Stepanoski v Aslan

The plaintiffs, Mr Tony Stepanoski and Mrs Sonja Stepanoski, claim damages from the defendant, Mr Jamal Aslan, for alleged breaches of a building contract for the construction of two residences on land owned by Mr and Mrs Stepanoski in Fullers Road, Chatswood. The first question in the proceedings concerns the terms of the building contract that was made between them. The parties have requested that the Court reach a conclusion as to that question before embarking on the resolution of the other questions raised in the proceedings.

It is common ground that, on 14 October 2014, Mr and Mrs Stepanoski, as “Owner”, and Mr Aslan, as “Builder”, signed a form of contract described as “Head Contract Cost Plus (Residential)” (the Cost Plus Contract). It is also common ground that at some time after 14 October 2014, Mr and Mrs Stepanoski, as “Owners”, and Mr Aslan, as “Contractor”, signed another form of contract described as "Home Building Contract for Work over $5,000” in a form published by NSW Fair Trading, an instrumentality of the Government for New South Wales (the Lump Sum Contract). The Lump Sum Contract bears the date 14 October 2014. Mr and Mrs Stepanoski claim that it was signed on 17 October 2014. Mr Aslan, however, claims that it was signed on 11 January 2015 or 12 January 2015.

The first question concerns the extent to which the Lump Sum Contract was intended to replace the Cost Plus Contract. Considerable time has been occupied litigating that question. Initially, Mr Aslan contended that the Lump Sum Contract was not intended to replace the Cost Plus Contract to any extent and that it was, in effect, no more than a sham. He asserted that the Lump Sum Contract was brought into existence solely to enable Mr and Mrs Stepanoski to represent to Macquarie Bank Limited (Macquarie Bank) that they had a contract with a builder for a fixed sum, a requirement specified in a loan approval given to Mr and Mrs Stepanoski by Macquarie Bank.

In the course of oral addresses after all of the lay evidence had been completed, Mr Aslan's position changed. He now accepts that the Lump Sum Contract was intended to replace the Cost Plus Contract with effect from the time it was signed, which he maintains was on 12 January 2015, but that the work that had been done prior to signing the Lump Sum Contract was to be charged for in accordance with the Cost Plus Contract. He was therefore given leave to amend his Response and Cross-Claim to assert that:

Thus, Mr Aslan asserts that an oral agreement was made that qualified the written arrangements between the parties. No particulars have been furnished as to when and where any such oral agreement was made. The most that counsel for Mr Aslan was able to point to as to the evidence of any such agreement were answers given by Mr Stepanoski in cross-examination and evidence-in-chief given by Mr Aslan.

Thus, it was “suggested” to Mr Stepanoski that the Lump Sum Contract was produced and signed by him and Mrs Stepanoski sometime after 11 January 2015 for “the purposes of obtaining funding” from Macquarie Bank and that was its only purpose. Mr Stepanoski responded “yeah”. It was then "suggested" to him that he knew all the time that the actual agreement that he had with Mr Aslan was the Cost Plus Contract dated 14 October 2014. Mr Stepanoski responded “both incorrect”.

As will become apparent, the Lump Sum Contract was indeed signed to ensure that Mr and Mrs Stepanoski could obtain funding from Macquarie Bank. That, however, says nothing about whether the quite inconsistent Cost Plus Contract was intended to remain binding in some way.

In evidence-in-chief, Mr Aslan said that in January 2015 he received a telephone call from Mr Mirko Stojanovic, who was the finance broker for Mr and Mrs Stepanoski. He said that Mr Stojanovic told him that the Bank was “not recognising” the Cost Plus Contract that Mr Aslan had signed with Mr and Mrs Stepanoski in October. Mr Aslan said that his response to Mr Stojanovic was as follows:

Mr Aslan was then asked, without objection, to explain what he had meant by referring to an “oral contract”. His response was as follows:

Mr Aslan then asserted that the Lump Sum Contract was signed on 11 January 2015. He asserted that Mr Stojanovic told him that the Lump Sum Contract should be backdated otherwise Macquarie Bank “would not recognise that a contract had been signed prior to the expiry date for the loan”. Mr Aslan asserted that he replied:

There is no evidence that Mr Stepanoski or Mrs Stepanoski had any knowledge of any of those alleged conversations between Mr Aslan and Mr Stojanovic. It was not put to either of them in cross-examination that they had knowledge of any such statement by Mr Stojanovic.

Mr Aslan also gave evidence-in-chief that he telephoned Mr Stepanoski straight after Mr Stojanovic had called him and said:

In the light of that exchange, it is not possible to conclude that there was an agreement in the terms alleged by Mr Aslan in his Response. That is to say, assuming that the above evidence is accepted at face value, it is not possible to find any agreement that the Cost Plus Contract was to remain binding on the parties in any way. It may be that Mr Aslan was not happy about changing the arrangements. Nevertheless, the arrangements were changed in a critical respect by signing the Lump Sum Contract. I do not consider that an exchange such as that just outlined can lead to a conclusion that the parties did not intend to be bound by the Lump Sum Contract, with effect from the date that it bears, namely, 14 October 2014, irrespective of when it was signed. Nothing in that evidence is capable of supporting a conclusion that any lump sum contract that might be signed would not replace the Cost Plus Contract.

Oral evidence in chief was given by Mr and Mrs Stepanoski, and by Mr Aslan, each of whom was cross examined at some length. The initial period in November 2017 that had been fixed for the trial was inadequate and it was not possible to resume the hearing until May 2018. Evidence-in-chief and cross-examination of Mrs Stepanoski and examination-in-chief of Mr Stepanoski were completed some six months before the cross-examination of Mr Stepanoski and examination-in-chief and cross-examination of Mr Aslan. The oral evidence related to events that had occurred more than three years previously and, unsurprisingly, the recollections of the witnesses were clearly faulty in some respects.

I do not regard any of the three witnesses as especially reliable although I do not consider that any of them was consciously dishonest. Mrs Stepanoski gave the impression of endeavouring to give honest evidence but may have lacked full comprehension of some of the issues. Mr Stepanoski was blunt and short in his evidence and accepted from time-to-time that he may have been confused. Mr Aslan was extremely voluble in his evidence and persisted in making comments well beyond a reasonable answer to the questions put to him. Indeed, at one stage, it was necessary to adjourn briefly to enable Mr Aslan to recover his composure when under cross-examination. Having regard to my reservations concerning the reliability of the oral evidence, I consider that the resolution of the question as to the terms of the contract must depend to a great extent upon the contemporaneous material.

By no later than the end of July 2013, Project Tourism International Architecture Pty Ltd (PTI) had provided Mr and Mrs Stepanoski with documents relating to the proposed building. The documents included the following:

Clause A1.3(a) of the Specification relevantly stated as follows:

On 15 May 2014, Macquarie Bank wrote to Mr Stepanoski advising that his application for a loan in the sum of $1,080,000 had been approved for construction costs of $1,145,000. The letter indicated that updated information would be required for reassessment of the loan if settlement did not occur on or prior to 31 July 2014. A second letter in similar terms was written on 17 June 2014 except that the loan settlement was to occur on or prior to 16 September 2014.

A drawdown checklist attached to the letter of 17 June 2014 specified the supporting documentation that would be required before the first drawdown, including:

At some time, copies of the Specification, the Construction Drawings and the approval letters from Macquarie Bank were provided to Mr Aslan. While it is not entirely clear when Mr Aslan received documents, he had the Specification and the Construction Drawings no later than 27 September 2014.

Mr Aslan provided to Mr and Mrs Stepanoski a document entitled “Preliminary Construction Budget”, which was prepared no later than 23 August 2014. In his computer, Mr Aslan described the document as “Preliminary quote”. The Preliminary Construction Budget showed round figures for various items giving a total cost of $906,371. Item 26 in the Preliminary Construction Budget showed “Finishes, provisional and prime cost” in the sum of $100,000. A “project management and builder margin” $181,074.20, being 20%, was added to give a total figure of $1,087,645.20. An amount of 10% for goods and services tax (GST) was added to give a total, including GST, of $1,196,409.72.

On 29 September 2014, Mr Aslan sent to Mr Stepanoski an email attaching a document that he described as “my building quote as discussed”, which he said Mr Stepanoski could provide to Macquarie Bank. The email also said that “as we made it for $980K, you'll see I've shown some exclusion”. The document attached to the email was dated 27 September 2014 and entitled “Cost Plus Contract Building Quotation” (the September Quotation). The September Quotation relevantly said:

Mr Aslan subsequently provided a further document dated 10 October 2014, which was also entitled “Cost Plus Contract Building Quotation” (the October Quotation). The October Quotation contained the same preliminary material as September Quotation, except that the total construction cost was $1,080,000 rather than $980,000. It contained the same headings as the September Quotation, although the details of the items under the headings differed from those in the September Quotation. A document described as “Construction Budget”, which showed a total of $1,080,000.24, was attached to the October Quotation. The items differed from the items shown in the “Construction Budget” attached to the September Quotation.

The Cost Plus Contract that was signed on 14 October 2014 contained a page headed “Warning”, which stated that “the contract sum or the amount to be paid by the Owner” was not known as at the date of the contract. That page stated that the amount of money payable to the Builder by the Owner was dependent upon the costs incurred by or payable by the Builder in carrying out work under the contract. It also stated that the estimated cost of works and fees and GST, pursuant to “Schedule 1 Parts A and B”, was $1,080,000. The page then stated as follows:

The operative part of the Cost Plus Contract relevantly provided as follows:

Part A of Schedule 1 dealt with the cost of works that were payable by the Owner or at the direction of the Builder. Part B dealt with fees. Schedule 2 included an item “Construction funding” and specified the following as the source of finance:

The Cost Plus Contract included printed “Conditions of Contract” and “NSW Fair Trading Consumer Building Guide”. A copy of the October Quotation was attached to the Cost Plus Contract, which also identified the “Contract Drawings” and “Specification” as having been prepared by PTI.

Mr Aslan gave Mr and Mrs Stepanoski a tax invoice dated 14 October 2014 for $54,000, which was said to be for the deposit of 5% of the contract value. That amount was subsequently paid by Mr and Mrs Stepanoski by two separate payments of $51,500 and $2,500.

On 16 October 2014, two Home Warranty Insurance Certificates were issued to Mr and Mrs Stepanoski by QBE Insurance (Australia) Limited (QBE). Each of the Certificates related to work to be carried out by Mr Aslan for a declared contract price of $540,000 under a contract dated 14 October 2014. Thus, the two certificates together amounted to $1,080,000, which was the contract sum specified in the Lump Sum Contract. There was no explanation for the issuing of two certificates rather than a single certificate.

As I have said, the Lump Sum Contract bears the date 14 October 2014, although it is common ground that it was not signed on that day. The Lump Sum Contract specifies a contract price of $1,080,000 and identified the Specification and the Construction Drawings prepared by PTI. It also refers to a Certificate of Home Warranty Insurance issued by QBE on 16 October 2014.

Clause 12 of the Lump Sum Contract set out a schedule of progress payments as follows:

On 24 October 2014, Mr Aslan gave to Mr and Mrs Stepanoski formal notice of commencement of the building works, the certifying authority being Urban City Consulting. It is common ground that work began at the Fullers Road site at about that time.

On 27 November 2014, Mr Aslan sent an email to Mr Stepanoski attaching project expenses for the period 7 October 2014 to 28 November 2014, which specified total project expenses for the period of $98,858.12 and stated that the balance then due was $32,763.84. The email said that, as at 28 November 2014, Mr Aslan needed “the balance as cash flow to cover project construction expenses and wages, taxes, etc to 28/11/14”. The email said that the cash flow injection was critical “in order to continue momentum and carry us through to next week until the construction loan first drawdown comes through”.

The email of 27 November 2014 then said that Mr Aslan would be “putting the first progress claim" by this weekend and that Mr Stepanoski should submit that to Macquarie Bank “on Monday”, which was 28 November 2015. Finally, the email said that the progress payment should be substantial to cover the programme works for the following month with “the expenditure expected to be substantial”. A “Project Expenditure Summary” attached to the email showed some nine items, together with “project management and builder margin”.

On 28 November 2014, Mr and Mrs Stepanoski paid $45,000 to Mr Aslan. That payment appears to be in response to the email of 27 November 2014.

On 17 December 2014, Mr Aslan sent an email to Mr Stepanoski attaching a “Progress Claims Certificate” dated 15 December 2014, which was described as “Progress Claim No: 1”. The claim was for $216,000 and the Certificate stated that the contract price was $1,080,000 and that the amount previously received $54,000. That appears to ignore the payment of $45,000 made on 28 November 2014. Attached to the Progress Claims Certificate was an amended tax invoice also dated 15 December 2014 showing 17 items, without amounts for any of the items, with a net value of $196,363.64 and GST of $19,636.36, making a total invoice value of $216,000, which was said to be payable on 19 December 2014.

It is significant that Progress Claim No 1 mentions the lump sum specified in the Lump Sum Contract and is for the amount payable for the first stage as specified in the Lump Sum Contract. There is no identification of any amount actually spent or expended by Mr Aslan in the work done up to 15 December 2014. It would be curious, if the Lump Sum Contract was not in fact signed until January, as Mr Aslan asserts, that Progress Claim No 1 refers to the amounts specified in the Lump Sum Contract. While the tax invoice is headed “Cost Plus Building Contract Value $1,080,000”, it is also curious that it mentions the amount of the lump sum. A cost plus contract would not need a reference to a “Contract Value”.

Also attached to the email of 17 December 2014 was another invoice, also dated 15 December 2014, for the sum of $270,000. The items shown in that invoice, also without amounts, were identical to the items shown in the invoice for $216,000. The email said as follows:

The complete lack of any figures against the 17 items in both versions of the tax invoice is inconsistent with there being a Cost Plus Contract on foot at that time. If the Cost Plus Contract was regarded by the parties as still being on foot as at December, one would have expected that the tax invoice would show, opposite each item, the amount of expenditure actually incurred by Mr Aslan at that time. The fact that the figure is the same as the figure for the first stage instalment and there is no particularisation of expenditure firmly suggests that, at that stage, Mr Aslan understood that the Lump Sum Contract was on foot, notwithstanding that the two versions of the tax invoice referred to “Cost Plus Building Contract Value $1,080,000”.

On 19 December 2014, Mr and Mrs Stepanoski paid a further sum of $45,000 to Mr Aslan. That appears to have been in response to the different versions of Progress Claim No 1.

Against that background, it is curious that, on Sunday 11 January 2015, Mr Aslan sent an email to Mr Stepanoski with the heading “Contract for Bank”. A copy of the email was also sent to Mr Stojanovic, the finance broker who had arranged the loan with Macquarie Bank. The email relevantly said as follows:

On 13 January 2015, Mr Aslan sent another email to Mr Stepanoski, with a copy to Mr Stojanovic, saying “Please find attached contract”. Neither of the attachments to the emails of 11 January 2015 and 13 January 2015 was specifically identified in the evidence.

On 13 January 2015, Mr and Mrs Stepanoski paid a further sum of $40,000 to Mr Aslan. That also appears to have been in response to Progress Claim No 1.

On 6 February 2015, Macquarie Bank wrote to Mr Stepanoski confirming that a construction drawdown of $216,000 had been effected on 5 February 2015. That appears to have been in response to a First Drawdown Request forwarded to Macquarie Bank.

Mr Aslan provided to Mr and Mrs Stepanoski Progress Claim No 2 dated 23 March 2015, together with a tax invoice bearing the same date. The claim was for $255,000 and showed a total contract price of $1,120,000, being contract price of $1,080,000 together with two “approved variations” totalling $40,000. The invoice acknowledged previous receipt of the sum of $270,000.

The tax invoice of 23 march 2015 showed 11 items, including “project management”, “building margins”, “overheads” and “sundry expenses” totalling $215,000. Items 12 and 13 were for variations 1 and 2 for $15,000 and $25,000 respectively. The total invoice was for $255,000, the due date being specified as 30 March 2014. As with the tax invoice attached to Progress Claim No 1, the tax invoice was headed “Cost Plus Building Contract Value $1,080,000”. A drawdown request to Macquarie Bank dated 25 March 2015 was completed by Mr and Mrs Stepanoski seeking payment of the sum of $255,000. That sum was paid by Macquarie Bank on 31 March 2015.

On 24 May 2015, Mr Aslan sent to Mr Stepanoski by email a document described in the email as “Project Expenditure Summary – 22 May 15”. The first part of the document consisted of 96 items of expenditure totalling $396,685.08 for the period 7 October 2014 to 22 May 2015. A figure of $120,000 for “project management and builder margin” and a further figure $10,000 for “contingency” were added, giving a total of $526,685.08. Then followed a “Payments Summary” showing total payments of $667,094.28. That included the payments made by Mr and Mrs Stepanoski and by Macquarie Bank, in addition to a sum of $12,094.28 paid on 15 October 2014 in respect of the Home Owners Warranty Insurance Certificates issued by QBE.

The amount of “project expenditure” to 2 May 2015 of $526,685.08 was deducted from the “total paid” of $667,094.28 to give “available funds” as at 2 May 2015 of $140,409.20. That is a somewhat peculiar statement for a Cost Plus Contract. Mr Aslan accepted that the document showed that a sum in excess of $140,000 had been paid to him over and above the amount actually expended by him as at that time. Such an arrangement is entirely inconsistent with a Cost Plus Contract but is perfectly consistent with a Lump Sum Contract, if the works appropriate for relevant stages had been completed.

The “Project Expenditure Summary” also contained a part entitled “Forecast Expenses May / June 15 (Cash Flow Progress Claim 3 Required)”. The total shown was $187,250, although there were two items with blank spaces to be confirmed. Next followed a part entitled “Forecast Expenses June / July 15 (Cash Flow Progress Claim 4 Required)” showing “approx cash flow required” of $250,000. The majority of the items were blank.

Mr Aslan then produced Progress Claim No 3 bearing the date 5 June 2015. Progress Claim No 3 showed a total contract price of $1,134,000, being contract price of $1,080,000 and approved variations 1, 2 and 3, totalling $54,000. The tax invoice attached was for 11 items totalling $200,000 plus variation 3 totalling $14,000. The total invoice value was $214,000, which was said to be due on 12 June 2015. The invoice was headed “Lump Sum Building Contract Value $1,080,000 and was stated to be for the “third stage of work including variations”.

On 10 June 2015, Mr Aslan sent to Mr Stepanoski a “Notice of Ceasing Building Works”. It was stated to relate to “Project: Lump Sum Building Contract" and referred to advice of the intention of Mr and Mrs Stepanoski to withhold payment and refuse to pay the invoice relating to Progress Claim Certificate No 3 sent on 8 June 2013 (which was clearly intended to be 2015). The Notice said that Mr Aslan would cease construction work at 7am on 11 June 2015.

On 12 June 2015, a drawdown request for $214,000 was signed by Mr and Mrs Stepanoski and, on 29 June 2015, Macquarie Bank paid the sum of $200,000. That is to say, the amount for variation 3 was not paid by Macquarie Bank, although variation 1 and variation 2 had been paid by Macquarie Bank on Progress Claim No 2. Mr Aslan then resumed work.

On 13 June 2015, Mr Stepanoski sent an email to Mr Aslan saying that he would like to view “all receipts ASAP”. Of course, if the contract was a lump sum contract, he would not be entitled to such information. However, Mr Aslan responded by email on the same day saying “Your contract is LUMP SUM. I don't have to show you nothing. You have seen them several times before and you have cost update and forecast for June and July 15”.

On 9 September 2015 and 10 September 2015, Mrs Stepanoski sent emails to Mr Aslan, as well as to other contractors involved in the work. In the first email, Mrs Stepanoski said, amongst various other things, the following:

In the second email, Mrs Stepanoski said, amongst other things, the following:

On 14 September 2015, Mr Aslan sent an email attaching Progress Claim No 4 for $214,000, together with a tax invoice, both of which were dated 9 September 2015. Progress Claim No 4 showed a contract price of $1,080,000, together with approved variations of $54,000, giving a total contract price of $1,134,000. The claim stated that $725,000 had been previously received. The tax invoice was headed:

On 14 September 2015, Mr Stepanoski sent an email in relation to Progress Claim No 4, relevantly saying as follows:

A drawdown request addressed to Macquarie Bank, seeking a payment of $214,000, was attached to the email of 14 September 2015. The drawdown request was signed by Mr and Mrs Stepanoski on 20 September 2015 and submitted to Macquarie Bank. On 2 October 2015, Macquarie Bank paid the sum of $200,000, being the amount of the claim less the amount for variation 3.

On 21 September 2015, Mr Aslan sent an email attaching a notice of ceasing building works dated 18 September 2015. The notice was headed “Project: Lump Sum Building Contract” and said that construction work had ceased as at 7am on 16 September 2015 “in accordance with the terms and conditions of your Lump Sum Building Contract”. The reasons given in the notice were:

The notice of ceasing building works stated that construction work would not recommence until Progress Claim No 4 had been paid and Mr and Mrs Stepanoski had given a written commitment to pay for all contract works variations and to continue to fund the project either through private funding or through bank funding. The notice also sought an undertaking to withdraw false accusations and to cease sending offensive and abusive text messages. The notice ended by saying:

On 30 September 2015, the Council wrote to Mr and Mrs Stepanoski giving notice of determination of an application under s 96 to modify their development consent. The modified consent was to operate from 30 September 2015. The application for modification had been lodged by Mr Aslan.

At some time shortly after 31 October 2015, Mr Aslan submitted Progress Claim No 5 to Mr and Mrs Stepanoski. The claim was for $48,545.72, the details of which were shown in a “Building Contract Variations Claim” of 31 October 2015 headed:

The Progress Claim Certificate set out the following:

Also attached to Progress Claim No 5 was a second “Building Contract Variations Claim”, which was also headed “Lump Sum Building Contract Original Price $1,080,000.00”. It showed some 29 items amounting to $481,176. It then summarised the figures as follows:

The final page of the set of documents claimed $120,000 for:

The document then contained a summary of the revised contract price as follows:

No part of Progress Claim No 5 has been paid by Mr & Mrs Stepanoski. No work was done by Mr Aslan after the second notice of ceasing building works.

The Specification and the draw down documentation attached to the loan approval from Macquarie Bank were unequivocal in specifying a lump sum contract. Those documents were in Mr Aslan’s possession when the Cost Plus Contract was signed. The references to a fixed price and the references to prime cost and provisional cost items in the quotation of 10 October 2014 are all quite inconsistent with a Cost Plus Contract.

There are some minor inconsistencies in the contemporaneous material. However, it is clear that, apart from such inconsistencies, the parties regarded themselves as bound by the Lump Sum Contract. There is no basis for concluding that the Cost Plus Contract continued to bind the parties after the Lump Sum Contract was signed. It may be that the Lump Sum Contract was not signed until January 2015, although, as indicated above, the contemporaneous documents of November and December 2014 point towards the existence of the Lump Sum Contract.

I consider that, from a time no later than 12 January 2015, Mr and Mrs Stepanoski, on the one hand, and Mr Aslan, on the other, were bound by the terms of the Lump Sum Contract. The effect of signing the Lump Sum Contract was that, notwithstanding that they had previously signed the Cost Plus Contract, the Lump Sum Contract was to be binding on them thereafter, with effect from 14 October 2014. There is no basis for concluding that the parties were bound by any contractual obligation other than those contained in the Lump Sum Contract.

In the light of that conclusion, it will be necessary for the parties to formulate the further questions that remain to be resolved. They have intimated that, once my reasons for the above conclusion have been published, competing reports will be prepared as to how the remaining issues should be resolved. Whether those issues will require curial intervention or a reference out will depend upon the extent of the differences between the parties.