Failure to document Contract Variations lead to suspension and termination dispute. Unlicenced builder defeats $370,000.00 damages claim for cost to complete. Judgement for builder with indemnity costs.

The client was a residential builder who had contracted to build a large residential premises for approximately $695,000. Shortly after the the works commenced the owner instructed the builder to perform a number of significant variation that meant that the cost of the works would increase by approximately $280,000.00.

The builder failed to document a Contract Variation in relation to the variations.

Before the house had reached lock-up stage a dispute arose between the builder and the home owners following the issue of a progress claim for approximately $40,000.00. At the time the home owners were concerned that they had already paid approximately $560,000.00 and did not consider that the remaining works could be completed for the original price (excluding the cost of the variation).

The builder sought assistance from Roberts Legal. Roberts Legal provided advise and gave notice suspending the works for the owners’ failure to pay the sum of $40,000.00. Roberts Legal also indicated that the builder required that all past variations then be formalised in a Contract Variation.

The home owners sought legal representation from a general practice law firm. They paid the outstanding progress claim but demanded that they builder resume and complete the work for the original contract price.

On advice, the builder resumed work while correspondence in relation to the contract variations continued between the Solicitors. The builder then issued a further progress claim for approximately $30,000.00 and again suspended work when payment was not received by the due date.

In an attempt to resolve the dispute Roberts Legal proposed that the parties jointly engage a Quantity Surveyor to value the cost of the variations for the purpose of formalising a Contract Variation. The owners did not accept this offer and instead engaged their own Quantity Surveyor.

Subsequently, the owners served a Construction Cost Report prepared by a Quantity Surveyor and asserted that they had overpaid the builder more than $100,000.00 for the work then completed. The owners also asserted, based on the Report, that the cost to complete the works was over $370,000.00.

Roberts Legal quickly identified a flaw in the Quantity Surveyor’s costings and consequently the owners’ reasoning that they had overpaid the builder. Despite Roberts Legal articulating the problems with the Report to the owners’ Solicitors, the owners refused to pay the oustanding progress claim or agree to any Contract Variation.

Instead, the owners purported to terminate the contract on the basis that the builder had repudiated the contract by refusing to complete the work for the original contract price.

Roberts Legal provided advice and served notice of termination on behalf of the builder on the basis that the owners’ termination was invalid and that the owners were in breach for not paying the builder’s progress claim for $30,000.00.

The owners commenced an action in the District Court claiming damages against the builder in the sum of $372,000.00 on account of the alleged costs of completing the work. The owners also asserted that the builder had misled them when the contract was entered into by holding out that the builder held a Contractor Licence when in fact it did not.

The builder defended the claim on the basis that the contract had been validly suspended then terminated by the builder. The builder also cross-claimed for $30,000.00 in respect of the unpaid progress claim relying on Court’s discretionary power to order compensation despite the builder not holding a Contractor Licence.

Judge Sidis found in favour of the builder on both the Defence and Cross-Claim. Her Honour held that, on the basis of the owners’ own Quantity Surveyor’s report, the value of the works that had been carried out was approximately $200,000.00 more than the amount the builder had claimed, and that in the circumstances the owners’ purported termination of the contract was invalid.

Her Honour held that the builder’s suspension and termination had lawfully brought the contract to an end.

Her Honour also found that despite the builder not holding a Contractor Licence, in all the circumstances including that the works were almost defect free, it was just and equitable that the builder be entitled to payment of the sum of $30,000.00.

The matter was adjourned for the parties to make submissions in relation to Costs Orders. Because of the strong preliminary work undertaken by Roberts Legal prior to the commencement of proceedings, Roberts Legal was able to negotiate a favourable Costs Order for over $100,000.00 effectively achieving a full indemnity for the builder’s costs.

Roberts Legal recovered the unpaid progress claim and costs in full within approximately two (2) months of the Judgment being given.

Libreri & Libreri v Burke [2012] NSWDC 27

 

How We Help

Our Building & Construction Team is headed by an Accredited Specialist in Commercial Litigation and author of our popular Security of Payment Guide. Read More…

«

»