During the course of a major domestic building contract, variations to the contract were agreed and performed notwithstanding the failure to comply with the notice provisions established in the Domestic Building Contracts Act 1995(DBCA) sections 37 and 38. The Victorian Court of Appeal considered the impact of statutory provisions on the Builder’s entitlement to recover payment and to extension of time in those circumstances.

The joint judgment of the Court of Appeal constituted by Niall, Sifris and Walker JJA dismissed the appeal which was brought from a decision of Daly AsJ. 

Saliently, the Court considered the following legal questions:

1. What is the proper ambit of the words ‘significant or exceptional hardship’ on a proper construction of DBCA s38(6)(b)(i)?
2. Where a builder has given effect to a variation in contravention of DBCA s38(5) by failing to give the required notice, is a builder entitled to an extension of time to the contractual completion date by operation of DBCA s39(c)?
3. Even if DBCA s39(c) was engaged despite a failure to comply with section 38, in circumstances where the contract contained express mechanism for extending time, was the builder obliged to satisfy that contractual mechanism before being entitled to an extension of time to the completion date?

As to the proper construction of the text of DBCA s38(6)(b)(i) of the words ‘significant or exceptional hardship’, the Court adopted a broad interpretation. The test sets a high bar, however, it provides an exception to the consumer protection nature of the DBCA, insofar as it protects builders.

The Court affirmed the decision of Daly AsJ who held that ‘hardship’ ‘is not concerned with any difficulties faced by a builder in complying with the notice requirements, but rather the consequences to the Builder of the strict enforcement of the notification requirements’.  Further, the financial position of the builder and profit margin on the contract are matters that can be taken into account.

The operation of DBCA s39 otherwise requires a determination as to whether there has been a variation to the plans or specifications under the contract.

A variation carried out in contravention of the notice requires remains a variation, and is capable of being a variation ‘in accordance with’ DBCA s38. Adopting a broad interpretation of the statutory language, the Court relevantly held that a variation ‘in accordance with’ s38 includes both a variation in respect of which the procedural requirements have been met, and also a variation in respect of which VCAT has permitted the builder to recover the costs together with a reasonable profit.
 
Consequently, where VCAT determines that DBCA s38(6)(b) is satisfied and a builder is entitled to recover its costs and a reasonable profit notwithstanding non-compliance with the statutory notice regime, DBCA s39(c) serves to adjust the completion date to take account of the variation.

Finally, the Court determined that the terms of the Contract do not affect the text or operation of DBCA s39 and consequently, a failure to comply with the contractual mechanism for extending time does not prevent DBCA s39(c) adjusting time for completion where there was a variation to the plans or specifications ‘in accordance with’ DBCA s38.

Andrew Blair

Liability limited by a scheme approved under professional standards legislation