MONTELEONE v AV CONSTRUCTIONS PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CLARKE, MEAGHER JJA, and Hope AJA 12 December 1989, 12 December 1989 [1989] NSWCA 148 Contract — building contract — identity of parties — evidence of cost of building work — whether actual cost of materials and labour established the reasonable value of the work for the purposes of a quantum meruit claim — claim for deduction because of detriment allegedly suffered by defendant — detriment claimed not established — cross-action for failure to carry out work in a proper and workman-like manner — conclusion by trial judge that owner entitled to recover cost of less expensive remedial work — on appeal held that in the circumstances owner entitled to recover cost of more expensive remedy — Bellgrove v Eldridge (1954) 90 CLR 613 applied. Hope AJA This is an appeal from a decision of Mahoney DCJ in which he awarded a sum of $119.65 to the plaintiff in proceedings arising out of a dispute between the parties in respect of a building contract. In arriving at that amount his Honour found for the plaintiff in a sum, including interest, of $5,250 on its claim against the defendant, and damages in the sum of $5,131.35 in favour of the defendant on the cross-action brought against the plaintiff. The agreement the subject of the proceedings was made as long ago as 1975. The owners of the premises were the present appellant Mrs Monteleone and her husband. They had discussions with a Mr Mollica about the construction at their home of a garage with a concrete roof and a laundry to be erected on part of that roof. The identity of the parties to the agreement is one of the matters in issue but it was claimed by Mr Mollica that at all times he was acting for a company which he and his wife owned and controlled, namely, AV Constructions Pty Ltd (AVC), and that it had an oral contract with Mr and Mrs Monteleone for the construction of the garage and laundry. The work was carried out, but it is not in issue that it was unsatisfactory in that it leaked and did not comply with the requirements of the relevant building code. The plaintiff AVC claimed that the contract was a do and charge contract. Mrs Monteleone, her husband having died in the meanwhile, claimed that the contract was a fixed sum contract, the fixed price being $3,000 which amount she had paid before the commencement of the proceedings. Mahoney DCJ found that the contract had been entered into with AVC, and he accepted the evidence of Mr Mollica that the contract was a do and charge contract. The evidence for AVC was that the cost of materials used by it in carrying out the work and the cost of labour used for that purpose was over $6,000. Mr Mollica was unable to produce evidence as to the precise amount because, so it was claimed, the relevant documents had been handed to Mrs Monteleone and all that was remembered was that the amount shown by those documents to be the cost of the construction to AVC was over $6,000. His Honour accepted the evidence of Mr and Mrs Mollica on this matter. Mrs Monteleone claimed that the work had not been done 2 UNREPORTED JUDGMENTS in a proper workman-like manner, and she claimed the cost of making good the defects which appeared after the completion of the work. His Honour found that the plaintiff had expended over $6,000 to carry out the work, this sum not including any amount of profit or overhead or like cost or expense but being simply the cost of materials and labour used in the building of the garage and the laundry. He accordingly awarded the plaintiff $3,000 on this claim together with $2,250 for interest. He found that the defendant Mrs Monteleone had made out her claim that the work was defective, and the only matter now in issue in this regard is whether his Honour was correct in the way in which he arrived at the amount he awarded her. He accepted that the cost of carrying out the remedial work would be $7,747.55 if a particular form of membrane was used to remedy the roof where the problem arose. The cost of installing that membrane was $4,102.20. There was evidence that another form of membrane could be used which would cost only $1,486. His Honour decided that it was this amount that the defendant was entitled to recover in her cross-action in respect of the membrane. He accordingly reduced the amount of her claim to $5,131.35 and awarded the plaintiff the balance of $4,119.65. In the appeal the defendant does not challenge his Honour's conclusion that the contract was a do and charge contract rather than a contract for a fixed sum of $3,000. There are four grounds of appeal: (1) that his Honour was in error in finding that AVC built the garage in laundry; (2) his Honour was in error in finding that AVC had expended $6,000 in building the garage and laundry; (3) that his Honour was in error in finding that $6,000 was a reasonable value for the building of the work recoverable on a quantum meruit by AVC and (4) that his Honour was in error in finding that the total reasonable cost of the appropriate rectification of the work was $5,131.35. The first three grounds may be shortly disposed of. There was evidence that Mr Mollica, when making the oral arrangements with Mr and Mrs Monteleone about the building work, used the pronoun "T" in the context of "I will do this" or "I will make this arrangement". It is, however, apparent from the evidence that when he used that pronoun he was speaking about his company. He gave evidence on several occasions that before the contract was made he told Mr and Mrs Monteleone that it was AVC who was going to be the builder. There is also evidence that it was AVC who held the building licence and that he did not have one, and also that when he made the necessary building application to the Warringah Shire Council he nominated AVC as the builder and not himself. His Honour gave rather different reasons for concluding that AVC was the builder and it may be that some of that reasoning is defective. However, in my opinion there is ample evidence for this Court to conclude that AVC was the builder and was the party to the oral contract which was made with Mr and Mrs Monteleone. The evidence relied upon by AVC to establish that it had expended more than $6,000 in the cost of material and labour for building the garage and laundry was not as strong as it might have been, and in particular there were no invoices, whether originals or copies, or receipts for the cost of labour tendered to the Court. However, his Honour accepted the evidence that was given on behalf of the plaintiff that all the relevant documents had been handed to Mr and Mrs Monteleone by the Mollicas, that they had not been returned, and that the total cost appearing from those documents exceeded $6,000. URJ MONTELEONE v AV CONSTRUCTIONS PTY LTD (Hope AJA) 3 A submission has been made for the defendant in the appeal that that evidence was unsatisfactory and that his Honour's acceptance of it should be set aside. In my opinion no ground has been made out to justify the Court in doing this, and the ground should be rejected. The evidence that $6,000 was a reasonable value recoverable upon a quantum meruit is the evidence that $6,000 was expended by AVC in buying materials and in hiring the labour. Subject to a qualification, I do not think that a conclusion that this was a reasonable price is challenged. I may say that that evidence of cost is at least prima facie evidence of value. Hudson, Building and Engineering Contracts, 8th Edition at 310 states: "In practice, in determining a reasonable price, the courts may act upon evidence calculated upon the cost of labour plant and materials plus a reasonable percentage for profit or they may act upon evidence of what reasonable rates for the work involved will be." Gough and Shaw, Law of Restitution, 2nd Edition at 22 states that on occasions it may be more equitable to award the plaintiff the net cost of the work, labour and materials without making any allowance for the profit element. It is of course implicit in this statement that it is appropriate to award a plaintiff, if that is what he is relying on, the net cost of work, labour and materials. The real ground for challenging the acceptance of $6,000 as a reasonable value is that, on the basis of statements in the judgment of Deane J in Pavey and Matthews Pty Limited v Paul (1986-87) 61 ALJR 151, AVC was entitled to recover from the defendant the amount by which she had been unjustly enriched if she did not pay the appropriate sum to the plaintiff. It is put that offsetting the prima facie evidence of value and thus of enrichment to be derived from the cost of materials and labour is the amount of detriment which the defendant suffered notwithstanding that she got the benefit of the materials and labour. However, it is submitted that that detriment in the present case was the circumstance that she would not have entered into a contract on a do and charge basis as opposed to a fixed price basis had the contract been in writing. In my opinion that is not the relevant detriment, and there is nothing before the Court to establish that she would not have entered into the contract which his Honour held she had entered into in any event. The remaining ground concerns the cross-action, and is limited to the question whether his Honour was entitled to deduct from the amount claimed by the defendant the cost of the more expensive membrane to carry out remedial work and to substitute for that cost the cheaper cost of the other form of membrane. There is evidence from the experts called by each side that the more expensive membrane was a reasonable method to carry out remedial work, it not being in issue that some sort of membrane was necessary to ensure "weather tightness", to use an expression used by Mr Jack, an expert called for the plaintiff. It is also clear on the evidence that the cheaper membrane, being the one which his Honour concluded should be valued for the purposes of the cross-action, would last only for four years. On the other hand, the evidence of the plaintiffs own expert was that the other and more expensive membrane would last fourteen years. The reasons which his Honour gave for accepting the plaintiff's submission that the defendant should be credited only with the value of the cheaper membrane were these. There was no evidence from the defendant whether she would accept or carry out the more expensive remedy, and, in his Honour's view, the more expensive membrane would not be in keeping with the rest of the 4 UNREPORTED JUDGMENTS premises as reflected in photographs which were in evidence, nor with the use to which his Honour understood the slab which constituted the roof of the garage was to be put. It is submitted for the defendant that in the light of the decision of the High Court in Bellgrove v Eldridge (1954) 90 CLR 613 the course in fact adopted by the defendant would be immaterial to her right to recover the appropriate amount of damages for the defective work. In that case the question for decision was whether an owner was entitled to the cost of demolishing the work that had been carried out and rebuilding as opposed to merely carrying out some lesser form of remedial work. Relevantly to the question in issue here Dixon CJ and Webb and Taylor JJ said at 620: "To give to the respondent the cost of a doubtful remedy would by no means adequately compensate her, for the employment of such a remedy could not in any sense be regarded as ensuring to her the equivalent of a substantial performance by the appellant of his contractual obligations. It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another. If she does not, it is said, she will still have a house together with the cost of erecting another one. To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all." In my opinion, applying that reasoning to the present case, his Honour was in error in concluding that the defendant could only recover in her cross-action the cost of the less expensive membrane which would last only four years as opposed to the cost of the more expensive membrane which would last fourteen years. Accordingly this ground of appeal has been made out, with the result that in lieu of a sum of $5,131.35 being awarded to the plaintiff on her cross-action an additional sum of $2,616.20 should be awarded to her. The result will be that in lieu of judgment in favour of the plaintiff in the sum of $119.65 there should be judgment for the defendant in the sum of $2,496.55. It has been pointed out to me that his Honour made a mathematical error in his award of $119.65 and that it should have been $118.65, with the result that the award in favour of the defendant should be $2,497.55 rather than the sum which I mentioned. The appeal should be allowed, the judgment below set aside and there should be judgment for the defendant in the sum of $2,497.55, to date from 16 September 1988. The plaintiff should pay the costs of the defendant of the proceedings in the District Court and of the appeal. Clarke JA I agree. Meagher JA I agree. ORDERS 1. Appeal allowed. 2. Judgment of District Court set aside and in lieu thereof judgment for defendant in the sum of $2,497.55 substituted, to date from 1 September 1988. 3. Plaintiff to pay defendant's costs of proceedings in the District Court and of the appeal. has announced. Counsel for Appellant: R Hunt URJ MONTELEONE v AV CONSTRUCTIONS PTY LTD (Meagher JA) Solicitors for Apellant: Cara and Company Counsel for Respondent: I George Solicitor for Defendant: Bryan McCarthy