Does the Domestic Building Contracts Act provide a new way for builders to obtain variation costs and an extension of time? – Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2022] VSCA 209

14 December 2022

The main purpose of the Domestic Building Contracts Act 1995 (Vic) (DBCA) is to regulate contracts for the carrying out of domestic building work.

In the recent decision of Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2022] VSCA 209, the Supreme Court of Victoria Court of Appeal (VCA) clarified that a builder may still be entitled to variation costs and an extension of time under the DBCA even if notice requirements are not complied with. This may occur in circumstances where a builder will experience ‘a significant or exceptional hardship’ in the nature of financial hardship if the cost of variation works performed remains unpaid by the Owner.

What happened?

Jolin Nominees Pty Ltd (Owner) engaged Daniel Investments (Aust) Pty Ltd (Builder) under an HIA Victorian New Homes Contract (Contract) dated 1 March 2015, to demolish a house and construct six townhouses on a site in Nicholson Street, Coburg (Works).1 In June 2015, the parties agreed to extend the date for practical completion until 7 June 2015 and amend the liquidated damages rate to $650 per week per townhouse.2 The Works reached completion on 20 March 2017.

The Owner requested numerous variations to the Works throughout the construction period (Variations), however, neither the Owner, nor the Builder provided such requests or responses, in writing by way of a formal notice in accordance with section 38 of the DBCA. Nevertheless, the Variations were carried out by the Builder.3

A ‘domestic building dispute’ within the meaning of the DBCA arose between the parties following completion of the Works. The Builder claimed $147,800 for amounts outstanding under the contract and Variation costs, and the Owner claimed liquidated damages for late completion of the Works in the amount of $159,000 (49 weeks delay).4

At first instance, VCAT found that the Builder was entitled to compensation despite its failure to comply with the DBCA’s notice requirements.

The matter was appealed to first the Supreme Court and then to the VCA on questions of law.

What did the Victorian Court of Appeal say?

The substantive issues for the VCA were questions of law, related to the following:

  1. the proper construction of section 38(6)(b) of the DBCA and what constitutes “significant or exceptional hardship”;
  2. the proper construction of section 39(c) of the DBCA relating to the effect of a variation on time; and
  3. the operation of clause 34 of the Contract concerning extension of time.

The Builder succeeded in arguing that it was entitled to recover money in respect of the Variations and an extension to the date for practical completion, despite not having complied with the notice provisions in the Contract, or section 38 of the DBCA. Accordingly, the Owner’s appeal was dismissed by the VCA.5

The legislative context

The context for this decision lies in section 38 of the DBCA which prescribes the parties’ obligations to provide notice of any variation, information in relation to that variation, and agree in writing to any variation.

Section 38(6)(a) prohibits a builder from recovering any variation costs where the variation is requested by a building owner, unless the builder has complied with section 38 prior to the commencement of the variation works. As an exception, section 38(6)(b) provides that VCAT may allow recovery of variation costs, despite the operation of section 38(6)(a), where it is satisfied that the builder ‘would suffer a significant or exceptional hardship’ by the operation of section 38(6)(a).

Section 39(c) is relevant to determining whether an extension of time to the completion date of a project can be granted in such circumstances where the contract is varied under section 37 or 38 of the DBCA.

“Significant or exceptional hardship” under section 38(6)(b)

The Owner contended that the reference to ‘hardship’ in section 38(6)(b) was limited to any hardship which precluded the Builder from compliance with the notice requirements in section 38, and should not involve any broader analysis. Specifically, it was submitted that ‘hardship’ should not relate to financial hardship as a consequence of the Builder’s inability to recover money in respect of a Variation.

On the other hand, the Builder contended that the DBCA did not require such a narrow construction, as section 38(6)(b) does not expressly link hardship to the notice requirement in section 38(3) or section 38 more generally (as section 38(6)(a) does).

The VCA agreed with both VCAT and the judge at first instance, and determined that Parliament had deliberately provided some limited protection to builders in circumstances where the prohibition on recovery would result in ‘significant or exceptional hardship’ to a builder, which could include financial hardship, provided it would not be unfair to the owner for the builder to recover payment and, accordingly, found in favour of the Builder on this basis.

An extension of time under section 39(c)

Having decided the issue with respect to section 38(6)(b), the VCA turned its mind to whether this amounted to a variation in accordance with section 38, to enliven the operation of section 39(c) and provide the Builder with an extension of time.

The Owner contended that subclause 38(6)(b) merely allowed the Builder to recover costs, but did not have the effect of requiring or authorising a variation, or in the alternative, that the words ‘varied in accordance with section 38’ means section 39(c) only applies if the Builder has complied with the section 38 notice requirements.6

The Builder contended section 38(6)(b) operates where there has been a variation, and in such a case the variation is properly to be regarded as in accordance with section 38, and argued that if Parliament wished to do so, it could have applied a strict requirement that section 39 be subject to compliance with the requirements of section 38.

The VCA held that where section 38(6)(b) is engaged there will, ‘as a matter of fact’, have been a variation. The basis for this being that a builder is only entitled to seek cost recovery under section 38(6) in respect of an owner-initiated variation which the builder carried out. They further stated that the reference to section 38 in section 38(6)(b) should be interpreted to mean ‘consistent with’ rather than ‘in compliance with’ as, if Parliament had intended strict compliance with section 38, such language would have been adopted.

Considering the alternative, the VCA held that it would be anomalous where a builder is entitled to recover the cost of a variation, is not entitled to an extension of time to the date for completion, and is subsequently subjected to a claim for liquidated damages. The VCA suggested this would be an unjust outcome, not intended by Parliament, and held that the Builder was entitled to an extension of time to reflect the time taken to undertake the variations.

Relevantly, the VCA also suggested that the opening words of section 39 – ‘unless the contrary intention appears’ – indicates that section 39 may be capable of being excluded or modified (though this was argument was not made by the parties and the VCA did not provide any concluded view on this issue).

Did the contractual extensions of time clauses prevent an extension of time under section 39(c)?

The Owner contended that if section 39(c) is enlivened, it is also necessary to satisfy clause 34 of the Contract requiring the Builder to give the Owner notice of an extension of time. The VCA held that non-compliance with clause 34 does not affect the operation of section 39(c), which provides an automatic extension of time.7

This article was written by Leighton Moon, Partner, Julie Charles, Special Counsel and Thomas Appleby, Solicitor.

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