Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2022] VSCA 209

Nikki Miller  |  Isobel Carmody  |  Chris Warwick

Key takeout

The court dismissed an appeal by an owner/developer to prevent a builder from recovering money for a variation when the builder had not complied with the notice requirements of section 38 of the Domestic Building Contracts Act 1995 (Vic) (DBCA).  The exemption from the notice requirement in the DBCA operates where a builder would suffer a significant or exceptional financial hardship if variation costs are not paid.

Facts

The owner and builder were party to a ‘major domestic building contract’ (as defined in the DBCA).  The owner requested a number of variations to the works under the contract.  None of those variations were requested in writing. 

Section 38 of the DBCA requires a builder to give written notice to the building owner of various impacts of a variation if the builder wishes to recover money in respect of the variation, except where the builder can show that there are exceptional circumstances or the builder would suffer significant or exceptional hardship, and it would not be unfair for the builder to recover the money.  The builder carried out the variations, but did not provide any notice under section 38.

A dispute arose as to the amount of the final payment due to the builder under the contract, including in relation to payment for variations that had been carried out and claims relating to delays in completion of the works.  The two relevant issues for the Court of Appeal to determine were:

• Should ‘significant or exceptional hardship’ in section 38(6)(b)(i) be construed broadly to encompass financial hardship suffered due to non-recovery of money?

• Does section 39(c), which provides for an extension to the completion date as adjusted by a variation in accordance with section 38, operate when the procedural notice requirements in section 38 are not met but VCAT has permitted recovery of costs?

Decision

The court found that:

• the builder was relieved from the requirement to give notices by the exemption for ‘significant or exceptional hardship‘ in section 38(6)(b)(i) because not being paid for the variations would result in financial hardship to the builder, which was sufficient hardship for the purposes of the exemption; and

• the builder was entitled to a consequential extension of time to the completion date as adjusted to take account of the variation, notwithstanding that it had not complied with the notice requirements in section 38.

 ‘Significant or exceptional hardship’ encompasses financial hardship

The court rejected the owner’s argument that the word ‘hardship’ in section 38 should be read narrowly to refer only to hardship in complying with the notice requirements of that section.  Instead, the court preferred the builder’s broader reading of the word ‘hardship’ to encompass hardship as a consequence of being unable to recover money in respect of the variation.

This was not inconsistent with the consumer protection purpose of the DBCA, as the ‘hardship’ exception provides a balance between the protection of owners and builders.

 Consequential extension of time allowed under section 39(c) of the DBCA

The builder was entitled to a consequential extension of time to the completion date as adjusted to take account of the variation under section 39(c). This was, notwithstanding that it had not complied with the section 38 notice requirements, in respect of that variation.

The court rejected the owner’s stricter interpretation of section 39(c) that a variation that triggers an extension of time under that section must be ‘in compliance with’ section 38 (including ‘in compliance with’ the notice requirements in section 38).  The wording used in section 39(c) was ‘in accordance with’ and this was interpreted meaning closer to ‘consistently with’ rather than ‘in compliance with’.

The owner’s proposed interpretation of section 39(c) could result in a major disconnect between the plans and specifications and the completed work, and the amount payable to the builder would therefore no longer fairly reflect the time required to complete the work.  The court concluded the result of this interpretation would be unjust and was not intended by the legislature. This is demonstrated by the legislature’s failure to use the strict language ‘in compliance with’.