Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Wright v Foresight Constructions Pty Ltd [2011] NSWCA 327
• Hearing dates: 4 October 2011
• Decision date: 26 October 2011
• Before: Giles JA at 1; Basten JA at 13; Handley AJA at 54

Decision

(1) The order of the District Court with respect to the costs in the Tribunal be set aside insofar as it required Desiree Wright to pay any part of the builder's costs in the Tribunal.

(2) Subject to order (1), dismiss the application to review the judgment of the District Court of 18 March 2011.

(3) Order that Adam Wright pay the costs of the respondent in this Court.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: CONTRACT - building - oral variation of specification - contract unenforceable by builder but oral variation relied upon in defence of claim by owner - construction of contract - Home Building Act 1989 (NSW), ss 7, 7A, 7E, 10; JUDICIAL REVIEW - variation of costs order - order set aside as against party wrongly made subject to order; STATUTORY INTERPRETATION - reliance by builder on oral variation to written agreement - statute prescribing consequences of breach - Home Building Act 1989 (NSW), ss 7, 7A, 7E, 10
• Legislation Cited: Building Legislation Amendment (Quality of Construction) Act 2002 (NSW), Schedule 2, Item 2.2; Consumer, Trader and Tenancy Tribunal Act 2001 (NSW), s 53; Consumer, Trader and Tenancy Tribunal Regulation 2009, cl 20; Home Building Act 1989 (NSW), ss 7, 7A, 7E, 10, 11, 18B; Home Building Regulation 1997 (NSW), Part 1, Sch 3A; cll 1, 59; Supreme Court Act 1970 (NSW), s 69; Uniform Civil Procedure Rules 2005 (NSW), rr 6.12A, 51.45
• Cases Cited: Bellgrove v Eldridge [1954] HCA 36; 90 CLR 613; David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 481, 175 CLR 353; Head v Kelk (1963) 63 SR (NSW) 340; Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55, 101 CLR 428; Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; 162 CLR 221; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272; Wright v Foresight Constructions Pty Ltd [2010] NSWCTTT 147; Wright v Foresight Constructions Pty Ltd [2010] NSWCTTT 264
• Texts Cited: Halsbury's Laws of England (4th ed, reissue) Vol 9(1): Contract, par 1081; E Peel, Treitel - The Law of Contract (12th ed, 2007), pars 13-021, 13-032
• Category: Principal judgment
• Parties: Adam Wright - First Applicant; Desiree Wright - Second Applicant; Foresight Constructions Pty Ltd - First Respondent; District Court of NSW - Second Respondent
• Representation: Counsel: Mr F Corsaro SC - Applicants; Mr M Klooster - First Respondent; Submitting Appearance - Second Respondent; Solicitors: Thomas Mitchell Solicitors - Applicants; Snelgroves - First Respondent; I V Knight, Crown Solicitor - Second Respondent
• File Number(s): CA 2011/195296

Decision under appeal

• Date of Decision: 2011-03-18 00:00:00
• Before: Sidis DCJ
• File Number(s): DC 2010/119159

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 20 July 2002 two couples contracted with a builder (the respondent) for the construction of two semi-detached dwellings on a block of land owned by the couples. Construction commenced pursuant to a written agreement between the four owners and the builder; during the course of the construction significant changes were made to the specification for the building work, which were not reduced to a written variation of the written agreement. Mr Wright (alone) brought proceedings in the Consumer, Trader and Tenancy Tribunal for breach of statutory warranties implied by the Home Building Act 1989 (NSW), that the work be carried out in accordance with the original specification, at a cost estimated at $500,000. The builder counter-claimed on a quantum meruit for the amount of the retention sum under the contract. Senior Member Durie upheld Mr Wright's claim only in respect of limited defects in the building work undertaken and set off against the amount payable by the builder to Mr Wright, the amount of the builder's claim. In the result, Mr Wright obtained a judgment in an amount of $12,249.21. Costs were awarded in favour of the builder, payable on an indemnity basis, from the first day of the hearing.

An appeal was brought by Mr and Ms Wright to the District Court. On 18 March 2011 the appeal was dismissed by Sidis DCJ, subject to an order varying the costs order made in the Tribunal.

Mr Wright sought judicial review of the judgment of the District Court. He raised the following issues:

(i) whether the trial judge erred in not discerning error of law on the part of the Tribunal in dealing with Mr Wright's claim for damages;

(ii) whether the trial judge erred in interfering with the costs order made by the Tribunal.

The Court dismissed the proceedings, subject to a variation in the order for the costs in the Tribunal, which had been varied by Sidis DCJ:

In relation to (i):

1. The oral variation of the written agreement was rendered unenforceable by the builder by the Home Building Act 1989 (NSW), s 10. That did not mean that the variation was legally ineffective for all purposes; in particular, the owners, having agreed to the variation, could not insist upon the building being completed in accordance with the original written specification. Nor could they recover damages for failure to comply with the original specification. The builder was entitled to rely upon the oral agreement by way of defence to the proceedings brought by the owners (or one of them): at [6]-[7] (Giles JA); [43]-[48] (Basten JA); [56]-[57] (Handley AJA).

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; 162 CLR 221 at 257 applied.

2. The position of an oral agreement under the Home Building Act is analogous to an unwritten contract unenforceable under the Statute of Frauds - at [8] (Giles JA) and [58] (Handley AJA); or a contract which failed to comply with the statutory requirements of the Moneylenders & Infants Loans Act 1941 (NSW) - at [59] (Handley AJA).

In relation to (ii) :

3. The respondent having conceded error on the part of the District Court in rendering Ms Wright subject to an order for payment of costs incurred by the builder in the Tribunal, the appropriate course was for the Court to set aside so much of the order made in the District Court as required Ms Wright to pay any part of the builder's costs in the Tribunal: at [2] (Giles JA); [34] (Basten JA); [61] (Handley AJA).

Judgment

1 GILES JA : The circumstances are described in the reasons of Basten JA, which I have had the advantage of reading in draft. The question for this Court was whether the decision of Sidis DCJ, on appeal from the Consumer, Trader and Tenancy Tribunal, was afflicted by error of law on the face of the record either in relation to oral variation of the building contract or in relation to costs in the Tribunal

2 Costs in the Tribunal fell away when the respondent did not object to the exclusion of Ms Wright from the varied costs order made in the District Court. The exclusion satisfied the applicants, and it is appropriate to act upon what amounted to agreement that there had been an error. This could and should have been done pursuant to the slip rule.

3 The Tribunal found that there had been an oral variation whereby the works were to be constructed according to the CHE plans rather than the Stone plans. The finding, as distinct from the effectiveness of the variation in law, was not thereafter in dispute.

4 The Tribunal held in substance that neither the fact that the variation was not in writing as required by cl 1(2) of Schedule 3A to the Home Building Regulation 1997 ("the Regulation": taken, perhaps erroneously, to have been made a term of the building contract by cl 59 of the Regulation), nor the fact that the resulting contract was not in writing as required by s 7 of the Home Building Act 1989 ("the Act"), meant that the variation was wholly ineffective. The variation was effective such that Mr Wright could not claim damages for failure to construct the works in accordance with the Stone plans. Sidis DCJ held to the same effect.

5 The contrary position of Mr Wright was at all times untenable, and the Tribunal and her Honour were correct.

6 Writing is a requirement under the Act and the Regulation. But the Act has spelled out the consequences of lack of writing for the rights and obligations of the builder and the proprietor. The builder is guilty of an offence (s 7A), but there is no equivalent provision as to the proprietor. The builder "is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by [the proprietor] and the contract is unenforceable by [the builder]" (s 10(1)), but again there is no equivalent provision in relation to the proprietor. On the contrary, the builder "is liable for damages and subject to any other remedy in respect of a breach of the contract" (cl 10(1), and no right or remedy that a person other than the builder may have apart from the Act is affected (s 11).

7 It is clear that a contract which is not in writing, or an unwritten variation to a contract, has considerable legal effect. The builder must still construct the works, or must construct them in accordance with the varied contract, and may be held liable in damages if it fails to do so. It would make a nonsense of this if, in the case of a varied contract, the proprietor could deny the effectiveness of the variation and claim damages for the builder's failure to construct the works in accordance with the original contract. Yet that is what Mr Wright's position required. It should not be accepted.

8 This is consistent with a contract which is unenforceable because not evidenced in writing as required by the Statute of Frauds having effect to preclude recovery of money paid under it: "[t]he defendant in such a case not seeking to charge the plaintiff upon the unenforceable contract; he merely endeavours to defeat the plaintiff's action" ( Head v Kelk (1963) 63 SR (NSW) 340 at 348). In the present case, however, it is a matter of construction of the Act.

9 The applicants' submissions included that there was error of law on the face of the record because Sidis DCJ recorded -

"14 The plaintiffs argued that [the Tribunal's] reasoning had the consequences that a variation not made in writing as required by the Act and Regulation was enforceable by a builder; a consequence that was expressly prohibited by the legislation. The defendant took a similar position, arguing however that the variation was enforceable in equity on the basis of principles of unjust enrichment. Both parties asked that I set aside this finding of the Tribunal."

10 It was suggested that there was error of law in failing to act in accordance with the parties' joint request. It is not clear what "this finding" was. Her Honour said that she "did not accept either argument" (at [15]), and went on to apply the correct analysis. The judge was not obliged to defer to the parties' common misunderstanding. A submission of denial of procedural fairness was expressly eschewed.

11 Basten JA has referred to an unfortunate number of procedural delinquencies, some with substantive implications. They should not have occurred, but they are not the reason for dismissal of the application.

12 I agree with the orders proposed by Basten JA.

13 BASTEN JA : The difficulties faced by courts required to deal with proceedings commenced or maintained by litigants in person, without legal training, are well understood and acknowledged. On occasion, those difficulties are exacerbated where parties appear by lawyers, whose knowledge and understanding of the conduct of litigation in the relevant area of dispute is assumed, but fails to live up to expectations. Furthermore, when departures from usual practice and procedure are identified, courts anxious to comply with the obligation to facilitate the just, quick and cheap resolution of the real issues in dispute, may be reluctant to insist on conformity to established rules and practices. There are undoubtedly circumstances where leniency is a sensible approach; however, experience suggests that a willingness to allow parties to cut corners or depart from established practice may be to store up problems for the future.

14 The present case involved a building dispute commenced in the District Court, but transferred to the Consumer, Trader and Tenancy Tribunal ("the Tribunal"), which resulted in a judgment in an amount of $12,346.21, payable by the builder to Mr Wright: Wright v Foresight Constructions Pty Ltd [2010] NSWCTTT 147 delivered on 14 April 2010; Wright v Foresight Constructions Pty Ltd [2010] NSWCTTT 264 delivered on 17 June 2010, by Senior Member, Mr G J Durie. (The paragraphs in each are identified by letters, not numbers.) The figure of $12,346.21 comprised damages for defective work in an amount of $17,561.21, together with an amount on account of delay of $2,035, giving a total payable by the builder to Mr Wright of $19,596.21. Against the builder's liability the Tribunal set off an amount of $7,250, being money owing to the builder on a quantum meruit claim.

15 Undaunted by the lack of success in the Tribunal, the owner appealed to the District Court. Subject to a variation of the costs order made in the Tribunal, the appeal was dismissed by Sidis DCJ on 18 March 2011. Still undaunted, the owners brought proceedings in this Court pursuant to s 69 of the Supreme Court Act 1970 (NSW) seeking to set aside the judgment in the District Court. That application must be dismissed with costs.

16 The hearing before the Tribunal took eight days. According to the Senior Member, the issues on which the parties succeeded should have been resolved in a day. The length of the hearing, the bringing of an appeal in the District Court and the present judicial review proceedings are explained by the existence of a claim for damages by an owner, initially totalling $500,000. As will be explained, the claim was untenable, if not mischievous.

Parties to proceedings

17 On 20 July 2002 Mr Milad Ayoub, the principal of the respondent, Foresight Constructions Pty Ltd, entered into a residential home building contract, which was signed by four individuals, identified as Adam Wright, Desiree Meredith (now Wright), Rod Maharaj and Agnes Maharaj. The Tribunal found that all four were "joint and several" parties to the contract with the builder. However, neither Maharaj was a party to the proceedings in the Tribunal, in the District Court or in this Court. Nor was Ms Wright party to the proceedings brought in the Tribunal by Mr Wright.

18 The purpose of the project was to build a pair of semi-detached dwellings on land at Ermington, near Parramatta. Upon construction of the dwellings, the land was subdivided, one property being owned by Adam and Desiree Wright, the other by Rod and Agnes Maharaj. The proceedings in the Tribunal were initiated by Mr Wright in his own name as "owner". A cross claim by the builder named Adam and Desiree Wright as respondents. The judgment in the Tribunal required the builder to pay the amount on account of defective work and delay to Adam Wright, but required both Adam and Desiree Wright to make the quantum meruit payment to the builder, which was offset against its liability to Mr Wright alone.

19 How this came about is explained by the fact that there was a dispute in the Tribunal as to the parties to the residential building contract. The contract named Mr Wright alone in the space for identifying the "owner". However, he was not the sole owner of the land and all four owners in fact signed the contract. The Tribunal accordingly found that all four were parties to the contract with the builder. However, that finding was made in the principal judgment delivered on 14 April 2010. That conclusion should have raised a question as to whether the owners were jointly entitled to the benefits of and liable for the obligations of the contract and, if so, whether the claim could properly be made under the contract by only one of them. Under the general law, one could not sue alone because no promise had been made to him or her separately: see Halsbury's Laws of England (4 th ed, reissue) Vol 9(1): Contract , par 1081; E Peel, Treitel - The Law of Contract (12 th ed, 2007), pars 13-021 and 13-032.

20 Whether the point was taken in the Tribunal is not known on the materials in evidence before this Court. It has consequences for the manner in which this Court should deal with the present judicial review proceedings.

Proceedings in Tribunal

21 At the centre of the case was a change in the plans and specifications for the building, which constituted a variation of the proposed works, but was not the subject of any written contractual variation. The matter was explained by the Tribunal in the following terms:

"bb. ... Mr Wright had been employed by Mr Stone, an architect. Mr Stone had prepared the plans for his own house, and Mr Wright particularly liked those plans. In essence, the construction method was post and rail. When it came time for this house to be built, Mr Wright had Mr Stone prepare similar plans, again using post and rail construction. I shall call these the Stone plans. The Stone plans formed the basis of the development approval and construction consent from the local council. However, in November 2002, there were different plans. They were prepared by Mr Garcia of CHE Engineers. He is a qualified engineer. I shall call these the CHE plans. The relevant principal changes were that the roofline was different and the method of construction had changed to masonry. There were some other alterations, including those to internal finishes. A modification to the original approvals was given by the local council, acting under the provisions of the Environmental Planning and Assessment Act 1979 s.96. As noted above, the construction thereafter proceeded on the basis of the CHE plans, and the council issued an Interim Final Certificate on 30 July 2003. This certificate noted that 'all works were carried out in a workmanlike manner and generally in accordance with the approved plans and specifications'. The property was subdivided in February 2004, and a final occupation certificate issued on 6 May 2004."

22 The Senior Member then considered how the modified plans came to be drawn up and the modification approved. He concluded that Mr Adam Wright, together with the other three owners, "approved the obtaining of the CHE plans and the subsequent construction to those plans": principal reasons, [ll]. He then addressed the consequence of that finding and stated:

"oo. ... I have found that the change of roofline and construction method was an agreed change, which did not follow the contractual regime for variations. Does that agreed change amount to a variation? In my opinion, it does. There is nothing in clause 14 that indicates that it is to be an exclusive regime, allowing no other method of variation. Accordingly, I find that the contract was effectively varied by the oral agreement of the parties. In considering the Builder's claims for payments, I shall refer to the effect of the Act ss 7 and 10 on this oral variation.

pp. There is a final matter to which it is necessary to refer. The Builder had a contractual obligation (the Act s 18B(a)) to build to the plans which form part of the contract. I have found a variation to the plans to which the Builder was required to build. But in any event, the local council had approved the modification under s 96, and the Builder was then required to build in accordance with the modified plans (the Act s 18B(c))."

23 The Tribunal then considered a number of specific claims for defective work, allowing some and rejecting others. None of these were the subject of appeal.

24 The owners had a claim, pursuant to cl 10(c)(i) of the contract, for liquidated damages by way of reimbursement of costs for delay. The period of delay in completion was 11 weeks and the claim was calculated at $370 per calendar week: Contract, schedule 1, item 3. That gave an amount of $4,070, of which the Tribunal allowed Mr Wright 50%, there being no claim by the owners of the other half of the duplex.

25 This order might have been thought to raise in stark form the difficulty inherent in one party suing on a promise made to four persons. In terms of rough justice, it may have been assumed that he and Ms Wright were living together and would thus have incurred one set of expenses as a result of delay. The correctness of that approach has not been put in issue. Nevertheless, Mr and Ms Wright boldly made a complaint in the District Court that the Tribunal had failed to award interest on the amount of $2,035 allowed for the delay, from the date on which occupation occurred, until the date of the Tribunal's second reasons. The complaint was cursorily rejected on the basis that interest had not been sought. There is no challenge in respect of that matter in this Court.

Orders for costs in Tribunal

26 The Tribunal made an order that Adam Wright pay the builder's costs of certain expert reports and otherwise the costs of the proceedings on and from 16 June 2009, on an indemnity basis. Except in respect of the expert reports, there was no order as to costs incurred by any party prior to 16 June 2009, which was the second day of the hearing in the Tribunal.

27 That order was challenged in the District Court, a challenge accepted by Sidis DCJ to the extent that the order involved assessment on an indemnity basis. A reformulated order, including other minor variations, was made in lieu of that made by the Tribunal. A further complication was introduced, however, which is the subject of challenge in this Court.

28 In the District Court, there were two plaintiffs (appellants), namely Adam Wright and Desiree Wright. Ms Wright, it will be recalled, was only a party in the Tribunal proceedings as a respondent to the claim by the builder for a quantum meruit. As that was not an issue addressed in the District Court appeal, it is unclear why Ms Wright was a party at all. To the extent that the costs orders in the Tribunal had included the costs of the builder's cross-claim, those costs, on and from 16 June 2009, were to be paid by Adam Wright alone. In varying the Tribunal's costs order, however, her Honour apparently imposed a liability on Ms Wright. Thus, in lieu of the costs order made by the Tribunal, she ordered:

"1. With the exception of the costs dealt with in order 2, the costs of the proceedings are to be paid as follows:

(a) each party is to pay their own costs of the plaintiffs' application and the defendant's cross-application up to and including 14 June 2009.

(b) The plaintiffs are to pay seven-eighths of the defendant's costs of those applications from 15 June 2009 on an ordinary basis.

2. the plaintiffs are to pay the report fees incurred by the defendant, regardless of the date upon which those fees were incurred."

29 While it is possible that "plaintiffs" in the order could be read as referring to Mr Wright alone, as the only moving party in the Tribunal (though not described as a 'plaintiff'), the intention, based on a misapprehension, appears to have been to include Ms Wright. It was an error which her Honour should have been invited to correct.

30 The litany of procedural irregularities and errors which has bedevilled these proceedings continued in this Court. The proceedings were commenced by summons brought by Mr Wright alone. If compliance with the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"), r 6.12A were necessary, the summons should have contained a statement "setting out briefly but specifically the grounds relied on". That direction is inconsistent with the rules applicable in this Court which require that the grounds are to be set out in written submissions: r 51.45(3)(c). The applicant did not in terms comply with either rule, although the first sub-heading in the section of the written submissions devoted to "errors in law on face of the record" read as follows:

"Finding that there was liability of the Second Plaintiff under the costs order in the Tribunal proceedings."

31 For reasons which are obscure, the applicant contended that the mistake could not have been corrected under the slip rule. Presumably her Honour was not requested to correct it. Even more curiously, the only applicant in this Court was Mr Wright. He did not seek correction of the order made in the District Court, to remove the name of his wife, but sought to have the order set aside. When pressed as to his standing to take the objection, senior counsel appearing for him in this Court sought leave to join Desiree Wright as an applicant in the proceedings. The respondent neither consented nor objected to that course being taken and, accordingly, leave was granted.

32 Senior counsel for the applicant was invited to identify the erroneous decision of the Tribunal with respect to a question of law which allowed her Honour to interfere with the costs order, absent which, even if error were established, it might not have been appropriate for the Court to remit the matter to the District Court for reconsideration.

33 In written submissions, counsel for the respondent asserted that there was no relevant error. In the course of oral submissions, he said that his client did not object to the removal of Ms Wright from the orders made in the District Court with respect to the costs of the Tribunal.

34 The respondent did not seek to challenge the variation of the costs order by the District Court. In these circumstances, the appropriate course is to accept the agreement of the parties and vary the order as to costs so as to exclude any liability on the part of Ms Wright.

35 In the circumstances, it is not necessary to address the substantive issue as to whether there was error of law on the face of the record in respect of her Honour's intervention in the costs order made by the Tribunal. Nevertheless, it is convenient to note the terms of the power conferred on the Tribunal, the application of which will, of course, need to take account of the circumstances of each case, including offers of settlement.

36 The general rule in the Tribunal is that each party is to pay its own costs, subject to the regulations: Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) ("the CTTT Act "), s 53(1) and (2). The Tribunal referred in its second reasons to its jurisdiction under the Consumer, Trader and Tenancy Tribunal Regulation 2009 ("the CTTT Regulation"), cl 20(4). That provision permitted the Tribunal, in any proceedings in respect of which the amount claimed or in dispute was more than $30,000 to award costs "in relation to the proceedings in such circumstances as it thinks fit". A power conferred in these terms is "unfettered" in the sense that the Tribunal may make such order as it thinks appropriate, so long as it acts in accordance with the subject matter, scope and purpose of the power. In relation to the award of costs in litigation, the accepted purpose is, where costs are awarded in favour of one party, to compensate that party for the expense incurred in respect of the litigation. (In respect of smaller claims, the power of the Tribunal to award costs is constrained, for example by a requirement that there be "exceptional circumstances": cl 20(2) and (3).)

Oral variation of residential building contract

37 The principal matter agitated on appeal in the District Court was the rejection by the Tribunal of the claim made by Mr Wright (alone) for damages, being the alleged cost of rectifying building work done pursuant to unauthorised unwritten variations to the plans and specifications and in breach of the statutory warranty implied into the contract by s 18B(1)(a) of the Home Building Act 1989 (NSW). For reasons set out below, her Honour was correct not to discern error of law on the part of the Tribunal in dealing with this claim. If a different conclusion had been reached, it would have been necessary to consider whether this Court should decline relief in the exercise of its discretion, in circumstances where only one of four contracting parties (all of whom, as the Tribunal found, consented to the variations) sought relief against the builder for acting in accordance with their joint oral instructions.

38 Mr Wright contended before the Tribunal that he was not bound by any oral variation of the residential building contract. That, it was submitted, was because cl 14 of the contract required any variation to be in writing. However, that was not so. Clause 14 had nine sub-clauses. The first, (a), stated that the works might be varied in certain ways: it was not restrictive. The second, (b), required the builder's consent to a variation, which consent was not to be unreasonably withheld. The third stated:

"(c) (i) If the Builder agrees to undertake a variation, the variation should be detailed in writing and signed by the Owner or the Owner's agent.

(ii) The Builder may require, prior to the execution of any variation, that the Owner produce evidence, satisfactory to the Builder, of the Owner's capacity to pay for the variation."

39 The remaining six sub-clauses of cl 14 involved the obligation of the builder to advise the owner in writing of the value of the variation and provided for the manner in which it might be valued and paid for.

40 The language of cl 14 was not entirely felicitous, but it envisaged that the owner might request a variation, to which the builder might consent. On one view, if the builder consented, it was obliged to carry out any extra work: sub-cl (b). True it is that, pursuant to sub-cl (c), if the builder agreed to undertake the variation it should be detailed in writing and signed by the owner, but that provision did not require the builder to reduce the variation to writing, nor did it state that the builder would be relieved of its obligation if the variation were not reduced to writing.

41 Sub-clause (d) was in the following form:

"(d) The Builder is to [sic], within a reasonable time of receipt of instructions, to execute a variation, notify the Owner in writing of the value of the variation."

If the second comma were treated as otiose, the effect of sub- cl (d) would be to oblige the builder to provide a written quotation within a reasonable time of receiving instructions to carry out the work.

42 The Senior Member of the Tribunal concluded that cl 14 did not provide an exclusive regime for varying the contract. That was a reasonable construction, bearing in mind the terms of cl 14, its apparent purpose, and the range of circumstances which could arise. For example, sub-cll (b) and (d) appeared to assume that the variation would involve an increase in the scope of the works and the cost thereof. If, on the other hand, the owners were to seek to delete a requirement, for example, to fit out a kitchen or bathroom, it is not at all clear that cl 14 required the variation to be in writing.

43 The applicant (Mr Wright in this case) sought to argue that ss 7 and 10 of the Home Building Act rendered an oral variation of a contract to undertake residential building work invalid and ineffective at law. However, that misstates the statutory requirements. Section 10 provides that the builder is not entitled to damages or to enforce any other remedy in respect of a breach of contract if the contract is not in writing. Section 10(1) also provides that the contract is "unenforceable" by the builder. It continues:

"However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person."

44 The reference to "the person" is to a person who contracts to do any residential building work, namely the builder. The fact that the builder remains liable for damages and other remedies for breach of contract demonstrates that a contract which is not in writing is nevertheless a valid contract, enforceable by the other party. As the Tribunal correctly noted, even if an oral variation cannot be enforced by the builder, so as to be able to recover payment under the contract for the work done, the builder could presumably be sued for a breach of warranty in respect of a failure to undertake the work in a proper and workmanlike manner and in accordance with the plans and specifications set out in the (oral) agreement: Home Building Act , s 18B. In the present case, the applicant sought to enforce the written contract on the basis that there was no valid variation. However, if the contract had in fact been varied, orally, the Home Building Act gives the owner no entitlement to enforce a non-existent obligation.

45 Section 7E, which was introduced into the Home Building Act in November 2001, permits regulations to make provision for clauses to be included in a particular contract or class of contracts and, if they do, an inconsistent term of the contract will be unenforceable to the extent of the inconsistency. It appears to have been assumed by the parties that cl 59 of the Home Building Regulation 1997 was in force when the contract was signed on 20 July 2002. That clause required that residential building work contracts include the conditions set out in Part 1 of Schedule 3A including the following:

" 1 Plans and specifications

(1) All plans and specifications for work to be done under this agreement, including any variations to those plans and specifications, are taken to form part of this agreement.

(2) Any agreement to vary this agreement, or to vary the plans and specifications for work to be done under this agreement, must be in writing signed by each party to this agreement."

46 However, Schedule 3A was inserted by the Building Legislation Amendment (Quality of Construction) Act 2002 (NSW), Schedule 2, Item 2.2, which only commenced on 16 February 2004, some 18 months after the contract was signed. Even if such a clause had been incorporated into the contract, while it might be thought that, in its terms, it prevented any form of variation not in writing, it should not be so construed. First, a variation can occur, as some contractual provisions acknowledge, by the imposition of legal requirements which may be inconsistent with the express terms of the contract. Second, the purpose and effect of this provision must be read in the statutory context, which does not render a contract invalid or unenforceable on both sides if not in writing.

47 Once the amendment had been approved by the Council, the builder was required to comply with the modified plans, pursuant to cl 12 of the contract. That provision had its own requirements for written notice, but whether or not they applied in the present circumstances was not addressed before the Tribunal, nor was the effect of non-compliance.

48 Supposing that the specifications as varied were those which were sought to be enforced, it would be remarkable if the owner had no claim against the builder in respect of defective work or even some broader failure to comply with the specifications, for example, by failing to provide floors over a concrete slab. Such a construction of the statute must be rejected. Equally, a construction which allows an owner to decide, after the work has been completed, which set of instructions are to be enforced must also be rejected.

49 This was, in substance, the reasoning accepted by Sidis DCJ:

"18. The result, on the plaintiffs' argument, was that the variations were to be ignored for the purposes of the plaintiffs' claim of breach of warranty. The took this position notwithstanding that the parties to the contract agreed to variations to the plans and specifications, the work was completed, subject to some minor defects, in accordance with the plans and specifications as varied, the defendant was paid for that work with the approval of the parties to the contract and failure to complete the works in accordance with the plans and specifications as varied would put the defendant in breach of the contract.

19. This result demonstrates the fallacy in the plaintiffs' argument. The defendant would be liable for damages for breach of warranty if it complied with the agreement reached to vary the plans and specifications or liable for damages for breach of contract if it did not."

50 This reasoning should be accepted. Even if it were not, the Court should not intervene in the exercise of its discretion, for four reasons. First, even if legally erroneous, the fact that the applicant agreed to and paid for the work as varied demonstrates that no substantial injustice has been caused if there were an error of law in the analysis in the Court below. Secondly, Mr Wright cannot seek relief in respect of building work undertaken pursuant to a contract where he is only one of four contracting parties on his side of the bargain. Thirdly, although accepting that rectification is no longer a practical option (following subdivision of the property and without the consent of the other owners), he claimed that he was entitled to damages in an amount calculated to be the cost of rectification. That seems not to be legally tenable, although it was an argument run in the District Court: at [17]; cf Bellgrove v Eldridge [1954] HCA 36; 90 CLR 613 and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 236 CLR 272. On one view, it was in substance an attempt to recover moneys paid under an ineffective contract where there had been no total failure of consideration: free acceptance of the work done and materials supplied gave rise to the obligation to pay and therefore denied the right to recover any (reasonable) payment in fact made: Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; 162 CLR 221 at 257 (Deane J). Fourthly, if some other claim were tenable, there is no reason why Mr Wright should be allowed a further opportunity to prove loss, in circumstances where no loss (other than that which has been recovered for defective work) has yet been either pleaded or proved.

Conclusions

51 The primary issue argued by Mr Wright having failed, the application to review the judgment of the District Court must be dismissed with costs. The costs should be payable by Adam Wright, and not by Desiree Wright, who was only added as party in order to claim relief in respect of the costs orders, which relief has been properly, if belatedly, conceded.

52 Although relief should be granted in respect of the costs order, there should be no separate order as to the costs incurred in respect of that issue. To the extent that there were significant costs attributable to that issue, they arose between Mr Wright and the respondent and should form part of the costs which he must pay.

53 The Court should make the following orders:

(1) The order of the District Court with respect to the costs in the Tribunal be set aside insofar as it required Desiree Wright to pay any part of the builder's costs in the Tribunal.

(2) Subject to order (1), dismiss the application to review the judgment of the District Court of 18 March 2011.

(3) Order that Adam Wright pay the costs of the respondent in this Court.

54 HANDLEY AJA : In this matter I have had the benefit of reading the reasons of Giles JA and Basten JA in draft. I agree with the reasons of Giles JA and I agree generally with those of Basten JA, but will add brief reasons of my own.

55 Section 7(1) of the Home Building Act 1989 requires contracts to be in writing signed by or on behalf of the parties. Section 10(1) relevantly provides:

"A person who contracts to do any residential building work ... and who so contracts:

(a) ..., or

(b) under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates ..., or

(c) ...,

is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person."

56 A contract in writing that is varied informally ceases to be "a contract in writing". The contract as varied was not enforceable by the builder, and the informal variation may have prevented him enforcing the original written contract because "the contract" was no longer in writing. It is clear however that a contract still exists in such a case which is fully enforceable by the owner.

57 The Act does not prevent the builder relying on the contract as a defence because that does not involve its enforcement. Although the contract is not enforceable by the builder the owner cannot recover moneys paid under it unless there has been a total failure of consideration. This is implicit in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5, 162 CLR 221 which decided that a builder who performed home building work under an informal contract could recover the fair value of that work in an action for restitution. Deane J, at p 257, held that the builder could rely on the unenforceable contract defensively for a number of purposes but did not specifically refer to the builder's right to retain moneys paid by the owner for work done, or to defend proceedings brought on the wrong contract.

58 As Giles JA notes, citing Head v Kelk (1961) 63 SR 340, 348, contracts within the Statute of Frauds which were unenforceable could form the basis of a defence.

59 The Moneylenders & Infants Loans Act 1941 prevented moneylenders enforcing contracts for loan which did not meet the statutory requirements but the contracts were enforceable by the borrower. Although there were many reported cases in which borrowers relied on the Act as a defence it was never suggested that they could recover moneys paid under the contract. In Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55, 101 CLR 428, 456 Dixon CJ's references to a moneylender in that position being unable to recover "the loan moneys remaining unpaid" implied that he could retain moneys paid by the borrower, and thus rely on the unenforceable contract as a defence.

60 The position where a statute makes a contract void in whole or in part is quite different as is illustrated by David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 481, 175 CLR 353.

61 I agree with the orders proposed by Basten JA.

**********

Decision last updated: 26 October 2011