From little things big disputes can grow

Sometimes, unfortunately, it does not take much for issues with a client to escalate into being a costly building dispute. However, it also often does not take much to avoid the dispute happening in the first place. This is an example of both.

The dispute and the decision

In December 2016, the New South Wales Court of Appeal handed down a decision (Krahe v Manfate Pty Ltd (t/as Tom Murphy Builder) in relation to a building dispute between an owner and a builder concerning the construction of a residential dwelling at Tenterfield.

The parties had had a previous working relationship, with the builder having undertaken work for the owner on various tasks from 1997 to 2003, apparently with no dramas. These previous dealings had been undertaken on an informal and flexible basis.

For this project, the parties had entered into a written contract for the construction; however, as the Court noted, neither party did what they were required to do under the written contract.

The question for the Court then was if the parties had not followed the original contract, what was it that the parties had in fact orally agreed that the builder would be paid?

The actual costs incurred by the builder in relation to the job totalled some $203,000 and the unpaid amount claimed by the builder was in the order of $92,000. The owner disputed that those monies were payable.

Both parties wanted the Court to take into account their previous dealings on the basis that each argued there was a distinct pattern to their earlier dealings which, in effect, amounted to a practice. The builder wanted the Court to believe that all work it performed previously for the owner was on a “do and charge” basis. The owner wanted the Court to believe that they had always insisted on fixed price contracts.

The owner argued that the builder had offered to undertake the work for a fixed price of $100,000. However, at the time of these discussions between the parties, the Tenterfield Shire Council had not given building approval for the proposed work and the Court noted the Council might well impose conditions of approval that would have an impact on the extent of work required to be done. In those circumstances, the Court considered that it was implausible that an experienced Master Builder (of over 35 years’ experience) would give a fixed price quote to the owner.

There were other variables affecting the scope of works to be done by the builder which the Court considered reduced the likelihood that the builder would have agreed to a fixed price. For example, materials such as what sort of brick or blocks to be used had not been determined or agreed. There was also an arrangement reached between the parties in relation to the job that the owner would carry out as much work themselves as he could.

The primary Judge did also consider that it was unlikely that the owner would have proceeded with the construction work unless he had some idea of its cost. However, ultimately the primary Judge considered that, in the circumstances, the $100,000 figure put forward by the builder during the discussions only constituted an estimate of the cost of the works, and was not a fixed, binding price.

Ultimately, the primary Judge concluded that the builder’s version as to what was agreed was more plausible than the owner’s version.

Outcome

Ultimately, the builder was successful in obtaining judgement against the owner for the money outstanding together with interest and costs. But it was a costly exercise.

The builder was fortunate that the particular external circumstances made his version more plausible than the owner’s. It was a fight that the builder could have easily lost.

Take home lesson

The dispute between the owner and the builder:

1. cost the builder a great deal of time and money in pursuing the claim in the New South Wales District Court and then subsequently on appeal in the New South Wales Court of Appeal;
2. no doubt destroyed the long-standing relationship between the owner and the builder.

This all could have been avoided had the builder sent a short, simple email to the owner at the time of their discussions confirming what they had actually discussed and agreed. This would have taken little time, and would have cost the builder nothing.

Taking a few minutes, at critical times, to confirm in writing verbal discussions and important changes to arrangements can ultimately save you thousands of dollars in time and costs and ensure that you are on the same page as your client. Whilst this may just seem a matter of common-sense, it is amazing how many similar disputes come before the Courts each year.

As they say, an ounce of prevention is worth a pound of cure.