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Blackbear (NT) Pty Ltd v Want & Anor [2013] NTSC 55

PARTIES:  Blackbear (NT) Pty Ltd

ACN 116 222 005

v

Want, Gary John

and

Want, Geraldine Elizabeth

TITLE OF COURT:  SUPREME COURT OF THE NORTHERN TERRITORY

JURISDICTION:  SUPREME COURT OF THE TERRITORY EXERCISING TERRITORY JURISDICTION

FILE NO:   18 of 2012 (21207410)

DELIVERED:  27 AUGUST 2013

HEARING DATES:  29 APRIL 2013

JUDGMENT OF:  KELLY J

CATCHWORDS:

CONTRACTS—Construction contract—Due diligence—Whether failure to proceed with “due diligence” a defect capable of remedy—Whether gives rise to right to terminate—Held that lack of due diligence capable of remedy—No right to terminate contract
CONTRACTS—Construction contract—Notice of default—Notice required under contract—Whether form of notice was adequate—Held that correspondence was not sufficient to put builder on notice that contract would be terminated—No right to terminate contract
BUILDING AND CONSTRUCTION—Due diligence—Requirement to perform work with due diligence—Whether failure to proceed with due diligence a defect capable of remedy—Held that failure is a breach capable of being remedied

Re Stewardson Stubbs & Collett v Bankstown Municipal Council [1965] NSWR 1671; Batson v De Carvalho(1948) 48 SR (NSW) 417, applied

Hooker Constructions Pty Ltd v Chris’s Engineering Contracting Co [1970] ALR 821, followed

Judgment category classification:   B

Judgment ID Number:  KEL13011

Number of pages:  22

IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN

 

Blackbear (NT) Pty Ltd v Want & Anor [2013] NTSC 55

No. 18 of 2012 (21207410)

 

BETWEEN:

 

BLACKBEAR (NT) PTY LTD

ACN 116 222 005

Plaintiff

AND:

GARY JOHN WANT

First Defendant

AND:

GERALDINE ELIZABETH WANT
Second Defendant

CORAM:    KELLY J

REASONS FOR JUDGMENT

(Delivered 27 August 2013)

 

  1. The plaintiff Blackbear (NT) Pty Ltd is a building company owned by Michael Beare which trades under the name “Beare Homes”.
  2. In April 2009 the defendants, Mr and Mrs Want, entered into negotiations with Beare Homes for the construction of a new home.  Beare Homes was advertising “house and land packages” and Mr and Mrs Want had visited their display home.  They signed a contract with a third party to purchase a block of land at Humpty Doo and negotiated a price with Beare Homes for the construction of a three bedroom house on that land.
  3. Eventually Mr and Mrs Want entered into a contract with Beare Homes to construct a house on that land.  The contract was dated 3 June 2009, but Mr Want deposed that it was not signed until 19 August 2009, the date that they completed the purchase of the block of land.  Nothing turns on the date of the contract.
  4. The contract price was $399,620.00 inclusive of GST to be paid in accordance with a progress payment schedule annexed to the contract.  The appendix to the contract specified the date of commencement of the works to be “approx 2 weeks after building permit issued” and the due date for practical completion[1] was specified as “approx 24 weeks after main slab complete”.
  5. Work was slow in starting.  Plans and drawings were approved by the engineer on 19 October 2009 and a building permit was issued on 29 October 2009.
  6. According to Mr Beare, Beare Homes took possession of the site on 20 November 2009 and completed laying the main slab on 21 November 2009.
  7. On 25 November 2009 Mr and Mrs Want moved onto the block in temporary accommodation consisting of a demountable and Winnebago.
  8. On 26 November 2009 Beare Homes issued Mr and Mrs Want with an invoice for the first progress payment due under the contract.  The invoice was for $83,573.70 and was said to be for “First Progress payment for house ….. As per progress payment schedule”.  Under that schedule the first progress payment was due when work described as “under slab plumbing cast in plate concrete slab” was completed.  This was said in the schedule to constitute 20% of the work (or 21% of the work, depending on which column one refers to).  Mr and Mrs Want paid that invoice on 7 December 2009.
  9. On about 26 November 2009 pallets of blocks were delivered to the site for use in building the house.  However, no further work was done towards construction of the house until 20 January 2010, some three months after the issue of the building permit.  In his affidavit, Mr Beare said that it kept raining and the bricklayer could not start work for two to three weeks after the slab was laid because the blocks were wet.  However, in cross examination he conceded that Beare Homes closed down for three weeks over the Christmas New Year period.
  10. On 25 February 2010, Beare Homes issued Mr and Mrs Want with an invoice for $119,391.00.  As with the first invoice, this simply stated that it was for “Second Progress payment for house ….. As per progress payment schedule”.  Under the progress payment schedule the second progress payment was due when work described as “blockwalls windows and door frames corfill structural steel conduits for electrician and plumber installed hold down bolts” [sic], had been completed.  This was said in the schedule to represent a further 30% of the work.  Mr and Mrs Want paid that invoice on 1 March 2010.
  11. On 11 March 2010, Beare Homes issued Mr and Mrs Want with an invoice for the third progress payment for an amount of $111,431.60.  The format was the same.  Under the schedule, the third progress payment was due when work described as “roof trusses erected 1st fix electrician 1st fix plumber underground electrical” had been completed.  This was said in the schedule to represent a further 28% of the work (a total of 79%).  Mr and Mrs Want paid that invoice on 19 March 2010.
  12. In his affidavit, Mr Beare deposed that Beare Homes “continued to construct the house in accordance with the contract and on 1 July 2010 it issued the Defendants with tax invoice 985 in the sum of $81,583.85 for work to completion of stage 4 of the contract”.  However, that glosses over what really happened.
  13. It appears that work on the site came to a virtual standstill and, not unnaturally, the Wants became frustrated.  Mr Want deposed that he had initially been told that the house would be completed and ready for occupation by Christmas 2009.  It soon became clear that that was not going to happen.
  14. On 8 May 2010, Mr Want sent a letter to Beare Homes by registered post expressing his concerns.  In that letter he pointed out that under the contract practical completion was due approximately 24 weeks after the main slab was complete, which he calculated was about 8 May 2010, the date of the letter.  He complained (accurately) of the “ongoing failure of Beare Homes to complete the works in accordance with the terms of the contract (clause 8 and items A, B and B1)”.  He pointed out, correctly, that clause 9 of the contract required the Builder to forthwith notify the Proprietor[2] of any delays of the kind set out in that clause (including inclement weather), stating the nature, cause and extent of the delay.  Unfortunately, he seems to have misconstrued the purpose of clause 9, which is to entitle the Builder to “a fair and reasonable extension of the time provided for completion” provided the requisite notification has been given.  Mr Want appears to have construed it as a mandatory provision requiring the Builder to give such details.  He also requested copies of all building permit applications and approvals, copies of all building inspection reports and approvals and notification of the date when the Builder expected to reach practical completion, all purportedly “in accordance with clause 9”.  Clause 9 does not require the Builder to provide any of this information.  The letter ends: “In accordance with notifications as identified in the contract I expect a response within 5 days from the date of this letter.”  I am unsure what this refers to.  There is no requirement in the contract for the Builder to respond to correspondence from the Proprietor within 5 days.  Perhaps this figure came from clause 9 which provides that if the Proprietor does not dissent from a claimed extension of time within 5 days, the Date for Practical Completion (as defined in the contract) shall be adjusted in accordance with the claim.  Perhaps he misunderstood the provisions of clause 24 which applies where the Builder is in default for one of the reasons specified in that clause and enables the Proprietor to terminate the employment of the Builder if he remains in default for 5 days after notice has been given in accordance with clause 24.  Perhaps neither.  In any case there is nothing in the contract which specifies such a requirement.
  15. Beare Homes simply ignored the letter of 8 May.  Mr Want says that he has in his possession a signed original undated letter purporting to respond to his letter of 8 May.  That letter simply says that there was a lot of rain and gives some figures for November, December, January and February.  Mr Want says that he does not know when (or how) he got this letter but does not believe he received it before he sent his subsequent correspondence to Beare Homes.  Mr Beare’s evidence about this supposed reply was unsatisfactory.  He did not mention it in his affidavit.  In cross examination he said that he responded to the letter of 8 May by email giving details of the weather.  The Wants say they did not receive any such email and Mr Beare did not produce one; moreover an email communication would not have resulted in Mr Want receiving a signed original letter.  Even if that letter had been sent by Beare Homes, it would not have complied with the requirements of clause 9 of the contract for the purpose of entitling Beare Homes to an extension of time for practical completion.  Later in cross examination Mr Beare said he “most likely” gave the Wants notification of delays due to inclement weather orally when they came into the office.  I do not accept that evidence.
  16. I find that Beare Homes did not provide the Wants with notification of any delays in the Works[3] in accordance with clause 9 of the contract and that the provisions of clause 9 do not apply to entitle Beare Homes to an extension of time for the due date for practical completion under the contract.
  17. On 14 May 2010, Mr Want again emailed Beare Homes complaining that virtually no work had been done since the beginning of May and saying: “As it appears the construction period has gone past practical completion date we need to be informed on how Beare Homes will meet the terms of the contract regarding completion.”  (The letter also complained of rubbish left on site and contractors defecating in the surrounding bush.)
  18. The only response was a terse email dated the same day which said (in full): “I have just spoken to Richard as we are trying to organise a tiler for your place.”  Not surprisingly, Mr Want was not mollified.  He replied, by email dated 16 May, pointing out that this should have been arranged in advance and stating: “Programming the works to meet the terms of the contract is Beare Homes responsibility and accountability.”  He made a number of other complaints and ended: “As previously requested we require notification of completion date as family will be visiting the first week in June, to stay with us in our new home.  They have already cancelled their flights three times due to Beare Homes delays in completing the works and are unable to cancel again.”
  19. This did not produce a response (apart from some correspondence about payment for extras) and on 1 June 2010, Mr Want again emailed Beare Homes complaining about delays in completing the tiling and starting work on the verandah.  The email ended, “Please advise Mike that we are yet to receive a reply from our letter to Beare Homes which is now overdue in accordance with the terms of the contract.”  Evidently this was a reference to the letter of 8 May.  As stated above, there was no requirement under the contract for correspondence to be answered within 5 days – or any other specified time frame.
  20. There being still no response, Mr Want wrote to Beare Homes again on 21 June 2010.  I will set out the substantive part of that letter in full.

    “As an ongoing failure of Beare Homes to complete the works in accordance with the terms of the contract (clause 8 and items A, B and B.1), lack of response to notification (Clause 28) and provision information requested in our letter dated 08 May 2010, and ongoing apparent inability for the works to progress to completion with due diligence and in a competent manner (clause 24(a)(ii)), we the Proprietors/Owners and Customer hereby give notice that, unless Beare Homes provide notification in writing within 5 days of receipt of this letter (clause 28) detailing programmed progression of works to completion including guaranteed completion date, evidence of delays and other requested information contained within our previous correspondence, it is deemed and understood that Beare Homes is unable or unwilling to complete the works.

    Further, as Beare Homes has sought not to respond to our letter dated 08 May 2010, in accordance with the terms of notifications clause 8, as to programmed works and progression of works to completion it is understood that Beare Homes by omission acknowledge they are in default of terms of the contract.

    As an outcome, in accordance with clause 24(a), it is our intent to determine whether Beare Homes is capable of completion of these works.  As part of this determination We shall consider actions necessary, in accordance with clause 24(b) of the contract, to ensure the works are completed in a professional, competent and diligent manner.

    As Beare Homes has failed to bring the works to practical completion or completion by the date identified in Item B and B.1 we hereby advise that the following costs are considered to be at Beare Homes expense and are a debt owed to the Proprietors/Owners and Customer:”  [Certain costs were set out including for hire of demountable and electricity.]

  21. It is a great pity that the Wants did not seek legal advice at this stage (if not earlier before sending the letter of 8 May).  The letter is difficult to understand and betrays a number of misunderstandings of the effect of terms of the contract.  Mr Want appears to be asserting that Beare Homes is in breach of the contract by not responding with the information requested in the letter of 8 May within 5 days.  That assertion is simply not correct.  As explained, clause 9 did not oblige the Builder to provide the information requested on 8 May and clause 28 did not oblige the Builder to respond to that letter within 5 days; nor did any other clause of the contract.  The letter also assumes that it is a matter for the Proprietor to determine whether the Builder was capable of completing the contract.  That is not the case.
  22. On the other hand, Mr Want was correct in pointing out, as he did in the letter of 8 May 2010, that the works had not been completed by the due date for practical completion, and Beare Homes had not obtained (or even claimed) an extension of time by complying with the provisions of clause 9.  It was therefore in breach of its obligations under clause 8 of the contract to “regularly and diligently proceed and complete the works by the Date for Practical Completion”.
  23. The only response that Mr Want received to his letter of 21 June was an invoice.  On 1 July 2010, Beare Homes sent an invoice to the Wants for $81,583.85, said to be for “Progress Payment number 4, for house …. As per progress payment schedule.”  Under the schedule, the fourth progress payment is due when work described as “kitchen cupboards installed gyprock ceiling, painting and wall tiles 2nd fix plumbing 2nd fix electrician” has been completed.  At this point, according to the progress payment schedule, the work is meant to be 99.5% complete.  The only work left to be covered by the fifth (and final) progress payment of $1,989.85 is “paint touch up, house and site cleaned”.
  24. The work was not 99.5% complete when the invoice for the fourth progress claim was sent, and Beare Homes knew it.  On 2 July 2010, Mr Want sent a brief email formally disputing the fourth progress claim, and again wrote to Beare Homes, complaining once more of the lack of progress, and of the lack of communication.  The letter went on:

    “In accordance with the Contract, Clause 18, Beare Homes are required to provide a correctly rendered accurate and complete invoice to the “Proprietor” before approval could be considered.  As was requested at Progress payment 3, we again request you provide correctly detailed and accurate account of the invoice in accordance with Clause 18 of the contract and any other document that is to be provided in accordance with the financial progression of payments and accounts.

    In accordance with Clause 9 we, as the Proprietor, demand Beare homes provide.

    ·            Copies of all building permit applications and approvals;

    ·            Copies of all Building Inspection reports and approvals;

    ·            Details as to all delays claimed in reaching completion (currently in breach of contract);

    ·            Date Expected for Completion and programmed works to meet this deadline;

    It is our opinion that Beare Homes has still considerable works outstanding which require completion before consideration of any further progress payments will be approved.

    Beare Homes has until COB 08 July 2010 to provide the required information and correctly rendered documents via certified mail.  If this is not received by the due date it will be deemed Beare Homes is unable to complete the works and further considerations in accordance with the contract will be actioned.”

  25. In response to the letter of 2 July, the Admin/Accounts officer from Beare Homes sent an email to Mr Want dated 7 July 2010, as follows.

    “Beare Homes would like to apologise for the issue of the fourth Progress Payment and that I will send through another one when all works are definitely completed.

    Also, Richard has advised that the house will be ready for handover next Friday, 16th July 2010.  Could you please inform me of a time on that date that will be convenient for you?

    Please note that all outstanding Extras and the fourth progress payment will need to be paid in full prior to then.”

  26. Unfortunately, Mr Want did not wait until 16 July.  On 8 July 2010 he sent an email to Beare Homes which contained the following paragraph:

    “Notice is hereby given that in accordance with the terms as set out within the Contract, Beare Homes has been deemed unable in our determination to carry out and bring to completion, as identified for date of completion identified in Attachment Item B.1 the works prescribed under the contract in a diligent and competent manner and as such the contract is terminated effective immediately.”

  27. After 8 July the Wants refused to allow Beare Homes access to the site to complete the works.  Beare Homes disputed the Wants’ right to terminate the contract; correspondence ensued and by a letter dated 3 August 2010 from its solicitors, Beare Homes purported to accept the repudiation of the contract by the Wants and terminate the contract.
  28. On 28 July 2010 Beare Homes sent the Wants a number of invoices setting out amounts it claimed were owing (and credits to be allowed for items not installed) as follows:

    i)           Tax Invoice 001 giving a credit of $9,282.00 as adjustment for items not installed;[4]

    ii)          Tax Invoice 002 for the amount of $12,488.25 identified as extra variation works performed;

    iii)         Adjustment Note 003 giving a credit of $5,534.40 for deleted items;

    iv)          Tax Invoice 004 for the amount of $81,245.55 identified as a consolidation of the amounts owing and the adjustment notes.

  29. The Wants did not pay these amounts.
  30. Beare Homes has brought this proceeding against the Wants claiming the balance it says is owing under the contract plus interest at 20% per annum on that amount from the time the final payment was due under the contract.
  31. The Wants took possession of the property on 8 July 2010.  If Beare Homes is correct and the Wants were not entitled to terminate the contract on that date, then the provisions of clause 19(e) of the contract will apply and the deemed date of practical completion will be 8 July 2010.  Under clause 20(a), when the works are practically complete the Builder is entitled to receive all money due and payable under the contract, and under clause 20(b) payment is due within 10 days of a written request.  Under clause 18(e) and Item J of the appendix if any progress payment or final payment is not paid within the prescribed period, interest is payable on the unpaid amount at the rate of 20% per annum.[5]
  32. The Wants have disputed all claims to payment by Beare Homes and claim that they validly terminated the contract on 8 July 2010.
  33. The first question is whether the Wants validly terminated the contract.  The reason given by Mr Want in his letter of 8 July 2010 (set out in paragraph [26] above) was not a valid reason for terminating the contract.  The Proprietor’s rights to terminate the contract are set out in clause 24(a) of the Contract.  They do not include a determination by the Proprietor that the Builder is unable to bring the works to completion.  However, that does not necessarily mean that the termination by the Wants was invalid.  They are entitled to rely on any valid ground for termination of the contract which existed at the time, even if that was not the ground relied on in the notice of termination.[6]
  34. Therefore the question is whether, as at 8 July 2010, a valid ground for termination of the contract existed.  Under clause 24(a) of the contract, if the Builder defaults by failing to proceed with the works with due diligence and in a competent manner, then (provided the requirements of clause 24 are met) the Proprietor is entitled to terminate the Builder’s employment, and the provisions of clause 24(b) will apply.
  35. As at 8 July 2010, Beare Homes was in breach of clause 8 of the contract: it had not brought the building to practical completion by the due date and was not entitled to an extension of time in accordance with the provisions of clause 9.  However, that alone would not suffice.[7]  Clause 24 gives the Proprietor the right to terminate if the default by the Builder consists of the Builder “failing to proceed with the works with due diligence and in a competent manner”.  No issue has been raised about the Builder’s competence.  Did the Builder’s lengthy, largely unexplained delay in completing the works amount to “failing to proceed with the works with due diligence”?  In my view it did.
  36. Failure to proceed with due diligence has been held to mean “a general failure to proceed with that degree of promptness and efficiency that one would expect of a reasonable builder who has undertaken a building project in accordance with the terms of the contract in question.”[8]  The phrase refers not only to personal industriousness, but also to reasonable efficiency in management and organisation of the works.[9]  If, without any reasonable explanation, the work falls seriously behind what could reasonably be expected, that is evidence of lack of due diligence.[10]
  37. In this case the due date for practical completion was approximately 24 weeks after laying the slab (ie by about 8 May 2010), and the work was still not complete by 8 July (2 months later).  The only excuse for this put forward by Beare Homes was rain in the period November 2009 to February 2010.  By submitting the third progress claim on 11 March 2010, Beare Homes represented that the works were 79% compete by that time.[11]  No reason has been put forward for the failure to progress the works in the period from 11 March to 8 July 2010.  Further, there is evidence of failure to properly organise the works.  On 14 May 2010, after the works were meant to be complete, Mr Want wrote complaining that virtually no work had been done since the beginning of May and the response was, “…. we are trying to organise a tiler”.  This, it seems to me, fell well short of the degree of organisation that would be required to perform the works with due diligence.
  38. The next question is whether the Wants were entitled to terminate the contract without giving written notice to Beare Homes requiring it to proceed with the works with due diligence from the date of the notice.  If the default relied on by the Proprietor is a default which is capable of being remedied, then clause 24(a) requires the Proprietor to give a written notice to the Builder specifying the default, and the default must continue for 5 days after the giving of the notice, before the Proprietor has the right to terminate the Builder’s employment.  The question is whether Beare Homes’ “failure to proceed with the works with due diligence” is a default capable of being remedied.
  39. In my view the default was capable of being remedied; a notice under clause 24(a) was required; and the Wants were not entitled to terminate the contract without giving such a notice.
  40. In Batson v De Carvalho  Sugerman J said:

    “To ‘remedy’ a breach is not to perform the impossible task of wiping it out – of producing the same condition of affairs as if the breach had never occurred. It is to set things right for the future, and that may be done even though they have for some period not been right, and even though that may have caused some damage to the lessor. … A breach may be remedied … even though the time for doing the thing under the covenant may have passed …”[12]

  41. Sugerman J refers to “a lease” but the same principle has been applied to other contracts.[13]  InStewardson Stubbs & Collett v Bankstown Municipal Council Moffitt J considered an equivalent clause which entitled the proprietor to terminate the contract if the builder had made default in certain specified respects and “if he shall continue such default for 14 days after notice …. specifying the default has been given to him”.  His Honour held that a notice was required to be given before the right to terminate arose where the allegation was that a builder had “failed to proceed with the works with reasonable diligence or in a competent manner”.[14]  The clause in that case did not draw a distinction between breaches that were capable of remedy and breaches that were not, but Moffitt J discussed the construction of the clause in terms of what would be required to remedy such a default.[15]
  42. The next question is whether the Wants did give notice under s 24(a) specifying the default and giving notice of their intention to determine the Builder’s employment.  Mr Want certainly tried to do so.  He wrote again and again to Beare Homes trying to spur them into action to complete the construction of the house within a reasonable time.  The substance of that correspondence is set out above.
  43. However, I have rather reluctantly come to the view that none of this correspondence amounted to effective notice to Beare Homes under clause 24(a) specifying that it was in default by failing to proceed with due diligence in completing the work and giving notice of the Proprietor’s intention to determine the contract.  In none of the correspondence before 8 July 2010 did Mr Want specify the nature of the default, namely that Beare Homes had failed to proceed with the works with due diligence, or state his intention to determine the builder’s employment if the default was not remedied within 5 days.  Rather, Mr Wants’ efforts were misdirected towards demanding information about the reasons for past delays, demanding copies of permit applications and approvals and Building Inspection reports and details of the “date expected for completion and programmed works to meet this deadline”, as well as references to irrelevant clauses of the contract.  The closest Mr Want came to giving a notice under clause 24 was in the underlined portion of the following extract from the letter of 21 June.

    As an ongoing failure of Beare Homes to complete the works in accordance with the terms of the contract (clause 8 and items A, B and B.1), lack of response to notification (Clause 28) and provision information requested in our letter dated 08 May 2010, and ongoing apparent inability for the works to progress to completion with due diligence and in a competent manner (clause 24(a)(ii)), we the Proprietors/Owners and Customer hereby give notice that, unless Beare Homes provide notification in writing within 5 days of receipt of this letter (clause 28) detailing programmed progression of works to completion including guaranteed completion date, evidence of delays and other requested information contained within our previous correspondence, it is deemed and understood that Beare Homes is unable or unwilling to complete the works.

    …………….

    As an outcome, in accordance with clause 24(a), it is our intent to determine whether Beare Homes is capable of completion of these works.  As part of this determination We shall consider actions necessary, in accordance with clause 24(b) of the contract, to ensure the works are completed in a professional, competent and diligent manner.”

  44. Clause 24(a) entitles the Proprietor to determine (meaning put an end to or terminate) the Builder’s employment if the Builder is in default in one of the specified ways and that default continues for 5 days after notice in writing specifying the default and stating the Proprietor’s intention of determining the Builder’s employment has been given to the Builder.  Perhaps Mr Want did not understand this usage of the word “determine”.  It is impossible to tell from the letter.  In any case, I do not think that Beare Homes could be expected to have understood from the letter of 21 June 2010 (and certainly not from any of the other correspondence) that it was being put on notice that if it did not begin to proceed with the works with due diligence within 5 days, the Wants would exercise their rights under clause 24(a) to terminate their employment as Builders on the project.
  45. Accordingly, I hold that the Wants had no right to terminate the contract as they purported to do by the letter of 8 July 2010.[16]
  46. The next step is to determine the amount owing to the Beare Homes under the contract.  That consists of the fourth and fifth progress payments (a total of $83,573.70) plus amounts owing for extra work performed under the contract ($12,488.25) less adjustments for work which was not performed, or materials not supplied ($14,816.40) a total of $81,245.55.
  47. In their defence, the Wants alleged that there were defects in the work and that it would cost them more to rectify those defects than was owing to Beare Homes.  However, they provided no particulars.  Before this matter came to trial, the parties very sensibly engaged a joint expert, Mr John Brears, to inspect the work and to prepare a report setting out any defects and any unfinished work and the cost to rectify those defects or complete the work.  Mr Brears identified 23 items of unfinished work which he said would cost $2,125.00 to complete, and 32 defects which he said would cost $6,040.00 to rectify.[17]  Mr Brears also commented on 41 other alleged issues that he identified as neither defects nor unfinished work.
  48. The uncontradicted evidence of Mr Beare was that as at 8 July 2010, when Beare Homes was denied access to the site, the work was almost complete and that he would have finished the unfinished work within the final week.  This is supported by the relatively minor nature of the unfinished work set out in Mr Brears’ report.  Mr Beare also gave uncontradicted evidence that he would have required subcontractors to rectify the defects at no cost to himself if he had been given the opportunity to complete the work.  In light of this evidence, I do not think there should be any deductions from the amount owing under the contract as detailed in the final invoices referred to above.[18]
  49. Beare Homes is also entitled to simple interest at 20% per annum on the amount due from the due date for payment (18 July 2010) to the date of judgment, a total of $50,711.51.[19]

 

[1]        This is defined in clause 19 as “that stage when the Works are completed except for minor omissions and/or defects which do not prevent the Works from being reasonably fit for occupation and/or use by the Proprietor for the purpose intended”.
[2]        “Builder” and “Proprietor” are both defined terms in the contract and refer to Beare Homes and the Wants respectively.
[3]        another defined term
[4]        Mr Beare deposed in his affidavit that this ought to have been issued as an adjustment note, rather than an invoice.
[5]        Item J of the Schedule specifies the rate as 20% per month but the parties agreed that this was a mistake and should read 20% per annum.

[6]        Shepherd v Felt and Textiles of Australia Ltd [1931] 45 CLR 359 per Dixon J at 377-378

[7]        Although failure to complete the works by the due date for completion may be accepted as evidence of delay (in the sense of default) on the part of the Builder, whether that amounts to a lack of diligence on the part of the Builder depends on the circumstances: Westminster Corporation v Jarvis & Sons Ltd [1970] 1 WLR 637 at 643 and 645; Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303 at para [169]

[8]        Re Stewardson Stubbs & Collett v Bankstown Municipal Council [1965] NSWR 1671 per Moffitt J at1675-1676; see also Brenmar Building Company Pty Ltd v University of Newcastle (1999) 15 BCL 467 at 469

[9]        Hooper Constructions Pty Ltd v Chris’s Engineering Contracting Co [1970] ALR 821 per Blackburn J at 823 (ALR in this instance refers to the Argus Law Reports.  The Argus Law Reports preceded the Australian Law Reports.  The original decision is titled Hooper Constructions however has been incorrectly reported in the ALR and elsewhere as Hooker Constructions)

[10]       Hooper Constructions at 823

[11]       This is set out in the Progress Payments Schedule in the contract.  The percentage of work which should be completed by the time of the third progress claim is 79% or 80% depending on the column one looks at.

[13]         Tricontinental Corporation Ltd v HJFI Ltd (1990) 21 NSWLR 689 per Samuels JA at 702;

Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187 (21 June 2001) [118] to

[124]; Clint Australasis Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 635 at [34] to [36]

[14]       Stewardson Stubbs & Collett v Bankstown Municipal Council p 1673 – 1674

[15]       ibid p 1674
[16]       Even if the Wants had given a proper notice under Clause 24, their action in purporting to terminate the contract on 8 July was surely precipitate.  Beare Homes may not have begun to carry out the work with due diligence by 26 June – there is no evidence about that – but it appears to have done so by 7 July when it wrote to the Wants saying that their home would be ready to be handed over by the following Friday.  It was an unfortunate decision to terminate the contract the next day.
[17]       This does not include the sum of $10,000 for bi-fold doors which were not installed as these were included by the Builder on the credit note issued to the Wants with the final progress claim.

[18]       The Wants’ decision to totally deny that any money was owing to Beare Homes was also a curious one, especially after they had received the report of Mr Brears which indicated that there was a maximum of only $8,1665.00 to be deducted from the contract price for unfinished work and defects if they were successful in showing they had validly terminated the contract.

[19]       Had the Wants been successful in showing they had validly terminated the contract, Beare Homes would not have been entitled to interest at the rate specified in the contract, but it would still have been entitled to interest at a commercial rate on the money owing.

Blackbear (NT) Pty Ltd v Want & Anor [2013] NTSC 63

PARTIES:  Blackbear (NT) Pty Ltd

ACN 116 222 005

 

v

 

WANT, Gary John and

 

WANT, Geraldine Elizabeth

 

TITLE OF COURT:  SUPREME COURT OF THE NORTHERN TERRITORY

 

JURISDICTION:  SUPREME COURT OF THE TERRITORY EXERCISING TERRITORY JURISDICTION

 

FILE NO:   18 of 2012 (21207410)

 

DELIVERED:  4 OCTOBER 2013

 

HEARING DATES:  26 SEPTEMBER 2013

 

JUDGMENT OF:  KELLY J

Judgment category classification:   C

Judgment ID Number:  KEL13016

Number of pages:  11

 

IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN

 

Blackbear (NT) Pty Ltd v Want & Anor [2013] NTSC 63

No. 18 of 2012 (21207410)

 

 

BETWEEN:

 

BLACKBEAR (NT) PTY LTD

CAN 116 222 005

Plaintiff

 

AND:

 

GARY JOHN WANT

First Defendant

 

AND:

 

GERALDINE ELIZABETH WANT

Second Defendant

 

CORAM:    KELLY J

 

REASONS FOR JUDGMENT

(Delivered 4 October 2013)

 

  1. This case concerned a dispute between the plaintiff, a building contractor, and the defendants for whom the plaintiff had contracted to build a house.  There were substantial delays in the progress of the work and, on 8 July 2010, the defendants purported to terminate the contract.  At the date of the purported termination, the work was almost complete and the plaintiff rendered a final series of invoices for a total of $81,245.55 being the balance of the contract price plus a claim for additional works less an allowance for some work not completed/materials not installed.  The defendants refused to pay and eventually the plaintiff instituted these proceedings.
  2. In the proceedings, the plaintiff disputed the validity of the termination and claimed the amount owing under the contract in accordance with the invoices plus interest at 20% per annum, the rate specified in the contract.  With some minor exceptions, the defendants did not dispute the calculation of the contract price, but defended the plaintiff’s claim on the basis that they had offsetting claims against the plaintiff for unfinished and defective work, for breach of contract on account of the plaintiff’s delay in completing the work, and for building the house in the wrong position on the block.  The defendants did not quantify these claims either before the proceedings were commenced or after and offered no evidence in support of their alleged claims at trial.
  3. Before the matter came on for trial, the defendants proposed that the parties jointly engage an expert to determine the extent of the unfinished work, identify any defects in the work, and give evidence of what it would cost to finish the work and remedy any identified defects.  The plaintiff agreed to this highly sensible proposal and the parties engaged Mr John Brears to produce a report working initially from a list supplied by the defendants of aspects of the work they claimed to be either unfinished or defective.  On 11 November 2012, Mr Brears produced a draft report which, with some minor amendments, became a final report a short time later.  By agreement, that report was tendered at the trial as the sole evidence in relation to the extent and cost of the unfinished and defective work.  The report identified unfinished and defective work to a value of $8,165.00.
  4. Following the trial I found that the defendants had not validly terminated the contract as they had purported to do on 8 July 2010 and gave judgment for the plaintiff for the amount of $81,245.55 owing under the contract plus interest at 20% per annum.  No deduction was made for the identified unfinished and defective work as the uncontradicted evidence of the principal of the plaintiff was that the unfinished work (which was of a minor nature) would have been attended to by him in the last week of the contract and any defects in work performed by sub-contractors (which again were of a minor nature) would have been attended to by the sub-contractors at no cost to the plaintiff.
  5. The plaintiff now claims that it should be entitled to indemnity costs for the whole of the proceeding, or alternatively from the date of receipt of the jointly commissioned report by John Brears (11 November 2012) or alternatively, from the date of a Calderbank offer served on the defendants by the plaintiff on 11 December 2012.  The defendants resist such an order and contend that costs should be awarded on the standard basis.
  6. The Court’s discretion to award costs has been described as “absolute and unfettered”; nevertheless, it must be exercised judicially.[1]  Ordinarily costs follow the event and are awarded on the standard basis.  The circumstances of the case must be such as to warrant the court departing from the usual course.[2]
  7. It may be appropriate to award indemnity costs where it appears that an action had been commenced, continued or defended for some ulterior motive or in wilful disregard of the known facts or clearly established law or in circumstances where the litigant, if properly advised, should have known that he or she had no chance of success.[3]  It is not a necessary pre-condition of the discretion to award indemnity costs that it be shown that the party against whom such an order is sought had an ulterior motive or was guilty of some species of fraud; it is sufficient that the party persisted in what, on a proper consideration, is seen to be a hopeless case.[4]
  8. Indemnity costs may also be awarded where there has been an imprudent refusal of an offer to compromise.[5]  The categories of cases in which indemnity costs may be ordered is not closed.  The question is whether the facts and circumstances of the case warrant the making of an order for payment of costs other than on a party and party basis.

    The claim for indemnity costs for the whole proceeding

  9. Counsel for the plaintiff pointed to the fact that at no stage did the defendants ever attempt to quantify their alleged loss.  He contended that this deliberate failure to quantify their claim should be treated the same way as wilfully disregarding known facts.  He submitted that it should be inferred from this, and the fact that they failed to respond in a reasonable fashion to the plaintiff’s offers to compromise the proceedings, that the defendants must have had an ulterior motive from the outset in refusing to pay, causing the plaintiff to have to commence proceedings and proceed to trial and that, therefore, the defendants should pay the plaintiff’s costs on an indemnity basis for the whole proceeding.  Although it must be said that there appears to have been an element of refusal to face facts on the part of the defendants throughout, I am not prepared to draw the inference sought by the plaintiff, or to award indemnity costs for the whole of the proceeding.

    The claim for indemnity costs based on rejection of the Calderbank offer

  10. On 11 December 2012 the plaintiff made a Calderbank offer to settle the matter for $126,573.50 or $106,573 plus costs.  This was calculated on the basis of a claim of $72,355.55 plus interest at 20% as provided for by the contract.  In the alternative to its claim for indemnity costs for the whole proceeding, the plaintiff claims indemnity costs from the making of that offer on the basis that, in light of the Brears Report, it was unreasonable of the defendants not to accept the offer at that point.
  11. In contrast to the situation where there has been an offer of compromise under Rule 26, there is no presumption that a party who rejects a Calderbank offer should pay the offeror’s costs on an indemnity basis if the offeree receives a less favourable result.  However, the rejection of a Calderbank offer is a relevant consideration when considering whether or not to award indemnity costs.[6]  The question to be asked is whether the rejection of the offer was unreasonable in the circumstances: it is not necessary that it be “manifestly” or “plainly” unreasonable.[7]
  12. Counsel for the defendants submitted that it was not unreasonable to reject that offer in the circumstances as they existed at the time, essentially because the offer simply took the plaintiff’s case, deducted the amounts set out in the draft Brears Report[8] and added interest and costs.  It did not offer any genuine compromise of the plaintiff’s claim and did not make any compromise to allow for the breach of contract by the plaintiff and the delay in completion of the works.  The simple answer to that is that there was no reason why the plaintiff should make any such allowance as the defendants had never given any quantification of their supposed claims.  If the defendants had wanted the plaintiff to take into account a counter claim for damages for those matters, they were obliged to provide figures and some evidentiary basis for the figures.  In the absence of such quantification and evidence the plaintiff could (and did) safely leave those claims out of account.  That they were right to do so is confirmed by the fact that the defendants did not pursue those claims at trial.
  13. Nevertheless, I do not think it was unreasonable for the defendants to reject that offer at the time, notwithstanding that the defendants achieved a less favourable result at the trial.  The question of whether the defendants had lawfully terminated the contract was a live one and it was not unreasonable to want to take that question to trial.

    The claim for indemnity costs from the date of the Brears Report

  14. What was unreasonable, it seems to me, was what the defendants did (and did not do) once they came into possession of the information in the Brears Report which I emphasise was a joint report obtained on the suggestion of the defendants.  Thereafter, it seems to me the defendants’ conducted the proceedings in wilful disregard of known facts.
  15. This is not a case such as a personal injuries claim where it may be difficult to quantify an award of general damages and reasonable minds may well differ in their assessment of the likely outcome.  From the time of the Brears Report, the defendants knew with certainty that the minimum amount they owed the plaintiff for work done under the contract was $73,080.00 (ie the amount calculated in accordance with the contract less the total value of the defects and unfinished work identified in the Brears report).  Since about 2 ½ years had elapsed since they purported to terminate the contract, they must also have known (or clearly ought to have known) that they had no evidence to support any of their claims to damages for delay or the alleged wrongful positioning of the house on the block.
  16. Moreover, on any view of the matter, the plaintiff would have been entitled to interest on the amount outstanding from the time when it ought to have been paid.  That would have been a reasonable time from the date of termination, sufficient to allow the defendants to engage another contractor to perform the unfinished work and remedy the defects – a matter of weeks, given that there were only a few matters (those listed in the Brears Report) to attend to.  The only uncertainty was the applicable rate of interest.  If the rate under the contract applied, it would be 20%.  On the other hand, if the defendants were right in their assertion that they had validly terminated the contract, the rate would be a commercial rate.
  17. The plaintiff made no claim for interest by way of damages (as in Hungerfords v Walker).[9]  AsHungerfords interest is a head of damage, it must be specifically pleaded and evidence adduced as to the damage actually suffered by the plaintiff, whether by way of increased interest payments on the plaintiff’s overdraft, lost opportunity to invest, or otherwise.  In the absence of any such pleading and evidence it has become the practice to apply payable on judgments, which is in the range of 10% (ie about half that under the contract) or around $7,300.00 per annum.[10]
  18. Therefore, on receipt of the Brears Report, the defendants and the plaintiff both knew that at that date the minimum amount payable by the defendants to the plaintiff (in round figures) was about $90,000.00 ($73,080 plus 2 ¼ years interest at 10%).  Since no protective offer had been made at that stage, the defendants would also have been liable to pay the plaintiff ‘s costs.  Moreover, interest was continuing to accrue and costs were continuing to be incurred.
  19. In other words, once the Brears Report had been received (which by agreement was to be the only evidence on the subject) the parties knew to the dollar the minimum amount that the plaintiff would be entitled to and could calculate with precision the amount of interest that would be payable on that sum under the contract (at 20% per annum) or at the rate prescribed for judgment interest.  (This has varied from time to time but is in the region of 10%.)
  20. Had the defendants performed that calculation and made an offer of compromise based on the assumption that they had lawfully terminated the agreement, then it is likely that the matter would have settled.  At the very least there would have been a basis for a negotiated settlement.[11]  However, the defendants did no such thing.  Instead, on 18 February 2013, the defendants made an offer to settle the matter for $90,000 inclusive of interest and costs, and on conditions of payment by instalments.
  21. This it seems to me was plainly unreasonable.  At the time this offer was made, both parties knew with certainty that the offer was worse than the plaintiff’s worst possible result should the matter proceed to trial.  (As set out in paragraph 18 above, the plaintiff’s worst case in November 2012 was around $90,000 plus costs; by February 2013, it would have been around $92,000 plus costs.)  There was therefore no incentive for the plaintiff to accept the offer, or even to make a counter offer since it was assured of doing better at trial and getting an order for the payment of its costs of the proceeding on at least a standard basis and possibly an indemnity basis.
  22. There were subsequent offers from both parties but the offers by the defendants all suffered from the same wilful blindness to the facts.  At a settlement conference (date unknown) the plaintiff offered to accept $115,000 inclusive of interest and costs, at which time their estimate of costs was $20,000.  Later, on 4 March 2013, the plaintiff offered to accept $125,000 inclusive of interest and costs, their estimate of costs by that time having risen to $30,000.  On 24 April 2013, the defendants made an offer to settle for $105,000 inclusive of interest and costs.  By this date the plaintiff’s worst case at trial would have been (in round figures) $100,000 plus costs.  In the letter in which the offer was made, the defendants’ solicitors acknowledged that the plaintiff’s costs at that stage were in the vicinity of $30,000.
  23. In short, the defendants wilfully ignored the known facts about the quantum of the plaintiff’s claim, and their failure to make an offer of settlement (or make a payment to the plaintiff ) which took account of these known facts once they were in receipt of the Brears Report was the primary cause of the matter proceeding to trial, and the costs incurred in doing so.
  24. Bearing in mind that the plaintiff took about a month to formulate an offer of settlement following receipt of the draft Brears Report, I think it would have been reasonable for the defendants to have utilised the information available to make an offer (or a payment) within the same time frame.  I therefore order that the defendants pay the plaintiff’s costs of and incidental to the proceeding on a standard basis to 11 December 2012 and thereafter on an indemnity basis.

 

[1]          Fountain Select Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 per Woodward J at p 400

 

[2]          Colgate Palmolive v Cussons (1993) 46 FCR 225 per Sheppard J at p 233

 

[3]          Fountain Select Meats at p 401

 

[4]          J-Corp Pty Ltd v Australian Builders Labourers Federation (No 2) (1946) IR 301 per French J at p303

 

[5]          Colgate Palmolive at p 233

 

[6]          Hazeldene’s Chicken Farm v VWA (No 2) (2005) 13 VR 435 at p 440 at [19]

 

[7]          Ibid p 441 at [23]; Edgar v Public Trustee for the Northern Territory & Anor [2011] NTSC 21 at [17]

 

[8]           In fact the figure offered was slightly less than a simple deduction of the amount in the Brears Report.
[9]           (1989) 171 CLR 125

 

[10]      Sherwin v Commens [2008] NTSC 45 at [67]-[68]; Helvixa Pty Ltd & Ors v Lederer & Ors [2007]  NSWSC 49 at [16]

 

 

[11]         Had they made a payment on account they could have stopped interest accruing.