AMO Rifat Holdings Pty Ltd v Dib (Building and Property) [2024] VCAT 419
 
AMO Rifat Holdings Pty Ltd v Dib (Building and Property) [2024] VCAT 419 is a decision of the President of VCAT, Justice Woodward.  It covers issues commonly encountered in domestic building disputes.
 
The parties to the major domestic building contract had validly departed from the progress payments fixed by s 40 of the Domestic Building Contracts Act 1995 (Vic) (DBCA) and instead adopted ‘Method B’ whereby they agreed for progress payments at the completion of certain stages [34].  “Frame Stage” was defined by the Contract (and the DBCA) as being “completed” and approved by the RBS.
 
It was accepted that the meaning of ‘completion’ of building work does not require perfection, only ‘effective and satisfactory completion’ that allows for some ‘trivial failures, or failures borne of impracticalities’: Cardona v Brown [2012] VSCA 174 (see [39]).
 
The Tribunal found whether completion of particular stage has occurred is a matter of degree: [42].  Failure to complete an earlier stage, precludes a finding that a later stage is complete: [44].  Whilst a structural defect will almost always preclude a finding that the structure is complete, it does not follow that structural adequacy equates to completion: [46].
 
With regard to the aspect of the definition of ‘frame stage’ that required RBS approval, the Tribunal found an RBS stage approval is not determinative of the issue of whether a stage is complete, although they usually align and if there is evidence that a stage is objectively incomplete, the giving of an approval will not make it otherwise: [56]. 
 
A special condition in the Contract provided that, in effect, any alteration by the RBS, Engineer or Architect for any reason would constitute a variation: [68].  The owner’s engineer instructed the builder to excavate deeper footings so that they would found on weathered rock.  The builder argued that its variation invoice constituted compliance with s 38.  The invoice did not constitute the required notice (s 38(3)) and gave effect to the variation before being given a signed request by the owners (s 38(5)(a)): [74].  The builder could only claim pursuant to the ‘exceptional circumstances’ exemption in s 38(5)(b): [75]. This was because the Tribunal found the ‘special condition’ did not oust s 38 of the DBCA (or clause 13.1 of the Contract) which continued to prescribe the process that must be followed before a variation that may arise pursuant to the special condition could be claimed: [73].
 
Applying Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2022] VSCA 209, the exceptional circumstances exemption in s 38(5)(b) applies only in cases of ‘significant or exceptional hardship’, which is a high bar.  The section is concerned with the consequences to the builder of the strict enforcement of these requirements. 
 
With respect to the Builder’s $21,190.02 variation for additional excavation and concrete and steel works in relation to the footings for the house, the builder cleared the high bar ‘but only just’.  The factors considered by the Tribunal were: [78]:

1. The sum was not insubstantial in the context;
2. The additional work was substantially in excess of the soil test report;
3. The soil test report was provided by the owners;
4. Additional work was essential to integrity of the house;
5. Builder verbally advised the owners of the variation;
6. The owner retained the benefit of those works.

In respect of a variation in relation to excavation for a pool, the builder fell short of the high bar set by the exception in s 38(5)(b). The Tribunal considered the following factors: [86]:

1. There was no ‘pressure’ to proceed with the variation and the builder could have complied with s 38;
2. Evidence that the variation was requested was equivocal at best;
3. The consequence of the uncertainty on whether the variation was sought falls on the builder given it has a statutory obligation to give prior notice;
4. The owners incurred duplicate costs because the builder had not provided any drawings or certification in respect of the additional footing works.

The builder alleged that the parties had entered into a collateral agreement to be paid an amount of $110,000 in addition to the Contract sum: [88].  The builder argued that the collateral agreement did not fall foul of s 40 of the DBCA (which, in summary, prevents, unless the parties otherwise agree (s 40(4)), a builder from demanding amounts not directly related to the progress of building work being carried out under the contract) because the parties had agreed in the Contract to opt out of s 40 of the DBCA pursuant to s 40(4): [88].  The owners argued they were entitled to a refund for the $30,000 they had paid pursuant to the collateral contract: [89].  The Tribunal agreed that all payments agreed at the date of the Contract to be for contract works must be contained in a Form 2 table: [ 92].
 
The Tribunal found choosing ‘Method B’ does not open the door to collateral agreements and additional progress payment tables: [95].  The Tribunal declared the collateral agreement void, and the builder was precluded from pursuing a quantum meruit claim with respect to that collateral contract: [97]. 
 
Stephens v Cameron stands for the proposition that s 40(2) does not create an independent cause of action.  The owners sought to distinguish Stephens v Cameron [2021] VSCA 208 by relying on s 53 of the DBCA, which, in effect, gives VCAT the ability to make ‘tailored orders’: [90].  However, the Tribunal found it would not be fair to make any such order because: (1) the builder carried out the work covered by those payments (and the owners retained the benefit of the payments): [100]; and (2) the owners were not in any doubt about the effect of the collateral agreement: [101].  What remained for the Tribunal was to reconcile that finding with what the Court said in Cameron v Stephens about the builder being precluded from pursuing a quantum meruit claim, which was then addressed at [115] to [126]. 
 
Section 53(2)(b)(iii) of the DBCA gives the Tribunal power to order recovery based on quantum meruit: [117]).  Quantification is not a precise exercise and regard must be had to the defects in the work and the costs incurred in abating defective work: [120].  The Tribunal made a calculation of the quantum meruit sum, which equated to nil, and set out the basis of the calculation at [125].
 
Interestingly, the Tribunal said that if the owners could otherwise establish an entitlement to be repaid the progress payments for the base and ground floor stages, the Tribunal would be satisfied that they had received a benefit equivalent to the value of those progress payments, including the $50,000 paid under the collateral contract.  Those sums would be payable to the builder under its quantum meruit claim: [126].
 
The Tribunal went on to assess loss and damage.  It reinforced the contractual bargain of the parties as paramount and that the test for unreasonableness is only satisfied in fairly exceptional circumstances:  [151].  It was no answer that a departure from the plans and specification was excused by being nevertheless structurally adequate: [153]-[154].
 
The owners adduced evidence from their experts to substantiate their loss and damage for defective work, and then attempted to claim a different amount representing the amount they paid their new builder for the cost of rectification, evidenced by a deed of variation between the owners and the new builder.  The Tribunal rejected this approach because: (1) the deed of variation included items of work which were not part of the Contract; (2) it was not possible to discern how much was allocated to each defect or non-conforming work; and (3) the new builder was not called to give evidence.
 
Nicholas Andreou and Alyse Mobrici

Liability limited by a scheme approved under professional standards legislation