As reported in our casenote, the High Court of Australia has recently ruled on the limited availability of a claim in restitution, following termination of a contract to which the Domestic Building Contracts Act 1995 (Vic) applied.

We are yet to see the implications for oral variations performed by NSW residential builders in Court and Tribunal decisions. However, we can speculate about those implications based on the wording of similar provisions in the Home Building Act 1989 (NSW) (the Home Building Act) and previous decisions in NSW.

In our view, the recent High Court decision in Mann v Paterson may mean that head contractors in NSW residential building projects, have no legally enforceable right to payment for oral variations, either under the contract, as damages, or in restitution.

Oral Variations

In NSW the Home Building Act requires that all head contracts to do residential building works of more than $20,000 in value, must:

  1. be in writing and have a sufficient description of the work to which it relates[1]; and
  2. include the following mandatory terms[2]:
    1. All plans and specifications for work to be done under this contract, including any variations to those plans and specifications, are taken to form part of this contract.
    2. Any agreement to vary this contract, or to vary the plans and specifications for work to be done under this contract, must be in writing signed by or on behalf of each party to this contract.

Notwithstanding the statutory requirement for variations to be in writing and signed by each party, it is still common in the industry for variations to be agreed orally and performed without written confirmation.

In 2011, the NSW Court of Appeal confirmed in Wright v Foresight Constructions Pty Ltd[3] that an oral variation of a residential building contract is a contract not in writing, in contravention of the Home Building Act and therefore unenforceable by the builder under section 10 of the Home Building Act (s.10).

s.10 provides:

  1. A person who contracts to do any residential building work, or any specialist work, and who so contracts:
    1. in contravention of section 4 (Unlicensed contracting), or
    2. under a contract to which the requirements of section 7 apply that is not in writing or that does not have sufficient description of the work to which it relates (not being a contract entered into in the circumstances described in section 6 (2)), or
    3. in contravention of any other provision of this Act or the regulations that is prescribed for the purposes of this paragraph,

is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person.

  1. This section does not affect the liability of the person for an offence against a provision of or made under this or any other Act.

In the past, head contractors in those circumstances have argued for restitution of the reasonable cost of the variation works performed, or a non-contractual quantum meruit[4].

Mann v Paterson

In Mann v Paterson, the High Court decided that section 38 of the Domestic Building Contracts Act 1995 (Vic) (s.38), which also requires the details of variations to be confirmed in writing between the parties, excluded the availability of restitutionary relief for variations implemented otherwise than in accordance with that section.

s.38(6) relevantly provides:

A builder is not entitled to recover any money in respect of a variation asked for by a building owner unless—

  1. the builder has complied with this section; or
  2. VCAT is satisfied—
    1. that there are exceptional circumstances or that the builder would suffer a significant or exceptional hardship by the operation of paragraph (a); and
    2. that it would not be unfair to the building owner for the builder to recover the money.

In relation to that section, a majority of the High Court held at [158] to [160][5]:

By their text, context and purpose, ss 37 and 38 reflect a legislative intent to cover the field of the remuneration payable to builders for work and labour done in response to requested variations under major domestic building contracts. To permit any alternative form of recovery for work under such a variation – whether contractual or restitutionary and including pursuant to s 16 or s 53 – would have the effect of frustrating or defeating, or at least operating inconsistently with, that intent.

… Although, as the respondent contended, it requires a clear indication of intent to conclude that legislation abrogates common law rights, with the required clarity increasing the more that the rights are “fundamental” or “important”, the indications here are sufficient to abrogate any contractual or restitutionary rights. The prohibition applies in terms to recovery of any money “in respect of” a variation. That is an expression of wide connotation, which, in the context in which it appears, should be taken to mean what it says. It prohibits the recovery of any money, and that means the recovery of any money whether under contract or in restitution.

Upon the proper construction of these provisions, they exclude the availability of restitutionary relief for variations implemented otherwise than in accordance with s 38.”

The statutory language relied upon by their Honours in reaching that decision is similar to that used in section 10 of the Home Building Act in NSW, providing that a builder:

is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract …”

(emphasis added)

Conclusion

The application of the High Court’s reasoning in Mann v Paterson to section 10 of the Home Building Act in NSW could have a significant impact on payment for oral variations.

If the NSW decisions find that the language of section 10 of the Home Building Act does not ‘cover the field’ to the same extent as the Victorian legislation, then restitution may still be available to residential builders in NSW seeking to enforce payment for oral variations.

However, it is possible that following Mann v Paterson the exclusion of “any other remedy” in section 10 of the Home Building Act, will also render an oral variation unenforceable, either as contractual damages or restitution, under the Home Building Act in NSW.

If correct, this would mean that for oral variations in NSW residential building projects:

  • An oral contract or variation still exists between the owner and the head contractor that is enforceable by the owner i.e. the head contractor is still obliged to perform the variation work (subject to any other express contractual rights)[6];
  • The owner can still sue the head contractor for damages arising from any breach of statutory warranty in relation to the variation works;
  • But the head contractor would have no legal right to enforce payment, either as contractual damages or in quantum meruit.

It may be small comfort to head contractors in these circumstances in NSW, however, the previous caselaw indicates that a head contractor who has performed works under an oral variation:

  • Can rely upon the oral contract and the completed works in defence of claims by the owner[7]; and
  • May even be able to rely upon the owner’s failure to pay for the oral variation works as a default which gives the head contractor a right to suspend works[8].

Following Mann v Paterson it is critical that head contractors on residential projects in NSW record oral variations in writing to be certain of a legal right to enforce payment.

 


[1] Section 7.
[2] Section 7E and Schedule 2, Part 1, clause 1.
[3] [2011] NSWCA 327.
[4] Pavey & Matthews v Paul [1987] HCA 5.
[5] Nettle, Gordon & Edelman at [158] to 160], with Justice Gageler agreeing at [58] to [61]. Kiefel CJ, Bell and Keane JJ found it unnecessary to decide the issue at [2] to [4].
[6] Wright v Foresight Constructions Pty Ltd [2011] NSWCA 327 per Giles JA at [7] to [10], per Basten JA at [44] to [50], per Handley AJA at [57] to [60].
[7] Wright v Foresight Constructions Pty Ltd [2011] NSWCA 327.
[8] Ultra Developments Pty Ltd v Alison Bennett [2014] NSWCATCD 61.

 

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.