Michael Kuehn & Jennifer Kuehn v Masterton Homes (NSW) Pty Ltd t/as Masterton Homes (NSW) Pty Ltd

1. [1]

   HIS HONOUR: Section 73(1) of the Civil Procedure Act 2005 (NSW) provides:

2. [2]

   The question for determination is whether the plaintiffs, Michael Kuehn and Jennifer Kuehn, (or the Kuehns) compromised, in binding fashion, their claim against the first defendant home builder (Masterton) that it built them a defective house thereby causing them to suffer loss and damage.

3. [3]

   On 12 November 2015, the Kuehns contracted with Masterton to build a house for them in Nowra, on the NSW South Coast. The Kuehns say that Masterton did not build according to the contract and breached various statutory warranties under the Home Building Act 1989 (NSW), the benefit of which they have. Their most significant complaint is that the main slab is defective. They have numerous lesser complaints.

4. [4]

   Michael Kuehn as applicant but not Jennifer Kuehn, even though she is a party to the building contract with Masterton and a co-owner of the land on which the house was built, brought proceedings against Masterton in the NSW Civil & Administrative Tribunal (NCAT).

5. [5]

   The claim was to be heard, over a day, on 29 July 2019 by a Senior Member of NCAT. The parties to the proceedings had solicitors and counsel. Ms E Glover of Counsel instructed by Mr Michael Vitagliani of MGV Lawyers appeared for Michael Keuhn and Mr P Bambagiotti of Counsel instructed by Ms Sharon Armstrong of Kennedys, appeared for Masterton. Each party had also retained their own expert engineer or building consultant.

6. [6]

   Masterton says, and the Kuehns deny, that they reached a binding compromise on the afternoon of 29 July 2019.

7. [7]

   At the end of the hearing day, the NCAT proceedings were adjourned for further hearing to 25 October 2019.

8. [8]

   Subsequently, it emerged that there was a dispute about whether they had settled.

9. [9]

   On 3 October 2019, by consent, NCAT vacated the 25 October 2019 fixture.

10. [10]

    On 27 November 2019, NCAT made orders transferring the matter to this Court in the following terms:

11. [11]

    On 11 December 2019, I made directions for the filing by the Kuehns of a Technology & Construction List Statement. It was filed on 6 March 2020.

12. [12]

    In its Technology & Construction List Response filed on 7 April 2020, Masterton states that the principal issue is whether these proceedings, when they were before NCAT, settled by an agreement made on 29 July 2019 to the effect that the Kuehns cannot now sue for the claims which they make against Masterton.

13. [13]

    The Kuehns say that if they compromised their claims, this occurred as a result of breaches of duty by their legal advisers, whom they have joined as defendants and against whom they make claims for damages.

14. [14]

    For the reasons which follow, no binding compromise or settlement of the claims made in these proceedings against Masterton was made. First, Jennifer Kuehn was not party to whatever arrangement was made on the afternoon of 29 July 2019 and her agreement was to be achieved by execution of a deed. Second, and in any event, the objectively ascertainable intention of the alleged contracting parties was that there would not be a binding settlement unless all the terms of their agreement were embodied in a formal deed.

15. [15]

    It is common cause that if no binding compromise was made, the proceedings against the lawyers must be dismissed. Accordingly, I will so order.

16. [16]

    If the proceedings are to continue against Masterton, which presumably they will, I will need to be persuaded that they should remain in this Court because the amount involved appears to be within the jurisdiction of NCAT and, in any event, within the jurisdiction of the District Court.

The NCAT Hearing

1. [17]

   On 29 July 2019, the hearing of the NCAT case was delayed because the parties’ respective experts were trying to reach agreement as to the scope of the building defects.

2. [18]

   The transcript records the following, somewhat lengthy, discussion late in the day (apparently after 4pm) which, according to Masterton, discloses the binding agreement for which it contends. Although it will contribute to the prolixity of this judgment, it is necessary to set it out in full:

Subsequent Events

1. [19]

   On 1 August 2019, Sharon Armstrong emailed Michael Vitagliani as follows:

2. [20]

   The email attached compliance certificates from an engineer dated 26 October 2016 and 5 November 2016 in relation to the pier holes and construction of the slab respectively.

3. [21]

   On 14 August 2019, Sharon Armstrong sent Michael Vitagliani’s office a draft deed under cover of the following email:

4. [22]

   On 27 August 2019, Brian Frauenfelder, from Masterson’s Customer Service and Warranty department, sent the following email to Michael Kuehn:

5. [23]

   Michael Kuehn did not respond.

6. [24]

   On 30 August 2019, Sharon Armstrong sent the following to Michael Vitagliani:

The Deed

1. [25]

   It is necessary to set out a significant portion of the draft deed:

2. [26]

   Masters v Cameron (1954) 91 CLR 353 (Masters v Cameron) is an iconic Australian decision and one of the most well-known cases in the field of the law of contract in this country. Experienced lawyers can be assumed to be familiar with it. In the famous passage at 360, the Court said:

3. [27]

   Earlier, in Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 650, Higgins J had made the following, also well-known, statement:

4. [28]

   Subsequent cases have spoken of a fourth category, namely, where parties enter into an immediately binding agreement on certain specified terms and on such other terms as are either subsequently agreed by the parties or able to be determined by the Court: G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 622; Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [25]; Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 at [67] (Sagacious); Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2016] NSWCA 123 (Karellas).

5. [29]

   The additional legal principles which apply to assessing whether a binding agreement has been entered into were not the subject of any debate before me. A brief summary of them will be sufficient:

   1. (1)

      Whether an agreement has been entered into is to be objectively assessed. The objective intention of the parties is fact-based, found in all the circumstances, including by drawing inferences from their words and their conduct in their making of the agreement: Allen v Carbone (1975) 132 CLR 528 at 532; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-9 (ABC); Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105 [25]; Sagacious at [69].

   2. (2)

      In ascertaining the intention of the parties, whether from a series of communications or from a single document, regard can be had to the commercial circumstances in which the parties exchanged their communications and to the subject matter of the supposed contract: Sagacious at [69].

   3. (3)

      The Court will not write a contract for parties who have failed to reach agreement. Failure to reach agreement includes where there is obscurity or incompleteness in the agreement: Sagacious at [73]; Feldman v GNM Australia [2017] NSWCA 107 at [60]-[61] (Feldman).

   4. (4)

      The existence of matters of importance on which the parties have not reached consensus in their informal agreement will render it less likely that they intended immediately to be bound before the execution of a formal document. That the terms have not been fully or well stated is material to whether a contract has been made. The more important the term, the less likely it is that the parties will have left it over for future decision, but there is no legal obstacle which prevents the parties agreeing to be bound now while deferring important matters: Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 97578 at 14,579; ABC at 548; Sagacious at [73]; Feldman at [60]-[61].

   5. (5)

      Regard may be had to the parties’ subsequent communications to assess whether it was in their contemplation that they were not to be bound until all the essential preliminaries had been agreed to or until the formal contract had been drawn up embodying all the matters incidental to the transaction: ABC at 547-8 and the authorities cited there; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at [25]; Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 at 78; B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 at 9155; Sagacious at [99].

   6. (6)

      An agreement may contain an implied term requiring the parties to do all cooperative acts necessary to bring about the contractual result. A duty to cooperate may require parties to execute a formal instrument but does not apply to the negotiation of varied or additional terms: Perini Corporation v Commonwealth of Australia [1969] 2 NSWR 530; Karellas at [64].

6. [30]

   Masterton does not suggest that a binding agreement was reached otherwise than by the exchanges recorded on the transcript. No deed was signed and it is not suggested that there was any agreement on further terms.

7. [31]

   Masterton does not contend for any Masters v Cameron category of agreement other than a Class 1. It does not contend for the existence of any implied term to cooperate with respect to the entry of a deed.

8. [32]

   To make the objective assessment which the orthodox approach to determining the parties’ intention (or not) to contract requires, a detailed examination of the transcript and the documents referred in it as well as the parties’ subsequent conduct, is necessary.

9. [33]

   Some of the things said on the transcript can be viewed as consistent with an intention immediately to be bound. However, there are a significant number of contra-indications, including other utterances and the parties’ subsequent conduct (especially Masterton’s), which undermine a conclusion that the parties had an intention to be bound without there having to be a formal instrument between both of the Kuehns and Masterton.

10. [34]

    Unless I state otherwise, or the context indicates differently, where I refer to Counsel, it is to Masterton’s Counsel.

11. [35]

    Counsel’s initial statements were that:

12. [36]

    The statement that agreement had been reached is neutral as to whether the agreement was binding.

13. [37]

    The next statement that it was intended to take effect immediately is consistent with bindingness, although what was comprehended by ‘the principal elements’ is imprecise.

14. [38]

    However, the succeeding statement contradicts the preceding one. It is notorious that Masters v Cameron Class 3 is where the parties do not intend to make a concluded bargain at all. Masterton did not submit that the words used with reference to Masters v Cameron Class 3 meant anything else. It put that Counsel misspoke and that he obviously meant Masters v Cameron Class 1. But that is not what he said. In the general scheme of things, whilst it is not helpful to Masterton’s cause, the contradiction is not decisive.

15. [39]

    Counsel went on to propose ‘to read the heads out.’ It may be inferred that Counsel had a document which he proposed to read. When the Senior Member suggested that a document be typed that could be incorporated into orders, Counsel did not accept the invitation because, whilst he had written the elements down, he could not:

16. [40]

    What lay behind this exchange is obscure and enigmatic. On the one hand, Counsel conveyed that he did not want the document reduced to typing because he was not certain that everything was in it but, on the other, wanted to read out the very (potentially incomplete) document to avoid being in a position whereby any omission undid the arrangement. Perhaps he had it in mind to say things on the transcript beyond those in the document. The exchange, however, is reflective of an absence of consensus that what was to be read out captured all of the principal elements of the putative agreement (I interpolate, whatever they were).

17. [41]

    Counsel then said:

18. [42]

    The statement that the parties had agreed to ‘resolve the proceedings in the following terms’ may be viewed as consistent with intending a binding agreement on those terms. However, that reading is diluted by the subsequent statements envisaging acceptance ‘as to the general scope’ and raising the possibility that there may be some ‘further terms not inconsistent with these generals [sic] heads that we have to resolve.’ If assent was given to a ‘general scope’ yet there were further terms that have to be resolved, it indicates insufficient finality of the terms to disclose an intention immediately to be bound.

19. [43]

    Counsel then articulated as ‘Number one’:

20. [44]

    The reference to 28 July 2019 is erroneous. ‘Today’ was 29 July 2019. I take this to be the document which was being referred to. Nothing turns on these errors.

21. [45]

    There is in evidence no document which on its face is an agreed conclave report of that date. There is, however, a document entitled ‘Expert’s Conclave’ (in a form generally used by NCAT proceedings) signed by the respective experts but it is dated 27 July 2019. I take this to be the document being referred to. It is in table form.

22. [46]

    Item No. 1 is ‘Cracking to External Concrete Slabs,’ Item No. 2 is ‘Top Repairs to Concrete Slabs,’ Item No. 3 is ‘Internal Concrete Slab,’ Item No. 4 is ‘Front Patio Concrete Slab, and Item No. 5 is ‘Future Monitoring of Garage Slab.’ Under the heading ‘Expert’s Comments,’ the following appears with respect to Item No. 4 and Item No. 5:

23. [47]

    Counsel that said, as to ‘Two’:

24. [48]

    The document marked as Annexure A consists of an email dated 17 July 2009 from Michael Kuehn to his solicitor. It is a list of defects, numbered in handwriting from 1 to 15, and a defects report from Brian Clark t/as F1 Home Improvements which identifies another 48 defects, making 63 in total. Item 12 identifies 6m long cracks in the concrete slab on the Back patio and Garage. Item 29 concerns the Back patio and records ‘concrete slab has major cracking.’ Item 30 records that the Garage Floor concrete is cracking.

25. [49]

    Counsel then said, as to ‘Three’ (there having been identified three qualifications to One and Two):

26. [50]

    Counsel identified Mr Chiarot as his client’s engineer.

27. [51]

    The note prepared by Ms Sharon Armstrong was not identified during the hearing. The qualifications were said to have been set out ‘in general terms’ in that note.

28. [52]

    The main slab was the most significant aspect of the claim.

29. [53]

    There is confusion on the transcript between Item No. 4 and Item No. 5.

30. [54]

    Doing the best I can, the first qualification, it seems, was with respect to Item No. 4 which required, ‘Details and certification of the repair are to be provided for review.’ Masterton was proposing an absolute obligation on its part to provide such certification but nothing was said about the significant issue of review.

31. [55]

    Item No. 5 required a report on durability to be provided by Mr Chiarot (LC) and to be reviewed and certified by an independent material scientist and engineer to be agreed by both parties and any criteria in the report were to be proven to the satisfaction of both parties. The proposal was that Masterton would do whatever was necessary to satisfy Mr Chiarot that the shortcoming was rectified and addressed and he would then provide an unqualified report ‘based upon on [sic] that.’

32. [56]

    Item No. 5 required not only Mr Chiarot’s report, but review and certification by an independent material scientist and engineer to be agreed by both parties and the parties to be satisfied with any criteria in the report. The qualifications articulated say nothing of these additional significant requirements. I consider these to be important omissions especially given that Mr Chiarot was Masterton’s engineer.

33. [57]

    Before dealing with the third qualification, which Counsel described as relating to the use of expert evidence, he identified as ‘Four’:

34. [58]

    Returning then to the third qualification (to One and Two), Counsel said:

35. [59]

    It will be observed that:

    1. (1)

       the abandonment described is only by Michael Keuhn, and not Jennifer Keuhn;

    2. (2)

       only Michael Kuehn is said to have the benefit of the statutory warranties; and

    3. (3)

       the covenant to be given is described as only given by Michael Kuehn and not Jennifer Kuehn.

36. [60]

    Unsurprisingly, the Senior Member then sought clarification about what was being conveyed concerning the slab. The Senior Member said, ‘So he couldn’t use the cores,’ and received the response:

37. [61]

    What was meant by being able to use material for reference purposes but ‘not as purposes of evidence’ is ambiguous at best. Why it is that using cores would be permissible because ‘he’d be referring to them’, is obscure.

38. [62]

    Without expressly assigning to it a number (but it was Five in the sequence – although the next one was referred to as ‘Seven’), Counsel said:

39. [63]

    This statement is enigmatic. It conveys that the deed is to reflect the general tenets and is not to be inconsistent with them. However, how, if it reflected tenets, it could be inconsistent with them is obscure.

40. [64]

    The statement that the deed is to be ‘fleshed out to remove ambiguity should such ambiguity arise,’ is a different formulation from, and potentially inconsistent with, the one earlier articulated that there may be some further terms not inconsistent with the general terms that ‘we have to resolve.’

41. [65]

    How any ambiguity which arose was to be removed ‘by fleshing out’ in binding fashion is not spelt out. One ambiguity which had already arisen was the permission for Michael Kuehn to refer to any of the material which he had relied on to date with respect to the slab for reference purposes.

42. [66]

    Next, Counsel said as to ‘Seven’ (which the Senior Member thought was Eight):

43. [67]

    Counsel went on to say:

44. [68]

    Four observations are pertinent.

45. [69]

    First, Masterton’s payment obligation does not arise unless and until a deed has been signed, because payment is to be made 28 days after that. This is a significant, if not a decisive, indication that there would be no binding settlement without execution of the deed. Reflective of this, clause 2.9 of the deed proffered by Masterton provided that, ‘the sum shall be paid within 28 days of the exchange and coming into effect of this Deed.’

46. [70]

    Second, clause 2.6 of the deed proffered by Masterton provides for neither a start date nor a firm finish date for the work. This is a significant departure from what Counsel read onto the transcript and is reflective of an absence of intention on 29 July 2019 on the part of Masterton to be bound by the term articulated by Counsel. There could hardly have been any room for error in the articulation of the provision proffered. Plainly, Masterton wanted a different option.

47. [71]

    Third, Masterton was waiting for the deed to be signed before actually doing the work. Its undertaking was to do the remedial work within 12 weeks and complete it by 15 November 2019 but starting not before 12 August 2019. This meant that if the work was going to take 12 weeks, it would have needed to start on 13, 14 or 15 August 2019. However, the first draft deed including annexures was only proffered by Masterton on 30 August 2019. On 27 August 2019, Brian Fraunenfelder recorded that a deed was to be prepared and signed and that, in the meantime, he would coordinate the works as directed by the Tribunal.

48. [72]

    Fourth, only Michael Kuehn, and not Jennifer Kuehn, is referred to. He is to receive the payment. He is said to have certainty. Only his cooperation is expected.

49. [73]

    Counsel next said:

50. [74]

    The Senior Member then raised the significant but obvious issue that the building contract was with both the Kuehns and that the land was in both their names but Mr Kuehn was the only applicant. The Senior Member suggested that this was something that particularly needed to be thought about. Counsel responded:

51. [75]

    The following exchange then occurred:

52. [76]

    These exchanges point strongly (if not decisively) against an immediately binding agreement because:

    1. (1)

       Jennifer Kuehn was not a party to the supposed agreement but her joining in it was essential and was expected;

    2. (2)

       Jennifer Kuehn was not a party to the proceedings but needed to be if finality to the litigation was to be brought about by orders of NCAT;

    3. (3)

       there was no consensus to which Jennifer Kuehn was party as to how these lacunae were to be filled;

    4. (4)

       the position of Jennifer Kuehn was one of the range of issues with which they ‘were going to entertain’ the Senior Member. Apparently, Masterton was going to take the point.

53. [77]

    Discussion then turned to the next court listing. The Senior Member sought clarification that this was ‘purely for the purposes if it all falls over [of] getting a hearing date,’ to which the response was, ‘Yes.’

54. [78]

    The Senior Member said:

55. [79]

    Counsel then sought the agreement of Counsel appearing for Mr Kuehn. The following exchange took place:

56. [80]

    Ms Glover’s assent, of course, rose no higher than that to which she assented.

57. [81]

    The final substantive exchange between the Senior Member and Counsel was:

58. [82]

    The following utterances by the Senior Member, read in the context that no one present demurred to anything he said, are corrosive of the suggestion of an immediately binding arrangement: the Senior Member’s expression ‘if and when you get this done…’; his request for clarification for a further hearing day, which was assented to by Counsel, was on the assumption that it would be required ‘if it all falls over’ and would not be required ‘if all resolves’; his references to ‘settlement in principle,’ praying that ‘this will work,’ [if] ‘it will resolve favourably in the final form’ and to a further hearing ‘if it doesn’t work.’

59. [83]

    Masterton argued that its subsequent conduct was reflective of its intention and understanding that the parties were immediately bound in that it provided certificates under cover of a letter which referred to the agreement reached on Monday, 29 July 2019 and tried to make arrangements to do the work. The provision of the certificates was a minor matter as it already had them. The reference to the agreement reached may be given some weight, although on any view there was agreement, it was just not binding and it was not with Jennifer Kuehn. The attempt to make arrangements to commence the work is consistent equally with an expectation that whilst there was not yet final agreement, there would be. That this was the expectation is supported by Brian Frauenfelder’s letter of 27 August 2019 which referred to it being agreed that a deed would be prepared and signed which was currently being organised and that in the meantime, he would be coordinating all of the appropriate remedial works as directed by the Tribunal. Also, it is to be remembered that the work was to correct defects in Masterton’s construction.

60. [84]

    As to subsequent conduct, more important, to my mind, is the fact that terms in the deed proffered by Masterton are inconsistent with the intention which it says the parties had and, in some respects, not in accordance with what it alleges was agreed.

61. [85]

    Added to what has been said earlier (including that clause 2.6 is inconsistent with what was recorded on the transcript), the following observations may be made:

    1. (1)

       Recital K refers to the parties having on 29 July 2019 agreed to settle the dispute between them ‘in terms set out in this Deed.’ The draft deed, however, contains the following provisions (which cannot fairly be described as immaterial) which had not been agreed (at all, let alone by Jennifer Kuehn): clauses 2.6, 2.12, 3.1, 3.2 and 6;

    2. (2)

       Recital L contains an acknowledgement that the parties had taken advice and had regard to the risks and costs of the dispute and proceedings. Reference to this acknowledgement cannot be found on the transcript;

    3. (3)

       Clause 2.5 makes no provision for the review and certifications referred to in Items No. 4 and No. 5 of attachment 1;

    4. (4)

       Clause 2.12, to which there is no reference to be found on the transcript, is protective only of Masterton;

    5. (5)

       Clause 3.1 contains a release in wide terms which cannot be found on the transcript and takes effect only upon exchange of the deed;

    6. (6)

       Clause 3.2 requires Michael and Jennifer Kuehn to file a notice of discontinuance, which would require Jennifer Kuehn to be a party to the proceedings, and a vacation of any extant orders for costs. No reference to this is to be found on the transcript;

    7. (7)

       Clause 6 imposes confidentiality. No reference to this is to be found on the transcript. This provision was plainly important to, and in the interests of, Masterton rather than Michael Kuehn, given that the matter concerned complaints about Masterton’s workmanship. The subsequent attempted imposition of confidentiality is inconsistent with the existence of a binding agreement the terms of which had supposedly been reflected on the transcript of a hearing in open court.

62. [86]

    In summary, the following objective factors, in no particular order of precedence, point against an immediately binding agreement and heavily outweigh those pointing in the opposite direction:

    1. (1)

       omission of Jennifer Kuehn from the arrangement;

    2. (2)

       absence of any articulation of agreement as to how Jennifer Kuehn would become a party to the alleged settlement;

    3. (3)

       express contemplation that a deed would be signed;

    4. (4)

       contemplation that further terms had to be agreed and embodied in the deed;

    5. (5)

       omission from the terms articulated of matters of importance, including procedures for review of the certification of the slab and Jennifer Kuehn’s position in relation to the proceedings;

    6. (6)

       articulation of obligations, especially Masterton’s payment obligations, performance of which was dependant on the execution of the deed;

    7. (7)

       lack of precision in the articulation of the terms of the agreement, including the nature of additional terms that were to be included and the entitlement on the part of the Kuehns to use material relied upon with respect to the slab;

    8. (8)

       statements made by the Senior Member inconsistent with immediate bindingness to which no one present demurred;

    9. (9)

       adjournment of the proceedings for a further hearing on the merits if the matter did not resolve;

    10. (10)

        subsequent conduct, in particular the proffering of the draft deed containing terms inconsistent with immediate bindingness of what was articulated on 29 July 2019.

63. [87]

    Pursuant to s 73(1) of the Civil Procedure Act 2005 (NSW), I determine that the proceedings between the plaintiffs and the first defendant have not been compromised or settled between them.

64. [88]

    The proceedings against the second, third and fourth defendants are dismissed.

65. [89]

    I will hear the parties on costs (if this is necessary) and as to the further conduct of the matter, including whether the proceedings should be transferred to NCAT or the District Court.

66. [90]

    I will stand the matter over to 21 August 2020 to enable short minutes to be brought in and to deal with any issues that remain to be determined. Any party which wished to make a submission on costs or as to the forum for the future conduct of the matter should provide a brief outline of no more than 3 pages to my Associate by 19 August 2020.