Two new Australian building cases
Delay in responding to new contract price.
Building Renovation without Council Approval.
CMC Cairns Pty Ltd v Isicob Pty Ltd
A builder contracted to build a number of home units but subcontracted labour, formwork materials, plant and equipment to the value of $200,000. Nearing completion the builder altered the contract price and scope of works, and received no response from the subcontractor at the time to the change in contract price, despite asking for comment.
6 years later the subcontractor’s responded stating that there were errors and omissions in the builder’s quantities and that the total value of the work was higher than claimed by the builder. The builder’s measurements had not included work performed on certain areas of the building. The builder did not respond to the letter of 9 June 2000 and on 21 July 2000 the subcontractor referred the dispute as to the valuation of the subcontract work to arbitration.
When notified on 19 March 2001 of the arbitration, the builder stated that it would not participate because the notifications were not “submitted in accordance with time limitations provided by the contract”. On 31 May 2001, the builder sought an order terminating the arbitration pursuant to s46 of the Commercial Arbitration Act 1990.
The relevant issues for the Court of Appeal to decide on appeal were:
When did the dispute arise;
Had there been inordinate and inexcusable delay on the subcontractor’s part with respect to the arbitration; and
Did the delay give rise to a substantial risk of it not being possible to have a fair trial of the issue in the arbitration or that the delay was likely to cause serious prejudice to the builder in the arbitration.
The Court held that the subcontractor ought to have made the claim for a higher amount within a reasonable time after 9 June 1994. It was unreasonable to make such a claim six years after the work was completed. The failure of the subcontractor to do so implied that it had accepted the builder’s calculations. In addition, there was a substantial risk of an unfair trial of the issues which would potentially arise in the arbitration proceedings.
Wilson v Pilgrim
This case concerned owners of a house property who contracted a builder to carry out some limited renovation work on some extensions, which had been built in 1971. Mid-way through the renovations the owners suspended the building work after a dispute arose between the parties.
At the time of entering into the contract the owners had relied on a representation by the builder that the work did not require approval by the council, because it was renovation work and not the construction of a new building or extension. Thus, no such approval was sought or given.
However, the council then wrote to the owners requesting them to lodge a development application with the council, together with an engineer’s certificate of compliance under the building rules.
The owners obtained an engineer’s report on the work, which revealed that the floor and footing system could not be repaired or otherwise made to comply with the regulations without complete removal. This entailed demolition of the whole extension and rebuilding. Thus the owners lodged a development proposal with the council, which proposed the demolition of the whole structure and its replacement.
On Council approval, the owners proceeded with the proposal.
The owners then claimed that the builder had breached the terms of the contract, as council approval was required by law and ought to have been obtained. They claimed the cost of demolition and rebuilding in damages. The builder raised in defence that the work was a structural enhancement to the original building work, which the council had approved. The builder’s engineer stated that there was “every chance” that the original proposal, with some modifications, would be approved by the council. Furthermore, the builder argued that the owners had failed to mitigate their loss by pursuing an alternative and cheaper course.
The Magistrate found that the work did not comply with appropriate building standards and the decision to demolish was made after careful consideration by numerous engineers and the building industry. Damages were awarded based on the cost of demolition and rebuilding.
The Court, on appeal, held that damages providing for the demolition and rebuilding of the extension were properly assessed. The plaintiffs could only pursue damages for breach of contract and given the nature of the defects, there was no alternative but to provide for the demolition of the whole structure and its rebuilding.