New South Wales Court of Appeal CITATION : Firth v. Thompson [2001] NSWCA 131 FILE NUMBER(S) : CA 40825/99 HEARING DATE(S) : 18th April 2001 JUDGMENT DATE : 8 May 2001 PARTIES : William Malcolm Firth - appellant Ken J. Thompson - respondent JUDGMENT OF : Stein JA at 1; Giles JA at 2; Hodgson JA at 3 LOWER COURT JURISDICTION : District Court LOWER COURT DC 207/90 FILE NUMBER(S) : LOWER COURT Delaney DCJ JUDICIAL OFFICER : COUNSEL : Mr. B. Ralston for appellant Mr. R. Skiller for respondent SOLICITORS : Luchetti & Co., Crows Nest for appellant Ronald S. Szinner & Co., Gladesville for respondent CATCHWORDS : CONTRACT - Building contract - Progress payments - Whether required by contract - Whether breach by late payments - Whether builder entitled to rescind. DECISION : See par.54 of judgment THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40825/99 DC 207/90 STEIN, JA GILES, JA HODGSON, JA Tuesday 8th May 2001 FIRTH V. THOMPSON JUDGMENT 1 STEIN JA: I agree with Hodgson JA. 2 GILES JA: I agree with Hodgson JA. 3 HODGSON JA: This is an appeal brought by leave by the plaintiff from a decision of Delaney, DCJ given on 21st July 1999, in which his Honour dismissed the plaintiff's claim, gave judgment in favour of the defendant on his cross-claim for $15,000.00 plus $2,000.00 interest, and ordered the plaintiff to pay the defendant's costs of the hearing. OUTLINE OF FACTS 4 I will commence with an outline of facts which were either not in dispute or clearly proved. 5 The case arose out of a contract between the plaintiff/appellant as head contractor to the Commonwealth Department of Housing and Construction, and the defendant/respondent as subcontractor, for the erection of a house in an army camp at Denman. 6 The contract was at least partly constituted by order No.969 on a form of the appellant (who apparently traded as Urban Constructions), dated 7th June 1987, addressed to the respondent. The form contained the words "sub-contract" and "construct house complete as per plans and spec Type B", and referred to a price of $42,000.00. There is also writing on the form apparently relating to an amount of concrete included in an "original contract". The contract was also at least partly constituted by some plans of a small house, which were tendered as evidence before the trial judge. 7 It appears that the respondent commenced to work on the site on or about 20th July 1987, and that he continued to work on the site until about 8th August 1987. The work performed included the construction of the foundations, and erection of at least a substantial part of the frame, brickwork and roof. 8 On or about 5th August 1987, the appellant provided a letter of that date to the respondent, in the following terms: CONTRACT NO.969-MYAMBAT With reference to Cl 19 we confirm the following stages: 1. Floor & Internal Drainage 10% 2. Framework 10% 3. Lock Up 16% 4. Linings 20% 5. Fixout 24% 6. Complete 20% The first payment is already in process. 9 On or about 8th August 1987, the respondent wrote a letter to the Area Manager, Department of Housing and Construction, in the following terms: I am writing to you in regard to the new home we are building at Myanbat Army Camp. Contract 969. At this stage of writing, the house is at lock-up stage and we have not received one cent in payment. I am most concerned that the main contractor, Urban Constructions (Bill Firth) is unable to pay any money at all and yet we have more than completed our part of the contract. At this moment he owes me $32,00.00. I also believe as well as being unable to pay any progress payment, when money is paid to him from your department, he will use this money to pay his own accounts and not pay our progress payments which are overdue. I wish to advise that I have stopped work on the house and also advise that Mr. Darryl Fisher has stopped work as well. On my return to Taree I intend to consult my solicitor in regard to putting a lien on the whole job as I sincerely believe that Bill Firth is not to be trusted and will use our monies to finance his other projects. I might add I have demanded progress payments from Firth but to no avail. We have a list of extras in total of about $5,000.00 which Firth has also refused to pay. 1 do not trust this man. Your urgent reply would be greatly appreciated. Despite the assertion in the letter that "the house is at lock-up", the respondent's evidence before the trial judge was that he was "a day and a half away from lock-up stage" when he stopped work. 10 On or about 11th August 1987, the respondent provided to the appellant an invoice bearing that date, in the following terms: Stage 1 as per letter from Urban Constructions $4,200.00 Stage 2 as per Urban Constructions $4,200.00 11 There is in evidence an Australian Taxation Office Deduction Form signed by the respondent, also dated 11th August 1987, apparently relating to an amount of $4,200.00. It seems that $4,200.00 was in fact paid by the appellant to the respondent about that time. 12 There is also in evidence a copy of a letter from the respondent to the Department of Construction dated 19th August 1987, in the following terms: Re: your letter dated 17th August, 1987, quote 87/1907. I wish to advise that Firth very begrudgingly paid me a cheque for $4,200.00 and told me the balance would be paid at the end of October, 1987. I cannot get through to this man that he cannot expect work to proceed with out (sic) payment, as he is making progress payment claims to your Dept. Mr. Darryl Fisher has to this day still not received a penny from Firth, and all Firth has offered is the sum of $2,000.00. Firth has also threatened to call in other builder's (sic) to finish these houses. As I said in my previous letter I do not trust this man and it has come to my notice that he has considerable debts everywhere and is obviously using our money to try and pay past debts. I request that your Department stop payment of all monies to Firth as I consider he is using our money in a fraudulent manner. Myself and Darryl Fisher are still not going to return to Myambat till (sic) this question of money is settled. Also the question of extra's (sic) is a burning issus (sic). Firth wont (sic) acknowledge any extras - even in the foundations - where he has been paid an extra $8,000.00. I am going to lose several hundred dollars in discount on this months (sic) account as Firth wont (sic) pay what is due to me. This matter is of a very urgent nature. 13 On or about 4th September 1987, the appellant wrote a letter bearing that date to the respondent, in the following terms: CONTRACT NO.969 - MYAMBAT It is our intention to make Progress Payment No 2. We enquire whether you would consider submitting the usual Prescribed Payments Declaration, although it is understood that you have nil deductions. However, without the form, we would have to deduct 30%. Please let us have your intentions as to the completion of Lock Up stage as a further payment could not be otherwise arranged. 14 On or about 25th September 1987, the appellant wrote a letter bearing that date to the respondent, in the following terms: CONTRACT NO.969 - MYAMBAT We refer to our letter dated 4 September and acknowledge your reply dated 11 September wherein you say that your accountant will forward a nil deduction prescribed payment certificate. However, no certificate has been received, and, if none is received within the next seven days, we intend to make the payment, subject to the statutory 30% deduction for tax. We would like you to take this opportunity to indicate your intentions regarding the completion of Lock Up stage and regarding completion of the above contract. We object to some behaviour at the site, and consider it prejudicial to the Head Contract. However, you are invited to proceed immediately, amicably and within the terms of the above contract for the benefit of all concerned and we will assist in every reasonable way. 15 On or about 29th September 1987, the appellant wrote a letter bearing that date to the respondent, in the following terms: CONTRACT NO.969 - MYAMBAT We acknowledge receipt of a copy of your Deduction Exemption Certificate No.VN 52649K, commencing 21 Sept. 87. However, if you do not provide a signed declaration quoting your Exemption No., we must deduct tax at 30%, or we are subject to a penalty by the Tax Dept. Accordingly, if the declaration is not received within the next 7 days, the payment will be made and 30% deducted. The second $4,200.00 was paid at around this time. 16 In early October 1987, a substantial part of the roof, which was made of corrugated iron, was blown off the house. 17 On or about 20th October 1987, the respondent wrote a letter bearing that date to the appellant, in the following terms: I have been advised not to continue work at Myambal until an equal amount of money has been paid in relation to work done. Completion to "Lock Up" cannot be completed until the roof is redone to which your insurance will have to pay for. Also the question of payment for extras for foundations etc. must be settled before any work resumes. 18 On or about 6th November 1987, the appellant sent a letter bearing that date to the respondent, in the following terms: We acknowledge receipt of a letter dated 20/10/87. It would be appreciated, if you would like to arrange for some other scheduling of payments for work done, if you would submit a detailed break up of the components of the subcontract for consideration. Until a different arrangement for payment is agreed we have to adhere to the present one. Unfortunately the question of failure to secure the roof timbers has resulted in the roof damage and it appears that the responsibility may be yours. If you do not replace and secure the roof we will restore the construction. On your visit to collect the last progress payment you had given the undertaking that the roof would be restored and other construction proceeded with. At that time we also said that variations in brickwork could be assessed and adjusted. However, we understand that you are in multiple breach of the contract and we are extremely concerned about the lack of performance. 19 On or about 5th December 1987, the appellant sent a letter bearing that date, to the respondent in the following terms: We have received very serious complaints from the Principal of our contract and we ask you to repair the roof construction which was damaged due to faulty workmanship in that the roof was not secured by fixing the roof timbers to the hoop iron straps which were built into the brickwork for this purpose. If this work is not carried out within the next 7 days we will reconstruct the affected area of the building. 20 On or about 22nd December 1987, the appellant sent to the respondent a letter bearing that date, in the following terms: We are very concerned that no construction has been proceeded with by you since 1st August 87, nor have you rectified the faulty work. To bring the building into compliance with the plans and specifications (a) the front door framing must be modified (b) excessive brick courses must be removed (c) spandrell weatherboards installed as per plan (d) store door frame refitted (e) insulation material correctly installed (f) bricked in access to match face work. To bring the building to lock up stage (a) complete fascia (b) complete eaves lining (nog where necessary as per manufacturers instructions) (c) complete barges (d) fit guttering (e) fit ridge capping and secure roof (g) fit barge capping to skillion (h) complete brick veneering (i) provide eaves moulds (j) complete installion (sic) of windows and glass doors (k) complete installation of external doors. We are unable to sustain this disruption to our contract and hereby give you notice that, unless construction is resumed in a meaningful way within 10 days, it is intended to exercise our right under Clause 24 of the conditions of the order to cancel your contract. 21 On or about 15th February 1988, the appellant sent to the respondent a letter bearing that date, in the following terms: We refer to our notice given to you on 22 Dec 87 and note that you have failed to comply with the terms of that notice. We thus hereby cancel your contract but such cancellation is without prejudice to any antecedent rights that we may have. We are obliged to have the balance of the contract works carried out by others and our rights are reserved in respect of all losses, expenses and damages suffered by us. 22 The respondent did not thereafter return to the job, and the appellant restored the roof and completed the construction of the house. ISSUES CONTESTED AND DECIDED BY THE TRIAL JUDGE 23 The appellant's claim was for damages, calculated broadly as the excess of the cost of completing the house over the balance which would have been payable to the respondent under the contract. 24 The respondent's cross-claim alleged breaches of agreement by reason of the appellant's failure to pay progress payments after the first two, and claimed damages, apparently based on the cost or value of work done and the respondent's inability to obtain other work for a period of three months. 25 The parties were unrepresented at the hearing. The issues apparently contested before the trial judge were as follows: 1. What were the terms of the contract? 2. Whether the contract was varied so that the respondent was entitled to be paid for extras. 3. Whether the appellant was in breach of contract by reason of failure to make progress payments and/or pay for extras. 4. Whether the respondent validly terminated the contract. 5. Whether the damage to the roof was caused by the negligent conduct of the respondent. 6. Whether the appellant validly terminated the contract. 7. Questions relating to quantum of damages. 26 The trial judge gave no clear decision as to issues 1 and 2. He gave an affirmative answer to questions 3 and 4, and a negative answer to questions 5 and 6. As to question 7, he awarded $15,000.00 plus $2,000.00 interest to the respondent. issues on appeal 27 Broadly, the appellant challenges all findings, as involving errors of law. Originally, there was no ground of appeal directly challenging the trial judge's finding on question 5, although there were two grounds of appeal which did so indirectly: first, a ground alleging denial of procedural fairness, and second, a ground relying on admission of hearsay. The former of those grounds was elaborated in submissions as arising because the trial judge conveyed to the appellant that he would have an opportunity later to deal with the significance of some photographs concerning the reason for the roof blowing off, but did not give him that opportunity. The latter was elaborated in submissions as relating to hearsay to the effect that the respondent was told that the wind that blew the roof off was a mini cyclone, which had never happened before in the locality. 28 At the hearing, the appellant applied to amend the grounds of appeal, so as to directly challenge the judge's answer to question 5. It was not suggested by the respondent that the case on appeal would have been prepared any differently if that challenge had been included in the original grounds of appeal, and the Court permitted the amendment to be made. FINDING OF BREACH BY APPELLANT 29 In order to determine whether the appellant was in breach of contract in failing to make progress payments, it would be necessary first to determine what were the relevant terms of the contract. The trial judge made no finding on this matter. 30 The only evidence of any express term concerning progress payment was evidence from the appellant as to printed terms on the reverse of the order form, and evidence constituted by the appellant's letter of 5th August 1987 and the respondent's claim of 11th August 1987. The respondent did not admit that the printed terms were on the back of the order form which he received, or at least did not admit that they were legible. However, there was evidence on which the judge could have found that cl.19 of those printed terms was a term of the contract between the parties. That clause is in the following terms: A claim for payment in respect of the works shall be made by the Contractor. Subject to these conditions, payment to the Sub Contractor shall become due within 30 days of receipt of the sum claimed by the Contractor. The Contractor may retain ten per cent of moneys becoming due hereunder and this retention shall be released when the Contractors (sic) final account shall have been paid by the Proprietor. However, that term could not have supported a finding of breach, because there was no evidence that the appellant had received any relevant payment for the work from the Department. 31 As regards the letter of 5th August 1987, there was no evidence of any claim based on that letter apart from the respondent's claim dated 11th August 1987. The first of the two payments claimed in that claim was paid almost immediately. The second was paid in about late September 1987, shortly after the respondent provided a taxation document required by the appellant. There is no evidence of a claim made for the third payment referred to in the appellant's letter of 5th August, but, since the respondent's own evidence was that lock up stage had not been reached, it is clear that the appellant never became entitled to the third payment contemplated by the letter of 5th August 1987. 32 If a finding had been made that the letter of 5th August 1987 became contractually binding between the parties, it is conceivable that the delay in paying the second instalment contemplated by that letter could have been a breach. However, there was another insurmountable obstacle to that finding. On the pleadings, it was not an issue in the case. Paragraphs 12, 13 and 14 of the respondent's Cross-Claim were in the following terms: 12. In compliance with the said agreement the Cross Claimant purchased the necessary materials and carried out the construction work pursuant to the agreement. 13. In compliance with the said agreement the Cross Defendant paid to the Cross Claimant two instalments making a total amount of $8,000.00. 14. In breach of the said agreement the Cross Defendant refused or neglected to pay further progress payments to the Cross Claimant. 33 The appellant's response to paragraph 13 was set out in paragraph 13 of the Notice of Grounds of Defence to Cross-Claim, in the following terms: 13. As to paragraph 13 the Cross Defendant says that consonant with the terms as to payment by way of progress payments above pleaded the Cross Claimant made the first progress claim at the completion of stage 1 of the construction of the cottage and sought in accordance with the agreement subsisting between the parties 10 parts per centum of the contract price and was thereupon paid the sum of $4,200 and thereafter made the second progress claim at stage 2 of the construction of the cottage in a sum equivalent to a further 10 parts per centum of the contract sum and was paid a further sum of $4,200 whereby the total amount paid by the Cross Defendant to the Cross Claimant was in fact the sum of $8,400. 34 From those paragraphs, it is plain that the respondent alleged that the first two progress claims were paid in compliance with the agreement relied on by the respondent, and this was in substance accepted by the appellant's response. Accordingly, there was no issue before the trial judge that there was a breach in relation to the second payment. 35 In any event, late payment of the second progress claim could not possibly have been a fundamental breach entitling rescission, especially in circumstances where the respondent had left the building site at least three days before he had even made the claim for progress payments. 36 Accordingly, the respondent could not possibly have succeeded on the basis of any express term in the contract. His Cross-Claim does allege an implied term that the appellant would reimburse the respondent for materials purchased by the respondent and would otherwise pay the contract price by means of progress payments. However, there was no evidence before the trial judge of any industry practice which could base the implication of a term as to progress payments; and plainly the conditions for implying a term for business efficacy, as set out in Codelfa Constructions v. State Rail Authority of NSW (1982) 149 CLR 337, were not satisfied. 37 For those reasons, in my opinion the trial judge's finding that the appellant was in breach of contract in relation to the making of progress payments was not open. FINDING AS TO ROOF 38 In my opinion, as submitted for the appellant, the evidence received by the trial judge to the effect that the wind that blew the roof off was a mini cyclone and exceptional in nature was hearsay; and the lack of objection to that evidence by the appellant, as an unrepresented litigant, did not make it admissible. However, it is not clear whether, and if so to what extent, the trial judge relied on this evidence. As regards the alleged denial of natural justice, it is clear that the appellant did subsequently make points in cross-examination based on the photographs in question, so that it is not clear that the appellant was denied the relevant opportunity to deal with the photographs. 39 However, even leaving aside those points, in my opinion the trial judge did err in his finding as to the cause of damage to the roof. The relevant paragraph of his Honour's judgment was as follows: The damage was not caused to the roof by any failure or neglect or negligent conduct by the Defendant. I am not satisfied, on the balance of probabilities, there was any one cause of the damage to the roof. I accept the Defendant's evidence as to the way he fixed the roof and reject the evidence of the Plaintiff on this point. His Honour gave no other reasons for his finding. 40 The relevant evidence given by the respondent on this point was firstly at p.39 of the transcript, where the respondent answered a question by his Honour as to what he saw when he went back to the site after the roof had blown off, in the following terms: I saw a roof laying in the paddock and I have a photograph of that. I was stunned because we had built the house to specifications. We had used all the tie-downs that are required in a building code and ... 41 However, at pp.44-45 of the transcript, in answer to questions put by the appellant in cross-examination, the respondent said that he did not remember what form of construction in relation to tying the roof down he had used on the job; although in following questions, he effectively conceded that the roof component that sat on the top plate, above the wall of the area designated on the house plan as the store shed, should have been tied down by pieces of hoop iron coming out of the brickwork at that point. It was put to the respondent by the appellant in cross-examination that photographs shown to the respondent, of the pieces of hoop iron after the roof had been removed, showed the pieces as standing vertically, not as having nail holes in them, and not being twisted as might have been expected if the roof had been wrenched off by a wind. The respondent's response to this line of questioning was that he did not know what went on in a storm, that stranger things have happened (than hoop irons being left in this vertical position after a roof had been blown off), and that the photographs were too small to indicate whether there were or were not nail holes in them. On the other hand, the appellant did not give evidence of any inspection of how the roof had been tied down or not tied down. 42 In those circumstances, in my opinion the trial judge was in error in treating the question as simply a matter of whether he preferred the respondent's evidence to that of the appellant. The question of responsibility for the roof blowing off required the tribunal of fact to take into account the following circumstances: first, the fact of the roof blowing off, without there being any other admissible evidence as to the nature of the wind; the respondent's non-recollection as to how the roof was fixed on, coupled with his assertion that it was properly fixed, which presumably would have to have been based either on his general practice or on his recalled state of mind at the time when he first saw that the roof had blown off; the photographs in evidence, coupled with the respondent's concession that the ties shown in the photograph should have been used to tie the roof down; and whether in the circumstances the photographs and the fact of the roof blowing off discharged the appellant's onus of proof on the question. 43 In circumstances where the trial judge was in error in treating this question as if it was simply a matter of preferring the respondent's evidence to the appellant's evidence, this Court has the alternatives of either deciding the question as best we can on the evidence available, or sending the matter back for a further hearing. The latter course, in the circumstances of this case, is to be avoided if at all possible; and both sides expressed agreement with this. 44 Although the matter is not free from doubt, in my opinion the photographs showing vertical and untwisted hoop irons, coupled with the circumstance of this part of the roof actually blowing off, constitute powerful evidence that the roof was not tied down as it should have been. On the material available to this Court, in my opinion the appellant's onus of proof, that the respondent's failure to tie down the roof at this point was responsible for the roof blowing off, has been discharged. what should this court do? 45 In general, having regard to what I have just said, in my opinion the Court should do its best to resolve all outstanding issues itself, rather than send the matter back to the District Court. 46 The first matter that needs consideration is the respondent's claim for extras, which does not appear to have been dealt with by the trial judge. The trial judge accepted the respondent as a truthful witness, and in my opinion, this Court should proceed on that basis. However, even so, a claim for extras is not made out on the evidence. Clause 15 of the printed clauses, which were said by the appellant to be on the rear side of the order form, was in the following terms: Should the Sub-Contractor at any time consider that extra works or materials are required beyond his Sub-Contract, he shall notify the Contractor in writing describing such extra works and have the price agreed in writing before such extra work is undertaken. Otherwise no claim for extras may be recognised. The Sub-Contractor shall vary the works as required by the Contractor. 47 Although the respondent did not concede that these terms were on the back of the order, in my opinion there is a high probability that they were. Plainly, no writing as contemplated by cl.15 came into existence in this case. However, that is not absolutely conclusive, because this agreement itself could be varied by subsequent agreement between the parties. 48 However, in my opinion, taken at its highest, the evidence of the respondent does not establish an agreement for extra work, nor does it establish what would be an appropriate payment for such additional work, if an agreement was made. Certainly, the evidence does not establish that, in so far as there was any failure by the appellant to pay for any such extras, that failure could be an essential breach justifying rescission. 49 In my opinion, it follows from the matters I have decided so far that the appellant was entitled to terminate the contract, as he did. The respondent has established no breach of contract by the appellant. The respondent left the site, and failed to return despite a number of requests that he do so by the appellant. The appellant gave notice of intention to terminate, and ultimately did so. In the circumstances, that termination was effectual. 50 This brings me to the question of damages as claimed by the appellant. 51 In the Statement of Claim, the appellant claimed $8,559.25 for rectification of the roof, and $40,580.14 in relation to completion of the house. However, both sums included an amount for builder's margin, to which the appellant could be entitled only on proof that his doing of this work prevented him from earning income elsewhere, which was not forthcoming. Furthermore, the second amount included $7,000.00 identified as costs of proceedings in the Builders' Licensing Board, which plainly is not recoverable. Thus, the possible claims are for $6,958.71 for replacing the roof, and $21,018.00 for completing the house. 52 However, the material presented before the trial judge is inadequate to establish these or similar sums. There are schedules prepared for the purposes of the case, which were not supported or explained by evidence from the appellant. There are business records showing payments made, but they are not self-explanatory: the appellant had other jobs going on, and it is not apparent from the business records what expenses related to these matters and what related to other matters. Sworn evidence was required to enable proper calculation of damages, even if such evidence was only to the effect that, to the best of the appellant's recollection, a certain percentage of the time of identified workers in a specified period was used for this job. There was no evidence of that kind or of any similar kind presented. 53 A Scott Schedule was prepared, and that did contain an admission by the respondent that $1,500.00 was a reasonable price to fix the roof; so that the appellant would be entitled to damages in that sum. The question is whether he is entitled to any greater amount. There are authorities to the effect that, where the Court is satisfied that a plaintiff has suffered substantial damage but, for whatever reason, the evidence is not adequate to quantify those damages, the Court normally should not simply award no damages, but should do the best that it can, having regard to the circumstance that the problem of lack of evidence is a problem brought about by the plaintiff. On that approach, when one has regard to the circumstance that what the appellant had to do was restore the roof, and then complete a house which had been partly built by the respondent and which had been almost brought to lock-up stage by the respondent, I find myself unable to be affirmatively satisfied that the plaintiff is entitled to very much more than the $1,500.00 to which I have referred. Doing the very best I can on the inadequate material, I think a judgment for the appellant for $3,000.00 would be appropriate. To this should be added interest, which I assess at $4,000.00, a sum approximating to interest at Supreme Court rates from 15th May 1988 (three months after termination). The respondent should pay the appellant's costs in the District Court and of the appeal; although no professional costs are payable in respect of the hearing below, at which the parties were unrepresented. 54 I propose the following orders: 1. Appeal allowed. 2. Judgment of District Court set aside. 3. Judgment for the appellant against the respondent in the sum of $7,000.00. 4. Respondent to pay appellant's costs of the proceedings in the District Court. 5. Respondent to pay appellant's costs of the appeal, and to have a certificate under the Suitors Fund Act 1951 if otherwise entitled. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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