Builder Not Entitled to Payment for $400k Work

If you haven’t followed the building contract then you won’t get paid, regardless of how much work you have performed.

R Developments Pty Ltd -v- Forth & Anor saw a big shift towards stricter operation of the contract as the stating point when determining how a builder should be compensated for a claim for unpaid work.

R Developments (the builder) quoted and agreed to build a property in Yarralumla for $972,000. After the initial $72,900 deposit, the builder was entitled to be paid $100,000 once the property reached the slab stage, with payments set up for the other stages in the usual manner.

The builder no doubt realised his folly when he had completed $380,000 in work without reaching the slab stage. There were also a number of deposits for materials and the builders profit margin which had been incurred but not paid. The builder claimed a number of variation notices for additional work had been submitted to the owner and accepted by virtue of getting no reply.

The builder then alleged that the owner had not shown a capacity to pay for the extra works and purported to terminate on this basis, claiming short of $600,000 in damages.

Strict contract – no right to estoppel

Estoppel can be broadly defined as a group of rules of equity by which the Courts can prevent injustice, including in cases where they would not otherwise be able to, ie. even if a contract doesn’t provide for it.

Part of the builders claim was that the contract was validly terminated under the requirement to prove finance, or in the alternative, as they had performed $380,000 worth of work, they were entitled to be reimbursed for that work to prevent injustice.

David Robens of Kamy Saeedi Law, successfully argued that the owners had fulfilled their requirements under the contract and that the bank had previously shown that finance was guaranteed even in light of the variations.

Under the contract, the builder was entitled to insist on finance but not once works had been commenced as this was enough to show the builder’s acceptance of meeting this requirement. This acceptance included losing the right to terminate for non-compliance of it. Therefore the termination was invalid and the builder was entitled to no compensation for the work performed.

Normally the builder may then experience some relief through equity, but the court was not particularly receptive on this occasion.

As the owner had already received a benefit resulting from the breach of contract ($300k free work) they were only awarded nominal damages and costs in defending the action.

Implications

The implications of such a decision are wide-ranging for construction law in the ACT. The Courts had previously been somewhat reticent to punish builders too harshly for under-quoting. Sure they were required to take a hit, but usually nothing like this.

The fact that the builder walked away from a claim for almost $600,000 worth of work and materials and got nothing with costs awarded against them should serve as a stark warning to builders or indeed any tradesman in the Territory.

Further to this, and excuse the brag, but the Kamy Saeedi Team poked some pretty big holes in the arguments of a well used construction law firm relying on the pro forma contract prepared by another prominent construction law firm and used by builders as a matter of practice. More than a brag, this certainly raises issues about how construction litigation will result in the future given the hard right turn this case indicates.

After a lengthy dispute, the owner now has the benefit of a lot of free work and is able to recommence building their dream home.

If you would like to discuss this matter further, please contact either Tom Barrington-Smith or David Robens from the Kamy Saeedi Law Commercial Team.

 

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