Determining statutory duties in domestic building contracts

Summary

The Court of Appeal (Maxwell P, Santamaria and McLeish JJA) recently held that it was impermissible for parties to a major domestic building contract, within the meaning of the Domestic Building Contracts Act 1995 (Vic) (Act), to limit the role of the builder to a merely “supervisory” role, even when another builder is also engaged under the same contract to perform the actual building work. The Court held that there was no support in the Act for a merely supervisory role and any attempt to limit a builder’s obligations to such a role would be an impermissible and ineffective attempt to contract out of the statutory warranties set out in s 8 of the Act: [78].

The Court of Appeal was also satisfied that, although no executed copy of the contract was in evidence, it was sufficient for the purposes of s 31(2) of the Act that the signatory (the son of the owners) gave evidence of having signed the contract on behalf of the owners, albeit that fact was not disclosed to the respondents at the time of signing and they were not named in the contract.

Background

The case concerns an application for leave to appeal by the applicants (Frasers), the registered owners of a property, regarding the liability of a registered building practitioner (the respondents) for non-completion of domestic building works which the Frasers alleged that the respondents had undertaken to complete.

Parties to the contract / agency

Section 31(2) of the Act requires the builder and the owner (or their authorised agents) to have signed the contract. The respondents did not deny having signed the contract but denied that the contract was made with the owners, rather with a company, Snowy Corner Pty Ltd (Snowy), owned and controlled by the owners’ son, Mr Atwell. The Tribunal had expressed its decision in tentative language, stating only that it was ‘open to find’ that the owners were, through the agency of Snowy, parties to the contract (Tribunal Reasons, [65]).

The Court of Appeal found that the fact that the owners owned the land and that Snowy, through Mr Atwell, entered into the contract on their behalf (albeit originally without knowledge of the respondents) was plainly established on the facts. That sufficed to bind the owners as the undisclosed principals of Snowy: [65]. The contract therefore satisfied the requirements of s 31(2) of the Act.

Statutory Warranties

Section 29 of the Act prohibits an unregistered builder from entering into a ‘major domestic building contract’ unless, relevantly, that builder is in partnership with a registered builder.

Originally, a company by the name of Modern 1 Design Pty Ltd (Modern) was approached by the Frasers to perform the domestic building work. The Tribunal found that the sole reason for the respondents’ introduction into the project and subsequent engagement was the fact that the first respondent, unlike Modern, was a registered building practitioner (Tribunal Reasons, [73]).

In argument before the Court of Appeal, the respondents sought to establish that they had only a ‘technical’ or supervisory function under the contract, notwithstanding the implied warranties under s 8 of the Act.

In support of this proposition, the respondents cited the decision in Mrocki v Mountainview Prestige Homes Pty Ltd [2010] VSC 624, affirmed [2012] VSCA 74 (Mrocki).

In Mrocki the warranties in question were set out in the contract reflecting those in s 8 of the Act. It was held at first instance and on appeal that the work the company had undertaken to carry out was the provision of contractual management services, and therefore the warranties in the contract applied only to the provision of those services. The warranties were to be read in light of other provisions of the contract making it clear that the company was not responsible for completing the works. Notably, the Court of Appeal in Mrocki did not address the statutory warranties.

The Court of Appeal in the present case held that Mrocki does not decide the question of how s 8 applies in circumstances where a builder has undertaken only to manage or arrange the carrying out of building works and that the decision depends on its own facts: [76].

In contrast to the facts of Mrocki, the contract in question made no reference to either of the respondents or Modern (both named as ‘builder’) as having obligations merely to ‘manage or arrange’ or even ‘supervise’. In any event, the Court of Appeal considered that the argument advanced by the respondents went beyond the finding in Mrocki that the builder only ‘managed and arranged’ and amounted to an argument that the respondents only ‘supervised’.

As noted above, the Court considered that such an argument amounted to an impermissible attempt to contract out of the statutory warranties.

In April 2011, Modern abandoned the works. Pursuant to a new agreement between Mr Atwell on behalf of Snowy, the respondents and a new contractor, Fingal Holdings Pty Ltd (Fingal), Fingal agreed to take over Modern’s obligations to complete the building works under the existing building contract arrangements.

The Court of Appeal held that the original contract was not subsumed by the April 2011 agreement, nor did it alter or confine the respondents’ obligations as builder to complete the works.

In so finding, the Court of Appeal considered that the April 2011 agreement expressly continued the respondents’ existing obligations.

Further, the Court of Appeal considered that in any event to seek to limit the respondents’ duty by the later agreement would again be an impermissible attempt to contract out of the s 8 warranties.

Finally, the Court of Appeal held that pre and post-contractual evidence of the first respondent’s more limited supervisory role in practice was not admissible in aid of interpreting the April 2011 contract: [85]- [86].

The Court of Appeal remitted the proceeding to the Tribunal for further hearing and determination.

Discussion

To the extent that the decision sheds light on the circumstances in which a party will be considered to be bound by the terms of an building contract, it is heavily dependent on its own facts.

More importantly, the decision highlights the primacy of the implied warranties under s 8 of the Act and the limits the courts will place on purported restrictions on the scope of those warranties.