New South Wales Supreme Court CITATION : Kevest v Spiteri & Ors [2002] NSWSC 22 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 12393 of 2001 HEARING DATE(S) : 29 January 2002 JUDGMENT DATE : 4 February 2002 Kevest Pty Limited trading as Denmay Homes (Plaintiff) PARTIES : v Edwin Spiteri (First Defendant) Ann Spiteri (Second Defendant) Fair Trading Tribunal of New South Wales (Third Defendant) JUDGMENT OF : Master Malpass LOWER COURT Fair Trading Tribunal of New South Wales JURISDICTION : LOWER COURT BU 2000/111 FILE NUMBER(S) : LOWER COURT Ian McDonell, Deputy Chairperson, David Baker, Member JUDICIAL OFFICER : Mr T Lynch (Plaintiff) COUNSEL : E Olsson (First and Second Defendants) N/A (Third Defendant) Snelgrove & O'Brien (Plaintiff) SOLICITORS : Gerard O'Donnell (First and Second Defendants) I V Knight - Crown Solicitor - Submitting appearance (Third Defendant) CATCHWORDS : Appeal from Tribunal - construction of clause 17 of Housing Industry Association "Plain English Building Agreement Edition 11" and consideration of the right of termination thereby conferred. LEGISLATION CITED : N/A CASES CITED : Brenmar Building Co Pty Ltd v The University of Newcastle (Court of Appeal - 12 December 1977). DECISION : See Paragraph 38. IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Master Malpass MONDAY 4 FEBRUARY 2002 12393 of 2001 Kevest Pty Limited trading as Denmay Homes –v- Edwin Spiteri & Ors JUDGMENT 1 Master Malpass: The plaintiff is a builder. The first and second defendants are the owners of the property known as Lot 408 Grosvenor Place West Pennant Hills. On 11 March 1998, these parties entered into a written agreement for the undertaking of residential building work (including the construction of a large two storey home). In the agreement, the plaintiff is referred to as the contractor. 2 The agreement is in the form of Edition 11 produced by the Housing Industry Association and available for use by its members. It is entitled "Plain English Building Agreement". It contained inter alia clause 17. This clause is headed "Termination Of Contract By Owner" and is in the following terms:- "The Owner may, subject to the following, end this Agreement if the Contractor: (a) becomes bankrupt or executes a deed of Assignment or arrangement or makes any Composition for the benefit of creditors; or, (b) goes into liquidation, either voluntary or compulsory, or has a Receiver or Official Manager appointed; or, (c) fails to proceed with the Building Works with all due diligence; or, (d) fails to proceed with the Building Works in a competent and workmanlike manner; or, (e) without reasonable cause suspends the Building Work before Practical Completion; or, (f) refuses or neglects to comply with any obligations under this Agreement; or, (g) fails to remove or remedy any defective work (as directed by the warranty insurer) within the time allowed; THEN the Owner must give the Contractor a notice in writing: A. Specifying the default; B. Requiring it to be rectified within ten (10) days or else the Owner may terminate this Agreement after that ten (10) day period by serving a Notice of Determination upon the Contractor." 3 Following the making of the agreement, certain work was done amidst a history of problems. The work was not done to the satisfaction of the first and second defendants. There were a number of areas of complaint (these included complaints as to delay, the quality of the work and that the work was not done in accordance with the approved plans). 4 The first and second defendants purported to exercise the right of termination provided by clause 17. The terms of the clause may be read as requiring the giving of two notices at least in certain cases. 5 By letter dated 24 November 1998, the first and second defendants purported to give the first of the two required notices. It enclosed an inspection report by an expert (which furnished particulars of "many defects in construction" including items of work not undertaken in accordance with the plans) and copies of letters previously sent to the plaintiff (which detailed some of the complaints as to the building work). It alleged breaches of the agreement. This was done by reference to the terminology to be found in (c), (d), (f) and (g) of clause 17 and inter alia the report. It gave notice that if the "defects referred to in the enclosed correspondence" were not rectified within 10 days then the agreement would be terminated by Notice of Termination. 6 As early as April 1998, the plaintiff had been requested by council to lodge an amended plan to reflect the house as built. Plans were not prepared until November 1998. The plaintiff had sought a builder's certificate. There was a need for an amended application (to deal with the problem of work not being undertaken in accordance with the approved plans). A document was signed which was in fact an amended application. There was dispute as to awareness of the nature of the document and whether it conformed to the requirements of the first and second defendants. They withdrew their consent to the amended application. The council then advised the plaintiff to cease all work on the premises until outstanding matters were resolved. The plaintiff sought a further progress payment (on or about 25 November 1998) and then purported to suspend work on the basis of the non-payment of the progress payment. There was a dispute as to the entitlement of the plaintiff to the progress payment. 7 By letter dated 11 December 1998, the first and second defendants purported to give the second of the two required notices. The letter gave Notice of Termination of the agreement on the basis of failure to rectify the defects referred to in the earlier letter. 8 The first and second defendants brought an application in the Fair Trading Tribunal (the Tribunal). It propounded a claim for damages. The case that proceeded to hearing before the Tribunal was as expounded in the Amended Points of Claim. In substance, it was a claim for damages for breaches of agreement (see paragraph 16). 9 A lengthy hearing took place. At some stage during the hearing, the course was taken to separately hear questions and to first decide a limited question only. This has been inaccurately presented as the threshold question to the assessment of damages. The Reasons for Decision handed down by the Tribunal describe it as "Whether the applicants validly terminated the building contract". 10 Presumably, it was intended to separately hear the questions of liability and quantum. There may have been some misapprehension as to what was involved in disposing of the question of liability. The right to terminate and any entitlement to damages are distinct remedies. What may be required to be done to deal with each of those remedies does not necessarily coincide. The latter is a remedy for breaches of agreement. It is a remedy available for all breaches of the agreement (not just those relied on for the purposes of termination). Whilst entitlement to termination may be relevant to the assessment of damages it is not aptly described as the threshold question to that process in this application. 11 The course that was followed may have led the Tribunal and the parties to concentrate on the question of termination rather than determine all questions of breach relevant to the question of liability. It may be that this has led to a situation where all liability issues have not yet been determined. 12 The court has been told that the Tribunal did not receive any oral submissions. All submissions were made in writing. The decision was reserved for some months. The reasons that were delivered comprise some seventy-five paragraphs. It is only necessary to refer to some of the matters that were the subject of observation or decision. 13 The Tribunal considered the evidence and submissions made as to the grounds upon which the termination was based and as to what ensued following the giving of the first purported notice. It was not in dispute that there was defective work and that work had been done which was not in accordance with the approved plans. 14 The Tribunal found that the plaintiff was inter alia not entitled to receive payment for the progress claim. It found that suspension of work was a breach. It was observed that it alone would constitute a repudiation. It was also observed that the termination notice was in effect an acceptance of the repudiation. 15 The reasons also contained the following:- "72. The respondent failed to build the house in accordance with council approved plans; they changed the engineering design of the house unilaterally thereby reducing the structural integrity of the building; it failed to comply with the default notice to rectify; it sought a progress payment in breach of the contract; it misled the applicants when signing the final plans; it suspended the works without proper reason. 73. The applicants are also able to rely upon all breaches of the contract by the respondent. They are not limited to the matters raised in the notice. When all of the breaches are taken into consideration, the applicants were justified in terminating the contract: Architectural Installation Services Ltd v James Gibbons Pty Ltd (1989) 46 BLR 91. 74. All of these matters are in breach of the contract. These matters together, constitute a fundamental breach of contract giving rise to the applicants' right to terminate, as well as giving rise to the applicants' right to damages: Minion v Graystone Pty Ltd (1990) 1 Qd R 157. 75. The Tribunal is satisfied that the notice served on the respondent by the applicants was a valid notice and that the respondent failed to comply with the notice served upon it. As such, the contract has been validly terminated by the applicants in accordance with their rights under the contract." 16 Despite what may be deduced from the Amended Points of Claim, it is common ground that the issue of a determination of the agreement at common law (by acceptance of repudiation) was not agitated by the parties. Also, it was common ground that issues related to the validity of the notices were also not agitated. 17 The plaintiff has brought an appeal to this Court. It is as propounded in the Amended Summons and supplemented by both written and oral submissions. At the outset of the hearing of the appeal, the plaintiff made it clear that no challenge was being made as to the findings concerning the grounds for the giving of the notices. These were regarded as giving rise to questions of fact only. It was common ground that the avenue of appeal available to the plaintiff was restricted to a question of law. 18 Although the Amended Summons does raise matters relating to the observations made on the question of a common law determination of the agreement, during the hearing the observations were treated by the plaintiff as being obiter dicta only and therefore not being the proper subject of an appeal. Certainly, if they were to be treated otherwise, there has been a denial of natural justice. The court has not been asked to take further action in relation to those matters. 19 The plaintiff raises various arguments which have been referred to as questions of construction concerning clause 17 and the two purported notices. There is a challenge to the finding of valid termination (which goes both to questions concerning the notices and the failure to comply). 20 It must be said that despite the claims of "Plain English", clause 17 cannot be said to be a product of harmonious draughtsmanship. The language of it is lacking in both cohesion and content. The structure of the clause seems to comprise two parts. What is said in the first part is expressed to be "subject to the following". The "following" appears to be what is expressed in a second part which curiously commences with the word "Then". 21 The first part (subject to what follows) purports to confer a right to end the agreement in any of the circumstances listed in (a) to (g) thereof. The second part provides that "Then" the owner must give the contractor a notice in writing. The prescribed content of the notice is to be found in A and B thereof. This content contemplates inter alia a specification of default and a requirement as to rectification within 10 days. Presumably also the notice must state that the owner may terminate after the 10 day period by serving a Notice of Determination upon the contractor. 22 The structure of the clause would suggest that the words "or else" and those that follow are a composite part of B (rather than a separate part of the clause). 23 Perhaps, the function of "Then" is intended to emphasise that the notice is to be given only when any of the circumstances listed in (a) to (g) exist. 24 If the clause is read this way, it contains no express provision dealing with failure to rectify and the need to serve a Notice of Determination. However, when regard is had to the intended purpose of the clause, it may be said to be implicit in the clause that in appropriate cases there has to be a failure to rectify within the specified period and the serving of a Notice of Determination to bring about an ending of the agreement. Such an implication would afford efficacy. 25 It might be thought that matters such as those referred to in (a) and (b) are not matters of default. They are not matters which could be expected to be rectified (if indeed that be the appropriate expression) within 10 days. If they are not matters of default, it may be that the owner is not required to give the prescribed notice. 26 "Default" is not defined in the agreement. However, it is a word of wide import which could be expected to pick up matters of non performance of the agreement falling within any of the prescribed circumstances. 27 Clause 18 is a comparable provision (conferring a right to terminate on the contractor). There are similarities in structure. Fortunately it is blessed with greater cohesion and content. 28 The plaintiff seeks to have both the clause and the purported notices strictly construed. There is authority that supports the view that clauses which provide a right of termination should be strictly construed. However, regard must be had to the intention to create a form of agreement which is expressed in plain English and avoids legal technicality. 29 The plaintiff puts a number of arguments. I do not accept any of them. I shall proceed to expressly deal with certain of them. Some of them do not call for express comment. Some were not agitated before the Tribunal. For present purposes, I have put aside considerations of whether or not the plaintiff should now be allowed to ventilate them in this appeal. 30 It is said that the first purported notice did not require rectification of circumstances contemplated by (c), (d), (e) and (f). It is said that none of these circumstances concern defects. It is said that only (g) can relate to defects and that this matter is not available to the first and second defendants because there was no direction by the warranty insurer. It is not in dispute that there was no evidence of any such direction placed before the Tribunal. 31 Firstly, it seems to me that "defects" and "defective work" in their ordinary sense should not be seen as being synonymous. The former may encompass breaches of agreement other than bad workmanship and should not be given the narrow construction sought by the plaintiff. Secondly, in my view, "defects" should be given the meaning that arises from the context in which it has been used. The term as used in the purported notices was expressed to be referable to what was contained in the enclosed correspondence. This material identified various defects (including those relating to work not undertaken in accordance with the plans). In my view, these were identified defects which could attract any of (c), (d) and (f). Further, I consider that the identified defects specified the default as required by the clause. I may add that, it seems to me that "defective work" itself may fall within what is contemplated inter alia by (d) and (f). Some reference was made to clause 19 (Practical Completion). However, I am not satisfied that these arguments assist the plaintiff in this case. For completeness it may be said that the material does not suggest that the plaintiff was in doubt as to what had to be rectified. 32 The plaintiff looks also to the decision in Brenmar Building Co Pty Ltd v The University of Newcastle (Court of Appeal – 12 December 1977). In the light of what has already been said it is unnecessary to deal with these aspects. It may assist if I add that I do not read the judgment as giving the support contended for by the plaintiff. To the extent that any observations may be seen as giving some support, it seems to me that they are obiter dicta and that there are differences between the clause then being considered and clause 17. The clause did not inter alia have an equivalent to (f). Like (g), it seems to me that it does not have the generality of language found in other provisions. 33 The court should do its best to implement the intention of the parties. It seems to me that clause 17 was intended to confer a right of termination the exercise of which was to be subject to an opportunity to rectify where there was default. It hardly needs to be said that what must be done to effect rectification has to be commensurate with the default. 34 It seems to me to matter little in this case, whether a different view was taken and that provisions of the clause are to be regarded as primarily concerned with future performance or approach (as opposed to rectification). In this case, it would have been open to the Tribunal to decide that there was no change in future performance or approach. 35 I consider that the submissions relating to the absence of evidence that the plaintiff had failed to comply with the first purported notice also fail. In my view, there was evidence before the Tribunal of failure to rectify the default identified in the first purported notice. I consider that the findings made were open on the evidence. 36 Much time was taken up by argument concerning the contention that it was the conduct of the first and second defendants which led to the council giving a direction which prevented the plaintiff from carrying out work to rectify default. In my view, the arguments advanced on behalf of the plaintiff lack substance. It is unnecessary to go further than observe that there was in fact no direction as such. At best, the council merely proffered advice. There were other real problems confronting these arguments. However, for present purposes, it is unnecessary to deal with them. It may suffice to add that the Tribunal appears to have found against the plaintiff on the arguments put on this matter and that the court was not referred to evidence which supported the contention that rectification was frustrated by the actions of the owners and the council. The evidence supports the view that failure was due to other reasons. 37 The plaintiff bears the onus of demonstrating an entitlement to relief. In my view, that onus has not been discharged. The plaintiff has failed to demonstrate a basis for disturbing the decision made on the question of the termination of the agreement under clause 17. 38 The Summons is dismissed. The plaintiff is to pay the costs of the Summons. 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