Does an agreement ‘to manage and arrange the construction of two townhouses’ constitute a ‘domestic building contract’ for the purposes of the Domestic Building Contracts Act 1995 (‘the Act’)? Are owners entitled to recover amounts paid to a ‘construction manager’ allegedly in excess of ‘maximum amount’ that he was entitled to under s40(2) of the Act? What is the basis for owners’ rights of recovery under s40 of the Act?

The Victorian Court of Appeal recently considered these questions in Stephens v Cameron [2021] VSCA 208 (30 July 2021).

The respondent (‘Owners’) engaged the applicant ‘construction manager’ ‘ (‘CM’) to manage and arrange the construction of two townhouses in Mornington. The relationship soon deteriorated, work ceased in late 2012 and the contract ended in early 2013. Some five years later, the Owners commenced proceedings in the County Court claiming, among other things, recovery of amounts paid to the CM said to exceed the maximum amount to which he was entitled under s 40 of the Act. The trial judge upheld the Owners’ claims.

The CM sought leave to appeal on four grounds, contending that the judge erred by:

1. holding that the Act applied to the work done by the construction manager under the contract;
2. identifying the construction manager as the relevant ‘builder’ for the purposes of the Act, rather than identifying the owners as ‘owner-builders’;
3. holding that s 40 of the Act conferred a right of recovery on the owners; and
4. awarding interest on a restitutionary basis from 27 November 2012 rather than pursuant to ss 58 or 60 of the Supreme Court Act 1986.

The Owners contended that the judge erred by failing to find that the Act was a ‘written instrument’ for the purposes of s 58(1) of the Supreme Court Act.

The Court of Appeal granted leave to appeal in respect of the third and fourth of these proposed grounds, and the appeal was allowed.

As to the first proposed ground the CM contended that the construction management agreement was not a domestic building contract for the purposes of s 3 of the Act, submitting that s 3 was a ‘blunt instrument’, and that, properly construed, s 5 of the Act limits the application of the Act not only to relevant work, but implicitly also to the person(s) responsible for the particular work. This result could be reached by reading down the opening words of s 5(1), ‘This Act applies to the following work’ to read ‘This Act applies to those persons who are responsible for the following work and the contracts they enter into’.

The Court rejected this first proposed ground, saying at [57]: In our opinion, there is no support in the text, structure or purpose of the Act for the approach advocated by the applicant. The suggested ‘reading down’ is in truth a rewriting of s 5.

The Court reasoned:

1. the notion of ‘responsibility’ was a limitation without any textual support in the Act (at [58]);
2. it was not merely that the Act provided no textual foundation for the CM’s argument; it was flatly inconsistent with it. Section 5 was about ‘work’ and said nothing at all about who performs that work, still less who was responsible for its performance (at [59]);
3. the Act’s purpose was revealed in its express purposes and objects, and also in its very structure. The purposes of the Act included to regulate contracts for carrying out domestic building work and to require builders carrying out that work to be insured in relation to it (at [60]);
4. the defined expression ‘domestic building work’ was critical because it delimited the scope of the Act as a whole, consistently with its purposes and objects. So, s 5 set out the work to which the ‘Act applies’, and supplied the primary content of the defined term ‘domestic building work’ (at [61]); and
5. it would fundamentally undermine the structure of the Act to read into s 5 a requirement of responsibility as the CM had urged. The central conception in the Act would cease to be the scope of work within its ambit, and the whole Act would become limited by the notion of responsibility.at [62]).

The second proposed ground was also given short shrift.

The CM submitted that he ought not to be characterised as a ‘builder’, but that the Owners should have been considered as ‘owner-builders’ – despite the Owners not meeting the statutory requirements applicable to an ‘owner-builder’ – because they:

1. owned the land which they wished to develop for sale;
2. engaged the CM as their agent under the contract;
3. empowered the CM to enter into trade and supply contracts on their behalf; and
4. took contractual responsibility for defects, time overruns and the costs.

This was said to mean that their contract with the CM fell entirely outside the Act and was regulated only by contract and tort.

The Court also rejected this ground for:

1. as the CM accepted, the Owners did not satisfy the requirements to be treated as ‘owner-builders’ under the Building Act;
2. the question whether they were ‘owner-builders’ under the Building Act was entirely irrelevant to the question in issue, namely whether the contract was a ‘domestic building contract’ for the purposes of the Act. 
3. as the Owners were not ‘owner‑builders’, the effect of the CM’s argument would appear to be that he was merely managing work for which the Owners were responsible, there was neither a ‘builder’ nor an ‘owner-builder’ in respect of the domestic building work performed under the contract. 
4. the outcome would also be inconsistent with the operation of the statutory regime at earlier stages of this very case whereby the CM had put forward his company as the builder for the purpose of procuring the requisite building permit and the home warranty insurance, and the building permit duly issued identified his company as the builder, as did the insurance that was obtained, yet on the CM’s argument, the only parties who should have been so identified were the Owners

The third proposed ground met with success. The Court found that section 40(5) of the Act does not operate to limit the private law remedies of an owner. Instead, section 40(2) prohibits a builder from demanding, recovering or retaining certain amounts, and overrides any inconsistent term in the contract. It does not otherwise address any civil implications of a breach. Against that background, the court held that section 40(2) does not create an independent right to recovery of any amount retained contrary to its terms, or ‘a discrete obligation on [the] builder … to disgorge’ such an amount. Contravention of s 40(2) founds an unjust enrichment claim but does not foreclose all defences.

As the trial judge had treated the claim as reliant on the statutory right, but in his reasons for awarding interest attributed a restitutionary character to it, he seemingly went beyond what was pleaded. In the circumstances, the Court did not think that it would be just to order that the claim be dismissed on the basis of the pleadings. Instead it remitted the matter for further hearing and determination of any defence(s) sought to be relied on by the CM. The Court noted that the further hearing may also need to determine the other claims made by the Owners which the judge had so far not needed to decide.

As part of the fourth proposed ground the CM disputed the existence of a general law right to interest on a restitutionary claim. He pointed to obiter dicta doubting the existence of such a right, and submitted that any such right had been overtaken by the enactment of ss 58 and 60 of the Supreme Court Act. In any event, even if such a right existed, he contended that it would not support the award of interest in this case, given that the Owners had the benefit of the work, and he had passed on all but a small amount of the moneys received to the trade contractors.

Although the question of interest did not need to be decided, the Court of Appeal briefly addressed the issue, observing that that the question whether there is a general (or ‘free-standing’) right to interest in an action for moneys had and received was not settled. The legal questions which this ground then presented were left to the remitted hearing, as was the operation of s 58 of the Supreme Court Act.

However, the Court of Appeal explained that, although s 58 provides for interest in cases where a sum is payable by virtue of a written instrument, if a sum is payable by virtue of an Act of Parliament, it is the terms of that statute which might be expected to govern any right to interest. The court further noted that if the Act was a ‘written instrument’ for the purposes of s 58(1), it would have the surprising result of reading an entitlement to interest into every statutory right to payment.

This was not a case where an amount was liable to be paid by virtue of a statute. The statute made retention of the money unlawful, but the liability to pay the moneys to the Owners arose under the law of restitution, on a claim for moneys had and received. It therefore did not matter whether the Act was a ‘written instrument’.

Hugh Foxcroft QC
 
Liability limited by a scheme approved under professional standards legislation