Mann & Anor v Paterson Constructions Pty Ltd [2019] HCATrans 92 (14 May 2019)

Last Updated: 15 May 2019

[2019] HCATrans 092

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M197 of 2018

B e t w e e n -

PETER MANN

First Appellant

ANGELA MANN

Second Appellant

and

PATERSON CONSTRUCTIONS PTY LTD

Respondent

KIEFEL CJ
BELL J
GAGELER J
KEANE J
NETTLE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 14 MAY 2019, AT 10.00 AM

Copyright in the High Court of Australia
MR T.J. MARGETTS, QC: If the Court pleases, I appear with MR G.F. HELLYER and MR A.C. ROE on behalf of the appellants. (instructed by Telford Story & Associates)

MR J.P. MOORE, QC: If your Honours please, I appear with MR A.J. LAIRD and MR J.A.G. McCOMISH for the respondent. (instructed by Kalus Kenny Intelex)

KIEFEL CJ: Yes, Mr Margetts.

MR MARGETTS: Thank you, your Honour. If I can go directly to our outline of oral argument and take the Court to the first issue which is described under the heading the “Availability of Quantum Meruit”. The question raised by this ground of appeal is as follows. When a contract is repudiated and such repudiation is accepted as terminating the contract, should that party be entitled to be paid upon a quantum meruit as an alternative to contractual damages? In other words, does a wronged party have a right to concurrent remedies that are subject to an election? That is, damages for breach of contract or, alternatively, a claim for restitution. We say the starting point for the assessment of that question goes back to the observations of the Court of Appeal itself.

Can I just take the Court if I could to the core appeal book and the judgment of the Court of Appeal starts in the core appeal book at page 154. I would ask the Court to turn to page 184 where the Court of Appeal discusses the availability of the alternative remedies.

KIEFEL CJ: Sorry, what paragraph was that?

MR MARGETTS: 184, paragraph 92.

KIEFEL CJ: Thank you.

MR MARGETTS: There the Court of Appeal stated this is in the Mann appeal:

In Sopov, this Court stated the following about the availability of the remedy of quantum meruit to a builder who accepts an owner’s repudiation of a building contract:

Since 1994, there has been a growing chorus of criticism – judicial as well as academic – of the availability of quantum meruit as an alternative to contract damages where repudiation is accepted. The criticism rests on the following propositions:

1. When a contract is terminated at common law by the acceptance of a repudiation, both parties are discharged from the further performance of the contract, but rights which have already been unconditionally acquired are not divested or discharged unless the contract provides to the contrary.

2. If there is a valid and enforceable agreement governing the claimant’s right to payment, there is ‘neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration’.

3. Accordingly, there is no room for a restitutionary remedy since the builder’s claim to payment is governed by the contract under which the work was carried out up to the point of repudiation.

In substance, they are the three propositions that we rely upon today. In many respects they cannot be put more clearly than the manner by which the Court of Appeal put them in Sopov, and which was adopted by the Court of Appeal in this matter in Mann v Paterson.

If we go further on to the quote from the case of Sopov by the Court of Appeal in Mann to line 28 – next paragraph, starting “In our respectful view”, there the Court again acknowledged:

In our respectful view, these criticisms are very powerful. Unconstrained by authority, we might well have upheld the principal’s argument that Kane’s only remedy in these circumstances was to sue on the contract.

Of course, in Mann v Paterson, the Court of Appeal itself also at paragraph 97 endorsed those remarks and said:

In the absence –

at paragraph 97 at page 187:

of a submission by the applicants that Sopov, Renard and Iezzi are plainly wrong, no occasion arises for us to consider the correctness of those decisions. We would add, however, that we endorse the observations made by this Court in Sopov set out at [92] above. Nothing has transpired in the nine years since those observations were made which lessens their force.

So, we rely upon the fact that we now have six justices of the Court of Appeal in Victoria stating that but for being bound by authority they would, it appears, upheld the principal’s arguments – that, of course, the only remedy that lies in contract damages and no restitution remedy would be available.

By way of background, before I go to paragraph 1 of – the paragraphs of our oral submissions starting at paragraph 2 I just wish to take the Court briefly to some facts and figures that were set out by the Court of Appeal in relation to the dispute and also the contract itself.

If one turns back to paragraph 11 of the judgment of the Court of Appeal, we see the origin of the dispute being the contract. Paragraph 11 the Court of Appeal give the background facts starting in paragraph 11. They state:

In the course of the project, the parties agreed to reduce the contract price from $971,000 to $916,779 by removing certain items from the scope of the works. They also agreed orally to vary the scope of the works by adding items and altering others.

12. The applicants made progress payments totalling $945,787.

The first observation that can be made is that, in fact, the applicants, the home owners, paid in excess of the contract price itself.

13. As already noted, the works were not completed by the due date of 17 December 2014. The respondent did not issue any notices of delay to the applicants or make any claims for extensions of time pursuant to the contract.

14. On 16 February 2015, the respondent gave to the applicants a final claim for $63,000 for unit 1.

The Court, no doubt aware, that this was a twounit development of two town houses in Blackburn, Victoria:

On 3 March –

this is reading from paragraph 15:

2015, an occupancy permit was issued for unit 1. At 8:59 pm on 18 March 2015, the respondent emailed to the applicants –

“the respondent” being the builder:

a claim for variations totalling $48,403.07 in respect of unit 1. On 19 March 2015, unit 1 was handed over to the applicants.

So the first observation that I make in relation to those facts is that one can see at the outset that there were no variation claims made by the builder respondent in writing up to that point of time – or at any time thereafter. Paragraphs 16 and 17 talk about the repudiation of the contract:

In a letter dated 16 April 2015 to the respondent, the applicants’ solicitors asserted that it had repudiated the contract, and that the repudiation was accepted by the applicants. The alleged acts of repudiation included the delay in carrying out the works and an alleged statement by Mr Paterson that the respondent would not complete unit 2 unless the applicants paid the unit 1 variations claim.

Also on 16 April 2015, the applicants refused to allow the respondent to return to the building site.

By letter dated 28 April 2015 from its solicitors to the applicants’ solicitors, the respondent asserted that the applicants had repudiated the contract, and that the repudiation was accepted by the respondent. The alleged acts of repudiation were said to be the applicants’ letter dated 16 April 2015 and their refusal to allow the respondent onto the building site.

That is the end of the background facts, in terms of the carrying out of the works under the contract, and the acts leading to the repudiation. Thereafter proceedings commenced, as they are referred to in paragraph 19, arising out of that dispute. VCAT, reading from paragraph 19 – and I just want to pay a bit of attention to the figures so that the Court understands how we say that a quantum meruit claim unnecessarily has the effect of inflating the amount payable for the works that have been carried out initially pursuant to the contract and that in itself has an effect, we would contend, of in very broad terms encouraging building practitioners to seek repudiation under certain circumstances. Reading from paragraph 19 again, at 159:

In its VCAT application, as originally filed on 25 June 2015

KIEFEL CJ: Mr Margetts, I think you can take it that we have actually read the judgment in some detail. Perhaps you could make your points, and taking us through then to the VCAT decision about the findings made by VCAT.

MR MARGETTS: Can I just say one further thing in relation to the figures then and just demonstrate that what we say that the paragraphs 19 to 21 show is that on a contractual damages claim, the builder would have been entitled to the amount – not entitled, but would have alleged it was entitled to the amount of $1.322 million, on a contractual damages claim and that is because you add onto the contract price of $916,779 the two claims set out in paragraph 19(a), being the $231,515 for the variations, and the 176 for the prime cost adjustments.

NETTLE J: Do you not allow anything for the variations?

MR MARGETTS: No, I am allowing onto the contract price of $916,779, I am allowing theoretically the amount of $231,515 for the variations.

NETTLE J: Is that cost plus two per cent under the contract? Is that the basis of calculation?

MR MARGETTS: Of that amount?

NETTLE J: Of those variations?

MR MARGETTS: No, no, that is not a figure that could be discernible to, or was not related by the respondent/builder to actual cost.

NETTLE J: No, no, put that aside. What about his entitlement to recover for such variations as were done? Do you accept that it is cost plus two per cent under the contract?

MR MARGETTS: No, no, I do not, because I say that there were no notices, there were no notices provided to the homeowner of any variations.

NETTLE J: Was there not a finding in the VCAT that most, if not all, were less than two per cent, and thus being the exception?

MR MARGETTS: Even if that exists, because there was no notices at all the question then becomes whether section 38(2) can ever operate.

EDELMAN J: You read section 38 to the word “notice” as meaning written notice, even though on about 60 occasions through the Act where “notice” means written notice it says “written notice”.

MR MARGETTS: Yes. I do read it that way but I relate it back to section 38(4).

NETTLE J: And the construction which the Court of Appeal put on it?

MR MARGETTS: I submit the construction that the Court of Appeal put on section 38(2), because I say 38(2) can only operate upon the variation notice given under 38(1), which I say has to be in writing, because if one goes to section 38(4) it talks about

GORDON J: “Reasonable time of receiving a notice”.

MR MARGETTS: Yes, and receipt.

GORDON J: It says:

reasonable time of receiving a notice –

That does not answer subsection (6)(b), does it?

MR MARGETTS: Subsection (6)(b) involves the discretion of VCAT, of course.

GORDON J: There are no findings of VCAT. VCAT did not turn its mind to that question.

MR MARGETTS: No. VCAT was not obliged to turn its mind to that question because, consistent with the findings of the Court of Appeal, the Senior Member determined that because the variations were part of the quantum meruit claim, section 38 does not apply to the quantum meruit claim.

GORDON J: Put that to one side, if it did then there are two paths home, are there not? There is the notice path and then there is the 38(6)(b) path.

MR MARGETTS: Yes.

GORDON J: There is no findings by VCAT directed at the 38(6)(b) path.

MR MARGETTS: No, there is not, other than what appears to be an observation made by the Senior Member that

GORDON J: Addresses the matters Justice Nettle asked you.

MR MARGETTS: The Senior Member says that he would have allowed it under 38(7) in any event. So one would assume therefore he is saying he would have exercised his discretion under 38(6)(b) in any event. We have a lot to say about that.

NETTLE J: He did say that none of them added more than two per cent to the original contract price paragraph 116, page 28 of the book.

MR MARGETTS: What paragraph was that, your Honour?

NETTLE J: It is 116, the last sentence, “Moreover”.

MR MARGETTS: As I recall, he is wrong on that.

NETTLE J: It is the finding, is it not?

MR MARGETTS: If I can just come back to that question, your Honour. As I recall, there are some items that he, in fact, identifies that

NETTLE J: By all means. Could I just ask you though, in relation to subsection (6)(a) of section 38, why it is, if it were the fact, that each of the variations were less than two per cent, that a builder would not – would have failed to comply with the section, inasmuch as no notice is required when it is less than two per cent and does not require any permit variation?

MR MARGETTS: Well, we would contend that you can only get under 38(2) if the subject of a notice by the owner under 38(1)

NETTLE J: That is your construction.

MR MARGETTS: That is our construction, and we say that needs to be written because you cannot

NETTLE J: No, I understand the writing.

MR MARGETTS: 38(4).

NETTLE J: It is just a question of whether, it being less than two per cent, any notice is required in order to comply with section 38(6).

MR MARGETTS: Well, we say there is a notice required under 38(1).

GORDON J: No, but assume for the moment there is no notice given under 38(1)

MR MARGETTS: Yes.

GORDON J: you go to 38(6) do you not?

MR MARGETTS: You go to 38(6)(b), yes. Well, that is what we contend.

NETTLE J: That has two options, as Justice Gordon points out to you. Either the builder has complied with this section, which you say is limited to giving written notice which, it is to be noted, is only required when a variation is more than two per cent. Or, alternatively, no notice is required when the variation is less than two per cent and no permit change is required.

MR MARGETTS: That means then, your Honour, that you read 38(2) as not referring to the variation under 38(1).

NETTLE J: No, if it is less than two per cent, then the builder may proceed without giving notice.

MR MARGETTS: The builder may proceed, but to get to 38(2), he has to receive a notice from the owners under 38(1).

NETTLE J: Is that your point, because they did not give their request in writing that it does not apply?

MR MARGETTS: Well, one of the great problems with variations of course, your Honour, is that it is – as recognised by Brooking on Building Contracts that the unwritten variation – the oral variation is, and has been, the cause of numerous building disputes and continue to be the cause of numerous building disputes. So these sections seek to regulate the way in which a variation can be authorised to be carried out under the building contract with the distinct purpose of ensuring that everyone has full knowledge as to what they are entering into and what their liability is.

NETTLE J: I am conscious of having deflected you, Mr Margetts, and I apologise, but can I just nail this down. In respect of those variations, which the VCAT found to have been performed, which were requested but not in writing, is it contended by the appellants that the builder is not entitled to any remuneration?

MR MARGETTS: What is contended would be the builder needs to satisfy – that what the builder needs to then come back to VCAT to do is to satisfy the Tribunal the matter set out under 38(6)(b). And, we would say, one argument could be – or would be – a builder should not demand payment of a variation claim prior to satisfaction of the Act. And, in this case here, the builder has even demanded a payment of variation claim prior to satisfaction of the Act.

EDELMAN J: You say then, do you, that if you are right on your first submission, that then the matter should go back to VCAT for findings in relation to (6)(b)?

MR MARGETTS: Yes, otherwise to encourage, we would suggest, conduct by builders whereby, on the Court of Appeal’s interpretation, in fact they are discouraged from complying with section 38 – a builder’s failure of not providing any form of notice under section 38. At the moment, under the Court of Appeal’s interpretation, he is always going to be entitled to either make a quantum meruit claim for those variations. I will come to section 38 when we do make our – and we have rejigged our submissions a bit in our oral hand up argument.

KIEFEL CJ: You are dealing with your quantum meruit argument?

MR MARGETTS: The point I was just seeking to emphasise to the Court by looking at what the Court of Appeal observed in paragraph 19 – and we are dealing with the issue which came up in Justice Nettle’s question in relation to variations. But, the point that I was making was that if one adds together the contract price of $916,000, then adds on to it the amount claimed for variations of $231,000 – and the amount of the prime cost adjustments – you then come to a total of $1.32 million approximately.

So, the builder made a claim of contractual damages at $1.32 million. But, a quantity surveyor comes and prices that initially – as one can see in paragraph 21 – at $1.898 million – which then becomes if one turns to the page of the judgment to paragraph 25 – the quantity surveyor reduces that to $1.722 million. So, one can see straight away that there is a 2223 per cent uplift in the amount being charged for the totality of the works by virtue of the availability of the quantum meruit remedy.

So, the price uplift – and it is commonly known to building practitioners that there is a price uplift with quantum meruit claims. Building practitioners are often searching for the acts of repudiation to try and either escape the rigours of a lossmaking contract or, alternatively, to seek an inflated price for the works that have been carried out because, as everyone in the industry knows, repricing of works by a quantity surveyor will result in a higher price than the amount fixed by the contract.

The point I was just taking the Court to in relation to those paragraphs is just to demonstrate to the Court that this is no different to many quantum meruit claims whereby there is an uplift in the contract price by virtue of the repricing of the works through the use of a quantity surveyor and bringing a claim therefore on the basis of quantum meruit.

EDELMAN J: You keep referring to quantum meruit claims, but what I understand you to mean is a noncontractual quantum meruit claim, that is, not a quantum meruit that is brought on the contract.

MR MARGETTS: Yes, not a quantum meruit claim on the basis of an implied contract for work or labour done or where services are unpriced. Your Honour is correct. Then I would wish to take the Court briefly, again before I go back to my oral argument, just to the contract itself. If one goes to the core appeal book – before I take the Court away from that general observation I have been making in relation to the compensation difference between a claim based upon a quantum meruit or alternatively a claim based on contractual damages, I will just take the Court briefly to, if I can, the finding of the Senior Member which is at court book 107, paragraph 533. This is the paragraph I read to the Court on the special leave application, but there the Senior Member actually observed in 533:

I might add that, by succeeding in a claim for quantum meruit, the Builder has recovered considerably more than it might have recovered had the claim been confined to the Contract.

I take the Court now to the contract itself, which is found in the appellant’s book of further materials. The reason I wish to take the Court to the contract is to establish that this standard form building contract which starts in the appellant’s book of further materials at page 6 is properly described as a divisible contract imposing divisible obligations as distinct from an entire contract. The starting point of a contract, if one looks at – if we go to page 15, this is the definitions.

GORDON J: Well, the first point, is it not, is it is a contract prepared in accordance with the Domestic Building Contracts Act.

MR MARGETTS: Yes.

GORDON J: Is that not one of the starting points?

MR MARGETTS: Yes. We would say, consistent with that Act under section 40, there is only entitlement to claim and be paid for certain stages of works as they are completed. The definitions on page 15, we start with “Base Stage”. I am not too sure whether the Court is familiar with the different stages of a general building contract but if one just turns to page 55, you will see that the contract price is fixed by stages and the builder’s remuneration, or entitlement to payment, is fixed by the completion of each particular stage. You will see on page 55 there is the progress payment table.

Section 40 of the Act actually prescribes what is the maximum amount that a builder can charge for each particular stage and it starts in this particular case you can see that a five per cent deposit was required, and then 10 per cent for Base Stage, 15 for Frame Stage, 35 for Lock up Stage, 25 for Fixing Stage and then 10 per cent for Final Completion.

Thereafter if one wants to identify what each stage represents, it is necessary to go back to the definitions, and we will see that Base Stage is defined – in essence, it is the foundations. Then before I move away from page 15, I will just ask the Court to note the definition of “Completion.”:

means when the Works to be carried out under the Contract:

• have been completed . . . AND

• if a building permit was issued for the Works, the Owner is given an Occupancy Permit –

Then I would ask the Court to turn to page 16. “Contract price” is defined, and it is defined by reference to an item. Those items are found at page 47 of the bundle of further materials, which is the appendix which sets out the relevant required information pertaining to each particular item. The contract price is defined on page 50. Then importantly for the final claim, the definition of “Final Claim”:

means the Builders’ claim upon Completion of the Works for the balance of the Contract Price together with any other monies payable by the Owner (including any interest) under the Contract.

I just make the observation that you will see from the final claim – I will take the Court in due course to the specific term – that it is not able under this particular contract for deletions to be made to the contract price. In other words, it is not subject to – this contract is quite distinct and different from a general building contract used in the commercial industry, and that is where the contract price and the final payments are subject to certification by an independent certifier such as a superintendent and/or a principal’s representative who provides and determines and assesses each payment claim made by the builder and determines in accordance with the contract what amount is payable.

Of course, as the Court may also be aware, most commercial contracts provide that those payments are on account and interim until the completion of the final claim and the provision of the final certificate by the building superintendent or certifier. That is quite distinct and different to contracts for the building of domestic houses which - generally highly unusual for a domestic contract to have the thirdparty intervention of an independent certifier or superintendent. If we turn then to the other definitions I have just asked the Court to note - “progress claim” and “progress payment”. The definition of “progress payment”:

means all monies due and payable by the Owner to the Builder during the carrying out of the Works at the completion of each Stage.

Stages are defined. If I turn then to page 27, the contract sets out the owner’s obligations, and 11.5:

The Owner will pay the Builder the Contract Price in accordance with this Contract.

Clause 11.6 is the deposit. Then key provisions in terms of – or one of the important provisions in determining whether the contract is entire or divisible is 11.8 and 11.9:

11.8 Owner to pay progress payments

The Owner will make Progress Payment to the Builder in accordance with the agreed and completed Progress Payments Table as set out in Item 23 of the Appendix.

11.9 Owner to pay progress claims within the stated period

The Owner will pay each Progress Claim to the Builder within the period stated in Item 12 of the Appendix.

11.10 Interest payable on outstanding payments

So, in essence, upon the completion of a particular stage and the making of the progress claim by the builder, the obligation of the owner arises to pay that liquidated sum, and the nonpayment of that liquidated sum would give rise to an action in debt.

GORDON J: Do you accept that the accrued rights in relation to the variations fall outside these provisions you are taking us to? That is, they are covered by clause 12, separate from these progress payments in accordance with the schedule.

MR MARGETTS: They are, but I would say that the rights are governed by the contract, so

GORDON J: They are, by clause 12, by separate provisions of the contract.

MR MARGETTS: Yes, your Honour.

GAGELER J: You took us, for some reason, to the definition of “final claim”. Why?

MR MARGETTS: I took you to that to show – if one goes to paragraph 17.1, page 35 – and I did that to show that there is no adjustment of the earlier progress claims and payments upon the provision of a final claim. The final claim can only be

KIEFEL CJ: And the point you are making is?

MR MARGETTS: The point I make is that that goes to support the argument or the contention that the contract has separable portions and is divisible as distinct from being entire.

EDELMAN J: I may have missed this, but I did not understand the respondent to contend that the payment under the contract was only in respect of an entire obligation of complete performance.

MR MARGETTS: If your Honour pleases, I know some recent cases were provided and I have just assumed that maybe the argument might be

KIEFEL CJ: I do not think it has been put.

MR MARGETTS: I will move forward then, your Honour. So, if I then go back now to our outline of oral argument and, in particular

GORDON J: Just so I am clear, you do not rely upon clause 12 of the contract dealing with the variations, which are the things in issue in this case, are they not?

MR MARGETTS: I rely

NETTLE J: This is 36 and 37 written again, is it not? Clause 12 is 36 and 37, in effect. It embodies the same terms

MR MARGETTS: Sections 37 and 38, yes, your Honour.

NETTLE J: I am sorry to even think about this, but why is it not the case that if, as the Tribunal held, each variation was less than two per cent and did not require a permit variation, the builder was disentitled from including in his progress claim, pursuant to clause 12.8, last stanza, the variations undertaken up to that point?

MR MARGETTS: We submit that before you get to 38(2), you have to have a notice under 38(1).

NETTLE J: From your clients to the builder?

MR MARGETTS: Yes.

NETTLE J: Yes, I see. I understand.

GORDON J: If you are wrong about that, do you accept what is put to you by Justice Nettle?

NETTLE J: I mean, if your clients had asked for it in writing, would the builder have been entitled then because each variation was less than two per cent et cetera to include the amount of the variations completed up to the point of each progress claim in the progress claim under clause 12.8?

MR MARGETTS: Yes.

NETTLE J: It is just the writing that stops him doing that, is it?

MR MARGETTS: Well, it is compliance with the section, yes.

NETTLE J: I follow that. I do not mean to be derogatory.

EDELMAN J: That is because you read the word “notice” in 38(1) as requiring written notice, despite the fact that throughout the Act where written notice is required, it says “written notice”?

MR MARGETTS: I say that because – I am going to come to that argument, but I say that must be the natural interpretation having regard to – under 38(1) it talks about “a notice”, that is, a particular notice, and then if one goes to the operation of (4) and (5), we say that reading those two subsections supports the interpretation that under subsection (1) it requires a written notice.

GORDON J: Does that sit with subsection (5)? It seems to suggest that subsection (2) stands on its own, does it not?

MR MARGETTS: No, your Honour, I would suggest that it stands on its own after the giving of the relevant written notice under 38(1), the reason being on this interpretation a builder could carry out 50 variations for less than two per cent, breaching two per cent, not to the knowledge of the homeowner, and the contract price doubles. Then we get to the same issue of why this section has been enacted to prevent that occurring, to prevent the dispute

GORDON J: The disincentive is (6). Unless you have complied with it, unless you can satisfy yourself you fall within (2), then you do not get money.

MR MARGETTS: On Justice Nettle’s interpretation, you fall under (2), you are entitled to claim, you are less than two per cent, without going to (6).

BELL J: What, if any, reliance do you put on clause 12.1 of the contract in that regard which seems to contemplate a written notice describing the variation?

MR MARGETTS: I place great reliance upon it, your Honour, and I emphasise again the example that if one was to interpret 38(2) as not referring to a written notice under 38(1), it seems the section then does not in any way prevent the evil that the section was seeking to prevent – disputes about variations – and the homeowner is left with the situation that postcompletion he gets a bill for $400,000 or $500,000, not realising of course that, yes, he has been agreeing to variations orally, “Yes, that is fine, change those door handles. Yes, extend the cellar”, but he does not know what the cost is. He does not turn his mind to the cost, and this Act seeks to impose that obligation to ensure that the builder makes the homeowner aware that by agreeing to a variation the homeowner is understanding how that affects the contract price.

KIEFEL CJ: Have we taken you away from your initial argument again?

MR MARGETTS: Yes, your Honour. I am now going to move just to our oral – our outline of oral argument and going to paragraph – I have taken the Court to the issues we sought to raise under paragraph 2.

In relation to paragraph 4, we emphasise – we did emphasise that the propositions outlined in Sopov are relied upon, and the first proposition we refer to in paragraph 4 of our oral argument is the proposition arising out of Pavey & Matthews and the statement by Justice Deane, which is found at volume 3 in the joint book of authorities, at tab 30 and at page 256 of the judgment.

That proposition can be summarised, as we have summarised in our oral argument, that there can be no legal justification for the law to impose a restitutionary remedy, where there is an applicable, contractual remedy available under the contract. We rely upon the statement there at 256 of Justice Deane in Pavey & Matthews, starting halfway down the page at 256, where his Honour states:

Indeed, if there was a valid and enforceable agreement governing the claimant’s right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasicontractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.

I will not read the next paragraphs to the Court but I also rely upon Justice Deane’s comments thereafter – or his judgment thereafter, in the next paragraph where his Honour, again, talks further about a question of whether there needs to be imposition of any restitution of remedy when the event is governed by, and the right to damages of course, is governed by the contract itself.

The next case that I just seek to take the Court briefly to, to support that principle, is the decision of the New South Wales Court of Appeal in Trimis v Mina – which is at tab 47 in volume 4 – and take the Court to paragraph [54] – this case was about a homeowner wrongfully terminating a building contract and being found to have repudiated their obligations under that contract. Under paragraph [54] there, President Mason of the Court of Appeal, with which the other members of the Court of Appeal agree, at [54] states, at page 1663 – paragraph [54] of the judgment:

The starting point is a fundamental one in relation to restitutionary claims, especially claims for work done or goods supplied. No action can be brought for restitution while an inconsistent contractual promise subsists between the parties in relation to the subject matter of the claim. This is not a remnant of the now discarded implied contract theory of restitution. The proposition is not based on the inability to imply a contract but on the fact that the benefit provided by the plaintiff to the defendant was rendered in the performance of a valid legal duty. Restitution respects the sanctity of the transaction and the subsisting contractual regime chosen by the parties as the framework for settling disputes. This ensures that the law does not countenance two conflicting sets of legal obligations subsisting concurrently. As Deane J explained in the context of the quantum meruit claim in Pavey & Matthews (at 256), if there is a valid and enforceable agreement governing the claimant’s right to payment, there is “neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration”.

Thereafter, again, at paragraph [55]:

Unlike the situation in Pavey & Matthews, the building contract in the present case was in writing and enforceable. The builder was entitled to sue under it for damages. And the owners were entitled to invoke its terms, notwithstanding the builder’s termination for repudiation, in relation to rights “unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected”

KIEFEL CJ: I note that Justices Priestley and Handley agreed with the President’s reasons, which would include paragraph [55].

MR MARGETTS: If the Court pleases, yes.

KIEFEL CJ: Their Honours were, of course, also in agreement with Justice Meagher in Renard.

MR MARGETTS: Yes.

KIEFEL CJ: This was seven years later.

MR MARGETTS: As we say in our submissions, we make the point in terms of different positions being taken by courts over time – we make the point in our reply submissions that the observations made arising from the judgment of Lord Atkin in United Australia Ltd v Barclays Bank where the Court said, while history plays a significant role in the law, the law is not governed by the ghosts of the past. As Justice Windeyer observed

KIEFEL CJ: Your argument simply depends upon McDonald v Dennys Lascelles as High Court authority which has been followed in this case, you would say correctly, and you say Renard is wrong because it misunderstood the distinction between rescission and termination of the breach.

MR MARGETTS: Yes, your Honour – which takes me then to the next point of our written outline of oral argument, and that is paragraph 5, which is referring to the decision of McDonald v Lascelles in the judgment of Justice Dixon – paragraph 5 of our outline or oral argument. That judgment clearly rejects the socalled rescission fallacy. His Honour there at court book volume 3, tab 25 – and his Honour’s judgment – part of the judgment that we rely upon is at page 982 and 983, volume 3, tab 25. Sorry, that is the wrong paragraph numbers.

EDELMAN J: Page 477.

MR MARGETTS: It is book of authorities pages 982, 983, which is at judgment pages 476, 477, if the Court pleases. It is reading from 476 where his Honour Justice Dixon, as he then was, stated in the fourth line up:

When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired.

We say that the two propositions that we rely upon that were relied upon by the Court of Appeal in Sopov are equally applicable today and are good and sound principles that as a consequence of are inconsistent with the provision of a quantum meruit remedy in the circumstances such as this case.

There are other arguments that we rely upon apart from those two fundamental legal propositions, and they start at paragraph 8 of our outline of oral argument, and that is by allowing a restitutionary remedy in the circumstances contemplated by this factual scenario, it amounts to a redistributing of contractual risk. That is contrary to the general principles that we say were set out by the Court in Lumbers v W Cook Builders, which is found at volume 3, tab 23, and in particular at page 935 of the joint book of authorities, which is at page 663 of the judgment. There the Court stated, at paragraph 79:

The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a “benefit” at the “expense” of another which the recipient “accepts” and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this Court’s decision in Steele v Tardiani, an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with any particular contract the parties have made. It is essential to consider how the claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean Shipping Co Ltd v Creditcorp Ltd, “serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract”. In a similar vein, in the Comments upon §29 of the proposed Restatement, (3d), “Restitution and Unjust Enrichment”, the Reporter says:

“Even if restitution is the claimant’s only recourse, a claim under this Section will be denied where the imposition of a liability in restitution would overturn an existing allocation of risk or limitation of liability previously established by contract.”

GAGELER J: What does section 29 say? That is a comment on section 29 of the proposed restatement. What does the section say?

MR MARGETTS: I would have to come back to that, your Honour, if I may. I will try and locate the restatement and have it made available for Court.

EDELMAN J: It is not proposed any longer? It is an actual restatement now?

MR MARGETTS: No. No actual restatement.

EDELMAN J: It is now an actual restatement?

MR MARGETTS: It is an actual restatement, right.

NETTLE J: So have the Americans now accepted the “Oregon overlay,” as it is called, or was called? That is to say that if there is a restitutionary claim, as upon rescission for breach of contract, it is nonetheless limited by the amount that would have been payable under the contract?

MR MARGETTS: Yes, your Honour, as we understand.

KIEFEL CJ: Are you moving on to your second ground of appeal?

MR MARGETTS: The second proposition, yes, your Honour. So that deals with paragraph 8 of our outline of oral argument. Paragraph 9 of the oral argument goes to the other issue of the rescission fails to have dealt with that.

KIEFEL CJ: If you are right in relation to ground 1, you would move directly to ground 3, is that right?

MR MARGETTS: That is right, yes, your Honour.

EDELMAN J: Was there any work that was done that, in your submission, did not fall within an accrued right to payment under the contract?

MR MARGETTS: No.

EDELMAN J: Or was every aspect of the work done something that fell within either the variations provisions or the staged provisions entitling payment under the contract?

MR MARGETTS: Yes, it was all work carried out under the contract, or during the currency of the contract and under the contract.

EDELMAN J: So every stage was precisely completed at the time of the repudiation?

MR MARGETTS: For unit 1, yes.

EDELMAN J: Yes.

MR MARGETTS: For unit 2, the final works had not been completed. If I can recall, unit 2 was about 95 per cent complete.

GORDON J: That is not in issue here, is it?

MR MARGETTS: No, other than

GORDON J: The only dispute here we have got is about the variation?

MR MARGETTS: The availability of the quantum meruit remedy, and then, of course, about the variations.

GORDON J: That is right, but that first proposition, that is, the remedy in terms of assessment by quantum meruit, only relates to the variations.

MR MARGETTS: No, it relates to the totality of all work. The quantity surveyor repriced the whole of the works to come up with the amount of $1.322 million. So, we do not know – there is no way that one can determine whether contracts works of 917 were made up of $1.1 million or $1.2 million and the variations were costed out by the quantity surveyor of over $100,000.

EDELMAN J: Just to be more precise, the case has never been run on the basis that there might be a quantum meruit claim in relation to that last part of, say, some uncompleted stage for which a right to payment had not accrued.

MR MARGETTS: No, and there is an interesting observations in Keating about how that process should take place, if I can just take the Court very briefly to that, in answering that question. It is in volume 4, page 1693, behind tab 50, and there the authors of Keating state at 9061:

Thus if, when a contractor accepts an employer’s repudiation, instalments have become due under the contract, they remain payable. The contractor may additionally be entitled to payment at contractual rates for work done but not covered by the instalment. If the contract does not provide for instalments, the contractor is entitled to payment at contractual rates for all the work done. If the contract does not have provision, or complete provision, for calculating the amount of the payment in the events which have occurred, the court will assess a reasonable sum. The assessment remains, however, a contractual entitlement.

EDELMAN J: That is the quantum meruit claim, but it is a quantum meruit on the contract itself, for that part of the contract for which a right to payment has not accrued.

MR MARGETTS: Yes. That is in relation to the amount of work from unit 2 to reach completion stage after the payment of the earlier stage payment, which was

GAGELER J: This is not a commentary on the form of contract that you have taken us to.

MR MARGETTS: No, it is not, but the general principle, we would suggest, applies, that the entitlement was one of contractual damages in the event that the last stage of works has not been completed and repudiation occurs. The court will calculate the loss and damage in relation to the last stage by way of normal contractual damage principles.

KIEFEL CJ: But that is not this case.

EDELMAN J: It might be that the case was not run this way.

MR MARGETTS: No.

EDELMAN J: Yes.

KIEFEL CJ: There is no issue about this, and there has been no issue about this question.

MR MARGETTS: No.

KIEFEL CJ: It is not suggested that damages for breach of contract are not assessable by reference to the contract itself.

MR MARGETTS: Not to my knowledge, not in the appeal

KIEFEL CJ: And it is not suggested that the variations were other than under the contract.

MR MARGETTS: No.

KIEFEL CJ: That is the basis upon which we proceed.

MR MARGETTS: There is no example, for example, that the builder is engaged to build a house, but in the process of building the house the owner makes an oral request to go and build some horse stables, or to build something that is unrelated to the house itself.

KIEFEL CJ: You might have a separate contract.

MR MARGETTS: Which might be outside the ambit of the domestic building contract and outside the variations clause. That is not the case here.

NETTLE J: Could I just ask you one further question following on from what Justice Edelman was trying to ascertain. It is conceivable – I do not say it is the fact – but it is conceivable at the point of rescission, work had been done which were contract works, not variations, but contract works, for which a payment notice had not been issued.

MR MARGETTS: The payment claim, yes.

NETTLE J: You say that the builder’s remedy, if any, in relation to that is for damages for breach of contract?

MR MARGETTS: Yes.

EDELMAN J: Or, if Keating is right, for a contractual quantum meruit, effectively a claim under the contract for a reasonable sum for that part of the performance for which there is no provided price.

MR MARGETTS: There is no pricing mechanism in the contract itself.

NETTLE J: Or, if Keating is wrong, a quantum meruit for a reasonable amount for work and labour done in respect of that small increment.

MR MARGETTS: That small increment.

NETTLE J: The rest would be under contract. That is to say, all that which had accrued up to the point of rescission would be under contract.

MR MARGETTS: The works had been carried out under the contract. It is just a question of how you then – we would then say it is contractual damages.

NETTLE J: Yes, I know you do.

MR MARGETTS: And we would say it is calculated by reference to reasonable rates or reasonable remuneration.

NETTLE J: A la Keating. But if Mr Keating is wrong about that, then it would be a quantum meruit for that small increment which had been undertaken but not rendered at the point of rescission.

MR MARGETTS: Well, arguably, but I would prefer the other view.

NETTLE J: I understand. Thank you.

MR MARGETTS: By reference then to the contract price as well, would play a role in determining - and the claim for that last stage, the price set for that last stage, would be a factor that would have to determine

NETTLE J: Yes, it would.

KIEFEL CJ: And it is still referable to the express promise to pay under the contract.

MR MARGETTS: That stage, yes.

KIEFEL CJ: To pay the price, yes.

MR MARGETTS: The other issue that I was going to raise, which I have jumped over a bit, is the issue we talked about, the allocation of contractual risk. We also talked about in our oral submissions that by allowing quantum meruit, exposes the parties to indeterminate liabilities, the way the law stands at present. That is expanded in our written submissions themselves. But the example is in many respects this case. At the time of contracting, the homeowners have a defined liability - the contract price plus any variations that fall under clause 12 to adjust the contract price. But by exposing them to a quantum meruit claim they have an undetermined liability which at the end of the day cost them 24 or 23 per cent more than what the contract price was itself, even allowing for variations and allowing for, as the owners priced the variations, prime cost adjustments.

So a quantum meruit remedy therefore, as I say, not only changes the allocation of risk, but it also exposes the parties to an undefined indeterminate liability which they cannot assess at the time that they enter into the contract itself. That is expanded on in our written submissions, paragraphs 19, 20, 21 and 22, but I will not take the Court to those submissions any further; I just rely upon those written submissions.

Arising out of this issue of indeterminate liability also arises this strange effect that allowing quantum meruit has on the assessment process, and that is that at present in a quantum meruit assessment payment can be required – or value is given to items of work or materials that in fact were not supplied and not given and, in this case here, this happened. The Senior Member allowed $24,000 for scaffolding. but in fact there was no scaffolding. The Court of Appeal deal with this - and I will take the Court to that shortly - but because you are valuing the benefit

KIEFEL CJ: How does this assist you in relation to your argument on ground 1?

MR MARGETTS: It goes to the issue that, by allowing quantum meruit, you have this indeterminate liability.

KIEFEL CJ: Well, it is certainly valued on a totally different basis. Do you need to say any more - perhaps by way of reply?

MR MARGETTS: No, it probably falls more under – it does in our written submissions fall more under the question of the contract sealing price, where we say this debate – can I just draw the Court briefly, if I could just finish the point very briefly, just draw the Court to the attention that this is a matter that is dealt with by the Court of Appeal at page 180 of the core appeal book. It starts at paragraph 75. I just draw those paragraphs to the Court’s attention, because it raises this controversy, and the controversy is further typified by or defined by the decision of Justice Ball in Home Site, which is referred to at page 181 of the Court of Appeal’s discussion on this point.

But Justice Ball raised the issue that, in a quantum meruit assessment, why should a builder be paid more than what the builder has paid, for example, a subcontractor to perform the work, other than the cost of engaging the subcontractor, plus a reasonable margin?

KIEFEL CJ: Well, are you saying that this is acceptable if it was a quantum meruit, or it is wrong under quantum meruit theory of calculation, in any event?

MR MARGETTS: We say it was wrong. We have always argued that that was wrong, and that was it was incumbent upon

KIEFEL CJ: On your principal argument, there should not be a quantum meruit.

MR MARGETTS: It is.

KIEFEL CJ: So, do we need to go into this?

MR MARGETTS: No, your Honour, no. I will move on. It does relate to the issue about ceiling price.

KIEFEL CJ: Yes, which is your next ground.

MR MARGETTS: If I go back to our oral argument, there is nothing further that I need to say about paragraphs 9 or 10. In relation to 10, I daresay that

KIEFEL CJ: That is the point you were making at the outset, that it is not an entire contract.

MR MARGETTS: It was, your Honour, yes. It was. And, in relation to 10, I rely upon, in more detail, the argument set out in paragraphs 33 and 34 of our written submissions. Again, that is not the case, of course, in this case here as we have a contract that is definitely divisible and not entire.

In conclusion then on ground 1, I just would emphasise again the fact that the contrary position i.e. of a quantum meruit claim can really only still survive if you accept the rescission fallacy – sorry, if you do not accept the rescission fallacy. Sorry, if the Court pleases, I am getting confused there. It only remains if, in the event that the rescission fallacy can exist so that the contract is void ab initio and there is no doubt that, in light of the observations of the Court in McDonald v Lascelles, that that fallacy should no longer stand. As commonly said in other cases as well, it has been rejected, and that is set out in paragraph 9 of our written submissions.

If the Court pleases, I intend now to move away from ground 1 and move to ground 2. As we point out in the summary of our oral submissions, this ground only arises in the event the Court finds that quantum meruit is available. Paragraph 12, we state: Where both contractual damages and quantum meruit are available, there is the risk of a divergence, oftentimes an extreme one, between the amount a party would be liable for by way of damages, and the amount they would be liable under a quantum meruit claim.

EDELMAN J: It is really the same point, is it not?

MR MARGETTS: It is the same point.

EDELMAN J: It is the same point but it is just a weaker protection to the agreement of the parties because it provides a ceiling rather than respect for the full allocation of risk.

MR MARGETTS: That is so.

KIEFEL CJ: On your argument, paragraph 12 – on your argument on ground one, there would not be both contractual damages and quantum meruit available at the same time.

MR MARGETTS: No, there are no concurrent remedies

KIEFEL CJ: So, this is just looking to the question where a quantum meruit is available.

MR MARGETTS: It is so.

KIEFEL CJ: The question is, where the resort he has had to the contract to guide the assessment of the quantum meruit.

MR MARGETTS: That is so. When I was taking the Court to the examples about being paid for items of work that, in fact, did not occur, or materials that were not supplied in valuing the benefit, which seems to be an accepted manner by which the benefit can be value to the home owner or to the recipient of the benefit, I was referring to the matters there that are identified in paragraph 13 and in paragraph 14 of our oral arguments.

I say in paragraph 13 I have taken the Court to the issue of the Senior Member identifying that, in fact, by succeeding through claim and quantum meruit, an amount has been recovered that is considerably more than the one under the contract. Then, paragraph 14, we state: apart from the significant difference between the contract price and the quantum meruit assessment, the valuation of the benefit can include amounts for work and materials not provided and in excess of the amounts paid by the builder to a third party for the service or materials. Here, the quantum meruit assessment included an allowance of $24,000 for scaffolding which in fact was not provided.

If one goes back to the core appeal book and turns to pages 102, 103, the decision of the Senior Member, the Senior Member acknowledged this debate at paragraph 514. The Senior Member stated:

Mr Hellyer argued that a number of items allowed for in Mr Pitney’s costing were not actually supplied because of a difference in methodology. For example, safety harnesses were used for the roof and not scaffolding and a site supervisor was not employed. Mr Paterson was both builder and supervisor. However it must be borne in mind that Mr Pitney’s assessment is of the value of the work, not what it cost to perform. If the Builder had carried out the work using a more costly methodology it would only be able to claim its value. Conversely, if it carried it out with great economy and it cost it less than another builder might have expended, it is nonetheless entitled to the value of what it has done.

The example that is then debated by the Court of Appeal at the page that I have already taken this Court to, at 180 and 181, is the example of the scaffolding whereby an amount for $24,000 was allowed for that scaffolding, whereas, in fact, no scaffolding was provided.

The debate further is expanded by the decision which is recognised by the Court of Appeal of Justice Ball in Home Site, which is just cited in the Court of Appeal decision at paragraph 1, page 181, and that just goes back to that example that if a builder pays x for the supply of windows, why should the builder get x + y for the supply of windows. Surely the builder should only get the cost of what it cost the builder to buy the windows from the supplier plus a reasonable margin. But quite commonly in a quantum meruit assessment, the figures result in an uplift which is different to, or higher than, the amount paid to a third party.

KIEFEL CJ: Your argument would be that quantum meruit should not have this result, and that would require resort to principle, would it not, to say, what should guide the assessment of quantum meruit? That is where we should be.

MR MARGETTS: The reason we emphasise that

KIEFEL CJ: Not making observations that if it is incorrectly carried out a quantum meruit can be

MR MARGETTS: We use it to support the argument there should be a ceiling price, which should be the contract price, so you do not get these results which we would call

KIEFEL CJ: Yes, but you say that can arise under principles relating to quantum meruits?

MR MARGETTS: We do. It is only if the Court does not accede to our ground 1 that we go to ground 2, of course.

KIEFEL CJ: Yes.

NETTLE J: You will have to go to it, will you not, on the unaccrued increments? They are small amounts at the

MR MARGETTS: Yes, accepting your Honour’s propositions, whereas we of course maintain that the assessment then becomes one of an assessment of damages under the contract.

NETTLE J: I understand that, but if quantum meruit is available, a contractual quantum meruit you say, in respect of those increments for unaccrued amounts, it is limited by the amount of the contract rights?

MR MARGETTS: We do.

KIEFEL CJ: That might be a convenient time for the Court to have its morning break, Mr Margetts.

AT 11.16 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.32 AM:

KIEFEL CJ: Yes, Mr Margetts.

MR MARGETTS: Thank you, your Honour. I have finished on ground 1, and I do not wish to go backwards, of course, but I just ask the Court to go to the joint book of authorities, volume 4. One case I omitted to take the Court to in making my submissions in relation to ground 1 was Tridant Engineering, which is at volume 4, tab 46.

The only reason I just wish to draw that case to the Court’s attention is that it is a very interesting historical analysis of all the authorities that deal with the issue of quantum meruit, and the availability of quantum meruit as a remedy and it starts at 1626 of the court book.

There his Honour, in assessing whether to allow a quantum meruit claim in an arbitration appeal, outlines in some detail historically the way that quantum meruit emerged and eventually, of course, concludes that quantum meruit is not appropriate, having regard to the principles that we have outlined. At 1641, just makes the observation:

While Lodder v. Slowey has become part of the law of Australia and New Zealand, I do not think it is consistent with the legal principle as enunciated by Lord Chancellor Cranworth and Lord Wilberforce. I do not think it should be followed nor should Renard

The reason why I just wish to draw it to the Court’s attention is because of the detailed analysis that his Honour went through, looking at all the cases that are commonly referred to in this area of law.

Then in relation to the second ground, I just wish to conclude the second ground by taking the Court to one case, and that is the decision of Taylor v Motability Finance, which is also in volume 4, tab 45. We again just rely upon paragraphs 24, 25, 26 and 27.

I will not read each of those paragraphs out to the Court, but just ask the Court to note those paragraphs, which leads then to the conclusion that his Honour reaches at the top of 1529, when talking about recovery in excess of the contract limit for a quantum meruit claim. His Honour then observes:

Such recovery in itself would be unjust since it would put the innocent party in a better position than he would have been if the contract had been fulfilled. In deciding any quantum meruit regard must be had to the contract as a guide to the value put upon the services and also to ensure justice between the parties –

That point is made in our written submissions, in paragraph 16 of our outline of oral argument. I will not make any further submissions in relation to ground 2 other than just to ask the Court to look at our oral submissions, paragraphs 17, 18, 19 and 20, and the supporting appellants’ submissions that are referenced thereafter, together with the cases that are cited.

GAGELER J: Are they all firstinstance cases? Are the cited cases all firstinstance cases?

MR MARGETTS: I do not believe they all are, your Honour. I will ask my learned junior to check that briefly. If I could just have that checked. I will check that now.

GAGELER J: Does the American restatement say anything relevant on this point?

MR MARGETTS: We do not have a copy of that, so we will try and get a copy of that at lunchtime, if the Court pleases. In relation to your Honour’s other question, I will ask my learned junior to check that.

GAGELER J: If you are not relying on the restatement, it does not matter. It is just that you took us to a secondary reference, which is surprising if you are not making any use of the primary material.

MR MARGETTS: I was relying on the observations just of the Court whereby a reference – I do not rely upon it specifically, no, your Honour. In terms of the restatement, we rely upon the other High Court decisions which are referred to in our written appellants’ submissions in paragraph 17 and footnote 19 which deal with that same issue of the allocation of risk. Now I intend to move to ground 3.

NETTLE J: Just before you go, to finish off on Justice Gageler’s inquiry, there has been no decision yet, or has there, by the UK Supreme Court or the House of Lords as to whether an innocent party to a contract which is terminated for repudiation by the other has a right to recovery in quantum meruit for accrued rights under the contract.

MR MARGETTS: Not from that, no. Not from our research, no.

NETTLE J: So far as we know then, the law in England remains that such a party would be entitled to sue as per a quantum meruit.

MR MARGETTS: No, the law at the moment is best stated as it is stated in Keating, which relies upon the decision of Taylor v Motability Finance Ltd.

NETTLE J: Yes, the firstinstance decision.

MR MARGETTS: Yes.

NETTLE J: Thank you.

MR MARGETTS: It is at 1693 of the court book.

NETTLE J: I understand.

MR MARGETTS: And the paragraphs are referred to in Taylor v Motability Finance. I just draw your Honour’s attention to Keating which does talk about - At the bottom of 1693 the author states:

It is now thought, however, that the alternative claim cannot stand in the face of the logic of the House of Lords authorities referred to above.

and referring to the footnote at 179. You then have to go through all the cases that have been identified by Keating in support of that proposition.

NETTLE J: Thank you.

MR MARGETTS: If I now move to ground 3, there is no dispute that the appellants requested a large number of variations. That is found in the Senior Member’s reasons at paragraph 108. I will not take the Court to those reasons at present but I just make the observation that there is no dispute that a large number were requested. We then just make the observation in paragraph 21 of our outline:

Extras and omissions referred to as variations are the cause of “many building disputes” -

Brooking on Building Contracts has, in the introduction to the discussion in that book in relation to the way that many building disputes arise because of extras and omissions being requested by one homeowner without the knowledge of the other homeowner. Of course, if there is written material governing it, it is a source of disputation. That practical reality provides the context for the reason why we have a section 38 to governing the carrying out of variations.

The important point that we would also emphasise is that one of the reasons why there are disputes in relation to variations that occur, or are claimed for at a much later time than during the course of the works, is by consequence there is no contemporaneous checking, and the reason why notice is important is so it facilitates contemporaneous checking. So if the homeowner is told, “Well, there is a variation here. I have to put additional stumps in because the ground is soft. Therefore, by consequence, I need to put four additional stumps in rather than on the plans it says two”, and he makes that claim at the end of the job, of course there is no checking - no ability to check.

So the Act just predisposes and seeks to ensure that contemporaneous checking occurs, as in all building contracts which require notice and information, because it is the flow of information that avoids the disputation, and the verification process that happens as a consequence of that flow of information. That is why we are critical of the fact that if one accepts that 38(2) allows variations without any form of, we would say, written notice, it could lead to a situation whereby there would be a multiplicity of variations that the builder contend he had no obligation to provide notice in respect of. But that large a volume can amount to – on that interpretation, it is unlimited. It could result in a contract price of double the original contract price. Again, without such knowledge coming from the owner that they are requesting that variation and therefore the ability to contemporaneously check and confirm and agree, which is what would normally happen, you are led to a situation whereby you can be hit with a surprise at the end.

Now, there is no doubt owners requestion variations, and they do it, but generally they do it without turning their mind to the consequence of the cost and the effect of that on cost, and the Act aims again to seek to prevent that. An owner might say, “Yes, great, put new doors in” or “Add three windows. It definitely makes the place look a lot better” or “Add five metres to the cellar”. If the owner gives that instruction, and they give that instruction without knowledge as to cost, it of course can lead to a dispute at the end because it may be if the owner knew what the cost was of the variation, they would not authorise the variation.

BELL J: But under this scheme, if one reads 38(1) as you would have it, it is still not requisite that there be any agreement on the addition to the contract price in the case of a variation that does not require permit approval, and that does not add more than two per cent. So is your submission that one reads 38(1) partly by reference to the indefinite article before “notice” as requiring a written notice, and partly because you submit in terms of the policy that you have been putting to the Court, if an owner is required to request a variation in writing, he or she is likely to turn their mind to the query, “How much will it cost?”

MR MARGETTS: Yes.

BELL J: That is the essence of it?

MR MARGETTS: Yes. Just before I explain to the Court the manner in which we say the section works, could I just deal with this issue of section 38(1) again, and that question of written notice, apart from your Honour’s observations as to the use of the word “written” in the contract itself, and the need to ensure that there is knowledge of the request and there is no ambiguity or dispute about the extent of the request being made by the owner. If one just turns to section – the way that we read it is that the starting point is a notice under 38(1). There can be no variation at the outset under 38 unless you start with a written notice under 38(1). Then, once the builder receives that notice under 38(1), if it obviously is not going to have the cost effect or cause any delay as contemplated by subsection (2), he may carry out the variation.

GORDON J: Just to make clear, does not subsection (5) link, when it is talking about a copy of the notices, the notice given under (3) by the builder to the building owner?

MR MARGETTS: Yes.

GORDON J: And that starts off with the phrase “In any other case”. In other words, it stands in contradistinction with what happens under (2).

MR MARGETTS: It does. And if then goes – so (3) applies to any other variation, but it must be the same variation that is started under subsection (1). You only get to (3) if you do not get to (2). So the request is made. You either go to (2) – if you do not fall in (2), you go to (3). Then in (3), the builder then must do certain things. He must provide a notice. Now, that notice must state what the effect is, state the cost, et cetera, et cetera. And we would say the reasonable inference from that is, if the notice is stating those three elements in (3)(1), (2) and (3), it must be in writing. Then the builder must, under subsection (4), comply with those obligations

KIEFEL CJ: So are you reading subsection (3) as cumulative to subsection (2)?

MR MARGETTS: No, I am reading it as separate and distinct to subsection (2).

KIEFEL CJ: So where it adds – where a variation adds more than two per cent?

MR MARGETTS: Yes.

KIEFEL CJ: That is where subsection (3) comes in?

MR MARGETTS: Yes.

KIEFEL CJ: Yes.

MR MARGETTS: Then, under subsection (4), the builder must give the notice under (3) within a reasonable period of time, but noticing what subsection (5) says, that there is the prohibition, the builder cannot carry out any variation unless:

(a) the building owner gives the builder a signed request for the variation attached to a copy of the notice required by subsection (3)(a) -

So, it implies that by the attaching of the notice required by subsection (3)(a), they are attaching that to the notice, being the request for the variation. What else would it be attached to?

The builder only gives them to sign a request for variation attached to a copy of the notice required by subsection (3). But we say that subsection (2), which refers to “the variation” in the last line, must be referring to “the variation” referred to in subsection (1). Then we say that if it does not fall from subsection (2) you get to subsection (3). Then the requirements of subsection (5) require the notice that is required by subsection (3) being attached to the request for the variation. But, again, we say that supports the concept that the variation notice needs to be in writing. Looking at the language, also, under subsection (4), which is referring again to a variation notice under (1), subsection (4) says:

The builder must comply with subsection (3) within a reasonable time of receiving a notice under subsection (1).

BELL J: Looking at section 38 by itself, one can see the force of your constructional argument, but how do you deal with the point earlier raised by Justice Edelman in relation to the frequent references in this Act to written notices? Is there some basis for distinguishing those provisions which require the giving or receiving of a written notice from Part 3 and the provisions of section 38?

MR MARGETTS: Can I take your Honour’s question

GORDON J: In particular, section 34(2), which is in the same part of this Act dealing with major domestic building contracts and which requires a written notice to be served by the building owner.

EDELMAN J: And read in light of subsection (5), which seems to reexpress the reference in subsection (1) to notice to a variation asked for by a building owner.

MR MARGETTS: In 37(1) it talks about “a notice” – 37(1)?

EDELMAN J: Yes. You can ask for something by giving notice - orally.

MR MARGETTS: But then 37(1) again refers to “a notice”. So, applying Justice Edelman’s argument, that would then be an oral notice under 37(1). But then if one then applies and goes to subsection (2) of 37:

A builder must not give effect to any variation unless –

(a) the building owner gives the builder a signed consent to the variation attached to a copy of the notice required by subsection (1) –

So the use of the word “notice” in subsection (1) of 37 clearly contemplates a written notice.

I have not been through the Act to identify every situation where the word “notice” is used or “written notice”, but I would submit that the omission of the word “written” in some instances should not take it to mean that the intention is that it not be a written notice.

EDELMAN J: The paragraph you were quoting from before was paragraph (5)(a), was it not?

MR MARGETTS: Yes, (5)(a), under 38.

EDELMAN J: You said: “attached to a copy of the notice required by subsection (1)”.

MR MARGETTS: Your Honour, I was reading from 37(2)(a). Section 37(1) talked about a notice. It does not draw a distinction between a written notice, it says “a notice”. But 37(2) clearly contemplates it must be in writing, which would support – maybe is consistent with our argument that notice under 38 should be “written”.

KIEFEL CJ: Mr Margetts, in this case were the conditions required by section 38(2) met? Are there findings? I think Justice Nettle touched on this earlier – about whether or not any of the variations added more than two per cent to the original contract price but if there was no variation to any permit required, it is not suggested it would cause delay and would not add more than two per cent to the original contract price. Are they all present in this case and are there findings sufficient to that effect?

MR MARGETTS: Your Honour, I am just trying to recall – this issue was raised in front of the judge at first instance, and I just cannot recall exactly the answer that I gave. I will ask my juniors just to check that, if I can.

NETTLE J: Well, there is a passage I took you to earlier in the VCAT’s reasons but then there are the variations in the schedules to which you adverted, which show that not all of them are in fact under two per cent, although the overwhelming bulk are.

MR MARGETTS: My recollection is that some of the variations identified in the Senior Member’s reasons exceed two per cent of the contract price.

NETTLE J: You say, even if they are under two per cent, subsection 38(2) does not apply in this case because it is only engaged when the owner gives a written notice to the builder?

MR MARGETTS: Yes.

NETTLE J: Nonetheless, you accept, do you, that even where no such notice has been given and variation has, nonetheless, been undertaken, 38(6) would apply if the conditions of that section are satisfied?

MR MARGETTS: Well, the Court of Appeal did not come to that conclusion, your Honour.

NETTLE J: I am asking you.

MR MARGETTS: Yes.

NETTLE J: You accept that?

MR MARGETTS: Yes, we do.

GORDON J: Sorry, just so I am clear, do you accept the findings by VCAT, though, were not addressed at the question posed by subsection (2) – in other words, it was not looking to because it was not asked to determine whether or not the builder reasonably believed those things. It looked at it from an objective point of view, did it not?

MR MARGETTS: Well, the Senior Member appears never to have considered – sorry, he has made observations about 38(7)

GORDON J: I am talking about

MR MARGETTS: but he does not seem to have turned his mind to the test that he is required to undertake, on 38(6)(b). You see, he has determined and stated – if I could just take the Court to that straight away – he has determined and stated in the core appeal book at page 28, paragraph 117:

In any case, since the Owners requested the variations and have had the benefit of the work it would not be unfair to order them to pay that sum plus “a reasonable profit” as provided in subsection 7. In the present case, Mr Pitney has assessed a reasonable margin as being 20%.

Now, we would say that is wrong. I am jumping ahead here, but we would say that is wrong because we would say that, in undertaking the test under 36(b), one of the issues that the VCAT

GORDON J: Do you mean 38(6)(b)?

MR MARGETTS: Section 38(6)(b), sorry. One of the issues that the Member should have taken into account, in exercising his discretion that he has, is whether in fact it then complies with the section.

GORDON J: By that you mean the notice, do you not?

MR MARGETTS: Yes.

GORDON J: Now, can I come back to that question. Just one more aspect and then I will be quiet. If you look at 37(1), it requires that a builder give a notice.

MR MARGETTS: Yes.

GORDON J: Now, on your argument that is a written notice?

MR MARGETTS: Yes.

GORDON J: Under subsection (3) of 38, it is again:

the builder must give the building owner –

It is dealing with the builder giving the notice. It is very different, and this has been put to you before, from the way in which 38(1) is worded, which is about, in effect, wishing and asking for a variation. There is a distinction drawn between, and the obligations and language used is very different, between distinguishing between notices required to be given by the builder, as distinct from one given by the owner.

MR MARGETTS: Well, I note your Honour’s distinction between the two sections but then I go to section 35(1). It talks about a notice, it is selfevident it must be written, 35(1).

KIEFEL CJ: If you are wrong about the notice requirement in addition to the requirements of section 38(2), would you agree that the matter, if you are otherwise successful on ground 1, the matter would have to be sent back for further determination by VCAT of what fell within subsection (2) and what, if anything, falls within subsection (6)(b)(ii)?

MR MARGETTS: Yes, we agree it needs to be remitted.

EDELMAN J: Even on your construction it would need to be remitted for a determination of whether the requirements of (6)(b) are satisfied?

MR MARGETTS: Yes.

EDELMAN J: Do you accept that (6)(b)(ii) has already been determined, though?

MR MARGETTS: No.

NETTLE J: He did find it was unfair.

MR MARGETTS: No.

NETTLE J: Just not exceptional circumstances.

EDELMAN J: Why is paragraph 117 not a finding consistent with (6)(b)(ii)?

MR MARGETTS: Because we would say that it would be unfair to the building owner, in circumstances whereby the building owner has agreed to a variation, if the evidence is accepted, under a belief that the cost is Y, but he is charged X.

EDELMAN J: I realise that is your submission but you have got a finding against you in paragraph 117 to that effect, do you not?

MR MARGETTS: Well, that is the danger, we say, of the question of remittal back to the same Member, because he has formed a view as to that issue without turning his mind to the proper application of 38(6). He has reached a conclusion, it appears in that paragraph, about turning his mind to the appropriate arguments that can be made, and that VCAT should consider under 38(6)(b).

NETTLE J: Did he not turn his mind to the appropriate arguments because he was in error, or because there were no such arguments presented?

MR MARGETTS: As the Court is aware, I did not appear in the VCAT matter. Can I just consider that question further and seek to deal with that with my junior in relation to that issue? In relation to that issue, the reason being is that, of course, the Senior Member jumped across, saying, “Contract repudiated, quantum meruit,” so he did not have to go there. He has always adopted the position that “I do not need to consider the compliance with the Act; this all falls outside the Act”. I was very critical of the decision because the Senior Member in fact said there was rescission ab initio. The Court may have seen that he says that in his reasons at

NETTLE J: He was doing his manly best to justify the unjustifiable. It could not really be called an error, could it?

MR MARGETTS: I argued in front of Justice Cavanough. My argument was rejected. He did contend and did state at paragraph 525 at page 106:

However, as was pointed out in Sopov v. Kane, it is now well established that, in the case of a building contract, when one party repudiates the contract and the other party brings it to an end by accepting the repudiation, the contract is avoided ab initio.

It was contended in front of the Senior Member and also in front of the Court of Appeal and Justice Cavanough at first instance that costs is a relevant consideration. The Court will see that my arguments in relation to that have been rejected, but the fact is that I contended at first instance that in fact the Senior Member had erred because of the fact he had been acting on the contract – the belief that the contract was voided ab initio, he has therefore completely disregarded issues of contract price and cost.

GORDON J: Putting that to one side, do you accept though that paragraphs 116 and 117 of the Senior Member’s decision are directed at section 38 and the considerations raised in 38, even though it is not looking at it in terms of whether the builder was satisfied – reasonably believed?

MR MARGETTS: Just looking at 116 and 117, the question arises: as the Senior Member does not mention it, there is no discussion here about price. In other words, he does not say that the owners were advised of the price. Surely, we would say that under 38(6)(b) one of the critical considerations must be for VCAT to exercise its discretion. Is it the owner should be aware of what price the owner is paying for the variation?

KIEFEL CJ: Not if it adds no more than two per cent. Is that not the answer arising from subsection (2)? I know you say there is a notice requirement with respect to that.

MR MARGETTS: Yes, we do.

KIEFEL CJ: On the hypothesis that you are wrong about the notice requirement, is it your case that, if notice was not required to be given where variations fell within subsection (2), the variations would be payable according to contract price?

MR MARGETTS: Yes.

KIEFEL CJ: If there were variations beyond two per cent which fell to be determined under subsection (6)(b)(ii), subsection (7) would apply, and that is close to a contract price, cost plus reasonable profit which is how builders in domestic contracts would normally be paid.

MR MARGETTS: Yes. And at the moment, the costings that have been provided are those of a quantity surveyor, not based on

KIEFEL CJ: The reasonable profit there could be the builder’s profit margin under the contract. It would be up to the Tribunal to determine that.

MR MARGETTS: That is right. One of the real live issues at VCAT was the issue of cost and that was, how much did this job actually cost the builder? If one is looking at cost, let us just suppose that the cost of the total project was $1 million, or $1.1 million. So if the cost then is identified as the cost of the variations, and the total cost is only $1.1 million, the variations and prime cost adjustments cannot cost more than $200,000 and that is where the big issue really lies in the future.

That is, that if the builder is restricted to cost plus reasonable margin rather than a quantity surveyor, the question is then, how is the contract price going to be affected? And that might, at the end of the day, be a very critical issue in this dispute.

KIEFEL CJ: Where are we then in relation to your outline on ground 3?

MR MARGETTS: We are just up to paragraph 22. If I can just then explain the way that – just recap as to how we say it should work. We say 38 applies to all variations. We have dealt with, third paragraph, subparagraph (b). We have dealt with subparagraph (c). We have dealt with subparagraph (d). We have dealt with subparagraph (e).

Subparagraph (f), we say 38(6) provides the only mechanism by which a builder may recover money for a variation, namely if it is satisfied 36(a) or VCAT is satisfied of 38(6)(b). Then we say if 36(a) is satisfied, where section 38(3) applies, the builder is entitled to the cost of the variation, as specified in a 38(3)(a)(iii) notice.

Where section 38(2) applies, and the Act does not apply for a pricing mechanism, the variation could either be priced at an agreed price, or at a cost plus reasonable profit. Then we say if 38(6)(a) is not satisfied, you then get to 36(b) and then, of course, 38(7) applies.

Then if neither 38(6)(a) or (b) is satisfied, the builder may not recover any money. So if there is noncompliance with the section, and you do not satisfy VCAT or the relevant criteria under 38(6)(b), the builder loses its claim for the cost of the variation.

That is quite different to what the Court of Appeal has found. If one turns to page 199 of the core appeal book, paragraph 129, in (a), there the Court of Appeal summarises its conclusions. In (a), the court says:

If the builder has complied with the notice requirements of s 38, the builder is entitled to recover the agreed contractual price –

Subparagraph (b):

If the builder has not complied with the notice requirements of s 38 but s 38(2) or s 38(6)(b) applies –

then they say:

s 38(6) does not ‘apply’ within the meaning of s 38(7) –

So, if the builder does not comply with any notice requirements and does not fall from 38(2), or does not fall within the VCAT exception, the court then says the builders can still recover. This is under (b)(i):

if the parties have agreed to a contractual price for a variation, the builder is entitled to recover the agreed price

But if the builder does not agree:

to a contractual price for a variation, the builder is not entitled to recover on the ‘cost plus profit’ basis in s 38(7).

But the court says it is entitled to a quantum meruit recovery. It says that at paragraph 145.

What the Court is then saying is that if you have not complied with the notice requirements of 38(2) or you do not fall within the VCAT exception in other words, you, the builder, have not served your notices, you have done nothing except, allegedly, carry out the work – you are entitled to a quantum meruit assessment for that work done.

NETTLE J: I am not sure it is different to that. Are the Court of Appeal not saying in paragraph 129(b) that, even if a builder does come within section 38(6)(b), section 38(6) does not apply, with the result that his only remedy is as upon a quantum meruit?

MR MARGETTS: That is right.

NETTLE J: So even if 38(6)(b) applies, the VCAT is satisfied of both requirements, the Court of Appeal would have it that subsection 38(6) does not apply to limit recovery?

MR MARGETTS: That is right. What the Court of Appeal is saying is that you might be in a situation whereby you have carried out the variation but you do not satisfy VCAT of 38(6) in other words, VCAT determines it is unfair you are not entitled to the remuneration under 38(6).

NETTLE J: Mr Margetts, it may not matter. I am sorry, but what the Court of Appeal appears to me to be saying in 129(b) is that, if 38(6)(b) does apply, which is to say, if the VCAT has found satisfied the two conditions in (i) and (ii), then 38(6) does not apply.

MR MARGETTS: But if you go down to (ii):

but if the parties have not agreed to a contractual price for a variation, the builder is not entitled to recover –

NETTLE J: Yes, which of course, if predicated on their Honours’ conclusion that notwithstanding satisfaction of 38(6)(b), subsection 38(6) does not apply.

MR MARGETTS: Your Honour might be right there, but if you turn then over the page to 129(c):

If the builder has not complied with the notice requirements of s 38 and neither s 38(2) nor s 38(6)(b) applies, s 38(6) ‘applies’ within the meaning of s 38(7), and so the builder is entitled to recover on the ‘cost plus profit’ basis –

So what the Court of Appeal there is saying is that if you do not comply with the notice requirement and you do not fall within the exception of 38(6)(b) then 38(6) applies and you go to 38(7).

We suggest that that is problematic, the interpretation given by the court there, because in fact it destroys the whole effect of the section. What it results in is that a builder is better off not complying with any notice provision or troubling VCAT by bringing an application under 38(6)(b), but instead just going straight to 38(7).

It is further inconsistent, it appears this is how the court, we say, reaches the conclusion that you can fall outside quantum meruit variations, or variations which form part of the whole of the quantum meruit assessment fall outside the operation of section 38.

This whole argument started when we contended that, in carrying out the assessment, the Senior Member should have accepted the operation of 38(6) and (7) and should have assessed the variations on cost plus margin not on the figure which would have then invited the Senior Member to actually look at the costs incurred in the project as distinct from going to building surveyor’s evidence and having his estimates.

Costs would be proved, one would assume, through the normal discovery process of the relevant building documentation that passes between the builder and his suppliers and/or his wages that he pays, wage records et cetera, et cetera. The cost is a question of fact. It is definable, it is identifiable, as distinct from going through a quantity surveyor’s assessment on a theoretical basis. The Court of Appeal then say at 145:

In the situation where the prohibition in s 38(6) applies –

in other words, you cannot recover any money for the variation:

but no contractual price has been agreed for the variation, s 38(7) is not attracted, for the reasons explained above.

That then means - because in due course this allows the Court of Appeal then to say that quantum meruit claims for the work the subject of the variations falls outside the ambit of the Act. But of course what the court says there in 145 is inconsistent with what we say the court says in 129. We summarise those points in paragraphs 25 of our written outline of oral argument.

EDELMAN J: Does the Court of Appeal’s construction really come down to the meaning, in subsection (7), of the word “applies”; in other words, if they read the word “applies” as relating to the opening words of subsection (6).

MR MARGETTS: Yes. They relate it to the prohibition.

EDELMAN J: Yes.

MR MARGETTS: They say that the prohibition applies unless you have satisfied the section or you satisfy VCAT. But then they go on to say if you do not satisfy - if the prohibition does not apply, you are entitled to a quantum meruit in relation to the variations despite subsection 38(7) and the operation of 38(6). Now, we have to acknowledge that our interpretation is not perfect on the section, but we say it is consistent with the text, purpose and context of the specific section and subsections, and it could not be contemplated that the section should allow recovery for all variations despite noncompliance and/or the inability to satisfy VCAT of the relevant criteria under 38(6)(b).

To support that submission, we again contend - where we talk about the text, purpose and context, we outline in paragraph 53 of our written submissions, which is picked up by the Court of Appeal itself, of the consumer protection purpose of section 38 which is identified by the Court of Appeal at paragraph 138:

to protect owners from being liable for variations where builders do not provide sufficient information to the owners to enable them to make an informed decision whether to sign a contract or proceed with a variation.

So the matters that I have referred to are outlined, to some extent more precisely, in paragraphs 25, 26 and 27 of our outline of oral argument, and I rely upon them. I do not wish to make any further submissions in relation to ground 3. I thought it appropriate to make a brief submission on the question of remittitur.

If the grounds of the appeal are upheld, we agree the matter needs to be remitted to VCAT. Quite simply, we say that the remittal will involve a consideration of the application of 38(7), and therefore 38(6)(b). I have taken the Court already to paragraph 117. We say that the Senior Member there has already determined that issue, but we say he has not taken into account what correct legal principles he should have taken into account.

We say the builder’s entitlement should have been assessed, starting with a presumption of nonrecoverability, in accordance with paragraph 38(6). We say that that nonrecoverability - starting with the presumption of nonrecoverability should have the effect of downgrading the builder’s claim, and that downgrading might be, for example, in determining what is reasonable profit. That might be zero, having regard to the persistent breaches of the Act by the builder. In other words, the attitude should be adopting an approach that noncompliance is not rewarded, but in fact noncompliance has a financial detriment to it.

Otherwise, which currently appears to be the state of the law in Victoria, builders are rewarded for noncompliance because they are receiving their 38(7) entitlements - cost plus reasonable profit - generally without a proper consideration as to in fact, by reason of that expectation, removes the desire or the need to ensure that 38(1), (2) and (3) are complied with and notices are given, so informed decisions are made in accordance with the intention behind the legislation.

Interestingly, in this case, when I opened the appeal and took the Court to the background of dispute, you will recall that at the commencement of the dispute the claim was made – the final claim for unit 1 – plus the claim for variations for 48 or 50,000, or so. It might not be a great sum of money, but it is to the homeowners; it is a significant sum. Maybe they requested the variations as has been found, but also there were no notices by the builder as to what those cost increases should be. One could argue that in fact, consistent with the Act, it is unlawful, it being contrary to the Act itself to demand payment for a variation unless 38 has been complied with. So when the builder makes that demand at the time he is making his final claim, arguably he is acting in breach of the Act.

NETTLE J: But you have lost that argument.

MR MARGETTS: I have lost that argument, yes. But it is an argument, we say, that does bear upon how VCAT should consider the exercise – the discretion under 38(6)(b), as we might contend there that this whole case – this whole dispute which arose – now, there is a big debate about this and obviously the Court has read, no doubt, the reasons of the Senior Member and the adverse findings of credit against my people which they have always strongly rejected. But, be that as it may, the fact is that at the outset the dispute arises when the claim for variations is made, inter alia, and arguably that is a fact that can be taken into account as to how the Court should exercise its discretion in due course.

We handedup to the Court today the decision of Judge Macnamara, the decision of Downing v Cipriani, or Cipcon v Cipriani. I will not spend much time on this, but I just draw to the Court’s attention, paragraphs 37 and 38 where his Honour, when talking about variations, talks about these presumptions that should be made that I have just been briefly elaborating on. I will not read out paragraphs 37 and 38, having regard to the time. But I just ask the Court to look at those paragraphs in due course, if so necessary.

GORDON J: Can I ask you one question, Mr Margetts. If you are wrong about subsection (1) and all that the builder is required to do is to satisfy itself of subparagraph (2) of 38, do you accept that, for the purposes of 38(6), the builder has therefore complied with this section? In other words, you do not ever get to subsections (3), (4) and (5). You have just got this requirement

MR MARGETTS: Yes, I do.

GORDON J: Therefore, if that is right, one would then go directly to subsection (7).

MR MARGETTS: No.

GORDON J: Well, you have satisfied (6)(a), “the builder has complied with this section”.

MR MARGETTS: On our reading of the section, we would say that you do not get to – if you are less than two per cent, you do not get to 38(7).

GORDON J: Well, why has he not complied with (6)(a), giving rise to application of subsection (6)?

MR MARGETTS: If the builder has complied with the section

GORDON J: Which means subsection (2) on this analysis.

MR MARGETTS: Yes.

GORDON J: Giving rise to entitlement under subsection (7).

MR MARGETTS: Well, the example that we give as to why you do not get to (7) is because - and this is where the ambiguity in the section is - because what would happen if the contract price for the variation has been agreed?

GORDON J: Well, that brings about the interaction between the statute and the contract, and the fact that the contract is drafted, as it sets out on its face, in accordance with this Act, and it may very well be that the view taken is that the contracted price, in assessing what is a reasonable profit – that is, the reasonable profit – and under this contract it was I think two per cent, was it not - 15 per cent.

MR MARGETTS: No, the Member found 20 per cent.

GORDON J: No, not the Member – under the contract,

MR MARGETTS: Under the contract, sorry.

GORDON J: Yes. And that may very well be a factor that the VCAT takes into account in assessing what is a reasonable profit. It works, does it not?

MR MARGETTS: That might be the case, but it still needs to be remitted, because there is no evidence as to cost.

GORDON J: I am walking you through this analysis on the basis you are wrong about subsection (1). If one has satisfaction of subsection (2), one goes directly to (6)(a), because the section is satisfied, giving rise to an entitlement under (7).

MR MARGETTS: Your Honour, that is the argument we initially put in the Court of Appeal and before the judge at first instance. Then it was put against me that, well, it does not deal with the issue of where price is agreed, and I sort of swayed around. But I agree, your Honour, that the way

GORDON J: It misunderstands the interaction between the statute and the contract, then, does it not?

MR MARGETTS: It does. It means that you only get to 38(7) if you satisfy (6)(a) or (b).

GORDON J: That is what it says, and I am putting to you, you would go – on this analysis, it would be satisfied.

MR MARGETTS: We agree with your Honour. So just concluding the issues in remitter, we would say that, yes, the matter would need to be remitted, but we say it should go to a new Member.

Unfortunately, that does have consequences of hearing time, et cetera, et cetera, and the need to conduct a further hearing but we say that is the only way that our clients could feel that this issue be properly considered in the event the matter is remitted, having regard to the observations made by the Senior Member at 117.

Finally, if the Court pleases, we did rely upon some further material. We will just draw this material to the Court’s attention. It was two articles you will see in paragraph 28 and may we have that made – those two articles made available to the Court later today. If the Court pleases.

KIEFEL CJ: Yes, thank you. Yes, Mr Moore.

MR MOORE: If your Honour pleases. Your Honours, dealing first with ground one, the essential proposition for which we contend that governs that ground is as follows. Upon the termination of a domestic building contract by a builder following the owner’s repudiation part way through construction, the law gives the builder the right to elect between two distinct causes of action. The first, in restitutionary quantum meruit and the other the wrong of breach of contract.

KIEFEL CJ: Is that the correct election? Does not the contract law give the owner the right to elect whether to terminate or require performance, rather than the remedy?

MR MOORE: Yes, your Honour is quite right. The first election of the builder in the face of repudiation by the owner

KIEFEL CJ: Yes.

MR MOORE: is the right to elect to affirm, which this builder initially did, or the right to terminate. Once that election is exercised in favour of termination, we say that the law gives and should give the builder the right to elect between the two causes of action which exist under Renard.

KIEFEL CJ: Well, I suppose fundamentally the question is, how do you derive that in the face of McDonald v Dennys Lascelles, and the statement of Justice Dixon as to what follows upon the election to terminate, namely, a right to damages for breach of contract?

MR MOORE: Because, in our respectful submission, whether or not there are accrued rights to contractual debts immediately prior to the point of termination does not, in and of itself, mean that the law should hold that the builder has no other remedy, no other cause of action to base the builder’s claim on.

EDELMAN J: What is the other cause of action?

MR MOORE: It is a claim – it is a restitutionary claim in quantum meruit for work and labour done at the request of another on a basis that fails. I will unpack that during my submission but that is what Lumbers – this Court recognised in Lumbers was a wellrecognised category of case – work and labour done at the request of another on a basis that fails. Our submission is the basis upon which the builder performs work under a building contract is or includes that the builder will be given the opportunity to complete construction of the building to earn the contract price.

KIEFEL CJ: Is that an implied term?

MR MOORE: No, no. The cases show, as I will seek to articulate in a moment, that – and Roxborough is an example, the basis upon which a thing is done, work performed or a payment made does not necessarily have to reside in the contract itself, express or implied terms. The basis in Roxborough was excontractual.

EDELMAN J: The basis cannot contradict a contract term, can it?

MR MOORE: I think that is probably right, your Honour, yes.

EDELMAN J: So, a proper characterisation of the contract is that the reason why work in relation to a severable part is being done is for payment or to earn payment for that severable part then there could be no scope for a failure of basis claim.

MR MOORE: There are two answers to that proposition, your Honour. The first is that the law ought regard a severable part as prohibiting a claim in restitution for the work done overall, including for that part, if the severable portion of the contract can be seen to be a separate bargain of the parties. That is the first answer. If, in reality, what the parties have done is – have entered into a series of contracts embedded within the one document, for this work to be done, for this particular price and not a cent more under any circumstance whatsoever then I would accept your Honour’s proposition. But if the contract cannot be construed as a series of separate contracts then, in our respectful submission, the basis can fail.

EDELMAN J: Maybe that is the difficulty, we are talking about entire contracts rather than entire obligations because the contract is a series of separate obligations, is it not?

MR MOORE: It contains a series of obligations, yes, but whether or not the builder’s obligation to construct the building can be treated as entire is a separate question.

NETTLE J: You do not contend that this was entire, do you?

MR MOORE: We do.

NETTLE J: An entire contract?

MR MOORE: An entire obligation to construct the entire building.

EDELMAN J: But there would be no payment unless the whole of the work was completed?

MR MOORE: Under the contract, there would be no right to retain progress payments if the whole of the work was not completed.

EDELMAN J: Even if that is the reason why it was not completed was because of repudiation of the other party?

MR MOORE: Yes, in which case the builder would be restricted to a claim in quantum - in restitutionary quantum meruit.

NETTLE J: Surely, the builder would have all his accrued rights up to the point of rescission?

MR MOORE: If the contract is construed as containing unconditional accrued rights earned on a basis that has not failed, then I accept your Honour’s proposition. But for reasons I will seek to advance, in my submission, this contract did not contain unconditional rights to progress payments which are held irrespective of completion of the building.

GORDON J: But does that mean that there is no possibility of election like you put at the start? One in effect is forced not to elect, as you put it, but you are in one box rather than the other?

MR MOORE: No. In my respectful submission, even if the payments are conditional, so that as a matter of contract they have to be repaid, the builder nonetheless has a claim for contractual damages, loss of bargaining, what is the profit I as builder would have made had you not breached the contract.

NETTLE J: Mr Moore, is this a new idea or does it find expression in their Honours’ reasons below?

MR MOORE: Some of the cases in this field do appear to proceed on the assumption that the builder’s obligation

KIEFEL CJ: I do not think his Honour meant a new idea out there in the wider universe, but in this case.

MR MOORE: I am sorry, your Honour, yes.

KIEFEL CJ: Has the point been taken before, clearly?

MR MOORE: Yes, the court below did not rest its

KIEFEL CJ: Was it argued?

MR MOORE: Your Honour, I do not think it was argued at either stage.

KIEFEL CJ: Well, why should you be arguing it here?

MR MOORE: In my respectful submission, it is a pure question of law whether or not the obligations are entire and

EDELMAN J: But this would require a notice of contention at least, would it not, because your submission is that one needs to construe the contract as though all of the progress payments are, in effect, just payments on account for no accrued right until all of the work is completed.

MR MOORE: That is part of my argument, yes, I accept that.

EDELMAN J: The builder is in a remarkable position.

NETTLE J: It is just that Mr Margetts has understandably not said a word about the idea.

MR MOORE: No, we did provide some cases that I will – a couple of cases I will take your Honours to.

KIEFEL CJ: Perhaps you should consider the question of notice of contention and we might hear argument on that.

MR MOORE: Yes, certainly.

KIEFEL CJ: We might adjourn now until 2.15.

AT 12.40 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ: Yes, Mr Moore.

MR MOORE: Thank you, your Honour. Your Honours, we do not think it is a notice of contention point to contend in this Court that the contract contained an entire obligation.

KIEFEL CJ: Are you not seeking to sustain the decision below on a ground that it is neither contained in it nor argued before it?

MR MOORE: Can I just say two things about that. Firstly, the Court of Appeal’s decision is directly based upon the Court of Appeal’s decision in Sopov, and the contract in that case contained a clause that says that the progress payments were payable on account. Our learned friends appear to accept that once those words are used, they mean or have the effect that the builder’s obligation is entire.

So to the extent that this Court of Appeal in this proceeding followed Sopov, it is on the very basis that I wish to contend applies here. The second thing I wish to say is that the first time it was contended by the appellants at any stage that there could not be a quantum meruit other than in an entire obligation context and that this contract did not contain an entire obligation, was in the written submissions to this Court. The argument was not put at the Court of Appeal level, as I understand, or the Supreme Court level or VCAT.

KIEFEL CJ: But the appellant is not putting it as an argument in their favour. It is a defensive argument, is it not?

MR MOORE: It is one of the arguments in their initial

KIEFEL CJ: An exception. They are explaining how something might operate if it were not this case, but their point is that this is a divisible contract.

MR MOORE: Yes, in their written submissions to this Court, they say this is a divisible contract.

KIEFEL CJ: I do not know that that gives you the right to argue that it is an entire contract.

MR MOORE: We wish to

KIEFEL CJ: I mean, procedurally, as you would be aware, Mr Moore, what we are concerned with is what was argued before the Court below and how is that to be sustained and the kind of notice that is given to the other party of arguments.

MR MOORE: Yes. So there are two things about that. Firstly, I accept that, in our written submissions we did not put the proposition that I wish to put today.

KIEFEL CJ: Yes, thank you. You would need leave then, in any event.

MR MOORE: Yes.

KIEFEL CJ: You would be out of time in relation to your written submissions.

MR MOORE: Well, your Honour, I do seek that leave, and if it was necessary – I do not understand my learned friend was not able to argue the position today, as he sought to do initially, but I would not, of course, oppose - if there was a further submission to be put in writing, I would not oppose the appellants being able to do that.

KIEFEL CJ: Well, one consideration in relation to whether there was leave relating to a notice of contention or to put in further submissions may, of course, be whether or not the argument has got any real prospects.

MR MOORE: Yes. Could I just briefly outline what our argument is. Your Honour, the general proposition in relation to building contracts was stated by Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717, where Lord Diplock said this:

a building contract is an entire contract for the sale of goods and work and labour for a lump sum price payable by installments as the goods are delivered and the work is done.

That passage establishes, in my submission, a general proposition that, even where a building contract provides for progress instalment payments along the way, the building contract is regarded as what sometimes is referred to as an entire contract, but which probably more accurately is referred to as containing an entire obligation on the builder. So the mere fact that there were instalments in this case, progress payments, on the authority of Gilbert-Ash does not mean that the progress stages were divisible.

And, in my respectful submission, it is not necessary for the contract to use the words “on account”. That is done – it was done in Sopov and it was done in Renard. The subcontractors there accepting expressly by the use of those words, that although they got conditional progress payments along the way, if they did not complete the building under the contract, they did not earn any part of the price.

EDELMAN J: Do you say that if an obligation is entire but subject to progress payments on the way, that the party that would be entitled to the progress payments would be entitled to sue for those payments as a debt if they had not been paid?

MR MOORE: Yes.

EDELMAN J: What is your authority for that proposition?

MR MOORE: Well, McDonald v Lascelles itself says that there might be an obligation to pay at a particular point in time, which is enforceable, but nonetheless, it is conditional conditional on completion of something. So these progress payments, we say as well, were enforceable along the way but conditional on completion.

Now, your Honours, I need to very briefly bring the Court’s attention to two decisions that stand in the way of my proposition that without using the words “on account” progress payments are not accrued unconditional rights, so that the contract is severable. The first is in GEC Marconi which is in the book of authorities

KIEFEL CJ: The decision of Justice Finn, is it?

MR MOORE: Yes, it is. Volume 2, tab 16, page 694 of the book. I do not wish to take your Honours to it, I just wish to note that it is against the proposition I am advancing.

KIEFEL CJ: Yes, thank you, Mr Moore.

MR MOORE: Paragraph 706, his Honour Justice Finn appears to take the position converse to what I am saying, that prima facie, if there are progress payments, you need something else to make it an entire obligation, like the words “on account”.

We put the converse proposition. Prima facie, under GilbertAsh, instalment payments in a building contract are not the divisible, unconditional accrued rights. You need something else to take it out of the entire obligation context.

NETTLE J: Does Lord Diplock actually say that or is that just an implication you have derived from what his Lordship did say?

MR MOORE: It is an implication from the passage that I have stated.

NETTLE J: In a case where the express words were included in the contract?

MR MOORE: I do not think the words “on account” were in that contract.

NETTLE J: So it was, essentially, the same contract as this one, relevantly speaking?

MR MOORE: I think so. I will have my learned junior check the words of the contract in that case to confirm. There is another way in which it might be argued that this contract was not entire and that is on the basis of a clause in the contract that was considered in a New South Wales Court of Appeal decision – Nguyen v Luxury Design Homes. It has been provided to the Court. So, this case is against me on the proposition I am advancing. That case contained a clause reasonably equivalent to a clause on page 39 of the appellant’s book of further materials, clause 20.4. That is a clause that says what happens when the builder repudiates or does not complete the building through the fault of the builder.

Clause 20.1, on page 38 of the book of materials, says when the owner can terminate for what can be generally described as the fault of the builder, “substantial breach”, “unwilling to complete” et cetera, “abandons the Contract”. Clause 20.4 says that the owner who terminates the contract because of the fault of the builder can then complete the works with another builder. But, importantly, the last bullet point says:

if the reasonable cost to complete the Works is less than the unpaid balance of the Contract Price, then the remaining amount of the unpaid balance shall be a debt due and payable by the Owner to the Builder.

Now, the Court of Appeal in Nguyen v Luxury Design Homes appeared to say that the existence of that clause which meant that even when the builder does not finish the building, the builder can get more money if it just so happens that the owner completes the works for a price that is less than the unpaid balance to the builder but that meant the contract did not contain an entire obligation.

We say the proper question is whether the builders earned an accrued unconditional right to payment in the events that happened. So in that case, Nguyen v Luxury Design Homes, the owner wanted to treat the contract as entire, and pay the builder nothing for the building works – the builder had repudiated.

The owner said, “Well, it is a Sumpter v Hedges case. The entire obligation the builder did not complete, therefore did not earn any of the contract price, so pay back all of the money that I have paid to the builder”. The Court, quite properly, with respect, said, “No, that does not apply because of that clause 20.4,” the equivalent.

It is inherent in that clause that the builder, in the case of a situation where the works are completed for less than the unpaid balance, the builder can not only keep the progress payments, but get more money if the works are completed at a lower price.

GORDON J: Mr Moore, does this apply to every building contract, in the way you have put it?

MR MOORE: Yes.

GORDON J: So if that is right, how does that sit with things under this Domestic Contracts Act which identify not only entitlement to, but the way in which progress payments are to be treated?

MR MOORE: One thing that the Act does say is that the mere payment of progress payments does not prevent the owner from disputing any part relating to that progress payment – that is in section 27(2).

GORDON J: Yes, that might be right, but what it does seem to suggest, or assume at least, is that there is not an entire contract, but there is an entitlement to progress payments in the way in which you have been referring to, which is a statutory right. In other words, it seems to assume and proceed on the basis that it is not an entire contract. On the contrary, it is a contract which gives rise to entitlements to particular payments at particular points along the way and that is borne out even more in relation to major domestic building contracts by what seems to appear at section 40, does it not?

MR MOORE: Your Honour, we would say that that section is a provision which provides for enforceable payment obligations, but does not alter the characterisation of those payments as conditional.

NETTLE J: So, Mr Moore, where is the obligation to repay the instalments or progress payments upon termination?

MR MOORE: There is no express obligation. It follows from the characterisation of the builder’s obligation as an entire one.

NETTLE J: This is rather circular, is it not?

MR MOORE: Well, to the extent that one needs to construe the contract, your Honour is quite right.

NETTLE J: It is entire because they are instalments, and they are instalments because it is entire.

MR MOORE: Well, they are conditional instalments, because of the builder’s obligation to complete the building works.

NETTLE J: Thank you.

MR MOORE: There are two further authorities upon which we would rely in respect of this point. The first is the decision of this Court in Hewitt v Court [1983] HCA 7; (1983) 149 CLR 639 at 669. Now, that was a contract for the design and construction offsite of a building, and it was held that the contract was not simply for the sale of the building, but for work, labour and materials that goes into constructing the building along the way.

Justice Deane there described the conditional nature of progress payments under that building contract so that, without completion, the builder was obliged to return the payments to the owner. Now, of course, that is a much stronger case because it is offsite. Along the way the owners’ proprietary interest in the land and the building does not grow. But nonetheless, it was a contract for work and labour. So the builder was doing work as required under the contract along the way and the contract said, “You must pay me progress payments along the way”.

NETTLE J: Without comparing the sets of provisions, it is a bit difficult to say whether it directly applies or applies at all in this case, is it not?

MR MOORE: I accept that proposition. It all does depend on the proper construction of the agreement.

EDELMAN J: Your general proposition is, effectively, that builders will never have earned a right to payment until they have finished all the work.

MR MOORE: An unconditional.....just as builders who work under “on account” contracts get an enforceable right to progress payments, but conditional. Every builder - and I think it is common ground at the bar table – every builder that works under a contract that uses those magic words “on account”, does not earn unconditionally any part of the contract price.

NETTLE J: But if it were conditional, it would have to be a condition subsequent, obviously.

MR MOORE: Yes.

NETTLE J: You could only, as it were, as the guilty party or the repudiating party, activate the conditions subsequent if you performed, could you not?

MR MOORE: Yes, I think that is right. It does work both ways.

NETTLE J: So, since you are ex hypothesi the repudiating party, whence to derives your right to activate the condition subsequent?

MR MOORE: I think it is only if the proper construction of the contract entitles either party to rely on the condition or the nature of the claimant.

NETTLE J: That is a really big ask in the absence of express terms to that effect, is it not?

MR MOORE: It might be, your Honour. It might be, yes.

KEANE J: And in this contract, “progress payment” is defined to mean:

all monies due and payable by the Owner to the Builder during the carrying out of the Works at the completion of each Stage.

And clause 11.8 says:

The Owner will make Progress Payments to the Builder in accordance with the agreed and completed Progress Payments Table –

And 11.9 says:

The Owner will pay each Progress Claim to the Builder within the period stated in item 12 –

So that is each payment of moneys due and payable at the completion of each stage with no provision for a subsequent assessment of the value of the work, no provision contemplating a taking of accounts and the consequences of a taking of account in favour of the owner so as to require reimbursement from the builder. How can one possibly construe this contract as providing other than payments that are made outandout in favour of the builder and the obligations in relation to that payment being closed upon payment being made?

MR MOORE: Your Honour, there is one more authority that does appear to confirm the conditional nature of progress payments. That is a decision that we have handedup to your Honours in the bundle of material - the decision of the Court of Appeal in England and Wales – D O Ferguson & Associates v Sohl. We have given your Honours two versions of that decision. One is the unreported Court of Appeal decision, Ferguson v Sohl, and then the other is the reported version, but the series of building law reports in England is not a complete report of the Court of Appeal’s decision which is why we have given your Honours the unreported version. It does contain a lengthy extract from the trial judge’s reasons.

What happened here was that a builder was found to have repudiated a domestic building contract before completion. One can see from the report that the contract provided for progress payments. The owner sued the builder both in contract for damages and for restitution. The claim in contract resulted only in nominal damages, because it turned out that the cost incurred by the owner to complete the building work was less than the unpaid balance of the price and the owner received £1 damages only. But the claim for restitution succeeded, so some of the progress payments that had been made to the builder were held to be recoverable by the owner, and that was on the basis that the value of the work done was more than the value of the payments made to the builder.

Now, again, the decision does not set out in any great detail what the terms of the contract were, although it is quite clear that there were progress payments. The reasons of the Court of Appeal are a little confusing because their Lordships refer to the builder not being permitted to retain money for work not done. But in light of the trial judge’s reasons, in our submission, that can only be understood as a shorthand way of saying the builder had only done work up to the value assessed. Their Lordships could not have meant that the contract required to be completed in order to pay the instalments had not been done, because the reasons record that the progress payments had been made “pursuant to the contract”.

So that was a case in which an owner recovered part of a progress payment previously made because the value of the work done by the repudiating party was less than the amount of the progress payments. That case is cited by the Supreme Court of the United Kingdom in Barnes v East Enders - we have given your Honours a copy of that - at paragraph 114, in support of the proposition that the absence of a total failure of consideration does not prevent claims for restitution in service cases.

EDELMAN J: Do you say that Ferguson v Sohl was a case where there was an entire obligation?

MR MOORE: Yes.

EDELMAN J: So, on any view, the decision – the reasoning was incorrect, on your submission.

MR MOORE: No, the progress payments – it depends upon whether one accepts Sumpter v Hedges.

NETTLE J: It this not against you at page 99 in Ferguson in the last paragraph, about the middle of the paragraph after the reference to Burrows:

The contract was not entire and Ferguson was entitled to some form of interim claim as the work progressed, It does not, however, necessarily follow from this that each separate payment is to be looked at as if it were a separate contract for which the consideration might fail totally or partially -

Is that what you rely on?

MR MOORE: Yes, your Honour. I answered the question before incorrectly. This contract was not entire, and progress payments were made, but they were held to be recoverable. They were held to be recoverable in restitution.

NETTLE J: To the extent that the work had been overvalued?

MR MOORE: Yes. The value of the work done was less than the amount of the progress payments.

GORDON J: That is clear by the last paragraph of the unreported decision, that is the basis upon it.

MR MOORE: Yes.

EDELMAN J: What the Court of Appeal is trying to do is it is trying to work out the value for that part of the last severable obligation that a payment has not accrued for, is it not?

MR MOORE: No. In my respectful submission, they are working out how much of the last progress payment that was made is recoverable by the owner.

KIEFEL CJ: Mr Moore, is there anything further you wish to add on the application for leave to raise this issue?

MR MOORE: No, your Honour.

KIEFEL CJ: Yes, thank you, Mr Moore.

MR MOORE: Thank you, your Honour.

KIEFEL CJ: We need to rule on it, Mr Moore. Mr Margetts, we do not need to hear from you on this matter. The Court is unanimously of the view that a notice of contention is required to raise this issue. There being no notice of contention, the matter may not be raised. It is added that if leave to file a notice of contention had been sought, it would not have been granted, on the basis of insufficient prospects of success. Where does that leave where we are in your outline of argument, Mr Moore?

MR MOORE: Your Honours, I did deal in advance with some of the matters that I was going to rely on. I wish to go back now to paragraph 1. Your Honours, the jurisdiction belearning the permitted recovery by a builder in restitutionary quantum meruit for work and labour done has a lengthy history in the common law and was part of the background in which the Domestic Building Contracts Act was enacted.

There are two provisions that reflect Parliament’s acceptance that restitutionary awards can be awarded in cases like this. The first is on page 109 of the joint book of authorities, volume 1, in section 53. So the broad jurisdiction in 53(1) is given to VCAT to:

make any order it considers fair to resolve a domestic building dispute.

And in subsection (2), Parliament has said:

Without limiting this power, VCAT may do one or more of the following–

. . .

(b) order the payment of a sum of money–

. . .

(iii) by way of restitution;

The second provision I wish to take your Honours to is on page 34 of the book, section 16. That provides an obligation under pain of penalty not to seek more than the contract price, in section 16(1). But it expressly carves out of that obligation the right to demand, recover and retain money:

in respect of the contract as a result of a cause of action the builder may have that does not involve a claim made under the contract.

Now, we do not say that those two 502 provisions, Parliament should be taken to have codified the law. But we do say it is part of the historical background in which Parliament has left it open to the Tribunal, in appropriate cases, to resolve what can be complex building disputes in the way that this Tribunal did in this case.

NETTLE J: Plainly, insofar as subsection 38(6) applies, there would be no scope for restitution and remedies beyond it, would there, under this Act?

MR MOORE: If there is a right to claim restitution, then the Court of Appeal has held that 38 does not apply.

NETTLE J: Assume they are wrong about that and it does, then the only right to recover restitution would be under 38(6).

MR MOORE: Yes, yes, I accept that. If 38 applies to a claim under the contract or a claim for a restitutionary quantum meruit, then that is the limit of recovery.

NETTLE J: In this case if that were to be so, would there be anything else that would need to be dealt with?

MR MOORE: In my respectful submission, no. The remittal, we say, is a quantification exercise.

NETTLE J: Is it, on the facts, solely confined to claimed variations or is there a possibility of some measure of contract work not being a variation which is not yet the subject of a payment notice?

MR MOORE: What would need to be quantified is the amount to be paid for variation work.

NETTLE J: Only variations?

MR MOORE: Yes, yes.

NETTLE J: Thank you.

GORDON J: Does that mean – so, I just want to make sure that is right. There is nothing outstanding under the contract outside of the variations that has not been the subject of a payment notice and which would not, in the old language, give rise to an accrued right argument?

MR MOORE: Yes, I am sorry. I did not appreciate the point of the question which I should have. There has been work for unit 2 after the last progress payment was made which was not completed.

GORDON J: Was there any bit of that work undertaken which was not the subject of a progress claim payment that would give rise to, what I will call, the “gap” between the accrued rights under the contract?

MR MOORE: Yes.

EDELMAN J: It is not attributable to a variation?

MR MOORE: I think that is correct.

GORDON J: So, we have got three categories of items. We have what we will call the “accrued rights” under the progress payment.

MR MOORE: Yes.

GORDON J: We have got the bit of work that is under the contract which is not the subject of a progress payment which is to be valued in mutual terms.

MR MOORE: Yes.

GORDON J: Then one has the variations argument under 38.

MR MOORE: Yes, that is my understanding.

GORDON J: There is a factual dispute – or a set of facts – that give rise to that middle claim, is there?

MR MOORE: Work that was done that did not

GORDON J: Which did not give rise to any accrued right for payment – which is the subject to some method of value, either by way of a claim for damages of quantum meruit – put the method aside for the moment.

MR MOORE: Yes. Evidence was led about the cost and the value of all the work that was done.

GORDON J: That is what we are asking.

MR MOORE: Yes, yes.

GORDON J: We are asking that question.

MR MOORE: Yes. My understanding is there was work done – and evidence led of it – that did not give rise to what, on any view, could be regarded as an accrued right because the work was not finally completed on unit 2.

NETTLE J: It may have been not a variation.

MR MOORE: Yes.

KIEFEL CJ: Then it would be subject to damages, would it not?

MR MOORE: Yes.

KIEFEL CJ: It would be the subject of damages. It would just be assessed.

MR MOORE: Yes, but it does give rise to the question that ground 1 raises, which is even if you do not have accrued rights does the mere existence of a claim to damages mean you can never have a claim for restitutionary quantum meruit?

KIEFEL CJ: McDonald v Dennys Lascelles says that the contract continues and your accrued rights are not altered, but upon election to terminate the contract, everything else is under a claim for damages. Whilst the contract subsists, how can there be any other claim other than a claim for damages if the contract subsists for that purpose? That is what his Honour is saying, is he not?

MR MOORE: In my respectful submission, no. His Honour was dealing with two categories of claim: a claim for accrued, unconditional rights and a claim for contractual damages.

KIEFEL CJ: The former would be claims in debt.

MR MOORE: Yes.

KIEFEL CJ: You do not need to go for damages for breach of contract; you would sue upon them for debts. They would be amongst the rights and obligations which have accrued from the breach which continue unaffected.

MR MOORE: Yes, survive.

KIEFEL CJ: All the rights and obligations under the contract which have accrued, and that would include a right to damages not just a right to debt, a right to damages.

MR MOORE: In our respectful submission, that is not one of the accrued rights that existed prior to termination that survived termination.

KIEFEL CJ: At 48 CLR 477, his Honour says:

the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.

MR MOORE: Yes.

KIEFEL CJ: Part of your argument, I think, proceeded from the premise that damages cannot cover everything here, or is that not what you are saying?

MR MOORE: No, it is not.

KIEFEL CJ: You are saying it is a pure election point.

MR MOORE: Yes.

KIEFEL CJ: You are not suggesting that damages cannot be a remedy?

MR MOORE: No, no.

KIEFEL CJ: You are just saying that there is somehow authority for the view that, in the face of McDonald v Dennys Lascelles, you can nevertheless elect your remedy even if the contract subsists for the purpose of giving effect to your rights under the contract?

MR MOORE: Even if you have a right to claim damages assessed by reference to the contract, in our submission, you will also have a right to claim restitutionary quantum meruit at least for that work that is not covered by an accrued right to payment.

KIEFEL CJ: Which would otherwise be subject to assessment of damages.

MR MOORE: Yes. So there is work that you can claim damages for, and there is work that you can claim – the same work

KIEFEL CJ: The same work. It is a question of which measure you are going to apply.

MR MOORE: Exactly.

KIEFEL CJ: The contractual measure agreed between the parties, or one which is imposed upon the parties, contrary to their will at the outset, on the basis that – what is the principal basis for it?

MR MOORE: The principal basis is that a party who has, by their own conduct, prevented a service provider from earning an unconditional accrued right to a debt, ought not be entitled to rely on a contract that they themselves have breached, to say, “You go and prove your loss under the contract, and you are not entitled to a fair and reasonable remuneration”.

KIEFEL CJ: The parties have agreed that their rights will be – I mean, the party that you are talking about is in breach of contract

MR MOORE: Yes. Yes.

KIEFEL CJ: and is prima facie liable to damages.

MR MOORE: Yes.

KIEFEL CJ: The damages would be cost plus profit, in relation to what has been done, and if there is a question of loss of profits or loss of opportunity, pure profit.

MR MOORE: Yes.

KIEFEL CJ: Not dissimilar to that which we see in the Act under section 38(7).

MR MOORE: Yes.

KIEFEL CJ: Not dissimilar.

MR MOORE: Yes.

KIEFEL CJ: So the question is really the basis upon which it is said that the party not in default can seek a remedy other than that which the parties have agreed should be determined under the contract?

MR MOORE: Well, yes, the law imposes a secondary obligation upon a party in breach, or a party is repudiated, to pay damages, contractual damages.

KIEFEL CJ: What is the clearest statement of that, Mr Moore? Where does it arise from?

MR MOORE: The statement of

KIEFEL CJ: A statement that the law, as a matter of principle and doctrine, that the law imposes this secondary obligation on the party in breach?

MR MOORE: I think it is Photo Productions v Securicor – I will look up that citation. I think it was the House of Lords that said a secondary obligation to pay damages for breaches imposed by the law on a party in breach of contract.

GORDON J: The underlying philosophy, if one wants a rationale, is it not, is that, as you put it before – and I want to know whether it goes any higher than this –the party who has repudiated, giving rise to the breach, is, in a sense, not entitled to benefit from a bargain it no longer seeks to be bound by.

MR MOORE: Yes.

GORDON J: In other words, if the value of the work done is greater than that that has been the subject of the contract that that party has abandoned, in real terms, by reference to quantum meruit assessment, then they should be entitled to recover it.

MR MOORE: Yes. That is the central part of our rationale; it is not the exclusive rationale.

GORDON J: What are the other rationales that go with it other than that?

MR MOORE: Because there may be situations – and we say this case is one – where contractual damages are difficult to ascertain.

GORDON J: This little bit?

MR MOORE: No, it is not just this little bit. If the variation work, the provisional sums work, needs to be assessed strictly on a contractual basis then one needs to assess for the provisional sum – for example, the seller – all of the work needs to be assessed if it is restricted to the contract’s terms – cost plus 15 per cent or cost plus 20 per cent and in many cases

GORDON J: But is that not part of the accrued rights provisions?

MR MOORE: That is if the accrued rights are engaged.

NETTLE J: And they are.

GORDON J: And they are. That is right.

NETTLE J: You sought to argue otherwise but you were stopped.

MR MOORE: Yes.

GORDON J: That is our point, Mr Moore. This is why we are dealing with just this little bit now.

MR MOORE: Yes. But if one stands back and asks, “Is there a rationale for ever allowing quantum meruit?” there may be cases where work is stopped a third of the way through. If one needs to assess contractual damages, there can be complexities involved in that assessment.

EDELMAN J: I suppose in a case like Baltic Shipping v Dillon, a claim for damages was brought but, also, the passenger wanted all her money back.

MR MOORE: Yes.

EDELMAN J: The restitutionary claim failed, but is there anything in any of the judgments that suggests that the reason why the restitutionary claim had to fail was because there was a damages claim that could have been brought in relation to the same subject matter?

MR MOORE: No, not on my reading. The reason given in Baltic for failure of the claim to recover the entire price of the cruise was that there was not a total failure of consideration. If this Court accepts the proposition, particularly in relation to services, that there is no rule that prevents restitution when there has been some consideration provided for which there can be counterrestitution – give up what you have received then that ought not to stand in the way of a claim to restitution.

NETTLE J: Here there has been consideration, all the instalments.

MR MOORE: Yes.

NETTLE J: So, all we are left with is the increment to which Justice Gordon refers.

MR MOORE: If your Honours find that the instalments are unconditional accrued rights

NETTLE J: I am proceeding on that basis at the moment given that there is no argument to the contrary.

MR MOORE: Yes. Well, that depends upon acceptance of the proposition that if there are accrued unconditional rights under the contract, there can never be restitution for a claim such as this, in relation to the work that gave rise to those accrued rights. We put the proposition that there are good reasons why the law would give a right to restitution for all of the work done even if there are accrued unconditional rights.

NETTLE J: These are reasons for your policy to retain a rule which was based on a misconception, a misconception that a contract terminated for breach was avoided ab initio rather than from the point of acceptance of the repudiation.

MR MOORE: Yes, but in some cases that is the basis – a basis upon which the proposition is put, but by the time of Renard it had well and truly been understood that termination for repudiation does not operate ab initio.

NETTLE J: It proceeded as if it still were the case that that was so.

MR MOORE: It proceeded on the basis that restitution can be allowed, and is permissible, for all of the work done.

NETTLE J: I mean, it has been a while since I read it but I think Justice Meagher actually refers to the fact that a contract is rescinded only from the point of acceptance but, nonetheless, the rule is so built up it should be returned.

MR MOORE: Yes.

NETTLE J: But should it? I mean, what is the justification over and above the misconception which founded it.

MR MOORE: One is that it provides a strong disincentive to people not to repudiate their bargains.

NETTLE J: You did.

MR MOORE: I am sorry, your Honour.

NETTLE J: You did repudiate the bargain.

MR MOORE: Not me.

NETTLE J: Your client.

MR MOORE: No. Yes. The owners – it provides an incentive to a person who is in a bargain situation from not repudiating their obligations under the contract. That is one part of the rationale.

BELL J: Mr Margetts suggests the obverse of that is the enthusiasm with which builders might seek to find an opportunity to accept repudiatory conduct, having regard to the advantages that might accrue on the quantum meruit basis. I mean, it seems to me there are arguments either side on that.

MR MOORE: Yes.

BELL J: You took us a little earlier to Lumbers. How do you deal with the observation Chief Justice Gleeson made at CLR 655, paragraph 48, where his Honour spoke of the desirability of not encouraging extension of:

the scope of restitutionary claims beyond the bounds set by legal principle . . . [where it] would be to cut across or disturb contractual relationships and established allocation of risk.

MR MOORE: Our response is that the proposition that an allowance of a claim in restitution in circumstances where the parties were in a contractual relationship disturbs the contractual allocation of risk is a statement of conclusion. It does not identify the reasons why it would be inappropriate to allow a claim in restitution, particularly where the valuation of the quantum meruit has regard to the contract price between the parties.

Renard says that the value of the consideration payable under the contract can provide evidence, perhaps strong evidence, of the reasonable value of the work that was performed. In a simple case, where there are no variations, no provisional sums, no uncertainty, it may well be open to a defendant to say, “The parties have agreed that the value of this amount of work should match what the parties allocated to that work in the contract”.

This is not a simple case. This is a case involving a large number of requested variations, provisional sums, work stopped partway through construction, albeit close to the end and it does give rise to difficulties of working out what are the costs of the builder that need to be taken into account in establishing the contract price?

You cannot look to this contract and say, “There you are, you have a determined price for the builder’s actual work”.

KIEFEL CJ: You would usually in assessment of damages for breach of contract you would look at the actual costs. It would be a question of the builder proving actual costs and the margin of profit that he was receiving under the contract.

MR MOORE: Yes.

KIEFEL CJ: These are not matters of great difficulty, except if your bookkeeping is very bad.

MR MOORE: Yes. There may be cases where the builder’s records of his or her own time do not enable a ready and easy assessment of how much time the builder has spent on particular tasks.

KIEFEL CJ: Well, that is to say that then you impose quantum meruit and allow the value of work to be performed because a builder is having difficulty with the onus of proof.

MR MOORE: Yes, that is one reason why contractual damages may be difficult to assess.

EDELMAN J: I thought your submission before lunch was that the reason why restitution or the ground upon which restitution should be awarded in a case like this was a failure of basis and that the reason why there would be a failure of basis was that the basis upon which the obligation was performed was that the owner would permit the entirety of the work to be completed.

MR MOORE: Yes.

EDELMAN J: So therefore, if your entire obligation argument fails, there is no failure of basis.

MR MOORE: No, not necessarily.

EDELMAN J: Because at least in relation to those severable parts for which a right to payment has accrued, the entirety of that work has been permitted and the payment, or the basis upon which the work was done, has been earned.

MR MOORE: Only if the basis is itself regarded as divisible. We put the proposition that the basis upon which the builder is performing work and receiving payments along the way includes the ability to complete construction. In that respect, we adopt, with great respect, two examples that were given by Justice Deane in refusing special leave in Renard.

The first was in relation to a contract where the builder – these are Justice Deane’s words on the special leave hearing:

why for example, if you had a lost contract in which the builder saw advantages arising to its reputation from a successful completion of the building, and the owner repudiates the contract thereby depriving him of those intangible benefits, should justice say that he loses the benefits, he loses the contract, and does not get paid the fair value of his work.

KIEFEL J: Is this his Honour’s observation in the course of argument?

MR MOORE: Yes.

KIEFEL CJ: Or is it part of the reasons?

MR MOORE: No.

KIEFEL CJ: Even then, if it were reasons, you know what this Court has said so often about reasons for refusing special leave.

MR MOORE: Yes, I accept that, your Honour. But, in our respectful submission, the example makes a valid point.

KEANE J: If you overcome the problems of remoteness in the example you are giving us, there would be damages recoverable for breach.

MR MOORE: Potentially, although, in contract, that would be difficult to establish.

KEANE J: If it cannot be established as a matter of compensation for breach of contract, then why would that be something for us to worry about?

MR MOORE: It is a question of

KEANE J: If the promisor has not taken responsibility for that adverse outcome, what is wrong with a rule that does not oblige them to pay for it? What is wrong with not having secondary obligations where you have not got a primary obligation?

MR MOORE: We would rather put the question, what is the principle of law that prevents an alternative claim to restitutionary quantum meruit which is to be paid a fair and reasonable sum for work performed? What principle of law has the result that whenever there is a claim to contractual damages, there cannot be a claim for a fair and reasonable sum?

KIEFEL CJ: Because while the contract subsists, it governs the relationship between the parties.

MR MOORE: Yes. In our respectful submission, when the contract is terminated

KIEFEL CJ: It does not terminate it for all purposes. That is the whole point of McDonald v Dennys Lascelles.

MR MOORE: Yes. In our respectful submission, the mere fact that, on termination, there is a right to claim contractual damages ought not lead this Court to conclude that in every case there can never be a claim for restitution for work done.

KIEFEL CJ: I think we understand that that is your argument, Mr Moore.

MR MOORE: Yes. Can I just take your Honours very briefly to a passage in VCAT’s – the reasons of the Member in VCAT, volume 1 of the court book, so the first is on page 25. In relation to the variations in paragraph 102, the Tribunal found:

that the arrangement –

between the parties:

was that there would be an adjustment at the end of the job with respect to the cost of the extra work.

GORDON J: Does that mean any more than it is not an accrued right at the time?

MR MOORE: Yes, I think that is right, your Honour. Yes, I think that is right. Then in paragraph 42 on page – I am sorry, on page 28 – just in relation to the variations, I think there was a criticism made of the learned Member of the Tribunal, that he did not take into account the failure of the builder to provide a written notice and to give the opportunity to the owners to determine whether or not to proceed with the variations.

Paragraph 114 reveals that the Tribunal did take that into account the first four lines of that paragraph. His Honour has assessed that the fairness required by section 38(7) in paragraph 115 and 116 and his Honour has concluded there that none of the variations added more than two per cent to the original contract price.

I think there was an argument before that the Tribunal was wrong about that. We do not accept that proposition. That is the finding that none of them added more than two per cent, remembering that section 38 does not apply to provisional sums.

NETTLE J: What is the importance of that last observation, Mr Moore? That is to say that 38 does not apply to provisional sums. What is the application of that here?

MR MOORE: That if there is a variation requested to a provisional sum and that variation has an impact on the price of more than two per cent, that variation may be permitted to be undertaken notwithstanding any noncompliance with section 38.

NETTLE J: So you would contend that all of those here satisfy the subsection (2) criteria?

MR MOORE: All of the variations to things other than provisional sums satisfied the two per cent criteria; that is, they were less than two per cent.

NETTLE J: Thank you.

GORDON J: What about the other criteria? He does not go that far, does he?

MR MOORE: The Tribunal did not find whether or not that criterion about the builder having a reasonable view that there would not be a delay, there would not be an impact on the permit, but section 38 was hotly in dispute at VCAT. It was relied upon by the owners. Everyone put on their evidence and was crossexamined on the basis of 38 being alive. We are stuck with the evidence that we led and so are the owners. If it is now necessary for the Tribunal to conduct a quantification exercise

GORDON J: Or a statutory exercise.

MR MOORE: Yes, or a statutory exercise.

GORDON J: Does it satisfy the requirements of 38?

MR MOORE: Yes. Then there is no need, certainly, we say for this Court to indicate, that the matter should be remitted to a different Member. There is no need for us to give any more evidence; we have given our evidence from the builder about what he believed in relation to that category. It is either enough or it is not to satisfy the statute. They crossexamined the builder about section 38.

So to suggest that there needs to be a remittal for the whole of 38 to be opened up again and for the builder to give more evidence about what he thought at the time, in our respect, is not justified. This is a quantification exercise and, as your Honour quite rightly says, with respect, an exercise of considering whether on the evidence that was given certain gateways in section 38 were passed or not.

EDELMAN J: You say that there has been a finding in terms of (6)(b)(ii)

MR MOORE: Yes.

EDELMAN J: but you accept there has not been a finding in terms of (6)(b)(i)?

MR MOORE: We say that the finding in paragraph 114, I think it was, does satisfy

GORDON J: You think that is an assessment of that section?

MR MOORE: 115:

it would be most unfair to the Builder

GORDON J: No, that deals with (b)(ii); we are asking about (b)(i).

NETTLE J: Exceptional circumstances.

MR MOORE: I am sorry. In its terms, it does not use the words “significant hardship” but he does say:

The total cost of all variations was very large indeed. In these circumstances, it would be most unfair –

In my respectful submission, that can be fairly read as satisfying both (1) and (2).

KIEFEL CJ: Mr Moore, the Tribunal valued the whole of the contract.

MR MOORE: Yes.

KIEFEL CJ: If there was a remitter to give effect to section 38, to consider the assessment under section 38, would it be necessary for it to go back over its – that is to say, if the Court was against your client in relation to the first point, the quantum meruit would it be necessary for the Tribunal to go back over those calculations?

MR MOORE: Yes, there would be a

KIEFEL CJ: It would have to do a whole new calculation.

MR MOORE: It would have to be a different calculation. We think there is certainly no further lay evidence that would be necessary. It is possible that there might be some additional expert evidence but there was detailed expert evidence of cost and value.

GORDON J: That would not be the calculation, on this regime, would it? It would be a different calculation.

MR MOORE: Yes.

GORDON J: You would have accrued rights in respect of those matters subject to the progress payments.

MR MOORE: Yes.

GORDON J: You would have this gap, or what I call the gap, which I now realise would include variations to provisional sums which are addressed by the Tribunal Member at paragraph 285 and following, to make good that proposition.

MR MOORE: Yes.

GORDON J: Which are either assessed by way of contract damages, or as you would have it, alternatively, quantum meruit, and then there would be the variation calculation under 38.

MR MOORE: Yes. Can I just say that this highlights one of the reasons why we say the law ought permit the Tribunal, in a case like this, to determine that the fairest way to resolve the dispute is to assess a fair and reasonable sum for all of the work done because

GORDON J: Why? Why here, when you have got progress payments, accrued rights and payments made under a contract, one would not even need to look at those items. One would sit there and say, “Here is the progress claim, amount earned, contract, end of inquiry”. You would not have all of this analysis that has gone on for pages, would you? You would not need to, it would be very straightforward.

MR MOORE: A lot of the analysis is whether or not the variations were requested. So a lot of the Tribunal Member’s reasoning is taken up by that issue. The owners denied requesting

GORDON J: Your proposition was, in a sense, you sit back and you go quantum meruit across the board.

MR MOORE: Yes.

GORDON J: That just cannot be right. It does not make good your proposition that it is easier and fairer. In terms of time, it is the most expensive way possible.

MR MOORE: Not if there – and I accept that this case is not the strongest example – but not if there is a lot of work that was still to be completed. That would require the Tribunal to assess what would the costs have been incurred by the builder to complete that work because the builder gets

GORDON J: Sorry, I do not mean to cut you off – so you say it is quicker for an assessment to determine how much the value of the work is done

MR MOORE: Yes.

GORDON J: rather than, in effect, undertake a hypothetical exercise of ascertaining what the value of the work – the value of the loss.

MR MOORE: Exactly.

GORDON J: I see.

MR MOORE: Yes, exactly.

KIEFEL CJ: Why would you not just look at the profit margin – that is the loss? Why do you need to value, hypothetically, the work that would have been undertaken?

MR MOORE: Because on standard contractual measure of damages, the builder gets the profit that he would have earned if he had completed the contract.

KIEFEL CJ: If he had had the opportunity to complete?

MR MOORE: Yes, if he had

KIEFEL CJ: It is loss of opportunity costs.

MR MOORE: Yes.

KIEFEL CJ: It is profit.

MR MOORE: Yes, but

KIEFEL CJ: You could discern – should be able to discern – what the profit is by reference to what the builder was earning under the contract up to that point.

MR MOORE: You could.

KIEFEL CJ: Given that there might be variations on profit in relation to particular kinds of work but that should be able to be explained.

MR MOORE: Yes, but if there is a large amount of work still to be completed, credit must be given for the costs that are saved by the builder not having to do that work. You cannot just say

KIEFEL CJ: You do not need to enter into it if you are looking at opportunity profits that have been lost.

MR MOORE: If the question is, what damages will place the builder in the same position as if the contract had been performed? Inevitably, that will require an assessment of the costs that would have been incurred by the builder in completing the work.

KIEFEL CJ: In order to determine what his profit would have been?

MR MOORE: Yes, yes. There are various ways in which contractual damages in a case of a repudiating owner can be calculated. We have given your Honours, in the bundle, an extract from McGregor on Damages, at page [979]. Though the general principle, of course, is to put the builder in the same position as if the contract had been completed. So, that is the contract price, less the cost of the builder of executing or completing the work.

GORDON J: Sorry, where are you reading, Mr Moore?

MR MOORE: I am sorry, page [979] in McGregor, right up the top paragraph:

Prevention Resulting in NonCompletion

On the measure of damages where the owner acts so as to bar completion there is, surprisingly, a dearth of authority. General principles would put the normal measure at the contract price less the cost of the builder of executing or completing the work. In calculating the builder’s costs the indirect as well as the direct costs must be included, especially overheads.

Then, there is the potential to reduce that. Then, there are two other measures which, in theory, should, in a world of perfect information, lead to the same result. The first alternative is:

the net profit which the builder could have made on the whole contract plus his expenditure and part performance –

So, that requires one to assess what are the costs incurred to that date? And, that might be difficult for a small builder who does not pay him or herself a wage. So, it is not easy to ascertain the cost of the builder’s own labour. Or, the second alternative is:

for the work done, such proportion of the contract price as the cost of the work done bears to the total cost of the whole contract, plus, for the work remaining, the profit that would have been made upon it.

So as the text quite rightly points out, if there is adequate proof, a world of perfect information, then they should lead to the same result. But there may be difficulties of proof, as this text anticipates, and twothirds of the way down the page:

Another, perhaps simpler, approach open to a claimant who is unable to complete except at a loss is to treat the contract as discharged by the breach and sue in restitution on a quantum meruit for the cost of the work done, an action which does not depend upon the contract and therefore will not be trammelled or limited by the contract rate.

Of course, that is one text that considers that that is an open possibility although, of course, there are some texts that treat the possibility as flawed.

KIEFEL CJ: Mr Moore, are you going to add to your written argument in relation to the value of the claim being capped by the contract price?

MR MOORE: Can I just have a moment, your Honour. Just to make these brief references, Justice Deane in Pavey v Matthews did refer, at pages 250 and 257, to the decision in Horton v Jones, Chief Justice Jordan, where the obligation to pay reasonable remuneration was to be determined having regard to the contract as evidence, but as evidence only on the question of the amount. And to say that, prima facie, the measure of restitution for services provided is the market value of those services, and the Supreme Court in the United Kingdom so held in Benedetti v Sawiris at paragraphs 15, 100 and 180.

The Supreme Court also held that it was open to a defendant to a quantum meruit action to prove that he or she reasonably valued the services at less than market value, and it would be open to this Court to so rule as well, leaving it to a defendant to establish that the reasonable value should be something less than fair market value.

We say that there is no injustice in not imposing a ceiling on a quantum meruit award by reference to the contract price. Boomer v Muir is, we say, an unfairly maligned case. It is often said that that is an example where quantum – under contract, there was only, I think, $20,000 to be paid but the subcontractor obtained a restitutionary award of, I think, $200.

But in that case, in fact, the subcontractor had significant claims for damages because the repudiating party had caused significant delays and inefficiencies and that, therefore, had there been a claim in contract damages would have had to have taken into account of that. The Court considered, albeit on the basis that the contract can be regarded as rescinded ab initio, that a fair remedy was in restitution for the fair value of the work done.

We are not certain whether, under ground 2, the appellants say that in a case where there is a substantial portion of the construction work still to be completed how the ceiling approach works. Do they say that the contract price should be allocated pro rata to the work that was performed? If that is so, in our respectful submission, that is not justified as a matter of principle. The instalments agreed may not reflect the work and value that was performed at each stage.

GORDON J: Is that because sometimes builders front load it to meet, for example, outofpockets upfront?

MR MOORE: Yes. Or it could work the other way. But if you have one contract price then to simply say, “Well, for half of the work you get half of the contract price” would not be justifiable if there are significant startup costs. That is why a pro rata approach would not be justifiable if quantum meruit was allowed but this contractual ceiling approach was to be adopted.

EDELMAN J: How did the Supreme Court deal with the contract in Benedetti? A quantum meruit was allowed in that case.

MR MOORE: Yes.

EDELMAN J: The acquisition agreement was a subsisting contract, was it not?

MR MOORE: Yes, I think the majority in that case said that the contract scope of works did not cover the actual work that was performed. So there was, I do not think – I think I am right in saying – a contractual right to be paid.

GORDON J: Can I just test that? Is that argument about the need for adjustment by way of quantum – restitution by way of quantum meruit then there is a significant proportion of the contract left to be done?

MR MOORE: Yes.

GORDON J: Does that argument still apply if you deal with the accrued rights in respect of the work up to the date? It does not, does it?

MR MOORE: If the Court holds that the mere existence of accrued right means that nothing more can be paid for that stage of work, then, yes, it does not deal with that. But if the fair value of the work, for one particular stage, does not reflect the price progress payment stipulated in the contract, then in our respectful submission, the builder ought not be restricted to just the payment for that stage as stipulated in the contract. It may well be that the stipulated sum does not fairly reflect, and was never intended to operate as if it was a completely separate contract for that stage.

Your Honours, just on the basis on which the work was performed, Barnes v Eastenders at paragraphs 108 to 109, is a decision like Roxborough, which shows that the basis upon a particular act of performance can be derived from something other than the written terms of the contract. Your Honours, can I turn then to ground 3.

NETTLE J: Was there any particular passage in Barnes v Eastenders to which you wish to draw attention to?

MR MOORE: 108 to 109.

NETTLE J: What is it you get out of that, exactly?

MR MOORE: I am sorry, your Honour.

NETTLE J: So what is it that you say that you get out of that?

MR MOORE: Sorry, it is also 114 to 116. So that is the reference to the way Justice Gummow in Roxborough put the basis of the claim.

NETTLE J: It was a divisible obligation, so they could get the tax back, was it?

MR MOORE: Yes, but the way that his Honour characterised the claim was the failure to sustain itself, of the state of affairs contemplated as a basis for the payments.

NETTLE J: Yes.

MR MOORE: We say the basis upon which this work was being performed was that the owners would not prevent the builder from completing the building, for very good reasons.

EDELMAN J: Well, you say two things. You accept that the basis upon which any severable obligation was performed was that it would be paid for.

MR MOORE: Yes.

EDELMAN J: I think you also say the basis of the performance of a severable obligation is not just getting paid for it

MR MOORE: Yes.

EDELMAN J: but somehow not being prevented from performing the other severable obligations.

MR MOORE: Yes. Yes, that is the way we put our case.

EDELMAN J: Which you do not find in the contract but you rely on Roxborough to find that from the ether.

MR MOORE: Yes, there was no contractual promise in Roxborough to pay the tax to the government body. The basis upon which parties can be operating can be excontractual. In 115:

there was a total failure of consideration in relation to the receiver’s rights over the companies’ assets, which was fundamental to the basis on which the receiver was requested by the CPS and agreed to act. I use the expression “fundamental to the basis” because it should not be thought that mere failure of an expectation which motivated a party to enter into a contract may give rise to a restitutionary [remedy].

We say the ability to complete a building is fundamental to the basis upon which that there were performance building work.

Your Honours, can I then turn please to the final ground. Section 38 – largely, we rely on our written submissions and wish to emphasise and expand on only a few points. The first is that the section governs contractual rights. The language of the section is concerned with contracts and contractual rights, just as the part of the Act in which it appears, that part being Part 3, “Provisions that only apply to major domestic building contracts”, and then a division that applies after the contract is signed.

In our respectful submission, the Court of Appeal was correct to hold that it did not – by a side wind and in the absence of clear language, apply it so as to exclude the builder’s noncontractual rights to quantum meruit. On the Court of Appeal’s view of the way the section operates, the need for a quantum meruit remedy is enhanced, in our respectful submission. If your Honours have the Court of Appeal’s reasons at page 199 of volume 1 – sorry, the core appeal book. So, in paragraph 129(b), and I will come back to (a) in a moment, the Court said that:

If the builder has not complied with the notice requirements of s 38 but s 38(2) . . . applies –

So, that is the section that says if it is not a – the variation will not cause any delay, will not change the permit:

and will not add more than 2% to the original contract price –

So, we are in section 38(2) territory. The Court of Appeal has construed section 38, in any case where the parties:

have not agreed to a contractual price for a variation, the builder is not entitled to recover on the ‘cost plus profit’ basis –

that would destroy any contractual right. If this applies, of course, under the contract, then the contractual right in the Court of Appeal’s analysis is for nothing, even if section 38(2) applies because the builder is not entitled to recover what the section says, the builder is not entitled to recover on the cost plus basis.

If that is the correct construction – and, I am sorry, that also applies even if there is some minor delay, for example, in a variation so that 38(2) is not satisfied, then on the Court of Appeal’s construction, if VCAT is satisfied – we are now in 38(6)(b):

VCAT is satisfied–

(i) that there are exceptional circumstances or that the builder would suffer a significant or exceptional hardship . . . and

(ii) that it would not be unfair to the building owner for the builder to recover the money

for the variation. On the Court of Appeal’s construction, despite VCAT being so satisfied, the builder is not entitled to recover on the cost plus profit basis. That is because, as Justice Edelman said this morning, the way the Court of Appeal has read the word “applies.”

NETTLE J: Well, you do not contend for that construction, do you?

MR MOORE: No, we do not, but if that is the correct construction, it must be, in our respectful submission, that we are entitled to quantum meruit for variations.

NETTLE J: Why would you not be entitled to what 38(7) says you are entitled to?

MR MOORE: If the Court adopts the Court of Appeal’s construction, their construction is we are not entitled to 38(7) in those

NETTLE J: You would contend that you are?

MR MOORE: Yes, we contend that the Act does not work that way.

EDELMAN J: Does your submission differ in any way from the appellants’?

MR MOORE: Yes, it does. Firstly, we withdraw the submission that 38(1) is to be read as requiring a written notice.

GORDON J: I am sorry, I missed what you just said there, Mr Moore. You withdraw your submission, is that what you said?

MR MOORE: Yes.

GORDON J: I see.

MR MOORE: In my respectful submission, 38(1), in speaking of a notice, does not mean a written notice.

GORDON J: The explanatory memorandum to the provision seemed to suggest it needed a written notice.

MR MOORE: In our respectful submission, the use of the words “with notice” throughout and the use of the word “asked for” in (5), points to the better construction of 38(1) being that it does not require a written notice.

EDELMAN J: Well, the difficulty with that – it seems to go both ways, but the difficulty with that is that it does appear that the builder’s notice needs to be a written notice.

MR MOORE: Yes, yes, I accept that.

EDELMAN J: So the same word in the same provision is being used sometimes to mean “written” or “oral” and other times to mean “written”.

MR MOORE: Yes. So, “written” is confirmed for the builder’s notice by subsection (5).

GORDON J: I cannot imagine there are too many builders very happy about that argument being put on behalf of them.

MR MOORE: It is

GORDON J: It does not lead to much certainty given the way in which the provision works.

MR MOORE: No, but nonetheless

GORDON J: It may suggest it is not right.

MR MOORE: It is certainly not open to competing constructions but, in our respectful submission, the better view is the one I have outlined. But, the major difference

GAGELER J: What is the consequence then of the failure to give a written notice, in your submission, under subsection (1)? If the owner makes an oral request but does not give a written notice, where do you go?

MR MOORE: It is, in our respectful submission, only a circumstance that VCAT can take into account in assessing the fairness of the situation.

NETTLE J: Does it not drive you straight to 38(6)? Go past (2) because that is not engaged leaves you with 38(6) – the builder must satisfy the conditions under (b)(i) and (ii).

MR MOORE: Yes.

EDELMAN J: That is where the appellant is, in any event.

MR MOORE: The difference between the appellant’s construction and our construction is fundamental where there is an agreed price for a variation.

GORDON J: Is that right? I mean, in certain ways is not the agreed price for the variation something that is taken into account by VCAT under (7)?

MR MOORE: One possible construction is that but, in my respectful submission, it cannot be a correct construction to say that where the builder does give a notice setting out precisely everything that the Act requires, what affect the variation will have on the work as a whole, whether it will result in delays and states the cost of the variation and the affect it will have on the price, so it gives that all upfront to the owner. This is exactly what the variation – if you want it, this is your requested variation remember. If you, Mr and Mrs Owner, want this variation, I will do it for $1,500. It sets out all that information.

Then, the owner takes that away and comes back with a signed request for a variation saying, yes, I accept your quote, please go ahead and I attach with a staple, the builder’s quote.

GORDON J: Well, under 39 it is taken to be, once it is varied, an adjustment to the contract price, is it not, under 39(b)?

MR MOORE: Yes, but their construction is that if everything that I have just said happens, the owner can still come to VCAT and say I know I agreed to pay $1,500 for that variation. I know I got all the information I was required to get, but now I want you to restrict that builder to $750 because it actually only cost him whatever.

GORDON J: Can I ask you whether 132(2) affects that? Under 132, parties are not entitled to contract out of this Act but they can impose greater obligations on each other under subsection (2), as I read it. Does that affect that way in which you put the argument?

MR MOORE: Probably not, your Honour, because what is – on my construction of this section, compliance with the Act gives rise to an agreed price variation. You have fully complied with the Act, you are not contracting out of the Act. You are agreeing on a fixed price for a specific variation requested by the owners.

NETTLE J: Let so much be assumed. In a case like this where you, the builder, have neither complied with the contract requirement for written notice nor with the Act, is not the fact that your only rights to recover under subsections (6) and (7)?

MR MOORE: If the Court concludes that the builder cannot have a claim for quantum meruit – restitutionary quantum meruit – then your Honour is quite right.

NETTLE J: Well, the Act says so, does it not?

MR MOORE: The Court of Appeal construed the Act as not

NETTLE J: I know. But, we went through this before.

MR MOORE: Yes.

NETTLE J: You do not persist in that construction. If there is no written notice given, then there is no entitlement under subsection (2). You have got to go to (6) to get some recovery.

MR MOORE: Yes. We do not accept – we do not proffer, as correct, the Court of Appeal’s construction. But, on the question of the principal legality – that is, the right to claim that common law for quantum meruit, does this section take that away? We agree and, with respect, endorse the Court of Appeal’s reasons

NETTLE J: That it does not.

MR MOORE: Yes.

GORDON J: So, just so I am clear, you say that section (6) does need selfsufficient to take away.

MR MOORE: Yes.

GORDON J: Separate standing – right to quantum meruit

MR MOORE: Yes.

GORDON J: Restitution.

MR MOORE: Yes, yes. But, if we are wrong on that

GORDON J: Then you agree section (6) is it, read with (7).

MR MOORE: Yes. But, except – and it is not this case – but they are asking for a ruling that might apply to other cases, except for agreed price variations. They say, for agreed price variations where all of the Act’s requirements are satisfied, you still will have disputes, ironically, enabling owners to come to VCAT and say, I know I got all this information about all these variations I asked for – and I know I agreed, in writing, to pay specific prices for specific variations but I want VCAT to now say, I do not have to pay that, I just have to pay cost, whatever the cost was plus a reasonable profit.

GORDON J: One of the reasons why (6) and (7) might be in that form is because you have not complied with the Act.

MR MOORE: Yes.

GORDON J: Conversely, if you had complied with the Act, then you would have a different rate.

MR MOORE: Yes, we accept that. And, I think, in our respectful submission

GORDON J: What it does is it compels builders to behave themselves and give notices and comply with the Act otherwise you get a different rate.

MR MOORE: Yes, I accept that, that it is possible to construe this as for builders who do not provide a written notice that they are entitled to only costs plus reasonable profit. I just wanted to point out where the major difference lies between us and the appellants is on something that does not actually arise in this case but is fundamental to a whole lot of other cases that might be behind me – that is, where the builder has done what they are supposed to do. Everything is in writing, everything is agreed, in advance. On their construction, the builder still does not get the agreed price and that cannot be correct. It would be, in my respectful submission, productive of a huge amount of subsequent disputes, owners seeking to undo their upfront, wellinformed agreements for variations.

GAGELER J: I am a little confused. Do you support paragraph 129 of the Court of Appeal’s judgment?

MR MOORE: No, we do not. We support (a). In our respectful submission, the proper construction of subsection (7) reads into subsection (7)(b) if subsection (6)(b) applies. That is, in my respectful submission, the only sensible construction of that provision. They could not have – in my respectful submission, Parliament could not have been intending to undo informed documented agreed price variations.

EDELMAN J: Could I just understand how textually your submission that subsection (7) does not displace an agreed contract price works. Is that because, on its proper construction, the agreed contract price, the subject of section 132, will always be the cost of carrying out the variation plus a reasonable profit or is it for some other reason?

MR MOORE: The agreed contract price – the contract price will always be adjusted by the agreed amount.

EDELMAN J: Yes, but what I am asking is if subsection (6)(b) applies, but you have got an agreed contract variation price, why does the Tribunal not engage in the exercise of calculating the cost of carrying out the variation plus a reasonable profit? Is that because the contract price will always be that amount or is there some other reason?

MR MOORE: No, it is because the contract price will be that – not the cost plus reasonable profit; it is because the contract price will be what the parties have agreed. Subsection (6)(b) is not engaged whenever (6)(a) is engaged. Subsection (6)(a) says:

not entitled to recover any money in respect of a variation asked for by a building owner unless –

(a) the builder has complied with this section; or

EDELMAN J: I appreciate that. I am imagining a situation where there is a written agreement for a price for additional variations but for some reason some of the provisions in section 38 have not been complied with. So you would be in the territory of (6)(b).

MR MOORE: I am sorry, yes.

EDELMAN J: You would be in the territory of (6)(b), which then, if (6)(b)(i) and (b)(ii) were satisfied, get driven to subsection (7).

MR MOORE: Yes.

EDELMAN J: As I understand your submission, subsection (7) does not then rewrite the agreed amount in the contract for the variations.

MR MOORE: Your Honour’s question presupposes that there has been some noncompliance with the written notice.

EDELMAN J: Yes.

MR MOORE: In that event, the agreed price in the written variation would not apply.

EDELMAN J: I see.

MR MOORE: And it would be cost plus reasonable profit. It is only when the builder has complied with all of the terms of the subsection. If the builder has complied with all of the terms of the subsection and stopped at (6)(a) and the Tribunal does not assess further the terms of the subsection, it simply says, “The contract has been varied quite properly and consistently with the Act and the parties are to pay the agreed price”.

GORDON J: You may get some support for that view from the explanatory memorandum which, in relation to clause 37, which I understand is the earlier one, explains it in that way, and then when they get to 38 they seem to misunderstand that it has got this split between (6)(a) and (6)(b) and just say that it operates in the same way as 37 without understanding that there was an additional element.

MR MOORE: Yes. Your Honours, the final thing I wanted to say was on remittal. For the reasons I have articulated, the remittal, if there is to be one, is on two things: quantification of the proper price of the variation and, as part of that exercise, secondly

GORDON J: To be precise, you mean variations but not provisional sums?

MR MOORE: Yes, that is right, and the proper price for the provisional sums. No question of credibility would arise in that event and it would, in my respectful submission, be quite wasteful and without any need whatsoever for the matter to be remitted to a different Member of the Tribunal.

NETTLE J: Do you accept that the Tribunal has already found exceptional circumstances and undue hardship?

MR MOORE: We say yes. Yes. Your Honours, in the context of this unfortunate litigation, it would be appropriate for the remittal in the first instance to go back to the Supreme Court of Victoria, the Court of Appeal, to deal with issues of costs below before the matter is heard – the subject of a further hearing before Member Walker.

Your Honours may have noticed from paragraph 9 of Justice Cavanough’s reasons, on page 112 of the core appeal book, that there were a very large number of grounds raised by the owners before the hearing before his Honour Justice Cavanough, many of which were eventually abandoned, and I think three core points were run. There was an enormous amount of work done in preparation for grounds that were not run.

It would be grossly unfair, in my respectful submission, for the question of who is to pay the costs of all of that work to be bypassed if there was a remittal straight from this Court to VCAT. We do not ask your Honours to make any costs orders about the hearings below but we do ask your Honours to remit the matter if the remittal is to occur to the Court of Appeal to hear argument on those issues first.

NETTLE J: The Court of Appeal could not deal with the costs before Justice Cavanough very effectively, could they? He is the only one that could say whether or not there were undue costs incurred before him.

MR MOORE: Yes, I think that is probably right, your Honour.

NETTLE J: Why could we not, if it were to be the case that we remit it, that we remit it to the Tribunal for the limited purposes identified but reserve to his Honour the question of what order to costs should be made in the circumstances for the costs before him?

MR MOORE: With respect, that is an entirely appropriate course.

GORDON J: Then, what is wrong with paragraph 5 of the order made by Justice Cavanough? Is that because there is to be a reassessment of the split of costs? It appears at page core appeal book 145.

MR MOORE: Yes, if that order is to be disturbed, it would need to be remitted to his Honour Justice Cavanough but it is only if that order is undisturbed then the matter could be remitted for a limited purpose to VCAT. Pardon me for a moment, your Honours.

NETTLE J: I want to be specific, Mr Moore. If one were to set aside paragraph 5 of Justice Buchanan’s order, but remit the question of what costs ought be paid in the circumstances to him that would be sufficient?

MR MOORE: Yes. Your Honours, unless your Honours have any questions, those are my submissions.

KIEFEL CJ: Thank you, Mr Moore. Do you have anything in reply?

MR MARGETTS: I do, if the Court pleases. In terms of the remittal of issues, there are many other issues that have not been resolved. There are many other claims that the Tribunal did not decide, in relation to quantum. It is not only if I just go through them, it is not only the variations, it is the entitlement to the provisional cost items; it is the question of delay, whether any of the variations caused delay; whether any of the variations required planning amendments. All these issues have been not dealt with by the Member, because there has been a quantum meruit claim in front of him, and he acknowledges that in fact he has not dealt with those issues.

If I just take the Court to paragraph 116. In 116, there the Senior Member talks about – this is at page 28, he talks about the issue of the price:

Moreover, none of them added more than 2% to the original Contract price stated in the Contract.

Now, he has made no findings on that. He has reached that conclusion. It is hard to know exactly what the basis of that conclusion was. If one looks at the reasons, there is no mention of his findings as to cost because he is dealing with and dealt with the variations by way of the quantity surveyor’s report. He also says if one goes to the second sentence:

Most of the variations claimed would not have required an amendment –

Well, we do not know where that has come from. That is obviously a disqualifying event to satisfy section 38(2). So, the inference must be that he has formed a view that some must have required an amendment. He then says:

Most of the variations claimed would not have required an amendment to the building permit and would not have caused any delay to the work.

Again, the inference must be that he has formed a view which is unclear from his reasons that some of the variations were going to cause additional time or delay and some of the variations required an amendment to permit. But he has reached a conclusion thereafter that he says:

Moreover, none of them added more than 2% to the original Contract price –

It seems he has had a desire to ensure that the claims fall within section 38(2) but he has not address the proper issues but he has expressed a view on it.

EDELMAN J: Was the builder crossexamined or examined on what the builder’s reasonable belief or what the builder’s belief was in relation to those matters?

MR MARGETTS: As I stand now, I do not know. I will ask my learned junior, but I know there was crossexamination about – there was crossexamination about the cost, because obviously the case run by the owners was that cost was the critical issue, not the quantity surveyor’s evidence.

EDELMAN J: Yes, but if you are going to reopen subsection (2), or if you say there is not enough findings to be able to proceed entirely on the matters that are raised by subsection (2), then one needs to look into what the builder’s reasonable belief was.

MR MARGETTS: That is so, and that might require additional evidence.

NETTLE J: If there is no subsection (2) issue because of the lack of writing under subsection (1), and it is only a question of subsection (6), what does it matter?

MR MARGETTS: Well, then it gets back to the question of the considerations that VCAT should take into account in determining whether they should provide relief for the variations.

NETTLE J: Well, they have had all the evidence. Can they not just have a look at it and say, well, looking at all that evidence, I find one way or another?

MR MARGETTS: Well, no. We would say that the way the Senior Members appear to have determined the issue is by reference to his concept of a contract being void ab initio and on a quantum meruit basis. He has not turned his mind, we would say, to the correct test. And, of course, although

BELL J: What is the difficulty with him applying his mind to the correct test now? Why should it go back before a new Member of the Tribunal?

MR MARGETTS: Well, going back to the case of Northern NSW FM Pty Ltd v Australian Broadcasting Tribunal, which is at tab 28 of volume 3 and just looking at page 1070, last paragraph – page 42 of the judgment, there the court stated:

If a decision has been set aside for error and remitted for rehearing, it will generally seem fairer to the parties that the matter be heard and decided again by a differently constituted tribunal. This is because the member constituting the Tribunal in the original inquiry or hearing will already have expressed a view upon facts –

So that is what the Member has done here.

KIEFEL CJ: Your point is that the Tribunal Member has not.

MR MARGETTS: No, we say that he has expressed a view. He has expressed a view in his decision at 117.

EDELMAN J: Except in the rest of the sentence he has expressed a view on facts which will have to be determined in the rehearing.

MR MARGETTS: That is so. So he has expressed a view, and that is exactly the reason we say that the matter should not be remitted back to him, not because of the fact that he has had the benefit of the evidence but the fact is that is at the moment he has expressed a view and reached a conclusion on what we would say is the ultimate issue.

BELL J: He has had the benefit of the evidence, as you note. Is your suggestion that it goes back before a new Member and then there is a further hearing?

MR MARGETTS: We do not – we have not appealed the issue of repudiation; we accept that. We only say that the matter that needs to go back is the quantification of

BELL J: Yes, I understand that, but all the evidence touching on that, you say, is to be led again in front of a new Member?

MR MARGETTS: We say it has to be. We say if it is a contractual claim, which it will be, if the builder’s records are properly kept it should not be a difficult issue.

KIEFEL CJ: But it would be the case, would it not, that a lot of what would be relevant to the claim for damages under the contract would already be before the Tribunal, in particular the question of costs, because a lot of the valuation evidence would have had to have been based on them, would it not?

MR MARGETTS: No, the valuation evidence was not based on cost, and in fact the Senior Member talks

KIEFEL CJ: He would have had to have some regard to them, for goodness sake.

MR MARGETTS: Well, that is the debate I have had in front of Justice Cavanough and the Court of Appeal in that the cost was a factor that should have been taken into account and on both occasions the courts have said no, and the Senior Member said that is so, your Honour.

KIEFEL CJ: Be that as it may, what do you say about remittal? What are the terms of the remitter for which you contend?

MR MARGETTS: I would submit that the matter needs to be remitted for the determination of each party’s damages.

GORDON J: Why do you say “each party’s”?

MR MARGETTS: Because we have a claim for defective work.

KIEFEL CJ: That is not a matter that we have been concerned with.

MR MARGETTS: No, it is not in the appeal, but one would assume that

KIEFEL CJ: Well, we do not make orders if it is not in the appeal book.

MR MARGETTS: But one would assume there is a reassessment – we are content that that figure remains what it is, that that figure has been found to have been an amount by this Member. He has fixed an amount for the defects.

BELL J: You have no quarrel with the quantification of your claim by the Member but you say that the correct course is to send it back to someone else to redo everything, including your claim. I mean, this leaves Jarndyce v Jarndyce in the cold.

MR MARGETTS: Well, again, your Honour, it is unfortunate that the Senior Member has expressed that view.

BELL J: A view on your claim with which you have no quarrel and that is not before this Court.

MR MARGETTS: I was initially submitting that the quantification of all matters go back to a new Member.

KIEFEL J: We understand that. I see the time, what are your other points in reply, Mr Margetts?

MR MARGETTS: The other claims, just so the Court is aware, are set out in the – the other items have not been resolved are set out at paragraph 466 at page 90 of the Senior Member’s reasons, though there will be variation to prime cost items or provisional items and the other claims there that would need to be determined.

My other point there – second point is moving away from remittal is moving to the issue of the costs of the hearing in front of Justice Cavanough and the remittal back to the Court of Appeal. We see no utility in remitting the matter back to the Court of Appeal. The issues of law that the Court of Appeal were asked to determine were the same issues that this Court has been asked to determine.

NETTLE J: I think you are pushing at an open door. Mr Moore agreed with that. It is just a question of whether the question of costs before Justice Cavanough should be reserved to him.

MR MARGETTS: We say not because the two principal issues that have been fought at all the appeals is the question of availability of the quantum meruit remedy and the application of section 38. We have always maintained the position that 38 applies. They have always maintained the position that section 38 does not apply to quantum meruit claims. That can be determined by looking at both the decisions of both Justice Cavanough, at first instance, and also the Court of Appeal.

We would submit that the normal rule of costs following the event would be the appropriate order in the event that this appeal is successful. And, that is the cost following the event of both the hearing, at first instance – and those orders are set aside – and the hearing of the Court of Appeal. We would not see that there is any benefit of going back in front of Justice Cavanough and going through an issuebyissue cost determination which is what our learned friends are suggesting – that the Court would then have to consider which issues were pursued and which issues were not successful but are now successful.

In fact, that argument was put, as I can recall – sorry, I withdraw that. Before Justice Cavanough, yes, concessions were made. Most of the grounds of appeal – you will see from reading Justice Cavanough’s reasons – were abandoned during the course of my oral opening and we only pursued two or three underlying issues. So the hearing was on those issues that we then chose to pursue which are, in essence, being the question of what we are arguing about today.

Further, in relation to that, his Honour – as I can recall his reasons, I cannot have it now acknowledged the fact that those reasons were abandoned at first instance, and only certain issues were pursued. If the Court pleases, they are the only matters in reply.

EDELMAN J: Can I just ask you about what Justice Gordon described as the intermediate point, the circumstance where you do not have any accrued right to some of the work that had been done, perhaps in relation either to prime cost items or variations that fell outside section 38, or a part of a final severable obligation that had not been completed. If those were matters that were the subject of a possible claim for a quantum meruit, was there evidence before the Tribunal from which those items or matters could be separated from the rest of the claims?

MR MARGETTS: In terms of the prime cost items, one would assume the builder would be able to produce all the relevant cost information to establish the costs. And in relation to that item I find it hard to see how there would be any difficulty with prime cost items.

EDELMAN J: All right.

MR MARGETTS: I also just draw the Court’s attention to section 23 of the Domestic Building Contracts Act, which provides that a builder has an
obligation to advise the owner as soon as possible of any additional cost in a prime cost item.

EDELMAN J: What about that part of a severable obligation that had not been completed?

MR MARGETTS: That last part of quantum meruit is not available as a general remedy. We would rely upon the observations in Keating that it is just normally a contractual measure of damages. That last section – that little bit.

EDELMAN J: Even if that is the case, has that been quantified here, or is that a further matter that the Tribunal would need to determine, whether it be contractual or noncontractual?

MR MARGETTS: The Tribunal need to determine, yes, the cost incurred for those additional items post the last payment of the last stage and a reasonable profit margin, on a contractual basis, we would suggest.

NETTLE J: That is cost, plus 15?

MR MARGETTS: Cost plus 15. I just, again, draw the Court’s attention to the authors of Keating, at page 1693, where they talk about this issue of when in fact, if the quantum meruit is not available, that it is a normal measure of contractual damages that are just assessed as a reasonable sum for carrying out that little bit, but on a contractual damages basis. If the Court pleases.

KIEFEL CJ: The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow for pronouncement of orders and otherwise to 9.45 am.

AT 4.23 PM THE MATTER WAS ADJOURNED