevents or inhibits the builder from carrying out of the building work, without the builder's written consent, the owner commits a substantial breach of this contract entitling the builder to elect (emphasis added) to either: (d) treat the owners actions as a repudiation of this contract and accept that repudiation; or (e) do either or both of the following: (i) suspend the carrying out of the building works under clause 29; (ii) give the owner a notice of substantial breach under clause 30.
5. The notice of substantial breach clearly exercised the rights of the respondent pursuant to clause 25.1 (e) and thereby the Tribunal is satisfied the respondent elected not to terminate the contract by reason of any repudiation constituted by the applicant solicitor's letter dated 16 September 2010.
6. Consequently, in so far as the respondent sought to terminate the contract on 4 September 2012 based on the repudiatory conduct in issuing the letter dated 16 September 2010, the notice of termination dated 4 September 2012 was ineffective.

Was the contract validly terminated on 4 September 2012 under clause 30 of the contract?

1. The applicant submitted that by issuing the notice of substantial breach the respondent affirmed the contract and formally suspended the work. The applicant accepts that the works were lawfully suspended: see [10] of the applicant's submissions dated 9 December 2014.
2. While this conduct constituted an election not to terminate based on repudiation and exercise the rights available under clause 30 of the contract, the applicant does not submit that the respondent could not terminate the contract under clause 30.4 for any proven default of the applicant which was not remedied within 10 days as required by the notice of substantial breach. Rather, the applicant submits that the respondent had to exercise any right to terminate the contract pursuant to clause 30 within a reasonable time after that right accrued.
3. It is common ground that the only attempt to terminate the contract under clause 30.4 was by way of the notice issued by the respondent dated 4 September 2012. The applicant says that the issue of this notice did not occur within a reasonable time after the issue of the notice of substantial breach and the right to terminate based on any failure to remedy defaults identified in the notice of substantial breach issued 23 September 2010 had been lost.
4. Further, the applicant says that the Tribunal should conclude that the conduct of the parties shows that the contract was abandoned prior to 4 September 2012.
5. In relation to the conduct of the parties from 16 September 2010 until the issue of the notice of termination on 4 September 2012 the Tribunal finds the following was the position: 1. The respondent sought to access the subject property shortly after being excluded, on Monday 20 September 2010. The DVD found in volume 1 of Exhibit B provides evidence that the locks had been changed, the site secured by the applicant and access denied to the respondent. It records that the respondent's site sign had been removed and placed in a garbage bin. The DVD also shows a sign belonging to "Mintconstruct " had been erected on the site; 2. The respondent served the notice of substantial breach by registered mail sent 27 September 2010. 3. There is no evidence the respondent sought to re-establish any signage or take any action to recover possession of the site other than issuing the notice of substantial breach; 4. The respondent's statement dated 5 December 2013 (Exhibit B volume 4, Tab 1) does not provide any evidence of acts performance of the contract after about the end of September 2010, other than the issue of the notice of termination dated 4 September 2012; 5. On 24 September 2010 the applicant engaged Mr Shepherd to carry out an inspection of the works and provide a building defect report: Exhibit B Volume 1, Tab 6 page 303. The respondent was aware a report was being obtained but says it was not provided to the respondent at this time: see para 61 of Bollard statement 5 December 2013, Exhibit B Volume 4, Tab 1. The report was provided to Mr Symons, the respondent's leading hand and project administrator on 12 October 2013; see para 66 of Symons statement 30 November 2013, Exhibit B Volume 4, Tab 2. 6. In October 2010 Mr Symons provided quotations to the applicant to carry out various building work at the premises, such services to be provided from his company Mintconstruct Pty Ltd: see e.g. paragraph 46 or Mr Symons statement dated 30 November 2013, Exhibit B Volume 4, Tab 2. In this regard it is agreed a substantial part of the works were subsequently carried out by Mr Symons and other tradespersons because of the unilateral arrangements between Mr Symons and the applicant: see Exhibit AA para 6 (kk). 7. Having regard, inter alia, to the sign which had been placed on site in September 2010 (as shown on the DVD) belonging to "Mintconstruct", it is probable that the respondent would have known about this time that the applicant was engaging other people, including Mr Symons, to carry out future building works. 8. The present Tribunal proceedings were commenced by the applicant in the District Court of New South Wales on 25 February 2011, and were transferred to the Tribunal on 24 October 2011. The respondent essentially denied all claims in the defence filed. He also denied he had carried out defective work and thereby breached the contract. 9. Correspondence between the parties' lawyers concerning the proceedings forms part of Exhibit AA. This exhibit needs to be read in light of the rulings made by the Tribunal on 16 October 2014 and the notations in the exhibit concerning those rulings. However, none of that correspondence prior to 4 September 2012 makes any assertion that the parties intend to perform the contract in the future.
6. It is clear from the provisions of clause 30.4 that the contract does not come to an end unless a notice is given by the non-defaulting party to that effect. Having issued a notice of substantial breach, the non-defaulting party may not take steps to terminate the contract prior to the expiry of the 10 day period provided in the contract for the defaulting party to remedy any default. In the event any default has not been remedied it is open to the party issuing the notice under clause 30 to bring the contract to an end after that time.
7. The issue is whether or not an election under clause 30.4 must be made within a reasonable time, what is a reasonable time being a question of fact.
8. In the opinion of the Tribunal, once the right has accrued to end the contract, an election under clause 30.4 must be made within a reasonable time: see Contract Law in Australia 5th Edition, Carter, Peden and Tolhurst at [31-18]. In this regard the party who has a right to terminate will be allowed a reasonable time to properly consider what election that party should make but thereafter "must do one of two things, either elect to affirm the contract or to put an end to it.": per Young J in Majik Markets at 54 C-D. Whether this obligation arises by reason of an implied term or as a requirement of election (as identified by the learned authors of Contract Law in Australia) it is sufficient to record that there is an obligation upon the party entitled to exercise the rights under clause 30.4 to do so within a reasonable time.
9. Absent exercising those rights, the contract remained on foot and the opportunity to rely on the notice of substantial breach dated 23 September 2010 as the basis for terminating the contract under clause 30.4 was passed.
10. While the respondent submitted there is no such obligation and he could bring the contract to an end "at any time" because "there (is) no time limit imposed in the contract as to when the respondent choses to exercise his right to terminate the contract", such submission cannot be correct.
11. On any view there is no such unlimited right. For example some acts in performance of the contract by the respondent would constitute an affirmation. The applicant performing the contract based on an implied or actual representation of the respondent may give rise to an estoppel preventing termination. Further, in circumstances where the respondent has suspended the work he is under an obligation to complete the work within the time prescribed by the contract or apply for an extension of time: see clause 9. Such a request is required even if the works are suspended. The respondent must give the applicant written notice of any entitlement to an extension of time. This obligation is inconsistent with a right to take no action to affirm or terminate the contract for an unlimited time following issue of a notice of substantial breach and the expiry of the specified period.
12. In the opinion of the Tribunal, a reasonable period to exercise any accrued right of termination following the issue of the notice of substantial breach expired no later than November 2010. The reasons for this conclusion are that by October 2010 the respondent was aware that the matters recorded in the notice of substantial breach, particularly the request for redelivery of possession to the builder, were not going to be remedied by the applicant. To the contrary, Mintconstruct had placed a sign on site indicating that that company would undertake any future building work and the respondent's project manager Mr Symons was undertaking that work independently of the respondent. Further, whether or not the respondent was owed any money under the contract, it is clear the applicant claimed the respondent was in breach of contract in constructing defective works and was not prepared to pay any further monies to the builder or provide information concerning her capacity to pay.
13. Consequently, the respondent was unable to rely on the notice of substantial breach issued on 23 September 2013 to terminate the contract after November 2010. If the contract had remained on foot in September 2012 he was required to issue a further notice of substantial breach. Absent such action the notice dated 4 September was ineffective to terminate the contract.
14. Further, in the present case, the fact there was no step taken by the respondent to affirm or terminate the contract is relevant to the issue of abandonment.

Was the contract abandoned?

1. The circumstances in which abandonment occurs are succinctly stated by McColl JA in Ryder and Anor v Frohlich and Anor [2004] NSWCA 472 where her honour said: "135. Where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed the parties will be regarded as having so conduct themselves as to abandon or abrogate the contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd … 138 CLR 423 at 434 …; Summers v The Commonwealth … 25 CLR 144 at 151- 152 … The inference of abandonment will be drawn where "an 'inordinate' length of time has been allowed to elapse, during which neither party has attempted to perform, or call upon the other to perform, a contract made between them… What is really inferred in such a case is that the contract had been discharged by agreement, each party being entitled to assume from a long - continued ignoring of the contract on both sides that… 'The matter is off altogether'". Fitzgerald v Masters … 95 CLR 420 at 432… 136. Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from the objective assessment of the conduct of the parties: 137. The underlying premise of the abandonment cases is that a period of time elapses during which neither party to a contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. It is clear that the question whether an "inordinate length of time has been allowed to elapse" is relative. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd the High Court was prepared to infer abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract. In Fitzgerald v Masters it was held that a contract for sale of land had not been abandoned even though proceedings for its specific performance were not commenced until 26 years after its execution."
2. The facts set out at paragraph 58 confirm that no steps were taken by the respondent to perform work under the contract after 23 September 2010.
3. The contract was dated 23 March 2010 and was required completion within a 20 week period: see item 11 of schedule 1. Consequently, by the time the proceedings were commenced in the District Court it would seem the respondent was himself in breach of the contract as no valid extension of time claim was made.
4. A period of five months elapsed from the service of the notice of substantial breach until the commencement of the proceedings in the District Court. During this time neither party took any steps to perform the contract. The respondent did not take any steps to re-establish his present on site nor to inspect and otherwise manage the site other than the inspection which took place as recorded in the DVD referred to above. The applicant engaged others to undertake rectification work and other work not yet completed under the contract. The respondent did not apply for an extension of time under the contract in which to complete the works nor did the respondent take any steps to arrange for defect rectification work to occur.
5. While there is some evidence that the respondent sought to invoke the dispute resolution clause, what is clear is that by the time the District Court proceedings were commenced on 28 February 2011 neither party had taken any further steps to perform the contract (or for that matter in the case of the respondent to exercise any right of termination). After 28 February 2011 until 4 September 2012 the parties conducted themselves in a manner consistent with the parties each asserting the other had breached the contract and each denying the other party's claims. However again no action was taken by the parties to perform the contract.
6. In these circumstances, the Tribunal is satisfied that the period of 5 months was an inordinate length of time, particular having regard to the duration of the contract being 20 weeks for completion specified in the contract, and that by their conduct the parties have indicated that neither of them intended to further perform the contract. Therefore the Tribunal concludes that the contract was abandoned sometime prior to the commencement of the District Court proceedings in February 2011.

Damages for breaches of contract prior to abandonment

1. Where a contract is abandonment, an issue arises as to whether the abandonment is prospective or whether the parties intend any accrued rights should also be forgone. In the present case the issue does not arise as the parties have agreed the amount payable if abandonment is found. In any event, it is clear from the fact that each party commenced proceedings that the parties did not intend for accrued rights to be forgone. The Tribunal is satisfied that abandonment did not prevent either party from enforcing their accrued rights up to when the contract was abandoned.
2. As indicated above, the parties agreed that in the event the Tribunal concluded the contract had been abandoned the applicant was entitled to recover an amount of $100,000.00.
3. Accordingly, an award should be made in favour of the applicant in the sum of $100,000.00.

Other issues

1. Having regard to the nature of the dispute and the issues argued before the Tribunal it is appropriate to record the Tribunal's views in relation to the applicant's entitlement to claim damages for the carrying out of defective building work and the entitlement of the applicant to recover those damages if, contrary to my conclusions above, the contract was validly terminated by notice dated 4 September 2012.
2. There is no dispute in these proceedings that the respondent has been paid in relation to the works said to be defective. The obligation of the applicant to pay the respondent for the works arises under clause 3 and clause 13 of the contract. The applicant is obliged to pay the price of the building works (see clause 3.1), such amounts to be paid progressively (see clause 13.2). The obligation to pay progress payment is in respect of the "cost of the building works" plus the "builder's fees" and other amounts due under clause 13.2.
3. The "cost of the building works" means "the amounts described in Schedule 2 attributable to or in connection with the building works". "Building works" means "the building works carried out and completed and handed over to the owner in accordance with this contract is shown in the contract documents and including variations": see definitions in clause 1.
4. The builder is required to carry out and complete the building works in accordance with the contract: see clause 2. The failure to do so constitutes a breach of the contract. The builder is required to bring the works to practical completion by the due date, with any defects not affecting practical completion to be rectified in the defects liability period: see clause 1 and clause 26.
5. The respondent has submitted that no breach of contract occurs provided that any works which are constructed in a defective manner are brought into compliance with the terms of the contract by the date for completion. Consequently, the respondent says that although the works are defective (as determined by the joint report from the expert) the respondent has no liability to the applicant for the defective work. Alternatively, the respondent also says it is the costs to him of bringing the works into conformance, not the reasonable cost of a third party to do so.
6. The applicant says it is the costs as determined in the joint report and as set out in the statement of quantum.
7. Inter alia, the applicant has referred the Tribunal to the Theory of Temporary Disconformity and has submitted that the correct position is that the construction of works other than accordance with the contract constitutes a breach although damage may not be suffered until the time for performance has arisen or the contract has been terminated.
8. In the opinion of the Tribunal, a breach occurs at the time when the works are constructed in a manner which does not conform to the contract. While no damage may be suffered by the applicant until the date when the works are required to reach practical completion (other than for any delay), nonetheless the contract does not authorise the construction of nonconforming works.
9. The contract is a "cost plus contract" and the respondent is entitled to be paid is costs plus a margin applicable to constructing the works in accordance with the contract. While the payments are to be made progressively, the contract does not provide for payment of works constructed in a defective manner and not in accordance with the contract. A claim by the respondent for payment of work that does not conform is a breach of the contract.
10. This is hardly surprising. Unlike a fixed price or lump sum contract payable in stages or at defined points (where the builder must complete all works for an agreed amount, whether or not particular items of work are defective and need to be redone) a "cost plus" contract requires payment for work actually done based on hours worked or applicable rates and/ or monies paid to subcontractors and suppliers. This obligation to pay can only be in respect of conforming work. Otherwise the applicant would be required to pay for carrying out defective work and its rectification.
11. The view that constructing nonconforming work is a breach of the contract is also consistent with the views expressed by Ipp JA in Brewarrina Shire Council v Beckhaus Civil Pty Limited and Anr [2005] NSWCA 248, at [55] and following, to the effect that until the contract was terminated no loss and damage had been suffered however if by the time of trial the contract had been terminated an award for damages could then be made.
12. Accordingly, the submission that no breach occurs when the builder constructs defective work must be rejected.

Measure of damages of contract validly terminated on 4 September 2012

1. By the time of the hearing the respondent had indicated he would no longer perform the contract. This is made clear by the notice of termination dated 4 September 2012.
2. Further, by the time the District Court proceedings are commenced, it would appear the time to bring the works to practical completion was passed, there being no evidence that an extension of time had been applied for pursuant to clause 9 of the contract.
3. Where the works are not in accordance with the contract and the builder has not, before termination or the time for performance, brought the works into conformance, the measure of damages is the reasonable cost to do so: see Bellgrove v Eldridge (1954) 90 CLR 613.
4. Even where a contract has been terminated by the builder pursuant to clause 30, clause 32 of the contract does not mean that the builder is not obliged to account for the cost of rectifying defective work which the builder has performed and for which the builder had claimed and been paid.
5. The defects claimed were identified in the Shepherd report in September 2010. While it is unclear whether the respondent was informed of this report following its delivery to Mr Symons, there is no evidence the respondent offered to carry out any work to rectify defects prior to the commencement of the District Court proceedings. After commencement of the proceedings the defence filed in the District Court denied the applicant's claims, including that the builder had breached the contract and that the works were defective. Again no attempt was made by the respondent to rectify defective work.
6. In those circumstances, it could not be said the applicant did not mitigate her loss and damage by failing to allow the respondent to rectify the defective works before the contract was terminated.
7. The items of defective work and the reasonable cost for bringing those defects into compliance with the contract were agreed by the experts and recorded in the joint report. The items for which the applicant now claims are recorded in the statement of quantum. The amount claimed is $108,628.81.
8. While the respondent submits he could do the work for less, the Tribunal is satisfied that the amount agreed by the experts represents the reasonable cost of carrying out necessary rectification work identified therein and that having regard to the joint report the items claimed by the applicant were defective and not in accordance with the contract.
9. Consequently, in the event the Tribunal had come to the conclusion that the agreement had not been abandoned, but rather had been terminated by the respondent by notice dated 4 September 2012 the Tribunal would have made an award in favour of the appellant in the sum of $108,628.81.

Orders

1. The Tribunal makes the following orders: 1. The respondent, Craig Bollard is to pay to the applicant, Zanja Zeman the sum of $100,000.00 on or before 2 March 2015. 2. Any application for costs is to be made on or before 4 February 2015.Any application is to be in writing to the Tribunal supported by any evidence and submissions. The application and supporting documents must be served on the other party within that time. 3. Any evidence and submissions in reply from the party opposing the application for costs is to be filed and served on or before 13 February 2015. 4. Any submissions in reply from the party applying for costs are to be filed and serve on or before 20 February 2015. 5. The parties are to advise the Tribunal in the submissions whether they consent to the issue of costs being dealt with on the papers. Alternatively the parties are to make submissions as to why such an order should not be made pursuant to section 50 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 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: 23 April 2015