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Ultra Developments Pty Ltd v Nagle (Home Building) [2012]

NSWCTTT 518 (12 December 2012)

CONSUMER, TRADER AND TENANCY TRIBUNAL Home Building Division

APPLICATION NO:

HB 10/52785

APPLICANT:

Ultra Developments Pty Ltd

RESPONDENTS: Robert Nagle and Kelly Nagle APPLICATION NO:

HB 11/28376

APPLICANTS:

Robert Nagle and Kelly Nagle

RESPONDENT: Ultra Developments Pty Ltd HEARINGS:

21 and 22 June 2012

APPLICATION:

Claim for unpaid money under building contract, damages for breach of contract and damages for negligent mis-statement

APPEARANCES:

For Robert and Kelly Nagle:

DA Lloyd of Counsel Instructed by Whiteley Ironside and Shillington

For Ultra Developments Pty Ltd: John Carpenter- Blackwell Short Lawyers

LEGISLATION:

Home Building Act, 1989

KEYWORDS:

Damages for breach of contract Damages for negligent mis-statement

____________________________________________________________ Pursuant to Section 50 of the Consumer, Trader and Tenancy Tribunal

Act 2001, orders published on 12 December 2012 are amended on 5 February 2013 to read as follows:

ORDERS

1. I give leave for Darian Percy to be joined as a respondent in application HB 11/28376.

2. Order that the claim against Ultra Developments Pty Ltd and Darian

Percy in application HB 11/28376 be dismissed.

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3. In application HB 10/52785, Order that Robert Nagle and Kelly Nagle pay to Ultra Developments Pty Ltd the sum of $59,320.55, such sum

is to be paid immediately.

4. Order that any application for an order for costs is to be notified to the Registrar within 28 days of the date of these reasons and to be accompanied by any submissions and evidence in support of such an

application.

5. Order that the party against whom any application for costs is made may file and serve submissions and any evidence in reply within a further 28 days from order 4.

6. Within 7 days of order 5 the party claiming and order for costs is to

write to the Registrar and advise whether the application for costs can be dealt with on the papers and, if not, request a hearing date for any application (unless consent orders are filed).

REASONS FOR DECISION Introduction

1. There are two applications for determination.

2. Firstly, Ultra Developments Pty Ltd (Ultra/Builder) commenced

proceedings HB10/52785 against Robert and Kelly Nagle (Nagles)

seeking recovery of unpaid monies under a contract to carry out home building work.

3. Secondly, the Nagles commenced proceedings against the Builder

being application number HB 11/28376, in which the Nagles claim that

they have suffered loss and damage by reason of the negligent misrepresentation of the Builder, in consequence of which the Nagles

contend that they have overcapitalised their property. 4. The disputes concern building work carried out to a residence at

Orange.

5. The owners, Mr and Mrs Nagle, entered into a contract with Ultra Developments Pty Ltd, the director of which was Mr Darian Percy.

6. Ultra claims that it has not been paid all monies due under the contract between the parties and is owed an amount agreed at $54,896.30.

7. This amount was set out in a reconciliation prepared by A Rendell &

Associates (Reconciliation) handed to the Tribunal at the hearing on 22

June 2012 which I initialled and placed with the papers.

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8. The Nagles say that they are not liable to Ultra for the work by reason of negligent misstatements made by Ultra and/or Mr Percy about the

cost of the works to be performed. In short, the Nagles make a claim for the loss occasioned by Ultra in carrying out building works, their

damage being the overcapitalisation of their property in consequence of entering into the contract.

9. In regards to Mr Percy, an application was made at the hearing that he be joined as a respondent to the Nagles’ claim application HB

11/28376. The basis of the claim is set out in these reasons and in points of claim filed by the Nagles.

History

10. The Nagles wanted to renovate their premises and in late 2009 commenced the process of obtaining quotations to carry out various works.

11. One of the companies providing a quotation was Ultra.

12. It is common ground that the parties entered into a Housing Industry

Association form of contract entitled New South Wales Residential

Building Contract for Renovations and Additions dated 18 March 2010.

13. It is the communications between the parties prior to the entry of the contract and the terms of the representations said to be made which the Nagles contend were negligent.

14. At the commencement of the hearing, the Nagles handed up points of

the claim which I signed and dated 21 June 2012. 15. In the points of claim, the Nagles made various assertions about the

conversations between the parties, including making claims in negligence and claims under the Trade Practices Act/Fair Trading Act.

16. The claims under the Trade Practices Act and Fair Trading Act were

abandoned by the Nagles in their submissions (see paragraph 30 of

the submissions dated 10 July 2012).

17. The only issue for determination on the Nagles’ claim is whether or not Ultra itself or by its director Mr Percy made negligent misstatements in the manner contended and, if so, whether the Nagles are entitled to

pursue such a claim and recover the loss and damage alleged.

18. The representations which the Nagles assert Ultra is alleged to have made are contained in paragraphs 2 and 9a of the points of claim. In relation to paragraph 2, the Nagles say that the representation was in

the following terms:

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“Darian Percy advised the Nagles that he could perform the work for $260,000 or less”.

19. In relation to the representation in paragraph 9a, it was in the following terms:

“At the time of signing the contract, Darian Percy said to Kelly Nagle that he

had kept the provisional sums down so as to keep the contract price down to $260,000 and that the price could be kept down to $260,000 through the provisional sum”

20. The conversations relied upon as constituting the representations are found in paragraphs 6, 9 and 11 of Mr Nagle’s statement dated 21

September 2011 and in paragraph 6 of Mrs Nagle’s statement dated 22 September 2011.

21. In relation to Mr Nagle’s affidavit, he says as follows:

“6. On a number of occasions in November and December 2009 I said to Darien (sic) Percy words to the effect: ‘We can only spend $260,000 on this renovation. We are going to borrow $250,000 from the bank

and we have got $10,000 in savings that we can use so $260,000 has got to be it. If you can’t do it for that amount we will go with someone else’. On each occasion that I would refer to the sum of

$260,000 Darien (sic) Percy would respond with words to the effect: ‘Yes, no worries, I know that $260,000 is your limit. I have a lot of experience with work ing with people who have a budget. I will make

sure that you don’t have to spend any more than that. I am in the business of mak ing people happy …

9. I continued to deal with Darien (sic) Percy through January and

February 2010 and at the same time I discussed the work with other

builders in the Orange district. It was not until March 2010 that myself and Kelly agreed to proceed with Darien (sic) Percy performing the renovations at our home. Through January, February and March

2010 I had further conversations with Darien (sic) Percy to the effect that the limit of our budget for the job was $260,000 and on each occasion Darien Percy acknowledged this figure and said words to

the effect: ‘Yes I know. I can do it for $260,000’. I estimate that Darien Percy and I discussed the $260,000 figure on ten occasions …

11. On a number of occasions from November 2009 to March 2010

Darien (sic) Percy said to me words to the effect ‘because you have

got your own transport business you will be able to keep the price of the project down to under $260,000. I have a number of contacts in Sydney and a contact in Rylstone for raw materials such as

tallowwood and sandstone and you guys can use your transport company to deliver it and keep the costs down.”

22. In relation to the evidence of Mrs Nagle, paragraph 6 of her statement says:

“6. At the same meeting we were shown a copy of a contract and we all went through it together. I noticed there was a part of the contract

relating to provisional sums. I said to Darian Percy words to the

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effect: ‘what are these provisional sums all about? What does this mean?’ He said words to the effect: ‘I have kept those down so we

can keep the price under $260,000. We will be able to keep it all under $260,000 through the provisional sums because you guys will be able to help using your transport business. You will be able to

deliver them and collect them and it will keep the costs down. The provisional sums are there as provisionals so we can keep the price down.’ I then observed Darian Percy to scratch out some sums on

page 48 of the document that is Annexure 1 to his statement dated 30 March 2011. He was using a black texta and the figures there depicted of $9,000 and $12,000 are in his handwriting. He asked us

to initial these changes. These changes were made so the price could come under $260,000. Darian Percy then said words to the effect: ‘I have put these figures in (he referred to page 48 of the

document that is Annexure 1) as provisional sums so I can reduce them. You guys have the ability to reduce them by using your transport business and I can use my various contacts in the industry

to keep the prices down.’ He did not say anything about these prices being estimates.”

23. At this point it should be noted that it is not asserted that that part of the contract unrelated to provisional sums was exceeded. Rather, as the

reconciliation document prepared by A Rendell and Associates to which I have referred above makes clear, the different prices charged arose from variances in the provisional sum items between the amount

included in the contract and the actual cost of those items. 24. It is also relevant to note that the actual adjusted contract sum for work

done by the builder (including PC items and provisional allowances) was less than $260,000.00. The adjusted contract price agreed

between the parties was $238,934.47. As the reconciliation shows, the position is that some allowances for provisional sums were exceeded, for example in relation to the stairs (see item 14 -B and 18-B) and the

timber floors (see item 14-J and 18-J), other items the prices were less such as the JetMaster fire and flue (see item 14-I and 18-I) and some

work was not performed such as the joinery including kitchen (see item 14-P and 18-P).

25. The final matter to note in connection with the Reconciliation is that adjustments and reductions are made to the adjusted contract sum to

allow for the cost to complete works and/or rectification of various items, this amount being agreed at $4,374.34.

26. Accordingly, the adjusted contract sum less the cost to complete has been agreed at $239,923.32 of which Ultra has been paid the sum of

$195,000.00 leaving an amount payable of $44,923.32 together with interest of $9,972.98, a total of $54,896.30.

27. In relation to interest, pursuant to Clause 16 of the contract, interest accrues at a rate of 15% per annum. The parties have agreed that up

until 12 April 2012, the amount of interest payable is $9,972.98. From 12 April until 21 April 2012 the parties have agreed that the amount of

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interest payable $1,295.86 and that from 21 June 2012 interest on the unpaid sum amounts to $18.51 per day.

Nagles’ Claim for Negligent Misrepresentation

28. There is no dispute in the present proceedings that the Tribunal has

jurisdiction to hear this particular claim. In this regard the parties have

referred to the decision of Grygiel v Baine [2005] NSWCA 218.

29. Where the negligent misrepresentation alleged against Ultra is in connection with promises made by Ultra as to the price payable for building works, it seems to me that such a matter is a building claim

within the meaning of Section 48A of the Home Building Act 1989 as it arises from the supply of goods and services whether or nor under a

contract. 30. There is a secondary issue which is whether or not the claim made

against Mr Percy is also a building claim. The claim against Mr Percy is brought in accordance with the principles in Rexstraw v Johnston

[2003] NSWCA 287 which relates to the liability of a director for corporate torts.

31. While the respondents deny any liability of Mr Percy, nonetheless they accept that a claim against Mr Percy is a building claim within the

meaning of the Home Building Act by reason of the decision of Grygiel (above).

32. I accept the claim against Mr Percy is a building claim as the claim gives rise to a dispute concerning the nature of the supply of building

goods and services or the terms on which those services were to be supplied: see Basten J at [62] in Grygiel.

33. However, the matter to be determined is whether or not such negligent misstatements have been made in the circumstances of this case and

whether the claim for damages for overcapitalisation of the Nagles’ property can be maintained.

34. The Nagles’ submissions in connection with the claim for negligent misstatement can be summarised as follows:

a) The Nagles have given unchallenged evidence as to

conversations with Mr Percy as to the representation alleged to

have been made. These conversations are set out above.

b) The Nagles were not challenged in cross-examination about their version of the events nor was any suggestion made that they were not telling the truth about what they contended Mr

Percy had said. It should be accepted by the Tribunal that the Nagles said to Mr Percy on a number of occasions that they

could only spend $260,000.00 and that Mr Percy knew

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$260,000.00 was their limit and that he said he would make sure the Nagles would not spend any more than that.

c) These conversations occurred on a number of occasions before

the contract was signed. d) On the day the contract was signed, Mr Percy made a statement

to the effect that he had kept the provisional sums down so that the price could be kept at $260,000.00.

e) Mr Percy had prepared a trade break-up of the estimate of costs

at $264,000.00 which had seen the provisional sums reduced by

$4,000.00 to keep the work to $260,000.00 in accordance with the contract.

f) Mr Percy’s evidence that he had reduced the provisional sums

to meet the bank demands should be rejected as “preposterous”

- this statement being provided in cross-examination and not once before mentioned in four detailed statements previously

provided. g) A prediction as to price would constitute a negligent

misstatement if the person making the prediction either knew it to be false or made it with reckless disregard for whether it was

true or false: Thompson v Mastertouch TV Service Pty Ltd (No. 3) (1977) 29 FLR 270.

h) All that was necessary to find liability was that the statement be of such a character to engender in the Nagles reasonable

reliance. i) The estimation provided by the quantity surveyor, Newton, in

July 2009 was provided without Newton being given the agreed scope of works or detailed drawings or layouts.

j) There is no evidence that Percy told the Newtons about the

detailed conversations concerning price.

k) In these circumstances, by March 2010 Percy knew that the

estimation of provisional sums was a critical matter in relation to the contract price of $260,000.00. The subject of the provisional sums in the contract had been included as provisional sums so

as to allow the builder the ability to increase the amounts Ultra and/or Percy were reckless in the statements made that the cost

of the works and the allowances for the provisional sums and that these statements were made in breach of their duty to the Nagles.

35. Consequently, the Nagles claim they are entitled to recover the sum of

$87,500.00 (being home owners claimed loss in paragraph 6 of the

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Home Owners Schedule of Damages headed up 21 June 2012) less an amount of $40,000.00 by which the Nagles have reduced their claim so

as to avoid any issue in relation to the defence of betterment.

36. Alternatively, the Nagles contend that they have incurred an expenditure of $40,000.00 in excess of the contract sum which the Nagles say, but for the builder’s misrepresentation, they would not

have incurred.

37. The damages calculated are the difference in the present value of the land and improvements on the property after the construction works, being $622,500.00 and the value of the property prior to the building

works have been undertaken, namely $450,000.00.

38. In this regard the Nagles rely on an opinion of Staniforths providing valuations of the property at various times.

Submissions of Ultra and Percy about Negligent Misrepresentation

39. In relation to the making of the representations, Ultra and Mr Percy say that Mr Percy’s evidence should be accepted that he never stated he could keep the price to $260,000.00 (respondent’s submissions

paragraph 11).

40. Further, the respondents make the following submissions:

a) by reason of the removal of various trades such as painting,

tiling etc., Ultra no longer had the opportunity to control or supervise the cost of the sub-trades which became and remain

the responsibility of the Nagles. b) a difference in some of the prime cost items arose by reason of

latent site conditions including the need to relocate sewer and storm water, the existence of concrete under existing stairs

which was required to be removed and the need for underpinning required by engineers so as to increase the costs of concreting.

c) the provisional sum allowances were exceeded by reason of

additional work pursuant to instructions given by the Nagles. These included changes to the stairs, plumbing, windows and doors, electrical work, JetMaster fire and the timber floors and

heating/cooling ducting. The detail of these additional works is set out in Item 16.1 - 16.7 of the respondent’s submission.

41. In relation to the alleged negligent misstatements, the respondents

made the following submissions:

a) The cases of Rexstraw etc. referred to in the Nagles

submissions are cases related to particular legislation and “none

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of these cases are particularly relevant to the facts of this matter”.

b) the issue is whether or not the actions of Mr Percy could have

been said to be made in his own right as principal and that any representations made by Mr Percy were made on behalf of Ultra (respondents’ submissions paragraph 30.7 - 30.8)

c) Mr Percy’s evidence is that the budget of $260,000.00 was not

discussed until the week prior to signing the contract d) The respondents accept that there were numerous discussions

regarding the project being on a tight budget but say there were no specifications, scope of work or schedule of finishes in

relation to prime cost and provisional sum items, the cost of which would depend on the Nagles choices in relation to the scope of work and schedule of finishes.

e) Mr Percy denies ever saying that he could keep prices below

$260,000.00 by the Nagles using their own transport business and “does not admit” that the builder discussed with the owners that the provisional sums could be reduced by the owners using

their own transport business (submissions paragraph 36.6)

f) The respondents rely on the fact that Mrs Nagle concedes in paragraph 3 of her witness statement date 22 September 2011 that Mr Percy did not specifically state at that meeting she

attended that he would keep the price to $260,000.00. In that statement Mrs Nagle expresses her concerns about provisional

sums and that the documents provided stated they are “only estimates”. Clearly the Nagles understood the nature of provisional sums.

g) The Nagles were advised prior to the contract, both verbally and

in writing that prime cost items and provisional sums were subject to rise and fall.

h) Items removed from the contract which were PC items or provisional sums, being works separately carried out by the

owners were also exceeded. i) The Nagles made PC and provisional sum selections

substantially exceeding the allowances in the contract.

j) After their “repudiation” of the contract, the Nagles continued to spend substantial sums on finish items and fixtures never contemplated by the contract price or provisional sum.

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k) Having regard to what occurred the evidence indicates that the Nagles were not concerned about any budget or spending

beyond the amount of $260,000.00.

42. In relation to the submissions by the Nagles in relation to recklessness, the respondents say such submissions are effectively an allegation of fraudulent conduct to entice the Nagles to sign the contract.

43. However, the respondents then submits that:

a) as of February 2010 Ultra was still proposing a cost plus

contract, not a fixed price contract with provisional sum items

(respondents submissions paragraph 41);

b) after then, the Nagles had request a fixed price contract however what was proposed by Ultra was a fixed price with provisional allowances;

c) the Nagles had an opportunity of carefully considering the

costings provided by Ultra and testing them against quotations they had received;

d) the plans had changed little and therefore there was no need to refer them back to Newton for additional costing. Therefore the

failure to do so could not be considered reckless.

44. Therefore the respondents say any statements made were not reckless

and in any event changes were made in respect of provisional amounts following signing the contract at the request of the Nagles.

45. In relation to the issue of damages/overcapitalisation, the respondents

made the following submissions:

a) Mrs Nagle in cross-examination said she expected her house to

be worth $800,000.00 after completion of the work. Mr Nagle thought it would be worth $710,000.00.

b) Both indicated they had no immediate intention of selling their house.

c) The Nagles had no appreciation of the fact that the value of their

home would not necessarily increase by the amount of money

spent under the building contract - they believed that spending on the extensions would increase the market value by a sum

greater than the contract price. d) This evidence indicates that they were not truly concerned about

the money spent on the extensions, believing that any money spent would be reflected in the increased market value. Further,

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the evidence shows the Nagles were prepared to spend an amount in excess of $260,000.00 and in fact did so.

e) The fact their house was only valued at the $622,500.00 (if the

Staniforth valuation is accepted), and may be overcapitalised is not a loss for which Ultra can be held liable.

f) Further, by their actions and expenditure on prime cost items and provisional allowances for work not carried out by the

builder, they have further overcapitalised their house which they also did by requesting variations during the course of carrying out the contract works.

g) The Nagles failed to mitigate their loss and damage by

restraining their spending on the works.

In relation to the expert evidence, from Staniforth, the respondents say:

a) the extent of overcapitalisation cannot be assessed due to the

inadequacy of the valuation evidence. The valuation of the original house was done on 24 November 2011 to determine the value of the building at 12 March 2010. Despite the assertion in

the report, Mr Staniforth could not have inspected the house on 12 March 2010, contrary to his statement made in the valuation

report that he did so. b) Mr Staniforth did not adopt the Chairperson’s code of conduct at

the relevant time - his declaration being made seven months subsequent to the service of his report and at the time the report

was repaired he had no understanding of his obligations. c) at the time he performed his valuation to estimate the home ’s

value as at 12 March 2010, Mr Staniforth did not have before him details of the extent and cost of the actual work performed

by Ultra, the additional works either by variations to the contract or by expenditure or PC items and furnishings installed by the Nagles. While these works would have been completed at the

time of his inspection, no information as to the physical state of the property would have been available to Mr Staniforth as to the

original, pre-construction, value.

Decision Regarding Negligent Misrepresentation Claim

46. A claim for negligent misrepresentation requires that the party to whom

the statement is made be in a special relationship with the maker of the statement and that the maker of the statement knew or ought to have known that the statement being made or the skill and competence

being provided in connection with the statement would be relied upon by the recipient.

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47. For present purposes, it is unnecessary to set out the cases relating to claims in negligent misstatement.

48. Reliance by the recipient of the statement must, in all the

circumstances, be reasonable: see San Sebastian Pty Ltd and another v Minister Administering the Environmental Planning and Assessment Act 1989 and Anr 89 ALR 161 at [169].

49. Finally, the nature of the representation that is made needs to be

considered in all the circumstances of what has occurred. 50. In the present case, the Nagles rely on the conversations found in

paragraphs 6, 9 and 11 of Mr Nagle’s statement dated 21 September 2011 and in paragraph 6 of Mrs Nagle’s statement dated 22 September

2011, the details of which are set out above. 51. In relation to paragraph 6 of Mr Nagle’s statement, the statements

alleged to constitute the representations were made in November and December 2009. In relation to those in paragraph 9, the statement was

made in January and February 2010. In relation to paragraph 11, Mr Nagle’s evidence is that these statements were made between November 2009 and March 2010.

52. In relation to paragraph 6 of Mrs Nagle’s statement, this statement

appears to have been made on the day the contract was signed. 53. The essence of what constitutes the representations in these

conversations can be found in the words attributed by Mrs Nagle to Mr Percy. Mrs Nagle says (in paragraph 6) that Mr Percy said:

“I have kept these down so we can keep the price under $260,000. We will be able to keep it all under $260,000 through the provisional sums because you

guys will be able to keep using your transport business. You will be able to deliver them and collect them and it will keep the cost down. These provisional sums are there as provisionals so we can keep the price down.”:

And later in the same paragraph:

“I have put these figures in (he referred to page 48 of the document that is annexure 1) as provisional sums so I can reduce them. You guys have the ability to reduce them by using your transport business and I can use my

various contacts in the industry to keep the prices down.”

54. On the balance of probabilities, it seems to me that the conversations

set out by Mrs Nagle in paragraph 6 of her statement dated 22 September 2011 in fact took place.

55. Mrs Nagle goes on to say in her written statement that Mr Percy “did not say anything about these prices being estimates”.

56. When cross-examined in relation to paragraph 6, Mrs Nagle did say

that Mr Percy advised her that she could buy provisional sum items at

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cheaper prices and transport them to the building site to keep the costs down.

57. However, Mr Percy did not say the prices were fixed or that the cost of

individual items would not exceed the particular allowances made. The Nagles do not assert otherwise.

58. The estimate for PC items and provisional sum amounts allowed for in the contract were adjusted so as to reduce the price of the contract to

$260,000.00. The amount of the adjustments can be found on page 48 of the contract where Item 19 - Timber Floors and Item 25 - Joinery and Kitchen have been reduced in amounts from $10,000.00 to $9,000.00

and $15,000.00 to $12,000.00 respectively.

59. When considered against the trade break-up information Mr Percy had obtained, I am not satisfied that the alteration of these amounts or the estimates otherwise made in the contract were unreasonable, let alone

recklessly made by Mr Percy.

60. However, the question is whether or not these reductions, when considered in the context of the whole surrounding circumstances support the view that a representation was made that the cost of the

works including PC items and provisional sum amounts would not exceed $260,000.00, and if so was any reliance on that representation

reasonable. 61. It seems to me that such the representation alleged carries with it the

concept that regardless of:

e) the choice of PC items and provisional sum amounts which were to be selected at the owners’ option; and

f) the circumstances encountered for particular work to which the provisional sum items relate

the contract price of $260,000.00 (including PC items and provisional sum amounts) would not be exceeded.

62. There are a number of matters which count against the conclusion that

representations in such categorical terms were made by Ultra and/or Mr Percy.

63. Firstly, the Nagles, or at least Mrs Nagle, were at all times aware that provisional sums were estimates only. She had a conversation with Mr

Percy to this effect: see paragraph 2 of her statement dated 22 September 2011.

64. Secondly, Mr Percy sent to the Nagles an email dated 3 March 2010 (shortly before the contract was signed) in the following terms:

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“Basically I can do a contract with all brickwork , carpentry, roofing, waterproofing and Ultra overheads, preliminaries, supervision etc. included

with only the items on the list attached subject to rise or fall. If they decrease they (sic) difference will be refunded, if they increase the difference will be payable (plus margin only on the extra over the allowance).

The cost of this contract is $227,011 incl GST” (see annexure 5 of Mr Percy’s statement dated 30 March 2011).

65. In his statement dated 21 September 2011, Mr Nagle acknowledged that he had received this email (Mr Nagle’s affidavit paragraph 14),

although Mr Nagle also says in paragraph 14 that “apart from this email I do not recall Darian Percy any providing any warning about

provisional cost items increasing and the only discussions I had about this issue were to the effect that the prices would be kept down.”

66. This conversation, that “the prices would be kept down”, is to the same effect as Mrs Nagle says took place.

67. However, “keeping the prices down” is a matter entirely different from

the prices not, in any circumstances, being exceeded.

68. Thirdly, the alleged representations are contrary to the terms of the

contract which is clear and unambiguous. The contract was signed by both Mr and Mrs Nagle and contains the following provisions:

a) Clause 21 provides for adjustment of prime cost items and provisional sum items (also, see warning on page 1 of 48)

b) Each of the prime cost items and provisional sum items are to

be adjusted to the actual price, and the contract price will be

adjusted accordingly (see Clause 21.6 and 21.7 - pages 21 and 22 of 48 of the contract).

c) Prime cost items were to be selected by the Nagles (Clause

21.1)

d) There is a warning not to sign the contract unless the Nagles

had read and understood the contract (page 11 of 48). While the boxes are not ticked, the page has been initialled.

There is no evidence that the contract as a whole or the particular pages to which I have referred were not read and understood by the

Nagles. I infer from their signature at the bottom of each page that this occurred and the terms were accepted without disagreement. Further, having regard to the concerns expressed by the Nagles and their

passed experience, it seems improbable that they did not understand what the contract said, including that PC items and provisional

allowances were to be adjusted based on the cost as provided in the contract.

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69. Therefore I do not accept that representations were made in categorical terms that under no circumstances would the total amount

for prime cost items and provisional sum items allowed in the contract be exceeded. The conversations alleged to constitute the

representations were not so expressed and when put in the context of what the parties knew and what occurred up to the time of the contract they could not reasonably be construed in this manner. The mere fact

the Nagles want to keep the price down and have a conversation with the builder who expresses an intention to try and do so is not sufficient

to elevate such a conversation to effectively a promise that the price of $260,000.00 would not be exceeded in any circumstance. Much more would be required to establish an actionable wrong.

70. The unlikely nature of this contention is further demonstrated by

examining the trade break-up document which was tendered at the hearing and became part of Annexure 5 to the statement of Mr Percy dated 30 March 2011.

71. In that document, timber floors to the rumpus room were shown as a

provisional item of $4,300.00. Item 19 in the form of contract became “Timber floors complete - $9,000” (a reduction of the originally listed price of $10,000.00 in the draft annexure at page 48) in the terms set

out.

72. Items such as joinery including kitchen and appliances were not completed on the trade break-up sheet although an allowance for this item was included in the draft contract (item 25) at $15,000.00 and

subsequently reduced to $12,000.00 as shown on the annexure).

73. There is no evidence to suggest that between when the date when the email of 3 March 2010 (Annexure 5 to Mr Percy’s statement) and the PC and provisional sum attachment were sent and the date the

contract was signed, namely 18 March 2010, that the exact nature and extent of the works to be completed as provisional sum items were

known nor had appliances, fitments or finishes been selected or otherwise detailed.

74. The Nagles accept that conversations at this time occurred to the effect that there may be the possibility of savings to be achieved by reason of

purchasing and/or transport opportunities, presumably because selections were to be made in the future that may affect the price.

75. Once it is recognised that individual items and finishes were still to be selected it seems to me inevitable that the price is uncertain- certainly

not fixed. 76. Similarly, in carrying out the works where provisional sum allowances

were provided, problems might be experience which altered the scope of the works and increased the cost. Again, this possibility was in the

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contemplation of the Nagles who recognised these amounts were also “estimates”.

77. An example of extra work that was in fact required concerned the

decision not to pull up the tiles and to lay the timber floor on particle boards rather than removing the tiles. In cross-examination Mr Nagle conceded that there may be an extra cost which he did not think about

associated with this change of work. In cross-examination, Mrs Nagle gave evidence to the same effect.

78. The relevance of these issues, which occurred after contract, is to

show that the works, when executed, may change in their nature or

scope and, insofar as there were provisional allowances referrable to these items of work, those amounts would necessarily change having

regard to the contractual provisions about how the price payable for these items is to be determined.

79. Once it is accepted that individual prices might change and that the change might be an increase or a decrease, in order to succeed in their

claim, the Nagles would need to show that the representation made by the builder was that the net effect of any adjustments to the PC sum items would not lead under any circumstances to an increase above

$87,500.00.

80. None of the evidence suggests that a statement to this effect was ever made by the builder.

81. Rather, the evidence points to the builder communicating with the Nagles that, if the PC items and provisional sum amounts are managed

appropriately, the contract works can be completed for the sum of $260,000.00. However no representation was made to the effect that the amount of $260,000.00 would not be exceeded.

82. In these circumstances the Nagles have failed to establish the

representation in the terms alleged nor that the statements made by Ultra misrepresented the situation as to the cost of the works or that the Nagles may be liable to the builder:

a) for PC Items and provisional allowances in an amount

exceeding $87,500.00; or b) for more than $260,000.00 in total.

83. Further, in the circumstances of this case and having signed a contract

to the contrary effect, it would be unreasonable for the Nagles to rely on the statements said to constitute the representations (assuming they were to the effect alleged in the points of claim) because the works the

price payable under the contract for PC Items and provisional allowances was subject to change by reason of selections made by the

Nagles and the works actually required. Matters such as site conditions

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and directions given when the works were performed would also affect the price payable. Lastly, the items were known to be estimates – that

is the amounts payable were not fixed nor was the actual work required at the time of contract known.

84. There is another problem with the claim by the Nagles. The total sum of

$260,000.00 was not in fact exceeded. The agreed adjusted contract

sum is $244,297.66. Regardless of the reasons for additions and deletions from the contract work, once removed from the builder’s

contract, the overall price of the works is no longer in the control of the builder and not something for which it can be blamed.

85. As to the claim against Mr Percy, I am not satisfied that any statements made by Mr Percy could be categorised as “reckless”.

86. The nature of the discussions that occurred was about providing for

estimates of PC items and provisional sum items to be included in the

contract. The Nagles, in their pleading, accept that the amounts provided for PC items and provisional sum items were not fixed or

exact amounts, but rather were subject to adjustment. The points of claim assert that they were “estimates”.

87. The Nagles’ points of claim assert that the price could vary and be less than the sums provided.

88. The evidence does not establish that Mr Percy knew the provisional

sum items would be, in any event, exceeded. As indicated above, the

nature of the PC items and provisional sum allowances, means it is almost inevitable that the actual cost would vary to the amounts

allowed. Whether or not the price for individual items would be more or less could not be known until selections were made and the works on site for which allowance was made were completed. No evidence

suggests Ultra or Mr Percy agreed to accept the risk for price variances under the contract.

89. Further, while the Nagles point to actual variances in individual prices,

it seems to me that, having regard to the particular items identified in

the schedule in paragraph 27 of the Nagles’ submissions that the differences are not so extreme in any particular case to lead to the

conclusion that the original estimation process and information provided to the Nagles was provided in circumstances of recklessness. While it may be true that the cumulative effect of differences, relative to

the PC and provisional sum allowances may be a significant amount, nonetheless in my opinion this fact is not sufficient to establish the

Nagles’ claim in this regard. 90. Even if I am wrong in relation to the conclusions that there was no

relevant representation made and/ or that any reliance upon such representation was unreasonable, there are a series of further

problems in the Nagles’ claim.

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91. Firstly, they assert that their damages relate to “overcapitalisation” of

their house.

92. The effect of their oral evidence is that each of Mr and Mrs Nagle expected that after carrying out of construction work their house would be worth more than the original value of the premises plus the contract

sum of $260,000.00.

93. At no time was any representation made by Ultra of a type which would result in an award of damages for the difference in value arising from overcapitalisation.

94. The nature of an award for damages in negligence is one of restitution.

Such a claim is not measured by awarding expectation damages. In essence, the Nagles determine their loss by claiming that their house, after carrying out $300,000.00 worth of building works, should have

been worth $750,000.00. By reason of it only being valued at $622,500.00, they claim to have suffered a loss of $127,500.00.

95. From this, the Nagles then deduct a further $40,000.00, being the

amount spent on renovations of $300,000.00, less the original contract

sum of $260,000.00, in order to make an adjustment to avoid the respondent’s betterment argument (see paragraph 31 of the Nagles’

submissions). 96. It seems to me illogical that a builder who negligently misrepresented

that the price of the contract works would not exceed $260,000.00 is liable for damages of $127,500.00 as outlined above. If the building

works had in fact been completed for $260,000.00 (instead of $300,000) the value of the house would still have been $622,500.00 although the total “capitalised” sum would have been $710,000.00

(being $450,000.00 plus $260,000.00).

97. In relation to the alternative claim of $40,000.00, there is no evidence sufficient to support an award for this amount.

98. Further, any award for restitutionary damages would require that the value of the building works actually completed be taken into account.

The Nagles are not entitled to retain the benefit of the value of the works actually performed without allowance for this benefit. There is no evidence before the Tribunal in order to assess the actual value of the

works performed.

99. It is conceded by the Nagles that the amount of $300,000.00 “may include some items of work which the Nagles decided at a later time to do that were not the subject of the contract”.

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100. Therefore, the comparison of the $300,000.00 to the alleged represented maximum price of $260,000.00 provides no basis for a

restitutionary award for damages.

101. There is a final reason why the claim in relation to damages would otherwise fail. That reason relates to the valuation by Staniforth of the value of the house prior to any construction work being carried out.

102. There is no evidence provided by the Staniforth report which would

justify a conclusion that the author of the report had before him at the time of forming his opinion any material that would allow him to assess the state or value of the building in March 2010. The Staniforth

valuation is an unsubstantiated assertion.

103. Unlike the valuation carried out after the works were complete, no inspections had been carried out and no assessment of the state of the house at 2010 was made by the valuer. Aside from comparative sales,

an examination of these matters and the then physical state would be critical to determining the 2010 value. In my opinion, the evidence does

not disclose a proper process having been undertaken in order to substantiate the valuation opinions therein expressed.

104. In these circumstances, the Nagles have not discharged their obligations to prove the amount of any loss or damage suffered.

105. Having regard to the above conclusions, the claim by the Nagles is

dismissed.

Nagles’ Submissions in relation to Builder’s Claim

106. In relation to the builder’s claim, as indicated above the amount of that

claim is agreed.

107. However the Nagles say that Ultra had not in fact completed all works

under the contract and therefore was not then due the balance of the contract sum. In this regard, the Nagles say they were entitled to terminate the contract, Ultra having admitted there was defective work

and in circumstances where there was no evidence provided by the builder that he had in fact performed the value of the last progress

claim, the builder has failed to make out its entitlement for the balance of the contract sum.

Ultra’s Submissions in relation to Ultra’s Contract Claim

108. The builder’s position is that it is not bound by any negotiations in connection with its attempt to resolve the final claim of $23,317.00. The builder says that negotiations in connection with the final claim do not

prevent it from recovering the whole of the balance of the contract sum outstanding.

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109. Further, the respondent says that it never admitted there were defects. While there is an allowance for incomplete or alleged defects, these

amounts are small having regard to the matters set out in the Dillon report.

110. The respondents also say that the fact the roof was not built in

accordance with the plan was by agreement between the parties - the

respondents refer to an email being Annexure 12 to Mr Percy’s statement dated 30 March 2011 which records the proposed

modification to the roof being constructed “only over the addition area with a apron flashing/gutter around where the existing roof meets the new wall”. In any event, in responding to paragraph 41 of the Nagles

submissions (which relates to the roof) the respondents say that no complaint was made about this matter by Mr Dillon in his report.

Decision on Contract

111. There is a dispute concerning whether the contract was properly terminated by the owner under Clause 33 or whether the actions by the

owner in seeking to terminate the contract constitute a repudiation of the contract by the Nagles which was accepted by Ultra.

112. The entitlement to terminate the contract under Clause 33 arises where there is a “substantial breach” by the builder. Substantial breaches are

not defined. 113. The contract may be ended 10 working days after notice is given if “the

breach is not remedied”.

114. The evidence about what occurred after the notice had been given is somewhat unclear. However, it would appear that after notice was given the builder in fact returned to site or at least attempted to return

to site.

115. The Nagles, by their solicitor, served their notice pursuant to Clause 33.3 of the agreement dated 29 October 2010 (tab 21 to Mr Percy’s statement dated 30 March 2011).

116. The basis for the issue of the notice was as follows:

a) Failure to perform works in a proper and workmanlike manner in

breach of the warranty in Clause 31(a) of the contract, in

particular by reason of problems with a sliding door, the need to reinstall windows which were leaking, the need to properly line

the alfresco area and the need to remove and replace a back sliding door;

b) Failure to carry out works in accordance with Clause 2.1 of the contract in that the roof line was not constructed in accordance

with the contract and needs to be rebuilt;

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c) Failure to properly estimate provisional sums as required by

Clause 21.5;

d) Failure to complete the contract within the stipulated 20 week period; and

e) The builder has demonstrated an intention not to be bound by the contract and has failed or neglected to complete the works

and demanded money.

117. By letter dated 11 November 2010, Ultra advised the solicitors for the

Nagles that they had been told by Mr Nagle not to return to site however they offered to continue working and noted that they had had

tradesmen attending the site but had been delayed, including by reason of the Nagles refusing to take calls, return calls or respond to emails which was hindering completion of the works (Percy’s statement

tab 29).

118. By notice dated 15 November 2010, the Nagles served a notice pursuant to Clause 33.4 stating that “the contract is now at an end” (Percy’s statement tab 30). Thereafter, Ultra served its own notice

treating the actions of the Nagles as repudiation, accepting the repudiation and terminating the contract (Percy’s statement tab 31).

119. Some of the grounds under in the notice, such as the breach of clause

26.5, are not made out. However it seems to me that it is unnecessary

for present purposes to resolve the issue of whether the termination was valid.

120. This is because if the agreement has been properly terminated by the

Nagles in accordance with the contract, the unpaid balance of the

contract price must be brought to account between the parties (Clause 36.4 of the contract).

121. Alternatively, if the contract has been repudiated by the owner, the

builder is entitled to claim damages unless the provisions of Clause

35.1 apply in which case there is an election of remedies available pursuant to Clause 35.1.

122. In the present case, no claim is made by the Nagles relating to

adjustments that should be made pursuant to Clause 36.4. Rather, the

Tribunal was informed of an agreed position concerning the net amount unpaid to Ultra after allowance for costs to complete/rectification and

other matters set out above. 123. Either way, the entitlement of the builder is the same, namely the

builder is entitled to be paid the unpaid balance of the contract price, after allowance for incomplete or defective works not carried out.

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Claim by the Builder for Unpaid Fees

124. On day two of the hearing, the Nagles withdrew the tender of the Dillon reports. At this time, Ultra also withdrew the tender of the Rendell

report. The Tribunal was advised that there was an agreement concerning defects within the scope of works in an amount of $4,374.34. This amount is recorded in the reconciliation prepared by A

Rendell and Associates handed up on 22 June 2012 referred to above.

125. I am satisfied that the builder is entitled to be paid the amount of the contract for work performed, less deductions for incomplete or defective works as set out in the reconciliation together with interest

thereon as agreed between the parties. Accordingly I order the Nagles to pay Ultra the sum of $59,320.55 made up as follows:

a) Balance of contract sum and interest up until 12 April 2012:

$54,896.50.

b) Interest from 12 April 2012 to 21 June 2012: $1,295.86.

c) Interest from 21 June to the date of these reasons (7 December

2012), being 169 days at a rate of $18.51: $3,128.19

ORDERS

1. I give leave for Darian Percy to be joined as a respondent in application

HB 11/28376.

2. I order that the claim against Ultra Developments Pty Ltd and Darian Percy in application HB 11/28376 be dismissed.

3. In application HB 10/52785 I order that the Nagles pay to Ultra Developments Pty Ltd the sum of $59,320.55, such sum is to be paid

immediately.

4. I order that any application for an order for costs is to be notified to the

registrar within 28 days of the date of these reasons and to be accompanied by any submissions and evidence in support of such an

application. 5. I order that the party against whom any application for costs is made

may file and serve submissions and any evidence in reply within a further 28 days from order 5.

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6. The parties are to write to the registrar and advise whether the

applications for costs can be dealt with on the papers and, if not, request a hearing date for any application unless consent orders are

filed.

Mark Harrowell

Senior Member Consumer, Trader and Tenancy Tribunal

12 December 2012