AMO Rifat Holdings Pty Ltd v Dib (Building and Property) [2024] VCAT 419 (6 May 2024)
Facts
Contract and Agreement:
- Primary Contract: On May 5, 2017, Amal and Sarkis Dib (owners) signed a Master Builders Association HC6 Contract with the builder to construct a three-storey house at 5 Eaglemont Crescent for $1,600,000.
- Collateral Contract: An additional agreement was made where the owners agreed to pay an extra $110,000 in $10,000 instalments alongside progress payments in the main contract. According to the building director, the collateral contract was established because the original $1.6 million contract had already been finalized. With new requests for alterations to the scope of work, the parties needed a separate agreement to document these changes. Additionally, this contract facilitated the transfer of the $110,000 in question in cash.
- Builder’s Claims:
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- Completed Stages: The builder claims to have completed the base, ground, first, and second-floor frame stages satisfactorily.
- Breach of Contract: The owners allegedly breached the contract by not paying the progress payments for the first and second-floor frame stages.
- Contract Termination and Damages: The builder terminated the contract due to this breach and claims $729,112.03 in damages for unpaid progress payments, variations, delays, and interest.
- Quantum Meruit Claim: Alternatively, the builder claims the owners are liable to make restitution to the builder for the amount of $365,746.78 on a quantum meruit basis.
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- Owners’ Counterclaims:
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- Defective Work: The owners allege defects and incomplete work in the base, ground, first, and second-floor frame stages.
- Payment Disputes: They argue progress payments were not due because of such defective work, and the builder is not entitled to variation payments or instalments under the collateral contract due to inconsistencies with s40 of the Domestic Building Contracts Act 1995 (DBCA).
- Compensation Claims: They counterclaim $240,234 for defect rectification, liquidated damages of $3,285.71, interest, and costs.
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Issue
- Primary Issues:
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- Whether the owners breached the contract by not paying the progress payments.
- Whether the builder’s termination of the contract was valid.
- Determination of entitlements and damages for both the builder and the owners regarding defective work, unpaid progress payments, and variations.
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- Secondary Issues:
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- Validity and enforceability of the collateral contract.
- Whether the builder is entitled to additional claims on a quantum meruit basis.
- Assessment of claims for defect rectification and associated damages by the owners.
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Rule
- Contractual Obligations:
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- Parties must fulfill their contractual obligations, including making progress payments and completing work stages as per the contract terms.
- Under the DBCA, payments must align with regulated payment structures, and deviations require owner approval.
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- Defect Rectification:
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- The standard for stage completion requires work to be free from substantial defects and materially conform to the contract specifications.
- Damages for defects are measured by the cost of rectification to meet contract standards unless deemed unreasonable.
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- Termination of Contract:
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- A contract may be terminated if one party breaches a fundamental term, such as non-payment, and fails to rectify within the specified notice period.
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- Quantum Meruit Claims:
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- A quantum meruit claim allows for recovery of the reasonable value of work performed if a contract is unenforceable or breached, considering the benefit conferred to the other party.
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Application
- Contract and Collateral Agreement:
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- The primary contract required progress payments at specific stages. The owners’ refusal to make these payments constituted a breach of the contract terms. The collateral contract, being void under the DBCA, cannot be enforced for additional payments.
- Builders should ensure that any collateral contracts comply with relevant legislation and are precise and comprehensive to avoid disputes.
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- Builder’s Performance and Defects:
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- The builder’s work, particularly in the base and frame stages, contained substantial defects, making it non-compliant with the contract’s completion standards. This justified the owners’ withholding of progress payments for these stages.
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- Termination Validity:
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- The builder followed the contractual procedure for termination by issuing notices and allowing the required time for rectification. The owners’ consistent refusal to make due payments validated the builder’s termination of the contract.
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- Damages and Rectification Costs:
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- The court awarded damages for specific defects identified, requiring the builder to pay for rectification costs totaling $113,918.53. The builder’s claim for delay damages was recognized, and the footings variation claim was validated due to significant hardship despite procedural non-compliance.
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- Quantum Meruit and Unpaid Work:
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- The builder’s quantum meruit claim was denied due to the substantial defects diminishing the benefit to the owners. Thus, the work performed did not confer significant value warranting additional payment.
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Other Court Findings
- Completion Standards: Building stages must be free from non-trivial defects and materially non-conforming work to be considered complete, though it does not have to be perfect.
- Approval Insufficiency: Approval by a registered building surveyor does not conclusively determine stage completion.
- Stage Completion: Due to substantial defects, the builder failed to complete the base and frame stages.
- Delay Damages: The builder is entitled to $4,361.50 in liquidated damages for 61 days of delay.
- Variation Claims: The builder is owed $21,190.02 for the footings variation but not for the pool variation.
- Collateral Contract: The collateral contract is void; the builder is not entitled to unpaid amounts under it.
- Contract Termination: The builder validly terminated the contract on September 24, 2018.
- Quantum Meruit Claim: Assessed at nil.
- Defective Work Damages: The builder must pay $113,918.53 for defective work.
- Other claims: the builder’s claim for loss of profit and the owners’ claim for rent costs both fail.
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- Net Judgment: The net sum of $88,367.01 is payable by the builder to the owners.
Final Judgment
- Net Payment Due:
- After assessing all claims and counterclaims, the court determined the builder must pay the owners a net sum of $88,367.01, considering the damages for defective work and validated variation claims.
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