Jefferson and Wilson v Straw Homes Limited and Anor

October 8, 2017

In this month’s article I wish to review the July 2017 decision of Jefferson and Wilson v Straw Homes Limited and Anor.

Introduction/Summary

Straw Homes Limited (S) was employed to build a home for Mr Jefferson and Ms Wilson (J). There were delays and cost overruns in the work completed by S, which J refused to pay for. J purported to cancel the contract, employing other contractors to complete the works.

S brought a claim for its unpaid invoices and J subsequently made a counterclaim against S and its principal (the second respondent, Mr Neill), alleging negligence. J claimed that this was a fixed fee contract and sought damages for the costs of completing the new house.

The District Court found this was not a fixed fee contract. It found that S was negligent in failing to advise J of the cost implications of building a larger house but found that J had not suffered any loss, and therefore dismissed the claim.

The Facts

On 30 September 2008, J signed a building contract with S. The contract price was not stated, there was no description of the contract works, and there was no completion date. J had limited funds to spend on the new build, and had set themselves an upper limit of $600,000 to complete the build.  S was made aware of this.

J engaged an architect who drew up plans for them, one design having a floor area of 414m2, and the other design having a floor area of 375m2. The size of the upstairs area and the overall design was not settled when Mr Neill obtained prices for the estimate he provided to J.

An estimate of the house given by S was $646,060.53 excluding GST for a house with the floor area of 278m2 and recorded that this was “a price estimate for the [appellants’] home”.  A second version of this estimate was prepared which included the use of the words “this is a fixed price estimate of $646,060.63 etc”, which J requested be inserted into a copy of the signed contract as the “contract price”.  No other changes were made to the copy of the contract.  It continued to describe the contract as “managed labour only”, no other plans or description of work was attached to the contract. It was this version of the contract that was supplied to J’s Bank.

Following the granting of consent, work commenced in May 2009. During the building process, many changes were made to the design of the house, as suggested by Mr Neill and agreed by J.

In February 2010, J enquired as to the total costs required to finish the project. S responded saying that there was still approximately $100,000 required to finish the build, excluding GST, electrical work and installation of the kitchen. The relationship between J and S quickly deteriorated because of concerns surrounding the cost of the build, and the increasing number of unpaid invoices.

The District Court proceeding

S issued proceedings against J to recover the unpaid balance of their invoices, being $149,218.62.

J counterclaimed for a total of $190,728.26, being the cost they incurred with another contractor in completing the build after cancelling the contract with S, less the balance owing if the contract had a fixed price.  They alleged breach of contract, negligence, breach of Consumer Guarantees Act 1993, misrepresentation and breach of section 9 of the Fair Trading Act 1986 (misleading and deceptive conduct). J further claimed personally against Mr Neill (the second respondent) for negligence and misleading and deceptive conduct.

The District Court held that S was entitled to recover the unpaid invoices and that Mr Neill was negligent in one aspect as to price escalation, but no loss could be proven as a result of his negligence.

Issue 1: was this a fixed price contract

The High Court decision

The Court held the words ‘contract price’ could not be read in isolation, and the contractual matrix as a whole needed to be examined. The question was ‘what a reasonable and properly informed third party would consider the words of the contract to mean’, otherwise known as the ‘objective intention’ test.

In assessing what a reasonable and properly informed third party would consider the intended words to mean, the High Court concluded that the words ‘contract price’ meant an estimate. A reasonable third party would be aware that S/Mr Neill was not in a position to provide a fixed price. Further, if the parties had agreed to a fixed price, J would have been expected to protest the moment the price exceeded the ‘contract price’. Instead, J was concerned with the number of hours that were still left to complete the build rather than the price still to be paid.

Therefore, the District Court did not err in their decision.

Issue 2: had the appellants proven loss caused by negligence

The negligence claim

On appeal, it is apparent that neither J nor S was challenging the District Court finding that S owed J a duty of care to provide accurate cost estimates before the work was commenced or variation work was undertaken so that J was given the opportunity to make decisions so as to remain within their financial limits.

Whilst J argued that the District Court finding that J had suffered no loss was wrong, the High Court agreed with the District Court.  It said it was incumbent upon J to establish to the balance of probabilities that it had suffered a loss as a result of breach of the duty.  Whilst evidence was given that the building works had cost more than J had anticipated, the simple fact was that J had received the benefit of these building works in the substantial completion of their house.  No evidence was adduced that the works paid for, were not worth the value that was paid for them.  Whilst there was a last minute attempt to introduce this type of evidence, it was not allowed.

Result

The appeal to the High Court was dismissed. This decision establishes that if a party to a construction contract wishes to succeed in an argument that it is a fixed price contract, clear and unequivocal language must be used.

 

 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.