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Building and Construction News September 2008

Developers and builders may be alarmed by some recent decisions concerning building contract claims. Careful preparation and sound advice will minimise your exposure to possibly unfair outcomes regarding payment.

What if we don’t have a contract?

Lumbers v W Cook Builders Pty Ltd (in Liquidation) [2008] HCA 27:
This was a claim for recovery of money for building work where no contract exists between a builder and the client. These claims are referred to as quantum meruit claims.
Facts:
The client contracted with builder x,but the contractual work was done by builder y.  The owners paid builder x,who passed on the payments to y.  When construction was completed, monies remained outstanding for work completed under the contract.  Builder y sued builder x and the client for the outstanding sums.  Builder y was unsuccessful in its claim against builder x. 

The South Australian Court of Appeal: allowed y’s claim against the client on the basis of the ‘restitution and unjust enrichment’ obtained by the client at y’s expense, eventhough there was no actual contract between the client and y. The client appealed to the High Court

The High Court allowed the clients’ appeal.  The court saw in the contractual arrangement between all three parties a specific and deliberate allocation of risk which they refused to disturb. Since builder y had failed to make prompt payment claims from either builder x or the client, the court further held that no unconscionability was made out and so upheld the parties’ contractual arrangements in the face of competing considerations of fairness.

The High Court held that, where a claim for payment on a quantum meruit is concerned, the connection between the claim and the contract between all the parties must be examined carefully and just because there is a conferral of a benefit or supply of a service or unjust enrichment to a client, this is not sufficient to create an entitlement to recovery by a builder who chooses not to contract with that client.

Readers must be careful to ensure their contractual arrangements are secure with the persons from whom they wish to claim monies. There are some statutory provisions under the Home Building Act and other legislation which may assist you if you are not paid by your principal contractor, but these remedies are extremely limited.

How good is a warranty?

The Craftsmen Restoration and Renovations [2008] NSWSC 660:

This case was heard by the Supreme Court on appeal from the NSW CTTT. 
In this case there was a Contract between a Builder and a client and the contract contained a term to the following effect:
If a client serves a default notice on the builder and the Builder does not rectify the default within 10 days then the Client may serve a further notice on the Builder to terminate the building contract EXCEPT if the Client is in breach of his/her obligations under the contract at the time the client serves the termination notice.

The Supreme Court ruled that the Client’s breach in such circumstances means “having failed to comply with a term of the Contract”  which is an ordinary meaning of the word “breach”, and is not to be a narrow interpretation as applied by the CTTT.

This case also examined a situation where the client claimed against the builder for breach of a statutory warranty for the installation of defective windows. The builder argued that he told the client’s architect before installation not to proceed because the windows were defective.

The case highlights the defence available to builders where a claim is brought against the builder for “breach of a statutory warranty”. This is where goods are not suitable for the purpose under s.18F of the Home Building Act. Readers should be aware that s.18F allows the builder to claim a defence to such a breach IF the builder can show that he/she advised the client or their agent [in this case the client’s architect] IN WRITING  about the matter complained of and advised against the installation of the goods. 

Unfortunately in this case the builder did not advise in writing, as his advice was ORAL Therefore the Court ruled that the builder was in breach of the statutory warranty in respect of the windows and the defence was not available to him.

Contracts and the Duties of Principal Contractors relating to safety

Workplace safety comes under the ambit of the Occupational Health and Safety Act 2000 and its regulations.  This legislation places a non-delegable duty on the occupier and controller of a building site to provide for the safety of its employees.

Duty with regard to the safety of independent contractors on security sites was recently discussed in Fox v Leighton Contractors Pty Ltd & Ors [2008] NSWCA 23.

As readers would be aware, the legislation provides that a principal or head contractor must ensure that all workers on a site have undergone the requisite Occupational Health and Safety Training. 

Fox considered the liability of a principal contractor who had failed in this regard.

The plaintiff, Fox, in this case was employed as an independent contractor by the concrete pump truck business retained by a subcontractor of a major construction contractor.  Fox was injured in the process of cleaning concrete pipes, and he started legal proceedings against each of the companies in the contractual chain, including his fellow independent contractor to the pump truck supplier.  At first instance Fox was only successful against the concrete pump truck business as failure to take reasonable care was attributed to this individual due to his physical proximity to the equipment in question before and at the time of the accident.

A clause in the contract between the principal and first sub-contractor required the subcontractor to establish its own OH&S plan and ‘work method statement’ with regard to the concreting works it was contracted to perform.  In a letter from the principal following initial dissatisfaction with the subcontractor’s work method statement, the subcontractor was urged to comply with the abovementioned legislation and relevant industry code of practice.  The contract also provided that serious breach of OH&S requirements would be a serious breach of the head contract. 

Following Fox’s accident, the head contract was terminated and the subcontractor told to remove all persons and equipment from the site. 

The plaintiff contended that the principal was liable for failure to ensure safe work practices were followed on-site pursuant to Regulations 213(1) and 217(a). 

Neither Fox nor his fellow sub-subcontractor underwent OH&S induction training pursuant to the above sections.

On appeal, the court attached considerable significance to Reg.217(a) and its representation in the contract between the principal and subcontractor.  It was argued by the plaintiff that the principal failed to ensure that adequate induction training was provided to all workers on-site, and that its foreman failed to ensure safe work practices were followed. 

The court held that, although the principal did not have vicarious responsibility for the negligence of its subcontractor, it had the ultimate responsibility of ensuring the safety of all workers on-site, arising from the contract between the principal and its subcontractor.  This duty is a general duty of care, although something less than a non-delegable duty of care for all persons on-site, so it is not an employer-employee duty and it remains a relationship of principal-contractor.  The court held that this duty was not delegated to a subcontractor, as in this case the principal contended it had delegated the duty under the head contract.  The court’s judgement relied heavily on indicators or factors of control in the principal’s manner of dealing with workers and subcontractors on-site. 

Ultimately, the subcontractor in charge of the plaintiff and third defendant were held responsible for 80% of damages, due to its failure to adequately train the plaintiff and third defendant in OH&S, in breach of its contract with the principal.  The principal was held to be liable for the remaining 20%. 

The plaintiff was held, however, to be partly responsible for the accident for failing to ensure he attained adequate certification and training in OH&S, and so damages were reduced by 15% on account of contributory negligence.

The duty of care attaching to the principal is, following this decision, borne of the abovementioned statutory requirements, and is best characterised as residue of those safety responsibilities contractually delegated to any subcontractor(s).