Better Homes Queensland Pty Ltd v O'Reilly [2012] QCATA 37

CITATION: Better Homes Queensland Pty Limited v O’Reilly & Anor [2012] QCATA 37 PARTIES: Better Homes Queensland Pty Limited (Applicant) v Scott O’Reilly Meilyn O’Reilly (Respondents) APPLICATION NUMBER: APL224-11 MATTER TYPE: Appeals HEARING DATE: 26 October 2011 HEARD AT: Cairns DECISION OF: Judge Fleur Kingham, Deputy President Mr Peter Apel, Member DELIVERED ON: 23 February 2012 DELIVERED AT: Brisbane ORDERS MADE: 1. The Appeal is dismissed. CATCHWORDS: APPEAL – ERROR OF LAW – REASONS – where reasons did not state a critical finding APPEAL – ERROR OF LAW – STATUTORY INTERPRETATION – whether the test for unreasonable hardship in the Domestic Building Contracts Act 2000 is objective or subjective or contains both elements APPEAL – ERROR OF LAW – whether appeal should be allowed – where evidence did not establish exceptional circumstances or unreasonable hardship – where error did not vitiate the decision Domestic Building Contracts Act 2000, s 84(4) Queensland Civil and Administrative Tribunal Act 2009, s 142 -- 1 of 12 -- 2 Attorney-General v Kehoe [2001] 2 Qd R 350 Calin v Greater Union Organisation Pty Ltd (1991) 173 CLR 33 Commissioner of Taxation v Baffsky (2001) 122 A Crim R 568 Poiner v Quirk [2007] QDC 299 Stead v State Government Insurance Commission (1986) 161 CLR 141 Tully v McIntyre [2001] 2 Qd R 338 REASONS FOR DECISION JUDGE FLEUR KINGHAM [1] The Tribunal refused a claim by Better Homes Queensland Pty Limited against Mr and Mrs O’Reilly for the cost of constructing a large deck between the pool and the canal frontage of a residential block. The specification of works in the building contract provided for a 20 square metre deck. Later, the owner requested and the builder constructed a 74 square metre deck. [2] The parties agree they did not document the variation to the contract in the way required by the Domestic Building Contracts Act 2000. [3] It is common ground that Better Homes could not succeed in its claim unless the Tribunal allowed it under section 84(4) of the Domestic Building Contracts Act 2000. [4] Briefly stated, the section allows recovery for the costs of a non-compliant variation to the building contract if: (a) either: (i) there are exceptional circumstances that warrant recovery of an amount; or (ii) the builder would suffer unreasonable hardship by the section being applied; and (b) it would not be unfair to the building owner to allow the builder to recover an amount. [5] The learned Member determined the claim against Better Homes, finding the criteria in s 84(4) were not fulfilled. [6] Better Homes appealed the decision, arguing the learned Member erred in law or misdirected himself in interpreting s 84(4) or in applying that section to the circumstances of this case. Because the appeal is brought on an error of law, leave to appeal is not required.1 [7] Better Homes alleged the learned Member erred in his consideration of the alternative criteria of exceptional circumstances and unreasonable hardship. 1 Queensland Civil and Administrative Tribunal Act 2009, s 142. -- 2 of 12 -- 3 [8] It submitted the learned Member failed to properly consider the evidence of exceptional circumstances because he improperly conflated two distinct questions – whether there were exceptional circumstances and whether Better Homes would suffer unreasonable hardship. [9] In relation to the criterion unreasonable hardship, Better Homes argued the learned Member failed to exercise his statutory discretion, because he, wrongly, considered he was bound by the decision of his Honour Judge McGill in Poiner v Quirk [2007] QDC 299. [10] It also alleged the learned Member wrongly applied a subjective rather than an objective test in determining whether Better Homes had established unreasonable hardship if it could not recover its claim. [11] The O’Reillys contested each of those propositions. Exceptional Circumstances [12] Although the notice of appeal states a few distinct questions, they each involve the same enquiry: did the learned Member properly consider and decide whether Better Homes had established exceptional circumstances. [13] Better Homes argued he did not, either because he conflated two distinct questions (exceptional circumstances and unreasonable hardship) or because he failed to consider the evidence of exceptional circumstances. [14] In support of those arguments, Better Homes relied on the reasons given by the learned Member. [15] The learned Member, commendably, delivered oral reasons at the conclusion of a four day hearing. This accords with the spirit and purpose of the Queensland Civil and Administrative Tribunal Act 2009 to resolve disputes as quickly as is consistent with a proper consideration of the matter. [16] The nature and extent of the obligation to provide reasons varies according to the nature of the case.2 The Appeal Tribunal should have regard to the circumstances in which he gave them and the nature of the submissions made during the original hearing, which provide the focus for the decision. It is not appropriate to parse and analyse judgments given on an ex tempore basis in a busy jurisdiction.3 [17] The reasons reveal that the learned Member was cognisant of the two criteria. He referred specifically to each of them and to the contentions made by the parties about them. His reference to the section is a little confused, because he used different numbering, but he clearly enough stated the relevant concepts and the arguments made by the parties.4 [18] The difficulty arises because the learned Member omitted to state a conclusion on a critical question – whether there were exceptional circumstances – before he moved on to consider whether there was 2 Attorney-General v Kehoe [2001] 2 Qd R 350 at 356; Tully v McIntyre [2001] 2 Qd R 338. 3 Spigelman CJ remarked in Commissioner of Taxation v Baffsky (2001) 122 A Crim R 568 at 578. 4 Transcript of reasons p 7-8. -- 3 of 12 -- 4 unfairness to the owner and whether Better Homes could demonstrate unreasonable hardship.5 [19] He commenced his discussion by referring to the arguments made by both parties. He considered the amount involved was significant, given the benefit to the O’Reillys and the quality of the finished work. He noted Mr O’Reilly was willing to pay the sum of $20,000 he says the builder quoted in July 2008. He canvassed evidence about the cost of construction and the way in which the deck was costed in the contract and concluded it was not a provisional sum. He discussed and accepted the evidence that the builder could have costed the work. At that point in his reasons he introduced the question whether there would be unfairness to the owner if the builder recovered the claim and then commenced a discussion of the question of unreasonable hardship to the builder. [20] On one reading, the Appeal Tribunal might infer from his reasons that the learned Member found there were no exceptional circumstances. Unless he had done so, it would not have been necessary for him to consider the other questions of unfairness to the owner and unreasonable hardship to the builder. [21] However, his failure to make an explicit finding on the point is significant, given this was the primary ground advocated for the builder at the hearing. Introducing the other criterion, in the way that he did, suggested he had merged the concepts. In close proximity, he stated his conclusion that the magnitude of the costs the builder could not recover did not establish unreasonable hardship or an exceptional circumstance.6 He made no express finding about the other circumstances relied upon to establish exceptional circumstances. [22] Reasons should state critical findings and the basis, however briefly expressed, for making them. The failure to state a conclusion (and reasons for it) on the criterion of exceptional circumstances makes it impossible for the Appeal Tribunal to determine whether the learned Member made an error of law in applying the law to the facts in this case. That inadequacy in the reasons, itself, constitutes an error of law. Unreasonable Hardship [23] The other grounds of appeal relate to the way in which the learned Member determined the alternative basis for the claim, that the builder would suffer unreasonable hardship if it did not recover an amount for the work. [24] The specific errors alleged are that the learned Member: (a) failed to exercise his statutory discretion because he wrongly considered he was bound by the decision in Poiner v Quirk7; and (b) that he undertook a subjective assessment of hardship when he should have assessed the matter objectively. 5 Transcript of reasons p 9. 6 Transcript of reasons p 9. 7 Poiner v Quirk [2007] QDC 299. -- 4 of 12 -- 5 [25] In Poiner v Quirk, Judge McGill DCJ considered whether the former Commercial and Consumer Tribunal had erred in rejecting a builder’s claim to recover the costs of a non-compliant variation. He addressed both criteria: exceptional circumstances and undue hardship. He noted the builder did not assert exceptional circumstances at the original hearing. He found no evidence to indicate there would be unreasonable hardship to the builder in enforcing the requirements of the Domestic Building Contracts Act 2000. In doing so he considered how the requirement of unreasonable hardship should be interpreted: There cannot be said to be unreasonable hardship just because he incurred some additional cost which he cannot recover, one would expect that this is precisely what the legislature intended in such circumstances.8 [26] That was not an observation confined to the facts of the case, but a statement of how the section should be interpreted. [27] At the time, the District Court was the appellate forum for decisions made for the former Tribunal. QCAT now has the former Tribunal’s jurisdiction as well as the Court’s former appellate function. It is true to say that the decision by his Honour does not bind this Appeal Tribunal. However, there can be no error in a member of the Tribunal, sitting at first instance, in considering his Honour’s interpretation of the section was an authoritative statement of how it should be applied. [28] The Appeal Tribunal concurs in his Honour’s view that the fact that a builder incurred, and cannot recover, the costs of a non-compliant variation could not, alone, constitute unreasonable hardship. That outcome is consistent with the evident purpose of providing an effective incentive to comply with the requirements of the Act. [29] The test of unreasonable hardship requires an assessment of the impact of that sanction on the builder in the circumstances in which the non- compliance occurred. That is both a subjective and an objective enquiry: subjective, in that evidence must be led to demonstrate hardship to the builder; and objective, in that the nature and extent of the hardship must be unreasonable in the circumstances in which it occurs. [30] The magnitude of the sum that cannot be recovered is a relevant consideration in both respects. Subjectively, the inability to recover an amount may or may not cause hardship to the builder, depending on its financial circumstances. A small sum for a sole operator whose margins are slim might have a greater financial impact on that builder than a much larger sum would have on an enterprise with a large turnover and good profit margin. [31] Objectively, the amount the builder is out of pocket will be one of many possible factors to consider in determining whether the hardship would be unreasonable. Other factors include the conduct of each of the builder and the owner in explaining why the variation was not documented and any discussions they had about the matter. 8 Poiner v Quirk [2007] QDC 299 at [74]. -- 5 of 12 -- 6 [32] I am indebted to Mr Apel for his consideration of what evidence of hardship was presented at the original hearing. He sets out the relevant extracts in his reasons. I agree with his conclusion that there was insufficient evidence to establish that Better Homes would suffer hardship if it could not recover for the cost of the deck variation. All the learned Member had before him was a bald assertion that this was so. [33] In the absence of evidence of hardship, there can be no basis for concluding there was unreasonable hardship. There was no error in the learned Member’s finding that the builder had not established that criterion. Conclusion and orders [34] The learned Member erred in one respect in failing to state his finding on the criterion of exceptional circumstances. Not every error of law will result in a decision being set aside on appeal. The error must be such as to vitiate the decision.9 [35] For reasons given by Mr Apel, with whom I agree, the evidence led at the original hearing was not sufficient to establish either that: (a) there were exceptional circumstances sufficient to warrant the builder recovering an amount for the variation; or (b) the builder would suffer unreasonable hardship if he could not recover an amount. [36] The decision made by the learned Member was the correct decision on the evidence before him. There would be no utility in allowing an appeal. The appeal is dismissed. MR PETER APEL [37] I have had the benefit of reading the decision of her Honour Judge Kingham in this appeal and I am in agreement that the Appellant has established that the learned Member at the original hearing erred at law in the reasons given for his decision. [38] That then makes it necessary to review the evidence before the Tribunal at the original hearing to consider whether the appeal should be allowed. Relevant Background [39] The Appellant is a building contractor who was engaged by the Respondent in 2005 to construct a dwelling at 74 Harbour Drive, Bluewater Estate, Trinity Park Cairns. [40] A HIH new home contract was executed by the parties. It is not contentious that the contract was for domestic building works and is subject to the Domestic Building Contracts Act 2000 (“the Act”). The contract price was $415,607.28. 9 Calin v Greater Union Organisation Pty Ltd (1991) 173 CLR 33 at 41; Stead v State Government Insurance Commission (1986) 161 CLR 141 at 145. -- 6 of 12 -- 7 [41] The original specifications for works in the contract included (inter alia) the requirement for the builder to construct a 20 square metre deck between the pool and the canal frontage of the block. [42] In 2007, shortly before handover of the dwelling to the owner, the owner requested a variation to the contract with respect to the deck, now asking for it to run the full width of the block, increasing its size to approximately 74 square metres. [43] A document entitled “contract variations for job – O’Reilly” was prepared dated 21st May 2007. It is accepted that this document did not meet the requirements of the Act so as to constitute a properly documented variation. [44] Section 84(2) of the Act prevents the builder recovering an amount on account of a variation if they have not complied with the requirements of that Act to document the variation. [45] Section 84 (4) of the Act provides: “The Tribunal may approve the recovery of an amount by a Building Contractor for a variation only if the Tribunal is satisfied that - (a) either of the following applies: (i) there are exceptional circumstances to warrant the conferring of an entitlement on the Building Contractor for the recovery o f an amount for the variation; (ii) the Building Contractor would suffer unreasonable hardship by the operation of sub section (2)(a) or (3) (a) (b) It would not be unfair to the building owner for the Building Contractor to recover an amount.” [46] To determine the issues raised by section 84(4): (a) Separate and distinct findings on each of the limbs of section 84(4)(a) should be given; and (b) The determination of section 84(4)(a)(ii) requires subjective evidence of the impact upon the builder which is then to be objectively determined as reasonable or unreasonable. Exceptional Circumstances [47] The Appellant submits that the Member at first instance failed to consider whether the circumstances put forward in the evidence (either alone or in combination) constituted “exceptional circumstances” within the meaning of section 84(4)(a)(i) but instead preoccupied himself with the question of whether the quantum of the amount claimed of itself sufficient to constitute “exceptional circumstances” to justify relief (Appellant’s submissions page 8 paragraph 21). The submission is that this represents a conflation of the two requisite enquiries (page 8 paragraph 22). [48] The determination of this aspect of the Appellant’s argument requires consideration of: (1) The evidence before the Tribunal at hearing; and (2) The Appellant’s submissions on that evidence. -- 7 of 12 -- 8 Evidence at the hearing [49] The hearing at first instance was conducted over four days, being 4 and 5 March 2010 and 23 and 24 September 2010. The relevant evidence was given on the first hearing day, 4 March. [50] What may be gleaned from Mr Cavallaro’s evidence at pages 14, 15, 17, 20, 23 and 25 of the transcript of 4 March 2010 hearing day is: (a) That Mr Cavallaro considered the construction of the revised deck would be complex; (b) He had never built a structure like that before and that there were complicating factors such as tides, and the possible presence of crocodiles in the water, which created difficulty; (c) He at no time had any intention of building the structure himself; (d) He was aware that the owner wanted to have a costing, and that the owner had questioned whether the rate of $275.00 per square meter would be usable; (e) That he told the owner it was “extremely difficult and I cannot work the price out”. I did not find any other useful references in Mr Cavallaro’s evidence on the other hearing days or in the Affidavit material of Mr Cavallaro put into evidence at the commencement of the hearing. [51] Mr Eden in his evidence on 5 March confirmed the difficulty of the deck construction job (“the hardest deck I’ve ever built”). Mr Eden also significantly commented at page 13 of the day’s transcript that he was never asked to quote the job. [52] The evidence of the owner, Mr O’Reilly is that he: (a) Requested the change to the deck specification; (b) Asked for a price on the revised specification on numerous occasions but did not receive a price; and (c) That ultimately the deck was built to his satisfaction. Appellant’s Submissions [53] The Appellant’s Counsel put forward a number of issues which were submitted were exceptional circumstances which may warrant the conferring of the entitlement on the building contractor to recover an amount for the variation. These issues were identified as: 1. The work was done at the owner’s request; 2. It was a considerable departure from the original plan; 3. The work was done; 4. The work was done to the owner’s satisfaction; 5. The builder is not profiting from the deck construction; 6. The variation was documented, only poorly; 7. The construction of the deck proceeded as a consensual arrangement; -- 8 of 12 -- 9 8. The cost to which the owner was exposed was not open ended – it was able to be ascertained; and 9. Issues relating to the loss of control of the site. [54] Looking at these issues in turn, I make the following observations: (a) Items 1, 3 and 4 do not of themselves constitute any exceptional circumstance and are what any owner ought to expect from a job. Counsel for the Appellant conceded that these items were put forward as what might be considered to be a “double negative” i.e. to counter any allegation that may be raised by the owner that either the works were unknown to, or a surprise to the owner, that they were either not performed or were unsatisfactorily performed. None of those arguments are raised by the owner, so these issues do not assist in the consideration of exceptional circumstances. (b) Item 2 – Whilst it is clear that the revised deck specification was a significant departure from the original deck plan, in the context of the total building contract (of which the deck formed part) the total variation to the deck at its highest cost would amount to less than 10% of the contract value. I do not therefore accept that the change in the scope of the deck works is such as to constitute such a significant departure from the original plan as to be able to be considered an exceptional circumstance. (c) Item 5 – Whilst it is reasonable to expect that a builder, as a business operator, would factor in a profit on work that they perform, does the absence of a request for profit contribution on part of a job constitute an exceptional circumstance? In this case the builder did not attempt to cost the job, and for his own commercial reasons elected to do the job “at cost” (though there was some debate as to what that term was intended to mean). The Builder is in the position of control in this situation as to whether he seeks to profit on his work or not. That he has chosen not to in this case does not logically equate to an exceptional circumstance for the purposes of section 84(4)(a)(i) of the Act. This is an exercise of commercial judgement on the part of the building contractor, and I do not see it as an exceptional circumstance. (d) Items 6 and 7 – The attempt at documenting the variation is not sufficient to meet the requirements of the Act, and therefore insufficient at law. The Act imposes requirements on the documentation of variations, for good reason and to avoid disputes precisely of this nature. That the parties proceeded on the basis of a defective document, all be it consensually, is not evidence of an exceptional circumstance, only of non compliance. -- 9 of 12 -- 10 (e) Item 8 – I have difficulty accepting this assertion, in circumstances where the builder himself, with access to the costing information, had to make several attempts at calculation of his final claim. If the builder with that information at his finger tips experienced that difficulty, what hope would the owner have had of knowing what the extent of his liability may be for the job? It is clear on the evidence that the builder had no intention of doing the work himself, and that at all times it was his intention to engage a subcontractor to do the job. He did so, but did not request of that subcontractor a quote for the job. The builder therefore made no attempt to cost the job himself (noting his earlier comments as to why that may have been a difficult task, but none the less it was not attempted) and the builder did not attempt to obtain a cost estimate or quote from the subcontractor who had the responsibility of performing the job. The Owner has their contractual relationship with the builder, not the subcontractor. The home owner was not in a position of being able to request a costing from the subcontractor, and neither should the home owner have been put in the position of having to pursue that. It is clear that the builder’s intention was that whatever the subcontractor delivered as their final bill for the deck was passed on to the owner. Without any prior quotation or estimate of what those costs might be, that cost could only be considered open ended. I do not see that this assertion is borne out on the evidence and it therefore cannot be taken to be an issue which may constitute an exceptional circumstance. (f) Item 9 – There is no evidence to suggest the builder’s ability to cost, or construct the deck were complicated by access issues. There had been handover of the site to the owners but there is no evidence of any actual restriction of access. I do not see from the evidence that this an exceptional circumstance to warrant the conferring of an entitlement upon the builder for recovery of an amount for the variation. [55] I am not satisfied that the evidence, or the Appellant’s submissions have established exceptional circumstances as required by section 84(4)(a)(i) of the Act. Hardship [56] Looking at the hearing transcript, the issue of hardship is covered only briefly by the evidence of Mr Cavallaro, at page 34 of the transcript of the hearing of 4 March 2010. The highest the Appellant’s position is put is: “…so is it hardship? How would you go with 50 grand out of your pocket, anybody here with 50 grand out of their pocket; it’s going to hurt”. -- 10 of 12 -- 11 [57] I observe from reading the transcript of the hearing conducted on 23 September 2010, that the Principal of the Appellant company, Mr Cavallaro was recalled, and at that time again gave evidence in relation to the hardship aspect. That evidence is seen at pages 31 and 32 of the transcript of that day’s hearing. The substance of Mr Cavallaro’s evidence was that missing out on $50,000.00 worth of income is certainly felt by a business, though there was no suggestion by Mr Cavallaro (he specifically denied the suggestion) that his company was insolvent. [58] The Appellant submits that the member at first instance sought to assess hardship in a subjective manner in the context of the Appellant’s circumstances, rather than in an objective impartial way. [59] Section 84(4)(a)(ii) contains both subjective and objective tests – firstly it must be shown subjectively that hardship has been suffered as a result of the builder’s inability to recover an amount for the variation. That hardship must then be judged objectively as to whether it is an unreasonable hardship. [60] To argue for hardship, evidence must be put before the Tribunal of what hardship has been experienced by the building contractor through their inability to recover the value of the variation. [61] No evidence was put forward to demonstrate that the company was in hardship, save for the statement made by Mr Cavallaro in his evidence, as quoted above. [62] The Tribunal cannot be satisfied on the minimal evidence before it that hardship to the building contractor has been established through the absence of the funds to have been generated by the variation. Even if “50 grand is going to hurt” was accepted as evidence of hardship, then the Tribunal has no evidence upon which to objectively determine whether that hardship is unreasonable. [63] The legislation in this circumstance is clear: hardship of itself is not sufficient, but that hardship must be unreasonable for the builder to qualify for the protection of section 84(4) of the Act. [64] The Tribunal had scant evidence to consider whether hardship had been caused, and no evidence addressing the issue of whether that hardship (if found) was unreasonable. [65] The Tribunal at first instance, and this Tribunal now, cannot determine the test as satisfied in the absence of that evidence. [66] I find that the requirements of the test imposed by section 84(4)(a)(ii) of the Act have not been satisfied on the evidence of the Appellant. [67] As neither of the tests imposed by section 84(4)(a)(i) and (ii) have been satisfied, then there arises no need to consider the fairness test imposed by section 84(4)(b). [68] The Appellant has not satisfied me that either: (i) Exceptional circumstances existed to warrant the conferring of an entitlement on the building contractor for the recovery of an amount for the variation; or -- 11 of 12 -- 12 (ii) The Appellant will suffer unreasonable hardship by their inability to recover an amount for the variation. [69] I therefore dismiss the Appeal. ORDER [1] The Appeal is dismissed. -- 12 of 12 --