Day v Quince’s Quality Building Services Pty Ltd [2021] NSWCATAP 296

Andrew Hales  |  Claire Laverick  |  Tony Issa

Key takeouts

Where a contract provides for a reduction in the contract sum for omitted or decreased works, the relevant consideration is a common sense analysis of whether works have been omitted or decreased. It is not whether work is done even if in a different manner to achieve the same or a similar result. 

This decision also confirms that contract rates are a ceiling for quantum meruit claims arising where parties do not document variations in writing.

Facts

On 17 May 2017, Mr & Mrs Day (owners) entered into a Residential Building BC4 contract with Quince’s Quality Building Services Pty Ltd (builder) for the construction of duplex dwellings.  Originally, the builder had contracted to supply and place two underground rainwater tanks and two ‘Atlantis Flo’ detention systems under the decks.  The builder had allowed $56,500 for the cost of these works.  However, at the builder’s suggestion and with approval from the owners, the builder installed an above-ground rainwater tank at the side of the building at a cost of $40,480.  In a similar way, the supply and installation of hardwood timber cladding and painting services originally agreed was later substituted with a different product that in turn required less labour.  A dispute arose between the parties in respect of defects in the builder’s work and adjustments to the contract sum.

On 18 October 2020 the owners commenced proceedings in the NSW Civil and Administrative Tribunal.  The owners argued that in respect of the hydraulics, external cladding and painting, the ‘works’ were ‘decreased’ or there were ‘omissions’ from those works, and so the contract price ought to be reduced. They relied on clause 14(f) of the contract which provided:

(f)   Where the works are decreased or omissions from the works are made the cost of the work now not required is to be deducted from the contract price. Cost in this case means the actual cost of labour, subcontractors or materials save [sic] by the Builder because the work is now not required to be done. No other deduction is required by reason of the work aspect of work being decreased or omitted.

The builder argued that the clause ought to be read as a whole. The only savings or credits that arose under the clause were those works, being a decrease or omission from the work, ‘now not required to be done’.  The builder also noted that the clause makes clear that ‘no other deduction is required by reason of the work or aspect of the work being decreased or omitted’.

At first instance, the Tribunal found for the builder. It determined that the owners had contracted for the supply of a rainwater system, they were provided with a rainwater system, albeit a system that was materially different to the ‘works’, and the builder was entitled to retain the difference in the costs between what was contracted for and what was in fact provided.  The Tribunal applied the same rationale for the external cladding and painting.  The Tribunal’s decision was reached on the basis that:

• Clause 14(f) of the contract was enlivened where work was not done, not the situation where work was done but in a different manner to achieve the same or a similar result.  
• Ultimately, the work itself was still done and therefore could not fit into the stipulation in clause 14(f) that the work was ‘not required to be done’; and
• In a lump sum contract, both parties are at risk where work done is more expensive or cheaper than the allowance in the contract.

The owners appealed the Tribunal’s decision on four grounds:

1. Ground One: The Tribunal misconstrued clause 14 and should have found that where the works are decreased or omissions from the works are made, the cost of the work not now required is to be deducted from the contract price.
   
2. Ground Two: The Tribunal failed to determine material issues raised by the owners, being a damages claim in respect of a 162 working day delay in completing the works.
   
3. Ground Three: The Tribunal erred in finding that the builder be remunerated on a quantum meruit basis and that was how it should be calculated. Separately, the owners also asserted that the Tribunal did not turn its mind to the question of the reasonableness of the amounts claimed by the builder, and failed to determine that the contract rates provided the ceiling upon reasonable remuneration on a quantum meruit basis in circumstances where the parties did not sign written details of the variations as required by the contract.
   
4. Ground Four: The Tribunal did not afford procedural fairness or conduct proceedings in accordance with the rules of natural justice.

Decision

The Appeal Panel allowed the appeal, set aside the Tribunal’s original decision and remitted the matter to the Tribunal for redetermination.

Ground One: Construing clause 14(f)

The Appeal Panel found for the owners. The Tribunal had erred in its approach and construction, and it ought to have directed its attention to whether the works had decreased, or whether there were omissions from the works, such that there was ‘work not now required’ to be done.  This construction made sense in the context of a building contract in which the parties have agreed that the scope of the ‘works’ may be varied. The owners were therefore entitled to a reduction in the contract sum.

The Panel said that when undergoing the exercise of construing commercial contracts, a court or tribunal will apply a presumption that the parties did not intend the contract’s terms to operate unreasonably and a common sense approach must be taken. On this basis, the Panel found that clause 14(f) of the contract had to be read in conjunction with clauses 14(g), (h) and (i) which provided:

g)   Where the work to be done is increased, the cost of the extra work is to be added to the contract price. The Builder can choose when and how often to claim payment for variation work and is not required to wait until the next stage claim.

h)    Where the price has not been previously agreed for variation work and the price to be paid for the work will be the cost as calculated in accordance with Sub-Clause (i) below, together with the allowance specified in ltem 1 of Schedule 2 for overhead and profit.

i)   The cost referred to in Sub-Clause (h) above, unless otherwise agreed, will be calculated as follows:

i)    for work by the builder’s employees, the rates for such labour are those set out in ltem 2 of Schedule 2. If no rates are shown, then the rates to be used are the rates published by the Master builders Association of NSW current at the time the variation is made; …

Considering this, the Appeal Panel found that if the builder’s interpretation was correct:

• clauses 14(h) and (i) would never have any work to do; and
• no party would ever agree on a variation price, as there would be windfall gains to a builder if the costs of the works decreased, and windfall gains to the homeowner if the costs increased.  

Ground Two: Failure to determine damages claim

The Appeal Panel found for the owners. The Tribunal had identified the claim, but the Panel found it had failed to consider the issue.

Ground Three: Remuneration on a quantum meruit basis

The Appeal Panel found for the owners.  The Panel applied Paraiso v CBS Build Pty Ltd [2020] NSWSC 190 (which itself had applied Mann v Paterson Constructions Pty Ltd [2019] HCA 32), to find that contract rates are a ceiling for quantum meruit claims arising where parties do not document variations in writing. The Appeal Panel found that the Tribunal did not have regard to the upper limit imposed by clauses 14(h) and (i).

Ground Four: Procedural fairness

The Appeal Panel found for the builder. The owners’ primary submission was that the Tribunal failed to allow the owners to cross-examine the builder’s witnesses. The Panel found that the owners were given the opportunity to cross-examine the builder’s witnesses on several occasions, but failed to do so, and could not see what more the Tribunal could have said on this issue.