Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Salera v Buuna Pty Ltd [2016] NSWCATAP 32 Hearing dates: 15 December 2015 Date of orders: 09 February 2016 Decision date: 09 February 2016 Jurisdiction: Appeal Panel Before: F Marks, ADCJ, Principal Member S Thode, Senior Member Decision: The extension of time to file appeal is granted The time for filing the appeal is extended to 10 September 2015 Appeal allowed Decision under appeal quashed The respondent is to pay the sum of $12,000 to the appellant forthwith Catchwords: Appeal – proper approach to construction of contract - extension of time to appeal - incorrect construction of contract - appeal allowed - consequential orders made. Legislation Cited: Civil and Administrative Tribunal Act, 2013 Civil and Administrative Regulation, 2013 Cases Cited: Jackson v NSW Land and Housing Corporation [2014] NSWCATAP 22 Category: Principal judgment Parties: Daniel Salera (Appellant) Buuna Pty Ltd (Respondent) Representation: Appellant in person P Lin, Director (Respondent) File Number(s): AP15/53029 Decision under appeal Court or tribunal: NSW Civil and Administrative Tribunal Jurisdiction: Consumer and Commercial Division Citation: N/A Date of Decision: 21 July 2015 Before: D Charles (Tribunal Member) File Number(s): GEN 15/06414 REASONS FOR DECISION Introduction 1. The appellant, Daniel Salera, engaged the respondent, Buuna Pty Ltd, to develop a web application for use as an "injury report" form, as part of occupational health and safety protocols used in industry. He received a quotation from the respondent to develop the application in the range of $15,800 - $18,900 based on the estimated time to be taken in planning, designing, developing, deploying and handover of the application. He asserted that having expended over $20,000, the application was not functional and brought proceedings in this Tribunal seeking recovery of these monies based, in summary terms, on a failure of the respondent to perform its obligations under the contract between them. In a decision of a Member of this Tribunal dated 21 July 2015 his application was dismissed. The Member construed the contract as one providing for the performance of work only on a do and charge basis, the work had been performed, and the respondent did not fail to perform its obligations under the contract. The appellant brings this appeal from that decision. 2. As will be seen, when reviewing the decision under appeal, there are two fundamental matters which will need to be considered. The first is the contractual obligations of the respondent, and the second is the evidentiary material available and from which a determination must be made as to whether the contractual obligations were fulfilled. Appeal as of Right 1. The determination of these appeal proceedings involves the construction of the provisions of the contract. The proper approach to construction of a contract, and its construction is a question of law. Accordingly, leave to appeal is not required by virtue of section 80(2)(b) of the Civil and Administrative Tribunal Act ("the Act"). For completeness we note that the appellant, who was self-represented, had sought leave to appeal. We pointed out to the parties that as the appeal clearly raised a question of law, no leave was necessary. The Contractual Obligations 1. The contract is in writing, and consists of a number of parts. The first page consists of a proposal dated 4 April 2014 on the respondent's letterhead. It was accepted in writing by the appellant on 13 April 2014. It referred to the services to be provided as including the project scope and task breakdown, the design expressed as "Wireframes and Graphic Designs" and development with a reference to "Source Code." The services provided make specific reference to an "Injury Report App Proposal document". 2. This proposal document describes the respondent as specialising in the area of strategy, design, development and marketing of mobile device solutions, having expertise in understanding the interaction principles behind "touch devices and software", with a "strong emphasis on quality engineering with highly technical, computer – science theory orientated approach for smooth, stable and secure software." The respondent was described as working "to deliver custom mobile applications" and the like. 3. The objective, as described in the proposal, was to: develop an app that allows the user to complete an "Injury Report" form. On completion, the results are launched and stored on a secure website with reporting functionality available. 1. There is specific mention of functionality as extending to user login, completion of the report "with automatic population of predefined fields", the selection of an injured body part in graphic form, uploading a photograph, the lodging of the form, graphic and body part to a website and storage on that website with the website displaying a report of all forms lodged between certain dates. 2. The proposal said the respondent would document the work to be carried out and, when approved, that it would provide a fixed cost of the remaining phases of the project and then commence the graphic design, build and testing phases "before assisting with the release of the app." 3. The formal agreement described the development process as a "waterfall development paradigm, where each step is completed and signed off before moving onto the next step." There was an estimate of a 30 work day timeline for completion with a finish date of 6 June 2014. 4. Importantly, Clause B(a)(iii) of the agreement said that: The final deliverables for this project will be the source code for this app, which will need to be signed and compiled by the Client before release onto the app store. 1. There was controversy between the parties as to the meaning of this clause, and we shall return to this later in these reasons for decision. 2. The agreement contained "standard terms and conditions." Included in these conditions was a reference to the services to be performed by the respondent with special mention of production services being scoping, product and UI design, graphic design, and development. Significantly, there is reference to a software warranty period in clause 6.1. This says: Once the final Deliverable has been accepted, Buuna warrants that all software developed will perform substantially in accordance with documented specifications agreed by the parties for 14 days (Warranty Period). 1. During that period, the respondent undertook to "fix any legitimate defects in the software that prevented from working as described in the agreed specification at no extra charge." The Decision Under Appeal 1. In determining the proceedings before him, the Member was confronted with two competing versions of the obligations of the respondent under the agreement. The appellant complained that the respondent had failed to produce an application which was functional, it had thereby breached its fundamental obligations under the agreement and sought a refund of all monies paid together with certain additional costs associated with retaining other expert assistance. The respondent maintained that its role was merely to carry out such work as was required of it from time to time by the appellant. In his decision, the Member described the respondent's approach as being that the appellant: had to provide the steps he wanted to the construction and development in software of his concept, and on that basis the charging for the respondent's work and services would be on a time attendance basis. 1. In essence, the controversy is whether the agreement was one for the provision of services as directed, or whether, as contended for by the appellant, it was an agreement for the provision of an end product having defined functionality. 2. In his decision the Member determined, after perusing the provisions of the contract that it was one for: the provision of work and services which is not on an outcome basis as the applicant argues; i.e. the delivery to him of a "live" system with Mobile App functional and capable of deployment. 1. Accordingly, it did not matter that the app was not functional; as long as the respondent had carried out the work, it was entitled to be paid. The Proper Construction of the Contract 1. It seems to us that in coming to his conclusion the Member emphasised those provisions of the agreement which dealt with the payment of monies by the appellant, which occurred following the completion of certain stages of the work. In our opinion, the mere fact that progress payments are made for the provision of work does not necessarily result in a contract being for the provision of services as opposed to a contract for the delivery of a specified product. Progress payments are a hallmark, for example, of building contracts, yet in almost all cases a builder contracts to provide a specified result. The respondent referred us to the analogous situation of a client retaining a lawyer to draft a document having legal force and effect. But the respondent did not appreciate, as we do, that a lawyer, who albeit is paid by the hour (or more likely by the 10 minutes), is obliged to produce a document which not only reflects the client's instructions, but has legal effect. In our opinion, the same approach applies to the construction of this contract. There are ample references in the documentation to which we have referred to the delivery of a functional product having specified features, and, most tellingly, the warranty provisions to which we have earlier referred made it abundantly clear that the end product had to have certain specified capabilities. 2. This conclusion is reinforced by the contents of a Work Break Down Schedule which lists the projected time to be taken for a number of detailed steps in connection with app development and testing, website development and testing, scoping and analysis, UI design, deployment and documentation as well as a second phase entitled "Future Enhancements." This second phase referred to enhancement and testing, website reporting enhancements and testing, scoping and analysis, UI design and deployment. All of these matters lead to the conclusion that the work to be carried out by the respondent was designed to produce a functional end product, according to certain specifications. 3. Corroboration of this approach to construction of the agreement is provided by an email communication from Chris Inch, Head of Business Development of the respondent to the appellant dated 26 March 2014. Mr Inch said in part: At this stage we have the information we currently require – we normally don't get so much. Please find attached the proposal, we provided a ranged price which is approximately 16 – 19 K. We've focused on getting you a viable product for a low initial investment so that you can take the product to your test users, it should also be capable of managing your first few clients. At this stage, there are a number of ways we can complete the project which will determine the final cost. On completion of the project planning we will confirm the total costs of the remaining phases of the project, which will fall within this range. We can scope the project to a specific price point if desired. 1. We also refer to the provisions of Cl B(a)(iii) set out above. As will be seen, for reasons set out later, this clause contemplates the provision of a functioning app capable of being uploaded onto a web site via an app store. 2. We conclude that the contract required the respondent to produce and deliver to the appellant a functioning app capable of being uploaded onto a web site via an app store. For these reasons, we respectfully disagree with the approach to construction of the contract between the parties as determined by the Member. Did the Respondent Fail to Carry Out its Obligations? 1. We now come to consider whether the respondent failed to comply with its obligations under the contract as asserted by the appellant, and as denied by the respondent. 2. We do not have available to us a transcript of the proceedings before the Member. In his decision, the Member said that he had considered documentation produced by the parties, oral evidence and oral submissions. He also referred to sworn oral evidence given by a Mr James Millar, an expert witness retained by the appellant. We have available to us documentation including the contract between the parties and ancillary documentation, and copies of email communications between the parties before the agreement was made, and whilst it was in operation. We also have written submissions from the parties. 3. An email chain between the parties provides contemporaneous evidence of what occurred. On 1 June 2014, the appellant complained to the respondent about spelling and grammatical errors on the website. He attached a list of matters that need to be changed and revisited. He complained that the app was inadequate in certain respects. He offered to pay for additional hours required to vary the app menu. On 17 July 2014, the appellant complained by email that he had not yet received certain branding and updates of scheduling breakdowns for the remainder of the development as promised. He said that he had signed up his first customer who wished to download the app on 1 August. He asked that his four telephone calls be returned. On 22 July 2014, the appellant asked when the website would be ready to go live. On 24 July 2014, he reminded the respondent that project handover was scheduled for 30 July, he noted that there had been "little to no correspondence" from the respondent and assumed that everything was on track. By email of the same date, he noted that he had not received a reply to his last five emails regarding testing, branding or scheduling. On 1 August 2014, the appellant noted the failure to complete the website and app development by 30 July, and this failure was now costing him money. He reserved the right to claim damages for breach of contract if the project was not properly completed within an acceptable timeframe. On 5 August 2014, the respondent advised that testing and refinements would be finalised that week, and that it would be ready to hand over the code for the app and website once the appellant had confirmed certain changes. 4. The appellant had retained an expert, Mr James Millar who gave oral evidence in the proceedings before the Member. We do not have access to the transcript, but we do have a copy of the expert report dated 18 September 2014 which was made available to the Member. No issue arises as to Mr Millar's expertise. He evaluated the functioning of the software supplied by the respondent. He concluded that "a production ready version of the system has not been delivered" and that "the system has not been commissioned or deployed." There were specific defects in the website application code and he concluded that the Website Application "has not been delivered in a way that would enable the client to deploy without significant third-party technical support." He also concluded that the Mobile App was not in a functional state for reasons which were detailed in his report. Mr Millar described a number of items which indicated that the Website Application was defective. Furthermore, he said that the Web Development language which was used by the respondent was not widely used and not appropriate to the particular project. 5. It is in the context of this discussion that the provisions of Cl B(a)(iii) need to be considered. In his oral submissions to us Mr Lin, a director of the respondent, said that all the respondent had to do was deliver a source code. He said that under this clause there was no specification of the scale, quality and content of the product. "All we know is time." He likened the product to a piece of furniture purchased from IKEA, where a purchaser acquired the parts but had to assemble them himself or herself. He said that the respondent provided a solution which the client needed to put together so that it could be "compiled and signed" by the client. He said that there was no promise that something was able to be uploaded to the app store. Mr Lin asserted that the product which the respondent delivered was capable of working in a real environment, and had run properly in the test environment provided to the appellant. Furthermore, the appellant had not availed himself of the warranty period to have any defects attended to. 6. In response, the appellant said that the product was handed over in a non-functioning state. Accordingly, it could not be uploaded to test it and therefore it was impossible for him to take advantage of the warranty period. He said that the respondent had never uploaded the code to an active environment and therefore it had not properly tested it. The appellant's assertions are corroborated in the expert opinion of Mr Millar, which we have previously summarised, and which we accept. 7. Based upon the expert opinion of Mr Millar, the intention of the parties as clearly manifested in the email exchanges which we have extracted above, the provisions of the contractual documents which we have described, and our construction of the provisions of the contract, we conclude that the respondent failed to deliver to the appellant a functioning app capable of being uploaded onto a website by an app store. We reject the submissions made by Mr Lin as straining the language used in the contractual documentation, as being inconsistent with that documentation, and equally inconsistent with the representations made to the appellant by Mr Inch. The IKEA analogy is inappropriate. Upon assembly of the component parts, as directed, a purchaser of an IKEA product has a working and functional item. No such working and functional item was capable of being produced by the appellant based upon such services as had been provided by the respondent. 8. Accordingly, we conclude that the respondent was in breach of its contract with the appellant and that the appellant is entitled to a compensatory order based on that breach. Leave to Extend Time to Appeal 1. In his notice of appeal, the appellant said that he received notice of the decision on 21 July 2015. The appeal was filed on 10 September 2015, some 22 days after the 28 day limitation period for the filing of an appeal had expired (see Civil and Administrative Tribunal Rules 2014, rule 25(4)(c)). 2. In seeking an extension of time in which to file the appeal, the appellant said that he had sought to mitigate any further loss of time and money by taking the unfinished product delivered by the respondent to another company for a quotation to complete the project to the original agreed standard. He also sought legal advice. 3. The appellant provided documentation which he had obtained after the publication of the decision, which we have taken into account in considering whether to grant leave to appeal out of time, and which bears upon the time taken in procuring additional quotations. This contributed in part to the delay in the appellant commencing these appeal proceedings. In his expert report, Mr Millar had referred to the fact that the respondent had used a Web Development language which was not widely used. The documentation produced by the appellant indicates that a number of organisations were not prepared to quote on the work necessary to bring the work undertaken by the respondent up to a standard where the app could be loaded in a functional form onto an app store because they did not have the necessary expertise in the use of the unusual language employed by the respondent. Eventually, the appellant obtained a quotation from a company based in India in the sum of USD$8,400, and said he was comfortable in using this company to complete the development of the app to the requisite standard. 4. In determining whether leave should be granted to appeal out of time, we have had regard to the authority of Jackson v NSW Land and Housing Corporation [2014] NSWCATAP 22 (19 May 2014). We are prepared to grant leave to extend the time for the filing of the appeal for four basic reasons: 1. A 22 day delay in filing the appeal out of time was not an inordinate period. 2. The appellant explained that the reason for his delay in filing the appeal is that he required time to obtain quotes from third party service providers to complete the work and to enable the app to be uploaded. We do not find this explanation persuasive. Evidence of loss occasioned by the respondent's breach was evidence that should have been obtained and tendered at the original hearing. The fact that evidence as to loss was not tendered at the original hearing, and was only obtained after the first decision was published, does not explain why the appellant waited more than 50 days before filing his appeal. The explanation for the delay does not seem adequate to us. 3. Even after considering the inadequate explanation for delay, there is no evidence that the position of the respondent is prejudiced by extending the time for filing an appeal (other than the obvious disadvantage of allowing the appeal to be heard). Mr Lin suggested that he had set aside time to deal with any appeal lodged within the proper time, and that this time had been wasted because after the 28 days had elapsed, he had then re-scheduled his working time. Just how he could have done this without allowing for the delays occasioned by the preparation of appeal papers and in obtaining a hearing date is not clear to us. No evidence to that effect has been provided. We regard this submission as being fanciful. 4. In allowing leave to appeal out of time we have had regard to the decision of Jackson, particularly at [22] which provides: It may be appropriate to go further into the merits of an appeal if the explanation for delay is less than satisfactory or if the opponent has a substantial case of prejudice and, in such a case, it may be relevant whether the appellant seeking an extension of time can show that his or her case has more substantial merit than merely being fairly arguable. 1. For the reasons set out above, we consider there are cogent reasons for concluding that the Member erred in his construction of the contract between the parties and on its merits the appeal must succeed. 2. Leave is granted to extend the time for filing the appeal to 10 September 2015. 3. Having granted leave to appeal out of time, we now decide to deal with the internal appeal by way of a new hearing as we consider that the grounds of the appeal warrant a new hearing pursuant to s80(3)(a) of the Act. 4. We are required to consider, having found the breach of contract established, what, if any loss, has been occasioned by reason of the respondent's breach. In our opinion, the appellant's evidence from third party service providers about the cost of providing a fully functioning app, capable of being uploaded to the app store is compelling. The new evidence consists of an email dated 12 August 2015 from Raman Mittal to the appellant quoting USD$8,400 "to make the iOS app ready to upload on app store… within 25 days." The fresh evidence was filed and served on 16 September 2015 with the appeal papers. The respondent opposes the filing of new evidence and states in its reply that "the appellant simply obtained an additional opinion that could have been obtained for the original hearing." The respondent thereby acknowledged receipt of the additional evidence at least at 25 September 2015 but elected not to reply to it. As the appellant has established an appeal as of right, and we have decided to deal with the appeal by way of new hearing, pursuant to s80(3)(b) of the Act, the appellant does not require leave to adduce fresh evidence. We may exercise our discretion to allow such evidence as is necessary to enable us to consider what orders should be made to dispose of the appeal. The respondent sought and was granted a short adjournment to gather any further material it might need from its office to respond to the appellant's allegation that it would cost at least USD$8,400 to render the application operational. 5. The respondent submitted that it would not be just and equitable to order a full refund as some goods and services were delivered in accordance with the contract. It said that no compensation at all is payable as the appellant had provided insufficient information to justify an order for $12,000. The contract provided for the delivery of a source code, and according to the respondent, a source code was delivered. The respondent asserted that the appeal panel should find that neither breach nor loss had been established and that it should dismiss the appeal. The Amount of the Compensatory Order 1. There was little material put before the Member upon which a compensatory order could be based. On one view, it might be said that there was a total failure of consideration and that the appellant was entitled to a refund the amount of $21,879 paid to the respondent including monies expended in obtaining an expert report. 2. There was a schedule forming part of the proposal which in turn was incorporated within the contract which allocated the time to be expended by the respondent in performing the work. The progress payments were divided into four discrete stages. Stage one: Planning and Development 1-2 days for $790 to $1,530. Stage two: Design, 2-3 days for $1,580 to $2,270. Stage three: the bulk of the time, 15 to 17 days, was allocated to Development for $11850 to $12,830. The final stage four: Deployment and Handover: 2-3 days for $1,580 to $2,270. The total proposed price range was between $15,800 and $18,900. 3. We are satisfied that the appellant received the services as outlined in stages one and two for Planning and Design, but did not receive the services as outlined in stages three and four, namely, the Development and Handover stages. On one view of the matter, the progress payments, when issued were not due and payable, and the issue of progress payments three and four were issued in breach of the contract. The progress payments for stages three and four are valued at an average of approximately $12,000. We are satisfied that the appellant overpaid the respondent in the sum of $12,000 for services he did not receive. It is not in dispute that the appellant paid for the services as soon as the invoices were rendered, and that he did not realise that he received defective or incomplete services until sometime later. 4. The appellant conceded that the respondent had performed some of the work which it had contracted to do, and he was content to receive compensation in the sum of $12,000 which will allow him to accept and pay for the quotation of USD$8,400. In our opinion, the appellant has established that the losses he incurred by reason of the respondent's breach are valued at $12,000. We find that the respondent is liable to the appellant for the amount as set out in the third party quote. We propose, therefore, ordering that the respondent pay to the appellant compensation in the amount of $12,000. Findings 1. Having concluded that: 1. The Member was in error in the manner in which he construed the contract; 2. There was a fundamental breach by the respondent of its obligations under the contract; 3. The error constitutes an error of law; 4. The appellant is entitled to an order for compensation. 5. On the evidence, the cost of rectification is $12,000, equivalent to USD $8,400 Orders 1. The following orders are made. 1. The extension of time to file appeal is granted 2. The time for filing the appeal is extended to 10 September 2015 3. Appeal allowed 4. Decision under appeal quashed 5. The respondent is to pay the sum of $12,000 to the appellant forthwith ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar Amendments 09 February 2016 - Coversheet - corrected AP#15/53029 (not 53209). 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: 09 February 2016