Kyren Pty Ltd v Built Projects Pty Ltd

[2006] SASC 204

Judgment of The Honourable Justice Layton

11 July 2006

Magistrates Appeal

1    LAYTON J: This is an appeal against the decision of a Magistrate giving judgment in favour of the plaintiff company (respondent), Built Projects Pty Ltd, (“Built Projects”), against the defendant company (appellant), Kyren Pty Ltd (“Kyren”) for, amongst other things, unpaid invoices. The dispute arises against the background of the construction of a 10-storey apartment building on Frome Road, Adelaide (“the apartment building”). Kyren was responsible for arranging all building contractors and sub-contractors in the construction of the building. Kyren engaged Built Projects, a building contractor, as a project manager to arrange contractors, materials and labour to undertake certain works on the building. The appeal raises questions regarding the characterisation of an agreement between the two parties as an estimate or a fixed quote; whether Built Projects breached the agreement by not completing the work; and whether a set-off applies such that the appellant was entitled to monies spent in engaging a third party to complete the unfinished work.
2    By notice of appeal dated 27 February 2006, the appellant Kyren appeals against the whole of the Magistrate’s order giving judgment of $22,604.42 in favour of the plaintiff, awarding the plaintiff its costs to be agreed or taxed, together with an uplift order pursuant to r 53 of the Magistrate’s Court (Civil) Rules 1992.

Background to the Dispute

3    This dispute arises out of an arrangement reached between Mr Theodore Samaras, an agent and spokesperson for Kyren, and Mr John Henderson an agent and spokesperson for Built Projects, for certain works to be done on the apartment building.
4    In August 2004, Mr Samaras spoke with Mr Henderson regarding the possibility of Built Projects being engaged to carry out work on the top floor apartments. After discussions between the parties and a site visit to the building, some initial estimates were given by Mr Henderson regarding the possibility of fitting out the level eight apartments; including steel fixing of walls, ceilings and plastic wood linings. There were also discussions about the role of Built Projects to manage the ordering and delivery of material as well as to arrange for subcontractors and other labour. Built Projects was to be paid a commission of 20 per cent on all labour and material costs. This commission reflected the higher than usual charges for labour required to attract workers in a very tight labour market; to ensure an early completion time; and to obtain high quality work.
5    On 6 September 2004, Mr Samaras contacted Mr Henderson by facsimile and indicated that there would be a change in the scope of the works to be undertaken by Built Projects. Mr Samaras advised that Built Projects would no longer work on the penthouse apartments on level eight, but instead would do work on the balconies of levels five, six, seven and eight of the building. Mr Henderson subsequently prepared a fresh “estimate”, detailing the materials and labour to reflect the changes. Specifically Built Projects was to “supply labour and consumables for the installation of the balcony ceilings, levels 5, 6, 7 and 8”.
6    The facsimile from Mr Henderson to Mr Samaras dated 7 September 2005, read:

Dear Sir,
Further to our meeting yesterday I have listed below cost for your approval our estimate of material and labour to carry out the said works.

The document then set out the details of materials to be used, including the quantities, price per unit, and delivery costs; and gave a total cost for materials and delivery. It then set out the itemised and total labour that would be involved in the work, including the price per metre square. A summary of the amounts and total costs for balcony ceilings was given as “$76615-00”, including a reference to the agreed fee of 20 per cent. The facsimile continued:

As agreed we can either purchase the materials on your behalf or Ceilings 2000 can supply but our fee percentage will apply to which way your [sic] go.
To confirm our agreement can you please Sign [sic] below and fax back ASAP…

7    Mr  Samaras subsequently signed the acceptance section at the end of the facsimile on 7 September 2004. Sub-contractors, including Mr Peter Westmoreland and his brother Mr Mark Westmoreland were then arranged by Mr Henderson to begin the contemplated works. Other work was also arranged to be done on the apartments on level five, that being plasterboard by a sub-contractor Mr Alan Jackson and steel framing by MIT Ceilings. The payment arrangement was that the sub-contractors would furnish invoices, which Built Projects would check, and then Kyren would pay the invoices. Built Projects would then lodge with Kyren its own tax invoices, adding 20 per cent for labour and materials. This arrangement continued until the end of 2004, when problems began to arise.
8    The first problem arose because there were a number of unpaid invoices payable by Kyren for, amongst other things, sub-contractors, orders for materials and the commission of 20 per cent. These unpaid invoices amounted to $22,604.42. Secondly, the arrangement between the parties began to fall apart, because, as the Magistrate found:

Henderson could not secure sub-contractors to do three components of the work that were referred to [in] the final, accepted estimate of Built Projects dated 7 September 2004…In sum, those three amounts came to $21,156. Despite Built Projects’ best endeavours these works could not and did not proceed and that was in spite of Built Projects approaching several lots of relevant sub-contractors. Because this work could not and did not proceed, in the wash-up that sum of $21,156 was not charged and never appeared as part of any invoices for works carried out by Built Projects. Putting the matter another way, that sum never attracted at any time the 20% commission which was being sought by the plaintiff.

In summary, Mr Henderson attempted unsuccessfully to engage over eight contractors to do three components of the work; namely, the fixing of the Villaboard, being a waterproof equivalent of plasterboard, the fixing of P50, being a trim similar to a cornice, and the installation of controlled joints in the balcony. These three components of labour totalled $21,156.

9    After these problems arose, Mr Peter Westmoreland sought to finalise with Mr Samaras what the next step would be, considering the three components of the work could not be done. Mr Henderson, in giving evidence before the Magistrate, indicated that Mr Samaras said that he would supply the materials to Mr Westmoreland as there were some left over materials on site from the existing contractor, Ceilings 2000. After two occasions of arriving on site without the materials being there, Mr Westmoreland attempted unsuccessfully to contact Mr Samaras.
10    Built Projects then sought to recover money for the unpaid invoices and claimed $20,736.42, later amended by consent to $22,604.22, as a debt due and owing for work done to the apartment building. Kyren refused to pay the balance of the unpaid invoices and in a defence dated 2 May 2005, claimed that on the basis of the 7 September 2004 quotation they had engaged Built Projects to do work and as three components remained unfinished they were “entitled to a credit in respect of the amount set out in the quote”. Kyren sought to set-off $20,264.50 being the amount claimed for the unfinished balcony work against the amount claimed by Built Projects for the unpaid invoices. Further Kyren argued that they had to engage another company to perform the remaining building work and “paid at least the amount of the credits” set out in the quote.

The Magistrate’s findings

11    In deciding in favour of Built Projects, the Magistrate essentially made three findings of which the appellant now complains.
12    First, the Magistrate found that the facsimile of 7 September 2004 was an estimate not a quote and as such the unpaid amounts claimed by Built Projects remained due and owing. In making such a finding, the Magistrate noted that the term ‘estimate’ had been used in the facsimile and that Mr Henderson had experience in the building trade and would not have allowed Built Projects to be locked into a figure, particularly given the tight time frame to complete the works and the tight labour market. Further, the Magistrate said that Mr Samaras had taken his chance and knew the risks of making such an arrangement in circumstances of pressure.
13    Second, the Magistrate found that it was not Built Projects that had “abandoned this project”. His Honour found that the reasons given by Built Projects for not proceeding with the three items were reasonable. The Magistrate found that Mr Henderson had made several unsuccessful attempts to contact Mr Samaras to clarify the situation for the supply of the materials and that ultimately Built Projects had left the site awaiting contact from Mr Samaras.
14    Third, the Magistrate found that the evidence of Mr Samaras failed to prove that Kyren had paid a third party, namely Ceilings 2000, to do the outstanding work, and the amount sought to be set-off had never been charged by Built Projects to Kyren or paid by Kyren. In the absence of invoices to prove that it had paid Ceilings 2000 and without anything more concrete than a series of “guesstimates” from Mr Samaras as to the precise figure paid to Ceilings 2000, the Magistrate held that Kyren could not claim a set off.

Grounds of appeal

15    The appellant sets out a number of appeal grounds alleging that the Magistrate erred in both fact and law. Grounds 1 to 5 argue that the Magistrate erred in certain findings of fact and Grounds 6 to 8 allege further or in the alternative that the Magistrate erred as a matter of law. At the hearing before me, the appellant indicated that Grounds 2 and 3 were no longer being pursued.
16    In relation to the hearing of this appeal, I am required to have regard to the role of an appellate court in an appeal pursuant to s 40 of the Magistrates Court Act 1991; namely, that it is by way of rehearing. The duty of the appellate court is to decide the facts, as well as the law, for itself. In so doing, I recognise that the Magistrate had the advantage of seeing and assessing the evidence of the witnesses and I also must have regard to his findings in arriving at my conclusions.[1]

Alleged errors of fact

Appeal Grounds 1 and 2 – Estimate v Fixed Quote

17    The appellant’s first argument challenges the findings made by the Magistrate at [21] – [23] of the reasons for decision, namely that the amount set out in the 7 September 2004 facsimile from Mr Henderson to Mr Samaras was an “estimate”, and that the defendant “took a risk” in its engagement of the plaintiff.
18    In summary, counsel for the appellant argued that the facsimile of 7 September 2004 was a fixed quote, and as such, Built Projects had breached its contract with Kyren when it failed to complete the three components of work. A finding that the facsimile was an estimate and not a fixed quote is fatal to the appellant’s argument that it should not be required to pay the respondent because the respondent had not completed the work, and that there should be an equitable set off against the respondent’s claim. This is because a fixed quote for certain work to be performed at a certain price is a binding contract for that amount for the completion of the entire job. However, an estimate is just that – an estimate of the cost of a particular job, to take into account the contingencies of the building trade, the termination of which would not necessarily prevent payment for work performed prior to termination.
19    Counsel for the appellant put forward four reasons why, despite the use of the word “estimate”, an inference should be drawn that the facsimile of 7 September 2004 was in fact a fixed quote.
20    The first was that as a matter of law the characterisation of the facsimile as a fixed quote or estimate should be decided on objective grounds and should not be determined by simply having regard to the subjective intention of the parties. It was submitted that the test is whether a reasonable person in the situation of the recipient of the offer would reasonably form the opinion that this was a fixed contract.[2] In this case the recipient of the offer was Mr Samaras. The appellant argued that an offer must normally be interpreted in the sense that would reasonably be understood by an ordinary person. Counsel for the appellant further contended that a reasonable person meant a person in the recipient’s position, namely Mr Samaras, and that the views expressed by Mr Samaras as to his understanding represented those of any reasonable person in his circumstances faced with delays in completion of the building and therefore fulfilled the objective test.[3]
21    A second argument was that the facsimile was very detailed and precise as it set out the exact nature of materials with prices, included a reference to labour, and was signed by both Mr Henderson and Mr Samaras. It was further argued that Mr Henderson in his evidence had agreed that the document was precise and detailed.
22    A third argument put forward was that the work required the approval of other parties including the union representatives and the site supervisor and hence it was important for the figure to be a fixed quote and not an estimate.
23    Fourth, it was said that there should not have been an inference drawn by the Magistrate that the evidence of Mr Henderson excluded a fixed quote. In particular, criticism was made of the Magistrate’s finding that it was inherently implausible for a man of Mr Henderson’s experience to have been locked into a fixed quote. Counsel for the appellant argued that this finding meant that the Magistrate wrongly considered what a reasonable person in Mr Henderson’s position would intend by the facsimile, rather than the recipient of the terms of the document, being Mr Samaras.
24    In response to these arguments the respondent contended that this was a written contract. The facsimile comprised the offer to perform the work for an estimated amount, which offer was then accepted. The word “estimate” was used throughout the facsimile. Counsel for the respondent submitted that this is a word which in its ordinary meaning is well understood and was unambiguous. Counsel submitted that there was no reason to go behind the ordinary meaning of the word by looking to extrinsic evidence which was only relevant if the words are ambiguous and need clarification. It was further submitted that, to the extent that the Magistrate appeared to have regard to extrinsic material, this was for the purpose of bolstering the Magistrate’s conclusion that it was an estimate, rather than forming the basis of his decision.
25    Having regard to these arguments, I agree with the approach taken by counsel for the respondent; that this was a written contract and the word ‘estimate’ was used in its ordinary meaning and there is no reason to go behind that. There is nothing inherently inconsistent with it being an estimate. This in my view is the manner in which a reasonable person in the situation of Mr Samaras would have interpreted the offer. The mere fact that the facsimile is detailed is not a contra-indication to it being an estimate and the reason for the detail is well explained by Mr Henderson in his evidence, namely, that it is a matter of good practice and also allows the client to know what “he was going to be up for”.
26    As to the argument that a further indication of it being an estimate was that other persons were required to give their consent, such argument in my view is unpersuasive. The evidence on this seems very doubtful bearing in mind that a number of parties purportedly were required to be approached, including union representatives. I also note that the acceptance appeared to be given on the same day as the offer was provided.
27    For these reasons, I consider that there was no error by the Magistrate in finding that this was an estimate only, and was not a fixed quote. An estimate allows some flexibility as to the amount that was subsequently charged. In my view, this is further reinforced by the fact that in relation to work for which it did pay, Kyren paid some four per cent above the amount set out in the document. This again is indicative and supportive of Mr Samaras having accepted that the document was not a fixed quote. Such an interpretation is also consistent with the evidence of Mr Henderson that it was his intention for the document to be an estimate.

Appeal Ground 5 – The termination of the Agreement

28    The second aspect of the appeal is set out in ground five, which relates to the finding by the Magistrate that “it was not the plaintiff that abandoned this project”. The finding by the Magistrate accords with the evidence given by Mr Henderson as to how the job came to an end.
29    Mr Henderson gave evidence that the job was almost completed and they were awaiting access to the area to complete the balcony works. These works required materials to be available; namely Villaboard, P50 and controlled joints. The respondent was not able to obtain the necessary materials and Mr Henderson gave evidence that Mr Samaras had agreed to supply the materials from that which hade been left over by Ceilings 2000, and that Built Projects through Mr Westmoreland would then provide the labour. Mr Moreland turned up on two occasions to complete the balconies but the materials did not arrive. Mr Westmoreland and Mr Henderson tried to contact Mr Samaras on a number of occasions. There was no return phone call, and as a result, the work was not done.
30    Mr Samaras in his evidence did not deny the attempts to contact him. In essence his argument was that Built Projects were required to supply the materials, not him, and as Built Projects had not continued the work it was in breach of contract. Therefore, it was argued, Kyren is entitled to a set off for money spent in engaging a third party to finish the three components. I note at this point that counsel for Kyren endeavoured to cross examine Mr Henderson and introduce evidence on matters which the Magistrate regarded as being outside the scope of the pleadings before him. This evidence related to apparent dissatisfaction that Mr Samaras had in relation to the performance of the work by Built Projects. I will refer later to this material.
31    In the net result, there was in my view no evidence supporting the appellant’s contention that it should be inferred on the evidence that the respondent was in breach of the contract by failing to continue the work.
32    I consider that that there was an appropriate basis for the Magistrate to make the finding that it was not Built Projects that abandoned the project. I also agree with counsel for the respondent that, in any event, an argument as to whose fault it was that the contract did not proceed is immaterial, as there was no allegation in the appellant’s defence or in a counter claim that the respondent was in breach of contract.

Appeal Ground 4 –Monies paid for completion of work

33    Ground four argues that the Magistrate erred in fact in failing to find and/or draw an inference on the evidence before him that the appellant had paid monies to a third party, Ceilings 2000, to complete the work that Built Projects did not complete. The Magistrate found at [26]:

The sum that is now being sought to be set off by the defendant has never been charged by the plaintiff to the defendant nor has it ever been paid by the defendant. The latter proposition is very important. What I find outstanding in the hearing of this matter is that I heard no evidence to show what the defendant had paid to Ceilings 2000, the contractor which the defendant maintained completed the job abandoned by the plaintiff. On this account, Samaras’s evidence was wholly unsatisfactory. At the best his figures were ‘guesstimates’ and not proof. I find it hard to believe that with due attention from an accountant that evidence was not able to be dug up and put into presentable form so that it was cogent and referrable to original materials (e.g. invoices raised by Ceilings 2000 and its related sub-contractors) to show precisely what was paid by the defendant on account of the works that the defendant alleged were abandoned by the plaintiff.

34    This argument is directed to the issue of whether the appellant was entitled to a “credit” or set off for an amount of $20,264.50 alleged to have been paid by it to Ceilings 2000 for the completion of the work.
35    Essentially the appellant’s argument was that Mr Samaras had given evidence that he had paid the sum of $20,264.50 and there was no reason to regard his evidence as unsatisfactory or lacking in weight simply because no individual invoices were produced. It was argued that Mr Samaras was not cross-examined on the absence of the invoices.[4] Further it was submitted that there was no adverse finding as to Mr Samaras’ credibility and therefore there was no reason to reject his oral evidence that Ceilings 2000 did the work and was paid for it.
36    Whilst counsel for the appellant was prepared to accept that the Magistrate’s finding in [26] above could be interpreted as a credit finding, and referred to the case of Fox v Percy,[5] it was contended that on an appeal from a Magistrate, the appellate court was entitled to draw its own inferences from the evidence.[6] Counsel for the appellant also argued that there was no reason why such an adverse credit finding should have been made in any event and that the Magistrate should not have drawn an inference such as that in Jones v Dunkel,[7] so that the failure to adduce the invoices could be used to infer that the amount was never paid.
37    Upon reviewing the evidence of Mr Samaras, it is my view that his evidence was unsatisfactory, as found by the Magistrate. First, Mr Samaras gave evidence that the amount paid to Ceilings 2000 was a sum of “$20,264” and then later, indicated that it was “a rough estimate…around $23,000 – give or take”. This evidence in itself was highly unsatisfactory. I do not accept the explanation given by counsel for the appellant that Mr Samaras gave the figure of $20,264 because he was simply concurring with his counsel’s question in examination in chief as to whether the amount was that which is set out in the Defence, and then later when Mr Samaras gave his own evidence, indicated that it was in fact a higher figure. The Magistrate was correct in also finding it unsatisfactory that there were no invoices given in evidence to prove that Ceilings 2000 was paid any particular amount at all. It was not simply the application of the rule in Jones v Dunkel. The mere fact that the work was done by another is insufficient, in my view, to give rise to the specific amount claimed as being a credit or set-off.
38    However, there is a more fundamental argument; namely, that in any event there could never be a set-off of any amount unless it was proved that the appellant had to pay more as a consequence of the respondent not performing the work than if the respondent had performed the work pursuant to their contract. There was no such evidence of more having been paid than would otherwise have been paid under the contract with the respondent. The respondent had not charged for the balance of the work; it only charged for what it had done. Therefore no set-off applied and I agree with counsel for the respondent’s argument, that if such a credit was given, the appellant would in effect be paying some $20,000 less than it should pay for the overall job and not paying for the benefit it received for the work performed by the respondent.

Appeal Grounds 6 and 7 – Leave to file Amended Defence

39    In Grounds 6 and 7, the appellant argues that the Magistrate erred in refusing to grant the appellant leave at the commencement of the trial to file an Amended Defence. An affidavit of Mr Manos sworn on 26 April 2006, save for some minor amendments, was accepted by counsel for the respondent as accurately recording the circumstances surrounding the application to file the Amended Defence before the Magistrate. The proposed amendments were exhibited to the affidavit of Mr Manos. Having considered principles of case flow management, the Magistrate appears to have refused the Amended Defence on the basis that to allow it would require an adjournment and that the parties ought to get on with the claim.
40    I consider that there was good reason for the Magistrate to have exercised his discretion to refuse the Amended Defence. It is true that the Amended Defence incorporated aspects that were already in the Defence filed by the appellants. However, it also raised a brand new cause of action in relation to another level of the building, namely level five, for which there were additional claims that were not part of the original Defence. These were purportedly being raised as a set-off, and it was claimed that the work was not done in a workmanlike fashion or within appropriate time limits, and that there was an element of over-charging. In my view, this involves different considerations and the submissions made by counsel for the respondent as to the sort of matters that it might reasonably raise are, in fact, correct. I consider an amendment of this scope would have required an adjournment and, in any event, the pleading was flawed and failed to plead with enough particularity the details of the “level five work”. Further, the Amended Defence gave no indication or particularisation as to the amount of any set-off. It is not known what the quantum of damages being sought was, nor what comprised the alleged damages, and indeed whether it exceeded the amount sought by the respondent in its claim for payment.
41    I reject counsel for the appellant’s submission that the principle of issue estoppel or Anshun estoppel as in Port of Melbourne Authority v Anshun Pty Ltd (No 2)[8] applies. The principle of Anshun estoppel in the appellant’s argument would apply to prevent the appellant from subsequently pleading a breach of contract action because that cause of action could have reasonably been raised and relied upon in the earlier proceeding.[9] In my view, there is no reasonably available ground to argue that as a consequence of the Magistrate refusing to grant the amendment, the appellant would be prevented from making a separate application to argue that there was a breach of contract if he so chose.
42    Finally on this point, such additional pleading would also suffer the same problem as the current pleading in relation to set off, given that Built Projects charged only for work which it had done and any payment for additional work done by third parties cannot of itself be the subject of a set-off for reasons previously discussed.
43    I now turn to the refusal by the Magistrate to permit counsel to cross-examine on the issues raised by the proposed Amended Defence. It follows from my rejection of the appellant’s argument challenging the refusal of the Magistrate to grant the filing of a proposed Amended Defence, that the Magistrate was correct in disallowing cross-examination which concerned the scope of a defence not before him. For these reasons I therefore reject these grounds of appeal.

Appeal Ground 8 – Uplift order

44    The final ground, argued as an alternative if the appellant is otherwise unsuccessful, is set out in Ground 8 of the Notice of Appeal. This ground alleges that the Magistrate erred in fact and in law in ordering that there be an uplift order pursuant to r 53 of the Magistrates Court (Civil) Rules 1992. Rule 53 relevantly provides:

53. (1) This Rule applies to an action (other than a minor civil action) in which a party obtains a final judgment (other than by consent) for a sum of money being 200%, or more than 200%, the amount contained in –
(a) an offer to consent to judgment filed in the Court;
or
(b) a payment of a sum of money to the Registrar
made before or at either –
(c) the expiration of 21 days from the date of issue of a notice of trial;
or
(d) the date of a conciliation conference
whichever is earlier (“the operative date”).
(2) The costs to which a party is finally entitled will, unless at the time of giving judgment the Court orders otherwise, be calculated in accordance with the formula –
CE = 2 x C x (SJ – FO)
SJ
where CE is the costs to which the party is finally entitled, provided that CE does not exceed the actual costs of the party on a solicitor’s own cost basis –
C is the costs of the party (as agreed or taxed)
SJ is the sum of money awarded by the judgment (exclusive of costs and interest)
and FO is the amount contained in –
(a) the offer;
or
(b) the payment
and where in any case no offer or payment is filed or made then, for the purposes of this Rule, FO will be zero.

45    Having read the terms of r 53, I can see that it appropriately applies where there is no offer made. The argument put forward by the appellant was that r 53 should not apply because there was no proper basis upon which the appellant could reasonably offer any payment into court before judgment. I disagree with that argument. It was clearly available at any time for the appellant to file a risks offer if it chose. At the very least it would have minimised the amount of the costs, even if overall the appellant had lost. This is a matter of appropriate commerciality and there is no basis for suggesting that the mere fact that this was a commercial arrangement rendered that rule to be inapplicable. The clear import of r 53 is to encourage overall settlement of cases and compromises often lead to settlement.

Conclusion

46    For these reasons, I consider that the appeal should be dismissed.

[1] Caruso v Iarossi [2003] SASC 177, [22]; Taylor v Hayes (1990) 53 SASR 282, 291.

[2] JW Carter & DJ Harland Contract Law in Australia (4th ed, 2002) [206] and [606]-[607]. See also Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 61-62.
[3] JW Carter & DJ Harland, Contract Law in Australia, (4th ed, 2002) 235.
[4] See Paric v John Holland Constructions Pty Limited [1984] 2 NSWLR 505 at 507.
[5] (2003) 214 CLR 118.
[6] (2003) 214 CLR 118, 127-128
[7] (1959) 101 CLR 298.
[8] (1981) 147 CLR 589.
[9] Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589.