Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Edwards v Sydney Building Group Pty Ltd [2011] NSWCA 154
• Hearing dates: 16 May 2011
• Decision date: 23 June 2011
• Before: Allsop P at 1, Basten JA at 54, Sackville AJA at 70

Decision

Amended summons and appeal dismissed with costs.

[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 - progress payments - entitlement to suspend work under contract where payments outstanding - whether payments outstanding - characterisation of work "under the contract" for the purpose of determining contractual accounts - whether appropriation had taken place.; CONTRACT - termination - repudiation - whether suspension of work in breach of contract giving rise to right to terminate.; CONTRACT - building - HBA - requirement for contractual variations to be signed by or on behalf of the parties to the contract.; ADMINISTRATIVE LAW - judicial review - whether or not appropriation had taken place on basis of uncontested facts a question with respect to a matter of law.; ADMINISTRATIVE LAW - judicial review - Supreme Court Act 1970 (NSW), s 69(3), error of law on the face of the record - judicial review to be made having regard to the manner in which the case was conducted in the court below.
• Legislation Cited: Anti-Discrimination Act 1977 (NSW); Consumer, Trader and Tenancy Tribunal Act 2001 (NSW), ss 28(3), 67 and 67(1); District Court Act 1973 (NSW), ss 127 and 127(1); Home Building Act 1989 (NSW), ss 3(1), 6(1)(b), 7(1), 7AA, 7A, 7B and 10; Supreme Court Act 1970 (NSW), ss 69, 69(3) and 69(4)
• Cases Cited: A Smith & Son (Bognor Regis) Ltd v Walker [1952] 2 QB 319; Arnold v The Mayor, Alderman, and Burgesses of the Borough of Poole (1842) 4 Man & G 860; 134 ER 354; Ford (by his tutor Watkinson) v Perpetual Trustees Victoria Ltd [2009] NSWCA 186; 75 NSWLR 42; Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230; Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186; Lamprell v The Guardians of the Poor of the Billericay Union, in the County of Essex (1849) 3 Ex 283; 154 ER 850; Muldoon v Church of England Children's Homes Burwood [2011] NSWCA 46; Paine v The Guardians of the Poor of the Strand Union (1846) 8 QB 326; 115 ER 899; Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84; 76 NSWLR 195; Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26; Sullivan v St George Community Housing Ltd [2010] NSWCA 248; The Mayor, Alderman, and Burgesses of the Borough of Ludlow v Charlton, Esq (1840) 6 M & W 815; 151 ER 642
• Texts Cited: N Dennys, M Raeside and A Clay (eds) Hudson's Building and Engineering Contracts (Sweet & Maxwell, 12th Ed, 2010) S Furst and V Ramsey, Keating on Construction Contracts (Sweet & Maxwell, 8th Ed, 2006)
• Category: Principal judgment
• Parties: David Antony Edwards (First Applicant); Leigh Edwards (Second Applicant); Sydney Building Group Pty Ltd (Respondent); District Court of NSW (Second Respondent)
• Representation: Counsel: M Leeming SC, J Gruzman (Applicants); M F Galvin (Respondent); Solicitors: Massey Bailey Solicitors and Consultants (Applicants); Gadens Lawyers (Respondent); Crown Solicitor (Second Respondent)
• File Number(s): 2010/56313

Decision under appeal

• Jurisdiction: 9101
• Date of Decision: 2010-02-05 00:00:00
• Before: Elkaim DCJ
• File Number(s): 2009/3870

HEADNOTE

[This headnote does not form part of the Court's judgment.]

In June 2005, the applicant owners entered into a contract with the respondent builder for the construction of a home at Avalon, being residential building work under the Home Building Act 1989 (NSW). Payment of the contract price was to be made in instalments by progress payments issued by the builder, in accordance with the contract schedule. The builder was entitled to suspend work under the contract if the amount of any progress payment claim remained outstanding for more than five working days.

At an early stage in the work, it became apparent that soil would need to be removed from the site to permit the construction of the building in accordance with the specifications. No provision for such work was made in the contract. On 29 June 2006, the builder issued an invoice for $26,329.60 for payment for the soil extraction and removal, which was paid by the owners. On 27 October 2006, the builder forwarded to the owners a progress claim, which included a sum of $25,145.00 for variations and adjustments (being a recalculation of an amount outstanding from a previous claim). No payment was made of the $25,145.00. On 10 November 2006, the builder suspended work by reason of the owners' failure to pay progress claims. The owners contended the suspension was itself a breach of contract, served a notice of termination on the builder and commenced proceedings in the Consumer, Trader and Tenancy Tribunal ("the Tribunal").

An issue before the Tribunal was the validity of the builder's assertion that it was entitled to terminate the contract. The Tribunal held that payment for the soil work was not a payment under the contract. It found that if the payment for the soil work ($26,329.60) were deducted from the amount claimed to be outstanding ($25,145.00), then the progress claims had been paid in full. It followed that the builder was not entitled to suspend work and the owners were entitled to terminate. Damages were assessed on that basis.

The builder appealed to the District Court, pursuant to the Consumer, Trader and Tenancy Tribunal Act 2001 (NSW), s 67 as an appeal against a decision on a question with respect to a matter of law. Elkaim DCJ held that the Tribunal was correct in finding that there was no valid variation of the contract but erred in applying the payment for soil removal to the contractual account. His Honour allowed the appeal, set aside the findings of the Tribunal and remitted the matter to the Tribunal for rehearing.

The owners appealed by way of amended summons to the Court of Appeal, pursuant to the Supreme Court Act 1970 (NSW), s 69, seeking relief in the nature of certiorari to quash the decision of the District Court on the basis of error of law on the face of the record. An appeal pursuant to the District Court Act 1973 (NSW), s 127(1) was not competent and was abandoned.

Held, dismissing the appeal and amended summons with costs:

(Per Allsop P, Sackville AJA agreeing)

(1) In the circumstances disclosed by the material before the Tribunal, there was, by the debtor and the creditor, clear appropriation of a payment to a claim, that was otherwise enforceable, if not under the contract: [43].

(2) The conclusion of appropriation was a legal one from the uncontested facts. Whether or not appropriation had taken place was a question with respect to a matter of law: [44].

(3) The primary judge was correct to conclude that the Tribunal decided a question with respect to a matter of law and erred in that decision: [52].

(Per Basten JA)

(1) The primary judge was correct in holding that there were no findings made by the Tribunal to justify the conclusion that the amount paid for the soil removal was paid "under the contract", and was a payment against no existing liability so as to place the owners' account in credit: [65].

Judgment

1 ALLSOP P: The matter before the Court involves one aspect of a domestic building dispute before the Consumer, Trader and Tenancy Tribunal ("the Tribunal"). The applicants are the owners of land upon which the respondent agreed to build a house under a contract entered into in June 2005 for a contract price of $363,469.00 (inclusive of GST) subject to additional charges of a kind contemplated by the contract, including cl 17 concerned with variations to the work and cl 21 concerned with the adjustment of prime cost and provisional sum items.

2 One aspect of the dispute as it developed in the Tribunal was the legitimacy of the builder's assertion that it was entitled to terminate the contract by reason of the failure of the owners to pay progress claims. The Tribunal member found that the builder was not so entitled and that the owners validly terminated the contract. Damages were assessed on that basis.

3 In an appeal under the Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) (the "CTTT Act"), s 67, the District Court (Elkaim DCJ) allowed the appeal, set aside the findings of the Tribunal and remitted the matter to the Tribunal for rehearing. Initially in this Court, an appeal under the District Court Act 1973 (NSW), s 127 was brought against the orders made by the District Court. That appeal was not competent: Sullivan v St George Community Housing Ltd [2010] NSWCA 248 and the authorities cited therein. The reason it was not competent is that a statutory "appeal" under the CTTT Act, s 67 has been held not to be "an action" for the purpose of the District Court Act , s 127(1). That appeal was abandoned and the applicants relied upon an amended summons seeking relief in the nature of certiorari to quash the determination of the District Court on the basis of error of law on the face of the record of the District Court, such record including the reasons of the District Court: see the Supreme Court Act 1970 (NSW), s 69, especially s 69(3) and (4).

4 The Tribunal had authority to resolve the matter, deciding questions of fact and law. The appeal to the District Court was conditioned by the words of the CTTT Act, s 67(1): "[i]f ... the Tribunal decides a question with respect to a matter of law, a party ... dissatisfied with the decision may ... appeal to the District Court against the decision." The role of this Court under s 69 of the Supreme Court Act is to decide whether there is an error of law on the face of the reasons of the District Court in its conduct of the statutory appeal on the legal question referred to in s 67(1).

5 In order, however, to explain why the application under s 69 should in this case be dismissed, it is necessary to explain the factual context, taken from the Tribunal's reasons against the uncontested factual background.

Factual background and context

6 The following facts are uncontested.

7 The applicants entered into a standard NSW Plain Language Building Contract for New Home Construction Edition 4 HIA with the respondent on 8 June 2005. The contract provided for the contract price to be paid in instalments by progress claims being issued by the respondent (cl 15). The contract included a schedule for progress payments and terms governing variations (cl 17).

8 Pursuant to the contract, the applicants paid the deposit of $15,673.00 (progress payment 1 of the contract schedule).

9 Pursuant to the contract, the applicants paid the stage 2 payment of $72,694.00 (progress payment 2 of the contract schedule) on 9 June 2006.

10 On 29 June 2006, the respondent claimed the sum of $26,329.60 from the applicants. It was not a progress payment claim contemplated by the schedule. The document was entitled "order" and had an invoice number. The description of work to which it was directed was as follows (White Book Vol 2 p 494):

"REMOVAL OF SOIL FROM - SITE CLEARING, EXCAVATIONS, FOOTINGS AND PIERS (AS PER CLAUSE 4.3 OF OUR CONTRACT SPECIFICATION ) + 10% BUILDERS MARGIN PROGRADE EXCAVATION - INVOICE # 962 - $15,360 + 10% + GST

A & A GAL CONCRETE - INVOICE # 57 - $6400 X 10% + GST"

11 The sum of $26,329.60 was paid to the respondent under cover of a letter from a company associated with Mr Edwards and signed by him which was in the following terms (White Book Vol 2 p 498):

"I enclose a cheque for $26,329.60 in response to your recent account. This is paid as a demonstration of goodwill, but I note from the account that a total of 162.5 hours of truck hire ($12,350 plus GST) is included together with $7,040 for soil removal by A & A C & L Concreting directly associated with the slab. Form (sic) my observation tracks were not on site for anything like as long as 162.5 hours and the charge for the soil removal when the slab was finally laid seems excessive compared with the charges for the initial; site clearance which involved extensive soil removal.

Please check these accounts and get more detailed confirmation of the dates and time of the incurring of these charges.

I also understand from Ben that bricklaying has been suspended pending the building of the retaining wall. I am very disappointed that this was done as far back as last Thursday, but we have not been told, and that a start on the retaining wall is not expected until this Thursday. You promised completion by 30 November (when we vacate our present home) and that every effort would be put into achieving this. The retaining wall was contracted form (sic) the start and could and should have been done in the dry weather when the site clearance was done before bad weather set in. Now it is delaying everything and the cost is not (sic) doubt considerably increased due to your failure to get this in hand expeditiously.

Please advise what can now be dome (sic) to bring both time and cost within what was reasonably expected.

Yours sincerely

David A. Edwards"

12 On 28 August 2006, a further progress claim (described as "progress claim - wall and roof frame") was issued by the respondent to the applicants for $120,594.23. This claim corresponded with (but was not numbered) progress claim 3 as described in the contract schedule for wall and roof frame - $72,694.00, plus an amount for adjustments and variations. The variations in this progress claim included, inter alia, a variation for further soil removal totalling $4,444.00 plus GST ($4,888.40 incl). On 4 September 2006, the applicants paid the respondent the sum of $86,386.40 in respect of contract schedule progress claim 3 as the applicants had disputed the full amount claimed pursuant to that progress claim. In response to the dispute raised by the applicants the respondent agreed to have the project architect review the progress claims. That review occurred and as a result of it the respondent issued a revised and adjusted progress claim to the applicants on 5 October 2006 for the lesser sum of $111,785.40. (This re-issued progress claim was back-dated to 28 August 2006.) The reconciliation of the revised progress claim included credit for the applicants' payment of $86,386.80, which left a balance of $25,398.60. On 27 October 2006, the respondent forwarded to the applicants a further progress claim for the contract price up to the lock up stage for $90,867.00 (the contract schedule referred to the amount at lock up in progress claim 4), plus variations and adjustments of $25,145.00 (a recalculation of the claimed balance of $25,398.60) totalling $116,102.00.

13 The applicants paid the contract schedule amount for lock up (contract schedule payment 4) of $90,867.00 on about 7 November 2006; no payment was made of the $25,145.00.

14 On 10 November 2006, the respondent served a Notice of Suspension of work pursuant to cl 32 of the contract; that notice asserted that the applicants had failed to pay "progress payment 3" in the sum of $25,145.00, due on 4 September 2006.

15 The building works were then suspended by the respondent.

16 On 1 February 2007, the applicants served a notice of breach of contract on the respondent asserting an unlawful suspension and a failure to carry out works pursuant to cl 33.3 of the contract.

17 On 16 February 2007, the applicants served a notice of termination pursuant to cl 33.4 of the contract.

The Tribunal's approach

18 The issue before the Tribunal concerned the validity of the owners' termination of the building contract. The builder had suspended work under the contract on 10 November 2006. The suspension was based on a purported failure of the applicants to pay "progress payment 3" in the amount of $25,145.00 said to be due on 4 September 2006. The owners contended that the suspension was itself unlawful and a repudiation and terminated the contract on that basis.

19 The Tribunal approached the matter on the basis that if the $25,145.00 sum was not owing, and thus the respondent was not entitled to suspend works under the contract, then there was a valid ground to support the owners' termination and they were entitled to a finding in their favour on that issue.

20 The Tribunal found that the $25,145.00 was not owing to the builder. It was the reasoning to that conclusion that the primary judge considered contained legal error of a character and in a context to engage the CTTT Act, s 67.

21 Central to the reasoning of the Tribunal was the deficiency in the contractual arrangements for a variation to the contract to support the claim for payment for the soil excavation and removal (to which I will refer as the "soil work"). The variation was not signed by or on behalf of the parties to the contract (in the Tribunal's view a requirement of the Home Building Act 1989 (NSW) (the "HB Act"), s 7(1) and cl 17.1 of the contract). According to the HB Act, s 6(1)(b), a variation to the contract is covered by the phrase "a contract" in s 7(1) (or s 7A, to which I will come). This is also how the matter was approached in the District Court.

22 A failure to comply with s 7 had civil consequences under the HB Act, s 10 concerning enforceability as follows:

"(1) A person who contracts to do any residential building work, or any specialist work, and who so contracts:

(a) in contravention of section 4 (Unlicensed contracting), 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 (not being a contract entered into in the circumstances described in section 6 (2)), or

(c) in contravention of any other provision of this Act or the regulations that is prescribed for the purposes of this paragraph,

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.

(2), (3) (Repealed)

(4) This section does not affect the liability of the person for an offence against a provision of or made under this or any other Act."

(I will deal with any consequences under the criminal law at the end of these reasons.)

23 The arguments of the owners put to, and recorded by, the Tribunal were relevantly as follows (White Book Vol 2 p 447):

"Progress claim 3 ... included a sum claimed for work that could not be lawfully claimed under the contract . .... The home owners had no obligation under the contract to make payment for the soil removal charges. The payments they made ought to have been applied to the charges legitimately due under the contract and if that had been done there was no failure by the owners to make a progress payment."

24 The reasons of the Tribunal were relevantly as follows (White Book Vol 2 pp 448-449):

"It was not disputed that there was no provision made under the contract for payment of a provisional sum for the soil excavation, although it is common ground that the owners would be liable for that cost. Hence, it was always necessary, in order for a claim to be made pursuant to the contract for that item, for the parties to agree on a variation.

The builder's evidence was that he issued just such a variation. However, I am satisfied that the document referred to did not amount to a variation that complied with the provisions of the Home Building Act 1989, s 7. Section 6(1)(b) of that Act provides that the requirements of s.7-7E apply to variations to the contract. It is not disputed that the claimed variations (invoices 240 and 254) were unsigned. Furthermore those invoices were in a quite different format to all other variations issued and agreed. Under cross examination on this issue Mr. Nesbitt prevaricated, first claiming that a variation was not prepared and then asserting that the 'order' dated 29 June 2006 was a variation.

As no variation for the soil excavation was ever agreed by the parties, the builder's claim for payment for that item could only ever have been on a quantum meruit basis. Hence, the inclusion of those two invoices on any progress claim could never have been a claim pursuant to the contract. If the invoiced amounts for soil removal are deducted from the progress claims it is readily seen that the progress claims were paid in full.

The builder was therefore not entitled to treat the home owners' failure to pay those amounts as a repudiation or breach for which it was entitled to issue the Notice of Suspension of works. In respect of that issue, there was simply no remedy under the contract available to the builder. The fact that the sum in dispute does not exactly equate to the invoiced amounts is in my view of no consequence. The sum now claimed is in fact less than the invoiced amounts and it would therefore appear that there has been a partial payment of a sum for which the builder is entitled to make a quantum meruit claim.

A number of conclusions follow from this reasoning. Firstly, the home owners were entitled to treat the issue of the Notice of Suspension and the actual cessation of works as a repudiation and breach. The owners were entitled to issue the Notice of Breach on 1 February 2007 and to subsequently terminate the contract."

25 It was not in contest in the District Court or in this Court that the claim in June 2006 in respect of the soil work ($26,329.60) was pursuant to an arrangement that did not comply with the HB Act, s 7(1), or indeed the contract. Nor was it in contest in the District Court or in this Court that the HB Act, s 10, made the claim for payment under the contract unenforceable. Further, it was not in contest (in the District Court, or in this Court, notwithstanding some written submissions after the hearing that might be seen to hint to the contrary) that the builder had a legal entitlement to claim a reasonable sum for the soil work done at the owners' request.

26 The reasoning of the Tribunal contained an assumption (or, perhaps more accurately, an implicit finding) that although the claim for payment for the soil work could not be considered an enforceable claim under and pursuant to the contract, the payment made in direct response to that claim was to be considered as a payment made under the contract in the sense that it should be taken into account in respect only of what was due under the contract, leaving the claim for payment for the soil work unpaid and liable to be enforced as a claim in restitution dehors the contract. I should add at this point that the builder propounded the claim in the Tribunal as a variation claim.

The District Court

27 The builder argued before the primary judge that the charge for the soil work "had nothing to do with the contract and was the subject of a separate agreement" (see primary judge's reasons T p 4). The primary judge rejected this argument (see primary judge's reasons T pp 4-5). It is not clear whether that argument was an attack on a finding of fact or law by the Tribunal. Nevertheless, it was an attack on the assumption (or, again, perhaps preferably, implicit finding) of the Tribunal that the parties at no time treated the obligation to pay for the soil work as work arising out of anything other than the contract and that the parties made no other consensual legal relationship to govern their rights in connection with the soil work.

28 The primary judge thus concluded that the claim for the soil work was made under purported authority of the contract (conformably with the assumption or implicit finding of the Tribunal) and agreed with the Tribunal that the variation did not comply with the HB Act. His Honour concluded, however, that it was an error of law to apply the payment for soil removal to the contractual account. He said the following (at T pp 5 and 6):

"The problem I have is that the Member has brought the moneys into account as if they were a contract sum having found that they could not be properly incurred under the contract. The builder was not entitled to the payment of the $26,329.60, at least not under the contract. Further, the Member said this:

'Hence the inclusion of these two invoices on any progress claim could never have been a claim pursuant to the contract.'

The difficulty with this finding is that the $26,329.60 was not included in the progress claim. It is certainly mentioned in the account breakdown as a variation, for example bundle p 338, but it does not figure in the relevant progress claim. The Member has thus, in my view, made two errors. First, he has brought back into account in the contract a sum he says was never properly made under the contract, and secondly, he has found the relevant progress claim included the $26,329.60 when in fact it did not."

29 Criticism was made in argument in this Court of the primary judge's conclusion about the finding of the Tribunal concerning the inclusion of the $26,329.60 in the relevant progress claim. It is unnecessary at this stage to consider this question, because the primary judge recognised that this was a finding of fact beyond his authority to amend. The primary judge then continued (T pp 6-7):

"I do not reach the same conclusion in respect of the finding that there was a repudiation by the builder. The Member was correct in finding that there had not been a valid variation of the contract. He was not correct in bringing the above sum back into account under the contract. In my view the question of the nature of the sums that can be applied to an account of moneys owed under the contract is a question of law. Although my description of the question is different to the statement of the error of law made by counsel for the builder, I think it falls within the scope of that statement because it concerns the finding that led to the Member's decision that the notice of suspension was invalid and there was a consequential repudiation by the builder. To be clear, it is the use of the payment of $26,329.60 to negate the notice of suspension which constitutes the error of law."

30 The expression of the Tribunal's error of law by the primary judge was short. It was that it was legally impermissible to retain in working out the account under the contract a payment never properly made under the contract. Implicit in that conclusion was the proposition that if the claim was, as a matter of law, outside the contract and not authorised by the contract, its payment, likewise, must be outside the contract and not referable to it. This legal conclusion was reached by his Honour despite his Honour's rejection of the builder's argument that the charge for the soil work had nothing to do with the contract. In his reasons for rejecting this argument at T pp 4-5 the primary judge said the following:

"It was argued before me by the builder that the soil charge had nothing to do with the contract and was the subject of a separate agreement. I reject this argument. There was a mass of evidence contradicting this assertion. Here is some of it:

(a) Paragraphs 68 and 69 of Mr Nesbitt's affidavit, commencing at page 496 of the Bundle, clearly infer that the charge for the soil removal is regarded as a progress claim.

(b) The charge for soil removal is listed as an agreed variation in the project summaries prepared in relation to the contract, for example see the Bundle at p 297.

(c) In a letter dated 30 August 2006 Mr Nesbitt wrote:

'The site clearance was added to the excavation PS and the soil removal is a variation to the contract and is not included in the PS amount.' (Bundle at p 312)

(d) In a letter dated 16 October 2006 Mr Nesbitt refers to SPG240 as a variation (Bundle p 346).

(e) In a letter dated 22 November 2006 Mr Nesbitt wrote:

'Our charge to you as a variation to the contract sum was $26,329 including GST.' (Bundle p 406)

(f) During the CTTT hearing Mr Nesbitt was cross-examined by Mr Gruzman. There are a number of relevant passages but I think I need only quote the following:

'Q. You understood under the contract that the variation needed to be signed by you?

A. Yes.

Q. That was done?

A. That's right.

Q. Again I'll put it to you that you still, having thought about it again, looking at the document very carefully, maintaining your evidence, your intention was that a variation?

A. Yes.' (Bundle p 1082 line 40 onwards)"

Arguments and disposition

31 The applicants submitted that as a matter of legal characterisation the payment in late June of 2006 of $26,329.60 could only be "under the contract" and the Tribunal was correct to conclude accordingly. This characterisation arose, it was submitted, from the facts as found by the Tribunal and those that were uncontested, set against the background of the HB Act. The HB Act made the claim unenforceable by s 10 and the purported making of the variation without compliance with s 7 an offence under s 7A. The facts disclose no arrangement made by the parties for the execution of and payment for the soil work other than by and through the contract. The work was styled as a variation in the documents supporting the third progress claim in August and October 2006. Though, it should be said that the invoice for the sum of $26,329.60 was not described as a variation, only as an invoice.

32 It was further submitted for the applicants that the sum paid could prima facie be recovered as money paid under a mistake of fact or law, such mistake being that the sum was due and enforceable under the contract. It is to be recalled, however, that the Tribunal made no express finding of the relevant mental states of the parties as to what they thought they were doing; nevertheless, as I earlier said, there was no evidence whatsoever of any attempt to set up any other regime of legal responsibility for execution of, or payment for, the soil work. Leaving aside the difficulty of the absence of a relevant finding of mistake, the fact that such a vitiating factor exists may be necessary, but is not sufficient, for the making out of a claim for restitution. It is the injustice of the retention that founds the claim: Ford (by his tutor Watkinson) v Perpetual Trustees Victoria Ltd [2009] NSWCA 186; 75 NSWLR 42 at 69 [121] and 73 [134]; Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84; 76 NSWLR 195 at 221-222 [127]-[128] and 229 [161]; and Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230 at 264-265 [145]-[151], 269 [179] and 270 [180].

33 An important factual consideration against which to analyse the legal consequences of what occurred is that it was common ground before the Tribunal and the District Court that the owners (the applicants in this Court) were liable for the (proper) cost of the soil work in restitution. Mr Leeming SC, who, with Mr Gruzman, appeared for the owners, drew back from any concession that such sum was represented by the precise sum claimed by the builder for the soil work. In any event and even in the absence of a concession as to the precise sum, the proposition that the sum was refundable in an action in restitution in circumstances where the builder had an enforceable claim of right in restitution for the very work concerned is not self-evident. Thus, the claim for recovery would be founded on questions of mistake and the justice of retention, about which there have been no findings.

34 The applicants further submitted that the words of the letter dated 30 June 2006 signed by Mr Edwards that the payment was made "in good faith" and that asked for a checking of the underlying claim revealed that the money was paid generally on account of the contract and not for this specific work.

35 The builder, on the other hand, submitted that the payment in late June 2006 was for the soil work, by reason of the substance of the invoice and by the terms of the payment. Whether or not the parties intended, or believed, that it be, or was, a contractual claim, it was a claim (supportable, as it turned out, upon restitutionary not contractual principles) that was lawful and enforceable. In these circumstances, it was submitted that the payment had been appropriated by the parties, being the creditor and the debtor to payment of the claim for the soil work. It was submitted, that in circumstances where the contractual foundation for making the claim was absent, the payment remained appropriated to payment for the soil work, and that that was a legal conclusion.

36 The problem of allocation of payments to the accounts between builder and owner when part of the builder's claim is in some fashion defective or unlawful is not new, in particular in relation to extra work or variations: N Dennys, M Raeside and A Clay (eds), Hudson's Building and Engineering Contracts (Sweet & Maxwell, 12 th Ed, 2010) at 845-848 [5-075]-[5-076]; S Furst and V Ramsey, Keating on Construction Contracts (Sweet & Maxwell, 8 th Ed, 2006) at 133 [4-055].

37 In Lamprell v The Guardians of the Poor of the Billericay Union, in the County of Essex (1849) 3 Ex 283; 154 ER 850, sums were paid by a corporation on account of a building contract without distinguishing the work for which the payments were made. Extras were ordered by a document not under seal. The corporation could only be liable for the extra work if the variation order was under seal. Given that there had been no specific appropriation of the payments, the builder, as receiver of the payments and creditor, sought to appropriate the payments that had been made, to the extras in full before the balance due under the otherwise enforceable contract. The Court refused to permit the builder to do so. Central to the reasoning in the judgment of the Court delivered by Rolfe B were a number of considerations. First, there was the fact that the payments were advanced to be treated as sums paid on account of whatever the plaintiff might eventually be entitled to recover under the contract (3 Ex at 305; 154 ER at 861). Secondly, there was no second contract or legal relationship that the corporation was capable of entering to support the payment for extras. Various cases were referred to: The Mayor, Alderman, and Burgesses of the Borough of Ludlow v Charlton, Esq (1840) 6 M & W 815; 151 ER 642 in the Court of Exchequer; Arnold v The Mayor, Alderman, and Burgesses of the Borough of Poole (1842) 4 Man & G 860; 134 ER 354 in the Court of Common Pleas; and Paine v The Guardians of the Poor of the Strand Union (1846) 8 QB 326; 115 ER 899 in the Court of Queen's Bench to support the following proposition expressed at 306; 861: "[t]he principle of those cases clearly exempts the present defendants from all liability as to the matters in question, except such as arose by instrument under their seal." No question arose of restitutionary liability. Rolfe B recognised, however, that in the case of an individual the absence of an order under seal may not have prevented another contract arising that bound the individual and if the moneys paid were not allocated or appropriated by the debtor (payer) they might be able to be allocated by the creditor (receiver) to such debt as he chose. Essential, however, to the reasoning in deciding the case before the Court was the fact that there could be no appropriation to a claim that had no legal or equitable foundation (including no restitutionary foundation).

38 In A Smith & Son (Bognor Regis) Ltd v Walker [1952] 2 QB 319 the Court of Appeal was concerned with the circumstances of work done under a contract that provided for payment of instalments from time to time generally on account of the contract. The builders carried out demolition work before any licence for the work had been issued. The relevant regulation provided: "the carrying out ... of any work ... or of any maintenance work on a building or on any such works [in a Schedule] shall be unlawful except in so far as there is in force in respect thereof a licence granted by the Minister ...". The licence was later obtained, but had not been issued when the initial demolition work was done. The defendant made two payments generally under the contract. A receipt issued by the builder was expressed to be "for demolition of faulty structure" and "on account of work carried out at the above". Morris LJ, sitting at first instance, found that by reason of the builder's receipt the owner could not claim that the payments were referable to licensed work. The Court of Appeal reversed this decision. It is to be understood that the case proceeded on the basis that the demolition work was unlawful and there could be no recovery on any basis for it: see the reasons of Somervell LJ at 324. Somervell LJ concluded (at 327) that the payments were made "under the contract". By this his Lordship can be taken as reflecting the evidence that they reflected general payments of the amounts provided for as lump sum payments (each of 500) made pursuant to the contract. He said at 326:

"It seems to me that as a matter of law the nature of these payments must be sought in the contract under which they were made. The fact that words are put in the receipt which might indicate an intention to appropriate, does not seem to me to be enough to deprive the payment of the character it had derived from the contract, unless, of course, there had been some oral or written agreement between the parties to that effect - and that is not suggested here. The mere fact that the defendant did not object to the words on the receipt does not seem to me to be enough."

39 The reasons of the Court were extempore. In argument Somervell LJ had said at 323:

"If there had been a specific appropriation with the consent of the defendant, that would be sufficient for the plaintiffs. But the judge relied on the receipts. I am not sure he was right."

40 Denning LJ clearly based his analysis on how the payments had been made. If there was a contract and the payments were made "generally on account of the work" (328) (by which his Lordship plainly meant all the contractual work) allocation must be made to the lawful part of the work; but, he said:

"... if the owner himself specifically appropriates a particular payment to the unlawful part, then it remains where it is. He cannot turn round afterwards and appropriate it to the lawful part. Just as the builder cannot recover the balance due to him for the unlawful part, so, also, the owner cannot recover any payments he has made specifically on account of it. He cannot do it directly by action, nor can he do it indirectly by altering his appropriation from the unlawful to the lawful part."

41 Romer LJ agreed with both Somervell and Denning LJJ.

42 Subject to the submissions in this Court that are dealt with in the final section of these reasons, there has never been any contest about the liability of the owners for the cost of the soil work. That fact critically distinguishes the facts here from both Lamprell and Smith. Further, the sum paid here was not an amount for a general contractual obligation for payment provided for in the contract; it was on the face of the invoice and the letter of 29 June 2006 a payment specifically for the claim for the soil work, and nothing else. That was the subject described in the invoice and it was the subject to which the payment was specifically directed in the letter under which payment was made. In fact, it was a claim not enforceable as a contractual claim, but it was a claim enforceable in law - under the law of restitution. Both bases for recovery - contract and restitution - depended upon the claim being for a sum honestly and reasonably arrived at. Though the 10 per cent builder's margin claimed may not have been contractually due, its assessment as reasonable would be part of the assessment of the reasonableness of the charge.

43 In the circumstances disclosed by the material before the Tribunal, there was, by the debtor and the creditor, clear appropriation of a payment to a claim, that was otherwise enforceable, if not under the contract. This conclusion accords with the reasoning of Denning LJ in Smith . It also accords with the reasoning of Somervell LJ whose reasons should be understood as directed to circumstances where there was no specific appropriation with the consent of the owner but rather the payment of sums contemplated by the terms of the contract to be payable on account and where there was a legal regime under which the claim was unlawful and irrecoverable.

44 The conclusion of appropriation was a legal one from the uncontested facts. Whether or not appropriation had taken place was a question with respect to a matter of law.

The question of legality and the HB Act

45 Before the Tribunal there was no issue raised that the claim for the soil work was unlawful (whether by reason of the HB Act, s 7A or otherwise) and thus irrecoverable. What was accepted before the Tribunal was that the HB Act, s 10 applied and the contract was unenforceable.

46 The same position obtained before the District Court. No submission was put that the primary judge committed a legal error by approaching a matter on a legal basis conforming to how the parties argued the matter. This is not an error on the face of the record.

47 The question of the possible operation of the HB Act (ss 7AA, 7A and 7B) was only raised in written submissions filed after the appeal was heard. This was done pursuant to leave and after the matter was touched on in argument.

48 Sections 7AA, 7A and 7B of the HB Act are in the following terms:

"7AA Consumer information

(1) A holder of a contractor licence must, before entering into a contract that the holder is authorised by this Act to enter, give to the other party to the contract information, in a form approved by the Director-General, that explains the operation of this Act and the procedure for the resolution of disputes under the contract and for the resolution of disputes relating to insurance.

Maximum penalty: 40 penalty units in the case of a corporation and 20 penalty units in any other case.

(2) This section does not apply to contracts of a class prescribed by the regulations.

7A Offence

A person must not contract to do work under a contract unless the requirements of section 7 in relation to the contract are complied with.

Maximum penalty: 80 penalty units in the case of a corporation and 40 penalty units in any other case.

7B Copy of contract

A holder of a contractor licence must, not later than 5 clear business days after entering into a contract, give the other party to the contract a signed copy of the contract in the form in which it was made.

Maximum penalty: 80 penalty units in the case of a corporation and 40 penalty units in any other case."

49 The appellants did not squarely submit that the claim was irrecoverable on any basis by reason of illegality. But they did submit that the fact of making the variation was a breach of s 7A or an attempt to do so for s 7B and the failure to provide a disclosure was an offence under s 7AA.

50 It may be that the commission of an offence under ss 7AA, s 7A and 7B requires a mental element. That question has not been the subject of investigation. There may be regulatory offences not requiring a relevant mental element, but for which a defence of honest and reasonable mistake is available. In any event, factual questions would arise whether as to the elements of the offences or possible defences which have not been ventilated.

51 It may be (and I do not need to consider it) that there can be an error on the face of the record notwithstanding the adoption of the approach agreed on by the parties: cf Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186. No fundamental question of the kind dealt with in Kuswardana arises here. It has not been demonstrated, and there are no findings, that any offence has been committed. It is not clear that there has been any illegality. The correctness of the judicial review of the Tribunal's decision by the District Court (as an assessment of the legitimacy of the latter's approach by reference to s 69) should, in these circumstances, be made having regard to the manner in which the case was conducted in the District Court.

52 For these reasons, I would only be prepared to approach the invocation of power under the Supreme Court Act , s 69 to make an order in the nature of certiorari in respect of the District Court orders on the basis of analysing the primary judge's reasons in the framework of the arguments put to him. For the reasons earlier given, the primary judge was correct to conclude that the Tribunal decided a question with respect to a matter of law and erred in that decision.

Orders

53 I would dismiss the amended summons and the appeal (the latter having been abandoned) with costs.

54 BASTEN JA : In June 2005 the applicant owners entered into a contract with the respondent builder, for "residential building work" being the construction of a home at Avalon: Home Building Act 1989 (NSW), s 3(1). At an early stage in the work, it became apparent that soil would need to be removed from the site to permit the construction of the building in accordance with the specifications. On 29 June 2006, the builder issued an invoice for an amount in excess of $26,000 in respect of soil removal. That amount was paid promptly, although the owners asked the builder to check the amount. Two months later a progress payment claim was issued, as to which the applicants declined to pay an amount of approximately $25,000. The builder issued a notice suspending work under the contract, as it was entitled to do if the amount of any progress payment claim remained outstanding for more than five working days. The applicants asserted that the suspension was itself a breach of the contract and brought proceedings in the Consumer, Trader and Tenancy Tribunal ("the Tribunal").

55 The Tribunal determined, as a separate question, the validity of the suspension of work by the builder and, hence, which party was legally entitled to terminate the contract. The Tribunal Member (Mr Jeffery Smith) held that the soil removal was not undertaken pursuant to a valid variation of the contract and, consequently, that the purported claim by the builder for payment under the contract was not in truth a claim under the contract. The Member held, in a decision dated 31 July 2009:

"As no variation for the soil excavation was ever agreed by the parties, the builder's claim for payment of that item could only ever have been on a quantum meruit basis. Hence, the inclusion of those two invoices on any progress claim could never have been a claim pursuant to the contract. If the invoiced amounts for soil removal are deducted from the progress claims it is readily seen that the progress claims were paid in full.

The builder was therefore not entitled to treat the home owners' failure to pay those amounts as a repudiation or breach for which it was entitled to issue the Notice of Suspension of works."

56 The builder appealed to the District Court, pursuant to s 67(1) of the Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) ("the CTTT Act"). On 5 February 2010, Elkaim DCJ upheld the appeal. By order 2, made on 25 March 2010, the decision of the Tribunal of 31 July 2009 was set aside and by order 3 the matter was remitted to the Tribunal for rehearing "on the questions of the repudiation and termination of the contract".

57 His Honour held that the Tribunal was in error in bringing into account, as a progress payment under the contract, the amount paid on account of soil removal. His Honour concluded (p 6-7):

"The Member was correct in finding that there had not been a valid variation of the contract. He was not correct in bringing the above sum back into account under the contract. In my view the question of the nature of the sums that can be applied to an account of moneys owed under the contract is a question of law. ... To be clear, it is the use of the payment of $26,329.60 to negate the notice of suspension which constitutes the error of law."

58 In my view, his Honour was correct and the application to review his decision should be dismissed. The appeal, which is no longer pursued because misconceived, should also be dismissed: Muldoon v Church of England Children's Homes Burwood [2011] NSWCA 46.

59 The question of law for the purposes of the appeal could only be identified in the light of the relevant circumstances, which, if factual, must either have been uncontested or found by the Tribunal. The following propositions may be identified:

(a) the residential building contract did not provide for soil removal;

(b) such work was required to permit the contracted work to proceed;

(c) the owners would be liable for the cost;

(c) there was no valid variation of the contract;

(c) the soil removal work was undertaken by the builder;

(d) the builder sent an invoice to the owners for the soil removal work;

(e) the invoice was paid by the owners;

(f) in a statement of account in a subsequent progress claim, the builder included the invoice and the payment.

60 The owners' contention that the payment referred to at (e) should be treated as a payment on account under the contract gave rise to two possible questions of law:

(1) Could the builder's conduct at (f) re-allocate the liability in diminution of which the payment had been applied by the builder, after the payment had been made and accepted?

(2) Could the Tribunal re-allocate the liability in diminution of which the payment should be applied by the builder, for the purpose of determining the validity of the termination of the contract?

61 The Tribunal treated the payment for soil removal as a payment under the contract because it found that there was reference to the liability and the payment in a subsequent progress claim. The conclusion was not reached by reference to the beliefs or intentions of the respective parties, as the Tribunal made no express findings as to their beliefs or intentions. If either or both had acted on a misapprehension of the legal source of any liability to pay for the soil removal, that was not addressed by the Tribunal. Nor was any legal basis identified for the removal from the subsequent account of the liability, though not the payment, for soil removal.

62 It was accepted in this Court that the subjective beliefs and intentions of the parties with respect to the claim and the source of liability were not the basis upon which liability was determined. The basis which permitted the attribution of the payment to a debt which did not exist at the time it was made, rather than to a liability which did exist and which was intended to be met, was said to be found in the fact that the invoice for the soil removal work constituted a purported claim under the contract.

63 The owners accepted that proper legal characterisation of the claim and the payment involved a decision with respect to a question of law. In short, the question for this Court was whether, where specific work potentially attracted different legal bases of liability, but there was a common intention that a particular payment be attributed to one aspect of the work, there was a good legal basis identified in the District Court as to why the payment should not be attributed to the liability in respect of that work.

64 The fact that this particular head of liability arose by way of quantum meruit , rather than a debt due under a contract, may have had potential relevance in a number of respects. For example, failure to pay the amount would not have given rise to an entitlement in the builder to suspend the works under the contract. Secondly, the amount charged would not have increased the amount payable under the contract. Thirdly, the quantification by the builder would not have bound the owners, who were entitled to challenge the fairness and reasonableness of the amount assessed. However, none of these matters is relevant for present purposes. If the owner paid the full amount promptly, in the belief that failure to do so within five days would give rise to an entitlement in the builder to suspend the building works, that was simply a consequence of a legal misapprehension which may have affected both parties. In fact the amount was paid and the contract was not suspended. The reasonableness or otherwise of the amount was not in issue.

65 Elkaim DCJ accepted that the proper characterisation of the payment was a decision with respect to a matter of law. His Honour held, in effect, that there were no findings made by the Tribunal which could have justified the conclusion that the amount was paid "under the contract" and had to be taken into account by the builder, as a payment made against no existing liability, so as to place the owners' account under the contract in credit. His Honour was correct in that regard and there was, accordingly, no error of law on the face of the record in the District Court.

66 Having reached the conclusion noted above, his Honour proceeded to consider a further argument, namely that the approach adopted by the Tribunal was "permitted, perhaps even mandated" by s 28(3) of the CTTT Act. That section relevantly provides:

" 28 Procedure of Tribunal generally

...

(3) The Tribunal is to act with as little formality as the circumstances of the case permit and according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms."

67 This was in substance the second potentially relevant question of law identified at [60] above. His Honour considered whether it could be argued that the substantial merit of the case required the result which obtained in the Tribunal. He held that it did not, but it should be noted that the underlying premise of the contention was invalid. The provisions of s 28 as to the procedure in the Tribunal, must be reconciled with the existence of an appeal from the Tribunal against a decision on a question with respect to a matter of law: s 67(1). That reconciliation requires that s 28(3) "does not release the tribunal from the obligation to apply rules of law in arriving at its decision": see Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26 at 29G (Gleeson CJ and Handley JA) in relation to equivalent provisions in the Anti-Discrimination Act 1977 (NSW).

68 No error of law on the face of the record in the District Court having been identified, the application (and the appeal) to this Court must be dismissed and the applicants ordered to pay the costs of the respondent in this Court.

69 If this approach be erroneous, I would accept the reasoning of the President, reaching the same conclusion. These reasons are not intended to depart in terms of principle from those of the President.

70 SACKVILLE AJA: I agree with the orders proposed by Allsop P and with his Honour's reasons.

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Decision last updated: 23 June 2011