Australian Timber & Trusses Pty Ltd v T&M Buckley Pty Ltd [2012] QSC 110

SUPREME COURT OF QUEENSLAND CITATION: Australian Timber & Trusses Pty Ltd v T&M Buckley Pty Ltd [2012] QSC 110 PARTIES: AUSTRALIAN TIMBER & TRUSSES PTY LTD (ACN 010 275 902) (Plaintiff) v T & M BUCKLEY PTY LTD (ACN 010 052 043) (First Defendant) and TERENCE BUCKLEY (Second Defendant) FILE NO/S: BS 5318 of 2009 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court of Queensland DELIVERED ON: 15 May 2012 DELIVERED AT: Brisbane HEARING DATE: 30 January – 3 February, 10 February 2012 JUDGE: McMurdo J ORDER: (1) The first defendant to pay the plaintiff $605,881.20 (2) The second defendant to pay the plaintiff $360, 384.74 (3) The counterclaim is dismissed (4) It is declared that the plaintiff is entitled to a charge over any real property of the first defendant to secure the debt under the plaintiff’s judgement against the first defendant CATCHWORDS: CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – RECOVERY – where the parties entered a contract whereby the plaintiff would manufacture and supply timber trusses and frames to the first defendant for housing – where the first defendant gave notice to the plaintiff that further deliveries of trusses and frames should not be made – where the plaintiff claims the total of unpaid invoices together with associated storage and handling costs as damages for breach of contract -- 1 of 33 -- 2 – whether the first defendant is liable to pay the unpaid invoices and associated costs of the plaintiff CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON- PERFORMANCE – REPUDIATION – WHAT AMOUNTS TO REPUDIATION – where the first defendant claims that it did not repudiate the contracts but merely „suspended‟ performance of them – where the first defendant argues that whilst the head contract was suspended so too were the contracts between itself and the plaintiff – where the contracts between the first defendant and plaintiff did not contain such a provision – whether the first defendant‟s actions amount to repudiation of the contract between it and the plaintiff CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – LEGALITY – s42, Queensland Building Services Authority Act 1991 - where the first defendant claims that in performing the contract for the supply of timber, the plaintiff carried out work which involved the preparation of a plan for the performance of building work, for which it was unlicensed under s42 of the Act – where the timber provided was accompanied by a plan indicating how to install the trusses and frames – where the plaintiff charged no or a minimal amount for the preparation of the plan - where the first defendant claims that in accordance with s 42(3) of the Act, it should not be liable to pay for unlicensed building work performed by the plaintiff – whether the contracts for the supply of timber required the plaintiff to provide an instalment plan or layout for which it is now seeking consideration or whether the plaintiff seeks payment only for the timber trusses and frames DAMAGES – GENERAL PRINCIPLES – MITIGATION OF DAMAGES – PLAINTIFF‟S DUTY TO MITIGATE - where first defendant claims that plaintiff failed to mitigate its losses for undelivered timber and frames– where the first defendant claims that the plaintiff should have attempted to sell the excess materials to the owner or financier of the building site or some other related party – whether the plaintiff failed to mitigate losses by failing to find another buyer for the undelivered trusses and frames SALE OF GOODS – CONDITIONS AND WARRANTIES – IMPLIED CONDITIONS AND WARRANTIES – QUALITY OR FITNESS FOR PARTICULAR PURPOSE – FITNESS FOR PARTICULAR PURPOSE - where the first defendant counter - claims that the plaintiff supplied defective timber trusses and frames – where the first defendant used the trusses and frames in the construction of a -- 2 of 33 -- 3 residential development which it claims it will now be required to rectify by the governing authority – where evidence indicated that the problems may have been caused by incorrect installation of the trusses and frames - whether it is more probable than not that the defects were caused by defective timber supplied by the plaintiff rather than poor installation of the trusses and frames GUARANTEE AND INDEMNITY – THE CONTRACT OF GUARANTEE – CONSTRUCTION AND EFFECT – EXTENT OF LIABILITY - where the second defendant signed documents entitled „Guarantor Acknowledgement‟ and „Guarantee‟ four years prior to the signing of the contracts for the supply of timber - where the documents signed expressly referred to a guarantee for all amounts owing by the second defendant to the plaintiff – where nothing was said to have occurred between the signing of the guarantee and the entry into the supply contracts which constitutes a withdrawal of the guarantor‟s offer - whether the second defendant is liable for any of the amounts claimed by the plaintiff including for some or all of the damages claimed Queensland Building Services Authority Act 1991 (Qld), s42 Queensland Building Services Authority Regulation 2003 (Qld), s5, Schedule 2, Parts 11, 12, 13 Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549, cited Chan v Cresdon Pty Ltd (1989) 168 CLR 242, cited Cook’s Construction Pty Ltd v SFS007.298.633 Pty Ltd (formerly trading as Stork Food Systems Australasia Pty Ltd) [2009] QCA 75, considered Fitzgerald v F J Leonhardt Pty Limited (1997) 189 CLR 215, considered Hoenig v Isaacs [1952] 2 All ER 176, considered Lemura v Coppola [1960] Qd R 308, cited Murphy Corporation Ltd v Acumen Design & Development (Queensland) Pty Ltd & Anor (1995) 11 BCL 274, cited Puerto Galera Pty Ltd v J M Kelly (Project Builders) Pty Ltd [2008] QSC 356, considered Sutton v Zullo Enterprises Pty Ltd [2000] 2 Qd R 196, considered COUNSEL: HS Howe for the plaintiff SB Whitten for the defendants -- 3 of 33 -- 4 SOLICITORS: McLaughlin Lawyers for the plaintiff Mills Oakley for the defendants [1] The plaintiff manufactures timber trusses and frames. The first defendant is a builder. In June 2008, they agreed that the plaintiff would manufacture and supply to the first defendant trusses and frames for the first defendant‟s construction of houses in a development at Wakerley. [2] The supply of these items commenced in September 2008 and continued through to the end of February 2009, before the plaintiff received a facsimile transmission from the first defendant, dated 12 March 2009, to the effect that its contract with the owner had been suspended and that it was unable to carry out any further work. There were no further deliveries by the plaintiff to the site after then. As at that date, there were unpaid invoices, for timber delivered during February 2009, totalling $280,455.05. The plaintiff sues for that sum as the unpaid price for goods sold and delivered. [3] Also at that date, the plaintiff had manufactured, but not delivered, further trusses and frames for which the agreed price was, in total, $158,763. The plaintiff says that it was unable to sell those items to another buyer and it claims that amount, together with associated handling and storage of $32,284.83, from the first defendant as damages for breach of contract. [4] The second defendant is sued for each of those amounts as a guarantor, under a document which he signed in 2004. He says that this does not make him liable for any of the amounts claimed, or at least for the damages claim. [5] The first defendant denies that it is liable to the plaintiff upon several grounds. It says that the plaintiff‟s claim is precluded entirely by s 42 of the Queensland Building Services Authority Act 1991 (Qld) (“the QBSAA”). This is because the contract or contracts for the supply of the timber also required the plaintiff to supply a document described as a “layout for both frames and trusses … for use by the subcontractors”. It is argued that this involved the preparation of a plan for the performance of building work, thereby constituting “building work” for the purposes of s 42, and for which the plaintiff did not hold a licence under the QBSAA. [6] The damages claim is also defended upon the basis that the plaintiff failed to mitigate its loss, by not finding another buyer for the undelivered timber. [7] There is a counterclaim by the first defendant, which complains about the quality of the trusses which were delivered. It is claimed that the hip trusses, as were installed in many houses across this development, have an excessive deflection at some points where the roof extends beyond the walls of a house. This defect, the first defendant says, has caused it to suffer damage of the order of $432,245. -- 4 of 33 -- 5 [8] In addition, there is a counterclaim for another $624,409.89, which was the total paid by the first defendant to the plaintiff for the trusses and frames which were delivered to the site. Again, the point here is that the plaintiff was not entitled to any payment by reason of s 42. Therefore, the first defendant alleges, it is entitled to repayment because it made the payments under the mistaken belief that the plaintiff was entitled to them. The contracts [9] In 2004, the plaintiff received a document described as “Application for Commercial Credit Account” which was signed by the second defendant. The document was in the terms of the plaintiff‟s then standard form. It set out a number of conditions which were to apply to any sale to the applicant. It included a page headed “Guarantor Acknowledgement” and a further page headed “Guarantee”, each signed by the second defendant. In the “Guarantee”, the second defendant was named as the guarantor and the first defendant was named as the principal debtor. The first defendant was also named within other parts of this document, with a specification also of its business name and address and of the second defendant‟s name as its director. That part of the document which was to be completed by the buyer was signed by the second defendant as “the applicant”, from which the defendants now argue that no part of the document was signed by the first defendant, and there was no person other than the second defendant who sent it to the plaintiff. Therefore, it is contended, the document could not have bound the second defendant as a guarantor to the 2008 transaction. [10] However, read as a whole, this document clearly enough identified the proposed buyer as the first defendant and the second defendant as its guarantor. [11] The Guarantee was expressed to be in consideration of the plaintiff having “agreed to supply and/or continue to supply to [the first defendant] with goods and/or services from time to time …”. It contained terms which included the following promises by the guarantor: “1. To guarantee to you the payment by the debtor for all goods and/or services as you may have hitherto supplied or as you may hereafter supply from time to time at his request and notwithstanding that we shall not have notice of any neglect or omission on the debtor‟s part to pay for such goods and/or services according to the terms agreed on between you and him. 2. This guarantee shall be a continuing guarantee to you for the whole of the debtor‟s indebtedness or liability to you in respect of goods and/or services supplied or to be supplied to the debtor as aforesaid or upon any other account howsoever or whenever arising. … -- 5 of 33 -- 6 8. This guarantee shall remain foot: (a) Until you shall have received one hundred cents in the dollar of all money interest costs and damages as provided in paragraphs 1 and 2 hereof; and (b) For at least six months and one day after the payment of all money interest costs and damages and in particular we do hereby jointly and severally indemnify you against any preference claim or claims paid or payable in the liquidation or bankruptcy (as the case may be) of the debtor and irrespective of whether it was subsequently proven that you were not legally obliged to disgorge such preference claim/s as aforesaid. … 12. That the proper law of this guarantee and indemnity shall be the law of the State of Queensland and we agree and declare that any proceedings in respect of any cause of action arising hereunder may be instituted, heard and determined by a court of competent jurisdiction at Brisbane and that such court shall possess territorial jurisdiction to hear and determine any such proceedings.” On the page under the heading “Guarantor Acknowledgement”, the second defendant acknowledged, amongst other things, that “this is a guarantee and indemnity for unlimited amounts … [relating] to all amounts owing in any way by the Debtor to Australian Timber & Trusses Pty Ltd now and in the future”. [12] The same document included the terms upon which the plaintiff would permit the first defendant to purchase goods upon credit and provided that those terms should prevail over any terms otherwise governing a subsequent sale. [13] The plaintiff‟s case, at least upon one view of it, was pleaded as based upon a contract made by these documents in 2004. The defendants pleaded that the relevant trusses and frames were instead the subject of contracts made in 2008. Accordingly, they argued, the 2004 documents were irrelevant and, in particular, the guarantee could not have secured the sums which are now claimed by the plaintiff. [14] It is true that the plaintiff became obliged to supply the relevant goods, and the first defendant became obliged to pay for them, by a contract or contracts made in June 2008. But that is not to say that the guarantee was inapplicable. At least insofar as payment of the price of timber sold and delivered was concerned, the second defendant had unambiguously agreed to guarantee what was payable under such a future transaction. On one view, he became contractually bound in 2004, in consideration of the plaintiff‟s agreement to supply the first defendant upon credit. -- 6 of 33 -- 7 Alternatively, by signing the guarantee, he offered to be bound as a guarantor to any subsequent contract for the sale of timber to the first defendant. Nothing is said to have occurred between 2004 and 2008 which would be indicative of a withdrawal of that offer by the second defendant. Thus, when the first defendant submitted three pages to the plaintiff in June 2008, asking it to supply the items which were there described for the prices which were there specified, there was at the same time a standing offer from the second defendant to guarantee the first defendant‟s performance of that transaction. So when the plaintiff signed and returned those documents on 18 June 2008, all three parties became bound. Either way then, the second defendant was bound as a guarantor for the 2008 transaction. [15] What was sent to the plaintiff in 2008 consisted of three pages, each in the form of a purchase order. Each page dealt with a different stage of the development which was being constructed by the first defendant. For stage one, consisting of 26 houses, the plaintiff was to provide certain items “for the lump sum of … $627,664.40 (including GST)”. The lump sum price for stage two (25 houses) was $559,207 and for stage three (21 houses) it was $463,128.60. The orders provided for different periods for the supply of these items. But otherwise the pages were in identical terms. They provided that the trusses and frames were to be made according to certain specifications and drawings, none of which, it is clear, had been or was to be prepared by the plaintiff. The houses had been designed by architects and engineers. [16] Each document provided that the plaintiff was to: “Supply and deliver all H2-F blue pine treated timber frame and trusses requirements as per plans and specification including but not limited to roof trusses, triple grips, soffit battens, girder brackets, bottom chord binders, wall brackets, valley boards, speed bracing, trimmers, roof struts, pre-nailed frames, ply bracing, bulkhead timber framing, connection plates, noggings, temporary bracing, stud straps, bearers, joists, flooring, posts (90X90), supply a laminated A3 layout for both frames and trusses to site for use by the subcontractors, copy to be supplied to [the First Defendant‟s] office approx 5 days before delivery onsite.” (Emphasis added) It also included these terms: “• All workmanship & materials used on this project to be to the satisfaction of the client and Shailer Constructions. • All work to be carried out in accordance with the Head Contract, Drawings, Specification.” [17] The “laminated A3 layout for both frames and trusses” was to be “supplied” by the plaintiff. It was not agreed that the plaintiff itself had to produce or, if it be different, “prepare” that document. There was no separate price for the supply of -- 7 of 33 -- 8 this layout: rather, it was one of a number of things to be provided by the plaintiff for the agreed lump sum price. The s 42 questions [18] Section 42 of the QBSAA provides, in part, as follows: “42 Unlawful carrying out of building Work (1) A person must not carry out, or undertake to carry out, building work unless that person holds a contractor‟s licence of the appropriate class under this Act. (3) Subject to subsection (4), a person who carries out building work in contravention of this section is not entitled to any monetary or other consideration for doing so. (4) A person is not stopped under subsection (3) from claiming reasonable remuneration for carrying out building work, but only if the amount claimed – (a) is not more than the amount paid by the person in supplying materials and labour for carrying out the building work; and (b) does not include allowance for any of the following – (i) the supply of the person‟s own labour; (ii) the making of a profit by the person for carrying out the building work; (iii) costs incurred by the person in supplying materials and labour if, in the circumstances, the costs were not reasonably incurred; and (c) is not more than any amount agreed to, or purportedly agreed to, as the price for carrying out the building work; and (d) does not include any amount paid by the person that may fairly be characterised as being, in substance, an amount paid for the person‟s own direct or indirect benefit. … -- 8 of 33 -- 9 (9) A person who contravenes this section commits an offence. Maximum penalty – 250 penalty units.” [19] The term “building work” is defined within Schedule 2 of the QBSAA as follows: “building work means – (a) the erection or construction of a building; or (b) the renovation, alteration, extension, improvement or repair of a building; or … (f) the preparation of plans or specifications for the performance of building work; or … but does not include work of a kind excluded by regulation from the ambit of this definition.” [20] The defendants argue that the “layout” was a plan for the performance of building work and that it was “prepared” by the plaintiff. They say that accordingly the production of this document constituted “building work” as defined in Schedule 2. The plaintiff was not licensed to carry out that building work. Therefore, it is argued, the plaintiff “is not entitled to any monetary or other consideration for doing so”.1 [21] The first question is whether in producing the required layout, the plaintiff prepared a plan for the performance of building work. The term “plan” is not defined within the QBSAA. Several documents were provided by the plaintiff with the trusses and frames, each of which was intended to provide some assistance for those doing the construction work. But the three documents which became exhibit 13 were, it is common ground, the layouts. It may be that these three documents contained more than what the contracts required of a layout. They showed the “layout” of the timber pieces, with each piece identified by letters and numbers. (The timber itself was marked in the same way, enabling the carpenters to see how each was located relative to the others.) They also contained a number of other notations and drawings of details to assist in the installation of the trusses and frames. [22] The question here is whether what was required by the contracts was a plan for the performance of building work, rather than whether what was in fact supplied was such a plan. If what was required was not a plan of the relevant kind, it would follow that the plaintiff is not seeking any consideration for the preparation of such a plan and the enforceability of the contract is not affected by s 42. It may be the case that, by a course of prior dealings between the parties, the term “layout” was 1 s 42(3). -- 9 of 33 -- 10 used by them to refer to a document which contained all of the information within what is now exhibit 13. But that point was not explored in the evidence. [23] Unquestionably, what was required was a document which showed how the various pieces of timber, constituting the trusses and frames, were to be installed relative to each other. The document was “for use by the subcontractors”. The erection on site of these trusses and frames was “building work”. Therefore a document which depicted the location of these components, as they were to be erected, would seem to have been a plan for the performance of building work. But this is disputed by the plaintiff by several arguments. It argues that the layout plan lacked a necessary element of “design”: that the design of the roof structure had instead been undertaken by independent engineers. It is argued that the task of the “preparation” of a plan would be more demanding than what occurred here. And it is said that there is no category of licence which would be appropriate for this work, thereby indicating that no licence was required. [24] The first of those arguments sought to draw support from a statement by Chesterman J (as he then was) in Puerto Galera Pty Ltd v J M Kelly (Project Builders) Pty Ltd:2 “The essence of „building work‟ as defined in the dictionary to the [QBSAA] is the erection of a structure or part of a structure, and designing a structure for construction and, in connection therewith, preparing tender documents and building contracts.” The question in that case was whether the superintendent appointed under the building contract between the parties carried out, or undertook to carry out, building work within the meaning of s 42. The superintendent had not prepared any document which was said to be a plan. The argument which was there considered was whether the work of the superintendent was within the extended meaning of “building work”, then provided by s 42(2)(a),3 by which a person could “carry out building work” by causing a structure to be built. That case involved no consideration of the present argument, which is whether a document apparently meeting the description of a plan for the performance of building work, is a plan in the relevant sense only if it has been produced by the application of skill and originality which would characterise it as a work of design. [25] The undisputed evidence is that these layouts are produced by the application of certain software, provided to the plaintiff by the company which supplies the plaintiff‟s requirements of nail plates, called MiTek Australia Ltd. This software is applied by employees of the plaintiff who are described as detailers. A former employee of the plaintiff, Mr Whiteley, gave evidence of his supervision of the plaintiff‟s detailers, describing their work as “part draftsman, part quantity surveyor, part engineer and part builder”. He said: 2 [2008] QSC 356 at [43]. 3 Since repealed. -- 10 of 33 -- 11 “… What a detailer does is he gets a plan off a client, he appraises the plan, identifies what parts of the plan are required to be assembled and manufactured by his company he‟s working for, he generates costings for that and some supply installation paraphernalia that goes with it. … You appraise the [approved] plans, you identify and quantify the particular items that you want to take off, such as roof trusses or frames, you then have to make sure that they‟re input into a computer program, which is designed by engineers according to the Australian Standard, and once you have input the plan into the computer program you then work out the best way to achieve the aim of the builder and the best way for installation.”4 [26] The application of the MiTek software by a detailer serves several purposes. The work is necessary in order for the plaintiff to assess precisely what pieces of timber will make up the frames and trusses for a particular roof, which enables the plaintiff to calculate a price to be quoted for their manufacture.5 As Mr Whiteley explained, the MiTek software is used also to produce all necessary drawings for the plaintiff‟s manufacturing process. Thirdly, the same work produces a layout plan. [27] The structural design of this roof was originally undertaken by independent engineers. The engineering drawings, together with other material representing the work of architects and engineers, was used by the plaintiff‟s detailer, Mr Molloy, with the application of the MiTek software, in order to quantify precisely what timber was required for these purchase orders. As Mr Whiteley and others explained in evidence, the work of the detailer in this way is, in effect, to provide a more detailed version of the plans for the roof structure. The work involves the application of skill on the part of the detailers who are trained not only in the use of the software, but in building construction in some respects. Accordingly, the production of these layouts is not simply the downloading of a document prepared by MiTek. The layout plans are produced by the plaintiff‟s employees with a degree of skill and effort which could be well described as the “preparation” of these documents. [28] The plaintiff seeks to draw support from the category or categories of licence which are relevant for the preparation of plans or specifications. The types of licences which may be issued for the purposes of the QBSAA are prescribed by the Queensland Building Services Authority Regulation 2003 (Qld) (“the Regulation”). They include licences as prescribed by Parts 11, 12 and 13 of Schedule 2 to the Regulation, under which a licensee is permitted to “prepare plans and specifications” for buildings of certain descriptions. Such licences are described by the Regulation as “building design – low rise”, “building design – medium rise” and “building design – open”. That use of the term “building design” is consistent with the way in which the expression “design work” is used within the QBSAA, where it is defined to mean “the preparation of plans or specifications for building work”, as well as to include “professional advice in relation to building work”. The plaintiff 4 T 1-28. 5 As explained by Mr Beverland, the plaintiff‟s CEO at T 4-80. -- 11 of 33 -- 12 says that all of this demonstrates that there is a necessary element of “design” in the preparation of a plan for the performance of building work. However, the definition of “design work” does not provide much assistance here because what it does is to give a particular statutory meaning to “design work”. But the point here is whether the word “plan”, which is not defined, is used in a way which is limited to the product of what, in ordinary speech, is a process of design. Such a limitation is not expressed and nor, in my view, must it be implied. [29] The term “building work” is not defined to include the design of a building or part of it. It is relevantly defined to mean the preparation of a document to be used by those who will perform the construction work. There is an evident importance in such documents being competently prepared and by appropriately qualified persons, although such documents might not involve that quality of creativity which would make them a design of a building. [30] It is further submitted for the plaintiff that the preparation of these layouts does not fall within any category of licence for which provision is made by the QBSAA or the Regulation. The plaintiff contends that there is no type of licence which can be issued which would authorise specifically work of this kind, as distinct from work more generally described as the preparation of plans or specifications. If the plaintiff requires a licence to prepare these layouts, it is said that the relevant personnel would have to be qualified beyond the demands of their employment. Accepting that to be the case, it does not follow that the relevant part of the definition of “building work” should be deprived of its ordinary meaning. It cannot be said that it is impossible for someone in the plaintiff‟s position to comply with the QBSAA, in that it is impossible to obtain a licence which would authorise this work. The submission does no more than identify a case for an amendment to the Regulation, to provide a licence which is more specific to work of this kind. [31] According to the definition of “building work” in s 2 of the QBSAA, it does not include work of any kind which is excluded by regulation. The categories of excluded work, as set out in s 5 of the Regulation, include work performed by an architect, an engineer or a licensed surveyor in the course of that person‟s professional practice. The apparent policy behind those exclusions is that other statutory regimes should govern the work of those persons. The exclusions do not suggest that where a building plan is prepared by someone outside those categories of professional, the QBSAA has no effect. [32] The layout plans can be described as a more detailed drawing of the roof structure, as designed here by engineers. Nevertheless, they are distinct plans, serving the particular purpose of assisting those who undertake the actual construction work. There is evidence here, which I would accept, that it is possible for competent builders to install these trusses and frames without the benefit of a layout. That is not to say that the document serves no purpose. [33] In my conclusion, the layout plan required by each contract was a plan for the performance of building work and was prepared by the plaintiff. It follows that the -- 12 of 33 -- 13 plaintiff‟s production of the layout plan constituted “building work” as defined in the QBSAA and as that term is used in s 42. [34] What must then be considered is the effect of s 42 upon the plaintiff‟s entitlement to be paid by the first defendant for the goods which it delivered, as well as its entitlement to damages for breach of contract. As already noted, the contract did not require the layout to be prepared by the plaintiff. Rather, it required the plaintiff to supply a layout. It was open to the plaintiff to perform that contract by having someone else prepare the layout. Accordingly, by these contracts the plaintiff did not undertake to carry out (unlicensed) building work. The position here is thereby different from that in, for example, Sutton v Zullo Enterprises Pty Ltd.6 The performance of a contract in a manner which is illegal does not make the contract one which was itself forbidden by the relevant statute.7 [35] What then was the effect, if any, of s 42 upon the plaintiff‟s entitlement to be paid under these contracts? According to the defendants‟ case, the effect was drastic indeed, for it deprived the plaintiff of a right to be paid anything at all for what was supplied to and accepted by its buyer. Each contract provided for one lump sum price. There was not a distinct consideration for the layout plan. According to s 42(3), the plaintiff was not entitled to any consideration for preparing the layout plan. By claiming the contract price, it is said, the plaintiff is claiming, inconsistently with s 42(3), an amount for both the timber and the layout. It cannot claim the agreed price consistently with s 42(3), the defendant argues, unless its claim can be seen to be within s 42(4). In Cook’s Construction Pty Ltd v SFS 007.298.633 Pty Ltd (formerly trading as Stork Food Systems Australasia Pty Ltd),8 it was held that it is for the party in the position of the present to prove that the amount of its claim is within the bounds of s 42(4). The defendants argue that the plaintiff has failed to discharge that onus. [36] The present case is unusual, because although the plaintiff performed unlicensed work, in substance it does not seek to be paid for that work but rather for the goods which it sold and delivered. The matter might be considered in this way: had the plaintiff not delivered the layout plans, under its contract would it be entitled to be paid the lump sum price? The answer would not be provided simply from the fact that this was a lump sum price. Rather, it would turn upon whether, absent the provision of the layout, the contract would have been substantially performed. The fact that it was a lump sum contract does not mean that entire performance by the plaintiff was a condition precedent to payment. In Hoenig v Isaacs, Denning LJ said:9 “When a contract provides for a specific sum to be paid on completion of specific work, the courts lean against a construction of the contract which would deprive the contractor of any payment at 6 [2000] 2 Qd R 196. 7 Fitzgerald v F J Leonhardt Pty Limited (1997) 189 CLR 215. 8 [2009] QCA 75. 9 [1952] 2 All ER 176 at 180 as applied in Queensland in Lemura v Coppola [1960] Qd R 308 at 314; Murphy Corporation Ltd v Acumen Design & Development (Queensland) Pty Ltd & Anor (1995) 11 BCL 274. -- 13 of 33 -- 14 all simply because there are some defects or omissions. The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or, alternatively, set them up in diminution of the price. The measure is the amount which the work is worth less by reason of the defects and omissions and is usually calculated by the cost of making them good.” In my view, had the plaintiff not delivered the layout plans, nevertheless it would have been entitled to payment of the price upon the doctrine of substantial performance. A failure to supply the layout plan would have been a breach of contract, entitling the buyer to be compensated for the loss (if any) in consequence. But that breach would not have made the frames and trusses impossible to erect and it would not have entitled the buyer to reject the timber and to refuse to pay for it. The plaintiff cannot be worse off for having prepared and supplied the layout plan than it would have been had it not done so. Accordingly, the plaintiff does not need to rely upon its preparation of the layout in order to recover the agreed price. Because the making of the contract was not illegal, the plaintiff can enforce the contract as long as it does not do so in a way which relies upon an illegal act.10 That entitlement to the price is not inconsistent with s 42 because the plaintiff is not seeking a consideration for the illegal work, the preparation of the plan. It is entitled to the agreed price for that which it provided legally. [37] Alternatively, if the plaintiff is not entitled to enforce the contract, then it is entitled to recover a quantum meruit, subject to the limitations in s 42(4). The plaintiff argues that on this alternative basis, it would still be entitled to something which is equivalent to the agreed price. [38] The defendants do not suggest that the lump sum price was excessive and, more particularly, that it was more than a reasonable amount for all of that which was to be supplied. But they say that the remuneration (if any) claimed for the preparation of the plan cannot be assessed by reference to s 42(4) without it being distinctly quantified. They emphasise that according to Cook’s Construction, it is for the plaintiff to prove that its claim accords with the limitations within s 42(4). [39] Any cost to the plaintiff of producing the layout plans has not been quantified. It may be inferred that there is some cost, from the fact that it involves some work for the detailer. But very little work is involved in producing a layout plan, beyond that of producing the drawings used by the plaintiff for its manufacture of the trusses and frames and arriving at the other details used for its quotation of a price. The evidence of Mr Beverland is that in calculating its quoted price, the plaintiff does not include any charge for a layout. He explained that: 10 Fitzgerald v F J Leonhardt Pty Limited (1997) 189 CLR 215 at 220 per Dawson and Toohey JJ. -- 14 of 33 -- 15 “Is any charge made for the layout plans or----?-- No. We don‟t – our – we don‟t charge for layouts. That‟s part of the function of – of supplying the trusses to site or the – or the designs and the production. The best way to describe it would be if a – if a client came in and wanted an estimate, ie a quotation, prior to the production of those trusses, they can actually ask for a layout of that time and, at that point, we don‟t even - we provide them as free – free of charge. All right. What about in terms of the work that‟s carried out by staff to get the layout together and so forth? You‟re paying staff to detail, I suppose. Do you build that into the profit?-- No. That‟s a cost to the company. The profit – the profit comes by what is actually manufactured at the – at the jigs.”11 He adhered to that evidence in cross-examination:12 “All right. And it is your case, is it, that the production of the layouts doesn‟t attract any charge?-- That‟s correct. And it is your case, is it, that the production of the layouts is a cost which has not been allowed for in any charge to T & M Buckley?-- It is a service to the client. Yes, it is a free charge. It is a free charge?-- Mmm. Sorry, unfortunately we are not draftsmen so we can‟t charge for these layouts. You have a number of detailers working for you?-- Yes, we do. And you pay them a wage?-- Yes, we do. And so that is a labour cost to your company?-- That is a labour cost. And those detailers have duties which require them to design the layouts?-- No, they design the trusses with the layouts being an offshoot of the design. … The work that is produced by these detailers is the production of the layout plans?-- It is the work that is provided – or the work that is produced by the detailers is for the construction of the – for the manufacture of the roof trusses and the plant.” [40] I see no reason to reject Mr Beverland‟s evidence. The defendants suggest that I should reject it having regard to some evidence given by another of the plaintiff‟s witnesses, Mr Monement. His title is Administration Co-ordinator for the plaintiff, 11 T 4-62. 12 T 4-74-75. -- 15 of 33 -- 16 with responsibility for credit management, setting up accounts for customers and issuing tax invoices. Importantly, he is not involved in fixing a price to be quoted to a customer: that is the responsibility of Mr Beverland. In the cross-examination of Mr Monement he was asked whether there was a margin which had been charged for the design of the trusses to which he answered: “There is no charge for the actual design. The design and manufacture – I suppose there is a charge in a sense, but how you differentiate it, I have no idea. In other words, I couldn‟t dissect it for you.” His evidence continued: “You couldn‟t dissect it for me?-- No. But consumed and hidden inside, somewhere inside those lump sums that are in the purchase orders, are the charge by AT&T for the costs of producing – of designing the trusses; do you agree with that proposition?-- Well, there would be within the costing of the trusses, there would be a component in there relevant to the use of the MiTek programme to create the design. And also for the labour costs?-- And the labour costs, yes. Yes, and also, within that lump sum contract, which you accept it contains a profit element, within that profit element there‟s also some margin of profit allowed for the design work?-- I think we‟re going back to the same question. Yes or no?-- Second go around. Well, the design work is part of the trusses, so, obviously, there would be the time of the person doing the design, there‟d be a margin on his time. Thank you, and just to be clear, the margin that – you‟re referring to a profit, aren‟t you?-- That‟s right.”13 To the extent that there is an inconsistency, this evidence should not be preferred to that of Mr Beverland. Mr Monement did not appear to be speaking from an actual knowledge of these things but was speculating. It is Mr Beverland who does know about the subject. [41] It is necessary for the plaintiff to produce something which converts a more general engineering drawing of the roof structure into a document or documents which detail the pieces of timber to be used in the manufacture of the trusses and frames, for the purposes of pricing and manufacture. It is very likely then that the extra cost which is involved in the electronic production of a layout is so small as to be immaterial to the plaintiff in arriving at its price. 13 T 4-10-12 -- 16 of 33 -- 17 [42] If the plaintiff cannot enforce its contract, it must establish the reasonableness of the amount claimed. There is no suggestion that the plaintiff enjoyed some power in the market which enabled it to make an excessive profit. The defendants, as experienced builders, chose to deal with the plaintiff and at these prices. I infer that the prices were within a range of amounts which would be reasonable for that which was supplied. As I have said, the defendants do not suggest otherwise. As appears from Mr Beverland‟s evidence, there is no component of the plaintiff‟s claim which is constituted by an allowance for any labour, costs or profit, for carrying out the work constituted by producing the layout plan, of a kind within s 42(4)(b). [43] In Cook’s Construction, the appellant argued that the contract rates provided evidence of reasonable rates from which a reasonable remuneration for its unlicensed work could be assessed. That argument was rejected, because those rates were struck on the basis that the contract included building work as well as other work and the rates must have contained some allowance for the appellant‟s profit.14 In the present case, the plaintiff does not claim a distinct consideration for preparation of the layout plan and nor does it seek to establish what would be a reasonable remuneration for that work alone. In substance, the plaintiff does not seek to be remunerated at all for the unlicensed work. Alternatively to its contractual claim, it seeks to be paid for the goods which it supplied to the first defendant and which were built into the houses. The claim which it makes for the supply of those goods has not been increased for the fact that a layout plan was also provided. Its claim accords with its quoted price and that price was calculated without regard to any cost in producing the layout plan. Upon the preferable view of this alternative common law claim, the plaintiff is not claiming any remuneration for the plan so that the claim is unaffected by s 42. Alternatively, if the plaintiff‟s claim is to be characterised as one to be remunerated for delivery of the goods together with the production of the layout, the plaintiff has established the reasonableness of its claim. Because nothing has been added in the quantification of that claim for the production of the layout, it might be said that the claim for the layout is as reasonable as it could be. [44] It follows that the plaintiff has established its case against the first defendant for the sum of $280,455.05. [45] The second defendant has guaranteed the payment of such a sum. Accordingly, he is also liable to the plaintiff for it. [46] It is convenient at this point to discuss the impact or otherwise of s 42 upon the balance of the plaintiff‟s claim, which is for damages for breach of contract. As I have held, the plaintiff did not contravene s 42 by entering into the relevant contract or contracts. Clearly it did not breach s 42 by manufacturing the frames and trusses which were not delivered because of the advice by the first defendant that work under its building contract had been suspended. At no time did the first defendant say that it had resumed construction or seek the delivery of anything further from the plaintiff. Its position was that it could not and would not perform its contract with the plaintiff. 14 [2009] QCA 75 at [81]. -- 17 of 33 -- 18 [47] The plaintiff seeks damages quantified as the agreed price together with some storage expenses. It says that there are the amounts which must be paid to it in order to place it in the position it would enjoy had the contract been performed. This damages claim is not affected by s 42. The plaintiff is not thereby seeking any monetary or other consideration for preparing the layout plan. It is seeking compensation because it was deprived of the first defendant‟s performance of the contract. It lost the entitlement to be paid the price, because it was entitled to the price only upon delivery. But as I have held, under these contracts the plaintiff would have been entitled to the price, without supplying the layout plan, upon delivery of the timber and other items. Accordingly, in seeking damages which are quantified in this way, the plaintiff is not making a claim which is inconsistent with s 42. I shall return to other questions relating to this component of the plaintiff‟s claim. [48] At this point it is convenient to discuss the first defendant‟s counterclaim for moneys paid, it claims, under the mistaken belief that the plaintiff was in all respects duly licensed. The first defendant claims repayment of all which it had paid under these contracts, a total of $624,409.89. [49] Fundamental to this counterclaim is the premise that the plaintiff had no entitlement to receive or retain these moneys, as a result of s 42. But just as the plaintiff has established its entitlement to the unpaid price of goods supplied to the first defendant, so the plaintiff is entitled to these moneys. The counterclaim therefore fails at that threshold. [50] In case it becomes relevant, it is appropriate to say something more about this counterclaim. The first defendant assumed an onus to prove that it made the payments under a mistake, which was that it believed that the plaintiff was entitled to those payments. According to the judgment of Keane JA in Cook’s Constructions, it was unnecessary for the first defendant to prove that mistake. Rather, the payer has a prima facie entitlement to repayment if what was paid was money to which the payee had no entitlement. Keane JA said:15 “[58] [M]istake on the part of the payer as to its obligation on the payee‟s entitlement is not an essential element of the builder‟s disentitlement to receive or retain payment or the payer‟s reciprocal entitlement to recover. … unless the respondent was in pari delicto with the appellant, the respondent was entitled to recover the moneys paid to the appellant as moneys had and received by the appellant to the use of the respondent.” The first defendant sought to discharge that onus by the evidence of Mr Gregory Buckley. He said that he caused the payments to be made without any knowledge of whether the plaintiff held any necessary licence but with the assumption that the 15 [2009] QCA 75 at [58]. -- 18 of 33 -- 19 plaintiff held any necessary licence. When asked what he would have done had he discovered prior to making the payments that the plaintiff was not “appropriately licensed”, he said that he would not have made the payments but instead would have sought legal advice. The first defendant‟s case is then argued upon the basis that the legal advice would have been that the plaintiff had no entitlement to any payment. From this it was argued that the payments were made under the mistaken belief that the plaintiff was entitled to them. [51] I would be prepared to accept Mr Buckley‟s evidence. It is inherently likely that the payments were made with a belief on the part of the relevant person representing the first defendant company that they were payments to which the plaintiff was entitled. The plaintiff argues, however, that Gregory Buckley‟s belief was irrelevant because it was the second defendant, Terence Buckley, who was the sole director of the first defendant. It says also that Gregory Buckley‟s belief was irrelevant because he had no involvement with the making of the contract or contracts. However, his state of mind is the relevant one because he was the person who caused the first defendant to make the payments. Accordingly, the relevant belief on the part of the first defendant was proved although not through the second defendant. The plaintiff’s damages claim [52] The first defendant argues that it did not repudiate the contracts but instead “suspended” performance of them. It says that this was the consequence of the suspension of its contract with the owner, a company called 57 Moss Rd Pty Ltd. On 12 March 2009, the first defendant sent a fax to the plaintiff advising that work for stage two and three on the project had been suspended by the Superintendent under that contract, pursuant to its sub-clause 33.1(a)(i). That clause provided as follows: “The Superintendent may direct the Contractor to suspend the carrying out of the whole or part of WUC for such time as the Superintendent thinks fit, if the Superintendent is of the opinion that it is necessary: (a) because of an act, default or omission of: i) the Superintendent, the Principal or its employees, consultants, agents or other contractors (not being employed by the Contractor) …” Each of the contracts between the plaintiff and the first defendant provided as follows: “All work to be carried out in accordance with the Head Contract, Drawings, Specification.” The first defendant argues that this term had the consequence that once its contract with the owner was suspended, so too was the contract between the present parties. -- 19 of 33 -- 20 In that fax, the second defendant purported to direct the plaintiff “to immediately suspend the carrying out of your work, including the supply of any goods and materials”. This argument cannot be accepted. That reference to the “Head Contract” did not have the effect which is contended. Rather, it required that all work, (meaning what was to be supplied by the plaintiff) was to accord with the requirements of the Head Contract and the relevant drawings and specification. It affected how the plaintiff‟s product was to be manufactured. It did not make the performance of the contract between the present parties dependent on the status of that other contract. [53] The first defendant further argues that there was nothing on its part which evinced any intention to not comply with the contract or contracts at all: rather, it said that it would not perform them whilst work under the head contract was suspended. But by that fax of 12 March 2009, the first defendant effectively said that the contracts with the plaintiff would be performed only upon a certain event (the resumption of work under the head contract), whereas its contracts with the plaintiff did not contain that condition. It thereby stated an intention not to comply with these contracts according to their terms. [54] It further argues that there was no repudiation by it because the relevant goods were not delivered by the plaintiff. It makes the curious submission that although, in consequence of the suspension order, the plaintiff was to suspend “the carrying out of [the plaintiff‟s] work, including the supply of goods and services”, that was not a requirement of the plaintiff to desist from delivering goods already manufactured. The notion underlying this submission seems to be that the goods could have been supplied without being delivered. The submission must be rejected. The plaintiff was given a purported instruction to cease performance of the contract until some further notice. The first defendant says that the plaintiff should have delivered these goods to the site and had they then been rejected, there would have been a repudiation. However, that was, in effect, what the first defendant told the plaintiff not to do. [55] The goods in question are described in the evidence of Mr Monement. In his statement,16 he identifies the trusses and frames which had been manufactured and were ready for delivery as at 12 March 2009. I accept that evidence from which it is established that the subject goods had a contractual price of, in total, $158,763. I accept also Mr Monement‟s evidence that the plaintiff incurred handling and storage fees of $23,814.45 and that it incurred a further handling fee for certain material which had to be returned to the supplier, in consequence of the fax of 12 March 2009, in the amount of $8,470.38. I find also that the plaintiff disposed of these trusses and frames in the first few months of 2011. It simply sent them away to be dumped and received no payment for them. Subject to the submissions discussed below, the plaintiff has established that it suffered losses totalling $191,047.83. [56] The defendants argue that the plaintiff unreasonably failed to mitigate its loss. In particular, they complain that the plaintiff failed to attempt to sell these trusses and frames to the owner of this development, or to any successor or financier of the 16 Exhibit 18. -- 20 of 33 -- 21 owner. There is evidence that the owner was itself unable to complete the development and that the site came under the control of other parties. The defendants say that the plaintiff should have looked to sell these items to whoever it was who was completing the project. [57] I accept that the plaintiff did not offer to sell the items to anyone else who might have been concerned with the completion of this project. But beyond this, the evidence is scant in this respect. As was ultimately conceded for the defendants,17 there was no evidence to assist the Court as to whether these goods could have been put to use on the project in the hands of someone else. There was evidence that new builders were engaged late in 2009. But there was no attempt to prove a likelihood that those builders would have been minded to buy these particular items from the plaintiff and, if so, at what price. Perhaps the plaintiff did miss an opportunity to reduce its loss in this way, although having seen Mr Beverland and Mr Monement, I think that it is unlikely that the plaintiff was so neglectful of its own interests that it missed that opportunity. Consistently with the absence of an evidentiary foundation for the defendants‟ argument, nothing was put to Mr Beverland as to what steps the plaintiff should have taken to dispose of the goods elsewhere. He was cross- examined along the lines that the plaintiff had not told the first defendant that it was holding these undelivered goods, as to which he responded by saying that the plaintiff had provided the first defendant with the proposed delivery schedules which had informed the first defendant, by 12 March 2009, that these goods were ready. Mr Beverland was not asked to explain why the plaintiff did not attempt to sell them to someone else concerned with the project. Indeed, the cross-examiner chose to stop him from doing so in this passage:18 “Did you note that – and no attempt was made to dispose of these goods beforehand?-- No. No?-- We – can I just – can I explain further on that? Well, I think you‟ve answered the question?-- Okay.” [58] The cross-examination of Mr Monement, which was relevant to this point, was as follows:19 “You didn‟t try and sell them to the owner of the project?-- I think there might have been. … MR WHITTEN: Thank you, your Honour. Now, I was talking to you yesterday about these undelivered goods?-- Yes. Which you have complained about, and there was some discussion after you left the room about the line of questioning that I was taking. I just wanted to clarify with you please that it was never the case that 17 T 6-13. 18 T 4-80. 19 T 2-17-18, T 4-6. -- 21 of 33 -- 22 AT&T attempted to sell the goods to anybody else?-- I believe that not to be the case, however, I believe that they did try to find out if anyone was going to complete the project and possibly then on-sell them to them, but nothing was ever forthcoming in that area. And there was never any attempt to – there was never an offer made to sell those goods to the project owner?-- Never. And never an offer to sell those goods to the new builder that was on site?-- No. After the end of 2009?-- Not that I am aware of because I don‟t believe we could ascertain who the new builder was.” [59] On this state of the evidence, the possibility of a reduction in the plaintiff‟s loss by a sale of the items to someone concerned with completing the project, remains a matter of speculation. It cannot be concluded that the plaintiff failed to avoid or reduce its loss by that means. [60] It is further argued that the plaintiff should have attempted to resell the timber to its supplier. Mr Monement‟s evidence on this possibility, and a related possibility of selling the timber to someone else, was as follows:20 “Now, it is the case also that you didn‟t attempt to sell the timber itself?-- No, we didn‟t. And you made no attempt to try and sell the timber back to Hynes & Co from which the timber was delivered?-- No, we didn‟t, because the timber is a manufactured product and is not returnable to a supplier. It is in an altered form to the way it arrived. … MR WHITTEN: Thank you. I put it to you there was a salvage value in the timber?-- I believe there wasn‟t because it was at disposal time in a deteriorated state so it was not salvageable and the cost to break it down into anything if it was salvageable would make it a nonviable proposition. I put it to you that no attempt was made to determine whether or not there was anybody willing to purchase the timber items themselves?-- Obviously not, because they were in a structured form.” The frames and trusses had been manufactured for these particular houses. They had no value for any other project unless, coincidentally, it had buildings of an identical design. On the evidence, that was no more than a theoretical possibility. 20 T 4-6. -- 22 of 33 -- 23 [61] The defendants are critical of the evidence for the plaintiff as to why, ultimately, it chose to dispose of these items. They suggest a disparity between the respective explanations of Mr Beverland and Mr Monement. Each said that he had discussed with the other the disposal of the items. Mr Beverland said that the recommendation for Mr Monement to dispose of them was made for a combination of reasons: the ongoing storage costs, the deterioration of the product and the interference with the use of the plaintiff‟s premises from these items being stored there.21 Mr Monement‟s evidence did not refer to a concern about the deterioration of the items, although he did refer to the burden of the plaintiff having to continually cover them with plastic to protect them. To that extent there is a difference in the respective explanations, but it does not cast doubt upon the veracity of the plaintiff‟s claim, as the defendants suggest. [62] It was further submitted that at least the handling/storage and other costs should be denied “for lack of any probative documentary evidence of that part of the loss”. However, Mr Beverland explained the storage costs, and the absence of some contemporaneous record of the plaintiff‟s estimate of the costs of storing this material upon its own premises does not provide a basis for rejecting his evidence.22 I accept it. [63] It was further submitted that the plaintiff failed to mitigate its loss by not telling the defendants that these items existed and were being held by it. It is said that this deprived the first defendant of an opportunity to do something with the goods. The first defendant returned to the site briefly in 2009, but engaged by the financier and for the limited purpose of installing some cladding and lining.23 But just what would have been done in that respect was not explained. The defendants claim that they might have sought an injunction to prevent the plaintiff from disposing of the items. A basis for such an application is not revealed. [64] The result is that the plaintiff has established an entitlement to damages against the first defendant in the sum claimed. [65] The next question is whether the second defendant is liable under his guarantee for that part of the plaintiff‟s claim. The relevant terms of the guarantee are set out above at [11]. By cl 1, the payment by the first defendant for all goods “hitherto supplied” is guaranteed. It also guarantees payment for goods “as [the plaintiff] may hereafter supply from time to time”. At least read alone, that limits the guarantor‟s liability to amounts unpaid for goods delivered to the first defendant. Clauses 20 and 25 of the conditions of sale, within that 2004 document, made it clear that the price of goods would be payable by the first defendant only upon delivery. [66] Clause 2 of the guarantee provided that it should be a continuing guarantee “for the whole of the debtor‟s indebtedness or liability to [the plaintiff] in respect of goods … supplied or to be supplied … or upon any other account howsoever or whenever 21 T 4-71. 22 T 4-79. 23 T 5-34. -- 23 of 33 -- 24 arising”. Although that clause refers to a liability in respect of goods to be supplied to the first defendant, in the context of the guarantee as a whole, and in particular cl 1, I am not persuaded that it extends the scope of the guarantee to a liability for damages for non-acceptance, as distinct from a liability for payment of the price of goods supplied. In other words, the intention of cl 2 is to make it clear that it is a continuing guarantee, rather than to extend the scope of the guarantee, as defined by cl 1, to a liability for damages. Had it been the intention of the parties to include a liability of the present kind, that intention would have been expressed within the primary provision which is cl 1. If there is some ambiguity in cl 2, it should be construed in favour of the guarantor and strictly against the creditor: Ankar Pty Ltd v National Westminster Finance (Aust) Ltd;24 Chan v Cresdon Pty Ltd.25 [67] There is no other provision which is in the form of an indemnity against a loss of the present kind. Within the guarantor‟s acknowledgement, it was recorded that “this is a guarantee and indemnity for unlimited amounts …”. But that “indemnity” is an apparent reference to the limited indemnity within cl 8 of the guarantee as I have set out at [11]. [68] Accordingly, I accept the submission for the second defendant that the guarantee does not extend to the first defendant‟s liability for damages for breach of contract. Defective trusses? [69] The first defendant‟s case is that in very many of the houses which it constructed, the hip trusses excessively sag or deflect (downwards) where they overhang the sides of the building. This is said to be the result of a defect in the timber which the plaintiff supplied rather than the fault of the first defendant as the builder. The first defendant claims that 25 houses are defective in that way, involving, in total, 167 hip trusses. The overall counterclaim on this basis is for $432,245. [70] These houses were constructed, of course, by the time the first defendant left the site in 2009. There is no evidence of any demand upon the first defendant, by the party with whom it contracted or anyone else, such as the Queensland Building Services Authority, to rectify these trusses. For the first defendant, it is argued that it is more likely than not that it will be required by the Authority to either rectify these defects or to pay the cost of their rectification. I am not persuaded to make that finding. That is firstly because the evidence as to the extent of the deflections is very general, save in respect of four of the houses. Secondly, the likelihood that the first defendant would be called upon to either rectify or pay for the rectification of even those four houses is affected by the fact that there is no evidence that anyone, especially an owner of the house, has complained about it. As it happens, however, I am not persuaded that any of the houses has a roof truss with an excessive deflection for which the plaintiff is legally responsible. 24 (1987) 162 CLR 549. 25 (1989) 168 CLR 242. -- 24 of 33 -- 25 [71] Undoubtedly, some of these houses do contain a hip truss with an unsatisfactory extent of deflection. Evidence to that effect came from Mr Porchun and Mr Whiteley, each called in the plaintiff‟s case and from Mr Wilson and Gregory Buckley called in the defendants‟ case as well as from the second defendant. The evidence of each of the independent engineers, Mr Porchun and Mr Wilson, focussed upon only a few of the houses. There is a question as to whether a larger number of houses is affected by the same defect and a question whether each of the roof trusses within those few houses is so affected. But for the moment I will discuss the evidence of the engineers in relation to the particular trusses where the extent of the deflection was measured. [72] I begin with the evidence of Mr Wilson, upon which the counterclaim depends. He wrote two reports. The first was dated 12 December 2011 after an inspection of three houses on 12 September 2011. His second report is dated 30 January 2012 (the first day of the trial) following an inspection on the previous day. For the most past the second report is a word for word repetition of the first report. [73] For his first report he inspected the houses numbered 46, 47 and 48, they having been selected by the first defendant. The hip capping was removed from the front lower level roof of each house. He measured the extent of the deflection on this one roof truss on each of the houses. The deflection measured on house 46 was 16 mm; on house 47 it was 31 mm and on house 48, 24 mm. In the way the evidence and arguments proceeded, there was no challenge to the accuracy of those measurements. Mr Porchun had written in his report, dated 10 August 2011, that the deflection which he had measured on that truss on unit 47 was about 22 mm. But for present purposes the measurements by Mr Wilson can be accepted. [74] Some deflection on such a truss is to be expected because of the weight of that part of the truss which is overhanging the sides of the building and of that which it is supporting. This is described as the dead weight and it is a combination of the weight of the relevant truss (described as the top chord), the roofing and battens and the ceiling. Mr Wilson undertook an analysis of the expected deflection given the circumstances of this design of the roof structure and, in particular, a top chord of these dimensions and of a quality or stiffness of timber described in the industry as MGP12. The result of this analysis was that the extent of deflection which was to be expected in the case of these particular trusses, was initially 7.92 mm. He explained that this would increase over one - two years from construction, so that the expected long term deflection would be double that figure, being 15.8 mm. Consequently, he wrote, the truss on house 46 correlated well with that analysis, but those on houses 47 and 48 were 196 per cent and 151 per cent higher than the expected deflection. [75] He wrote that the accepted industry standard for an overhanging deflection was in the range of 10 – 12 mm. Therefore, even the truss on house 46 had an excessive deflection. This meant that the expected deflection from this design exceeded what was acceptable, meaning that the design was wrong. The implication was that some higher standard of timber than MGP12 grade should have been used, ie a stiffer grade, although he did not say so specifically in either of his reports. However in so far as houses 47 and 48 were concerned, the extent of the deflection was not only -- 25 of 33 -- 26 beyond the industry standard of 10 – 12 mm, but also far beyond the predicted deflection. How was that to be explained? Mr Wilson referred to three possibilities. One was that these hip truss chords on houses 47 and 48 had a “lower than the average MGP12 stiffness”. Another was that bowed timber had been used in the fabrication of those hip truss top chords. The third was that the timber which had been used had been graded as MGP12 but incorrectly because it, in truth, was a lesser grade. [76] Mr Wilson also considered the strength of the truss under a live load applied to the very end of the truss overhang and concluded that it was structurally inadequate. That point was outside the case pleaded in the counterclaim. Nevertheless, Mr Porchun was asked to address that point and others and disagreed with Mr Wilson‟s conclusion. In particular, Mr Porchun was critical of Mr Wilson‟s calculating the live load by assuming a particular load at the very end of the truss, upon the basis that in reality there would be no prospect of anyone standing on the very tip of the corner of the roof. That debate need not be resolved, although Mr Porchun‟s point appeared to be well made. Ultimately the counterclaim was not put upon the basis of a need to rectify these houses in order to make them safe under some live load. The complaint is that there is an excessive deflection under the so- called dead weight of the roof and ceiling, which unduly affects the appearance of the buildings. [77] Beyond houses 46, 47 and 48 (and on those houses only one of the trusses), Mr Wilson made no measurements of any truss overhang. But in his first report he added this comment: “Note that the inspection carried [out] was limited to the hip truss framing. Other hip roofs in this developments [sic] were viewed from the streets and similar deflects were observed though no other measurements were taken.” That second sentence did not reappear in his second report but he there added the following: “During the follow up inspection on the 29th January, another twenty-two (Houses 1, 2, 5-12, 35-45 & 49) were viewed from the ground. I viewed parts of the upper and lower roofs of each of these buildings. No measurements were taken however it appeared from my visual inspection that similar hip overhang deflections were evident on these additional buildings.” [78] Upon evidence as general as that, the first defendant claims for the cost of rectifying each and every hip truss in each of those houses. However, that evidence has little weight and is quite inadequate in order to establish the counterclaim. As is clear from Mr Wilson‟s evidence, some deflection is to be expected. Of the three trusses which he measured, that on house 46 was to be distinguished from the others for which the extent of the deflection could not be explained as easily as Mr Wilson felt -- 26 of 33 -- 27 that he was able to do with house 46. In saying about 22 other houses and every roof truss on each of them that there were “similar hip overhang deflections”, was he likening what he saw on each of those houses to house 46 or more to houses 47 and 48? Particularly if it was the former, the evidence is unreliable because of the difficulty which anyone would have in judging by the eye the extent of a deflection with a margin for error of as little as 4 mm.26 All of these houses were viewed by Mr Wilson from the ground. [79] Moreover, the design of the roof trusses throughout each house was not uniform. The trusses which he measured at numbers 46, 47 and 48 were in the same part of the lower roof. But it far from appears that his analysis of the dead weight load for that truss would equally apply to each and every truss in those houses and across all of the 25 houses for which the counterclaim is made. An analysis of predicted deflection of other trusses could have been made without a close examination of them. But Mr Wilson was not asked and did not see fit to perform that exercise to assess whether, beyond the three trusses for which he did make the calculation of prediction deflection, the design was defective. It does not follow from Mr Wilson‟s analysis of the predicted deflection of these three trusses that other trusses in those houses, or the corresponding trusses in the other houses, would have an excessive deflection. More generally, the counterclaim for these other trusses, either within those houses or throughout the 25 for which the claim is made, is unpersuasive because of a lack of evidence of some measured comparison between the actual deflection and an acceptable deflection according to industry standards. [80] I go then to Mr Porchun‟s evidence. He inspected the overhangs on houses 1, 47 and 48. In his report of August 2011, he wrote that the: “… hip truss overhang deflections at the lower level of Unit 47 were noticeable and were measured and found to be approximately 22 mm. It was not possible to estimate the hip truss overhang deflections at the upper end as no scaffold was present to provide access for measurement. When viewed from below the hip truss overhang deflections at the upper level did not appear excessive.” He wrote of the upper hip trusses on house 47 that “when viewed from below the deflections at the hip overhangs appear to be considerably less than the deflections at the lower level. The overhang distance at the upper level is 610 mm from the wall frames which is 140 mm less than the overhangs at the lower level which are 750 mm from the wall frames for the jack and creeper trusses”.27 It is to be noted that the reports of Mr Wilson did not comment upon the apparent extent of deflection at the upper levels of houses 46, 47 and 48 although when referring to the other houses in his second report, he purported to describe both the lower and upper levels. 26 A deflection of 16 mm compared with an acceptable deflection of 12 mm. 27 In his oral evidence, Mr Porchun agreed that his reference to 750 mm should have been 760 mm, but said that the difference was not significant. -- 27 of 33 -- 28 [81] Mr Porchun‟s reference to the shorter overhang at the upper level shows at least one reason why Mr Wilson‟s calculation of a predicted deflection would not be reliable for the trusses at that level. [82] At house 48 Mr Porchun said he found deflections which were “similar to that measured above the Garage in Unit 47”. That observation is consistent with the measurements taken by Mr Wilson. [83] At house 1 he found that the hip truss above the garage was approximately 18 mm in its deflection. He wrote that the overhangs at the upper level did not appear to have excessive deflection. [84] In his report Mr Porchun was critical of the absence of back-strutting to the lower level overhangs. He said that the deflections would have been negligible had back struts been installed. He wrote also that “the fixing of the timber fascias may have contributed towards some of the existing deflections”. [85] As to the design of these trusses, Mr Porchun wrote: “A design check had been carried out [by him] on the hip truss overhangs at the lower level and the expected overhang deflection has been calculated as 8 mm. The deflection on site is 2.75 times greater than the expected deflection.28 It is my opinion that the roof trusses were designed in accordance with the relevant Australian Standards.” Mr Porchun‟s calculation of the expected deflection from the dead weight load was thereby about one half of that calculated by Mr Wilson (8 mm against 15.8 mm). In his oral evidence, Mr Porchun explained that the difference was at least mainly attributable to the assumed weight of the top chord which was used in the calculation. Mr Wilson used a figure for the weight of the top chord which was almost three times that used by Mr Porchun. Mr Wilson was not asked to explain how he chose his figure as the assumed weight of the chord. But Mr Porchun‟s figure, he explained, was derived from the application of a loading code under an Australian Standard. Mr Porchun was not challenged in cross-examination on his adoption of his figure for the weight of the top chord. [86] I am not persuaded to reject Mr Porchun‟s calculation of the expected deflection under a dead weight load. There is no reason to conclude instead that Mr Wilson‟s calculation, and more particularly his adoption of a certain self weight for the top chord, was the correct one. The fact that houses 1, 47 and 48 have excessive deflections does not mean that Mr Wilson‟s calculation of the predicted deflection is correct. Rather, the extent of the deflections in the particular truss in those three houses shows that there was something which went wrong either with the quality of the timber or in the builder‟s installation of the trusses. 28 A reference to the deflection of 22 mm measured on house 47. -- 28 of 33 -- 29 [87] Once Mr Wilson‟s evidence as to the predicted deflection under a dead weight load is not preferred to that of Mr Porchun, there is no support for the case that the design of the trusses was inadequate and, in particular, a higher grade of timber should have been used. However, I should add that the engineers were not entirely in agreement as to what deflection is acceptable according to industry standards. Mr Wilson said that the range was 10 – 12 mm. In his report, Mr Porchun referred to an Australian Standard which specified a deflection for rafter overhangs of 10 mm as an acceptable maximum. But he pointed out that there was not yet an Australian Standard which specified a maximum deflection for a hip truss overhang. In his oral evidence, Mr Porchun suggested that the range might have a higher maximum, perhaps approaching 15 mm. Absent some published standard or something else more authoritative than Mr Wilson‟s statement of what the industry as a whole considers to be acceptable, I would not be persuaded to find that the maximum acceptable deflection is no more than 12 mm. It may be a little higher than that although it is clear from Mr Porchun‟s evidence that something more than 20 mm would be excessive. This means that the overhang on house 46, which is measured at 16 mm, is probably just beyond an acceptable range. It would seem, however, unrealistic to suggest that some thousands of dollars would be spent in rectifying that truss for the sake of a couple of millimetres. [88] What then is the explanation for the excessive deflection found on this lower level truss above the garage at houses 1, 46, 47 and 48? Beyond the suggestion of a poor design, and in particular the wrong standard of timber being prescribed, as I have noted, Mr Wilson suggested that the trusses were not actually built from MGP12 grade (or an average difference within that grade) or that the timber was bowed. Each of those was expressed by Mr Wilson in terms of a possibility. [89] Mr Porchun said that bowed timber could not be “ruled out”.29 He said that bowing was not unusual and that all timber has some bow or spring in it to some extent and that it is up to the fabricators of the trusses and frames, in sorting and cutting the timber, to reject timber which has an excessive bow. [90] There is other evidence relevant to bowing. Mr Anderson, who at the relevant time was employed by the plaintiff as a sales representative and who was closely involved with the supply of these goods, said that he received no complaints from the first defendant as to timber quality and in particular as to bowing. Mr Whiteley gave evidence that it is impossible for a badly bowed piece of timber to be used in the plaintiff‟s manufacturing process as the timber would not fit into the jigs had it been bowed to this extent.30 [91] As to the grade of this timber, Mr Whiteley gave evidence that the timber used to manufacture the trusses was marked by the timber supplier as MGP12. Mr Porchun gave evidence to the same effect. It is theoretically possible that the timber supplier made those markings in error and that the timber was, in truth, of a lower grade. But Mr Porchun explained that if, for example, the timber was of a stiffness of the next grade below MGP12, which is MGP10, the expected difference in deflection 29 T 4-20. 30 T 2-27. -- 29 of 33 -- 30 would be about 27 per cent and would not nearly explain the extent of the deflections at houses 1, 47 and 48.31 That evidence would also dispose of the possibility that the deflection was caused by timber of a stiffness which was within but at the low end of the range of the MGP12 grade. [92] For the first defendant it was suggested that all three of Mr Wilson‟s suggested possibilities might have been acting in combination. In response and with some reference to calculations, Mr Porchun assessed that the combined effect might have made for a deflection which was as much as 17 or 18 mm. But again, that combination does not provide a likely explanation for what occurred here on houses 1, 47 and 48. For that assessment, Mr Porchun assumed 4 mm “for a bit of bow in the timber”, saying that it was “unlikely that the carpenters would erect a hip truss with more than that amount of bow”.32 [93] Mr Porchun‟s evidence was that the more likely explanation for the excessive deflection, where it was found, was poor installation on the site. He was critical of the installation of the piece described as the structural fascia, which he said was installed in a way which he had not encountered previously. The structural fascia should be built so as to be fixed with the top of the hip truss. That was not the case with these hip trusses where the top chord of the hip truss was lower than the top of the creeper rafters.33 He also referred to the possibility of imperfections in the level of the slab and, in turn, the walls, leading to distortions in the roof structure. Mr Wilson rejected this possibility, saying that he measured his deflections simply upon the basis of a departure from a straight line in the top of the chord. Still, Mr Porchun maintained that “the installation of structural fascias has had some impact on the actual deflected shape of the hip truss top chord”.34 Although he was not permitted to say so in examination in chief, in cross-examination he explained that if there was some undue weight on the overhang during the period of installation, then the installation of the fascia would lock the overhang into that deflected shape.35 But he added that this fixing of the structural fascia “would not account for 100 per cent of that deflection”.36 [94] At this point it is necessary to discuss back strutting. This involves the fixing of a piece of timber, placed horizontally between the face of the wall and the underside of the overhanging truss. The effect is to transfer loads from the truss overhang to the wall. The engineers agreed that the installation of back struts to the lower level roofs above the garages would have put paid to the prospect of any significant deflection. Mr Wilson wrote that as an alternative to the use of stronger and stiffer top chords, the chords which were used should have been “installed with a horizontal prop to the wall frame”. Mr Porchun said that back strutting should not have been necessary: that the design and in particular the grade of timber was sufficient to avoid undue deflections without back strutting. But had back strutting been used, he said that there would have been effectively no problem as now exists. 31 T 4-42. 32 T 4-43, 44. 33 See Mr Porchun‟s drawing at exhibit 21 and the evidence of Mr Whiteley at T 2-25. 34 T 4-29. 35 T 4-30. 36 T 4-41. -- 30 of 33 -- 31 [95] In the layout plans, back strutting was not shown. Indeed the layout plans would have indicated, if read alone, that no back strutting was necessary. That is because the notes to those plans refer to a “strut overhang” as being designated by the letter “S”, but that letter did not appear at any relevant part on the layout plan. However at the same time as the layout plan was delivered along with the frames and trusses, the plaintiff delivered a document consisting of a series of drawings showing details of and containing instructions for a “fully trussed hip end” (as was the case here).37 I accept the evidence that this document was routinely supplied by the plaintiff and that it was supplied on these occasions.38 In one of the drawings on that page, headed “Roof Plan – Truss Setout”, there is the instruction against the location of the hip truss overhang to “back strut hip rafter as per drawn detail”. In another drawing on the same page, there is a detail of the back strut. Thus according to this document, the first defendant was instructed to back strut the hip trusses. [96] On the upper level roofs, it would seem that the soffits were raked rather than horizontal, so that a back strut would have been evident rather than being concealed by the soffit. Therefore a back strut would not have been an apparently acceptable installation at the upper levels. Originally the soffits for the lower levels were also raked, although they had been changed to horizontal soffits by the time of the delivery under these contracts between the parties. Back struts could easily have been applied without being visible at these lower levels. This one page document, which instructed on the use of back struts, did not distinguish between the upper and lower levels. When it is also considered that the layout plans indicated, if anything, that back struts were not to be used, it could not be said that the excessive deflections are simply the result of the first defendant failing to follow a clear instruction from the plaintiff. I accept Mr Porchun‟s evidence that back struts should not have been necessary. The result is that they would be relevant to the rectification of any excessive deflection (if ever that is to occur), but their absence does not explain the extent of these deflections. [97] Overall, it is for the first defendant to establish some breach of contract which has led to the excessive deflections, insofar as such deflections have been demonstrated, which is only those particular trusses at the lower levels on the garages of houses 1, 46, 47 and 48. I have rejected the case that the design was inadequate and, in particular, that the specified grade of MGP12 for the top chord was insufficient. I am not persuaded that it is more probable than not that the excessive deflection was caused by the timber not being of that grade, not being of an average within a range of stiffness for that grade or being excessively bowed at the time of fabrication of the trusses. Those possibilities are no more likely, even acting in combination, to have caused these deflections than poor installation, as described in the evidence of Mr Porchun. Notably there was no evidence which was led to gainsay Mr Porchun‟s evidence that the installation of the structural fascia on these houses was quite exceptional. Therefore ultimately I am not persuaded that even for the four trusses for which an excessive deflection has been proved, this was in consequence of a breach of contract. 37 This page became exhibit 12. 38 Exhibit 12. -- 31 of 33 -- 32 [98] There is a further argument for the first defendant, which relies upon the term of each of the contracts which was as follows: “All workmanship & materials used on this Project to be to the satisfaction of the client and [the first defendant].” The argument is that the first defendant, having installed these trusses in building the houses, is now dissatisfied with them. Of course it does not seek to return them to the plaintiff. It says that it should be compensated, by an award of over $400,000, in order to make it satisfied with the trusses. Therefore, without proof of the grounds for dissatisfaction, but simply upon the assertion of actual dissatisfaction, it seeks the same damages as if the counterclaim had otherwise been made out. This cannot be accepted. The term which is relied upon might have entitled the first defendant to reject the trusses when they were delivered to the site. For example, had they been delivered with evident and excessive bowing, they could have been rejected. But it cannot be thought that this term could be relied upon once the builder had constructed the houses. [99] Therefore this counterclaim must be dismissed. It is necessary however to say something about the amount claimed. Evidence was given by Terence Buckley, the second defendant, that the likely cost of rectification was $2,225 per hip truss, which is the amount claimed. He gave that evidence having consulted his employed estimator, who did not give evidence. The first defendant had sought to adduce expert evidence from a quantity surveyor, whose report was written only in the week preceding the trial and well outside the time prescribed by the Court‟s direction for expert reports in this case. Mr Buckley‟s evidence was of little weight. He was unable to give any persuasive explanation of how that figure of $2,225 was calculated. The plaintiff recalled Mr Porchun who was allowed to give evidence not only of the means of rectification, which was to back strut the overhangs to the wall, but of the likely cost which was $900 per hip end. Had I been persuaded that the first defendant was entitled to damages for the cost of rectifying any of the trusses on this project, I would have allowed $900 per truss. That means that had I allowed the counterclaim for the truss which was measured in houses 1, 46, 47 and 48, I would allowed something of the order of no more than $4,000. Conclusion [100] The result is that the plaintiff succeeds entirely in its claim against the first defendant. It succeeds in part against the second defendant because the guarantee does not extend to the first defendant‟s liability for damages for breach of contract. The counterclaim will be dismissed. The amount of the plaintiff‟s claim against the first defendant is made up of $280,455.05 for what was supplied and $191,047.83 as damages for breach of contract. In each case, the cause of action accrued on or about 12 March 2009. Interest was not claimed at any particular contractual rate. It -- 32 of 33 -- 33 will be awarded at nine per cent for a period of 38 months, amounting to $134,378.32. Accordingly, there will be judgment for the plaintiff against the first defendant in the sum of $605,881.20. Interest on the claim against the second defendant will be at nine per cent for 38 months on $280,455.05, which is an amount of $79,929.69. Accordingly, there will be judgment for the plaintiff against the second defendant in the sum of $360,384.74. [101] Under the conditions of sale within the 2004 documents, by cl 24 the first defendant charged all of its real property in the amount of its indebtedness to the plaintiff and consented to a caveat to be lodged by the plaintiff. Beyond the arguments to which I have already referred in this judgment, the first defendant did not make any submission against this part of the plaintiff‟s claim. It will be declared that in accordance with cl 24 of those conditions of sale, within the document which is exhibit FHM2 to exhibit 18, the plaintiff is entitled to a charge over any real property of the first defendant to secure the debt under the plaintiff‟s judgment. The amended claim seeks relief in the form of a declaration that the plaintiff has a caveatable interest in a particular piece of land. I will hear the parties as to whether that more specific declaration is still sought and is necessary. -- 33 of 33 --