District Court New South Wales Medium Neutral Citation: Anthony Augustine Libreri and Marie Doris Libreri v Jeffrey Pau Burke [2012] NSWDC 27 Hearing dates: 13 December 2011 Decision date: 09 March 2012 Jurisdiction: Civil Before: Judge M Sidis Decision: 1. Verdict for the defendants on the plaintiff's claim. 2. Verdict and judgment for the cross claimants on the cross claim in the sum of $27,217.12. 3. The proceedings are adjourned to a date to be fixed to deal with issues of interest and costs. 4. My reasons are published. Catchwords: BUILDING: Rights of termination - unpaid invoice - claim of overpayment - misrepresentation of status as licensed builder - exercise of discretion to award quantum merit Legislation Cited: Home Building Act 1989 Cases Cited: Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Limited [2004] NSWSC 273 Pender v Robwenphi Pty Ltd & Anor [2008] NSWSC 1144 Category: Principal judgment Parties: Anthony Augustine Libreri (First Plainitff)Marie Doris Libreri (Second Plainitff) Jeffrey Pau Burke (Defendant) Representation: MRM Thompson Norrie Lawyers (For the Plaintiffs) Roberts Legal (For the Defedants) File Number(s): 2010/101619 Judgment 1Mr and Mrs Libreri contracted with Mr and Mrs Burke for the construction of a house on their property at Greta. The contract was dated 8 June 2006 and the contract price was $695,611. The completion date was February 2009. 2The contract price was based on the drawings prepared by Mr Cronan of Cronan's Design and Drafting for the purposes of a development application. In order to secure a building certificate it was necessary for Mr Cronan to prepare drawings detailing additional engineering requirements for the foundations for the house. 3Those additional engineering requirements and other extras added to construction costs and extended the date for completion. 4In accordance with his standard practice, Mr Burke submitted fortnightly progress claims. The plaintiffs paid those claims regularly until a progress claim was submitted on 8 March 2009. By that stage the plaintiffs had paid invoices amounting to $560,298.27 5In mid-March 2009 the plaintiffs spoke with Mr Burke and expressed concern that the amount expended was close to the contract price and the construction of the house had not yet reached lock up stage. 6Discussions took place between them in the course of which the plaintiffs told Mr Burke that they did not have funds to allow them to pay more than the contract price and could not fund the balance of the work required to complete the house. They demanded that he complete it for the contract price, regardless of the variations to date and those involved in finalising the work. 7In the meantime Mr Burke continued to work on the house. The invoice dated 8 March 2009 was paid on 19 March 2009. A further invoice was issued on 19 March 2009 and paid on 20 March 2009. 8Mr Burke issued a further invoice on 31 March 2009. There were further discussions between the parties, the precise terms of which were in dispute but they related to the plaintiffs' demands that Mr Burke complete the contract works for the contract price and Mr Burke's demand that the outstanding invoice be paid. 9On 7 April 2009 Mr Burke withdrew from the construction site. A further invoice was issued on 25 April 2009. 10Solicitors were brought in. Each party purported to terminate the contract and this litigation resulted. 11In their statement of claim the plaintiffs acknowledged that the contract provided for payment of the contract sum of $695,611 and that the contract provided for the payment of variation costs at the rate of $120 per two men, plus goods and services tax, and the cost of materials. They claimed: 1The defendants' refusal to complete the contract works amounted to a repudiation of the contract which they accepted. They claimed the cost to complete the works in the sum of $372,866.19, after taking into account the amount due to the defendants under the invoice dated 25 April 2009 that has not been paid. 2They relied, to their financial detriment, on representations of Mr Burke that were misleading, fraudulent, false and deceptive that he was the holder of a licence under the Home Building Act 1989. 3They overpaid the defendants $104,814.37. The plaintiffs subsequently acknowledged a mistake in this calculation and revised the figure to $100,814.37. 4The cost of rectifying defective work in the sum of $2,197.86. 5The cost of extra foundation work required to meet the certifying authority's requirements. 6Exemplary damages. 12In their defence the defendants claimed that the works were lawfully suspended for non-payment of the invoice dated 25 April 2009 and that they lawfully terminated the contract on 23 October 2009 for the same reasons. Without admission, they conceded the rectification costs and offered to offset the sum of $2,197.86 against their claims. They put in issue the claim of reliance on Mr Burke's representations concerning his status as a licensed builder. 13The defendants cross claimed seeking damages for the loss of the benefit of the contract. 14The following claims were not pursued: 1At the commencement of the hearing the defendants abandoned their claim for the loss of the benefit of the contract, except to the extent of the amount due under the invoice of 25 April 2009, namely $29,414.98. 2At the conclusion of the hearing the plaintiffs abandoned their claims for the costs of extra foundation work and exemplary damages. Termination and Overpayment 15This left for determination the plaintiffs' claim that they lawfully terminated the contract. This part of their claim in turn depended upon their establishing that they overpaid the defendants as claimed. 16There was much material in the affidavits filed on behalf of the parties setting out competing versions of events that took place before and after the contract was signed and at the time Mr Burke left the building site. The plaintiffs adopted the report of Mr Madden, quantity surveyor, concerning the values of various aspects of the contract works, including his valuation of variations at the time of the suspension of the works. In those circumstances, I considered much of the conflicting evidence to be irrelevant to the determination of what was the central issue in the case, that was, the rights of the parties to terminate the contract. 17The relevant provisions of the contract were: Suspension of work by Jeff:If the owner without reasonable and substantial cause fails to pay a progress payment or any other amount due to Jeff within the time allowed (7 days) work will be suspended. Ending of Contract by owner: A) If Jeff is unable or unwilling to complete the work or abandons the work for more than one calander (sic) month. B)If Jeff suspends the work before completion without reasonable cause. C)If Jeff becomes for whatever reason unable to meet the financial obligations required eg. Can't pay sub contractors or materials costs, then the owner will pay directly to subcontractors and pay Jeff for outstanding labour only. D)If Jeff fails to rectify defective work or remove faulty or unsuitable material which substantially affects the work within one calendar month (unless this failure is likely to cause serious damage or injury). E)If Jeff fails to comply with an order or direction from a public authority with respect to defective or incomplete work within the time specified by the public authority. Any of the above permit's (sic) the owner to end the contract. Ending of contract by Jeff:If the owner fails to pay progress payments or other amounts due under the contract within 7 working days from the receipt of invoice, then Jeff is permitted to end the contract. 18The sequence of events leading to the termination of the contract was as follows. 19Mr Burke left the building site on 7 April 2009. At that date the invoice dated 31 March 2009 was unpaid. The terms of the contract entitled Mr Burke to suspend the works or terminate the contract. 20On 9 April 2009 the plaintiffs' solicitors, Thompson Norrie, wrote to Mr Burke enclosing a cheque for $11,448.74 which, together with the deposit of $30,000 paid on signing the contract, was tendered in payment of the invoice of 31 March 2009. They demanded that he resume the contract works. They indicated that the plaintiffs considered the balance due under the contract was $359.67. 21The contract did not specify the circumstances in which the contract works, once lawfully suspended, were to be resumed. However, the plaintiffs' right to terminate the contract arose only after Mr Burke failed to return to the site for more than one calendar month. They were therefore not by 9 April 2009 in a position to terminate or to suggest that his failure to return to the building site constituted repudiatory conduct. 22On 16 April 2009, the defendants' solicitors, Roberts Legal, responded, stating that Mr Burke would promptly resume and complete the works the subject of the Contract as varied as soon as agreement was reached concerning variations to the contract. 23On 17 April 2009 Thompson Norrie responded, asserting that the settlement of the dispute concerning variations was not a valid excuse for failing to resume the contract works and further claiming that the failure to do so constituted repudiatory conduct. 24On 20 April 2009 Roberts Legal wrote, pointing out that the suspension of the works had been valid since the invoice of 31 March 2009 was unpaid. They reserved the defendants' right to terminate the contract for this breach. They repeated Mr Burke's willingness to resume the contract works when agreement was reached on the variations to the contract. 25On 21 April 2009 Roberts Legal forwarded the defendants' claim for variations, itemised and detailed in the letter, as follows: Variations already completed$175,747.13 Variations necessary to complete the works 105,171.61 Total $280,918.74 Roberts Legal repeated Mr Burke's statement of intention to resume the contract works on formal acceptance of the claim for variations. They demanded that the acceptance be provided within 7 days. 26On 25 April 2009 Mr Burke issued an invoice for $29,414.98 for further work done and materials supplied. 27Between 29 April 2009 and 21 May 2009 Roberts Legal wrote to Thompson Norrie on six occasions providing further information concerning the claim for variations and pressing for agreement. In two of those letters, on 8 May 2009 and 21 May 2009, they pointed out that the invoice of 25 April 2009 was unpaid and that the defendants were therefore validly entitled to suspend the contract works. On 21 May 2009 Roberts Legal threatened to terminate the contract if the invoice was not paid within 14 days. 28On 22 May 2009 Thompson Norrie took the position that the variations were not properly quantified and that the plaintiffs were therefore not required to pay the outstanding invoice. Nothing further transpired until July 2009 when Thompson Norrie advised that the plaintiffs were seeking the advice of a quantity surveyor. 29On 11 September 2009 Thompson Norrie forwarded reports of Madden & Associates dated 24 and 27 August 2009. They claimed that these reports established that the defendants were overpaid in the sum of $104,814.37 (subsequently agreed to be $100,814.37). On this basis they denied that the plaintiffs were obliged to pay the outstanding invoice and demanded that Mr Burke resume the contract works, failing which they would terminate the contract. 30On 23 September 2009 Roberts Legal responded, rejecting the claim of overpayment, denying the plaintiffs were entitled to terminate and once more offering to resume the contract works when agreement on the variations was reached and the outstanding invoice was paid. 31On 6 October 2009 Thompson Norrie issued a notice of termination of the contract relying on paragraphs A) and B) of the contract clause that permitted them to end the contract. 32On 23 October 2009 Roberts Legal pointed out the flaws in the claim that the defendants had been overpaid. They claimed that the defendants lawfully suspended the works because of the plaintiffs' failure to pay the outstanding invoice. For the same breach, they gave notice of termination of the contract. 33Mr Madden was called to give evidence. Mr Madden attached to his affidavit of 20 May 2011 his report dated 13 May 2011 in which he set out the methodology by which he arrived at the conclusion that the defendants were overpaid. 34He did not attach his initial report of 24 August 2009 in which he provided the following estimates (exclusive of goods and services tax): Construction costs for the entire project, based on the original drawings$980,000.00 The reasonable value of work performed under the original contract to date 677,443.00 The reasonable value of variations performed to date 182,082.63 The reasonable value of variations yet to be performed 99,274.17 The reasonable value of work yet to be performed under the original contract 302,557.00 35These figures indicated that Mr Burke completed work under the original contract and for variations to a value of $859,515.63 for which he had been paid $679,951 with $29,414.98 claimed but unpaid. Mr Madden agreed in cross examination that on this analysis the defendants were underpaid by more than $200,000. 36How then did Mr Madden arrive at the proposition that the plaintiffs had overpaid the defendants by $100,814.37? His explanation was as follows: 1The reasonable cost of the original contract works was $980,000 and the reasonable cost to complete those works was $302,557. Deducting this sum from the quoted contract price of $695,611 produced a figure of $393,054, which Mr Madden adopted as the value of the original contract works completed to date. 2Mr Madden then undertook the further calculation: Amount paid $679,951.00 Less value of work done 393,054.00 $286,897.00 Less value of variations completed to date 182,082.63 Overpayment$104,814.37 37Mr Madden agreed that this calculation could only be supported if the plaintiffs were required to pay $980,000 as the reasonable cost of the original works. This was not the price they were obliged to pay under the contract. Mr Madden agreed that if he took out of this calculation the reference to the original contract price, his assessment of the work undertaken by Mr Burke resulted in an underpayment of more than $200,000. 38Additionally, Mr Madden's calculation could only be supported if the value of the original contract works was $393,054. According to Mr Madden, it was not. The value of that work was $677,443. 39This exercise, of course, was entirely hypothetical because there was no indication in any of the evidence that the contract price would not be adhered to, notwithstanding that it was substantially less than the reasonable and fair cost of the original contract works. 40The plaintiffs' claim that they overpaid the defendants was very obviously flawed and it was rejected. Misrepresentation 41Mr Burke conceded that he held no licence under the Home Building Act. The contract document that he presented to the plaintiffs for signature on 8 June 2008 described the builder in the following terms: Jeffrey Burke of J.P Burke Building and Constructions 75 Wine Country Drive Nulkaba 2325 Lic No 41691 42Mr Burke said that the licence number written into the contract was that of his uncle. He accepted that it could have lead to the plaintiffs to understand that he was licensed. He said that at no stage did he inform the plaintiffs that he was a licensed builder and it was common knowledge that he did not hold a licence. He said he told Mr Libreri, without giving reasons, that he was unable to obtain Home Warranty insurance. He assisted Mr Libreri in obtaining an owner-builder's permit under the Home Building Act and advised him to take out insurance pursuant to that permit. I noted that the contract set out the insurances held by the defendants and that it did not represent that Home Warranty insurance was provided. 43I was satisfied that, by inserting his uncle's licence number into the contract in the manner described, Mr Burke misrepresented that he was a licensed builder. Although I had some doubts about the credibility of some of the evidence of the plaintiffs, I accepted that they were in fact mislead by this representation. 44The evidence demonstrated that the value of the benefit received as a result of Mr Burke's efforts exceeded substantially the amount the plaintiffs paid for that benefit. In those circumstances, the plaintiffs failed to establish that they suffered any loss or damage as a result of Mr Burke's misrepresentation and that part of their claim was also rejected. Rectification 45The defendants, without admission, conceded the claim for rectification in the sum of $2,197.86. The outstanding invoice 46The plaintiffs raised ss 92(2) and 94(1) of the Home Building Act in response to the defendants' cross claim for payment of the outstanding invoice. These provisions deprive a builder who fails to secure the insurances required by s 92 of the Act of the right to damages, to enforce remedies in respect of a breach of contract or to demand or recover money for work done. 47Thus, the defendants' only right to recover the amount claimed depended upon the exercise of the discretion provided for in s 94(1A): Despite section 92(2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis. 48The clear intention of the legislation is to protect home owners by putting contractors who fail to comply with the requirements of the Act in respect of insurance at a serious financial disadvantage. At the same time the Act recognises that there may be cases where justice demands that a contractor be paid a quantum meruit for work done. 49The question of when it is appropriate to exercise the discretion conferred by s 94(1A) has been considered on a number of occasions. It is apparent from reported decisions that each case must be determined on its own facts. Justice Barrett dealt with the considerations involved at length in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Limited [2004] NSWSC 273. Hall J considered that decision in Pender v Robwenphi Pty Ltd & Anor [2008] NSWSC 1144 and summarised its principles as follows: 41 In relation to the analysis undertaken by Barrett J in Eddy Lau Constructions (supra), the following propositions may be derived from the judgment:- (1) The words "just and equitable" are of the widest significance and involve evaluations of questions of fact.(2) In exercising the wide discretion under the provision, a Court or Tribunal is to have regard to considerations affecting the particular transaction as are material to the decision to be made. Irrelevant matters are those that have no rational connection with the policy of the statutory requirement.(3) The statutory discretion under s.94(1A) must be exercised judicially in light of the whole of the circumstances surrounding the relevant subject matter.(4) Inquiry is directed to ascertaining whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration.(5) The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the Court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it. 42 It is apparent from the analysis by Barrett J in Eddy Lau Constructions (supra) that the conduct of the party in breach is an important matter for consideration. In that respect, ignorance or oversight of the statutory requirement under the Act stands in marked contrast to a contravention that is wilful or deliberate. 50In this case the plaintiffs argued that the conduct of Mr Burke was wilful and deliberate in that he misrepresented that he was a licensed builder. I accepted that his conduct was reprehensible conduct and that it was not excused by his advice to Mr Libreri to take out Home Warranty insurance as an owner-builder. 51I took this conduct into account together with the evidence that established that: 1On Mr Madden's assessment the plaintiffs have secured through the efforts of Mr Burke building work to a value of $859,515.63 for which they paid $679,951. 2The building work performed by Mr Burke was of significant quality, there being defects to a value of only $2,197.86 in work to a value of $859,515.63. 3The plaintiffs themselves have acted reprehensibly in their manipulation of the results of Mr Madden's assessments so as to provide them with a false basis for the termination of the contract. 4Mr Burke has at all times maintained his willingness to return to the building site to complete the original contract works for the price stated in the contract and variations for the rate stated in the contract. 52I concluded that these four factors outweighed Mr Burke's failure to comply with his obligations under the Home Building Act and that in those circumstances it was just and equitable that the plaintiffs pay the amount of the outstanding invoice. 53After deduction of the costs of rectification of $2,197.86, the amount payable by the plaintiffs was $27,217.12. ORDERS 54Verdict for the defendants on the plaintiffs' claim. 55Verdict and judgment for the cross claimants on the cross claim in the sum of $27,217.12 56The proceedings are adjourned to a date to be fixed to deal with issues of interest and costs. 57My reasons are published. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 March 2012