Kitchen Complex Pty Ltd v Revelop Building and Development Pty Ltd & Anor

HIS HONOUR: This is an appeal from orders of the Local Court (S Freund LCM) in which judgment was given for the defendants. The plaintiff had sued the defendants in the alternative for $51,656.08 plus interest, $51,656.08 was the balance of the price alleged to be owing under a contract made with either the first defendant, Revelop Building and Development Pty Ltd (“RBD”) or the second defendant, Revelop Projects Pty Ltd (“Revelop Projects”) for the draft, design, manufacture, supply and installation of furniture work at a site in McMahons Point (ASC para 4). There was an alternative quantum meruit claim.

The contract was for “residential building work” within the meaning of the Home Building Act 1989 (NSW).

The plaintiff pleaded and it was admitted that Revelop Projects was the holder of a contractor’s licence. Both defendants pleaded that the agreement sued on was unenforceable against them by reason of s 10 of the Home Building Act because s 7 of that Act had not been complied with. Section 7 requires that a contract for more than a prescribed amount ($20,000) be in writing, be signed by each of the parties to it, and contain prescribed information (s 7(1) and (2)). Section 10(1)(b) provides that a person who contracts to do any residential building work under a contract to which the requirements of s 7 applies that is not in writing or does not have sufficient description of the work to which it relates, or is in contravention of any other provision of the Act, is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by the other party.

Both defendants also pleaded that the contract sued on was not enforceable because the plaintiff did not have a contract of insurance as required by s 92 of the Home Building Act for the residential building work the subject of the proceedings. It was common ground that the work the plaintiff contracted to do was residential building work within the meaning of the Act.

The defendants denied that the plaintiff was entitled to money on a restitutionary count. They also asserted that some of the work done by the plaintiff was defective and that not all of the work was complete.

The plaintiff did not file a reply.

The learned magistrate found that the contract was initially entered into between the plaintiff and the second defendant, Revelop Projects, but that that contract was novated from 10 November 2015 when the plaintiff agreed that the first defendant (RBD) became the contracting party. RBD did not hold a contractor’s licence.

The learned magistrate found that (subject to the operation of the Home Building Act) RBD was indebted to the plaintiff in the sum of $46,919.54 (Judgment [28]). This was all of the amounts claimed by the plaintiff, except for the last invoice of $4,736.54 which the plaintiff accepted was only payable upon completion. Mr Elazzi, the director of Kitchen Complex, conceded in cross-examination that it could not maintain a claim for the final payment invoice because the works were not complete (Judgment [27]).

However, the plaintiff’s claim failed on three grounds. The first ground was that the plaintiff did not comply with the requirements of s 7 and reg 8(1)(b) of the Home Building Regulation 2014 which prescribed the form of the contract in question.

The plaintiff relied on subs 7(8)(a) which provides:

The plaintiff’s reliance upon s 7(8)(a) failed partly because the learned magistrate held that the contract had been novated before the works which were the subject of the unpaid invoices had been performed, and partly because her Honour held that the plaintiff’s licence did not authorise all of the work that was the subject of the contract (Judgment [36]). The plaintiff’s licence (tendered by the defendants) stated the licence class was “Joiner”. It included the following condition:

The learned magistrate found (at [38]):

The second ground on which the plaintiff failed was that by reason of s 94 of the Home Building Act, the plaintiff was not entitled to a contractual remedy by reason of its being in breach of s 92.

Section 92 of the Home Building Act provides that a person must not do residential building work under a contract without a prescribed contract of insurance. The learned magistrate was satisfied that the plaintiff did not have insurance with respect of the works. Regulation 58 of the Home Building Regulation 2014 stated:

Her Honour held that that Regulation did not avail the plaintiff because the work it contracted to perform went beyond the work authorised by its licence. Accordingly, s 94 of the Act applied so as to disentitle the plaintiff to any contractual remedy. (Sections 92 and 94 are within Pt 6 of the Act).

As to the plaintiff’s claim in quantum meruit, the learned magistrate said that she gave detailed reasons during the course of the hearing as to why an expert’s report tendered by Kitchen Complex was inadmissible. Her Honour said at [45]):

Her Honour concluded (at [46]):

An appeal from the magistrate’s orders lies to this court under s 39(1) of the Local Court Act 2007 (NSW) on a question of law or, under s 40(1) of the Local Court Act, with leave, on a question of mixed law and fact.

In its summons and written submissions to this court, the plaintiff did not challenge the magistrate’s reasoning in relation to the application of the Home Building Act. The grounds of appeal contained in its summons are:

By an unfiled proposed amended summons the plaintiff sought leave to add a further ground that:

That leave was opposed, partly on the ground that the quantum meruit claim had been abandoned in final submissions in the Local Court because the expert evidence relied on to support the value of the work done had been rejected. Ultimately the application to add this ground of appeal was not pressed.

Grounds 1 and 2 raise a mixed question of fact and law. Whether the plaintiff was denied procedural fairness in either of the respects contended for requires a consideration of the facts concerning the conduct at the hearing in the Local Court. I granted leave to the plaintiff to rely on those grounds.

Ground 3 is in the alternative. The first part of the ground, that is, that the learned magistrate drew the wrong inference of fact from the primary facts does not raise a question of law at all, but only a question of fact. It was not pressed. The alternative ground in ground 3, that is, that there was no evidence that there was a novation of the contract, raises a question of law.

Ground 4 raises a question of law. I granted leave to the plaintiff to amend ground 4 to allege that the magistrate failed to give reasons for not upholding the plaintiff’s objection to the defendants’ raising the condition of the plaintiff’s licence as an answer to the claim. The plaintiff’s counsel objected on the basis that this had not been pleaded. The magistrate noted the objection, but must have rejected it.

The plaintiff sought leave at the hearing to amend the summons further by adding a new ground that counsel articulated on his feet as follows:

The plaintiff’s argument raised questions as to when the plaintiff’s licence was granted and what was the power to impose the condition when the licence was granted.

The document said to be a copy of the plaintiff’s licence stated that the licence started on 22 September 2000 and expired on 22 September 2019. However, s 42 of the Home Building Act provides that a licence is to continue from its issue or last renewal for such term, not exceeding three years, as is specified in it. Therefore it can be assumed that the licence was renewed on or after 22 September 2016.

Section 21(1)(a) and (2)(a) provides:

Section 36(1) provides:

Regulation 20 of the Home Building Regulation provides:

Schedule 4 specifies particular work categories and a description of the work authorised. Relevantly, for the work category “Joinery” it specifies the following work as being authorised:

The plaintiff’s licence specified the “Licence Class” as “Joiner”.

The plaintiff submitted that that meant it was authorised to do all of the work specified in Schedule 4 quoted above.

This submission was not made to the magistrate. The plaintiff submits that it was denied procedural fairness in that the way the issue was raised it did not have the opportunity to make the submission. This was made part of its submission on ground one.

The plaintiff sought to raise this as a separate question of law by its proposed amendment.

I refused leave to raise this ground and reserved reasons.

My first reason for refusing leave is that the ground has no merit.

The description in Schedule 4 of the work a holder of a joiner’s licence is authorised to do says nothing about the power to impose conditions on the licence.

That power is conferred by s 36(1)(b), and s 21(2) provides that the authority conferred by the licence is subject to applicable conditions.

There is a presumption of regularity in relation to the imposition of the condition. There is no evidence that the condition was not lawfully imposed (Minister for Natural Resources v NSW Aboriginal Land Council (1987) 9 NSWLR 154 at 164).

The second reason is that the leave to amend was raised only at the hearing. The defendants had no notice of the application. If there were any merit to it the defendants could not have been required to deal with the argument on the run and an adjournment would have been out of the question.

I turn to the first ground of appeal.

If there were no denial of procedural fairness in the learned magistrate’s finding that the plaintiff’s contractor licence did not authorise it to do all the work it contracted to do, and if there were no failure to give adequate reasons, then the appeal must fail, irrespective of her Honour’s findings on the issue of novation.

The plaintiff submitted that it was denied procedural fairness by the magistrate’s finding that its licence did not permit it to do all of the works which it contracted to provide because that issue was not raised as an issue for trial by the defendants. In written submissions before the magistrate on the question as to whether the defendants were entitled to a special costs order following the plaintiff’s rejection of a Calderbank offer (Calderbank v Calderbank [1976] Fam 93) and offer of compromise, it was put that the defendants succeeded on facts that were:

The plaintiff said that the issue as to the condition on its contractor’s licence was raised by the defendants for the first time in final submissions. It said that its counsel objected, but the magistrate did not deal with that objection. The magistrate ought to have accepted its objection to the issue being raised for the first time by the defendants in final submissions. In her costs judgment the magistrate accepted the plaintiff’s submission that the issue had not been raised by the defendants and her Honour ought to have upheld its objection to the issue being raised in the substantive hearing.

I do not accept that submission.

As noted above in its amended statement of claim the plaintiff pleaded a contractual claim and a claim in quantum meruit. Its statement of claim makes no reference to the Home Building Act or any issue that might arise under it. The plaintiff pleaded in paragraph 3 that “the plaintiff is a contractor that engages in the business of designing kitchens and making and installing household furniture.” That allegation was admitted by both defendants. The plaintiff submitted that it was implicit in its allegation as to the business it conducted that it alleged it had a licence that authorised it to engage in the business so described. Therefore it was implicit in the defendants’ admission that the plaintiff engaged in that business, that its licence authorised it to do so.

There is no such implication. The allegation that was admitted was simply as to the nature of the business the plaintiff carried on. The plaintiff did not allege that it had authority under its contractor licence to engage in all of the activities so described.

As noted above it was the defendants who alleged that the plaintiff was not entitled to any contractual remedy by reason of its contravention of ss 7 and 92 of the Home Building Act. It thus became a matter for the plaintiff to plead in reply why it contended that those provisions were inapplicable.

The plaintiff did not file a reply. Nor did it address that question in its opening written submissions in the Local Court. In its written outline, filed on the day before the hearing in the Local Court, the plaintiff noted that the defendants resisted the claim on grounds that included failure to comply with ss 7 and 92 of the Home Building Act. It noted that one of the issues the Court needed to resolve was whether the Home Building Act applied. It stated:

It did not say why neither section was applicable. In their “case summary”, also filed on the day before the hearing in the Local Court, the defendants stated that the plaintiff had failed to comply with identified requirements of s 7 and reg 8(1)(b) of the Home Building Regulation 2014. They stated:

They also submitted that the plaintiff did not have the necessary contract of insurance and they relied upon ss 92 and 94.

The defendants did not submit that the works the plaintiff contracted to perform included work outside the condition attached to the plaintiff’s licence. But they did foreshadow there was an issue as to what work each party’s contractor licence authorised that party to do. It was for the plaintiff, who relied upon s 7(8), to show that its licence authorised it to do the work contracted for. It was also for the plaintiff to establish that it was entitled to the benefit of reg 58 which on one view (being that adopted by the magistrate and not challenged on appeal) it could only do if its licence authorised the built-in furniture work it contracted to do.

In his opening address before the magistrate counsel for the plaintiff foreshadowed the plaintiff’s response to the defendants’ reliance on ss 7 and 92. Counsel said:

Clearly the plaintiff was on notice that it was required under s 7(8) to establish that s 7(1) and (2) did not apply because each party’s contractor licence authorised the party to do the work the subject of the contract. The defendants had made no admission about that. It was for the plaintiff to prove it.

The plaintiff’s contractor licence was tendered in the cross-examination of its director, Mr Elazzi. He accepted that the document was a copy of the plaintiff’s contractor licence. It was tendered and admitted without objection.

The fact that there was no cross-examination of Mr Elazzi to the effect that the work he contracted to perform was not within the condition of the licence does not give rise to any procedural unfairness. It is doubtful that any such evidence would have been admissible. Whether the work was authorised depended upon a comparison between the work the plaintiff contracted to perform (which was the subject of cross-examination) and the terms of the licence.

The plaintiff submitted that it was implicit in the questions asked by the cross-examiner that the plaintiff was licensed to do the works under the contract, albeit that that work went beyond joinery for kitchen cupboards. I do not agree. All that was established in cross-examination relevant to this issue was that the document tendered was a copy of the plaintiff’s contractor licence and that the works the plaintiff undertook to carry out included not only the installation of kitchens, but a “built in robe in the guest room”, a cabinet that contained shelves for TV viewing, a cloakroom, a wardrobe in the master bedroom and that these were all affixed to the property. There was nothing implicit in that cross-examination that the plaintiff was licensed to do all this work. Indeed, the relevance of the questions was evidently to establish a disconformity between the works contracted to be carried out, and in fact carried out, and the terms of the licence.

The plaintiff’s counsel at trial did not address the submission advanced by the defendants based on the condition to the plaintiff’s contractor licence. He contented himself with the objection to the defendants’ raising the point. Counsel did not submit that he was taken by surprise. He did not ask for an adjournment. He did not ask for leave to provide written submissions.

The learned magistrate’s acceptance of the substance of the plaintiff’s submission in her costs judgment has to be read in the context in which the issue there arose. The defendants sought a special costs order following the plaintiff’s rejection of a Calderbank offer and an offer of compromise. The plaintiff submitted that it was not unreasonable for it in the circumstances not to have accepted the Calderbank offer. It sought an “order otherwise” in respect of its failure to accept the offer of compromise. This was because, at that point, the issue upon which it succeeded had not been articulated. The magistrate accepted that submission. It does not follow that the magistrate was in error, or that there was any denial of procedural fairness, in upholding the defendants’ defence. That defence had been pleaded. If the parties had been held strictly to their pleadings as the plaintiff submits they should have been, the plaintiff would have failed for not having pleaded the matters in s 7(8) and reg 58 as an asserted answer to the defence.

As to ground 4 of the appeal, insofar as it relates to this issue, there can be no quibble with the sufficiency of the magistrate’s reasons for upholding the defence.

I gave leave to the plaintiff to allege that the learned magistrate erred by not giving reasons for not upholding the plaintiff’s objection to the defendants’ being allowed to rely upon the defence. I do not accept that the magistrate was required to do so. It is not every objection raised by a party that has to be addressed in a judge’s reasons. If the objection had seriously arguable merit then it may be that reasons should have been given at some point, although not necessarily in the final reasons for judgment, as distinct from in the course of argument. But the objection had no merit.

In any event, these reasons explain why the plaintiff was not denied procedural fairness. Even if the magistrate ought to have provided reasons for not upholding the plaintiff’s objection, her failure to do so did not affect the outcome.

It follows that the appeal should be dismissed. It is not necessary to deal with the challenge to the magistrate’s finding that the contract was novated in order to determine the plaintiff’s claim. It is necessary to do so in case my conclusion on the first ground, or in refusing leave to amend, is erroneous, and the matter proceeds further (Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34 at [3]-[5] per Leeming JA).

I do not accept that there was any denial of procedural fairness in the magistrate’s finding that there was a novation of the contract. The plaintiff initially pleaded that the contract was made with the first defendant, RBD. By its amended statement of claim it pleaded that the contract was made either with RBD or, alternatively, with the second defendant, Revelop Projects. The second defendant denied entering into any contract with the plaintiff with respect to any work done for the Project. The first defendant pleaded that “any agreement reached between the plaintiff and the first defendant was not in writing and therefore was in breach of ss 6 and 7 of the Act”, and alleged that there was no enforceable agreement between it and the plaintiff due to the plaintiff’s breach of s 7. It also pleaded that if the plaintiff did not have a contract of insurance as required by s 92 then the plaintiff was not entitled to any remedy.

The individuals with whom the plaintiff’s director corresponded in the initial formation of the contract were directors of both defendants. The correspondence did not clearly identify whether either or both of the defendants were contracting parties. As the magistrate found, the surrounding circumstances, objectively considered, pointed to the contracting party being the second defendant. This was because the plaintiff had formerly done work for the second defendant and because the second defendant held a contractor’s licence, whereas the first defendant did not.

After some invoices had been issued to the second defendant and paid, the plaintiff was asked to forward invoices to the first defendant, which it did. The facts clearly indicated that there was an issue both as to who was the initial contracting party and whether that same party remained the contracting party.

Were it necessary to decide, I would uphold the second limb of ground 3 of the notice of appeal.

I do not consider that a reasonable observer considering the matter objectively would consider from the email correspondence whereby the plaintiff agreed to invoice the first defendant rather than the second defendant, and did so, that the parties intended to substitute the first defendant for the second defendant as the contracting party. The question is not as to the uncommunicated subjective intentions of either party. Mr Elazzi’s admission in cross-examination that he considered the first defendant to be responsible for payment of invoices that were rendered after 10 November 2015 is not capable of establishing the requisite objective intentions of all parties. The email correspondence established no more than that the defendants requested that the invoices be rendered to the first defendant from 10 November 2015 and the plaintiff acceded to that request. That was consistent with the second defendant’s remaining the contractual party. Matters of internal accounting between the defendants were not the plaintiff’s concern.

There was no evidence as to who paid the later invoices. If the invoices were paid by the first defendant, that would not alter the position. But it would be a matter for the defendant in any event to prove, if it were thought to be relevant, that it was the first defendant and not the second defendant who paid the invoices.

However, for the reasons given, this challenge to the magistrate’s finding that the contract was novated does not mean that the plaintiff is entitled to succeed on the appeal.

The defendants raised a notice of contention. Only ground 1 of the notice was pressed. That ground was as follows:

The learned magistrate found:

It was not disputed that the plaintiff did not complete the works. There were no findings as to why the plaintiff did not complete the works. Mr Elazzi deposed that the plaintiff could not fully complete the installation of joinery in the kitchen because when its installer was on site the stone benchtops had not been installed by the second defendant and appliances that required integration were not on site and the benchtops and appliances needed to be onsite to install the joinery. He deposed that the reasons the work remained incomplete was because Revelop had not paid for works already carried out on the joinery already installed and because work that should have been completed by Revelop or a third party engaged by it was not done and that prevented the plaintiff from completing the works.

Without any finding as to whether the plaintiff’s failure to complete the works was caused by the second defendant’s failure to complete the installation works for which it was responsible, and in the absence of findings as to whether the contract was terminated by one party accepting the other’s repudiation, it is not possible to conclude that the plaintiff was not entitled to any further payment because final work was admittedly incomplete. In the course of argument the defendants accepted that this was so and did not press the notice of contention.

For these reasons I order that the amended summons be dismissed with costs.