Further to our September 2012 article titled “Attention Tradesmen … A Few Things About Payment Claims and BSA Licencing”, a recent Supreme Court case of Allaro Homes Cairns Pty Ltd v O’Reilly & Anor [2012] QCA 286 further establishes the importance of effectively drafting your building contracts and contract variations.
In this case, Allaro Homes was unsuccessful in recovering $47,147.97 for the construction of a deck for the O’Reillys. Allaro Homes had engaged and paid subcontractors for the work completed and materials. Later in the construction, the O’Reillys took issue with various components of the work, and
didn’t pay.
The matter commenced when Allaro Homes (previously called Better Homes Queensland Pty Limited) filed a claim with the Competition and Consumer Tribunal (now called Queensland Civil and Administrative Tribunal “QCAT”) and the O’Reillys were largely successful. Allaro Homes progressed the matter to the
Appeal Tribunal. During the Appeal, the parties had agreed that they had not documented the variation pursuant to the Domestic Building Contracts Act 2000 (Qld) (“the Act”). This meant that QCAT would be required to exercise a discretionary power under the Act to decide if Allaro Homes would be entitled to recover their money.
Sections 79, 80, 81, and 82 of the Act set out the requirements for documenting a contract variation which must:-
- Be in writing, and drafted as soon as possible before any work is completed;
- Be in plain English and easy to understand;
- Set out the reasons for the variation, (if the builder is requesting the changes);
- State if there will be a delay to the original contract work, and an approximate amount of time for the delay;
- In a fixed price contract, state if there is a change to the contract price, or state how the change of contract price will be worked out;
- In a cost plus contract, states a fair and reasonable estimate of the costs associated with the variation;
- If the contract includes progress payment, the variation should also include wording to reflect the change of contract price caused by the variation; and
- Be signed by the parties as soon as possible, and a copy of the variation is to be provided to the building owner.
Section 84 of the Act talks about a builder’s right to recover money for a variation. It says that you may recover money for a variation that was requested by a building owner, only if you have complied with the requirements we have set out above, and if you do not comply with those requirements, you will be required to make an application to the Queensland Civil and Administrative Tribunal (“QCAT”) requesting that they exercise their discretion and allow you to recover the money under a noncompliant variation.
In order to make that decision QCAT will consider section 84(4) of the Act and whether there are exceptional circumstances as to why the owner should pay you the money, and if you would suffer unreasonable hardship if you aren’t paid the money, and if it would be unfair to the building owner to recover the amount.
Allaro Homes attempted to rely on assertions of the Company Director as evidence of exceptional circumstances and hardship. They said:
- That the work was done at the owner’s request and to the owner’s satisfaction;
- That there was a documented variation (although poorly drafted);
- That the variation work was done by a sub-contractor, not the builder, which cost was to be passed onto the owner; and
- That losing $50,000 would “hurt” the company.
The Appeal Tribunal held (of which Justice North upheld in the Supreme Court decision) that Allaro Homes could have better demonstrated the “exceptional circumstances” and “hardship” rather than just making assertions that the circumstances were exceptional circumstances and that of hardship.
Justice North said that consideration should be given to “the circumstances that applied that prevented compliance or explained non-compliance” with the Act, and that “circumstances such as an unanticipated event requiring work to be done urgently might, for example, afford an explanation and constitute an exceptional circumstance” for not complying with the Act. Justice North also agreed with the Appeal Tribunal’s decision in relation to unreasonable hardship, and said that Allaro Homes might have made more of an effort to demonstrate that unreasonable hardship would be suffered if the variation to the contract was not approved by the Tribunal.
Justice Holmes also added that Allaro Homes would have been entitled to recover to a quantum meruit basis (which means recovering an amount in partial fulfilment of a contract). Justice Holmes went on to say that the facts which were relied on by Allaro Homes, and which would have been relevant on a quantum meruit claim, were considered by the Tribunal in arriving at its contrary conclusion. And, that “the further circumstance that they might have founded a successful quantum meruit claim was irrelevant to the interpretation or application of the statutory tests of exceptional circumstances and unreasonable hardship”.
This case reminds us of the importance of complying with the legislation, otherwise you might incur additional costs in applying to QCAT to recover your money.
If you are not sure if you are meeting the requirements of the Act, contact us today for more information.
